26. AZCOR MANUFACTURING INC., FILIPINAS PASO and/or ARTURO ZULUAGA/Owner, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (NLRC) AND CANDIDO CAPULSO, respondents.

D E C I S I O NBELLOSILLO, J.:

AZCOR MANUFACTURING, INC., Filipinas Paso and Arturo Zuluaga instituted this petition for certiorari under Rule 65 of the Rules of Court to assail, for having been rendered with grave abuse of discretion amounting to lack or excess of jurisdiction, the Decision of the National Labor Relations Commission which reversed the decision of the Labor Arbiter dismissing the complaint of respondent Candido Capulso against petitioners.[1]

Candido Capulso filed with the Labor Arbiter a complaint for constructive illegal dismissal and illegal deduction of P50.00 per day for the period April to September 1989. Petitioners Azcor Manufacturing, Inc. (AZCOR) and Arturo Zuluaga who were respondents before the Labor Arbiter (Filipinas Paso was not yet a party then in that case) moved to dismiss the complaint on the ground that there was no employer-employee relationship between AZCOR and herein respondent Capulso; that the latter became an employee of Filipinas Paso effective 1 March 1990 but voluntarily resigned therefrom a year after. Capulso later amended his complaint by impleading Filipinas Paso as additional respondent before the Labor Arbiter.

On 14 January 1992, Labor Arbiter Felipe T. Garduque II denied the motion to dismiss holding that the allegation of lack of employer-employee relationship between Capulso and AZCOR was not clearly established. Thereafter, the Labor Arbiter ordered that hearings be conducted for the presentation of evidence by both parties.

The evidence presented by Capulso showed that he worked for AZCOR as ceramics worker for more than two (2) years starting from 3 April 1989 to 1 June 1991 receiving a daily wage of P118.00 plus other benefits such as vacation and sick leaves. From April to September 1989 the amount of P50.00 was deducted from his salary without informing him of the reason therefor.

In the second week of February 1991, upon his doctor’s recommendation, Capulso verbally requested to go on sick leave due to bronchial asthma. It appeared that his illness was directly caused by his job as ceramics worker where, for lack of the prescribed occupational safety gadgets, he inhaled and absorbed harmful ceramic dusts. His supervisor, Ms. Emily Apolinaria, approved his request. Later, on 1 June 1991, Capulso went back to petitioner AZCOR to resume his work after recuperating from his illness. He was not allowed to do so by his supervisors who informed him that only the owner, Arturo Zuluaga, could allow him to continue in his job. He returned five (5) times to AZCOR but when it became apparent that he would not be reinstated, he immediately filed the instant complaint for illegal dismissal.[2]

Capulso presented the following documentary evidence in support of his claim: (a) His affidavit and testimony to prove that he was terminated without just cause and without due process;[3] (b) Identification card issued by AZCOR which he continued to use even after his supposed employment by Filipinas Paso;[4] (c) Certification of SSS premium payments;[5] (d) SSS Member Assistance Form wherein he stated that he worked with AZCOR from March 1989 to April 1991;[6](e) Certification of Employee Contribution with SSS;[7] and, (f) Payslips issued by AZCOR.[8]

On the other hand, petitioners alleged that Capulso was a former employee of AZCOR who resigned on 28 February 1990 as evidenced by a letter of resignation and joined Filipinas Paso on 1 March 1990 as shown by a contract of employment; in February 1991 Capulso allegedly informed his supervisor, Ms. Emilia Apolinaria, that he intended to go on terminal leave because he was not feeling well; on 1 March 1991 he submitted a letter of resignation addressed to the President of Filipinas Paso, Manuel Montilla; and, in the early part of June 1991 Capulso tried to apply for work again with Filipinas Paso but there was no vacancy.

Petitioners submitted the following documentary evidence: (a) Sworn Statement of Ms. Emilia Apolinaria and her actual testimony to prove that respondent indeed resigned voluntarily from AZCOR to transfer to Filipinas Paso, and thereafter, from Filipinas Paso due to failing health;[9] (b) Contract of Employment between Filipinas Paso and respondent which took effect 1 March 1991;[10] (c) Letter of resignation of respondent from AZCOR dated 28 February 1990, to take effect on the same date;[11] (d) Undated letter of resignation of respondent addressed to Filipinas Paso to take effect 1 March 1991;[12] (e) BIR Form No. W-4 filed 6 June 1990;[13] (f) Individual Income Tax Return of respondent for 1990;[14] and, (g) BIR Form 1701-B which was an alphabetical list of employees of Filipinas Paso for the year ending 31 December 1990.[15]

On 29 December 1992 the Labor Arbiter rendered a decision dismissing the complaint for illegal dismissal for lack of merit, but ordered AZCOR and/or Arturo Zuluaga to refund to Capulso the sum of P200.00 representing the amount illegally deducted from his salary.

On appeal by Capulso, docketed as NLRC CA No. 004476-93 (NLRC NCR 00-09-05271-91), "Capulso v. Azcor Manufacturing Inc., Filipinas Paso and/or Arturo Zuluaga/owner," the NLRC modified the Labor Arbiter’s decision by: (a) declaring the dismissal of Capulso as illegal for lack of just and valid cause; (b) ordering petitioners to reinstate Capulso to his former or equivalent position without loss of seniority rights and without diminution of benefits; and, (c) ordering petitioners to jointly and solidarily pay Capulso his back wages computed from the time of his dismissal up to the date of his actual reinstatement. The NLRC held in part -x x x x the contract of employment (Exh. 2, p. 187, Rollo) issued to complainant indicates that the work to be done during the period was contracted with Filipinas Paso. The said contract was signed by the Personnel Officer of Ascor Manufacturing Inc. Likewise, the contract period is for six (6) months, which establishes a presumption that the said contract could pass either as to cover the probationary period, or job contracting, the completion of which automatically terminates employment, whichever will work to respondent’s advantage should the case be filed. However, appellant continued working with respondent after the lapse of the contract and until the alleged termination of employment of appellant.Secondly, the two resignation letters allegedly executed by appellant are exactly worded, which only shows that the same were prepared by respondents-appellees plus after the fact that complainant denied having executed and signed the same.x x x x the letter of resignation (Exh. “3”, p. 188, Rollo) supposed to have been executed by complainant-appellant shows that he resigned from Ascor Mfg., Inc. on February 28, 1990 while Exhibit “2”, page 187, Rollo, which was the contract of Employment issued to Candido Capulso by the personnel officer of Ascor Mfg., Inc. shows that appellant was being hired from March 1, 1990 to August 31, 1990 by respondent Ascor Mfg., Inc. to do jobs for Filipinas Paso. A run-around of events and dates.The events that transpired clearly show that there was no interruption in the service of complainant with Ascor Mfg., Inc. from April 13 1989 up to June 1, 1991 when complainant was unceremoniously dismissed.Considering that Ascor Mfg., Inc. and Filipinas Paso orchestrated the events that appeared to be in order with the alleged execution of resignation letters which was disputed by complainant and confirmed spurious as explained above, likewise overwhelmingly show the bad faith of respondents in the treatment of their employees.

Petitioners’ motion for reconsideration was denied by the NLRC through its Resolution of 14 October 1994; hence, the instant petition. Meanwhile, during the pendency of the case before this Court, Capulso succumbed to asthma and heart disease.

The issue to be resolved is whether the NLRC committed grave abuse of discretion in declaring that private respondent Capulso was illegally dismissed and in holding petitioners jointly and solidarily liable to Capulso for back wages.

As a rule, the original and exclusive jurisdiction to review a decision or resolution of respondent NLRC in a petition for certiorari under Rule 65 of the Rules of Court does not include a correction of its evaluation of the evidence but is confined to issues of jurisdiction or grave abuse of discretion. The NLRC’s factual findings, if supported by substantial evidence, are entitled to great respect and even finality, unless petitioner is able to show that it simply and arbitrarily disregarded the evidence before it or had misappreciated the evidence to such an extent as to compel a contrary conclusion if such evidence had been properly appreciated.[16] We find no cogent reason to disturb the findings of the NLRC.

Petitioners insist that Capulso was not really dismissed but he voluntarily resigned from AZCOR and Filipinas Paso, and that there was nothing illegal or unusual in the letters of resignation he executed.

We disagree. To constitute a resignation, it must be unconditional and with the intent to operate as such. There must be an intention to relinquish a portion of the term of office accompanied by an act of relinquishment.[17] In the instant case, the fact that Capulso signified his desire to resume his work when he went back to petitioner AZCOR after recuperating from his illness, and actively pursued his case for illegal dismissal before the labor courts when he was refused admission by his employer, negated any intention on his part to relinquish his job at AZCOR.

Moreover, a closer look at the subject resignation letters readily reveals the following: (a) the resignation letter allegedly tendered by Capulso to Filipinas Paso was identically worded with that supposedly addressed by him to AZCOR; (b) both were pre-drafted with blank spaces filled up with the purported dates of effectivity of his resignation; and, (c) it was written in English, a language which Capulso was not conversant with considering his low level of education. No other plausible explanation can be drawn from these circumstances than that the subject letters of resignation were prepared by a person or persons other than Capulso. And the fact that he categorically disowned the signatures therein and denied having executed them clearly indicates that the resignation letters were drafted without his consent and participation.

Even assuming for the sake of argument that the signatures were genuine, we still cannot give credence to those letters in the absence of any showing that Capulso was aware that what he was signing then were in fact resignation letters or that he fully understood the contents thereof. Having introduced those resignation letters in evidence, it was incumbent upon petitioners to prove clearly and convincingly their genuineness and due execution, especially considering the serious doubts on their authenticity. Petitioners miserably failed in this respect.

The Labor Arbiter held that Capulso’s repudiation of the signatures affixed in the letters of resignation was weakened by the fact that he filed the case only after almost four (4) months from the date of his dismissal. But it should be noted that private respondent still wanted his job and thus, understandably, refrained from filing the illegal dismissal case against his employer so as not to jeopardize his chances of continuing with his employment. True enough, when it became apparent that he was no longer welcome at AZCOR he immediately instituted the instant case.

In addition, an action for reinstatement by reason of illegal dismissal is one based on an injury which may be brought within four (4) years from the time of dismissal pursuant to Art. 1146 of the Civil Code. Hence, Capulso’s case which was filed after a measly delay of four (4) months should not be treated with skepticism or cynicism. By law and settled jurisprudence, he has four (4) years to file his complaint for illegal dismissal. A delay of merely four (4) months in instituting an illegal dismissal case is more than sufficient compliance with the prescriptive period. It may betray an unlettered man’s lack of awareness of his rights as a lowly worker but, certainly, he must not be penalized for his tarrying.

In illegal dismissal cases like the present one, the onus of proving that the dismissal of the employee was for a valid and authorized cause rests on the employer[18] and failure to discharge the same would mean that the dismissal is not justified and therefore illegal.[19] Petitioners failed in this regard.

Petitioners also contend that they could not be held jointly and severally liable to Capulso for back wages since AZCOR and Filipinas Paso are separate and distinct corporations with different corporate personalities; and, the mere fact that the businesses of these corporations are interrelated and both owned and controlled by a single stockholder are not sufficient grounds to disregard their separate corporate entities.

We are not persuaded. The doctrine that a corporation is a legal entity or a person in law distinct from the persons composing it is merely a legal fiction for purposes of convenience and to subserve the ends of justice. This fiction cannot be extended to a point beyond its reason and policy.[20] Where, as in this case, the corporate fiction was used as a means to perpetrate a social injustice or as a vehicle to evade obligations or confuse the legitimate issues, it would be discarded and the two (2) corporations would be merged as one, the first being merely considered as the instrumentality, agency, conduit or adjunct of the other.[21]

In this particular case, there was much confusion as to the identity of Capulso’s employer - whether it was AZCOR or Filipinas Paso; but, for sure, it was petitioners' own making, as shown by the following: First, Capulso had no knowledge that he was already working under petitioner Filipinas Paso since he continued to retain his AZCOR Identification card; Second, his payslips contained the name of AZCOR giving the impression that AZCOR was paying his salary;Third, he was paid the same salary and he performed the same kind of job, in the same work area, in the same location, using the same tools and under the same supervisor; Fourth, there was no gap in his employment as he continued to work from the time he was hired up to the last day of his work; Fifth, the casting department of AZCOR where Capulso was working was abolished when he, together with six (6) others, transferred to Filipinas Paso; and Sixth, the employment contract was signed by an AZCOR personnel officer, which showed that Capulso was being hired from 1 March 1990 to 31 August 1990 by AZCOR to do jobs for Filipinas Paso. The employment contract provided in part:The contract is for a specific job contract only and shall be effective for the period covered, unless sooner terminated when the job contract is completed earlier or withdrawn by client, or when the employee is dismissed for just and lawful causes provided by law and the company’s rules and regulations, in which case the employment contract will automatically terminate.

As correctly observed by the NLRC, the contract was only for six (6) months, which could pass either as a probationary period or a job contracting, the completion of which automatically terminated the employment. Observe further, however, that respondent continued working even after the lapse of the period in the contract - for whom it was not clear. It may be asked: Was the six (6)-month period probationary in nature, in which case, after the lapse of the period he became a regular employee of Filipinas Paso? Or was the period job-contracting in character, in which case, after the period he was deemed to have come back to AZCOR?

Interestingly, petitioners likewise argue that it was grave abuse of discretion for the NLRC to hold them solidarily liable to Capulso when the latter himself testified that he was not even an employee of Filipinas Paso.[22] After causing much confusion, petitioners have the temerity to use as evidence the ignorance of Capulso in identifying his true employer. It is evident from the foregoing discussion that Capulso was led into believing that while he was working with Filipinas Paso, his real employer was AZCOR. Petitioners never dealt with him openly and in good faith, nor was he informed of the developments within the company, i.e., his alleged transfer to Filipinas Paso and the closure of AZCOR’s manufacturing operations beginning 1 March 1990.[23] Understandably, he sued AZCOR alone and was constrained to implead Filipinas Paso as additional respondent only when it became apparent that the latter also appeared to be his employer.

In fine, we see in the totality of the evidence a veiled attempt by petitioners to deprive Capulso of what he had earned through hard labor by taking advantage of his low level of education and confusing him as to who really was his true employer - such a callous and despicable treatment of a worker who had rendered faithful service to their company.

However, considering that private respondent died during the pendency of the case before this Court, reinstatement is no longer feasible. In lieu thereof, separation pay shall be awarded. With respect to the amount of back wages, it shall be computed from the time of private respondent’s illegal dismissal up to the time of his death.

WHEREFORE, the petition is DISMISSED. The NLRC Decision of 12 September 1994 is MODIFIED. Petitioners AZCOR MANUFACTURING, INC., FILIPINAS PASO and ARTURO ZULUAGA are ORDERED to pay, jointly and solidarily, the heirs of private respondent Candido Capulso the amounts representing his back wages, inclusive of allowances and other benefits, and separation pay to be computed in accordance with law.

SO ORDERED.

48. CAGAYAN VALLEY DRUG CORPORATION, petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, respondent.D E C I S I O NVELASCO, JR., J.:The CaseThis petition for review under Rule 45 of the Rules of Court seeks the recall of the August 31, 2000 Resolution1 of the Court of Appeals (CA) in CA-G.R. SP No. 59778, which dismissed petitioner Cagayan Valley Drug Corporation’s petition for review of the April 26, 2000 Decision2 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5581 on the ground of defective verification and certification against forum shopping.The FactsPetitioner, a corporation duly organized and existing under Philippine laws, is a duly licensed retailer of medicine and other pharmaceutical products. It operates two drugstores, one in Tuguegarao, Cagayan, and the other in Roxas, Isabela, under the name and style of "Mercury Drug."Petitioner alleged that in 1995, it granted 20% sales discounts to qualified senior citizens on purchases of medicine pursuant to Republic Act No. (RA) 74323 and its implementing rules and regulations.In compliance with Revenue Regulation No. (RR) 2-94, petitioner treated the 20% sales discounts granted to qualified senior citizens in 1995 as deductions from the gross sales in order to arrive at the net sales, instead of treating them as tax credit as provided by Section 4 of RA 7432.On December 27, 1996, however, petitioner filed with the Bureau of Internal Revenue (BIR) a claim for tax refund/tax credit of the full amount of the 20% sales discount it granted to senior citizens for the year 1995, allegedly totaling to PhP 123,083 in accordance with Sec. 4 of RA 7432.The BIR’s inaction on petitioner’s claim for refund/tax credit compelled petitioner to file on March 18, 1998 a petition for review before the CTA docketed as C.T.A. Case No. 5581 in order to forestall the two-year prescriptive period provided under Sec. 2304 of the 1977 Tax Code, as amended. Thereafter, on March 31, 2000, petitioner amended its petition for review.The Ruling of the Court of Tax AppealsOn April 26, 2000, the CTA rendered a Decision dismissing the petition for review for lack of merit.5

The CTA sustained petitioner’s contention that pursuant to Sec. 4 of RA 7432, the 20% sales discounts petitioner extended to qualified senior citizens in 1995 should be treated as tax credit and not as deductions from the gross sales as erroneously interpreted in RR 2-94. The CTA reiterated its consistent holdings that RR 2-94 is an invalid administrative interpretation of the law it purports to implement as it contravenes and does not conform to the standards RA 7432 prescribes.Notwithstanding petitioner’s entitlement to a tax credit from the 20% sales discounts it extended to qualified senior citizens in 1995, the CTA nonetheless dismissed petitioner’s action for refund or tax credit on account of petitioner’s net loss in 1995. First, the CTA rejected the refund as it is clear that RA 7432 only grants the 20% sales discounts extended to qualified senior citizens as tax credit and not as tax refund. Second, in rejecting the tax credit, the CTA reasoned that while petitioner may be qualified for a tax credit, it cannot be so extended to petitioner on account of its net loss in 1995.The CTA ratiocinated that on matters of tax credit claim, the government applies the amount determined to be reimbursable after proper verification against any sum that may be due and collectible from the taxpayer. However, if no tax has been paid or if no amount is due and collectible from the taxpayer, then a tax credit is unavailing. Moreover, it held that before allowing recovery for claims for a refund or tax credit, it must first be established that there was an actual collection and receipt by the government of the tax sought to be recovered. In the instant case, the CTA found that petitioner did not pay any tax by virtue of its net loss position in 1995.Petitioner’s Motion for Reconsideration was likewise denied through the appellate tax court’s June 30, 2000 Resolution.6

The Ruling of the Court of AppealsAggrieved, petitioner elevated the matter before the CA, docketed as CA-G.R. SP No. 59778. On August 31, 2000, the CA issued the assailed Resolution7 dismissing the petition on procedural grounds. The CA held that the person who signed the verification and certification of absence of forum shopping, a certain Jacinto J. Concepcion, President of petitioner, failed to adduce proof that he was duly authorized by the board of directors to do so.As far as the CA was concerned, the main issue was whether or not the verification and certification of non-forum shopping signed by the President of petitioner is sufficient compliance with Secs. 4 and 5, Rule 7 of the 1997 Rules of Civil Procedure.The verification and certification in question reads:I, JACINTO J. CONCEPCION, of legal age with office address at 2nd Floor, Mercury Drug Corporation, No. 7 Mercury Ave, Bagumbayan, Quezon City, under oath, hereby state that:1. I am the President of Cagayan Valley Drug Corporation, Petitioner in the above-entitled case and am duly authorized to sign this Verification and Certification of Absence of Forum Shopping by the Board of Director.x x x xThe CA found no sufficient proof to show that Concepcion was duly authorized by the Board of Directors of petitioner. The appellate court anchored its disposition on our ruling in Premium Marble Resources, Inc. v. Court of Appeals (Premium), that "[i]n the absence of an authority from the Board of Directors, no person, not even the officers of the corporation, can validly bind the corporation."8

Hence, we have this petition.The IssuesPetitioner raises two issues: first, whether petitioner’s president can sign the subject verification and certification sans the approval of its Board of Directors. And second, whether the CTA committed reversible error in denying and dismissing petitioner’s action for refund or tax credit in C.T.A. Case No. 5581.The Court’s RulingThe petition is meritorious.Premium not applicableAs regards the first issue, we find the CA to have erroneously relied on Premium. In said case, the issue tackled was not on whether the president of Premium Marble Resources, Inc. was authorized to sign the verification and certification against forum shopping, but rather on which of the two sets of officers, both claiming to be the legal board of directors of Premium, have the authority to file

the suit for and in behalf of the company. The factual antecedents and issues in Premium are not on all fours with the instant case and is, therefore, not applicable.With respect to an individual litigant, there is no question that litigants must sign the sworn verification and certification unless they execute a power of attorney authorizing another person to sign it. With respect to a juridical person, Sec. 4, Rule 7 on verification and Sec. 5, Rule 7 on certification against forum shopping are silent as to who the authorized signatory should be. Said rules do not indicate if the submission of a board resolution authorizing the officer or representative is necessary.Corporate powers exercised through board of directorsIt must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation Code, clearly enunciates that all corporate powers are exercised, all business conducted, and all properties controlled by the board of directors. A corporation has a separate and distinct personality from its directors and officers and can only exercise its corporate powers through the board of directors. Thus, it is clear that an individual corporate officer cannot solely exercise any corporate power pertaining to the corporation without authority from the board of directors. This has been our constant holding in cases instituted by a corporation.In a slew of cases, however, we have recognized the authority of some corporate officers to sign the verification and certification against forum shopping. In Mactan-Cebu International Airport Authority v. CA, we recognized the authority of a general manager or acting general manager to sign the verification and certificate against forum shopping;9 in Pfizer v. Galan, we upheld the validity of a verification signed by an "employment specialist" who had not even presented any proof of her authority to represent the company;10 in Novelty Philippines, Inc., v. CA, we ruled that a personnel officer who signed the petition but did not attach the authority from the company is authorized to sign the verification and non-forum shopping certificate;11 and in Lepanto Consolidated Mining Company v. WMC Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson of the Board and President of the Company can sign the verification and certificate against non-forum shopping even without the submission of the board’s authorization.12

In sum, we have held that the following officials or employees of the company can sign the verification and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor case.While the above cases do not provide a complete listing of authorized signatories to the verification and certification required by the rules, the determination of the sufficiency of the authority was done on a case to case basis. The rationale applied in the foregoing cases is to justify the authority of corporate officers or representatives of the corporation to sign the verification or certificate against forum shopping, being "in a position to verify the truthfulness and correctness of the allegations in the petition."13

Authority from board of directors requiredIn Philippine Airlines v. Flight Attendants and Stewards Association of the Philippines, we ruled that only individuals vested with authority by a valid board resolution may sign the certificate of non-forum shopping on behalf of a corporation. The action can be dismissed if the certification was submitted unaccompanied by proof of the signatory’s authority.14 We believe that appending the board resolution to the complaint or petition is the better procedure to obviate any question on the authority of the signatory to the verification and certification. The required submission of the board resolution is grounded on the basic precept that corporate powers are exercised by the board of directors,15 and not solely by an officer of the corporation. Hence, the power to sue and be sued in any court or quasi-judicial tribunal is necessarily lodged with the said board.There is substantial compliance with Rule 7, Secs. 4 and 5In the case at bar, we so hold that petitioner substantially complied with Secs. 4 and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure. First, the requisite board resolution has been submitted albeit belatedly by petitioner.Second, we apply our ruling in Lepanto with the rationale that the President of petitioner is in a position to verify the truthfulness and correctness of the allegations in the petition. Third, the President of petitioner has signed the complaint before the CTA at the inception of this judicial claim for refund or tax credit.Consequently, the petition in CA-G.R. SP No. 59778 ought to be reinstated. However, in view of the enactment of RA 9282 which made the decisions of the CTA appealable to this Court, we will directly resolve the second issue which is a purely legal one.Petitioner entitled to tax creditThe pith of the dispute between petitioner and respondent is whether petitioner is entitled to a tax refund or tax credit of 20% sales discount granted to senior citizens under RA 7432 or whether the discount should be treated as a deduction from gross income.This issue is not new, as the Court has resolved several cases involving the very same issue. In Commissioner of Internal Revenue v. Central Luzon Drug Corporation (Central Luzon),16 we held that private drug companies are entitled to a tax credit for the 20% sales discounts they granted to qualified senior citizens under RA 7432 and nullified Secs. 2.i and 4 of RR 2-94. In Bicolandia Drug Corporation (formerly Elmas Drug Corporation) v. Commissioner of Internal Revenue,17 we ruled that petitioner therein is entitled to a tax credit of the "cost" or the full 20% sales discounts it granted pursuant to RA 7432. In the related case of Commissioner of Internal Revenue v. Bicolandia Drug Corporation,18 we likewise ruled that respondent drug company was entitled to a tax credit, and we struck down RR 2-94 to be null and void for failing to conform with the law it sought to implement.A perusal of the April 26, 2000 CTA Decision shows that the appellate tax court correctly ruled that the 20% sales discounts petitioner granted to qualified senior citizens should be deducted from petitioner’s income tax due and not from petitioner’s gross sales as erroneously provided in RR 2-94. However, the CTA erred in denying the tax credit to petitioner on the ground that petitioner had suffered net loss in 1995, and ruling that the tax credit is unavailing.Net loss in a taxable year does not preclude grant of tax creditIt is true that petitioner did not pay any tax in 1995 since it suffered a net loss for that taxable year. This fact, however, without more, does not preclude petitioner from availing of its statutory right to a tax credit for the 20% sales discounts it granted to qualified senior citizens. The law then applicable on this point is clear and without any qualification. Sec. 4 (a) of RA 7432 pertinently provides:Sec. 4. Privileges for the Senior citizens.––The senior citizens shall be entitled to the following:a) the grant of twenty percent (20%) discount from all establishments relative to utilization of transportation services, hotels and similar lodging establishments, restaurants and recreation centers and purchase of medicines anywhere in the country: Provided, That private establishments may claim the cost as tax credit. (Emphasis ours.)The fact that petitioner suffered a net loss in 1995 will not make the tax credit due to petitioner unavailable. This is the core issue resolved in Central Luzon, where we ruled that the net loss for a taxable year does not bar the grant of the tax credit to a taxpayer pursuant to RA 7432 and that prior tax payments are not required for such grant. We explained:

Although this tax credit benefit is available, it need not be used by losing ventures, since there is no tax liability that calls for its application. Neither can it be reduced to nil by the quick yet callow stroke of an administrative pen, simply because no reduction of taxes can instantly be effected. By its nature, the tax credit may still be deducted from a future, not a present, tax liability, without which it does not have any use. x x xx x x xWhile a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete with provisions granting or allowing tax credits, even though no taxes have been previously paid.19

It is thus clear that petitioner is entitled to a tax credit for the full 20% sales discounts it extended to qualified senior citizens for taxable year 1995. Considering that the CTA has not disallowed the PhP 123,083 sales discounts petitioner claimed before the BIR and CTA, we are constrained to grant them as tax credit in favor of petitioner.Consequently, petitioner’s appeal before the CA in CA-G.R. SP No. 59778 must be granted, and, necessarily, the April 26, 2000 CTA Decision in C.T.A. Case No. 5581 reversed and set aside.WHEREFORE, the petition is GRANTED. The August 31, 2000 CA Resolution in CA-G.R. SP No. 59778 isANNULLED AND SET ASIDE. The April 26, 2000 CTA Decision in C.T.A. Case No. 5581 dismissing petitioner’s claim for tax credit is accordingly REVERSED AND SET ASIDE. The Commissioner of Internal Revenue isORDERED to issue a Tax Credit Certificate in the name of petitioner in the amount of PhP 123,083. No costs.SO ORDERED.

60. CHINA BANKING CORPORATION, petitioner, vs.DYNE-SEM ELECTRONICS CORPORATION, respondent.D E C I S I O NCORONA, J.:On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed a total of P8,939,000 from petitioner China Banking Corporation. The loan was evidenced by six promissory notes.1

The borrowers failed to pay when the obligations became due. Petitioner consequently instituted a complaint for sum of money2 on June 25, 1987 against them. The complaint sought payment of the unpaid promissory notes plus interest and penalties.Summons was not served on Dynetics, however, because it had already closed down. Lim, on the other hand, filed his answer on December 15, 1987 denying that "he promised to pay [the obligations] jointly and severally to [petitioner]."3

On January 7, 1988, the case was scheduled for pre-trial with respect to Lim. The case against Dynetics was archived.On September 23, 1988, an amended complaint4 was filed by petitioner impleading respondent Dyne-Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente Chuidian, Antonio Garcia and Jacob Ratinoff. According to petitioner, respondent was formed and organized to be Dynetics’ alter ego as established by the following circumstances:· Dynetics, Inc. and respondent are both engaged in the same line of business of manufacturing, producing, assembling, processing, importing, exporting, buying, distributing, marketing and testing integrated circuits and semiconductor devices;· [t]he principal office and factory site of Dynetics, Inc. located at Avocado Road, FTI Complex, Taguig, Metro Manila, were used by respondent as its principal office and factory site;· [r]espondent acquired some of the machineries and equipment of Dynetics, Inc. from banks which acquired the same through foreclosure;· [r]espondent retained some of the officers of Dynetics, Inc.5

xxx xxx xxxOn December 28, 1988, respondent filed its answer, alleging that:5.1 [t]he incorporators as well as present stockholders of [respondent] are totally different from those of Dynetics, Inc., and not one of them has ever been a stockholder or officer of the latter;5.2 [n]ot one of the directors of [respondent] is, or has ever been, a director, officer, or stockholder of Dynetics, Inc.;5.3 [t]he various facilities, machineries and equipment being used by [respondent] in its business operations were legitimately and validly acquired, under arms-length transactions, from various corporations which had become absolute owners thereof at the time of said transactions; these were not just "taken over" nor "acquired from Dynetics" by [respondent], contrary to what plaintiff falsely and maliciously alleges;5.4 [respondent] acquired most of its present machineries and equipment as second-hand items to keep costs down;5.5 [t]he present plant site is under lease from Food Terminal, Inc., a government-controlled corporation, and is located inside the FTI Complex in Taguig, Metro Manila, where a number of other firms organized in 1986 and also engaged in the same or similar business have likewise established their factories; practical convenience, and nothing else, was behind [respondent’s] choice of plant site;5.6 [respondent] operates its own bonded warehouse under authority from the Bureau of Customs which has the sole and absolute prerogative to authorize and assign customs bonded warehouses; again, practical convenience played its role here since the warehouse in question was virtually lying idle and unused when said Bureau decided to assign it to [respondent] in June 1986.6

On February 28, 1989, the trial court issued an order archiving the case as to Chuidian, Garcia and Ratinoff since summons had remained unserved.After hearing, the court a quo rendered a decision on December 27, 1991 which read:xxx [T]he Court rules that Dyne-Sem Electronics Corporation is not an alter ego of Dynetics, Inc. Thus, Dyne-Sem Electronics Corporation is not liable under the promissory notes.xxx xxx xxxWHEREFORE, judgment is hereby rendered ordering Dynetics, Inc. and Elpidio O. Lim, jointly and severally, to pay plaintiff.xxx xxx xxxAnent the complaint against Dyne-Sem and the latter’s counterclaim, both are hereby dismissed, without costs.SO ORDERED.7

From this adverse decision, petitioner appealed to the Court of Appeals8 but the appellate court dismissed the appeal and affirmed the trial court’s decision.9 It found that respondent was indeed not an alter ego of Dynetics. The two corporations had different articles of incorporation. Contrary to petitioner’s claim, no merger or absorption took place between the two. What transpired was a mere sale of the assets of Dynetics to respondent. The appellate court denied petitioner’s motion for reconsideration.10

Hence, this petition for review11 with the following assigned errors:VI.IssuesWhat is the quantum of evidence needed for the trial court to determine if the veil of corporat[e] fiction should be pierced?[W]hether or not the Regional Trial Court of Manila Branch 15 in its Decision dated December 27, 1991 and the Court of Appeals in its Decision dated February 28, 2001 and Resolution dated July 27, 2001, which affirmed en toto [Branch 15, Manila Regional Trial Court’s decision,] have ruled in accordance with law and/or applicable [jurisprudence] to the extent that the Doctrine of Piercing the Veil of Corporat[e] Fiction is not applicable in the case at bar?12

We find no merit in the petition.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 petitioner adduced the requisite quantum of evidence warranting the piercing of the veil of respondent’s corporate entity. This Court is not a trier of facts. Findings of fact of the Court of Appeals, affirming those of the trial court, are final and conclusive. The jurisdiction of this Court in a petition for review on certiorari is limited to reviewing only errors of law, not of fact, unless it is shown, inter alia, that: (a) the conclusion is grounded entirely on speculations, surmises and conjectures; (b) the inference is manifestly mistaken, absurd and impossible; (c) there is grave abuse of discretion; (d) the judgment is based on a misapplication of facts; (e) the findings of fact of the trial court and the appellate court are contradicted

by the evidence on record and (f) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both parties.13

We have reviewed the records and found that the factual findings of the trial and appellate courts and consequently their conclusions were supported by the evidence on record.The general rule is that a corporation has a personality separate and distinct from that of its stockholders and other corporations to which it may be connected.14 This is a fiction created by law for convenience and to prevent injustice.15

Nevertheless, being a mere fiction of law, peculiar situations or valid grounds may exist to warrant the disregard of its independent being and the piercing of the corporate veil.16 In Martinez v. Court of Appeals,17 we held:The veil of separate corporate personality may be lifted when such personality is used to defeat public convenience, justify wrong, protect fraud or defend crime; or used as a shield to confuse the legitimate issues; or when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation 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; or when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or for the protection of the creditors. In such cases, the corporation will be considered as a mere association of persons. The liability will directly attach to the stockholders or to the other corporation.To disregard the separate juridical personality of a corporation, the wrongdoing must be proven clearly and convincingly.18

In this case, petitioner failed to prove that Dyne-Sem was organized and controlled, and its affairs conducted, in a manner that made it merely an instrumentality, agency, conduit or adjunct of Dynetics, or that it was established to defraud Dynetics’ creditors, including petitioner.The similarity of business of the two corporations did not warrant a conclusion that respondent was but a conduit of Dynetics. As we held in Umali v. Court of Appeals,19 "the mere fact that the businesses of two or more corporations are interrelated is not a justification for disregarding their separate personalities, absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights."Likewise, respondent’s acquisition of some of the machineries and equipment of Dynetics was not proof that respondent was formed to defraud petitioner. As the Court of Appeals found, no merger20 took place between Dynetics and respondent Dyne-Sem. What took place was a sale of the assets21 of the former to the latter. Merger is legally distinct from a sale of assets.22 Thus, where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor.Petitioner itself admits that respondent acquired the machineries and equipment not directly from Dynetics but from the various corporations which successfully bidded for them in an auction sale. The contracts of sale executed between the winning bidders and respondent showed that the assets were sold for considerable amounts.23 The Court of Appeals thus correctly ruled that the assets were not "diverted" to respondent as an alter ego of Dynetics.24 The machineries and equipment were transferred and disposed of by the winning bidders in their capacity as owners. The sales were therefore valid and the transfers of the properties to respondent legal and not in any way in contravention of petitioner’s rights as Dynetics’ creditor.Finally, it may be true that respondent later hired Dynetics’ former Vice-President Luvinia Maglaya and Assistant Corporate Counsel Virgilio Gesmundo. From this, however, we cannot conclude that respondent was an alter ego of Dynetics. In fact, even the overlapping of incorporators and stockholders of two or more corporations will not necessarily lead to such inference and justify the piercing of the veil of corporate fiction.25 Much more has to be proven.Premises considered, no factual and legal basis exists to hold respondent Dyne-Sem liable for the obligations of Dynetics to petitioner.WHEREFORE, the petition is hereby DENIED.The assailed Court of Appeals’ decision and resolution in CA-G.R. CV No. 40672 are hereby AFFIRMED.Costs against petitioner.SO ORDERED.

69. COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.NORTON and HARRISON COMPANY, respondent.Office of the Solicitor General for petitioner.Pio Joven for respondent.PAREDES, J.:This is an appeal interposed by the Commissioner of Internal Revenue against the following judgment of the Court of Tax Appeals:IN VIEW OF THE FOREGOING, we find no legal basis to support the assessment in question against petitioner. If at all, the assessment should have been directed against JACKBILT, the manufacturer. Accordingly, the decision appealed from is reversed, and the surety bond filed to guarantee payment of said assessment is ordered cancelled. No pronouncement as to costs.Norton and Harrison is a corporation organized in 1911, (1) to buy and sell at wholesale and retail, all kinds of goods, wares, and merchandise; (2) to act as agents of manufacturers in the United States and foreign countries; and (3) to carry on and conduct a general wholesale and retail mercantile establishment in the Philippines. Jackbilt is, likewise, a corporation organized on February 16, 1948 primarily for the purpose of making, producing and manufacturing concrete blocks. Under date of July 27, 1948. Norton and Jackbilt entered into an agreement whereby Norton was made the sole and exclusive distributor of concrete blocks manufactured by Jackbilt. Pursuant to this agreement, whenever an order for concrete blocks was received by the Norton & Harrison Co. from a customer, the order was transmitted to Jackbilt which delivered the merchandise direct to the customer. Payment for the goods is, however, made to Norton, which in turn pays Jackbilt the amount charged the customer less a certain amount, as its compensation or profit. To exemplify the sales procedures adopted by the Norton and Jackbilt, the following may be cited. In the case of the sale of 420 pieces of concrete blocks to the American Builders on April 1, 1952, the purchaser paid to Norton the sum of P189.00 the purchase price. Out of this amount Norton paid Jackbilt P168.00, the difference obviously being its compensation. As per records of Jackbilt, the transaction was considered a sale to Norton. It was under this procedure that the sale of concrete blocks manufactured by Jackbilt was conducted until May 1, 1953, when the agency agreement was terminated and a management agreement between the parties was entered into. The management agreement provided that Norton would sell concrete blocks for Jackbilt, for a fixed monthly fee of P2,000.00, which was later increased to P5,000.00.During the existence of the distribution or agency agreement, or on June 10, 1949, Norton & Harrison acquired by purchase all the outstanding shares of stock of Jackbilt. Apparently, due to this transaction, the Commissioner of Internal Revenue, after conducting an investigation, assessed the respondent Norton & Harrison for deficiency sales tax and surcharges in the amount of P32,662.90, making as basis thereof the sales of Norton to the Public. In other words, the Commissioner considered the sale of Norton to the public as the original sale and not the transaction from Jackbilt. The period covered by the assessment was from July 1, 1949 to May 31, 1953. As Norton and Harrison did not conform with the assessment, the matter was brought to the Court of Tax Appeals.The Commissioner of Internal Revenue contends that since Jackbilt was owned and controlled by Norton & Harrison, the corporate personality of the former (Jackbilt) should be disregarded for sales tax purposes, and the sale of Jackbilt blocks by petitioner to the public must be considered as the original sales from which the sales tax should be computed. The Norton & Harrison Company contended otherwise — that is, the transaction subject to tax is the sale from Jackbilt to Norton.Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1äwphï1.ñëtThe majority of the Tax Court, in relieving Norton & Harrison of liability under the assessment, made the following observations:The law applicable to the case is Section 186 of the National Internal Revenue Code which imposes a percentage tax of 7% on every original sale of goods, wares or merchandise, such tax to be based on the gross selling price of such goods, wares or merchandise. The term "original sale" has been defined as the first sale by every manufacturer, producer or importer. (Sec. 5, Com. Act No. 503.) Subsequent sales by persons other than the manufacturer, producer or importer are not subject to the sales tax.If JACKBILT actually sold concrete blocks manufactured by it to petitioner under the distributorship or agency agreement of July 27, 1948, such sales constituted the original sales which are taxable under Section 186 of the Revenue Code, while the sales made to the public by petitioner are subsequent sales which are not taxable. But it appears to us that there was no such sale by JACKBILT to petitioner. Petitioner merely acted as agent for JACKBILT in the marketing of its products. This is shown by the fact that petitioner merely accepted orders from the public for the purchase of JACKBILT blocks. The purchase orders were transmitted to JACKBILT which delivered the blocks to the purchaser directly. There was no instance in which the blocks ordered by the purchasers were delivered to the petitioner. Petitioner never purchased concrete blocks from JACKBILT so that it never acquired ownership of such concrete blocks. This being so, petitioner could not have sold JACKBILT blocks for its own account. It did so merely as agent of JACKBILT. The distributorship agreement of July 27, 1948, is denominated by the parties themselves as an "agency for marketing" JACKBILT products. ... .x x x x x x x x xTherefore, the taxable selling price of JACKBILT blocks under the aforesaid agreement is the price charged to the public and not the amount billed by JACKBILT to petitioner. The deficiency sales tax should have been assessed against JACKBILT and not against petitioner which merely acted as the former's agent.x x x x x x x x xPresiding Judge Nable of the same Court expressed a partial dissent, stating:Upon the aforestated circumstances, which disclose Norton's control over and direction of Jackbilt's affairs, the corporate personality of Jackbilt should be disregarded, and the transactions between these two corporations relative to the concrete blocks should be ignored in determining the percentage tax for which Norton is liable. Consequently, the percentage tax should be computed on the basis of the sales of Jackbilt blocks to the public.The majority opinion is now before Us on appeal by the Commissioner of Internal Revenue, on four (4) assigned errors, all of which pose the following propositions: (1) whether the acquisition of all the stocks of the Jackbilt by the Norton & Harrison Co., merged the two corporations into a single corporation; (2) whether the basis of the computation of the deficiency sales tax should be the sale of the blocks to the public and not to Norton.It has been settled that the ownership of all the stocks of a corporation by another corporation does not necessarily breed an identity of corporate interest between the two companies and be considered as a sufficient ground for disregarding the distinct personalities (Liddell & Co., Inc. v. Coll. of Int. Rev. L-9687, June 30, 1961). However, in the case at bar, we find sufficient grounds to support the theory that the separate identities of the two companies should be disregarded. Among these circumstances, which we

find not successfully refuted by appellee Norton are: (a) Norton and Harrison owned all the outstanding stocks of Jackbilt; of the 15,000 authorized shares of Jackbilt on March 31, 1958, 14,993 shares belonged to Norton and Harrison and one each to seven others; (b) Norton constituted Jackbilt's board of directors in such a way as to enable it to actually direct and manage the other's affairs by making the same officers of the board for both companies. For instance, James E. Norton is the President, Treasurer, Director and Stockholder of Norton. He also occupies the same positions in Jackbilt corporation, the only change being, in the Jackbilt, he is merely a nominal stockholder. The same is true with Mr. Jordan, F. M. Domingo, Mr. Mantaring, Gilbert Golden and Gerardo Garcia, while they are merely employees of the North they are Directors and nominal stockholders of the Jackbilt (c) Norton financed the operations of the Jackbilt, and this is shown by the fact that the loans obtained from the RFC and Bank of America were used in the expansion program of Jackbilt, to pay advances for the purchase of equipment, materials rations and salaries of employees of Jackbilt and other sundry expenses. There was no limit to the advances given to Jackbilt so much so that as of May 31, 1956, the unpaid advances amounted to P757,652.45, which were not paid in cash by Jackbilt, but was offset by shares of stock issued to Norton, the absolute and sole owner of Jackbilt; (d) Norton treats Jackbilt employees as its own. Evidence shows that Norton paid the salaries of Jackbilt employees and gave the same privileges as Norton employees, an indication that Jackbilt employees were also Norton's employees. Furthermore service rendered in any one of the two companies were taken into account for purposes of promotion; (e) Compensation given to board members of Jackbilt, indicate that Jackbilt is merely a department of Norton. The income tax return of Norton for 1954 shows that as President and Treasurer of Norton and Jackbilt, he received from Norton P56,929.95, but received from Jackbilt the measly amount of P150.00, a circumstance which points out that remuneration of purported officials of Jackbilt are deemed included in the salaries they received from Norton. The same is true in the case of Eduardo Garcia, an employee of Norton but a member of the Board of Jackbilt. His Income tax return for 1956 reveals that he received from Norton in salaries and bonuses P4,220.00, but received from Jackbilt, by way of entertainment, representation, travelling and transportation allowances P3,000.00. However, in the withholding statement (Exh. 28-A), it was shown that the total of P4,200.00 and P3,000.00 (P7,220.00) was received by Garcia from Norton, thus portraying the oneness of the two companies. The Income Tax Returns of Albert Golden and Dioscoro Ramos both employees of Norton but board members of Jackbilt, also disclose the game method of payment of compensation and allowances. The offices of Norton and Jackbilt are located in the same compound. Payments were effected by Norton of accounts for Jackbilt and vice versa. Payments were also made to Norton of accounts due or payable to Jackbilt and vice versa.Norton and Harrison, while not denying the presence of the set up stated above, tried to explain that the control over the affairs of Jackbilt was not made in order to evade payment of taxes; that the loans obtained by it which were given to Jackbilt, were necessary for the expansion of its business in the manufacture of concrete blocks, which would ultimately benefit both corporations; that the transactions and practices just mentioned, are not unusual and extraordinary, but pursued in the regular course of business and trade; that there could be no confusion in the present set up of the two corporations, because they have separate Boards, their cash assets are entirely and strictly separate; cashiers and official receipts and bank accounts are distinct and different; they have separate income tax returns, separate balance sheets and profit and loss statements. These explanations notwithstanding an over-all appraisal of the circumstances presented by the facts of the case, yields to the conclusion that the Jackbilt is merely an adjunct, business conduit or alter ego, of Norton and Harrison and that the fiction of corporate entities, separate and distinct from each, should be disregarded. This is a case where the doctrine of piercing the veil of corporate fiction, should be made to apply. In the case of Liddell & Co. Inc. v. Coll. of Int. Rev., supra, it was held:There are quite a series of conspicuous circumstances that militates against the separate and distinct personality of Liddell Motors Inc., from Liddell & Co. We notice that the bulk of the business of Liddell & Co. was channel Red through Liddell Motors, Inc. On the other hand, Liddell Motors Inc. pursued no activities except to secure cars, trucks, and spare parts from Liddell & Co., Inc. and then sell them to the general public. These sales of vehicles by Liddell & Co, to Liddell Motors. Inc. for the most part were shown to have taken place on the same day that Liddell Motors, Inc. sold such vehicles to the public. We may even say that the cars and trucks merely touched the hands of Liddell Motors, Inc. as a matter of formality.x x x x x x x x xAccordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other. There is however, in this instant case, a peculiar sequence of the organization and activities of Liddell Motors, Inc.As opined in the case of Gregory v. Helvering "the legal right of a tax payer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted". But as held in another case, "where a corporation is a dummy, is unreal or a sham and serves no business purpose and is intended only as a blind, the corporate form may be ignored for the law cannot countenance a form that is bald and a mischievous fictions".... a taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue officers in proper cases, may disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take benefits of the transactions as the person accordingly taxable.... to allow a taxpayer to deny tax liability on the ground that the sales were made through another and distinct corporation when it is proved that the latter is virtually owned by the former or that they are practically one and the same is to sanction a circumvention of our tax laws. (and cases cited therein.)In the case of Yutivo Sons Hardware Co. v. Court of Tax Appeals, L-13203, Jan. 28, 1961, this Court made a similar ruling where the circumstances of unity of corporate identities have been shown and which are identical to those obtaining in the case under consideration. Therein, this Court said:We are, however, inclined to agree with the court below that SM was actually owned and controlled by petitioner as to make it a mere subsidiary or branch of the latter created for the purpose of selling the vehicles at retail (here concrete blocks) ... .It may not be amiss to state in this connection, the advantages to Norton in maintaining a semblance of separate entities. If the income of Norton should be considered separate from the income of Jackbilt, then each would declare such earning separately for income tax purposes and thus pay lesser income tax. The combined taxable Norton-Jackbilt income would subject Norton to a higher tax. Based upon the 1954-1955 income tax return of Norton and Jackbilt (Exhs. 7 & 8), and assuming that both of them are operating on the same fiscal basis and their returns are accurate, we would have the following result: Jackbilt declared a taxable net income of P161,202.31 in which the income tax due was computed at P37,137.00 (Exh. 8); whereas Norton declared as taxable, a net income of P120,101.59, on which the income tax due was computed at P25,628.00. The total of these liabilities is P50,764.84. On the other hand, if the net taxable earnings of both corporations are combined, during the same taxable year, the tax due on their total which is

P281,303.90 would be P70,764.00. So that, even on the question of income tax alone, it would be to the advantages of Norton that the corporations should be regarded as separate entities.WHEREFORE, the decision appealed from should be as it is hereby reversed and another entered making the appellee Norton & Harrison liable for the deficiency sales taxes assessed against it by the appellant Commissioner of Internal Revenue, plus 25% surcharge thereon. Costs against appellee Norton & Harrison.

72. EDUARDO CLAPAROLS, ROMULO AGSAM and/or CLAPAROLS STEEL AND NAIL PLANT, petitioners, vs.COURT OF INDUSTRIAL RELATIONS, ALLIED WORKERS' ASSOCIATION and/or DEMETRIO GARLITOS, ALFREDO ONGSUCO, JORGE SEMILLANO, SALVADOR DOROTEO, ROSENDO ESPINOSA, LUDOVICO BALOPENOS, ASER AMANCIO, MAXIMO QUIOYO, GAUDENCIO QUIOYO, and IGNACIO QUIOYO,respondents.Ruben G. Bala for petitioners.Rolando N. Medalla for private respondents. MAKASIAR, J.:A petition for certiorari to set aside the order of respondent Court of Industrial Relations dated May 30, 1969 directing petitioners to pay back wages and bonuses to private respondents as well as its resolution of July 5, 1969 denying the motion for reconsideration of said order in Case No. 32-ULP-Iloilo entitled "Allied Workers' Association, et. al., versus Eduardo Claparols, et. al.."It appears that on August 6, 1957, a complaint for unfair labor practice was filed by herein private respondent Allied Workers' Association, respondent Demetrio Garlitos and ten (10) respondent workers against herein petitioners on account of the dismissal of respondent workers from petitioner Claparols Steel and Nail Plant.On September 16, 1963, respondent Court rendered its decision finding "Mr. Claparols guilty of union busting and" of having "dismissed said complainants because of their union activities," and ordering respondents "(1) To cease and desist from committing unfair labor practices against their employees and laborers; (2) To reinstate said complainants to their former or equivalent jobs, as soon as possible, with back wages from the date of their dismissal up to their actual reinstatement" (p. 12, Decision; p. 27, rec.).A motion to reconsider the above decision was filed by herein petitioners, which respondent Court, sitting en banc, denied in a resolution dated January 27, 1964.On March 30, 1964, counsel for herein respondent workers (complainants in the ULP case) filed a motion for execution of respondent Court's September 16, 1963 decision.On May 14, 1964, respondent Court, in its order of September 16, 1963, granted execution and directed herein petitionersto reinstate the above complainants to their former or equivalent jobs within five (5) days after receipt of a copy of this order. In order to implement the award of back wages, the Chief of the Examining Division or any of his assistants is hereby directed to proceed to the office of the respondents at Matab-ang, Talisay, Negros Occidental, and examine its payrolls and other pertinent records and compute the back wages of the complainants in accordance with the decision dated September 16, 1963, and, upon termination, to submit his report as soon as possible for further disposition (p. 7, Brief for Respondents, p. 113, rec.).which was reiterated by respondent Court in a subsequent order dated November 10, 1964 (pp. 7-8, Brief for Respondents, p. 113, rec.).On December 14, 1964, respondent workers were accompanied by the Chief of Police of Talisay, Negros Occidental to the compound of herein petitioner company to report for reinstatement per order of the court. Respondent workers were, however, refused reinstatement by company accountant Francisco Cusi for he had no order from plant owner Eduardo Claparols nor from his lawyer Atty. Plaridel Katalbas, to reinstate respondent workers.Again, on December 15, 1964, respondent workers were accompanied by a police officer to the company compound, but then, they were again refused reinstatement by Cusi on the same ground.On January 15, 1965, the CIR Chief Examiner Submitted his report containing three computations, to wit:The first computation covers the period February 1, 1957 to October 31, 1964. The second is up to and including December 7, 1962, when the corporation stopped operations, while the third is only up to June 30, 1957 when the Claparols Steel and Nail Plant ceased to operate (Annex B, Petition for Review on Certiorari, p. 14, Brief for appellees, p. 113, rec.).with the explanation that:6. Since the records of the Claparols Steel Corporation show that it was established on July 1, 1957 succeeding the Claparols Steel and Nail Plant which ceased operations on June 30, 1957, and that the Claparols Steel Corporation stopped operations on December 7, 1962, three (3) computations are presented herein for the consideration of this Honorable Court (p. 2, Report of Examiner, p. 29, rec.).On January 23, 1965, petitioners filed an opposition alleging that under the circumstances presently engulfing the company, petitioner Claparols could not personally reinstate respondent workers; that assuming the workers are entitled to back wages, the same should only be limited to three months pursuant to the court ruling in the case of Sta. Cecilia Sawmills vs. CIR (L-19273-74, February 20, 1964); and that since Claparols Steel Corporation ceased to operate on December 7, 1962, re-employment of respondent workers cannot go beyond December 7, 1962.A reply to petitioner's opposition was filed by respondent workers, alleging among others, that Claparols Steel and Nail Plant and Claparols Steel and Nail Corporation are one and the same corporation controlled by petitioner Claparols, with the latter corporation succeeding the former.On November 28, 1966, after conducting a series of hearings on the report of the examiner, respondent Court issued an order, the dispositive portion of which reads:WHEREFORE, the Report of the. Examiner filed on January 15, 1965, is hereby approved subject to the foregoing findings and dispositions. Consequently, the Corporation Auditing Examiner is directed to recompute the back wages of complainants Demetrio Garlitos and Alfredo Ongsuco on the basis of P200.00 and P270.00 a month, respectively; to compute those of complainant Ignacio Quioyo as aforesaid; to compute the deductible earnings of complainants Ongsuco, Jorge Semillano and Garlitos, as found in the body of this order; and to compute the bonuses of each and every complainant, except Honorato Quioyo. Thereafter, as soon as possible, the Examiner should submit a report in compliance herewith of the Court's further disposition (p. 24, Brief for Respondents, p. 113, rec.).On December 7, 1966, a motion for reconsideration was filed by petitioner, assailing respondent Court's ruling that (1) the ruling in the case of Sta. Cecilia Sawmills Inc. CIR, et. al, does not apply in the case at bar; and (2) that bonus should be included in the recoverable wages.On December 14, 1966, a counter-opposition was filed by private respondents alleging that petitioners' motion for reconsideration was pro forma, it not making express reference to the testimony or documentary evidence or to the provision of law alleged to be contrary to such findings or conclusions of respondent Court.On February 8, 1967, respondent Court of Industrial Relations dismissed petitioners' motion for reconsideration for being pro forma.

Whereupon, petitioners filed a petition for certiorari with this COURT in G.R. No. L-27272 to set aside the November 28, 1966 order of respondent Court, as well as its February 8, 1967 resolution. Petitioners assigned therein as errors of law the very same assignment of errors it raises in the present case, to wit:ITHE RESPONDENT COURT ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN HOLDING IN THE ORDER UNDER REVIEW THAT BONUSES SHOULD BE PAID TO THE RESPONDENT WORKERS DESPITE THE FACT THAT THE SAME WAS NOT ADJUDICATED IN ITS ORIGINAL DECISION.IITHE RESPONDENT COURT ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN NOT APPLYING THE DOCTRINE LAID DOWN BY THIS HONORABLE TRIBUNAL IN THE CASE OF "STA. CECILIA SAWMILLS, INC. VS. C.I.R., ET. AL.," G.R. No. L-19273-74, PROMULGATED ON FEBRUARY 29, 1964 (pp. 10-11, rec.).On April 27, 1967, the Supreme Court denied petitioners' petition for certiorari (p. 77, rec. of L-27272), which was reiterated on May 19, 1967 (p. 27, Respondent's Brief, p. 113, rec.; p. 81, rec. of L-27272).On May 3, 1967, private respondents moved to have the workers' back wages properly recomputed. A motion to the same end was reiterated by private respondents on June 14, 1967.On July 13, 1967, respondent Court directed a recomputation of the back wages of respondent workers in accordance with its order dated November 28, 1966. The said order in part reads:WHEREFORE, the Chief Auditing Examiner of the Court or any of his assistants, is hereby directed to recompute the back wages of the workers involved in this case in accordance with the Order of November 28, 1966 within 20 days from receipt of a copy of this Order (p. 28, Brief for Respondents, p. 113, rec.).Then on March 21, 1968, the Chief Examiner came out with his report, the disputed portion of which (regarding bonuses) reads:xxx xxx xxx4. The yearly bonuses of the employees and laborers of respondent corporation are given on the following basis:Basic Additional:a. For every dependent 1% of monthly salaryb. For every dependent in elementary grade 2% of monthly salaryc. For every dependent in high school 3% of monthly salaryd. For every dependent in college 5% of monthly salaryxxx xxx xxx7. The computed ... bonuses after deducting the earnings elsewhere of Messrs. Ongsuco, Garlitos and Semillano are as follows:Name x x x Bonuses x x x1. Alfredo Ongsuco P1,620.00 2. Demetrio Garlitos 1,200.00 3. Ignacio Quioyo 455.23 4. Aser Abancio 461.00 5. Ludovico Belopeños 752.05 6. Salvador Doroteo 714.707. Rosendo Espinosa 1,075.408. Gaudencio Quioyo 1,167.929. Jorge Semillano 1,212.0810. Maximo Quioyo 449.41Total P9,107.79(Pp. 30-31, Respondent's Brief, p. 113, rec.)On April 16, 1968, petitioners filed their opposition to the report of the Examiner dated March 21, 1968 on grounds already rejected by respondent Court in its order dated November 28, 1966, and by the Supreme Court also in its ruling in G.R. No. L-27272.On May 4, 1968, a rejoinder to petitioners' opposition was filed by private respondents, alleging among others "that the grounds of petitioners' opposition were the same grounds raised by them before and passed upon by respondent Court and this Honorable Tribunal; that this order of November 28, 1966 which passed upon these issues became final and executory on June 3, 1967 from the Honorable Supreme Court. (Order of respondent Court dated July 13, 1967). [p. 32, Brief for Respondents, p. 113, rec.].On July 26, 1968, private respondents filed their motion for approval of the Report of the Examiner submitted on March 21, 1968, alleging, among others, that petitioners, in their opposition, did not actually dispute the data elicited by the Chief Examiner but rather harped on grounds which, as already stated, had already been turned down by the Supreme Court.On October 19, 1968, herein private respondents filed their "Constancia", submitting the case for resolution of respondent Court of Industrial Relations.On May 30, 1969, respondent Court issued an order, subject of the present appeal, the dispositive portion of which reads:WHEREFORE, there being no proof offered to substantiate respondent Eduardo Claparols' opposition, the Examiner's Report should be, and it is hereby, APPROVED. Consequently, pursuant to the decision dated September 16, 1963, respondent ... (petitioners herein) are hereby directed to pay the respective back wages and bonuses of the complainants (respondents herein) ... (p. 35, Brief for Respondents; p. 113, rec.; emphasis supplied).1äwphï1.ñëtOn June 7, 1969, petitioners filed a motion for reconsideration on practically the same grounds previously raised by them.On June 30, 1969, respondents filed an opposition to petitioners' motion for reconsideration, with the following allegations:1. The issues raised, namely, whether bonuses should be included in the award for back wages had already been resolved by respondent court in its orders dated November 28, 1966, and December 7, 1966, and in the Resolution of the Honorable Supreme Court in G.R. No. L-27272 dated April 26, 1967 and May 19, 1967, and the same is already a settled and final issue.2. Petitioners' motion for reconsideration is merely a rehash of previous arguments, effete and unrejuvenated, pro forma, and intended merely to delay the proceedings.As correctly contended by private respondents, the present petition is barred by Our resolutions of April 26, 1967 and May 19, 1967 in G.R. No. L-27272 (Eduardo Claparols, et. al. vs. CIR, et. al.) [pp. 77-83, rec. of L- 27272], dismissing said case, wherein said petitioners invoked the applicability of the doctrine in Sta. Cecilia Sawmills, Inc. vs. CIR, et. al. (L-19273-74, Feb. 29, 1964, 10 SCRA

433) and impugned the illegality of the order of respondent Court dated November 28, 1966 directing the computation and payment of the bonuses, aside from back wages on the ground that these bonuses were not included in the decision of September 16, 1963, which had long become final.The aforesaid resolutions in G.R. No. L-27272 constitute the law of the instant case, wherein herein petitioners raised again practically the same issues invoked in the abovementioned case. The denial of the petition in G.R. No. L-27272 suffices to warrant the denial of the present petition; and We need not go any further.However, without lending a sympathetic ear to the obvious desire of herein petitioners of this Court to re-examine — which would be an exercise in futility — the final ruling in G.R. No. L-27272, which as above-stated is the law of the instant case, but solely to remind herein petitioners, We reiterate the governing principles.WE uniformly held that "a bonus is not a demandable and enforceable obligation, except when it is a part of the wage or salary compensation" (Philippine Education Co. vs. CIR and the Union of Philippine Co. Employees [NLU], 92 Phil. 381; Ansay, et. al. vs. National Development Co., et. al., 107 Phil. 998, 999; Emphasis supplied).In Atok Big Wedge Mining Co. vs. Atok Big Wedge Mutual Benefit Association (92 Phil. 754), this Court, thru Justice Labrador, held:Whether or not bonus forms part of wages depends upon the condition or circumstance for its payment. If it is an additional compensation WHICH THE EMPLOYER PROMISED AND AGREED to give without any condition imposed for its payment ... then it is part of the wage. (Emphasis supplied).1äwphï1.ñëtIn Altomonte vs. Philippine American Drug Co. (106 Phil. 137), the Supreme Court held that an employee is not entitled to bonus where there is no showing that it had been granted by the employer to its employees periodically or regularly as to become part of their wages or salaries. The clear implication is that bonus is recoverable as part of the wage or salary where the employer regularly or periodically gives it to employees.American jurisprudence equally regards bonuses as part of compensation or recoverable wages.Thus, it was held that "... it follows that in determining the regular rate of pay, a bonus which in fact constitutes PART OF AN EMPLOYEE'S compensation, rather than a true gift or gratuity, has to be taken into consideration." (48 Am. Jur. 2d, Labor and Labor Relations, No. 1555, citing the cases of Triple "AAA" Co. vs. Wirtz and Haber vs. Americana Corporation; Emphasis supplied). It was further held that "... the regular rate includes incentive bonuses paid to the employees in addition to the guaranteed base rates regardless of any contract provision to the contrary and even though such bonuses could not be determined or paid until such time after the pay day" (48 Am. Jur. 2d, Labor and Labor Relations, No. 1555, citing the case of Walling vs. Harnischfeger Corp., 325 US 427, 89 L Ed 1711, 65 S Ct. 1246; Emphasis supplied).1äwphï1.ñëtPetitioners in the present case do not dispute that as a matter of tradition, the company has been doling out bonuses to employees. In fact, the company balance sheets for the years 1956 to 1962 contained bonus and pension computations which were never repudiated or questioned by petitioners. As such, bonus for a given year earmarked as a matter of tradition for distribution to employees has formed part of their recoverable wages from the company. Moreover, with greater reason, should recovery of bonuses as part of back wages be observed in the present case since the company, in the light of the very admission of company accountant Francisco Cusi, distributes bonuses to its employees even if the company has suffered losses. Specifically, petitioner company has done this in 1962 (t.s.n., p. 149, Sept. 20, 1965).Since bonuses are part of back wages of private respondents, the order of May 30, 1969, directing the payment of their bonuses, did not amend the decision of September 16, 1963 of respondent Court directing payment of their wages, which has long become final and executory, in the same way that the previous order of May 14, 1964 granting execution of said decision of September 16, 1963 also directed the computation of the wages to be paid to private respondents as decreed by the decision of September 16, 1963. All the orders of May 30, 1969, November 28, 1966 and May 14, 1964 merely implement the already final and executory decision of September 16, 1963.Petitioners insist that We adopt the ruling in the Sta. Cecilia Sawmills case wherein the recoverable back wages were limited to only three (3) months; because as in the Sta. Cecilia Sawmills case, the Claparols Steel and Nail Plant ceased operations due to enormous business reverses.Respondent Court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957 up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioners. It is very clear that the latter corporation was a continuation and successor of the first entity, and its emergence was skillfully timed to avoid the financial liability that already attached to its predecessor, the Claparols Steel and Nail Plant. Both predecessors and successor were owned and controlled by the petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed shares of stocks of the Claparols Steel Corporation (the second corporation) was owned by respondent (herein petitioner) Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation.It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees.It is well remembering that in Yutivo & Sons Hardware Company vs. Court of Tax Appeals (L-13203, Jan. 28, 1961, 1 SCRA 160), We held that when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association or persons, or, in the case of two corporations, will merge them into one.In Liddel & Company, Inc. vs. Collector of Internal Revenue (L-9687, June 30, 1961, 2 SCRA 632), this Court likewise held that where a corporation is a dummy and serves no business purpose and is intended only as a blind, the corporate fiction may be ignored.In Commissioner of Internal Revenue vs. Norton and Harrison Company (L-17618, Aug. 31, 1964, 11 SCRA 714), We ruled that where a corporation is merely an adjunct, business conduit or alter ego of another corporation, the fiction of separate and distinct corporate entities should be disregarded.To the same uniform effect are the decisions in the cases of Republic vs. Razon (L-17462, May 29, 1967, 20 SCRA 234) and A.D. Santos, Inc. vs. Vasquez (L-23586, March 20, 1968, 22 SCRA 1156).WE agree with respondent Court of Industrial Relations, therefore, that the amount of back wages recoverable by respondent workers from petitioners should be the amount accruing up to December 7, 1962 when the Claparols Steel Corporation ceased operations.WHEREFORE, PETITION IS HEREBY DENIED WITH TREBLE COSTS AGAINST PETITIONERS TO BE PAID BY THEIR COUNSEL.

83. COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION (CEEA) represented by its union president CECILIA TALAVERA, GEORGE ARSOLA, MARIO DIAGO AND SOCORRO BONCAYAO, petitioners, vs.THE NATIONAL LABOR RELATIONS COMMISSION, COMPLEX ELECTRONICS CORPORATION, IONICS CIRCUIT, INC., LAWRENCE QUA, REMEDIOS DE JESUS, MANUEL GONZAGA, ROMY DELA ROSA, TERESITA ANDINO, ARMAN CABACUNGAN, GERRY GABANA, EUSEBIA MARANAN and BERNADETH GACAD, respondents.G.R. No. 122136 July 19, 1999COMPLEX ELECTRONICS CORPORATION, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION (CEEA), represented by Union President, CECILIA TALAVERA, respondents. KAPUNAN, J.:These consolidated cases filed by Complex Electronics Employees Association (G.R. No. 121315) and Complex Electronics Corporation (G.R. No. 122136) assail the Decision of the NLRC dated March 10, 1995 which set aside the Decision of the Labor Arbiter dated April 30, 1993.The antecedents of the present petitions are as follows:Complex Electronics Corporation (Complex) was engaged in the manufacture of electronic products. It was actually a subcontractor of electronic products where its customers gave their job orders, sent their own materials and consigned their equipment to it. The customers were foreign-based companies with different product lines and specifications requiring the employment of workers with specific skills for each product line. Thus, there was the AMS Line for the Adaptive Micro System, Inc., the Heril Line for Heril Co., Ltd., the Lite-On Line for the Lite-On Philippines Electronics Co., etc.The rank and file workers of Complex were organized into a union known as the Complex Electronics Employees Association, herein referred to as the Union.On March 4, 1992, Complex received a facsimile message from Lite-On Philippines Electronics Co., requiring it to lower its price by 10%. The full text reads as follows:This is to inform your office that Taiwan required you to reduce your assembly cost since it is higher by 50% and no longer competitive with that of mainland China. It is further instructed that Complex Price be patterned with that of other sources, which is 10% lower.Please consider and give us your revised rates soon. 1

Consequently, on March 9, 1992, a meeting was held between Complex and the personnel of the Lite-On Production Line. Complex informed its Lite-On personnel that such request of lowering their selling price by 10% was not feasible as they were already incurring losses at the present prices of their products. Under such circumstances, Complex regretfully informed the employees that it was left with no alternative but to close down the operations of the Lite-On Line. The company, however, promised that:1) Complex will follow the law by giving the people to be retrenched the necessary 1 month notice. Hence, retrenchment will not take place until after 1 month from March 09, 1992.2) The Company will try to prolong the work for as many people as possible for as long as it can by looking for job slots for them in another line if workload so allows and if their skills are compatible with the line requirement.3) The company will give the employees to be retrenched a retrenchment pay as provided for by law i.e. half a month for every year of service in accordance with Article 283 of the Labor Code of Philippines. 2

The Union, on the other hand, pushed for a retrenchment pay equivalent to one (1) month salary for every year of service, which Complex refused.On March 13, 1992, Complex filed a notice of closure of the Lite-On Line with the Department of Labor and Employment (DOLE) and the retrenchment of the ninety-seven (97) affected employees. 3

On March 25, 1993, the Union filed a notice of strike with the National Conciliation and Mediation Board (NCMB).1âwphi1.nêtTwo days thereafter, or on March 27, 1993, the Union conducted a strike vote which resulted in a "yes" vote.In the evening of April 6, 1992, the machinery, equipment and materials being used for production at Complex were pulled-out from the company premises and transferred to the premises of Ionics Circuit, Inc. (Ionics) at Cabuyao, Laguna. The following day, a total closure of company operation was effected at Complex.A complaint was, thereafter, filed with the Labor Arbitration Branch of the NLRC for unfair labor practice, illegal closure/illegal lockout, money claims for vacation leave, sick leave, unpaid wages, 13th month pay, damages and attorney's fees. The Union alleged that the pull-out of the machinery, equipment and materials from the company premises, which resulted to the sudden closure of the company was in violation of Section 3 and 8, Rule XIII, Book V of the Labor Code of the Philippines 4 and the existing CBA. Ionics was impleaded as a party defendant because the officers and management personnel of Complex were also holding office at Ionics with Lawrence Qua as the President of both companies.Complex, on the other hand, averred that since the time the Union filed its notice of strike, there was a significant decline in the quantity and quality of the products in all of the production lines. The delivery schedules were not met prompting the customers to lodge complaints against them. Fearful that the machinery, equipment and materials would be rendered inoperative and unproductive due to the impending strike of the workers, the customers ordered their pull-out and transfer to Ionics. Thus, Complex was compelled to cease operations.Ionics contended that it was an entity separate and distinct from Complex and had been in existence since July 5, 1984 or eight (8) years before the labor dispute arose at Complex. Like Complex, it was also engaged in the semi-conductor business where the machinery, equipment and materials were consigned to them by their customers. While admitting that Lawrence Qua, the President of Complex was also the President of Ionics, the latter denied having Qua as their owner since he had no recorded subscription of P1,200,00.00 in Ionics as claimed by the Union. Ionics further argued that the hiring of some displaced workers of Complex was an exercise of management prerogatives. Likewise, the transfer of the machinery, equipment and materials from Complex was the decision of the owners who were common customers of Complex and Ionics.On April 30, 1993, the Labor Arbiter rendered a decision the dispositive portion of which reads:

WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered ordering the respondent Complex Electronics Corporation and/or Ionics Circuit Incorporated and/or Lawrence Qua, to reinstate the 531 above-listed employees to their former position with all the rights, privileges and benefits appertaining thereto, and to pay said complainants-employees the aggregate backwages amounting P26,949,891.80 as of April 6, 1993 and to such further backwages until their actual reinstatement. In the event reinstatement is no longer feasible for reasons not attributable to the complainants, said respondents are also liable to pay complainants-employees their separation pay to be computed at the rate of one (1) month pay for every year of service, a fraction of at least six (6) months to be considered as one whole year.Further, the aforenamed three (3) respondents are hereby ordered to pay jointly and solidarily the complainants-employees an aggregate moral damages in the amount of P1,062,000.00 and exemplary damages in the aggregate sum of P531,000.00.And finally, said respondents are ordered to pay attorney's fees equivalent to ten percent (10%) of whatever has been adjudicated herein in favor of the complainants.The charge of slowdown strike filed by respondent Complex against the union is hereby dismissed for lack of merit.SO ORDERED. 5

Separate appeals were filed by Complex, Ionics and Lawrence Qua before the respondent NLRC which rendered the questioned decision on March 10, 1995, the decretal portion of which states:WHEREFORE, premises considered, the assailed decision is hereby ordered vacated and set aside, and a new one entered ordering respondent Complex Electronics Corporation to pay 531 complainants equivalent to one month pay in lieu of notice and separation pay equivalent to one month pay for every year of service and a fraction of six months considered as one whole year.Respondents Ionics Circuit Incorporated and Lawrence Qua are hereby ordered excluded as parties solidarily liable with Complex Electronics Corporation.The award of moral damages is likewise deleted for lack of merit.Respondent Complex, however, is hereby ordered to pay attorney's fees equivalent to ten (10%) percent of the total amount of award granted the complainants.SO ORDERED. 6

Complex, Ionics and the Union filed their motions for reconsideration of the above decision which were denied by the respondent NLRC in an Order dated July 11, 1995. 7

Hence these petitions.In G.R. No. 121315, petitioner Complex Electronics Employees Association asseverates that the respondent NLRC erred when it:ISET ASIDE THE DECISION DATED APRIL 30, 1993 ISSUED BY THE HON. LABOR ARBITER JOSE DE VERA.IIEXCLUDED PRIVATE RESPONDENTS IONICS CIRCUITS, INCORPORATED AND LAWRENCE QUA AS PARTIES SOLIDARILY LIABLE WITH COMPLEX ELECTRONICS CORPORATION.IIIFOUND THAT COMPLEX ELECTRONICS CORPORATION WAS NOT GUILTY OF ILLEGAL CLOSURE AND ILLEGAL DISMISSAL OF THE PETITIONERS.IVREMOVED THE AWARD FOR BACKWAGES, REINSTATEMENT AND DAMAGES IN THE DECISION DATED APRIL 30, 1993 ISSUED BY THE HON. LABOR ARBITER JOSE DE VERA. 8

On the other hand, in G.R. No. 122136, petitioner Complex Electronics Corporation raised the following issues, to wit:IPUBLIC RESPONDENT NLRC ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN PROMULGATING ITS DECISION AND ORDER DATED 10 MARCH 1995, AND 11 JULY 1995, RESPECTIVELY, THE SAME BEING IN CONTRAVENTION OF THE EXPRESS MANDATE OF THE LAW GOVERNING THE PAYMENT OF ONE MONTH PAY IN LIEU OF NOTICE, SEPARATION PAY AND ATTORNEY'S FEES.IITHERE IS NO APPEAL, NOR ANY PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE OFLAW. 9

On December 23, 1996, the Union filed a motion for consolidation of G.R. No. 122136 with G.R. No. 121315. 10 The motion was granted by this Court in a Resolution dated June 23, 1997. 11

On November 10, 1997, the Union presented additional documentary evidence which consisted of a newspaper clipping in the Manila Bulletin, dated August 18, 1997 bearing the picture of Lawrence Qua with the following inscription:RECERTIFICATION. The Cabuyao (Laguna) operation of Ionic Circuits, Inc. consisting of plants 2, 3, 4 and 5 was recertified to ISO 9002 as electronics contract manufacturer by the TUV, a rating firm with headquarters in Munich, Germany. Lawrence Qua, Ionics president and chief executive officer, holds the plaque of recertification presented by Gunther Theisz (3rd from left), regional manager of TUV Products Services Asia during ceremonies held at Sta. Elena Golf Club. This is the first of its kind in the country that four plants were certified at the same time. 12

The Union claimed that the said clipping showed that both corporations, Ionics and Complex are one and the same.In answer to this allegation, Ionics explained that the photo which appeared at the Manila Bulletin issue of August 18, 1997 pertained only to respondent Ionics' recertification of ISO 9002. There was no mention about Complex Electronics Corporation. Ionics claimed that a mere photo is insufficient to conclude that Ionics and Complex are one and the same. 13

We shall first delve on the issues raised by the petitioner Union.The Union anchors its position on the fact that Lawrence Qua is both the president of Complex and Ionics and that both companies have the same set of Board of Directors. It claims that business has not ceased at Complex but was merely transferred to Ionics, a runaway shop. To prove that Ionics was just a runaway shop, petitioner asserts that out of the 80,000 shares comprising the increased capital stock of Ionics, it was Complex that owns majority of said shares with P1,200,000.00 as its capital subscription and P448,000.00 as its paid up investment, compared to P800,000.00 subscription and P324,560.00 paid-up owing to the other stockholders, combined. Thus, according to the Union, there is a clear ground to pierce the veil of corporate fiction.

The Union further posits that there was an illegal lockout/illegal dismissal considering that as of March 11, 1992, the company had a gross sales of P61,967,559 from a capitalization of P1,500,000.00. It even ranked number thirty among the top fifty corporations in Muntinlupa. Complex, therefore, cannot claim that it was losing in its business which necessitated its closure.With regards to Lawrence Qua, petitioner maintains that he should be made personally liable to the Union since he was the principal player in the closure of the company, not to mention the clandestine and surreptitious manner in which such closure was carried out, without regard to their right to due process.The Union's contentions are untenable.A "runaway shop" is defined as an industrial plant moved by its owners from one location to another to escape union labor regulations or state laws, but the term is also used to describe a plant removed to a new location in order to discriminate against employees at the old plant because of their unionactivities. 14 It is one wherein the employer moves its business to another location or it temporarily closes its business for anti-union purposes. 15A "runaway shop" in this sense, is a relocation motivated by anti-union animus rather than for business reasons. In this case, however, Ionics was not set up merely for the purpose of transferring the business of Complex. At the time the labor dispute arose at Complex, Ionics was already existing as an independent company. As earlier mentioned, it has been in existence since July 5, 1984. It cannot, therefore, be said that the temporary closure in Complex and its subsequent transfer of business to Ionics was for anti-union purposes. The Union failed to show that the primary reason for the closure of the establishment was due to the union activities of the employees.The mere fact that one or more corporations are owned or controlled by the same or single stockholder is not a sufficient ground for disregarding separate corporate personalities. Thus, in Indophil Textile Mill Workers Union vs. Calica, 16 we ruled that:[I]n the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of the corporation is a devise to evade the application of the CBA between petitioner Union and private respondent company. While we do not discount the possibility of the similarities of the businesses of private respondent and Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting the relief sought. The fact that the businesses of private respondent and Acrylic are related, that some of the employees of the private respondent are the same persons manning and providing for auxiliary services to the units of Acrylic, and that the physical plants, offices and facilities are situated in the same compound, it is our considered opinion that these facts are not sufficient to justify the piercing of the corporate veil of Acrylic.Likewise, in Del Rosario vs. National Labor Relations Commission, 17 the Court stated that substantial identity of the incorporators of two corporations does not necessarily imply that there was fraud committed to justify piercing the veil of corporate fiction.In the recent case of Santos vs. National Labor Relations Commission, 18 we also ruled that:The basic rule is still that which can be deduced from the Court's pronouncement in Sunio vs. National Labor Relations Commission, thus:. . . . . 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.Ionics may be engaged in the same business as that of Complex, but this fact alone is not enough reason to pierce the veil of corporate fiction of the corporation. Well-settled is the rule that a corporation has a personality separate and distinct from that of its officers and stockholders. This fiction of corporate entity can only be disregarded in certain cases such as when it is used to defeat public convenience, justify wrong, protect fraud, or defend crime. 19 To disregard said separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. 20

As to the additional documentary evidence which consisted of a newspaper clipping filed by petitioner Union, we agree with respondent Ionics that the photo/newspaper clipping itself does not prove that Ionics and Complex are one and the same entity. The photo/newspaper clipping merely showed that some plants of Ionics were recertified to ISO 9002 and does not show that there is a relation between Complex and Ionics except for the fact that Lawrence Qua was also the president of Ionics. However, as we have stated above, the mere fact that both of the corporations have the same president is not in itself sufficient to pierce the veil of corporate fiction of the two corporations.We, likewise, disagree with the Union that there was in this case an illegal lockout/illegal dismissal. Lockout is the temporary refusal of employer to furnish work as a result of an industrial or labor dispute. 21 It may be manifested by the employer's act of excluding employees who are union members. 22 In the present case, there was a complete cessation of the business operations at Complex not because of the labor dispute. It should be recalled that, before the labor dispute, Complex had already informed the employees that they would be closing the Lite-On Line. The employees, however, demanded for a separation pay equivalent to one (1) month salary for every year of service which Complex refused to give. When Complex filed a notice of closure of its Lite-On Line, the employees filed a notice of strike which greatly alarmed the customers of Complex and this led to the pull-out of their equipment, machinery and materials from Complex. Thus, without the much needed equipment, Complex was unable to continue its business. It was left with no other choice except to shut down the entire business. The closure, therefore, was not motivated by the union activities of the employees, but rather by necessity since it can no longer engage in production without the much needed materials, equipment and machinery. We quote with approval the findings of the respondent NLRC on this matter:At first glance after reading the decision a quo, it would seem that the closure of respondent's operation is not justified. However, a deeper examination of the records along with the evidence, would show that the closure, although it was done abruptly as there was no compliance with the 30-day prior notice requirement, said closure was not intended to circumvent the provisions of the Labor Code on termination of employment. The closure of operation by Complex on April 7, 1992 was not without valid reasons. Customers of respondent alarmed by the pending labor dispute and the imminent strike to be foisted by the union, as shown by their strike vote, directed respondent Complex to pull-out its equipment, machinery and materials to other safe bonded warehouse. Respondent being mere consignees of the equipment, machinery and materials were without any recourse but to oblige the customers' directive. The pull-out was effected on April 6, 1992. We can see here that Complex's action, standing alone, will not result in illegal closure that would cause the illegal dismissal of the complainant workers. Hence, the Labor Arbiter's conclusion that since there were only two (2) of respondent's customers who have expressed pull-out of business from respondent Complex while most of the customer's have not and, therefore, it is not justified to close operation cannot be upheld. The determination to cease operation is a prerogative of management that is usually not interfered with by the State as no employer can be required to continue operating at a loss simply to maintain the workers in employment. That would be taking of property without due process of law which the employer has the right to resist. (Columbia Development Corp. vs. Minister of Labor and Employment, 146 SCRA 42).

As to the claim of petitioner Union that Complex was gaining profit, the financial statements for the years 1990, 1991 and 1992 issued by the auditing and accounting firm Sycip, Gorres and Velayo readily show that Complex was indeed continuously experiencing deficit and losses. 23Nonetheless, whether or not Complex was incurring great losses, it still one of the management's prerogative to close down its business as long as it is done in good faith. Thus, in Catatista et al., vs. NLRC and Victorias Milling Co., Inc. 24 we ruled:In any case, Article 283 of the Labor Code is clear that an employer may close or cease his business operations or undertaking even if he is not suffering from serious business losses or financial reverses, as long as he pays his employees their termination pay in the amount corresponding to their length of service. It would indeed, be stretching the intent and spirit of the law if we were to unjustly interfere in management's prerogative to close or cease its business operations just because said business operations or undertaking is not suffering from any loss.Going now to the issue of personal liability of Lawrence Qua, it is settled that in the absence of malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities. 25 In the present case, while it may be true that the equipment, materials and machinery were pulled-out of Complex and transferred to Ionics during the night, their action was sufficiently explained by Lawrence Qua in his Comment to the petition filed by the Union. We quote:The fact that the pull-out of the machinery, equipment and materials was effected during nighttime is not per se an indicia of bad faith on the part of respondent Qua since he had no other recourse, and the same was dictated by the prevailing mood of unrest as the laborers were already vandalizing the equipment, bent on picketing the company premises and threats to lock out the company officers were being made. Such acts of respondent Qua were, in fact, made pursuant to the demands of Complex's customers who were already alarmed by the pending labor dispute and imminent strike to be stage by the laborers, to have their equipment, machinery and materials pull out of Complex. As such, these acts were merely done pursuant to his official functions and were not, in any way, made with evident bad faith. 26

We perceive no intention on the part of Lawrence Qua and the other officers of Complex to defraud the employees and the Union. They were compelled to act upon the instructions of their customers who were the real owners of the equipment, materials and machinery. The prevailing labor unrest permeating within the premises of Complex left the officers with no other choice but to pull them out of Complex at night to prevent their destruction. Thus, we see no reason to declare Lawrence Qua personally liable to the Union.Anent the award of damages, we are inclined to agree with the NLRC that there is no basis for such award. We again quote the respondent NLRC with favor:By and large, we cannot hold respondents guilty of unfair labor practice as found by the Labor Arbiter since the closure of operation of Complex was not established by strong evidence that the purpose of said closure was to interfere with the employees' right to self-organization and collective bargaining. As very clearly established, the closure was triggered by the customers' pull-out of their equipment, machinery and materials, who were alarmed by the pending labor dispute and the imminent strike by the union, and as a protection to their interest pulled-out of business from Complex who had no recourse but to cease operation to prevent further losses. The indiscretion committed by the Union in filing the notice of strike, which to our mind is not the proper remedy to question the amount of benefits due the complainants who will be retrenched at the closure of the Lite-On Line, gave a wrong signal to customers of Complex, which consequently resulted in the loss of employment of not only a few but to all the of the workers. It may be worth saying that the right to strike should only be a remedy of last resort and must not be used as a show of force against the employer. 27

We shall now go to the issues raised by Complex in G.R. No. 122136.Complex claims that the respondent NLRC erred in ordering them to pay the Union one (1) month pay as indemnity for failure to give notice to its employees at least thirty (30) days before such closure since it was quite clear that the employees were notified of the impending closure of the Lite-On Line as early as March 9, 1992. Moreover, the abrupt cessation of operations was brought about by the sudden pull-out of the customers which rendered it impossible for Complex to observe the required thirty (30) days notice.Art. 283 of the Labor Code provides that:Art. 283. Closure of establishment and reduction of personnel. — The employer may also terminate the employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof . . . . (Emphasis ours.)The purpose of the notice requirement is to enable the proper authorities to determine after hearing whether such closure is being done in good faith, i.e., for bona fide business reasons, or whether, to the contrary, the closure is being resorted to as a means of evading compliance with the just obligations of the employer to the employees affected. 28

While the law acknowledges the management prerogative of closing the business, it does not, however, allow the business establishment to disregard the requirements of the law. The case of Magnolia Dairy Products v. NLRC 29 is quite emphatic about this:The law authorizes an employer, like the herein petitioners, to terminate the employment of any employee due to the installation of labor saving devices. The installation of these devices is a management prerogative, and the courts will not interfere with its exercise in the absence of abuse of discretion, arbitrariness, or maliciousness on the part of management, as in this case. Nonetheless, this did not excuse petitioner from complying with the required written notice to the employee and to the Department of Labor and Employment (DOLE) at least one month before the intended date of termination. This procedure enables an employee to contest the reality or good faith character of the asserted ground for the termination of his services before the DOLE.The failure of petitioner to serve the written notice to private respondent and to the DOLE, however, does not ipso facto make private respondent's termination from service illegal so as to entitle her to reinstatement and payment of backwages. If at all, her termination from service is merely defective because it was not tainted with bad faith or arbitrariness and was due to a valid cause.The well settled rule is that the employer shall be sanctioned for non-compliance with the requirements of, or for failure to observe due process in terminating from service its employee. In Wenphil Corp. v. NLRC, we sanctioned the employer for this failure by ordering it to indemnify the employee the amount of P1,000.00. Similarly, we imposed the same amount as indemnification in Rubberworld (Phils.), Inc. v. NLRC, and, Aurelio v. NLRC and Alhambra Industries,Inc. v. NLRC. Subsequently, the sum of P5,000.00 was awarded to an employee in Worldwide Papermills, Inc. v. NLRC, and P2,000.00 in Sebuguero, et al.,v. NLRC, et al. Recently, the sum of P5,000.00 was again imposed as indemnify against the employer. We see no valid and cogent reason why petitioner should

not be likewise sanctioned for its failure to serve the mandatory written notice. Under the attendant facts, we find the amount of P5,000.00, to be just and reasonable.We, therefore, find no grave abuse of discretion on the part of the NLRC in ordering Complex to pay one (1) month salary by way of indemnity. It must be borne in mind that what is at stake is the means of livelihood of the workers so they are at least entitled to be formally informed of the management decisions regarding their employment. 30

Complex, likewise, maintains that it is not liable for the payment for the payment of separation pay since Article 283 of the Labor Code awards separation pay only in cases of closure not due to serious business reversals. In this case, the closure of Complex was brought about by the losses being suffered by the corporation.We disagree.Art. 283 further provides:. . . . — In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in case of cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.It is settled that in case of closures or cessation of operation of business establishments not due to serious business losses or financial reverses,31 the employees are always given separation benefits.In the instant case, notwithstanding the financial losses suffered by Complex, such was, however, not the main reason for its closure. Complex admitted in its petition that the main reason for the cessation of the operations was the pull-out of the materials, equipment and machinery from the premises of the corporation as dictated by its customers. It was actually still capable of continuing the business but opted to close down to prevent further losses. Under the facts and circumstances of the case, we find no grave abuse of discretion on the part of the public respondent in awarding the employees one (1) month pay for every year of service as termination pay.1âwphi1.nêtWHEREFORE, premises considered, the assailed decision of the NLRC is AFFIRMED.SO ORDERED.

84. CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos,respondents.D E C I S I O NHERMOSISIMA, JR., J.:The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard the corporation as a mere association of persons and, in case of two corporations, merge them into one.Thus, where a sister corporation is used as a shield to evade a corporation’s subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes into play.This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave abuse of discretion when it issued a “break-open order” to the sheriff to be enforced against personal property found in the premises of petitioner’s sister company.Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers.On November, 1981, private respondents were served individual written notices of termination of employment by petitioner, effective onNovember 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’s employment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors whose workers performed the functions of private respondents.Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner.On December 19, 1984, the Labor Arbiter rendered judgment1 ordering petitioner to reinstate private respondents and to pay them back wages equivalent to one year or three hundred working days.On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on the ground that the said decision had already become final and executory.2

On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents’ backwages amounted to P199,800.00.3

On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioner’s debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC.On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former positions.On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the security guard on duty but the service was refused on the ground that petitioner no longer occupied the premises.On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution.The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989:1. All the employees inside 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 the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.On November 23, 1989, private respondents filed a “Motion for Issuance of a Break-Open Order,” alleging that HPPI and petitioner corporation were owned by the same incorporator! stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal obligations to them and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-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 and Exchange Commission (SEC) and the General Information Sheet, dated May 15, 1987, submitted by HPPI to the Securities and Exchange Commission.The General Information Sheet submitted by the petitioner1 revealed the following:“1. Breakdown of Subscribed Capital Name of Stockholder Amount SubscribedHPPI P6,999,500.00Antonio W. Lim 2,900,000.00Dennis S. Cuyegkeng 300.00Elisa C. Lim 100,000.00Teodulo R. Dino 100.00Virgilio O. Casino 100.002. Board of Directors Antonio W. Lim ChairmanDennis S. Cuyegkeng MemberElisa C. Lim Member

Teodulo R. Dino MemberVirgilio O. Casino Member3. Corporate Officers Antonio W. Lim PresidentDennis S. Cuyegkeng Assistant to the PresidentElisa 0. Lim TreasurerVirgilio O. Casino Corporate Secretary4. Principal Office 355 Maysan RoadValenzuela, 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 SubscribedAntonio W. Lim P400,000.00Elisa C. Lim 57,700.00AWL Trading 455,000.00Dennis S. Cuyegkeng 40,100.00Teodulo R. Dino 100.00Virgilio O. Casino 100.002. Board of Directors Antonio W. Lim ChairmanElisa C. Lim MemberDennis S. Cuyegkeng MemberVirgilio O. Casino MemberTeodulo R. Dino Member3. Corporate OfficersAntonio W. Lim PresidentDennis S. Cuyegkeng Assistant to the PresidentElisa O. Lim TreasurerVirgilio O. Casino Corporate Secretary4. Principal Office355 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 two corporations 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 decision despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate from petitioner’s construction business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, the same President and the same set of officers and 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 stockholders and from other corporations to which it may be connected.8 But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice.9 So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws,10 this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced.11 This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation.12

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:“1. Stock ownership by one or common ownership of both corporations.2. Identity of directors and officers.3. The manner of keeping corporate books and records.4. Methods of conducting the business.”13

The SEC en banc explained the “instrumentality rule” which the courts have applied in disregarding the separate juridical personality of corporations as follows:“Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the ‘instrumentality’ may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made.”The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:

“1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal rights; and3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.The absence of any one of these elements prevents ‘piercing the corporate veil. ‘ in applying the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual 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, it filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.Furthermore, the NLRC stated that:“Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of both corporations. It would also not be amiss to note that both corporations had the same president, the same board of directors, the same corporate officers, and substantially the same subscribers.From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party claimant shared the same address and/or premises. Under this circumstances, (sic) it cannot be said that the property levied upon by the sheriff were not of respondents.16

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of backwages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.The facts in this case are analogous to Claparols v. Court of Industrial Relations17 where we had the occasion to rule:“Respondent court’s findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioner. it is very clear that the latter corporation was a continuation and successor of the first entity x x x. Both predecessors and successor were owned and controlled by petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This ‘avoiding-the-liability’ scheme is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was owned by respondent x x x Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation.It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees.”In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that:“Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the place where the property subject of execution is located or kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open order.”Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied with. Petitioner and the third-party claimant were given the opportunity to submit evidence in support of their claim.Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter.Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by substantial evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave abuse of a discretion.18

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

97. FRANCISCO V. DEL ROSARIO, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION and LEONARDO V. ATIENZA, respondents.Jardeleza, Sobreviñas, Diaz, Hayudini & Bodegon Law Offices for petitioner.Lourdes T. Pagayatan for private respondent. CORTES, J.:In POEA Case No. 85-06-0394, the Philippine Overseas Employment Administration (POEA) promulgated a decision on February 4, 1986 dismissing the complaint for money claims for lack of merit. The decision was appealed to the National Labor Relations Commission (NLRC), which on April 30, 1987 reversed the POEA decision and ordered Philsa Construction and Trading Co., Inc. (the recruiter) and Arieb Enterprises (the foreign employer) to jointly and severally pay private respondent the peso equivalent of $16,039.00, as salary differentials, and $2,420.03, as vacation leave benefits. The case was elevated to the Supreme Court, but the petition was dismissed on August 31, 1987 and entry of judgment was made on September 24, 1987.A writ of execution was issued by the POEA but it was returned unsatisfied as Philsa was no longer operating and was financially incapable of satisfying the judgment. Private respondent moved for the issuance of an alias writ against the officers of Philsa. This motion was opposed by the officers, led by petitioner, the president and general manager of the corporation.On February 12, 1988, the POEA issued a resolution, the dispositive portion of which read:WHEREFORE, premises considered, let an alias writ of Execution be issued and the handling sheriff is ordered to execute against the properties of Mr. Francisco V. del -Rosario and if insufficient, against the cash and/or surety bond of Bonding Company concerned for the full satisfaction of the judgment awarded.Petitioner appealed to the NLRC. On September 23, 1988, the NLRC dismissed the appeal. On October 21, 1988, petitioner's motion for reconsideration was denied.Thus, this petition was filed on October 28, 1988, alleging that the NLRC gravely abused its discretion. On November 10, 1988 the Court issued a temporary restraining order enjoining the enforcement of the NLRC's decision dated September 23, 1988 and resolution dated October 21, 1988. The petition was given due course on June 14, 1989.After considering the undisputed facts and the arguments raised in the pleadings, the Court finds grave abuse of discretion on the part of the NLRC.The action of the NLRC affirming the issuance of an alias writ of execution against petitioner, on the theory that the corporate personality of Philsa should be disregarded, was founded primarily on the following findings of the POEA —xxx xxx xxx6. Per the certification issued by the Licensing Division of this Office, it appears that Philsa Construction & Trading Co., Inc., with office address at 126 Pioneer St., Mandaluyong, Metro Manila, represented by Mr. Francisco V. del Rosario, President and General Manager, was formerly a registered construction contractor whose authority was originally issued on July 21, 1978 but was already delisted from the list of agencies/entities on August 15, 1986 for inactivity;7. Per another certification issued by the Licensing Division of this Office, it also appears that another corporation, Philsa International Placement & Services Corp., composed of practically the same set of incorporators/stockholders, was registered as a licensed private employment agency whose license was issued on November 5, 1981, represented by the same Mr. Francisco V. del Rosario as its President/ General Manager.and an application of the ruling of the Court in A.C. Ransom Labor Union-CCLU v. NLRC, G.R. No. 69494, June 10, 1986, 142 SCRA 269.However, we find that the NLRC's reliance on the findings of the POEA and the ruling in A. C. Ransom is totally misplaced.1. Under the law a corporation is bestowed juridical personality, separate and distinct from its stockholders [Civil Code, Art. 44; Corporation Code, sec. 2]. But when the juridical personality of the corporation is used to defeat public convenience, justify wrong, protect fraud or defend crime, the corporation shall be considered as a mere association of persons [Koppel (Phil.), Inc. v. Yatco, 77 Phil. 496 (1946), citing 1 Fletcher, Cyclopedia of Corporations, 135-136; see also Palay, Inc. v. Clave, G.R. No. 56076, September 21, 1983, 124 SCRA 638], and its responsible officers and/or stockholders shall be held individually liable [Namarco v. Associated Finance Co., Inc., G.R. No. L-20886, April 27, 1967, 19 SCRA 962]. For the same reasons, a corporation shall be liable for the obligations of a stockholder [Palacio v. Fely Transportation Company, G.R. No. L-15121, August 31, 1962, 5 SCRA 1011; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, G.R. No. L-20502, February 26, 1965, 13 SCRA 290], or a corporation and its successor-in-interest shall be considered as one and the liability of the former shall attach to the latter [Koppel v. Yatco, supra; Liddell & Co. v. Collector of Internal Revenue, G.R. No. L-9687, June 30, 1961, 2 SCRA 632].But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed.In this regard we find the NLRC's decision wanting. The conclusion that Philsa allowed its license to expire so as to evade payment of private respondent's claim is not supported by the facts. Philsa's corporate personality therefore remains inviolable.Consider the following undisputed facts:(1) Private respondent filed his complaint with the POEA on June 4, 1985;(2) The last renewal of Philsa's license expired on October 12, 1985;(3) The POEA dismissed private respondent's complaint on February 4, 1986;(4) Philsa was delisted for inactivity on August 15, 1986; *(5) The dismissal of the complaint was appealed to the NLRC and it was only on April 30, 1987 that the judgment awarding differentials and benefits to private respondent was rendered.Thus, at the time Philsa allowed its license to lapse in 1985 and even at the time it was delisted in 1986, there was yet no judgment in favor of private respondent. An intent to evade payment of his claims cannot therefore be implied from the expiration of Philsa's license and its delisting.Neither will the organization of Philsa International Placement and Services Corp. and its registration with the POEA as a private employment agency imply fraud since it was organized and registered in 1981, several years before private respondent filed his complaint with the POEA in 1985. The creation of the second corporation could not therefore have been in anticipation of private respondent's money claims and the consequent adverse judgment against PhilsaLikewise, substantial identity of the incorporators of the two corporations does not necessarily imply fraud.

The circumstances of this case distinguish it from those in earlier decisions of the Court in labor cases where the veil of corporate fiction was pierced.In La Campana Coffee Factory, Inc. v. Kaisahan ng Manggagawa sa La Campana (KKM) 93 Phil. 160 (1953), La Campana Coffee Factory, Inc. and La Campana Gaugau Packing were substantially owned by the same person. They had one office, one management, and a single payroll for both businesses. The laborers of the gaugaufactory and the coffee factory were also interchangeable, i.e., the workers in one factory worked also in the other factory.In Claparols v. Court of Industrial Relations, G.R. No. L-30822, July 31, 1975, 65 SCRA 613, the Claparols Steel and Nail Plant, which was ordered to pay its workers backwages, ceased operations on June 30, 1957 and was succeeded on the next day, July 1, 1957 by the Claparols Steel Corporation. Both corporations were substantially owned and controlled by the same person and there was no break or cessation in operations. Moreover, all the assets of the steel and nail plant were transferred to the new corporation.2. As earlier stated, we also find that, contrary to the NLRC'S holding, the ruling in A. C. Ransom is inapplicable to this case. In A. C. Ransom, the Court said:... In the instant case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased operations on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM. [At p. 274.]The distinguishing marks of fraud were therefore clearly apparent in A. C. Ransom. A new corporation was created, owned by the same family, engaging in the same business and operating in the same compound.Thus, considering that the non-payment of the workers was a continuing situation, the Court adjudged its President, the "responsible officer" of the corporation, personally liable for the backwages awarded, he being the chief operation officer or "manager" who could be held criminally liable for violations of Republic Act No. 602 (the old Minimum Wage Law.)In the case now before us, not only has there been a failure to establish fraud, but it has also not been shown that petitioner is the corporate officer responsible for private respondent's predicament. It must be emphasized that the claim for differentials and benefits was actually directed against the foreign employer. Philsa became liable only because of its undertaking to be jointly and severally bound with the foreign employer, an undertaking required by the rules of the POEA [Rule II, sec. 1(d) (3)], together with the filing of cash and surety bonds [Rule 11, sec. 4], in order to ensure that overseas workers shall find satisfaction for awards in their favor.At this juncture, the Court finds it appropriate to point out that a judgment against a recruiter should initially be enforced against the cash and surety bonds filed with the POEA. As provided in the POEA Rules and Regulations —... The bonds shall answer for all valid and legal claims arising from violations of the conditions for the grant and use of the license or authority and contracts of employment. The bonds shall likewise guarantee compliance with the provisions of the Labor Code and its implementing rules and regulations relating to recruitment and placement, the rules of the Administration and relevant issuances of the Ministry and all liabilities which the Administration may impose. ... [Rule II, see. 4.]Quite evidently, these bonds do not answer for a single specific liability, but for all sorts of liabilities of the recruiter to the worker and to the POEA. Moreover, the obligations guaranteed by the bonds are continuing. Thus, the bonds are subject to replenishment when they are garnished, and failure to replenish shall cause the suspension or cancellation of the recruiter's license [Rule II, sec. 19]. Furthermore, a cash bond shall be refunded to a recruiter who surrenders his license only upon posting of a surety bond of similar amount valid for three (3) years [Rule II, sec. 20]. All these, to ensure recovery from the recruiter.It is therefore surprising why the POEA ordered execution "against the properties of Mr. Francisco V. del Rosarioand if insufficient, against the cash and/or surety bond of Bonding Company concerned for the till satisfaction of the judgment awarded" in complete disregard of the scheme outlined in the POEA Rules and Regulations. On this score alone, the NLRC should not have affirmed the POEA.WHEREFORE, the petition is GRANTED and the decision and resolution of the NLRC, dated September 23, 1988 and October 21, 1988, respectively, in POEA Case No. 85-06-0394 are SET ASIDE. The temporary restraining order issued by the Court on November 10, 1988 is MADE PERMANENT.SO ORDERED.

100. DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners, vs.INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC., respondents. GUTIERREZ, JR., J.:The petitioners question the decision of the Intermediate Appellate Court which sustained the private respondent's contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco conveyed a parcel of land to Delpher Trades Corporation in exchange for 2,500 shares of stock was actually a deed of sale which violated a right of first refusal under a lease contract.Briefly, the facts of the case are summarized as follows:In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila) which is covered by Transfer Certificate of Title No. T-4240 of the Bulacan land registry.On April 3, 1974, the said co-owners leased to Construction Components International Inc. the same property and providing that during the existence or after the term of this lease the lessor should he decide to sell the property leased shall first offer the same to the lessee and the letter has the priority to buy under similar conditions (Exhibits A to A-5)On August 3, 1974, lessee Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B-6 inclusive)The contract of lease, as well as the assignment of lease were annotated at he back of the title, as per stipulation of the parties (Exhs. A to D-3 inclusive)On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased property (TCT No.T-4240) together with another parcel of land also located in Malinta Estate, Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant corporation with a total value of P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo)On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades Corporation acquired the property from Pelagia Pacheco and Delphin Pacheco.After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive portion of the decision reads:ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the plaintiffs preferential right to acquire the subject property (right of first refusal) and ordering the defendants and all persons deriving rights therefrom to convey the said property to plaintiff who may offer to acquire the same at the rate of P14.00 per square meter, more or less, for Lot 1095 whose area is 27,169 square meters only. Without pronouncement as to attorney's fees and costs. (Appendix I; Rec., pp. 246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo)The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate court's decision.We initially denied the petition but upon motion for reconsideration, we set aside the resolution denying the petition and gave it due course.The petitioners allege that:The denial of the petition will work great injustice to the petitioners, in that:1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from petitioners a parcel of industrial land consisting of 27,169 square meters or 2.7 hectares (located right after the Valenzuela, Bulacan exit of the toll expressway) for only P14/sq. meter, or a total of P380,366, although the prevailing value thereof is approximately P300/sq. meter or P8.1 Million;2. Private respondent is allowed to exercise its right of first refusal even if there is no "sale" or transfer of actual ownership interests by petitioners to third parties; and3. Assuming arguendo that there has been a transfer of actual ownership interests, private respondent will acquire the land not under "similar conditions" by which it was transferred to petitioner Delpher Trades Corporation, as provided in the same contractual provision invoked by private respondent. (pp. 251-252, Rollo)The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties executed by the Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect, prejudiced the private respondent's right of first refusal over the leased property included in the "deed of exchange."Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that Delpher Trades Corporation is a family corporation; that the corporation was organized by the children of the two spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles) who owned in common the parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the property through the corporation and to avoid taxes; that in order to accomplish this end, two pieces of real estate, including Lot No. 1095 which had been leased to Hydro Pipes Philippines, were transferred to the corporation; that the leased property was transferred to the corporation by virtue of a deed of exchange of property; that in exchange for these properties, Pelagia and Delfin acquired 2,500 unissued no par value shares of stock which are equivalent to a 55% majority in the corporation because the other owners only owned 2,000 shares; and that at the time of incorporation, he knew all about the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the petitioners' motion for reconsideration, they refer to this scheme as "estate planning." (p. 252, Rollo)Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership of the subject parcel of land since the Pachecos remained in control of the property. Thus, the petitioners allege: "Considering that the beneficial ownership and control of petitioner corporation remained in the hands of the original co-owners, there was no transfer of actual ownership interests over the land when the same was transferred to petitioner corporation in exchange for the latter's shares of stock. The transfer of ownership, if anything, was merely in form but not in substance. In reality, petitioner corporation is a mere alter ego or conduit of the Pacheco co-owners; hence the corporation and the co-owners should be deemed to be the same, there being in substance and in effect an Identity of interest." (p. 254, Rollo)The petitioners maintain that the Pachecos did not sell the property. They argue that there was no sale and that they exchanged the land for shares of stocks in their own corporation. "Hence, such transfer is not within the letter, or even spirit of the contract. There

is a sale when ownership is transferred for a price certain in money or its equivalent (Art. 1468, Civil Code) while there is a barter or exchange when one thing is given in consideration of another thing (Art. 1638, Civil Code)." (pp. 254-255, Rollo)On the other hand, the private respondent argues that Delpher Trades Corporation is a corporate entity separate and distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher Trades Corporation is the Pacheco's same alter ego or conduit; that petitioner Delfin Pacheco, having treated Delpher Trades Corporation as such a separate and distinct corporate entity, is not a party who may allege that this separate corporate existence should be disregarded. It maintains that there was actual transfer of ownership interests over the leased property when the same was transferred to Delpher Trades Corporation in exchange for the latter's shares of stock.We rule for the petitioners.After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly from the corporation or from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by subscription "The essence of the stock subscription is an agreement to take and pay for original unissued shares of a corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It is significant that the Pachecos took no par value shares in exchange for their properties.A no-par value share does not purport to represent any stated proportionate interest in the capital stock measured by value, but only an aliquot part of the whole number of such shares of the issuing corporation. The holder of no-par shares may see from the certificate itself that he is only an aliquot sharer in the assets of the corporation. But this character of proportionate interest is not hidden beneath a false appearance of a given sum in money, as in the case of par value shares. The capital stock of a corporation issuing only no-par value shares is not set forth by a stated amount of money, but instead is expressed to be divided into a stated number of shares, such as, 1,000 shares. This indicates that a shareholder of 100 such shares is an aliquot sharer in the assets of the corporation, no matter what value they may have, to the extent of 100/1,000 or 1/10. Thus, by removing the par value of shares, the attention of persons interested in the financial condition of a corporation is focused upon the value of assets and the amount of its debts. (Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 107).Moreover, there was no attempt to state the true or current market value of the real estate. Land valued at P300.00 a square meter was turned over to the family's corporation for only P14.00 a square meter.It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same family group.In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes.As explained by Eduardo Neria:xxx xxx xxxATTY. LINSANGAN:Q Mr. Neria, from the point of view of taxation, is there any benefit to the spouses Hernandez and Pacheco in connection with their execution of a deed of exchange on the properties for no par value shares of the defendant corporation?A Yes, sir.COURT:Q What do you mean by "point of view"?A To take advantage for both spouses and corporation in entering in the deed of exchange.ATTY. LINSANGAN:Q (What do you mean by "point of view"?) What are these benefits to the spouses of this deed of exchange?A Continuous control of the property, tax exemption benefits, and other inherent benefits in a corporation.Q What are these advantages to the said spouses from the point of view of taxation in entering in the deed of exchange?A Having fulfilled the conditions in the income tax law, providing for tax free exchange of property, they were able to execute the deed of exchange free from income tax and acquire a corporation.Q What provision in the income tax law are you referring to?A I refer to Section 35 of the National Internal Revenue Code under par. C-sub-par. (2) Exceptions regarding the provision which I quote: "No gain or loss shall also be recognized if a person exchanges his property for stock in a corporation of which as a result of such exchange said person alone or together with others not exceeding four persons gains control of said corporation."Q Did you explain to the spouses this benefit at the time you executed the deed of exchange?A Yes, sirQ You also, testified during the last hearing that the decision to have no par value share in the defendant corporation was for the purpose of flexibility. Can you explain flexibility in connection with the ownership of the property in question?A There is flexibility in using no par value shares as the value is determined by the board of directors in increasing capitalization. The board can fix the value of the shares equivalent to the capital requirements of the corporation.Q Now also from the point of taxation, is there any flexibility in the holding by the corporation of the property in question?A Yes, since a corporation does not die it can continue to hold on to the property indefinitely for a period of at least 50 years. On the other hand, if the property is held by the spouse the property will be tied up in succession proceedings and the consequential payments of estate and inheritance taxes when an owner dies.Q Now what advantage is this continuity in relation to ownership by a particular person of certain properties in respect to taxation?A The property is not subjected to taxes on succession as the corporation does not die.Q So the benefit you are talking about are inheritance taxes?A Yes, sir. (pp. 3-5, tsn., December 15, 1981)The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." (Liddell & Co., Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).

The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. The ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract.WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of the then Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in Civil Case No. 885-V-79 of the then Court of First Instance of Bulacan is DISMISSED. No costs.SO ORDERED.

111. THE EXECUTIVE SECRETARY, THE SECRETARY OF JUSTICE, THE SECRETARY OF LABOR AND EMPLOYMENT, AND THE SECRETARY OF FOREIGN AFFAIRS, OWWA PUNO, ADMINISTRATOR, and POEA ADMINISTRATOR, petitioners, vs.THE HON. COURT OF APPEALS and ASIAN RECRUITMENT COUNCIL PHILIPPINE CHAPTER (ARCO-PHIL.), INC., representing its members: Worldcare Services Internationale, Inc., SteadfastInternational Recruitment Corporation, Dragon International Manpower Services Corporation, Verdant Manpower Mobilization Corporation, Brent Overseas Personnel, Inc., ARL Manpower Services, Inc., Dahlzhen International Services, Inc., Interworld Placement Center, Inc., Lakas Tao Contract Services, Ltd. Co., and SSC Multiservices, respondents.D E C I S I O NCALLEJO, SR., J.:In this petition for review on certiorari, the Executive Secretary of the President of the Philippines, the Secretary of Justice, the Secretary of Foreign Affairs, the Secretary of Labor and Employment, the POEA Administrator and the OWWA Administrator, through the Office of the Solicitor General, assail the Decision1 of the Court of Appeals in CA-G.R. SP No. 38815 affirming the Order2 of the Regional Trial Court of Quezon City dated August 21, 1995 in Civil Case No. Q-95-24401, granting the plea of the petitioners therein for a writ of preliminary injunction and of the writ of preliminary injunction issued by the trial court on August 24, 1995.The AntecedentsRepublic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995, took effect on July 15, 1995. The Omnibus Rules and Regulations Implementing the Migrant Workers and Overseas Filipino Act of 1995 was, thereafter, published in the April 7, 1996 issue of the Manila Bulletin. However, even before the law took effect, the Asian Recruitment Council Philippine Chapter, Inc. (ARCO-Phil.) filed, on July 17, 1995, a petition for declaratory relief under Rule 63 of the Rules of Court with the Regional Trial Court of Quezon City to declare as unconstitutional Section 2, paragraph (g), Section 6, paragraphs (a) to (j), (l) and (m), Section 7, paragraphs (a) and (b), and Sections 9 and 10 of the law, with a plea for the issuance of a temporary restraining order and/or writ of preliminary injunction enjoining the respondents therein from enforcing the assailed provisions of the law.In a supplement to its petition, the ARCO-Phil. alleged that Rep. Act No. 8042 was self-executory and that no implementing rules were needed. It prayed that the court issue a temporary restraining order to enjoin the enforcement of Section 6, paragraphs (a) to (m) on illegal recruitment, Section 7 on penalties for illegal recruitment, and Section 9 on venue of criminal actions for illegal recruitments, viz:Viewed in the light of the foregoing discussions, there appears to be urgent an imperative need for this Honorable Court to maintain the status quo by enjoining the implementation or effectivity of the questioned provisions of RA 8042, by way of a restraining order otherwise, the member recruitment agencies of the petitioner will suffer grave or irreparable damage or injury. With the effectivity of RA 8042, a great majority of the duly licensed recruitment agencies have stopped or suspended their operations for fear of being prosecuted under the provisions of a law that are unjust and unconstitutional. This Honorable Court may take judicial notice of the fact that processing of deployment papers of overseas workers for the past weeks have come to a standstill at the POEA and this has affected thousands of workers everyday just because of the enactment of RA 8042. Indeed, this has far reaching effects not only to survival of the overseas manpower supply industry and the active participating recruitment agencies, the country’s economy which has survived mainly due to the dollar remittances of the overseas workers but more importantly, to the poor and the needy who are in dire need of income-generating jobs which can only be obtained from abroad. The loss or injury that the recruitment agencies will suffer will then be immeasurable and irreparable. As of now, even foreign employers have already reduced their manpower requirements from the Philippines due to their knowledge that RA 8042 prejudiced and adversely affected the local recruitment agencies.3

On August 1, 1995, the trial court issued a temporary restraining order effective for a period of only twenty (20) days therefrom.After the petitioners filed their comment on the petition, the ARCO-Phil. filed an amended petition, the amendments consisting in the inclusion in the caption thereof eleven (11) other corporations which it alleged were its members and which it represented in the suit, and a plea for a temporary restraining order enjoining the respondents from enforcing Section 6 subsection (i), Section 6 subsection (k) and paragraphs 15 and 16 thereof, Section 8, Section 10, paragraphs 1 and 2, and Sections 11 and 40 of Rep. Act No. 8042.The respondent ARCO-Phil. assailed Section 2(g) and (i), Section 6 subsection (a) to (m), Section 7(a) to (b), and Section 10 paragraphs (1) and (2), quoted as follows:(g) THE STATE RECOGNIZES THAT THE ULTIMATE PROTECTION TO ALL MIGRANT WORKERS IS THE POSSESSION OF SKILLS. PURSUANT TO THIS AND AS SOON AS PRACTICABLE, THE GOVERNMENT SHALL DEPLOY AND/OR ALLOW THE DEPLOYMENT ONLY OF SKILLED FILIPINO WORKERS.4

Sec. 2 subsection (i, 2nd par.)Nonetheless, the deployment of Filipino overseas workers, whether land-based or sea-based, by local service contractors and manning agents employing them shall be encourages (sic). Appropriate incentives may be extended to them.…II. ILLEGAL RECRUITMENTSEC. 6. Definition. – For purposes of this Act, illegal recruitment shall mean any act of canvassing, enlisting, contracting, transporting, utilizing, hiring, or procuring workers and includes referring, contract services, promising or advertising for employment abroad, whether for profit or not, when undertaken by a non-licensee or non-holder of authority contemplated under Article 13(f) of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines: Provided, That any such non-licensee or non-holder who, in any manner, offers or promises for a fee employment abroad to two or more persons shall be deemed so engaged. It shall, likewise, include the following acts, whether committed by any person, whether a non-licensee, non-holder, licensee or holder of authority:(a) To charge or accept directly or indirectly any amount greater than that specified in the schedule of allowable fees prescribed by the Secretary of Labor and Employment, or to make a worker pay any amount greater than that actually received by him as a loan or advance;(b) To furnish or publish any false notice or information or document in relation to recruitment or employment;(c) To give any false notice, testimony, information or document or commit any act of misrepresentation for the purpose of securing a license or authority under the Labor Code;

(d) To induce or attempt to induce a worker already employed to quit his employment in order to offer him another unless the transfer is designed to liberate a worker from oppressive terms and conditions of employment;(e) To influence or attempt to influence any person or entity not to employ any worker who has not applied for employment through his agency;(f) To engage in the recruitment or placement of workers in jobs harmful to public health or morality or to the dignity of the Republic of the Philippines;(g) To obstruct or attempt to obstruct inspection by the Secretary of Labor and Employment or by his duly authorized representative;(h) To fail to submit reports on the status of employment, placement vacancies, remittance of foreign exchange earnings, separation from jobs, departures and such other matters or information as may be required by the Secretary of Labor and Employment;(i) To substitute or alter to the prejudice of the worker, employment contracts approved and verified by the Department of Labor and Employment from the time of actual signing thereof by the parties up to and including the period of the expiration of the same without the approval of the Department of Labor and Employment;(j) For an officer or agent of a recruitment or placement agency to become an officer or member of the Board of any corporation engaged in travel agency or to be engaged directly or indirectly in the management of a travel agency;(k) To withhold or deny travel documents from applicant workers before departure for monetary or financial considerations other than those authorized under the Labor Code and its implementing rules and regulations;(l) Failure to actually deploy without valid reason as determined by the Department of Labor and Employment; and(m) Failure to reimburse expenses incurred by the worker in connection with his documentation and processing for purposes of deployment, in cases where the deployment does not actually take place without the worker’s fault. Illegal recruitment when committed by a syndicate or in large scale shall be considered an offense involving economic sabotage.Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3) or more persons conspiring or confederating with one another. It is deemed committed in large scale if committed against three (3) or more persons individually or as a group.The persons criminally liable for the above offenses are the principals, accomplices and accessories. In case of juridical persons, the officers having control, management or direction of their business shall be liable.…SEC. 7. Penalties. –(a) Any person found guilty of illegal recruitment shall suffer the penalty of imprisonment of not less than six (6) years and one (1) day but not more than twelve (12) years and a fine of not less than two hundred thousand pesos (P200,000.00) nor more than five hundred thousand pesos (P500,000.00).(b) The penalty of life imprisonment and a fine of not less than five hundred thousand pesos (P500,000.00) nor more than one million pesos (P1,000,000.00) shall be imposed if illegal recruitment constitutes economic sabotage as defined herein.Provided, however, That the maximum penalty shall be imposed if the person illegally recruited is less than eighteen (18) years of age or committed by a non-licensee or non-holder of authority.Sec. 8.Prohibition on Officials and Employees. – It shall be unlawful for any official or employee of the Department of Labor and Employment, the Philippine Overseas Employment Administration (POEA), or the Overseas Workers Welfare Administration (OWWA), or the Department of Foreign Affairs, or other government agencies involved in the implementation of this Act, or their relatives within the fourth civil degree of consanguinity or affinity, to engage, directly or indirectly, in the business of recruiting migrant workers as defined in this Act. The penalties provided in the immediate preceding paragraph shall be imposed upon them. (underscoring supplied)…Sec. 10, pars. 1 & 2.Money Claims. – Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide,within ninety (90) calendar days after the filing of the complaint, the claims arising out of an employer-employee relationship or by virtue of any law or contract involving Filipino workers for overseas deployment including claims for actual, moral, exemplary and other forms of damages.The liability of the principal/employer and the recruitment/placement agency for any and all claims under this section shall be joint and several. This provision shall be incorporated in the contract for overseas employment and shall be a condition precedent for its approval. The performance bond to be filed by the recruitment/placement agency, as provided by law, shall be answerable for all money claims or damages that may be awarded to the workers. If the recruitment/placement agency is a juridical being, the corporate officers and directors and partners as the case may be, shall themselves be jointly and solidarily liable with the corporation or partnership for the aforesaid claims and damages.…SEC. 11. Mandatory Periods for Resolution of Illegal Recruitment Cases. – The preliminary investigations of cases under this Act shall be terminated within a period of thirty (30) calendar days from the date of their filing. Where the preliminary investigation is conducted by a prosecution officer and a prima facie case is established, the corresponding information shall be filed in court within twenty-four (24) hours from the termination of the investigation. If the preliminary investigation is conducted by a judge and a prima facie case is found to exist, the corresponding information shall be filed by the proper prosecution officer within forty-eight (48) hours from the date of receipt of the records of the case.The respondent averred that the aforequoted provisions of Rep. Act No. 8042 violate Section 1, Article III of the Constitution.5 According to the respondent, Section 6(g) and (i) discriminated against unskilled workers and their families and, as such, violated the equal protection clause, as well as Article II, Section 126 and Article XV, Sections 17 and 3(3) of the Constitution.8 As the law encouraged the deployment of skilled Filipino workers, only overseas skilled workers are granted rights. The respondent stressed that unskilled workers also have the right to seek employment abroad. According to the respondent, the right of unskilled workers to due process is violated because they are prevented from finding employment and earning a living abroad. It cannot be argued that skilled workers are immune from abuses by employers, while unskilled workers are merely prone to such abuses. It was pointed out that both skilled and unskilled workers are subjected to abuses by foreign employers. Furthermore, the prohibition of the deployment of unskilled workers abroad would only encourage fly-by-night illegal recruiters.

According to the respondent, the grant of incentives to service contractors and manning agencies to the exclusion of all other licensed and authorized recruiters is an invalid classification. Licensed and authorized recruiters are thus deprived of their right to property and due process and to the "equality of the person." It is understandable for the law to prohibit illegal recruiters, but to discriminate against licensed and registered recruiters is unconstitutional.The respondent, likewise, alleged that Section 6, subsections (a) to (m) is unconstitutional because licensed and authorized recruitment agencies are placed on equal footing with illegal recruiters. It contended that while the Labor Code distinguished between recruiters who are holders of licenses and non-holders thereof in the imposition of penalties, Rep. Act No. 8042 does not make any distinction. The penalties in Section 7(a) and (b) being based on an invalid classification are, therefore, repugnant to the equal protection clause, besides being excessive; hence, such penalties are violative of Section 19(1), Article III of the Constitution.9 It was also pointed out that the penalty for officers/officials/employees of recruitment agencies who are found guilty of economic sabotage or large-scale illegal recruitment under Rep. Act No. 8042 is life imprisonment. Since recruitment agencies usually operate with a manpower of more than three persons, such agencies are forced to shut down, lest their officers and/or employees be charged with large scale illegal recruitment or economic sabotage and sentenced to life imprisonment. Thus, the penalty imposed by law, being disproportionate to the prohibited acts, discourages the business of licensed and registered recruitment agencies.The respondent also posited that Section 6(m) and paragraphs (15) and (16), Sections 8, 9 and 10, paragraph 2 of the law violate Section 22, Article III of the Constitution10 prohibiting ex-post facto laws and bills of attainder. This is because the provisions presume that a licensed and registered recruitment agency is guilty of illegal recruitment involving economic sabotage, upon a finding that it committed any of the prohibited acts under the law. Furthermore, officials, employees and their relatives are presumed guilty of illegal recruitment involving economic sabotage upon such finding that they committed any of the said prohibited acts.The respondent further argued that the 90-day period in Section 10, paragraph (1) within which a labor arbiter should decide a money claim is relatively short, and could deprive licensed and registered recruiters of their right to due process. The period within which the summons and the complaint would be served on foreign employees and, thereafter, the filing of the answer to the complaint would take more than 90 days. This would thereby shift on local licensed and authorized recruiters the burden of proving the defense of foreign employers. Furthermore, the respondent asserted, Section 10, paragraph 2 of the law, which provides for the joint and several liability of the officers and employees, is a bill of attainder and a violation of the right of the said corporate officers and employees to due process. Considering that such corporate officers and employees act with prior approval of the board of directors of such corporation, they should not be liable, jointly and severally, for such corporate acts.The respondent asserted that the following provisions of the law are unconstitutional:SEC. 9. Venue. – A criminal action arising from illegal recruitment as defined herein shall be filed with the Regional Trial Court of the province or city where the offense was committed or where the offended party actually resides at the time of the commission of the offense: Provided, That the court where the criminal action is first filed shall acquire jurisdiction to the exclusion of other courts: Provided, however, That the aforestated provisions shall also apply to those criminal actions that have already been filed in court at the time of the effectivity of this Act.…SEC. 10. Money Claims. – Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety (90) calendar days after the filing of the complaint, the claims arising out of an employer-employee relationship or by virtue of any law or contract involving Filipino workers for overseas deployment including claims for actual, moral, exemplary and other forms of damages.Sec. 40.The departments and agencies charged with carrying out the provisions of this Act shall, within ninety (90) days after the effectiviy of this Act, formulate the necessary rules and regulations for its effective implementation.According to the respondent, the said provisions violate Section 5(5), Article VIII of the Constitution11 because they impair the power of the Supreme Court to promulgate rules of procedure.In their answer to the petition, the petitioners alleged, inter alia, that (a) the respondent has no cause of action for a declaratory relief; (b) the petition was premature as the rules implementing Rep. Act No. 8042 not having been released as yet; (c) the assailed provisions do not violate any provisions of the Constitution; and, (d) the law was approved by Congress in the exercise of the police power of the State. In opposition to the respondent’s plea for injunctive relief, the petitioners averred that:As earlier shown, the amended petition for declaratory relief is devoid of merit for failure of petitioner to demonstrate convincingly that the assailed law is unconstitutional, apart from the defect and impropriety of the petition. One who attacks a statute, alleging unconstitutionality must prove its invalidity beyond reasonable doubt (Caleon v. Agus Development Corporation, 207 SCRA 748). All reasonable doubts should be resolved in favor of the constitutionality of a statute (People v. Vera, 65 Phil. 56). This presumption of constitutionality is based on the doctrine of separation of powers which enjoin upon each department a becoming respect for the acts of the other departments (Garcia vs. Executive Secretary, 204 SCRA 516 [1991]). Necessarily, the ancillary remedy of a temporary restraining order and/or a writ of preliminary injunction prayed for must fall. Besides, an act of legislature approved by the executive is presumed to be within constitutional bounds (National Press Club v. Commission on Elections, 207 SCRA 1).12

After the respective counsels of the parties were heard on oral arguments, the trial court issued on August 21, 1995, an order granting the petitioner’s plea for a writ of preliminary injunction upon a bond of P50,000. The petitioner posted the requisite bond and on August 24, 1995, the trial court issued a writ of preliminary injunction enjoining the enforcement of the following provisions of Rep. Act No. 8042 pending the termination of the proceedings:… Section 2, subsections (g) and (i, 2nd par.); Section 6, subsections (a) to (m), and pars. 15 & 16; Section 7, subsections (a) & (b); Section 8; Section 9; Section 10; pars. 1 & 2; Section 11; and Section 40 of Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995. …13

The petitioners filed a petition for certiorari with the Court of Appeals assailing the order and the writ of preliminary injunction issued by the trial court on the following grounds:1. Respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-agencies to be protected by the injunctive relief and/or violation of said rights by the enforcement of the assailed sections of R.A. 8042;2. Respondent Judge fixed a P50,000 injunction bond which is grossly inadequate to answer for the damage which petitioner-officials may sustain, should respondent ARCO-PHIL. be finally adjudged as not being entitled thereto.14

The petitioners asserted that the respondent is not the real party-in-interest as petitioner in the trial court. It is inconceivable how the respondent, a non-stock and non-profit corporation, could sustain direct injury as a result of the enforcement of the law. They

argued that if, at all, any damage would result in the implementation of the law, it is the licensed and registered recruitment agencies and/or the unskilled Filipino migrant workers discriminated against who would sustain the said injury or damage, not the respondent. The respondent, as petitioner in the trial court, was burdened to adduce preponderant evidence of such irreparable injury, but failed to do so. The petitioners further insisted that the petition a quo was premature since the rules and regulations implementing the law had yet to be promulgated when such petition was filed. Finally, the petitioners averred that the respondent failed to establish the requisites for the issuance of a writ of preliminary injunction against the enforcement of the law and the rules and regulations issued implementing the same.On December 5, 1997, the appellate court came out with a four-page decision dismissing the petition and affirming the assailed order and writ of preliminary injunction issued by the trial court. The appellate court, likewise, denied the petitioners’ motion for reconsideration of the said decision.The petitioners now come to this Court in a petition for review on certiorari on the following grounds:1. Private respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-agencies to be protected by the injunctive relief and/or violation of said rights by the enforcement of the assailed sections of R.A. 8042;2. The P50,000 injunction bond fixed by the court a quo and sustained by the Court of Appeals is grossly inadequate to answer for the damage which petitioners-officials may sustain, should private respondent ARCO-PHIL. be finally adjudged as not being entitled thereto.15

On February 16, 1998, this Court issued a temporary restraining order enjoining the respondents from enforcing the assailed order and writ of preliminary injunction.The IssuesThe core issue in this case is whether or not the trial court committed grave abuse of its discretion amounting to excess or lack of jurisdiction in issuing the assailed order and the writ of preliminary injunction on a bond of onlyP50,000 and whether or not the appellate court erred in affirming the trial court’s order and the writ of preliminary injunction issued by it.The petitioners contend that the respondent has no locus standi. It is a non-stock, non-profit organization; hence, not the real party-in-interest as petitioner in the action. Although the respondent filed the petition in the Regional Trial Court in behalf of licensed and registered recruitment agencies, it failed to adduce in evidence a certified copy of its Articles of Incorporation and the resolutions of the said members authorizing it to represent the said agencies in the proceedings. Neither is the suit of the respondent a class suit so as to vest in it a personality to assail Rep. Act No. 8042; the respondent is service-oriented while the recruitment agencies it purports to represent are profit-oriented. The petitioners assert that the law is presumed constitutional and, as such, the respondent was burdened to make a case strong enough to overcome such presumption and establish a clear right to injunctive relief.The petitioners bewail the P50,000 bond fixed by the trial court for the issuance of a writ of preliminary injunction and affirmed by the appellate court. They assert that the amount is grossly inadequate to answer for any damages that the general public may suffer by reason of the non-enforcement of the assailed provisions of the law. The trial court committed a grave abuse of its discretion in granting the respondent’s plea for injunctive relief, and the appellate court erred in affirming the order and the writ of preliminary injunction issued by the trial court.The respondent, for its part, asserts that it has duly established its locus standi and its right to injunctive relief as gleaned from its pleadings and the appendages thereto. Under Section 5, Rule 58 of the Rules of Court, it was incumbent on the petitioners, as respondents in the RTC, to show cause why no injunction should issue. It avers that the injunction bond posted by the respondent was more than adequate to answer for any injury or damage the petitioners may suffer, if any, by reason of the writ of preliminary injunction issued by the RTC. In any event, the assailed provisions of Rep. Act No. 8042 exposed its members to the immediate and irreparable damage of being deprived of their right to a livelihood without due process, a property right protected under the Constitution.The respondent contends that the commendable purpose of the law to eradicate illegal recruiters should not be done at the expense and to the prejudice of licensed and authorized recruitment agencies. The writ of preliminary injunction was necessitated by the great number of duly licensed recruitment agencies that had stopped or suspended their business operations for fear that their officers and employees would be indicted and prosecuted under the assailed oppressive penal provisions of the law, and meted excessive penalties. The respondent, likewise, urges that the Court should take judicial notice that the processing of deployment papers of overseas workers have come to a virtual standstill at the POEA.The Court’s RulingThe petition is meritorious.The Respondent Has Locus StandiTo File the Petition in the RTC in Representation of the Eleven Licensed and Registered Recruitment Agencies Impleaded in the Amended PetitionThe modern view is that an association has standing to complain of injuries to its members. This view fuses the legal identity of an association with that of its members.16 An association has standing to file suit for its workers despite its lack of direct interest if its members are affected by the action. An organization has standing to assert the concerns of its constituents.17

In Telecommunications and Broadcast Attorneys of the Philippines v. Commission on Elections,18 we held that standing jus tertii would be recognized only if it can be shown that the party suing has some substantial relation to the third party, or that the right of the third party would be diluted unless the party in court is allowed to espouse the third party’s constitutional claims.In this case, the respondent filed the petition for declaratory relief under Rule 64 of the Rules of Court for and in behalf of its eleven (11) licensed and registered recruitment agencies which are its members, and which approved separate resolutions expressly authorizing the respondent to file the said suit for and in their behalf. We note that, under its Articles of Incorporation, the respondent was organized for the purposes inter alia of promoting and supporting the growth and development of the manpower recruitment industry, both in the local and international levels; providing, creating and exploring employment opportunities for the exclusive benefit of its general membership; enhancing and promoting the general welfare and protection of Filipino workers; and, to act as the representative of any individual, company, entity or association on matters related to the manpower recruitment industry, and to perform other acts and activities necessary to accomplish the purposes embodied therein. The respondent is, thus, the appropriate party to assert the rights of its members, because it and its members are in every practical sense identical. The respondent asserts that the assailed provisions violate the constitutional rights of its members and the officers and employees

thereof. The respondent is but the medium through which its individual members seek to make more effective the expression of their voices and the redress of their grievances.19

However, the respondent has no locus standi to file the petition for and in behalf of unskilled workers. We note that it even failed to implead any unskilled workers in its petition. Furthermore, in failing to implead, as parties-petitioners, the eleven licensed and registered recruitment agencies it claimed to represent, the respondent failed to comply with Section 2 of Rule 6320 of the Rules of Court. Nevertheless, since the eleven licensed and registered recruitment agencies for which the respondent filed the suit are specifically named in the petition, the amended petition is deemed amended to avoid multiplicity of suits.21

The Assailed Order and Writ ofPreliminary Injunction Is MootedBy Case LawThe respondent justified its plea for injunctive relief on the allegation in its amended petition that its members are exposed to the immediate and irreparable danger of being deprived of their right to a livelihood and other constitutional rights without due process, on its claim that a great number of duly licensed recruitment agencies have stopped or suspended their operations for fear that (a) their officers and employees would be prosecuted under the unjust and unconstitutional penal provisions of Rep. Act No. 8042 and meted equally unjust and excessive penalties, including life imprisonment, for illegal recruitment and large scale illegal recruitment without regard to whether the recruitment agencies involved are licensed and/or authorized; and, (b) if the members of the respondent, which are licensed and authorized, decide to continue with their businesses, they face the stigma and the curse of being labeled "illegal recruiters." In granting the respondent’s plea for a writ of preliminary injunction, the trial court held, without stating the factual and legal basis therefor, that the enforcement of Rep. Act No. 8042, pendente lite, would cause grave and irreparable injury to the respondent until the case is decided on its merits.We note, however, that since Rep. Act No. 8042 took effect on July 15, 1995, the Court had, in a catena of cases, applied the penal provisions in Section 6, including paragraph (m) thereof, and the last two paragraphs therein defining large scale illegal recruitment committed by officers and/or employees of recruitment agencies by themselves and in connivance with private individuals, and imposed the penalties provided in Section 7 thereof, including the penalty of life imprisonment.22 The Informations therein were filed after preliminary investigations as provided for in Section 11 of Rep. Act No. 8042 and in venues as provided for in Section 9 of the said act. InPeople v. Chowdury,23 we held that illegal recruitment is a crime of economic sabotage and must be enforced.In People v. Diaz,24 we held that Rep. Act No. 8042 is but an amendment of the Labor Code of the Philippines and is not an ex-post facto law because it is not applied retroactively. In JMM Promotion and Management, Inc. v. Court of Appeals,25 the issue of the extent of the police power of the State to regulate a business, profession or calling vis-à-vis the equal protection clause and the non-impairment clause of the Constitution were raised and we held, thus:A profession, trade or calling is a property right within the meaning of our constitutional guarantees. One cannot be deprived of the right to work and the right to make a living because these rights are property rights, the arbitrary and unwarranted deprivation of which normally constitutes an actionable wrong.Nevertheless, no right is absolute, and the proper regulation of a profession, calling, business or trade has always been upheld as a legitimate subject of a valid exercise of the police power by the state particularly when their conduct affects either the execution of legitimate governmental functions, the preservation of the State, the public health and welfare and public morals. According to the maxim, sic utere tuo ut alienum non laedas, it must of course be within the legitimate range of legislative action to define the mode and manner in which every one may so use his own property so as not to pose injury to himself or others.In any case, where the liberty curtailed affects at most the rights of property, the permissible scope of regulatory measures is certainly much wider. To pretend that licensing or accreditation requirements violates the due process clause is to ignore the settled practice, under the mantle of the police power, of regulating entry to the practice of various trades or professions. Professionals leaving for abroad are required to pass rigid written and practical exams before they are deemed fit to practice their trade. Seamen are required to take tests determining their seamanship. Locally, the Professional Regulation Commission has begun to require previously licensed doctors and other professionals to furnish documentary proof that they had either re-trained or had undertaken continuing education courses as a requirement for renewal of their licenses. It is not claimed that these requirements pose an unwarranted deprivation of a property right under the due process clause. So long as professionals and other workers meet reasonable regulatory standards no such deprivation exists.Finally, it is a futile gesture on the part of petitioners to invoke the non-impairment clause of the Constitution to support their argument that the government cannot enact the assailed regulatory measures because they abridge the freedom to contract. In Philippine Association of Service Exporters, Inc. vs. Drilon, we held that "[t]he non-impairment clause of the Constitution … must yield to the loftier purposes targeted by the government." Equally important, into every contract is read provisions of existing law, and always, a reservation of the police power for so long as the agreement deals with a subject impressed with the public welfare.A last point. Petitioners suggest that the singling out of entertainers and performing artists under the assailed department orders constitutes class legislation which violates the equal protection clause of the Constitution. We do not agree.The equal protection clause is directed principally against undue favor and individual or class privilege. It is not intended to prohibit legislation which is limited to the object to which it is directed or by the territory in which it is to operate. It does not require absolute equality, but merely that all persons be treated alike under like conditions both as to privileges conferred and liabilities imposed. We have held, time and again, that the equal protection clause of the Constitution does not forbid classification for so long as such classification is based on real and substantial differences having a reasonable relation to the subject of the particular legislation. If classification is germane to the purpose of the law, concerns all members of the class, and applies equally to present and future conditions, the classification does not violate the equal protection guarantee.26

The validity of Section 6 of R.A. No. 8042 which provides that employees of recruitment agencies may be criminally liable for illegal recruitment has been upheld in People v. Chowdury:27

As stated in the first sentence of Section 6 of RA 8042, the persons who may be held liable for illegal recruitment are the principals, accomplices and accessories. An employee of a company or corporation engaged in illegal recruitment may be held liable as principal, together with his employer, if it is shown that he actively and consciously participated in illegal recruitment. It has been held that the existence of the corporate entity does not shield from prosecution the corporate agent who knowingly and intentionally causes the corporation to commit a crime. The corporation obviously acts, and can act, only by and through its human agents, and it is their conduct which the law must deter. The employee or agent of a corporation engaged in unlawful business

naturally aids and abets in the carrying on of such business and will be prosecuted as principal if, with knowledge of the business, its purpose and effect, he consciously contributes his efforts to its conduct and promotion, however slight his contribution may be. …28

By its rulings, the Court thereby affirmed the validity of the assailed penal and procedural provisions of Rep. Act No. 8042, including the imposable penalties therefor. Until the Court, by final judgment, declares that the said provisions are unconstitutional, the enforcement of the said provisions cannot be enjoined.The RTC Committed Grave Abuse of Its Discretion Amounting to Excess or Lack of Jurisdiction in Issuing the Assailed Order and the Writ of Preliminary InjunctionThe matter of whether to issue a writ of preliminary injunction or not is addressed to the sound discretion of the trial court. However, if the court commits grave abuse of its discretion in issuing the said writ amounting to excess or lack of jurisdiction, the same may be nullified via a writ of certiorari and prohibition.In Social Security Commission v. Judge Bayona,29 we ruled that a law is presumed constitutional until otherwise declared by judicial interpretation. The suspension of the operation of the law is a matter of extreme delicacy because it is an interference with the official acts not only of the duly elected representatives of the people but also of the highest magistrate of the land.In Younger v. Harris, Jr.,30 the Supreme Court of the United States emphasized, thus:Federal injunctions against state criminal statutes, either in their entirety or with respect to their separate and distinct prohibitions, are not to be granted as a matter of course, even if such statutes are unconstitutional. No citizen or member of the community is immune from prosecution, in good faith, for his alleged criminal acts. The imminence of such a prosecution even though alleged to be unauthorized and, hence, unlawful is not alone ground for relief in equity which exerts its extraordinary powers only to prevent irreparable injury to the plaintiff who seeks its aid. 752 Beal v. Missouri Pacific Railroad Corp., 312 U.S. 45, 49, 61 S.Ct. 418, 420, 85 L.Ed. 577.And similarly, in Douglas, supra, we made clear, after reaffirming this rule, that:"It does not appear from the record that petitioners have been threatened with any injury other than that incidental to every criminal proceeding brought lawfully and in good faith …" 319 U.S., at 164, 63 S.Ct., at 881.31

The possible unconstitutionality of a statute, on its face, does not of itself justify an injunction against good faith attempts to enforce it, unless there is a showing of bad faith, harassment, or any other unusual circumstance that would call for equitable relief.32 The "on its face" invalidation of statutes has been described as "manifestly strong medicine," to be employed "sparingly and only as a last resort," and is generally disfavored.33

To be entitled to a preliminary injunction to enjoin the enforcement of a law assailed to be unconstitutional, the party must establish that it will suffer irreparable harm in the absence of injunctive relief and must demonstrate that it is likely to succeed on the merits, or that there are sufficiently serious questions going to the merits and the balance of hardships tips decidedly in its favor.34 The higher standard reflects judicial deference toward "legislation or regulations developed through presumptively reasoned democratic processes." Moreover, an injunction will alter, rather than maintain, the status quo, or will provide the movant with substantially all the relief sought and that relief cannot be undone even if the defendant prevails at a trial on the merits.35 Considering that injunction is an exercise of equitable relief and authority, in assessing whether to issue a preliminary injunction, the courts must sensitively assess all the equities of the situation, including the public interest.36 In litigations between governmental and private parties, courts go much further both to give and withhold relief in furtherance of public interest than they are accustomed to go when only private interests are involved.37 Before the plaintiff may be entitled to injunction against future enforcement, he is burdened to show some substantial hardship.38

The fear or chilling-effect of the assailed penal provisions of the law on the members of the respondent does not by itself justify prohibiting the State from enforcing them against those whom the State believes in good faith to be punishable under the laws:… Just as the incidental "chilling effect" of such statutes does not automatically render them unconstitutional, so the chilling effect that admittedly can result from the very existence of certain laws on the statute books does not in itself justify prohibiting the State from carrying out the important and necessary task of enforcing these laws against socially harmful conduct that the State believes in good faith to be punishable under its laws and the Constitution.39

It must be borne in mind that subject to constitutional limitations, Congress is empowered to define what acts or omissions shall constitute a crime and to prescribe punishments therefor.40 The power is inherent in Congress and is part of the sovereign power of the State to maintain peace and order. Whatever views may be entertained regarding the severity of punishment, whether one believes in its efficiency or its futility, these are peculiarly questions of legislative policy.41 The comparative gravity of crimes and whether their consequences are more or less injurious are matters for the State and Congress itself to determine.42 Specification of penalties involves questions of legislative policy.43

Due process prohibits criminal stability from shifting the burden of proof to the accused, punishing wholly passive conduct, defining crimes in vague or overbroad language and failing to grant fair warning of illegal conduct.44Class legislation is such legislation which denies rights to one which are accorded to others, or inflicts upon one individual a more severe penalty than is imposed upon another in like case offending.45 Bills of attainder are legislative acts which inflict punishment on individuals or members of a particular group without a judicial trial. Essential to a bill of attainder are a specification of certain individuals or a group of individuals, the imposition of a punishment, penal or otherwise, and the lack of judicial trial.46

Penalizing unlicensed and licensed recruitment agencies and their officers and employees and their relatives employed in government agencies charged with the enforcement of the law for illegal recruitment and imposing life imprisonment for those who commit large scale illegal recruitment is not offensive to the Constitution. The accused may be convicted of illegal recruitment and large scale illegal recruitment only if, after trial, the prosecution is able to prove all the elements of the crime charged.47

The possibility that the officers and employees of the recruitment agencies, which are members of the respondent, and their relatives who are employed in the government agencies charged in the enforcement of the law, would be indicted for illegal recruitment and, if convicted sentenced to life imprisonment for large scale illegal recruitment, absent proof of irreparable injury, is not sufficient on which to base the issuance of a writ of preliminary injunction to suspend the enforcement of the penal provisions of Rep. Act No. 8042 and avert any indictments under the law.48 The normal course of criminal prosecutions cannot be blocked on the basis of allegations which amount to speculations about the future.49

There is no allegation in the amended petition or evidence adduced by the respondent that the officers and/or employees of its members had been threatened with any indictments for violations of the penal provisions of Rep. Act No. 8042. Neither is there any allegation therein that any of its members and/or their officers and employees committed any of the acts enumerated in Section 6(a) to (m) of the law for which they could be indicted. Neither did the respondent adduce any evidence in the RTC that any or all of its

members or a great number of other duly licensed and registered recruitment agencies had to stop their business operations because of fear of indictments under Sections 6 and 7 of Rep. Act No. 8042. The respondent merely speculated and surmised that licensed and registered recruitment agencies would close shop and stop business operations because of the assailed penal provisions of the law. A writ of preliminary injunction to enjoin the enforcement of penal laws cannot be based on such conjectures or speculations. The Court cannot take judicial notice that the processing of deployment papers of overseas workers have come to a virtual standstill at the POEA because of the assailed provisions of Rep. Act No. 8042. The respondent must adduce evidence to prove its allegation, and the petitioners accorded a chance to adduce controverting evidence.The respondent even failed to adduce any evidence to prove irreparable injury because of the enforcement of Section 10(1)(2) of Rep. Act No. 8042. Its fear or apprehension that, because of time constraints, its members would have to defend foreign employees in cases before the Labor Arbiter is based on speculations. Even if true, such inconvenience or difficulty is hardly irreparable injury.The trial court even ignored the public interest involved in suspending the enforcement of Rep. Act No. 8042 vis-à-vis the eleven licensed and registered recruitment agencies represented by the respondent. In People v. Gamboa,50 we emphasized the primary aim of Rep. Act No. 8042:Preliminarily, the proliferation of illegal job recruiters and syndicates preying on innocent people anxious to obtain employment abroad is one of the primary considerations that led to the enactment of The Migrant Workers and Overseas Filipinos Act of 1995. Aimed at affording greater protection to overseas Filipino workers, it is a significant improvement on existing laws in the recruitment and placement of workers for overseas employment. Otherwise known as the Magna Carta of OFWs, it broadened the concept of illegal recruitment under the Labor Code and provided stiffer penalties thereto, especially those that constitute economic sabotage, i.e., Illegal Recruitment in Large Scale and Illegal Recruitment Committed by a Syndicate.51

By issuing the writ of preliminary injunction against the petitioners sans any evidence, the trial court frustrated, albeit temporarily, the prosecution of illegal recruiters and allowed them to continue victimizing hapless and innocent people desiring to obtain employment abroad as overseas workers, and blocked the attainment of the salutary policies52 embedded in Rep. Act No. 8042. It bears stressing that overseas workers, land-based and sea-based, had been remitting to the Philippines billions of dollars which over the years had propped the economy.In issuing the writ of preliminary injunction, the trial court considered paramount the interests of the eleven licensed and registered recruitment agencies represented by the respondent, and capriciously overturned the presumption of the constitutionality of the assailed provisions on the barefaced claim of the respondent that the assailed provisions of Rep. Act No. 8042 are unconstitutional. The trial court committed a grave abuse of its discretion amounting to excess or lack of jurisdiction in issuing the assailed order and writ of preliminary injunction. It is for this reason that the Court issued a temporary restraining order enjoining the enforcement of the writ of preliminary injunction issued by the trial court.IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed decision of the appellate court isREVERSED AND SET ASIDE. The Order of the Regional Trial Court dated August 21, 1995 in Civil Case No. Q-95-24401 and the Writ of Preliminary Injunction issued by it in the said case on August 24, 1995 are NULLIFIED. No costs.SO ORDERED.

115. FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO RIVERA, petitioners, vs. COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.D E C I S I O NPANGANIBAN, J.:In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters and/or in a meeting with the buyers constitute a perfected and enforceable contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of “apparent authority” apply in this case? If so, may the Central Bank-appointed conservator of Producers Bank (now First Philippine International Bank) repudiate such “apparent authority” after said contract has been deemed perfected? During the pendency of a suit for specific performance, does the filing of a “derivative suit” by the majority shareholders and directors of the distressed bank to prevent the enforcement or implementation of the sale violate the ban against forum-shopping?Simply stated, these are the major questions brought before this Court in the instant Petition for review on certiorari under Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of the respondent Court of Appeals[1] in CA-G.R. CV No. 35756 and the Resolution promulgated June 14, 1994 denying the motion for reconsideration. The dispositive portion of the said Decision reads:“WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed against defendant bank. In all other aspects, said decision is hereby AFFIRMED.“All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.“Costs against appellant bank.”The dispositive portion of the trial court’s[2] decision dated July 10, 1991, on the other hand, is as follows:“WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:“1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos;“2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels of land, and to immediately deliver to the plaintiffs the owner’s copies of T.C.T. Nos. T-106932 to T-106937, inclusive, for purposes of registration of the same deed and transfer of the six (6) titles in the names of the plaintiffs;“3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the sums of P 200,000.00 each in moral damages;“4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P 100,000.00 as exemplary damages;“5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by way of attorney’s fees;“6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages in the amount of P20,000.00;“With costs against the defendants.”After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition was given due course in a Resolution dated January 18, 1995. Thence, the parties filed their respective memoranda and reply memoranda. The First Division transferred this case to the Third Division per resolution dated October 23, 1995. After carefully deliberating on the aforesaid submissions, the Court assigned the case to the undersigned ponente for the writing of this Decision.The PartiesPetitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for brevity) is a banking institution organized and existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all times material to this case, Head Manager of the Property Management Department of the petitioner Bank.Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo.Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through this petition.The FactsThe facts of this case are summarized in the respondent Court’s Decision,[3] as follows:“(1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME Investment and Development Corporation which had them mortgaged with the bank as collateral fora loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated negotiations for that purpose.“(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME Investment’s legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management Department of the defendant bank. The meeting was held pursuant to plaintiffs’ plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal purchase offer to the bank through a letter dated August 30, 1987 (Exh. “B”), as follows:August 30, 1987The Producers Bank of the PhilippinesMakati, Metro ManilaAttn. Mr. Mercurio Q. RiveraManager, Property Management Dept.Gentlemen:I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less. TCT NO. AREA T-106932 113,580 sq.m.

T-106933 70,899 sq.m. T-106934 52,246 sq.m. T-106935 96,768 sq.m. T-106936 187,114 sq.m. T-106937 481,481 sq.m.My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in cash.Kindly contact me at Telephone Number 921-1344.“(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter which is hereunder quoted (Exh. “C”):September 1, 1987J-P M-P GUTIERREZ ENTERPRISES142 Charisma St., Doña Andres IIRosario, Pasig, Metro ManilaAttention: JOSE O. JANOLO Dear Sir:Dear Sir:Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly owned by Byme industrial Corp.). Please be informed however that the bank’s counter-offer is at P5.5 million for more than 101 hectares on lot basis.We shall be very glad to hear your position on the matter.Best regards.“(4)On September 17, 1987, plaintiff Janolo, responding to Rivera’s aforequoted reply, wrote (Exh.September 17, 1987Producers BankPaseo de RoxasMakati, Metro ManilaAttention: Mr. Mercurio RiveraGentlemen:In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa Laguna, I would like to amend my previous offer and I now propose to buy the said lot at P4.250 million in CASH.Hoping that this proposal meets your satisfaction.“(5) There was no reply to Janolo’s foregoing letter of September 17, 1987. What took place was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, the following letter (Exh. “E”):The Producers Bank of the PhilippinesPaseo de Roxas, MakatiMetro ManilaAttention: Mr. Mercurio Rivera Re: 101 Hectares of Land in Sta. Rosa, LagunaGentlemen:Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme In-vestment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).Thank you.“(6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator in the person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. “F”):Attention: Atty. Demetrio DemetriaDear Sir:Your proposal to buy the properties the bank foreclosed from Byme Investment Corp. located at Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for submission to the newly designated Acting Conservator of the bank.For your information.“(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff considered as a perfected contract of sale, which demands were in one form or another refused by the bank. As detailed by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit “G”) tendered payment of the amount of P5.5 million “pursuant to (our) perfected sale agreement.” Defendants refused to receive both the payment and the letter. Instead, the parcels of land involved in the transaction were advertised by the bank for sale to any interested buyer (Exhs. “H” and “H-1”). Plaintiffs demanded the execution by the bank of the documents on what was considered as a “perfected agreement.” Thus:Mr. Mercurio RiveraManager, Producers BankPaseo de Roxas, MakatiMetro ManilaDear Mr. Rivera:This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to 106937.From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in the amount of P5.5 million was accepted by our client thru a letter dated September 30, 1987 and was received by you on October 5, 1987.In view of the above circumstances, we believe that an agreement has been perfected. We were also informed that despite repeated follow-up to consummate the purchase, you now refuse to honor your commitment. Instead, you have advertised for sale the same lot to others.

In behalf of our client, therefore, we are making this formal demand upon you to consummate and execute the necessary actions/documentation within three (3) days from your receipt hereof We are ready to remit the agreed amount of P5.5 million at your advice. Otherwise, we shall be constrained to file the necessary court action to protect the interest of our client.We trust that you will be guided accordingly.“(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and stated, in its communication of December 2, 1987 (Exh. “I”), that said letter has been “referred x x x to the office of our Conservator for proper disposition.” However, no response came from the Acting Conservator. On December 14, 1987, the plaintiffs made a second tender of payment (Exhs. “L” and “L-1”), this time through the Acting Conservator, defendant Encarnacion. Plaintiffs’ letter reads:PRODUCERS BANK OFTHE PHILIPPINESPaseo de Roxas,Makati, Metro ManilaAttn.: Atty. NIDA ENCARNACION Central Bank ConservatorGentlemen:We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No. 258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and 106937 and registered under Producers Bank.This is in connection with the perfected agreement consequent from your offer of P5.5 Million as the purchase price of the said lots. Please inform us of the date of documentation of the sale immediately.Kindly acknowledge receipt of our payment.“(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through counsel, made a final demand for compliance by the bank with its obligations under the considered perfected contract of sale (Exhibit “N”). As recounted by the trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex “4” of defendant’s answer to amended complaint), the defendants through Acting Conservator Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that basis, the defendants justified the refusal of the tenders of payment and the non-compliance with the obligations under what the plaintiffs considered to be a perfected contract of sale.“(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its Manager Rivera and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a perfected contract of sale. The defendants took the position that there was no such perfected sale because the defendant Rivera is not authorized to sell the property, and that there was no meeting of the minds as to the price.”On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner of 80% of the Bank’s outstanding shares of stock, he had a substantial interest in resisting the complaint. On July 8, 1991, the trial court issued an order denying the motion to intervene on the ground that it was filed after trial had already been concluded. It also denied a motion for reconsideration filed thereafter. From the trial court’s decision, the Bank, petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals which subsequently affirmed with modification the said judgment. Henry Co did not appeal the denial of his motion for intervention.In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria and Janolo, in view of the assignment of the latters’ rights in the matter in litigation to said private respondent.On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the “Second Case”) -purportedly a “derivative suit” - with the Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo “to declare any perfected sale of the property as unenforceable and to stop Ejercito from enforcing or implementing the sale.”[4] In his answer, Janolo argued that the Second Case was barred by litis pendentia by virtue of the case then pending in the Court of Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice. “Private respondent opposed this motion on the ground, among others, that plaintiff’s act of forum shopping justifies the dismissal of both cases, with prejudice.”[5] Private respondent, in his memorandum, averred that this motion is still pending in the Makati RTC.In their Petition[6] and Memorandum,[7] petitioners summarized their position as follows:I.“The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in substitution of Demetria and Janolo) and the bank.II.“The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties.III.“The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke acts of previous management.IV.“The findings and conclusions of the Court of Appeals do not conform to the evidence on record.”On the other hand, private respondents prayed for dismissal of the instant suit on the ground[8] that:I.“Petitioners have engaged in forum shopping.II.“The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and may no longer be questioned in this case.III.“The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo (substituted by respondent Ejercito) and the bank.IV.

“The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the agency and the contract, has no authority to revoke the contract of sale.”The IssuesFrom the foregoing positions of the parties, the issues in this case may be summed up as follows:1) Was there forum-shopping on the part of petitioner Bank?2) Was there a perfected contract of sale between the parties?3) Assuming there was, was the said contract enforceable under the statute of frauds?4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or to revoke the said contract?5) Did the respondent Court commit any reversible error in its findings of facts?The First Issue: Was There Forum-Shopping?In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised Circular No. 28-91 requiring that a party “must certify under oath x x x [that] (a) he has not (t)heretofore commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no such action or proceeding is pending” in said courts or agencies. A violation of the said circular entails sanctions that include the summary dismissal of the multiple petitions or complaints. To be sure, petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating “for the record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders of petitioner Bank against the conservator and other defendants but which is the subject of a pending Motion to Dismiss Without Prejudice.”[9]

Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual forum shopping because the instant petition pending before this Court involves “identical parties or interests represented, rights asserted and reliefs sought (as that) currently pending before the Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the issues in the two cases are so intertwined that a judgment or resolution in either case will constitute res judicata in the other.”[10]

On the other hand, petitioners explain[11] that there is no forum-shopping because:1) In the earlier or “First Case” from which this proceeding arose, the Bank was impleaded as a defendant, whereas in the “Second Case” (assuming the Bank is the real party in interest in a derivative suit), it was the plaintiff;2) “The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances”;3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the Petition identifies the action as a “derivative suit,” it “does not mean that it is one” and “(t)hat is a legal question for the courts to decide”;4) Petitioners did not hide the Second Case as they mentioned it in the said VERIFICATION/CERTIFICATION.We rule for private respondent.To begin with, forum-shopping originated as a concept in private international law,[12] where non-resident litigants are given the option to choose the forum or place wherein to bring their suit for various reasons or excuses, including to secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. To combat these less than honorable excuses, the principle of forum non conveniens was developed whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most “convenient” or available forum and the parties are not precluded from seeking remedies elsewhere.In this light, Black’s Law Dictionary[13] says that forum-shopping “occurs when a party attempts to have his action tried in a particular court or jurisdiction where he feels he will receive the most favorable judgment or verdict.” Hence, according to Words and Phrases,[14] “a litigant is open to the charge of ‘forum shopping’ whenever he chooses a forum with slight connection to factual circumstances surrounding his suit, and litigants should be encouraged to attempt to settle their differences without imposing undue expense and vexatious situations on the courts.”In the Philippines, forum-shopping has acquired a connotation encompassing not only a choice of venues, as it was originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice of venues), the Rules of Court, for example, allow a plaintiff to commence personal actions “where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff” (Rule 4, Sec. 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of pursuing civil liabilities independently of the criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or culpa criminal - each remedy being available independently of the others - although he cannot recover more than once.“In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of his action. This was the original concept of the term forum shopping.“Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies simultaneously. This practice had not only resulted to (sic) conflicting adjudications among different courts and consequent confusion enimical (sic) to an orderly administration of justice. It had created extreme inconvenience to some of the parties to the action.“Thus, ‘forum-shopping’ had acquired a different concept - which is unethical professional legal practice. And this necessitated or had given rise to the formulation of rules and canons discouraging or altogether prohibiting the practice.”[15]

What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for solving problems has been abused and misused to assure scheming litigants of dubious reliefs.To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned, promulgated Circular 28-91. And even before that, the Court had proscribed it in the Interim Rules and Guidelines issued on January 11, 1983 and had struck down in several cases[16] the inveterate use of this insidious malpractice. Forum-shopping as “the filing of repetitious suits in different courts” has been condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural Resources, et al. vs. Heirs of Orval Hughes, et al., “as a reprehensible manipulation of court processes and proceedings x x x.”[17] When does forum-shopping take place?“There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in connection with litigations commenced in the courts while an administrative proceeding is pending, as in this case, in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, where the court in which the second suit was brought, has no jurisdiction “[18]

The test for determining whether a party violated the rule against forum-shopping has been laid down in the 1986 case of Buan vs. Lopez,[19]also by Chief Justice Narvasa, and that is, forum-shopping exists where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in the other, as follows:“There thus exists between the action before this Court and RTC Case No. 86-36563 identity of parties, or at least such parties as represent the same interests in both actions, as well as identity of rights asserted and relief prayed for, the relief being founded on the same facts, and the identity on the two preceding particulars is such that any judgment rendered in the other action, will, regardless of which party is successful, amount to res adjudicata in the action under consideration: all the requisites, in fine, of auter action pendant.”xxx xxx xxx“As already observed, there is between the action at bar and RTC Case No. 86-36563, an identity as regards parties, or interests represented, rights asserted and relief sought, as well as basis thereof, to a degree sufficient to give rise to the ground for dismissal known as auter action pendant or lis pendens. That same identity puts into operation the sanction of twin dismissals just mentioned. The application of this sanction will prevent any further delay in the settlement of the controversy which might ensue from attempts to seek reconsideration of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15, 1986, which dismissed the petition upon grounds which appear persuasive.”Consequently, where a litigant (or one representing the same interest or person) sues the same party against whom another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still pending, the defense of litis pendencia in one case is a bar to the others; and, a final judgment in one would constitute res judicata and thus would cause the dismissal of the rest. In either case, forum shopping could be cited by the other party as a ground to ask for summary dismissal of the two[20] (or more) complaints or petitions, and for the imposition of the other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action against the erring lawyer.Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious that there exist identity of parties or interests represented, identity of rights or causes and identity of reliefs sought.Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed by the buyer (herein private respondent and his predecessors-in-interest) against the seller (herein petitioners) to enforce the alleged perfected sale of real estate. On the other hand, the complaint[21] in the Second Case seeks to declare such purported sale involving the same real property “as unenforceable as against the Bank,” which is the petitioner herein. In other words, in the Second Case, the majority stockholders, in representation of the Bank, are seeking to accomplish what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the relief being sought, though worded differently, is the same, namely, to enable the petitioner Bank to escape from the obligation to sell the property to respondent. InDanville Maritime, Inc. vs. Commission on Audit,[22] this Court ruled that the filing by a party of two apparently different actions, but with thesame objective, constituted forum shopping:“In the attempt to make the two actions appear to be different, petitioner impleaded different respondents therein - PNOC in the case before the lower court and the COA in the case before this Court and sought what seems to be different reliefs. Petitioner asks this Court to set aside the questioned letter-directive of the COA dated October 10, 1988 and to direct said body to approve the Memorandum of Agreement entered into by and between the PNOC and petitioner, while in the complaint before the lower court petitioner seeks to enjoin the PNOC from conducting a rebidding and from selling to other parties the vessel “T/T Andres Bonifacio,” and for an extension of time for it to comply with the paragraph 1 of the memorandum of agreement and damages. One can see that although the relief prayed for in the two (2) actions are ostensibly different, the ultimate objective in both actions is the same, that is, the approval of the sale of vessel in favor of petitioner, and to overturn the letter-directive of the COA of October 10, 1988 disapproving the sale.” (italics supplied)In an earlier case,[23] but with the same logic and vigor, we held:“In other words, the filing by the petitioners of the instant special civil action for certiorari and prohibition in this Court despite the pendency of their action in the Makati Regional Trial Court, is a species of forum-shopping. Both actions unquestionably involve the same transactions, the same essential facts and circumstances. The petitioners’ claim of absence of identity simply because the PCGG had not been impleaded in the RTC suit, and the suit did not involve certain acts which transpired after its commencement, is specious. In the RTC action, as in the action before this Court, the validity of the contract to purchase and sell of September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of implementing the same (by paying the pledgee banks the amount of their loans, obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the relief was the same: the prevention of such implementation and/or the restoration of the status quo ante. When the acts sought to be restrained took place anyway despite the issuance by the Trial Court of a temporary restraining order, the RTC suit did not become functus oflcio. It remained an effective vehicle for obtention of relief; and petitioners’ remedy in the premises was plain and patent: the filing of an amended and supplemental pleading in the RTC suit, so as to include the PCGG as defendant and seek nullification of the acts sought to be enjoined but nonetheless done. The remedy was certainly not the institution of another action in another forum based on essentially the same facts. The adoption of this latter recourse renders the petitioners amenable to disciplinary action and both their actions, in this Court as well as in the Court a quo, dismissible.”In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not name parties in the First Case, they represent the same interest and entity, namely, petitioner Bank, because:Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter in controversy. They are not principally or even subsidiarily liable; much less are they direct parties in the assailed contract of sale; andSecondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a “derivative suit.” In the caption itself, petitioners claim to have brought suit “for and in behalf of the Producers Bank of the Philippines.”[24] Indeed, this is the very essence of a derivative suit:“An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; italics supplied).In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite strangely, sought to deny that the Second Case was a derivative suit, reasoning that it was brought, not by the minority shareholders, but by Henry Co et al., who not only own, hold or control over 80% of the outstanding capital stock, but also constitute the majority in the Board of

Directors of petitioner Bank. That being so, then they really represent the Bank. So, whether they sued “derivatively” or directly, there is undeniably an identity of interests/entity represented.Petitioner also tried to seek refuge in the corporate fiction that the personality of the Bank is separate and distinct from its shareholders. But the rulings of this Court are consistent: “When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals.”[25]

In addition to the many cases[26] where the corporate fiction has been disregarded, we now add the instant case, and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative suit, cannot be allowed to trifle with court processes, particularly where, as in this case, the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping.Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming arguendo that there is identity of parties, causes of action and reliefs sought, “because it (the Bank) was the defendant in the (first) case while it was the plaintiff in the other (Second Case),” citing as authority Victronics Computers, Inc. vs. Regional Trial Court, Branch 63, Makati, etc. et al.,[27] where the Court held:“The rule has not been extended to a defendant who, for reasons known only to him, commences a new action against the plaintiff - instead of filing a responsive pleading in the other case - setting forth therein, as causes of action, specific denials, special and affirmative defenses or even counterclaims. Thus, Velhagen’s and King’s motion to dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did not exist in the first place.” (italics supplied)Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the forum in said case.Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and the present suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file any responsive pleading in the first case. In other words, they did not make any denial or raise any defense or counter-claim therein. In the case before us however, petitioners filed a responsive pleading to the complaint - as a result of which, the issues were joined.Indeed, by praying for affirmative reliefs and interposing counter-claims in their responsive pleadings, the petitioners became plaintiffs themselves in the original case, giving unto themselves the very remedies they repeated in the Second Case.Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the vexation caused the courts and parties-litigant by a party who asks different courts and/or administrative agencies to rule on the same or related causes and/or to grant the same or substantially the same reliefs, in the process creating the possibility of conflicting decisions being rendered by the different fora upon the same issue. In this case, this is exactly the problem: a decision recognizing the perfection and directing the enforcement of the contract of sale will directly conflict with a possible decision in the Second Case barring the parties from enforcing or implementing the said sale. Indeed, a final decision in one would constitute res judicata in the other.[28]

The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction possible now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed because petitioners’ present counsel entered their appearance only during the proceedings in this Court, and the Petition’s VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the Second Case to show good faith in observing Circular 28-91. The lawyers who filed the Second Case are not before us; thus the rudiments of due process prevent us from motu propio imposing disciplinary measures against them in this Decision. However, petitioners themselves (and particularly Henry Co, et al.) as litigants are admonished to strictly follow the rules against forum-shopping and not to trifle with court proceedings and processes. They are warned that a repetition of the same will be dealt with more severely.Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-shopping but also because of the substantive issues raised, as will be discussed shortly.The Second Issue: Was The Contract Perfected?The respondent Court correctly treated the question of whether or not there was, on the basis of the facts established, a perfected contract of sale as the ultimate issue. Holding that a valid contract has been established, respondent Court stated:“There is no dispute that the object of the transaction is that property owned by the defendant bank as acquired assets consisting of six (6) parcels of land specifically identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the bank intended to sell the property. As testified to by the Bank’s Deputy Conservator, Jose Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs wanted to purchase the property and it was precisely for this purpose that they met with defendant Rivera, Manager of the Property Management Department of the defendant bank, in early August 1987. The procedure in the sale of acquired assets as well as the nature and scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera himself, which testimony was relied upon by both the bank and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):A: The procedure runs this way: Acquired assets was turned over to me and then I published it in the form of an inter-office memorandum distributed to all branches that these are acquired assets for sale. I was instructed to advertise acquired assets for sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon having been offered, I present it to the Committee. I provide the Committee with necessary information about the property such as original loan of the borrower, bid price during the foreclosure, total claim of the bank, the appraised value at the time the property is being offered for sale and then the information which are relative to the evaluation of the bank to buy which the Committee considers and it is the Committee that evaluate as against the exposure of the bank and it is also the Committee that submit to the Conservator for final approval and once approved, we have to execute the deed of sale and it is the Conservator that sign the deed of sale, sir.“The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt with and talked to the right person. Necessarily, the agenda was the price of the property, and plaintiffs were dealing with the bank official authorized to entertain offers, to accept offers and to present the offer to the Committee before which the said official is authorized to discuss information relative to price determination. Necessarily, too, it being inherent in his authority, Rivera is the officer from whom official information regarding the price, as determined by the Committee and approved by the Conservator, can be had. And Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony of plaintiff Demetria is clear on this point (TSN of May 31, 1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him point-blank his authority to sell any property?A: No, sir. Not point blank although it came from him. (W)hen I asked him how long it would take because he was saying that the matter of pricing will be passed upon by the committee. And when I asked him how long it will take for the committee to decide and he said the committee meets every week. If I am not mistaken Wednesday and in about two week’s (sic) time, in effect what he was saying he was not the one who was to decide. But he would refer it to the committee and he would relay the decision of the committee to me.Q: Please answer the question.A: He did not say that he had the authority(.) But he said he would refer the matter to the committee and he would relay the decision to me and he did just like that.“Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the Head, with Jose Entereso as one of the members.“What transpired after the meeting of early August 1987 are consistent with the authority and the duties of Rivera and the bank’s internal procedure in the matter of the sale of bank’s assets. As advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the attention of Mercurio Rivera who was tasked to convey and accept such offers. Considering an aspect of the official duty of Rivera as some sort of intermediary between the plaintiffs-buyers with their proposed buying price on one hand, and the bank Committee, the Conservator and ultimately the bank itself with the set price on the other, and considering further the discussion of price at the meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that “the bank’s counter-offer is at P5.5 Million for more than 101 hectares on lot basis,” such counter-offer price had been determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs’ offer for discussion by the Committee of such matters as original loan of borrower, bid price during foreclosure, total claim of the bank, and market value. Tersely put, under the established facts, the price of P5.5 Million was, as clearly worded in Rivera’s letter (Exh. “E”), the official and definitive price at which the bank was selling the property.“There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not discussed by the Committee and that it was merely quoted to start negotiations regarding the price. As correctly characterized by the trial court, this is not credible. The testimonies of Luis Co and Jose Entereso on this point are at best equivocal and considering the gratuitous and self-serving character of these declarations, the bank’s submission on this point does not inspire belief. Both Co and Entereso, as members of the Past Due Committee of the bank, claim that the offer of the plaintiff was never discussed by the Committee. In the same vein, both Co and Entereso openly admit that they seldom attend the meetings of the Committee. It is important to note that negotiations on the price had started in early August and the plaintiffs had already offered an amount as purchase price, having been made to understand by Rivera, the official in charge of the negotiation, that the price will be submitted for approval by the bank and that the bank’s decision will be relayed to plaintiffs. From the facts, the amount of P5.5 Million has a definite significance. It is the official bank price. At any rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around and later say, as it now does, that what Rivera states as the bank’s action on the matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, he estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, 1993).”[29]

Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: “(1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established.”There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. There is, however, a dispute on the first and third requisites.Petitioners allege that “there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by the Bank, there was nothing for Ejercito (in substitution of Demetria and Janolo) to accept.”[30]They disputed the factual basis of the respondent Court’s findings that there was an offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We have perused the evidence but cannot find fault with the said Court’s findings of fact. Verily, in a petition under Rule 45 such as this, errors of fact -if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and the trial court as well) chose to believe the evidence presented by respondent more than that presented by petitioners is not by itself a reversible error. in fact, such findings merit serious consideration by this Court, particularly where, as in this case, said courts carefully and meticulously discussed their findings. This is basic.Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the question of Rivera’s authority to act and petitioner’s allegations that the P5.5 million counter-offer was extinguished by the P4.25 million revised offer of Janolo. Here, there are questions of law which could be drawn from the factual findings of the respondent Court. They also delve into the contractual elements of consent and cause.The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of “apparent authority,” with special reference to banks, was laid out in Prudential Bank vs. Court of Appeals,[31] where it was held that:“Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent. The agent’s apparent representation yields to the principal’s true representation and the contract is considered as entered into between the principal and the third person (citing National Food Authority vs. Intermediate Appellate Court, 184 SCRA 166).“A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority (9 C.J.S., p. 417). A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).

“Application of these principles is especially necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors.”From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied authority to act for the Bank in the matter of selling its acquired assets. This evidence includes the following:(a) The petition itself in par. II-1 (p. 3) states that Rivera was “at all times material to this case, Manager of the Property Management Department of the Bank.” By his own admission, Rivera was already the person in charge of the Bank’s acquired assets (TSN, August 6, 1990, pp. 8-9);(b) As observed by respondent Court, the land was definitely being sold by the Bank. And during the initial meeting between the buyers and Rivera, the latter suggested that the buyers’ offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);(c) Rivera received the buyers’ letter dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990, p. 11);(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July 30, p. 11);(e) Rivera received the letter dated September 17, 1987 containing the buyers’ proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12);(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN, January 16, 1990, p. 18);(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1987, during which the Bank’s offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and officer of the Bank, confirmed Rivera’s statement as to the finality of the Bank’s counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for the Bank in relation to parties interested in buying assets owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Bank’s advertisements offering for sale the property in question (cf. Exhs. “S” and “S-I”).In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et al.,[32] the Court, through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of the officer of the Bank of P.I. in charge of acquired assets is borne out by similar circumstances surrounding his dealings with buyers.To be sure, petitioners attempted to repudiate Rivera’s apparent authority through documents and testimony which seek to establish Rivera’s actual authority. These pieces of evidence, however, are inherently weak as they consist of Rivera’s self-serving testimony and various inter-office memoranda that purport to show his limited actual authority, of which private respondent cannot be charged with knowledge. In any event, since the issue is apparent authority, the existence of which is borne out by the respondent Court’s findings, the evidence of actual authority is immaterial insofar as the liability of a corporation is concerned.[33]

Petitioners also argued that since Demetria and Janolo were experienced lawyers and their “law firm” had once acted for the Bank in three criminal cases, they should be charged with actual knowledge of Rivera’s limited authority. But the Court of Appeals in its Decision (p. 12) had already made a factual finding that the buyers had no notice of Rivera’s actual authority prior to the sale. In fact, the Bank has not shown that they acted as its counsel in respect to any acquired assets; on the other hand, respondent has proven that Demetria and Janolo merely associated with a loose aggrupation of lawyers (not a professional partnership), one of whose members (Atty. Susana Parker) acted in said criminal cases.Petitioners also alleged that Demetria’s and Janolo’s P4.25 million counter-offer in the letter dated September 17, 1987 extinguished the Bank’s offer of P5.5 million.[34] They disputed the respondent Court’s finding that “there was a meeting of minds when on 30 September 1987 Demetria and Janolo through Annex ‘L’ (letter dated September 30, 1987) ‘accepted’ Rivera’s counter offer of P5.5 million under Annex ‘J’ (letter dated September 17, 1987),” citing the late Justice Paras,[35] Art. 1319 of the Civil Code[36] and related Supreme Court rulings starting withBeaumont vs. Prieto.[37]

However, the above-cited authorities and precedents cannot apply in the instant case because, as found by the respondent Court which reviewed the testimonies on this point, what was “accepted” by Janolo in his letter dated September 30, 1987 was the Bank’s offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the said letter of September 30, 1987 begins with “(p)ursuant to our discussion last 28 September 1987 x x x.”Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the September 28, 1987 meeting “was meant to have the offerors improve on their position of P5.5 million.”[38] However, both the trial court and the Court of Appeals found petitioners’ testimonial evidence “not credible,” and we find no basis for changing this finding of fact.Indeed, we see no reason to disturb the lower courts’ (both the RTC and the CA) common finding that private respondents’ evidence is more in keeping with truth and logic - that during the meeting on September 28, 1987, Luis Co and Rivera “confirmed that the P5.5 million price has been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35).”[39] Hence, assuming arguendo that the counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis Co’s reiteration of the said P5.5 million price during the September 28, 1987 meeting revived the said offer. And by virtue of the September 30, 1987 letter accepting this revived offer, there was a meeting of the minds, as the acceptance in said letter was absolute and unqualified.We note that the Bank’s repudiation, through Conservator Encarnacion, of Rivera’s authority and action, particularly the latter’s counter-offer of P5.5 million, as being “unauthorized and illegal” came only on May 12, 1988 or more than seven (7) months after Janolo’s acceptance. Such delay, and the absence of any circumstance which might have justifiably prevented the Bank from acting earlier, clearly characterizes the repudiation as nothing more than a last-minute attempt on the Bank’s part to get out of a binding contractual obligation.Taken together, the factual findings of the respondent Court point to an implied admission on the part of the petitioners that the written offer made on September 1, 1987 was carried through during the meeting of September 28, 1987. This is the conclusion consistent with human experience, truth and good faith.It also bears noting that this issue of extinguishment of the Bank’s offer ‘of P5.5 million was raised for the first time on appeal and should thus be disregarded.“This Court in several decisions has repeatedly adhered to the principle that points of law, theories, issues of fact and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145 SCRA 592).”[40]

“xxx It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the trial in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990).”[41]

Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given an opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a matter of due process. But we passed upon the issue anyway, if only to avoid deciding the case on purely procedural grounds, and we repeat that, on the basis of the evidence already in the record and as appreciated by the lower courts, the inevitable conclusion is simply that there was a perfected contract of sale.The Third Issue: Is the Contract Enforceable?The petition alleged:[42]

“Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo accepted with their letter of 30 September 1987, the contract produced thereby would be unenforceable by action - there being no note, memorandum or writing subscribed by the Bank to evidence such contract. (Please see Article 1403[2], Civil Code.)”Upon the other hand, the respondent Court in its Decision (p. 14) stated:“x x x Of course, the bank’s letter of September 1, 1987 on the official price and the plaintiffs’ acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of sale. They are however clear embodiments of the fact that a contract of sale was perfected between the parties, such contract being binding in whatever form it may have been entered into (case citations omitted). Stated simply, the banks’ letter of September 1, 1987, taken together with plaintiffs’ letter dated September 30, 1987, constitute in law a sufficient memorandum of a perfected contract of sale.”The respondent Court could have added that the written communications commenced not only from September 1, 1987 but from Janolo’sAugust 20, 1987 letter. We agree that, taken together, these letters constitute sufficient memoranda - since they include the names of the parties, the terms and conditions of the contract, the price and a description of the property as the object of the contract.But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did constitute a “new” offer which was accepted by Janolo on September 30, 1987. Still, the statute of frauds will not apply by reason of the failure of petitioners to object to oral testimony proving petitioner Bank’s counter-offer of P5.5 million. Hence, petitioners - by such utter failure to object - are deemed to have waived any defects of the contract under the statute of frauds, pursuant to Article 1405 of the Civil Code:“Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them.”As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer of P5.5 million is aplenty -and the silence of petitioners all throughout the presentation makes the evidence binding on them thus:A - Yes, sir. I think it was September 28, 1987 and I was again present because Atty. Demetria told me to accompany him and we were able to meet Luis Co at the Bank.xxx xxx xxxQ - Now, what transpired during this meeting with Luis Co of the Producers Bank?A - Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.Q - What price?A - The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final price and that is the price they intends (sic) to have, sir.Q - What do you mean?A - That is the amount they want, sir.Q - What is the reaction of the plaintiff Demetria to Luis Co’s statment (sic) that the defendant Rivera’s counter-offer of 5.5 million was the defendant’s bank (sic) final offer?A - He said in a day or two, he will make final acceptance, sir.Q - What is the response of Mr. Luis Co?A - He said he will wait for the position of Atty. Demetria, sir.[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]----0----Q - What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?A - We went straight to the point because he being a busy person, I told him if the amount of P5.5 million could still be reduced and he said that was already passed upon by the committee. What the bank expects which was contrary to what Mr. Rivera stated. And he told me that is the final offer of the bank P5.5 million and we should indicate our position as soon as possible.Q - What was your response to the answer of Mr. Luis Co?A - I said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office.Q - For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office in Producers Bank Building during this meeting?A - Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.Q - By Mr. Co you are referring to?A - Mr. Luis Co.Q - After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter offer by the bank?A - Yes, sir, we did. Two days thereafter we sent our acceptance to the bank which offer we accepted, the offer of the bank which is P5.5 million.”[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]---- 0 ----Q - According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the Committee and it is not within his power to reduce this amount. What can you say to that statement that the amount of P5.5 million was reached by the Committee?A - It was not discussed by the Committee but it was discussed initially by Luis Co and the group of Atty. Demetrio Demetria and Atty. Pajardo (sic), in that September 28, 1987 meeting, sir.”

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]The Fourth Issue: May the Conservator Revokethe Perfected and Enforceable Contract?It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the Philippines during the time that the negotiation and perfection of the contract of sale took place. Petitioners energetically contended that the conservator has the power to revoke or overrule actions of the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:“Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board finds that a bank or a non-bank financial intermediary performing quasi - banking functions is in a state of continuing inability or unwillingness to maintain a state of liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a conservator to take charge of the assets, liabilities, and the management of that institution, collect all monies and debts due said institution and exercise all powers necessary to preserve the assets of the institution, reorganize the management thereof, and restore its viability. He shall have the power to overrule or revoke the actions of the previous management and board of directors of the bank or non-bank financial intermediary performing quasi-banking functions, any provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall deem necessary.”In the first place, this issue of the Conservator’s alleged authority to revoke or repudiate the perfected contract of sale was raised for the first time in this Petition - as this was not litigated in the trial court or Court of Appeals. As already stated earlier, issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals, “cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process.”[43]

In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected, actually repudiated or overruled said contract of sale. The Bank’s acting conservator at the time, Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter of Conservator Encarnacion, who took over from Romey after the sale was perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated - not the contract - but the authority of Rivera to make a binding offer - and which unarguably came months after the perfection of the contract. Said letter dated May 12, 1988 is reproduced hereunder:“May 12, 1988“Atty. Noe C. ZarateZarate Carandang Perlas & Ass.Suite 323 Rufino BuildingAyala Avenue, Makati, Metro ManilaDear Atty. Zarate:This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna.We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a ‘contract to sell and buy’ with any of them for the following reasons.In the ‘Inter-Office Memorandum’ dated April 25, 1986 addressed to and approved by former Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions of Property Management Department (PMD) staff and officers (Annex A), you will immediately read that Manager Mr. Mercurio Rivera or any of his subordinates has no authority, power or right to make any alleged counter-offer. In short, your lawyer-clients did not deal with the authorized officers of the bank.Moreover, under Secs. 23 and 36 of the Corporation Code of the Philippines (Batas Pambansa Blg. 68) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator may authorize the sale of any property of the corporation/bank.Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators (starting January, 1984) to sell the aforesaid property to any of your clients. Apparently, what took place were just preliminary discussions/ consultations between him and your clients, which everyone knows cannot bind the Bank’s Board or Conservator.We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently violative of corporate and banking laws. We believe that this is more than sufficient legal justification for refusing said alleged tender.Rest assured that we have nothing personal against your clients. All our acts are official, legal and in accordance with law. We also have no personal interest in any of the properties of the Bank.Please be advised accordingly.Very truly yours,(Sgd.) Leonida T. EncarnacionLEONIDA T. ENCARNACIONActing Conservator”In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank, it must be pointed out that such powers must be related to the “(preservation of) the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its viability.” Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution.[44] If the legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to the conservator under Section 28-A of said law?Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective - i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank’s board of directors. What the said board cannot do - such as repudiating a contract validly entered into under the doctrine of implied authority - the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts - as he has already done so in the instant case. A contrary understanding of the law would simply not be permitted by the Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to become solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one way or another come to be considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested interests of the third parties who had dealt with the Bank.The Fifth Issue: Were There Reversible Errors of Fact?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the Court of Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation,[45] we held:“x x x. The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:‘The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45 of the Revised Rules of Court.’ ‘The jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of the fact being conclusive’ ‘[Chan vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has emphatically declared that’ ‘it is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court’ (Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G.R. No. L-47531, February 20, 1984, 127 SCRA 596).’ ‘Barring, therefore, a showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this Court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties’ ‘[Santa Ana, Jr. vs. Hernandez, G.R. No. L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.]”Likewise, in Bernardo vs. Court of Appeals,[46] we held:“The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the sufficiency of evidence and the credibility of witnesses presented. This Court so held that it is not the function of the Supreme Court to analyze or weigh such evidence all over again. The Supreme Court’s jurisdiction is limited to reviewing errors of law that may have been committed by the lower court. The Supreme Court is not a trier of facts. x x x”As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and Development Corp.:[47]

“The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below.”In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company, Inc. vs. Hon. Court of Appeals, et al.[48] is equally applicable to the present case:“We see no valid reason to discard the factual conclusions of the appellate court. x x x (I)t is not the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide.” (italics supplied)Petitioners, however, assailed the respondent Court’s Decision as “fraught with findings and conclusions which were not only contrary to the evidence on record but have no bases at all,” specifically the findings that (1) the “Bank’s counter-offer price of P5.5 million had been determined by the past due committee and approved by conservator Romey, after Rivera presented the same for discussion” and (2) “the meeting with Co was not to scale down the price and start negotiations anew, but a meeting on the already determined price of P5.5 million.” Hence, citing Philippine National Bank vs. Court of Appeals,[49] petitioners are asking us to review and reverse such factual findings.The first point was clearly passed upon by the Court of Appeals,[50] thus:“There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that ‘the bank’s counter-offer is at P5.5 Million for more than 101 hectares on lot basis,’ such counter-offer price had been determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs’ offer for discussion by the Committee x x x. Tersely put, under the established fact, the price of P5.5 Million was, as clearly worded in Rivera’s letter (Exh. ‘E’), the official and definitive price at which the bank was selling the property.” (p. 11, CA Decision)xxx xxx xxx“xxx. The argument deserves scant consideration. As pointed out by plaintiff, during the meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vice-president of the bank, where the topic was the possible lowering of the price, the bank official refused it and confirmed that the P5.5 Million price had been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35)” (p. 15, CA Decision).The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as “not credible” and “at best equivocal, and considering the gratuitous and self-serving character of these declarations, the bank’s submissions on this point do not inspire belief.”To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey to testify on their behalf, as he would have been in the best position to establish their thesis. Under the rules on evidence,[51] such suppression gives rise to the presumption that his testimony would have been adverse, if produced.The second point was squarely raised in the Court of Appeals, but petitioners’ evidence was deemed insufficient by both the trial court and the respondent Court, and instead, it was respondent’s submissions that were believed and became bases of the conclusions arrived at.In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are valid and correct. But the petitioners are now asking this Court to disturb these findings to fit the conclusion they are espousing. This we cannot do.To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court of Appeals.[52] We have studied both the records and the CA Decision and we find no such exceptions in this case. On the contrary, the findings of the said Court are supported by a preponderance of competent and credible evidence. The inferences and conclusions are reasonably based on evidence duly identified in the Decision. Indeed, the appellate court patiently traversed and dissected the issues presented before it, lending credibility and dependability to its findings. The best that can be said in favor of petitioners on this point is that the factual findings of respondent Court did not correspond to petitioners’ claims, but were closer to the evidence as presented in the trial court by private respondent. But this alone is no reason to reverse or ignore such factual findings, particularly where, as in this case, the trial court and the appellate court were in common agreement thereon. Indeed, conclusions of fact of a trial judge - as affirmed by the Court of Appeals - are conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness

of any kind, because the trial court is in a better position to observe the demeanor of the witnesses and their courtroom manner as well as to examine the real evidence presented.EpilogueIn summary, there are two procedural issues involved - forum-shopping and the raising of issues for the first time on appeal [viz., the extinguishment of the Bank’s offer of P5.5 million and the conservator’s powers to repudiate contracts entered into by the Bank’s officers] - which per se could justify the dismissal of the present case. We did not limit ourselves thereto, but delved as well into the substantive issues - the perfection of the contract of sale and its enforceability, which required the determination of questions of fact. While the Supreme Court is not a trier of facts and as a rule we are not required to look into the factual bases of respondent Court’s decisions and resolutions, we did so just the same, if only to find out whether there is reason to disturb any of its factual findings, for we are only too aware of the depth, magnitude and vigor by which the parties, through their respective eloquent counsel, argued their positions before this Court.We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a government-appointed conservator and “there is need to rehabilitate the Bank in order to get it back on its feet x x x as many people depend on (it) for investments, deposits and well as employment. As of June 1987, the Bank’s overdraft with the Central Bank had already reached P1.023 billion x x x and there were (other) offers to buy the subject properties for a substantial amount of money.”[53]

While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot emotionally close its eyes to overriding considerations of substantive and procedural law, like respect for perfected contracts, non-impairment of obligations and sanctions against forum-shopping, which must be upheld under the rule of law and blind justice.This Court cannot just gloss over private respondent’s submission that, while the subject properties may currently command a much higher price, it is equally true that at the time of the transaction in 1987, the price agreed upon of P5.5 million was reasonable, considering that the Bank acquired these properties at a foreclosure sale for no more than P 3.5 million.[54] That the Bank procrastinated and refused to honor its commitment to sell cannot now be used by it to promote its own advantage, to enable it to escape its binding obligation and to reap the benefits of the increase in land values. To rule in favor of the Bank simply because the property in question has algebraically accelerated in price during the long period of litigation is to reward lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp its imprimatur on such outrageous proposition.WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in forum-shopping and WARNED that a repetition of the same or similar acts will be dealt with more severely. Costs against petitioners.SO ORDERED.

117. FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL, respondents.D E C I S I O NQUISUMBING, J.:This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision[1] of the Court of Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135, Regional Trial Court of Makati, Metro Manila. The procedural antecedents of this petition are as follows:On January 23, 1985, petitioner filed a complaint[2] against private respondents to recover three thousand four hundred twelve and six centavos (P3,412.06), representing the balance of the jeep body purchased by the Manuels from petitioner; an additional sum of twenty thousand four hundred fifty-four and eighty centavos (P20,454.80) representing the unpaid balance on the cost of repair of the vehicle; and six thousand pesos (P6,000.00) for cost of suit and attorney’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 fifty thousand pesos (P50,000) which was not paid by the incorporators, directors and officers of the petitioner. The trial court decided the case on June 26, 1985, in favor of petitioner in regard to the petitioner’s claim for money, but also allowed the counter-claim of private respondents. Both parties appealed. On April 15, 1991, the Court of Appeals sustained the trial court’s decision.[5] Hence, the present petition.For our review in particular is the propriety of the permissive counterclaim which private respondents filed together with their answer to petitioner’s complaint for a sum of money. Private respondent Gregorio Manuel alleged as an affirmative 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 the proceedings, his services were not paid. Said family members, he said, were also incorporators, directors and officers of petitioner. Hence to counter petitioner’s collection suit, he filed a 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, and evidence ex-parte was presented on the counterclaim. The trial court ruled in favor of private respondents and found that Gregorio Manuel indeed rendered legal services to the Francisco family in Special Proceedings Number 7803- “In the Matter of Intestate Estate of Benita Trinidad”. Said court also found that his legal services were not compensated despite repeated demands, and thus ordered petitioner to pay him the amount of fifty thousand (P50,000.00) pesos.[7]

Dissatisfied with the trial 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 ALLEGED PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES.III.WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE ALLEGED PERMISSIVE COUNTERCLAIM.”[8]

Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly served on it together with the copy of the answer containing the permissive counterclaim. Further, petitioner questions the propriety of its being made party to the case because it was not the real party in interest but the individual members of the Francisco family concerned with the intestate case.In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim must be answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it state in the Rules that a party still needed to be summoned anew if a counterclaim was set up against him. Failure to serve summons, said respondent court, did not effectively negate trial court’s jurisdiction over petitioner in the matter of the counterclaim. It likewise pointed out that there was no reason for petitioner to be excused from answering the counterclaim. Court records showed that its former counsel, Nicanor G. Alvarez, received the copy of the answer with counterclaim two (2) days prior to his 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 the counterclaim. Having failed to answer, petitioner was correctly considered in default by the trial court.[9] Even assuming that the trial court acquired no jurisdiction over petitioner, respondent court also said, but having filed a motion for reconsideration seeking relief from the said order of default, petitioner was estopped from further questioning the trial court’s jurisdiction.[10]

On the question of its liability for attorney’s fees owing to private respondent Gregorio Manuel, petitioner argued that being a corporation, it should not be held liable therefor because these fees were owed by the incorporators, directors and officers of the corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed that the personality of the corporation, vis-à-vis the individual persons who hired the services of private respondent, is separate and distinct,[11]hence, the liability of said individuals did not become an obligation chargeable against petitioner.Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:“However, this distinct and separate personality is merely a fiction created by law for convenience and to promote justice. Accordingly, this separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for found (sic) illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield for the commission of injustice and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408)“In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed of the heirs of the late Benita Trinidad as directors and incorporators for whom defendant Gregorio Manuel rendered legal services in the intestate estate case of their deceased mother. Considering the aforestated principles and circumstances established in this case, equity and justice demands plaintiff-appellant’s veil of corporate identity should be pierced and the defendant be compensated for legal services rendered to the heirs, who are directors of the plaintiff-appellant corporation.”[12]

Now before us, petitioner assigns the following errors:“I.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY.II.THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER WITH RESPECT TO THE COUNTERCLAIM.”[13]

Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because the transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. According to petitioner, there was no cause of action by said respondent against petitioner; personal concerns of the heirs should be distinguished from those involving corporate affairs. Petitioner further contends that the present case does not fall among the instances wherein the courts may look beyond the distinct personality of a corporation. According to petitioner, the services for which respondent Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers the heirs should have been sued in their personal capacity, and not involve the corporation.[14]

With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the answer containing the permissive counterclaim. It claims that the counterclaim is a separate case which can only be properly served upon the opposing party through summons. Further petitioner states that by nature, a permissive counterclaim is one which does not arise out of nor is necessarily connected with the subject of the opposing party’s claim. Petitioner avers that since there was no service of summons upon it with regard to the counterclaim, then the court did not acquire jurisdiction over petitioner. Since a counterclaim is considered an action independent from the answer, according to petitioner, then in effect there should be two simultaneous actions between the same parties: each party is at the same time both plaintiff and defendant with respect to the other,[15] requiring in each case separate summonses.In their Comment, private respondents focus on the two questions raised by petitioner. They defend the propriety of piercing the veil of corporate fiction, but deny the necessity of serving separate summonses on petitioner in regard to their permissive counterclaim contained in the answer.Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was employed as assistant legal officer of petitioner corporation, and that his services were solicited by the incorporators, directors and members to handle and represent them in Special Proceedings No. 7803, concerning the Intestate Estate of the late Benita Trinidad. They assert that the members of petitioner corporation took advantage of their positions by not compensating respondent Gregorio Manuel after the termination of the estate proceedings despite his repeated demands for payment of his services. They cite findings of the appellate court that support piercing the veil of corporate identity in this particular case. They assert that the corporate veil may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, and defend crime. It may also be pierced, according to them, where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity. In these instances, they aver, the corporation should be treated merely as an association of individual persons.[16]

Private respondents dispute 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 the Rules of Court requires service of summons upon a defendant in a counterclaim. Private respondents argue that when the petitioner filed its complaint before the trial court it voluntarily submitted itself to the jurisdiction of the court. As a consequence, the issuance of summons on it was no longer necessary. Private respondents say they served a copy of their answer with affirmative defenses and counterclaim on petitioner’s former counsel, Nicanor G. Alvarez. While petitioner would have the Court believe that respondents served said copy upon Alvarez after he had withdrawn his appearance as counsel for the petitioner, private respondents assert that this contention is utterly baseless. Records disclose that the answer was received two (2) days before the former counsel for petitioner withdrew his appearance, according to private respondents. They maintain that the present petition is but a form of dilatory appeal, to set off petitioner’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 and from other corporations to which it may be connected.[18] However, under the doctrine of piercing the veil of corporate entity, the corporation’s separate juridical personality may be disregarded, for example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be ignored.[19] In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach to them. The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy and in the interest of justice, will be justifiably set aside.In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no relevant application here. Respondent court erred in permitting the trial court’s resort to this doctrine. The rationale behind 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 a shield for undertaking certain proscribed activities. However, in the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has been turned upside down because of its erroneous invocation. Note that according to private respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco family to represent them in the intestate proceedings over Benita 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 petitioner corporation on the claims that its management had requested his services and he acceded thereto as an employee of petitioner from whom it could be deduced he was also receiving a salary. His move to recover unpaid legal fees through a counterclaim against Francisco Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep body could only result from an obvious misapprehension that petitioner’s corporate assets could be used to answer for the liabilities of its individual directors, officers, and incorporators. Such result if permitted could easily prejudice the corporation, its own creditors, and even other stockholders; hence, clearly inequitous to petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable to compensate a party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its corporate veil. While there are no hard and fast rules on disregarding separate corporate identity, we must always be mindful of its function and purpose. A court should be careful in assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise an injustice, although unintended, may result from its erroneous application.The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be kept separate in this case. The claim for legal fees against the concerned individual incorporators, officers and 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 of the 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 in order 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 from service. Nothing in the Rules of Court says that summons should first be served on the defendant before an answer to counterclaim must be made. The purpose of a summons is to enable the court to acquire jurisdiction over the person of the defendant. Although a counterclaim is treated as an entirely distinct and independent action, the defendant in the counterclaim, being the plaintiff in the original complaint, has already submitted to the jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of Civil Procedure,[21] if a defendant (herein petitioner) fails to answer the counterclaim, then upon motion of plaintiff, the defendant may be declared in default. This is what happened to petitioner in this case, and this Court finds no procedural error in the disposition of the appellate court on this particular issue. Moreover, as noted by the respondent court, when petitioner filed its motion seeking to set aside the order of default, in effect it submitted itself to the jurisdiction of the court. As well said by respondent court:“Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its request, plaintiff-appellant was granted time to file a motion for reconsideration of the disputed decision. Plaintiff-appellant did file its motion for reconsideration to set aside the order of default and the judgment rendered on the counterclaim.“Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it vigorously insists, plaintiff-appellant is considered to have submitted to the court’s jurisdiction when it filed the motion for reconsideration seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A party is estopped from assailing the jurisdiction of a court after voluntarily submitting himself to its 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 it held 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 their personal capacity. No pronouncement as to costs.SO ORDERED.

119. ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION, petitioners, vs.RITA C. MEJIA, as Executrix of Testate Estate of ANDREA CORDOVA VDA. DE GUTERREZ, respondent.GONZAGA-REYES,J.:In this petition for review by certiorari, petitioners pray for the setting aside of the Decision of the Court Appeals promulgated on 13 April 1999 and its 15 December 1999 Resolution in CA-G.R. CV No. 19281.As culled from the decisions of the lower courts and the pleadings of the parties, the factual background of this case is as set out herein:Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner of a parcel of land in Camarin, Caloocan City known as Lot 861 of the Tala Estate. The land had an aggregate area of twenty-five (25) hectares and was covered by Transfer Certificate of Title (TCT) No. 5779 of the Registry of Deeds of Caloocan City. The property was later subdivided into five lots with an area of five hectares each and pursuant thereto, TCT No. 5779 was cancelled and five new transfer certificates of title were issued in the name of Gutierrez, namely TCT No. 7123 covering Lot 861-A, TCT No. 7124 covering Lot 861-B, TCT No. 7125 covering Lot 861-C, TCT No. 7126 covering Lot 861-D and TCT No. 7127 covering Lot 861-E.On 21 December 1964, Gutierrez and Cardale Financing and Realty Corporation (Cardale) executed a Deed of Sale with Mortgage relating to the lots covered by TCT Nos. 7124, 7125, 7126 and 7127, for the consideration of P800,000.00. Upon the execution of the deed, Cardale paid Gutierrez P171,000.00. It was agreed that the balance of P629,000.00 would be paid in several installments within five years from the date of the deed, at an interest of nine percent per annum "based on the successive unpaid principal balances." Thereafter, the titles of Gutierrez were cancelled and in lieu thereof TCT Nos. 7531 to 7534 were issued in favor of Cardale.To secure payment of the balance of the purchase price, Cardale constituted a mortgage on three of the four parcels of land covered by TCT Nos. 7531, 7532 and 7533, encompassing fifteen hectares of land.1 The encumbrance was annotated upon the certificates of title and the owner's duplicate certificates. The owner's duplicates were retained by Gutierrez.On 26 August 1968, owing to Cardale's failure to settle its mortgage obligation, Gutierrez filed a complaint for rescission of the contract with the Quezon City Regional Trial Court (RTC), which was docketed as Civil Case No. Q-12366.2 On 20 October 1969, during the pendency of the rescission case, Gutierrez died and was substituted by her executrix, respondent Rita C. Mejia (Mejia). In 1971, plaintiff's presentation of evidence was terminated. However, Cardale, which was represented by petitioner Adalia B. Francisco (Francisco) in her capacity as Vice-President and Treasurer of Cardale, lost interest in proceeding with the presentation of its evidence and the case lapsed into inactive status for a period of about fourteen years.In the meantime, the mortgaged parcels of land covered by TCT Nos. 7532 and 7533 became delinquent in the payment of real estate taxes in the amount of P102,300.00, while the other mortgaged property covered by TCT No. 7531 became delinquent in the amount of P89,231.37, which culminated in their levy and auction sale on 1 and 12 September 1983, in satisfaction of the tax arrears. The highest bidder for the three parcels of land was petitioner Merryland Development Corporation (Merryland), whose President and majority stockholder is Francisco. A memorandum based upon the certificate of sale was then made upon the original copies of TCT Nos. 7531 to 7533.On 13 August 1984, before the expiration of the one year redemption period, Mejia filed a Motion for Decision with the trial court. The hearing of said motion was deferred, however, due to a Motion for Postponement filed by Cardale through Francisco, who signed the motion in her capacity as "officer-in-charge," claiming that Cardale needed time to hire new counsel. However, Francisco did not mention the tax delinquencies and sale in favor of Merryland. Subsequently, the redemption period expired and Merryland, acting through Francisco, filed petitions for consolidation of title,3 which culminated in the issuance of certain orders4 decreeing the cancellation of Cardales' TCT Nos. 7531 to 7533 and the issuance of new transfer certificates of title "free from any encumbrance or third-party claim whatsoever" in favor of Merryland. Pursuant to such orders, the Register of Deeds of Caloocan City issued new transfer certificates of title in the name of Merryland which did not bear a memorandum of the mortgage liens in favor of Gutierrez.Thereafter, sometime in June 1985, Francisco filed in Civil Case No. Q-12366 an undated Manifestation to the effect that the properties subject of the mortgage and covered by TCT Nos. 7531 to 7533 had been levied upon by the local government of Caloocan City and sold at a tax delinquency sale. Francisco further claimed that the delinquency sale had rendered the issues in Civil Case No. Q-12366 moot and academic. Agreeing with Francisco, the trial court dismissed the case, explaining that since the properties mortgaged to Cardale had been transferred to Merryland which was not a party to the case for rescission, it would be more appropriate for the parties to resolve their controversy in another action.On 14 January 1987, Mejia, in her capacity as executrix of the Estate of Gutierrez, filed with the RTC of Quezon City a complaint for damages with prayer for preliminary attachment against Francisco, Merryland and the Register of Deeds of Caloocan City. The case was docketed as Civil Case No. Q-49766. On 15 April 1988, the trial court rendered a decision5 in favor of the defendants, dismissing the complaint for damages filed by Mejia. It was held that plaintiff Mejia, as executrix of Gutierrez's estate, failed to establish by clear and convincing evidence her allegations that Francisco controlled Cardale and Merryland and that she had employed fraud by intentionally causing Cardale to default in its payment of real property taxes on the mortgaged properties so that Merryland could purchase the same by means of a tax delinquency sale. Moreover, according to the trial court, the failure to recover the property subject of the Deed of Sale with Mortgage was due to Mejia's failure to actively pursue the action for rescission (Civil Case No. 12366), allowing the case to drag on for eighteen years. Thus, it ruled that —xxx xxx xxxThe act of not paying or failing to pay taxes due the government by the defendant Adalia B. Francisco, as treasurer of Cardale Financing and Realty Corporation do not, per se, constitute perpetration of fraud or an illegal act. It do [sic] not also constitute an act of evasion of an existing obligation (to plaintiff) if there is no clear showing that such an act of non-payment of taxes was deliberately made despite its (Cardale's) solvency and capability to pay. There is no evidence showing that Cardale Financing and Realty Corporation was financially capable of paying said taxes at the time."There are times when the corporate fiction will be disregarded: (1) where all the members or stockholders commit illegal act; (2) where the corporation is used as dummy to commit fraud or wrong; (3) where the corporation is an agency for a parent corporation; and (4) where the stock of a corporation is owned by one person." (I, Fletcher, 58, 59, 61 and 63). None of the foregoing reasons can be applied to the incidents in this case: (1) there appears no illegal act committed by the stockholders of defendant Merryland Development Corporation and Cardale Financing and Realty Corporation; (2) the incidents proven by evidence of the plaintiff as well as that of the defendants do not show that either or both corporations were used as dummies by defendant Adalia B. Francisco to

commit fraud or wrong. To be used as [a] dummy, there has to be a showing that the dummy corporation is controlled by the person using it. The evidence of plaintiff failed to prove that defendant Adalia B. Francisco has controlling interest in either or both corporations. On the other hand, the evidence of defendants clearly show that defendant Francisco has no control over either of the two corporations; (3) none of the two corporations appears to be an agency for a parent (the other) corporation; and (4) the stock of either of the two corporation [sic] is not owned by one person (defendant Adalia B. Francisco). Except for defendant Adalia B. Francisco, the incorporators and stockholders of one corporation are different from the other.xxx xxx xxxThe said case (Civil Case No. 12366) remained pending for almost 18 years before the then Court of First Instance, now the Regional Trial Court. Even if the trial of the said case became protracted on account of the retirement and/or promotion of the presiding judge, as well as the transfer of the case from one sala to another, and as claimed by the plaintiff "that the defendant lost interest", (which allegation is unusual, so to speak), the court believe [sic] that it would not have taken that long to dispose [of] said case had plaintiff not slept on her rights, and her duty and obligation to see to it that the case is always set for hearing so that it may be adjudicated [at] the earliest possible time. This duty pertains to both parties, but plaintiff should have been more assertive, as it was her obligation, similar to the obligation of plaintiff relative to the service of summons in other cases. The fact that Cardale Financing and Realty Corporation did not perform its obligation as provided in the said "Deed of Sale with Mortgage" (Exhibit"A") is very clear. Likewise, the fact that Andrea Cordova, the contracting party, represented by the plaintiff in this case, did not also perform her duties and/or obligation provided in the said contract is also clear. This could have been the reason why the plaintiff in said case (Exhibit "E") slept on her rights and allowed the same to remain pending for almost 18 years. However, and irrespective of any other reason behind the same, the court believes that plaintiff, indeed, is the one to blame for the failure of the testate estate of the late Andrea Cordova Vda. de Gutierrez to recover the money or property due it on the basis of Exhibit "A".xxx xxx xxx. . . Had the plaintiff not slept on her rights and had it not been for her failure to perform her commensurate duty to pursue vigorously her case against Cardale Financing and Realty Corporation in said Civil Case No. 12366, she could have easily known said non-payment of realty taxes on the said properties by said Cardale Financing and Realty Corporation, or, at least the auction sales that followed, and from which she could have redeemed said properties within the one year period provided by law, or, have availed of remedies at the time to protect the interest of the testate estate of the late Andrea Cordova Vda. de Gutierrez.xxx xxx xxxThe dispositive portion of the trial court's decision states —WHEREFORE, in view of all the foregoing consideration, the court hereby renders judgment in favor of the defendants Register of Deeds of Caloocan City, Merryland Development Corporation and Adalia B. Francisco, and against plaintiff Rita C. Mejia, as Executrix of the Testate Estate of Andrea Cordova Vda. De Gutierrez, and hereby orders:1. That this case for damages be dismissed, at the same time, plaintiffs motion for reconsideration dated September 23, 1987 is denied;2. Plaintiff pay the defendants Merryland Development Corporation and the Register of Deeds the sum of P20,000.00, and another sum of P20,000.00 to the defendant Adalia B. Francisco, as and for attorney's fees and litigation expenses, and pay the costs of the proceedings.SO ORDERED.The Court of Appeals,6 in its decision7 promulgated on 13 April 1999, reversed the trial court, holding that the corporate veil of Cardale and Merryland must be pierced in order to hold Francisco and Merryland solidarily liable since these two corporations were used as dummies by Francisco, who employed fraud in allowing Cardale to default on the realty taxes for the properties mortgaged to Gutierrez so that Merryland could acquire the same free from all liens and encumbrances in the tax delinquency sale and, as a consequence thereof, frustrating Gutierrez's rights as a mortgagee over the subject properties. Thus, the Court of Appeals premised its findings of fraud on the following circumstances —xxx xxx xxx. . . Appellee Francisco knew that Cardale of which she was vice-president and treasurer had an outstanding obligation to Gutierrez for the unpaid balance of the real properties covered by TCT Nos. 7531 to 7533, which Cardale purchased from Gutierrez which account, as of December 1988, already amounted to P4,414,271.43 (Exh. K, pp. 39-44, record); she also knew that Gutierrez had a mortgage lien on the said properties to secure payment of the aforesaid obligation; she likewise knew that the said mortgaged properties were under litigation in Civil Case No. Q-12366 which was an action filed by Gutierrez against Cardale for rescission of the sale and/or recovery of said properties (Exh. E). Despite such knowledge, appellee Francisco did not inform Gutierrez's Estate or the Executrix (herein appellant) as well as the trial court that the mortgaged properties had incurred tax delinquencies, and that Final Notices dated July 9, 1982 had been sent by the City Treasurer of Caloocan demanding payment of such tax arrears within ten (10) days from receipt thereof (Exhs. J & J-1, pp. 37-38, record). Both notices which were addressed to —Cardale Financing & Realty Corporation c/o Merryland Development Corporationand sent to appellee Francisco's address at 83 Katipunan Road, White Plains, Quezon City, gave warning that if the taxes were not paid within the aforesaid period, the properties would be sold at public auction to satisfy the tax delinquencies.To reiterate, notwithstanding receipt of the aforesaid notices, appellee Francisco did not inform the Estate of Gutierrez or her executrix about the tax delinquencies and of the impending auction sale of the said properties. Even a modicum of good faith and fair play should have encouraged appellee Francisco to at least advise Gutierrez's Estate through her executrix (herein appellant) and the trial court which was hearing the complaint for rescission and recovery of said properties of such fact, so that the Estate of Gutierrez, which had a real interest on the properties as mortgagee and as plaintiff in the rescission and recovery suit, could at least take steps to forestall the auction sale and thereby preserve the properties and protect its interests thereon. And not only did appellee Francisco allow the auction sale to take place, but she used her other corporation (Merryland) in participating in the auction sale and in acquiring the very properties which her first corporation (Cardale) had mortgaged to Gutierrez. Again, appellee Francisco did not thereafter inform the Estate of Gutierrez or its executrix (herein appellant) about the auction sale, thus precluding the Estate from exercising its right of redemption. And it was only after the expiration of the redemption period that appellee Francisco filed a Manifestation in Civil Case No. Q-12366 (Exh. 1, p. 36, record), in which she disclosed for the first time to the trial court and appellant that the properties subject of the case and on which Gutierrez or her Estate had a mortgage lien, had been sold in a tax delinquency sale. And in order to further conceal her deceptive maneuver, appellee Francisco did not divulge in her aforesaid Manifestation that it was her other corporation (Merryland) that acquired the properties in the auction sale.

We are not impressed by appellee's submission that no evidence was adduced to prove that Cardale had the capacity to pay the tax arrears and therefore she or Cardale may not be faulted for the tax delinquency sale of the properties in question. Appellee Francisco's bad faith or deception did not necessarily lie in Cardale's or her failure to settle the tax deliquencies in question, but in not disclosing to Gutierrez's estate or its executrix (herein appellant) which had a mortgage lien on said properties the tax delinquencies and the impending auction sale of the encumbered properties.Appellee Francisco's deception is further shown by her concealment of the tax delinquency sale of the properties from the estate or its executrix, thus preventing the latter from availing of the right of redemption of said properties. That appellee Francisco divulged the auction sale of the properties only after such redemption period had lapsed clearly betrays her intention to keep Gutierrez's Estate or its Executrix from availing of such right. And as the evidence would further show, appellee Francisco had a hand in securing for Merryland consolidation of its ownership of the properties and in seeing to it that Merryland's torrens certificates for the properties were free from liens and encumbrances. All these appellee Francisco did even as she was fully aware that Gutierrez or her estate had a valid and subsisting mortgage lien on the said properties.It is likewise worthy of note that early on appellee Francisco had testified in the action for rescission of sale and recovery of possession and ownership of the properties which Gutierrez filed against Cardale (Civil Case No. Q-12366) in her capacity as defendant Cardale's vice-president and treasurer. But then, for no plausible reason whatsoever, she lost interest in continuing with the presentation of evidence for defendant Cardale. And then, when appellant Mejia as executrix of Gutierrez's Estate filed on August 13, 1984 a Motion for Decision in the aforesaid case, appellee Francisco moved to defer consideration of appellant's Motion on the pretext that defendant Cardale needed time to employ another counsel. Significantly, in her aforesaid Motion for Postponement dated August 16, 1984 which appellee Francisco personally signed as Officer-in-Charge of Cardale, she also did not disclose the fact that the properties subject matter of the case had long been sold at a tax delinquency sale and acquired by her other corporation Merryland.And as if what she had already accomplished were not enough fraudulence, appellee Francisco, acting in behalf of Merryland, caused the issuance of new transfer certificates of title in the name of Merryland, which did not anymore bear the mortgage lien in favor of Gutierrez. In the meantime, to further avoid payment of the mortgage indebtedness owing to Gutierrez's estate, Cardale corporation was dissolved. Finally, to put the properties beyond the reach of the mortgagee, Gutierrez's estate, Merryland caused the subdivision of such properties, which were subsequently sold on installment basis.In its petition for certiorari, petitioners argue that there is no law requiring the mortgagor to inform the mortgagee of the tax delinquencies, if any, of the mortgaged properties. Moreover, petitioners claim that Cardale's failure to pay the realty taxes, per se, does not constitute fraud since it was not proven that Cardale was capable of paying the taxes' Petitioners also contend that if Mejia, as executrix of Gutierrez's estate, was not remiss in her duty to pursue Civil Case No. 12366, she could have easily learned of the non-payment of realty taxes on the subject properties and of the auction sale that followed and thus, have redeemed the properties or availed of some other remedy to conserve the estate of Gutierrez. In addition, Mejia could have annotated a notice oflis pendens on the titles of the mortgaged properties, but she failed to do so. It is the stand of petitioners that respondent has not adduced any proof that Francisco controlled both Cardale and Merryland and that she used these two corporations to perpetuate a fraud upon Gutierrez or her estate. Petitioners maintain that the "evidence shows that, apart form the meager share of petitioner Francisco, the stockholdings of both corporations comprise other shareholders, and the stockholders of either of them, aside from petitioner Francisco, are composed of different persons." As to Civil Case No. 12366, petitioners insist that the decision of the trial court in that case constitutesres judicata to the instant case.8

It is dicta in corporation law that a corporation is a juridical person with a separate and distinct personality from mat of the stockholders or members who compose it9 However, when the legal fiction of the separate corporate personality is abused, such as when the same is used for fraudulent or wrongful ends, the courts have not hesitated to pierce the corporate veil. One of the earliest formulations of this doctrine of piercing the corporate veil was made in the American case ofUnited States v. Milwaukee Refrigerator Transit Co.10 —If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.Since then a good number of cases have firmly implanted this doctrine in Philippine jurisprudence.11 One such case isUmali v. Court of Appeals12 wherein the Court declared that —Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of persons. The members or stockholders of the corporation will be considered as the corporation, that is, liability will attach directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the merealter 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.With specific regard to corporate officers, the general rule is that the officer cannot be held personally liable with the corporation, whether civilly or otherwise, for the consequences of his acts, if he acted for and in behalf of the corporation, within the scope of his authority and in good faith. In such cases, the officer's acts are properly attributed to the corporation.13 However, if it is proven that the officer has used the corporate fiction to defraud a third party,14 or that he has acted negligently, maliciously or in bad faith,15 then the corporate veil shall be lifted and he shall be held personally liable for the particular corporate obligation involved.The Court, after an assiduous study of this case, is convinced that the totality of the circumstances appertaining conduce to the inevitable conclusion that petitioner Francisco acted in bad faith. The events leading up to the loss by the Gutierrez estate of its mortgage security attest to this. It has been established that Cardale failed to comply with its obligation to pay the balance of the purchase price for the four parcels of land it bought from Gutierrez covered by TCT Nos. 7531 to 7534, which obligation was secured by a mortgage upon the lands covered by TCT Nos. 7531, 7532 and 7533. This prompted Gutierrez to file an action for rescission of the Deed of Sale with Mortgage (Civil Case No. Q-12366), but the case dragged on for about fourteen years when Cardale, as represented by Francisco, who was Vice-President and Treasurer of the same,16 lost interest in completing its presentation of evidence.

Even before 1984 when Mejia, in her capacity as executrix of Gutierrez's estate, filed a Motion for Decision with the trial court, there is no question that Francisco knew that the properties subject of the mortgage had become tax delinquent. In fact, as treasurer of Cardale, Francisco herself was the officer charged with the responsibility of paying the realty taxes on the corporation's properties. This was admitted by the trial court in its decision.17 In addition, notices dated 9 July 1982 from the City Treasurer of Caloocan demanding payment of the tax arrears on the subject properties and giving warning that if the realty taxes were not paid within the given period then such properties would be sold at public auction to satisfy the tax delinquencies were sent directly to Francisco's address in White Plains, Quezon City.18 Thus, as early as 1982, Francisco could have informed the Gutierrez estate or the trial court in Civil Case No. Q-12366 of the tax arrears and of the notice from the City Treasurer so that the estate could have taken the necessary steps to prevent the auction sale and to protect its interests in the mortgaged properties, but she did no such thing. Finally, in 1983, the properties were levied upon and sold at public auction wherein Merryland — a corporation where Francisco is a stockholder19 and concurrently acts as President and director20 — was the highest bidder.When Mejia filed the Motion for Decision in Civil Case No. Q-12366,21 the period for redeeming the properties subject of the tax sale had not yet expired.22 Under the Realty Property Tax Code,23 pursuant to which the tax levy and sale were prosecuted,24 both the delinquent taxpayer and in his absence, any person holding a lien or claim over the property shall have the right to redeem the property within one year from the date of registration of the sale.25 However, if these persons fail to redeem the property within the time provided, then the purchaser acquires the property "free from any encumbrance or third party claim whatsoever."26 Cardale made no attempts to redeem the mortgaged property during this time. Moreover, instead of informing Mejia or the trial court in Q-12366 about the tax sale, the records show that Francisco filed a Motion for Postponement27 in behalf of Cardale — even signing the motion in her capacity as "officer-in-charge" — which worked to defer the hearing of Mejia's Motion for Decision. No mention was made by Francisco of the tax sale in the motion for postponement. Only after the redemption period had expired did Francisco decide to reveal what had transpired by filing a Manifestation stating that the properties subject of the mortgage in favor of Gutierrez had been sold at a tax delinquency sale; however, Francisco failed to mention that it was Merryland that acquired the properties since she was probably afraid that if she did so the court would see behind her fraudulent scheme. In this regard, it is also significant to note that it was Francisco herself who filed the petitions for consolidation of title and who helped secure for Merryland titles over the subject properties "free from any encumbrance or third-party claim whatsoever."It is exceedingly apparent to the Court that the totality of Francisco's actions clearly betray an intention to conceal the tax delinquencies, levy and public auction of the subject properties from the estate of Gutierrez and the trial court in Civil Case No. Q-12366 until after the expiration of the redemption period when the remotest possibility for the recovery of the properties would be extinguished.28 Consequently, Francisco had effectively deprived the estate of Gutierrez of its rights as mortgagee over the three parcels of land which were sold to Cardale. If Francisco was acting in good faith, then she should have disclosed the status of the mortgaged properties to the trial court in Civil Case No. Q-12366 —especially after Mejia had filed a Motion for Decision, in response to which she filed a motion for postponement wherein she could easily have mentioned the tax sale — since this action directly affected such properties which were the subject of both the sale and mortgage.That Merryland acquired the property at the public auction only serves to shed more light upon Francisco's fraudulent purposes. Based on the findings of the Court of Appeals, Francisco is the controlling stockholder and President of Merryland.29 Thus, aside from the instrumental role she played as an officer of Cardale, in evading that corporation's legitimate obligations to Gutierrez, it appears that Francisco's actions were also oriented towards securing advantages for another corporation in which she had a substantial interest. We cannot agree, however, with the Court of Appeals' decision to hold Merryland solidarily liable with Francisco. The only act imputable to Merryland in relation to the mortgaged properties is that it purchased the same and this by itself is not a fraudulent or wrongful act. No evidence has been adduced to establish that Merryland was a mere alter ego or business conduit of Francisco. Time and again it has been reiterated that 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.30 Neither has it been alleged or proven that Merryland is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of Cardale.31 Even assuming that the businesses of Cardale and Merryland are interrelated, this alone is not justification for disregarding their separate personalities, absent any showing that Merryland was purposely used as a shield to defraud creditors and third persons of their rights.32 Thus, Merryland's separate juridical personality must be upheld.Based on a statement of account submitted by Mejia, the Court of Appeals awarded P4,314,271.43 in favor of the estate of Gutierrez which represents the unpaid balance of the purchase price in the amount of P629,000.00 with an interest rate of nine percent (9% ) per annum, in accordance with the agreement of the parties under the Deed of Sale with Mortgage,33 as of December 1988.34 Therefore, in addition to the amount awarded by the appellate court, Francisco should pay the estate of Gutierrez interest on the unpaid balance of the purchase price (in the amount of P629,000.00) at the rate of nine percent (9%) per annum computed from January, 1989 until fully satisfied.Finally, contrary to petitioner's assertions, we agree with the Court of Appeals that the decision of the trial court in Civil Case No. Q-12366 does not constituteres judicata insofar as the present case is concerned because the decision in the first case was not a judgment on the merits. Rather, it was merely based upon the premise that since Cardale had been dissolved and the property acquired by another corporation, the action for rescission would not prosper. As a matter of fact, it was even expressly stated by the trial court that the parties should ventilate their issues in another action.WHEREFORE, the 13 April 1999 Decision of the Court of Appeals is hereby accordingly MODIFIED so as to hold ADALIA FRANCISCO solely liable to the estate of Gutierrez for the amount of P4,314,271.43 and for interest on the unpaid balance of the purchase price (in the amount of P629,000.00) at the rate of nine percent (9%) per annum computed from January, 1989 until fully satisfied. MERRYLAND is hereby absolved from all liability.SO ORDERED.

141. THE HEIRS OF THE LATE PANFILO V. PAJARILLO, Petitioners, vs.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, JULIAN JORVINA, 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, ARISTON NIPA, and ALFONSO C. BALDOMAR, Respondents.D E C I S I O NCHICO-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 Decision17 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 complainants their claims for emergency cost of living allowance (ECOLA), 13th 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; and3) 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,21we 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 THERE WAS 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 Arbiter Asuncion 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 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 Irene as the addressee’s agent.32Abel, 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 the secretaries 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 said Sinumpaang 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 precluded from 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.

153. SOL LAGUIO, RENE LAOLAO, ANNALIZA ENSANDO, EDELIZA ASAS, LILIA MARAY, EVELYN UNTALAN,*ROSARIO CHICO, REYNALDO GARCIA, MERLITA DE LOS SANTOS,* JOSEPHINE DERONG,* GEMMA TIBALAO BANTOLO, LUCY ALMONTE,* CRISPINA VANQUARDIA, NARCISA VENZON, NORMA ELEGANTE,* AMELIA MORENO,* ABNER PETILOS, NARCISO HILAPO, DOLORES OLAES, MELINDA LLADOC, ERNA AZARCON, and APRIL TOY, INC. WORKERS UNION – ALAB, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, WELL WORLD TOYS, INC., APRIL TOYS, INC., YU SHENG LING, JENN L. WANG, EUCLIFF CHENG, CHI SHENG LIN, NENITA C. AGUIRRE, MA. THERESA R. CADIENTE and GLICERIA R. AGUIRRE, respondents.R E S O L U T I O NFRANCISCO, J.:Private respondent April Toy, Inc. (April for brevity) is a domestic corporation incorporated on January 6, 1989, for the purpose of “manufacturing, importing, exporting, buying, selling, sub-contracting or otherwise dealing in, at wholesale and retail,”[1] stuffed toys, with principal place of business at Parañaque, Manila. On December 20, 1989, or after almost a year of operation, April posted a memorandum[2] within its premises and circulated a copy of the same among its employees informing them of its dire financial condition. To avert further business reverses, April decided to shorten its corporate term “up to February 28, 1990,”[3] submitted a notice of dissolution to the Securities and Exchange Commission and published the same in a newspaper of general circulation[4]. April also notified its employees, the Department of Labor and Employment,[5] the Social Security System,[6] the Board of Investments,[7] the Bureau of Internal Revenue,[8] and the Municipality ofParañaque of its dissolution.In view of April’s cessation of operations, petitioners who initially composed of seventy-seven employees below filed a complaint for “illegal shutdown/retrenchment/dismissal and unfair labor practice.”[9] On June 21, 1990, petitioners amended their complaint to implead private respondent private respondent Well World Toys, Inc. (Well World for brevity), a corporation also engaged in the manufacture of stuffed toys for export with principal office located at Las Piñas, Manila.In their complaint, petitioners basically alleged that they were original probationary emplyees[10] of Well World but were later laid off in 1989 “for starting to organize themselves into a union”.[11] They applied with and were thereafter hired by April. On February 2, 1990, and while under the employ of April, petitioners conducted a certification election where their union, Alyansang Likha ng mga Anak ng Bayan (ALAB), won as the exclusive bargaining agent for the workers. Petitioners thereafter submitted a Collective Bargaining Agreement proposal which April rejected in view of its cessation of operation. The closure, petitioners declared, is April’s clever ploy to “defeat their right to self organization”.[12] Petitioners further alleged that the original incorporators and principal officers of April were likewise the original incorporators of Well World, thus both corporations should be treated as one corporation liable for their claims. In his decision dated December 20, 1991, the Labor Arbiter found as valid the closure of April, and treated April and Well World as two distinct corporations. While the seventy-seven complainants were ruled to be the employees of April, the Labor Arbiter, nevertheless, ordered Well World to give financial assistance to its former forty-nine probationary employees who were found to have been laid off in 1989 due to business losses. April was likewise ordered to pay its separated employees their separation pay and, together with Well World, assessed for attorney’s fees. Petitioners appealed before the National Labor Relations Commission (NLRC), but to no avail. Hence, this petition, supported by the Office of the Solicitor General, anchored solely on the NLRC’s purported grave abuse of discretion in not finding April and Well World as one corporation liable for their grievances.To bolster their claim that April and Well World are one and the same corporation, petitioners argue that both corporations have the same set of incorporators. Thus:Incorporators of Well World Incorporators of April

Name Citizenship No. of Shares

Name Citizenship No, of Shares

Eucliff Cheng Filipino 148 Nenita C. Aguirre

Filipino 2,797

Jenn Li Wang Chinese 25 Matheresa Cadiente

Filipino 800

Yu-Sheng Ling

Chinese 25 Gliceria R. Aguirre

Filipino 400

Chia-Sheng Lin

Chinese 25 Pacifico R. Cadiente

Filipino 1

Chia-Yu-Yen Lin

Chinese 25 Emalyn A. Fernandez

Filipino 1

MaTheresa Cadiente

Filipino 1 Erlinda M. Hizon

Filipino 1

Gliceria Aguirre

Filipino 1

250 4,000(Petition, pp. 4-5; Rollo, pp. 5-6; Memorandum, pp. 7-8, Rollo, 242-243.)Petitioners also insist that the two corporations “are being managed by Mr. Jean Li Wang”[13] and that their articles of incorporation, general information sheets and certificates of increase of capital stock were notarized by the same Notary Public. Additionally, petitioners aver that when some of them transferred from Well World to April they were not given their separation pay, a factor which presumably proves that April is a mere conduit of Well World. Petitioners likewise assert that their transfer from one corporation to another was made at the time that they were on the process of organizing a union. Finally, petitioners allege that April and Well World were engaged in the same line of business, with the latter also supplying the former raw materials and machineries. These circumstances, petitioners claim, make their case akin to the case of La Campana Coffee Factory Inc. v. Kaisahan ng mga Mangagawa sa La Campana (KKM), 93 Phil. 160, where the Court considered two corporations, i.e., La Campana Coffee Factory, Inc. and La Campana Gaugau Packing, as one and the same. We are not persuaded.A cursory examination of the composition of April and Well World’s incorporators and the number of shares they own hardly supports petitioners’ asseveration. In fact, petitioner’s allegation that both corporations were managed by a single individual, Mr. Jen Li Weng, contradicts paragraphs 7 and 8 of their petition which state:

“7. Respondents Yu-Sheng Ling, Jen Li Weng (Alias James Wang), Eucliff Cheng and Chia Sheng Lin are the President, Managing Director, Treasurer and Secretary respectively of respondent Well World Toy, Inc., all of whom are holding office at 399-B Real St., Talon, Las Pinas, Metro Manila. x x x.“8. Respondents Nenita C. Aguirre, Ma. Theresa R. Cadiente and Gliceria R. Aguirre are the President, Treasurer and Secretary, respectively of respondent April Toy, Inc. all of whom are holding office at No. 6-C Ascie Avenue, Severina Industrial Estate, Km. 16 South Superhighway Paranaque. x x x.”[14]

What clearly appears therefrom is that the two corporations have two different set of officers managing their respective affairs in two separate offices.It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere substantial identity of the incorporators of the two corporations does not necessarily imply fraud,[15] nor warrant the piercing of the veil of corporation fiction. In the absence of clear and convincing evidence that Apriland Well World’s corporate personalities were used to perpetuate fraud, or circumvent the law said corporations were rightly treated as distinct and separate from each other. Further, petitioners’ emphatic reliance with the case of La Campana is misplaced. In La Campana, unlike in this case, the two corporations, i.e., La Campana Coffee Factory, Inc. and La Campana Gaugau Packing, were not only owned by the same person, but moreover have a single management, business office and a single payroll for both businesses. Indeed, the workers of La Campana Gaugau Packing “were interchangeable, that is, the laborers from gaugau factory were sometimes transferred to the coffee factory and vice-versa.”[16]

We thus quote with approval the observation made by the Labor Arbiter as follows:“We can not fully subscribe to the above contention of the complainants. We do not believe that the circumstances related by the complainants are sufficient indicia that the two corporations are one and the same corporation although it appears that the two of the original incorporators and stockholders of April Toy, Inc. were incorporators and minority stockholders of Well-World Toy, Inc. Hence it does not mean that the two (2) corporations are adjunct and conduit. There is not express provision under the Corporation law prohibiting stockholders or incorporators of a corporation to be a stockholder or incorporator of another corporation.“The fiction that a corporation was a distinct and separate personality shall not be used as a subterfuge to commit injustice and circumvent the law does not apply in the present case. There is no conclusive evidence to convince us that respondent April Toy, Inc. was established and later on closed to defeat the rights of the workers of Well-World Toy, Inc. which would otherwise support the charge of unfair labor practice. Hence, we find that the two (2) corporations are separate and distinct entities.”[17]

and, on appeal, by public respondent NLRC, thus:“[R]elative to the closure of April Toy, it is clear from the records that as early as December 1989 or long before a certification election was conducted among its rank-and-file employees on February 2, 1990, the employees were already aware that April Toy was suffering from financial crisis. It further appearing that April Toy continued to suffer losses as evidenced by its financial statements ending December 31, 1989 and its balance sheet ending March 31, 1990, the Labor Arbiter a quo correctly ruled that the eventual closure of its business on February 27, 1990, is valid.“Anent the question of whether or not April Toy and Well- World Toy are one and the same, with the facts and circumstances showing that the owners of April Toy are different from those of Well-World, the management of one being different from the other, and the office of April Toy is situated more than ten kilometers away from Well-World, plus the fact that the closure of April Toy was for valid reasons, the Labor Arbiter likewise correctly opined that the two corporations are separate and distinct form each other, and that there is no basis for piercing the veil of corporate fiction.”[18]

Furthermore, the petition hinges on the factual findings of both the Labor Arbiter and the NLRC. It should be stressed that the factual findings of quasi-judicial agencies like the NLRC are generally accorded not only respect but, at times, finality if such are supported by substantial evidence[19]. Judicial review by this Court in labor cases does not go so far as to require this Court to evaluate the sufficiency of the evidence upon which the Labor Arbiter and respondent NLRC based their determination as our review is limited to issues of jurisdiction or grave abuse of discretion. In the instant suit, the findings of the Labor Arbiter was duly affirmed by respondent NLRC, findings amply supported by substantial evidence on record. We find no cogent reason, as none was presented, to deviate from the same.ACCORDINGLY, finding no grave abuse of discretion on the part of respondent NLRC in rendering the assailed resolution, the instant petition is hereby DISMISSED for lack of merit.SO ORDERED.

155. LAND BANK OF THE PHILIPPINES, petitioner, vs.THE COURT OF APPEALS, ECO MANAGEMENT CORPORATION and EMMANUEL C. OÑATE, respondents.QUISUMBING, J.:This petition for review on certiorari seeks to reverse and set aside the decision1 promulgated on June 17, 1996 in CA-GR No. CV-43239 of public respondent and its resolution2 dated November 29, 1996 denying petitioner’s motion for reconsideration.3

The facts of this case as found by the Court of Appeals and which we find supported by the records are as follows:On various dates in September, October, and November, 1980, appellant Land Bank of the Philippines (LBP) extended a series of credit accommodations to appellee ECO, using the trust funds of the Philippine Virginia Tobacco Administration (PVTA) in the aggregate amount of P26,109,000.00. The proceeds of the credit accommodations were received on behalf of ECO by appellee Oñate.On the respective maturity dates of the loans, ECO failed to pay the same. Oral and written demands were made, but ECO was unable to pay. ECO claims that the company was in financial difficulty for it was unable to collect its investments with companies which were affected by the financial crisis brought about by the Dewey Dee scandal.x x xOn October 20, 1981, ECO proposed and submitted to LBP a "Plan of Payment" whereby the former would set up a financing company which would absorb the loan obligations. It was proposed that LBP would participate in the scheme through the conversion of P9,000,000.00 which was part of the total loan, into equity.On March 4, 1982, LBP informed ECO of the action taken by the former’s Trust Committee concerning the "Plan of Payment" which reads in part, as follows:x x xPlease be informed that the Bank’s Trust Committee has deliberated on the plan of payment during its meetings on November 6, 1981 and February 23, 1982. The Committee arrived at a decision that you may proceed with your Plan of Payment provided Land Bank shall not participate in the undertaking in any manner whatsoever.In view thereof, may we advise you to make necessary revision in the proposed Plan of Payment and submit the same to us as soon as possible. (Records, p. 428)On May 5, 1982, ECO submitted to LBP a "Revised Plan of Payment" deleting the latter’s participation in the proposed financing company. The Trust Committee deliberated on the "Revised Plan of Payment" and resolved to reject it. LBP then sent a letter to the PVTA for the latter’s comments. The letter stated that if LBP did not hear from PVTA within five (5) days from the latter’s receipt of the letter, such silence would be construed to be an approval of LBP’s intention to file suit against ECO and its corporate officers. PVTA did not respond to the letter.On June 28, 1982, Landbank filed a complaint for Collection of Sum of Money against ECO and Emmanuel C. Oñate before the Regional Trial Court of Manila, Branch 50.After trial on the merits, a judgment was rendered in favor of LBP; however, appellee Oñate was absolved from personal liability for insufficiency of evidence.Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP claimed that there was an error in computation in the amounts to be paid. LBP also questioned the dismissal of the case with regard to Oñate.On the other hand, ECO questioned its being held liable for the amount of the loan. Upon order of the court, both parties submitted Supplemental Motions for Reconsideration and their respective Oppositions to each other’s Motions.On February 3, 1993, the trial court rendered an Amended Decision, the dispositive portion of which reads as follows:ACCORDINGLY, the Decision, dated December 3, 1990, is hereby modified to read as follows:WHEREFORE, judgment is rendered ordering defendant Eco Management Corporation to pay plaintiff Land Bank of the Philippines:A. The sum of P26,109,000.00 representing the total amount of the ten (10) loan accommodations plus 16% interest per annum computed from the dates of their respective maturities until fully paid, broken down as follows:1. the principal amount of P4,000,000.00 with interest at 16% computed from September 18, 1981;2. the principal amount of P5,000,000.00 with interest at 16% computed from September 21, 1981;3. the principal amount of P1,000,000.00 with interest rate at 16% computed from September 28, 1981;4. the principal amount of P1,000,000.00 with interest at 15% computed from October 5, 1981;5. the principal amount of P2,000,000.00 with interest rate at of 16% computed from October 8, 1981;6. the principal amount of P2,000,000.00 with interest rate at of 16% from October 23, 1981;7. the principal amount of P814,000.00 with interest rate at of 16% computed from November 1, 1981;8. the principal amount of P2,295,000.00 with interest rate at of 16% computed from November 6, 1981;9. the principal amount of P3,000,000.00 with interest rate at of 16% computed from November 7, 1981;10. the principal amount of P5,000,000.00 with interest rate at 16% computed from November 9, 1981;B. The sum of P260,000.00 as attorney’s fees; andC. The costs of the suit.The case as against defendant Emmanuel Oñate is dismissed for insufficiency of evidence.SO ORDERED. (Records, p. 608)4

The Court of Appeals affirmed in toto the amended decision of the trial court.5

On June 9, 1996, petitioner filed a motion for reconsideration, which was denied in a resolution dated November 29, 1996. Hence, this present petition, assigning the following errors allegedly committed by the Court of Appeals:ATHE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT BASED ON THE FACTS AS ESTABLISHED BY EVIDENCE, THERE EXISTS A SUBSTANTIAL AND JUSTIFIABLE GROUND UPON WHICH THE LEGAL NOTION OF THE CORPORATE FICTION OF RESPONDENT ECO MANAGEMENT CORPORATION MAY BE PIERCED.BTHE COURT OF APPEALS GRAVELY ERRED IN NOT A[T]TACHING LIABILITY TO RESPONDENT EMMANUEL C. OÑATE JOINTLY AND SEVERALLY WITH RESPONDENT ECO MANAGEMENT CORPORATION FOR THE PRINCIPAL SUM OF P26 M PLUS INTEREST THEREON.C

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF THE LOWER COURT THE SAME NOT BEING SUPPORTED BY THE EVIDENCE AND APPLICABLE LAWS AND JURISPRUDENCE.6

The primary issues for resolution here are (1) whether or not the corporate veil of ECO Management Corporation should be pierced; and (2) whether or not Emmanuel C. Oñate should be held jointly and severally liable with ECO Management Corporation for the loans incurred from Land Bank.Petitioner contends that the personalities of Emmanuel Oñate and of ECO Management Corporation should be treated as one, for the particular purpose of holding respondent Oñate liable for the loans incurred by corporate respondent ECO from Land Bank. According to petitioner, the said corporation was formed ostensibly to allow Oñate to acquire loans from Land Bank which he used for his personal advantage.Petitioner submits the following arguments to support its stand: (1) Respondent Oñate owns the majority of the interest holdings in respondent corporation, specifically during the crucial time when appellees applied for and obtained the loan from LANDBANK, sometime in September to November, 1980. (2) The acronym ECO stands for the initials of Emmanuel C. Oñate, which is the logical, sensible and concrete explanation for the name ECO, in the absence of evidence to the contrary. (3) Respondent Oñate has always referred to himself as the debtor, not merely as an officer or a representative of respondent corporation. (4) Respondent Oñate personally paid P1 Million taken from trust accounts in his name. (5) Respondent Oñate made a personal offering to pay his personal obligation. (6) Respondent Oñate controlled respondent corporation by simultaneously holding two (2) corporate positions, viz., as Chairman and as treasurer, beginning from the time of respondent corporation’s incorporation and continuously thereafter without benefit of election. (7) Respondent corporation had not held any meeting of the stockholders or of the Board of Directors, as shown by the fact that no proceeding of such corporate activities was filed with or borne by the record of the Securities and Exchange Commission (SEC). The only corporate records respondent corporation filed with the SEC were the following: Articles of Incorporation, Treasurer’s Affidavit, Undertaking to Change Corporate Name, Statement of Assets and Liabilities.7

Private respondents, in turn, contend that Oñate’s only participation in the transaction between petitioner and respondent ECO was his execution of the loan agreements and promissory notes as Chairman of the corporation’s Board of Directors. There was nothing in the loan agreement nor in the promissory notes which would indicate that Oñate was binding himself jointly and severally with ECO. Respondents likewise deny that ECO stands for Emmanuel C. Oñate. Respondents also note that Oñate is no longer a majority stockholder of ECO and that the payment by a third person of the debt of another is allowed under the Civil Code. They also alleged that there was no fraud and/or bad faith in the transactions between them and Land Bank. Hence, private respondents conclude, there is no legal ground to pierce the veil of respondent corporation’s personality.8

At the outset, we find the matters raised by petitioner in his argumentation are mainly questions of fact which are not proper in a petition of this nature.9 Petitioner is basically questioning the evaluation made by the Court of Appeals of the evidence submitted at the trial. The Court of Appeals had found that petitioner’s evidence was not sufficient to justify the piercing of ECO’s corporate personality.10 Petitioner contended otherwise. It is basic that where what is being questioned is the sufficiency of evidence, it is a question of fact.11 Nevertheless, even if we regard these matters as tendering an issue of law, we still find no reason to reverse the findings of the Court of Appeals.A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it as well as from any other legal entity to which it may be related.12 By this attribute, a stockholder may not, generally, be made to answer for acts or liabilities of the said corporation, and vice versa.13This separate and distinct personality is, however, merely a fiction created by law for convenience and to promote the ends of justice.14 For this reason, it may not be used or invoked for ends subversive to the policy and purpose behind its creation15 or which could not have been intended by law to which it owes its being.16 This is particularly true when the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime,17 confuse legitimate legal or judicial issues,18 perpetrate deception or otherwise circumvent the law.19 This is likewise true 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.20 In all these cases, the notion of corporate entity will be pierced or disregarded with reference to the particular transaction involved.21

The burden is on petitioner to prove that the corporation and its stockholders are, in fact, using the personality of the corporation as a means to perpetrate fraud and/or escape a liability and responsibility demanded by law. In order to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established.22 In the absence of any malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities.23

The mere fact that Oñate owned the majority of the shares of ECO is not a ground to conclude that Oñate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of separate corporate personalities.24Neither is the fact that the name "ECO" represents the first three letters of Oñate’s name sufficient reason to pierce the veil. Even if it did, it does not mean that the said corporation is merely a dummy of Oñate. A corporation may assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of one of its shareholders.That respondent corporation in this case was being used as a mere alter ego of Oñate to obtain the loans had not been shown. Bad faith or fraud on the part of ECO and Oñate was not also shown. As the Court of Appeals observed, if shareholders of ECO meant to defraud petitioner, then they could have just easily absconded instead of going out of their way to propose "Plans of Payment."25 Likewise, Oñate volunteered to pay a portion of the corporation’s debt.26 This offer demonstrated good faith on his part to ease the debt of the corporation of which he was a part. It is understandable that a shareholder would want to help his corporation and in the process, assure that his stakes in the said corporation are secured. In this case, it was established that the P1 Million did not come solely from Oñate. It was taken from a trust account which was owned by Oñate and other investors.27 It was likewise proved that the P1 Million was a loan granted by Oñate and his co-depositors to alleviate the plight of ECO.28 This circumstance should not be construed as an admission that he was really the debtor and not ECO.In sum, we agree with the Court of Appeals’ conclusion that the evidence presented by the petitioner does not suffice to hold respondent Oñate personally liable for the debt of co-respondent ECO. No reversible error could be attributed to respondent court’s decision and resolution which petitioner assails.WHEREFORE, the petition is DENIED for lack of merit. The decision and resolution of the Court of Appeals in CA-G.R. CV No. 43239 are AFFIRMED. Costs against petitioner.SO ORDERED.

163. RUFINA LUY LIM petitioner, v. COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED DISTRIBUTING, INC., ACTIVE DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION COMPANY, INC. Respondents.D E C I S I O NBUENA, J.:May a corporation, in its universality, be the proper subject of and be included in the inventory of the estate of a deceased person?Petitioner disputes before us through the instant petition for review on certiorari, the decision1 of the Court of Appeals promulgated on 18 April 1996, in CA-GR SP No. 38617, which nullified and set aside the orders dated 04 July 19952, 12 September 19953 and 15 September 19954 of the Regional Trial Court of Quezon City, Branch 93, sitting as a probate court.Petitioner Rufina Luy Lim is the surviving spouse of the late Pastor Y. Lim whose estate is the subject of probate proceedings in Special Proceedings Q-95-23334, entitled, "In Re: Intestate Estate of Pastor Y. Lim Rufina Luy Lim, represented by George Luy, Petitioner".Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed Distributing, Inc., Active Distributing, Inc. and Action Company are corporations formed, organized and existing under Philippine laws and which owned real properties covered under the Torrens system.On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly represented by her nephew George Luy, filed on 17 March 1995, a joint petition5 for the administration of the estate of Pastor Y. Lim before the Regional Trial Court of Quezon City.Private respondent corporations, whose properties were included in the inventory of the estate of Pastor Y. Lim, then filed a motion6 for the lifting of lis pendens and motion7 for exclusion of certain properties from the estate of the decedent.In an order8 dated 08 June 1995, the Regional Trial Court of Quezon City, Branch 93, sitting as a probate court, granted the private respondents twin motions, in this wise:"Wherefore, the Register of Deeds of Quezon City is hereby ordered to lift, expunge or delete the annotation of lis pendens on Transfer Certificates of Title Nos. 116716, 116717, 116718, 116719 and 5182 and it is hereby further ordered that the properties covered by the same titles as well as those properties by (sic) Transfer Certificate of Title Nos. 613494, 363123, 236236 and 263236 are excluded from these proceedings.SO ORDERED."Subsequently, Rufina Luy Lim filed a verified amended petition9 which contained the following averments:"3. The late Pastor Y. Lim personally owned during his lifetime the following business entities, to wit:Business Entity Address:X X X XAlliance Marketing ,Inc. Block 3, Lot 6, DaccaBF Homes,Paraaque,Metro Manila.X X X XSpeed Distributing Inc. 910 Barrio Niog,Aguinaldo Highway,Bacoor, Cavite.X X X XAuto Truck TBA Corp. 2251 Roosevelt Avenue,Quezon City.X X X XActive Distributors, Inc. Block 3, Lot 6, Dacca BFHomes, Paraaque,Metro Manila.X X X XAction Company 100 20th AvenueMurphy, Quezon Cityor92-D Mc-Arthur HighwayValenzuela Bulacan."3.1 Although the above business entities dealt and engaged in business with the public as corporations, all their capital, assets and equity were however, personally owned by the late Pastor Y Lim. Hence the alleged stockholders and officers appearing in the respective articles of incorporation of the above business entities were mere dummies of Pastor Y. Lim, and they were listed therein only for purposes of registration with the Securities and Exchange Commission."4. Pastor Lim, likewise, had Time, Savings and Current Deposits with the following banks: (a) Metrobank, Grace Park, Caloocan City and Quezon Avenue, Quezon City Branches and (b) First Intestate Bank (formerly Producers Bank), Rizal Commercial Banking Corporation and in other banks whose identities are yet to be determined."5. That the following real properties, although registered in the name of the above entities, were actually acquired by Pastor Y. Lim during his marriage with petitioner, to wit:Corporation Title Location X X X Xk. Auto Truck TCT No. 617726 Sto. DomingoTBA Corporation Cainta, Rizalq. Alliance Marketing TCT No. 27896 Prance,Metro ManilaCopies of the above-mentioned Transfer Certificate of Title and/or Tax Declarations are hereto attached as Annexes "C" to "W".X X X X"7. The aforementioned properties and/or real interests left by the late Pastor Y. Lim, are all conjugal in nature, having been acquired by him during the existence of his marriage with petitioner.

"8. There are other real and personal properties owned by Pastor Y. Lim which petitioner could not as yet identify. Petitioner, however will submit to this Honorable Court the identities thereof and the necessary documents covering the same as soon as possible."On 04 July 1995, the Regional Trial Court acting on petitioners motion issued an order10, thus:"Wherefore, the order dated 08 June 1995 is hereby set aside and the Registry of Deeds of Quezon City is hereby directed to reinstate the annotation of lis pendens in case said annotation had already been deleted and/or cancelled said TCT Nos. 116716, 116717, 116718, 116719 and 51282.Further more (sic), said properties covered by TCT Nos. 613494, 365123, 236256 and 236237 by virtue of the petitioner are included in the instant petition.SO ORDERED."On 04 September 1995, the probate court appointed Rufina Lim as special administrator11 and Miguel Lim and Lawyer Donald Lee, as co-special administrators of the estate of Pastor Y. Lim, after which letters of administration were accordingly issued.In an order12 dated 12 September 1995, the probate court denied anew private respondents motion for exclusion, in this wise:"The issue precisely raised by the petitioner in her petition is whether the corporations are the mere alter egos or instrumentalities of Pastor Lim, Otherwise (sic) stated, the issue involves the piercing of the corporate veil, a matter that is clearly within the jurisdiction of this Honorable Court and not the Securities and Exchange Commission. Thus, in the case of Cease vs. Court of Appeals, 93 SCRA 483, the crucial issue decided by the regular court was whether the corporation involved therein was the mere extension of the decedent. After finding in the affirmative, the Court ruled that the assets of the corporation are also assets of the estate.A reading of P.D. 902, the law relied upon by oppositors, shows that the SECs exclusive (sic) applies only to intra-corporate controversy. It is simply a suit to settle the intestate estate of a deceased person who, during his lifetime, acquired several properties and put up corporations as his instrumentalities.SO ORDERED."On 15 September 1995, the probate court acting on an ex parte motion filed by petitioner, issued an order13 the dispositive portion of which reads:"Wherefore, the parties and the following banks concerned herein under enumerated are hereby ordered to comply strictly with this order and to produce and submit to the special administrators , through this Honorable Court within (5) five days from receipt of this order their respective records of the savings/current accounts/time deposits and other deposits in the names of Pastor Lim and/or corporations above-mentioned, showing all the transactions made or done concerning savings /current accounts from January 1994 up to their receipt of this court order.XXX XXX XXXSO ORDERED."Private respondent filed a special civil action for certiorari14, with an urgent prayer for a restraining order or writ of preliminary injunction, before the Court of Appeals questioning the orders of the Regional Trial Court, sitting as a probate court.On 18 April 1996, the Court of Appeals, finding in favor of herein private respondents, rendered the assailed decision15, the decretal portion of which declares:"Wherefore, premises considered, the instant special civil action for certiorari is hereby granted, The impugned orders issued by respondent court on July 4,1995 and September 12, 1995 are hereby nullified and set aside. The impugned order issued by respondent on September 15, 1995 is nullified insofar as petitioner corporations" bank accounts and records are concerned.SO ORDERED."Through the expediency of Rule 45 of the Rules of Court, herein petitioner Rufina Luy Lim now comes before us with a lone assignment of error16:"The respondent Court of Appeals erred in reversing the orders of the lower court which merely allowed the preliminary or provisional inclusion of the private respondents as part of the estate of the late deceased (sic) Pastor Y. Lim with the respondent Court of Appeals arrogating unto itself the power to repeal, to disobey or to ignore the clear and explicit provisions of Rules 81,83,84 and 87 of the Rules of Court and thereby preventing the petitioner, from performing her duty as special administrator of the estate as expressly provided in the said Rules."Petitioners contentions tread on perilous grounds.In the instant petition for review, petitioner prays that we affirm the orders issued by the probate court which were subsequently set aside by the Court of Appeals.Yet, before we delve into the merits of the case, a review of the rules on jurisdiction over probate proceedings is indeed in order.The provisions of Republic Act 769117, which introduced amendments to Batas Pambansa Blg. 129, are pertinent:"Section 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the "Judiciary Reorganization Act of 1980", is hereby amended to read as follows:Section 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive jurisdiction:xxx xxx xxx(4) In all matters of probate, both testate and intestate, where the gross value of the estate exceeds One Hundred Thousand Pesos (P100,000) or, in probate matters in Metro Manila, where such gross value exceeds Two Hundred Thousand Pesos (P200,000);xxx xxx xxxSection 3. Section 33 of the same law is hereby amended to read as follows:Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Civil Cases.-Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts shall exercise:1. Exclusive original jurisdiction over civil actions and probate proceedings, testate and intestate, including the grant of provisional remedies in proper cases, where the value of the personal property, estate or amount of the demand does not exceed One Hundred Thousand Pesos(P100,000) or, in Metro Manila where such personal property, estate or amount of the demand does not exceed Two Hundred Thousand Pesos (P200,000), exclusive of interest, damages of whatever kind, attorneys fees, litigation expenses and costs, the amount of which must be specifically alleged, Provided, that interest, damages of whatever kind, attorneys, litigation expenses and costs shall be included in the determination of the filing fees, Provided further, that where there are several claims or causes of actions between the same or different parties, embodied in the same complaint, the amount of the demand shall be the totality of the claims in all the causes of action, irrespective of whether the causes of action arose out of the same or different transactions;

xxx xxx xxx"Simply put, the determination of which court exercises jurisdiction over matters of probate depends upon the gross value of the estate of the decedent.As to the power and authority of the probate court, petitioner relies heavily on the principle that a probate court may pass upon title to certain properties, albeit provisionally, for the purpose of determining whether a certain property should or should not be included in the inventory.In a litany of cases, We defined the parameters by which the court may extend its probing arms in the determination of the question of title in probate proceedings.This Court, in PASTOR, JR. vs. COURT OF APPEALS,18 held:"X X X As a rule, the question of ownership is an extraneous matter which the probate court cannot resolve with finality. Thus, for the purpose of determining whether a certain property should or should not be included in the inventory of estate properties, the Probate Court may pass upon the title thereto, but such determination is provisional, not conclusive, and is subject to the final decision in a separate action to resolve title."We reiterated the rule in PEREIRA vs. COURT OF APPEALS19:"X X X The function of resolving whether or not a certain property should be included in the inventory or list of properties to be administered by the administrator is one clearly within the competence of the probate court. However, the courts determination is only provisional in character, not conclusive, and is subject to the final decision in a separate action which may be instituted by the parties."Further, in MORALES vs. CFI OF CAVITE20 citing CUIZON vs. RAMOLETE21, We made an exposition on the probate courts limited jurisdiction:"It is a well-settled rule that a probate court or one in charge of proceedings whether testate or intestate cannot adjudicate or determine title to properties claimed to be a part of the estate and which are equally claimed to belong to outside parties. All that the said court could do as regards said properties is to determine whether they should or should not be included in the inventory or list of properties to be administered by the administrator. If there is no dispute, well and good; but if there is, then the parties, the administrator and the opposing parties have to resort to an ordinary action for a final determination of the conflicting claims of title because the probate court cannot do so."Again, in VALERA vs. INSERTO22, We had occasion to elucidate, through Mr. Justice Andres Narvasa23:"Settled is the rule that a Court of First Instance (now Regional Trial Court), acting as a probate court, exercises but limited jurisdiction, and thus has no power to take cognizance of and determine the issue of title to property claimed by a third person adversely to the decedent, unless the claimant and all other parties having legal interest in the property consent, expressly or impliedly, to the submission of the question to the probate court for adjudgment, or the interests of third persons are not thereby prejudiced, the reason for the exception being that the question of whether or not a particular matter should be resolved by the court in the exercise of its general jurisdiction or of its limited jurisdiction as a special court (e.g. probate, land registration, etc.), is in reality not a jurisdictional but in essence of procedural one, involving a mode of practice which may be waived. x x xx x x. These considerations assume greater cogency where, as here, the Torrens title is not in the decedents name but in others, a situation on which this Court has already had occasion to rule x x x."(emphasis Ours)Petitioner, in the present case, argues that the parcels of land covered under the Torrens system and registered in the name of private respondent corporations should be included in the inventory of the estate of the decedent Pastor Y. Lim, alleging that after all the determination by the probate court of whether these properties should be included or not is merely provisional in nature, thus, not conclusive and subject to a final determination in a separate action brought for the purpose of adjudging once and for all the issue of title.Yet, under the peculiar circumstances, where the parcels of land are registered in the name of private respondent corporations, the jurisprudence pronounced in BOLISAY vs., ALCID24 is of great essence and finds applicability, thus:"It does not matter that respondent-administratrix has evidence purporting to support her claim of ownership, for, on the other hand, petitioners have a Torrens title in their favor, which under the law is endowed with incontestability until after it has been set aside in the manner indicated in the law itself, which, of course, does not include, bringing up the matter as a mere incident in special proceedings for the settlement of the estate of deceased persons. x x x""x x x. In regard to such incident of inclusion or exclusion, We hold that if a property covered by Torrens title is involved, the presumptive conclusiveness of such title should be given due weight, and in the absence of strong compelling evidence to the contrary, the holder thereof should be considered as the owner of the property in controversy until his title is nullified or modified in an appropriate ordinary action, particularly, when as in the case at bar, possession of the property itself is in the persons named in the title. x x x"A perusal of the records would reveal that no strong compelling evidence was ever presented by petitioner to bolster her bare assertions as to the title of the deceased Pastor Y. Lim over the properties. Even so, P.D. 1529, otherwise known as, " The Property Registration Decree", proscribes collateral attack on Torrens Title, hence:"xxx xxx xxxSection 48. Certificate not subject to collateral attack.- A certificate of title shall not be subject to collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding in accordance with law."In CUIZON vs. RAMOLETE, where similarly as in the case at bar, the property subject of the controversy was duly registered under the Torrens system, We categorically stated:"x x x Having been apprised of the fact that the property in question was in the possession of third parties and more important, covered by a transfer certificate of title issued in the name of such third parties, the respondent court should have denied the motion of the respondent administrator and excluded the property in question from the inventory of the property of the estate. It had no authority to deprive such third persons of their possession and ownership of the property. x x x"Inasmuch as the real properties included in the inventory of the estate of the late Pastor Y. Lim are in the possession of and are registered in the name of private respondent corporations, which under the law possess a personality separate and distinct from their stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed.

Accordingly, the probate court was remiss in denying private respondents motion for exclusion. While it may be true that the Regional Trial Court, acting in a restricted capacity and exercising limited jurisdiction as a probate court, is competent to issue orders involving inclusion or exclusion of certain properties in the inventory of the estate of the decedent, and to adjudge, albeit, provisionally the question of title over properties, it is no less true that such authority conferred upon by law and reinforced by jurisprudence, should be exercised judiciously, with due regard and caution to the peculiar circumstances of each individual case.Notwithstanding that the real properties were duly registered under the Torrens system in the name of private respondents, and as such were to be afforded the presumptive conclusiveness of title, the probate court obviously opted to shut its eyes to this gleamy fact and still proceeded to issue the impugned orders.By its denial of the motion for exclusion, the probate court in effect acted in utter disregard of the presumption of conclusiveness of title in favor of private respondents. Certainly, the probate court through such brazen act transgressed the clear provisions of law and infringed settled jurisprudence on this matter.Moreover, petitioner urges that not only the properties of private respondent corporations are properly part of the decedents estate but also the private respondent corporations themselves. To rivet such flimsy contention, petitioner cited that the late Pastor Y. Lim during his lifetime, organized and wholly-owned the five corporations, which are the private respondents in the instant case.25 Petitioner thus attached as Annexes "F"26 and "G"27 of the petition for review affidavits executed by Teresa Lim and Lani Wenceslao which among others, contained averments that the incorporators of Uniwide Distributing, Inc. included on the list had no actual participation in the organization and incorporation of the said corporation. The affiants added that the persons whose names appeared on the articles of incorporation of Uniwide Distributing, Inc., as incorporators thereof, are mere dummies since they have not actually contributed any amount to the capital stock of the corporation and have been merely asked by the late Pastor Y. Lim to affix their respective signatures thereon.It is settled that a corporation is clothed with personality separate and distinct from that of the persons composing it. It may not generally be held liable for that of the persons composing it. It may not be held liable for the personal indebtedness of its stockholders or those of the entities connected with it.28

Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its stockholders or members. In the same vein, a corporation by legal fiction and convenience is an entity shielded by a protective mantle and imbued by law with a character alien to the persons comprising it.Nonetheless, the shield is not at all times invincible. Thus, in FIRST PHILIPPINE INTERNATIONAL BANK vs. COURT OF APPEALS29, We enunciated:"x x x When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals. x x x"Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a seemingly separate one, were it not for the existing corporate fiction.30

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist, where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught.31

Further, the test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal right; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any of these elements prevent "piercing the corporate veil".32

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 a sufficient reason for disregarding the fiction of separate corporate personalities.33

Moreover, to disregard the separate juridical personality of a corporation, the wrong-doing must be clearly and convincingly established. It cannot be presumed.34

Granting arguendo that the Regional Trial Court in this case was not merely acting in a limited capacity as a probate court, petitioner nonetheless failed to adduce competent evidence that would have justified the court to impale the veil of corporate fiction. Truly, the reliance reposed by petitioner on the affidavits executed by Teresa Lim and Lani Wenceslao is unavailing considering that the aforementioned documents possess no weighty probative value pursuant to the hearsay rule. Besides it is imperative for us to stress that such affidavits are inadmissible in evidence inasmuch as the affiants were not at all presented during the course of the proceedings in the lower court. To put it differently, for this Court to uphold the admissibility of said documents would be to relegate from Our duty to apply such basic rule of evidence in a manner consistent with the law and jurisprudence.Our pronouncement in PEOPLE BANK AND TRUST COMPANY vs. LEONIDAS35 finds pertinence:"Affidavits are classified as hearsay evidence since they are not generally prepared by the affiant but by another who uses his own language in writing the affiants statements, which may thus be either omitted or misunderstood by the one writing them. Moreover, the adverse party is deprived of the opportunity to cross-examine the affiants. For this reason, affidavits are generally rejected for being hearsay, unless the affiant themselves are placed on the witness stand to testify thereon."As to the order36 of the lower court, dated 15 September 1995, the Court of Appeals correctly observed that the Regional Trial Court, Branch 93 acted without jurisdiction in issuing said order; The probate court had no authority to demand the production of bank accounts in the name of the private respondent corporations.WHEREFORE, in view of the foregoing disquisitions, the instant petition is hereby DISMISSED for lack of merit and the decision of the Court of Appeals which nullified and set aside the orders issued by the Regional Trial Court, Branch 93, acting as a probate court, dated 04 July 1995 and 12 September 1995 is AFFIRMED.SO ORDERED.

180. MALAYANG SAMAHAN V RAMOS

R E S O L U T I O N

GONZAGA-REYES, J.:

Before us is petitioners’ motion for partial reconsideration of our decision dated February 28, 2000,[1] the dispositive portion of which reads:[2]

“WHEREFORE, the petition is GRANTED; the decision of the National Labor Relations Commission in Case No. NCR-00-09-04199-89 is REVERSED and SET ASIDE; and the respondent company is hereby ordered to immediately reinstate the petitioners to their respective positions. Should reinstatement be not feasible, respondent company shall pay separation pay of one month salary for every year of service. Since petitioners were terminated without the requisite written notice at least 30 days prior to their termination, following the recent ruling in the case of Ruben Serrano vs. National Labor Relations Commission and Isetann Department Store, the respondent company is hereby ordered to pay full backwages to petitioner-employees while the Federation is also ordered to pay full backwages to petitioner-union officers who were dismissed upon its instigation. Since the dismissal of petitioners was without cause, backwages shall be computed from the time the herein petitioner employees and union officers were dismissed until their actual reinstatement. Should reinstatement be not feasible, their backwages shall be computed from the time petitioners were terminated until the finality of this decision. Costs against the respondent company.

SO ORDERED.”

Petitioners allege that this Court committed patent and palpable error in holding that “the respondent company officials cannot be held personally liable for damages on account of employees’ dismissal because the employer corporation has a personality separate and distinct from its officers who merely acted as its agents” whereas the records clearly established that respondent company officers Saul Tawil, Carlos T. Javelosa and Renato C. Puangco have caused the hasty, arbitrary and unlawful dismissal of petitioners from work; that as top officials of the respondent company who handed down the decision dismissing the petitioners, they are responsible for acts of unfair labor practice; that these respondent corporate officers should not be considered as mere agents of the company but the wrongdoers. Petitioners further contend that while the case was pending before the public respondents, the respondent company, in the early part of February 1990, began removing its machineries and equipment from its plant located at Merville Park, Paranaque and began diverting jobs intended for the regular employees to its sub-contractor/satellite branches;[3] that the respondent company officials are also the officers and incorporators of these satellite companies as shown in their articles of incorporation and the general information sheet. They added that during their ocular inspection of the plant site of the respondent company, they found that the same is being used by other unnamed business entities also engaged in the manufacture of garments. Petitioners further claim that the respondent company no longer operates its plant site as M. Greenfield thus it will be very difficult for them to fully enforce and implement the court’s decision. In their subsequent motion filed on the same day, petitioners also pray for the (A) inclusion of the names of employees listed in Annex “D” of the petition which they inadvertently omitted in the caption of the case, to wit: (1) Amores, Imelda (2) Andres, Josefina (3)Aragon, Felicidad (4) Arias, Genevive (5) Arroyo, Salvacion (6) Arceo, Elizabeth (7) Anonuevo, Monica (8) Abellada, Josefina (9) Advincula, Harmelina (10) Ajayo, Rosario (11) Alilay, Marilyn (12) Almario, Anliza (13) Almario, Angelita (14) Almazan, Marilou (15) Almonte, Rosalina (16) Alvaran, Marites (17) Alvarez, Edna (18) Ampo, Anacorita (19) Aquino, Leonisa (20) Bactat, Celia (21) Carpio, Azucena G. (22) Cruz, Amelia (23) Glifonia, Eugenia (24) Escurel, Evelyn F. (25) Hilario, Bonifacio G. (26) Payuan, Adoracion (27) Perez, Mercedita (28) Rempis, Zenaida (29) Rosario, Margie deL (30) Salvador, Norma (31) Sambayanan, Olivia (32) Tiaga, Aida (33) Torbela, Maria (34) Trono, Nenevina (35) Varona, Asuncion (36) Vasquez, Elisa M. (37) Villanueva, Milagros (38) Villapondo, Eva C. (39) Villon, Adeliza T.; (B) correction of their own typographical errors of the names of employees appearing in the caption, which should be as follows: Manuela Avelin, Belen Barquio, Lita Buquid, Violeta C. Ciervo, Marilou Dejocos, Maximina Faustino, Primitiva Gomez, Myrna Palaca, Mercedita Perez, Rebecca Poceran, Amorlita Rotairo, Emma Saludario, Tita Senis, Salvacion Wilson,[4] Anita Ahillon, Gregoria Arguelles, Tessie Balbis, Betty Borja, Rodrigo Buella, Celsa Doropan, Maria Enicame, Josephine Lasco, Julita Maniba, Juanita Osuyos, Juana Overencio, Azucena Postigo, Cristina Rapinan, Roselyn Rivero, Edeltrudes Romero, Rodelia Royandoyon, Fausta Segundo, Teodora Sulit, Elena Tebis, Paulina Valdez,[5]Susan Abogona, Diana Adovas, Carmen Rosimo Basco, Macaria Barrion, Maria Fe Berezo, Matilde de Blas, Rufina Bugnot, Aurora Bravo, Jovita Cera, Precila Carta, Amalia Eugenio, Milagros Fonseca, Jose Irlanda, Rowena Jarabejo, Regina Lapidario, Josie Marcos, Shirley Melegrito, Noemi Menguillo, Teresita Nierves, Ricardo Paloga, Florenia Ragos, Leonila Rodil, Emma Saludario, Narcisa Songuad, Josie Sumarsar, Evangeline Tayco;[6] (C) inclusion of other employees similarly situated whose names were not included in Annex “D” or in the caption of the case, to wit: (1) Dionisa Aban, (2) Alicia Aragon, (3) Vicky Francia, (4) Nelita F. Gelongos, (5) Erlinda San Juan, (6) Erlinda Baby Patungan Manalo, (7) Jenette Patungan,[7] (8) Blandina Simbahan,[8] (9) Asuncion Varona,[9] (10) Josefina Andres, (11) Teresita Arales, (12) Alice Artikulo, (13) Esther Cometa, (14) Eliza Cabiting, (15) Erlinda Dalut, (16) Edna Fernandez, (17) Emily Inocencio, (18) Esperanza Jalocon, (19) Imelda Jarabe, (20) Mercedes Pabadora, (21) Venerado Pastoral, (22) Cristina Perlas, (23) Margie del Rosario.[10]

In their Comment, the Solicitor General interposes no objection to petitioners’ prayer for the inclusion of omitted and similarly situated employees and the correction of employees’ names in the caption of the case.

On the other hand, private respondent company officials Carlos Javelosa and Remedios Caoleng, in their Comment, state that considering that petitioners admitted having knowledge of the fact that private respondent officers are also holding key positions in

the alleged satellite companies, they should have presented the pertinent evidence with the public respondents; thus it is too late for petitioners to require this Court to admit and evaluate evidence not presented during the trial; that the supposed proof of satellite companies hardly constitute newly discovered evidence. Respondent officials interpose no objection to the inclusion of employees inadvertently excluded in the caption of the case but object to the inclusion of employees who were allegedly similarly situated for the reason that these employees had not been parties to the case, hence should not be granted any relief from the court. Respondent company failed to file its comment.[11]

Petitioners’ contention that respondent company officials should be made personally liable for damages on account of petitioners’ dismissal is not impressed with merit. A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general from the people comprising it.[12] The rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities.[13] True, solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as, generally, in the following cases:[14]

1. When directors and trustees or, in appropriate cases, the officers of a corporation –

(a) Vote for or assent to patently unlawful acts of the corporation;

(b) act in bad faith or with gross negligence in directing the corporate affairs;

(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons.[15]

(2) When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto.[16]

(3) When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the Corporation.[17]

(4) When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.[18]

In labor cases, particularly, the Court has held corporate directors and officers solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith.[19] Bad faith or negligence is a question of fact and is evidentiary.[20] It has been held that bad faith does not connote bad judgement or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it partakes of the nature of fraud.[21]

In the instant case, there is nothing substantial on record to show that respondent officers acted in patent bad faith or were guilty of gross negligence in terminating the services of petitioners so as to warrant personal liability. As held in Sunio vs. NLRC,[22]

“We now come to the personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for the payment of the backwages of private respondents. This is reversible error. The Assistant Regional Director’s Decision failed to disclose the reason why he was made personally liable. Respondents, however, alleged as grounds thereof, his being the owner of one half (1/2) interest of said corporation, and his alleged arbitrary dismissal of private respondents.

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. 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. Petitioner Sunio, therefore, should nor have been made personally answerable for the payment of private respondents’ back salaries.”

Petitioners’ claim that the jobs intended for the respondent company’s regular employees were diverted to its satellite companies where the respondent company officers are holding key positions is not substantiated and was raised for the first time in this motion for reconsideration. Even assuming that the respondent company officials are also officers and incorporators of the satellite companies, such circumstance does not in itself amount to fraud. The documents attached to petitioners’ motion for reconsideration show that these satellite companies[23] were established prior to the filing of petitioners’ complaint against private respondents with the Department of Labor and Employment on September 6, 1989 and that these corporations have different sets of incorporators aside from the respondent officers and are holding their principal offices at different locations. Substantial identity of incorporators between respondent company and these satellite companies does not necessarily imply fraud.[24] In such a case, respondent company’s corporate personality remains inviolable.[25]

Although there were earlier decisions of this Court in labor cases where corporate officers were held to be personally liable for the payment of wages and other money claims to its employees, we find those rulings inapplicable to this case. In La Campana Coffee Factory, Inc. vs. Kaisahan ng Manggagawa sa La Campana (KKM),[26] La Campana Coffee Factory, Inc. and La Campana Gaugau Packing

were substantially owned by the same person. They had one office, one management, and a single payroll for both businesses. The laborers of the gaugau factory and the coffee factory were also interchangeable, i.e., the workers in one factory worked also in the other factory.

In Claparols vs. Court of Industrial Relations,[27] the Claparol Steel and Nail Plant which was ordered to pay its workers backwages, ceased operations on June 30, 1957 and was succeeded on the next day, July 1, 1957 by the Claparols Steel Corporation. Both corporations were substantially owned and controlled by the same person and there was no break or cessation in operations. Moreover, all the assets of the steel and nail plant were transferred to the new corporation.

Notably, in the above-mentioned cases, a new corporation was created, owned by the same family, engaged in the same business and operating in the same compound, a situation which is not obtaining in the instant case.

In AC Ransom Labor Union-CCLU vs. NLRC,[28] the Court ruled that under the Minimum Wage Law, the responsible officer of an employer corporation can be held personally liable for non-payment of backwages for “if the policy of the law were otherwise, the corporation employer would have devious ways for evading of back wages.” This Court said:

“In the instant case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of backwages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased operations on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM.”

Clearly, the situation in AC Ransom does not obtain in this case, where the alleged satellite companies were established even prior to the filing of petitioners’ complaint with the Department of Labor.

Petitioners’ prayer for the inclusion of employees listed in Annex “D” whose names were admittedly inadvertently excluded in the caption of the case and for the correction of typographical errors of the employees’ names appearing in the caption, is well taken and is hereby granted. However, petitioners’ prayer for the inclusion of other employees allegedly similarly situated but whose names were not included either in Annex “D” or in the caption of the case must be denied. A judgment cannot bind persons who are not parties to the action.[29] It is elementary that strangers to a case are not bound by the judgment rendered by the court and such judgment is not available as an adjudication either against or in favor of such other person.[30] Petitioners failed to explain why these employees allegedly similarly situated were not included in the submitted list filed before us. Such inclusion would be tantamount to a substantial amendment which cannot be allowed at this late stage of the proceedings as it will definitely work to the prejudice and disadvantage of the private respondents.[31]

WHEREFORE, petitioners’ motion for reconsideration is partially granted so as to include the names of employees listed in Annex “D” which petitioners inadvertently omitted in the caption of this case, to wit: (1) Amores, Imelda (2) Andres, Josefina (3) Aragon, Felicidad (4) Arias, Genevive (5) Arroyo, Salvacion (6) Arceo, Elizabeth (7) Anonuevo, Monica (8) Abellada, Josefina (9) Advincula, Harmelina (10) Ajayo, Rosario (11) Alilay, Marilyn (12) Almario, Anliza (13) Almario, Angelita (14) Almazan, Marilou (15) Almonte, Rosalina (16) Alvaran, Marites (17) Alvarez, Edna (18) Ampo, Anacorita (19) Aquino, Leonisa (20) Bactat, Celia (21) Carpio, Azucena G. (22) Cruz, Amelia (23) Glifonia, Eugenia (24) Escurel, Evelyn F. (25) Hilario, Bonifacio G. (26) Payuan, Adoracion (27) Perez, Mercedita (28) Rempis, Zenaida (29) Rosario, Margie del (30) Salvador, Norma (31) Sambayanan, Olivia (32) Tiaga, Aida (33) Torbela, Maria (34) Trono, Nenevina (35) Varona, Asuncion (36) Vasquez, Elisa M. (37) Villanueva, Milagros (38) Villapondo, Eva C. (39) Villon, Adeliza T.; and to correct the typographical errors of the names of employees appearing in the caption, as follows: Manuela Avelin, Belen Barquio, Lita Buquid, Violeta C. Ciervo, Marilou Dejocos, Maximina Faustino, Primitiva Gomez, Myrna Palaca, Mercedita Perez, Rebecca Poceran, Amorlita Rotairo, Emma Saludario, Tita Senis, Salvacion Wilson, Anita Ahillon, Gregoria Arguelles, Tessie Balbis, Betty Borja, Rodrigo Buella, Celsa Doropan, Maria Enicame, Josephine Lasco, Julita Maniba, Juanita Osuyos, Juana Overencio, Azucena Postigo, Cristina Rapinan, Roselyn Rivero, Edeltrudes Romero, Rodelia Royandoyon, Fausta Segundo, Teodora Sulit, Elena Tebis, Paulina Valdez, Susan Abogona, Diana Adovas, Carmen Rosimo Basco, Macaria Barrion, Maria Fe Berezo, Matilde de Blas, Rufina Bugnot, Aurora Bravo, Jovita Cera, Precila Carta, Amalia Eugenio, Milagros Fonseca, Jose Irlanda, Rowena Jarabejo, Regina Lapidario, Josie Marcos, Shirley Melegrito, Noemi Menguillo, Teresita Nierves, Ricardo Paloga, Florenia Ragos, Leonila Rodil, Emma Saludario, Narcisa Songuad, Josie Sumarsar, Evangeline Tayco.

SO ORDERED.

184. THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD., petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J. DIOSANA AND MARCELO G. SANTOS,respondents.

PARDO, J.:

The case before the Court is a petition for certiorari1 to annul the following orders of the National Labor Relations Commission (hereinafter referred to as "NLRC") for having been issued without or with excess jurisdiction and with grave abuse of discretion:2

(1) Order of May 31, 1993.3 Reversing and setting aside its earlier resolution of August 28, 1992.4 The questioned order declared that the NLRC, not the Philippine Overseas Employment Administration (hereinafter referred to as "POEA"), had jurisdiction over private respondent's complaint;

(2) Decision of December 15, 1994.5 Directing petitioners to jointly and severally pay private respondent twelve thousand and six hundred dollars (US$ 12,600.00) representing salaries for the unexpired portion of his contract; three thousand six hundred dollars (US$3,600.00) as extra four months salary for the two (2) year period of his contract, three thousand six hundred dollars (US$3,600.00) as "14th month pay" or a total of nineteen thousand and eight hundred dollars (US$19,800.00) or its peso equivalent and attorney's fees amounting to ten percent (10%) of the total award; and

(3) Order of March 30, 1995.6 Denying the motion for reconsideration of the petitioners.

In May, 1988, private respondent Marcelo Santos (hereinafter referred to as "Santos") was an overseas worker employed as a printer at the Mazoon Printing Press, Sultanate of Oman. Subsequently, in June 1988, he was directly hired by the Palace Hotel, Beijing, People's Republic of China and later terminated due to retrenchment.

Petitioners are the Manila Hotel Corporation (hereinafter referred to as "MHC") and the Manila Hotel International Company, Limited (hereinafter referred to as "MHICL").

When the case was filed in 1990, MHC was still a government-owned and controlled corporation duly organized and existing under the laws of the Philippines.

MHICL is a corporation duly organized and existing under the laws of Hong Kong.7 MHC is an "incorporator" of MHICL, owning 50% of its capital stock.8

By virtue of a "management agreement"9 with the Palace Hotel (Wang Fu Company Limited), MHICL10 trained the personnel and staff of the Palace Hotel at Beijing, China.

Now the facts.

During his employment with the Mazoon Printing Press in the Sultanate of Oman, respondent Santos received a letter dated May 2, 1988 from Mr. Gerhard R. Shmidt, General Manager, Palace Hotel, Beijing, China. Mr. Schmidt informed respondent Santos that he was recommended by one Nestor Buenio, a friend of his.

Mr. Shmidt offered respondent Santos the same position as printer, but with a higher monthly salary and increased benefits. The position was slated to open on October 1, 1988.11

On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified his acceptance of the offer.

On May 19, 1988, the Palace Hotel Manager, Mr. Hans J. Henk mailed a ready to sign employment contract to respondent Santos. Mr. Henk advised respondent Santos that if the contract was acceptable, to return the same to Mr. Henk in Manila, together with his passport and two additional pictures for his visa to China.

On May 30, 1988, respondent Santos resigned from the Mazoon Printing Press, effective June 30, 1988, under the pretext that he was needed at home to help with the family's piggery and poultry business.

On June 4, 1988, respondent Santos wrote the Palace Hotel and acknowledged Mr. Henk's letter. Respondent Santos enclosed four (4) signed copies of the employment contract (dated June 4, 1988) and notified them that he was going to arrive in Manila during the first week of July 1988.

The employment contract of June 4, 1988 stated that his employment would commence September 1, 1988 for a period of two years.12 It provided for a monthly salary of nine hundred dollars (US$900.00) net of taxes, payable fourteen (14) times a year.13

On June 30, 1988, respondent Santos was deemed resigned from the Mazoon Printing Press.

On July 1, 1988, respondent Santos arrived in Manila.

On November 5, 1988, respondent Santos left for Beijing, China. He started to work at the Palace Hotel.14

Subsequently, respondent Santos signed an amended "employment agreement" with the Palace Hotel, effective November 5, 1988. In the contract, Mr. Shmidt represented the Palace Hotel. The Vice President (Operations and Development) of petitioner MHICL Miguel D. Cergueda signed the employment agreement under the word "noted".

From June 8 to 29, 1989, respondent Santos was in the Philippines on vacation leave. He returned to China and reassumed his post on July 17, 1989.

On July 22, 1989, Mr. Shmidt's Executive Secretary, a certain Joanna suggested in a handwritten note that respondent Santos be given one (1) month notice of his release from employment.

On August 10, 1989, the Palace Hotel informed respondent Santos by letter signed by Mr. Shmidt that his employment at the Palace Hotel print shop would be terminated due to business reverses brought about by the political upheaval in China.15 We quote the letter:16

"After the unfortunate happenings in China and especially Beijing (referring to Tiannamen Square incidents), our business has been severely affected. To reduce expenses, we will not open/operate printshop for the time being.

"We sincerely regret that a decision like this has to be made, but rest assured this does in no way reflect your past performance which we found up to our expectations."

"Should a turnaround in the business happen, we will contact you directly and give you priority on future assignment."

On September 5, 1989, the Palace Hotel terminated the employment of respondent Santos and paid all benefits due him, including his plane fare back to the Philippines.

On October 3, 1989, respondent Santos was repatriated to the Philippines.

On October 24, 1989, respondent Santos, through his lawyer, Atty. Ednave wrote Mr. Shmidt, demanding full compensation pursuant to the employment agreement.

On November 11, 1989, Mr. Shmidt replied, to wit:17

His service with the Palace Hotel, Beijing was not abruptly terminated but we followed the one-month notice clause and Mr. Santos received all benefits due him.

"For your information the Print Shop at the Palace Hotel is still not operational and with a low business outlook, retrenchment in various departments of the hotel is going on which is a normal management practice to control costs.

"When going through the latest performance ratings, please also be advised that his performance was below average and a Chinese National who is doing his job now shows a better approach.

"In closing, when Mr. Santos received the letter of notice, he hardly showed up for work but still enjoyed free accommodation/laundry/meals up to the day of his departure."

On February 20, 1990, respondent Santos filed a complaint for illegal dismissal with the Arbitration Branch, National Capital Region, National Labor Relations Commission (NLRC). He prayed for an award of nineteen thousand nine hundred and twenty three dollars (US$19,923.00) as actual damages, forty thousand pesos (P40,000.00) as exemplary damages and attorney's fees equivalent to 20% of the damages prayed for. The complaint named MHC, MHICL, the Palace Hotel and Mr. Shmidt as respondents.

The Palace Hotel and Mr. Shmidt were not served with summons and neither participated in the proceedings before the Labor Arbiter.18

On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case against petitioners, thus:19

"WHEREFORE, judgment is hereby rendered:

"1. directing all the respondents to pay complainant jointly and severally;

"a) $20,820 US dollars or its equivalent in Philippine currency as unearned salaries;

"b) P50,000.00 as moral damages;

"c) P40,000.00 as exemplary damages; and

"d) Ten (10) percent of the total award as attorney's fees.

"SO ORDERED."

On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA, not the NLRC had jurisdiction over the case.

On August 28, 1992, the NLRC promulgated a resolution, stating:20

"WHEREFORE, let the appealed Decision be, as it is hereby, declared null and void for want of jurisdiction. Complainant is hereby enjoined to file his complaint with the POEA.

"SO ORDERED."

On September 18, 1992, respondent Santos moved for reconsideration of the afore-quoted resolution. He argued that the case was not cognizable by the POEA as he was not an "overseas contract worker."21

On May 31, 1993, the NLRC granted the motion and reversed itself. The NLRC directed Labor Arbiter Emerson Tumanon to hear the case on the question of whether private respondent was retrenched or dismissed.22

On January 13, 1994, Labor Arbiter Tumanon completed the proceedings based on the testimonial and documentary evidence presented to and heard by him.23

Subsequently, Labor Arbiter Tumanon was re-assigned as trial Arbiter of the National Capital Region, Arbitration Branch, and the case was transferred to Labor Arbiter Jose G. de Vera.24

On November 25, 1994, Labor Arbiter de Vera submitted his report.25 He found that respondent Santos was illegally dismissed from employment and recommended that he be paid actual damages equivalent to his salaries for the unexpired portion of his contract.26

On December 15, 1994, the NLRC ruled in favor of private respondent, to wit:27

"WHEREFORE, finding that the report and recommendations of Arbiter de Vera are supported by substantial evidence, judgment is hereby rendered, directing the respondents to jointly and severally pay complainant the following computed contractual benefits: (1) US$12,600.00 as salaries for the unexpired portion of the parties' contract; (2) US$3,600.00 as extra four (4) months salary for the two (2) years period (sic) of the parties' contract; (3) US$3,600.00 as "14th month pay" for the aforesaid two (2) years contract stipulated by the parties or a total of US$19,800.00 or its peso equivalent, plus (4) attorney's fees of 10% of complainant's total award.

"SO ORDERED."

On February 2, 1995, petitioners filed a motion for reconsideration arguing that Labor Arbiter de Vera's recommendation had no basis in law and in fact.28

On March 30, 1995, the NLRC denied the motion for reconsideration.29

Hence, this petition.30

On October 9, 1995, petitioners filed with this Court an urgent motion for the issuance of a temporary restraining order and/or writ of preliminary injunction and a motion for the annulment of the entry of judgment of the NLRC dated July 31, 1995.31

On November 20, 1995, the Court denied petitioner's urgent motion. The Court required respondents to file their respective comments, without giving due course to the petition.32

On March 8, 1996, the Solicitor General filed a manifestation stating that after going over the petition and its annexes, they can not defend and sustain the position taken by the NLRC in its assailed decision and orders. The Solicitor General prayed that he be excused from filing a comment on behalf of the NLRC33

On April 30,1996, private respondent Santos filed his comment.34

On June 26, 1996, the Court granted the manifestation of the Solicitor General and required the NLRC to file its own comment to the petition.35

On January 7, 1997, the NLRC filed its comment.

The petition is meritorious.

I. Forum Non-Conveniens

The NLRC was a seriously inconvenient forum.

We note that the main aspects of the case transpired in two foreign jurisdictions and the case involves purely foreign elements. The only link that the Philippines has with the case is that respondent Santos is a Filipino citizen. The Palace Hotel and MHICL are foreign corporations. Not all cases involving our citizens can be tried here.

The employment contract. — Respondent Santos was hired directly by the Palace Hotel, a foreign employer, through correspondence sent to the Sultanate of Oman, where respondent Santos was then employed. He was hired without the intervention of the POEA or any authorized recruitment agency of the government.36

Under the rule of forum non conveniens, a Philippine court or agency may assume jurisdiction over the case if it chooses to do so provided: (1) that the Philippine court is one to which the parties may conveniently resort to; (2) that the Philippine court is in a position to make an intelligent decision as to the law and the facts; and (3) that the Philippine court has or is likely to have power to enforce its decision.37 The conditions are unavailing in the case at bar.

Not Convenient. — We fail to see how the NLRC is a convenient forum given that all the incidents of the case — from the time of recruitment, to employment to dismissal occurred outside the Philippines. The inconvenience is compounded by the fact that the proper defendants, the Palace Hotel and MHICL are not nationals of the Philippines. Neither .are they "doing business in the Philippines." Likewise, the main witnesses, Mr. Shmidt and Mr. Henk are non-residents of the Philippines.

No power to determine applicable law. — Neither can an intelligent decision be made as to the law governing the employment contract as such was perfected in foreign soil. This calls to fore the application of the principle of lex loci contractus (the law of the place where the contract was made).38

The employment contract was not perfected in the Philippines. Respondent Santos signified his acceptance by writing a letter while he was in the Republic of Oman. This letter was sent to the Palace Hotel in the People's Republic of China.

No power to determine the facts. — Neither can the NLRC determine the facts surrounding the alleged illegal dismissal as all acts complained of took place in Beijing, People's Republic of China. The NLRC was not in a position to determine whether the Tiannamen Square incident truly adversely affected operations of the Palace Hotel as to justify respondent Santos' retrenchment.

Principle of effectiveness, no power to execute decision. — Even assuming that a proper decision could be reached by the NLRC, such would not have any binding effect against the employer, the Palace Hotel. The Palace Hotel is a corporation incorporated under the laws of China and was not even served with summons. Jurisdiction over its person was not acquired.

This is not to say that Philippine courts and agencies have no power to solve controversies involving foreign employers. Neither are we saying that we do not have power over an employment contract executed in a foreign country. If Santos were an "overseas contract worker", a Philippine forum, specifically the POEA, not the NLRC, would protect him.39 He is not an "overseas contract worker" a fact which he admits with conviction.40

Even assuming that the NLRC was the proper forum, even on the merits, the NLRC's decision cannot be sustained.

II. MHC Not Liable

Even if we assume two things: (1) that the NLRC had jurisdiction over the case, and (2) that MHICL was liable for Santos' retrenchment, still MHC, as a separate and distinct juridical entity cannot be held liable.

True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital stock. However, this is not enough to pierce the veil of corporate fiction between MHICL and MHC.

Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend a crime. 41 It is done only when a corporation is a mere alter ego or business conduit of a person or another corporation.

In Traders Royal Bank v. Court of Appeals,42 we held that "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 a sufficient reason for disregarding the fiction of separate corporate personalities."

The tests in determining whether the corporate veil may be pierced are: First, the defendant must have control or complete domination of the other corporation's finances, policy and business practices with regard to the transaction attacked. There must be proof that the other corporation had no separate mind, will or existence with respect the act complained of. Second, control must be used by the defendant to commit fraud or wrong. Third, the aforesaid control or breach of duty must be the proximate cause of the injury or loss complained of. The absence of any of the elements prevents the piercing of the corporate veil.43

It is basic that a corporation has a personality separate and distinct from those composing it as well as from that of any other legal entity to which it may be related.44 Clear and convincing evidence is needed to pierce the veil of corporate fiction.45 In this case, we find no evidence to show that MHICL and MHC are one and the same entity.

III. MHICL not Liable

Respondent Santos predicates MHICL's liability on the fact that MHICL "signed" his employment contract with the Palace Hotel. This fact fails to persuade us.

First, we note that the Vice President (Operations and Development) of MHICL, Miguel D. Cergueda signed the employment contract as a mere witness. He merely signed under the word "noted".

When one "notes" a contract, one is not expressing his agreement or approval, as a party would.46 In Sichangco v. Board of Commissioners of Immigration,47 the Court recognized that the term "noted" means that the person so noting has merely taken cognizance of the existence of an act or declaration, without exercising a judicious deliberation or rendering a decision on the matter.

Mr. Cergueda merely signed the "witnessing part" of the document. The "witnessing part" of the document is that which, "in a deed or other formal instrument is that part which comes after the recitals, or where there are no recitals, after the parties (emphasis ours)."48 As opposed to a party to a contract, a witness is simply one who, "being present, personally sees or perceives a thing; a beholder, a spectator, or eyewitness."49 One who "notes" something just makes a "brief written statement"50 a memorandum or observation.

Second, and more importantly, there was no existing employer-employee relationship between Santos and MHICL. In determining the existence of an employer-employee relationship, the following elements are considered:51

"(1) the selection and engagement of the employee;

"(2) the payment of wages;

"(3) the power to dismiss; and

"(4) the power to control employee's conduct."

MHICL did not have and did not exercise any of the aforementioned powers. It did not select respondent Santos as an employee for the Palace Hotel. He was referred to the Palace Hotel by his friend, Nestor Buenio. MHICL did not engage respondent Santos to work. The terms of employment were negotiated and finalized through correspondence between respondent Santos, Mr. Schmidt and Mr. Henk, who were officers and representatives of the Palace Hotel and not MHICL. Neither did respondent Santos adduce any proof that MHICL had the power to control his conduct. Finally, it was the Palace Hotel, through Mr. Schmidt and not MHICL that terminated respondent Santos' services.

Neither is there evidence to suggest that MHICL was a "labor-only contractor."52 There is no proof that MHICL "supplied" respondent Santos or even referred him for employment to the Palace Hotel.

Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and the same entity. The fact that the Palace Hotel is a member of the "Manila Hotel Group" is not enough to pierce the corporate veil between MHICL and the Palace Hotel.

IV. Grave Abuse of Discretion

Considering that the NLRC was forum non-conveniens and considering further that no employer-employee relationship existed between MHICL, MHC and respondent Santos, Labor Arbiter Ceferina J. Diosana clearly had no jurisdiction over respondent's claim in NLRC NCR Case No. 00-02-01058-90.

Labor Arbiters have exclusive and original jurisdiction only over the following:53

"1. Unfair labor practice cases;

"2. Termination disputes;

"3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of employment;

"4. Claims for actual, moral, exemplary and other forms of damages arising from employer-employee relations;

"5. Cases arising from any violation of Article 264 of this Code, including questions involving legality of strikes and lockouts; and

"6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims, arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement."

In all these cases, an employer-employee relationship is an indispensable jurisdictional requirement.

The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code is limited to disputes arising from an employer-employee relationship which can be resolved by reference to the Labor Code, or other labor statutes, or their collective bargaining agreements.54

"To determine which body has jurisdiction over the present controversy, we rely on the sound judicial principle that jurisdiction over the subject matter is conferred by law and is determined by the allegations of the complaint irrespective of whether the plaintiff is entitled to all or some of the claims asserted therein."55

The lack of jurisdiction of the Labor Arbiter was obvious from the allegations of the complaint. His failure to dismiss the case amounts to grave abuse of discretion.56

V. The Fallo

WHEREFORE, the Court hereby GRANTS the petition for certiorari and ANNULS the orders and resolutions of the National Labor Relations Commission dated May 31, 1993, December 15, 1994 and March 30, 1995 in NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-01058-90).

No costs.

187. MARUBENI CORPORATION, RYOICHI TANAKA, RYOHEI KIMURA and SHOICHI ONE, petitioners, vs.FELIX LIRAG, respondent.

PARDO, J.:

The case is an appeal via certiorari to annul and set aside the decision1 of the Court of Appeals finding petitioners Ryoichi Tanaka, Ryohei Kimura and Shoichi One, as officers of petitioner Marubeni Corporation, jointly and severally liable with the corporation for the commission claimed by respondent Felix Lirag in the amount of six million (P6,000,000.00) pesos arising from an oral consultancy agreement.

Petitioner Marubeni Corporation (hereafter, Marubeni) is a foreign corporation organized and existing under the laws of Japan. It was doing business in the Philippines through its duly licensed, wholly owned subsidiary, Marubeni Philippines Corporation. Petitioners Ryoichi Tanaka, Ryohei Kimura and Shoichi One were officers of Marubeni assigned to its Philippine branch.2

On January 27, 1989, respondent Felix Lirag filed with the Regional Trial Court, Makati a complaint3 for specific performance and damages claiming that petitioners owed him the sum of P6,000,000.00 representing commission pursuant to an oral consultancy agreement with Marubeni. Lirag claimed that on February 2, 1987, petitioner Ryohei Kimura hired his consultancy group for the purpose of obtaining government contracts of various projects. Petitioner Kimura authorized him to work on the following projects: (1) National Telephone Project, (2) Regional Telecommunications Project; (3) Cargo Handling Equipment; (4) Maritime Communications; (5) Philippine National Railways Depot; and (6) Bureau of Posts (Phase II).4 Petitioners promised to pay him six percent (6%) consultancy fee based on the total costs of the projects obtained.

The consultancy agreement was not reduced into writing because of the mutual trust between Marubeni and the Lirag family.5 Their close business and personal relationship dates back to 1960, when respondent's family was engaged in the textile fabric manufacturing business, in which Marubeni supplied the needed machinery, equipment, spare parts and raw materials.6

In compliance with the agreement, respondent Lirag made representations with various government officials, arranged for meetings and conferences, relayed pertinent information as well as submitted feasibility studies and project proposals, including pertinent documents required by petitioners. As petitioners had been impressed with respondent's performance, six (6) additional projects were given to his group under the same undertaking.7

One of the projects handled by respondent Lirag, the Bureau of Post project, amounting to P100,000,000.00 was awarded to the "Marubeni-Sanritsu tandem."8 Despite respondent's repeated formal verbal demands for payment of the agreed consultancy fee, petitioners did not pay. In response to the first demand letter, petitioners promised to reply within fifteen (15) days, but they did not do so.

Pursuant to the consultancy agreement, respondent claimed a commission of six percent (6%) of the total contract price, or a total of P6,000,000.00, or in the alternative, that he be paid the same amount by way of damages or as the reasonable value of the services he rendered to petitioners, and further claimed twenty percent (20%) of the amount recoverable as attorney's fees and the costs of suit.

In their answer, petitioners denied the consultancy agreement. Petitioner Ryohei Kimura did not have the authority to enter into such agreement in behalf of Marubeni. Only Mr. Morihiko Maruyama, the general manager, upon issuance of a special power of attorney by the principal office in Tokyo, Japan, could enter into any contract in behalf of the corporation. Mr. Maruyama did not discuss with respondent Lirag any of the matters alleged in the complaint, nor agreed to the payment of commission. Moreover, Marubeni did not participate in the bidding for the Bureau of Post project, nor benefited from the supposed project. Thus, petitioners moved for the dismissal of the complaint.

Petitioner Shoichi One submitted a separate answer raising similar arguments.

With regard to petitioner Ryohei Kimura, the trial court did not acquire jurisdiction over his person because he was recalled to the principal office in Tokyo, Japan before the complaint and the summons could be served on him.

During the pre-trial conferences held on September 18 and October 16, 1989 and on January 24, March 15 and May 17, 1990, no amicable settlement was reached. Trial on the merits ensued.

On April 29, 1993, the trial court promulgated a decision and ruled that respondent is entitled to a commission. Respondent was led to believe that there existed an oral consultancy agreement. Hence, he performed his part of the agreement and helped petitioners get the project. The dispositive portion of the decision reads:

"WHEREFORE, defendants are ordered, jointly and severally, to pay to the plaintiff: (1) the amount of P6,000,000.00, with interest at the legal rate (12% per annum) from January 10, 1989 until fully paid; (2) 20% of this amount to serve as reimbursement of plaintiff's attorney's fees; and (3) to pay the cost of the suit.

"SO ORDERED.

"Makati, Metro Manila, April 29, 1993.

"[Original Signed]"SALVADOR P. DE GUZMAN, Jr."Pairing Judge"9

On May 26, 1993, petitioners interposed an appeal from the decision to the Court of Appeals.10

After due proceedings, on October 9, 1997, the Court of Appeals promulgated a decision affirming the decision of the trial court. The Court of Appeals ruled that preponderance of evidence favored the existence of a consultancy agreement between the parties. It upheld the factual findings of the trial court, thus:

"Plaintiff's evidence details the efforts he exerted after having been extended an appointment by Marubeni as its consultant. He tendered a thanksgiving dinner for the defendants at the Nandau Restaurant; he and Napoleon Rama visited Marubeni's Morihiko Maruyama in the latter's office during which they discussed the BOP II project. He arranged several conferences between the Marubeni officials and Postmaster General Angelito Banayo. In one meeting which took place in the office of Mr. Banayo at Liwasang Bonifacio, a Mr. Ida, the General Manager of Sanritsu, was conspicuously present. Mr. Banayo testified that Mr. Ida told him that Sanritsu was representing Marubeni in the BOP II project (tsn., 6/11/90, pp. 15-17; 5/15/91, pp. 10-12). At least thirty (30) conferences between plaintiff and defendants took place at the Marubeni offices, lasting at least two hours each meeting. Eventually, the bid was awarded by the Bureau of Post to Sanritsu. Aware that Sanritsu represented Marubeni, and in fact Marubeni assigned Sanritsu to enter its bid, plaintiff sent his bill for his services to the defendants in a letter dated April 20, 1988. This was followed by a letter dated September 26, 1990 of plaintiff's counsel. This time Mr. Tanaka asked for 15 days within which to contact their Head Office to seek instructions."11

The Court of Appeals relied on the doctrine of admission by silence12 in upholding the existence of a consultancy agreement, noting that petitioner Tanaka's reaction to respondent's September 26, 1988 demand letter was not consistent with their claim that there was no consultancy agreement. On the contrary, it lent credence to respondent's claim that they had an existing consultancy agreement. Petitioner Tanaka's response dated October 13, 1988 to the demand letter of September 26, 1988 reads:

"Referring to your letter dated September 26, 1988, we are pleased to inform you that the issue is currently being reviewed by us and we would like to reply to you within fifteen (15) days."13

The Court of Appeals observed that if indeed there were no consultancy agreement, it would have been easy for petitioners to simply deny respondent's claim. Yet, they did not do so. The conglomeration of these circumstances bolstered the existence of the oral consultancy agreement. The dispositive portion of the decision reads:

"WHEREFORE, the decision appealed from is hereby AFFIRMED."14

Hence, this appeal.15

In this appeal, petitioners raise the following issues: (1) whether or not there was a consultancy agreement between petitioners and respondent; and corollary to this, (2) whether or not respondent is entitled to receive a commission if there was, in fact, a consultancy agreement.16

We find the appeal meritorious.

In deciding this appeal, we rely on the rule that a party who has the burden of proof in a civil case must establish his case by a preponderance of evidence.17 When the evidence of the parties is in equipoise, or when there is a doubt as to where the preponderance of evidence lies, the party with the burden of proof fails and the petition must thus be denied.18

As a general rule, factual findings of the Court of Appeals are conclusive on the parties and are not reviewed by the Supreme Court — and they carry even more weight when the Court of Appeals affirmed the factual findings of the trial court. It is not the function of the Supreme Court to weigh anew the evidence passed upon by the Court of Appeals.19 Moreover, only questions of law may be raised before the Supreme Court in a petition for review under Rule 45 of the Revised Rules of Court.20

However, the rule is subject to exceptions,21 such as when the conclusion is grounded on speculation, surmises, or conjectures,22 as in the instant case.

An assiduous scrutiny of the testimonial and documentary evidence extant leads us to the conclusion that the evidence could not support a solid conclusion that a consultancy agreement, oral or written, was agreed between petitioners and respondent. Respondent attempted to fortify his own testimony by presenting several corroborative witnesses. However, what was apparent in the testimonies of these witnesses was the fact that they learned about the existence of the consultancy agreement only because that was what respondent told them.23

In civil cases, he who alleges a fact has the burden of proving it; a mere allegation is not evidence.24 He must establish his cause by a preponderance of evidence,25 which respondent failed to establish in the instant case.

Assuming for the sake of argument that an oral consultancy agreement has been perfected between the parties, respondent Lirag could not still claim fees on the project that has not been awarded to Marubeni.

If respondent's contentions were to be taken as truth, he would be entitled to 6% consulting fee based on the total cost of the projects obtained,26 or on success basis.27 However, even respondent admitted that the Bureau of Post project was not awarded to Marubeni, but to Sanritsu.28 Marubeni did not even join the bidding for the Bureau of Post project.

Respondent could not claim from Sanritsu because of the absence of any agreement between him and the latter. When asked to clarify whether he has an existing consultancy agreement with Sanritsu, respondent answered in the negative, thus:

"COURT:

One clarificatory question —

Do you have any consultancy service contract with Marubeni/San Ritsu — do you have?

A: No, sir. I have only Consultancy Agreement on verbal basis with Marubeni."29

Hence, how could he be entitled to the 6% commission, when it was not his client who won in the bidding?

Respondent tried to justify his commission of roughly about P6,000,000.00 in the guise that Marubeni and Sanritsu are sister corporations, thereby implying the need to pierce the veil of corporate fiction. Respondent claimed that Marubeni as the supplier and real contractor of the project hired and sub-contracted the project to Sanritsu.

We believe that this line of reasoning is too far-fetched. Not because two foreign companies came from the same country and closely worked together on certain projects would the conclusion arise that one was the conduit of the other, thus piercing the veil of corporate fiction.

To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed. The separate personality of the corporation may be disregarded only when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary for the protection of creditors.30 We could not just rely on respondent's testimony regarding the existence of the "Marubeni-Sanritsu tandem" to justify his claim for payment of commission. This conclusion is too conjectural to be believed.

Aside from the self-serving testimony of respondent regarding the existence of a close working relationship between Marubeni and Sanritsu, there was nothing that would support the conclusion that Sanritsu was an agent of Marubeni. Mr. Lito Banayo, whom respondent presented to corroborate his testimony on this particular issue said, thus:

"ATTY. VALERO

My question is — do you know for a fact whether the impression you have about Japanese Trading Firm working through Agents was the relationship between Marubeni and San Ritsu when Mr. Ida said that they were working together?

"A: I did not know for a fact because I did not see any contract between Marubeni and San Ritsu presented to me."31

Contrary to the trial court's finding that petitioners led respondent to believe that they hired respondent's services as consultant, the evidence proved otherwise. Petitioner Shoichi One, one of the officers of Marubeni Phils., testified that at the onset, Marubeni Phils. informed respondent that it had no authority to commit to anything, as it all depended on the decision of the principal headquarters in Tokyo, Japan. However, respondent Lirag insisted on providing assistance to Marubeni to get coveted government contracts because Marubeni might encounter difficulties due to discrimination from the government.32 Despite such knowledge, respondent said that "it's alright" with him as he "believes Marubeni was an old time friend so he wanted to work for those projects."33 Hence, how could petitioners be guilty of misleading respondent on the acceptance of the latter's offer of consultancy service?

With regard to the Court of Appeal's ratiocination that petitioner Tanaka's response dated October 13, 1988 to the demand letter of September 26, 1988, amounted to an implied admission of the consultancy agreement, the records showed that, to the contrary, this fact strengthened petitioners' allegation that Marubeni Phils. lacked the requisite authority to enter into any binding agreement.

As explained by petitioner Shoichi One, Marubeni Phils. could enter into a consultancy agreement only after submitting a recommendation to the principal headquarters in Tokyo, Japan. If the office in Tokyo, Japan agrees to hire consultants, it would then give a power of attorney to its general manager in Manila authorizing the latter to enter into such agreement.

In the instant case, the parties did not reach the second stage as the headquarters in Tokyo, Japan did not see it fit to hire a consultant as they decided not to participate in the bidding. Hence, no consultancy agreement was perfected, whether oral or written. There was no absolute acceptance of respondent's offer of consultancy services.

Assuming arguendo that the petitioner accepted respondent's offer of consultancy services, we could not give legal imprimatur to the agreement. The service rendered by respondent contemplated the exploitation of personal influence and solicitation on a public officer.

Respondent said that petitioners sought out his services because they "needed somebody who can help them 'penetrate' and establish goodwill" with the government.34 Petitioners found it difficult to arrange a meeting with Postmaster General Angelito Banayo because of petitioners' reputation of engaging in questionable transactions.35 Suddenly, through the intervention of respondent, the postmaster general became accessible to petitioners. This became possible because of respondent's close personal relationship with the postmaster general, his trusted and long-time friend.36 Respondent testified, to wit:

"Q: In other words you are saying that Marubeni and San Ritsu representatives had a conference with the Post Master General Banayo in connection with this Project?

"A: Yes and I was the one who made the arrangement."37

In another instance, respondent said, thus:

"WITNESS:

What we have done by that . . . first, Mr. Banayo went to Tokyo and when he was in Tokyo we were able to arrange the Marubeni representative in Tokyo to meet and talk with Mr. Banayo in Tokyo . . .

"COURT:

Mr. . . . ?

"A. . . . Banayo, the Post Master General and representatives of Marubeni in Tokyo — this was done because of my intervention."38

Any agreement entered into because of the actual or supposed influence which the party has, engaging him to influence executive officials in the discharge of their duties, which contemplates the use of personal influence and solicitation rather than an appeal to the judgment of the official on the merits of the object sought is contrary to public policy.39 Consequently, the agreement, assuming that the parties agreed to the consultancy, is null and void as against public policy.40 Therefore, it is unenforceable before a court of justice.41

In light of the foregoing, we rule that the preponderance of evidence established no consultancy agreement between petitioners and respondent from which the latter could anchor his claim for a six percent (6%) consultancy fee on a project that was not awarded to petitioners.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals 42 is hereby SET ASIDE. Civil Case No. 89-3037 filed before the Regional Trial Court, Branch 143, Makati City is hereby DISMISSED.

No costs.

SO ORDERED.

189. MATUGUINA INTEGRATED WOOD PRODUCTS, INC., petitioner, vs. The HON. COURT OF APPEALS, DAVAO ENTERPRISES CORPORATION, The HON. MINISTER, (NOW SECRETARY) of NATURAL RESOURCES AND PHILLIP CO, respondents.

D E C I S I O N

TORRES, JR., J.:

Matuguina Integrated Wood Products Inc. (MIWPI, for brevity) filed this action for prohibition, Damages and Injunction, in order to prevent the respondent Minister (now Secretary) of Natural Resources from enforcing its Order of Execution against it, for liability arising from an alleged encroachment of the petitioner over the timber concession of respondent DAVENCOR located in Mati, Davao Oriental.

The Regional Trial Court, Branch 17, Davao City, ruled in favor of the petitioner, but on appeal, was reversed by the respondent Court of Appeals in its decision dated February 25, 1991, which found MIWPI, as an alter ego of Milagros Matuguina and/or Matuguina Logging enterprises (MLE, to be liable to DAVENCOR for illegal encroachment.

The following are the antecedent facts:

On June 28, 1973, the Acting Director of the Bureau of Forest Development issued Provisional Timber License (PTL) No. 30, covering an area of 5,400 hectares to Ms. Milagros Matuguina who was then doing business under the name of MLE, a sole proprietorship venture. A portion, covering 1,900 hectares, of the said area was located within the territorial boundary of Gov. Generoso in Mati, Davao Oriental, and adjoined the timber concession of Davao Enterprises Corporation (DAVENCOR), the private respondent in this case.

On July 10, 1974, petitioner Matuguina Integrated Wood Products, Inc. (MIWPI), was incorporated, having an authorized capital stock of Ten Million Pesos (P10,000,000.00).[1] The incorporators/stockholders of MIWPI, and their stock subscriptions were as follows:

Name No. Of Shares Subscribed Amount of Capital

Stock Subscribed

1. Henry Wee 1,160,000 1,160,000.00

2. Ma. Milagros Matuguina 400,000 400,000.00

3. Alejandro Chua Chun 200,000 200,000.00

4. Bernadita Chua 120,000 120,000.00

5. Domingo Herrera 40,000 40,000.00

6. Manuel Hernaez 40,000 40,000.00

7. Luis Valderama 40,000 40,000.00

----------------- ------------------

2,000,000 2,000,000.00

=========== ===========

Milagros Matuguina became the majority stockholder of MIWPI on September 24, 1974, when the latter’s Board of Directors approved by Resolution the transfer of 1,000,000 shares from Henry Wee to Milagros Matuguina, thus giving her seventy percent (70%) stock ownership of MIWPI.

In an undated letter[2] to the Director of Forest Development (BFD) on November 26, 1974, Milagros Matuguina requested the Director for a change of name and transfer of management of PTL No. 30, from a single proprietorship under her name, to that of MIWPI.

This request was favorably endorsed on December 2, 1974[3] by the BFD’s Acting Director, Jose Viado to respondent Secretary of Natural Resources, who approved the same on September 5, 1975.[4]

On July 17, 1975, Milagros Matuguina and petitioner MIWPI executed a Deed of Transfer[5] transferring all of the former’s rights, interests, ownership and participation in Provincial Timber License No. 30 to the latter for and in consideration of 148,000 shares of stocks in MIWPI.

A copy of said deed was submitted to the Director of Forest Development and Petitioner MIWPI had since been acting as holder and licensee of PTL No. 30.

On July 28, 1975, pending approval of the request to transfer the PTL to MIWPI, DAVENCOR, through its Assistant General Manager, complained to the District Forester at Mati, Davao Oriental that Milagros Matuguina/MLE had encroached into and was conducting logging operations in DAVENCOR’s timber concession.

After investigation of DAVENCOR’s complaint, the Investigating Committee which looked into DAVENCOR’s complaint submitted its report to the Director, finding that MLE had encroached on the concession area of DAVENCOR. In line with this, the Director of Forest Development issued an Order[6] on July 15, 1981, finding and declaring MLE to have encroached upon, and conducted illegal logging operations within the licensed or concession area of DAVENCOR.

MLE appealed the Order to the Ministry of Natural Resources, which appeal was docketed as MNR CASE No. 6450. During the pendency of the appealed case with the Minister of Natural Resources, Ma. Milagros Matuguina disposed of her shares in petitioner MIWPI, thereby ceasing to be a stockholder of the petitioner of March 16, 1986.[7]

On October 1, 1986, The Minister of Natural Resources, Hon. Ernesto M. Maceda rendered his Decision,[8] affirming the aforesaid order of the Director of Forest Development, stating thus:

DECISION

“For our Resolution is the appeal by MATUGUINA LOGGING ENTERPRISES (MLR, for short) of the Order dated 15 July 1991 of the Director of Forest Development finding and declaring MLE to have encroached upon, and conducted illegal logging operations within the license or concession area of DAVAO ENTERPRISES CORPORATION. The aforesaid Order dispositively states:

“WHEREFORE, there being a clear and convincing proof that Matuguina Conducted illegal operation within the licensed area of DAVENCOR, above named respondent is hereby ordered to pay to the complainant the equivalent value in pesos of 2,352.04 cubic meters of timber based on the market price obtaining, at the logpond of the respondent at the time of cutting, minus the cost of production, or to restitute to the complainant equal volume of 2,352.04 cubic meters of logs owned by respondent to be taken at respondent’s logpond. The respondent is hereby directed to comply with this Order within a period of ninety (90) days from receipt of this Order and after the lapse of the said period, no compliance has been made by the respondent, its logging operations shall ipso facto become automatically suspended until respondent shall have complied as directed.

The Regional Director of Region II, Davao City is hereby instructed to implement this Order and to submit his compliance report within ten (10) days after the lapse of the ninety (90) days period within which the respondent is directed to comply with this order.”

And that the dispositive portion of the said decision states;

“WHEREFORE, the Order dated 15 July 1981 of the Director of Forest Development is hereby AFFIRMED.”

When the Decision of the Minister of Natural Resources became final and executory, Philip Co and DAVENCOR requested the respondent Minister on October 30, 1986 to issue immediately a writ of execution against MLE and/or MIWPI.[9] The Order of Execution[10] was issued onJanuary 6, 1987 by the Minister through the latter’s Assistant on Legal Affairs. The said Order directed the issuance of a writ of execution, not only against MLE, but likewise against MIWPI. The dispositive portion of the order provides:

“WHEREFORE, let a Writ of Execution be issued against Matuguina Logging Enterprises and/or Matuguina Integrated Wood Products, Inc. For the satisfaction of the Decision of the Bureau of Forest Development dated 15 July 1981, and the Order of this office dated 1 October 1986.

SO ORDERED.”

Subsequently, a writ of execution[11] dated January 8, 1987 was issued in favor of the respondent DAVENCOR, which states:

“The City/Provincial Sheriff

Davao City

GREETINGS:

You are hereby directed to enforce, implement and execute the Order of Execution dated 06 June 1987 of this Office in the above-entitled case against Matuguina Logging Enterprises and/or Matuguina Integrated Wood Products, Inc. its officers or any person or corporation in its behalf and conformably with the Order dated15 July 1981 of the Director of Forest Development, stating dispositively.

xxx

You are hereby requested to submit your return to this Office within the period of sixty (60) days from your receipt hereof as to action taken hereon.

SO ORDERED."

On February 11, 1987, MIWPI filed the instant complaint[12] for prohibition, damages and injunction, with prayer for restraining order, which case was docketed as Civil Case No. 18,457-87 in the Regional Trial Court – Davao City, Branch 17. MIWPI stated its primary cause of action, the relevant portion of which reads, viz.:

“5. That plaintiff which has a distinct and separate personality of its own under the law, and was never a party to the case between DAVENCOR and MLE, suddenly became a party to the case after the decision became final and executory with the issuance of Annex “B” hereof for reasons known to the defendants alone:

6. That the issuance of Annex ‘B’ hereof (the order of execution) by the defendant Minister has been made not only without or in excess of his authority but that the same was issued patently without any factual or legal basis, hence, a gross violation of plaintiff’s constitutional rights under the due process clause;

7. That plaintiff, in the face of the order (Annex ‘B’) complained of, there being no appeal or any plain, speedy, and adequate remedy in the ordinary course of law, does not have any alternative but to ventilate the present recourse;

8. That defendant Minister is doing, threatens or is about to do, or is procuring or suffering to be done, some act which definitely is in violation of the plaintiff’s rights respecting the subject matter of the action, and unless said act or acts are restrained or prohibited at least during the pendency of this case, said act or acts would probably work not only injustice to plaintiff but world tend to render the judgment of this Honorable court ineffectual;

9. That the commission or continuance of the acts complained of during the present litigation would not only cause great and irreparable injury, but will also work injustice to the plaintiff, and would complicate, aggravate and multiply the issues in this case;

10. That the plaintiff is entitled to the relief demanded, and the whole or part of such relief consist in restraining the commission or continuance of the acts complained of, or in the performance of acts, either for a limited period or perpetually;

11. That great and irreparable injury would inevitably result to the plaintiff before the matter can be heard on notice, hence, immediate issuance of a restraining order is necessary and proper;

12. That the plaintiff is willing and able to file the necessary bond executed to the defendants, in an amount to be fixed by the Court, to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the court should finally decide that the plaintiff was not entitled thereto.”

MIWPI, likewise alleges that in wantonly and imprudently procuring the Writ of Execution against it, which DAVENCOR and Philip Co seek to enforce a 2.5 Million Peso liability of plaintiff, the latter has been constrained to bring the present action, thereby incurring damages in the sum ofP500,000.00 in concept of actual and compensatory damages, and P250,000.00 in attorney’s fees, which amount petitioner now seeks to recover.

The trial court issued a temporary restraining order the next day, February 12, 1987, restraining and/or enjoining the private respondents and the Hon. Secretary of Natural Resources from enforcing, implementing and/or carrying into effect, the decision of the respondent Secretary dated October 1, 1986, as well as the order of execution dated January 6, 1987.

On February 17, 1987, private respondent filed a Motion to Dismiss[13] alleging that the trial court had no jurisdiction over the case under Presidential Decree No. 705, to which Motion to Dismiss, petitioner filed an Opposition[14] dated February 1987. On March 9, 1987, the trial court issued an order[15] denying private respondent’s Motion to Dismiss. Hence, private respondents filed their Answer[16] dated March 13, 1987 and an Amended Answer[17]

In the latter pleading, private respondents raised the following special and affirmative defenses:

“7. That neither Milagros Matuguina nor Matuguina Integrated Wood Products, Inc. advised defendant Davencor of the change of name, and transfer of management of PTL No. 30. From Milagros Matuguina to Matuguina Integrated Wood Products, Inc., during the pendency of MNR Case No. 6540 before the Bureau of Forest Develoment and the Ministry of Natural Resources, notwithstanding that the lawyer of matuguina Integrated Wood Products, Inc., who was also a stockholder thereof, had appeared for Milagros Matuguina in said administrative case.

8. That plaintiff has acted in bad faith and is now in estoppel from questioning the Writ of Execution issued against Milagros Matuguina (now Matuguina Integrated Wood Products, Inc.) to satisfy the judgment in MNR Case No. 6540.

9. This Honorable Court has no jurisdiction over the nature and subject matter of this action, especially because:

(a) The plaintiff has not exhausted administrative remedies available to it before initiating this action;

(b) In the guise of entertaining an action for damages, this Court is being misled by the plaintiff into deciding questions properly for the Department of Natural Resources to decide exclusively in the lawful exercise of its regulatory jurisdiction;

(c) The plaintiff is now precluded and estopped from filing this action.

10. The plaintiff has no cause of action against the defendants and has not stated any in its complaint, especially because:

(a) Having failed to exhaust administrative remedies, plaintiff is without a ripe cause of action that can be pleaded before this Honorable Court;

(b) In substance, there is no justifiable question raised under the facts and circumstances of this case.

Meanwhile, on June 2, 1987, the trial court issued an order[18] granting the petitioner’s prayer for the issuance of a writ of preliminary injunction against the private respondents and the Secretary of Natural Resources, ordering them to desist, refrain and prevent from enforcing respondent Secretary’s Decision dated October 1, 1986 as well as the writ of execution dated January 8, 1987.

On May 10, 1989, the trial court rendered its Decison[19] in favor of the petitioner, disposing of the action as follows:

“WHEREFORE, in view of the foregoing, finding the evidence of plaintiff, Matuguina Integrated Wood Products, Inc. sufficient to sustain a preponderance of evidence, showing that the order of execution dated January 6, 1987, issued by the Minister of Natural Resources, through Alexander C. Castro, Assistant Minister for Legal Affairs, included therein, plaintiff Matuguina Integrated Wood Products, Inc., despite non-inclusion of plaintiff in the decision of the then Minister of Natural Resources, dated October 1, 1986, already final and executory before the issuance of the order and execution, said order or execution is hereby declared null and void and without any legal effect.

As a consequence thereof, the writ of preliminary injunction issued by this court, dated June 2, 1987 is hereby made permanent.

Moreover, as a result of the filing of this case, defendant Philip Co and Davencor Corporation, are ordered to jointly and severally pay the amount of P100,000.00 as actual and compensatory damages, along with another amount of P20,000.00 as attorney’s fees and costs of this action, in favor of plaintiff Matuguina Integrated Wood Products, Inc.

SO ORDERED.”

Private respondents appealed the trial court’s decision on May 19, 1989. Their notice of appeal was approved by the trial court. The appealed case was docketed with respondent Honorable Court of Appeals as CA-G.R. SP No. 19887.

On February 25, 1991, the respondent Court rendered its Decision,[20] reversing the lower court’s pronouncement. The dispositive portion of the decision reads:

“WHEREFORE, premises considered, the decision appealed from is reversed and set aside and the Order of Execution issued by the Minister of Natural Resources dated January 6, 1987 is affirmed. Without pronouncement as to costs.

SO ORDERED.”

In due time, petitioner filed a motion for reconsideration.[21] Private respondents filed their opposition[22] to the same on April 2, 1991. In a Resolution[23] dated April 12, 1991, the motion was denied by the respondent Court.

Not content with the court’s pronouncement, petitioner is now before us on a Petition for Review on Certiorari,[24] alleging that the respondent court acted with grave abuse of discretion in rendering the questioned decision and its companion resolution, denying the motion for reconsideration.

The reasons relied upon by the Petitioner in filing its petition are hereby restated:

I

PETITIONER WAS DENIED DUE PROCESS OF LAW WHEN IT WAS MADE LIABLE BY RESPONDENT SECRETARY OF NATURAL RESOURCES IN HIS ORDER OF EXECUTION DATED 06 JANUARY 1987 (EXHIBIT “B” OF ATTACHMENT “O”) ISSUED IN MNR CASE NO. 6540 DESPITE THE FACT THAT PETITIONER WAS NEVER A PARTY NOR A PARTICIPANT IN THE SAID CASE: IN FACT, PETITIONER NEVER HAD NOTICE OF THE PROCEEDINGS IN MNR CASE NO. 6540.

II

THE FAILURE TO AFFORD PETITIONER THE OPPORTUNITY TO BE HEARD IN THE ADMINISTRATIVE LEVEL (MNR CASE NO. 6540) COULD NOT HAVE BEEN CURED BY THE INSTITUTION OF THE ACTION FOR PROHIBITION IN THE TRIAL COURT BECAUSE SAID COURT HAD NO JURISDICTION TO DETERMINE WHETHER PETITIONER WAS GUILTY OF ENCROACHMENT ON PRIVATE RESPONDENT DAVENCOR’S

TIMBER CONCESSION; FURTHERMORE, THE QUESTION ON WHETHER PETITIONER WAS GUILTY OF ENCROACHMENT WAS NEVER PUT IN ISSUE IN THE CASE BEFORE THE TRIAL COURT.

III

THE LIABILITY OF MILAGROS/MLE AS FOUND BY RESPONDENT SECRETARY IN ITS DECISION DATED 01 OCTOBER 1986 (EXHIBIT “A” OF THE ATTACHMENT “0”) CANNOT BE IMPUTED AGAINST PETITIONER SINCE THE LATTER IS A CORPORATION HAVING A PERSONALITY SEPARATE AND DISTINCT FROM MILAGROS/MLE.

IV

PETITIONER CANNOT BE MADE LIABLE TO PRIVATE RESPONDENTS UNDER THE DEED OF TRANSFER DATED 18 JULY 1975 (EXHIBIT “3” OF ATTACHMENT “P”) AND SECTION 61 OF THE REVISED FORESTRY CODE OF THE PHILIPPINES (P.D. 705, AS AMENDED):

A. THE ALLEGED TRANSFER OF PTL NO. 30 FROM MILAGROS/MLE TO PETITIONER NEVER BECAME BINDING AND EFFECTIVE SINCE PTL NO. 30 REMAINED IN THE NAME OF MILAGROS/MLE UNTIL ITS EXPIRATION ON 30 JUNE 1977: THIS IS DUE TO THE FACT THAT SAID TRANSFER WAS NEVER APPROVED BY THE SECRETARY OF NATURAL RESOURCES.

B. GRANTING ARGUENDO THAT THERE WAS AN EFFECTIVE TRANSFER OF PTL NO. 30 FROM MILAGROS/MLE TO PETITIONER, THE TRANSFER COULD NOT MAKE PETITIONER LIABLE FOR THE ALLEGED ENCROACHMENT OF PRIVATE RESPONDENT DAVENCOR’S TIMBER CONCESSION, SINCE:

1. SAID TRANSFER WAS EXECUTED PRIOR TO THE COMMISSION OF THE ALLEGED ENCROACHMENT AND THE FILING OF THE ADMINISTRATIVE COMPLAINT FOR ENCROACHMENT DATED 28 JULY 1975; THUS, PETITIONER CANNOT BE MADE LIABLE FOR OBLIGATONS OF MILAGROS/MLE WHICH WERE INCURRED AFTER DATE OF THE SAID TRANSFER.

2. SAID TRANSFER COVERED ONLY FORESTRY CHARGES AND OTHER GOVERNMENT FEES, AND DID NOT INCLUDE THE PERSONAL LIABILITY OF MILAGROS/MLE THAT AROSE FROM THE ENCROACHMENT OF THE TIMBER CONCESSION OF RESPONDENT DAVENCOR.[25]

Private Respondent DAVENCOR and the public respondent Hon. Minister (now Secretary) of Natural Resources filed separate Comments[26] on September 5, 1991 and June 8, 1992 respectively.

The essential issues of the present controversy boil down to the following:

Was the Petitioner denied due process when it was adjudged liable with MLE for encroaching upon the timber concession of DAVENCOR in the respondent Minister's order of Execution?

Is the petitioner a transferee of MLE's interest, as to make it liable for the latter’s illegal logging operations in DAVENCOR’s timber concession, or more specifically, is it possible to pierce the veil of MIWPI’s corporate existence, making it a mere conduit or successor of MLE?

Generally accepted is the principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court. In the same manner an execution can be issued only against a party and not against one who did not have his day in court. In Lorenzo vs. Cayetano, 78 SCRA 485 [1987], this Court held that only real parties in interest in an action are bound by judgment therein and by writs of execution and demolition issued pursuant thereto.[27]

Indeed a judgment cannot bind persons who are not parties to the action.[28] It is elementary that strangers to a case are not bound by the judgment rendered by the court and such judgment is not available as an adjudication either against or in favor of such other person. A decision of a court will not operate to divest the rights of a person who has not and has never been a party to a litigation, either as plaintiff or as defendant. Execution of a judgment can only be issued against one who is a party to the action, and not against one who, not being a party in the action has not yet had his day in court.[29]

The writ of execution must conform to the judgment which is to be executed, as it may not vary the terms of the judgment it seeks to enforce.[30] Nor may it go beyond the terms of the judgment which sought to be executed. Where the execution is not in harmony with the judgment which gives it life and exceeds it, it has pro tanto no validity. To maintain otherwise would be to ignore the constitutional provision against depriving a person of his property without due process of law.[31]

The writ of execution issued by the Secretary of Natural Resources on January 8, 1987 clearly varies the term of his Decision of October 1, 1986, inasmuch as the Writ includes the MIWPI as party liable whereas the Decision only mentions Milagros Matuguina/MLE.

There is no basis for the issuance of the Order of Execution against the petitioner. The same was issued without giving the petitioner an opportunity to defend itself and oppose the request of DAVENCOR for the issuance of a writ of execution against it. In fact, it does not appear that petitioner was at all furnished with a copy of DAVENCOR’s letter requesting for the Execution of the Honorable Secretary’s decision against it. Petitioner was suddenly made liable upon the order of execution by the respondent Secretary’s

expedient conclusions that MLE and MIWPI are one and the same, apparently on the basis merely of DAVENCOR’s letter requesting for the Order, and without hearing or impleading MIWPI. Until the issuance of the Order of execution, petitioner was not included or mentioned in the proceedings as having any participation in the encroachment in DAVENCOR’s timber concession. This action of the respondent Secretary disregards the most basic tenets of due process and elementary fairness.

The liberal atmosphere which pervades the procedure in administrative proceedings does not empower the presiding officer to make conclusions of fact before hearing all the parties concerned.[32] In Police Commission vs. Hon Judge Lood,[33] we held that the formalities usually attendant in court hearings need not be present in an administrative investigation, provided that the parties are heard and given the opportunity to adduce their evidence. The right to notice and hearing is essential to due process and its non-observance will, as a rule, invalidate the administrative proceedings.

As observed by the appellate court, to wit:

“the appellant should have filed a Motion with the Minister with Notice to the appellee to include the latter as party liable for the judgment in order to afford the appellee an opportunity to be heard on its liability for the judgment rendered against Ma. Milagros Matuguina doing business under the name Matuguina Logging Enterprises.[34]

Continuing, the said court stated further that:

“Nevertheless, the failure to comply with the procedure in order to satisfy the requirements of due process was cured by the present action for prohibition where the liability of appellee has been ventilated.”

We do not agree. Essentially, Prohibition is a remedy to prevent inferior courts, corporations, boards or persons from usurping or exercising a jurisdiction or power with which they have not been vested by law[35] As we held in Mafinco Trading Corporation vs. Ople, et al,[36] in acertiorari or prohibition case, only issues affecting the jurisdiction of the tribunal, board and offices involved may be resolved on the basis of undisputed facts.

The issue of whether or not petitioner is an alter ego of Milagros Matuguina/MLE, is one of fact, and which should have been threshed out in the administrative proceedings, and not in the prohibition proceedings in the trial court, where it is precisely the failure of the respondent Minister of Natural Resources to proceed as mandated by law in the execution of its order which is under scrutiny.

Assuming, arguendo, that prohibition is the proper remedy for determining the propriety of piercing the separate personality of petitioner with its stockholders, the evidence presented at said trial does not warrant such action.

It is settled that a corporation is clothed with a personality separate and distinct from that of persons composing it. It may not generally be held liable for that of the persons composing it. It may not be held liable for the personal indebtedness of its stockholders or those of the entities connected with it. Conversely, a stockholder cannot be made to answer for any of its financial obligations even if he should be its president.[37]But when the juridical personality of the corporation is used to defeat public convenience, justify wrong, protect fraud or defend crime, the corporation shall be considered as a mere association of persons (Koppel, Inc. vs. Yatco, 77 Phil 496, Palay, Inc. vs. Clave, G.R. No. 56076, September 21, 1983, 124 SCRA 638), and its responsible officers and/or stockholders shall be individually liable (Namarco vs. Associated Finance Co., Inc., G.R. No. L- 20886, April 27, 1967, 19 SCRA 962). For the same reasons, a corporation shall be liable for the obligations of a stockholder (Palacio vs. Fely Transportation Co., G.R. No. L-15121, August 31, 1963, 5 SCRA 1011), or a corporation and its successor-in-interest shall be considered as one and the liability of the former attach to the latter.[38]

But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed.[39]

In the case at bar, there is, insufficient basis for the appellate court’s ruling that MIWPI is the same as Matuguina. The trial court’s observation is enlightening.

“Despite apparently opposing evidence of both parties, the Court gathered and finds, that defendant’s attempt to pierce the veil of corporate personality of plaintiff corporation, as to consider plaintiff corporations merely an adjunct or alter ego of Maria Milagros Matuguina Logging Enterprises, to justify defendants claim against plaintiff corporation, suffers heavily from insufficiency of evidence.

It is the vehement contention of defendants, to bolster its claim, that plaintiff corporation is the alter ego of Maria Milagros Matuguina Logging Enterprises, because when Milagros Matuguina became the Chairman of the Board of Directors of plaintiff corporation, she requested for the change of name and transfer of management of PTL No. 30, from her single proprietorship, to plaintiff corporation.

Secondly, when Milagros Matuguina executed the deed of transfer, transferring her forest concession under PTL No, 30, together with all the structures and improvements therein, to plaintiff corporation, for a consideration of P14,800.00 representing 148,000

shares of stocks of plaintiff corporation actually all existing shares of stocks of Milagros Matuguina, in plaintiff corporation represents 77.4% therein; suffice to say that plaintiff corporation practically became an alter ego of Milagros Matuguina.

Defendants’ arguments on this peripheral aspect of corporate existence, do not at all indicate that such a legal fiction, was granted.

In the first place the alleged control of plaintiff corporation was not evident in any particular corporate acts of plaintiff corporation, wherein Maria Milagros Matuguina Logging Enterprises using plaintiff corporation, executed acts or powers directly involving plaintiff corporation.

Neither was there any evidence of defendants, that Maria Milagros Matuguina Logging Enterprises, using the facilities and resources of plaintiff corporation, involved itself in transaction using both single proprietorship and plaintiff corporation in such particular line of business undertakings.

As stated by this court in resolving plaintiff’s prayer for issuance of a writ of preliminary injunction, said:

‘There is actually, no evidence presented by defendant, showing that sometime on March 15, 1986, to January 1987, during which period, the subject decision of Hon. Secretary of Natural Resources and corresponding writ of execution, Maria Milagros Matuguina was a stockholder of plaintiff corporation in such amount or was she an officer of plaintiff corporation in whatever capacity.’

The above circumstances is relevant and significant to assume any such justification of including plaintiff corporation in the subject writ of execution, otherwise as maintained by defendants, what matters most was the control of Milagros Matuguina Logging Enterprises of plaintiff corporation in 1974 and 1975, when the administrative case was pending, this circumstance alone without formally including plaintiff corporation in said case, will not create any valid and sufficient justification for plaintiff corporation, to have been supposedly included in the suit against defendants and Maria Milagros Matuguina Logging Enterprises, in the administrative case.

Yet, granting as claimed by defendants, that in 1974 or in 1975, Maria Milagros Matuguina became the controlling stockholder of plaintiff corporation, on account of the change of name and transfer of management of PTL No. 30, this circumstance, we repeat, does not of itself prove that plaintiff corporation was the alter ego of Maria Milagros Matuguina Logging Enterprise, as enunciated in various decisions of this Court, to wit:

‘It is important to bear in mind that mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of the corporation, is not itself a sufficient warrant for disregarding the fiction of separate personality. (Liddel and Co. vs. Collector of Internal revenue, G.R. No. 9687, June 30, 1961).’

It is recognized as lawful to obtain a corporation charter, even with a single substantial stockholder, to engage in specific activity and such activity may co-exist with other private activities of the stockholders.

If the corporation is substantial one, conducted lawfully; without fraud on another, its separate identity is to be respected.[40]

In this jurisdiction, it is a settled rule that conclusions and findings of fact by trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons because the trial court is in a better position to examine real evidence, as well as to observe the demeanor of the witnesses while testifying in the case.[41]

It is likewise improper to state that the MIWPI is the privy or the successor-in-interest of MLE, as the liability for the encroachment over DAVENCOR’s timber concession is concerned, by reason of the transfer of interest in PTL No. 30 from MLE to MIWPI.

First at all, it does not appear indubitable that the said transfer ever became effective, since PTL No. 30 remained in the name of Milagros Matuguina/MLE until it expired on June 30, 1977.[42]

More importantly, even if it is deemed that there was a valid change of name and transfer of interest in the PTL No. 30, this only signifies a transfer of authority, from MLE to MIWPI, to conduct logging operations in the area covered by PTL No. 30. It does not show indubitable proof that MIWPI was a mere conduit or successor of Milagros Matuguina/MLE, as far the latter’s liability for the encroachment upon DAVENCOR’s concession is concerned. This is the only conclusion which we can discern from the language of Section 61 of P.D. 705,[43] and the letters of the Acting Minister of Natural Resources to Milagros Matuguina/MLE and to MIWPI, on September 16, 1975.[44] In Soriano vs. Court of Appeals, this Court stated in clear language, that-

“It is the general rule that the protective mantle of a corporation’s separate and distinct personality could only be pierced and liability attached directly to its officers and/or members – stockholders, when the same is used for fraudulent, unfair, or illegal purpose. In the case at bar, there is no showing that the Association entered into the transaction with the private respondent for the purpose of defrauding the latter of his goods or the payment thereof. xxx. Therefore, the general rule on corporate liability, not the exception, should be applied in resolving this case. (G.R. No. 49834, June 22, 1989)

The respondents cite Section 61 of P.D. 705 to establish MIWPI’s succession to the liability of Milagros Matuguina/MLE:

“SEC. 61. Transfer. –Unless authorized by the Department Head, no licensee, lessee, or permittee may transfer, exchange, sell, or convey his license agreement, license, lease or permit, or any of his rights or interest therein, or any of his assets used in connection therewith.

The licensee, lessee, or permittee shall be allowed to transfer or convey his license agreement, license, lease, or permit only if he has not violated any forestry law, rule or regulation; has been faithfully complying with the terms and conditions of the license agreement, license, lease or permit; the transferee has all the qualifications and none of the disqualifications to hold a license agreement, license, lease or permit; there is no evidence that such transfer or conveyance is being made for purposes of speculation; and the transferee shall assume all the obligations of the transferor.

The transferor shall forever be barred from acquiring another license agreement, license, lease or permit.”

Even if it is mandated in the abovestated provision that “the transferee shall assume all the obligations of the transferor” this does not mean that all obligations are assumed, indiscriminately.

Invariably, it is not the letter, but the spirit of the law and intent of the legislature that is important. When the interpretation of a statute according to the exact and literal import of its words would lead to absurdity, it should be construed according to the spirit and reason, disregarding if necessary the letter of the law.[45]

In construing statutes, the terms used therein are generally to be given their ordinary meaning, that is, such meaning which is ascribed to them when they are commonly used, to the end that absurdity in the law must be avoided.[46] The term “obligations” as used in the final clause of the second paragraph of Section 61 of P.D. 705 is construed to mean those obligations incurred by the transferor in the ordinary course of business. It cannot be construed to mean those obligations or liabilities incurred by the transferor as a result of transgressions of the law, as these are personal obligations of the transferor, and could not have been included in the term “obligations” absent any modifying provision to that effect.

In the September 16, 1975 letters of Acting Director of the Bureau of Forest Development to Milagros Matuguina and MIWPI informing them of the approval of Matuguina's request for the change of name and transfer of management of PTL No. 30, the following statements were made by the Acting Director:

"In view hereof, (Matuguina Integrated Wood Products, Inc.) shall assume the responsibility of paying whatever pending liabilities and/or accounts remaining unsettled, if any, by the former licensee, Milagros Matuguina, with the government." (Emphasis ours)[47]

Accordingly, the letter's language implies that the obligations which MIWPI are to assume as transferee of Milagros Matuguina/MLE are those obligations in favor of the government only, and not to any other entity. Thus this would include Forestry Charges, Taxes, Fees, and similar accountabilities.

In sum, the Court makes the following pronouncements:

(a) The respondent Honorable Minister of Natural Resources gravely abuse its discretion when it issued its Order of Execution on January 6, 1987, including therein as one of the parties liable the petitioner Matuguina Integrated Wood Products, Inc., which was never a party to the assailed proceeding resulting in the issuance of such Order and, without affording the same an opportunity to be heard before it was adjudged liable.

(b) The petitioner is a corporate entity separate and distinct from Milagros Matuguina/Matuguina Logging Enterprises, there being no clear basis for considering it as a mere conduit or alter ego of Matuguina/MLE, and therefore, cannot be made liable for the obligations of the same for encroachment over the timber concession of private respondent DAVENCOR.

IN VIEW OF THE FOREGOING, the petition is hereby GRANTED, and the Decision dated February 25, 1991 is SET ASIDE. The decision of the Regional Trial Court is hereby REINSTATED, and correspondingly, Order of Execution of the respondent Secretary of Natural Resources is declared Null and Void and without effect.

No pronouncement as to cost.

SO ORDERED.

213. PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO) and PANTRANCO RETRENCHED EMPLOYEES ASSOCIATION (PANREA), Petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION (NLRC), PANTRANCO NORTH EXPRESS, INC. (PNEI), PHILIPPINE NATIONAL BANK (PNB), PHILIPPINE NATIONAL BANK-MANAGEMENT AND DEVELOPMENT CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY AND HOLDINGS CORPORATION (MEGA PRIME), Respondents.

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G.R. No. 170705 March 17, 2009

PHILIPPINE NATIONAL BANK, Petitioner, vs.PANTRANCO EMPLOYEES ASSOCIATION, INC. (PEA-PTGWO), PANTRANCO RETRENCHED EMPLOYEES ASSOCIATION (PANREA) AND PANTRANCO ASSOCIATION OF CONCERNED EMPLOYEES (PACE), ET AL., PHILIPPINE NATIONAL BANK-MANAGEMENT DEVELOPMENT CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY HOLDINGS, INC., Respondents.

D E C I S I O N

NACHURA, J.:

Before us are two consolidated petitions assailing the Court of Appeals (CA) Decision1 dated June 3, 2005 and its Resolution2 dated December 7, 2005 in CA-G.R. SP No. 80599.

In G.R. No. 170689, the Pantranco Employees Association (PEA) and Pantranco Retrenched Employees Association (PANREA) pray that the CA decision be set aside and a new one be entered, declaring the Philippine National Bank (PNB) and PNB Management and Development Corporation (PNB-Madecor) jointly and solidarily liable for the P722,727,150.22 National Labor Relations Commission (NLRC) judgment in favor of the Pantranco North Express, Inc. (PNEI) employees;3 while in G.R. No. 170705, PNB prays that the auction sale of the Pantranco properties be declared null and void.4

The facts of the case, as found by the CA,5 and established in Republic of the Phils. v. NLRC,6 Pantranco North Express, Inc. v. NLRC,7 and PNB MADECOR v. Uy,8 follow:

The Gonzales family owned two corporations, namely, the PNEI and Macris Realty Corporation (Macris). PNEI provided transportation services to the public, and had its bus terminal at the corner of Quezon and Roosevelt Avenues in Quezon City. The terminal stood on four valuable pieces of real estate (known as Pantranco properties) registered under the name of Macris.9 The Gonzales family later incurred huge financial losses despite attempts of rehabilitation and loan infusion. In March 1975, their creditors took over the management of PNEI and Macris. By 1978, full ownership was transferred to one of their creditors, the National Investment Development Corporation (NIDC), a subsidiary of the PNB.

Macris was later renamed as the National Realty Development Corporation (Naredeco) and eventually merged with the National Warehousing Corporation (Nawaco) to form the new PNB subsidiary, the PNB-Madecor.

In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by Gregorio Araneta III. In 1986, PNEI was among the several companies placed under sequestration by the Presidential Commission on Good Government (PCGG) shortly after the historic events in EDSA. In January 1988, PCGG lifted the sequestration order to pave the way for the sale of PNEI back to the private sector through the Asset Privatization Trust (APT). APT thus took over the management of PNEI.

In 1992, PNEI applied with the Securities and Exchange Commission (SEC) for suspension of payments. A management committee was thereafter created which recommended to the SEC the sale of the company through privatization. As a cost-saving measure, the committee likewise suggested the retrenchment of several PNEI employees. Eventually, PNEI ceased its operation. Along with the cessation of business came the various labor claims commenced by the former employees of PNEI where the latter obtained favorable decisions.

On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution10 commanding the NLRC Sheriffs to levy on the assets of PNEI in order to satisfy the P722,727,150.22 due its former employees, as full and final satisfaction of the judgment awards in the labor cases. The sheriffs were likewise instructed to proceed against PNB, PNB-Madecor and Mega Prime.11 In implementing the writ, the sheriffs levied upon the four valuable pieces of real estate located at the corner of Quezon and Roosevelt Avenues, on which the former Pantranco Bus Terminal stood. These properties were covered by Transfer Certificate of Title (TCT) Nos. 87881-87884, registered under the name of PNB-Madecor.12 Subsequently, Notice of Sale of the foregoing real properties was published in the newspaper and the sale was set on July 31, 2002. Having been notified of the auction sale, motions to quash the writ were separately filed by PNB-Madecor and Mega Prime, and PNB. They likewise filed their Third-Party Claims.13 PNB-Madecor anchored its motion on its right as the registered owner of the Pantranco properties, and Mega Prime as the successor-in-interest. For its part, PNB sought the nullification of the writ on the ground that it was not a party to the labor case.14 In its Third-Party Claim, PNB alleged that PNB-Madecor was indebted to the former and that the Pantranco properties

would answer for such debt. As such, the scheduled auction sale of the aforesaid properties was not legally in order.15

On September 10, 2002, the Labor Arbiter declared that the subject Pantranco properties were owned by PNB-Madecor. It being a corporation with a distinct and separate personality, its assets could not answer for the liabilities of PNEI. Considering, however, that PNB-Madecor executed a promissory note in favor of PNEI forP7,884,000.00, the writ of execution to the extent of the said amount was concerned was considered valid.16

PNB’s third-party claim – to nullify the writ on the ground that it has an interest in the Pantranco properties being a creditor of PNB-Madecor, – on the other hand, was denied because it only had an inchoate interest in the properties.17

The dispositive portion of the Labor Arbiter’s September 10, 2002 Resolution is quoted hereunder:

WHEREFORE, the Third Party Claim of PNB Madecor and/or Mega Prime Holdings, Inc. is hereby GRANTED and concomitantly the levies made by the sheriffs of the NLRC on the properties of PNB Madecor should be as it (sic) is hereby LIFTED subject to the payment by PNB Madecor to the complainants the amount of P7,884,000.00.

The Motion to Quash and Third Party Claim of PNB is hereby DENIED.

The Motion to Quash of PNB Madecor and Mega Prime Holdings, Inc. is hereby PARTIALLY GRANTED insofar as the amount of the writ exceeds P7,884,000.00.

The Motion for Recomputation and Examination of Judgment Awards is hereby DENIED for want of merit.

The Motion to Expunge from the Records claimants/complainants Opposition dated August 3, 2002 is hereby DENIED for lack of merit.

SO ORDERED.18

On appeal to the NLRC, the same was denied and the Labor Arbiter’s disposition was affirmed.19 Specifically, the NLRC concluded as follows:

(1) PNB-Madecor and Mega Prime contended that it would be impossible for them to comply with the requirement of the labor arbiter to pay to the PNEI employees the amount of P7.8 million as a condition to the lifting of the levy on the properties, since the credit was already garnished by Gerardo Uy and other creditors of PNEI. The NLRC found no evidence that Uy had satisfied his judgment from the promissory note, and opined that even if the credit was in custodia legis, the claim of the PNEI employees should enjoy preference under the Labor Code.

(2) The PNEI employees contested the finding that PNB-Madecor was indebted to the PNEI for only P7.8 million without considering the accrual of interest. But the NLRC said that there was no evidence that demand was made as a basis for reckoning interest.

(3) The PNEI employees further argued that the labor arbiter may not properly conclude from a decision of Judge Demetrio Macapagal Jr. of the RTC of Quezon City that PNB-Madecor was the owner of the properties as his decision was reconsidered by the next presiding judge, nor from a decision of the Supreme Court that PNEI was a mere lessee of the properties, the fact being that the transfer of the properties to PNB-Madecor was done to avoid satisfaction of the claims of the employees with the NLRC and that as a result of a civil case filed by Mega Prime, the subsequent sale of the properties by PNB to Mega Prime was rescinded. The NLRC pointed out that while the Macapagal decision was set aside by Judge Bruselas and hence, his findings could not be invoked by the labor arbiter, the titles of PNB-Madecor are conclusive and there is no evidence that PNEI had ever been an owner. The Supreme Court had observed in its decision that PNEI owed back rentals of P8.7 million to PNB-Madecor.

(4) The PNEI employees faulted the labor arbiter for not finding that PNEI, PNB, PNB-Madecor and Mega Prime were all jointly and severally liable for their claims. The NLRC underscored the fact that PNEI and Macris were subsidiaries of NIDC and had passed through and were under the Asset Privatization Trust (APT) when the labor claims accrued. The labor arbiter was correct in not granting PNB’s third-party claim because at the time the causes of action accrued, the PNEI was managed by a management committee appointed by the PNB as the new owner of PNRI (sic) and Macris through a deed of assignment or transfer of ownership. The NLRC says at length that the same is not true with PNB-Madecor which is now the registered owner of the properties.20

The parties’ separate motions for reconsideration were likewise denied.21 Thereafter, the matter was elevated to the CA by PANREA, PEA-PTGWO and the Pantranco Association of Concerned Employees. The latter group, however, later withdrew its petition. The former employees’ petition was docketed as CA-G.R. SP No. 80599.

PNB-Madecor and Mega Prime likewise filed their separate petition before the CA which was docketed as CA-G.R. SP No. 80737, but the same was dismissed.22

In view of the P7,884,000.00 debt of PNB-Madecor to PNEI, on June 23, 2004, an auction sale was conducted over the Pantranco properties to satisfy the claim of the PNEI employees, wherein CPAR Realty was adjudged as the highest bidder.23

On June 3, 2005, the CA rendered the assailed decision affirming the NLRC resolutions.

The appellate court pointed out that PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from PNEI. As such, there being no cogent reason to pierce the veil of corporate fiction, the separate personalities of the above corporations should be maintained. The CA added that the Pantranco properties were never owned by PNEI; rather, their titles were registered under the name of PNB-Madecor. If PNB and PNB-Madecor could not answer for the liabilities of PNEI, with more reason should Mega Prime not be held liable being a mere successor-in-interest of PNB-Madecor.

Unsatisfied, PEA-PTGWO and PANREA filed their motion for reconsideration;24 while PNB filed its Partial Motion for Reconsideration.25 PNB pointed out that PNB-Madecor was made to answer for P7,884,000.00 to the PNEI employees by virtue of the promissory note it (PNB-Madecor) earlier executed in favor of PNEI. PNB, however, questioned the June 23, 2004 auction sale as the P7.8 million debt had already been satisfied pursuant to this Court’s decision in PNB MADECOR v. Uy.26

Both motions were denied by the appellate court.27

In two separate petitions, PNB and the former PNEI employees come up to this Court assailing the CA decision and resolution. The former PNEI employees raise the lone error, thus:

The Honorable Court of Appeals palpably departed from the established rules and jurisprudence in ruling that private respondents Pantranco North Express, Inc. (PNEI), Philippine National Bank (PNB), Philippine National Bank Management and Development Corporation (PNB-MADECOR), Mega Prime Realty and Holdings, Inc. (Mega Prime) are not jointly and severally answerable to the P722,727,150.22 Million NLRC money judgment awards in favor of the 4,000 individual members of the Petitioners.28

They claim that PNB, through PNB-Madecor, directly benefited from the operation of PNEI and had complete control over the funds of PNEI. Hence, they are solidarily answerable with PNEI for the unpaid money claims of the employees.29 Citing A.C. Ransom Labor Union-CCLU v. NLRC,30 the employees insist that where the employer corporation ceases to exist and is no longer able to satisfy the judgment awards in favor of its employees, the owner of the employer corporation should be made jointly and severally liable.31 They added that malice or bad faith need not be proven to make the owners liable.

On the other hand, PNB anchors its petition on this sole assignment of error, viz.:

THE AUCTION SALE OF THE PROPERTY COVERED BY TCT NO. 87884 INTENDED TO PARTIALLY SATISFY THE CLAIMS OF FORMER WORKERS OF PNEI IN THE AMOUNT OF P7,884,000.00 (THE AMOUNT OF PNB-MADECOR’S PROMISSORY NOTE IN FAVOR OF PNEI) IS NOT IN ORDER AS THE SAID PROPERTY IS NOT OWNED BY PNEI. FURTHER, THE SAID PROMISSORY NOTE HAD ALREADY BEEN GARNISHED IN FAVOR OF GERARDO C. UY WHICH LED TO THREE (3) PROPERTIES UNDER THE NAME OF PNB-MADECOR, NAMELY TCT NOS. 87881, 87882 AND 87883, BEING LEVIED AND SOLD ON EXECUTION IN THE "PNB-MADECOR VS. UY" CASE (363 SCRA 128 [2001]) AND "GERARDO C. UY VS. PNEI" (CIVIL CASE NO. 95-72685, RTC MANILA, BRANCH 38).32

PNB insists that the Pantranco properties could no longer be levied upon because the promissory note for which the Labor Arbiter held PNB-Madecor liable to PNEI, and in turn to the latter’s former employees, had already been satisfied in favor of Gerardo C. Uy. It added that the properties were in fact awarded to the highest bidder. Besides, says PNB, the subject properties were not owned by PNEI, hence, the execution sale thereof was not validly effected.33

Both petitions must fail.

G.R. No. 170689

Stripped of the non-essentials, the sole issue for resolution raised by the former PNEI employees is whether they can attach the properties (specifically the Pantranco properties) of PNB, PNB-Madecor and Mega Prime to satisfy their unpaid labor claims against PNEI.

We answer in the negative.

First, the subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the records was it shown that PNEI owned the Pantranco properties. Petitioners, in fact, never alleged in any of their pleadings the fact of such ownership. What was established, instead, in PNB MADECOR v. Uy34 and PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings Corporation v. PNB35 was that the properties were owned by Macris, the predecessor of PNB-Madecor. Hence, they cannot be pursued against by the creditors of PNEI.

We would like to stress the settled rule that the power of the court in executing judgments extends only to properties unquestionably belonging to the judgment debtor alone.36 To be sure, one man’s goods shall not be sold for another man’s debts.37 A sheriff is not authorized to attach or levy on property not belonging to the judgment debtor, and even incurs liability if he wrongfully levies upon the property of a third person.38

Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from that of PNEI. PNB is sought to be held liable because it acquired PNEI through NIDC at the time when PNEI was suffering financial reverses. PNB-Madecor

is being made to answer for petitioners’ labor claims as the owner of the subject Pantranco properties and as a subsidiary of PNB. Mega Prime is also included for having acquired PNB’s shares over PNB-Madecor.

The general rule is that a corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected.39 This is a fiction created by law for convenience and to prevent injustice.40 Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI are corporations with their own personalities. The "separate personalities" of the first three corporations had been recognized by this Court in PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings Corporation v. PNB41 where we stated that PNB was only a stockholder of PNB-Madecor which later sold its shares to Mega Prime; and that PNB-Madecor was the owner of the Pantranco properties. Moreover, these corporations are registered as separate entities and, absent any valid reason, we maintain their separate identities and we cannot treat them as one.

Neither can we merge the personality of PNEI with PNB simply because the latter acquired the former. Settled is the rule that where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor.42

Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist to warrant the piercing of the corporate veil, 43 none applies in the present case whether between PNB and PNEI; or PNB and PNB-Madecor.

Under the doctrine of "piercing the veil of corporate fiction," the court looks at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group.44 Another formulation of this doctrine 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 two corporations are distinct entities and treat them as identical or as one and the same.45

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.46

As between PNB and PNEI, petitioners want us to disregard their separate personalities, and insist that because the company, PNEI, has already ceased operations and there is no other way by which the judgment in favor of the employees can be satisfied, corporate officers can be held jointly and severally liable with the company. Petitioners rely on the pronouncement of this Court in A.C. Ransom Labor Union-CCLU v. NLRC47 and subsequent cases.48

This reliance fails to persuade. We find the aforesaid decisions inapplicable to the instant case.

For one, in the said cases, the persons made liable after the company’s cessation of operations were the officers and agents of the corporation. The rationale is that, since the corporation is an artificial person, it must have an officer who can be presumed to be the employer, being the person acting in the interest of the employer. The corporation, only in the technical sense, is the employer.49 In the instant case, what is being made liable is another corporation (PNB) which acquired the debtor corporation (PNEI).

Moreover, in the recent cases Carag v. National Labor Relations Commission50 and McLeod v. National Labor Relations Commission,51 the Court explained the doctrine laid down in AC Ransom relative to the personal liability of the officers and agents of the employer for the debts of the latter. In AC Ransom, the Court imputed liability to the officers of the corporation on the strength of the definition of an employer in Article 212(c) (now Article 212[e]) of the Labor Code. Under the said provision, employer includes any person acting in the interest of an employer, directly or indirectly, but does not include any labor organization or any of its officers or agents except when acting as employer. It was clarified in Carag and McLeod that Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation. It added that the governing law on personal liability of directors or officers for debts of the corporation is still Section 3152 of the Corporation Code.

More importantly, as aptly observed by this Court in AC Ransom, it appears that Ransom, foreseeing the possibility or probability of payment of backwages to its employees, organized Rosario to replace Ransom, with the latter to be eventually phased out if the strikers win their case. The execution could not be implemented against Ransom because of the disposition posthaste of its leviable assets evidently in order to evade its just and due obligations.53 Hence, the Court sustained the piercing of the corporate veil and made the officers of Ransom personally liable for the debts of the latter.

Clearly, what can be inferred from the earlier cases is that 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.54 In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities.55

Applying the foregoing doctrine to the instant case, we quote with approval the CA disposition in this wise:

It would not be enough, then, for the petitioners in this case, the PNEI employees, to rest on their laurels with evidence that PNB was the owner of PNEI. Apart from proving ownership, it is necessary to show facts that will justify us to pierce the veil of corporate fiction and hold PNB liable for the debts of PNEI. The burden undoubtedly falls on the petitioners to prove their affirmative allegations. In line with the basic jurisprudential principles we have explored, they must show that PNB was using PNEI as a mere adjunct or instrumentality or has exploited or misused the corporate privilege of PNEI.

We do not see how the burden has been met. Lacking proof of a nexus apart from mere ownership, the petitioners have not provided us with the legal basis to reach the assets of corporations separate and distinct from PNEI.56

Assuming, for the sake of argument, that PNB may be held liable for the debts of PNEI, petitioners still cannot proceed against the Pantranco properties, the same being owned by PNB-Madecor, notwithstanding the fact that PNB-Madecor was a subsidiary of PNB. The general rule remains that PNB-Madecor has a personality separate and distinct from PNB. The mere fact that a corporation owns all of the stocks of another corporation, taken alone, is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary’s separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective businesses.57

In PNB v. Ritratto Group, Inc.,58 we outlined the circumstances which are useful in the determination of whether a subsidiary is but a mere instrumentality of the parent-corporation, to wit:

1. The parent corporation owns all or most of the capital stock of the subsidiary;

2. The parent and subsidiary corporations have common directors or officers;

3. The parent corporation finances the subsidiary;

4. The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation;

5. The subsidiary has grossly inadequate capital;

6. The parent corporation pays the salaries and other expenses or losses of the subsidiary;

7. The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation;

8. In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation’s own;

9. The parent corporation uses the property of the subsidiary as its own;

10. The directors or executives of the subsidiary do not act independently in the interest of the subsidiary, but take their orders from the parent corporation;

11. The formal legal requirements of the subsidiary are not observed.

None of the foregoing circumstances is present in the instant case. Thus, piercing of PNB-Madecor’s corporate veil is not warranted. Being a mere successor-in-interest of PNB-Madecor, with more reason should no liability attach to Mega Prime.

G.R. No. 170705

In its petition before this Court, PNB seeks the annulment of the June 23, 2004 execution sale of the Pantranco properties on the ground that the judgment debtor (PNEI) never owned said lots. It likewise contends that the levy and the eventual sale on execution of the subject properties was null and void as the promissory note on which PNB-Madecor was made liable had already been satisfied.

It has been repeatedly stated that the Pantranco properties which were the subject of execution sale were owned by Macris and later, the PNB-Madecor. They were never owned by PNEI or PNB. Following our earlier discussion on the separate personalities of the different corporations involved in the instant case, the only entity which has the right and interest to question the execution sale and the eventual right to annul the same, if any, is PNB-Madecor or its successor-in-interest. Settled is the rule that proceedings in court must be instituted by the real party in interest.

A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit.59 "Interest" within the meaning of the rule means material interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest.60 The interest of the party must also be personal and not one based on a desire to vindicate the constitutional right of some third and unrelated party.61 Real interest, on the other hand, means a present substantial interest, as distinguished from a mere expectancy or a future, contingent, subordinate, or consequential interest.62

Specifically, in proceedings to set aside an execution sale, the real party in interest is the person who has an interest either in the property sold or the proceeds thereof. Conversely, one who is not interested or is not injured by the execution sale cannot question its validity.63

In justifying its claim against the Pantranco properties, PNB alleges that Mega Prime, the buyer of its entire stockholdings in PNB-Madecor was indebted to it (PNB). Considering that said indebtedness remains unpaid, PNB insists that it has an interest over PNB-Madecor and Mega Prime’s assets.

Again, the contention is bereft of merit. While PNB has an apparent interest in Mega Prime’s assets being the creditor of the latter for a substantial amount, its interest remains inchoate and has not yet ripened into a present substantial interest, which would give it the standing to maintain an action involving the subject properties. As aptly observed by the Labor Arbiter, PNB only has an inchoate right to the properties of Mega Prime in case the latter would not be able to pay its indebtedness. This is especially true in the instant case, as the debt being claimed by PNB is secured by the accessory contract of pledge of the entire stockholdings of Mega Prime to PNB-Madecor.64

The Court further notes that the Pantranco properties (or a portion thereof ) were sold on execution to satisfy the unpaid obligation of PNB-Madecor to PNEI. PNB-Madecor was thus made liable to the former PNEI employees as the judgment debtor of PNEI. It has long been established in PNB-Madecor v. Uy and other similar cases that PNB-Madecor had an unpaid obligation to PNEI amounting to more or less P7 million which could be validly pursued by the creditors of the latter. Again, this strengthens the proper parties’ right to question the validity of the execution sale, definitely not PNB.

Besides, the issue of whether PNB has a substantial interest over the Pantranco properties has already been laid to rest by the Labor Arbiter.65 It is noteworthy that in its Resolution dated September 10, 2002, the Labor Arbiter denied PNB’s Third-Party Claim primarily because PNB only has an inchoate right over the Pantranco properties.66 Such conclusion was later affirmed by the NLRC in its Resolution dated June 30, 2003.67Notwithstanding said conclusion, PNB did not elevate the matter to the CA via a petition for review. Hence it is presumed to be satisfied with the adjudication therein.68 That decision of the NLRC has become final as against PNB and can no longer be reviewed, much less reversed, by this Court.69 This is in accord with the doctrine that a party who has not appealed cannot obtain from the appellate court any affirmative relief other than the ones granted in the appealed decision.70

WHEREFORE, premises considered, the petitions are hereby DENIED for lack of merit.

SO ORDERED.

220. PETRON CORPORATION AND PETER C. MALIGRO, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION AND CHITO S. MANTOS, respondents.

D E C I S I O N

GARCIA, J.:

Assailed and sought to be set aside in this petition for review under Rule 45 of the Rules of Court is theResolution dated November 26, 20011 of the Court of Appeals (CA) in CA-G.R. SP No. 67702, dismissing the petition for certiorari thereat filed by the herein petitioners on the ground that the Verification and Certification on Non-Forum Shopping was defective because co-petitioner Peter C. Maligro was not a signatory thereto, as reiterated in its subsequent Resolution of July 16, 2002,2 denying the petitioners' motion for reconsideration.

The facts:

Petitioner Petron Corporation (Petron), a corporation duly organized and existing under the laws of the Philippines, is engaged in the refining, sale and distribution of petroleum and other related products, while its co-petitioner Peter C. Maligro was the former Visayas Operations Assistant Manager of Petron's Visayas-Mindanao District Office at Lahug, Cebu City.

On May 15, 1990, Petron, through its Cebu District Office, hired the herein private respondent Chito S. Mantos, an Industrial Engineer, as a managerial, professional and technical employee with initial designation as a Bulk Plant Engineering Trainee. He attained regular employment status on November 15, 1990 and was later on designated as a Bulk Plant Relief Supervisor, remaining as such for the next five years while being assigned to the different plants and offices of Petron within the Visayas area.

It was while assigned at Petron's Cebu District Office with petitioner Peter Maligro as his immediate superior, when Mantos, thru a Notice of Disciplinary Action dated October 29, 1996,3 a copy of which was received by him on November 18, 1996,4 was suspended for 30 days from November 1 to 30, 1996 for violating company rules and regulations regarding Absence Without Leave (AWOL), not having reported for work during the period August 5 to 27, 1996.

Subsequently, in a notice Termination of Services bearing date November 20, 19965 and received by him on November 25, 1996,6 Mantos' services were altogether terminated effective December 1, 1996, by reason of his continued absences from August 28, 1996 onwards, as well as for Insubordination/Discourtesy for making false accusations against his superior.

Meanwhile, on November 8, 1996, contending that he has been constructively dismissed as of August 5, 1996, Mantos filed with the National Labor Relations Commission, Regional Arbitration Branch (NLRC-RAB), Cebu City, a complaint for illegal dismissal and other monetary claims against Petron and/or Peter C. Maligro. The case was docketed as NLRC RAB-VII Case No. 11-1439-96.

In his complaint, Mantos made the following allegations:

xxx He had an unblemished record in his service with [Petron]. Intrigues and professional jealousies, however, have prevailed over the work atmosphere in [Petron]. This became more particularly true in regard to his close relationship with Jaime "Boy" Tamayo, then the VISMIN Operations Manager who later left the company to migrate to Canada. His closeness to Tamayo has caused problems with his relationship with Peter Maligro, Visayas Operations Assistant Manager, who has been after his neck for sometime. Maligro's hatred on him became evident when he was assigned to Nasipit Bulk Plant at Nasipit, Agusan del Norte for two (2) months or so. He was deprived of his usual P1,000.00 a day per diem. He was also deprived of the usual facilities such as the service vehicle and the use and access to lighterage services.

Because of the tremendous work pressure, he availed and was granted a vacation leave in March 1996. Before he reported back to work he was summoned to the office of Peter Paul Shotwell. There, he was advised by [Petron's] officers to resign from [Petron] as they were instructed by superiors that he should quit as they no longer liked him. Failing to convince him he was later offered to avail of [Petron's] early retirement program dubbed as "Manpower Reduction Program" or MRP. Thereafter he was advised to avail of his remaining vacation leave while they process his MRP papers. After his vacation, he was no longer allowed to report back at his assignment at Mactan Aviation Facilities but directly to Maligro at the Cebu District Office. While being designated as Operations Engineer, he was assigned only menial tasks such as recopying errands, digging up files, drafting and redrafting memoranda and other mere clerical works. On August 5, 1996, Maligro bad-mouthed him in the presence of his co-employees for alleged dissatisfaction of his work as a mere clerk. What [Petron and Maligro] have done to him amounts to constructive dismissal. Hence, his complaint.7 (Words in brackets supplied.)

For their part, Petron and Maligro averred that Mantos was dismissed for just and valid causes effective December 1, 1996, asserting that:

xxx complainant [Mantos] incurred absences without leave (AWOL) on August 5 to 27, 1996 inclusive. He failed to comply with the instruction of a superior for him to report for work at the Cebu City District office and to submit a formal explanation of his AWOL. From August 28, 1996, up to the filing of respondents' position paper, complainant has not reported for work but continued to receive the salary for the months of August, September and October 2, 1996. An investigation was conducted on September 2, 1996 but complainant failed to appear. Instead he sent two (2) letters thru his counsel accusing respondent Maligro of certain acts humiliating and prejudicing him. After a series of hearings, [Petron's] Investigation Committee in a report and recommendation of November 19, 1996, recommended that after a 30-day suspension, complainant should be subjected to a more severe penalty. Hence, they deny complainant's claims. 8

In a decision dated June 30, 1998, Labor Arbiter Dominador A. Almirante declared Mantos to have been constructively dismissed but ruled that only Petron could be held liable to him for separation pay in lieu of reinstatement and the cash equivalent of his certificate of stocks, less his personal accountabilities. More specifically, the decision dispositively states:

WHEREFORE, foregoing premises considered, judgment is hereby rendered ordering the respondent Petron Corporation VISMIN District Office to pay complainant the amount of One Hundred Two thousand Nine Hundred Twenty-Eight Pesos and 41/100 (P102,928.41) representing the separation pay for his six (6) years of service at P15,420.00 a month, the cash equivalent of his certificate of stocks minus his outstanding account, computed as follows:

a. Separation Pay: P15,420.00 x 6 years - P 92, 520.00

b. Cash equivalent of certificate of stocks - P 66,600.00

Total P159,120.00

Minus - P 56, 191.59

Net Award P102, 928.41

SO ORDERED. 9

Explains the Labor Arbiter in his decision:

It is an established fact that for his absences from August 5 to August 27, 1996, complainant was imposed the penalty of suspension for thirty (30) days from November 1 to 30, 1996 per the letter of respondent Maligro to complainant dated October 29, 1996 (Annex "D"). From respondents' Annex "6" which is a memorandum of November 19, 1996 containing the report of the Investigation Committee it is shown therein that the summons in this case was received by respondents on November 14, 1996. The following day, November 15, 1996, the Committee met to determine the factual basis of the charges of absence without leave and insubordination against complainant. The Committee was convened seven (7) days after the filing of the complaint herein on November 8, 1996.

We find that the foregoing factual milieu militates badly against the cause for the respondents. It appears that the Investigation Committee was belatedly constituted as an afterthought after the respondents received the summons in this case. For his AWOL, complainant was already sufficiently penalized by suspension for thirty (30) days, the maximum penalty authorized by law. In fact, complainant was still serving his suspension when the Committee was convened and issued the memorandum of November 19, 1996 recommending his dismissal for AWOL and insubordination. The insubordination aspect stemmed from complainant's accusation in his complaint for constructive dismissal and withholding of his stock certificates. The imposition of the penalty of dismissal smacks of a desire to get even for complainant's filing of a complaint against the respondents. Anyway, the penalty of dismissal was too harshly and [d]isproportionately imposed on the complainant considering his length of service.

Furthermore, there is in an (sic) unrebutted evidence for the complainant that earlier while being assigned directly under respondent Maligro at the Cebu District Office, with the designation as Operations Engineer, he was assigned only menial tasks like recopying errands, digging up files, drafting and redrafting memoranda and other clerical works.

We find that respondents' act was tantamount to constructive dismissal xxx Under such circumstances, the continuance of complainant's employment with respondent corporation has been rendered impossible, unreasonable and unlikely. There exists also a demotion in rank.

xxx xxx xxx

We find therefore that complainant was illegally dismissed from the service. He should have been reinstated to his former position without loss of seniority rights. We find however, that the filing of this complaint has spawned strained relationship between the parties. Hence, reinstatement is no longer practical and feasible. Instead complainant should be awarded his separation pay equivalent to one (1) month pay per year of service. He is not however entitled to backwages. He is not completely free from blame in his separation from the service. He committed absences without leave. xxx

xxx xxx xxx

Complainant is also entitled to the cash equivalent of his certificate of stocks admitted in respondent's Exhibit "7" to be P66,600.00. From the total award shall be deducted the amount of P56,191.59 complainant's outstanding account to respondent.

The rest of the claims are hereby ordered dismissed for lack of merit not having been substantiated by clear and convincing evidence. Respondent Peter C. Maligro is hereby absolved from any liability hereof there being no showing that he acted in bad faith and in excess of his authority in dealing with the complainant. 10

Both dissatisfied, the parties questioned the aforementioned Labor Arbiter's decision: Petron and Maligro, by way of an appeal to the NLRC at Cebu City, accompanied by a P102, 928.41 surety bond in favor of Mantos; and the latter, by a motion for reconsideration which the NLRC eventually treated as an appeal.

On July 31, 2000, the NLRC reversed the findings of the Labor Arbiter regarding Mantos' constructive dismissal as of November 1, 1996 and considered him to have been illegally dismissed only on December 1, 1996. In the same decision, the NLRC adjudged Maligro solidarily liable with Petron, and accordingly modified the Labor Arbiter's decision as follows:

WHEREFORE, the questioned Decision is MODIFIED in that complainant was illegally suspended from November 1-30, 1996 and was ILLEGALLY DISMISSED on December 1, 1996, accordingly and as discussed, he should be paid separation pay based on his one month salary (P15,420.00) per year of service computed until the month of promulgation (July, 2000) of this Decision. In addition, complainant is entitled to full backwages from November 1, 1996 until July, 2000.

The finding below of cash equivalent of certificate of stocks in the amount of P66,600.00 is deleted. The accountability of complainant in the amount of P56,191.59 shall be deleted from his total awards.

Complainant is likewise entitled to ten percent (10%) of the total awards by way of attorney's fees.

The foregoing liabilities are solidary against respondents Petron Corporation and Peter C. Maligro.

SO ORDERED.11

Justifying its decision, the NLRC explained that Mantos failed to prove that he had to quit his job on August 5, 1996 because his continued employment was rendered impossible, unbearable and unlikely. On the other hand, Petron and Maligro did not observe the requisite procedural due process considering that (1) the alleged Notice of Violation of Company Rules and Regulations dated August 27, 1996 which preceded the suspension of Mantos was not received by the latter; and (2) no separate notice for the two new charges of Absence Without Leave (AWOL) starting August 28, 1996 and Insubordination/Discourtesy for making false accusations against his superior, were sent to Mantos prior to the Notice of Termination dated November 20, 1996 based on the report/recommendation dated November 19, 1996 of the Investigation Committee. Furthermore, the Commission noted that on the day after Petron and Maligro received the summons with respect to Mantos' complaint with the NLRC-RAB, the Investigation Committee was immediately convened regarding Mantos' continued absences beginning August 28, 1996 with Maligro himself being a member of said committee.

With their motion for reconsideration having been denied by the NLRC in its Resolution of August 31, 2001,12 the petitioners elevated the case via certiorari to the CA in CA-G.R. SP No. 67702.

As stated at the threshold hereof, the CA, in its assailed Resolution of November 26, 2001, outrightly dismissed the petition for being defective in form because only petitioner Petron signed the verification and certification on non-forum shopping without its co-petitioner Peter Maligro likewise signing the same.

Their motion for reconsideration having been denied by the CA in its second impugned Resolution of July 16, 2002, the petitioners are now with us via the present recourse on the following grounds:13

A. THE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS' PETITION FOR CERTIORARI ON THE GROUND THAT THE SAME FAILED TO COMPLY WITH THE RULE ON CERTIFICATION ON NON-FORUM SHOPPING CONSIDERING THAT:

1. THERE WAS SUBSTANTIAL COMPLIANCE BY PETITIONERS WITH THE REQUIREMENTS ON CERTIFICATION OF NON-FORUM SHOPPING.

2. THERE WAS A REASONABLE CAUSE FOR PETITIONER MALIGRO'S FAILURE TO ATTACH A VERIFICATION/CERTIFICATION OF NON-FORUM SHOPPING.

B. THE OUTRIGHT DISMISSAL OF THE PETITION BY THE COURT OF APPEALS WOULD DEFEAT SUBSTANTIAL JUSTICE CONSIDERING THAT THE NLRC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN FINDING THAT:

1. PRIVATE RESPONDENT'S COMPLAINT FOR ILLEGAL DISMISSAL WAS NOT FILED AS A MALICIOUS SCHEME AGAINST PETITIONERS, DESPITE OVERWHELMING EVIDENCE ON RECORD.

2. PETITIONERS DISMISSED PRIVATE RESPONDENT MANTOS WITHOUT OBSERVING THE REQUISITE PROCEDURAL DUE PROCESS BECAUSE PETITIONERS ALLEGEDLY DID NOT PROVE THAT MANTOS RECEIVED THE NOTICE OF VIOLATION OF COMPANY RULES DATED 27 AUGUST 1996 AS WELL AS THE TWO TELEGRAMS REQUIRING MANTOS TO REPORT FOR WORK, CONTRARY TO SUBSTANTIAL EVIDENCE ON RECORD.

3. THAT PETITIONERS DISMISSED MANTOS WITHOUT OBSERVING THE REQUISITE PROCEDURAL DUE PROCESS BECAUSE PETITIONERS ALLEGEDLY DID NOT SEND A NOTICE OF VIOLATION OF COMPANY RULES TO PRIVATE RESPONDENT FOR THE OFFENSES THAT HE COMMITTED FOR THE SECOND TIME, DESPITE CONTRARY EVIDENCE ON RECORD.

4. THAT PETITIONERS DID NOT SHOW HOW THE INVESTIGATION COMMITTEE THAT INVESTIGATED MANTOS' VIOLATIONS OF COMPANY RULES WAS CREATED AND THAT THE SAME WAS BIASED AGAINST MANTOS MERELY BECAUSE ITS CHAIRMAN WAS MANTOS' SUPERIOR, DESPITE CONTRARY EVIDENCE ON RECORD.

5. THAT PETITIONER PETER C. MALIGRO IS SOLIDARILY LIABLE WITH PETITIONER PETRON CORPORATION FOR THE LATTER'S ALLEGED LIABILITY TO MANTOS NOTWITHSTANDING THE ABSENCE OF EVIDENCE INDICATING THAT MALIGRO ACTED WITH BAD FAITH AGAINST MANTOS.

6. THAT PRIVATE RESPONDENT IS ENTITLED TO AWARD OF FULL BACKWAGES FROM 1 NOVEMBER 1996 UNTIL JULY 2000 AND TO THE OTHER MONETARY AWARDS MADE BY THE NLRC.

In his Comment,14 the private respondent avers, among others, that the petitioners' petition for certiorari in CA-G.R. SP No. 67702 cannot alter the factual findings of the Labor Arbiter as affirmed by the NLRC. He argues that the sole office of a writ of certiorari is to correct jurisdictional errors including grave abuse of discretion amounting to lack or excess of jurisdiction, and does not include correction of the NLRC's evaluation of the evidence, whose factual findings are generally accorded not only great respect but even finality.

The petition is partly meritorious.

Concededly, the fact that only Petron, minus its co-petitioner Peter C. Maligro, executed and signed the Verification and Certification on Non-Forum Shopping,15 attached to the petition for certiorari in CA-G.R. SP No. 67702, is a cause for the dismissal of that petition, conformably with Section 5, Rule 7 of the Rules of Court which expressly requires that the certification against forum shopping must have to be certified under oath by "the plaintiff or principal party," and failure to comply therewith shall cause the dismissal of the action.16

Be that as it may, we hold that the CA erred in outrightly dismissing CA-G.R. SP No. 67702 solely on the ground that therein co-petitioner Peter Maligro failed to equally sign the verification and certification on non-forum shopping.

It must be remembered that the petitioners in CA-G.R. SP No. 67702 are Petron and its operations assistant manager, Peter Maligro. Evidently, Maligro was included in the complaint filed by Mantos in NLRC RAB-VII Case No. 11-1439-96 in Maligro's capacity as Petron's corporate officer. Maligro has no separate and distinct personality from that of Petron, undoubtedly the direct employer of Mantos against which any award in the latter's favor is enforceable. With Petron being the real party-in interest in that case and not Maligro, the latter's failure to equally sign the verification and certification on non-forum shopping should not have merited the CA's outright dismissal of the certiorari petition in CA-G.R. SP No. 67702.

In outrightly dismissing the petition, the CA relied on Loquias v. Office of the Ombudsman.17 The appellate court's reliance on that case is misplaced. For, in the subsequent case of Micro Sales Operation Network and Willy Bendol v. NLRC, et. al., 18 wherein the CA based its dismissal of the therein similarly defective petition for certiorari on the strength of Loquias, this Court ruled:

The Court of Appeals relied on Loquias v. Office of the Ombudsman, which held that a certification on non-forum shopping signed by only one of two or more petitioners is defective, unless he was duly authorized by his co-petitioner. However, the said ruling applies when the co-parties are being sued in their individual capacities. Note that the petitioners in Loquias are the mayor, vice-mayor, and three members of the municipal board of San Miguel, Zamboanga del Sur. The said co-parties were charged with violation of Republic Act No. 3019 15 in their various capacities.

In the instant case, the petitioners are the company and its operations manager, Willy Bendol. The latter was impleaded simply because he was a co-respondent in the illegal dismissal complaint. He has no interest in this case separate and distinct from the company, which was the direct employer of private respondents. Any award of reinstatement, backwages, and attorney's fees in favor of private respondents will be enforced against the company as the real party in interest in an illegal dismissal case. Petitioner Bendol is clearly a mere nominal party in the case. His failure to sign the verification and certification on non-forum

shopping is not a ground for the dismissal of the petition. The appellate court erred in dismissing outright petitioners' special civil action for certiorari solely on that ground. (Emphasis supplied.)

In any event, considering that Maligro derives his standing or personality in the case from Petron, the certification on non-forum shopping executed and signed only by the corporation benefited Maligro such that the attachment of said certification to the petition in CA-G.R. SP No. 67702 should be deemed substantial compliance with the rule on certification on non-forum shopping.

We have, therefore, opted to give due course to the present petition. And realizing that a remand of this case to the CA would only entail further delay in the proceedings, we deemed it prudent to resolve the controversy to finally put it to a rest.

In the review of NLRC decisions through the special civil action of certiorari, resolution is confined only to issues of jurisdiction and grave abuse of discretion on the part of the labor tribunal. The Court refrains from reviewing factual assessments of lower courts and agencies exercising adjudicative functions, such as the NLRC. 19

Here, however, we are constrained to make a review of the records and a re-examination of the questioned NLRC findings to arrive at a complete, just and proper determination of the case.

Essentially, the issue posed is the validity of private respondent's dismissal.

The validity of an employee's dismissal hinges on the satisfaction of two substantive requirements, to wit: (1) the employee was accorded due process, basic of which are the opportunity to be heard and to defend himself; and (2) the dismissal must be for any of the causes provided for in Article 282 of the Labor Code.20

The illegality of the act of dismissal constitutes discharge without just cause, while the illegality in the manner of dismissal is dismissal without due process.21

Here, private respondent was successively charged with two (2) sets of offenses and separately penalized for each set.

The first set of infractions consisted of private respondent's being AWOL from August 5 to 27, 1996 and Insubordination/Discourtesy as set forth in the Notice of Violation of Company Rules and Regulations dated August 27, 1996,22 for which he was penalized with suspension for 30 days effective November 1 to 30, 1996 but only for the charge of being AWOL. The second set, as contained in the Notice of Violation of Company Rules and Regulations (EM 300) dated November 12, 199623 consisted also of being AWOL, this time beginning August 28, 1996, and Insubordination/Discourtesy for making false accusations against his superior, for which he wasdismissed effective December 1, 1996.

Private respondent did not report for work starting August 5, 1996 due to his belief that he has already been dismissed as of said date. But since he failed to prove his allegation of clear acts of harassment and humiliation, which had allegedly become so unbearable as to leave him with no choice but to forego his continued employment, we uphold the legality of his suspension due to his unauthorized absences from August 5 to 27, 1996.

With respect to respondent's dismissal, however, we find the same unjustified.

Under paragraph (a), Article 282 of the Labor Code,24 an employer may terminate the services of an employee for his willful disobedience of the employer's lawful orders in connection with his work.

Verily, the employer's rules, instructions or commands, in order to be a ground for discharge on the score of disobedience, must be reasonable and lawful, must be known to the employee, and must pertain to the duties for which his services were engaged.25

From the foregoing, it is clear that the factual basis for the petitioners' charge of insubordination against the private respondent, i.e., making false accusations against his superior cannot constitute a just cause for dismissal. The so-called accusations are embodied in the complaint filed by the private respondent in NLRC RAB-VII Case No. 11-1439-96, in which complaint he believed himself to have been constructively dismissed as of August 5, 1996. By no stretch of imagination can the filing of such complaint constitute insubordination. If, as asserted by the private respondent, he had been constructively dismissed as of August 5, 1996, such assertion could not have risen to the level of false accusation against his superior.

On the other hand, while respondent has indeed been absent from August 28, 1996, the penalty of dismissal therefor is too harsh considering that all the while, he deemed himself to have been already dismissed as early as August 5, 1996. Besides, private respondent has already been penalized with suspension for his unauthorized absences, which notice of suspension he only received on November 18, 1996.

Likewise, the petitioners failed to prove that they complied with the requisites of procedural due process in dismissing private respondent.

It is horn-book law that an employee sought to be dismissed must be served two (2) written notices before termination of employment: a notice to apprise the employee of the particular acts or omissions for which his dismissal is sought; and the

subsequent notice to inform him of the employer's decision to discharge him from the service.26 The procedure is mandatory and non-observance thereof renders the dismissal illegal and void.27

Here, while the private respondent received the Notice of Disciplinary Action dated October 29, 1996 informing him of his suspension, and the Memorandum dated November 20, 1996 terminating his services, he did not receive any prior notice[s] apprising him of the particular acts for which his suspension and/or termination were being sought.

As rightly found by the NLRC, the private respondent was not given the following notices, to wit: (1) the Notice of Violation of Company Rules and Regulations dated August 27, 1996 on his AWOL from August 5 to 27, 1996 and Insubordination/Discourtesy with notice of an investigation on September 2, 1996; and (2) the Notice dated November 12, 1996 on the second set of charges of AWOL starting August 28, 1996 and Insubordination/Discourtesy for allegedly making false accusations against his superior with notice of the investigation on November 15, 1996.

As borne by the records, it was only in their motion for reconsideration of the NLRC decision that the petitioners proffered the delivery records of a private courier to show that the aforementioned notices, as well as two alleged telegrams requiring the private respondent to report for work,28 were in fact sent to the latter. But, a perusal of said delivery records does not bear the petitioners' claim. For, apart from the private respondent's full name, Chito S. Mantos, being written in block letters on the said delivery records, there is no other way of knowing whether it was really him who received the notices or that another person could have received the same in his behalf.29Verily, said delivery records do not substantially show respondent's receipt of the notices in question.

Given the above, we cannot give credence to petitioners' claim that as early as August 27, 1996, the date of the notice allegedly sent to the respondent informing him of the first set of offenses, the latter already knew that a committee was going to investigate him for infractions of company rules and regulations in connection with thesecond set and that he was invited to attend the investigating committee's scheduled hearing.

We, therefore, lend concurrence to the common findings of both the NLRC and the Labor Arbiter that the committee which investigated the alleged second set of offenses and which eventually led to the committee's recommendation for his dismissal was created only on November 15, 1996 or a day at the heels of the petitioners' receipt on November 14, 1996 of the summons issued in NLRC RAB-VII Case No. 11-1439-96.

With the reality that no notice of any investigation was timely served on the private respondent, the latter's filing of his complaint for illegal dismissal in NLRC RAB-VII Case No. 11-1439-96 on November 8, 1996 could not be said to have been made to preempt the investigation regarding his alleged offenses as he was yet unaware of any such investigation. Moreover, as the NLRC rightly observed:

We note from the records that although complainant quit working starting August 5, 1996 because he felt he was "constructively dismissed" he did not file outright the present complaint. Instead, he wrote respondent Maligro on October 18, 1996, thru counsel asking an explanation why no case for illegal dismissal with damages would be filed against respondents. When he therefore finally filed the present case on Novemeber 8, 1996, that showed his lingering belief that he was constructively dismissed although from the viewpoint of respondents, he was already penalized with "grave suspension" for his AWOL from August 5-27, 1996. In short, the filing of the complaint was not a "malicious scheme" on the part of the complainant contrary to the contention of respondents. 30

Petitioners' failure to comply with the two-notice requirement as shown above, let alone the lack of just cause for terminating the services of private respondent, rendered the latter's dismissal illegal.

In fine, we rule and so hold that the NLRC did not gravely abuse its discretion in declaring the illegality of private respondent's dismissal.

We are, however, with the petitioners in their submission that the NLRC erred in holding petitioner Peter Maligro jointly and severally liable with petitioner Petron for the money claims of the private respondent.

Settled is the rule in this jurisdiction that a corporation is invested by law with a legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it.31 Thus, obligations incurred by corporate officers acting as corporate agents are not theirs but the direct accountabilities of the corporation they represent.32 True, solidary liabilities may at times be incurred by corporate officers, but only when exceptional circumstances so warrant.33 For instance, in labor cases, corporate directors and officers may be held solidarily liable with the corporation for the termination of employment if done with malice or in bad faith.34

In the present case, the apparent basis for the NLRC in holding petitioner Maligro solidarily liable with Petron were its findings that (1) the Investigation Committee was created a day after the summons in NLRC RAB-VII Case No. 11-1439-96 was received, with Maligro no less being the chairman thereof; and (2) the basis for the charge of insubordination was the private respondent's alleged making of false accusations against Maligro.

Those findings, however, cannot justify a finding of personal liability on the part of Maligro inasmuch as said findings do not point to Maligro's extreme personal hatred and animosity with the respondent. It cannot, therefore, be said that Maligro was motivated by malice and bad faith in connection with private respondent's dismissal from the service.

If at all, what said findings show are the illegality itself of private respondent's dismissal, the lack of just cause therefor and the non-observance of procedural due process. Verily, the creation of the investigation committee and said committee's consideration of the insubordination charge against the private respondent, were merely aimed to cover up the illegal dismissal or to give it a semblance of legality.

Besides, the fact that Maligro himself was the committee chairman is not itself sufficient to impute bad faith on his part or attribute bias against him. It is undisputed that Maligro was private respondent's superior, being Petron's Operations Assistant Manager for Visayas and Mindanao. It is thus logical for him to be part of the committee that will investigate private respondent's alleged infractions of company rules and regulations. As well, the committee was composed of three other Petron officers as members, and nowhere is there any showing that Maligro, as committee chairman, influenced the other committee members to side against the private respondent.

In any event, it must be stressed that private respondent's allegation of bad faith on the part of Maligro was not established in this case. We quote the NLRC's finding in this regard:

Whether he really caught the ire of his immediate supervisor (respondent Maligro) in view of his alleged closeness to the previous one who migrated to Canada, and whether or not he was assigned to menial clerical jobs when his designation was that of Operations Engineer, were not clearly established by complainant.35

Lastly, as to the award of backwages, we refer to Article 279 of the Labor Code (as amended by Section 34 of R.A. 6715) which provides that an employee who is unjustly dismissed from work is entitled to reinstatement without loss of seniority rights and other privileges, and to the payment of his full backwages, inclusive of allowances, and other benefits or their monetary equivalent computed from the time his compensation was withheld from him (which, as a rule, is from the time of his illegal dismissal) up to the time of his actual reinstatement. Similarly, under R.A. 6715,36 employees who are illegally dismissed are entitled to full backwages, inclusive of allowances and other benefits or their monetary equivalent, computed from the time their actual compensation was withheld from them up to the time of their actual reinstatement but if reinstatement is no longer possible, the backwages shall be computed from the time of their illegal termination up to the finality of the decision.37

Since the circumstances obtaining in this case do not warrant private respondent's reinstatement in the light of the antagonism generated by this litigation which must have caused a severe strain in the parties' employer-employee relationship, an award of separation pay in lieu of reinstatement, equivalent to one month pay for every year of service, in addition to full backwages, allowances, and other benefits or the monetary equivalent thereof, is in order. The award of attorney's fees is sanctioned by law and must be upheld.

WHEREFORE, the assailed Resolution of the Court of Appeals is SET ASIDE, and the NLRC decision dated July 31, 2000 is AFFIRMED with the MODIFICATION that (1) private respondent Chito S. Mantos is awarded separation pay equivalent to one month pay for every year of service and full backwages, other privileges and benefits or to the monetary equivalent thereof, computed from the date of his illegal dismissal on December 1, 1996 until the finality of this decision; and (2) petitioner Peter C. Maligro is ABSOLVED from any liability adjudged against co-petitioner Petron Corporation.

Costs against the petitioners.

SO ORDERED.

233. PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION, petitioners, vs. ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent.

D E C I S I O N

PANGANIBAN, J.:

Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting public auction by the Development Bank of the Philippines (DBP), will not make PNB liable for the PASUMIL’s contractual debts to respondent.

Statement of the Case

Before us is a Petition for Review assailing the April 17, 2000 Decision[1] of the Court of Appeals (CA) in CA-GR CV No. 57610. The decretal portion of the challenged Decision reads as follows:

“WHEREFORE, the judgment appealed from is hereby AFFIRMED.”[2]

The Facts

The factual antecedents of the case are summarized by the Court of Appeals as follows:

“In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly organized, existing, and operating under the laws of the Philippines, with office and principal place of business at Nos. 794-812 Del Monte [A]venue, Quezon City, while the defendant [herein petitioner] Philippine National Bank (herein referred to as PNB), is a semi-government corporation duly organized, existing and operating under the laws of the Philippines, with office and principal place of business at Escolta Street, Sta. Cruz, Manila; whereas, the other defendant, the National Sugar Development Corporation (NASUDECO in brief), is also a semi-government corporation and the sugar arm of the PNB, with office and principal place of business at the 2nd Floor, Sampaguita Building, Cubao, Quezon City; and the defendant Pampanga Sugar Mills (PASUMIL in short), is a corporation organized, existing and operating under the 1975 laws of the Philippines, and had its business office before 1975 at Del Carmen, Floridablanca, Pampanga; that the plaintiff is engaged in the business of general construction for the repairs and/or construction of different kinds of machineries and buildings; that on August 26, 1975, the defendant PNB acquired the assets of the defendant PASUMIL that were earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI No. 311; that the defendant PNB organized the defendant NASUDECO in September, 1975, to take ownership and possession of the assets and ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills; that prior to October 29, 1971, the defendant PASUMIL engaged the services of plaintiff for electrical rewinding and repair, most of which were partially paid by the defendant PASUMIL, leaving several unpaid accounts with the plaintiff; that finally, on October 29, 1971, the plaintiff and the defendant PASUMIL entered into a contract for the plaintiff to perform the following, to wit –

‘(a) Construction of one (1) power house building;

‘(b) Construction of three (3) reinforced concrete foundation for three (3) units 350 KW diesel engine generating set[s];

‘(c) Construction of three (3) reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets;

‘(d) Complete overhauling and reconditioning tests sum for three (3) 350 KW diesel engine generating set[s];

‘(e) Installation of turbine and diesel generating sets including transformer, switchboard, electrical wirings and pipe provided those stated units are completely supplied with their accessories;

‘(f) Relocating of 2,400 V transmission line, demolition of all existing concrete foundation and drainage canals, excavation, and earth fillings – all for the total amount of P543,500.00 as evidenced by a contract, [a] xerox copy of which is hereto attached as Annex ‘A’ and made an integral part of this complaint;’

that aside from the work contract mentioned-above, the defendant PASUMIL required the plaintiff to perform extra work, and provide electrical equipment and spare parts, such as:

‘(a) Supply of electrical devices;

‘(b) Extra mechanical works;

‘(c) Extra fabrication works;

‘(d) Supply of materials and consumable items;

‘(e) Electrical shop repair;

‘(f) Supply of parts and related works for turbine generator;

‘(g) Supply of electrical equipment for machinery;

‘(h) Supply of diesel engine parts and other related works including fabrication of parts.’

that out of the total obligation of P777,263.80, the defendant PASUMIL had paid only P250,000.00, leaving an unpaid balance, as of June 27, 1973, amounting toP527,263.80, as shown in the Certification of the chief accountant of the PNB, a machine copy of which is appended as Annex ‘C’ of the complaint; that out of said unpaid balance of P527,263.80, the defendant PASUMIL made a partial payment to the plaintiff of P14,000.00, in broken amounts, covering the period from January 5, 1974 up to May 23, 1974, leaving an unpaid balance of P513,263.80; that the defendant PASUMIL and the defendant PNB, and now the defendant NASUDECO, failed and refused to pay the plaintiff their just, valid and demandable obligation; that the President of the NASUDECO is also the Vice-President of the PNB, and this official holds office at the 10th Floor of the PNB, Escolta, Manila, and plaintiff besought this official to pay the outstanding obligation of the defendant PASUMIL, inasmuch as the defendant PNB and NASUDECO now owned and possessed the assets of the defendant PASUMIL, and these defendants all benefited from the works, and the electrical, as well as the engineering and repairs, performed by the plaintiff; that because of the failure and refusal of the defendants to pay their just, valid, and demandable obligations, plaintiff suffered actual damages in the total amount of P513,263.80; and that in order to recover these sums, the plaintiff was compelled to engage the professional services of counsel, to whom the plaintiff agreed to pay a sum equivalent to 25% of the amount of the obligation due by way of attorney’s fees. Accordingly, the plaintiff prayed that judgment be rendered against the defendants PNB, NASUDECO, and PASUMIL, jointly and severally to wit:

‘(1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with annual interest of 14% from the time the obligation falls due and demandable;

‘(2) Condemning the defendants to pay attorney’s fees amounting to 25% of the amount claim;

‘(3) Ordering the defendants to pay the costs of the suit.’

“The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint chiefly on the ground that the complaint failed to state sufficient allegations to establish a cause of action against both defendants, inasmuch as there is lack or want of privity of contract between the plaintiff and the two defendants, the PNB and NASUDECO, said defendants citing Article 1311 of the New Civil Code, and the case law ruling in Salonga v. Warner Barnes & Co., 88 Phil. 125; and Manila Port Service, et al. v. Court of Appeals, et al., 20 SCRA 1214.

“The motion to dismiss was by the court a quo denied in its Order of November 27, 1980; in the same order, that court directed the defendants to file their answer to the complaint within 15 days.

“In their answer, the defendant NASUDECO reiterated the grounds of its motion to dismiss, to wit:

‘That the complaint does not state a sufficient cause of action against the defendant NASUDECO because: (a) NASUDECO is not x x x privy to the various electrical construction jobs being sued upon by the plaintiff under the present complaint; (b) the taking over by NASUDECO of the assets of defendant PASUMIL was solely for the purpose of reconditioning the sugar central of defendant PASUMIL pursuant to martial law powers of the President under the Constitution; (c) nothing in the LOI No. 189-A (as well as in LOI No. 311) authorized or commanded the PNB or its subsidiary corporation, the NASUDECO, to assume the corporate obligations of PASUMIL as that being involved in the present case; and, (d) all that was mentioned by the said letter of instruction insofar as the PASUMIL liabilities [were] concerned [was] for the PNB, or its subsidiary corporation the NASUDECO, to make a study of, and submit [a] recommendation on the problems concerning the same.’

“By way of counterclaim, the NASUDECO averred that by reason of the filing by the plaintiff of the present suit, which it [labeled] as unfounded or baseless, the defendant NASUDECO was constrained to litigate and incur litigation expenses in the amount of P50,000.00, which plaintiff should be sentenced to pay. Accordingly, NASUDECO prayed that the complaint be dismissed and on its counterclaim, that the plaintiff be condemned to pay P50,000.00 in concept of attorney’s fees as well as exemplary damages.

“In its answer, the defendant PNB likewise reiterated the grounds of its motion to dismiss, namely: (1) the complaint states no cause of action against the defendant PNB; (2) that PNB is not a party to the contract alleged in par. 6 of the complaint and that the alleged services rendered by the plaintiff to the defendant PASUMIL upon which plaintiff’s suit is erected, was rendered long before PNB took possession of the assets of the defendant PASUMIL under LOI No. 189-A; (3) that the PNB take-over of the assets of the defendant PASUMIL under LOI 189-A was solely for the purpose of reconditioning the sugar central so that PASUMIL may resume its operations in time for the 1974-75 milling season, and that nothing in the said LOI No. 189-A, as well as in LOI No. 311, authorized or directed PNB to assume the corporate obligation/s of PASUMIL, let alone that for which the present action is brought; (4) that PNB’s management and operation under LOI No. 311 did not refer to any asset of PASUMIL which the PNB had to acquire and thereafter [manage], but only to those which were foreclosed by the DBP and were in turn redeemed by the PNB from the DBP; (5) that conformably to LOI No. 311, on August 15, 1975, the PNB and the Development Bank of the Philippines (DBP) entered into a

‘Redemption Agreement’ whereby DBP sold, transferred and conveyed in favor of the PNB, by way of redemption, all its (DBP) rights and interest in and over the foreclosed real and/or personal properties of PASUMIL, as shown in Annex ‘C’ which is made an integral part of the answer; (6) that again, conformably with LOI No. 311, PNB pursuant to a Deed of Assignment dated October 21, 1975, conveyed, transferred, and assigned for valuable consideration, in favor of NASUDECO, a distinct and independent corporation, all its (PNB) rights and interest in and under the above ‘Redemption Agreement.’ This is shown in Annex ‘D’ which is also made an integral part of the answer; [7] that as a consequence of the said Deed of Assignment, PNB on October 21, 1975 ceased to managed and operate the above-mentioned assets of PASUMIL, which function was now actually transferred to NASUDECO. In other words, so asserted PNB, the complaint as to PNB, had become moot and academic because of the execution of the said Deed of Assignment; [8] that moreover, LOI No. 311 did not authorize or direct PNB to assume the corporate obligations of PASUMIL, including the alleged obligation upon which this present suit was brought; and [9] that, at most, what was granted to PNB in this respect was the authority to ‘make a study of and submit recommendation on the problems concerning the claims of PASUMIL creditors,’ under sub-par. 5 LOI No. 311.

“In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate and to incur expenses in this case, hence it is entitled to claim attorney’s fees in the amount of at least P50,000.00. Accordingly, PNB prayed that the complaint be dismissed; and that on its counterclaim, that the plaintiff be sentenced to pay defendant PNB the sum of P50,000.00 as attorney’s fees, aside from exemplary damages in such amount that the court may seem just and equitable in the premises.

“Summons by publication was made via the Philippines Daily Express, a newspaper with editorial office at 371 Bonifacio Drive, Port Area, Manila, against the defendant PASUMIL, which was thereafter declared in default as shown in the August 7, 1981 Order issued by the Trial Court.

“After due proceedings, the Trial Court rendered judgment, the decretal portion of which reads:

‘WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant Corporation, Philippine National Bank (PNB) NATIONAL SUGAR DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA SUGAR MILLS (PASUMIL), ordering the latter to pay jointly and severally the former the following:

‘1. The sum of P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from September 25, 1980 until fully paid;

‘2. The sum of P102,724.76 as attorney’s fees; and,

‘3. Costs.

‘SO ORDERED.

‘Manila, Philippines, September 4, 1986.

'(SGD) ERNESTO S. TENGCO

‘Judge’”[3]

Ruling of the Court of Appeals

Affirming the trial court, the CA held that it was offensive to the basic tenets of justice and equity for a corporation to take over and operate the business of another corporation, while disavowing or repudiating any responsibility, obligation or liability arising therefrom.[4]

Hence, this Petition.[5]

Issues

In their Memorandum, petitioners raise the following errors for the Court’s consideration:

“I

The Court of Appeals gravely erred in law in holding the herein petitioners liable for the unpaid corporate debts of PASUMIL, a corporation whose corporate existence has not been legally extinguished or terminated, simply because of petitioners[’] take-over of the management and operation of PASUMIL pursuant to the mandates of LOI No. 189-A, as amended by LOI No. 311.

“II

The Court of Appeals gravely erred in law in not applying [to] the case at bench the ruling enunciated in Edward J. Nell Co. v. Pacific Farms, 15 SCRA 415.”[6]

Succinctly put, the aforesaid errors boil down to the principal issue of whether PNB is liable for the unpaid debts of PASUMIL to respondent.

This Court’s Ruling

The Petition is meritorious.

Main Issue:

Liability for Corporate Debts

As a general rule, questions of fact may not be raised in a petition for review under Rule 45 of the Rules of Court.[7] To this rule, however, there are some exceptions enumerated in Fuentes v. Court of Appeals.[8] After a careful scrutiny of the records and the pleadings submitted by the parties, we find that the lower courts misappreciated the evidence presented.[9] Overlooked by the CA were certain relevant facts that would justify a conclusion different from that reached in the assailed Decision.[10]

Petitioners posit that they should not be held liable for the corporate debts of PASUMIL, because their takeover of the latter’s foreclosed assets did not make them assignees. On the other hand, respondent asserts that petitioners and PASUMIL should be treated as one entity and, as such, jointly and severally held liable for PASUMIL’s unpaid obligation.

As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation, and (4) where the transaction is fraudulently entered into in order to escape liability for those debts.[11]

Piercing the Corporate

Veil Not Warranted

A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its existence.[12] It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related.[13] This is basic.

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation.[14] For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled[15] only when it becomes a shield for fraud, illegality or inequity committed against third persons.[16]

Hence, any application of the doctrine of piercing the corporate veil should be done with caution.[17] A court should be mindful of the milieu where it is to be applied.[18] It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights.[19] The wrongdoing must be clearly and convincingly established; it cannot be presumed.[20]Otherwise, an injustice that was never unintended may result from an erroneous application.[21]

This Court has pierced the corporate veil to ward off a judgment credit,[22] to avoid inclusion of corporate assets as part of the estate of the decedent,[23] to escape liability arising from a debt,[24] or to perpetuate fraud and/or confuse legitimate issues[25] either to promote or to shield unfair objectives[26] or to cover up an otherwise blatant violation of the prohibition against forum-shopping.[27] Only in these and similar instances may the veil be pierced and disregarded.[28]

The question of whether a corporation is a mere alter ego is one of fact.[29] Piercing the veil of corporate fiction may be allowed only if the following elements concur: (1) control -- not mere stock control, but complete domination -- not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff’s legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of.[30]

We believe that the absence of the foregoing elements in the present case precludes the piercing of the corporate veil. First, other than the fact that petitioners acquired the assets of PASUMIL, there is no showing that their control over it warrants the disregard of corporate personalities.[31] Second, there is no evidence that their juridical personality was used to commit a fraud or to do a wrong; or that the separate corporate entity was farcically used as a mere alter ego, business conduit or instrumentality of another entity or person.[32] Third, respondent was not defrauded or injured when petitioners acquired the assets of PASUMIL.[33]

Being the party that asked for the piercing of the corporate veil, respondent had the burden of presenting clear and convincing evidence to justify the setting aside of the separate corporate personality rule.[34] However, it utterly failed to discharge this burden;[35] it failed to establish by competent evidence that petitioner’s separate corporate veil had been used to conceal fraud, illegality or inequity.[36]

While we agree with respondent’s claim that the assets of the National Sugar Development Corporation (NASUDECO) can be easily traced to PASUMIL,[37] we are not convinced that the transfer of the latter’s assets to petitioners was fraudulently entered into in order to escape liability for its debt to respondent.[38]

A careful review of the records reveals that DBP foreclosed the mortgage executed by PASUMIL and acquired the assets as the highest bidder at the public auction conducted.[39] The bank was justified in foreclosing the mortgage, because the PASUMIL account had incurred arrearages of more than 20 percent of the total outstanding obligation.[40] Thus, DBP had not only a right, but also a duty under the law to foreclose the subject properties.[41]

Pursuant to LOI No. 189-A[42] as amended by LOI No. 311,[43] PNB acquired PASUMIL’s assets that DBP had foreclosed and purchased in the normal course. Petitioner bank was likewise tasked to manage temporarily the operation of such assets either by itself or through a subsidiary corporation.[44]

PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets pursuant to Section 6 of Act No. 3135.[45] These assets were later conveyed to PNB for a consideration, the terms of which were embodied in the Redemption Agreement.[46] PNB, as successor-in-interest, stepped into the shoes of DBP as PASUMIL’s creditor.[47] By way of a Deed of Assignment,[48] PNB then transferred to NASUDECO all its rights under the Redemption Agreement.

In Development Bank of the Philippines v. Court of Appeals,[49] we had the occasion to resolve a similar issue. We ruled that PNB, DBP and their transferees were not liable for Marinduque Mining’s unpaid obligations to Remington Industrial Sales Corporation (Remington) after the two banks had foreclosed the assets of Marinduque Mining. We likewise held that Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining to justify the piercing of the corporate veil.

In the instant case, the CA erred in affirming the trial court’s lifting of the corporate mask.[50] The CA did not point to any fact evidencing bad faith on the part of PNB and its transferee.[51] The corporate fiction was not used to defeat public convenience, justify a wrong, protect fraud or defend crime.[52] None of the foregoing exceptions was shown to exist in the present case.[53] On the contrary, the lifting of the corporate veil would result in manifest injustice. This we cannot allow.

No Merger or Consolidation

Respondent further claims that petitioners should be held liable for the unpaid obligations of PASUMIL by virtue of LOI Nos. 189-A and 311, which expressly authorized PASUMIL and PNB to merge or consolidate. On the other hand, petitioners contend that their takeover of the operations of PASUMIL did not involve any corporate merger or consolidation, because the latter had never lost its separate identity as a corporation.

A consolidation is the union of two or more existing entities to form a new entity called the consolidated corporation. A merger, on the other hand, is a union whereby one or more existing corporations are absorbed by another corporation that survives and continues the combined business.[54]

The merger, however, does not become effective upon the mere agreement of the constituent corporations.[55] Since a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must be an express provision of law authorizing them.[56] For a valid merger or consolidation, the approval by the Securities and Exchange Commission (SEC) of the articles of merger or consolidation is required.[57] These articles must likewise be duly approved by a majority of the respective stockholders of the constituent corporations.[58]

In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code[59] was not followed.

In fact, PASUMIL’s corporate existence, as correctly found by the CA, had not been legally extinguished or terminated.[60] Further, prior to PNB’s acquisition of the foreclosed assets, PASUMIL had previously made partial payments to respondent for the former’s obligation in the amount of P777,263.80. As of June 27, 1973, PASUMIL had paid P250,000 to respondent and, from January 5, 1974 to May 23, 1974, anotherP14,000.

Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to respondent.[61] LOI No. 11 explicitly provides that PNB shall study and submit recommendations on the claims of PASUMIL’s creditors.[62] Clearly, the corporate separateness between PASUMIL and PNB remains, despite respondent’s insistence to the contrary.[63]

WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE. No pronouncement as to costs.

SO ORDERED.

237. PHILIPPINE NATIONAL BANK, petitioner, vs.RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE,respondents.

KAPUNAN, J.:

In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul and set aside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order issuing a writ of preliminary injunction of the Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and its Order dated October 4, 1999, which denied petitioner's motion to dismiss.

The antecedents of this case are as follows:

Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are domestic corporations, likewise, organized and existing under Philippine law.

On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00 secured by real estate mortgages constituted over four (4) parcels of land in Makati City. This credit facility was later increased successively to US$1,140,000.00 in September 1996; to US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April 1998. Respondents made repayments of the loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong.

However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall.

On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary restraining order. On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. At the hearing of the application for preliminary injunction, petitioner was given a period of seven days to file its written opposition to the application. On June 15, 1999, petitioner filed an opposition to the application for a writ of preliminary injunction to which the respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between the petitioner and respondents. On June 30, 1999, the trial court judge issued an Order for the issuance of a writ of preliminary injunction, which writ was correspondingly issued on July 14, 1999. On October 4, 1999, the motion to dismiss was denied by the trial court judge for lack of merit.

Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of preliminary injunction before the Court of Appeals. In the impugned decision,1 the appellate court dismissed the petition. Petitioner thus seeks recourse to this Court and raises the following errors:

1.

THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO, CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.

2.

THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.2

Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial court's Orders dated June 30, 1999 and October 4, 1999 be set aside and the dismissal of the complaint in the instant case.3

In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate entities, petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked to commit acts of foreclosing respondents' properties.4 Respondents maintain that the entire credit facility is void as it contains stipulations in violation of the principle of mutuality of contracts.5 In addition, respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL.6

The petition is impressed with merit.

Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the contract:

GROUNDS

I

THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS.

II

THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW OR BY THE MONETARY BOARD.7

Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the foreclosure and eventual sale of the property in order to protect their rights to said property by reason of void credit facilities as bases for the real estate mortgage over the said property.8

The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their complaint, respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power and authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. In other words, herein petitioner is an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage. It is not privy to the loan contracts entered into by respondents and PNB-IFL.

The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party to the loan contracts, and the respondents. Yet, despite the recognition that petitioner is a mere agent, the respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by them in accordance with the terms and conditions in the documents evidencing the credit facilities, and crediting the amount previously paid to PNB by herein respondents.9

Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract. Respondents, therefore, do not have any cause of action against petitioner.

The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL.10 In justifying its ruling, the trial court, citing the case of Koppel Phil. Inc. vs. Yatco,11 reasoned that the corporate entity may be disregarded where a corporation is the 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.12

We disagree.

The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter.13The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity.

We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court disregarded the separate existence of the parent and the subsidiary on the ground that the latter was formed merely for the purpose of evading the payment of higher taxes. In the case at bar, respondents fail to show any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded.

While there exists no definite test of general application in determining when a subsidiary may be treated as a mere instrumentality of the parent corporation, some factors have been identified that will justify the application of the treatment of the doctrine of the piercing of the corporate veil. The case of Garrett vs. Southern Railway Co.14is enlightening. The case involved a suit against the Southern Railway Company. Plaintiff was employed by Lenoir Car Works and alleged that he sustained injuries while working for Lenoir. He, however, filed a suit against Southern Railway Company on the ground that Southern had acquired the entire capital stock of Lenoir Car Works, hence, the latter corporation was but a mere instrumentality of the former. The Tennessee Supreme Court stated that as a general rule the stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation. Said Court then outlined the circumstances which may be useful in the determination of whether the subsidiary is but a mere instrumentality of the parent-corporation:

The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to catalogue the infinite variations of fact that can arise but there are certain common circumstances which are important and which, if present in the proper combination, are controlling.

These are as follows:

(a) The parent corporation owns all or most of the capital stock of the subsidiary.

(b) The parent and subsidiary corporations have common directors or officers.

(c) The parent corporation finances the subsidiary.

(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.

(e) The subsidiary has grossly inadequate capital.

(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.

(g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation.

(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own.

(i) The parent corporation uses the property of the subsidiary as its own.

(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation.

(k) The formal legal requirements of the subsidiary are not observed.

The Tennessee Supreme Court thus ruled:

In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of the capital stock of Lenoir by Southern, and possibly subscription to the capital stock of Lenoir. . . The complaint must be dismissed.

Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the 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.15

In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the applicability of the doctrine of piercing the veil of corporate fiction, to wit:

1. Control, not mere majority or complete control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own.

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiffs legal rights; and,

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to the operation.17

Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar.

In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or defended in the name of the

real party-in-interest, unless otherwise authorized by law or these Rules.18 In mandatory terms, the Rules require that "parties-in-interest without whom no final determination can be had, an action shall be joined either as plaintiffs or defendants."19 In the case at bar, the injunction suit is directed only against the agent, not the principal.

Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere provisional remedy but adjunct to the main suit.20 A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendency of the principal action. The dismissal of the principal action thus results in the denial of the prayer for the issuance of the writ. Further, there is no showing that respondents are entitled to the issuance of the writ. Section 3, Rule 58, of the 1997 Rules of Civil Procedure provides:

SECTION 3. Grounds for issuance of preliminary injunction. — A preliminary injunction may be granted when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually,

(b) That the commission, continuance or non-performance of the acts or acts complained of during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation.21 Respondents do not deny their indebtedness. Their properties are by their own choice encumbered by real estate mortgages. Upon the non-payment of the loans, which were secured by the mortgages sought to be foreclosed, the mortgaged properties are properly subject to a foreclosure sale. Moreover, respondents questioned the alleged void stipulations in the contract only when petitioner initiated the foreclosure proceedings. Clearly, respondents have failed to prove that they have a right protected and that the acts against which the writ is to be directed are violative of said right.22The Court is not unmindful of the findings of both the trial court and the appellate court that there may be serious grounds to nullify the provisions of the loan agreement. However, as earlier discussed, respondents committed the mistake of filing the case against the wrong party, thus, they must suffer the consequences of their error.

All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith, must be lifted.

IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED.

SO ORDERED.

252. R & E TRANSPORT, INC., and HONORIO ENRIQUEZ, petitioners, vs.AVELINA P. LATAG, representing her deceased husband, PEDRO M. LATAG, respondents.

D E C I S I O N

PANGANIBAN, J.:

Factual issues may be reviewed by the Court of Appeals (CA) when the findings of fact of the National Labor Relations Commission (NLRC) conflict with those of the labor arbiter. By the same token, this Court may review factual conclusions of the CA when they are contrary to those of the NLRC or of the labor arbiter.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the June 3, 2002 Decision2 and the August 28, 2002 Resolution3 of the Court of Appeals in CA-GR SP No. 67998. The appellate court disposed as follows:

"WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed Order of public respondent NLRC is SET ASIDE. The March 14, 20014 [D]ecision of the Labor Arbiter a quo is REINSTATED."5

The challenged Resolution denied petitioners’ Motion for Reconsideration.

The Factual Antecedents

The antecedents of the case are narrated by the CA as follows:

"Pedro Latag was a regular employee x x x of La Mallorca Taxi since March 1, 1961. When La Mallorca ceased from business operations, [Latag] x x x transferred to [petitioner] R & E Transport, Inc. x x x. He was receiving an average daily salary of five hundred pesos (P500.00) as a taxi driver.

"[Latag] got sick in January 1995 and was forced to apply for partial disability with the SSS, which was granted. When he recovered, he reported for work in September 1998 but was no longer allowed to continue working on account of his old age.

"Latag thus asked Felix Fabros, the administrative officer of [petitioners], for his retirement pay pursuant to Republic Act 7641 but he was ignored. Thus, on December 21, 1998, [Latag] filed a case for payment of his retirement pay before the NLRC.

"Latag however died on April 30, 1999. Subsequently, his wife, Avelina Latag, substituted him. On January 10, 2000, the Labor Arbiter rendered a decision in favor of [Latag], the dispositive portion of which reads:

‘WHEREFORE, judgment is hereby rendered ordering x x x LA MALLORCA TAXI, R & E TRANSPORT, INC. and their owner/chief executive officer HONORIO ENRIQUEZ to jointly and severally pay MRS. AVELINA P. LATAG the sum of P277,500.00 by way of retirement pay for her deceased husband, PEDRO M. LATAG.

‘SO ORDERED.’

"On January 21, 2000, [Respondent Avelina Latag,] with her then counsel[,] was invited to the office of [petitioners’] counsel and was offered the amount of P38,500.00[,] which she accepted. [Respondent] was also asked to sign an already prepared quitclaim and release and a joint motion to dismiss the case.

"After a day or two, [respondent] received a copy of the January 10, 2000 [D]ecision of the Labor Arbiter.

"On January 24, 2000, [petitioners] filed the quitclaim and motion to dismiss. Thereafter, on May 23, 2000, the Labor Arbiter issued an order, the relevant portion of which states:

‘WHEREFORE, the decision stands and the Labor Arbitration Associate of this Office is directed to prepare the Writ of Execution in due course.

‘SO ORDERED.’

"On January 21, 2000, [petitioners] interposed an appeal before the NLRC. On March 14, 2001, the latter handed down a [D]ecision[,] the decretal portion of which provides:

‘WHEREFORE, in view of the foregoing, respondents’ Appeal is hereby DISMISSED for failure to post a cash or surety bond, as mandated by law.

‘SO ORDERED.’

"On April 10, 2001, [petitioners] filed a motion for reconsideration of the above resolution. On September 28, 2001, the NLRC came out with the assailed [D]ecision, which gave due course to the motion for reconsideration."6(Citations omitted)

Respondent appealed to the CA, contending that under Article 223 of the Labor Code and Section 3, Rule VI of the New Rules of Procedure of the NLRC, an employer’s appeal of a decision involving monetary awards may be perfected only upon the posting of an adequate cash or surety bond.

Ruling of the Court of Appeals

The CA held that the labor arbiter’s May 23, 2000 Order had referred to the earlier January 10, 2000 Decision awarding respondent P277,500 as retirement benefit.

According to the appellate court, because petitioners’ appeal before the NLRC was not accompanied by an appropriate cash or surety bond, such appeal was not perfected. The CA thus ruled that the labor arbiter’s January 10, 2000 Decision and May 23, 2000 Order had already become final and executory.

Hence, this Petition.7

Issues

Petitioners submit the following issues for our consideration:

"I

Whether or not the Court should respect the findings of fact [of] the NLRC as against [those] of the labor arbiter.

"II

Whether or not, in rendering judgment in favor of petitioners, the NLRC committed grave abuse of discretion.

"III

Whether or not private respondent violated the rule on forum-shopping.

"IV

Whether or not the appeal of petitioners from the Order of the labor arbiter to the NLRC involves [a] monetary award."8

In short, petitioners raise these issues: (1) whether the CA acted properly when it overturned the NLRC’s factual findings; (2) whether the rule on forum shopping was violated; and (3) whether the labor arbiter’s Order of May 23, 2000 involved a monetary award.

The Court’s Ruling

The Petition is partly meritorious.

First Issue:

Factual Findings of the NLRC

Petitioners maintain that the CA erred in disregarding the factual findings of the NLRC and in deciding to affirm those of the labor arbiter. Allegedly, the NLRC findings were based on substantial evidence, while those of the labor arbiter were groundless. Petitioners add that the appellate court should have refrained from tackling issues of fact and, instead, limited itself to those of jurisdiction or grave abuse of discretion on the part of the NLRC.

The power of the CA to review NLRC decisions via a Rule 65 petition is now a settled issue. As early as St. Martin Funeral Homes v. NLRC,9 we have definitively ruled that the proper remedy to ask for the review of a decision of the NLRC is a special civil action for certiorari under Rule 65 of the Rules of Court,10 and that such petition should be filed with the CA in strict observance of the doctrine on the hierarchy of courts.11 Moreover, it has already been explained that under Section 9 of Batas Pambansa (BP) 129, as amended by Republic Act 7902,12 the CA -- pursuant to the exercise of its original jurisdiction over petitions for certiorari -- was specifically given the power to pass upon the evidence, if and when necessary, to resolve factual issues.13

Likewise settled is the rule that when supported by substantial evidence,14 factual findings made by quasi-judicial and administrative bodies are accorded great respect and even finality by the courts. These findings are not infallible, though; when there is a showing that they were arrived at arbitrarily or in disregard of the evidence on record, they may be examined by the courts.15 Hence, when factual findings of the NLRC are contrary to those of the labor arbiter, the evidentiary facts may be reviewed by the appellate court.16 Such is the situation in the present case; thus, the doors to a review are open.17

The very same reason that behooved the CA to review the factual findings of the NLRC impels this Court to take its own look at the findings of fact. Normally, the Supreme Court is not a trier of facts.18 However, since the findings of fact in the present case are conflicting,19 it waded through the records to find out if there was enough basis for the appellate court’s reversal of the NLRC Decision.

Number of Creditable Years of Service for Retirement Benefits

Petitioners do not dispute the fact that the late Pedro M. Latag is entitled to retirement benefits. Rather, the bone of contention is the number of years that he should be credited with in computing those benefits. On the one hand, we have the findings of the labor arbiter,20 which the CA affirmed. According to those findings, the 23 years of employment of Pedro with La Mallorca Taxi must be added to his 14 years with R & E Transport, Inc., for a total of 37 years. On the other, we also have the findings of the NLRC21 that Pedro must be credited only with his service to R & E Transport, Inc., because the evidence shows that the aforementioned companies are two different entities.

After a careful and painstaking review of the evidence on record, we support the NLRC’s findings. The labor arbiter’s conclusion -- that La Mallorca Taxi and R & E Transport, Inc., are one and the same entity -- is negated by the documentary evidence presented by petitioners. Their evidence22 sufficiently shows the following facts: 1) R & E Transport, Inc., was established only in 1978; 2) Honorio Enriquez, its president, was not a stockholder of La Mallorca Taxi; and 3) none of the stockholders of the latter company hold stocks in the former. In the face of such evidence, which the NLRC appreciated in its Decision, it seems that mere surmises and self-serving assertions of Respondent Avelina Latag formed the bases for the labor arbiter’s conclusions as follows:

"While [Pedro M. Latag] claims that he worked as taxi driver since March 1961 since the days of the La Mallorca Taxi, which was later renamed R & E Transport, Inc., [petitioners] limit the employment period to 14 years.

"Resolving this matter, we note [respondent’s] ID (Annex "A", [Latag] position paper), which appears to bear the signature of Miguel Enriquez on the front portion and the date February 27, 1961 when [x x x Latag] started with the company. We also note an SSS document (Annex ‘C’) which shows that the date of initial coverage of Pedro Latag, with SSS No. 03-0772155, is February 1961.

"Viewed against [petitioners’] non-disclaimer [sic] that La Mallorca preceded R & E Taxi, Inc.[;] x x x that both entities were/are owned by the Enriquez family, with [petitioner] Honorio [Enriquez] as the latter’s President[; and] x x x that La Mallorca was a different entity (page 2, [petitioners’] position paper), we are of the conclusion that [Latag’s] stint with the Enriquez family dated back since February 1961 and thus, he should be entitled to retirement benefits for 37 years, as of the date of the filing of this case on December 12, 1998."23

Furthermore, basic is the rule that the corporate veil may be pierced only if it becomes a shield for fraud, illegality or inequity committed against a third person.24 We have thus cautioned against the inordinate application of this doctrine. In Philippine National Bank v. Andrada Electric & Engineering Company,25 we said:

"x x x [A]ny 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 its 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.

x x x x x x x x x

"The question of whether a corporation is a mere alter ego is one of fact. Piercing the veil of corporate fiction may be allowed only if the following elements concur: (1) control -- not mere stock control, but complete domination -- not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff’s legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of."26

Respondent has not shown by competent evidence that one taxi company had stock control and complete domination over the other or vice versa. In fact, no evidence was presented to show the alleged renaming of "La Mallorca Taxi" to "R & E Transport, Inc." The seven-year gap between the time the former closed shop and the date when the latter came into being also casts doubt on any alleged intention of petitioners to commit a wrong or to violate a statutory duty. This lacuna in the evidence compels us to reverse the Decision of the CA affirming the labor arbiter’s finding of fact that the basis for computing Pedro’s retirement pay should be 37 years, instead of only 14 years.

Validity of the Quitclaim and Waiver

As to the Quitclaim and Waiver signed by Respondent Avelina Latag, the appellate court committed no error when it ruled that the document was invalid and could not bar her from demanding the benefits legally due her husband. This is not to say that all

quitclaims are invalid per se. Courts, however, are wary of schemes that frustrate workers’ rights and benefits, and look with disfavor upon quitclaims and waivers that bargain these away.

Courts have stepped in to annul questionable transactions, especially where there is clear proof that a waiver, for instance, was wangled from an unsuspecting or a gullible person; or where the agreement or settlement was "unconscionable on its face."27 A quitclaim is ineffective in barring recovery of the full measure of a worker’s rights, and the acceptance of benefits therefrom does not amount to estoppel.28 Moreover, a quitclaim in which the consideration is "scandalously low and inequitable" cannot be an obstacle to the pursuit of a worker’s legitimate claim.29

Undisputably, Pedro M. Latag was credited with 14 years of service with R & E Transport, Inc. Article 287 of the Labor Code, as amended by Republic Act No. 7641,30 provides:

"Art. 287. Retirement. - x x x

"x x x x x x x x x

"In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.

"Unless the parties provide for broader inclusions, the term one half-month salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days of service incentive leaves.

x x x x x x x x x" (Italics supplied)

The rules implementing the New Retirement Law similarly provide the above-mentioned formula for computing the one-half month salary.31 Since Pedro was paid according to the "boundary" system, he is not entitled to the 13th month32 and the service incentive pay;33 hence, his retirement pay should be computed on the sole basis of his salary.

It is accepted that taxi drivers do not receive fixed wages, but retain only those sums in excess of the "boundary" or fee they pay to the owners or operators of their vehicles.34 Thus, the basis for computing their benefits should be the average daily income. In this case, the CA found that Pedro was earning an average of five hundred pesos (P500) per day. We thus compute his retirement pay as follows: P500 x 15 days x 14 years of service equalsP105,000. Compared with this amount, the P38,850 he received, which represented just over one third of what was legally due him, was unconscionable.

Second Issue:

Was There Forum Shopping?

Also assailed are the twin appeals that two different lawyers filed for respondent before the CA. Petitioners argue that instead of accepting her explanation, the appellate court should have dismissed the appeals outright for violating the rule on forum shopping.

Forum shopping is the institution of two or more actions or proceedings grounded on the same cause, on the supposition that one or the other court would render a favorable disposition.35 Such act is present when there is an identity of parties, rights or causes of action, and reliefs sought in two or more pending cases.36 It is usually resorted to by a party against whom an adverse judgment or order has been issued in one forum, in an attempt to seek and possibly to get a favorable opinion in another forum, other than by an appeal or a special civil action for certiorari.37

We find, as the CA38 did, that respondent has adequately explained why she had filed two appeals before the appellate court. In the August 5, 2002 Affidavit39 that she attached as Annex "A" to her Compliance to Show Cause Order with Comment on petitioners’ Motion for Reconsideration,40 she averred that she had sought the services of another counsel to file her Petition for certiorari before the CA. She did so after her original counsel had asked for an extension of time to file the Petition because of time constraints and a tremendous workload, only to discover later that the original counsel had filed a similar Petition.

We cannot fault respondent for her tenacity. Besides, to disallow her appeal would not be in keeping with the policy of labor laws41 to shun highly technical procedural laws in the higher interest of justice.

Third Issue:

Monetary Award

Petitioners’ contention is that the labor arbiter’s January 10, 2000 Decision was supplanted by the Compromise Agreement that had preceded the former’s official release42 to, and receipt43 by, the parties. It appears from the records that they had entered into an Amicable Settlement on January 21, 2000; that based on that settlement, respondent filed a Motion to Dismiss on January 24, 2000,

before the labor arbiter who officially released on the same day his Decision dated January 10, 2000; that upon receipt of a copy thereof, respondent filed a Manifestation and Motion to Set Aside the Motion to Dismiss; and that the labor arbiter subsequently calendared the case for conference, held hearings thereon, and required the parties to exchange positions -- by way of comments, replies and rejoinders -- after which he handed down his May 23, 2000 Order.

Under the circumstances, the case was in effect reopened by the proceedings held after respondent had filed her Manifestation and Motion to Set Aside the Motion to Dismiss. This ruling is in accordance with the fourth paragraph of Section 2, Rule V of the New Rules of Procedure of the NLRC,44 which therefore correctly held as follows:

"x x x Thus, the further hearings conducted thereafter, to determine the validity of complainant’s manifestation and motion are but mute confirmation that indeed the 10 January 2000 decision in this case has not as yet attained finality. Finally, the appealed order of 23 May 2000 itself declaring [that] ‘the decision stands and the Labor Arbitration Associate of this office is directed to prepare the Writ of Execution in due course,’ obviously, is a conclusion that the decision in this case has been supplanted and rendered functus officio by the herein parties’ acts. Thus, when the Labor Arbiter a quo found in his appealed order that the amount of P38,850.00 is ‘unconscionable viewed against the amount awarded in the decision,’ the same became appealable independently of the 10 January 2000 decision, which has not attained finality, in the first place."45

We cannot concur, however, in petitioners’ other contention that the May 23, 2000 Order did not involve a monetary award. If the amicable settlement between the parties had rendered the January 10, 2000 Decision functus oficio, then it follows that the monetary award stated therein was reinstated -- by reference -- by the aforementioned Order. The appeal from the latter should perforce have followed the procedural requirements under Article 223 of the Labor Code.

As amended, this provision explicitly provides that an appeal from the labor arbiter’s decision, award or order must be made within ten (10) calendar days from receipt of a copy thereof by the party intending to appeal it; and, if the judgment involves a monetary award, an appeal by the employer may be perfected only upon the posting of a cash or surety bond. Such cash or bond must have been issued by a reputable bonding company duly accredited by the NLRC in the amount equivalent to the monetary award stated in the judgment. Sections 1, 3 and 6 of Rule VI of the New Rules of Procedure of the NLRC implement this Article.

Indeed, this Court has repeatedly ruled that the perfection of an appeal in the manner and within the period prescribed by law is not only mandatory but jurisdictional, and the failure to perfect an appeal has the effect of rendering the judgment final and executory.46 Nonetheless, procedural lapses may be disregarded because of fundamental considerations of substantial justice;47 or because of the special circumstances of the case combined with its legal merits or the amount and the issue involved.48

The requirement to post a bond to perfect an appeal has also been relaxed in cases when the amount of the award has not been included in the decision of the labor arbiter.49 Besides, substantial justice will be better served in the present case by allowing petitioners’ appeal to be threshed out on the merits,50 especially because of serious errors in the factual conclusions of the labor arbiter as to the award of retirement benefits.

WHEREFORE, this Petition is partly GRANTED. The Decision of the Court of Appeals is MODIFIED by crediting Pedro M. Latag with 14 years of service. Consequently, he is entitled to retirement pay, which is hereby computed at P105,000 less the P38,850 which has already been received by respondent, plus six (6) percent interest thereon from December 21, 1998 until its full payment. No costs.

SO ORDERED.

266. BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION,respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

Assailed in this petition for review is the consolidated decision of the Court of Appeals dated July 7, 1994, which reversed the separate decisions of the Regional Trial Court of Pasig City and the Regional Trial Court of Quezon City in two cases between petitioner Reynoso and respondent General Credit Corporation (GCC).

Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, “CCC”), a financing and investment firm, decided to organize franchise companies in different parts of the country, wherein it shall hold thirty percent (30%) equity. Employees of the CCC were designated as resident managers of the franchise companies. Petitioner Bibiano O. Reynoso, IV was designated as the resident manager of the franchise company in Quezon City, known as the Commercial Credit Corporation of Quezon City (hereinafter, “CCC-QC”).

CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted the management and full control of the business activities of the former. Under the contract, CCC-QC shall sell, discount and/or assign its receivables to CCC. Subsequently, however, this discounting arrangement was discontinued pursuant to the so-called “DOSRI Rule”, prohibiting the lending of funds by corporations to its directors, officers, stockholders and other persons with related interests therein.

On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule, CCC decided to form CCC Equity Corporation, (hereinafter, “CCC-Equity”), a wholly-owned subsidiary, to which CCC transferred its thirty (30%) percent equity in CCC-QC, together with two seats in the latter’s Board of Directors.

Under the new set-up, several officials of Commercial Credit Corporation, including petitioner Reynoso, became employees of CCC-Equity. While petitioner continued to be the Resident Manager of CCC-QC, he drew his salaries and allowances from CCC-Equity. Furthermore, although an employee of CCC-Equity, petitioner, as well as all employees of CCC-QC, became qualified members of the Commercial Credit Corporation Employees Pension Plan.

As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised its employees. The business activities of CCC-QC pertain to the acceptance of funds from depositors who are issued interest-bearing promissory notes. The amounts deposited are then loaned out to various borrowers. Petitioner, in order to boost the business activities of CCC-QC, deposited his personal funds in the company. In return, CCC-QC issued to him its interest-bearing promissory notes.

On August 15, 1980, a complaint for sum of money with preliminary attachment,[1] docketed as Civil Case No. Q-30583, was instituted in the then Court of First Instance of Rizal by CCC-QC against petitioner, who had in the meantime been dismissed from his employment by CCC-Equity. The complaint was subsequently amended in order to include Hidelita Nuval, petitioner’s wife, as a party defendant.[2] The complaint alleged that petitioner embezzled the funds of CCC-QC amounting to P1,300,593.11. Out of this amount, at least P630,000.00 was used for the purchase of a house and lot located at No. 12 Macopa Street, Valle Verde I, Pasig City. The property was mortgaged to CCC, and was later foreclosed.

In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and asserted that the sum of P1,300,593.11 represented his money placements in CCC-QC, as shown by twenty-three (23) checks which he issued to the said company.[3]

The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86, pursuant to the Judiciary Reorganization Act of 1980.

On January 14, 1985, the trial court rendered its decision, the decretal portion of which states:

Premises considered, the Court finds the complaint without merit. Accordingly, said complaint is hereby DISMISSED.

By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation, humiliation and mental anguish.

On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby ordered:

a) to pay defendant the sum of P185,000.00 plus 14% interest per annum from October 2, 1980 until fully paid;

b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per annum from June 24, 1981, the date of filing of Amended Answer, until fully paid; from this amount may be deducted the remaining obligation of defendant under the promissory note of October 24, 1977, in the sum of P9,738.00 plus penalty at the rate of 1% per month from December 24, 1977 until fully paid;

c) to pay defendants P200,000.00 as moral damages;

d) to pay defendants P100,000.00 as exemplary damages;

e) to pay defendants P25,000.00 as and for attorney's fees; plus costs of the suit.

SO ORDERED.

Both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial Credit Corporation of Quezon City was dismissed for failure to pay docket fees. Petitioner, on the other hand, withdrew his appeal.

Hence, the decision became final and, accordingly, a Writ of Execution was issued on July 24, 1989.[4] However, the judgment remained unsatisfied,[5] prompting petitioner to file a Motion for Alias Writ of Execution, Examination of Judgment Debtor, and to Bring Financial Records for Examination to Court. CCC-QC filed an Opposition to petitioner’s motion,[6] alleging that the possession of its premises and records had been taken over by CCC.

Meanwhile, in 1983, CCC became known as the General Credit Corporation.

On November 22, 1991, the Regional Trial Court of Quezon City issued an Order directing General Credit Corporation to file its comment on petitioner’s motion for alias writ of execution.[7] General Credit Corporation filed a Special Appearance and Opposition on December 2, 1991,[8]alleging that it was not a party to the case, and therefore petitioner should direct his claim against CCC-QC and not General Credit Corporation. Petitioner filed his reply,[9] stating that the CCC-QC is an adjunct instrumentality, conduit and agency of CCC. Furthermore, petitioner invoked the decision of the Securities and Exchange Commission in SEC Case No. 2581, entitled, “Avelina G. Ramoso, et al., Petitioner versus General Credit Corp., et al., Respondents,” where it was declared that General Credit Corporation, CCC-Equity and other franchised companies including CCC-QC were declared as one corporation.

On December 9, 1991, the Regional Trial Court of Quezon City ordered the issuance of an alias writ of execution.[10] On December 20, 1991, General Credit Corporation filed an Omnibus Motion,[11] alleging that SEC Case No. 2581 was still pending appeal, and maintaining that the levy on properties of the General Credit Corporation by the deputy sheriff of the court was erroneous.

In his Opposition to the Omnibus Motion, petitioner insisted that General Credit Corporation is just the new name of Commercial Credit Corporation; hence, General Credit Corporation and Commercial Credit Corporation should be treated as one and the same entity.

On February 13, 1992, the Regional Trial Court of Quezon City denied the Omnibus Motion.[12] On March 5, 1992, it issued an Order directing the issuance of an alias writ of execution.[13]

Previously, on February 21, 1992, General Credit Corporation instituted a complaint before the Regional Trial Court of Pasig against Bibiano Reynoso IV and Edgardo C. Tanangco, in his capacity as Deputy Sheriff of Quezon City,[14] docketed as Civil Case No. 61777, praying that the levy on its parcel of land located in Pasig, Metro Manila and covered by Transfer Certificate of Title No. 29940 be declared null and void, and that defendant sheriff be enjoined from consolidating ownership over the land and from further levying on other properties of General Credit Corporation to answer for any liability under the decision in Civil Case No. Q-30583.

The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining order. Thus, General Credit Corporation instituted two (2) petitions for certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 27518[15] and CA-G.R. SP No. 27683. These cases were later consolidated.

On July 7, 1994, the Court of Appeals rendered a decision in the two consolidated cases, the dispositive portion of which reads:

WHEREFORE, in SP No. 27518 we declare the issue of the respondent court's refusal to issue a restraining order as having been rendered moot by our Resolution of 7 April 1992 which, by way of injunctive relief, provided that "the respondents and their representatives are hereby enjoined from conducting an auction sale (on execution) of petitioner's properties as well as initiating similar acts of levying (upon) and selling on execution other properties of said petitioner". The injunction thus granted, as modified by the words in parenthesis, shall remain in force until Civil Case No. 61777 shall have been finally terminated.

In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY and SET ASIDE, for having been issued in excess of jurisdiction, the Order of 13 February 1992 in Civil Case No. Q-30583 as well as any other order or process through which the petitioner is made liable under the judgment in said Civil Case No. Q-30583.

No damages and no costs.

SO ORDERED.[16]

Hence, this petition for review anchored on the following arguments:

1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27683 WHEN IT NULLIFIED AND SET ASIDE THE 13 FEBRUARY 1992 ORDER AND OTHER ORDERS OR PROCESS OF BRANCH 86 OF THE REGIONAL TRIAL COURT OF QUEZON CITY THROUGH WHICH GENERAL CREDIT CORPORATION IS MADE LIABLE UNDER THE JUDGMENT THAT WAS RENDERED IN CIVIL CASE NO. Q-30583.

2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27518 WHEN IT ENJOINED THE AUCTION SALE ON EXECUTION OF THE PROPERTIES OF GENERAL CREDIT CORPORATION AS WELL AS INITIATING SIMILAR ACTS OF LEVYING UPON AND SELLING ON EXECUTION OF OTHER PROPERTIES OF GENERAL CREDIT CORPORATION.

3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT GENERAL CREDIT CORPORATION IS A STRANGER TO CIVIL CASE NO. Q-30583, INSTEAD OF, DECLARING THAT COMMERCIAL CREDIT CORPORATION OF QUEZON CITY IS THE ALTER EGO, INSTRUMENTALITY, CONDUIT OR ADJUNCT OF COMMERCIAL CREDIT CORPORATION AND ITS SUCCESSOR GENERAL CREDIT CORPORATION.

At the outset, it must be stressed that there is no longer any controversy over petitioner’s claims against his former employer, CCC-QC, inasmuch as the decision in Civil Case No. Q-30583 of the Regional Trial Court of Quezon City has long become final and executory. The only issue, therefore, to be resolved in the instant petition is whether or not the judgment in favor of petitioner may be executed against respondent General Credit Corporation. The latter contends that it is a corporation separate and distinct from CCC-QC and, therefore, its properties may not be levied upon to satisfy the monetary judgment in favor of petitioner. In short, respondent raises corporate fiction as its defense. Hence, we are necessarily called upon to apply the doctrine of piercing the veil of corporate entity in order to determine if General Credit Corporation, formerly CCC, may be held liable for the obligations of CCC-QC.

The petition is impressed with merit.

A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence.[17] It is an artificial being invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related.[18] It was evolved to make possible the aggregation and assembling of huge amounts of capital upon which big business depends. It also has the advantage of non-dependence on the lives of those who compose it even as it enjoys certain rights and conducts activities of natural persons.

Precisely because the corporation is such a prevalent and dominating factor in the business life of the country, the law has to look carefully into the exercise of powers by these artificial persons it has created.

Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to use its supervisory and adjudicative powers where the corporate fiction is used as an unfair device to achieve an inequitable result, defraud creditors, evade contracts and obligations, or to shield it from the effects of a court decision. The corporate fiction has to be disregarded when necessary in the interest of justice.

In First Philippine International Bank v. Court of Appeals, et al.,[19] we held:

When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals.

Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction in numerous cases where it was used, among others, to avoid a judgment credit;[20] to avoid inclusion of corporate assets as part of the estate of a decedent;[21] to avoid liability arising from debt;[22] when made use of as a shield to perpetrate fraud and/or confuse legitimate issues;[23] or to promote unfair objectives or otherwise to shield them.[24]

In the appealed judgment, the Court of Appeals sustained respondent’s arguments of separateness and its character as a different corporation which is a non-party or stranger to this case.

The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime.[25]

We stated in Tomas Lao Construction v. National Labor Relations Commission,[26] that the legal fiction of a corporation being a judicial entity with a distinct and separate personality was envisaged for convenience and to serve justice. Therefore, it should not be used as a subterfuge to commit injustice and circumvent the law.

Precisely for the above reasons, we grant the instant petition.

It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was intended to publicly identify it as a component of the CCC group of companies engaged in one and the same business, i.e., investment and financing. Aside from CCC-Quezon City, other franchise companies were organized such as CCC-North Manila and CCC-Cagayan Valley. The organization of subsidiary corporations as what was done here is usually resorted to for the aggrupation of capital, the ability to cover more territory and population, the decentralization of activities best decentralized, and the securing of other legitimate advantages. But when the mother corporation and its subsidiary cease to act in good faith and honest business judgment, when the corporate device is used by the parent to avoid its liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to remedy the problem. When that happens, the corporate character is not

necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to remedy injustice, such as that inflicted in this case.

Factually and legally, the CCC had dominant control of the business operations of CCC-QC. The exclusive management contract insured that CCC-QC would be managed and controlled by CCC and would not deviate from the commands of the mother corporation. In addition to the exclusive management contract, CCC appointed its own employee, petitioner, as the resident manager of CCC-QC.

Petitioner’s designation as “resident manager” implies that he was placed in CCC-QC by a superior authority. In fact, even after his assignment to the subsidiary corporation, petitioner continued to receive his salaries, allowances, and benefits from CCC, which later became respondent General Credit Corporation. Not only that. Petitioner and the other permanent employees of CCC-QC were qualified members and participants of the Employees Pension Plan of CCC.

There are other indications in the record which attest to the applicability of the identity rule in this case, namely: the unity of interests, management, and control; the transfer of funds to suit their individual corporate conveniences; and the dominance of policy and practice by the mother corporation insure that CCC-QC was an instrumentality or agency of CCC.

As petitioner stresses, both CCC and CCC-QC were engaged in the same principal line of business involving a single transaction process. Under their discounting arrangements, CCC financed the operations of CCC-QC. The subsidiary sold, discounted, or assigned its accounts receivables to CCC.

The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971, shows the pervasive and intensive auditing function of CCC over CCC-QC.[27] The two corporations also shared the same office space. CCC-QC had no office of its own.

The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified by the director-representative of CCC. The lawyers who filed the complaint and amended complaint were all in-house lawyers of CCC.

The challenged decision of the Court of Appeals states that CCC, now General Credit Corporation, is not a formal party in the case. The reason for this is that the complaint was filed by CCC-QC against petitioner. The choice of parties was with CCC-QC. The judgment award in this case arose from the counterclaim which petitioner set up against CCC-QC.

The circumstances which led to the filing of the aforesaid complaint are quite revealing. As narrated above, the discounting agreements through which CCC controlled the finances of its subordinates became unlawful when Central Bank adopted the DOSRI prohibitions. Under this rule the directors, officers, and stockholders are prohibited from borrowing from their company. Instead of adhering to the letter and spirit of the regulations by avoiding DOSRI loans altogether, CCC used the corporate device to continue the prohibited practice. CCC organized still another corporation, the CCC-Equity Corporation. However, as a wholly owned subsidiary, CCC-Equity was in fact only another name for CCC. Key officials of CCC, including the resident managers of subsidiary corporations, were appointed to positions in CCC-Equity.

In order to circumvent the Central Bank’s disapproval of CCC-QC’s mode of reducing its DOSRI lender accounts and its directive to follow Central Bank requirements, resident managers, including petitioner, were told to observe a pseudo-compliance with the phasing out orders. For his unwillingness to satisfactorily conform to these directives and his reluctance to resort to illegal practices, petitioner earned the ire of his employers. Eventually, his services were terminated, and criminal and civil cases were filed against him.

Petitioner issued twenty-three checks as money placements with CCC-QC because of difficulties faced by the firm in implementing the required phase-out program. Funds from his current account in the Far East Bank and Trust Company were transferred to CCC-QC. These monies were alleged in the criminal complaints against him as having been stolen. Complaints for qualified theft and estafa were brought by CCC-QC against petitioner. These criminal cases were later dismissed. Similarly, the civil complaint which was filed with the Court of First Instance of Pasig and later transferred to the Regional Trial Court of Quezon City was dismissed, but his counterclaims were granted.

Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed CCC-QC, in obvious fraud of its creditors. CCC-QC, instead of opposing its closure, cooperated in its own demise. Conveniently, CCC-QC stated in its opposition to the motion for alias writ of execution that all its properties and assets had been transferred and taken over by CCC.

Under the foregoing circumstances, the contention of respondent General Credit Corporation, the new name of CCC, that the corporate fiction should be appreciated in its favor is without merit.

Paraphrasing the ruling in Claparols v. Court of Industrial Relations,[28] reiterated in Concept Builders Inc. v. National Labor Relations,[29] it is very obvious that respondent “seeks the protective shield of a corporate fiction whose veil the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation of its employees.”

If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt and work an injustice. The decision raised to us for review is an invitation to multiplicity of litigation. As we stated in Islamic Directorate vs. Court of Appeals,[30] the ends of justice are not served if further litigation is encouraged when the issue is determinable based on the records.

A court judgment becomes useless and ineffective if the employer, in this case CCC as a mother corporation, is placed beyond the legal reach of the judgment creditor who, after protracted litigation, has been found entitled to positive relief. Courts have been organized to put an end to controversy. This purpose should not be negated by an inapplicable and wrong use of the fiction of the corporate veil.

WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and ASIDE. The injunction against the holding of an auction sale for the execution of the decision in Civil Case No. Q-30583 of properties of General Credit Corporation, and the levying upon and selling on execution of other properties of General Credit Corporation, is LIFTED.

SO ORDERED.

277. G.R. No. 129459 September 29, 1998

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs.COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents.

PANGANIBAN, J.:

May corporate treasurer, by herself and without any authorization from he board of directors, validly sell a parcel of land owned by the corporation?. May the veil of corporate fiction be pierced on the mere ground that almost all of the shares of stock of the corporation are owned by said treasurer and her husband?

The Case

These questions are answered in the negative by this Court in resolving the Petition for Review on Certiorari before us, assailing the March 18, 1997 Decision 1 of the Court of Appeals 2 in CA GR CV No. 46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court of Makati, Metro Manila, Branch 63 3 in Civil Case No. 89-3511. The RTC dismissed both the Complaint and the Counterclaim filed by the parties. On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg to REFUND or return to plaintiff-appellant the downpayment of P100,000.00 which she received from plaintiff-appellant. There is no pronouncement as to costs. 4

The petition also challenges the June 10, 1997 CA Resolution denying reconsideration. 5

The Facts

The facts as found by the Court of Appeals are as follows:

Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended complaint alleged that on 14 February 1989, plaintiff-appellant entered into an agreement with defendant-appellee Motorich Sales Corporation for the transfer to it of a parcel of land identified as Lot 30, Block 1 of the Acropolis Greens Subdivision located in the District of Murphy, Quezon City. Metro Manila, containing an area of Four Hundred Fourteen (414) square meters, covered by TCT No. (362909) 2876: that as stipulated in the Agreement of 14 February 1989, plaintiff-appellant paid the downpayment in the sum of One Hundred Thousand (P100,000.00) Pesos, the balance to be paid on or before March 2, 1989; that on March 1, 1989. Mr. Andres T. Co, president of plaintiff-appellant corporation, wrote a letter to defendant-appellee Motorich Sales Corporation requesting for a computation of the balance to be paid: that said letter was coursed through defendant-appellee's broker. Linda Aduca, who wrote the computation of the balance: that on March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the balance, covered by Metrobank Cashier's Check No. 004223, payable to defendant-appellee Motorich Sales Corporation; that plaintiff-appellant and defendant-appellee Motorich Sales Corporation were supposed to meet in the office of plaintiff-appellant but defendant-appellee's treasurer, Nenita Lee Gruenberg, did not appear; that defendant-appellee Motorich Sales Corporation despite repeated demands and in utter disregard of its commitments had refused to execute the Transfer of Rights/Deed of Assignment which is necessary to transfer the certificate of title; that defendant ACL Development Corp. is impleaded as a necessary party since Transfer Certificate of Title No. (362909) 2876 is still in the name of said defendant; while defendant JNM Realty & Development Corp. is likewise impleaded as a necessary party in view of the fact that it is the transferor of right in favor of defendant-appellee Motorich Sales Corporation: that on April 6, 1989, defendant ACL Development Corporation and Motorich Sales Corporation entered into a Deed of Absolute Sale whereby the former transferred to the latter the subject property; that by reason of said transfer, the Registry of Deeds of Quezon City issued a new title in the name of Motorich Sales Corporation, represented by defendant-appellee Nenita Lee Gruenberg and Reynaldo L. Gruenberg, under Transfer Certificate of Title No. 3571; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to execute a formal Transfer of Rights/Deed of Assignment, plaintiff-appellant suffered moral and nominal damages which may be assessed against defendants-appellees in the sum of Five Hundred Thousand (500,000.00) Pesos; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's unjustified and unwarranted failure to execute the required Transfer of Rights/Deed of Assignment or formal deed of sale in favor of plaintiff-appellant, defendants-appellees should be assessed exemplary damages in the sum of One Hundred Thousand (P100,000.00) Pesos; that by reason of defendants-appellees' bad faith in refusing to execute a Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant, the latter lost the opportunity to construct a residential building in the sum of One Hundred Thousand (P100,000.00) Pesos; and that as a consequence of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to execute a deed of sale in favor of plaintiff-appellant, it has been constrained to obtain the services of counsel at an agreed fee of One Hundred Thousand (P100,000.00) Pesos plus appearance fee for every appearance in court hearings.

In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg interposed as affirmative defense that the President and Chairman of Motorich did not sign the agreement adverted to in par. 3 of the amended complaint; that Mrs.

Gruenberg's signature on the agreement (ref: par. 3 of Amended Complaint) is inadequate to bind Motorich. The other signature, that of Mr. Reynaldo Gruenberg, President and Chairman of Motorich, is required: that plaintiff knew this from the very beginning as it was presented a copy of the Transfer of Rights (Annex B of amended complaint) at the time the Agreement (Annex B of amended complaint) was signed; that plaintiff-appellant itself drafted the Agreement and insisted that Mrs. Gruenberg accept the P100,000.00 as earnest money; that granting, without admitting, the enforceability of the agreement, plaintiff-appellant nonetheless failed to pay in legal tender within the stipulated period (up to March 2, 1989); that it was the understanding between Mrs. Gruenberg and plaintiff-appellant that the Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash payment; thus they agreed that if the payment be in check, they will meet at a bank designated by plaintiff-appellant where they will encash the check and sign the Transfer of Rights/Deed. However, plaintiff-appellant informed Mrs. Gruenberg of the alleged availability of the check, by phone, only after banking hours.

On the basis of the evidence, the court a quo rendered the judgment appealed from[,] dismissing plaintiff-appellant's complaint, ruling that:

The issue to be resolved is: whether plaintiff had the right to compel defendants to execute a deed of absolute sale in accordance with the agreement of February 14, 1989: and if so, whether plaintiff is entitled to damage.

As to the first question, there is no evidence to show that defendant Nenita Lee Gruenberg was indeed authorized by defendant corporation. Motorich Sales, to dispose of that property covered by T.C.T. No. (362909) 2876. Since the property is clearly owned by the corporation. Motorich Sales, then its disposition should be governed by the requirement laid down in Sec. 40. of the Corporation Code of the Philippines, to wit:

Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing laws on illegal combination and monopolies, a corporation may by a majority vote of its board of directors . . . sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets including its goodwill . . . when authorized by the vote of the stockholders representing at least two third (2/3) of the outstanding capital stock . . .

No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale[;] neither was there evidence to show that the supposed transaction was ratified by the corporation. Plaintiff should have been on the look out under these circumstances. More so, plaintiff himself [owns] several corporations (tsn dated August 16, 1993, p. 3) which makes him knowledgeable on corporation matters.

Regarding the question of damages, the Court likewise, does not find substantial evidence to hold defendant Nenita Lee Gruenberg liable considering that she did not in anyway misrepresent herself to be authorized by the corporation to sell the property to plaintiff (tsn dated September 27, 1991, p. 8).

In the light of the foregoing, the Court hereby renders judgment DISMISSING the complaint at instance for lack of merit.

"Defendants" counterclaim is also DISMISSED for lack of basis. (Decision, pp. 7-8; Rollo, pp. 34-35)

For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:

AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement, made and entered into by and between:

MOTORICH SALES CORPORATION, a corporation duly organized and existing under and by virtue of Philippine Laws, with principal office address at 5510 South Super Hi-way cor. Balderama St., Pio del Pilar. Makati, Metro Manila, represented herein by its Treasurer, NENITA LEE GRUENBERG, hereinafter referred to as the TRANSFEROR;

— and —

SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office address at Sumulong Highway, Barrio Mambungan, Antipolo, Rizal, represented herein by its President, ANDRES T. CO, hereinafter referred to as the TRANSFEREE.

WITNESSETH, That:

WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of the ACROPOLIS GREENS SUBDIVISION located at the District of Murphy, Quezon City, Metro Manila, containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS, covered by a TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and Motorich Sales Corp. as the Transferee;

NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed as follows:

1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS (P5,200.00) per square meter; subject to the following terms:

a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100,000.00), will be paid upon the execution of this agreement and shall form part of the total purchase price;

b. Balance shall be payable on or before March 2, 1989;

2. That the monthly amortization for the month of February 1989 shall be for the account of the Transferor; and that the monthly amortization starting March 21, 1989 shall be for the account of the Transferee;

The transferor warrants that he [sic] is the lawful owner of the above-described property and that there [are] no existing liens and/or encumbrances of whatsoever nature;

In case of failure by the Transferee to pay the balance on the date specified on 1, (b), the earnest money shall be forfeited in favor of the Transferor.

That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.

IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February, 1989 at Greenhills, San Juan, Metro Manila, Philippines.

MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL FABRICATORS

TRANSFEROR TRANSFEREE

[SGD.] [SGD.]

By. NENITA LEE GRUENBERG By: ANDRES T. CO

Treasurer President

Signed In the presence of:

[SGD.] [SGD.]

————————————— ——————————— 6

In its recourse before the Court of Appeals, petitioner insisted:

1. Appellant is entitled to compel the appellees to execute a Deed of Absolute Sale in accordance with the Agreement of February 14, 1989,

2. Plaintiff is entitled to damages. 7

As stated earlier, the Court of Appeals debunked petitioner's arguments and affirmed the Decision of the RTC with the modification that Respondent Nenita Lee Gruenberg was ordered to refund P100,000 to petitioner, the amount remitted as "downpayment" or "earnest money." Hence, this petition before us. 8

The Issues

Before this Court, petitioner raises the following issues:

I. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the instant case

II. Whether or not the appellate court may consider matters which the parties failed to raise in the lower court

III. Whether or not there is a valid and enforceable contract between the petitioner and the respondent corporation

IV. Whether or not the Court of Appeals erred in holding that there is a valid correction/substitution of answer in the transcript of stenographic note[s].

V. Whether or not respondents are liable for damages and attorney's fees 9

The Court synthesized the foregoing and will thus discuss them seriatim as follows:

1. Was there a valid contract of sale between petitioner and Motorich?

2. May the doctrine of piercing the veil of corporate fiction be applied to Motorich?

3. Is the alleged alteration of Gruenberg's testimony as recorded in the transcript of stenographic notes material to the disposition of this case?

4. Are respondents liable for damages and attorney's fees?

The Court's Ruling

The petition is devoid of merit.

First Issue: Validity of Agreement

Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it entered through its president, Andres Co, into the disputed Agreement with Respondent Motorich Sales Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee Gruenberg. Petitioner insists that "[w]hen Gruenberg and Co affixed their signatures on the contract they both consented to be bound by the terms thereof." Ergo, petitioner contends that the contract is binding on the two corporations. We do not agree.

True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a lot owned by Motorich Sales Corporation was purportedly sold. Such contract, however, cannot bind Motorich, because it never authorized or ratified such sale.

A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation's board of directors. 10 Section 23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides;

Sec. 23. The Board of Directors or Trustees. — Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified.

Indubitably, a corporation may act only through its board of directors or, when authorized either by its bylaws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law. 11 Thus, this Court has held that "a corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that the authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred." 12

Furthermore, the Court has also recognized the rule that "persons dealing with an assumed agent, whether the assumed agency be a general or special one bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19)." 13 Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets. 14

In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its treasurer, to sell the subject parcel of land. 15 Consequently, petitioner had the burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich in the transaction. Petitioner failed to discharge this burden. Its offer of evidence before the trial court contained no proof of such authority. 16 It has not shown any provision of said respondent's articles of incorporation, bylaws or board resolution to prove that Nenita Gruenberg possessed such power.

That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of ascertaining the extent of her authority to represent the corporation. Petitioner cannot assume that she, by virtue of her position, was authorized to sell the property of the corporation. Selling is obviously foreign to a corporate treasurer's function, which generally has been described as "to receive and keep the funds of the corporation, and to disburse them in accordance with the authority given him by the board or the properly authorized officers." 17

Neither was such real estate sale shown to be a normal business activity of Motorich. The primary purpose of Motorich is marketing, distribution, export and import in relation to a general merchandising business. 18 Unmistakably, its treasurer is not cloaked with actual or apparent authority to buy or sell real property, an activity which falls way beyond the scope of her general authority.

Art. 1874 and 1878 of the Civil Code of the Philippines provides:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing: otherwise, the sale shall be void.

Art. 1878. Special powers of attorney are necessary in the following case:

xxx xxx xxx

(5) To enter any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

xxx xxx xxx.

Petitioner further contends that Respondent Motorich has ratified said contract of sale because of its "acceptance of benefits," as evidenced by the receipt issued by Respondent Gruenberg. 19 Petitioner is clutching at straws.

As a general rule, the acts of corporate officers within the scope of their authority are binding on the corporation. But when these officers exceed their authority, their actions "cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming them." 20

In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made it appear to any third person that she had the authority, to sell its land or to receive the earnest money. Neither was there any proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests its argument on the receipt which, however, does not prove the fact of ratification. The document is a hand-written one, not a corporate receipt, and it bears only Nenita Gruenberg's signature. Certainly, this document alone does not prove that her acts were authorized or ratified by Motorich.

Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; (3) cause of the obligation which is established." As found by the trial court 21 and affirmed by the Court of Appeals, 22 there is no evidence that Gruenberg was authorized to enter into the contract of sale, or that the said contract was ratified by Motorich. This factual finding of the two courts is binding on this Court. 23 As the consent of the seller was not obtained, no contract to bind the obligor was perfected. Therefore, there can be no valid contract of sale between petitioner and Motorich.

Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel of land, we hold that the February 14, 1989 Agreement entered into by the latter with petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the beginning, said contract cannot be ratified. 24

Second Issue:Piercing the Corporate Veil Not Justified

Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because the latter is a close corporation. Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to be accurate, of the subscribed capital stock" 25 of Motorich, petitioner argues that Gruenberg needed no authorization from the board to enter into the subject contract. 26 It adds that, being solely owned by the Spouses Gruenberg, the company can treated as a close corporation which can be bound by the acts of its principal stockholder who needs no specific authority. The Court is not persuaded.

First, petitioner itself concedes having raised the issue belatedly, 27 not having done so during the trial, but only when it filed its sur-rejoinder before the Court of Appeals. 28 Thus, this Court cannot entertain said issue at this late stage of the proceedings. It is well-settled the points of law, theories and arguments not brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time on appeal. 29Allowing petitioner to change horses in midstream, as it were, is to run roughshod over the basic principles of fair play, justice and due process.

Second, even if the above mentioned argument were to be addressed at this time, the Court still finds no reason to uphold it. True, one of the advantages of a corporate form of business organization is the limitation of an investor's liability to the amount of the investment. 30 This feature flows from the legal theory that a corporate entity is separate and distinct from its stockholders. However, the statutorily granted privilege of a corporate veil may be used only for legitimate purposes. 31 On equitable considerations, the veil can be disregarded when it is utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of another corporation. 32

Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means of perpetrating a fraud or an illegal act or as vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals."33

We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud, illegality or inequity committed on third persons. The question of piercing the veil of corporate fiction is essentially, then, a matter of proof. In the present case, however, the Court finds no reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed, or that it is operated, for the purpose of shielding any alleged fraudulent or illegal

activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense of third persons like petitioner.

Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the Corporation Code defines a close corporation as follows:

Sec. 96. Definition and Applicability of Title. — A close corporation, within the meaning of this Code, is one whose articles of incorporation provide that: (1) All of the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code. . . . .

The articles of incorporation 34 of Motorich Sales Corporation does not contain any provision stating that (1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making a public offering of such stocks is prohibited. From its articles, it is clear that Respondent Motorich is not a close corporation. 35 Motorich does not become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The "[m]ere ownership by a single stockholder or by another corporation of all or capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personalities." 36 So, too, a narrow distribution of ownership does not, by itself, make a close corporation.

Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals 37 wherein the Court ruled that ". . . petitioner corporation is classified as a close corporation and, consequently, a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president." 38 But the factual milieu in Dulay is not on all fours with the present case. In Dulay, the sale of real property was contracted by the president of a close corporation with the knowledge and acquiescence of its board of directors. 39 In the present case, Motorich is not a close corporation, as previously discussed, and the agreement was entered into by the corporate treasurer without the knowledge of the board of directors.

The Court is not unaware that there are exceptional cases where "an action by a director, who singly is the controlling stockholder, may be considered as a binding corporate act and a board action as nothing more than a mere formality." 40The present case, however, is not one of them.

As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own "almost 99.866%" of Respondent Motorich. 41 Since Nenita is not the sole controlling stockholder of Motorich, the aforementioned exception does not apply. Granting arguendothat the corporate veil of Motorich is to be disregarded, the subject parcel of land would then be treated as conjugal property of Spouses Gruenberg, because the same was acquired during their marriage. There being no indication that said spouses, who appear to have been married before the effectivity of the Family Code, have agreed to a different property regime, their property relations would be governed by conjugal partnership of gains. 42 As a consequence, Nenita Gruenberg could not have effected a sale of the subject lot because "[t]here is no co-ownership between the spouses in the properties of the conjugal partnership of gains. Hence, neither spouse can alienate in favor of another his or interest in the partnership or in any property belonging to it; neither spouse can ask for a partition of the properties before the partnership has been legally dissolved." 43

Assuming further, for the sake of argument, that the spouses' property regime is the absolute community of property, the sale would still be invalid. Under this regime, "alienation of community property must have the written consent of the other spouse or he authority of the court without which the disposition or encumbrance is void." 44 Both requirements are manifestly absent in the instant case.

Third Issue: Challenged Portion of TSN Immaterial

Petitioner calls our attention to the following excerpt of the transcript of stenographic notes (TSN):

Q Did you ever represent to Mr. Co that you were authorized by the corporation to sell the property?

A Yes, sir. 45

Petitioner claims that the answer "Yes" was crossed out, and, in its place was written a "No" with an initial scribbled above it. 46 This, however, is insufficient to prove that Nenita Gruenberg was authorized to represent Respondent Motorich in the sale of its immovable property. Said excerpt be understood in the context of her whole testimony. During her cross-examination. Respondent Gruenberg testified:

Q So, you signed in your capacity as the treasurer?

[A] Yes, sir.

Q Even then you kn[e]w all along that you [were] not authorized?

A Yes, sir.

Q You stated on direct examination that you did not represent that you were authorized to sell the property?

A Yes, sir.

Q But you also did not say that you were not authorized to sell the property, you did not tell that to Mr. Co, is that correct?

A That was not asked of me.

Q Yes, just answer it.

A I just told them that I was the treasurer of the corporation and it [was] also the president who [was] also authorized to sign on behalf of the corporation.

Q You did not say that you were not authorized nor did you say that you were authorized?

A Mr. Co was very interested to purchase the property and he offered to put up a P100,000.00 earnest money at that time. That was our first meeting. 47

Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its property. On the other hand, her testimony demonstrates that the president of Petitioner Corporation, in his great desire to buy the property, threw caution to the wind by offering and paying the earnest money without first verifying Gruenberg's authority to sell the lot.

Fourth Issue:Damages and Attorney's Fees

Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an utter display of malice and bad faith, respondents attempted and succeeded in impressing on the trial court and [the] Court of Appeals that Gruenberg did not represent herself as authorized by Respondent Motorich despite the receipt issued by the former specifically indicating that she was signing on behalf of Motorich Sales Corporation. Respondent Motorich likewise acted in bad faith when it claimed it did not authorize Respondent Gruenberg and that the contract [was] not binding, [insofar] as it [was] concerned, despite receipt and enjoyment of the proceeds of Gruenberg's act." 48 Assuming that Respondent Motorich was not a party to the alleged fraud, petitioner maintains that Respondent Gruenberg should be held liable because she "acted fraudulently and in bad faith [in] representing herself as duly authorized by [R]espondent [C]orporation." 49

As already stated, we sustain the findings of both the trial and the appellate courts that the foregoing allegations lack factual bases. Hence, an award of damages or attorney's fees cannot be justified. The amount paid as "earnest money" was not proven to have redounded to the benefit of Respondent Motorich. Petitioner claims that said amount was deposited to the account of Respondent Motorich, because "it was deposited with the account of Aren Commercial c/o Motorich Sales Corporation." 50 Respondent Gruenberg, however, disputes the allegations of petitioner. She testified as follows:

Q You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed, the check was encashed.

A Yes. sir, the check was paid in my name and I deposit[ed] it.

Q In your account?

A Yes, sir. 51

In any event, Gruenberg offered to return the amount to petitioner ". . . since the sale did not push through." 52

Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has been the president of Petitioner Corporation for more than ten years and has also served as chief executive of two other corporate entities. 53 Co cannot feign ignorance of the scope of the authority of a corporate treasurer such as Gruenberg. Neither can he be oblivious to his duty to ascertain the scope of Gruenberg's authorization to enter into a contract to sell a parcel of land belonging to Motorich.

Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to persuade the Court. Indubitably, petitioner appears to be the victim of its own officer's negligence in entering into a contract with and paying an unauthorized officer of another corporation.

As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return to petitioner the amount she received as earnest money, as "no one shall enrich himself at the expense of another." 54 a principle embodied in Article 2154 of Civil Code. 55 Although there was no binding relation between them, petitioner paid Gruenberg on the mistaken belief that she had the authority to sell the property of Motorich. 56 Article 2155 of Civil Code provides that "[p]ayment by reason of a mistake in the contruction or application of a difficult question of law may come within the scope of the preceding article."

WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.

SO ORDERED.

282. JOSE S. SANTOS, JR., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, HAGONOY INSTITUTE INC., ITS DIRECTRESS, MARTA B. ZUNIGA and PRINCIPAL B. BANAG, respondent.

D E C I S I O N

ROMERO, J.:

It is to state the obvious that schools, next only to the home, wield a weighty influence upon the students, especially during the latters’ formative years, for it instills in them the values and mores which shall prepare them to discharge their rightful responsibilities as mature individuals in society. At the vanguard in nurturing their growth are the teachers who are directly charged with rearing and educating them. As such, a teacher serves as a role model for his students. Corollarily, he must not bring the teaching profession into public disrespect or disgrace.[1] For failure to live up to the exacting moral standards demanded by his profession, petitioner Jose Santos was dismissed from his employment on the ground of immorality. We uphold his dismissal.

The following facts are hereunder narrated.

Petitioner, a married man, was employed as a teacher by the private respondent Hagonoy Institute Inc. from June 1980 until his dismissal on June 1, 1991. Likewise working as a teacher for the private respondent was Mrs. Arlene T. Martin, also married. In the course of their employment, the couple fell in love. Thereafter, rumors regarding the couple’s relationship spread, especially among the faculty members and school officials.

Concerned about the rumors, on November 3, 1990, the private respondent advised Mrs. Martin to take a leave of absence which she ignored, as she continued to report for work. Consequently, on November 9, 1990, she was barred from reporting for work and was not allowed to enter the private respondent’s premises, effectively dismissing her from her employment.

In view of her termination from the service, on November 13, 1990, Mrs. Martin filed a case for illegal dismissal before the NLRC Regional Arbitration Branch No. III, San Fernando, Pampanga[2] against the private respondent. After the parties had submitted their respective evidence and position paper, Labor Arbiter Ariel Santos rendered a decision dismissing the complaint, the dispositive part of which states:

“WHEREFORE, the complaint filed by the complainant Arlene Martin is hereby DISMISSED for utter lack of merit.

However, considering the length of service of complaint and for humanitarian reason she would be given financial assistance based on one-month pay on every year of service.”

On appeal, the NLRC in a decision dated February 26, 1993, reversed the labor arbiter’s ruling, the dispositive portion of the decision[3]reads:

“WHEREFORE, the appealed Decision is hereby SET ASIDE and VACATED. Another one ENTERED ordering respondent to pay complainant her backwages and separation pay in the total amount of P83,392.40. Complainant’s other claims are hereby DISMISSED for lack of merit.

SO ORDERED.”

The reversal was anchored on the failure by the private respondent, in dismissing Mrs. Martin, to accord her the necessary procedural due process.[4]

Meanwhile, private respondent set up a committee to investigate the veracity of the rumors. After two weeks of inquiry, the committee rendered its report confirming the illicit relationship between the petitioner and Mrs. Martin.[5]

In view of the committee’s finding, on December 19, 1990, petitioner was charged administratively for immorality and was required to present his side on the controversy. Five months later or in May 1991, petitioner was informed by the private respondent’s Board of Directors of his dismissal effective June 1, 1991.[6] Unable to accept such verdict, petitioner filed a complaint for illegal dismissal on August 12, 1991 before the NLRC Regional Arbitration Branch No. III, San Fernando, Pampanga. After a full blown trial was conducted, Labor Arbiter Quintin C. Mendoza rendered a decision dated January 12, 1993, dismissing petitioner’s complaint but at the same time awarding monetary sums as financial assistance, the dispositive portion of which reads, thus:

“WHEREFORE, judgement is hereby issued dismissing the complaint, but ordering respondent Hagonoy Institute Inc. and/or Mrs. Elisea B. Banag (respondent Principal) or Mrs. Marta B. Zuniga (respondent Directress) to pay complainant (petitioner) the sum of thirteen thousand and seven hundred fifty (P13,750.00) pesos (as financial assistance), the rest of the complaint being hereby dismissed for lack of basis or merit.

SO ORDERED.”

In an effort to seek the reversal of the labor arbiter’s decision, petitioner filed an appeal before the NLRC, which, however, did not find any substantial reason to overturn the labor arbiter’s ruling. Thus, in a decision[7] dated November 29, 1993, the NLRC dismissed the appeal, to wit:

“WHEREFORE, premises considered, the instant appeal should be, as it is hereby, dismissed for lack of merit.

SO ORDERED.”

Petitioner’s motion for reconsideration suffered the same fate.[8] Thus, this petition for certiorari under Rule 65 of the Rules of Court.

We hereby uphold the NLRC’s finding dismissing petitioner from his employment.

The crux of the controversy is whether the illicit relationship between the petitioner and Mrs. Martin could be considered immoral as to constitute just cause to terminate an employee under Article 282 of the Labor Code.

We have consistently held that in order to constitute a valid dismissal, two requisites must concur: (a) the dismissal must be for any of the causes expressed in Art. 282 of the Labor Code, and (b) the employee must be accorded due process, basic of which are the opportunity to be heard and defend himself.[9]

Under Article 282 of the Labor Code, as amended, the following are deemed just causes to terminate an employee:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work;

(b) Gross and habitual neglect by the employee of his duties:

(c) Fraud or willfull breach by the employee of the trust reposed in him by his employer or duly authorized representative;

(d) Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorize representative; and

(e) Other causes analogous to the foregoing.”

Moreover, it is provided inter alia under Section 94[10] of the Manual of Regulations for Private Schools:

“Section 94. Causes of Terminating Employment. In addition to the just cases enumerated in the Labor Code, the employment of school personnels, including faculty, may be terminated for any of the following causes:

xxx xxx xxx

E. Disgraceful or immoral conduct.”

Private respondent, in justifying the termination of the petitioner, contends that being a teacher, he “must live up to the high moral standards required of his position.” In other words, it asserts that its purpose in dismissing the petitioner was to preserve the respect of the community towards the teachers and to strengthen the educational system.[11]

On the other hand, petitioner merely argues that the alleged illicit relationship was not substantially proven by convincing evidence by the private respondent as to justify his dismissal.

On the outset, it must be stressed that to constitute immorality, the circumstances of each particular case must be holistically considered and evaluated in light of the prevailing norms of conduct and applicable laws.[12] American jurisprudence has defined immorality as a course of conduct which offends the morals of the community and is a bad example to the youth whose ideals a teacher is supposed to foster and to elevate,[13] the same including sexual misconduct.[14] Thus, in petitioner’s case, the gravity and seriousness of the charges against him stem from his being a married man and at the same time a teacher.

We cannot overemphasize that having an extra-marital affair is an afront to the sanctity of marriage, which is a basic institution of society. Even our Family Code provides that husband and wife must live together, observe mutual love, respect and fidelity.[15] This is rooted in the fact that both our Constitution and our laws cherish the validity of marriage and unity of the family.[16] Our laws, in implementing this constitutional edict on marriage and the family underscore their permanence, inviolability and solidarity.[17]

As a teacher, petitioner serves as an example to his pupils, especially during their formative years[18] and stands in loco parentis to them.[19] To stress their importance in our society, teachers are given substitute and special parental authority under our laws.[20]

Consequently, it is but stating the obvious to assert that teachers must adhere to the exacting standards of morality and decency. There is no dichotomy of morality. A teacher, both in his official and personal conduct, must display exemplary behavior. He must freely and willingly accept restrictions on his conduct that might be viewed irksome by ordinary citizens. In other words, the personal behavior of teachers, in and outside the classroom, must be beyond reproach.

Accordingly, teachers must abide by a standard of personal conduct which not only proscribes the commission of immoral acts, but also prohibits behavior creating a suspicion of immorality because of the harmful impression it might have on the students.[21] Likewise, they must observe a high standard of integrity and honesty.[22]

From the foregoing, it seems obvious that when a teacher engages in extra-marital relationship, especially when the parties are both married, such behavior amounts to immorality, justifying his termination from employment.[23]

Having concluded that immorality is a just cause for dismissing petitioner, it is imperative that the private respondent prove the same. Since the burden of proof rests upon the employer to show that the dismissal was for a just and valid cause,[24] the same must be supported by substantial evidence.[25]

Undoubtedly, the question of immorality by the petitioner is factual in nature. Thus, we reiterate the well-settled rule that factual findings by the NLRC, particularly when it coincides with those by the Labor Arbiter, are accorded respect, even finality, and will not be disturbed for as long as such findings are supported by substantial evidence.[26] A scrutiny of the records of the instant petition leads us to concur with the NLRC’s finding that petitioner indeed entered into an illicit relationship with his co-teacher. This fact was attested to by the testimonies of nine witnesses (a fourth year student, a security guard, a janitor and six co-teachers) which petitioner failed to rebut.

In fact, the petitioner’s only recourse was to deny the accusation and insinuate that these witnesses were coerced by the private respondent to give their testimonies. However, under such circumstances, it is not enough for petitioner to simply cast doubt on the motives of the witnesses; he must present countervailing evidence to prove that no such affair took place.

In short, we cannot just ignore the witnesses’ affidavits and their subsequent testimonies during the investigation as to the culpability of the petitioner on the sole basis of the latter’s denial. In any event, we have held that denial, if unsubstantiated by clear and convincing evidence, is a negative and self-serving evidence which has no weight in law and cannot be given greater evidentiary value over the testimony of credible witnesses who testified on affirmative matters.[27]

Further bolstering the witnesses’ testimonies is the the absence of any motive on their part to falsely testify against the petitioner. Thus, since there is nothing to indicate that the witnesses were moved by dubious or improper motives to testify falsely against the petitioner, their testimonies are hereby accorded full faith and credit.

Likewise, petitioner cannot take comfort from the letter dated November 7, 1990 signed by 28 of his co-teachers, expressing their unequivocal support for Mrs. Arlene Martin.[28] It must be noted that the said letter did not in any way absolve Mrs. Martin from any wrongdoing. It merely affirmed the fact that when she was forcibly asked to take a leave of absence on November 3, 1990 the same was done in a precipitous manner, without the benefit of due process. Moreover, it must be stressed that the expression of support was personal to Mrs. Martin, and the same should not redound to the benefit of the petitioner. Indeed, if petitioner really had the support of his peers, then it should have been easy for him to obtain a similar letter from them in the course of his administrative investigation. However, not only did he not get such support, but six of his co-teachers even testified against him during the inquiry.

Finally, petitioner cannot invoke in his favor the ruling in the Arlene Martin case, wherein the NLRC ruled that her dismissal was illegal. It must be noted that the reason for declaring Martin’s dismissal as illegal was the failure by the private respondent to accord her the required due process.[29]

As aptly observed by the NLRC in its decision:[30]

“In the case at bar, the complainant was amply afforded the due process requirements of law. He was dismissed only on June 1, 1991 after an exhaustive investigation. A committee was formed to conduct an inquiry. (Rollo, pp. 43-44) An administrative charge for immorality was filedagainst him. (Rollo, p. 45) He was even required to testify in said case. (Rollo, p. 46) He was given the opportunity to answer said accusation. (Rollo, p. 47) He was in fact present during the hearing on January 17, 1991 and gave his side. x x x In fine, herein complainant (petitioner) cannot successfully seek refuge in the cited case of Martin.” (Rollo, pp. 48-49)

In view of our finding that petitioner’s dismissal was for a just and valid cause, the grant of financial assistance by the NLRC is without any factual and legal basis. In PLDT v. NLRC, [31] we held that:

“We hold henceforth separation pay shall be as a measure of social justice only in these instances where the employee is validly dismissed for cause other than serious misconduct or those reflecting his moral character. Where the reason for the valid dismissal is, for example, habitual intoxication or an offense involving moral turpitude, like theft or illicit sexual relationship with a fellow worker, the employer may not be required to give the dismissed employee separation pay, or financial assistance, or whatever other name it is called, on the ground of social justice.”

The above ruling has consistently been applied in terminating an employee when it involves his moral character.[32]

WHEREFORE, in view of the foregoing, the petition is hereby DISMISSED. The questioned Resolution dated March 8, 1994 and the decision of the National Labor Relations Commission dated November 29, 1993, are AFFIRMED with the MODIFICATION deleting the financial assistance granted to petitioner in the amount of P13,750.00. Costs against petitioner.SO ORDERED.

306. TAN BOON BEE & CO., INC., petitioner, vs.THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF BRANCH XVIII of the Court of First Instance of Manila, GRAPHIC PUBLISHING, INC., and PHILIPPINE AMERICAN CAN DRUG COMPANY,respondents.

De Santos, Balgos & Perez Law Office for petitioner.

Araneta Mendoza & Papa Law Office for respondent Phil. American Drug Company.

PARAS, J.:

This is a petition for certiorari, with prayer for preliminary injunction, to annul and set aside the March 26, 1975 Order of the then Court of First Instance of Manila, Branch XXIII, setting aside the sale of "Heidelberg" cylinder press executed by the sheriff in favor of the herein petitioner, as well as the levy on the said property, and ordering the sheriff to return the said machinery to its owner, herein private respondent Philippine American Drug Company.

Petitioner herein, doing business under the name and style of Anchor Supply Co., sold on credit to herein private respondent Graphic Publishing, Inc. (GRAPHIC for short) paper products amounting to P55,214.73. On December 20, 1972, GRAPHIC made partial payment by check to petitioner in the total amount of P24,848.74; and on December 21, 1972, a promissory note was executed to cover the balance of P30,365.99. In the said promissory note, it was stipulated that the amount will be paid on monthly installments and that failure to pay any installment would make the amount immediately demandable with an interest of 12% per annum. On September 6, 1973, for failure of GRAPHIC to pay any installment, petitioner filed with the then Court of First Instance of Manila, Branch XXIII, presided over by herein respondent judge, Civil Case No. 91857 for a Sum of Money (Rollo, pp. 36-38). Respondent judge declared GRAPHIC in default for failure to file its answer within the reglementary period and plaintiff (petitioner herein) was allowed to present its evidence ex parte. In a Decision dated January 18, 1974 (Ibid., pp. 39-40), the trial court ordered GRAPHIC to pay the petitioner the sum of P30,365.99 with 12% interest from March 30, 1973 until fully paid, plus the costs of suit. On motion of petitioner, a writ of execution was issued by respondent judge; but the aforestated writ having expired without the sheriff finding any property of GRAPHIC, an alias writ of execution was issued on July 2, 1974.

Pursuant to the said issued alias writ of execution, the executing sheriff levied upon one (1) unit printing machine Identified as "Original Heidelberg Cylinder Press" Type H 222, NR 78048, found in the premises of GRAPHIC. In a Notice of Sale of Execution of Personal Property dated July 29, 1974, said printing machine was scheduled for auction sale on July 26, 1974 at 10:00 o'clock at 14th St., Cor. Atlanta St., Port Area, Manila (lbid., p. 45); but in a letter dated July 19, 1974, herein private respondent, Philippine American Drug Company (PADCO for short) had informed the sheriff that the printing machine is its property and not that of GRAPHIC, and accordingly, advised the sheriff to cease and desist from carrying out the scheduled auction sale on July 26, 1974. Notwithstanding the said letter, the sheriff proceeded with the scheduled auction sale, sold the property to the petitioner, it being the highest bidder, and issued a Certificate of Sale in favor of petitioner (Rollo, p. 48). More than five (5) hours after the auction sale and the issuance of the certificate of sale, PADCO filed an "Affidavit of Third Party Claim" with the Office of the City Sheriff (Ibid., p. 47). Thereafter, on July 30,1974, PADCO filed with the Court of First Instance of Manila, Branch XXIII, a Motion to Nullify Sale on Execution (With Injunction) (Ibid., pp, 49-55), which was opposed by the petitioner (Ibid., pp. 5668). Respondent judge, in an Order dated March 26, 1975 (Ibid., pp. 64-69), ruled in favor of PADCO. The decretal portion of the said order, reads:

WHEREFORE, the sale of the 'Heidelberg cylinder press executed by the Sheriff in favor of the plaintiff as well as the levy on the said property is hereby set aside and declared to be without any force and effect. The Sheriff is ordered to return the said machinery to its owner, the Philippine American Drug Co.

Petitioner filed a Motion For Reconsideration (Ibid., pp. 7093) and an Addendum to Motion for Reconsideration (Ibid., pp. 94-08), but in an Order dated August 13, 1975, the same was denied for lack of merit (Ibid., p. 109). Hence, the instant petition.

In a Resolution dated September 12, 1975, the Second Division of this Court resolved to require the respondents to comment, and to issue a temporary restraining order (Rollo, p. 111 ). After submission of the parties' Memoranda, the case was submitted for decision in the Resolution of November 28, 1975 (Ibid., p. 275).

Petitioner, to support its stand, raised two (2) issues, to wit:

I

THE RESPONDENT JUDGE GRAVELY EXCEEDED, IF NOT ACTED WITHOUT JURISDICTION WHEN HE ACTED UPON THE MOTION OF PADCO, NOT ONLY BECAUSE SECTION 17, RULE 39 OF THE RULES OF COURT WAS NOT COMPLIED WITH, BUT ALSO BECAUSE THE CLAIMS OF PADCO WHICH WAS NOT A PARTY TO THE CASE COULD NOT BE VENTILATED IN THE CASE BEFORE HIM BUT IN INDEPENDENT PROCEEDING.

II

THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION WHEN HE REFUSED TO PIERCE THE PADCO'S (IDENTITY) AND DESPITE THE ABUNDANCE OF EVIDENCE CLEARLY SHOWING THAT PADCO WAS CONVENIENTLY SHIELDING UNDER THE THEORY OF CORPORATE PETITION.

Petitioner contends that respondent judge gravely exceeded, if not, acted without jurisdiction, in nullifying the sheriffs sale not only because Section 17, Rule 39 of the Rules of Court was not complied with, but more importantly because PADCO could not have litigated its claim in the same case, but in an independent civil proceeding.

This contention is well-taken.

In the case of Bayer Philippines, Inc. vs. Agana (63 SCRA 355, 366-367 [1975]), this Court categorically ruled as follows:

In other words, constitution, Section 17 of Rule 39 of the Revised Rules of Court, the rights of third-party claimants over certain properties levied upon by the sheriff to satisfy the judgment should not be decided inthe action where the third-party claims have been presented, but in the separate action instituted by the claimants.

... Otherwise stated, the court issuing a writ of execution is supposed to enforce the authority only over properties of the judgment debtor, and should a third party appeal- to claim the property levied upon by the sheriff, the procedure laid down by the Rules is that such claim should be the subject of a separate and independent action.

xxx xxx xxx

... This rule is dictated by reasons of convenience, as "intervention is more likely to inject confusion into the issues between the parties in the case . . . with which the third-party claimant has nothing to do and thereby retard instead of facilitate the prompt dispatch of the controversy which is the underlying objective of the rules of pleading and practice." Besides, intervention may not be permitted after trial has been concluded and a final judgment rendered in the case.

However, the fact that petitioner questioned the jurisdiction of the court during the initial hearing of the case but nevertheless actively participated in the trial, bars it from questioning now the court's jurisdiction. A party who voluntarily participated in the trial, like the herein petitioner, cannot later on raise the issue of the court's lack of jurisdiction (Philippine National Bank vs. Intermediate Appellate Court, 143 SCRA [1986]).

As to the second issue (the non-piercing of PADCO's corporate Identity) the decision of respondent judge is as follows:

The plaintiff, however, contends that the controlling stockholders of the Philippine American Drug Co. are also the same controlling stockholders of the Graphic Publishing, Inc. and, therefore, the levy upon the said machinery which was found in the premises occupied by the Graphic Publishing, Inc. should be upheld. This contention cannot be sustained because the two corporations were duly incorporated under the Corporation Law and each of them has a juridical personality distinct and separate from the other and the properties of one cannot be levied upon to satisfy the obligation of the other. This legal preposition is elementary and fundamental.

It is true that a corporation, upon coming into being, is invested by law with a personality separate and distinct from that of the persons composing it as well as from any other legal entity to which it may be related (Yutivo & Sons Hardware Company vs. Court of Tax Appeals, 1 SCRA 160 [1961]; and Emilio Cano Enterprises, Inc. vs. CIR, 13 SCRA 290 [1965]). As a matter of fact, the doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases which are within reason and the law (Villa Rey Transit, Inc. vs. Ferrer, 25 SCRA 845 [1968]). However, this separate and distinct personality is merely a fiction created by law for convenience and to promote justice (Laguna Transportation Company vs. SSS, 107 Phil. 833 [1960]). Accordingly, this separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347 [1976]). Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield for the commission of injustice and inequity (Chenplex Philippines, Inc., et al. vs. Hon. Pamatian et al., 57 SCRA 408 (19741). Likewise, this is true when the corporation is merely an adjunct, business conduit or alter ego of another corporation. In such case, the fiction of separate and distinct corporation entities should be disregarded (Commissioner of Internal Revenue vs. Norton & Harrison, 11 SCRA 714 [1964]).

In the instant case, petitioner's evidence established that PADCO was never engaged in the printing business; that the board of directors and the officers of GRAPHIC and PADCO were the same; and that PADCO holds 50% share of stock of GRAPHIC. Petitioner likewise stressed that PADCO's own evidence shows that the printing machine in question had been in the premises of GRAPHIC since May, 1965, long before PADCO even acquired its alleged title on July 11, 1966 from Capitol Publishing. That the said machine was allegedly leased by PADCO to GRAPHIC on January 24, 1966, even before PADCO purchased it from Capital Publishing on July 11, 1966, only serves to show that PADCO's claim of ownership over the printing machine is not only farce and sham but also unbelievable.

Considering the aforestated principles and the circumstances established in this case, respondent judge should have pierced PADCO's veil of corporate Identity.

Respondent PADCO argues that if respondent judge erred in not piercing the veil of its corporate fiction, the error is merely an error of judgment and not an error of jurisdiction correctable by appeal and not by certiorari.

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

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

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

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

SO ORDERED.

309. TELEPHONE ENGINEERING & SERVICE COMPANY, INC., petitioner, vs.WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF RIZAL and LEONILA SANTOS GATUS, for herself and in behalf of her minor children, Teresita, Antonina and Reynaldo, all surnamed GATUS, respondents.

MELENCIO-HERRERA, J.:1äwphï1.ñët

These certiorari proceedings stem from the award rendered against petitioner Telephone Engineering and Services, Co., Inc. (TESCO) on October 6, 1967 by the Acting Referee of Regional Office No. 4, Quezon City Sub-Regional Office, Workmen's Compensation Section, in favor of respondent Leonila S. Gatus and her children, dependents of the deceased employee Pacifico L. Gatus. The principal contention is that the award was rendered without jurisdiction as there was no employer-employee relationship between petitioner and the deceased.

Petitioner is a domestic corporation engaged in the business of manufacturing telephone equipment with offices at Sheridan Street, Mandaluyong, Rizal. Its Executive Vice-President and General Manager is Jose Luis Santiago. It has a sister company, the Utilities Management Corporation (UMACOR), with offices in the same location. UMACOR is also under the management of Jose Luis Santiago.

On September 8, 1964, UMACOR employed the late Pacifica L. Gatus as Purchasing Agent. On May 16, 1965, Pacifico L. Gatus was detailed with petitioner company. He reported back to UMACOR on August 1, 1965. On January 13, 1967, he contracted illness and although he retained to work on May 10, 1967, he died nevertheless on July 14, 1967 of "liver cirrhosis with malignant degeneration."

On August 7, 1967, his widow, respondent Leonila S. Gatus, filed a "Notice and Claim for Compensation" with Regional Office No. 4, Quezon City Sub-Regional Office, Workmen's Compensation Section, alleging therein that her deceased husband was an employee of TESCO, and that he died of liver cirrhosis. 1 On August 9, 1967, and Office wrote petitioner transmitting the Notice and for Compensation, and requiring it to submit an Employer's Report of Accident or Sickness pursuant to Section 37 of the Workmen's Compensation Act (Act No. 3428). 2 An "Employer's Report of Accident or Sickness" was thus submitted with UMACOR indicated as the employer of the deceased. The Report was signed by Jose Luis Santiago. In answer to questions Nos. 8 and 17, the employer stated that it would not controvert the claim for compensation, and admitted that the deceased employee contracted illness "in regular occupation." 3 On the basis of this Report, the Acting Referee awarded death benefits in the amount of P5,759.52 plus burial expenses of P200.00 in favor of the heirs of Gatus in a letter-award dated October 6, 1967 4 against TESCO.

Replying on October 27, 1967, TESCO, through Jose Luis Santiago, informed the Acting Referee that it would avail of the 15-days-notice given to it to state its non-conformity to the award and contended that the cause of the illness contracted by Gatus was in no way aggravated by the nature of his work. 5

On November 6, 1967, TESCO requested for an extension of ten days within which to file a Motion for Reconsideration, 6 and on November 15, 1967, asked for an additional extension of five days. 7 TESCO filed its "Motion for Reconsideration and/or Petition to Set Aside Award" on November 18, 1967, alleging as grounds therefor, that the admission made in the "Employer's Report of Accident or Sickness" was due to honest mistake and/or excusable negligence on its part, and that the illness for which compensation is sought is not an occupational disease, hence, not compensable under the law. 8 The extension requested was denied. The Motion for Reconsideration was likewise denied in an Order issued by the Chief of Section of the Regional Office dated December 28, 1967 9 predicated on two grounds: that the alleged mistake or negligence was not excusable, and that the basis of the award was not the theory of direct causation alone but also on that of aggravation. On January 28, 1968, an Order of execution was issued by the same Office.

On February 3, 1968, petitioner filed an "Urgent Motion to Compel Referee to Elevate the Records to the Workmen's Compensation Commission for Review." 10 Meanwhile, the Provincial Sheriff of Rizal levied on and attached the properties of TESCO on February 17, 1968, and scheduled the sale of the same at public auction on February 26, 1968. On February 28, 1968, the Commission issued an Order requiring petitioner to submit verified or true copies of the Motion for Reconsideration and/or Petition to Set Aside Award and Order of December 28, 1967, and to show proof that said Motion for Reconsideration was filed within the reglementary period, with the warning that failure to comply would result in the dismissal of the Motion. However, before this Order could be released, TESCO filed with this Court, on February 22, 1968, The present petition for "Certiorari with Preliminary Injunction" seeking to annul the award and to enjoin the Sheriff from levying and selling its properties at public auction.

On February 29, 1968, this Court required respondents to answer the Petition but denied Injunction. 11 TESCO'S Urgent Motion dated April 2, 1968, for the issuance of a temporary restraining order to enjoin the Sheriff from proceeding with the auction sale of its properties was denied in our Resolution dated May 8, 1968.

TESCO asserts: 1äwphï1.ñët

I. That the respondent Workmen's Compensation Commission has no jurisdiction nor authority to render the award (Annex 'D', Petition) against your petitioner there being no employer-employee relationship between it and the deceased Gatus;

II. That petitioner can never be estopped from questioning the jurisdiction of respondent commission especially considering that jurisdiction is never conferred by the acts or omission of the parties;

III. That this Honorable Court has jurisdiction to nullify the award of respondent commission.

TESCO takes the position that the Commission has no jurisdiction to render a valid award in this suit as there was no employer-employee relationship between them, the deceased having been an employee of UMACOR and not of TESCO. In support of this contention, petitioner submitted photostat copies of the payroll of UMACOR for the periods May 16-31, 1967 and June 1-15, 1967 12 showing the name of the deceased as one of the three employees listed under the Purchasing Department of UMACOR. It also presented a photostat copy of a check of UMACOR payable to the deceased representing his salary for the period June 14 to July 13, 1967. 13

Both public and private respondents contend, on the other hand, that TESCO is estopped from claiming lack of employer – employee relationship.

To start with, a few basic principles should be re-stated the existence of employer-employee relationship is the jurisdictional foundation for recovery of compensation under the Workmen's Compensation Law. 14 The lack of employer-employee relationship, however, is a matter of defense that the employer should properly raise in the proceedings below. The determination of this relationship involves a finding of fact, which is conclusive and binding and not subject to review by this Court. 15

Viewed in the light of these criteria, we note that it is only in this Petition before us that petitioner denied, for the first time, the employer-employee relationship. In fact, in its letter dated October 27, 1967 to the Acting Referee, in its request for extension of time to file Motion for Reconsideration, in its "Motion for Reconsideration and/or Petition to Set Aside Award," and in its "Urgent Motion to Compel the Referee to Elevate Records to the Commission for Review," petitioner represented and defended itself as the employer of the deceased. Nowhere in said documents did it allege that it was not the employer. Petitioner even admitted that TESCO and UMACOR are sister companies operating under one single management and housed in the same building. Although respect for the corporate personality as such, is the general rule, there are exceptions. In appropriate cases, the veil of corporate fiction may be pierced as when the same is made as a shield to confuse the legitimate issues. 16

While, indeed, jurisdiction cannot be conferred by acts or omission of the parties, TESCO'S denial at this stage that it is the employer of the deceased is obviously an afterthought, a devise to defeat the law and evade its obligations. 17 This denial also constitutes a change of theory on appeal which is not allowed in this jurisdiction. 18Moreover, issues not raised before the Workmen's Compensation Commission cannot be raised for the first time on appeal. 19 For that matter, a factual question may not be raised for the first time on appeal to the Supreme Court. 20

This certiorari proceeding must also be held to have been prematurely brought. Before a petition for certiorari can be instituted, all remedies available in the trial Court must be exhausted first. 21 certiorari cannot be resorted to when the remedy of appeal is present. 22 What is sought to be annulled is the award made by the Referee. However, TESCO did not pursue the remedies available to it under Rules 23, 24 and 25 of the Rules of the Workmen's Compensation Commission, namely, an appeal from the award of the Referee, within fifteen days from notice, to the Commission; a petition for reconsideration of the latter's resolution, if adverse, to the Commission en banc; and within ten days from receipt of an unfavorable decision by the latter, an appeal to this Court. As petitioner had not utilized these remedies available to it, certiorari win not he, it being prematurely filed. As this Court ruled in the case of Manila Jockey Club, Inc. vs. Del Rosario, 2 SCRA 462 (1961). 1äwphï1.ñët

An aggrieved party by the decision of a Commissioner should seek a reconsideration of the decision by the Commission en banc. If the decision is adverse to him, he may appeal to the Supreme Court. An appeal brought to the Supreme Court without first resorting to the remedy referred to is premature and may be dismissed.

Although this rule admits of exceptions, as where public welfare and the advancement of public policy so dictate, the broader interests of justice so require, or where the Orders complained of were found to be completely null and void or that the appeal was not considered the appropriate remedy, 23 the case at bar does not fan within any of these exceptions. WHEREFORE, this Petition is hereby dismissed.

SO ORDERED.

316. TRADERS ROYAL BANK, petitioner, vs.COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of the PHILIPPINES, respondents.

TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated January 29, 1990, 1 affirming the nullity of the transfer of Central Bank Certificate of Indebtedness (CBCI) No. D891, 2 with a face value of P500,000.00, from the Philippine Underwriters Finance Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB), under a Repurchase Agreement 3 dated February 4, 1981, and a Detached Assignment 4 dated April 27, 1981.

Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal Bank (TRB).

In the said petition, TRB stated that:

3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment" . . ., whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness of PESOS: FIVE HUNDRED THOUSAND (P500,000) and having an aggregate value of PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00);

4. The aforesaid Detached Assignment (Annex "A") contains an express authorization executed by the transferor intended to complete the assignment through the registration of the transfer in the name of PhilFinance, which authorization is specifically phrased as follows: '(Filriters) hereby irrevocably authorized the said issuer (Central Bank) to transfer the said bond/certificates on the books of its fiscal agent;

5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . ., whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00), PhilFinance sold, transferred and delivered to petitioner CBCI 4-year, 8th series, Serial No. D891 with a face value of P500,000.00 . . ., which CBCI was among those previously acquired by PhilFinance from Filriters as averred in paragraph 3 of the Petition;

6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed to repurchase CBCI Serial No. D891 (Annex "C"), at the stipulated price of PESOS: FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981;

7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when the checks it issued in favor of petitioner were dishonored for insufficient funds;

8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the Petitioner to enable the latter to have its title completed and registered in the books of the respondent. And by means of said Detachment, Philfinance transferred and assigned all, its rights and title in the said CBCI (Annex "C") to petitioner and, furthermore, it did thereby "irrevocably authorize the said issuer (respondent herein) to transfer the said bond/certificate on the books of its fiscal agent." . . .

9. Petitioner presented the CBCI (Annex "C"), together with the two (2) aforementioned Detached Assignments (Annexes "B" and "D"), to the Securities Servicing Department of the respondent, and requested the latter to effect the transfer of the CBCI on its books and to issue a new certificate in the name of petitioner as absolute owner thereof;

10. Respondent failed and refused to register the transfer as requested, and continues to do so notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing, the latest of which is hereto attached as Annex "E" and made an integral part hereof;

11. The express provisions governing the transfer of the CBCI were substantially complied with the petitioner's request for registration, to wit:

"No transfer thereof shall be valid unless made at said office (where the Certificate has been registered) by the registered owner hereof, in person or by his attorney duly authorized in writing, and similarly noted hereon, and upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of the registered holder thereof."

and, without a doubt, the Detached Assignments presented to respondent were sufficient authorizations in writing executed by the registered owner, Filriters, and its transferee, PhilFinance, as required by the above-quoted provision;

12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering a transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves upon the respondent;

Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its name.

On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant Central Bank of the Philippines' Motion for Admission of Amended Answer with Counter Claim for Interpleader 6 thereby calling to fore the respondent Filriters Guaranty Assurance Corporation (Filriters), the registered owner of the subject CBCI as respondent.

For its part, Filriters interjected as Special Defenses the following:

11. Respondent is the registered owner of CBCI No. 891;

12. The CBCI constitutes part of the reserve investment against liabilities required of respondent as an insurance company under the Insurance Code;

13. Without any consideration or benefit whatsoever to Filriters, in violation of law and the trust fund doctrine and to the prejudice of policyholders and to all who have present or future claim against policies issued by Filriters, Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without any board resolution, knowledge or consent of the board of directors of Filriters, and without any clearance or authorization from the Insurance Commissioner, executed a detached assignment purportedly assigning CBCI No. 891 to Philfinance;

xxx xxx xxx

14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar Jacobe, Vice-President-Treasury of Filriters (both of whom were holding the same positions in Philfinance), without any consideration or benefit redounding to Filriters and to the grave prejudice of Filriters, its policy holders and all who have present or future claims against its policies, executed similar detached assignment forms transferring the CBCI to plaintiff;

xxx xxx xxx

15. The detached assignment is patently void and inoperative because the assignment is without the knowledge and consent of directors of Filriters, and not duly authorized in writing by the Board, as requiring by Article V, Section 3 of CB Circular No. 769;

16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the corporate act of Filriters and such null and void;

a) The assignment was executed without consideration and for that reason, the assignment is void from the beginning (Article 1409, Civil Code);

b) The assignment was executed without any knowledge and consent of the board of directors of Filriters;

c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement under the Insurance Code for its existence as an insurance company and the pursuit of its business operations. The assignment of the CBCI is illegal act in the sense of malum in se or malum prohibitum, for anyone to make, either as corporate or personal act;

d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited by law, is immoral and against public policy;

e) The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of Filriters (and has in fact helped in placing Filriters under conservatorship), an inevitable result known to the officer who executed assignment.

17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the assignment.

a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not payable to bearer but is a registered in the name of Filriters;

b) The provision on transfer of the CBCIs provides that the Central Bank shall treat the registered owner as the absolute owner and that the value of the registered certificates shall be payable only to the registered owner; a sufficient notice to plaintiff that the assignments do not give them the registered owner's right as absolute owner of the CBCI's;

c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that the registered certificates are payable only to the registered owner (Article II, Section 1).

18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a regular transaction made in the usual of ordinary course of business;

a) The CBCI constitutes part of the reserve investments of Filriters against liabilities requires by the Insurance Code and its assignment or transfer is expressly prohibited by law. There was no attempt to get any clearance or authorization from the Insurance Commissioner;

b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course of its business;

c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of "all or substantially all" of the assets of Filriters, which requires the affirmative action of the stockholders (Section 40, Corporation [sic] Code. 7

In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII found the assignment of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of the same CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and effect. The dispositive portion of the decision reads:

ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance Corporation and against the plaintiff Traders Royal Bank:

(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and of no force and effect;

(b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to pay the value of the proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance Corporation;

(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance Corp. The sum of P10,000 as attorney's fees; and

(d) to pay the costs.

SO ORDERED. 9

The petitioner assailed the decision of the trial court in the Court of Appeals 10, but their appeals likewise failed. The findings of the fact of the said court are hereby reproduced:

The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a deed of assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine Underwriters Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which was still registered in the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a repurchase agreement dated February 4, 1981, granting Philfinance the right to repurchase the instrument on or before April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a deed of assignment, dated April 27, 1981, conveying to appellant TRB all its right and the title to CBCI No. D891.

Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891 in its name before the Security and Servicing Department of the Central Bank (CB). Central Bank, however, refused to effect the transfer and registration in view of an adverse claim filed by defendant Filriters.

Left with no other recourse, TRB filed a special civil action for mandamus against the Central Bank in the Regional Trial Court of Manila. The suit, however, was subsequently treated by the lower court as a case of interpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent and the court adjudge which of them is entitled to the ownership of CBCI No. D891. Failing to get a favorable judgment. TRB now comes to this Court on appeal. 11

In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and having acquired the said certificate from Philfinance as a holder in due course, its possession of the same is thus free fro any defect of title of prior parties and from any defense available to prior parties among themselves, and it may thus, enforce payment of the instrument for the full amount thereof against all parties liable thereon. 12

In ignoring said argument, the appellate court that the CBCI is not a negotiable instrument, since the instrument clearly stated that it was payable to Filriters, the registered owner, whose name was inscribed thereon, and that the certificate lacked the words of negotiability which serve as an expression of consent that the instrument may be transferred by negotiation.

Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having made without consideration, and did not conform to Central Bank Circular No. 769, series of 1980, better known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness", which provided that any "assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in writing."

Petitioner's claimed interest has no basis, since it was derived from Philfinance whose interest was inexistent, having acquired the certificate through simulation. What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation, to guarantee its financing operations.

Said the Court:

In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind Filriters and violated as the same time Central Bank Circular No. 769 which has the force and

effect of a law, resulting in the nullity of the transfer (People v. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).

In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank.

WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant.

SO ORDERED. 13

Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters equity and the two corporations have identical corporate officers, thus demanding the application of the doctrine or piercing the veil of corporate fiction, as to give validity to the transfer of the CBCI from registered owner to petitioner TRB. 14 This renders the payment by TRB to Philfinance of CBCI, as actual payment to Filriters. Thus, there is no merit to the lower court's ruling that the transfer of the CBCI from Filriters to Philfinance was null and void for lack of consideration.

Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable instruments law (Act 2031).

The pertinent portions of the subject CBCI read:

xxx xxx xxx

The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of if this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS.

xxx xxx xxx

Properly understood, a certificate of indebtedness pertains to certificates for the creation and maintenance of a permanent improvement revolving fund, is similar to a "bond," (82 Minn. 202). Being equivalent to a bond, it is properly understood as acknowledgment of an obligation to pay a fixed sum of money. It is usually used for the purpose of long term loans.

The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:

As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance Corporation, the registered owner hereof." Very clearly, the instrument is payable only to Filriters, the registered owner, whose name is inscribed thereon. It lacks the words of negotiability which should have served as an expression of consent that the instrument may be transferred by negotiation. 15

A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE CORPORATION, and to no one else, thus, discounting the petitioner's submission that the same is a negotiable instrument, and that it is a holder in due course of the certificate.

The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchtone relating to the protection of holders in due course, and the freedom of negotiability is the foundation for the protection which the law throws around a holder in due course (11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of time.

As held in Caltex (Philippines), Inc. v. Court of Appeals, 16:

The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. While the writing may be read in the light of surrounding circumstance in order to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words express, but what is the meaning of the words they have used. What the parties meant must be determined by what they said.

Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable instruments law. The pertinent question then is, was the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the CBCI registered in its name with the Central Bank?

The following are the appellate court's pronouncements on the matter:

Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is defective since it acquired the instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer was for "value received", there was really no

consideration involved. What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation. Thus, for lack of any consideration, the assignment made is a complete nullity.

What is more, We find that the transfer made by Filriters to Philfinance did not conform to Central Bank Circular No. 769, series of 1980, otherwise known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness", under which the note was issued. Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that any assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in writing.

In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind Filriters and violated at the same time Central Bank Circular No. 769 which has the force and effect of a law, resulting in the nullity of the transfer (People vs. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).

In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank

Petitioner now argues that the transfer of the subject CBCI to TRB must upheld, as the respondent Filriters and Philfinance, though separate corporate entities on paper, have used their corporate fiction to defraud TRB into purchasing the subject CBCI, which purchase now is refused registration by the Central Bank.

Says the petitioner;

Since Philfinance own about 90% of Filriters and the two companies have the same corporate officers, if the principle of piercing the veil of corporate entity were to be applied in this case, then TRB's payment to Philfinance for the CBCI purchased by it could just as well be considered a payment to Filriters, the registered owner of the CBCI as to bar the latter from claiming, as it has, that it never received any payment for that CBCI sold and that said CBCI was sold without its authority.

xxx xxx xxx

We respectfully submit that, considering that the Court of Appeals has held that the CBCI was merely borrowed by Philfinance from Filriters, a sister corporation, to guarantee its (Philfinance's) financing operations, if it were to be consistent therewith, on the issued raised by TRB that there was a piercing a veil of corporate entity, the Court of Appeals should have ruled that such veil of corporate entity was, in fact, pierced, and the payment by TRB to Philfinance should be construed as payment to Filriters. 17

We disagree with Petitioner.

Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable remedy, and may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person. 18

Peiercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguished one corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine.

The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on the contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance, and the identity of one shall be maintained as to the other, there is nothing else which could lead the court under circumstance to disregard their corporate personalities.

Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical personality separate from its stockholders and from other corporations may be disregarded, 19 in the absence of such grounds, the general rule must upheld. The fact that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, 20 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 a sufficient reason for disregarding the fiction of separate corporate personalities.

In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate of indebtedness from Philfinance.

On its face the subject certificates states that it is registered in the name of Filriters. This should have put the petitioner on notice, and prompted it to inquire from Filriters as to Philfinance's title over the same or its authority to assign the certificate. As it is, there is no showing to the effect that petitioner had any dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of the certificate.

The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:

TRANSFER. This Certificate shall pass by delivery unless it is registered in the owner's name at any office of the Bank or any agency duly authorized by the Bank, and such registration is noted hereon. After such registration no transfer thereof shall be valid unless made at said office (where the Certificates has been registered) by the registered owner hereof, in person, or by his attorney, duly authorized in writing and similarly noted hereon and upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of the registered owner thereof. The bank or any agency duly authorized by the Bank may deem and treat the bearer of this Certificate, or if this Certificate is registered as herein authorized, the person in whose name the same is registered as the absolute owner of this Certificate, for the purpose of receiving payment hereof, or on account hereof, and for all other purpose whether or not this Certificate shall be overdue.

This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to submit such an authorization from Filriters.

Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI.

Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules and Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides that:

Sec. 3. Assignment of Registered Certificates. — Assignment of registered certificates shall not be valid unless made at the office where the same have been issued and registered or at the Securities Servicing Department, Central Bank of the Philippines, and by the registered owner thereof, in person or by his representative, duly authorized in writing. For this purpose, the transferee may be designated as the representative of the registered owner.

Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. An entity which deals with corporate agents within circumstances showing that the agents are acting in excess of corporate authority, may not hold the corporation liable. 22 This is only fair, as everyone 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. 23

The transfer made by Filriters to Philfinance did not conform to the said. Central Bank Circular, which for all intents, is considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had signed the deed of assignment from Filriters to Philfinance, purportedly for and in favor of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. As it is, the sale from Filriters to Philfinance was fictitious, and therefore void and inexistent, as there was no consideration for the same. This is fatal to the petitioner's cause, for then, Philfinance had no title over the subject certificate to convey the Traders Royal Bank. Nemo potest nisi quod de jure potest — no man can do anything except what he can do lawfully.

Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves, which are required by law 24 to be maintained at a mandated level. This was pointed out by Elias Garcia, Manager-in-Charge of respondent Filriters, in his testimony given before the court on May 30, 1986.

Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the face value of P5000,000.00 subject of this case?

A Yes, sir.

Q Why do you know this?

A Well, this was CBCI of the company sought to be examined by the Insurance Commission sometime in early 1981 and this CBCI No. 891 was among the CBCI's that were found to be missing.

Q Let me take you back further before 1981. Did you have the knowledge of this CBCI No. 891 before 1981?

A Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as legal reserve of the company.

Q Legal reserve for the purpose of what?

A Well, you see, the Insurance companies are required to put up legal reserves under Section 213 of the Insurance Code equivalent to 40 percent of the premiums receipt and further, the Insurance Commission requires this reserve to be invested preferably in government securities or government binds. This is how this CBCI came to be purchased by the company.

It cannot, therefore, be taken out of the said funds, without violating the requirements of the law. Thus, the anauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said corporation, not without the approval of its Board of Directors, and the maintenance of the required reserve fund.

Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest of Traders Royal Bank.

ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990 is hereby AFFIRMED.

SO ORDERED.

320. BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAÑEZ, LEOVINA C. JALBUENA and SANTIAGO M. RIVERA, petitioners, vs.COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS MANUFACTURING CO., INC.,respondents.

Edmundo T. Zepeda for petitioners.

Martin M. De Guzman for respondent BORMAHECO, Inc.

Renato J. Robles for P.M. Parts Manufacturing Co., Inc.

REGALADO, J.:

This is a petition to review the decision of respondent Court of Appeals, dated August 3, 1989, in CA-GR CV No. 15412, entitled "Buenaflor M. Castillo Umali, et al. vs. Philippine Machinery Parts Manufacturing Co., Inc., et al.," 1the dispositive portion whereof provides:

WHEREFORE, viewed in the light of the entire record, the judgment appealed from must be, as it is hereby REVERSED. In lieu thereof, a judgment is hereby rendered-

1) Dismissing the complaint, with cost against plaintiffs;

2) Ordering plaintiffs-appellees to vacate the subject properties; and

3) Ordering plaintiffs-appellees to pay upon defendants' counterclaims:

a) To defendant-appellant PM Parts: (i) damages consisting of the value of the fruits in the subject parcels of land of which they were deprived in the sum of P26,000.00 and (ii) attorney's fees of P15,000.00

b) To defendant-appellant Bormaheco: (i) expenses of litigation in the amount of P5,000.00 and (ii) attorney's fees of P15,000.00.

SO ORDERED.

The original complaint for annulment of title filed in the court a quo by herein petitioners included as party defendants the Philippine Machinery Parts Manufacturing Co., Inc. (PM Parts), Insurance Corporation of the Philippines (ICP), Bormaheco, Inc., (Bormaheco) and Santiago M. Rivera (Rivera). A Second Amended Complaint was filed, this time impleading Santiago M. Rivera as party plaintiff.

During the pre-trial conference, the parties entered into the following stipulation of facts:

As between all parties: Plaintiff Buenaflor M. Castillo is the judicial administratrix of the estate of Felipe Castillo in Special Proceeding No. 4053, pending before Branch IX, CFI of Quezon (per Exhibit A) which intestate proceedings was instituted by Mauricia Meer Vda. de Castillo, the previous administratrix of the said proceedings prior to 1970 (per exhibits A-1 and A-2) which case was filed in Court way back in 1964;

b) The four (4) parcels of land described in paragraph 3 of the Complaint were originally covered by TCT No. T-42104 and Tax Dec. No. 14134 with assessed value of P3,100.00; TCT No. T 32227 and Tax Dec. No. 14132, with assessed value of P5,130,00; TCT No. T-31762 and Tax Dec. No. 14135, with assessed value of P6,150.00; and TCT No. T-42103 with Tax Dec. No. 14133, with assessed value of P3,580.00 (per Exhibits A-2 and B, B-1 to B-3 C, C-1 -to C3

c) That the above-enumerated four (4) parcels of land were the subject of the Deed of Extra-Judicial Partition executed by the heirs of Felipe Castillo (per Exhibit D) and by virtue thereof the titles thereto has (sic) been cancelled and in lieu thereof, new titles in the name of Mauricia Meer Vda. de Castillo and of her children, namely: Buenaflor, Bertilla, Victoria, Marietta and Leovina, all surnamed Castillo has (sic) been issued, namely: TCT No. T-12113 (Exhibit E ); TCT No. T-13113 (Exhibit F); TCT No. T-13116 (Exhibit G ) and TCT No. T13117 (Exhibit H )

d) That mentioned parcels of land were submitted as guaranty in the Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage executed on 24 October 1970 between Insurance Corporation of the Philippines and Slobec Realty Corporation represented by Santiago Rivera (Exhibit 1);

e) That based on the Certificate of Sale issued by the Sheriff of the Province of Quezon in favor of Insurance Corporation of the Philippines it was able to transfer to itself the titles over the lots in question, namely: TCT No. T-23705 (Exhibit M), TCT No. T 23706 (Exhibit N ), TCT No. T-23707 (Exhibit 0) and TCT No. T 23708 (Exhibit P);

f) That on 10 April 1975, the Insurance Corporation of the Philippines sold to PM Parts the immovables in question (per Exhibit 6 for PM Parts) and by reason thereof, succeeded in transferring unto itself the titles over the lots in dispute, namely: per TCT No. T-24846 (Exhibit Q ), per TCT No. T-24847 (Exhibit R ), TCT No. T-24848 (Exhibit), TCT No. T-24849 (Exhibit T );

g) On 26 August l976, Mauricia Meer Vda. de Castillo' genther letter to Modesto N. Cervantes stating that she and her children refused to comply with his demands (Exhibit V-2);

h) That from at least the months of October, November and December 1970 and January 1971, Modesto N. Cervantes was the Vice-President of Bormaheco, Inc. later President thereof, and also he is one of the Board of Directors of PM Parts; on the other hand, Atty. Martin M. De Guzman was the legal counsel of Bormaheco, Inc., later Executive Vice-President thereof, and who also is the legal counsel of Insurance Corporation of the Philippines and PM Parts; that Modesto N. Cervantes served later on as President of PM Parts, and that Atty. de Guzman was retained by Insurance Corporation of the Philippines specifically for foreclosure purposes only;

i) Defendant Bormaheco, Inc. on November 25, 1970 sold to Slobec Realty and Development, Inc., represented by Santiago Rivera, President, one (1) unit Caterpillar Tractor D-7 with Serial No. 281114 evidenced by a contract marked Exhibit J and Exhibit I for Bormaheco, Inc.;

j) That the Surety Bond No. 14010 issued by co-defendant ICP was likewise secured by an Agreement with Counter-Guaranty with Real Estate Mortgage executed by Slobec Realty & Development, Inc., Mauricia Castillo Meer, Buenaflor Castillo, Bertilla Castillo, Victoria Castillo, Marietta Castillo and Leovina Castillo, as mortgagors in favor of ICP which document was executed and ratified before notary public Alberto R. Navoa of the City of Manila on October 24,1970;

k) That the property mortgaged consisted of four (4) parcels of land situated in Lucena City and covered by TCT Nos. T-13114, T13115, T-13116 and T-13117 of the Register of Deeds of Lucena City;

l) That the tractor sold by defendant Bormaheco, Inc. to Slobec Realty & Development, Inc. was delivered to Bormaheco, Inc. on or about October 2,1973, by Mr. Menandro Umali for purposes of repair;

m) That in August 1976, PM Parts notified Mrs. Mauricia Meer about its ownership and the assignment of Mr. Petronilo Roque as caretaker of the subject property;

n) That plaintiff and other heirs are harvest fruits of the property (daranghita) which is worth no less than Pl,000.00 per harvest.

As between plaintiffs and defendant Bormaheco, Inc

o) That on 25 November 1970, at Makati, Rizal, Same Rivera, in representation of the Slobec Realty & Development Corporation executed in favor of Bormaheco, Inc., represented by its Vice-President Modesto N. Cervantes a Chattel Mortgage concerning one unit model CAT D7 Caterpillar Crawler Tractor as described therein as security for the payment in favor of the mortgagee of the amount of P180,000.00 (per Exhibit K) that Id document was superseded by another chattel mortgage dated January 23, 1971 (Exhibit 15);

p) On 18 December 1970, at Makati, Rizal, the Bormaheco, Inc., represented by its Vice-President Modesto Cervantes and Slobec Realty Corporation represented by Santiago Rivera executed the sales agreement concerning the sale of one (1) unit Model CAT D7 Caterpillar Crawler Tractor as described therein for the amount of P230,000.00 (per Exhibit J) which document was superseded by the Sales Agreement dated January 23,1971 (Exhibit 16);

q) Although it appears on the document entitled Chattel Mortgage (per Exhibit K) that it was executed on 25 November 1970, and in the document entitled Sales Agreement (per Exhibit J) that it was executed on 18 December 1970, it appears in the notarial register of the notary public who notarized them that those two documents were executed on 11 December 1970. The certified xerox copy of the notarial register of Notary Public Guillermo Aragones issued by the Bureau of Records Management is hereto submitted as Exhibit BB That said chattel mortgage was superseded by another document dated January 23, 1971;

r) That on 23 January 1971, Slobec Realty Development Corporation, represented by Santiago Rivera, received from Bormaheco, Inc. one (1) tractor Caterpillar Model D-7 pursuant to Invoice No. 33234 (Exhibits 9 and 9-A, Bormaheco, Inc.) and delivery receipt No. 10368 (per Exhibits 10 and 10-A for Bormaheco, Inc

s) That on 28 September 1973, Atty. Martin M. de Guzman, as counsel of Insurance Corporation of the Philippines purchased at public auction for said corporation the four (4) parcels of land subject of tills case (per Exhibit L), and which document was presented to the Register of Deeds on 1 October 1973;

t) Although it appears that the realties in issue has (sic) been sold by Insurance Corporation of the Philippines in favor of PM Parts on 1 0 April 1975, Modesto N. Cervantes, formerly Vice- President and now President of Bormaheco, Inc., sent his letter dated 9 August 1976 to Mauricia Meer Vda. de Castillo (Exhibit V), demanding that she and her children should vacate the premises;

u) That the Caterpillar Crawler Tractor Model CAT D-7 which was received by Slobec Realty Development Corporation was actually reconditioned and repainted. " 2

We cull the following antecedents from the decision of respondent Court of Appeals:

Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The Castillo family are the owners of a parcel of land located in Lucena City which was given as security for a loan from the Development Bank of the Philippines. For their failure to pay the amortization, foreclosure of the said property was about to be initiated. This problem was made known to Santiago Rivera, who proposed to them the conversion into subdivision of the four (4) parcels of land adjacent to the mortgaged property to raise the necessary fund. The Idea was accepted by the Castillo family and to carry out the project, a Memorandum of Agreement (Exh. U p. 127, Record) was executed by and between Slobec Realty and Development, Inc., represented by its President Santiago Rivera and the Castillo family. In this agreement, Santiago Rivera obliged himself to pay the Castillo family the sum of P70,000.00 immediately after the execution of the agreement and to pay the additional amount of P400,000.00 after the property has been converted into a subdivision. Rivera, armed with the agreement, Exhibit U , approached Mr. Modesto Cervantes, President of defendant Bormaheco, and proposed to purchase from Bormaheco two (2) tractors Model D-7 and D-8 Subsequently, a Sales Agreement was executed on December 28,1970 (Exh. J, p. 22, Record).

On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development, Inc., represented by its President, Santiago Rivera, executed a Sales Agreement over one unit of Caterpillar Tractor D-7 with Serial No. 281114, as evidenced by the contract marked Exhibit '16'. As shown by the contract, the price was P230,000.00 of which P50,000.00 was to constitute a down payment, and the balance of P180,000.00 payable in eighteen monthly installments. On the same date, Slobec, through Rivera, executed in favor of Bormaheco a Chattel Mortgage (Exh. K, p. 29, Record) over the said equipment as security for the payment of the aforesaid balance of P180,000.00. As further security of the aforementioned unpaid balance, Slobec obtained from Insurance Corporation of the Phil. a Surety Bond, with ICP (Insurance Corporation of the Phil.) as surety and Slobec as principal, in favor of Bormaheco, as borne out by Exhibit '8' (p. 111, Record). The aforesaid surety bond was in turn secured by an Agreement of Counter-Guaranty with Real Estate Mortgage (Exhibit I, p. 24, Record) executed by Rivera as president of Slobec and Mauricia Meer Vda. de Castillo, Buenaflor Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and Leovina Castillo Jalbuena, as mortgagors and Insurance Corporation of the Philippines (ICP) as mortgagee. In this agreement, ICP guaranteed the obligation of Slobec with Bormaheco in the amount of P180,000.00. In giving the bond, ICP required that the Castillos mortgage to them the properties in question, namely, four parcels of land covered by TCTs in the name of the aforementioned mortgagors, namely TCT Nos. 13114, 13115, 13116 and 13117 all of the Register of Deeds for Lucena City.

On the occasion of the execution on January 23, 1971, of the Sales Agreement Exhibit '16', Slobec, represented by Rivera received from Bormaheco the subject matter of the said Sales Agreement, namely, the aforementioned tractor Caterpillar Model D-7 as evidenced by Invoice No. 33234 (Exhs. 9 and 9-A, p. 112, Record) and Delivery Receipt No. 10368 (Exhs. 10 and 10-A, p. 113). This tractor was known by Rivera to be a reconditioned and repainted one [Stipulation of Facts, Pre-trial Order, par. (u)].

Meanwhile, for violation of the terms and conditions of the Counter-Guaranty Agreement (Exh. 1), the properties of the Castillos were foreclosed by ICP As the highest bidder with a bid of P285,212.00, a Certificate of Sale was issued by the Provincial Sheriff of Lucena City and Transfer Certificates of Title over the subject parcels of land were issued by the Register of Deeds of Lucena City in favor of ICP namely, TCT Nos. T-23705, T 23706, T-23707 and T-23708 (Exhs. M to P, pp. 38-45). The mortgagors had one (1) year from the date of the registration of the certificate of sale, that is, until October 1, 1974, to redeem the property, but they failed to do so. Consequently, ICP consolidated its ownership over the subject parcels of land through the requisite affidavit of consolidation of ownership dated October 29, 1974, as shown in Exh. '22'(p. 138, Rec.). Pursuant thereto, a Deed of Sale of Real Estate covering the subject properties was issued in favor of ICP (Exh. 23, p. 139, Rec.).

On April 10, 1975, Insurance Corporation of the Phil. ICP sold to Phil. Machinery Parts Manufacturing Co. (PM Parts) the four (4) parcels of land and by virtue of said conveyance, PM Parts transferred unto itself the titles over the lots in dispute so that said parcels of land are now covered by TCT Nos. T-24846, T-24847, T-24848 and T-24849 (Exhs. Q-T, pp. 46-49, Rec.).

Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a letter dated August 9,1976 addressed to plaintiff Mrs. Mauricia Meer Castillo requesting her and her children to vacate the subject property, who (Mrs. Castillo) in turn sent her reply expressing her refusal to comply with his demands.

On September 29, 1976, the heirs of the late Felipe Castillo, particularly plaintiff Buenaflor M. Castillo Umali as the appointed administratrix of the properties in question filed an action for annulment of title before the then Court of First Instance of Quezon and docketed thereat as Civil Case No. 8085. Thereafter, they filed an Amended Complaint on January 10, 1980 (p. 444, Record). On July 20, 1983, plaintiffs filed their Second Amended Complaint, impleading Santiago M. Rivera as a party plaintiff (p. 706, Record). They contended that all the aforementioned transactions starting with the Agreement of Counter-Guaranty with Real Estate Mortgage (Exh. I), Certificate of Sale (Exh. L) and the Deeds of Authority to Sell, Sale and the Affidavit of Consolidation of Ownership (Annexes F, G, H, I) as well as the Deed of Sale (Annexes J, K, L and M) are void for being entered into in fraud and without the consent and approval of the Court of First Instance of Quezon, (Branch IX) before whom the administration proceedings has been pending. Plaintiffs pray that the four (4) parcels of land subject hereof be declared as owned by the estate of the late Felipe Castillo and that all Transfer Certificates of Title Nos. 13114,13115,13116,13117, 23705, 23706, 23707, 23708, 24846, 24847, 24848 and

24849 as well as those appearing as encumbrances at the back of the certificates of title mentioned be declared as a nullity and defendants to pay damages and attorney's fees (pp. 71071 1, Record).

In their amended answer, the defendants controverted the complaint and alleged, by way of affirmative and special defenses that the complaint did not state facts sufficient to state a cause of action against defendants; that plaintiffs are not entitled to the reliefs demanded; that plaintiffs are estopped or precluded from asserting the matters set forth in the Complaint; that plaintiffs are guilty of laches in not asserting their alleged right in due time; that defendant PM Parts is an innocent purchaser for value and relied on the face of the title before it bought the subject property (p. 744, Record). 3

After trial, the court a quo rendered judgment, with the following decretal portion:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, declaring the following documents:

Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage dated October 24,1970 (Exhibit 1);

Sales Agreement dated December 28, 1970 (Exhibit J)

Chattel Mortgage dated November 25, 1970 (Exhibit K)

Sales Agreement dated January 23, 1971 (Exhibit 16);

Chattel Mortgage dated January 23, 1971 (Exhibit 17);

Certificate of Sale dated September 28, 1973 executed by the Provincial Sheriff of Quezon in favor of Insurance Corporation of the Philippines (Exhibit L);

null and void for being fictitious, spurious and without consideration. Consequently, Transfer Certificates of Title Nos. T 23705, T-23706, T23707 and T-23708 (Exhibits M, N, O and P) issued in the name of Insurance Corporation of the Philippines, are likewise null and void.

The sale by Insurance Corporation of the- Philippines in favor of defendant Philippine Machinery Parts Manufacturing Co., Inc., over Id four (4) parcels of land and Transfer Certificates of Title Nos. T 24846, T-24847, T-24848 and T-24849 subsequently issued by virtue of said sale in the name of Philippine Machinery Parts Manufacturing Co., Inc., are similarly declared null and void, and the Register of Deeds of Lucena City is hereby directed to issue, in lieu thereof, transfer certificates of title in the names of the plaintiffs, except Santiago Rivera.

Orders the defendants jointly and severally to pay the plaintiffs moral damages in the sum of P10,000.00, exemplary damages in the amount of P5,000.00, and actual litigation expenses in the sum of P6,500.00.

Defendants are likewise ordered to pay the plaintiffs, jointly and severally, the sum of P10,000.00 for and as attomey's fees. With costs against the defendants.

SO ORDERED. 4

As earlier stated, respondent court reversed the aforequoted decision of the trial court and rendered the judgment subject of this petition-

Petitioners contend that respondent Court of Appeals erred:

1. In holding and finding that the actions entered into between petitioner Rivera with Cervantes are all fair and regular and therefore binding between the parties thereto;

2. In reversing the decision of the lower court, not only based on erroneous conclusions of facts, erroneous presumptions not supported by the evidence on record but also, holding valid and binding the supposed payment by ICP of its obligation to Bormaheco, despite the fact that the surety bond issued it had already expired when it opted to foreclose extrajudically the mortgage executed by the petitioners;

3. In aside the finding of the lower court that there was necessity to pierce the veil of corporate existence; and

4. In reversing the decision of the lower court of affirming the same 5

I. Petitioners aver that the transactions entered into between Santiago M. Rivera, as President of Slobec Realty and Development Company (Slobec) and Mode Cervantes, as Vice-President of Bormaheco, such as the Sales Agreement, 6 Chattel Mortgage 7 and the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage, 8are all fraudulent and simulated and should, therefore, be declared nun and void. Such allegation is premised primarily on the fact that contrary to the stipulations agreed upon in the Sales Agreement (Exhibit J), Rivera never made any advance payment, in the alleged amount of P50,000.00, to Bormaheco; that the tractor was received by Rivera only on January 23, 1971 and not in 1970 as stated in the Chattel Mortgage (Exhibit K); and that when

the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage was executed on October 24, 1970, to secure the obligation of ICP under its surety bond, the Sales Agreement and Chattel Mortgage had not as yet been executed, aside from the fact that it was Bormaheco, and not Rivera, which paid the premium for the surety bond issued by ICP

At the outset, it will be noted that petitioners submission under the first assigned error hinges purely on questions of fact. Respondent Court of Appeals made several findings to the effect that the questioned documents are valid and binding upon the parties, that there was no fraud employed by private respondents in the execution thereof, and that, contrary to petitioners' allegation, the evidence on record reveals that petitioners had every intention to be bound by their undertakings in the various transactions had with private respondents. It is a general rule in this jurisdiction that findings of fact of said appellate court are final and conclusive and, thus, binding on this Court in the absence of sufficient and convincing proof, inter alia, that the former acted with grave abuse of discretion. Under the circumstances, we find no compelling reason to deviate from this long-standing jurisprudential pronouncement.

In addition, the alleged failure of Rivera to pay the consideration agreed upon in the Sales Agreement, which clearly constitutes a breach of the contract, cannot be availed of by the guilty party to justify and support an action for the declaration of nullity of the contract. Equity and fair play dictates that one who commits a breach of his contract may not seek refuge under the protective mantle of the law.

The evidence of record, on an overall calibration, does not convince us of the validity of petitioners' contention that the contracts entered into by the parties are either absolutely simulated or downright fraudulent.

There is absolute simulation, which renders the contract null and void, when the parties do not intend to be bound at all by the same. 9 The basic characteristic of this type of simulation of contract is the fact that the apparent contract is not really desired or intended to either produce legal effects or in any way alter the juridical situation of the parties. The subsequent act of Rivera in receiving and making use of the tractor subject matter of the Sales Agreement and Chattel Mortgage, and the simultaneous issuance of a surety bond in favor of Bormaheco, concomitant with the execution of the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage, conduce to the conclusion that petitioners had every intention to be bound by these contracts. The occurrence of these series of transactions between petitioners and private respondents is a strong indication that the parties actually intended, or at least expected, to exact fulfillment of their respective obligations from one another.

Neither will an allegation of fraud prosper in this case where petitioners failed to show that they were induced to enter into a contract through the insidious words and machinations of private respondents without which the former would not have executed such contract. To set aside a document solemnly executed and voluntarily delivered, the proof of fraud must be clear and convincing. 10 We are not persuaded that such quantum of proof exists in the case at bar.

The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP does not per se affect the validity of the bond. Petitioners themselves admit in their present petition that Rivera executed a Deed of Sale with Right of Repurchase of his car in favor of Bormaheco and agreed that a part of the proceeds thereof shall be used to pay the premium for the bond. 11 In effect, Bormaheco accepted the payment of the premium as an agent of ICP The execution of the deed of sale with a right of repurchase in favor of Bormaheco under such circumstances sufficiently establishes the fact that Rivera recognized Bormaheco as an agent of ICP Such payment to the agent of ICP is, therefore, binding on Rivera. He is now estopped from questioning the validity of the suretyship contract.

II. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of persons. The members or stockholders of the corporation will be considered as the corporation, that is, liability will attach directly to the officers and stockholders. 12 The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, 13 or when it is made as a shield to confuse the legitimate issues 14 or where a corporation is the 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. 15

In the case at bar, petitioners seek to pierce the V621 Of corporate entity of Bormaheco, ICP and PM Parts, alleging that these corporations employed fraud in causing the foreclosure and subsequent sale of the real properties belonging to petitioners While we do not discount the possibility of the existence of fraud in the foreclosure proceeding, neither are we inclined to apply the doctrine invoked by petitioners in granting the relief sought. It is our considered opinion that piercing the veil of corporate entity is not the proper remedy in order that the foreclosure proceeding may be declared a nullity under the circumstances obtaining in the legal case at bar.

In the first place, the legal corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable for a corporate debt or obligation. In the instant case, petitioners do not seek to impose a claim against the individual members of the three corporations involved; on the contrary, it is these corporations which desire to enforce an alleged right against petitioners. Assuming that petitioners were indeed defrauded by private respondents in the foreclosure of the mortgaged properties, this fact alone is not, under the circumstances, sufficient to justify the piercing of the corporate fiction, since petitioners do not intend to hold

the officers and/or members of respondent corporations personally liable therefor. Petitioners are merely seeking the declaration of the nullity of the foreclosure sale, which relief may be obtained without having to disregard the aforesaid corporate fiction attaching to respondent corporations. Secondly, petitioners failed to establish by clear and convincing evidence that private respondents were purposely formed and operated, and thereafter transacted with petitioners, with the sole intention of defrauding the latter.

The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a justification for disregarding their separate personalities, 16 absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights.

III. The main issue for resolution is whether there was a valid foreclosure of the mortgaged properties by ICP Petitioners argue that the foreclosure proceedings should be declared null and void for two reasons, viz.: (1) no written notice was furnished by Bormaheco to ICP anent the failure of Slobec in paying its obligation with the former, plus the fact that no receipt was presented to show the amount allegedly paid by ICP to Bormaheco; and (b) at the time of the foreclosure of the mortgage, the liability of ICP under the surety bond had already expired.

Respondent court, in finding for the validity of the foreclosure sale, declared:

Now to the question of whether or not the foreclosure by the ICP of the real estate mortgage was in the exercise of a legal right, We agree with the appellants that the foreclosure proceedings instituted by the ICP was in the exercise of a legal right. First, ICP has in its favor the legal presumption that it had indemnified Bormaheco by reason of Slobec's default in the payment of its obligation under the Sales Agreement, especially because Bormaheco consented to ICPs foreclosure of the mortgage. This presumption is in consonance with pars. R and Q Section 5, Rule 5, * New Rules of Court which provides that it is disputably presumed that private transactions have been fair and regular. likewise, it is disputably presumed that the ordinary course of business has been followed: Second, ICP had the right to proceed at once to the foreclosure of the mortgage as mandated by the provisions of Art. 2071 Civil Code for these further reasons: Slobec, the principal debtor, was admittedly insolvent; Slobec's obligation becomes demandable by reason of the expiration of the period of payment; and its authorization to foreclose the mortgage upon Slobec's default, which resulted in the accrual of ICPS liability to Bormaheco. Third, the Agreement of Counter-Guaranty with Real Estate Mortgage (Exh. 1) expressly grants to ICP the right to foreclose the real estate mortgage in the event of 'non-payment or non-liquidation of the entire indebtedness or fraction thereof upon maturity as stipulated in the contract'. This is a valid and binding stipulation in the absence of showing that it is contrary to law, morals, good customs, public order or public policy. (Art. 1306, New Civil Code). 17

1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP which would have entitled Bormaheco to demand payment from ICP under the suretyship contract.

Surety Bond No. B-1401 0 which was issued by ICP in favor of Bormaheco, wherein ICP and Slobec undertook to guarantee the payment of the balance of P180,000.00 payable in eighteen (18) monthly installments on one unit of Model CAT D-7 Caterpillar Crawler Tractor, pertinently provides in part as follows:

1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES, under this BOND will expire Twelve (I 2) months from date hereof. Furthermore, it is hereby agreed and understood that the INSURANCE CORPORATION OF THE PHILIPPINES will not be liable for any claim not presented in writing to the Corporation within THIRTY (30) DAYS from the expiration of this BOND, and that the obligee hereby waives his right to bring claim or file any action against Surety and after the termination of one (1) year from the time his cause of action accrues. 18

The surety bond was dated October 24, 1970. However, an annotation on the upper part thereof states: "NOTE: EFFECTIVITY DATE OF THIS BOND SHALL BE ON JANUARY 22, 1971." 19

On the other hand, the Sales Agreement dated January 23, 1971 provides that the balance of P180,000.00 shall be payable in eighteen (18) monthly installments. 20 The Promissory Note executed by Slobec on even date in favor of Bormaheco further provides that the obligation shall be payable on or before February 23, 1971 up to July 23, 1972, and that non-payment of any of the installments when due shall make the entire obligation immediately due and demandable. 21

It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly assumed therein. We have repeatedly held that the extent of a surety's liability is determined only by the clause of the contract of suretyship as well as the conditions stated in the bond. It cannot be extended by implication beyond the terms the contract. 22

Fundamental likewise is the rule that, except where required by the provisions of the contract, a demand or notice of default is not required to fix the surety's liability. 23 Hence, where the contract of suretyship stipulates that notice of the principal's default be given to the surety, generally the failure to comply with the condition will prevent recovery from the surety. There are certain instances, however, when failure to comply with the condition will not extinguish the surety's liability, such as a failure to give notice of slight defaults, which are waived by the obligee; or on mere suspicion of possible default; or where, if a default exists, there is excuse or provision in the suretyship contract exempting the surety for liability therefor, or where the surety already has knowledge or is chargeable with knowledge of the default. 24

In the case at bar, the suretyship contract expressly provides that ICP shag not be liable for any claim not filed in writing within thirty (30) days from the expiration of the bond. In its decision dated May 25 1987, the court a quocategorically stated that '(n)o evidence was presented to show that Bormaheco demanded payment from ICP nor was there any action taken by Bormaheco on the bond posted by ICP to guarantee the payment of plaintiffs obligation. There is nothing in the records of the proceedings to show that ICP indemnified Bormaheco for the failure of the plaintiffs to pay their obligation. " 25 The failure, therefore, of Bormaheco to notify ICP in writing about Slobec's supposed default released ICP from liability under its surety bond. Consequently, ICP could not validly foreclose that real estate mortgage executed by petitioners in its favor since it never incurred any liability under the surety bond. It cannot claim exemption from the required written notice since its case does not fall under any of the exceptions hereinbefore enumerated.

Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any documentary evidence. Section 1, Rule 131 of the Rules of Court provides that the burden of evidence lies with the party who asserts an affirmative allegation. Since ICP failed to duly prove the fact of payment, the disputable presumption that private transactions have been fair and regular, as erroneously relied upon by respondent Court of Appeals, finds no application to the case at bar.

2. The liability of a surety is measured by the terms of his contract, and, while he is liable to the full extent thereof, such liability is strictly limited to that assumed by its terms. 26 While ordinarily the termination of a surety's liability is governed by the provisions of the contract of suretyship, where the obligation of a surety is, under the terms of the bond, to terminate at a specified time, his obligation cannot be enlarged by an unauthorized extension thereof.27 This is an exception to the general rule that the obligation of the surety continues for the same period as that of the principal debtor. 28

It is possible that the period of suretyship may be shorter than that of the principal obligation, as where the principal debtor is required to make payment by installments. 29 In the case at bar, the surety bond issued by ICP was to expire on January 22, 1972, twelve (1 2) months from its effectivity date, whereas Slobec's installment payment was to end on July 23, 1972. Therefore, while ICP guaranteed the payment by Slobec of the balance of P180,000.00, such guaranty was valid only for and within twelve (1 2) months from the date of effectivity of the surety bond, or until January 22, 1972. Thereafter, from January 23, 1972 up to July 23, 1972, the liability of Slobec became an unsecured obligation. The default of Slobec during this period cannot be a valid basis for the exercise of the right to foreclose by ICP since its surety contract had already been terminated. Besides, the liability of ICP was extinguished when Bormaheco failed to file a written claim against it within thirty (30) days from the expiration of the surety bond. Consequently, the foreclosure of the mortgage, after the expiration of the surety bond under which ICP as surety has not incurred any liability, should be declared null and void.

3. Lastly, it has been held that where The guarantor holds property of the principal as collateral surety for his personal indemnity, to which he may resort only after payment by himself, until he has paid something as such guarantor neither he nor the creditor can resort to such collaterals. 30

The Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage states that it is being issued for and in consideration of the obligations assumed by the Mortgagee-Surety Company under the terms and conditions of ICP Bond No. 14010 in behalf of Slobec Realty Development Corporation and in favor of Bormaheco, Inc. 31 There is no doubt that said Agreement of Counter-Guaranty is issued for the personal indemnity of ICP Considering that the fact of payment by ICP has never been established, it follows, pursuant to the doctrine above adverted to, that ICP cannot foreclose on the subject properties,

IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it acquired a valid title over the subject properties. The submission is without merit and the conclusion is specious

We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in this case. However, its inapplicability has no bearing on the good faith or bad faith of private respondent PM Parts. It must be noted that Modesto N. Cervantes served as Vice-President of Bormaheco and, later, as President of PM Parts. On this fact alone, it cannot be said that PM Parts had no knowledge of the aforesaid several transactions executed between Bormaheco and petitioners. In addition, Atty. Martin de Guzman, who is the Executive Vice-President of Bormaheco, was also the legal counsel of ICP and PM Parts. These facts were admitted without qualification in the stipulation of facts submitted by the parties before the trial court. Hence, the defense of good faith may not be resorted to by private respondent PM Parts which is charged with knowledge of the true relations existing between Bormaheco, ICP and herein petitioners. Accordingly, the transfer certificates of title issued in its name, as well as the certificate of sale, must be declared null and void since they cannot be considered altogether free of the taint of bad faith.

WHEREFORE, the decision of respondent Court of Appeals is hereby REVERSED and SET ASIDE, and judgment is hereby rendered declaring the following as null and void: (1) Certificate of Sale, dated September 28,1973, executed by the Provincial Sheriff of Quezon in favor of the Insurance Corporation of the Philippines; (2) Transfer Certificates of Title Nos. T-23705, T-23706, T-23707 and T-23708 issued in the name of the Insurance Corporation of the Philippines; (3) the sale by Insurance Corporation of the Philippines in favor of Philippine Machinery Parts Manufacturing Co., Inc. of the four (4) parcels of land covered by the aforesaid certificates of title; and (4) Transfer Certificates of Title Nos. T-24846, T-24847, T-24848 and T24849 subsequently issued by virtue of said sale in the name of the latter corporation.

The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title Nos. T-24846, T-24847, T24848 and T-24849 in the name of Philippine Machinery Parts Manufacturing Co., Inc. and to issue in lieu thereof the corresponding transfer certificates of title in the name of herein petitioners, except Santiago Rivera.

The foregoing dispositions are without prejudice to such other and proper legal remedies as may be available to respondent Bormaheco, Inc. against herein petitioners.

SO ORDERED.

327. MEL V. VELARDE, petitioner, vs. LOPEZ, INC., respondent.

D E C I S I O N

CARPIO-MORALES, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court, which seeks to review the decision[1] and resolution[2] of the Court of Appeals, raises the issue of whether the defendant in a complaint for collection of sum of money can raise a counterclaim for retirement benefits, unpaid salaries and incentives, and other benefits arising from services rendered by him in a subsidiary of the plaintiff corporation.

On January 6, 1997, Eugenio Lopez Jr., then President of respondent Lopez, Inc., as LENDER, and petitioner Mel Velarde, then General Manager of Sky Vision Corporation (Sky Vision), a subsidiary of respondent, as BORROWER, forged a notarized loan agreement covering the amount of ten million (P10,000,000.00) pesos. The agreement expressly provided for, among other things, the manner of payment and the circumstances constituting default which would give the lender the right to declare the loan together with accrued interest immediately due and payable.[3]

Sec. 6 of the agreement detailed what constituted an “event of default” as follows:

Section 6

Each of the following events and occurrences shall constitute an Event of Default (“Event of Default”) under this Agreement:

a) the BORROWER fails to make payment when due and payable of any amount he is obligated to pay under this Agreement;

b) the BORROWER fails to mortgage in favor of the LENDER real property sufficient to cover the amount of the LOAN.[4]

As petitioner failed to pay the installments as they became due, respondent, apparently in answer to a proposal of petitioner respecting the settlement of the loan, advised him by letter dated July 15, 1998 that he may use his retirement benefits in Sky Vision in partial settlement of his loan after he settles his accountabilities to the latter and gives his written instructions to it (Sky Vision).[5]

Petitioner protested the computation indicated in the July 15, 1998 letter, he asserting that the imputed unliquidated advances from Sky Vision had already been properly liquidated.[6]

On August 18, 1998, respondent filed a complaint for collection of sum of money with damages at the Regional Trial Court (RTC) of Pasig City against petitioner, alleging that petitioner violated the above-quoted Section 6 of the loan agreement as he failed to put up the needed collateral for the loan and pay the installments as they became due, and that despite his receipt of letters of demand dated December 1, 1997[7]and January 13, 1998,[8] he refused to pay.

In his answer, petitioner alleged that the loan agreement did not reflect his true agreement with respondent, it being merely a “cover document” to evidence the reward to him of ten million pesos (P10,000,000.00) for his loyalty and excellent performance as General Manager of Sky Vision and that the payment, if any was expected, was in the form of continued service; and that it was when he was compelled by respondent to retire that the form of payment agreed upon was rendered impossible, prompting the late Eugenio Lopez, Jr. to agree that his retirement benefits from Sky Vision would instead be applied to the loan.[9]

By way of compulsory counterclaim, petitioner claimed that he was entitled to retirement benefits from Sky Vision in the amount of P98,280,000.00, unpaid salaries in the amount of P2,740,000.00, unpaid incentives in the amount of P500,000, unpaid share from the “netincome of Plaintiff corporation,” equity in his service vehicle in the amount of P1,500,000, reasonable return on the stock ownership plan for services rendered as General Manager, and moral damages and attorney’s fees.[10]

Petitioner thus prayed for the dismissal of the complaint and the award of the following sums of money in the form of compulsory counterclaims:

1. P103,020,000.00, PLUS the value of Defendant’s stock options and unpaid share from the net income with Plaintiff corporation (to be computed) as actual damages;

2. P15,000,000.00, as moral damages; and

3. P1,500,000.00, as attorney’s fees plus appearance fees and the costs of suit.[11]

Respondent filed a manifestation and a motion to dismiss the counterclaim for want of jurisdiction, which drew petitioner to assert in his comment and opposition thereto that the veil of corporate fiction must be pierced to hold respondent liable for his counterclaims.

By Order of January 3, 2000, Branch 155 of the RTC of Pasig denied respondent’s motion to dismiss the counterclaim on the following premises: A counterclaim being essentially a complaint, the principle that a motion to dismiss hypothetically admits the

allegations of the complaint is applicable; the counterclaim is compulsory, hence, within its jurisdiction; and there is identity of interest between respondent and Sky Vision to merit the piercing of the veil of corporate fiction.[12]

Respondent’s motion for reconsideration of the trial court’s Order of January 3, 2000 having been denied, it filed a Petition for Certiorari at the Court of Appeals which held that respondent is not the real party-in-interest on the counterclaim and that there was failure to show the presence of any of the circumstances to justify the application of the principle of “piercing the veil of corporate fiction.” The Orders of the trial court were thus set aside and the counterclaims of petitioner were accordingly dismissed.[13]

The Court of Appeals having denied petitioner’s motion for reconsideration, the instant Petition for Review was filed which assigns the following errors:

I.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE RTC BRANCH 155 ALLEGEDLY ACTED WITH GRAVE ABUSE OF DISCRETION IN ISSUING THE ORDERS DATED JANUARY 3, 2000 AND OCTOBER 9, 2000 CONSIDERING THAT THE GROUNDS RAISED BY RESPONDENT LOPEZ, INC. IN ITS PETITION FOR CERTIORARI INVOLVED MERE ERRORS OF JUDGMENT AND NOT ERRORS OF JURISDICTION.

II.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT RESPONDENT LOPEZ, INC. IS NOT THE REAL PARTY-IN-INTEREST AS PARTY-DEFENDANT ON THE COUNTERCLAIMS OF PETITIONER VELARDE CONSIDERING THAT THE FILING OF RESPONDENT LOPEZ, INC.’S MANIFESTATION AND MOTION TO DISMISS COUNTERCLAIM HAD THE EFFECT OF HYPOTHETICALLY ADMITTING THE TRUTH OF THE MATERIAL AVERMENTS OF THE ANSWER, WHICH MATERIAL AVERMENTS SUFFICIENTLY ALLEGED THAT RESPONDENT LOPEZ, INC. COMMITTED ACTS WHICH SHOW THAT ITS SUBSIDIARY, SKY VISION, WAS A MERE BUSINESS CONDUIT OR ALTER EGO OF THE FORMER, THUS, JUSTIFYING THE PIERCING OF THE VEIL OF CORPORATE FICTION.

III.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE COUNTERCLAIMS OF PETITIONER VELARDE ARE NOT COMPULSORY.[14]

While petitioner correctly invokes the ruling in Atienza v. Court of Appeals[15] to postulate that not every denial of a motion to dismiss can be corrected by certiorari under Rule 65 and that, as a general rule, the remedy from such denial is to appeal in due course after a decision has been rendered on the merits, there are exceptions thereto, as when the court in denying the motion to dismiss acted without or in excess of jurisdiction or with patent grave abuse of discretion,[16] or when the assailed interlocutory order is patently erroneous and the remedy of appeal would not afford adequate and expeditious relief,[17] or when the ground for the motion to dismiss is improper venue,[18] res judicata,[19] or lack of jurisdiction[20] as in the case at bar.

Early on, it bears noting, when the case was still with the trial court, respondent filed a motion to dismiss the counterclaims to assail itsjurisdiction, respondent asserting that the counterclaims, being money claims arising from a labor relationship, are within the exclusive competence of the National Labor Relations Commission.[21] On the other hand, petitioner alleged that due to the tortuous manner he was coerced into retirement, it is the Regional Trial Courts (RTCs) and not the National Labor Relations Commission which has exclusive jurisdiction over his counterclaims.

In determining which has jurisdiction over a case, the averments of the complaint/counterclaim, taken as a whole, are considered.[22] In his counterclaim, petitioner alleged that:

x x x

29. It was only on July 15, 1998 that Lopez, Inc. submitted a computation of the retirement benefit due to the Defendant. (Copy attached as ANNEX 4). Immediately after receiving this computation, Defendant immediately informed Plaintiff of the erroneous figure used as salary in the computation of benefits. This was done in a telephone conversation with a certain Atty. Amina Amado of Lopez, Inc.

29.1 The Defendant also informed her that the so called “unliquidated advances amounting to P422,922.87 since 1995” had all been properly liquidated as reflected in all the reports of the company. The Defendant reminded Atty. Amado of unpaid incentives and salaries for 1997.

29.2 Defendant likewise informed Plaintiff that the one month for every year of service as a basis for the computation of the Defendant’s retirement benefit is erroneous. This computation is even less than what the rank and file employees get. That CEO’s, COO’s and senior executives of the level of ABS-CBN, Sky Vision, Benpres, Meralco and other Lopez companies had and have received a lot more than the regular rank and file employees. All these retired executives and records can be summoned for verification.

29.3 The circumstances of the retirement of the Defendant are not those for a simple and ordinary rank and file employee. Mr. Lopez, III admitted that he and the Defendant have had problems which accumulated through time and that they chose to part ways in a manner that was dignified for both of them. Treating the Defendant as a rank and file employee is hardly dignified not just to the Defendant but also to the Lopezes whose existing executives serving them will draw lessons from the Defendant’s experience.

29.4 These circumstances hardly reflect a simple retirement. The Defendant, who is known in the local and international media community, is hardly considered a rank and file employee. Defendant was a stockholder of the Corporation and a duly-elected member of the Board of Directors. Certain government officials can attest to the sensitivity of issues and matters the Defendant had represented for the Lopezes that are hardly issues handled by a simple rank and file employee. Respectable individuals in government and industry are willing to testify to this regard.x x x[23] (Underscoring and italics supplied).

At the heart of petitioner’s counterclaim is his alleged forced retirement which is also the basis of his claim for, among other things, unpaid salaries, unpaid incentives, reasonable return on the stock ownership plan, and other benefits from a subsidiary company of the respondent.

Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the Securities Regulation Code) applies to a corporate officer’s dismissal. For a corporate officer’s dismissal is always a corporate act and/or an intra-corporate controversy and that its nature is not altered by the reason or wisdom which the Board of Directors may have in taking such action.[24]

With regard to petitioner’s claim for unpaid salaries, unpaid share in net income, reasonable return on the stock ownership plan and other benefits for services rendered to Sky Vision, jurisdiction thereon pertains to the Securities Exchange Commission even if the complaint by a corporate officer includes money claims since such claims are actually part of the prerequisite of his position and, therefore, interlinked with his relations with the corporation.[25] The question of remuneration involving a person who is not a mere employee but a stockholder and officer of the corporation is not a simple labor problem but a matter that comes within the area of corporate affairs and management, and is in fact a corporate controversy in contemplation of the Corporation Code.[26]

While petitioner’s counterclaims were filed on December 1, 1998, the second challenged order of the trial court denying respondent’s motion for reconsideration of the denial of its motion to dismiss was issued on October 9, 2000 at which time P.D. 902-A had been amended by R.A. 8799 (approved on July 19, 2000) which mandated the transfer of jurisdiction over intra-corporate controversies, subject of the counterclaims, to RTCs.

But even if the subject matter of the counterclaims is now cognizable by RTCs, the filing thereof against respondent is improper, it not being the real party-in-interest, for it is petitioner’s employer Sky Vision, respondent’s subsidiary.

It cannot be gainsaid that a subsidiary has an independent and separate juridical personality, distinct from that of its parent company, hence, any claim or suit against the latter does not bind the former and vice versa.

Petitioner argues nevertheless that jurisdiction over the subsidiary is justified by piercing the veil of corporate fiction. Piercing the veil of corporate fiction is warranted, however, only in cases when the separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the case of two corporations, the law will regard the corporations as merged into one.[27] The rationale behind piercing a corporation’s identity is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities.[28]

In applying the doctrine of piercing the veil of corporate fiction, the following requisites must be established: (1) control, not merely majority or complete stock control; (2) such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in contravention of plaintiff’s legal rights; and (3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.[29]

Nowhere, however, in the pleadings and other records of the case can it be gathered that respondent has complete control over Sky Vision, not only of finances but of policy and business practice in respect to the transaction attacked, so that Sky Vision had at the time of the transaction no separate mind, will or existence of its own. The existence of interlocking directors, corporate officers and shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations.

This Court is thus not convinced that the real party-in-interest with regard to the counterclaim for damages arising from the alleged tortuous manner by which petitioner was forced to retire as General Manager of Sky Vision is respondent.

Petitioner muddles the issues by arguing that respondent fraudulently took advantage of the control over the matter of compensation and benefits of an employee of Sky Vision to deceive petitioner into signing the loan agreement on the misleading assurance that it was merely for the purpose of documenting the reward to him of ten million pesos. This argument does not persuade. Petitioner, being a lawyer, is presumed to know the legal and binding effects of loan agreements.

It bears emphasis that Sky Vision’s involvement in the transaction subject of the case sprang only after a proposal was apparently proffered by petitioner that his retirement benefits from Sky Vision be used in partial payment of his loan from respondent as

gathered from the July 15, 1998 letter[30] of Rommel Duran, Vice-President and General Manager of respondent, to petitioner reading:

Dear Mr. Velarde:

As requested, we have made computations on the outstanding amount of your loan with Lopez, Inc. should your retirement benefits from Sky Vision Corporation/Central CATV, Inc. ““Sky/Central”) be applied to the partial payment of your loan. Please note that in order to effect the application of your retirement benefits to the partial payment of your loan, you will need to give Sky/Central written instructions on the same in the soonest possible time.

As you will see in the attached computation, the amount of P4,077,077.13 will be applied to the payment of your loan to retroact on January 1, 1998. The amount of P422,922.87, representing unliquidated advances made by Sky/Central to you (see attached listing), has been deducted from your retirement pay of P4.5 million. Should you be able to liquidate the advances as requested by Sky/Central, the said amount will be applied to the partial payment of your loan and we shall adjust the amount of principal and interest due from you accordingly. After the application of the amount of P4,077,077.13 to the partial payment of your loan, the amount of P7,585,912.86 will be immediately due and demandable. The amount of P7,585,912.86 represents the outstanding principal and interest due as of July 15, 1998.

Without the application of your retirement benefits to the partial payment of your loan, the amount of P11,850,000.00 is due as of July 15, 1998. We reiterate our demand for full payment of your outstanding obligation immediately. (Underscoring supplied)

As for the trial court’s ruling that the agreement to set-off is an amendment of the loan agreement resulting to an identity of interest between respondent and Sky Vision and, therefore, sufficient to pierce the veil of corporate fiction, it is untenable. The abovequoted letter is clear that, to effect a set-off, it is a condition sine qua non that the approval thereof by “Sky/Central” must be obtained, and that petitioner liquidate his advances from Sky Vision. These conditions hardly manifest that respondent possessed that degree of control over Sky Vision as to make the latter its mere instrumentality, agency or adjunct.

WHEREFORE, the instant petition for review on certiorari is hereby DENIED.

SO ORDERED.

331. VILLA REY TRANSIT, INC., plaintiff-appellant, vs.EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION CO., INC. and PUBLIC SERVICE COMMISSION,defendants. EUSEBIO E. FERRER and PANGASINAN TRANSPORTATION CO., INC., defendants-appellants.

PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant, vs.JOSE M. VILLARAMA, third-party defendant-appellee.

Chuidian Law Office for plaintiff-appellant.Bengzon, Zarraga & Villegas for defendant-appellant / third-party plaintiff-appellant.Laurea & Pison for third-party defendant-appellee.

ANGELES, J.:

This is a tri-party appeal from the decision of the Court of First Instance of Manila, Civil Case No. 41845, declaring null and void the sheriff's sale of two certificates of public convenience in favor of defendant Eusebio E. Ferrer and the subsequent sale thereof by the latter to defendant Pangasinan Transportation Co., Inc.; declaring the plaintiff Villa Rey Transit, Inc., to be the lawful owner of the said certificates of public convenience; and ordering the private defendants, jointly and severally, to pay to the plaintiff, the sum of P5,000.00 as and for attorney's fees. The case against the PSC was dismissed.

The rather ramified circumstances of the instant case can best be understood by a chronological narration of the essential facts, to wit:

Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit, pursuant to certificates of public convenience granted him by the Public Service Commission (PSC, for short) in Cases Nos. 44213 and 104651, which authorized him to operate a total of thirty-two (32) units on various routes or lines from Pangasinan to Manila, and vice-versa. On January 8, 1959, he sold the aforementioned two certificates of public convenience to the Pangasinan Transportation Company, Inc. (otherwise known as Pantranco), for P350,000.00 with the condition, among others, that the seller (Villarama) "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer."

Barely three months thereafter, or on March 6, 1959: a corporation called Villa Rey Transit, Inc. (which shall be referred to hereafter as the Corporation) was organized with a capital stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each; P200,000.00 was the subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was one of the incorporators, and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and sister-in-law of Jose M. Villarama; of the subscribed capital stock, P105,000.00 was paid to the treasurer of the corporation, who was Natividad R. Villarama.

In less than a month after its registration with the Securities and Exchange Commission (March 10, 1959), the Corporation, on April 7, 1959, bought five certificates of public convenience, forty-nine buses, tools and equipment from one Valentin Fernando, for the sum of P249,000.00, of which P100,000.00 was paid upon the signing of the contract; P50,000.00 was payable upon the final approval of the sale by the PSC; P49,500.00 one year after the final approval of the sale; and the balance of P50,000.00 "shall be paid by the BUYER to the different suppliers of the SELLER."

The very same day that the aforementioned contract of sale was executed, the parties thereto immediately applied with the PSC for its approval, with a prayer for the issuance of a provisional authority in favor of the vendee Corporation to operate the service therein involved.1 On May 19, 1959, the PSC granted the provisional permit prayed for, upon the condition that "it may be modified or revoked by the Commission at any time, shall be subject to whatever action that may be taken on the basic application and shall be valid only during the pendency of said application." Before the PSC could take final action on said application for approval of sale, however, the Sheriff of Manila, on July 7, 1959, levied on two of the five certificates of public convenience involved therein, namely, those issued under PSC cases Nos. 59494 and 63780, pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil Case No. 13798, in favor of Eusebio Ferrer, plaintiff, judgment creditor, against Valentin Fernando, defendant, judgment debtor. The Sheriff made and entered the levy in the records of the PSC. On July 16, 1959, a public sale was conducted by the Sheriff of the said two certificates of public convenience. Ferrer was the highest bidder, and a certificate of sale was issued in his name.

Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approval their corresponding contract of sale to the PSC.2 Pantranco therein prayed that it be authorized provisionally to operate the service involved in the said two certificates.

The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case No. 124057, and that of Ferrer and Pantranco, Case No. 126278, were scheduled for a joint hearing. In the meantime, to wit, on July 22, 1959, the PSC issued an order disposing that during the pendency of the cases and before a final resolution on the aforesaid applications, the Pantranco shall be the one to operate provisionally the service under the two certificates embraced in the contract between Ferrer and Pantranco. The Corporation took issue with this particular ruling of the PSC and elevated the matter to the Supreme Court,3 which decreed, after

deliberation, that until the issue on the ownership of the disputed certificates shall have been finally settled by the proper court, the Corporation should be the one to operate the lines provisionally.

On November 4, 1959, the Corporation filed in the Court of First Instance of Manila, a complaint for the annulment of the sheriff's sale of the aforesaid two certificates of public convenience (PSC Cases Nos. 59494 and 63780) in favor of the defendant Ferrer, and the subsequent sale thereof by the latter to Pantranco, against Ferrer, Pantranco and the PSC. The plaintiff Corporation prayed therein that all the orders of the PSC relative to the parties' dispute over the said certificates be annulled.

In separate answers, the defendants Ferrer and Pantranco averred that the plaintiff Corporation had no valid title to the certificates in question because the contract pursuant to which it acquired them from Fernando was subject to a suspensive condition — the approval of the PSC — which has not yet been fulfilled, and, therefore, the Sheriff's levy and the consequent sale at public auction of the certificates referred to, as well as the sale of the same by Ferrer to Pantranco, were valid and regular, and vested unto Pantranco, a superior right thereto.

Pantranco, on its part, filed a third-party complaint against Jose M. Villarama, alleging that Villarama and the Corporation, are one and the same; that Villarama and/or the Corporation was disqualified from operating the two certificates in question by virtue of the aforementioned agreement between said Villarama and Pantranco, which stipulated that Villarama "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer."

Upon the joinder of the issues in both the complaint and third-party complaint, the case was tried, and thereafter decision was rendered in the terms, as above stated.

As stated at the beginning, all the parties involved have appealed from the decision. They submitted a joint record on appeal.

Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey Transit, Inc. (Corporation) is a distinct and separate entity from Jose M. Villarama; that the restriction clause in the contract of January 8, 1959 between Pantranco and Villarama is null and void; that the Sheriff's sale of July 16, 1959, is likewise null and void; and the failure to award damages in its favor and against Villarama.

Ferrer, for his part, challenges the decision insofar as it holds that the sheriff's sale is null and void; and the sale of the two certificates in question by Valentin Fernando to the Corporation, is valid. He also assails the award of P5,000.00 as attorney's fees in favor of the Corporation, and the failure to award moral damages to him as prayed for in his counterclaim.

The Corporation, on the other hand, prays for a review of that portion of the decision awarding only P5,000.00 as attorney's fees, and insisting that it is entitled to an award of P100,000.00 by way of exemplary damages.

After a careful study of the facts obtaining in the case, the vital issues to be resolved are: (1) Does the stipulation between Villarama and Pantranco, as contained in the deed of sale, that the former "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER," apply to new lines only or does it include existing lines?; (2) Assuming that said stipulation covers all kinds of lines, is such stipulation valid and enforceable?; (3) In the affirmative, that said stipulation is valid, did it bind the Corporation?

For convenience, We propose to discuss the foregoing issues by starting with the last proposition.

The evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the Corporation, alleging that he did not become such, because he did not have sufficient funds to invest, his wife, however, was an incorporator with the least subscribed number of shares, and was elected treasurer of the Corporation. The finances of the Corporation which, under all concepts in the law, are supposed to be under the control and administration of the treasurer keeping them as trust fund for the Corporation, were, nonetheless, manipulated and disbursed as if they were the private funds of Villarama, in such a way and extent that Villarama appeared to be the actual owner-treasurer of the business without regard to the rights of the stockholders. The following testimony of Villarama,4 together with the other evidence on record, attests to that effect:

Q. Doctor, I want to go back again to the incorporation of the Villa Rey Transit, Inc. You heard the testimony presented here by the bank regarding the initial opening deposit of ONE HUNDRED FIVE THOUSAND PESOS, of which amount Eighty-Five Thousand Pesos was a check drawn by yourself personally. In the direct examination you told the Court that the reason you drew a check for Eighty-Five Thousand Pesos was because you and your wife, or your wife, had spent the money of the stockholders given to her for incorporation. Will you please tell the Honorable Court if you knew at the time your wife was spending the money to pay debts, you personally knew she was spending the money of the incorporators?

A. You know my money and my wife's money are one. We never talk about those things.

Q. Doctor, your answer then is that since your money and your wife's money are one money and you did not know when your wife was paying debts with the incorporator's money?

A. Because sometimes she uses my money, and sometimes the money given to her she gives to me and I deposit the money.

Q. Actually, aside from your wife, you were also the custodian of some of the incorporators here, in the beginning?

A. Not necessarily, they give to my wife and when my wife hands to me I did not know it belonged to the incorporators.

Q. It supposes then your wife gives you some of the money received by her in her capacity as treasurer of the corporation?

A. Maybe.

Q. What did you do with the money, deposit in a regular account?

A. Deposit in my account.

Q. Of all the money given to your wife, she did not receive any check?

A. I do not remember.

Q. Is it usual for you, Doctor, to be given Fifty Thousand Pesos without even asking what is this?

xxx xxx xxx

JUDGE: Reform the question.

Q. The subscription of your brother-in-law, Mr. Reyes, is Fifty-Two Thousand Pesos, did your wife give you Fifty-two Thousand Pesos?

A. I have testified before that sometimes my wife gives me money and I do not know exactly for what.

The evidence further shows that the initial cash capitalization of the corporation of P105,000.00 was mostly financed by Villarama. Of the P105,000.00 deposited in the First National City Bank of New York, representing the initial paid-up capital of the Corporation, P85,000.00 was covered by Villarama's personal check. The deposit slip for the said amount of P105,000.00 was admitted in evidence as Exh. 23, which shows on its face that P20,000.00 was paid in cash and P85,000.00 thereof was covered by Check No. F-50271 of the First National City Bank of New York. The testimonies of Alfonso Sancho5 and Joaquin Amansec,6 both employees of said bank, have proved that the drawer of the check was Jose Villarama himself.

Another witness, Celso Rivera, accountant of the Corporation, testified that while in the books of the corporation there appears an entry that the treasurer received P95,000.00 as second installment of the paid-in subscriptions, and, subsequently, also P100,000.00 as the first installment of the offer for second subscriptions worth P200,000.00 from the original subscribers, yet Villarama directed him (Rivera) to make vouchers liquidating the sums.7 Thus, it was made to appear that the P95,000.00 was delivered to Villarama in payment for equipment purchased from him, and the P100,000.00 was loaned as advances to the stockholders. The said accountant, however, testified that he was not aware of any amount of money that had actually passed hands among the parties involved,8 and actually the only money of the corporation was the P105,000.00 covered by the deposit slip Exh. 23, of which as mentioned above, P85,000.00 was paid by Villarama's personal check.

Further, the evidence shows that when the Corporation was in its initial months of operation, Villarama purchased and paid with his personal checks Ford trucks for the Corporation. Exhibits 20 and 21 disclose that the said purchases were paid by Philippine Bank of Commerce Checks Nos. 992618-B and 993621-B, respectively. These checks have been sufficiently established by Fausto Abad, Assistant Accountant of Manila Trading & Supply Co., from which the trucks were purchased9 and Aristedes Solano, an employee of the Philippine Bank of Commerce,10as having been drawn by Villarama.

Exhibits 6 to 19 and Exh. 22, which are photostatic copies of ledger entries and vouchers showing that Villarama had co-mingled his personal funds and transactions with those made in the name of the Corporation, are very illuminating evidence. Villarama has assailed the admissibility of these exhibits, contending that no evidentiary value whatsoever should be given to them since "they were merely photostatic copies of the originals, the best evidence being the originals themselves." According to him, at the time Pantranco offered the said exhibits, it was the most likely possessor of the originals thereof because they were stolen from the files of the Corporation and only Pantranco was able to produce the alleged photostat copies thereof.

Section 5 of Rule 130 of the Rules of Court provides for the requisites for the admissibility of secondary evidence when the original is in the custody of the adverse party, thus: (1) opponent's possession of the original; (2) reasonable notice to opponent to produce the original; (3) satisfactory proof of its existence; and (4) failure or refusal of opponent to produce the original in court.11 Villarama has practically admitted the second and fourth requisites.12 As to the third, he admitted their previous existence in the files of the Corporation and also that he had seen some of them.13 Regarding the first element, Villarama's theory is that since even at the time of the issuance of the subpoena duces tecum, the originals were already missing, therefore, the Corporation was no longer in possession of the same. However, it is not necessary for a party seeking to introduce secondary evidence to show that the original is in the actual possession of his adversary. It is enough that the circumstances are such as to indicate that the writing is in his possession or under his control. Neither is it required that the party entitled to the custody of the instrument should, on being notified to produce it, admit having it in his possession.14Hence, secondary evidence is admissible where he denies having it in his

possession. The party calling for such evidence may introduce a copy thereof as in the case of loss. For, among the exceptions to the best evidence rule is "when the original has been lost, destroyed, or cannot be produced in court."15 The originals of the vouchers in question must be deemed to have been lost, as even the Corporation admits such loss. Viewed upon this light, there can be no doubt as to the admissibility in evidence of Exhibits 6 to 19 and 22.

Taking account of the foregoing evidence, together with Celso Rivera's testimony,16 it would appear that: Villarama supplied the organization expenses and the assets of the Corporation, such as trucks and equipment;17there was no actual payment by the original subscribers of the amounts of P95,000.00 and P100,000.00 as appearing in the books;18 Villarama made use of the money of the Corporation and deposited them to his private accounts;19 and the Corporation paid his personal accounts.20

Villarama himself admitted that he mingled the corporate funds with his own money.21 He also admitted that gasoline purchases of the Corporation were made in his name22 because "he had existing account with Stanvac which was properly secured and he wanted the Corporation to benefit from the rebates that he received."23

The foregoing circumstances are strong persuasive evidence showing that Villarama has been too much involved in the affairs of the Corporation to altogether negative the claim that he was only a part-time general manager. They show beyond doubt that the Corporation is his alter ego.

It is significant that not a single one of the acts enumerated above as proof of Villarama's oneness with the Corporation has been denied by him. On the contrary, he has admitted them with offered excuses.

Villarama has admitted, for instance, having paid P85,000.00 of the initial capital of the Corporation with the lame excuse that "his wife had requested him to reimburse the amount entrusted to her by the incorporators and which she had used to pay the obligations of Dr. Villarama (her husband) incurred while he was still the owner of Villa Rey Transit, a single proprietorship." But with his admission that he had received P350,000.00 from Pantranco for the sale of the two certificates and one unit,24 it becomes difficult to accept Villarama's explanation that he and his wife, after consultation,25 spent the money of their relatives (the stockholders) when they were supposed to have their own money. Even if Pantranco paid the P350,000.00 in check to him, as claimed, it could have been easy for Villarama to have deposited said check in his account and issued his own check to pay his obligations. And there is no evidence adduced that the said amount of P350,000.00 was all spent or was insufficient to settle his prior obligations in his business, and in the light of the stipulation in the deed of sale between Villarama and Pantranco that P50,000.00 of the selling price was earmarked for the payments of accounts due to his creditors, the excuse appears unbelievable.

On his having paid for purchases by the Corporation of trucks from the Manila Trading & Supply Co. with his personal checks, his reason was that he was only sharing with the Corporation his credit with some companies. And his main reason for mingling his funds with that of the Corporation and for the latter's paying his private bills is that it would be more convenient that he kept the money to be used in paying the registration fees on time, and since he had loaned money to the Corporation, this would be set off by the latter's paying his bills. Villarama admitted, however, that the corporate funds in his possession were not only for registration fees but for other important obligations which were not specified.26

Indeed, while Villarama was not the Treasurer of the Corporation but was, allegedly, only a part-time manager,27he admitted not only having held the corporate money but that he advanced and lent funds for the Corporation, and yet there was no Board Resolution allowing it.28

Villarama's explanation on the matter of his involvement with the corporate affairs of the Corporation only renders more credible Pantranco's claim that his control over the corporation, especially in the management and disposition of its funds, was so extensive and intimate that it is impossible to segregate and identify which money belonged to whom. The interference of Villarama in the complex affairs of the corporation, and particularly its finances, are much too inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks to separate personal responsibilities from corporate undertakings. It is the very essence of incorporation that the acts and conduct of the corporation be carried out in its own corporate name because it has its own personality.

The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases which are within reason and the law.29 When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime,30 the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals.

Upon the foregoing considerations, We are of the opinion, and so hold, that the preponderance of evidence have shown that the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and binding against the said Corporation. For the rule is that a seller or promisor may not make use of a corporate entity as a means of evading the obligation of his covenant.31 Where the Corporation is substantially the alter ego of the covenantor to the restrictive agreement, it can be enjoined from competing with the covenantee.32

The Corporation contends that even on the supposition that Villa Rey Transit, Inc. and Villarama are one and the same, the restrictive clause in the contract between Villarama and Pantranco does not include the purchase of existing lines but it only applies to application for the new lines. The clause in dispute reads thus:

(4) The SELLER shall not, for a period of ten (10) years from the date of this sale apply for any TPU service identical or competing with the BUYER. (Emphasis supplied)

As We read the disputed clause, it is evident from the context thereof that the intention of the parties was to eliminate the seller as a competitor of the buyer for ten years along the lines of operation covered by the certificates of public convenience subject of their transaction. The word "apply" as broadly used has for frame of reference, a service by the seller on lines or routes that would compete with the buyer along the routes acquired by the latter. In this jurisdiction, prior authorization is needed before anyone can operate a TPU service,33whether the service consists in a new line or an old one acquired from a previous operator. The clear intention of the parties was to prevent the seller from conducting any competitive line for 10 years since, anyway, he has bound himself not to apply for authorization to operate along such lines for the duration of such period.34

If the prohibition is to be applied only to the acquisition of new certificates of public convenience thru an application with the Public Service Commission, this would, in effect, allow the seller just the same to compete with the buyer as long as his authority to operate is only acquired thru transfer or sale from a previous operator, thus defeating the intention of the parties. For what would prevent the seller, under the circumstances, from having a representative or dummy apply in the latter's name and then later on transferring the same by sale to the seller? Since stipulations in a contract is the law between the contracting parties,

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. 19, New Civil Code.)

We are not impressed of Villarama's contention that the re-wording of the two previous drafts of the contract of sale between Villarama and Pantranco is significant in that as it now appears, the parties intended to effect the least restriction. We are persuaded, after an examination of the supposed drafts, that the scope of the final stipulation, while not as long and prolix as those in the drafts, is just as broad and comprehensive. At most, it can be said that the re-wording was done merely for brevity and simplicity.

The evident intention behind the restriction was to eliminate the sellers as a competitor, and this must be, considering such factors as the good will35 that the seller had already gained from the riding public and his adeptness and proficiency in the trade. On this matter, Corbin, an authority on Contracts has this to say.36

When one buys the business of another as a going concern, he usually wishes to keep it going; he wishes to get the location, the building, the stock in trade, and the customers. He wishes to step into the seller's shoes and to enjoy the same business relations with other men. He is willing to pay much more if he can get the "good will" of the business, meaning by this the good will of the customers, that they may continue to tread the old footpath to his door and maintain with him the business relations enjoyed by the seller.

... In order to be well assured of this, he obtains and pays for the seller's promise not to reopen business in competition with the business sold.

As to whether or not such a stipulation in restraint of trade is valid, our jurisprudence on the matter37says:

The law concerning contracts which tend to restrain business or trade has gone through a long series of changes from time to time with the changing condition of trade and commerce. With trifling exceptions, said changes have been a continuous development of a general rule. The early cases show plainly a disposition to avoid and annul all contract which prohibited or restrained any one from using a lawful trade "at any time or at any place," as being against the benefit of the state. Later, however, the rule became well established that if the restraint was limited to "a certain time" and within "a certain place," such contracts were valid and not "against the benefit of the state." Later cases, and we think the rule is now well established, have held that a contract in restraint of trade is valid providing there is a limitation upon either time or place. A contract, however, which restrains a man from entering into business or trade without either a limitation as to time or place, will be held invalid.

The public welfare of course must always be considered and if it be not involved and the restraint upon one party is not greater than protection to the other requires, contracts like the one we are discussing will be sustained. The general tendency, we believe, of modern authority, is to make the test whether the restraint is reasonably necessary for the protection of the contracting parties. If the contract is reasonably necessary to protect the interest of the parties, it will be upheld. (Emphasis supplied.)

Analyzing the characteristics of the questioned stipulation, We find that although it is in the nature of an agreement suppressing competition, it is, however, merely ancillary or incidental to the main agreement which is that of sale. The suppression or restraint is only partial or limited: first, in scope, it refers only to application for TPU by the seller in competition with the lines sold to the buyer; second, in duration, it is only for ten (10) years; and third, with respect to situs or territory, the restraint is only along the lines covered by the certificates sold. In view of these limitations, coupled with the consideration of P350,000.00 for just two certificates of public convenience, and considering, furthermore, that the disputed stipulation is only incidental to a main agreement, the same

is reasonable and it is not harmful nor obnoxious to public service.38 It does not appear that the ultimate result of the clause or stipulation would be to leave solely to Pantranco the right to operate along the lines in question, thereby establishing monopoly or predominance approximating thereto. We believe the main purpose of the restraint was to protect for a limited time the business of the buyer.

Indeed, the evils of monopoly are farfetched here. There can be no danger of price controls or deterioration of the service because of the close supervision of the Public Service Commission.39 This Court had stated long ago,40that "when one devotes his property to a use in which the public has an interest, he virtually grants to the public an interest in that use and submits it to such public use under reasonable rules and regulations to be fixed by the Public Utility Commission."

Regarding that aspect of the clause that it is merely ancillary or incidental to a lawful agreement, the underlying reason sustaining its validity is well explained in 36 Am. Jur. 537-539, to wit:

... Numerous authorities hold that a covenant which is incidental to the sale and transfer of a trade or business, and which purports to bind the seller not to engage in the same business in competition with the purchaser, is lawful and enforceable. While such covenants are designed to prevent competition on the part of the seller, it is ordinarily neither their purpose nor effect to stifle competition generally in the locality, nor to prevent it at all in a way or to an extent injurious to the public. The business in the hands of the purchaser is carried on just as it was in the hands of the seller; the former merely takes the place of the latter; the commodities of the trade are as open to the public as they were before; the same competition exists as existed before; there is the same employment furnished to others after as before; the profits of the business go as they did before to swell the sum of public wealth; the public has the same opportunities of purchasing, if it is a mercantile business; and production is not lessened if it is a manufacturing plant.

The reliance by the lower court on tile case of Red Line Transportation Co. v. Bachrach41 and finding that the stipulation is illegal and void seems misplaced. In the said Red Line case, the agreement therein sought to be enforced was virtually a division of territory between two operators, each company imposing upon itself an obligation not to operate in any territory covered by the routes of the other. Restraints of this type, among common carriers have always been covered by the general rule invalidating agreements in restraint of trade. 42

Neither are the other cases relied upon by the plaintiff-appellee applicable to the instant case. In Pampanga Bus Co., Inc. v. Enriquez,43the undertaking of the applicant therein not to apply for the lifting of restrictions imposed on his certificates of public convenience was not an ancillary or incidental agreement. The restraint was the principal objective. On the other hand, in Red Line Transportation Co., Inc. v. Gonzaga,44 the restraint there in question not to ask for extension of the line, or trips, or increase of equipment — was not an agreement between the parties but a condition imposed in the certificate of public convenience itself.

Upon the foregoing considerations, Our conclusion is that the stipulation prohibiting Villarama for a period of 10 years to "apply" for TPU service along the lines covered by the certificates of public convenience sold by him to Pantranco is valid and reasonable. Having arrived at this conclusion, and considering that the preponderance of the evidence have shown that Villa Rey Transit, Inc. is itself the alter ego of Villarama, We hold, as prayed for in Pantranco's third party complaint, that the said Corporation should, until the expiration of the 1-year period abovementioned, be enjoined from operating the line subject of the prohibition.

To avoid any misunderstanding, it is here to be emphasized that the 10-year prohibition upon Villarama is not against his application for, or purchase of, certificates of public convenience, but merely the operation of TPU along the lines covered by the certificates sold by him to Pantranco. Consequently, the sale between Fernando and the Corporation is valid, such that the rightful ownership of the disputed certificates still belongs to the plaintiff being the prior purchaser in good faith and for value thereof. In view of the ancient rule of caveat emptor prevailing in this jurisdiction, what was acquired by Ferrer in the sheriff's sale was only the right which Fernando, judgment debtor, had in the certificates of public convenience on the day of the sale.45

Accordingly, by the "Notice of Levy Upon Personalty" the Commissioner of Public Service was notified that "by virtue of an Order of Execution issued by the Court of First Instance of Pangasinan, the rights, interests, or participation which the defendant, VALENTIN A. FERNANDO — in the above entitled case may have in the following realty/personalty is attached or levied upon, to wit: The rights, interests and participation on the Certificates of Public Convenience issued to Valentin A. Fernando, in Cases Nos. 59494, etc. ... Lines — Manila to Lingayen, Dagupan, etc. vice versa." Such notice of levy only shows that Ferrer, the vendee at auction of said certificates, merely stepped into the shoes of the judgment debtor. Of the same principle is the provision of Article 1544 of the Civil Code, that "If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property."

There is no merit in Pantranco and Ferrer's theory that the sale of the certificates of public convenience in question, between the Corporation and Fernando, was not consummated, it being only a conditional sale subject to the suspensive condition of its approval by the Public Service Commission. While section 20(g) of the Public Service Act provides that "subject to established limitation and exceptions and saving provisions to the contrary, it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and authorization of the Commission previously had ... to sell, alienate, mortgage, encumber or lease its property, franchise, certificates, privileges, or rights or any part thereof, ...," the same section also provides:

... Provided, however, That nothing herein contained shall be construed to prevent the transaction from being negotiated or completed before its approval or to prevent the sale, alienation, or lease by any public service of any of its property in the ordinary course of its business.

It is clear, therefore, that the requisite approval of the PSC is not a condition precedent for the validity and consummation of the sale.

Anent the question of damages allegedly suffered by the parties, each of the appellants has its or his own version to allege.

Villa Rey Transit, Inc. claims that by virtue of the "tortious acts" of defendants (Pantranco and Ferrer) in acquiring the certificates of public convenience in question, despite constructive and actual knowledge on their part of a prior sale executed by Fernando in favor of the said corporation, which necessitated the latter to file the action to annul the sheriff's sale to Ferrer and the subsequent transfer to Pantranco, it is entitled to collect actual and compensatory damages, and attorney's fees in the amount of P25,000.00. The evidence on record, however, does not clearly show that said defendants acted in bad faith in their acquisition of the certificates in question. They believed that because the bill of sale has yet to be approved by the Public Service Commission, the transaction was not a consummated sale, and, therefore, the title to or ownership of the certificates was still with the seller. The award by the lower court of attorney's fees of P5,000.00 in favor of Villa Rey Transit, Inc. is, therefore, without basis and should be set aside.

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

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

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

1. The sale of the two certificates of public convenience in question by Valentin Fernando to Villa Rey Transit, Inc. is declared preferred over that made by the Sheriff at public auction of the aforesaid certificate of public convenience in favor of Eusebio Ferrer;

2. Reversed, insofar as it dismisses the third-party complaint filed by Pangasinan Transportation Co. against Jose M. Villarama, holding that Villa Rey Transit, Inc. is an entity distinct and separate from the personality of Jose M. Villarama, and insofar as it awards the sum of P5,000.00 as attorney's fees in favor of Villa Rey Transit, Inc.;

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

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