Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-19118 January 30, 1965

MARIANO A. ALBERT, plaintiff-appellant,

vs.
UNIVERSITY PUBLISHING CO., INC., defendant-appellee.

Uy & Artiaga and Antonio M. Molina for plaintiff-appellant.

Aruego, Mamaril & Associates for defendant-appellees.

BENGZON, J.P., J.:

No less than three times have the parties here appealed to this Court.

In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to damages (for breach of contract)
but reduced the amount from P23,000.00 to P15,000.00.

Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the judgment for P15,000.00 which
had become final and executory, should be executed to its full amount, since in fixing it, payment already made had been
considered.

Now we are asked whether the judgment may be executed against Jose M. Aruego, supposed President of University Publishing
Co., Inc., as the real defendant.

Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing Co., Inc. Plaintiff allegedinter alia that
defendant was a corporation duly organized and existing under the laws of the Philippines; that on July 19, 1948, defendant,
through Jose M. Aruego, its President, entered into a contract with plaintifif; that defendant had thereby agreed to pay plaintiff
P30,000.00 for the exclusive right to publish his revised Commentaries on the Revised Penal Code and for his share in previous
sales of the book's first edition; that defendant had undertaken to pay in eight quarterly installments of P3,750.00 starting July
15, 1948; that per contract failure to pay one installment would render the rest due; and that defendant had failed to pay the
second installment.

Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the execution and terms of the contract
dated July 19, 1948; but alleged that it was plaintiff who breached their contract by failing to deliver his manuscript. Furthermore,
defendant counterclaimed for damages.1wph1.t

Plaintiff died before trial and Justo R. Albert, his estate's administrator, was substituted for him.

The Court of First Instance of Manila, after trial, rendered decision on April 26, 1954, stating in the dispositive portion

IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiff and against the defendant the
University Publishing Co., Inc., ordering the defendant to pay the administrator Justo R. Albert, the sum of P23,000.00
with legal [rate] of interest from the date of the filing of this complaint until the whole amount shall have been fully paid.
The defendant shall also pay the costs. The counterclaim of the defendant is hereby dismissed for lack of evidence.

As aforesaid, we reduced the amount of damages to P15,000.00, to be executed in full. Thereafter, on July 22, 1961, the court a
quo ordered issuance of an execution writ against University Publishing Co., Inc. Plaintiff, however, on August 10, 1961,
petitioned for a writ of execution against Jose M. Aruego, as the real defendant, stating, "plaintiff's counsel and the Sheriff of
Manila discovered that there is no such entity as University Publishing Co., Inc." Plaintiff annexed to his petition a certification
from the securities and Exchange Commission dated July 31, 1961, attesting: "The records of this Commission do not show the
registration of UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership." "University Publishing Co., Inc."
countered by filing, through counsel (Jose M. Aruego's own law firm), a "manifestation" stating that "Jose M. Aruego is not a
party to this case," and that, therefore, plaintiff's petition should be denied.
Parenthetically, it is not hard to decipher why "University Publishing Co., Inc.," through counsel, would not want Jose M. Aruego
to be considered a party to the present case: should a separate action be now instituted against Jose M. Aruego, the plaintiff will
have to reckon with the statute of limitations.

The court a quo denied the petition by order of September 9, 1961, and from this, plaintiff has appealed.

The fact of non-registration of University Publishing Co., Inc. in the Securities and Exchange Commission has not been
disputed. Defendant would only raise the point that "University Publishing Co., Inc.," and not Jose M. Aruego, is the party
defendant; thereby assuming that "University Publishing Co., Inc." is an existing corporation with an independent juridical
personality. Precisely, however, on account of the non-registration it cannot be considered a corporation, not even a
corporation de facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose M. Aruego; it cannot be
sued independently.

The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is inapplicable here. Aruego represented a
non-existent entity and induced not only the plaintiff but even the court to believe in such representation. He signed the contract
as "President" of "University Publishing Co., Inc.," stating that this was "a corporation duly organized and existing under the laws
of the Philippines," and obviously misled plaintiff (Mariano A. Albert) into believing the same. One who has induced another to
act upon his wilful misrepresentation that a corporation was duly organized and existing under the law, cannot thereafter set up
against his victim the principle of corporation by estoppel (Salvatiera vs. Garlitos, 56 O.G. 3069).

"University Publishing Co., Inc." purported to come to court, answering the complaint and litigating upon the merits. But as
stated, "University Publishing Co., Inc." has no independent personality; it is just a name. Jose M. Aruego was, in reality, the one
who answered and litigated, through his own law firm as counsel. He was in fact, if not, in name, the defendant.

Even with regard to corporations duly organized and existing under the law, we have in many a case pierced the veil of
corporate fiction to administer the ends of justice. * And in Salvatiera vs. Garlitos, supra, p. 3073, we ruled: "A person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes
personally liable for contracts entered into or for other acts performed as such agent." Had Jose M. Aruego been named as party
defendant instead of, or together with, "University Publishing Co., Inc.," there would be no room for debate as to his personal
liability. Since he was not so named, the matters of "day in court" and "due process" have arisen.

In this connection, it must be realized that parties to a suit are "persons who have a right to control the proceedings, to make
defense, to adduce and cross-examine witnesses, and to appeal from a decision" (67 C.J.S. 887) and Aruego was, in reality,
the person who had and exercised these rights. Clearly, then, Aruego had his day in court as the real defendant; and due
process of law has been substantially observed.

By "due process of law" we mean " "a law which hears before it condemns; which proceeds upon inquiry, and renders judgment
'p[only after trial. ... ." (4 Wheaton, U.S. 518, 581.)"; or, as this Court has said, " "Due process of law" contemplates notice and
opportunity to be heard before judgment is rendered, affecting one's person or property" (Lopez vs. Director of Lands, 47 Phil.
23, 32)." (Sicat vs. Reyes, L-11023, Dec. 14, 1956.) And it may not be amiss to mention here also that the "due process" clause
of the Constitution is designed to secure justice as a living reality; not to sacrifice it by paying undue homage to formality.
For substance must prevail over form. It may now be trite, but none the less apt, to quote what long ago we said in Alonso vs.
Villamor, 16 Phil. 315, 321-322:

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement
and position, entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays
before the court the facts in issue and then, brushing side as wholly trivial and indecisive all imperfections of form and
technicalities of procedure, asks that Justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a
rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and
chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities.

The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent principal, was the real party to the
contract sued upon; that he was the one who reaped the benefits resulting from it, so much so that partial payments of the
consideration were made by him; that he violated its terms, thereby precipitating the suit in question; and that in the litigation he
was the real defendant. Perforce, in line with the ends of justice, responsibility under the judgment falls on him.

We need hardly state that should there be persons who under the law are liable to Aruego for reimbursement or contribution with
respect to the payment he makes under the judgment in question, he may, of course, proceed against them through proper
remedial measures.
PREMISES CONSIDERED, the order appealed from is hereby set aside and the case remanded ordering the lower court to hold
supplementary proceedings for the purpose of carrying the judgment into effect against University Publishing Co., Inc. and/or
Jose M. Aruego. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

Adm. Matter No. R-181-P July 31, 1987

ADELIO C. CRUZ, complainant,

vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila, respondents.

RESOLUTION

FERNAN, J.:

In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged Quiterio L. Dalisay, Senior Deputy Sheriff of Manila, with
"malfeasance in office, corrupt practices and serious irregularities" allegedly committed as follows:

1. Respondent sheriff attached and/or levied the money belonging to complainant Cruz when he was not himself the judgment
debtor in the final judgment of NLRC NCR Case No. 8-12389-91 sought to be enforced but rather the company known as
"Qualitrans Limousine Service, Inc.," a duly registered corporation; and,

2. Respondent likewise caused the service of the alias writ of execution upon complainant who is a resident of Pasay City,
despite knowledge that his territorial jurisdiction covers Manila only and does not extend to Pasay City.

In his Comments, respondent Dalisay explained that when he garnished complainant's cash deposit at the Philtrust bank, he
was merely performing a ministerial duty. While it is true that said writ was addressed to Qualitrans Limousine Service, Inc., yet it
is also a fact that complainant had executed an affidavit before the Pasay City assistant fiscal stating that he is the
owner/president of said corporation and, because of that declaration, the counsel for the plaintiff in the labor case advised him to
serve notice of garnishment on the Philtrust bank.

On November 12, 1984, this case was referred to the Executive Judge of the Regional Trial Court of Manila for investigation,
report and recommendation.

Prior to the termination of the proceedings, however, complainant executed an affidavit of desistance stating that he is no longer
interested in prosecuting the case against respondent Dalisay and that it was just a "misunderstanding" between them. Upon
respondent's motion, the Executive Judge issued an order dated May 29, 1986 recommending the dismissal of the case.

It has been held that the desistance of complainant does not preclude the taking of disciplinary action against respondent.
Neither does it dissuade the Court from imposing the appropriate corrective sanction. One who holds a public position,
especially an office directly connected with the administration of justice and the execution of judgments, must at all times be free
from the appearance of impropriety.1

We hold that respondent's actuation in enforcing a judgment against complainant who is not the judgment debtor in the case
calls for disciplinary action. Considering the ministerial nature of his duty in enforcing writs of execution, what is incumbent upon
him is to ensure that only that portion of a decision ordained or decreed in the dispositive part should be the subject of
execution.2 No more, no less. That the title of the case specifically names complainant as one of the respondents is of no
moment as execution must conform to that directed in the dispositive portion and not in the title of the case.

The tenor of the NLRC judgment and the implementing writ is clear enough. It directed Qualitrans Limousine Service, Inc. to
reinstate the discharged employees and pay them full backwages. Respondent, however, chose to "pierce the veil of corporate
entity" usurping a power belonging to the court and assumed improvidently that since the complainant is the owner/president of
Qualitrans Limousine Service, Inc., they are one and the same. It is a well-settled doctrine both in law and in equity that as a
legal entity, a corporation has a personality distinct and separate from its individual stockholders or members. The mere fact that
one is president of a corporation does not render the property he owns or possesses the property of the corporation, since the
president, as individual, and the corporation are separate entities.3
Anent the charge that respondent exceeded his territorial jurisdiction, suffice it to say that the writ of execution sought to be
implemented was dated July 9, 1984, or prior to the issuance of Administrative Circular No. 12 which restrains a sheriff from
enforcing a court writ outside his territorial jurisdiction without first notifying in writing and seeking the assistance of the sheriff of
the place where execution shall take place.

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-67626 April 18, 1989

JOSE REMO, JR., petitioner,

vs.
THE HON. INTERMEDIATE APPELLATE COURT and E.B. MARCHA TRANSPORT COMPANY, INC., represented by
APIFANIO B. MARCHA, respondents.

Orbos, Cabusora, Dumlao & Sta. Ana for petitioner.

GANCAYCO, J.:

A corporation is an entity separate and distinct from its stockholders. While not in fact and in reality a person, the law treats a
corporation as though it were a person by process of fiction or by regarding it as an artificial person distinct and separate from its
individual stockholders. 1

However, the corporate fiction or the notion of legal entity may be disregarded when it "is used to defeat public convenience,
justify wrong, protect fraud, or defend crime" in which instances "the law will regard the corporation as an association of persons,
or in case of two corporations, will merge them into one." The corporate fiction may also be disregarded when it is the "mere
alter ego or business conduit of a person." 2 There are many occasions when this Court pierced the corporate veil because of its
use to protect fraud and to justify wrong. 3 The herein petition for review of a. resolution of the Intermediate Appellate Court
dated February 8, 1984 seeking the reversal thereof and the reinstatement of its earlier decision dated June 30, 1983 in AC-G.R.
No. 68496-R 4 calls for the application of the foregoing principles.

In the latter part of December, 1977 the board of directors of Akron Customs Brokerage Corporation (hereinafter referred to as
Akron), composed of petitioner Jose Remo, Jr., Ernesto Baares, Feliciano Coprada, Jemina Coprada, and Dario Punzalan with
Lucia Lacaste as Secretary, adopted a resolution authorizing the purchase of thirteen (13) trucks for use in its business to be
paid out of a loan the corporation may secure from any lending institution. 5

Feliciano Coprada, as President and Chairman of Akron, purchased thirteen trucks from private respondent on January 25, 1978
for and in consideration of P525,000.00 as evidenced by a deed of absolute sale. 6 In a side agreement of the same date, the
parties agreed on a downpayment in the amount of P50,000.00 and that the balance of P475,000.00 shall be paid within sixty
(60) days from the date of the execution of the agreement. The parties also agreed that until said balance is fully paid, the down
payment of P50,000.00 shall accrue as rentals of the 13 trucks; and that if Akron fails to pay the balance within the period of 60
days, then the balance shall constitute as a chattel mortgage lien covering said cargo trucks and the parties may allow an
extension of 30 days and thereafter private respondent may ask for a revocation of the contract and the reconveyance of all said
trucks. 7

The obligation is further secured by a promissory note executed by Coprada in favor of Akron. It is stated in the promissory note
that the balance shall be paid from the proceeds of a loan obtained from the Development Bank of the Philippines (DBP) within
sixty (60) days. 8 After the lapse of 90 days, private respondent tried to collect from Coprada but the latter promised to pay only
upon the release of the DBP loan. Private respondent sent Coprada a letter of demand dated May 10, 1978. 9 In his reply to the
said letter, Coprada reiterated that he was applying for a loan from the DBP from the proceeds of which payment of the
obligation shall be made. 10

Meanwhile, two of the trucks were sold under a pacto de retro sale to a certain Mr. Bais of the Perpetual Loans and Savings
Bank at Baclaran. The sale was authorized by a board resolution made in a meeting held on March 15, 1978. 11

Upon inquiry, private respondent found that no loan application was ever filed by Akron with DBP. 12

In the meantime, Akron paid rentals of P500.00 a day pursuant to a subsequent agreement, from April 27, 1978 (the end of the
90-day period to pay the balance) to May 31, 1978. Thereafter, no more rental payments were made.
On June 17, 1978, Coprada wrote private respondent begging for a grace period of until the end of the month to pay the balance
of the purchase price; that he will update the rentals within the week; and in case he fails, then he will return the 13 units should
private respondent elect to get back the same. 13 Private respondent, through counsel, wrote Akron on August 1, 1978
demanding the return of the 13 trucks and the payment of P25,000.00 back rentals covering the period from June 1 to August 1,
1978. 14

Again, Coprada wrote private respondent on August 8, 1978 asking for another grace period of up to August 31, 1978 to pay the
balance, stating as well that he is expecting the approval of his loan application from a certain financing company, and that ten
(10) trucks have been returned to Bagbag, Novaliches. 15 On December 9, 1978, Coprada informed private respondent anew
that he had returned ten (10) trucks to Bagbag and that a resolution was passed by the board of directors confirming the deed of
assignment to private respondent of P475,000 from the proceeds of a loan obtained by Akron from the State Investment House,
Inc. 16

In due time, private respondent filed a compliant for the recovery of P525,000.00 or the return of the 13 trucks with damages
against Akron and its officers and directors, Feliciano Coprada, Dario D. Punzalan, Jemina Coprada, Lucia Lacaste, Wilfredo
Layug, Arcadio de la Cruz, Francisco Clave, Vicente Martinez, Pacifico Dollario and petitioner with the then Court of First
Instance of Rizal. Only petitioner answered the complaint denying any participation in the transaction and alleging that Akron has
a distinct corporate personality. He was, however, declared in default for his failure to attend the pre-trial.

In the meanwhile, petitioner sold all his shares in Akron to Coprada. It also appears that Akron amended its articles of
incorporation thereby changing its name to Akron Transport International, Inc. which assumed the liability of Akron to private
respondent.

After an ex parte reception of the evidence of the private respondent, a decision was rendered on October 28, 1980, the
dispositive part of which reads as follows:

Finding the evidence sufficient to prove the case of the plaintiff, judgment is hereby rendered in favor of the plaintiff and against
the defendants, ordering them jointly and severally to pay;

a the purchase price of the trucks in the amount of P525,000.00 with ... legal rate (of interest) from the filing
of the complaint until the full amount is paid;

b rentals of Bagbag property at P1,000.00 a month from August 1978 until the premises is cleared of the
said trucks;

c attorneys fees of P10,000.00, and

d costs of suit.

The P50,000.00 given as down payment shall pertain as rentals of the trucks from June 1 to August 1, 1978 which is P25,000.00
(see demand letter of Atty. Aniano Exhibit "T") and the remaining P25,000.00 shall be from August 1, 1978 until the trucks are
removed totally from the place." 17

A motion for new trial filed by petitioner was denied so he appealed to the then Intermediate Appellate Court (IAC) wherein in
due course a decision was rendered on June 30, 1 983 setting aside the said decision as far as petitioner is concemed.
However, upon a motion for reconsideration filed by private respondent dent, the IAC, in a resolution dated February 8,1984, set
aside the decision dated June 30, 1983. The appellate court entered another decision affirming the appealed decision of the trial
court, with costs against petitioner.

Hence, this petition for review wherein petitioner raises the following issues:

I. The Intermediate Appellate Court (IAC) erred in disregarding the corporate fiction and in holding the petitioner
personally liable for the obligation of the Corporation which decision is patently contrary to law and the
applicable decision thereon.

II. The Intermediate Appellate Court (IAC) committed grave error of law in its decision by sanctioning the
merger of the personality of the corporation with that of the petitioner when the latter was held liable for the
corporate debts. 18

We reverse.
The environmental facts of this case show that there is no cogent basis to pierce the corporate veil of Akron and hold petitioner
personally liable for its obligation to private respondent. While it is true that in December, 1977 petitioner was still a member of
the board of directors of Akron and that he participated in the adoption of a resolution authorizing the purchase of 13 trucks for
the use in the brokerage business of Akron to be paid out of a loan to be secured from a lending institution, it does not appear
that said resolution was intended to defraud anyone and more particularly private respondent. It was Coprada, President and
Chairman of Akron, who negotiated with said respondent for the purchase of 13 cargo trucks on January 25, 1978. It was
Coprada who signed a promissory note to guarantee the payment of the unpaid balance of the purchase price out of the
proceeds of a loan he supposedly sought from the DBP. The word "WE' in the said promissory note must refer to the corporation
which Coprada represented in the execution of the note and not its stockholders or directors. Petitioner did not sign the said
promissory note so he cannot be personally bound thereby.

Thus, if there was any fraud or misrepresentation that was foisted on private respondent in that there was a forthcoming loan
from the DBP when it fact there was none, it is Coprada who should account for the same and not petitioner.

As to the sale through pacto de retro of the two units to a third person by the corporation by virtue of a board resolution,
petitioner asserts that he never signed said resolution. Be that as it may, the sale is not inherently fraudulent as the 13 units
were sold through a deed of absolute sale to Akron so that the corporation is free to dispose of the same. Of course, it was
stipulated that in case of default in payment to private respondent of the balance of the consideration, a chattel mortgage lien
shag be constituted on the 13 units. Nevertheless, said mortgage is a prior lien as against the pacto de retro sale of the 2 units.

As to the amendment of the articles of incorporation of Akron thereby changing its name to Akron Transport International, Inc.,
petitioner alleges that the change of corporate name was in order to include trucking and container yard operations in its
customs brokerage of which private respondent was duly informed in a letter. 19Indeed, the new corporation confirmed and
assumed the obligation of the old corporation. There is no indication of an attempt on the part of Akron to evade payment of its
obligation to private respondent.

There is the fact that petitioner sold his shares in Akron to Coprada during the pendency of the case. Since petitioner has no
personal obligation to private respondent, it is his inherent right as a stockholder to dispose of his shares of stock anytime he so
desires.

Mention is also made of the alleged "dumping" of 10 units in the premises of private respondent at Bagbag, Novaliches which to
the mind of the Court does not prove fraud and instead appears to be an attempt on the part of Akron to attend to its obligations
as regards the said trucks. Again petitioner has no part in this.

If the private respondent is the victim of fraud in this transaction, it has not been clearly shown that petitioner had any part or
participation in the perpetration of the same. Fraud must be established by clear and convincing evidence. If at all, the principal
character on whom fault should be attributed is Feliciano Coprada, the President of Akron, whom private respondent dealt with
personally all through out. Fortunately, private respondent obtained a judgment against him from the trial court and the said
judgment has long been final and executory.

WHEREFORE, the petition is GRANTED. The questioned resolution of the Intermediate Appellate Court dated February 8,1984
is hereby set aside and its decision dated June 30,1983 setting aside the decision of the trial court dated October 28, 1980
insofar as petitioner is concemed is hereby reinstated and affirmed, without costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 88013 March 19, 1990

SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

Don P. Porcuincula for petitioner.

San Juan, Gonzalez, San Agustin & Sinense for private respondent.

CRUZ, J.:

We are concerned in this case with the question of damages, specifically moral and exemplary damages. The negligence of the
private respondent has already been established. All we have to ascertain is whether the petitioner is entitled to the said
damages and, if so, in what amounts.

The parties agree on the basic facts. The petitioner is a private corporation engaged in the exportation of food products. It buys
these products from various local suppliers and then sells them abroad, particularly in the United States, Canada and the Middle
East. Most of its exports are purchased by the petitioner on credit.

The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at Romulo Avenue,
Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in the said bank the amount of P100,000.00, thus
increasing its balance as of that date to P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but
was suprised to learn later that they had been dishonored for insufficient funds.

The dishonored checks are the following:

1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company, Inc. for P16,480.00:

2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the amount of
P3,386.73:

3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in the amount of P7,080.00;

4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation in the amount of
P42,906.00:

5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation in the amount of
P12,953.00:

6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of P27,024.45:

7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the amount of
P4,385.02: and

8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00. 2

As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the petitioner,
threatening prosecution if the dishonored check issued to it was not made good. It also withheld delivery of the order made by
the petitioner. Similar letters were sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and
U. Enterprises, on June 10, 1981. Malabon also canceled the petitioner's credit line and demanded that future payments be
made by it in cash or certified check. Meantime, action on the pending orders of the petitioner with the other suppliers whose
checks were dishonored was also deferred.
The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that the sum of P100,000.00
deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the
dishonored checks were paid after they were re-deposited. 4

In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its "gross and wanton
negligence." This demand was not met. The petitioner then filed a complaint in the then Court of First Instance of Rizal claiming
from the private respondent moral damages in the sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00,
plus 25% attorney's fees, and costs.

After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages were not called for under
the circumstances. However, observing that the plaintiff's right had been violated, he ordered the defendant to pay nominal
damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by the
respondent court. 6

The respondent court found with the trial court that the private respondent was guilty of negligence but agreed that the petitioner
was nevertheless not entitled to moral damages. It said:

The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA 280).
Indeed, there was the omission by the defendant-appellee bank to credit appellant's deposit of P100,000.00 on
May 25, 1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant in less
than a month. The dishonored checks were eventually paid. These circumstances negate any imputation or
insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendant-
appellant.

It is this ruling that is faulted in the petition now before us.

This Court has carefully examined the facts of this case and finds that it cannot share some of the conclusions of the lower
courts. It seems to us that the negligence of the private respondent had been brushed off rather lightly as if it were a minor
infraction requiring no more than a slap on the wrist. We feel it is not enough to say that the private respondent rectified its
records and credited the deposit in less than a month as if this were sufficient repentance. The error should not have been
committed in the first place. The respondent bank has not even explained why it was committed at all. It is true that the
dishonored checks were, as the Court of Appeals put it, "eventually" paid. However, this took almost a month when, properly, the
checks should have been paid immediately upon presentment.

As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error,
justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross
negligence, if not wanton bad faith, that the respondent court said had not been established by the petitioner.

We also note that while stressing the rectification made by the respondent bank, the decision practically ignored the prejudice
suffered by the petitioner. This was simply glossed over if not, indeed, disbelieved. The fact is that the petitioner's credit line was
canceled and its orders were not acted upon pending receipt of actual payment by the suppliers. Its business declined. Its
reputation was tarnished. Its standing was reduced in the business community. All this was due to the fault of the respondent
bank which was undeniably remiss in its duty to the petitioner.

Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the plaintiff s
business standing or commercial credit." There is no question that the petitioner did sustain actual injury as a result of the
dishonored checks and that the existence of the loss having been established "absolute certainty as to its amount is not
required." 7 Such injury should bolster all the more the demand of the petitioner for moral damages and justifies the examination
by this Court of the validity and reasonableness of the said claim.

We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may
have suffered. 8 In the case at bar, the petitioner is seeking such damages for the prejudice sustained by it as a result of the
private respondent's fault. The respondent court said that the claimed losses are purely speculative and are not supported by
substantial evidence, but if failed to consider that the amount of such losses need not be established with exactitude precisely
because of their nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically
provides that "no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages
may be adjudicated." That is why the determination of the amount to be awarded (except liquidated damages) is left to the
sound discretion of the court, according to "the circumstances of each case."
From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of P1,000,000.00 is nothing short
of preposterous. Its business certainly is not that big, or its name that prestigious, to sustain such an extravagant pretense.
Moreover, a corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception
to this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation. 9

We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor
of the checks issued by it. The immediate consequence was that its prestige was impaired because of the bouncing checks and
confidence in it as a reliable debtor was diminished. The private respondent makes much of the one instance when the petitioner
was sued in a collection case, but that did not prove that it did not have a good reputation that could not be marred, more so
since that case was ultimately settled. 10 It does not appear that, as the private respondent would portray it, the petitioner is an
unsavory and disreputable entity that has no good name to protect.

Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the proper relief to which the
petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him." As we have found that the petitioner has indeed incurred loss through the
fault of the private respondent, the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the
same amount of P20,000.00.

Now for the exemplary damages.

The pertinent provisions of the Civil Code are the following:

Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good,
in addition to the moral, temperate, liquidated or compensatory damages.

Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in
a wanton, fraudulent, reckless, oppressive, or malevolent manner.

The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every
civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business
and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect
and even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his life's
savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The
ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his
monthly bills and the payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and active
associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of
their day-to-day transactions like the issuance or encashment of checks.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of
a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can
dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank,
such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial
loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their
relationship. In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship. What
is especially deplorable is that, having been informed of its error in not crediting the deposit in question to the petitioner, the
respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made. It
bears repeating that the record does not contain any satisfactory explanation of why the error was made in the first place and
why it was not corrected immediately after its discovery. Such ineptness comes under the concept of the wanton manner
contemplated in the Civil Code that calls for the imposition of exemplary damages.

After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon the respondent bank
exemplary damages in the amount of P50,000.00, "by way of example or correction for the public good," in the words of the law.
It is expected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and indefference that
has been displayed here, lest the confidence of the public in the banking system be further impaired.

ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the petitioner, in lieu
of nominal damages, moral damages in the amount of P20,000.00, and exemplary damages in the amount of P50,000.00 plus
the original award of attorney's fees in the amount of P5,000.00, and costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 128066 June 19, 2000

JARDINE DAVIES INC., petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

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

G.R. No. 128069

PURE FOODS CORPORATION, petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

BELLOSILLO, J.:

This is rather a simple case for specific performance with damages which could have been resolved through mediation and
conciliation during its infancy stage had the parties been earnest in expediting the disposal of this case. They opted however to
resort to full court proceedings and denied themselves the benefits of alternative dispute resolution, thus making the process
more arduous and long-drawn.

The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To remedy and curtail
further losses due to the series of power failures, petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided
to install two (2) 1500 KW generators in its food processing plant in San Roque, Marikina City.

Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several suppliers and dealers
were invited to attend a pre-bidding conference to discuss the conditions, propose scheme and specifications that would best
suit the needs of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding conference, only three (3)
bidders, namely, respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE
POWER submitted bid proposals and gave bid bonds equivalent to 5% of their respective bids, as required.

Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS confirmed the
award of the contract to FEMSCO

Gentlemen:

This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and Installation of two (2) units of
1500 KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on your proposal number PC 28-
92 dated November 20, 1992, subject to the following basic terms and conditions:

1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for the local portion and
the labor for the imported materials, payable by progress billing twice a month, with ten percent (10%) retention. The
retained amount shall be released thirty (30) days after acceptance of the completed project and upon posting of
Guarantee Bond in an amount equivalent to twenty percent (20%) of the contract price. The Guarantee Bond shall be
valid for one (1) year from completion and acceptance of project. The contract price includes future increase/s in costs
of materials and labor;

2. The projects shall be undertaken pursuant to the attached specifications. It is understood that any item required to
complete the project, and those not included in the list of items shall be deemed included and covered and shall be
performed;

3. All materials shall be brand new;

4. The project shall commence immediately and must be completed within twenty (20) working days after the delivery of
Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase price for every day of delay;
 5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and shall procure All
Risk Insurance equivalent to the contract price upon commencement of the project. The All Risk Insurance Policy shall
be endorsed in favor of and shall be delivered to Pure Foods Corporation;

6. Warranty of one (1) year against defective material and/or workmanship.

Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and conditions.

Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractor's all-risk
insurance policy in the amount of P6,137,293.00 which PUREFOODS through its Vice President Benedicto G. Tope
acknowledged in a letter dated 18 December 1992. FEMSCO also made arrangements with its principal and started the
PUREFOODS project by purchasing the necessary materials. PUREFOODS on the other hand returned FEMSCO's Bidder's
Bond in the amount of P1,000,000.00, as requested.

Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. Dimayuga
unilaterally canceled the award as "significant factors were uncovered and brought to (their) attention which dictate (the)
cancellation and warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested the cancellation of the
award and sought a meeting with PUREFOODS. However, on 26 March 1993, before the matter could be resolved,
PUREFOODS already awarded the project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc.
(hereafter JARDINE), which incidentally was not one of the bidders.1wphi1.nt

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from delivering
and installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both PUREFOODS and
JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference and inducement. Trial
ensued. After FEMSCO presented its evidence, JARDINE filed a Demurrer to Evidence.

On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, 1 granted JARDINE's Demurrer to Evidence. The trial court concluded
that "[w]hile it may seem to the plaintiff that by the actions of the two defendants there is something underhanded going on, this
is all a matter of perception, and unsupported by hard evidence, mere suspicions and suppositions would not stand up very well
in a court of law." 2 Meanwhile trial proceeded as regards the case against PUREFOODS.

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of P2,300,000.00
representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso equivalent,
and P900,000.00 representing contractor's mark-up on installation work, considering that it would be impossible to compel
PUREFOODS to honor, perform and fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE and noting
that construction had already started thereon; (c) to pay attorney's fees in an amount equivalent to 20% of the total amount due;
and, (d) to pay the costs. The trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis.

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of the
trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the complaint against it, while
PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO.

On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. 3 It also reversed the 27
June 1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate
the latter's contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral damages. In
addition, PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary
damages as well as 20% of the total amount due as attorney's fees.

On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by
PUREFOODS and JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which were
subsequently consolidated.

PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a misapprehension
of facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the latter's bid proposal and award of
the project but more of a qualified acceptance constituting a counter-offer which required FEMSCO's express conforme. Since
PUREFOODS never received FEMSCO's conforme, PUREFOODS was very well within reason to revoke its qualified
acceptance or counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO. PUREFOODS also
contends that it was never in bad faith when it dealt with FEMSCO. Hence moral and exemplary damages should not have been
awarded.
Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed contract
between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latter's alleged contract with FEMSCO.
Moreover, JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral damages. But granting arguendo that the
award of moral damages is proper, P2,000,000.00 is extremely excessive.

In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract between
PUREFOODS and FEMSCO; and second, granting there existed a perfected contract, whether there is any showing that
JARDINE induced or connived with PUREFOODS to violate the latter's contract with FEMSCO.

A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves
in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do." 4 There can be no
contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject
matter of the contract; and, (c) cause of the obligation which is established. 5A contract binds both contracting parties and has
the force of law between them.

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that
moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law. 6 To produce a contract, the acceptance must
not qualify the terms of the offer. However, the acceptance may be express or implied. 7 For a contract to arise, the acceptance
must be made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the
offeror.

In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation. The
controversy lies in the consent whether there was an acceptance of the offer, and if so, if it was communicated, thereby
perfecting the contract.

To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner
PUREFOODS started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which
provides that "[a]dvertisements for bidders are simply invitations to make proposals," applies. Accordingly, the Terms and
Conditions of the Bidding disseminated by petitioner PUREFOODS constitutes the "advertisement" to bid on the project. The bid
proposals or quotations submitted by the prospective suppliers including respondent FEMSCO, are the offers. And, the reply of
petitioner PUREFOODS, the acceptance or rejection of the respective offers.

Quite obviously, the 12 December 1992 letter of petitioner. PUREFOODS to FEMSCO constituted acceptance of respondent
FEMSCO's offer as contemplated by law. The tenor of the letter, i.e., "This will confirm that Pure Foods has awarded to your firm
(FEMSCO) the project," could not be more categorical. While the same letter enumerated certain "basic terms and conditions,"
these conditions were imposed on the performance of the obligation rather than on the perfection of the contract. Thus, the first
"condition" was merely a reiteration of the contract price and billing scheme based on the Terms and Conditions of Bidding and
the bid or previous offer of respondent FEMSCO. The second and third "conditions" were nothing more than general statements
that all items and materials including those excluded in the list but necessary to complete the project shall be deemed included
and should be brand new. The fourth "condition" concerned the completion of the work to be done, i.e., within twenty (20) days
from the delivery of the generator set, the purchase of which was part of the contract. The fifth "condition" had to do with the
putting up of a performance bond and an all-risk insurance, both of which should be given upon commencement of the project.
The sixth "condition" related to the standard warranty of one (1) year. In fine, the enumerated "basic terms and conditions" were
prescriptions on how the obligation was to be performed and implemented. They were far from being conditions imposed on the
perfection of the contract.

In Babasa v. Court of Appeals 8 we distinguished between a condition imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a
contract, failure to comply with the second merely gives the other party options and/or remedies to protect his interests.

We thus agree with the conclusion of respondent appellate court which affirmed the trial court

As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the contract has
already been made. The letter only serves as a confirmation of such decision. Hence, to the Court's mind, there is
already an acceptance made of the offer received by Purefoods. Notwithstanding the terms and conditions enumerated
therein, the offer has been accepted and/or amplified the details of the terms and conditions contained in the Terms and
Conditions of Bidding given out by Purefoods to prospective bidders. 9
But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional counter-
offer," respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied acceptance,
if not a clear indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the performance bond
and the contractor's all-risk insurance should be given upon the commencement of the contract. Corollarily, the acknowledgment
thereof by petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a concrete manifestation of its
knowledge that respondent FEMSCO indeed consented to the "conditional counter-offer." After all, as earlier adverted to, an
acceptance may either be express or implied, 10 and this can be inferred from the contemporaneous and subsequent acts of the
contracting parties.

Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent
FEMSCO's conforme would only be a mere surplusage. The discussion of the price of the project two (2) months after the 12
December 1992 letter can be deemed as nothing more than a pressure being exerted by petitioner PUREFOODS on respondent
FEMSCO to lower the price even after the contract had been perfected. Indeed from the facts, it can easily be surmised that
petitioner PUREFOODS was haggling for a lower price even after agreeing to the earlier quotation, and was threatening to
unilaterally cancel the contract, which it eventually did. Petitioner PUREFOODS also makes an issue out of the absence of a
purchase order (PO). Suffice it to say that purchase orders or POs do not make or break a contract. Thus, even the tenor of the
subsequent letter of petitioner PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the award to your company of
the project," presupposes that the contract has been perfected. For, there can be no cancellation if the contract was not
perfected in the first place.

Petitioner PUREFOODS also argues that it was never in bad faith.1avvphi1 On the contrary, it believed in good faith that no
such contract was perfected. We are not convinced. We subscribe to the factual findings and conclusions of the trial court which
were affirmed by the appellate court

Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted with bad faith
and this was further aggravated by the subsequent inking of a contract between defendant Purefoods and erstwhile co-
defendant Jardine. It is very evident that Purefoods thought that by the expedient means of merely writing a letter would
automatically cancel or nullify the existing contract entered into by both parties after a process of bidding. This, to the
Court's mind, is a flagrant violation of the express provisions of the law and is contrary to fair and just dealings to which
every man is due. 11

This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. 12 In the instant
case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from
its suppliers on account of the urgency of the project, only to be canceled later. We thus sustain respondent appellate court's
award of moral damages. We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never
intended to enrich the recipient. Likewise, the award of exemplary damages by way of example for the public good is excessive
and should be reduced to P100,000.00.

Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral damages to
respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We agree. While it may
seem that petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find no specific evidence on
record to support such perception. Likewise, there is no showing whatsoever that petitioner JARDINE induced petitioner
PUREFOODS. The similarity in the design submitted to petitioner PUREFOODS by both petitioner JARDINE and respondent
FEMSCO, and the tender of a lower quotation by petitioner JARDINE are insufficient to show that petitioner JARDINE indeed
induced petitioner PUREFOODS to violate its contract with respondent FEMSCO.

WHEREFORE, judgment is hereby rendered as follows:

(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing the 27 June
1994 resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay private respondent FAR EAST
MILLS SUPPLY CORPORATION P2,000,000.00 as moral damages is REVERSED and SET ASIDE for insufficiency of
evidence; and

(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering petitioner
PUREFOODS CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION the sum of
P2,300,000.00 representing the value of engineering services it rendered, US$14,000.00 or its peso equivalent, and
P900,000.00 representing the contractor's mark-up on installation work, as well as attorney's fees equivalent to twenty
percent (20%) of the total amount due, is AFFIRMED. In addition, petitioner PURE FOODS CORPORATION is ordered
 to pay private respondent FAR EAST MILLS SUPPLY CORPORATION moral damages in the amount of P1,000,000.00
and exemplary damages in the amount of P1,000,000.00. Costs against petitioner.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 128690 January 21, 1999

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and VICENTE DEL
ROSARIO, respondents.

DAVIDE, JR., CJ.:

In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse and set
aside the decision 1 of 31 October 1996 and the resolution 2 of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125.
The former affirmed with modification the decision 3 of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch
80, in Civil Case No. Q-92-12309. The latter denied the motion to reconsider the decision of 31 October 1996.

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

In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave ABS-CBN an
exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic]
of said agreement stating that .

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under
such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised
by ABS-CBN from the actual offer in writing.

Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list
of three(3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-
said agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick
off only ten (10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) and therefore did not accept said list
(TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar except
the film ''Maging Sino Ka Man."

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

6 January 1992

Dear Vic,

This is not a very formal business letter I am writing to you as I would like to express my difficulty in
recommending the purchase of the three film packages you are offering ABS-CBN.

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

In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in our non-
primetime slots. We have to cover the amount that was paid for these movies because as you very well know
that non-primetime advertising rates are very low. These are the unaired titles in the first contract.
1. Kontra Persa [sic].

2. Raider Platoon.

3. Underground guerillas

4. Tiger Command

5. Boy de Sabog

6. Lady Commando

7. Batang Matadero

8. Rebelyon

I hope you will consider this request of mine.

The other dramatic films have been offered to us before and have been rejected because of the ruling of
MTRCB to have them aired at 9:00 p.m. due to their very adult themes.

As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies
produced last year. I have quite an attractive offer to make.

Thanking you and with my warmest regards.

(Signed)

Charo Santos-Concio

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

On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met at the
Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva. What transpired in that
lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly
agreed that ABS-CRN was granted exclusive film rights to fourteen (14) films for a total consideration of P36
million; that he allegedly put this agreement as to the price and number of films in a "napkin'' and signed it and
gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario
denied having made any agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in
which Lopez wrote something; and insisted that what he and Lopez discussed at the lunch meeting was Viva's
film package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising
[sic]to make a counter proposal which came in the form of a proposal contract Annex "C" of the complaint (Exh.
"1"- Viva; Exh. "C" - ABS-CBN).

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

On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms. Concio,
(Exh. "5" - Viva), which reads: "Here's the draft of the contract. I hope you find everything in order," to which
was attached a draft exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal
covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one film was added by Ms.
Concio, for a consideration of P35 million. Exhibit "C" provides that ABS-CBN is granted films right to 53 films
and contains a right of first refusal to "1992 Viva Films." The said counter proposal was however rejected by
Viva's Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell anything less
 than the package of 104 films for P60 million pesos (Exh. "9" - Viva), and such rejection was relayed to Ms.
Concio.

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

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary
injunction and/or temporary restraining order against private respondents Republic Broadcasting Corporation 5 (hereafter RBS ),
Viva Production (hereafter VIVA), and Vicente Del Rosario. The complaint was docketed as Civil Case No. Q-92-12309.

On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents from proceeding with the airing,
broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the filmMaging Sino Ka Man,
which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening of said date.

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

order 7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond. ABS-CBN moved
for the reduction of the bond, 8 while private respondents moved for reconsideration of the order and offered to put up a
counterbound. 9

In the meantime, private respondents filed separate answers with counterclaim. 10 RBS also set up a cross-claim against VIVA..

On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction upon the posting by RBS of a P30
million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced
petitioner's injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary injunction
should private respondents be unable to post a counterbond.

At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the possibility of an amicable
settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30 million counterbond
in the event that no settlement would be reached.

As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a counterbond, which the RTC
approved in its Order of 15 October 1992. 13

On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3 August and 15 October 1992 Orders, which RBS
opposed. 15

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

Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition 17challenging the RTC's
Orders of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin the RTC from
enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.

On 3 November 1992, the Court of Appeals issued a temporary restraining order 18 to enjoin the airing, broadcasting, and
televising of any or all of the films involved in the controversy.

On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the petition in CA -G.R. No. 29300 for being
premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993, which was
docketed as G.R. No. 108363.

In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on 28 April 1993, it
rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN disposing as follows:

WHEREFORE, under cool reflection and prescinding from the foregoing, judgments is rendered in favor of
defendants and against the plaintiff.

(1) The complaint is hereby dismissed;

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

 a) P107,727.00, the amount of premium paid by RBS to the surety which
issued defendant RBS's bond to lift the injunction;

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

Man" in various newspapers;

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

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

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

(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of
reasonable attorney's fees.

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

(5) Plaintiff to pay the costs.

According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement between Lopez
III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was disapproved during the
meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA signed the 1992 Film
Exhibition Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously been
exercised per Ms. Concio's letter to Del Rosario ticking off ten titles acceptable to them, which would have made the 1992
agreement an entirely new contract.

On 21 June 1993, this Court denied 21 ABS-CBN's petition for review in G.R. No. 108363, as no reversible error was committed
by the Court of Appeals in its challenged decision and the case had "become moot and academic in view of the dismissal of the
main action by the court a quo in its decision" of 28 April 1993.

Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract
between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and
Del Rosario also appealed seeking moral and exemplary damages and additional attorney's fees.

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

As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into
between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that parag. 1.4 thereof
provides:

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV
telecast under such terms as may be agreed upon by the parties hereto, provided, however,
that such right shall be exercised by ABS-CBN within a period of fifteen (15) days from the
actual offer in writing (Records, p. 14).

[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subject to such terms
as may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN within
fifteen (15) days from the actual offer in writing.

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

In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten
(10) films, and the draft contract Exhibit "C" accepted only fourteen (14) films, while parag. 1.4 of Exhibit "A''
speaks of the next twenty-four (24) films.
 The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision, p. 11,
Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President
of ABS-CBN, Ms. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where
ABS-CBN exercised its right of refusal by rejecting the offer of VIVA.. As aptly observed by the trial court, with
the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We
reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-
CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its right
of first refusal has already expired. 22

Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and the
premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had suffered as a result of
the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis
therefor, holding that RBS's reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-
showing of the film "Maging Sino Ka Man." Respondent court also held that exemplary damages were correctly imposed by way
of example or correction for the public good in view of the filing of the complaint despite petitioner's knowledge that the contract
with VIVA had not been perfected, It also upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting
Civil Case No, Q-92-1209, RBS was "unnecessarily forced to litigate." The appellate court, however, reduced the awards of
moral damages to P2 million, exemplary damages to P2 million, and attorney's fees to P500, 000.00.

On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not VIVA
which was actually prejudiced when the complaint was filed by ABS-CBN."

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

. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE
RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED BY PETITIONER
TO THE CONTRARY.

II

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

RBS.

III

. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.

IV

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

ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film Exhibition
Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's testimony that he and Del
Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film Exhibition
Agreement) and upon agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has already been
effective, as the elements thereof, namely, consent, object, and consideration were established. It then concludes that the Court
of Appeals' pronouncements were not supported by law and jurisprudence, as per our decision of 1 December 1995 in Limketkai
Sons Milling, Inc. v. Court of Appeals, 23 which cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu Asuncion v. Court of
Appeals, 25 andVillonco Realty Company v. Bormaheco. Inc. 26

Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the
counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had ventilated their
respective positions during the hearings for the purpose. The filing of the counterbond was an option available to RBS, but it can
hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move
for the dissolution or the injunction; or if it was determined to put up a counterbond, it could have presented a cash bond.
Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is also required to exercise the diligence of a
good father of a family to minimize the damages resulting from the act or omission. As regards the cost of print advertisements,
RBS had not convincingly established that this was a loss attributable to the non showing "Maging Sino Ka Man"; on the
contrary, it was brought out during trial that with or without the case or the injunction, RBS would have spent such an amount to
generate interest in the film.

ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The controversy
involving ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for such
damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN against RBS that may be
characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the complaint, An award of moral and
exemplary damages is not warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing
an action. 27 In any case, free resort to courts for redress of wrongs is a matter of public policy. The law recognizes the right of
every one to sue for that which he honestly believes to be his right without fear of standing trial for damages where by lack of
sufficient evidence, legal technicalities, or a different interpretation of the laws on the matter, the case would lose ground. 28 One
who makes use of his own legal right does no injury. 29 If damage results front the filing of the complaint, it is damnum absque
injuria. 30 Besides, moral damages are generally not awarded in favor of a juridical person, unless it enjoys a good reputation
that was debased by the offending party resulting in social humiliation. 31

As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In
sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laid down in Buan
v. Camaganacan 32 that the text of the decision should state the reason why attorney's fees are being awarded; otherwise, the
award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been committed by, ABS-
CBN. It has been held that "where no sufficient showing of bad faith would be reflected in a party' s persistence in a case other
than an erroneous conviction of the righteousness of his cause, attorney's fees shall not be recovered as cost." 33

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

RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "Maging Sino Ka
Man" because the print advertisements were put out to announce the showing on a particular day and hour on Channel 7, i.e., in
its entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement were good and relevant for
the particular date showing, and since the film could not be shown on that particular date and hour because of the injunction, the
expenses for the advertisements had gone to waste.

As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for the
purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be held liable
for such damages. Citing Tolentino, 34 damages may be awarded in cases of abuse of rights even if the act done is not illicit and
there is abuse of rights were plaintiff institutes and action purely for the purpose of harassing or prejudicing the defendant.

In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents RBScited People
v. Manero, 35 where it was stated that such entity may recover moral and exemplary damages if it has a good reputation that is
debased resulting in social humiliation. it then ratiocinates; thus:

There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case. When RBS
was not able to fulfill its commitment to the viewing public to show the film "Maging Sino Ka Man" on the
scheduled dates and times (and on two occasions that RBS advertised), it suffered serious embarrassment and
social humiliation. When the showing was canceled, late viewers called up RBS' offices and subjected RBS to
verbal abuse ("Announce kayo nang announce, hindi ninyo naman ilalabas," "nanloloko yata kayo") (Exh. 3-
RBS, par. 3). This alone was not something RBS brought upon itself. it was exactly what ABS-CBN had
planned to happen.

The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount
of the award.
 The first is that the humiliation suffered by RBS is national extent. RBS operations as a broadcasting company
is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch television. It is not
an exaggeration to state, and it is a matter of judicial notice that almost every other person in the country
watches television. The humiliation suffered by RBS is multiplied by the number of televiewers who had
anticipated the showing of the film "Maging Sino Ka Man" on May 28 and November 3, 1992 but did not see it
owing to the cancellation. Added to this are the advertisers who had placed commercial spots for the telecast
and to whom RBS had a commitment in consideration of the placement to show the film in the dates and times
specified.

The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation and injury are far
greater in degree when caused by an entity whose ultimate business objective is to lure customers (viewers in
this case) away from the competition. 36

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

The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and (2)
whether RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees of P212,000 in favor
of VIVA is not assigned as another error.

I.

The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby one binds
himself to give something or to render some service to another 37 for a consideration. there is no contract unless the following
requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3) cause of
the obligation, which is established. 38 A contract undergoes three stages:

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

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

(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 39

Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrence between the
offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must
be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it
must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one
that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is
desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any
modification or variation from the terms of the offer annuls the offer. 40

When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the package of
films, said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-
CBN, sent, through Ms. Concio, a counter-proposal in the form of a draft contract proposing exhibition of 53 films for a
consideration of P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his
conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was met by a
counter-offer which substantially varied the terms of the offer.

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

Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In these cases, it was held that an acceptance may
contain a request for certain changes in the terms of the offer and yet be a binding acceptance as long as "it is clear that the
meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not." This
ruling was, however, reversed in the resolution of 29 March 1996, 43which ruled that the acceptance of all offer must be
unqualified and absolute, i.e., it "must be identical in all respects with that of the offer so as to produce consent or meeting of the
minds."
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but merely
clarificatory of what had previously been agreed upon. It cited the statement in Stuart v.Franklin Life Insurance Co. 44 that "a
vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not
amount to a rejection of the offer and the tender of a counter-offer." 45 However, when any of the elements of the contract is
modified upon acceptance, such alteration amounts to a counter-offer.

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

Under Corporation Code, 46 unless otherwise provided by said Code, corporate powers, such as the power; to enter into
contracts; are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive
committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific
purposes, 47 Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of agency as to the
bindings effects of their acts would
apply. 48 For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must
specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offer was best
evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's approval. In any event, there was
between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are instructive:

A number of considerations militate against ABS-CBN's claim that a contract was perfected at that lunch
meeting on April 02, 1992 at the Tamarind Grill.

FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number
of films, which he wrote on a napkin. However, Exhibit "C" contains numerous provisions which, were not
discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could they have been physically
written on a napkin. There was even doubt as to whether it was a paper napkin or a cloth napkin. In short what
were written in Exhibit "C'' were not discussed, and therefore could not have been agreed upon, by the parties.
How then could this court compel the parties to sign Exhibit "C" when the provisions thereof were not
previously agreed upon?

SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films.
The complaint in fact prays for delivery of 14 films. But Exhibit "C" mentions 53 films as its subject matter.
Which is which If Exhibits "C" reflected the true intent of the parties, then ABS-CBN's claim for 14 films in its
complaint is false or if what it alleged in the complaint is true, then Exhibit "C" did not reflect what was agreed
upon by the parties. This underscores the fact that there was no meeting of the minds as to the subject matter
of the contracts, so as to preclude perfection thereof. For settled is the rule that there can be no contract where
there is no object which is its subject matter (Art. 1318, NCC).

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

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

which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals P36,000,000.00).

On cross-examination Mr. Lopez testified:

Q. What was written in this napkin?

A. The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the
other 7 Viva movies because the price was broken down accordingly. The none [sic] Viva and
the seven other Viva movies and the sharing between the cash portion and the concerned
spot portion in the total amount of P35 million pesos.

Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.
 FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr. Del Rosario with a
handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992). The
said draft has a well defined meaning.

Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the
terms and conditions thereof could not have been previously agreed upon by ABS-CBN and Viva Exhibit "C''
could not therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and
conditions embodied in Exhibit "C" were prepared by ABS-CBN's lawyers and there was no discussion on said
terms and conditions. . . .

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

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

Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein you
claimed that you have the meeting of the minds between you and Mr. Vic del Rosario, what
happened?

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

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

A. Yes, sir.

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

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

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

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

The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind
Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact,
alleges that Mr. Del Rosario "is the Executive Producer of defendant Viva" which "is a corporation." (par. 2,
complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he did is ratified by its Board
of Directors. (Vicente vs. Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere
agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with Viva and
his inclusion as party defendant has no legal basis. (Salonga vs. Warner Barner [sic] , COLTA , 88 Phil. 125;
Salmon vs. Tan, 36 Phil. 556).

The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed
to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding
agreement. It is as it should be because corporate power to enter into a contract is lodged in the Board of
Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever agreement
Lopez and Del Rosario arrived at could not ripen into a valid contract binding upon Viva (Yao Ka Sin Trading
vs.Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors of Viva rejected
Exhibit "C" and insisted that the film package for 140 films be maintained (Exh. "7-1" - Viva ). 49

The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film
Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract is
untenable. As observed by the trial court, ABS-CBN right of first refusal had already been exercised when Ms. Concio wrote to
VIVA ticking off ten films, Thus:
 [T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely
different package. Ms. Concio herself admitted on cross-examination to having used or exercised the right of
first refusal. She stated that the list was not acceptable and was indeed not accepted by ABS-CBN, (TSN, June
8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of the first refusal may have been already
exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and
understand [sic] that ABS-CBN has lost its rights of the first refusal when his list of 36 titles were rejected (Tsn,
June 9, 1992, pp. 10-11) 50

II

However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV
of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is
entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. 51 The
indemnification shall comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to
obtain. 52 In contracts and quasi-contracts the damages which may be awarded are dependent on whether the obligor acted with
good faith or otherwise, It case of good faith, the damages recoverable are those which are the natural and probable
consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time
of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible
for all damages which may be reasonably attributed to the non-performance of the obligation. 53 In crimes and quasi-delicts, the
defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained
of, whether or not such damages has been foreseen or could have reasonably been foreseen by the defendant. 54

Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent
personal injury, or for injury to the plaintiff's business standing or commercial credit. 55

The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of
filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12 of RBS's Answer with
Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:

12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a result thereof, RBS
suffered actual damages in the amount of P6,621,195.32. 56

Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could
only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith.

Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the
latter for tile same.

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.

It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant may
suffer by reason of the writ are recoverable from the injunctive bond. 57 In this case, ABS-CBN had not yet filed the required
bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the
matter, Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the
premium RBS paid for the counterbond.

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

As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual or
compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. 58

The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should
be placed on the right to litigate. 59 They are not to be awarded every time a party wins a suit. The power of the court to award
attorney's fees under Article 2208 demands factual, legal, and equitable justification. 60 Even when claimant is compelled to
litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient
showing of bad faith could be reflected in a party's persistence in a case other than erroneous conviction of the righteousness of
his cause. 61

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are
included in moral damages, while Article 2219 enumerates the cases where they may be recovered, Article 2220 provides that
moral damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBS's claim for
moral damages could possibly fall only under item (10) of Article 2219, thereof which reads:

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

Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and not to
impose a penalty on the wrongdoer. 62 The award is not meant to enrich the complainant at the expense of the defendant, but to
enable the injured party to obtain means, diversion, or amusements that will serve to obviate then moral suffering he has
undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted. 63 Trial courts must then guard against the award of exorbitant damages; they should
exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on
the part of the trial court. 64

The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical
suffering and mental anguish, which call be experienced only by one having a nervous system. 65 The statement in People
v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a corporation may recover moral damages if it "has a good reputation that
is debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for damages must be set aside,
since RBS is a corporation.

The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way
of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. 68 They are
recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating
circumstances; 69 in quasi-contracts, if the defendant acted with gross negligence; 70 and in contracts and quasi-contracts, if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. 71

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

The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is exercised
in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all other
provisions of law which do not especially provide for their own sanction; while Article 21 deals with acts contra bonus mores, and
has the following elements; (1) there is an act which is legal, (2) but which is contrary to morals, good custom, public order, or
public policy, and (3) and it is done with intent to injure.72

Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral obliquity. 73 Such must be substantiated by evidence. 74

There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its
cause after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that
the adverse result of an action does not per se make the action wrongful and subject the actor to damages, for the law could not
have meant to impose a penalty on the right to litigate. If damages result from a person's exercise of a right, it is damnum
absque injuria. 75

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No, 44125 is
hereby REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions, Inc.1wphi1.nt

No pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 126204 November 20, 2001

NATIONAL POWER CORPORATION, petitioner,

vs.
PHILIPP BROTHERS OCEANIC, INC., respondent.

SANDOVAL-GUTIERREZ, J.:

Where a person merely uses a right pertaining to him, without bad faith or intent to injure, the fact that damages are thereby
suffered by another will not make him liable.1

This principle finds useful application to the present case.

Before us is a petition for review of the Decision2 dated August 27, 1996 of the Court of Appeals affirming in toto the
Decision3 dated January 16, 1992 of the Regional Trial Court, Branch 57, Makati City.

The facts are:

On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid for the supply and delivery of 120,000
metric tons of imported coal for its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers
Oceanic, Inc. (PHIBRO) prequalified and was allowed to participate as one of the bidders. After the public bidding was
conducted, PHIBRO's bid was accepted. NAPOCOR's acceptance was conveyed in a letter dated July 8, 1987, which was
received by PHIBRO on July 15, 1987.The "Bidding Terms and Specifications"4provide for the manner of shipment of coals, thus:

"SECTION V

SHIPMENT

The winning TENDERER who then becomes the SELLER shall arrange and provide gearless bulk carrier for the
shipment of coal to arrive at discharging port on or before thirty (30) calendar days after receipt of the Letter of Credit by
the SELLER or its nominee as per Section XIV hereof to meet the vessel arrival schedules at Calaca, Batangas,
Philippines as follows:

60,000 +/ - 10 % July 20, 1987

60,000 +/ - 10% September 4, 1987"5

On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon plague Australia, the shipment's point of
origin, which could seriously hamper PHIBRO's ability to supply the needed coal.6 From July 23 to July 31, 1987, PHIBRO again
apprised NAPOCOR of the situation in Australia, particularly informing the latter that the ship owners therein are not willing to
load cargo unless a "strike-free" clause is incorporated in the charter party or the contract of carriage.7 In order to hasten the
transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the burden of a "strike-free" clause. NAPOCOR
refused.

On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of credit. Instead of delivering the coal
on or before the thirtieth day after receipt of the Letter of Credit, as agreed upon by the parties in the July contract, PHIBRO
effected its first shipment only on November 17, 1987.

Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to its Calaca thermal plant. PHIBRO
participated anew in this subsequent bidding. On November 24, 1987, NAPOCOR disapproved PHIBRO's application for pre-
qualification to bid for not meeting the minimum requirements.8 Upon further inquiry, PHIBRO found that the real reason for the
disapproval was its purported failure to satisfy NAPOCOR's demand for damages due to the delay in the delivery of the first coal
shipment.
This prompted PHIBRO to file an action for damages with application for injunction against NAPOCOR with the Regional Trial
Court, Branch 57, Makati City.9 In its complaint, PHIBRO alleged that NAPOCOR's act of disqualifying it in the October 1987
bidding and in all subsequent biddings was tainted with malice and bad faith. PHIBRO prayed for actual, moral and exemplary
damages and attorney's fees.

In its answer, NAPOCOR averred that the strikes in Australia could not be invoked as reason for the delay in the delivery of coal
because PHIBRO itself admitted that as of July 28, 1987 those strikes had already ceased. And, even assuming that the strikes
were still ongoing, PHIBRO should have shouldered the burden of a "strike-free" clause because their contract was "C and F
Calaca, Batangas, Philippines," meaning, the cost and freight from the point of origin until the point of destination would be for
the account of PHIBRO. Furthermore, NAPOCOR claimed that due to PHIBRO's failure to deliver the coal on time, it was
compelled to purchase coal from ASEA at a higher price. NAPOCOR claimed for actual damages in the amount of
P12,436,185.73, representing the increase in the price of coal, and a claim of P500,000.00 as litigation expenses.10

Thereafter, trial on the merits ensued.

On January 16, 1992, the trial court rendered a decision in favor of PHIBRO, the dispositive portion of which reads:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff Philipp Brothers Oceanic Inc. (PHIBRO) and against
the defendant National Power Corporation (NAPOCOR) ordering the said defendant NAPOCOR:

1. To reinstate Philipp Brothers Oceanic, Inc. (PHIBRO) in the defendant National Power Corporation's list of accredited
bidders and allow PHIBRO to participate in any and all future tenders of National Power Corporation for the supply and
delivery of imported steam coal;

2. To pay Philipp Brothers Oceanic, Inc. (PHIBRO);

a. The peso equivalent at the time of payment of $864,000 as actual damages,

b. The peso equivalent at the time of payment of $100,000 as moral damages;

c. The peso equivalent at the time of payment of $50,000 as exemplary damages;

d. The peso equivalent at the time of payment of $73,231.91 as reimbursement for expenses, cost of litigation
and attorney's fees;

3. To pay the costs of suit;

4. The counterclaims of defendant NAPOCOR are dismissed for lack of merit.

SO ORDERED."11

Unsatisfied, NAPOCOR, through the Solicitor General, elevated the case to the Court of Appeals. On August 27, 1996, the Court
of Appeals rendered a Decision affirming in toto the Decision of the Regional Trial Court. It ratiocinated that:

"There is ample evidence to show that although PHIBRO's delivery of the shipment of coal was delayed, the delay was
in fact caused by a) Napocor's own delay in opening a workable letter of credit; and b) the strikes which plaqued the
Australian coal industry from the first week of July to the third week of September 1987. Strikes are included in the
definition of force majeure in Section XVII of the Bidding Terms and Specifications, (supra), so Phibro is not liable for
any delay caused thereby.

Phibro was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was to be effected thirty (30) days
from Napocor's opening of a confirmed and workable letter of credit. Napocor was only able to do so on August 6, 1987.

By that time, Australia's coal industry was in the middle of a seething controversy and unrest, occasioned by strikes,
overtime bans, mine stoppages. The origin, the scope and the effects of this industrial unrest are lucidly described in the
uncontroverted testimony of James Archibald, an employee of Phibro and member of the Export Committee of the
Australian Coal Association during the time these events transpired.

xxx xxx xxx

 The records also attest that Phibro periodically informed Napocor of these developments as early as July 1, 1987, even
before the bid was approved. Yet, Napocor did not forthwith open the letter of credit in order to avoid delay which might
be caused by the strikes and their after-effects.

"Strikes" are undoubtedly included in the force majeure clause of the Bidding Terms and Specifications (supra). The
renowned civilist, Prof. Arturo Tolentino, defines force majeure as "an event which takes place by accident and could not
have been foreseen." (Civil Code of the Philippines, Volume IV, Obligations and Contracts, 126, [1991]) He further
states:

"Fortuitous events may be produced by two general causes: (1) by Nature, such as earthquakes, storms,
floods, epidemics, fires, etc., and (2) by the act of man, such as an armed invasion, attack by bandits,
governmental prohibitions, robbery, etc."

Tolentino adds that the term generally applies, broadly speaking, to natural accidents. In order that acts of man such as
a strike, may constitute fortuitous event, it is necessary that they have the force of an imposition which the debtor could
not have resisted. He cites a parallel example in the case of Philippine National Bank v. Court of Appeals, 94 SCRA 357
(1979), wherein the Supreme Court said that the outbreak of war which prevents performance exempts a party from
liability.

Hence, by law and by stipulation of the parties, the strikes which took place in Australia from the first week of July to the
third week of September, 1987, exempted Phibro from the effects of delay of the delivery of the shipment of coal."12

Twice thwarted, NAPOCOR comes to us via a petition for review ascribing to the Court of Appeals the following errors:

"Respondent Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO's delay in the delivery of
imported coal was due to NAPOCOR's alleged delay in opening a letter of credit and to forcemajeure, and not to PHIBRO's own
deliberate acts and faults."13

II

"Respondent Court of Appeals gravely and seriously erred in concluding and so holding that NAPOCOR acted maliciously and
unjustifiably in disqualifying PHIBRO from participating in the December 8, 1987 and future biddings for the supply of imported
coal despite the existence of valid grounds therefor such as serious impairment of its track record."14

III

"Respondent Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO was entitled to injunctive
relief, to actual or compensatory, moral and exemplary damages, attorney's fees and litigation expenses despite the clear
absence of legal and factual bases for such award."15

IV

"Respondent Court of Appeals gravely and seriously erred in absolving PHIBRO from any liability for damages to NAPOCOR for
its unjustified and deliberate refusal and/or failure to deliver the contracted imported coal within the stipulated period."16

"Respondent Court of Appeals gravely and seriously erred in dismissing NAPOCOR's counterclaims for damages and litigation
expenses."17

It is axiomatic that only questions of law, not questions of fact, may be raised before this Court in a petition for review under Rule
45 of the Rules of Court.18 The findings of facts of the Court of Appeals are conclusive and binding on this Court19 and they carry
even more weight when the said court affirms the factual findings of the trial court.20 Stated differently, the findings of the Court of
.Appeals, by itself, which are supported by substantial evidence, are almost beyond the power of review by this Court.21

With the foregoing settled jurisprudence, we find it pointless to delve lengthily on the factual issues raised by petitioner. The
existence of strikes in Australia having been duly established in the lower courts, we are left only with the burden of determining
whether or not NAPOCOR acted wrongfully or with bad faith in disqualifying PHIBRO from participating in the subsequent public
bidding.
Let us consider the case in its proper perspective.

The Court of Appeals is justified in sustaining the Regional Trial Court's decision exonerating PHIBRO from any liability for
damages to NAPOCOR as it was clearly established from the evidence, testimonial and documentary, that what prevented
PHIBRO from complying with its obligation under the July 1987 contract was the industrial disputes which besieged Australia
during that time. Extant in our Civil Code is the rule that no person shall be responsible for those events which could not be
foreseen, or which, though foreseen, were inevitable.22 This means that when an obligor is unable to fulfill his obligation because
of a fortuitous event or force majeure, he cannot be held liable for damages for non-performance.23

In addition to the above legal precept, it is worthy to note that PHIBRO and NAPOCOR explicitly agreed in Section XVII of the
"Bidding Terms and Specifications"24 that "neither seller (PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay in or
failure of the performance of its obligations, other than the payment of money due, if any such delay or failure is due to
Force Majeure." Specifically, they defined force majeure as "any disabling cause beyond the control of and without fault or
negligence of the party, which causes may include but are not restricted to Acts of God or of the public enemy; acts of the
Government in either its sovereign or contractual capacity; governmental restrictions; strikes, fires, floods, wars, typhoons,
storms, epidemics and quarantine restrictions."

The law is clear and so is the contract between NAPOCOR and PHIBRO. Therefore, we have no reason to rule otherwise.

However, proceeding from the premise that PHIBRO was prevented by force majeure from complying with its obligation, does it
necessarily follow that NAPOCOR acted unjustly, capriciously, and unfairly in disapproving PHIBRO's application for pre-
qualification to bid?

First, it must be stressed that NAPOCOR was not bound under any contract to approve PHIBRO's pre-qualification
requirements. In fact, NAPOCOR had expressly reserved its right to reject bids. The Instruction to Bidders found in the "Post-
Qualification Documents/Specifications for the Supply and Delivery of Coal for the Batangas Coal-Fired Thermal Power Plant I
at Calaca, Batangas Philippines,"25 is explicit, thus:

"IB-17 RESERVATION OF NAPOCOR TO REJECT BIDS

NAPOCOR reserves the right to reject any or all bids, to waive any minor informality in the bids received.The right is
also reserved to reject the bids of any bidder who has previously failed to properly perform or complete on time any and
all contracts for delivery of coal or any supply undertaken by a bidder."26(Emphasis supplied)

This Court has held that where the right to reject is so reserved, the lowest bid or any bid for that matter may be rejected on a
mere technicality.27 And where the government as advertiser, availing itself of that right, makes its choice in rejecting any or all
bids, the losing bidder has no cause to complain nor right to dispute that choice unless an unfairness or injustice is shown.
Accordingly, a bidder has no ground of action to compel the Government to award the contract in his favor, nor to compel it to
accept his bid. Even the lowest bid or any bid may be rejected.28 In Celeste v. Court of Appeals,29 we had the occasion to rule:

"Moreover, paragraph 15 of the Instructions to Bidders states that 'the Government hereby reserves the right to reject
any or all bids submitted.' In the case of A.C. Esguerra and Sons v. Aytona, 4 SCRA 1245, 1249 (1962), we held:

'x x x [I]n the invitation to bid, there is a condition imposed upon the bidders to the effect that the bidders shall
be subject to the right of the government to reject any and all bids subject to its discretion. Here the
government has made its choice, and unless an unfairness or injustice is shown, the losing bidders have no
cause to complain, nor right to dispute that choice.'

Since there is no evidence to prove bad faith and arbitrariness on the part of the petitioners in evaluating the bids, we
rule that the private respondents are not entitled to damages representing lost profits." (Emphasis supplied)

Verily, a reservation of the government of its right to reject any bid, generally vests in the authorities a wide discretion as to who
is the best and most advantageous bidder. The exercise of such discretion involves inquiry, investigation, comparison,
deliberation and decision, which are quasi-judicial functions, and when honestly exercised, may not be reviewed by the
court.30 In Bureau Veritas v. Office of the President,31 we decreed:

"The discretion to accept or reject a bid and award contracts is vested in the Government agencies entrusted with that
function. The discretion given to the authorities on this matter is of such wide latitude that the Courts will not interfere
therewith, unless it is apparent that it is used as a shield to a fraudulent award. (Jalandoni v. NARRA, 108 Phil. 486
[1960]) x x x. The exercise of this discretion is a policy decision that necessitates prior inquiry, investigation,
 comparison, evaluation, and deliberation. This task can best be discharged by the Government agencies concerned,
not by the Courts. The role of the Courts is to ascertain whether a branch or instrumentality of the Government has
transgresses its constitutional boundaries. But the Courts will not interfere with executive or legislative discretion
exercised within those boundaries. Otherwise, it strays into the realm of policy decision-making. x x x." (Emphasis
supplied)

Owing to the discretionary character of the right involved in this case, the propriety of NAPOCOR's act should therefore be
judged on the basis of the general principles regulating human relations, the forefront provision of which is Article 19 of the Civil
Code which provides that "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."32Accordingly, a person will be protected only when he acts in the
legitimate exercise of his right, that is, when he acts with prudence and in good faith; but not when he acts with negligence or
abuse.33

Did NAPOCOR abuse its right or act unjustly in disqualifying PHIBRO from the public bidding?

We rule in the negative.

In practice, courts, in the sound exercise of their discretion, will have to determine under all the facts and circumstances when
the exercise of a right is unjust, or when there has been an abuse of right.34

We went over the record of the case with painstaking solicitude and we are convinced that NAPOCOR's act of disapproving
PHIBRO's application for pre-qualification to bid was without any intent to injure or a purposive motive to perpetrate damage.
Apparently, NAPOCOR acted on the strong conviction that PHIBRO had a "seriously-impaired" track record. NAPOCOR cannot
be faulted from believing so. At this juncture, it is worth mentioning that at the time NAPOCOR issued its subsequent Invitation to
Bid, i.e., October 1987, PHIBRO had not yet delivered the first shipment of coal under the July 1987 contract, which was due on
or before September 5, 1987. Naturally, NAPOCOR is justified in entertaining doubts on PHIBRO's qualification or capability to
assume an obligation under a new contract.

Moreover, PHIBRO's actuation in 1987 raised doubts as to the real situation of the coal industry in Australia. It appears from the
records that when NAPOCOR was constrained to consider an offer from another coal supplier (ASEA) at a price of US$33.44
per metric ton, PHIBRO unexpectedly offered the immediate delivery of 60,000 metric tons of Ulan steam coal at US$31.00 per
metric ton for arrival at Calaca, Batangas on September 20-21, 1987."35 Of course, NAPOCOR had reason to ponder how
come PHIBRO could assure the immediate delivery of 60,000 metric tons of coal from the same source to arrive at Calaca not
later than September 20/21, 1987 but it could not deliver the coal it had undertaken under its contract?

Significantly, one characteristic of a fortuitous event, in a legal sense, and consequently in relations to contracts, is that "the
concurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner."36 Faced with the
above circumstance, NAPOCOR is justified in assuming that, may be, there was really no fortuitous event or
force majeure which could render it impossible for PHIBRO to effect the delivery of coal. Correspondingly, it is also justified in
treating PHIBRO's failure to deliver a serious impairment of its track record. That the trial court, thereafter, found PHIBRO's
unexpected offer actually a result of its desire to minimize losses on the part of NAPOCOR is inconsequential. In determining the
existence of good faith, the yardstick is the frame of mind of the actor at the time he committed the act, disregarding actualities
or facts outside his knowledge. We cannot fault NAPOCOR if it mistook PHIBRO's unexpected offer a mere attempt on the
latter's part to undercut ASEA or an indication of PHIBRO's inconsistency. The circumstances warrant such contemplation.

That NAPOCOR believed all along that PHIBRO's failure to deliver on time was unfounded is manifest from its
letters37 reminding PHIBRO that it was bound to deliver the coal within 30 days from its (PHIBRO's) receipt of the Letter of
Credit, otherwise it would be constrained to take legal action. The same honest belief can be deduced from NAPOCOR's Board
Resolution, thus:

"On the legal aspect, Management stressed that failure of PBO to deliver under the contract makes them liable for
damages, considering that the reasons invoked were not valid. The measure of the damages will be limited to actual
and compensatory damages. However, it was reported that Philipp Brothers advised they would like to have continuous
business relation with NPC so they are willing to sit down or even proposed that the case be submitted to the
Department of Justice as to avoid a court action or arbitration.

xxx xxx xxx

 On the technical-economic aspect, Management claims that if PBO delivers in November 1987 and January 1988, there
are some advantages. If PBO reacts to any legal action and fails to deliver, the options are: one, to use 100% Semirara
and second, to go into urgent coal order. The first option will result in a 75 MW derating and oil will be needed as
supplement. We will stand to lose around P30 M. On the other hand, if NPC goes into an urgent coal order, there will be
an additional expense of $786,000 or P16.11 M, considering the price of the latest purchase with ASEA. On both points,
reliability is decreased."38

The very purpose of requiring a bidder to furnish the awarding authority its pre-qualification documents is to ensure that only
those "responsible" and "qualified" bidders could bid and be awarded with government contracts. It bears stressing that the
award of a contract is measured not solely by the smallest amount of bid for its performance, but also by the "responsibility" of
the bidder. Consequently, the integrity, honesty, and trustworthiness of the bidder is to be considered. An awarding official is
justified in considering a bidder not qualified or not responsible if he has previously defrauded the public in such contracts or if,
on the evidence before him, the official bona fide believes the bidder has committed such fraud, despite the fact that there is yet
no judicial determination to that effect.39 Otherwise stated, if the awarding body bona fide believes that a bidder has seriously
impaired its track record because of a particular conduct, it is justified in disqualifying the bidder. This policy is necessary to
protect the interest of the awarding body against irresponsible bidders.

Thus, one who acted pursuant to the sincere belief that another willfully committed an act prejudicial to the interest of the
government cannot be considered to have acted in bad faith. Bad faith has always been a question of intention. It is that corrupt
motive that operates in the mind. As understood in law, it contemplates a state of mind affirmatively operating with furtive design
or with some motive of self-interest or ill-will or for ulterior purpose.40While confined in the realm of thought, its presence may be
ascertained through the party's actuation or through circumstantial evidence.41 The circumstances under which NAPOCOR
disapproved PHIBRO's pre-qualification to bid do not show an intention to cause damage to the latter. The measure it adopted
was one of self-protection. Consequently, we cannot penalize NAPOCOR for the course of action it took. NAPOCOR cannot be
made liable for actual, moral and exemplary damages.

Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000, the Regional Trial Court computed what could
have been the profits of PHIBRO had NAPOCOR allowed it to participate in the subsequent public bidding. It ruled that
"PHIBRO would have won the tenders for the supply of about 960,000 metric tons out of at least 1,200,000 metric tons" from the
public bidding of December 1987 to 1990. We quote the trial court's ruling, thus:

". . . PHIBRO was unjustly excluded from participating in at least five (5) tenders beginning December 1987 to 1990, for
the supply and delivery of imported coal with a total volume of about 1,200,000 metric tons valued at no less than
US$32 Million. (Exhs. "AA," "AA-1-1," to "AA-2"). The price of imported coal for delivery in 1988 was quoted in June
1988 by bidders at US$41.35 to US$43.95 per metric ton (Exh. "JJ"); in September 1988 at US$41.50 to US$49.50 per
metric ton (Exh. "J-1"); in November 1988 at US$39.00 to US$48.50 per metric ton (Exh. "J-2") and for the 1989
deliveries, at US$44.35 to US$47.35 per metric ton (Exh. "J-3") and US$38.00 to US$48.25 per metric ton in September
1990 (Exh. "JJ-6" and "JJ-7"). PHIBRO would have won the tenders for the supply and delivery of about 960,000 metric
tons of coal out of at least 1,200,000 metric tons awarded during said period based on its proven track record of
80%. The Court, therefore finds that as a result of its disqualification, PHIBRO suffered damages equivalent to its
standard 3% margin in 960,000 metric tons of coal at the most conservative price of US$30,000 per metric ton, or the
total of US$864,000 which PHIBRO would have earned had it been allowed to participate in biddings in which it was
disqualified and in subsequent tenders for supply and delivery of imported coal."

We find this to be erroneous.

Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be
proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount
thereof.42 A court cannot merely rely on speculations, conjectures, or guesswork as to the fact and amount of damages. Thus,
while indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the
obligee failed to obtain,43 it is imperative that the basis of the alleged unearned profits is not too speculative and conjectural as to
show the actual damages which may be suffered on a future period.

In Pantranco North Express, Inc. v. Court of Appeals,44 this Court denied the plaintiff's claim for actual damages which was
premised on a contract he was about to negotiate on the ground that there was still the requisite public bidding to be complied
with, thus:

"As to the alleged contract he was about to negotiate with Minister Hipolito, there is no showing that the same has been
awarded to him. If Tandoc was about to negotiate a contract with Minister Hipolito, there was no assurance that the
 former would get it or that the latter would award the contract to him since there was the requisite public bidding. The
claimed loss of profit arising out of that alleged contract which was still to be negotiated is a mere expectancy. Tandoc's
claim that he could have earned P2 million in profits is highly speculative and no concrete evidence was presented to
prove the same. The only unearned income to which Tandoc is entitled to from the evidence presented is that for the
one-month period, during which his business was interrupted, which is P6,125.00, considering that his annual net
income was P73,500.00."

In Lufthansa German Airlines v. Court of Appeals,45 this Court likewise disallowed the trial court's award of actual damages for
unrealized profits in the amount of US$75,000.00 for being highly speculative. It was held that "the realization of profits by
respondent . . . was not a certainty, but depended on a number of factors, foremost of which was his ability to invite investors
and to win the bid." This Court went further saying that actual or compensatory damages cannot be presumed, but must be duly
proved, and proved with reasonable degree of certainty.

And in National Power Corporation v. Court of Appeals,46 the Court, in denying the bidder's claim for unrealized commissions,
ruled that even if NAPOCOR does not deny its (bidder's) claims for unrealized commissions, and that these claims have been
transmuted into judicial admissions, these admissions cannot prevail over the rules and regulations governing the bidding for
NAPOCOR contracts, which necessarily and inherently include the reservation by the NAPOCOR of its right to reject any or all
bids.

The award of moral damages is likewise improper. To reiterate, NAPOCOR did not act in bad faith. Moreover, moral damages
are not, as a general rule, granted to a corporation.47 While it is true that besmirched reputation is included in moral damages, it
cannot cause mental anguish to a corporation, unlike in the case of a natural person, for a corporation has no reputation in the
sense that an individual has, and besides, it is inherently impossible for a corporation to suffer mental anguish.48 In LBC
Express, Inc. v. Court of Appeals,49 we ruled:

"Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. A corporation, being an artificial person
and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot
experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous
system and it flows from real ills, sorrows, and griefs of life all of which cannot be suffered by respondent bank as an
artificial person."

Neither can we award exemplary damages under Article 2234 of the Civil Code. Before the court may consider the question of
whether or not exemplary damages should be awarded, the plaintiff must show that he is entitled to moral, temperate, or
compensatory damages.

NAPOCOR, in this petition, likewise contests the judgment of the lower courts awarding PHIBRO the amount of $73,231.91 as
reimbursement for expenses, cost of litigation and attorney's fees.

We agree with NAPOCOR.

This Court has laid down the rule that in the absence of stipulation, a winning party may be awarded attorney's fees only in case
plaintiff's action or defendant's stand is so untenable as to amount to gross and evident bad faith.50 This cannot be said of the
case at bar. NAPOCOR is justified in resisting PHIBRO's claim for damages. As a matter of fact, we partially grant the prayer of
NAPOCOR as we find that it did not act in bad faith in disapproving PHIBRO's pre-qualification to bid.

Trial courts must be reminded that attorney's fees may not be awarded to a party simply because the judgment is favorable to
him, for it may amount to imposing a premium on the right to redress grievances in court. We adopt the same policy with respect
to the expenses of litigation. A winning party may be entitled to expenses of litigation only where he, by reason of plaintiff's
clearly unjustifiable claims or defendant's unreasonable refusal to his demands, was compelled to incur said expenditures.
Evidently, the facts of this case do not warrant the granting of such litigation expenses to PHIBRO.

At this point, we believe that, in the interest of fairness, NAPOCOR should give PHIBRO another opportunity to participate in
future public bidding. As earlier mentioned, the delay on its part was due to a fortuitous event.

But before we dispose of this case, we take this occasion to remind PHIBRO of the indispensability of coal to a coal-fired
thermal plant. With households and businesses being entirely dependent on the electricity supplied by NAPOCOR, the delivery
of coal cannot be venturesome. Indeed, public interest demands that one who offers to deliver coal at an appointed time must
give a reasonable assurance that it can carry through. With the deleterious possible consequences that may result from failure
to deliver the needed coal, we believe there is greater strain of commitment in this kind of obligation.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 126204 dated August 27, 1996 is hereby MODIFIED.
The award, in favor of PHIBRO, of actual, moral and exemplary damages, reimbursement for expenses, cost of litigation and
attorney's fees, and costs of suit, is DELETED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 100866 July 14, 1992

REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners,

vs.
HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC., respondents.

GUTIERREZ, JR., J.:

This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R. No. 14530 affirming the earlier
decision of the Regional Trial Court of Laguna, Branch 37, at Calamba, in the consolidated RTC Civil Case Nos. 802-84-C and
803-84-C entitled "Heirs of Eugenia V. Roxas, Inc. v. Rebecca Boyer-Roxas" and Heirs of Eugenia V. Roxas, Inc. v. Guillermo
Roxas," the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the
defendants, by ordering as it is hereby ordered that:

1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all persons claiming under her to:

a) Immediately vacate the residential house near the Balugbugan pool located inside the premises of the
Hidden Valley Springs Resort at Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her occupancy of the
residential house until the same is vacated;

c) Remove the unfinished building erected on the land of the plaintiff within ninety (90) days from receipt of this
decision;

d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the said unfinished
building is removed from the land of the plaintiff; and

e) Pay the costs.

2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to:

a) Immediately vacate the residential house near the tennis court located within the premises of the Hidden
Valley Springs Resort at Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for his occupancy of the said
residential house until the same is vacated; and

c) Pay the costs. (Rollo, p. 36)

In two (2) separate complaints for recovery of possession filed with the Regional Trial Court of Laguna against petitioners
Rebecca Boyer-Roxas and Guillermo Roxas respectively, respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for
the ejectment of the petitioners from buildings inside the Hidden Valley Springs Resort located at Limao, Calauan, Laguna
allegedly owned by the respondent corporation.

In the case of petitioner Rebecca Boyer-Roxas (Civil Case No-802-84-C), the respondent corporation alleged that Rebecca is in
possession of two (2) houses, one of which is still under construction, built at the expense of the respondent corporation; and
that her occupancy on the two (2) houses was only upon the tolerance of the respondent corporation.
In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent corporation alleged that Guillermo occupies
a house which was built at the expense of the former during the time when Guillermo's father, Eriberto Roxas, was still living and
was the general manager of the respondent corporation; that the house was originally intended as a recreation hall but was
converted for the residential use of Guillermo; and that Guillermo's possession over the house and lot was only upon the
tolerance of the respondent corporation.

In both cases, the respondent corporation alleged that the petitioners never paid rentals for the use of the buildings and the lots
and that they ignored the demand letters for them to vacate the buildings.

In their separate answers, the petitioners traversed the allegations in the complaint by stating that they are heirs of Eugenia V.
Roxas and therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners of the property, they have the right to
stay within its premises.

The cases were consolidated and tried jointly.

At the pre-trial, the parties limited the issues as follows:

1) whether plaintiff is entitled to recover the questioned premises;

2) whether plaintiff is entitled to reasonable rental for occupancy of the premises in question;

3) whether the defendant is legally authorized to pierce the veil of corporate fiction and interpose the same as a
defense in an accion publiciana;

4) whether the defendants are truly builders in good faith, entitled to occupy the questioned premises;

5) whether plaintiff is entitled to damages and reasonable compensation for the use of the questioned
premises;

6) whether the defendants are entitled to their counterclaim to recover moral and exemplary damages as well
as attorney's fees in the two cases;

7) whether the presence and occupancy by the defendants on the premises in questioned (sic) hampers,
deters or impairs plaintiff's operation of Hidden Valley Springs Resort; and

8) whether or not a unilateral and sudden withdrawal of plaintiffs tolerance allowing defendants' occupancy of
the premises in questioned (sic) is unjust enrichment. (Original Records, 486)

Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma. Guerrero of Branch 34 issued an Order
dated April 25, 1986 inhibiting himself from further trying the case. The cases were re-raffled to Branch 37 presided by Judge
Odilon Bautista. Judge Bautista continued the hearing of the cases.

For failure of the petitioners (defendants below) and their counsel to attend the October 22, 1986 hearing despite notice, and
upon motion of the respondent corporation, the court issued on the same day, October 22, 1986, an Order considering the cases
submitted for decision. At this stage of the proceedings, the petitioners had not yet presented their evidence while the
respondent corporation had completed the presentation of its evidence.

The evidence of the respondent corporation upon which the lower court based its decision is as follows:

To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and that of Victoria
Roxas Villarta as well as Exhibits "A" to "M-3".

The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V Roxas, Incorporated,
was incorporated on December 4, 1962 (Exh. "C") with the primary purpose of engaging in agriculture to
develop the properties inherited from Eugenia V. Roxas and that of y Eufrocino Roxas; that the Articles of
Incorporation of the plaintiff, in 1971, was amended to allow it to engage in the resort business (Exh.
"C-1"); that the incorporators as original members of the board of directors of the plaintiff were all members of
the same family, with Eufrocino Roxas having the biggest share; that accordingly, the plaintiff put up a resort
known as Hidden Valley Springs Resort on a portion of its land located at Bo. Limao, Calauan, Laguna, and
covered by TCT No. 32639 (Exhs. "A" and "A-l"); that improvements were introduced in the resort by the
plaintiff and among them were cottages, houses or buildings, swimming pools, tennis court, restaurant and
 open pavilions; that the house near the Balugbugan Pool (Exh. "B-l") being occupied by Rebecca B. Roxas was
originally intended as staff house but later used as the residence of Eriberto Roxas, deceased husband of the
defendant Rebecca Boyer-Roxas and father of Guillermo Roxas; that this house presently being occupied by
Rebecca B. Roxas was built from corporate funds; that the construction of the unfinished house (Exh. "B-2")
was started by the defendant Rebecca Boyer-Roxas and her husband Eriberto Roxas; that the third building
(Exh. "B-3") presently being occupied by Guillermo Roxas was originally intended as a recreation hall but later
converted as a residential house; that this house was built also from corporate funds; that the said house
occupied by Guillermo Roxas when it was being built had nipa roofing but was later changed to galvanized iron
sheets; that at the beginning, it had no partition downstairs and the second floor was an open space; that the
conversion from a recreation hall to a residential house was with the knowledge of Eufrocino Roxas and was
not objected to by any of the Board of Directors of the plaintiff; that most of the materials used in converting the
building into a residential house came from the materials left by Coppola, a film producer, who filmed the movie
"Apocalypse Now"; that Coppola left the materials as part of his payment for rents of the rooms that he
occupied in the resort; that after the said recreation hall was converted into a residential house, defendant
Guillermo Roxas moved in and occupied the same together with his family sometime in 1977 or 1978; that
during the time Eufrocino Roxas was still alive, Eriberto Roxas was the general manager of the corporation and
there was seldom any board meeting; that Eufrocino Roxas together with Eriberto Roxas were (sic) the ones
who were running the corporation; that during this time, Eriberto Roxas was the restaurant and wine
concessionaire of the resort; that after the death of Eufrocino Roxas, Eriberto Roxas continued as the general
manager until his death in 1980; that after the death of Eriberto Roxas in 1980, the defendants Rebecca B.
Roxas and Guillermo Roxas, committed acts that impeded the plaintiff's expansion and normal operation of the
resort; that the plaintiff could not even use its own pavilions, kitchen and other facilities because of the acts of
the defendants which led to the filing of criminal cases in court; that cases were even filed before the Ministry of
Tourism, Bureau of Domestic Trade and the Office of the President by the parties herein; that the defendants
violated the resolution and orders of the Ministry of Tourism dated July 28, 1983, August 3, 1983 and November
26, 1984 (Exhs. "G", "H" and "H-l") which ordered them or the corporation they represent to desist from and to
turn over immediately to the plaintiff the management and operation of the restaurant and wine outlets of the
said resort (Exh. "G-l"); that the defendants also violated the decision of the Bureau of Domestic Trade dated
October 23, 1983 (Exh. "C"); that on August 27, 1983, because of the acts of the defendants, the Board of
Directors of the plaintiff adopted Resolution No. 83-12 series of 1983 (Exh. "F") authorizing the ejectment of the
defendants from the premises occupied by them; that on September 1, 1983, demand letters were sent to
Rebecca Boyer-Roxas and Guillermo Roxas (Exhs. "D" and "D-1") demanding that they vacate the respective
premises they occupy; and that the dispute between the plaintiff and the defendants was brought before the
barangay level and the same was not settled (Exhs. "E" and "E-l"). (Original Records, pp. 454-456)

The petitioners appealed the decision to the Court of Appeals. However, as stated earlier, the appellate court affirmed the lower
court's decision. The Petitioners' motion for reconsideration was likewise denied.

Hence, this petition.

In a resolution dated February 5, 1992, we gave due course to the petition.

The petitioners now contend:

I Respondent Court erred when it refused to pierce the veil of corporate fiction over private respondent and maintain the
petitioners in their possession and/or occupancy of the subject premises considering that petitioners are owners of aliquot part of
the properties of private respondent. Besides, private respondent itself discarded the mantle of corporate fiction by acts and/or
omissions of its board of directors and/or stockholders.

II The respondent Court erred in not holding that petitioners were in fact denied due process or their day in court brought about
by the gross negligence of their former counsel.

III The respondent Court misapplied the law when it ordered petitioner Rebecca Boyer-Roxas to remove the unfinished building
in RTC Case No. 802-84-C, when the trial court opined that she spent her own funds for the construction thereof. (CA Rollo, pp.
17-18)

Were the petitioners denied due process of law in the lower court?

After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of Branch 37 the following events transpired:
On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July 21, 1986. Petitioner Rebecca V. Roxas
received a copy of the Order on July 15, 1986, while petitioner Guillermo Roxas received his copy on July 18, 1986. Atty.
Conrado Manicad, the petitioners' counsel received another copy of the Order on July 11, 1986. (Original Records, p. 260)

On motion of the respondent corporation's counsel, the lower court issued an Order dated July 15, 1986 cancelling the July 21,
1986 hearing and resetting the hearing to August 11, 1986. (Original records, 262-263) Three separate copies of the order were
sent and received by the petitioners and their counsel. (Original Records, pp. 268, 269, 271)

A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent corporation's counsel was denied in an
Order dated August 8, 1986. Again separate copies of the Order were sent and received by the petitioners and their counsel.
(Original Records, pp. 276-279)

At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for the respondent corporation appeared. Neither the
petitioners nor their counsel appeared despite notice of hearing. The lower court then issued an Order on the same date, to wit:

ORDER

When these cases were called for continuation of trial, Atty. Benito P. Fabie appeared before this Court,
however, the defendants and their lawyer despite receipt of the Order setting the case for hearing today failed
to appear. On Motion of Atty. Fabie, further cross examination of witness Victoria Vallarta is hereby considered
as having been waived.

The plaintiff is hereby given twenty (20) days from today within which to submit formal offer of evidence and
defendants are also given ten (10) days from receipt of such formal offer of evidence to file their objection
thereto.

In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 o'clock in the morning. (Original
Records, p. 286)

Copies of the Order were sent and received by the petitioners and their counsel on the following dates Rebecca Boyer-Roxas
on August 20, 1986, Guillermo Roxas on August 26, 1986, and Atty. Conrado Manicad on September 19, 1986. (Original
Records, pp. 288-290)

On September 1, 1986, the respondent corporation filed its "Formal Offer of Evidence." In an Order dated September 29, 1986,
the lower court issued an Order admitting exhibits "A" to "M-3" submitted by the respondent corporation in its "Formal Offer of
Evidence . . . there being no objection . . ." (Original Records, p. 418) Copies of this Order were sent and received by the
petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on October 9, 1986; Guillermo Roxas on October 9,
1986 and Atty. Conrado Manicad on October 4, 1986 (Original Records, pp. 420, 421, 428).

The scheduled hearing on September 29, 1986 did not push through as the petitioners and their counsel were not present
prompting Atty. Benito Fabie, the respondent corporation's counsel to move that the cases be submitted for decision. The lower
court denied the motion and set the cases for hearing on October 22, 1986. However, in its Order dated September 29, 1986,
the court warned that in the event the petitioners and their counsel failed to appear on the next scheduled hearing, the court
shall consider the cases submitted for decision based on the evidence on record. (Original Records, p. 429, 430 and 431)

Separate copies of this Order were sent and received by the petitioners and their counsel on the following dates: Rebecca
Boyer-Roxas on October 9, 1986, Guillermo Roxas on October 9, 1986; and Atty. Conrado Manicad on October 1, 1986.
(Original Records, pp. 429-430)

Despite notice, the petitioners and their counsel again failed to attend the scheduled October 22, 1986 hearing. Atty. Fabie
representing the respondent corporation was present. Hence, in its Order dated October 22, 1986, on motion of Atty. Fabie and
pursuant to the order dated September 29, 1986, the Court considered the cases submitted for decision. (Original Records, p.
436)

On November 14, 1986, the respondent corporation, filed a "Manifestation", stating that ". . . it is submitting without further
argument its "Opposition to the Motion for Reconsideration" for the consideration of the Honorable Court in resolving subject
incident." (Original Records, p. 442)

On December 16, 1986, the lower court issued an Order, to wit:

 ORDER

Considering that the Court up to this date has not received any Motion for Reconsideration filed by the
defendants in the above-entitled cases, the Court cannot act on the Opposition to Motion for Reconsideration
filed by the plaintiff and received by the Court on November 14, 1986. (Original Records, p. 446)

On January 15, 1987, the lower court rendered the questioned decision in the two (2) cases. (Original Records, pp. 453-459)

On January 20, 1987, Atty. Conrado Manicad, the petitioners' counsel filed an Ex-Parte Manifestation and attached thereto, a
motion for reconsideration of the October 22, 1986 Order submitting the cases for decision. He prayed that the Order be set
aside and the cases be re-opened for reception of evidence for the petitioners. He averred that: 1) within the reglementary
period he prepared the motion for reconsideration and among other documents, the draft was sent to his law office thru his
messenger; after signing the final copies, he caused the service of a copy to the respondent corporation's counsel with the
instruction that the copy of the Court be filed; however, there was a miscommunication between his secretary and messenger in
that the secretary mailed the copy for the respondent corporation's counsel and placed the rest in an envelope for the
messenger to file the same in court but the messenger thought that it was the secretary who would file it; it was only later on
when it was discovered that the copy for the Court has not yet been filed and that such failure to file the motion for
reconsideration was due to excusable neglect and/or accident. The motion for reconsideration contained the following
allegations: that on the date set for hearing (October 22, 1986), he was on his way to Calamba to attend the hearing but his car
suffered transmission breakdown; and that despite efforts to repair said transmission, the car remained inoperative resulting in
his absence at the said hearing. (Original Records, pp. 460-469)

On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15, 1987 decision. He explained that he
had to file the motion because the receiving clerk refused to admit the motion for reconsideration attached to the ex-
parte manifestation because there was no proof of service to the other party. Included in the motion for reconsideration was a
notice of hearing of the motion on February 3, 1987. (Original Records, p. 476-A)

On February 4, 1987, the respondent corporation through its counsel filed a Manifestation and Motion manifesting that they
received the copy of the motion for reconsideration only today (February 4, 1987), hence they prayed for the postponement of
the hearing. (Original Records, pp. 478-479)

On the same day, February 4, 1987, the lower court issued an Order setting the hearing on February 13, 1987 on the ground
that it received the motion for reconsideration late. Copies of this Order were sent separately to the petitioners and their counsel.
The records show that Atty. Manicad received his copy on February 11, 1987. As regards the petitioners, the records reveal that
Rebecca Boyer-Roxas did not receive her copy while as regards Guillermo Roxas, somebody signed for him but did not indicate
when the copy was received. (Original Records, pp. 481-483)

At the scheduled February 13, 1987 hearing, the counsels for the parties were present. However, the hearing was reset for
March 6, 1987 in order to allow the respondent corporation to file its opposition to the motion for reconsideration. (Order dated
February 13, 1987, Original Records, p. 486) Copies of the Order were sent and received by the petitioners and their counsel on
the following dates: Rebecca Boyer-Roxas on February 23, 1987; Guillermo Roxas on February 23, 1987 and Atty. Manicad on
February 19, 1987. (Original Records, pp. 487, 489-490)

The records are not clear as to whether or not the scheduled hearing on March 6, 1987 was held. Nevertheless, the records
reveal that on March 13, 1987, the lower court issued an Order denying the motion for reconsideration.

The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila v. Court of First Instance of Batangas,
Branch I, 160 SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil. 279 [1951];
Montes v. Court of First Instance of Tayabas, 48 Phil. 640 [1926]; People v. Manzanilla, 43 Phil. 167 [1922]; United States v.
Dungca, 27 Phil. 274 [1914]; and United States v. Umali, 15 Phil. 33 [1910]) This rule, however, has its exceptions. Thus, in
several cases, we ruled that the party is not bound by the actions of his counsel in case the gross negligence of the counsel
resulted in the client's deprivation of his property without due process of law. In the case of Legarda v. Court of Appeals (195
SCRA 418 [1991]), we said:

In People's Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this Court ruled as
follows:

Procedural technicality should not be made a bar to the vindication of a legitimate grievance.
When such technicality deserts from being an aid to Justice, the courts are justified in
 excepting from its operation a particular case. Where there was something fishy and
suspicious about the actuations of the former counsel of petitioners in the case at bar, in that
he did not give any significance at all to the processes of the court, which has proven
prejudicial to the rights of said clients, under a lame and flimsy explanation that the court's
processes just escaped his attention, it is held that said lawyer deprived his clients of their day
in court, thus entitling said clients to petition for relief from judgment despite the lapse of the
reglementary period for filing said period for filing said petition.

In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding that the counsel's blunder in
procedure is an exception to the rule that the client is bound by the mistakes of counsel, made the following
disquisition:

Petitioners contend, through their new counsel, that the judgment rendered against them by
the respondent court was null and void, because they were therein deprived of their day in
court and divested of their property without due process of law, through the gross ignorance,
mistake and negligence of their previous counsel. They acknowledge that, while as a rule,
clients are bound by the mistake of their counsel, the rule should not be applied automatically
to their case, as their trial counsel's blunder in procedure and gross ignorance of existing
jurisprudence changed their cause of action and violated their substantial rights.

We are impressed with petitioner's contentions.

xxx xxx xxx

While this Court is cognizant of the rule that, generally, a client will suffer consequences of the
negligence, mistake or lack of competence of his counsel, in the interest of Justice and equity,
exceptions may be made to such rule, in accordance with the facts and circumstances of each
case. Adherence to the general rule would, in the instant case, result in the outright
deprivation of their property through a technicality.

In its questioned decision dated November 19, 1989 the Court of Appeals found, in no uncertain terms, the
negligence of the then counsel for petitioners when he failed to file the proper motion to dismiss or to draw a
compromise agreement if it was true that they agreed on a settlement of the case; or in simply filing an answer;
and that after having been furnished a copy of the decision by the court he failed to appeal therefrom or to file a
petition for relief from the order declaring petitioners in default. In all these instances the appellate court found
said counsel negligent but his acts were held to bind his client, petitioners herein, nevertheless.

The Court disagrees and finds that the negligence of counsel in this case appears to be so gross and
inexcusable. This was compounded by the fact, that after petitioner gave said counsel another chance to make
up for his omissions by asking him to file a petition for annulment of the judgment in the appellate court, again
counsel abandoned the case of petitioner in that after he received a copy of the adverse judgment of the
appellate court, he did not do anything to save the situation or inform his client of the judgment. He allowed the
judgment to lapse and become final. Such reckless and gross negligence should not be allowed to bind the
petitioner. Petitioner was thereby effectively deprived of her day in court. (at pp. 426-427)

The herein petitioners, however, are not similarly situated as the parties mentioned in the abovecited cases. We cannot rule that
they, too, were victims of the gross negligence of their counsel.

The petitioners are to be blamed for the October 22, 1986 order issued by the lower court submitting the cases for decision.
They received notices of the scheduled hearings and yet they did not do anything. More specifically, the parties received notice
of the Order dated September 29, 1986 with the warning that if they fail to attend the October 22, 1986 hearing, the cases would
be submitted for decision based on the evidence on record. Earlier, at the scheduled hearing on September 29, 1986, the
counsel for the respondent corporation moved that the cases be submitted for decision for failure of the petitioners and their
counsel to attend despite notice. The lower court denied the motion and gave the petitioners and their counsel another chance
by rescheduling the October 22, 1986 hearing.

Indeed, the petitioners knew all along that their counsel was not attending the scheduled hearings. They did not take steps to
change their counsel or make him attend to their cases until it was too late. On the contrary, they continued to retain the services
of Atty. Manicad knowing fully well his lapses vis-a-vis their cases. They, therefore, cannot raise the alleged gross negligence of
their counsel resulting in their denial of due process to warrant the reversal of the lower court's decision. In a similar case, Aguila
v. Court of First Instance of Batangas, Branch 1 (supra), we ruled:

In the instant case, the petitioner should have noticed the succession of errors committed by his counsel and
taken appropriate steps for his replacement before it was altogether too late. He did not. On the contrary, he
continued to retain his counsel through the series of proceedings that all resulted in the rejection of his cause,
obviously through such counsel's "ineptitude" and, let it be added, the clients' forbearance. The petitioner's
reverses should have cautioned him that his lawyer was mishandling his case and moved him to seek the help
of other counsel, which he did in the end but rather tardily.

Now petitioner wants us to nullify all of the antecedent proceedings and recognize his earlier claims to the
disputed property on the justification that his counsel was grossly inept. Such a reason is hardly plausible as
the petitioner's new counsel should know. Otherwise, all a defeated party would have to do to salvage his case
is claim neglect or mistake on the part of his counsel as a ground for reversing the adverse judgment. There
would be no end to litigation if these were allowed as every shortcoming of counsel could be the subject of
challenge by his client through another counsel who, if he is also found wanting, would likewise be disowned by
the same client through another counsel, and so on ad infinitum. This would render court proceedings
indefinite, tentative and subject to reopening at any time by the mere subterfuge of replacing counsel. (at pp.
357-358)

We now discuss the merits of the cases.

In the first assignment of error, the petitioners maintain that their possession of the questioned properties must be respected in
view of their ownership of an aliquot portion of all the properties of the respondent corporation being stockholders thereof. They
propose that the veil of corporate fiction be pierced, considering the circumstances under which the respondent corporation was
formed.

Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the heirs of Eugenia V. Roxas, among them
the petitioners herein, decided to form a corporation Heirs of Eugenia V. Roxas, Incorporated (private respondent herein) with
the inherited properties as capital of the corporation. The corporation was incorporated on December 4, 1962 with the primary
purpose of engaging in agriculture to develop the inherited properties. The Articles of Incorporation of the respondent
corporation were amended in 1971 to allow it to engage in the resort business. Accordingly, the corporation put up a resort
known as Hidden Valley Springs Resort where the questioned properties are located.

These facts, however, do not justify the position taken by the petitioners.

The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the members
composing it. (Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 [1990]; Tan Boon Bee & Co., Inc. v.
Jarencio, 163 SCRA 205 [1988]; Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano
Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 [1965]) There is no dispute that title over the questioned land
where the Hidden Valley Springs Resort is located is registered in the name of the corporation. The records also show that the
staff house being occupied by petitioner Rebecca Boyer-Roxas and the recreation hall which was later on converted into a
residential house occupied by petitioner Guillermo Roxas are owned by the respondent corporation. Regarding properties
owned by a corporation, we stated in the case ofStockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, (6
SCRA 373 [1962]):

xxx xxx xxx

. . . Properties registered in the name of the corporation are owned by it as an entity separate and distinct from
its members. While shares of stock constitute personal property, they do not represent property of the
corporation. The corporation has property of its own which consists chiefly of real estate (Nelson v. Owen, 113
Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part
of the corporation's property, or the right to share in its proceeds to that extent when distributed according to
law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but its holder is not the owner of
any part of the capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to the
possession of any definite portion of its property or assets (Gottfried V. Miller, 104 U.S., 521; Jones v. Davis, 35
Ohio St., 474). The stockholder is not a co-owner or tenant in common of the corporate property (Harton v.
Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-376)
The petitioners point out that their occupancy of the staff house which was later used as the residence of Eriberto Roxas,
husband of petitioner Rebecca Boyer-Roxas and the recreation hall which was converted into a residential house were with the
blessings of Eufrocino Roxas, the deceased husband of Eugenia V. Roxas, who was the majority and controlling stockholder of
the corporation. In his lifetime, Eufrocino Roxas together with Eriberto Roxas, the husband of petitioner Rebecca Boyer-Roxas,
and the father of petitioner Guillermo Roxas managed the corporation. The Board of Directors did not object to such an
arrangement. The petitioners argue that . . . the authority thus given by Eufrocino Roxas for the conversion of the recreation hall
into a residential house can no longer be questioned by the stockholders of the private respondent and/or its board of directors
for they impliedly but no leas explicitly delegated such authority to said Eufrocino Roxas. (Rollo, p. 12)

Again, we must emphasize that the respondent corporation has a distinct personality separate from its members. The
corporation transacts its business only through its officers or agents. (Western Agro Industrial Corporation v. Court of
Appeals, supra). Whatever authority these officers or agents may have is derived from the board of directors or other governing
body unless conferred by the charter of the corporation. An officer's power as an agent of the corporation must be sought from
the statute, charter, the by-laws or in a delegation of authority to such officer, from the acts of the board of directors, formally
expressed or implied from a habit or custom of doing business. (Vicente v. Geraldez, 52 SCRA 210 [1973])

In the present case, the record shows that Eufrocino V. Roxas who then controlled the management of the corporation, being the
majority stockholder, consented to the petitioners' stay within the questioned properties. Specifically, Eufrocino Roxas gave his
consent to the conversion of the recreation hall to a residential house, now occupied by petitioner Guillermo Roxas. The Board
of Directors did not object to the actions of Eufrocino Roxas. The petitioners were allowed to stay within the questioned
properties until August 27, 1983, when the Board of Directors approved a Resolution ejecting the petitioners, to wit:

R E S O L U T I O N No. 83-12

RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under them, be ejected
from their occupancy of the Hidden Valley Springs compound on which their houses have been constructed
and/or are being constructed only on tolerance of the Corporation and without any contract therefor, in order to
give way to the Corporation's expansion and improvement program and obviate prejudice to the operation of
the Hidden Valley Springs Resort by their continued interference.

RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be authorized as he is
hereby authorized to effect the ejectment, including the filing of the corresponding suits, if necessary to do so.
(Original Records, p. 327)

We find nothing irregular in the adoption of the Resolution by the Board of Directors. The petitioners' stay within the questioned
properties was merely by tolerance of the respondent corporation in deference to the wishes of Eufrocino Roxas, who during his
lifetime, controlled and managed the corporation. Eufrocino Roxas' actions could not have bound the corporation forever. The
petitioners have not cited any provision of the corporation by-laws or any resolution or act of the Board of Directors which
authorized Eufrocino Roxas to allow them to stay within the company premises forever. We rule that in the absence of any
existing contract between the petitioners and the respondent corporation, the corporation may elect to eject the petitioners at
any time it wishes for the benefit and interest of the respondent corporation.

The petitioners' suggestion that the veil of the corporate fiction should be pierced is untenable. The separate personality of the
corporation may be disregarded only when the corporation is used "as a cloak or cover for fraud or illegality, or to work injustice,
or where necessary to achieve equity or when necessary for the protection of the creditors." (Sulong Bayan, Inc. v. Araneta, Inc.,
72 SCRA 347 [1976] cited in Tan Boon Bee & Co., Inc., v. Jarencio, supraand Western Agro Industrial Corporation v. Court of
Appeals, supra) The circumstances in the present cases do not fall under any of the enumerated categories.

In the third assignment of error, the petitioners insist that as regards the unfinished building, Rebecca Boyer-Roxas is a builder
in good faith.

The construction of the unfinished building started when Eriberto Roxas, husband of Rebecca Boyer-Roxas, was still alive and
was the general manager of the respondent corporation. The couple used their own funds to finance the construction of the
building. The Board of Directors of the corporation, however, did not object to the construction. They allowed the construction to
continue despite the fact that it was within the property of the corporation. Under these circumstances, we agree with the
petitioners that the provision of Article 453 of the Civil Code should have been applied by the lower courts.

Article 453 of the Civil Code provides:

 If there was bad faith, not only on the part of the person who built, planted or sown on the land of another but
also on the part of the owner of such land, the rights of one and the other shall be the same as though both had
acted in good faith.

In such a case, the provisions of Article 448 of the Civil Code govern the relationship between petitioner Rebecca-Boyer-Roxas
and the respondent corporation, to wit:

Art. 448 The owner of the land on which anything has been built, sown or planted in good faith, shall have
the right to appropriate as his own the works, sowing or planting after payment of the indemnity provided for in
articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of
the land does not choose to appropriate the buildings or trees after proper indemnity. The parties shall agree
upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

WHEREFORE, the present petition is partly GRANTED. The questioned decision of the Court of Appeals affirming the decision
of the Regional Trial Court of Laguna, Branch 37, in RTC Civil Case No. 802-84-C is MODIFIED in that subparagraphs (c) and
(d) of Paragraph 1 of the dispositive portion of the decision are deleted. In their stead, the petitioner Rebecca Boyer-Roxas and
the respondent corporation are ordered to follow the provisions of Article 448 of the Civil Code as regards the questioned
unfinished building in RTC Civil Case No. 802-84-C. The questioned decision is affirmed in all other respects.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 100812 June 25, 1999

FRANCISCO MOTORS CORPORATION, petitioner,

vs.
COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL, respondents.

QUISUMBING, J.:

This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision 1 of the Court of Appeals in
C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135, Regional Trial Court of Makati, Metro Manila. The
procedural antecedents of this petition are as follows:

On January 23, 1985, petitioner filed a complaint 2 against private respondents to recover three thousand four hundred twelve
and six centavos (P3,412.06), representing the balance of the jeep body purchased by the Manuels from petitioner; an additional
sum of twenty thousand four hundred fifty-four and eighty centavos (P20,454.80) representing the unpaid balance on the cost of
repair of the vehicle; and six thousand pesos (P6,000.00) for cost of suit and attorney's fees. 3 To the original balance on the
price of jeep body were added the costs of repair. 4 In their answer, private respondents interposed a counterclaim for unpaid
legal services by Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which was not paid by the incorporators,
directors and officers of the petitioner. The trial court decided the case on June 26, 1985, in favor of petitioner in regard to the
petitioner's claim for money, but also allowed the counter-claim of private respondents. Both parties appealed. On April 15, 1991,
the Court of Appeals sustained the trial court's decision. 5 Hence, the present petition.

For our review in particular is the propriety of the permissive counterclaim which private respondents filed together with their
answer to petitioner's complaint for a sum of money. Private respondent Gregorio Manuel alleged as an affirmative defense that,
while he was petitioner's Assistant Legal Officer, he represented members of the Francisco family in the intestate estate
proceedings of the late Benita Trinidad. However, even after the termination of the proceedings, his services were not paid. Said
family members, he said, were also incorporators, directors and officers of petitioner. Hence to petitioner's collection suit, he filed
a counter permissive counterclaim for the unpaid attorney's fees. 6

For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this score, and evidence ex-
parte was presented on the counterclaim. The trial court ruled in favor of private respondents and found that Gregorio Manuel
indeed rendered legal services to the Francisco family in Special Proceedings Number 7803 "In the Matter of Intestate Estate
of Benita Trinidad". Said court also found that his legal services were not compensated despite repeated demands, and thus
ordered petitioner to pay him the amount of fifty thousand (P50,000.00) pesos. 7

Dissatisfied with the trial court's order, petitioner elevated the matter to the Court of Appeals, posing the following issues:

I.

WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS IT
NEVER ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT.

II.

WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED PERMISSIVE
COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES.

III.

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE

ALLEGED PERMISSIVE COUNTERCLAIM. 8
Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly served on it together
with the copy of the answer containing the permissive counterclaim. Further, petitioner questions the propriety of its being made
party to the case because it was not the real party in interest but the individual members of the Francisco family concerned with
the intestate case.

In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim must be answered in ten
(10) days, pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it state in the Rules that a party still needed
to be summoned anew if a counterclaim was set up against him. Failure to serve summons, said respondent court, did not
effectively negate trial court's jurisdiction over petitioner in the matter of the counterclaim. It likewise pointed out that there was
no reason for petitioner to be excused from answering the counterclaim. Court records showed that its former counsel, Nicanor
G. Alvarez, received the copy of the answer with counterclaim two (2) days prior to his withdrawal as counsel for petitioner.
Moreover when petitioner's new counsel, Jose N. Aquino, entered his appearance, three (3) days still remained within the period
to file an answer to the counterclaim. Having failed to answer, petitioner was correctly considered in default by the trial
court. 9 Even assuming that the trial court acquired no jurisdiction over petitioner, respondent court also said, but having filed a
motion for reconsideration seeking relief from the said order of default, petitioner was estopped from further questioning the trial
court's jurisdiction. 10

On the question of its liability for attorney's fees owing to private respondent Gregorio Manuel, petitioner argued that being a
corporation, it should not be held liable therefor because these fees were owed by the incorporators, directors and officers of the
corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed that the personality of the corporation, vis-
a-vis the individual persons who hired the services of private respondent, is separate and distinct, 11 hence, the liability of said
individuals did not become an obligation chargeable against petitioner.

Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:

However, this distinct and separate personality is merely a fiction created by law for convenience and to
promote justice. Accordingly, this separate personality of the corporation may be disregarded, or the veil of
corporate fiction pierced, in cases where it is used as a cloak or cover for found (sic) illegality, or to work an
injustice, or where necessary to achieve equity or when necessary for the protection of creditors. (Sulo ng
Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed of natural persons and the legal fiction
of a separate corporate personality is not a shield for the commission of injustice and inequity. (Chemplex
Philippines, Inc. vs. Pamatian, 57 SCRA 408).

In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed of
the heirs of the late Benita Trinidad as directors and incorporators for whom defendant Gregorio Manuel
rendered legal services in the intestate estate case of their deceased mother. Considering the aforestated
principles and circumstances established in this case, equity and justice demands plaintiff-appellant's veil of
corporate identity should be pierced and the defendant be compensated for legal services rendered to the
heirs, who are directors of the plaintiff-appellant corporation. 12

Now before us, petitioner assigns the following errors:

I.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY.

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER
WITH RESPECT TO THE COUNTERCLAIM. 13

Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because the transaction
concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. According to petitioner, there was no
cause of action by said respondent against petitioner; personal concerns of the heirs should be distinguished from those
involving corporate affairs. Petitioner further contends that the present case does not fall among the instances wherein the
courts may look beyond the distinct personality of a corporation. According to petitioner, the services for which respondent
Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers the heirs should have been sued in
their personal capacity, and not involve the corporation. 14
With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the answer containing the
permissive counterclaim. It claims that the counterclaim is a separate case which can only be properly served upon the opposing
party through summons. Further petitioner states that by nature, a permissive counterclaim is one which does not arise out of
nor is necessarily connected with the subject of the opposing party's claim. Petitioner avers that since there was no service of
summons upon it with regard to the counterclaim, then the court did not acquire jurisdiction over petitioner. Since a counterclaim
is considered an action independent from the answer, according to petitioner, then in effect there should be two simultaneous
actions between the same parties: each party is at the same time both plaintiff and defendant with respect to the
other, 15requiring in each case separate summonses.

In their Comment, private respondents focus on the two questions raised by petitioner. They defend the propriety of piercing the
veil of corporate fiction, but deny the necessity of serving separate summonses on petitioner in regard to their permissive
counterclaim contained in the answer.

Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was employed as assistant
legal officer of petitioner corporation, and that his services were solicited by the incorporators, directors and members to handle
and represent them in Special Proceedings No. 7803, concerning the Intestate Estate of the late Benita Trinidad. They assert
that the members of petitioner corporation took advantage of their positions by not compensating respondent Gregorio Manuel
after the termination of the estate proceedings despite his repeated demands for payment of his services. They cite findings of
the appellate court that support piercing the veil of corporate identity in this particular case. They assert that the corporate veil
may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, and defend crime. It may also be
pierced, according to them, where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole
benefit of the stockholders or of another corporate entity. In these instances, they aver, the corporation should be treated merely
as an association of individual persons. 16

Private respondents dispute petitioner's claim that its right to due process was violated when respondents' counterclaim was
granted due course, although no summons was served upon it. They claim that no provision in the Rules of Court requires
service of summons upon a defendant in a counterclaim. Private respondents argue that when the petitioner filed its complaint
before the trial court it voluntarily submitted itself to the jurisdiction of the court. As a consequence, the issuance of summons on
it was no longer necessary. Private respondents say they served a copy of their answer with affirmative defenses and
counterclaim on petitioner's former counsel, Nicanor G. Alvarez. While petitioner would have the Court believe that respondents
served said copy upon Alvarez after he had withdrawn his appearance as counsel for the petitioner, private respondents assert
that this contention is utterly baseless. Records disclose that the answer was received two (2) days before the former counsel
for petitioner withdrew his appearance, according to private respondents. They maintain that the present petition is but a form of
dilatory appeal, to set off petitioner's obligations to the respondents by running up more interest it could recover from them.
Private respondents therefore claim damages against petitioner. 17

To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate fiction.

Basic in corporation law is the principle that a corporation has a separate personality distinct from its stockholders and from
other corporations to which it may be connected. 18 However, under the doctrine of piercing the veil of corporate entity, the
corporation's separate juridical personality may be disregarded, for example, when the corporate identity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation is a mere alter ego or business conduit of
a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be ignored. 19 In these
circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach to them.
The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy and in the interest of
justice, will be justifiably set aside.

In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no relevant
application here. Respondent court erred in permitting the trial court's resort to this doctrine. The rationale behind piercing a
corporation's identity in a given case is to remove the barrier between the corporation from the persons comprising it to thwart
the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed
activities. However, in the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act,
the situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the personal liability of
certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has been turned
upside down because of its erroneous invocation. Note that according to private respondent Gregorio Manuel his services were
solicited as counsel for members of the Francisco family to represent them in the intestate proceedings over Benita Trinidad's
estate. These estate proceedings did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitioner corporation
on the claims that its management had requested his services and he acceded thereto as an employee of petitioner from whom
it could be deduced he was also receiving a salary. His move to recover unpaid legal fees through a counterclaim against
Francisco Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep body could only result from an
obvious misapprehension that petitioner's corporate assets could be used to answer for the liabilities of its individual directors,
officers, and incorporators. Such result if permitted could easily prejudice the corporation, its own creditors, and even other
stockholders; hence, clearly inequitous to petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers
of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable
to compensate a party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting
injustice, and be thereby held liable therefor by piercing its corporate veil. While there are no hard and fast rules on disregarding
separate corporate identity, we must always be mindful of its function and purpose. A court should be careful in assessing the
milieu where the doctrine of piercing the corporate veil may be applied. Otherwise an injustice, although unintended, may result
from its erroneous application.

The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be
kept separate in this case. The claim for legal fees against the concerned individual incorporators, officers and directors could
not be properly directed against the corporation without violating basic principles governing corporations. Moreover, every action
including a counterclaim must be prosecuted or defended in the name of the real party in interest. 20 It is plainly an error to
lay the claim for legal fees of private respondent Gregorio Manuel at the door of petitioner (FMC) rather than individual members
of the Francisco family.

However, with regard to the procedural issue raised by petitioner's allegation, that it needed to be summoned anew in order for
the court to acquire jurisdiction over it, we agree with respondent court's view to the contrary. Section 4, Rule 11 of the Rules of
Court provides that a counterclaim or cross-claim must be answered within ten (10) days from service. Nothing in the Rules of
Court says that summons should first be served on the defendant before an answer to counterclaim must be made. The purpose
of a summons is to enable the court to acquire jurisdiction over the person of the defendant. Although a counterclaim is treated
as an entirely distinct and independent action, the defendant in the counterclaim, being the plaintiff in the original complaint, has
already submitted to the jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of Civil Procedure, 21 if a
defendant (herein petitioner) fails to answer the counterclaim, then upon motion of plaintiff, the defendant may be declared in
default. This is what happened to petitioner in this case, and this Court finds no procedural error in the disposition of the
appellate court on this particular issue. Moreover, as noted by the respondent court, when petitioner filed its motion seeking to
set aside the order of default, in effect it submitted itself to the jurisdiction of the court. As well said by respondent court:

Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its request,
plaintiff-appellant was granted time to file a motion for reconsideration of the disputed decision. Plaintiff-
appellant did file its motion for reconsideration to set aside the order of default and the judgment rendered on
the counterclaim.

Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it vigorously
insists, plaintiff-appellant is considered to have submitted to the court's jurisdiction when it filed the motion for
reconsideration seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A party is estopped from
assailing the jurisdiction of a court after voluntarily submitting himself to its jurisdiction. (Tejones vs. Gironella,
159 SCRA 100). Estoppel is a bar against any claims of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37).22

WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar only as it held
Francisco Motors Corporation liable for the legal obligation owing to private respondent Gregorio Manuel; but this decision is
without prejudice to his filing the proper suit against the concerned members of the Francisco family in their personal capacity.
No pronouncement as to costs.1wphi1.nt

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 142616 July 31, 2001

PHILIPPINE NATIONAL BANK, petitioner,

vs.
RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE,respondents.

KAPUNAN, J.:

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

The antecedents of this case are as follows:

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

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

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

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

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

1.

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

2.
 THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR LACK
OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN
THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.2

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

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

The petition is impressed with merit.

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

GROUNDS

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

II

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

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

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

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

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

The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly owned subsidiary of defendant
Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL.10 In justifying its ruling, the trial court,
citing the case of Koppel Phil. Inc. vs. Yatco,11 reasoned that the corporate entity may be disregarded where a corporation is the
mere alter ego, or business conduit of a person or where the corporation is so organized and controlled and its affairs are so
conducted, as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.12

We disagree.

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

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

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

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

These are as follows:

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

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

(c) The parent corporation finances the subsidiary.

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

(e) The subsidiary has grossly inadequate capital.

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

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

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

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

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

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

The Tennessee Supreme Court thus ruled:

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

Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine developed to
address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. The
doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime, or
when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of
a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.15

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

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

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

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

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

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

In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this
case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it
acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without
compelling reasons be considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or
defended in the name of the real party-in-interest, unless otherwise authorized by law or these Rules.18 In mandatory terms, the
Rules require that "parties-in-interest without whom no final determination can be had, an action shall be joined either as
plaintiffs or defendants."19 In the case at bar, the injunction suit is directed only against the agent, not the principal.

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

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

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

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

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

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

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

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-78412 September 26, 1989

TRADERS ROYAL BANK, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. BALTAZAR M. DIZON, Presiding Judge, Regional Trial Court, Branch
113, Pasay City and ALFREDO CHING, respondents.

San Juan, Africa, Gonzalez and San Agustin for petitioner.

Balgos and Perez for respondents.

GRINO-AQUINO, J.:

This petition for certiorari assails the Court of Appeals' decision dated April 29, 1987 in CA-G.R. SP No. 03593, entitled "Alfredo
Ching vs. Hon. Baltazar M. Dizon and Traders Royal Bank" nullifying the Regional Trial Court's orders dated August 15,1983 and
May 24,1984 and prohibiting it from further proceeding in Civil Case No. 1028-P.

On March 30,1982, the Philippine Blooming Mills, Inc. (PBM) and Alfredo Ching jointly submitted to the Securities and Exchange
Commission a petition for suspension of payments (SEC No. 2250) where Alfredo Ching was joined as co-petitioner because
under the law, he was allegedly entitled, as surety, to avail of the defenses of PBM and he was expected to raise most of the
stockholders' equity of Pl00 million being required under the plan for the rehabilitation of PBM. Traders Royal Bank was included
among PBM's creditors named in Schedule A accompanying PBM's petition for suspension of payments.

On May 13, 1983, the petitioner bank filed Civil Case No. 1028-P in the Regional Trial Court, Branch CXIII in Pasay City, against
PBM and Alfredo Ching, to collect P22,227,794.05 exclusive of interests, penalties and other bank charges representing PBM's
outstanding obligation to the bank. Alfredo Ching, a stockholder of PBM, was impleaded as co-defendant for having signed as a
surety for PBM's obligations to the extent of ten million pesos (Pl0,000,000) under a Deed of Suretyship dated July 21, 1977.

In its en banc decision in SEC-EB No. 018 (Chung Ka Bio, et al. vs. Hon. Antonio R. Manabat, et al.), the SEC declared that it
had assumed jurisdiction over petitioner Alfredo Ching pursuant to Section 6, Rule 3 of the new Rules of Procedure of the SEC
providing that "parties in interest without whom no final determination can be had of an action shall be joined either as
complainant, petitioner or respondent" to prevent multiplicity of suits.

On July 9, 1982, the SEC issued an Order placing PBM's business, including its assets and liabilities, under rehabilitation
receivership, and ordered that "all actions for claims listed in Schedule A of the petition pending before any court or tribunal are
hereby suspended in whatever stage the same may be, until further orders from the Commission" (p. 22, Rollo). As directed by
the SEC, said order was published once a week for three consecutive weeks in the Bulletin Today, Philippine Daily Express and
Times Journal at the expense of PBM and Alfredo Ching.

PBM and Ching jointly filed a motion to dismiss Civil Case No. 1028-P in the RTC, Pasay City, invoking the pendency in the SEC
of PBM's application for suspension of payments (which Ching co-signed) and over which the SEC had already assumed
jurisdiction.

Before the motion to dismiss could be resolved, the court dropped PBM from the complaint, on motion of the plaintiff bank, for
the reason that the SEC had already placed PBM under rehabilitation receivership.

On August 15, 1983, the trial court denied Ching's motion to dismiss the complaint against himself. The court pointed out that
"P.D. 1758 is only concerned with the activities of corporations, partnerships and associations. Never was it intended to regulate
and/or control activities of individuals" (p.11, Rollo). Ching's motion for reconsideration of that order was denied on May 24,1984.
Respondent Judge argued that under P ' D. 902-A, as amended, the SEC may not validly acquire jurisdiction over an individual,
like Ching (p. 62, Rollo).
Ching filed a petition for certiorari and prohibition in the Court of Appeals (CA-G.R. SP No. 03593) to annul the orders of
respondent Judge and to prohibit him from further proceeding in the civil case.

The main issue raised in the petition was whether the court a quo could acquire jurisdiction over Ching in his personal and
individual capacity as a surety of PBM in the collection suit filed by the bank, despite the fact that PBM's obligation to the bank
had been placed under receivership by the SEC.

On April 29, 1987, the Court of Appeals granted the writs prayed for. It nullified the questioned orders of respondent Judge and
prohibited him from further proceeding in Civil Case No. 1028-P, except to enter an order dismissing the case. The pertinent
ruling of the Court of Appeals reads:

In sum, since the SEC had assumed jurisdiction over petitioner in SEC Case No. 2250 and reiterating the
propriety of such assumption in SEC-EB No. 018; and since under PD 902-A, as amended by PD 1758, ...
upon appointment of a ... rehabilitation receiver... pursuant to this Decree, all actions for claims against
corporation ... under management or receivership pending before any court, tribunal, board or body shall be
suspended accordingly ... respondent judge clearly acted without jurisdiction in taking cognizance of the civil
case in the court a quo brought by respondent bank to enforce the surety agreement against petitioner for the
purpose of collecting payment of PBM's outstanding obligations. Respondent bank should have questioned the
SEC's assumption of jurisdiction over petitioner in an appellate forum and not in the court a quo, a tribunal with
which the SEC enjoys a co-equal and coordinate rank. (p. 27, Rollo.)

The Bank assails that decision in this petition for review alleging that the appellate court erred;

1. in holding that jurisdiction over respondent Alfredo Ching was assumed by the SEC because he was a co-
signer or surety of PBM and that the lower court may not assume jurisdiction over him so as to avoid multiplicity
of suits; and

2. in holding that the jurisdiction assumed by the SEC over Ching was to the exclusion of courts or tribunals of
coordinate rank.

The petition for review is meritorious.

Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the SEC could not assume jurisdiction over
his person and properties. The Securities and Exchange Commission was empowered, as rehabilitation receiver, to take
custody and control of the assets and properties of PBM only, for the SEC has jurisdiction over corporations only not over private
individuals, except stockholders in an intra-corporate dispute (Sec. 5, P.D. 902-A and Sec. 2 of P.D. 1758). Being a nominal party
in SEC Case No. 2250, Ching's properties were not included in the rehabilitation receivership that the SEC constituted to take
custody of PBM's assets. Therefore, the petitioner bank was not barred from filing a suit against Ching, as a surety for PBM. An
anomalous situation would arise if individual sureties for debtor corporations may escape liability by simply co- filing with the
corporation a petition for suspension of payments in the SEC whose jurisdiction is limited only to corporations and their
corporate assets.

The term "parties-in-interest" in Section 6, Rule 3 of the SEC's New Rules of Procedure contemplates only private individuals
sued or suing as stockholders, directors, or officers of a corporation.

Ching can be sued separately to enforce his liability as surety for PBM, as expressly provided by Article 1216 of the New Civil
Code:

ART. 1216. The creditor may proceed against any of the solidary debtors or all of them simultaneously. The
demand made against one of them shall not be an obstacle to those which may subsequently be directed
against the others, as long as the debt has not been fully collected.

It is elementary that a corporation has a personality distinct and separate from its individual stockholders or members. Being an
officer or stockholder of a corporation does not make one's property the property also of the corporation, for they are separate
entities (Adelio Cruz vs. Quiterio Dalisay, 152 SCRA 482).

Ching's act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not vest in the SEC jurisdiction over his person or
property, for jurisdiction does not depend on the consent or acts of the parties but upon express provision of law (Tolentino vs.
Social Security System, 138 SCRA 428; Lee vs. Municipal Trial Court of Legaspi City, Br. I, 145 SCRA 408).
WHEREFORE, the petition for review is granted. The decision of the Court of Appeals in CA-G.R. SP No. 03593 is set aside.
Respondent Judge of the Regional Trial Court in Pasay City is ordered to reinstate Civil Case No. 1028-P and to proceed therein
against the private respondent Alfredo Ching. Costs against the private respondent.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 58168 December 19, 1989

CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA MAGSAYSAY-CORPUZ, assisted

be her husband, Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of the Estate of the late
Genaro F. Magsaysay respondents.

FERNAN, C.J.:

In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the decision of the Court of Appeals dated
July l3, 1981, 1 affirming that of the Court of First Instance of Zambales and Olongapo City which denied petitioners' motion to
intervene in an annulment suit filed by herein private respondent, and [2] its resolution dated September 7, 1981, denying their
motion for reconsideration.

Petitioners are raising a purely legal question; whether or not respondent Court of Appeals correctly denied their motion for
intervention.

The facts are not controverted.

On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro
Magsaysay, brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land
Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales. In her complaint,
she alleged that in 1958, she and her husband acquired, thru conjugal funds, a parcel of land with improvements, known as
"Pequena Island", covered by TCT No. 3258; that after the death of her husband, she discovered [a] an annotation at the back of
TCT No. 3258 that "the land was acquired by her husband from his separate capital;" [b] the registration of a Deed of
Assignment dated June 25, 1976 purportedly executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258
was cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed of Mortgage dated April 28,
1977 in the amount of P 2,700,000.00 executed by SUBIC in favor of FILMANBANK; that the foregoing acts were void and done
in an attempt to defraud the conjugal partnership considering that the land is conjugal, her marital consent to the annotation on
TCT No. 3258 was not obtained, the change made by the Register of Deeds of the titleholders was effected without the approval
of the Commissioner of Land Registration and that the late Senator did not execute the purported Deed of Assignment or his
consent thereto, if obtained, was secured by mistake, violence and intimidation. She further alleged that the assignment in favor
of SUBIC was without consideration and consequently null and void. She prayed that the Deed of Assignment and the Deed of
Mortgage be annulled and that the Register of Deeds be ordered to cancel TCT No. 22431 and to issue a new title in her favor.

On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for intervention on the ground that on June 20,
1978, their brother conveyed to them one-half (1/2 ) of his shareholdings in SUBIC or a total of 416,566.6 shares and as
assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in
the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC.

On July 26, 1979, the court denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever in the
matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to
intervene because SUBIC has a personality separate and distinct from its stockholders.

On appeal, respondent Court of Appeals found no factual or legal justification to disturb the findings of the lower court. The
appellate court further stated that whatever claims the petitioners have against the late Senator or against SUBIC for that matter
can be ventilated in a separate proceeding, such that with the denial of the motion for intervention, they are not left without any
remedy or judicial relief under existing law.

Petitioners' motion for reconsideration was denied. Hence, the instant recourse.
Petitioners anchor their right to intervene on the purported assignment made by the late Senator of a certain portion of his
shareholdings to them as evidenced by a Deed of Sale dated June 20, 1978. 2 Such transfer, petitioners posit, clothes them with
an interest, protected by law, in the matter of litigation.

Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 & 853 (1927), 3petitioners strongly
argue that their ownership of 41.66% of the entire outstanding capital stock of SUBIC entitles them to a significant vote in the
corporate affairs; that they are affected by the action of the widow of their late brother for it concerns the only tangible asset of
the corporation and that it appears that they are more vitally interested in the outcome of the case than SUBIC.

Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the respondent court's holding that
petitioners herein have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings
below. In the case of Batama Farmers' Cooperative Marketing Association, Inc. v. Rosal, 4 we held: "As clearly stated in Section
2 of Rule 12 of the Rules of Court, to be permitted to intervene in a pending action, the party must have a legal interest in the
matter in litigation, or in the success of either of the parties or an interest against both, or he must be so situated as to be
adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof ."

To allow intervention, [a] it must be shown that the movant has legal interest in the matter in litigation, or otherwise qualified; and
[b] consideration must be given as to whether the adjudication of the rights of the original parties may be delayed or prejudiced,
or whether the intervenor's rights may be protected in a separate proceeding or not. Both requirements must concur as the first
is not more important than the second. 5

The interest which entitles a person to intervene in a suit between other parties must be in the matter in litigation and of such
direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment.
Otherwise, if persons not parties of the action could be allowed to intervene, proceedings will become unnecessarily
complicated, expensive and interminable. And this is not the policy of the law. 6

The words "an interest in the subject" mean a direct interest in the cause of action as pleaded, and which would put the
intervenor in a legal position to litigate a fact alleged in the complaint, without the establishment of which plaintiff could not
recover. 7

Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural, consequential and
collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the
corporate debts and obligations.

While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner
thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in
nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct
legal person. 8

Petitioners further contend that the availability of other remedies, as declared by the Court of appeals, is totally immaterial to the
availability of the remedy of intervention.

We cannot give credit to such averment. As earlier stated, that the movant's interest may be protected in a separate proceeding
is a factor to be considered in allowing or disallowing a motion for intervention. It is significant to note at this juncture that as per
records, there are four pending cases involving the parties herein, enumerated as follows: [1] Special Proceedings No. 122122
before the CFI of Manila, Branch XXII, entitled "Concepcion Magsaysay-Labrador, et al. v. Subic Land Corp., et al.", involving the
validity of the transfer by the late Genaro Magsaysay of one-half of his shareholdings in Subic Land Corporation; [2] Civil Case
No. 2577-0 before the CFI of Zambales, Branch III, "Adelaida Rodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador,
et al. Intervenors", seeking to annul the purported Deed of Assignment in favor of SUBIC and its annotation at the back of TCT
No. 3258 in the name of respondent's deceased husband; [3] SEC Case No. 001770, filed by respondent praying, among other
things that she be declared in her capacity as the surviving spouse and administratrix of the estate of Genaro Magsaysay as the
sole subscriber and stockholder of SUBIC. There, petitioners, by motion, sought to intervene. Their motion to reconsider the
denial of their motion to intervene was granted; [4] SP No. Q-26739 before the CFI of Rizal, Branch IV, petitioners herein filing a
contingent claim pursuant to Section 5, Rule 86, Revised Rules of Court. 9 Petitioners' interests are no doubt amply protected in
these cases.

Neither do we lend credence to petitioners' argument that they are more interested in the outcome of the case than the
corporation-assignee, owing to the fact that the latter is willing to compromise with widow-respondent and since a compromise
involves the giving of reciprocal concessions, the only conceivable concession the corporation may give is a total or partial
relinquishment of the corporate assets. 10

Such claim all the more bolsters the contingent nature of petitioners' interest in the subject of litigation.

The factual findings of the trial court are clear on this point. The petitioners cannot claim the right to intervene on the strength of
the transfer of shares allegedly executed by the late Senator. The corporation did not keep books and records. 11 Perforce, no
transfer was ever recorded, much less effected as to prejudice third parties. The transfer must be registered in the books of the
corporation to affect third persons. The law on corporations is explicit. Section 63 of the Corporation Code provides, thus: "No
transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation
showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred."

And even assuming arguendo that there was a valid transfer, petitioners are nonetheless barred from intervening inasmuch as
their rights can be ventilated and amply protected in another proceeding.

WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 82797 February 27, 1991

GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,

vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.

A.E. Dacanay for petitioners.

Antonio Quintos Law Office for private respondent.

PARAS, J.:p

This is a petition for review on certiorari of the December 29, 1987 decision * of the Court of Appeals in CA-G.R. No. 11960
entitled "ROCES-REYES REALTY, INC. vs. HONORABLE JUDGE REGIONAL TRIAL COURT OF MANILA, BRANCH 44,
GOOD EARTH EMPORIUM, INC. and LIM KA PING" reversing the decision of respondent Judge ** of the Regional Trial Court
of Manila, Branch 44 in Civil Case No. 85-30484, which reversed the resolution of the Metropolitan Trial Court Of Manila, Branch
28 in Civil Case No. 09639, *** denying herein petitioners' motion to quash the alias writ of execution issued against them.

As gathered from the records, the antecedent facts of this case, are as follows:

A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-REYES REALTY, INC., as lessor, and
GOOD EARTH EMPORIUM, INC., as lessee, for a term of three years beginning November 1, 1981 and ending October 31,
1984 at a monthly rental of P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The building which was the subject of the contract of
lease is a five-storey building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila.

From March 1983, up to the time the complaint was filed, the lessee had defaulted in the payment of rentals, as a consequence
of which, private respondent ROCES-REYES REALTY, INC., (hereinafter designated as ROCES for brevity) filed on October 14,
1984, an ejectment case (Unlawful Detainer) against herein petitioners, GOOD EARTH EMPORIUM, INC. and LIM KA PING,
hereinafter designated as GEE, (Rollo, p. 21; Annex "B" of the Petition). After the latter had tendered their responsive pleading,
the lower court (MTC, Manila) on motion of Roces rendered judgment on the pleadings dated April 17, 1984, the dispositive
portion of which states:

Judgment is hereby rendered ordering defendants (herein petitioners) and all persons claiming title under him
to vacate the premises and surrender the same to the plaintiffs (herein respondents); ordering the defendants
to pay the plaintiffs the rental of P65,000.00 a month beginning March 1983 up to the time defendants actually
vacate the premises and deliver possession to the plaintiff; to pay attorney's fees in the amount of P5,000.00
and to pay the costs of this suit. (Rollo, p. 111; Memorandum of Respondents)

On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May 28, 1984 simultaneous with the latter's
filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On June 13, 1984, the trial court resolved such motion ruling:

After considering the motion for the issuance of a writ of execution filed by counsel for the plaintiff (herein
respondents) and the opposition filed in relation thereto and finding that the defendant failed to file the
necessary supersedeas bond, this court resolved to grant the same for being meritorious. (Rollo, p. 112)

On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the appeal was assigned to the Regional Trial
Court (Manila) Branch XLVI. However, on August 15, 1984, GEE thru counsel filed with the Regional Trial Court of Manila, a
motion to withdraw appeal citing as reason that they are satisfied with the decision of the Metropolitan Trial Court of Manila,
Branch XXVIII, which said court granted in its Order of August 27, 1984 and the records were remanded to the trial court (Rollo,
p. 32; CA Decision). Upon an ex-parte Motion of ROCES, the trial court issued an Alias Writ of Execution dated February 25,
1985 (Rollo, p. 104; Annex "D" of Petitioner's Memorandum), which was implemented on February 27, 1985. GEE thru counsel
filed a motion to quash the writ of execution and notice of levy and an urgent Ex-parte Supplemental Motion for the issuance of a
restraining order, on March 7, and 20, 1985, respectively. On March 21, 1985, the lower court issued a restraining order to the
sheriff to hold the execution of the judgment pending hearing on the motion to quash the writ of execution (Rollo, p. 22; RTC
Decision). While said motion was pending resolution, GEE filed a Petition for Relief from judgment before another court,
Regional Trial Court of Manila, Branch IX, which petition was docketed as Civil Case No. 80-30019, but the petition was
dismissed and the injunctive writ issued in connection therewith set aside. Both parties appealed to the Court of Appeals; GEE
on the order of dismissal and Roces on denial of his motion for indemnity, both docketed as CA-G.R. No. 15873-CV. Going back
to the original case, the Metropolitan Trial Court after hearing and disposing some other incidents, promulgated the questioned
Resolution, dated April 8, 1985, the dispositive portion of which reads as follows:

Premises considered, the motion to quash the writ is hereby denied for lack of merit.

The restraining orders issued on March 11 and 23, 1985 are hereby recalled, lifted and set aside. (Rollo, p. 20,
MTC Decision)

GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces moved to dismiss the appeal but the
Court denied the motion. On certiorari, the Court of Appeals dismissed Roces' petition and remanded the case to the RTC.
Meantime, Branch IX became vacant and the case was re-raffled to Branch XLIV.

On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million evidenced by Exhibit "I" and another
P1 million evidenced by the pacto de retro sale instrument (Exhibit "2") were in full satisfaction of the judgment obligation,
reversed the decision of the Municipal Trial Court, the dispositive portion of which reads:

Premises considered, judgment is hereby rendered reversing the Resolution appealed from quashing the writ
of execution and ordering the cancellation of the notice of levy and declaring the judgment debt as having been
fully paid and/or Liquidated. (Rollo, p. 29).

On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court and reinstated the Resolution of the
Metropolitan Trial Court of Manila, the dispositive portion of which is as follows:

WHEREFORE, the judgment appealed from is hereby REVERSED and the Resolution dated April 8, 1985, of
the Metropolitan Trial Court of Manila Branch XXXIII is hereby REINSTATED. No pronouncement as to costs.
(Rollo, p. 40).

GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this petition.

The main issue in this case is whether or not there was full satisfaction of the judgment debt in favor of respondent corporation
which would justify the quashing of the Writ of Execution.

A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any of said exhibits was there any writing
alluding to or referring to any settlement between the parties of petitioners' judgment obligation (Rollo, pp. 45-48).

Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or partial, of the judgment obligation.
Likewise, there is no indication in the pacto de retro sale which was drawn in favor of Jesus Marcos Roces and Marcos V. Roces
and not the respondent corporation, that the obligation embodied therein had something to do with petitioners' judgment
obligation with respondent corporation.

Finding that the common exhibit, Exhibit 1/A had been signed by persons other than judgment creditors (Roces-Reyes Realty,
Inc.) coupled with the fact that said exhibit was not even alleged by GEE and Lim Ka Ping in their original motion to quash
the alias writ of execution (Rollo, p. 37) but produced only during the hearing (Ibid.) which production resulted in petitioners
having to claim belatedly that there was an "overpayment" of about half a million pesos (Rollo, pp. 25-27) and remarking on the
utter absence of any writing in Exhibits "1/A" and "2/B" to indicate payment of the judgment debt, respondent Appellate Court
correctly concluded that there was in fact no payment of the judgment debt. As aptly observed by the said court:

What immediately catches one's attention is the total absence of any writing alluding to or referring to any
settlement between the parties of private respondents' (petitioners') judgment obligation. In moving for the
dismissal of the appeal Lim Ka Ping who was then assisted by counsel simply stated that defendants (herein
petitioners) are satisfied with the decision of the Metropolitan Trial Court (Records of CA, p. 54).
 Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution and Notice of Levy
dated March 7, 1985, there is absolutely no reference to the alleged payment of one million pesos as
evidenced by Exhibit 1 dated September 20, 1984. As pointed out by petitioner (respondent corporation) this
was brought out by Linda Panutat, Manager of Good Earth only in the course of the latter's testimony. (Rollo, p.
37)

Article 1240 of the Civil Code of the Philippines provides that:

Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its successor in interest nor is there
positive evidence that the payment was made to a person authorized to receive it. No such proof was submitted but merely
inferred by the Regional Trial Court (Rollo, p. 25) from Marcos Roces having signed the Lease Contract as President which was
witnessed by Jesus Marcos Roces. The latter, however, was no longer President or even an officer of Roces-Reyes Realty, Inc.
at the time he received the money (Exhibit "1") and signed the sale with pacto de retro (Exhibit "2"). He, in fact, denied being in
possession of authority to receive payment for the respondent corporation nor does the receipt show that he signed in the same
capacity as he did in the Lease Contract at a time when he was President for respondent corporation (Rollo, p. 20, MTC
decision).

On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced by the receipt (Exhibit "1") is the
payment for a loan extended by him and Marcos Roces in favor of Lim Ka Ping. The assertion is home by the receipt itself
whereby they acknowledged payment of the loan in their names and in no other capacity.

A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or stockholder
of a corporation does not make one's property also of the corporation, and vice-versa, for they are separate entities (Traders
Royal Bank v. CA-G.R. No. 78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners are in no legal sense
the owners of corporate property (or credits) which is owned by the corporation as a distinct legal person (Concepcion
Magsaysay-Labrador v. CA-G.R. No. 58168, December 19, 1989). As a consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of
the corporation (Prof. Jose Nolledo's "The Corporation Code of the Philippines, p. 5, 1988 Edition, citing Professor Ballantine).

The absence of a note to evidence the loan is explained by Jesus Marcos Roces who testified that the IOU was subsequently
delivered to private respondents (Rollo, pp. 97-98). Contrary to the Regional Trial Court's premise that it was incumbent upon
respondent corporation to prove that the amount was delivered to the Roces brothers in the payment of the loan in the latter's
favor, the delivery of the amount to and the receipt thereof by the Roces brothers in their names raises the presumption that the
said amount was due to them. There is a disputable presumption that money paid by one to the other was due to the latter (Sec.
5(f) Rule 131, Rules of Court). It is for GEE and Lim Ka Ping to prove otherwise. In other words, it is for the latter to prove that
the payments made were for the satisfaction of their judgment debt and not vice versa.

The fact that at the time payment was made to the two Roces brothers, GEE was also indebted to respondent corporation for a
larger amount, is not supportive of the Regional Trial Court's conclusions that the payment was in favor of the latter, especially in
the case at bar where the amount was not receipted for by respondent corporation and there is absolutely no indication in the
receipt from which it can be reasonably inferred, that said payment was in satisfaction of the judgment debt. Likewise, no such
inference can be made from the execution of the pacto de retro sale which was not made in favor of respondent corporation but
in favor of the two Roces brothers in their individual capacities without any reference to the judgment obligation in favor of
respondent corporation.

In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the sale with pacto de retro(Exhibit "2/B")
all in the sum of P2 million, far exceeds petitioners' judgment obligation in favor of respondent corporation in the sum of
P1,560,000.00 by P440,000.00, which militates against the claim of petitioner that the aforesaid amount (P2M) was in full
payment of the judgment obligation.

Petitioners' explanation that the excess is interest and advance rentals for an extension of the lease contract (Rollo, pp. 25-28)
is belied by the absence of any interest awarded in the case and of any agreement as to the extension of the lease nor was
there any such pretense in the Motion to Quash the Alias Writ of Execution.

Petitioners' averments that the respondent court had gravely abused its discretion in arriving at the assailed factual findings as
contrary to the evidence and applicable decisions of this Honorable Court are therefore, patently unfounded. Respondent court
was correct in stating that it "cannot go beyond what appears in the documents submitted by petitioners themselves (Exhibits "1"
and "2") in the absence of clear and convincing evidence" that would support its claim that the judgment obligation has indeed
been fully satisfied which would warrant the quashal of the Alias Writ of Execution.

It has been an established rule that when the existence of a debt is fully established by the evidence (which has been done in
this case), the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a defense
to the claim of the plaintiff creditor (herein respondent corporation) (Chua Chienco v. Vargas, 11 Phil. 219; Ramos v. Ledesma,
12 Phil. 656; Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well-entrenched in Our jurisprudence that each party in a case
must prove his own affirmative allegations by the degree of evidence required by law (Stronghold Insurance Co. v. CA, G.R. No.
83376, May 29,1989; Tai Tong Chuache & Co. v. Insurance Commission, 158 SCRA 366).

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

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-57767 January 31, 1984

ALBERTO S. SUNIO and ILOCOS COMMERCIAL CORPORATION, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION, NEMESIO VALENTON, SANTOS DEL ROSARIO, VICENTE TAPUCOL,
ANDRES SOLIS, CRESCENCIO SOLLER, CECILIO LABUNI, SOTERO L. TUMANG, in his capacity as Asst. Regional
Director for Arbitration, Regional Office No. 1, Ministry of Labor & Employment, and AMBROSIO B. SISON, in his
capacity as Acting Regional Sheriff, Regional Office No. 1, Ministry of Labor & Employment, respondents.

Yolanda Bustamante for petitioners.

The Solicitor General for respondent NLRC.

Benjamin F. Baterina for private respondents,

MELENCIO-HERRERA, J.:

In this special civil action for certiorari and Prohibition with Preliminary Injunction, petitioners Alberto Sunio and Ilocos
Commercial Corporation seek to set aside the Resolution of March 24, 1981 of the National Labor Relations Commission
(NLRC), which affirmed the Decision of the Assistant Regional Director, dated November 5, 1979, in NLRC Case No. RB-1-
1228-78, directing petitioners and Cabugao Ice Plant Incorporated to reinstate private respondents to their former position
without loss of seniority and privileges and to pay them backwages from February 1, 1978 to the date of their actual
reinstatement.

The controversy arose from the following antecedents:

On July 30,1973, EM Ramos & Company, Inc. (EMRACO for brevity) and Cabugao Ice Plant, Inc. (CIPI for short), sister
corporations, sold an ice plant to Rizal Development and Finance Corporation RDFC with a mortgage on the same properties
constituted by the latter in favor of the former to secure the payment of the balance of the purchase price. 1

By virtue of that sale, EMRACO-CIPI terminated the services of all their employees including private respondents herein, and
paid them their separation pay. RDFC hired its own own employees and operated the plant.

On November 28, 1973, RDFC sold the ice plant to petitioner Ilocos Commercial Corporation ICC headed by its President and
General Manager, petitioner Alberto S. Sunio. Petitioners also hired their own employees as private respondents were no longer
in the plant. The sale was subject to the mortgage in favor of EMRACO-CIPI. Both RDFC-ICC failed to pay the balance of the
purchase price, as a consequence of which, EMRACO-CIPI instituted extrajudicial foreclosure proceedings. The properties were
sold at public auction on August 30, 1974, the highest bidders being EMRACO CIPI. On the same date, said companies
obtained an ex-parte Writ of Possession from the Court of First Instance of Ilocos Sur in Civil Case No. 3026-V.

On the same date, August 30, 1974, EMRACO-CIPI sold the ice plant to Nilo Villanueva, suspect to the right of redemption of
RDFC. Nilo Villanueva then re-hired private respondents.

On August 27, 1975, RDFC redeemed the ice plant. Because of the gate to Nilo Villanueva, EMRACO-CIPI were unable to turn
over possession to RDFC and/or petitioners, prompting the latter to file a complaint for recovery of possession against
EMRACO-CIPI with the then Court of First Instance of Ilocos Sur (Civil Case No. 81-KC). Nilo Villanueva intervened

Said Court ordered the issuance of a Writ of Preliminary Mandatory Injunction placing RDFC in possession of the ice plant.
EMPRACO-CIPI and Villanueva appealed to the Court of Appeals (CA-GR No. 05880- SP which upheld the questionee, Order. A
Petition for certiorari with this Court (L-46376) assailing that Resolution was denied for lack of merit or January 6, 1978.
On February 1, 1978, RDFC and petitioners finally obtains possession of the ice plant by virtue of the Mandatory Injunction
previously issued, which ordered defendant "particularly Nilo C. Villanueva and his agents representatives, or any person found
in the premises to vacate and surrender the property in litigation." 2Petitioners did not re-employ private respondents.

Private respondents filed complaints against petitioners for illegal dismissal with the Regional Office, Ministry of Labor &
Employment, San Fernando, La Union.

On November 5, 1979, the Assistant Regional Director rendered a decision the decretal portion of which reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, respondents Cabugao Ice Plant, Inc., Ilocos Commercial
Corporation and/or Alberto Sunio, are hereby directed to reinstate the complainants to their former positions
without loss of seniority privileges and to pay their backwages from February 1, 1978 to the date when they are
actually reinstated

Petitioners appealed to the NLRC, which affirmed the Regional Director's decision and dismissed the appeal for lack of merit on
March 24, 1981 reasoning that when RDFC took possession of the property and private respondents were terminated in 1973,
the latter already had a vested right to their security of tenure, and when they were rehired those rights continued. 3

Petitioners are now before us assailing the Asst. Regional Director's Decision, dated November 5, 1979, the Resolution of the
NLRC, Second Division, dated March 24, 1981, as well as the Writ of Execution issued pursuant thereto dated July 14, 1981, for
P156,720.80 representing backwages. They raise as lone issue:

That respondent National Labor Relations Commission and/or Asst. Regional Director Sotero Tumang acted in
excess of jurisdiction and/or with grave abuse of discretion amounting to lack of jurisdiction in rendering the
decision and the resolution in NLRC Case No. RB-1-1228-78, and in ordering the execution of said decision

We issued a Temporary Restraining Order to maintain the status quo, resolved to give due course to the Petition, and required
the parties to submit their respective Briefs. Only petitioners have complied.

Did public respondents' act with grave abuse of on amounting to lack of jurisdiction in ordering the reinstatement of private
respondents and the payment of their backwages?

Petitioners deny any employer-employee relationship with private respondents arguing that no privity of contract exists between
them, the latter being the employees of Nilo Villanueva who re-hired them when he took over the operation of the ice plant from
CIPI; that private respondents should go after Nilo Villanueva for whatever rights they may be entitled to, or the CIPI which is still
existing, that no succession of rights and obligations took place between Villanueva and petitioners as the transfer of possession
was a consequence of the exercise of the right of redemption; that the amount of backwages was determined without petitioners
being given a chance to be heard and that granting that respondents are entitled to the reliefs adjudged, such award cannot be
enforced against petitioner Sunio, who was impleaded in the complaint as the General Manager of ICC.

Public respondent, in its Comment, countered that the sale of a business of 'a going concern does not ipso factoterminate
employer-employee relations when the successor-employer continues the business operation of the predecessor-employer in an
essentially unchanged manner. Private respondents argue that the change of management or ownership of a business entity is
not one of the just causes for the termination of services of employees under Article 283 of the Labor Code, as amended. Both
respondents additionally claim that petitioner Sunio, as the General Manager of ICC and owner of one half (1/2) of its interest, is
personally liable for his malicious act of illegally dismissing private respondents, for no ground exists to justify their termination.

We sustain petitioners.

It is true that the sale of a business of a going concern does not ipso facto terminate the employer-employee relations insofar as
the successor-employer is concerned, and that change of ownership or management of an establishment or company is not one
of the just causes provided by law for termination of employment. The situation here, however, was not one of simple change of
ownership. Of note is the fact that when, on July 30, 1973, EMRACO-CIPI sold the plant to RDFC, CIPI had terminated the
services of its employees, including herein private respondents, giving them their separation pay which they had accepted.
When RDFC took over ownership and management, therefore, it hired its own employees, not the private respondents, who
were no longer there. RDFC subsequently sold the property to petitioners on November 28, 1973. But by reason of their failure
to pay the balance of the purchase price, EMRACO-CIPI foreclosed on the mortgage over the ice plant; the property was sold at
public auction to EMRACO-CIPI as the highest bidders, and they eventually re-possessed the plant on August 30, 1974. During
all the period that RDFC and petitioners were operating the plant from July 30, 1973 to August 30, 1974, they had their own
employees. CIPI-EMRACO then sold the plant, also on August 30, 1974, to Nilo Villanueva, subject to RDFC's right of
redemption. Nilo Villanueva then rehired private respondents as employees of the plant, also in 1974.

In 1975, RDFC redeemed the property and demanded possession but EMRACO-CIPI and Nilo Villanueva resisted so that
petitioners were compelled to sue for recovery of possession, obtaining it, however, only in 1978.

Under those circumstances, it cannot be justifiably said that the plant together with its staff and personnel moved from one
ownership to another. No succession of employment rights and obligations can be said to have taken place between EMRACO-
CIPI-Nilo Villanueva, on the one hand, and petitioners on the other. Petitioners eventually acquired possession by virtue of the
exercise of their right of redemption and of a Mandatory Injunction in their favor which ordered Nilo Villanueva and "any person
found in the premises" to vacate. What is more, when EMRACO-CIPI sold the ice plant to RDFC in 1973, private respondents'
employment was terminated by EMRACO-CIPI and they were given their separation pay, which they accepted. During the
thirteen months, therefore, that RDFC and petitioners were in possession and operating the plant up to August, 1974, they hired
their own employees, not the private respondents. In fact, it may even be said that private respondents had slept on their rights
when they failed to contest such termination at the time of sale, if they believed they had rights to protect. Further, Nilo
Villanueva rehired private respondents in August, 1974, subject to a resolutory condition. That condition having arisen, the rights
of private respondents who claim under him mast be deemed to have also ceased.

Private respondents can neither successfully invoke security of tenure in their favor. Their tenure should not be reckoned from
1967 because they were already terminated in 1973. Private respondents were only rehired in 1974 by Nilo Villanueva.
Petitioners took over by judicial process in 1978 so that private respondents had actually only four years of rehired employment
with Nilo Villanueva, during all of which period, petitioners fought hard against Nilo Villanueva to recover possession of the plant.
Insofar as petitioners are concerned therefore, there was no tenurial security to speak of that would entitle private respondents
to reinstatement and backwages. We come now to the personal liability of petitioner, Sunio, who was made jointly and severally
responsible with petitioner company and CIPI for the payment of the backwages of private respondents. This is reversible error.
The Assistant Regional Director's Decision failed to disclose the reason why he was made personally liable. Respondents,
however, alleged as grounds thereof, his being the owner of one-half (1/2) interest of said corporation, and his alleged arbitrary
dismissal of private respondents. Petitioner Sunio was impleaded in the Complaint his capacity as General Manager of petitioner
corporation. where appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of
private respondents. His act, therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as
well as from that of any other legal entity to which it may be related. 4 Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate
corporate personality. 5 Petitioner Sunio, therefore, should not have been made personally answerable for the payment of private
respondents' back salaries.

WHEREFORE, the assailed Decision and Resolution, dated November 5, 1979 and March 24, 1981, respectively, and the
consequent Writ of Execution are hereby SET ASIDE and the Temporary Restraining Order heretofore issued by this Court
hereby made permanent. Public respondents are hereby ordered to return to petitioners the latter's levied properties in their
possession. No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-36187 January 17, 1989

REYNOLDS PHILIPPINE CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and SERG'S PRODUCTS, INC., respondents.

Belo, Abiera & Associates for petitioner.

Ponciano U. Pitargue for private respondent.

GRIO-AQUINO, J.:

This is a petition for review of the decision dated December 1, 1972 of the Court of Appeals in "Reynolds Philippine Corporation
vs. Serg's Products, Inc." dismissing the petitioner's collection suit.

In its complaint of June 2, 1966, the petitioner sought to recover from the private respondent Serg's Products, Inc. the sum of
P32,565.62 representing the unpaid price of aluminum foils and cores sold and delivered by it to the latter.

The private respondent denied liability for payment of the account on the ground that the aluminum foils and cores were ordered
or purchased by Serg's Chocolate Products, a partnership of Antonio Goquiolay and Luis Sequia Mendoza, not Serg's Products,
Inc., a corporation managed and controlled by Antonio Goquiolay and his wife Conchita Goquiolay, as majority stockholders and
principal officers.

On July 31, 1968, the trial court rendered judgment finding the private respondent liable and ordered it

to pay 'Reynolds Philippine Corporation the balance of its account in the sum of Thirty Two Thousand Five
Hundred Sixty Five Pesos and Sixty-Two Centavos (P32,565.62) with 6% interest per annum from January 26,
1966, until paid; Two thousand Pesos (P2,000.00) as attorney's fees, and litigation expenses; and costs of this
suit.' (p. 46, Rollo, pp. 88-89, Record on Appeal.)

Upon private respondent's appeal to the Court of Appeals, that court on December 1, 1972, reversed the trial court and
dismissed the complaint on the ground that petitioner had no cause of action against Serg's Products, Inc. (p. 43, Rollo).

Reynolds is now before Us, seeking a review of the Court of Appeals' decision. The petition raises a factual issue: Who is the
real debtor of the petitioner? Is it the partnership of Goquiolay and Mendoza, doing business under the trade name of "Serg's
Chocolate Products,' or the respondent corporation, Serg's Products, Inc.?

Based on the testimony of the witnesses, the trial court held the corporation, "Serg's Products, Inc.," liable as the real buyer and
user of the aluminum foils and cores. However, the Court of Appeals relied on the sales orders, delivery receipts, statements of
account and demand letters where the purchaser named was "Serg's Chocolate Products," the partnership.

While it is an established principle that in a petition for review under Rule 45 of the Rules of Court, the Supreme Court will review
only questions of law and that the factual findings of the Court of Appeals are conclusive upon Us, nevertheless, there are
certain recognized exceptions to that rule. The exceptions are: (1) when the conclusion is grounded entirely on speculation,
surmises and conjectures; (2) when the inference is manifestly mistaken, absurd, and impossible; (3) where there is grave
abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the Court in making its findings,
went beyond the issues of the case, and the same are contrary to the admissions of both the appellant and the appellee; (6)
when the findings of the Appellate Court are contrary to those of the trial court; (7) when the findings are without citation of
specific evidence on which they are based (Mendoza vs. Court of Appeals, 156 SCRA 597; Manlapaz vs. Court of Appeals, 147
SCRA 238 [1987]; Sacay vs. Sandiganbayan, 142 SCRA 609 [1986] Guita vs. CA, 139 SCRA 576 [1985]). It was held that where
findings of the Court of Appeals and trial court are contrary to each other, the Supreme Court may scrutinize the evidence on
record (Cruz vs. CA, 129 SCRA 222 [1984]).
In this case, the trial court which heard the witnesses testify, hence was in a superior position to assess the probative worth of
their evidence, found that although the commercial documents were indeed in the name of "Serg's Chocolate Products," the
following facts proved that the true purchaser of the aluminum foils and cores from the petitioner, was "Serg's Products, Inc." not
the partnership denominated "Serg's Chocolate Products:"

(1) The rolls of aluminum foil were ordered and signed for by Antonio Goquiolay president of Serg's Products,
Inc. They were delivered to, accepted, and used by said corporation in its chocolate factory at Cainta, Rizal (p.
47,Rollo; p. 8, Brief for plaintiff-appellee);

(2) Antonio Goquiolay did not appear in court to shed light on whether he signed the purchase orders and
delivery receipts as managing partner of "Serg's Chocolate Products," or as president and general manager of
"Serg's Products, Inc." Jesus V. Toledo, the Chief Accountant of Serg's Products, Inc., admitted, however, that
"we (Serg's products, Inc.) are buying from them (Reynolds) the aluminum foil." (t.s.n., Dec. 7, 1967, P. 9);

(3) The error in Identifying the customer as 'Serg's Chocolate Products," instead of Serg's Products, Inc." in the
sales orders, delivery receipts and invoices was caused by Antonio Goquiolay himself who placed the orders;

(4) The trial court noted that "Serg's Products, Inc." "acted in such a manner that third persons dealing with it
were led to believe that 'Serg's Products, Inc.' and 'Serg's Chocolate Products' were one and the same party.
Serg's Products, Inc. has its address at 109 Cordillera St., Quezon City, which is also the address of Serg's
Chocolate Products (see Exhibit 'NN'), and the managing partner of the partnership doing business under the
name 'Serg's Chocolate Products is Antonio Goquiolay who is also the manager of Serg's Products Inc." (p. 46,
Rollo; p. 82, Record on Appeal.)

(5) Serg's Chocolate Products ceased to exist in 1959 for under the partnership Agreement between Goquiolay
and Mendoza (Exh. "2") the partnership which they formed on March 17, 1954 had a term of five (5) years, or
up to 1959 only. While that term was renewable for the same period upon agreement of the parties, no
evidence was adduced that it was renewed after it expired in 1959. Having ceased to exist since 1959, the
partnership has no more juridical personality nor capacity to sue and be sued. "Serg's Chocolate Products" is
nothing but a name now which the manager of Serg's Products, Inc. appears to have used to confuse, deceive,
and delay, if not completely evade, the payment of the corporation's just debt to the petitioner.

Those important facts were overlooked by the Court of Appeals.

In La Campana Coffee Factory, Inc. vs. Kaisahan ng mga Manggagawa sa La Campana, 93 Phil. 160, where a somewhat
similar situation existed as in this case, We ruled:

The attempt to make the two factories appear as two separate businesses, when in reality they are but one, is
but a devise to defeat the ends of the law and should not be permitted to prevail. Although the coffee factory is
a corporation and, by legal fiction, an entity existing separate and apart from persons composing it, T and his
family, it is settled that this fiction of law, which had been introduced as a matter of convenience and to
subserve the ends of justice cannot be invoked to further an end subversive of that purpose. (13 Am. Jur. 160-
162; Anno. 1 A.L.R. 612, s. 34 A.L.R. 599.)

Similarly, apropos is the decision of this Court in Telephone Engineering & Service Company, Inc. vs. Workmen's Compensation
Commission, et al., 104 SCRA 354, where We held:

Petitioner admitted that TESCO and UMACOR are sister companies operating under one single management
and based in the same building. Although respect for corporate personality as such, is the general rule, there
are exceptions. In appropriate cases, the veil of corporate fiction may be pierced as when the same is made as
a shield to confuse legitimate issues.

WHEREFORE, the petition for review is granted. The decision of the Court of Appeals is reversed and set aside and that of the
trial court is reinstated. Costs against the private respondent Serg's Products, Inc.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 96490 February 3, 1992

INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO, petitioner,

vs.
VOLUNTARY ARBITRATOR TEODORICO P. CALICA and INDOPHIL TEXTILE MILLS, INC., respondents.

Romeo C. Lagman for petitioner.

Borreta, Gutierrez & Leogardo for respondent Indophil Textile Mills, Inc.

MEDIALDEA, J.:

This is a petition for certiorari seeking the nullification of the award issued by the respondent Voluntary Arbitrator Teodorico P.
Calica dated December 8, 1990 finding that Section 1 (c), Article I of the Collective Bargaining Agreement between Indophil
Textile Mills, Inc. and Indophil Textile Mill Workers Union-PTGWO does not extend to the employees of Indophil Acrylic
Manufacturing Corporation as an extension or expansion of Indophil Textile Mills, Incorporated.

The antecedent facts are as follows:

Petitioner Indophil Textile Mill Workers Union-PTGWO is a legitimate labor organization duly registered with the Department of
Labor and Employment and the exclusive bargaining agent of all the rank-and-file employees of Indophil Textile Mills,
Incorporated. Respondent Teodorico P. Calica is impleaded in his official capacity as the Voluntary Arbitrator of the National
Conciliation and Mediation Board of the Department of Labor and Employment, while private respondent Indophil Textile Mills,
Inc. is a corporation engaged in the manufacture, sale and export of yarns of various counts and kinds and of materials of
kindred character and has its plants at Barrio Lambakin. Marilao, Bulacan.

In April, 1987, petitioner Indophil Textile Mill Workers Union-PTGWO and private respondent Indophil Textile Mills, Inc. executed
a collective bargaining agreement effective from April 1, 1987 to March 31, 1990.

On November 3, 1967 Indophil Acrylic Manufacturing Corporation was formed and registered with the Securities and Exchange
Commission. Subsequently, Acrylic applied for registration with the Board of Investments for incentives under the 1987 Omnibus
Investments Code. The application was approved on a preferred non-pioneer status.

In 1988, Acrylic became operational and hired workers according to its own criteria and standards. Sometime in July, 1989, the
workers of Acrylic unionized and a duly certified collective bargaining agreement was executed.

In 1990 or a year after the workers of Acrylic have been unionized and a CBA executed, the petitioner union claimed that the
plant facilities built and set up by Acrylic should be considered as an extension or expansion of the facilities of private
respondent Company pursuant to Section 1(c), Article I of the CBA, to wit,.

c) This Agreement shall apply to the Company's plant facilities and installations and to any
extension and expansion thereat. (Rollo, p.4)

In other words, it is the petitioner's contention that Acrylic is part of the Indophil bargaining unit.

The petitioner's contention was opposed by private respondent which submits that it is a juridical entity separate and distinct
from Acrylic.

The existing impasse led the petitioner and private respondent to enter into a submission agreement on September 6, 1990. The
parties jointly requested the public respondent to act as voluntary arbitrator in the resolution of the pending labor dispute
pertaining to the proper interpretation of the CBA provision.
After the parties submitted their respective position papers and replies, the public respondent Voluntary Arbitrator rendered its
award on December 8, 1990, the dispositive portion of which provides as follows:

PREMISES CONSIDERED, it would be a strained interpretation and application of the questioned CBA
provision if we would extend to the employees of Acrylic the coverage clause of Indophil Textile Mills CBA.
Wherefore, an award is made to the effect that the proper interpretation and application of Sec. l, (c), Art. I, of
the 1987 CBA do (sic) not extend to the employees of Acrylic as an extension or expansion of Indophil Textile
Mills, Inc. (Rollo, p.21)

Hence, this petition raising four (4) issues, to wit:

1. WHETHER OR NOT THE RESPONDENT ARBITRATOR ERRED IN INTERPRETING

SECTION 1(c), ART I OF THE CBA BETWEEN PETITIONER UNION AND RESPONDENT
COMPANY.

2. WHETHER OR NOT INDOPHIL ACRYLIC IS A SEPARATE AND DISTINCT ENTITY FROM

RESPONDENT COMPANY FOR PURPOSES OF UNION REPRESENTATION.

3. WHETHER OR NOT THE RESPONDENT ARBITRATOR GRAVELY ABUSED HIS

DISCRETION AMOUNTING TO LACK OR IN EXCESS OF HIS JURISDICTION.

4. WHETHER OR NOT THE RESPONDENT ARBITRATOR VIOLATED PETITIONER

UNION'S CARDINAL PRIMARY RIGHT TO DUE PROCESS. (Rollo, pp. 6-7)

The central issue submitted for arbitration is whether or not the operations in Indophil Acrylic Corporation are an extension or
expansion of private respondent Company. Corollary to the aforementioned issue is the question of whether or not the rank-and-
file employees working at Indophil Acrylic should be recognized as part of, and/or within the scope of the bargaining unit.

Petitioner maintains that public respondent Arbitrator gravely erred in interpreting Section l(c), Article I of the CBA in its literal
meaning without taking cognizance of the facts adduced that the creation of the aforesaid Indophil Acrylic is but a devise of
respondent Company to evade the application of the CBA between petitioner Union and respondent Company.

Petitioner stresses that the articles of incorporation of the two corporations establish that the two entities are engaged in the
same kind of business, which is the manufacture and sale of yarns of various counts and kinds and of other materials of kindred
character or nature.

Contrary to petitioner's assertion, the public respondent through the Solicitor General argues that the Indophil Acrylic
Manufacturing Corporation is not an alter ego or an adjunct or business conduit of private respondent because it has a separate
legitimate business purpose. In addition, the Solicitor General alleges that the primary purpose of private respondent is to
engage in the business of manufacturing yarns of various counts and kinds and textiles. On the other hand, the primary purpose
of Indophil Acrylic is to manufacture, buy, sell at wholesale basis, barter, import, export and otherwise deal in yarns of various
counts and kinds. Hence, unlike private respondent, Indophil Acrylic cannot manufacture textiles while private respondent cannot
buy or import yarns.

Furthermore, petitioner emphasizes that the two corporations have practically the same incorporators, directors and officers. In
fact, of the total stock subscription of Indophil Acrylic, P1,749,970.00 which represents seventy percent (70%) of the total
subscription of P2,500,000.00 was subscribed to by respondent Company.

On this point, private respondent cited the case of Diatagon Labor Federation v. Ople, G.R. No. L-44493-94, December 3, 1980,
10l SCRA 534, which ruled that two corporations cannot be treated as a single bargaining unit even if their businesses are
related. It submits that the fact that there are as many bargaining units as there are companies in a conglomeration of
companies is a positive proof that a corporation is endowed with a legal personality distinctly its own, independent and separate
from other corporations (see Rollo, pp. 160-161).

Petitioner notes that the foregoing evidence sufficiently establish that Acrylic is but an extension or expansion of private
respondent, to wit:

(a) the two corporations have their physical plants, offices and facilities situated in the same
compound, at Barrio Lambakin, Marilao, Bulacan;
 (b) many of private respondent's own machineries, such as dyeing machines, reeling, boiler,
Kamitsus among others, were transferred to and are now installed and being used in the
Acrylic plant;

(c) the services of a number of units, departments or sections of private respondent are
provided to Acrylic; and

(d) the employees of private respondent are the same persons manning and servicing the
units of Acrylic. (see Rollo, pp. 12-13)

Private respondent insists that the existence of a bonafide business relationship between Acrylic and private respondent is not a
proof of being a single corporate entity because the services which are supposedly provided by it to Acrylic are auxiliary services
or activities which are not really essential in the actual production of Acrylic. It also pointed out that the essential services are
discharged exclusively by Acrylic personnel under the control and supervision of Acrylic managers and supervisors.

In sum, petitioner insists that the public respondent committed grave abuse of discretion amounting to lack or in excess of
jurisdiction in erroneously interpreting the CBA provision and in failing to disregard the corporate entity of Acrylic.

We find the petition devoid of merit.

Time and again, We stress that the decisions of voluntary arbitrators are to be given the highest respect and a certain measure
of finality, but this is not a hard and fast rule, it does not preclude judicial review thereof where want of jurisdiction, grave abuse
of discretion, violation of due process, denial of substantial justice, or erroneous interpretation of the law were brought to our
attention. (see Ocampo, et al. v. National Labor Relations Commission, G.R. No. 81677, 25 July 1990, First Division Minute
Resolution citing Oceanic Bic Division (FFW) v. Romero, G.R. No. L-43890, July 16, 1984, 130 SCRA 392)

It should be emphasized that in rendering the subject arbitral award, the voluntary arbitrator Teodorico Calica, a professor of the
U.P. Asian Labor Education Center, now the Institute for Industrial Relations, found that the existing law and jurisprudence on the
matter, supported the private respondent's contentions. Contrary to petitioner's assertion, public respondent cited facts and the
law upon which he based the award. Hence, public respondent did not abuse his discretion.

Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a corporation
is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. In such
cases, the corporation will be considered as a mere association of persons. The members or stockholders of the corporation will
be considered as the corporation, that is liability will attach directly to the officers and stockholders. The doctrine applies when
the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a
shield to confuse the legitimate issues, or where a corporation is the 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. (Umali et al. v. Court of Appeals, G.R. No. 89561, September 13, 1990, 189 SCRA
529, 542)

In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of the corporation is a
devise to evade the application of the CBA between petitioner Union and private respondent Company. While we do not discount
the possibility of the similarities of the businesses of private respondent and Acrylic, neither are we inclined to apply the doctrine
invoked by petitioner in granting the relief sought. The fact that the businesses of private respondent and Acrylic are related, that
some of the employees of the private respondent are the same persons manning and providing for auxilliary services to the units
of Acrylic, and that the physical plants, offices and facilities are situated in the same compound, it is our considered opinion that
these facts are not sufficient to justify the piercing of the corporate veil of Acrylic.

In the same case of Umali, et al. v. Court of Appeals (supra), We already emphasized that "the legal corporate entity is
disregarded only if it is sought to hold the officers and stockholders directly liable for a corporate debt or obligation." In the
instant case, petitioner does not seek to impose a claim against the members of the Acrylic.

Furthermore, We already ruled in the case of Diatagon Labor Federation Local 110 of the ULGWP v. Ople (supra) that it is grave
abuse of discretion to treat two companies as a single bargaining unit when these companies are indubitably distinct entities with
separate juridical personalities.

Hence, the Acrylic not being an extension or expansion of private respondent, the rank-and-file employees working at Acrylic
should not be recognized as part of, and/or within the scope of the petitioner, as the bargaining representative of private
respondent.
All premises considered, the Court is convinced that the public respondent Voluntary Arbitrator did not commit grave abuse of
discretion in its interpretation of Section l(c), Article I of the CBA that the Acrylic is not an extension or expansion of private
respondent.

ACCORDINGLY, the petition is DENIED and the award of the respondent Voluntary Arbitrator are hereby AFFIRMED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

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.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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. Casio 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, 17 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.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 93397 March 3, 1997

TRADERS ROYAL BANK, petitioner,

vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of the
PHILIPPINES, respondents.

TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated January 29,
1990, 1 affirming the nullity of the transfer of Central Bank Certificate of Indebtedness (CBCI) No. D891, 2 with a face value of
P500,000.00, from the Philippine Underwriters Finance Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB),
under a Repurchase Agreement 3 dated February 4, 1981, and a Detached Assignment 4 dated April 27, 1981.

Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was originally filed as a
Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the Central Bank of the Philippines to register the
transfer of the subject CBCI to petitioner Traders Royal Bank (TRB).

In the said petition, TRB stated that:

3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached
Assignment" . . ., whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto
Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of
Indebtedness of PESOS: FIVE HUNDRED THOUSAND (P500,000) and having an aggregate value of PESOS:
THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00);

4. The aforesaid Detached Assignment (Annex "A") contains an express authorization executed by the
transferor intended to complete the assignment through the registration of the transfer in the name of
PhilFinance, which authorization is specifically phrased as follows: '(Filriters) hereby irrevocably authorized the
said issuer (Central Bank) to transfer the said bond/certificates on the books of its fiscal agent;

5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . ., whereby, for
and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00), PhilFinance sold,
transferred and delivered to petitioner CBCI 4-year, 8th series, Serial No. D891 with a face value of
P500,000.00 . . ., which CBCI was among those previously acquired by PhilFinance from Filriters as averred in
paragraph 3 of the Petition;

6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed to repurchase CBCI Serial
No. D891 (Annex "C"), at the stipulated price of PESOS: FIVE HUNDRED NINETEEN THOUSAND THREE
HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981;

7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when the checks it
issued in favor of petitioner were dishonored for insufficient funds;

8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the Petitioner to enable
the latter to have its title completed and registered in the books of the respondent. And by means of said
Detachment, Philfinance transferred and assigned all, its rights and title in the said CBCI (Annex "C") to
petitioner and, furthermore, it did thereby "irrevocably authorize the said issuer (respondent herein) to transfer
the said bond/certificate on the books of its fiscal agent." . . .
 9. Petitioner presented the CBCI (Annex "C"), together with the two (2) aforementioned Detached Assignments
(Annexes "B" and "D"), to the Securities Servicing Department of the respondent, and requested the latter to
effect the transfer of the CBCI on its books and to issue a new certificate in the name of petitioner as absolute
owner thereof;

10. Respondent failed and refused to register the transfer as requested, and continues to do so notwithstanding
petitioner's valid and just title over the same and despite repeated demands in writing, the latest of which is
hereto attached as Annex "E" and made an integral part hereof;

11. The express provisions governing the transfer of the CBCI were substantially complied with the petitioner's
request for registration, to wit:

"No transfer thereof shall be valid unless made at said office (where the Certificate has been
registered) by the registered owner hereof, in person or by his attorney duly authorized in
writing, and similarly noted hereon, and upon payment of a nominal transfer fee which may be
required, a new Certificate shall be issued to the transferee of the registered holder thereof."

and, without a doubt, the Detached Assignments presented to respondent were sufficient authorizations in
writing executed by the registered owner, Filriters, and its transferee, PhilFinance, as required by the above-
quoted provision;

12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering a transfer of
ownership over the CBCI and issuing a new certificate to the transferee devolves upon the respondent;

Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its name.

On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant Central Bank of the Philippines'
Motion for Admission of Amended Answer with Counter Claim for Interpleader 6 thereby calling to fore the respondent Filriters
Guaranty Assurance Corporation (Filriters), the registered owner of the subject CBCI as respondent.

For its part, Filriters interjected as Special Defenses the following:

11. Respondent is the registered owner of CBCI No. 891;

12. The CBCI constitutes part of the reserve investment against liabilities required of respondent as an
insurance company under the Insurance Code;

13. Without any consideration or benefit whatsoever to Filriters, in violation of law and the trust fund doctrine
and to the prejudice of policyholders and to all who have present or future claim against policies issued by
Filriters, Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without any board resolution,
knowledge or consent of the board of directors of Filriters, and without any clearance or authorization from the
Insurance Commissioner, executed a detached assignment purportedly assigning CBCI No. 891 to Philfinance;

xxx xxx xxx

14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar Jacobe, Vice-President-
Treasury of Filriters (both of whom were holding the same positions in Philfinance), without any consideration
or benefit redounding to Filriters and to the grave prejudice of Filriters, its policy holders and all who have
present or future claims against its policies, executed similar detached assignment forms transferring the CBCI
to plaintiff;

xxx xxx xxx

15. The detached assignment is patently void and inoperative because the assignment is without the
knowledge and consent of directors of Filriters, and not duly authorized in writing by the Board, as requiring by
Article V, Section 3 of CB Circular No. 769;

16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the corporate act of
Filriters and such null and void;
 a) The assignment was executed without consideration and for that reason, the assignment is void from the
beginning (Article 1409, Civil Code);

b) The assignment was executed without any knowledge and consent of the board of directors of Filriters;

c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement under the
Insurance Code for its existence as an insurance company and the pursuit of its business operations. The
assignment of the CBCI is illegal act in the sense of malum in se or malum prohibitum, for anyone to make,
either as corporate or personal act;

d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited by law, is immoral and
against public policy;

e) The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of Filriters
(and has in fact helped in placing Filriters under conservatorship), an inevitable result known to the officer who
executed assignment.

17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the assignment.

a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not payable to
bearer but is a registered in the name of Filriters;

b) The provision on transfer of the CBCIs provides that the Central Bank shall treat the registered owner as the
absolute owner and that the value of the registered certificates shall be payable only to the registered owner; a
sufficient notice to plaintiff that the assignments do not give them the registered owner's right as absolute
owner of the CBCI's;

c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that the registered
certificates are payable only to the registered owner (Article II, Section 1).

18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a regular
transaction made in the usual of ordinary course of business;

a) The CBCI constitutes part of the reserve investments of Filriters against liabilities requires by the Insurance
Code and its assignment or transfer is expressly prohibited by law. There was no attempt to get any clearance
or authorization from the Insurance Commissioner;

b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course of its
business;

c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of "all or
substantially all" of the assets of Filriters, which requires the affirmative action of the stockholders (Section 40,
Corporation [sic] Code. 7

In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII found the assignment of CBCI No. D891
in favor of Philfinance, and the subsequent assignment of the same CBCI by Philfinance in favor of Traders Royal Bank null and
void and of no force and effect. The dispositive portion of the decision reads:

ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance
Corporation and against the plaintiff Traders Royal Bank:

(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent assignment of CBCI
by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and of no force and effect;

(b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to pay the
value of the proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance Corporation;

(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance Corp. The sum of
P10,000 as attorney's fees; and

(d) to pay the costs.

 SO ORDERED. 9

The petitioner assailed the decision of the trial court in the Court of Appeals 10, but their appeals likewise failed. The findings of
the fact of the said court are hereby reproduced:

The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a deed of
assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine Underwriters Finance
Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which was still registered in
the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a repurchase
agreement dated February 4, 1981, granting Philfinance the right to repurchase the instrument on or before
April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a deed of
assignment, dated April 27, 1981, conveying to appellant TRB all its right and the title to CBCI No. D891.

Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891 in its
name before the Security and Servicing Department of the Central Bank (CB). Central Bank, however, refused
to effect the transfer and registration in view of an adverse claim filed by defendant Filriters.

Left with no other recourse, TRB filed a special civil action for mandamus against the Central Bank in the
Regional Trial Court of Manila. The suit, however, was subsequently treated by the lower court as a case of
interpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent and the court
adjudge which of them is entitled to the ownership of CBCI No. D891. Failing to get a favorable judgment. TRB
now comes to this Court on appeal. 11

In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and having acquired the said
certificate from Philfinance as a holder in due course, its possession of the same is thus free fro any defect of title of prior parties
and from any defense available to prior parties among themselves, and it may thus, enforce payment of the instrument for the
full amount thereof against all parties liable thereon. 12

In ignoring said argument, the appellate court that the CBCI is not a negotiable instrument, since the instrument clearly stated
that it was payable to Filriters, the registered owner, whose name was inscribed thereon, and that the certificate lacked the
words of negotiability which serve as an expression of consent that the instrument may be transferred by negotiation.

Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having made without consideration, and
did not conform to Central Bank Circular No. 769, series of 1980, better known as the "Rules and Regulations Governing Central
Bank Certificates of Indebtedness", which provided that any "assignment of registered certificates shall not be valid unless made
. . . by the registered owner thereof in person or by his representative duly authorized in writing."

Petitioner's claimed interest has no basis, since it was derived from Philfinance whose interest was inexistent, having acquired
the certificate through simulation. What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister
corporation, to guarantee its financing operations.

Said the Court:

In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of
Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the
latter. For lack of such authority, the assignment did not therefore bind Filriters and violated as the same time
Central Bank Circular No. 769 which has the force and effect of a law, resulting in the nullity of the transfer
(People v. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA
778).

In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders
Royal Bank and which the latter can register with the Central Bank.

WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant.

SO ORDERED. 13

Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters equity and the two corporations
have identical corporate officers, thus demanding the application of the doctrine or piercing the veil of corporate fiction, as to
give validity to the transfer of the CBCI from registered owner to petitioner TRB. 14 This renders the payment by TRB to
Philfinance of CBCI, as actual payment to Filriters. Thus, there is no merit to the lower court's ruling that the transfer of the CBCI
from Filriters to Philfinance was null and void for lack of consideration.

Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the
negotiable instruments law (Act 2031).

The pertinent portions of the subject CBCI read:

xxx xxx xxx

The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of if this
Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the
registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS.

xxx xxx xxx

Properly understood, a certificate of indebtedness pertains to certificates for the creation and maintenance of a permanent
improvement revolving fund, is similar to a "bond," (82 Minn. 202). Being equivalent to a bond, it is properly understood as
acknowledgment of an obligation to pay a fixed sum of money. It is usually used for the purpose of long term loans.

The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:

As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance Corporation, the registered
owner hereof." Very clearly, the instrument is payable only to Filriters, the registered owner, whose name is
inscribed thereon. It lacks the words of negotiability which should have served as an expression of consent that
the instrument may be transferred by negotiation. 15

A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE CORPORATION,
and to no one else, thus, discounting the petitioner's submission that the same is a negotiable instrument, and that it is a holder
in due course of the certificate.

The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a
substitute for money. Hence, freedom of negotiability is the touchtone relating to the protection of holders in due course, and the
freedom of negotiability is the foundation for the protection which the law throws around a holder in due course (11 Am. Jur. 2d,
32). This freedom in negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of money to a specified
person or entity for a period of time.

As held in Caltex (Philippines), Inc. v. Court of Appeals, 16:

The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing,
that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to
control, if it can be legally ascertained. While the writing may be read in the light of surrounding circumstance in
order to more perfectly understand the intent and meaning of the parties, yet as they have constituted the
writing to be the only outward and visible expression of their meaning, no other words are to be added to it or
substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have
secretly intended as contradistinguished from what their words express, but what is the meaning of the words
they have used. What the parties meant must be determined by what they said.

Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable
instruments law. The pertinent question then is, was the transfer of the CBCI from Filriters to Philfinance and subsequently from
Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the CBCI registered in its name with the Central
Bank?

The following are the appellate court's pronouncements on the matter:

Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is defective since it acquired
the instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer was for "value
received", there was really no consideration involved. What happened was Philfinance merely borrowed CBCI
No. D891 from Filriters, a sister corporation. Thus, for lack of any consideration, the assignment made is a
complete nullity.
 What is more, We find that the transfer made by Filriters to Philfinance did not conform to Central Bank Circular
No. 769, series of 1980, otherwise known as the "Rules and Regulations Governing Central Bank Certificates
of Indebtedness", under which the note was issued. Published in the Official Gazette on November 19, 1980,
Section 3 thereof provides that any assignment of registered certificates shall not be valid unless made . . . by
the registered owner thereof in person or by his representative duly authorized in writing.

In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of
Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the
latter. For lack of such authority, the assignment did not therefore bind Filriters and violated at the same time
Central Bank Circular No. 769 which has the force and effect of a law, resulting in the nullity of the transfer
(People vs. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA
778).

In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders
Royal Bank and which the latter can register with the Central Bank

Petitioner now argues that the transfer of the subject CBCI to TRB must upheld, as the respondent Filriters and Philfinance,
though separate corporate entities on paper, have used their corporate fiction to defraud TRB into purchasing the subject CBCI,
which purchase now is refused registration by the Central Bank.

Says the petitioner;

Since Philfinance own about 90% of Filriters and the two companies have the same corporate officers, if the
principle of piercing the veil of corporate entity were to be applied in this case, then TRB's payment to
Philfinance for the CBCI purchased by it could just as well be considered a payment to Filriters, the registered
owner of the CBCI as to bar the latter from claiming, as it has, that it never received any payment for that CBCI
sold and that said CBCI was sold without its authority.

xxx xxx xxx

We respectfully submit that, considering that the Court of Appeals has held that the CBCI was merely borrowed
by Philfinance from Filriters, a sister corporation, to guarantee its (Philfinance's) financing operations, if it were
to be consistent therewith, on the issued raised by TRB that there was a piercing a veil of corporate entity, the
Court of Appeals should have ruled that such veil of corporate entity was, in fact, pierced, and the payment by
TRB to Philfinance should be construed as payment to Filriters. 17

We disagree with Petitioner.

Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable remedy, and may be
awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend
crime or where a corporation is a mere alter ego or business conduit of a person. 18

Peiercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from
liabilities that ordinarily, they could be subject to, or distinguished one corporation from a seemingly separate one, were it not for
the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that
injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests
of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine.

The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on the contrary. For
one, other than the allegation that Filriters is 90% owned by Philfinance, and the identity of one shall be maintained as to the
other, there is nothing else which could lead the court under circumstance to disregard their corporate personalities.

Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical personality separate
from its stockholders and from other corporations may be disregarded, 19 in the absence of such grounds, the general rule must
upheld. The fact that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate
status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the
fiction of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate
of indebtedness from Philfinance.

On its face the subject certificates states that it is registered in the name of Filriters. This should have put the petitioner on
notice, and prompted it to inquire from Filriters as to Philfinance's title over the same or its authority to assign the certificate. As it
is, there is no showing to the effect that petitioner had any dealings whatsoever with Filriters, nor did it make inquiries as to the
ownership of the certificate.

The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:

TRANSFER. This Certificate shall pass by delivery unless it is registered in the owner's name at any office of
the Bank or any agency duly authorized by the Bank, and such registration is noted hereon. After such
registration no transfer thereof shall be valid unless made at said office (where the Certificates has been
registered) by the registered owner hereof, in person, or by his attorney, duly authorized in writing and similarly
noted hereon and upon payment of a nominal transfer fee which may be required, a new Certificate shall be
issued to the transferee of the registered owner thereof. The bank or any agency duly authorized by the Bank
may deem and treat the bearer of this Certificate, or if this Certificate is registered as herein authorized, the
person in whose name the same is registered as the absolute owner of this Certificate, for the purpose of
receiving payment hereof, or on account hereof, and for all other purpose whether or not this Certificate shall
be overdue.

This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to submit such
an authorization from Filriters.

Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-owner was disposing of the
registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose
to the CBCI.

Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules and Regulations
Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides that:

Sec. 3. Assignment of Registered Certificates. Assignment of registered certificates shall not be valid unless
made at the office where the same have been issued and registered or at the Securities Servicing Department,
Central Bank of the Philippines, and by the registered owner thereof, in person or by his representative, duly
authorized in writing. For this purpose, the transferee may be designated as the representative of the registered
owner.

Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. An entity which
deals with corporate agents within circumstances showing that the agents are acting in excess of corporate authority, may not
hold the corporation liable. 22 This is only fair, as everyone must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith. 23

The transfer made by Filriters to Philfinance did not conform to the said. Central Bank Circular, which for all intents, is
considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had signed the deed of assignment from
Filriters to Philfinance, purportedly for and in favor of Filriters, did not have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. As it is, the sale from Filriters to Philfinance was fictitious, and therefore void and
inexistent, as there was no consideration for the same. This is fatal to the petitioner's cause, for then, Philfinance had no title
over the subject certificate to convey the Traders Royal Bank. Nemo potest nisi quod de jure potest no man can do anything
except what he can do lawfully.

Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves, which are required by
law 24 to be maintained at a mandated level. This was pointed out by Elias Garcia, Manager-in-Charge of respondent Filriters, in
his testimony given before the court on May 30, 1986.

Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the
face value of P5000,000.00 subject of this case?

A Yes, sir.

Q Why do you know this?

 A Well, this was CBCI of the company sought to be examined by the Insurance Commission
sometime in early 1981 and this CBCI No. 891 was among the CBCI's that were found to be
missing.

Q Let me take you back further before 1981. Did you have the knowledge of this CBCI No.
891 before 1981?

A Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as
legal reserve of the company.

Q Legal reserve for the purpose of what?

A Well, you see, the Insurance companies are required to put up legal reserves under Section
213 of the Insurance Code equivalent to 40 percent of the premiums receipt and further, the
Insurance Commission requires this reserve to be invested preferably in government
securities or government binds. This is how this CBCI came to be purchased by the company.

It cannot, therefore, be taken out of the said funds, without violating the requirements of the law. Thus, the anauthorized use or
distribution of the same by a corporate officer of Filriters cannot bind the said corporation, not without the approval of its Board of
Directors, and the maintenance of the required reserve fund.

Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest of Traders
Royal Bank.

ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990 is hereby AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 98185 December 11, 1992

SIBAGAT TIMBER CORPORATION, petitioner,

vs.
ADOLFO B. GARCIA, USIPHIL, INC. and STRONGHOLD INSURANCE CO., INC., respondents.

GRIO-AQUINO, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals dated February 15, 1991 in CA-G.R. No. 20799
entitled, "Sibagat Timber Corp. vs. Adolfo B. Garcia, et al.," affirming the decision of the Regional Trail Court which dismissed the
petitioner's petition for certiorari, prohibition and injunction with restraining order and writ of preliminary injunction and damages
(Spl. Case No. 548, RTC, Branch I, Butuan City).

On August 30, 1988, respondent Sheriff Adolfo B. Garcia, who was entrusted with the implementation of the writ of execution
issued by the Regional Trial Court, Branch 147, Makati, Metro Manila in Civil Case No. 7180 entitled, "USIPHIL, INC. vs. Del
Rosario and Sons Logging Enterprises, Inc.," levied on the following personal properties of Del Rosario & Sons, Inc.:

One (1) Unit CAT Grader with SN 99E-5016.

One (1) Unit Generating Set with Cummins Engine No. 1074304 Model V-855QC and
Generator 125 KVA No. HA-90071 1720-1 and Panel Switch Board.

One (1) Generating Set with CAT D-311 Series H No. 51B4241 w/ Generator No.
30TH 211 1800 RPM, 60 Cycles, 30KVA

One (1) pc. Engine Block CAT D-4600.

One (1) TD-25B w/ Hyster D988, Triple Drum Model BY B14 SN-9PI55E

One (1) TD-25A w/ No. Engine Number, w/ Radiator and X-2 Triple Drum Model 142
Yarder and blade.

which he scheduled for sale at public auction on September 7, 1988 at 10:00 o'clock in the morning. He also levied on:

One (1) Unit Reo Logging Truck (5) tonner not in running condition; and

One (1) Unit White Logging (5) tonner not in running condition.

which he scheduled for sale at public auction on September 8, 1988.

On the same date (August 30, 1988) that levy was made by the sheriff, the petitioner herein, through Mariano Rana, filed a third-
party claim alleging that it is the lawful owner of the levied machinery and equipment, by virtue of deeds of sale executed in its
favor by Del Rosario & Sons Logging Enterprises, Inc.

Pursuant to Section 17, Rule 39 of the Rules of Court, an indemnity bond was posted by the judgment creditor, USIPHIL, Inc., to
indemnify the respondent sheriff against the claim of the third-party claimant.

On September 6, 1988, at 2:00 P.M., petitioner filed in the Regional Trial Court of Butuan City, a petition for "Certiorari,
Prohibition and Injunction with Restraining Order & Writ of Preliminary Injunction and Damages" in Special Civil Case No. 548. A
temporary restraining order was issued on September 6, 1988 by the Executive Judge of that court.

On September 7, 1988, at 11:10 A.M., the court employees who were deputized to serve the restraining order arrived at the
place where the auction sale was to be held. However, they were told by sheriff Garcia that the auction sale was finished at
10:30 A.M. yet, and that a certificate of sale for each of the personal properties to be auctioned on that day had already been
issued to USIPHIL, INC., the judgment creditor, as the only bidder and purchaser.

After the hearing on the application for preliminary injunction was held on September 15, 1988, the parties were directed to
submit simultaneous memoranda. Thereafter the case was deemed submitted for resolution. In the meantime, respondent
USIPHIL, INC., filed a formal motion to dismiss the petition which the trial court granted on February 28, 1990.

On March 9, 1990, the petitioner appealed the order of dismissal to the Court of Appeals (CA G.R. No. 20799). On February 15,
1991, the Court of Appeals dismissed the appeal.

Petitioner's motion for reconsideration was denied by the Court of Appeals. Hence, this petition for review under Rule 45 of the
Rules of Court.

The main issue raised by the petitioner is the supposed error of the Court of Appeals in piercing the veil of corporate entity and
in holding that the third-party claimant, herein petitioner Sibagat Corporation, is not a separate and distinct entity from the
judgment debtor, Del Rosario & Sons Logging Enterprises, Inc.

As pointed out by the Court of Appeals in its decision:

Gleaned from the records of this case, Mariano Rana, the third-party claimant for and in behalf of petitioner
testified, among others, that he is the office manager of Sibagat Timber Corporation (p. 58, Record); that he is
the administrative manager of Del Rosario and Sons Logging Enterprises, Inc. in a concurrent capacity (p.
50, id. ); that the officers of the Sibagat Timber Corporation are: Mr. Policarpio C. Del Rosario, President and
General Manager; Miss Conchita C. Del Rosario, Vice-President and General Manager (p. 60, Id.); and the
Directors are: Policarpio Del Rosario, Jr., Cristina Del Rosario, Mrs. Jasmin Del Rosario, and Vicente C. Cel
Rosario (pp. 61-63, id.). On the part of Del Rosario and Sons Logging Enterprises, Inc., the officers of the
company are: Mr. Policarpio C. Cel Rosario, President; Miss Conchita Del Rosario, Vice-President/General
Manager/Director and Treasurer; Mrs. Jasmin A. Del Rosario, Querubin Del Rosario, and Cristeta Del Rosario,
respectively. (p. 29, Rollo.)

The circumstances that: (1) petitioner and Del Rosario & Sons Logging Enterprises, Inc. hold office in the same building; (2) the
officers and directors of both corporations are practically the same; and (3) the Del Rosarios assumed management and control
of Sibagat and have been acting for and managing its business (p. 30, Rollo), bolster the conclusion that petitioner is an alter
ego of the Del Rosario & Sons Logging Enterprises, Inc.

The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate
issues (Jacinto vs. CA, 198 SCRA 211). The theory of corporate entity was not meant to promote unfair objectives or otherwise,
to shield them (Villanueva vs. Adre, 172 SCRA 876). Likewise, where it appears that 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 persons,
disregard the legal fiction that two corporations are distinct entities, and treat them as identical (Phil. Veterans Investment
Development Corp. vs. CA, 181 SCRA 669).

The petitioner further contends that the Court of Appeals erroneously disregarded the decision of this Court in G.R. No. 84497
entitled, "Alfonso Escovilla, Jr., Cecilio M. Meris and Cuison Engineering and Machinery Co., Inc., Petitioner vs. The Hon. Court
of Appeals, Sibagat Timber Corporation and Conchita del Rosario, Respondents," wherein this Court held that private
respondents (herein petitioner) are the actual owners of the properties subject of execution by virtue of a sale in their favor by
Del Rosario & Sons Logging Enterprises, Inc.

That allegation has no merit. The issue raised in that case was "whether or not an action for prohibition will prosper as a remedy
for acts already accomplished." It was a procedural question, not the ownership of the properties subject of the execution.

The issue of ownership being raised now by the petitioner involves a factual question requiring an assessment of the evidence.
This may not be in a petition for review under Rule 45 for it is not the function of this Court to examine and weigh evidence
already considered in the proceedings below. Our jurisdiction is limited to reviewing only errors of law that may have been
committed by the lower courts (Navarra vs. CA, 204 SCRA 850).

Assuming arguendo that this Court in G.R. No. 84497 held that petitioner is the owner of the properties levied under execution,
that circumstance will not be a legal obstacle to the piercing of the corporate fiction. As found by both the trial and appellate
courts, petitioner is just a conduit, if not an adjunct of Del Rosario & Sons Logging Enterprises, Inc. In such a case, the real
ownership becomes unimportant and may be disregard for the two entities may/can be treated as only one agency or
instrumentality.

The corporate entity is disregarded where a corporation is the mere alter ego, or business conduit of a person
or where the corporation is so organized and controlled and its affairs are so conducted, as to make it merely
an instrumentality, agency, conduit or adjunct of another corporation. (Aguedo F. Agbayani Commercial Laws of
the Philippines, Vol. 3, 1984 Ed., p. 30, citing decided cases.)

WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.

SO ORDERED
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-69494 May 29, 1987

A.C. RANSOM LABOR UNION-CCLU, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, First Division A.C. RANSOM (PHIIS.) CORPORATION RUBEN
HERNANDEZ, MAXIMO C. HERNANDEZ, SR., PORFIRIO R. VALENCIA, LAURA H. CORNEJO, FRANCISCO HERNANDEZ,
CELESTINO C. HERNANDEZ and MA. ROSARIO HERNANDEZ, respondents.

RESOLUTION

MELENCIO-HERRERA, J.:

In a joint Decision in two earlier cases rendered by the then Court of Industrial Relations (CIR) on August 19, 1972, it declared in
the dispositive portion thereof:

IN VIEW OF ALL THE FOREGOING, ... the A.C. Ransom Philippine Corporation is guilty of unfair labor
practice of interference and discrimination herein above held and specified; ordering said corporation, its
officers and agents to cease and desist from committing the same: finding the strike legal and justified; and
toreinstate immediately ... , to their respective positions with backwages from July 25, 1969 until actually
reinstated, without loss of seniority rights and other privileges appurtenant to their employment. (Emphasis
supplied). 1

This Court affirmed that Decision when it denied the Petition for Review filed by RANSOM on February 26, 1973 in G.R. Nos. L-
36226-68.

The backwages due the 22 employees having been computed at P 199,276.00 by the (CIR) Examiner, successive Motions for
Execution were filed by the UNION on January 27, 1973 and March 1, 1973, all of which RANSOM opposed stressing its
"precarious financial position if immediate execution of the backwages would be ordered." Upon the UNION's Motion of April 22,
1973 asking the CIR that RANSOM be ordered to deposit with the Court the backwages due them. RANSOM manifested that it
did not have the necessary funds to deposit and asked that the employees' earnings elsewhere during this suspension be
deducted. After several hearings, a recomputation was made and the award of P199,276.00 was reduced to P 164,984.00. 2

The records show that, upon application filed by RANSOM on April 2, 1973, it was granted clearance by the Secretary of Labor
on June 7, 1973 to cease operation and terminate employment effective May 1, 1973, without prejudice to the right of subject
employees to seek redress of grievances under existing laws and decrees. 3 The reasons given by RANSOM for the clearance
application were financial difficulties on account of obligations incurred prior to 1966.

On January 21, 1974, the UNION filed another Motion for Execution alleging that although RANSOM had assumed a posture of
suffering from business reverse, its officers and principal stockholders had organized a new corporation, the Rosario Industrial
Corporation (thereinafter called ROSARIO), using the same equipment, personnel, business stocks and the same place of
business. For its part, RANSOM declared that ROSARIO is a distinct and separate corporation, which was organized long
before these instant cases were decided adversely against RANSOM.

It appears that sometime in 1969, ROSARIO, a closed corporation, was, in fact, established. It was engaged in the same line of
business as RANSOM with the same Hernandez family as the owners, the same officers, the same President, the same counsel
and the same address at 555 Quirino Avenue, Paranaque, Rizal. The compound, building, plant, equipment, machinery,
laboratory and bodega were the same as those occupied and used by RANSOM. The UNION claims that ROSARIO thrives to
this day.

Writs of execution were issued successively against RANSOM on June 23, 1976, and February 17, 1977, to no avail.
On December 18, 1978, the UNION again filed an ex-parte Motion for Writ of Execution and Garnishment praying that the Writ
issue against the Officers/Agents of RANSOM personally and or their estates, as the case may be, considering their success in
hiding or shielding the assets of said company. RANSOM countered that the CIR Decision, dated August 19, 1972, could no
longer be enforced by mere Motion because more than five (5) years had already lapsed.

Acting on the Motion, Labor Arbiter Tito F. Genilo issued, on March 11, 1980, an Order, the pertinent part of which reads:

Under the circumstances and pursuant to the decision aforementioned, especially that portion holding the
respondent corporation's officers and agents liable, the following officers of the respondent corporation as
appears in the record-are hereby deemed included parties respondents in their official capacity:

a) Ruben Hernandez (President, per his testimony on August 21, 1974);

b) Maximo C. Hernandez, Jr. (Director);

c) Porfirio N. Valencia (Director);

d) Laura H. Cornejo (Director);

e) Francisco Hernandez (Chairman of the Board);

f) Celestino C. Hernandez (Director); and

g) Ma. Rosario Hernandez (Director).

Consequently, let a writ of execution be issued for P 164,984.00 against respondent corporation and its officers/
agents enumerated above.

SO ORDERED. (Emphasis supplied) 4

It appears that among the persons named in the aforequoted Order, Ma. Rosario Hernandez died in 1971; Francisco Hernandez
died in 1977: and Celestino C. Hernandez passed away in 1979. And Maximo Hernandez who was named in the CIR Decision,
died in 1966. 5

The NLRC, on appeal, modified the Decision by relieving the officers and agents of liability as follows:

As to the liability of the respondent's officers and agents, we agree with the contention of the respondent-
appellant that there is nothing in the order dated March 11, 1980 that would justify the holding of the individual
officers and agents of respondent in their personal capacity. As a general rule, officers of the corporation are
not liable personally for the official acts unless they have exceeded the scope of their authority. In the absence
of evidence showing that the officers mentioned in the Order of the Labor Arbiter dated March 11, 1980 have
exceeded their authority, the writ of execution can not be enforced against them, especially' so since they were
not given a chance to be heard.

WHEREFORE, the Order appealed from is hereby affirmed, except as modified above.

SO ORDERED. 6

Reconsideration sought by the UNION from the NLRC was denied, hence this special civil action of Certiorari.

On June 10, 1986, this Court promulgated its Decision, the dispositive portion of which decrees:

WHEREFORE, the questioned Decision of the National Labor Relations Commission is SET ASIDE, and the
Order of the Labor Arbiter Tito F. Genilo of March 11, 1980 is reinstated with the modification that personal
liability for the backwages due the 22 strikers shall be limited to Ruben Hernandez, who was President of
RANSOM in 1974, jointly and severally with other Presidents of the same corporation who had been elected as
such after 1972 or up to the time the corporate life was terminated.

Both parties have moved for reconsideration. Private respondents point out that they were never impleaded as parties in the
Trial Court, and that their personal liabilities were never at issue; that judgment holding Ruben Hernandez personally liable is
tantamount to deprivation of property without due process of law; and that he was not an officer of the corporation at the time the
unfair labor practices were committed.

The UNION on the other hand, in its own Motion for Reconsideration, prays that the veil of corporate fiction be pierced and that
the Decision be modified, in that all the individual private respondents and not only the President, should be held jointly and
severally liable with RANSOM. On November 4, 1986, it further filed an Urgent Motion for Preliminary Mandatory Injunction
"directing private respondents to deposit the amount of P 199,276.00 or to put up a supersedeas bond of the same sum."

Incontrovertible is the fact that RANSOM was found guilty by the CIR, in its Decision of August 19, 1972, of unfair labor practice;
that its officers and agents were ordered to cease and desist from further committing acts constitutive of the same, and
to reinstate immediately the 22 union members to their respective positions with backwages from July 25, 1969 until actually
reinstated.

The CIR Decision became final, conclusive, and executory after this Court denied the RANSOM petition for review in 1973. In
other words, this Court upheld that portion of the judgment ordering the officers and agents of RANSOM to reinstate the laborers
concerned, with backwages. The inclusion of the officers and agents was but proper since a corporation, as an artificial being,
can act only through them. It was also pursuant to the CIR Act (CA No. 103 ), 7 the Industrial Peace Act (R.A. 875) 8 the
Minimum Wage Law (R.A. 602). 9 Consequently, when, in resolving the UNION's Motion for Writ of Execution and Garnishment
in the Order of March 11, 1980, Labor Arbiter Genilo named the seven (17) private respondents herein as the RANSOM officers
and agents, who should be held liable (supra), he merely implemented the already final and executory CIR decision of August
19, 1972. The NLRC, on appeal to it by RANSOM, could not have modified the CIR Decision, as affirmed by this Court, by
relieving RANSOM's officers and agents of liability. It is also for that reason that in our Decision of June 10, 1986 we set aside
said NLRC Decision and reinstated the Order of Labor Arbiter Genilo, with modification, in that we limited liability for backwages
due the 22 UNION members to the President of RANSOM in 1974 jointly and severally with other Presidents of the same
corporation who had been elected as such after 1972 or up to the time the corporation life was terminated, since the President
should also be deemed included in the term "employer. "

The foregoing, however, limits the scope of liability and deviates from the CIR Decision, affirmed by this Court in 1973, holding
the officers and agents of RANSOM liable. In other words, the officers and agents listed in the Genilo Order except for those
who have since passed away, should, as affirmed by this Court, be held jointly and severally liable for the payment of
backwages to the 22 strikers.

This finding does not ignore the legal fiction that a corporation has a personality separate and distinct from its stockholders and
members, for, as this Court had held "where the incorporators and directors belong to a single family, the corporation and its
members can be considered as one in order to avoid its being used as an instrument to commit injustice," 10 or to further an end
subversive of justice. 11 In the case of Claparols vs. CIR 12involving almost similar facts as in this case, it was also held that the
shield of corporate fiction should be pierced when it is deliberately and maliciously designed to evade financial obligations to
employees. To the same effect was this Court's rulings in still other cases:

When the notion of legal entity is used as a means to perpetrate fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, and or confuse legitimate issues the veil which
protects the corporation will be lifted (Villa Rey Transit, Inc. vs. Ferrer, 25 SCRA 846 [1968]; Republic vs.
Razon, 20 SCRA 234 [1967]; A.D. Santos, Inc. vs. Vasquez, 22 SCRA 1156 [1968]; Telephone Eng'g. & Service
Company, Inc. vs. WCC, 104 SCRA 354 [1981]).

The alleged bankruptcy of RANSOM furnishes no justification for non-payment of backwages to the employees concerned
taking into consideration Article 110 of the Labor Code, which provides:

ART. 110. Worker preference in case of bankruptcy. - In the event of bankruptcy or liquidation of an employer's
business, his workers shall enjoy first preference as regards wages due them for services rendered during the
period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages
shag be paid in full before other creditors may establish any claim to a share in the assets of the employer.

The term "wages" refers to all remunerations, earnings and other benefits in terms of money accruing to the employees or
workers for services rendered. They are to be paid in full before other creditors may establish any claim to a share in the assets
of the employer.
 Section 10. Payment of wages in case of bankruptcy.-Unpaid wages earned by the employees before the
declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference and
shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. 13

The foregoing provisions are but in consonance with the principles of social justice and protection to labor guaranteed by past
and present Constitutions and are not really being given any retroactive effect when applied herein.

The Decision of the CIR was rendered on August 19, 1972. Clearance to RANSOM to cease operations and terminate
employment granted by the Secretary of Labor was made effective on May 1, 1973. The right of the employees concerned to
backwages awarded them, therefore, had already vested at the time and even before clearance was granted. Note should also
be taken of the fact that the clearance was without prejudice to the right of subject employees to seek redress of grievances
under existing laws and decrees.

The worker preference applies even if the employer's properties are encumbered by means of a mortgage contract, as in this
case. So that, when machinery and equipment of RANSOM were sold to Revelations Manufacturing Corporation for P 2M in
1975, the right of the 22 laborers to be paid from the proceeds should have been recognized, even though it is claimed that
those proceeds were turned over to the Commercial Bank and Trust Company (Comtrust) in payment of RANSOM obligations,
since the workers' preference is over and above the claim of other creditors.

The contention, therefore, of the heirs of the late Maximo C. Hernandez, Sr. that since they paid from their own personal funds
the balance of the amount owing by RANSOM to Comtrust they are the "preferential creditors" of RANSOM, is clearly without
merit. Workers are to be paid in full before other creditors may establish any claim to a share in the assets of the employer.

... even if the employer's properties are encumbered by means of a mortgage contract, still the workers' wages
which enjoy first preference in case of bankruptcy or liquidation are duly protected by an automatic first lien
over and above all other earlier encumbrances on the said properties. Otherwise, workers' wages may be
imperilled by foreclosure of mortgages, and as a consequence, the aforecited provision of the New Labor Code
would be rendered meaningless. 14

Aggravating RANSOM's clear evasion of payment of its financial obligations is the organization of a "run-away corporation,"
ROSARIO, in 1969 at the time the unfair labor practice case was pending before the CIR by the same persons who were the
officers and stockholders of RANSOM, engaged in the same line of business as RANSOM, producing the same line of products,
occupying the same compound, using the same machineries, buildings, laboratory, bodega and sales and accounts departments
used by RANSOM, and which is still in existence. Both corporations were closed corporations owned and managed by members
of the same family. Its organization proved to be a convenient instrument to avoid payment of backwages and the reinstatement
of the 22 workers. This is another instance where the fiction of separate and distinct corporate entities should be disregarded.

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.

... When a 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. 15

The corporation will be treated merely as an aggregation of individuals or, where there are two corporations,
they will be merged as one, the one being merely regarded as part of the instrumentality of the other. 16

The UNION's plea, therefore, for the reinstatement of the 22 strikers in ROSARIO should be favorably heard. However,
ROSARIO shall have the option to award them separation pay equivalent to one-half month for every year of service actually
rendered by the 22 strikers.

The plea of the UNION for the restoration of the original computation of P199,276.00 or to grant the 22 Union members three (3)
years backwages is rejected. It is the amount of P164,984.00 as backwages, which was the subject of the Writ of Execution
issued by the Labor Arbiter pursuant to the CIR Decision of 1972.

With the conclusions arrived at, the UNION's Urgent Motion for a Writ of Preliminary Mandatory Injunction directing private
respondents to deposit the amount due as backwages in the meantime, need no longer be acted on.
A final and executory Decision in favor of the UNION obtained in 1972 and affirmed by this Court in 1973 has remained
unsatisfied to this date despite no less than ten (10) Motions for Execution over a period of fourteen (14) years, not to mention
the fact that this is the second time that this case is before this Court. The detriment and prejudice caused the employees
concerned is subversive of the ends of justice. This protracted litigation must end and labor should now enjoy the just deserts of
its legal victory.

ACCORDINGLY, private respondents' Motion for Reconsideration is hereby denied with FINALITY; the Motion for
Reconsideration filed by petitioner is granted in part; and the dispositive portion of the Decision, dated June 10, 1986, is hereby
amended to read as follows:

WHEREFORE, the questioned Decision of the National Labor Relations Commission is SET ASIDE, and the
Order of Labor Arbiter Tito F. Genilo of March 11, 1980 is reinstated with the modification that Rosario Industrial
Corporation and its officers and agents are hereby held jointly and severally liable with the surviving private
respondents for the payment of the backwages due the 22 union members.

Rosario Industrial Corporation is hereby ordered to reinstate the 22 union members or, if this is not possible, to
award them separation pay equivalent at least to one (1) month pay or to one (1) month salary for every year of
service actually rendered by them with A.C. Ransom (Phils). Corporation, whichever is higher.

This decision is immediately executory.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 89561 September 13, 1990

BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO, BERTILLA C. RADA, MARIETTA C.
ABAEZ, LEOVINA C. JALBUENA and SANTIAGO M. RIVERA, petitioners,
vs.
COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS MANUFACTURING CO.,
INC.,respondents.

Edmundo T. Zepeda for petitioners.

Martin M. De Guzman for respondent BORMAHECO, Inc.

Renato J. Robles for P.M. Parts Manufacturing Co., Inc.

REGALADO, J.:

This is a petition to review the decision of respondent Court of Appeals, dated August 3, 1989, in CA-GR CV No. 15412,
entitled "Buenaflor M. Castillo Umali, et al. vs. Philippine Machinery Parts Manufacturing Co., Inc., et al.," 1the dispositive portion
whereof provides:

WHEREFORE, viewed in the light of the entire record, the judgment appealed from must be, as it is hereby
REVERSED. In lieu thereof, a judgment is hereby rendered-

1) Dismissing the complaint, with cost against plaintiffs;

2) Ordering plaintiffs-appellees to vacate the subject properties; and

3) Ordering plaintiffs-appellees to pay upon defendants' counterclaims:

a) To defendant-appellant PM Parts: (i) damages consisting of the value of the fruits in the
subject parcels of land of which they were deprived in the sum of P26,000.00 and (ii)
attorney's fees of P15,000.00

b) To defendant-appellant Bormaheco: (i) expenses of litigation in the amount of P5,000.00

and (ii) attorney's fees of P15,000.00.

SO ORDERED.

The original complaint for annulment of title filed in the court a quo by herein petitioners included as party defendants the
Philippine Machinery Parts Manufacturing Co., Inc. (PM Parts), Insurance Corporation of the Philippines (ICP), Bormaheco, Inc.,
(Bormaheco) and Santiago M. Rivera (Rivera). A Second Amended Complaint was filed, this time impleading Santiago M. Rivera
as party plaintiff.

During the pre-trial conference, the parties entered into the following stipulation of facts:

As between all parties: Plaintiff Buenaflor M. Castillo is the judicial administratrix of the estate
of Felipe Castillo in Special Proceeding No. 4053, pending before Branch IX, CFI of Quezon
(per Exhibit A) which intestate proceedings was instituted by Mauricia Meer Vda. de Castillo,
the previous administratrix of the said proceedings prior to 1970 (per exhibits A-1 and A-2)
which case was filed in Court way back in 1964;

b) The four (4) parcels of land described in paragraph 3 of the Complaint were originally
covered by TCT No. T-42104 and Tax Dec. No. 14134 with assessed value of P3,100.00; TCT
No. T 32227 and Tax Dec. No. 14132, with assessed value of P5,130,00; TCT No. T-31762
and Tax Dec. No. 14135, with assessed value of P6,150.00; and TCT No. T-42103 with Tax
Dec. No. 14133, with assessed value of P3,580.00 (per Exhibits A-2 and B, B-1 to B-3 C, C-1
-to C3

c) That the above-enumerated four (4) parcels of land were the subject of the Deed of Extra-
Judicial Partition executed by the heirs of Felipe Castillo (per Exhibit D) and by virtue thereof
the titles thereto has (sic) been cancelled and in lieu thereof, new titles in the name of
Mauricia Meer Vda. de Castillo and of her children, namely: Buenaflor, Bertilla, Victoria,
Marietta and Leovina, all surnamed Castillo has (sic) been issued, namely: TCT No. T-12113
(Exhibit E ); TCT No. T-13113 (Exhibit F); TCT No. T-13116 (Exhibit G ) and TCT No. T13117
(Exhibit H )

d) That mentioned parcels of land were submitted as guaranty in the Agreement of Counter-
Guaranty with Chattel-Real Estate Mortgage executed on 24 October 1970 between
Insurance Corporation of the Philippines and Slobec Realty Corporation represented by
Santiago Rivera (Exhibit 1);

e) That based on the Certificate of Sale issued by the Sheriff of the Province of Quezon in
favor of Insurance Corporation of the Philippines it was able to transfer to itself the titles over
the lots in question, namely: TCT No. T-23705 (Exhibit M), TCT No. T 23706 (Exhibit N ), TCT
No. T-23707 (Exhibit 0) and TCT No. T 23708 (Exhibit P);

f) That on 10 April 1975, the Insurance Corporation of the Philippines sold to PM Parts the
immovables in question (per Exhibit 6 for PM Parts) and by reason thereof, succeeded in
transferring unto itself the titles over the lots in dispute, namely: per TCT No. T-24846 (Exhibit
Q ), per TCT No. T-24847 (Exhibit R ), TCT No. T-24848 (Exhibit), TCT No. T-24849 (Exhibit T
);

g) On 26 August l976, Mauricia Meer Vda. de Castillo' genther letter to Modesto N. Cervantes
stating that she and her children refused to comply with his demands (Exhibit V-2);

h) That from at least the months of October, November and December 1970 and January
1971, Modesto N. Cervantes was the Vice-President of Bormaheco, Inc. later President
thereof, and also he is one of the Board of Directors of PM Parts; on the other hand, Atty.
Martin M. De Guzman was the legal counsel of Bormaheco, Inc., later Executive Vice-
President thereof, and who also is the legal counsel of Insurance Corporation of the
Philippines and PM Parts; that Modesto N. Cervantes served later on as President of PM
Parts, and that Atty. de Guzman was retained by Insurance Corporation of the Philippines
specifically for foreclosure purposes only;

i) Defendant Bormaheco, Inc. on November 25, 1970 sold to Slobec Realty and Development,
Inc., represented by Santiago Rivera, President, one (1) unit Caterpillar Tractor D-7 with Serial
No. 281114 evidenced by a contract marked Exhibit J and Exhibit I for Bormaheco, Inc.;

j) That the Surety Bond No. 14010 issued by co-defendant ICP was likewise secured by an
Agreement with Counter-Guaranty with Real Estate Mortgage executed by Slobec Realty &
Development, Inc., Mauricia Castillo Meer, Buenaflor Castillo, Bertilla Castillo, Victoria
Castillo, Marietta Castillo and Leovina Castillo, as mortgagors in favor of ICP which document
was executed and ratified before notary public Alberto R. Navoa of the City of Manila on
October 24,1970;

k) That the property mortgaged consisted of four (4) parcels of land situated in Lucena City
and covered by TCT Nos. T-13114, T13115,
T-13116 and T-13117 of the Register of Deeds of Lucena City;

l) That the tractor sold by defendant Bormaheco, Inc. to Slobec Realty & Development, Inc.
was delivered to Bormaheco, Inc. on or about October 2,1973, by Mr. Menandro Umali for
purposes of repair;
 m) That in August 1976, PM Parts notified Mrs. Mauricia Meer about its ownership and the
assignment of Mr. Petronilo Roque as caretaker of the subject property;

n) That plaintiff and other heirs are harvest fruits of the property (daranghita) which is worth no
less than Pl,000.00 per harvest.

As between plaintiffs and

defendant Bormaheco, Inc

o) That on 25 November 1970, at Makati, Rizal, Same Rivera, in representation of the Slobec
Realty & Development Corporation executed in favor of Bormaheco, Inc., represented by its
Vice-President Modesto N. Cervantes a Chattel Mortgage concerning one unit model CAT D7
Caterpillar Crawler Tractor as described therein as security for the payment in favor of the
mortgagee of the amount of P180,000.00 (per Exhibit K) that Id document was superseded by
another chattel mortgage dated January 23, 1971 (Exhibit 15);

p) On 18 December 1970, at Makati, Rizal, the Bormaheco, Inc., represented by its Vice-
President Modesto Cervantes and Slobec Realty Corporation represented by Santiago Rivera
executed the sales agreement concerning the sale of one (1) unit Model CAT D7 Caterpillar
Crawler Tractor as described therein for the amount of P230,000.00 (per Exhibit J) which
document was superseded by the Sales Agreement dated January 23,1971 (Exhibit 16);

q) Although it appears on the document entitled Chattel Mortgage (per Exhibit K) that it was
executed on 25 November 1970, and in the document entitled Sales Agreement (per Exhibit
J) that it was executed on 18 December 1970, it appears in the notarial register of the notary
public who notarized them that those two documents were executed on 11 December 1970.
The certified xerox copy of the notarial register of Notary Public Guillermo Aragones issued by
the Bureau of Records Management is hereto submitted as Exhibit BB That said chattel
mortgage was superseded by another document dated January 23, 1971;

r) That on 23 January 1971, Slobec Realty Development Corporation, represented by

Santiago Rivera, received from Bormaheco, Inc. one (1) tractor Caterpillar Model D-7
pursuant to Invoice No. 33234 (Exhibits 9 and 9-A, Bormaheco, Inc.) and delivery receipt No.
10368 (per Exhibits 10 and 10-A for Bormaheco, Inc

s) That on 28 September 1973, Atty. Martin M. de Guzman, as counsel of Insurance

Corporation of the Philippines purchased at public auction for said corporation the four (4)
parcels of land subject of tills case (per Exhibit L), and which document was presented to the
Register of Deeds on 1 October 1973;

t) Although it appears that the realties in issue has (sic) been sold by Insurance Corporation of
the Philippines in favor of PM Parts on 1 0 April 1975, Modesto N. Cervantes, formerly Vice-
President and now President of Bormaheco, Inc., sent his letter dated 9 August 1976 to
Mauricia Meer Vda. de Castillo (Exhibit V), demanding that she and her children should
vacate the premises;

u) That the Caterpillar Crawler Tractor Model CAT D-7 which was received by Slobec Realty
Development Corporation was actually reconditioned and repainted. " 2

We cull the following antecedents from the decision of respondent Court of Appeals:

Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The Castillo family are the
owners of a parcel of land located in Lucena City which was given as security for a loan from the Development
Bank of the Philippines. For their failure to pay the amortization, foreclosure of the said property was about to
be initiated. This problem was made known to Santiago Rivera, who proposed to them the conversion into
subdivision of the four (4) parcels of land adjacent to the mortgaged property to raise the necessary fund. The
Idea was accepted by the Castillo family and to carry out the project, a Memorandum of Agreement (Exh. U p.
127, Record) was executed by and between Slobec Realty and Development, Inc., represented by its President
Santiago Rivera and the Castillo family. In this agreement, Santiago Rivera obliged himself to pay the Castillo
family the sum of P70,000.00 immediately after the execution of the agreement and to pay the additional
amount of P400,000.00 after the property has been converted into a subdivision. Rivera, armed with the
agreement, Exhibit U , approached Mr. Modesto Cervantes, President of defendant Bormaheco, and proposed
to purchase from Bormaheco two (2) tractors Model D-7 and D-8 Subsequently, a Sales Agreement was
executed on December 28,1970 (Exh. J, p. 22, Record).

On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development, Inc., represented by its President,
Santiago Rivera, executed a Sales Agreement over one unit of Caterpillar Tractor D-7 with Serial No. 281114,
as evidenced by the contract marked Exhibit '16'. As shown by the contract, the price was P230,000.00 of
which P50,000.00 was to constitute a down payment, and the balance of P180,000.00 payable in eighteen
monthly installments. On the same date, Slobec, through Rivera, executed in favor of Bormaheco a Chattel
Mortgage (Exh. K, p. 29, Record) over the said equipment as security for the payment of the aforesaid balance
of P180,000.00. As further security of the aforementioned unpaid balance, Slobec obtained from Insurance
Corporation of the Phil. a Surety Bond, with ICP (Insurance Corporation of the Phil.) as surety and Slobec as
principal, in favor of Bormaheco, as borne out by Exhibit '8' (p. 111, Record). The aforesaid surety bond was in
turn secured by an Agreement of Counter-Guaranty with Real Estate Mortgage (Exhibit I, p. 24, Record)
executed by Rivera as president of Slobec and Mauricia Meer Vda. de Castillo, Buenaflor Castillo Umali,
Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and Leovina Castillo Jalbuena, as mortgagors and
Insurance Corporation of the Philippines (ICP) as mortgagee. In this agreement, ICP guaranteed the obligation
of Slobec with Bormaheco in the amount of P180,000.00. In giving the bond, ICP required that the Castillos
mortgage to them the properties in question, namely, four parcels of land covered by TCTs in the name of the
aforementioned mortgagors, namely TCT Nos. 13114, 13115, 13116 and 13117 all of the Register of Deeds for
Lucena City.

On the occasion of the execution on January 23, 1971, of the Sales Agreement Exhibit '16', Slobec,
represented by Rivera received from Bormaheco the subject matter of the said Sales Agreement, namely, the
aforementioned tractor Caterpillar Model D-7 as evidenced by Invoice No. 33234 (Exhs. 9 and 9-A, p. 112,
Record) and Delivery Receipt No. 10368 (Exhs. 10 and 10-A, p. 113). This tractor was known by Rivera to be a
reconditioned and repainted one [Stipulation of Facts, Pre-trial Order, par. (u)].

Meanwhile, for violation of the terms and conditions of the Counter-Guaranty Agreement (Exh. 1), the
properties of the Castillos were foreclosed by ICP As the highest bidder with a bid of P285,212.00, a Certificate
of Sale was issued by the Provincial Sheriff of Lucena City and Transfer Certificates of Title over the subject
parcels of land were issued by the Register of Deeds of Lucena City in favor of ICP namely, TCT Nos. T-23705,
T 23706, T-23707 and T-23708 (Exhs. M to P, pp. 38-45). The mortgagors had one (1) year from the date of the
registration of the certificate of sale, that is, until October 1, 1974, to redeem the property, but they failed to do
so. Consequently, ICP consolidated its ownership over the subject parcels of land through the requisite affidavit
of consolidation of ownership dated October 29, 1974, as shown in Exh. '22'(p. 138, Rec.). Pursuant thereto, a
Deed of Sale of Real Estate covering the subject properties was issued in favor of ICP (Exh. 23, p. 139, Rec.).

On April 10, 1975, Insurance Corporation of the Phil. ICP sold to Phil. Machinery Parts Manufacturing Co. (PM
Parts) the four (4) parcels of land and by virtue of said conveyance, PM Parts transferred unto itself the titles
over the lots in dispute so that said parcels of land are now covered by TCT Nos. T-24846, T-24847, T-24848
and T-24849 (Exhs. Q-T, pp. 46-49, Rec.).

Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a letter dated August 9,1976
addressed to plaintiff Mrs. Mauricia Meer Castillo requesting her and her children to vacate the subject
property, who (Mrs. Castillo) in turn sent her reply expressing her refusal to comply with his demands.

On September 29, 1976, the heirs of the late Felipe Castillo, particularly plaintiff Buenaflor M. Castillo Umali as
the appointed administratrix of the properties in question filed an action for annulment of title before the then
Court of First Instance of Quezon and docketed thereat as Civil Case No. 8085. Thereafter, they filed an
Amended Complaint on January 10, 1980 (p. 444, Record). On July 20, 1983, plaintiffs filed their Second
Amended Complaint, impleading Santiago M. Rivera as a party plaintiff (p. 706, Record). They contended that
all the aforementioned transactions starting with the Agreement of Counter-Guaranty with Real Estate
Mortgage (Exh. I), Certificate of Sale (Exh. L) and the Deeds of Authority to Sell, Sale and the Affidavit of
Consolidation of Ownership (Annexes F, G, H, I) as well as the Deed of Sale (Annexes J, K, L and M) are void
for being entered into in fraud and without the consent and approval of the Court of First Instance of Quezon,
 (Branch IX) before whom the administration proceedings has been pending. Plaintiffs pray that the four (4)
parcels of land subject hereof be declared as owned by the estate of the late Felipe Castillo and that all
Transfer Certificates of Title Nos. 13114,13115,13116,13117, 23705, 23706, 23707, 23708, 24846, 24847,
24848 and 24849 as well as those appearing as encumbrances at the back of the certificates of title mentioned
be declared as a nullity and defendants to pay damages and attorney's fees (pp. 71071 1, Record).

In their amended answer, the defendants controverted the complaint and alleged, by way of affirmative and
special defenses that the complaint did not state facts sufficient to state a cause of action against defendants;
that plaintiffs are not entitled to the reliefs demanded; that plaintiffs are estopped or precluded from asserting
the matters set forth in the Complaint; that plaintiffs are guilty of laches in not asserting their alleged right in due
time; that defendant PM Parts is an innocent purchaser for value and relied on the face of the title before it
bought the subject property (p. 744, Record). 3

After trial, the court a quo rendered judgment, with the following decretal portion:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, declaring the
following documents:

Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage dated October 24,1970

(Exhibit 1);

Sales Agreement dated December 28, 1970 (Exhibit J)

Chattel Mortgage dated November 25, 1970 (Exhibit K)

Sales Agreement dated January 23, 1971 (Exhibit 16);

Chattel Mortgage dated January 23, 1971 (Exhibit 17);

Certificate of Sale dated September 28, 1973 executed by the Provincial Sheriff of Quezon in
favor of Insurance Corporation of the Philippines (Exhibit L);

null and void for being fictitious, spurious and without consideration. Consequently, Transfer Certificates of Title
Nos. T 23705, T-23706, T23707 and T-23708 (Exhibits M, N, O and P) issued in the name of Insurance
Corporation of the Philippines, are likewise null and void.

The sale by Insurance Corporation of the- Philippines in favor of defendant Philippine Machinery Parts
Manufacturing Co., Inc., over Id four (4) parcels of land and Transfer Certificates of Title Nos. T 24846, T-
24847, T-24848 and T-24849 subsequently issued by virtue of said sale in the name of Philippine Machinery
Parts Manufacturing Co., Inc., are similarly declared null and void, and the Register of Deeds of Lucena City is
hereby directed to issue, in lieu thereof, transfer certificates of title in the names of the plaintiffs, except
Santiago Rivera.

Orders the defendants jointly and severally to pay the plaintiffs moral damages in the sum of P10,000.00,
exemplary damages in the amount of P5,000.00, and actual litigation expenses in the sum of P6,500.00.

Defendants are likewise ordered to pay the plaintiffs, jointly and severally, the sum of P10,000.00 for and as
attomey's fees. With costs against the defendants.

SO ORDERED. 4

As earlier stated, respondent court reversed the aforequoted decision of the trial court and rendered the judgment subject of this
petition-

Petitioners contend that respondent Court of Appeals erred:

1. In holding and finding that the actions entered into between petitioner Rivera with Cervantes are all fair and
regular and therefore binding between the parties thereto;

2. In reversing the decision of the lower court, not only based on erroneous conclusions of facts, erroneous
presumptions not supported by the evidence on record but also, holding valid and binding the supposed
 payment by ICP of its obligation to Bormaheco, despite the fact that the surety bond issued it had already
expired when it opted to foreclose extrajudically the mortgage executed by the petitioners;

3. In aside the finding of the lower court that there was necessity to pierce the veil of corporate existence; and

4. In reversing the decision of the lower court of affirming the same 5

I. Petitioners aver that the transactions entered into between Santiago M. Rivera, as President of Slobec Realty and
Development Company (Slobec) and Mode Cervantes, as Vice-President of Bormaheco, such as the Sales Agreement, 6 Chattel
Mortgage 7 and the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage, 8are all fraudulent and simulated and
should, therefore, be declared nun and void. Such allegation is premised primarily on the fact that contrary to the stipulations
agreed upon in the Sales Agreement (Exhibit J), Rivera never made any advance payment, in the alleged amount of
P50,000.00, to Bormaheco; that the tractor was received by Rivera only on January 23, 1971 and not in 1970 as stated in the
Chattel Mortgage (Exhibit K); and that when the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage was
executed on October 24, 1970, to secure the obligation of ICP under its surety bond, the Sales Agreement and Chattel Mortgage
had not as yet been executed, aside from the fact that it was Bormaheco, and not Rivera, which paid the premium for the surety
bond issued by ICP

At the outset, it will be noted that petitioners submission under the first assigned error hinges purely on questions of fact.
Respondent Court of Appeals made several findings to the effect that the questioned documents are valid and binding upon the
parties, that there was no fraud employed by private respondents in the execution thereof, and that, contrary to petitioners'
allegation, the evidence on record reveals that petitioners had every intention to be bound by their undertakings in the various
transactions had with private respondents. It is a general rule in this jurisdiction that findings of fact of said appellate court are
final and conclusive and, thus, binding on this Court in the absence of sufficient and convincing proof, inter alia, that the former
acted with grave abuse of discretion. Under the circumstances, we find no compelling reason to deviate from this long-standing
jurisprudential pronouncement.

In addition, the alleged failure of Rivera to pay the consideration agreed upon in the Sales Agreement, which clearly constitutes
a breach of the contract, cannot be availed of by the guilty party to justify and support an action for the declaration of nullity of
the contract. Equity and fair play dictates that one who commits a breach of his contract may not seek refuge under the
protective mantle of the law.

The evidence of record, on an overall calibration, does not convince us of the validity of petitioners' contention that the contracts
entered into by the parties are either absolutely simulated or downright fraudulent.

There is absolute simulation, which renders the contract null and void, when the parties do not intend to be bound at all by the
same. 9 The basic characteristic of this type of simulation of contract is the fact that the apparent contract is not really desired or
intended to either produce legal effects or in any way alter the juridical situation of the parties. The subsequent act of Rivera in
receiving and making use of the tractor subject matter of the Sales Agreement and Chattel Mortgage, and the simultaneous
issuance of a surety bond in favor of Bormaheco, concomitant with the execution of the Agreement of Counter-Guaranty with
Chattel/Real Estate Mortgage, conduce to the conclusion that petitioners had every intention to be bound by these contracts.
The occurrence of these series of transactions between petitioners and private respondents is a strong indication that the parties
actually intended, or at least expected, to exact fulfillment of their respective obligations from one another.

Neither will an allegation of fraud prosper in this case where petitioners failed to show that they were induced to enter into a
contract through the insidious words and machinations of private respondents without which the former would not have executed
such contract. To set aside a document solemnly executed and voluntarily delivered, the proof of fraud must be clear and
convincing. 10 We are not persuaded that such quantum of proof exists in the case at bar.

The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP does not per se affect the validity of
the bond. Petitioners themselves admit in their present petition that Rivera executed a Deed of Sale with Right of Repurchase of
his car in favor of Bormaheco and agreed that a part of the proceeds thereof shall be used to pay the premium for the bond. 11 In
effect, Bormaheco accepted the payment of the premium as an agent of ICP The execution of the deed of sale with a right of
repurchase in favor of Bormaheco under such circumstances sufficiently establishes the fact that Rivera recognized Bormaheco
as an agent of ICP Such payment to the agent of ICP is, therefore, binding on Rivera. He is now estopped from questioning the
validity of the suretyship contract.

II. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a
corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. In
such cases, the corporation will be considered as a mere association of persons. The members or stockholders of the
corporation will be considered as the corporation, that is, liability will attach directly to the officers and stockholders. 12 The
doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, 13 or when it is made as a shield to confuse the legitimate issues 14 or where a corporation is the mere alter ego or
business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation. 15

In the case at bar, petitioners seek to pierce the V621 Of corporate entity of Bormaheco, ICP and PM Parts, alleging that these
corporations employed fraud in causing the foreclosure and subsequent sale of the real properties belonging to petitioners While
we do not discount the possibility of the existence of fraud in the foreclosure proceeding, neither are we inclined to apply the
doctrine invoked by petitioners in granting the relief sought. It is our considered opinion that piercing the veil of corporate entity is
not the proper remedy in order that the foreclosure proceeding may be declared a nullity under the circumstances obtaining in
the legal case at bar.

In the first place, the legal corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable
for a corporate debt or obligation. In the instant case, petitioners do not seek to impose a claim against the individual members
of the three corporations involved; on the contrary, it is these corporations which desire to enforce an alleged right against
petitioners. Assuming that petitioners were indeed defrauded by private respondents in the foreclosure of the mortgaged
properties, this fact alone is not, under the circumstances, sufficient to justify the piercing of the corporate fiction, since
petitioners do not intend to hold the officers and/or members of respondent corporations personally liable therefor. Petitioners
are merely seeking the declaration of the nullity of the foreclosure sale, which relief may be obtained without having to disregard
the aforesaid corporate fiction attaching to respondent corporations. Secondly, petitioners failed to establish by clear and
convincing evidence that private respondents were purposely formed and operated, and thereafter transacted with petitioners,
with the sole intention of defrauding the latter.

The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a justification for disregarding
their separate personalities, 16 absent sufficient showing that the corporate entity was purposely used as a shield to defraud
creditors and third persons of their rights.

III. The main issue for resolution is whether there was a valid foreclosure of the mortgaged properties by ICP Petitioners argue
that the foreclosure proceedings should be declared null and void for two reasons, viz.: (1) no written notice was furnished by
Bormaheco to ICP anent the failure of Slobec in paying its obligation with the former, plus the fact that no receipt was presented
to show the amount allegedly paid by ICP to Bormaheco; and (b) at the time of the foreclosure of the mortgage, the liability of
ICP under the surety bond had already expired.

Respondent court, in finding for the validity of the foreclosure sale, declared:

Now to the question of whether or not the foreclosure by the ICP of the real estate mortgage was in the
exercise of a legal right, We agree with the appellants that the foreclosure proceedings instituted by the ICP
was in the exercise of a legal right. First, ICP has in its favor the legal presumption that it had indemnified
Bormaheco by reason of Slobec's default in the payment of its obligation under the Sales Agreement,
especially because Bormaheco consented to ICPs foreclosure of the mortgage. This presumption is in
consonance with pars. R and Q Section 5, Rule 5, * New Rules of Court which provides that it is disputably
presumed that private transactions have been fair and regular. likewise, it is disputably presumed that the
ordinary course of business has been followed: Second, ICP had the right to proceed at once to the foreclosure
of the mortgage as mandated by the provisions of Art. 2071 Civil Code for these further reasons: Slobec, the
principal debtor, was admittedly insolvent; Slobec's obligation becomes demandable by reason of the expiration
of the period of payment; and its authorization to foreclose the mortgage upon Slobec's default, which resulted
in the accrual of ICPS liability to Bormaheco. Third, the Agreement of Counter-Guaranty with Real Estate
Mortgage (Exh. 1) expressly grants to ICP the right to foreclose the real estate mortgage in the event of 'non-
payment or non-liquidation of the entire indebtedness or fraction thereof upon maturity as stipulated in the
contract'. This is a valid and binding stipulation in the absence of showing that it is contrary to law, morals, good
customs, public order or public policy. (Art. 1306, New Civil Code). 17

1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP which would have entitled Bormaheco
to demand payment from ICP under the suretyship contract.
Surety Bond No. B-1401 0 which was issued by ICP in favor of Bormaheco, wherein ICP and Slobec undertook to guarantee the
payment of the balance of P180,000.00 payable in eighteen (18) monthly installments on one unit of Model CAT D-7 Caterpillar
Crawler Tractor, pertinently provides in part as follows:

1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES, under this BOND will expire Twelve (I
2) months from date hereof. Furthermore, it is hereby agreed and understood that the INSURANCE
CORPORATION OF THE PHILIPPINES will not be liable for any claim not presented in writing to the
Corporation within THIRTY (30) DAYS from the expiration of this BOND, and that the obligee hereby waives his
right to bring claim or file any action against Surety and after the termination of one (1) year from the time his
cause of action accrues. 18

The surety bond was dated October 24, 1970. However, an annotation on the upper part thereof states: "NOTE:
EFFECTIVITY DATE OF THIS BOND SHALL BE ON JANUARY 22, 1971." 19

On the other hand, the Sales Agreement dated January 23, 1971 provides that the balance of P180,000.00 shall be payable in
eighteen (18) monthly installments. 20 The Promissory Note executed by Slobec on even date in favor of Bormaheco further
provides that the obligation shall be payable on or before February 23, 1971 up to July 23, 1972, and that non-payment of any of
the installments when due shall make the entire obligation immediately due and demandable. 21

It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly assumed therein.
We have repeatedly held that the extent of a surety's liability is determined only by the clause of the contract of suretyship as
well as the conditions stated in the bond. It cannot be extended by implication beyond the terms the contract. 22

Fundamental likewise is the rule that, except where required by the provisions of the contract, a demand or notice of default is
not required to fix the surety's liability. 23 Hence, where the contract of suretyship stipulates that notice of the principal's default
be given to the surety, generally the failure to comply with the condition will prevent recovery from the surety. There are certain
instances, however, when failure to comply with the condition will not extinguish the surety's liability, such as a failure to give
notice of slight defaults, which are waived by the obligee; or on mere suspicion of possible default; or where, if a default exists,
there is excuse or provision in the suretyship contract exempting the surety for liability therefor, or where the surety already has
knowledge or is chargeable with knowledge of the default. 24

In the case at bar, the suretyship contract expressly provides that ICP shag not be liable for any claim not filed in writing within
thirty (30) days from the expiration of the bond. In its decision dated May 25 1987, the court a quocategorically stated that '(n)o
evidence was presented to show that Bormaheco demanded payment from ICP nor was there any action taken by Bormaheco
on the bond posted by ICP to guarantee the payment of plaintiffs obligation. There is nothing in the records of the proceedings to
show that ICP indemnified Bormaheco for the failure of the plaintiffs to pay their obligation. " 25 The failure, therefore, of
Bormaheco to notify ICP in writing about Slobec's supposed default released ICP from liability under its surety bond.
Consequently, ICP could not validly foreclose that real estate mortgage executed by petitioners in its favor since it never incurred
any liability under the surety bond. It cannot claim exemption from the required written notice since its case does not fall under
any of the exceptions hereinbefore enumerated.

Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any documentary evidence. Section 1, Rule
131 of the Rules of Court provides that the burden of evidence lies with the party who asserts an affirmative allegation. Since
ICP failed to duly prove the fact of payment, the disputable presumption that private transactions have been fair and regular, as
erroneously relied upon by respondent Court of Appeals, finds no application to the case at bar.

2. The liability of a surety is measured by the terms of his contract, and, while he is liable to the full extent thereof, such liability is
strictly limited to that assumed by its terms. 26 While ordinarily the termination of a surety's liability is governed by the provisions
of the contract of suretyship, where the obligation of a surety is, under the terms of the bond, to terminate at a specified time, his
obligation cannot be enlarged by an unauthorized extension thereof.27 This is an exception to the general rule that the obligation
of the surety continues for the same period as that of the principal debtor. 28

It is possible that the period of suretyship may be shorter than that of the principal obligation, as where the principal debtor is
required to make payment by installments. 29 In the case at bar, the surety bond issued by ICP was to expire on January 22,
1972, twelve (1 2) months from its effectivity date, whereas Slobec's installment payment was to end on July 23, 1972.
Therefore, while ICP guaranteed the payment by Slobec of the balance of P180,000.00, such guaranty was valid only for and
within twelve (1 2) months from the date of effectivity of the surety bond, or until January 22, 1972. Thereafter, from January 23,
1972 up to July 23, 1972, the liability of Slobec became an unsecured obligation. The default of Slobec during this period cannot
be a valid basis for the exercise of the right to foreclose by ICP since its surety contract had already been terminated. Besides,
the liability of ICP was extinguished when Bormaheco failed to file a written claim against it within thirty (30) days from the
expiration of the surety bond. Consequently, the foreclosure of the mortgage, after the expiration of the surety bond under which
ICP as surety has not incurred any liability, should be declared null and void.

3. Lastly, it has been held that where The guarantor holds property of the principal as collateral surety for his personal indemnity,
to which he may resort only after payment by himself, until he has paid something as such guarantor neither he nor the creditor
can resort to such collaterals. 30

The Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage states that it is being issued for and in consideration of
the obligations assumed by the Mortgagee-Surety Company under the terms and conditions of ICP Bond No. 14010 in behalf of
Slobec Realty Development Corporation and in favor of Bormaheco, Inc. 31 There is no doubt that said Agreement of Counter-
Guaranty is issued for the personal indemnity of ICP Considering that the fact of payment by ICP has never been established, it
follows, pursuant to the doctrine above adverted to, that ICP cannot foreclose on the subject properties,

IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it acquired a valid title over the subject
properties. The submission is without merit and the conclusion is specious

We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in this case. However, its
inapplicability has no bearing on the good faith or bad faith of private respondent PM Parts. It must be noted that Modesto N.
Cervantes served as Vice-President of Bormaheco and, later, as President of PM Parts. On this fact alone, it cannot be said that
PM Parts had no knowledge of the aforesaid several transactions executed between Bormaheco and petitioners. In addition,
Atty. Martin de Guzman, who is the Executive Vice-President of Bormaheco, was also the legal counsel of ICP and PM Parts.
These facts were admitted without qualification in the stipulation of facts submitted by the parties before the trial court. Hence,
the defense of good faith may not be resorted to by private respondent PM Parts which is charged with knowledge of the true
relations existing between Bormaheco, ICP and herein petitioners. Accordingly, the transfer certificates of title issued in its name,
as well as the certificate of sale, must be declared null and void since they cannot be considered altogether free of the taint of
bad faith.

WHEREFORE, the decision of respondent Court of Appeals is hereby REVERSED and SET ASIDE, and judgment is hereby
rendered declaring the following as null and void: (1) Certificate of Sale, dated September 28,1973, executed by the Provincial
Sheriff of Quezon in favor of the Insurance Corporation of the Philippines; (2) Transfer Certificates of Title Nos. T-23705, T-
23706, T-23707 and T-23708 issued in the name of the Insurance Corporation of the Philippines; (3) the sale by Insurance
Corporation of the Philippines in favor of Philippine Machinery Parts Manufacturing Co., Inc. of the four (4) parcels of land
covered by the aforesaid certificates of title; and (4) Transfer Certificates of Title Nos. T-24846, T-24847, T-24848 and T24849
subsequently issued by virtue of said sale in the name of the latter corporation.

The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title Nos. T-24846, T-24847, T24848
and T-24849 in the name of Philippine Machinery Parts Manufacturing Co., Inc. and to issue in lieu thereof the corresponding
transfer certificates of title in the name of herein petitioners, except Santiago Rivera.

The foregoing dispositions are without prejudice to such other and proper legal remedies as may be available to respondent
Bormaheco, Inc. against herein petitioners.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 110358 November 9, 1994

QUINTIN ROBLEDO, MARIO SINLAO, LEONARDO SAAVEDRA, VICENTE SECAPURI, DANIEL AUSTRIA, ET
AL.,petitioners,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, BACANI SECURITY AND ALLIED SERVICES CO., INC., AND BACANI
SECURITY AND PROTECTIVE AGENCY AND/OR ALICIA BACANI, respondents.

Benjamin C. Pineda for petitioners.

Villanueva, Ebora & Caa for private respondents.

MENDOZA, J.:

This is a petition for review of the decision of the First Division 1 of the National Labor Relations Commission, setting aside the
decision of the Labor Arbiter which held private respondents jointly and severally liable to the petitioners for overtime and legal
holiday pay.

The facts of this case are as follows:

Petitioners were former employees of Bacani Security and Protective Agency (BSPA, for brevity). They were employed as
security guards at different times during the period 1969 to December 1989 when BSPA ceased to operate.

BSPA was a single proprietorship owned, managed and operated by the late Felipe Bacani. It was registered with the Bureau of
Trade and Industry as a business name in 1957. Upon its expiration, the registration was renewed on July 1, 1987 for a term of
five (5) years ending 1992.

On December 31, 1989, Felipe Bacani retired the business name and BSPA ceased to operate effective on that day. At that time,
respondent Alicia Bacani, daughter of Felipe Bacani, was BSPA's Executive Directress.

On January 15, 1990 Felipe Bacani died. An intestate proceeding was instituted for the settlement of his estate before the
Regional Trial Court, National Capital Region, Branch 155, Pasig, Metro Manila.

Earlier, on October 26, 1989, respondent Bacani Security and Allied Services Co., Inc. (BASEC, for brevity) had been organized
and registered as a corporation with the Securities and Exchange Commission. The following were the incorporators with their
respective shareholdings:

ALICIA BACANI 25,250 shares

LYDIA BACANI 25,250 shares
AMADO P. ELEDA 25,250 shares
VICTORIA B. AURIGUE 25,250 shares
FELIPE BACANI 20,000 shares

The primary purpose of the corporation was to "engage in the business of providing security" to persons and entities. This was
the same line of business that BSPA was engaged in. Most of the petitioners, after losing their jobs in BSPA, were employed in
BASEC.

On July 5, 1990, some of the petitioners filed a complaint with

the Department of Labor and Employment, National Capital Region, for underpayment of wages and nonpayment of overtime
pay, legal holiday pay, separation pay and/or retirement/resignation benefits, and for the return of their cash bond which they
posted with BSPA. Made respondents were BSPA and BASEC. Petitioners were subsequently joined by the rest of the
petitioners herein who filed supplementary complaints.

On March 1, 1992, the Labor Arbiter rendered a decision upholding the right of the petitioners. The dispositive portion of his
decision reads:

CONFORMABLY WITH THE FOREGOING, the judgment is hereby rendered finding complainants entitled to
their money claims as herein above computed and to be paid by all the respondents hereinin solidum except
BSPA which has already been retired from business.

Respondents are further ordered to pay attorney's fees equivalent to five (5) percent of the awarded money
claims.

All other claims are hereby dismissed for lack of merit.

SO ORDERED.

On appeal the National Labor Relations Commission reversed. In a decision dated March 30, 1993, the NLRC's First Division
declared the Labor Arbiter without jurisdiction and instead suggested that petitioners file their claims with the Regional Trial
Court, Branch 155, Pasig, Metro Manila, where an intestate proceeding for the settlement of Bacani's estate was pending.
Petitioners moved for a reconsideration but their motion was denied for lack of merit. Hence this petition for review.

No appeal lies to review decisions of the NLRC. Nonetheless the petition in this case was treated as a special civil action
of certiorari to determine whether the NLRC did not commit a grave abuse of its discretion in reversing the Labor Arbiter's
decision.

The issues in this case are two fold: first, whether Bacani Security and Allied Services Co. Inc. (BASEC) and Alicia Bacani can
be held liable for claims of petitioners against Bacani Security and Protective Agency (BSPA) and,second, if the claims were the
personal liability of the late Felipe Bacani, as owner of BSPA, whether the Labor Arbiter had jurisdiction to decide the claims.

Petitioners contend that public respondent erred in setting aside the Labor Arbiter's judgment on the ground that BASEC is the
same entity as BSPA the latter being owned and controlled by one and the same family, namely the Bacani family. For this
reason they urge that the corporate fiction should be disregarded and BASEC should be held liable for the obligations of the
defunct BSPA.

We find the petition to be without merit.

As correctly found by the NLRC, BASEC is an entity separate and distinct from that of BSPA. BSPA is a single proprietorship
owned and operated by Felipe Bacani. Hence its debts and obligations were the personal obligations of its owner. Petitioners'
claim which are based on these debts and personal obligations, did not survive the death of Felipe Bacani on January 15, 1990
and should have been filed instead in the intestate proceedings involving his estate.

Indeed, the rule is settled that unless expressly assumed labor contracts are not enforceable against the transferee of an
enterprise. The reason for this is that labor contracts are in personam. 2 Consequently, it has been held that claims for
backwages earned from the former employer cannot be filed against the new owners of an enterprise. 3 Nor is the new operator
of a business liable for claims for retirement pay of employees. 4

Petitioners claim, however, that BSPA was intentionally retired in order to allow expansion of its business and even perhaps an
increase in its capitalization for credit purpose. According to them, the Bacani family merely continued the operation of BSPA by
creating BASEC in order to avoid the obligations of the former. Petitioners anchor their claim on the fact that Felipe Bacani, after
having ceased to operate BSPA, became an incorporator of BASEC together with his wife and daughter. Petitioners urge
piercing the veil of corporate entity in order to hold BASEC liable for BSPA's obligations.

The doctrine of piercing the veil of corporate entity is used whenever a court finds that the corporate fiction is being used to
defeat public convenience, justify wrong, protect fraud, or defend crime, or to confuse legitimate issues, or that a corporation is
the mere alter ego or business conduit of a person or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. 5 It is apparent, therefore,
that the doctrine has no application to this case where the purpose is not to hold the individual stockholders liable for the
obligations of the corporation but, on the contrary, to hold the corporation liable for the obligations of a stockholder or
stockholders. Piercing the veil of corporate entity means looking through the corporate form to the individual stockholders
composing it. Here there is no reason to pierce the veil of corporate entity because there is no question that petitioners' claims,
assuming them to be valid, are the personal liability of the late Felipe Bacani. It is immaterial that he was also a stockholder of
BASEC.

Indeed, the doctrine is stood on its head when what is sought is to make a corporation liable for the obligations of a stockholder.
But there are several reasons why BASEC is not liable for the personal obligations of Felipe Bacani. For one, BASEC came into
existence before BSPA was retired as a business concern. BASEC was incorporated on October 26, 1989 and its license to
operate was released on May 28, 1990, while BSPA ceased to operate on December 31, 1989. Before, BSPA was retired,
BASEC was already existing. It is, therefore, not true that BASEC is a mere continuity of BSPA.

Second, Felipe Bacani was only one of the five (5) incorporators of BASEC. He owned the least number of shares in BASEC,
which included among its incorporators persons who are not members of his family. That his wife Lydia and daughter Alicia were
also incorporators of the same company is not sufficient to warrant the conclusion that they hold their shares in his behalf.

Third, there is no evidence to show that the assets of BSPA were transferred to BASEC. If BASEC was a mere continuation of
BSPA, all or at least a substantial part of the latter's assets should have found their way to BASEC.

Neither can respondent Alicia Bacani be held liable for BSPA's obligations. Although she was Executive Directress of BSPA, she
was merely an employee of the BSPA, which was a single proprietorship.

Now, the claims of petitioners are actually money claims against the estate of Felipe Bacani. They must be filed against his
estate in accordance with Sec. 5 of Rule 86 which provides in part:

Sec. 5. Claims which must be filed under the notice. If not filed, barred; exceptions. All claims for money
against the decedent, arising from contract, express or implied, whether the same be due, not due, or
contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment
for money against the decedent, must be filed within the time limited in the notice; otherwise they are barred
forever, except that they may be set forth as counterclaims in any action that the executor or administrator may
bring against the claimants . . .

The rationale for the rule is that upon the death of the defendant, a testate or intestate proceeding shall be instituted in the
proper court wherein all his creditors must appear and file their claims which shall be paid proportionately out of the property left
by the deceased. The objective is to avoid duplicity of procedure. Hence the ordinary actions must be taken out from the
ordinary courts. 6 Under Art. 110 of the Labor Code, money claims of laborers enjoy preference over claims of other creditors in
case of bankruptcy or liquidation of the employer's business.

WHEREFORE, the petition for certiorari is DISMISSED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-14441 December 17, 1966

PEDRO R. PALTING, petitioner,

vs.
SAN JOSE PETROLEUM INCORPORATED, respondent.

BARRERA, J.:

This is a petition for review of the order of August 29, 1958, later supplemented and amplified by another dated September 9,
1958, of the Securities and Exchange Commission denying the opposition to, and instead, granting the registration, and
licensing the sale in the Philippines, of 5,000,000 shares of the capital stock of the respondent-appellee San Jose Petroleum,
Inc. (hereafter referred to as SAN JOSE PETROLEUM), a corporation organized and existing in the Republic of Panama.

On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Securities and Exchange Commission a sworn
registration statement, for the registration and licensing for sale in the Philippines Voting Trust Certificates representing
2,000,000 shares of its capital stock of a par value of $0.35 a share, at P1.00 per share. It was alleged that the entire proceeds
of the sale of said securities will be devoted or used exclusively to finance the operations of San Jose Oil Company, Inc. (a
domestic mining corporation hereafter to be referred to as SAN JOSE OIL) which has 14 petroleum exploration concessions
covering an area of a little less than 1,000,000 hectares, located in the provinces of Pangasinan, Tarlac, Nueva Ecija, La Union,
Iloilo, Cotabato, Davao and Agusan. It was the express condition of the sale that every purchaser of the securities shall not
receive a stock certificate, but a registered or bearer-voting-trust certificate from the voting trustees named therein James L.
Buckley and Austin G.E. Taylor, the first residing in Connecticut, U.S.A., and the second in New York City. While this application
for registration was pending consideration by the Securities and Exchange Commission, SAN JOSE PETROLEUM filed an
amended Statement on June 20, 1958, for registration of the sale in the Philippines of its shares of capital stock, which was
increased from 2,000,000 to 5,000,000, at a reduced offering price of from P1.00 to P0.70 per share. At this time the par value of
the shares has also been reduced from $.35 to $.01 per share.1

Pedro R. Palting and others, allegedly prospective investors in the shares of SAN JOSE PETROLEUM, filed with the Securities
and Exchange Commission an opposition to registration and licensing of the securities on the grounds that (1) the tie-up
between the issuer, SAN JOSE PETROLEUM, a Panamanian corporation and SAN JOSE OIL, a domestic corporation, violates
the Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949; (2) the issuer has not been licensed to
transact business in the Philippines; (3) the sale of the shares of the issuer is fraudulent, and works or tends to work a fraud
upon Philippine purchasers; and (4) the issuer as an enterprise, as well as its business, is based upon unsound business
principles. Answering the foregoing opposition of Palting, et al., the registrant SAN JOSE PETROLEUM claimed that it was a
"business enterprise" enjoying parity rights under the Ordinance appended to the Constitution, which parity right, with respect to
mineral resources in the Philippines, may be exercised, pursuant to the Laurel-Langley Agreement, only through the medium of
a corporation organized under the laws of the Philippines. Thus, registrant which is allegedly qualified to exercise rights under
the Parity Amendment, had to do so through the medium of a domestic corporation, which is the SAN JOSE OIL. It refused the
contention that the Corporation Law was being violated, by alleging that Section 13 thereof applies only to foreign corporations
doing business in the Philippines, and registrant was not doing business here. The mere fact that it was a holding company of
SAN JOSE OIL and that registrant undertook the financing of and giving technical assistance to said corporation did not
constitute transaction of business in the Philippines. Registrant also denied that the offering for sale in the Philippines of its
shares of capital stock was fraudulent or would work or tend to work fraud on the investors. On August 29, 1958, and on
September 9, 1958 the Securities and Exchange Commissioner issued the orders object of the present appeal.

The issues raised by the parties in this appeal are as follows:

1. Whether or not petitioner Pedro R. Palting, as a "prospective investor" in respondent's securities, has personality to
file the present petition for review of the order of the Securities and Exchange Commission;

2. Whether or not the issue raised herein is already moot and academic;
 3. Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign corporation, and SAN JOSE
OIL COMPANY, INC., a domestic mining corporation, is violative of the Constitution, the Laurel-Langley Agreement, the
Petroleum Act of 1949, and the Corporation Law; and

4. Whether or not the sale of respondent's securities is fraudulent, or would work or tend to work fraud to purchasers of
such securities in the Philippines.

1. In answer to the notice and order of the Securities and Exchange Commissioner, published in 2 newspapers of general
circulation in the Philippines, for "any person who is opposed" to the petition for registration and licensing of respondent's
securities, to file his opposition in 7 days, herein petitioner so filed an opposition. And, the Commissioner, having denied his
opposition and instead, directed the registration of the securities to be offered for sale, oppositor Palting instituted the present
proceeding for review of said order.

Respondent raises the question of the personality of petitioner to bring this appeal, contending that as a mere "prospective
investor", he is not an "Aggrieved" or "interested" person who may properly maintain the suit. Citing a 1931 ruling of Utah State
Supreme Court2 it is claimed that the phrase "party aggrieved" used in the Securities Act3 and the Rules of Court4 as having the
right to appeal should refer only to issuers, dealers and salesmen of securities.

It is true that in the cited case, it was ruled that the phrase "person aggrieved" is that party "aggrieved by the judgment or decree
where it operates on his rights of property or bears directly upon his interest", that the word "aggrieved" refers to "a substantial
grievance, a denial of some personal property right or the imposition upon a party of a burden or obligation." But a careful
reading of the case would show that the appeal therein was dismissed because the court held that an order of registration was
not final and therefore not appealable. The foregoing pronouncement relied upon by herein respondent was made in construing
the provision regarding an order of revocation which the court held was the one appealable. And since the law provides that in
revoking the registration of any security, only the issuer and every registered dealer of the security are notified, excluding any
person or group of persons having no such interest in the securities, said court concluded that the phrase "interested person"
refers only to issuers, dealers or salesmen of securities.

We cannot consider the foregoing ruling by the Utah State Court as controlling on the issue in this case. Our Securities Act in
Section 7(c) thereof, requires the publication and notice of the registration statement. Pursuant thereto, the Securities and
Exchange Commissioner caused the publication of an order in part reading as follows:

. . . Any person who is opposed with this petition must file his written opposition with this Commission within said period
(2 weeks). . . .

In other words, as construed by the administrative office entrusted with the enforcement of the Securities Act, any person (who
may not be "aggrieved" or "interested" within the legal acceptation of the word) is allowed or permitted to file an opposition to the
registration of securities for sale in the Philippines. And this is in consonance with the generally accepted principle that Blue Sky
Laws are enacted to protect investors and prospective purchasers and to prevent fraud and preclude the sale of securities which
are in fact worthless or worth substantially less than the asking price. It is for this purpose that herein petitioner duly filed his
opposition giving grounds therefor. Respondent SAN JOSE PETROLEUM was required to reply to the opposition. Subsequently
both the petition and the opposition were set for hearing during which the petitioner was allowed to actively participate and did
so by cross-examining the respondent's witnesses and filing his memorandum in support of his opposition. He therefore to all
intents and purposes became a party to the proceedings. And under the New Rules of Court,5 such a party can appeal from a
final order, ruling or decision of the Securities and Exchange Commission. This new Rule eliminating the word "aggrieved"
appearing in the old Rule, being procedural in nature,6 and in view of the express provision of Rule 144 that the new rules made
effective on January 1, 1964 shall govern not only cases brought after they took effect but all further proceedings in cases
then pending, except to the extent that in the opinion of the Court their application would not be feasible or would work injustice,
in which event the former procedure shall apply, we hold that the present appeal is properly within the appellate jurisdiction of
this Court.

The order allowing the registration and sale of respondent's securities is clearly a final order that is appealable. The mere fact
that such authority may be later suspended or revoked, depending on future developments, does not give it the character of an
interlocutory or provisional ruling. And the fact that seven days after the publication of the order, the securities are deemed
registered (Sec. 7, Com. Act 83, as amended), points to the finality of the order. Rights and obligations necessarily arise
therefrom if not reviewed on appeal.

Our position on this procedural matter that the order is appealable and the appeal taken here is proper is strengthened by
the intervention of the Solicitor General, under Section 23 of Rule 3 of the Rules of Court, as the constitutional issues herein
presented affect the validity of Section 13 of the Corporation Law, which, according to the respondent, conflicts with the Parity
Ordinance and the Laurel-Langley Agreement recognizing, it is claimed, its right to exploit our petroleum resources
notwithstanding said provisions of the Corporation Law.

2. Respondent likewise contends that since the order of Registration/Licensing dated September 9, 1958 took effect 30 days
from September 3, 1958, and since no stay order has been issued by the Supreme Court, respondent's shares became
registered and licensed under the law as of October 3, 1958. Consequently, it is asserted, the present appeal has become
academic. Frankly we are unable to follow respondent's argumentation. First it claims that the order of August 29 and that of
September 9, 1958 are not final orders and therefor are not appealable. Then when these orders, according to its theory
became final and were implemented, it argues that the orders can no longer be appealed as the question of registration and
licensing became moot and academic.

But the fact is that because of the authority to sell, the securities are, in all probabilities, still being traded in the open market.
Consequently the issue is much alive as to whether respondent's securities should continue to be the subject of sale. The
purpose of the inquiry on this matter is not fully served just because the securities had passed out of the hands of the issuer and
its dealers. Obviously, so long as the securities are outstanding and are placed in the channels of trade and commerce,
members of the investing public are entitled to have the question of the worth or legality of the securities resolved one way or
another.

But more fundamental than this consideration, we agree with the late Senator Claro M. Recto, who appeared asamicus curiae in
this case, that while apparently the immediate issue in this appeal is the right of respondent SAN JOSE PETROLEUM to
dispose of and sell its securities to the Filipino public, the real and ultimate controversy here would actually call for the
construction of the constitutional provisions governing the disposition, utilization, exploitation and development of our natural
resources. And certainly this is neither moot nor academic.

3. We now come to the meat of the controversy the "tie-up" between SAN JOSE OIL on the one hand, and the respondent
SAN JOSE PETROLEUM and its associates, on the other. The relationship of these corporations involved or affected in this
case is admitted and established through the papers and documents which are parts of the records: SAN JOSE OIL, is a
domestic mining corporation, 90% of the outstanding capital stock of which is owned by respondent SAN JOSE PETROLEUM, a
foreign (Panamanian) corporation, the majority interest of which is owned by OIL INVESTMENTS, Inc., another foreign
(Panamanian) company. This latter corporation in turn is wholly (100%) owned by PANTEPEC OIL COMPANY, C.A., and
PANCOASTAL PETROLEUM COMPANY, C.A., both organized and existing under the laws of Venezuela. As of September 30,
1956, there were 9,976 stockholders of PANCOASTAL PETROLEUM found in 49 American states and U.S. territories, holding
3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC OIL COMPANY was said to have 3,077,916 shares
held by 12,373 stockholders scattered in 49 American state. In the two lists of stockholders, there is no indication of the
citizenship of these stockholders,7 or of the total number of authorized stocks of each corporation, for the purpose of determining
the corresponding percentage of these listed stockholders in relation to the respective capital stock of said corporation.

Petitioner, as well as the amicus curiae and the Solicitor General8 contend that the relationship between herein respondent SAN
JOSE PETROLEUM and its subsidiary, SAN JOSE OIL, violates the Petroleum Law of 1949, the Philippine Constitution, and
Section 13 of the Corporation Law, which inhibits a mining corporation from acquiring an interest in another mining corporation. It
is respondent's theory, on the other hand, that far from violating the Constitution; such relationship between the two corporations
is in accordance with the Laurel-Langley Agreement which implemented the Ordinance Appended to the Constitution, and that
Section 13 of the Corporation Law is not applicable because respondent is not licensed to do business, as it is not doing
business, in the Philippines.

Article XIII, Section 1 of the Philippine Constitution provides:

SEC. 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to the State, and their
disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines, or to corporations or
associations at least sixty per centum of the capital of which is owned by such citizens, subject to any existing right,
grant, lease or concession at the time of the inauguration of this Government established under this Constitution. . . .
(Emphasis supplied)

In the 1946 Ordinance Appended to the Constitution, this right (to utilize and exploit our natural resources) was extended to
citizens of the United States, thus:
 Notwithstanding the provisions of section one, Article Thirteen, and section eight, Article Fourteen, of the foregoing
Constitution, during the effectivity of the Executive Agreement entered into by the President of the Philippines with the
President of the United States on the fourth of July, nineteen hundred and forty-six, pursuant to the provisions of
Commonwealth Act Numbered Seven hundred and thirty-three, but in no case to extend beyond the third of July,
nineteen hundred and seventy-four, the disposition, exploitation, development, and utilization of all agricultural, timber,
and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential
energy, and other natural resources of the Philippines, and the operation of public utilities shall, if open to any person,
be open to citizens of the United States, and to all forms of business enterprises owned or controlled, directly or
indirectly, by citizens of the United States in the same manner as to, and under the same conditions imposed upon,
citizens of the Philippines or corporations or associations owned or controlled by citizens of the Philippines (Emphasis
supplied.)

In the 1954 Revised Trade Agreement concluded between the United States and the Philippines, also known as the Laurel-
Langley Agreement, embodied in Republic Act 1355, the following provisions appear:

ARTICLE VI

1. The disposition, exploitation, development and utilization of all agricultural, timber, and mineral lands of the public
domain, waters, minerals, coal, petroleum and other mineral oils, all forces and sources of potential energy, and other
natural resources of either Party, and the operation of public utilities, shall, if open to any person, be open to citizens of
the other Party and to all forms of business enterprise owned or controlled, directly or indirectly, by citizens of such
other Party in the same manner as to and under the same conditions imposed upon citizens or corporations or
associations owned or controlled by citizens of the Party granting the right.

2. The rights provided for in Paragraph 1 may be exercised, . . . in the case of citizens of the United States, with respect
to natural resources in the public domain in the Philippines, only through the medium of a corporation organized under
the laws of the Philippines and at least 60% of the capital stock of which is owned or controlled by citizens of the United
States. . . .

3. The United States of America reserves the rights of the several States of the United States to limit the extent to which
citizens or corporations or associations owned or controlled by citizens of the Philippines may engage in the activities
specified in this Article. The Republic of the Philippines reserves the power to deny any of the rights specified in this
Article to citizens of the United States who are citizens of States, or to corporations or associations at least 60% of
whose capital stock or capital is owned or controlled by citizens of States, which deny like rights to citizens of the
Philippines, or to corporations or associations which are owned or controlled by citizens of the
Philippines. . . . (Emphasis supplied.)

Re-stated, the privilege to utilize, exploit, and develop the natural resources of this country was granted, by Article XIII of the
Constitution, to Filipino citizens or to corporations or associations 60% of the capital of which is owned by such citizens. With the
Parity Amendment to the Constitution, the same right was extended to citizens of the United States and business
enterprises owned or controlled directly or indirectly, by citizens of the United States.

There could be no serious doubt as to the meaning of the word "citizens" used in the aforementioned provisions of the
Constitution. The right was granted to 2 types of persons: natural persons (Filipino or American citizens) and juridical persons
(corporations 60% of which capital is owned by Filipinos and business enterprises owned or controlled directly or indirectly, by
citizens of the United States). In American law, "citizen" has been defined as "one who, under the constitution and laws of the
United States, has a right to vote for representatives in congress and other public officers, and who is qualified to fill offices in
the gift of the people. (1 Bouvier's Law Dictionary, p. 490.) A citizen is

One of the sovereign people. A constituent member of the sovereignty, synonymous with the people." (Scott v.
Sandford, 19 Ho. [U.S.] 404, 15 L. Ed. 691.)

A member of the civil state entitled to all its privileges. (Cooley, Const. Lim. 77. See U.S. v. Cruikshank 92 U.S. 542, 23
L. Ed. 588; Minor v. Happersett 21 Wall. [U.S.] 162, 22 L. Ed. 627.)

These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American business enterprise entitled to parity
rights in the Philippines? The answer must be in the negative, for the following reasons:
Firstly It is not owned or controlled directly by citizens of the United States, because it is owned and controlled by a
corporation, the OIL INVESTMENTS, another foreign (Panamanian) corporation.

Secondly Neither can it be said that it is indirectly owned and controlled by American citizens through the OIL
INVESTMENTS, for this latter corporation is in turn owned and controlled, not by citizens of the United States, but still by two
foreign (Venezuelan) corporations, the PANTEPEC OIL COMPANY and PANCOASTAL PETROLEUM.

Thirdly Although it is claimed that these two last corporations are owned and controlled respectively by 12,373 and 9,979
stockholders residing in the different American states, there is no showing in the certification furnished by respondent that the
stockholders of PANCOASTAL or those of them holding the controlling stock, are citizens of the United States.

Fourthly Granting that these individual stockholders are American citizens, it is yet necessary to establish that the different
states of which they are citizens, allow Filipino citizens or corporations or associations owned or controlled by Filipino citizens, to
engage in the exploitation, etc. of the natural resources of these states (see paragraph 3, Article VI of the Laurel-Langley
Agreement, supra). Respondent has presented no proof to this effect.

Fifthly But even if the requirements mentioned in the two immediately preceding paragraphs are satisfied, nevertheless to
hold that the set-up disclosed in this case, with a long chain of intervening foreign corporations, comes within the purview of the
Parity Amendment regarding business enterprises indirectly owned or controlled by citizens of the United States, is to unduly
stretch and strain the language and intent of the law. For, to what extent must the word "indirectly" be carried? Must we trace the
ownership or control of these various corporationsad infinitum for the purpose of determining whether the American ownership-
control-requirement is satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL
which are allegedly owned or controlled directly by citizens of the United States, are traded in the stock exchange in New York,
and you have a situation where it becomes a practical impossibility to determine at any given time, the citizenship of the
controlling stock required by the law. In the circumstances, we have to hold that the respondent SAN JOSE PETROLEUM, as
presently constituted, is not a business enterprise that is authorized to exercise the parity privileges under the Parity Ordinance,
the Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.

What, then, would be the Status of SAN JOSE OIL, about 90% of whose stock is owned by SAN JOSE PETROLEUM? This is a
query which we need not resolve in this case as SAN JOSE OIL is not a party and it is not necessary to do so to dispose of the
present controversy. But it is a matter that probably the Solicitor General would want to look into.

There is another issue which has been discussed extensively by the parties. This is whether or not an American mining
corporation may lawfully "be in anywise interested in any other corporation (domestic or foreign) organized for the purpose of
engaging in agriculture or in mining," in the Philippines or whether an American citizen owning stock in more than one
corporation organized for the purpose of engaging in agriculture or in mining, may own more than 15% of the capital stock then
outstanding and entitled to vote, of each of such corporations, in view of the express prohibition contained in Section 13 of the
Philippine Corporation Law. The petitioner in this case contends that the provisions of the Corporation Law must be applied to
American citizens and business enterprise otherwise entitled to exercise the parity privileges, because both the Laurel-Langley
Agreement (Art. VI, par. 1) and the Petroleum Act of 1948 (Art. 31), specifically provide that the enjoyment by them of the same
rights and obligations granted under the provisions of both laws shall be "in the same manner as to, and under the same
conditions imposed upon, citizens of the Philippines or corporations or associations owned or controlled by citizens of the
Philippines." The petitioner further contends that, as the enjoyment of the privilege of exploiting mineral resources in the
Philippines by Filipino citizens or corporations owned or controlled by citizens of the Philippines (which corporation must
necessarily be organized under the Corporation Law), is made subject to the limitations provided in Section 13 of the
Corporation Law, so necessarily the exercise of the parity rights by citizens of the United States or business enterprise owned or
controlled, directly or indirectly, by citizens of the United States, must equally be subject to the same limitations contained in the
aforesaid Section 13 of the Corporation Law.

In view of the conclusions we have already arrived at, we deem it not indispensable for us to pass upon this legal question,
especially taking into account the statement of the respondent (SAN JOSE PETROLEUM) that it is essentially a holding
company, and as found by the Securities and Exchange Commissioner, its principal activity is limited to the financing and giving
technical assistance to SAN JOSE OIL.

4. Respondent SAN JOSE PETROLEUM, whose shares of stock were allowed registration for sale in the Philippines, was
incorporated under the laws of Panama in April, 1956 with an authorized capital stock of $500,000.00, American currency,
divided into 50,000,000 shares at par value of $0.01 per share. By virtue of a 3-party Agreement of June 14, 1956, respondent
was supposed to have received from OIL INVESTMENTS 8,000,000 shares of the capital stock of SAN JOSE OIL (at par value
of $0.01 per share), plus a note for $250,000.00 due in 6 months, for which respondent issued in favor of OIL INVESTMENTS
16,000,000 shares of its capital stock, at $0.01 per share or with a value of $160,000.00, plus a note for $230,297.97 maturing in
2 years at 6% per annum interest,9 and the assumption of payment of the unpaid price of 7,500,000 (of the 8,000,000 shares of
SAN JOSE OIL).

On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was increased from $500,000.00 to $17,500,000.00 by
increasing the par value of the same 50,000,000 shares, from $0.01 to $0.35. Without any additional consideration, the
16,000,000 shares of $0.01 previously issued to OIL INVESTMENTS with a total value of $160,000.00 were changed with
16,000,000 shares of the recapitalized stock at $0.35 per share, or valued at $5,600,000.00. And, to make it appear that cash
was received for these re-issued 16,000,000 shares, the board of directors of respondent corporation placed a valuation of
$5,900,000.00 on the 8,000,000 shares of SAN JOSE OIL (still having par value of $0.10 per share) which were received from
OIL INVESTMENTS as part-consideration for the 16,000,000 shares at $0.01 per share.

In the Balance Sheet of respondent, dated July 12, 1956, from the $5,900,000.00, supposedly the value of the 8,000,000 shares
of SAN JOSE OIL, the sum of $5,100,000.00 was deducted, corresponding to the alleged difference between the "value" of the
said shares and the subscription price thereof which is $800,000.00 (at $0.10 per share). From this $800,000.00, the
subscription price of the SAN JOSE OIL shares, the amount of $319,702.03 was deducted, as allegedly unpaid subscription
price, thereby giving a difference of $480,297.97, which was placed as the amount allegedly paid in on the subscription price of
the 8,000,000 SAN JOSE OIL shares. Then, by adding thereto the note receivable from OIL INVESTMENTS, for $250,000.00
(part-consideration for the 16,000,000 SAN JOSE PETROLEUM shares), and the sum of $6,516.21, as deferred expenses, SAN
JOSE PETROLEUM appeared to have assets in the sum of $736,814.18.

These figures are highly questionable. Take the item $5,900,000.00 the valuation placed on the 8,000,000 shares of SAN JOSE
OIL. There appears no basis for such valuation other than belief by the board of directors of respondent that "should San Jose
Oil Company be granted the bulk of the concessions applied for upon reasonable terms, that it would have a reasonable value of
approximately $10,000,000." 10 Then, of this amount, the subscription price of $800,000.00 was deducted and called it
"difference between the (above) valuation and the subscription price for the 8,000,000 shares." Of this $800,000.00 subscription
price, they deducted the sum of $480,297.97 and the difference was placed as the unpaid portion of the subscription price. In
other words, it was made to appear that they paid in $480,297.97 for the 8,000,000 shares of SAN JOSE OIL. This amount
($480,297.97) was supposedly that $250,000.00 paid by OIL INVESMENTS for 7,500,000 shares of SAN JOSE OIL, embodied
in the June 14 Agreement, and a sum of $230,297.97 the amount expended or advanced by OIL INVESTMENTS to SAN JOSE
OIL. And yet, there is still an item among respondent's liabilities, for $230,297.97 appearing as note payable to Oil Investments,
maturing in two (2) years at six percent (6%) per annum. 11 As far as it appears from the records, for the 16,000,000 shares at
$0.35 per share issued to OIL INVESTMENTS, respondent SAN JOSE PETROLEUM received from OIL INVESTMENTS only
the note for $250,000.00 plus the 8,000,000 shares of SAN JOSE OIL, with par value of $0.10 per share or a total of
$1,050,000.00 the only assets of the corporation. In other words, respondent actually lost $4,550,000.00, which was received
by OIL INVESTMENTS.

But this is not all. Some of the provisions of the Articles of Incorporation of respondent SAN JOSE PETROLEUM are noteworthy;
viz:

(1) the directors of the Company need not be shareholders;

(2) that in the meetings of the board of directors, any director may be represented and may vote through a proxy who
also need not be a director or stockholder; and

(3) that no contract or transaction between the corporation and any other association or partnership will be affected,
except in case of fraud, by the fact that any of the directors or officers of the corporation is interested in, or is a director
or officer of, such other association or partnership, and that no such contract or transaction of the corporation with any
other person or persons, firm, association or partnership shall be affected by the fact that any director or officer of the
corporation is a party to or has an interest in, such contract or transaction, or has in anyway connected with such other
person or persons, firm, association or partnership; and finally, that all and any of the persons who may become director
or officer of the corporation shall be relieved from all responsibility for which they may otherwise be liable by reason of
any contract entered into with the corporation, whether it be for his benefit or for the benefit of any other person, firm,
association or partnership in which he may be interested.

These provisions are in direct opposition to our corporation law and corporate practices in this country. These provisions alone
would outlaw any corporation locally organized or doing business in this jurisdiction. Consider the unique and unusual provision
that no contract or transaction between the company and any other association or corporation shall be affected except in case of
fraud, by the fact that any of the directors or officers of the company may be interested in or are directors or officers of such
other association or corporation; and that none of such contracts or transactions of this company with any person or persons,
firms, associations or corporations shall be affected by the fact that any director or officer of this company is a party to or has an
interest in such contract or transaction or has any connection with such person or persons, firms associations or corporations;
and that any and all persons who may become directors or officers of this company are hereby relieved of all responsibility
which they would otherwise incur by reason of any contract entered into which this company either for their own benefit, or for
the benefit of any person, firm, association or corporation in which they may be interested.

The impact of these provisions upon the traditional judiciary relationship between the directors and the stockholders of a
corporation is too obvious to escape notice by those who are called upon to protect the interest of investors. The directors and
officers of the company can do anything, short of actual fraud, with the affairs of the corporation even to benefit themselves
directly or other persons or entities in which they are interested, and with immunity because of the advance condonation or relief
from responsibility by reason of such acts. This and the other provision which authorizes the election of non-stockholders as
directors, completely disassociate the stockholders from the government and management of the business in which they have
invested.

To cap it all on April 17, 1957, admittedly to assure continuity of the management and stability of SAN JOSE PETROLEUM, OIL
INVESTMENTS, as holder of the only subscribed stock of the former corporation and acting "on behalf of all future holders of
voting trust certificates," entered into a voting trust agreement12 with James L. Buckley and Austin E. Taylor, whereby said
Trustees were given authority to vote the shares represented by the outstanding trust certificates (including those that may
henceforth be issued) in the following manner:

(a) At all elections of directors, the Trustees will designate a suitable proxy or proxies to vote for the election of directors
designated by the Trustees in their own discretion, having in mind the best interests of the holders of the voting trust
certificates, it being understood that any and all of the Trustees shall be eligible for election as directors;

(b) On any proposition for removal of a director, the Trustees shall designate a suitable proxy or proxies to vote for or
against such proposition as the Trustees in their own discretion may determine, having in mind the best interest of the
holders of the voting trust certificates;

(c) With respect to all other matters arising at any meeting of stockholders, the Trustees will instruct such proxy or
proxies attending such meetings to vote the shares of stock held by the Trustees in accordance with the written
instructions of each holder of voting trust certificates. (Emphasis supplied.)

It was also therein provided that the said Agreement shall be binding upon the parties thereto, their successors, and upon all
holders of voting trust certificates.

And these are the voting trust certificates that are offered to investors as authorized by Security and Exchange Commissioner. It
can not be doubted that the sale of respondent's securities would, to say the least, work or tend to work fraud to Philippine
investors.

FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this appeal, is denied and the orders of
the Securities and Exchange Commissioner, allowing the registration of Respondent's securities and licensing their sale in the
Philippines are hereby set aside. The case is remanded to the Securities and Exchange Commission for appropriate action in
consonance with this decision. With costs. Let a copy of this decision be furnished the Solicitor General for whatever action he
may deem advisable to take in the premises. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-27155 May 18, 1978

PHILIPPINE NATIONAL BANK, petitioner,

vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN GENERAL
INSURANCE COMPANY, INC., respondents.

Medina, Locsin, Corua, & Sumbillo for petitioner.

Manuel Lim & Associates for private respondents.

ANTONIO, J.:

Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of Manila in
Civil Case No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita Gueco Tapnio, as third-party plaintiff,
the sum of P2,379.71, plus 12% interest per annum from September 19, 1957 until the same is fully paid, P200.00 attorney's
fees and costs, the same amounts which Rita Gueco Tapnio was ordered to pay the Philippine American General Insurance Co.,
Inc., to be paid directly to the Philippine American General Insurance Co., Inc. in full satisfaction of the judgment rendered
against Rita Gueco Tapnio in favor of the former; plus P500.00 attorney's fees for Rita Gueco Tapnio and costs. The basic action
is the complaint filed by Philamgen (Philippine American General Insurance Co., Inc.) as surety against Rita Gueco Tapnio and
Cecilio Gueco, for the recovery of the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf of
respondents Tapnio and Gueco, pursuant to an indemnity agreement. Petitioner Bank was made third-party defendant by Tapnio
and Gueco on the theory that their failure to pay the debt was due to the fault or negligence of petitioner.

The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of Manila, are
quoted hereunder:

Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of the Philippine
National Bank Branch at San Fernando, Pampanga, to guarantee the payment of defendant Rita Gueco
Tapnio's account with said Bank. In turn, to guarantee the payment of whatever amount the bonding company
would pay to the Philippine National Bank, both defendants executed the indemnity agreement, Exh. B. Under
the terms and conditions of this indemnity agreement, whatever amount the plaintiff would pay would earn
interest at the rate of 12% per annum, plus attorney's fees in the amount of 15 % of the whole amount due in
case of court litigation.

The original amount of the bond was for P4,000.00; but the amount was later reduced to P2,000.00.

It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of P2,000.00, plus
accumulated interests unpaid, which she failed to pay despite demands. The Bank wrote a letter of demand to
plaintiff, as per Exh. C; whereupon, plaintiff paid the bank on September 18, 1957, the full amount due and
owing in the sum of P2,379.91, for and on account of defendant Rita Gueco's obligation (Exhs. D and D-1).

Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and F), but to no
avail.

Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand was made
upon her by plaintiff for her to pay her debt to the Bank, that she told the Plaintiff that she did not consider
herself to be indebted to the Bank at all because she had an agreement with one Jacobo-Nazon whereby she
had leased to the latter her unused export sugar quota for the 1956-1957 agricultural year, consisting of 1,000
piculs at the rate of P2.80 per picul, or for a total of P2,800.00, which was already in excess of her obligation
guaranteed by plaintiff's bond, Exh. A. This lease agreement, according to her, was with the knowledge of the
bank. But the Bank has placed obstacles to the consummation of the lease, and the delay caused by said
obstacles forced 'Nazon to rescind the lease contract. Thus, Rita Gueco Tapnio filed her third-party complaint
against the Bank to recover from the latter any and all sums of money which may be adjudged against her and
in favor of the plaitiff plus moral damages, attorney's fees and costs.

Insofar as the contentions of the parties herein are concerned, we quote with approval the following findings of
the lower court based on the evidence presented at the trial of the case:

It has been established during the trial that Mrs. Tapnio had an export sugar quota of 1,000
piculs for the agricultural year 1956-1957 which she did not need. She agreed to allow Mr.
Jacobo C. Tuazon to use said quota for the consideration of P2,500.00 (Exh. "4"-Gueco). This
agreement was called a contract of lease of sugar allotment.

At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National Bank at San
Fernando, Pampanga. Her indebtedness was known as a crop loan and was secured by a
mortgage on her standing crop including her sugar quota allocation for the agricultural year
corresponding to said standing crop. This arrangement was necessary in order that when Mrs.
Tapnio harvests, the P.N.B., having a lien on the crop, may effectively enforce collection
against her. Her sugar cannot be exported without sugar quota allotment Sometimes,
however, a planter harvest less sugar than her quota, so her excess quota is utilized by
another who pays her for its use. This is the arrangement entered into between Mrs. Tapnio
and Mr. Tuazon regarding the former's excess quota for 1956-1957 (Exh. "4"-Gueco).

Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by
said Bank, The same was submitted to the branch manager at San Fernando, Pampanga.
The latter required the parties to raise the consideration of P2.80 per picul or a total of
P2,800.00 (Exh. "2-Gueco") informing them that "the minimum lease rental acceptable to the
Bank, is P2.80 per picul." In a letter addressed to the branch manager on August 10, 1956,
Mr. Tuazon informed the manager that he was agreeable to raising the consideration to P2.80
per picul. He further informed the manager that he was ready to pay said amount as the funds
were in his folder which was kept in the bank.

Explaining the meaning of Tuazon's statement as to the funds, it was stated by him that he
had an approved loan from the bank but he had not yet utilized it as he was intending to use it
to pay for the quota. Hence, when he said the amount needed to pay Mrs. Tapnio was in his
folder which was in the bank, he meant and the manager understood and knew he had an
approved loan available to be used in payment of the quota. In said Exh. "6-Gueco", Tuazon
also informed the manager that he would want for a notice from the manager as to the time
when the bank needed the money so that Tuazon could sign the corresponding promissory
note.

Further Consideration of the evidence discloses that when the branch manager of the Philippine National Bank
at San Fernando recommended the approval of the contract of lease at the price of P2.80 per picul (Exh. 1 1-
Bank), whose recommendation was concurred in by the Vice-president of said Bank, J. V. Buenaventura, the
board of directors required that the amount be raised to 13.00 per picul. This act of the board of directors was
communicated to Tuazon, who in turn asked for a reconsideration thereof. On November 19, 1956, the branch
manager submitted Tuazon's request for reconsideration to the board of directors with another
recommendation for the approval of the lease at P2.80 per picul, but the board returned the recommendation
unacted upon, considering that the current price prevailing at the time was P3.00 per picul (Exh. 9-Bank).

The parties were notified of the refusal on the part of the board of directors of the Bank to grant the motion for
reconsideration. The matter stood as it was until February 22, 1957, when Tuazon wrote a letter (Exh. 10-Bank
informing the Bank that he was no longer interested to continue the deal, referring to the lease of sugar quota
allotment in favor of defendant Rita Gueco Tapnio. The result is that the latter lost the sum of P2,800.00 which
she should have received from Tuazon and which she could have paid the Bank to cancel off her indebtedness,

The court below held, and in this holding we concur that failure of the negotiation for the lease of the sugar
quota allocation of Rita Gueco Tapnio to Tuazon was due to the fault of the directors of the Philippine National
Bank, The refusal on the part of the bank to approve the lease at the rate of P2.80 per picul which, as stated
above, would have enabled Rita Gueco Tapnio to realize the amount of P2,800.00 which was more than
 sufficient to pay off her indebtedness to the Bank, and its insistence on the rental price of P3.00 per picul thus
unnecessarily increasing the value by only a difference of P200.00. inevitably brought about the rescission of
the lease contract to the damage and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00. The
unreasonableness of the position adopted by the board of directors of the Philippine National Bank in refusing
to approve the lease at the rate of P2.80 per picul and insisting on the rate of P3.00 per picul, if only to increase
the retail value by only P200.00 is shown by the fact that all the accounts of Rita Gueco Tapnio with the Bank
were secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on her
properties, and surety bonds, aside from the fact that from Exh. 8-Bank, it appears that she was offering to
execute a real estate mortgage in favor of the Bank to replace the surety bond This statement is further
bolstered by the fact that Rita Gueco Tapnio apparently had the means to pay her obligation fact that she has
been granted several value of almost P80,000.00 for the agricultural years from 1952 to 56. 1

Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the present petition.

The petitioner contends that the Court of Appeals erred:

(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita Gueco
Tapnio by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease contract, and its unreasonable
insistence on the rental price of P3.00 instead of P2.80 per picul; and

(2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the petitioner, the
latter's Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota leased by respondent Rita
Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.

Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and under the
Corporation Law, to safeguard and protect its rights and interests under the deed of assignment, which include the right to
approve or disapprove the said lease of sugar quota and in the exercise of that authority, its

Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar quota subject of the lease
between private respondents and Jacobo C. Tuazon. It argued further that both under its Charter and the Corporation Law,
petitioner, acting thru its Board of Directors, has the perfect right to adopt a policy with respect to fixing of rental prices of export
sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did not act arbitrarily since the said Board was guided by
statistics of sugar price and prices of sugar quotas prevailing at the time. Since the fixing of the rental of the sugar quota is a
function lodged with petitioner's Board of Directors and is a matter of policy, the respondent Court of Appeals could not substitute
its own judgment for that of said Board of Directors, which acted in good faith, making as its basis therefore the prevailing
market price as shown by statistics which were then in their possession.

Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a creditor, it shall be
deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be required to return to respondent
Philamgen the sum of P2,379.71, plus interest, which amount had been previously paid to petitioner by said insurance company
in behalf of the principal debtor, herein respondent Rita Gueco Tapnio, and without recourse against respondent Rita Gueco
Tapnio.

We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to reviewing only errors
of law, accepting as conclusive the factual fin dings of the Court of Appeals upon its own assessment of the evidence. 2

The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon was
executed on April 17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank at San
Fernando, Pampanga. This arrangement was necessary because Tapnio's indebtedness to petitioner was secured by a
mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to said standing crop.
The latter required the parties to raise the consideration to P2.80 per picul, the minimum lease rental acceptable to the Bank, or
a total of P2,800.00. Tuazon informed the Branch Manager, thru a letter dated August 10, 1956, that he was agreeable to raising
the consideration to P2.80 per picul. He further informed the manager that he was ready to pay the said sum of P2,800.00 as the
funds were in his folder which was kept in the said Bank. This referred to the approved loan of Tuazon from the Bank which he
intended to use in paying for the use of the sugar quota. The Branch Manager submitted the contract of lease of sugar quota
allocation to the Head Office on September 7, 1956, with a recommendation for approval, which recommendation was concurred
in by the Vice-President of the Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of Directors of petitioner required
that the consideration be raised to P3.00 per picul.
Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On November 19, 1956,
the Branch Manager submitted the request for reconsideration and again recommended the approval of the lease at P2.80 per
picul, but the Board returned the recommendation unacted, stating that the current price prevailing at that time was P3.00 per
picul.

On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the lease of
sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in her loss in
the sum of P2,800.00 which she should have received had the lease in favor of Tuazon been implemented.

It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration of the lease
from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the Branch Manager of the
Bank on August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per picul was acceptable to him and that
he even offered to use the loan secured by him from petitioner to pay in full the sum of P2,800.00 which was the total
consideration of the lease. This arrangement was not only satisfactory to the Branch Manager but it was also approves by Vice-
President J. V. Buenaventura of the PNB. Under that arrangement, Rita Gueco Tapnio could have realized the amount of
P2,800.00, which was more than enough to pay the balance of her indebtedness to the Bank which was secured by the bond of
Philamgen.

There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the disapproval of the
lease by the Board of Directors of petitioner. The issue, therefore, is whether or not petitioner is liable for the damage caused.

As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since the same must
be utilized during the milling season, because any allotment which is not filled during such milling season may be reallocated by
the Sugar Quota Administration to other holders of allotments. 3 There was no proof that there was any other person at that time
willing to lease the sugar quota allotment of private respondents for a price higher than P2.80 per picul. "The fact that there were
isolated transactions wherein the consideration for the lease was P3.00 a picul", according to the trial court, "does not
necessarily mean that there are always ready takers of said price. " The unreasonableness of the position adopted by the
petitioner's Board of Directors is shown by the fact that the difference between the amount of P2.80 per picul offered by Tuazon
and the P3.00 per picul demanded by the Board amounted only to a total sum of P200.00. Considering that all the accounts of
Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and
interests on her properties, and surety bonds and that she had apparently "the means to pay her obligation to the Bank, as
shown by the fact that she has been granted several sugar crop loans of the total value of almost P80,000.00 for the agricultural
years from 1952 to 1956", there was no reasonable basis for the Board of Directors of petitioner to have rejected the lease
agreement because of a measly sum of P200.00.

While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was mortgaged to
the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the interest of private
respondents, that degree of care, precaution and vigilance which the circumstances justly demand in approving or disapproving
the lease of said sugar quota. The law makes it imperative that 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, 4 This petitioner failed to
do. Certainly, it knew that the agricultural year was about to expire, that by its disapproval of the lease private respondents would
be unable to utilize the sugar quota in question. In failing to observe the reasonable degree of care and vigilance which the
surrounding circumstances reasonably impose, petitioner is consequently liable for the damages caused on private respondents.
Under Article 21 of the New Civil Code, "any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage." The afore-cited provisions on human
relations were intended to expand the concept of torts in this jurisdiction by granting adequate legal remedy for the untold
number of moral wrongs which is impossible for human foresight to specifically provide in the statutes. 5

A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules governing
the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a
natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that
a principal or master is liable for every tort which he expressly directs or authorizes, and this is just as true of a corporation as of
a natural person, A corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express
direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the governing
body." 6

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 15574 September 17, 1919

SMITH, BELL & COMPANY (LTD.), petitioner,

vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.

Ross and Lawrence for petitioner.

Attorney-General Paredes for respondent.

MALCOLM, J.:

A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad, Collector of Customs of the port of
Cebu, Philippine Islands, to compel him to issue a certificate of Philippine registry to the petitioner for its motor vessel Bato. The
Attorney-General, acting as counsel for respondent, demurs to the petition on the general ground that it does not state facts
sufficient to constitute a cause of action. While the facts are thus admitted, and while, moreover, the pertinent provisions of law
are clear and understandable, and interpretative American jurisprudence is found in abundance, yet the issue submitted is not
lightly to be resolved. The question, flatly presented, is, whether Act. No. 2761 of the Philippine Legislature is valid or, more
directly stated, whether the Government of the Philippine Islands, through its Legislature, can deny the registry of vessels in its
coastwise trade to corporations having alien stockholders.

FACTS.

Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A majority of its
stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for it in the Philippine Islands in 1916,
of more than fifteen tons gross The Bato was brought to Cebu in the present year for the purpose of transporting plaintiff's
merchandise between ports in the Islands. Application was made at Cebu, the home port of the vessel, to the Collector of
Customs for a certificate of Philippine registry. The Collector refused to issue the certificate, giving as his reason that all the
stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States or of the Philippine Islands. The instant
action is the result.

LAW.

The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but reenacting a portion of section 3 of this
Law, and still in force, provides in its section 1:

That until Congress shall have authorized the registry as vessels of the United States of vessels owned in the Philippine
Islands, the Government of the Philippine Islands is hereby authorized to adopt, from time to time, and enforce
regulations governing the transportation of merchandise and passengers between ports or places in the Philippine
Archipelago. (35 Stat. at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7 Pub. Laws, 364.)

The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force, provides in section 3, (first paragraph,
first sentence), 6, 7, 8, 10, and 31, as follows.

SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of life, liberty, or property without
due process of law, or deny to any person therein the equal protection of the laws. . . .

SEC. 6. That the laws now in force in the Philippines shall continue in force and effect, except as altered, amended, or
modified herein, until altered, amended, or repealed by the legislative authority herein provided or by Act of Congress of
the United States.

SEC. 7. That the legislative authority herein provided shall have power, when not inconsistent with this Act, by due
enactment to amend, alter modify, or repeal any law, civil or criminal, continued in force by this Act as it may from time
to time see fit
 This power shall specifically extend with the limitation herein provided as to the tariff to all laws relating to revenue
provided as to the tariff to all laws relating to revenue and taxation in effect in the Philippines.

SEC. 8. That general legislative power, except as otherwise herein provided, is hereby granted to the Philippine
Legislature, authorized by this Act.

SEC. 10. That while this Act provides that the Philippine government shall have the authority to enact a tariff law the
trade relations between the islands and the United States shall continue to be governed exclusively by laws of the
Congress of the United States: Provided, That tariff acts or acts amendatory to the tariff of the Philippine Islands shall
not become law until they shall receive the approval of the President of the United States, nor shall any act of the
Philippine Legislature affecting immigration or the currency or coinage laws of the Philippines become a law until it has
been approved by the President of the United States: Provided further, That the President shall approve or disapprove
any act mentioned in the foregoing proviso within six months from and after its enactment and submission for his
approval, and if not disapproved within such time it shall become a law the same as if it had been specifically approved.

SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with any of the provisions of this Act
are hereby continued in force and effect." (39 Stat at L., 546.)

On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of this law amended section 1172 of the
Administrative Code to read as follows:

SEC. 1172. Certificate of Philippine register. Upon registration of a vessel of domestic ownership, and of more than
fifteen tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of domestic ownership and of
fifteen tons gross or less, the taking of the certificate of Philippine register shall be optional with the owner.

"Domestic ownership," as used in this section, means ownership vested in some one or more of the following classes of
persons: (a) Citizens or native inhabitants of the Philippine Islands; (b) citizens of the United States residing in the
Philippine Islands; (c) any corporation or company composed wholly of citizens of the Philippine Islands or of the United
States or of both, created under the laws of the United States, or of any State thereof, or of thereof, or the managing
agent or master of the vessel resides in the Philippine Islands

Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and eighteen, had a certificate
of Philippine register under existing law, shall likewise be deemed a vessel of domestic ownership so long as there shall
not be any change in the ownership thereof nor any transfer of stock of the companies or corporations owning such
vessel to person not included under the last preceding paragraph.

Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative Code to read as follows:

SEC. 1176. Investigation into character of vessel. No application for a certificate of Philippine register shall be
approved until the collector of customs is satisfied from an inspection of the vessel that it is engaged or destined to be
engaged in legitimate trade and that it is of domestic ownership as such ownership is defined in section eleven hundred
and seventy-two of this Code.

The collector of customs may at any time inspect a vessel or examine its owner, master, crew, or passengers in order to
ascertain whether the vessel is engaged in legitimate trade and is entitled to have or retain the certificate of Philippine
register.

SEC. 1202. Limiting number of foreign officers and engineers on board vessels. No Philippine vessel operating in the
coastwise trade or on the high seas shall be permitted to have on board more than one master or one mate and one
engineer who are not citizens of the United States or of the Philippine Islands, even if they hold licenses under section
one thousand one hundred and ninety-nine hereof. No other person who is not a citizen of the United States or of the
Philippine Islands shall be an officer or a member of the crew of such vessel. Any such vessel which fails to comply with
the terms of this section shall be required to pay an additional tonnage tax of fifty centavos per net ton per month during
the continuance of said failure.

ISSUES.

Predicated on these facts and provisions of law, the issues as above stated recur, namely, whether Act No 2761 of the Philippine
Legislature is valid in whole or in part whether the Government of the Philippine Islands, through its Legislature, can deny the
registry of vessel in its coastwise trade to corporations having alien stockholders .
 OPINION.

1. Considered from a positive standpoint, there can exist no measure of doubt as to the power of the Philippine Legislature to
enact Act No. 2761. The Act of Congress of April 29, 1908, with its specific delegation of authority to the Government of the
Philippine Islands to regulate the transportation of merchandise and passengers between ports or places therein, the liberal
construction given to the provisions of the Philippine Bill, the Act of Congress of July 1, 1902, by the courts, and the grant by the
Act of Congress of August 29, 1916, of general legislative power to the Philippine Legislature, are certainly superabundant
authority for such a law. While the Act of the local legislature may in a way be inconsistent with the Act of Congress regulating
the coasting trade of the Continental United States, yet the general rule that only such laws of the United States have force in
the Philippines as are expressly extended thereto, and the abnegation of power by Congress in favor of the Philippine Islands
would leave no starting point for convincing argument. As a matter of fact, counsel for petitioner does not assail legislative action
from this direction (See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How., 227.)

2. It is from the negative, prohibitory standpoint that counsel argues against the constitutionality of Act No. 2761. The first
paragraph of the Philippine Bill of Rights of the Philippine Bill, repeated again in the first paragraph of the Philippine Bill of Rights
as set forth in the Jones Law, provides "That no law shall be enacted in said Islands which shall deprive any person of life,
liberty, or property without due process of law, or deny to any person therein the equal protection of the laws." Counsel says that
Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect, prohibits the corporation
from owning vessels, and because classification of corporations based on the citizenship of one or more of their stockholders is
capricious, and that Act No. 2761 deprives the corporation of its properly without due process of law because by the passage of
the law company was automatically deprived of every beneficial attribute of ownership in the Bato and left with the naked title to
a boat it could not use .

The guaranties extended by the Congress of the United States to the Philippine Islands have been used in the same sense as
like provisions found in the United States Constitution. While the "due process of law and equal protection of the laws" clause of
the Philippine Bill of Rights is couched in slightly different words than the corresponding clause of the Fourteenth Amendment to
the United States Constitution, the first should be interpreted and given the same force and effect as the latter. (Kepner vs. U.S.
[1904], 195 U. S., 100; Sierra vs. Mortiga [1907], 204 U. S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of the
Fourteenth Amendment has been announced in classic decisions of the United States Supreme Court. Even at the expense of
restating what is so well known, these basic principles must again be set down in order to serve as the basis of this decision.

The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights, are universal in their
application to all person within the territorial jurisdiction, without regard to any differences of race, color, or nationality. The word
"person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax vs. Raich [1915], 239 U. S., 33.) Private
corporations, likewise, are "persons" within the scope of the guaranties in so far as their property is concerned. (Santa Clara
County vs. Southern Pac. R. R. Co. [1886], 118.U. S., 394; Pembina Mining Co. vs. Pennsylvania [1888],.125 U. S., 181
Covington & L. Turnpike Road Co. vs. Sandford [1896], 164 U. S., 578.) Classification with the end in view of providing diversity
of treatment may be made among corporations, but must be based upon some reasonable ground and not be a mere arbitrary
selection (Gulf, Colorado & Santa Fe Railway Co. vs. Ellis [1897],.165 U. S., 150.) Examples of laws held unconstitutional
because of unlawful discrimination against aliens could be cited. Generally, these decisions relate to statutes which had
attempted arbitrarily to forbid aliens to engage in ordinary kinds of business to earn their living. (State vs.Montgomery [1900], 94
Maine, 192, peddling but see. Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of Examiners of Barbers
[1902], 131 Mich., 254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese; Truax vs. Raich
[1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs. McConway & Torley Co. [1897], 82 Fed , 257; Juniata
Limestone Co. vs. Fagley [1898], 187 Penn., 193, all relating to the employment of aliens by private corporations.)

A literal application of general principles to the facts before us would, of course, cause the inevitable deduction that Act No. 2761
is unconstitutional by reason of its denial to a corporation, some of whole members are foreigners, of the equal protection of the
laws. Like all beneficient propositions, deeper research discloses provisos. Examples of a denial of rights to aliens
notwithstanding the provisions of the Fourteenth Amendment could be cited. (Tragesser vs. Gray [1890], 73 Md., 250, licenses
to sell spirituous liquors denied to persons not citizens of the United States; Commonwealth vs. Hana [1907], 195 Mass , 262,
excluding aliens from the right to peddle; Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S. , 138, prohibiting the
killing of any wild bird or animal by any unnaturalized foreign-born resident; Ex parte Gilleti [1915], 70 Fla., 442, discriminating in
favor of citizens with reference to the taking for private use of the common property in fish and oysters found in the public waters
of the State; Heim vs. McCall [1915], 239 U. S.,.175, and Crane vs. New York [1915], 239 U. S., 195, limiting employment on
public works by, or for, the State or a municipality to citizens of the United States.)
One of the exceptions to the general rule, most persistent and far reaching in influence is, that neither the Fourteenth
Amendment to the United States Constitution, broad and comprehensive as it is, nor any other amendment, "was designed to
interfere with the power of the State, sometimes termed its `police power,' to prescribe regulations to promote the health, peace,
morals, education, and good order of the people, and legislate so as to increase the industries of the State, develop its
resources and add to its wealth and prosperity. From the very necessities of society, legislation of a special character, having
these objects in view, must often be had in certain districts." (Barbier vs. Connolly [1884], 113 U.S., 27; New Orleans Gas
Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is the same police power which the United States Supreme Court say
"extends to so dealing with the conditions which exist in the state as to bring out of them the greatest welfare in of its people."
(Bacon vs.Walker [1907], 204 U.S., 311.) For quite similar reasons, none of the provision of the Philippine Organic Law could
could have had the effect of denying to the Government of the Philippine Islands, acting through its Legislature, the right to
exercise that most essential, insistent, and illimitable of powers, the sovereign police power, in the promotion of the general
welfare and the public interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and Taitvs. Rafferty [1915], 32 Phil., 580;
Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) Another notable exception permits of the regulation or distribution of
the public domain or the common property or resources of the people of the State, so that use may be limited to its citizens. (Ex
parte Gilleti [1915], 70 Fla., 442; McCready vs.Virginia [1876], 94 U. S., 391; Patsone vs. Commonwealth of Pennsylvania
[1914], 232U. S., 138.) Still another exception permits of the limitation of employment in the construction of public works by, or
for, the State or a municipality to citizens of the United States or of the State. (Atkin vs. Kansas [1903],191 U. S., 207;
Heim vs.McCall [1915], 239 U.S., 175; Crane vs. New York [1915], 239 U. S., 195.) Even as to classification, it is admitted that a
State may classify with reference to the evil to be prevented; the question is a practical one, dependent upon experience.
(Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S., 138.)

To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of Philippine registry only
on condition that they be composed wholly of citizens of the Philippine Islands or of the United States or both, as not infringing
Philippine Organic Law, it must be done under some one of the exceptions here mentioned This must be done, moreover,
having particularly in mind what is so often of controlling effect in this jurisdiction our local experience and our peculiar local
conditions.

To recall a few facts in geography, within the confines of Philippine jurisdictional limits are found more than three thousand
islands. Literally, and absolutely, steamship lines are, for an Insular territory thus situated, the arteries of commerce. If one be
severed, the life-blood of the nation is lost. If on the other hand these arteries are protected, then the security of the country and
the promotion of the general welfare is sustained. Time and again, with such conditions confronting it, has the executive branch
of the Government of the Philippine Islands, always later with the sanction of the judicial branch, taken a firm stand with
reference to the presence of undesirable foreigners. The Government has thus assumed to act for the all-sufficient and primitive
reason of the benefit and protection of its own citizens and of the self-preservation and integrity of its dominion. (In re Patterson
[1902], 1 Phil., 93; Forbes vs. Chuoco, Tiaco and Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch Dick [1918], 38
Phil., 41.) Boats owned by foreigners, particularly by such solid and reputable firms as the instant claimant, might indeed
traverse the waters of the Philippines for ages without doing any particular harm. Again, some evilminded foreigner might very
easily take advantage of such lavish hospitality to chart Philippine waters, to obtain valuable information for unfriendly foreign
powers, to stir up insurrection, or to prejudice Filipino or American commerce. Moreover, under the Spanish portion of Philippine
law, the waters within the domestic jurisdiction are deemed part of the national domain, open to public use. (Book II, Tit. IV, Ch. I,
Civil Code; Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.) Common carriers which in the Philippines as in the United
States and other countries are, as Lord Hale said, "affected with a public interest," can only be permitted to use these public
waters as a privilege and under such conditions as to the representatives of the people may seem wise. (See De
Villata vs. Stanley [1915], 32 Phil., 541.)

In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein before mentioned, Justice Holmes
delivering the opinion of the United States Supreme Court said:

This statute makes it unlawful for any unnaturalized foreign-born resident to kill any wild bird or animal except in
defense of person or property, and `to that end' makes it unlawful for such foreign-born person to own or be possessed
of a shotgun or rifle; with a penalty of $25 and a forfeiture of the gun or guns. The plaintiff in error was found guilty and
was sentenced to pay the abovementioned fine. The judgment was affirmed on successive appeals. (231 Pa., 46; 79
Atl., 928.) He brings the case to this court on the ground that the statute is contrary to the 14th Amendment and also is
in contravention of the treaty between the United States and Italy, to which latter country the plaintiff in error belongs .

Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien of property, and discrimination
against such aliens as a class. But the former really depends upon the latter, since it hardly can be disputed that if the
 lawful object, the protection of wild life (Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793; 16 Sup. Ct. Rep., 600),
warrants the discrimination, the, means adopted for making it effective also might be adopted. . . .

The discrimination undoubtedly presents a more difficult question. But we start with reference to the evil to be
prevented, and that if the class discriminated against is or reasonably might be considered to define those from whom
the evil mainly is to be feared, it properly may be picked out. A lack of abstract symmetry does not matter. The question
is a practical one, dependent upon experience. . . .

The question therefore narrows itself to whether this court can say that the legislature of Pennsylvania was not
warranted in assuming as its premise for the law that resident unnaturalized aliens were the peculiar source of the evil
that it desired to prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33 Sup. Ct. Rep., 692.)

Obviously the question, so stated, is one of local experience, on which this court ought to be very slow to declare that
the state legislature was wrong in its facts (Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L. ed., 971,.977; 33 Sup. Ct.
Rep., 610.) If we might trust popular speech in some states it was right; but it is enough that this court has no such
knowledge of local conditions as to be able to say that it was manifestly wrong. . . .

Judgment affirmed.

We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders, is entitled to the protection
afforded by the due-process of law and equal protection of the laws clause of the Philippine Bill of Rights, nevertheless, Act No.
2761 of the Philippine Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the right to register vessels in the
Philippines coastwise trade, does not belong to that vicious species of class legislation which must always be condemned, but
does fall within authorized exceptions, notably, within the purview of the police power, and so does not offend against the
constitutional provision.

This opinion might well be brought to a close at this point. It occurs to us, however, that the legislative history of the United
States and the Philippine Islands, and, probably, the legislative history of other countries, if we were to take the time to search it
out, might disclose similar attempts at restriction on the right to enter the coastwise trade, and might thus furnish valuable aid by
which to ascertain and, if possible, effectuate legislative intention.

3. The power to regulate commerce, expressly delegated to the Congress by the Constitution, includes the power to
nationalize ships built and owned in the United States by registries and enrollments, and the recording of the muniments
of title of American vessels. The Congress "may encourage or it may entirely prohibit such commerce, and it may
regulate in any way it may see fit between these two extremes." (U.S. vs.Craig [1886], 28 Fed., 795; Gibbons vs. Ogden
[1824], 9 Wheat., 1; The Passenger Cases [1849], 7 How., 283.)

Acting within the purview of such power, the first Congress of the United States had not been long convened before it enacted
on September 1, 1789, "An Act for Registering and Clearing Vessels, Regulating the Coasting Trade, and for other purposes."
Section 1 of this law provided that for any ship or vessel to obtain the benefits of American registry, it must belong wholly to a
citizen or citizens of the United States "and no other." (1 Stat. at L., 55.) That Act was shortly after repealed, but the same idea
was carried into the Acts of Congress of December 31, 1792 and February 18, 1793. (1 Stat. at L., 287, 305.).Section 4 of the
Act of 1792 provided that in order to obtain the registry of any vessel, an oath shall be taken and subscribed by the owner, or by
one of the owners thereof, before the officer authorized to make such registry, declaring, "that there is no subject or citizen of
any foreign prince or state, directly or indirectly, by way of trust, confidence, or otherwise, interested in such vessel, or in the
profits or issues thereof." Section 32 of the Act of 1793 even went so far as to say "that if any licensed ship or vessel shall be
transferred to any person who is not at the time of such transfer a citizen of and resident within the United States, ... every such
vessel with her tackle, apparel, and furniture, and the cargo found on board her, shall be forefeited." In case of alienation to a
foreigner, Chief Justice Marshall said that all the privileges of an American bottom were ipso facto forfeited. (U.S. vs. Willings
and Francis [1807], 4 Cranch, 48.) Even as late as 1873, the Attorney-General of the United States was of the opinion that under
the provisions of the Act of December 31, 1792, no vessel in which a foreigner is directly or indirectly interested can lawfully be
registered as a vessel of the United. States. (14 Op. Atty.-Gen. [U.S.], 340.)

These laws continued in force without contest, although possibly the Act of March 3, 1825, may have affected them, until
amended by the Act of May 28, 1896 (29 Stat. at L., 188) which extended the privileges of registry from vessels wholly owned by
a citizen or citizens of the United States to corporations created under the laws of any of the states thereof. The law, as
amended, made possible the deduction that a vessel belonging to a domestic corporation was entitled to registry or enrollment
even though some stock of the company be owned by aliens. The right of ownership of stock in a corporation was thereafter
distinct from the right to hold the property by the corporation (Humphreys vs. McKissock [1890], 140 U.S., 304;
Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.)

On American occupation of the Philippines, the new government found a substantive law in operation in the Islands with a civil
law history which it wisely continued in force Article fifteen of the Spanish Code of Commerce permitted any foreigner to engage
in Philippine trade if he had legal capacity to do so under the laws of his nation. When the Philippine Commission came to enact
the Customs Administrative Act (No. 355) in 1902, it returned to the old American policy of limiting the protection and flag of the
United States to vessels owned by citizens of the United States or by native inhabitants of the Philippine Islands (Sec. 117.) Two
years later, the same body reverted to the existing Congressional law by permitting certification to be issued to a citizen of the
United States or to a corporation or company created under the laws of the United States or of any state thereof or of the
Philippine Islands (Act No. 1235, sec. 3.) The two administration codes repeated the same provisions with the necessary
amplification of inclusion of citizens or native inhabitants of the Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of
1917, sec. 1172). And now Act No. 2761 has returned to the restrictive idea of the original Customs Administrative Act which in
turn was merely a reflection of the statutory language of the first American Congress.

Provisions such as those in Act No. 2761, which deny to foreigners the right to a certificate of Philippine registry, are thus found
not to be as radical as a first reading would make them appear.

Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an anti-alien shipping act. The
ultimate purpose of the Legislature is to encourage Philippine ship-building. This, without doubt, has, likewise, been the intention
of the United States Congress in passing navigation or tariff laws on different occasions. The object of such a law, the United
States Supreme Court once said, was to encourage American trade, navigation, and ship-building by giving American ship-
owners exclusive privileges. (Old Dominion Steamship Co. vs. Virginia [1905], 198 U.S., 299; Kent's Commentaries, Vol. 3, p.
139.)

In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat., 1) is found the following:

Licensing acts, in fact, in legislation, are universally restraining acts; as, for example, acts licensing gaming houses,
retailers of spirituous liquors, etc. The act, in this instance, is distinctly of that character, and forms part of an extensive
system, the object of which is to encourage American shipping, and place them on an equal footing with the shipping of
other nations. Almost every commercial nation reserves to its own subjects a monopoly of its coasting trade; and a
countervailing privilege in favor of American shipping is contemplated, in the whole legislation of the United States on
this subject. It is not to give the vessel an American character, that the license is granted; that effect has been correctly
attributed to the act of her enrollment. But it is to confer on her American privileges, as contradistinguished from foreign;
and to preserve the. Government from fraud by foreigners, in surreptitiously intruding themselves into the American
commercial marine, as well as frauds upon the revenue in the trade coastwise, that this whole system is projected.

The United States Congress in assuming its grave responsibility of legislating wisely for a new country did so imbued with a
spirit of Americanism. Domestic navigation and trade, it decreed, could only be carried on by citizens of the United States. If the
representatives of the American people acted in this patriotic manner to advance the national policy, and if their action was
accepted without protest in the courts, who can say that they did not enact such beneficial laws under the all-pervading police
power, with the prime motive of safeguarding the country and of promoting its prosperity? Quite similarly, the Philippine
Legislature made up entirely of Filipinos, representing the mandate of the Filipino people and the guardian of their rights, acting
under practically autonomous powers, and imbued with a strong sense of Philippinism, has desired for these Islands safety from
foreign interlopers, the use of the common property exclusively by its citizens and the citizens of the United States, and
protection for the common good of the people. Who can say, therefore, especially can a court, that with all the facts and
circumstances affecting the Filipino people before it, the Philippine Legislature has erred in the enactment of Act No. 2761?

Surely, the members of the judiciary are not expected to live apart from active life, in monastic seclusion amidst dusty tomes and
ancient records, but, as keen spectators of passing events and alive to the dictates of the general the national welfare, can
incline the scales of their decisions in favor of that solution which will most effectively promote the public policy. All the
presumption is in favor of the constitutionally of the law and without good and strong reasons, courts should not attempt to nullify
the action of the Legislature. "In construing a statute enacted by the Philippine Commission (Legislature), we deem it our duty
not to give it a construction which would be repugnant to an Act of Congress, if the language of the statute is fairly susceptible of
another construction not in conflict with the higher law." (In re Guaria [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.)
That is the true construction which will best carry legislative intention into effect.

With full consciousness of the importance of the question, we nevertheless are clearly of the opinion that the limitation of
domestic ownership for purposes of obtaining a certificate of Philippine registry in the coastwise trade to citizens of the
Philippine Islands, and to citizens of the United States, does not violate the provisions of paragraph 1 of section 3 of the Act of
Congress of August 29, 1916 No treaty right relied upon Act No. 2761 of the Philippine Legislature is held valid and constitutional
.

The petition for a writ of mandamus is denied, with costs against the petitioner. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 93695 February 4, 1992

RAMON C. LEE and ANTONIO DM. LACDAO, petitioners,

vs.
THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS
GONZALES, respondents.

Cayanga, Zuniga & Angel Law Offices for petitioners.

Timbol & Associates for private respondents.

GUTIERREZ, JR., J.:

What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of the
corporation under the terms of the voting trust agreement? How long can a voting trust agreement remain valid and effective?
Did a director of the corporation cease to be such upon the creation of the voting trust agreement? These are the questions the
answers to which are necessary in resolving the principal issue in this petition for certiorari whether or not there was proper
service of summons on Alfa Integrated Textile Mills (ALFA, for short) through the petitioners as president and vice-president,
allegedly, of the subject corporation after the execution of a voting trust agreement between ALFA and the Development Bank of
the Philippines (DBP, for short).

From the records of the instant case, the following antecedent facts appear:

On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private
respondents who, in turn, filed a third party complaint against ALFA and the petitioners on March 17, 1986.

On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which the Regional Trial Court of
Makati, Branch 58 denied in an Order dated June 27, 1988.

On July 18, 1988, the petitioners filed their answer to the third party complaint.

Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of an alias summons upon ALFA through the
DBP as a consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously served upon
them considering that the management of ALFA had been transferred to the DBP.

In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive summons on behalf of ALFA since
the DBP had not taken over the company which has a separate and distinct corporate personality and existence.

On August 4, 1988, the trial court issued an order advising the private respondents to take the appropriate steps to serve the
summons to ALFA.

On August 16, 1988, the private respondents filed a Manifestation and Motion for the Declaration of Proper Service of Summons
which the trial court granted on August 17, 1988.

On September 12, 1988, the petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the Revised
Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents should have availed
of another mode of service under Rule 14, Section 16 of the said Rules, i.e.,through publication to effect proper service upon
ALFA.
In their Comment to the Motion for Reconsideration dated September 27, 1988, the private respondents argued that the voting
trust agreement dated March 11, 1981 did not divest the petitioners of their positions as president and executive vice-president
of ALFA so that service of summons upon ALFA through the petitioners as corporate officers was proper.

On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA through the petitioners, thus, denying
the latter's motion for reconsideration and requiring ALFA to filed its answer through the petitioners as its corporate officers.

On January 19, 1989, a second motion for reconsideration was filed by the petitioners reiterating their stand that by virtue of the
voting trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer receive summons or any
court processes for or on behalf of ALFA. In support of their second motion for reconsideration, the petitioners attached thereto a
copy of the voting trust agreement between all the stockholders of ALFA (the petitioners included), on the one hand, and the
DBP, on the other hand, whereby the management and control of ALFA became vested upon the DBP.

On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated January 2, 1989 and declared that
service upon the petitioners who were no longer corporate officers of ALFA cannot be considered as proper service of summons
on ALFA.

On May 15, 1989, the private respondents moved for a reconsideration of the above Order which was affirmed by the court in its
Order dated August 14, 1989 denying the private respondent's motion for reconsideration.

On September 18, 1989, a petition for certiorari was belatedly submitted by the private respondent before the public respondent
which, nonetheless, resolved to give due course thereto on September 21, 1989.

On October 17, 1989, the trial court, not having been notified of the pending petition for certiorari with public respondent issued
an Order declaring as final the Order dated April 25, 1989. The private respondents in the said Order were required to take
positive steps in prosecuting the third party complaint in order that the court would not be constrained to dismiss the same for
failure to prosecute. Subsequently, on October 25, 1989 the private respondents filed a motion for reconsideration on which the
trial court took no further action.

On March 19, 1990, after the petitioners filed their answer to the private respondents' petition for certiorari, the public respondent
rendered its decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, 1989 and August 14,
1989 are hereby SET ASIDE and respondent corporation is ordered to file its answer within the reglementary
period. (CA Decision, p. 8; Rollo, p. 24)

On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public respondent which resolved to deny
the same on May 10, 1990. Hence, the petitioners filed this certiorari petition imputing grave abuse of discretion amounting to
lack of jurisdiction on the part of the public respondent in reversing the questioned Orders dated April 25, 1989 and August 14,
1989 of the court a quo, thus, holding that there was proper service of summons on ALFA through the petitioners.

In the meantime, the public respondent inadvertently made an entry of judgment on July 16, 1990 erroneously applying the rule
that the period during which a motion for reconsideration has been pending must be deducted from the 15-day period to appeal.
However, in its Resolution dated January 3, 1991, the public respondent set aside the aforestated entry of judgment after further
considering that the rule it relied on applies to appeals from decisions of the Regional Trial Courts to the Court of Appeals, not to
appeals from its decision to us pursuant to our ruling in the case of Refractories Corporation of the Philippines v. Intermediate
Appellate Court, 176 SCRA 539 [1989]. (CA Rollo, pp. 249-250)

In their memorandum, the petitioners present the following arguments, to wit:

(1) that the execution of the voting trust agreement by a stockholders whereby all his shares to the corporation
have been transferred to the trustee deprives the stockholders of his position as director of the corporation; to
rule otherwise, as the respondent Court of Appeals did, would be violative of section 23 of the Corporation
Code ( Rollo, pp. 270-3273); and

(2) that the petitioners were no longer acting or holding any of the positions provided under Rule 14, Section 13
of the Rules of Court authorized to receive service of summons for and in behalf of the private domestic
corporation so that the service of summons on ALFA effected through the petitioners is not valid and ineffective;
to maintain the respondent Court of Appeals' position that ALFA was properly served its summons through the
 petitioners would be contrary to the general principle that a corporation can only be bound by such acts which
are within the scope of its officers' or agents' authority (Rollo, pp. 273-275)

In resolving the issue of the propriety of the service of summons in the instant case, we dwell first on the nature of a voting trust
agreement and the consequent effects upon its creation in the light of the provisions of the Corporation Code.

A voting trust is defined in Ballentine's Law Dictionary as follows:

(a) trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a
group of identical agreements between individual stockholders and a common trustee, whereby it is provided
that for a term of years, or for a period contingent upon a certain event, or until the agreement is terminated,
control over the stock owned by such stockholders, either for certain purposes or for all purposes, is to be
lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the
power to direct how such control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19 Am J 2d Corp. sec. 685).

Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definitive meaning
may be gathered. The said provision partly reads:

Sec. 59. Voting Trusts One or more stockholders of a stock corporation may create a voting trust for the
purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a
period rights pertaining to the shares for a period not exceeding five (5) years at any one time: Provided, that in
the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a
period exceeding (5) years but shall automatically expire upon full payment of the loan. A voting trust
agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy
of such agreement shall be filed with the corporation and with the Securities and Exchange Commission;
otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by
the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or
trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be
noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement.

By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights
such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the
assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However,
in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria
or tests, namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting
rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting
rights is to acquire voting control of the corporation. (5 Fletcher, Cyclopedia of the Law on Private Corporations, section 2075
[1976] p. 331citing Tankersly v. Albright, 374 F. Supp. 538)

Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a trustee not only the stockholder's
voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered "for the purpose of
circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud." (section
59, 5th paragraph of the Corporation Code) Thus, the traditional concept of a voting trust agreement primarily intended to single
out a stockholder's right to vote from his other rights as such and made irrevocable for a limited duration may in practice become
a legal device whereby a transfer of the stockholder's shares is effected subject to the specific provision of the voting trust
agreement.

The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of
the corporate shares of a stockholders, on the one hand, and the legal title thereto on the other hand.

The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a
corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said
shares for a period not exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions
specified in the agreement. The five year-period may be extended in cases where the voting trust is executed pursuant to a loan
agreement whereby the period is made contingent upon full payment of the loan.

In the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. The petitioners
maintain that with the execution of the voting trust agreement between them and the other stockholders of ALFA, as one party,
and the DBP, as the other party, the former assigned and transferred all their shares in ALFA to DBP, as trustee. They argue that
by virtue to of the voting trust agreement the petitioners can no longer be considered directors of ALFA. In support of their
contention, the petitioners invoke section 23 of the Corporation Code which provides, in part, that:

Every director must own at least one (1) share of the capital stock of the corporation of which he is a director
which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner
of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to
be director . . . (Rollo, p. 270)

The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the DBP had all the more
safeguarded the petitioners' continuance as officers and directors of ALFA inasmuch as the general object of voting trust is to
insure permanency of the tenure of the directors of a corporation. They cited the commentaries by Prof. Aguedo Agbayani on the
right and status of the transferring stockholders, to wit:

The "transferring stockholder", also called the "depositing stockholder", is equitable owner for the stocks
represented by the voting trust certificates and the stock reversible on termination of the trust by surrender. It is
said that the voting trust agreement does not destroy the status of the transferring stockholders as such, and
thus render them ineligible as directors. But a more accurate statement seems to be that for some purposes
the depositing stockholder holding voting trust certificates in lieu of his stock and being the beneficial owner
thereof, remains and is treated as a stockholder. It seems to be deducible from the case that he may sue as a
stockholder if the suit is in equity or is of an equitable nature, such as, a technical stockholders' suit in right of
the corporation. [Commercial Laws of the Philippines by Agbayani, Vol. 3 pp. 492-493, citing 5 Fletcher 326,
327] (Rollo, p. 291)

We find the petitioners' position meritorious.

Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting trust
agreement on the status of a stockholder who is a party to its execution from legal titleholder or owner of the shares subject
of the voting trust agreement, he becomes the equitable or beneficial owner. (Salonga,Philippine Law on Private Corporations,
1958 ed., p. 268; Pineda and Carlos, The Law on Private Corporations and Corporate Practice, 1969 ed., p. 175; Campos and
Lopez-Campos, The Corporation Code; Comments, Notes & Selected Cases, 1981, ed., p. 386; Agbayani, Commentaries and
Jurisprudence on the Commercial Laws of the Philippines, Vol. 3, 1988 ed., p. 536). The penultimate question, therefore, is
whether the change in his status deprives the stockholder of the right to qualify as a director under section 23 of the present
Corporation Code which deletes the phrase "in his own right." Section 30 of the old Code states that:

Every director must own in his own right at least one share of the capital stock of the stock corporation of which
he is a director, which stock shall stand in his name on the books of the corporation. A director who ceases to
be the owner of at least one share of the capital stock of a stock corporation of which is a director shall thereby
cease to be a director . . . (Emphasis supplied)

Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of
such director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of
the shares subject of the voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the trustee is
required (section 36 of the old Corporation Code). No disqualification arises by virtue of the phrase "in his own right" provided
under the old Corporation Code.

With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not beneficial owners
of the shares registered in their names on the books of the corporation becomes formally legalized (see Campos and Lopez-
Campos, supra, p. 296) Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title
to, not beneficial ownership of, the stock as appearing on the books of the corporation (2 Fletcher, Cyclopedia of the Law of
Private Corporations, section 300, p. 92 [1969]citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051).

The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed of all their
shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one
share standing in their names on the books of ALFA as required under Section 23 of the new Corporation Code. They also
ceased to have anything to do with the management of the enterprise. The petitioners ceased to be directors. Hence, the
transfer of the petitioners' shares to the DBP created vacancies in their respective positions as directors of ALFA. The transfer of
shares from the stockholder of ALFA to the DBP is the essence of the subject voting trust agreement as evident from the
following stipulations:
 1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the stocks
owned by them respectively and shall do all things necessary for the transfer of their respective shares to the
TRUSTEE on the books of ALFA.

2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares transferred,
which shall be transferrable in the same manner and with the same effect as certificates of stock subject to the
provisions of this agreement;

3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special, upon any
resolution, matter or business that may be submitted to any such meeting, and shall possess in that respect
the same powers as owners of the equitable as well as the legal title to the stock;

4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of qualifying
such person as director of ALFA, and cause a certificate of stock evidencing the share so transferred to be
issued in the name of such person;

xxx xxx xxx

9. Any stockholder not entering into this agreement may transfer his shares to the same trustees without the
need of revising this agreement, and this agreement shall have the same force and effect upon that said
stockholder. (CA Rollo, pp. 137-138; Emphasis supplied)

Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stock covered by the
agreement to the DBP as trustee, the latter became the stockholder of record with respect to the said shares of stocks. In the
absence of a showing that the DBP had caused to be transferred in their names one share of stock for the purpose of qualifying
as directors of ALFA, the petitioners can no longer be deemed to have retained their status as officers of ALFA which was the
case before the execution of the subject voting trust agreement. There appears to be no dispute from the records that DBP has
taken over full control and management of the firm.

Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A. Guevarra, Vice-President of its
Special Accounts Department II, Remedial Management Group, the petitioners were no longer included in the list of officers of
ALFA "as of April 1982." (CA Rollo, pp. 140-142)

Inasmuch as the private respondents in this case failed to substantiate their claim that the subject voting trust agreement did not
deprive the petitioners of their position as directors of ALFA, the public respondent committed a reversible error when it ruled
that:

. . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be president and vice-
president, respectively, of the corporation at the time of service of summons on them on August 21, 1987, they
were at least up to that time, still directors . . .

The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No. 4 of the subject voting trust
agreement. Both parties, ALFA and the DBP, were aware at the time of the execution of the agreement that by virtue of the
transfer of shares of ALFA to the DBP, all the directors of ALFA were stripped of their positions as such.

There can be no reliance on the inference that the five-year period of the voting trust agreement in question had lapsed in 1986
so that the legal title to the stocks covered by the said voting trust agreement ipso facto reverted to the petitioners as beneficial
owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads:

Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of
the agreed period, and the voting trust certificate as well as the certificates of stock in the name of the trustee
or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of
the transferors.

On the contrary, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration
of the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. This is shown by the following
portions of the agreement.

WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first mortgage on the
manufacturing plant of said company;
 WHEREAS, ALFA is also indebted to other creditors for various financial accomodations and because of the
burden of these obligations is encountering very serious difficulties in continuing with its operations.

WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA had offered and the
TRUSTEE has accepted participation in the management and control of the company and to assure the
aforesaid participation by the TRUSTEE, the TRUSTORS have agreed to execute a voting trust covering their
shareholding in ALFA in favor of the TRUSTEE;

AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned.

NOW, THEREFORE, it is hereby agreed as follows:

xxx xxx xxx

6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the obligations of
ALFA with DBP, or any portion thereof, remains outstanding; (CA Rollo, pp. 137-138)

Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have transferred all its rights, titles
and interests in ALFA "effective June 30, 1986" to the national government through the Asset Privatization Trust (APT) as
attested to in a Certification dated January 24, 1989 of the Vice President of the DBP's Special Accounts Department II. In the
same certification, it is stated that the DBP, from 1987 until 1989, had handled APT's account which included ALFA's assets
pursuant to a management agreement by and between the DBP and APT (CA Rollo, p. 142) Hence, there is evidence on record
that at the time of the service of summons on ALFA through the petitioners on August 21, 1987, the voting trust agreement in
question was not yet terminated so that the legal title to the stocks of ALFA, then, still belonged to the DBP.

In view of the foregoing, the ultimate issue of whether or not there was proper service of summons on ALFA through the
petitioners is readily answered in the negative.

Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:

Sec. 13. Service upon private domestic corporation or partnership. If the defendant is a corporation
organized under the laws of the Philippines or a partnership duly registered, service may be made on the
president, manager, secretary, cashier, agent or any of its directors.

It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members
who compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v. Department of Labor and
Employment, et al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on service of processes of a corporation
enumerates the representatives of a corporation who can validly receive court processes on its behalf. Not every stockholder or
officer can bind the corporation considering the existence of a corporate entity separate from those who compose it.

The rationale of the aforecited rule is that service must be made on a representative so integrated with the corporation sued as
to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served
on him. (Far Corporation v. Francisco, 146 SCRA 197 [1986] citing Villa Rey Transit, Inc. v. Far East Motor Corp. 81 SCRA 303
[1978]).

The petitioners in this case do not fall under any of the enumerated officers. The service of summons upon ALFA, through the
petitioners, therefore, is not valid. To rule otherwise, as correctly argued by the petitioners, will contravene the general principle
that a corporation can only be bound by such acts which are within the scope of the officer's or agent's authority. (see Vicente v.
Geraldez, 52 SCRA 210 [1973]).

WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision dated March 19, 1990 and the
Court of Appeals' resolution of May 10, 1990 are SET ASIDE and the Orders dated April 25, 1989 and October 17, 1989 issued
by the Regional Trial Court of Makati, Branch 58 are REINSTATED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-57218 December 12, 1986

FAR CORPORATION and ROSA O. DE CARAM, petitioners,

vs.
HON. RICARDO J. FRANCISCO, Presiding Judge of Branch VI, CFI of Rizal at Pasig, Metro Manila, and ELIZABETH P.
NICOLAS, respondents.

Melquiades Parades for petitioners.

PARAS, J.:

This petition for certiorari seeks the annulment of the Orders of respondent Honorable Ricardo L. Francisco of the Court of First
Instance of Rizal Branch VI, to wit: (a) the Order dated March 18, 1981 denying petitioners' motion to dismiss the complaint in
Civil Case No. 40297 "Elizabeth P. Nicolas vs. Far Corporation et al." for lack of jurisdiction over the persons of the petitioners
and (b) the Order dated June 1, 1981 denying petitioners' motion for reconsideration of aforesaid order.

Petitioner Far Corporation, existing under the laws of the Philippines, is the owner of a residential apartment located at No. 250
Amapola St., Palm Village, Makati, Metro Manila while its co-petitioner Rosa O. de Caram is the manager and owner of said
corporation.

Private respondent Elizabeth P. Nicolas is the lessee of the above-mentioned apartment who allegedly received a notice from
petitioner Corporation signed by its manager and owner Caram that the contract of lease was being terminated as of February
15, 1981. Private respondent allegedly requested that the lease be terminated instead on March 15, 1981 to enable her to look
for another place. However, petitioners, allegedly refused to accept private respondent's tender of payment of rental for the
period covering January 16, 1981 to February 15, 1981 but padlocked instead, the apartment unit occupied by private
respondent. Consequently, on February 19, 1981, private respondent filed a complaint for damages with prayer for preliminary
injunction in the above cited Civil Case No. 40297, at the Court of First Instance of Rizal Pasig, Metro Manila (Rollo, pp. 20-
23).<re||an1w>

On February 27, 1981, the deputy sheriff of Rizal served the summonses and copies of the complaint for both defendants-
petitioners at 2256 Pasong Tamo, Makati, Metro Manila, first upon Atty. Melquiades Parades, the corporation's retained counsel,
holding office at the same address, who however, declined to accept said process claiming that he is neither an agent nor officer
of the corporation and suggested instead that the Sheriff find out if Mr. Enrique Dizon was the cashier of said corporation, and if
so, to serve the summons on him for the defendant corporation. The summonses were finally served on Mr. Enrique Dizon who
turned out to be not the cashier but the Finance and Administrative Manager of the Corporation. (Rollo, pp. 5-6).

Both petitioners filed motions to dismiss on the ground that the lower court did not acquire jurisdiction over their persons (Rollo,
pp. 25-26; 29-31).

Private respondent (plaintiff therein) filed her opposition to both motions to dismiss on March 17, 1981. As above-stated,
aforesaid motions as well as the motion for reconsideration, all filed by the petitioners, were denied in the lower court's Orders
dated March 18, 1981 and May 4, 1981, respectively.

Hence, this petitioner.

In the resolution of July 6, 1981, the Second Division of this Court required private respondent to comment (Rollo, p. 56) and
issued a restraining Order enjoining further proceedings in said case. Because of private respondent's failure to comment on the
petition, the Court required her to explain such failure and to file the required comment, in the resolution of October 5, 1981.
(Rollo, p. 62).<re||an1w> Counsel for private respondent filed the required explanation (Rollo, p. 63) and comment (Rollo, p.
69), both on November 10, 1981. In the resolution of November 23, 1981, the Court accepted both explanation and comment
and required petitioners to file a reply to the latter, (Rollo, p. 85) which Resolution was complied with on January 20, 1982 (Rollo,
pp. 89-94). In the resolution of February 10, 1982, the Court gave due course to the petition and required the parties to file
memoranda (Rollo, p. 95). Petitioners's memorandum was filed on April 26, 1982 (Rollo, pp. 101-113) while respondents'
memorandum was filed on August 6, 1982 (Rollo, pp. 114-126) and the case was considered submitted for deliberation in the
resolution of February 4, 1985. (Rollo, p. 131).

The only issue in this case is whether or not there was valid service of summons on both petitioners by which the lower court
acquired jurisdiction over their persons in Civil Case No. 40297.

Petitioners opposed the service of summons (1) for the corporation, on Enrique Dizon, the head of the Finance and
Administrative Section of Far Corporation's branch office at Makati, Metro Manila who allegedly is not one of those authorized to
receive the same under Section 13, Rule 14 of the Rules of Court and (2) for the owner and manager of said Corporation Rosa
O. de Caram who could not be served personally because she was absent from the office, also on Enrique Dizon in a
substituted service.

-1-

Petitioners argue that as contemplated in Section 13, Rule 14 of the Rules of Court, service of summons may be made on the
president, manager, secretary, cashier, agent or any of the directors of the corporation. Hence, Mr. Dizon who is the head of the
Finance and Administrative Section of said corporation and does not fall under any of the above-enumerated corporate officers,
allegedly cannot validly receive the court processes in question for the corporation.

This contention is untenable.

It is undisputed that aforesaid court processes were initially served on Atty. Melquiades Parades, the lawyer of the corporation
and holding office within its premises. As correctly observed by private respondent, he is not an ordinary lawyer of the
corporation but an internal counsel thereof who is in charge of legal matters affecting petitioner corporation inclusive of cases
filed for or against it. (Rollo, pp. 116-117). In fact he is petitioners' counsel both in the lower court and in the Supreme Court in
this case. In Filoil Marketing Corporation v. Marine Development Corp. of the Phil. (117 SCRA 89 [1982]), the Court considered
counsel for defendant corporation, as perforce defendant's agent and ruled that under Section 13, Rule 14 of the Rules of Court,
service upon him is sufficient.

However, in the case at bar, petitioners' counsel did not receive the service of summons as in his opinion he was not an agent of
the corporation and instead referred the Sheriff to Mr. Enrique Dizon under the impression that the latter is the corporation's
cashier but who turned out to be otherwise. Indeed, it is inconceivable that he does not know who is the cashier of the
corporation or for that matter, any other officer authorized to receive summons of the Court. All these notwithstanding, Atty.
Parades had at least constructive notice that a case was filed against the corporation and that its appearance is being ordered
by the court. In good faith, he could have verified if the processes of the Court which came to his knowledge were in fact
received instead of resorting to technicalities in an apparent attempt to frustrate the ends of justice.

Be that as it may, the issue before the Court is the validity of the summons received by the Chief of Finance and Administrative
Section who is not the cashier of said corporation. In Villa Rey Transit Inc. v. Far East Motor Corporation (81 SCRA 303 [1978])
the Court held that "According to jurisprudence, the rationale of all rules for service of process on corporation is that service
must be made on a representative so integrated with the corporation sued as to make it a priori supposable that he will realize
his responsibilities and know what he should do with any legal papers served on him." This case was cited in a recent
decision Summit Trading and Development Corp. v. Avenda;o (135 SCRA 397 [1985]) where it was ruled that the secretary of
the president of the corporation in that case, is an agent of the corporation under Section 13, Rule 14 of the Rules of Court.

In the case at bar, Mr. Dizon as Administrative Chief is responsible for the management of the corporation which places him on
the level of a manager contemplated by the Rules. As Chief of Finance, he is conferred with vital and sensitive functions and
responsibilities. Under corporate and management organizational structure, a finance officer even holds a higher position than
that of a cashier (Rollo, pp. 74-75).<re||an1w> Otherwise stated, Mr. Dizon is not one of the lesser officers of the corporation
who would not have been able to appreciate the importance of the papers delivered to him. On the contrary, he falls squarely
under the term Agent who is authorized by law to receive the processes of the Court for the corporation.

-2-

For the same reasons above-stated, Mr. Enrique Dizon can be considered a competent person in charge of the office of
defendant owner and manager of the corporation as provided for in Section 8, Rule 14 of the Rules of Court, to validly receive
the service of summons for her who could not receive the same personally because she was absent from the office at the time
service was being made. (Rollo, pp. 78-79). In the same manner, the Sheriff could not be faulted in resorting to substituted
service where prompt personal service is not possible. As stated by the Court in Ablaza vs. C.I.R. (126 SCRA 254 [1983]), "The
purpose of summons is to give notice to the defendant or respondent that an action has been commenced against him. The
defendant or respondent is thus put on guard as to the demands of the plaintiffs or petitioners." In the case at bar, no less than
petitioners' counsel himself is aware of the processes being served on his clients so that the element of surprise is the least that
can be invoked by petitioners in this case; much less can it be said that respondent Judge erred in holding that the reasons
advanced against the validity of the service of summons for Rosa O. de Caram border on mere technicality. (Rollo, p. 45).

Finally, it has been ruled that a case should not be dismissed simply because an original summons was wrongfully served, as it
is difficult to conceive that where a defendant appears before the court complaining that he had not been validly summoned, the
case against him would be dismissed. An alias summons can be actually served on such defendant. (Linger & Fisher GMBH v.
Intermediate Appellate Court 125, SCRA 527 [1983]).

PREMISES CONSIDERED, this petition is hereby DISMISSED, the restraining order previously issued is hereby LIFTED, and
the case is REMANDED to the lower court for further proceedings.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-31339 January 31, 1978

VILLA REY TRANSIT, INC., and HON. JESUS P. MORFE, in his capacity as Judge of the Court of First Instance of
Manila, petitioners,
vs.
FAR EAST MOTOR CORPORATION and THE HONORABLE COURTS OF APPEALS, respondents.

Marcial C. Reyes for petitioners.

Jaime S. Linsangan & Associates for private respondent.

GUERRERO, J.:

Appeal by certiorari from the Derision of the Court of Appeals 1 and its Resolution denying petitioner's Motion for
Reconsideration of said Decision in CA-G.R. No. 43144-R, entitled "Far East Motor Corporation, Petitioner, vs. Hon. Jesus P.
Morfe Judge of the Court of First Instance of Manila, et al., Respondents."

On April 25, 1968, respondent Far East Motor Corporation sued petitioner Villa Rey Transit, Inc. for various sums of money
before the Court of First Instance of Manila, Branch XIII.

Summons was issued to petitioner and per return of the Sheriff, the summons was served on petitioner on June 16, 1968, the
sheriff certifying. "Served thru Atty. Virgilio A. Reyes, Assistant General Mgr., but refused to sign."

Claiming failure of the petitioner to file answer within the reglementary period, respondent corporation filed on August 13, 1968
an ex-parte motion to declare the petitioner in default, which was granted on August 21, 1968.

On the other hand, late receipt of the summons by its main office, petitioner filed an Urgent Motion to Extend Time to Answer,
which was denied on October 2, 1968, the order of denial being served on petitioner's counsel on October 7, 1968.

Pursuant to the order of default, respondent Far East Motor Corporation then presented its evidence ex-parte, and based on the
said evidence, the lower court adjudicated various sums of money to the respondent Far East Motor Corporation. Copy of the
decision was received by the petitioner on October 25, 1968.

On November 6, 1968, petitioner then filed a Motion to Quash Service of Summons, to Lift the Order of Default, and to Set Aside
Judgment, on the following grounds:

a. The service of summons upon defendant was not in accordance with law and therefor this Honorable Court
had not acquired a valid jurisdiction over said defendant;

b. Assuring for the sake of argument only that a valid substituted service of summons was made, failure of
defendant to answer with the reglementary peirod was due to failure of Sheriff ot propertly serve summons and/
or due to excusable negligence on the part of defendant's employee; and

c. Considering the huge claims of plaintiff which are incorrect and against which defendant has valid and
genuine defense, it is in the interest of justice and truth to lift the order of deafult which defandant has not
received, and to set aside judgment already rendered.

Petitioner's motion was denied on November 19, 1968 and copy of the denial was received by the corporation on November 21,
1968.

Hence, on December 3, 1968, respondent Far East Motor Corporation filed a Motion for Execution of the decision. Upon receipt
of its copy of the said motion, petitioner Villa Rey Transit filed a motion dated December 5, 1968 asking for reconsideration of
the court's order denying its Motion to Set Aside on the following grounds: (a) the sheriff's return is null and void and hence, the
court has not acquired jurisdiction over it, and (b) defendant has valid defenses which will alter the decision rendered ex-parte if
the defendant is given the opportunity to file its answer and present evidence in support thereof. The motion was set for hearing
on December 14, 1968.

Acting on these last two motions, the lower court on December 27, 1968 denied plaintiff's motion for execution; granted
defendant's motionfor reconsideration; set aside its order of November 19, 1967; quashed the service of summons; and set
aside the judgment already rendered.

On the claim that the judgment had already become final and unappealable on December 9, 1968, respondent moved to
reconsider the above order of December 9, 1968 but was denied.

Respondent then filed a petition for certiorari, mandamus and prohibition before the Supreme Court. However, on the ground
that the remedy sought in the petition was in aid of the appellate jurisdictionof the Court of Appeals, the case was certified to the
appellate court whose decision, sustaining the petition and ordering the lower court to issue the writ of execution upon the
judgement, i now subject of this appeal.

Emphasis is on the jurisdictional issue of service of summons.

To recount the facts surrounding the service of summons: Sometime in June, 1968, Deputy Sheriff Salita went to petitioner's
sub-station at 853 M. Earnshaw St., Sampaloc, Manila; he handed some papers to Atty. Virgilio A. Reyes, Assistant General
Manager for Operations: after reading the contents of the same, and noting that they were copies of a complaint filed by Far
East Motor corporation against petitioner involving some transactions made by him with the complainant as the then president of
petitioner corporation, he suggested that service of the complaint made by him with the complainant as the then president of
petitioner corporation, he suggested that service of the complaint and the corresponding summons be made directly on De. Jose
M. Villarama, the present President and General Manager, at their main office at Ricarfor Street, corner Sta. Elena Street,
Tondo, Manila; instead, the sheriff left the papers with one of their night tellers, Juanito Vince Cruz; due to volume and pressure
of his work, Cruz forgot all about the papers; hence, the papers were delivered to their main office only on September 27, 1968.

Based on the above facts, petitioner claims that service of summons on its mere Assistant General Manager holding office at ists
sub-station is not a valid service; thus, the court did not acquire jurisdiction over tis person.

We find the claim untenable. Service of process on a corporation is controll ed by Section 13, Rule 14 of the Revised Rules of
Court, thus

Sec. 13. Service upon private domestic corporation for partnership. If the defendant is a corporation
organized under the laws of the Philippines or a partnership duly registered, service may be made on the
president, manager, secretary, cashier, agent, or any of its directors.

Petitioner claims that the foregoing enumeration is exclusive and service of summons is without force and effect unless made
upon any one of them. The focus of inquiry then is whether an Assistant General Manager for Operations may properly be within
the terms manager or agent.

Petitioner relies on the Litton Mills case 2 where this Court held that a branch manager (sales manager) does not come within
the enumeration in Sec. 13, Rule 14 of the Revised Rules of Court, all of whom are top officers whose duties extend generally to
overall transactions of the corporation, not merely to a particular branch or department thereof.

The above cases without application here.

Atty. Virgilio A. Reyes is the Assistant General Manager, and admittedly, the former President and General Manager of the
petitioner corporation. As his present title implies, Atty. Virgilio A. Reyes is not one of the lesser officers of the petitioner
corporation upon whom service of Summons is not authorized by law. That he is in charge of Operations, which "includes the
incoming and outgoing buses, the arrangement of schedule, the appointment of drivers and conductors, the following of highway
troubles, and generally affecting the running of buses, 3 does not make him a mere branch manager so insistently pointed out by
petitioner. We take the opposite view, for precisely, as the Assistant General Manager for Operations, he is in charge of the main
bulk of the corporate business of the petitioner transit corporation. "Operations" is the main concern, if not all, of a transit
corporation.

More, We find petitioner's claim that Attorney. Virgilio A. Reyes, holding office at their M. Earnshaw sub-station, is not the proper
person upon whom summons may be seized inconsistent with their own admission that Atty. Reyes customarily receives
summons at the same sub-station in behalf of the petitioner. To quote part of petitioner's motion for reconsideration of the CFI's
denial of its motion to set aside judgment: "Records will show that Atty. Reyes has been receiving summon issued in cases
wherein the Villa Rey Transit, Inc. is a defendant, before and after June 18, 1968, the alleged date when the deputy sheriff
allegedly served the summons and complaint in the above case. In all these occasions, Atty. Reyes signed having received said
summons and in no occasion had he refused to sign. However, in connection with the service of summons in the above case, it
is not true that Atty. Reyes refused to sign. What he did was to instruct the deputy sheriff to serve the same directly to Dr. Jose
M. Villarama who is the President and General Manager of the Villa Rey Transit Inc. and having offices at the Villa Rey Transit
main compound located at Ricafort (corner Sta. Elena Street), Tondo, Manila. There was reason for Atty. Reyes to make such
request upon the deputy sheriff because the promissory notes (Annexes B, C. D, E, F and G to complaint) were signed by him in
his former capacity as President of the Villa Rey Transit, Inc. while in other cases, the attention of Dr. Villarama may not be
imperative." 4 That the transactions alleged in the complaint involved him personally is no reason for his refusal to receive this
particular summons. Indeed, with more reason that he should have received the summons because as the signatory to the
promissory notes, he had an interest therein.

According to jurisprudence, the rationale of all rules for service of process on corporation is that service must be made on a
representative so integrated with the corporation sued as to make it a priori supposable that he will realize his responsibilities
and know what he should do with any legal papers served on him. 5 Based on the particular facts of this case, service of
summons upon Atty. Virgilio A. Reyes has served the purpose of the law. And as he refused to receive the summons, tender
unto him was sufficient to confer jurisdiction over the petitioner.

Since petitioner failed to answer within the reglementary period, even after denial of its motion to extend time to answer, the
order of default was proper. So also with the hearing on the merits ex-parte resulting in the judgment by default. The decision
was appealable, and as receipt of the same by petitioner was on October 25, 1968, the 30-day appeal period commenced from
that date on. On November 6, 1968, petitioner filed a Motion to Quash Service of Summons, To Lift Order of Defeat and To Set
Aside Judgment, and from that day on, the appeal period was deemed suspended, the remaining 18 days beginning to run
again upon receipt of the denial of the motion. Receipt of such denial was on November 21, 1968; hence, by mathematical
computation, the 30-day appeal period expired on December 9, 1968. There being no appeal increased by the petitioner from
the judgment of default on or before December 9, 1968, the lower court lost its jurisdiction to hear on December 14, 1968
petitioner's Motion for Reconsideration dated December 5, 1968, the judgment by default having become final and executory.

Of course, petitioner insists that on December 5, 1968 it filed a Motion for Reconsideration of the order denying its Motion to
Quash, Lift Order of Default and to Set Aside Judgment taking the position that it should have suspended the period to appeal
We do not agree. The records clearly show that there were no new arguments presented against the judgment on the merits,
perforce the motion is pro forma and did not suspend the running of the period to appeal.

Petitioner then insists that the above motion should be considered a petition for relief. This again is untenable. As correctly
pointed out by the apellate court, a petition for relief presupposes a final and unappealable judgment. In this case, judgment has
not yet become final and unappealable at the time of the filing of the motion on December 5, 1968.

WHEREFORE, the decision appealed from is affirmed. Let execution issue on the lower court's judgment by default, Costs
against petitioner. SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 89070 May 18, 1992

BENGUET ELECTRlC COOPERATIVE, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, PETER COSALAN and BOARD OF DIRECTORS OF BENGUET ELECTRIC
COOPERATIVE, INC., * respondents.

Raymundo W. Celino for respondent Peter Cosalan.

Reenan Orate for respondent Board of Directors of BENECO.

FELICIANO, J.:

Private respondent Peter Cosalan was the General Manager of Petitioner Benguet Electric Cooperative, Inc. ("Beneco"), having
been elected as such by the Board of Directors of Beneco, with the approval of the National Electrification Administrator, Mr.
Pedro Dumol, effective 16 October 1982.

On 3 November 1982, respondent Cosalan received Audit Memorandum No. 1 issued by the Commission on Audit ("COA"). This
Memorandum noted that cash advances received by officers and employees of petitioner Beneco in the amount of P129,618.48
had been virtually written off in the books of Beneco. In the Audit Memorandum, the COA directed petitioner Beneco to secure
the approval of the National Electrification Administration ("NEA") before writing off or condoning those cash advances, and
recommended the adoption of remedial measures.

On 12 November 1982, COA issued another Memorandum Audit Memorandum No. 2 addressed to respondent Peter
Cosalan, inviting attention to the fact that the audit of per diems and allowances received by officials and members of the Board
of Directors of Beneco showed substantial inconsistencies with the directives of the NEA. The Audit Memorandum once again
directed the taking of immediate action in conformity with existing NEA regulations.

On 19 May 1983, petitioner Beneco received the COA Audit Report on the financial status and operations of Beneco for the eight
(8) month period ended 30 September 1982. This Audit Report noted and enumerated irregularities in the utilization of funds
amounting to P37 Million released by NEA to Beneco, and recommended that appropriate remedial action be taken.

Having been made aware of the serious financial condition of Beneco and what appeared to be mismanagement, respondent
Cosalan initiated implementation of the remedial measures recommended by the COA. The respondent members of the Board
of Beneco reacted by adopting a series of resolutions during the period from 23 June to 24 July 1984. These Board Resolutions
abolished the housing allowance of respondent Cosalan; reduced his salary and his representation and commutable allowances;
directed him to hold in abeyance all pending personnel disciplinary actions; and struck his name out as a principal signatory to
transactions of petitioner Beneco.

During the period from 28 July to 25 September 1984, the respondent Beneco Board members adopted another series of
resolutions which resulted in the ouster of respondent Cosalan as General Manager of Beneco and his exclusion from
performance of his regular duties as such, as well as the withholding of his salary and allowances. These resolutions were as
follows:

1. Resolution No. 91-4 dated 28 July 1984:

. . . that the services of Peter M. Cosalan as General Manager of BENECO is terminated upon
approval of the National Electrification Administration;

2. Resolution No. 151-84 dated September 15, 1984;

 . . . that Peter M. Cosalan is hereby suspended from his position as General Manager of the
Benguet Electric Cooperative, Inc. (BENECO) effective as of the start of the office hours on
September 24, 1984, until a final decision has been reached by the NEA on his dismissal;

. . . that GM Cosalan's suspension from office shall remain in full force and effect until such
suspension is sooner lifted, revoked or rescinded by the Board of Directors; that all monies
due him are withheld until cleared;

3. Resolution No. 176-84 dated September 25, 1984;

. . . that Resolution No. 151-84, dated September 15, 1984 stands as preventive suspension
for GM Peter M. Cosalan. 1

Respondent Cosalan nevertheless continued to work as General Manager of Beneco, in the belief that he could be suspended
or removed only by duly authorized officials of NEA, in accordance with provisions of P.D. No, 269, as amended by P.D. No.
1645 (the statute creating the NEA, providing for its capitalization, powers and functions and organization), the loan agreement
between NEA and petitioner Beneco 2 and the NEA Memorandum of 2 July 1980. 3 Accordingly, on 5 October and 10 November
1984, respondent Cosalan requested petitioner Beneco to release the compensation due him. Beneco, acting through
respondent Board members, denied the written request of respondent Cosalan.

Respondent Cosalan then filed a complaint with the National Labor Relations Commission ("NLRC") on 5 December 1984
against respondent members of the Beneco Board, challenging the legality of the Board resolutions which ordered his
suspension and termination from the service and demanding payment of his salaries and allowances. On 18 February 1985,
Cosalan amended his complaint to implead petitioner Beneco and respondent Board members, the latter in their respective dual
capacities as Directors and as private individuals.

In the course of the proceedings before the Labor Arbiter, Cosalan filed a motion for reinstatement which, although opposed by
petitioner Beneco, was granted on 23 October 1987 by Labor Arbiter Amado T. Adquilen. Petitioner Beneco complied with the
Labor Arbiter's order on 28 October 1987 through Resolution No. 10-90.

On 5 April 1988, the Labor Arbiter rendered a decision (a) confirming Cosalan's reinstatement; (b) ordering payment to Cosalan
of his backwages and allowances by petitioner Beneco and respondent Board members, jointly and severally, for a period of
three (3) years without deduction or qualification, amounting to P344,000.00; and (3) ordering the individual Board members to
pay, jointly and severally, to Cosalan moral damages of P50,000.00 plus attorney's fees of ten percent (10%) of the wages and
allowances awarded him.

Respondent Board members appealed to the NLRC, and there filed a Memorandum on Appeal. Petitioner Beneco did not
appeal, but moved to dismiss the appeal filed by respondent Board members and for execution of judgment. By this time,
petitioner Beneco had a new set of directors.

In a decision dated 21 November 1988, public respondent NLRC modified the award rendered by the Labor Arbiter by declaring
that petitioner Beneco alone, and not respondent Board members, was liable for respondent Cosalan's backwages and
allowances, and by ruling that there was no legal basis for the award of moral damages and attorney's fees made by the Labor
Arbiter.

Beneco, through its new set of directors, moved for reconsideration of the NLRC decision, but without success.

In the present Petition for Certiorari, Beneco's principal contentions are two-fold: first, that the NLRC had acted with grave abuse
of discretion in accepting and giving due course to respondent Board members' appeal although such appeal had been filed out
of time; and second, that the NLRC had acted with grave abuse of discretion amounting to lack of jurisdiction in holding
petitioner alone liable for payment of the backwages and allowances due to Cosalan and releasing respondent Board members
from liability therefor.

We consider that petitioner's first contention is meritorious. There is no dispute about the fact that the respondent Beneco Board
members received the decision of the labor Arbiter on 21 April 1988. Accordingly, and because 1 May 1988 was a legal holiday,
they had only up to 2 May 1988 within which to perfect their appeal by filing their memorandum on appeal. It is also not disputed
that the respondent Board members' memorandum on appeal was posted by registered mail on 3 May 1988 and received by the
NLRC the following day. 4 Clearly, the memorandum on appeal was filed out of time.
Respondent Board members, however, insist that their Memorandum on Appeal was filed on time because it was delivered for
mailing on 1 May 1988 to the Garcia Communications Company, a licensed private letter carrier. The Board members in effect
contend that the date of delivery to Garcia Communications was the date of filing of their appeal memorandum.

Respondent Board member's contention runs counter to the established rule that transmission through a private carrier or letter-
forwarder instead of the Philippine Post Office is not a recognized mode of filing pleadings. 5The established rule is that
the date of delivery of pleadings to a private letter-forwarding agency is not to be considered as the date of filing thereof in court,
and that in such cases, the date of actual receipt by the court, and not the date of delivery to the private carrier, is deemed the
date of filing of that pleading. 6

There, was, therefore, no reason grounded upon substantial justice and the prevention of serious miscarriage of justice that
might have justified the NLRC in disregarding the ten-day reglementary period for perfection of an appeal by the respondent
Board members. Accordingly, the applicable rule was that the ten-day reglementary period to perfect an appeal is mandatory
and jurisdictional in nature, that failure to file an appeal within the reglementary period renders the assailed decision final and
executory and no longer subject to review. 7 The respondent Board members had thus lost their right to appeal from the decision
of the Labor Arbiter and the NLRC should have forthwith dismissed their appeal memorandum.

There is another and more compelling reason why the respondent Board members' appeal should have been dismissed
forthwith: that appeal was quite bereft of merit. Both the Labor Arbiter and the NLRC had found that the indefinite suspension
and termination of services imposed by the respondent Board members upon petitioner Cosalan was illegal. That illegality
flowed, firstly, from the fact that the suspension of Cosalan was continued long after expiration of the period of thirty (30) days,
which is the maximum period of preventive suspension that could be lawfully imposed under Section 4, Rule XIV of the Omnibus
Rules Implementing the Labor Code. Secondly, Cosalan had been deprived of procedural due process by the respondent Board
members. He was never informed of the charges raised against him and was given no opportunity to meet those charges and
present his side of whatever dispute existed; he was kept totally in the dark as to the reason or reasons why he had been
suspended and effectively dismissed from the service of Beneco Thirdly, respondent Board members failed to adduce any cause
which could reasonably be regarded as lawful cause for the suspension and dismissal of respondent Cosalan from his position
as General Manager of Beneco. Cosalan was, in other words, denied due process both procedural and substantive. Fourthly,
respondent Board members failed to obtain the prior approval of the NEA of their suspension now dismissal of Cosalan, which
prior approval was required, inter alia, under the subsisting loan agreement between the NEA and Beneco. The requisite NEA
approval was subsequently sought by the respondent Board members; no NEA approval was granted.

In reversing the decision of the Labor Arbiter declaring petitioner Beneco and respondent Board members solidarily liable for the
salary, allowances, damages and attorney's fees awarded to respondent Cosalan, the NLRC said:

. . . A perusal of the records show that the members of the Board never acted in their individual capacities.
They were acting as a Board passing resolutions affecting their general manager. If these resolutions and
resultant acts transgressed the law, to then BENECO for which the Board was acting in behalf should bear
responsibility. The records do not disclose that the individual Board members were motivated by malice or bad
faith, rather, it reveals an intramural power play gone awry and misapprehension of its own rules and
regulations. For this reason, the decision holding the individual board members jointly and severally liable with
BENECO for Cosalan's backwages is untenable. The same goes for the award of damages which does not
have the proverbial leg to stand on.

The Labor Arbiter below should have heeded his own observation in his decision

Respondent BENECO as an artificial person could not have, by itself, done anything to
prevent it. But because the former have acted while in office and in the course of their official
functions as directors of BENECO, . . .

Thus, the decision of the Labor Arbiter should be modified conformably with all the foregoing holding BENECO
solely liable for backwages and releasing the appellant board members from any individual
liabilities. 8(Emphasis supplied)

The applicable general rule is clear enough. The Board members and officers of a corporation who purport to act for and in
behalf of the corporation, keep within the lawful scope of their authority in so acting, and act in good faith, do not become liable,
whether civilly or otherwise, for the consequences of their acts, Those acts, when they are such a nature and are done under
such circumstances, are properly attributed to the corporation alone and no personal liability is incurred by such officers and
Board members. 9
The major difficulty with the conclusion reached by the NLRC is that the NLRC clearly overlooked or disregarded the
circumstances under which respondent Board members had in fact acted in the instant case. As noted earlier, the respondent
Board members responded to the efforts of Cosalan to take seriously and implement the Audit Memoranda issued by the COA
explicitly addressed to the petitioner Beneco, first by stripping Cosalan of the privileges and perquisites attached to his position
as General Manager, then by suspending indefinitely and finally dismissing Cosalan from such position. As also noted earlier,
respondent Board members offered no suggestion at all of any just or lawful cause that could sustain the suspension and
dismissal of Cosalan. They obviously wanted to get rid of Cosalan and so acted, in the words of the NLRC itself, "with indecent
haste" in removing him from his position and denying him substantive and procedural due process. Thus, the record showed
strong indications that respondent Board members had illegally suspended and dismissed Cosalan precisely because he was
trying to remedy the financial irregularities and violations of NEA regulations which the COA had brought to the attention of
Beneco. The conclusion reached by the NLRC that "the records do not disclose that the individual Board members were
motivated by malice or bad faith" flew in the face of the evidence of record. At the very least, a strong presumption had arisen,
which it was incumbent upon respondent Board members to disprove, that they had acted in reprisal against respondent
Cosalan and in an effort to suppress knowledge about and remedial measures against the financial irregularities the COA Audits
had unearthed. That burden respondent Board members did not discharge.

The Solicitor General has urged that respondent Board members may be held liable for damages under the foregoing
circumstance under Section 31 of the Corporation Code which reads as follows:

Sec. 31. Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote for or
assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing
the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such
directors or trustees shall be jointly liable and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons . . . (Emphasis supplied)

We agree with the Solicitor General, firstly, that Section 31 of the Corporation Code is applicable in respect of Beneco and other
electric cooperatives similarly situated. Section 4 of the Corporation Code renders the provisions of that Code applicable in a
supplementary manner to all corporations, including those with special or individual charters so long as those provisions are not
inconsistent with such charters. We find no provision in P.D. No. 269, as amended, that would exclude expressly or by
necessary implication the applicability of Section 31 of the Corporation Code in respect of members of the boards of directors of
electric cooperatives. Indeed, P.D. No. 269 expressly describes these cooperatives as "corporations:"

Sec. 15. Organization and Purpose. Cooperative non-stock, non-profit membership corporations may be
organized, and electric cooperative corporations heretofore formed or registered under the Philippine non-
Agricultural Co-operative Act may as hereinafter provided be converted, under this Decree for the purpose of
supplying, and of promoting and encouraging-the fullest use of, service on an area coverage basis at the
lowest cost consistent with sound economy and the prudent management of the business of such
corporations. 10(Emphasis supplied)

We agree with the Solicitor General, secondly, that respondent Board members were guilty of "gross negligence or bad faith in
directing the affairs of the corporation" in enacting the series of resolutions noted earlier indefinitely suspending and dismissing
respondent Cosalan from the position of General Manager of Beneco. Respondent Board members, in doing so, acted belong
the scope of their authority as such Board members. The dismissal of an officer or employee in bad faith, without lawful cause
and without procedural due process, is an act that iscontra legem. It cannot be supposed that members of boards of directors
derive any authority to violate the express mandates of law or the clear legal rights of their officers and employees by simply
purporting to act for the corporation they control.

We believe and so hold, further, that not only are Beneco and respondent Board members properly held solidarily liable for the
awards made by the Labor Arbiter, but also that petitioner Beneco which was controlled by and which could act only through
respondent Board members, has a right to be reimbursed for any amounts that Beneco may be compelled to pay to respondent
Cosalan. Such right of reimbursement is essential if the innocent members of Beneco are not to be penalized for the acts of
respondent Board members which were both done in bad faith and ultra vires. The liability-generating acts here are the personal
and individual acts of respondent Board members, and are not properly attributed to Beneco itself.

WHEREFORE, the Petition for Certiorari is GIVEN DUE COURSE, the comment filed by respondent Board members is
TREATED as their answer, and the decision of the National Labor Relations Commission dated 21 November 1988 in NLRC
Case No. RAB-1-0313-84 is hereby SET ASIDE and the decision dated 5 April 1988 of Labor Arbiter Amado T. Adquilen hereby
REINSTATED in toto. In addition, respondent Board members are hereby ORDERED to reimburse petitioner Beneco any
amounts that it may be compelled to pay to respondent Cosalan by virtue of the decision of Labor Arbiter Amado T. Adquilen. No
pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-33320 May 30, 1983

RAMON A. GONZALES, petitioner,

vs.
THE PHILIPPINE NATIONAL BANK, respondent.

Ramon A. Gonzales in his own behalf.

Juan Diaz for respondent.

VASQUEZ, J.:

Petitioner Ramon A. Gonzales instituted in the erstwhile Court of First Instance of Manila a special civil action for mandamus
against the herein respondent praying that the latter be ordered to allow him to look into the books and records of the
respondent bank in order to satisfy himself as to the truth of the published reports that the respondent has guaranteed the
obligation of Southern Negros Development Corporation in the purchase of a US$ 23 million sugar-mill to be financed by
Japanese suppliers and financiers; that the respondent is financing the construction of the P 21 million Cebu-Mactan Bridge to
be constructed by V.C. Ponce, Inc., and the construction of Passi Sugar Mill at Iloilo by the Honiron Philippines, Inc., as well as
to inquire into the validity of Id transactions. The petitioner has alleged hat his written request for such examination was denied
by the respondent. The trial court having dismissed the petition for mandamus, the instant appeal to review the said dismissal
was filed.

The facts that gave rise to the subject controversy have been set forth by the trial court in the decision herein sought to be
reviewed, as follows:

Briefly stated, the following facts gathered from the stipulation of the parties served as the backdrop of this
proceeding.

Previous to the present action, the petitioner instituted several cases in this Court questioning different
transactions entered into by the Bark with other parties. First among them is Civil Case No. 69345 filed on April
27, 1967, by petitioner as a taxpayer versus Sec. Antonio Raquiza of Public Works and Communications, the
Commissioner of Public Highways, the Bank, Continental Ore Phil., Inc., Continental Ore, Huber Corporation,
Allis Chalmers and General Motors Corporation In the course of the hearing of said case on August 3, 1967,
the personality of herein petitioner to sue the bank and question the letters of credit it has extended for the
importation by the Republic of the Philippines of public works equipment intended for the massive development
program of the President was raised. In view thereof, he expressed and made known his intention to acquire
one share of stock from Congressman Justiniano Montano which, on the following day, August 30, 1967, was
transferred in his name in the books of the Bank.

Subsequent to his aforementioned acquisition of one share of stock of the Bank, petitioner, in his dual capacity
as a taxpayer and stockholder, filed the following cases involving the bank or the members of its Board of
Directors to wit:

l. On October l8,1967, Civil Case No. 71044 versus the Board of Directors of the Bank; the National Investment
and Development Corp., Marubeni Iida Co., Ltd., and Agro-Inc. Dev. Co. or Saravia;

2. On May 11, 1968, Civil Case No. 72936 versus Roberto Benedicto and other Directors of the Bank, Passi
(Iloilo) Sugar Central, Inc., Calinog-Lambunao Sugar Mill Integrated Farming, Inc., Talog sugar Milling Co., Inc.,
Safary Central, Inc., and Batangas Sugar Central Inc.;

3. On May 8, 1969, Civil Case No. 76427 versus Alfredo Montelibano and the Directors of both the PNB and
DBP;
 On January 11, 1969, however, petitioner addressed a letter to the President of the Bank (Annex A, Pet.),
requesting submission to look into the records of its transactions covering the purchase of a sugar central by
the Southern Negros Development Corp. to be financed by Japanese suppliers and financiers; its financing of
the Cebu-Mactan Bridge to be constructed by V.C. Ponce, Inc. and the construction of the Passi Sugar Mills in
Iloilo. On January 23, 1969, the Asst. Vice-President and Legal Counsel of the Bank answered petitioner's letter
denying his request for being not germane to his interest as a one-share stockholder and for the cloud of doubt
as to his real intention and purpose in acquiring said share. (Annex B, Pet.) In view of the Bank's refusal the
petitioner instituted this action.' (Rollo, pp. 16-18.)

The petitioner has adopted the above finding of facts made by the trial court in its brief which he characterized as having been
"correctly stated." (Petitioner-Appellant"s Brief, pp. 57.)

The court a quo denied the prayer of the petitioner that he be allowed to examine and inspect the books and records of the
respondent bank regarding the transactions mentioned on the grounds that the right of a stockholder to inspect the record of the
business transactions of a corporation granted under Section 51 of the former Corporation Law (Act No. 1459, as amended) is
not absolute, but is limited to purposes reasonably related to the interest of the stockholder, must be asked for in good faith for a
specific and honest purpose and not gratify curiosity or for speculative or vicious purposes; that such examination would violate
the confidentiality of the records of the respondent bank as provided in Section 16 of its charter, Republic Act No. 1300, as
amended; and that the petitioner has not exhausted his administrative remedies.

Assailing the conclusions of the lower court, the petitioner has assigned the single error to the lower court of having ruled that
his alleged improper motive in asking for an examination of the books and records of the respondent bank disqualifies him to
exercise the right of a stockholder to such inspection under Section 51 of Act No. 1459, as amended. Said provision reads in
part as follows:

Sec. 51. ... The record of all business transactions of the corporation and the minutes of any meeting shall be
open to the inspection of any director, member or stockholder of the corporation at reasonable hours.

Petitioner maintains that the above-quoted provision does not justify the qualification made by the lower court that the inspection
of corporate records may be denied on the ground that it is intended for an improper motive or purpose, the law having granted
such right to a stockholder in clear and unconditional terms. He further argues that, assuming that a proper motive or purpose
for the desired examination is necessary for its exercise, there is nothing improper in his purpose for asking for the examination
and inspection herein involved.

Petitioner may no longer insist on his interpretation of Section 51 of Act No. 1459, as amended, regarding the right of a
stockholder to inspect and examine the books and records of a corporation. The former Corporation Law (Act No. 1459, as
amended) has been replaced by Batas Pambansa Blg. 68, otherwise known as the "Corporation Code of the Philippines."

The right of inspection granted to a stockholder under Section 51 of Act No. 1459 has been retained, but with some
modifications. The second and third paragraphs of Section 74 of Batas Pambansa Blg. 68 provide the following:

The records of all business transactions of the corporation and the minutes of any meeting shag be open to
inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business
days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his expense.

Any officer or agent of the corporation who shall refuse to allow any director, trustee, stockholder or member of
the corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of
this Code, shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be
guilty of an offense which shall be punishable under Section 144 of this Code: Provided, That if such refusal is
made pursuant to a resolution or order of the board of directors or trustees, the liability under this section for
such action shall be imposed upon the directors or trustees who voted for such refusal; and Provided, further,
That it shall be a defense to any action under this section that the person demanding to examine and copy
excerpts from the corporation's records and minutes has improperly used any information secured through any
prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in
good faith or for a legitimate purpose in making his demand.

As may be noted from the above-quoted provisions, among the changes introduced in the new Code with respect to the right of
inspection granted to a stockholder are the following the records must be kept at the principal office of the corporation; the
inspection must be made on business days; the stockholder may demand a copy of the excerpts of the records or minutes; and
the refusal to allow such inspection shall subject the erring officer or agent of the corporation to civil and criminal liabilities.
However, while seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same. It is now
expressly required as a condition for such examination that the one requesting it must not have been guilty of using improperly
any information through a prior examination, and that the person asking for such examination must be "acting in good faith and
for a legitimate purpose in making his demand."

The unqualified provision on the right of inspection previously contained in Section 51, Act No. 1459, as amended, no longer
holds true under the provisions of the present law. The argument of the petitioner that the right granted to him under Section 51
of the former Corporation Law should not be dependent on the propriety of his motive or purpose in asking for the inspection of
the books of the respondent bank loses whatever validity it might have had before the amendment of the law. If there is any
doubt in the correctness of the ruling of the trial court that the right of inspection granted under Section 51 of the old Corporation
Law must be dependent on a showing of proper motive on the part of the stockholder demanding the same, it is now dissipated
by the clear language of the pertinent provision contained in Section 74 of Batas Pambansa Blg. 68.

Although the petitioner has claimed that he has justifiable motives in seeking the inspection of the books of the respondent bank,
he has not set forth the reasons and the purposes for which he desires such inspection, except to satisfy himself as to the truth
of published reports regarding certain transactions entered into by the respondent bank and to inquire into their validity. The
circumstances under which he acquired one share of stock in the respondent bank purposely to exercise the right of inspection
do not argue in favor of his good faith and proper motivation. Admittedly he sought to be a stockholder in order to pry into
transactions entered into by the respondent bank even before he became a stockholder. His obvious purpose was to arm
himself with materials which he can use against the respondent bank for acts done by the latter when the petitioner was a total
stranger to the same. He could have been impelled by a laudable sense of civic consciousness, but it could not be said that his
purpose is germane to his interest as a stockholder.

We also find merit in the contention of the respondent bank that the inspection sought to be exercised by the petitioner would be
violative of the provisions of its charter. (Republic Act No. 1300, as amended.) Sections 15, 16 and 30 of the said charter provide
respectively as follows:

Sec. 15. Inspection by Department of Supervision and Examination of the Central Bank. The National Bank
shall be subject to inspection by the Department of Supervision and Examination of the Central Bank'

Sec. 16. Confidential information. The Superintendent of Banks and the Auditor General, or other officers
designated by law to inspect or investigate the condition of the National Bank, shall not reveal to any person
other than the President of the Philippines, the Secretary of Finance, and the Board of Directors the details of
the inspection or investigation, nor shall they give any information relative to the funds in its custody, its current
accounts or deposits belonging to private individuals, corporations, or any other entity, except by order of a
Court of competent jurisdiction,'

Sec. 30. Penalties for violation of the provisions of this Act. Any director, officer, employee, or agent of the
Bank, who violates or permits the violation of any of the provisions of this Act, or any person aiding or abetting
the violations of any of the provisions of this Act, shall be punished by a fine not to exceed ten thousand pesos
or by imprisonment of not more than five years, or both such fine and imprisonment.

The Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is not governed, as a rule, by the
Corporation Code of the Philippines. Section 4 of the said Code provides:

SEC. 4. Corporations created by special laws or charters. Corporations created by special laws or charters
shall be governed primarily by the provisions of the special law or charter creating them or applicable to them.
supplemented by the provisions of this Code, insofar as they are applicable.

The provision of Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect to the right of a stockholder to
demand an inspection or examination of the books of the corporation may not be reconciled with the abovequoted provisions of
the charter of the respondent bank. It is not correct to claim, therefore, that the right of inspection under Section 74 of the new
Corporation Code may apply in a supplementary capacity to the charter of the respondent bank.

WHEREFORE, the petition is hereby DISMISSED, without costs.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 136374 February 9, 2000

FRANCISCA S. BALUYOT, petitioner,

vs.
PAUL E. HOLGANZA and the OFFICE OF THE OMBUDSMAN (VISAYAS) represented by its Deputy Ombudsman for the
Visayas ARTURO C. MOJICA, Director VIRGINIA PALANCA-SANTIAGO, and Graft Investigation Officer I ANNA MARIE P.
MILITANTE, respondents.

DE LEON, JR., J.:

Before us is a special civil action for certiorari, seeking the reversal of the Orders dated August 21, 1998 and October 28, 1998
issued by the Office of the Ombudsman, which denied petitioner's motion to dismiss and motion for reconsideration,
respectively.1wphi1.nt

The facts are:

During a spot audit conducted on March 21, 1977 by a team of auditors from the Philippine National Red Cross (PNRC)
headquarters, a cash shortage of P154,350.13 was discovered in the funds of its Bohol chapter. The chapter administrator,
petitioner Francisca S. Baluyot, was held accountable for the shortage. Thereafter, on January 8, 1998, private respondent Paul
E. Holganza, in his capacity as a member of the board of directors of the Bohol chapter, filed an affidavit-complaint1 before the
Office of the Ombudsman charging petitioner of malversation under Article 217 of the Revised Penal Code. The complaint was
docketed as OMB-VIS-CRIM-98-0022. However, upon recommendation by respondent Anna Marie P. Militante, Graft
Investigation Officer I, an administrative docket for dishonesty was also opened against petitioner; hence, OMB-VIS-ADM-98-
0063.2

On February 6, 1998, public respondent issued an Order3 requiring petitioner to file her counter-affidavit to the charges of
malversation and dishonesty within ten days from notice, with a warning that her failure to comply would be construed as a
waiver on her part to refute the charges, and that the case would be resolved based on the evidence on record. On March 14,
1998, petitioner filed her counter-affidavit,4 raising principally the defense that public respondent had no jurisdiction over the
controversy. She argued that the Ombudsman had authority only over government-owned or controlled corporations, which the
PNRC was not, or so she claimed.

On August 21, 1998, public respondent issued the first assailed Order5 denying petitioner's motion to dismiss. It further
scheduled a clarificatory hearing on the criminal aspect of the complaint and a preliminary conference on its administrative
aspect on September 2, 1998. Petitioner received the order on August 26, 1998 and she filed a motion for reconsideration6 the
next day.

On October 28, 1998, public respondent issued the second assailed Order7 denying petitioner's motion for reconsideration.
Hence, this recourse.

We dismiss the petition.

Petitioner contends that the Ombudsman has no jurisdiction over the subject matter of the controversy since the PNRC is
allegedly a private voluntary organization. The following circumstances, she insists, are indicative of the private character of the
organization: (1) the PNRC does not receive any budgetary support from the government, and that all money given to it by the
latter and its instrumentalities become private funds of the organization; (2) funds for the payment of personnel's salaries and
other emoluments come from yearly fund campaigns, private contributions and rentals from its properties; and (3) it is not
audited by the Commission on Audit. Petitioner states that the PNRC falls under the International Federation of Red Cross, a
Switzerland-based organization, and that the power to discipline employees accused of misconduct, malfeasance, or immorality
belongs to the PNRC Secretary General by virtue of Section "G", Article IX of its by-laws.8 She threatens that "to classify the
PNRC as a government-owned or controlled corporation would create a dangerous precedent as it would lose its neutrality,
independence and impartiality . . . .9
Practically the same issue was addressed in Camporedondo v. National Labor Relations Commission, et. al.,10where an almost
identical set of facts obtained. Petitioner therein was the administrator of the Surigao del Norte chapter of the PNRC. An audit
conducted by a field auditor revealed a shortage in the chapter funds in the sum of P109,000.00. When required to restitute the
amount of P135,927.78, petitioner therein instead applied for early retirement, which was denied by the Secretary General of the
PNRC. Subsequently, the petitioner filed a complaint for illegal dismissal and damages against PNRC before the National Labor
Relations Commission. In turn, PNRC moved to dismiss the complaint on the ground of lack of jurisdiction, averring that PNRC
was a government corporation whose employees are embraced by civil service regulation. The labor arbiter dismissed the
complaint, and the Commission sustained his order. The petitioner assailed the dismissal of his complaint via a petition
forcertiorari, contending that the PNRC is a private organization and not a government-owned or controlled corporation. In
dismissing the petition, we ruled thus:

Resolving the issue set out in the opening paragraph of this opinion, we rule that the Philippine National Red Cross
(PNRC) is a government owned and controlled corporation, with an original charter under Republic Act No. 95, as
amended. The test to determine whether a corporation is government owned or controlled, or private in nature is simple.
Is it created by its own charter for the exercise of a public function, or by incorporation under the general corporation
law? Those with special charters are government corporations subject to its provisions, and its employees are under the
jurisdiction of the Civil Service Commission, and are compulsory members of the Government Service Insurance
System. The PNRC was not "impliedly converted to a private corporation" simply because its charter was amended to
vest in it the authority to secure loans, be exempted from payment of all duties, taxes, fees and other charges of all
kinds on all importations and purchases for its exclusive use, on donations for its disaster relief work and other services
and in its benefits and fund raising drives, and be allotted one lottery draw a year by the Philippine Charity Sweepstakes
Office for the support of its disaster relief operation in addition to its existing lottery draws for blood program.

Clearly then, public respondent has jurisdiction over the matter, pursuant to Section 13, of Republic Act No. 6770, otherwise
known as "The Ombudsman Act of 1989", to wit:

Sec. 13. Mandate. The Ombudsman and his Deputies, as protectors of the people, shall act promptly on complaints
filed in any form or manner against officers or employees of the Government, or of any subdivision, agency or
instrumentality thereof, including government-owned or controlled corporations, and enforce their administrative, civil
and criminal liability in ever case where the evidence warrants in order to promote efficient service by the Government
to the people.11

WHEREFORE, the petition for certiorari is hereby DISMISSED. Costs against petitioner.

SO ORDERED.1wphi1