[G.R. No. 125198. March 3, 1997.] capital stock, or the incurring, creating or increasing of any bonded indebtedness.

Written
notice of the proposed increase or diminution of the capital stock or of the incurring,
MSCI-NACUSIP Local Chapter, Petitioner, v. NATIONAL WAGES AND creating, or increasing of any bonded indebtedness and of the time and place of the
PRODUCTIVITY COMMISSION and MONOMER SUGAR CENTRAL, stockholders’ meeting at which the proposed increase or diminution of the capital stock or
INC., Respondents. the incurring or increasing of any bonded indebtedness is to be considered, must be
addressed to each stockholder at his place of residence as shown on the books of the
Rameses M. Padilla for Petitioner. corporation and deposited to the addressee in the post office with postage prepaid, or
served personally." The above requirements, which are condition precedents before the
Meer Meer & Meer for Private Respondent. capital stock of a corporation may be increased, were unquestionably not observed in this
case.

SYLLABUS
DECISION

1. COMMERCIAL LAW; CORPORATION LAW; CAPITAL STOCK; PAID-UP CAPITAL,

CONSTRUED. — NWPC (National Wages and Productivity Commission) Guidelines No. HERMOSISIMA, JR., J.:
01, Series of 1992 as well as the new NWPC Guidelines No. 01 Series of 1996, define
Capital as referring to paid-up capital at the end of the last full accounting period, in the
case of corporations, or total invested capital at the beginning of the period under review, This is a petition for certiorari questioning the February 1, 1995 Decision of public
in the case of partnerships and single proprietorships. To have a clear understanding of respondent National Wages and Productivity Commission (Commission, for brevity) in
what paid-up capital is, however, a referral to Sections 12 and 13 of BP Blg. 68 or the NWPC Case No. E-9-007 which reversed on appeal the August 17, 1993 Decision of the
Corporation Code would be very helpful, viz: "Sec. 12. Minimum capital stock required of Regional Tripartite Wages and Productivity Board VI (Board, for brevity) denying the
stock corporations. — Stock corporations incorporated under this Code shall not be application for exemption of private respondent Monomer Sugar Central, Inc. (MSCI, for
required to have any minimum authorized capital stock except as otherwise specifically brevity) from Wage Order No. RO VI-01 issued by the Board.
provided for by special law, and subject to the provisions of the following section." "Sec.
13. Amount of capital stock to be subscribed and paid for purposes of incorporation. — At The relevant antecedents are undisputed.
least twenty-five (25%) percent of the authorized capital stock as stated in the articles of
incorporation must be subscribed at the time of incorporation, and at least twenty-five On January 11, 1990, Asturias Sugar Central, Inc. (ASCI, for brevity), executed a
(25%) percent of the total subscription must be paid upon subscription, the balance to be Memorandum of Agreement with Monomer Trading Industries, Inc. (MTII, for brevity),
payable on a date or dates fixed in the contract of subscription without need of call, or in whereby MTII shall acquire the assets of ASCI by way of a Deed of Assignment provided
the absence of a fixed date or dates, upon call for payment by the board of directors: that an entirely new organization in place of MTII shall be organized, which new
Provided, however, That in no case shall the paid-up capital be less than five thousand corporation shall be the assignee of the assets of ASCI.
(P5,000.00) pesos. (n)" By express provision of Section 13, paid-up capital is that portion
of the authorized capital stock which has been both subscribed and paid. To illustrate, By virtue of this Agreement, a new corporation was organized and incorporated on
where the authorized capital stock of a corporation is worth P1 million and the total February 15, 1990 under the corporate name Monomer Sugar Central, Inc. or MSCI, the
subscription amounts to P250,000.00, at least 25% of this amount, namely, P62,500.00 private respondent herein.
must be paid up per Section 13. The latter, P62,500.00, is the paid-up capital or what
should more accurately be termed as "paid-up capital stock."cralaw virtua1aw library On January 16, 1991, MSCI applied for exemption from the coverage of Wage Order No.
RO VI-01 issued by the Board on the ground that it is a distressed employer. In support
2. ID.; ID.; ID.; REQUIREMENTS FOR THE INCREASE/DECREASE THEREOF; NOT thereto, MSCI submitted its audited financial statements and income tax returns duly
SATISFIED IN THE CASE AT BAR. — The treatment by the Board of the loans from MTII stamped "received" by the Bureau of Internal Revenue (BIR) and the Securities and
as part of MSCI’s capital stock without satisfying certain mandatory requirements is Exchange Commission (SEC) for the period beginning February 15, 1990 and ending
proscribed under Section 38 of the Corporation Code which provides: "Power to increase August 31, 1990, including the quarterly financial statements and income tax returns for
or decrease capital stock; incur, create or increase bonded indebtedness. No corporation the two quarters ending November 30, 1990 and February 28, 1991.
shall increase or decrease its capital stock or incur, create or increase any bonded
indebtedness unless approved by a majority vote of the board of directors and, at a The petitioner herein MSCI-NACUSIP Local Chapter (Union, for brevity), in opposition,
stockholders’ meeting duly called for the purpose, two-thirds (2/3) of the outstanding maintained that MSCI is not distressed; that respondent applicant has not complied with
the requirements for exemption; and that the financial statements submitted by MSCI do Board on October 12, 1993.
not reflect the true and valid financial status of the company, and that the paid-up capital
would have been higher than P5 million and thus impairment would have been lower than A timely appeal was brought before the public respondent Commission. In its decision
25% had the pre-organization agreement between ASCI and MTII been complied with. dated February 1, 1995, the Commission reversed and set aside the foregoing orders of
the Board, and granted MSCI’s application for exemption from Wage Order No. RO VI-01,
The Board conducted hearings on the application, during which the applicant was for a period of one (1) year from its effectivity or from November 27, 1990 to November
required to submit additional documents such as its Articles of Incorporation, 26, 1991, in the following manner:jgc:chanrobles.com.ph
Memorandum of Agreement between ASCI and MTII, SEC registration, including the
schedules of its long-term liabilities, income and expenses, production reports and mill "WHEREFORE, premises considered, the Orders of the Board appealed from are hereby
share, among others. REVERSED and SET ASIDE. Monomer is hereby GRANTED full exemption from Wage
Order No. RO VI-01, for a period of one year from effectivity of the Wage Order, which is
On August 17, 1993, the Board denied MSCI’s application for exemption based on the from 27 November 1990 to 26 November 1991.
finding that the applicant’s losses of P3,400,738.00 for the period February 15, 1990 to
August 31, 1990 constitute an impairment of only 5.25% of its paid-up capital of SO DECIDED." 1
P64,688,528.00, can not be said to be sufficient to meet the required 25% in order to
qualify for the exemption, as provided in NWPC Guidelines No. 01, Series of 1992 entitled Petitioner has come before us by way of a Petition for Certiorari under Rule 65.
"REVISED GUIDELINES ON EXEMPTION FROM COMPLIANCE WITH THE
PRESCRIBED WAGE/COST OF LIVING ALLOWANCE INCREASES GRANTED BY THE The issue posed is whether or not respondent MSCI can qualify as a distressed employer
REGIONAL TRIPARTITE WAGES AND PRODUCTIVITY BOARDS:" from February 15, 1990 to August 31, 1990 as well as during the interim period from
September 1, 1990 to November 30, 1990 and thus be entitled to exemption from
"SEC. 3. CRITERIA FOR EXEMPTION — compliance with Wage Order No. RO VI-01. To resolve this issue, however, a pivotal
determination must first be made: What is the correct paid-up capital of MSCI for the
The following criteria shall be used to determine whether the applicant-establishment is pertinent period covered by the application for exemption — P5 million or
qualified for exemption:chanrob1es virtual 1aw library P64,688,528.00?chanroblesvirtuallawlibrary

x          x          x The Board held that the paid-up capital of MSCI on the aforesaid dates was actually
P64,688,528.00 and not P5 million as claimed by MSCI in its application for exemption
and, thus, the established losses amounting to P3,400,738.00 constitute an impairment of
3. For Distressed Establishments:chanrob1es virtual 1aw library only 5.25% of the true paid-up capital of P64 million plus, 2 which losses are not enough
to meet the required 25% impairment requirement. This conclusion is anchored on the
a. In the case of a stock corporation, partnership, single proprietorship, non-stock, non- belief of the Board that the value of the assets of ASCI, party to the Memorandum of
profit organization or cooperative engaged in a business activity or charging fees for its Agreement, transferred to MSCI on March 28, 1990 should be taken into consideration in
services — computing the paid-up capital of MSCI to reflect its true financial structure. Moreover, the
loans or advances extended by MTII, the other party to the Agreement, to MSCI should
a.1 When accumulated losses for the last 2 full accounting periods and interim period, if allegedly be treated as additional investments to MSCI, 3 and must therefore be included
any, immediately preceding the effectivity of the Order have impaired by at least 25 in computing respondent’s paid-up capital.
percent the:chanrob1es virtual 1aw library
Public respondent-Commission thought otherwise. In reversing the Board and granting
— Paid-up capital at the end of the last full accounting period preceding the effectivity of the exemption, the Commission held that the Board exceeded its authority in computing
the Order, in the case of corporations:chanrob1es virtual 1aw library and giving new valuation to what should be the paid-up capital of MSCI. It stressed that
RA No. 6727, or the Wage Rationalization Act, and its implementing guidelines have not
— Total invested capital at the beginning of the last full accounting period preceding the conferred upon the Board the authority to change the paid-up capital of a corporation. 4
effectivity of the Order in the case of partnerships and single proprietorships.
The foregoing asseveration of the parties considered, we find no grave abuse of
x       x       x" discretion on the part of the Commission in setting aside the findings of the Board and
granting full exemption to MSCI from Wage Order No. RO VI-01.
The motion for reconsideration, filed by MSCI on September 20, 1993, was denied by the
NWPC Guidelines No. 01, Series of 1992 as well as the new NWPC Guidelines No. 01,
Series of 1996, define Capital as referring to paid-up capital at the end of the last full certain mandatory requirements is proscribed under Section 38 of the Corporation Code
accounting period, in the case of corporations or total invested capital at the beginning of which provides:jgc:chanrobles.com.ph
the period under review, in the case of partnerships and single proprietorships. To have a
clear understanding of what paid-up capital is, however, a referral to Sections 12 and 13 "Power to increase or decrease capital stock; incur, create or increase bonded
of BP Blg. 68 or the Corporation Code would be very helpful, viz:jgc:chanrobles.com.ph indebtedness. No corporation shall increase or decrease its capital stock or incur, create
or increase any bonded indebtedness unless approved by a majority vote of the board of
"Sec. 12. Minimum capital stock required of stock corporations. — Stock corporations directors and, at a stockholders’ meeting duly called for the purpose, two-thirds (2/3) of
incorporated under this Code shall not be required to have any minimum authorized the outstanding capital stock shall favor the increase or diminution of the capital stock, or
capital stock except as otherwise specifically provided for by special law, and subject to the incurring, creating or increasing of any bonded indebtedness. Written notice of the
the provisions of the following section."cralaw virtua1aw library proposed increase or diminution of the capital stock or of the incurring, creating, or
increasing of any bonded indebtedness and of the time and place of the stockholders’
"Sec. 13. Amount of capital stock to be subscribed and paid for purposes of incorporation. meeting at which the proposed increase or diminution of the capital stock or the incurring
— At least twenty-five (25%) percent of the authorized capital stock as stated in the or increasing of any bonded indebtedness is to be considered, must be addressed to
articles of incorporation must be subscribed at the time of incorporation, and at least each stockholders at his place of residence as shown on the books of the corporation and
twenty-five (25%) percent of the total subscription must be paid upon subscription, the deposited to the addressee in the post office with postage prepaid, or served
balance to be payable on a date or dates fixed in the contract of subscription without need personally."cralaw virtua1aw library
of call, or in the absence of a fixed date or dates, upon call for payment by the board of
directors: Provided, however, That in no case shall the paid-up capital be less than five The above requirements, which are condition precedents before the capital stock of a
thousand (P5,000.00) pesos. (n)" corporation may be increased, were unquestionably not observed in this case.
Henceforth, the paid-up capital stock of MSCI for the period covered by the application for
By express provision of Section 13, paid-up capital is that portion of the authorized capital exemption still stood at P5 million. The losses, therefore, amounting to P3,400,738.00 for
stock which has been both subscribed and paid. To illustrate, where the authorized capital the period February 15, 1990 to August 31, 1990 impaired MSCI’s paid-up capital of P5
stock of a corporation is worth P1 million and the total subscription amounts to million by as much as 68%. Likewise, the losses incurred by MSCI for the interim period
P250,000.00, at least 25% of this amount, namely, P62,500.00 must be paid up per from September 1, 1990 to November 30, 1990, as found by the Commission, per MSCI’s
Section 13. The latter, P62,500.00, is the paid-up capital or what should more accurately quarterly income statements, amounting to P13,554,337.33 impaired the company’s paid-
be termed as "paid-up capital stock." 5 up capital of P5 million by a whopping 271.08%, 8 more than enough to qualify MSCI as a
distressed employer. Respondent Commission thus acted well within its jurisdiction in
In the case under consideration, there is no dispute, and the Board even mentioned in its granting MSCI full exemption from Wage Order No. RO VI-01 as a distressed employer.
August 17, 1993 Decision, that MSCI was organized and incorporated on February 15,
1990 with an authorized capital stock of P60 million, P20 million of which was subscribed. WHEREFORE, the petition is DISMISSED. Costs against petitioner.
Of the P20 million subscribed capital stock, P5 million was paid-up. 6 This fact is only too
glaring for the Board to have been misled into believing that MSCI’s paid-up capital stock SO ORDERED.
was P64 million plus and not P5 million.

The submission of the Board that the value of the assets of Asturias Sugar Central, Inc.
transferred to MSCI on March 28, 1990, as well as the loans or advances made by MTII
to MSCI should have been taken into consideration in computing the paid-up capital of
MSCI is unmeritorious, at best, and betrays the Board’s sheer lack of grasp of a basic
concept in Corporation Law, at worst. Not all funds or assets received by the corporation
can be considered paid-up capital, for this term has a technical signification in Corporation
Law. Such must form part of the authorized capital stock of the corporation, subscribed
and then actually paid up.

Furthermore, the Commission aptly observed that the loans and advances of MTII to
respondent MSCI cannot be treated as investments, unless the corresponding shares of
stocks are issued. But as it turned out, such loans and advances were in fact treated as
liabilities of MSCI to MTII as shown in its 1990 audited financial statements. 7 The
treatment by the Board of these loans as part of MSCI’s capital stock without satisfying
 FIRST DIVISION means irregular or discriminatory; that its predecessor-in-interest had complied with the
requirements for termination due to the cessation of business operations; that it had no
G.R. No. 157900, July 22, 2013 obligation to employ San Miguel in the exercise of its valid management prerogative; that
all employees had been given sufficient time to make their decision whether to accept its
offer of employment or not, but he had not responded to its offer within the time set; that
ZUELLIG FREIGHT AND CARGO SYSTEMS, Petitioner, v. NATIONAL LABOR because of his failure to meet the deadline, the offer had expired; that he had nonetheless
RELATIONS COMMISSION AND RONALDO V. SAN MIGUEL, Respondents. been hired on a temporary basis; and that when it decided to hire another employee
instead of San Miguel, such decision was not arbitrary because of seniority
DECISION considerations.4

BERSAMIN, J.: Decision of the Labor Arbiter

  On November 15, 1999, Labor Arbiter Francisco A. Robles rendered a decision holding
that San Miguel had been illegally dismissed,5 to wit:cralavvonlinelawlibrary
The mere change in the corporate name is not considered under the law as the creation
of a new corporation; hence, the renamed corporation remains liable for the illegal Contrary to respondents’ claim that Zeta ceased operations and closed its business, we
dismissal of its employee separated under that guise. believe that there was merely a change of business name and primary purpose and
upgrading of stocks of the corporation. Zuellig and Zeta are therefore legally the same
The Case person and entity and this was admitted by Zuellig’s counsel in its letter to the VAT
Department of the Bureau of Internal Revenue on 08 June 1994 (Reply, Annex “A”). As
Petitioner employer appeals the decision promulgated on November 6, 2002, 1 whereby such, the termination of complainant’s services allegedly due to cessation of business
the Court of Appeals (CA) dismissed its petition for certiorari and upheld the adverse operations of Zeta is deemed illegal. Notwithstanding his receipt of separation benefits
decision of the National Labor Relations Commission (NLRC) finding respondent Ronaldo from respondents, complainant is not estopped from questioning the legality of his
V. San Miguel to have been illegally dismissed. dismissal.6

Antecedents x x x  x

San Miguel brought a complaint for unfair labor practice, illegal dismissal, non-payment of WHEREFORE, in view of the foregoing, complainant is found to have been illegally
salaries and moral damages against petitioner, formerly known as Zeta Brokerage dismissed. Respondent Zuellig Freight and Cargo Systems, Inc. is hereby ordered to pay
Corporation (Zeta).2 He alleged that he had been a checker/customs representative of complainant his backwages from April 1, 1994 up to November 15, 1999, in the amount of
Zeta since December 16, 1985; that in January 1994, he and other employees of Zeta THREE HUNDRED TWENTY FOUR THOUSAND SIX HUNDRED FIFTEEN PESOS
were informed that Zeta would cease operations, and that all affected employees, (P324,615.00).
including him, would be separated; that by letter dated February 28, 1994, Zeta informed
him of his termination effective March 31, 1994; that he reluctantly accepted his The same respondent is ordered to pay the complainant Ronaldo San Miguel attorney’s
separation pay subject to the standing offer to be hired to his former position by petitioner; fees equivalent to ten percent (10%) of the total award.
and that on April 15, 1994, he was summarily terminated, without any valid cause and due
process. All other claims are dismissed.

San Miguel contended that the amendments of the articles of incorporation of Zeta were SO ORDERED.7
for the purpose of changing the corporate name, broadening the primary functions, and
increasing the capital stock; and that such amendments could not mean that Zeta had Decision of the NLRC
been thereby dissolved.3
Petitioner appealed, but the NLRC issued a resolution on April 4, 2001, 8 affirming the
decision of the Labor Arbiter.
On its part, petitioner countered that San Miguel’s termination from Zeta had been for a
cause authorized by the Labor Code; that its non-acceptance of him had not been by any
The NLRC later on denied petitioner’s motion for reconsideration via its resolution dated valid closure of business operations, the dismissal of private respondent San Miguel on
June 15, 2001.9 alleged authorized cause of cessation of business pursuant to Article 283 of the Labor
Code, was utterly illegal. Despite verbal notice that the employees had until 6:00 p.m. of
Decision of the CA March 1, 1994 to receive the termination letters and sign the employment contracts, the
dismissal was still illegal for the said condition is null and void. In point of facts and law,
Petitioner then filed a petition for certiorari in the CA, imputing to the NLRC grave abuse private respondent San Miguel remained an employee of petitioner Zuellig. If at all, the
of discretion amounting to lack or excess of jurisdiction, as follows:cralavvonlinelawlibrary alleged closure of business operations merely operates to suspend employment relation
since it is not permanent in character.
1. In failing to consider the circumstances attendant to the cessation of
business of Zeta;chanroblesvirtualawlibrary
2. In failing to consider that San Miguel failed to meet the deadline Zeta Where there is no showing of a clear, valid, and legal cause for the termination of
fixed for its employees to accept the offer of petitioner for re- employment, the law considers the matter a case of illegal dismissal and the burden is on
employment;chanroblesvirtualawlibrary the employer to prove that the termination was for a valid or authorized cause.
3. In failing to consider that San Miguel’s employment with petitioner from
April 1 to 15, 1994 could in no way be interpreted as a continuation of Findings of facts of the NLRC, particularly when both the NLRC and Labor Arbiter are in
employment with Zeta;chanroblesvirtualawlibrary agreement, are deemed binding and conclusive upon the Supreme Court.
4. In admitting in evidence the letter dated January 21, 1994 of petitioner’s
counsel to the Bureau of Internal Revenue; and As regards the second and last argument advanced by petitioner Zuellig that private
5. In awarding attorney’s fees to San Miguel based on Article 2208 of respondent San Miguel is not entitled to attorney’s fees, this Court finds no reason to
the Civil Code and Article 111 of the Labor Code. disturb the ruling of the public respondent NLRC.  Petitioner Zuellig maintains that the
factual backdraft (sic) of this petition does not call for the application of Article 2208 of the
Civil Code and Article 111 of the Labor Code as private respondent’s wages were not
withheld. On the other hand, public respondent NLRC argues that paragraphs 2 and 3,
On November 6, 2002, the CA promulgated its assailed decision dismissing the petition Article 2208 of the Civil Code and paragraph (a), Article 111 of the Labor Code justify the
for certiorari,10viz:cralavvonlinelawlibrary award of attorney’s fees.  NLRC  was saying to the effect that by petitioner Zuellig’s act of
illegally dismissing private respondent San Miguel, the latter was compelled to litigate and
A careful perusal of the records shows that the closure of business operation was not thus incurred expenses to protect his interest.  In the same passion, private respondent
validly made.  Consider the Certificate of Filing of the Amended Articles of Incorporation San Miguel contends that petitioner Zuellig acted in gross and evident bad faith in
which clearly shows that petitioner Zuellig is actually the former Zeta as per amendment refusing to satisfy his plainly valid, just and demandable claim.
dated January 21, 1994. The same observation can be deduced with respect to the
Certificate of Filing of Amended By-Laws dated May 10, 1994.  As aptly pointed out by After careful and judicious evaluation of the arguments advanced to support the propriety
private respondent San Miguel, the amendment of the articles of incorporation merely or impropriety of the award of attorney’s fees to private respondent San Miguel, this Court
changed its corporate name, broadened its primary purpose and increased its authorized finds the resolutions of public respondent NLRC supported by laws and jurisprudence.  It
capital stocks. The requirements contemplated in Article 283 were not satisfied in this does not need much imagination to see that by reason of petitioner Zuellig’s feigned
case. Good faith was not established by mere registration with the Securities and closure of business operations, private respondent San Miguel incurred expenses to
Exchange Commission (SEC) of the Amended Articles of Incorporation and By-Laws. The protect his rights and interests.  Therefore, the award of attorney’s fees is in order.
factual milleu of the case, considered in its totality, shows that there was no closure to
speak of. The termination of services allegedly due to cessation of business operations of WHEREFORE, in view of the foregoing, the resolutions dated April 4, 2001 and June 15,
Zeta was illegal.  Notwithstanding private respondent San Miguel’s receipt of separation 2001 of the National Labor Relations Commission affirming the November 15, 1999
benefits from petitioner Zuellig, the former is not estopped from questioning the legality of decision of the Labor Arbiter in NLRC NCR 05-03639-94 (CA No. 022861-00) are
his dismissal. hereby AFFIRMED and the instant petition for certiorari is hereby DENIED and
ordered DISMISSED.
Petitioner Zuellig’s allegation that the five employees who refused to receive the
termination letters were verbally informed that they had until 6:00 p.m. of March 1, SO ORDERED.
1994 to receive the termination letters and sign the employment contracts, otherwise the
former would be constrained to withdraw its offer of employment and seek for
replacements in order to ensure the smooth operations of the new company from its Hence, petitioner appeals.
opening date, is of no moment in view of the foregoing circumstances. There being no
 Issues ambit of Article 283 of the Labor Code. The provision pertinently
reads:cralavvonlinelawlibrary
Petitioner asserts that the CA erred in holding that the NLRC did not act with grave abuse
of discretion in ruling that the closure of the business operation of Zeta had not Article 283. Closure of establishment and reduction of personnel. — The employer may
been bona fide, thereby resulting in the illegal dismissal of San Miguel; and in holding that also terminate the employment of any employee due to the installation of labor-saving
the NLRC did not act with grave abuse of discretion in ordering it to pay San Miguel devices, redundancy, retrenchment to prevent losses or the closing or cessation of
attorney’s fees.11 operation of the establishment or undertaking unless the closing is for the purpose
of circumventing the provisions of this Title, by serving a written notice on the
In his comment,12 San Miguel counters that the CA correctly found no grave abuse of workers and the Department of Labor and Employment at least one (1) month
discretion on the part of the NLRC because the ample evidence on record showed that he before the intended date thereof. x x x.
had been illegally terminated; that such finding accorded with applicable laws and
jurisprudence; and that he was entitled to back wages and attorney’s fees.
The unanimous conclusions of the CA, the NLRC and the Labor Arbiter, being in accord
13 with law, were not tainted with any abuse of discretion, least of all grave, on the part of the
In its reply,  petitioner reiterates that the cessation of Zeta’s business, which resulted in
NLRC. Verily, the amendments of the articles of incorporation of Zeta to change the
the severance of San Miguel from his employment, was valid; that the CA erred in
corporate name to Zuellig Freight and Cargo Systems, Inc. did not produce the dissolution
upholding the NLRC’s finding that San Miguel had been illegally terminated; that his
of the former as a corporation. For sure, the  Corporation Code defined and delineated the
acknowledgment of the validity of his separation from Zeta by signing a quitclaim and
different modes of dissolving a corporation, and amendment of the articles of
waiver estopped him from claiming that it had subsequently employed him; and that the
incorporation was not one of such modes. The effect of the change of name was not a
award of attorney’s fees had no basis in fact and in law.
change of the corporate being, for, as well stated in Philippine First Insurance Co., Inc. v.
Hartigan:16 “The changing of the name of a corporation is no more the creation of a
Ruling
corporation than the changing of the name of a natural person is begetting of a natural
person. The act, in both cases, would seem to be what the language which we use to
The petition for review on certiorari is denied for its lack of merit.
designate it imports – a change of name, and not a change of being.”
First of all, the outcome reached by the CA that the NLRC did not commit any grave
The consequences, legal and otherwise, of the change of name were similarly dealt with
abuse of discretion was borne out by the records of the case. We cannot undo such
in P.C. Javier & Sons, Inc. v. Court of Appeals,17 with the Court holding
finding without petitioner making a clear demonstration to the Court now that the CA
thusly:cralavvonlinelawlibrary
gravely erred in passing upon the petition for certiorari of petitioner.
From the foregoing documents, it cannot be denied that petitioner corporation was aware
Indeed, in a special civil action for certiorari brought against a court or quasi-judicial body
of First Summa Savings and Mortgage Bank’s change of corporate name to PAIC
with jurisdiction over a case, petitioner carries the burden of proving that the court or
Savings and Mortgage Bank, Inc. Knowing fully well of such change, petitioner
quasi-judicial body committed not a merely reversible error but a grave abuse of
corporation has no valid reason not to pay because the IGLF loans were applied with and
discretion amounting to lack or excess of jurisdiction in issuing the impugned
obtained from First Summa Savings and Mortgage Bank. First Summa Savings and
order.14 Showing mere abuse of discretion is not enough, for it is necessary to
Mortgage Bank and PAIC Savings and Mortgage Bank, Inc., are one and the same bank
demonstrate that the abuse of discretion was grave.  Grave abuse of discretion means
to which petitioner corporation is indebted. A change in the corporate name does not
either that the judicial or quasi-judicial power was exercised in an arbitrary or despotic
make a new corporation, whether effected by a special act or under a general law. It
manner by reason of passion or personal hostility, or that the respondent judge, tribunal
has no effect on the identity of the corporation, or on its property, rights, or
or board evaded a positive duty, or virtually refused to perform the duty enjoined or to act
liabilities. The corporation, upon such change in its name, is in no sense a new
in contemplation of law, such as when such judge, tribunal or board exercising judicial or
corporation, nor the successor of the original corporation. It is the same
quasi-judicial powers acted in a capricious or whimsical manner as to be equivalent to
corporation with a different name, and its character is in no respect changed. (Bold
lack of jurisdiction.15 Under the circumstances, the CA committed no abuse of discretion,
underscoring supplied for emphasis)
least of all grave, because its justifications were supported by the records and by the
applicable laws and jurisprudence.
In short, Zeta and petitioner remained one and the same corporation. The change of
Secondly, it is worthy to point out that the Labor Arbiter, the NLRC, and the CA were name did not give petitioner the license to terminate employees of Zeta like San Miguel
united in concluding that the cessation of business by Zeta was not a bona fide closure to without just or authorized cause. The situation was not similar to that of an enterprise
be regarded as a valid ground for the termination of employment of San Miguel within the buying the business of another company where the purchasing company had no
obligation to rehire terminated employees of the latter.18 Petitioner, despite its new name,
was the mere continuation of Zeta’s corporate being, and still held the obligation to honor
all of Zeta’s obligations, one of which was to respect San Miguel’s security of tenure. The
dismissal of San Miguel from employment on the pretext that petitioner, being a different
corporation, had no obligation to accept him as its employee, was illegal and ineffectual.

And, lastly, the CA rightfully upheld the NLRC’s affirmance of the grant of attorney’s fees
to San Miguel. Thereby, the NLRC did not commit any grave abuse of its discretion,
considering that San Miguel had been compelled to litigate and to incur expenses to
protect his rights and interest.  In Producers Bank of the Philippines v. Court of
Appeals,19 the Court ruled that attorney’s fees could be awarded to a party whom an
unjustified act of the other party compelled to litigate or to incur expenses to protect his
interest. It was plain that petitioner’s refusal to reinstate San Miguel with backwages and
other benefits to which he had been legally entitled was unjustified, thereby entitling him
to recover attorney’s fees.

WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals promulgated on

November 6, 2002; and ORDERS petitioner to pay the costs of suit.

SO ORDERED.
G.R. No. 93073 December 21, 1992 Under the promissory note (Exhibit "F") defendant corporation Pinch
(formerly Worldwide) is ordered to pay the plaintiff bank the sum of
REPUBLIC PLANTERS BANK, petitioner, P140,000.00 with interest at 16% per annum from November 27, 1980
vs. until fully paid.
COURT OF APPEALS and FERMIN CANLAS, respondents.
Defendant Pinch (formely Worldwide) is hereby ordered to pay the
plaintiff the sum of P231,120.81 with interest at 12% per annum from
July 1, 1981, until fully paid and the sum of P331,870.97 with interest
from March 28, 1981, until fully paid.
CAMPOS, JR., J.:
All the defendants are also ordered to pay, jointly and severally, the
This is an appeal by way of a Petition for Review on Certiorari from the decision * of the plaintiff the sum of P100,000.00 as and for reasonable attorney's fee and
Court of Appeals in CA G.R. CV No. 07302, entitled "Republic Planters Bank.Plaintiff- the further sum equivalent to 3% per annum of the respective principal
Appellee vs. Pinch Manufacturing Corporation, et al., Defendants, and Fermin Canlas, sums from the dates above stated as penalty charge until fully paid, plus
Defendant-Appellant", which affirmed the decision ** in Civil Case No. 82-5448 except one percent (1%) of the principal sums as service charge.
that it completely absolved Fermin Canlas from liability under the promissory notes and
reduced the award for damages and attorney's fees. The RTC decision, rendered on June
20, 1985, is quoted hereunder: With costs against the defendants.

WHEREFORE, premises considered, judgment is hereby rendered in SO ORDERED. 1

favor of the plaintiff Republic Planters Bank, ordering defendant Pinch
Manufacturing Corporation (formerly Worldwide Garment Manufacturing, From the above decision only defendant Fermin Canlas appealed to the then Intermediate
Inc.) and defendants Shozo Yamaguchi and Fermin Canlas to pay, Court (now the Court Appeals). His contention was that inasmuch as he signed the
jointly and severally, the plaintiff bank the following sums with interest promissory notes in his capacity as officer of the defunct Worldwide Garment
thereon at 16% per annum from the dates indicated, to wit: Manufacturing, Inc, he should not be held personally liable for such authorized corporate
acts that he performed. It is now the contention of the petitioner Republic Planters Bank
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with that having unconditionally signed the nine (9) promissory notes with Shozo Yamaguchi,
interest from January 29, 1981 until fully paid; under promissory note jointly and severally, defendant Fermin Canlas is solidarity liable with Shozo Yamaguchi
(Exhibit "B"), the sum of P40,000.00 with interest from November 27, on each of the nine notes.
1980; under the promissory note (Exhibit "C"), the sum of P166,466.00
which interest from January 29, 1981; under the promissory note (Exhibit We find merit in this appeal.
"E"), the sum of P86,130.31 with interest from January 29, 1981; under
the promissory note (Exhibit "G"), the sum of P12,703.70 with interest From the records, these facts are established: Defendant Shozo Yamaguchi and private
from November 27, 1980; under the promissory note (Exhibit "H"), the respondent Fermin Canlas were President/Chief Operating Officer and Treasurer
sum of P281,875.91 with interest from January 29, 1981; and under the respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution
promissory note (Exhibit "I"), the sum of P200,000.00 with interest from No.1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent Fermin
January 29, 1981. Canlas were authorized to apply for credit facilities with the petitioner Republic Planters
Bank in the forms of export advances and letters of credit/trust receipts accommodations.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Petitioner bank issued nine promissory notes, marked as Exhibits A to I inclusive, each of
Corporation (formerly named Worldwide Garment Manufacturing, Inc.), which were uniformly worded in the following manner:
and Shozo Yamaguchi are ordered to pay jointly and severally, the
plaintiff bank the sum of P367,000.00 with interest of 16% per annum ___________, after date, for value received, I/we, jointly and severaIly
from January 29, 1980 until fully paid promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at
its office in Manila, Philippines, the sum of ___________ PESOS(....)
Philippine Currency...
On the right bottom margin of the promissory notes appeared the signatures of Shozo Under the Negotiable lnstruments Law, persons who write their names on the face of
Yamaguchi and Fermin Canlas above their printed names with the phrase "and (in) his promissory notes are makers and are liable as such.3 By signing the notes, the maker
personal capacity" typewritten below. At the bottom of the promissory notes appeared: promises to pay to the order of the payee or any holder 4 according to the tenor
"Please credit proceeds of this note to: thereof.5 Based on the above provisions of law, there is no denying that private
respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he
________ Savings Account ______XX Current Account cannot escape liability arising therefrom.

No. 1372-00257-6 Where an instrument containing the words "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon. 6 An instrument which
begins" with "I" ,We" , or "Either of us" promise to, pay, when signed by two or more
of WORLDWIDE GARMENT MFG. CORP. persons, makes them solidarily liable. 7 The fact that the singular pronoun is used
indicates that the promise is individual as to each other; meaning that each of the co-
These entries were separated from the text of the notes with a bold line which ran signers is deemed to have made an independent singular promise to pay the notes in full.
horizontally across the pages.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment clearer and certain, without reason for ambiguity, by the presence of the phrase "joint and
Manufacturing, Inc. was apparently rubber stamped above the signatures of defendant several" as describing the unconditional promise to pay to the order of Republic Planters
and private respondent. Bank. A joint and several note is one in which the makers bind themselves both jointly
and individually to the payee so that all may be sued together for its enforcement, or the
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its creditor may select one or more as the object of the suit. 8 A joint and several obligation
corporate name to Pinch Manufacturing Corporation. in common law corresponds to a civil law solidary obligation; that is, one of several
debtors bound in such wise that each is liable for the entire amount, and not merely for his
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money proportionate share. 9 By making a joint and several promise to pay to the order of
covered among others, by the nine promissory notes with interest thereon, plus attorney's Republic Planters Bank, private respondent Fermin Canlas assumed the solidary liability
fees and penalty charges. The complainant was originally brought against Worldwide of a debtor and the payee may choose to enforce the notes against him alone or jointly
Garment Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide with Yamaguchi and Pinch Manufacturing Corporation as solidary debtors.
Manufacturing, Inc. as defendant and substitute Pinch Manufacturing Corporation it its
place. Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an As to whether the interpolation of the phrase "and (in) his personal capacity" below the
Amended Answer and failed to appear at the scheduled pre-trial conference despite due signatures of the makers in the notes will affect the liability of the makers, We do not find
notice. Only private respondent Fermin Canlas filed an Amended Answer wherein he, it necessary to resolve and decide, because it is immaterial and will not affect to the
denied having issued the promissory notes in question since according to him, he was not liability of private respondent Fermin Canlas as a joint and several debtor of the notes.
an officer of Pinch Manufacturing Corporation, but instead of Worldwide Garment With or without the presence of said phrase, private respondent Fermin Canlas is
Manufacturing, Inc., and that when he issued said promissory notes in behalf of primarily liable as a co-maker of each of the notes and his liability is that of a solidary
Worldwide Garment Manufacturing, Inc., the same were in blank, the typewritten entries debtor.
not appearing therein prior to the time he affixed his signature.
Finally, the respondent Court made a grave error in holding that an amendment in a
In the mind of this Court, the only issue material to the resolution of this appeal is whether corporation's Articles of Incorporation effecting a change of corporate name, in this case
private respondent Fermin Canlas is solidarily liable with the other defendants, namely from Worldwide Garment manufacturing Inc to Pinch Manufacturing Corporation
Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes. extinguished the personality of the original corporation.

We hold that private respondent Fermin Canlas is solidarily liable on each of the The corporation, upon such change in its name, is in no sense a new corporation, nor the
promissory notes bearing his signature for the following reasons: successor of the original corporation. It is the same corporation with a different name, and
its character is in no respect changed.10
The promissory motes are negotiable instruments and must be governed by the
Negotiable Instruments Law. 2
A change in the corporate name does not make a new corporation, and whether effected must be filled up strictly in accordance with the authority given and within
by special act or under a general law, has no affect on the identity of the corporation, or a reasonable time...
on its property, rights, or liabilities. 11
Proof that the notes were signed in blank was only the self-serving testimony of private
The corporation continues, as before, responsible in its new name for all debts or other respondent Fermin Canlas, as determined by the trial court, so that the trial court ''doubts
liabilities which it had previously contracted or incurred. 12 the defendant (Canlas) signed in blank the promissory notes". We chose to believe the
bank's testimony that the notes were filled up before they were given to private
As a general rule, officers or directors under the old corporate name bear no personal respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures as joint
liability for acts done or contracts entered into by officers of the corporation, if duly and several promissors. For signing the notes above their typewritten names, they bound
authorized. Inasmuch as such officers acted in their capacity as agent of the old themselves as unconditional makers. We take judicial notice of the customary procedure
corporation and the change of name meant only the continuation of the old juridical entity, of commercial banks of requiring their clientele to sign promissory notes prepared by the
the corporation bearing the same name is still bound by the acts of its agents if authorized banks in printed form with blank spaces already filled up as per agreed terms of the loan,
by the Board. Under the Negotiable Instruments Law, the liability of a person signing as leaving the borrowers-debtors to do nothing but read the terms and conditions therein
an agent is specifically provided for as follows: printed and to sign as makers or co-makers. When the notes were given to private
respondent Fermin Canlas for his signature, the notes were complete in the sense that
the spaces for the material particular had been filled up by the bank as per agreement.
Sec. 20. Liability of a person signing as agent and so forth. Where the The notes were not incomplete instruments; neither were they given to private respondent
instrument contains or a person adds to his signature words indicating Fermin Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law
that he signs for or on behalf of a principal , or in a representative is not applicable.
capacity, he is not liable on the instrument if he was duly authorized; but
the mere addition of words describing him as an agent, or as filling a
representative character, without disclosing his principal, does not The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing
exempt him from personal liability. the interest rate on the promissory notes from 16% to 12% per annum does not squarely
apply to the instant petition. In the abovecited case, the rate of 12% was applied to
forebearances of money, goods or credit and court judgemets thereon, only in the
Where the agent signs his name but nowhere in the instrument has he disclosed the fact absence of any stipulation between the parties.
that he is acting in a representative capacity or the name of the third party for whom he
might have acted as agent, the agent is personally liable to take holder of the instrument
and cannot be permitted to prove that he was merely acting as agent of another and parol In the case at bar however , it was found by the trial court that the rate of interest is 9%
or extrinsic evidence is not admissible to avoid the agent's personal liability. 13 per annum, which interest rate the plaintiff may at any time without notice, raise within the
limits allowed law. And so, as of February 16, 1984 , the plaintiff had fixed the interest at
16% per annum.
On the private respondent's contention that the promissory notes were delivered to him in
blank for his signature, we rule otherwise. A careful examination of the notes in question
shows that they are the stereotype printed form of promissory notes generally used by This Court has held that the rates under the Usury Law, as amended by Presidential
commercial banking institutions to be signed by their clients in obtaining loans. Such Decree No. 116, are applicable only to interests by way of compensation for the use or
printed notes are incomplete because there are blank spaces to be filled up on material forebearance of money. Article 2209 of the Civil Code, on the other hand, governs
particulars such as payee's name, amount of the loan, rate of interest, date of issue and interests by way of damages.15 This fine distinction was not taken into consideration by
the maturity date. The terms and conditions of the loan are printed on the note for the the appellate court, which instead made a general statement that the interest rate be at
borrower-debtor 's perusal. An incomplete instrument which has been delivered to the 12% per annum.
borrower for his signature is governed by Section 14 of the Negotiable Instruments Law
which provides, in so far as relevant to this case, thus: Inasmuch as this Court had declared that increases in interest rates are not subject to any
ceiling prescribed by the Usury Law, the appellate court erred in limiting the interest rates
Sec. 14. Blanks: when may be filled. — Where the instrument is wanting at 12% per annum. Central Bank Circular No. 905, Series of 1982 removed the Usury
in any material particular, the person in possesion thereof has a prima Law ceiling on interest rates. 16
facie authority to complete it by filling up the blanks therein. ... In order,
however, that any such instrument when completed may be enforced In the 1ight of the foregoing analysis and under the plain language of the statute and
against any person who became a party thereto prior to its completion, it jurisprudence on the matter, the decision of the respondent: Court of Appeals absolving
private respondent Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby
rendered declaring private respondent Fermin Canlas jointly and severally liable on all  the
nine promissory notes with the following sums and at 16% interest per annum from the
dates indicated, to wit:

Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest
from January 29, 1981 until fully paid; under promissory note marked as Exhibit B, the
sum of P40,000.00 with interest from November 27, 1980: under the promissory note
denominated as Exhibit C, the amount of P166,466.00 with interest from January 29,
1981; under the promissory note denominated as Exhibit D, the amount of P367,000.00
with interest from January 29, 1981 until fully paid; under the promissory note marked as
Exhibit E, the amount of P86,130.31 with interest from January 29, 1981; under the
promissory note marked as Exhibit F, the sum of P140,000.00 with interest from
November 27, 1980 until fully paid; under the promissory note marked as Exhibit G, the
amount of P12,703.70 with interest from November 27, 1980; the promissory note marked
as Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and the
promissory note marked as Exhibit I, the sum of P200,000.00 with interest on January 29,
1981.

The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide

Garment Manufacturing, Inc.) and Shozo Yamaguchi, for not having appealed from the
decision of the trial court, shall be adjudged in accordance with the judgment rendered by
the Court a quo.

With respect to attorney's fees, and penalty and service charges, the private respondent
Fermin Canlas is hereby held jointly and solidarity liable with defendants for the amounts
found, by the Court a quo. With costs against private respondent.

SO ORDERED.
G.R. No. 182770               September 17, 2014 The RTC, in its January 28, 1991 decision, found the respondent liable to pay CLN actual
damages inthe amount of ₱112,876.02 with 12% interest per annum from June 18,1990
WPM INTERNATIONAL TRADING, INC. and WARLITO P. MANLAPAZ, Petitioners, (the date of first demand) and 20% of the amount recoverable as attorney’s fees.
vs.
FE CORAZON LABAYEN, Respondent. Complaint for Damages (Civil Case No. Q-92-13446)

DECISION Thereafter, the respondent instituted a complaint for damages against the petitioners,
WPM and Manlapaz. The respondent alleged that in Civil Case No. Q-90-7013, she was
BRION, J.: adjudged liable for a contract that she entered into for and in behalf of the petitioners, to
which she should be entitled to reimbursement; that her participation in the management
agreement was limited only to introducing Manlapaz to Engineer Carmelo Neri (Neri),
We review in this petition for review on certiorari1 the decision2 dated September 28, 2007 CLN’s general manager; that it was actually Manlapaz and Neri who agreed on the terms
and the resolution3 dated April 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. and conditions of the agreement; that when the complaint for damages was filed against
68289 that affirmed with modification the decision4 of the Regional Trial Court (RTC), her, she was abroad; and that she did not know of the case until she returned to the
Branch 77, Quezon City. Philippines and received a copy of the decision of the RTC.

The Factual Background In her prayer, the respondent sought indemnification in the amount of ₱112,876.60 plus
interest at 12%per annum from June 18, 1990 until fully paid; and 20% of the award as
The respondent, Fe Corazon Labayen, is the owner of H.B.O. Systems Consultants, a attorney’s fees. She likewise prayed that an award of ₱100,000.00 as moral damages and
management and consultant firm. The petitioner, WPM International Trading, Inc. (WPM), ₱20,000.00 as attorney’s fees be paid to her.
is a domestic corporation engaged in the restaurant business, while Warlito P. Manlapaz
(Manlapaz) is its president. In his defense, Manlapaz claims that it was his fellow incorporator/director Edgar
Alcansajewho was in-charge with the daily operations of the Quickbite outlets; that when
Sometime in 1990, WPM entered into a management agreement with the respondent, by Alcansaje left WPM, the remaining directors were compelled to hire the respondent as
virtue of which the respondent was authorized to operate, manage and rehabilitate manager; that the respondent had entered intothe renovation agreement with CLN in her
Quickbite, a restaurant owned and operated by WPM. As part of her tasks, the own personal capacity; that when he found the amount quoted by CLN too high, he
respondent looked for a contractor who would renovate the two existing Quickbite outlets instructed the respondent to either renegotiate for a lower price or to look for another
in Divisoria, Manila and Lepanto St., University Belt, Manila. Pursuant to the agreement, contractor; that since the respondent had exceeded her authority as agent of WPM, the
the respondent engaged the services of CLN Engineering Services (CLN) to renovate renovation agreement should only bind her; and that since WPM has a separate and
Quickbite-Divisoria at the cost of ₱432,876.02. distinct personality, Manlapaz cannot be made liable for the respondent’s claim.

On June 13, 1990, Quickbite-Divisoria’s renovation was finally completed, and its Manlapaz prayed for the dismissal of the complaint for lack of cause of action, and by way
possession was delivered to the respondent. However, out of the ₱432,876.02 renovation of counterclaim, for the award of ₱350,000.00 as moral and exemplary damages and
cost, only the amount of ₱320,000.00 was paid to CLN, leaving a balance of ₱50,000.00 attorney’s fees.
₱112,876.02.
The RTC, through an order dated March 2, 1993 declared WPM in default for its failure to
Complaint for Sum of Money (Civil Case No. Q-90-7013) file a responsive pleading.

On October 19, 1990, CLN filed a complaint for sum of money and damages before the The Decision of the RTC
RTC against the respondent and Manlapaz, which was docketed as Civil Case No. Q-90-
7013. CLN later amended the complaint to exclude Manlapaz as defendant. The In its decision, the RTC held that the respondent is entitled to indemnity from Manlapaz.
respondent was declared in default for her failure to file a responsive pleading. The RTC found that based on the records, there is a clear indication that WPM is a mere
instrumentality or business conduit of Manlapaz and as such, WPM and Manlapaz are
considered one and the same. The RTC also found that Manlapaz had complete control
over WPM considering that he is its chairman, president and treasurer at the same time. The Issues
The RTC thus concluded that Manlapaz is liable in his personal capacity to reimburse the
respondent the amount she paid to CLN inconnection with the renovation agreement. The core issues are: (1) whether WPM is a mere instrumentality, alter-ego, and business
conduit of Manlapaz; and (2) whether Manlapaz is jointly and severally liable with WPM to
The petitioners appealed the RTC decision with the CA. There, they argued that in view of the respondent for reimbursement, damages and interest.
the respondent’s act of entering into a renovation agreement with CLN in excess of her
authority as WPM’s agent, she is not entitled to indemnity for the amount she paid. Our Ruling
Manlapaz also contended that by virtue ofWPM’s separate and distinct personality, he
cannot be madesolidarily liable with WPM.
We find merit in the petition.
The Ruling of the Court of Appeals
We note, at the outset, that the question of whether a corporation is a mere
instrumentality or alter-ego of another is purely one of fact. 5 This is also true with respect
On September 28, 2007, the CA affirmed, with modification on the award of attorney’s to the question of whether the totality of the evidence adduced by the respondentwarrants
fees, the decision of the RTC.The CA held that the petitioners are barred from raising as a the application of the piercing the veil of corporate fiction doctrine. 6
defense the respondent’s alleged lack of authority to enter into the renovation agreement
in view of their tacit ratification of the contract.
Generally, factual findings of the lower courts are accorded the highest degree of respect,
if not finality. When adopted and confirmed by the CA, these findings are final and
The CA likewise affirmed the RTC ruling that WPM and Manlapaz are one and the same conclusive and may not be reviewed on appeal, 7 save in some recognized
based on the following: (1) Manlapaz is the principal stockholder of WPM; (2) Manlapaz exceptions8 among others, when the judgment is based on misapprehension of facts.
had complete control over WPM because he concurrently held the positions of president,
chairman of the board and treasurer, in violation of the Corporation Code; (3) two of the
four other stockholders of WPM are employed by Manlapaz either directly or indirectly; (4) We have reviewed the records and found that the application of the principle of piercing
Manlapaz’s residence is the registered principal office of WPM; and (5) the acronym the veil of corporate fiction is unwarranted in the present case.
"WPM" was derived from Manlapaz’s initials. The CA applied the principle of piercing the
veil of corporate fiction and agreed with the RTC that Manlapaz cannot evade his liability On the Application ofthe Principle of Piercing the Veil of Corporate Fiction
by simply invoking WPM’s separate and distinct personality.
The rule is settled that a corporation has a personality separate and distinct from the
After the CA's denial of their motion for reconsideration, the petitioners filed the present persons acting for and in its behalf and, in general, from the people comprising
petition for review on certiorari under Rule 45 of the Rules of Court. it.9 Following this principle, the obligations incurred by the corporate officers, orother
persons acting as corporate agents, are the direct accountabilities ofthe corporation they
The Petition represent, and not theirs. Thus, a director, officer or employee of a corporation is
generally not held personally liable for obligations incurred by the corporation; 10 it is only
in exceptional circumstances that solidary liability will attach to them.
The petitioners submit that the CA gravely erred in sustaining the RTC’s application of the
principle of piercing the veil of corporate fiction. They argue that the legal fiction of
corporate personality could only be discarded upon clear and convincing proof that the Incidentally, the doctrine of piercing the corporate veil applies only in three (3) basic
corporation is being used as a shield to avoid liability or to commit a fraud. Since the instances, namely: a) when the separate and distinct corporate personality defeats public
respondent failed to establish that any of the circumstances that would warrant the convenience, as when the corporate fiction is used as a vehicle for the evasion of an
piercing is present, Manlapaz claims that he cannot be made solidarily liable with WPM to existing obligation; b) in fraud cases, or when the corporate entity is used to justify a
answerfor damages allegedly incurred by the respondent. wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a
corporation is essentially a farce, since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs so
The petitioners further argue that, assuming they may be held liable to reimburse to the conducted as to make it merely aninstrumentality, agency, conduit or adjunct of another
respondentthe amount she paid in Civil Case No. Q-90-7013, such liability is only limited corporation.11
to the amount of ₱112,876.02, representing the balance of the obligation to CLN, and
should not include the twelve 12% percent interest, damages and attorney’s fees.
Piercing the corporate veil based on the alter ego theory requires the concurrence of
three elements, namely:
 (1) Control, not mere majority or complete stock control, but complete formed to defraud CLN or the respondent, or that Manlapaz was guilty of bad faith or
domination, not only of finances but of policy and business practice in respect to fraud.
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; On the contrary, the evidence establishes that CLN and the respondent knew and acted
on the knowledgethat they were dealing with WPM for the renovation of the latter’s
(2) Such control must have beenused by the defendant to commit fraud or wrong, restaurant, and not with Manlapaz. That WPM later reneged on its monetary obligation to
to perpetuate the violation of a statutory or other positive legal duty, or dishonest CLN, resulting to the filing of a civil case for sum of money against the respondent, does
and unjust act in contravention of plaintiff’s legal right; and not automatically indicate fraud, in the absence of any proof to support it.

(3) The aforesaid control and breach of duty must have proximately caused the This Court also observed that the CA failed to demonstrate how the separate and distinct
injury or unjust loss complained of. personalityof WPM was used by Manlapaz to defeat the respondent’s right for
reimbursement. Neither was there any showing that WPM attempted to avoid liability or
The absence of any ofthese elements prevents piercing the corporate veil. 12 had no property against which to proceed.

In the present case, the attendantcircumstances do not establish that WPM is a mere Since no harm could be said to have been proximately caused by Manlapaz for which the
alter ego of Manlapaz. latter could be held solidarily liable with WPM, and considering that there was no proof
that WPM had insufficient funds, there was no sufficient justification for the RTC and the
CA to have ruled that Manlapaz should be held jointly and severally liable to the
Aside from the fact that Manlapaz was the principal stockholder of WPM, records do not respondent for the amount she paid to CLN. Hence, only WPM is liable to indemnify the
show that WPM was organized and controlled, and its affairs conducted in a manner that respondent.
made it merely an instrumentality, agency, conduit or adjunct ofManlapaz. As held in
Martinez v. Court of Appeals,13 the mere ownership by a singlestockholder of even all or
nearly all of the capital stocks ofa corporation is not by itself a sufficient ground to Finally, we emphasize that the piercing of the veil of corporate fiction is frowned upon and
disregard the separate corporate personality. To disregard the separate juridical thus, must be done with caution.15 It can only be done if it has been clearly established
personality of a corporation, the wrongdoing must be clearly and convincingly that the separate and distinct personality of the corporation is used to justify a wrong,
established.14 protect fraud, or perpetrate a deception. The court 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; it cannot be presumed.
Likewise, the records of the case do not support the lower courts’ finding that Manlapaz
had control or domination over WPM or its finances. That Manlapaz concurrentlyheld the
positions of president, chairman and treasurer, or that the Manlapaz’s residence is the On the Award of Moral Damages
registered principal office of WPM, are insufficient considerations to prove that he had
exercised absolutecontrol over WPM. On the award of moral damages, we find the same in order in view of WPM's unjustified
refusal to pay a just debt. Under Article 2220 of the New Civil Code, 16 moral damages
In this connection, we stress thatthe control necessary to invoke the instrumentality or may be awarded in cases of a breach of contract where the defendant acted fraudulently
alter ego rule is not majority or even complete stock control but such domination of or in bad faith or was guilty of gross negligence amounting to bad faith.
finances, policies and practices that the controlled corporation has, so tospeak, no
separate mind, will or existence of its own, and is but a conduit for its principal. The In the present case, when payment for the balance of the renovation cost was demanded,
control must be shown to have been exercised at the time the acts complained of took WPM, instead of complying with its obligation, denied having authorized the respondent to
place. Moreover, the control and breach of duty must proximately cause the injury or contract in its behalf and accordingly refused to pay. Such cold refusal to pay a just debt
unjust loss for which the complaint is made. amounts to a breach of contract in bad faith, as contemplated by Article 2220. Hence, the
CA's order to pay moral damages was in order.
Here, the respondent failed to prove that Manlapaz, acting as president, had absolute
control over WPM.1âwphi1 Even granting that he exercised a certain degree of control WHEREFORE, in light of the foregoing, the decision dated September 28, 2007 of the
over the finances, policies and practices of WPM, in view of his position as president, Court of Appeals in CA-G.R. CV No. 68289 is MODIFIED and.that petitioner Warlito P.
chairman and treasurer of the corporation, such control does not necessarily warrant Manlapaz is ABSOLVED from any liability under the renovation agreement.
piercing the veil of corporate fiction since there was not a single proof that WPM was
SO ORDERED.
G.R. No. L-23893            October 29, 1968 was one of the incorporators, and she subscribed for P1,000.00; the balance of
P199,000.00 was subscribed by the brother and sister-in-law of Jose M. Villarama; of the
VILLA REY TRANSIT, INC., plaintiff-appellant, subscribed capital stock, P105,000.00 was paid to the treasurer of the corporation, who
vs. was Natividad R. Villarama.
EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION CO., INC. and PUBLIC
SERVICE COMMISSION, defendants. In less than a month after its registration with the Securities and Exchange Commission
EUSEBIO E. FERRER and PANGASINAN TRANSPORTATION CO., INC., defendants- (March 10, 1959), the Corporation, on April 7, 1959, bought  five certificates of public
appellants. convenience, forty-nine buses, tools and equipment from one Valentin Fernando, for the
sum of P249,000.00, of which P100,000.00 was paid upon the signing of the contract;
PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant, P50,000.00 was payable upon the final approval of the sale by the PSC; P49,500.00 one
vs. year after the final approval of the sale; and the balance of P50,000.00 "shall be paid by
JOSE M. VILLARAMA, third-party defendant-appellee. the BUYER to the different suppliers of the SELLER."

Chuidian Law Office for plaintiff-appellant. The very same day that the aforementioned contract of sale was executed, the parties
Bengzon, Zarraga & Villegas for defendant-appellant / third-party plaintiff-appellant. thereto immediately applied with the PSC for its approval, with a prayer for the issuance
Laurea & Pison for third-party defendant-appellee. of a provisional authority in favor of the vendee Corporation to operate the service therein
involved.1 On May 19, 1959, the PSC granted the provisional permit prayed for, upon the
condition that "it may be modified or revoked by the Commission at any time, shall be
ANGELES, J.: subject to whatever action that may be taken on the basic application and shall be valid
only during the pendency of said application." Before the PSC could take final action on
This is a tri-party appeal from the decision of the Court of First Instance of Manila, Civil said application for approval of sale, however, the Sheriff of Manila, on July 7, 1959,
Case No. 41845, declaring null and void the sheriff's sale of two certificates of public levied on two of the five certificates of public convenience involved therein, namely, those
convenience in favor of defendant Eusebio E. Ferrer and the subsequent sale thereof by issued under PSC cases Nos. 59494 and 63780, pursuant to a writ of execution issued by
the latter to defendant Pangasinan Transportation Co., Inc.; declaring the plaintiff Villa the Court of First Instance of Pangasinan in Civil Case No. 13798, in favor of Eusebio
Rey Transit, Inc., to be the lawful owner of the said certificates of public convenience; and Ferrer, plaintiff, judgment creditor, against Valentin Fernando, defendant, judgment
ordering the private defendants, jointly and severally, to pay to the plaintiff, the sum of debtor. The Sheriff made and entered the levy in the records of the PSC. On July 16,
P5,000.00 as and for attorney's fees. The case against the PSC was dismissed. 1959, a public sale was conducted by the Sheriff of the said two certificates of public
convenience. Ferrer was the highest bidder, and a certificate of sale was issued in his
The rather ramified circumstances of the instant case can best be understood by a name.
chronological narration of the essential facts, to wit:
Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly
Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the submitted for approval their corresponding contract of sale to the PSC. 2 Pantranco therein
business name of Villa Rey Transit, pursuant to certificates of public convenience granted prayed that it be authorized provisionally to operate the service involved in the
him by the Public Service Commission (PSC, for short) in Cases Nos. 44213 and 104651, said two certificates.
which authorized him to operate a total of thirty-two (32) units on various routes or lines
from Pangasinan to Manila, and vice-versa. On January 8, 1959, he sold the The applications for approval of sale, filed before the PSC, by Fernando and the
aforementioned two certificates of public convenience to the Pangasinan Transportation Corporation, Case No. 124057, and that of Ferrer and Pantranco, Case No. 126278, were
Company, Inc. (otherwise known as Pantranco), for P350,000.00 with the condition, scheduled for a joint hearing. In the meantime, to wit, on July 22, 1959, the PSC issued
among others, that the seller (Villarama) "shall not for a period of 10 years from the date an order disposing that during the pendency of the cases and before a final resolution on
of this sale, apply for any TPU service identical or competing with the buyer." the aforesaid applications, the Pantranco shall be the one to operate provisionally the
service under the two certificates embraced in the contract between Ferrer and
Barely three months thereafter, or on March 6, 1959: a corporation called Villa Rey Pantranco. The Corporation took issue with this particular ruling of the PSC and elevated
Transit, Inc. (which shall be referred to hereafter as the Corporation) was organized with a the matter to the Supreme Court,3 which decreed, after deliberation, that until the issue on
capital stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each; the ownership of the disputed certificates shall have been finally settled by the proper
P200,000.00 was the subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) court, the Corporation should be the one to operate the lines provisionally.
On November 4, 1959, the Corporation filed in the Court of First Instance of Manila, a After a careful study of the facts obtaining in the case, the vital issues to be resolved are:
complaint for the annulment of the sheriff's sale of the aforesaid two certificates of public (1) Does the stipulation between Villarama and Pantranco, as contained in the deed of
convenience (PSC Cases Nos. 59494 and 63780) in favor of the defendant Ferrer, and sale, that the former "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF
the subsequent sale thereof by the latter to Pantranco, against Ferrer, Pantranco and the THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE
PSC. The plaintiff Corporation prayed therein that all the orders of the PSC relative to the BUYER," apply to new lines only or does it include existing lines?; (2) Assuming that said
parties' dispute over the said certificates be annulled. stipulation covers all kinds of lines, is such stipulation valid and enforceable?; (3) In the
affirmative, that said stipulation is valid, did it bind the Corporation?
In separate answers, the defendants Ferrer and Pantranco averred that the plaintiff
Corporation had no valid title to the certificates in question because the contract pursuant For convenience, We propose to discuss the foregoing issues by starting with the last
to which it acquired them from Fernando was subject to a suspensive condition — the proposition.
approval of the PSC — which has not yet been fulfilled, and, therefore, the Sheriff's levy
and the consequent sale at public auction of the certificates referred to, as well as the The evidence has disclosed that Villarama, albeit was not an incorporator or stockholder
sale of the same by Ferrer to Pantranco, were valid and regular, and vested unto of the Corporation, alleging that he did not become such, because he did not have
Pantranco, a superior right thereto. sufficient funds to invest, his wife, however, was an incorporator with the least subscribed
number of shares, and was elected treasurer of the Corporation. The finances of the
Pantranco, on its part, filed a third-party complaint against Jose M. Villarama, alleging that Corporation which, under all concepts in the law, are supposed to be under the control
Villarama and the Corporation, are one and the same; that Villarama and/or the and administration of the treasurer keeping them as trust fund for the Corporation, were,
Corporation was disqualified from operating the two certificates in question by virtue of the nonetheless, manipulated and disbursed as if they were the private funds of Villarama, in
aforementioned agreement between said Villarama and Pantranco, which stipulated that such a way and extent that Villarama appeared to be the actual owner-treasurer of the
Villarama "shall not for a period of 10 years from the date of this sale, apply for any TPU business without regard to the rights of the stockholders. The following testimony of
service identical or competing with the buyer." Villarama,4 together with the other evidence on record, attests to that effect:

Upon the joinder of the issues in both the complaint and third-party complaint, the case Q.       Doctor, I want to go back again to the incorporation of the Villa Rey
was tried, and thereafter decision was rendered in the terms, as above stated. Transit, Inc. You heard the testimony presented here by the bank regarding the
initial opening deposit of ONE HUNDRED FIVE THOUSAND PESOS, of which
As stated at the beginning, all the parties involved have appealed from the decision. They amount Eighty-Five Thousand Pesos was a check drawn by yourself personally.
submitted a joint record on appeal. In the direct examination you told the Court that the reason you drew a check for
Eighty-Five Thousand Pesos was because you and your wife, or your wife, had
spent the money of the stockholders given to her for incorporation. Will you
Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey please tell the Honorable Court if you knew at the time your wife was spending
Transit, Inc. (Corporation) is a distinct and separate entity from Jose M. Villarama; that the the money to pay debts, you personally knew she was spending the money of the
restriction clause in the contract of January 8, 1959 between Pantranco and Villarama is incorporators?
null and void; that the Sheriff's sale of July 16, 1959, is likewise null and void; and the
failure to award damages in its favor and against Villarama.
A.       You know my money and my wife's money are one. We never talk about
those things.
Ferrer, for his part, challenges the decision insofar as it holds that the sheriff's sale is null
and void; and the sale of the two certificates in question by Valentin Fernando to the
Corporation, is valid. He also assails the award of P5,000.00 as attorney's fees in favor of Q.       Doctor, your answer then is that since your money and your wife's money
the Corporation, and the failure to award moral damages to him as prayed for in his are one money and you did not know when your wife was paying debts with the
counterclaim. incorporator's money?

The Corporation, on the other hand, prays for a review of that portion of the decision A.       Because sometimes she uses my money, and sometimes the money given
awarding only P5,000.00 as attorney's fees, and insisting that it is entitled to an award of to her she gives to me and I deposit the money.
P100,000.00 by way of exemplary damages.
Q.       Actually, aside from your wife, you were also the custodian of some of the
incorporators here, in the beginning?
 A.       Not necessarily, they give to my wife and when my wife hands to me I did sums.7 Thus, it was made to appear that the P95,000.00 was delivered to Villarama in
not know it belonged to the incorporators. payment for equipment purchased from him, and the P100,000.00 was loaned as
advances to the stockholders. The said accountant, however, testified that he was not
Q.       It supposes then your wife gives you some of the money received by her aware of any amount of money that had actually passed hands among the parties
in her capacity as treasurer of the corporation? involved,8 and actually the only money of the corporation was the P105,000.00 covered
by the deposit slip Exh. 23, of which as mentioned above, P85,000.00 was paid by
Villarama's personal check.
A.       Maybe.
Further, the evidence shows that when the Corporation was in its initial months of
Q.       What did you do with the money, deposit in a regular account? operation, Villarama purchased and paid with his personal checks Ford trucks for the
Corporation. Exhibits 20 and 21 disclose that the said purchases were paid by Philippine
A.       Deposit in my account. Bank of Commerce Checks Nos. 992618-B and 993621-B, respectively. These checks
have been sufficiently established by Fausto Abad, Assistant Accountant of Manila
Q.       Of all the money given to your wife, she did not receive any check? Trading & Supply Co., from which the trucks were purchased 9 and Aristedes Solano, an
employee of the Philippine Bank of Commerce,10 as having been drawn by Villarama.
A.       I do not remember.
Exhibits 6 to 19 and Exh. 22, which are photostatic copies of ledger entries and vouchers
Q.       Is it usual for you, Doctor, to be given Fifty Thousand Pesos without even showing that Villarama had co-mingled his personal funds and transactions with those
asking what is this? made in the name of the Corporation, are very illuminating evidence. Villarama has
assailed the admissibility of these exhibits, contending that no evidentiary value
whatsoever should be given to them since "they were merely photostatic copies of the
xxx           xxx           xxx originals, the best evidence being the originals themselves." According to him, at the time
Pantranco offered the said exhibits, it was the most likely possessor of the originals
JUDGE:    Reform the question. thereof because they were stolen from the files of the Corporation and only Pantranco
was able to produce the alleged photostat copies thereof.
Q.       The subscription of your brother-in-law, Mr. Reyes, is Fifty-Two Thousand
Pesos, did your wife give you Fifty-two Thousand Pesos? Section 5 of Rule 130 of the Rules of Court provides for the requisites for the admissibility
of secondary evidence when the original is in the custody of the adverse party, thus: (1)
A.       I have testified before that sometimes my wife gives me money and I do opponent's possession of the original; (2) reasonable notice to opponent to produce the
not know exactly for what. original; (3) satisfactory proof of its existence; and (4) failure or refusal of opponent to
produce the original in court.11 Villarama has practically admitted the second and fourth
requisites.12 As to the third, he admitted their previous existence in the files of the
The evidence further shows that the initial cash capitalization of the corporation of
Corporation and also that he had seen some of them. 13 Regarding the first element,
P105,000.00 was mostly financed by Villarama. Of the P105,000.00 deposited in the First
Villarama's theory is that since even at the time of the issuance of the subpoena duces
National City Bank of New York, representing the initial paid-up capital of the Corporation,
tecum, the originals were already missing, therefore, the Corporation was no longer in
P85,000.00 was covered by Villarama's personal check. The deposit slip for the said
possession of the same. However, it is not necessary for a party seeking to introduce
amount of P105,000.00 was admitted in evidence as Exh. 23, which shows on its face
secondary evidence to show that the original is in the actual possession of his adversary.
that P20,000.00 was paid in cash and P85,000.00 thereof was covered by Check No. F-
It is enough that the circumstances are such as to indicate that the writing is in his
50271 of the First National City Bank of New York. The testimonies of Alfonso
possession or under his control. Neither is it required that the party entitled to the custody
Sancho5 and Joaquin Amansec,6 both employees of said bank, have proved that the
of the instrument should, on being notified to produce it, admit having it in his
drawer of the check was Jose Villarama himself.
possession.14 Hence, secondary evidence is admissible where he denies having it in his
possession. The party calling for such evidence may introduce a copy thereof as in the
Another witness, Celso Rivera, accountant of the Corporation, testified that while in the case of loss. For, among the exceptions to the best evidence rule is "when the original
books of the corporation there appears an entry that the treasurer received P95,000.00 as has been lost, destroyed, or cannot be produced in court." 15 The originals of the vouchers
second installment of the paid-in subscriptions, and, subsequently, also P100,000.00 as in question must be deemed to have been lost, as even the Corporation admits such loss.
the first installment of the offer for second subscriptions worth P200,000.00 from the Viewed upon this light, there can be no doubt as to the admissibility in evidence of
original subscribers, yet Villarama directed him (Rivera) to make vouchers liquidating the Exhibits 6 to 19 and 22.
Taking account of the foregoing evidence, together with Celso Rivera's testimony, 16 it Indeed, while Villarama was not the Treasurer of the Corporation but was, allegedly, only
would appear that: Villarama supplied the organization expenses and the assets of the a part-time manager,27 he admitted not only having held the corporate money but that he
Corporation, such as trucks and equipment;17 there was no actual payment by the original advanced and lent funds for the Corporation, and yet there was no Board Resolution
subscribers of the amounts of P95,000.00 and P100,000.00 as appearing in the allowing it.28
books;18 Villarama made use of the money of the Corporation and deposited them to his
private accounts;19 and the Corporation paid his personal accounts. 20 Villarama's explanation on the matter of his involvement with the corporate affairs of the
Corporation only renders more credible Pantranco's claim that his control over the
Villarama himself admitted that he mingled the corporate funds with his own money. 21 He corporation, especially in the management and disposition of its funds, was so extensive
also admitted that gasoline purchases of the Corporation were made in his and intimate that it is impossible to segregate and identify which money belonged to
name22 because "he had existing account with Stanvac which was properly secured and whom. The interference of Villarama in the complex affairs of the corporation, and
he wanted the Corporation to benefit from the rebates that he received." 23 particularly its finances, are much too inconsistent with the ends and purposes of the
Corporation law, which, precisely, seeks to separate personal responsibilities from
The foregoing circumstances are strong persuasive evidence showing that Villarama has corporate undertakings. It is the very essence of incorporation that the acts and conduct
been too much involved in the affairs of the Corporation to altogether negative the claim of the corporation be carried out in its own corporate name because it has its own
that he was only a part-time general manager. They show beyond doubt that the personality.
Corporation is his alter ego.
The doctrine that a corporation is a legal entity distinct and separate from the members
It is significant that not a single one of the acts enumerated above as proof of Villarama's and stockholders who compose it is recognized and respected in all cases which are
oneness with the Corporation has been denied by him. On the contrary, he has admitted within reason and the law.29 When the fiction is urged as a means of perpetrating a fraud
them with offered excuses. 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,30 the veil with which the law covers and isolates the corporation from the
Villarama has admitted, for instance, having paid P85,000.00 of the initial capital of the members or stockholders who compose it will be lifted to allow for its consideration merely
Corporation with the lame excuse that "his wife had requested him to reimburse the as an aggregation of individuals.
amount entrusted to her by the incorporators and which she had used to pay the
obligations of Dr. Villarama (her husband) incurred while he was still the owner of Villa
Rey Transit, a single proprietorship." But with his admission that he had received Upon the foregoing considerations, We are of the opinion, and so hold, that the
P350,000.00 from Pantranco for the sale of the two certificates and one unit,24 it becomes preponderance of evidence have shown that the Villa Rey Transit, Inc. is an alter ego of
difficult to accept Villarama's explanation that he and his wife, after consultation, 25 spent Jose M. Villarama, and that the restrictive clause in the contract entered into by the latter
the money of their relatives (the stockholders) when they were supposed to have their and Pantranco is also enforceable and binding against the said Corporation. For the rule
own money. Even if Pantranco paid the P350,000.00 in check to him, as claimed, it could is that a seller or promisor may not make use of a corporate entity as a means of evading
have been easy for Villarama to have deposited said check in his account and issued his the obligation of his covenant.31 Where the Corporation is substantially the alter ego of the
own check to pay his obligations. And there is no evidence adduced that the said amount covenantor to the restrictive agreement, it can be enjoined from competing with the
of P350,000.00 was all spent or was insufficient to settle his prior obligations in his covenantee.32
business, and in the light of the stipulation in the deed of sale between Villarama and
Pantranco that P50,000.00 of the selling price was earmarked for the payments of The Corporation contends that even on the supposition that Villa Rey Transit, Inc. and
accounts due to his creditors, the excuse appears unbelievable. Villarama are one and the same, the restrictive clause in the contract between Villarama
and Pantranco does not include the purchase of existing lines but it only applies to
On his having paid for purchases by the Corporation of trucks from the Manila Trading & application for the new lines. The clause in dispute reads thus:
Supply Co. with his personal checks, his reason was that he was only sharing with the
Corporation his credit with some companies. And his main reason for mingling his funds (4) The SELLER shall not, for a period of ten (10) years from the date of this
with that of the Corporation and for the latter's paying his private bills is that it would be sale apply for any TPU service identical or competing with the BUYER.
more convenient that he kept the money to be used in paying the registration fees on (Emphasis supplied)
time, and since he had loaned money to the Corporation, this would be set off by the
latter's paying his bills. Villarama admitted, however, that the corporate funds in his As We read the disputed clause, it is evident from the context thereof that the intention of
possession were not only for registration fees but for other important obligations which the parties was to eliminate the seller as a competitor of the buyer for ten years along the
were not specified.26 lines of operation covered by the certificates of public convenience subject of their
transaction. The word "apply" as broadly used has for frame of reference, a service by the The law concerning contracts which tend to restrain business or trade has gone
seller on lines or routes that would compete with the buyer along the routes acquired by through a long series of changes from time to time with the changing condition of
the latter. In this jurisdiction, prior authorization is needed before anyone can operate a trade and commerce. With trifling exceptions, said changes have been a
TPU service,33whether the service consists in a new line or an old one acquired from a continuous development of a general rule. The early cases show plainly a
previous operator. The clear intention of the parties was to prevent the seller from disposition to avoid and annul all contract which prohibited or restrained any one
conducting any competitive line for 10 years since, anyway, he has bound himself not to from using a lawful trade "at any time or at any place," as being against the
apply for authorization to operate along such lines for the duration of such period. 34 benefit of the state. Later, however, the rule became well established that if the
restraint was limited to "a certain time" and within "a certain place," such
If the prohibition is to be applied only to the acquisition of new certificates of public contracts were valid and not "against the benefit of the state." Later cases, and
convenience thru an application with the Public Service Commission, this would, in effect, we think the rule is now well established, have held that a contract in restraint of
allow the seller just the same to compete with the buyer as long as his authority to trade is valid providing there is a limitation upon either time or place. A contract,
operate is only acquired thru transfer or sale from a previous operator, thus defeating the however, which restrains a man from entering into business or trade without
intention of the parties. For what would prevent the seller, under the circumstances, from either a limitation as to time or place, will be held invalid.
having a representative or dummy apply in the latter's name and then later on transferring
the same by sale to the seller? Since stipulations in a contract is the law between the The public welfare of course must always be considered and if it be not involved
contracting parties, and the restraint upon one party is not greater than protection to the other
requires, contracts like the one we are discussing will be sustained. The general
Every person must, in the exercise of his rights and in the performance of his tendency, we believe, of modern authority, is to make the test whether the
duties, act with justice, give everyone his due, and observe honesty and good restraint is reasonably necessary for the protection of the contracting parties. If
faith. (Art. 19, New Civil Code.) the contract is reasonably necessary to protect the interest of the parties, it will
be upheld. (Emphasis supplied.)
We are not impressed of Villarama's contention that the re-wording of the two previous
drafts of the contract of sale between Villarama and Pantranco is significant in that as it Analyzing the characteristics of the questioned stipulation, We find that although it is in
now appears, the parties intended to effect the least restriction. We are persuaded, after the nature of an agreement suppressing competition, it is, however, merely ancillary or
an examination of the supposed drafts, that the scope of the final stipulation, while not as incidental to the main agreement which is that of sale. The suppression or restraint is only
long and prolix as those in the drafts, is just as broad and comprehensive. At most, it can partial or limited: first, in scope, it refers only to application for TPU by the seller in
be said that the re-wording was done merely for brevity and simplicity. competition with the lines sold to the buyer; second, in duration, it is only for ten (10)
years; and third, with respect to situs or territory, the restraint is only along the lines
covered by the certificates sold. In view of these limitations, coupled with the
The evident intention behind the restriction was to eliminate the sellers as a competitor, consideration of P350,000.00 for just two certificates of public convenience, and
and this must be, considering such factors as the good will 35 that the seller had already considering, furthermore, that the disputed stipulation is only incidental to a main
gained from the riding public and his adeptness and proficiency in the trade. On this agreement, the same is reasonable and it is not harmful nor obnoxious to public
matter, Corbin, an authority on Contracts has this to say.36 service.38 It does not appear that the ultimate result of the clause or stipulation would be
to leave solely to Pantranco the right to operate along the lines in question, thereby
When one buys the business of another as a going concern, he usually wishes to establishing monopoly or predominance approximating thereto. We believe the main
keep it going; he wishes to get the location, the building, the stock in trade, and purpose of the restraint was to protect for a limited time the business of the buyer.
the customers. He wishes to step into the seller's shoes and to enjoy the same
business relations with other men. He is willing to pay much more if he can get Indeed, the evils of monopoly are farfetched here. There can be no danger of price
the "good will" of the business, meaning by this the good will of the customers, controls or deterioration of the service because of the close supervision of the Public
that they may continue to tread the old footpath to his door and maintain with him Service Commission.39 This Court had stated long ago,40 that "when one devotes his
the business relations enjoyed by the seller. property to a use in which the public has an interest, he virtually grants to the public an
interest in that use and submits it to such public use under reasonable rules and
... In order to be well assured of this, he obtains and pays for the seller's promise regulations to be fixed by the Public Utility Commission."
not to reopen business in competition with the business sold.

As to whether or not such a stipulation in restraint of trade is valid, our jurisprudence on

the matter37says:
Regarding that aspect of the clause that it is merely ancillary or incidental to a lawful To avoid any misunderstanding, it is here to be emphasized that the 10-year prohibition
agreement, the underlying reason sustaining its validity is well explained in 36 Am. Jur. upon Villarama is not against his application for, or purchase of, certificates of public
537-539, to wit: convenience, but merely the operation of TPU along the lines covered by the certificates
sold by him to Pantranco. Consequently, the sale between Fernando and the Corporation
... Numerous authorities hold that a covenant which is incidental to the sale and is valid, such that the rightful ownership of the disputed certificates still belongs to the
transfer of a trade or business, and which purports to bind the seller not to plaintiff being the prior purchaser in good faith and for value thereof. In view of the ancient
engage in the same business in competition with the purchaser, is lawful and rule of caveat emptor prevailing in this jurisdiction, what was acquired by Ferrer in the
enforceable. While such covenants are designed to prevent competition on the sheriff's sale was only the right which Fernando, judgment debtor, had in the certificates
part of the seller, it is ordinarily neither their purpose nor effect to stifle of public convenience on the day of the sale.45
competition generally in the locality, nor to prevent it at all in a way or to an extent
injurious to the public. The business in the hands of the purchaser is carried on Accordingly, by the "Notice of Levy Upon Personalty" the Commissioner of Public Service
just as it was in the hands of the seller; the former merely takes the place of the was notified that "by virtue of an Order of Execution issued by the Court of First Instance
latter; the commodities of the trade are as open to the public as they were before; of Pangasinan, the rights, interests, or participation which the defendant, VALENTIN A.
the same competition exists as existed before; there is the same employment FERNANDO — in the above entitled case may have in the following realty/personalty is
furnished to others after as before; the profits of the business go as they did attached or levied upon, to wit: The rights, interests and participation on the Certificates of
before to swell the sum of public wealth; the public has the same opportunities of Public Convenience issued to Valentin A. Fernando, in Cases Nos. 59494, etc. ... Lines
purchasing, if it is a mercantile business; and production is not lessened if it is a — Manila to Lingayen, Dagupan, etc. vice versa." Such notice of levy only shows that
manufacturing plant. Ferrer, the vendee at auction of said certificates, merely stepped into the shoes of the
judgment debtor. Of the same principle is the provision of Article 1544 of the Civil Code,
The reliance by the lower court on tile case of Red Line Transportation Co. v. that "If the same thing should have been sold to different vendees, the ownership shall be
Bachrach41 and finding that the stipulation is illegal and void seems misplaced. In the transferred to the person who may have first taken possession thereof in good faith, if it
said Red Line case, the agreement therein sought to be enforced was virtually a division should be movable property."
of territory between two operators, each company imposing upon itself an obligation not to
operate in any territory covered by the routes of the other. Restraints of this type, among There is no merit in Pantranco and Ferrer's theory that the sale of the certificates of public
common carriers have always been covered by the general rule invalidating agreements convenience in question, between the Corporation and Fernando, was not consummated,
in restraint of trade. 42 it being only a conditional sale subject to the suspensive condition of its approval by the
Public Service Commission. While section 20(g) of the Public Service Act provides that
Neither are the other cases relied upon by the plaintiff-appellee applicable to the instant "subject to established limitation and exceptions and saving provisions to the contrary, it
case. In Pampanga Bus Co., Inc. v. Enriquez,43the undertaking of the applicant therein not shall be unlawful for any public service or for the owner, lessee or operator thereof,
to apply for the lifting of restrictions imposed on his certificates of public convenience was without the approval and authorization of the Commission previously had ... to sell,
not an ancillary or incidental agreement. The restraint was the principal objective. On the alienate, mortgage, encumber or lease its property, franchise, certificates, privileges, or
other hand, in Red Line Transportation Co., Inc. v. Gonzaga,44 the restraint there in rights or any part thereof, ...," the same section also provides:
question not to ask for extension of the line, or trips, or increase of equipment — was not
an agreement between the parties but a condition imposed in the certificate of public ... Provided, however, That nothing herein contained shall be construed to
convenience itself. prevent the transaction from being negotiated or completed before its approval or
to prevent the sale, alienation, or lease by any public service of any of its
Upon the foregoing considerations, Our conclusion is that the stipulation prohibiting property in the ordinary course of its business.
Villarama for a period of 10 years to "apply" for TPU service along the lines covered by
the certificates of public convenience sold by him to Pantranco is valid and reasonable. It is clear, therefore, that the requisite approval of the PSC is not a condition precedent for
Having arrived at this conclusion, and considering that the preponderance of the evidence the validity and consummation of the sale.
have shown that Villa Rey Transit, Inc. is itself the alter ego of Villarama, We hold, as
prayed for in Pantranco's third party complaint, that the said Corporation should, until the Anent the question of damages allegedly suffered by the parties, each of the appellants
expiration of the 1-year period abovementioned, be enjoined from operating the line has its or his own version to allege.
subject of the prohibition.
Villa Rey Transit, Inc. claims that by virtue of the "tortious acts" of defendants (Pantranco
and Ferrer) in acquiring the certificates of public convenience in question, despite
constructive and actual knowledge on their part of a prior sale executed by Fernando in
favor of the said corporation, which necessitated the latter to file the action to annul the
sheriff's sale to Ferrer and the subsequent transfer to Pantranco, it is entitled to collect
actual and compensatory damages, and attorney's fees in the amount of P25,000.00. The
evidence on record, however, does not clearly show that said defendants acted in bad
faith in their acquisition of the certificates in question. They believed that because the bill
of sale has yet to be approved by the Public Service Commission, the transaction was not
a consummated sale, and, therefore, the title to or ownership of the certificates was still
with the seller. The award by the lower court of attorney's fees of P5,000.00 in favor of
Villa Rey Transit, Inc. is, therefore, without basis and should be set aside.

Eusebio Ferrer's charge that by reason of the filing of the action to annul the sheriff's sale,
he had suffered and should be awarded moral, exemplary damages and attorney's fees,
cannot be entertained, in view of the conclusion herein reached that the sale by Fernando
to the Corporation was valid.

Pantranco, on the other hand, justifies its claim for damages with the allegation that when
it purchased ViIlarama's business for P350,000.00, it intended to build up the traffic along
the lines covered by the certificates but it was rot afforded an opportunity to do so since
barely three months had elapsed when the contract was violated by Villarama operating
along the same lines in the name of Villa Rey Transit, Inc. It is further claimed by
Pantranco that the underhanded manner in which Villarama violated the contract is
pertinent in establishing punitive or moral damages. Its contention as to the proper
measure of damages is that it should be the purchase price of P350,000.00 that it paid to
Villarama. While We are fully in accord with Pantranco's claim of entitlement to damages
it suffered as a result of Villarama's breach of his contract with it, the record does not
sufficiently supply the necessary evidentiary materials upon which to base the award and
there is need for further proceedings in the lower court to ascertain the proper amount.

PREMISES CONSIDERED, the judgment appealed from is hereby modified as follows:

1. The sale of the two certificates of public convenience in question by Valentin Fernando

to Villa Rey Transit, Inc. is declared preferred over that made by the Sheriff at public
auction of the aforesaid certificate of public convenience in favor of Eusebio Ferrer;

2. Reversed, insofar as it dismisses the third-party complaint filed by Pangasinan

Transportation Co. against Jose M. Villarama, holding that Villa Rey Transit, Inc. is an
entity distinct and separate from the personality of Jose M. Villarama, and insofar as it
awards the sum of P5,000.00 as attorney's fees in favor of Villa Rey Transit, Inc.;

3. The case is remanded to the trial court for the reception of evidence in consonance
with the above findings as regards the amount of damages suffered by Pantranco; and

4. On equitable considerations, without costs. So ordered.

G.R. No. 115849             January 24, 1996 WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiffs and against the defendants as follows:
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the
Philippines) and MERCURIO RIVERA, petitioners, 1. Declaring the existence of a perfected contract to buy and sell over the six (6)
vs. parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of 101
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO hectares, more or less, covered by and embraced in Transfer Certificates of Title
DEMETRIA, and JOSE JANOLO, respondents. 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
DECISION Five and One Half Million (P5,500,000.00) Pesos;

PANGANIBAN, J.: 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)
In the absence of a formal deed of sale, may commitments given by bank officers in an parcels of land, and to immediately deliver to the plaintiffs the owner's copies of
exchange of letters and/or in a meeting with the buyers constitute a perfected and T.C.T. Nos. T-106932 to T- 106937, inclusive, for purposes of registration of the
enforceable contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the same deed and transfer of the six (6) titles in the names of the plaintiffs;
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 3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo
of a suit for specific performance, does the filing of a "derivative suit" by the majority and Demetrio Demetria the sums of P200,000.00 each in moral damages;
shareholders and directors of the distressed bank to prevent the enforcement or
implementation of the sale violate the ban against forum-shopping? 4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of
P100,000.00 as exemplary damages ;
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 5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount
Decision promulgated January 14, 1994 of the respondent Court of Appeals 1 in CA-G.R of P400,000.00 for and by way of attorney's fees;
CV No. 35756 and the Resolution promulgated June 14, 1994 denying the motion for
reconsideration. The dispositive portion of the said Decision reads: 6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and
moderate damages in the amount of P20,000.00;
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 With costs against the defendants.
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.
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.
All references to the original plaintiffs in the decision and its dispositive portion Thence, the parties filed their respective memoranda and reply memoranda. The First
are deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos Division transferred this case to the Third Division per resolution dated October 23, 1995.
C. Ejercito. After carefully deliberating on the aforesaid submissions, the Court assigned the case to
the undersigned ponente for the writing of this Decision.
Costs against appellant bank.
The Parties
The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand,
is as follows: Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines;
petitioner Bank, for brevity) is a banking institution organized and existing under the laws
of the Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for
brevity) is of legal age and was, at all times material to this case, Head-Manager of the TCT NO. AREA
Property Management Department of the petitioner Bank.
T-106932 113,580 sq. m.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the T-106933 70,899 sq. m.
assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo. T-106934 52,246 sq. m.
T-106935 96,768 sq. m.
Respondent Court of Appeals is the court which issued the Decision and Resolution
sought to be set aside through this petition. T-106936 187,114 sq. m.
T-106937 481,481 sq. m.
The Facts
My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND
The facts of this case are summarized in the respondent Court's Decision 3 as follows: (P3,500,000.00) PESOS, in cash.

(1) In the course of its banking operations, the defendant Producer Bank of the Kindly contact me at Telephone Number 921-1344.
Philippines acquired six parcels of land with a total area of 101 hectares located
at Don Jose, Sta. Rose, Laguna, and covered by Transfer Certificates of Title (3) On September 1, 1987, defendant Rivera made on behalf of the bank a
Nos. T-106932 to T-106937. The property used to be owned by BYME formal reply by letter which is hereunder quoted (Exh. "C"):
Investment and Development Corporation which had them mortgaged with the
bank as collateral for a loan. The original plaintiffs, Demetrio Demetria and Jose
O. Janolo, wanted to purchase the property and thus initiated negotiations for September 1, 1987
that purpose.
JP M-P GUTIERREZ ENTERPRISES
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME 142 Charisma St., Doña Andres II
investment's legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Rosario, Pasig, Metro Manila
Manager of the Property Management Department of the defendant bank. The
meeting was held pursuant to plaintiffs' plan to buy the property (TSN of Jan. 16, Attention: JOSE O. JANOLO
1990, pp. 7-10). After the meeting, plaintiff Janolo, following the advice of
defendant Rivera, made a formal purchase offer to the bank through a letter
dated August 30, 1987 (Exh. "B"), as follows: Dear Sir:

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta.
August 30, 1987 Rosa, Laguna (formerly owned by Byme Industrial Corp.). Please be informed
however that the bank's counter-offer is at P5.5 million for more than 101
The Producers Bank of the Philippines hectares on lot basis.
Makati, Metro Manila
We shall be very glad to hear your position on the on the matter.
Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept. Best regards.

Gentleman: (4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted
reply, wrote (Exh. "D"):
I have the honor to submit my formal offer to purchase your properties covered
by titles listed hereunder located at Sta. Rosa, Laguna, with a total area of 101 September 17, 1987
hectares, more or less.
Producers Bank Attention: Atty. Demetrio Demetria
Paseo de Roxas
Makati, Metro Manila Dear Sir:

Attention: Mr. Mercurio Rivera Your proposal to buy the properties the bank foreclosed from Byme investment
Corp. located at Sta. Rosa, Laguna is under study yet as of this time by the newly
Gentlemen: created committee for submission to the newly designated Acting Conservator of
the bank.
In reply to your letter regarding my proposal to purchase your 101-hectare lot
located at Sta. Rosa, Laguna, I would like to amend my previous offer and I now For your information.
propose to buy the said lot at P4.250 million in CASH..
(7) What thereafter transpired was a series of demands by the plaintiffs for
Hoping that this proposal meets your satisfaction. compliance by the bank with what plaintiff considered as a perfected contract of
sale, which demands were in one form or another refused by the bank. As
(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What detailed by the trial court in its decision, on November 17, 1987, plaintiffs through
took place was a meeting on September 28, 1987 between the plaintiffs and Luis a letter to defendant Rivera (Exhibit "G") tendered payment of the amount of P5.5
Co, the Senior Vice-President of defendant bank. Rivera as well as Fajardo, the million "pursuant to (our) perfected sale agreement." Defendants refused to
BYME lawyer, attended the meeting. Two days later, or on September 30, 1987, receive both the payment and the letter. Instead, the parcels of land involved in
plaintiff Janolo sent to the bank, through Rivera, the following letter (Exh. "E"): the transaction were advertised by the bank for sale to any interested buyer (Exh,
"H" and "H-1"). Plaintiffs demanded the execution by the bank of the documents
on what was considered as a "perfected agreement." Thus:
The Producers Bank of the Philippines
Paseo de Roxas, Makati
Metro Manila Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Attention: Mr. Mercurio Rivera Metro Manila

Re: 101 Hectares of Land Dear Mr. Rivera:

in Sta. Rosa, Laguna
This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase
Gentlemen: your 101-hectare lot located in Sta. Rosa, Laguna, and which are covered by
TCT No. T-106932 to 106937.
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, From the documents at hand, it appears that your counter-offer dated September
Laguna, formerly owned by Byme Investment, for a total price of PESOS: FIVE 1, 1987 of this same lot in the amount of P5.5 million was accepted by our client
MILLION FIVE HUNDRED THOUSAND (P5,500,000.00). thru a letter dated September 30, 1987 and was received by you on October 5,
1987.
Thank you.
In view of the above circumstances, we believe that an agreement has been
(6) On October 12, 1987, the conservator of the bank (which has been placed perfected. We were also informed that despite repeated follow-up to consummate
under conservatorship by the Central Bank since 1984) was replaced by an the purchase, you now refuse to honor your commitment. Instead, you have
Acting Conservator in the person of defendant Leonida T. Encarnacion. On advertised for sale the same lot to others.
November 4, 1987, defendant Rivera wrote plaintiff Demetria the following letter
(Exh. "F"): 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 (10) On May 16, 1988, plaintiffs filed a suit for specific performance with
million at your advice. Otherwise, we shall be constrained to file the necessary damages against the bank, its Manager Rivers and Acting Conservator
court action to protect the interest of our client. 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
We trust that you will be guided accordingly. 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.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the
foregoing letter and stated, in its communication of December 2, 1987 (Exh. "I"), On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip
that said letter has been "referred . . . to the office of our Conservator for proper Salazar Hernandez and Gatmaitan, filed a motion to intervene in the trial court,
disposition" However, no response came from the Acting Conservator. On alleging that as owner of 80% of the Bank's outstanding shares of stock, he had
December 14, 1987, the plaintiffs made a second tender of payment (Exh. "L" a substantial interest in resisting the complaint. On July 8, 1991, the trial court
and "L-1"), this time through the Acting Conservator, defendant Encarnacion. issued an order denying the motion to intervene on the ground that it was filed
Plaintiffs' letter reads: after trial had already been concluded. It also denied a motion for reconsideration
filed thereafter. From the trial court's decision, the Bank, petitioner Rivera and
conservator Encarnacion appealed to the Court of Appeals which subsequently
PRODUCERS BANK OF affirmed with modification the said judgment. Henry Co did not appeal the denial
THE PHILIPPINES of his motion for intervention.
Paseo de Roxas,
Makati, Metro Manila
In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted
in place of Demetria and Janolo, in view of the assignment of the latters' rights in the
Attn.: Atty. NIDA ENCARNACION matter in litigation to said private respondent.
Central Bank Conservator
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry
We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, Co and several other stockholders of the Bank, through counsel Angara Abello
MBTC Check No. 258387 in the amount of P5.5 million as our agreed purchase Concepcion Regala and Cruz, filed an action (hereafter, the "Second Case") —
price of the 101-hectare lot covered by TCT Nos. 106932, 106933, 106934, purportedly a "derivative suit" — with the Regional Trial Court of Makati, Branch 134,
106935, 106936 and 106937 and registered under Producers Bank. 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 from
This is in connection with the perfected agreement consequent from your offer of enforcing or implementing the sale"4 In his answer, Janolo argued that the Second Case
P5.5 Million as the purchase price of the said lots. Please inform us of the date of was barred by litis pendentia by virtue of the case then pending in the Court of Appeals.
documentation of the sale immediately. During the pre-trial conference in the Second Case, plaintiffs filed a Motion for Leave of
Court to Dismiss the Case Without Prejudice. "Private respondent opposed this motion on
Kindly acknowledge receipt of our payment. the ground, among others, that plaintiff's act of forum shopping justifies the dismissal of
both cases, with prejudice."5 Private respondent, in his memorandum, averred that this
(9) The foregoing letter drew no response for more than four months. Then, on motion is still pending in the Makati RTC.
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 In their Petition6 and Memorandum7 , petitioners summarized their position as follows:
(Exhibit "N"). As recounted by the trial court (Original Record, p. 656), in a reply
letter dated May 12, 1988 (Annex "4" of defendant's answer to amended I.
complaint), the defendants through Acting Conservator Encarnacion repudiated
the authority of defendant Rivera and claimed that his dealings with the plaintiffs, The Court of Appeals erred in declaring that a contract of sale was perfected
particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that between Ejercito (in substitution of Demetria and Janolo) and the bank.
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. II.
 The Court of Appeals erred in declaring the existence of an enforceable contract 3) Assuming there was, was the said contract enforceable under the statute of
of sale between the parties. frauds?

III. 4) Did the bank conservator have the unilateral power to repudiate the authority
of the bank officers and/or to revoke the said contract?
The Court of Appeals erred in declaring that the conservator does not have the
power to overrule or revoke acts of previous management. 5) Did the respondent Court commit any reversible error in its findings of facts?

IV. The First Issue: Was There Forum-Shopping?

The findings and conclusions of the Court of Appeals do not conform to the In order to prevent the vexations of multiple petitions and actions, the Supreme Court
evidence on record. promulgated Revised Circular No. 28-91 requiring that a party "must certify under oath . . .
[that] (a) he has not (t)heretofore commenced any other action or proceeding involving the
On the other hand, petitioners prayed for dismissal of the instant suit on the ground 8 that: 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
I. 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
Petitioners have engaged in forum shopping. 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
II. defendants but which is the subject of a pending Motion to Dismiss Without Prejudice. 9

The factual findings and conclusions of the Court of Appeals are supported by Private respondent Ejercito vigorously argues that in spite of this verification, petitioners
the evidence on record and may no longer be questioned in this case. 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
III. 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 interwined that a judgement or resolution
in either case will constitute res judicata in the other." 10
The Court of Appeals correctly held that there was a perfected contract between
Demetria and Janolo (substituted by; respondent Ejercito) and the bank.
On the other hand, petitioners explain 11 that there is no forum-shopping because:
IV.
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 Court of Appeals has correctly held that the conservator, apart from being the real party in interest in a derivative suit), it was  plaintiff;
estopped from repudiating the agency and the contract, has no authority to
revoke the contract of sale.
2) "The derivative suit is not properly a suit for and in behalf of the corporation
under the circumstances";
The Issues
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank
From the foregoing positions of the parties, the issues in this case may be summed up as president and attached to the Petition identifies the action as a "derivative suit," it
follows: "does not mean that it is one" and "(t)hat is a legal question for the courts to
decide";
1) Was there forum-shopping on the part of petitioner Bank?
4) Petitioners did not hide the Second Case at they mentioned it in the said
2) Was there a perfected contract of sale between the parties? VERIFICATION/CERTIFICATION.
We rule for private respondent. 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 mis-used to assure
To begin with, forum-shopping originated as a concept in private international law. 12 , scheming litigants of dubious reliefs.
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 avoid or minimize this unethical practice of subverting justice, the Supreme Court, as
to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more already mentioned, promulgated Circular 28-91. And even before that, the Court had
friendly venue. To combat these less than honorable excuses, the principle of forum non prescribed it in the Interim Rules and Guidelines issued on January 11, 1983 and had
conveniens was developed whereby a court, in conflicts of law cases, may refuse struck down in several cases 16 the inveterate use of this insidious malpractice. Forum
impositions on its jurisdiction where it is not the most "convenient" or available forum and shopping as "the filing of repetitious suits in different courts" has been condemned by
the parties are not precluded from seeking remedies elsewhere. 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
In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party proceedings . . ." 17 when does forum shopping take place?
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 There is forum-shopping whenever, as a result of an adverse opinion in one
Phrases14 , "a litigant is open to the charge of "forum shopping" whenever he chooses a forum, a party seeks a favorable opinion (other than by appeal or certiorari) in
forum with slight connection to factual circumstances surrounding his suit, and litigants another. The principle applies not only with respect to suits filed in the courts but
should be encouraged to attempt to settle their differences without imposing undue also in connection with litigations commenced in the courts while an
expenses and vexatious situations on the courts". administrative proceeding is pending, as in this case, in order to defeat
administrative processes and in anticipation of an unfavorable administrative
In the Philippines, forum shopping has acquired a connotation encompassing not only a ruling and a favorable court ruling. This is specially so, as in this case, where the
choice of venues, as it was originally understood in conflicts of laws, but also to a choice court in which the second suit was brought, has no jurisdiction. 18
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 The test for determining whether a party violated the rule against forum shopping has
resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the been laid dawn in the 1986 case of Buan vs. Lopez 19 , also by Chief Justice Narvasa, and
election of the plaintiff" (Rule 4, Sec, 2 [b]). As to remedies, aggrieved parties, for that is, forum shopping exists where the elements of litis pendentia are present or where a
example, are given a choice of pursuing civil liabilities independently of the criminal, final judgment in one case will amount to res judicata in the other, as follows:
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 There thus exists between the action before this Court and RTC Case No. 86-
remedy being available independently of the others — although he cannot recover more 36563 identity of parties, or at least such parties as represent the same interests
than once. 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
In either of these situations (choice of venue or choice of remedy), the litigant particulars is such that any judgment rendered in the other action, will, regardless
actually shops for a forum of his action, This was the original concept of the term of which party is successful, amount to res adjudicata in the action under
forum shopping. consideration: all the requisites, in fine, of auter action pendant.

Eventually, however, instead of actually making a choice of the forum of their xxx       xxx       xxx
actions, litigants, through the encouragement of their lawyers, file their actions in
all available courts, or invoke all relevant remedies simultaneously. This practice As already observed, there is between the action at bar and RTC Case No. 86-
had not only resulted to (sic) conflicting adjudications among different courts and 36563, an identity as regards parties, or interests represented, rights asserted
consequent confusion enimical (sic) to an orderly administration of justice. It had and relief sought, as well as basis thereof, to a degree sufficient to give rise to
created extreme inconvenience to some of the parties to the action. 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.
Thus, "forum shopping" had acquired a different concept — which is unethical The application of this sanction will prevent any further delay in the settlement of
professional legal practice. And this necessitated or had given rise to the the controversy which might ensue from attempts to seek reconsideration of or to
formulation of rules and canons discouraging or altogether prohibiting the appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563
practice. 15
 promulgated on July 15, 1986, which dismissed the petition upon grounds which In other words, the filing by the petitioners of the instant special civil action
appear persuasive. 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
Consequently, where a litigant (or one representing the same interest or person) sues the unquestionably involve the same transactions, the same essential facts and
same party against whom another action or actions for the alleged violation of the same circumstances. The petitioners' claim of absence of identity simply because the
right and the enforcement of the same relief is/are still pending, the defense of litis PCGG had not been impleaded in the RTC suit, and the suit did not involve
pendencia in one case is bar to the others; and, a final judgment in one would certain acts which transpired after its commencement, is specious. In the RTC
constitute res judicata and thus would cause the dismissal of the rest. In either case, action, as in the action before this Court, the validity of the contract to purchase
forum shopping could be cited by the other party as a ground to ask for summary and sell of September 1, 1986, i.e., whether or not it had been efficaciously
dismissal of the two 20 (or more) complaints or petitions, and for imposition of the other rescinded, and the propriety of implementing the same (by paying the pledgee
sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action banks the amount of their loans, obtaining the release of the pledged shares,
against the erring lawyer. 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
Applying the foregoing principles in the case before us and comparing it with the Second Court of a temporary restraining order, the RTC suit did not become functus
Case, it is obvious that there exist identity of parties or interests represented, identity of oficio. It remained an effective vehicle for obtention of relief; and petitioners'
rights or causes and identity of reliefs sought. 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
Very simply stated, the original complaint in the court a quo  which gave rise to the instant and seek nullification of the acts sought to be enjoined but nonetheless done.
petition was filed by the buyer (herein private respondent and his predecessors-in- The remedy was certainly not the institution of another action in another forum
interest) against the seller (herein petitioners) to enforce the alleged perfected sale of real based on essentially the same facts, The adoption of this latter recourse renders
estate. On the other hand, the complaint 21 in the Second Case seeks to declare such the petitioners amenable to disciplinary action and both their actions, in this Court
purported sale involving the same real property "as unenforceable as against the Bank", as well as in the Court a quo, dismissible.
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 In the instant case before us, there is also identity of parties, or at least, of interests
itself failed to do in the original case in the trial court. In brief, the objective or the relief represented. Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not name
being sought, though worded differently, is the same, namely, to enable the petitioner parties in the First Case, they represent the same interest and entity, namely, petitioner
Bank to escape from the obligation to sell the property to respondent. In Danville Bank, because:
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:
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;
In the attempt to make the two actions appear to be different, petitioner much less are they direct parties in the assailed contract of sale; and
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- Secondly, the allegations of the complaint in the Second Case show that the stockholders
directive of the COA dated October 10, 1988 and to direct said body to approve are bringing a "derivative suit". In the caption itself, petitioners claim to have brought suit
the Memorandum of Agreement entered into by and between the PNOC and "for and in behalf of the Producers Bank of the Philippines" 24 . Indeed, this is the very
petitioner, while in the complaint before the lower court petitioner seeks to enjoin essence of a derivative suit:
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 An individual stockholder is permitted to institute a derivative suit on behalf of the
the paragraph 1 of the memorandum of agreement and damages. One can see corporation wherein he holdsstock in order to protect or vindicate corporate
that although the relief prayed for in the two (2) actions are ostensibly different, rights, whenever the officials of the corporation refuse to sue, or are the ones to
the ultimate objective in both actions is the same, that is, approval of the sale of be sued or hold the control of the corporation. In such actions, the suing
vessel in favor of petitioner and to overturn the letter-directive of the COA of stockholder is regarded as a nominal party, with the corporation as the real party
October 10, 1988 disapproving the sale. (emphasis supplied). in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; emphasis supplied).

In an earlier case 23 but with the same logic and vigor, we held:

In the face of the damaging admissions taken from the complaint in the Second Case, quoted Court ruling, the defendants did not file any responsive pleading in the first case.
petitioners, quite strangely, sought to deny that the Second Case was a derivative suit, In other words, they did not make any denial or raise any defense or counter-claim therein
reasoning that it was brought, not by the minority shareholders, but by Henry Co et al., In the case before us however, petitioners filed a responsive pleading to the complaint —
who not only own, hold or control over 80% of the outstanding capital stock, but also as a result of which, the issues were joined.
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 Indeed, by praying for affirmative reliefs and interposing counter–claims in their
undeniably an identity of interests/entity represented. responsive pleadings, the petitioners became plaintiffs themselves in the original case,
giving unto themselves the very remedies they repeated in the Second Case.
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 are consistent: Ultimately, what is truly important to consider in determining whether forum-shopping
"When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a exists or not is the vexation caused the courts and parties-litigant by a party who asks
vehicle for the evasion of an existing obligation, the circumvention of statutes, the different courts and/or administrative agencies to rule on the same or related causes
achievement or perfection of a monopoly or generally the perpetration of knavery or and/or to grant the same or substantially the same reliefs, in the process creating the
crime, the veil with which the law covers and isolates the corporation from the members possibility of conflicting decisions being rendered by the different fora upon the same
or stockholders who compose it will be lifted to allow for its consideration merely as an issue. In this case, this is exactly the problem: a decision recognizing the perfection and
aggregation of individuals." 25 directing the enforcement of the contract of sale will directly conflict with a possible
decision in the Second Case barring the parties front enforcing or implementing the said
In addition to the many cases 26 where the corporate fiction has been disregarded, we now sale. Indeed, a final decision in one would constitute res judicata in the other 28 .
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, The foregoing conclusion finding the existence of forum-shopping notwithstanding, the
whether suing as the majority in direct actions or as the minority in a derivative suit, only sanction possible now is the dismissal of both cases with prejudice, as the other
cannot be allowed to trifle with court processes, particularly where, as in this case, the sanctions cannot be imposed because petitioners' present counsel entered their
corporation itself has not been remiss in vigorously prosecuting or defending corporate appearance only during the proceedings in this Court, and the Petition's
causes and in using and applying remedies available to it. To rule otherwise would be to VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of
encourage corporate litigants to use their shareholders as fronts to circumvent the the Second Case to show good faith in observing Circular 28-91. The Lawyers who filed
stringent rules against forum shopping. 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,
Finally, petitioner Bank argued that there cannot be any forum shopping, even petitioners themselves (and particularly Henry Co, et al.) as litigants are admonished to
assuming arguendo that there is identity of parties, causes of action and reliefs sought, strictly follow the rules against forum-shopping and not to trifle with court proceedings and
"because it (the Bank) was the defendant in the (first) case while it was the plaintiff in the processes They are warned that a repetition of the same will be dealt with more severely.
other (Second Case)",citing as authority Victronics Computers, Inc., vs. Regional Trial
Court, Branch 63, Makati, etc. et al., 27 where Court held: 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
The rule has not been extended to a defendant who, for reasons known only to discussed shortly.
him, commences a new action against the plaintiff — instead of filing a
responsive pleading in the other case — setting forth therein, as causes of The Second Issue: Was The Contract Perfected?
action, specific denials, special and affirmative defenses or even counterclaims,
Thus, Velhagen's and King's 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 The respondent Court correctly treated the question of whether or not there was, on the
place. (emphasis supplied) 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:
Petitioner pointed out that since it was merely the defendant in the original case, it could
not have chosen the forum in said case. 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 identified under Transfer Certificates of Title Nos. T-106932 to T-
Respondent, on the other hand, replied that there is a difference in factual setting 106937. It is likewise beyond cavil that the bank intended to sell the property. As
between Victronics and the present suit. In the former, as underscored in the above- testified to by the Bank's Deputy Conservator, Jose Entereso, the bank was
looking for buyers of the property. It is definite that the plaintiffs wanted to one who was to decide. But he would refer it to the committee and he
purchase the property and it was precisely for this purpose that they met with would relay the decision of the committee to me.
defendant Rivera, Manager of the Property Management Department of the
defendant bank, in early August 1987. The procedure in the sale of acquired Q — Please answer the question.
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, A — He did not say that he had the authority (.) But he said he would
1990. pp. 19-20): refer the matter to the committee and he would relay the decision to me
and he did just like that.
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 "Parenthetically, the Committee referred to was the Past Due Committee of which
distributed to all branches that these are acquired assets for sale. I was Luis Co was the Head, with Jose Entereso as one of the members.
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 What transpired after the meeting of early August 1987 are consistent with the
offered, I present it to the Committee. I provide the Committee with authority and the duties of Rivera and the bank's internal procedure in the matter
necessary information about the property such as original loan of the of the sale of bank's assets. As advised by Rivera, the plaintiffs made a formal
borrower, bid price during the foreclosure, total claim of the bank, the offer by a letter dated August 20, 1987 stating that they would buy at the price of
appraised value at the time the property is being offered for sale and P3.5 Million in cash. The letter was for the attention of Mercurio Rivera who was
then the information which are relative to the evaluation of the bank to tasked to convey and accept such offers. Considering an aspect of the official
buy which the Committee considers and it is the Committee that duty of Rivera as some sort of intermediary between the plaintiffs-buyers with
evaluate as against the exposure of the bank and it is also the their proposed buying price on one hand, and the bank Committee, the
Committee that submit to the Conservator for final approval and once Conservator and ultimately the bank itself with the set price on the other, and
approved, we have to execute the deed of sale and it is the Conservator considering further the discussion of price at the meeting of August resulting in a
that sign the deed of sale, sir. 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
The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose bank's counter-offer is at P5.5 Million for more than 101 hectares on lot basis,"
of buying the property, dealt with and talked to the right person. Necessarily, the such counter-offer price had been determined by the Past Due Committee and
agenda was the price of the property, and plaintiffs were dealing with the bank approved by the Conservator after Rivera had duly presented plaintiffs' offer for
official authorized to entertain offers, to accept offers and to present the offer to discussion by the Committee of such matters as original loan of borrower, bid
the Committee before which the said official is authorized to discuss information price during foreclosure, total claim of the bank, and market value. Tersely put,
relative to price determination. Necessarily, too, it being inherent in his authority, under the established facts, the price of P5.5 Million was, as clearly worded in
Rivera is the officer from whom official information regarding the price, as Rivera's letter (Exh. "E"), the official and definitive price at which the bank was
determined by the Committee and approved by the Conservator, can be had. selling the property.
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 There were averments by defendants below, as well as before this Court, that the
31,1990, pp. 27-28): P5.5 Million price was not discussed by the Committee and that price. As
correctly characterized by the trial court, this is not credible. The testimonies of
Q: When you went to the Producers Bank and talked with Mr. Mercurio Luis Co and Jose Entereso on this point are at best equivocal and considering
Rivera, did you ask him point-blank his authority to sell any property? the gratuitous and self-serving character of these declarations, the bank's
submission on this point does not inspire belief. Both Co ad Entereso, as
members of the Past Due Committee of the bank, claim that the offer of the
A: No, sir. Not point blank although it came from him, (W)hen I asked plaintiff was never discussed by the Committee. In the same vein, both Co and
him how long it would take because he was saying that the matter of Entereso openly admit that they seldom attend the meetings of the Committee. It
pricing will be passed upon by the committee. And when I asked him is important to note that negotiations on the price had started in early August and
how long it will take for the committee to decide and he said the the plaintiffs had already offered an amount as purchase price, having been
committee meets every week. If I am not mistaken Wednesday and in made to understand by Rivera, the official in charge of the negotiation, that the
about two week's (sic) time, in effect what he was saying he was not the price will be submitted for approval by the bank and that the bank's decision will
 be relayed to plaintiffs. From the facts, the official bank price. At any rate, the Conformably, we have declared in countless decisions that the principal is liable
bank placed its official, Rivera, in a position of authority to accept offers to buy for obligations contracted by the agent. The agent's apparent representation
and negotiate the sale by having the offer officially acted upon by the bank. The yields to the principal's true representation and the contract is considered as
bank cannot turn around and later say, as it now does, that what Rivera states as entered into between the principal and the third person (citing  National Food
the bank's action on the matter is not in fact so. It is a familiar doctrine, the Authority vs. Intermediate Appellate Court, 184 SCRA 166).
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, A bank is liable for wrongful acts of its officers done in the interests of
and thus holds him out to the public as possessing power to do those acts, the the bank or in the course of dealings of the officers in their
corporation will, as against any one who has in good faith dealt with the representative capacity but not for acts outside the scape of their
corporation through such agent, he estopped from denying his authority authority (9 C.J.S., p. 417). A bank holding out its officers and agents as
(Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA worthy of confidence will not be permitted to profit by the frauds they
357, 369-370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, may thus be enabled to perpetrate in the apparent scope of their
1993). 29 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
Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent
as follows: "(1) Consent of the contracting parties; (2) Object certain which is the subject third persons where the representation is made in the course of its
matter of the contract; (3) Cause of the obligation which is established." business by an agent acting within the general scope of his authority
even though, in the particular case, the agent is secretly abusing his
There is no dispute on requisite no. 2. The object of the questioned contract consists of authority and attempting to perpetrate a fraud upon his principal or some
the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co.,
hectares, more or less, and covered by Transfer Certificates of Title Nos. T-106932 to T- 52 ND 752, 204 NW 818, 40 ALR 1021).
106937. There is, however, a dispute on the first and third requisites.
Application of these principles is especially necessary because banks have a
Petitioners allege that "there is no counter-offer made by the Bank, and any supposed fiduciary relationship with the public and their stability depends on the confidence
counter-offer which Rivera (or Co) may have made is unauthorized. Since there was no of the people in their honesty and efficiency. Such faith will be eroded where
counter-offer by the Bank, there was nothing for Ejercito (in substitution of Demetria and banks do not exercise strict care in the selection and supervision of its
Janolo) to accept." 30 They disputed the factual basis of the respondent Court's findings employees, resulting in prejudice to their depositors.
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 Court's From the evidence found by respondent Court, it is obvious that petitioner Rivera has
findings of fact. Verily, in a petition under Rule 45 such as this, errors of fact — if there be apparent or implied authority to act for the Bank in the matter of selling its acquired
any - are, as a rule, not reviewable. The mere fact that respondent Court (and the trial assets. This evidence includes the following:
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 (a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material
serious consideration by this Court, particularly where, as in this case, said courts to this case, Manager of the Property Management Department of the Bank". By
carefully and meticulously discussed their findings. This is basic. his own admission, Rivera was already the person in charge of the Bank's
acquired assets (TSN, August 6, 1990, pp. 8-9);
Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let
us review the question of Rivera's authority to act and petitioner's allegations that the P5.5 (b) As observed by respondent Court, the land was definitely being sold by the
million counter-offer was extinguished by the P4.25 million revised offer of Janolo. Here, Bank. And during the initial meeting between the buyers and Rivera, the latter
there are questions of law which could be drawn from the factual findings of the suggested that the buyers' offer should be no less than P3.3 million (TSN, April
respondent Court. They also delve into the contractual elements of consent and cause. 26, 1990, pp. 16-17);

The authority of a corporate officer in dealing with third persons may be actual or (c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million
apparent. The doctrine of "apparent authority", with special reference to banks, was laid (TSN, 30 July 1990, p.11);
out in Prudential Bank vs. Court of Appeals31 , where it was held that:
 (d) Rivera signed the letter dated September 1, 1987 offering to sell the property Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the
for P5.5 million (TSN, July 30, p. 11); letter dated September 17, 1987 extinguished the Bank's offer of P5.5 million 34 .They
disputed the respondent Court's finding that "there was a meeting of minds when on 30
(e) Rivera received the letter dated September 17, 1987 containing the buyers' September 1987 Demetria and Janolo through Annex "L" (letter dated September 30,
proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12); 1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J" (letter dated
September 17, 1987)", citing the late Justice Paras35 , Art. 1319 of the Civil Code 36 and
related Supreme Court rulings starting with Beaumont vs. Prieto 37 .
(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);
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,
(g) Rivera arranged the meeting between the buyers and Luis Co on September what was "accepted" by Janolo in his letter dated September 30, 1987 was the Bank's
28, 1994, during which the Bank's offer of P5.5 million was confirmed by Rivera offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose Fajardo by
(TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and Rivera and Co during their meeting on September 28, 1987. Note that the said letter of
officer of the Bank, confirmed Rivera's statement as to the finality of the Bank's September 30, 1987 begins with"(p)ursuant to our discussion last 28 September 1987 . . .
counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990,
p. 35);
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
(h) In its newspaper advertisements and announcements, the Bank referred to improve on their position of P5.5. million."38 However, both the trial court and the Court of
Rivera as the officer acting for the Bank in relation to parties interested in buying Appeals found petitioners' testimonial evidence "not credible", and we find no basis for
assets owned/acquired by the Bank. In fact, Rivera was the officer mentioned in changing this finding of fact.
the Bank's advertisements offering for sale the property in question (cf. Exhs. "S"
and "S-1").
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
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32 , the during the meeting on September 28, 1987, Luis Co and Rivera "confirmed that the P5.5
Court, through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it million price has been passed upon by the Committee and could no longer be lowered
held that the apparent authority of the officer of the Bank of P.I. in charge of acquired (TSN of April 27, 1990, pp. 34-35)"39 . Hence, assuming arguendo that the counter-offer of
assets is borne out by similar circumstances surrounding his dealings with buyers. P4.25 million extinguished the offer of P5.5 million, Luis Co's reiteration of the said P5.5
million price during the September 28, 1987 meeting revived the said offer. And by virtue
To be sure, petitioners attempted to repudiate Rivera's apparent authority through of the September 30, 1987 letter accepting this revived  offer, there was a meeting of the
documents and testimony which seek to establish Rivera's actual authority. These pieces minds, as the acceptance in said letter was absolute and unqualified.
of evidence, however, are inherently weak as they consist of Rivera's self-serving
testimony and various inter-office memoranda that purport to show his limited actual We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's
authority, of which private respondent cannot be charged with knowledge. In any event, authority and action, particularly the latter's counter-offer of P5.5 million, as being
since the issue is apparent authority, the existence of which is borne out by the "unauthorized and illegal" came only on May 12, 1988 or more than seven (7) months
respondent Court's findings, the evidence of actual authority is immaterial insofar as the after Janolo' acceptance. Such delay, and the absence of any circumstance which might
liability of a corporation is concerned 33 . have justifiably prevented the Bank from acting earlier, clearly characterizes the
repudiation as nothing more than a last-minute attempt on the Bank's part to get out of a
Petitioners also argued that since Demetria and Janolo were experienced lawyers and binding contractual obligation.
their "law firm" had once acted for the Bank in three criminal cases, they should be
charged with actual knowledge of Rivera's limited authority. But the Court of Appeals in its Taken together, the factual findings of the respondent Court point to an implied admission
Decision (p. 12) had already made a factual finding that the buyers had no notice of on the part of the petitioners that the written offer made on September 1, 1987 was
Rivera's actual authority prior to the sale. In fact, the Bank has not shown that they acted carried through during the meeting of September 28, 1987. This is the conclusion
as its counsel in respect to any acquired assets; on the other hand, respondent has consistent with human experience, truth and good faith.
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. It also bears noting that this issue of extinguishment of the Bank's 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 taken together, these letters constitute sufficient memoranda — since they include the
points of law, theories, issues of fact and arguments not adequately brought to names of the parties, the terms and conditions of the contract, the price and a description
the attention of the trial court need not be, and ordinarily will not be, considered of the property as the object of the contract.
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 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 on September 30,
. . . It is settled jurisprudence that an issue which was neither averred in the 1987. Still, the statute of frauds will not apply by reason of the failure of petitioners to
complaint nor raised during the trial in the court below cannot be raised for the object to oral testimony proving petitioner Bank's counter-offer of P5.5 million. Hence,
first time on appeal as it would be offensive to the basic rules of fair play, justice petitioners — by such utter failure to object — are deemed to have waived any defects of
and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, the contract under the statute of frauds, pursuant to Article 1405 of the Civil Code:
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, Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article
August 30, 1990).41 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.
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 As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation
opposing evidence. Indeed, this is a matter of due process. But we passed upon the issue of the counter-offer of P5.5 million is a plenty — and the silence of petitioners all
anyway, if only to avoid deciding the case on purely procedural grounds, and we repeat throughout the presentation makes the evidence binding on them thus;
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.
A Yes, sir, I think it was September 28, 1987 and I was again present because
Atty. Demetria told me to accompany him we were able to meet Luis Co at the
The Third Issue: Is the Contract Enforceable? Bank.

The petition alleged42 : xxx       xxx       xxx

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 Q Now, what transpired during this meeting with Luis Co of the Producers Bank?
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 A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
note, memorandum or writing subscribed by the Bank to evidence such contract.
(Please see article 1403[2], Civil Code.) Q What price?

Upon the other hand, the respondent Court in its Decision (p, 14) stated: 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,
. . . Of course, the bank's letter of September 1, 1987 on the official price and the sir.
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 Q What do you mean?.
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 A That is the amount they want, sir.
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 Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that
perfected contract of sale. the defendant Rivera's counter-offer of 5.5 million was the defendant's bank (sic)
final offer?
The respondent Court could have added that the written communications commenced not
only from September 1, 1987 but from Janolo's August 20, 1987 letter. We agree that, A He said in a day or two, he will make final acceptance, sir.
 Q What is the response of Mr. Luis Co?. 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
A He said he will wait for the position of Atty. Demetria, sir. September 28, 1987 meeting, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.] [Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

Q What transpired during that meeting between you and Mr. Luis Co of the The Fourth Issue: May the Conservator Revoke
defendant Bank? the Perfected and Enforceable Contract.

A We went straight to the point because he being a busy person, I told him if the It is not disputed that the petitioner Bank was under a conservator placed by the Central
amount of P5.5 million could still be reduced and he said that was already Bank of the Philippines during the time that the negotiation and perfection of the contract
passed upon by the committee. What the bank expects which was contrary to of sale took place. Petitioners energetically contended that the conservator has the power
what Mr. Rivera stated. And he told me that is the final offer of the bank P5.5 to revoke or overrule actions of the management or the board of directors of a bank,
million and we should indicate our position as soon as possible. under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act)
as follows:
Q What was your response to the answer of Mr. Luis Co?
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
A I said that we are going to give him our answer in a few days and he said that financial intermediary performing quasi-banking functions is in a state of
was it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his continuing inability or unwillingness to maintain a state of liquidity deemed
office. 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
Q For the record, your Honor please, will you tell this Court who was with Mr. Co management of that institution, collect all monies and debts due said institution
in his Office in Producers Bank Building during this meeting? and exercise all powers necessary to preserve the assets of the institution,
reorganize the management thereof, and restore its viability. He shall have the
A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I. 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-
Q By Mr. Co you are referring to? banking functions, any provision of law to the contrary notwithstanding, and such
other powers as the Monetary Board shall deem necessary.
A Mr. Luis Co.
In the first place, this issue of the Conservator's alleged authority to revoke or repudiate
the perfected contract of sale was raised for the first time in this Petition — as this was not
Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) litigated in the trial court or Court of Appeals. As already stated earlier, issues not raised
the counter offer by the bank? 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
A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank due process."43
which offer we accepted, the offer of the bank which is P5.5 million.
In the second place, there is absolutely no evidence that the Conservator, at the time the
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.] contract was perfected, actually repudiated or overruled said contract of sale. The Bank's
acting conservator at the time, Rodolfo Romey, never objected to the sale of the property
Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached to Demetria and Janolo. What petitioners are really referring to is the letter of Conservator
by the Committee and it is not within his power to reduce this amount. What can Encarnacion, who took over from Romey after the sale was perfected on September 30,
you say to that statement that the amount of P5.5 million was reached by the 1987 (Annex V, petition) which unilaterally repudiated — not the contract — but the
Committee? 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 Very truly yours,

Atty. Noe C. Zarate (Sgd.) Leonida T. Encarnacion

Zarate Carandang Perlas & Ass. LEONIDA T. EDCARNACION
Suite 323 Rufino Building Acting Conservator
Ayala Avenue, Makati, Metro-Manila
In the third place, while admittedly, the Central Bank law gives vast and far-reaching
Dear Atty. Zarate: 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
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and extensive as they are, cannot extend to the  post-facto  repudiation of perfected
Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna. 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
We deny that Producers Bank has ever made a legal counter-offer to any of your delegate such non-existent powers to the conservator under Section 28-A of said law?
clients nor perfected a "contract to sell and buy" with any of them for the following
reasons. 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,
In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and unenforceable or rescissible. Hence, the conservator merely takes the place of a bank's
approved by former Acting Conservator Mr. Andres I. Rustia, Producers Bank board of directors. What the said board cannot do — such as repudiating a contract
Senior Manager Perfecto M. Pascua detailed the functions of Property validly entered into under the doctrine of implied authority — the conservator cannot do
Management Department (PMD) staff and officers (Annex A.), you will either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid
immediately read that Manager Mr. Mercurio Rivera or any of his subordinates obligations of the Bank. His authority would be only to bring court actions to assail such
has no authority, power or right to make any alleged counter-offer. In short, your contracts — as he has already done so in the instant case. A contrary understanding of
lawyer-clients did not deal with the authorized officers of the bank. 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
Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines third parties, by simply getting the conservator to unilaterally revoke all previous dealings
(Bates Pambansa Blg. 68.) and Sec. 28-A of the Central Bank Act (Rep. Act No. which had one way or another or come to be considered unfavorable to the Bank, yielding
265, as amended), only the Board of Directors/Conservator may authorize the nothing to perfected contractual rights nor vested interests of the third parties who had
sale of any property of the corportion/bank.. dealt with the Bank.

Our records do not show that Mr. Rivera was authorized by the old board or by The Fifth Issue: Were There Reversible Errors of Facts?
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 Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court,
discussions/consultations between him and your clients, which everyone findings of fact by the Court of Appeals are not reviewable by the Supreme Court.
knows cannot bind the Bank's Board or Conservator. In Andres vs. Manufacturers Hanover & Trust Corporation, 45 , we held:

We are, therefore, constrained to refuse any tender of payment by your clients, . . . The rule regarding questions of fact being raised with this Court in a petition
as the same is patently violative of corporate and banking laws. We believe that for certiorari under Rule 45 of the Revised Rules of Court has been stated in
this is more than sufficient legal justification for refusing said alleged tender. Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:

Rest assured that we have nothing personal against your clients. All our acts are The rule in this jurisdiction is that only questions of law may be raised in a petition
official, legal and in accordance with law. We also have no personal interest in for certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the
any of the properties of the Bank. 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
Please be advised accordingly. 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 where, such as here, the findings of both the trial court and the appellate court on
such evidence all over again, its jurisdiction being limited to reviewing errors of the matter coincide. (emphasis supplied)
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 Petitioners, however, assailed the respondent Court's Decision as "fraught with findings
Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court and conclusions which were not only contrary to the evidence on record but have no
of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596). "Barring, bases at all," specifically the findings that (1) the "Bank's counter-offer price of P5.5
therefore, a showing that the findings complained of are totally devoid of support million had been determined by the past due committee and approved by conservator
in the record, or that they are so glaringly erroneous as to constitute serious Romey, after Rivera presented the same for discussion" and (2) "the meeting with Co was
abuse of discretion, such findings must stand, for this Court is not expected or not to scale down the price and start negotiations anew, but a meeting on the already
required to examine or contrast the oral and documentary evidence submitted by determined price of P5.5 million" Hence, citing Philippine National Bank vs. Court of
the parties" [Santa Ana, Jr. vs. Hernandez, G. R. No. L-16394, December 17, Appeals 49 , petitioners are asking us to review and reverse such factual findings.
1966, 18 SCRA 973] [at pp. 144-145.]
The first point was clearly passed upon by the Court of Appeals 50 , thus:
Likewise, in Bernardo vs. Court of Appeals 46 , we held:
There can be no other logical conclusion than that when, on September 1, 1987,
The resolution of this petition invites us to closely scrutinize the facts of the case, Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million
relating to the sufficiency of evidence and the credibility of witnesses presented. for more than 101 hectares on lot basis, "such counter-offer price had been
This Court so held that it is not the function of the Supreme Court to analyze or determined by the Past Due Committee and approved by the Conservator after
weigh such evidence all over again. The Supreme Court's jurisdiction is limited to Rivera had duly presented plaintiffs' offer for discussion by the Committee . . .
reviewing errors of law that may have been committed by the lower court. The Tersely put, under the established fact, the price of P5.5 Million was, as clearly
Supreme Court is not a trier of facts. . . . worded in Rivera's letter (Exh. "E"), the official and definitive price at which the
bank was selling the property. (p. 11, CA Decision)
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock
Construction and Development Corp. 47 : xxx       xxx       xxx

The Court has consistently held that the factual findings of the trial court, as well . . . The argument deserves scant consideration. As pointed out by plaintiff,
as the Court of Appeals, are final and conclusive and may not be reviewed on during the meeting of September 28, 1987 between the plaintiffs, Rivera and Luis
appeal. Among the exceptional circumstances where a reassessment of facts Co, the senior vice-president of the bank, where the topic was the possible
found by the lower courts is allowed are when the conclusion is a finding lowering of the price, the bank official refused it and confirmed that the P5.5
grounded entirely on speculation, surmises or conjectures; when the inference Million price had been passed upon by the Committee and could no longer be
made is manifestly absurd, mistaken or impossible; when there is grave abuse of lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).
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. The respondent Court did not believe the evidence of the petitioners on this point,
After a careful study of the case at bench, we find none of the above grounds characterizing it as "not credible" and "at best equivocal and considering the gratuitous
present to justify the re-evaluation of the findings of fact made by the courts and self-serving character of these declarations, the bank's submissions on this point do
below. not inspire belief."

In the same vein, the ruling of this Court in the recent case of South Sea Surety and To become credible and unequivocal, petitioners should have presented then
Insurance Company Inc. vs. Hon. Court of Appeals, et al. 48 is equally applicable to the Conservator Rodolfo Romey to testify on their behalf, as he would have been in the best
present case: 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.
We see no valid reason to discard the factual conclusions of the appellate court, .
. . (I)t is not the function of this Court to assess and evaluate all over again the The second point was squarely raised in the Court of Appeals, but petitioners' evidence
evidence, testimonial and documentary, adduced by the parties, particularly was deemed insufficient by both the trial court and the respondent Court, and instead, it
was respondent's submissions that were believed and became bases of the conclusions While we do not deny our sympathy for this distressed bank, at the same time, the Court
arrived at. cannot emotionally close its eyes to overriding considerations of substantive and
procedural law, like respect for perfected contracts, non-impairment of obligations and
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by sanctions against forum-shopping, which must be upheld under the rule of law and blind
the lower courts are valid and correct. But the petitioners are now asking this Court to justice.
disturb these findings to fit the conclusion they are espousing, This we cannot do.
This Court cannot just gloss over private respondent's submission that, while the subject
To be sure, there are settled exceptions where the Supreme Court may disregard findings properties may currently command a much higher price, it is equally true that at the time
of fact by the Court of Appeals 52 . We have studied both the records and the CA Decision of the transaction in 1987, the price agreed upon of P5.5 million was reasonable,
and we find no such exceptions in this case. On the contrary, the findings of the said considering that the Bank acquired these properties at a foreclosure sale for no more than
Court are supported by a preponderance of competent and credible evidence. The P3.5 million 54 . That the Bank procrastinated and refused to honor its commitment to sell
inferences and conclusions are seasonably based on evidence duly identified in the cannot now be used by it to promote its own advantage, to enable it to escape its binding
Decision. Indeed, the appellate court patiently traversed and dissected the issues obligation and to reap the benefits of the increase in land values. To rule in favor of the
presented before it, lending credibility and dependability to its findings. The best that can Bank simply because the property in question has algebraically accelerated in price
be said in favor of petitioners on this point is that the factual findings of respondent Court during the long period of litigation is to reward lawlessness and delays in the fulfillment of
did not correspond to petitioners' claims, but were closer to the evidence as presented in binding contracts. Certainly, the Court cannot stamp its imprimatur on such outrageous
the trial court by private respondent. But this alone is no reason to reverse or ignore such proposition.
factual findings, particularly where, as in this case, the trial court and the appellate court
were in common agreement thereon. Indeed, conclusions of fact of a trial judge — as WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the
affirmed by the Court of Appeals — are conclusive upon this Court, absent any serious Court hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover,
abuse or evident lack of basis or capriciousness of any kind, because the trial court is in a petitioner Bank is REPRIMANDED for engaging in forum-shopping and WARNED that a
better position to observe the demeanor of the witnesses and their courtroom manner as repetition of the same or similar acts will be dealt with more severely. Costs against
well as to examine the real evidence presented. petitioners.

Epilogue. SO ORDERED.

In summary, there are two procedural issues involved forum-shopping and the raising of
issues for the first time on appeal [viz., the extinguishment of the Bank's offer of P5.5
million and the conservator's powers to repudiate contracts entered into by the Bank's
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 — 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 Court's 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 . . . as many people depend on (it) for
investments, deposits and well as employment. As of June 1987, the Bank's overdraft
with the Central Bank had already reached P1.023 billion . . . and there were (other) offers
to buy the subject properties for a substantial amount of money." 53
 G.R. No. 202613, November 08, 2017 P250.00 a day. They were required to report for work during legal holidays, but they were
not paid holiday premium pay. 10
SYMEX SECURITY SERVICES, INC. AND RAFAEL Y.
ARCEGA, Petitioners, v. MAGDALINO O. RIVERA, JR. AND ROBERTO B. On February 25, 2003, respondents filed a complaint for nonpayment of holiday pay,
YAGO, Respondents. premium for rest day, 13th month pay, illegal deductions and damages. 11

DECISION On March 13, 2003, Capt. Arcego Cura (Capt. Cura), the Operations Manager of
petitioner Symex, summoned respondents to report to the head office the next day. 12
CAGUIOA, J.:
The following day or on March 14, 2003, respondents went to the head office where Capt.
1 2
Assailed in this petition for review on certiorari  are the Decision  dated January 12, 2012 Cura told them that they would be relieved from the post because Guevent reduced the
and the Resolution3 dated June 27, 2012 of the Court of Appeals (CA) in CA-G.R. SP No. number of guards on duty. Capt. Cura told them to go back on March 17, 2003 for their
119039, which affirmed the Decision4 dated December 9, 2010 and Resolution5 dated reassignment.13
February 7, 2011 of the National Labor Relations Commission (NLRC) in NLRC LAC No.
042778-05 (RA-06-10) that, in turn, reversed the Decision 6 dated April 30, 2010 of the On March 17, 2003, Capt. Cura told respondents that they would not be given a duty
Labor Arbiter (LA) in NCR-02-02569-03 which dismissed the complaint for illegal assignment unless they withdrew the complaint they filed before the LA. Respondents
dismissal filed by respondents Magdalino O. Rivera, Jr. and Roberto B. Yago were made to choose between resignation or forcible leave. Capt. Cura gave them a
(respondents) against petitioners Symex Security Services, Inc. (petitioner Symex) and sample affidavit of desistance for them to use as a guide. Respondents both refused to
Rafael Y. Arcega (petitioner Arcega), and ordered petitioners to pay respondents in the obey Capt. Cura, who then told them that they were dismissed.14
amount of P1,543.75 each or a total of P3,087.50.
The next day or on March 18, 2003, respondents amended their complaint 15 before the LA
Facts to include illegal dismissal.16

The instant case stemmed from a complaint7 for underpayment/nonpayment of wages, In their defense, petitioners Symex and Arcega maintained that they did not illegally
overtime pay, holiday pay, premium for rest day, service incentive leave pay, clothing dismiss respondents. They claimed that respondents are still included in petitioner
allowance and 13th month pay as well as illegal deduction of cash bond and firearm bond Symex's roll of security guards. They shifted the blame to respondents, arguing that
and repair filed by respondents before the LA. respondents refused to accept available postings. 17

Respondents alleged that they had been employed as security guards by petitioner The LA Ruling
Symex sometime in May 1999. Petitioner Symex is engaged in the business of
investigation and security services. Its President and Chairman of the Board is petitioner In a Decision18 dated April 30, 2010, the LA dismissed respondents' amended complaint
Arcega.8 for illegal dismissal but ordered petitioner Symex to pay respondents' their proportionate
13th month pay, viz.:
Respondents were both assigned at the offices and premises of Guevent Industrial
Development Corporation (Guevent), a client of petitioner Symex. As security guards,
they were tasked to guard the entrance and the exit of the building, and check the ingress Rates: P198/day (1/12/01-3/31/01) Dismissed 3/14/03
and egress of the visitors' vehicles going through the building. Their tour of duty was from P250/day (4/1/01-3/31/03) =
Monday to Saturday, from 6:00AM to 6:00PM, a twelve-hour duty, but they were not paid A. MAGDALINO O. RIVERA, JR.
their overtime pay. Respondents were likewise not given a rest day, and not paid their PROP. 13th MO. PAY:
five-day service incentive leave pay, and 13th month pay.9 1/1/03-3/14/03
P250 X 30 X 2.4 7/12 = P1,543.75
At the time of their employment, respondents were receiving a salary of P198.00 a day
from January 20 to March 2001. From April 2001 to March 2003, they were receiving B. ROBERTO B. YAGO P1,543.75
PROP. 13th MO. PAY:
 1/1/03-3/14/03 Underpaid service incentive leave - 209.91 248.37
4.
P250 X 30 X 2.4 7/12 = pay
        5. Underpaid 13th month pay - 1,559.46 1,490.22
SUMMARY OF COMPUTATION:     6. Moral damages - 10,000.00 10,000.00
A. MAGDALINO O. RIVERA, JR   P1,543.75 7. Exemplary damages - 10,000.00 10,000.00
Sub-Total - P1,191,375.05 P 1,202,583.39
B. ROBERTO B. YAGO   P1,543.75
8. 10% attorney's fees - 119,137.50 120,258.34
TOTAL AWARD: P3,087.5019
  TOTAL   P 1,310,512.55 P 1,322,841.72
The LA found that respondents were merely relieved from their post by Capt. Cura.
According to the LA, a relief order in itself does not sever the employment relationship Other claims are however dismissed for lack of basis.
between a security guard and the agency. Further, the LA did not give credence to the
purported handwritten Affidavit of Desistance supposedly given to respondents by Capt. SO ORDERED.23
Cura because such affidavit offered no assurance of its authenticity as it was unsigned
and at best, self-serving.20
Contrary to the LA's findings, the NLRC found that respondents were illegally dismissed
by Capt. Cura, the Operations Manager of petitioner Symex, who told them that unless
The LA also ruled that the pay slips presented by respondents themselves showed that they withdrew their complaint for money claims pending before the LA, their services
they were not underpaid. Respondents have also failed to prove that they rendered would be terminated. It held that the burden of proving that the dismissal of an employee
overtime work or that they worked on a holiday/rest day. Respondents also failed to show was for a valid or authorized cause lies on the employer, and that failure to discharge this
proof that they were entitled to their claims for service incentive leave pay and for illegal burden of proof makes the employer liable for illegal dismissal. The NLRC found that
deductions. The LA also ruled that there were no qualifying circumstances in the instant petitioners failed to prove, with substantial evidence, that respondents were furnished with
case to warrant the grant of damages.21 a written order of detail or re-assignment. It added that neither were respondents guilty of
abandonment of work as they immediately amended their complaint for money claims to
Aggrieved, respondents appealed to the NLRC. include a complaint for illegal dismissal. The NLRC relied on A'Prime Security Services,
Inc. v. NLRC24 which held that abandonment of work is inconsistent with the filing of a
The NLRC Ruling complaint for illegal dismissal.25

In a Decision22 dated December 9, 2010, the NLRC reversed and set aside the LA Accordingly, the NLRC held that respondents are entitled to separation pay at one month
ruling, viz.: per year of service from the time of their employment up to the finality of the decision with
backwages and monetary claims, subject to the three-year prescriptive period. It also
awarded respondents ten thousand pesos (P10,000.00) each as moral damages and
WHEREFORE, the foregoing premises considered, the decision of the Labor Arbiter is exemplary damages in the same amount, plus ten percent (10%) of the total monetary
hereby REVERSED and SET ASIDE, a new one entered declaring complainants illegally award as attorney's fees.26
dismissed by Respondents who are hereby ORDERED to pay complainants the following,
as per attached computation:
Petitioners moved for reconsideration, but this was denied in a Resolution 27 dated
February 7, 2011. Dissatisfied, they filed a petition for certiorari 28 before the CA.
      Magdalino O. Rivera Roberto B. Yago
1. Separation pay - P 133,320.00 P 145,440.00 The CA Ruling

2. Full backwages - 1,017,522.21 1,017,522.21 In a Decision29 dated January 12, 2012, the CA affirmed the questioned NLRC Decision.
3. Underpaid wages - 18,713.47 17,882.59
It held that the NLRC did not gravely abuse its discretion as the undisputed facts clearly "In labor disputes, grave abuse of discretion may be ascribed to the NLRC when, inter
established respondents to have been illegally dismissed and that petitioners used their alia, its findings and conclusions are not supported by substantial evidence, or that
prerogative to reassign and post security guards, merely as leverage to cause the amount of relevant evidence which a reasonable mind might accept as adequate to justify
withdrawal of the labor complaint filed against them by respondents. 30 a conclusion."36

The CA likewise found that the NLRC sufficiently ruled on respondents' money claims. It Guided by the foregoing considerations, the Court finds that the CA correctly found no
ruled that once the employee has set out with particularity in his complaint, position paper, grave abuse of discretion on the part of the NLRC in reversing the LA ruling, as the LA's
affidavits and other documents the labor standard benefits he is entitled to, and which the finding that respondents were not illegally dismissed from employment is not supported by
employer allegedly failed to pay him, it becomes the employer's burden to prove that it substantial evidence.
has paid these money claims. One who pleads payment has the burden of proving it; and
even where the employees must allege nonpayment, the general rule is that the burden A judicious review of the records of the case reveals that respondents were dismissed by
rests on the defendant to prove payment, rather than on the plaintiff to prove Capt. Cura, the Operations Manager of petitioner Symex. Even as the Court has
nonpayment.31 acknowledged the management prerogative of security agencies to transfer security
guards when necessary in conducting its business, it likewise has repeatedly held that
The CA also affirmed the award for moral and exemplary damages as well as attorney's this should be done in good faith.37
fees.32
In the case of Exocet Security and Allied Services Corporation v. Serrano,38 the Court
Petitioners filed a motion for reconsideration33 dated February 9, 2012, which was, ruled that the security agency was able to prove that it was in good faith when it placed
however, denied in a Resolution34 dated June 27, 2012. the security guard on floating status and was therefore not guilty of illegal dismissal nor
constructive dismissal. The evidence presented by the security agency showed that the
The Issues Before the Court security guard's own refusal to accept a non-VIP detail was the reason that he was not
given an assignment within the six-month period. The Court, in the subject case, ruled
that it was manifestly unfair and unacceptable to immediately declare the mere lapse of
The issues for the Court's resolution are whether or not: (a) the CA correctly ruled that the the six-month period of floating status as a case of constructive dismissal, without looking
NLRC did not gravely abuse its discretion, and consequently, held that respondents were into the peculiar circumstances that resulted in the security guard's failure to assume
illegally dismissed; (b) petitioners are liable to respondents for backwages, service another post.39 The Court emphasized that:
incentive leave pay, 13th month pay, separation pay, moral damages, exemplary
damages and attorney's fees; and (c) petitioner Arcega should be held solidarily liable
with petitioner Symex for respondents' monetary awards. [T]he security guard's right to security of tenure does not give him a vested right to the
position as would deprive the company of its prerogative to change the assignment of, or
transfer the security guard to, a station where his services would be most beneficial to the
The Court's Ruling client. Indeed, an employer has the right to transfer or assign its employees from one
office or area of operation to another, or in pursuit of its legitimate business
The petition is without merit. interest, provided there is no demotion in rank or diminution of salary, benefits, and
other privileges, and the transfer is not motivated by discrimination or bad faith, or
effected as a form of punishment or demotion without sufficient cause.40
NLRC did not commit grave abuse of discretion.

In the controversy now before this Court, there is no question that respondents were
"To justify the grant of the extraordinary remedy of certiorari, the petitioner must placed on floating status after their relief from their post in Guevent. The crux of the
satisfactorily show that the court or quasi-judicial authority gravely abused the discretion controversy lies in whether or not this floating status was actually a dismissal.
conferred upon it. Grave abuse of discretion connotes a capricious and whimsical
exercise of judgment, done in a despotic manner by reason of passion or personal
Respondents were illegally dismissed.
hostility, the character of which being so patent and gross as to amount to an evasion of
positive duty or to a virtual refusal to perform the duty enjoined by or to act at all in
contemplation of law."35 Petitioner Symex insists that Capt. Cura did not constructively dismiss respondents,
explaining that they refused to accept their new assignments on the ground that their new
postings would be inconvenient to them.41 Respondents, on the other hand, maintain that
they did not refuse re-assignment nor did they abandon their work. 42 The narration of On complainants' claim that they were illegally dismissed, suffice it to state that
respondents is enlightening: complainants' following narration is convincing: that they were relieved from their post
upon request of respondent's client to reduce the assigned security guards in their place
Noon February 26, 2003 nagkaisa kami na iparating na sa Labor para makuha naming to reduce their expenses; that Complainants were thus relieved and when they reported
[ang aming] mga benepisyo na dapat mapasamin. At noong March 13, 2003 tumawag to respondent's office, they were told to go back for re-assignment; that meantime,
si Captain Cura (Operation Ma[n]ager ng SYMEX SCTY. SVCS.) na magreport daw complainants already filed a complaint for money claims against respondents; that when
kaming dalawa sa SYMEX OFFICE, kinabukasan March 14, 2003, mga 9:00 A.M. complainants returned to respondent's office, they were told by no less than the General
dumating kami sa SYMEX OFFICE, binigyan kami ng order na inaalis daw kami sa Manager that their services were terminated due to the complaint they filed and as a
kliyente dahil nagbawas [daw ng] gwardiya doon at nagtaka kami dahil marami nam[a]ng condition for their re-posting or re-assignment, they were ordered first to withdraw their
baguhan pa doon pero kami talaga ang tinanggal na matagal na at sinabi sa amin na complaint but they refused; that Complainants then amended their earlier complaint to
magreport kami sa lunes March 17, 2003 para sa panibagong duty daw sa ibang kliyente. illegal dismissal.

Noong March 17, 2003 dumating kami sa SYMEX OFFICE band[a]ng 9:00A.M. at ito ang From the foregoing narration, it can be easily inferred that complainants were dismissed
sinabi sa amin na hindi daw kami pwedeng bigyan ng duty dahil idinamay daw [namin] categorically. There can be no abandonment on their part as they even immediately
ang agency at hindi daw kami pwedeng magtrabaho sa agency habang hindi pa naaayos amended their complaint to include illegal dismissal when they were given a
ang kaso. At sa panahon pala na iyon natanggap na nila ang demanda [namin) condition to withdraw their complaint first before they could be given assignment.
[galing) sa Labor at doon kami inutusan ni Capt. Cura na kumuha daw kami ng Such condition is illegal and unwarranted. x x x 47 (Emphasis supplied)
Affidavit of Desistance at saka ibabalik daw kami sa duty at sa katunayan binigyan
pa kami ng sample kung paano kumuha ng affidavit of desistance, at kung hindi The CA also found that petitioner Symex used its prerogative to re-assign its security
daw kami kumuha ng nasabing affidavit magleave na lang daw kami o m[a]gresign guards as leverage in the withdrawal of the labor complaint filed against petitioners by
at bago kami umalis sa opisina ng SYMEX humingi kami ng pabor na mag log man respondents, viz.:
lang kami para sa aming attendance sa araw na iyon. Pero tumanggi si Kapitan Cura
na magsulat kami sa Log book nya. Tapas kinausap din [namin] ang kasama nya sa We find nothing reversible in the ruling of the NLRC in finding illegal the dismissal of the
opisina na si Yolly Ansus na mag-log kami para sa aming attendance, siya ay tumanggi at private respondents.
sabi niya ay baka daw magalit si Capt. Cura. At kinabukasan March 18, 2003 pumunta
kami sa NLRC para amendahan [ang aming] demanda laban sa SYMEX at idinagdag
[namin] ang Illegal Dismisal (actual) at noong April 3, 2003 sa araw ng Hearing [namin], The assertion of Symex that the private respondents committed abandonment is contrary
natanggap ni Capt. Cura ang amended complaint [namin]. 43 to the circumstances herein presented. While it is a recognized prerogative for the
employer in the security services to reassign and post its security guards from
time to time for the exigency of service, We however hold that in this case, the
In cases of illegal dismissal, the employees must first establish by substantial evidence petitioner used such prerogative as a leverage in the withdrawal of the labor
that they were dismissed. If there is no dismissal, then there can be no question as to the complaint filed against them by the private respondents.
legality or illegality thereof.44 In Machica v. Roosevelt Services Center, lnc.,45 the Court
enunciated:
It is well to remember that the private respondents in this case initially filed a labor
complaint for monetary claims prior to their recall to the head office for possible
The rule is that one who alleges a fact has the burden of proving it; thus, petitioners were reassignment and new postings. To believe that the private respondents refused to the
burdened to prove their allegation that respondents dismissed them from their new postings assigned to them because it will inconvenience them is unlikely and
employment. It must be stressed that the evidence to prove this fact must be clear, contrary to human experience.48 (Emphasis supplied)
positive and convincing. The rule that the employer bears the burden of proof in illegal
dismissal cases finds no application here because the respondents deny having
dismissed the petitioners.46 Petitioners, on the other hand, failed to discharge their burden of proving that the
termination of respondents was for a valid or authorized cause. In fact, they simply
maintained that respondents were not illegally dismissed because they refused their new
To the mind of the Court, the NLRC did not err in finding that respondents had assignments. Yet, petitioners offered no evidence at all to prove respondents' alleged new
substantially discharged this burden. Apart from their sworn declarations, respondents assignments or respondents' refusal to accept the same. All that petitioners offer as proof
offered the sample affidavit of desistance given them by Capt. Cura to support their that respondents were not dismissed is the argument that respondents remained in the
narration that Capt. Cura threatened to terminate them unless they executed such roll of the security guards of petitioner Symex. And yet, petitioners failed to even present
affidavit of desistance. The NLRC found the narration of respondents convincing: said roll of security guards to prove this assertion.
Respondents are not guilty of abandonment. credible." The factual findings of the National Labor Relations Commission, when
confirmed by the Court of Appeals, are usually "conclusive on this Court." 58
The Court further agrees with the findings of the CA that respondents were not guilty of
abandonment. Tan Brothers Corporation of Basilan City v. Escudero49 extensively Award of separation pay is proper.
discussed abandonment in labor cases:
Separation pay is warranted when the cause for termination is not attributable to the
As defined under established jurisprudence, abandonment is the deliberate and employee's fault, such as those provided in Articles 298 59 to 29960 of the Labor Code, as
unjustified refusal of an employee to resume his employment. It constitutes neglect of well as in cases of illegal dismissal where reinstatement is no longer feasible. 61
duty and is a just cause for termination of employment under paragraph (b) of Article 282
[now Article 297] of the Labor Code. To constitute abandonment, however, there must The payment of separation pay and reinstatement are exclusive remedies. 62 In Dee Jay's
be a clear and deliberate intent to discontinue one's employment without any Inn and Cafe v. Raneses,63 the Court ruled that "[i]n a case where the employee was
intention of returning. In this regard, two elements must concur: (1) failure to report neither found to have been dismissed nor to have abandoned his/her work, the general
for work or absence without valid or justifiable reason, and (2) a clear intention to course of action is for the Court to dismiss the complaint, direct the employee to return to
sever the employer-employee relationship, with the second element as the more work, and order the employer to accept the employee." 64 The circumstances in this case,
determinative factor and being manifested by some overt acts. Otherwise stated, however, warrant the application of the doctrine of strained relations.
absence must be accompanied by overt acts unerringly pointing to the fact that the
employee simply does not want to work anymore. It has been ruled that the employer has
the burden of proof to show a deliberate and unjustified refusal of the employee to resume Under the doctrine of strained relations, the payment of separation pay is considered an
his employment without any intention of returning. 50 (Emphasis supplied) acceptable alternative to reinstatement when the latter option is no longer desirable or
viable. On one hand, such payment liberates the employee from what could be a highly
oppressive work environment. On the other hand, it releases the employer from the
In this case, the respondents' act of filing a complaint for illegal dismissal with prayer for grossly unpalatable obligation of maintaining in its employ a worker it could no longer
reinstatement belies any intention to abandon employment. 51 To be sure, the immediate trust.65
filing of a complaint for illegal dismissal, more so when it includes a prayer for
reinstatement, has been held to be totally inconsistent with a charge of
abandonment.52 To reiterate, abandonment is a matter of intention and cannot be lightly Strained relations must be demonstrated as a fact.66 The doctrine of strained relations
inferred, much less legally presumed, from certain equivocal acts. 53 should not be used recklessly or applied loosely nor be based on impression alone. 67

The rule is that factual findings of quasi-judicial agencies such as the NLRC are generally On this score, the NLRC has made a factual finding, sustained by the CA, that the length
accorded not only respect, but at times, even finality because of the special knowledge of time this case has dragged has invariably resulted in a strain in the relations between
and expertise gained by these agencies from handling matters falling under their respondents and petitioners, so that reinstatement is now impossible. Once more, this
specialized jurisdiction.54 It is also settled that this Court is not a trier of facts and does not factual finding is binding on this Court. Accordingly, the award for separation pay is
normally embark in the evaluation of evidence adduced during trial. 55 proper.

The Court has consistently ruled in the recent decisions of Perea v. Elburg Award of other money claims, moral and exemplary damages are warranted.
Shipmanagement Philippines, Inc.56 and Madridejos v. NYK-Fil Ship Management,
Inc.,57 that the factual findings of the NLRC, when confirmed by the CA, are usually
With respect to the award of money claims, as well as moral and exemplary damages, the
conclusive on this Court:
sole office of the writ of certiorari, as aptly pointed out by the CA, is the correction of
errors of jurisdiction including the commission of grave abuse of discretion amounting to
[T]his Court limits itself to questions of law in a Rule 45 petition: lack or excess of jurisdiction.68 It does not include correction of the NLRC's evaluation of
the evidence or of its factual findings.69 Such findings are generally accorded not only
As a rule, we only examine questions of law in a Rule 45 petition. Thus, "we do not re- respect but also finality.70
examine conflicting evidence, re-evaluate the credibility of witnesses, or substitute the
findings of fact of the [National Labor Relations Commission], an administrative body that In this case, it is noteworthy to stress that respondents have presented their pay slips to
has expertise in its specialized field." Similarly, we do not replace our "own judgment for prove their monetary claims. It is settled that once the employee has set out with
that of the tribunal in determining where the weight of evidence lies or what evidence is particularity in his complaint, position paper, affidavits and other documents the labor
standard benefits he is entitled to, and which the employer failed to pay him, it becomes judgment or negligence but imparts a dishonest purpose or some moral obliquity and
the employer's burden to prove that it has paid these money claims. Once more, he who conscious doing of wrong; it means breach of a known duty through some motive or
pleads payment has the burden of proving it; and even where the employees must allege interest or ill will; it partakes of the nature of fraud.
nonpayment, the general rule is that the burden rests on the defendant to prove payment,
rather than on the plaintiff to prove nonpayment.71 Petitioners could have easily presented As the foregoing implies, there is no hard and fast rule on when corporate fiction may be
pertinent company records to disprove respondents' claims. Yet, the records of the case disregarded; instead, each case must be evaluated according to its peculiar
are bereft of such company records thus giving merit to respondents' allegations. It is a circumstances. For the case at bar, applying the above criteria, a finding of personal
rule that failure of employers to submit the necessary documents that are in their and solidary liability against a corporate officer like Guillermo must be rooted on a
possession as employers gives rise to the presumption that the presentation thereof is satisfactory showing of fraud, bad faith or malice, or the presence of any of the
prejudicial to their cause.72 justifications for disregarding the corporate fiction.75 (Emphasis supplied)

Moral damages are recoverable when the dismissal of an employee is attended by bad A corporation is a juridical entity with a legal personality separate and distinct from those
faith or fraud or constitutes an act oppressive to labor, or is done in a manner contrary to acting for and in its behalf and, in general, from the people comprising it. 76 Thus, as a
good morals, good customs or public policy. Exemplary damages, on the other hand, are general rule, an officer may not be held liable for the corporation's labor obligations unless
recoverable when the dismissal was done in a wanton, oppressive, or malevolent he acted with evident malice and/or bad faith in dismissing an employee. 77 Section 3178 of
manner.73 the Corporation Code is the governing law on personal liability of officers for the debts of
the corporation. To hold a director or officer personally liable for corporate obligations, two
The Court also affirms the award of moral and exemplary damages to respondents. As requisites must concur: (1) it must be alleged in the complaint that the director or officer
aptly pointed out by both the NLRC and the CA, the acts constitutive of respondents' assented to patently unlawful acts of the corporation or that the officer was guilty of gross
dismissal are clearly tainted with bad faith as they were done to punish them for filing a negligence or bad faith; and (2) there must be proof that the officer acted in bad faith. 79
complaint against petitioner Symex before the LA and for their refusal to withdraw the
same. Based on the records, respondents failed to specifically allege either in their complaint or
position paper that Arcega, as an officer of Symex, willfully and knowingly assented to the
Petitioner Arcega is not liable for obligations of petitioner Symex absent showing of acts of Capt. Cura, or that Arcega had been guilty of gross negligence or bad faith in
gross negligence or bad faith on his part. directing the affairs of the corporation. In fact, there was no evidence at all to show
Arcega's participation in the illegal dismissal of respondents. Clearly, the twin requisites of
allegation and proof of bad faith, necessary to hold Arcega personally liable for the
Finally, as to petitioner Arcega's liability for the obligations of Symex to respondents, the monetary awards to the respondents, are lacking.
Court notes that there was no showing that Arcega, as President of Symex, willingly and
knowingly voted or assented to the unlawful acts of the company. Arcega is merely one of the officers of Symex and to single him out and require him to
personally answer for the liabilities of Symex are without basis.
In Guillermo v. Uson,74 the Court resolved the twin doctrines of piercing the veil of
corporate fiction and personal liability of company officers in labor cases. According to the The Court has repeatedly emphasized that the piercing of the veil of corporate fiction is
Court: frowned upon and can only be done if it has been clearly established that the separate
and distinct personality of the corporation is used to justify a wrong, protect fraud, or
The common thread running among the aforementioned cases, however, is that the veil of perpetrate a deception.80 To disregard the separate juridical personality of a corporation,
corporate fiction can be pierced, and responsible corporate directors and officers or the wrongdoing must be established clearly and convincingly. It cannot be presumed.
even a separate but related corporation, may be impleaded and held answerable
solidarily in a labor case, even after final judgment and on execution, so long as it WHEREFORE, the petition is DENIED. The Decision dated January 12, 2012 and the
is established that such persons have deliberately used the corporate vehicle to Resolution dated June 27, 2012 of the Court of Appeals in CA-G.R. SP No. 119039 are
unjustly evade the judgment obligation, or have resorted to fraud, bad faith or hereby AFFIRMED with MODIFICATION in that petitioner Rafael Y. Arcega is absolved
malice in doing so. When the shield of a separate corporate identity is used to commit from solidary liability.
wrongdoing and opprobriously elude responsibility, the courts and the legal authorities in
a labor case have not hesitated to step in and shatter the said shield and deny the usual
protections to the offending party, even after final judgment. The key element is the SO ORDERED.
presence of fraud, malice or bad faith. Bad faith, in this instance, does not connote bad
G.R. No. L-69259 January 26, 1988 whereby the former conveyed to the latter the leased property (TCT
No.T-4240) together with another parcel of land also located in Malinta
DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners, Estate, Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of
vs. stock of defendant corporation with a total value of P1,500,000.00 (Exhs.
INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, C to C-5, inclusive) (pp. 44-45, Rollo)
INC., respondents.
On the ground that it was not given the first option to buy the leased property pursuant to
the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an
amended complaint for reconveyance of Lot. No. 1095 in its favor under conditions similar
to those whereby Delpher Trades Corporation acquired the property from Pelagia
GUTIERREZ, JR., J.: Pacheco and Delphin Pacheco.

The petitioners question the decision of the Intermediate Appellate Court which sustained After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The
the private respondent's contention that the deed of exchange whereby Delfin Pacheco dispositive portion of the decision reads:
and Pelagia Pacheco conveyed a parcel of land to Delpher Trades Corporation in
exchange for 2,500 shares of stock was actually a deed of sale which violated a right of
first refusal under a lease contract. ACCORDINGLY, the judgment is hereby rendered declaring the valid
existence of the plaintiffs preferential right to acquire the subject property
(right of first refusal) and ordering the defendants and all persons
Briefly, the facts of the case are summarized as follows: deriving rights therefrom to convey the said property to plaintiff who may
offer to acquire the same at the rate of P14.00 per square meter, more
In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the or less, for Lot 1095 whose area is 27,169 square meters only. Without
owners of 27,169 square meters of real estate Identified as Lot. No. pronouncement as to attorney's fees and costs. (Appendix I; Rec., pp.
1095, Malinta Estate, in the Municipality of Polo (now Valenzuela), 246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo)
Province of Bulacan (now Metro Manila) which is covered by Transfer
Certificate of Title No. T-4240 of the Bulacan land registry. The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.

On April 3, 1974, the said co-owners leased to Construction The defendants-appellants, now the petitioners, filed a petition for certiorari to review the
Components International Inc. the same property and providing that appellate court's decision.
during the existence or after the term of this lease the lessor should he
decide to sell the property leased shall first offer the same to the lessee
and the letter has the priority to buy under similar conditions (Exhibits A We initially denied the petition but upon motion for reconsideration, we set aside the
to A-5) resolution denying the petition and gave it due course.

On August 3, 1974, lessee Construction Components International, Inc. The petitioners allege that:
assigned its rights and obligations under the contract of lease in favor of
Hydro Pipes Philippines, Inc. with the signed conformity and consent of The denial of the petition will work great injustice to the petitioners, in
lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B-6 inclusive) that:

The contract of lease, as well as the assignment of lease were 1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will
annotated at he back of the title, as per stipulation of the parties (Exhs. A acquire from petitioners a parcel of industrial land consisting of 27,169
to D-3 inclusive) square meters or 2.7 hectares (located right after the Valenzuela,
Bulacan exit of the toll expressway) for only P14/sq. meter, or a total
On January 3, 1976, a deed of exchange was executed between lessors of P380,366, although the prevailing value thereof is approximately
Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation P300/sq. meter or P8.1 Million;
 2. Private respondent is allowed to exercise its right of first refusal even (Art. 1468, Civil Code) while there is a barter or exchange when one thing is given in
if there is no "sale" or transfer of actual ownership interests by consideration of another thing (Art. 1638, Civil Code)." (pp. 254-255, Rollo)
petitioners to third parties; and
On the other hand, the private respondent argues that Delpher Trades Corporation is a
3. Assuming arguendo that there has been a transfer of actual corporate entity separate and distinct from the Pachecos. Thus, it contends that it cannot
ownership interests, private respondent will acquire the land  not under be said that Delpher Trades Corporation is the Pacheco's same alter ego or conduit; that
"similar conditions" by which it was transferred to petitioner Delpher petitioner Delfin Pacheco, having treated Delpher Trades Corporation as such a separate
Trades Corporation, as provided in the same contractual provision and distinct corporate entity, is not a party who may allege that this separate corporate
invoked by private respondent. (pp. 251-252, Rollo) existence should be disregarded. It maintains that there was actual transfer of ownership
interests over the leased property when the same was transferred to Delpher Trades
The resolution of the case hinges on whether or not the "Deed of Exchange" of the Corporation in exchange for the latter's shares of stock.
properties executed by the Pachecos on the one hand and the Delpher Trades
Corporation on the other was meant to be a contract of sale which, in effect, prejudiced We rule for the petitioners.
the private respondent's right of first refusal over the leased property included in the "deed
of exchange." After incorporation, one becomes a stockholder of a corporation by subscription or by
purchasing stock directly from the corporation or from individual owners thereof (Salmon,
Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco Dexter & Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the
testified that Delpher Trades Corporation is a family corporation; that the corporation was case at bar, in exchange for their properties, the Pachecos acquired 2,500 original
organized by the children of the two spouses (spouses Pelagia Pacheco and Benjamin unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently,
Hernandez and spouses Delfin Pacheco and Pilar Angeles) who owned in common the the Pachecos became stockholders of the corporation by subscription "The essence of
parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the stock subscription is an agreement to take and pay for original unissued shares of a
the property through the corporation and to avoid taxes; that in order to accomplish this corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani, Commentaries and
end, two pieces of real estate, including Lot No. 1095 which had been leased to Hydro Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It
Pipes Philippines, were transferred to the corporation; that the leased property was is significant that the Pachecos took no par value shares in exchange for their properties.
transferred to the corporation by virtue of a deed of exchange of property; that in
exchange for these properties, Pelagia and Delfin acquired 2,500 unissued no par value A no-par value share does not purport to represent any stated
shares of stock which are equivalent to a 55% majority in the corporation because the proportionate interest in the capital stock measured by value, but only an
other owners only owned 2,000 shares; and that at the time of incorporation, he knew all aliquot part of the whole number of such shares of the issuing
about the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the petitioners' corporation. The holder of no-par shares may see from the certificate
motion for reconsideration, they refer to this scheme as "estate planning." (p. 252, Rollo) itself that he is only an aliquot sharer in the assets of the corporation. But
this character of proportionate interest is not hidden beneath a false
Under this factual backdrop, the petitioners contend that there was actually no transfer of appearance of a given sum in money, as in the case of par value shares.
ownership of the subject parcel of land since the Pachecos remained in control of the The capital stock of a corporation issuing only no-par value shares is not
property. Thus, the petitioners allege: "Considering that the beneficial ownership and set forth by a stated amount of money, but instead is expressed to be
control of petitioner corporation remained in the hands of the original co-owners, there divided into a stated number of shares, such as, 1,000 shares. This
was no transfer of actual ownership interests over the land when the same was indicates that a shareholder of 100 such shares is an aliquot sharer in
transferred to petitioner corporation in exchange for the latter's shares of stock. The the assets of the corporation, no matter what value they may have, to
transfer of ownership, if anything, was merely in form but not in substance. In reality, the extent of 100/1,000 or 1/10. Thus, by removing the par value of
petitioner corporation is a mere alter ego or conduit of the Pacheco co-owners; hence the shares, the attention of persons interested in the financial condition of a
corporation and the co-owners should be deemed to be the same, there being in corporation is focused upon the value of assets and the amount of its
substance and in effect an Identity of interest." (p. 254, Rollo) debts. (Agbayani, Commentaries and Jurisprudence on the Commercial
Laws of the Philippines, Vol. III, 1980 Edition, p. 107).
The petitioners maintain that the Pachecos did not sell the property. They argue that there
was no sale and that they exchanged the land for shares of stocks in their own Moreover, there was no attempt to state the true or current market value of the real
corporation. "Hence, such transfer is not within the letter, or even spirit of the contract. estate. Land valued at P300.00 a square meter was turned over to the family's
There is a sale when ownership is transferred for a price certain in money or its equivalent corporation for only P14.00 a square meter.
It is to be stressed that by their ownership of the 2,500 no par shares of stock, the A Having fulfilled the conditions in the income tax law,
Pachecos have control of the corporation. Their equity capital is 55% as against 45% of providing for tax free exchange of property, they were
the other stockholders, who also belong to the same family group. able to execute the deed of exchange free from income
tax and acquire a corporation.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What
they really did was to invest their properties and change the nature of their ownership Q What provision in the income tax law are you
from unincorporated to incorporated form by organizing Delpher Trades Corporation to referring to?
take control of their properties and at the same time save on inheritance taxes.
A I refer to Section 35 of the National Internal Revenue
As explained by Eduardo Neria: Code under par. C-sub-par. (2) Exceptions regarding
the provision which I quote: "No gain or loss shall also
xxx xxx xxx be recognized if a person exchanges his property for
stock in a corporation of which as a result of such
exchange said person alone or together with others not
ATTY. LINSANGAN: exceeding four persons gains control of said
corporation."
Q Mr. Neria, from the point of view of taxation, is there
any benefit to the spouses Hernandez and Pacheco in Q Did you explain to the spouses this benefit at the
connection with their execution of a deed of exchange time you executed the deed of exchange?
on the properties for no par value shares of the
defendant corporation?
A Yes, sir
A Yes, sir.
Q You also, testified during the last hearing that the
decision to have no par value share in the defendant
COURT: corporation was for the purpose of flexibility. Can you
explain flexibility in connection with the ownership of
Q What do you mean by "point of view"? the property in question?

A To take advantage for both spouses and corporation A There is flexibility in using no par value shares as the
in entering in the deed of exchange. value is determined by the board of directors in
increasing capitalization. The board can fix the value of
ATTY. LINSANGAN: the shares equivalent to the capital requirements of the
corporation.
Q (What do you mean by "point of view"?) What are
these benefits to the spouses of this deed of Q Now also from the point of taxation, is there any
exchange? flexibility in the holding by the corporation of the
property in question?
A Continuous control of the property, tax exemption
benefits, and other inherent benefits in a corporation. A Yes, since a corporation does not die it can continue
to hold on to the property indefinitely for a period of at
Q What are these advantages to the said spouses from least 50 years. On the other hand, if the property is
the point of view of taxation in entering in the deed of held by the spouse the property will be tied up in
exchange? succession proceedings and the consequential
payments of estate and inheritance taxes when an
owner dies.
 Q Now what advantage is this continuity in relation to
ownership by a particular person of certain properties in
respect to taxation?

A The property is not subjected to taxes on succession

as the corporation does not die.

Q So the benefit you are talking about are inheritance

taxes?

A Yes, sir. (pp. 3-5, tsn., December 15, 1981)

The records do not point to anything wrong or objectionable about this "estate planning"
scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the
amount of what otherwise could be his taxes or altogether avoid them, by means which
the law permits, cannot be doubted." (Liddell & Co., Inc. v. The collector of Internal
Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).

The "Deed of Exchange" of property between the Pachecos and Delpher Trades
Corporation cannot be considered a contract of sale. There was no transfer of actual
ownership interests by the Pachecos to a third party. The Pacheco family merely changed
their ownership from one form to another. The ownership remained in the same hands.
Hence, the private respondent has no basis for its claim of a light of first refusal under the
lease contract.

WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and
resolution of the then Intermediate Appellate Court are REVERSED and SET ASIDE. The
amended complaint in Civil Case No. 885-V-79 of the then Court of First Instance of
Bulacan is DISMISSED. No costs.

SO ORDERED.
G.R. No. 171101               July 5, 2011 their eventual resale to tenants. The law, however, had this restricting feature: its
operations were confined mainly to areas in Central Luzon, and its implementation at any
HACIENDA LUISITA, INCORPORATED, Petitioner, level of intensity limited to the pilot project in Nueva Ecija. 8
LUISITA INDUSTRIAL PARK CORPORATION and RIZAL COMMERCIAL BANKING
CORPORATION, Petitioners-in-Intervention, Subsequently, Congress passed the Code of Agrarian Reform (RA 6389) declaring the
vs. entire country a land reform area, and providing for the automatic conversion of tenancy
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER to leasehold tenancy in all areas. From 75 hectares, the retention limit was cut down to
PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG seven hectares.9
MGA MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE GALANG, NOEL
MALLARI, and JULIO SUNIGA1 and his SUPERVISORY GROUP OF THE HACIENDA Barely a month after declaring martial law in September 1972, then President Ferdinand
LUISITA, INC. and WINDSOR ANDAYA, Respondents. Marcos issued Presidential Decree No. 27 (PD 27) for the "emancipation of the tiller from
the bondage of the soil."10 Based on this issuance, tenant-farmers, depending on the size
DECISION of the landholding worked on, can either purchase the land they tilled or shift from share
to fixed-rent leasehold tenancy.11 While touted as "revolutionary," the scope of the
VELASCO, JR., J.: agrarian reform program PD 27 enunciated covered only tenanted, privately-owned rice
and corn lands.12
"Land for the landless," a shibboleth the landed gentry doubtless has received with much
misgiving, if not resistance, even if only the number of agrarian suits filed serves to be the Then came the revolutionary government of then President Corazon C. Aquino and the
norm. Through the years, this battle cry and root of discord continues to reflect the drafting and eventual ratification of the 1987 Constitution. Its provisions foreshadowed the
seemingly ceaseless discourse on, and great disparity in, the distribution of land among establishment of a legal framework for the formulation of an expansive approach to land
the people, "dramatizing the increasingly urgent demand of the dispossessed x x x for a reform, affecting all agricultural lands and covering both tenant-farmers and regular
plot of earth as their place in the sun."2 As administrations and political alignments farmworkers.13
change, policies advanced, and agrarian reform laws enacted, the latest being what is
considered a comprehensive piece, the face of land reform varies and is masked in So it was that Proclamation No. 131, Series of 1987, was issued instituting a
myriads of ways. The stated goal, however, remains the same: clear the way for the true comprehensive agrarian reform program (CARP) to cover all agricultural lands, regardless
freedom of the farmer.3 of tenurial arrangement and commodity produced, as provided in the Constitution.

Land reform, or the broader term "agrarian reform," has been a government policy even On July 22, 1987, Executive Order No. 229 (EO 229) was issued providing, as its
before the Commonwealth era. In fact, at the onset of the American regime, initial steps title14 indicates, the mechanisms for CARP implementation. It created the Presidential
toward land reform were already taken to address social unrest. 4 Then, under the 1935 Agrarian Reform Council (PARC) as the highest policy-making body that formulates all
Constitution, specific provisions on social justice and expropriation of landed estates for policies, rules, and regulations necessary for the implementation of CARP.
distribution to tenants as a solution to land ownership and tenancy issues were
incorporated. On June 15, 1988, RA 6657 or the Comprehensive Agrarian Reform Law of 1988, also
known as CARL or the CARP Law, took effect, ushering in a new process of land
In 1955, the Land Reform Act (Republic Act No. [RA] 1400) was passed, setting in motion classification, acquisition, and distribution. As to be expected, RA 6657 met stiff
the expropriation of all tenanted estates. 5 opposition, its validity or some of its provisions challenged at every possible
turn. Association of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian
On August 8, 1963, the Agricultural Land Reform Code (RA 3844) was Reform 15 stated the observation that the assault was inevitable, the CARP being an
enacted,6 abolishing share tenancy and converting all instances of share tenancy into untried and untested project, "an experiment [even], as all life is an experiment," the Court
leasehold tenancy.7 RA 3844 created the Land Bank of the Philippines (LBP) to provide said, borrowing from Justice Holmes.
support in all phases of agrarian reform.
The Case
As its major thrust, RA 3844 aimed to create a system of owner-cultivatorship in rice and
corn, supposedly to be accomplished by expropriating lands in excess of 75 hectares for
In this Petition for  Certiorari  and Prohibition under Rule 65 with prayer for preliminary Eventually, the Manila RTC rendered judgment ordering Tadeco to surrender Hacienda
injunctive relief, petitioner Hacienda Luisita, Inc. (HLI) assails and seeks to set aside Luisita to the MAR. Therefrom, Tadeco appealed to the Court of Appeals (CA).
PARC Resolution No. 2005-32-0116 and Resolution No. 2006-34-0117 issued on
December 22, 2005 and May 3, 2006, respectively, as well as the implementing Notice of On March 17, 1988, the Office of the Solicitor General (OSG) moved to withdraw the
Coverage dated January 2, 2006 (Notice of Coverage). 18 government’s case against Tadeco, et al. By Resolution of May 18, 1988, the CA
dismissed the case the Marcos government initially instituted and won against Tadeco, et
The Facts al. The dismissal action was, however, made subject to the obtention by Tadeco of the
PARC’s approval of a stock distribution plan (SDP) that must initially be implemented after
At the core of the case is Hacienda Luisita de Tarlac (Hacienda Luisita), once a 6,443- such approval shall have been secured. 24 The appellate court wrote:
hectare mixed agricultural-industrial-residential expanse straddling several municipalities
of Tarlac and owned by Compañia General de Tabacos de Filipinas (Tabacalera). In The defendants-appellants x x x filed a motion on April 13, 1988 joining the x x x
1957, the Spanish owners of Tabacalera offered to sell Hacienda Luisita as well as their governmental agencies concerned in moving for the dismissal of the case subject,
controlling interest in the sugar mill within the hacienda, the Central Azucarera de Tarlac however, to the following conditions embodied in the letter dated April 8, 1988 (Annex 2)
(CAT), as an indivisible transaction. The Tarlac Development Corporation (Tadeco), then of the Secretary of the [DAR] quoted, as follows:
owned and/or controlled by the Jose Cojuangco, Sr. Group, was willing to buy. As agreed
upon, Tadeco undertook to pay the purchase price for Hacienda Luisita in pesos, while 1. Should TADECO fail to obtain approval of the stock distribution plan for failure
that for the controlling interest in CAT, in US dollars.19 to comply with all the requirements for corporate landowners set forth in the
guidelines issued by the [PARC]: or
To facilitate the adverted sale-and-purchase package, the Philippine government, through
the then Central Bank of the Philippines, assisted the buyer to obtain a dollar loan from a 2. If such stock distribution plan is approved by PARC, but TADECO fails to
US bank.20 Also, the Government Service Insurance System (GSIS) Board of Trustees initially implement it.
extended on November 27, 1957 a PhP 5.911 million loan in favor of Tadeco to pay the
peso price component of the sale. One of the conditions contained in the approving GSIS
Resolution No. 3203, as later amended by Resolution No. 356, Series of 1958, reads as xxxx
follows:
WHEREFORE, the present case on appeal is hereby dismissed without prejudice, and
That the lots comprising the Hacienda Luisita shall be subdivided by the applicant- should be revived if any of the conditions as above set forth is not duly complied with by
corporation and sold at cost to the tenants, should there be any, and whenever conditions the TADECO.25
should exist warranting such action under the provisions of the Land Tenure Act; 21
Markedly, Section 10 of EO 22926 allows corporate landowners, as an alternative to the
As of March 31, 1958, Tadeco had fully paid the purchase price for the acquisition of actual land transfer scheme of CARP, to give qualified beneficiaries the right to purchase
Hacienda Luisita and Tabacalera’s interest in CAT. 22 shares of stocks of the corporation under a stock ownership arrangement and/or land-to-
share ratio.
The details of the events that happened next involving the hacienda and the political color
some of the parties embossed are of minimal significance to this narration and need no Like EO 229, RA 6657, under the latter’s Sec. 31, also provides two (2) alternative
belaboring. Suffice it to state that on May 7, 1980, the martial law administration filed a modalities, i.e., land or stock transfer, pursuant to either of which the corporate landowner
suit before the Manila Regional Trial Court (RTC) against Tadeco, et al., for them to can comply with CARP, but subject to well-defined conditions and timeline requirements.
surrender Hacienda Luisita to the then Ministry of Agrarian Reform (MAR, now the Sec. 31 of RA 6657 provides:
Department of Agrarian Reform [DAR]) so that the land can be distributed to farmers at
cost. Responding, Tadeco or its owners alleged that Hacienda Luisita does not have SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer
tenants, besides which sugar lands––of which the hacienda consisted––are not covered ownership over their agricultural landholdings to the Republic of the Philippines pursuant
by existing agrarian reform legislations. As perceived then, the government commenced to Section 20 hereof or to qualified beneficiaries x x x.
the case against Tadeco as a political message to the family of the late Benigno Aquino,
Jr.23 Upon certification by the DAR, corporations owning agricultural lands may give their
qualified beneficiaries the right to purchase such proportion of the capital stock of
the corporation that the agricultural land, actually devoted to agricultural activities,
bears in relation to the company’s total assets, under such terms and conditions as To accommodate the assets transfer from Tadeco to HLI, the latter, with the Securities
may be agreed upon by them. In no case shall the compensation received by the workers and Exchange Commission’s (SEC’s) approval, increased its capital stock on May 10,
at the time the shares of stocks are distributed be reduced. x x x 1989 from PhP 1,500,000 divided into 1,500,000 shares with a par value of PhP 1/share
to PhP 400,000,000 divided into 400,000,000 shares also with par value of PhP 1/share,
Corporations or associations which voluntarily divest a proportion of their capital stock, 150,000,000 of which were to be issued only to qualified and registered beneficiaries of
equity or participation in favor of their workers or other qualified beneficiaries under this the CARP, and the remaining 250,000,000 to any stockholder of the corporation. 31
section shall be deemed to have complied with the provisions of this Act: Provided, That
the following conditions are complied with: As appearing in its proposed SDP, the properties and assets of Tadeco contributed to the
capital stock of HLI, as appraised and approved by the SEC, have an aggregate value of
(a) In order to safeguard the right of beneficiaries who own shares of stocks to PhP 590,554,220, or after deducting the total liabilities of the farm amounting to PhP
dividends and other financial benefits, the books of the corporation or association 235,422,758, a net value of PhP 355,531,462. This translated to 355,531,462 shares with
shall be subject to periodic audit by certified public accountants chosen by the a par value of PhP 1/share.32
beneficiaries;
On May 9, 1989, some 93% of the then farmworker-beneficiaries (FWBs) complement of
(b) Irrespective of the value of their equity in the corporation or association, the Hacienda Luisita signified in a referendum their acceptance of the proposed HLI’s Stock
beneficiaries shall be assured of at least one (1) representative in the board of Distribution Option Plan. On May 11, 1989, the Stock Distribution Option Agreement
directors, or in a management or executive committee, if one exists, of the (SDOA), styled as a Memorandum of Agreement (MOA), 33 was entered into by Tadeco,
corporation or association; HLI, and the 5,848 qualified FWBs34 and attested to by then DAR Secretary Philip Juico.
The SDOA embodied the basis and mechanics of the SDP, which would eventually be
submitted to the PARC for approval. In the SDOA, the parties agreed to the following:
(c) Any shares acquired by such workers and beneficiaries shall have the same
rights and features as all other shares; and
1. The percentage of the value of the agricultural land of Hacienda Luisita
(P196,630,000.00) in relation to the total assets (P590,554,220.00) transferred
(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab and conveyed to the SECOND PARTY [HLI] is 33.296% that, under the law, is
initio unless said transaction is in favor of a qualified and registered beneficiary the proportion of the outstanding capital stock of the SECOND PARTY, which is
within the same corporation. P355,531,462.00 or 355,531,462 shares with a par value of P1.00 per share, that
has to be distributed to the THIRD PARTY [FWBs] under the stock distribution
If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer plan, the said 33.296% thereof being P118,391,976.85 or 118,391,976.85
envisioned above is not made or realized or the plan for such stock distribution approved shares.
by the PARC within the same period, the agricultural land of the corporate owners or
corporation shall be subject to the compulsory coverage of this Act. (Emphasis added.) 2. The qualified beneficiaries of the stock distribution plan shall be the
farmworkers who appear in the annual payroll, inclusive of the permanent and
Vis-à-vis the stock distribution aspect of the aforequoted Sec. 31, DAR issued seasonal employees, who are regularly or periodically employed by the SECOND
Administrative Order No. 10, Series of 1988 (DAO 10),27 entitled Guidelines and PARTY.
Procedures for Corporate Landowners Desiring to Avail Themselves of the Stock
Distribution Plan under Section 31 of RA 6657. 3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY
shall arrange with the FIRST PARTY [Tadeco] the acquisition and
From the start, the stock distribution scheme appeared to be Tadeco’s preferred option, distribution to the THIRD PARTY on the basis of number of days worked and at
for, on August 23, 1988,28 it organized a spin-off corporation, HLI, as vehicle to facilitate no cost to them of one-thirtieth (1/30) of 118,391,976.85 shares of the capital
stock acquisition by the farmworkers. For this purpose, Tadeco assigned and conveyed to stock of the SECOND PARTY that are presently owned and held by the FIRST
HLI the agricultural land portion (4,915.75 hectares) and other farm-related properties of PARTY, until such time as the entire block of 118,391,976.85 shares shall have
Hacienda Luisita in exchange for HLI shares of stock. 29 been completely acquired and distributed to the THIRD PARTY.

Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Jose Cojuangco, Jr., and Paz 4.The SECOND PARTY shall guarantee to the qualified beneficiaries of the
C. Teopaco were the incorporators of HLI.30 [SDP] that every year they will receive on top of their regular compensation, an
amount that approximates the equivalent of three (3%) of the total gross sales
 from the production of the agricultural land, whether it be in the form of cash Notably, in a follow-up referendum the DAR conducted on October 14, 1989, 5,117
dividends or incentive bonuses or both. FWBs, out of 5,315 who participated, opted to receive shares in HLI. 36 One hundred thirty-
two (132) chose actual land distribution.37
5. Even if only a part or fraction of the shares earmarked for distribution will have
been acquired from the FIRST PARTY and distributed to the THIRD PARTY, After a review of the SDP, then DAR Secretary Miriam Defensor-Santiago (Sec.
FIRST PARTY shall execute at the beginning of each fiscal year an irrevocable Defensor-Santiago) addressed a letter dated November 6, 1989 38 to Pedro S. Cojuangco
proxy, valid and effective for one (1) year, in favor of the farmworkers appearing (Cojuangco), then Tadeco president, proposing that the SDP be revised, along the
as shareholders of the SECOND PARTY at the start of said year which will following lines:
empower the THIRD PARTY or their representative to vote in stockholders’ and
board of directors’ meetings of the SECOND PARTY convened during the year 1. That over the implementation period of the [SDP], [Tadeco]/HLI shall ensure
the entire 33.296% of the outstanding capital stock of the SECOND PARTY that there will be no dilution in the shares of stocks of individual [FWBs];
earmarked for distribution and thus be able to gain such number of seats in the
board of directors of the SECOND PARTY that the whole 33.296% of the shares
subject to distribution will be entitled to. 2. That a safeguard shall be provided by [Tadeco]/HLI against the dilution of the
percentage shareholdings of the [FWBs], i.e., that the 33% shareholdings of the
[FWBs] will be maintained at any given time;
6. In addition, the SECOND PARTY shall within a reasonable time subdivide and
allocate for free and without charge among the qualified family-beneficiaries
residing in the place where the agricultural land is situated, residential or 3. That the mechanics for distributing the stocks be explicitly stated in the [MOA]
homelots of not more than 240 sq.m. each, with each family-beneficiary being signed between the [Tadeco], HLI and its [FWBs] prior to the implementation of
assured of receiving and owning a homelot in the barangay where it actually the stock plan;
resides on the date of the execution of this Agreement.
4. That the stock distribution plan provide for clear and definite terms for
7. This Agreement is entered into by the parties in the spirit of the (C.A.R.P.) of determining the actual number of seats to be allocated for the [FWBs] in the HLI
the government and with the supervision of the [DAR], with the end in view of Board;
improving the lot of the qualified beneficiaries of the [SDP] and obtaining for them
greater benefits. (Emphasis added.) 5. That HLI provide guidelines and a timetable for the distribution of homelots to
qualified [FWBs]; and
As may be gleaned from the SDOA, included as part of the distribution plan are: (a)
production-sharing equivalent to three percent (3%) of gross sales from the production of 6. That the 3% cash dividends mentioned in the [SDP] be expressly provided for
the agricultural land payable to the FWBs in cash dividends or incentive bonus; and (b) [in] the MOA.
distribution of free homelots of not more than 240 square meters each to family-
beneficiaries. The production-sharing, as the SDP indicated, is payable "irrespective of In a letter-reply of November 14, 1989 to Sec. Defensor-Santiago, Tadeco/HLI explained
whether [HLI] makes money or not," implying that the benefits do not partake the nature of that the proposed revisions of the SDP are already embodied in both the SDP and
dividends, as the term is ordinarily understood under corporation law. MOA.39 Following that exchange, the PARC, under then Sec. Defensor-Santiago,
by Resolution No. 89-12-240 dated November 21, 1989, approved the SDP of
While a little bit hard to follow, given that, during the period material, the assigned value of Tadeco/HLI.41
the agricultural land in the hacienda was PhP 196.63 million, while the total assets of HLI
was PhP 590.55 million with net assets of PhP 355.53 million, Tadeco/HLI would admit At the time of the SDP approval, HLI had a pool of farmworkers, numbering 6,296, more
that the ratio of the land-to-shares of stock corresponds to 33.3% of the outstanding or less, composed of permanent, seasonal and casual master list/payroll and non-master
capital stock of the HLI equivalent to 118,391,976.85 shares of stock with a par value of list members.
PhP 1/share.
From 1989 to 2005, HLI claimed to have extended the following benefits to the FWBs:
Subsequently, HLI submitted to DAR its SDP, designated as "Proposal for Stock
Distribution under C.A.R.P.,"35 which was substantially based on the SDOA. (a) 3 billion pesos (P3,000,000,000) worth of salaries, wages and fringe benefits
 (b) 59 million shares of stock distributed for free to the FWBs; Centennary, a corporation with an authorized capital stock of PhP 12,100,000 divided into
12,100,000 shares and wholly-owned by HLI, had the following incorporators: Pedro
(c) 150 million pesos (P150,000,000) representing 3% of the gross produce; Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Ernesto G. Teopaco, and Bernardo R.
Lahoz.
(d) 37.5 million pesos (P37,500,000) representing 3% from the sale of 500
hectares of converted agricultural land of Hacienda Luisita; Subsequently, Centennary sold51 the entire 300 hectares to Luisita Industrial Park
Corporation (LIPCO) for PhP 750 million. The latter acquired it for the purpose of
developing an industrial complex.52 As a result, Centennary’s TCT No. 292091 was
(e) 240-square meter homelots distributed for free; canceled to be replaced by TCT No. 31098653 in the name of LIPCO.

(f) 2.4 million pesos (P2,400,000) representing 3% from the sale of 80 hectares From the area covered by TCT No. 310986 was carved out two (2) parcels, for which two
at 80 million pesos (P80,000,000) for the SCTEX; (2) separate titles were issued in the name of LIPCO, specifically: (a) TCT No.
36580054 and (b) TCT No. 365801,55 covering 180 and four hectares, respectively. TCT
(g) Social service benefits, such as but not limited to free No. 310986 was, accordingly, partially canceled.
hospitalization/medical/maternity services, old age/death benefits and no interest
bearing salary/educational loans and rice sugar accounts. 42 Later on, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO transferred
the parcels covered by its TCT Nos. 365800 and 365801 to the Rizal Commercial
Two separate groups subsequently contested this claim of HLI. Banking Corporation (RCBC) by way of dacion en pago in payment of LIPCO’s PhP
431,695,732.10 loan obligations. LIPCO’s titles were canceled and new ones, TCT Nos.
On August 15, 1995, HLI applied for the conversion of 500 hectares of land of the 391051 and 391052, were issued to RCBC.
hacienda from agricultural to industrial use, 43 pursuant to Sec. 65 of RA 6657, providing:
Apart from the 500 hectares alluded to, another 80.51 hectares were later detached from
SEC. 65. Conversion of Lands.¾After the lapse of five (5) years from its award, when the the area coverage of Hacienda Luisita which had been acquired by the government as
land ceases to be economically feasible and sound for agricultural purposes, or the part of the Subic-Clark-Tarlac Expressway (SCTEX) complex. In absolute terms, 4,335.75
locality has become urbanized and the land will have a greater economic value for hectares remained of the original 4,915 hectares Tadeco ceded to HLI. 56
residential, commercial or industrial purposes, the DAR, upon application of the
beneficiary or the landowner, with due notice to the affected parties, and subject to Such, in short, was the state of things when two separate petitions, both undated,
existing laws, may authorize the reclassification, or conversion of the land and its reached the DAR in the latter part of 2003. In the first, denominated as
disposition: Provided, That the beneficiary shall have fully paid its obligation. Petition/Protest,57 respondents Jose Julio Suniga and Windsor Andaya, identifying
themselves as head of the Supervisory Group of HLI (Supervisory Group), and 60 other
The application, according to HLI, had the backing of 5,000 or so FWBs, including supervisors sought to revoke the SDOA, alleging that HLI had failed to give them their
respondent Rene Galang, and Jose Julio Suniga, as evidenced by the Manifesto of dividends and the one percent (1%) share in gross sales, as well as the thirty-three
Support they signed and which was submitted to the DAR. 44 After the usual processing, percent (33%) share in the proceeds of the sale of the converted 500 hectares of land.
the DAR, thru then Sec. Ernesto Garilao, approved the application on August 14, 1996, They further claimed that their lives have not improved contrary to the promise and
per DAR Conversion Order No. 030601074-764-(95), Series of 1996, 45 subject to rationale for the adoption of the SDOA. They also cited violations by HLI of the SDOA’s
payment of three percent (3%) of the gross selling price to the FWBs and to HLI’s terms.58 They prayed for a renegotiation of the SDOA, or, in the alternative, its revocation.
continued compliance with its undertakings under the SDP, among other conditions.
Revocation and nullification of the SDOA and the distribution of the lands in the hacienda
On December 13, 1996, HLI, in exchange for subscription of 12,000,000 shares of stocks were the call in the second petition, styled as Petisyon (Petition).59 The Petisyon was
of Centennary Holdings, Inc. (Centennary), ceded 300 hectares of the converted area to ostensibly filed on December 4, 2003 by Alyansa ng mga Manggagawang Bukid ng
the latter.46 Consequently, HLI’s Transfer Certificate of Title (TCT) No. 287910 47 was Hacienda Luisita (AMBALA), where the handwritten name of respondents Rene Galang
canceled and TCT No. 29209148 was issued in the name of Centennary. HLI transferred as "Pangulo AMBALA" and Noel Mallari as "Sec-Gen. AMBALA" 60 appeared. As alleged,
the remaining 200 hectares covered by TCT No. 287909 to Luisita Realty Corporation the petition was filed on behalf of AMBALA’s members purportedly composing about 80%
(LRC)49 in two separate transactions in 1997 and 1998, both uniformly involving 100 of the 5,339 FWBs of Hacienda Luisita.
hectares for PhP 250 million each.50
HLI would eventually answer61 the petition/protest of the Supervisory Group. On the other Therefrom, HLI, on January 2, 2006, sought reconsideration. 70 On the same day, the DAR
hand, HLI’s answer62 to the AMBALA petition was contained in its letter dated January 21, Tarlac provincial office issued the Notice of Coverage 71 which HLI received on January 4,
2005 also filed with DAR. 2006.

Meanwhile, the DAR constituted a Special Task Force to attend to issues relating to the Its motion notwithstanding, HLI has filed the instant recourse in light of what it considers
SDP of HLI. Among other duties, the Special Task Force was mandated to review the as the DAR’s hasty placing of Hacienda Luisita under CARP even before PARC could
terms and conditions of the SDOA and PARC Resolution No. 89-12-2 relative to HLI’s rule or even read the motion for reconsideration.72 As HLI later rued, it "can not know from
SDP; evaluate HLI’s compliance reports; evaluate the merits of the petitions for the the above-quoted resolution the facts and the law upon which it is based." 73
revocation of the SDP; conduct ocular inspections or field investigations; and recommend
appropriate remedial measures for approval of the Secretary.63 PARC would eventually deny HLI’s motion for reconsideration via Resolution No. 2006-
34-01 dated May 3, 2006.
After investigation and evaluation, the Special Task Force submitted its "Terminal Report:
Hacienda Luisita, Incorporated (HLI) Stock Distribution Plan (SDP) Conflict" 64 dated By Resolution of June 14, 2006,74 the Court, acting on HLI’s motion, issued a temporary
September 22, 2005 (Terminal Report), finding that HLI has not complied with its restraining order,75 enjoining the implementation of Resolution No. 2005-32-01 and the
obligations under RA 6657 despite the implementation of the SDP. 65 The Terminal Report notice of coverage.
and the Special Task Force’s recommendations were adopted by then DAR Sec. Nasser
Pangandaman (Sec. Pangandaman).66
On July 13, 2006, the OSG, for public respondents PARC and the DAR, filed its
Comment76 on the petition.
Subsequently, Sec. Pangandaman recommended to the PARC Executive Committee
(Excom) (a) the recall/revocation of PARC Resolution No. 89-12-2 dated November 21,
1989 approving HLI’s SDP; and (b) the acquisition of Hacienda Luisita through the On December 2, 2006, Noel Mallari, impleaded by HLI as respondent in his capacity as
compulsory acquisition scheme. Following review, the PARC Validation Committee "Sec-Gen. AMBALA," filed his Manifestation and Motion with Comment Attached dated
favorably endorsed the DAR Secretary’s recommendation afore-stated. 67 December 4, 2006 (Manifestation and Motion).77 In it, Mallari stated that he has broken
away from AMBALA with other AMBALA ex-members and formed Farmworkers Agrarian
Reform Movement, Inc. (FARM).78 Should this shift in alliance deny him standing, Mallari
On December 22, 2005, the PARC issued the assailed Resolution No. 2005-32-01, also prayed that FARM be allowed to intervene.
disposing as follows:
As events would later develop, Mallari had a parting of ways with other FARM members,
NOW, THEREFORE, on motion duly seconded, RESOLVED, as it is HEREBY particularly would-be intervenors Renato Lalic, et al. As things stand, Mallari returned to
RESOLVED, to approve and confirm the recommendation of the PARC Executive the AMBALA fold, creating the AMBALA-Noel Mallari faction and leaving Renato Lalic, et
Committee adopting in toto the report of the PARC ExCom Validation Committee affirming al. as the remaining members of FARM who sought to intervene.
the recommendation of the DAR to recall/revoke the SDO plan of Tarlac Development
Corporation/Hacienda Luisita Incorporated.
On January 10, 2007, the Supervisory Group79 and the AMBALA-Rene Galang faction
submitted their Comment/Opposition dated December 17, 2006. 80
RESOLVED, further, that the lands subject of the recalled/revoked TDC/HLI SDO plan be
forthwith placed under the compulsory coverage or mandated land acquisition scheme of
the [CARP]. On October 30, 2007, RCBC filed a Motion for Leave to Intervene and to File and Admit
Attached Petition-In-Intervention dated October 18, 2007. 81 LIPCO later followed with a
similar motion.82 In both motions, RCBC and LIPCO contended that the assailed
APPROVED.68 resolution effectively nullified the TCTs under their respective names as the properties
covered in the TCTs were veritably included in the January 2, 2006 notice of coverage. In
A copy of Resolution No. 2005-32-01 was served on HLI the following day, December 23, the main, they claimed that the revocation of the SDP cannot legally affect their rights as
without any copy of the documents adverted to in the resolution attached. A letter-request innocent purchasers for value. Both motions for leave to intervene were granted and the
dated December 28, 200569 for certified copies of said documents was sent to, but was corresponding petitions-in-intervention admitted.
not acted upon by, the PARC secretariat.
On August 18, 2010, the Court heard the main and intervening petitioners on oral
arguments. On the other hand, the Court, on August 24, 2010, heard public respondents
as well as the respective counsels of the AMBALA-Mallari-Supervisory Group, the PETITIONERS THEREIN ARE THE REAL PARTIES-IN-INTEREST TO FILE
AMBALA-Galang faction, and the FARM and its 27 members 83 argue their case. SAID PETITIONS.

Prior to the oral arguments, however, HLI; AMBALA, represented by Mallari; the IV.
Supervisory Group, represented by Suniga and Andaya; and the United Luisita Workers
Union, represented by Eldifonso Pingol, filed with the Court a joint submission and motion WHETHER THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES
for approval of a Compromise Agreement (English and Tagalog versions)  dated August 6, TO THE SDOA ARE NOW GOVERNED BY THE CORPORATION CODE
2010. (BATAS PAMBANSA BLG. 68) AND NOT BY THE x x x [CARL] x x x.

On August 31, 2010, the Court, in a bid to resolve the dispute through an amicable On the other hand, RCBC submits the following issues:
settlement, issued a Resolution84 creating a Mediation Panel composed of then Associate
Justice Ma. Alicia Austria-Martinez, as chairperson, and former CA Justices Hector
Hofileña and Teresita Dy-Liacco Flores, as members. Meetings on five (5) separate I.
dates, i.e., September 8, 9, 14, 20, and 27, 2010, were conducted. Despite persevering
and painstaking efforts on the part of the panel, mediation had to be discontinued when RESPONDENT PARC COMMITTED GRAVE ABUSE OF DISCRETION
no acceptable agreement could be reached. AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DID NOT
EXCLUDE THE SUBJECT PROPERTY FROM THE COVERAGE OF THE
The Issues CARP DESPITE THE FACT THAT PETITIONER-INTERVENOR RCBC HAS
ACQUIRED VESTED RIGHTS AND INDEFEASIBLE TITLE OVER THE
SUBJECT PROPERTY AS AN INNOCENT PURCHASER FOR VALUE.
HLI raises the following issues for our consideration:
A. THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE
I. OF COVERAGE DATED 02 JANUARY 2006 HAVE THE EFFECT OF
NULLIFYING TCT NOS. 391051 AND 391052 IN THE NAME OF
WHETHER OR NOT PUBLIC RESPONDENTS PARC AND SECRETARY PETITIONER-INTERVENOR RCBC.
PANGANDAMAN HAVE JURISDICTION, POWER AND/OR AUTHORITY TO
NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA. B. AS AN INNOCENT PURCHASER FOR VALUE, PETITIONER-
INTERVENOR RCBC CANNOT BE PREJUDICED BY A SUBSEQUENT
II. REVOCATION OR RESCISSION OF THE SDOA.

[IF SO], x x x CAN THEY STILL EXERCISE SUCH JURISDICTION, POWER II.
AND/OR AUTHORITY AT THIS TIME, I.E., AFTER SIXTEEN (16) YEARS
FROM THE EXECUTION OF THE SDOA AND ITS IMPLEMENTATION THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF
WITHOUT VIOLATING SECTIONS 1 AND 10 OF ARTICLE III (BILL OF COVERAGE DATED 02 JANUARY 2006 WERE ISSUED WITHOUT
RIGHTS) OF THE CONSTITUTION AGAINST DEPRIVATION OF PROPERTY AFFORDING PETITIONER-INTERVENOR RCBC ITS RIGHT TO DUE
WITHOUT DUE PROCESS OF LAW AND THE IMPAIRMENT OF PROCESS AS AN INNOCENT PURCHASER FOR VALUE.
CONTRACTUAL RIGHTS AND OBLIGATIONS? MOREOVER, ARE THERE
LEGAL GROUNDS UNDER THE CIVIL CODE, viz, ARTICLE 1191 x x x,
ARTICLES 1380, 1381 AND 1382 x x x ARTICLE 1390 x x x AND ARTICLE LIPCO, like RCBC, asserts having acquired vested and indefeasible rights over certain
1409 x x x THAT CAN BE INVOKED TO NULLIFY, RECALL, REVOKE, OR portions of the converted property, and, hence, would ascribe on PARC the commission
RESCIND THE SDOA? of grave abuse of discretion when it included those portions in the notice of coverage. And
apart from raising issues identical with those of HLI, such as but not limited to the
absence of valid grounds to warrant the rescission and/or revocation of the SDP, LIPCO
III. would allege that the assailed resolution and the notice of coverage were issued without
affording it the right to due process as an innocent purchaser for value. The government,
WHETHER THE PETITIONS TO NULLIFY, RECALL, REVOKE OR RESCIND LIPCO also argues, is estopped from recovering properties which have since passed to
THE SDOA HAVE ANY LEGAL BASIS OR GROUNDS AND WHETHER THE innocent parties.
Simply formulated, the principal determinative issues tendered in the main petition and to Even assuming that members of the Supervisory Group are not regular farmworkers, but
which all other related questions must yield boil down to the following: (1) matters of are in the category of "other farmworkers" mentioned in Sec. 4, Article XIII of the
standing; (2) the constitutionality of Sec. 31 of RA 6657; (3) the jurisdiction of PARC to Constitution,89 thus only entitled to a share of the fruits of the land, as indeed Fortich
recall or revoke HLI’s SDP; (4) the validity or propriety of such recall or revocatory action; teaches, this does not detract from the fact that they are still identified as being among the
and (5) corollary to (4), the validity of the terms and conditions of the SDP, as embodied "SDP qualified beneficiaries." As such, they are, thus, entitled to bring an action upon the
in the SDOA. SDP.90 At any rate, the following admission made by Atty. Gener Asuncion, counsel of
HLI, during the oral arguments should put to rest any lingering doubt as to the status of
Our Ruling protesters Galang, Suniga, and Andaya:

I. Justice Bersamin: x x x I heard you a while ago that you were conceding the qualified
farmer beneficiaries of Hacienda Luisita were real parties in interest?
We first proceed to the examination of the preliminary issues before delving on the more
serious challenges bearing on the validity of PARC’s assailed issuance and the grounds Atty. Asuncion: Yes, Your Honor please, real party in interest which that question refers to
for it. the complaints of protest initiated before the DAR and the real party in interest there be
considered as possessed by the farmer beneficiaries who initiated the protest. 91
Supervisory Group, AMBALA and their
respective leaders are real parties-in-interest Further, under Sec. 50, paragraph 4 of RA 6657, farmer-leaders are expressly allowed to
represent themselves, their fellow farmers or their organizations in any proceedings
before the DAR. Specifically:
HLI would deny real party-in-interest status to the purported leaders of the Supervisory
Group and AMBALA, i.e., Julio Suniga, Windsor Andaya, and Rene Galang, who filed the
revocatory petitions before the DAR. As HLI would have it, Galang, the self-styled head of SEC. 50. Quasi-Judicial Powers of the DAR.¾x x x
AMBALA, gained HLI employment in June 1990 and, thus, could not have been a party to
the SDOA executed a year earlier.85 As regards the Supervisory Group, HLI alleges that xxxx
supervisors are not regular farmworkers, but the company nonetheless considered them
FWBs under the SDOA as a mere concession to enable them to enjoy the same benefits Responsible farmer leaders shall be allowed to represent themselves, their fellow
given qualified regular farmworkers. However, if the SDOA would be canceled and land farmers or their organizations in any proceedings before the DAR: Provided,
distribution effected, so HLI claims, citing Fortich v. Corona,86 the supervisors would be however, that when there are two or more representatives for any individual or group, the
excluded from receiving lands as farmworkers other than the regular farmworkers who are representatives should choose only one among themselves to represent such party or
merely entitled to the "fruits of the land."87 group before any DAR proceedings. (Emphasis supplied.)

The SDOA no less identifies "the SDP qualified beneficiaries" as "the farmworkers who Clearly, the respective leaders of the Supervisory Group and AMBALA are contextually
appear in the annual payroll, inclusive of the permanent and seasonal employees, who real parties-in-interest allowed by law to file a petition before the DAR or PARC.
are regularly or periodically employed by [HLI]." 88 Galang, per HLI’s own admission, is
employed by HLI, and is, thus, a qualified beneficiary of the SDP; he comes within the
definition of a real party-in-interest under Sec. 2, Rule 3 of the Rules of Court, meaning, This is not necessarily to say, however, that Galang represents AMBALA, for as records
one who stands to be benefited or injured by the judgment in the suit or is the party show and as HLI aptly noted,92 his "petisyon" filed with DAR did not carry the usual
entitled to the avails of the suit. authorization of the individuals in whose behalf it was supposed to have been instituted.
To date, such authorization document, which would logically include a list of the names of
the authorizing FWBs, has yet to be submitted to be part of the records.
The same holds true with respect to the Supervisory Group whose members were
admittedly employed by HLI and whose names and signatures even appeared in the
annex of the SDOA. Being qualified beneficiaries of the SDP, Suniga and the other 61 PARC’s Authority to Revoke a Stock Distribution Plan
supervisors are certainly parties who would benefit or be prejudiced by the judgment
recalling the SDP or replacing it with some other modality to comply with RA 6657. On the postulate that the subject jurisdiction is conferred by law, HLI maintains that PARC
is without authority to revoke an SDP, for neither RA 6657 nor EO 229 expressly vests
PARC with such authority. While, as HLI argued, EO 229 empowers PARC to approve the
plan for stock distribution in appropriate cases, the empowerment only includes the power
to disapprove, but not to recall its previous approval of the SDP after it has been President as chair, the DAR Secretary as vice-chair, and at least eleven (11) other
implemented by the parties.93 To HLI, it is the court which has jurisdiction and authority to department heads.99
order the revocation or rescission of the PARC-approved SDP.
On another but related issue, the HLI foists on the Court the argument that subjecting its
We disagree. landholdings to compulsory distribution after its approved SDP has been implemented
would impair the contractual obligations created under the SDOA.
Under Sec. 31 of RA 6657, as implemented by DAO 10, the authority to approve the plan
for stock distribution of the corporate landowner belongs to PARC. However, contrary to The broad sweep of HLI’s argument ignores certain established legal precepts and must,
petitioner HLI’s posture, PARC also has the power to revoke the SDP which it previously therefore, be rejected.
approved. It may be, as urged, that RA 6657 or other executive issuances on agrarian
reform do not explicitly vest the PARC with the power to revoke/recall an approved SDP. A law authorizing interference, when appropriate, in the contractual relations between or
Such power or authority, however, is deemed possessed by PARC under the principle of among parties is deemed read into the contract and its implementation cannot
necessary implication, a basic postulate that what is implied in a statute is as much a part successfully be resisted by force of the non-impairment guarantee. There is, in that
of it as that which is expressed.94 instance, no impingement of the impairment clause, the non-impairment protection being
applicable only to laws that derogate prior acts or contracts by enlarging, abridging or in
We have explained that "every statute is understood, by implication, to contain all such any manner changing the intention of the parties. Impairment, in fine, obtains if a
provisions as may be necessary to effectuate its object and purpose, or to make effective subsequent law changes the terms of a contract between the parties, imposes new
rights, powers, privileges or jurisdiction which it grants, including all such collateral and conditions, dispenses with those agreed upon or withdraws existing remedies for the
subsidiary consequences as may be fairly and logically inferred from its terms." 95 Further, enforcement of the rights of the parties.100 Necessarily, the constitutional proscription
"every statutory grant of power, right or privilege is deemed to include all incidental power, would not apply to laws already in effect at the time of contract execution, as in the case
right or privilege.96 of RA 6657, in relation to DAO 10, vis-à-vis HLI’s SDOA. As held in Serrano v. Gallant
Maritime Services, Inc.:
Gordon v. Veridiano II is instructive:
The prohibition [against impairment of the obligation of contracts] is aligned with the
The power to approve a license includes by implication, even if not expressly granted, the general principle that laws newly enacted have only a prospective operation, and cannot
power to revoke it. By extension, the power to revoke is limited by the authority to grant affect acts or contracts already perfected; however, as to laws already in existence, their
the license, from which it is derived in the first place. Thus, if the FDA grants a license provisions are read into contracts and deemed a part thereof. Thus, the non-impairment
upon its finding that the applicant drug store has complied with the requirements of the clause under Section 10, Article II [of the Constitution] is limited in application to laws
general laws and the implementing administrative rules and regulations, it is only for their about to be enacted that would in any way derogate from existing acts or contracts by
violation that the FDA may revoke the said license. By the same token, having granted enlarging, abridging or in any manner changing the intention of the parties
the permit upon his ascertainment that the conditions thereof as applied x x x have been thereto.101 (Emphasis supplied.)
complied with, it is only for the violation of such conditions that the mayor may revoke the
said permit.97 (Emphasis supplied.) Needless to stress, the assailed Resolution No. 2005-32-01 is not the kind of issuance
within the ambit of Sec. 10, Art. III of the Constitution providing that "[n]o law impairing the
Following the doctrine of necessary implication, it may be stated that the conferment of obligation of contracts shall be passed."
express power to approve a plan for stock distribution of the agricultural land of corporate
owners necessarily includes the power to revoke or recall the approval of the plan. Parenthetically, HLI tags the SDOA as an ordinary civil law contract and, as such, a
breach of its terms and conditions is not a PARC administrative matter, but one that gives
As public respondents aptly observe, to deny PARC such revocatory power would reduce rise to a cause of action cognizable by regular courts. 102 This contention has little to
it into a toothless agency of CARP, because the very same agency tasked to ensure commend itself. The SDOA is a special contract imbued with public interest, entered into
compliance by the corporate landowner with the approved SDP would be without authority and crafted pursuant to the provisions of RA 6657. It embodies the SDP, which requires
to impose sanctions for non-compliance with it.98 With the view We take of the case, only for its validity, or at least its enforceability, PARC’s approval. And the fact that the
PARC can effect such revocation. The DAR Secretary, by his own authority as such, certificate of compliance103––to be issued by agrarian authorities upon completion of the
cannot plausibly do so, as the acceptance and/or approval of the SDP sought to be taken distribution of stocks––is revocable by the same issuing authority supports the idea that
back or undone is the act of PARC whose official composition includes, no less, the everything about the implementation of the SDP is, at the first instance, subject to
administrative adjudication.
HLI also parlays the notion that the parties to the SDOA should now look to the Terminal Report of the Special Task Force, as endorsed by PARC Excom. But first, the
Corporation Code, instead of to RA 6657, in determining their rights, obligations and matter of the constitutionality of said section.
remedies. The Code, it adds, should be the applicable law on the disposition of the
agricultural land of HLI. Constitutional Issue

Contrary to the view of HLI, the rights, obligations and remedies of the parties to the FARM asks for the invalidation of Sec. 31 of RA 6657, insofar as it affords the
SDOA embodying the SDP are primarily governed by RA 6657. It should abundantly be corporation, as a mode of CARP compliance, to resort to stock distribution, an
made clear that HLI was precisely created in order to comply with RA 6657, which the arrangement which, to FARM, impairs the fundamental right of farmers and farmworkers
OSG aptly described as the "mother law" of the SDOA and the SDP. 104 It is, thus, under Sec. 4, Art. XIII of the Constitution.106
paradoxical for HLI to shield itself from the coverage of CARP by invoking exclusive
applicability of the Corporation Code under the guise of being a corporate entity.
To a more specific, but direct point, FARM argues that Sec. 31 of RA 6657 permits stock
transfer in lieu of outright agricultural land transfer; in fine, there is stock certificate
Without in any way minimizing the relevance of the Corporation Code since the FWBs of ownership of the farmers or farmworkers instead of them owning the land, as envisaged
HLI are also stockholders, its applicability is limited as the rights of the parties arising from in the Constitution. For FARM, this modality of distribution is an anomaly to be annulled
the SDP should not be made to supplant or circumvent the agrarian reform program. for being inconsistent with the basic concept of agrarian reform ingrained in Sec. 4, Art.
XIII of the Constitution.107
Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is the Reacting, HLI insists that agrarian reform is not only about transfer of land ownership to
special law on agrarian reform. As between a general and special law, the latter shall farmers and other qualified beneficiaries. It draws attention in this regard to Sec. 3(a) of
prevail—generalia specialibus non derogant. 105 Besides, the present impasse between RA 6657 on the concept and scope of the term "agrarian reform." The constitutionality of
HLI and the private respondents is not an intra-corporate dispute which necessitates the a law, HLI added, cannot, as here, be attacked collaterally.
application of the Corporation Code. What private respondents questioned before the
DAR is the proper implementation of the SDP and HLI’s compliance with RA 6657.
Evidently, RA 6657 should be the applicable law to the instant case. The instant challenge on the constitutionality of Sec. 31 of RA 6657 and necessarily its
counterpart provision in EO 229 must fail as explained below.
HLI further contends that the inclusion of the agricultural land of Hacienda Luisita under
the coverage of CARP and the eventual distribution of the land to the FWBs would When the Court is called upon to exercise its power of judicial review over, and pass upon
amount to a disposition of all or practically all of the corporate assets of HLI. HLI would the constitutionality of, acts of the executive or legislative departments, it does so only
add that this contingency, if ever it comes to pass, requires the applicability of the when the following essential requirements are first met, to wit:
Corporation Code provisions on corporate dissolution.
(1) there is an actual case or controversy;
We are not persuaded.
(2) that the constitutional question is raised at the earliest possible opportunity by
Indeed, the provisions of the Corporation Code on corporate dissolution would apply a proper party or one with locus standi; and
insofar as the winding up of HLI’s affairs or liquidation of the assets is concerned.
However, the mere inclusion of the agricultural land of Hacienda Luisita under the (3) the issue of constitutionality must be the very lis mota of the case.108
coverage of CARP and the land’s eventual distribution to the FWBs will not, without more,
automatically trigger the dissolution of HLI. As stated in the SDOA itself, the percentage of Not all the foregoing requirements are satisfied in the case at bar.
the value of the agricultural land of Hacienda Luisita in relation to the total assets
transferred and conveyed by Tadeco to HLI comprises only 33.296%, following this While there is indeed an actual case or controversy, intervenor FARM, composed of a
equation: value of the agricultural lands divided by total corporate assets. By no stretch of small minority of 27 farmers, has yet to explain its failure to challenge the constitutionality
imagination would said percentage amount to a disposition of all or practically all of HLI’s of Sec. 3l of RA 6657, since as early as November 21, l989 when PARC approved the
corporate assets should compulsory land acquisition and distribution ensue. SDP of Hacienda Luisita or at least within a reasonable time thereafter and why its
members received benefits from the SDP without so much of a protest. It was only on
This brings us to the validity of the revocation of the approval of the SDP sixteen (16) December 4, 2003 or 14 years after approval of the SDP via PARC Resolution No. 89-12-
years after its execution pursuant to Sec. 31 of RA 6657 for the reasons set forth in the
2 dated November 21, 1989 that said plan and approving resolution were sought to be fact that the SDP, as couched and implemented, offends certain constitutional and
revoked, but not, to stress, by FARM or any of its members, but by petitioner AMBALA. statutory provisions. To be sure, any of these key issues may be resolved without
Furthermore, the AMBALA petition did NOT question the constitutionality of Sec. 31 of RA plunging into the constitutionality of Sec. 31 of RA 6657. Moreover, looking deeply into the
6657, but concentrated on the purported flaws and gaps in the subsequent underlying petitions of AMBALA, et al., it is not the said section per se that is invalid, but
implementation of the SDP. Even the public respondents, as represented by the Solicitor rather it is the alleged application of the said provision in the SDP that is flawed.
General, did not question the constitutionality of the provision. On the other hand, FARM,
whose 27 members formerly belonged to AMBALA, raised the constitutionality of Sec. 31 It may be well to note at this juncture that Sec. 5 of RA 9700,113 amending Sec. 7 of RA
only on May 3, 2007 when it filed its Supplemental Comment with the Court. Thus, it took 6657, has all but superseded Sec. 31 of RA 6657 vis-à-vis the stock distribution
FARM some eighteen (18) years from November 21, 1989 before it challenged the component of said Sec. 31. In its pertinent part, Sec. 5 of RA 9700 provides: "[T]hat after
constitutionality of Sec. 31 of RA 6657 which is quite too late in the day. The FARM June 30, 2009, the modes of acquisition shall be limited to voluntary offer to sell and
members slept on their rights and even accepted benefits from the SDP with nary a compulsory acquisition." Thus, for all intents and purposes, the stock distribution scheme
complaint on the alleged unconstitutionality of Sec. 31 upon which the benefits were under Sec. 31 of RA 6657 is no longer an available option under existing law. The
derived. The Court cannot now be goaded into resolving a constitutional issue that FARM question of whether or not it is unconstitutional should be a moot issue.
failed to assail after the lapse of a long period of time and the occurrence of numerous
events and activities which resulted from the application of an alleged unconstitutional
legal provision. It is true that the Court, in some cases, has proceeded to resolve constitutional issues
otherwise already moot and academic114 provided the following requisites are present:
It has been emphasized in a number of cases that the question of constitutionality will not
be passed upon by the Court unless it is properly raised and presented in an appropriate x x x first, there is a grave violation of the Constitution; second, the exceptional character
case at the first opportunity.109 FARM is, therefore, remiss in belatedly questioning the of the situation and the paramount public interest is involved; third, when the constitutional
constitutionality of Sec. 31 of RA 6657. The second requirement that the constitutional issue raised requires formulation of controlling principles to guide the bench, the bar, and
question should be raised at the earliest possible opportunity is clearly wanting. the public; fourth, the case is capable of repetition yet evading review.

The last but the most important requisite that the constitutional issue must be the very lis These requisites do not obtain in the case at bar.
mota of the case does not likewise obtain. The lis mota aspect is not present, the
constitutional issue tendered not being critical to the resolution of the case. The unyielding For one, there appears to be no breach of the fundamental law. Sec. 4, Article XIII of the
rule has been to avoid, whenever plausible, an issue assailing the constitutionality of a Constitution reads:
statute or governmental act.110 If some other grounds exist by which judgment can be
made without touching the constitutionality of a law, such recourse is favored. 111 Garcia v. The State shall, by law, undertake an agrarian reform program founded on the right of the
Executive Secretary explains why: farmers and regular farmworkers, who are landless, to OWN directly or COLLECTIVELY
THE LANDS THEY TILL or, in the case of other farmworkers, to receive a just share of
Lis Mota — the fourth requirement to satisfy before this Court will undertake judicial the fruits thereof. To this end, the State shall encourage and undertake the just
review — means that the Court will not pass upon a question of unconstitutionality, distribution of all agricultural lands, subject to such priorities and reasonable retention
although properly presented, if the case can be disposed of on some other ground, such limits as the Congress may prescribe, taking into account ecological, developmental, or
as the application of the statute or the general law. The petitioner must be able to show equity considerations, and subject to the payment of just compensation. In determining
that the case cannot be legally resolved unless the constitutional question raised is retention limits, the State shall respect the right of small landowners. The State shall
determined. This requirement is based on the rule that every law has in its favor the further provide incentives for voluntary land-sharing. (Emphasis supplied.)
presumption of constitutionality; to justify its nullification, there must be a clear and
unequivocal breach of the Constitution, and not one that is doubtful, speculative, or The wording of the provision is unequivocal––the farmers and regular farmworkers have a
argumentative.112 (Italics in the original.) right TO OWN DIRECTLY OR COLLECTIVELY THE LANDS THEY TILL. The basic law
allows two (2) modes of land distribution—direct and indirect ownership. Direct transfer to
The lis mota in this case, proceeding from the basic positions originally taken by AMBALA individual farmers is the most commonly used method by DAR and widely accepted.
(to which the FARM members previously belonged) and the Supervisory Group, is the Indirect transfer through collective ownership of the agricultural land is the alternative to
alleged non-compliance by HLI with the conditions of the SDP to support a plea for its direct ownership of agricultural land by individual farmers. The aforequoted Sec. 4
revocation. And before the Court, the lis mota is whether or not PARC acted in grave EXPRESSLY authorizes collective ownership by farmers. No language can be found in
abuse of discretion when it ordered the recall of the SDP for such non-compliance and the the 1987 Constitution that disqualifies or prohibits corporations or cooperatives of farmers
from being the legal entity through which collective ownership can be exercised. The word
"collective" is defined as "indicating a number of persons or things considered as MR. NOLLEDO. And when we talk of the phrase "to own directly," we mean the principle
constituting one group or aggregate," 115 while "collectively" is defined as "in a collective of direct ownership by the tiller?
sense or manner; in a mass or body."116 By using the word "collectively," the Constitution
allows for indirect ownership of land and not just outright agricultural land transfer. This is MR. MONSOD. Yes.
in recognition of the fact that land reform may become successful even if it is done
through the medium of juridical entities composed of farmers.
MR. NOLLEDO. And when we talk of "collectively," we mean communal ownership,
stewardship or State ownership?
Collective ownership is permitted in two (2) provisions of RA 6657. Its Sec. 29 allows
workers’ cooperatives or associations to collectively own the land, while the second
paragraph of Sec. 31 allows corporations or associations to own agricultural land with the MS. NIEVA. In this section, we conceive of cooperatives; that is farmers’ cooperatives
farmers becoming stockholders or members. Said provisions read: owning the land, not the State.

SEC. 29. Farms owned or operated by corporations or other business associations.—In MR. NOLLEDO. And when we talk of "collectively," referring to farmers’ cooperatives, do
the case of farms owned or operated by corporations or other business associations, the the farmers own specific areas of land where they only unite in their efforts?
following rules shall be observed by the PARC.
MS. NIEVA. That is one way.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
MR. NOLLEDO. Because I understand that there are two basic systems involved: the
In case it is not economically feasible and sound to divide the land, then it shall be owned "moshave" type of agriculture and the "kibbutz." So are both contemplated in the report?
collectively by the worker beneficiaries who shall form a workers’ cooperative or
association which will deal with the corporation or business association. x x x (Emphasis MR. TADEO. Ang dalawa kasing pamamaraan ng pagpapatupad ng tunay na reporma sa
supplied.) lupa ay ang pagmamay-ari ng lupa na hahatiin sa individual na pagmamay-ari – directly –
at ang tinatawag na sama-samang gagawin ng mga magbubukid. Tulad sa Negros, ang
SEC. 31. Corporate Landowners.— x x x gusto ng mga magbubukid ay gawin nila itong "cooperative or collective farm." Ang ibig
sabihin ay sama-sama nilang sasakahin.
xxxx
xxxx
Upon certification by the DAR, corporations owning agricultural lands may give their
qualified beneficiaries the right to purchase such proportion of the capital stock of the MR. TINGSON. x x x When we speak here of "to own directly or collectively the lands
corporation that the agricultural land, actually devoted to agricultural activities, bears in they till," is this land for the tillers rather than land for the landless? Before, we used to
relation to the company’s total assets, under such terms and conditions as may be agreed hear "land for the landless," but now the slogan is "land for the tillers." Is that right?
upon by them. In no case shall the compensation received by the workers at the time the
shares of stocks are distributed be reduced. The same principle shall be applied to MR. TADEO. Ang prinsipyong umiiral dito ay iyong land for the tillers. Ang ibig sabihin ng
associations, with respect to their equity or participation. x x x (Emphasis supplied.) "directly" ay tulad sa implementasyon sa rice and corn lands kung saan inaari na ng mga
magsasaka ang lupang binubungkal nila. Ang ibig sabihin naman ng "collectively" ay
Clearly, workers’ cooperatives or associations under Sec. 29 of RA 6657 and corporations sama-samang paggawa sa isang lupain o isang bukid, katulad ng sitwasyon sa
or associations under the succeeding Sec. 31, as differentiated from individual farmers, Negros.117 (Emphasis supplied.)
are authorized vehicles for the collective ownership of agricultural land. Cooperatives can
be registered with the Cooperative Development Authority and acquire legal personality of As Commissioner Tadeo explained, the farmers will work on the agricultural land "sama-
their own, while corporations are juridical persons under the Corporation Code. Thus, sama" or collectively. Thus, the main requisite for collective ownership of land is collective
Sec. 31 is constitutional as it simply implements Sec. 4 of Art. XIII of the Constitution that or group work by farmers of the agricultural land. Irrespective of whether the landowner is
land can be owned COLLECTIVELY by farmers. Even the framers of the l987 Constitution a cooperative, association or corporation composed of farmers, as long as concerted
are in unison with respect to the two (2) modes of ownership of agricultural lands tilled by group work by the farmers on the land is present, then it falls within the ambit of collective
farmers––DIRECT and COLLECTIVE, thus: ownership scheme.
Likewise, Sec. 4, Art. XIII of the Constitution makes mention of a commitment on the part property of the corporation is represented by the term stock, and the extent of his interest
of the State to pursue, by law, an agrarian reform program founded on the policy of land is described by the term shares. The expression shares of stock when qualified by words
for the landless, but subject to such priorities as Congress may prescribe, taking into indicating number and ownership expresses the extent of the owner’s interest in the
account such abstract variable as "equity considerations." The textual reference to a law corporate property."119 A share of stock typifies an aliquot part of the corporation’s
and Congress necessarily implies that the above constitutional provision is not self- property, or the right to share in its proceeds to that extent when distributed according to
executory and that legislation is needed to implement the urgently needed program of law and equity and that its holder is not the owner of any part of the capital of the
agrarian reform. And RA 6657 has been enacted precisely pursuant to and as a corporation.120 However, the FWBs will ultimately own the agricultural lands owned by the
mechanism to carry out the constitutional directives. This piece of legislation, in fact, corporation when the corporation is eventually dissolved and liquidated.
restates118 the agrarian reform policy established in the aforementioned provision of the
Constitution of promoting the welfare of landless farmers and farmworkers. RA 6657 thus Anent the alleged loss of control of the farmers over the agricultural land operated and
defines "agrarian reform" as "the redistribution of lands … to farmers and regular managed by the corporation, a reading of the second paragraph of Sec. 31 shows
farmworkers who are landless … to lift the economic status of the beneficiaries and all otherwise. Said provision provides that qualified beneficiaries have "the right to purchase
other arrangements alternative to the physical redistribution of lands, such as such proportion of the capital stock of the corporation that the agricultural land, actually
production or profit sharing, labor administration and the distribution of shares of devoted to agricultural activities, bears in relation to the company’s total assets." The
stock which will allow beneficiaries to receive a just share of the fruits of the lands they wording of the formula in the computation of the number of shares that can be bought by
work." the farmers does not mean loss of control on the part of the farmers. It must be
remembered that the determination of the percentage of the capital stock that can be
With the view We take of this case, the stock distribution option devised under Sec. 31 of bought by the farmers depends on the value of the agricultural land and the value of the
RA 6657 hews with the agrarian reform policy, as instrument of social justice under Sec. 4 total assets of the corporation.
of Article XIII of the Constitution. Albeit land ownership for the landless appears to be the
dominant theme of that policy, We emphasize that Sec. 4, Article XIII of the Constitution, There is, thus, nothing unconstitutional in the formula prescribed by RA 6657. The policy
as couched, does not constrict Congress to passing an agrarian reform law planted on on agrarian reform is that control over the agricultural land must always be in the hands of
direct land transfer to and ownership by farmers and no other, or else the enactment the farmers. Then it falls on the shoulders of DAR and PARC to see to it the farmers
suffers from the vice of unconstitutionality. If the intention were otherwise, the framers of should always own majority of the common shares entitled to elect the members of the
the Constitution would have worded said section in a manner mandatory in character. board of directors to ensure that the farmers will have a clear majority in the board. Before
the SDP is approved, strict scrutiny of the proposed SDP must always be undertaken by
For this Court, Sec. 31 of RA 6657, with its direct and indirect transfer features, is not the DAR and PARC, such that the value of the agricultural land contributed to the
inconsistent with the State’s commitment to farmers and farmworkers to advance their corporation must always be more than 50% of the total assets of the corporation to
interests under the policy of social justice. The legislature, thru Sec. 31 of RA 6657, has ensure that the majority of the members of the board of directors are composed of the
chosen a modality for collective ownership by which the imperatives of social justice may, farmers. The PARC composed of the President of the Philippines and cabinet secretaries
in its estimation, be approximated, if not achieved. The Court should be bound by such must see to it that control over the board of directors rests with the farmers by rejecting
policy choice. the inclusion of non-agricultural assets which will yield the majority in the board of
directors to non-farmers. Any deviation, however, by PARC or DAR from the correct
FARM contends that the farmers in the stock distribution scheme under Sec. 31 do not application of the formula prescribed by the second paragraph of Sec. 31 of RA 6675
own the agricultural land but are merely given stock certificates. Thus, the farmers lose does not make said provision constitutionally infirm. Rather, it is the application of said
control over the land to the board of directors and executive officials of the corporation provision that can be challenged. Ergo, Sec. 31 of RA 6657 does not trench on the
who actually manage the land. They conclude that such arrangement runs counter to the constitutional policy of ensuring control by the farmers.
mandate of the Constitution that any agrarian reform must preserve the control over the
land in the hands of the tiller. A view has been advanced that there can be no agrarian reform unless there is land
distribution and that actual land distribution is the essential characteristic of a
This contention has no merit. constitutional agrarian reform program. On the contrary, there have been so many
instances where, despite actual land distribution, the implementation of agrarian reform
was still unsuccessful. As a matter of fact, this Court may take judicial notice of cases
While it is true that the farmer is issued stock certificates and does not directly own the where FWBs sold the awarded land even to non-qualified persons and in violation of the
land, still, the Corporation Code is clear that the FWB becomes a stockholder who prohibition period provided under the law. This only proves to show that the mere fact that
acquires an equitable interest in the assets of the corporation, which include the there is land distribution does not guarantee a successful implementation of agrarian
agricultural lands. It was explained that the "equitable interest of the shareholder in the reform.
As it were, the principle of "land to the tiller" and the old pastoral model of land ownership II.
where non-human juridical persons, such as corporations, were prohibited from owning
agricultural lands are no longer realistic under existing conditions. Practically, an The stage is now set for the determination of the propriety under the premises of the
individual farmer will often face greater disadvantages and difficulties than those who revocation or recall of HLI’s SDP. Or to be more precise, the inquiry should be: whether or
exercise ownership in a collective manner through a cooperative or corporation. The not PARC gravely abused its discretion in revoking or recalling the subject SDP and
former is too often left to his own devices when faced with failing crops and bad weather, placing the hacienda under CARP’s compulsory acquisition and distribution scheme.
or compelled to obtain usurious loans in order to purchase costly fertilizers or farming
equipment. The experiences learned from failed land reform activities in various parts of
the country are lack of financing, lack of farm equipment, lack of fertilizers, lack of The findings, analysis and recommendation of the DAR’s Special Task Force contained
guaranteed buyers of produce, lack of farm-to-market roads, among others. Thus, at the and summarized in its Terminal Report provided the bases for the assailed PARC
end of the day, there is still no successful implementation of agrarian reform to speak of in revocatory/recalling Resolution. The findings may be grouped into two: (1) the SDP is
such a case. contrary to either the policy on agrarian reform, Sec. 31 of RA 6657, or DAO 10; and (2)
the alleged violation by HLI of the conditions/terms of the SDP. In more particular terms,
the following are essentially the reasons underpinning PARC’s revocatory or recall action:
Although success is not guaranteed, a cooperative or a corporation stands in a better
position to secure funding and competently maintain the agri-business than the individual
farmer. While direct singular ownership over farmland does offer advantages, such as the (1) Despite the lapse of 16 years from the approval of HLI’s SDP, the lives of the
ability to make quick decisions unhampered by interference from others, yet at best, these FWBs have hardly improved and the promised increased income has not
advantages only but offset the disadvantages that are often associated with such materialized;
ownership arrangement. Thus, government must be flexible and creative in its mode of
implementation to better its chances of success. One such option is collective ownership (2) HLI has failed to keep Hacienda Luisita intact and unfragmented;
through juridical persons composed of farmers.
(3) The issuance of HLI shares of stock on the basis of number of hours
Aside from the fact that there appears to be no violation of the Constitution, the worked––or the so-called "man days"––is grossly onerous to the FWBs, as HLI,
requirement that the instant case be capable of repetition yet evading review is also in the guise of rotation, can unilaterally deny work to anyone. In elaboration of
wanting. It would be speculative for this Court to assume that the legislature will enact this ground, PARC’s Resolution No. 2006-34-01, denying HLI’s motion for
another law providing for a similar stock option. reconsideration of Resolution No. 2005-32-01, stated that the man days criterion
worked to dilute the entitlement of the original share beneficiaries; 125
As a matter of sound practice, the Court will not interfere inordinately with the exercise by
Congress of its official functions, the heavy presumption being that a law is the product of (4) The distribution/transfer of shares was not in accordance with the timelines
earnest studies by Congress to ensure that no constitutional prescription or concept is fixed by law;
infringed.121 Corollarily, courts will not pass upon questions of wisdom, expediency and
justice of legislation or its provisions. Towards this end, all reasonable doubts should be (5) HLI has failed to comply with its obligations to grant 3% of the gross sales
resolved in favor of the constitutionality of a law and the validity of the acts and processes every year as production-sharing benefit on top of the workers’ salary; and
taken pursuant thereof.122
(6) Several homelot awardees have yet to receive their individual titles.
Consequently, before a statute or its provisions duly challenged are voided, an
unequivocal breach of, or a clear conflict with the Constitution, not merely a doubtful or Petitioner HLI claims having complied with, at least substantially, all its obligations under
argumentative one, must be demonstrated in such a manner as to leave no doubt in the the SDP, as approved by PARC itself, and tags the reasons given for the revocation of
mind of the Court. In other words, the grounds for nullity must be beyond reasonable the SDP as unfounded.
doubt.123 FARM has not presented compelling arguments to overcome the presumption of
constitutionality of Sec. 31 of RA 6657.
Public respondents, on the other hand, aver that the assailed resolution rests on solid
grounds set forth in the Terminal Report, a position shared by AMBALA, which, in some
The wisdom of Congress in allowing an SDP through a corporation as an alternative pleadings, is represented by the same counsel as that appearing for the Supervisory
mode of implementing agrarian reform is not for judicial determination. Established Group.
jurisprudence tells us that it is not within the province of the Court to inquire into the
wisdom of the law, for, indeed, We are bound by words of the statute. 124
FARM, for its part, posits the view that legal bases obtain for the revocation of the SDP, Pertinently, improving the economic status of the FWBs is neither among the legal
because it does not conform to Sec. 31 of RA 6657 and DAO 10. And training its sight on obligations of HLI under the SDP nor an imperative imposition by RA 6657 and DAO 10, a
the resulting dilution of the equity of the FWBs appearing in HLI’s masterlist, FARM would violation of which would justify discarding the stock distribution option. Nothing in that
state that the SDP, as couched and implemented, spawned disparity when there should option agreement, law or department order indicates otherwise.
be none; parity when there should have been differentiation. 126
Significantly, HLI draws particular attention to its having paid its FWBs, during the regime
The petition is not impressed with merit. of the SDP (1989-2005), some PhP 3 billion by way of salaries/wages and higher benefits
exclusive of free hospital and medical benefits to their immediate family. And attached as
In the Terminal Report adopted by PARC, it is stated that the SDP violates the agrarian Annex "G" to HLI’s Memorandum is the certified true report of the finance manager of
reform policy under Sec. 2 of RA 6657, as the said plan failed to enhance the dignity and Jose Cojuangco & Sons Organizations-Tarlac Operations, captioned as "HACIENDA
improve the quality of lives of the FWBs through greater productivity of agricultural lands. LUISITA, INC. Salaries, Benefits and Credit Privileges (in Thousand Pesos) Since the
We disagree. Stock Option was Approved by PARC/CARP," detailing what HLI gave their workers from
1989 to 2005. The sum total, as added up by the Court, yields the following numbers:
Total Direct Cash Out (Salaries/Wages & Cash Benefits) = PhP 2,927,848; Total Non-
Sec. 2 of RA 6657 states: Direct Cash Out (Hospital/Medical Benefits) = PhP 303,040. The cash out figures, as
stated in the report, include the cost of homelots; the PhP 150 million or so representing
SECTION 2. Declaration of Principles and Policies.¾It is the policy of the State to pursue 3% of the gross produce of the hacienda; and the PhP 37.5 million representing 3% from
a Comprehensive Agrarian Reform Program (CARP). The welfare of the landless farmers the proceeds of the sale of the 500-hectare converted lands. While not included in the
and farm workers will receive the highest consideration to promote social justice and to report, HLI manifests having given the FWBs 3% of the PhP 80 million paid for the 80
move the nation towards sound rural development and industrialization, and the hectares of land traversed by the SCTEX. 128 On top of these, it is worth remembering that
establishment of owner cultivatorship of economic-sized farms as the basis of Philippine the shares of stocks were given by HLI to the FWBs for free. Verily, the FWBs have
agriculture. benefited from the SDP.

To this end, a more equitable distribution and ownership of land, with due regard to the To address urgings that the FWBs be allowed to disengage from the SDP as HLI has not
rights of landowners to just compensation and to the ecological needs of the nation, shall anyway earned profits through the years, it cannot be over-emphasized that, as a matter
be undertaken to provide farmers and farm workers with the opportunity to enhance their of common business sense, no corporation could guarantee a profitable run all the time.
dignity and improve the quality of their lives through greater productivity of agricultural As has been suggested, one of the key features of an SDP of a corporate landowner is
lands. the likelihood of the corporate vehicle not earning, or, worse still, losing money. 129

The agrarian reform program is founded on the right of farmers and regular farm workers, The Court is fully aware that one of the criteria under DAO 10 for the PARC to consider
who are landless, to own directly or collectively the lands they till or, in the case of other the advisability of approving a stock distribution plan is the likelihood that the plan "would
farm workers, to receive a share of the fruits thereof. To this end, the State shall result in increased income and greater benefits to [qualified beneficiaries] than if the lands
encourage the just distribution of all agricultural lands, subject to the priorities and were divided and distributed to them individually." 130 But as aptly noted during the oral
retention limits set forth in this Act, having taken into account ecological, developmental, arguments, DAO 10 ought to have not, as it cannot, actually exact assurance of success
and equity considerations, and subject to the payment of just compensation. The State on something that is subject to the will of man, the forces of nature or the inherent risky
shall respect the right of small landowners and shall provide incentives for voluntary land- nature of business.131 Just like in actual land distribution, an SDP cannot guarantee, as
sharing. (Emphasis supplied.) indeed the SDOA does not guarantee, a comfortable life for the FWBs. The Court can
take judicial notice of the fact that there were many instances wherein after a farmworker
Paragraph 2 of the above-quoted provision specifically mentions that "a more equitable beneficiary has been awarded with an agricultural land, he just subsequently sells it and is
distribution and ownership of land x x x shall be undertaken to provide farmers and farm eventually left with nothing in the end.
workers with the opportunity to enhance their dignity and improve the quality of their lives
through greater productivity of agricultural lands." Of note is the term "opportunity" which In all then, the onerous condition of the FWBs’ economic status, their life of hardship, if
is defined as a favorable chance or opening offered by circumstances. 127 Considering this, that really be the case, can hardly be attributed to HLI and its SDP and provide a valid
by no stretch of imagination can said provision be construed as a guarantee in improving ground for the plan’s revocation.
the lives of the FWBs. At best, it merely provides for a possibility or favorable chance of
uplifting the economic status of the FWBs, which may or may not be attained.
Neither does HLI’s SDP, whence the DAR-attested SDOA/MOA is based, infringe Sec. 31 The mandatory minimum ratio of land-to-shares of stock supposed to be distributed or
of RA 6657, albeit public respondents erroneously submit otherwise. allocated to qualified beneficiaries, adverting to what Sec. 31 of RA 6657 refers to as that
"proportion of the capital stock of the corporation that the agricultural land, actually
The provisions of the first paragraph of the adverted Sec. 31 are without relevance to the devoted to agricultural activities, bears in relation to the company’s total assets" had been
issue on the propriety of the assailed order revoking HLI’s SDP, for the paragraph deals observed.
with the transfer of agricultural lands to the government, as a mode of CARP compliance,
thus: Paragraph one (1) of the SDOA, which was based on the SDP, conforms to Sec. 31 of RA
6657. The stipulation reads:
SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer
ownership over their agricultural landholdings to the Republic of the Philippines pursuant 1. The percentage of the value of the agricultural land of Hacienda Luisita
to Section 20 hereof or to qualified beneficiaries under such terms and conditions, (P196,630,000.00) in relation to the total assets (P590,554,220.00) transferred and
consistent with this Act, as they may agree, subject to confirmation by the DAR. conveyed to the SECOND PARTY is 33.296% that, under the law, is the proportion of the
outstanding capital stock of the SECOND PARTY, which is P355,531,462.00 or
The second and third paragraphs, with their sub-paragraphs, of Sec. 31 provide as 355,531,462 shares with a par value of P1.00 per share, that has to be distributed to the
follows: THIRD PARTY under the stock distribution plan, the said 33.296% thereof
being P118,391,976.85 or 118,391,976.85 shares.
Upon certification by the DAR, corporations owning agricultural lands may give their
qualified beneficiaries the right to purchase such proportion of the capital stock of The appraised value of the agricultural land is PhP 196,630,000 and of HLI’s other assets
the corporation that the agricultural land, actually devoted to agricultural activities, is PhP 393,924,220. The total value of HLI’s assets is, therefore, PhP 590,554,220. 132 The
bears in relation to the company’s total assets, under such terms and conditions as percentage of the value of the agricultural lands (PhP 196,630,000) in relation to the total
may be agreed upon by them. In no case shall the compensation received by the workers assets (PhP 590,554,220) is 33.296%, which represents the stockholdings of the 6,296
at the time the shares of stocks are distributed be reduced. x x x original qualified farmworker-beneficiaries (FWBs) in HLI. The total number of shares to
be distributed to said qualified FWBs is 118,391,976.85 HLI shares. This was arrived at
by getting 33.296% of the 355,531,462 shares which is the outstanding capital stock of
Corporations or associations which voluntarily divest a proportion of their capital stock, HLI with a value of PhP 355,531,462. Thus, if we divide the 118,391,976.85 HLI shares
equity or participation in favor of their workers or other qualified beneficiaries under this by 6,296 FWBs, then each FWB is entitled to 18,804.32 HLI shares. These shares under
section shall be deemed to have complied with the provisions of this Act: Provided, That the SDP are to be given to FWBs for free.
the following conditions are complied with:
The Court finds that the determination of the shares to be distributed to the 6,296 FWBs
(a) In order to safeguard the right of beneficiaries who own shares of stocks to strictly adheres to the formula prescribed by Sec. 31(b) of RA 6657.
dividends and other financial benefits, the books of the corporation or association
shall be subject to periodic audit by certified public accountants chosen by the
beneficiaries; Anent the requirement under Sec. 31(b) of the third paragraph, that the FWBs shall be
assured of at least one (1) representative in the board of directors or in a management or
executive committee irrespective of the value of the equity of the FWBs in HLI, the Court
(b) Irrespective of the value of their equity in the corporation or association, the finds that the SDOA contained provisions making certain the FWBs’ representation in
beneficiaries shall be assured of at least one (1) representative in the board of HLI’s governing board, thus:
directors, or in a management or executive committee, if one exists, of the
corporation or association;
5. Even if only a part or fraction of the shares earmarked for distribution will have been
acquired from the FIRST PARTY and distributed to the THIRD PARTY, FIRST PARTY
(c) Any shares acquired by such workers and beneficiaries shall have the same shall execute at the beginning of each fiscal year an irrevocable proxy, valid and effective
rights and features as all other shares; and for one (1) year, in favor of the farmworkers appearing as shareholders of the SECOND
PARTY at the start of said year which will empower the THIRD PARTY or their
(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab representative to vote in stockholders’ and board of directors’ meetings of the SECOND
initio unless said transaction is in favor of a qualified and registered beneficiary PARTY convened during the year the entire 33.296% of the outstanding capital stock of
within the same corporation. the SECOND PARTY earmarked for distribution and thus be able to gain such number of
seats in the board of directors of the SECOND PARTY that the whole 33.296% of the resolution would take HLI to task for securing approval of the conversion to non-
shares subject to distribution will be entitled to. agricultural uses of 500 hectares of the hacienda. In not too many words, the Report and
the resolution view the conversion as an infringement of Sec. 5(a) of DAO 10 which
Also, no allegations have been made against HLI restricting the inspection of its books by reads: "a. that the continued operation of the corporation with its agricultural land intact
accountants chosen by the FWBs; hence, the assumption may be made that there has and unfragmented is viable with potential for growth and increased profitability."
been no violation of the statutory prescription under sub-paragraph (a) on the auditing of
HLI’s accounts. The PARC is wrong.

Public respondents, however, submit that the distribution of the mandatory minimum ratio In the first place, Sec. 5(a)––just like the succeeding Sec. 5(b) of DAO 10 on increased
of land-to-shares of stock, referring to the 118,391,976.85 shares with par value of PhP 1 income and greater benefits to qualified beneficiaries––is but one of the stated criteria to
each, should have been made in full within two (2) years from the approval of RA 6657, in guide PARC in deciding on whether or not to accept an SDP. Said Sec. 5(a) does not
line with the last paragraph of Sec. 31 of said law. 133 exact from the corporate landowner-applicant the undertaking to keep the farm intact and
unfragmented ad infinitum. And there is logic to HLI’s stated observation that the key
Public respondents’ submission is palpably erroneous. We have closely examined the last phrase in the provision of Sec. 5(a) is "viability of corporate operations": "[w]hat is thus
paragraph alluded to, with particular focus on the two-year period mentioned, and nothing required is not the agricultural land remaining intact x x x but the viability of the corporate
in it remotely supports the public respondents’ posture. In its pertinent part, said Sec. 31 operations with its agricultural land being intact and unfragmented. Corporate operation
provides: may be viable even if the corporate agricultural land does not remain intact or
[un]fragmented."134
SEC. 31. Corporate Landowners x x x
It is, of course, anti-climactic to mention that DAR viewed the conversion as not violative
of any issuance, let alone undermining the viability of Hacienda Luisita’s operation, as the
If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer DAR Secretary approved the land conversion applied for and its disposition via his
envisioned above is not made or realized or the plan for such stock distribution approved Conversion Order dated August 14, 1996 pursuant to Sec. 65 of RA 6657 which reads:
by the PARC within the same period, the agricultural land of the corporate owners or
corporation shall be subject to the compulsory coverage of this Act. (Word in bracket and
emphasis added.) Sec. 65. Conversion of Lands.¾After the lapse of five years from its award when the land
ceases to be economically feasible and sound for agricultural purposes, or the locality has
become urbanized and the land will have a greater economic value for residential,
Properly viewed, the words "two (2) years" clearly refer to the period within which the commercial or industrial purposes, the DAR upon application of the beneficiary or
corporate landowner, to avoid land transfer as a mode of CARP coverage under RA 6657, landowner with due notice to the affected parties, and subject to existing laws, may
is to avail of the stock distribution option or to have the SDP approved. The HLI secured authorize the x x x conversion of the land and its dispositions. x x x
approval of its SDP in November 1989, well within the two-year period reckoned from
June 1988 when RA 6657 took effect.
On the 3% Production Share
Having hurdled the alleged breach of the agrarian reform policy under Sec. 2 of RA 6657
as well as the statutory issues, We shall now delve into what PARC and respondents On the matter of the alleged failure of HLI to comply with sharing the 3% of the gross
deem to be other instances of violation of DAO 10 and the SDP. production sales of the hacienda and pay dividends from profit, the entries in its financial
books tend to indicate compliance by HLI of the profit-sharing equivalent to 3% of the
gross sales from the production of the agricultural land on top of (a) the salaries and
On the Conversion of Lands wages due FWBs as employees of the company and (b) the 3% of the gross selling price
of the converted land and that portion used for the SCTEX. A plausible evidence of
Contrary to the almost parallel stance of the respondents, keeping Hacienda Luisita compliance or non-compliance, as the case may be, could be the books of account of
unfragmented is also not among the imperative impositions by the SDP, RA 6657, and HLI. Evidently, the cry of some groups of not having received their share from the gross
DAO 10. production sales has not adequately been validated on the ground by the Special Task
Force.
The Terminal Report states that the proposed distribution plan submitted in 1989 to the
PARC effectively assured the intended stock beneficiaries that the physical integrity of the Indeed, factual findings of administrative agencies are conclusive when supported by
farm shall remain inviolate. Accordingly, the Terminal Report and the PARC-assailed substantial evidence and are accorded due respect and weight, especially when they are
affirmed by the CA.135 However, such rule is not absolute. One such exception is when the Despite the foregoing findings, the revocation of the approval of the SDP is not without
findings of an administrative agency are conclusions without citation of specific evidence basis as shown below.
on which they are based,136 such as in this particular instance. As culled from its Terminal
Report, it would appear that the Special Task Force rejected HLI’s claim of compliance on On Titles to Homelots
the basis of this ratiocination:
Under RA 6657, the distribution of homelots is required only for corporations or business
 The Task Force position: Though, allegedly, the Supervisory Group receives the associations owning or operating farms which opted for land distribution. Sec. 30 of RA
3% gross production share and that others alleged that they received 30 million 6657 states:
pesos still others maintain that they have not received anything yet. Item No. 4 of
the MOA is clear and must be followed. There is a distinction between the total
SEC. 30. Homelots and Farmlots for Members of Cooperatives.¾The individual members
gross sales from the production of the land and the proceeds from the sale of the
of the cooperatives or corporations mentioned in the preceding section shall be provided
land. The former refers to the fruits/yield of the agricultural land while the latter is
with homelots and small farmlots for their family use, to be taken from the land owned by
the land itself. The phrase "the beneficiaries are entitled every year to an amount
the cooperative or corporation.
approximately equivalent to 3% would only be feasible if the subject is the
produce since there is at least one harvest per year, while such is not the case in
the sale of the agricultural land. This negates then the claim of HLI that, all that The "preceding section" referred to in the above-quoted provision is as follows:
the FWBs can be entitled to, if any, is only 3% of the purchase price of the
converted land. SEC. 29. Farms Owned or Operated by Corporations or Other Business Associations.¾In
 Besides, the Conversion Order dated 14 August 1996 provides that "the benefits, the case of farms owned or operated by corporations or other business associations, the
wages and the like, presently received by the FWBs shall not in any way be following rules shall be observed by the PARC.
reduced or adversely affected. Three percent of the gross selling price of the sale
of the converted land shall be awarded to the beneficiaries of the SDO." The 3% In general, lands shall be distributed directly to the individual worker-beneficiaries.
gross production share then is different from the 3% proceeds of the sale of the
converted land and, with more reason, the 33% share being claimed by the
FWBs as part owners of the Hacienda, should have been given the FWBs, as In case it is not economically feasible and sound to divide the land, then it shall be owned
stockholders, and to which they could have been entitled if only the land were collectively by the worker-beneficiaries who shall form a workers’ cooperative or
acquired and redistributed to them under the CARP. association which will deal with the corporation or business association. Until a new
agreement is entered into by and between the workers’ cooperative or association and
the corporation or business association, any agreement existing at the time this Act takes
xxxx effect between the former and the previous landowner shall be respected by both the
workers’ cooperative or association and the corporation or business association.
 The FWBs do not receive any other benefits under the MOA except the
aforementioned [(viz: shares of stocks (partial), 3% gross production sale (not all) Noticeably, the foregoing provisions do not make reference to corporations which opted
and homelots (not all)]. for stock distribution under Sec. 31 of RA 6657. Concomitantly, said corporations are not
obliged to provide for it except by stipulation, as in this case.
Judging from the above statements, the Special Task Force is at best silent on whether
HLI has failed to comply with the 3% production-sharing obligation or the 3% of the gross Under the SDP, HLI undertook to "subdivide and allocate for free and without charge
selling price of the converted land and the SCTEX lot. In fact, it admits that the FWBs, among the qualified family-beneficiaries x x x residential or homelots of not more than 240
though not all, have received their share of the gross production sales and in the sale of sq. m. each, with each family beneficiary being assured of receiving and owning a
the lot to SCTEX. At most, then, HLI had complied substantially with this SDP undertaking homelot in the barrio or barangay where it actually resides," "within a reasonable time."
and the conversion order. To be sure, this slight breach would not justify the setting to
naught by PARC of the approval action of the earlier PARC. Even in contract law,
More than sixteen (16) years have elapsed from the time the SDP was approved by
rescission, predicated on violation of reciprocity, will not be permitted for a slight or casual
PARC, and yet, it is still the contention of the FWBs that not all was given the 240-square
breach of contract; rescission may be had only for such breaches that are substantial and
meter homelots and, of those who were already given, some still do not have the
fundamental as to defeat the object of the parties in making the agreement. 137
corresponding titles.
During the oral arguments, HLI was afforded the chance to refute the foregoing allegation account factors such as rank, seniority, salary, position and other circumstances which
by submitting proof that the FWBs were already given the said homelots: may be deemed desirable as a matter of sound company policy. (Emphasis supplied.)

Justice Velasco: x x x There is also an allegation that the farmer beneficiaries, the The above proviso gives two (2) sets or categories of shares of stock which a qualified
qualified family beneficiaries were not given the 240 square meters each. So, can you beneficiary can acquire from the corporation under the SDP. The first pertains, as earlier
also [prove] that the qualified family beneficiaries were already provided the 240 square explained, to the mandatory minimum ratio of shares of stock to be distributed to the
meter homelots. FWBs in compliance with Sec. 31 of RA 6657. This minimum ratio contemplates of that
"proportion of the capital stock of the corporation that the agricultural land, actually
Atty. Asuncion: We will, your Honor please.138 devoted to agricultural activities, bears in relation to the company’s total assets." 139 It is
this set of shares of stock which, in line with Sec. 4 of DAO 10, is supposed to be
allocated "for the distribution of an equal number of shares of stock of the same class and
Other than the financial report, however, no other substantial proof showing that all the value, with the same rights and features as all other shares, to each of the qualified
qualified beneficiaries have received homelots was submitted by HLI. Hence, this Court is beneficiaries."
constrained to rule that HLI has not yet fully complied with its undertaking to distribute
homelots to the FWBs under the SDP.
On the other hand, the second set or category of shares partakes of a gratuitous extra
grant, meaning that this set or category constitutes an augmentation share/s that the
On "Man Days" and the Mechanics of Stock Distribution corporate landowner may give under an additional stock distribution scheme, taking into
account such variables as rank, seniority, salary, position and like factors which the
In our review and analysis of par. 3 of the SDOA on the mechanics and timelines of stock management, in the exercise of its sound discretion, may deem desirable. 140
distribution, We find that it violates two (2) provisions of DAO 10. Par. 3 of the SDOA
states: Before anything else, it should be stressed that, at the time PARC approved HLI’s SDP,
HLI recognized 6,296 individuals as qualified FWBs. And under the 30-year stock
3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY [HLI] shall distribution program envisaged under the plan, FWBs who came in after 1989, new FWBs
arrange with the FIRST PARTY [TDC] the acquisition and distribution to the THIRD in fine, may be accommodated, as they appear to have in fact been accommodated as
PARTY [FWBs] on the basis of number of days worked and at no cost to them of one- evidenced by their receipt of HLI shares.
thirtieth (1/30) of 118,391,976.85 shares of the capital stock of the SECOND PARTY that
are presently owned and held by the FIRST PARTY, until such time as the entire block of Now then, by providing that the number of shares of the original 1989 FWBs shall depend
118,391,976.85 shares shall have been completely acquired and distributed to the THIRD on the number of "man days," HLI violated the afore-quoted rule on stock distribution and
PARTY. effectively deprived the FWBs of equal shares of stock in the corporation, for, in net effect,
these 6,296 qualified FWBs, who theoretically had given up their rights to the land that
Based on the above-quoted provision, the distribution of the shares of stock to the FWBs, could have been distributed to them, suffered a dilution of their due share entitlement. As
albeit not entailing a cash out from them, is contingent on the number of "man days," that has been observed during the oral arguments, HLI has chosen to use the shares
is, the number of days that the FWBs have worked during the year. This formula deviates earmarked for farmworkers as reward system chips to water down the shares of the
from Sec. 1 of DAO 10, which decrees the distribution of equal number of shares to the original 6,296 FWBs.141 Particularly:
FWBs as the minimum ratio of shares of stock for purposes of compliance with Sec. 31 of
RA 6657. As stated in Sec. 4 of DAO 10: Justice Abad: If the SDOA did not take place, the other thing that would have happened is
that there would be CARP?
Section 4. Stock Distribution Plan.¾The [SDP] submitted by the corporate landowner-
applicant shall provide for the distribution of an equal number of shares of the same class Atty. Dela Merced: Yes, Your Honor.
and value, with the same rights and features as all other shares, to each of the qualified
beneficiaries. This distribution plan in all cases, shall be at least the minimum ratio for
purposes of compliance with Section 31 of R.A. No. 6657. Justice Abad: That’s the only point I want to know x x x. Now, but they chose to enter
SDOA instead of placing the land under CARP. And for that reason those who would
have gotten their shares of the land actually gave up their rights to this land in place of the
On top of the minimum ratio provided under Section 3 of this Implementing Guideline, the shares of the stock, is that correct?
corporate landowner-applicant may adopt additional stock distribution schemes taking into
Atty. Dela Merced: It would be that way, Your Honor. From the above discourse, it is clear as day that the original 6,296 FWBs, who were
qualified beneficiaries at the time of the approval of the SDP, suffered from watering down
Justice Abad: Right now, also the government, in a way, gave up its right to own the land of shares. As determined earlier, each original FWB is entitled to 18,804.32 HLI shares.
because that way the government takes own [sic] the land and distribute it to the farmers The original FWBs got less than the guaranteed 18,804.32 HLI shares per beneficiary,
and pay for the land, is that correct? because the acquisition and distribution of the HLI shares were based on "man days" or
"number of days worked" by the FWB in a year’s time. As explained by HLI, a beneficiary
needs to work for at least 37 days in a fiscal year before he or she becomes entitled to
Atty. Dela Merced: Yes, Your Honor. HLI shares. If it falls below 37 days, the FWB, unfortunately, does not get any share at
year end. The number of HLI shares distributed varies depending on the number of days
Justice Abad: And then you gave thirty-three percent (33%) of the shares of HLI to the the FWBs were allowed to work in one year. Worse, HLI hired farmworkers in addition to
farmers at that time that numbered x x x those who signed five thousand four hundred the original 6,296 FWBs, such that, as indicated in the Compliance dated August 2, 2010
ninety eight (5,498) beneficiaries, is that correct? submitted by HLI to the Court, the total number of farmworkers of HLI as of said date
stood at 10,502. All these farmworkers, which include the original 6,296 FWBs, were
Atty. Dela Merced: Yes, Your Honor. given shares out of the 118,931,976.85 HLI shares representing the 33.296% of the total
outstanding capital stock of HLI. Clearly, the minimum individual allocation of each
Justice Abad: But later on, after assigning them their shares, some workers came in from original FWB of 18,804.32 shares was diluted as a result of the use of "man days" and the
1989, 1990, 1991, 1992 and the rest of the years that you gave additional shares who hiring of additional farmworkers.
were not in the original list of owners?
Going into another but related matter, par. 3 of the SDOA expressly providing for a 30-
Atty. Dela Merced: Yes, Your Honor. year timeframe for HLI-to-FWBs stock transfer is an arrangement contrary to what Sec.
11 of DAO 10 prescribes. Said Sec. 11 provides for the implementation of the approved
stock distribution plan within three (3) months from receipt by the corporate landowner of
Justice Abad: Did those new workers give up any right that would have belong to them in the approval of the plan by PARC. In fact, based on the said provision, the transfer of the
1989 when the land was supposed to have been placed under CARP? shares of stock in the names of the qualified FWBs should be recorded in the stock and
transfer books and must be submitted to the SEC within sixty (60) days from
Atty. Dela Merced: If you are talking or referring… (interrupted) implementation. As stated:

Justice Abad: None! You tell me. None. They gave up no rights to land? Section 11. Implementation/Monitoring of Plan.¾The approved stock distribution plan
shall be implemented within three (3) months from receipt by the corporate landowner-
Atty. Dela Merced: They did not do the same thing as we did in 1989, Your Honor. applicant of the approval thereof by the PARC, and the transfer of the shares of stocks in
the names of the qualified beneficiaries shall be recorded in stock and transfer books and
submitted to the Securities and Exchange Commission (SEC) within sixty (60) days from
Justice Abad: No, if they were not workers in 1989 what land did they give up? None, if
the said implementation of the stock distribution plan. (Emphasis supplied.)
they become workers later on.
It is evident from the foregoing provision that the implementation, that is, the distribution of
Atty. Dela Merced: None, Your Honor, I was referring, Your Honor, to the original…
the shares of stock to the FWBs, must be made within three (3) months from receipt by
(interrupted)
HLI of the approval of the stock distribution plan by PARC. While neither of the clashing
parties has made a compelling case of the thrust of this provision, the Court is of the view
Justice Abad: So why is it that the rights of those who gave up their lands would be and so holds that the intent is to compel the corporate landowner to complete, not merely
diluted, because the company has chosen to use the shares as reward system for new initiate, the transfer process of shares within that three-month timeframe. Reinforcing this
workers who come in? It is not that the new workers, in effect, become just workers of the conclusion is the 60-day stock transfer recording (with the SEC) requirement reckoned
corporation whose stockholders were already fixed. The TADECO who has shares there from the implementation of the SDP.
about sixty six percent (66%) and the five thousand four hundred ninety eight (5,498)
farmers at the time of the SDOA? Explain to me. Why, why will you x x x what right or
To the Court, there is a purpose, which is at once discernible as it is practical, for the
where did you get that right to use this shares, to water down the shares of those who
three-month threshold. Remove this timeline and the corporate landowner can veritably
should have been benefited, and to use it as a reward system decided by the company?
142
evade compliance with agrarian reform by simply deferring to absurd limits the To restate the antecedents, after the conversion of the 500 hectares of land in Hacienda
implementation of the stock distribution scheme. Luisita, HLI transferred the 300 hectares to Centennary, while ceding the remaining 200-
hectare portion to LRC. Subsequently, LIPCO purchased the entire three hundred (300)
The argument is urged that the thirty (30)-year distribution program is justified by the fact hectares of land from Centennary for the purpose of developing the land into an industrial
that, under Sec. 26 of RA 6657, payment by beneficiaries of land distribution under CARP complex.144 Accordingly, the TCT in Centennary’s name was canceled and a new one
shall be made in thirty (30) annual amortizations. To HLI, said section provides a justifying issued in LIPCO’s name. Thereafter, said land was subdivided into two (2) more parcels
dimension to its 30-year stock distribution program. of land. Later on, LIPCO transferred about 184 hectares to RCBC by way of dacion en
pago, by virtue of which TCTs in the name of RCBC were subsequently issued.
HLI’s reliance on Sec. 26 of RA 6657, quoted in part below, is obviously misplaced as the
said provision clearly deals with land distribution. Under Sec. 44 of PD 1529 or the Property Registration Decree, "every registered owner
receiving a certificate of title in pursuance of a decree of registration and every
subsequent purchaser of registered land taking a certificate of title for value and in good
SEC. 26. Payment by Beneficiaries.¾Lands awarded pursuant to this Act shall be paid for faith shall hold the same free from all encumbrances except those noted on the certificate
by the beneficiaries to the LBP in thirty (30) annual amortizations x x x. and enumerated therein."145

Then, too, the ones obliged to pay the LBP under the said provision are the beneficiaries. It is settled doctrine that one who deals with property registered under the Torrens system
On the other hand, in the instant case, aside from the fact that what is involved is stock need not go beyond the four corners of, but can rely on what appears on, the title. He is
distribution, it is the corporate landowner who has the obligation to distribute the shares of charged with notice only of such burdens and claims as are annotated on the title. This
stock among the FWBs. principle admits of certain exceptions, such as when the party has actual knowledge of
facts and circumstances that would impel a reasonably cautious man to make such
Evidently, the land transfer beneficiaries are given thirty (30) years within which to pay the inquiry, or when the purchaser has knowledge of a defect or the lack of title in his vendor
cost of the land thus awarded them to make it less cumbersome for them to pay the or of sufficient facts to induce a reasonably prudent man to inquire into the status of the
government. To be sure, the reason underpinning the 30-year accommodation does not title of the property in litigation.146 A higher level of care and diligence is of course
apply to corporate landowners in distributing shares of stock to the qualified beneficiaries, expected from banks, their business being impressed with public interest. 147
as the shares may be issued in a much shorter period of time.
Millena v. Court of Appeals describes a purchaser in good faith in this wise:
Taking into account the above discussion, the revocation of the SDP by PARC should be
upheld for violating DAO 10. It bears stressing that under Sec. 49 of RA 6657, the PARC x x x A purchaser in good faith is one who buys property of another, without notice that
and the DAR have the power to issue rules and regulations, substantive or procedural. some other person has a right to, or interest in, such property at the time of such
Being a product of such rule-making power, DAO 10 has the force and effect of law and purchase, or before he has notice of the claim or interest of some other persons in the
must be duly complied with.143 The PARC is, therefore, correct in revoking the SDP. property. Good faith, or the lack of it, is in the final analysis a question of intention; but in
Consequently, the PARC Resolution No. 89-12-2 dated November 21, l989 approving the ascertaining the intention by which one is actuated on a given occasion, we are
HLI’s SDP is nullified and voided. necessarily controlled by the evidence as to the conduct and outward acts by which alone
the inward motive may, with safety, be determined. Truly, good faith is not a visible,
III. tangible fact that can be seen or touched, but rather a state or condition of mind which
can only be judged by actual or fancied tokens or signs. Otherwise stated, good faith x x x
We now resolve the petitions-in-intervention which, at bottom, uniformly pray for the refers to the state of mind which is manifested by the acts of the individual
exclusion from the coverage of the assailed PARC resolution those portions of the concerned.148 (Emphasis supplied.)
converted land within Hacienda Luisita which RCBC and LIPCO acquired by purchase.
In fine, there are two (2) requirements before one may be considered a purchaser in good
Both contend that they are innocent purchasers for value of portions of the converted farm faith, namely: (1) that the purchaser buys the property of another without notice that some
land. Thus, their plea for the exclusion of that portion from PARC Resolution 2005-32-01, other person has a right to or interest in such property; and (2) that the purchaser pays a
as implemented by a DAR-issued Notice of Coverage dated January 2, 2006, which full and fair price for the property at the time of such purchase or before he or she has
called for mandatory CARP acquisition coverage of lands subject of the SDP. notice of the claim of another.
It can rightfully be said that both LIPCO and RCBC are––based on the above registered owners could legally sell and convey the lots though these were previously
requirements and with respect to the adverted transactions of the converted land in subject of CARP coverage. Ergo, RCBC and LIPCO acted in good faith in acquiring the
question––purchasers in good faith for value entitled to the benefits arising from such subject lots.
status.
And second, both LIPCO and RCBC purchased portions of Hacienda Luisita for value.
First, at the time LIPCO purchased the entire three hundred (300) hectares of industrial Undeniably, LIPCO acquired 300 hectares of land from Centennary for the amount of PhP
land, there was no notice of any supposed defect in the title of its transferor, Centennary, 750 million pursuant to a Deed of Sale dated July 30, 1998.151 On the other hand, in a
or that any other person has a right to or interest in such property. In fact, at the time Deed of Absolute Assignment dated November 25, 2004, LIPCO conveyed portions of
LIPCO acquired said parcels of land, only the following annotations appeared on the TCT Hacienda Luisita in favor of RCBC by way of dacion en pago to pay for a loan of PhP
in the name of Centennary: the Secretary’s Certificate in favor of Teresita Lopa, the 431,695,732.10.
Secretary’s Certificate in favor of Shintaro Murai, and the conversion of the property from
agricultural to industrial and residential use. 149 As bona fide purchasers for value, both LIPCO and RCBC have acquired rights which
cannot just be disregarded by DAR, PARC or even by this Court. As held in Spouses
The same is true with respect to RCBC. At the time it acquired portions of Hacienda Chua v. Soriano:
Luisita, only the following general annotations appeared on the TCTs of LIPCO: the Deed
of Restrictions, limiting its use solely as an industrial estate; the Secretary’s Certificate in With the property in question having already passed to the hands of purchasers in good
favor of Koji Komai and Kyosuke Hori; and the Real Estate Mortgage in favor of RCBC to faith, it is now of no moment that some irregularity attended the issuance of the SPA,
guarantee the payment of PhP 300 million. consistent with our pronouncement in Heirs of Spouses Benito Gavino and Juana Euste
v. Court of Appeals, to wit:
It cannot be claimed that RCBC and LIPCO acted in bad faith in acquiring the lots that
were previously covered by the SDP. Good faith "consists in the possessor’s belief that x x x the general rule that the direct result of a previous void contract cannot be valid, is
the person from whom he received it was the owner of the same and could convey his inapplicable in this case as it will directly contravene the Torrens system of
title. Good faith requires a well-founded belief that the person from whom title was registration. Where innocent third persons, relying on the correctness of the
received was himself the owner of the land, with the right to convey it. There is good faith certificate of title thus issued, acquire rights over the property, the court cannot
where there is an honest intention to abstain from taking any unconscientious advantage disregard such rights and order the cancellation of the certificate. The effect of such
from another."150 It is the opposite of fraud. outright cancellation will be to impair public confidence in the certificate of title. The
sanctity of the Torrens system must be preserved; otherwise, everyone dealing with the
To be sure, intervenor RCBC and LIPCO knew that the lots they bought were subjected to property registered under the system will have to inquire in every instance as to whether
CARP coverage by means of a stock distribution plan, as the DAR conversion order was the title had been regularly or irregularly issued, contrary to the evident purpose of the
annotated at the back of the titles of the lots they acquired. However, they are of the law.
honest belief that the subject lots were validly converted to commercial or industrial
purposes and for which said lots were taken out of the CARP coverage subject of PARC Being purchasers in good faith, the Chuas already acquired valid title to the
Resolution No. 89-12-2 and, hence, can be legally and validly acquired by them. After all, property. A purchaser in good faith holds an indefeasible title to the property and
Sec. 65 of RA 6657 explicitly allows conversion and disposition of agricultural lands he is entitled to the protection of the law.152 x x x (Emphasis supplied.)
previously covered by CARP land acquisition "after the lapse of five (5) years from its
award when the land ceases to be economically feasible and sound for agricultural
purposes or the locality has become urbanized and the land will have a greater economic To be sure, the practicalities of the situation have to a point influenced Our disposition on
value for residential, commercial or industrial purposes." Moreover, DAR notified all the the fate of RCBC and LIPCO. After all, the Court, to borrow from Association of Small
affected parties, more particularly the FWBs, and gave them the opportunity to comment Landowners in the Philippines, Inc.,153 is not a "cloistered institution removed" from the
or oppose the proposed conversion. DAR, after going through the necessary processes, realities on the ground. To note, the approval and issuances of both the national and local
granted the conversion of 500 hectares of Hacienda Luisita pursuant to its primary governments showing that certain portions of Hacienda Luisita have effectively ceased,
jurisdiction under Sec. 50 of RA 6657 to determine and adjudicate agrarian reform legally and physically, to be agricultural and, therefore, no longer CARPable are a matter
matters and its original exclusive jurisdiction over all matters involving the implementation of fact which cannot just be ignored by the Court and the DAR. Among the
of agrarian reform. The DAR conversion order became final and executory after none of approving/endorsing issuances:154
the FWBs interposed an appeal to the CA. In this factual setting, RCBC and LIPCO
purchased the lots in question on their honest and well-founded belief that the previous (a) Resolution No. 392 dated 11 December 1996 of the Sangguniang Bayan of
Tarlac favorably endorsing the 300-hectare industrial estate project of LIPCO;
 (b) BOI Certificate of Registration No. 96-020 dated 20 December 1996 issued in In relying upon the above-mentioned approvals, proclamation and conversion order, both
accordance with the Omnibus Investments Code of 1987; RCBC and LIPCO cannot be considered at fault for believing that certain portions of
Hacienda Luisita are industrial/commercial lands and are, thus, outside the ambit of
(c) PEZA Certificate of Board Resolution No. 97-202 dated 27 June 1997, CARP. The PARC, and consequently DAR, gravely abused its discretion when it placed
approving LIPCO’s application for a mixed ecozone and proclaiming the three LIPCO’s and RCBC’s property which once formed part of Hacienda Luisita under the
hundred (300) hectares of the industrial land as a Special Economic Zone; CARP compulsory acquisition scheme via the assailed Notice of Coverage.

(d) Resolution No. 234 dated 08 August 1997 of the Sangguniang Bayan of As regards the 80.51-hectare land transferred to the government for use as part of the
Tarlac, approving the Final Development Permit for the Luisita Industrial Park II SCTEX, this should also be excluded from the compulsory agrarian reform coverage
Project; considering that the transfer was consistent with the government’s exercise of the power
of eminent domain159 and none of the parties actually questioned the transfer.
(e) Development Permit dated 13 August 1997 for the proposed Luisita Industrial
Park II Project issued by the Office of the Sangguniang Bayan of Tarlac; 155 While We affirm the revocation of the SDP on Hacienda Luisita subject of PARC
Resolution Nos. 2005-32-01 and 2006-34-01, the Court cannot close its eyes to certain
"operative facts" that had occurred in the interim. Pertinently, the "operative fact" doctrine
(f) DENR Environmental Compliance Certificate dated 01 October 1997 issued realizes that, in declaring a law or executive action null and void, or, by extension, no
for the proposed project of building an industrial complex on three hundred (300) longer without force and effect, undue harshness and resulting unfairness must be
hectares of industrial land;156 avoided. This is as it should realistically be, since rights might have accrued in favor of
natural or juridical persons and obligations justly incurred in the meantime. 160 The actual
(g) Certificate of Registration No. 00794 dated 26 December 1997 issued by the existence of a statute or executive act is, prior to such a determination, an operative fact
HLURB on the project of Luisita Industrial Park II with an area of three million and may have consequences which cannot justly be ignored; the past cannot always be
(3,000,000) square meters;157 erased by a new judicial declaration.161

(h) License to Sell No. 0076 dated 26 December 1997 issued by the HLURB The oft-cited De Agbayani v.  Philippine National Bank162 discussed the effect to be given
authorizing the sale of lots in the Luisita Industrial Park II; to a legislative or executive act subsequently declared invalid:

(i) Proclamation No. 1207 dated 22 April 1998 entitled "Declaring Certain Parcels x x x It does not admit of doubt that prior to the declaration of nullity such challenged
of Private Land in Barangay San Miguel, Municipality of Tarlac, Province of legislative or executive act must have been in force and had to be complied with. This is
Tarlac, as a Special Economic Zone pursuant to Republic Act No. 7916," so as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to
designating the Luisita Industrial Park II consisting of three hundred hectares obedience and respect. Parties may have acted under it and may have changed their
(300 has.) of industrial land as a Special Economic Zone; and positions. What could be more fitting than that in a subsequent litigation regard be had to
what has been done while such legislative or executive act was in operation and
(j) Certificate of Registration No. EZ-98-05 dated 07 May 1998 issued by the presumed to be valid in all respects. It is now accepted as a doctrine that prior to its being
PEZA, stating that pursuant to Presidential Proclamation No. 1207 dated 22 April nullified, its existence as a fact must be reckoned with. This is merely to reflect awareness
1998 and Republic Act No. 7916, LIPCO has been registered as an Ecozone that precisely because the judiciary is the government organ which has the final say on
Developer/Operator of Luisita Industrial Park II located in San Miguel, Tarlac, whether or not a legislative or executive measure is valid, a period of time may have
Tarlac. elapsed before it can exercise the power of judicial review that may lead to a declaration
of nullity. It would be to deprive the law of its quality of fairness and justice then, if there
While a mere reclassification of a covered agricultural land or its inclusion in an economic be no recognition of what had transpired prior to such adjudication.
zone does not automatically allow the corporate or individual landowner to change its
use,158 the reclassification process is a prima facie indicium that the land has ceased to be In the language of an American Supreme Court decision: "The actual existence of a
economically feasible and sound for agricultural uses. And if only to stress, DAR statute, prior to such a determination of [unconstitutionality], is an operative fact and may
Conversion Order No. 030601074-764-(95) issued in 1996 by then DAR Secretary have consequences which cannot justly be ignored. The past cannot always be erased by
Garilao had effectively converted 500 hectares of hacienda land from agricultural to a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to
industrial/commercial use and authorized their disposition. be considered in various aspects,––with respect to particular relations, individual and
corporate, and particular conduct, private and official." x x x
Given the above perspective and considering that more than two decades had passed The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it
since the PARC’s approval of the HLI’s SDP, in conjunction with numerous activities is stated that a legislative or executive act, prior to its being declared as unconstitutional
performed in good faith by HLI, and the reliance by the FWBs on the legality and validity by the courts, is valid and must be complied with, thus:
of the PARC-approved SDP, perforce, certain rights of the parties, more particularly the
FWBs, have to be respected pursuant to the application in a general way of the operative x x x           x x x          x x x
fact doctrine.
This doctrine was reiterated in the more recent case of City of Makati v. Civil Service
A view, however, has been advanced that the operative fact doctrine is of minimal or Commission, wherein we ruled that:
altogether without relevance to the instant case as it applies only in considering the
effects of a declaration of unconstitutionality of a statute, and not of a declaration of nullity
of a contract. This is incorrect, for this view failed to consider is that it is NOT the SDOA Moreover, we certainly cannot nullify the City Government's order of suspension, as we
dated May 11, 1989 which was revoked in the instant case. Rather, it is PARC’s approval have no reason to do so, much less retroactively apply such nullification to deprive private
of the HLI’s Proposal for Stock Distribution under CARP which embodied the SDP that respondent of a compelling and valid reason for not filing the leave application. For as we
was nullified. have held, a void act though in law a mere scrap of paper nonetheless confers legitimacy
upon past acts or omissions done in reliance thereof. Consequently, the existence of a
statute or executive order prior to its being adjudged void is an operative fact to which
A recall of the antecedent events would show that on May 11, 1989, Tadeco, HLI, and the legal consequences are attached. It would indeed be ghastly unfair to prevent private
qualified FWBs executed the SDOA. This agreement provided the basis and mechanics respondent from relying upon the order of suspension in lieu of a formal leave application.
of the SDP that was subsequently proposed and submitted to DAR for approval. It was (Citations omitted; Emphasis supplied.)
only after its review that the PARC, through then Sec. Defensor-Santiago, issued the
assailed Resolution No. 89-12-2 approving the SDP. Considerably, it is not the SDOA
which gave legal force and effect to the stock distribution scheme but instead, it is the The applicability of the operative fact doctrine to executive acts was further explicated by
approval of the SDP under the PARC Resolution No. 89-12-2 that gave it its validity. this Court in Rieta v. People,164 thus:

The above conclusion is bolstered by the fact that in Sec. Pangandaman’s Petitioner contends that his arrest by virtue of Arrest Search and Seizure Order (ASSO)
recommendation to the PARC Excom, what he proposed is the recall/revocation of PARC No. 4754 was invalid, as the law upon which it was predicated — General Order No. 60,
Resolution No. 89-12-2 approving HLI’s SDP, and not the revocation of the SDOA. Sec. issued by then President Ferdinand E. Marcos — was subsequently declared by the
Pangandaman’s recommendation was favorably endorsed by the PARC Validation Court, in Tañada v. Tuvera, 33 to have no force and effect. Thus, he asserts, any
Committee to the PARC Excom, and these recommendations were referred to in the evidence obtained pursuant thereto is inadmissible in evidence.
assailed Resolution No. 2005-32-01. Clearly, it is not the SDOA which was made the
basis for the implementation of the stock distribution scheme. We do not agree. In Tañada, the Court addressed the possible effects of its declaration of
the invalidity of various presidential issuances. Discussing therein how such a declaration
That the operative fact doctrine squarely applies to executive acts––in this case, the might affect acts done on a presumption of their validity, the Court said:
approval by PARC of the HLI proposal for stock distribution––is well-settled in our
jurisprudence. In Chavez v. National Housing Authority,163 We held: ". . .. In similar situations in the past this Court had taken the pragmatic and realistic
course set forth in Chicot County Drainage District vs. Baxter Bank to wit:
Petitioner postulates that the "operative fact" doctrine is inapplicable to the present case
because it is an equitable doctrine which could not be used to countenance an inequitable ‘The courts below have proceeded on the theory that the Act of Congress, having been
result that is contrary to its proper office. found to be unconstitutional, was not a law; that it was inoperative, conferring no rights
and imposing no duties, and hence affording no basis for the challenged decree. . . . It is
On the other hand, the petitioner Solicitor General argues that the existence of the various quite clear, however, that such broad statements as to the effect of a determination of
agreements implementing the SMDRP is an operative fact that can no longer be disturbed unconstitutionality must be taken with qualifications. The actual existence of a statute,
or simply ignored, citing Rieta v. People of the Philippines. prior to [the determination of its invalidity], is an operative fact and may have
consequences which cannot justly be ignored. The past cannot always be erased by a
new judicial declaration. The effect of the subsequent ruling as to invalidity may have to
The argument of the Solicitor General is meritorious. be considered in various aspects — with respect to particular conduct, private and official.
Questions of rights claimed to have become vested, of status, of prior determinations
deemed to have finality and acted upon accordingly, of public policy in the light of the to indicate that some, if not all, of the FWBs may actually desire to continue as HLI
nature both of the statute and of its previous application, demand examination. These shareholders. A matter best left to their own discretion.
questions are among the most difficult of those which have engaged the attention of
courts, state and federal, and it is manifest from numerous decisions that an all-inclusive With respect to the other FWBs who were not listed as qualified beneficiaries as of
statement of a principle of absolute retroactive invalidity cannot be justified.’ November 21, 1989 when the SDP was approved, they are not accorded the right to
acquire land but shall, however, continue as HLI stockholders. All the benefits and
x x x           x x x          x x x homelots167 received by the 10,502 FWBs (6,296 original FWBs and 4,206 non-qualified
FWBs) listed as HLI stockholders as of August 2, 2010 shall be respected with no
"Similarly, the implementation/enforcement of presidential decrees prior to their obligation to refund or return them since the benefits (except the homelots) were received
publication in the Official Gazette is ‘an operative fact which may have consequences by the FWBs as farmhands in the agricultural enterprise of HLI and other fringe benefits
which cannot be justly ignored. The past cannot always be erased by a new judicial were granted to them pursuant to the existing collective bargaining agreement with
declaration . . . that an all-inclusive statement of a principle of absolute retroactive Tadeco. If the number of HLI shares in the names of the original FWBs who opt to remain
invalidity cannot be justified.’" as HLI stockholders falls below the guaranteed allocation of 18,804.32 HLI shares per
FWB, the HLI shall assign additional shares to said FWBs to complete said minimum
number of shares at no cost to said FWBs.
The Chicot doctrine cited in Tañada advocates that, prior to the nullification of a statute,
there is an imperative necessity of taking into account its actual existence as an operative
fact negating the acceptance of "a principle of absolute retroactive invalidity." Whatever With regard to the homelots already awarded or earmarked, the FWBs are not obliged to
was done while the legislative or the executive act was in operation should be duly return the same to HLI or pay for its value since this is a benefit granted under the SDP.
recognized and presumed to be valid in all respects. The ASSO that was issued in 1979 The homelots do not form part of the 4,915.75 hectares covered by the SDP but were
under General Order No. 60 — long before our Decision in Tañada and the arrest of taken from the 120.9234 hectare residential lot owned by Tadeco. Those who did not
petitioner — is an operative fact that can no longer be disturbed or simply ignored. receive the homelots as of the revocation of the SDP on December 22, 2005 when PARC
(Citations omitted; Emphasis supplied.) Resolution No. 2005-32-01 was issued, will no longer be entitled to homelots. Thus, in the
determination of the ultimate agricultural land that will be subjected to land distribution,
the aggregate area of the homelots will no longer be deducted.
To reiterate, although the assailed Resolution No. 2005-32-01 states that it revokes or
recalls the SDP, what it actually revoked or recalled was the PARC’s approval of the SDP
embodied in Resolution No. 89-12-2. Consequently, what was actually declared null and There is a claim that, since the sale and transfer of the 500 hectares of land subject of the
void was an executive act, PARC Resolution No. 89-12-2,165 and not a contract (SDOA). It August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot came after
is, therefore, wrong to say that it was the SDOA which was annulled in the instant case. compulsory coverage has taken place, the FWBs should have their corresponding share
Evidently, the operative fact doctrine is applicable. of the land’s value. There is merit in the claim. Since the SDP approved by PARC
Resolution No. 89-12-2 has been nullified, then all the lands subject of the SDP will
automatically be subject of compulsory coverage under Sec. 31 of RA 6657. Since the
IV. Court excluded the 500-hectare lot subject of the August 14, 1996 Conversion Order and
the 80.51-hectare SCTEX lot acquired by the government from the area covered by SDP,
While the assailed PARC resolutions effectively nullifying the Hacienda Luisita SDP are then HLI and its subsidiary, Centennary, shall be liable to the FWBs for the price received
upheld, the revocation must, by application of the operative fact principle, give way to the for said lots. HLI shall be liable for the value received for the sale of the 200-hectare land
right of the original 6,296 qualified FWBs to choose whether they want to remain as HLI to LRC in the amount of PhP 500,000,000 and the equivalent value of the 12,000,000
stockholders or not. The Court cannot turn a blind eye to the fact that in 1989, 93% of the shares of its subsidiary, Centennary, for the 300-hectare lot sold to LIPCO for the
FWBs agreed to the SDOA (or the MOA), which became the basis of the SDP approved consideration of PhP 750,000,000. Likewise, HLI shall be liable for PhP 80,511,500 as
by PARC per its Resolution No. 89-12-2 dated November 21, 1989. From 1989 to 2005, consideration for the sale of the 80.51-hectare SCTEX lot.
the FWBs were said to have received from HLI salaries and cash benefits, hospital and
medical benefits, 240-square meter homelots, 3% of the gross produce from agricultural We, however, note that HLI has allegedly paid 3% of the proceeds of the sale of the 500-
lands, and 3% of the proceeds of the sale of the 500-hectare converted land and the hectare land and 80.51-hectare SCTEX lot to the FWBs. We also take into account the
80.51-hectare lot sold to SCTEX. HLI shares totaling 118,391,976.85 were distributed as payment of taxes and expenses relating to the transfer of the land and HLI’s statement
of April 22, 2005.166 On August 6, 20l0, HLI and private respondents submitted a that most, if not all, of the proceeds were used for legitimate corporate purposes. In order
Compromise Agreement, in which HLI gave the FWBs the option of acquiring a piece of to determine once and for all whether or not all the proceeds were properly utilized by HLI
agricultural land or remain as HLI stockholders, and as a matter of fact, most FWBs and its subsidiary, Centennary, DAR will engage the services of a reputable accounting
indicated their choice of remaining as stockholders. These facts and circumstances tend
firm to be approved by the parties to audit the books of HLI to determine if the proceeds of 18,804.32 shares, the HLI is ordered to issue or distribute additional shares to complete
the sale of the 500-hectare land and the 80.51-hectare SCTEX lot were actually used for said prescribed number of shares at no cost to the FWB within thirty (30) days from
legitimate corporate purposes, titling expenses and in compliance with the August 14, finality of this Decision. Other FWBs who do not belong to the original 6,296 qualified
1996 Conversion Order. The cost of the audit will be shouldered by HLI. If after such beneficiaries are not entitled to land distribution and shall remain as HLI shareholders. All
audit, it is determined that there remains a balance from the proceeds of the sale, then salaries, benefits, 3% production share and 3% share in the proceeds of the sale of the
the balance shall be distributed to the qualified FWBs. 500-hectare converted land and the 80.51-hectare SCTEX lot and homelots already
received by the 10,502 FWBs, composed of 6,296 original FWBs and 4,206 non-qualified
A view has been advanced that HLI must pay the FWBs yearly rent for use of the land FWBs, shall be respected with no obligation to refund or return them.
from 1989. We disagree. It should not be forgotten that the FWBs are also stockholders of
HLI, and the benefits acquired by the corporation from its possession and use of the land Within thirty (30) days after determining who from among the original FWBs will stay as
ultimately redounded to the FWBs’ benefit based on its business operations in the form of stockholders, DAR shall segregate from the HLI agricultural land with an area of 4,915.75
salaries, and other fringe benefits under the CBA. To still require HLI to pay rent to the hectares subject of PARC’s SDP-approving Resolution No. 89-12-2 the following: (a) the
FWBs will result in double compensation. 500-hectare lot subject of the August 14, l996 Conversion Order; (b) the 80.51-hectare lot
sold to, or acquired by, the government as part of the SCTEX complex; and (c) the
For sure, HLI will still exist as a corporation even after the revocation of the SDP although aggregate area of 6,886.5 square meters of individual lots that each FWB is entitled to
it will no longer be operating under the SDP, but pursuant to the Corporation Code as a under the CARP had he or she not opted to stay in HLI as a stockholder. After the
private stock corporation. The non-agricultural assets amounting to PhP 393,924,220 segregation process, as indicated, is done, the remaining area shall be turned over to
shall remain with HLI, while the agricultural lands valued at PhP 196,630,000 with an DAR for immediate land distribution to the original qualified FWBs who opted not to
original area of 4,915.75 hectares shall be turned over to DAR for distribution to the remain as HLI stockholders.
FWBs. To be deducted from said area are the 500-hectare lot subject of the August 14,
1996 Conversion Order, the 80.51-hectare SCTEX lot, and the total area of 6,886.5 The aforementioned area composed of 6,886.5-square meter lots allotted to the FWBs
square meters of individual lots that should have been distributed to FWBs by DAR had who stayed with the corporation shall form part of the HLI assets.
they not opted to stay in HLI.
HLI is directed to pay the 6,296 FWBs the consideration of PhP 500,000,000 received by
HLI shall be paid just compensation for the remaining agricultural land that will be it from Luisita Realty, Inc. for the sale to the latter of 200 hectares out of the 500 hectares
transferred to DAR for land distribution to the FWBs. We find that the date of the "taking" covered by the August 14, 1996 Conversion Order, the consideration of PhP 750,000,000
is November 21, 1989, when PARC approved HLI’s SDP per PARC Resolution No. 89- received by its owned subsidiary, Centennary Holdings, Inc. for the sale of the remaining
12-2. DAR shall coordinate with LBP for the determination of just compensation. We 300 hectares of the aforementioned 500-hectare lot to Luisita Industrial Park Corporation,
cannot use May 11, 1989 when the SDOA was executed, since it was the SDP, not the and the price of PhP 80,511,500 paid by the government through the Bases Conversion
SDOA, that was approved by PARC. Development Authority for the sale of the 80.51-hectare lot used for the construction of
the SCTEX road network. From the total amount of PhP 1,330,511,500 (PhP 500,000,000
The instant petition is treated pro hac vice in view of the peculiar facts and circumstances + PhP 750,000,000 + PhP 80,511,500 = PhP 1,330,511,500) shall be deducted the 3% of
of the case. the total gross sales from the production of the agricultural land and the 3% of the
proceeds of said transfers that were paid to the FWBs, the taxes and expenses relating to
the transfer of titles to the transferees, and the expenditures incurred by HLI and
WHEREFORE, the instant petition is DENIED. PARC Resolution No. 2005-32-01 dated Centennary Holdings, Inc. for legitimate corporate purposes. For this purpose, DAR is
December 22, 2005 and Resolution No. 2006-34-01 dated May 3, 2006, placing the lands ordered to engage the services of a reputable accounting firm approved by the parties to
subject of HLI’s SDP under compulsory coverage on mandated land acquisition scheme audit the books of HLI and Centennary Holdings, Inc. to determine if the PhP
of the CARP, are hereby AFFIRMED with the MODIFICATION that the original 6,296 1,330,511,500 proceeds of the sale of the three (3) aforementioned lots were used or
qualified FWBs shall have the option to remain as stockholders of HLI. DAR shall spent for legitimate corporate purposes. Any unspent or unused balance as determined
immediately schedule meetings with the said 6,296 FWBs and explain to them the effects, by the audit shall be distributed to the 6,296 original FWBs.
consequences and legal or practical implications of their choice, after which the FWBs will
be asked to manifest, in secret voting, their choices in the ballot, signing their signatures
or placing their thumbmarks, as the case may be, over their printed names. HLI is entitled to just compensation for the agricultural land that will be transferred to DAR
to be reckoned from November 21, 1989 per PARC Resolution No. 89-12-2. DAR and
LBP are ordered to determine the compensation due to HLI.
Of the 6,296 FWBs, he or she who wishes to continue as an HLI stockholder is entitled to
18,804.32 HLI shares, and, in case the HLI shares already given to him or her is less than
DAR shall submit a compliance report after six (6) months from finality of this judgment. It
shall also submit, after submission of the compliance report, quarterly reports on the
execution of this judgment to be submitted within the first 15 days at the end of each
quarter, until fully implemented.

The temporary restraining order is lifted.

SO ORDERED.
A.C. No. 2797             October 4, 2002 certain Tion Suy Ong who became the new registered owner thereof. Respondent never
accounted for the proceeds of said transfers.
ROSAURA P. CORDON, complainant,
vs. In 1981, respondent, using a spurious board resolution, contracted a loan from the Land
JESUS BALICANTA, respondent. Bank of the Philippines (LBP, for brevity) in the amount of Two Million Two Hundred
Twenty Pesos (P2,220,000) using as collateral 9 of the real properties that the
RESOLUTION complainant and her daughter contributed to the corporation. The respondent ostensibly
intended to use the money to construct the Baliwasan Commercial Center (BCC, for
brevity). Complainant later on found out that the structure was made of poor materials
PER CURIAM: such as sawali, coco lumber and bamboo which could not have cost the corporation
anything close to the amount of the loan secured.
On August 21, 1985, herein complainant Rosaura Cordon filed with this Court a complaint
for disbarment, docketed as Administrative Case No. 2797, against Atty. Jesus Balicanta. For four years from the time the debt was contracted, respondent failed to pay even a
After respondent’s comment to the complaint and complainant’s reply thereto, this Court, single installment. As a result, the LBP, in a letter dated May 22, 1985, informed
on March 29, 1995 referred the matter to the Integrated Bar of the Philippines (IBP, for respondent that the past due amortizations and interest had already accumulated to
brevity) for investigation, report and recommendation within 90 days from notice. Seven Hundred Twenty-nine Thousand Five Hundred Three Pesos and Twenty-five
Commissioner George Briones of the IBP Commission on Bar Discipline was initially Centavos (P729,503.25). The LBP made a demand on respondent for payment for the
tasked to investigate the case. Commissioner Briones was later on replaced by tenth time. Meanwhile, when the BCC commenced its operations, respondent started to
Commissioner Renato Cunanan. Complainant filed a supplemental complaint which was earn revenues from the rentals of BCC’s tenants. On October 28, 1987, the LBP
duly admitted and, as agreed upon, the parties filed their respective position papers. foreclosed on the 9 mortgaged properties due to non-payment of the loan.

Based on her complaint, supplemental complaint, reply and position paper, the Respondent did not exert any effort to redeem the foreclosed properties. Worse, he sold
complainant alleged the following facts: the corporation’s right to redeem the mortgaged properties to a certain Hadji Mahmud
Jammang through a fake board resolution dated January 14, 1989 which clothed himself
When her husband Felixberto C. Jaldon died, herein complainant Rosaura Cordon and with the authority to do so. Complainant and her daughter, the majority stockholders, were
her daughter Rosemarie inherited the properties left by the said decedent. All in all, never informed of the alleged meeting held on that date. Again, respondent never
complainant and her daughter inherited 21 parcels of land located in Zamboanga City. accounted for the proceeds of the sale of the right to redeem. Respondent also sold to
The lawyer who helped her settle the estate of her late husband was respondent Jesus Jammang a parcel of land belonging to complainant and her daughter which was
Balicanta. contiguous to the foreclosed properties and evidenced by Transfer Certificate of Title No.
62807. He never accounted for the proceeds of the sale.
Sometime in the early part of 1981, respondent enticed complainant and her daughter to
organize a corporation that would develop the said real properties into a high-scale Sometime in 1983, complainant’s daughter, Rosemarie, discovered that their ancestral
commercial complex with a beautiful penthouse for complainant. Relying on these home had been demolished and that her mother, herein complainant, was being detained
apparently sincere proposals, complainant and her daughter assigned 19 parcels of land in a small nipa shack in a place called Culianan. Through the help of Atty. Linda Lim,
to Rosaura Enterprises, Incorporated, a newly-formed and duly registered corporation in Rosemarie was able to locate her mother. Rosemarie later learned that respondent took
which they assumed majority ownership. The subject parcels of land were then registered complainant away from her house on the pretext that said ancestral home was going to
in the name of the corporation. be remodeled and painted. But respondent demolished the ancestral home and sold the
lot to Tion Suy Ong, using another spurious board resolution designated as Board
Thereafter, respondent single-handedly ran the affairs of the corporation in his capacity as Resolution No. 1, series of 1992. The resolution contained the minutes of an alleged
Chairman of the Board, President, General Manager and Treasurer. The respondent also organizational meeting of the directors of the corporation and was signed by Alexander
made complainant sign a document which turned out to be a voting trust agreement. Wee, Angel Fernando, Erwin Fernando and Gabriel Solivar. Complainant and her
Respondent likewise succeeded in making complainant sign a special power of attorney daughter did not know how these persons became stockholders and directors of the
to sell and mortgage some of the parcels of land she inherited from her deceased corporation. Respondent again did not account for the proceeds of the sale.
husband. She later discovered that respondent transferred the titles of the properties to a
Complainant and her daughter made several demands on respondent for the delivery of the pendency of cases before the SEC and the Regional Trial Court of Zamboanga
the real properties they allegedly assigned to the corporation, for an accounting of the involving him and complainant.
proceeds of the LBP loan and as well as the properties sold, and for the rentals earned by
BCC. But the demands remained unheeded. Hence, complainant and her daughter, in a Based on the pleadings and position papers submitted by the parties, Commissioner
letter dated June 4, 1985, terminated the services of respondent as their lawyer and Renato Cunanan, in his report1 dated July 1, 1999, recommended respondent’s
repeated their demands for accounting and turn-over of the corporate funds, and the disbarment based on the following findings:
return of the 19 titles that respondent transferred to the corporation. They also threatened
him with legal action in a letter dated August 3, 1985.
"A. The complainant, Rosaura Jaldon-Cordon and her daughter, Rosemarie were
stockholders of a corporation, together with respondent, named Rosaura
Soon after, complainant found out from the Securities and Exchange Commission (SEC, Enterprises, Inc.
for brevity) that Rosaura Enterprises, Inc., due to respondent’s refusal and neglect, failed
to submit the corporation’s annual financial statements for 1981, 1982 and 1983; SEC
General Information Sheets for 1982, 1983 and 1984; Minutes of Annual Meetings for "Per the Articles of Incorporation marked as Annex ‘A’ of Complainant’s Position
1982, 1983 and 1984; and Minutes of Annual Meetings of Directors for 1982, 1983 and Paper, complainant’s subscription consists of 55% of the outstanding capital
1984. stock while her daughter’s consists of 18%, giving them a total of 73%.
Respondent’s holdings consist of 24% while three other incorporators, Rosauro
L. Alvarez, Vicente T. Mañalac and Darhan S. Graciano each held 1% of the
Complainant also discovered that respondent collected rental payments from the tenants capital stock of the corporation.
of BCC and issued handwritten receipts which he signed, not as an officer of the
corporation but as the attorney-at-law of complainant. Respondent also used the tennis
court of BCC to dry his palay and did not keep the buildings in a satisfactory state, so "B. On April 5, 1981, complainant and her daughter Rosemarie Jaldon executed
much so that the divisions were losing plywood and other materials to thieves. two Deeds of Transfer and Assignment conveying and transferring to the
corporation 19 parcels of land in exchange for shares of stock in the corporation.
Complainant likewise accused respondent of circulating rumors among her friends and
relatives that she had become insane to prevent them from believing whatever "x x x           x x x           x x x
complainant said. According to complainant, respondent proposed that she legally
separate from her present husband so that the latter would not inherit from her and that "C. Both Deeds of Assignment particularly page 3 thereof indicate that
respondent be adopted as her son. respondent accepted said assignment of properties and titles in behalf of the
corporation as Treasurer. The deeds were signed on April 5, 1981.
For his defense, respondent, in his comment and position paper, denied employing deceit
and machination in convincing complainant and her daughter to assign their real "x x x           x x x           x x x
properties to the corporation; that they freely and voluntary executed the deeds of
assignment and the voting trust agreement that they signed; that he did not single- "Together, therefore, complainant and her daughter owned 1,711 shares of the
handedly manage the corporation as evidenced by certifications of the officers and 1,750 shares comprising the authorized capital stock of the corporation of 97%
directors of the corporation; that he did not use spurious board resolutions authorizing him thereof.
to contract a loan or sell the properties assigned by the complainant and her daughter;
that complainant and her daughter should be the ones who should render an accounting "No increase in capitalization was applied for by the corporation.
of the records and revenues inasmuch as, since 1984 up to the present, the part-time
corporate book-keeper, with the connivance of the complainant and her daughter, had
custody of the corporate records; that complainant and her daughter sabotaged the "F. Respondent claims in his Comment, his Answer and his Position Paper that
operation of BCC when they illegally took control of it in 1986; that he never pocketed any on April 4, 1981 he was elected as Chairman and Director and on April 5, 1981
of the proceeds of the properties contributed by the complainant and her daughter; that he was elected President of the corporation. Respondent’s own Annexes marked
the demolition of the ancestral home followed legal procedures; that complainant was as ‘G’ and ‘G-1’ of his Comment show that on April 4, 1981 he was not only
never detained in Culianan but she freely and voluntarily lived with the family of P03 Joel elected as Chairman and Director as he claims but as ‘Director, Board Chairman
Constantino as evidenced by complainant’s own letter denying she was kidnapped; and and President.’ The purported minutes was only signed by respondent and an
that the instant disbarment case should be dismissed for being premature, considering acting Secretary by the name of Vicente Mañalac.
"Said Annex does not show who was elected Treasurer. "J. Respondent further relies on Annex ‘J’ of his Comment, purportedly the
minutes of a special meeting of the Board of Directors authorizing him to obtain a
"Respondent’s Annex ‘H’ and ‘H-1’ shows that in the alleged organizational loan and mortgage the properties of the corporation dated August 29, 1981. This
meeting of the directors on April 5, 1981 a certain Farnacio Bucoy was elected claim is baseless. The required ratification of 2/3 by the stockholders of records
Treasurer. Bucoy’s name does not appear as an incorporator nor a stockholder was not met. Again, respondent attempts to mislead the Commission and Court.
anywhere in the documents submitted.
"K. Further, the constitution of the Board is dubious. The alleged minutes of the
"The purported minutes of the organizational meeting of the directors was signed organizational meeting of the stockholders electing the members of the Board,
only by respondent Balicanta and a Secretary named Verisimo Martin. have not been duly signed by the stockholders as shown in respondent’s annex
‘G’ which was purportedly the organizational meeting of the stockholders.
"G. Since respondent was elected as Director, Chairman and President on April
4, 1981 as respondent’s own Annexes ‘G’ to ‘G-1’ would show, then "L. Also, Annex ‘J’ of respondent’s Comment which purportedly authorized him to
complainant’s claim that respondent was likewise acting as Treasurer of two obtain a loan and to mortgage the 9 parcels of land was only signed by himself
corporations bear truth and credence as respondent signed and accepted the and a secretary.
titles to 19 parcels of land ceded by the complainant and her daughter, as
Treasurer on April 5, 1981 after he was already purportedly elected as Chairman, "M. In said Annex 'J' of respondent’s Comment he stated that complainant
President and Director. Rosaura Cordon was on leave by virtue of a voting trust agreement allegedly
executed by complainant ‘in his favor covering all her shares of stock.’ The claim
"H. Respondent misleads the Commission into believing that all the directors is baseless. The voting trust referred to by respondent (annex ‘D’ of his
signed the minutes marked as Exhibit ‘H’ to ‘H-1’ by stating that the same was Comment), even if it were assumed to be valid, covered only 266 shares of
‘duly signed by all the Board of Directors’ when the document itself shows that complainants yet she owned a total of 1,039 shares after she and her daughter
only he and one Verisimo Martin signed the same. ceded in favor of the corporation 19 parcels of land.

"He also claims that ‘all the stockholders signed’ the minutes of organizational "Being a former lawyer to complainant, respondent should have ensured that her
meeting marked as Annexes ‘G’ and ‘G-1’ of his Comment yet the same shows interest was safeguarded. Yet, complainant was apparently and deliberately left
that only the acting Chairman and acting Secretary signed. our (sic) on the pretext that, she had executed a voting trust agreement in favor
of respondent.
"I. Respondent claims that the Board or its representative was authorized by the
stockholders comprising 2/3 of the outstanding capital stock, as required by law, "It is suspicious that complainant was made to sign a voting trust agreement on
to mortgage the parcels of land belonging to the corporation, which were all 21 August 1981 and immediately thereafter, the resolutions authorizing
assigned to the corporation by complainant and her daughter, by virtue of Annex respondent to obtain a loan and to mortgage the 9 parcels of land were passed
‘I’ and ‘I-1’: attached to his Comment. and approved.

"The subject attachment however reveals that only the following persons signed "N. It is also highly irregular for respondent who is a lawyer, to allow a situation to
their conformity to the said resolution: respondent Balicanta who owned 109 happen where, with the exclusion of complainant as director the result was that
shares, Vicente Mañalac (1 share), Daihan Graciano (1 share). there remained only 4 members of the Board,.

"Complainants who collectively held a total of 1,711 shares out of "O. Respondent’s own pleadings submitted to the Commission contradict each
the 1,750 outstanding capital stock of the corporation were not represented in the other.
purported stockholders’ meeting authorizing the mortgage of the subject
properties. "1. For instance, while in his Comment respondent DENIES that he
employed deceit and machination in convincing the complainant and her
"The 2/3 vote required by law was therefore not complied with yet respondent daughter to sign the articles of incorporation of Rosaura Enterprises and
proceeded to mortgage the subject 9 parcels of land by the corporation. in ceding to the corporation 19 parcels of land in Zamboanga City,
because ‘they freely, intelligently and voluntarily signed’ the same, yet, in "It is further worth noting that complainant’s voting trust (annex ‘D’ of
his Position Paper, respondent took another stance. respondent’s Comment) where she allegedly entrusted 266 shares to
respondent on August 21, 1981 had only a validity of 5 years. Thus, she
"In paragraphs 1.1 and 1.2 of his Position Paper which was submitted 12 should have had her entire holdings of 1,283 shares back in her name in
years later, respondent claimed that ‘it was actually the idea of Atty. August 1986.
Rosaura L. Alvarez’ that a corporation be put up to incorporate the
estate of the late Felixberto D. Jaldon. "Respondent’s purported minutes of stockholders’ meeting (Exhs. ‘15’
and ‘17’) do not reflect this.
"2. Likewise, respondent claimed that complainant and her daughter
were not directors, hence they were not notified of meetings, in "There was no explanation whatsoever from respondent on how
paragraph 2-6 (c) of his Comment he blamed the other stockholders and complainant and her daughter lost their 97% control holding in the
directors for the corporation’s inability to comply with the Land Bank’s corporation.
demands saying that they ‘have consistently failed since 1982 to
convene (1.) for the annual stockholders’ meetings and (i.i) for the "3. As a further contradiction in respondent’s pleadings, we note that in
monthly board meeting’. paragraph 2.7.C of his Comment he said that ‘only recently, this year,
1985, the complainant and her aforenamed daughter examined said
"His own pleadings claim that he had been the Chairman/President voluminous supporting receipts/documents which had previously been
since 1981 to the present. If (sic) so, it was his duty to convene the examined by the Land Bank for loan releases, during which occasion
stockholders and the directors for meetings. respondent suggested to them that the corporation will have to hire a
full-time book-keeper to put in order said voluminous supporting
"Respondent appeared able to convene the stockholders and directors receipts/documents, to which they adversely reacted due to lack of
when he needed to make a loan of p2.2 million; when he sold the corporate money to pay for said book-keeper.’ But in respondent’s
corporation’s right of redemption over the foreclosed properties of the Position Paper par. 6.3 he stated that:
corporation to Jammang, when he sold one parcel of land covered by
TCT 62,807 to Jammang in addition to the 9 parcels of land which were ‘Anyway, it is not the respondent but rather the complainant who should
foreclosed, and when he sold the complainant’s ancestral home covered render a detailed accounting to the corporation of the corporate records
by TCT No. 72,004. as well as corporate revenues/income precisely because since 1994 to
the present:
"It is thus strange why respondent claims that the corporation could not
do anything to save the corporation’s properties from being ‘(a). The corporate part-time book-keeper Edilberto Benedicto, with the
foreclosed because the stockholders and directors did not convene. indispensable connivance and instigation of the complainant and her
daughter, among others, has custody of the corporate records, xxx’
"This assertion of respondent is clearly evident of dishonest, deceitful
and immoral conduct especially because, in all his acts constituting "4. In other contradictory stance, respondent claims in par. 7.3 of his
conveyances of corporate property, respondent used minutes of position paper that ‘complainant and her daughter sabotaged the BCC
stockholders’ and directors’ meetings signed only by him and a secretary operations of the corporation by illegally taking over actual control and
or signed by him and persons who were not incorporators much less supervision thereof sometime in 1986, xxx’
stockholders.
"Yet respondent’s own exhibits in his position paper particularly Exhibit
"It is worthy of note that in respondent’s Exhibits 15, 16, 17 and 18 of his 15 and 16 where the subject of the foreclosed properties of the
position paper, there were 7 new stockholders and complainant corporation comprising the Baliwasan Commercial Center (BCC) was
appeared to have only 266 shares to her name while her daughter taken up, complainant and her daughter were not even present nor were
Rosemarie had no shares at all. Respondent did not present any proof of they the subject of the discussion, belying respondent’s claim that the
conveyance of shares by complainant and her daughter. complainant and her daughter illegally took actual control of BCC.
"5. On the matter of the receipts issued by respondent evidencing deceased husband, committed unlawful, immoral and deceitful conduct
payment to him of rentals by lessees of the corporation, attached to the proscribed by Rule 1.01 of the code of professional responsibility.
complaint as Annexes ‘H’ to ‘H-17’, respondent claims that the receipts
are temporary in nature and that subsequently regular corporate receipts "Likewise, respondent clearly committed a violation of Canon 15 of the
were issued. On their face however the receipts clearly appear to be same code which provides that ‘A lawyer should observe candor fairness
official receipts, printed and numbered duly signed by the respondent and loyalty in all his dealings and transactions with his client.’
bearing his printed name.
"Respondent’s acts gravely diminish the public’s respect for the integrity
"It is difficult to believe that a lawyer of respondent’ stature would issue of the profession of law for which this Commission recommends that he
official receipts to lessees if he only meant to issue temporary ones. be meted the penalty of disbarment.

"6. With regard to respondent’s claim that the complainant consented to "The pendency of the cases at the SEC and the Regional Trial Court of
the sale of her ancestral home, covered by TCT No. T-72,004 to one Zamboanga filed by complainant against respondent does not preclude
Tion Suy Ong for which he attached as Exhibit 22 to his Position Paper a determination of respondent’s culpability as a lawyer.
the minutes of an annual meeting of the stockholders, it behooves this
Commission why complainant’s signature had to be accompanied by her
thumb mark. Furthermore, complainant’s signature appears unstable "This Commission cannot further delay the resolution of this complaint
and shaky. This Office is thus persuaded to believe complainant’s filed in 1985 by complainant, and old widow who deserves to find hope
allegation in paragraph 3b of her position paper that since September and recover her confidence in the judicial system.
1992 up to March 1993 she was being detained by one PO# (sic) Joel
Constantino and his wife under instructions from respondent Balicanta. "The findings of this office, predominantly based on documents adduced
by both parties lead to only one rather unpalatable conclusion. That
"This conclusion is supported by a letter from respondent dated March respondent Atty. Jesus F. Balicanta, in his professional relations with
1993, Annex ‘H’ of complainant’s position paper, where respondent herein complainant did in fact employ unlawful, dishonest, and immoral
ordered Police Officer Constantino ‘to allow Atty. Linda Lim and conduct proscribed in no uncertain terms by Rule 1.01 of the Code of
Rosemarie Jaldon to talk to Tita Rosing.’ Professional Responsibility. In addition, respondent’s actions clearly
violated Canon 15 to 16 of the same Code.
"The complainant’s thumb mark together with her visibly unstable shaky
signature lends credence to her claim that she was detained in the far "It is therefore our unpleasant duty to recommend that respondent,
flung barrio of Culianan under instructions of respondent while her having committed acts in violation of the Canons of Professional
ancestral home was demolished and the lot sold to one Tion Suy Ong. Responsibility, thereby causing a great disservice to the profession, be
meted the ultimate sanction of disbarment."2
"It appears that respondent felt compelled to over-ensure complainant’s
consent by getting her to affix her thumb mark in addition to her On September 30, 1999, while Commissioner Cunanan’s recommendation for
signature. respondent’s disbarment was pending review before Executive Vice-President and
Northern Luzon Governor Teofilo Pilando, respondent filed a motion requesting "for a full-
blown investigation and for invalidation of the entire proceedings and/or remedial action
"7. Respondent likewise denies that he also acted as Corporate under Section 11, Rule 139-B, Revised Rules of Court," alleging that he had evidence that
Secretary in addition to being the Chairman, President and Treasurer of Commissioner Cunanan’s report was drafted by the lawyers of complainant, Attys.
the corporation. Yet, respondent submitted to this commission Antonio Cope and Rita Linda Jimeno. He presented two unsigned anonymous letters
documents which are supported to be in the possession of the Corporate allegedly coming from a disgruntled employee of Attys. Cope and Jimeno. He claimed to
Secretary such as the stock and transfer book and minutes of meetings. have received these letters in his mailbox.3

"The foregoing findings of this Commission are virtual smoking guns that Respondent’s motion alleging that Attys. Antonio Cope and Rita Linda Jimeno drafted
prove on no uncertain terms that respondent, who was the legal counsel Commissioner Cunanan’s report was accompanied by a complaint praying for the
of complainant in the latter part of the settlement of the estate of her disbarment of said lawyers including Commissioner Cunanan. The complaint was
docketed as CBD Case No. 99-658. After Attys. Cope and Jimeno and Commissioner claim to the contrary. In all these transactions, complainant and her daughter who both
Cunanan filed their answers, a hearing was conducted by the Investigating Committee of owned 1,711 out of the 1,750 outstanding shares of the corporation or 97.7% never had
the IBP Board of Governors. any participation. Neither were they informed thereof.

On May 26, 2001, the IBP Board of Governors issued a resolution 4 dismissing for lack of Clearly, there was no quorum for a valid meeting for the discussion and approval of these
merit the complaint for disbarment against Attys. Cope and Jimeno and Commissioner transactions.
Cunanan. And in Adm. Case No. 2797, the Board adopted and approved the report and
recommendation of Commissioner Cunanan, and meted against herein respondent Respondent cannot take refuge in the contested voting trust agreement supposedly
Balicanta the penalty of suspension from the practice of law for 5 years "for commission of executed by complainant and her daughter for the reason that it authorized respondent to
acts of misconduct and disloyalty by taking undue and unfair advantage of his legal represent complainant for only 266 shares.
knowledge as a lawyer to gain material benefit for himself at the expense of complainant
Rosaura P. Jaldon-Cordon and caused serious damage to the complainant." 5
Aside from the dishonest transactions he entered into under the cloak of sham
resolutions, he failed to explain several discrepancies in his version of the facts. We
To support its decision, the Board uncovered respondent’s fraudulent acts in the very hereby reiterate some of these statements noted by Commissioner Cunanan in his
same documents he presented to exonerate himself. It also took note of respondent’s findings.
contradictory and irreconcilable statements in the pleadings and position papers he
submitted. However, it regarded the penalty of disbarment as too severe for respondent’s
misdeeds, considering that the same were his first offense. 6 First, respondent blamed the directors and the stockholders who failed to convene for the
required annual meetings since 1982. However, respondent appeared able to convene
the stockholders and directors when he contracted the LBP debt, when he sold to
Pursuant to Section 12 (b), Rule 139-B of the Rules of Court,7 the said resolution in Jammang the corporation’s right of redemption over the foreclosed properties of the
Administrative Case No. 2797 imposing the penalty of suspension for 5 years on corporation, when he sold one parcel of land covered by TCT No. 62807 to Jammang,
respondent was automatically elevated to this Court for final action. On the other hand, when he mortgaged the 9 parcels of land to LBP which later foreclosed on said mortgage,
the dismissal of the complaint for disbarment against Attys. Cope and Jimeno and and when he sold the complainant’s ancestral home covered by TCT No. 72004.
Commissioner Cunanan, docketed as CBD Case No. 99-658, became final in the
absence of any petition for review.
Second, the factual findings of the investigating commission, affirmed by the IBP Board,
disclosed that complainant and her daughter own 1,711 out of 1,750 shares of the
This Court confirms the duly supported findings of the IBP Board that respondent outstanding capital stock of the corporation, based on the Articles of Incorporation and
committed condemnable acts of deceit against his client. The fraudulent acts he carried deeds of transfer of the properties. But respondent’s evidence showed that complainant
out against his client followed a well thought of plan to misappropriate the corporate had only 266 shares of stock in the corporation while her daughter had none,
properties and funds entrusted to him. At the very outset, he embarked on his devious notwithstanding the fact that there was nothing to indicate that complainant and her
scheme by making himself the President, Chairman of the Board, Director and Treasurer daughter ever conveyed their shares to others.
of the corporation, although he knew he was prohibited from assuming the position of
President and Treasurer at the same time.8 As Treasurer, he accepted in behalf of the
corporation the 19 titles that complainant and her daughter co-owned. The other treasurer Respondent likewise did not explain why he did not return the certificates representing the
appointed, Farnacio Bucoy, did not appear to be a stockholder or director in the corporate 266 shares after the lapse of 5 years from the time the voting trust certificate was
records. The minutes of the meetings supposedly electing him and Bucoy as officers of executed in 1981.9
the corporation actually bore the signatures of respondent and the secretary only,
contrary to his claim that they were signed by the directors and stockholders. The records show that up to now, the complainant and her daughter own 97% of the
outstanding shares but respondent never bothered to explain why they were never asked
He likewise misled the IBP investigating commission in claiming that the mortgage of 9 of to participate in or why they were never informed of important corporate decisions.
the properties of the corporation previously belonging to complainant and her daughter
was ratified by the stockholders owning two-thirds or 67% of the outstanding capital stock Third, respondent, in his comment, alleged that due to the objection of complainant and
when in fact only three stockholders owning 111 out of 1,750 outstanding shares or 6.3% her daughter to his proposal to hire an accountant, the corporation had no formal
assented thereto. The alleged authorization granting him the power to contract the LBP accounting of its revenues and income. However, respondent’s position paper maintained
loan for Two Million Two Hundred Twenty Pesos (P2,220,000) was also not approved by that there was no accounting because the part-time bookkeeper of the corporation
the required minimum of two-thirds of the outstanding capital stock despite respondent’s connived with complainant and her daughter in keeping the corporate records.
Fourth, respondent’s claim that complainant and her daughter took control of the deceitful conduct.11 If the practice of law is to remain an honorable profession and attain
operations of the corporation in 1986 is belied by the fact that complainant and her its basic ideal, those enrolled in its ranks should not only master its tenets and principles
daughter were not even present in the alleged meeting of the board (which took place but should also, in their lives, accord continuing fidelity to them. 12 Thus, the requirement of
after 1986) to discuss the foreclosure of the mortgaged properties. The truth is that he good moral character is of much greater import, as far as the general public is concerned,
never informed them of such meeting and he never gave control of the corporation to than the possession of legal learning.13 Lawyers are expected to abide by the tenets of
them. morality, not only upon admission to the Bar but also throughout their legal career, in
order to maintain one’s good standing in that exclusive and honored fraternity. 14 Good
Fifth, Commissioner Cunanan found that: moral character is more than just the absence of bad character. Such character
expresses itself in the will to do the unpleasant thing if it is right and the resolve not to do
the pleasant thing if it is wrong.15 This must be so because "vast interests are committed
"5. on the matter of the receipts issued by respondent evidencing payment to him of to his care; he is the recipient of unbounded trust and confidence; he deals with his
rentals by lessees of the corporation, attached to the complaint as Annexes ‘H’ to ‘H-17’, client’s property, reputation, his life, his all."16
respondent claims that the receipts are temporary in nature and that subsequently regular
corporate receipts were issued. On their face however the receipts clearly appear to be
official receipts, printed and numbered duly signed by the respondent bearing his printed Indeed, the words of former Presiding Justice of the Court of Appeals Pompeyo Diaz
name. cannot find a more relevant application than in this case:

"It is difficult to believe that a lawyer of respondent’s stature would issue official receipts to "There are men in any society who are so self-serving that they try to make law serve
lessees if he only meant to issue temporary ones." 10 their selfish ends. In this group of men, the most dangerous is the man of the law who has
no conscience. He has, in the arsenal of his knowledge, the very tools by which he can
poison and disrupt society and bring it to an ignoble end." 17
Sixth, respondent denies that he acted as Corporate Secretary aside from being the
Chairman, President and Treasurer of the corporation. Yet respondent submitted to the
investigating commission documents which were supposed to be in the official possession Good moral standing is manifested in the duty of the lawyer "to hold in trust all moneys
of the Corporate Secretary alone such as the stock and transfer book and minutes of and properties of his client that may come into his possession." 18 He is bound "to account
meetings. for all money or property collected or received for or from the client." 19 The relation
between an attorney and his client is highly fiduciary in nature. Thus, lawyers are bound
to promptly account for money or property received by them on behalf of their clients and
Seventh, he alleged in his comment that he was the one who proposed the establishment failure to do so constitutes professional misconduct. 20
of the corporation that would invest the properties of the complainant but, in his position
paper, he said that it was a certain Atty. Rosauro Alvarez who made the proposal to put
up the corporation. This Court holds that respondent cannot invoke the separate personality of the
corporation to absolve him from exercising these duties over the properties turned over to
him by complainant. He blatantly used the corporate veil to defeat his fiduciary obligation
After a thorough review of the records, we find that respondent committed grave and to his client, the complainant. Toleration of such fraudulent conduct was never the reason
serious misconduct that casts dishonor on the legal profession. His misdemeanors reveal for the creation of said corporate fiction.
a deceitful scheme to use the corporation as a means to convert for his own personal
benefit properties left to him in trust by complainant and her daughter.
The massive fraud perpetrated by respondent on the complainant leaves us no choice but
to set aside the veil of corporate entity. For purposes of this action therefore, the
Not even his deviousness could cover up the wrongdoings he committed. The documents properties registered in the name of the corporation should still be considered as
he thought could exculpate him were the very same documents that revealed his immoral properties of complainant and her daughter. The respondent merely held them in trust for
and shameless ways. These documents were extremely revealing in that they unmasked complainant (now an ailing 83-year-old) and her daughter. The properties conveyed
a man who knew the law and abused it for his personal gain without any qualms of fraudulently and/or without the requisite authority should be deemed as never to have
conscience. They painted an intricate web of lies, deceit and opportunism beneath a been transferred, sold or mortgaged at all. Respondent shall be liable, in his personal
carefully crafted smokescreen of corporate maneuvers. capacity, to third parties who may have contracted with him in good faith.

The Code of Professional Responsibility mandates upon each lawyer, as his duty to Based on the aforementioned findings, this Court believes that the gravity of respondent’s
society, the obligation to obey the laws of the land and promote respect for law and legal offenses cannot be adequately matched by mere suspension as recommended by the
processes. Specifically, he is forbidden to engage in unlawful, dishonest, immoral or
IBP. Instead, his wrongdoings deserve the severe penalty of disbarment, without of conducting the business."cralaw virtua1aw library
prejudice to his criminal and civil liabilities for his dishonest acts.
3. ID.; ID.; ID.; TEST IN DETERMINING THE APPLICABILITY THEREOF. — The test in
WHEREFORE, respondent Attorney Jesus T. Balicanta is hereby DISBARRED. The determining the applicability of the doctrine of piercing the veil of corporation fiction is as
Clerk of Court is directed to strike out his name from the Roll of Attorneys. 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
SO ORDERED. 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
FIRST DIVISION duty, or dishonest and unjust act in contravention of plaintiff’s legal rights; and 3. The
aforesaid control and breach of duty must proximately cause the injury or unjust loss
[G.R. No. 108734. May 29, 1996.] complained of. The absence of any one of these elements prevent ‘piercing the corporate
veil.’ In applying the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with
CONCEPT BUILDERS, INC., Petitioner, v. THE NATIONAL LABOR RELATIONS, reality and not form, with how the corporation operated and the individual defendant’s
COMMISSION,(First Division); and Norberto Marabe, Rodolfo Raquel, Cristobal relationship to that operation."cralaw virtua1aw library
Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador,
Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, 4. ID.; ID.; ID.; APPLICABLE IN CASE AT BAR. — In this case, the NLRC noted that,
Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an
Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Information Sheet with the Securities and Exchange Commission on May 15, 1987,
Robalos, Respondents. 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
The Law Firm of Araullo and Raymundo for Petitioner. 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
Ciriaco S. Cruz for Private Respondent. same Virgilio 0. Casiño as the corporate Secretary of both corporations. It would also not
be amiss to note that both corporations had the same president, the same board of
directors, the same corporate officers, and substantially the same subscribers. From the
SYLLABUS foregoing, it appears that, among other things, the respondent (herein petitioner-) and the
third-party claimant shared the same address an/or premises. Under this circumstances,
(sic) it cannot be said that the property levied upon by the sheriff were not of
1. COMMERCIAL LAW; CORPORATION LAW; DOCTRINE OF PIERCING THE VEIL OF respondents." Clearly, petitioner ceased its business operations in order to evade the
CORPORATE ENTITY; WHEN APPLICABLE. — It is a fundamental principle of payment to private respondents of back wages and to bar their reinstatement to their
corporation law that a corporation is an entity separate and distinct from its stockholders former positions. HPPI is obviously a business conduit of petitioner corporation and its
and from other corporations to which it may be connected. But, this separate and distinct emergence was skillfully orchestrated to avoid the financial liability that already attached
personality of a corporation is merely a fiction created by law for convenience and to to petitioner corporation
promote justice. 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 5. ID.; NATIONAL LABOR RELATIONS COMMISSION MANUAL OF EXECUTION OF
defeat the labor laws, this separate personality of the corporation may be disregarded or JUDGMENT; SECTION 3, RULE VII THEREOF; PROPERLY OBSERVED IN CASE AT
the veil of corporate fiction pierced. This is true likewise when the corporation is merely an BAR. — In view of the failure of the sheriff, in the case at bar, to effect a levy upon the
adjunct, a business conduit or an alter ego of another corporation. 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
2. ID.; ID.; ID.; PROBATIVE FACTORS OF IDENTITY THAT WILL JUSTIFY THE by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of
APPLICATION THEREOF. — The conditions under which the juridical entity may be Execution of Judgment which provides that: "Should the losing party, his grant or
disregarded vary according to the peculiar facts and circumstances of each case. No hard representative, refuse or prohibit the Sheriff or his representative entry to the place where
and fast rule can be accurately laid down, but certainly, there are some probative factors the property subject of execution is located or kept, the judgment creditor may apply to
of identity that will justify the application of the doctrine of piercing the corporate veil, to the Commissioner or Labor Arbiter concerned for a break-open order."
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
 DECISION already become final and executory. 2

On October 16, 1986, the NLRC Research and Information Department made the finding
HERMOSISIMA, JR., J.: that private respondents’ back wages 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
The corporate mask may be lifted and the corporate veil may be pierced when a
garnishment of sums from petitioner’s debtor, the Metropolitan Waterworks and Sewerage
corporation is just but the alter ego of a person or of another corporation. Where badges
Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the
of fraud exist; where public convenience is defeated; where a wrong is sought to be
NLRC.
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
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing
and, in case of two corporations, merge them into one.
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
Thus, where a sister corporation is used as a shield to evade a corporation’s subsidiary
positions.
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
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of
into play.
execution on petitioner through the security guard on duty but the service was refused on
the ground that petitioner no longer occupied the premises.
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
On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a
order" to the sheriff to be enforced against personal property found in the premises of
second alias writ of execution.
petitioner’s sister company.
The said writ had not been enforced by the special sheriff because, as stated in his
Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355
progress report, dated November 2, 1989:chanrob1es virtual 1aw library
Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. Private
respondents were employed by said company as laborers, carpenters and riggers.
1. All the employees inside petitioner’s premises at 355 Maysan Road, Valenzuela, Metro
Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not
On November, 1981, private respondents were served individual written notices of
by respondent;
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
2. Levy was made upon personal properties he found in the premises;
which they were hired had been completed.
3. Security guards with high-powered guns prevented him from removing the properties
Public respondent found it to be, the fact, however, that at the time of the termination of
he had levied upon. 4
private respondent’s 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
The said special sheriff recommended that a, "break-open order" be issued to enable him
workers performed the functions of private respondents.
to enter petitioner’s premises so that he could proceed with the public auction sale of the
aforesaid personal properties on November 7, 1989.
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
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the
against petitioner.
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.
On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to
reinstate private respondents and to pay them back wages equivalent to one year or three
On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-Open
hundred working days.
Order," alleging that HPPI and petitioner corporation were owned by the same
incorporator/stockholders. They also alleged that petitioner temporarily suspended its
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the
business operations in order to evade its legal obligations to them and that private
motion for reconsideration filed by petitioner on the ground that the said decision had
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-open order. 4. Principal Office

In support of their claim against HPPI, private respondents presented duly certified copies 355 Maysan Road
of the General Informations Sheet, dated May 15, 1987, submitted by petition or to the
Securities Exchange Commission (SEC) and the General Information Sheet, dated May Valenzuela, Metro Manila." 5
15, 1987, submitted by HPPI to the Securities and Exchange Commission.
On the other hand, the General Information Sheet of HPPI revealed the
The General Information Sheet submitted by the petitioner revealed the following:jgc:chanrobles.com.ph
following:jgc:chanrobles.com.ph
"1. Breakdown of Subscribed Capital
"1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
Name of Stockholder Amount Subscribed
Antonio W. Lim P400,000.00
HPPI P6,999,500.00
Elisa C. Lim 57,700.00
Antonio W. Lim 2,900,000.00
AWL Trading 455,000.00
Dennis S. Cuyegkeng 300.00
Dennis S. Cuyegkeng 40,100.00
Elisa C. Lim 100,000.00
Teodulo R. Dino 100.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100 00
Virgilio O. Casino 100.00
2. Board of Directors
2. Board of Directors
Antonio W. Lim Chairman
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member
Dennis S. Cuyegkeng Member
Elisa C. Lim Member
Virgilio O. Casino Member
Teodulo R. Dino Member
Teodulo R. Dino Member
Virgilio O. Casino Member
3. Corporate Officers
3. Corporate Officers
Antonio W. Lim President
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Dennis S. Cuyegkeng Assistant to the President
Elisa C. Lim Treasurer
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
Virgilio O. Casino Corporate Secretary
4. Principal Office
 application of the doctrine of piercing the corporate veil, to wit:jgc:chanrobles.com.ph
355 Maysan Road, Valenzuela, Metro Manila." 6
"1. Stock ownership by one or common ownership of both corporations.
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 separate 2. Identity of directors and officers.
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 petitioner was 3. The manner of keeping corporate books and records.
then engaged in constitution.
4. Methods of conducting the business." 13
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents’
motion for break-open order. The SEC en banc explained the "instrumentality rule" which the courts have applied in
disregarding the separate juridical personality of corporations as
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside follows:jgc:chanrobles.com.ph
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 auction "Where one corporation is so organized and controlled and its affairs are conducted so
sale of the properties already levied upon. It dismissed the third-party claim for lack of that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate
merit. 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
Petitioner moved for reconsideration but the motion was denied by the NLRC in a and practices that the controlled corporation has, so to speak, no separate mind, will or
Resolution, dated December 3, 1992. 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
Hence, the resort to the present petition. place. Moreover, the control and breach of duty must proximately cause the injury or
unjust loss for which the complaint is made."cralaw virtua1aw library
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the
execution of its decision despite a third-party claim on the levied property. Petitioner The test in determining the applicability of the doctrine of piercing the veil of corporate
further contends, that the doctrine of piercing the corporate veil should not have been fiction is as follows:jgc:chanrobles.com.ph
applied, in this case, in the absence of any showing that it created HPPI in order to evade
its liability to private respondents. It also contends that HPPI is engaged in the "1. Control, not mere majority or complete stock control, but complete domination, not
manufacture and sale of steel, concrete and iron pipes, a business which is distinct and only of finances but of policy and business practice in respect to the transaction attacked
separate from petitioner’s construction business. Hence, it is of no consequence that so that the corporate entity as to this transaction had at the time no separate mind, will or
petitioner and HPPI shared the same premises, the same President and the same set of existence of its own;
officers and subscribers. 7
2. Such control must have been used by the defendant to commit fraud or wrong, to
We find petitioner’s contention to be unmeritorious. perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust
act in contravention of plaintiff’s legal rights; and
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 3. The aforesaid control and breach of duty must proximately cause the injury or unjust
But, this separate and distinct personality of a corporation is merely a fiction created by loss complained of:chanrob1es virtual 1aw library
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 The absence of any one of these elements prevents ‘piercing the corporate veil’. In
crime, or is used as a device to defeat the labor laws, 10 this separate personality of the applying the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality
corporation may be disregarded or the veil of corporate fiction pierced. 11 This is true and not form, with how the corporation operated and the individual defendant’s
likewise when the corporation is merely an adjunct, a business conduit or an alter ego of relationship to that operation." 14
another corporation. 12
Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper
The conditions under which the juridical entity may be disregarded vary according to the corporation, a sham or a subterfuge is purely one of fact. 15
peculiar facts and circumstances of each case. No hard and fast rule can be accurately
laid down, but certainly, there are some probative factors of identity that will justify the 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 "Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his
Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, representative entry to the place where the property subject of execution is located or
submitted on the same day, a similar information sheet stating that its office address is at kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned for a
355 Maysan Road, Valenzuela, Metro Manila. break-open order."cralaw virtua1aw library

Furthermore, the NLRC stated that:jgc:chanrobles.com.ph 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
"Both information sheets were filed by the same Virgilio O. Casiño as the corporate opportunity to submit evidence in support of their claim.
secretary of both corporations. It would also not be amiss to note that both corporations
had the same president, the same board of directors, the same corporate officers, and Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the
substantially the same subscribers. break-open order issued by the Labor Arbiter.

From the foregoing, it appears that, among other things, the respondent (herein petitioner) Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial
and the third-party claimant shared the same address and/or premises. Under this agencies supported by substantial evidence are binding on this Court and are entitled to
circumstances, (sic) it cannot be said that the property levied upon by the sheriff were not great respect, in the absence of showing of grave abuse of a discretion. 18
of respondents. 16
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC,
Clearly, petitioner ceased its business operations in order to evade the payment to private dated April 23, 1992 and December 3. 1992. are AFFIRMED.
respondents of back wages and to bar their reinstatement to their former positions. HPPI
is obviously a business conduit of petitioner corporation and its emergence was skillfully SO ORDERED.
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 Relations, 17
where we had the occasion to rule:jgc:chanrobles.com.ph

"Respondent court’s 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 l, 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 . . . Both 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. . . Claparols himself,
and an 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."cralaw
virtua1aw library

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:jgc:chanrobles.com.ph
G.R. No. 159108               June 18, 2012 and entitled Heirs of Concepcion Lacsa, represented by Teodoro Lacsa v. Travel & Tours
Advisers, Inc. (Goldline) and Rene Abania, alleged that the collision was due to the
GOLD LINE TOURS, INC., Petitioner, reckless and imprudent manner by which Abania had driven the Goldline bus. 11
vs.
HEIRS OF MARIA CONCEPCION LACSA, Respondents. In support of the complaint, Miriam testified that Abania had been occasionally looking up
at the video monitor installed in the front portion of the Goldline bus despite driving his
DECISION bus at a fast speed;12 that in Barangay San Agustin, the Goldline bus had collided with a
service jeepney coming from the opposite direction while in the process of overtaking
another bus;13 that the impact had caused the angle bar of the jeepney to detach and to
BERSAMIN, J.: go through the windshield of the bus directly into the chest of Concepcion who had then
been seated behind the driver’s seat;14 that concerned bystanders had hailed another bus
The veil of corporate existence of a corporation is a fiction of law that should not defeat to rush Concepcion to the Ago Foundation Hospital in Naga City because the Goldline
the ends of justice. bus employees and her co-passengers had ignored Miriam’s cries for help; 15 and that
Concepcion was pronounced dead upon arrival at the hospital. 16
Petitioner seeks to reverse the decision promulgated on October 30, 2002 1 and the
resolution promulgated on June 25, 2003,2 whereby the Court of Appeals (CA) upheld the To refute the plaintiffs’ allegations, the defendants presented SPO1 Pedro Corporal of the
orders issued on August 2, 20013 and October 22, 20014 by the Regional Trial Court Philippine National Police Station in Pili, Camarines Sur, and William Cheng, the operator
(RTC), Branch 51, in Sorsogon in Civil Case No. 93-5917 entitled Heirs of Concepcion of the Goldline bus.17 SPO1 Corporal opined that based on his investigation report, the
Lacsa, represented by Teodoro Lacsa v. Travel & Tours Advisers, Inc., et al. authorizing driver of the jeepney had been at fault for failing to observe precautionary measures to
the implementation of the writ of execution against petitioner despite its protestation of avoid the collision;18 and suggested that criminal and civil charges should be brought
being a separate and different corporate personality from Travel & Tours Advisers, Inc. against the operator and driver of the jeepney.19 On his part, Cheng attested that he had
(defendant in Civil Case No. 93-5917). exercised the required diligence in the selection and supervision of his employees; and
that he had been engaged in the transportation business since 1980 with the use of a
In the orders assailed in the CA, the RTC declared petitioner and Travel & Tours total of 60 units of Goldline buses, employing about 100 employees (including drivers,
Advisers, Inc. to be one and the same entity, and ruled that the levy of petitioner’s conductors, maintenance personnel, and mechanics);20 that as a condition for regular
property to satisfy the final and executory decision rendered on June 30, 1997 against employment, applicant drivers had undergone a one-month training period and a six-
Travel & Tours Advisers, Inc. in Civil Case No. 93-5917 5 was valid even if petitioner had month probationary period during which they had gotten acquainted with Goldline’s
not been impleaded as a party. driving practices and demeanor;21 that the employees had come under constant
supervision, rendering improbable the claim that Abania, who was a regular employee,
Antecedents had been glancing at the video monitor while driving the bus;22 that the incident causing
Concepcion’s death was the first serious incident his (Cheng) transportation business had
encountered, because the rest had been only minor traffic accidents; 23 and that
On August 2, 1993, Ma. Concepcion Lacsa (Concepcion) and her sister, Miriam Lacsa immediately upon being informed of the accident, he had instructed his personnel to
(Miriam), boarded a Goldline passenger bus with Plate No. NXM-105 owned and contact the family of Concepcion.24
operated by Travel &Tours Advisers, Inc. They were enroute from Sorsogon to Cubao,
Quezon City.6 At the time, Concepcion, having just obtained her degree of Bachelor of
Science in Nursing at the Ago Medical and Educational Center, was proceeding to Manila The defendants blamed the death of Concepcion to the recklessness of Bilbes as the
to take the nursing licensure board examination.7 Upon reaching the highway at Barangay driver of the jeepney, and of its operator, Salvador Romano; 25 and that they had
San Agustin in Pili, Camarines Sur, the Goldline bus, driven by Rene Abania (Abania), consequently brought a third-party complaint against the latter. 26
collided with a passenger jeepney with Plate No. EAV-313 coming from the opposite
direction and driven by Alejandro Belbis.8 As a result, a metal part of the jeepney was After trial, the RTC rendered its decision dated June 30, 1997, disposing:
detached and struck Concepcion in the chest, causing her instant death. 9
ACCORDINGLY, judgment is hereby rendered:
On August 23, 1993, Concepcion’s heirs, represented by Teodoro Lacsa, instituted in the
RTC a suit against Travel & Tours Advisers Inc. and Abania to recover damages arising (1) Finding the plaintiffs entitled to damages for the death of Ma. Concepcion
from breach of contract of carriage.10 The complaint, docketed as Civil Case No. 93-5917 Lacsa in violation of the contract of carriage;
 (2) Ordering defendant Travel & Tours Advisers, Inc. (Goldline) to pay plaintiffs: Thereafter, the plaintiffs moved for the issuance of a writ of execution to implement the
decision dated June 30, 1997.30 The RTC granted their motion on January 31, 2000, 31 and
a. ₱30,000.00 – expenses for the wake; issued the writ of execution on February 24, 2000. 32

b. ₱ 6,000.00 – funeral expenses; On May 10, 2000, the sheriff implementing the writ of execution rendered a Sheriff’s
Partial Return,33 certifying that the writ of execution had been personally served and a
copy of it had been duly tendered to Travel & Tours Advisers, Inc. or William Cheng,
c. ₱50,000.00 – for the death of Ma. Concepcion Lacsa; through his secretary, Grace Miranda, and that Cheng had failed to settle the judgment
amount despite promising to do so. Accordingly, a tourist bus bearing Plate No. NWW-
d. ₱150,000.00 – for moral damages; 883 was levied pursuant to the writ of execution.

e. ₱20,000.00 – for exemplary damages; The plaintiffs moved to cite Cheng in contempt of court for failure to obey a lawful writ of
the RTC.34 Cheng filed his opposition.35 Acting on the motion to cite Cheng in contempt of
f. ₱8,000.00 – for attorney’s fees; court, the RTC directed the plaintiffs to file a verified petition for indirect contempt on
February 19, 2001.36
g. ₱2,000.00 – for litigation expenses;
On April 20, 2001, petitioner submitted a so-called verified third party claim, 37 claiming that
h. Costs of suit. the tourist bus bearing Plate No. NWW-883 be returned to petitioner because it was the
owner; that petitioner had not been made a party to Civil Case No. 93-5917; and that
petitioner was a corporation entirely different from Travel & Tours Advisers, Inc., the
(3) Ordering the dismissal of the case against Rene Abania; defendant in Civil Case No. 93-5917.

(4) Ordering the dismissal of the third-party complaint. It is notable that petitioner’s Articles of Incorporation was amended on November 8,
1993,38 shortly after the filing of Civil Case No. 93-5917 against Travel & Tours Advisers,
SO ORDERED.27 Inc.

The RTC found that a contract of carriage had been forged between Travel & Tours Respondents opposed petitioner’s verified third-party claim on the following grounds,
Advisers, Inc. and Concepcion as soon as she had boarded the Goldline bus as a paying namely: (a) the third-party claim did not comply with the required notice of hearing as
passenger; that Travel & Tours Advisers, Inc. had then become duty-bound to safely required by Rule 15, Sections 4 and 5 of the Rules of Court; (b) Travel & Tours Advisers,
transport her as its passenger to her destination; that due to Travel & Tours Advisers, Inc. and petitioner were identical entities and were both operated and managed by the
Inc.’s inability to perform its duty, Article 1786 of the Civil Code created against it the same person, William Cheng; and (c) petitioner was attempting to defraud its creditors –
disputable presumption that it had been at fault or had been negligent in the performance respondents herein – hence, the doctrine of piercing the veil of corporate entity was
of its obligations towards the passenger; that Travel & Tours Advisers, Inc. failed to squarely applicable.39
disprove the presumption of negligence; and that a rigid selection of employees was not
sufficient to exempt Travel & Tours Advisers, Inc. from the obligation of exercising On August 2, 2001, the RTC dismissed petitioner’s verified third-party claim, observing
extraordinary diligence to ensure that its passenger was carried safely to her destination. that the identity of Travel & Tours Adivsers, Inc. could not be divorced from that of
petitioner considering that Cheng had claimed to be the operator as well as the
Aggrieved, the defendants appealed to the CA. President/Manager/incorporator of both entities; and that Travel & Tours Advisers, Inc.
had been known in Sorsogon as Goldline.40
On June 11, 1998,28 the CA dismissed the appeal for failure of the defendants to pay the
docket and other lawful fees within the required period as provided in Rule 41, Section 4 Petitioner moved for reconsideration,41 but the RTC denied the motion on October 22,
of the Rules of Court (1997). The dismissal became final, and entry of judgment was 2001.42
made on July 17, 1998.29
Thence, petitioner initiated a special civil action for certiorari in the CA, 43 asserting:
THE RESPONDENT HONORABLE RTC JUDGE HAD ACTED WITHOUT and for sustaining the propriety of the levy of the tourist bus with Plate No. NWW-883 in
JURISDICTION OR COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO satisfaction of the writ of execution. 47
LACK OF JURISDICTION IN ISSUING THE: (A) ORDER DATED 2 AUGUST 2001,
COPY OF WHICH IS HERETO ATTACHED AS ANNEX A, DISMISSING HEREIN In the meantime, respondents filed in the RTC a motion to direct the sheriff to implement
PETITIONER’S THIRD PARTY CLAIM; AND (B) ORDER DATED 22 OCTOBER 2001, the writ of execution in view of the non-issuance of any restraining order either by this
COPY OF WHICH IS HERETO ATTACHED AS ANNEX B DENYING SAID Court or the CA.48 On February 23, 2007, the RTC granted the motion and directed the
PETITIONER’S MOTION FOR RECONSIDERATION; AND THAT THERE IS NO sheriff to sell the Goldline tourist bus with Plate No. NWW-883 through a public auction. 49
APPEAL, OR ANY PLAIN, SPEEDY AND ADEQUATE REMEDY AVAILABLE TO SAID
PETITIONER.
Issue
On October 30, 2002, the CA promulgated its decision dismissing the petition for
certiorari,44 holding as follows: Did the CA rightly find and conclude that the RTC did not gravely abuse its discretion in
denying petitioner’s verified third-party claim?
The petition lacks merit.
Ruling
As stated in the decision supra, William Ching disclosed during the trial of the case that
defendant Travel & Tours Advisers, Inc. (Goldline), of which he is an officer, is operating We find no reason to reverse the assailed CA decision.
sixty (60) units of Goldline buses. That the Goldline buses are used in the operations of
defendant company is obvious from Mr. Cheng’s admission. The Amended Articles of In the order dated August 2, 2001, the RTC rendered its justification for rejecting the third-
Incorporation of Gold Line Tours, Inc. disclose that the following persons are the original party claim of petitioner in the following manner:
incorporators thereof: Antonio O. Ching, Maribel Lim Ching, witness William Ching, Anita
Dy Ching and Zosimo Ching. (Rollo, pp. 105-106) We see no reason why defendant xxx
company would be using Goldline buses in its operations unless the two companies are
actually one and the same. The main contention of Third Party Claimant is that it is the owner of the Bus and
therefore, it should not be seized by the sheriff because the same does not belong to the
Moreover, the name Goldline was added to defendant’s name in the Complaint. There defendant Travel & Tours Advises, Inc. (GOLDLINE) as the third party claimant and
was no objection from William Ching who could have raised the defense that Gold Line defendant are two separate corporation with separate juridical personalities. Upon the
Tours, Inc. was in no way liable or involved. Indeed, it appears to this Court that rather other hand, this Court had scrutinized the documents submitted by the Third party
than Travel & Tours Advisers, Inc., it is Gold Line Tours, Inc., which should have been Claimant and found out that William Ching who claimed to be the operator of the Travel &
named party defendant. Tours Advisers, Inc. (GOLDLINE) is also the President/Manager and incorporator of the
Third Party Claimant Goldline Tours Inc. and he is joined by his co-incorporators who are
Be that as it may, We concur in the trial court’s finding that the two companies are actually "Ching" and "Dy" thereby this Court could only say that these two corporations are one
one and the same, hence the levy of the bus in question was proper. and the same corporations. This is of judicial knowledge that since Travel & Tours
Advisers, Inc. came to Sorsogon it has been known as GOLDLINE.
WHEREFORE, for lack of merit, the petition is DISMISSED and the assailed Orders are
AFFIRMED. This Court is not persuaded by the proposition of the third party claimant that a
corporation has an existence separate and/or distinct from its members insofar as this
SO ORDERED. case at bar is concerned, for the reason that whenever necessary for the interest of the
public or for the protection of
Petitioner filed a motion for reconsideration,45 which the CA denied on June 25, 2003. 46
enforcement of their rights, the notion of legal entity should not and is not to be used to
defeat public convenience, justify wrong, protect fraud or defend crime.
Hence, this appeal, in which petitioner faults the CA for holding that the RTC did not act
without jurisdiction or grave abuse of discretion in finding that petitioner and Travel &
Tours Advisers, Inc., the defendant in Civil Case No. 5917, were one and same entity, Apposite to the case at bar is the case of Palacio vs. Fely Transportation Co., L-15121,
May 31, 1962, 5 SCRA 1011 where the Supreme Court held:
"Where the main purpose in forming the corporation was to evade one’s subsidiary liability The RTC thus rightly ruled that petitioner might not be shielded from liability under the
for damages in a criminal case, the corporation may not be heard to say that it has a final judgment through the use of the doctrine of separate corporate identity. Truly, this
personality separate and distinct from its members, because to allow it to do so would be fiction of law could not be employed to defeat the ends of justice.
to sanction the use of fiction of corporate entity as a shield to further an end subversive of
justice (La Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et al., But petitioner continues to challenge the RTC orders by insisting that the evidence to
L-5677, May 25, 1953). The Supreme Court can even substitute the real party in interest establish its identity with Travel and Tours Advisers, Inc. was insufficient.
in place of the defendant corporation in order to avoid multiplicity of suits and thereby
save the parties unnecessary expenses and delay. (Alfonso vs. Villamor, 16 Phil. 315)."
We cannot agree with petitioner. As already stated, there was sufficient evidence that
petitioner and Travel and Tours Advisers, Inc.1âwphi1 were one and the same entity.
This is what the third party claimant wants to do including the defendant in this case, to Moreover, we remind that a petition for the writ of certiorari neither deals with errors of
use the separate and distinct personality of the two corporation as a shield to further an judgment nor extends to a mistake in the appreciation of the contending parties’ evidence
end subversive of justice by avoiding the execution of a final judgment of the court. 50 or in the evaluation of their relative weight.52 It is timely to remind that the petitioner in a
special civil action for certiorari commenced against a trial court that has jurisdiction over
As we see it, the RTC had sufficient factual basis to find that petitioner and Travel and the proceedings bears the burden to demonstrate not merely reversible error, but grave
Tours Advisers, Inc. were one and the same entity, specifically:– (a) documents submitted abuse of discretion amounting to lack or excess of jurisdiction on the part of the
by petitioner in the RTC showing that William Cheng, who claimed to be the operator of respondent trial court in issuing the impugned order.53 The term grave abuse of discretion
Travel and Tours Advisers, Inc., was also the President/Manager and an incorporator of is defined as a capricious and whimsical exercise of judgment so patent and gross as to
the petitioner; and (b) Travel and Tours Advisers, Inc. had been known in Sorsogon as amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by
Goldline. On its part, the CA cogently observed: law, as where the power is exercised in an arbitrary and despotic manner because of
passion or hostility.54 Mere abuse of discretion is not enough; it must be grave.55 Yet, here,
As stated in the (RTC) decision supra, William Ching disclosed during the trial of the case petitioner did not discharge its burden because it failed to demonstrate that the CA erred
that defendant Travel & Tours Advisers, Inc. (Goldline), of which he is an officer, is in holding that the RTC had not committed grave abuse of discretion. A review of the
operating sixty (60) units of Goldline buses. That the Goldline buses are used in the records shows, indeed, that the RTC correctly rejected petitioner’s third-party claim.
operations of Hence, the rejection did not come within the domain of the writ of certiorari’s limiting
requirement of excess or lack of jurisdiction.56

WHEREFORE, the Court DENIES the petition for review on certiorari, and AFFIRMS the
decision promulgated by the Court of Appeals on October 30, 2002. Costs of suit to be
defendant company is obvious from Mr. Cheng’s admission. The Amended Articles of paid by petitioner.
Incorporation of Gold Line Tours, Inc. disclose that the following persons are the original
incorporators thereof: Antonio O. Ching, Maribel Lim Ching, witness William Ching, Anita
Dy Ching and Zosimo Ching. (Rollo, pp. 105-108) We see no reason why defendant SO ORDERED.
company would be using Goldline buses in its operations unless the two companies are
actually one and the same.

Moreover, the name Goldline was added to defendant’s name in the Complaint. There
was no objection from William Ching who could have raised the defense that Gold Line
Tours, Inc. was in no way liable or involved. Indeed it appears to this Court that rather
than Travel & Tours Advisers, Inc. it is Gold Line Tours, Inc., which should have been
named party defendant.

Be that as it may, We concur in the trial court’s finding that the two companies are actually
one and the same, hence the levy of the bus in question was proper. 51
G.R. No. L-17618             August 31, 1964 During the existence of the distribution or agency agreement, or on June 10, 1949, Norton
& Harrison acquired by purchase all the outstanding shares of stock of Jackbilt.
COMMISSIONER OF INTERNAL REVENUE, petitioner, Apparently, due to this transaction, the Commissioner of Internal Revenue, after
vs. conducting an investigation, assessed the respondent Norton & Harrison for deficiency
NORTON and HARRISON COMPANY, respondent. sales tax and surcharges in the amount of P32,662.90, making as basis thereof the sales
of Norton to the Public. In other words, the Commissioner considered the sale of Norton
to the public as the original sale  and not the transaction from Jackbilt. The period covered
Office of the Solicitor General for petitioner. by the assessment was from July 1, 1949 to May 31, 1953. As Norton and Harrison did
Pio Joven for respondent. not conform with the assessment, the matter was brought to the Court of Tax Appeals.

PAREDES, J.: The Commissioner of Internal Revenue contends that since Jackbilt was owned and
controlled by Norton & Harrison, the corporate personality of the former (Jackbilt) should
This is an appeal interposed by the Commissioner of Internal Revenue against the be disregarded for sales tax purposes, and the sale of Jackbilt blocks by petitioner  to the
following judgment of the Court of Tax Appeals: public must be considered as the original sales  from which the sales tax should be
computed. The Norton & Harrison Company contended otherwise — that is, the
IN VIEW OF THE FOREGOING, we find no legal basis to support the transaction subject to tax is the sale from Jackbilt to Norton.
assessment in question against petitioner. If at all, the assessment should have
been directed against JACKBILT, the manufacturer. Accordingly, the decision Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted
appealed from is reversed, and the surety bond filed to guarantee payment of and approved by this Honorable Court, without prejudice to the parties adducing other
said assessment is ordered cancelled. No pronouncement as to costs. evidence to prove their case not covered by this stipulation of facts. 1äwphï1.ñët

Norton and Harrison is a corporation organized in 1911, (1) to buy and sell at wholesale The majority of the Tax Court, in relieving Norton & Harrison of liability under the
and retail, all kinds of goods, wares, and merchandise; (2) to act as agents of assessment, made the following observations:
manufacturers in the United States and foreign countries; and (3) to carry on and conduct
a general wholesale and retail mercantile establishment in the Philippines. Jackbilt is, The law applicable to the case is Section 186 of the National Internal Revenue
likewise, a corporation organized on February 16, 1948 primarily for the purpose of Code which imposes a percentage tax of 7% on every original sale of goods,
making, producing and manufacturing concrete blocks. Under date of July 27, 1948. wares or merchandise, such tax to be based on the gross selling price of such
Norton and Jackbilt entered into an agreement whereby Norton was made the sole and goods, wares or merchandise. The term "original sale" has been defined as the
exclusive distributor of concrete blocks manufactured by Jackbilt. Pursuant to this first sale by every manufacturer, producer or importer. (Sec. 5, Com. Act No.
agreement, whenever an order for concrete blocks was received by the Norton & Harrison 503.) Subsequent sales by persons other than the manufacturer, producer or
Co. from a customer, the order was transmitted to Jackbilt which delivered the importer are not subject to the sales tax.
merchandise direct to the customer. Payment for the goods is, however, made to Norton,
which in turn pays Jackbilt the amount charged the customer less a certain amount, as its
compensation or profit. To exemplify the sales procedures adopted by the Norton and If JACKBILT actually sold concrete blocks manufactured by it to petitioner under
Jackbilt, the following may be cited. In the case of the sale of 420 pieces of concrete the distributorship or agency agreement of July 27, 1948, such sales constituted
blocks to the American Builders on April 1, 1952, the purchaser paid to Norton the sum of the original sales which are taxable under Section 186 of the Revenue Code,
P189.00 the purchase price. Out of this amount Norton paid Jackbilt P168.00, the while the sales made to the public by petitioner are subsequent sales which are
difference obviously being its compensation. As per records of Jackbilt, the transaction not taxable. But it appears to us that there was no such sale by JACKBILT to
was considered a sale to Norton. It was under this procedure that the sale of concrete petitioner. Petitioner merely acted as agent for JACKBILT in the marketing of its
blocks manufactured by Jackbilt was conducted until May 1, 1953, when the agency products. This is shown by the fact that petitioner merely accepted orders from
agreement was terminated and a management agreement between the parties was the public for the purchase of JACKBILT blocks. The purchase orders were
entered into. The management agreement provided that Norton would sell concrete transmitted to JACKBILT which delivered the blocks to the purchaser directly.
blocks for Jackbilt, for a fixed monthly fee of P2,000.00, which was later increased to There was no instance in which the blocks ordered by the purchasers were
P5,000.00. delivered to the petitioner. Petitioner never purchased concrete blocks from
JACKBILT so that it never acquired ownership of such concrete blocks. This
being so, petitioner could not have sold JACKBILT blocks for its own account. It
 did so merely as agent of JACKBILT. The distributorship agreement of July 27, nominal stockholders of the Jackbilt (c) Norton financed the operations of the Jackbilt, and
1948, is denominated by the parties themselves as an "agency for marketing" this is shown by the fact that the loans obtained from the RFC and Bank of America were
JACKBILT products. ... . used in the expansion program of Jackbilt, to pay advances for the purchase of
equipment, materials rations and salaries of employees of Jackbilt and other sundry
xxx     xxx     xxx expenses. There was no limit to the advances given to Jackbilt so much so that as of May
31, 1956, the unpaid advances amounted to P757,652.45, which were not paid in cash by
Jackbilt, but was offset by shares of stock issued to Norton, the absolute and sole owner
Therefore, the taxable selling price of JACKBILT blocks under the aforesaid of Jackbilt; (d) Norton treats Jackbilt employees as its own. Evidence shows that Norton
agreement is the price charged to the public and not the amount billed by paid the salaries of Jackbilt employees and gave the same privileges as Norton
JACKBILT to petitioner. The deficiency sales tax should have been assessed employees, an indication that Jackbilt employees were also Norton's employees.
against JACKBILT and not against petitioner which merely acted as the former's Furthermore service rendered in any one of the two companies were taken into account
agent. for purposes of promotion; (e) Compensation given to board members of Jackbilt, indicate
that Jackbilt is merely a department of Norton. The income tax return of Norton for 1954
xxx     xxx     xxx shows that as President and Treasurer of Norton and Jackbilt, he received from Norton
P56,929.95, but received from Jackbilt the measly amount of P150.00, a circumstance
Presiding Judge Nable of the same Court expressed a partial dissent, stating: which points out that remuneration of purported officials of Jackbilt are deemed included
in the salaries they received from Norton. The same is true in the case of Eduardo Garcia,
Upon the aforestated circumstances, which disclose Norton's control over and an employee of Norton but a member of the Board of Jackbilt. His Income tax return for
direction of Jackbilt's affairs, the corporate personality of Jackbilt should be 1956 reveals that he received from Norton in salaries and bonuses P4,220.00, but
disregarded, and the transactions between these two corporations relative to the received from Jackbilt, by way of entertainment, representation, travelling and
concrete blocks should be ignored in determining the percentage tax for which transportation allowances P3,000.00. However, in the withholding statement (Exh. 28-A),
Norton is liable. Consequently, the percentage tax should be computed on the it was shown that the total of P4,200.00 and P3,000.00 (P7,220.00) was received by
basis of the sales of Jackbilt blocks to the public. Garcia from Norton, thus portraying the oneness of the two companies. The Income Tax
Returns of Albert Golden and Dioscoro Ramos both employees of Norton but board
members of Jackbilt, also disclose the game method of payment of compensation and
The majority opinion is now before Us on appeal by the Commissioner of Internal allowances. The offices of Norton and Jackbilt are located in the same compound.
Revenue, on four (4) assigned errors, all of which pose the following propositions: (1) Payments were effected by Norton of accounts for Jackbilt and vice versa. Payments
whether the acquisition of all the stocks of the Jackbilt by the Norton & Harrison Co., were also made to Norton of accounts due or payable to Jackbilt and vice versa.
merged the two corporations into a single corporation; (2) whether the basis of the
computation of the deficiency sales tax should be the sale of the blocks to the public and
not to Norton. Norton and Harrison, while not denying the presence of the set up stated above, tried to
explain that the control over the affairs of Jackbilt was not made in order to evade
payment of taxes; that the loans obtained by it which were given to Jackbilt, were
It has been settled that the ownership of all the stocks of a corporation by another necessary for the expansion of its business in the manufacture of concrete blocks, which
corporation does not necessarily breed an identity of corporate interest between the two would ultimately benefit both corporations; that the transactions and practices just
companies and be considered as a sufficient ground for disregarding the distinct mentioned, are not unusual and extraordinary, but pursued in the regular course of
personalities (Liddell & Co., Inc. v. Coll. of Int. Rev. L-9687, June 30, 1961). However, in business and trade; that there could be no confusion in the present set up of the two
the case at bar, we find sufficient grounds to support the theory that the separate corporations, because they have separate Boards, their cash assets are entirely and
identities of the two companies should be disregarded. Among these circumstances, strictly separate; cashiers and official receipts and bank accounts are distinct and
which we find not successfully refuted by appellee Norton are: (a) Norton and Harrison different; they have separate income tax returns, separate balance sheets and profit and
owned all the outstanding stocks of Jackbilt; of the 15,000 authorized shares of Jackbilt loss statements. These explanations notwithstanding an over-all appraisal of the
on March 31, 1958, 14,993 shares belonged to Norton and Harrison and one each to circumstances presented by the facts of the case, yields to the conclusion that the Jackbilt
seven others; (b) Norton constituted Jackbilt's board of directors in such a way as to is merely an adjunct, business conduit or alter ego, of Norton and Harrison and that the
enable it to actually direct and manage the other's affairs by making the same officers of fiction of corporate entities, separate and distinct from each, should be disregarded. This
the board for both companies. For instance, James E. Norton is the President, Treasurer, is a case where the doctrine of piercing the veil of corporate fiction, should be made to
Director and Stockholder of Norton. He also occupies the same positions in Jackbilt apply. In the case of Liddell & Co. Inc. v. Coll. of Int. Rev., supra, it was held:
corporation, the only change being, in the Jackbilt, he is merely a nominal stockholder.
The same is true with Mr. Jordan, F. M. Domingo, Mr. Mantaring, Gilbert Golden and
Gerardo Garcia, while they are merely employees of the North they are Directors and
 There are quite a series of conspicuous circumstances that militates against the the latter created for the purpose of selling the vehicles at retail (here concrete
separate and distinct personality of Liddell Motors Inc., from Liddell & Co. We blocks) ... .
notice that the bulk of the business of Liddell & Co. was channel Red through
Liddell Motors, Inc. On the other hand, Liddell Motors Inc. pursued no activities It may not be amiss to state in this connection, the advantages to Norton in maintaining a
except to secure cars, trucks, and spare parts from Liddell & Co., Inc. and then semblance of separate entities. If the income of Norton should be considered separate
sell them to the general public. These sales of vehicles by Liddell & Co, to Liddell from the income of Jackbilt, then each would declare such earning separately for income
Motors. Inc. for the most part were shown to have taken place on the same day tax purposes and thus pay lesser income tax. The combined taxable Norton-Jackbilt
that Liddell Motors, Inc. sold such vehicles to the public. We may even say that income would subject Norton to a higher tax. Based upon the 1954-1955 income tax
the cars and trucks merely touched the hands of Liddell Motors, Inc. as a matter return of Norton and Jackbilt (Exhs. 7 & 8), and assuming that both of them are operating
of formality. on the same fiscal basis and their returns are accurate, we would have the following
result: Jackbilt declared a taxable net income of P161,202.31 in which the income tax due
xxx     xxx     xxx was computed at P37,137.00 (Exh. 8); whereas Norton declared as taxable, a net income
of P120,101.59, on which the income tax due was computed at P25,628.00. The total of
Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are these liabilities is P50,764.84. On the other hand, if the net taxable earnings of both
corporations owned and controlled by Frank Liddell directly or indirectly is not by corporations are combined, during the same taxable year, the tax due on their total which
itself sufficient to justify the disregard of the separate corporate identity of one is P281,303.90 would be P70,764.00. So that, even on the question of income tax alone,
from the other. There is however, in this instant case, a peculiar sequence of the it would be to the advantages of Norton that the corporations should be regarded as
organization and activities of Liddell Motors, Inc. separate entities.

As opined in the case of Gregory v. Helvering  "the legal right of a tax payer to WHEREFORE, the decision appealed from should be as it is hereby reversed and
decrease the amount of what otherwise would be his taxes, or altogether avoid another entered making the appellee Norton & Harrison liable for the deficiency sales
them, by means which the law permits, cannot be doubted". But as held in taxes assessed against it by the appellant Commissioner of Internal Revenue, plus 25%
another case, "where a corporation is a dummy, is unreal or a sham and serves surcharge thereon. Costs against appellee Norton & Harrison.
no business purpose and is intended only as a blind, the corporate form may be
ignored for the law cannot countenance a form that is bald and a mischievous
fictions".

... a taxpayer may gain advantage of doing business thru a corporation if he

pleases, but the revenue officers in proper cases, may disregard the separate
corporate entity where it serves but as a shield for tax evasion and treat the
person who actually may take benefits of the transactions as the person
accordingly taxable.

... to allow a taxpayer to deny tax liability on the ground that the sales were made
through another and distinct corporation when it is proved that the latter is
virtually owned by the former or that they are practically one and the same is to
sanction a circumvention of our tax laws. (and cases cited therein.)

In the case of Yutivo Sons Hardware Co. v. Court of Tax Appeals, L-13203, Jan. 28,
1961, this Court made a similar ruling where the circumstances of unity of corporate
identities have been shown and which are identical to those obtaining in the case under
consideration. Therein, this Court said:

We are, however, inclined to agree with the court below that SM was actually
owned and controlled by petitioner as to make it a mere subsidiary or branch of
G.R. No. L-41337 June 30, 1988 NR 78048, found in the premises of GRAPHIC. In a Notice of Sale of Execution of
Personal Property dated July 29, 1974, said printing machine was scheduled for auction
TAN BOON BEE & CO., INC., petitioner, sale on July 26, 1974 at 10:00 o'clock at 14th St., Cor. Atlanta St., Port Area, Manila
vs. (lbid., p. 45); but in a letter dated July 19, 1974, herein private respondent, Philippine
THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF BRANCH XVIII American Drug Company (PADCO for short) had informed the sheriff that the printing
of the Court of First Instance of Manila, GRAPHIC PUBLISHING, INC., and machine is its property and not that of GRAPHIC, and accordingly, advised the sheriff to
PHILIPPINE AMERICAN CAN DRUG COMPANY, respondents. cease and desist from carrying out the scheduled auction sale on July 26, 1974.
Notwithstanding the said letter, the sheriff proceeded with the scheduled auction sale,
sold the property to the petitioner, it being the highest bidder, and issued a Certificate of
De Santos, Balgos & Perez Law Office for petitioner. Sale in favor of petitioner (Rollo, p. 48). More than five (5) hours after the auction sale and
the issuance of the certificate of sale, PADCO filed an "Affidavit of Third Party Claim" with
Araneta Mendoza & Papa Law Office for respondent Phil. American Drug Company. the Office of the City Sheriff (Ibid., p. 47). Thereafter, on July 30,1974, PADCO filed with
the Court of First Instance of Manila, Branch XXIII, a Motion to Nullify Sale on Execution
(With Injunction) (Ibid., pp, 49-55), which was opposed by the petitioner (Ibid., pp. 5668).
Respondent judge, in an Order dated March 26, 1975 (Ibid., pp. 64-69), ruled in favor of
PARAS, J.: PADCO. The decretal portion of the said order, reads:

This is a petition for certiorari, with prayer for preliminary injunction, to annul and set aside WHEREFORE, the sale of the 'Heidelberg cylinder press executed by
the March 26, 1975 Order of the then Court of First Instance of Manila, Branch XXIII, the Sheriff in favor of the plaintiff as well as the levy on the said property
setting aside the sale of "Heidelberg" cylinder press executed by the sheriff in favor of the is hereby set aside and declared to be without any force and effect. The
herein petitioner, as well as the levy on the said property, and ordering the sheriff to return Sheriff is ordered to return the said machinery to its owner, the Philippine
the said machinery to its owner, herein private respondent Philippine American Drug American Drug Co.
Company.
Petitioner filed a Motion For Reconsideration (Ibid., pp. 7093) and an Addendum to
Petitioner herein, doing business under the name and style of Anchor Supply Co., sold on Motion for Reconsideration (Ibid., pp. 94-08), but in an Order dated August 13, 1975, the
credit to herein private respondent Graphic Publishing, Inc. (GRAPHIC for short) paper same was denied for lack of merit (Ibid., p. 109). Hence, the instant petition.
products amounting to P55,214.73. On December 20, 1972, GRAPHIC made partial
payment by check to petitioner in the total amount of P24,848.74; and on December 21, In a Resolution dated September 12, 1975, the Second Division of this Court resolved to
1972, a promissory note was executed to cover the balance of P30,365.99. In the said require the respondents to comment, and to issue a temporary restraining order (Rollo, p.
promissory note, it was stipulated that the amount will be paid on monthly installments 111 ). After submission of the parties' Memoranda, the case was submitted for decision in
and that failure to pay any installment would make the amount immediately demandable the Resolution of November 28, 1975 (Ibid., p. 275).
with an interest of 12% per annum. On September 6, 1973, for failure of GRAPHIC to pay
any installment, petitioner filed with the then Court of First Instance of Manila, Branch Petitioner, to support its stand, raised two (2) issues, to wit:
XXIII, presided over by herein respondent judge, Civil Case No. 91857 for a Sum of
Money (Rollo, pp. 36-38). Respondent judge declared GRAPHIC in default for failure to I
file its answer within the reglementary period and plaintiff (petitioner herein) was allowed
to present its evidence ex parte.  In a Decision dated January 18, 1974 (Ibid., pp. 39-40),
the trial court ordered GRAPHIC to pay the petitioner the sum of P30,365.99 with 12% THE RESPONDENT JUDGE GRAVELY EXCEEDED, IF NOT ACTED WITHOUT
interest from March 30, 1973 until fully paid, plus the costs of suit. On motion of petitioner, JURISDICTION WHEN HE ACTED UPON THE MOTION OF PADCO, NOT ONLY
a writ of execution was issued by respondent judge; but the aforestated writ having BECAUSE SECTION 17, RULE 39 OF THE RULES OF COURT WAS NOT COMPLIED
expired without the sheriff finding any property of GRAPHIC, an alias writ of execution WITH, BUT ALSO BECAUSE THE CLAIMS OF PADCO WHICH WAS NOT A PARTY TO
was issued on July 2, 1974. THE CASE COULD NOT BE VENTILATED IN THE CASE BEFORE HIM BUT IN
INDEPENDENT PROCEEDING.
Pursuant to the said issued alias writ of execution, the executing sheriff levied upon one
(1) unit printing machine Identified as "Original Heidelberg Cylinder Press" Type H 222, II
THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION WHEN HE The plaintiff, however, contends that the controlling stockholders of the
REFUSED TO PIERCE THE PADCO'S (IDENTITY) AND DESPITE THE ABUNDANCE Philippine American Drug Co. are also the same controlling stockholders
OF EVIDENCE CLEARLY SHOWING THAT PADCO WAS CONVENIENTLY SHIELDING of the Graphic Publishing, Inc. and, therefore, the levy upon the said
UNDER THE THEORY OF CORPORATE PETITION. machinery which was found in the premises occupied by the Graphic
Publishing, Inc. should be upheld. This contention cannot be sustained
Petitioner contends that respondent judge gravely exceeded, if not, acted without because the two corporations were duly incorporated under the
jurisdiction, in nullifying the sheriffs sale not only because Section 17, Rule 39 of the Corporation Law and each of them has a juridical personality distinct and
Rules of Court was not complied with, but more importantly because PADCO could not separate from the other and the properties of one cannot be levied upon
have litigated its claim in the same case, but in an independent civil proceeding. to satisfy the obligation of the other. This legal preposition is elementary
and fundamental.
This contention is well-taken.
It is true that a corporation, upon coming into being, is invested by law with a personality
separate and distinct from that of the persons composing it as well as from any other legal
In the case of Bayer Philippines, Inc. vs. Agana (63 SCRA 355, 366-367 [1975]), this entity to which it may be related (Yutivo & Sons Hardware Company vs. Court of Tax
Court categorically ruled as follows: Appeals, 1 SCRA 160 [1961]; and Emilio Cano Enterprises, Inc. vs. CIR, 13 SCRA 290
[1965]). As a matter of fact, the doctrine that a corporation is a legal entity distinct and
In other words, constitution, Section 17 of Rule 39 of the Revised Rules separate from the members and stockholders who compose it is recognized and
of Court, the rights of third-party claimants over certain properties levied respected in all cases which are within reason and the law (Villa Rey Transit, Inc. vs.
upon by the sheriff to satisfy the judgment should not be decided inthe Ferrer, 25 SCRA 845 [1968]). However, this separate and distinct personality is merely a
action where the third-party claims have been presented, but in the fiction created by law for convenience and to promote justice (Laguna Transportation
separate action instituted by the claimants. Company vs. SSS, 107 Phil. 833 [1960]). Accordingly, this separate personality of the
corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it
... Otherwise stated, the court issuing a writ of execution is supposed to is used as a cloak or cover for fraud or illegality, or to work an injustice, or where
enforce the authority only over properties of the judgment debtor, and necessary to achieve equity or when necessary for the protection of creditors (Sulo ng
should a third party appeal- to claim the property levied upon by the Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347 [1976]). Corporations are composed of
sheriff, the procedure laid down by the Rules is that such claim should natural persons and the legal fiction of a separate corporate personality is not a shield for
be the subject of a separate and independent action. the commission of injustice and inequity (Chenplex Philippines, Inc., et al. vs. Hon.
Pamatian et al., 57 SCRA 408 (19741). Likewise, this is true when the corporation is
xxx xxx xxx merely an adjunct, business conduit or alter ego of another corporation. In such case, the
fiction of separate and distinct corporation entities should be disregarded (Commissioner
of Internal Revenue vs. Norton & Harrison, 11 SCRA 714 [1964]).
... This rule is dictated by reasons of convenience, as "intervention is
more likely to inject confusion into the issues between the parties in the
case . . . with which the third-party claimant has nothing to do and In the instant case, petitioner's evidence established that PADCO was never engaged in
thereby retard instead of facilitate the prompt dispatch of the controversy the printing business; that the board of directors and the officers of GRAPHIC and
which is the underlying objective of the rules of pleading and practice." PADCO were the same; and that PADCO holds 50% share of stock of GRAPHIC.
Besides, intervention may not be permitted after trial has been Petitioner likewise stressed that PADCO's own evidence shows that the printing machine
concluded and a final judgment rendered in the case. in question had been in the premises of GRAPHIC since May, 1965, long before PADCO
even acquired its alleged title on July 11, 1966 from Capitol Publishing. That the said
machine was allegedly leased by PADCO to GRAPHIC on January 24, 1966, even before
However, the fact that petitioner questioned the jurisdiction of the court during the initial PADCO purchased it from Capital Publishing on July 11, 1966, only serves to show that
hearing of the case but nevertheless actively participated in the trial, bars it from PADCO's claim of ownership over the printing machine is not only farce and sham but
questioning now the court's jurisdiction. A party who voluntarily participated in the trial, like also unbelievable.
the herein petitioner, cannot later on raise the issue of the court's lack of jurisdiction
(Philippine National Bank vs. Intermediate Appellate Court, 143 SCRA [1986]).
Considering the aforestated principles and the circumstances established in this case,
respondent judge should have pierced PADCO's veil of corporate Identity.
As to the second issue (the non-piercing of PADCO's corporate Identity) the decision of
respondent judge is as follows:
Respondent PADCO argues that if respondent judge erred in not piercing the veil of its
corporate fiction, the error is merely an error of judgment and not an error of jurisdiction
correctable by appeal and not by certiorari.

To this argument of respondent, suffice it to say that the same is a mere technicality. In
the case of Rubio vs. Mariano  (52 SCRA 338, 343 [1973]), this Court ruled:

While We recognize the fact that these movants — the MBTC, the
Phillips spouses, the Phillips corporation and the Hacienda Benito, Inc.—
did raise in their respective answers the issue as to the propriety of the
instant petition for certiorari on the ground that the remedy should have
been appeal within the reglementary period, We considered such issue
as a mere technicality which would have accomplished nothing
substantial except to deny to the petitioner the right to litigate the matters
he raised ...

Litigations should, as much as possible, be decided on their merits and not on technicality
(De las Alas vs. Court of Appeals, 83 SCRA 200, 216 [1978]). Every party-litigant must be
afforded the amplest opportunity for the proper and just determination of his cause, free
from the unacceptable plea of technicalities (Heirs of Ceferino Morales vs. Court of
Appeals, 67 SCRA 304, 310 [1975]).

PREMISES CONSIDERED, the March 26,1975 Order of the then Court of First Instance
of Manila, is ANNULLED and SET ASIDE, and the Temporary Restraining Order issued is
hereby made permanent.

SO ORDERED.
G.R. No. 167530               March 13, 2013 Jr., Rolando Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino Agbada, were either
from DBP or PNB.9
PHILIPPINE NATIONAL BANK, Petitioner,
vs. Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent. Road Construction Program in 1985 for a total contract price of ₱35,770,120. After
computing the payments already made by NMIC under the program and crediting the
x-----------------------x NMIC’s receivables from

G.R. No. 167561 Hercon, Inc., the latter found that NMIC still has an unpaid balance of
₱8,370,934.74.10 Hercon, Inc. made several demands on NMIC, including a letter of final
demand dated August 12, 1986, and when these were not heeded, a complaint for sum of
ASSET PRIVATIZATION TRUST, Petitioner, money was filed in the RTC of Makati, Branch 136 seeking to hold petitioners NMIC,
vs. DBP, and PNB solidarily liable for the amount owing Hercon, Inc. 11 The case was
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent. docketed as Civil Case No. 15375.

x-----------------------x Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a
merger. This prompted the amendment of the complaint to substitute HRCC for Hercon,
G.R. No. 167603 Inc.12

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation
vs. No. 50 creating the APT for the expeditious disposition and privatization of certain
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent. government corporations and/or the assets thereof. Pursuant to the said Proclamation, on
February 27, 1987, DBP and PNB executed their respective deeds of transfer in favor of
DECISION the National Government assigning, transferring and conveying certain assets and
liabilities, including their respective stakes in NMIC. 13 In turn and on even date, the
LEONARDO-DE CASTRO, J.: National Government transferred the said assets and liabilities to the APT as trustee
under a Trust Agreement.14 Thus, the complaint was amended for the second time to
implead and include the APT as a defendant.
These petitions for review on certiorari1 assail the Decision 2 dated November 30, 2004
and the Resolution3 dated March 22, 2005 of the Court of Appeals in CA-G.R. CV No.
57553. The said Decision affirmed the Decision4 dated November 6, 1995 of the Regional In its answer,15 NMIC claimed that HRCC had no cause of action. It also asserted that its
Trial Court (RTC) of Makati City, Branch 62, granting a judgment award of ₱8,370,934.74, contract with HRCC was entered into by its then President without any authority.
plus legal interest, in favor of respondent Hydro Resources Contractors Corporation Moreover, the said contract allegedly failed to comply with laws, rules and regulations
(HRCC) with the modification that the Privatization and Management Office (PMO), concerning government contracts. NMIC further claimed that the contract amount was
successor of petitioner Asset Privatization Trust (APT),5 has been held solidarily liable manifestly excessive and grossly disadvantageous to the government. NMIC made
with Nonoc Mining and Industrial Corporation (NMIC) 6 and petitioners Philippine National counterclaims for the amounts already paid to Hercon, Inc. and attorney’s fees, as well as
Bank (PNB) and Development Bank of the Philippines (DBP), while the Resolution denied payment for equipment rental for four trucks, replacement of parts and other services, and
reconsideration separately prayed for by PNB, DBP, and APT. damage to some of NMIC’s properties.16

Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on For its part, DBP’s answer17 raised the defense that HRCC had no cause of action against
the properties of Marinduque Mining and Industrial Corporation (MMIC). As a result of the it because DBP was not privy to HRCC’s contract with NMIC. Moreover, NMIC’s juridical
foreclosure, DBP and PNB acquired substantially all the assets of MMIC and resumed the personality is separate from that of DBP. DBP further interposed a counterclaim for
business operations of the defunct MMIC by organizing NMIC.7 DBP and PNB owned attorney’s fees.18
57% and 43% of the shares of NMIC, respectively, except for five qualifying shares. 8 As of
September 1984, the members of the Board of Directors of NMIC, namely, Jose Tengco,
PNB’s answer19 also invoked lack of cause of action against it. It also raised estoppel on WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the
HRCC’s part and laches as defenses, claiming that the inclusion of PNB in the complaint plaintiff HYDRO RESOURCES CONTRACTORS CORPORATION and against the
was the first time a demand for payment was made on it by HRCC. PNB also invoked the defendants NONOC
separate juridical personality of NMIC and made counterclaims for moral damages and
attorney’s fees.20 MINING AND INDUSTRIAL CORPORATION, DEVELOPMENT BANK OF THE
PHILIPPINES and PHILIPPINE NATIONAL BANK, ordering the aforenamed defendants,
APT set up the following defenses in its answer21: lack of cause of action against it, lack of to pay the plaintiff jointly and severally, the sum of ₱8,370,934.74 plus legal interest
privity between Hercon, Inc. and APT, and the National Government’s preferred lien over thereon from date of demand, and attorney’s fees equivalent to 25% of the judgment
the assets of NMIC.22 award.

After trial, the RTC of Makati rendered a Decision dated November 6, 1995 in favor of The complaint against APT is hereby dismissed. However, APT, as trustee of NONOC
HRCC. It pierced the corporate veil of NMIC and held DBP and PNB solidarily liable with MINING AND INDUSTRIAL CORPORATION is directed to ensure compliance with this
NMIC: Decision.24

On the issue of whether or not there is sufficient ground to pierce the veil of corporate DBP and PNB filed their respective appeals in the Court of Appeals. Both insisted that it
fiction, this Court likewise finds for the plaintiff. was wrong for the RTC to pierce the veil of NMIC’s corporate personality and hold DBP
and PNB solidarily liable with NMIC.25
From the documentary evidence adduced by the plaintiff, some of which were even
adopted by defendants and DBP and PNB as their own evidence (Exhibits "I", "I-1", "I-2", The Court of Appeals rendered the Decision dated November 30, 2004, affirmed the
"I-3", "I-4", "I-5", "I5-A", "I-5-B", "I-5-C", "I-5-D" and submarkings, inclusive), it had been piercing of the veil of the corporate personality of NMIC and held DBP, PNB, and APT
established that except for five (5) qualifying shares, NMIC is owned by defendants DBP solidarily liable with NMIC. In particular, the Court of Appeals made the following findings:
and PNB, with the former owning 57% thereof, and the latter 43%. As of September 24,
1984, all the members of NMIC’s Board of Directors, namely, Messrs. Jose Tengco, Jr., In the case before Us, it is indubitable that [NMIC] was owned by appellants DBP and
Rolando M. Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino Agbada are either from PNB to the extent of 57% and 43% respectively; that said two (2) appellants are the only
DBP or PNB (Exhibits "I-5", "I-5-C", "I-5-D"). stockholders, with the qualifying stockholders of five (5) consisting of its own officers and
included in its charter merely to comply with the requirement of the law as to number of
The business of NMIC was then also being conducted and controlled by both DBP and incorporators; and that the directorates of DBP, PNB and [NMIC] are interlocked.
PNB. In fact, it was Rolando M. Zosa, then Governor of DBP, who was signing and
entering into contracts with third persons, on behalf of NMIC. xxxx

In this jurisdiction, it is well-settled that "where it appears that the business enterprises are We find it therefore correct for the lower court to have ruled that:
owned, conducted and controlled by the same parties, both law and equity will, when
necessary to protect the rights of third persons, disregard legal fiction that two (2)
corporations are distinct entities, and treat them as identical." (Phil. Veterans Investment "From all indications, it appears that NMIC is a mere adjunct, business conduit or alter
Development Corp. vs. CA, 181 SCRA 669). ego of both DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with
NMIC for the latter’s unpaid obligation to plaintiff." 26 (Citation omitted.)
From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego
of both DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with NMIC The Court of Appeals then concluded that, "in keeping with the concept of justice and fair
for the latter’s unpaid obligations to plaintiff. 23 play," the corporate veil of NMIC should be pierced, ratiocinating:

Having found DBP and PNB solidarily liable with NMIC, the dispositive portion of the For to treat NMIC as a separate legal entity from DBP and PNB for the purpose of
Decision of the trial court reads: securing beneficial contracts, and then using such separate entity to evade the payment
of a just debt, would be the height of injustice and iniquity. Surely that could not have
been the intendment of the law with respect to corporations. x x x. 27
The dispositive portion of the Decision of the Court of Appeals reads: HRCC counters that both the RTC and the CA correctly applied the doctrine of "piercing
the veil of corporate fiction." It claims that NMIC was the alter ego of DBP and PNB which
WHEREFORE, premises considered, the Decision appealed from is hereby MODIFIED. owned, conducted and controlled the business of NMIC as shown by the following
The judgment in favor of appellee Hydro Resources Contractors Corporation in the circumstances: NMIC was owned by DBP and PNB, the officers of DBP and PNB were
amount of ₱8,370,934.74 with legal interest from date of demand is hereby AFFIRMED, also the officers of NMIC, and DBP and PNB financed the operations of NMIC. HRCC
but the dismissal of the case as against Assets Privatization Trust is REVERSED, and its further argues that a parent corporation may be held liable for the contracts or obligations
successor the Privatization and Management Office is INCLUDED as one of those jointly of its subsidiary corporation where the latter is a mere agency, instrumentality or adjunct
and severally liable for such indebtedness. The award of attorney’s fees is DELETED. of the parent corporation.34

All other claims and counter-claims are hereby DISMISSED. Moreover, HRCC asserts that the APT was properly held solidarily liable with DBP, PNB,
and NMIC because the APT assumed the obligations of DBP and PNB as the successor-
in-interest of the said banks with respect to the assets and liabilities of NMIC. 35 As trustee
Costs against appellants.28 of the Republic of the Philippines, the APT also assumed the responsibility of the
Republic pursuant to the following provision of Section 2.02 of the respective deeds of
The respective motions for reconsideration of DBP, PNB, and APT were denied. 29 transfer executed by DBP and PNB in favor of the Republic:

Hence, these consolidated petitions.30 SECTION 2. TRANSFER OF BANK’S LIABILITIES

All three petitioners assert that NMIC is a corporate entity with a juridical personality xxxx
separate and distinct from both PNB and DBP. They insist that the majority ownership by
DBP and PNB of NMIC is not a sufficient ground for disregarding the separate corporate 2.02 With respect to the Bank’s liabilities which are contingent and those liabilities where
personality of NMIC because NMIC was not a mere adjunct, business conduit or alter ego the Bank’s creditors consent to the transfer thereof is not obtained, said liabilities shall
of DBP and PNB. According to them, the application of the doctrine of piercing the remain in the books of the BANK with the GOVERNMENT funding the payment thereof. 36
corporate veil is unwarranted as nothing in the records would show that the ownership
and control of the shareholdings of NMIC by DBP and PNB were used to commit fraud,
illegality or injustice. In the absence of evidence that the stock control by DBP and PNB After a careful review of the case, this Court finds the petitions impressed with merit.
over NMIC was used to commit some fraud or a wrong and that said control was the
proximate cause of the injury sustained by HRCC, resort to the doctrine of "piercing the A corporation is an artificial entity created by operation of law. It possesses the right of
veil of corporate entity" is misplaced.31 succession and such powers, attributes, and properties expressly authorized by law or
incident to its existence.37 It has a personality separate and distinct from that of its
DBP and PNB further argue that, assuming they may be held solidarily liable with NMIC to stockholders and from that of other corporations to which it may be connected. 38 As a
pay NMIC’s exclusive and separate corporate indebtedness to HRCC, such liability of the consequence of its status as a distinct legal entity and as a result of a conscious policy
two banks was transferred to and assumed by the National Government through the APT, decision to promote capital formation,39 a corporation incurs its own liabilities and is legally
now the PMO, under the respective deeds of transfer both dated February 27, 1997 responsible for payment of its obligations.40 In other words, by virtue of the separate
executed by DBP and PNB pursuant to Proclamation No. 50 dated December 8, 1986 juridical personality of a corporation, the corporate debt or credit is not the debt or credit
and Administrative Order No. 14 dated February 3, 1987.32 of the stockholder.41 This protection from liability for shareholders is the principle of limited
liability.42
For its part, the APT contends that, in the absence of an unqualified assumption by the
National Government of all liabilities incurred by NMIC, the National Government through Equally well-settled is the principle that the corporate mask may be removed or the
the APT could not be held liable for NMIC’s contractual liability. The APT asserts that corporate veil pierced when the corporation is just an alter ego of a person or of another
HRCC had not sufficiently shown that the APT is the successor-in-interest of all the corporation. For reasons of public policy and in the interest of justice, the corporate veil
liabilities of NMIC, or of DBP and PNB as transferors, and that the adjudged liability is will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity
included among the liabilities assigned and transferred by DBP and PNB in favor of the committed against third persons.43
National Government.33
However, the rule is that a court should be careful in assessing the milieu where the (3) The aforesaid control and breach of duty must have proximately caused the
doctrine of the corporate veil may be applied. Otherwise an injustice, although injury or unjust loss complained of.50 (Emphases omitted.)
unintended, may result from its erroneous application. 44 Thus, cutting through the
corporate cover requires an approach characterized by due care and caution: The first prong is the "instrumentality" or "control" test. This test requires that the
subsidiary be completely under the control and domination of the parent. 51 It examines the
Hence, any application of the doctrine of piercing the corporate veil should be done with parent corporation’s relationship with the subsidiary. 52 It inquires whether a subsidiary
caution. A court should be mindful of the milieu where it is to be applied. It must be certain corporation is so organized and controlled and its affairs are so conducted as to make it a
that the corporate fiction was misused to such an extent that injustice, fraud, or crime was mere instrumentality or agent of the parent corporation such that its separate existence as
committed against another, in disregard of its rights. The wrongdoing must be clearly and a distinct corporate entity will be ignored.53 It seeks to establish whether the subsidiary
convincingly established; it cannot be presumed. x x x.45 (Emphases supplied; citations corporation has no autonomy and the parent corporation, though acting through the
omitted.) subsidiary in form and appearance, "is operating the business directly for itself." 54

Sarona v. National Labor Relations Commission46 has defined the scope of application of The second prong is the "fraud" test. This test requires that the parent corporation’s
the doctrine of piercing the corporate veil: conduct in using the subsidiary corporation be unjust, fraudulent or wrongful. 55 It
examines the relationship of the plaintiff to the corporation. 56 It recognizes that piercing is
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) appropriate only if the parent corporation uses the subsidiary in a way that harms the
defeat of public convenience as when the corporate fiction is used as a vehicle for the plaintiff creditor.57 As such, it requires a showing of "an element of injustice or
evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to fundamental unfairness."58
justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a
corporation is merely a farce since it is a mere alter ego or business conduit of a person, The third prong is the "harm" test. This test requires the plaintiff to show that the
or where the corporation is so organized and controlled and its affairs are so conducted defendant’s control, exerted in a fraudulent, illegal or otherwise unfair manner toward it,
as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. caused the harm suffered.59 A causal connection between the fraudulent conduct
(Citation omitted.) committed through the instrumentality of the subsidiary and the injury suffered or the
damage incurred by the plaintiff should be established. The plaintiff must prove that,
Here, HRCC has alleged from the inception of this case that DBP and PNB (and the APT unless the corporate veil is pierced, it will have been treated unjustly by the defendant’s
as assignee of DBP and PNB) should be held solidarily liable for using NMIC as alter exercise of control and improper use of the corporate form and, thereby, suffer
ego.47 The RTC sustained the allegation of HRCC and pierced the corporate veil of NMIC damages.60
pursuant to the alter ego theory when it concluded that NMIC "is a mere adjunct, business
conduit or alter ego of both DBP and PNB."48 The Court of Appeals upheld such To summarize, piercing the corporate veil based on the alter ego theory requires the
conclusion of the trial court.49 In other words, both the trial and appellate courts relied on concurrence of three elements: control of the corporation by the stockholder or parent
the alter ego theory when they disregarded the separate corporate personality of NMIC. corporation, fraud or fundamental unfairness imposed on the plaintiff, and harm or
damage caused to the plaintiff by the fraudulent or unfair act of the corporation. The
In this connection, case law lays down a three-pronged test to determine the application absence of any of these elements prevents piercing the corporate veil. 61
of the alter ego theory, which is also known as the instrumentality theory, namely:
This Court finds that none of the tests has been satisfactorily met in this case.
(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 In applying the alter ego doctrine, the courts are concerned with reality and not form, with
the transaction attacked so that the corporate entity as to this transaction had at how the corporation operated and the individual defendant’s relationship to that
the time no separate mind, will or existence of its own; operation.62 With respect to the control element, it refers not to paper or formal control by
majority or even complete stock control but actual control which amounts to "such
(2) Such control must have been used by the defendant to commit fraud or domination of finances, policies and practices that the controlled corporation has, so to
wrong, to perpetuate the violation of a statutory or other positive legal duty, or speak, no separate mind, will or existence of its own, and is but a conduit for its
dishonest and unjust act in contravention of plaintiff’s legal right; and principal."63 In addition, the control must be shown to have been exercised at the time the
acts complained of took place.64
Both the RTC and the Court of Appeals applied the alter ego theory and penetrated the HRCC has presented nothing to show that DBP and PNB had a hand in the act
corporate cover of NMIC based on two factors: (1) the ownership by DBP and PNB of complained of, the alleged undue disregard by NMIC of the demands of HRCC to satisfy
effectively all the stocks of NMIC, and (2) the alleged interlocking directorates of DBP, the unpaid claims for services rendered by HRCC in connection with NMIC’s mine
PNB and NMIC.65 Unfortunately, the conclusion of the trial and appellate courts that the stripping and road construction program in 1985. On the contrary, the overall picture
DBP and PNB fit the alter ego theory with respect to NMIC’s transaction with HRCC on painted by the evidence offered by HRCC is one where HRCC was dealing with NMIC as
the premise of complete stock ownership and interlocking directorates involved a a distinct juridical person acting through its own corporate officers. 73
quantum leap in logic and law exposing a gap in reason and fact.
Moreover, the finding that the respective boards of directors of NMIC, DBP, and PNB
While ownership by one corporation of all or a great majority of stocks of another were interlocking has no basis. HRCC’s Exhibit "I-5," 74 the initial General Information
corporation and their interlocking directorates may serve as indicia of control, by Sheet submitted by NMIC to the Securities and Exchange Commission, relied upon by the
themselves and without more, however, these circumstances are insufficient to establish trial court and the Court of Appeals may have proven that DBP and PNB owned the
an alter ego relationship or connection between DBP and PNB on the one hand and stocks of NMIC to the extent of 57% and 43%, respectively. However, nothing in it
NMIC on the other hand, that will justify the puncturing of the latter’s corporate cover. This supports a finding that NMIC, DBP, and PNB had interlocking directors as it only indicates
Court has declared that "mere ownership by a single stockholder or by another that, of the five members of NMIC’s board of directors, four were nominees of either DBP
corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient or PNB and only one was a nominee of both DBP and PNB. 75 Only two members of the
ground for disregarding the separate corporate personality." 66 This Court has likewise board of directors of NMIC, Jose Tengco, Jr. and Rolando Zosa, were established to be
ruled that the "existence of interlocking directors, corporate officers and shareholders is members of the board of governors of DBP and none was proved to be a member of the
not enough justification to pierce the veil of corporate fiction in the absence of fraud or board of directors of PNB.76 No director of NMIC was shown to be also sitting
other public policy considerations."67 simultaneously in the board of governors/directors of both DBP and PNB.

True, the findings of fact of the Court of Appeals are conclusive and cannot be reviewed In reaching its conclusion of an alter ego relationship between DBP and PNB on the one
on appeal to this Court, provided they are borne out of the record or are based on hand and NMIC on the other hand, the Court of Appeals invoked Sibagat Timber
substantial evidence.68 It is equally true that the question of whether one corporation is Corporation v. Garcia,77 which it described as "a case under a similar factual
merely an alter ego of another is purely one of fact. So is the question of whether a milieu."78 However, in Sibagat Timber Corporation, this Court took care to enumerate the
corporation is a paper company, a sham or subterfuge or whether the requisite quantum circumstances which led to the piercing of the corporate veil of Sibagat Timber
of evidence has been adduced warranting the piercing of the veil of corporate Corporation for being the alter ego of Del Rosario & Sons Logging Enterprises, Inc. Those
personality.69 Nevertheless, it has been held in Sarona v. National Labor Relations circumstances were as follows: holding office in the same building, practical identity of the
Commission70 that this Court has the power to resolve a question of fact, such as whether officers and directors of the two corporations and assumption of management and control
a corporation is a mere alter ego of another entity or whether the corporate fiction was of Sibagat Timber Corporation by the directors/officers of Del Rosario & Sons Logging
invoked for fraudulent or malevolent ends, if the findings in the assailed decision are Enterprises, Inc.
either not supported by the evidence on record or based on a misapprehension of facts.
Here, DBP and PNB maintain an address different from that of NMIC. 79 As already
In this case, nothing in the records shows that the corporate finances, policies and discussed, there was insufficient proof of interlocking directorates. There was not even an
practices of NMIC were dominated by DBP and PNB in such a way that NMIC could be allegation of similarity of corporate officers. Instead of evidence that DBP and PNB
considered to have no separate mind, will or existence of its own but a mere conduit for assumed and controlled the management of NMIC, HRCC’s evidence shows that NMIC
DBP and PNB. On the contrary, the evidence establishes that HRCC knew and acted on operated as a distinct entity endowed with its own legal personality. Thus, what obtains in
the knowledge that it was dealing with NMIC, not with NMIC’s stockholders. The letter this case is a factual backdrop different from, not similar to, Sibagat Timber Corporation.
proposal of Hercon, Inc., HRCC’s predecessor-in-interest, regarding the contract for
NMIC’s mine stripping and road construction program was addressed to and accepted by In relation to the second element, to disregard the separate juridical personality of a
NMIC.71 The various billing reports, progress reports, statements of accounts and corporation, the wrongdoing or unjust act in contravention of a plaintiff’s legal rights must
communications of Hercon, Inc./HRCC regarding NMIC’s mine stripping and road be clearly and convincingly established; it cannot be presumed. Without a demonstration
construction program in 1985 concerned NMIC and NMIC’s officers, without any that any of the evils sought to be prevented by the doctrine is present, it does not apply. 80
indication of or reference to the control exercised by DBP and/or PNB over NMIC’s affairs,
policies and practices.72
In this case, the Court of Appeals declared:
We are not saying that PNB and DBP are guilty of fraud in forming NMIC, nor are we As trustee of the. assets of NMIC, however, the APT should ensure compliance by NMIC
implying that NMIC was used to conceal fraud. x x x.81 of the judgment against it. The APT itself acknowledges this.84

Such a declaration clearly negates the possibility that DBP and PNB exercised control WHEREFORE, the petitions are hereby GRANTED.
over NMIC which DBP and PNB used "to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in The complaint as against Development Bank of the Philippines, the Philippine National
contravention of plaintiff’s legal rights." It is a recognition that, even assuming that DBP Bank, and the Asset Privatization Trust, now the Privatization and Management Office, is
and PNB exercised control over NMIC, there is no evidence that the juridical personality DISMISSED for lack of merit. The Asset Privatization Trust, now the Privatization and
of NMIC was used by DBP and PNB to commit a fraud or to do a wrong against HRCC. Management Office, as trustee of Nonoc Mining and Industrial Corporation, now the
Philnico Processing Corporation, is DIRECTED to ensure compliance by the Nonoc
There being a total absence of evidence pointing to a fraudulent, illegal or unfair act Mining and Industrial Corporation, now the Philnico Processing Corporation, with this
committed against HRCC by DBP and PNB under the guise of NMIC, there is no basis to Decision.
hold that NMIC was a mere alter ego of DBP and PNB. As this Court ruled in Ramoso v.
Court of Appeals82: SO ORDERED.

As a general rule, a corporation will be looked upon as a legal entity, unless and until
sufficient reason to the contrary appears. When the notion of 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. Also, the corporate entity may be disregarded in
the interest of justice in such cases as fraud that may work inequities among members of
the corporation internally, involving no rights of the public or third persons. In both
instances, there must have been fraud, and proof of it. For the separate juridical
personality of a corporation to be disregarded, the wrongdoing must be clearly and
convincingly established. It cannot be presumed.

As regards the third element, in the absence of both control by DBP and PNB of NMIC
and fraud or fundamental unfairness perpetuated by DBP and PNB through the corporate
cover of NMIC, no harm could be said to have been proximately caused by DBP and PNB
on HRCC for which HRCC could hold DBP and PNB solidarily liable with NMIC.1âwphi1

Considering that, under the deeds of transfer executed by DBP and PNB, the liability of
the APT as transferee of the rights, titles and interests of DBP and PNB in NMIC will
attach only if DBP and PNB are held liable, the APT incurs no liability for the judgment
indebtedness of NMIC. Even HRCC recognizes that "as assignee of DBP and PNB 's loan
receivables," the APT simply "stepped into the shoes of DBP and PNB with respect to the
latter's rights and obligations" in NMIC.83 As such assignee, therefore, the APT incurs no
liability with respect to NMIC other than whatever liabilities may be imputable to its
assignors, DBP and PNB.

Even under Section 2.02 of the respective deeds of transfer executed by DBP and PNB
which HRCC invokes, the APT cannot be held liable. The contingent liability for which the
National Government, through the APT, may be held liable under the said provision refers
to contingent liabilities of DBP and PNB. Since DBP and PNB may not be held solidarily
liable with NMIC, no contingent liability may be imputed to the APT as well. Only NMIC as
a distinct and separate legal entity is liable to pay its corporate obligation to HRCC in the
amount of ₱8,370,934.74, with legal interest thereon from date of demand.
G.R. No. 220926 DECISION

LUIS JUAN L. VIRATA and UEMMARA PHILIPPINES CORPORATION (now known as VELASCO, JR., J.:
CAVITEXINFRASTRUCTURE CORPORATION), Petitioners
vs. Nature of the Case
ALEJANDRO NG WEE, WESTMONT INVESTMENT CORP., ANTHONY T. REYES,
SIMEON CUA, VICENTE CUALOPING, HENRY CUALOPING, MARIZA SANTOSTAN,
and MANUEL ESTRELLA, Respondents For resolution is the consolidated petitions assailing the September 30, 2014
Decision1 and October 14, 2015 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV.
No. 97817.3 Said rulings affirmed the trial court judgment declaring petitioners solidarily
x-----------------------x liable to Alejandro Ng Wee (Ng Wee) in the amount of ₱213,290,410.36, plus interests
and damages.
G.R. No. 221058
The Facts
WESTMONT INVESTMENT, CORPORATION, Petitioner,
vs. Ng Wee was a valued client of Westmont Bank. Sometime in 1998, he was enticed by the
ALEJANDRO NG WEE, Respondent. bank manager to make money placements with Westmont Investment Corporation
(Wincorp), a domestic corporation organized and licensed to operate as an investment
x-----------------------x house, and one of the bank's affiliates.4 Offered to him were "sans recourse"  transactions
with the following mechanics as summarized by the CA:
G.R. No. 221109
x x x A corporate borrower who needs financial assistance or funding to run its business
MANUEL ESTRELLA, Petitioner, or to serve as working capital is screened by Wincorp. Once it qualifies as an accredited
vs. borrower, Wincorp enters into a Credit Line Agreement for a specific amount with the
ALEJANDRO NG WEE, Respondent. corporation which the latter can draw upon in a series of availments over a period of time.
The agreement stipulates that Wincorp shall extend a credit facility on "best effort" basis
and that every drawdown by the accredited borrower shall be evidenced by a promissory
x-----------------------x note executed in favor of Wincorp and/or the investor/s who has/have agreed to extend
the credit facility. Wincorp then scouts for investors willing to provide the funds needed by
G.R. No. 221135 the accredited borrower. The investor is matched with the accredited borrower. An
investor who provides the fund is issued a Confirmation Advice which indicates the
SIMEON CUA, VICENTE CUALOPING, and HENRY CUALOPING, Petitioners, amount of his investment, the due date, the term, the yield, the maturity and the name of
vs. the borrower.5
ALEJANDRO NG WEE, Respondent.
Lured by representations that the "sans recourse" transactions are safe, stable, high-
x-----------------------x yielding, and involve little to no risk, Ng Wee, sometime in 1998, placed investments
thereon under accounts in his own name, or in those of his trustees: Angel Archangel,
G.R. No. 221218 Elizabeth Ng Wee, Roberto Tabada Tan, and Alex Lim Tan. 6 In exchange, Wincorp
issued Ng Wee and his trustees Confirmation Advices informing them of the identity of the
borrower with whom they were matched, and the terms under which the said borrower
ANTHONY T. REYES, Petitioner, would repay them. The contents of a Confirmation Advice are typically as follows:
vs.
ALEJANDRO NG WEE, LUIS JUAN VIRATA, UEM-MARA PHILIPPINES CORP.,
WESTMONT INVESTMENT CORP., MARIZA SANTOS-TAN, SIMEON CUA, VICENTE This is to confirm that pursuant to your authority, we have acted in your behalf and/or for
CUALOPING, HENRY CUALOPING, and MANUEL ESTRELLA, Respondents your benefit, risk or account without recourse or liability, real or contingent, to Westmont
Investment Corporation in respect of the loan granted to the Borrower named and under the Asian financial crisis struck. As a result, Wincorp filed a collection suit against Hottick,
the terms specified hereunder Halim Saad, and NSC for the repayment of the loan and related costs. 14 A Writ of
Preliminary Attachment was then issued against Halim Saad's properties, which included
Borrower: _______ the assets of UEM-MARA Philippines Corporation (UEM-MARA). 15 Virata was not
impleaded as a party defendant in the case.

Amount Rate: % Term: Value Date: To induce the parties to settle, petitioner Virata offered to guarantee the full payment of
Yield: Tax: Maturity Value: the loan. The guarantee was embodied in the July 27, 1999 Memorandum of
Agreement16 between him and Wincorp. Virata was then able to broker a compromise
Payment on Value Date TO No. between Wincorp and Halim Saad that paved the way for the execution of a Settlement
Agreement17 dated July 28, 1999. In the Settlement Agreement, Halim Saad agreed to
pay USDl,000,000.00 to Wincorp in satisfaction of any and all claims the latter may have
For your convenience but without any obligation on our part, we may act as your against the former under the Surety Agreement that secured Hottick's loan. As a result,
collecting and paying agent for this transaction. Kindly note that your receipt hereof is an Wincorp dropped Halim Saad from the case and the Writ of Preliminary Attachment over
indication of your conformity to the foregoing terms and conditions of the transaction. 7 the assets of UEM-MARA was dissolved.18

Special Power of Attorneys (SPAs) are also prepared for the signature of the lender Thereafter, Wincorp executed a Waiver and Quitclaim19 dated December 1, 1999 in favor
investor. The SP As uniformly provide: of Virata, releasing the latter from any obligation arising from the Memorandum of
Agreement, except for his obligation to transfer forty percent (40%) equity of UEM
The undersigned, whose personal circumstances are stated hereunder, hereby, by these Development Philippines, Inc. (UPDI) and forty percent (40%) of UPDI's interest in the
presents, appoints, names and constitutes Westmont Investment Corporation (Wincorp ), tollway project to Wincorp. Apparently, the Memorandum of Agreement is a mere
a corporation duly organized and existing under and by virtue of the laws of the accommodation that is not meant to give rise to any legal obligation in Wincorp's favor as
Philippines, with office address at in Floor, Westmont Bank Building, 411 Quintin Paredes against Virata, other than the stipulated equity transfer.
Street, Binondo, .Manila, as the Attorney-in-Fact of the undersigned:
Alarmed by the news of Hottick's default and financial distress, Ng Wee confronted
To agree, deliver, sign, execute loan documents relative to the borrowing of: Wincorp and inquired about the status of his investments. Wincorp assured him that the
_______________ ("The Borrower") to whom the undersigned, thru Wincorp, agreed to losses from the Hottick account will be absorbed by the company and that his investments
lend the principal sum of PESOS ________________ would be transferred instead to a new borrower account. In view of these representations,
Ng Wee continued making money placements, rolling over his previous investments in
HEREBY GIVING AND GRANTING unto said Attorney-in-Fact power and authority to do Hottick and even increased his stakes in the new borrower account - Power Merge
and perform all and every act and thing whatsoever requisite or necessary to be done in Corporation (Power Merge).20
and about the premises, HEREBY RATIFYING AND CONFIRMING all that said Attorney-
in-Fact shall lawfully do or cause to be done by virtue of these presents. 8 Incorporated on August 4, 1997, Power Merge21 is a domestic corporation, the primary
purpose of which is to "invest in, purchase, or othe-rwise acquire and own, hold, use, sell,
Ng Wee's initial investments were matched with Hottick Holdings Corporation (Hottick), assign, transfer, mortgage, pledge, exchange or otherwise dispose of real or personal
one of Wincorp's accredited borrowers, the majority shares of which was owned by a property of every kind and description."22 Petitioner Virata is the majority stockholder of
Malaysian national by the name of Tan Sri Halim Saad (Halim Saad). Halim Saad was the corporation, owning 374 ,996 out of its 375, 000 subscribed capital stock. 23
then the controlling shareowner of UEM-MARA, which has substantial interests in the
Manila Cavite Express Tollway Project (Cavitex). 9 In a special meeting of Wincorp's board of directors held on February 9, 1999, the
investment house resolved to file the collection case against Halim Saad and
Hottick was extended a credit facility 10 with a maximum drawdown of ₱l,500,908,026.87 in Hottick,24 and, on even date, approved Power Merge' s application for a credit line,
consideration of the following securities it issued in favor of Wincorp: (1) a Suretyship extending a credit facility to the latter in the maximum amount of
Agreement11 executed by herein petitioner Luis Juan Virata (Virata); (2) a Suretyship ₱l,300,000,000.00.25 Based on the minutes of the special meeting,26 board chairman John
Agreement12 executed by YBHG Tan Sri Halim Saad; and (3) a Third Party Real Estate Anthony B. Espiritu, Wincorp President Antonio T. Ong (Ong), Mariza Santos-Tan
Mortgage13 executed by National Steel Corporation (NSC). Hottick fully availed of the loan (Santos-Tan), Manuel N. Tankiansee (Tankiansee),27 and petitioners Manuel A. Estrella
facility extended by Wincorp, but it defaulted in paying its outstanding obligations when (Estrella), Simeon Cua, Henry T. Cualoping, and Vicente Cualoping (Cua and the
 Cualopings) were allegedly in attendance. Thus, on February 15, 1999, Wincorp fully paid. In addition, I/We shall be liable to pay liquidated damages in the amount
President Ong and Vice-President for Operations petitioner Anthony Reyes (Reyes) equivalent to twenty percent (20%) of the Maturity amount.
executed a Credit Line Agreement28 in favor of Power Merge with petitioner Virata's
conformity. If this Note is placed in the hands of an attorney for collection, or if payment herein is
collected by suit or through other legal proceedings, I/We promise to pay WINCORP a
Barely a month later, on March 11, 1999, Wincorp, through another board meeting sum equal to twenty-five (25%) of the total amount due and payable as and for attorney's
allegedly attended by the same personalities, increased Power Merge's maximum credit fees and cost of collection.33
limit to ₱2,500,000,000.00.29 Accordingly, an Amendment to the Credit Line
Agreement30 (Amendment) was executed on March 15, 1999 by the same representatives After receiving the promissory notes from Power Merge, Wincorp, in turn, issued
of the two parties. Confirmation Advices to Ng Wee and his trustees, as well as to the other investors who
were matched with Power Merge. A summary of the said Confirmation Advices reveals
Power Merge made a total of six (6) drawdowns from the amended Credit Line that out of the ₱2,183,755,253.11 drawn by Power Merge, the aggregate amount of
Agreement in the aggregate amount of P2,183,755,253.11.31 Following protocol, Power ₱213,290,410.36 was sourced from Ng Wee's money placements under the names of his
Merge issued Promissory Notes in favor of Wincorp, either for itself or as agent for or on trustees:34
behalf of certain investors, for each drawdown. The Promissory Notes issued can be
summarized thusly:32
Serial No. Name Principal Amount of Placement Due Date Maturity Value

Promissory Note No. Availment Date Maturity Date 90029

Principal Angel Archangel 1,559,927.96 3/27/2000 1,584,496.83

1411 February 12, 1999 February 12, 2000 90821

₱8,618,877.35 Robert Tabada Tan 2,300,000.00 3/22/2000 2,336,225.00

1537 February 10, 1999 February 10, 2000 90823

₱1,124,781,081.10 Robert Tabada Tan 11,937,401.91 3/23/2000 12, 125,415.99

1538 March 12, 1999 March 11, 2000 90825

₱215,660.99 Robert Tabada Tan 2, 722,325.59 3/23/2000 2, 765,202.22

1539 March 12, 1999 March 11, 2000 90827

₱671,402,608.61 Robert Tabada Tan 1,857,896.78 3/22/2000 1,885,765.23

1540 March 17, 1999 March 16, 2000 90832

₱378,381,629.15 Robert Tabada Tan 17,908,989.04 3/29/2000 18, 191,055.62

1541 March 22, 1999 March 21, 2000 90834

₱355,395.91 Robert Tabada Tan 2,263,514.95 3/30/2009 2,299, 165.31

Total   90835
₱2,183,755,253.11 Robert Tabada Tan 1,970,590.89 3/30/2009 2,001,627.70
90839 Alex Lim Tan 406,825.00 3/24/2000 412,164.58
And pertinently, the template for the Promissory Notes read:
90844 Alex Lim Tan 1,835,610.44 4/3/2000 1,866,662.85

PROMISSORY NOTE 90860 Alex Lim Tan 2,144,975.50 3/31/2000 2,170,715.21

90861 Alex Lim Tan 8,649,113.51 3/31/2000 8,752,902.87
For value received, I/We hereby promise to pay WESTMONT INVESTMENT
CORPORATION (WINCORP), either for itself or as agent for and on behalf of certain 90864 Alex Lim Tan 2,051,965.81 4/3/2000 2,078,128.37
INVESTORS who have placed/invested funds with WINCORP  the principal sum of
__________ (_______), Philippine Currency, on _____ with interest rate of _________90866 Alex Lim Tan 8,749,275.96 4/4/2000 8,860,829.23
percent (___%) per annum, or equivalently the Maturity Amount of ___________ PESOS 90869 Alex Lim Tan 4,175,382.61 4/4/2000 4,228,618.74
Philippine Currency.
91319 Elizabeth Ng Wee 1,000,000.00 4/7/2000 1,012,000.00
Demand and Dishonor Waived: In case of default in the payment of this Promissory Note, 91337 Robert Tabada Tan 1,587,553.58 4/7/2000 1,606,604.22
an additional interest on the Maturity Amount at the rate of three percent (3%) per month
shall accrue from the date immediately following the Maturity Date hereof until the same is
91654 Robert Tabada Tan 322,117.07 4/11/2000 326,224.06
91712 Elizabeth Ng Wee 1,610,325.19 4/2/2000 1. Powermerge hereby agrees to execute promissory notes in the aggregate principal
1,630,856.84
sum of ₱1,200,000,000.00 in favor of Wincorp and in exchange therefore, Wincorp hereby
91713 Robert Tabada Tan 11,615,297.69 4/12/2000 assigns, transfers, and conveys to Powermerge all of its rights, titles and interests by way
11,763,392.74
of a subparticipation over the promissory notes and other obligations executed by Hettick
91735 Robert Tabada Tan 28,877,638.89 4/12/2000 29,245,828.79
in favor of Wincorp; Provided however that the only obligation of Powermerge to Wincorp
92673 Elizabeth Ng Wee 1,301,666.89 4/4/2000 shall be to return and deliver to Wincorp all the rights, title and interests conveyed by
1,318,263.14
Wincorp hereby to Powermerge over the Hottick obligations. Powermerge shall have no
92761 Elizabeth Ng Wee 2,415,487.78 4/12/2000 2, 446,285obligation
.25 to pay under its promissory notes executed in favor of Wincorp but shall be
obligated merely to return whatever [it] may have received from Wincorp pursuant to this
92804 Robert Tabada Tan 10,635,489.17 3/23/2000 10,691,325.49
agreement.
92805 Robert Tabada Tan 8,439, 180.56 4/12/2000 8,546, 780.11
xxxx
92900 Robert Tabada Tan 652,571.11 4/13/2000 660,891.39
92965 Robert Tabada Tan 39,028,875.33 4/14/2000 3. Win corp confirms and agrees that this accommodation being entered into by the
39,497,221.83
parties is not intended to create a payment obligation on the part of
92980 Robert Tabada Tan 6,799,438.05 4/14/2000 6,881,031.31
Powermerge.35 (emphasis added)
93001 Robert Tabada Tan 5,000,000.00 4/14/2000 5,060,000.00
Save for the amount, identical provisions were included in the March 15, 1999 Side
93062 Robert Tabada Tan 1,536,373. 70 4/17/2000 Agreement.36 By virtue of these contracts, Wincorp was able to assign its rights to the
1,555,962.46
uncollected Hottick obligations and hold Power Merge papers instead. 37 However, this
93073 Robert Tabada Tan 3,447,004.47 4/17/2000 3,490,953.78
also meant that if Power Merge subsequently defaults in the payment of its obligations, it
would refuse, as it did in fact refuse, payment to its investors.
93075 Robert Tabada Tan 12,000,000.00 4/17/2000 12, 153,000.00
93619 Alex Lim Tan 508,683.02 4/26/2000 515,741.00
Despite repeated demands,38 Ng Wee was not able to collect Power Merge's outstanding
obligation under the Confirmation Advices in the amount of ₱213,290,410.36. This
93625 Alex Lim Tan 1,933,335.42 4/26/2000 1,960, 160.45
prompted Ng Wee, on October 19, 2000, to institute a Complaint for Sum of Money with
93795 Alex Lim Tan 351,157.75 4/28/2000 Damages with prayer for the issuance of a Writ of Preliminary Attachment
356,161.75
(Complaint),39 docketed as Civil Case No. 00-99006 before the Regional Trial Court
93308 Elizabeth Ng Wee 1,000,000.00 4/19/2000 1,012,750.00
(RTC), Branch 39 of Manila (R TC). Of the seventeen (17) named defendants therein,
only Virata, Power Merge, UPDI, UEM-MARA, Wincorp, Ong, Reyes, Cua, Tankiansee,
Total   210,595,991.62   213,290,410.36
Santos-Tan, Vicente and Henry Cualoping, and Estrella were duly served with
summons.40
Unknown to Ng Wee, however, was that on the very same dates the Credit Line
Agreement and its subsequent Amendment were entered into by Wincorp and Power In his Complaint, Ng Wee claimed that he fell prey to the intricate scheme of fraud and
Merge, additional contracts (Side Agreements) were likewise executed by the two deceit that was hatched by Wincorp and Power Merge. As he later discovered, Power
corporations absolving Power Merge of liability as regards the Promissory Notes it issued. Merge's default was inevitable from the very start since it only had subscribed capital in
Pertinently, the Side Agreement dated February 15, 1999 reads: the amount of ₱37,500,000.00, of which only ₱9,375,000.00 is actually paid up. He then
attributed gross negligence, if not fraud and bad faith, on the part of Wincorp and its
WHEREAS, Powermerge has entered into the Credit Line Agreement with Wincorp as an directors for approving Power Merge's credit line application and its subsequent increase
accommodation in order to allow Wincorp to hold Powermerge paper instead of the to the amount of ₱2,500,000,000.00 despite its glaring inability to pay.
obligations of Hettick which are right now held by Wincorp.
Wincorp officers Ong and Reyes were likewise impleaded for signing the Side
xxxx Agreements that would allow Power Merge to avoid paying its obligations to the
investors.1âwphi1 Ng Wee also sought to pierce the separate juridical personality of
Power Merge since Virata owns almost all of the company's stocks. It was further alleged
that Virata acquired interest in UEM-MARA using the funds swindled from the Wincorp meetings when Power Merge's credit line application was approved and even objected
investors. against the same when they came to know of such fact.

As an annex to the Complaint, Ng Wee cited the May 5, 2000 Cease and Desist Reyes meanwhile asseverated that the first paragraph of Sec. 31 cannot find application
Order41 issued by the Prosecution and Enforcement Department of the Securities and to his case since he is not a director of Wincorp, but its officer. It is his argument that he
Exchange Commission (SEC) in PED Case No. 20-237842 after its routine audit of the can only be held liable under the second paragraph of the provision if he is guilty of
operations of the investment house. Data gathered by the SEC showed that, as of conflict of interest, which he is not. He likewise claimed that he was duly authorized to
December 31, 1999, Wincorp has sourced funds from 2,200 individuals with an average sign the side Credit Line Agreements and Side Agreements on behalf of Wincorp.
of ₱7,000,000,000.00 worth of commercial papers per month. 43 In its subsequent October
27, 2000 Resolution,44 the SEC found that the Confirmation Advices that Wincorp had The Wincorp camp reiterated that Ng Wee's Complaint failed to state a cause of action
been issuing to its investors takes the form of a security that ought to have been because the money placements were not registered under his name. It was their
registered before being offered to the public, 45 and that the investment house had also postulation then that the alleged trustees should have instituted the case in their own
been advancing the payment of interest to the investors to cover up its borrowers' names.
insolvency.46
On the other hand, petitioners Virata and UEM-MARA harped on the underlying
The defendants moved for the dismissal of the case for failure to state a cause of action, arrangement between Hottick, Power Merge, and Wincorp. Under the framework, Hottick
among other reasons, moored on the fact that the investments were not recorded in the will issue Promissory Notes to Wincorp, which will then transfer the same to Power
name of Ng Wee. These motions, however, were denied by the RTC on October 4, 2001, Merge. In exchange for the transfer, Power Merge will issue its own Promissory Notes to
which denial was elevated by way of certiorari to the CA, only for the trial court ruling to Wincorp. That way, Wincorp will be holding Power Merge papers, instead of Hottick.
be affirmed on August 21, 2003. The issue eventually made its way to this Court and was
docketed as G.R. No. 162928. The Court however, found no reversible error on the part
of the CA when the appellate court sustained the denial of the motions to dismiss. 47 To implement this arrangement, Wincorp and Power Merge entered into a Credit Line
Agreement with the understanding that Power Merge and Virata's only obligation
thereunder would be to collect payments on the Hottick papers. The Credit Line
In their respective Answers, the Wincorp and Power Merge camps presented opposing Agreement and the issuance of the promissory notes, according to Virata, were mere
defenses.48 accommodations to help Wincorp enforce the outstanding obligations of Hottick. It was
then contrary to their agreement for Wincorp to have offered the Power Merge papers to
Wincorp admitted that it brokered Power Merge Promissory Notes to investors investors since it was allegedly agreed upon that Power Merge would incur no liability to
through "sans recourse" transactions. It contended, however, that its only role was to pay the promissory notes it issued Wincorp.
match an investor with corporate borrowers and, hence, assumed no liability for the
monies that Ng Wee loaned to Power Merge. As proof thereof, Wincorp brought to the Ruling of the Trial Court
attention of the R TC the language of the SP As executed by the investors.
On July 8, 2011, the RTC rendered a Decision50 in Civil Case No. 00- 99006 in favor of Ng
"Sans recourse"  transactions, Wincorp added, are perfectly legal under Presidential Wee. Thefallo of the Decision reads:
Decree No. 129 (PD 129), otherwise known as the Investment Houses Law, and forms
part of the brokering functions of an investment house. As a duly licensed investment
house, it was authorized to offer the "sans recourse" transactions to the public, even WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff,
without a license to perform quasi-banking functions. ordering the defendants Luis L. Virata, UEM-MARA Philippines Corporation, Westmont
Investment Corporation (Wincorp), Antonio T. Ong, Anthony T. Reyes, Simeon Cua,
Vicente and Henry Cualoping, Mariza Santos-Tan, and Manuel Estrella to jointly and
For their part, the Wincorp directors argued that they can only be held liable under severally pay plaintiff as follows:
Section 31 of Batas Pambansa Big. (BP) 68,49 the Corporation Code, if they assented to a
patently unlawful act, or are guilty of either gross negligence or bad faith in directing the
affairs of the corporation. They explained that the provision is inapplicable since the 1. The sum of Two Hundred Thirteen Million Two Hundred Ninety
approval of Power Merge's credit line application was done in good faith and that they Thousand Four Hundred Ten and 36/100 Pesos (P213,290,410.36),
merely relied on the vetting done by the various departments of the company. which is the maturity amount of plaintiffs investment with legal interest at
Additionally, Estrella and Tankiansee argued that they were not present during the special the rate of twelve (12%) percent per annum from the date of filing of the
complaint until fully paid;
 2. Liquidated damages equivalent to twenty percent (20%) of the The RTC further found compelling need to pierce through the separate juridical
maturity amount, and attorney's fees equivalent to 25% of the total personality of Power Merge since Virata exercised complete control thereof, owning
amount due plus legal interest at the rate of twelve (12%) percent per 374,996 out of 375,000 of its subscribed capital stock. Similarly, the separate juridical
annum from the date of filing of the complaint until fully paid; personality of UEM-MARA was pierced to reach the illegal proceeds of the funds sourced
from the defrauded investors.55
3. ₱l00,000.00 as moral damages.
The motions for reconsideration from the afore-quoted ruling were denied on September
4. The complaint against defendant Tankiansee is dismissed for lack of 9, 2011.56 Separate appeals were then lodged by the following parties: (1) Wincorp, (2)
merit. Santos-Tan, (3) Cua and the Cualopings, (4) Virata and UEM-MARA Philippines Corp.,
(5) Reyes; and (6) Estrella. In due time, the appellants and appellees filed their respective
briefs.57
Defendants' counterclaim (sic) are dismissed for lack of merit, while the crossclaims filed
by defendants against each other are likewise dismissed, there being no evidence to
support the same. Ruling of the Court of Appeals

Cost against the defendants, except defendant Tankiansee. On September 30, 2014, the CA promulgated the challenged ruling substantially affirming
the findings of the trial court, viz:
SO ORDERED.51
WHEREFORE, the appeal is DISMISSED. The Decision dated July 8, 2011 and Order
dated September 9, 2011 issued by the Regional Trial Court of Manila, Branch 39 in Civil
Disposing first the procedural issue, the RTC reminded the parties that whether or not Ng Case No. 00-99006 are AFFIRMED with the modification in that defendants-appellants
Wee had legal standing had already been settled when the defendants' motions to are jointly and severally liable to pay an interest of twelve percent (12%) per annum of the
dismiss were denied with finality. They are then precluded from re-raising the issue in total monetary awards, computed from the date of the filing of the complaint until June 30,
their memoranda.52 2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.

On the merits, the trial court explained that there was no dispute on the factual SO ORDERED.58
circumstances of the case and that, based on these facts, Wincorp and Power Merge
colluded, if not connived, to defraud Ng Wee of his investments. The RTC ratiocinated
that the "sans recourse"  transactions were used to conceal Wincorp' s direct borrowing; Preliminarily, the CA upheld the finding of the RTC that Ng Wee is a real party in interest
that Wincorp negated its acts and practices under the "sans recourse" transactions when and that the Complaint stated a cause of action despite the money placements being
it advanced the accrued interest due to the investors to conceal the fact that their made under the name of Ng Wee's trustees. 59
borrowers have already defaulted in their obligations; that Wincorp is a vendor in bad faith
since it knew that the Power Merge notes were uncollectible from the beginning by virtue The CA likewise found that Wincorp and Power Merge perpetrated an elaborate scheme
of the Side Agreements; and that, in any event, Wincorp violated its fiduciary of fraud to inveigle Ng Wee into investing funds. Ng Wee would not have placed his
responsibilities as the investors' agent. The R TC held Power Merge equally guilty investments in the "sans recourse"  transactions had he not been deceived into believing
because Wincorp could not have perpetrated the fraud without its indispensable that Power Merge is financially capable of paying the returns on his investments. In sync
participation as a conduit for the scheme.53 with the R TC, the CA found that Wincorp misrepresented Power Merge's financial
capacity when it accredited Power Merge as a corporate borrower and granted it a
The RTC likewise ruled that Ng Wee presented sufficient evidence against the individual ₱2,500,000,000.00 credit facility despite the telling signs that the latter would not be able
directors and officers for them to be held liable for fraud and/or bad faith under Sec. 31 of to perform its obligations, to wit: (1) Power Merge had only been in existence for two
the Corporation Code, except for Tankiansee. The claim against Tankiansee was dropped years when it was granted the credit facility; (2) Power Merge was thinly capitalized with
since his immigration records established that he could not have participated in the only ₱37,500,000.00 subscribed capital; (3) Power Merge was not an on-going concern
special meetings of the Wincorp directors, having been out of the country during the since it never secured the necessary permits and licenses to conduct business, it never
material dates. Moreover, he filed a civil and criminal case against Wincorp, negating any engaged in any lucrative business, and it did not file the necessary reports with the SEC;
charge of conspiracy.54 and (4) No security was demanded by Wincorp or was furnished by Power Merge in
relation to the latter's drawdowns.60
The intent of Wincorp to deceive became even more manifest when it entered into the The CA also did not find compelling reason to depart from the RTC's conclusion as
Side Agreements with Power Merge. The Side Agreements rendered worthless Power regards UEM-MARA's liability. The appellate court saw the need to reach the illegal
Merge's Promissory Notes that Wincorp offered to Ng Wee and the other investors. proceeds of funds sourced from the defrauded investors.
Meanwhile, the "sans recourse"  nature of the transactions prevented the investors from
recovering their investments from the investment house.61 Lastly, the CA held that the appellants are jointly and severally liable pursuant to Art. 1170
of the New Civil Code.66
Because of the foregoing fraudulent acts, Wincorp was held liable to Ng Wee as a vendor
of security in bad faith, and for acting beyond the scope of its authority as Ng Wee's agent The motions for reconsideration from the September 30, 2014 Decision were denied on
when it knowingly purchased worthless securities for him and his co-investors. 62 October 14, 2015 in the following wise:

The CA likewise did not find merit in Power Merge's defense that it was a mere WHEREFORE, finding no rationally persuasive reasons which would warrant a
accommodation party. Power Merge's participation was indispensable in deceiving Ng modification much less, a reversal of our Decision dated September 30, 2014, all the
Wee into placing more investments and amounted to actionable fraud. Its conduct that led Motions for Reconsideration filed by the defendants-appellants are DENIED. The Notice
to this conclusion include: (1) setting up the Power Merge borrower account; (2) the of Change of Name filed by Defendant Manuel Estrella, is hereby NOTED.
laborious execution of Credit Line Agreement, Side Agreements, and promissory notes;
(3) allowing Wincorp to sell worthless Power Merge papers/notes; and (4) receiving
valuable consideration through its drawdowns.63 SO ORDERED.67

Anent the liability of the directors, the appellate court sustained the trial court's application Grounds for the Petitions
of the doctrine on the piercing of the corporate veil, and also held that under Sec. 31 of
the Corporation Code, corporate officers can be held liable for having assented to patently Aside from Santos-Tan, defendants-appellants a quo  appealed the September 30, 2014
unlawful corporate acts, and for having acted in gross negligence and/or bad faith in Decision and October 14, 2015 Resolution of the CA via the instant recourses.
management.64
G.R. No. 220926: Petition for Review
Here, the CA ratiocinated that the perpetrated investment scheme on Certiorari of Luis Juan L. Virata
constituted estafa  under either Art. 315(l)(b) or Art. 315(2)(a) of the Revised Penal and UEM-MARA
Code65 due to Wincorp's violation of its fiduciary relation with Ng Wee, and its employment
of fraud or deceit to the latter's damage and prejudice. Moreover, Wincorp violated In their Petition for Review on Certiorari,68 Virata and UEM-MARA claim that there is no
various commercial laws when it offered the "sans recourse"  transactions. For though basis in implicating them in the scheme to defraud Ng Wee and the other investors since
denominated as "sans recourse,"  Wincorp's actuations reveal that the transactions are there was no privity of contract between them; petitioners never interacted with Ng Wee.
actually with recourse since Wincorp virtually borrowed from itself, for itself. Assenting to This is allegedly consistent with the CA finding that Wincorp engaged in direct borrowing
these patently unlawful acts, according to the CA, exposed the corporate directors and with its investors. Thus, petitioners argue that Ng Wee cannot subsequently claim that his
officers to liability. funds were lent to Power Merge. Ng Wee likewise allegedly failed to prove that Power
Merge derived pecuniary benefits from the investment transactions.
Gross negligence can also be attributed to the Wincorp directors when they approved
Power Merge's credit line application and the subsequent increase of its credit limit to Petitioners add that the Confirmation Advices were issued by Wincorp alone. Wincorp had
₱2,500,000,000.00 despite Power Merge's evident weak financial structure and poor the sole discretion of selecting which corporate borrower to match with whom. Power
capitalization, so the CA ruled. Merge, Virata, and UEM-MARA therefore had no control over the matter. Thus, applying
the doctrine of res inter alios acta alteri nocere non debet, third parties like petitioners
The elaborate scheme of deceit and fraud, and the corresponding liability therefrom, is may not be prejudiced by the act, declaration, or omission of Wincorp.
then imputable to the directors of Wincorp. Meanwhile, Reyes and V irata cannot escape
liability since they signed the Side Agreements that rendered the Power Merge papers The propriety of piercing the corporate veil is also challenged by petitioners. They argue
worthless. that Virata's ownership of almost all of the shares of Power Merge does not automatically
justify the application of the doctrine, absent fraud. And according to petitioners, there
was no evidence of fraud, bad faith, or gross negligence on the part of Virata in the case
at bar. It is the postulation that Virata could not be held liable for acts done in his official
capacity, including the execution of the Credit Line Agreement and the Side Agreements, business judgment rule. The fact that the business strategy turned out to be unfavorable
which allegedly are valid arm's length transactions duly authorized by Power Merge, and should not so casually be used to impute liability to the corporation absent showing of bad
that bad faith cannot be presumed from the mere failure of Power Merge to pay its faith or gross negligence.
obligations.
G.R. No. 221109: Petition/or Review
Petitioners also see no valid reason to hold UEM-MARA liable since there is no evidence of Manuel Estrella
of its participation in the allegedly fraudulent act. There is no proof that the grant of the
credit line was for the purpose of acquiring interests in UEM-MARA, or that the funds Petitioner Estrella, one of the directors of Wincorp, instituted a separate
obtained by Power Merge were the same funds used by Virata to acquire interests petition71 anchored on the ground that he was a mere nominee in Wincorp of his
therein. Petitioner Virata claims that he made use of a ₱600,000,000.00 credit facility from principals, Eduardo Espiritu and Wincorp board chairperson John Anthony Espiritu; that
Metrobank to facilitate the acquisition. he did not have any real beneficial interest in Wincorp as his appointment was a mere
accommodation to the Espiritus; and that he did not even receive any compensation,
G.R. No. 221058: Petition for Review salary, per diem  or benefit of any kind from either the Espiritus or from Wincorp.
on Certiorari of Wincorp
As a mere nominee, Estrella is involved solely in setting down company policies and
In its petition, Wincorp attributes reversible error69 to the CA when it rendered judgment prescribing the general guidelines for the direction of the business and affairs of Wincorp.
against the investment house. It claims that it merely performed its normal function as an In the performance of his duties, he relies heavily on the reports, memoranda, and
investment house by matching and marrying corporate borrowers with investors. The information provided them by management. He contends that he was never involved in
arrangement it entered into was neither an investment contract between it and Ng Wee the day-to-day management and operations of the company. He then had no knowledge
nor an exercise of quasi-banking function, but the brokerage of a legitimate loan and could not then have approved of the Side Agreements entered into by Ong and
agreement between Ng Wee and Power Merge. Ng Wee expected a fixed interest income petitioner Reyes. The Side Agreements were never presented in any of the meetings
at the end of the term of the loan, and not a participation in the success or loss of the Estrella attended, or so he claims.
borrower corporation.
He also questions the R TC and the CA's reliance on the minutes of the special meetings
Wincorp adds that it was clear to Ng Wee that what was involved was a loan agreement, naming him as one of the directors who approved Power Merge's credit line application
and that Wincorp was merely brokering the transaction. As a mere broker of the and its subsequent amendment. He argues that the minutes have already been
transaction, not the beneficiary thereof, Wincorp asserts that it cannot be held liable for discredited when the charges against Tankiansee have been dropped. Estrella reminds
the amount borrowed by Power Merge. Wincorp relies on the text of the Confirmation the Court that Tankiansee was likewise included in the list of directors in attendance
Advices issued to Ng Wee to advance this point.70 during the February 9, 1999 and March 11, 1999 special meetings, only to be disproved
later on by his immigration records that show that he was out of the country during the
Based on the language of the Confirmation Advices, Ng Wee knew of and approved the material dates.
transactions that Wincorp entered into with Power Merge as his agent; that Ng Wee's
conformity in the series of Confirmations Advices issued in his favor, and his execution of It was admitted that Estrella attended the February 9, 1999 special meeting, but claims
the corresponding SP As thereafter, allegedly ratified Wincorp's acts of agency in the that he already left before the "other matters"  in the agenda, which included Power
execution of the loan agreement; and that Ng Wee had been renewing and rolling over his Merge's application, were discussed. He denies attending the March 11, 1999 special
initial placement, despite knowledge of this setup. meeting since he accompanied his wife that day to the hospital for her cancer treatment.
To substantiate these defenses, he brings to the Court's attention the fact that he did not
Wincorp further denies violating commercial laws since the transactions are "without sign, as he refused to sign, the minutes of the February 9, 1999 and March 11, 1999
recourse,  " in compliance with the Bangko Sentral ng Pilipinas (BSP) rule that only special meetings.
institutions that are granted license to perform quasi-banking functions can engage in
transactions "with recourse."  Moreover, the agreement with Ng Wee to broker a loan, not G.R. No. 221135: Petition/or Review
being a quasi-banking function, is required to be marked as "without recourse"  under Sec. on Certiorari of Simeon Cua, Henry
4103N.2 of the BSP Manual of Regulations for Nonbank Financial Institutions. Cualoping, and Vicente Cualoping

It is also the contention of Wincorp that it is within its discretion whether or not to approve For their defense72 against civil liability in this case, petitioners Cua and the Cualopings
Power Merge's credit line. It was not an ultra vires  act, and is instead covered by the claim that Ng Wee failed to prove that they acted in bad faith or were grossly negligent in
managing the affairs of Wincorp, which is required for directors to be held liable under Merge from its obligations are ultra vires  acts of the corporate officers, for which the
Sec. 31 of the Corporation Code. They argued that the extent of their participation in the investment house cannot be held liable.
alleged fraudulent scheme was limited to acting favorably on the executive committee's
recommendations regarding Power Merge's credit line application and its subsequent This argument was further amplified in its Comment75 in G.R. No. 221218, filed by Reyes,
amendment. Mere approval of Power Merge's applications, however, cannot be equated wherein Wincorp reiterated that the actions of the two officers (Ong and Reyes) in
with bad faith, for the directors relied on the vetting by the departments responsible for executing the Side Agreements, and thereby discharging Virata and Power Merge from
doing so. They point out that Power Merge's applications underwent scrutiny by the credit their obligations, was outside the scope of their authority and was not approved its board
committee and executive committee prior to their approval. The approval cannot then be of directors. Accordingly, their actions could not legitimately be considered as actions of
considered as unlawful, and neither bad faith nor gross negligence can be attributed to Wincorp.
the directors. Rather, it was performed in the legitimate pursuit of Wincorp's business as a
duly-licensed investment house.
Comment of Virata, UEM-MARA
Moreover, petitioners deny any knowledge and participation in the execution of the Side
Agreements with Power Merge, and claim that the execution was performed by Wincorp Petitioners V irata and UEM-MARA argued in their Comment 76 in G.R. No. 221218, the
President Ong and petitioner Reyes without proper authorization from the board and, only petition where they are impleaded as respondents, that petitioner Reyes' cross-claim
hence, ultra vires. They add that they could not have defrauded Ng Wee since they had has no factual and legal basis. Aside from Reyes' general averments that Wincorp and
no knowledge that the latter was matched with Power Merge. Power Merge connived and colluded to defraud the investors, he did not cite any specific
basis for holding Virata and UEM-MARA liable to him.
G.R. No. 221218: Petition/or Review
on Certiorari of Anthony Reyes Comment of Ng Wee

Finally, the grounds73 invoked by petitioner Reyes to support his petition centered on the Respondent Ng Wee filed his Comment77 on the consolidated petitions but merely refuted
argument that he had no hand in the approval of the credit line application or its increase petitioner Reyes' claims. Ng Wee emphasized that Reyes did not assail the findings of the
since he is not a director of Wincorp. He was merely the Vice-President for Operations of CA that the transactions between Wincorp and Power Merge were impressed with fraud.
Wincorp, duly authorized as the investment house's signatory for and to all its documents, Moreover, Reyes' indispensable participation in the fraud, especially his signing of the
transactions and accounts. Thus, he alleges that he was under obligation to sign the Side Agreements, rendered him liable to respondent Ng Wee. His signatures to the Side
Credit Line Agreement, its Amendment, and the Side Agreements in favor of Power Agreements meant that he adhered to its contents, including the release of Power Merge
Merge after the latter's application was approved by Wincorp's board of directors. from its obligations under the Promissory Notes.

Furthermore, he argues that Sec. 31 of the Corporation Code is inapplicable since he is Meanwhile, petitioners Reyes, Estrella, Cua, and the Cualopings did not file their
neither a director nor trustee of Wincorp, as required by the provision. And assuming respective comments78 despite due notice.79
without conceding its applicability, he claims that he cannot be held solidarily liable since
he signed the agreements on behalf of the company in good faith. The Issues

The issue of whether or not Ng Wee is a real party in interest was again raised as an Succinctly stated, the issues raised in the consolidated petitions boil down to the
issue in Reyes' petition. following:

The Comments 1. Whether or not the case was prosecuted in the name of the real party in interest;

Comments of Wincorp 2. Whether or not Ng Wee was able to establish his cause/s of action against Wincorp
and Power Merge;
In G.R. No. 220926, filed by petitioners Virata and UEM-MARA, Wincorp admitted in its
Comment74 that the execution of the Side Agreements is highly irregular, but argues that 3. Whether or not it is proper to pierce the veil of corporate fiction under the
only Ong and Reyes should be held liable therefor since they acted beyond the scope of circumstances of the case;
their authority. Wincorp claims that the execution of the Side Agreements releasing Power
4. Whether or not the counterclaims and cross-claims of the parties should prosper; and x x x there is no substantial distinction between an appeal and a Petition
for Certiorari  when it comes to the application of the Doctrine of the Law of the Case. The
5. Whether or not the award of damages to Ng Wee is proper. doctrine is founded on the policy of ending litigation. The doctrine is necessary to enable
the appellate court to perform its duties satisfactorily and efficiently, which would be
impossible if a question once considered and decided by it were to be litigated anew in
The Court now resolves these issues in seriatim. the same case upon any and every subsequent appeal. 82 (emphasis added)

The Court's Ruling We are then constrained to abide by Our prior ruling in G.R. No. 162928 that Ng Wee is a
real party in interest in this case.
I.
Ng Wee is the Real Party in Interest Ng Wee successfully stated a cause
of action based on a hypothetical
Petitioners present legal issues on both procedure and substance. Resolving first the admission of the allegations in his
procedural aspect of the case, the Court rules that Ng Wee is a real party in interest, complaint
contrary to the petitioners' claim.
To be sure, hornbook doctrine is that when the affirmative defense of dismissal is
Law of the Case doctrine bars the relitigation of a settled issue grounded on the failure to state a cause of action, a ruling thereon should be based on
the facts alleged in the complaint.83 Otherwise stated, whether or not Ng Wee successfully
As a general rule, every action must be prosecuted or defended in the name of the real stated a cause of action requires hypothetically admitting and scrutinizing the allegations
party in interest.80 Section 2, Rule 3 of the Rules of Court defines a real party in interest in his Complaint. A reproduction of its pertinent contents is hence apropos:
as "the party who stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit." xxxx

In this case, it is worth recalling that the procedural issue on whether or not Ng Wee is the 2.5 Relying on said representations, [Ng Wee] placed substantial amounts of money in his
real party in interest had already been resolved by this Court in G.R. No. 162928. There, own name and in the names of others with defendant Wincorp on several occasions.
the Court found neither abuse of discretion on the part of the R TC nor reversible error on Some of the outstanding placements of [Ng Wee] with defendant Wincorp, which were
the CA when they ruled that Ng Wee had the legal personality to file the Complaint to loaned to defendant Virata/Power Merge, are in the names of Robert Tabada Tan,
recover his investments. The resolutions by the CA and this Court sustaining the October Elizabeth Ng Wee, Alex Lim Tan and Angel Archangel who hold said placements in trust
4, 2001 Order had already attained finality and could no longer be modified. for [Ng Wee].84
Concomitantly, the parties are barred from re-raising the issues settled therein, pursuant
to the law of the case doctrine. As aptly noted by the trial court in its October 4, 2001 Order denying the motions to
dismiss:
The law of the case  doctrine applies in a situation where an appellate court has made a
ruling on a question on appeal and thereafter remands the case to the lower court for In the Complaint, [Ng Wee] has clearly averred that he placed some of his money
further proceedings; the question settled by the appellate court becomes the law of the placements in the names of other persons and that said persons held the said money
case at the lower court and in any subsequent appeal. It means that whatever is placements in trust for him (paragraph 2.5 of the complaint). With such allegation of
irrevocably established as the controlling legal rule or decision between the same parties ownership of the funds, [Ng Wee] is clearly the real party in interest as he stands to be
in the same case continues to be the law of the case, whether correct on general benefited or injured by the judgment in the instant case. (Section 2, Rule 3, Rules of
principles or not, so long as the facts on which the legal rule or decision was predicated Court)
continue to be the facts of the case before the court.81
xxxx
It is inconsequential that the issue raised in G.R. No. 162928 pertained to the alleged
grave abuse of discretion committed by the R TC in denying the motions to dismiss, and
not to the merits of the motions to dismiss per se. For as the Court has elucidated Hence, this Court cannot grant the dismissal of the Complaint on this ground, since the
in Banco de Oro-EPCI, Inc. v. Tansipek: allegations in the Complaint show, on the contrary, that [Ng Wee] is the real party in
interest.85 (words in brackets added)
The RTC is correct in its observation that there is sufficient allegation that Ng Wee is the Q: Which one?
actual injured party in the failed investment. As the alleged owner of the funds placed
under the names of Robert Tabada Tan, Elizabeth Ng Wee, Alex Lim Tan and Angel A: Those placements, sir.
Archangel in Wincorp, Ng Wee lost ₱213,290,410.36 from Power Merge's default and
non-payment of its obligations under the credit facility extended by the investment house.
This controverts petitioners' claim that Ng Wee is not the real party in interest herein. xxxx

Testimonial evidence on record Q: And why are these money placements under your name, Madam Witness, if these are
established Ng Wee's ownership over his money?
the invested funds; Ng Wee does not
lack cause of action A: He requested me to handle this money on behalf of him, sir.

Even the evidence on record would belie petitioners' claim that Ng Wee is not the real Q: And you earlier identified five (5) confirmation advices, what relation do these
party in interest. Elizabeth Ng Wee, Alex Lim Tan and Angel Archangel were confirmation advices have to the confirmation which you have identified and said that you
straightforward in their testimonies that the funds invested in Power Merge belonged to surrendered to your brother?
Ng Wee, albeit recorded under their names. They likewise executed documents
denominated as "Declaration of Trust"  wherein they categorically stated that they merely A: They are the same, sir.
held the funds in trust for Ng Wee, the beneficial owner.
Q: I see. Why did you surrender them to your brother?
Angel Archangel admitted the trust relation in the following manner:
A: Simply because they are not my money, sir. Those are his, so it is up to him to do
Q: What can you say about the money placement in Wincorp? something about what will happen.

A: It is not my money, sir. xxxx

Q: And whose money is it, Madam Witness? Q: I am holding before me a document introduced by the lawyer of your brother previously
marked as Exhibit "JJJ'' entitled Declaration of Trust, kindly go over the document.
A: Alejandro Ng Wee.
A: Okay.
Q: And what is your participation insofar as that money placement is concerned?
Q: There is a signature at the bottom portion of the document, whose signature is that?
A: None, sir.86
A That is my signature, sir.87
Elizabeth Ng Wee, meanwhile, testified in the following wise:
And when Alex Lim Tan took the witness stand:
Q: Now you said you transacted with this Gilda because you were instructed by your
brother to transact with her? xxxx

A: Yes, sir. A: He [referring to Alejandro Ng Wee] called me up and he requested me if he can use my
name in placing his money with Westmont for money placement.
Q: And why did you follow his instruction?
Q: You mentioned Westmont. What is that Westmont?
A: It is his money.
A: Westmont Investment Corporation, sir. From the foregoing evidence on record, it can no longer be gainsaid that Ng Wee is the
real party in interest in the present case. The allegation in his Complaint that he is the
Q: And what was your response, if any, to the request of Plaintiff? actual owner of the ₱213,290,410.36 infused in Power Merge under the names of Robert
Tabada Tan, Elizabeth Ng Wee, Alex Lim Tan and Angel Archangel has been established
by preponderant evidence, and, more significantly, has already become the law of the
A: I agreed. case. The procedural issue raised by petitioners therefore lacks merit.

Q: And what happened next after you agreed? II.

Liability of the Corporations to Ng Wee
A: He let me sign the documents specifically the Confirmation Advices, sir.
With the procedural issue disposed, the Court will now proceed to ascertain the liability of
xxxx the parties to Ng Wee, beginning with the major players in this controversy. On this point,
worthy of note is that none of the petitioners disputed the fact that Ng Wee is entitled to
Q: And what did you do after he sent these Confirmation Advices to you? recover the amount that he has invested. What they only required, which they also
invoked as the ground for their motions to dismiss, is that Ng Wee prove that the amounts
A: I signed it, sir. invested actually belonged to him. Thus, having established that Ng Wee is the real party
in interest and that he is the beneficial owner of the investments under the names of
Robert Tabada Tan, Elizabeth Ng Wee, Alex Lim Tan and Angel Archangel, his
Q: And after signing these documents, what else did you do if any? entitlement to recover the ₱213,290,410.36 becomes indubitable. The only question that
remains now is: from whom can Ng Wee recover the ₱213,290,410.36 investment? To
A: I returned them to Mr. Wee, Sir. this, petitioners would pose clashing claims, which prompts this Court to elucidate on their
respective exposures to civil liability.
Q: And why did you return these documents to him?
Only Wincorp is liable to Ng Wee for
A: Because he owns it, sir. fraud; Power Merge is liable based
on contract
xxxx
a. That Wincorp defrauded Ng Wee is a finding
of fact that is conclusive on this Court
Q: Apart from the Confirmation Advices that you identified today, did you sign any other
document in connection with the investment represented by these Confirmation Advices?
Axiomatic in this jurisdiction is that, as a general rule, only questions of law may be raised
in a Petition for Review on Certiorari under Rule 45 of the Rules of Court.90 The appellate
A: There was, sir.
court's findings of fact being conclusive, the jurisdiction of this Court in appealed cases is
limited to reviewing and revising the errors of law. 91 As We have emphatically declared in
Q: Can you tell us what was that document, Mr. Witness? a long line of cases, "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
A: The Declaration of Trust, Sir.88 have been committed by the lower court."92

Finally, Wincorp employees Ruben Tobias and Gilda Lucena testified 89 that they were Enumerated in Medina v. Mayor Asistio, Jr.93 are the recognized exceptions to the general
instructed by Ng Wee to rename several of his investments under the Power Merge rule.94 But insofar as Wincorp is concerned, it failed to establish that any of these
Account to the names of Alex Lim Tan and Robert Tabada Tan. Effectively, Ruben Tobias exceptions obtain in the present case. Thus, the Court sustains the finding of the trial
and Gilda Lucena corroborated the claim of Ng Wee that the investments in Power Merge court, as affirmed by the CA, that Wincorp is liable to Ng Wee for perpetrating an
that were recorded under those names are actually respondent Ng Wee's. elaborate scheme to defraud its investors. As held by the CA:

[Ng Wee] would not have placed funds or invested [in] the "sans recourse" transactions
under the Power Merge borrower account had he not been deceived into believing that
Power Merge is financially capable of paying the returns of his investments/money Jurisprudence defines "fraud" as the voluntary execution of a wrongful act, or a willful
placements. Wincorp accredited Power Merge as a borrower, given it a credit line in the omission, knowing and intending the effects which naturally and necessarily arise from
maximum amount of ₱2,500,000,000.00, Philippine Currency, allowed it to make such act or omission. In its general sense, fraud is deemed to comprise anything
drawdowns up to ₱2,183,755,253.ll, Philippine Currency, matched it with [Ng Wee's] calculated to deceive, including all acts and omissions and concealment involving a
investments/ money placements to the extent of ₱213,290,410.36, Philippine Currency, breach of legal or equitable duty, trust, or confidence justly reposed, resulting in damage
notwithstanding telling signs which immediately cast doubt on its ability to perform its to another, or by which an undue and unconscientious advantage is taken of another.
obligations under the Credit Line Agreements, Promissory Notes and [Confirmation Fraud is also described as embracing all multifarious means which human ingenuity can
Advices], to wit: (1) Power Merge had only been in existence as a corporation for barely device, and which are resorted to by one individual to secure an advantage over another
two (2) years when it was accredited as borrower by Wincorp; (2) Power Merge is a thinly by false suggestions or by suppression of truth and includes all surprise, trick, cunning,
capitalized corporation with only ₱37,500,000.00 subscribed capital stock; (3) Power dissembling, and any unfair way by which another is cheated. 96
Merge is not an ongoing concern because (a) Despite the fact that Power Merge's
principal place of business is at 151 Paseo de Roxas St., Makati City, it has neither Under Article 1170 of the New Civil Code, those who in the performance of their
registered nor conducted any business at Makati City as evident from the Certification obligations are guilty of fraud are liable for damages. The fraud referred to in this Article is
dated January 3, 2006 issued by the Business Permits Office Of Makati City; (b) it is not the deliberate and intentional evasion of the normal fulfillment of obligation. 97 Clearly, this
engaged in any lucrative business to finance its operation; Despite the fact that its primary provision is applicable in the case at bar. It is beyond quibble that Wincorp foisted
purpose is to "invest in, purchase, or otherwise acquire and own, hold, use, sell, assign, insidious machinations upon Ng Wee in order to inveigle the latter into investing a
transfer, mortgage, pledge, exchange, or otherwise dispose of real or personal property of significant amount of his wealth into a mere empty shell of a corporation. And instead of
every kind and description ... ," no proof was adduced to show that it was carrying out or guarding the investments of its clients, Wincorp executed Side Agreements that virtually
has carried out this mandate in accordance with the law; (c) From the time of its exonerated Power Merge of liability to them; Side Agreements that the investors could not
incorporation until the revocation of its Certificate of Incorporation on March 15, 2004, have been aware of, let alone authorize.
Power Merge has failed to file annual reports required by the SEC such as General
Information Sheets and Financial Statements; (4) No security whatsoever was demanded
by Wincorp or furnished by Power Merge in relation to its credit line and drawdowns. The summation of Wincorp's actuations establishes the presence of actionable fraud, for
Indeed, no person in his proper frame of mind would venture to lend hundreds of millions which the company can be held liable. In Jason vs. People, the Court upheld the ruling
of pesos to a business entity having such a financial setup. x x x that where one states that the future profits or income of an enterprise shall be a certain
sum, but he actually knows that there will be none, or that they will be substantially less
than he represents, the statements constitute an actionable fraud where the hearer
xxxx believes him and relies on the statement to his injury.98

The intent to defraud and deceive [Ng Wee] of his investments/ money placements was Just as in Jason,  it is abundantly clear in the present case that the profits which Wincorp
manifest from the very start. Wincorp and Power Merge entered into a Credit Line promised to the investors would not be realized by virtue of the Side Agreements. The
Agreement on February 15, 1999 and an Amendment to Credit Line Agreement on March investors were kept in the dark as regards the existence of these documents, and were
15, 1999. It is interesting to note that they simultaneously executed two Side Agreements instead presented with Confirmation Advices from Wincorp to give the transactions a
which are peculiar because: (1) The dates of execution of the two Side Agreements semblance of legitimacy, and to convince, if not deceive, the investors to roll over their
coincide with the dates of execution of the credit agreements; (2) [The] two Side investments or to part with their money some more.
Agreements were executed by the same exact parties: Antonio Ong and Anthony Reyes
for and on behalf of Wincorp and [Virata] and Augusto Geluz for and on behalf of Power
Merge; (3) The Credit Line Agreement dated February 15, 1999 and the First Side b. Power Merge is not guilty of fraud, but is
Agreement dated February 15, 1999 were both acknowledged before notary public, Atty. liable under contract nonetheless
Fina De La Cuesta-Tantuico while the Amendment to Credit Line Agreement dated March
15, 1999 and the Second Side Agreement dated March 15, 1999 were both The story, however, is different for Power Merge. The circumstances of this case points to
acknowledged before notary public, Atty. Eric R.G. Espiritu; (4) The two Side Agreements the conclusion that Power Merge and Virata were not active parties in defrauding Ng
have the same exact provisions as the two credit agreements insofar as it purports to Wee. Instead, the company was used as a mere conduit in order for Wincorp to be able to
extend a credit line and increase the credit line of Power Merge but the two Side conceal its act of directly borrowing funds for its own account. This is made evident by
Agreements relieve Power Merge from any liability arising from the execution of the one highly peculiar detail- the date of the Power Merge's drawdowns.
agreements and promissory notes.95
It must be remembered that the special meeting of Wincorp's board of directors was
conducted on February 9 and March 11 of 1999, while the Credit Line Agreement and its
Amendment were entered into on February 15 and March 15 of 1999, respectively. But as The "sans recourse" transactions
indicated in Power Merge's schedule of drawdowns, 99 Wincorp already released to Power cannot exempt Wincorp from
Merge the sum of ₱l,133,399,958.45 as of February 12, 1999, before the Credit Line liability for having been offered in
Agreement was executed. And as of March 12, 1999, prior to the Amendment, violation of commercial laws
₱l,805,018,228.05 had already been released to Power Merge.
Wincorp attempts to evade liability by hiding behind the "sans recourse" nature of the
The fact that the proceeds were released to Power Merge before the signing of the Credit transactions with Ng Wee. It argues that as a mere agent or broker that matches an
Line Agreement and the Amendment thereto lends credence to Virata's claim that investor with a borrower, it cannot be held liable for the invested amount in case of an
Wincorp did not intend for Power Merge to be strictly bound by the terms of the credit unsuccessful or failed match. As evidenced by the Confirmation Advices and SP As
facility; and that there had already· been an understanding between the parties on what signed by the investors, Wincorp is merely tasked to deliver the amount to be loaned to
their respective obligations will be, although this agreement had not yet been reduced into the borrower, and does not guarantee its borrowers' financial capacity.
writing. The underlying transaction would later on be revealed in black and white through
the Side Agreements, the tenor of which amounted to Wincorp's intentional cancellation of The argument deserves scant consideration.
Power Merge and Virata's obligation under their Promissory Notes. 100 In exchange, Virata a. The "sans recourse" transactions are
and Power Merge assumed the obligation to transfer equity shares in UPDI and the deemed "with recourse"
tollway project in favor of Wincorp. An arm's length transaction has indeed taken place,
substituting Virata and Power Merge's obligations under the Promissory Notes, in
pursuance of the Memorandum of Agreement and Waiver and Quitclaim executed by An investment house is an enterprise that engages in the underwriting of securities of
Virata and Wincorp. Thus, as far as Wincorp, Power Merge, and Virata are concerned, other corporations.101 Securities underwriting, in turn, refers to the process by which
the Promissory Notes had already been discharged. underwriters raise capital investments on behalf of the corporation issuing the securities.
Thus, aside from performing the regular powers of a corporation under the Corporation
Code, a duly licensed investment house is granted additional powers under Sec. 7 102 of
It was the understanding of the two companies that the Promissory Notes would not be Presidential Decree No. (PD) 129.
passed on to the hands of third persons and that, in any event, Wincorp guaranteed
Virata that he and Power Merge would not be held liable thereon. Driven by the desire to
completely settle his obligation as a surety under the Hottick account, V irata took the deal Conspicuously absent in the enumerated additional powers of an investment house,
and relied in good faith that Wincorp's officials would honor their gentleman's agreement. however, is the authority to perform quasi-banking functions. Even as a financial
But as events unfolded, it turned out that Wincorp was in evident bad faith when it intermediary, investment houses are not allowed to engage in quasi-banking functions,
subsequently assigned credits pertaining to portions of the loan and the corresponding unless authorized by the Monetary Board through the issuance of a Certificate of
interests in the Promissory Notes to the investors in the form of Confirmation Advices Authority.104
when it knew fully well of Power Merge's discharge from liability.
The Omnibus Rules and Regulations for Investment Houses and Universal Banks
Between Wincorp and Power Merge, it is Wincorp, as the assignor of the portions of Registered as Underwriters defines "quasi-banking function  " as the function
credit, that is under obligation to disclose to the investors the existence and execution of of "borrowing funds for the borrower's own account from 20 or more persons or corporate
the Side Agreements. Failure to do so, to Our mind, only goes to show that the target of lenders at any one time, through the issuance, endorsement or acceptance of debt
Wincorp' s fraud is not any particular individual, but the public at large. On the other hand, instruments of any kind other than deposits which may include but need not be limited to
it was not Power Merge's positive legal duty to forewarn the investors of its discharge acceptances, promissory notes, participations, certificates of assignment or similar
since the company did not deal with them directly. Power Merge and Virata were agnostic instruments with recourse, trust certificates or of repurchase agreements for purposes of
as to the source of funds since they relied on their underlying agreement with Wincorp relending or purchasing of receivables and other obligations."105
that they would not be liable for the Promissory Notes issued.
Given the definition, it would appear on paper that offering the "sans
As far as it was concerned, Power Merge was merely laying the groundwork prescribed recourse" transactions does not qualify as the performance of a quasi-banking function
by Wincorp towards fulfilling its obligations under the Waiver and Quitclaim. Virata was specifically because it is "sans recourse"  against Wincorp.
not impelled by any Machiavellian mentality when he signed the Side Agreements in
Power Merge's behalf. Therefore, only Wincorp can be held liable for fraud. Nevertheless, As provided under S4101Q.3 of the Manual of Regulations for Non-Bank Financial
as will later on be discussed, Power Merge and Virata can still be held liable under their Institutions:
contracts, but not for fraud.
S4101Q.3. Transactions not considered quasi-banking. The following shall not constitute Provided further, that any of the following practices or practices similar and/or tantamount
quasi-banking: thereto in connection with a without recourse transaction rendered such transaction as
with recourse and within the purview of the rules on quasi-banking.
xxxx
xxxx
a. The mere buying and selling without recourse of instruments mentioned in Sec.4101Q:
Provided that: (iii) Payment with the funds of the financial intermediary which assigned, sold or
transferred the debt instrument without recourse, unless the financial intermediary can
(1) The institution selling without recourse shall indicate or stamp in conspicuous print on show that the issuer has with the said financial intermediary funds corresponding to the
the instrument/s, as well as on the confirmation of sale (COS), the phrase without amount of the obligation. (emphasis added)
recourse or sans recourse and the following statement:
From the above provision, Wincorp's act of advancing the payment of interests when the
(2) In the absence of the phrase without recourse or sans recourse and without the corporate borrower is unable to pay despite the borrowing being branded as without
above-required accompanying statement, the instrument so issued, endorsed or accepted recourse, rendered it to be with  recourse. Coupled with the above-circumstances, offering
shall automatically be considered as falling within the purview of the rules on quasi- the "sans recourse"  transactions should then be categorized as an exercise of a quasi-
banking. (emphasis added) banking function. The transactions were merely being denominated as "sans recourse" by
Wincorp to circumvent the license requirement under the law. The alleged "sans
recourse" nature of the transactions cannot then be used by Wincorp as a shield against
However, the Court affirms the appellate court's finding that the true nature of the "sans liability to Ng Wee.
recourse" transactions contradicts Wincorp's averment. A perusal of the records would
show that Wincorp engaged in practices that rendered the transactions to be "with
recourse" and, consequently, within the ambit of quasi-banking rules. b. Wincorp engaged in the sale of unregistered
securities
First,  Wincorp did not act as a mere financial intermediary between Ng Wee and Power
Merge, but effectively obtained the funds for its own account. To borrow funds for one's There is more to the "sans recourse" transactions than meets the eye, so much so that
own account should not only be taken in its literal meaning to the effect that Wincorp and the operations of Wincorp cannot be oversimplified as mere brokering of loans. As
its beneficial owners literally borrowed the funds invested by Ng Wee. Rather, it should be discovered by the SEC in PED Case No. 20-2378, and as ruled by the CA, Wincorp was,
interpreted in this case while bearing in mind Wincorp's end goal - to assign its rights to in reality, selling to the public securities, i.e.,  shares in the Power Merge credit in the form
the uncollected, if not worthless, Hottick obligations and hold more valuable Power Merge of investment contracts.
papers in their stead. Without enticing the investors to put up capital for Power Merge,
Wincorp would not have been able to facilitate the exchange. Thus, with Power Merge as Securities are shares, participation or interests in a corporation or in a commercial
a conduit, Wincorp's borrowings from its investors redounded to its benefit. This is enterprise or profit-making venture and evidenced by a certificate, contract, instruments,
bolstered by Wincorp's act of executing the Side Agreements releasing Power Merge from whether written or electronic in character. 106 As a general rule, securities are not to be
its obligation to pay under its Promissory Notes, exposing itself to liability to pay the same. sold or offered for sale or distribution without due registration, and provided that
information on the securities shall be made available to prospective purchasers. 107
Second, in PED Case No. 20-2378, the Prosecution and Enforcement Department of the
SEC found that as of December 31, 1999, Wincorp has sourced funds from 2,200 Included in the list of securities that require registration prior to offer, sale, or distribution
individuals with an average of ₱7,000,000,000.00 worth of commercial papers per month. are investment contracts.108 An investment contract refers to a contract, transaction or
This figure unquestionably exceeds the "20 or more persons or corporate scheme whereby a person invests his money in a common enterprise and is led to expect
lenders" threshold. profits primarily from the efforts of others.109 It is presumed to exist whenever a person
seeks to use the money or property of others on the promise of profits. 110
Third,  the Confirmation Advices that are marked "sans recourse" are actually "with
recourse." On this point, a reproduction of the succeeding paragraphs of S4101Q.3 of the In this jurisdiction, the Court employs the Howey  test, named after the landmark case
Manual of Regulations for Non-Bank Financial Institutions is in order: of Securities and Exchange Commission v. W.J. Howey Co.,111 to determine whether or
not the security being offered takes the form of an investment contract. The case served
xxxx as the foundation for the domestic definition of the said security.
Under the Howey test, the following must concur for an investment contract to exist: (1) a just brokered a loan. The most telling circumstance that negate Wincorp's claim of mere
contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a brokerage, as mentioned earlier, is the fact that it paid for the interest payments due from
common enterprise; (4) expectation of profits; and (5) profits arising primarily from the the corporate borrowers that defaulted. This effectively estopped Wincorp from denying
efforts of others. Indubitably, all of the elements are present in the extant case. liability from its investors in this case.

First, Wincorp offered what it purported to be "sans recourse" transactions wherein the Wincorp cannot hide behind its license to operate as an investment house when it offered
investment house would allegedly match investors with pre-screened corporate borrowers the "sans recourse"  transactions to the public. For though investment houses are
in need of financial assistance. authorized to do the following:115

Second, Ng Wee invested the aggregate amount of ₱213,290,410.36 in the "sans xxxx

recourse" transactions through his trustees, as embodied in the Confirmation Advices.
6. Act as financial consultant, investment adviser, or broker;
Third,  prior to being matched with a corporate borrower, all the monies infused by the
investors are pooled in an account maintained by Wincorp. 112 This ensures that there are 7. Act as porfolio manager, and/or financial agent xxx;
enough funds to meet large drawdowns by single borrowers.
8. Encourage companies to go public, and initiate and/or promote, whenever warranted,
Fourth,  the investors were induced to invest by Wincorp with promises of high yield. In the formation, merger, consolidation, reorganization, or recapitalization of productive
Ng Wee's case, his Confirmation Advices reveal that his funds were supposed to earn enterprises, by providing assistance or participation in the form of debt or equity financing
13.5% at their respective maturity dates. or through the extension of financial or technical advice or service;

Fifth,  the profitability of the enterprise depended largely on whether or not Wincorp, on Xxx
best effort basis, would be able to match the investors with their approved corporate
borrowers.
their license to perform investment house functions does not excuse them from complying
with the security registration requirements under the law. For clarity, the license
Apparent then is that the factual milieu of the case at bar sufficiently satisfies requirement to operate as an investment houses is separate and distinct from the
the Howey  test. The "sans recourse"  transactions are, in actuality, investment contracts registration requirement for the securities they are offering, if any.
wherein investors pool their resources to meet the financial needs of a borrowing
company. This does not stray far from the illustration given by former Associate Justice
Roberto A. Abad in Securities and Exchange Commission v. Prosperity.com, Inc.,  to wit: In dealing in securities, Wincorp was under legal obligation to comply with the statutory
registration and disclosure requirements. Under BP 178, otherwise known as the Revised
Securities Act,  which was still in force at the time material in this case, investment
An example that comes to mind would be the long-term commercial papers that large contracts are securities, and their sale, transactions that are not exempt from these
companies, like San Miguel Corporation (SMC), offer to the public for raising funds that it requirements.116 As such, adherence to Sections 4 and 8 of BP 178 must be strictly
needs for expansion. When an investor buys these papers or securities, he invests his observed, to wit:
money, together with others, in SMC with an expectation of profits arising from the efforts
of those who manage and operate that company. SMC has to register these commercial
papers with the SEC before offering them to investors. 113 Section 4. Requirement of registration of securities. - (a) No securities, except of a class
exempt under any of the provisions of Section five hereof or unless sold in any transaction
exempt under any of the provisions of Section six hereof, shall be sold or offered for sale
Likewise, in SEC Admin Case No. 09-07-88 entitled In Re: D 1st  Cell Pawnshop, or distribution to the public within the Philippines unless such securities shall have been
Inc.,114 the SEC ruled that by soliciting investments from ₱50,000.00 up to ₱300,000.00 registered and permitted to be sold as hereinafter provided.
and promising a return of four percent (4%) per month, D 1st Cell Pawnshop offered
investment contracts to the public.
xxxx
No error can then be attributed to the CA when it designated the "sans
recourse" transactions as investment contracts. No fault can also be ascribed to the Section. 8. Procedure for registration. - (a) All securities required to be registered under
appellate court in finding that Wincorp virtually purchased and resold securities, and not subsection (a) of Section four of this Act shall be registered through the filing by the issuer
or by any dealer or underwriter interested in the sale thereof, in the office of the xxxx
Commission, of a sworn registration statement with respect to such securities, containing
or having attached thereto, the following: (30) A copy of any agreement or agreements or, if identical agreements are used, the
forms thereof made with any underwriter, including all contracts and agreements referred
xxxx to in subparagraph (19) hereof (emphasis added)

(8) A statement of the capitalization of the issuer and of all companies controlling, In the guise of merely brokering loans between an investor and a corporate borrower, that
controlled by or commonly controlled with the issuer, including the authorized and it is not in the business of selling securities, Wincorp conveniently failed to disclose to the
outstanding amounts of its capital stock and the proportion thereof paid up; the number investors the necessary information under Section 8 of BP 178. To the mind of the Court,
and classes of shares in which such capital stock is divided; par value thereof, or if it has offering the "sans recourse " transactions without compliance therewith constitutes
no par value, the stated or assigned value thereof; a description of the respective voting fraudulent transactions within the contemplation of Section 29 of the law. 117
rights, preferences, conversion and exchange rights, rights to dividends, profits, or capital
of each class, with respect to each other class, including the retirement and liquidation Non-disclosure of the capitalization details and the financial statements of the issuer
rights or values thereof Power Merge under Secs. 8(8), (27), and (28) resulted in the failure of the investors to
pay heed to the red flags that the enterprise was doomed to fail: (1) the fact that it only
xxxx had an outstanding capital stock of ₱37,500,000.00, of which the total actually paid is only
₱9,375,000.00; (2) that it has not been complying with the reportorial requirements,
(14) The specific purposes in detail and the approximate amounts to be devoted to such including the submission of financial statements to the SEC; (3) and that Power Merge is
purposes, so far as determinable, for which the security to be offered is to supply funds, not an ongoing concern since it does not engage in any legitimate business. In addition,
and if the funds are to be raised in part from other sources, the amounts and the sources non-compliance with Section 8(14) and (30) prevented the investors from discovering the
thereof. true intent behind the approval of the Power Merge credit line application and the
underlying transactions behind its issuance of Promissory Notes.
xxxx
Clearly then, because Wincorp had been successful in its scheme of passing off
the "sans recourse"  transactions as mere brokering of loans, it managed to circumvent
(27) A balance sheet as of a date not more than ninety days prior to the date of the filing the registration and disclosure requirements under BP 178, and managed to commit fraud
of the registration statement showing all of the assets of the issuer, the nature and cost in a massive scale against its investors to the latter's damage and prejudice, for which
thereof, whenever determinable with intangible items segregated, including any loan to or Wincorp ought to be held liable.
from any officer, director, stockholder or person directly or indirectly controlling or
controlled by the issuer, or person under direct or indirect common control with the issuer.
x x x All the liabilities of the issuer, including surplus of the issuer, showing how and from c. Wincorp is liable as a vendor in bad faith
what sources such surplus was created, all as of a date not more than ninety days prior to and for breach of warranty
the filing of the registration statement. x x x
Aside from its liability arising from its fraudulent transactions, Wincorp is also liable to Ng
(28) A profit and loss statement of the issuer showing earnings and income, the nature Wee for breach of warranty. It cannot be emphasized enough that Wincorp is not the
and source thereof, and the expenses and fixed charges in such detail and such form as mere agent that it claims to be; its operations ought not be reduced to the mere matching
the Commission shall prescribe for the latest fiscal year xxx Such statement shall show of investors with corporate borrowers. Instead, it must be borne in mind that it not only
what the practice of the issuer has been during the three years or lesser period as to the performed the functions of a financial intermediary duly registered and licensed to perform
character of the charges, dividends or other distributions made against its various surplus the powers of an investment house, it is also engaged in the selling of securities, albeit in
accounts, and as to depreciation, depletion, and maintenance charges, and if stock violation of various commercial laws. And just as in any other contracts of sale, the vendor
dividends or avails from the sale of rights have been credited to income, they shall be of securities is likewise bound by certain warranties, including those contained in Article
shown separately with statement of the basis upon which credit is computed. Such 1628 of the New Civil Code on assignment of credits, to wit:
statement shall also differentiate between recurring and nonrecurring income and
between any investment and operating income. Such statement shall be certified by an Article 1628. The vendor in good faith shall be responsible for the existence and legality of
independent certified public accountant. the credit at the time of the sale, unless it should have been sold as doubtful; but not for
the solvency of the debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.
xxxx The fact that the buyer makes an independent investigation or inspection has been held
not to preclude him from relying on the representation made by the seller where the seller
The vendor in bad faith shall always be answerable for the payment of all expenses, and has superior knowledge and the falsity of such representation would not be apparent from
for damages. (emphasis added) such examination or inspection, and, a .fortiori, where the efforts of a buyer to learn the
true profits or income of a business or property are thwarted by some device of the seller,
such efforts have been held not to preclude a recovery. It has often been held that the
That the securities sold to Ng Wee turned out to be "with recourse,"  not "sans buyer of a business or property is entitled to rely on the seller's statements concerning its
recourse" as advertised, does not remove it from the coverage of the above article. In profits, income or rents. The rule - that where a speaker has knowingly and deliberately
fact, such circumstance would even classify Wincorp as a vendor in bad faith, within the made a statement concerning a fact the falsity of which is not apparent to the hearer, and
contemplation of the last paragraph of the provision. But other than the fraudulent has thus accomplished a fraudulent result, he cannot def end against the fraud by proving
designation of the transaction as "sans recourse,"  Wincorp's bad faith was also brought to that the victim was negligent in failing to discover the falsity of the statement - is said to be
the fore by the execution of the Side Agreements, which cast serious suspicion over, if it peculiarly applicable where the owner of the property or a business intentionally makes a
did not effectively annul, the existence and legality of the credits assigned to Ng Wee false statement concerning its rents, profits or income.
under the numerous Confirmation Advices in the name of his trustees.
Applying the foregoing to this case, assuming that [Ng Wee] made an investigation, that
Anent the claim that Wincorp allegedly did not warrant the capacity of Power Merge to should not preclude him from relying on the representations of Wincorp because: (1) It is
pay its obligations, the CA had this much to say: an investment house which is presumed to conduct an investigation of its borrowers
before it matches the same to its investors. As testified to by its employees, Wincorp has
[Petitioners] argue that the financial capacity of Power Merge has always been a matter of an Investigation Credit Committee and Executive Committee which screen, investigate
public record. We are not persuaded. The material misrepresentations have been made and accredit borrowers before they are submitted for approval of the board of directors;
by Wincorp to [Ng Wee], to the effect that Power Merge was structurally sound and (2) It did not only materially misrepresent the financial incapacity of Power Merge to pay, it
financially able to undertake a series of loan transactions. Even if Power Merge' s also failed to disclose that the instruments executed by Power Merge in connection with
financial integrity is veritable from the articles of incorporation or other public records, it the investments/ money placements of [Ng Wee] are worthless in view of the Side
does not follow that the elaborate scheme of fraud and deceit would be beyond Agreements executed by the parties.118 (emphasis added)
commission when precisely there are bending representations that Power Merge would
be able to meet its obligations. Moreover, [petitioners'] argument assumes that there is a Verily, the same acts of misrepresentations that constituted fraud in Wincorp's
legal obligation on the part of [Ng Wee] to undertake investigation of Power Merge before transactions with Ng Wee are the very same acts that amounted to bad faith on its part as
agreeing to the matching of his investments with the accredited borrower. There is no vendor of securities. Inescapably, liability attaches because of Wincorp's dishonest
such obligation. It is unfair to expect a person to procure every available public record dealings.
concerning an applicant for funds to satisfy himself of the latter's financial standing. A
least that is not the way an average person takes care of his concerns. In addition, no
amount of investigation could have revealed that the Power Merge papers are rendered d. Even as an agent, Wincorp can still be held liable
worthless and noncollectable (sic) [be]cause of the Side Agreements entered into by
Wincorp and Power Merge. The argument that Wincorp is a mere agent that could not be held liable for Power
Merge's unpaid loan is equally unavailing. For even if the Court were to accede to the
Wincorp's attempt to shift the blame on [Ng Wee] deserves no credence. Since the argument and undercut the significance of Wincorp's participation from vendor of
transaction involve[s] a considerable sum of money, Wincorp presupposes that [Ng Wee] securities to purely attorney-in-fact, the investment house would still not be immune.
would have taken great pains to scrutinize and understand all the documents affecting his Agency, in Wincorp's case, is not a veritable defense.
investment/ money placement. It also presumes that [Ng Wee] was fully aware of the
contents and meaning of the [Confirmation Advices] and [Special Power of Attorneys] he Through the contract of agency, a person binds himself to render some service or to do
signed. He took a calculated risk. As such, he should be estopped from claiming that he something in representation or on behalf of another, with the consent or authority of the
suffered damage and prejudice. latter.119 As the basis of agency is representation, there must be, on the part of the
principal, an actual intention to appoint, an intention naturally inferable from the principal's
The argument is specious. As ruled in People of the Philippines v. Priscilla Balasa: words or actions. In the same manner, there must be an intention on the part of the agent
to accept the appointment and act upon it. Absent such mutual intent, there is generally
no agency.120
-xxx-
There is no dearth of statutory provisions in the New Civil Code that aim to preserve the For value received, I/We ____________________, hereby promise to pay WESTMONT
fiduciary character of the relationship between principal and agent. Of the established INVESTMENT CORPORATION (WINCORP),  either for itself or as agent for and on
rules under the code, one cannot be more basic than the obligation of the agent to carry behalf of certain INVESTORS who have placed/invested funds with WINCORP the
out the purpose of the agency within the bounds of his authority. 121 Though he may principal sum of ________________ (__________), Philippine Currency, on _______ with
perform acts in a manner more advantageous to the principal than that specified by interest rate of ___________ percent (___%) per annum, or equivalently the Maturity
him,122 in no case shall the agent carry out the agency if its execution would manifestly Amount of ______________ PESOS (______________)Philippine Currency. (emphasis
result or damage to the principal.123 added)

In the instant case, the SPAs executed by Ng Wee constituted Wincorp as agent relative It is crystal clear that Power Merge, through Virata, obligated itself to pay Wincorp and
to the borrowings of Power Merge, allegedly without risk of liability on the part of Wincorp. those who invested through it the values stated in the Promissory Notes. The validity and
However, the SPAs, as couched, do not specifically include a provision empowering due execution of the Promissory Notes were not even contested. Instead, Virata
Wincorp to excuse Power Merge from repaying the amounts it had drawn from its credit postulates that he merely executed the Promissory Notes on behalf of Power Merge as an
line via  the Side Agreements. They merely authorize Wincorp "to agree, deliver, sign, accommodation for Wincorp, and that neither he nor Power Merge received any
execute loan documents" relative to the borrowing of a corporate borrower. Otherwise pecuniary benefit from the credit facility. He thus claims that he and Power Merge cannot
stated, Wincorp had no authority to absolve Power Merge from the latter's indebtedness be held liable for the Promissory Notes that were executed.
to its lenders. Doing so therefore violated the express terms of the SPAs that limited
Wincorp's authority to contracting the loan. The argument is specious.

In no way can the execution of the Side Agreements be considered as part and parcel of On its face, the documentary evidence on record reveals that Power Merge actually
Wincorp's authority since it was not mentioned with specificity in the SP As. As far as the received the proceeds from the Credit Line Agreement. But even if We assume for the
investors are concerned, the Side Agreements amounted to a gratuitous waiver of Power sake of argument that Power Merge, through Virata, is as a mere accommodation party
Merge's obligation, which authority is required under the law to be contained in an SP A under the Promissory Notes, liability would still attach to them in favor of the holder of the
for its accomplishment.124 instrument for value.

Finally, the benefit from the Side Agreements, if any, redounded instead to the agent In Gonzales v. Philippine Commercial and International Bank,127 the Court held that an
itself, Wincorp, which was able to hold Power Merge papers that are more valuable than accommodation party lends his name to enable the accommodated party to obtain credit
the outstanding Hottick obligations that it exchanged. In discharging its duties as an or to raise money; he receives no part of the consideration for the instrument but assumes
alleged agent, Wincorp then elected to put primacy over its own interest than that of its liability to the other party or parties thereto. Prescinding from the foregoing, an
principal, in clear contravention of the law.125 And when Wincorp thereafter concealed accommodation party is one who meets all the following three requisites, viz: (1) he must
from the investors the existence of the Side Agreements, the company became liable for be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must
fraud even as an agent.126 not receive value therefor; and (3) he must sign for the purpose of lending his name or
credit to some other person.128
Power Merge is liable to Ng Wee
under its Promissory Notes The first element, that Power Merge, through Virata, executed the Promissory Notes as
maker cannot be disputed. Meanwhile, petitioners would have the Court hypothetically
a. Virata is liable for the Promissory Notes admit that they did not receive the proceeds from the drawdowns, in satisfaction of the
even as an accommodation party second requisite. And lastly, this was allegedly done for the purpose of lending its name
to conceal Wincorp's direct borrowing from its clients.
A promissory note is a specie of negotiable instruments. Under Section 60 of the
Negotiable Instruments Law, the maker of a promissory note engages that he will pay it In gratia argumenti that the above elements are established facts herein, liability will still
according to its tenor. In this case, the Promissory Notes executed by Virata in behalf of attach to the accommodation parties pursuant to Sec. 29 of the Negotiable Instruments
Power Merge are couched in the following wise: Law. The provision states:

PROMISSORY NOTE Sec. 29. Liability of accommodation party. - An accommodation party is one who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value, notwithstanding such holder, at the time of That Power Merge did not directly transact with Ng Wee and the other investors does not
taking the instrument, knew him to be only an accommodation party. (emphasis added) exonerate it from civil liability, for its liability also finds basis on the language of the Credit
Line Agreement.
The basis for the liability under Section 29 is the underlying relation between the
accommodated party and the accommodation party, which is one of principal and To recall, Power Merge obtained a ₱2,500,000,000.00 credit facility from Wincorp, as one
surety. 129 In a contract of surety, a person binds himself solidarily liable with the principal of the latter's corporate borrowers. Under the terms of the credit facility, Power Merge
debtor of an obligation.130 But though a suretyship agreement is, in essence, accessory or obligated itself to issue Promissory Notes in favor of Wincorp, for itself "or on behalf of
collateral to a valid principal obligation, the surety's liability to the creditor is immediate, certain investors" for each of its drawdowns. The Credit Line Agreement pertinently
primary, and absolute. He is directly and equally bound with the principal. 131 provides:

In a similar fashion, the accommodation party cum  surety in a negotiable instrument is CREDIT LINE AGREEMENT
deemed an original promisor and debtor from the beginning; he is considered in law as
the same party as the debtor in relation to whatever is adjudged touching the obligation of xxxx
the latter since their liabilities are so interwoven as to be inseparable. 132 It is beyond cavil
then that Power Merge and Virata can be held liable for the amounts stated in the
Promissory Notes. Consequently, they are also liable for the assignment to Ng Wee of WHEREAS, the BORROWER has applied for financial accommodation/credit line from
portions thereof as embodied in the Confirmation Advices. WINCORP.

b. The Side Agreements do not bind third WHEREAS, WINCORP by itself or on behalf of certain investors, have agreed to extend
parties thereto the financial accommodation/credit line sought by the BORROWER under the terms and
conditions hereunder provided.
Virata and Power Merge cannot invoke the Side Agreements as bases for its alleged
exemption from liability to Ng Wee, simply because the latter was not privy to the NOW, WHEREFORE, for and in consideration of the foregoing premises, the parties
covenants. Ng Wee cannot be charged with knowing the existence of the Side hereto agreed as follows:
Agreements, let alone ratify the same.
1. GRANT OF CREDIT FACILITY. WINCORP, either by itself or on behalf of certain
The basic principle of relativity of contracts is that, as a general rule, contracts take effect investors, shall extend to the BORROWER a credit facility, on best efforts basis, in the
only between the parties, their assigns and heirs.133 The sound reason for the exclusion of amount of up to but not exceeding the equivalent sum of ONE BILLION TWO HUNDRED
non-parties to an agreement is the absence of a vinculum or juridical tie which is the MILLION PESOS (₱l,200,000,000.00), Philippine Currency, upon terms and conditions
efficient cause for the establishment of an obligation.134 embodied in this Agreement.

Needless to state, Ng Wee does not fall under any of the classes that are deemed privy xxxx
as far as the Side Agreements are concerned. At most, he only authorized Wincorp,
through the SPAs, to "agree, deliver, sign, [and} execute loan documents" relative to the 3. PROMISSORY NOTE. Subject to the availability of funds, the BORROWER may avail
borrowing of Power Merge. This authority does not extend to excusing Power Merge from all or any portion of this credit facility under the terms and conditions hereunder agreed
paying its obligations under the Promissory Notes that it issued for the benefit of the upon, and the BORROWER shall execute in favor of WINCORP and/or the investors who
investors. Thus, even if we were to assume that the execution of the Side Agreements have agreed to extend the credit facility to the BORROWER a Promissory Note
was with the imprimatur of the Wincorp board of directors, Power Merge would still have corresponding to each drawdown to evidence its indebtedness.
been able to determine, based on a cursory reading of the SPAs, that Wincorp's
acquiescence to the Side Agreements is an ultra vires  act insofar as its principals, Ng 4. INTEREST RATE. The BORROWER agrees to pay WINCORP, either by itself or on
Wee included, are concerned. behalf of its investors, interest on the principal amount of each availment at the rate
prevailing on the date of such availment as agreed upon in the corresponding Promissory
c. Power Merge cannot escape liability to Ng Note/s.135 (underscoring supplied, emphasis added)
Wee under the Credit Line Agreement
Virata and Power Merge cannot then deny knowledge that the amounts that were drawn to defeat public convenience, justify wrong, protect fraud or defend crime; (2) as a device
against the credit facility may not necessarily be from Wincorp's own coffers, but may to defeat the labor laws; or (3) when the corporation is merely an adjunct, a business
potentially be from the monies pooled by its clients, even though their identities were at conduit or an alter ego of another corporation, this separate personality of the corporation
that time anonymous to Power Merge. As can be gleaned, Power Merge was informed may be disregarded or the veil of corporate fiction pierced. 136
through the plain text of the Credit Line Agreement that Wincorp may indorse portions of
the investment, and the corresponding interest in the Promissory Notes, to its willing The circumstances of Power Merge clearly present an alter ego case that warrants the
clients and act on the latter's behalf. It then matters not that Power Merge and Virata piercing of the corporate veil.
never personally dealt with Ng Wee for given the setup; Ng Wee became privy to the
Credit Line Agreement when he was assigned his shares in the investment, and when he
expressed his conformity therewith through the Confirmation Advices. To elucidate, case law lays down a three-pronged test to determine the application of the
alter-ego theory, namely:
Furthermore, it cannot escape the attention of the Court that this is not the first time for
Virata to transact with Wincorp. To refresh, Virata executed a Surety Agreement to (1) Control, not mere majority or complete stock control, but complete domination, not
answer Hottick' s drawdowns from its own credit facility with Wincorp. He is then familiar only of finances but of policy and business practice in respect to the transaction attacked
with the nature of Wincorp's primary functions, whether as a mere financial intermediary so that the corporate entity as to this transaction had at the time no separate mind, will or
or dealer in securities as in this case, rather than its true creditor. Power Merge and V existence of its own;
irata cannot then feign ignorance that the money they have been receiving are from the
clients that Wincorp attracted to invest. (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
III. act in contravention of plaintiffs legal right; and
Piercing the Corporate Veil
(3) The aforesaid control and breach of duty must have proximately caused the injury or
Indubitably, Wincorp and Power Merge are liable to Ng Wee for fraud and under contract, unjust loss complained of.137
respectively. The thrust of majority of the petitioners, however, is that they cannot be held
liable for the business judgments of the corporations they are part of given the latter's In the present case, Virata not only owned majority of the Power Merge shares; he
separate juridical personalities. exercised complete control thereof. He is not only the company president, he also owns
374,996 out of 375,000 of its subscribed capital stock. Meanwhile, the remainder was left
G.R. No. 220926: The liabilities of for the nominal incorporators of the business. The reported address of petitioner Virata
Luis Juan L. Virata and UEMMARA and the principal office of Power Merge are even one and the same. 138 The clearest
indication of all: Power Merge never operated to perform its business functions, but for the
benefit of Virata. Specifically, it was merely created to fulfill his obligations under the
a. Virata is liable for the obligations of Power Merge Waiver and Quitclaim, the same obligations for his release from liability arising from
Hottick's default and non-payment.
Petitioner Virata reiterates his claim that piercing the corporate veil of Power Merge for
the sole reason that he owns majority of its shares is improper. He adds that the Credit Virata would later on use his control over the Power Merge corporation in order to fulfill
Line Agreements and Side Agreements were valid arm's length transactions, and that his obligation under the Waiver and Quitclaim. Impelled by the desire to settle the
their executions were in the performance of his official capacity, which he cannot be made outstanding obligations of Hottick under the terms of the settlement agreement, Virata
personally liable for in the absence of fraud, bad faith, or gross negligence on his part. effectively allowed Power Merge to be used as Wincorp's pawn in avoiding its legal duty
to pay the investors under the failed investment scheme. Pursuant to the alter ego
The Court rejects these arguments. doctrine, petitioner Virata should then be made liable for his and Power Merge's
obligations.
Concept Builders, Inc. v. NLRC  instructs that as a fundamental principle of corporation
law, a corporation is an entity separate and distinct from its stockholders and from other b. UEM-MARA cannot be held liable
corporations to which it may be connected. But, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and to promote justice. There is, however, merit in the argument that UEM-MARA cannot be held liable to
Thus, authorities discuss that when the notion of separate juridical personality is used (1) respondent Ng Wee. The RIC and the CA held that the corporation ought to be held
solidarily liable with the other petitioners "in order that justice can reach the illegal Section 31. Liability of directors, trustees or officers.  - Directors or trustees who willfully
proceeds from the defrauded investments of [Ng Wee] under the Power Merge and knowingly vote for or assent to patently unlawful acts of the corporation or who are
account."139  According to the trial court, Virata laundered the proceeds of the Power guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire
Merge borrowings and stashed them in UEM-MARA to prevent detection and discovery any personal or pecuniary interest in conflict with their duty as such directors or trustees
and hence, UEM-MARA should likewise be held solidarily liable. shall be liable jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.
We disagree.
When a director, trustee or officer attempts to acquire or acquire, in violation of his duty,
UEM-MARA is an entity distinct and separate from Power Merge, and it was not any interest adverse to the corporation in respect of any matter which has been reposed
established that it was guilty in perpetrating fraud against the investors. It was a non-party in him in confidence, as to which equity imposes a disability upon him to deal in his own
to the "sans recourse"  transactions, the Credit Line Agreement, the Side Agreements, the behalf, he shall be liable as a trustee for the corporation and must account for the profits
Promissory Notes, the Confirmation Advices, and to the other transactions that involved which otherwise would have accrued to the corporation. (emphasis added)
Wincorp, Power Merge, and Ng Wee. There is then no reason to involve UEM-MARA in
the fray. Otherwise stated, respondent Ng Wee has no cause of action against UEM- Petitioner Reyes relies on the black letter law in his bid for absolution. He claims that he is
MARA. UEM-MARA should not have been impleaded in this case. not a director of Wincorp, but its Vice-President for Operations. Thus, he can only be held
liable under the second paragraph of the provision. As can be read, officers are only
A cause of action is the act or omission by which a party violates a right of another. 140 The precluded from acquiring or attempting to acquire any interest in conflict with that of the
essential elements of a cause of action are (1) a right in favor of the plaintiff by whatever company he is serving. There being no allegation of him being guilty of conflict of interest,
means and under whatever law it arises or is created; (2) an obligation on the part of the Reyes argues that he cannot be held liable under the provision.
named defendant to respect or not to violate such right; and (3) an act or omission on the
part of such defendant in violation of the right of the plaintiff or constituting a breach of the The argument is bereft of merit.
obligation of the defendant to the plaintiff for which the latter may maintain an action for
recovery of damages or other appropriate relief. 141 Ascribing liability to a corporate director, trustee, or officer by invoking Sec. 31 of the
Corporation Code is distinct from the remedial concept of piercing the corporate veil.
The third requisite is severely lacking in this case. Respondent Ng Wee cannot point to a While Sec. 31 expressly lays down specific instances wherein the mentioned personalities
specific wrong committed by UEM-MARA against him in relation to his investments in can be held liable in their personal capacities, the doctrine of piercing the corporate veil,
Wincorp, other than being the object of Wincorp's desires. He merely alleged that the on the other hand, is an equitable remedy resorted to only when the corporate fiction is
proceeds of the Power Merge loan was used by Virata in order to acquire interests in used, among others, to defeat public convenience, justify wrong, protect fraud or defend a
DEM-MARA, but this does not, however, constitute a valid cause of action against the crime.143
company even if we were to assume the allegation to be true. It would indeed be a giant
leap in logic to say that being Wincorp' s objective automatically makes UEM-MARA a Applying the doctrine, petitioner cannot escape liability by claiming that he was merely
party to the fraud. DEM-Mara's involvement in this case is merely incidental, not direct. performing his function as Vice-President for Operations and was duly authorized to sign
the Side Agreements in Wincorp's behalf. The Credit Line Agreement is patently
G.R No. 221218: The liability of contradictory if not irreconcilable with the Side Agreements, which he executed on the
Anthony Reyes same day as the representative for Wincorp. The execution of the Side Agreements was
the precursor to the fraud. Taken with Wincorp's subsequent offer to its clients of
To restate, basic is the rule that a corporation is invested by law with a personality the "sans recourse"  transactions allegedly secured by the Promissory Notes, it is a clear
separate and distinct from that of the persons composing it as well as from that of any indicia of fraud for which Reyes must be held accountable.
other legal entity to which it may be related. Following this, obligations incurred by the
corporation, acting through its directors, officers and employees, are its sole liabilities, and G.R. No. 221135: The liabilities of
said personalities are generally not held personally liable thereon. 142 Cua and the Cualopings

By way of exception, a corporate director, a trustee or an officer, may be held solidarily On the other hand, the liabilities of Cua and the Cualopings are more straightforward.
liable with the corporation under Sec. 31 of the Corporation Code which reads: They admit of approving the Credit Line Agreement and its subsequent Amendment
during the special meetings of the Wincorp board of directors, but interpose the defense
that they did so because the screening committee found the application to be above
board. They deny knowledge of the Side Agreements and of Power Merge's inability to It cannot also be ignored that prior to Power Merge' s application for a credit facility, its
pay. controller Virata had already transacted with Wincorp. A perusal of his records with the
company would have revealed that he was a surety for the Hottick obligations that were
We are not persuaded. still unpaid at that time. This means that at the time the Credit Line Agreement was
executed on February 15, 1999, Virata still had direct obligations to Wincorp under the
Hottick account. But instead of impleading him in the collection suit against Hottick,
Cua and the Cualopings cannot effectively distance themselves from liability by raising Wincorp's board of directors effectively released Virata from liability, and, ironically,
the defenses they did. As ratiocinated by the CA: granted him a credit facility in the amount of ₱l,300,000,000.00 on the very same day.

Such submission creates a loophole, especially in this age of compartmentalization, that This only goes to show that even if Cua and the Cualopings are not
would create a nearly fool-proof scheme whereby well-organized enterprises can evade
liability for financial fraud. Behind the veil of compartmentalized departments, such
enterprise could induce the investing public to invest in a corporation which is financially guilty of fraud, they would nevertheless still be liable for gross negligence 147 in managing
unable to pay with promises of definite returns on investment. If we follow the reasoning the affairs of the company, to the prejudice of its clients and stakeholders. Under such
of defendants-appellants, we allow the masterminds and profiteers from the scheme to circumstances, it becomes immaterial whether or not they approved of the Side
take the money and run without fear of liability from law simply because the defrauded Agreements or authorized Reyes to sign the same since this could have all been avoided
investor would be hard-pressed to identify or pinpoint from among the various if they were vigilant enough to disapprove the Power Merge credit application. Neither can
departments of a corporation which directly enticed him to part with his money. 144 the business judgment rule148 apply herein for it is elementary in corporation law that the
doctrine admits of exceptions: bad faith being one of them, gross negligence,
another.149 The CA then correctly held petitioners Cua and the Cualopings liable to
Petitioners Cua and the Cualopings bewail that the above-quoted statement is respondent Ng Wee in their personal capacity.
overarching, sweeping, and bereft of legal or factual basis. But as per the records, the
totality of circumstances in this case proves that they are either complicit to the fraud, or
at the very least guilty of gross negligence, as regards the "sans recourse" transactions G.R. No. 221109: The liability of
from the Power Merge account. Manuel Estrella

The board of directors is expected to be more than mere rubber stamps of the corporation To refresh, Estrella echoes the defense of Tankiansee, who was exempted from liability
and its subordinate departments. It wields all corporate powers bestowed by the by the trial court. He claims that just like Tankiansee, he was not present during Wincorp's
Corporation Code, including the control over its properties and the conduct of its special board meetings where Power Merge's credit line was approved and subsequently
business.145 Being stewards of the company, the board is primarily charged with amended. Both also claimed that they protested and opposed the board's actions. But
protecting the assets of the corporation in behalf of its stakeholders. despite the parallels in their defenses, the trial court was unconvinced that Estrella should
be released from liability. Estrella appealed to the CA, but the adverse ruling was
sustained.
Cua and the Cualopings failed to observe this fiduciary duty when they assented to
extending a credit line facility to Power Merge. In PED Case No. 20-2378, the SEC
discovered that Power Merge is actually Wincorp's largest borrower at about 30% of the We agree with the findings of the courts a quo.
total borrowings.146 It was then incumbent upon the board of directors to have been more
circumspect in approving its credit line facility, and should have made an independent The minutes of the February 9, 1999 and March 11, 1999 Wincorp Special Board
evaluation of Power Merge' s application before agreeing to expose it to a Meetings were considered as damning evidence against Estrella, just as they were for
₱2,500,000,00.00 risk. Cua and the Cualopings. Although they were said to be unreliable insofar as Tankiansee
is concerned, the trial court rightly distinguished between the circumstances of Estrella
Had it fulfilled its fiduciary duty, the obvious warning signs would have cautioned it from and Tankiansee to justify holding Estrella liable.
approving the loan in haste. To recapitulate: (1) Power Merge has only been in existence
for two years when it was granted a credit facility; (2) Power Merge was thinly capitalized For perspective, Tankiansee was exempted from liability upon establishing that it was
with only ₱37 ,500,000.00 subscribed capital; (3) Power Merge was not an ongoing physically impossible for him to have participated in the said meetings since his
concern since it never secured the necessary permits and licenses to conduct business, it immigration records clearly show that he was outside the country during those specific
never engaged in any lucrative business, and it did not file the necessary reports with the dates. In contrast, no similar evidence of impossibility was ever offered by Estrella to
SEC; and (4) no security other than its Promissory Notes was demanded by Wincorp or support his position that he and Tankiansee are similarly situated.
was furnished by Power Merge in relation to the latter's drawdowns.
Estrella submitted his departure records proving that he had left the country in July 1999 The courts a quo dismissed all counterclaims and cross-claims lodged by petitioners
and returned only in February of 2000. Be that as it may, this is undoubtedly insufficient to against Ng Wee and each other. However, the Court finds reason to grant the cross-claim
establish his defense that he was not present during the February 9, 1999 and March 11, of Virata that he be reimbursed by his co-parties of the amount that he and UEM-MARA
1999 board meetings. may be adjudged to be liable for.152

Instead, the minutes clearly state that Estrella was present during the meetings when the The reinstatement and grant of the cross-claim is anchored on the stipulation under the
body approved the grant of a credit line facility to Power Merge. Estrella would even admit Side Agreements. Worthy of note is that neither the R TC nor the CA nullified the contract,
being present during the February 9, 1999 meeting, but attempted to evade responsibility despite their acerbic language towards the same. They merely held that the agreements
by claiming that he left the meeting before the "other matters," including Power Merge's cannot be used as protection against liability for repayment to the investors, without more.
application, could have been discussed. The Side Agreements even served as basis for the courts a quo to declare that the
confirmation advices being issued to the investors were worthless and uncollectible credit
Unfortunately, no concrete evidence was ever offered to confirm Estrella's alibi. In both instruments, and to label the "sans recourse" transactions as without any economically-
special meetings scheduled, Estrella averred that he accompanied his wife to a hospital valuable object.
for her cancer screening and for dialogues on possible treatments. However, this claim
was never corroborated by any evidence coming from the hospital or from his wife's As such, the Side Agreements remain to be binding and enforceable on the parties
physicians. Aside from his mere say-so, no other credible evidence was presented to thereto: Wincorp, Virata, and Power Merge. We give credence to the argument of Virata
substantiate his claim. Thus, the Court is not inclined to lend credence to Estrella's self- that, as per the language of the Side Agreements themselves, what transpired was an
serving denials. arm's length transaction, wherein in exchange for Wincorp assuming liability for Power
Merge's drawdowns and promissory notes, Power Merge obligated itself "to return and
Neither can petitioner Estrella be permitted to raise the defense that he is a mere deliver to Wincorp all the rights, title and interests conveyed by Wincorp hereby to [Power
nominee of John Anthony Espiritu, the then chairman of the Wincorp board of directors. It Merge] over the Hottick obligations."  It appears then that there is ample consideration for
is of no moment that he only had one nominal share in the corporation, which he did not the release.
even pay for, just as it is inconsequential whether or not Estrella had been receiving
compensation or honoraria for attending the meetings of the board. Indeed, the Court must not only look at the "sans recourse" transactions in isolation, but
also consider the underlying transactions and ascertain the true intention of the
The practice of installing undiscerning directors cannot be tolerated, let alone allowed to contracting parties. On this score, a narration on the relationship between Hottick, W
perpetuate. This must be curbed by holding accountable those who fraudulently and incorp, and Power Merge bears reiteration:
negligently perform their duties as corporate directors, regardless of the accident by which
they acquired their respective positions. On February 21, 1997, Hottick, through a credit facility, borrowed money from Wincorp in
the amount of Pl,500,908,026.00, as evidenced by a Promissory Note issued by Hottick in
In this case, the fact remains that petitioner Estrella accepted the directorship in the favor of the investment hosue, and guaranteed by Halim Saad and petitioner Virata.
Wincorp board, along with the obligations attached to the position, without question or When the Asian financial crisis struck, Hottick experienced financial distress and was
qualification. The fiduciary duty of a company director cannot conveniently be separated unable to pay its obligations. This prompted Wincorp to file a collection case against
from the position he occupies on the trifling argument that no monetary benefit was being Hottick and Halim Saad.
derived therefrom. The gratuitous performance of his duties and functions is not sufficient
justification to do a poor job at steering the company away from foreseeable pitfalls and Virata was not impleaded in the collection suit, and he would turn out to be instrumental in
perils. The careless management of corporate affairs, in itself, amounts to a betrayal of brokering a settlement agreement between Wincorp and Hottick. But in exchange for his
the trust reposed by the corporate investors, clients, and stakeholders, regardless of exclusion in the proceedings, he executed a Memorandum of Agreement under which he
whether or not the board or its individual members are being paid. The RTC and the CA, assumes the obligation to transfer forty percent (40%) of UPDI's outstanding shares and
therefore, correctly disregarded the defense of Estrella that he is a mere nominee. forty percent (40%) of UPDI' s interest in the tollway project to Wincorp, among others. It
would be clarified in the December 1, 1999 Waiver and Quitclaim, however, that the
IV. equity transfers would be Virata's only obligation under the Memorandum of Agreement.
Effect of the Side Agreements Said Waiver and Quitclaim provides:
Effect of the Side Agreements on the
solidary liability of the petitioners This is to confirm that notwithstanding the terms of the Memorandum of Agreement dated
July 27, 1999 between our company and yourself, our company hereby irrevocably and
unconditionally releases, waives and agrees to forever hold you, your heirs and assigns courts a quo that Wincorp borrowed the funds for its own account. Though these
free and harmless from and against any claim, obligation or liability arising out of or in circumstances do not exculpate Power Merge and Virata from paying a holder for value
connection with the Memorandum of Agreement; provided, however, that your under the negotiable instruments they issued, they nevertheless entitle Power Merge and
undertaking to cause the assignment, transfer and delivery to our company of at least Virata, as surety, to indemnification by way of reimbursement from Wincorp and its liable
forty percent (40%) of the equity of UEM Development Philippines, Inc. ("UPDI") and at directors and officers, the main debtors, for any amount stated in the note that petitioners
least forty percent (40%) of the interest/share of UPDI in the Manila Cavite Express Virata and Power Merge would be compelled to defray, pursuant to Art. 2066 of the New
Tollway Project (the "Project") shall have been fully complied with. We hereby reiterate Civil Code.155
that, except for your aforesaid obligation to assign, transfer and deliver to our company at
least forty (40%) of UPDI's outstanding shares and at least forty percent (40%) of UPDI's V.
interest/share in the Project, the Memorandum of Agreement is a mere accommodation Award of Damages
on your part and does not give rise to any legal rights or consequences in our company's
favour as against yourself, your heirs or assigns. 153 (emphasis added)
Beyond doubt, Ng Wee is entitled to recover the investments he infused in Win corp. This
was never the central issue in this case. Other than raising Ng Wee's alleged failure to
As can be gleaned, the significant portions of the Waiver and Quitclaim mirror the content state a cause of action in his complaint, none of the petitioners questioned his right to be
of the Side Agreements. But based on the peculiar transactions between the players compensated for the losses he suffered in the fraudulent investment scheme. Having
herein, the similarity does not end with the content, but extends to the intent. Reproducing ascertained the extent of the liabilities of the petitioners, the Court will now determine the
the salient provisions of the Side Agreements: amount to be awarded to Ng Wee.

WHEREAS, Powermerge has entered into the Credit Line Agreement with Wincorp as an The trial and appellate court correctly held that Ng Wee should first be recompensed for
accommodation in order to allow Wincorp to hold Powermerge paper instead of the the maturity amount of the investments he made in Power Merge through Wincorp, which
obligations of Hottick which are right now held by Wincorp. totalled ₱213,290,410.36. Pursuant to our ruling in the seminal case of Nacar v. Gallery
Frames,156 the amount shall earn interest at twelve percent (12%) per annum from the
xxxx date of filing of the Complaint on October 19, 2000 until June 30, 2013, and six percent
(6%) from July 1, 2013 until full satisfaction.
1. Powermerge hereby agrees to execute promissory notes in the aggregate principal
sum of ₱l,200,000,000.00 in favor of Wincorp and in exchange therefore, Wincorp hereby Moreover, the Credit Line Agreement provides for a stipulation of three percent (3%)
assigns, transfers, and conveys to Powermerge all of its rights, titles and interest by way additional monthly interest as penalty, twenty percent (20%) interest of the entire amount
of a subparticipation over the promissory notes and other obligations executed by Hottick due as liquidated damages, and twentyfive percent (25%) of the entire amount due as
in favor of Wincorp; Provided however that the only obligation of Powermerge to Wincorp attorney's fees. These additional rates of interest are likewise reflected in the promissory
shall be to return and deliver to Wincorp all the rights, title and interests conveyed by notes issued by Power Merge for which the liable petitioners can be held responsible.
Wincorp hereby to Powermerge over the Hottick obligations. Powermerge shall have no However, unlike the trial court and the CA, the Court finds that these contractual
obligation to pay under its promissory notes executed in favor of Wincorp but shall be stipulations cannot fully be imposed.
obligated merely to return whatever may have received from Wincorp pursuant to this
agreement. The freedom to contract is not absolute. And one of the more general restrictions thereon
is enshrined in Article 1306 of the Civil Code which precludes the contracting parties from
xxxx establishing stipulations, clauses, terms, and conditions that are contrary to law, morals,
good customs, public order, and public policy. In this jurisdiction, the Court has never
3. Wincorp confirms and agrees that this accommodation being entered into by the parties shied away from striking down iniquitous and unconscionable interest rates for failing to
is not intended to create a payment obligation on the part of Powermerge. 154 (emphasis meet this standard.157 We see no reason to depart from the practice in this case.
added)
That said, the Court herein refuses to impose the three percent (3% ) additional monthly
The above documents, besides the non-suit against Virata, readily convey that the parties penalty interest, and instead affirms the trial and appellate court's nullification of the same.
did not intend to create a payment obligation on the part of Power Merge; the latter was Such exorbitant interest rate is void for being contrary to morals, if not against the
merely used as a conduit by Wincorp for the acquisition of equity shares. They also law.158 Being a void stipulation, the monthly penalty interest is deemed inexistent from the
confirm that Power Merge was just a mere accommodation party to the issuance of the beginning.159 In its stead, the imposition of legal interest pursuant to Nacar  is deemed
Promissory Notes that Wincorp sold to its clients, consistent with the findings of the sufficient.
Anent the twenty percent (20%) liquidated damages, the Court sees the need to reduce 1. To PARTIALLY GRANT the Petition for Review on Certiorari of Luis
the amount. Liquidated damages are those agreed upon by the parties to a contract, to be Juan L. Virata and UEM-MARA, docketed as G.R. No. 220926;
paid in case of breach thereof.160 Although it can conclusively be deduced from the
contracts that the parties intended to impose such additional charges, the Court 2. To DENY the Petition for Review on Certiorari of Westmont
nevertheless, by express provision in Article 2227 of the New Civil Code, has the right to Investment Corporation, docketed as G.R. No. 221058;
temper them if they are unconscionable.161 Considering that the base amount of the
indebtedness in this case is by itself already staggering, imposing an additional twenty
percent (20%) interest against the persons liable would prove to be too cumbersome. The 3. To DENY the Petition for Review of Manuel Estrella, docketed as G.R.
Court therefore sees the need to reduce the amount to only ten percent (10%) of the total No. 221109;
maturity value of Ng Wee's investment in Power Merge.
4. To DENY the Petition for Review on Certiorari of Simeon Cua, Henry
The same downward modification is in order as regards the award of attorney's fees. Cualoping, and Vicente Cualoping, docketed as G.R No. 221135;and
Although Ng Wee finds justification for the entitlement to the award under Article 2208 of
the New Civil Code,162 the same provision mandates that "in all cases, the attorney's fees 5. To DENY the Petition for Review on Certiorari of Anthony Reyes,
and expenses of litigation must be reasonable." Just as We have reduced the rate for docketed as G.R. No. 221218.
liquidated damages, the Court likewise tempers the stipulated rate of attorney's fees to
five percent (5%) of the total amount due on Ng Wee's investment. The September 30, 2014 Decision and October 14, 2015 Resolution of the Court of
Appeals in CA-G.R. CV. No. 97817 affirming the July 8, 2011, Decision of the Regional
Finally, the Court sees no cogent reason to disturb the RTC's award of moral damages in Trial Court, Branch 39 of Manila is hereby AFFIRMED with MODIFICATION. As modified,
favor of Ng Wee in the amount of ₱100,000.00, as affirmed by the appellate court. the dispositive portion of the trial court Decision in Civil Case No. 00-99006 shall read:
Discussed in the following wise in Philippine Savings Bank v. Sps. Manalac, Jr. is the
concept of moral damages: WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff,
ordering the defendants Luis L. Virata, Westmont Investment Corporation (Wincorp),
Moral damages are meant to compensate the claimant for any physical suffering, mental Antonio T. Ong, Anthony T. Reyes, Simeon Cua, Vicente and Henry Cualoping, Mariza
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, Santos-Tan, and Manuel Estrella to jointly and severally pay plaintiff as follows:
social humiliation and similar injuries unjustly caused. Although incapable of pecuniary
estimation, the amount must somehow be proportional to and in approximation of the 1. The sum of Two Hundred Thirteen Million Two Hundred Ninety Thousand Four
suffering inflicted. Moral damages are not punitive in nature and were never intended to Hundred Ten and 36/100 Pesos (₱213,290,410.36), which is the maturity amount of
enrich the claimant at the expense of the def end ant. There is no hard-and-fast rule in plaintiffs investment with legal interest at the rate of twelve (12%) percent per annum from
determining what would be a fair and reasonable amount of moral damages, since each the date of filing of the complaint on October 19. 2000 until June 30, 2013 and six percent
case must be governed by its own peculiar facts. Trial courts are given discretion in (6%) from July l, 2013 until fully paid;
determining the amount, with the limitation that it should not be palpably and scandalously
excessive. Indeed, it must be commensurate to the loss or injury suffered. 163 (emphasis 2. Liquidated damages equivalent to ten percent (10%) of the maturity amount, and
added) attorney's fees equivalent to five percent (5%) of the total amount due plus legal interest
at the rate of twelve (12%) percent per annum from the date of filing of the complaint until
Ng Wee's claim for moral damages in the amount of ₱5,000,000.00 is indeed too June 30, 2013 and six percent (6%) from July 1, 2013 until fully paid;
excessive, even with the principal amount in mind. To reiterate, moral damages were
never meant to enrich the claimant. The court therefore upholds the RTC and the CA's 3. ₱100,000.00 as moral damages.
grant of the reduced amount of ₱100,000.00.
4. Additional interest of six percent (6%) per annum of the total monetary awards,
Finally, the judgment of liability shall earn additional six percent (6%) interest reckoned computed from finality of judgment until full satisfaction.
from finality, also pursuant to the Nacar  ruling.
5. The complaint against defendants Manuel Tankiansee and UEMMARA Philippines
WHEREFORE, premises considered, the Court resolves: Corporation is dismissed for lack of merit.
The cross claim of Luis Juan L. Virata is hereby GRANTED. Westmont Investment
Corporation (Wincorp), Antonio T. Ong, Anthony T. Reyes, Simeon Cua, Vicente and
Henry Cualoping, Mariza Santos-Tan. and Manuel Estrella are hereby ordered jointly and
severally liable to pay and reimburse Luis Juan L. Virata for any payment or contribution
he (Luis Juan L. Virata) may make or be compelled to make to satisfy the amount due to
plaintiff Alejandro Ng Wee. All other counterclaims against Alejandro Ng Wee and cross-
claims by the defendants as against each other are dismissed for lack of merit.

Cost against the defendants, except defendants Manuel Tankiansee and UEM-MARA
Philippines Corporation.

SO ORDERED.
G.R. No. 177493 position as Managing Director and to pay him US$23,000.00 in accrued salaries (from
July to December 2001), and US$5,000.00 a month in back salaries from January 2002
ERIC GODFREY STANLEY LIVESEY, Petitioner, until reinstatement; and 10% of the total award as attorney’s fees.
vs.
BINSWANGER PHILIPPINES, INC. and KEITH ELLIOT, Respondent. Thereafter, the parties entered into a compromise agreement7 which LA Reyno approved
in an order dated November 6, 2002.8 Under the agreement, Livesey was to receive
DECISION US$31,000.00 in full satisfaction of LA Reyno’s decision, broken down into US$13,000.00
to be paid by CBB to Livesey or his authorized representative upon the signing of the
agreement; US$9,000.00 on or before June 30, 2003; and US$9,000.00 on or before
BRION, J.: September 30, 2003. Further, the agreement provided that unless and until the
agreement is fully satisfied, CBB shall not: (1) sell, alienate, or otherwise dispose of all or
We resolve this petition for review on certiorari1 assailing the decision2 dated August 18, substantially all of its assets or business; (2) suspend, discontinue, or cease its entire, or
2006 and the resolution3 dated March 29, 2007 of the Court of Appeals (CA) in CA-G.R. a substantial portion of its business operations; (3) substantially change the nature of its
SP No. 94461. business; and (4) declare bankruptcy or insolvency.

The Antecedents CBB paid Livesey the initial amount of US$13,000.00, but not the next two installments as
the company ceased operations. In reaction, Livesey moved for the issuance of a writ of
In December 2001, petitioner Eric Godfrey Stanley Livesey filed a complaint for illegal execution. LA Eduardo G. Magno granted the writ, 9 but it was not enforced. Livesey then
dismissal with money claims4 against CBB Philippines Strategic Property Services, Inc. filed a motion for the issuance of an alias writ of execution,10 alleging that in the process
(CBB) and Paul Dwyer. CBB was a domestic corporation engaged in real estate of serving respondents the writ, he learned "that respondents, in a clear and willful
brokerage and Dwyer was its President. attempt to avoid their liabilities to complainant x x x have organized another corporation,
[Binswanger] Philippines, Inc."11 He claimed that there was evidence showing that CBB
Designated as Acting Member in lieu of Associate Justice Estela M. Perlas-Bernabe, per and Binswanger Philippines, Inc. (Binswanger) are one and the same corporation,
Special Order No. 1650 dated March 13, 2014. pointing out that CBB stands for Chesterton Blumenauer Binswanger. 12 Invoking the
doctrine of piercing the veil of corporate fiction, Livesey prayed that an alias writ of
execution be issued against respondents Binswanger and Keith Elliot, CBB’s former
Livesey alleged that on April 12, 2001, CBB hired him as Director and Head of Business President, and now Binswanger’s President and Chief Executive Officer (CEO).
Space Development, with a monthly salary of US$5,000.00; shareholdings in CBB’s
offshore parent company; and other benefits. In August 2001, he was appointed as
Managing Director and his salary was increased to US$16,000.00 a month. Allegedly, The Compulsory Arbitration Rulings
despite the several deals for CBB he drew up, CBB failed to pay him a significant portion
of his salary. For this reason, he was compelled to resign on December 18, 2001. He In an order13 dated March 22, 2004, LA Catalino R. Laderas denied Livesey’s motion for
claimed CBB owed him US$23,000.00 in unpaid salaries. an alias writ of execution, holding that the doctrine of piercing the corporate veil was
inapplicable in the case. He explained that the stockholders of the two corporations were
CBB denied liability. It alleged that it engaged Livesey as a corporate officer in April 2001: not the same. Further, LA Laderas stressed that LA Reyno’s decision had already
he was elected Vice-President (with a salary of P75,000.00/month), and thereafter, he become final and could no longer be altered or modified to include additional
became President (at P1,200,000.00/year). It claimed that Livesey was later designated respondents.
as Managing Director when it became an extension office of its principal in Hongkong. 5
Livesey filed an appeal which the National Labor Relations Commission (NLRC) granted
On December 17, 2001, Livesey demanded that CBB pay him US$25,000.00 in unpaid in its decision14 dated September 7, 2005. It reversed LA Laderas’ March 22, 2004 order
salaries and, at the same time, tendered his resignation. CBB posited that the labor and declared the respondents jointly and severally liable with CBB for LA Reyno’s
arbiter (LA) had no jurisdiction as the complaint involved an intra-corporate dispute. decision15 of September 20, 2002 in favor of Livesey. The respondents moved for
reconsideration, filed by an Atty. Genaro S. Jacosalem, 16 not by their counsel of record at
the time, Corporate Counsels Philippines, Law Offices. The NLRC denied the motion in its
In his decision dated September 20, 2002,6 LA Jaime M. Reyno found that Livesey had resolution of January 6, 2006.17 The respondents then sought relief from the CA through a
been illegally dismissed. LA Reyno ordered CBB to reinstate Livesey to his former petition for certiorari under Rule 65 of the Rules of Court.
The respondents charged the NLRC with grave abuse of discretion for holding them liable Livesey assails the CA’s reliance on the Court’s pronouncement in Rinconada Telephone
to Livesey and in exercising jurisdiction over an intra-corporate dispute. They maintained Co., Inc. v. Hon. Buenviaje22 to justify its ruling that the receipt on March 17, 2006 by Atty.
that Binswanger is a separate and distinct corporation from CBB and that Elliot signed the Jacosalem of the NLRC’s denial of the respondents’ motion for reconsideration was the
compromise agreement in CBB’s behalf, not in his personal capacity. It was error for the reckoning date for the filing of the petition for certiorari, not the receipt of a copy of the
NLRC, they argued, when it applied the doctrine of piercing the veil of corporate fiction to same resolution on January 19, 2006 by the respondents’ counsel of record, the
the case, despite the absence of clear evidence in that respect. Corporate Counsels Philippines, Law Offices. The cited Court’s pronouncement reads:

For his part, Livesey contended that the petition should be dismissed outright for being In view of respondent judge’s recognition of Atty. Santos as new counsel for petitioner
filed out of time. He claimed that the respondents’ counsel of record received a copy of without even a valid substitution or withdrawal of petitioner’s former counsel, said new
the NLRC resolution denying their motion for reconsideration as early as January 19, counsel logically awaited for service to him of any action taken on his motion for
2006, yet the petition was filed only on May 15, 2006. He insisted that in any event, there reconsideration. Respondent judge’s sudden change of posture in insisting that Atty.
was ample evidence supporting the application of the doctrine of piercing the veil of Maggay is the counsel of record is, therefore, a whimsical and capricious exercise of
corporate fiction to the case. discretion that prevented petitioner and Atty. Santos from taking a timely appeal[.] 23

The CA Decision With the above citation, Livesey points out, the CA opined that a copy of the NLRC
resolution denying the respondents’ motion for reconsideration should have been served
The CA granted the petition,18 reversed the NLRC decision19 of September 7, 2005 and on Atty. Jacosalem and no longer on the counsel of record, so that the sixty (60)-day
reinstated LA Laderas’ order20 of March 22, 2004. The CA found untenable Livesey’s period for the filing of the petition should be reckoned from March 17, 2006 when Atty.
contention that the petition for certiorari was filed out of time, stressing that while there Jacosalem secured a copy of the resolution from the NLRC (the petition was filed by a
was no valid substitution or withdrawal of the respondents’ former counsel, the NLRC Jeffrey Jacosalem on May 15, 2006).24 Livesey submits that the CA’s reliance on
impliedly recognized Atty. Jacosalem as their new counsel when it resolved the motion for Rinconada was misplaced. He argues that notwithstanding the signing by Atty. Jacosalem
reconsideration which he filed. of the motion for reconsideration, it was only proper that the NLRC served a copy of the
resolution on the Corporate Counsels Philippines, Law Offices as it was still the
respondents’ counsel at the time.25 He adds that Atty. Jacosalem never participated in the
On the merits of the case, the CA disagreed with the NLRC finding that the respondents NLRC proceedings because he did not enter his appearance as the respondents’ counsel
are jointly and severally liable with CBB in the case. It emphasized that the mere fact that before the labor agency; further, he did not even indicate his office address on the motion
Binswanger and CBB have the same President is not in itself sufficient to pierce the veil of for reconsideration he signed.
corporate fiction of the two entities, and that although Elliot was formerly CBB’s President,
this circumstance alone does not make him answerable for CBB’s liabilities, there being
no proof that he was motivated by malice or bad faith when he signed the compromise 2. The CA erred in not applying the doctrine of piercing the veil of corporate fiction to the
agreement in CBB’s behalf; neither was there proof that Binswanger was formed, or that it case.
was operated, for the purpose of shielding fraudulent or illegal activities of its officers or
stockholders or that the corporate veil was used to conceal fraud, illegality or inequity at Livesey bewails the CA’s refusal to pierce Binswanger’s corporate veil in his bid to make
the expense of third persons like Livesey. the company and Elliot liable, together with CBB, for the judgment award to him. He
insists that CBB and Binswanger are one and the same corporation as shown by the
Livesey moved for reconsideration, but the CA denied the motion in its resolution dated "overwhelming evidence" he presented to the LA, the NLRC and the CA, as follows:
March 29, 2007.21 Hence, the present petition.
a.CBB stands for "Chesterton Blumenauer Binswanger." 26
The Petition
b.After executing the compromise agreement with him, through Elliot, CBB
Livesey prays for a reversal of the CA rulings on the basis of the following arguments: ceased operations following a transaction where a substantial amount of CBB
shares changed hands. Almost simultaneously with CBB’s closing (in July 2003),
Binswanger was established with its headquarters set up beside CBB’s office at
1. The CA erred in not denying the respondents’ petition for certiorari dated May 12, 2006 Unit 501, 5/F Peninsula Court Building in Makati City. 27
for being filed out of time.
 c.Key CBB officers and employees moved to Binswanger led by Elliot, former been possible without Elliot’s guiding hand, such that when CBB ceased operations, Elliot
CBB President who became Binswanger’s President and CEO; Ferdie Catral, (CBB’s President and CEO) moved to Binswanger in the same position. More importantly,
former CBB Director and Head of Operations; Evangeline Agcaoili and Janet Pei. Livesey points out, as signatory for CBB in the compromise agreement between him
(Livesey) and CBB, Elliot knew that it had not been and would never be fully satisfied.
d.Summons served on Binswanger in an earlier labor case was received by
Binswanger using CBB’s receiving stamp.28 Livesey thus laments Elliot’s devious scheme of leaving him an unsatisfied award,
stressing that Elliot was the chief orchestrator of CBB and Binswanger’s fraudulent act of
e.A Leslie Young received on August 23, 2003 an online query on whether CBB evading the full satisfaction of the compromise agreement. In this light, he submits that
was the same as Blumaneuver Binswanger (BB). Signing as Web Editor, the Court’s ruling in
Binswanger/CBB, Young replied via e-mail:29
A.C. Ransom Labor Union-CCLU v. NLRC,37 which deals with the issue of who is liable for
We are known as either CBB (Chesterton Blumenauer Binswanger) or as Chesterton the worker’s backwages when a corporation ceases operations, should apply to his
Petty Ltd. in the Philippines. Contact info for our office in Manila is as follows: situation.

Manila Philippines The Respondents’Position

CBB Philippines Unit 509, 5th Floor
Peninsula Court, Paseo de Roxas corner Makati Avenue Through their comment38 and memorandum,39 the respondents pray that the petition be
1226 Makati City Philippines Contact: Keith Elliot denied for the following reasons:

f. In a letter dated August 21, 2003,30 Elliot noted a Binswanger bid solicitation for a 1. The NLRC had no jurisdiction over the dispute between Livesey and CBB/Dwyer as it
project with the Philippine National Bank (PNB) which involved an intra-corporate controversy; under Republic Act No. 8799, the Regional Trial
Court exercises jurisdiction over the case.
was actually a CBB project as shown by a CBB draft proposal to PNB dated January 24,
2003.31 As shown by the records, Livesey was appointed as CBB’s Managing Director during the
relevant period and was also a shareholder, making him a corporate officer.
g.The affidavit32 dated October 1, 2003 of Hazel de Guzman, another former CBB
employee who also filed an illegal dismissal case against the company, attested to the 2.There was no employer-employee relationship between Livesey and Binswanger. Under
existence of Livesey’s documentary evidence in his own case and who deposed that at Article 217 of the Labor Code, the labor arbiters and the NLRC have jurisdiction only over
one time, Elliot told her of CBB’s plan to close the corporation and to organize another for disputes where there is an employer- employee relationship between the parties.
the purpose of evading CBB’s liabilities.
3.The NLRC erred in applying the doctrine of piercing the veil of corporate fiction to the
h.The findings33 of facts of LA Veneranda C. Guerrero who ruled in De Guzman’s favor case based only on mere assumptions. Point by point, they take exception to Livesey’s
that bolstered his own evidence in the present case. submissions as follows:

3. The CA erred in not holding Elliot liable for the judgment award. a.The e-mail statement in reply to an online query of Young (CBB’s Web Editor)
that CBB is known as Chesterton Blumenauer Binswanger or Chesterton Petty.
Livesey questions the CA’s reliance on Laperal Development Corporation v. Court of Ltd. to establish a connection between CBB and Binswanger is inconclusive as
Appeals,34 Sunio, et al. v. NLRC, et al.,35 and Palay, Inc., et al. v. Clave, etc., et al.,36 in there was no mention in the statement of Binswanger Philippines, Inc.
support of its ruling that Elliot is not liable to him for the LA’s award. He argues that in
these cases, the Court upheld the separate personalities of the corporations and their b.The affidavit of De Guzman, former CBB Associate Director, who also resigned
officers/employees because there was no evidence that the individuals sought to be held from the company like Livesey, has no probative value as it was self-serving and
liable were in bad faith or that there were badges of fraud in their actions against the contained only misrepresentation of facts, conjectures and surmises.
aggrieved party or parties in said cases. He reiterates his submission to the CA that the
circumstances of the present case are different from those of the cited cases. He posits
that the closure of CBB and its immediate replacement by Binswanger could not have
 c.When Binswanger was organized and incorporated, CBB had already been To reiterate, the filing of the respondents’ petition for certiorari should have been
abandoned by its Board of Directors and no longer subsidized by CBB- reckoned from January 19, 2006 when a copy of the subject NLRC resolution was
Hongkong; it had no business operations to work with. received by the Corporate Counsels Philippines, Law Offices, which, as of that date, had
not been discharged or had withdrawn and therefore remained to be the respondents’
d.The mere transfer of Elliot and Catral from CBB to Binswanger is not a ground counsel of record. Clearly, the petition for certiorari was filed out of time. Section 6(a),
to pierce the corporate veil in the present case absent a clear evidence Rule III of the NLRC Revised Rules of Procedure provides that "[f]or purposes of appeal,
supporting the application of the doctrine. The NLRC applied the doctrine on the the period shall be counted from receipt of such decisions, resolutions, or orders by the
basis only of LA Guerrero’s decision in the De Guzman case. counsel or representative of record."

e.The respondents’ petition for certiorari was filed on time. Atty. Jacosalem, who We now come to the issue of whether the NLRC had jurisdiction over the controversy
was presumed to have been engaged as the respondents’ counsel, was deemed between Livesey and CBB/Dwyer on the ground that it involved an intra-corporate
to have received a copy of the NLRC resolution (denying the motion for dispute.
reconsideration) on March 17, 2006 when he requested and secured a copy from
the NLRC. The petition was filed on May 15, 2006 or fifty-nine (59)days from Based on the facts of the case, we find this issue to have been rendered academic by the
March 17, 2006. Atty. Jacosalem may have failed to indicate his address on the compromise agreement between Livesey and CBB and approved by LA Reyno. 41 That
motion for reconsideration he filed but that is not a reason for him to be deprived CBB reneged in the fulfillment of its obligation under the agreement is no reason to revive
of the notices and processes of the case. the issue and further frustrate the full settlement of the obligation as agreed upon.

The Court’s Ruling The substantive aspect of the case

The procedural question Even if we rule that the respondents’ appeal before the CA had been filed on time, we
believe and so hold that the appellate court committed a reversible error of judgment in its
The respondents’ petition for certiorari before the CA was filed out of time. The sixty (60)- challenged decision.
day filing period under Rule 65 of the Rules of Court should have been counted from
January 19, 2006, the date of receipt of a copy of the NLRC resolution denying the The NLRC committed no grave abuse of discretion in reversing LA Laderas’ ruling as
respondents’ motion for reconsideration by the Corporate Counsels Philippines, Law there is substantial evidence in the records that Livesey was prevented from fully
Offices which was the respondents’ counsel of record at the time. The respondents receiving his monetary entitlements under the compromise agreement between him and
cannot insist that Atty. Jacosalem’s receipt of a copy of the resolution on March 17, 2006 CBB, with Elliot signing for CBB as its President and CEO. Substantial evidence is more
as the reckoning date for the filing of the petition as we shall discuss below. than a scintilla; it means such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion.42
The CA chided the NLRC for serving a copy of the resolution on the Corporate Counsels
Philippines, Law Offices, instead of on Atty. Jacosalem as it believed that the labor Shortly after Elliot forged the compromise agreement with Livesey, CBB ceased
tribunal impliedly recognized Atty. Jacosalem as the respondents’ counsel when it acted operations, a corporate event that was not disputed by the respondents. Then
on the motion for reconsideration that he signed. As we see it, the fault was not on the Binswanger suddenly appeared. It was established almost simultaneously with CBB’s
NLRC but on Atty. Jacosalem himself as he left no forwarding address with the NLRC, a closure, with no less than Elliot as its President and CEO. Through the confluence of
serious lapse that even he admitted.40 This is a matter that cannot just be taken for events surrounding CBB’s closure and Binswanger’s sudden emergence, a reasonable
granted as it betrays a careless legal representation that can cause adverse mind would arrive at the conclusion that Binswanger is CBB’s alter ego or that CBB and
consequences to the other party. Binswanger are one and the same corporation. There are also indications of badges of
fraud in Binswanger’s incorporation. It was a business strategy to evade CBB’s financial
To our mind, Atty. Jacosalem’s non-observance of a simple, but basic requirement in the liabilities, including its outstanding obligation to Livesey.
practice of law lends credence to Livesey’s claim that the lawyer did not formally enter his
appearance before the NLRC as the respondents’ new counsel; if it had been otherwise, The respondents impugned the probative value of Livesey’s documentary evidence and
he would have supplied his office address to the NLRC. Also, had he exercised due insist that the NLRC erred in applying the doctrine of piercing the veil of corporate fiction
diligence in the performance of his duty as counsel, he could have inquired earlier with in the case to avoid liability. They consider the NLRC conclusions as mere assumptions.
the NLRC and should not have waited as late as March 17, 2006 about the outcome of
the respondents’ motion for reconsideration which was filed as early as October 28, 2005.
We disagree. This underhanded objective, it must be stressed, can only be attributed to Elliot as it was
apparent that Binswanger’s stockholders had nothing to do with Binswanger’s operations
It has long been settled that the law vests a corporation with a personality distinct and as noted by the NLRC and which the respondents did not deny. 48 Elliot was well aware of
separate from its stockholders or members. In the same vein, a corporation, by legal the compromise agreement between Livesey and CBB, as he "agreed and accepted" the
fiction and convenience, is an entity shielded by a protective mantle and imbued by law terms of the agreement49 for CBB. He was also well aware that the last two installments of
with a character alien to the persons comprising it. 43 Nonetheless, the shield is not at all CBB’s obligation to Livesey were due on June 30, 2003 and September 30, 2003. These
times impenetrable and cannot be extended to a point beyond its reason and policy. installments were not met and the reason is that after the alleged sale of the majority of
Circumstances might deny a claim for corporate personality, under the "doctrine of CBB’s shares of stock, it closed down.
piercing the veil of corporate fiction."
With CBB’s closure, Livesey asked why people would buy into a corporation and simply
Piercing the veil of corporate fiction is an equitable doctrine developed to address close it down immediately thereafter?50 The answer
situations where the separate corporate personality of a corporation is abused or used for
wrongful purposes.44 Under the doctrine, the corporate existence may be disregarded — to pave the way for CBB’s reappearance as Binswanger. Elliot’s "guiding hand," as
where the entity is formed or used for non-legitimate purposes, such as to evade a just Livesey puts it, is very much evident in CBB’s demise and Binswanger’s creation. Elliot
and due obligation, or to justify a wrong, to shield or perpetrate fraud or to carry out knew that CBB had not fully complied with its financial obligation under the compromise
similar or inequitable considerations, other unjustifiable aims or intentions, 45 in which agreement. He made sure that it would not be fulfilled when he allowed CBB's closure,
case, the fiction will be disregarded and the individuals composing it and the two despite the condition in the agreement that "unless and until the Compromise Amount has
corporations will be treated as identical.46 been fully settled and paid by the Company in favor of Mr. Livesey, the Company shall not
x x x suspend, discontinue, or cease its entire or a substantial portion of its business
In the present case, we see an indubitable link between CBB’s closure and Binswanger’s operations[.]"51
incorporation. CBB ceased to exist only in name; it re-emerged in the person of
Binswanger for an urgent purpose What happened to CBB, we believe, supports Livesey's assertion that De Guzman, CBB's
former Associate Director, informed him that at one time Elliot told her of CBB 's plan to
— to avoid payment by CBB of the last two installments of its monetary obligation to close the corporation and organize another for the purpose of evading CBB 's liabilities to
Livesey, as well as its other financial liabilities. Freed of CBB’s liabilities, especially that Livesey and its other financial liabilities.52 This wrongful intent we cannot and must not
owing to Livesey, Binswanger can continue, as it did continue, CBB’s real estate condone, for it will give a premium to an iniquitous business strategy where a corporation
brokerage business. is formed or used for a non-legitimate purpose, such as to evade a just and due
obligation.53 We, therefore, find Elliot as liable as Binswanger for CBB 's unfulfilled
obligation to Livesey.
Livesey’s evidence, whose existence the respondents never denied, converged to show
this continuity of business operations from CBB to Binswanger.1âwphi1 It was not just
coincidence that Binswanger is engaged in the same line of business CBB embarked on: WHEREFORE, premises considered, we hereby GRANT the petition. The decision dated
(1) it even holds office in the very same building and on the very same floor where CBB August 18, 2006 and the Resolution dated March 29, 2007 of the Court of Appeals are
once stood; (2) CBB’s key officers, Elliot, no less, and Catral moved over to Binswanger, SET ASIDE. Binswanger Philippines, Inc. and Keith Elliot (its President and CEO) are
performing the tasks they were doing at CBB; (3) notwithstanding CBB’s closure, declared jointly and severally liable for the second and third installments of CBB 's liability
Binswanger’s Web Editor (Young), in an e-mail correspondence, supplied the information to Eric Godfrey Stanley Livesey under the compromise agreement dated October 14,
that Binswanger is "now known" as either CBB (Chesterton Blumenauer Binswanger or as 2002. Let the case record be remanded to the National Labor Relations Commission for
Chesterton Petty, Ltd., in the Philippines; (4) the use of Binswanger of CBB’s execution of this Decision.
paraphernalia (receiving stamp) in connection with a labor case where Binswanger was
summoned by the authorities, although Elliot claimed that he bought the item with his own Costs against the respondents.
money; and (5) Binswanger’s takeover of CBB’s project with the PNB.
SO ORDERED.
While the ostensible reason for Binswanger’s establishment is to continue CBB’s
business operations in the Philippines, which by itself is not illegal, the close proximity
between CBB’s disestablishment and Binswanger’s coming into existence points to an
unstated but urgent consideration which, as we earlier noted, was to evade CBB’s
unfulfilled financial obligation to Livesey under the compromise agreement. 47
G.R. No. 174938               October 1, 2014 directing Shangri-La’s affairs. Therefore, they should be held jointly and severally liable
with Shangri-La for its obligations as well as for the damages that BF Corporation incurred
GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners, as a result of Shangri-La’s default.10
vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco
B. COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, Respondents. III, and Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF
Corporation’s failure to submit its dispute to arbitration, in accordance with the arbitration
DECISION clauseprovided in its contract, quoted in the motion as follows: 11

LEONEN, J.: 35. Arbitration

Corporate representatives may be compelled to submit to arbitration proceedings (1) Provided always that in case any dispute or difference shall arise between the Owner
pursuant to a contract entered into by the corporation they represent if there are or the Project Manager on his behalf and the Contractor, either during the progress or
allegations of bad faith or malice in their acts representing the corporation. after the completion or abandonment of the Works as to the construction of this Contract
or as to any matter or thing of whatsoever nature arising there under or inconnection
therewith (including any matter or thing left by this Contract to the discretion of the Project
This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and Manager or the withholding by the Project Manager of any certificate to which the
October 5, 2006 resolution. The Court of Appeals affirmed the trial court's decision Contractor may claim to be entitled or the measurement and valuation mentioned in
holding that petitioners, as director, should submit themselves as parties tothe arbitration clause 30(5)(a) of these Conditions or the rights and liabilities of the parties under clauses
proceedings between BF Corporation and Shangri-La Properties, Inc. (Shangri-La). 25, 26, 32 or 33 of these Conditions), the owner and the Contractor hereby agree to exert
all efforts to settle their differences or dispute amicably. Failing these efforts then such
In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against dispute or difference shall be referred to arbitration in accordance with the rules and
Shangri-Laand the members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco, procedures of the Philippine Arbitration Law.
Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos. 1
x x x           x x x          x x x
BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it
entered into agreements with Shangri-La wherein it undertook to construct for Shangri-La (6) The award of such Arbitrators shall be final and binding on the parties. The decision of
a mall and a multilevel parking structure along EDSA. 2 the Arbitrators shall be a condition precedent to any right of legal action that either party
may have against the other. . . .12 (Underscoring in the original)
Shangri-La had been consistent in paying BF Corporation in accordance with its progress
billing statements.3 However, by October 1991, Shangri-La started defaulting in payment. 4 On August 19, 1993, BF Corporation opposed the motion to suspend proceedings. 13

BF Corporation alleged that Shangri-La induced BF Corporation to continue with the In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend
construction of the buildings using its own funds and credit despite Shangri-La’s proceedings.14
default.5 According to BF Corporation, ShangriLa misrepresented that it had funds to pay
for its obligations with BF Corporation, and the delay in payment was simply a matter of
delayed processing of BF Corporation’s progress billing statements. 6 On December 8, 1993, petitioners filed an answer to BF Corporation’s complaint, with
compulsory counter claim against BF Corporation and crossclaim against Shangri-
La.15 They alleged that they had resigned as members of Shangri-La’s board of directors
BF Corporation eventually completed the construction of the buildings. 7 Shangri-La as of July 15, 1991.16
allegedly took possession of the buildings while still owing BF Corporation an outstanding
balance.8
After the Regional Trial Court denied on February 11, 1994 the motion for reconsideration
of its November 18, 1993 order, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,Maximo
BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the G. Licauco III, and Benjamin Ramos filed a petition for certiorari with the Court of
balance owed to it.9 It also alleged that the Shangri-La’s directors were in bad faith in Appeals.17
On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the problem will arise, i.e., whether petitioners will be bound bysuch arbitral award, and this
submission of the dispute to arbitration.18 will prevent complete determination of the issues and resolution of the controversy. 31

Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition for review on The Court of Appeals further ruled that "excluding petitioners in the arbitration
certiorari with this court.19 On March 27, 1998, this court affirmed the Court of Appeals’ proceedings . . . would be contrary to the policy against multiplicity of suits." 32
decision, directing that the dispute be submitted for arbitration. 20
The dispositive portion of the Court of Appeals’ decision reads:
Another issue arose after BF Corporation had initiated arbitration proceedings. BF
Corporation and Shangri-La failed to agree as to the law that should govern the arbitration WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003 and
proceedings.21 On October 27, 1998, the trial court issued the order directing the parties January 19, 2005 of public respondent RTC, Branch 157, Pasig City, in Civil Case No.
to conduct the proceedings in accordance with Republic Act No. 876. 22 63400, are AFFIRMED.33

Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification, The Court of Appeals denied petitioners’ motion for reconsideration in the October 5,
both seeking to clarify the term, "parties," and whether Shangri-La’s directors should be 2006 resolution.34
included in the arbitration proceedings and served with separate demands for
arbitration.23
On November 24, 2006, petitioners filed a petition for review of the May 11, 2006 Court of
Appeals decision and the October 5, 2006 Court of Appeals resolution. 35
Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying
that they be excluded from the arbitration proceedings for being non-parties to Shangri-
La’s and BF Corporation’s agreement.24 The issue in this case is whether petitioners should be made parties to the arbitration
proceedings, pursuant to the arbitration clause provided in the contract between BF
Corporation and Shangri-La.
On July 28, 2003, the trial court issued the order directing service of demands for
arbitration upon all defendants in BF Corporation’s complaint.25 According to the trial
court, Shangri-La’s directors were interested parties who "must also be served with a Petitioners argue that they cannot be held personally liable for corporate acts or
demand for arbitration to give them the opportunity to ventilate their side of the obligations.36 The corporation is a separate being, and nothing justifies BF Corporation’s
controversy, safeguard their interest and fend off their respective positions." 26 Petitioners’ allegation that they are solidarily liable with Shangri-La. 37 Neither did they bind
motion for reconsideration ofthis order was denied by the trial court on January 19, themselves personally nor did they undertake to shoulder Shangri-La’s obligations should
2005.27 it fail in its obligations.38 BF Corporation also failed to establish fraud or bad faith on their
part.39
Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse of
discretion in the issuance of orders compelling them to submit to arbitration proceedings Petitioners also argue that they are third parties to the contract between BF Corporation
despite being third parties to the contract between Shangri-La and BF Corporation. 28 and Shangri-La.40 Provisions including arbitration stipulations should bind only the
parties.41 Based on our arbitration laws, parties who are strangers to an agreement
cannot be compelled to arbitrate.42
In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’ petition for
certiorari. The Court of Appeals ruled that ShangriLa’s directors were necessary parties in
the arbitration proceedings.30 According to the Court of Appeals: Petitioners point out thatour arbitration laws were enacted to promote the autonomy of
parties in resolving their disputes.43 Compelling them to submit to arbitration is against this
purpose and may be tantamount to stipulating for the parties.44
[They were] deemed not third-parties tothe contract as they [were] sued for their acts in
representation of the party to the contract pursuant to Art. 31 of the Corporation Code,
and that as directors of the defendant corporation, [they], in accordance with Art. 1217 of Separate comments on the petition werefiled by BF Corporation, and Maximo G. Licauco
the Civil Code, stand to be benefited or injured by the result of the arbitration proceedings, III, Alfredo C.Ramos and Benjamin C. Ramos.45
hence, being necessary parties, they must be joined in order to have complete
adjudication of the controversy. Consequently, if [they were] excluded as parties in the Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners
arbitration proceedings and an arbitral award is rendered, holding [Shangri-La] and its that Shangri-La’sdirectors, being non-parties to the contract, should not be made
board of directors jointly and solidarily liable to private respondent BF Corporation, a personally liable for Shangri-La’s acts. 46 Since the contract was executed only by BF
Corporation and Shangri-La, only they should be affected by the contract’s arbitration case. Thus, there is no longer any need to resolve the present Petition, which
stipulation.47 BF Corporation also failed to specifically allege the unlawful acts of the mainly questions the inclusion of petitioners in the arbitration proceedings." 64 The court’s
directors that should make them solidarily liable with Shangri-La for its obligations. 48 decision in this case will no longer have any effect on the issue of petitioners’ inclusion in
the arbitration proceedings.65
Meanwhile, in its comment, BF Corporation argued that the courts’ ruling that the parties
should undergo arbitration "clearly contemplated the inclusion of the directors of the The petition must fail.
corporation[.]" 49 BF Corporation also argued that while petitioners were not parties to the
agreement, they were still impleaded under Section 31 of the Corporation Code. 50 Section The Arbitral Tribunal’s decision, absolving petitioners from liability, and its binding effect
31 makes directors solidarily liable for fraud, gross negligence, and bad faith. 51 Petitioners on BF Corporation, have rendered this case moot and academic.
are not really third parties to the agreement because they are being sued as Shangri-La’s
representatives, under Section 31 of the Corporation Code.52
The mootness of the case, however, had not precluded us from resolving issues so that
principles may be established for the guidance of the bench, bar, and the public. In De la
BF Corporation further argued that because petitioners were impleaded for their solidary Camara v. Hon. Enage,66 this court disregarded the fact that petitioner in that case
liability, they are necessary parties to the arbitration proceedings. 53 The full resolution of already escaped from prison and ruled on the issue of excessive bails:
all disputes in the arbitration proceedings should also be done in the interest of justice. 54
While under the circumstances a ruling on the merits of the petition for certiorari is
In the manifestation dated September 6, 2007, petitioners informed the court that the notwarranted, still, as set forth at the opening of this opinion, the fact that this case is
Arbitral Tribunal had already promulgated its decision on July 31, 2007. 55 The Arbitral moot and academic should not preclude this Tribunal from setting forth in language clear
Tribunal denied BF Corporation’s claims against them. 56 Petitioners stated that "[they] and unmistakable, the obligation of fidelity on the part of lower court judges to the
were included by the Arbitral Tribunal in the proceedings conducted . . . notwithstanding unequivocal command of the Constitution that excessive bail shall not be required. 67
[their] continuing objection thereto. . . ."57 They also stated that "[their] unwilling
participation in the arbitration case was done ex abundante ad cautela, as manifested
therein on several occasions." 58 Petitioners informed the court that they already This principle was repeated in subsequent cases when this court deemed it proper to
manifested with the trial court that "any action taken on [the Arbitral Tribunal’s decision] clarify important matters for guidance.68
should be without prejudice to the resolution of [this] case." 59
Thus, we rule that petitioners may be compelled to submit to the arbitration proceedings
Upon the court’s order, petitioners and Shangri-La filed their respective memoranda. in accordance with Shangri-Laand BF Corporation’s agreement, in order to determine if
Petitioners and Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos the distinction between Shangri-La’s personality and their personalities should be
reiterated their arguments that they should not be held liable for Shangri-La’s default and disregarded.
made parties to the arbitration proceedings because only BF Corporation and Shangri-La
were parties to the contract. This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to
avoid litigation and settle disputes amicably and more expeditiously by themselves and
In its memorandum, Shangri-La argued that petitioners were impleaded for their solidary through their choice of arbitrators.
liability under Section 31 of the Corporation Code. Shangri-La added that their exclusion
from the arbitration proceedings will result in multiplicity of suits, which "is not favored in The policy in favor of arbitration has been affirmed in our Civil Code, 69 which was
this jurisdiction."60 It pointed out that the case had already been mooted by the termination approved as early as 1949. It was later institutionalized by the approval of Republic Act
of the arbitration proceedings, which petitioners actively participated in. 61 Moreover, BF No. 876,70 which expressly authorized, made valid, enforceable, and irrevocable parties’
Corporation assailed only the correctness of the Arbitral Tribunal’s award and not the part decision to submit their controversies, including incidental issues, to arbitration. This court
absolving Shangri-La’s directors from liability.62 recognized this policy in Eastboard Navigation, Ltd. v. Ysmael and Company, Inc.: 71

BF Corporation filed a counter-manifestation with motion to dismiss 63 in lieu of the As a corollary to the question regarding the existence of an arbitration agreement,
required memorandum. defendant raises the issue that, even if it be granted that it agreed to submit its dispute
with plaintiff to arbitration, said agreement is void and without effect for it amounts to
In its counter-manifestation, BF Corporation pointed out that since "petitioners’ removing said dispute from the jurisdiction of the courts in which the parties are domiciled
counterclaims were already dismissed with finality, and the claims against them were or where the dispute occurred. It is true that there are authorities which hold that "a clause
likewise dismissed with finality, they no longer have any interest orpersonality in the in a contract providing that all matters in dispute between the parties shall be referred to
arbitrators and to them alone, is contrary to public policy and cannot oust the courts of SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have due regard
jurisdiction" (Manila Electric Co. vs. Pasay Transportation Co., 57 Phil., 600, 603), to the policy of the law in favor of arbitration.Where action is commenced by or against
however, there are authorities which favor "the more intelligent view that arbitration, as an multiple parties, one or more of whomare parties who are bound by the arbitration
inexpensive, speedy and amicable method of settling disputes, and as a means of agreement although the civil action may continue as to those who are not bound by such
avoiding litigation, should receive every encouragement from the courts which may be arbitration agreement. (Emphasis supplied)
extended without contravening sound public policy or settled law" (3 Am. Jur., p. 835).
Congress has officially adopted the modern view when it reproduced in the new Civil Thus, if there is an interpretation that would render effective an arbitration clause for
Code the provisions of the old Code on Arbitration. And only recently it approved Republic purposes ofavoiding litigation and expediting resolution of the dispute, that interpretation
Act No. 876 expressly authorizing arbitration of future disputes. 72 (Emphasis supplied) shall be adopted. Petitioners’ main argument arises from the separate personality given to
juridical persons vis-à-vis their directors, officers, stockholders, and agents. Since they did
In view of our policy to adopt arbitration as a manner of settling disputes, arbitration not sign the arbitration agreement in any capacity, they cannot be forced to submit to the
clauses are liberally construed to favor arbitration. Thus, in LM Power Engineering jurisdiction of the Arbitration Tribunal in accordance with the arbitration agreement.
Corporation v. Capitol Industrial Construction Groups, Inc., 73 this court said: Moreover, they had already resigned as directors of Shangri-Laat the time of the alleged
default.
Being an inexpensive, speedy and amicable method of settling disputes, arbitration —
along with mediation, conciliation and negotiation — is encouraged by the Supreme Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate
Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of and distinct from Shangri-La.
disputes, especially of the commercial kind. It is thus regarded as the "wave of the future"
in international civil and commercial disputes. Brushing aside a contractual agreement A corporation is an artificial entity created by fiction of law.76 This means that while it is not
calling for arbitration between the parties would be a step backward. a person, naturally, the law gives it a distinct personality and treats it as such. A
corporation, in the legal sense, is an individual with a personality that is distinct and
Consistent with the above-mentioned policy of encouraging alternative dispute resolution separate from other persons including its stockholders, officers, directors,
methods, courts should liberally construe arbitration clauses. Provided such clause is representatives,77 and other juridical entities. The law vests in corporations rights,powers,
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate and attributes as if they were natural persons with physical existence and capabilities to
should be granted. Any doubt should be resolved in favor of arbitration. 74 (Emphasis act on their own.78 For instance, they have the power to sue and enter into transactions or
supplied) contracts. Section 36 of the Corporation Code enumerates some of a corporation’s
powers, thus:
A more clear-cut statement of the state policy to encourage arbitration and to favor
interpretations that would render effective an arbitration clause was later expressed in Section 36. Corporate powers and capacity.– Every corporation incorporated under this
Republic Act No. 9285:75 Code has the power and capacity:

SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to actively 1. To sue and be sued in its corporate name;
promote party autonomy in the resolution of disputes or the freedom of the party to make
their own arrangements to resolve their disputes. Towards this end, the State shall 2. Of succession by its corporate name for the period of time stated in the articles
encourage and actively promote the use of Alternative Dispute Resolution (ADR) as an of incorporation and the certificate ofincorporation;
important means to achieve speedy and impartial justice and declog court dockets. As
such, the State shall provide means for the use of ADR as an efficient tool and an
alternative procedure for the resolution of appropriate cases. Likewise, the State shall 3. To adopt and use a corporate seal;
enlist active private sector participation in the settlement of disputes through ADR. This
Act shall be without prejudice to the adoption by the Supreme Court of any ADR system, 4. To amend its articles of incorporation in accordance with the provisions of this
such as mediation, conciliation, arbitration, or any combination thereof as a means of Code;
achieving speedy and efficient means of resolving cases pending before all courts in the
Philippines which shall be governed by such rules as the Supreme Court may approve 5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or
from time to time. repeal the same in accordance with this Code;

....
 6. In case of stock corporations, to issue or sell stocks to subscribers and to sell A submission to arbitration is a contract. As such, the Agreement, containing the
treasury stocks in accordance with the provisions of this Code; and to admit stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs. But
members to the corporation if it be a non-stock corporation; only they.80 (Citations omitted)

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, Similarly, in Del Monte Corporation-USA v. Court of Appeals, 81 this court ruled:
mortgage and otherwise deal with such real and personal property, including
securities and bonds of other corporations, as the transaction of the lawful The provision to submit to arbitration any dispute arising therefrom and the relationship of
business of the corporation may reasonably and necessarily require, subject to the parties is part of that contract and is itself a contract. As a rule, contracts are
the limitations prescribed by law and the Constitution; respected as the law between the contracting parties and produce effect as between
them, their assigns and heirs. Clearly, only parties to the Agreement . . . are bound by the
8. To enter into merger or consolidation with other corporations as provided in Agreement and its arbitration clause as they are the only signatories thereto. 82 (Citation
this Code; omitted)

9. To make reasonable donations, including those for the public welfare or for This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That Co., Inc.83 and Stanfilco Employees v. DOLE Philippines, Inc., et al.84
no corporation, domestic or foreign, shall give donations in aid of any political
party or candidate or for purposes of partisan political activity; As a general rule, therefore, a corporation’s representative who did not personally bind
himself or herself to an arbitration agreement cannot be forced to participate in arbitration
10. To establish pension, retirement, and other plans for the benefit of its proceedings made pursuant to an agreement entered into by the corporation. He or she is
directors, trustees, officers and employees; and generally not considered a party to that agreement.

11. To exercise such other powers asmay be essential or necessary to carry out However, there are instances when the distinction between personalities of directors,
its purpose or purposes as stated in its articles of incorporation. (13a) officers,and representatives, and of the corporation, are disregarded. We call this piercing
the veil of corporate fiction.
Because a corporation’s existence is only by fiction of law, it can only exercise its rights
and powers through itsdirectors, officers, or agents, who are all natural persons. A Piercing the corporate veil is warranted when "[the separate personality of a corporation]
corporation cannot sue or enter into contracts without them. is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of
an existing obligation, the circumvention of statutes, or to confuse legitimate issues." 85 It is
A consequence of a corporation’s separate personality is that consent by a corporation also warranted in alter ego cases "where a corporation is merely a farce since it is a mere
through its representatives is not consent of the representative, personally. Its obligations, alter ego or business conduit of a person, or where the corporation is so organized and
incurred through official acts of its representatives, are its own. A stockholder, director, or controlled and its affairs are so conducted as to make it merely an instrumentality,
representative does not become a party to a contract just because a corporation executed agency, conduit or adjunct of another corporation." 86
a contract through that stockholder, director or representative.
When corporate veil is pierced, the corporation and persons who are normally treated as
Hence, a corporation’s representatives are generally not bound by the terms of the distinct from the corporation are treated as one person, such that when the corporation is
contract executed by the corporation. They are not personally liable for obligations and adjudged liable, these persons, too, become liable as if they were the corporation.
liabilities incurred on or in behalf of the corporation.
Among the persons who may be treatedas the corporation itself under certain
Petitioners are also correct that arbitration promotes the parties’ autonomy in resolving circumstances are its directors and officers. Section 31 of the Corporation Code provides
their disputes. This court recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty the instances when directors, trustees, or officers may become liable for corporate acts:
Corporation79 that an arbitration clause shall not apply to persons who were neither
parties to the contract nor assignees of previous parties, thus: Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty
of gross negligence or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such directors or trustees shall
be liable jointly and severally for all damages resulting therefrom suffered by the corporate veil, the corporate representatives are treated as the corporation itself and
corporation, its stockholders or members and other persons. should be held liable for corporate acts. The corporation’s distinct personality is
disregarded, and the corporation is seen as a mere aggregation of persons undertaking a
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, business under the collective name of the corporation.
any interest adverse to the corporation in respect of any matter which has been reposed
inhim in confidence, as to which equity imposes a disability upon him to deal in his own Hence, when the directors, as in this case, are impleaded in a case against a corporation,
behalf, he shall be liable as a trustee for the corporation and must account for the profits alleging malice orbad faith on their part in directing the affairs of the corporation,
which otherwise would have accrued to the corporation. (n) complainants are effectively alleging that the directors and the corporation are not acting
as separate entities. They are alleging that the acts or omissions by the corporation that
Based on the above provision, a director, trustee, or officer of a corporation may be made violated their rights are also the directors’ acts or omissions. 90 They are alleging that
solidarily liable with it for all damages suffered by the corporation, its stockholders or contracts executed by the corporation are contracts executed by the directors.
members, and other persons in any of the following cases: Complainants effectively pray that the corporate veilbe pierced because the cause of
action between the corporation and the directors is the same.
a) The director or trustee willfully and knowingly voted for or assented to a
patently unlawful corporate act; In that case, complainants have no choice but to institute only one proceeding against the
parties.1âwphi1 Under the Rules of Court, filing of multiple suits for a single cause of
action is prohibited. Institution of more than one suit for the same cause of action
b) The director or trustee was guilty of gross negligence or bad faith in directing constitutes splitting the cause of action, which is a ground for the dismissal ofthe others.
corporate affairs; and Thus, in Rule 2:

c) The director or trustee acquired personal or pecuniary interest in conflict with Section 3. One suit for a single cause of action. — A party may not institute more than
his or her duties as director or trustee. one suit for a single cause of action. (3a)

Solidary liability with the corporation will also attach in the following instances: Section 4. Splitting a single cause of action;effect of. — If two or more suits are instituted
on the basis of the same cause of action, the filing of one or a judgment upon the merits
a) "When a director or officer has consented to the issuance of watered stocks or in any one is available as a ground for the dismissal of the others. (4a)
who, having knowledge thereof, did not forthwith file with the corporate secretary
his written objection thereto";87 It is because the personalities of petitioners and the corporation may later be found to be
indistinct that we rule that petitioners may be compelled to submit to arbitration.
b) "When a director, trustee or officer has contractually agreed or stipulated to
hold himself personally and solidarily liable with the corporation"; 88 and However, in ruling that petitioners may be compelled to submit to the arbitration
proceedings, we are not overturning Heirs of Augusto Salas wherein this court affirmed
c) "When a director, trustee or officer is made, by specific provision of law, the basic arbitration principle that only parties to an arbitration agreement may be
personally liable for his corporate action." 89 compelled to submit to arbitration. In that case, this court recognizedthat persons other
than the main party may be compelled to submit to arbitration, e.g., assignees and heirs.
When there are allegations of bad faith or malice against corporate directors or Assignees and heirs may be considered parties to an arbitration agreement entered into
representatives, it becomes the duty of courts or tribunals to determine if these persons by their assignor because the assignor’s rights and obligations are transferred to them
and the corporation should be treated as one. Without a trial, courts and tribunals have no upon assignment. In other words, the assignor’s rights and obligations become their own
basis for determining whether the veil of corporate fiction should be pierced. Courts or rights and obligations. In the same way, the corporation’s obligations are treated as the
tribunals do not have such prior knowledge. Thus, the courts or tribunals must first representative’s obligations when the corporate veil is pierced. Moreover, in Heirs of
determine whether circumstances exist towarrant the courts or tribunals to disregard the Augusto Salas, this court affirmed its policy against multiplicity of suits and unnecessary
distinction between the corporation and the persons representing it. The determination of delay. This court said that "to split the proceeding into arbitration for some parties and trial
these circumstances must be made by one tribunal or court in a proceeding participated for other parties would "result in multiplicity of suits, duplicitous procedure and
in by all parties involved, including current representatives of the corporation, and those unnecessary delay."91 This court also intimated that the interest of justice would be best
persons whose personalities are impliedly the sameas the corporation. This is because observed if it adjudicated rights in a single proceeding. 92 While the facts of that case
when the court or tribunal finds that circumstances exist warranting the piercing of the prompted this court to direct the trial court to proceed to determine the issues of thatcase,
it did not prohibit courts from allowing the case to proceed to arbitration, when
circumstances warrant.

Hence, the issue of whether the corporation’s acts in violation of complainant’s rights, and
the incidental issue of whether piercing of the corporate veil is warranted, should be
determined in a single proceeding. Such finding would determine if the corporation is
merely an aggregation of persons whose liabilities must be treated as one with the
corporation.

However, when the courts disregard the corporation’s distinct and separate personality
from its directors or officers, the courts do not say that the corporation, in all instances
and for all purposes, is the same as its directors, stockholders, officers, and agents. It
does not result in an absolute confusion of personalities of the corporation and the
persons composing or representing it. Courts merely discount the distinction and treat
them as one, in relation to a specific act, in order to extend the terms of the contract and
the liabilities for all damages to erring corporate officials who participated in the
corporation’s illegal acts. This is done so that the legal fiction cannot be used to
perpetrate illegalities and injustices.

Thus, in cases alleging solidary liability with the corporation or praying for the piercing of
the corporate veil, parties who are normally treated as distinct individuals should be made
to participate in the arbitration proceedings in order to determine ifsuch distinction should
indeed be disregarded and, if so, to determine the extent of their liabilities.

In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to
prove the existence of circumstances that render petitioners and the other directors
solidarily liable. It ruled that petitioners and Shangri-La’s other directors were not liable for
the contractual obligations of Shangri-La to BF Corporation. The Arbitral Tribunal’s
decision was made with the participation of petitioners, albeit with their continuing
objection. In view of our discussion above, we rule that petitioners are bound by such
decision.

WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006
and resolution of October 5, 2006 are AFFIRMED.

SO ORDERED.