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G.R. No. 170689 March 17, 2009
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.
x - - - - - - - - - - - - - - - - - - - - - - -x
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) Decision
1
dated June 3, 2005 and its Resolution
2
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
Execution
10
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. Uy
34
and PNB v. Mega Prime
Realty and Holdings Corporation/Mega Prime Realty and Holdings
Corporation v. PNB
35
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. PNB
41
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. NLRC
47
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
Commission
50
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 31
52
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.
67
Notwithstanding 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.

G.R. No. 151413 February 13, 2008
CAGAYAN VALLEY DRUG CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
D E C I S I O N
VELASCO, JR., J.:
The Case
This petition for review under Rule 45 of the Rules of Court seeks
the recall of the August 31, 2000 Resolution
1
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 Decision
2
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 Facts
Petitioner, 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) 7432
3
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.
230
4
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 Appeals
On 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 Appeals
Aggrieved, petitioner elevated the matter before the CA, docketed
as CA-G.R. SP No. 59778. On August 31, 2000, the CA issued the
assailed Resolution
7
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 2
nd
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 x
The 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 Issues
Petitioner 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 Ruling
The petition is meritorious.
Premium not applicable
As 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 directors
It 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 required
In 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 5
In 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 credit
The 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 credit
It 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 x
x x x x
While 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.

G.R. No. 149237 June 11, 2006
CHINA BANKING CORPORATION, petitioner,
vs.
DYNE-SEM ELECTRONICS CORPORATION, respondent.
D E C I S I O N
CORONA, 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
money
2
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 complaint
4
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 xxx
On 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 xxx
WHEREFORE, judgment is hereby rendered ordering Dynetics,
Inc. and Elpidio O. Lim, jointly and severally, to pay
plaintiff.
xxx xxx xxx
Anent 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
Appeals
8
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 review
11
with the following assigned
errors:
VI.
Issues
What 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 merger
20
took
place between Dynetics and respondent Dyne-Sem. What took place
was a sale of the assets
21
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.
G.R. No. 155214 February 13, 2004
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 Review
1
under Rule 45 of the Rules of
Court, seeking to nullify the June 3, 2002 Decision
2
and the
August 28, 2002 Resolution
3
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, 2001
4
[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 NLRC
21
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 evidence
22
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 month
32
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 CA
38
did, that respondent has adequately explained
why she had filed two appeals before the appellate court. In the
August 5, 2002 Affidavit
39
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
laws
41
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 release
42
to, and receipt
43
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.
G.R. No. 138660 February 5, 2004
HEIRS OF TRINIDAD DE LEON VDA. DE ROXAS, petitioners
vs.
COURT OF APPEALS and MAGUESUN MANAGEMENT AND DEVELOPMENT
CORPORATION, respondents.
D E C I S I O N
CARPIO, J.:
The Case
This is a petition to cite for indirect contempt the officers of
Meycauayan Central Realty Corporation ("Meycauayan") for defying
the final and executory Decision and Resolution of this Court in
G.R. No. 118436 entitled "Heirs of Manuel A. Roxas and Trinidad de
Leon Vda. De Roxas v. Court of Appeals and Maguesun Management &
Development Corporation" ("G.R. No. 118436").
1

The Antecedents
This petition stems from a case filed by Trinidad de Leon Vda. De
Roxas to set aside the decree of registration over two
unregistered parcels of land in Tagaytay City granted to Maguesun
Management and Development Corporation ("Maguesun") before the
Regional Trial Court on the ground of actual fraud. The trial
court dismissed the petition to set aside the decree of
registration. On appeal, the Court of Appeals denied the petition
for review and affirmed the findings of the trial c ourt. On 21
March 1997, this Court reversed the appellate court's decision in
G.R. No. 118436. The dispositive portion reads:
WHEREFORE, the instant petition is hereby GRANTED. The Decision of
the Court of Appeals in C.A. G.R. CV No. 38328 ("Trinidad de Leon
Vda. de Roxas v. Maguesun Management & Development Corporation, et
al.") promulgated on December 8, 1994 is hereby REVERSED AND SET
ASIDE. Accordingly, registration of title over the subject parcels
of land, described in Plan AS-04-000108, Lot Nos. 7231 and 7239,
with an area of 3,461 and 10,674 square meters, respectively, as
shown and supported by the corresponding technical descriptions
now forming part of the Records of LRC No. TG-373, is awarded to
herein petitioner Trinidad de Leon vda. de Roxas and her heirs,
herein substituted as petitioners. Upon finality of this Decision,
the Land Registration Authority is hereby directed to ISSUE with
reasonable dispatch the corresponding decree of registration and
certificate of title pursuant to Section 39 of Presidential Decree
No. 1529.
2

On 22 May 1997, Meycauayan filed a Petition for Intervention in
G.R. No. 118436. Meycauayan alleged that on 14 May 1992, it
purchased three parcels of land from Maguesun which form part of
the property awarded to the heirs of Trinidad de Leon Vda. De
Roxas ("Roxas heirs"). Meycauayan contended that since it is a
purchaser in good faith and for value, the Court should afford it
the opportunity to be heard. Meycauayan contends that the adverse
decision in G.R. No. 118436 cannot impair its rights as a
purchaser in good faith and for value.
On 25 June 1997, this Court denied the Petition for Intervention.
This Court also denied the Motion for Reconsideration filed by
Maguesun. Thus, on 21 August 1997, the Decision dated 21 March
1997 in G.R. No. 118436 became final and executory.
On 13 April 1998, the Land Registration Authority ("LRA")
submitted a Report to the Regional Trial Court of Tagaytay City,
Branch 18 ("land registration court"), in LR Case No. TG-373,
praying that the land registration court:
a) Order the LRA to cancel Decree No. N-197092 in the name
of Maguesun to enable it to issue another decree in favor of
the heirs of Manuel A. Roxas and Trinidad de Leon Vda. de
Roxas;
b) Order the Register of Deeds to cancel OCT No. 0-515 and
all its derivative titles; and
c) Order the issuance of the Decree with respect to the
decision of the Supreme Court dated 21 March 1997.
Meycauayan filed with the land registration court a "Motion For
Leave To Intervene And For Period Of Time To File Opposition To
The Report Dated March 25, 1998 Filed By The LRA And To File
Complaint-in-Intervention."
On 4 June 1998, the Roxas heirs filed a Motion for Clarification
with this Court raising the following issues:
a) Whether it is necessary for the trial court to first
order the LRA "to cancel Decree No. N-197092 in the name of
Maguesun Management and Development Corporation to enable
(the LRA) to issue another decree in favor of the Heirs of
Manuel A. Roxas and Trinidad de Leon Vda. de Roxas"? Or is
that order necessarily included in the dispositive portion
of the Supreme Court decision directing the LRA "to issue
with reasonable dispatch the corresponding decree of
registration and certificate of title" in favor of the Roxas
heirs? Please note that this necessary implication is a
consequence of the Supreme Court finding that thedecree in
favor of Maguesun was wrongfully issued because it was "not
entitled to the registration decree" as it had no
registrable title, since "Zenaida Melliza (from whom
Maguesun supposedly bought the lots) conveyed no title over
the subject parcels of land to Maguesun Corporation as she
was not the owner thereof."
b) Whether an order from the trial court is necessary for
"the Register of Deeds concerned to cancel OCT No. 0-515 and
all its derivative titles"? Or is that order necessarily
included in the dispositive portion of the Supreme Court
decision directing the LRA to issue the
corresponding decree of registration and certificate of
title in favor of the Roxas heirs, considering that the
original certificate of title issued to Maguesun wasbased on
an illegal decree of registration as found by this Honorable
Court. Further, the unconditional order of the Supreme Court
to LRA to issue the corresponding certificate of title to
the Roxas heirs necessarily implies that the OCT issued to
Maguesun and its derivative titles shall be canceled, for it
cannot [be] assumed that the Supreme Court intended that the
same parcel of land shall be covered by more than one
certificate of title.
c) Whether an order from the trial court is necessary before
the LRA can comply with the Supreme Court decision directing
the LRA "to issue with reasonable dispatch the
corresponding decree of registration andcertificate of
title" in favor of the Roxas heirs?
On 23 June 1998, the Roxas heirs filed a Supplement to Motion for
Clarification, the pertinent portions of which are:
1. In petitioners' Motion for Clarification, one of the
items sought to be clarified is whether the derivative
titles (i.e., the titles derived from Maguesun Management
and Development Corporation's ["Maguesun"] Original
Certificate of Title No. 0-515 and issued to Meycauayan
Central Realty Corp.) should be canceled, together with
Maguesun's certificates of title, so that new decree of
registration and certificate of title can be issued to
petitioners, as ordered in the decision of this Honorable
Court dated 21 March 1997, which has become final and
executory?
2. From the Petition for Intervention filed by Meycauayan
Central Realty Corporation ("Meycauayan") with this
Honorable Court on 22 May 1997, the following statements,
among others, are alleged:
a. "That on May 14, 1992, the intervenor purchased for
value several parcels of real property from private
respondent Maguesun Management and Development Corp.
covered by TCT Nos. 24294, 24295 and 24296 containing
an area of 2,019 square meters each, more or less."
b. "That prior to paying the agreed purchase price in
full to respondent Maguesun, an investigation with the
Tagaytay City Office of the Register of Deeds was made
to determine and ascertain the authenticity, status
and condition of the titles of Maguesun over the
aforesaid properties."
c. "That investigation made by the intervenor with the
Office of Register of Deeds of Tagaytay City showed
that in all the certified true copies of the titles to
the properties above-mentioned which were registered
in the name of Maguesun, the last entry which appeared
was the following, to wit: x x x".
d. "Appearing that the properties to be purchased by
the herein intervenor from respondent Maguesun have no
existing liens and/or encumbrances and considering
that the properties do not appear to be the subject of
a pending case which would affect the titles of those
who may subsequently purchase the same, the herein
intervenor proceeded to pay, in full, the total amount
of ONE MILLION FIVE HUNDRED THOUSAND PESOS
(P1,500,000.00) to Maguesun. Immediately thereafter,
Maguesun, through its duly authorized officer,
executed the corresponding Deeds of Absolute Sale."
e. "That after the corresponding taxes and/or fees
were paid by herein intervenor, the aforementioned TCT
Nos. T-24294, 24295 and 24296, were canceled and in
lieu thereof, new titles in the name of intervenor
were issued by the Register of Deeds of Tagaytay
City."
f. "That on March 25, 1997, an officer of the
intervenor corporation was informed of a newspaper
report stating, in big bold letters, the following
sub-headline, to wit:
SC RULES ON ROXAS FAMILY
LAND ROW IN TAGAYTAY".
g. "The President of herein intervenor right after
secured from the Tagaytay City Office of the Register
of Deeds certified true copies of torrens titles over
its Tagaytay City properties."
h. "That only then, after it secured certified true
copies of the titles mentioned in the preceding
paragraph from the Office of the Register of Deeds of
Tagaytay City, did intervenor come to know of the
existence of a case involving the properties sold to
it by respondent Maguesun on May 14, 1992."
3. Meycauayan's Petition for Intervention was denied by this
Honorable Court in its Resolution dated 25 June 1997, a
denial that has since become final and executory. However,
as stated in petitioners' Motion for Clarification,
Meycauayan committed the proscribed act of forum-shopping by
filing with the trial court a motion for leave to intervene
raising again the issue of its alleged ownership of portions
of the land.
4. In order to settle once and for all Meycauayan's
allegation that it was a buyer in good faith, and to show
that its derivative titles should be declared void and
canceled by this Honorable Court, petitioners will show
herein that the sale to Meycauayan was spurious or, at the
very least, it was a buyer in bad faith.
In a Resolution dated 29 July 1998, this Court acted favorably on
the Roxas heirs' Motion for Clarification and its Supplement. The
pertinent portions of the Resolution read:
Upon careful consideration of the points made by petitioners in
their motions, this Court finds the same meritorious and, hence, a
clarification is in order. We, therefore, declare that our
directive on the LRA to issue with reasonable dispatch the
corresponding decree of registration and certificate of title also
includes, as part thereof, the cancellation, without need of an
order of the land registration court, of Decree No. N-197092, as
well as OCT No. 0-515, and all its derivative titles. This is a
necessary consequence of the Court's earlier finding that the
foregoing documents were illegally issued in the name of
respondent. But in light of Section 39 of Presidential Decree No.
1529 (the "Property Registration Decree"), Decree No. N-197092
which originated from the LRA must be cancelled by the LRA itself.
On account of this cancellation, it is now incumbent upon the LRA
to issue in lieu of the cancelled decree a new one in the name of
petitioners as well as the corresponding original certificate of
title. Cancellation of OCT No. 0-515, on the other hand, properly
devolves upon the Register of Deeds who, under Section 40 of P.D.
No. 1529, has earlier entered a copy thereof in his record book.
OCT No. 0-515 having been nullified, all titles derived therefrom
must also be considered void it appearing that there had been no
intervening rights of an innocent purchaser for value involving
the lots in dispute.
ACCORDINGLY, the Court hereby resolves to GRANT petitioners'
Motion for Clarification together with the Supplement thereto. For
this reason, the dispositive portion of our decision dated March
21, 1997 is clarified, thus:
First, the Register of Deeds shall CANCEL OCT No. 0-515 and all
its derivative titles, namely, TCT Nos. T-25625, T-25626, T-25627,
T-25628, T-25688, T-25689, and T-25690, the latter three being
already in the name of Meycauayan Realty and Development
Corporation (also designated as "Meycauayan Central Realty, Inc."
and "Meycauayan Realty Corporation").
Thereafter, the Land Registration Authority shall:
(a) CANCEL Decree No. N-197092 originally issued in the name
of Maguesun Management and Development Corporation without
need of an order from the land registration court; and
(b) ISSUE with reasonable dispatch a new decree of
registration and a new original certificate of title (OCT)
in favor of petitioners pursuant to Section 39 of
Presidential Decree No. 1529. (Emphasis added)
On 11 December 1998, the land registration court issued an order
denying the LRA Report dated 25 March 1998 and the Motion for
Leave to Intervene filed by Meycauayan since the Supreme Court
Resolution of 29 July 1998 had rendered them moot.
The Register of Deeds of Tagaytay City then canceled TCT Nos. T-
25626, T-25627, T-25628, T-25688, T-25689, T-25690 and T-
27390.
3
TCT Nos. T-25688, T-25689, T-25690 and T-27390 were
derivative titles already in the name of Meycauayan.
On 5 April 1999, the Roxas heirs filed a Motion for Issuance of
Writ of Possession with the land registration court.
On 20 April 1999, Meycauayan filed a Complaint for reconveyance,
damages and quieting of title with the trial court entitled
"Meycauayan Central Realty Corp. v. Heirs of Manuel A. Roxas and
Trinidad de Leon Vda. de Roxas, Maguesun Management and
Development Corp., Register of Deeds of Tagaytay City, City
Assessor of Tagaytay City and Land Registration Authority."
4
The
Complaint is almost an exact reproduction of the Petition for
Intervention filed by Meycauayan before this Court. The Complaint
prayed for judgment:
1. Ordering the defendants Land Registration Authority and
the Register of Deeds of Tagaytay City to cancel the titles
and decree of registration they issued in lieu of TCT Nos.
25688, 25689, 25690 and 27390 registered in the name of
plaintiff Meycauayan Central Realty Corporation and reconvey
said properties to the plaintiff corporation by reinstating
the said cancelled titles or if the same not be possible,
cause the issuance of new decrees and titles thereto;
2. Ordering the defendant City Assessor of Tagaytay City to
reinstate the Assessments for real estate taxes it
previously cancelled covering the properties of plaintiff;
3. Ordering the defendants Roxas and Maguesun to jointly and
solidarily pay the plaintiff actual and/or compensatory
damages in the total amount of FIVE HUNDRED THOUSAND PESOS
(P500,000.00);
4. Ordering the defendants Roxas and Maguesun to jointly and
solidarily pay the plaintiff the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00) as and by way of nominal
damages;
5. Ordering the defendants Roxas and Maguesun to jointly and
solidarily pay the plaintiff exemplary damages in the amount
of TWO HUNDRED THOUSAND PESOS (P200,000.00);
6. Ordering the defendants Roxas and Maguesun to jointly and
solidarily pay the plaintiff Attorney's fees in the amount
of ONE HUNDRED THOUSAND PESOS (P100,000.00); and
7. Ordering the defendants Roxas and Maguesun to jointly and
solidarily pay the plaintiff the costs of suit.
5

On 6 May 1999, Meycauayan filed a "Special Appearance Questioning
Court Jurisdiction and Opposition to the Motion for Issuance of
Writ of Possession Against Meycauayan Central Realty Corporation"
with the land registration court.
On 2 September 1999, the land registration court issued an order,
the dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, let a Writ of Possession
be issued against Maguesun Management and Development Corporation
in these cases. However, insofar as Meycauayan Central Realty is
concerned, let a resolution of the motion filed by the movants
herein be deferred until the Supreme Court had resolved with
finality the petition for contempt of herein movant in G.R. No.
138660.
On 7 March 2000, the trial court dismissed for lack of merit
Meycauayan's complaint for reconveyance, damages and quieting of
title. The trial court held that (1) the nullity of OCT No. 0-515,
which is the source of Meycauayan's titles, is now res judicata;
(2) the complaint's prayer for the trial court to annul the
decision of the Supreme Court in G.R. No. 118436 is beyond the
trial court's jurisdiction; and (3) Meycauayan is guilty of forum
shopping.
6
The trial court likewise denied Meycauayan's Motion for
Reconsideration in an Order dated 20 June 2000.
7
On 24 August
2000, Meycauayan filed a petition for certiorari under Rule 65 of
the Rules of Court with the Court of Appeals assailing the trial
court's dismissal of the complaint.
Meanwhile, the Roxas heirs filed on 2 June 1999 this petition to
cite for indirect contempt the officers of Meycauayan.
The Issues
The parties raised the following issues:
1. Whether this Court's Decision and Resolution in G.R. No.
118436 bind Meycauayan;
2. Whether Meycauayan's act of filing with the trial court a
complaint for reconveyance, damages and quieting of title
involving parcels of land, which were the subject of this
Court's Decision and Resolution in G.R. No. 118436,
constitutes indirect contempt under Section 3, Rule 71 of
the Rules of Civil Procedure; and
3. Whether Meycauayan is guilty of forum shopping.
The Court's Ruling
The petition is meritorious. We find Meycauayan's Executive Vice-
President Juan M. Lamson, Jr. guilty of indirect contempt. We also
find that Meycauayan committed forum shopping, and thus Meycauayan
and its Executive Vice President Juan M. Lamson, Jr. are guilty of
direct contempt.
The Roxas heirs allege that the following acts of Meycauayan
constitute indirect contempt under Section 3, Rule 71 of the Rules
of Civil Procedure: (1)Meycauayan's defiance of the final and
executory Decision and Resolution of this Court in G.R. No.
118436; (2) its act of filing pleadings before the land
registration court to prevent execution of the Decision and
Resolution; (3) its act of filing a Complaint raising the same
issues in its Petition for Intervention which this Court had
already denied and urging the trial court to ignore and
countermand the orders of this Court.
On the other hand, Meycauayan alleges that the Decision in G.R.
No. 118436 does not bind Meycauayan because it was not a party in
the case. According to Meycauayan, the Decision in G.R. No. 118436
may be enforced against Maguesun but not against Meycauayan which
is a stranger to the case. Meycauayan insists that as a purchaser
in good faith and for value its rights cannot be prejudiced by the
alleged fraudulent acquisition by Maguesun of the subject
properties. Meycauayan, therefore, is not liable for contempt of
court for filing an action for reconveyance, quieting of title and
damages.
The issue of whether the Decision in G.R. No. 118436 binds
Meycauayan was already addressed by this Court when it denied
Meycauayan's Petition for Intervention. Furthermore, this Court's
Resolution dated 29 July 1998 clarified the Decision dated 21
March 1997 by ordering the Register of Deeds to CANCEL OCT No. 0-
515 and all its derivative titles, namely, TCT Nos. T-25625, T-
25626, T-25627, T-25628, T-25688, T-25689, and T-25690, the latter
three already in the name of Meycauayan Realty and Development
Corporation (also designated as "Meycauayan Central Realty, Inc."
and "Meycauayan Realty Corporation"). This Court also found that
there had been no intervening rights of an innocent purchaser for
value involving the lots in dispute.
Indirect Contempt
Meycauayan's obstinate refusal to abide by the Court's Decision in
G.R. No. 118436 has no basis in view of this Court's clear
pronouncement to the contrary. The fact that this Court
specifically ordered the cancelation of Meycauayan's titles to the
disputed parcels of land in the Resolution dated 29 July 1998
should have laid to rest the issue of whether the Decision and
Resolution in G.R. No. 118436 is binding on Meycauayan. Clearly,
Meycauayan's defiance of this Court's Decision and Resolution by
filing an action for reconveyance, quieting of title and damages
involving the same parcels of land which this Court already
decided with finality constitutes indirect contempt under Section
3(d), Rule 71 of the Rules of Civil Procedure. Section 3(d) of
Rule 71 reads:
SEC. 3. Indirect contempt to be punished after charge and hearing.
- After a charge in writing has been filed, and an opportunity
given to the respondent to comment thereon within such period as
may be fixed by the court and to be heard by himself or counsel, a
person guilty of any of the following acts may be punished for
indirect contempt:
x x x
(d) Any improper conduct tending, directly or indirectly, to
impede, obstruct, or degrade the administration of justice;
In Halili, et al. v. CIR, et al.,
8
this Court explained the
concept of contempt of court:
Contempt of court is a defiance of the authority, justice or
dignity of the court; such conduct as tends to bring the authority
and administration of the law into disrespect or to interfere with
or prejudice parties litigant or their witnesses during litigation
(12 Am. Jur. 389, cited in 14 SCRA 813).
Contempt of court is defined as a disobedience to the Court by
acting in opposition to its authority, justice and dignity. It
signifies not only a willful disregard or disobedience of the
court's orders, but such conduct as tends to bring the authority
of the court and the administration of law into disrepute or in
some manner to impede the due administration of justice (17 C.J.S.
4).
This Court has thus repeatedly declared that the power to punish
for contempt is inherent in all courts and is essential to the
preservation of order in judicial proceedings and to the
enforcement of judgments, orders, and mandates of the court, and
consequently, to the due administration of justice (Slade Perkins
vs. Director of Prisons, 58 Phil. 271; In re Kelly, 35 Phil. 944;
Commissioner of Immigration vs. Cloribel, 20 SCRA 1241; Montalban
vs. Canonoy, 38 SCRA 1).
Meycauayan's continuing resistance to this Court's judgment is an
affront to the Court and to the sovereign dignity with which it is
clothed.
9
Meycauayan's persistent attempts to raise issues long
since laid to rest by a final and executory judgment of no less
than the highest tribunal of the land constitute contumacious
defiance of the authority of this Court and impede the speedy
administration of justice.
10

Well-settled is the rule that when a court of competent
jurisdiction has tried and decided a right or fact, so long as the
decision remains unreversed, it is conclusive on the parties and
those in privity with them.
11
More so where the Supreme Court has
already decided the issue since the Court is the final arbiter of
all justiciable controversies properly brought before it.
12
As held
in Buaya v. Stronghold Insurance Co., Inc.:
13

x x x An existing final judgment or decree - rendered upon the
merits, without fraud or collusion, by a court of competent
jurisdiction acting upon a matter within its authority - is
conclusive of the rights of the parties and their privies. This
ruling holds in all other actions or suits, in the same or any
other judicial tribunal of concurrent jurisdiction, touching on
the points or matters in issue in the first suit.
x x x
Courts will simply refuse to reopen what has been decided. They
will not allow the same parties or their privies to litigate anew
a question, once it has been considered and decided with finality.
Litigations must end and terminate sometime and somewhere. The
effective and efficient administration of justice requires that
once a judgment has become final, the prevailing party should not
be deprived of the fruits of the verdict by subsequent suits on
the same issues filed by the same parties.
This is in accordance with the doctrine of res judicata which has
the following elements: (1) the former judgment must be final; (2)
the court which rendered it had jurisdiction over the subject
matter and the parties; (3) the judgment must be on the merits;
and (4) there must be between the first and the second actions,
identity of parties, subject matter and causes of action.
14
The
application of the doctrine of res judicata does not require
absolute identity of parties but merely substantial identity of
parties.
15
There is substantial identity of parties when there is
community of interest or privity of interest between a party in
the first and a party in the second case even if the first case
did not implead the latter.
16

The Court ruled in G.R. No. 118436 that Meycauayan's predecessor-
in-interest, Maguesun, committed actual fraud in obtaining the
decree of registration of the subject properties. The Decision in
G.R. No. 118436 binds Meycauayan under the principle of "privity
of interest" since it was a successor-in-interest of Maguesun.
Meycauayan, however, insists that it was a purchaser in good faith
because it had no knowledge of any pending case involving the
lots. Meycauayan claims that the trial court had already canceled
the notice of lis pendens on the titles when it purchased the lots
from Maguesun. In its Memorandum, Meycauayan stresses that to
ensure the authenticity of the titles and the annotations
appearing on the titles, particularly the cancelation of the
notice of lis pendens, Meycauayan checked with the Register of
Deeds and the Regional Trial Court of Tagaytay City.
17
Since
Meycauayan checked with the Regional Trial Court of Tagaytay City,
Meycauayan then had actual knowledge, before it purchased the
lots, of the pending case involving the lots despite the
cancelation of the notice of lis pendens on the titles.
Furthermore, as found by this Court in G.R. No. 118436, the Roxas
family has been in possession of the property uninterruptedly
through their caretaker, Jose Ramirez, who resided on the
property.
18
Where the land sold is in the possession of a person
other than the vendor, the purchaser must go beyond the
certificates of title and make inquiries concerning the rights of
the actual possessor.
19
Meycauayan therefore cannot invoke the
right of a purchaser in good faith and could not have acquired a
better right than its predecessor-in-interest. This Court has
already rejected Meycauayan's claim that it was a purchaser in
good faith when it ruled in G.R. No. 118436 that there had been no
intervening rights of an innocent purchaser for value involving
the lots in dispute. As held in Heirs of Pael v. Court of
Appeals:
20

In the case of Santiago Land Development Corporation vs. Court of
Appeals (G.R. No. 106194, 276 SCRA 674 [1997]), petitioner
maintained that as a purchaser pendente lite of the land in
litigation, it had a right to intervene under Rule 12, Section 2.
We rejected this position and said that "since petitioner is not a
stranger to the action between Quisumbing and the PNB, petitioner
in fact having stepped into the shoes of PNB in a manner of
speaking, it follows that it cannot claim any further right to
intervene in the action." As in the instant Petition, it was
argued that the denial of the Motion to Intervene would be a
denial likewise of due process. But this, too, was struck down in
Santiago Land where we held that "petitioner is not really denied
protection. It is represented in the action by its predecessor in
interest." Indeed, since petitioner is a transferee pendente lite
with notice of the pending litigation between Reyes and private
respondent Carreon, petitioner stands exactly in the shoes of
Reyes and is bound by any judgment or decree which may be rendered
for or against the latter.
Indeed, one who buys property with full knowledge of the flaws and
defects of the title of his vendor and of a pending litigation
over the property gambles on the result of the litigation and is
bound by the outcome of his indifference.
21
A purchaser cannot
close his eyes to facts which should put a reasonable man on guard
and then claim that he acted in good faith believing that there
was no defect in the title of the vendor.
22

For the penalty for indirect contempt, Section 7 of Rule 71 of the
Rules of Court provides:
SEC. 7. Punishment for indirect contempt. - If the respondent is
adjudged guilty of indirect contempt committed against a Regional
Trial Court or a court of equivalent or higher rank, he may be
punished by a fine not exceeding thirty thousand pesos or
imprisonment not exceeding six (6) months or both. x x x
In this case, Meycauayan Executive Vice President Juan M. Lamson,
Jr. caused the preparation and the filing of the Petition for
Intervention in G.R. No. 118436 and the Complaint for
Reconveyance, Damages and Quieting of Title with the trial
court.
23
Juan M. Lamson, Jr. signed the verification and
certification of non-forum shopping for the Petition for
Intervention and the Complaint for Reconveyance, Damages and
Quieting of Title. "Even though a judgment, decree, or order is
addressed to the corporation only, the officers, as well as the
corporation itself, may be punished for contempt for disobedience
to its terms, at least if they knowingly disobey the court's
mandate, since a lawful judicial command to a corporation is in
effect a command to the officers."
24
Thus, for improper conduct
tending to impede the orderly administration of justice,
Meycauayan Executive Vice President Juan M. Lamson, Jr. should be
fined ten thousand pesos (P10,000).
25

Direct Contempt
Meycauayan's act of filing a Complaint for Reconveyance, Quieting
of Title and Damages raising the same issues in its Petition for
Intervention, which this Court had already denied, also
constitutes forum shopping. Forum shopping is the act of a party
against whom an adverse judgment has been rendered in one forum,
seeking another and possibly favorable opinion in another forum
other than by appeal or special civil action of certiorari. There
is also forum shopping when a party institutes two or more actions
based on the same cause on the expectation that one or the other
court might look with favor on the party.
26

In this case, the Court had already rejected Meycauayan's claim on
the subject lots when the Court denied Meycauayan's Petition for
Intervention in G.R. No. 118436. The Court ruled that there had
been no intervening rights of an innocent purchaser for value
involving the lots in dispute. The Decision of this Court in G.R.
No. 118436 is already final and executory. The filing by
Meycauayan of an action to re-litigate the title to the same
property, which this Court had already adjudicated with finality,
is an abuse of the court's processes and constitutes direct
contempt.
Section 5 of Rule 7 of the Rules of Court provides that "if the
acts of the party or his counsel clearly constitute willful and
deliberate forum shopping, the same shall be a ground for summary
dismissal with prejudice and shall constitute direct contempt, as
well as a cause for administrative sanctions." The fact that
Meycauayan did mention in its certification of non-forum shopping
its attempt to intervene in G.R. No. 118436, which this Court
denied,
27
does not negate the existence of forum shopping. This
disclosure does not exculpate Meycauayan for deliberately seeking
a friendlier forum for its case and re-litigating an issue which
this Court had already decided with finality.
28

The general rule is that a corporation and its officers and agents
may be held liable for contempt. A corporation and those who are
officially responsible for the conduct of its affairs may be
punished for contempt in disobeying judgments, decrees, or orders
of a court made in a case within its jurisdiction.
29

Under Section 1 of Rule 71 of the Rules of Court, direct contempt
is punishable by a fine not exceeding two thousand pesos (P2,000)
or imprisonment not exceeding ten (10) days, or both, if committed
against a Regional Trial Court or a court of equivalent or higher
rank. Hence, Meycauayan
30
and its Executive Vice President Juan M.
Lamson, Jr. are each fined P2,000 for direct contempt of court for
forum shopping.
WHEREFORE, we find Meycauayan Central Realty Corporation's
Executive Vice President Juan M. Lamson, Jr. GUILTY of INDIRECT
CONTEMPT and FINE him TEN THOUSAND PESOS (P10,000). Furthermore,
we find Meycauayan Central Realty Corporation and its Executive
Vice President Juan M. Lamson, Jr. GUILTY of DIRECT CONTEMPT for
forum shopping and FINE them TWO THOUSAND PESOS (P2,000) each. The
Court warns them that a repetition of the same or similar offense
shall merit a more severe penalty.
SO ORDERED.

G.R. No. 142936 April 17, 2002
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT
CORPORATION, petitioners,
vs.
ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent.
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 to
P527,263.80, as shown in the Certification of the chief
accountant of the PNB, a machine copy of which is appended
as Annex ‘C’ of the complaint; that out of said unpaid
balance of P527,263.80, the defendant PASUMIL made a partial
payment to the plaintiff of P14,000.00, in broken amounts,
covering the period from January 5, 1974 up to May 23, 1974,
leaving an unpaid balance of P513,263.80; that the defendant
PASUMIL and the defendant PNB, and now the defendant
NASUDECO, failed and refused to pay the plaintiff their
just, valid and demandable obligation; that the President of
the NASUDECO is also the Vice-President of the PNB, and this
official holds office at the 10th Floor of the PNB, Escolta,
Manila, and plaintiff besought this official to pay the
outstanding obligation of the defendant PASUMIL, inasmuch as
the defendant PNB and NASUDECO now owned and possessed the
assets of the defendant PASUMIL, and these defendants all
benefited from the works, and the electrical, as well as the
engineering and repairs, performed by the plaintiff; that
because of the failure and refusal of the defendants to pay
their just, valid, and demandable obligations, plaintiff
suffered actual damages in the total amount of P513,263.80;
and that in order to recover these sums, the plaintiff was
compelled to engage the professional services of counsel, to
whom the plaintiff agreed to pay a sum equivalent to 25% of
the amount of the obligation due by way of 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.1âwphi1.nêt
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, another P14,000.
Neither did petitioner expressly or impliedly agree to assume the
debt of PASUMIL to respondent.
61
LOI No. 11 explicitly provides
that PNB shall study and submit recommendations on the claims of
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.
G.R. No. L-30822 July 31, 1975
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.."
FACTS
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 petitioners
to 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:
I
THE 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.
II
THE 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 xxx
4. 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
salary
b. For every dependent in elementary grade
2% of monthly salary
c. For every dependent in high school 3%
of monthly salary
d. For every dependent in college 5% of
monthly salary
xxx xxx xxx
7. The computed ... bonuses after deducting the
earnings elsewhere of Messrs. Ongsuco, Garlitos and
Semillano are as follows:
Name x x x Bonuses x x x
1. 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 714.70
7. Rosendo Espinosa 1,075.40
8. Gaudencio Quioyo 1,167.92
9. Jorge Semillano 1,212.08
10. Maximo Quioyo 449.41
Total 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.ñët
On 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.ñët
In 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.ñët
Petitioners 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.

G.R. No. L-17618 August 31, 1964
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.ñët
The 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 x
Therefore, 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 x
Presiding 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 x
Accordingly, 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.

G.R. No. 108734 May 29, 1996
CONCEPT BUILDERS, INC., petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and
Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel Gillego,
Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio
Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo
Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador
Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand
Torres, Felipe Basilan, and Ruben Robalos, respondents.

HERMOSISIMA, JR., J.:p
The corporate mask may be lifted and the corporate veil may be
pierced when a corporation is just but the alter ego of a person
or of another corporation. Where badges of fraud exist; where
public convenience is defeated; where 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 on November 30, 1981. It was stated in the individual
notices that their contracts of employment had expired and the
project in which they were hired had been completed.
Public respondent found it to be, the fact, however, that at the
time of the termination of private respondent'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
judgment
1
ordering petitioner to reinstate private respondents and
to pay them back wages equivalent to one year or three hundred
working days.
On November 27, 1985, the National Labor Relations Commission
(NLRC) dismissed the motion for reconsideration filed by
petitioner on the ground that the said decision had already become
final and executory.
2

On October 16, 1986, the NLRC Research and Information Department
made the finding that private respondents' back wages amounted to
P199,800.00.
3

On October 29, 1986, the Labor Arbiter issued a writ of execution
directing the sheriff to execute the Decision, 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
Exchange Commission (SEC) and the General Information Sheet, dated
May 25, 1987, submitted by HPPI to the Securities and Exchange
Commission.
The General Information Sheet submitted by the petitioner revealed
the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
HPPI P 6,999,500.00
Antonio W. Lim 2,900,000.00
Dennis S. Cuyegkeng 300.00
Elisa C. Lim 100,000.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Dennis S. Cuyegkeng Member
Elisa C. Lim Member
Teodulo R. Dino Member
Virgilio O. Casino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the
President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road
Valenzuela, Metro Manila.
5

On the other hand, the General Information Sheet of HPPI revealed
the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
Antonio W. Lim P 400,000.00
Elisa C. Lim 57,700.00
AWL Trading 455,000.00
Dennis S. Cuyegkeng 40,100.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the
President
Elisa C. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro
Manila.
6

On February 1, 1990, HPPI filed an Opposition to private
respondents' motion for issuance of a break-open order, contending
that HPPI is a corporation which is separate and distinct from
petitioner. HPPI also alleged that the 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
instances, 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; 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 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. Casiño as the corporate secretary
of both corporations. It would also not be amiss to
note that both corporations had the same president,
thesame board of directors, the same corporate
officers, and substantially the same subscribers.
From the foregoing, it appears that, among other
things, the respondent (herein petitioner) and 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 back wages and to bar
their reinstatement to their former positions. HPPI is obviously a
business conduit of petitioner corporation and its emergence was
skillfully orchestrated to avoid the financial liability that
already attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of
Industrial Relations,
1
7 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 . . . . Both
predecessors and successor were owned and controlled
by petitioner Eduardo Claparols and there was no break
in the succession and continuity of the same business.
This "avoiding-the-liability" scheme is very patent,
considering that 90% of the subscribed shares of stock
of the Claparols Steel Corporation (the second
corporation) was owned by respondent . . . Claparols
himself, and 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.

A.C. No. 2797 October 4, 2002
ROSAURA P. CORDON, complainant,
vs.
JESUS BALICANTA, respondent.
R E S O L U T I O N
PER CURIAM:
On August 21, 1985, herein complainant Rosaura Cordon filed with
this Court a complaint for disbarment, docketed as Administrative
Case No. 2797, against Atty. Jesus Balicanta. After respondent’s
comment to the complaint and complainant’s reply thereto, this
Court, on March 29, 1995 referred the matter to the Integrated Bar
of the Philippines (IBP, for brevity) for investigation, report
and recommendation within 90 days from notice. Commissioner George
Briones of the IBP Commission on Bar Discipline was initially
tasked to investigate the case. Commissioner Briones was later on
replaced by Commissioner Renato Cunanan. Complainant filed a
supplemental complaint which was duly admitted and, as agreed
upon, the parties filed their respective position papers.
Based on her complaint, supplemental complaint, reply and position
paper, the complainant alleged the following facts:
When her husband Felixberto C. Jaldon died, herein complainant
Rosaura Cordon and her daughter Rosemarie inherited the properties
left by the said decedent. All in all, complainant and her
daughter inherited 21 parcels of land located in Zamboanga City.
The lawyer who helped her settle the estate of her late husband
was respondent Jesus Balicanta.
Sometime in the early part of 1981, respondent enticed complainant
and her daughter to organize a corporation that would develop the
said real properties into a high-scale commercial complex with a
beautiful penthouse for complainant. Relying on these apparently
sincere proposals, complainant and her daughter assigned 19
parcels of land to Rosaura Enterprises, Incorporated, a newly-
formed and duly registered corporation in which they assumed
majority ownership. The subject parcels of land were then
registered in the name of the corporation.
Thereafter, respondent single-handedly ran the affairs of the
corporation in his capacity as Chairman of the Board, President,
General Manager and Treasurer. The respondent also made
complainant sign a document which turned out to be a voting trust
agreement. Respondent likewise succeeded in making complainant
sign a special power of attorney to sell and mortgage some of the
parcels of land she inherited from her deceased husband. She later
discovered that respondent transferred the titles of the
properties to a certain Tion Suy Ong who became the new registered
owner thereof. Respondent never accounted for the proceeds of said
transfers.
In 1981, respondent, using a spurious board resolution, contracted
a loan from the Land Bank of the Philippines (LBP, for brevity) in
the amount of Two Million Two Hundred Twenty Pesos (P2,220,000)
using as collateral 9 of the real properties that the complainant
and her daughter contributed to the corporation. The respondent
ostensibly intended to use the money to construct the Baliwasan
Commercial Center (BCC, for brevity). Complainant later on found
out that the structure was made of poor materials such as sawali,
coco lumber and bamboo which could not have cost the corporation
anything close to the amount of the loan secured.
For four years from the time the debt was contracted, respondent
failed to pay even a single installment. As a result, the LBP, in
a letter dated May 22, 1985, informed respondent that the past due
amortizations and interest had already accumulated to Seven
Hundred Twenty-nine Thousand Five Hundred Three Pesos and Twenty-
five Centavos (P729,503.25). The LBP made a demand on respondent
for payment for the tenth time. Meanwhile, when the BCC commenced
its operations, respondent started to earn revenues from the
rentals of BCC’s tenants. On October 28, 1987, the LBP foreclosed
on the 9 mortgaged properties due to non-payment of the loan.
Respondent did not exert any effort to redeem the foreclosed
properties. Worse, he sold the corporation’s right to redeem the
mortgaged properties to a certain Hadji Mahmud Jammang through a
fake board resolution dated January 14, 1989 which clothed himself
with the authority to do so. Complainant and her daughter, the
majority stockholders, were never informed of the alleged meeting
held on that date. Again, respondent never accounted for the
proceeds of the sale of the right to redeem. Respondent also sold
to Jammang a parcel of land belonging to complainant and her
daughter which was contiguous to the foreclosed properties and
evidenced by Transfer Certificate of Title No. 62807. He never
accounted for the proceeds of the sale.
Sometime in 1983, complainant’s daughter, Rosemarie, discovered
that their ancestral home had been demolished and that her mother,
herein complainant, was being detained in a small nipa shack in a
place called Culianan. Through the help of Atty. Linda Lim,
Rosemarie was able to locate her mother. Rosemarie later learned
that respondent took complainant away from her house on the
pretext that said ancestral home was going to be remodeled and
painted. But respondent demolished the ancestral home and sold the
lot to Tion Suy Ong, using another spurious board resolution
designated as Board Resolution No. 1, series of 1992. The
resolution contained the minutes of an alleged organizational
meeting of the directors of the corporation and was signed by
Alexander Wee, Angel Fernando, Erwin Fernando and Gabriel Solivar.
Complainant and her daughter did not know how these persons became
stockholders and directors of the corporation. Respondent again
did not account for the proceeds of the sale.
Complainant and her daughter made several demands on respondent
for the delivery of the real properties they allegedly assigned to
the corporation, for an accounting of the proceeds of the LBP loan
and as well as the properties sold, and for the rentals earned by
BCC. But the demands remained unheeded. Hence, complainant and her
daughter, in a letter dated June 4, 1985, terminated the services
of respondent as their lawyer and repeated their demands for
accounting and turn-over of the corporate funds, and the return of
the 19 titles that respondent transferred to the corporation. They
also threatened him with legal action in a letter dated August 3,
1985.
Soon after, complainant found out from the Securities and Exchange
Commission (SEC, for brevity) that Rosaura Enterprises, Inc., due
to respondent’s refusal and neglect, failed to submit the
corporation’s annual financial statements for 1981, 1982 and 1983;
SEC General Information Sheets for 1982, 1983 and 1984; Minutes of
Annual Meetings for 1982, 1983 and 1984; and Minutes of Annual
Meetings of Directors for 1982, 1983 and 1984.
Complainant also discovered that respondent collected rental
payments from the tenants of BCC and issued handwritten receipts
which he signed, not as an officer of the corporation but as the
attorney-at-law of complainant. Respondent also used the tennis
court of BCC to dry his palay and did not keep the buildings in a
satisfactory state, so much so that the divisions were losing
plywood and other materials to thieves.
Complainant likewise accused respondent of circulating rumors
among her friends and relatives that she had become insane to
prevent them from believing whatever complainant said. According
to complainant, respondent proposed that she legally separate from
her present husband so that the latter would not inherit from her
and that respondent be adopted as her son.
For his defense, respondent, in his comment and position paper,
denied employing deceit and machination in convincing complainant
and her daughter to assign their real properties to the
corporation; that they freely and voluntary executed the deeds of
assignment and the voting trust agreement that they signed; that
he did not single-handedly manage the corporation as evidenced by
certifications of the officers and directors of the corporation;
that he did not use spurious board resolutions authorizing him to
contract a loan or sell the properties assigned by the complainant
and her daughter; that complainant and her daughter should be the
ones who should render an accounting of the records and revenues
inasmuch as, since 1984 up to the present, the part-time corporate
book-keeper, with the connivance of the complainant and her
daughter, had custody of the corporate records; that complainant
and her daughter sabotaged the operation of BCC when they
illegally took control of it in 1986; that he never pocketed any
of the proceeds of the properties contributed by the complainant
and her daughter; that the demolition of the ancestral home
followed legal procedures; that complainant was never detained in
Culianan but she freely and voluntarily lived with the family of
P03 Joel Constantino as evidenced by complainant’s own letter
denying she was kidnapped; and that the instant disbarment case
should be dismissed for being premature, considering the pendency
of cases before the SEC and the Regional Trial Court of Zamboanga
involving him and complainant.
Based on the pleadings and position papers submitted by the
parties, Commissioner Renato Cunanan, in his report
1
dated July 1,
1999, recommended respondent’s disbarment based on the following
findings:
"A. The complainant, Rosaura Jaldon-Cordon and her daughter,
Rosemarie were stockholders of a corporation, together with
respondent, named Rosaura Enterprises, Inc.
"Per the Articles of Incorporation marked as Annex ‘A’ of
Complainant’s Position Paper, complainant’s subscription
consists of 55% of the outstanding capital stock while her
daughter’s consists of 18%, giving them a total of 73%.
Respondent’s holdings consist of 24% while three other
incorporators, Rosauro L. Alvarez, Vicente T. Mañalac and
Darhan S. Graciano each held 1% of the capital stock of the
corporation.
"B. On April 5, 1981, complainant and her daughter Rosemarie
Jaldon executed two Deeds of Transfer and Assignment
conveying and transferring to the corporation 19 parcels of
land in exchange for shares of stock in the corporation.
"x x x x x x x x x
"C. Both Deeds of Assignment particularly page 3 thereof
indicate that respondent accepted said assignment of
properties and titles in behalf of the corporation as
Treasurer. The deeds were signed on April 5, 1981.
"x x x x x x x x x
"Together, therefore, complainant and her daughter owned
1,711 shares of the 1,750 shares comprising the authorized
capital stock of the corporation of 97% thereof.
"No increase in capitalization was applied for by the
corporation.
"F. Respondent claims in his Comment, his Answer and his
Position Paper that on April 4, 1981 he was elected as
Chairman and Director and on April 5, 1981 he was elected
President of the corporation. Respondent’s own Annexes
marked as ‘G’ and ‘G-1’ of his Comment show that on April 4,
1981 he was not only elected as Chairman and Director as he
claims but as ‘Director, Board Chairman and President.’ The
purported minutes was only signed by respondent and an
acting Secretary by the name of Vicente Mañalac.
"Said Annex does not show who was elected Treasurer.
"Respondent’s Annex ‘H’ and ‘H-1’ shows that in the alleged
organizational meeting of the directors on April 5, 1981 a
certain Farnacio Bucoy was elected Treasurer. Bucoy’s name
does not appear as an incorporator nor a stockholder
anywhere in the documents submitted.
"The purported minutes of the organizational meeting of the
directors was signed only by respondent Balicanta and a
Secretary named Verisimo Martin.
"G. Since respondent was elected as Director, Chairman and
President on April 4, 1981 as respondent’s own Annexes ‘G’
to ‘G-1’ would show, then complainant’s claim that
respondent was likewise acting as Treasurer of two
corporations bear truth and credence as respondent signed
and accepted the titles to 19 parcels of land ceded by the
complainant and her daughter, as Treasurer on April 5, 1981
after he was already purportedly elected as Chairman,
President and Director.
"H. Respondent misleads the Commission into believing that
all the directors signed the minutes marked as Exhibit ‘H’
to ‘H-1’ by stating that the same was ‘duly signed by all
the Board of Directors’ when the document itself shows that
only he and one Verisimo Martin signed the same.
"He also claims that ‘all the stockholders signed’ the
minutes of organizational meeting marked as Annexes ‘G’ and
‘G-1’ of his Comment yet the same shows that only the acting
Chairman and acting Secretary signed.
"I. Respondent claims that the Board or its representative
was authorized by the stockholders comprising 2/3 of the
outstanding capital stock, as required by law, to mortgage
the parcels of land belonging to the corporation, which were
all assigned to the corporation by complainant and her
daughter, by virtue of Annex ‘I’ and ‘I-1’: attached to his
Comment.
"The subject attachment however reveals that only the
following persons signed their conformity to the said
resolution: respondent Balicanta who owned 109 shares,
Vicente Mañalac (1 share), Daihan Graciano (1 share).
"Complainants who collectively held a total of 1,711 shares
out of the 1,750 outstanding capital stock of the
corporation were not represented in the purported
stockholders’ meeting authorizing the mortgage of the
subject properties.
"The 2/3 vote required by law was therefore not complied
with yet respondent proceeded to mortgage the subject 9
parcels of land by the corporation.
"J. Respondent further relies on Annex ‘J’ of his Comment,
purportedly the minutes of a special meeting of the Board of
Directors authorizing him to obtain a loan and mortgage the
properties of the corporation dated August 29, 1981. This
claim is baseless. The required ratification of 2/3 by the
stockholders of records was not met. Again, respondent
attempts to mislead the Commission and Court.
"K. Further, the constitution of the Board is dubious. The
alleged minutes of the organizational meeting of the
stockholders electing the members of the Board, have not
been duly signed by the stockholders as shown in
respondent’s annex ‘G’ which was purportedly the
organizational meeting of the stockholders.
"L. Also, Annex ‘J’ of respondent’s Comment which
purportedly authorized him to obtain a loan and to mortgage
the 9 parcels of land was only signed by himself and a
secretary.
"M. In said Annex 'J' of respondent’s Comment he stated that
complainant Rosaura Cordon was on leave by virtue of a
voting trust agreement allegedly executed by complainant ‘in
his favor covering all her shares of stock.’ The claim is
baseless. The voting trust referred to by respondent (annex
‘D’ of his Comment), even if it were assumed to be valid,
covered only 266 shares of complainants yet she owned a
total of 1,039 shares after she and her daughter ceded in
favor of the corporation 19 parcels of land.
"Being a former lawyer to complainant, respondent should
have ensured that her interest was safeguarded. Yet,
complainant was apparently and deliberately left our (sic)
on the pretext that, she had executed a voting trust
agreement in favor of respondent.
"It is suspicious that complainant was made to sign a voting
trust agreement on 21 August 1981 and immediately
thereafter, the resolutions authorizing respondent to obtain
a loan and to mortgage the 9 parcels of land were passed and
approved.
"N. It is also highly irregular for respondent who is a
lawyer, to allow a situation to happen where, with the
exclusion of complainant as director the result was that
there remained only 4 members of the Board,.
"O. Respondent’s own pleadings submitted to the Commission
contradict each other.
"1. For instance, while in his Comment respondent
DENIES that he employed deceit and machination in
convincing the complainant and her daughter to sign
the articles of incorporation of Rosaura Enterprises
and in ceding to the corporation 19 parcels of land in
Zamboanga City, because ‘they freely, intelligently
and voluntarily signed’ the same, yet, in his Position
Paper, respondent took another stance.
"In paragraphs 1.1 and 1.2 of his Position Paper which
was submitted 12 years later, respondent claimed that
‘it was actually the idea of Atty. Rosaura L. Alvarez’
that a corporation be put up to incorporate the estate
of the late Felixberto D. Jaldon.
"2. Likewise, respondent claimed that complainant and
her daughter were not directors, hence they were not
notified of meetings, in paragraph 2-6 (c) of his
Comment he blamed the other stockholders and directors
for the corporation’s inability to comply with the
Land Bank’s demands saying that they ‘have
consistently failed since 1982 to convene (1.) for the
annual stockholders’ meetings and (i.i) for the
monthly board meeting’.
"His own pleadings claim that he had been the
Chairman/President since 1981 to the present. If (sic)
so, it was his duty to convene the stockholders and
the directors for meetings.
"Respondent appeared able to convene the stockholders
and directors when he needed to make a loan of p2.2
million; when he sold the corporation’s right of
redemption over the foreclosed properties of the
corporation to Jammang, when he sold one parcel of
land covered by TCT 62,807 to Jammang in addition to
the 9 parcels of land which were foreclosed, and when
he sold the complainant’s ancestral home covered by
TCT No. 72,004.
"It is thus strange why respondent claims that the
corporation could not do anything to save the
corporation’s properties from being foreclosed because
the stockholders and directors did not convene.
"This assertion of respondent is clearly evident of
dishonest, deceitful and immoral conduct especially
because, in all his acts constituting conveyances of
corporate property, respondent used minutes of
stockholders’ and directors’ meetings signed only by
him and a secretary or signed by him and persons who
were not incorporators much less stockholders.
"It is worthy of note that in respondent’s Exhibits
15, 16, 17 and 18 of his position paper, there were 7
new stockholders and complainant appeared to have only
266 shares to her name while her daughter Rosemarie
had no shares at all. Respondent did not present any
proof of conveyance of shares by complainant and her
daughter.
"It is further worth noting that complainant’s voting
trust (annex ‘D’ of respondent’s Comment) where she
allegedly entrusted 266 shares to respondent on August
21, 1981 had only a validity of 5 years. Thus, she
should have had her entire holdings of 1,283 shares
back in her name in August 1986.
"Respondent’s purported minutes of stockholders’
meeting (Exhs. ‘15’ and ‘17’) do not reflect this.
"There was no explanation whatsoever from respondent
on how complainant and her daughter lost their 97%
control holding in the corporation.
"3. As a further contradiction in respondent’s
pleadings, we note that in paragraph 2.7.C of his
Comment he said that ‘only recently, this year, 1985,
the complainant and her aforenamed daughter examined
said voluminous supporting receipts/documents which
had previously been examined by the Land Bank for loan
releases, during which occasion respondent suggested
to them that the corporation will have to hire a full-
time book-keeper to put in order said voluminous
supporting receipts/documents, to which they adversely
reacted due to lack of corporate money to pay for said
book-keeper.’ But in respondent’s Position Paper par.
6.3 he stated that:
‘Anyway, it is not the respondent but rather the
complainant who should render a detailed accounting to
the corporation of the corporate records as well as
corporate revenues/income precisely becausesince
1994 to the present:
‘(a). The corporate part-time book-keeper Edilberto
Benedicto, with the indispensable connivance and
instigation of the complainant and her daughter, among
others, has custody of the corporate records, xxx’
"4. In other contradictory stance, respondent claims
in par. 7.3 of his position paper that ‘complainant
and her daughter sabotaged the BCC operations of the
corporation by illegally taking over actual control
and supervision thereof sometime in 1986, xxx’
"Yet respondent’s own exhibits in his position paper
particularly Exhibit 15 and 16 where the subject of
the foreclosed properties of the corporation
comprising the Baliwasan Commercial Center (BCC) was
taken up, complainant and her daughter were not even
present nor were they the subject of the discussion,
belying respondent’s claim that the complainant and
her daughter illegally took actual control of BCC.
"5. On the matter of the receipts issued by respondent
evidencing payment to him of rentals by lessees of the
corporation, attached to the complaint as Annexes ‘H’
to ‘H-17’, respondent claims that the receipts are
temporary in nature and that subsequently regular
corporate receipts were issued. On their face however
the receipts clearly appear to be official receipts,
printed and numbered duly signed by the respondent
bearing his printed name.
"It is difficult to believe that a lawyer of
respondent’ stature would issue official receipts to
lessees if he only meant to issue temporary ones.
"6. With regard to respondent’s claim that the
complainant consented to the sale of her ancestral
home, covered by TCT No. T-72,004 to one Tion Suy Ong
for which he attached as Exhibit 22 to his Position
Paper the minutes of an annual meeting of the
stockholders, it behooves this Commission why
complainant’s signature had to be accompanied by her
thumb mark. Furthermore, complainant’s signature
appears unstable and shaky. This Office is thus
persuaded to believe complainant’s allegation in
paragraph 3b of her position paper that since
September 1992 up to March 1993 she was being detained
by one PO# (sic) Joel Constantino and his wife under
instructions from respondent Balicanta.
"This conclusion is supported by a letter from
respondent dated March 1993, Annex ‘H’ of
complainant’s position paper, where respondent ordered
Police Officer Constantino ‘to allow Atty. Linda Lim
and Rosemarie Jaldon to talk to Tita Rosing.’
"The complainant’s thumb mark together with her
visibly unstable shaky signature lends credence to her
claim that she was detained in the far flung barrio of
Culianan under instructions of respondent while her
ancestral home was demolished and the lot sold to one
Tion Suy Ong.
"It appears that respondent felt compelled to over-
ensure complainant’s consent by getting her to affix
her thumb mark in addition to her signature.
"7. Respondent likewise denies that he also acted as
Corporate Secretary in addition to being the Chairman,
President and Treasurer of the corporation. Yet,
respondent submitted to this commission documents
which are supported to be in the possession of the
Corporate Secretary such as the stock and transfer
book and minutes of meetings.
"The foregoing findings of this Commission are virtual
smoking guns that prove on no uncertain terms that
respondent, who was the legal counsel of complainant
in the latter part of the settlement of the estate of
her deceased husband, committed unlawful, immoral and
deceitful conduct proscribed by Rule 1.01 of the code
of professional responsibility.
"Likewise, respondent clearly committed a violation of
Canon 15 of the same code which provides that ‘A
lawyer should observe candor fairness and loyalty in
all his dealings and transactions with his client.’
"Respondent’s acts gravely diminish the public’s
respect for the integrity of the profession of law for
which this Commission recommends that he be meted the
penalty of disbarment.
"The pendency of the cases at the SEC and the Regional
Trial Court of Zamboanga filed by complainant against
respondent does not preclude a determination of
respondent’s culpability as a lawyer.
"This Commission cannot further delay the resolution
of this complaint filed in 1985 by complainant, and
old widow who deserves to find hope and recover her
confidence in the judicial system.
"The findings of this office, predominantly based on
documents adduced by both parties lead to only one
rather unpalatable conclusion. That respondent Atty.
Jesus F. Balicanta, in his professional relations with
herein complainant did in fact employ unlawful,
dishonest, and immoral conduct proscribed in no
uncertain terms by Rule 1.01 of the Code of
Professional Responsibility. In addition, respondent’s
actions clearly violated Canon 15 to 16 of the same
Code.
"It is therefore our unpleasant duty to recommend that
respondent, having committed acts in violation of the
Canons of Professional Responsibility, thereby causing
a great disservice to the profession, be meted the
ultimate sanction of disbarment."
2

On September 30, 1999, while Commissioner Cunanan’s recommendation
for respondent’s disbarment was pending review before Executive
Vice-President and Northern Luzon Governor Teofilo Pilando,
respondent filed a motion requesting "for a full-blown
investigation and for invalidation of the entire proceedings
and/or remedial action under Section 11, Rule 139-B, Revised Rules
of Court," alleging that he had evidence that Commissioner
Cunanan’s report was drafted by the lawyers of complainant, Attys.
Antonio Cope and Rita Linda Jimeno. He presented two unsigned
anonymous letters allegedly coming from a disgruntled employee of
Attys. Cope and Jimeno. He claimed to have received these letters
in his mailbox.
3

Respondent’s motion alleging that Attys. Antonio Cope and Rita
Linda Jimeno drafted Commissioner Cunanan’s report was accompanied
by a complaint praying for the disbarment of said lawyers
including Commissioner Cunanan. The complaint was docketed as CBD
Case No. 99-658. After Attys. Cope and Jimeno and Commissioner
Cunanan filed their answers, a hearing was conducted by the
Investigating Committee of the IBP Board of Governors.
On May 26, 2001, the IBP Board of Governors issued a
resolution
4
dismissing for lack of merit the complaint for
disbarment against Attys. Cope and Jimeno and Commissioner
Cunanan. And in Adm. Case No. 2797, the Board adopted and approved
the report and recommendation of Commissioner Cunanan, and meted
against herein respondent Balicanta the penalty of suspension from
the practice of law for 5 years "for commission of acts of
misconduct and disloyalty by taking undue and unfair advantage of
his legal knowledge as a lawyer to gain material benefit for
himself at the expense of complainant Rosaura P. Jaldon-Cordon and
caused serious damage to the complainant."
5

To support its decision, the Board uncovered respondent’s
fraudulent acts in the very same documents he presented to
exonerate himself. It also took note of respondent’s contradictory
and irreconcilable statements in the pleadings and position papers
he submitted. However, it regarded the penalty of disbarment as
too severe for respondent’s misdeeds, considering that the same
were his first offense.
6

Pursuant to Section 12 (b), Rule 139-B of the Rules of Court,
7
the
said resolution in Administrative Case No. 2797 imposing the
penalty of suspension for 5 years on respondent was automatically
elevated to this Court for final action. On the other hand, the
dismissal of the complaint for disbarment against Attys. Cope and
Jimeno and Commissioner Cunanan, docketed as CBD Case No. 99-658,
became final in the absence of any petition for review.
This Court confirms the duly supported findings of the IBP Board
that respondent committed condemnable acts of deceit against his
client. The fraudulent acts he carried out against his client
followed a well thought of plan to misappropriate the corporate
properties and funds entrusted to him. At the very outset, he
embarked on his devious scheme by making himself the President,
Chairman of the Board, Director and Treasurer of the corporation,
although he knew he was prohibited from assuming the position of
President and Treasurer at the same time.
8
As Treasurer, he
accepted in behalf of the corporation the 19 titles that
complainant and her daughter co-owned. The other treasurer
appointed, Farnacio Bucoy, did not appear to be a stockholder or
director in the corporate records. The minutes of the meetings
supposedly electing him and Bucoy as officers of the corporation
actually bore the signatures of respondent and the secretary only,
contrary to his claim that they were signed by the directors and
stockholders.
He likewise misled the IBP investigating commission in claiming
that the mortgage of 9 of the properties of the corporation
previously belonging to complainant and her daughter was ratified
by the stockholders owning two-thirds or 67% of the outstanding
capital stock when in fact only three stockholders owning 111 out
of 1,750 outstanding shares or 6.3% assented thereto. The alleged
authorization granting him the power to contract the LBP loan for
Two Million Two Hundred Twenty Pesos (P2,220,000) was also not
approved by the required minimum of two-thirds of the outstanding
capital stock despite respondent’s claim to the contrary. In all
these transactions, complainant and her daughter who both owned
1,711 out of the 1,750 outstanding shares of the corporation or
97.7% never had any participation. Neither were they informed
thereof.
Clearly, there was no quorum for a valid meeting for the
discussion and approval of these transactions.
Respondent cannot take refuge in the contested voting trust
agreement supposedly executed by complainant and her daughter for
the reason that it authorized respondent to represent complainant
for only 266 shares.
Aside from the dishonest transactions he entered into under the
cloak of sham resolutions, he failed to explain several
discrepancies in his version of the facts. We hereby reiterate
some of these statements noted by Commissioner Cunanan in his
findings.
First, respondent blamed the directors and the stockholders who
failed to convene for the required annual meetings since 1982.
However, respondent appeared able to convene the stockholders and
directors when he contracted the LBP debt, when he sold to Jammang
the corporation’s right of redemption over the foreclosed
properties of the corporation, when he sold one parcel of land
covered by TCT No. 62807 to Jammang, when he mortgaged the 9
parcels of land to LBP which later foreclosed on said mortgage,
and when he sold the complainant’s ancestral home covered by TCT
No. 72004.
Second, the factual findings of the investigating commission,
affirmed by the IBP Board, disclosed that complainant and her
daughter own 1,711 out of 1,750 shares of the outstanding capital
stock of the corporation, based on the Articles of Incorporation
and deeds of transfer of the properties. But respondent’s evidence
showed that complainant had only 266 shares of stock in the
corporation while her daughter had none, notwithstanding the fact
that there was nothing to indicate that complainant and her
daughter ever conveyed their shares to others.
Respondent likewise did not explain why he did not return the
certificates representing the 266 shares after the lapse of 5
years from the time the voting trust certificate was executed in
1981.
9

The records show that up to now, the complainant and her daughter
own 97% of the outstanding shares but respondent never bothered to
explain why they were never asked to participate in or why they
were never informed of important corporate decisions.
Third, respondent, in his comment, alleged that due to the
objection of complainant and her daughter to his proposal to hire
an accountant, the corporation had no formal accounting of its
revenues and income. However, respondent’s position paper
maintained that there was no accounting because the part-time
bookkeeper of the corporation connived with complainant and her
daughter in keeping the corporate records.
Fourth, respondent’s claim that complainant and her daughter took
control of the operations of the corporation in 1986 is belied by
the fact that complainant and her daughter were not even present
in the alleged meeting of the board (which took place after 1986)
to discuss the foreclosure of the mortgaged properties. The truth
is that he never informed them of such meeting and he never gave
control of the corporation to them.
Fifth, Commissioner Cunanan found that:
"5. on the matter of the receipts issued by respondent evidencing
payment to him of rentals by lessees of the corporation, attached
to the complaint as Annexes ‘H’ to ‘H-17’, respondent claims that
the receipts are temporary in nature and that subsequently regular
corporate receipts were issued. On their face however the receipts
clearly appear to be official receipts, printed and numbered duly
signed by the respondent bearing his printed name.
"It is difficult to believe that a lawyer of respondent’s stature
would issue official receipts to lessees if he only meant to issue
temporary ones."
10

Sixth, respondent denies that he acted as Corporate Secretary
aside from being the Chairman, President and Treasurer of the
corporation. Yet respondent submitted to the investigating
commission documents which were supposed to be in the official
possession of the Corporate Secretary alone such as the stock and
transfer book and minutes of meetings.
Seventh, he alleged in his comment that he was the one who
proposed the establishment of the corporation that would invest
the properties of the complainant but, in his position paper, he
said that it was a certain Atty. Rosauro Alvarez who made the
proposal to put up the corporation.
After a thorough review of the records, we find that respondent
committed grave and serious misconduct that casts dishonor on the
legal profession. His misdemeanors reveal a deceitful scheme to
use the corporation as a means to convert for his own personal
benefit properties left to him in trust by complainant and her
daughter.
Not even his deviousness could cover up the wrongdoings he
committed. The documents he thought could exculpate him were the
very same documents that revealed his immoral and shameless ways.
These documents were extremely revealing in that they unmasked a
man who knew the law and abused it for his personal gain without
any qualms of conscience. They painted an intricate web of lies,
deceit and opportunism beneath a carefully crafted smokescreen of
corporate maneuvers.
The Code of Professional Responsibility mandates upon each lawyer,
as his duty to society, the obligation to obey the laws of the
land and promote respect for law and legal processes.
Specifically, he is forbidden to engage in unlawful, dishonest,
immoral or deceitful conduct.
11
If the practice of law is to remain
an honorable profession and attain its basic ideal, those enrolled
in its ranks should not only master its tenets and principles but
should also, in their lives, accord continuing fidelity to
them.
12
Thus, the requirement of good moral character is of much
greater import, as far as the general public is concerned, than
the possession of legal learning.
13
Lawyers are expected to abide
by the tenets of morality, not only upon admission to the Bar but
also throughout their legal career, in order to maintain one’s
good standing in that exclusive and honored fraternity.
14
Good
moral character is more than just the absence of bad character.
Such character expresses itself in the will to do the unpleasant
thing if it is right and the resolve not to do the pleasant thing
if it is wrong.
15
This must be so because "vast interests are
committed to his care; he is the recipient of unbounded trust and
confidence; he deals with his client’s property, reputation, his
life, his all."
16

Indeed, the words of former Presiding Justice of the Court of
Appeals Pompeyo Diaz cannot find a more relevant application than
in this case:
"There are men in any society who are so self-serving that they
try to make law serve their selfish ends. In this group of men,
the most dangerous is the man of the law who has no conscience. He
has, in the arsenal of his knowledge, the very tools by which he
can poison and disrupt society and bring it to an ignoble end."
17

Good moral standing is manifested in the duty of the lawyer "to
hold in trust all moneys and properties of his client that may
come into his possession."
18
He is bound "to account for all money
or property collected or received for or from the client."
19
The
relation between an attorney and his client is highly fiduciary in
nature. Thus, lawyers are bound to promptly account for money or
property received by them on behalf of their clients and failure
to do so constitutes professional misconduct.
20

This Court holds that respondent cannot invoke the separate
personality of the corporation to absolve him from exercising
these duties over the properties turned over to him by
complainant. He blatantly used the corporate veil to defeat his
fiduciary obligation to his client, the complainant. Toleration of
such fraudulent conduct was never the reason for the creation of
said corporate fiction.
The massive fraud perpetrated by respondent on the complainant
leaves us no choice but to set aside the veil of corporate entity.
For purposes of this action therefore, the properties registered
in the name of the corporation should still be considered as
properties of complainant and her daughter. The respondent merely
held them in trust for complainant (now an ailing 83-year-old) and
her daughter. The properties conveyed fraudulently and/or without
the requisite authority should be deemed as never to have been
transferred, sold or mortgaged at all. Respondent shall be liable,
in his personal capacity, to third parties who may have contracted
with him in good faith.
Based on the aforementioned findings, this Court believes that the
gravity of respondent’s offenses cannot be adequately matched by
mere suspension as recommended by the IBP. Instead, his
wrongdoings deserve the severe penalty of disbarment, without
prejudice to his criminal and civil liabilities for his dishonest
acts.
WHEREFORE, respondent Attorney Jesus T. Balicanta is hereby
DISBARRED. The Clerk of Court is directed to strike out his name
from the Roll of Attorneys.
SO ORDERED.

G.R. No. L-69259 January 26, 1988
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 the 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; and
3. 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 xxx
ATTY. 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, sir
Q 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.
G.R. No. 115849 January 24, 1996
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of
the Philippines) and MERCURIO RIVERA, petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO
DEMETRIA, and JOSE JANOLO,respondents.
D E C I S I O N
PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by
bank officers in an exchange of letters and/or in a meeting with
the buyers constitute a perfected and enforceable contract of sale
over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine
of "apparent authority" apply in this case? If so, may the Central
Bank-appointed conservator of Producers Bank (now First Philippine
International Bank) repudiate such "apparent authority" after said
contract has been deemed perfected? During the pendency of a suit
for specific performance, does the filing of a "derivative suit"
by the majority shareholders and directors of the distressed bank
to prevent the enforcement or implementation of the sale violate
the ban against forum-shopping?
Simply stated, these are the major questions brought before this
Court in the instant Petition for review oncertiorari 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
P200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay
plaintiffs the sum of P100,000.00 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 Parties
Petitioner First Philippine International Bank (formerly Producers
Bank of the Philippines; petitioner Bank, for brevity) is a
banking institution organized and existing under the laws of the
Republic of the Philippines. Petitioner Mercurio Rivera
(petitioner Rivera, for brevity) is of legal age and was, at all
times material to this case, Head-Manager of the 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 Facts
The 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. Rose, 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 for a 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, 1987
The Producers Bank of the Philippines
Makati, Metro Manila
Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept.
Gentleman:
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, 1987
JP M-P GUTIERREZ ENTERPRISES
142 Charisma St., Doña Andres II
Rosario, Pasig, Metro Manila
Attention: JOSE O. JANOLO
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 on the
matter.
Best regards.
(4) On September 17, 1987, plaintiff Janolo, responding to
Rivera's aforequoted reply, wrote (Exh. "D"):
September 17, 1987
Producers Bank
Paseo de Roxas
Makati, Metro Manila
Attention: Mr. Mercurio Rivera
Gentlemen:
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 Philippines
Paseo de Roxas, Makati
Metro Manila
Attention: Mr. Mercurio Rivera
Re: 101 Hectares of Land
in Sta. Rosa, Laguna
Gentlemen:
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 Investment, 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 Demetria
Dear 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
(Exh, "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 Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose
O. Janolo, to purchase your 101-hectare lot located in Sta.
Rosa, Laguna, and which are covered by TCT No. T-106932 to
106937.
From the documents at hand, it appears that your counter-
offer dated September 1, 1987 of this same lot in the amount
of P5.5 million was accepted by our client thru a letter
dated September 30, 1987 and was received by you on October
5, 1987.
In view of the above circumstances, we believe that an
agreement has been perfected. We were also informed that
despite repeated follow-up to consummate the purchase, you
now refuse to honor your commitment. Instead, you have
advertised for sale the same lot to others.
In behalf of our client, therefore, we are making this
formal demand upon you to consummate and execute the
necessary actions/documentation within three (3) days from
your receipt hereof. We are ready to remit the agreed amount
of P5.5 million at your advice. Otherwise, we shall be
constrained to file the necessary court action to protect
the interest of our client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged
receipt of the foregoing letter and stated, in its
communication of December 2, 1987 (Exh. "I"), that said
letter has been "referred . . . 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 (Exh. "L" and "L-
1"), this time through the Acting Conservator, defendant
Encarnacion. Plaintiffs' letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.: Atty. NIDA ENCARNACION
Central Bank Conservator
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
Rivers 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, petitioners 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 Issues
From 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 . . . [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 interwined that a judgement 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 wasplaintiff;
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 at 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 expenses 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 mis-used 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 prescribed 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 . .
."
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 dawn in the 1986 case of Buan vs.
Lopez
19
, also by Chief Justice Narvasa, and that is, forum
shopping exists where the elements oflitis 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 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 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. In Danville
Maritime, Inc. vs. Commission on Audit.
22
, this Court ruled that
the filing by a party of two apparently different actions, but
with the same objective,constituted forum shopping:
In the attempt to make the two actions appear to be
different, petitioner impleaded different respondents
therein — PNOC in the case before the lower court and the
COA in the case before this Court and sought what seems to
be different reliefs. Petitioner asks this Court to set
aside the questioned letter-directive of the COA dated
October 10, 1988 and to direct said body to approve the
Memorandum of Agreement entered into by and between the PNOC
and petitioner, while in the complaint before the lower
court petitioner seeks to enjoin the PNOC from conducting a
rebidding and from selling to other parties the vessel "T/T
Andres Bonifacio", and for an extension of time for it to
comply with the paragraph 1 of the memorandum of agreement
and damages. One can see that although the relief prayed for
in the two (2) actions are ostensibly different, the
ultimate objective in both actions is the same, that is,
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. (emphasis 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 oficio. It remained an effective vehicle for
obtention of relief; and petitioners' remedy in the premises
was plain and patent: the filing of an amended and
supplemental pleading in the RTC suit, so as to include the
PCGG as defendant and seek nullification of the acts sought
to be enjoined but nonetheless done. The remedy was
certainly not the institution of another action in another
forum based on essentially the same facts, The adoption of
this latter recourse renders the petitioners amenable to
disciplinary action and both their actions, in this Court as
well as in the Court a quo, dismissible.
In the instant case before us, there is also identity of parties,
or at least, of interests represented. Although the plaintiffs in
the Second Case (Henry L. Co. et al.) are not name parties in the
First Case, they represent the same interest and entity, namely,
petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they
have no direct personal interest in the matter in controversy.
They are not principally or even subsidiarily liable; much less
are they direct parties in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show
that the stockholders are bringing a "derivative suit". In the
caption itself, petitioners claim to have brought suit "for and in
behalf of the Producers Bank of the Philippines"
24
. Indeed, this
is the very essence of a derivative suit:
An individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he
holdsstock 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]; emphasis 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 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.
(emphasis 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 anyresponsive 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 front 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?YES
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 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 ad 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 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 scape 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-i (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, 1994, 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-1").
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 with
Beaumont vs. Prieto
37
.
However, the above-cited authorities and precedents cannot apply
in the instant case because, as found by the respondent Court
which reviewed the testimonies on this point, what was "accepted"
by Janolo in his letter dated September 30, 1987 was the 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 . . .
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 thisrevived 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' 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

. . . 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:
. . . 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's August 20, 1987 letter. We agree that, taken together,
these letters constitute sufficient memoranda — since they include
the names of the parties, the terms and conditions of the
contract, the price and a description of the property as the
object of the contract.
But let it be assumed arguendo that the counter-offer during the
meeting on September 28, 1987 did constitute a "new" offer which
was accepted by Janolo 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 a plenty — 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 we were able to meet Luis Co at the Bank.
xxx xxx xxx
Q Now, what transpired during this meeting with Luis Co of
the Producers Bank?
A Atty. Demetria asked Mr. Luis Co whether the price could
be reduced, sir.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount
cited by Mr. Mercurio Rivera is the final price and that is
the price they intends (sic) to have, sir.
Q What do you mean?.
A That is the amount they want, sir.
Q What is the reaction of the plaintiff Demetria to Luis
Co's statement (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.]
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.]
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 Revoke
the Perfected and Enforceable Contract.
It is not disputed that the petitioner Bank was under a
conservator placed by the Central Bank of the Philippines during
the time that the negotiation and perfection of the contract of
sale took place. Petitioners energetically contended that the
conservator has the power to revoke or overrule actions of the
management or the board of directors of a bank, under Section 28-A
of Republic Act No. 265 (otherwise known as the Central Bank Act)
as follows:
Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the
Monetary Board finds that a bank or a non-bank financial
intermediary performing quasi-banking functions is in a
state of continuing inability or unwillingness to maintain a
state of liquidity deemed adequate to protect the interest
of depositors and creditors, the Monetary Board may appoint
a conservator to take charge of the assets, liabilities, and
the management of that institution, collect all monies and
debts due said institution and exercise all powers necessary
to preserve the assets of the institution, reorganize the
management thereof, and restore its viability. He shall have
the power to overrule or revoke the actions of the previous
management and board of directors of the bank or non-bank
financial intermediary performing quasi-banking functions,
any provision of law to the contrary notwithstanding, and
such other powers as the Monetary Board shall deem
necessary.
In the first place, this issue of the 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. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of
Attys. Janolo and Demetria regarding the six (6) parcels of
land located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-
offer to any of your clients nor perfected a "contract to
sell and buy" with any of them for the following reasons.
In the "Inter-Office Memorandum" dated April 25, 1986
addressed to and approved by former Acting Conservator Mr.
Andres I. Rustia, Producers Bank Senior Manager Perfecto M.
Pascua detailed the functions of Property Management
Department (PMD) staff and officers (Annex A.), you will
immediately read that Manager Mr. Mercurio Rivera or any of
his subordinates has no authority, power or right to make
any alleged counter-offer. In short, your lawyer-clients did
not deal with the authorized officers of the bank.
Moreover, under Sec. 23 and 36 of the Corporation Code of
the Philippines (Bates 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 corportion/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. Encarnacion
LEONIDA T. EDCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives
vast and far-reaching powers to the conservator of a bank, it must
be pointed out that such powers must be related to the
"(preservation of) the assets of the bank, (the reorganization of)
the management thereof and (the restoration of) its viability."
Such powers, enormous and extensive as they are, cannot extend to
the post-facto repudiation of perfected transactions, otherwise
they would infringe against the non-impairment clause of the
Constitution
44
. If the legislature itself cannot revoke an
existing valid contract, how can it delegate such non-existent
powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator
power to revoke contracts that are, under existing law, deemed to
be defective — i.e., void, voidable, unenforceable or rescissible.
Hence, the conservator merely takes the place of a 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 or 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 Facts?
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:
. . . 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. . .
.
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, . . . (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.
(emphasis 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 . . . 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
. . . 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 seasonably 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.
Epilogue.
In summary, there are two procedural issues involved forum-
shopping and the raising of issues for the first time on appeal
[viz., the extinguishment of the Bank's offer of P5.5 million and
the conservator's powers to repudiate contracts entered into by
the Bank's officers] — which per se could justify the dismissal of
the present case. We did not limit ourselves thereto, but delved
as well into the substantive issues — the perfection of the
contract of sale and its enforceability, which required the
determination of questions of fact. While the Supreme Court is not
a trier of facts and as a rule we are not required to look into
the factual bases of respondent Court's decisions and resolutions,
we did so just the same, if only to find out whether there is
reason to disturb any of its factual findings, for we are only too
aware of the depth, magnitude and vigor by which the parties
through their respective eloquent counsel, argued their positions
before this Court.
We are not unmindful of the tenacious plea that the petitioner
Bank is operating abnormally under a government-appointed
conservator and "there is need to rehabilitate the Bank in order
to get it back on its feet . . . as many people depend on (it) for
investments, deposits and well as employment. As of June 1987, the
Bank's overdraft with the Central Bank had already reached P1.023
billion . . . and there were (other) offers to buy the subject
properties for a substantial amount of money."
53

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 P3.5 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.

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 the 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.
29
Allowing
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."
40
The 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.

G.R. No. L-41337 June 30, 1988
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
in the 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.

G.R. No. L-23893 October 29, 1968
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 Sancho
5
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 purchased
9
and Aristedes Solano, an employee of
the Philippine Bank of Commerce,
10
as 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.
14
Hence,
secondary evidence is admissible where he denies having it in his
possession. The party calling for such evidence may introduce a
copy thereof as in the 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;
17
there 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 name
22
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,
27
he 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,
33
whether 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 will
35
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 matter
37
says:
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,
40
that "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. Bachrach
41
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,
43
the 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.

G.R. Nos. 111810-11 June 16, 1995
JAMES YU and WILSON YOUNG, petitioners,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER DANIEL C.
CUETO, TANDUAY DISTILLERY INC., FERNANDO DURAN, EDUARDO PALIWAN,
ROQUE ESTOCE AND RODRIGO SANTOS,respondents.

MELO, J.:
Before us is a petition for certiorari assailing the decision of
public respondent National Labor Relations Commission (NLRC)
promulgated on August 25, 1993 in the cases of Fernando Duran, et
al. vs. Tanduay Distillery, Inc., docketed as NLRC NCR Case No.
00-04-01737-88, and Rodrigo Santos vs. Tanduay Distillery,
Inc.,docketed as NLRC NCR Case No. 00-06-02546-88.
The relevant antecedent facts as gathered from the record are as
follows:
Private respondents-employees Fernando Duran, Eduardo Paliwan,
Roque Estoce, and Rodrigo Santos were employees of respondent
corporation Tanduay Distillery, Inc, (TDI).
On March 29, 1988, 22 employees of TDI, including private
respondents employees, received a memorandum from TDI terminating
their services. for reasons of retrenchment, effective 30 days
from receipt thereof or not later than the close of business hours
on April 28, 1988.
On April 26, 1988, all 22 employees of TDI filed an application
for the issuance of a temporary restraining order against their
retrenchment. The labor arbiter issued the restraining order the
following day. However, due to the 20-day lifetime of the
temporary restraining order, and because of the on-going
negotiations for the sale of TDI the retrenchment pushed through.
Parenthetically, it should be mentioned that although all 22
employees were retrenched, the instant petition involves only the
4 individual respondents herein, namely, Fernando Duran, Eduardo
Paliwan, Roque Estoce, and Rodrigo Santos.
On June 14, 1988, the First Pacific Metro Corporation moved that
it be dropped as a party to the case on the ground that its
projected purchase of the assets of TDI was not consummated. The
participation of First Pacific was later in effect held to be
irrelevant (decision dated May 24, 1989; Annex G, pp. 50-
58, Rollo). On June 1, 1988, or after respondents-employees had
ceased as such employees, a new buyer of TDI's assets, Twin Ace
Holdings, Inc. took over the business. Twin Ace assumed the
business name Tanduay Distillers.
On August 8, 1988, the employees filed a motion to implead herein
petitioners James Yu and Wilson Young, doing business under the
name and style of Tanduay Distillers, as party respondents in said
cases. Petitioners filed an opposition thereto, asserting that
they are representatives of Tanduay Distillers an entity distinct
and separate from TDI, the previous owner, and that there is no
employer-employee relationship between Tanduay Distillers and
private respondents. Respondents-employees filed a reply to the
opposition stating that petitioner James Yu as officer-in-charge
of Tanduay Distillers had informed the president of TDI labor
union of Tanduay Distillers' decision to hire everybody with a
clean slate on a probation basis.
On November 16, 1988, private respondents filed a motion for leave
to file an amended complaint impleading petitioners as
respondents. Petitioners filed an opposition thereto reiterating
the grounds they relied upon in their opposition to private
respondents' motion to implead. A reply was filed by private
respondents, and a rejoinder was then filed by petitioners. In
turn, private respondents filed a sub-rejoinder.
Subsequently, an amended complaint was filed by private
respondents against TDI and petitioners Yu and Young "doing
business under the name and style of Tanduay Distillers".
In her decision dated May 24, 1989, Labor Arbiter Daisy Cauton-
Barcelona held:
In treating the motion to implead a motion to admit
amended complaint with leave, the same [is] hereby
given due course and all pleadings filed by
respondents James Yu and Wilson Young are hereby
treated as their responsive pleadings in the light of
speedy disposition of justice and the basic rule that
administrative fora, such as this office, are not
governed by technical rules of proceedings.
(p. 52, Rollo).
In the same decision, it was disposed:
WHEREFORE, judgment is hereby rendered and declaring
that the retrenchment is illegal thereby ordering
respondent Tanduay Distillery, Inc., to reinstate the
complainants to their former position with backwages
up to the time of change of ownership, if one has
taken place.
That in the event of change in management it (Tanduay
Distillery, Inc.,) is hereby ordered to pay the
complainants their respective separation benefits
computed at the rate of one (1) month for every year
of service. This is without prejudice to the letter of
Mr. James Yu as officer-in-charge of Tanduay
Distillers dated June 17, 1988 to the President of the
Tanduay Distillery, Inc., Labor Union.
(pp. 57-58, Rollo.)
Only TDI appealed said decision to the National Labor Relations
Commission, but on June 18, 1991, said commission promulgated an
affirmance decision (p. 102, Rollo). TDI filed a motion for
reconsideration, but the same was denied on August 15, 1991.
Thereupon, private respondents-employees on September 16, 1991
filed a motion for execution (Annex Q, pp. 103-106, Rollo) praying
that NLRC through the labor arbiter, "[i]ssue the necessary writ
for the execution of the entire decision dated May 24, 1989,
including the actual reinstatement of the complainants to their
former position without loss of seniority and benefits against
Tanduay Distillery, Inc., and/or Tanduay Distillers, James Yu and
Wilson Young."
On September 24, 1993, petitioners filed an opposition (Annex R,
pp. 108-110, Rollo) to the motion for execution on the ground that
"the Motion for Execution is without any basis in so far as it
prays for the issuance of a writ of execution against respondent
Tanduay Distillers, which is an entity separate and distinct from
respondent Tanduay Distillery, Inc., and respondents James Yu and
Wilson Young." Respondents-employees filed their reply thereto
(Annex S, pp. 111-115, Rollo), and in turn petitioners filed their
rejoinder (Annex T, pp. 116-118, Rollo), to which private
respondents filed their sur-rejoinder (Annex U, pp. 119-
122, Rollo). On December 18, 1991, respondent TDI filed its
comment on the motion for execution (Annex V, pp. 124-129, Rollo),
while petitioners on January 10, 1992, filed a joint comment
(Annex W, pp. 130-132, Rollo) to private respondents' sur-
rejoinder as well to the comment filed by respondent TDI.
Subsequently, TDI filed a manifestation dated April 24, 1992
(Annex X, pp. 133-135, Rollo), stating —
2. At the hearing held on March 23, 1992, individual
complainants, assisted by their counsel, Atty. Noel
Cruz, agreed to be paid the total amount of
P86,049.83, in full satisfaction of the Company's
liability as stated in the dispositive portion of
Labor Arbiter Barcelona's decision promulgated on May
24, 1989 and affirmed by the Second Division of the
NLRC on June 18, 1991, which reads as follows:
WHEREFORE, judgment is hereby rendered
declaring that the retrenchment is illegal
thereby ordering respondent Tanduay
Distillery, Inc. to reinstate the
complainants to their former position with
backwages up to the time of the change of
ownership, if one has taken place.
That in the event of change in management
it (Tanduay Distillery, Inc.( is hereby
ordered to pay the complainants their
respective separation benefits computed at
the rate of one (1) month of every year of
service. This is without prejudice to the
letter of Mr. James Yu as officer-in-
charge of Tanduay Distillers dated June
17, 1988 to the President of the Tanduay
Distillery, Inc., Labor Union.
No Costs.
SO ORDERED.
1. In accordance with the aforequoted decision,
complainants shall be paid the amounts appearing
opposite their respective names:
Rodrigo F.
Santos
P20,282.03
Roque Estoce 20,092.50
Eduardo Daliwan 19,973.40
Fernando A.
Duran
25,702.00
—————
Total P86,049.83
=========
4. The foregoing amounts shall be satisfied out of the
cash bond deposited by the Company with the Cashier of
the NLRC. The excess amounting to P7,076.44 must
revert to the Company.
(pp. 134-135, Rollo.)
On November 17, 1992, respondent NLRC, through Labor Arbiter
Daniel C. Cueto, issued an order (Annex Z, pp. 139-145, Rollo),
resolving the motion for execution as follows:
Based on the foregoing considerations, this Branch
finds the Motion for Writ of Execution filed by the
complainants meritorious and in order. Accordingly,
let a Writ of Execution be issued against Tanduay
Distiller, Inc., Wilson Young and James Yu to
immediately reinstate complainants Fernando Duran,
Rodrigo Santos, Roque Estoce and Eduardo Daliwan to
their respective positions.
(p 145, Rollo.)
Consequently, a writ of execution was issued by Labor Arbiter
Cueto on December 16, 1992.
To stop the implementation of the writ of execution, petitioners
filed a petition for certiorari (Annex AA, pp. 146-
158, Rollo before respondent NLRC, praying that —
1. Immediately upon filing of the instant case, a
temporary restraining order he issued, to wit.
a) Enjoining and restraining the
respondents from implementing the Order
dated November 17, 1992;
b.) Commanding the public respondent to
desist from acting on the Order,
c.) Commanding the respondents to desist
from committing any other act judicial to
the petitioners/appellants.
2. After the appropriate proceedings, a writ of
preliminary injunction be issued so enjoining the
respondents;
3. After hearing on the merits, the Order dated
November 17, 1992 be set aside and an injunction be
issued permanently enjoining the respondents from
committing the aforesaid acts and to comply strictly
with terms of the Decision and the NLRC;
4. Ordering the respondents, jointly and severally, to
pay petitioner's fees in the amount of P100,000.00 and
to pay the cost of suit.
On August 25, 1993, respondent NLRC promulgated its decision, the
dispositive portion of which reads:
In view of the foregoing premises, the petition/appeal
with prayer for preliminary injunction is hereby
dismissed for lack of merit.
The petitioners respondents are hereby directed to re
re-employ/re-hire respondents-complainants immediately
upon receipt of this decision.
(p. 36, Rollo.)
Thus, the present petition where petitioners pray that —
1. Immediately upon filing of the instant case, a
temporary restraining order be issued, to wit:
a) Restraining and prohibiting the
respondents form implementing the ORDER
dated November 17, 1992 and the
NLRC Certiorari Decision.
b) Commanding the respondents to desist
from committing any other act prejudicial
to the petitioners.
2. After the appropriate proceedings, a writ of
preliminary injunction be issued so enjoining the
respondents;
3. After appropriate proceedings, the ORDER dated
November 17, 1992 and the NLRC CertiorariDecision be
set aside and a injunction be issued permanently
enjoining the respondents from committing the
aforesaid acts and to comply strictly with the terms
of the Arbiter Decision and the NLRC Decision;
4. Ordering the respondents, jointly and severally, to
pay petitioners' attorney's fees in the amount of
P100,000.00 and to pay the costs of suit.
(pp. 26-27, Rollo.)
The issue posed by the present petition is whether respondent NLRC
committed grave abuse of discretion in holding petitioners Yu and
Young liable under the decision dated May 24, 1989 which decreed
that:
WHEREFORE, judgment is hereby rendered declaring that
the retrenchment is illegal thereby ordering
respondent Tanduay Distillery Inc., to reinstate the
complainants to their former position with backwages
up to the time of the change ownership, if one has
taken place.
That in the event of change in management it (Tanduay
Distillery, Inc.) is hereby ordered to pay the
complainants their respective separation benefits
corrupted at the rate of one (1) month for every year
of service. This is without prejudice to the letter of
Mr. James Yu as officer-in-charge of Tanduay
Distillers dated June 17, 1988 to the President of the
Tanduay Distillery, Inc., Labor Union.
(pp. 57-58, Rollo.)
We hold that petitioners, for a number of reasons which we shall
discuss below, may not be held answerable and liable under the
final judgment of Labor Arbiter Cauton-Barcelona.
1. Admittedly, the decision dated May 24, 1989 is now final and
executory, as only respondent TDI appealed said decision and its
appeal was later dismissed by respondent NLRC. It is fundamental
that a final and executory decision cannot be amended or corrected
(First Integrated Bonding and Insurance Company, Inc, vs.
Hernando, 199 SCRA 796 [1991]) except for clerical errors or
mistakes (Maramba vs. Lozano, 20 SCRA 474 [1967]); Reyes vs. Court
of Appeals, 189 SCRA 46 [1990]). A definitive judgment is no
longer subject to change, revision, amendment, or reversal
(Miranda vs. Court of Appeals, 71 SCRA 295 [1976], and the court
loses jurisdiction over it, except to order its execution (PY Eng
Chong vs. Herrera, 70 SCRA 130 (1976]).
An examination of the aforequoted dispositive portion of the
decision shows that the same does not in any manner obligate
Tanduay Distillers, or even petitioners Yu and Young for that
matter, to reinstate respondents. Only TDI was held liable to
reinstate respondents up to the time of change of ownership, and
for separation benefits.
However, Labor Arbiter Cueto went beyond what was disposed by the
decision and issued an order dated November 17, 1992 (Annex Z,
Petition, pp. 139-145, Rollo) which required
. . . Tanduay Distillers, Inc., Wilson Young and James
Yu to immediately reinstate complainants Fernando
Duran, Rodrigo Santos, Roque Estoce and Eduardo
Daliwan to heir respective positions.
(p. 145, Rollo.)
Subsequently, a writ of execution was issued on December 16, 1992
pursuant to the order of November 17, 1992.
The order of execution dated November 17, 1992 in effect amended
the decision dated May 24, 1989 for the former orders petitioners
and Tanduay Distillers to reinstate private respondents employees
whereas the decision dated May 24, 1989, as we have discussed
above, does not so decree, This cannot be done. It is beyond the
power and competence of Labor Arbiter Cueto to amend a final
decision, The writ of execution must not go beyond the scope of
the judgment.
As Chief Justice Moran opined: "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. Nor may it go beyond the terms of the
judgment, 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" (Moran,
Comments on the Rules of Court, Vol. I 1952 Ed., p.
809; cited in Villoria vs. Piccio,supra).
(Gamboa's Incorporated vs. Court of
Appeals, 72 SCRA 131, 137-138 [1976])
The order of execution and the writ of execution ordering
petitioners and Tanduay Distillers to reinstate private
respondents employees are, therefore, null and void.
2. Neither may be said that petitioners and Tanduay Distillers are
one and the same as TDI, as seems to be the impression of
respondents when they impleaded petitioners as party respondents
in their compliant for unfair labor practice, illegal lay off, and
separation benefits.
Such a stance is not supported by the facts. The name of the
company for whom the petitioners are working is Twin Ace Holdings
Corporation, As stated by the Solicitor General, Twin Ace is part
of the Allied Bank Group although it conducts the rum business
under the name of Tanduay Distillers. The use of a similar
sounding or almost identical name is an obvious device to
capitalize on the goodwill which Tanduay Rum has built over the
years. Twin Ace or Tanduay Distillers, on one hand, and Tanduay
Distillery Inc. (TDI), on the other, are distinct and separate
corporations. There is nothing to suggest that the owners of TDI,
have any common relationship as to identify it with Allied Bank
Group which runs Tanduay Distillers. The dissertation of the Court
in Diatagon Labor Federation Local 110 of the ULGWP vs. Ople, et
al. (101 SCRA 534 [1980]) is worthy of restatement, thusly:
We hold that the director of labor Relations acted
with grave abuse of discretion in treating the two
companies as a single bargaining unit. The ruling is
arbitrary and untenable because the two companies are
indubitably distinct entities with separate juridical
personalities.
The fact that their businesses are related and that
the 236 employees of Georgia Pacific International
Corporation were originally employees of Lianga Bay
Logging Co., Inc, is not a justification for
disregarding their separate personalities. Hence, the
236 employees, who are now attached to Georgia Pacific
International should not be allowed to vote in the
certification election at the Lianga Bay Logging Co.,
Inc. They should vote at a separate certification
election to determine the collective bargaining
representative of the employees of Georgia Pacific
International Corporation.
(at pp. 540-541.)
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 (Palay, Inc. et al. vs. Clave, et al., 124
SCRA 641 [1983]).
The genuine nature of the sale to Twin Ace is evidenced by the
fact that Twin Ace was only a subsequent interested buyer. At the
time when termination notices were sent to its employees, TDI was
negotiating with the First Pacific Metro Corporation for the sale
of its assets. Only after First Pacific gave up its efforts to
acquire the assets did Twin Ace or Tanduay Distillers come into
the picture. Respondents-employees have not presented any proof as
to communality of ownership and management to support their
contention that the two companies are one firm or closely related.
The doctrine of piercing the veil of corporate entity applies when
the corporate fiction is used to defeat public convenience,
justify wrong, protect fraud, or defend crime or where a
corporation is the mere alter ego or business conduit of a person
(Indophil Textile Mill Workers Union vs. Calica, 205 SCRA 697, 703
(1992]). To disregard the separate juridical personality of a
corporation, the wrong-doing must be clearly and convincingly
established. It cannot be presumed (Del Rosario vs. NLRC, 187 SCRA
777, 7809 [1990]).
The complaint for unfair labor practice, illegal lay off, and
separation benefits was filed against TDI. Only later when the
manufacture and sale of Tanduay products was taken over by Twin
Ace or Tanduay Distillers were James Yu and Wilson Young
impleaded.
The corporation itself — Twin Ace or Tanduay Distillers — was
never made a party to the case.
Another factor to consider is that TDI as a corporation or its
shares of stock were not purchased by Twin Ace. The buyer limited
itself to purchasing most of the assets, equipment, and machinery
of TDI. Thus, Twin Ace or Tanduay Distillers did not take over the
corporate personality of DTI although they manufacture the same
product at the same plant with the same equipment and machinery.
Obviously, the trade name "Tanduay" went with the sale because the
new firm does business as Tanduay Distillers and its main product
of rum is sold as Tanduay Rum. There is no showing, however, that
TDI itself was absorbed by Twin Ace or that it ceased to exist as
a separate corporation, In point of fact TDI is now herein a party
respondent represented by its own counsel.
Significantly, TDI in the petition at hand has taken the side of
its former employees and argues against Tanduay Distillers. In its
memorandum filed on January 9, 1995, TDI argues that it was not
alone its liability which arbiter recognized "but also of James Yu
and Wilson Young representatives of Twin Ace and/or the Allied
Bank Group doing business under the name "TANDUAY DISTILLERS," to
whom the business and assets of TDI were sold." If TDI and
Tanduay, Distillers are one and the same group or one is a
continuation of the other, the two would not be fighting each
other in this case. TDI would not argue strongly "that the
petition for certiorari filed by James Yu and Wilson Young be
dismissed for lack of merit." It is obvious that the second
corporation, Twin Ace or Tanduay Distillers, is an entity separate
and distinct, from the first corporation, TDI. The circumstances
of this case are different from the earlier decisions of the Court
in labor cases where the veil of corporate fiction was pierced.
In La Campana Coffee Factory. Inc. vs. Kaisahan ng Mangagawa 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, the workers in one
factory worked also in the other factory.
In Claparols vs. Court of Industrial Relations (65 SCRA 613
(1975]), the Claparols Steel and Nail Plant, which was ordered to
pay its workers backwages, ceased operations on June 30, 1956 and
was succeeded on the very 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.
In fine, the fiction of separate and distinct corporate entities
cannot, in the instant case, be disregarded and brushed aside,
there being not the least indication that the second corporation
is a dummy or serves as a client of the first corporate entity.
In the case at bench, since TDI and Twin Ace or Tanduay Distillers
are two separate and distinct entities, the order for Tanduay
Distillers (and petitioners) to reinstate respondents-employees is
obviously without legal and factual basis.
3. Nor could the order and writ to reinstate be anchored on the
vague and seemingly uncalled for alternative disposition in the
Barcelona decision that —
. . . This is without prejudice to the letter of Mr.
James Yu as officer-in-charge of Tanduay Distillers
dated June 16, 1988 to the President of the Tanduay
Distillery, Inc. labor Union.
The June 11, 1988 letter referred to was addressed to Benjamin C.
Agaloos, president of the Tanduay Distillery Labor Union by James
Yu in his capacity as officer-in-charge of Tanduay Distillers.
It pertinently reads:
Please be informed that our company stands firm on its
decision to hire everybody with a clean slate
effective June 1, 1988 on a probationary basis while
those currently casual or contractual employees shall
retain the same employment status. In the same manner
that the new company stood firm on its decision to
grant a 10% across-the-board increase to all
employees, which in fact has been received by
employees concerned.
(p. 88, Rollo.)
We do not find in the decision of Labor Arbiter Cauton Barcelona
or in the letter of James Yu what the respondents are trying to
read into it. Labor Arbiter Cauton-Barcelona found the
retrenchment effected by TDI illegal and ordered TDI to reinstate
the complainants and that if there is a change of management, then
separation benefits would be paid. There is, however, no order in
the decision directing Twin Ace or Tanduay Distillers to hire or
reinstate herein four individual respondents.
The letter of James Yu does not mention any reinstatement. It
assures the president of the labor union that Tanduay Distillers
stood firm on its decision to hire employees with a clean slate on
a probationary basis. The fact that the employees of the former
employer (TDI) would be hired on a probationary basis shows that
there was no employer-employee relationship between individual
respondents and Twin Ace. Any one who joins the buyer corporation
comes in as an outsider who is newly hired and who starts on a
probationary basis until he proves he deserves to be on a
permanent status. His application can be rejected in the exercise
of the hiring authority's discretion.
There is thus no legal basis for Labor Arbiter Cueto or the NLRC
to compel Twin Ace or Tanduay Distillers, or petitioners to
"reinstate" the four individual respondents. The letter of James
Yu to the union president was a unilateral and gratuitous offer
with no consideration. It refers to people who still have to be
hired. New hires had to be investigated or evaluated if they have
"clean slates." Twin Ace or Tanduay Distillers and petitioners are
being compelled by public respondents to reinstate workers who
were never their employees. There is no showing that the sale of
assets by TDI to Tanduay Distillers included a condition that
employees of the former would be absorbed by the latter.
Employees of TDI had been terminated in their employment as of
April 28, 1988. Petitioners state that Twin Ace bought the assets
of TDI after the employment of the individual respondents had been
terminated. True, Labor Arbiter Cauton-Barcelona declared the
retrenchment program of TDI as illegal. This decision, however,
did not convert the individual respondents into employees of the
firm which purchased the assets of the former employer. It merely
held TDI liable for the consequences of the illegal retrenchment.
Labor Arbiter Cueto and the NLRC, therefore, committed grave abuse
of discretion when they read into the decision of Labor Arbiter
Cauton- Barcelona something which did not appear therein. And even
assuming that Labor Arbiter Cauton-Barcelona formally included an
order for the petitioners to hire the individual respondents,
there would be no factual or legal basis for such an order. An
employer-employee relation is created by contract, and can not be
forced upon either party simply upon order of a labor arbiter. The
hiring of employees is one of the recognized prerogatives of
management.
4. Another factor which militates against the claim for
reinstatement of the individual respondents is their having
received separation pay as part of a compromise agreement in the
course of their litigation with TDI. Rodrigo F. Santos received
P20,282.03; Roque Estoce, P20,092.50; Eduardo Daliwan, P19,973.40;
and Fernando A. Duran, P25,702.00. These amounts correspond to
their entitlement to separation benefits. Having received
separation pay from a former employer, how can they compel, as a
matter of right, another company to hire them on a supposed
"reinstatement" basis? The orders executing the earlier decision
of Labor Arbiter Cauton-Barcelona and directing petitioners to
immediately reinstate the four individual respondents to their
former positions are, thus, characterized by grave abuse of
discretion. There are no "former positions" to which individual
respondents may be reinstated because they never hired by Twin
Ace/Tanduay Distillers and had never worked for it.
WHEREFORE, the petition is hereby GRANTED, The questioned Order of
the Labor Arbiter Daniel C. Cueto dated November 17, 1992 and the
decision of the National Labor Relations Commission upholding said
order are set aside as null and void. No special pronouncement is
made as to costs.
SO ORDERED.

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