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G.R. No. 128690 January 21, 1999

ABS-CBN BROADCASTING CORPORATION, petitioner,vs.HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and

VICENTE DEL ROSARIO, respondents.

DAVIDE, JR., CJ.:

In this petition for review on certiorari , petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverseand set aside the decision

1 of 31 October 1996 and the resolution

2 of 10 March 1997 of the Court of Appeals in CA-

G.R. CV No. 44125. The former affirmed with modification the decision3 of 28 April 1993 of the Regional Trial Court

(RTC) of Quezon City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to reconsider the

decision of 31 October 1996.

The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:

In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance

with paragraph 2.4 [sic ] of said agreement stating that —.

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecastunder such terms as may be agreed upon by the parties hereto, provided, however, that such right

shall be exercised by ABS-CBN from the actual offer in writing.

Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three(3) film packages (36 title) from which ABS-CBN may exercise its right of firstrefusal under the afore-said agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-Viva). ABS-CBN,

however through Mrs. Concio, "can tick off only ten (10) titles" (from the list) "we can purchase" (Exh."3" - Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by

Mrs. Concio are not the subject of the case at bar except the film ''Maging Sino Ka Man."

For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva) is hereby

quoted:

6 January 1992

Dear Vic,

This is not a very formal business letter I am writing to you as I would like to express my difficulty in

recommending the purchase of the three film packages you are offering ABS-CBN.

From among the three packages I can only tick off 10 titles we can purchase. Please see attached. Ihope you will understand my position. Most of the action pictures in the list do not have big actionstars in the cast. They are not for primetime. In line with this I wish to mention that I have notscheduled for telecast several action pictures in out very first contract because of the cheapproduction value of these movies as well as the lack of big action stars. As a film producer, I am sure

you understand what I am trying to say as Viva produces only big action pictures.

In fact, I would like to request two (2) additional runs for these movies as I can only schedule them inour non-primetime slots. We have to cover the amount that was paid for these movies because as youvery well know that non-primetime advertising rates are very low. These are the unaired titles in the

first contract.

1. Kontra Persa [sic ].

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2. Raider Platoon.

3. Underground guerillas

4. Tiger Command

5. Boy de Sabog

6. Lady Commando

7. Batang Matadero

8. Rebelyon

I hope you will consider this request of mine.

The other dramatic films have been offered to us before and have been rejected because of the ruling

of MTRCB to have them aired at 9:00 p.m. due to their very adult themes.

As for the 10 titles I have choosen [sic ] from the 3 packages please consider including all the other

Viva movies produced last year. I have quite an attractive offer to make.

Thanking you and with my warmest regards.

(Signed)

Charo Santos-

Concio

On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a listconsisting of 52 original movie titles (i .e. not yet aired on television) including the 14 titles subject ofthe present case, as well as 104 re-runs (previously aired on television) from which ABS-CBN maychoose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over thispackage of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cashand P30,000,000.00 worth of television spots (Exh. "4" to "4-C" Viva; "9" -Viva).

On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met atthe Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva. Whattranspired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he andMr. Del Rosario allegedly agreed that ABS-CRN was granted exclusive film rights to fourteen (14)films for a total consideration of P36 million; that he allegedly put this agreement as to the price andnumber of films in a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-

78, June 8, 1992). On the other hand, Del Rosario denied having made any agreement with Lopezregarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something; andinsisted that what he and Lopez discussed at the lunch meeting was Viva's film package offer of 104films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic ]to make acounter proposal which came in the form of a proposal contract Annex "C" of the complaint (Exh. "1"!-

Viva; Exh. "C" - ABS-CBN).

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Financediscussed the terms and conditions of Viva's offer to sell the 104 films, after the rejection of the same

package by ABS-CBN.

On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms.

Concio, (Exh. "5" - Viva), which reads: "Here's the draft of the contract. I hope you find everything inorder," to which was attached a draft exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3)a counter-proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario



and one film was added by Ms. Concio, for a consideration of P35 million. Exhibit "C" provides that ABS-CBN is granted films right to 53 films and contains a right of first refusal to "1992 Viva Films."The said counter proposal was however rejected by Viva's Board of Directors [in the] evening of thesame day, April 7, 1992, as Viva would not sell anything less than the package of 104 films for P60

million pesos (Exh. "9" - Viva), and such rejection was relayed to Ms. Concio.

On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetingsdefendant Del Rosario and Viva's President Teresita Cruz, in consideration of P60 million, signed aletter of agreement dated April 24, 1992. granting RBS the exclusive right to air 104 Viva-producedand/or acquired films (Exh. "7-A" - RBS; Exh. "4" - RBS) including the fourteen (14) films subject of the

present case.4

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ ofpreliminary injunction and/or temporary restraining order against private respondents Republic BroadcastingCorporation

5 (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente Del Rosario. The complaint was

docketed as Civil Case No. Q-92-12309.

On 27 May 1992, RTC issued a temporary restraining order6 enjoining private respondents from proceeding with the

airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film MagingSino Ka Man, which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the

evening of said date.

On 17 June 1992, after appropriate proceedings, the RTC issued anorder

7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond. ABS-

CBN moved for the reduction of the bond,8 while private respondents moved for reconsideration of the order and

offered to put up a counterbound.9

In the meantime, private respondents filed separate answers with counterclaim.10

RBS also set up a cross-claim

against VIVA..

On 3 August 1992, the RTC issued an order11

dissolving the writ of preliminary injunction upon the posting by RBS of

a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution.However, it reduced petitioner's injunction bond to P15 million as a condition precedent for the reinstatement of the

writ of preliminary injunction should private respondents be unable to post a counterbond.

At the pre-trial12

on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the possibility of anamicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30

million counterbond in the event that no settlement would be reached.

As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a counterbond, which the

RTC approved in its Order of 15 October 1992. 13

On 19 October 1992, ABS-CBN filed a motion for reconsideration14

of the 3 August and 15 October 1992 Orders,

which RBS opposed. 15

On 29 October 1992, the RTC conducted a pre-trial.16

Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition 17

challengingthe RTC's Orders of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to

enjoin the RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.

On 3 November 1992, the Court of Appeals issued a temporary restraining order 18

to enjoin the airing, broadcasting,

and televising of any or all of the films involved in the controversy.

On 18 December 1992, the Court of Appeals promulgated a decision19

dismissing the petition in CA -G.R. No. 29300

for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January1993, which was docketed as G.R. No. 108363.



In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on 28 April

1993, it rendered a decision20

in favor of RBS and VIVA and against ABS-CBN disposing as follows:

WHEREFORE, under cool reflection and prescinding from the foregoing, judgments is rendered in

favor of defendants and against the plaintiff.

(1) The complaint is hereby dismissed;

(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:

a) P107,727.00, the amount of premium paid by RBS to the surety

which issued defendant RBS's bond to lift the injunction;

b) P191,843.00 for the amount of print advertisement for "Maging

Sino Ka Man" in various newspapers;

c) Attorney's fees in the amount of P1 million;

d) P5 million as and by way of moral damages;

e) P5 million as and by way of exemplary damages;

(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of

reasonable attorney's fees.

(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.

(5) Plaintiff to pay the costs.

According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreementbetween Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreementwas disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demandthat VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990 FilmExhibition Agreement had previously been exercised per Ms. Concio's letter to Del Rosario ticking off ten titles

acceptable to them, which would have made the 1992 agreement an entirely new contract.

On 21 June 1993, this Court denied 21

ABS-CBN's petition for review in G.R. No. 108363, as no reversible error wascommitted by the Court of Appeals in its challenged decision and the case had "become moot and academic in view of

the dismissal of the main action by the court a quo in its decision" of 28 April 1993.

Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfectedcontract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private

respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional attorney'sfees.

In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN andVIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's agent,might have agreed with Lopez III. The appellate court did not even believe ABS-CBN's evidence that Lopez III actuallywrote down such an agreement on a "napkin," as the same was never produced in court. It likewise rejected ABS-

CBN's insistence on its right of first refusal and ratiocinated as follows:

As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement wasentered into between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that

parag. 1.4 thereof provides:

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVAfilms for TV telecast under such terms as may be agreed upon by the parties hereto,



provided, however, that such right shall be exercised by ABS-CBN within a period of

fifteen (15) days from the actual offer in writing (Records, p. 14).

[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subject tosuch terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by

ABS-CBN within fifteen (15) days from the actual offer in writing.

Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of the filmright to the twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be

agreed upon by the parties.

In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tickoff ten (10) films, and the draft contract Exhibit "C" accepted only fourteen (14) films, while parag. 1.4

of Exhibit "A'' speaks of the next twenty-four (24) films.

The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88;Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to

ABS-CBN. The Vice President of ABS-CBN, Ms. Charo Santos-Concio, sent a letter dated January 6,

1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer ofVIVA.. As aptly observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day period from February27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the letter of Mrs. Concio, stillthe fifteen (15) day period within which ABS-CBN shall exercise its right of first refusal has already

expired.22

Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisementsand the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS hadsuffered as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of

Appeals found reasonable basis therefor, holding that RBS's reputation was debased by the filing of the complaint inCivil Case No. Q-92-12309 and by the non-showing of the film "Maging Sino Ka Man." Respondent court also held thatexemplary damages were correctly imposed by way of example or correction for the public good in view of the filing of

the complaint despite petitioner's knowledge that the contract with VIVA had not been perfected, It also upheld theaward of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was"unnecessarily forced to litigate." The appellate court, however, reduced the awards of moral damages to P2 million,

exemplary damages to P2 million, and attorney's fees to P500, 000.00.

On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not

VIVA which was actually prejudiced when the complaint was filed by ABS-CBN."

Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of Appeals gravely erred in

I

. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER ANDPRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE

ADDUCED BY PETITIONER TO THE CONTRARY.

II

. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE

RESPONDENT RBS.

III

. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENTRBS.



IV

. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.

ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 FilmExhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's

testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of thesecond list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. Italso asserts that the contract has already been effective, as the elements thereof, namely, consent, object, andconsideration were established. It then concludes that the Court of Appeals' pronouncements were not supported bylaw and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of

Appeals,23

which cited Toyota Shaw, Inc. v. Court of Appeals,24

Ang Yu Asuncion v. Court of Appeals,25

and Villonco

Realty Company v. Bormaheco. Inc . 26

Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on thecounterbond of its own volition in order to negate the injunction issued by the trial court after the parties had ventilatedtheir respective positions during the hearings for the purpose. The filing of the counterbond was an option available toRBS, but it can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had another

available option, i .e., move for the dissolution or the injunction; or if it was determined to put up a counterbond, it couldhave presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is alsorequired to exercise the diligence of a good father of a family to minimize the damages resulting from the act oromission. As regards the cost of print advertisements, RBS had not convincingly established that this was a lossattributable to the non showing "Maging Sino Ka Man"; on the contrary, it was brought out during trial that with or

without the case or the injunction, RBS would have spent such an amount to generate interest in the film.

ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. Thecontroversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. Theclaims for such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBNagainst RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of thecomplaint, An award of moral and exemplary damages is not warranted where the record is bereft of any proof that aparty acted maliciously or in bad faith in filing an action.

27 In any case, free resort to courts for redress of wrongs is a

matter of public policy. The law recognizes the right of every one to sue for that which he honestly believes to be hisright without fear of standing trial for damages where by lack of sufficient evidence, legal technicalities, or a differentinterpretation of the laws on the matter, the case would lose ground.

28 One who makes use of his own legal right does

no injury.29

If damage results front the filing of the complaint, it is damnum absque injuria.30

Besides, moral damagesare generally not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the

offending party resulting in social humiliation. 31

As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laiddown in Buan v . Camaganacan

32 that the text of the decision should state the reason why attorney's fees are being

awarded; otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less proved ashaving been committed by, ABS-CBN. It has been held that "where no sufficient showing of bad faith would bereflected in a party' s persistence in a case other than an erroneous conviction of the righteousness of his cause,

attorney's fees shall not be recovered as cost." 33

On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent anymeeting of minds between them regarding the object and consideration of the alleged contract. It affirms that the ABS-CBN's claim of a right of first refusal was correctly rejected by the trial court. RBS insist the premium it had paid for thecounterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up the counterbound due tothe injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid claimagainst RBS and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paidon the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the losswould be equivalent to the cost of money RBS would forego in case the P30 million came from its funds or was

borrowed from banks.

RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "MagingSino Ka Man" because the print advertisements were put out to announce the showing on a particular day and hour onChannel 7, i .e., in its entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement



were good and relevant for the particular date showing, and since the film could not be shown on that particular date

and hour because of the injunction, the expenses for the advertisements had gone to waste.

As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purelyfor the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBNmust be held liable for such damages. Citing Tolentino,

34 damages may be awarded in cases of abuse of rights even if

the act done is not illicit and there is abuse of rights were plaintiff institutes and action purely for the purpose ofharassing or prejudicing the defendant.

In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents RBScitedPeople v . Manero,

35 where it was stated that such entity may recover moral and exemplary damages if it has a good

reputation that is debased resulting in social humiliation. it then ratiocinates; thus:

There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case. WhenRBS was not able to fulfill its commitment to the viewing public to show the film "Maging Sino Ka Man"on the scheduled dates and times (and on two occasions that RBS advertised), it suffered seriousembarrassment and social humiliation. When the showing was canceled, late viewers called up RBS'offices and subjected RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo naman

ilalabas," "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone was not something RBS broughtupon itself. it was exactly what ABS-CBN had planned to happen.

The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the

amount of the award.

The first is that the humiliation suffered by RBS is national extent. RBS operations as a broadcastingcompany is [sic ] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watchtelevision. It is not an exaggeration to state, and it is a matter of judicial notice that almost every otherperson in the country watches television. The humiliation suffered by RBS is multiplied by the numberof televiewers who had anticipated the showing of the film "Maging Sino Ka Man" on May 28 andNovember 3, 1992 but did not see it owing to the cancellation. Added to this are the advertisers whohad placed commercial spots for the telecast and to whom RBS had a commitment in consideration of

the placement to show the film in the dates and times specified.

The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation andinjury are far greater in degree when caused by an entity whose ultimate business objective is to lurecustomers (viewers in this case) away from the competition.

36

For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appealsdo not support ABS-CBN's claim that there was a perfected contract. Such factual findings can no longer be disturbedin this petition for review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue ofdamages and attorneys fees, they adopted the arguments of RBS.

The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and

(2) whether RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees ofP212,000 in favor of VIVA is not assigned as another error.

I.

The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons wherebyone binds himself to give something or to render some service to another

37 for a consideration. there is no contract

unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of

the contract; and (3) cause of the obligation, which is established. 38

A contract undergoes three stages:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at

the moment of agreement of the parties;

(b) perfection or birth of the contract, which is the moment when the parties come to agree on the

terms of the contract; and



(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the

contract.39

Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrencebetween the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract isproduced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must

not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from theproposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection ofthe original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, suchacceptance is not sufficient to generate consent because any modification or variation from the terms of the offer

annuls the offer. 40

When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss thepackage of films, said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition

Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the form of a draft contract proposingexhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no

acceptance of VIVA's offer, for it was met by a counter-offer which substantially varied the terms of the offer.

ABS-CBN's reliance in Limketkai Sons Milling, Inc. v . Court of Appeals

41 and Villonco Realty Company v . Bormaheco, Inc .,

42 is misplaced. In these cases, it was held that an

acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance aslong as "it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether suchrequest is granted or not." This ruling was, however, reversed in the resolution of 29 March 1996,

43 which ruled that

the acceptance of all offer must be unqualified and absolute, i .e., it "must be identical in all respects with that of the

offer so as to produce consent or meeting of the minds."

On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not materialbut merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v . Franklin LifeInsurance Co.

44 that "a vendor's change in a phrase of the offer to purchase, which change does not essentially

change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-

offer."45

However, when any of the elements of the contract is modified upon acceptance, such alteration amounts toa counter-offer.

In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a period ofbargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract, VIVA through its Boardof Directors, rejected such counter-offer, Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority

to do so.

Under Corporation Code, 46

unless otherwise provided by said Code, corporate powers, such as the power; to enterinto contracts; are exercised by the Board of Directors. However, the Board may delegate such powers to either anexecutive committee or officials or contracted managers. The delegation, except for the executive committee, must befor specific purposes,

47 Delegation to officers makes the latter agents of the corporation; accordingly, the general

rules of agency as to the bindings effects of their acts wouldapply.

48 For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter

must specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offerwas best evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's approval. In anyevent, there was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are

instructive:

A number of considerations militate against ABS-CBN's claim that a contract was perfected at that

lunch meeting on April 02, 1992 at the Tamarind Grill.

FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price andthe number of films, which he wrote on a napkin. However, Exhibit "C" contains numerous provisions

which, were not discussed at the Tamarind Grill , if Lopez testimony was to be believed nor could theyhave been physically written on a napkin. There was even doubt as to whether it was a paper napkin



or a cloth napkin. In short what were written in Exhibit "C'' were not discussed, and therefore could nothave been agreed upon, by the parties. How then could this court compel the parties to sign Exhibit

"C" when the provisions thereof were not previously agreed upon?

SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14films. The complaint in fact prays for delivery of 14 films. But Exhibit "C" mentions 53 films as its

subject matter. Which is which If Exhibits "C" reflected the true intent of the parties, then ABS-CBN'sclaim for 14 films in its complaint is false or if what it alleged in the complaint is true, then Exhibit "C"did not reflect what was agreed upon by the parties. This underscores the fact that there was nomeeting of the minds as to the subject matter of the contracts, so as to preclude perfection thereof.For settled is the rule that there can be no contract where there is no object which is its subject matter(Art. 1318, NCC).

THIRD, Mr. Lopez [sic ] answer to question 29 of his affidavit testimony (Exh. "D") states:

We were able to reach an agreement. VIVA gave us the exclusive license to showthese fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00as well as grant Viva commercial slots worth P19,950,000.00. We had already

earmarked this P16, 050,000.00.

which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals

P36,000,000.00).

On cross-examination Mr. Lopez testified:

Q. What was written in this napkin?

A. The total price, the breakdown the known Viva movies, the 7 blockbuster moviesand the other 7 Viva movies because the price was broken down accordingly. Thenone [sic ] Viva and the seven other Viva movies and the sharing between the cash

portion and the concerned spot portion in the total amount of P35 million pesos.

Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.

FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr. DelRosario with a handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-24

June 08, 1992). The said draft has a well defined meaning.

Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared fordiscussion, the terms and conditions thereof could not have been previously agreed upon by ABS-CBN and Viva Exhibit "C'' could not therefore legally bind Viva, not having agreed thereto. In fact, Ms.Concio admitted that the terms and conditions embodied in Exhibit "C" were prepared by ABS-CBN's

lawyers and there was no discussion on said terms and conditions. . . .

As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and there wasno evidence whatsoever that Viva agreed to the terms and conditions thereof, said document cannotbe a binding contract. The fact that Viva refused to sign Exhibit "C" reveals only two [sic ] well that itdid not agree on its terms and conditions, and this court has no authority to compel Viva to agreethereto.

FIFTH. Mr. Lopez understand [sic ] that what he and Mr. Del Rosario agreed upon at the TamarindGrill was only provisional, in the sense that it was subject to approval by the Board of Directors of

Viva. He testified:

Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein

you claimed that you have the meeting of the minds between you and Mr. Vic delRosario, what happened?



A. Vic Del Rosario was supposed to call us up and tell us specifically the result of the

discussion with the Board of Directors.

Q. And you are referring to the so-called agreement which you wrote in [sic ] a piece of

paper?

A. Yes, sir.

Q. So, he was going to forward that to the board of Directors for approval?

A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)

Q. Did Mr. Del Rosario tell you that he will submit it to his Board for approval?

A. Yes, sir. (Tsn, p. 69, June 8, 1992).

The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authorityto bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. Thecomplaint, in fact, alleges that Mr. Del Rosario "is the Executive Producer of defendant Viva" which "isa corporation." (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind Viva unlesswhat he did is ratified by its Board of Directors. (Vicente vs. Geraldez , 52 SCRA 210; Arnoldvs. Willetsand Paterson, 44 Phil. 634). As a mere agent, recognized as such by plaintiff, Del Rosariocould not be held liable jointly and severally with Viva and his inclusion as party defendant has no

legal basis. (Salonga vs. Warner Barner [sic ] , COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).

The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what wassupposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario wasnot a binding agreement. It is as it should be because corporate power to enter into a contract islodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by theViva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid contract

binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence adducedshows that the Board of Directors of Viva rejected Exhibit "C" and insisted that the film package for

140 films be maintained (Exh. "7-1" - Viva ).49

The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previouscontract is untenable. As observed by the trial court, ABS-CBN right of first refusal had already been exercised when

Ms. Concio wrote to VIVA ticking off ten films, Thus:

[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for anentirely different package. Ms. Concio herself admitted on cross-examination to having used orexercised the right of first refusal. She stated that the list was not acceptable and was indeed notaccepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right

of the first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992,pp. 71-75). Del Rosario himself knew and understand [sic ] that ABS-CBN has lost its rights of the first

refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11)50

II

However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII,Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or bystipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he hasduly proved.

51 The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits

that the obligee failed to obtain.52

In contracts and quasi-contracts the damages which may be awarded aredependent on whether the obligor acted with good faith or otherwise, It case of good faith, the damages recoverable

are those which are the natural and probable consequences of the breach of the obligation and which the parties haveforeseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted withfraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably



attributed to the non-performance of the obligation.53

In crimes and quasi-delicts, the defendant shall be liable for alldamages which are the natural and probable consequences of the act or omission complained of, whether or not such

damages has been foreseen or could have reasonably been foreseen by the defendant. 54

Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or

permanent personal injury, or for injury to the plaintiff's business standing or commercial credit. 55

The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose fromthe fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12

of RBS's Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:

12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a result

thereof, RBS suffered actual damages in the amount of P6,621,195.32.56

Needless to state the award of actual damages cannot be comprehended under the above law on actual damages.

RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with

justice, give everyone his due, and observe honesty and good faith.

Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall

indemnify the latter for tile same.

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals,

good customs or public policy shall compensate the latter for the damage.

It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which thedefendant may suffer by reason of the writ are recoverable from the injunctive bond.

57 In this case, ABS-CBN had not

yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the matter, Clearly then, it was not necessary for RBS to file a counterbond. Hence,

ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond.

Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legalbasis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of itsdetermination that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve theinjunction on the ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a

counterbond.

As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as

actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code.58

The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premiumshould be placed on the right to litigate.

59 They are not to be awarded every time a party wins a suit. The power of the

court to award attorney's fees under Article 2208 demands factual, legal, and equitable justification. 60 Even whenclaimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees maynot be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than

erroneous conviction of the righteousness of his cause.61

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereofdefines what are included in moral damages, while Article 2219 enumerates the cases where they may be recovered,

Article 2220 provides that moral damages may be recovered in breaches of contract where the defendant actedfraudulently or in bad faith. RBS's claim for moral damages could possibly fall only under item (10) of Article 2219,

thereof which reads:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.



Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. andnot to impose a penalty on the wrongdoer.

62 The award is not meant to enrich the complainant at the expense of the

defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate thenmoral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual statusquo ante, and should be proportionate to the suffering inflicted.

63 Trial courts must then guard against the award of

exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was

due to passion, prejudice, or corruption on the part of the trial court.64

The award of moral damages cannot be granted in favor of a corporation because, being an artificial person andhaving existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore,experience physical suffering and mental anguish, which call be experienced only by one having a nervoussystem.

65 The statement in People v . Manero

66 and Mambulao Lumber Co. v . PNB

67 that a corporation may recover

moral damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum. On this

score alone the award for damages must be set aside, since RBS is a corporation.

The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These areimposed by way of example or correction for the public good, in addition to moral, temperate, liquidated orcompensatory damages.

68 They are recoverable in criminal cases as part of the civil liability when the crime was

committed with one or more aggravating circumstances;69

in quasi-contracts, if the defendant acted with grossnegligence;70 and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless,

oppressive, or malevolent manner. 71

It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil

Code.

The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which isexercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the generalsanction for all other provisions of law which do not especially provide for their own sanction; while Article 21 dealswith acts contra bonus mores, and has the following elements; (1) there is an act which is legal, (2) but which is

contrary to morals, good custom, public order, or public policy, and (3) and it is done with intent to injure.72

Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious andintentional design to do a wrongful act for a dishonest purpose or moral obliquity.

73 Such must be substantiated by

evidence.74

There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the meritsof its cause after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settledis the rule that the adverse result of an action does not per se make the action wrongful and subject the actor todamages, for the law could not have meant to impose a penalty on the right to litigate. If damages result from a

person's exercise of a right, it is damnum absque injuria. 75

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No,

44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions,Inc.1âwphi1.nêt

No pronouncement as to costs.

SO ORDERED.

[G.R. No. 141994. January 17, 2005]

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-

BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.



D E C I S I O N

CARPIO, J .:

The Case

This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992

Decision[3]

of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals heldFilipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel andordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moraldamages, attorney’s fees and costs of suit.

The Antecedents

“Exposé” is a radio documentary[4]

program hosted by Carmelo ‘Mel’ Rima (“Rima”) and Hermogenes ‘Jun’ Alegre

(“Alegre”).[5]

Exposé is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc.

(“FBNI”). “Exposé” is heard over Legazpi City, the Albay municipalities and other Bicol areas. [6]

In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints fromstudents, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine(“AMEC”) and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago (“Ago”), as

Dean of AMEC’s College of Medicine, filed a complaint for damages[7]

against FBNI, Rima and Alegre on 27 February1990. Quoted are portions of the allegedly libelous broadcasts:

JUN ALEGRE:

Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to pass all

subjects because if they fail in any subject they will repeat their year level, taking up all subjects including those they have

passed already. Several students had approached me stating that they had consulted with the DECS which told them that there is

no such regulation. If [there] is no such regulation why is AMEC doing the same?

xxx

Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS . xxx

Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for

money on the part of AMEC’s administration. Take the subject Anatomy: students would pay for the subject upon enrolment

because it is offered by the school. However there would be no instructor for such subject. Students would be informed that

course would be moved to a later date because the school is still searching for the appropriate instructor.

xxx

It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few years

since its inception because of funds support from foreign foundations. If you will take a look at the AMEC premises you’ll find

out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall?

That is a very concrete and undeniable evidence that the support of foreign foundations for AMEC is substantial, isn’t it? With the

report which is the basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to stop

the flow of support of foreign foundations who assist the medical school on the basis of the latter’s purpose. But if the purpose of

the institution (AMEC) is to deceive students at cross purpose with its reason for being it is possible for these foreign foundations

to lift or suspend their donations temporarily.[8]

xxx

On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of MassCommunication in their effort to minimize expenses in terms of salary are absorbing or continues to accept “rejects”. For



example how many teachers in AMEC are former teachers of Aquinas University but were removed because of immorality? Does

it mean that the present administration of AMEC have the total definite moral foundation from catholic administrator of Aquinas

University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not merely of moral and physical

misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family

name implies. She is too old to work, being an old woman. Is the AMEC administration exploiting the very [e]nterprising or

compromising and undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she is very

old. As in atmospheric situation – zero visibility – the plane cannot land, meaning she is very old, low pay follows. By the way,Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had retired from Bicol University a long

time ago but AMEC has patiently made use of her.

xxx

MEL RIMA:

xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean?

Immoral and physically misfits as teachers.

May I say I’m sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too

old. As an aviation, your case is zero visibility. Don’t insist.

xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is

practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the ingredient of beetle

juice. The elderly can get by – that’s why she (Lola) was taken in as Dean.

xxx

xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When

they become members of society outside of campus will be liabilities rather than assets. What do you expect from a doctor

who while studying at AMEC is so much burdened with unreasonable imposition? What do you expect from a student who aside

from peculiar problems – because not all students are rich – in their struggle to improve their social status are even more burdened

with false regulations. xxx

[9]

(Emphasis supplied)

The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposés, FBNI,Rima and Alegre “transmitted malicious imputations, and as such, destroyed plaintiffs’ (AMEC and Ago)reputation.” AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selectionand supervision of its employees, particularly Rima and Alegre.

On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer [10]

alleging that the

broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by asense of public duty to report the “goings-on in AMEC, [which is] an institution imbued with public interest.”

Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea,collaborating counsel of Atty. Lozares, filed a Motion to Dismiss

[11]on FBNI’s behalf. The trial court denied the motion

to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and

supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file anapplication; (2) be interviewed; and (3) undergo an apprenticeship and training program after passing theinterview. FBNI likewise claimed that it always reminds its broadcasters to “observe truth, fairness and objectivity intheir broadcasts and to refrain from using libelous and indecent language.” Moreover, FBNI requires all broadcasters

to pass the Kapisanan ng mga Brodkaster sa Pilipinas (“KBP”) accreditation test and to secure a KBP permit.

On 14 December 1992, the trial court rendered a Decision[12]

finding FBNI and Alegre liable for libel except Rima.

The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters’ claim that their

utterances were the result of straight reporting because it had no factual basis. The broadcasters did not even verifytheir reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failedto exercise diligence in the selection and supervision of its employees.

In absolving Rima from the charge, the trial court ruled that Rima’s only participation was when he agreed with

Alegre’s exposé. The trial court found Rima’s statement within the “bounds of freedom of speech, expression, and ofthe press.” The dispositive portion of the decision reads:



WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by the

controversial utterances, which are not found by this court to be really very serious and damaging, and there being no

showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes “Jun” Alegre, Jr. and Filipinas

Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical

and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages,

plus P30,000.00 reimbursement of attorney’s fees, and to pay the costs of suit.

SO ORDERED. [13]

(Emphasis supplied)

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed thedecision to the Court of Appeals. The Court of Appeals affirmed the trial court’s judgment with modification. Theappellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Ago’s claim for damagesand attorney’s fees because the broadcasts were directed against AMEC, and not against her. The dispositive portionof the Court of Appeals’ decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima

is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.

SO ORDERED.[14]

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January2000 Resolution.

Hence, FBNI filed this petition.[15]

The Ruling of the Court of Appeals

The Court of Appeals upheld the trial court’s ruling that the questioned broadcasts are libelous per se and thatFBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and

Alegre’s claim that they were actuated by their moral and social duty to inform the public of the students’ gripes asinsufficient to justify the utterance of the defamatory remarks.

Finding no factual basis for the imputations against AMEC’s administrators, the Court of Appeals ruled that thebroadcasts were made “with reckless disregard as to whether they were true or false.” The appellate court pointed outthat FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained against AMEC.Rima and Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals,these circumstances cast doubt on the veracity of the broadcasters’ claim that they were “impelled by their moral andsocial duty to inform the public about the students’ gripes.”

The Court of Appeals found Rima also liable for libel since he remarked that “(1) AMEC-BCCM is a dumpingground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimizeexpenses on its employees’ salaries; and (3) AMEC burdened the students with unreasonable imposition and falseregulations.”

[16]

The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of itsemployees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. TheCourt of Appeals denied Ago’s claim for damages and attorney’s fees because the libelous remarks were directedagainst AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay

AMEC moral damages, attorney’s fees and costs of suit.

Issues

FBNI raises the following issues for resolution:

I. WHETHER THE BROADCASTS ARE LIBELOUS;

II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;



III. WHETHER THE AWARD OF ATTORNEY’S FEES IS PROPER; and

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL

DAMAGES, ATTORNEY’S FEES AND COSTS OF SUIT.

The Court’s Ruling

We deny the petition.

This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against AMEC.

[17] While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that

AMEC’s cause of action is based on Articles 30 and 33 of the Civil Code. Article 30[18]

authorizes a separate civil

action to recover civil liability arising from a criminal offense. On the other hand, Article 33[19]

particularly provides that

the injured party may bring a separate civil action for damages in cases of defamation, fraud, and physical

injuries. AMEC also invokes Article 19[20]

of the Civil Code to justify its claim for damages. AMEC cites Articles

2176[21]

and 2180[22]

of the Civil Code to hold FBNI solidarily liable with Rima and Alegre.

I.

Whether the broadcasts are libelous

A libel[23]

is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act oromission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or

juridical person, or to blacken the memory of one who is dead.[24]

There is no question that the broadcasts were made public and imputed to AMEC defects or circumstancestending to cause it dishonor, discredit and contempt. Rima and Alegre’s remarks such as “greed for money on the partof AMEC’s administrators”; “AMEC is a dumping ground, garbage of xxx moral and physical misfits”; and AMEC

students who graduate “will be liabilities rather than assets” of the society are libelous per se. Taken as a whole, thebroadcasts suggest that AMEC is a money-making institution where physically and morally unfit teachers abound.

However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainlyimpelled by their civic duty to air the students’ gripes. FBNI alleges that there is no evidence that ill will or spitemotivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts toobtain AMEC’s side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that sincethere is no malice, there is no libel.

FBNI’s contentions are untenable.

Every defamatory imputation is presumed malicious.[25]

Rima and Alegre failed to show adequately their goodintention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public

affairs program, Rima and Alegre should have presented the public issues “free from inaccurate and misleading

information.”[26]

Hearing the students’ alleged complaints a month before the exposé,[27]

they had sufficient time toverify their sources and information. However, Rima and Alegre hardly made a thorough investigation of the students’

alleged gripes. Neither did they inquire about nor confirm the purported irregularities in AMEC from the Department ofEducation, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged AMECofficial who refused to disclose any information. Alegre simply relied on the words of the students “because they were

many and not because there is proof that what they are saying is true.”[28]

This plainly shows Rima and Alegre’sreckless disregard of whether their report was true or not.

Contrary to FBNI’s claim, the broadcasts were not “the result of straight reporting.” Significantly, some courts inthe United States apply the privilege of “neutral reportage” in libel cases involving matters of public interest or public

figures. Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory statements

made against public figures is shielded from liability, regardless of the republisher’s subjective awareness of the truth

or falsity of the accusation.[29]

Rima and Alegre cannot invoke the privilege of neutral reportage because unfoundedcomments abound in the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcastswere made. The privilege of neutral reportage applies where the defamed person is a public figure who is involved in

an existing controversy, and a party to that controversy makes the defamatory statement. [30]



However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of

Appeals,[31]

FBNI contends that the broadcasts “fall within the coverage of qualifiedly privileged communications” for

being commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or actualmalice. Since AMEC allegedly failed to prove actual malice, there is no libel.

FBNI’s reliance on Borjal is misplaced. In Borjal , the Court elucidated on the “doctrine of fair comment,” thus:

[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The

doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed false, because every

man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when

the discreditable imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order that

such discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a

comment based on a false supposition. If the comment is an expression of opinion, based on established facts, then it is

immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.[32]

(Emphasis

supplied)

True, AMEC is a private learning institution whose business of educating students is “genuinely imbued withpublic interest.” The welfare of the youth in general and AMEC’s students in particular is a matter which the public has

the right to know. Thus, similar to the newspaper articles in Borjal , the subject broadcasts dealt with matters of public

interest. However, unlike in Borjal , the questioned broadcasts are not based on established facts. The recordsupports the following findings of the trial court:

xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet,

defendants have not presented in court, nor even gave name of a single student who made the complaint to them, much less

present written complaint or petition to that effect. To accept this defense of defendants is too dangerous because it could easily

give license to the media to malign people and establishments based on flimsy excuses that there were reports to them although

they could not satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is inimical to

public interests.

Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not verify and

analyze the truth of the reports before they aired it, in order to prove that they are in good faith.

Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff

produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast,

accreditation to offer Physical Therapy course had already been given the plaintiff, which certificate is signed by no less than the

Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this

were they careful enough to verify. And yet, defendants were very categorical and sounded too positive when they made the

erroneous report that plaintiff had no permit to offer Physical Therapy courses which they were offering.

The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to be true

also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given the name

Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs’ religion, as explained by Dr. Lita

Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received by plaintiff school from the

aforementioned McDonald Foundation which does not exist.

Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in one

subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim that the school

charges laboratory fees even if there are no laboratories in the school. No evidence was presented to prove the bases for these

claims, at least in order to give semblance of good faith.

As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean Justita

Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75

years old. xxx Even older people prove to be effective teachers like Supreme Court Justices who are still very much in demand as

law professors in their late years. Counsel for defendants is past 75 but is found by this court to be still very sharp and

effective. So is plaintiffs’ counsel.

Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.



The contention that plaintiffs’ graduates become liabilities rather than assets of our society is a mere conclusion. Being from the

place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board examination easily and become

prosperous and responsible professionals.[33]

Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion

happens to be mistaken, as long as it might reasonably be inferred from the facts.[34]

However, the comments of Rima

and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se.

The broadcasts also violate the Radio Code[35]

of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (“RadioCode”). Item I(B) of the Radio Code provides:

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES

1. x x x

4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and

misleading information. x x x Furthermore, the station shall strive to present balanced discussion of issues. x x x.

x x x

7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary

programs so that they conform to the provisions and standards of this code.

8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general

welfare and good order in the presentation of public affairs and public issues.[36]

(Emphasis supplied)

The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethicalconduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conductimposed by the radio broadcast industry on its own members. The Radio Code is a public warranty by the radiobroadcast industry that radio broadcast practitioners are subject to a code by which their conduct are measured for

lapses, liability and sanctions.The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of

their profession, just like other professionals. A professional code of conduct provides the standards for determiningwhether a person has acted justly, honestly and with good faith in the exercise of his rights and performance of hisduties as required by Article 19

[37] of the Civil Code. A professional code of conduct also provides the standards for

determining whether a person who willfully causes loss or injury to another has acted in a manner contrary to morals

or good customs under Article 21[38]

of the Civil Code.

II.

Whether AMEC is entitled to moral damages

FBNI contends that AMEC is not entitled to moral damages because it is a corporation.[39]

A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannotexperience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral

shock.[40]

The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al .[41]

to justify the award of moral

damages. However, the Court’s statement in Mambulao that “a corporation may have a good reputation which, ifbesmirched, may also be a ground for the award of moral damages” is anobiter dictum.

[42]

Nevertheless, AMEC’s claim for moral damages falls under item 7 of Article 2219[43]

of the Civil Code. This

provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form ofdefamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridicalperson such as a corporation can validly complain for libel or any other form of defamation and claim for moraldamages.

[44]

Moreover, where the broadcast is libelous per se, the law implies damages.[45]

In such a case, evidence of an

honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages.[46]

Neitherin such a case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the



recovery of some damages.[47]

In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moraldamages.

However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the

broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation.

Therefore, we reduce the award of moral damages from P300,000 to P150,000.

III. Whether the award of attorney’s fees is proper

FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorney’s

fees. FBNI adds that the instant case does not fall under the enumeration in Article 2208[48]

of the Civil Code.

The award of attorney’s fees is not proper because AMEC failed to justify satisfactorily its claim for attorney’sfees. AMEC did not adduce evidence to warrant the award of attorney’s fees. Moreover, both the trial and appellate

courts failed to explicitly state in their respective decisions the rationale for the award of attorney’s fees.[49]

In Inter-

Asia Investment Industries, Inc. v. Court of Appeals,[50]

we held that:

[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsel’s fees

are not to be awarded every time a party wins a suit. The power of the court to award attorney’s fees under Article 2208 of

the Civil Code demands factual, legal and equitable justification, without which the award is a conclusion without a

premise, its basis being improperly left to speculation and conjecture. In all events, the court must explicitly state in the text

of the decision, and not only in the decretal portion thereof, the legal reason for the award of attorney’s fees.[51]

(Emphasis

supplied)

While it mentioned about the award of attorney’s fees by stating that it “lies within the discretion of the court anddepends upon the circumstances of each case,” the Court of Appeals failed to point out any circumstance to justify theaward.

IV.

Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorney’s fees

and costs of suit

FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorney’s feesbecause it exercised due diligence in the selection and supervision of its employees, particularly Rima and

Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a “very regimented process” beforethey are allowed to go on air. “Those who apply for broadcaster are subjected to interviews, examinations and anapprenticeship program.”

FBNI further argues that Alegre’s age and lack of training are irrelevant to his competence as abroadcaster. FBNI points out that the “minor deficiencies in the KBP accreditation of Rima and Alegre do not in any

way prove that FBNI did not exercise the diligence of a good father of a family in selecting and supervisingthem.” Rima’s accreditation lapsed due to his non-payment of the KBP annual fees while Alegre’s accreditation cardwas delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership in the KBP ismerely voluntary and not required by any law or government regulation.

FBNI’s arguments do not persuade us.

The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they

commit.[52]

Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance,

cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit.[53]

Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.

As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arisingfrom the libelous broadcasts. As stated by the Court of Appeals, “recovery for defamatory statements published by

radio or television may be had from the owner of the station, a licensee, the operator of the station, or a personwho procures, or participates in, the making of the defamatory statements.”[54]

An employer and employee are

solidarily liable for a defamatory statement by the employee within the course and scope of his or her employment, at



least when the employer authorizes or ratifies the defamation.[55]

In this case, Rima and Alegre were clearly performingtheir official duties as hosts of FBNI’s radio program Exposé when they aired the broadcasts. FBNI neither alleged norproved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing thatFBNI did not authorize and ratify the defamatory broadcasts.

Moreover, there is insufficient evidence on record that FBNI exercised due diligence in

the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that it exercised

diligence in the selection of its broadcasters without introducing any evidence to prove that it observed the same

diligence in the supervisionof Rima and Alegre. FBNI did not show how it exercised diligence in supervising its

broadcasters. FBNI’s alleged constant reminder to its broadcasters to “observe truth, fairness and objectivity and torefrain from using libelous and indecent language” is not enough to prove due diligence in the supervision of itsbroadcasters. Adequate training of the broadcasters on the industry’s code of conduct, sufficient information on libellaws, and continuous evaluation of the broadcasters’ performance are but a few of the many ways of showingdiligence in the supervision of broadcasters.

FBNI claims that it “has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in

mind their qualifications.” However, no clear and convincing evidence shows that Rima and Alegre underwent FBNI’s“regimented process” of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP

accreditation,[56]

which is one of FBNI’s requirements before it hires a broadcaster. Significantly, membership in theKBP, while voluntary, indicates the broadcaster’s strong commitment to observe the broadcast industry’s rules and

regulations. Clearly, these circumstances show FBNI’s lack of diligence in selecting and supervising Rima and Alegre.Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.

WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral

damages is reduced from P300,000 to P150,000 and the award of attorney’s fees is deleted. Costs against petitioner.

SO ORDERED.

G.R. No. 131723 December 13, 2007

MANILA ELECTRIC COMPANY, petitioner,vs.T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT

PACIFIC CORPORATION; and ULTRA ELECTRONICS INSTRUMENTS, INC., respondents.

D E C I S I O N

NACHURA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision1 of

the Court of Appeals (CA) dated June 18, 1997 and its Resolution2 dated December 3, 1997 in CA-G.R. CV No. 40282

denying the appeal filed by petitioner Manila Electric Company.

The facts of the case, as culled from the records, are as follows:

Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines), Inc. before1982 and National Semi-Conductors (Phils.) before 1988. TEC is wholly owned by respondent Technology Electronics

Assembly and Management Pacific Corporation (TPC). On the other hand, petitioner Manila Electric Company

(Meralco) is a utility company supplying electricity in the Metro Manila area.

Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, were parties to twoseparate contracts denominated as Agreements for the Sale of Electric Energy under the following account numbers:

09341-1322-163 and 09341-1812-13.4 Under the aforesaid agreements, petitioner undertook to supply TEC's building

known as Dyna Craft International Manila (DCIM) located at Electronics Avenue, Food Terminal Complex, Taguig,Metro Manila, with electric power. Another contract was entered into for the supply of electric power to TEC's NS

Building under Account No. 19389-0900-10.



In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a Contract of

Lease5 with respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the former's DCIM building for a period offive years or until September 1991. Ultra was, however, ejected from the premises on February 12, 1988 by virtue of a

court order, for repeated violation of the terms and conditions of the lease contract.

On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric meters

installed at the DCIM building, witnessed by Ultra's6 representative, Mr. Willie Abangan. The two meters covered byaccount numbers 09341-1322-16 and 09341-1812-13, were found to be allegedly tampered with and did not registerthe actual power consumption in the building. The results of the inspection were reflected in the Service Inspection

Reports7 prepared by the team.

In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and demanded from thelatter the payment of P7,040,401.01 representing its unregistered consumption from February 10, 1986 untilSeptember 28, 1987, as a result of the alleged tampering of the meters. 8 TEC received the letters on January 7, 1988.

Since Ultra was in possession of the subject building during the covered period, TEC's Managing Director, Mr. Bobby

Tan, referred the demand letter to Ultra9 which, in turn, informed TEC that its Executive Vice-President had met withpetitioner's representative. Ultra further intimated that assuming that there was tampering of the meters, petitioner's

assessment was excessive.10 For failure of TEC to pay the differential billing, petitioner disconnected the electricity

supply to the DCIM building on April 29, 1988.

TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the allegedtampering but the latter refused to heed the demand. Hence, TEC filed a complaint on May 27, 1988 before the

Energy Regulatory Board (ERB) praying that electric power be restored to the DCIM building. 11 The ERB immediatelyordered the reconnection of the service but petitioner complied with it only on October 12, 1988 after TECpaid P1,000,000.00, under protest. The complaint before the ERB was later withdrawn as the parties deemed it best tohave the issues threshed out in the regular courts. Prior to the reconnection, or on June 7, 1988, petitioner conducted

a scheduled inspection of the questioned meters and found them to have been tampered anew. 12

Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's NS Building. The inspectionallegedly revealed that the electric meters were not registering the correct power consumption. Petitioner, thus, sent a

letter dated June 18, 1988 demanding payment of P280,813.72 representing the differential billing. 13TEC denied

petitioner's allegations and claim in a letter dated June 29, 1988.14 Petitioner, thus, sent TEC another letter demandingpayment of the aforesaid amount, with a warning that the electric service would be disconnected in case of continued

refusal to pay the differential billing.15 To avert the impending disconnection of electrical service, TEC paid the above

amount, under protest.16

On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner and Ultra 17 before the Regional

Trial Court (RTC) of Pasig. The case was raffled to Branch 162 and was docketed as Civil Case No. 56851.18 Upon the

filing of the parties' answer to the complaint, pre-trial was scheduled.

At the pre-trial, the parties agreed to limit the issues, as follows:

1. Whether or not the defendant Meralco is liable for the plaintiffs' disconnection of electric service at DCIM

Building.

2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in the amount

ofP7,040,401.01.

3. Whether or not the plaintiff is liable to defendant for exemplary damages.19

For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992, the trial courtrendered a Decision in favor of respondents TEC and TPC, and against respondent Ultra and petitioner. The pertinentportion of the decision reads:

WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the defendants

as follows:



(1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to jointly and severallyreimburse plaintiff TEC actual damages in the amount of ONE MILLION PESOS with legal rate ofinterest from the date of the filing of this case on January 19, 1989 until the said amount shall have

been fully paid;

(2) Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72 as actual damages

with legal rate of interest also from January 19, 1989;

(3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as actual damages

with interest at legal rate from January 19, 1989;

(4) Condemning defendant Meralco to pay both plaintiffs moral damages in the amount

pfP500,000.00;

(5) Condemning defendant Meralco to pay both plaintiffs corrective and/or exemplary damages in the

amount of P200,000.00;

(6) Ordering defendant Meralco to pay attorney's fees in the amount of P200,000.00

Costs against defendant Meralco.

SO ORDERED.20

The trial court found the evidence of petitioner insufficient to prove that TEC was guilty of tampering the meterinstallations. The deformed condition of the meter seal and the existence of an opening in the wire duct leading to thetransformer vault did not, in themselves, prove the alleged tampering, especially since access to the transformer was

given only to petitioner's employees.21 The sudden drop in TEC's (or Ultra's) electric consumption did not, per se, showmeter tampering. The delay in the sending of notice of the results of the inspection was likewise viewed by the court asevidence of inefficiency and arbitrariness on the part of petitioner. More importantly, petitioner's act of disconnecting

the DCIM building's electric supply constituted bad faith and thus makes it liable for damages.22 The court further

denied petitioner's claim of differential billing primarily on the ground of equitable negligence.23

Considering that TECand TPC paid P1,000,000.00 to avert the disconnection of electric power; and because Ultra manifested to settle theclaims of petitioner, the court imposed solidary liability on both Ultra and petitioner for the payment of

the P1,000,000.00.

Ultra and petitioner appealed to the CA which affirmed the RTC decision, with a modification of the amount of actual

damages and interest thereon. The dispositive portion of the CA decision dated June 18, 1997, states:

WHEREFORE, this Court renders judgment affirming in toto the Decision rendered by the trial court with theslight modification that the interest at legal rate shall be computed from January 13, 1989 and that Meralcoshall pay plaintiff T.E.A.M. Electronics Corporation and Technology Electronics Assembly and ManagementPacific Corporation the sum of P150,000.00 per month for five (5) months for actual damages incurred when it

was compelled to lease a generator set with interest at the legal rate from the above-stated date.

SO ORDERED.24

The appellate court agreed with the RTC's conclusion. In addition, it considered petitioner negligent for failing todiscover the alleged defects in the electric meters; in belatedly notifying TEC and TPC of the results of the inspection;

and in disconnecting the electric power without prior notice.

Petitioner now comes before this Court in this petition for review on certiorari contending that:

The Court of Appeals committed grievous errors and decided matters of substance contrary to law and the

rulings of this Honorable Court:

1. In finding that the issue in the case is whether there was deliberate tampering of the metering installations

at the building owned by TEC.



2. In not finding that the issue is: whether or not, based on the tampered meters, whether or not petitioner is

entitled to differential billing, and if so, how much.

3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and convincing evidence

that with respect to the tampered meters that TEC and/or TPC authored their tampering.

4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for the acts of Ultra.

5. In finding that TEC should not be held liable for the tampering of this electric meter in its DCIM Building.

6. In finding that there was no notice of disconnection.

7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged tampering.

8. In making the finding that it is difficult to believe that when petitioner MERALCO inspected on June 7, 1988

the meter installations, they were found to be tampered.

9. In declaring that petitioner MERALCO estopped from claiming any tampering of the meters.

10. In finding that "the method employed by MERALCO to as certain (sic) the 'correct' amount of electricity

consumed is questionable";

11. In declaring that MERALCO all throughout its dealings with TEC took on an "attitude" which is oppressive,

wanton and reckless.

12. In declaring that MERALCO acted arbitrarily in inspecting TEC's DCIM building and the NS building.

13. In declaring that respondents TEC and TPC are entitled to the damages which it awarded.

14. In not declaring that petitioner is entitled to the differential bill.

15. In not declaring that respondents are liable to petitioner for exemplary damages, attorney's fee and

expenses for litigation.25

The petition must fail.

The issues for resolution can be summarized as follows: 1) whether or not TEC tampered with the electric metersinstalled at its DCIM and NS buildings; 2) If so, whether or not it is liable for the differential billing as computed bypetitioner; and 3) whether or not petitioner was justified in disconnecting the electric power supply in TEC's DCIMbuilding.

Petitioner insists that the tampering of the electric meters installed at the DCIM and NS buildings owned by respondentTEC has been established by overwhelming evidence, as specifically shown by the shorting devices found during the

inspection. Thus, says petitioner, tampering of the meter is no longer an issue.

It is obvious that petitioner wants this Court to revisit the factual findings of the lower courts. Well-established is thedoctrine that under Rule 45 of the Rules of Court, only questions of law, not of fact, may be raised before the Court.We would like to stress that this Court is not a trier of facts and may not re-examine and weigh anew the respectiveevidence of the parties. Factual findings of the trial court, especially those affirmed by the Court of Appeals, arebinding on this Court.26

Looking at the record, we note that petitioner claims to have discovered three incidences of meter-tampering; twice in

the DCIM building on September 28, 1987 and June 7, 1988; and once in the NS building on April 24, 1988.

The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found the presence ofa short circuiting device and saw that the meter seal was deformed. In addition, petitioner, through the Supervising



Engineer of its Special Billing Analysis Department,27 claimed that there was a sudden and unexplainable drop inTEC's electrical consumption starting February 10, 1986. On the basis of the foregoing, petitioner concluded that the

electric meters were tampered with.

However, contrary to petitioner's claim that there was a drastic and unexplainable drop in TEC's electric consumption

during the affected period, the Pattern of TEC's Electrical Consumption28 shows that the sudden drop is not peculiar to

the said period. Noteworthy is the observation of the RTC in this wise:

In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as evidenced by Exhibits"35" and "35-A," there was likewise a sudden drop of electrical consumption from the year 1984 whichrecorded an average 141,300 kwh/month to 1985 which recorded an average kwh/month at 87,600 or adifference-drop of 53,700 kwh/month; from 1985's 87,600 recorded consumption, the same dropped to 18,600kwh/month or a difference-drop of 69,000 kwh/month. Surely, a drop of 53,700 could be equally categorized

as a sudden drop amounting to 69,000 which, incidentally, the Meralco claimed as "unexplainable. x x x.29

The witnesses for petitioner who testified on the alleged tampering of the electric meters, declared that tampering iscommitted by consumers to prevent the meter from registering the correct amount of electric consumption, and resultin a reduced monthly electric bill, while continuing to enjoy the same power supply. Only the registration of actual

electric energy consumption, not the supply of electricity, is affected when a meter is tampered with.

30

The witnessesclaimed that after the inspection, the tampered electric meters were corrected, so that they would register the correctconsumption of TEC. Logically, then, after the correction of the allegedly tampered meters, the customer's registered

consumption would go up.

In this case, the period claimed to have been affected by the tampered electric meters is from February 1986 until

September 1987. Based on petitioner's Billing Record31 (for the DCIM building), TEC's monthly electric consumption

on Account No. 9341-1322-16 was between 4,500 and 27,000 kwh.32 Account No. 9341-1812-13 showed a monthly

consumption between 9,600 and 34,200 kwh.33 It is interesting to note that, after correction of the allegedly tamperedmeters, TEC's monthly electric consumption from October 1987 to February 1988 (the last month that Ultra occupiedthe DCIM building) was between 8,700 and 24,300 kwh in its first account, and 16,200 to 46,800 kwh on the second

account.

Even more revealing is the fact that TEC's meters registered 9,300 kwh and 19,200 kwh consumption on the first andsecond accounts, respectively, a month prior to the inspection. On the first month after the meters were corrected,TEC's electric consumption registered at 9,300 kwh and 22,200 kwh on the respective accounts. These figures clearlyshow that there was no palpably drastic difference between the consumption before and after the inspection, casting acloud of doubt over petitioner's claim of meter-tampering. Indeed, Ultra's explanation that the corporation was losing;thus, it had lesser consumption of electric power appear to be the more plausible reason for the drop in electric

consumption.

Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988, they were found tohave been tampered anew. The Court notes that prior to the inspection, TEC was informed about it; and monthsbefore the inspection, there was an unsettled controversy between TEC and petitioner, brought about by thedisconnection of electric power and the non-payment of differential billing. We are more disposed to accept the trial

court's conclusion that it is hard to believe that a customer previously apprehended for tampered meters andassessed P7 million would further jeopardize itself in the eyes of petitioner.34 If it is true that there was evidence oftampering found on September 28, 1987 and again on June 7, 1988, the better view would be that the defectivemeters were not actually corrected after the first inspection. If so, then Manila Electric Company v. Macro Textile Mills

Corporation35 would apply, where we said that we cannot sanction a situation wherein the defects in the electric meter

are allowed to continue indefinitely until suddenly, the public utilities demand payment for the unrecorded electricityutilized when they could have remedied the situation immediately. Petitioner's failure to do so may encourage neglectof public utilities to the detriment of the consuming public. Corollarily, it must be underscored that petitioner has theimperative duty to make a reasonable and proper inspection of its apparatus and equipment to ensure that they do notmalfunction, and the due diligence to discover and repair defects therein. Failure to perform such duties constitutes

negligence.36 By reason of said negligence, public utilities run the risk of forfeiting amounts originally due from their

customers.37



As to the alleged tampering of the electric meter in TEC's NS building, suffice it to state that the allegation was notproven, considering that the meters therein were enclosed in a metal cabinet the metal seal of which was unbroken,

with petitioner having sole access to the said meters.38

In view of the negative finding on the alleged tampering of electric meters on TEC's DCIM and NS buildings,petitioner's claim of differential billing was correctly denied by the trial and appellate courts. With greater reason,

therefore, could petitioner not exercise the right of immediate disconnection.

The law in force at the time material to this controversy was Presidential Decree (P.D.) No. 40139 issued on March 1,

1974.40 The decree penalized unauthorized installation of water, electrical or telephone connections and such acts as

the use of tampered electrical meters. It was issued in answer to the urgent need to put an end to illegal activities that

prejudice the economic well-being of both the companies concerned and the consuming public.41 P.D. 401 granted the

electric companies the right to conduct inspections of electric meters and the criminal prosecution42of erring

consumers who were found to have tampered with their electric meters. It did not expressly provide for more expedientremedies such as the charging of differential billing and immediate disconnection against erring consumers. Thus,electric companies found a creative way of availing themselves of such remedies by inserting into their servicecontracts (or agreements for the sale of electric energy) a provision for differential billing with the option ofdisconnection upon non-payment by the erring consumer. The Court has recognized the validity of such

stipulations.43 However, recourse to differential billing with disconnection was subject to the prior requirement of a 48-

hour written notice of disconnection.44

Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true thatpetitioner sent a demand letter to TEC for the payment of differential billing, it did not include any notice that theelectric supply would be disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 andRevised General Order No. 1 by outrightly depriving TEC of electrical services without first notifying it of the impending

disconnection. Accordingly, the CA did not err in affirming the RTC decision.

As to the damages awarded by the CA, we deem it proper to modify the same. Actual damages are compensation foran injury that will put the injured party in the position where it was before the injury. They pertain to such injuries orlosses that are actually sustained and susceptible of measurement. Except as provided by law or by stipulation, aparty is entitled to adequate compensation only for such pecuniary loss as is duly proven. Basic is the rule that to

recover actual damages, not only must the amount of loss be capable of proof; it must also be actually proven with areasonable degree of certainty, premised upon competent proof or the best evidence obtainable. 45

Respondent TEC sufficiently established, and petitioner in fact admitted, that the former paid P1,000,000.00andP280,813.72 under protest, the amounts representing a portion of the latter's claim of differential billing. With thefinding that no tampering was committed and, thus, no differential billing due, the aforesaid amounts should bereturned by petitioner, with interest, as ordered by the Court of Appeals and pursuant to the guidelines set forth by theCourt.46

However, despite the appellate court's conclusion that no tampering was committed, it held Ultra solidarily liable withpetitioner for P1,000,000.00, only because the former, as occupant of the building, promised to settle the claims of thelatter. This ruling is erroneous. Ultra's promise was conditioned upon the finding of defect or tampering of the meters. It

did not acknowledge any culpability and liability, and absent any tampered meter, it is absurd to make the lawfuloccupant liable. It was petitioner who received the P1 million; thus, it alone should be held liable for the return of the

amount.

TEC also sufficiently established its claim for the reimbursement of the amount paid as rentals for the generator set itwas constrained to rent by reason of the illegal disconnection of electrical service. The official receipts and purchaseorders submitted by TEC as evidence sufficiently show that such rentals were indeed made. However, the amountof P150,000.00 per month for five months, awarded by the CA, is excessive. Instead, a total sum ofP150,000.00, as

found by the RTC, is proper.

As to the payment of exemplary damages and attorney's fees, we find no cogent reason to disturb the same.Exemplary damages are imposed by way of example or correction for the public good in addition to moral, temperate,

liquidated, or compensatory damages.47 In this case, to serve as an example – that before a disconnection of electrical

supply can be effected by a public utility, the requisites of law must be complied with – we affirm the awardof P200,000.00 as exemplary damages. With the award of exemplary damages, the award of attorney's fees is



likewise proper, pursuant to Article 220848 of the Civil Code. It is obvious that TEC needed the services of a lawyer to

argue its cause through three levels of the judicial hierarchy. Thus, the award of P200,000.00 is in order. 49

We, however, deem it proper to delete the award of moral damages. TEC's claim was premised allegedly on the

damage to its goodwill and reputation.50 As a rule, a corporation is not entitled to moral damages because, not being a

natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental

anguish and moral shock. The only exception to this rule is when the corporation has a reputation that is debased,resulting in its humiliation in the business realm.51 But in such a case, it is imperative for the claimant to present proofto justify the award. It is essential to prove the existence of the factual basis of the damage and its causal relation to

petitioner's acts.52 In the present case, the records are bereft of any evidence that the name or reputation of TEC/TPChas been debased as a result of petitioner's acts. Besides, the trial court simply awarded moral damages in the

dispositive portion of its decision without stating the basis thereof.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 40282 dated June18, 1997 and its Resolution dated December 3, 1997 are AFFIRMED with the following MODIFICATIONS: (1) theaward of P150,000.00 per month for five months as reimbursement for the rentals of the generator set

is REDUCEDto P150,000.00; and (2) the award of P500,000.00 as moral damages is hereby DELETED.

SO ORDERED.

HERMAN C. CRYSTAL, LAMBERTO G.R. No. 172428

C. CRYSTAL, ANN GEORGIA C.

SOLANTE, and DORIS C. Present:

MAGLASANG, as Heirs of

Deceased SPOUSES RAYMUNDO QUISUMBING, J.,

I. CRYSTAL and DESAMPARADOS Chairperson,

C. CRYSTAL, CARPIO MORALES,

Petitioners, TINGA,

VELASCO, JR., and

BRION, JJ.

- versus -Promulgated:

November 28, 2008

BANK OF THE PHILIPPINE ISLANDS,

Respondent.

x----------------------------------------------------------------------------x

D E C I S I O N

TINGA, J.:

Before us is a Petition for Review[1]

of the Decision[2]

and Resolution[3]

of the Court of Appeals dated 24 October 2005 and

31 March 2006, respectively, in CA G.R. CV No. 72886, which affirmed the 8 June 2001 decision of the Regional Trial Court,

Branch 5, of Cebu City.[4]

The facts, as culled from the records, follow.

On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a P300,000.00 loan in behalf of the Cebu

Contractors Consortium Co. (CCCC) from the Bank of the Philippine Islands-Butuan branch (BPI-Butuan). The loan was secured



by a chattel mortgage on heavy equipment and machinery of CCCC. On the same date, the spouses executed in favor of BPI-

Butuan a Continuing Suretyship[5]

where they bound themselves as surety of CCCC in the aggregate principal sum of not

exceeding P300,000.00. Thereafter, or on 29 March 1979, Raymundo Crystal executed a promissory note[6]

for the amount

of P300,000.00, also in favor of BPI-Butuan.

Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City branch (BPI-Cebu City). The

renewal was evidenced by a promissory note[7]

dated 13 August 1979, signed by the spouses in their personal capacities and as

managing partners of CCCC. The promissory note states that the spouses are jointly and severally liable with CCCC. It appears

that before the original loan could be granted, BPI-Cebu City required CCCC to put up a security.

However, CCCC had no real property to offer as security for the loan; hence, the spouses executed a real estate mortgage[8]

over

their own real property on 22 September 1977.

[9]

On 3 October 1977, they executed another real estate mortgage over the samelot in favor of BPI-Cebu City, to secure an additional loan of P20,000.00 of CCCC.

[10]

CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became due. CCCC, as well as the

spouses, failed to pay their obligations despite demands. Thus, BPI resorted to the foreclosure of the chattel mortgage and the

real estate mortgage. The foreclosure sale on the chattel mortgage was initially stalled with the issuance of a restraining order

against BPI.[11]

However, following BPI’s compliance with the necessary requisites of extrajudicial foreclosure, the foreclosure

sale on the chattel mortgage was consummated on 28 February 1988, with the proceeds amounting to P240,000.00 applied to the

loan from BPI-Butuan which had then reached P707,393.90.[12]

Meanwhile, on 7 July 1981, Insular Bank of Asia and America

(IBAA), through its Vice-President for Legal and Corporate Affairs, offered to buy the lot subject of the two (2) real



estate mortgages and to pay directly the spouses’ indebtedness in exchange for the release of the mortgages. BPI

rejected IBAA’s offer to pay.[13]

BPI filed a complaint for sum of money against CCCC and the spouses before

the Regional Trial Court of Butuan City (RTC Butuan), seeking to recover the deficiency of the loan of CCCC and the spouses

with BPI-Butuan. The trial court ruled in favor of BPI. Pursuant to the decision, BPI instituted extrajudicial foreclosure of the

spouses’ mortgaged property.[14]

On 10 April 1985, the spouses filed an action for Injunction With Damages, With A Prayer For A Restraining

Order and/ or Writ of Preliminary Injunction.[15]

The spouses claimed that the foreclosure of the real estate mortgages is illegal

because BPI should have exhausted CCCC’s properties first, stressing that they are mere guarantors of the renewed loans. They

also prayed that they be awarded moral and exemplary damages, attorney’s fees, litigation expenses and cost of suit.

Subsequently, the spouses filed an amended complaint,[16]

additionally alleging that CCCC had opened and maintained a foreign

currency savings account (FCSA-197) with bpi, Makati branch (BPI-Makati), and that said FCSA was used as security

for a P450,000.00 loan also extended by BPI-Makati. The P450,000.00 loan was allegedly paid, and thereafter the spouses

demanded the return of the FCSA passbook. BPI rejected the demand; thus, the spouses were unable to withdraw from the said

account to pay for their other obligations to BPI.

The trial court dismissed the spouses’ complaint and ordered them to pay moral and exemplary damages and attorney’s fees

to BPI.[17]

It ruled that since the spouses agreed to bind themselves jointly and severally, they are solidarily liable for the loans;

hence, BPI can validly foreclose the two real estate mortgages. Moreover, being guarantors-mortgagors, the spouses are not

entitled to the benefit of exhaustion. Anent the FCSA, the trial court found that CCCC originally had FCDU SA No. 197 with BPI,

Dewey Boulevard branch, which was transferred to BPI-Makati as FCDU SA 76/0035, at the request of Desamparados Crystal.

FCDU SA 76/0035 was thus closed, but Desamparados Crystal failed to surrender the passbook because it was lost. The

transferred FCSA in BPI-Makati was the one used as security for CCCC’s P450,000.00 loan from BPI-Makati. CCCC was no

longer allowed to withdraw from FCDU SA No. 197 because it was already closed.

The spouses appealed the decision of the trial court to the Court of Appeals, but their appeal was dismissed.[18]

The spouses

moved for the reconsideration of the decision, but the Court of Appeals also denied their motion for reconsideration.[19]

Hence, the

present petition.

Before the Court, petitioners who are the heirs of the spouses argue that the failure of the spouses to pay the BPI-Cebu City

loan of P120,000.00 was due toBPI’s illegal refusal to accept payment for the loan unless the P300,000.00 loan from BPI-Butuan

would also be paid. Consequently, in view of BPI’s unjust refusal to accept payment of the BPI-Cebu City loan, the loan

obligation of the spouses was extinguished, petitioners contend.



The contention has no merit. Petitioners rely on IBAA’s offer to purchase the mortgaged lot from them and to directly pay

BPI out of the proceeds thereof to settle the loan.[20]

BPI’s refusal to agree to such payment scheme cannot extinguish the spouses’

loan obligation. In the first place, IBAA is not privy to the loan agreement or the promissory note between the spouses and BPI.

Contracts, after all, take effect only between the parties, their successors in interest, heirs



and assigns.[21]

Besides, under Art. 1236 of the Civil Code, the creditor is not bound to accept payment or performance by a third

person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. We see no stipulation in

the promissory note which states that a third person may fulfill the spouses’ obligation. Thus, it is clear that the spouses alone bear

responsibility for the same.

In any event, the promissory note is the controlling repository of the obligation of the spouses. Under the promissory note,

the spouses defined the parameters of their obligation as follows:

On or before June 29, 1980 on demand, for value received, I/we promise to pay, jointly and severally,

to the BANK OF THE PHILIPPINE ISLANDS, at its office in the city of Cebu Philippines, the sum of ONE

HUNDRED TWENTY THOUSAND PESOS (P120,0000.00), Philippine Currency, subject to periodic

installments on the principal as follows: P30,000.00 quarterly amortization starting September 28, 1979. xx x[22]

A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the creditors is

entitled to demand the satisfaction of the whole obligation from any or all of the debtors. [23]

A liability is solidary “only when the

obligation expressly so states, when the law so provides or when the nature of the



obligation so requires.”[24]

Thus, when the obligor undertakes to be “jointly and severally” liable, it means that the obligation is

solidary,[25]

such as in this case. By stating “I/we promise to pay, jointly and severally, to the BANK OF THE PHILIPPINE

ISLANDS,” the spouses agreed to be sought out and be demanded payment from, by BPI. BPI did demand payment from

them, but they failed to comply with their obligation, prompting BPI’s valid resort to the foreclosure of the chattel mortgage and

the real estate mortgages.

More importantly, the promissory note, wherein the spouses undertook to be solidarily liable for the principal loan, partakes

the nature of a suretyship and therefore is an additional security for the loan. Thus we held in one case that if solidary liability

was instituted to “guarantee” a principal obligation, the law deems the contract to be one of suretyship.[26]

And while a contract of

a surety is in essence secondary only to a valid principal obligation, the surety’s liability to the creditor or promisee of the

principal is said to be direct, primary, and absolute; in other words, the surety is directly and equally bound with the

principal. The surety therefore becomes liable for the debt or duty of another even if he possesses no direct or personal interest

over the obligations nor does he receive any benefit therefrom.[27]

Petitioners contend that the Court of Appeals erred in not granting their counterclaims, considering that they suffered moral

damages in view of the unjust refusal of BPI to accept the payment scheme proposed by IBAA and the allegedly unjust and illegal

foreclosure of the real estate mortgages on their property.[28]

Conversely, they argue that the Court of Appeals erred in awarding

moral damages to BPI, which is a corporation, as well as exemplary damages, attorney’s fees and expenses of litigation.[29]

We do not agree. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright,

serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly

caused.[30]

Such damages, to be recoverable, must be the proximate result of a wrongful act or omission the factual basis for which

is satisfactorily established by the aggrieved party.[31]

There being no wrongful or unjust act on the part of BPI in demanding

payment from them and in seeking the foreclosure of the chattel and real estate mortgages, there is no lawful basis for award of

damages in favor of the spouses.

Neither is BPI entitled to moral damages. A juridical person is generally not entitled to moral damages because, unlike a

natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or

moral shock.[32]

The Court of Appeals found BPI as “being famous and having gained its familiarity and respect not only in the

Philippines but also in the whole world because of its good will and good reputation must protect and defend the same against any

unwarranted suit such as the case at bench.”[33]

In holding that BPI is entitled to moral damages, the Court of Appeals relied on



the case of People v. Manero,[34]

wherein the Court ruled that “[i]t is only when a juridical person has a good reputation that is

debased, resulting in social humiliation, that moral damages may be awarded.”[35]

We do not agree with the Court of Appeals. A statement similar to that made by the Court in Manero can be found in the

case of Mambulao Lumber Co. v. PNB, et al.,[36]

thus:



x x x Obviously, an artificial person like herein appellant corporation cannot experience physical

sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are

basis of moral damages. A corporation may have good reputation which, if besmirched may also be a

ground for the award of moral damages. x x x (Emphasis supplied)

Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et al .,[37]

and Filipinas Broadcasting

Network, Inc. v. Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM ),[38]

the Court held

that the statements in Manero and Mambulao were mere obiter dicta, implying that the award of moral damages to corporations

is not a hard and fast rule. Indeed, while the Court may allow the grant of moral damages to corporations, it is not automatically

granted; there must still be proof of the existence of the factual basis of the damage and its causal relation to the defendant’s acts.

This is so because moral damages, though incapable of pecuniary estimation, are in the category of an award designed to

compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.[39]

The spouses’ complaint against BPI proved to be unfounded, but it does not automatically entitle BPI to moral

damages. Although the institution of a clearly unfounded civil suit can at times be a legal



justification for an award of attorney's fees, such filing, however, has almost invariably been held not to be a ground for an award

of moral damages. The rationale for the rule is that the law could not have meant to impose a penalty on the right to litigate.

Otherwise, moral damages must every time be awarded in favor of the prevailing defendant against an unsuccessful

plaintiff.[40]

BPI may have been inconvenienced by the suit, but we do not see how it could have possibly suffered besmirched

reputation on account of the single suit alone. Hence, the award of moral damages should be deleted.

The awards of exemplary damages and attorney’s fees, however, are proper. Exemplary damages, on the other hand, are

imposed by way of example or correction for the public good, when the party to a contract acts in a wanton, fraudulent, oppressive

or malevolent manner, while attorney’s fees are allowed when exemplary damages are awarded and when the party to a suit is

compelled to incur expenses to protect his interest.[41]

The spouses instituted their complaint against BPI notwithstanding the fact

that they were the ones who failed to pay their obligations. Consequently, BPI was forced to litigate and defend its interest. For

these reasons, BPI is entitled to the awards of exemplary damages and attorney’s fees.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated 24 October 2005 and

31 March 2006, respectively, are hereby AFFIRMED, with the MODIFICATION that the award of moral damages to Bank of

the Philippine Islands is DELETED.

Costs against the petitioners.

SO ORDERED.

!" $% &'()* +,, "&-

G.R. No. 108734 May 29, 1996

CONCEPT BUILDERS, INC., petitioner,vs.THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo Raquel,Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut,

Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve,Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and

Ruben Robalos, respondents.

HERMOSISIMA, JR., J.: p

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of

a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where awrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The



law in these instances will regard the corporation as a mere association of persons and, in case of two corporations,

merge them into one.

Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, thecorporation may not be heard to say that it has a personality separate and distinct from the other corporation. The

piercing of the corporate veil comes into play.

This special civil action ostensibly raises the question of whether the National Labor Relations Commission committedgrave abuse of discretion when it issued a "break-open order" to the sheriff to be enforced against personal property

found in the premises of petitioner's sister company.

Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, MetroManila, is engaged in the construction business. Private respondents were employed by said company as laborers,

carpenters and riggers.

On November, 1981, private respondents were served individual written notices of termination of employment bypetitioner, effective on November 30, 1981. It was stated in the individual notices that their contracts of employment

had expired and the project in which they were hired had been completed.

Public respondent found it to be, the fact, however, that at the time of the termination of private respondent'semployment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage

the services of sub-contractors whose workers performed the functions of private respondents.

Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of theirlegal holiday pay, overtime pay and thirteenth-month pay against petitioner.

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 hundred working days.

On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration

filed by petitioner on the ground that the said decision had already become final and executory.

2

On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents'

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, datedDecember 19, 1984. The writ was partially satisfied through garnishment of sums from petitioner's debtor, theMetropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the

cashier of the NLRC.

On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect fromherein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private

respondents to their former positions.

On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitionerthrough the security guard on duty but the service was refused on the ground that petitioner no longer occupied the

premises.

On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of

execution.

The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November

2, 1989:

1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they

were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;



2. Levy was made upon personal properties he found in the premises;

3. Security guards with high-powered guns prevented him from removing the properties he had levied upon. 4

The said special sheriff recommended that a "break-open order" be issued to enable him to enter petitioner's premises

so that he could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989.

On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that theproperties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.

On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPIand petitioner corporation were owned by the same incorporator/stockholders. They also alleged that petitionertemporarily suspended its business operations in order to evade its legal obligations to them and that privaterespondents 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.

In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations

Sheet, dated May 15, 1987, submitted by petitioner to the Securities Exchange Commission (SEC) and the GeneralInformation Sheet, dated May 25, 1987, submitted by HPPI to the Securities and Exchange Commission.

The General Information Sheet submitted by the petitioner revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

HPPI P 6,999,500.00

Antonio W. Lim 2,900,000.00

Dennis S. Cuyegkeng 300.00

Elisa C. Lim 100,000.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member

Elisa C. Lim Member

Teodulo R. Dino Member

Virgilio O. Casino Member

3. Corporate Officers

Antonio W. Lim President



Dennis S. Cuyegkeng Assistant to the President

Elisa O. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road

Valenzuela, Metro Manila. 5

On the other hand, the General Information Sheet of HPPI revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

Antonio W. Lim P 400,000.00

Elisa C. Lim 57,700.00

AWL Trading 455,000.00

Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Elisa C. Lim Member

Dennis S. Cuyegkeng Member

Virgilio O. Casino Member

Teodulo R. Dino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa C. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office



355 Maysan Road, Valenzuela, Metro Manila. 6

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 and distinct from petitioner. HPPI also alleged that the twocorporations are engaged in two different kinds of businesses, i .e., HPPI is a manufacturing firm while petitioner was

then engaged in construction.

On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents' motion for break-open order.

Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter,issued a break-open order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed

with the auction sale of the properties already levied upon. It dismissed the third-party claim for lack of merit.

Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3,1992.

Hence, the resort to the present petition.

Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decisiondespite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporateveil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade itsliability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concreteand iron pipes, a business which is distinct and separate from petitioner's construction business. Hence, it is of noconsequence that petitioner and HPPI shared the same premises, the same President and the same set of officersand subscribers.

7

We find petitioner's contention to be unmeritorious.

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholdersand from other corporations to which it may be connected.

8 But, this separate and distinct personality of a corporation

is merely a fiction created by law for convenience and to promote justice.

9

So, when the notion of separate juridicalpersonality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device todefeat the labor laws,

10 this separate personality of the corporation may be disregarded or the veil of corporate fiction

pierced. 11

This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of

another corporation. 12

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts andcircumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are someprobative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business. 13

The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding the separate

juridical personality of corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact,a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality"may be disregarded. The control necessary to invoke the rule is not majority or even complete stockcontrol but such domination of instances, policies and practices that the controlled corporation has, soto speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must bekept in mind that the control must be shown to have been exercised at the time the acts complained of



took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss

for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, not only of finances

but of policy and business practice in respect to the transaction attacked so that the corporate entityas to this transaction had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate theviolation of a statutory or other positive legal 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 losscomplained of.

The absence of any one of these elements prevents "piercing the corporate veil." In applying the"instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how

the corporation operated and the individual defendant's relationship to that operation. 14

Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a

subterfuge is purely one of fact. 15

In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, itfiled an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its officeaddress is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant,submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road,

Valenzuela, Metro Manila.

Furthermore, the NLRC stated that:

Both information sheets were filed by the same Virgilio O. Casiño as the corporate secretary of bothcorporations. It would also not be amiss to note that both corporations had the same president,

thesame board of directors, the same corporate officers, and substantially the same subscribers.

From the foregoing, it appears that, among other things, the respondent (herein petitioner) and thethird-party claimant shared the same address and/or premises. Under this circumstances, (sic ) it

cannot be said that the property levied upon by the sheriff were not of respondents. 16

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back wagesand to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporationand its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner

corporation.

The facts in this case are analogous to Claparols v . Court of Industrial Relations,17 where we had the occasion to

rule:

Respondent court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation ofJune 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1,1957, up to December 7, 1962, when the latter finally ceased to operate, were not disputed bypetitioner. 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 Claparolsand 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 theClaparols Steel Corporation (the second corporation) was owned by respondent . . . Claparols himself,

and all the assets of the dissolved Claparols Steel and Nail plant were turned over to the emergingClaparols Steel Corporation.



It is very obvious that the second corporation seeks the protective shield of a corporate fiction whoseveil in the present case could, and should, be pierced as it was deliberately and maliciously designed

to evade its financial obligation to its employees.

In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, privaterespondents 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 ofExecution of Judgment which provides that:

Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representativeentry to the place where the property subject of execution is located or kept, the judgment creditor

may apply to the Commission or Labor Arbiter concerned for a break-open order.

Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied

with. Petitioner and the third-party claimant were given the opportunity to submit evidence in support of their claim.

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the

Labor Arbiter.

Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported bysubstantial evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave

abuse of a discretion. 18

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 andDecember 3, 1992, are AFFIRMED.

SO ORDERED.

THE HEIRS OF THE LATE PANFILO V.

PAJARILLO,Petitioners,

-versus -

THE HON. COURT OF APPEALS,

NATIONAL LABOR RELATIONS

COMMISSION and SAMAHAN NG MGA

MANGGAGAWA NG PANFILO V.

PAJARILLO, ALFREDO HOYOHOY,

HERMINIO CASTILLO, BERNARDO

ROCO, RODOLFO TORRES, JULIANJORVINA, LOURDES ROCO, FLORITA

YAPOC, MARLON ALDANA,

PARALUMAN ULANG, TOLENTINO

SANHI, JOHNNY SORIANO, ANDRES

CALAQUE, ROBERTO LAVAREZ,

FRANCISCO MORALES, SALVACION

PERINA, ANTONIO ABALA, ROMEO

SALONGA, AUGUR M. MANIPOL,

BIENVENIDA TEQUIL, MARIO ELEP,

ALADINO LATIGO, BERNARDINE

BANSAL, PEDRO DE BAGUIO, RICARDO

CALICA, LAURA CO, VICENTE RECANA,

ELENA TOLLEDO, ALFREDO PLAZA, SR.,HERMINIO BALDONO, FELIPE YAPOC,

G.R. No. 155056-57

Present:

YNARES-SANTIAGO, J., Chairperson,

AUSTRIA-MARTINEZ,

CHICO-NAZARIO,

NACHURA, and

REYES, JJ .



ARISTON NIPA, and ALFONSO C.

BALDOMAR,

Respondents.

Promulgated:

October 19, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

D E C I S I O N

CHICO-NAZARIO, J .:

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court,[1]

petitioners, heirs of Panfilo V. Pajarillo,

seek to set aside the Decision,[2]

and Resolution,[3]

dated 12 March 2002 and 28 August 2002, respectively, of the Court of Appeals

in CA-G.R. SP No. 54330 and CA-G.R. SP No. 54331, reversing the two Per Curiam Orders dated 28 October 1996 and 10

January 1997,[4]

of the National Labor Relations Commission (NLRC) in NLRC NCR Cases No. 08-03013-87 and 01-00331-88.

Stripped of the non-essentials, the facts are as follows:

Panfilo V. Pajarillo (Panfilo) was the owner and operator of several buses plying certain routes in Metro Manila. He used

the name “PVP Liner” in his buses. Private respondents were employed as drivers, conductors and conductresses by Panfilo.

During their employment with Panfilo, private respondents worked at least four times a week or for an average of fifteen

working days per month. They were required to observe a work schedule starting from 4:00 in the morning up to 10:00 in the

evening on a straight time basis. Private respondent drivers were paid a daily commission of 10%, while private respondent

conductors and conductresses received a daily commission of 7%. In sum, each of the private respondents earned an average daily

commission of about P150.00 a day. They were not given emergency cost of living allowance (ECOLA), 13th

month pay, legal

holiday pay and service incentive leave pay.[5]

The following were deducted from the private respondents’ daily commissions: (a) costs of washing the assigned buses;

(b) terminal fees; (c) fees for sweeping the assigned buses; (d) fees paid to the barangay tanod at bus terminals; and (e) rental fees

for the use of stereo in the assigned buses. Any employee who refused such deductions were either barred from working or

dismissed from work.[6]

Thereafter, private respondents and several co-employees formed a union called “SAMAHAN NG MGA MANGGAGAWA

NG PANFILO V. PAJARILLO”(respondent union). The Department of Labor and Employment (DOLE) issued a Certificate of

Registration in favor of the respondent union.[7]



Upon learning of the formation of respondent union, Panfilo and his children ordered some of the private respondents to

sign a document affirming their trust and confidence in Panfilo and denying any irregularities on his part. Other private

respondents were directed to sign a blank document which turned out to be a resignation letter. Private respondents refused to sign

the said documents, hence, they were barred from working or were dismissed without hearing and notice. Panfilo and his children

and relatives also formed a company union where they acted as its directors and officers.[8]

On 25 August 1987, respondent union and several employees filed a Complaint for unfair labor practice and illegal

deduction before the Labor Arbiter with “Panfilo V. Pajarillo Liner” as party-respondent. This was docketed as NLRC/NCR

Case No. 00-08-03013-87.[9]

On 28 September 1987, the respondent union filed an Amended Complaint alleging this time not

only unfair labor practice and illegal deduction but also illegal dismissal.[10]

On 20 January 1988, respondent union and several employees filed another Complaint for violation of labor standard

laws claiming non-payment of (1) ECOLA, (2) 13th

month pay, (3) overtime pay, (4) legal holiday pay, (5) premium pay, and (6)

service incentive leave. The party-respondents in this complaint were“PVP LINER INC. and PANFILO V. PAJARILLO, as

its General Manager/Operator.” This was docketed as NLRC Case No. 00-01-00331-88.[11]

Notifications and summons with respect to NLRC/NCR Case No. 00-08-03013-87 were addressed and sent

to “PANFILO V. PAJARILLO, President/Manager, Panfilo V. Pajarillo Liner, Pasig Line St., Sta. Ana, Manila” on 31

August 1987. The Registry Return Receipt dated 4 September 1987 was addressed to Panfilo V. Pajarillo, and a signature therein

appears on top of the signature of the name of the addressee.[12]

With regard to NLRC Case No. 00-01-00331-88, notifications and

summonses were addressed and sent to “THE PRESIDENT/MANAGER, PVP Liner Inc. and Panfilo V. Pajarillo, 2175

Zamora Street, Sta. Ana, Manila” on 25 January 1988. The Registry Return Receipt dated 4 February 1988 was addressed

to “PVP Liner Inc.” and was signed by a certain “Irene G. Pajarillo” as the addressee’s agent.[13]

Panfilo denied the charges in the complaints. He maintained that private respondents were not dismissed from work on

account of their union activities; that private respondents and several of their co-employees either resigned or were separated from

work, or simply abandoned their employment long before the respondent union was organized and registered with the DOLE; that

the private respondents are not entitled to ECOLA and 13th

month pay because they received wages above the minimum provided

by law; that the private respondents are not entitled to overtime and legal holiday pay because these are already included in their

daily commissions; that the private respondents are not entitled to five days incentive leave pay because they work only four days

a week; that no deductions were made in the daily commissions of the private respondents; that the private respondents voluntarily

and directly paid certain individuals for barangay protection and for the cleaning of the assigned buses; that he had no

participation in these activities/arrangements; that the private respondents were not dismissed from work; and that the private

respondents either abandoned their jobs or voluntarily resigned from work.[14]

Upon motion of Panfilo, the complaints in NLRC/NCR Case No . 00-08-03013-87 and NLRC Case No. 00-01-00331-

88 were consolidated.[15]

On 29 January 1991, Panfilo died.[16]



After hearing and submission by both parties of their respective position papers and memoranda, Labor Arbiter Manuel P.

Asuncion (Arbiter Asuncion) rendered a Decision[17]

dated 28 December 1992, dismissing the consolidated complaints for lack of

merit. Thus:

IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS, the complaint should be as it is

hereby dismissed for lack of merit.

Respondent union appealed to the NLRC. On 18 June 1996, the NLRC reversed the decision of Arbiter Asuncion and

ordered the reinstatement of, and payment of backwages, ECOLA, 13th

month pay, legal holiday pay and service incentive leave

pay to, private respondents.[18]

The dispositive portion of the NLRC decision reads:

Wherefore, the appealed decision is hereby set aside. Accordingly, judgment is hereby rendered

directing:

(1) The respondent, PVP Liner, Inc. to reinstate to their former positions, without

loss of seniority rights and other benefits, the following complainants: Alfredo [Hoyohoy],

Bernardo Roco, Rodolfo Torres, Julian Jorvina, Florita Yapoc, Marlon Aldana, Paraluman

Ulang, Tolentino Sanhi, Johnny Soriano, Andres Calaque, Roberto Lavarez, Francisco

Morales, Salvacion Perina, Antonio Abala, Alfonso Baldomar, Jr., Romeo Salonga, Augur

Manipol, Bienvenida Tequil, Mario Elep, Aladino Latigo, Bernardine Bansal, Pedro de

Baguio, Ricardo Calica, Laura Co, Vicente Recana, Elena Tolledo, Alfredo Plaza, Sr.,

Herminio Baldono, Felioe Yapoc, Ariston Nipa and Herminia Castillo and to pay them their

backwages corresponding to a period of three (3) years without qualifications and deductions;

(2) The same respondent PVP Liner, Inc. to pay amounts to be computed in a

hearing called for said purpose by the Arbitration Branch of Origin, the aforesaid complainantstheir claims for emergency cost of living allowance (ECOLA), 13

th month pay, legal holiday

pay and service incentive leave benefits subject to the three-year prescriptive period provided

under Article 291 of the Labor Code, as amended;

(3) The dismissal of the claims on alleged illegal deductions of the respondents

for lack of merits; and

(4) The dismissal of the case of Lourdes Roco due to prescription.

All other claims of the complainants and the respondents are likewise DISMISSED, for being without

merit.

The Arbitration Branch of Origin is hereby directed to enforce this decision.

Panfilo’s counsel filed a motion for reconsideration which was partially granted by the NLRC in its Order dated 28

October 1996, to wit:

Dictated, however, by the imperatives of due process, we find it more judicious to just remand this case

for further hearing on key questions of:

1) whether or not PVP Liner Inc. was properly impleaded as party respondent in the

consolidated cases below;

2) whether or not summons was properly served on said corporation below; and



3) whether or not the subject cases can be considered as principally money claims which have

to be litigated in intestate/testate proceedings involving the estate of the late Panfilo V.

Pajarillo.

WHEREFORE, our decision dated June 18, 1996 is hereby set aside. Let this case be remanded to the NCR Arbitration Branch for further hearing on the questions above-mentioned.

[19]

Respondent union filed a motion for reconsideration of the above-stated Order, but this was denied by the NLRC in its

Order dated 10 January 1997.[20]

Thus, respondent union filed a Petition for Certiorari under Rule 65 before this Court. Pursuant,

however, to our ruling in St. Martin Funeral Home v. National Labor Relations Commission ,[21]

we remanded the petition to the

Court of Appeals for proper disposition.

On 12 March 2002, the Court of Appeals rendered a Decision granting the respondent union’s petition and nullifying the

Orders dated 28 October 1996 and 10 January 1997 of the NLRC. It also reinstated the Decision dated 18 June 1986 of the

NLRC.[22]

The appellate court decreed:

WHEREFORE, premises considered, the PETITION FOR CERTIORARI is hereby GRANTED.

Accordingly, the Order dated October 28 1996 and January 10, 1997 of the NLRC are hereby NULLIFIED and

its Decision dated 18 June 1986 be REINSTATED.

Panfilo’s counsel filed a motion for reconsideration of the said decision but this was denied by the appellate court in its

Resolution dated 28 August 2002.[23]

Herein petitioners, as heirs of Panfilo, filed the instant petition before this Court assigning the following errors:

I.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ARRIVING AT THE CONCLUSION

THAT PVP LINER INC. WAS PROPERLY MISPLEADED, WHICH IS A NON-EXISTING

CORPORATION.

II.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT CONSIDERING THAT THEREWAS NO PROPER AND EFFECTIVE SERVICE OF SUMMONS.

III.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN PIERCING THE VEIL OF

CORPORATE ENTITY OF PVP PAJARILLO LINER INC.

IV.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN REINSTATING THE ORDER OF THE NLRC DATED JUNE 18, 1996, WHICH DECLARED THAT PRIVATE RESPONDENTS WERE

ILLEGALLY DISMISSED.[24]



Anent the first issue, petitioners alleged that the Decision dated 18 June 1996 of the NLRC, ordered PVP Liner Inc. to

reinstate private respondents and pay their backwages, ECOLA, 13th

month pay, legal holiday pay and service incentive leave pay;

that there was no such entity as PVP Liner Inc. organized and existing in the Philippines; that it was not possible for ArbiterAsuncion and the NLRC to acquire jurisdiction over a non-existing company; that there can never be a service of summons or

notice to a non-existent entity; that the true employer of private respondents was Panfilo as the sole proprietor/operator of

passenger buses doing business under the tradename, PVP Liner, and not PVP Liner Inc. which was non-existent; that Panfilo

never used PVP Liner Inc. as his tradename; that the present operator of PVP Liner buses is P.V. PAJARILLO LINER , a

corporation duly registered with the Securities and Exchange Commission; that at the time the instant case was filed before Arbiter

Asuncion in 1987, the latter did not have jurisdiction over P.V. PAJARILLO LINER because it was organized and duly

registered only on 22 January 1990; that P.V. PAJARILLO LINER has a separate and distinct personality from Panfilo as the

sole operator of PVP Liner buses; that, therefore, P.V.PAJARILLO LINER cannot be made a party or impleaded in the present

case; that the amended complaint in NLRC/NCR Case No . 00-08-03013-87 impleaded as party-respondent “PANFILO V.

PAJARILLO LINER and PANFILO V. PAJARILLO, as operator and responsible officer”; that PVP Liner Inc. was not

impleaded in the instant case; and that no summons was ever served on PVP Liner Inc. in NLRC/NCR Case No. 00-08-03013-

87.[25]

The contentions are bereft of merit.

In the Complaint dated 20 January 1988, PVP Liner Inc. and Panfilo were impleaded as party-respondents, thus:

That respondent PVP Liner, Inc., is a private business entity, engaged in transportation of passengers, duly

organized and existing pursuant to law and for this purpose maintains its principal office at 2175, Zamora Street,

Sta. Ana, Manila; while individual respondent [Panfilo] is the General Manager/Operator and may be

served with summons, notices and other processes at the aforementioned principal office.[26]

Panfilo did not question in his position paper or in his motion for consolidation of the complaints the foregoing

allegations. Neither did he assail the inclusion of PVP Liner Inc. as party-respondent in respondent union’s position paper

dated 6 June 1988.

In Panfilo’s position paper as well as in the records of the proceedings before Arbiter Asuncion, there is nothing that

shows that Panfilo challenged the jurisdiction of Arbiter Asuncion over PVP Liner Inc. When Arbiter Asuncion decided in favor

of Panfilo, the latter said nothing about the inclusion of PVP Liner Inc. as party respondent and the lack of jurisdiction of Arbiter

Asuncion over the same. It was only when the NLRC rendered a Decision adverse to Panfilo that the latter alleged the non-

existence of PVP Liner Inc. and the fact that Arbiter Asuncion and the NLRC had no jurisdiction over it.

Petitioners are now precluded from questioning the inclusion of PVP Liner Inc. as party-respondent as well as the

jurisdiction of Arbiter Asuncion and the NLRC over them under the principle of estoppel . It is settled that the active participation

of a party against whom the action was brought, coupled with his failure to object to the jurisdiction of the court or quasi-judicial



body where the action is pending, is tantamount to an invocation of that jurisdiction and a willingness to abide by the resolution of

the case and will bar said party from later on impugning the court or body’s jurisdiction.[27]

This Court has time and again

frowned upon the undesirable practice of a party submitting his case for decision and then accepting the judgment only if

favorable, and attacking it for lack of jurisdiction when adverse.[28]

It is apparent that Panfilo V. Pajarillo Liner and PVP Liner Inc. are one and the same entity belonging to one and the

same person, Panfilo. When PVP Liner Inc. and Panfilo V. Pajarillo Liner were impleaded as party-respondents, it was Panfilo,

through counsel, who answered the complaints and filed the position papers, motions for reconsideration and appeals. It was also

Panfilo, through counsel, who participated in the hearings and proceedings. In fact, Abel Pajarillo (Abel), son of Panfilo, testified

before Arbiter Asuncion that he was the operations manager of PVP Liner Inc.[29]

Further, both Panfilo and PVP Liner Inc.

were charged jointly and severally in the aforesaid complaints.

Apropos the second issue, petitioners alleged that the notices and summons were received by a certain Irene G. Pajarillo

(Irene) for and in behalf of the PVP Liner Inc.; that Irene was neither and could not have been the President/Manager of PVP Liner

Inc., the latter being non-existent; and that Irene was not an officer of P.V. Pajarillo Liner.[30]

Sections 4 and 5 of Rule IV of the Revised Rules of Procedure of the NLRC provides the rule for the service of

summonses and notices in NLRC cases, viz :

Sec. 4. Service of notices and resolutions. – a) Notices or summons and copies of orders, resolutions or

decisions shall be served personally by the bailiff or the duly authorized public officer or by registered mail on

the parties to the case within five (5) days from receipt thereof by the serving officer.

Sec. 5. Proof and completeness of service. – The return is prima facie proof of the facts indicated

therein. Service by registered mail is complete upon receipt by the addressee or his agent.[31]

Records show that Irene received the summons for NLRC Case No. 00-01-00331-88 on 4 February 1988 in behalf of

PVP Liner Inc. These summonses wereaddressed and sent to “THE PRESIDENT/MANAGER, PVP Liner Inc. and Panfilo V.

Pajarillo, 2175 Zamora Street, Sta. Ana, Manila” on 25 January 1988. The Registry Return Receipt dated 4 February

1988 was addressed to “PVP Liner Inc.” and was signed by Irene as the addressee’s agent.[32]

Abel, one of the heirs of Panfilo

and the Operations Manager of PVP Liner Inc., testified during the hearing before Arbiter Asuncion that Irene was one of thesecretaries of PVP Liner Inc.

[33] Hence, there was a valid service of summons.

Regarding the third issue, petitioners posited that P.V. Pajarillo Liner Inc. is an independent corporation and cannot be

considered as an adjunct or extension of Panfilo as the sole operator of PVP Liner buses; and that at the time P.V. Pajarillo Liner

Inc. was established, it had no liability or obligation which it tried to shield or circumvent.[34]

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. However, this separate and distinct personality of a corporation is

merely a fiction created by law for convenience and to promote justice. Hence, when the notion of separate juridical personality is



used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat labor laws, this

separate personality of the corporation may be disregarded or the veil of the corporate fiction pierced. This is true likewise when

the corporation is merely an adjunct, a business conduit or an alter ego of another corporation. The corporate mask may be lifted

and the corporate veil may be pierced when a corporation is but the alter ego of a person or another corporation.[35]

It is apparent that Panfilo started his transportation business as the sole owner and operator of passenger buses utilizing

the name PVP Liner for his buses. After being charged by respondent union of unfair labor practice, illegal deductions, illegal

dismissal and violation of labor standard laws, Panfilo transformed his transportation business into a family corporation,

namely, P.V. Pajarillo Liner Inc. He and petitioners were the incorporators, stockholders and officers therein. P.V. Pajarillo

Inc. and the sole proprietorship of Panfilo have the same business address. P.V. Pajarillo Inc. also uses the name “PVP Liner” in

its buses. Further, the license to operate or franchise of the sole proprietorship was merely transferred to P.V. Pajarillo Liner

Inc. The testimony of Abel during the hearing before Arbiter Asuncion is revealing, thus:

Q: Mr. Pajarillo, when did you start assuming the functions of operations manager of PVP Liner?

A: Seven years from now, sometime in the year 1984 or 1985, sir.

Q: Do you have any written appointment as Operations Manager?

A: No, sir.

Q: I noticed that your surname is Pajarillo you are one way or another related to Mr. Panfilo V. Pajarillo, is

that correct?

Witness:

A: I am the son of Panfilo Pajarillo, sir.

Q: In so far as PVP Liner is concerned and being the operations manager, are you aware if it is a single

proprietor or a corporation?

A: At the start it was a single proprietorship, lately, it has become a family corporation.

Atty. Flores, Jr. (to witness)

Q: When you became the Operations Manager of PVP Liner, is it a single proprietor or a family

Corporation?

A: It was a single proprietorship.

Q: Mr. Witness, since PVP Liner is a transportation business it has a license to operate these buses?

A: Yes, there is, sir.

Atty. Flores, Jr. (to witness)

Q: In whose name was it registered?

A: Before it was with my father Panfilo V. Pajarillo, sir.

Q: Do I understand that the licensing of this transportation company was transferred to another

person?

A: It was never transferred to another person, except now, that it has been transferred to a

corporation.[36]

It is clear from the foregoing that P.V. Pajarillo Liner Inc. was a mere continuation and successor of the sole

proprietorship of Panfilo. It is also quite obvious that Panfilo transformed his sole proprietorship into a family corporation in a



surreptitious attempt to evade the charges of respondent union. Given these considerations, Panfilo and P.V. Pajarillo Liner Inc.

should be treated as one and the same person for purposes of liability.[37]

Finally, petitioners averred that no unfair labor practice was committed, and that private respondents were not illegally

dismissed from work.

In its Decision dated 18 June 1996, the NLRC made an exhaustive discussion of the allegations and evidence of both

parties as regards unfair labor practice and illegal dismissal. It concluded that private respondents, officers and members of

respondent union were dismissed by reason of their union activities and that there was no compliance with substantial and

procedural due process in terminating their services. It also held that the private respondents who were not members of the

respondent union were also dismissed without just or valid cause, and that they were denied due process. These factual findings

and conclusions were supported by substantial evidence comprised of affidavits, sworn statements, testimonies of witnesses during

hearings before Arbiter Asuncion, and other documentary evidence. These findings were sustained by the Court of Appeals.

The rule is that findings of fact of quasi-judicial agencies like the NLRC are accorded by this Court not only respect but

even finality if they are supported by substantial evidence, or that amount of relevant evidence which a reasonable mind might

accept as adequate to justify a conclusion.[38]

We find no compelling reason to deviate from such findings of the NLRC as

affirmed by the Court of Appeals.

Consequently, the private respondents are entitled to reinstatement, backwages and other privileges and benefits under

Article 279 of the Labor Code. Separation pay may be given in lieu of reinstatement if the employee concerned occupies a position

of trust and confidence. In the case at bar, however, the private respondents, as former bus drivers, conductors and conductresses

of petitioners, do not hold the position of trust and confidence.[39]

Nonetheless, it appears from the records that some of the private respondents, namely, Augur Manipol, Rodolfo Torres,

Ricardo Calica, Paraluman Ulang, Edith Chua, Alfredo Hoyohoy, Johnny Soriano, Bernardo Roco, Tolentino Sanhi, Salvacion

Perina, Pedro L. de Baguio, Ariston Nipa, Felipe Yapoc, Laura Co, Bienvenida Tequil, Roberto Lavarez, Francisco Morales and

Herminio Castillo, had executed a Quitclaim/Release discharging petitioners “from any and all claims by way of unpaid wages,

separation pay, overtime pay, differential pay, ECOLA, 13th

month pay, holiday pay, service incentive leave pay or otherwise.”[40]

Generally, deeds of release, waivers, or quitclaims cannot bar employees from demanding benefits to which they are

legally entitled or from contesting the legality of their dismissal, since quitclaims are looked upon with disfavor and are frowned

upon as contrary to public policy. Where, however, the person making the waiver has done so voluntarily, with a full

understanding thereof, and the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as

being a valid and binding undertaking.[41]

There is no showing that the executions of these quitclaims were tainted with deceit or coercion. On the contrary, each of

the private respondents’ Sinumpaang Salaysay, which accompanied the quitclaims, evinces voluntariness and full understanding of



the execution and consequence of the quitclaim. In their saidSinumpaang Salaysay, the private respondents stated that their

lawyer had extensively explained to them the computation and the actual amount of consideration they would receive; that they

were not forced or tricked by their lawyer in accepting the same; and that they already received the amount of consideration.[42]

Further, the considerations received by the private respondents were credible and reasonable because they were not

grossly disproportionate to the computation by the NLRC of the amount of backwages and other money claims.[43]

Given these circumstances, the quitclaims should be considered as binding on the private respondents who executed

them. It is settled that a legitimate waiver which represents a voluntary and reasonable settlement of a worker’s claim should be

respected as the law between the parties.[44]

Accordingly, the private respondents who made such quitclaims are already precluded

from claiming reinstatement, backwages, ECOLA, 13TH

month pay, legal holiday pay, service incentive leave pay, and other

monetary claims.

With regard to the other private respondents who did not execute such quitclaims, they are entitled to reinstatement,

backwages, ECOLA, 13TH

month pay, legal holiday pay and service incentive leave pay in accordance with the computation of the

NLRC.

WHEREFORE, the petition is hereby DENIED. The Decision and Resolution dated 12 March 2002 and 28 August

2002, respectively, of the Court of Appeals in CA-G.R. SP No. 54330 and CA-G.R. SP No. 54331, are hereby AFFIRMED with

the following MODIFICATIONS: (1) Private respondents Augur Manipol, Rodolfo M. Torres, Ricardo Calica, Paraluman

Ulang, Edith Chua, Alfredo Hoyohoy, Johnny Soriano, Bernardo Roco, Tolentino Sanhi, Salvacion Perina, Pedro L. de Baguio,

Ariston Nipa, Felipe Yapoc, Laura Co, Bienvenida Tequil, Roberto Lavarez, Francisco Morales and Herminio Castillo are

hereby precludedfrom claiming reinstatement, backwages, ECOLA, 13TH

month pay, legal holiday pay and service incentive

leave pay by reason of their respective quitclaims; (2)Petitioners are hereby ordered to reinstate private respondents Julian

Jorvina, Florita Yapoc, Marlon Aldana, Andres Calaque, Antonio Abala, Alfonso Baldomar, Romeo Salonga, Mario Elep, Aladino

Latigo, Bernardine Bansal, Vicente Recana, Elena Tolledo and Alfredo Plaza, Sr., and to pay these respondents backwages from

the time of their dismissal up to the finality of this Decision. Petitioners are also ordered to pay the foregoing private

respondents ECOLA, 13TH

month pay, legal holiday pay and service incentive leave pay in accordance with the computation of the

NLRC. Costs against petitioners.

SO ORDERED.

G.R. No. 116781 September 5, 1997

TOMAS LAO CONSTRUCTION, LVM CONSTRUCTION CORPORATION, THOMAS and JAMES DEVELOPERS(PHIL.), INC., petitioners,vs.NATIONAL LABOR RELATIONS COMMISSION, MARIO O. LABENDIA, SR., ROBERTO LABENDIA, NARCISOADAN, FLORENCIO GOMEZ, ERNESTO BAGATSOLON, SALVADOR BABON, PATERNO BISNAR, CIRPRIANO

BERNALES, ANGEL MABUHAY, SR., LEO SURIGAO, and ROQUE MORILLO, respondents.



BELLOSILLO, J.:

From October to December 1990 private respondents individually filed complaints for illegal dismissal againstpetitioners with the National Labor Relations Commission Regional Arbitration Branch No. VIII (NLRC — RAB VIII),

Tacloban City. Alleging that they were hired for various periods as construction workers in different capacities theydescribed their contractual terms as follows: (a) Roberto Labendia, general construction foreman, from 1971 to 17October 1990 at P3,700/month; (b) Narciso Adan, tireman, from October 1981 to November 1990 at P75.00/day; (c)Florencio Gomez, welder, from July 1983 to July 1990 at P260.00/day; (d) Ernesto Bagatsolon leadman/checker, fromJune 1982 to October 1990 at P2,800/month; (e) Salvador Babon, clerk/timekeeper/paymaster, from June 1982 toOctober 1990 at P3,200/month; (f) Paterno Bisnar, road grader operator, from January 1979 to October 1990 at105/day; (g) Cipriano Bernales, instrument man, from February 1980 to November 1990 at P3,200/month; (h) AngelMabulay, Sr., dump truck driver, from August 1974 to October 1990 at P90/day; (I) Leo Surigao, payloader operator,from March 1975 to January 1978 at P100/day; (J) Mario Labendia, Sr. surveyor/foreman, from August 1971 to July1990 at P2,900/month; and, (k) Roque Morillo, company watchman, from August 1983 to October 1990 atP3,200/month.

1

Within the periods of their respective employments, they alternately worked for petitioners Tomas Lao Corporation(TLC), Thomas and James Developers (T&J) and LVM Construction Corporation (LVM), altogether informally referredto as the "Lao Group of Companies," the three (3) entities comprising a business conglomerate exclusively controlledand managed by members of the Lao family.

TLC, T&J and LVM are engaged in the construction of public roads and bridges. Under joint venture agreements theyentered into among each other, they would undertake their projects either simultaneously or successively so that,whenever necessary, they would lease tools and equipment to one another. Each one would also allow the utilizationof their employees by the other two (2). With this arrangement, workers were transferred whenever necessary to on-going projects of the same company or of the others, or were rehired after the completion of the project or project

phase to which they were assigned. Soon after, however, TLC ceased its operations 2 while T&J and LVM stayed on.

Sometime in 1989 Andres Lao, Managing Director of LVM and President of T&J, 3 issued a memorandum

4 requiring

all workers and company personnel to sign employment contract forms and clearances which were issued on 1 July1989 but antedated 10 January 1989. These were to be used allegedly for audit purposes pursuant to a joint ventureagreement between LVM and T&J. To ensure compliance with the directive, the company ordered the withholding ofthe salary of any employee who refused to sign. Quite notably, the contracts expressly described the constructionworkers as project employees whose employments were for a definite period, i .e., upon the expiration of the contract

period or the completion of the project for which the workers was hired.

Except for Florencio Gomez 5 all private respondents refused to sign contending that this scheme was designed by

their employer to downgrade their status from regular employees to mere project employees. Resultantly, their salarieswere withheld. They were also required to explain why their services should not be terminated for violating companyrules and warned that failure to satisfactorily explain would be construed as "disinterest" in continued employment with

the company. Since the workers stood firm in their refusal to comply with the directives their services were terminated.

NLRC RAB VIII dismissed the complaints lodged before it, finding that private respondents were project employeeswhose employments could be terminated upon completion of the projects or project phase for which they were hired. Itupheld petitioners' contention that the execution of their employment contracts was to forestall the eventuality of beingcompelled to pay the workers their salaries even if there was no more work to be done due to the completion of theprojects or project phases. The labor court however granted each employee a separation pay of P6,435.00 computed

at one-half (1/2) month salary for every year of service, uniformly rounded at five (5) years. 6

The decision of Labor Arbiter Gabino A. Velasquez, Jr., was reversed on appeal by the Fourth Division of the NationalLabor Relations Commission (NLRC) of Cebu City which found that private respondents were regular employees whowere dismissed without just cause and denied due process. The NLRC also overruled the fixing by the Labor Arbiter ofthe term of employment of complainants uniformly at five (5) years since the periods of employment of the constructionworkers as alleged in their complaints were never refuted by petitioners. In granting monetary awards to complainants,

NLRC disregarded the veil of corporate fiction and treated the three (3) corporations as forming only one entity on the



basis of the admission of petitioners that "the three (3) operated as one (1), intermingling and commingling all its

resources, including manpower facility." 7

Petitioners now lay their cause before us and assign the following errors: (a) NLRC erred in classifying the employeesas regular instead of project employees; (b) assuming that the workers were regular employees, NLRC failed toconsider that they were terminated for cause; (c) assuming further that the employees were illegally dismissed, NLRC

erred in awarding back wages in excess of three (3) years; and, (d) assuming finally that the decision is correct, NLRCerred when it pierced the veil of corporate personality of petitioner-corporations.

The main thrust of petitioners' expostulation is that respondents have no valid cause to complain about theiremployment contracts since these documents merely formalized their status as project employees. They cite PolicyInstruction No. 20 of the Department of Labor which defines project employees as those employed in connection witha particular construction project, adding that the ruling in Sandoval Shipyards, Inc . v . NLRC

8 applies squarely to the

instant case because there the Court declared that the employment of project employees is co-terminous with thecompletion of the project regardless of the number of projects in which they have worked. And as their employment isone for a definite period, they are not entitled to separation pay nor is their employer required to obtain clearance fromthe Secretary of Labor in connection with their termination. Petitioners thus argue that their dismissal from the serviceof private respondents was legal since the projects for which they were hired had already been completed. Asadditional ground, they claim that Mario Labendia and Roberto Labendia had absented themselves without leave

giving management no choice but to sever their employment.

We are not convinced. The principal test in determining whether particular employees are "project employees"distinguished from "regular employees" is whether the "project employees" are assigned to carry out "specific projector undertaking," the duration (and scope) of which are specified at the time the employees are engaged for the project."Project" in the realm of business and industry refers to a particular job or undertaking that is within the regular orusual business of employer, but which is distinct and separate and identifiable as such from the undertakings of the

company. Such job or undertaking begins and ends at determined or determinable times. 9

While it may be allowed that in the instant case the workers were initially hired for specific projects or undertakings ofthe company and hence can be classified as project employees, the repeated re-hiring and the continuing need fortheir services over a long span of time (the shortest, at seven [7] years) have undeniably made them regular

employees. Thus, we held that where the employment of project employees is extended long after the supposedproject has been finished, the employees are removed from the scope of project employees and considered regular

employees. 10

While length of time may not be a controlling test for project employment, it can be a strong factor in determiningwhether the employee was hired for a specific undertaking or in fact tasked to perform functions which are vital,necessary and indispensable to the usual business or trade of the employer. In the case at bar, private respondentshad already gone through the status of project employees. But their employments became non-coterminous withspecific projects when they started to be continuously re-hired due to the demands of petitioners' business and were

re-engaged for many more projects without interruption. We note petitioners' own admission —

[t]hese construction projects have been prosecuted by either of the three petitioners, either individually or in a joint venture with one another. Likewise, these construction projects have been prosecuted by either of thethree petitioners, either simultaneously, one construction project overlapping another and/or one projectcommencing immediately after another project has been completed or terminated. Perhaps because of theircapacity to prosecute government projects and their good record and performance, at least one of the threepetitioners had an on-going construction project and/or one of the three petitioners' construction project

overlapped that of another. 11

The denial by petitioners of the existence of a work pool in the company because their projects were not continuous isamply belied by petitioners themselves who admit that —

All the employees of either of the three petitioners were actually assigned to a particular project to remain insaid project until the completion or termination of that project. However, after the completion of that particularproject or when their services are no longer needed in the project or particular phase of the project where they

were assigned, they were transferred and rehired in another on-going project. 12



A work pool may exist although the workers in the pool do not receive salaries and are free to seek other employmentduring temporary breaks in the business, provided that the worker shall be available when called to report for a project.

Although primarily applicable to regular seasonal workers, this set-up can likewise be applied to project workersinsofar as the effect of temporary cessation of work is concerned. This is beneficial to both the employer andemployee for it prevents the unjust situation of "coddling labor at the expense of capital" and at the same time enablesthe workers to attain the status of regular employees. Clearly, the continuous rehiring of the same set of employees

within the framework of the Lao Group of Companies is strongly indicative that private respondents were an integralpart of a work pool from which petitioners drew its workers for its various projects.

In a final attempt to convince the Court that private respondents were indeed project employees, petitioners point outthat the workers were not regularly maintained in the payroll and were free to offer their services to other companieswhen there were no on-going projects. This argument however cannot defeat the workers' status of regularity. Weapply by analogy the case of Industrial-Commercial-Agricultural Workers Organization v . CIR

13 which deals with

regular seasonal employees. There we held —

That during the temporary layoff the laborers are free to seek other employment is natural, since the laborersare not being paid, yet must find means of support. A period during which the Central is forced to suspend orcease operation for a time . . . should not mean starvation for employees and their families (emphasis

supplied).

Truly, the cessation of construction activities at the end of every project is a foreseeable suspension of work. Ofcourse, no compensation can be demanded from the employer because the stoppage of operations at the end of aproject and before the start of a new one is regular and expected by both parties to the labor relations. Similar to thecase of regular seasonal employees, the employment relation is not severed by merely being suspended.

14 The

employees are, strictly speaking, not separated from services but merely on leave of absence without pay until theyare reemployed.

15 Thus we cannot affirm the argument that non-payment of salary or non-inclusion in the payroll and

the opportunity to seek other employment denote project employment.

Contrary to petitioners' assertion, our ruling in Sandoval Shipyards is inapplicable considering the specialcircumstances attendant to the present case. In Sandoval , the hiring of construction workers, unlike in the instantcase, was intermittent and not continuous for the "shipyard merely accepts contracts for shipbuilding or for repair of

vessels from third parties and, only on occasions when it has work contract of this nature that it hires workers to do the job which, needless to say, lasts only for less than a year or longer."

16

Moreover, if private respondents were indeed employed as "project employees," petitioners should have submitted areport of termination to the nearest public employment office every time their employment was terminated due tocompletion of each construction project.

17 The records show that they did not. Policy Instruction No. 20 is explicit that

employers of project employees are exempted from the clearance requirement but not from the submission oftermination report. We have consistently held that failure of the employer to file termination reports after every projectcompletion proves that the employees are not project employees.

18 Nowhere in the New Labor Code is it provided that

the reportorial requirement is dispensed with. The fact is that Department Order No. 19 superseding Policy Instruction

No. 20 expressly provides that the report of termination is one of the indicators of project employment. 19

We agree with the NLRC that the execution of the project employment contracts was "farcical." 20

Obviously, thecontracts were a scheme of petitioners to prevent respondents' from being considered as regular employees. Itimposed time frames into an otherwise flexible employment period of private respondents some of whom wereemployed as far back as 1969. Clearly, here was an attempt to circumvent labor laws on tenurial security. Settled isthe rule that when periods have been imposed to preclude the acquisition of tenurial security by the employee, theyshould be struck down as contrary to public morals, good customs or public order.

21 Worth noting is that petitioners

had engaged in various joint venture agreements in the past without having to draft project employment contracts.That they would require execution of employment contracts and waivers at this point, ostensibly to be used for auditpurposes, is a suspect excuse, considering that petitioners enforced the directive by withholding the salary of any

employee who spurned the order.

We likewise reject petitioners' justification in re-hiring private respondents i .e., that it is much cheaper and economicalto re-hire or re-employ the same workers than to train a new set of employees. It is precisely because of this cost-

saving benefit to the employer that the law deems it fair that the employees be given a regular status. We need notbelabor this point.



The NLRC was correct in finding that the workers were illegally dismissed. The rule is that in effecting a validdismissal, the mandatory requirements of substantive and procedural due process must be strictly complied with.These were wanting in the present case. Private respondents were dismissed allegedly because of insubordination orblatant refusal to comply with a lawful directive of their employer. But willful disobedience of the employer's lawfulorders as a just cause for the dismissal of the employees envisages the concurrence of at least two (2) requisites: (a)the employee's assailed conduct must have been willful or intentional, the willfulness being characterized by a

wrongful and perverse attitude; and, (b) the order violated must have been reasonable, lawful, made known to theemployee and must pertain to the duties which he has been engaged to discharge.

22 The refusal of private

respondents was willful but not in the sense of plain and perverse insubordination. It was dictated by necessity and justifiable reasons — for what appeared to be an innocent memorandum was actually a veiled attempt to deny themtheir rightful status as regular employees. The workers therefore had no option but to disobey the directive which theydeemed unreasonable and unlawful because it would result in their being downsized to mere project workers. This act

of self-preservation should not merit them the extreme penalty of dismissal.

The allegation of petitioners that private respondents are guilty of abandonment of duty is without merit. The elementsof abandonment are: (a) failure to report for work or absence without valid or justifiable reason, and, (b) a clearintention to sever the employer-employee relationship, with the second element as the more determinative factormanifested by some overt acts.

23 In this case, private respondents Roberto Labendia and Mario Labendia were forced

to leave their respective duties because their salaries were withheld. They could not simply sit idly and allow their

families to starve. They had to seek employment elsewhere, albeit temporarily, in order to survive. On the other hand,it would be the height of injustice to validate abandonment in this particular case as a ground for dismissal ofrespondents thereby making petitioners benefit from a gross and unjust situation which they themselvescreated.

24 Private respondents did not intend to sever ties with petitioner and permanently abandon their jobs;

otherwise, they would not have filed this complaint for illegal dismissal. 25

Petitioners submit that since private respondents were only project employees, they are not entitled to security of

tenure. This is incorrect. In Archbuild Masters and Construction, Inc . v . NLRC 26

we held —

. . . a project employee hired for a specific task also enjoys security of tenure. A termination of his employmentmust be for a lawful cause and must be done in a manner which affords him the proper notice and hearing . . .. To allow employers to exercise their prerogative to terminate a project worker's employment based on

gratuitous assertions of project completion would destroy the constitutionally protected right of labor to securityof tenure (emphasis supplied).

The burden of proving that an employee has been lawfully dismissed therefore lies with the employer. In the case atbar, the assertions of petitioners were self-serving and insufficient to substantiate their claim of proximate projectcompletion. The services of the employees were terminated not because of contract expiration but as sanction for theirrefusal to sign the project employment forms and quitclaims.

Finding that the dismissal was without just cause, we find it unnecessary to dwell on the non-observance of proceduraldue process. Suffice it to state that private respondents were not priorly notified of their impending dismissal and that

they were not provided ample opportunity to defend themselves.

Petitioners charge as erroneous the grant to private respondents by NLRC of back wages in excess of three (3) years

or, in the alternative, to an award of separation pay if reinstatement is no longer feasible.

We disagree. Since the illegal dismissal was made in 1990 or after the effectivity of the amendatory provision of RANo. 6715 on 21 March 1989, private respondents' back wages should be computed on the basis of Art. 279 of theLabor Code which states that "(a)n employee who is unjustly dismissed from work shall be entitled to reinstatement

without loss of seniority rights and other privileges and to his full back wages, inclusive of allowances, and to his otherbenefits or their monetary equivalent computed from the time his compensation was withheld from him up to the timeof his actual reinstatement ."

Conformably with our ruling in Bustamante v . NLRC 27

the illegally dismissed employees are entitled to full backwages, undiminished by earnings derived elsewhere during the period of their illegal dismissal. In the event thatreinstatement is no longer feasible, back wages shall be computed from the time of illegal termination until the time of

the finality of the decision.28

The award shall be based on the documents submitted by private respondents, i .e.affidavits, SSS and Medicare documents, since petitioners failed to adduce competent evidence to the contrary. The



separation pay shall be equivalent to "at least one (1) month salary or to one (1) month salary for every year of

service, whichever is higher, a fraction of at least six (6) months being considered as one whole year." 29

Finally, public respondent NLRC did not err in disregarding the veil of separate corporate personality and holdingpetitioners jointly and severally liable for private respondents' back wages and separation pay. The records disclosethat the three (3) corporations were in fact substantially owned and controlled by members of the Lao family composed

of Lao Hian Beng alias Tomas Lao, Chiu Siok Lian (wife of Tomas Lao), Andrew C. Lao, Lao Y. Heng, Vicente LaoChua, Lao E. Tin, Emmanuel Lao and Ismaelita Maluto. A majority of the outstanding shares of stock in LVM and T&Jis owned by the Lao family. T&J is 100% owned by the Laos as reflected in its Articles of Incorporation. The LaoGroup of Companies therefore is a closed corporation where the incorporators and directors belong to a single family.Lao Hian Beng is the same Tomas Lao who owns Tomas Lao Corporation and is the majority stockholder of T&J.

Andrew C. Lao is the Managing Director of LVM Construction, and President and Managing Director of the Lao Groupof Companies. Petitioners are engaged in the same line of business under one management and use the sameequipment including manpower services. Where it appears that [three] business enterprises are owned, conductedand controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons,

disregard the legal fiction that the [three] corporations are distinct entities, and treat them as identical. 30

Consonant with our earlier ruling, 31

we hold that the liability of petitioners extends to the responsible officers acting inthe interest of the corporations. In view of the peculiar circumstances of this case, we disregard the separatepersonalities of the three (3) corporations and at the same time declare the members of the corporations jointly andseverally liable with the corporations for the monetary awards due to private respondents. It should always be borne inmind that the fiction of law that a corporation as a juridical entity has a distinct and separate personality was envisagedfor convenience and to serve justice; therefore it should not be used as a subterfuge to commit injustice and

circumvent labor laws.

WHEREFORE, the petition is DENIED and the decision of the National Labor Relations Commission dated 05 August1994 is AFFIRMED. Petitioners are ordered to reinstate private respondents to their former positions without loss ofseniority rights and other privileges with full back wages, inclusive of allowances, computed from the timecompensation was withheld up to the time of actual reinstatement. In the event that reinstatement is no longerfeasible, petitioners are directed to pay private respondents separation pay equivalent to one month salary for everyyear of service, a fraction of at least six (6) months being considered one (1) year in the computation thereof, and full

back wages computed from the time compensation was withheld until the finality of this decision. All other claims ofthe parties are DISMISSED for lack of merit. Costs against petitioners.

SO ORDERED.

G.R. No. 154975 January 29, 2007

GENERAL CREDIT CORPORATION (now PENTA CAPITAL FINANCE CORPORATION), Petitioner,vs.ALSONS DEVELOPMENT and INVESTMENT CORPORATION and CCC EQUITY CORPORATION,Respondents.

D E C I S I O N

GARCIA, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner General Credit Corporation, nowknown as Penta Capital Finance Corporation, seeks to annul and set aside the Decision1 and Resolution2dated April

11, 2002 and August 20, 2002, respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 31801,affirming theNovember 8, 1990 decision of the Regional Trial Court (RTC) of Makati City in its Civil Case No. 12707, an action for asum of money thereat instituted by the herein respondent Alsons Development and Investment Corporation against

the petitioner and respondent CCC Equity Corporation.

The facts:



Shortly after its incorporation in 1957 as a finance and investment company, petitioner General Credit Corporation(GCC, for short), then known as Commercial Credit Corporation (CCC), established CCC franchise companies in

different urban centers of the country.3 In furtherance of its business, GCC had, as early as 1974, applied for and wasable to secure license from the then Central Bank (CB) of the Philippines and the Securities and Exchange

Commission (SEC) to engage also in quasi-banking activities.4 On the other hand, respondent CCC Equity

Corporation (EQUITY, for brevity) was organized in November 1994 by GCC for the purpose of, among other things,

taking over the operations and management of the various franchise companies. At a time material hereto, respondent Alsons Development and Investment Corporation (ALSONS, hereinafter) and Conrado, Nicasio, Editha and Ladislawa,all surnamed Alcantara, and Alfredo de Borja (hereinafter the Alcantara family, for convenience), each owned, just like

GCC, shares in the aforesaid GCC franchise companies, e.g., CCC Davao and CCC Cebu.

In December 1980, ALSONS and the Alcantara family, for a consideration of Two Million (P2,000,000.00) Pesos,

sold their shareholdings – a total of 101,953 shares, more or less – in the CCC franchise companies to EQUITY.[5]OnJanuary 2, 1981, EQUITY issued ALSONS et al ., a "bearer" promissory note for P2,000,000.00 with a one-year

maturity date, at 18% interest per annum, with provisions for damages and litigation costs in case of default.6

Some four years later, the Alcantara family assigned its rights and interests over the bearer note to ALSONS which

thenceforth became the holder thereof.7 But even before the execution of the assignment deal aforestated, letters ofdemand for interest payment were already sent to EQUITY, through its President, Wilfredo Labayen, who pleadedinability to pay the stipulated interest, EQUITY no longer then having assets or property to settle its obligation nor

being extended financial support by GCC.

What happened next, as narrated in the assailed Decision of the CA, may be summarized, as follows:

1. On January 14, 1986, before the RTC of Makati, ALSONS, having failed to collect on the bearer noteaforementioned, filed a complaint for a sum of money8 against EQUITY and GCC. The case, docketed as Civil

Case No. 12707, was eventually raffled to Branch 58 of the court. As stated in par. 4 of the complaint, GCC isbeing impleaded as party-defendant for any judgment ALSONS might secure against EQUITY and, under thedoctrine of piercing the veil of corporate fiction, against GCC, EQUITY having been organized as a tool and

mere conduit of GCC.

2. Answering with a cross-claim against GCC, EQUITY stated by way of special and affirmative defenses thatit (EQUITY):

a) was purposely organized by GCC for the latter to avoid CB Rules and Regulations on DOSRI(Directors, Officers, Stockholders and Related Interest) limitations, and that it acted merely asintermediary or bridge for loan transactions and other dealings of GCC to its franchises and the

investing public; and

b) is solely dependent upon GCC for its funding requirements, to settle, among others, equitypurchases made by investors on the franchises; hence, GCC is solely and directly liable to ALSONS,

the former having failed to provide "EQUITY the necessary funds to meet its obligations to ALSONS.

3. GCC filed its ANSWER to Cross-claim, stressing that it is a distinct and separate entity from EQUITY andalleging, in essence that the business relationships with each other were always at arm’s length. And followingthe denial of its motion to dismiss ALSONS’ complaint, on the ground of lack of jurisdiction and want of causeof action, GCC filed its Answer thereto and set up affirmative defenses with counterclaim for exemplary

damages and attorney’s fees.

Issues having been joined, trial ensued. Presented by ALSONS, but testifying as adverse witnesses, were CB andGCC officers. Among other things, ALSONS’ evidence, which included the EQUITY-issued "bearer" promissory note

marked as Exhibit "K" and over sixty (60) other marked and subsequently admitted documents, 9 were to the effect thatfive (5) incorporators, each contributing P100,000.00 as the initial paid up capital of the company, organized EQUITYto manage, as it did manage, various GCC franchises through management contracts. Before EQUITY’s incorporation,however, GCC was already into the financing business as it was in fact managing and operating various CCCfranchises. Presented in evidence, too, was the September 29, 1982 letter-reply of one G. Villanueva, then GCCPresident, to EQUITY President Wilfredo Labayen, bearing on the sale of EQUITY shares to third parties, part of theproceeds of which the Alcantaras wanted applied to liquidate the promissory note in question. In said letter, Mr.



Villanueva explained that the GCC Board denied the Alcantaras’ request to be paid out of such proceeds, butnonetheless authorized EQUITY to pay them interest out of EQUITY’s operation income, in preference over what was

due GCC.10

Albeit EQUITY presented its president, it opted to adopt the testimony of some of ALSONS’ witnesses, inclusive of the

documentary exhibits testified to by each of them, as its evidence.

For its part, GCC called only Wilfredo Labayen to testify. It stuck to its underlying defense of separateness andpresented documentary evidence detailing the organizational structures of both GCC and EQUITY. And in a bid tonegate the notion that it was conducting its business illegally, GCC presented CB and SEC-issued licenses authoringit to engage in financing and quasi-banking activities. It also adduced evidence to prove that it was never a party toany of the actionable documents ALSONS and its predecessors-in-interest had in their possession and that the

November 27, 1985 deed of assignment of rights over the promissory note was unenforceable.

Eventually, the trial court, on its finding that EQUITY was but an instrumentality or adjunct of GCC and considering thelegal consequences and implications of such relationship, came out with its decision on November 8, 1990, rendering

judgment for ALSONS, to wit:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered in favor of plaintiff [ALSONS] andagainst the defendants [EQUITY and GCC] who are hereby ordered, jointly and severally, to pay plaintiff:

1. the principal sum of Two Million Pesos (P2,000,000.00) together with the interest due thereon at the rate of

eighteen percent (18%) annually computed from Jan. 2, 1981 until the obligation is fully paid;

2. liquidated damages due thereon equivalent to three percent (3%) monthly computed from January 2, 1982

until the obligation is fully paid;

3. attorney’s fees in an amount equivalent to twenty four percent (24%) of the total obligation due; and

4. the costs of suit.

IT IS SO ORDERED. (Words in brackets added.)

Therefrom, GCC went on appeal to the CA where its appellate recourse was docketed as CA-G.R. CV No. 31801,

ascribing to the trial court the commission of the following errors:

1. In holding that there is a "Parent-Subsidiary" corporate relationship between EQUITY and GCC;

2. In not holding that EQUITY and GCC are distinct and separate corporate entities;

3. In applying the doctrine of "Piercing the Veil of Corporate Fiction" in the case at bar; and

4. In not holding ALSONS in estoppel to question the corporate personality of EQUITY.

On April 11, 2002, the appellate court rendered the herein assailed Decision,11 affirming that of the trial court, thus:

WHEREFORE, premises considered, the Decision of the Regional Trial Court, Branch 58, Makati in Civil Case No.

12707 is hereby AFFIRMED.

SO ORDERED.

In time, GCC moved for reconsideration followed by a motion for oral argument, but both motions were denied by the

CA in its equally assailed Resolution of August 20, 2002.12

Hence, GCC’s present recourse anchored on the following arguments, issues and/or submissions:



1. The motion for oral argument with motion for reconsideration and its supplement were perfunctorily denied

by the CA without justifiable basis;

2. There is absolutely no basis for piercing the veil of corporate fiction;

3. Respondent Alsons is not a real party-in-interest as the promissory note payable to bearer subject of the

collection suit is but a simulated document and/or refers to another party. Moreover, the subject promissorynote is not admissible in evidence because it has not been duly authenticated and it is an altered document;

4. The fact of full payment stated in the ten (10) deeds of sale of the shares of stock is conclusive on thesellers, and by the patrol evidence rule, the alleged fact of its non-payment cannot be introduced in evidenced;

and

5. The counter-claim filed by GCC against Alsons should be granted in the interest of justice.

The petition and the arguments and/or issues holding it together are without merit. The desired reversal of the assailed

decision and resolution of the appellate court is accordingly DENIED.

Instead of raising distinctly formulated questions of law, as is expected of one seeking a review under Rule 45 of theRules of Court of a final CA judgment,13 petitioner GCC starts off by voicing disappointment over the "perfunctory"denial by the CA of its twin motions for reconsideration and oral argument. Petitioner, to be sure, cannot plausiblyexpect a reversal action premised on the cursory way its motions were denied, if such indeed were the case. Suchmanner of denial, while perhaps far from ideal, is not even a recognized ground for appeal by certiorari, unless adenial of due process ensues, which is not the case here. And lest it be overlooked, the CA prefaced its assaileddenial resolution with the clause: "[F]inding no reversible error committed to warrant the modification and/or reversal ofthe April 11, 2002 Decision," suggesting that the appellate court gave the petitioner’s motion for reconsideration theattention it deserved. At the very least, the petitioner was duly apprised of the reasons why reconsideration could notbe favorably considered. An extended resolution was not really necessary to dispose of the motion for reconsideration

in question.

Petitioner’s lament about being deprived of procedural due process owing to the denial of its motion for oral argumentis simply specious. Under the CA Internal Rules, the appellate court may tap any of the three (3) alternatives thereinprovided to aid the court in resolving appealed cases before it. It may rely on available records alone, require thesubmission of memoranda or set the case for oral argument. The option the Internal Rules thus gives the CAnecessarily suggests that the appellate court may, at its sound discretion, dispense with a tedious oral argumentexercise. Rule VI, Section 6 of the 2002 Internal Rules of the CA, provides:

SEC. 6 Judicial Action on Certain Petitions.- (a) In petitions for review, after the receipt of the respondent’s commenton the petition, " the Court [of Appeals] may dismiss the petition if it finds the same to be patently without merit ",

otherwise, it shall give due course to it.

xxx xxx xxx

If the petition is given due course, the Court may consider the case submitted for decision or require the parties tosubmit their memorandum or set the case for oral argument. xxx. After the oral argument or upon submission of the

memoranda " the case shall be deemed submitted for decision.

In the case at bench, records reveal that the appellate court, in line with the prescription of its own rules, required theparties to just submit, as they did, their respective memoranda to properly ventilate their separate causes. Under this

scenario, the petitioner cannot be validly heard, having been deprived of due process.

Just like the first, the last three (3) arguments set forth in the petition will not carry the day for the petitioner. In relationtherewith, the Court notes that these arguments and the issues behind them were not raised before the trial court. Thisappellate maneuver cannot be allowed. For, well-settled is the rule that issues or grounds not raised below cannot be

resolved on review in higher courts.14 Springing surprises on the opposing party is antithetical to the sporting idea of

fair play, justice and due process; hence, the proscription against a party shifting from one theory at the trial court to a



new and different theory in the appellate level. On the same rationale, points of law, theories, issues not brought to the

attention of the lower court or, in fine, not interposed during the trial cannot be raised for the first time on appeal. 15

There are, to be sure, exceptions to the rule respecting what may be raised for the first time on appeal. Lack of

jurisdiction over when the issues raised present a matter of public policy16 comes immediately to mind. None of the

well-recognized exceptions obtain in this case, however.

Lest it be overlooked vis-à-vis the same last three arguments thus pressed, both the trial court and the CA, based onthe evidence adduced, adjudged the petitioner and respondent EQUITY jointly and severally liable to pay whatrespondent ALSONS is entitled to under the "bearer" promissory note. The judgment argues against the notion of thenote being simulated or altered or that respondent ALSONS has no standing to sue on the note, not being the payeeof the "bearer" note. For, the declaration of liability not only presupposes the duly established authenticity and dueexecution of the promissory note over which ALSONS, as the holder in due course thereof, has interest, but also theuntenability of the petitioner’s counterclaim for attorney’s fees and exemplary damages against ALSONS. At bottom,the petitioner predicated such counter-claim on the postulate that respondent ALSONS had no cause of action, the

supposed promissory note being, according to the petitioner, either a simulated or an altered document.

In net effect, the definitive conclusion of the appellate court – affirmatory of that of the trial court – was that the bearer

promissory note (Exh. "K") was a genuine and authentic instrument payable to the holder thereof. This factualdetermination, as a matter of long and sound appellate practice, deserves great weight and shall not be disturbed on

appeal, save for the most compelling reasons,17 such as when that determination is clearly without evidentiary support

or when grave abuse of discretion has been committed.18 This is as it should be since the Court, in petitions for review

of CA decisions under Rule 45 of the Rules of Court, usually limits its inquiry only to questions of law. Statedotherwise, it is not the function of the Court to analyze and weigh all over again the evidence or premises supportive of

the factual holdings of lower courts.19

As nothing in the record indicates any of the exceptions adverted to above, the factual conclusion of the CA that theP2 Million promissory note in question was authentic and was issued at the first instance to respondent ALSONS andthe Alcantara family for the amount stated on its face, must be affirmed. It should be stressed in this regard that even

the issuing entity, i.e., respondent EQUITY, never challenged the genuineness and due execution of the note.

This brings us to the remaining but core issue tendered in this case and aptly raised by the petitioner, to wit: whetherthere is absolutely no basis for piercing GCC’s veil of corporate identity.

A corporation is an artificial being vested by law with a personality distinct and separate from those of the persons

composing it20 as well as from that of any other entity to which it may be related.21 The first consequence of the

doctrine of legal entity of the separate personality of the corporation is that a corporation may not be made to answer

for acts and liabilities of its stockholders or those of legal entities to which it may be connected or vice versa.22

The notion of separate personality, however, may be disregarded under the doctrine – "piercing the veil of corporatefiction" – as in fact the court will often look at the corporation as a mere collection of individuals or an aggregation ofpersons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying thegroup. Another formulation of this doctrine is that when two (2) business enterprises are owned, conducted and

controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregardthe legal fiction that two corporations are distinct entities and treat them as identical or one and the same.23

Whether the separate personality of the corporation should be pierced hinges on obtaining facts, appropriatelypleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not

hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice.24 After all, the

concept of corporate entity was not meant to promote unfair objectives.

Authorities are agreed on at least three (3) basic areas where piercing the veil, with which the law covers and isolates

the corporation from any other legal entity to which it may be related, is allowed.25 These are: 1) defeat of public

convenience,26 as when the corporate fiction is used as vehicle for the evasion of an existing obligation;27 2) fraud

cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime;28 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, or where thecorporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality,

agency, conduit or adjunct of another corporation.29



The CA found valid grounds to pierce the corporate veil of petitioner GCC, there being justifiable basis for such action.When the appellate court spoke of a justifying factor, the reference was to what the trial court said in its decision,namely: the existence of "certain circumstances [which], taken together, gave rise to the ineluctable conclusion that "

[respondent] EQUITY is but an instrumentality or adjunct of [petitioner] GCC."

The Court agrees with the disposition of the appellate court on the application of the piercing doctrine to the

transaction subject of this case. Per the Court’s count, the trial court enumerated no less than 20 documentedcircumstances and transactions, which, taken as a package, indeed strongly supported the conclusion that respondentEQUITY was but an adjunct, an instrumentality or business conduit of petitioner GCC. This relation, in turn, provides a

justifying ground to pierce petitioner’s corporate existence as to ALSONS’ claim in question. Foremost of what the trialcourt referred to as "certain circumstances" are the commonality of directors, officers and stockholders and evensharing of office between petitioner GCC and respondent EQUITY; certain financing and management arrangementsbetween the two, allowing the petitioner to handle the funds of the latter; the virtual domination if not control wielded bythe petitioner over the finances, business policies and practices of respondent EQUITY; and the establishment ofrespondent EQUITY by the petitioner to circumvent CB rules. For a perspective, the following are some relevant

excerpts from the trial court’s decision setting forth in some detail the tipping circumstances adverted to therein:

It must be noted that as characterized by their business relationship, [respondent] EQUITY and [petitioner] GCC hadcommon directors and/or officers as well as stockholders. This is revealed by the proceedings recorded in SEC CaseNo. 25-81 entitled "Avelina Ramoso, et al., vs. GCC, et al., where it was established, thru the testimony of EQUITY’sown President " that more than 90% of the stockholders of " EQUITY were also stockholders of " GCC "..Disclosed likewise is the fact that when [EQUITY’s President] Labayen sold the shareholdings of EQUITY in saidfranchise companies, practically the entire proceeds thereof were surrendered to GCC, and not received by EQUITY

(EXHIBIT "RR") xxx.

It was likewise shown by a preponderance of evidence that not only had "GCC financed " EQUITY and that thelatter was heavily indebted to the former but EQUITY was, in fact, a wholly owned subsidiary of "GCC. Thus, asaffirmed by EQUITY’s President, " the funds invested by EQUITY in the CCC franchise companies actually camefrom CCC Phils. or GCC (Exhibit "Y-5")". that, as disclosed by the Auditor’s report for 1982, past due receivablesalone of GCC exceeded P101,000,000.00 mostly to GCC affiliates especially CCC EQUITY. "; that [CB’s] Report ofExamination dated July 14, 1977 shows that " EQUITY which has a paid-up capital of only P500,000.00 was the

biggest borrower of GCC with a total loan of P6.70 Million"

.

xxx xxx xxx

It has likewise been amply substantiated by [respondent ALSONS’] evidence that not only did " GCC cause theincorporation of " EQUITY, but, the latter had grossly inadequate capital for the pursuit of its line of business to the

extent that its business affairs were considered as GCC’s own business endeavors. xxx.

xxx xxx xxx

ALSONS has likewise shown "that the bonuses of the officers and directors of " EQUITY was based on its totalfinancial performance together with all its affiliates" both firms were sharing one and the same office when both were

still operational"

and that the directors and executives of"

EQUITY never acted independently"

but took theirorders from " GCC".

The evidence has also indubitably established that " EQUITY was organized by " GCC for the purpose ofcircumventing [CB] rules and regulations and the Anti-Usury Law. Thus, as disclosed by the Advance Report " on theresult of Central Bank’s Operations Examination conducted on " GCC as of March 31, 1977 (EXHIBITS "FFF" etc.),the latter violated [CB] rules and regulations by : (a) using as a conduit its non-quasi bank affiliates ". (b) issuingwithout recourse facilities to enable GCC to extend credit to affiliates like " EQUITY which go beyond the singleborrower’s limit without the need of showing outstanding balance in the book of accounts. (Emphasis over words in

brackets added.)

It bears to stress at this point that the facts and the inferences drawn therefrom, upon which the two (2) courts belowapplied the piercing doctrine, stand, for the most part, undisputed. Among these is, to reiterate, the matter of EQUITY

having been incorporated to serve, as it did serve, as an instrumentality or adjunct of GCC. With the view we take ofthis case, GCC did not adduce any evidence, let alone rebut the testimonies and documents presented by ALSONS,



to establish the prevailing circumstances adverted to that provided the justifying occasion to pierce the veil of

corporate fiction between GCC and EQUITY. We quote the trial court:

Verily, indeed, as the relationships binding herein [respondent EQUITY and petitioner GCC] have been that of "parent-subsidiary corporations" the foregoing principles and doctrines find suitable applicability in the case at bar; and, ithaving been satisfactorily and indubitably shown that the said relationships had been used to perform certain functions

not characterized with legitimacy, this Court " feels amply justified to "pierce the veil of corporate entity" anddisregard the separate existence of the percent (sic) and subsidiary the latter having been so controlled by the parentthat its separate identity is hardly discernible thus becoming a mere instrumentality or alter ego of the former.Consequently, as the parent corporation, [petitioner] GCC maybe (sic) held responsible for the acts and contracts of itssubsidiary – [respondent] EQUITY - most especially if the latter (who had anyhow acknowledged its liability to

ALSONS) maybe (sic) without sufficient property with which to settle its obligations. For, after all, GCC was the entitywhich initiated and benefited immensely from the fraudulent scheme perpetrated in violation of the law. (Words in

parenthesis in the original; emphasis and bracketed words added).

Given the foregoing considerations, it behooves the petitioner, as a matter of law and equity, to assume the legitimatefinancial obligation of a cash-strapped subsidiary corporation which it virtually controlled to such a degree that thelatter became its instrument or agent. The facts, as found by the courts a quo, and the applicable law call for this kind

of disposition. Or else, the Court would be allowing the wrong use of the fiction of corporate veil.

WHEREFORE, the instant petition is DENIED and the appealed Decision and Resolution of the Court of Appeals areaccordingly AFFIRMED.

Costs against the petitioner.

SO ORDERED.

G.R. No. 100812 June 25, 1999

FRANCISCO MOTORS CORPORATION, petitioner,

vs.COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL, respondents.

QUISUMBING, J.:

This petition for review on certiorari , under Rule 45 of the Rules of Court, seeks to annul the decision 1 of the Court of

Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135, Regional Trial Court of Makati,

Metro Manila. The procedural antecedents of this petition are as follows:

On January 23, 1985, petitioner filed a complaint 2 against private respondents to recover three thousand four hundred

twelve and six centavos (P3,412.06), representing the balance of the jeep body purchased by the Manuels frompetitioner; an additional sum of twenty thousand four hundred fifty-four and eighty centavos (P20,454.80) representingthe unpaid balance on the cost of repair of the vehicle; and six thousand pesos (P6,000.00) for cost of suit andattorney's fees.

3 To the original balance on the price of jeep body were added the costs of repair.

4 In their answer,

private respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel in the amount of fiftythousand pesos (P50,000) which was not paid by the incorporators, directors and officers of the petitioner. The trialcourt decided the case on June 26, 1985, in favor of petitioner in regard to the petitioner's claim for money, but alsoallowed the counter-claim of private respondents. Both parties appealed. On April 15, 1991, the Court of Appeals

sustained the trial court's decision. 5 Hence, the present petition.

For our review in particular is the propriety of the permissive counterclaim which private respondents filed togetherwith their answer to petitioner's complaint for a sum of money. Private respondent Gregorio Manuel alleged as anaffirmative defense that, while he was petitioner's Assistant Legal Officer, he represented members of the Francisco

family in the intestate estate proceedings of the late Benita Trinidad. However, even after the termination of theproceedings, his services were not paid. Said family members, he said, were also incorporators, directors and officers



of petitioner. Hence to petitioner's collection suit, he filed a counter permissive counterclaim for the unpaid attorney's

fees. 6

For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this score, andevidence ex-parte was presented on the counterclaim. The trial court ruled in favor of private respondents and foundthat Gregorio Manuel indeed rendered legal services to the Francisco family in Special Proceedings Number 7803 —

"In the Matter of Intestate Estate of Benita Trinidad". Said court also found that his legal services were notcompensated despite repeated demands, and thus ordered petitioner to pay him the amount of fifty thousand

(P50,000.00) pesos. 7

Dissatisfied with the trial court's order, petitioner elevated the matter to the Court of Appeals, posing the following

issues:

I.

WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS

IT NEVER ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT.

II.

WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGEDPERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANT-

APPELLEES.

III.

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER

THE ALLEGED PERMISSIVE COUNTERCLAIM. 8

Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly served on

it together with the copy of the answer containing the permissive counterclaim. Further, petitioner questions thepropriety of its being made party to the case because it was not the real party in interest but the individual members of

the Francisco family concerned with the intestate case.

In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim must beanswered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it state in theRules that a party still needed to be summoned anew if a counterclaim was set up against him. Failure to servesummons, said respondent court, did not effectively negate trial court's jurisdiction over petitioner in the matter of thecounterclaim. It likewise pointed out that there was no reason for petitioner to be excused from answering thecounterclaim. Court records showed that its former counsel, Nicanor G. Alvarez, received the copy of the answer withcounterclaim two (2) days prior to his withdrawal as counsel for petitioner. Moreover when petitioner's new counsel,Jose N. Aquino, entered his appearance, three (3) days still remained within the period to file an answer to thecounterclaim. Having failed to answer, petitioner was correctly considered in default by the trial

court. 9 Even assuming that the trial court acquired no jurisdiction over petitioner, respondent court also said, buthaving filed a motion for reconsideration seeking relief from the said order of default, petitioner was estopped from

further questioning the trial court's jurisdiction.10

On the question of its liability for attorney's fees owing to private respondent Gregorio Manuel, petitioner argued thatbeing a corporation, it should not be held liable therefor because these fees were owed by the incorporators, directorsand officers of the corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed that thepersonality of the corporation, vis-a-vis the individual persons who hired the services of private respondent, is separate

and distinct,11

hence, the liability of said individuals did not become an obligation chargeable against petitioner.

Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:

However, this distinct and separate personality is merely a fiction created by law for convenience andto promote justice. Accordingly, this separate personality of the corporation may be disregarded, or



the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for found (sic)illegality, or to work an injustice, or where necessary to achieve equity or when necessary for theprotection of creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations arecomposed of natural persons and the legal fiction of a separate corporate personality is not a shield

for the commission of injustice and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408).

In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation iscomposed of the heirs of the late Benita Trinidad as directors and incorporators for whom defendantGregorio Manuel rendered legal services in the intestate estate case of their deceased mother.Considering the aforestated principles and circumstances established in this case, equity and justicedemands plaintiff-appellant's veil of corporate identity should be pierced and the defendant becompensated for legal services rendered to the heirs, who are directors of the plaintiff-appellant

corporation.12

Now before us, petitioner assigns the following errors:

I.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OFCORPORATE ENTITY.

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVERPETITIONER WITH RESPECT TO THE COUNTERCLAIM.

13

Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because thetransaction concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. According topetitioner, there was no cause of action by said respondent against petitioner; personal concerns of the heirs shouldbe distinguished from those involving corporate affairs. Petitioner further contends that the present case does not fallamong the instances wherein the courts may look beyond the distinct personality of a corporation. According topetitioner, the services for which respondent Gregorio Manuel seeks to collect fees from petitioner are personal in

nature. Hence, it avers the heirs should have been sued in their personal capacity, and not involve the corporation.14

With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the answercontaining the permissive counterclaim. It claims that the counterclaim is a separate case which can only be properlyserved upon the opposing party through summons. Further petitioner states that by nature, a permissive counterclaimis one which does not arise out of nor is necessarily connected with the subject of the opposing party's claim.Petitioner avers that since there was no service of summons upon it with regard to the counterclaim, then the court didnot acquire jurisdiction over petitioner. Since a counterclaim is considered an action independent from the answer,according to petitioner, then in effect there should be two simultaneous actions between the same parties: each partyis at the same time both plaintiff and defendant with respect to the other,

15 requiring in each case separate

summonses.

In their Comment, private respondents focus on the two questions raised by petitioner. They defend the propriety ofpiercing the veil of corporate fiction, but deny the necessity of serving separate summonses on petitioner in regard to

their permissive counterclaim contained in the answer.

Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was employed asassistant legal officer of petitioner corporation, and that his services were solicited by the incorporators, directors andmembers to handle and represent them in Special Proceedings No. 7803, concerning the Intestate Estate of the lateBenita Trinidad. They assert that the members of petitioner corporation took advantage of their positions by notcompensating respondent Gregorio Manuel after the termination of the estate proceedings despite his repeateddemands for payment of his services. They cite findings of the appellate court that support piercing the veil ofcorporate identity in this particular case. They assert that the corporate veil may be disregarded when it is used todefeat public convenience, justify wrong, protect fraud, and defend crime. It may also be pierced, according to them,

where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the



stockholders or of another corporate entity. In these instances, they aver, the corporation should be treated merely as

an association of individual persons.16

Private respondents dispute petitioner's claim that its right to due process was violated when respondents'counterclaim was granted due course, although no summons was served upon it. They claim that no provision in theRules of Court requires service of summons upon a defendant in a counterclaim. Private respondents argue that when

the petitioner filed its complaint before the trial court it voluntarily submitted itself to the jurisdiction of the court. As aconsequence, the issuance of summons on it was no longer necessary. Private respondents say they served a copy oftheir answer with affirmative defenses and counterclaim on petitioner's former counsel, Nicanor G. Alvarez. Whilepetitioner would have the Court believe that respondents served said copy upon Alvarez after he had withdrawn hisappearance as counsel for the petitioner, private respondents assert that this contention is utterly baseless. Recordsdisclose that the answer was received two (2) days before the former counsel for petitioner withdrew his appearance,according to private respondents. They maintain that the present petition is but a form of dilatory appeal, to set offpetitioner's obligations to the respondents by running up more interest it could recover from them. Private respondents

therefore claim damages against petitioner.17

To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate fiction.

Basic in corporation law is the principle that a corporation has a separate personality distinct from its stockholders andfrom other corporations to which it may be connected.18

However, under the doctrine of piercing the veil of corporateentity, the corporation's separate juridical personality may be disregarded, for example, when the corporate identity isused to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation is a merealter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are soconducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinctpersonality may be ignored.

19 In these circumstances, the courts will treat the corporation as a mere aggrupation of

persons and the liability will directly attach to them. The legal fiction of a separate corporate personality in those cited

instances, for reasons of public policy and in the interest of justice, will be justifiably set aside.

In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has norelevant application here. Respondent court erred in permitting the trial court's resort to this doctrine. The rationalebehind piercing a corporation's identity in a given case is to remove the barrier between the corporation from the

persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as ashield for undertaking certain proscribed activities. However, in the case at bar, instead of holding certain individuals orpersons responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporationwhich is being ordered to answer for the personal liability of certain individual directors, officers and incorporatorsconcerned. Hence, it appears to us that the doctrine has been turned upside down because of its erroneousinvocation. Note that according to private respondent Gregorio Manuel his services were solicited as counsel formembers of the Francisco family to represent them in the intestate proceedings over Benita Trinidad's estate. These

estate proceedings did not involve any business of petitioner.

Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitionercorporation on the claims that its management had requested his services and he acceded thereto as an employee ofpetitioner from whom it could be deduced he was also receiving a salary. His move to recover unpaid legal feesthrough a counterclaim against Francisco Motors Corporation, to offset the unpaid balance of the purchase and repair

of a jeep body could only result from an obvious misapprehension that petitioner's corporate assets could be used toanswer for the liabilities of its individual directors, officers, and incorporators. Such result if permitted could easily

prejudice the corporation, its own creditors, and even other stockholders; hence, clearly inequitous to petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directorsand officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of acorporation are unable to compensate a party for a personal obligation, it is far-fetched to allege that the corporation isperpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its corporate veil. While thereare no hard and fast rules on disregarding separate corporate identity, we must always be mindful of its function andpurpose. A court should be careful in assessing the milieu where the doctrine of piercing the corporate veil may be

applied. Otherwise an injustice, although unintended, may result from its erroneous application.

The personality of the corporation and those of its incorporators, directors and officers in their personal capacitiesought to be kept separate in this case. The claim for legal fees against the concerned individual incorporators, officersand directors could not be properly directed against the corporation without violating basic principles governing



corporations. Moreover, every action — including a counterclaim — must be prosecuted or defended in the name ofthe real party in interest.

20 It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at

the door of petitioner (FMC) rather than individual members of the Francisco family.

However, with regard to the procedural issue raised by petitioner's allegation, that it needed to be summoned anew inorder for the court to acquire jurisdiction over it, we agree with respondent court's view to the contrary. Section 4, Rule

11 of the Rules of Court provides that a counterclaim or cross-claim must be answered within ten (10) days fromservice. Nothing in the Rules of Court says that summons should first be served on the defendant before an answer tocounterclaim must be made. The purpose of a summons is to enable the court to acquire jurisdiction over the personof the defendant. Although a counterclaim is treated as an entirely distinct and independent action, the defendant inthe counterclaim, being the plaintiff in the original complaint, has already submitted to the jurisdiction of the court.Following Rule 9, Section 3 of the 1997 Rules of Civil Procedure,

21 if a defendant (herein petitioner) fails to answer

the counterclaim, then upon motion of plaintiff, the defendant may be declared in default. This is what happened topetitioner in this case, and this Court finds no procedural error in the disposition of the appellate court on this particularissue. Moreover, as noted by the respondent court, when petitioner filed its motion seeking to set aside the order of

default, in effect it submitted itself to the jurisdiction of the court. As well said by respondent court:

Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon itsrequest, plaintiff-appellant was granted time to file a motion for reconsideration of the disputeddecision. Plaintiff-appellant did file its motion for reconsideration to set aside the order of default and

the judgment rendered on the counterclaim.

Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as itvigorously insists, plaintiff-appellant is considered to have submitted to the court's jurisdiction when itfiled the motion for reconsideration seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447).

A party is estopped from assailing the jurisdiction of a court after voluntarily submitting himself to its jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Estoppel is a bar against any claims of lack of

jurisdiction. (Balais vs. Balais, 159 SCRA 37).22

WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar only as itheld Francisco Motors Corporation liable for the legal obligation owing to private respondent Gregorio Manuel; but this

decision is without prejudice to his filing the proper suit against the concerned members of the Francisco family in theirpersonal capacity. No pronouncement as to costs.1âwphi1.nêt

SO ORDERED.

TIMOTEO H. SARONA,

Petitioner,

- versus -

NATIONAL LABOR RELATIONS

G.R. No. 185280

Present:

CARPIO, J.,

Chairperson,

PEREZ,

SERENO,

REYES, and



COMMISSION, ROYALE SECURITY

AGENCY (FORMERLY SCEPTRE

SECURITY AGENCY) and

CESAR S. TAN,

Respondents.

BERNABE, JJ. !

Promulgated:

January 18, 2012

x-----------------------------------------------------------------------------------------x

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the May 29, 2008 Decision1 of the Twentieth

Division of the Court of Appeals (CA) in CA-G.R. SP No. 02127 entitled “Timoteo H. Sarona v. National Labor Relations

Commission, Royale Security Agency (formerly Sceptre Security Agency) and Cesar S. Tan”(Assailed Decision), which affirmed

the National Labor Relations Commission’s (NLRC) November 30, 2005 Decision and January 31, 2006 Resolution, finding the

petitioner illegally dismissed but limiting the amount of his backwages to three (3) monthly salaries. The CA likewise affirmed the

NLRC’s finding that the petitioner’s separation pay should be computed only on the basis of his length of service with respondent

Royale Security Agency (Royale). The CA held that absent any showing that Royale is a mere alter ego of Sceptre Security

Agency (Sceptre), Royale cannot be compelled to recognize the petitioner’s tenure with Sceptre. The dispositive portion of the

CA’s Assailed Decision states:

WHEREFORE, in view of the foregoing, the instant petition is PARTLY GRANTED, though

piercing of the corporate veil is hereby denied for lack of merit. Accordingly, the assailed Decision and

Resolution of the NLRC respectively dated November 30, 2005 and January 31, 2006 are

hereby AFFIRMED as to the monetary awards.



SO ORDERED. 2

Factual Antecedents

On June 20, 2003, the petitioner, who was hired by Sceptre as a security guard sometime in April 1976, was asked by

Karen Therese Tan (Karen), Sceptre’s Operation Manager, to submit a resignation letter as the same was supposedly required for

applying for a position at Royale. The petitioner was also asked to fill up Royale’s employment application form, which was

handed to him by Royale’s General Manager, respondent Cesar Antonio Tan II (Cesar).3

After several weeks of being in floating status, Royale’s Security Officer, Martin Gono (Martin), assigned the petitioner

at Highlight Metal Craft, Inc. (Highlight Metal) from July 29, 2003 to August 8, 2003. Thereafter, the petitioner was transferred

and assigned to Wide Wide World Express, Inc. (WWWE, Inc.). During his assignment at Highlight Metal, the petitioner used the

patches and agency cloths of Sceptre and it was only

when he was posted at WWWE, Inc. that he started using those of Royale.4

On September 17, 2003, the petitioner was informed that his assignment at WWWE, Inc. had been withdrawn because

Royale had allegedly been replaced by another security agency. The petitioner, however, shortly discovered thereafter that Royale

was never replaced as WWWE, Inc.’s security agency. When he placed a call at WWWE, Inc., he learned that his fellow security

guard was not relieved from his post.5

On September 21, 2003, the petitioner was once again assigned at Highlight Metal, albeit for a short period from

September 22, 2003 to September 30, 2003. Subsequently, when the petitioner reported at Royale’s office on October 1, 2003,

Martin informed him that he would no longer be given any assignment per the instructions of Aida Sabalones-Tan (Aida), general

manager of Sceptre. This prompted him to file a complaint for illegal dismissal on October 4, 2003.6

In his May 11, 2005 Decision, Labor Arbiter Jose Gutierrez (LA Gutierrez) ruled in the petitioner’s favor and found him

illegally dismissed. For being unsubstantiated, LA Gutierrez denied credence to the respondents’ claim that the termination of the

petitioner’s employment relationship with Royale was on his accord following his alleged employment in another company. That



the petitioner was no longer interested in being an employee of Royale cannot be presumed from his request for a certificate of

employment, a claim which, to begin with, he vehemently denies. Allegation of the petitioner’s abandonment is negated by his

filing of a complaint for illegal dismissal three (3) days after he was informed that he would no longer be given any assignments.

LA Gutierrez ruled:

In short, respondent wanted to impress before us that complainant abandoned his employment. We are not

however, convinced.

There is abandonment when there is a clear proof showing that one has no more interest to return to work. In this

instant case, the record has no proof to such effect. In a long line of decisions, the Supreme Court ruled:

“ Abandonment of position is a matter of intention expressed in clearly certain and

unequivocal acts, however, an interim employment does not mean abandonment.” (Jardine

Davis, Inc. vs. NLRC, 225 SCRA 757).

“ In abandonment, there must be a concurrence of the intention to abandon and

some overt acts from which an employee may be declared as having no more interest to

work.” (C. Alcontin & Sons, Inc. vs. NLRC, 229 SCRA 109).

“ It is clear, deliberate and unjustified refusal to severe employment and not mere

absence that is required to constitute abandonment.” x x x” (De Ysasi III vs. NLRC, 231

SCRA 173).

Aside from lack of proof showing that complainant has abandoned his employment, the record would

show that immediate action was taken in order to protest his dismissal from employment. He filed a complaint

[for] illegal dismissal on October 4, 2004 or three (3) days after he was dismissed. This act, as declared by the

Supreme Court is inconsistent with abandonment, as held in the case of Pampanga Sugar Development Co., Inc.

vs. NLRC, 272 SCRA 737 where the Supreme Court ruled:

“The immediate filing of a complaint for [i]llegal [d]ismissal by an employee is

inconsistent with abandonment.” 7

The respondents were ordered to pay the petitioner backwages, which LA Gutierrez computed from the day he was

dismissed, or on October 1, 2003, up to the promulgation of his Decision on May 11, 2005. In lieu of reinstatement, the



respondents were ordered to pay the petitioner separation pay equivalent to his one (1) month salary in consideration of his tenure

with Royale, which lasted for only one (1) month and three (3) days. In this

regard, LA Gutierrez refused to pierce Royale’s corporate veil for purposes of factoring the petitioner’s length of service with

Sceptre in the computation of his separation pay. LA Gutierrez ruled that Royale’s corporate personality, which is separate and

distinct from that of Sceptre, a sole proprietorship owned by the late Roso Sabalones (Roso) and later, Aida, cannot be pierced

absent clear and convincing evidence that Sceptre and Royale share the same stockholders and incorporators and that Sceptre has

complete control and dominion over the finances and business affairs of Royale. Specifically:

To support its prayer of piercing the veil of corporate entity of respondent Royale, complainant avers that

respondent Royal (sic) was using the very same office of SCEPTRE in C. Padilla St., Cebu City. In addition, all

officers and staff of SCEPTRE are now the same officers and staff of ROYALE, that all [the] properties of

SCEPTRE are now being owned by ROYALE and that ROYALE is now occupying the property of SCEPTRE.

We are not however, persuaded.

It should be pointed out at this juncture that SCEPTRE, is a single proprietorship. Being so, it has no distinct and

separate personality. It is owned by the late Roso T. Sabalones. After the death of the owner, the property is

supposed to be divided by the heirs and any claim against the sole proprietorship is a claim against Roso T.

Sabalones. After his death, the claims should be instituted against the estate of Roso T. Sabalones. In short, the

estate of the late Roso T. Sabalones should have been impleaded as respondent of this case.

Complainant wanted to impress upon us that Sceptre was organized into another entity now called RoyaleSecurity Agency. There is however, no proof to this assertion. Likewise, there is no proof that Roso T.

Sabalones, organized his single proprietorship business into a corporation, Royale Security Agency. On the

contrary, the name of Roso T. Sabalones does not appear in the Articles of Incorporation. The names therein as

incorporators are:

Bruno M. Kuizon – [P]150,000.00

Wilfredo K. Tan – 100,000.00

Karen Therese S. Tan – 100,000.00

Cesar Antonio S. Tan – 100,000.00

Gabeth Maria K. Tan – 50,000.00

Complainant claims that two (2) of the incorporators are the granddaughters of Roso T. Sabalones. This

fact even give (sic) us further reason to conclude that respondent Royal (sic) Security Agency is not an alter ego

or conduit of SCEPTRE. It is obvious that respondent Royal (sic) Security Agency is not owned by the owner of

“SCEPTRE”.



It may be true that the place where respondent Royale hold (sic) office is the same office formerly used

by “SCEPTRE.” Likewise, it may be true that the same officers and staff now employed by respondent Royale

Security Agency were the same officers and staff employed by “SCEPTRE.” We find, however, that these facts

are not sufficient to justify to require respondent Royale to answer for the liability of Sceptre, which was owned

solely by the late Roso T. Sabalones. As we have stated above, the remedy is to address the claim on the estate

of Roso T. Sabalones.8

The respondents appealed LA Gutierrez’s May 11, 2005 Decision to the NLRC, claiming that the finding of illegal

dismissal was attended with grave abuse of discretion. This appeal was, however, dismissed by the NLRC in its November 30,

2005 Decision,9 the dispositive portion of which states:

WHEREFORE, premises considered, the Decision of the Labor Arbiter declaring the illegal dismissal

of complainant is hereby AFFIRMED.

However[,] We modify the monetary award by limiting the grant of backwages to only three (3) months

in view of complainant’s very limited service which lasted only for one month and three days.

1. Backwages - [P]15,600.00

2. Separation Pay - 5,200.00

3. 13th

Month Pay - 583.34

[P]21,383.34 Attorney’s Fees- 2,138.33

Total [P]23,521.67

The appeal of respondent Royal (sic) Security Agency is hereby DISMISSED for lack of merit.

SO ORDERED.10

The NLRC partially affirmed LA Gutierrez’s May 11, 2005 Decision. It concurred with the latter’s finding that the

petitioner was illegally dismissed and the manner by which his separation pay was computed, but modified the monetary award in

the petitioner’s favor by reducing the amount of his backwages from P95,600.00 toP15,600.00. The NLRC determined the



petitioner’s backwages as limited to three (3) months of his last monthly salary, considering that his employment with Royale was

only for a period for one (1) month and three (3) days, thus:11

On the other hand, while complainant is entitled to backwages, We are aware that his stint with respondent

Royal (sic) lasted only for one (1) month and three (3) days such that it is Our considered view that his

backwages should be limited to only three (3) months.

Backwages:

[P]5,200.00 x 3 months = [P]15,600.0012

The petitioner, on the other hand, did not appeal LA Gutierrez’s May 11, 2005 Decision but opted to raise the validity of LA

Gutierrez’s adverse findings with respect to piercing Royale’s corporate personality and computation of his separation pay in his

Reply to the respondents’ Memorandum of Appeal. As the filing of an appeal is the prescribed remedy and no aspect of the

decision can be overturned by a mere reply, the NLRC dismissed the petitioner’s efforts to reverse LA Gutierrez’s disposition of

these issues. Effectively, the petitioner had already waived his right to question LA Gutierrez’s Decision when he failed to file an

appeal within the reglementary period. The NLRC held:

On the other hand, in complainant’s Reply to Respondent’s Appeal Memorandum he prayed that the doctrine of

piercing the veil of corporate fiction of respondent be applied so that his services with Sceptre since 1976 [will

not] be deleted. If complainant assails this particular finding in the Labor Arbiter’s Decision, complainant should

have filed an appeal and not seek a relief by merely filing a Reply to Respondent’s Appeal Memorandum.13

Consequently, the petitioner elevated the NLRC’s November 30, 2005 Decision to the CA by way of a Petition

for Certiorari under Rule 65 of the Rules of Court. On the other hand, the respondents filed no appeal from the NLRC’s finding

that the petitioner was illegally dismissed.

The CA, in consideration of substantial justice and the jurisprudential dictum that an appealed case is thrown open for the

appellate court’s review, disagreed with the NLRC and proceeded to review the evidence on record to determine if Royale is



Sceptre’s alter ego that would warrant the piercing of its corporate veil.14

According to the CA, errors not assigned on appeal may

be reviewed as technicalities should not serve as bar to the full adjudication of cases. Thus:

In Cuyco v. Cuyco, which We find application in the instant case, the Supreme Court held:

“In their Reply, petitioners alleged that their petition only raised the sole issue of interest on

the interest due, thus, by not filing their own petition for review, respondents waived their

privilege to bring matters for the Court’s review that [does] not deal with the sole issue raised.

Procedurally, the appellate court in deciding the case shall consider only the assigned errors,

however, it is equally settled that the Court is clothed with ample authority to review mattersnot assigned as errors in an appeal, if it finds that their consideration is necessary to arrive at a

just disposition of the case.”

Therefore, for full adjudication of the case, We have to primarily resolve the issue of whether the doctrine of

piercing the corporate veil be justly applied in order to determine petitioner’s length of service with private

respondents.15

(citations omitted)

Nonetheless, the CA ruled against the petitioner and found the evidence he submitted to support his allegation that Royale

and Sceptre are one and the same juridical entity to be wanting. The CA refused to pierce Royale’s corporate mask as one of the

“probative factors that would justify the application of the doctrine of piercing the corporate veil is stock ownership by one or

common ownership of both corporations” and the petitioner failed to present clear and convincing proof that Royale and Sceptre

are commonly owned or controlled. The relevant portions of the CA’s Decision state:

In the instant case, We find no evidence to show that Royale Security Agency, Inc. (hereinafter

“Royale”), a corporation duly registered with the Securities and Exchange Commission (SEC) and Sceptre

Security Agency (hereinafter “Sceptre”), a single proprietorship, are one and the same entity.

Petitioner, who has been with Sceptre since 1976 and, as ruled by both the Labor Arbiter and the

NLRC, was illegally dismissed by Royale on October 1, 2003, alleged that in order to circumvent labor laws,

especially to avoid payment of money claims and the consideration on the length of service of its employees,

Royale was established as an alter ego or business conduit of Sceptre. To prove his claim, petitioner declared

that Royale is conducting business in the same office of Sceptre, the latter being owned by the late retired Gen.

Roso Sabalones, and was managed by the latter’s daughter, Dr. Aida Sabalones-Tan; that two of Royale’s

incorporators are grandchildren [of] the late Gen. Roso Sabalones; that all the properties of Sceptre are now



owned by Royale, and that the officers and staff of both business establishments are the same; that the heirs of

Gen. Sabalones should have applied for dissolution of Sceptre before the SEC before forming a new corporation.

On the other hand, private respondents declared that Royale was incorporated only on March 10, 2003

as evidenced by the Certificate of Incorporation issued by the SEC on the same date; that Royale’s incorporatorsare Bruino M. Kuizon, Wilfredo Gracia K. Tan, Karen Therese S. Tan, Cesar Antonio S. Tan II and [Gabeth]

Maria K. Tan.

Settled is the tenet that allegations in the complaint must be duly proven by competent evidence and the

burden of proof is on the party making the allegation. Further,Section 1 of Rule 131 of the Revised Rules of

Court provides:

“ SECTION 1. Burden of proof. – Burden of proof is the duty of a party to presentevidence on the facts in issue necessary to establish his claim or defense by the amount of

evidence required by law.”

We believe that petitioner did not discharge the required burden of proof to establish his allegations. As

We see it, petitioner’s claim that Royale is an alter ego or business conduit of Sceptre is without basis because

aside from the fact that there is no common ownership of both Royale and Sceptre, no evidence on record would

prove that Sceptre, much less the late retired Gen. Roso Sabalones or his heirs, has control or complete

domination of Royale’s finances and business transactions. Absence of this first element, coupled by petitioner’s

failure to present clear and convincing evidence to substantiate his allegations, would prevent piercing of the

corporate veil. Allegations must be proven by sufficient evidence. Simply stated, he who alleges a fact has the burden of proving it; mere allegation is not evidence.

16 (citations omitted)

By way of this Petition, the petitioner would like this Court to revisit the computation of his backwages, claiming that the same

should be computed from the time he was illegally dismissed until the finality of this decision.17

The petitioner would likewise

have this Court review and examine anew the factual allegations and the supporting evidence to determine if the CA erred in its

refusal to pierce Royale’s corporate mask and rule that it is but a mere continuation or successor of Sceptre. According to the

petitioner, the erroneous computation of his separation pay was due to the CA’s failure, as well as the NLRC and LA Gutierrez, to

consider evidence conclusively demonstrating that Royale and Sceptre are one and the same juridical entity. The petitioner claims

that since Royale is no more than Sceptre’s alter ego, it should recognize and credit his length of service with Sceptre.18

The petitioner claimed that Royale and Sceptre are not separate legal persons for purposes of computing the amount of

his separation pay and other benefits under the Labor Code. The piercing of Royale’s corporate personality is justified by several

indicators that Royale was incorporated for the sole purpose of defeating his right to security of tenure and circumvent payment of

his benefits to which he is entitled under the law: (i) Royale was holding office in the same property used by Sceptre as its



principal place of business;19

(ii) Sceptre and Royal have the same officers and employees;20

(iii) on October 14, 1994, Roso, the

sole proprietor of Sceptre, sold to Aida, and her husband, Wilfredo Gracia K. Tan (Wilfredo),21

the property used by Sceptre as its

principal place of business;22

(iv) Wilfredo is one of the incorporators of Royale;23

(v) on May 3, 1999, Roso ceded the license to

operate Sceptre issued by the Philippine National Police to Aida;24

(vi) on July 28, 1999, the business name “Sceptre Security &

Detective Agency” was registered with the Department of Trade and Industry (DTI) under the name of Aida;25

(vii) Aida exercised

control over the affairs of Sceptre and Royale, as she was, in fact, the one who dismissed the petitioner from employment;26

(viii)

Karen, the daughter of Aida, was Sceptre’s Operation Manager and is one of the incorporators of Royale;27

and (ix) Cesar Tan II,

the son of Aida was one of Sceptre’s officers and is one of the incorporators of Royale.28

In their Comment, the respondents claim that the petitioner is barred from questioning the manner by which his

backwages and separation pay were computed. Earlier, the petitioner moved for the execution of the NLRC’s November 30, 2005Decision

29 and the respondents paid him the full amount of the monetary award thereunder shortly after the writ of execution was

issued.30

The respondents likewise maintain that Royale’s separate and distinct corporate personality should be respected

considering that the evidence presented by the petitioner fell short of establishing that Royale is a mere alter ego of Sceptre.

The petitioner does not deny that he has received the full amount of backwages and separation pay as provided under the

NLRC’s November 30, 2005 Decision.31

However, he claims that this does not preclude this Court from modifying a decision that

is tainted with grave abuse of discretion or issued without jurisdiction.32

ISSUES

Considering the conflicting submissions of the parties, a judicious determination of their respective rights and obligations

requires this Court to resolve the following substantive issues:

a. Whether Royale’s corporate fiction should be pierced for the purpose of compelling it to recognize

the petitioner’s length of service with Sceptre and for holding it liable for the benefits that have accrued to him

arising from his employment with Sceptre; and

b. Whether the petitioner’s backwages should be limited to his salary for three (3) months.



OUR RULING

Because his receipt of the proceeds of the award under the NLRC’s

November 30, 2005 Decision is qualified and without prejudice to the

CA’s resolution of his petition for certiorari , the petitioner is not barred

from exercising his right to elevate the decision of the CA to this Court.

Before this Court proceeds to decide this Petition on its merits, it is imperative to resolve the respondents’ contention that the full

satisfaction of the award under the NLRC’s November 30, 2005 Decision bars the petitioner from questioning the validity thereof.

The respondents submit that they had paid the petitioner the amount ofP21,521.67 as directed by the NLRC and this constitutes a

waiver of his right to file an appeal to this Court.

The respondents fail to convince.

The petitioner’s receipt of the monetary award adjudicated by the NLRC is not absolute, unconditional and unqualified.

The petitioner’s May 3, 2007 Motion for Release contains a reservation, stating in his prayer that: “it is respectfully prayed that the

respondents and/or Great Domestic Insurance Co. be ordered to RELEASE/GIVE the amount of P23,521.67 in favor of the

complainant TIMOTEO H. SARONA without prejudice to the outcome of the petition with the CA.”33

In Leonis Navigation Co., Inc., et al. v. Villamater, et al.,

34

this Court ruled that the prevailing party’s receipt of the full

amount of the judgment award pursuant to a writ of execution issued by the labor arbiter does not

close or terminate the case if such receipt is qualified as without prejudice to the outcome of the petition for certiorari pending

with the CA.

Simply put, the execution of the final and executory decision or resolution of the NLRC shall proceed

despite the pendency of a petition for certiorari, unless it is restrained by the proper court. In the present case,

petitioners already paid Villamater’s widow, Sonia, the amount of P3,649,800.00, representing the total and

permanent disability award plus attorney’s fees, pursuant to the Writ of Execution issued by the Labor Arbiter.

Thereafter, an Order was issued declaring the case as "closed and terminated". However, although there was no

motion for reconsideration of this last Order, Sonia was, nonetheless, estopped from claiming that the



controversy had already reached its end with the issuance of the Order closing and terminating the case. This is

because the Acknowledgment Receipt she signed when she received petitioners’ payment was without prejudice

to the final outcome of the petition for certiorari pending before the CA.35

The finality of the NLRC’s decision does not preclude the filing of a petition for certiorari under Rule 65 of the Rules of

Court. That the NLRC issues an entry of judgment after the lapse of ten (10) days from the parties’ receipt of its decision36

will

only give rise to the prevailing party’s right to move for the execution thereof but will not prevent the CA from taking cognizance

of a petition for certiorari on jurisdictional and due process considerations.37

In turn, the decision rendered by the CA on a petition

for certiorari may be appealed to this Court by way of a petition for review on certiorari under Rule 45 of the Rules of Court.

Under Section 5, Article VIII of the Constitution, this Court has the power to “review, revise, reverse, modify, or affirm on appeal

or certiorari as the law or the Rules of Court may provide, final judgments and orders of lower courts in x x x all cases in whichonly an error or question of law is involved.” Consistent with this constitutional mandate, Rule 45 of the Rules of Court provides

the remedy of an appeal by certiorari from decisions, final orders or resolutions of the CA in any case, i.e., regardless of the nature

of the action or proceedings

involved, which would be but a continuation of the appellate process over the original case.38

Since an appeal to this Court is not

an original and independent action but a continuation of the proceedings before the CA, the filing of a petition for review under

Rule 45 cannot be barred by the finality of the NLRC’s decision in the same way that a petition for certiorari under Rule 65 with

the CA cannot.

Furthermore, if the NLRC’s decision or resolution was reversed and set aside for being issued with grave abuse of discretion by

way of a petition for certiorari to the CA or to this Court by way of an appeal from the decision of the CA, it is considered void ab

initio and, thus, had never become final and executory.39

A Rule 45 Petition should be confined to questions of law. Nevertheless,

this Court has the power to resolve a question of fact, such as whether a

corporation is a mere alter ego of another entity or whether the

corporate fiction was invoked for fraudulent or malevolent ends, if the

findings in assailed decision is not supported by the evidence on record

or based on a misapprehension of facts.

The question of whether one corporation is merely an alter ego of another is purely one of fact. So is the question of

whether a corporation is a paper company, a sham or subterfuge or whether the petitioner adduced the requisite quantum of

evidence warranting the piercing of the veil of the respondent’s corporate personality.40



As a general rule, this Court is not a trier of facts and a petition for review on certiorari under Rule 45 of the Rules of

Court must exclusively raise questions of law. Moreover, if factual findings of the NLRC and the LA have been affirmed by the

CA, this Court accords them the respect and finality they deserve. It is well-settled and oft-repeated that findings of fact of

administrative agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific

matters, are generally accorded not only respect, but finality when affirmed by the CA. 41

Nevertheless, this Court will not hesitate to deviate from what are clearly procedural guidelines and disturb and strike

down the findings of the CA and those of the labor tribunals if there is a showing that they are unsupported by the evidence on

record or there was a patent misappreciation of facts. Indeed, that the impugned decision of the CA is consistent with the findings

of the labor tribunals does not per se conclusively demonstrate the correctness thereof. By way of exception to the general rule,

this Court will scrutinize the facts if only to rectify the prejudice and injustice resulting from an incorrect assessment of the

evidence presented.

A resolution of an issue that has supposedly become final and executory

as the petitioner only raised it in his reply to the respondents’ appeal

may be revisited by the appellate court if such is necessary for a just

disposition of the case.

As above-stated, the NLRC refused to disturb LA Gutierrez’s denial of the petitioner’s plea to pierce Royale’s corporate veil as

the petitioner did not appeal any portion of LA Gutierrez’s May 11, 2005 Decision.

In this respect, the NLRC cannot be accused of grave abuse of discretion. Under Section 4(c), Rule VI of the NLRC Rules,42 the

NLRC shall limit itself to reviewing and deciding only the issues that were elevated on appeal. The NLRC, while not totally bound

by technical rules of procedure, is not licensed to disregard and violate the implementing rules it implemented. 43

Nonetheless, technicalities should not be allowed to stand in the way of equitably and completely resolving the rights and

obligations of the parties. Technical rules are not binding in labor cases and are not to be applied strictly if the result would be

detrimental to the working man.44

This Court may choose not to encumber itself with technicalities and limitations consequent to



procedural rules if such will only serve as a hindrance to its duty to decide cases judiciously and in a manner that would put an end

with finality to all existing conflicts between the parties.

Royale is a continuation or successor of Sceptre.

A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes,

and properties expressly authorized by law or incident to its existence. It has a personality separate and distinct from the persons

composing it, as well as from any other legal entity to which it may be related. This is basic.45

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the

corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the

corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third

persons.46

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be

mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that

injustice, fraud, or crime was committed against another, in disregard of rights. The wrongdoing must be clearly and convincingly

established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.47

Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or

proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the

corporate veil when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not

meant to promote unfair objectives.48

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience

as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate

entity is used to 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, or where the



corporation is so organized and controlled and its affairs are so conducted as

to make it merely an instrumentality, agency, conduit or adjunct of another corporation.49

In this regard, this Court finds cogent reason to reverse the CA’s findings. Evidence abound showing that Royale is a

mere continuation or successor of Sceptre and fraudulent objectives are behind Royale’s incorporation and the petitioner’s

subsequent employment therein. These are plainly suggested by events that the respondents do not dispute and which the CA, the

NLRC and LA Gutierrez accept as fully substantiated but misappreciated as insufficient to warrant the use of the equitable weapon

of piercing.

As correctly pointed out by the petitioner, it was Aida who exercised control and supervision over the affairs of both

Sceptre and Royale. Contrary to the submissions of the respondents that Roso had been the only one in sole control of Sceptre’s

finances and business affairs, Aida took over as early as 1999 when Roso assigned his license to operate Sceptre on May 3,

1999.50

As further proof of Aida’s acquisition of the rights as Sceptre’s sole proprietor, she caused the registration of the business

name “Sceptre Security & Detective Agency” under her name with the DTI a few months after Roso abdicated his rights to

Sceptre in her favor.51

As far as Royale is concerned, the respondents do not deny that she has a hand in its management and

operation and possesses control and supervision of its employees, including the petitioner. As the petitioner correctly pointed out,

that Aida was the one who decided to stop giving any assignments to the petitioner and summarily dismiss him is an eloquent

testament of the power she wields insofar as Royale’s affairs are concerned. The presence of actual common control coupled with

the misuse of the corporate form to perpetrate oppressive or manipulative conduct or evade performance of legal obligations is

patent; Royale cannot hide behind its corporate fiction.

Aida’s control over Sceptre and Royale does not, by itself, call for a disregard of the corporate fiction. There must be a

showing that a fraudulent intent or illegal purpose is behind the exercise of such control to warrant the piercing of the corporate

veil.52

However, the manner by which the petitioner was made to resign from Sceptre and how he became an employee of Royale

suggest the perverted use of the legal fiction of the separate corporate personality. It is undisputed that the petitioner tendered his

resignation and that he applied at Royale at the instance of Karen and Cesar and on the impression they created that these were

necessary for his continued employment. They orchestrated the petitioner’s resignation from Sceptre and subsequent employment

at Royale, taking advantage of their ascendancy over the petitioner and the latter’s lack of knowledge of his rights and the

consequences of his actions. Furthermore, that the petitioner was made to resign from Sceptre and apply with Royale only to be

unceremoniously terminated shortly thereafter leads to the ineluctable conclusion that there was intent to violate the petitioner’s

rights as an employee, particularly his right to security of tenure. The respondents’ scheme reeks of bad faith and fraud and

compassionate justice dictates that Royale and Sceptre be merged as a single entity, compelling Royale to credit and recognize the

petitioner’s length of service with Sceptre. The respondents cannot use the legal fiction of a separate corporate personality for ends



subversive of the policy and purpose behind its creation53

or which could not have been intended by law to which it owed its

being.54

For the piercing doctrine to apply, it is of no consequence if Sceptre is a sole proprietorship. As ruled in Prince

Transport, Inc., et al. v. Garcia, et al.,55

it is the act of hiding behind the separate and distinct personalities of juridical entities to

perpetuate fraud, commit illegal acts, evade one’s obligations that the equitable piercing doctrine was formulated to address and

prevent:

A settled formulation of the doctrine of piercing the corporate veil is that when two business enterprises are

owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the

rights of third parties, disregard the legal fiction that these two entities are distinct and treat them as identical or

as one and the same. In the present case, it may be true that Lubas is a single proprietorship and not a

corporation. However, petitioners’ attempt to isolate themselves from and hide behind the supposed separate and

distinct personality of Lubas so as to evade their liabilities is precisely what the classical doctrine of piercing the

veil of corporate entity seeks to prevent and remedy.56

Also, Sceptre and Royale have the same principal place of business. As early as October 14, 1994, Aida and Wilfredo became the

owners of the property used by Sceptre as its principal place of business by virtue of a Deed of Absolute Sale they executed with

Roso.57

Royale, shortly after its incorporation, started to hold office in the same property. These, the respondents failed to dispute.

The respondents do not likewise deny that Royale and Sceptre share the same officers and employees. Karen assumed the

dual role of Sceptre’s Operation Manager and incorporator of Royale. With respect to the petitioner, even if he has already

resigned from Sceptre and has been employed by Royale, he was still using the patches and agency cloths of Sceptre during his

assignment at Highlight Metal.

Royale also claimed a right to the cash bond which the petitioner posted when he was still with Sceptre. If Sceptre and

Royale are indeed separate entities, Sceptre should have released the petitioner’s cash bond when he resigned and Royale would

have required the petitioner to post a new cash bond in its favor.



Taking the foregoing in conjunction with Aida’s control over Sceptre’s and Royale’s business affairs, it is patent that

Royale was a mere subterfuge for Aida. Since a sole proprietorship does not have a separate and distinct personality from that of

the owner of the enterprise, the latter is personally liable. This is what she sought to avoid but cannot prosper.

Effectively, the petitioner cannot be deemed to have changed employers as Royale and Sceptre are one and the same. His

separation pay should, thus, be computed from the date he was hired by Sceptre in April 1976 until the finality of this decision.

Based on this Court’s ruling in Masagana Concrete Products, et al. v. NLRC, et al.,58

the intervening period between the day an

employee was illegally dismissed and the day the decision finding him illegally dismissed becomes final and executory shall be

considered in the computation of his separation pay as a period of “imputed” or “putative” service:

Separation pay, equivalent to one month's salary for every year of service, is awarded as an alternative

to reinstatement when the latter is no longer an option. Separation pay is computed from the commencement of

employment up to the time of termination, including the imputed service for which the employee is entitled to

backwages, with the salary rate prevailing at the end of the period of putative service being the basis for

computation.59

It is well-settled, even axiomatic, that if reinstatement is not possible, the

period covered in the computation of backwages is from the time theemployee was unlawfully terminated until the finality of the decision

finding illegal dismissal.

With respect to the petitioner’s backwages, this Court cannot subscribe to the view that it should be limited to an amount

equivalent to three (3) months of his salary. Backwages is a remedy affording the employee a way to recover what he has lost by

reason of the unlawful dismissal.

60

In awarding backwages, the primordial consideration is the income that should have accrued tothe employee from the time that he was dismissed up to his reinstatement

61 and the length of service prior to his dismissal is

definitely inconsequential.

As early as 1996, this Court, in Bustamante, et al. v. NLRC, et al.,62

clarified in no uncertain terms that if reinstatement is

no longer possible, backwages should be computed from the time the employee was terminated until the finality of the decision,

finding the dismissal unlawful.



Therefore, in accordance with R.A. No. 6715, petitioners are entitled on their full backwages, inclusive of

allowances and other benefits or their monetary equivalent, from the time their actual compensation was

withheld on them up to the time of their actual reinstatement.

As to reinstatement of petitioners, this Court has already ruled that reinstatement is no longer feasible, becausethe company would be adjustly prejudiced by the continued employment of petitioners who at present are

overage, a separation pay equal to one-month salary granted to them in the Labor Arbiter's decision was in order

and, therefore, affirmed on the Court's decision of 15 March 1996. Furthermore, since reinstatement on this

case is no longer feasible, the amount of backwages shall be computed from the time of their illegal

termination on 25 June 1990 up to the time of finality of this decision.63

(emphasis supplied)

A further clarification was made in Javellana, Jr. v. Belen:

64

Article 279 of the Labor Code, as amended by Section 34 of Republic Act 6715 instructs:

Art. 279. Security of Tenure. - In cases of regular employment, the employer shall not

terminate the services of an employee except for a just cause or when authorized by this Title.

An employee who is unjustly dismissed from work shall be entitled to reinstatement without

loss of seniority rights and other privileges and to his full backwages, inclusive of allowances,

and to his other benefits or their monetary equivalent computed from the time hiscompensation was withheld from him up to the time of his actual reinstatement.

Clearly, the law intends the award of backwages and similar benefits to accumulate past the date of the Labor

Arbiter's decision until the dismissed employee is actually reinstated. But if, as in this case, reinstatement is no

longer possible, this Court has consistently ruled that backwages shall be computed from the time of illegal

dismissal until the date the decision becomes final.65 (citation omitted)

In case separation pay is awarded and reinstatement is no longer feasible, backwages shall be computed from the time of illegal

dismissal up to the finality of the decision should separation pay not be paid in the meantime. It is the employee’s actual receipt of

the full amount of his separation pay that will effectively terminate the employment of an illegally dismissed

employee.66 Otherwise, the employer-employee relationship subsists and the illegally dismissed employee is entitled to

backwages, taking into account the increases and other benefits, including the 13th month pay, that were received by his co-

employees who are not dismissed.67 It is the obligation of the employer to pay an illegally dismissed employee or worker the

whole amount of the salaries or wages, plus all other benefits and



bonuses and general increases, to which he would have been normally entitled had he not been dismissed and had not stopped

working.68

In fine, this Court holds Royale liable to pay the petitioner backwages to be computed from his dismissal on October 1,

2003 until the finality of this decision. Nonetheless, the amount received by the petitioner from the respondents in satisfaction of

the November 30, 2005 Decision shall be deducted accordingly.

Finally, moral damages and exemplary damages at P25,000.00 each as indemnity for the petitioner’s dismissal, which

was tainted by bad faith and fraud, are in order. Moral damages may be recovered where the dismissal of the employee was tainted

by bad faith or fraud, or where it constituted an act oppressive to labor, and done in a manner contrary to morals, good customs or

public policy while exemplary damages are recoverable only if the dismissal was done in a wanton, oppressive, or malevolent

manner.69

WHEREFORE, premises considered, the Petition is hereby GRANTED. We REVERSE and SET ASIDE the CA’s

May 29, 2008 Decision in C.A.-G.R. SP No. 02127 and order the respondents to pay the petitioner the following minus the

amount of (P23,521.67) paid to the petitioner in satisfaction of the NLRC’s November 30, 2005 Decision in NLRC Case No. V-

000355-05:

a) full backwages and other benefits computed from October 1, 2003 (the date Royale illegally dismissed the petitioner)

until the finality of this decision;

b) separation pay computed from April 1976 until the finality of this decision at the rate of one month pay per year of service;

c) ten percent (10%) attorney’s fees based on the total amount of the awards under (a) and (b) above;

d) moral damages of Twenty-Five Thousand Pesos (P25,000.00); and



5. exemplary damages of Twenty-Five Thousand Pesos (P25,000.00).

This case is REMANDED to the labor arbiter for computation of the separation pay, backwages, and other monetary awards due

the petitioner.

SO ORDERED.

WENSHA SPA CENTER, INC. and/or

XU ZHI JIE,

Petitioners,

- versus -

LORETA T. YUNG,

Respondent.

G.R. No. 185122

Present:

CARPIO, J ., Chairperson,

NACHURA,PERALTA,

ABAD, and

MENDOZA, JJ.

Promulgated:

August 16, 2010

X -------------------------------------------------------------------------------------- X

D E C I S I O N

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by an employer who was charged

before the National Labor Relations Commission (NLRC) for dismissing an employee upon the advice of a Feng Shui master. In

this action, the petitioners assail the May 28, 2008 Decision[1]

and October 23, 2008 Resolution[2]

of the Court of Appeals (CA) in

CA-G.R. SP No. 98855 entitled Loreta T. Yung v. National Labor Relations Commission, Wensha Spa Center, Inc. and/or Xu Zhi

Jie.

THE FACTS:

Wensha Spa Center, Inc. (Wensha) in Quezon City is in the business of sauna bath and massage services. Xu Zhi Jie

a.k.a. Pobby Co (Xu) is its president,[3]

respondent Loreta T. Yung (Loreta) was its administrative manager at the time of her

termination from employment.

In her position paper,[4]

Loreta stated that she used to be employed by Manmen Services Co., Ltd. ( Manmen) where Xu

was a client. Xu was apparently impressed by Loreta’s performance. After he established Wensha, he convinced Loreta to transfer

and work at Wensha. Loreta was initially reluctant to accept Xu’s offer because her job at Manmen was stable and she had been

with Manmen for seven years. But Xu was persistent and offered her a higher pay. Enticed, Loreta resigned from Manmen and



transferred to Wensha. She started working on April 21, 2004 as Xu’s personal assistant and interpreter at a monthly salary

ofP12,000.00.

Loreta introduced positive changes to Wensha which resulted in increased business. This pleased Xu so that on May 18,

2004, she was promoted to the position of Administrative Manager.[5]

Loreta recounted that on August 10, 2004, she was asked to leave her office because Xu and a Feng Shui master were

exploring the premises. Later that day, Xu asked Loreta to go on leave with pay for one month. She did so and returned

on September 10, 2004. Upon her return, Xu and his wife asked her to resign from Wensha because, according to the Feng Shui

master, her aura did not match that of Xu. Loreta refused but was informed that she could no longer continue working at

Wensha. That same afternoon, Loreta went to theNLRC and filed a case for illegal dismissal against Xu and Wensha.

Wensha and Xu denied illegally terminating Loreta’s employment. They claimed that two months after Loreta was hired,

they received various complaints against her from the employees so that on August 10, 2004, they advised her to take a leave of

absence for one month while they conducted an investigation on the matter. Based on the results of the investigation, they

terminated Loreta’s employment on August 31, 2004 for loss of trust and confidence.[6]

The Labor Arbiter (LA) Francisco Robles dismissed Loreta’s complaint for lack of merit. He found it more probable that

Loreta was dismissed from her employment due to Wensha’s loss of trust and confidence in her. The LA’s decision[7]

partly

reads:

However, this office has found it dubious and hard to believe the contentions made by the

complainant that she was dismissed by the respondents on the sole ground that she is a “mismatch” inrespondents' business as advised by an alleged Feng Shui Master. The complainant herself alleged inher position paper that she has done several improvements in respondents’ business such as upliftingthe morale and efficiency of its employees and increasing respondents’ clientele, and that respondentCo was very much pleased with the improvements made by the complainant that she was offered twicea promotion but she nevertheless declined. It would be against human experience and contrary to business acumen to let go of someone, who was an asset and has done so much for the companymerely on the ground that she is a “mismatch” to the business. Absent any proof submitted by thecomplainant, this office finds it more probable that the complainant was dismissed due to loss of trustand confidence.[8]

This ruling was affirmed by the NLRC in its December 29, 2006 Resolution,[9]

citing its observation that Wensha was

still considering the proper action to take on the day Loreta left Wensha and filed her complaint. The NLRC added that this

finding was bolstered by Wensha’s September 10, 2004 letter to Loreta asking her to come back to personally clarify some

matters, but she declined because she had already filed a case.

Loreta moved for a reconsideration of the NLRC’s ruling but her motion was denied. Loreta then went to the CA on a

petition for certiorari. The CA reversed the ruling of the NLRC on the ground that it gravely abused its discretion in appreciating

the factual bases that led to Loreta’s dismissal. The CA noted that there were irregularities and inconsistencies in Wensha’s

position. The CA stated the following:

We, thus, peruse the affidavits and documentary evidence of the Private Respondents and findthe following: First, on the affidavits of their witnesses, it must be noted that the same were mere



photocopies. It was held that [T]he purpose of the rule in requiring the production of the bestevidence is the prevention of fraud, because if a party is in possession of such evidence and withholdsit, and seeks to substitute inferior evidence in its place, the presumption naturally arise[s] that thebetter evidence is withheld for fraudulent purposes which its production would expose anddefeat. Moreover, the affidavits were not executed under oath. The rule is that an affiant must signthe document in the presence of and take his oath before a notary public as evidence that the affidavit

was properly made. Guided by these principles, the affidavits cannot be assigned any weightyprobative value and are mere scraps of paper the contents of which are hearsay. Second , on the salesreport and order slips, which allegedly prove that Yung had been charging her food and drinks to Wensha, the said pieces of evidence do not, however, bear Yung’s name thereon or even hersignature. In fact, it does not state anyone’s name, except that of Wensha. Hence, it would simply becapricious to pinpoint, or impute, on Yung as the author in charging such expenses to Wensha on the basis of hearsay evidence. Third , while the affidavit of Wensha’s Operations Manager, Princess delosReyes (delos Reyes), may have been duly executed under oath, she did not, however, specify thealleged infractions that Yung committed. If at all, delos Reyes only made general statements on thealleged complaints against Yung that were not even substantiated by any other piece ofevidence. Finally, the daily time records (DTRs) of Yung, which supposedly prove her habitualtardiness, were mere photocopies that are not even signed by Wensha’s authorized representative,thus suspect, if not violative of the best evidence rule and, therefore, incompetent evidence. x x x

[Emphases appear in the original]

x x x x.

Finally, after the Private Respondents filed their position paper, they alleged mistake on thepart of their former counsel in stating that Yung was dismissed on August 31, 2004. Thus, theysubsequently moved for the admission of their rejoinder. Notably, however, the said rejoinder wasdated October 4, 2004, earlier than the date when their position paper was filed, which wason November 3, 2004. It is also puzzling that their position paper was dated November 25, 2004,much later than its date of filing. The irregularities are simply too glaring to be ignored. Nevertheless,the Private Respondents’ admission of Yung’s termination on August 31, 2004 cannot be retracted.They cannot use the mistake of their counsel as an excuse considering that the position paper was verified

by their Operations Manager, delos Reyes, who attested to the truth of the contents

therein.

[10]

[Emphasis supplied]

Hence, the fallo of the CA decision reads:

WHEREFORE, the instant petition is GRANTED. Wensha Spa Center, Inc. and Xu Zhi Jie areORDERED to, jointly and severally, pay Loreta T. Yung her full backwages, other privileges, and benefits, or their monetary equivalent, corresponding to the period of her dismissal from September 1,2004 up to the finality of this decision, and damages in the amounts of fifty thousand pesos(Php50,000.00) as moral damages, twenty five thousand pesos (Php25,000.00) as exemplarydamages, and twenty thousand pesos (Php20,000.00) as attorney’s fees. No costs.

SO ORDERED.[11]

Wensha and Xu now assail this ruling of the CA in this petition presenting the following:

V. GROUNDS FOR THE ALLOWANCE OF THE PETITION

5.1 The following are the reasons and arguments, which are purely questions of law andsome questions of facts, which justify the appeal by certiorari under Rule 45 of the 1997 Revised Rulesof Civil Procedure, as amended, to this Honorable SUPREME COURT of the assailed Decision andResolution, to wit:

5.1.1 The Honorable COURT OF APPEALS gravely erred in reversing that factual

findings of the Honorable Labor Arbiter and the Honorable NLRC (ThirdDivision) notwithstanding recognized and established rule in our jurisdiction



that findings of facts of quasi-judicial agencies who have gained expertise ontheir respective subject matters are given respect and finality;

5.1.2 The Honorable COURT OF APPEALS committed grave abuse of discretion andserious errors when it ruled that findings of facts of the Honorable Labor Arbiter and the Honorable NLRC are not supported by substantial evidence

despite the fact that the records clearly show that petitioner therein was notdismissed but is under investigation, and that she is guilty of seriousinfractions that warranted her termination;

5.1.3 The Honorable COURT OF APPEALS grave[ly] erred when it ordered hereinpetitioner to pay herein respondent her separation pay, in lieu ofreinstatement, and full backwages, as well as damages and attorney’s fees;

5.1.4 The Honorable COURT OF APPEALS committed grave abuse of discretion andserious errors when it held that petitioner XU ZHI JIE to be solidarily liable with WENSHA, assuming that respondent was illegally dismissed;

5.2 The same need to be corrected as they would work injustice to the herein petitioner,grave and irreparable damage will be done to him, and would pose dangerous precedent. [12]

THE COURT’S RULING:

Loreta’s security of tenure is guaranteed by the Constitution and the Labor Code. The 1987 Philippine Constitution

provides in Section 18, Article II that the State shall protect the rights of workers and promote their welfare. Section 3, Article

XIII also provides that all workers shall be entitled to security of tenure. Along that line, Article 3 of the Labor Code mandates

that the State shall assure the rights of workers to security of tenure.

Under the security of tenure guarantee, a worker can only be terminated from his employment for cause and after due

process. For a valid termination by the employer: (1) the dismissal must be for a valid cause as provided in Article 282, or for any

of the authorized causes under Articles 283 and 284 of the Labor Code; and (2) the employee must be afforded an opportunity to

be heard and to defend himself. A just and valid cause for an employee’s dismissal must be supported by substantial evidence, and

before the employee can be dismissed, he must be given notice and an adequate opportunity to be heard.[13]

In the process, the

employer bears the burden of proving that the dismissal of an employee was for a valid cause. Its failure to discharge this burden

renders the dismissal unjustified and, therefore, illegal.[14]

As a rule, the factual findings of the court below are conclusive on Us in a petition for review on certiorari where We

review only errors of law. This case, however, is an exception because the CA’s factual findings are not congruent with those of

the NLRC and the LA.

According to Wensha in its position paper,[15]

it dismissed Loreta on August 31, 2004 after investigating the complaints

against her. Wensha asserted that her dismissal was a valid exercise of an employer’s right to terminate a managerial employee

for loss of trust and confidence. It claimed that she caused the resignation of an employee because of gossips initiated by her. It

was the reason she was asked to take a leave of absence with pay for one month starting August 10, 2004.[16]



Wensha also alleged that Loreta was “sowing intrigues in the company” which was inimical to Wensha. She was also

accused of dishonesty, serious breach of trust reposed in her, tardiness, and abuse of authority.[17]

In its Rejoinder, Wensha changed its position claiming that it did not terminate Loreta’s employment on August 31,

2004. It even sent her a notice requesting her to report back to work. She, however, declined because she had already filed her

complaint.[18]

As correctly found by the CA, the cause of Loreta’s dismissal is questionable. Loss of trust and confidence to be a valid

ground for dismissal must have basis and must be founded on clearly established facts.[19]

The Court finds the LA ruling that states, “[a]bsent any proof submitted by the complainant, this office finds it more

probable that the complainant was dismissed due to loss of trust and confidence,”[20]

to be utterly erroneous as it is contrary to the

applicable rules and pertinent jurisprudence. The onus of proving a valid dismissal rests on the employer, not on the

employee.[21]

It is the employer who bears the burden of proving that its dismissal of the employee is for a valid or authorized

cause supported by substantial evidence.[22]

According to the NLRC, “[p]erusal of the entire records show that complainant left the respondents’ premises when she

was confronted with the infractions imputed against her.”[23]

This information was taken from the affidavit[24]

of Princess Delos

Reyes (Delos Reyes) which was dated March 21, 2005, not in Wensha’s earlier position paper or pleadings submitted to the LA.

The affidavits[25]

of employees attached to Delos Reyes’ affidavit were all dated November 19, 2004 indicating that they were not

yet executed when the complaints against Loreta were supposedly being investigated in August 2004.

It is also noteworthy that Wensha’s position paper related that because of the gossips perpetrated by Loreta, a certain

Oliva Gonzalo (Gonzalo) resigned from Wensha. Because of the incident, Gonzalo, whose father was a policeman, “reportedly

got angry with complainant and of the management telling her friends at respondent company that she would retaliate thus

creating fear among those concerned.”[26]

As a result, Loreta was advised to take a paid leave of absence for one month while

Wensha conducted an investigation.

According to Loreta, however, the reason for her termination was her aura did not match that of Xu and the work

environment at Wensha. Loreta narrated:

On August 10, 2004 however, complainant was called by respondent Xu and told her to wait atthe lounge area while the latter and a Feng Shui Master were doing some analysis of the office. Afterseveral hours of waiting, respondent Xu then told complainant that according to the Feng Shui masterher Chinese Zodiac sign is a “mismatch” with that of the respondents; that complainant should notenter the administrative office for a month while an altar was to be placed on the left side wherecomplainant has her table to allegedly correct the “mismatch” and that it is necessary that offeringsand prayers have to be made and said for about a month to correct the alleged “jinx.” Respondent Xuinstructed complainant not to report to the office for a month with assurance of continued and regularsalary. She was ordered not to seek employment elsewhere and was told to come back on the 10th ofSeptember 2004.[27]



Although she was a little confused, Loreta did as she was instructed and did not report for work for a month. She

returned to work on September 10, 2004. This is how Loreta recounted the events of that day:

On September 10, 2004, in the morning, complainant reported to the office ofrespondents. As usual, she punched-in her time card and signed in the logbook of the security

guard. When she entered the administrative office, some of its employees immediately contactedrespondent Xu. Respondent Xu then contacted complainant thru her mobile phone and told her toleave the administrative office immediately and instead to wait for him in the dining area.

xxx

Complainant waited for respondent Xu in the dining area. After waiting for about two (2)hours, respondent Xu was nowhere. Instead, it was Jiang Xue Qin a.k.a Annie Co, the Chinese wife ofrespondent Xu, who arrived and after a short conversation between them, the former frankly toldcomplainant that she has to resign allegedly she is a mismatch to respondent Xu according to the FengShui master and therefore she does not fit to work (sic) with the respondents. Surprised and shocked,complainant demanded of Jiang Xue Qin to issue a letter of termination if it were the reason therefor.

Instead of a termination letter issued, Jiang Xue Qin insisted for the complainant'sresignation. But when complainant stood her ground, Jian Xue Qin shouted invectives at her and toldto leave the office immediately.

Respondent Xu did not show up but talked to the complainant over the mobile phone andconvinced her likewise to resign from the company since there is no way to retain her because heraura unbalanced the area of employment according to the Feng Shui, the Chinese spiritual art ofplacement. Hearing this from no lees than respondent Xu, complainant left the office and wentstraight to this Office and filed the present case on September 10, 2004. xxx[28]

Loreta also alleged that in the afternoon of that day, September 10, 2004, a notice was posted on the Wensha bulletin

board that reads:

TO ALL EMPLOYEES OF WENSHA SPA CENTER

WE WOULD LIKE TO INFORM YOU THAT MS. LORIE TSE YUNG , FORMER ADMINISTRATIVEOFFICER OF WENSHA SPA CENTER IS NO LONGERCONNECTED TO THIS COMPANYSTARTING TODAY SEPTEMBER 10, 2004.

ANY TRANSACTION MADE BY HER IS NO LONGER A LIABILITY OF THE COMPANY.

(SGD.) THE MANAGEMENT [Italics were in red letters.][29]

The Court finds Loreta’s complaint credible. There is consistency in her pleadings and evidence. In contrast, Wensha’s

pleadings and evidence, taken as a whole, suffer from inconsistency. Moreover, the affidavits of the employees only pertain to

petty matters that, to the Court’s mind, are not sufficient to support Wensha’s alleged loss of trust and confidence. To be a valid

cause for termination of employment, the act or acts constituting breach of trust must have been done intentionally, knowingly,

and purposely; and they must be founded on clearly established facts.

The CA decision is supported by evidence and logically flows from a review of the records. Loreta’s narration of the

events surrounding her termination from employment was simple and straightforward. Her claims are more credible than theaffidavits which were clearly prepared as an afterthought.



More importantly, the records are bereft of evidence that Loreta was duly informed of the charges against her and that she

was given the opportunity to respond to those charges prior to her dismissal. If there were indeed charges against Loreta that

Wensha had to investigate, then it should have informed her of those charges and required her to explain her side. Wensha should

also have kept records of the investigation conducted while Loreta was on leave. The law requires that two notices be given to an

employee prior to a valid termination: the first notice is to inform the employee of the charges against her with a warning that she

may be terminated from her employment and giving her reasonable opportunity within which to explain her side, and the second

notice is the notice to the employee that upon due consideration of all the circumstances, she is being terminated from her

employment.[30]

This is a requirement of due process and clearly, Loreta did not receive any of those required notices.

We are in accord with the pronouncement of the CA that the reinstatement of Loreta to her former position is no longer

feasible in the light of the strained relations between the parties. Reinstatement, under the circumstances, would no longer be

practical as it would not be in the interest of both parties. Under the law and jurisprudence, an illegally dismissed employee isentitled to two reliefs - backwages and reinstatement, which are separate and distinct. If reinstatement would only exacerbate the

tension and further ruin the relations of the employer and the employee, or if their relationship has been unduly strained due to

irreconcilable differences, particularly where the illegally dismissed employee held a managerial or key position in the company, it

would be prudent to order payment of separation pay instead of reinstatement.[31]

In the case of Golden Ace Builders v.

Talde,[32]

We wrote:

Under the doctrine of strained relations, the payment of separation pay has been consideredan acceptable alternative to reinstatement when the latter option is no longer desirable or viable. Onthe one hand, such payment liberates the employee from what could be a highly oppressive workenvironment. On the other, the payment releases the employer from the grossly unpalatable

obligation of maintaining in its employ a worker it could no longer trust.

In the case at bench, the CA, upon its own assessment, pronounced that the relations between petitioners and the

respondent have become strained because of her dismissal anchored on dubious charges. The respondent has not contested the

finding. As she is not insisting on being reinstated, she should be paid separation pay equivalent to one (1) month salary for every

year of service.[33]

The CA, however, failed to decree such award in the dispositive portion. This should be rectified.

Nevertheless, the Court finds merit in the argument of petitioner Xu that the CA erred in ruling that he is solidarily liable

with Wensha.

Elementary is the rule that a corporation is invested by law with a personality separate and distinct from those of the

persons composing it and from that of any other legal entity to which it may be related. “Mere ownership by a single stockholder

or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding

the separate corporate personality.”[34]

In labor cases, corporate directors and officers may be held solidarily liable with the corporation for the termination of

employment only if done with malice or in bad faith.[35] Bad faith does not connote bad judgment or negligence; it imports a



dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty through some motive

or interest or ill will; it partakes of the nature of fraud.[36]

In the subject decision, the CA concluded that petitioner Xu and Wensha are jointly and severally liable to Loreta.[37]

We

have read the decision in its entirety but simply failed to come across any finding of bad faith or malice on the part of Xu. There

is, therefore, no justification for such a ruling. To sustain such a finding, there should be an evidence on record that an officer or

director acted maliciously or in bad faith in terminating the services of an employee.[38]

Moreover, the finding or indication that

the dismissal was effected with malice or bad faith should be stated in the decision itself.[39]

WHEREFORE, the petition is PARTIALLY GRANTED. The decretal portion of the May 28, 2008 Decision of the

Court of Appeals, in CA-G.R. SP No. 98855, is hereby MODIFIED to read as follows:

WHEREFORE, the petition is GRANTED. Wensha Spa Center, Inc. is hereby ordered to pay Loreta T.

Yung her full backwages, other privileges, and benefits, or their monetary equivalent, and separation

pay reckoned from the date of her dismissal, September 1, 2004, up to the finality of this decision, plus damages

in the amounts of Fifty Thousand (P50,000.00) Pesos, as moral damages; Twenty Five Thousand (P25,000.00)

Pesos as exemplary damages; and Twenty Thousand (P20,000.00) Pesos, as attorney’s fees. No costs.

SO ORDERED.

HI-CEMENT CORPORATION, G.R. No. 132403

Petitioner,

- v e r s u s -

INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE

COMMERCIAL INTERNATIONAL BANK and now, EQUITABLE-PCI

BANK)

Respondent.

x - - - - - - - - - - - - - - - - - - - - - - x

E.T. HENRY & CO. and G.R. No. 132419SPOUSES ENRIQUE TAN

and LILIA TAN,

Petitioners, Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,

- v e r s u s - CORONA,

AZCUNA and

GARCIA, JJ .

INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE

COMMERCIAL INTERNATIONAL BANK and now, EQUITABLE-PCI

BANK), Respondent.



Promulgated:

September 28, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

CORONA , J .:

At bar are consolidated petitions assailing the decision of the Court of Appeals (CA) dated January 21, 1998 in CA-G.R. CV

No. 31600 entitled Insular Bank of Asia and America [now Philippine Commercial International Bank/(PCIB)] v. E.T. Henry &

Co., et al .[1]

The antecedent facts follow.

Petitioners Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of E.T. Henry & Co., Inc. (E.T.

Henry), a company engaged in the business of processing and distributing bunker fuel.[2]

Among E.T. Henry's customers were

petitioner Hi-Cement Corporation (Hi-Cement),[3]

Riverside Mills Corporation (Riverside) and Kanebo Cosmetics Philippines,

Inc. (Kanebo). For their purchases, these corporations issued postdated checks to E.T. Henry.

Sometime in 1979, respondent Insular Bank of Asia and America (later PCIB and now Equitable PCI-Bank) granted E.T.

Henry a credit facility known as “Purchase of Short Term Receivables.” Through this arrangement, E.T. Henry was able to encash,

with pre-deducted interest, the postdated checks of its clients. In other words, E.T. Henry and respondent were into “re-

discounting” of checks.

For every transaction, respondent required E.T. Henry to execute a promissory note and a deed of assignment bearing the

conformity of the client to the re-discounting.[4]

From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks (with deeds of assignment) with respondent.

However, in February 1981, 20 checks[5]

of Hi-Cement (which were crossed and which bore the restriction “deposit to payee’s

account only”) were dishonored. So were the checks of Riverside and Kanebo.[6]



Respondent filed a complaint for sum of money[7]

in the then Court of First Instance of Rizal[8]

against E.T. Henry, the

spouses Tan, Hi-Cement (including its general manager [9]

and its treasurer[10]

as signatories of the postdated crossed checks),

Riverside and Kanebo.[11]

In its complaint, respondent claimed that, due to the dishonor of the checks, it suffered actual damages equivalent to their

value, exclusive of accrued and accruing interests, charges and penalties such as attorney’s fees and expenses of litigation, as

follows:

1. Riverside Mills Corporation P 115,312.50

2. Kanebo Cosmetics Philippines, Inc. 5,811,750.00

3. Hi-Cement Corporation 10,000,000.00

Respondent also sought to collect from E.T. Henry and the spouses Tan other loan obligations (amounting to P1,661,266.51

and P4,900,805, respectively) as deficiencies resulting from the foreclosure of the real estate mortgage on E.T. Henry's property in

Sucat, Parañaque.[12]

Hi-Cement filed its answer alleging, among others, that: (1) its general manager and treasurer were not authorized to issue

the postdated crossed checks in E.T. Henry's favor; (2) the deed of assignment purportedly executed by Hi-Cement assigning them

to respondent only bore the conformity of its treasurer and (3) respondent was not a holder in due course as it should not have

discounted them for being “crossed checks.”[13]

In their answer (with counterclaim against respondent and cross-claims against Hi-Cement, Riverside and Kanebo),[14]

E.T.

Henry and the spouses Tan claimed that: (1) the drawers of the postdated checks failed to honor them due to the adverse economic

conditions prevailing at the time respondent presented them for payment; (2) the extra-judicial sale of the mortgaged Sucat

property was void due to gross inadequacy of the bid price[15]

and (3) their loans were subjected to a usurious interest rate of 21%

p.a.

For their part, Riverside and Kanebo sought the dismissal of the case against them, arguing that they were not privy to the

re-discounting arrangement between respondent and E.T. Henry.

On June 30, 1989, the trial court rendered a decision which read:

WHEREFORE, in view of the foregoing, and as a consequence of the preponderance of evidence, this

Court hereby renders judgment in favor of [respondent] and against [E.T. Henry, spouses Tan, Hi-Cement,

Riverside and Kanebo], to wit:



1. Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo], jointly and severally, to pay

[respondent] damages represented by the face value of the postdated checks as follows:

(a) Riverside Mills Corporation P 115,312.50

(b) Kanebo Cosmetics Philippines, Inc. 5,811,750.00

(c) Hi-Cement Corporation 10,000,000.00

plus interests, services, charges and penalties until fully paid;

2. Ordering [E.T. Henry] and/or [spouses Tan] to pay to [respondent] the sum of P4,900,805.00 plus accrued

interests, charges, penalties until fully paid;

3. Ordering [E.T. Henry and spouses Tan] to pay [respondent] the sum of P1,661,266.51 plus interests,

charges, and penalties until fully paid;

4. Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo] to pay [respondent] [a]ttorney’s

fees and expenses of litigation in the amount of P200,000.00 and pay the cost of this suit.[16]

SO ORDERED.[17]

Only petitioners appealed the decision to the CA which affirmed it in toto. Hence, these petitions.

In G.R. No. 132403, petitioner Hi-Cement disclaims liability for the postdated crossed checks because (1) it did not

authorize their issuance; (2) respondent was not a holder in due course and (3) there was no basis for the lower court’s holding that

it was solidarily liable for the face value of Riverside’s and Kanebo’s checks.[18]

In G.R. No. 132419, on the other hand, E.T. Henry and the spouses Tan essentially contend that the lower courts erred in:

(1) applying the doctrine of piercing the veil of the corporate entity to make the spouses Tan solidarily liable with E.T. Henry; (2)

not ruling on their cross-claims and counterclaims, and (3) not declaring the foreclosure of E.T. Henry's Sucat property as void.[19]

(A) G.R. 132403

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of errors of law.[20]

The factual

findings of the trial court, specially when affirmed by the appellate court, are generally binding on us unless there was a

misapprehension of facts or when the inference drawn from the facts was manifestly mistaken.[21]

This case falls within the

exception.

AUTHORITY OF HI-CEMENT’S GENERAL

MANAGER AND TREASURER TO ISSUE

THE POSTDATED CROSSED CHECKS



Both the trial court and the CA concluded that Hi-Cement authorized its general manager and treasurer to issue the

subject postdated crossed checks. They both held that Hi-Cement was already estopped from denying such authority since it never

objected to the signatories' issuance of all previous checks to E.T. Henry which the latter, in turn, was able to re-discount with

respondent.

We agree with the lower courts that both the general manager and treasurer of Hi-Cement were authorized to issue the

subjects checks. However, notwithstanding such fact, respondent could not be considered a holder in due course.

RESPONDENT BANK NOT A

HOLDER IN DUE COURSE

The Negotiable Instruments Law (NIL), specifically Section 191,[22]

provides:

“Holder” means the payee or indorsee of a bill or a note, or the person who is in possession of it, or the

bearer thereof.

On the other hand, Section 52[23]

states:

A holder in due course is a holder who has taken the instrument under the following conditions: (a) it

is complete and regular on its face; (b) he became the holder of it before it was overdue, and without notice thatit has previously been dishonored, if such was the fact; (c) he took it in good faith and for value and (d) at the

time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the

person negotiating it.

Absent any of the elements set forth in Section 52, the holder is not a holder in due course. In the case at bar, the last two

requirements were not met.

In Bataan Cigar and Cigarette Factory, Inc. (BCCF) v. CA,[24]

we held that the holder of crossed checks was not a holder

in due course. There, the drawer (BCCF) issued postdated crossed checks in favor of one of its suppliers (George King) who

promised to deliver bales of tobacco leaf but failed. George King, however, sold the checks on discount to State Investment

House, Inc. (SIHI) and upon the latter’s presentment to the drawee bank, BCCF ordered a “stop payment.” Thereafter, SIHI filed a

collection case against it. In ruling that SIHI was not a holder in due course, we explained:

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a

check should have the following effects: (a) the check may not be encashed but only deposited in the bank; (b)

the check may be negotiated only once – to one who has an account with a bank [and]; (c) the act of crossing the

checks serves aswarning to the holder that the check has been issued for a definite purpose so that he must

inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course.



Likewise, in Atrium Management Corporation v. CA,[25]

where E.T. Henry, Hi-Cement and its treasurer [26]

again engaged in

a legal scuffle over four postdated crossed checks, we held that Atrium (with which the checks were re-discounted) was not a

holder in due course. In that case, E.T. Henry was the payee of four Hi-Cement postdated checks

which it endorsed to Atrium. When the latter presented the crossed checks to the drawee bank, Hi-Cement

stopped payment.[27]

We held that Atrium was not a holder in due course:

In the instant case, the checks were crossed and specifically indorsed for deposit to payee’s account

only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payee’s

account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course.

In the case at bar, respondent's claim that it acted in good faith when it accepted and discounted Hi-Cement’s postdated

crossed checks from E.T. Henry (as payee therein) fails to convince us. Good faith becomes inconsequential amidst proof of

respondent's grossly negligent conduct in dealing with the subject checks.

Respondent was all too aware that subject checks were crossed and bore restrictions that they were for deposit to payee's

account only; hence, they could not be further negotiated to it. The records likewise reveal that respondent completely disregarded

a telling sign of irregularity in the re-discounting of the checks when the general manager did not acquiesce to it as only the

treasurer's signature appeared on the deed of assignment. As a banking institution, it behooved respondent to act with

extraordinary diligence in every transaction.[28]

Its business is impressed with public interest, thus, it was not expected to be

careless and negligent, specially so where the checks it dealt with were crossed. In Bataan Cigar and Cigarette Factory,

Inc.,[29]

we ruled:

It is then settled that crossing of checks should put the holder on inquiry and upon him devolves

the duty to ascertain the indorser’s title to the check or the nature of his possession. Failing in this respect,the holder is declared guilty of gross negligence amounting to legal absence of good faith…and as such[,]

the consensus of authority is to the effect that the holder of the check is not a holder in due course. (emphasis

supplied)

The next query is whether Hi-Cement can still be made liable for the checks. We answer in the negative.

In State Investment House, Inc. (SIHI) v. Intermediate Appellate Court,[30]

SIHI re-discounted crossed checks and was

declared not a holder in due course. As a result, when it presented the checks for deposit, we deemed that its presentment to the

drawee bank was not proper, hence, the liability did not attach to the drawer of the checks. We ruled that:



The three subject checks in the case at bar had been crossed…which could only mean that the drawer

had intended the same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it was

not the payee who presented the same for payment and therefore, there was no proper presentment, and the

liability did not attach to the drawer. Thus, in the absence of due presentment, the drawer did not become

liable. [31]

Our resolution in the foregoing case was reiterated in Atrium Management Corporation v. CA,[32]

where we affirmed the

CA ruling that the drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due course.

We note, however, that in the two aforementioned cases, we made it clear that the NIL does not absolutely bar a holder who

is not a holder in due course from recovering on the checks. In both, we ruled that it may recover from the party who

indorsed/encashed the checks “if the latter has no valid excuse for refusing payment.” Here, there was no doubt that it was E.T.

Henry that re-discounted Hi-Cement's checks and received their value from respondent. Since E.T. Henry had no justification to

refuse payment, it should pay respondent.

SOLIDARY LIABILITY OF HI-CEMENT FOR THE FACE

VALUE OF RIVERSIDE'S AND KANEBO'S CHECKS

Hi-Cement could not also be made solidarily liable with Riverside and Kanebo for the face value of their checks. Hi-

Cement had nothing to do with the checks of these two corporations. However, although the language of the trial court decision's

dispositive portion seemed confusing, a reading of the decision in its entirety reveals that the fallo was for each corporation to be

liable solidarily with E.T. Henry and/or the spouses Tan for the respective values of their checks.

Furthermore, solidary liability cannot be presumed but must be established by law or contract. Neither is present here.

Articles 1207 and 1208 of the Civil Code provide:

Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply that

each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliancewith the presentation. There is solidary liability only when the obligation expressly so states, or when the

obligation requires solidarity. (emphasis supplied)

Art. 1208. If from the law, or the nature of the wording of the obligations to which the preceding article

refers to the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal

shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to

the Rules governing the multiplicity of suits.

At any rate, the issue has become moot in view of our ruling that Hi-Cement is not liable for the checks.



(B) G.R. No. 132419

DOCTRINE OF PIERCING THE

VEIL OF CORPORATE ENTITY

In their petition, E.T. Henry and the spouses Tan argue that the lower courts erred in applying the “piercing the veil of

corporate entity” doctrine to their case. They claim that both the trial and appellate courts failed to cite the reasons why the

doctrine was relevant to them.

We agree with petitioners E.T. Henry and the spouses Tan in this respect.

If any general rule can be laid down, it is that the corporation will be looked upon as a legal entity until sufficient reasons to

the contrary appear. [33]

It is only when the fiction or notion of legal entity is used to defeat public convenience, justify wrong,

perpetuate fraud or defend crime that the law will shred the corporate legal veil and regard it as a mere association of

persons.[34]

This is referred to as the doctrine of piercing the veil of corporate entity.

After a careful study of the records, we hold that E.T. Henry's corporate veil should not have been pierced at all.

First , the trial court failed to provide a clear ground why the doctrine was used. It merely stated that it agreed with

respondent’s arguments but did not explain why the doctrine was relevant to petitioner E.T. Henry's and the spouses Tan’s case.

On the other hand, the CA held:

…It appears that spouses Tan are controlling stockholders of E.T. Henry & Co., Inc. as well as its

authorized signatories. The business of the corporation was conducted solely for the benefit of the spouses Tan

who colluded with [Hi-Cement] in defrauding [respondent]. As the lower court cited…[I]t is a settled law in this

and other jurisdictions that when the corporation is a mere alter ego of a person, same being true when the

corporation is controlled, and its affairs are so conducted to make it merely an instrumentality, agency or conduit

of another.[35]

Similarly, the CA left a gaping hole by failing to provide the basis for its ruling that E.T. Henry and the spouses Tan

defrauded respondent. It did not also state what act constituted the fraud. Fraud is an allegation of fact that demands clear

and convincing evidence.[36]

It is never presumed.[37]

Second , the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a

corporation is not of itself sufficient ground for disregarding the separate corporate personality.[38]

For this ground to stand in this

case, there must be proof that the spouses Tan: (1) had control or complete domination of E.T. Henry’s finances and that the latter



had no separate existence with respect to the act complained of; (2) used such control to commit fraud or wrong and (3) the control

was the proximate cause of the loss or injury complained of by respondent.[39]

The records of this case do not show that these

elements were present.

INADEQUACY OF THE BID PRICE TO ANNUL

FORECLOSURE PROCEEDING

With respect to the allegation that foreclosure was void due to the inadequacy of the bid price, we agree with the CA that

the “mere inadequacy of the price obtained at the [s]heriff’s sale, unless shocking to the conscience, (was) not sufficient to set

aside the sale if there (was) no showing that, in the event of a regular sale, a better price (could) be

obtained.”[40]

Furthermore, in the absence of any irregularity in the foreclosure proceeding or proof that it was carried out without strict

observance of the procedure, we will continue to assume its regularity and strike down any attempt to vitiate it. In this case, E.T.

Henry and the spouses Tan made no mention of any anomaly to support the nullification of the foreclosure sale but merely alleged

a disparity in the bid price and the property’s fair market value.

COUNTERCLAIMS AND CROSS-CLAIMS

Lastly, E.T. Henry and the spouses Tan call this Court's attention to the alleged failure of the lower court to pass upon their

counterclaim against respondent or cross-claims against Hi-Cement, Riverside and Kanebo. They ask us now to hold these

parties liable on the basis of said claims. We decline to do so.

First , E.T. Henry and the spouses Tan failed to implead Hi-Cement, Riverside and Kanebo as parties in the case at bar.

Under Rule 3 of the Rules of Court, every action, including a counterclaim (or a cross-claim), must be prosecuted or defended in

the name of the real party in interest.[41]

The term “defendant” may refer to the original defending party, the defendant in a

counterclaim, the cross-defendant or the third (fourth, etc.) party defendant.[42]

Hence, for this technical lapse, we are constrained

not to pass on E.T. Henry's and the spouses Tan's cross-claims.

Second , E.T. Henry and the spouses Tan filed the counterclaim against respondent on the basis of an alleged void

foreclosure proceeding on E.T. Henry's Sucat property due to an inadequate bid price. It is no longer necessary to delve into this



matter in view of our finding that the mere inadequacy of the bid price on the property did not automatically render the foreclosure

sale irregular or void.

Incidentally, the petition in G.R. No. 132419 posed no contest on the lower courts’ ruling on E.T. Henry’s and the spouses

Tan’s solidary liability with Riverside and Kanebo vis-a-vis their checks.[43]

To be consistent, however, with our dictum on the

separate personality of E.T. Henry and the spouses Tan, the solidarity liability arising from the checks of Riverside and Kanebo

shall only be enforced against E.T. Henry.

WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV No. 31600 is

hereby AFFIRMED with MODIFICATION. Accordingly, petitioner Hi-Cement Corporation is discharged from any

liability. Only petitioner E.T. Henry & Co. is ORDERED to pay respondent Insular Bank of Asia and America (later Philippine

Commercial International Bank and now Equitable PCI-Bank) the following:

1. P10,000,000 representing the value of Hi-Cement's checks it received from respondent plus accrued interests,

charges and penalties until fully paid, and

2. the loans for P1,661,266.51 and P4,900,805 plus accrued interests, charges and penalties until fully paid.

Let the records of this case be remanded to the trial court for the proper computation of E.T. Henry's, Riverside's and

Kanebo's liabilities for the checks, attorney's fees and costs of litigation.

Costs against petitioners E.T. Henry and the spouses Enrique and Lilia Tan.

SO ORDERED.

ENRIQUEZ SECURITY G.R. No. 147993

SERVICES, INC.,

Petitioner, Present:

PUNO, J ., Chairperson,

- v e r s u s - SANDOVAL-GUTIERREZ,

CORONA,

AZCUNA and

GARCIA, JJ .

VICTOR A. CABOTAJE,

Respondent. Promulgated:

July 21, 2006



x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

D E C I S I O N

CORONA, J .:

Sometime in January 1979, respondent Victor A. Cabotaje was employed as a security guard by

Enriquez Security and Investigation Agency (ESIA). On November 13, 1985, petitioner Enriquez Security

Services, Inc. (ESSI) was incorporated. Respondent continued to work as security guard in petitioner’s

agency.

On reaching the age of 60 in July 1997,[1] respondent applied for retirement.

Petitioner acknowledged that respondent was entitled to retirement benefits but opposed his claim

that the computation of such benefits must be reckoned from January 1979 when he started working for

ESIA. It claimed that the benefits must be computed only from November 13, 1985 when ESSI was

incorporated.

Respondent consequently filed a complaint in the National Labor Relations Commission (NLRC)

seeking the payment of retirement benefits under Republic Act No. (RA) 7641, otherwise known as the

Retirement Pay Law.[2]

On January 15, 1999, labor arbiter Eduardo Carpio decided in respondent’s favor:

Complainant is entitled to retirement pay. This entitlement was not denied byrespondents. xxx The computation of this benefits shall cover the entire period of his employmentfrom January 1979 up to July 16, 1997 based on his latest monthly salary of P5,383.15 per the

payroll sheet submitted by respondents. While respondents claim that respondent corporation wasmerely registered with the DOTC on November 13, 1985, they did not deny however that complainantwas an employee of the then Enriquez Security and Investigation Agency, and that complainant’sservices with the said security agency up to the present respondent corporation was uninterrupted.The obligation of the new company involves not only to absorb the workers of the dissolved company,but also to include the length of service earned by the absorbed employee with their former employeras well. To rule otherwise would be manifestly less than fair, certainly less than just and equitable.

xxx xxx xxx

WHEREFORE, judgment is hereby rendered ordering respondents to pay complainant thegrand total amount of P228,581.00 representing his retirement benefits and other money claims.

SO ORDERED.[3]



On appeal, the NLRC set aside the labor arbiter’s award of one-month salary for every year of

service for being excessive. It ruled that under RA 7641, respondent Cabotaje was entitled to retirement

pay equivalent only to one-half month salary for every year of service. Thus:

WHEREFORE, the assailed decision is hereby set aside and a new one entered orderingrespondents to pay complainant the amount of P76,710.60 representing his retirement benefits.

SO ORDERED.[4]

On March 15, 2000, the NLRC denied petitioner’s motion for reconsideration.[5]

On May 25, 2000, petitioner filed a special civil action for certiorari[6] with the Court of Appeals.

On September 26, 2000, the appellate court affirmed the NLRC decision. [7] It also denied the motion

for reconsideration on May 8, 2001.[8]

Hence, this petition for review on certiorari[9] on the following issues:

1. [w]hether or not the Retirement [Pay] Law has retroactive effect.

2. [w]hether the whole 5 days service incentive leave or just a portion thereof equivalent to 1/12should be included in the # month salary for purposes of computing the retirement pay.

3. [w]hether or not the length of service of a retired employee in a dissolved company (his formeremployer) should be included in his length of service with his last employer for purposes ofcomputing the retirement pay.

[10]

We find no merit in the petition.

First. Petitioner’s contention that RA 7641 cannot be applied retroactively has long been settled

in the Guidelines for Effective Implementation of RA 7641 issued on October 24, 1996 by the Department

of Labor and Employment. Paragraph B of the guidelines provides:

In reckoning the length of service, the period of employment with the same employer before theeffectivity date of the law on January 7, 1993 should be included.

Thus, in Rufina Patis Factory v. Lucas, Sr.,[11] we held:



RA 7641 is undoubtedly a social legislation. The law has been enacted as a labor protectionmeasure and as a curative statute that – absent a retirement plan devised by, an agreement with, ora voluntary grant from, an employer – can respond, in part at least, to the financial well-being ofworkers during their twilight years soon following their life of labor. There should be little doubt aboutthe fact that the law can apply to labor contracts still existing at the time the statute has takeneffect, and that its benefits can be reckoned not only from the date of the law’s enactment but

retroactively to the time said employment contracts have started. (emphasis ours)

Second. Petitioner’s insistence that only 1/12 of the service incentive leave (SIL) should be

included in the computation of the retirement benefit has no basis. Section 1, RA 7641 provides:

x x x Unless the parties provide for broader inclusions, the term one-half (1/2) month salaryshall mean fifteen (15) days plus one-twelfth (1/12) of the 13

thmonth pay and the cash equivalent of

not more than five (5) days of service incentive leave. x x x

Section 5.2, Rule II of the Implementing Rules of Book VI of the Labor Code further clarifies what

comprises the “1/2 month salary” due a retiring employee:

5.2 Components of One-half (1/2) Month Salary. – For the purpose of determining theminimum retirement pay due an employee under this Rule, the term “one-half month salary” shallinclude all the following:

(a) Fifteen (15) days salary of the employee based on his latest salary rate. x x x;

(b) The cash equivalent of not more than five (5) days of service incentive leave;

(c) One-twelfth of the 13th month pay due an employee;

(d) All other benefits that the employer and employee may agree upon that should beincluded in the computation of the employee’s retirement pay.

The foregoing rules are clear that the whole 5 days of SIL are included in the computation of a

retiring employees’ pay.

Third. It is a well-entrenched doctrine that the Supreme Court does not pass upon questions of

fact in an appeal by certiorari under Rule 45.[12] It is not our function to assess and evaluate the evidence

all over again[13] where the findings of the quasi-judicial agency and the appellate court on the matter

coincide.

The consistent rulings of the labor arbiter, the NLRC and the appellate court should be respected

and petitioner’s veil of corporate fiction should likewise be pierced. These are based on the following

uncontroverted facts: (1) respondent worked with ESIA and petitioner ESSI; (2) his employment with both



security agencies was continuous and uninterrupted; (3) both agencies were owned by the Enriquez family

and (4) petitioner ESSI maintained its office in the same place where ESIA previously held office.[14]

The attempt to make the security agencies appear as two separate entities, when in reality they

were but one, was a devise to defeat the law and should not be permitted. Although respect for corporate

personality is the general rule, there are exceptions. In appropriate cases, the veil of corporate fiction may

be pierced as when it is used as a means to perpetrate a social injustice or as a vehicle to evade

obligations. Petitioner was thus correctly ordered to pay respondent’s retirement under RA 7641,

computed from January 1979 up to the time he applied for retirement in July 1997.

WHEREFORE, the petition is hereby DENIED. The assailed decision and resolution of the Court of

Appeals are AFFIRMED.

Costs against petitioner.

SO ORDERED.

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