Corpo Set 1
1. Good Earth Emporuim vs. CA
G.R. No. 82797 February 27, 1991
GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,
vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.
A.E. Dacanay for petitioners.
Antonio Quintos Law Office for private respondent.
PARAS, J.:
This is a petition for review on certiorari of the December 29, 1987 decision * of the
Court of Appeals in CA-G.R. No. 11960 entitled "ROCES-REYES REALTY, INC. vs.
HONORABLE JUDGE REGIONAL TRIAL COURT OF MANILA, BRANCH 44, GOOD EARTH
EMPORIUM, INC. and LIM KA PING" reversing the decision of respondent Judge ** of
the Regional Trial Court of Manila, Branch 44 in Civil Case No. 85-30484, which
reversed the resolution of the Metropolitan Trial Court Of Manila, Branch 28 in Civil
Case No. 09639, *** denying herein petitioners' motion to quash the alias writ of
execution issued against them.
As gathered from the records, the antecedent facts of this case, are as follows:
A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-
REYES REALTY, INC., as lessor, and GOOD EARTH EMPORIUM, INC., as lessee, for a
term of three years beginning November 1, 1981 and ending October 31, 1984 at a
monthly rental of P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The building which
was the subject of the contract of lease is a five-storey building located at the corner
of Rizal Avenue and Bustos Street in Sta. Cruz, Manila.
From March 1983, up to the time the complaint was filed, the lessee had defaulted
in the payment of rentals, as a consequence of which, private respondent ROCES-
REYES REALTY, INC., (hereinafter designated as ROCES for brevity) filed on October
14, 1984, an ejectment case (Unlawful Detainer) against herein petitioners, GOOD
EARTH EMPORIUM, INC. and LIM KA PING, hereinafter designated as GEE, (Rollo, p.
21; Annex "B" of the Petition). After the latter had tendered their responsive
pleading, the lower court (MTC, Manila) on motion of Roces rendered judgment on
the pleadings dated April 17, 1984, the dispositive portion of which states:
Judgment is hereby rendered ordering defendants (herein petitioners) and
all persons claiming title under him to vacate the premises and surrender
the same to the plaintiffs (herein respondents); ordering the defendants to
pay the plaintiffs the rental of P65,000.00 a month beginning March 1983
up to the time defendants actually vacate the premises and deliver
possession to the plaintiff; to pay attorney's fees in the amount of P5,000.00
and to pay the costs of this suit. (Rollo, p. 111; Memorandum of
Respondents)
On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on
May 28, 1984 simultaneous with the latter's filing of a Notice of Appeal (Rollo, p.
112, Ibid.). On June 13, 1984, the trial court resolved such motion ruling:
After considering the motion for the issuance of a writ of execution filed by
counsel for the plaintiff (herein respondents) and the opposition filed in
relation thereto and finding that the defendant failed to file the necessary
supersedeas bond, this court resolved to grant the same for being
meritorious. (Rollo, p. 112)
On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the
appeal was assigned to the Regional Trial Court (Manila) Branch XLVI. However, on
August 15, 1984, GEE thru counsel filed with the Regional Trial Court of Manila, a
motion to withdraw appeal citing as reason that they are satisfied with the decision
of the Metropolitan Trial Court of Manila, Branch XXVIII, which said court granted in
its Order of August 27, 1984 and the records were remanded to the trial court (Rollo,
p. 32; CA Decision). Upon an ex-parte Motion of ROCES, the trial court issued
an Alias Writ of Execution dated February 25, 1985 (Rollo, p. 104; Annex "D" of
Petitioner's Memorandum), which was implemented on February 27, 1985. GEE thru
counsel filed a motion to quash the writ of execution and notice of levy and an
urgent Ex-parte Supplemental Motion for the issuance of a restraining order, on
March 7, and 20, 1985, respectively. On March 21, 1985, the lower court issued a
restraining order to the sheriff to hold the execution of the judgment pending hearing
on the motion to quash the writ of execution (Rollo, p. 22; RTC Decision). While said
motion was pending resolution, GEE filed a Petition for Relief from judgment before
another court, Regional Trial Court of Manila, Branch IX, which petition was docketed
as Civil Case No. 80-30019, but the petition was dismissed and the injunctive writ
issued in connection therewith set aside. Both parties appealed to the Court of
Appeals; GEE on the order of dismissal and Roces on denial of his motion for
indemnity, both docketed as CA-G.R. No. 15873-CV. Going back to the original case,
the Metropolitan Trial Court after hearing and disposing some other incidents,
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Corpo Set 1
promulgated the questioned Resolution, dated April 8, 1985, the dispositive portion
of which reads as follows:
Premises considered, the motion to quash the writ is hereby denied for lack
of merit.
The restraining orders issued on March 11 and 23, 1985 are hereby recalled,
lifted and set aside. (Rollo, p. 20, MTC Decision)
GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX.
Roces moved to dismiss the appeal but the Court denied the motion. On certiorari,
the Court of Appeals dismissed Roces' petition and remanded the case to the RTC.
Meantime, Branch IX became vacant and the case was re-raffled to Branch XLIV.
On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1
million evidenced by Exhibit "I" and another P1 million evidenced by the pacto de
retro sale instrument (Exhibit "2") were in full satisfaction of the judgment obligation,
reversed the decision of the Municipal Trial Court, the dispositive portion of which
reads:
Premises considered, judgment is hereby rendered reversing the Resolution
appealed from quashing the writ of execution and ordering the cancellation
of the notice of levy and declaring the judgment debt as having been fully
paid and/or Liquidated. (Rollo, p. 29).
On further appeal, the Court of Appeals reversed the decision of the Regional Trial
Court and reinstated the Resolution of the Metropolitan Trial Court of Manila, the
dispositive portion of which is as follows:
WHEREFORE, the judgment appealed from is hereby REVERSED and the
Resolution dated April 8, 1985, of the Metropolitan Trial Court of Manila
Branch XXXIII is hereby REINSTATED. No pronouncement as to costs. (Rollo,
p. 40).
GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence,
this petition.
The main issue in this case is whether or not there was full satisfaction of the
judgment debt in favor of respondent corporation which would justify the quashing
of the Writ of Execution.
A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in
any of said exhibits was there any writing alluding to or referring to any settlement
between the parties of petitioners' judgment obligation (Rollo, pp. 45-48).
Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment,
full or partial, of the judgment obligation. Likewise, there is no indication in the pacto
de retro sale which was drawn in favor of Jesus Marcos Roces and Marcos V. Roces
and not the respondent corporation, that the obligation embodied therein had
something to do with petitioners' judgment obligation with respondent corporation.
Finding that the common exhibit, Exhibit 1/A had been signed by persons other than
judgment creditors (Roces-Reyes Realty, Inc.) coupled with the fact that said exhibit
was not even alleged by GEE and Lim Ka Ping in their original motion to quash
the alias writ of execution (Rollo, p. 37) but produced only during the hearing (Ibid.)
which production resulted in petitioners having to claim belatedly that there was an
"overpayment" of about half a million pesos (Rollo, pp. 25-27) and remarking on the
utter absence of any writing in Exhibits "1/A" and "2/B" to indicate payment of the
judgment debt, respondent Appellate Court correctly concluded that there was in
fact no payment of the judgment debt. As aptly observed by the said court:
What immediately catches one's attention is the total absence of any writing
alluding to or referring to any settlement between the parties of private
respondents' (petitioners') judgment obligation. In moving for the dismissal
of the appeal Lim Ka Ping who was then assisted by counsel simply stated
that defendants (herein petitioners) are satisfied with the decision of the
Metropolitan Trial Court (Records of CA, p. 54).
Notably, in private respondents' (petitioners') Motion to Quash the Writ of
Execution and Notice of Levy dated March 7, 1985, there is absolutely no
reference to the alleged payment of one million pesos as evidenced by
Exhibit 1 dated September 20, 1984. As pointed out by petitioner
(respondent corporation) this was brought out by Linda Panutat, Manager
of Good Earth only in the course of the latter's testimony. (Rollo, p. 37)
Article 1240 of the Civil Code of the Philippines provides that:
Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive
it.
2
Corpo Set 1
In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc.
or to its successor in interest nor is there positive evidence that the payment was
made to a person authorized to receive it. No such proof was submitted but merely
inferred by the Regional Trial Court (Rollo, p. 25) from Marcos Roces having signed
the Lease Contract as President which was witnessed by Jesus Marcos Roces. The
latter, however, was no longer President or even an officer of Roces-Reyes Realty,
Inc. at the time he received the money (Exhibit "1") and signed the sale with pacto de
retro (Exhibit "2"). He, in fact, denied being in possession of authority to receive
payment for the respondent corporation nor does the receipt show that he signed in
the same capacity as he did in the Lease Contract at a time when he was President
for respondent corporation (Rollo, p. 20, MTC decision).
On the other hand, Jesus Marcos Roces testified that the amount of P1 million
evidenced by the receipt (Exhibit "1") is the payment for a loan extended by him and
Marcos Roces in favor of Lim Ka Ping. The assertion is home by the receipt itself
whereby they acknowledged payment of the loan in their names and in no other
capacity.
A corporation has a personality distinct and separate from its individual stockholders
or members. Being an officer or stockholder of a corporation does not make one's
property also of the corporation, and vice-versa, for they are separate entities
(Traders Royal Bank v. CA-G.R. No. 78412, September 26, 1989; Cruz v. Dalisay, 152
SCRA 482). Shareowners are in no legal sense the owners of corporate property (or
credits) which is owned by the corporation as a distinct legal person (Concepcion
Magsaysay-Labrador v. CA-G.R. No. 58168, December 19, 1989). As a consequence of
the separate juridical personality of a corporation, the corporate debt or credit is not
the debt or credit of the stockholder, nor is the stockholder's debt or credit that of
the corporation (Prof. Jose Nolledo's "The Corporation Code of the Philippines, p. 5,
1988 Edition, citing Professor Ballantine).
The absence of a note to evidence the loan is explained by Jesus Marcos Roces who
testified that the IOU was subsequently delivered to private respondents (Rollo, pp.
97-98). Contrary to the Regional Trial Court's premise that it was incumbent upon
respondent corporation to prove that the amount was delivered to the Roces
brothers in the payment of the loan in the latter's favor, the delivery of the amount
to and the receipt thereof by the Roces brothers in their names raises the
presumption that the said amount was due to them.1âwphi1 There is a disputable
presumption that money paid by one to the other was due to the latter (Sec. 5(f) Rule
131, Rules of Court). It is for GEE and Lim Ka Ping to prove otherwise. In other words,
it is for the latter to prove that the payments made were for the satisfaction of their
judgment debt and not vice versa.
The fact that at the time payment was made to the two Roces brothers, GEE was also
indebted to respondent corporation for a larger amount, is not supportive of the
Regional Trial Court's conclusions that the payment was in favor of the latter,
especially in the case at bar where the amount was not receipted for by respondent
corporation and there is absolutely no indication in the receipt from which it can be
reasonably inferred, that said payment was in satisfaction of the judgment debt.
Likewise, no such inference can be made from the execution of the pacto de
retro sale which was not made in favor of respondent corporation but in favor of the
two Roces brothers in their individual capacities without any reference to the
judgment obligation in favor of respondent corporation.
In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that
of the sale with pacto de retro(Exhibit "2/B") all in the sum of P2 million, far exceeds
petitioners' judgment obligation in favor of respondent corporation in the sum of
P1,560,000.00 by P440,000.00, which militates against the claim of petitioner that
the aforesaid amount (P2M) was in full payment of the judgment obligation.
Petitioners' explanation that the excess is interest and advance rentals for an
extension of the lease contract (Rollo, pp. 25-28) is belied by the absence of any
interest awarded in the case and of any agreement as to the extension of the lease
nor was there any such pretense in the Motion to Quash the Alias Writ of Execution.
Petitioners' averments that the respondent court had gravely abused its discretion in
arriving at the assailed factual findings as contrary to the evidence and applicable
decisions of this Honorable Court are therefore, patently unfounded. Respondent
court was correct in stating that it "cannot go beyond what appears in the documents
submitted by petitioners themselves (Exhibits "1" and "2") in the absence of clear and
convincing evidence" that would support its claim that the judgment obligation has
indeed been fully satisfied which would warrant the quashal of the Alias Writ of
Execution.
It has been an established rule that when the existence of a debt is fully established
by the evidence (which has been done in this case), the burden of proving that it has
been extinguished by payment devolves upon the debtor who offers such a defense
to the claim of the plaintiff creditor (herein respondent corporation) (Chua Chienco
v. Vargas, 11 Phil. 219; Ramos v. Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30 Phil.
365). For indeed, it is well-entrenched in Our jurisprudence that each party in a case
3
Corpo Set 1

must prove his own affirmative allegations by the degree of evidence required by law
(Stronghold Insurance Co. v. CA, G.R. No. 83376, May 29,1989; Tai Tong Chuache &
Co. v. Insurance Commission, 158 SCRA 366).

The appellate court cannot, therefore, be said to have gravely abused its discretion
in finding lack of convincing and reliable evidence to establish payment of the
judgment obligation as claimed by petitioner. The burden of evidence resting on the
petitioners to establish the facts upon which their action is premised has not been
satisfactorily discharged and therefore, they have to bear the consequences.

PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of the
Respondent court is hereby AFFIRMED, reinstating the April 8, 1985 Resolution of the
Metropolitan Trial Court of Manila.

SO ORDERED.

4
Corpo Set 1
2. Cruz v. Dalisay
Adm. Matter No. R-181-P July 31, 1987
ADELIO C. CRUZ, complainant,
vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila, respondents.
RESOLUTION
FERNAN, J.:
In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged Quiterio L. Dalisay,
Senior Deputy Sheriff of Manila, with "malfeasance in office, corrupt practices and
serious irregularities" allegedly committed as follows:
1. Respondent sheriff attached and/or levied the money belonging to complainant
Cruz when he was not himself the judgment debtor in the final judgment of NLRC
NCR Case No. 8-12389-91 sought to be enforced but rather the company known as
"Qualitrans Limousine Service, Inc.," a duly registered corporation; and,
2. Respondent likewise caused the service of the alias writ of execution upon
complainant who is a resident of Pasay City, despite knowledge that his territorial
jurisdiction covers Manila only and does not extend to Pasay City.
In his Comments, respondent Dalisay explained that when he garnished
complainant's cash deposit at the Philtrust bank, he was merely performing a
ministerial duty. While it is true that said writ was addressed to Qualitrans Limousine
Service, Inc., yet it is also a fact that complainant had executed an affidavit before
the Pasay City assistant fiscal stating that he is the owner/president of said
corporation and, because of that declaration, the counsel for the plaintiff in the labor
case advised him to serve notice of garnishment on the Philtrust bank.
On November 12, 1984, this case was referred to the Executive Judge of the Regional
Trial Court of Manila for investigation, report and recommendation.
Prior to the termination of the proceedings, however, complainant executed an
affidavit of desistance stating that he is no longer interested in prosecuting the case
against respondent Dalisay and that it was just a "misunderstanding" between them.
Upon respondent's motion, the Executive Judge issued an order dated May 29, 1986
recommending the dismissal of the case.
It has been held that the desistance of complainant does not preclude the taking of
disciplinary action against respondent. Neither does it dissuade the Court from
imposing the appropriate corrective sanction. One who holds a public position,
especially an office directly connected with the administration of justice and the
execution of judgments, must at all times be free from the appearance of
impropriety.1
We hold that respondent's actuation in enforcing a judgment against complainant
who is not the judgment debtor in the case calls for disciplinary action. Considering
the ministerial nature of his duty in enforcing writs of execution, what is incumbent
upon him is to ensure that only that portion of a decision ordained or decreed in the
dispositive part should be the subject of execution.2 No more, no less. That the title
of the case specifically names complainant as one of the respondents is of no moment
as execution must conform to that directed in the dispositive portion and not in the
title of the case.
The tenor of the NLRC judgment and the implementing writ is clear enough. It
directed Qualitrans Limousine Service, Inc. to reinstate the discharged employees
and pay them full backwages. Respondent, however, chose to "pierce the veil of
corporate entity" usurping a power belonging to the court and assumed
improvidently that since the complainant is the owner/president of Qualitrans
Limousine Service, Inc., they are one and the same. It is a well-settled doctrine both
in law and in equity that as a legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members. The mere fact that one is
president of a corporation does not render the property he owns or possesses the
property of the corporation, since the president, as individual, and the corporation
are separate entities.3
Anent the charge that respondent exceeded his territorial jurisdiction, suffice it to
say that the writ of execution sought to be implemented was dated July 9, 1984,
or prior to the issuance of Administrative Circular No. 12 which restrains a sheriff
from enforcing a court writ outside his territorial jurisdiction without first notifying
in writing and seeking the assistance of the sheriff of the place where execution shall
take place.
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Corpo Set 1

ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio L. Dalisay NEGLIGENT in

the enforcement of the writ of execution in NLRC Case-No. 8-12389-91, and a fine
equivalent to three [3] months salary is hereby imposed with a stern warning that
the commission of the same or similar offense in the future will merit a heavier
penalty. Let a copy of this Resolution be filed in the personal record of the
respondent.

SO ORDERED.

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Corpo Set 1
3. Bank of America v. CA
G.R. No. 120135 March 31, 2003
BANK OF AMERICA NT & SA, BANK OF AMERICA INTERNATIONAL, LTD., petitioners,
vs.
COURT OF APPEALS, HON. MANUEL PADOLINA, EDUARDO LITONJUA, SR., and
AURELIO K. LITONJUA, JR., respondents.
AUSTRIA-MARTINEZ, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing
the November 29, 1994 decision of the Court of Appeals1 and the April 28, 1995
resolution denying petitioners' motion for reconsideration.
The factual background of the case is as follows:
On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for
brevity) filed a Complaint2 before the Regional Trial Court of Pasig against the Bank
of America NT&SA and Bank of America International, Ltd. (defendant banks for
brevity) alleging that: they were engaged in the shipping business; they owned two
vessels: Don Aurelio and El Champion, through their wholly-owned corporations;
they deposited their revenues from said business together with other funds with the
branches of said banks in the United Kingdom and Hongkong up to 1979; with their
business doing well, the defendant banks induced them to increase the number of
their ships in operation, offering them easy loans to acquire said vessels;3 thereafter,
the defendant banks acquired, through their (Litonjuas') corporations as the
borrowers: (a) El Carrier4; (b) El General5; (c) El Challenger6; and (d) El Conqueror7;
the vessels were registered in the names of their corporations; the operation and the
funds derived therefrom were placed under the complete and exclusive control and
disposition of the petitioners;8 and the possession the vessels was also placed by
defendant banks in the hands of persons selected and designated by them
(defendant banks).9
The Litonjuas claimed that defendant banks as trustees did not fully render an
account of all the income derived from the operation of the vessels as well as of the
proceeds of the subsequent foreclosure sale;10 because of the breach of their
fiduciary duties and/or negligence of the petitioners and/or the persons designated
by them in the operation of private respondents' six vessels, the revenues derived
from the operation of all the vessels declined drastically; the loans acquired for the
purchase of the four additional vessels then matured and remained unpaid,
prompting defendant banks to have all the six vessels, including the two vessels
originally owned by the private respondents, foreclosed and sold at public auction to
answer for the obligations incurred for and in behalf of the operation of the vessels;
they (Litonjuas) lost sizeable amounts of their own personal funds equivalent to ten
percent (10%) of the acquisition cost of the four vessels and were left with the unpaid
balance of their loans with defendant banks.11 The Litonjuas prayed for the
accounting of the revenues derived in the operation of the six vessels and of the
proceeds of the sale thereof at the foreclosure proceedings instituted by petitioners;
damages for breach of trust; exemplary damages and attorney's fees.12
Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and
lack of cause of action against them.13
On December 3, 1993, the trial court issued an Order denying the Motion to Dismiss,
thus:
"WHEREFORE, and in view of the foregoing consideration, the Motion to
Dismiss is hereby DENIED. The defendant is therefore, given a period of ten
(10) days to file its Answer to the complaint.
"SO ORDERED."14
Instead of filing an answer the defendant banks went to the Court of Appeals on a
"Petition for Review on Certiorari"15 which was aptly treated by the appellate court
as a petition for certiorari. They assailed the above-quoted order as well as the
subsequent denial of their Motion for Reconsideration.16 The appellate court
dismissed the petition and denied petitioners' Motion for Reconsideration.17
Hence, herein petition anchored on the following grounds:
"1. RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT
THE SEPARATE PERSONALITIES OF THE PRIVATE RESPONDENTS (MERE
STOCKHOLDERS) AND THE FOREIGN CORPORATIONS (THE REAL
BORROWERS) CLEARLY SUPPORT, BEYOND ANY DOUBT, THE PROPOSITION
THAT THE PRIVATE RESPONDENTS HAVE NO PERSONALITIES TO SUE.
"2. THE RESPONDENT COURT OF APPEALS FAILED TO REALIZE THAT WHILE
THE PRINCIPLE OF FORUM NON CONVENIENS IS NOT MANDATORY, THERE
ARE, HOWEVER, SOME GUIDELINES TO FOLLOW IN DETERMINING
7
Corpo Set 1
WHETHER THE CHOICE OF FORUM SHOULD BE DISTURBED. UNDER THE
CIRCUMSTANCES SURROUNDING THE INSTANT CASE, DISMISSAL OF THE
COMPLAINT ON THE GROUND OF FORUM NON-CONVENIENS IS MORE
APPROPRIATE AND PROPER.
"3. THE PRINCIPLE OF RES JUDICATA IS NOT LIMITED TO FINAL JUDGMENT
IN THE PHILIPPINES. IN FACT, THE PENDENCY OF FOREIGN ACTION MAY BE
THE LEGAL BASIS FOR THE DISMISSAL OF THE COMPLAINT FILED BY THE
PRIVATE RESPONDENT. COROLLARY TO THIS, THE RESPONDENT COURT OF
APPEALS FAILED TO CONSIDER THE FACT THAT PRIVATE RESPONDENTS ARE
GUILTY OF FORUM SHOPPING." 18
As to the first assigned error: Petitioners argue that the borrowers and the registered
owners of the vessels are the foreign corporations and not private respondents
Litonjuas who are mere stockholders; and that the revenues derived from the
operations of all the vessels are deposited in the accounts of the corporations. Hence,
petitioners maintain that these foreign corporations are the legal entities that have
the personalities to sue and not herein private respondents; that private
respondents, being mere shareholders, have no claim on the vessels as owners since
they merely have an inchoate right to whatever may remain upon the dissolution of
the said foreign corporations and after all creditors have been fully paid and
satisfied;19 and that while private respondents may have allegedly spent amounts
equal to 10% of the acquisition costs of the vessels in question, their 10% however
represents their investments as stockholders in the foreign corporations.20
Anent the second assigned error, petitioners posit that while the application of the
principle of forum non conveniens is discretionary on the part of the Court, said
discretion is limited by the guidelines pertaining to the private as well as public
interest factors in determining whether plaintiffs' choice of forum should be
disturbed, as elucidated in Gulf Oil Corp. vs. Gilbert21 and Piper Aircraft Co. vs.
Reyno,22 to wit:
"Private interest factors include: (a) the relative ease of access to sources of
proof; (b) the availability of compulsory process for the attendance of
unwilling witnesses; (c) the cost of obtaining attendance of willing
witnesses; or (d) all other practical problems that make trial of a case easy,
expeditious and inexpensive. Public interest factors include: (a) the
administrative difficulties flowing from court congestion; (b) the local
interest in having localized controversies decided at home; (c) the avoidance
of unnecessary problems in conflict of laws or in the application of foreign
law; or (d) the unfairness of burdening citizens in an unrelated forum with
jury duty."23
In support of their claim that the local court is not the proper forum, petitioners
allege the following:
"i) The Bank of America Branches involved, as clearly mentioned in the
Complaint, are based in Hongkong and England. As such, the evidence and
the witnesses are not readily available in the Philippines;
"ii) The loan transactions were obtained, perfected, performed,
consummated and partially paid outside the Philippines;
"iii) The monies were advanced outside the Philippines. Furthermore, the
mortgaged vessels were part of an offshore fleet, not based in the
Philippines;
"iv) All the loans involved were granted to the Private Respondents'
foreign CORPORATIONS;
"v) The Restructuring Agreements were ALL governed by the laws of
England;
"vi) The subsequent sales of the mortgaged vessels and the application of
the sales proceeds occurred and transpired outside the Philippines, and the
deliveries of the sold mortgaged vessels were likewise made outside the
Philippines;
"vii) The revenues of the vessels and the proceeds of the sales of these
vessels were ALL deposited to the Accounts of the
foreign CORPORATIONS abroad; and
"viii) Bank of America International Ltd. is not licensed nor engaged in trade
or business in the Philippines."24
Petitioners argue further that the loan agreements, security documentation and all
subsequent restructuring agreements uniformly, unconditionally and expressly
provided that they will be governed by the laws of England;25that Philippine Courts
would then have to apply English law in resolving whatever issues may be presented
8
Corpo Set 1
to it in the event it recognizes and accepts herein case; that it would then be imposing
a significant and unnecessary expense and burden not only upon the parties to the
transaction but also to the local court. Petitioners insist that the inconvenience and
difficulty of applying English law with respect to a wholly foreign transaction in a case
pending in the Philippines may be avoided by its dismissal on the ground of forum
non conveniens. 26
Finally, petitioners claim that private respondents have already waived their alleged
causes of action in the case at bar for their refusal to contest the foreign civil cases
earlier filed by the petitioners against them in Hongkong and England, to wit:
"1.) Civil action in England in its High Court of Justice, Queen's Bench Division
Commercial Court (1992-Folio No. 2098) against (a) LIBERIAN TRANSPORT
NAVIGATION. SA.; (b) ESHLEY COMPANIA NAVIERA SA., (c) EL CHALLENGER
SA; (d) ESPRIONA SHIPPING CO. SA; (e) PACIFIC NAVIGATOS CORP. SA; (f)
EDDIE NAVIGATION CORP. SA; (g) EDUARDO K. LITONJUA & (h) AURELIO K.
LITONJUA.
"2.) Civil action in England in its High Court of Justice, Queen's Bench
Division, Commercial Court (1992-Folio No. 2245) against (a) EL
CHALLENGER S.A., (b) ESPRIONA SHIPPING COMPANY S.A., (c) EDUARDO
KATIPUNAN LITONJUA and (d) AURELIO KATIPUNAN LITONJUA.
"3.) Civil action in the Supreme Court of Hongkong High Court (Action No.
4039 of 1992), against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL
CHALLENGER S.A., (c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC
NAVIGATORS CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f)
LITONJUA CHARTERING (EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN
LITONJUA, JR., and (h) EDUARDO KATIPUNAN LITONJUA.
"4.) A civil action in the Supreme Court of Hong Kong High Court (Action No.
4040 of 1992), against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL
CHALLENGER S.A., (c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC
NAVIGATORS CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f)
LITONJUA CHARTERING (EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN
LITONJUA, RJ., and (h) EDUARDO KATIPUNAN LITONJUA."
and that private respondents' alleged cause of action is already barred by the
pendency of another action or by litis pendentia as shown above.27
On the other hand, private respondents contend that certain material facts and
pleadings are omitted and/or misrepresented in the present petition for certiorari;
that the prefatory statement failed to state that part of the security of the foreign
loans were mortgages on a 39-hectare piece of real estate located in the
Philippines;28 that while the complaint was filed only by the stockholders of the
corporate borrowers, the latter are wholly-owned by the private respondents who
are Filipinos and therefore under Philippine laws, aside from the said corporate
borrowers being but their alter-egos, they have interests of their own in the
vessels.29 Private respondents also argue that the dismissal by the Court of Appeals
of the petition for certiorari was justified because there was neither allegation nor
any showing whatsoever by the petitioners that they had no appeal, nor any plain,
speedy, and adequate remedy in the ordinary course of law from the Order of the
trial judge denying their Motion to Dismiss; that the remedy available to the
petitioners after their Motion to Dismiss was denied was to file an Answer to the
complaint;30 that as upheld by the Court of Appeals, the decision of the trial court in
not applying the principle of forum non conveniens is in the lawful exercise of its
discretion.31 Finally, private respondents aver that the statement of petitioners that
the doctrine of res judicata also applies to foreign judgment is merely an opinion
advanced by them and not based on a categorical ruling of this Court;32 and that
herein private respondents did not actually participate in the proceedings in the
foreign courts.33
We deny the petition for lack of merit.
It is a well-settled rule that the order denying the motion to dismiss cannot be the
subject of petition for certiorari. Petitioners should have filed an answer to the
complaint, proceed to trial and await judgment before making an appeal. As
repeatedly held by this Court:
"An order denying a motion to dismiss is interlocutory and cannot be the
subject of the extraordinary petition for certiorari or mandamus. The
remedy of the aggrieved party is to file an answer and to interpose as
defenses the objections raised in his motion to dismiss, proceed to trial, and
in case of an adverse decision, to elevate the entire case by appeal in due
course. xxx Under certain situations, recourse to certiorari or mandamus is
considered appropriate, i.e., (a) when the trial court issued the order
without or in excess of jurisdiction; (b) where there is patent grave abuse of
discretion by the trial court; or (c) appeal would not prove to be a speedy
and adequate remedy as when an appeal would not promptly relieve a
defendant from the injurious effects of the patently mistaken order
9
Corpo Set 1
maintaining the plaintiff's baseless action and compelling the defendant
needlessly to go through a protracted trial and clogging the court dockets by
another futile case."34
Records show that the trial court acted within its jurisdiction when it issued the
assailed Order denying petitioners' motion to dismiss. Does the denial of the motion
to dismiss constitute a patent grave abuse of discretion? Would appeal, under the
circumstances, not prove to be a speedy and adequate remedy? We will resolve said
questions in conjunction with the issues raised by the parties.
First issue. Did the trial court commit grave abuse of discretion in refusing to dismiss
the complaint on the ground that plaintiffs have no cause of action against
defendants since plaintiffs are merely stockholders of the corporations which are the
registered owners of the vessels and the borrowers of petitioners?
No. Petitioners' argument that private respondents, being mere stockholders of the
foreign corporations, have no personalities to sue, and therefore, the complaint
should be dismissed, is untenable. A case is dismissible for lack of personality to sue
upon proof that the plaintiff is not the real party-in-interest. Lack of personality to
sue can be used as a ground for a Motion to Dismiss based on the fact that the
complaint, on the face thereof, evidently states no cause of action.35 In San Lorenzo
Village Association, Inc. vs. Court of Appeals,36 this Court clarified that a complaint
states a cause of action where it contains three essential elements of a cause of
action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or omission of the defendant in violation of said legal right.
If these elements are absent, the complaint becomes vulnerable to a motion to
dismiss on the ground of failure to state a cause of action.37 To emphasize, it is not
the lack or absence of cause of action that is a ground for dismissal of the complaint
but rather the fact that the complaint states no cause of action.38"Failure to state a
cause of action" refers to the insufficiency of allegation in the pleading, unlike "lack
of cause of action" which refers to the insufficiency of factual basis for the action.
"Failure to state a cause of action" may be raised at the earliest stages of an action
through a motion to dismiss the complaint, while "lack of cause of action" may be
raised any time after the questions of fact have been resolved on the basis of
stipulations, admissions or evidence presented.39
In the case at bar, the complaint contains the three elements of a cause of action. It
alleges that: (1) plaintiffs, herein private respondents, have the right to demand for
an accounting from defendants (herein petitioners), as trustees by reason of the
fiduciary relationship that was created between the parties involving the vessels in
question; (2) petitioners have the obligation, as trustees, to render such an
accounting; and (3) petitioners failed to do the same.
Petitioners insist that they do not have any obligation to the private respondents as
they are mere stockholders of the corporation; that the corporate entities have
juridical personalities separate and distinct from those of the private respondents.
Private respondents maintain that the corporations are wholly owned by them and
prior to the incorporation of such entities, they were clients of petitioners which
induced them to acquire loans from said petitioners to invest on the additional ships.
We agree with private respondents. As held in the San Lorenzo case,40
"xxx assuming that the allegation of facts constituting plaintiffs' cause of
action is not as clear and categorical as would otherwise be desired, any
uncertainty thereby arising should be so resolved as to enable a full inquiry
into the merits of the action."
As this Court has explained in the San Lorenzo case, such a course, would preclude
multiplicity of suits which the law abhors, and conduce to the definitive
determination and termination of the dispute. To do otherwise, that is, to abort the
action on account of the alleged fatal flaws of the complaint would obviously be
indecisive and would not end the controversy, since the institution of another action
upon a revised complaint would not be foreclosed.41
Second Issue. Should the complaint be dismissed on the ground of forum non-
conveniens?
No. The doctrine of forum non-conveniens, literally meaning 'the forum is
inconvenient', emerged in private international law to deter the practice of global
forum shopping,42 that is to prevent non-resident litigants from choosing the forum
or place wherein to bring their suit for malicious reasons, such as to secure
procedural advantages, to annoy and harass the defendant, to avoid overcrowded
dockets, or to select a more friendly venue. Under this doctrine, a court, in conflicts
of law cases, may refuse impositions on its jurisdiction where it is not the most
"convenient" or available forum and the parties are not precluded from seeking
remedies elsewhere.43
Whether a suit should be entertained or dismissed on the basis of said doctrine
depends largely upon the facts of the particular case and is addressed to the sound
discretion of the trial court.44 In the case of Communication Materials and Design,
10
Corpo Set 1

Inc. vs. Court of Appeals,45 this Court held that "xxx [a Philippine Court may assume
jurisdiction over the case if it chooses to do so; provided, that the following requisites
are met: (1) that the Philippine Court is one to which the parties may conveniently
resort to; (2) that the Philippine Court is in a position to make an intelligent decision
as to the law and the facts; and, (3) that the Philippine Court has or is likely to have
power to enforce its decision."46 Evidently, all these requisites are present in the
instant case.
Moreover, this Court enunciated in Philsec. Investment Corporation vs. Court of
Appeals,47 that the doctrine of forum non conveniens should not be used as a ground
for a motion to dismiss because Sec. 1, Rule 16 of the Rules of Court does not include
said doctrine as a ground. This Court further ruled that while it is within the discretion
of the trial court to abstain from assuming jurisdiction on this ground, it should do so
only after vital facts are established, to determine whether special circumstances
require the court's desistance; and that the propriety of dismissing a case based on
this principle of forum non conveniens requires a factual determination, hence it is
more properly considered a matter of defense.48
"xxx [T]he petitioners, by simply enumerating the civil actions instituted
abroad involving the parties herein xxx, failed to provide this Court with
relevant and clear specifications that would show the presence of the
above-quoted elements or requisites for res judicata. While it is true that
the petitioners in their motion for reconsideration (CA Rollo, p. 72), after
enumerating the various civil actions instituted abroad, did aver that "Copies
of the foreign judgments are hereto attached and made integral parts
hereof as Annexes 'B', 'C', 'D' and 'E'", they failed, wittingly or inadvertently,
to include a single foreign judgment in their pleadings submitted to this
Court as annexes to their petition. How then could We have been expected
to rule on this issue even if We were to hold that foreign judgments could
be the basis for the application of the aforementioned principle of res
judicata?"53
Consequently, both courts correctly denied the dismissal of herein subject complaint.
WHEREFORE, the petition is DENIED for lack of merit.

Third issue. Are private respondents guilty of forum shopping because of the Costs against petitioners.
pendency of foreign action?
SO ORDERED.
No. Forum shopping exists where the elements of litis pendentia are present and
where a final judgment in one case will amount to res judicata in the
other.49 Parenthetically, for litis pendentia to be a ground for the dismissal of an
action there must be: (a) identity of the parties or at least such as to represent the
same interest in both actions; (b) identity of rights asserted and relief prayed for, the
relief being founded on the same acts; and (c) the identity in the two cases should be
such that the judgment which may be rendered in one would, regardless of which
party is successful, amount to res judicata in the other.50

In case at bar, not all the requirements for litis pendentia are present. While there
may be identity of parties, notwithstanding the presence of other respondents,51 as
well as the reversal in positions of plaintiffs and defendants52, still the other
requirements necessary for litis pendentia were not shown by petitioner. It merely
mentioned that civil cases were filed in Hongkong and England without however
showing the identity of rights asserted and the reliefs sought for as well as the
presence of the elements of res judicata should one of the cases be adjudged.

As the Court of Appeals aptly observed:

11
Corpo Set 1
4. Avon Dale Garments v. CA
G.R. No. 117932 July 20, 1995
AVON DALE GARMENTS, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LILIA DUMANTAY,
AL., respondents.
RESOLUTION
FRANCISCO, J.:
This special civil action for certiorari seeks to set aside the decision of the National
Labor Relations Commission, dated August 31, 1994, in NLRC CA 005068-93, for
allegedly having been rendered with grave abuse of discretion.
Private respondents were employees of petitioner Avon Dale Garments, Inc. and its
predecessor-in-interest, Avon Dale Shirt Factory. Following a dispute brought about
by the rotation of workers, a compromise agreement was entered into between
petitioner and private respondents wherein the latter were terminated from service
and given their corresponding separation pay.
However, upon refusal of the petitioner to include in the computation of private
respondents' separation pay the period during which the latter were employed by
Avon Dale Shirt Factory, private respondents filed a complaint with the labor arbiter
claiming a deficiency in their separation pay (docketed as NLRC-NCR-00-02-00810-
93). According to private respondents, their previous employment with petitioner's
predecessor-in-interest, Avon Dale Shirt Factory, should be credited in computing
their separation pay considering that Avon Dale Shirt factory was not dissolved and
they were not in turn hired as new employees by Avon Dale Garments, Inc.
In its decision dated May 14, 1993, the labor arbiter dismissed private respondents'
complaint and held that Avon Dale Shirt Factory and Avon Dale Garments, Inc. are
not one and the same entity as the former was in fact dissolved on December 27,
1978, when it filed its Articles of Dissolution with the Securities and Exchange
Commission.1
Private respondents appealed to the NLRC and the latter reversed the decision of the
labor arbiter after finding that upon dissolution of Avon Dale Shirt Factory, Inc., there
was no showing that its terminated employees, as creditors insofar as their
separation pay were concerned, were ever paid. Thus, petitioner Avon Dale
Garments, Inc., as successor-in-interest, was held liable for private respondents'
unpaid claim.2
The instant petition is now brought before us by petitioner Avon Dale Garments, Inc.,
ET anchored on the sole ground that, as a separate and distinct entity, it should not be
held liable for private respondents' separation pay from Avon Dale Shirt Factory.
Pending resolution of the instant petition, counsel for private respondents, instead
of filing a comment to the petition, filed a Manifestation indicating that the parties
have already reached an amicable settlement on December 27, 1994, wherein
private respondents were paid their corresponding separation pay, after which, they
executed a waiver and quitclaim.3 It appeared however, upon verification by the
Office of the Solicitor General, that the aforementioned compromise agreement was
executed between the parties without the knowledge and participation of the NLRC.4
The established rule is that compromise agreements involving labor standard cases,
like the one entered into by the parties herein, must be reduced in writing and signed
in the presence of the Regional Director or his duly authorized representative.
Otherwise, they are not deemed to be duly executed.5 For this reason, the
compromise agreement submitted by private respondents' counsel cannot be
recognized by this court for being improperly executed.
Nevertheless, we find the petition to be without merit as the assailed decision is in
complete accord with the law and evidence on record.
Petitioner failed to establish that Avon Dale Garments, Inc., is a separate and distinct
entity from Avon Dale Shirt Factory, absent any showing that there was indeed an
actual closure and cessation of the operations of the latter. The mere filing of the
Articles of Dissolution with the Securities and Exchange Commission, without more,
is not enough to support the conclusion that actual dissolution of an entity in fact
took place.
On the contrary, the prevailing circumstances in this case indicated that petitioner
company is not distinct from its predecessor Avon Dale Shirt Factory, but in fact
merely continued the operations of the latter under the same owners, the same
business venture, at same address6, and even continued to hire the same employees
(herein private respondents).
12
Corpo Set 1

Thus, conformably with established jurisprudence, the two entities cannot be

deemed as separate and distinct where there is a showing that one is merely the
continuation of the other.7 In fact, even a change in the corporate name does not
make a new corporation, whether effected by a special act or under a general law, it
has no effect on the identity of the corporation, or on its property, rights, or
liabilities.8 Respondent NLRC therefore, did not commit any grave abuse of discretion
in holding that petitioner should likewise include private respondents' employment
with Avon Dale Shirt Factory in computing private respondents' separation pay as
petitioner failed to substantiate its claim that it is a distinct entity.

ACCORDINGLY, the instant petition is hereby DISMISSED.

SO ORDERED.

13
Corpo Set 1
5. Concept Builders v. NLRC
[G.R. No. 108734. May 29, 1996]
CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS
COMMISSION, (First Division); and Norberto Marabe, Rodolfo Raquel,
Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar,
Norberto Comendador, Rogello Salut, Emilio Garcia, Jr., Mariano Rio,
Paulina Basea, Aifredo Albera, Paquito Salut, Domingo Guarino, Romeo
Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno
Escares, Ferdinand Torres, Felipe Basilan, and Ruben
Robalos, respondents.
DECISION
HERMOSISIMA, JR., J.:
The corporate mask may be lifted and the corporate veil may be pierced when
a corporation is just but the alter ego of a person or of another corporation. Where
badges of fraud exist; where public convenience is defeated; where a wrong is sought
to be justified thereby, the corporate fiction or the notion of legal entity should come
to naught. The law in these instances will regard the corporation as a mere
association of persons and, in case of two corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporations
subsidiary liability for damages, the corporation may not be heard to say that it has a
personality separate and distinct from the other corporation. The piercing of the
corporate veil comes into play.
This special civil action ostensibly raises the question of whether the National
Labor Relations Commission committed grave abuse of discretion when it issued a
break-open order to the sheriff to be enforced against personal property found in the
premises of petitioners sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with principal office
at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction
business. Private respondents were employed by said company as laborers,
carpenters and riggers.
On November, 1981, private respondents were served individual written
notices of termination of employment by petitioner, effective on November 30,
1981. It was stated in the individual notices that their contracts of employment had
expired and the project in which they were hired had been completed.
Public respondent found it to be, the fact, however, that at the time of the
termination of private respondents employment, the project in which they were
hired had not yet been finished and completed. Petitioner had to engage the services
of sub-contractors whose workers performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair
labor practice and non-payment of their legal holiday pay, overtime pay and
thirteenth-month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment1 ordering
petitioner to reinstate private respondents and to pay them back wages equivalent
to one year or three hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC)
dismissed the motion for reconsideration filed by petitioner on the ground that the
said decision had already become final and executory.2
On October 16, 1986, the NLRC Research and Information Department made
the finding that private respondents backwages amounted to P199,800.00.3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the
sheriff to execute the Decision, dated December 19, 1984. The writ was partially
satisfied through garnishment of sums from petitioners debtor, the Metropolitan
Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was
turned over to the cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter
directing the sheriff to collect from herein petitioner the sum of P117,414.76,
representing the balance of the judgment award, and to reinstate private
respondents to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve the
alias writ of execution on petitioner through the security guard on duty but the
service was refused on the ground that petitioner no longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter
issued a second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as stated in
his progress report, dated November 2, 1989:
1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela,
Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc.
(HPPI) and not by respondent;
14
Corpo Set 1

2. Levy was made upon personal properties he found in the premises; Teodulo R. Dino 100.00

3. Security guards with high-powered guns prevented him from removing the Virgilio O. Casino 100.00
properties he had levied upon.4
2. Board of Directors
The said special sheriff recommended that a break-open order be issued to
enable him to enter petitioners premises so that he could proceed with the public Antonio W. Lim Chairman
auction sale of the aforesaid personal properties on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with Dennis S. Cuyegkeng Member
the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff
were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President. Elisa C. Lim Member

On November 23, 1989, private respondents filed a Motion for Issuance of a

Teodulo R. Dino Member
Break-Open Order, alleging that HPPI and petitioner corporation were owned by the
same incorporator! stockholders. They also alleged that petitioner temporarily
Virgilio O. Casino Member
suspended its business operations in order to evade its legal obligations to them and
that private respondents were willing to post an indemnity bond to answer for any
damages which petitioner and HPPI may suffer because of the issuance of the break- 3. Corporate Officers
open order.
Antonio W. Lim President
In support of their claim against HPPI, private respondents presented duly
certified copies of the General Informations Sheet, dated May 15, 1987, submitted
Dennis S. Cuyegkeng Assistant to the President
by petitioner to the Securities and Exchange Commission (SEC) and the General
Information Sheet, dated May 15, 1987, submitted by HPPI to the Securities and
Elisa 0. Lim Treasurer
Exchange Commission.
The General Information Sheet submitted by the petitioner1 revealed the Virgilio O. Casino Corporate Secretary
following:
4. Principal Office
1. Breakdown of Subscribed Capital
355 Maysan Road
Name of Stockholder Amount Subscribed
Valenzuela, Metro Manila.5
HPPI P6,999,500.00
On the other hand, the General Information Sheet of HPPI revealed the
Antonio W. Lim 2,900,000.00 following:

Dennis S. Cuyegkeng 300.00 1. Breakdown of Subscribed Capital

Elisa C. Lim 100,000.00 Name of Stockholder Amount Subscribed

15
Corpo Set 1

Antonio W. Lim P400,000.00 On February 1, 1990, HPPI filed an Opposition to private respondents motion
for issuance of a break-open order, contending that HPPI is a corporation which is
Elisa C. Lim 57,700.00 separate and distinct from petitioner. HPPI also alleged that the two corporations are
engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while
AWL Trading 455,000.00 petitioner was then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private
Dennis S. Cuyegkeng 40,100.00 respondents motion for break-open order.

Teodulo R. Dino 100.00 Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set
aside the order of the Labor Arbiter, issued a break-open order and directed private
respondents to file a bond. Thereafter, it directed the sheriff to proceed with the
Virgilio O. Casino 100.00
auction sale of the properties already levied upon. It dismissed the third-party claim
for lack of merit.
2. Board of Directors
Petitioner moved for reconsideration but the motion was denied by the NLRC
Antonio W. Lim Chairman in a Resolution, dated December 3, 1992.
Hence, the resort to the present petition.
Elisa C. Lim Member
Petitioner alleges that the NLRC committed grave abuse of discretion when it
Dennis S. Cuyegkeng Member ordered the execution of its decision despite a third-party claim on the levied
property. Petitioner further contends, that the doctrine of piercing the corporate veil
should not have been applied, in this case, in the absence of any showing that it
Virgilio O. Casino Member
created HPPI in order to evade its liability to private respondents. It also contends
that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a
Teodulo R. Dino Member business which is distinct and separate from petitioners construction
business. Hence, it is of no consequence that petitioner and HPPI shared the same
3. Corporate Officers premises, the same President and the same set of officers and subscribers.7

Antonio W. Lim President We find petitioners contention to be unmeritorious.

Dennis S. Cuyegkeng Assistant to the President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila.6
It is a fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders and from other corporations to which it
may be connected.8 But, this separate and distinct personality of a corporation is
merely a fiction created by law for convenience and to promote justice.9 So, when
the notion of separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor
laws,10 this separate personality of the corporation may be disregarded or the veil of
corporate fiction pierced.11 This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation.12
The conditions under which the juridical entity may be disregarded vary
according to the peculiar facts and circumstances of each case. No hard and fast rule
16
Corpo Set 1
can be accurately laid down, but certainly, there are some probative factors of
identity that will justify the application of the doctrine of piercing the corporate veil,
to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.13
The SEC en banc explained the instrumentality rule which the courts have
applied in disregarding the separate juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so
that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the
corporate entity of the instrumentality may be disregarded. The control necessary to
invoke the rule is not majority or even complete stock control but such domination of
finances, policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its principal. It
must be kept in mind that the control must be shown to have been exercised at the
time the acts complained of took place. Moreover, the control and breach of duty
must proximately cause the injury or unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of
corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
The absence of any one of these elements prevents piercing the corporate veil. in
applying the instrumentality or alter ego doctrine, the courts are concerned with
reality and not form, with how the corporation operated and the individual
defendants relationship to that operation. 14
Thus, the question of whether a corporation is a mere alter ego, a mere sheet
or paper corporation, a sham or a subterfuge is purely one of fact.15
In this case, the NLRC noted that, while petitioner claimed that it ceased its
business operations on April 29, 1986, it filed an Information Sheet with the
Securities and Exchange Commission on May 15, 1987, stating that its office address
is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-
party claimant, submitted on the same day, a similar information sheet stating that
its office address is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casino as the corporate
secretary of both corporations. It would also not be amiss to note that both
corporations had the samepresident, the same board of directors,
the same corporate officers, and substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein
petitioner) and the third-party claimant shared the same address and/or premises.
Under this circumstances, (sic) it cannot be said that the property levied upon by the
sheriff were not of respondents.16
Clearly, petitioner ceased its business operations in order to evade the payment
to private respondents of backwages and to bar their reinstatement to their former
positions. HPPI is obviously a business conduit of petitioner corporation and its
emergence was skillfully orchestrated to avoid the financial liability that already
attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial
Relations17 where we had the occasion to rule:
Respondent courts findings that indeed the Claparols Steel and Nail Plant, which
ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel
Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the
latter finally ceased to operate, were not disputed by petitioner. it is very clear that
the latter corporation was a continuation and successor of the first entity x x x. Both
17
Corpo Set 1

predecessors and successor were owned and controlled by petitioner Eduardo

Claparols and there was no break in the succession and continuity of the same
business. This avoiding-the-liability scheme is very patent, considering that 90% of the
subscribed shares of stock of the Claparols Steel Corporation (the second corporation)
was owned by respondent x x x Claparols himself, and all the assets of the dissolved
Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel
Corporation.

It is very obvious that the second corporation seeks the protective shield of a
corporate fiction whose veil in the present case could, and should, be pierced as it
was deliberately and maliciously designed to evade its financial obligation to its
employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the
property subject of the execution, private respondents had no other recourse but to
apply for a break-open order after the third-party claim of HPPI was dismissed for
lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC
Manual of Execution of Judgment which provides that:

Should the losing party, his agent or representative, refuse or prohibit the Sheriff or
his representative entry to the place where the property subject of execution is located
or kept, the judgment creditor may apply to the Commission or Labor Arbiter
concerned for a break-open order.

Furthermore, our perusal of the records shows that the twin requirements of
due notice and hearing were complied with. Petitioner and the third-party claimant
were given the opportunity to submit evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed
the break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of
quasi-judicial agencies supported by substantial evidence are binding on this Court
and are entitled to great respect, in the absence of showing of grave abuse of a
discretion.18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the
NLRC, dated April 23, 1992 and December 3, 1992, are AFFIRMED.
SO ORDERED.

18
Corpo Set 1
6. First Phil. International Bank v. CA
[G.R. No. 115849. January 24, 1996]
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the
Philippines) and MERCURIO RIVERA, petitioners, vs. COURT OF APPEALS,
CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE
JANOLO, respondents.
DECISION
PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by bank
officers in an exchange of letters and/or in a meeting with the buyers constitute a
perfected and enforceable contract of sale over 101 hectares of land in Sta. Rosa,
Laguna? Does the doctrine of apparent authority apply in this case? If so, may the
Central Bank-appointed conservator of Producers Bank (now First Philippine
International Bank) repudiate such apparent authority after said contract has been
deemed perfected? During the pendency of a suit for specific performance, does the
filing of a derivative suit by the majority shareholders and directors of the distressed
bank to prevent the enforcement or implementation of the sale violate the ban
against forum-shopping?
Simply stated, these are the major questions brought before this Court in the
instant Petition for review on certiorari under Rule 45 of the Rules of Court, to set
aside the Decision promulgated January 14, 1994 of the respondent Court of
Appeals[1] in CA-G.R. CV No. 35756 and the Resolution promulgated June 14,
1994 denying the motion for reconsideration. The dispositive portion of the said
Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the
damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the
reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed against
defendant bank. In all other aspects, said decision is hereby AFFIRMED.
All references to the original plaintiffs in the decision and its dispositive portion are
deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos C.
Ejercito.
Costs against appellant bank.
The dispositive portion of the trial courts[2] decision dated July 10, 1991, on the
other hand, is as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiffs and against the defendants as follows:
1. Declaring the existence of a perfected contract to buy and sell over the six (6)
parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares,
more or less, covered by and embraced in Transfer Certificates of Title Nos. T-106932
to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs as
buyers and the defendant Producers Bank for an agreed price of Five and One Half
Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision
and receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said
plaintiffs a deed of absolute sale over the aforementioned six (6) parcels of land, and
to immediately deliver to the plaintiffs the owners copies of T.C.T. Nos. T-106932 to
T-106937, inclusive, for purposes of registration of the same deed and transfer of the
six (6) titles in the names of the plaintiffs;
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and
Demetrio Demetria the sums of P 200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P
100,000.00 as exemplary damages;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorneys fees;
6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and
moderate damages in the amount of P20,000.00;
With costs against the defendants.
After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply
to sur-rejoinder, the petition was given due course in a Resolution dated January 18,
1995. Thence, the parties filed their respective memoranda and reply memoranda.
The First Division transferred this case to the Third Division per resolution
dated October 23, 1995. After carefully deliberating on the aforesaid submissions,
19
Corpo Set 1

the Court assigned the case to the undersigned ponente for the writing of this Rivera, made a formal purchase offer to the bank through a letter dated August 30,
Decision. 1987 (Exh. B), as follows:

August 30, 1987

The Parties
The Producers Bank of the Philippines
Makati, Metro Manila
Petitioner First Philippine International Bank (formerly Producers Bank of
the Philippines; petitioner Bank, for brevity) is a banking institution organized and Attn. Mr. Mercurio Q. Rivera
existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera Manager, Property Management Dept.
(petitioner Rivera, for brevity) is of legal age and was, at all times material to this
case, Head Manager of the Property Management Department of the petitioner Gentlemen:
Bank.
I have the honor to submit my formal offer to purchase your properties covered by
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and
titles listed hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares,
is the assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo.
more or less.
Respondent Court of Appeals is the court which issued the Decision and
Resolution sought to be set aside through this petition. TCT NO. AREA

T-106932 113,580 sq.m.

The Facts T-106933 70,899 sq.m.
T-106934 52,246 sq.m.
T-106935 96,768 sq.m.
The facts of this case are summarized in the respondent Courts Decision,[3] as T-106936 187,114 sq.m.
follows: T-106937 481,481 sq.m.

(1) In the course of its banking operations, the defendant Producer Bank of the
Philippines acquired six parcels of land with a total area of 101 hectares located at
Don Jose, Sta. Rosa, Laguna, and covered by Transfer Certificates of Title Nos. T-
106932 to T-106937. The property used to be owned by BYME Investment and
Development Corporation which had them mortgaged with the bank as collateral
fora loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to
purchase the property and thus initiated negotiations for that purpose.
My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00)
PESOS, in cash.
Kindly contact me at Telephone Number 921-1344.
(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal
reply by letter which is hereunder quoted (Exh. C):

(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME September 1, 1987
Investments legal counsel, Jose Fajardo, met with defendant Mercurio Rivera,
Manager of the Property Management Department of the defendant bank. The
J-P M-P GUTIERREZ ENTERPRISES
meeting was held pursuant to plaintiffs plan to buy the property (TSN of Jan. 16, 1990,
142 Charisma St., Doa Andres II
pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant
Rosario, Pasig, Metro Manila

20
Corpo Set 1

Attention: JOSE O. JANOLO Dear Sir: Metro Manila

Dear Sir: Attention: Mr. Mercurio Rivera

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Re: 101 Hectares of Land in Sta. Rosa, Laguna
Laguna (formerly owned by Byme industrial Corp.). Please be informed however that
the banks counter-offer is at P5.5 million for more than 101 hectares on lot basis. Gentlemen:

We shall be very glad to hear your position on the matter. Pursuant to our discussion last 28 September 1987, we are pleased to inform you that
we are accepting your offer for us to purchase the property at Sta. Rosa, Laguna,
Best regards. formerly owned by Byme In-vestment, for a total price of PESOS: FIVE MILLION FIVE
HUNDRED THOUSAND (P5,500,000.00).
(4)On September 17, 1987, plaintiff Janolo, responding to Riveras aforequoted reply,
wrote (Exh. Thank you.

September 17, 1987 (6) On October 12, 1987, the conservator of the bank (which has been placed under
conservatorship by the Central Bank since 1984) was replaced by an Acting
Producers Bank Conservator in the person of defendant Leonida T. Encarnacion. On November 4,
Paseo de Roxas 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. F):
Makati, Metro Manila
Attention: Atty. Demetrio Demetria
Attention: Mr. Mercurio Rivera
Dear Sir:
Gentlemen:
Your proposal to buy the properties the bank foreclosed from Byme Investment Corp.
In reply to your letter regarding my proposal to purchase your 101-hectare lot located located at Sta. Rosa, Laguna is under study yet as of this time by the newly created
at Sta. Rosa Laguna, I would like to amend my previous offer and I now propose to committee for submission to the newly designated Acting Conservator of the bank.
buy the said lot at P4.250 million in CASH.
For your information.
Hoping that this proposal meets your satisfaction.
(7) What thereafter transpired was a series of demands by the plaintiffs for
(5) There was no reply to Janolos foregoing letter of September 17, 1987. What took compliance by the bank with what plaintiff considered as a perfected contract of sale,
place was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the which demands were in one form or another refused by the bank. As detailed by the
Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME lawyer, trial court in its decision, on November 17, 1987, plaintiffs through a letter to
attended the meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent defendant Rivera (Exhibit G) tendered payment of the amount of P5.5 million
to the bank, through Rivera, the following letter (Exh. E): pursuant to (our) perfected sale agreement. Defendants refused to receive both the
payment and the letter. Instead, the parcels of land involved in the transaction were
The Producers Bank of the Philippines advertised by the bank for sale to any interested buyer (Exhs. H and H-1). Plaintiffs
Paseo de Roxas, Makati
21
Corpo Set 1
demanded the execution by the bank of the documents on what was considered as
a perfected agreement. Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your
101-hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-
106932 to 106937.
From the documents at hand, it appears that your counter-offer dated September 1,
1987 of this same lot in the amount of P5.5 million was accepted by our client thru a
letter dated September 30, 1987 and was received by you on October 5, 1987.
In view of the above circumstances, we believe that an agreement has been perfected.
We were also informed that despite repeated follow-up to consummate the purchase,
you now refuse to honor your commitment. Instead, you have advertised for sale the
same lot to others.
In behalf of our client, therefore, we are making this formal demand upon you to
consummate and execute the necessary actions/documentation within three (3) days
from your receipt hereof We are ready to remit the agreed amount of P5.5 million at
your advice. Otherwise, we shall be constrained to file the necessary court action to
protect the interest of our client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the
foregoing letter and stated, in its communication of December 2, 1987 (Exh. I), that
said letter has been referred x x x to the office of our Conservator for proper
disposition. However, no response came from the Acting Conservator. On December
14, 1987, the plaintiffs made a second tender of payment (Exhs. L and L-1), this time
through the Acting Conservator, defendant Encarnacion. Plaintiffs letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.: Atty. NIDA ENCARNACION Central Bank Conservator
Gentlemen:
We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO, MBTC
Check No. 258387 in the amount of P5.5 million as our agreed purchase price of the
101-hectare lot covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and
106937 and registered under Producers Bank.
This is in connection with the perfected agreement consequent from your offer of P5.5
Million as the purchase price of the said lots. Please inform us of the date of
documentation of the sale immediately.
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four months. Then, on May
3, 1988, plaintiff, through counsel, made a final demand for compliance by the bank
with its obligations under the considered perfected contract of sale (Exhibit N). As
recounted by the trial court (Original Record, p. 656), in a reply letter dated May 12,
1988 (Annex 4 of defendants answer to amended complaint), the defendants
through Acting Conservator Encarnacion repudiated the authority of defendant
Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer
of P5.5 Million are unauthorized or illegal. On that basis, the defendants justified the
refusal of the tenders of payment and the non-compliance with the obligations under
what the plaintiffs considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages
against the bank, its Manager Rivera and Acting Conservator Encarnacion. The basis
of the suit was that the transaction had with the bank resulted in a perfected contract
of sale. The defendants took the position that there was no such perfected sale
because the defendant Rivera is not authorized to sell the property, and that there
was no meeting of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar
Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that
as owner of 80% of the Banks outstanding shares of stock, he had a substantial
interest in resisting the complaint. On July 8, 1991, the trial court issued an order
22
Corpo Set 1

denying the motion to intervene on the ground that it was filed after trial had already The Court of Appeals erred in declaring that the conservator does not have the power
been concluded. It also denied a motion for reconsideration filed thereafter. From to overrule or revoke acts of previous management.
the trial courts decision, the Bank, petitioner Rivera and conservator Encarnacion
appealed to the Court of Appeals which subsequently affirmed with modification the IV.
said judgment. Henry Co did not appeal the denial of his motion for intervention.
The findings and conclusions of the Court of Appeals do not conform to the evidence
In the course of the proceedings in the respondent Court, Carlos Ejercito was on record.
substituted in place of Demetria and Janolo, in view of the assignment of the latters
rights in the matter in litigation to said private respondent. On the other hand, private respondents prayed for dismissal of the instant suit
On July 11, 1992, during the pendency of the proceedings in the Court of on the ground[8] that:
Appeals, Henry Co and several other stockholders of the Bank, through counsel I.
Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the Second
Case) -purportedly a derivative suit - with the Regional Trial Court of Makati, Branch
Petitioners have engaged in forum shopping.
134, docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo
to declare any perfected sale of the property as unenforceable and to stop Ejercito
II.
from enforcing or implementing the sale.[4] In his answer, Janolo argued that the
Second Case was barred by litis pendentia by virtue of the case then pending in the
Court of Appeals. During the pre-trial conference in the Second Case, plaintiffs filed The factual findings and conclusions of the Court of Appeals are supported by the
a Motion for Leave of Court to Dismiss the Case Without Prejudice. Private evidence on record and may no longer be questioned in this case.
respondent opposed this motion on the ground, among others, that plaintiffs act of
forum shopping justifies the dismissal of both cases, with prejudice.[5] Private III.
respondent, in his memorandum, averred that this motion is still pending in the
Makati RTC. The Court of Appeals correctly held that there was a perfected contract between
Demetria and Janolo (substituted by respondent Ejercito) and the bank.
In their Petition[6] and Memorandum,[7] petitioners summarized their position
as follows:
IV.
I.
The Court of Appeals has correctly held that the conservator, apart from being
The Court of Appeals erred in declaring that a contract of sale was perfected between estopped from repudiating the agency and the contract, has no authority to revoke
Ejercito (in substitution of Demetria and Janolo) and the bank. the contract of sale.

II.
The Issues
The Court of Appeals erred in declaring the existence of an enforceable contract of
sale between the parties.
From the foregoing positions of the parties, the issues in this case may be
III. summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?

23
Corpo Set 1
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of
frauds?
4) Did the bank conservator have the unilateral power to repudiate the
authority of the bank officers and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexations of multiple petitions and actions, the Supreme
Court promulgated Revised Circular No. 28-91 requiring that a party must certify
under oath x x x [that] (a) he has not (t)heretofore commenced any other action or
proceeding involving the same issues in the Supreme Court, the Court of Appeals, or
any other tribunal or agency; (b) to the best of his knowledge, no such action or
proceeding is pending in said courts or agencies. A violation of the said circular entails
sanctions that include the summary dismissal of the multiple petitions or complaints.
To be sure, petitioners have included a VERIFICATION/CERTIFICATION in their
Petition stating for the record(,) the pendency of Civil Case No. 92-1606 before the
Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by
stockholders of petitioner Bank against the conservator and other defendants but
which is the subject of a pending Motion to Dismiss Without Prejudice.[9]
Private respondent Ejercito vigorously argues that in spite of this verification,
petitioners are guilty of actual forum shopping because the instant petition pending
before this Court involves identical parties or interests represented, rights asserted
and reliefs sought (as that) currently pending before the Regional Trial Court, Makati
Branch 134 in the Second Case. In fact, the issues in the two cases are so intertwined
that a judgment or resolution in either case will constitute res judicata in the other.[10]
On the other hand, petitioners explain[11] that there is no forum-shopping
because:
1) In the earlier or First Case from which this proceeding arose, the Bank was
impleaded as a defendant, whereas in the Second Case (assuming the Bank is the real
party in interest in a derivative suit), it was the plaintiff;
2) The derivative suit is not properly a suit for and in behalf of the corporation under
the circumstances;
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president
and attached to the Petition identifies the action as a derivative suit, it does not mean
that it is one and (t)hat is a legal question for the courts to decide;
4) Petitioners did not hide the Second Case as they mentioned it in the said
VERIFICATION/CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private international
law,[12] where non-resident litigants are given the option to choose the forum or place
wherein to bring their suit for various reasons or excuses, including to secure
procedural advantages, to annoy and harass the defendant, to avoid overcrowded
dockets, or to select a more friendly venue. To combat these less than honorable
excuses, the principle of forum non conveniens was developed whereby a court, in
conflicts of law cases, may refuse impositions on its jurisdiction where it is not the
most convenient or available forum and the parties are not precluded from seeking
remedies elsewhere.
In this light, Blacks Law Dictionary[13] says that forum-shopping occurs when a
party attempts to have his action tried in a particular court or jurisdiction where he
feels he will receive the most favorable judgment or verdict. Hence, according to
Words and Phrases,[14] a litigant is open to the charge of forum shopping whenever
he chooses a forum with slight connection to factual circumstances surrounding his
suit, and litigants should be encouraged to attempt to settle their differences without
imposing undue expense and vexatious situations on the courts.
In the Philippines, forum-shopping has acquired a connotation encompassing
not only a choice of venues, as it was originally understood in conflicts of laws, but
also to a choice of remedies. As to the first (choice of venues), the Rules of Court, for
example, allow a plaintiff to commence personal actions where the defendant or any
of the defendants resides or may be found, or where the plaintiff or any of the
plaintiffs resides, at the election of the plaintiff (Rule 4, Sec. 2 [b]). As to remedies,
aggrieved parties, for example, are given a choice of pursuing civil liabilities
independently of the criminal, arising from the same set of facts. A passenger of a
public utility vehicle involved in a vehicular accident may sue on culpa contractual,
culpa aquiliana or culpa criminal - each remedy being available independently of the
others - although he cannot recover more than once.
24
Corpo Set 1
In either of these situations (choice of venue or choice of remedy), the litigant
actually shops for a forum of his action. This was the original concept of the term
forum shopping.
Eventually, however, instead of actually making a choice of the forum of their actions,
litigants, through the encouragement of their lawyers, file their actions in all available
courts, or invoke all relevant remedies simultaneously. This practice had not only
resulted to (sic) conflicting adjudications among different courts and consequent
confusion enimical (sic) to an orderly administration of justice. It had created extreme
inconvenience to some of the parties to the action.
Thus, forum-shopping had acquired a different concept - which is unethical
professional legal practice. And this necessitated or had given rise to the formulation
of rules and canons discouraging or altogether prohibiting the practice.[15]
What therefore originally started both in conflicts of laws and in our domestic
law as a legitimate device for solving problems has been abused and misused to
assure scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the Supreme
Court, as already mentioned, promulgated Circular 28-91. And even before that, the
Court had proscribed it in the Interim Rules and Guidelines issued on January 11,
1983 and had struck down in several cases[16] the inveterate use of this insidious
malpractice. Forum-shopping as the filing of repetitious suits in different courts has
been condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of
Natural Resources, et al. vs. Heirs of Orval Hughes, et al., as a reprehensible
manipulation of court processes and proceedings x x x.[17] When does forum-
shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a
party seeks a favorable opinion (other than by appeal or certiorari) in another. The
principle applies not only with respect to suits filed in the courts but also in
connection with litigations commenced in the courts while an administrative
proceeding is pending, as in this case, in order to defeat administrative processes and
in anticipation of an unfavorable administrative ruling and a favorable court ruling.
This is specially so, as in this case, where the court in which the second suit was
brought, has no jurisdiction [18]
The test for determining whether a party violated the rule against forum-
shopping has been laid down in the 1986 case of Buan vs. Lopez,[19] also by Chief
Justice Narvasa, and that is, forum-shopping exists where the elements of litis
pendentia are present or where a final judgment in one case will amount to res
judicata in the other, as follows:
There thus exists between the action before this Court and RTC Case No. 86-36563
identity of parties, or at least such parties as represent the same interests in both
actions, as well as identity of rights asserted and relief prayed for, the relief being
founded on the same facts, and the identity on the two preceding particulars is such
that any judgment rendered in the other action, will, regardless of which party is
successful, amount to res adjudicata in the action under consideration: all the
requisites, in fine, of auter action pendant.
xxx xxx xxx
As already observed, there is between the action at bar and RTC Case No. 86-36563,
an identity as regards parties, or interests represented, rights asserted and relief
sought, as well as basis thereof, to a degree sufficient to give rise to the ground for
dismissal known as auter action pendant or lis pendens. That same identity puts into
operation the sanction of twin dismissals just mentioned. The application of this
sanction will prevent any further delay in the settlement of the controversy which
might ensue from attempts to seek reconsideration of or to appeal from the Order
of the Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15, 1986,
which dismissed the petition upon grounds which appear persuasive.
Consequently, where a litigant (or one representing the same interest or
person) sues the same party against whom another action or actions for the alleged
violation of the same right and the enforcement of the same relief is/are still pending,
the defense of litis pendencia in one case is a bar to the others; and, a final judgment
in one would constitute res judicata and thus would cause the dismissal of the rest.
In either case, forum shopping could be cited by the other party as a ground to ask
for summary dismissal of the two[20] (or more) complaints or petitions, and for the
imposition of the other sanctions, which are direct contempt of court, criminal
prosecution, and disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with
the Second Case, it is obvious that there exist identity of parties or interests
represented, identity of rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise to
the instant petition was filed by the buyer (herein private respondent and his
predecessors-in-interest) against the seller (herein petitioners) to enforce the alleged
perfected sale of real estate. On the other hand, the complaint[21] in the Second Case
25
Corpo Set 1
seeks to declare such purported sale involving the same real property as
unenforceable as against the Bank, which is the petitioner herein. In other words, in
the Second Case, the majority stockholders, in representation of the Bank, are
seeking to accomplish what the Bank itself failed to do in the original case in the trial
court. In brief, the objective or the relief being sought, though worded differently, is
the same, namely, to enable the petitioner Bank to escape from the obligation to sell
the property to respondent. In Danville Maritime, Inc. vs. Commission on
Audit,[22] this Court ruled that the filing by a party of two apparently different actions,
but with the same objective, constituted forum shopping:
In the attempt to make the two actions appear to be different, petitioner impleaded
different respondents therein - PNOC in the case before the lower court and the COA
in the case before this Court and sought what seems to be different reliefs. Petitioner
asks this Court to set aside the questioned letter-directive of the COA dated October
10, 1988 and to direct said body to approve the Memorandum of Agreement entered
into by and between the PNOC and petitioner, while in the complaint before the
lower court petitioner seeks to enjoin the PNOC from conducting a rebidding and
from selling to other parties the vessel T/T Andres Bonifacio, and for an extension of
time for it to comply with the paragraph 1 of the memorandum of agreement and
damages. One can see that although the relief prayed for in the two (2) actions are
ostensibly different, the ultimate objective in both actions is the same, that is, the
approval of the sale of vessel in favor of petitioner, and to overturn the letter-directive
of the COA of October 10, 1988 disapproving the sale. (italics supplied)
In an earlier case,[23] but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant special civil action
for certiorari and prohibition in this Court despite the pendency of their action in the
Makati Regional Trial Court, is a species of forum-shopping. Both actions
unquestionably involve the same transactions, the same essential facts and
circumstances. The petitioners claim of absence of identity simply because the PCGG
had not been impleaded in the RTC suit, and the suit did not involve certain acts which
transpired after its commencement, is specious. In the RTC action, as in the action
before this Court, the validity of the contract to purchase and sell of September 1,
1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of
implementing the same (by paying the pledgee banks the amount of their loans,
obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the
relief was the same: the prevention of such implementation and/or the restoration
of the status quo ante. When the acts sought to be restrained took place anyway
despite the issuance by the Trial Court of a temporary restraining order, the RTC suit
did not become functus oflcio. It remained an effective vehicle for obtention of relief;
and petitioners remedy in the premises was plain and patent: the filing of an
amended and supplemental pleading in the RTC suit, so as to include the PCGG as
defendant and seek nullification of the acts sought to be enjoined but nonetheless
done. The remedy was certainly not the institution of another action in another
forum based on essentially the same facts. The adoption of this latter recourse
renders the petitioners amenable to disciplinary action and both their actions, in this
Court as well as in the Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of
interests represented. Although the plaintiffs in the Second Case (Henry L. Co. et al.)
are not name parties in the First Case, they represent the same interest and entity,
namely, petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct personal
interest in the matter in controversy. They are not principally or even subsidiarily
liable; much less are they direct parties in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the
stockholders are bringing a derivative suit. In the caption itself, petitioners claim to
have brought suit for and in behalf of the Producers Bank of
the Philippines.[24] Indeed, this is the very essence of a derivative suit:
An individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued or
hold the control of the corporation. In such actions, the suing stockholder is regarded
as a nominal party, with the corporation as the real party in interest. (Gamboa v.
Victoriano, 90 SCRA 40, 47 [1979]; italics supplied).
In the face of the damaging admissions taken from the complaint in the Second
Case, petitioners, quite strangely, sought to deny that the Second Case was a
derivative suit, reasoning that it was brought, not by the minority shareholders, but
by Henry Co et al., who not only own, hold or control over 80% of the outstanding
capital stock, but also constitute the majority in the Board of Directors of petitioner
Bank. That being so, then they really represent the Bank. So, whether they sued
derivatively or directly, there is undeniably an identity of interests/entity
represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality
of the Bank is separate and distinct from its shareholders. But the rulings of this Court
26
Corpo Set 1
are consistent: When the fiction is urged as a means of perpetrating a fraud or an
illegal act or as a vehicle for the evasion of an existing obligation, the circumvention
of statutes, the achievement or perfection of a monopoly or generally the
perpetration of knavery or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be lifted to allow
for its consideration merely as an aggregation of individuals.[25]
In addition to the many cases[26] where the corporate fiction has been
disregarded, we now add the instant case, and declare herewith that the corporate
veil cannot be used to shield an otherwise blatant violation of the prohibition against
forum-shopping. Shareholders, whether suing as the majority in direct actions or as
the minority in a derivative suit, cannot be allowed to trifle with court processes,
particularly where, as in this case, the corporation itself has not been remiss in
vigorously prosecuting or defending corporate causes and in using and applying
remedies available to it. To rule otherwise would be to encourage corporate litigants
to use their shareholders as fronts to circumvent the stringent rules against forum
shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping, even
assuming arguendo that there is identity of parties, causes of action and reliefs
sought, because it (the Bank) was the defendant in the (first) case while it was the
plaintiff in the other (Second Case), citing as authority Victronics Computers, Inc. vs.
Regional Trial Court, Branch 63, Makati, etc. et al.,[27] where the Court held:
The rule has not been extended to a defendant who, for reasons known only to him,
commences a new action against the plaintiff - instead of filing a responsive pleading
in the other case - setting forth therein, as causes of action, specific denials, special
and affirmative defenses or even counterclaims. Thus, Velhagens and Kings motion
to dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping
as such did not exist in the first place. (italics supplied)
Petitioner pointed out that since it was merely the defendant in the original
case, it could not have chosen the forum in said case.
Respondent, on the other hand, replied that there is a difference in factual
setting between Victronics and the present suit. In the former, as underscored in the
above-quoted Court ruling, the defendants did not file any responsive pleading in the
first case. In other words, they did not make any denial or raise any defense or
counter-claim therein. In the case before us however, petitioners filed a responsive
pleading to the complaint - as a result of which, the issues were joined.
Indeed, by praying for affirmative reliefs and interposing counter-claims in their
responsive pleadings, the petitioners became plaintiffs themselves in the original
case, giving unto themselves the very remedies they repeated in the Second Case.
Ultimately, what is truly important to consider in determining whether forum-
shopping exists or not is the vexation caused the courts and parties-litigant by a party
who asks different courts and/or administrative agencies to rule on the same or
related causes and/or to grant the same or substantially the same reliefs, in the
process creating the possibility of conflicting decisions being rendered by the
different fora upon the same issue. In this case, this is exactly the problem: a decision
recognizing the perfection and directing the enforcement of the contract of sale will
directly conflict with a possible decision in the Second Case barring the parties from
enforcing or implementing the said sale. Indeed, a final decision in one would
constitute res judicata in the other.[28]
The foregoing conclusion finding the existence of forum-shopping
notwithstanding, the only sanction possible now is the dismissal of both cases with
prejudice, as the other sanctions cannot be imposed because petitioners present
counsel entered their appearance only during the proceedings in this Court, and the
Petitions VERIFICATION/CERTIFICATION contained sufficient allegations as to the
pendency of the Second Case to show good faith in observing Circular 28-91. The
lawyers who filed the Second Case are not before us; thus the rudiments of due
process prevent us from motu propio imposing disciplinary measures against them in
this Decision. However, petitioners themselves (and particularly Henry Co, et al.) as
litigants are admonished to strictly follow the rules against forum-shopping and not
to trifle with court proceedings and processes. They are warned that a repetition of
the same will be dealt with more severely.
Having said that, let it be emphasized that this petition should be dismissed not
merely because of forum-shopping but also because of the substantive issues raised,
as will be discussed shortly.
The Second Issue: Was The Contract Perfected?
The respondent Court correctly treated the question of whether or not there
was, on the basis of the facts established, a perfected contract of sale as the ultimate
issue. Holding that a valid contract has been established, respondent Court stated:
There is no dispute that the object of the transaction is that property owned by the
defendant bank as acquired assets consisting of six (6) parcels of land specifically
27
Corpo Set 1
identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise
beyond cavil that the bank intended to sell the property. As testified to by the Banks
Deputy Conservator, Jose Entereso, the bank was looking for buyers of the property.
It is definite that the plaintiffs wanted to purchase the property and it was precisely
for this purpose that they met with defendant Rivera, Manager of the Property
Management Department of the defendant bank, in early August 1987. The
procedure in the sale of acquired assets as well as the nature and scope of the
authority of Rivera on the matter is clearly delineated in the testimony of Rivera
himself, which testimony was relied upon by both the bank and by Rivera in their
appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets was turned over to me and then I
published it in the form of an inter-office memorandum distributed to all branches
that these are acquired assets for sale. I was instructed to advertise acquired assets
for sale so on that basis, I have to entertain offer; to accept offer, formal offer and
upon having been offered, I present it to the Committee. I provide the Committee
with necessary information about the property such as original loan of the borrower,
bid price during the foreclosure, total claim of the bank, the appraised value at the
time the property is being offered for sale and then the information which are relative
to the evaluation of the bank to buy which the Committee considers and it is the
Committee that evaluate as against the exposure of the bank and it is also the
Committee that submit to the Conservator for final approval and once approved, we
have to execute the deed of sale and it is the Conservator that sign the deed of sale,
sir.
The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of
buying the property, dealt with and talked to the right person. Necessarily, the
agenda was the price of the property, and plaintiffs were dealing with the bank
official authorized to entertain offers, to accept offers and to present the offer to the
Committee before which the said official is authorized to discuss information relative
to price determination. Necessarily, too, it being inherent in his authority, Rivera is
the officer from whom official information regarding the price, as determined by the
Committee and approved by the Conservator, can be had. And Rivera confirmed his
authority when he talked with the plaintiff in August 1987. The testimony of plaintiff
Demetria is clear on this point (TSN of May 31, 1990, pp. 27-28):
Q: When you went to the Producers Bank and talked with Mr. Mercurio
Rivera, did you ask him point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from him. (W)hen I asked him
how long it would take because he was saying that the matter of
pricing will be passed upon by the committee. And when I asked him
how long it will take for the committee to decide and he said the
committee meets every week. If I am not mistaken Wednesday and
in about two weeks (sic) time, in effect what he was saying he was
not the one who was to decide. But he would refer it to the
committee and he would relay the decision of the committee to me.
Q: Please answer the question.
A: He did not say that he had the authority(.) But he said he would refer
the matter to the committee and he would relay the decision to me
and he did just like that.
Parenthetically, the Committee referred to was the Past Due Committee of which
Luis Co was the Head, with Jose Entereso as one of the members.
What transpired after the meeting of early August 1987 are consistent with the
authority and the duties of Rivera and the banks internal procedure in the matter of
the sale of banks assets. As advised by Rivera, the plaintiffs made a formal offer by a
letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million
in cash. The letter was for the attention of Mercurio Rivera who was tasked to convey
and accept such offers. Considering an aspect of the official duty of Rivera as some
sort of intermediary between the plaintiffs-buyers with their proposed buying price
on one hand, and the bank Committee, the Conservator and ultimately the bank itself
with the set price on the other, and considering further the discussion of price at the
meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no
other logical conclusion than that when, on September 1, 1987, Rivera informed
plaintiffs by letter that the banks counter-offer is at P5.5 Million for more than 101
hectares on lot basis, such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had duly presented
plaintiffs offer for discussion by the Committee of such matters as original loan of
borrower, bid price during foreclosure, total claim of the bank, and market value.
Tersely put, under the established facts, the price of P5.5 Million was, as clearly
worded in Riveras letter (Exh. E), the official and definitive price at which the bank
was selling the property.
There were averments by defendants below, as well as before this Court, that the
P5.5 Million price was not discussed by the Committee and that it was merely quoted
to start negotiations regarding the price. As correctly characterized by the trial court,
this is not credible. The testimonies of Luis Co and Jose Entereso on this point are at
best equivocal and considering the gratuitous and self-serving character of these
28
Corpo Set 1
declarations, the banks submission on this point does not inspire belief. Both Co and
Entereso, as members of the Past Due Committee of the bank, claim that the offer of
the plaintiff was never discussed by the Committee. In the same vein, both Co and
Entereso openly admit that they seldom attend the meetings of the Committee. It is
important to note that negotiations on the price had started in early August and the
plaintiffs had already offered an amount as purchase price, having been made to
understand by Rivera, the official in charge of the negotiation, that the price will be
submitted for approval by the bank and that the banks decision will be relayed to
plaintiffs. From the facts, the amount of P5.5 Million has a definite significance. It is
the official bank price. At any rate, the bank placed its official, Rivera, in a position of
authority to accept offers to buy and negotiate the sale by having the offer officially
acted upon by the bank. The bank cannot turn around and later say, as it now does,
that what Rivera states as the banks action on the matter is not in fact so. It is a
familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the scope of an
apparent authority, and thus holds him out to the public as possessing power to do
those acts, the corporation will, as against any one who has in good faith dealt with
the corporation through such agent, he estopped from denying his authority
(Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-
370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, 1993).[29]
Article 1318 of the Civil Code enumerates the requisites of a valid and perfected
contract as follows: (1) Consent of the contracting parties; (2) Object certain which is
the subject matter of the contract; (3) Cause of the obligation which is established.
There is no dispute on requisite no. 2. The object of the questioned contract
consists of the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of
about 101 hectares, more or less, and covered by Transfer Certificates of Title Nos. T-
106932 to T-106937. There is, however, a dispute on the first and third requisites.
Petitioners allege that there is no counter-offer made by the Bank, and any
supposed counter-offer which Rivera (or Co) may have made is unauthorized. Since
there was no counter-offer by the Bank, there was nothing for Ejercito (in
substitution of Demetria and Janolo) to accept.[30] They disputed the factual basis of
the respondent Courts findings that there was an offer made by Janolo for P3.5
million, to which the Bank counter-offered P5.5 million. We have perused the
evidence but cannot find fault with the said Courts findings of fact. Verily, in a petition
under Rule 45 such as this, errors of fact -if there be any - are, as a rule, not
reviewable. The mere fact that respondent Court (and the trial court as well) chose
to believe the evidence presented by respondent more than that presented by
petitioners is not by itself a reversible error. in fact, such findings merit serious
consideration by this Court, particularly where, as in this case, said courts carefully
and meticulously discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of
Appeals, let us review the question of Riveras authority to act and petitioners
allegations that the P5.5 million counter-offer was extinguished by the P4.25 million
revised offer of Janolo. Here, there are questions of law which could be drawn from
the factual findings of the respondent Court. They also delve into the contractual
elements of consent and cause.
The authority of a corporate officer in dealing with third persons may be actual
or apparent. The doctrine of apparent authority, with special reference to banks, was
laid out in Prudential Bank vs. Court of Appeals,[31] where it was held that:
Conformably, we have declared in countless decisions that the principal is liable for
obligations contracted by the agent. The agents apparent representation yields to
the principals true representation and the contract is considered as entered into
between the principal and the third person (citing National Food Authority vs.
Intermediate Appellate Court, 184 SCRA 166).
A bank is liable for wrongful acts of its officers done in the interests of the bank or in
the course of dealings of the officers in their representative capacity but not for acts
outside the scope of their authority (9 C.J.S., p. 417). A bank holding out its officers
and agents as worthy of confidence will not be permitted to profit by the frauds they
may thus be enabled to perpetrate in the apparent scope of their employment; nor
will it be permitted to shirk its responsibility for such frauds, even though no benefit
may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking
corporation is liable to innocent third persons where the representation is made in
the course of its business by an agent acting within the general scope of his authority
even though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for his own
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR
1021).
Application of these principles is especially necessary because banks have a fiduciary
relationship with the public and their stability depends on the confidence of the
people in their honesty and efficiency. Such faith will be eroded where banks do not
exercise strict care in the selection and supervision of its employees, resulting in
prejudice to their depositors.
29
Corpo Set 1
From the evidence found by respondent Court, it is obvious that petitioner
Rivera has apparent or implied authority to act for the Bank in the matter of selling
its acquired assets. This evidence includes the following:
(a) The petition itself in par. II-1 (p. 3) states that Rivera was at all times material to
this case, Manager of the Property Management Department of the Bank. By his own
admission, Rivera was already the person in charge of the Banks acquired assets (TSN,
August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being sold by the Bank.
And during the initial meeting between the buyers and Rivera, the latter suggested
that the buyers offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-
17);
(c) Rivera received the buyers letter dated August 30, 1987 offering P3.5 million (TSN,
30 July 1990, p. 11);
(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for
P5.5 million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the buyers
proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final
price of the Bank (TSN, January 16, 1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis Co on September 28,
1987, during which the Banks offer of P5.5 million was confirmed by Rivera (TSN, April
26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and officer of the Bank,
confirmed Riveras statement as to the finality of the Banks counter-offer of P5.5
million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera
as the officer acting for the Bank in relation to parties interested in buying assets
owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Banks
advertisements offering for sale the property in question (cf. Exhs. S and S-I).
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et
al.,[32] the Court, through Justice Jose A. R. Melo, affirmed the doctrine of apparent
authority as it held that the apparent authority of the officer of the Bank of P.I. in
charge of acquired assets is borne out by similar circumstances surrounding his
dealings with buyers.
To be sure, petitioners attempted to repudiate Riveras apparent authority
through documents and testimony which seek to establish Riveras actual authority.
These pieces of evidence, however, are inherently weak as they consist of Riveras
self-serving testimony and various inter-office memoranda that purport to show
his limited actual authority, of which private respondent cannot be charged with
knowledge. In any event, since the issue is apparent authority, the existence of which
is borne out by the respondent Courts findings, the evidence of actual authority is
immaterial insofar as the liability of a corporation is concerned.[33]
Petitioners also argued that since Demetria and Janolo were experienced
lawyers and their law firm had once acted for the Bank in three criminal cases, they
should be charged with actual knowledge of Riveras limited authority. But the Court
of Appeals in its Decision (p. 12) had already made a factual finding that the buyers
had no notice of Riveras actual authority prior to the sale. In fact, the Bank has not
shown that they acted as its counsel in respect to any acquired assets; on the other
hand, respondent has proven that Demetria and Janolo merely associated with a
loose aggrupation of lawyers (not a professional partnership), one of whose members
(Atty. Susana Parker) acted in said criminal cases.
Petitioners also alleged that Demetrias and Janolos P4.25 million counter-offer
in the letter dated September 17, 1987 extinguished the Banks offer of P5.5
million.[34]They disputed the respondent Courts finding that there was a meeting of
minds when on 30 September 1987 Demetria and Janolo through Annex L (letter
dated September 30, 1987) accepted Riveras counter offer of P5.5 million under
Annex J (letter dated September 17, 1987), citing the late Justice Paras,[35] Art. 1319
of the Civil Code[36] and related Supreme Court rulings starting with Beaumont vs.
Prieto.[37]
However, the above-cited authorities and precedents cannot apply in the
instant case because, as found by the respondent Court which reviewed the
testimonies on this point, what was accepted by Janolo in his letter dated September
30, 1987 was the Banks offer of P5.5 million as confirmed and reiterated to Demetria
and Atty. Jose Fajardo by Rivera and Co during their meeting on September 28, 1987.
Note that the said letter of September 30, 1987 begins with (p)ursuant to our
discussion last 28 September 1987 x x x.
Petitioners insist that the respondent Court should have believed the
testimonies of Rivera and Co that the September 28, 1987 meeting was meant to
have the offerors improve on their position of P5.5 million.[38] However, both the trial
30
Corpo Set 1
court and the Court of Appeals found petitioners testimonial evidence not credible,
and we find no basis for changing this finding of fact.
Indeed, we see no reason to disturb the lower courts (both the RTC and the CA)
common finding that private respondents evidence is more in keeping with truth and
logic - that during the meeting on September 28, 1987, Luis Co and Rivera confirmed
that the P5.5 million price has been passed upon by the Committee and could no
longer be lowered (TSN of April 27, 1990, pp. 34-35).[39] Hence,
assuming arguendo that the counter-offer of P4.25 million extinguished the offer of
P5.5 million, Luis Cos reiteration of the said P5.5 million price during the September
28, 1987 meeting revived the said offer. And by virtue of the September 30,
1987 letter accepting this revived offer, there was a meeting of the minds, as the
acceptance in said letter was absolute and unqualified.
We note that the Banks repudiation, through Conservator Encarnacion, of
Riveras authority and action, particularly the latters counter-offer of P5.5 million, as
being unauthorized and illegal came only on May 12, 1988 or more than seven (7)
months after Janolos acceptance. Such delay, and the absence of any circumstance
which might have justifiably prevented the Bank from acting earlier, clearly
characterizes the repudiation as nothing more than a last-minute attempt on the
Banks part to get out of a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an implied
admission on the part of the petitioners that the written offer made on September
1, 1987was carried through during the meeting of September 28, 1987. This is the
conclusion consistent with human experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Banks offer of P5.5
million was raised for the first time on appeal and should thus be disregarded.
This Court in several decisions has repeatedly adhered to the principle that points of
law, theories, issues of fact and arguments not adequately brought to the attention
of the trial court need not be, and ordinarily will not be, considered by a reviewing
court, as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243,
November 14, 1986, 145 SCRA 592).[40]
xxx It is settled jurisprudence that an issue which was neither averred in the
complaint nor raised during the trial in the court below cannot be raised for the first
time on appeal as it would be offensive to the basic rules of fair play, justice and due
process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434
[1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs.
IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990).[41]
Since the issue was not raised in the pleadings as an affirmative defense, private
respondent was not given an opportunity in the trial court to controvert the same
through opposing evidence. Indeed, this is a matter of due process. But we passed
upon the issue anyway, if only to avoid deciding the case on purely procedural
grounds, and we repeat that, on the basis of the evidence already in the record and
as appreciated by the lower courts, the inevitable conclusion is simply that there was
a perfected contract of sale.
The Third Issue: Is the Contract Enforceable?
The petition alleged:[42]
Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million
during the meeting of 28 September 1987, and it was this verbal offer that Demetria
and Janolo accepted with their letter of 30 September 1987, the contract produced
thereby would be unenforceable by action - there being no note, memorandum or
writing subscribed by the Bank to evidence such contract. (Please see Article 1403[2],
Civil Code.)
Upon the other hand, the respondent Court in its Decision (p. 14) stated:
x x x Of course, the banks letter of September 1, 1987 on the official price and the
plaintiffs acceptance of the price on September 30, 1987, are not, in themselves,
formal contracts of sale. They are however clear embodiments of the fact that a
contract of sale was perfected between the parties, such contract being binding in
whatever form it may have been entered into (case citations omitted). Stated simply,
the banks letter of September 1, 1987, taken together with plaintiffs letter
dated September 30, 1987, constitute in law a sufficient memorandum of a perfected
contract of sale.
The respondent Court could have added that the written communications
commenced not only from September 1, 1987 but from Janolos August 20,
1987 letter. We agree that, taken together, these letters constitute sufficient
memoranda - since they include the names of the parties, the terms and conditions
of the contract, the price and a description of the property as the object of the
contract.
But let it be assumed arguendo that the counter-offer during the meeting
on September 28, 1987 did constitute a new offer which was accepted by Janolo
31
Corpo Set 1
on September 30, 1987. Still, the statute of frauds will not apply by reason of the
failure of petitioners to object to oral testimony proving petitioner Banks counter-
offer of P5.5 million. Hence, petitioners - by such utter failure to object - are deemed
to have waived any defects of the contract under the statute of frauds, pursuant to
Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article
1403, are ratified by the failure to object to the presentation of oral evidence to prove
the same, or by the acceptance of benefits under them.
As private respondent pointed out in his Memorandum, oral testimony on the
reaffirmation of the counter-offer of P5.5 million is aplenty -and the silence of
petitioners all throughout the presentation makes the evidence binding on them
thus:
A - Yes, sir. I think it was September 28, 1987 and I was again present
because Atty. Demetria told me to accompany him and we were able
to meet Luis Co at the Bank.
xxx xxx xxx
Q - Now, what transpired during this meeting with Luis Co of the Producers
Bank?
A - Atty. Demetria asked Mr. Luis Co whether the price could be reduced,
sir.
Q - What price?
A - The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr.
Mercurio Rivera is the final price and that is the price they intends
(sic) to have, sir.
Q - What do you mean?
A - That is the amount they want, sir.
Q - What is the reaction of the plaintiff Demetria to Luis Cos statment (sic)
that the defendant Riveras counter-offer of 5.5 million was the
defendants bank (sic) final offer?
A - He said in a day or two, he will make final acceptance, sir.
Q - What is the response of Mr. Luis Co?
A - He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]
----0----
Q - What transpired during that meeting between you and Mr. Luis Co of
the defendant Bank?
A - We went straight to the point because he being a busy person, I told
him if the amount of P5.5 million could still be reduced and he said
that was already passed upon by the committee. What the bank
expects which was contrary to what Mr. Rivera stated. And he told
me that is the final offer of the bank P5.5 million and we should
indicate our position as soon as possible.
Q - What was your response to the answer of Mr. Luis Co?
A - I said that we are going to give him our answer in a few days and he
said that was it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was
with us at the time at his office.
Q - For the record, your Honor please, will you tell this Court who was with
Mr. Co in his Office in Producers Bank Building during this meeting?
A - Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q - By Mr. Co you are referring to?
A - Mr. Luis Co.
Q - After this meeting with Mr. Luis Co, did you and your partner accede
on (sic) the counter offer by the bank?
A - Yes, sir, we did. Two days thereafter we sent our acceptance to the
bank which offer we accepted, the offer of the bank which is P5.5
million.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
---- 0 ----
Q - According to Atty. Demetrio Demetria, the amount of P5.5 million was
reached by the Committee and it is not within his power to reduce
32
Corpo Set 1
this amount. What can you say to that statement that the amount of
P5.5 million was reached by the Committee?
A - It was not discussed by the Committee but it was discussed initially by
Luis Co and the group of Atty. Demetrio Demetria and Atty. Pajardo
(sic), in that September 28, 1987 meeting, sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract?
It is not disputed that the petitioner Bank was under a conservator placed by
the Central Bank of the Philippines during the time that the negotiation and
perfection of the contract of sale took place. Petitioners energetically contended that
the conservator has the power to revoke or overrule actions of the management or
the board of directors of a bank, under Section 28-A of Republic Act No. 265
(otherwise known as the Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the appropriate supervising or
examining department, the Monetary Board finds that a bank or a non-bank financial
intermediary performing quasi - banking functions is in a state of continuing inability
or unwillingness to maintain a state of liquidity deemed adequate to protect the
interest of depositors and creditors, the Monetary Board may appoint a conservator
to take charge of the assets, liabilities, and the management of that institution,
collect all monies and debts due said institution and exercise all powers necessary to
preserve the assets of the institution, reorganize the management thereof, and
restore its viability. He shall have the power to overrule or revoke the actions of the
previous management and board of directors of the bank or non-bank financial
intermediary performing quasi-banking functions, any provision of law to the
contrary notwithstanding, and such other powers as the Monetary Board shall deem
necessary.
In the first place, this issue of the Conservators alleged authority to revoke or
repudiate the perfected contract of sale was raised for the first time in this Petition -
as this was not litigated in the trial court or Court of Appeals. As already stated earlier,
issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals,
cannot be raised for the first time on appeal as it would be offensive to the basic rules
of fair play, justice and due process.[43]
In the second place, there is absolutely no evidence that the Conservator, at the
time the contract was perfected, actually repudiated or overruled said contract of
sale. The Banks acting conservator at the time, Rodolfo Romey, never objected to the
sale of the property to Demetria and Janolo. What petitioners are really referring to
is the letter of Conservator Encarnacion, who took over from Romey after the sale
was perfected on September 30, 1987 (Annex V, petition) which unilaterally
repudiated - not the contract - but the authority of Rivera to make a binding offer -
and which unarguably came months after the perfection of the contract. Said letter
dated May 12, 1988 is reproduced hereunder:
May 12, 1988
Atty. Noe C. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria
regarding the six (6) parcels of land located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-offer to any of your
clients nor perfected a contract to sell and buy with any of them for the following
reasons.
In the Inter-Office Memorandum dated April 25, 1986 addressed to and approved by
former Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager
Perfecto M. Pascua detailed the functions of Property Management Department
(PMD) staff and officers (Annex A), you will immediately read that Manager Mr.
Mercurio Rivera or any of his subordinates has no authority, power or right to make
any alleged counter-offer. In short, your lawyer-clients did not deal with the
authorized officers of the bank.
Moreover, under Secs. 23 and 36 of the Corporation Code of the Philippines (Batas
Pambansa Blg. 68) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as
amended), only the Board of Directors/Conservator may authorize the sale of any
property of the corporation/bank.
33
Corpo Set 1
Our records do not show that Mr. Rivera was authorized by the old board or by any
of the bank conservators (starting January, 1984) to sell the aforesaid property to any
of your clients. Apparently, what took place were just preliminary discussions/
consultations between him and your clients, which everyone knows cannot bind the
Banks Board or Conservator.
We are, therefore, constrained to refuse any tender of payment by your clients, as the
same is patently violative of corporate and banking laws. We believe that this is more
than sufficient legal justification for refusing said alleged tender.
Rest assured that we have nothing personal against your clients. All our acts are
official, legal and in accordance with law. We also have no personal interest in any of
the properties of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T.
Encarnacion
LEONIDA T.
ENCARNACION
Acting
Conservator
In the third place, while admittedly, the Central Bank law gives vast and far-
reaching powers to the conservator of a bank, it must be pointed out that such
powers must be related to the (preservation of) the assets of the bank, (the
reorganization of) the management thereof and (the restoration of) its viability. Such
powers, enormous and extensive as they are, cannot extend to the post-
facto repudiation of perfected transactions, otherwise they would infringe against
the non-impairment clause of the Constitution.[44] If the legislature itself cannot
revoke an existing valid contract, how can it delegate such non-existent powers to
the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to
revoke contracts that are, under existing law, deemed to be defective - i.e., void,
voidable, unenforceable or rescissible. Hence, the conservator merely takes the place
of a banks board of directors. What the said board cannot do - such as repudiating a
contract validly entered into under the doctrine of implied authority - the conservator
cannot do either. Ineluctably, his power is not unilateral and he cannot simply
repudiate valid obligations of the Bank. His authority would be only to bring court
actions to assail such contracts - as he has already done so in the instant case. A
contrary understanding of the law would simply not be permitted by the
Constitution. Neither by common sense. To rule otherwise would be to enable a
failing bank to become solvent, at the expense of third parties, by simply getting the
conservator to unilaterally revoke all previous dealings which had one way or another
come to be considered unfavorable to the Bank, yielding nothing to perfected
contractual rights nor vested interests of the third parties who had dealt with the
Bank.
The Fifth Issue: Were There Reversible Errors of Fact?
Basic is the doctrine that in petitions for review under Rule 45 of the Rules of
Court, findings of fact by the Court of Appeals are not reviewable by the Supreme
Court. In Andres vs. Manufacturers Hanover & Trust Corporation,[45] we held:
x x x. The rule regarding questions of fact being raised with this Court in a petition for
certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante
vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition for
certiorari under Rule 45 of the Revised Rules of Court. The jurisdiction of the Supreme
Court in cases brought to it from the Court of Appeals is limited to reviewing and
revising the errors of law imputed to it, its findings of the fact being conclusive [Chan
vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long
line of decisions]. This Court has emphatically declared that it is not the function of
the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction
being limited to reviewing errors of law that might have been committed by the lower
court (Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA
89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865;
Baniqued vs. Court of Appeals, G.R. No. L-47531, February 20, 1984, 127 SCRA 596).
Barring, therefore, a showing that the findings complained of are totally devoid of
support in the record, or that they are so glaringly erroneous as to constitute serious
abuse of discretion, such findings must stand, for this Court is not expected or required
to examine or contrast the oral and documentary evidence submitted by the parties
[Santa Ana, Jr. vs. Hernandez, G.R. No. L-16394, December 17, 1966, 18 SCRA 973] [at
pp. 144-145.]
34
Corpo Set 1
Likewise, in Bernardo vs. Court of Appeals,[46] we held:
The resolution of this petition invites us to closely scrutinize the facts of the case,
relating to the sufficiency of evidence and the credibility of witnesses presented. This
Court so held that it is not the function of the Supreme Court to analyze or weigh
such evidence all over again. The Supreme Courts jurisdiction is limited to reviewing
errors of law that may have been committed by the lower court. The Supreme Court
is not a trier of facts. x x x
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock
Construction and Development Corp.:[47]
The Court has consistently held that the factual findings of the trial court, as well as
the Court of Appeals, are final and conclusive and may not be reviewed on appeal.
Among the exceptional circumstances where a reassessment of facts found by the
lower courts is allowed are when the conclusion is a finding grounded entirely on
speculation, surmises or conjectures; when the inference made is manifestly absurd,
mistaken or impossible; when there is grave abuse of discretion in the appreciation
of facts; when the judgment is premised on a misapprehension of facts; when the
findings went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee. After a careful study of the case at bench,
we find none of the above grounds present to justify the re-evaluation of the findings
of fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety
and Insurance Company, Inc. vs. Hon. Court of Appeals, et al.[48] is equally applicable
to the present case:
We see no valid reason to discard the factual conclusions of the appellate court. x x
x (I)t is not the function of this Court to assess and evaluate all over again the
evidence, testimonial and documentary, adduced by the parties, particularly where,
such as here, the findings of both the trial court and the appellate court on the matter
coincide. (italics supplied)
Petitioners, however, assailed the respondent Courts Decision as fraught with
findings and conclusions which were not only contrary to the evidence on record but
have no bases at all, specifically the findings that (1) the Banks counter-offer price of
P5.5 million had been determined by the past due committee and approved by
conservator Romey, after Rivera presented the same for discussion and (2) the
meeting with Co was not to scale down the price and start negotiations anew, but a
meeting on the already determined price of P5.5 million. Hence, citing Philippine
National Bank vs. Court of Appeals,[49] petitioners are asking us to review and reverse
such factual findings.
The first point was clearly passed upon by the Court of Appeals,[50] thus:
There can be no other logical conclusion than that when, on September 1, 1987,
Rivera informed plaintiffs by letter that the banks counter-offer is at P5.5 Million for
more than 101 hectares on lot basis, such counter-offer price had been determined
by the Past Due Committee and approved by the Conservator after Rivera had duly
presented plaintiffs offer for discussion by the Committee x x x. Tersely put, under
the established fact, the price of P5.5 Million was, as clearly worded in Riveras letter
(Exh. E), the official and definitive price at which the bank was selling the property.
(p. 11, CA Decision)
xxx xxx xxx
xxx. The argument deserves scant consideration. As pointed out by plaintiff, during
the meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the
senior vice-president of the bank, where the topic was the possible lowering of the
price, the bank official refused it and confirmed that the P5.5 Million price had been
passed upon by the Committee and could no longer be lowered (TSN of April 27,
1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on this
point, characterizing it as not credible and at best equivocal, and considering the
gratuitous and self-serving character of these declarations, the banks submissions on
this point do not inspire belief.
To become credible and unequivocal, petitioners should have presented then
Conservator Rodolfo Romey to testify on their behalf, as he would have been in the
best position to establish their thesis. Under the rules on evidence,[51] such
suppression gives rise to the presumption that his testimony would have been
adverse, if produced.
The second point was squarely raised in the Court of Appeals, but petitioners
evidence was deemed insufficient by both the trial court and the respondent Court,
and instead, it was respondents submissions that were believed and became bases
of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings
of fact by the lower courts are valid and correct. But the petitioners are now asking
35
Corpo Set 1

this Court to disturb these findings to fit the conclusion they are espousing. This we were (other) offers to buy the subject properties for a substantial amount of
cannot do. money.[53]
To be sure, there are settled exceptions where the Supreme Court may While we do not deny our sympathy for this distressed bank, at the same time,
disregard findings of fact by the Court of Appeals.[52] We have studied both the the Court cannot emotionally close its eyes to overriding considerations of
records and the CA Decision and we find no such exceptions in this case. On the substantive and procedural law, like respect for perfected contracts, non-impairment
contrary, the findings of the said Court are supported by a preponderance of of obligations and sanctions against forum-shopping, which must be upheld under
competent and credible evidence. The inferences and conclusions are reasonably the rule of law and blind justice.
based on evidence duly identified in the Decision. Indeed, the appellate court
patiently traversed and dissected the issues presented before it, lending credibility This Court cannot just gloss over private respondents submission that, while the
subject properties may currently command a much higher price, it is equally true that
and dependability to its findings. The best that can be said in favor of petitioners on
this point is that the factual findings of respondent Court did not correspond to at the time of the transaction in 1987, the price agreed upon of P5.5 million was
petitioners claims, but were closer to the evidence as presented in the trial court by reasonable, considering that the Bank acquired these properties at a foreclosure sale
private respondent. But this alone is no reason to reverse or ignore such factual for no more than P 3.5 million.[54] That the Bank procrastinated and refused to honor
its commitment to sell cannot now be used by it to promote its own advantage, to
findings, particularly where, as in this case, the trial court and the appellate court
enable it to escape its binding obligation and to reap the benefits of the increase in
were in common agreement thereon. Indeed, conclusions of fact of a trial judge - as
land values. To rule in favor of the Bank simply because the property in question has
affirmed by the Court of Appeals - are conclusive upon this Court, absent any serious
abuse or evident lack of basis or capriciousness of any kind, because the trial court is algebraically accelerated in price during the long period of litigation is to reward
in a better position to observe the demeanor of the witnesses and their courtroom lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court
manner as well as to examine the real evidence presented. cannot stamp its imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and
Epilogue
Resolution, the Court hereby DENIES the petition. The assailed Decision is AFFIRMED.
In summary, there are two procedural issues involved - forum-shopping and the Moreover, petitioner Bank is REPRIMANDED for engaging in forum-shopping and
raising of issues for the first time on appeal [viz., the extinguishment of the Banks WARNED that a repetition of the same or similar acts will be dealt with more severely.
offer of P5.5 million and the conservators powers to repudiate contracts entered into Costs against petitioners.
by the Banks officers] - which per se could justify the dismissal of the present case.
We did not limit ourselves thereto, but delved as well into the substantive issues - SO ORDERED.
the perfection of the contract of sale and its enforceability, which required the
determination of questions of fact. While the Supreme Court is not a trier of facts
and as a rule we are not required to look into the factual bases of respondent Courts
decisions and resolutions, we did so just the same, if only to find out whether there
is reason to disturb any of its factual findings, for we are only too aware of the depth,
magnitude and vigor by which the parties, through their respective eloquent counsel,
argued their positions before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is operating
abnormally under a government-appointed conservator and there is need to
rehabilitate the Bank in order to get it back on its feet x x x as many people depend
on (it) for investments, deposits and well as employment. As of June 1987, the Banks
overdraft with the Central Bank had already reached P1.023 billion x x x and there

36
Corpo Set 1
7. Francisco Motors v. CA
[G.R. No. 100812. June 25, 1999]
FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and
SPOUSES GREGORIO and LIBRADA MANUEL, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks
to annul the decision[1] of the Court of Appeals in C.A. G.R. CV No. 10014 affirming
the decision rendered by Branch 135, Regional Trial Court of Makati, Metro
Manila. The procedural antecedents of this petition are as follows:
On January 23, 1985, petitioner filed a complaint[2] against private respondents
to recover three thousand four hundred twelve and six centavos (P3,412.06),
representing the balance of the jeep body purchased by the Manuels from petitioner;
an additional sum of twenty thousand four hundred fifty-four and eighty centavos
(P20,454.80) representing the unpaid balance on the cost of repair of the vehicle; and
six thousand pesos (P6,000.00) for cost of suit and attorneys fees.[3] To the original
balance on the price of jeep body were added the costs of repair.[4] In their answer,
private respondents interposed a counterclaim for unpaid legal services by Gregorio
Manuel in the amount of fifty thousand pesos (P50,000) which was not paid by the
incorporators, directors and officers of the petitioner. The trial court decided the case
on June 26, 1985, in favor of petitioner in regard to the petitioners claim for money,
but also allowed the counter-claim of private respondents. Both parties appealed. On
April 15, 1991, the Court of Appeals sustained the trial courts decision.[5] Hence, the
present petition.
For our review in particular is the propriety of the permissive counterclaim
which private respondents filed together with their answer to petitioners complaint
for a sum of money. Private respondent Gregorio Manuel alleged as an affirmative
defense that, while he was petitioners Assistant Legal Officer, he represented
members of the Francisco family in the intestate estate proceedings of the late Benita
Trinidad. However, even after the termination of the proceedings, his services were
not paid. Said family members, he said, were also incorporators, directors and
officers of petitioner. Hence to counter petitioners collection suit, he filed a
permissive counterclaim for the unpaid attorneys fees.[6]
For failure of petitioner to answer the counterclaim, the trial court declared
petitioner in default on this score, and evidence ex-parte was presented on the
counterclaim. The trial court ruled in favor of private respondents and found that
Gregorio Manuel indeed rendered legal services to the Francisco family in Special
Proceedings Number 7803- In the Matter of Intestate Estate of Benita Trinidad. Said
court also found that his legal services were not compensated despite repeated
demands, and thus ordered petitioner to pay him the amount of fifty thousand
(P50,000.00) pesos.[7]
Dissatisfied with the trial courts order, petitioner elevated the matter to the
Court of Appeals, posing the following issues:
I.
WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND
VOID AS IT NEVER ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT.
II.
WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED
PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF
DEFENDANT-APPELLEES.
III.
WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO
ANSWER THE ALLEGED PERMISSIVE COUNTERCLAIM.[8]
Petitioner contended that the trial court did not acquire jurisdiction over it
because no summons was validly served on it together with the copy of the answer
containing the permissive counterclaim. Further, petitioner questions the propriety
of its being made party to the case because it was not the real party in interest but
the individual members of the Francisco family concerned with the intestate case.
In its assailed decision now before us for review, respondent Court of Appeals
held that a counterclaim must be answered in ten (10) days, pursuant to Section 4,
Rule 11, of the Rules of Court; and nowhere does it state in the Rules that a party still
needed to be summoned anew if a counterclaim was set up against him. Failure to
serve summons, said respondent court, did not effectively negate trial courts
jurisdiction over petitioner in the matter of the counterclaim. It likewise pointed out
that there was no reason for petitioner to be excused from answering the
counterclaim. Court records showed that its former counsel, Nicanor G. Alvarez,
received the copy of the answer with counterclaim two (2) days prior to his
37
Corpo Set 1
withdrawal as counsel for petitioner. Moreover when petitioners new counsel, Jose
N. Aquino, entered his appearance, three (3) days still remained within the period to
file an answer to the counterclaim. Having failed to answer, petitioner was correctly
considered in default by the trial court.[9] Even assuming that the trial court acquired
no jurisdiction over petitioner, respondent court also said, but having filed a motion
for reconsideration seeking relief from the said order of default, petitioner
was estopped from further questioning the trial courts jurisdiction.[10]
On the question of its liability for attorneys fees owing to private respondent
Gregorio Manuel, petitioner argued that being a corporation, it should not be held
liable therefor because these fees were owed by the incorporators, directors and
officers of the corporation in their personal capacity as heirs of Benita
Trinidad. Petitioner stressed that the personality of the corporation, vis--vis the
individual persons who hired the services of private respondent, is separate and
distinct,[11] hence, the liability of said individuals did not become an obligation
chargeable against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:
However, this distinct and separate personality is merely a fiction created by law for
convenience and to promote justice. Accordingly, this separate personality of the
corporation may be disregarded, or the veil of corporate fiction pierced, in cases
where it is used as a cloak or cover for found (sic) illegality, or to work an injustice, or
where necessary to achieve equity or when necessary for the protection of
creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are
composed of natural persons and the legal fiction of a separate corporate personality
is not a shield for the commission of injustice and inequity. (Chemplex Philippines,
Inc. vs. Pamatian, 57 SCRA 408)
In the instant case, evidence shows that the plaintiff-appellant Francisco Motors
Corporation is composed of the heirs of the late Benita Trinidad as directors and
incorporators for whom defendant Gregorio Manuel rendered legal services in the
intestate estate case of their deceased mother. Considering the aforestated
principles and circumstances established in this case, equity and justice demands
plaintiff-appellants veil of corporate identity should be pierced and the defendant be
compensated for legal services rendered to the heirs, who are directors of the
plaintiff-appellant corporation.[12]
Now before us, petitioner assigns the following errors:
I.
THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL
OF CORPORATE ENTITY.
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER
PETITIONER WITH RESPECT TO THE COUNTERCLAIM.[13]
Petitioner submits that respondent court should not have resorted to piercing
the veil of corporate fiction because the transaction concerned only respondent
Gregorio Manuel and the heirs of the late Benita Trinidad. According to petitioner,
there was no cause of action by said respondent against petitioner; personal
concerns of the heirs should be distinguished from those involving corporate
affairs. Petitioner further contends that the present case does not fall among the
instances wherein the courts may look beyond the distinct personality of a
corporation.According to petitioner, the services for which respondent Gregorio
Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers
the heirs should have been sued in their personal capacity, and not involve the
corporation.[14]
With regard to the permissive counterclaim, petitioner also insists that there
was no proper service of the answer containing the permissive counterclaim. It claims
that the counterclaim is a separate case which can only be properly served upon the
opposing party through summons. Further petitioner states that by nature, a
permissive counterclaim is one which does not arise out of nor is necessarily
connected with the subject of the opposing partys claim. Petitioner avers that since
there was no service of summons upon it with regard to the counterclaim, then the
court did not acquire jurisdiction over petitioner. Since a counterclaim is considered
an action independent from the answer, according to petitioner, then in effect there
should be two simultaneous actions between the same parties: each party is at the
same time both plaintiff and defendant with respect to the other,[15] requiring in each
case separate summonses.
In their Comment, private respondents focus on the two questions raised by
petitioner. They defend the propriety of piercing the veil of corporate fiction, but
deny the necessity of serving separate summonses on petitioner in regard to their
permissive counterclaim contained in the answer.
Private respondents maintain both trial and appellate courts found that
respondent Gregorio Manuel was employed as assistant legal officer of petitioner
corporation, and that his services were solicited by the incorporators, directors and
members to handle and represent them in Special Proceedings No. 7803, concerning
38
Corpo Set 1
the Intestate Estate of the late Benita Trinidad. They assert that the members of
petitioner corporation took advantage of their positions by not compensating
respondent Gregorio Manuel after the termination of the estate proceedings despite
his repeated demands for payment of his services. They cite findings of the appellate
court that support piercing the veil of corporate identity in this particular case. They
assert that the corporate veil may be disregarded when it is used to defeat public
convenience, justify wrong, protect fraud, and defend crime. It may also be pierced,
according to them, where the corporate entity is being used as an alter ego, adjunct,
or business conduit for the sole benefit of the stockholders or of another corporate
entity. In these instances, they aver, the corporation should be treated merely as an
association of individual persons.[16]
Private respondents dispute petitioners claim that its right to due process was
violated when respondents counterclaim was granted due course, although no
summons was served upon it.They claim that no provision in the Rules of Court
requires service of summons upon a defendant in a counterclaim. Private
respondents argue that when the petitioner filed its complaint before the trial court
it voluntarily submitted itself to the jurisdiction of the court. As a consequence, the
issuance of summons on it was no longer necessary. Private respondents say they
served a copy of their answer with affirmative defenses and counterclaim on
petitioners former counsel, Nicanor G. Alvarez. While petitioner would have the
Court believe that respondents served said copy upon Alvarez after he had
withdrawn his appearance as counsel for the petitioner, private respondents assert
that this contention is utterly baseless. Records disclose that the answer was received
two (2) days before the former counsel for petitioner withdrew his appearance,
according to private respondents. They maintain that the present petition is but a
form of dilatory appeal, to set off petitioners obligations to the respondents by
running up more interest it could recover from them. Private respondents therefore
claim damages against petitioner.[17]
To resolve the issues in this case, we must first determine the propriety of
piercing the veil of corporate fiction.
Basic in corporation law is the principle that a corporation has a separate
personality distinct from its stockholders and from other corporations to which it may
be connected.[18] However, under the doctrine of piercing the veil of corporate entity,
the corporations separate juridical personality may be disregarded, for example,
when the corporate identity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime. Also, where the corporation is a mere alter ego or
business conduit of a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation, then its distinct personality may be
ignored.[19] In these circumstances, the courts will treat the corporation as a mere
aggrupation of persons and the liability will directly attach to them. The legal fiction
of a separate corporate personality in those cited instances, for reasons of public
policy and in the interest of justice, will be justifiably set aside.
In our view, however, given the facts and circumstances of this case, the
doctrine of piercing the corporate veil has no relevant application here. Respondent
court erred in permitting the trial courts resort to this doctrine. The rationale behind
piercing a corporations identity in a given case is to remove the barrier between the
corporation from the persons comprising it to thwart the fraudulent and illegal
schemes of those who use the corporate personality as a shield for undertaking
certain proscribed activities. However, in the case at bar, instead of holding certain
individuals or persons responsible for an alleged corporate act, the situation has been
reversed. It is the petitioner as a corporation which is being ordered to answer for
the personal liability of certain individual directors, officers and incorporators
concerned. Hence, it appears to us that the doctrine has been turned upside down
because of its erroneous invocation. Note that according to private respondent
Gregorio Manuel his services were solicited as counsel for members of the Francisco
family to represent them in the intestate proceedings over Benita Trinidads
estate. These estate proceedings did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco
family members but also from petitioner corporation on the claims that its
management had requested his services and he acceded thereto as an employee of
petitioner from whom it could be deduced he was also receiving a salary. His move
to recover unpaid legal fees through a counterclaim against Francisco Motors
Corporation, to offset the unpaid balance of the purchase and repair of a jeep body
could only result from an obvious misapprehension that petitioners corporate assets
could be used to answer for the liabilities of its individual directors, officers, and
incorporators. Such result if permitted could easily prejudice the corporation, its own
creditors, and even other stockholders; hence, clearly inequitous to petitioner.
Furthermore, considering the nature of the legal services involved, whatever
obligation said incorporators, directors and officers of the corporation had incurred,
it was incurred in their personal capacity. When directors and officers of a
corporation are unable to compensate a party for a personal obligation, it is far-
fetched to allege that the corporation is perpetuating fraud or promoting injustice,
and be thereby held liable therefor by piercing its corporate veil. While there are no
hard and fast rules on disregarding separate corporate identity, we must always be
mindful of its function and purpose. A court should be careful in assessing the milieu
where the doctrine of piercing the corporate veil may be applied. Otherwise an
injustice, although unintended, may result from its erroneous application.
39
Corpo Set 1

The personality of the corporation and those of its incorporators, directors and jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Estoppel is a bar against any claims
officers in their personal capacities ought to be kept separate in this case. The claim of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37).[22]
for legal fees against the concerned individual incorporators, officers and directors
could not be properly directed against the corporation without violating basic WHEREFORE, the petition is hereby GRANTED and the assailed decision is
principles governing corporations. Moreover, every action including a counterclaim hereby REVERSED insofar only as it held Francisco Motors Corporation liable for the
must be prosecuted or defended in the name of the real party in interest.[20] It is legal obligation owing to private respondent Gregorio Manuel; but this decision is
plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel without prejudice to his filing the proper suit against the concerned members of the
at the door of petitioner (FMC) rather than individual members of the Francisco Francisco family in their personal capacity. No pronouncement as to costs.
family.
SO ORDERED.
However, with regard to the procedural issue raised by petitioners allegation,
that it needed to be summoned anew in order for the court to acquire jurisdiction
over it, we agree with respondent courts view to the contrary. Section 4, Rule 11 of
the Rules of Court provides that a counterclaim or cross-claim must be answered
within ten (10) days from service. Nothing in the Rules of Court says that summons
should first be served on the defendant before an answer to counterclaim must be
made. The purpose of a summons is to enable the court to acquire jurisdiction over
the person of the defendant. Although a counterclaim is treated as an entirely
distinct and independent action, the defendant in the counterclaim, being the
plaintiff in the original complaint, has already submitted to the jurisdiction of the
court. Following Rule 9, Section 3 of the 1997 Rules of Civil Procedure,[21] if a
defendant (herein petitioner) fails to answer the counterclaim, then upon motion of
plaintiff, the defendant may be declared in default. This is what happened to
petitioner in this case, and this Court finds no procedural error in the disposition of
the appellate court on this particular issue. Moreover, as noted by the respondent
court, when petitioner filed its motion seeking to set aside the order of default, in
effect it submitted itself to the jurisdiction of the court. As well said by respondent
court:

Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show

that upon its request, plaintiff-appellant was granted time to file a motion for
reconsideration of the disputed decision. Plaintiff-appellant did file its motion for
reconsideration to set aside the order of default and the judgment rendered on the
counterclaim.

Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the

counterclaim, as it vigorously insists, plaintiff-appellant is considered to have
submitted to the courts jurisdiction when it filed the motion for reconsideration
seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A party is estopped
from assailing the jurisdiction of a court after voluntarily submitting himself to its

40
Corpo Set 1
8. Bibiano Reynoso v. CA
[G.R. Nos. 116124-25. November 22, 2000]
BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS and GENERAL
CREDIT CORPORATION, respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the consolidated decision of the Court of
Appeals dated July 7, 1994, which reversed the separate decisions of the Regional
Trial Court of Pasig City and the Regional Trial Court of Quezon City in two cases
between petitioner Reynoso and respondent General Credit Corporation (GCC).
Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter,
CCC), a financing and investment firm, decided to organize franchise companies in
different parts of the country, wherein it shall hold thirty percent (30%)
equity. Employees of the CCC were designated as resident managers of the franchise
companies.Petitioner Bibiano O. Reynoso, IV was designated as the resident manager
of the franchise company in Quezon City, known as the Commercial Credit
Corporation of Quezon City (hereinafter, CCC-QC).
CCC-QC entered into an exclusive management contract with CCC whereby the
latter was granted the management and full control of the business activities of the
former. Under the contract, CCC-QC shall sell, discount and/or assign its receivables
to CCC. Subsequently, however, this discounting arrangement was discontinued
pursuant to the so-called DOSRI Rule, prohibiting the lending of funds by corporations
to its directors, officers, stockholders and other persons with related interests
therein.
On account of the new restrictions imposed by the Central Bank policy by virtue
of the DOSRI Rule, CCC decided to form CCC Equity Corporation, (hereinafter, CCC-
Equity), a wholly-owned subsidiary, to which CCC transferred its thirty (30%) percent
equity in CCC-QC, together with two seats in the latters Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation,
including petitioner Reynoso, became employees of CCC-Equity. While petitioner
continued to be the Resident Manager of CCC-QC, he drew his salaries and
allowances from CCC-Equity. Furthermore, although an employee of CCC-Equity,
petitioner, as well as all employees of CCC-QC, became qualified members of the
Commercial Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC
and supervised its employees. The business activities of CCC-QC pertain to the
acceptance of funds from depositors who are issued interest-bearing promissory
notes. The amounts deposited are then loaned out to various borrowers. Petitioner,
in order to boost the business activities of CCC-QC, deposited his personal funds in
the company. In return, CCC-QC issued to him its interest-bearing promissory notes.
On August 15, 1980, a complaint for sum of money with preliminary
attachment,[1] docketed as Civil Case No. Q-30583, was instituted in the then Court
of First Instance of Rizal by CCC-QC against petitioner, who had in the meantime been
dismissed from his employment by CCC-Equity. The complaint was subsequently
amended in order to include Hidelita Nuval, petitioners wife, as a party
defendant.[2] The complaint alleged that petitioner embezzled the funds of CCC-QC
amounting to P1,300,593.11. Out of this amount, at least P630,000.00 was used for
the purchase of a house and lot located at No. 12 Macopa Street, Valle Verde I, Pasig
City. The property was mortgaged to CCC, and was later foreclosed.
In his amended Answer, petitioner denied having unlawfully used funds of CCC-
QC and asserted that the sum of P1,300,593.11 represented his money placements
in CCC-QC, as shown by twenty-three (23) checks which he issued to the said
company.[3]
The case was subsequently transferred to the Regional Trial Court of Quezon
City, Branch 86, pursuant to the Judiciary Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its decision, the decretal portion
of which states:
Premises considered, the Court finds the complaint without merit. Accordingly, said
complaint is hereby DISMISSED.
By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation,
humiliation and mental anguish.
On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is
hereby ordered:
a) to pay defendant the sum of P185,000.00 plus 14% interest per annum from
October 2, 1980 until fully paid;
b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per
annum from June 24, 1981, the date of filing of Amended Answer, until fully paid;
41
Corpo Set 1
from this amount may be deducted the remaining obligation of defendant under the
promissory note of October 24, 1977, in the sum of P9,738.00 plus penalty at the rate
of 1% per month from December 24, 1977 until fully paid;
c) to pay defendants P200,000.00 as moral damages;
d) to pay defendants P100,000.00 as exemplary damages;
e) to pay defendants P25,000.00 as and for attorney's fees; plus costs of the suit.
SO ORDERED.
Both parties appealed to the then Intermediate Appellate Court. The appeal of
Commercial Credit Corporation of Quezon City was dismissed for failure to pay
docket fees. Petitioner, on the other hand, withdrew his appeal.
Hence, the decision became final and, accordingly, a Writ of Execution was
issued on July 24, 1989.[4] However, the judgment remained unsatisfied,[5] prompting
petitioner to file a Motion for Alias Writ of Execution, Examination of Judgment
Debtor, and to Bring Financial Records for Examination to Court. CCC-QC filed an
Opposition to petitioners motion,[6] alleging that the possession of its premises and
records had been taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
On November 22, 1991, the Regional Trial Court of Quezon City issued an Order
directing General Credit Corporation to file its comment on petitioners motion for
alias writ of execution.[7] General Credit Corporation filed a Special Appearance and
Opposition on December 2, 1991,[8] alleging that it was not a party to the case, and
therefore petitioner should direct his claim against CCC-QC and not General Credit
Corporation. Petitioner filed his reply,[9] stating that the CCC-QC is an adjunct
instrumentality, conduit and agency of CCC. Furthermore, petitioner invoked the
decision of the Securities and Exchange Commission in SEC Case No. 2581,
entitled, Avelina G. Ramoso, et al., Petitioner versus General Credit Corp., et al.,
Respondents, where it was declared that General Credit Corporation, CCC-Equity and
other franchised companies including CCC-QC were declared as one corporation.
On December 9, 1991, the Regional Trial Court of Quezon City ordered the
issuance of an alias writ of execution.[10] On December 20, 1991, General Credit
Corporation filed an Omnibus Motion,[11] alleging that SEC Case No. 2581 was still
pending appeal, and maintaining that the levy on properties of the General Credit
Corporation by the deputy sheriff of the court was erroneous.
In his Opposition to the Omnibus Motion, petitioner insisted that General Credit
Corporation is just the new name of Commercial Credit Corporation; hence, General
Credit Corporation and Commercial Credit Corporation should be treated as one and
the same entity.
On February 13, 1992, the Regional Trial Court of Quezon City denied the
Omnibus Motion.[12] On March 5, 1992, it issued an Order directing the issuance of
an alias writ of execution.[13]
Previously, on February 21, 1992, General Credit Corporation instituted a
complaint before the Regional Trial Court of Pasig against Bibiano Reynoso IV and
Edgardo C. Tanangco, in his capacity as Deputy Sheriff of Quezon City,[14] docketed as
Civil Case No. 61777, praying that the levy on its parcel of land located in Pasig, Metro
Manila and covered by Transfer Certificate of Title No. 29940 be declared null and
void, and that defendant sheriff be enjoined from consolidating ownership over the
land and from further levying on other properties of General Credit Corporation to
answer for any liability under the decision in Civil Case No. Q-30583.
The Regional Trial Court of Pasig, Branch 167, did not issue a temporary
restraining order. Thus, General Credit Corporation instituted two (2) petitions for
certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 27518[15] and CA-
G.R. SP No. 27683. These cases were later consolidated.
On July 7, 1994, the Court of Appeals rendered a decision in the two
consolidated cases, the dispositive portion of which reads:
WHEREFORE, in SP No. 27518 we declare the issue of the respondent court's refusal
to issue a restraining order as having been rendered moot by our Resolution of 7 April
1992 which, by way of injunctive relief, provided that "the respondents and their
representatives are hereby enjoined from conducting an auction sale (on execution)
of petitioner's properties as well as initiating similar acts of levying (upon) and selling
on execution other properties of said petitioner". The injunction thus granted, as
modified by the words in parenthesis, shall remain in force until Civil Case No. 61777
shall have been finally terminated.
In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY and SET
ASIDE, for having been issued in excess of jurisdiction, the Order of 13 February 1992
in Civil Case No. Q-30583 as well as any other order or process through which the
petitioner is made liable under the judgment in said Civil Case No. Q-30583.
No damages and no costs.
42
Corpo Set 1
SO ORDERED.[16]
Hence, this petition for review anchored on the following arguments:
1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27683 WHEN IT
NULLIFIED AND SET ASIDE THE 13 FEBRUARY 1992 ORDER AND OTHER ORDERS OR
PROCESS OF BRANCH 86 OF THE REGIONAL TRIAL COURT OF QUEZON CITY THROUGH
WHICH GENERAL CREDIT CORPORATION IS MADE LIABLE UNDER THE JUDGMENT
THAT WAS RENDERED IN CIVIL CASE NO. Q-30583.
2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27518 WHEN IT
ENJOINED THE AUCTION SALE ON EXECUTION OF THE PROPERTIES OF GENERAL
CREDIT CORPORATION AS WELL AS INITIATING SIMILAR ACTS OF LEVYING UPON AND
SELLING ON EXECUTION OF OTHER PROPERTIES OF GENERAL CREDIT CORPORATION.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT GENERAL CREDIT
CORPORATION IS A STRANGER TO CIVIL CASE NO. Q-30583, INSTEAD OF, DECLARING
THAT COMMERCIAL CREDIT CORPORATION OF QUEZON CITY IS THE ALTER EGO,
INSTRUMENTALITY, CONDUIT OR ADJUNCT OF COMMERCIAL CREDIT CORPORATION
AND ITS SUCCESSOR GENERAL CREDIT CORPORATION.
At the outset, it must be stressed that there is no longer any controversy over
petitioners claims against his former employer, CCC-QC, inasmuch as the decision in
Civil Case No. Q-30583 of the Regional Trial Court of Quezon City has long become
final and executory. The only issue, therefore, to be resolved in the instant petition
is whether or not the judgment in favor of petitioner may be executed against
respondent General Credit Corporation. The latter contends that it is a corporation
separate and distinct from CCC-QC and, therefore, its properties may not be levied
upon to satisfy the monetary judgment in favor of petitioner. In short, respondent
raises corporate fiction as its defense. Hence, we are necessarily called upon to apply
the doctrine of piercing the veil of corporate entity in order to determine if General
Credit Corporation, formerly CCC, may be held liable for the obligations of CCC-QC.
The petition is impressed with merit.
A corporation is an artificial being created by operation of law, having the right
of succession and the powers, attributes, and properties expressly authorized by law
or incident to its existence.[17] It is an artificial being invested by law with a personality
separate and distinct from those of the persons composing it as well as from that of
any other legal entity to which it may be related.[18] It was evolved to make possible
the aggregation and assembling of huge amounts of capital upon which big business
depends. It also has the advantage of non-dependence on the lives of those who
compose it even as it enjoys certain rights and conducts activities of natural persons.
Precisely because the corporation is such a prevalent and dominating factor in
the business life of the country, the law has to look carefully into the exercise of
powers by these artificial persons it has created.
Any piercing of the corporate veil has to be done with caution. However, the
Court will not hesitate to use its supervisory and adjudicative powers where the
corporate fiction is used as an unfair device to achieve an inequitable result, defraud
creditors, evade contracts and obligations, or to shield it from the effects of a court
decision. The corporate fiction has to be disregarded when necessary in the interest
of justice.
In First Philippine International Bank v. Court of Appeals, et al.,[19] we held:
When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or
crime, the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals.
Also in the above-cited case, we stated that this Court has pierced the veil of
corporate fiction in numerous cases where it was used, among others, to avoid a
judgment credit;[20] to avoid inclusion of corporate assets as part of the estate of a
decedent;[21] to avoid liability arising from debt;[22] when made use of as a shield to
perpetrate fraud and/or confuse legitimate issues;[23] or to promote unfair objectives
or otherwise to shield them.[24]
In the appealed judgment, the Court of Appeals sustained respondents
arguments of separateness and its character as a different corporation which is a non-
party or stranger to this case.
The defense of separateness will be disregarded where the business affairs of a
subsidiary corporation are so controlled by the mother corporation to the extent that
it becomes an instrument or agent of its parent. But even when there is dominance
over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction
applies only when such fiction is used to defeat public convenience, justify wrong,
protect fraud or defend crime.[25]
We stated in Tomas Lao Construction v. National Labor Relations
Commission,[26] that the legal fiction of a corporation being a judicial entity with a
43
Corpo Set 1
distinct and separate personality was envisaged for convenience and to serve
justice. Therefore, it should not be used as a subterfuge to commit injustice and
circumvent the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of Commercial Credit
Corporation was intended to publicly identify it as a component of the CCC group of
companies engaged in one and the same business, i.e., investment and
financing. Aside from CCC-Quezon City, other franchise companies were organized
such as CCC-North Manila and CCC-Cagayan Valley. The organization of subsidiary
corporations as what was done here is usually resorted to for the aggrupation of
capital, the ability to cover more territory and population, the decentralization of
activities best decentralized, and the securing of other legitimate advantages. But
when the mother corporation and its subsidiary cease to act in good faith and honest
business judgment, when the corporate device is used by the parent to avoid its
liability for legitimate obligations of the subsidiary, and when the corporate fiction is
used to perpetrate fraud or promote injustice, the law steps in to remedy the
problem. When that happens, the corporate character is not necessarily
abrogated. It continues for legitimate objectives. However, it is pierced in order to
remedy injustice, such as that inflicted in this case.
Factually and legally, the CCC had dominant control of the business operations
of CCC-QC. The exclusive management contract insured that CCC-QC would be
managed and controlled by CCC and would not deviate from the commands of the
mother corporation. In addition to the exclusive management contract, CCC
appointed its own employee, petitioner, as the resident manager of CCC-QC.
Petitioners designation as resident manager implies that he was placed in CCC-
QC by a superior authority. In fact, even after his assignment to the subsidiary
corporation, petitioner continued to receive his salaries, allowances, and benefits
from CCC, which later became respondent General Credit Corporation. Not only
that.Petitioner and the other permanent employees of CCC-QC were qualified
members and participants of the Employees Pension Plan of CCC.
There are other indications in the record which attest to the applicability of the
identity rule in this case, namely: the unity of interests, management, and control;
the transfer of funds to suit their individual corporate conveniences; and the
dominance of policy and practice by the mother corporation insure that CCC-QC was
an instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the same principal
line of business involving a single transaction process. Under their discounting
arrangements, CCC financed the operations of CCC-QC. The subsidiary sold,
discounted, or assigned its accounts receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971,
shows the pervasive and intensive auditing function of CCC over CCC-QC.[27] The two
corporations also shared the same office space. CCC-QC had no office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified
by the director-representative of CCC. The lawyers who filed the complaint and
amended complaint were all in-house lawyers of CCC.
The challenged decision of the Court of Appeals states that CCC, now General
Credit Corporation, is not a formal party in the case. The reason for this is that the
complaint was filed by CCC-QC against petitioner. The choice of parties was with CCC-
QC. The judgment award in this case arose from the counterclaim which petitioner
set up against CCC-QC.
The circumstances which led to the filing of the aforesaid complaint are quite
revealing. As narrated above, the discounting agreements through which CCC
controlled the finances of its subordinates became unlawful when Central Bank
adopted the DOSRI prohibitions. Under this rule the directors, officers, and
stockholders are prohibited from borrowing from their company. Instead of adhering
to the letter and spirit of the regulations by avoiding DOSRI loans altogether, CCC
used the corporate device to continue the prohibited practice. CCC organized still
another corporation, the CCC-Equity Corporation. However, as a wholly owned
subsidiary, CCC-Equity was in fact only another name for CCC. Key officials of CCC,
including the resident managers of subsidiary corporations, were appointed to
positions in CCC-Equity.
In order to circumvent the Central Banks disapproval of CCC-QCs mode of
reducing its DOSRI lender accounts and its directive to follow Central Bank
requirements, resident managers, including petitioner, were told to observe a
pseudo-compliance with the phasing out orders. For his unwillingness to
satisfactorily conform to these directives and his reluctance to resort to illegal
practices, petitioner earned the ire of his employers. Eventually, his services were
terminated, and criminal and civil cases were filed against him.
Petitioner issued twenty-three checks as money placements with CCC-QC
because of difficulties faced by the firm in implementing the required phase-out
program.Funds from his current account in the Far East Bank and Trust Company
were transferred to CCC-QC. These monies were alleged in the criminal complaints
against him as having been stolen. Complaints for qualified theft and estafa were
brought by CCC-QC against petitioner. These criminal cases were later
44
Corpo Set 1

dismissed. Similarly, the civil complaint which was filed with the Court of First
Instance of Pasig and later transferred to the Regional Trial Court of Quezon City was
dismissed, but his counterclaims were granted.
Faced with the financial obligations which CCC-QC had to satisfy, the mother
firm closed CCC-QC, in obvious fraud of its creditors. CCC-QC, instead of opposing its
closure, cooperated in its own demise. Conveniently, CCC-QC stated in its opposition
to the motion for alias writ of execution that all its properties and assets had been
transferred and taken over by CCC.
Under the foregoing circumstances, the contention of respondent General
Credit Corporation, the new name of CCC, that the corporate fiction should be
appreciated in its favor is without merit.
Paraphrasing the ruling in Claparols v. Court of Industrial Relations,[28] reiterated
in Concept Builders Inc. v. National Labor Relations,[29] it is very obvious that
respondent seeks the protective shield of a corporate fiction whose veil the present
case could, and should, be pierced as it was deliberately and maliciously designed to
evade its financial obligation of its employees.
If the corporate fiction is sustained, it becomes a handy deception to avoid a
judgment debt and work an injustice. The decision raised to us for review is an
invitation to multiplicity of litigation. As we stated in Islamic Directorate vs. Court of
Appeals,[30] the ends of justice are not served if further litigation is encouraged when
the issue is determinable based on the records.
A court judgment becomes useless and ineffective if the employer, in this case
CCC as a mother corporation, is placed beyond the legal reach of the judgment
creditor who, after protracted litigation, has been found entitled to positive
relief. Courts have been organized to put an end to controversy. This purpose should
not be negated by an inapplicable and wrong use of the fiction of the corporate veil.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and
ASIDE. The injunction against the holding of an auction sale for the execution of the
decision in Civil Case No. Q-30583 of properties of General Credit Corporation, and
the levying upon and selling on execution of other properties of General Credit
Corporation, is LIFTED.
SO ORDERED.

45
Corpo Set 1
9. Simeon De Leon v. NLRC
[G.R. No. 112661. May 30, 2001]
SIMEON DE LEON, EFREN ABAD, JAIME ABAD, JESSIE ABAY-ABAY, ROLANDO
ABIOLA, ALICIO ABISO, CELEDONIO ABSALON, JEREMIAS ADO, VICENTE
ADO, VICENTE AGGABAO, EFRAIN AGUIRRE, ALEXANDER ALATA, ERNESTO
ALCALDE, LORENZO ALCOY, ALMARIO ALICIO, CESAR AMADOR, JOSE
AMANTE, ESTELITO AMBROSIO, VICENTE ANAPI, ARNEL ANCHETA,
ROGELIO ANCHETA, WILFREDO ANONUEVO, DOMINGO ANTIGRO,
MARGARITO ANTIGRO, ROGELIO ANZANO, ANTONIO APOSTOL, ORLANDO
AQUINO, JUAN ARCALAS, BONIFACIO ARIOLA, EDGAR ARIOLA, BONIFACIO
ARMASA, FERNANDO BACCAY, MARIO BACUD, RUPERTO BACUDAN, NILO
BALAG, ARGEL BALTAZAR, DEMETRIO BARAYOGA, FELIX BARNEDO,
FLORENTINO BARTE, SARRI BASIRUL, MARCELO BATANES, RECTO
BAYONA, VICTORIO BERMUNDO, ISMAEL BERNAL, LERIO BERSABE, FIDEL
BOSE, MARIANO BOTACION, DANILO BRAZIL, REYNALDO BRUNIO, MARIO
BUENAVENTURA, ARSENIO BULATAO, FRANCISCO BULATAO, CARLOS
CAJARA, ROSENDO CAMACHO, RUBEN CAMACHO, NESTOR CAPILOS,
DOMINGO CASTRO, MAXIMIANO DE CASTO, EDINO CASTUERA, ZALDY
CERDON, ANTONIO DERUJANO, VICTOR CIPRIANO, JUANITO CORPUZ,
ALFREDO CRUZ, FERNANDO DELA CRUZ, MARIO CUSTOPAY, ROSAURO
CUSTODIO, FRANKLIN CUSTODIO, ALFREDO DAPROZA, RENATO DAVAG,
NOEL DEMINGOY, GENE DIESTRO, ESTEBAN DIONSON, RAMON DIZA,
JEREMIAS DOROMAL, MANUEL EDATO, FERNANDO EDORA, CONRADO
ENRIQUEZ, NICOMEDEZ ENRIQUEZ, ROLITO ESPIEL, LAURO ESPANOL,
NONITO ESPLANA, ELPIDIO ESPANOL, DIOLITO ESTOPEREZ, ODILON EUSTE,
HENRY FACTOR, VIRGILIO FAVORITO, ARISTOTLE FERNANDEZ, RODOFLO
FORMALEJO, JUNE FULAY, RUIS FUTOL, JESUS GABA, RODRIGO GABAT,
ROSALIA GABAT, CLEMENTE GASPAR, RODRIGO GAVIOLA, ELLEN
GODELOSON, SALVADOR GUELA, EDUARDO GUZMAN, BALTAZAR DE
GUZMAN, ZOSIMO DE GUZMAN, REYANLDO HAGUIRING, CARLOS
GINDAP, BERNARDINO GIPIT, WILFREDO HERNANDEZ, IMMANUEL
IBRING, PEPITO IMPERIO, MAGTANGGOL INSORIO, RODELYN JACUNTO,
MARIO JARAPAN, MAXIMO JIMENEZ, ALEJANDRO JUDLOMAN, JUAN
LAOAGAN, DANTE LARIOSA, ELINO LASAGA, JOSEPH LEGASPINA, ZOSIMO
LEPALAM, BENJAMIN LIBAN, EFREN LIGUE, CLETO LINGA, ROMEO LLAGAS,
LUCIO LLARENA, ALFREDO LOPEZ, FELIX LOPEZ, SANTOS LOPEZ, RUBEN
LORENZO, NILO LUGANA, CANCIO MAATUBANG, ANTONIO MACASIO,
ROBERTO MACATUNGGAL, VIRGILIO MACALINAO, RAMON MACOY, JOSE
MAGALONA, ALEJO MANAGUELOD, DOMINGO MANALO, EMILIANO
MANALO, SULPICIO MANTALABA, EDITO MANUEL, ROMULO MANUEL,
FELINO MARANA, CARLITO MARGAJA, ROMARES MARIANO, CERMELO
MARTINEZ, MODESTO MASULIT, ALMA MATUSALEM, FLAVIANO MEDEL,
DOLCIANO MEDINA, DOLOROSA MEDINA, NORLINDO MEJARITO, PEDRITO
MENDOZA, GUARDITO MERANO, ALBERTO DE MESA, CHARLIE MINANO,
JOSE MONTEROSO, ROSENDO MORALES, CESAR NARDA, DOMINADOR
NAGAL, EDEMIO NARISMA, DINISIO NAVASCA, REGINO NEPICON, JR.,
JESSIE CRIS NILO, JERWYN ORARIO, EUGENIO ORBEGOZO, IRENEO
ORGANISTA, CATALINO OJENDRAS, WILLIAM OLIVARES, JUANITO ORIO,
WILLIAM ORTIZO, ROQUE PAL-PALLATOC, ROGELIO PAEL, LORENZO
PAMINTUAN, VIRGILIO PANTALEON, ANTONIO PAPA, EMMANUEL
PASCUAL, FRANCISCO PECUNDO, RUFINO PELICER, LEONARDO PEPITO,
PABLITO PERALTA, EDILBERTO PEREZ, LOLITO PEREZ, PELAGIO PEREZ, JR.,
FERNANDO PINEDA, CARMEN PIO, ALEJANDRO QUIAMCO, VIRGILIO
QUILALANG, JEREMEAS QUINES, ZENAIDA RAQUINE, DOMINGO RANOLA,
SABINO RANULO, EDDIE RAZONABE, ALBERTO REBAULA, BENIGNO REGIS,
PERFECTO REBOYO, VITALIANO REYES, ZOSIMO REYES, EDWIN ROBERTS,
ROBERT ROJO, GODOFREDO ROLIO, ANATALIA ROSANTO, DOMINADOR
ROSANTO, RAMON ROSANTO, SR., RODRIGO ROSANTO, JULIO RUBIO,
DANTE RUZOL, VENUS RUZOL, ROMULO SABINO, CIPRIANO SACUILLES,
SR., PRIMO SALAZAR, GASPAR SAMUYA, ANTONIO SANCHEZ, CLAUDIO
SANCHEZ, YOLANDA SAN LUIS, ROBERTO SANTOS, BENITO SEGUDIENTE,
EDGAR SIBAL, GREGORIO SIBAL, VALENTINO SIBAL, SONNY SINGH, ROMEO
SOMERA, EDGAR TABAQUE, BENITO TACATA, MATILDE TACATA,
ANDRESITO TALAM, ANTOLIN TALISIC, PABLO TAMAYO, JULIE TAMIEZA,
ROGELIO TAYO, CELSO TE, ENRIQUE TRIPULCA, ARMANDO TUIBEO,
NICANOR TUMAMAO, EDUARDO TUMBALE, RAMON TURIRIT, LONGENIO
UMACAM, TOLENTINO UNDAUNDO, DIOLITO VALENCIA, ERNESTO
VARGAS, BILLY VASQUEZ, TOMAS VELINA, MARCOS DE VERA, IRENEO
VILELA, NICANDRO VILLAFRANCA, DANNY VILLANUEVA, LOLITA VITALICO,
ALIPIO YGOT, AGOSTO YROMA, FELIX ZAMBALES, and GUILLERMO
ZIPANGAN, petioners, vs. NATIONAL LABOR RELATIONS COMMISSION
(NLRC), and FORTUNE TOBACCO CORPORATION and/or MAGNUM
INTEGRATED SERVICES, INC. (formerly FORTUNE INTEGRATED SERVICES,
INC.), respondents.
DECISION
PUNO, J.:
46
Corpo Set 1
This case stemmed from a complaint for illegal dismissal, unfair labor practice
and refund of cash bond filed by petitioners against respondents before the
Arbitration Branch of the National Labor Relations Commission (NLRC). The petition
at bar seeks the annulment of the resolution of the NLRC dated July 5, 1993 reversing
the decision of the Labor Arbiter finding respondents liable for the charges, and its
resolution dated August 10, 1993 denying petitioners' motion for reconsideration.
The undisputed facts are as follows:
On August 23, 1980, Fortune Tobacco Corporation (FTC) and Fortune Integrated
Services, Inc. (FISI) entered into a contract for security services where the latter
undertook to provide security guards for the protection and security of the
former. The petitioners were among those engaged as security guards pursuant to
the contract.
On February 1, 1991, the incorporators and stockholders of FISI sold out lock,
stock and barrel to a group of new stockholders by executing for the purpose a "Deed
of Sale of Shares of Stock". On the same date, the Articles of Incorporation of FISI was
amended changing its corporate name to Magnum Integrated Services, Inc. (MISI). A
new by-laws was likewise adopted and approved by the Securities and Exchange
Commission on June 4, 1993.
On October 15, 1991, FTC terminated the contract for security services which
resulted in the displacement of some five hundred eighty two (582) security guards
assigned by FISI/MISI to FTC, including the petitioners in this case. FTC engaged the
services of two (2) other security agencies, Asian Security Agency and Ligalig Security
Services, whose security guards were posted on October 15, 1991 to replace FISI's
security guards.
Sometime in October 1991, the Fortune Tobacco Labor Union, an affiliate of the
National Federation of Labor Unions (NAFLU), and claiming to be the bargaining
agent of the security guards, sent a Notice of Strike to FISI/MISI. On November 14,
1991, the members of the union which include petitioners picketed the premises of
FTC. The Regional Trial Court of Pasig, however, issued a writ of injunction to enjoin
the picket.
On November 29, 1991, Simeon de Leon, together with sixteen (16) other
complainants instituted the instant case before the Arbitration Branch of the
NLRC. The complaint was later amended to allow the inclusion of other complainants.
The parties submitted the following issues for resolution:
(1) Whether petitioners were illegally dismissed;
(2) Whether respondents are guilty of unfair labor practice; and
(3) Whether petitioners are entitled to the refund of their cash bond
deposited with respondent FISI.
Petitioners alleged that they were regular employees of FTC which was also
using the corporate names Fortune Integrated Services, Inc. and Magnum Integrated
Services, Inc. They were assigned to work as security guards at the company's main
factory plant, its tobacco redrying plant and warehouse. They averred that they
performed their duties under the control and supervision of FTC's security
supervisors. Their services, however, were severed in October 1991 without valid
cause and without due process. Petitioners claimed that their dismissal was part of
respondents' design to bust their newly-organized union which sought to enforce
their rights under the Labor Standards law.[1]
Respondent FTC, on the other hand, maintained that there was no employer-
employee relationship between FTC and petitioners. It said that at the time of the
termination of their services, petitioners were the employees of MISI which was a
separate and distinct corporation from FTC. Hence, petitioners had no cause of action
against FTC.[2]
Respondent FISI, meanwhile, denied the charge of illegal dismissal and unfair
labor practice. It argued that petitioners were not dismissed from service but were
merely placed on floating status pending re-assignment to other posts. It alleged that
the temporary displacement of petitioners was not due to its fault but was the result
of the pretermination by FTC of the contract for security services.[3]
The Labor Arbiter found respondents liable for the charges. Rejecting FTC's
argument that there was no employer-employee relationship between FTC and
petitioners, he ruled that FISI and FTC should be considered as a single employer. He
observed that the two corporations have common stockholders and they share the
same business address. In addition, FISI had no client other than FTC and other
corporations belonging to the group of companies owned by Lucio Tan. The Labor
Arbiter thus found respondents guilty of union busting and illegal dismissal. He
observed that not long after the stockholders of FISI sold all their stocks to a new set
of stockholders, FTC terminated the contract of security services and engaged the
services of two other security agencies. FTC did not give any reason for the
termination of the contract. The Labor Arbiter gave credence to petitioners' theory
that respondents' precipitate termination of their employment was intended to bust
their union. Consequently, the Labor Arbiter ordered respondents to pay petitioners
their backwages and separation pay, to refund their cash bond deposit, and to pay
attorney's fees.[4]
On appeal, the NLRC reversed and set aside the decision of the Labor
Arbiter. First, it held that the Labor Arbiter erred in applying the "single employer"
47
Corpo Set 1
principle and concluding that there was an employer-employee relationship between
FTC and FISI on one hand, and petitioners on the other hand. It found that at the time
of the termination of the contract of security services on October 15, 1991, FISI
which, at that time, had been renamed Magnum Integrated Services, Inc. had a
different set of stockholders and officers from that of FTC. They also had separate
offices. The NLRC held that the principle of "single employer" and the doctrine of
piercing the corporate veil could not apply under the circumstances. It further ruled
that the proximate cause for the displacement of petitioners was the termination of
the contract for security services by FTC on October 15, 1991. FISI could not be
faulted for the severance of petitioners' assignment at the premises of
FTC. Consequently, the NLRC held that the charge of illegal dismissal had no basis. As
regards the charge of unfair labor practice, the NLRC found that petitioners who had
the burden of proof failed to adduce any evidence to support their charge of unfair
labor practice against respondents. Hence, it ordered the dismissal of petitioners'
complaint.[5]
The petitioners filed a motion for reconsideration of the resolution of the NLRC
but the same was denied.[6] Hence, this petition.
We gave due course to the petition on May 15, 1995. Thus, the ruling
in St. Martin Funeral Home vs. NLRC[7] remanding all petitions for certiorari from the
decision of the NLRC to the Court of Appeals does not apply to the case at bar.
The petition is impressed with merit.
An examination of the facts of this case reveals that there is sufficient ground
to conclude that respondents were guilty of interfering with the right of petitioners
to self-organization which constitutes unfair labor practice under Article 248 of the
Labor Code.[8] Petitioners have been employed with FISI since the 1980s and have
since been posted at the premises of FTC -- its main factory plant, its tobacco redrying
plant and warehouse. It appears from the records that FISI, while having its own
corporate identity, was a mere instrumentality of FTC, tasked to provide protection
and security in the company premises. The records show that the two corporations
had identical stockholders and the same business address. FISI also had no other
clients except FTC and other companies belonging to the Lucio Tan group of
companies. Moreover, the early payslips of petitioners show that their salaries were
initially paid by FTC.[9] To enforce their rightful benefits under the laws on Labor
Standards, petitioners formed a union which was later certified as bargaining agent
of all the security guards. On February 1, 1991, the stockholders of FISI sold all their
participations in the corporation to a new set of stockholders which renamed the
corporation Magnum Integrated Services, Inc. On October 15, 1991, FTC, without any
reason, preterminated its contract of security services with MISI and contracted two
other agencies to provide security services for its premises. This resulted in the
displacement of petitioners. As MISI had no other clients, it failed to give new
assignments to petitioners. Petitioners have remained unemployed since then. All
these facts indicate a concerted effort on the part of respondents to remove
petitioners from the company and thus abate the growth of the union and block its
actions to enforce their demands in accordance with the Labor Standards laws.The
Court held in Insular Life Assurance Co., Ltd., Employees Association-NATU vs. Insular
Life Assurance Co., Ltd.:[10]
The test of whether an employer has interfered with and coerced employees within
the meaning of section (a) (1) is whether the employer has engaged in conduct which
it may reasonably be said tends to interfere with the free exercise of employees'
rights under section 3 of the Act, and it is not necessary that there be direct evidence
that any employee was in fact intimidated or coerced by statements of threats of the
employer if there is a reasonable inference that anti-union conduct of the employer
does have an adverse effect on self-organization and collective bargaining.[11]
We are not persuaded by the argument of respondent FTC denying the presence
of an employer-employee relationship. We find that the Labor Arbiter correctly
applied the doctrine of piercing the corporate veil to hold all respondents liable for
unfair labor practice and illegal termination of petitioners' employment. It is a
fundamental principle in corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporations to which it is
connected. However, when the concept of separate legal entity is used to defeat
public convenience, justify wrong, protect fraud or defend crime, the law will regard
the corporation as an association of persons, or in case of two corporations, merge
them into one. The separate juridical personality of a corporation may also be
disregarded when such corporation is a mere alter ego or business conduit of another
person.[12] In the case at bar, it was shown that FISI was a mere adjunct of FTC. FISI,
by virtue of a contract for security services, provided FTC with security guards to
safeguard its premises. However, records show that FISI and FTC have the same
owners and business address, and FISI provided security services only to FTC and
other companies belonging to the Lucio Tan group of companies. The purported sale
of the shares of the former stockholders to a new set of stockholders who changed
the name of the corporation to Magnum Integrated Services, Inc. appears to be part
of a scheme to terminate the services of FISI's security guards posted at the premises
of FTC and bust their newly-organized union which was then beginning to become
active in demanding the company's compliance with Labor Standards laws. Under
these circumstances, the Court cannot allow FTC to use its separate corporate
personality to shield itself from liability for illegal acts committed against its
employees.
48
Corpo Set 1

Thus, we find that the termination of petitioners' services was without basis and
therefore illegal. Under Article 279 of the Labor Code, an employee who is unjustly
dismissed from work is entitled to reinstatement without loss of seniority rights and
other privileges, and to his full backwages, inclusive of allowances, and to his other
benefits or their monetary equivalent computed from the time his compensation was
witheld from him up to the time of his actual reinstatement. However, if
reinstatement is no longer possible, the employer has the alternative of paying the
employee his separation pay in lieu of reinstatement.[13]
IN VIEW WHEREOF, the petition is GRANTED. The assailed resolutions of the
NLRC are SET ASIDE. Respondents are hereby ordered to pay petitioners their full
backwages, and to reinstate them to their former position without loss of seniority
rights and privileges, or to award them separation pay in case reinstatement is no
longer feasible.
SO ORDERED.

49
Corpo Set 1
10. PNB v. Andrada Electric & Engr. Co.
[G.R. No. 142936. April 17, 2002]
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT
CORPORATION, petitioners, vs. ANDRADA ELECTRIC & ENGINEERING
COMPANY, respondent.
DECISION
PANGANIBAN, J.:
Basic is the rule that a corporation has a legal personality distinct and separate
from the persons and entities owning it. The corporate veil may be lifted only if it has
been used to shield fraud, defend crime, justify a wrong, defeat public convenience,
insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine
National Bank (PNB) acquired ownership or management of some assets of the
Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased
at the resulting public auction by the Development Bank of the Philippines (DBP), will
not make PNB liable for the PASUMILs contractual debts to respondent.
Statement of the Case
Before us is a Petition for Review assailing the April 17, 2000 Decision[1] of the
Court of Appeals (CA) in CA-GR CV No. 57610. The decretal portion of the challenged
Decision reads as follows:
WHEREFORE, the judgment appealed from is hereby AFFIRMED. [2]
The Facts
The factual antecedents of the case are summarized by the Court of Appeals as
follows:
In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly
organized, existing, and operating under the laws of the Philippines, with office and
principal place of business at Nos. 794-812 Del Monte [A]venue, Quezon City, while
the defendant [herein petitioner] Philippine National Bank (herein referred to as
PNB), is a semi-government corporation duly organized, existing and operating under
the laws of the Philippines, with office and principal place of business at Escolta
Street, Sta. Cruz, Manila; whereas, the other defendant, the National Sugar
Development Corporation (NASUDECO in brief), is also a semi-government
corporation and the sugar arm of the PNB, with office and principal place of business
at the 2ndFloor, Sampaguita Building, Cubao, Quezon City; and the defendant
Pampanga Sugar Mills (PASUMIL in short), is a corporation organized, existing and
operating under the 1975 laws of the Philippines, and had its business office before
1975 at Del Carmen, Floridablanca, Pampanga; that the plaintiff is engaged in the
business of general construction for the repairs and/or construction of different kinds
of machineries and buildings; that on August 26, 1975, the defendant PNB acquired
the assets of the defendant PASUMIL that were earlier foreclosed by the
Development Bank of the Philippines (DBP) under LOI No. 311; that the defendant
PNB organized the defendant NASUDECO in September, 1975, to take ownership and
possession of the assets and ultimately to nationalize and consolidate its interest in
other PNB controlled sugar mills; that prior to October 29, 1971, the defendant
PASUMIL engaged the services of plaintiff for electrical rewinding and repair, most of
which were partially paid by the defendant PASUMIL, leaving several unpaid accounts
with the plaintiff; that finally, on October 29, 1971, the plaintiff and the defendant
PASUMIL entered into a contract for the plaintiff to perform the following, to wit
(a) Construction of one (1) power house building;
(b) Construction of three (3) reinforced concrete foundation for
three (3) units 350 KW diesel engine generating set[s];
(c) Construction of three (3) reinforced concrete foundation for the
5,000 KW and 1,250 KW turbo generator sets;
(d) Complete overhauling and reconditioning tests sum for three (3)
350 KW diesel engine generating set[s];
(e) Installation of turbine and diesel generating sets including
transformer, switchboard, electrical wirings and pipe
provided those stated units are completely supplied with
their accessories;
50
Corpo Set 1
(f) Relocating of 2,400 V transmission line, demolition of all existing
concrete foundation and drainage canals, excavation, and
earth fillings all for the total amount of P543,500.00 as
evidenced by a contract, [a] xerox copy of which is hereto
attached as Annex A and made an integral part of this
complaint;
that aside from the work contract mentioned-above, the defendant PASUMIL
required the plaintiff to perform extra work, and provide electrical equipment and
spare parts, such as:
(a) Supply of electrical devices;
(b) Extra mechanical works;
(c) Extra fabrication works;
(d) Supply of materials and consumable items;
(e) Electrical shop repair;
(f) Supply of parts and related works for turbine generator;
(g) Supply of electrical equipment for machinery;
(h) Supply of diesel engine parts and other related works including
fabrication of parts.
that out of the total obligation of P777,263.80, the defendant PASUMIL had paid
only P250,000.00, leaving an unpaid balance, as of June 27, 1973, amounting
to P527,263.80, as shown in the Certification of the chief accountant of the PNB, a
machine copy of which is appended as Annex C of the complaint; that out of said
unpaid balance of P527,263.80, the defendant PASUMIL made a partial payment to
the plaintiff of P14,000.00, in broken amounts, covering the period from January 5,
1974 up to May 23, 1974, leaving an unpaid balance of P513,263.80; that the
defendant PASUMIL and the defendant PNB, and now the defendant NASUDECO,
failed and refused to pay the plaintiff their just, valid and demandable obligation; that
the President of the NASUDECO is also the Vice-President of the PNB, and this official
holds office at the 10th Floor of the PNB, Escolta, Manila, and plaintiff besought this
official to pay the outstanding obligation of the defendant PASUMIL, inasmuch as the
defendant PNB and NASUDECO now owned and possessed the assets of the
defendant PASUMIL, and these defendants all benefited from the works, and the
electrical, as well as the engineering and repairs, performed by the plaintiff; that
because of the failure and refusal of the defendants to pay their just, valid, and
demandable obligations, plaintiff suffered actual damages in the total amount
of P513,263.80; and that in order to recover these sums, the plaintiff was compelled
to engage the professional services of counsel, to whom the plaintiff agreed to pay a
sum equivalent to 25% of the amount of the obligation due by way of attorneys
fees. Accordingly, the plaintiff prayed that judgment be rendered against the
defendants PNB, NASUDECO, and PASUMIL, jointly and severally to wit:
(1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with
annual interest of 14% from the time the obligation falls due and demandable;
(2) Condemning the defendants to pay attorneys fees amounting to 25% of the
amount claim;
(3) Ordering the defendants to pay the costs of the suit.
The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint
chiefly on the ground that the complaint failed to state sufficient allegations to
establish a cause of action against both defendants, inasmuch as there is lack or want
of privity of contract between the plaintiff and the two defendants, the PNB and
NASUDECO, said defendants citing Article 1311 of the New Civil Code, and the case
law ruling in Salonga v. Warner Barnes & Co., 88 Phil. 125; and Manila Port Service,
et al. v. Court of Appeals, et al., 20 SCRA 1214.
The motion to dismiss was by the court a quo denied in its Order of November 27,
1980; in the same order, that court directed the defendants to file their answer to
the complaint within 15 days.
In their answer, the defendant NASUDECO reiterated the grounds of its motion to
dismiss, to wit:
That the complaint does not state a sufficient cause of action against the defendant
NASUDECO because: (a) NASUDECO is not x x x privy to the various electrical
construction jobs being sued upon by the plaintiff under the present complaint; (b)
the taking over by NASUDECO of the assets of defendant PASUMIL was solely for the
purpose of reconditioning the sugar central of defendant PASUMIL pursuant to
51
Corpo Set 1
martial law powers of the President under the Constitution; (c) nothing in the LOI No.
189-A (as well as in LOI No. 311) authorized or commanded the PNB or its subsidiary
corporation, the NASUDECO, to assume the corporate obligations of PASUMIL as that
being involved in the present case; and, (d) all that was mentioned by the said letter
of instruction insofar as the PASUMIL liabilities [were] concerned [was] for the PNB,
or its subsidiary corporation the NASUDECO, to make a study of, and submit [a]
recommendation on the problems concerning the same.
By way of counterclaim, the NASUDECO averred that by reason of the filing by the
plaintiff of the present suit, which it [labeled] as unfounded or baseless, the
defendant NASUDECO was constrained to litigate and incur litigation expenses in the
amount of P50,000.00, which plaintiff should be sentenced to pay. Accordingly,
NASUDECO prayed that the complaint be dismissed and on its counterclaim, that the
plaintiff be condemned to pay P50,000.00 in concept of attorneys fees as well as
exemplary damages.
In its answer, the defendant PNB likewise reiterated the grounds of its motion to
dismiss, namely: (1) the complaint states no cause of action against the defendant
PNB; (2) that PNB is not a party to the contract alleged in par. 6 of the complaint and
that the alleged services rendered by the plaintiff to the defendant PASUMIL upon
which plaintiffs suit is erected, was rendered long before PNB took possession of the
assets of the defendant PASUMIL under LOI No. 189-A; (3) that the PNB take-over of
the assets of the defendant PASUMIL under LOI 189-A was solely for the purpose of
reconditioning the sugar central so that PASUMIL may resume its operations in time
for the 1974-75 milling season, and that nothing in the said LOI No. 189-A, as well as
in LOI No. 311, authorized or directed PNB to assume the corporate obligation/s of
PASUMIL, let alone that for which the present action is brought; (4) that PNBs
management and operation under LOI No. 311 did not refer to any asset of PASUMIL
which the PNB had to acquire and thereafter [manage], but only to those which were
foreclosed by the DBP and were in turn redeemed by the PNB from the DBP; (5) that
conformably to LOI No. 311, on August 15, 1975, the PNB and the Development Bank
of the Philippines (DBP) entered into a Redemption Agreement whereby DBP sold,
transferred and conveyed in favor of the PNB, by way of redemption, all its (DBP)
rights and interest in and over the foreclosed real and/or personal properties of
PASUMIL, as shown in Annex C which is made an integral part of the answer; (6) that
again, conformably with LOI No. 311, PNB pursuant to a Deed of Assignment dated
October 21, 1975, conveyed, transferred, and assigned for valuable consideration, in
favor of NASUDECO, a distinct and independent corporation, all its (PNB) rights and
interest in and under the above Redemption Agreement. This is shown in Annex D
which is also made an integral part of the answer; [7] that as a consequence of the
said Deed of Assignment, PNB on October 21, 1975 ceased to managed and operate
the above-mentioned assets of PASUMIL, which function was now actually
transferred to NASUDECO. In other words, so asserted PNB, the complaint as to PNB,
had become moot and academic because of the execution of the said Deed of
Assignment; [8] that moreover, LOI No. 311 did not authorize or direct PNB to assume
the corporate obligations of PASUMIL, including the alleged obligation upon which
this present suit was brought; and [9] that, at most, what was granted to PNB in this
respect was the authority to make a study of and submit recommendation on the
problems concerning the claims of PASUMIL creditors, under sub-par. 5 LOI No. 311.
In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate
and to incur expenses in this case, hence it is entitled to claim attorneys fees in the
amount of at least P50,000.00. Accordingly, PNB prayed that the complaint be
dismissed; and that on its counterclaim, that the plaintiff be sentenced to pay
defendant PNB the sum of P50,000.00 as attorneys fees, aside from exemplary
damages in such amount that the court may seem just and equitable in the premises.
Summons by publication was made via the Philippines Daily Express, a newspaper
with editorial office at 371 Bonifacio Drive, Port Area, Manila, against the defendant
PASUMIL, which was thereafter declared in default as shown in the August 7, 1981
Order issued by the Trial Court.
After due proceedings, the Trial Court rendered judgment, the decretal portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the
defendant Corporation, Philippine National Bank (PNB) NATIONAL SUGAR
DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA SUGAR MILLS
(PASUMIL), ordering the latter to pay jointly and severally the former the following:
1. The sum of P513,623.80 plus interest thereon at the rate of
14% per annum as claimed from September 25, 1980 until
fully paid;
2. The sum of P102,724.76 as attorneys fees; and,
3. Costs.
SO ORDERED.
Manila, Philippines, September 4, 1986.
52
Corpo Set 1
'(SGD)
ERNESTO S.
TENGCO
Judg
e[3]
Ruling of the Court of Appeals
Affirming the trial court, the CA held that it was offensive to the basic tenets of
justice and equity for a corporation to take over and operate the business of another
corporation, while disavowing or repudiating any responsibility, obligation or liability
arising therefrom.[4]
Hence, this Petition.[5]
Issues
In their Memorandum, petitioners raise the following errors for the Courts
consideration:
I As a rule, a corporation that purchases the assets of another will not be liable
The Court of Appeals gravely erred in law in holding the herein petitioners liable
for the unpaid corporate debts of PASUMIL, a corporation whose corporate
existence has not been legally extinguished or terminated, simply because of
petitioners[] take-over of the management and operation of PASUMIL pursuant
to the mandates of LOI No. 189-A, as amended by LOI No. 311.
II
The Court of Appeals gravely erred in law in not applying [to] the case at bench
the ruling enunciated in Edward J. Nell Co. v. Pacific Farms, 15 SCRA 415.[6]
Succinctly put, the aforesaid errors boil down to the principal issue of whether
PNB is liable for the unpaid debts of PASUMIL to respondent.
This Courts Ruling
The Petition is meritorious.
Main Issue:
Liability for Corporate Debts
As a general rule, questions of fact may not be raised in a petition for review
under Rule 45 of the Rules of Court.[7] To this rule, however, there are some
exceptions enumerated in Fuentes v. Court of Appeals.[8] After a careful scrutiny of
the records and the pleadings submitted by the parties, we find that the lower courts
misappreciated the evidence presented.[9] Overlooked by the CA were certain
relevant facts that would justify a conclusion different from that reached in the
assailed Decision.[10]
Petitioners posit that they should not be held liable for the corporate debts of
PASUMIL, because their takeover of the latters foreclosed assets did not make them
assignees. On the other hand, respondent asserts that petitioners and PASUMIL
should be treated as one entity and, as such, jointly and severally held liable for
PASUMILs unpaid obligation.
for the debts of the selling corporation, provided the former acted in good faith and
paid adequate consideration for such assets, except when any of the following
circumstances is present: (1) where the purchaser expressly or impliedly agrees to
assume the debts, (2) where the transaction amounts to a consolidation or merger
of the corporations, (3) where the purchasing corporation is merely a continuation of
the selling corporation, and (4) where the transaction is fraudulently entered into in
order to escape liability for those debts.[11]
Piercing the Corporate
Veil Not Warranted
A corporation is an artificial being created by operation of law. It possesses the
right of succession and such powers, attributes, and properties expressly authorized
by law or incident to its existence.[12] It has a personality separate and distinct from
53
Corpo Set 1
the persons composing it, as well as from any other legal entity to which it may be
related.[13]This is basic.
Equally well-settled is the principle that the corporate mask may be removed or
the corporate veil pierced when the corporation is just an alter ego of a person or of
another corporation.[14] For reasons of public policy and in the interest of justice, the
corporate veil will justifiably be impaled[15] only when it becomes a shield for fraud,
illegality or inequity committed against third persons.[16]
Hence, any application of the doctrine of piercing the corporate veil should be
done with caution.[17] A court should be mindful of the milieu where it is to be
applied.[18] It must be certain that the corporate fiction was misused to such an extent
that injustice, fraud, or crime was committed against another, in disregard of its
rights.[19] The wrongdoing must be clearly and convincingly established; it cannot be
presumed.[20] Otherwise, an injustice that was never unintended may result from an
erroneous application.[21]
This Court has pierced the corporate veil to ward off a judgment credit,[22] to
avoid inclusion of corporate assets as part of the estate of the decedent,[23] to escape
liability arising from a debt,[24] or to perpetuate fraud and/or confuse legitimate
issues[25] either to promote or to shield unfair objectives[26] or to cover up an
otherwise blatant violation of the prohibition against forum-shopping.[27] Only in
these and similar instances may the veil be pierced and disregarded.[28]
The question of whether a corporation is a mere alter ego is one of
fact.[29] Piercing the veil of corporate fiction may be allowed only if the following
elements concur: (1) control -- not mere stock control, but complete domination --
not only of finances, but of policy and business practice in respect to the transaction
attacked, must have been such that the corporate entity as to this transaction had at
the time no separate mind, will or existence of its own; (2) such control must have
been used by the defendant to commit a fraud or a wrong to perpetuate the violation
of a statutory or other positive legal duty, or a dishonest and an unjust act in
contravention of plaintiffs legal right; and (3) the said control and breach of duty must
have proximately caused the injury or unjust loss complained of.[30]
We believe that the absence of the foregoing elements in the present case
precludes the piercing of the corporate veil. First, other than the fact that petitioners
acquired the assets of PASUMIL, there is no showing that their control over it
warrants the disregard of corporate personalities.[31] Second, there is no evidence
that their juridical personality was used to commit a fraud or to do a wrong; or that
the separate corporate entity was farcically used as a mere alter ego, business
conduit or instrumentality of another entity or person.[32] Third, respondent was not
defrauded or injured when petitioners acquired the assets of PASUMIL.[33]
Being the party that asked for the piercing of the corporate veil, respondent had
the burden of presenting clear and convincing evidence to justify the setting aside of
the separate corporate personality rule.[34] However, it utterly failed to discharge this
burden;[35] it failed to establish by competent evidence that petitioners separate
corporate veil had been used to conceal fraud, illegality or inequity.[36]
While we agree with respondents claim that the assets of the National Sugar
Development Corporation (NASUDECO) can be easily traced to PASUMIL,[37] we are
not convinced that the transfer of the latters assets to petitioners was fraudulently
entered into in order to escape liability for its debt to respondent.[38]
A careful review of the records reveals that DBP foreclosed the mortgage
executed by PASUMIL and acquired the assets as the highest bidder at the public
auction conducted.[39] The bank was justified in foreclosing the mortgage, because
the PASUMIL account had incurred arrearages of more than 20 percent of the total
outstanding obligation.[40] Thus, DBP had not only a right, but also a duty under the
law to foreclose the subject properties.[41]
Pursuant to LOI No. 189-A[42] as amended by LOI No. 311,[43] PNB acquired
PASUMILs assets that DBP had foreclosed and purchased in the normal
course. Petitioner bank was likewise tasked to manage temporarily the operation of
such assets either by itself or through a subsidiary corporation.[44]
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL
assets pursuant to Section 6 of Act No. 3135.[45] These assets were later conveyed to
PNB for a consideration, the terms of which were embodied in the Redemption
Agreement.[46] PNB, as successor-in-interest, stepped into the shoes of DBP as
PASUMILs creditor.[47] By way of a Deed of Assignment,[48] PNB then transferred to
NASUDECO all its rights under the Redemption Agreement.
In Development Bank of the Philippines v. Court of Appeals,[49] we had the
occasion to resolve a similar issue. We ruled that PNB, DBP and their transferees were
not liable for Marinduque Minings unpaid obligations to Remington Industrial Sales
Corporation (Remington) after the two banks had foreclosed the assets of
Marinduque Mining.We likewise held that Remington failed to discharge its burden
of proving bad faith on the part of Marinduque Mining to justify the piercing of the
corporate veil.
In the instant case, the CA erred in affirming the trial courts lifting of the
corporate mask.[50] The CA did not point to any fact evidencing bad faith on the part
of PNB and its transferee.[51] The corporate fiction was not used to defeat public
convenience, justify a wrong, protect fraud or defend crime.[52] None of the foregoing
54
Corpo Set 1

exceptions was shown to exist in the present case.[53] On the contrary, the lifting of corporate separateness between PASUMIL and PNB remains, despite respondents
the corporate veil would result in manifest injustice. This we cannot allow. insistence to the contrary.[63]
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET
ASIDE. No pronouncement as to costs.
No Merger or Consolidation
SO ORDERED.

Respondent further claims that petitioners should be held liable for the unpaid
obligations of PASUMIL by virtue of LOI Nos. 189-A and 311, which expressly
authorized PASUMIL and PNB to merge or consolidate. On the other hand,
petitioners contend that their takeover of the operations of PASUMIL did not involve
any corporate merger or consolidation, because the latter had never lost its separate
identity as a corporation.
A consolidation is the union of two or more existing entities to form a new entity
called the consolidated corporation. A merger, on the other hand, is a union whereby
one or more existing corporations are absorbed by another corporation that survives
and continues the combined business.[54]
The merger, however, does not become effective upon the mere agreement of
the constituent corporations.[55] Since a merger or consolidation involves
fundamental changes in the corporation, as well as in the rights of stockholders and
creditors, there must be an express provision of law authorizing them.[56] For a valid
merger or consolidation, the approval by the Securities and Exchange Commission
(SEC) of the articles of merger or consolidation is required.[57] These articles must
likewise be duly approved by a majority of the respective stockholders of the
constituent corporations.[58]
In the case at bar, we hold that there is no merger or consolidation with respect
to PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation
Code[59] was not followed.
In fact, PASUMILs corporate existence, as correctly found by the CA, had not
been legally extinguished or terminated.[60] Further, prior to PNBs acquisition of the
foreclosed assets, PASUMIL had previously made partial payments to respondent for
the formers obligation in the amount of P777,263.80. As of June 27, 1973, PASUMIL
had paid P250,000 to respondent and, from January 5, 1974 to May 23, 1974,
another P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt of
PASUMIL to respondent.[61] LOI No. 11 explicitly provides that PNB shall study and
submit recommendations on the claims of PASUMILs creditors.[62] Clearly, the

55
Corpo Set 1
11. Estelita Burgos Lipat vs. Pacific Banking Corp.
[G.R. No. 142435. April 30, 2003]
ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners, vs. PACIFIC BANKING
CORPORATION, REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON
CITY and the Heirs of EUGENIO D. TRINIDAD, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the Decision[1] dated
October 21, 1999 of the Court of Appeals in CA-G.R. CV No. 41536 which dismissed
herein petitioners appeal from the Decision[2] dated February 10, 1993 of the
Regional Trial Court (RTC) of Quezon City, Branch 84, in Civil Case No. Q-89-4152. The
trial court had dismissed petitioners complaint for annulment of real estate mortgage
and the extra-judicial foreclosure thereof. Likewise brought for our review is the
Resolution[3]dated February 23, 2000 of the Court of Appeals which denied
petitioners motion for reconsideration.
The facts, as culled from records, are as follows:
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Belas
Export Trading (BET), a single proprietorship with principal office at No. 814 Aurora
Boulevard, Cubao, Quezon City. BET was engaged in the manufacture of garments for
domestic and foreign consumption. The Lipats also owned the Mystical Fashions in
the United States, which sells goods imported from the Philippines through BET. Mrs.
Lipat designated her daughter, Teresita B. Lipat, to manage BET in the Philippines
while she was managing Mystical Fashions in the United States.
In order to facilitate the convenient operation of BET, Estelita Lipat executed on
December 14, 1978, a special power of attorney appointing Teresita Lipat as her
attorney-in-fact to obtain loans and other credit accommodations from respondent
Pacific Banking Corporation (Pacific Bank). She likewise authorized Teresita to
execute mortgage contracts on properties owned or co-owned by her as security for
the obligations to be extended by Pacific Bank including any extension or renewal
thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney, was
able to secure for and in behalf of her mother, Mrs. Lipat and BET, a loan from Pacific
Bank amounting to P583,854.00 to buy fabrics to be manufactured by BET and
exported to Mystical Fashions in the United States. As security therefor, the Lipat
spouses, as represented by Teresita, executed a Real Estate Mortgage over their
property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property was
likewise made to secure other additional or new loans, discounting lines, overdrafts
and credit accommodations, of whatever amount, which the Mortgagor and/or
Debtor may subsequently obtain from the Mortgagee as well as any renewal or
extension by the Mortgagor and/or Debtor of the whole or part of said original,
additional or new loans, discounting lines, overdrafts and other credit
accommodations, including interest and expenses or other obligations of the
Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly,
principal or secondary, as appears in the accounts, books and records of the
Mortgagee.[4]
On September 5, 1979, BET was incorporated into a family corporation named
Belas Export Corporation (BEC) in order to facilitate the management of the
business.BEC was engaged in the business of manufacturing and exportation of all
kinds of garments of whatever kind and description[5] and utilized the same
machineries and equipment previously used by BET. Its incorporators and directors
included the Lipat spouses who owned a combined 300 shares out of the 420 shares
subscribed, Teresita Lipat who owned 20 shares, and other close relatives and friends
of the Lipats.[6] Estelita Lipat was named president of BEC, while Teresita became the
vice-president and general manager.
Eventually, the loan was later restructured in the name of BEC and subsequent
loans were obtained by BEC with the corresponding promissory notes duly executed
by Teresita on behalf of the corporation. A letter of credit was also opened by Pacific
Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after
BEC executed the corresponding trust receipt therefor. Export bills were also
executed in favor of Pacific Bank for additional finances. These transactions were all
secured by the real estate mortgage over the Lipats property.
The promissory notes, export bills, and trust receipt eventually became due and
demandable. Unfortunately, BEC defaulted in its payments. After receipt of Pacific
Banks demand letters, Estelita Lipat went to the office of the banks liquidator and
asked for additional time to enable her to personally settle BECs obligations. The
bank acceded to her request but Estelita failed to fulfill her promise.
Consequently, the real estate mortgage was foreclosed and after compliance
with the requirements of the law the mortgaged property was sold at public auction.
On January 31, 1989, a certificate of sale was issued to respondent Eugenio D.
Trinidad as the highest bidder.
56
Corpo Set 1
On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a
complaint for annulment of the real estate mortgage, extrajudicial foreclosure and
the certificate of sale issued over the property against Pacific Bank and Eugenio D.
Trinidad. The complaint, which was docketed as Civil Case No. Q-89-4152, alleged,
among others, that the promissory notes, trust receipt, and export bills were all ultra
vires acts of Teresita as they were executed without the requisite board resolution of
the Board of Directors of BEC. The Lipats also averred that assuming said acts were
valid and binding on BEC, the same were the corporations sole obligation, it having a
personality distinct and separate from spouses Lipat. It was likewise pointed out that
Teresitas authority to secure a loan from Pacific Bank was specifically limited to Mrs.
Lipats sole use and benefit and that the real estate mortgage was executed to secure
the Lipats and BETs P583,854.00 loan only.
In their respective answers, Pacific Bank and Trinidad alleged in common that
petitioners Lipat cannot evade payments of the value of the promissory notes, trust
receipt, and export bills with their property because they and the BEC are one and
the same, the latter being a family corporation. Respondent Trinidad further claimed
that he was a buyer in good faith and for value and that petitioners are estopped
from denying BECs existence after holding themselves out as a corporation.
After trial on the merits, the RTC dismissed the complaint, thus:
WHEREFORE, this Court holds that in view of the facts contained in the record, the
complaint filed in this case must be, as is hereby, dismissed. Plaintiffs however has
five (5) months and seventeen (17) days reckoned from the finality of this decision
within which to exercise their right of redemption. The writ of injunction issued is
automatically dissolved if no redemption is effected within that period.
The counterclaims and cross-claim are likewise dismissed for lack of legal and
factual basis.
No costs.
IT IS SO ORDERED.[7]
The trial court ruled that there was convincing and conclusive evidence proving
that BEC was a family corporation of the Lipats. As such, it was a mere extension of
petitioners personality and business and a mere alter ego or business conduit of the
Lipats established for their own benefit. Hence, to allow petitioners to invoke the
theory of separate corporate personality would sanction its use as a shield to further
an end subversive of justice.[8] Thus, the trial court pierced the veil of corporate
fiction and held that Belas Export Corporation and petitioners (Lipats) are one and
the same. Pacific Bank had transacted business with both BET and BEC on the
supposition that both are one and the same. Hence, the Lipats were estopped from
disclaiming any obligations on the theory of separate personality of corporations,
which is contrary to principles of reason and good faith.
The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R.
CV No. 41536. Said appeal, however, was dismissed by the appellate court for lack of
merit. The Court of Appeals found that there was ample evidence on record to
support the application of the doctrine of piercing the veil of corporate fiction. In
affirming the findings of the RTC, the appellate court noted that Mrs. Lipat had full
control over the activities of the corporation and used the same to further her
business interests.[9] In fact, she had benefited from the loans obtained by the
corporation to finance her business. It also found unnecessary a board resolution
authorizing Teresita Lipat to secure loans from Pacific Bank on behalf of BEC because
the corporations by-laws allowed such conduct even without a board
resolution. Finally, the Court of Appeals ruled that the mortgage property was not
only liable for the original loan of P583,854.00 but likewise for the value of the
promissory notes, trust receipt, and export bills as the mortgage contract equally
applies to additional or new loans, discounting lines, overdrafts, and credit
accommodations which petitioners subsequently obtained from Pacific Bank.
The Lipats then moved for reconsideration, but this was denied by the appellate
court in its Resolution of February 23, 2000.[10]
Hence, this petition, with petitioners submitting that the court a quo erred
1) .IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF
CORPORATE FICTION APPLIES IN THIS CASE.
2) .IN HOLDING THAT PETITIONERS PROPERTY CAN BE HELD LIABLE UNDER
THE REAL ESTATE MORTGAGE NOT ONLY FOR THE AMOUNT
OF P583,854.00 BUT ALSO FOR THE FULL VALUE OF PROMISSORY
NOTES, TRUST RECEIPTS AND EXPORT BILLS OF BELAS EXPORT
CORPORATION.
3) .IN HOLDING THAT THE IMPOSITION OF 15% ATTORNEYS FEES IN THE
EXTRA-JUDICIAL FORECLOSURE IS BEYOND THIS COURTS JURISDICTION
FOR IT IS BEING RAISED FOR THE FIRST TIME IN THIS APPEAL.
4) .IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED
PROMISSORY NOTES, THE DOLLAR ACCOMMODATIONS AND TRUST
RECEIPTS DESPITE THE EVIDENT FACT THAT THEY WERE NOT SIGNED
57
Corpo Set 1
BY HIM AND THEREFORE ARE NOT VALID OR ARE NOT BINDING TO
HIM.
5) .IN DENYING PETITIONERS MOTION FOR RECONSIDERATION AND IN
HOLDING THAT SAID MOTION FOR RECONSIDERATION IS AN
UNAUTHORIZED MOTION, A MERE SCRAP OF PAPER WHICH CAN
NEITHER BIND NOR BE OF ANY CONSEQUENCE TO APPELLANTS.[11]
In sum, the following are the relevant issues for our resolution:
1. Whether or not the doctrine of piercing the veil of corporate fiction is
applicable in this case;
2. Whether or not petitioners' property under the real estate mortgage is liable
not only for the amount of P583,854.00 but also for the value of the promissory
notes, trust receipt, and export bills subsequently incurred by BEC; and
3. Whether or not petitioners are liable to pay the 15% attorneys fees stipulated
in the deed of real estate mortgage.
On the first issue, petitioners contend that both the appellate and trial courts
erred in holding them liable for the obligations incurred by BEC through the
application of the doctrine of piercing the veil of corporate fiction absent any clear
showing of fraud on their part.
Respondents counter that there is clear and convincing evidence to show fraud
on part of petitioners given the findings of the trial court, as affirmed by the Court of
Appeals, that BEC was organized as a business conduit for the benefit of petitioners.
Petitioners contentions fail to persuade this Court. A careful reading of the
judgment of the RTC and the resolution of the appellate court show that in finding
petitioners mortgaged property liable for the obligations of BEC, both courts below
relied upon the alter ego doctrine or instrumentality rule, rather than fraud in
piercing the veil of corporate fiction. When the corporation is the mere alter ego or
business conduit of a person, the separate personality of the corporation may be
disregarded.[12] This is commonly referred to as the instrumentality rule or the alter
ego doctrine, which the courts have applied in disregarding the separate juridical
personality of corporations. As held in one case,
Where one corporation is so organized and controlled and its affairs are conducted
so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the
corporate entity of the instrumentality may be disregarded. The control necessary
to invoke the rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled corporation has,
so to speak, no separate mind, will or existence of its own, and is but a conduit for
its principal. xxx[13]
We find that the evidence on record demolishes, rather than buttresses,
petitioners contention that BET and BEC are separate business entities. Note that
Estelita Lipat admitted that she and her husband, Alfredo, were the owners of
BET[14] and were two of the incorporators and majority stockholders of BEC.[15] It is
also undisputed that Estelita Lipat executed a special power of attorney in favor of
her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her
behalf.[16] Incidentally, Teresita was designated as executive-vice president and
general manager of both BET and BEC, respectively.[17] We note further that: (1)
Estelita and Alfredo Lipat are the owners and majority shareholders of BET and BEC,
respectively;[18] (2) both firms were managed by their daughter, Teresita;[19] (3) both
firms were engaged in the garment business, supplying products to Mystical Fashion,
a U.S. firm established by Estelita Lipat; (4) both firms held office in the same building
owned by the Lipats;[20] (5) BEC is a family corporation with the Lipats as its majority
stockholders; (6) the business operations of the BEC were so merged with those of
Mrs. Lipat such that they were practically indistinguishable; (7) the corporate funds
were held by Estelita Lipat and the corporation itself had no visible assets; (8) the
board of directors of BEC was composed of the Burgos and Lipat family
members;[21] (9) Estelita had full control over the activities of and decided business
matters of the corporation;[22] and that (10) Estelita Lipat had benefited from the
loans secured from Pacific Bank to finance her business abroad[23] and from the
export bills secured by BEC for the account of Mystical Fashion.[24] It could not have
been coincidental that BET and BEC are so intertwined with each other in terms of
ownership, business purpose, and management. Apparently, BET and BEC are one
and the same and the latter is a conduit of and merely succeeded the
former. Petitioners attempt to isolate themselves from and hide behind the
corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely
what the classical doctrine of piercing the veil of corporate entity seeks to prevent
and remedy. In our view, BEC is a mere continuation and successor of BET, and
petitioners cannot evade their obligations in the mortgage contract secured under
the name of BEC on the pretext that it was signed for the benefit and under the name
of BET. We are thus constrained to rule that the Court of Appeals did not err when it
applied the instrumentality doctrine in piercing the corporate veil of BEC.
On the second issue, petitioners contend that their mortgaged property should
not be made liable for the subsequent credit lines and loans incurred by BEC because,
first, it was not covered by the mortgage contract of BET which only covered the loan
of P583,854.00 and which allegedly had already been paid; and, second, it was
secured by Teresita Lipat without any authorization or board resolution of BEC.
58
Corpo Set 1
We find petitioners contention untenable. As found by the Court of Appeals, the
mortgaged property is not limited to answer for the loan of P583,854.00. Thus:
Finally, the extent to which the Lipats property can be held liable under the real
estate mortgage is not limited to P583,854.00. It can be held liable for the value of
the promissory notes, trust receipt and export bills as well. For the mortgage was
executed not only for the purpose of securing the Belas Export Tradings original
loan of P583,854.00, but also for other additional or new loans, discounting lines,
overdrafts and credit accommodations, of whatever amount, which the Mortgagor
and/or Debtor may subsequently obtain from the mortgagee as well as any renewal
or extension by the Mortgagor and/or Debtor of the whole or part of said original,
additional or new loans, discounting lines, overdrafts and other credit
accommodations, including interest and expenses or other obligations of the
Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly
principal or secondary, as appears in the accounts, books and records of the
mortgagee.[25]
As a general rule, findings of fact of the Court of Appeals are final and
conclusive, and cannot be reviewed on appeal by the Supreme Court, provided they
are borne out by the record or based on substantial evidence.[26] As noted earlier,
BEC merely succeeded BET as petitioners alter ego; hence, petitioners mortgaged
property must be held liable for the subsequent loans and credit lines of BEC.
Further, petitioners contention that the original loan had already been paid,
hence, the mortgaged property should not be made liable to the loans of BEC, is
unsupported by any substantial evidence other than Estelita Lipats self-serving
testimony. Two disputable presumptions under the rules on evidence weigh against
petitioners, namely: (a) that a person takes ordinary care of his concerns;[27] and (b)
that things have happened according to the ordinary course of nature and the
ordinary habits of life.[28] Here, if the original loan had indeed been paid, then
logically, petitioners would have asked from Pacific Bank for the required documents
evidencing receipt and payment of the loans and, as owners of the mortgaged
property, would have immediately asked for the cancellation of the mortgage in the
ordinary course of things. However, the records are bereft of any evidence
contradicting or overcoming said disputable presumptions.
Petitioners contend further that the mortgaged property should not bind the
loans and credit lines obtained by BEC as they were secured without any proper
authorization or board resolution. They also blame the bank for its laxity and
complacency in not requiring a board resolution as a requisite for approving the
loans.
Such contentions deserve scant consideration.
Firstly, it could not have been possible for BEC to release a board resolution
since per admissions by both petitioner Estelita Lipat and Alice Burgos, petitioners
rebuttal witness, no business or stockholders meetings were conducted nor were
there election of officers held since its incorporation. In fact, not a single board
resolution was passed by the corporate board[29] and it was Estelita Lipat and/or
Teresita Lipat who decided business matters.[30]
Secondly, the principle of estoppel precludes petitioners from denying the
validity of the transactions entered into by Teresita Lipat with Pacific Bank, who in
good faith, relied on the authority of the former as manager to act on behalf of
petitioner Estelita Lipat and both BET and BEC. While the power and responsibility to
decide whether the corporation should enter into a contract that will bind the
corporation is lodged in its board of directors, subject to the articles of incorporation,
by-laws, or relevant provisions of law, yet, just as a natural person may authorize
another to do certain acts for and on his behalf, the board of directors may validly
delegate some of its functions and powers to officers, committees, or agents. The
authority of such individuals to bind the corporation is generally derived from law,
corporate by-laws, or authorization from the board, either expressly or impliedly by
habit, custom, or acquiescence in the general course of business.[31] Apparent
authority, is derived not merely from practice. Its existence may be ascertained
through (1) the general manner in which the corporation holds out an officer or agent
as having the power to act or, in other words, the apparent authority to act in general,
with which it clothes him; or (2) the acquiescence in his acts of a particular nature,
with actual or constructive knowledge thereof, whether within or beyond the scope
of his ordinary powers.[32]
In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract
by virtue of a special power of attorney executed by Estelita Lipat. Recall that Teresita
Lipat acted as the manager of both BEC and BET and had been deciding business
matters in the absence of Estelita Lipat. Further, the export bills secured by BEC were
for the benefit of Mystical Fashion owned by Estelita Lipat.[33] Hence, Pacific Bank
cannot be faulted for relying on the same authority granted to Teresita Lipat by
Estelita Lipat by virtue of a special power of attorney. It is a familiar doctrine that if a
corporation knowingly permits one of its officers or any other agent to act within the
scope of an apparent authority, it holds him out to the public as possessing the power
to do those acts; thus, the corporation will, as against anyone who has in good faith
dealt with it through such agent, be estopped from denying the agents authority.[34]
We find no necessity to extensively deal with the liability of Alfredo Lipat for the
subsequent credit lines of BEC. Suffice it to state that Alfredo Lipat never disputed
59
Corpo Set 1

the validity of the real estate mortgage of the original loan; hence, he cannot now
dispute the subsequent loans obtained using the same mortgage contract since it is,
by its very terms, a continuing mortgage contract.
On the third and final issue, petitioners assail the decision of the Court of
Appeals for not taking cognizance of the issue on attorneys fees on the ground that
it was raised for the first time on appeal. We find the conclusion of the Court of
Appeals to be in accord with settled jurisprudence. Basic is the rule that matters not
raised in the complaint cannot be raised for the first time on appeal.[35] A close
perusal of the complaint yields no allegations disputing the attorneys fees imposed
under the real estate mortgage and petitioners cannot now allege that they have
impliedly disputed the same when they sought the annulment of the contract.
In sum, we find no reversible error of law committed by the Court of Appeals in
rendering the decision and resolution herein assailed by petitioners.
WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and
the Resolution dated February 23, 2000 of the Court of Appeals in CA-G.R. CV No.
41536 are AFFIRMED. Costs against petitioners.
SO ORDERED.

60