G.R. No.

174938 October 1, 2014 (1) Provided always that in case any dispute or difference shall arise between the Owner or the Project Manager
on his behalf and the Contractor, either during the progress or after the completion or abandonment of the Works
as to the construction of this Contract or as to any matter or thing of whatsoever nature arising there under or
GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,
inconnection therewith (including any matter or thing left by this Contract to the discretion of the Project
vs.
Manager or the withholding by the Project Manager of any certificate to which the Contractor may claim to be
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B. COLAYCO, MAXIMO G.
entitled or the measurement and valuation mentioned in clause 30(5)(a) of these Conditions or the rights and
LICAUCO III, AND BENJAMIN C. RAMOS, Respondents.
liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions), the owner and the Contractor hereby
agree to exert all efforts to settle their differences or dispute amicably. Failing these efforts then such dispute or
DECISION difference shall be referred to arbitration in accordance with the rules and procedures of the Philippine
Arbitration Law.
LEONEN, J.:
xxx xxx xxx
Corporate representatives may be compelled to submit to arbitration proceedings pursuant to a contract entered
into by the corporation they represent if there are allegations of bad faith or malice in their acts representing the (6) The award of such Arbitrators shall be final and binding on the parties. The decision of the Arbitrators shall be
corporation. a condition precedent to any right of legal action that either party may have against the other. . .
.12 (Underscoring in the original)
This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and October 5, 2006 resolution.
The Court of Appeals affirmed the trial court's decision holding that petitioners, as director, should submit On August 19, 1993, BF Corporation opposed the motion to suspend proceedings.13
themselves as parties tothe arbitration proceedings between BF Corporation and Shangri-La Properties, Inc.
(Shangri-La).
In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend proceedings.14

In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-Laand the
On December 8, 1993, petitioners filed an answer to BF Corporation’s complaint, with compulsory counter claim
members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr.,
against BF Corporation and crossclaim against Shangri-La.15 They alleged that they had resigned as members of
Maximo G. Licauco III, and Benjamin C. Ramos.1
Shangri-La’s board of directors as of July 15, 1991.16

BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered into agreements
After the Regional Trial Court denied on February 11, 1994 the motion for reconsideration of its November 18,
with Shangri-La wherein it undertook to construct for Shangri-La a mall and a multilevel parking structure along
1993 order, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,Maximo G. Licauco III, and Benjamin Ramos filed a
EDSA.2
petition for certiorari with the Court of Appeals.17

Shangri-La had been consistent in paying BF Corporation in accordance with its progress billing
On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the submission of the
statements.3However, by October 1991, Shangri-La started defaulting in payment.4
dispute to arbitration.18

BF Corporation alleged that Shangri-La induced BF Corporation to continue with the construction of the buildings
Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition for review on certiorari with this
using its own funds and credit despite Shangri-La’s default.5 According to BF Corporation, ShangriLa
court.19On March 27, 1998, this court affirmed the Court of Appeals’ decision, directing that the dispute be
misrepresented that it had funds to pay for its obligations with BF Corporation, and the delay in payment was
submitted for arbitration.20
simply a matter of delayed processing of BF Corporation’s progress billing statements. 6

Another issue arose after BF Corporation had initiated arbitration proceedings. BF Corporation and Shangri-La
BF Corporation eventually completed the construction of the buildings.7 Shangri-La allegedly took possession of
failed to agree as to the law that should govern the arbitration proceedings. 21 On October 27, 1998, the trial court
the buildings while still owing BF Corporation an outstanding balance.8
issued the order directing the parties to conduct the proceedings in accordance with Republic Act No. 876. 22

BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the balance owed to it. 9 It also
Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification, both seeking to clarify
alleged that the Shangri-La’s directors were in bad faith in directing Shangri-La’s affairs. Therefore, they should
the term, "parties," and whether Shangri-La’s directors should be included in the arbitration proceedings and
be held jointly and severally liable with Shangri-La for its obligations as well as for the damages that BF
served with separate demands for arbitration.23
Corporation incurred as a result of Shangri-La’s default.10

Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying that they be excluded from
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and Benjamin C. Ramos
the arbitration proceedings for being non-parties to Shangri-La’s and BF Corporation’s agreement.24
filed a motion to suspend the proceedings in view of BF Corporation’s failure to submit its dispute to arbitration,
in accordance with the arbitration clauseprovided in its contract, quoted in the motion as follows: 11
On July 28, 2003, the trial court issued the order directing service of demands for arbitration upon all defendants
in BF Corporation’s complaint.25 According to the trial court, Shangri-La’s directors were interested parties who
35. Arbitration
"must also be served with a demand for arbitration to give them the opportunity to ventilate their side of the

1
controversy, safeguard their interest and fend off their respective positions." 26 Petitioners’ motion for
reconsideration ofthis order was denied by the trial court on January 19, 2005. 27
Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse of discretion in the
issuance of orders compelling them to submit to arbitration proceedings despite being third parties to the
contract between Shangri-La and BF Corporation.28
In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’ petition for certiorari. The Court of
Appeals ruled that ShangriLa’s directors were necessary parties in the arbitration proceedings. 30 According to the
Court of Appeals:
[They were] deemed not third-parties tothe contract as they [were] sued for their acts in representation of the
party to the contract pursuant to Art. 31 of the Corporation Code, and that as directors of the defendant
corporation, [they], in accordance with Art. 1217 of the Civil Code, stand to be benefited or injured by the result
of the arbitration proceedings, hence, being necessary parties, they must be joined in order to have complete
adjudication of the controversy. Consequently, if [they were] excluded as parties in the arbitration proceedings
and an arbitral award is rendered, holding [Shangri-La] and its board of directors jointly and solidarily liable to
private respondent BF Corporation, a problem will arise, i.e., whether petitioners will be bound bysuch arbitral
award, and this will prevent complete determination of the issues and resolution of the controversy.31
The Court of Appeals further ruled that "excluding petitioners in the arbitration proceedings . . . would be
contrary to the policy against multiplicity of suits."32
The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003 and January 19, 2005 of public
respondent RTC, Branch 157, Pasig City, in Civil Case No. 63400, are AFFIRMED.33
The Court of Appeals denied petitioners’ motion for reconsideration in the October 5, 2006 resolution. 34
On November 24, 2006, petitioners filed a petition for review of the May 11, 2006 Court of Appeals decision and
the October 5, 2006 Court of Appeals resolution.35
The issue in this case is whether petitioners should be made parties to the arbitration proceedings, pursuant to
the arbitration clause provided in the contract between BF Corporation and Shangri-La.
Petitioners argue that they cannot be held personally liable for corporate acts or obligations. 36 The corporation is
a separate being, and nothing justifies BF Corporation’s allegation that they are solidarily liable with Shangri-
La.37Neither did they bind themselves personally nor did they undertake to shoulder Shangri-La’s obligations
should it fail in its obligations.38 BF Corporation also failed to establish fraud or bad faith on their part.39
Petitioners also argue that they are third parties to the contract between BF Corporation and Shangri-
La.40Provisions including arbitration stipulations should bind only the parties. 41 Based on our arbitration laws,
parties who are strangers to an agreement cannot be compelled to arbitrate. 42
Petitioners point out thatour arbitration laws were enacted to promote the autonomy of parties in resolving their
disputes.43 Compelling them to submit to arbitration is against this purpose and may be tantamount to stipulating
for the parties.44
Separate comments on the petition werefiled by BF Corporation, and Maximo G. Licauco III, Alfredo C.Ramos and
Benjamin C. Ramos.45
Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners that Shangri-
La’sdirectors, being non-parties to the contract, should not be made personally liable for Shangri-La’s acts.46 Since
the contract was executed only by BF Corporation and Shangri-La, only they should be affected by the contract’s
stipulation.47 BF Corporation also failed to specifically allege the unlawful acts of the directors that should make
them solidarily liable with Shangri-La for its obligations.48
Meanwhile, in its comment, BF Corporation argued that the courts’ ruling that the parties should undergo
arbitration "clearly contemplated the inclusion of the directors of the corporation[.]"49 BF Corporation also argued
that while petitioners were not parties to the agreement, they were still impleaded under Section 31 of the
Corporation Code.50Section 31 makes directors solidarily liable for fraud, gross negligence, and bad
faith.51 Petitioners are not really third parties to the agreement because they are being sued as Shangri-La’s
representatives, under Section 31 of the Corporation Code.52
BF Corporation further argued that because petitioners were impleaded for their solidary liability, they are
necessary parties to the arbitration proceedings.53 The full resolution of all disputes in the arbitration proceedings
should also be done in the interest of justice.54
In the manifestation dated September 6, 2007, petitioners informed the court that the Arbitral Tribunal had
already promulgated its decision on July 31, 2007.55 The Arbitral Tribunal denied BF Corporation’s claims against
them.56Petitioners stated that "[they] were included by the Arbitral Tribunal in the proceedings conducted . . .
notwithstanding [their] continuing objection thereto. . . ." 57 They also stated that "[their] unwilling participation
in the arbitration case was done ex abundante ad cautela, as manifested therein on several
occasions."58 Petitioners informed the court that they already manifested with the trial court that "any action
taken on [the Arbitral Tribunal’s decision] should be without prejudice to the resolution of [this] case." 59
Upon the court’s order, petitioners and Shangri-La filed their respective memoranda. Petitioners and Maximo G.
Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos reiterated their arguments that they should not be held
liable for Shangri-La’s default and made parties to the arbitration proceedings because only BF Corporation and
Shangri-La were parties to the contract.
In its memorandum, Shangri-La argued that petitioners were impleaded for their solidary liability under Section 31
of the Corporation Code. Shangri-La added that their exclusion from the arbitration proceedings will result in
multiplicity of suits, which "is not favored in this jurisdiction." 60 It pointed out that the case had already been
mooted by the termination of the arbitration proceedings, which petitioners actively participated in. 61 Moreover,
BF Corporation assailed only the correctness of the Arbitral Tribunal’s award and not the part absolving Shangri-
La’s directors from liability.62
BF Corporation filed a counter-manifestation with motion to dismiss63 in lieu of the required memorandum.
In its counter-manifestation, BF Corporation pointed out that since "petitioners’ counterclaims were already
dismissed with finality, and the claims against them were likewise dismissed with finality, they no longer have any
interest orpersonality in the arbitration case. Thus, there is no longer any need to resolve the present Petition,
which mainly questions the inclusion of petitioners in the arbitration proceedings." 64 The court’s decision in this
case will no longer have any effect on the issue of petitioners’ inclusion in the arbitration proceedings. 65
The petition must fail.
2
The Arbitral Tribunal’s decision, absolving petitioners from liability, and its binding effect on BF Corporation, have
rendered this case moot and academic.
The mootness of the case, however, had not precluded us from resolving issues so that principles may be
established for the guidance of the bench, bar, and the public. In De la Camara v. Hon. Enage, 66 this court
disregarded the fact that petitioner in that case already escaped from prison and ruled on the issue of excessive
bails:
While under the circumstances a ruling on the merits of the petition for certiorari is notwarranted, still, as set
forth at the opening of this opinion, the fact that this case is moot and academic should not preclude this Tribunal
from setting forth in language clear and unmistakable, the obligation of fidelity on the part of lower court judges
to the unequivocal command of the Constitution that excessive bail shall not be required. 67
This principle was repeated in subsequent cases when this court deemed it proper to clarify important matters for
guidance.68
Thus, we rule that petitioners may be compelled to submit to the arbitration proceedings in accordance with
Shangri-Laand BF Corporation’s agreement, in order to determine if the distinction between Shangri-La’s
personality and their personalities should be disregarded.
This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to avoid litigation and settle
disputes amicably and more expeditiously by themselves and through their choice of arbitrators.
The policy in favor of arbitration has been affirmed in our Civil Code, 69 which was approved as early as 1949. It
was later institutionalized by the approval of Republic Act No. 876,70 which expressly authorized, made valid,
enforceable, and irrevocable parties’ decision to submit their controversies, including incidental issues, to
arbitration. This court recognized this policy in Eastboard Navigation, Ltd. v. Ysmael and Company, Inc.: 71
As a corollary to the question regarding the existence of an arbitration agreement, defendant raises the issue
that, even if it be granted that it agreed to submit its dispute with plaintiff to arbitration, said agreement is void
and without effect for it amounts to removing said dispute from the jurisdiction of the courts in which the parties
are domiciled or where the dispute occurred. It is true that there are authorities which hold that "a clause in a
contract providing that all matters in dispute between the parties shall be referred to arbitrators and to them
alone, is contrary to public policy and cannot oust the courts of jurisdiction" (Manila Electric Co. vs. Pasay
Transportation Co., 57 Phil., 600, 603), however, there are authorities which favor "the more intelligent view that
arbitration, as an inexpensive, speedy and amicable method of settling disputes, and as a means of avoiding
litigation, should receive every encouragement from the courts which may be extended without contravening
sound public policy or settled law" (3 Am. Jur., p. 835). Congress has officially adopted the modern view when it
reproduced in the new Civil Code the provisions of the old Code on Arbitration. And only recently it approved
Republic Act No. 876 expressly authorizing arbitration of future disputes.72 (Emphasis supplied)
In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses are liberally
construed to favor arbitration. Thus, in LM Power Engineering Corporation v. Capitol Industrial Construction
Groups, Inc.,73 this court said:
Being an inexpensive, speedy and amicable method of settling disputes, arbitration — along with mediation,
conciliation and negotiation — is encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the commercial kind. It is thus regarded as the
"wave of the future" in international civil and commercial disputes. Brushing aside a contractual agreement calling
for arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should
liberally construe arbitration clauses. Provided such clause is susceptible of an interpretation that covers the
asserted dispute, an order to arbitrate should be granted. Any doubt should be resolved in favor of
arbitration.74(Emphasis supplied)
A more clear-cut statement of the state policy to encourage arbitration and to favor interpretations that would
render effective an arbitration clause was later expressed in Republic Act No. 9285: 75
SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to actively promote party autonomy in
the resolution of disputes or the freedom of the party to make their own arrangements to resolve their disputes.
Towards this end, the State shall encourage and actively promote the use of Alternative Dispute Resolution (ADR)
as an important means to achieve speedy and impartial justice and declog court dockets. As such, the State shall
provide means for the use of ADR as an efficient tool and an alternative procedure for the resolution of
appropriate cases. Likewise, the State shall enlist active private sector participation in the settlement of disputes
through ADR. This Act shall be without prejudice to the adoption by the Supreme Court of any ADR system, such as
mediation, conciliation, arbitration, or any combination thereof as a means of achieving speedy and efficient
means of resolving cases pending before all courts in the Philippines which shall be governed by such rules as the
Supreme Court may approve from time to time.
....
SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have due regard to the policy of the
law in favor of arbitration.Where action is commenced by or against multiple parties, one or more of whomare
parties who are bound by the arbitration agreement although the civil action may continue as to those who are
not bound by such arbitration agreement. (Emphasis supplied)
Thus, if there is an interpretation that would render effective an arbitration clause for purposes ofavoiding
litigation and expediting resolution of the dispute, that interpretation shall be adopted. Petitioners’ main
argument arises from the separate personality given to juridical persons vis-à-vis their directors, officers,
stockholders, and agents. Since they did not sign the arbitration agreement in any capacity, they cannot be forced
to submit to the jurisdiction of the Arbitration Tribunal in accordance with the arbitration agreement. Moreover,
they had already resigned as directors of Shangri-Laat the time of the alleged default.
Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and distinct from
Shangri-La.
A corporation is an artificial entity created by fiction of law. 76 This means that while it is not a person, naturally,
the law gives it a distinct personality and treats it as such. A corporation, in the legal sense, is an individual with
a personality that is distinct and separate from other persons including its stockholders, officers, directors,
representatives,77 and other juridical entities. The law vests in corporations rights,powers, and attributes as if
they were natural persons with physical existence and capabilities to act on their own. 78 For instance, they have
the power to sue and enter into transactions or contracts. Section 36 of the Corporation Code enumerates some of
a corporation’s powers, thus:
Section 36. Corporate powers and capacity.– Every corporation incorporated under this Code has the power and
capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the articles of incorporation and
the certificate ofincorporation;
3
 3. To adopt and use a corporate seal; The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of
that contract and is itself a contract. As a rule, contracts are respected as the law between the contracting
parties and produce effect as between them, their assigns and heirs. Clearly, only parties to the Agreement . . .
4. To amend its articles of incorporation in accordance with the provisions of this Code;
are bound by the Agreement and its arbitration clause as they are the only signatories thereto. 82 (Citation
omitted)
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in
accordance with this Code;
This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals Co., Inc. 83 and Stanfilco
Employees v. DOLE Philippines, Inc., et al.84
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to admit members to the corporation if it be a non-
As a general rule, therefore, a corporation’s representative who did not personally bind himself or herself to an
stock corporation;
arbitration agreement cannot be forced to participate in arbitration proceedings made pursuant to an agreement
entered into by the corporation. He or she is generally not considered a party to that agreement.
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal
with such real and personal property, including securities and bonds of other corporations, as the
However, there are instances when the distinction between personalities of directors, officers,and
transaction of the lawful business of the corporation may reasonably and necessarily require, subject to
representatives, and of the corporation, are disregarded. We call this piercing the veil of corporate fiction.
the limitations prescribed by law and the Constitution;

8. To enter into merger or consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall
give donations in aid of any political party or candidate or for purposes of partisan political activity;
Piercing the corporate veil is warranted when "[the separate personality of a corporation] is used as a means to
perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of
statutes, or to confuse legitimate issues."85 It is also warranted in alter ego cases "where a corporation is merely a
farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation."86

10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers
and employees; and
11. To exercise such other powers asmay be essential or necessary to carry out its purpose or purposes
as stated in its articles of incorporation. (13a)
Because a corporation’s existence is only by fiction of law, it can only exercise its rights and powers through
itsdirectors, officers, or agents, who are all natural persons. A corporation cannot sue or enter into contracts
without them.
A consequence of a corporation’s separate personality is that consent by a corporation through its representatives
is not consent of the representative, personally. Its obligations, incurred through official acts of its
representatives, are its own. A stockholder, director, or representative does not become a party to a contract just
because a corporation executed a contract through that stockholder, director or representative.
Hence, a corporation’s representatives are generally not bound by the terms of the contract executed by the
corporation. They are not personally liable for obligations and liabilities incurred on or in behalf of the
corporation.
When corporate veil is pierced, the corporation and persons who are normally treated as distinct from the
corporation are treated as one person, such that when the corporation is adjudged liable, these persons, too,
become liable as if they were the corporation.
Among the persons who may be treatedas the corporation itself under certain circumstances are its directors and
officers. Section 31 of the Corporation Code provides the instances when directors, trustees, or officers may
become liable for corporate acts:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or
assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing
the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such
directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse
to the corporation in respect of any matter which has been reposed inhim in confidence, as to which equity
imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and
must account for the profits which otherwise would have accrued to the corporation. (n)

Based on the above provision, a director, trustee, or officer of a corporation may be made solidarily liable with it
Petitioners are also correct that arbitration promotes the parties’ autonomy in resolving their disputes. This court
for all damages suffered by the corporation, its stockholders or members, and other persons in any of the
recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty Corporation 79 that an arbitration clause shall not apply
following cases:
to persons who were neither parties to the contract nor assignees of previous parties, thus:

a) The director or trustee willfully and knowingly voted for or assented to a patently unlawful corporate
A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on arbitration, binds
act;
the parties thereto, as well as their assigns and heirs. But only they. 80 (Citations omitted)

b) The director or trustee was guilty of gross negligence or bad faith in directing corporate affairs; and
Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court ruled:

4
 c) The director or trustee acquired personal or pecuniary interest in conflict with his or her duties as
director or trustee.
Solidary liability with the corporation will also attach in the following instances:
a) "When a director or officer has consented to the issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate secretary his written objection thereto";87
b) "When a director, trustee or officer has contractually agreed or stipulated to hold himself personally
and solidarily liable with the corporation";88 and
an arbitration agreement may be compelled to submit to arbitration. In that case, this court recognizedthat
persons other than the main party may be compelled to submit to arbitration, e.g., assignees and heirs. Assignees
and heirs may be considered parties to an arbitration agreement entered into by their assignor because the
assignor’s rights and obligations are transferred to them upon assignment. In other words, the assignor’s rights and
obligations become their own rights and obligations. In the same way, the corporation’s obligations are treated as
the representative’s obligations when the corporate veil is pierced. Moreover, in Heirs of Augusto Salas, this court
affirmed its policy against multiplicity of suits and unnecessary delay. This court said that "to split the proceeding
into arbitration for some parties and trial for other parties would "result in multiplicity of suits, duplicitous
procedure and unnecessary delay."91 This court also intimated that the interest of justice would be best observed
if it adjudicated rights in a single proceeding. 92 While the facts of that case prompted this court to direct the trial
court to proceed to determine the issues of thatcase, it did not prohibit courts from allowing the case to proceed
to arbitration, when circumstances warrant.

c) "When a director, trustee or officer is made, by specific provision of law, personally liable for his
Hence, the issue of whether the corporation’s acts in violation of complainant’s rights, and the incidental issue of
corporate action."89
whether piercing of the corporate veil is warranted, should be determined in a single proceeding. Such finding
would determine if the corporation is merely an aggregation of persons whose liabilities must be treated as one
When there are allegations of bad faith or malice against corporate directors or representatives, it becomes the with the corporation.
duty of courts or tribunals to determine if these persons and the corporation should be treated as one. Without a
trial, courts and tribunals have no basis for determining whether the veil of corporate fiction should be pierced.
However, when the courts disregard the corporation’s distinct and separate personality from its directors or
Courts or tribunals do not have such prior knowledge. Thus, the courts or tribunals must first determine whether
officers, the courts do not say that the corporation, in all instances and for all purposes, is the same as its
circumstances exist towarrant the courts or tribunals to disregard the distinction between the corporation and the
directors, stockholders, officers, and agents. It does not result in an absolute confusion of personalities of the
persons representing it. The determination of these circumstances must be made by one tribunal or court in a
corporation and the persons composing or representing it. Courts merely discount the distinction and treat them
proceeding participated in by all parties involved, including current representatives of the corporation, and those
as one, in relation to a specific act, in order to extend the terms of the contract and the liabilities for all damages
persons whose personalities are impliedly the sameas the corporation. This is because when the court or tribunal
to erring corporate officials who participated in the corporation’s illegal acts. This is done so that the legal fiction
finds that circumstances exist warranting the piercing of the corporate veil, the corporate representatives are
cannot be used to perpetrate illegalities and injustices.
treated as the corporation itself and should be held liable for corporate acts. The corporation’s distinct
personality is disregarded, and the corporation is seen as a mere aggregation of persons undertaking a business
under the collective name of the corporation. Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the corporate veil,
parties who are normally treated as distinct individuals should be made to participate in the arbitration
proceedings in order to determine ifsuch distinction should indeed be disregarded and, if so, to determine the
Hence, when the directors, as in this case, are impleaded in a case against a corporation, alleging malice orbad
extent of their liabilities.
faith on their part in directing the affairs of the corporation, complainants are effectively alleging that the
directors and the corporation are not acting as separate entities. They are alleging that the acts or omissions by
the corporation that violated their rights are also the directors’ acts or omissions. 90 They are alleging that In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to prove the existence of
contracts executed by the corporation are contracts executed by the directors. Complainants effectively pray that circumstances that render petitioners and the other directors solidarily liable. It ruled that petitioners and
the corporate veilbe pierced because the cause of action between the corporation and the directors is the same. Shangri-La’s other directors were not liable for the contractual obligations of Shangri-La to BF Corporation. The
Arbitral Tribunal’s decision was made with the participation of petitioners, albeit with their continuing objection.
In view of our discussion above, we rule that petitioners are bound by such decision.
In that case, complainants have no choice but to institute only one proceeding against the parties.1âwphi1 Under
the Rules of Court, filing of multiple suits for a single cause of action is prohibited. Institution of more than one
suit for the same cause of action constitutes splitting the cause of action, which is a ground for the dismissal ofthe WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006 and resolution of October 5,
others. Thus, in Rule 2: 2006 are AFFIRMED.

Section 3. One suit for a single cause of action. — A party may not institute more than one suit for a single cause SO ORDERED.
of action. (3a)

Section 4. Splitting a single cause of action;effect of. — If two or more suits are instituted on the basis of the
same cause of action, the filing of one or a judgment upon the merits in any one is available as a ground for the
dismissal of the others. (4a)

It is because the personalities of petitioners and the corporation may later be found to be indistinct that we rule
that petitioners may be compelled to submit to arbitration.

However, in ruling that petitioners may be compelled to submit to the arbitration proceedings, we are not
overturning Heirs of Augusto Salas wherein this court affirmed the basic arbitration principle that only parties to
5
 G.R. No. 184666, June 27, 2016
REPUBLIC OF THE PHILIPPINES, Petitioner, v. MEGA PACIFIC ESOLUTIONS, INC., WILLY U. YU, BONNIE S. YU,
ENRIQUE T. TANSIPEK, ROSITA Y. TANSIPEK, PEDRO O. TAN, JOHNSON W. FONG, BERNARD I. FONG,
AND *LAURIANO A. BARRIOS, Respondents.
DECISION
SERENO, C.J.:
The instant case is an offshoot of this Court's Decision dated 13 January 2004 (2004 Decision) in a related case
entitled Information Technology Foundation of the Philippines v. Commission on Elections.1chanrobleslaw
In the 2004 case, We declared void the automation contract executed by respondent Mega Pacific eSolutions, Inc.
(MPEI) and the Commission on Elections (COMELEC) for the supply of automated counting machines (ACMs) for the
2004 national elections.
The present case involves the attempt of petitioner Republic of the Philippines to cause the attachment of the
properties owned by respondent MPEI, as well as by its incorporators and stockholders (individual respondents in
this case), in order to secure petitioner's interest and to ensure recovery of the payments it made to respondents
for the invalidated automation contract.
At bench is a Rule 45 Petition assailing the Amended Decision dated 22 September 2008 (Amended Decision) issued
by the Court of Appeals (CA) in CA-G.R. SP No. 95988.2 In said Amended Decision, the CA directed the remand of
the case to the Regional Trial Court of Makati City, Branch 59 (RTC Makati) for the reception of evidence in
relation to petitioner's application for the issuance of a writ of preliminary attachment. The CA had reconsidered
and set aside its previous Decision dated 31 January 2008 (First Decision)3 entitling petitioner to the issuance of
said writ.
Summarized below are the relevant facts of the case, some of which have already been discussed in this Court's
2004 Decision:
chanRoblesvirtualLawlibrary
The Facts
Republic Act No. 8436 authorized the COMELEC to use an automated election system for the May 1998 elections.
However, the automated system failed to materialize and votes were canvassed manually during the 1998 and the
2001 elections.
For the 2004 elections, the COMELEC again attempted to implement the automated election system. For this
purpose, it invited bidders to apply for the procurement of supplies, equipment, and services. Respondent MPEI,
as lead company, purportedly formed a joint venture - known as the Mega Pacific Consortium (MPC) - together
with We Solv, SK C & C, ePLDT, Election.com and Oracle. Subsequently, MPEI, on behalf of MPC, submitted its bid
proposal to COMELEC.
The COMELEC evaluated various bid offers and subsequently found MPC and another company eligible to
participate in the next phase of the bidding process.4 The two companies were referred to the Department of
Science and Technology (DOST) for technical evaluation. After due assessment, the Bids and Awards Committee
(BAC) recommended that the project be awarded to MPC. The COMELEC favorably acted on the recommendation
and issued Resolution No. 6074, which awarded the automation project to MPC.
Despite the award to MPC, the COMELEC and MPEI executed on 2 June 2003 the Automated Counting and
Canvassing Project Contract (automation contract)5 for the aggregate amount of P1,248,949,088. MPEI agreed to
supply and deliver 1,991 units of ACMs and such other equipment and materials necessary for the computerized
electoral system in the 2004 elections. Pursuant to the automation contract, MPEI delivered 1,991 ACMs to the
COMELEC. The latter, for its part, made partial payments to MPEI in the aggregate amount of P1.05 billion.
The full implementation of the automation contract was rendered impossible by the fact that, after a painstaking
legal battle, this Court in its 2004 Decision declared the contract null and void.6 We held that the COMELEC
committed a clear violation of law and jurisprudence, as well as a reckless disregard of its own bidding rules and
procedure. In addition, the COMELEC entered into the contract with inexplicable haste, and without adequately
checking and observing mandatory financial, technical, and legal requirements. In a subsequent Resolution, We
summarized the COMELEC's grave abuse of discretion as having consisted of the following: 7
1. By a formal Resolution, it awarded the project to "Mega Pacific Consortium," an entity that
had not participated in the bidding. Despite this grant, Comelec entered into the actual Contract with
"Mega Pacific eSolutions, Inc." (MPEI), a company that joined the bidding process but did not meet the
eligibility requirements.
2. Comelec accepted and irregularly paid for MPEI's ACMs that had failed the accuracy requirement of
99.9995 percent set up by the Comelec bidding rules. Acknowledging that this rating could have been
too steep, the Court nonetheless noted that "the essence of public bidding is violated by the practice of
requiring very high standards or unrealistic specifications that cannot be met, x x x only to water them
down after the award is made. Such scheme, which discourages the entry of bona fide bidders, is in
fact a sure indication of fraud in the bidding, designed to eliminate fair competition."
3. The software program of the counting machines likewise failed to detect previously downloaded
precinct results and to prevent them from being reentered. This failure, which has not been corrected x
x x, would have allowed unscrupulous persons to repeatedly feed into the computers the results
favorable to a particular candidate, an act that would have translated into massive election fraud by
just a few key strokes.
4. Neither were the ACMs able to print audit trails without loss of data - a mandatory requirement under
Section 7 of Republic Act No. 8436. Audit trails would enable the Comelec to document the identities of
the ACM operators responsible for data entry and downloading, as well as the times when the various
data were processed, in order to forestall fraud and to identify the perpetrators. The absence of audit
trails would have posed a serious threat to free and credible elections.
5. Comelec failed to explain satisfactorily why it had ignored its own bidding rules and requirements. It
admitted that the software program used to test the ACMs was merely a "demo" version, and that the
final one to be actually used in the elections was still being developed. By awarding the Contract and
irregularly paying for the supply of the ACMs without having seen — much less, evaluated — the final
product being purchased, Comelec desecrated the law on public bidding. It would have allowed the
winner to alter its bid substantially, without any public bidding.
All in all, Comelec subverted the essence of public bidding: to give the public an opportunity for fair competition
and a clear basis for a precise comparison of bids.8(Emphasis supplied)
As a consequence of the nullification of the automation contract, We directed the Office of the Ombudsman to
determine the possible criminal liability of persons responsible for the contract.9 This Court likewise directed the
Office of the Solicitor General to protect the government from the ill effects of the illegal disbursement of public
funds in relation to the automation contract.10chanrobleslaw
After the declaration of nullity of the automation contract, the following incidents
transpired:ChanRoblesVirtualawlibrary
1. Private respondents in the 2004 case moved for reconsideration of the 2004 Decision, but the motion
was denied by this Court in a Resolution dated 17 February 2004 (2004 Resolution).11chanrobleslaw
6
 2. The COMELEC filed a "Most Respectful Motion for Leave to Use the Automated Counting Machines in the
Custody of the Commission on Elections for use in the 8 August 2005 Elections in the Autonomous Region
for Muslim Mindanao" dated 9 December 2004 (Motion for Leave to Use ACMs), which was denied by this
Court in its Resolution dated 15 June 2005 (2005 Resolution).
3. Atty. Romulo B. Macalintal (Macalintal) filed an "Omnibus Motion for Leave of Court (1) to Reopen the
Case; and (2) to Intervene and Admit the Attached Petition in Intervention," which was denied by this
Court in its Resolution dated 22 August 2006 (2006 Resolution); and cralawlawlibrary
4. Respondent MPEI filed a Complaint for Damages12 (Complaint) with the RTC Makati, from which the
instant case arose.
The above-mentioned incidents are discussed in more detail below.
BACKGROUND PROCEEDINGS
Private respondents' Motion for Reconsideration
Private respondents in the 2004 case moved for reconsideration of the 2004 Decision. Aside from reiterating the
procedural and substantive arguments they had raised, they also argued that the 2004 Decision had exposed them
to possible criminal prosecution.13chanrobleslaw
This Court denied the motion in its 2004 Resolution and ruled that no prejudgment had been made on private
respondents' criminal liability. We further ruled that although the 2004 Decision stated that the Ombudsman shall
"determine the criminal liability, if any, of the public officials (and conspiring private individuals, if any) involved
in the subject Resolution and Contract," We did not make any premature conclusion on any wrongdoing, but
precisely directed the Ombudsman to make that determination after conducting appropriate proceedings and
observing due process.
Similarly, it appears from the record that several criminal and administrative Complaints had indeed been filed
with the Ombudsman in relation to the declaration of nullity of the automation contract. 14 The Complaints were
filed against several public officials and the individual respondents in this case. 15chanrobleslaw
In a Resolution issued on 28 June 2006,16 the Ombudsman recommended the filing of informations before the
Sandiganbayan against some of the public officials and the individual respondents17 for violation of Section 3(e) of
Republic Act No. 3019 (the Anti-Graft and Corrupt Practices Act). However, on 27 September 2006,18 upon
reconsideration, the Ombudsman reversed its earlier ruling in a Supplemental Resolution (September Resolution),
directing the dismissal of the criminal cases against the public officials, as well as the individual respondents, for
lack of probable cause.19chanrobleslaw
With this development, a Petition for Certiorari was filed with this Court on 13 October 2006 and docketed as G.R.
No. 174777.20 In the Petition, several individuals21 assailed the September Resolution of the Ombudsman finding no
probable cause to hold respondents criminally liable. The case remains pending with this Court as of this date.
COMELEC's Motion for Leave to Use ACMs in the ARMM Elections
The COMELEC filed a motion with this Court requesting permission to use the 1,991 ACMs previously delivered by
respondent MPEI, for the ARMM elections, then slated to be held on 8 August 2005. In its motion, the COMELEC
claimed that automation of the ARMM elections was mandated by Republic Act No. 9333, and since the
government had no available funds to finance the automation of those elections, the ACMs could be utilized for
the 2005 elections.
This Court denied the Motion in Our 2005 Resolution. We ruled that allowing the use of the ACMs would have the
effect of illegally reversing and subverting a final decision We had promulgated. We further ruled that the
COMELEC was asking for permission to do what it had precisely been prohibited from doing under the 2004
Decision. This Court also ruled that the grant of the motion would bar or jeopardize the recovery of government
funds paid to respondents. Considering that the COMELEC did not present any evidence to prove that the defects
had been addressed, We held that the use of the ACMs and the software would expose the ARMM elections to the
same electoral ills pointed out in the 2004 Decision.
Atty. Macalintal's Omnibus Motion
Atty. Romulo Macalintal sought to reopen the 2004 case in order that he may be allowed to intervene as a
taxpayer and citizen. His purpose for intervening was to seek another testing of the ACMs with the ultimate
objective of allowing the COMELEC to use them, this time for the 2007 national elections.
This Court denied his motion in Our 2006 Resolution, ruling that Atty. Macalintal failed to demonstrate that
certain supervening events and legal circumstances had transpired to justify the reliefs sought. We in fact found
that, after Our determination that the ACMs had failed to pass legally mandated technical requirements in 2004,
they were simply put in storage. The ACMs had remained idle and unused since the last evaluation, at which they
failed to hurdle crucial tests. Consequently, We ruled that if the ACMs were not good enough for the 2004 national
elections or the 2005 ARMM elections, then neither would they be good enough for the 2007 national elections,
considering that nothing was done to correct the flaws that had been previously underscored in the 2004 Decision.
We held that granting the motion would be tantamount to rendering the 2004 Decision totally ineffective and
nugatory.
Moreover, because of our categorical ruling that the whole bidding process was void and fraudulent, the proposal
to use the illegally procured, demonstratively defective, and fraud-prone ACMs was rendered nonsensical.
Thus:ChanRoblesVirtualawlibrary
We stress once again that the Contract entered into by the Comelec for the supply of the ACMs was declared VOID
by the Court in its Decision, because of clear violations of law and jurisprudence, as well as the reckless disregard
by the Commission of its own bidding rules and procedure. In addition, the poll body entered into the Contract
with inexplicable haste, without adequately checking and observing mandatory financial, technical and legal
requirements. As explained in our Decision, Comelec's gravely abusive acts consisted of the following:
chanRoblesvirtualLawlibraryx x x x
To muddle the issue, Comelec keeps on saying that the "winning" bidder presented a lower price than the
only other bidder. It ignored the fact that the whole bidding process was VOID and FRAUDULENT. How then
could there have been a "winning" bid?22 (Emphasis supplied)
THE INSTANT CASE
Complaint for Damages filed by respondents with the RTC Makati and petitioner's Answer with
Counterclaim, with an application for a writ of preliminary attachment, from which the instant case arose
Upon the finality of the declaration of nullity of the automation contract, respondent MPEI filed a Complaint for
Damages before the RTC Makati, arguing that, notwithstanding the nullification of the automation contract, the
COMELEC was still bound to pay the amount of P200,165,681.89. This amount represented the difference between
the value of the ACMs and the support services delivered on one hand, and on the other, the payment previously
made by the COMELEC.23chanrobleslaw
Petitioner filed its Answer with Counterclaim24 and argued that respondent MPEI could no longer recover the
unpaid balance from the void automation contract, since the payments made were illegal disbursements of public
funds. It contended that a null and void contract vests no rights and creates no obligations, and thus produces no
legal effect at all. Petitioner further posited that respondent MPEI could not hinge its claim upon the principles of
unjust enrichment and quasi-contract, because such presume that the acts by which the authors thereof become
obligated to each other are lawful, which was not the case herein.25cralawredchanrobleslaw
By way of a counterclaim, petitioner demanded from respondents the return of the payments made pursuant to
the automation contract.26 It argued that individual respondents, being the incorporators of MPEI, likewise ought
to be impleaded and held accountable for MPEI's liabilities. The creation of MPC was, after all, merely an
7
ingenious scheme to feign eligibility to bid.27chanrobleslaw
Pursuant to Section 1(d) of Rule 57 of the Rules of Court, petitioner prayed for the issuance of a writ of
preliminary attachment against the properties of MPEI and individual respondents. The application was grounded
upon the fraudulent misrepresentation of respondents as to their eligibility to participate in the bidding for the
COMELEC automation project and the failure of the ACMs to comply with mandatory technical
requirements.28chanrobleslaw
Subsequently, the trial court denied the prayer for the issuance of a writ of preliminary attachment,29 ruling that
there was an absence of factual allegations as to how the fraud was actually committed.
The allegations of petitioner were found to be unreliable, as the latter merely copied from the declarations of the
Supreme Court in Information Technology Foundation of the Phils, v. COMELEC the factual allegations of MPEI's
lack of qualification and noncompliance with bidding requirements. The trial court further ruled that the
allegations of fraud on the part of MPEI were not supported by the COMELEC, the office in charge of conducting
the bidding for the election automation contract. It was likewise held that there was no evidence that
respondents harbored a preconceived plan not to comply with the obligation; neither was there any evidence that
MPEI's corporate fiction was used to perpetrate fraud. Thus, it found no sufficient basis to pierce the veil of
corporate fiction or to cause the attachment of the properties owned by individual respondents.
Petitioner moved to set aside the trial court's Order denying the writ of attachment,30 but its motion was
denied.31chanrobleslaw
Appeal before the CA and the First Decision
Aggrieved, petitioner filed an appeal with the CA, arguing that the trial court had acted with grave abuse of
discretion in denying the application for a writ of attachment.
As mentioned earlier, the CA in its First Decision32 reversed and set aside the trial court's Orders and ruled that
there was sufficient basis for the issuance of a writ of attachment in favor of petitioner.
The appellate court explained that the averments of petitioner in support of the latter's application actually
reflected pertinent conclusions reached by this Court in its 2004 Decision. It held that the trial court erred in
disregarding the following findings of fact, which remained unaltered and unreversed: (1) COMELEC bidding rules
provided that the eligibility and capacity of a bidder may be proved through financial documents including, among
others, audited financial statements for the last three years; (2) MPEI was incorporated only on 27 February 2003,
or 11 days prior to the bidding itself; (3) in an attempt to disguise its ineligibility, MPEI participated in the bidding
as lead company of MPC, a putative consortium, and submitted the incorporation papers and financial statements
of the members of the consortium; and (4) no proof of the joint venture agreement, consortium agreement,
memorandum of agreement, or business plan executed among the members of the purported consortium was ever
submitted to the COMELEC.33chanrobleslaw
According to the CA, the foregoing were glaring indicia or badges of fraud, which entitled petitioner to the
issuance of the writ. It further ruled that there was sufficient reason to pierce the corporate veil of MPEI. Thus,
the CA allowed the attachment of the properties belonging to both MPEI and individual respondents.34 The CA
likewise ruled that even if the COMELEC committed grave abuse of discretion in capriciously disregarding the rules
on public bidding, this should not preclude or deter petitioner from pursuing its claim against respondents. After
all, the State is not estopped by the mistake of its officers and employees.35chanrobleslaw
Respondents moved for reconsideration36 of the First Decision of the CA.
Motion for Reconsideration before the CA and the Amended Decision
Upon review, the CA reconsidered its First Decision37 and directed the remand of the case to the RTC Makati for
the reception of evidence of allegations of fraud and to determine whether attachment should necessarily
issue.38chanrobleslaw
The CA explained in its Amended Decision that respondents could not be considered to have fostered a fraudulent
intent to dishonor their obligation, since they had delivered 1,991 units of ACMs. 39 It directed petitioner to present
proof of respondents' intent to defraud COMELEC during the execution of the automation contract. 40 The CA
likewise emphasized that the Joint Affidavit submitted in support of petitioner's application for the writ contained
allegations that needed to be substantiated.41 It added that proof must likewise be adduced to verify the requisite
fraud that would justify the piercing of the corporate veil of respondent MPEI. 42chanrobleslaw
The CA further clarified that the 2004 Decision did not make a definite finding as to the identities of the persons
responsible for the illegal disbursement or of those who participated in the fraudulent dealings.43 It instructed the
trial court to consider, in its determination of whether the writ of attachment should issue, the illegal, imprudent
and hasty acts in awarding the automation contract by the COMELEC. In particular, these acts consisted of: (1)
awarding the automation contract to MPC, an entity that did not participate in the bidding; and (2) signing the
actual automation contract with respondent MPEI, the company that joined the bidding without meeting the
eligibility requirement.44chanrobleslaw
Rule 45 Petition before Us
Consequently, petitioner filed the instant Rule 45 Petition,45 arguing that the CA erred in ordering the remand of
the case to the trial court for the reception of evidence to determine the presence of fraud. Petitioner contends
that this Court's 2004 Decision was sufficient proof of the fraud committed by respondents in the execution of the
voided automation contract.46Respondents allegedly committed fraud by securing the automation contract,
although MPEI was not qualified to bid in the first place.47 Their claim that the members of MPC bound themselves
to the automation contract was an indication of bad faith as the contract was executed by MPEI alone. 48 Neither
could they deny that the software submitted during the bidding process was not the same one that would be used
on election day.49 They could not dissociate themselves from telltale signs such as purportedly supplying software
that later turned out to be non-existent.50chanrobleslaw
In their respective Comments, respondents Willy Yu, Bonnie Yu, Enrique Tansipek, and Rosita Tansipek
counter51 that this Court never ruled that individual respondents were guilty of any fraud or bad faith in
connection with the automation contract, and that it was incumbent upon petitioner to present evidence on the
allegations of fraud to justify the issuance of the writ.52They likewise argue that the 2004 Decision cannot be
invoked against them, since petitioner and MPEI were co-respondents in the 2004 case and not adverse parties
therein.53Respondents further contend that the allegations of fraud are belied by their actual delivery of 1,991
units of ACMs to the COMELEC, which they claim is proof that they never had any intention to evade
performance.54chanrobleslaw
They further allege that this Court, in its 2004 Decision, even recognized that it had not found any wrongdoing on
their part, and that the Ombudsman had already made a determination that no probable cause existed with
respect to charges of violation of Anti-Graft and Corrupt Practices Act.55chanrobleslaw
Echoing the other respondents' arguments on the lack of particularity in the allegations of fraud,56 respondents
MPEI, Johnson Wong, Bernard Fong, Pedro Tan, and Lauriano Barrios likewise argue that they were not parties to
the 2004 case; thus, the 2004 Decision thereon is not binding on them.57 Individual respondents likewise argue that
the findings of fact in the 2004 Decision were not conclusive,58 considering that eight (8) of the fifteen (15)
justices allegedly refused to go along with the factual findings as stated in the majority opinion. 59Thereafter,
petitioner filed its Reply to the Comments.60chanrobleslaw
Based on the submissions of both parties, the following issues are presented to this Court for resolution:
1. Whether petitioner has sufficiently established fraud on the part of respondents to justify the issuance
of a writ of preliminary attachment in its favor; and cralawlawlibrary
2. Whether a writ of preliminary attachment may be issued against the properties of individual
respondents, considering that they were not parties to the 2004 case.
8
 The Court's Ruling
The Petition is meritorious. A writ of preliminary attachment should issue in favor of petitioner over the
properties of respondents MPEI, Willy Yu (Willy) and the remaining individual respondents, namely: Bonnie S. Yu
(Bonnie), Enrique T. Tansipek (Enrique), Rosita Y. Tansipek (Rosita), Pedro O. Tan (Pedro), Johnson W. Fong
(Johnson), Bernard I. Fong (Bernard), and Lauriano Barrios (Lauriano). The bases for the writ are the following:
1. Fraud on the part of respondent MPEI was sufficiently established by the factual findings of this Court in
its 2004 Decision and subsequent pronouncements.
2. A writ of preliminary attachment may issue over the properties of the individual respondents using the
doctrine of piercing the corporate veil.
3. The factual findings of this Court that have become final cannot be modified or altered, much less
reversed, and are controlling in the instant case.
4. The delivery of 1,991 units of ACMs does not negate fraud on the part of respondents MPEI and Willy.
5. Estoppel does not lie against the state when it acts to rectify mistakes, errors or illegal acts of its
officials and agents.
6. The findings of the Ombudsman are not controlling in the instant case.
DISCUSSION
I.
Fraud on the part of respondent MPEI was sufficiently established by the factual findings of this Court in the
latter's 2004 Decision and subsequent pronouncements.
Petitioner argues that the findings of this Court in the 2004 Decision serve as sufficient basis to prove that, at the
time of the execution of the automation contract, there was fraud on the part of respondents that justified the
issuance of a writ of attachment. Respondents, however, argue the contrary. They claim that fraud had not been
sufficiently established by petitioner.
We rule in favor of petitioner. Fraud on the part of respondents MPEI and Willy, as well as of the other individual
respondents — Bonnie, Enrique, Rosita, Pedro, Johnson, Bernard, and Lauriano — has been established.
A writ of preliminary attachment is a provisional remedy issued upon the order of the court where an action is
pending. Through the writ, the property or properties of the defendant may be levied upon and held thereafter by
the sheriff as security for the satisfaction of whatever judgment might be secured by the attaching creditor
against the defendant.61 The provisional remedy of attachment is available in order that the defendant may not
dispose of the property attached, and thus prevent the satisfaction of any judgment that may be secured by the
plaintiff from the former.62chanrobleslaw
The purpose and function of an attachment or garnishment is twofold. First, it seizes upon property of an alleged
debtor in advance of final judgment and holds it subject to appropriation, thereby preventing the loss or
dissipation of the property through fraud or other means. Second, it subjects the property of the debtor to the
payment of a creditor's claim, in those cases in which personal service upon the debtor cannot be obtained. 63 This
remedy is meant to secure a contingent lien on the defendant's property until the plaintiff can, by appropriate
proceedings, obtain a judgment and have the property applied to its satisfaction, or to make some provision for
unsecured debts in cases in which the means of satisfaction thereof are liable to be removed beyond the
jurisdiction, or improperly disposed of or concealed, or otherwise placed beyond the reach of
creditors.64chanrobleslaw
Petitioner relied upon Section 1(d), Rule 57 of the Rules of Court as basis for its application for a writ of
preliminary attachment. This provision states:ChanRoblesVirtualawlibrary
Section 1. Grounds upon which attachment may issue. At the commencement of the action or at any time before
entry of judgment, a plaintiff or any proper party may have the property of the adverse party attached as security
for the satisfaction of any judgment that may be recovered in the following cases:
chanRoblesvirtualLawlibrary
xxxx
(d) In an action against a party who has been guilty of a fraud in contracting the debt or incurring the obligation
upon which the action is brought, or in theperformance thereof. (Emphasis supplied)
For a writ of preliminary attachment to issue under the above-quoted rule, the applicant must sufficiently show
the factual circumstances of the alleged fraud.65 In Metro, Inc. v. Lara's Gift and Decors, Inc.,66 We
explained:ChanRoblesVirtualawlibrary
To sustain an attachment on this ground, it must be shown that the debtor in contracting the debt or incurring the
obligation intended to defraud the creditor.The fraud must relate to the execution of the agreement and must
have been the reason which induced the other party into giving consent which he would not have otherwise
given. To constitute a ground for attachment in Section 1(d), Rule 57 of the Rules of Court, fraud should be
committed upon contracting the obligation sued upon. A debt is fraudulently contracted if at the time of
contracting it the debtor has a preconceived plan or intention not to pay, as it is in this case. x x x.
The applicant for a writ of preliminary attachment must sufficiently show the factual circumstances of the alleged
fraud because fraudulent intent cannot be inferred from the debtor's mere non-payment of the debt or failure to
comply with his obligation. (Emphasis supplied)
An amendment to the Rules of Court added the phrase "in the performance thereof" to include within the scope of
the grounds for issuance of a writ of preliminary attachment those instances relating to fraud in the performance
of the obligation.67chanrobleslaw
Fraud is a generic term that is used in various senses and assumes so many different degrees and forms that courts
are compelled to content themselves with comparatively few general rules for its discovery and defeat. For the
same reason, the facts and circumstances peculiar to each case are allowed to bear heavily on the conscience and
judgment of the court or jury in determining the presence or absence of fraud. In fact, the fertility of man's
invention in devising new schemes of fraud is so great that courts have always declined to define it, thus,
reserving for themselves the liberty to deal with it in whatever form it may present itself.68chanrobleslaw
Fraud may be characterized as the voluntary execution of a wrongful act or a wilful omission, while knowing and
intending the effects that naturally and necessarily arise from that act or omission. 69 In its general sense, fraud is
deemed to comprise anything calculated to deceive—including all acts and omission and concealment involving a
breach of legal or equitable duty, trust, or confidence justly reposed—resulting in damage to or in undue
advantage over another.70 Fraud is also described as embracing all multifarious means that human ingenuity can
device, and is resorted to for the purpose of securing an advantage over another by false suggestions or by
suppression of truth; and it includes all surprise, trick, cunning, dissembling, and any other unfair way by which
another is cheated.71chanrobleslaw
While fraud cannot be presumed, it need not be proved by direct evidence and can well be inferred from
attendant circumstances.72 Fraud by its nature is not a thing susceptible of ocular observation or readily
demonstrable physically; it must of necessity be proved in many cases by inferences from circumstances shown to
have been involved in the transaction in question.73chanrobleslaw
In the case at bar, petitioner has sufficiently discharged the burden of demonstrating the commission of fraud by
respondent MPEI in the execution of the automation contract in the two ways that were enumerated earlier and
discussed below:
chanRoblesvirtualLawlibraryA. Respondent MPEI had perpetrated a scheme against petitioner to secure the
automation contract by using MPC as supposed bidder and eventually succeeding in signing the automation
contract as MPEI alone, an entity which was ineligible to bid in the first place.
9
To avoid any confusion relevant to the basis of fraud, We quote herein the pertinent portions of this Court's 2004
Decision with regard to the identity, existence, and eligibility of MPC as bidder:74
On the question of the identity and the existence of the real bidder, respondents insist that, contrary to
petitioners' allegations, the bidder was not Mega Pacific eSolutions, Inc. (MPEI), which was incorporated only on
February 27, 2003, or 11 days prior to the bidding itself. Rather, the bidder was Mega Pacific Consortium
(MPC), of which MPEI was but a part. As proof thereof, they point to the March 7, 2003 letter of intent to bid,
signed by the president of MPEI allegedly for and on behalf of MPC. They also call attention to the official receipt
issued to MPC, acknowledging payment for the bidding documents, as proof that it was the "consortium" that
participated in the bidding process.
We do not agree. The March 7, 2003 letter, signed by only one signatory — "Willy U. Yu, President, Mega Pacific
eSolutions, Inc., (Lead Company/Proponent) For: Mega Pacific Consortium" — and without any further proof, does
not by itself prove the existence of the consortium. It does not show that MPEI or its president have been duly
pre-authorized by the other members of the putative consortium to represent them, to bid on their collective
behalf and, more important, to commit them jointly and severally to the bid undertakings. The letter is purely
self-serving and uncorroborated.
Neither does an official receipt issued to MPC, acknowledging payment for the bidding documents, constitute
proof that it was the purported consortium that participated in the bidding. Such receipts are issued by cashiers
without any legally sufficient inquiry as to the real identity or existence of the supposed payor.
To assure itself properly of the due existence (as well as eligibility and qualification) of the putative consortium,
Comelec's BAC should have examined the bidding documents submitted on behalf of MPC. They would have easily
discovered the following fatal flaws.
xxxx
The Eligibility Envelope was to contain legal documents such as articles of incorporation, x x x to establish the
bidder's financial capacity.
In the case of a consortium or joint venture desirous of participating in the bidding, it goes without saying that the
Eligibility Envelope would necessarily have to include a copy of the joint venture agreement, the consortium
agreement or memorandum of agreement — or a business plan or some other instrument of similar import —
establishing the due existence, composition and scope of such aggrupation. Otherwise, how would Comelec know
who it was dealing with, and whether these parties are qualified and capable of delivering the products and
services being offered for bidding?
In the instant case, no such instrument was submitted to Comelec during the bidding process. x x x
xxxx
However, there is no sign whatsoever of any joint venture agreement, consortium agreement, memorandum
of agreement, or business plan executed among the members of the purported consortium.
The only logical conclusion is that no such agreement was ever submitted to the Comelec for its
consideration, as part of the bidding process.
It thus follows that, prior the award of the Contract, there was no documentary or other basis for Comelec to
conclude that a consortium had actually been formed amongst MPEI, SK C&C and WeSolv, along with
Election.com and ePLDT. Neither was there anything to indicate the exact relationships between and among
these firms; their diverse roles, undertakings and prestations, if any, relative to the prosecution of the project,
the extent of their respective investments (if any) in the supposed consortium or in the project; and the precise
nature and extent of their respective liabilities with respect to the contract being offered for bidding. And apart
from the self-serving letter of March 7, 2003, there was not even any indication that MPEI was the lead company
duly authorized to act on behalf of the others.
xxxx
Hence, had the proponent MPEI been evaluated based solely on its own experience, financial and operational
track record or lack thereof, it would surely not have qualified and would have been immediately considered
ineligible to bid, as respondents readily admit.
xxxx
At this juncture, one might ask: What, then, if there are four MOAs instead of one or none at all? Isn't it enough
that there are these corporations coming together to carry out the automation project? Isn't it true, as respondent
aver, that nowhere in the RFP issued by Comelec is it required that the members of the joint venture execute a
single written agreement to prove the existence of a joint venture. x x x
xxxx
The problem is not that there are four agreements instead of only one. The problem is that Comelec never
bothered to check. It never based its decision on documents or other proof that would concretely establish the
existence of the claimed consortium or joint venture or agglomeration.
xxxx
True, copies of financial statements and incorporation papers of the alleged "consortium" members were
submitted. But these papers did not establish the existence of a consortium, as they could have been provided by
the companies concerned for purposes other than to prove that they were part of a consortium or joint venture.
xxxx
In brief, despite the absence of competent proof as to the existence and eligibility of the alleged consortium
(MPC), its capacity to deliver on the Contract, and the members' joint and several liability therefor, Comelec
nevertheless assumed that such consortium existed and was eligible. It then went ahead and considered the
bid of MPC, to which the Contract was eventually awarded, in gross violation of the former's own bidding
rules and procedures contained in its RFP. Therein lies Comclec's grave abuse of discretion.
Sufficiency of the Four Agreements
Instead of one multilateral agreement executed by, and effective and binding on, all the five "consortium
members" — as earlier claimed by Commissioner Tuason in open court — it turns out that what was actually
executed were four (4) separate and distinct bilateral Agreements. Obviously, Comelec was furnished copies of
these Agreements only after the bidding process had been terminated, as these were not included in the
Eligibility Documents. x x x
xxxx
At this point, it must be stressed most vigorously that the submission of the four bilateral Agreements to
Comelec after the end of the bidding process did nothing to eliminate the grave abuse of discretion it
had already committed on April 15, 2003.
Deficiencies Have Not Been "Cured"
In any event, it is also claimed that the automation Contract awarded by Comelec incorporates all documents
executed by the "consortium" members, even if these documents are not referred to therein. x x x
xxxx
Thus, it is argued that whatever perceived deficiencies there were in the supplementary contracts - those entered
into by MPEI and the other members of the "consortium" as regards their joint and several undertakings — have
10
been cured. Better still, such deficiencies have supposedly been prevented from arising as a result of the above-
quoted provisions, from which it can be immediately established that each of the members of MPC assumes the
same joint and several liability as the other members.
The foregoing argument is unpersuasive. First, the contract being referred to, entitled "The Automated
Counting and Canvassing Project Contract," is between Comelec and MPEI, not the alleged consortium, MPC.
To repeat, it is MPEI - not MPC - that is a party to the Contract. Nowhere in that Contract is there any
mention of a consortium or joint venture, of members thereof, much less of joint and several
liability. Supposedly executed sometime in May 2003, the Contract bears a notarization date of June 30,
2003, and contains the signature of Willy U. Yu signing as president of MPEI (not for and on behalf of MPC),
along with that of the Comelec chair. It provides in Section 3.2 that MPEI (not MPC) is to supply the
Equipment and perform the Services under the Contract, in accordance with the appendices thereof; nothing
whatsoever is said about any consortium or joint venture or partnership.
xxxx
Eligibility of a Consortium Based on the Collective Qualifications of Its Members
Respondents declare that, for purposes of assessing the eligibility of the bidder, the members of MPC should be
evaluated on a collective basis. Therefore, they contend, the failure of MPEI to submit financial statements (on
account of its recent incorporation) should not by itself disqualify MPC, since the other members of the
"consortium" could meet the criteria set out in the RFP.
xxxx
Unfortunately, this argument seems to assume that the "collective" nature of the undertaking of the members of
MPC, their contribution of assets and sharing of risks, and the "community" of their interest in the performance of
the Contract entitle MPC to be treated as a joint venture or consortium; and to be evaluated accordingly on the
basis of the members' collective qualifications when, in fact, the evidence before the Court suggest otherwise.
xxxx
Going back to the instant case, it should be recalled that the automation Contract with Comelec was not
executed by the "consortium" MPC - or by MPEI for and on behalf of MPC - but by MPEI, period. The said
Contract contains no mention whatsoever of any consortium or members thereof. This fact alone seems to
contradict all the suppositions about a joint undertaking that would normally apply to a joint venture or
consortium: that it is a commercial enterprise involving a community of interest, a sharing of risks, profits
and losses, and so on.
xxxx
To the Court, this strange and beguiling arrangement of MPEI with the other companies does not qualify them to
be treated as a consortium or joint venture, at least of the type that government agencies like the Comelec
should be dealing with. With more reason is it unable to agree to the proposal to evaluate the members of MPC on
a collective basis. (Emphases supplied)
These findings found their way into petitioner's application for a writ of preliminary attachment, 75 in which it
claimed the following as bases for fraud: (1) respondents committed fraud by securing the election automation
contract and, in order to perpetrate the fraud, by misrepresenting the actual bidder as MPC and MPEI as merely
acting on MPC's behalf; (2) while knowing that MPEI was not qualified to bid for the automation contract,
respondents still signed and executed the contract; and (3) respondents acted in bad faith when they claimed that
they had bound themselves to the automation contract, because it was not executed by MPC—or by MPEI on MPC's
behalf—but by MPEI alone.76chanrobleslaw
We agree with petitioner that respondent MPEI committed fraud by securing the election automation contract;
and, in order to perpetrate the fraud, by misrepresenting that the actual bidder was MPC and not MPEI, which was
only acting on behalf of MPC. We likewise rule that respondent MPEI has defrauded petitioner, since the former
still executed the automation contract despite knowing that it was not qualified to bid for the same.
The established facts surrounding the eligibility, qualification and existence of MPC — and of MPEI for that matter
— and the subsequent execution of the automation contract with the latter, when all taken together, constitute
badges of fraud that We simply cannot ignore. MPC was considered an illegitimate entity, because its existence as
a joint venture had not been established. Notably, the essential document/s that would have shown its eligibility
as a joint venture/consortium were not presented to the COMELEC at the most opportune time, that is, during the
qualification stage of the bidding process. The concealment by respondent MPEI of the essential documents
showing its eligibility to bid as part a joint venture is too obvious to be missed. How could it not have known that
the very document showing MPC as a joint venture should have been included in their eligibility envelope?
Likewise notable is the fact that these supposed agreements, allegedly among the supposed consortium members,
were belatedly provided to the COMELEC after the bidding process had been terminated; these were not included
in the Eligibility Documents earlier submitted by MPC. Similarly, as found by this Court, these documents did not
prove any joint venture agreement among the parties in the first place, but were actually individual agreements
executed by each member of the supposed consortium with respondent MPEI.
More startling to the dispassionate mind is the incongruence between the supposed actual bidder MPC, on one
hand, and, on the other, respondent MPEI, which executed the automation contract. Significantly, respondent
MPEI was not even eligible and qualified to bid in the first place; and yet, the automation contract itself was
executed and signed singly by respondent MPEI, not on behalf of the purported bidder MPC, without any mention
whatsoever of the members of the supposed consortium.
From these established facts, We can surmise that in order to secure the automation contract, respondent MPEI
perpetrated a scheme against petitioner by using MPC as supposed bidder and eventually succeeding in signing the
automation contract as MPEI alone. Worse, it was respondent MPEI alone, an entity that was ineligible to bid in
the first place, that eventually executed the automation contract.
To a reasonable mind, the entire situation reeks of fraud, what with the misrepresentation of identity and
misrepresentation as to creditworthiness. It is in these kinds of fraudulent instances, when the ability to abscond
is greatest, to which a writ of attachment is precisely responsive.
Further, the failure to attach the eligibility documents is tantamount to failure on the part of respondent MPEI to
disclose material facts. That omission constitutes fraud.
Pursuant to Article 1339 of the Civil Code,77 silence or concealment does not, by itself, constitute fraud, unless
there is a special duty to disclose certain facts, or unless the communication should be made according to good
faith and the usages of commerce.78chanrobleslaw
Fraud has been defined to include an inducement through insidious machination. Insidious machination refers to a
deceitful scheme or plot with an evil or devious purpose. Deceit exists where the party, with intent to
deceive, conceals or omits to state material facts and, by reason of such omission or concealment, the other
party was induced to give consent that would not otherwise have been given.79chanrobleslaw
One form of inducement is covered within the scope of the crime of estafa under Article 315, paragraph 2, of the
Revised Penal Code, in which, any person who defrauds another by using fictitious name, or falsely pretends to
possess power, influence, qualifications, property, credit, agency, business or imaginary transactions, or by means
of similar deceits executed prior to or simultaneously with the commission of fraud is held criminally liable.
In Joson v. People,80 this Court explained the element of defraudation by means of deceit, by giving a definition of
fraud and deceit, in this wise:ChanRoblesVirtualawlibrary
What needs to be determined therefore is whether or not the element of defraudation by means of deceit has
been established beyond reasonable doubt.
In the case of People v. Menil, Jr., the Court has defined fraud and deceit in this
wise:ChanRoblesVirtualawlibrary
11
Fraud, in its general sense, is deemed to comprise anything calculated to deceive, including all acts, omissions,
and concealment involving a breach of legal or equitable duty, trust, or confidence justly reposed, resulting in
damage to another, or by which an undue and unconscientious advantage is taken of another. It is a generic term
embracing all multifarious means which human ingenuity can devise, and which are resorted to by one individual
to secure an advantage over another by false suggestions or by suppression of truth and includes all surprise, trick,
cunning, dissembling and any unfair way by which another is cheated.On the other hand, deceit is the false
representation of a matter of fact, whether by words or conduct, by false or misleading allegations, or by
concealment of that which should have been disclosed which deceives or is intended to deceive another so
that he shall act upon it to his legal injury. (Emphases supplied)
For example, in People v. Comila,81 both accused-appellants therein represented themselves to the complaining
witnesses to have the capacity to send them to Italy for employment, even as they did not have the authority or
license for the purpose. It was such misrepresentation that induced the complainants to part with their hard-
earned money for placement and medical fees. Both accused-appellants were criminally held liable for estafa.
In American jurisprudence, fraud may be predicated on a false introduction or identification. 82 In Union Co. v.
Cobb,83 the defendant therein procured the merchandise by misrepresenting that she was Mrs. Taylor Ray and at
another time she was Mrs. Ben W. Chiles, and she forged their name on charge slips as revealed by the exhibits of
the plaintiff. The sale of the merchandise was induced by these representations, resulting in injury to the
plaintiff.
In Raser v. Moomaw,84 it was ruled that the essential elements necessary to constitute actionable fraud and deceit
were present in the complaint. It was alleged that, to induce plaintiff to procure a loan, defendant introduced
him to a woman who was falsely represented to be Annie L. Knowles of Seattle, Washington, the owner of the
property, and that plaintiff had no means of ascertaining her true identity. On the other hand, defendant knew,
or in the exercise of reasonable caution should have known, that she was an impostor, and that plaintiff relied on
the representations, induced his client to make the loan, and had since been compelled to repay it. In the same
case, the Court ruled that false representations as to the identity of a person are actionable, if made to induce
another to act thereon, and such other does so act thereon to his prejudice. 85chanrobleslaw
In this case, analogous to the fraud and deceit exhibited in the above-mentioned circumstances, respondent MPEI
had no excuse not to be forthright with the documents showing MPC's eligibility to bid as a joint venture. The
Invitation to Bid, as quoted in our 2004 Decision, could not have been any clearer when it stated that only bids
from qualified entities, such as a joint venture, would be entertained:ChanRoblesVirtualawlibrary
INVITATION TO APPLY FOR ELIGIBILITY AND TO BID
The Commission on Elections (COMELEC), pursuant to the mandate of Republic Act Nos. 8189 and 8436, invites
interested offerers, vendors, suppliers or lessors to apply for eligibility and to bid for the procurement by
purchase, lease, lease with option to purchase, or otherwise, supplies, equipment, materials and services needed
for a comprehensive Automated Election System, consisting of three (3) phases: (a) registration/verification of
voters, (b) automated counting and consolidation of votes, and (c) electronic transmission of election results, with
an approved budget of TWO BILLION FIVE HUNDRED MILLION (Php2,500,000,000) Pesos.
Only bids from the following entities shall be entertained:
xxxx
d. Manufacturers, suppliers and/or distributors forming themselves into a joint venture, i.e., a group of two
(2) or more manufacturers, suppliers and/or distributors that intend to be jointly and severally responsible or
liable for a particular contract, provided that Filipino ownership thereof shall be at least sixty percent (60%);
and cralawlawlibrary
e. Cooperatives duly registered with the Cooperatives Development Authority. 86 (Emphases supplied)
No reasonable mind would argue that documents showing the very existence of a joint venture need not be
included in the bidding envelope showing its existence, qualification, and eligibility to undertake the project,
considering that the purpose of prequalification in any public bidding is to determine, at the earliest opportunity,
the ability of the bidder to undertake the project.87chanrobleslaw
As found by this Court in its 2004 Decision, it appears that the documents that were submitted after the bidding,
which respondents claimed would prove the existence of the relationship among the members of the consortium,
were actually separate agreements individually executed by the supposed members with MPEI. We had ruled that
these documents were highly irregular, considering that each of the four different and separate bilateral
Agreements was valid and binding only between MPEI and the other contracting party, leaving the other
"consortium" members total strangers thereto. Consequently, the other consortium members had nothing to do
with one another, as each one dealt only with MPEI.88chanrobleslaw
Considering that they merely showed MPEI's individual agreements with the other supposed members, these
agreements confirm to our mind the fraudulent intent on the part of respondent MPEI to deceive the relevant
officials about MPC. The intent was to cure the deficiency of the winning bid, which intent miserably failed. Said
this Court:89
We are unconvinced, PBAC was guided by the rules, regulations or guidelines existing before the bid proposals
were opened on November 10, 1989. The basic rule in public bidding is that bids should be evaluated based on
the required documents submitted before and not after the opening of bids. Otherwise, the foundation of a
fair and competitive public bidding would be defeated. Strict observance of the rules, regulations, and
guidelines of the bidding process is the only safeguard to a fair, honest and competitive public bidding.
In underscoring the Court's strict application of the pertinent rules, regulations and guidelines of the public
bidding process, We have ruled in C & C Commercial vs. Menor (L-28360, January 27, 1983, 120 SCRA 112), that
Nawasa properly rejected a bid of C & C Commercial to supply asbestos cement pressure which bid did not include
a tax clearance certificate as required by Administrative Order No. 66 dated June 26, 1967. In Caltex (Phil.) Inc.,
et. al. vs. Delgado Brothers, Inc. et. al., (96 Phil. 368, 375), We stressed that public biddings are held for the
protection of the public and the public should be given the best possible advantages by means of open
competition among the bidders.
xxxx
INTER TECHNICAL's failure to comply with what is perceived to be an elementary and customary practice in a
public bidding process, that is, to enclose the Form of Bid in the original and eight separate copies of the
bidding documents submitted to the bidding committee is fatal to its cause. All the four pre-qualified bidders
which include INTER TECHNICAL were subject to Rule IB 2.1 of the Implementing Rules and Regulations of P.D.
1594 in the preparation of bids, bid bonds, and pre-qualification statement and Rule IB 2.8 which states that the
Form of Bid, among others, shall form part of the contract. INTER TECHNICAL's explanation that its bid form was
inadvertently left in the office (p. 6, Memorandum for Private Respondent, p. 355, Rollo) will not excuse
compliance with such a simple and basic requirement in the public bidding process involving a multi-million
project of the Government. There should be strict application of the pertinent public bidding rules, otherwise
the essential requisites of fairness, good faith, and competitiveness in the public bidding process would be
rendered meaningless. (Emphases supplied)
All these circumstances, taken together, reveal a scheme on the part of respondent MPEI to perpetrate fraud
against the government. The purpose of the scheme was to ensure that MPEI, an entity that was ineligible to bid
in the first place, would eventually be awarded the contract. While respondent argues that it was merely a
passive participant in the bidding process, We cannot ignore its cavalier disregard of its participation in the now
voided automation contract.
B. Fraud on the part of respondent MPEI was further shown by the fact that despite the failure of its ACMs
to pass the tests conducted by the DOST, respondent still acceded to being awarded the automation
contract.
Another token of fraud is established by Our findings in relation to the failure of the ACMs to pass the tests of the
DOST. We quote herein the pertinent portions of this Court's 2004 Decision in relation
thereto:ChanRoblesVirtualawlibrary
After respondent "consortium" and the other bidder, TIM, had submitted their respective bids on March 10, 2003,
the Comelec's BAC — through its Technical Working Group (TWG) and the DOST — evaluated their technical
proposals.
12

xxxx
According to respondents, it was only after the TWG and the DOST had conducted their separate tests and
submitted their respective reports that the BAC, on the basis of these reports formulated its
comments/recommendations on the bids of the consortium and TIM.
The BAG, in its Report dated April 21, 2003, recommended that the Phase II project involving the acquisition of
automated counting machines be awarded to MPEI. x x x
xxxx
The BAC, however, also stated on page 4 of its Report: "Based on the 14 April 2003 report (Table 6) of the
DOST, it appears that both Mega-Pacific and TIM (Total Information Management Corporation) failed to
meet some of the requirements. x x x
xxxx
Failure to Meet the Required Accuracy Rating
The first of the key requirements was that the counting machines were to have an accuracy rating of at least
99.9995 percent. The BAC Report indicates that both Mega Pacific and TIM failed to meet this standard.
The key requirement of accuracy rating happens to be part and parcel of the Comelec's Request for Proposal
(RFP). x x x
xxxx
x x x Whichever accuracy rating is the right standard — whether 99.995 or 99.9995 percent — the fact remains
that the machines of the so-called "consort him" failed to even reach the lesser of the two. On this basis alone, it
ought to have been disqualified and its bid rejected outright.
At this point, the Court stresses that the essence of public bidding is violated by the practice of requiring
very high standards or unrealistic specifications that cannot be met — like the 99.9995 percent accuracy
rating in this case — only to water them down after the bid has been award.[sic] Such scheme, which
discourages the entry of prospective bona fide bidders, is in fact a sure indication of fraud in the bidding,
designed to eliminate fair competition. Certainly, if no bidder meets the mandatory requirements, standards
or specifications, then no award should be made and a failed bidding declared.
xxxx
Failure of Software to Detect Previously Downloaded Data
Furthermore, on page 6 of the BAC Report, it appears that the "consortium" as well as TIM failed to meet
another key requirement — for the counting machine's software program to be able to detect previously
downloaded precinct results and to prevent these from being entered again into the counting machine. This
same deficiency on the part of both bidders reappears on page 7 of the BAC Report, as a result of the recurrence
of their failure to meet the said key requirement.
That the ability to detect previously downloaded data at different canvassing or consolidation levels is deemed of
utmost importance can be seen from the fact that it is repeated three times in the RFP. x x x.
Once again, though, Comelec chose to ignore this crucial deficiency, which should have been a cause for the
gravest concern. x x x.
xxxx
Inability to Print the Audit Trail
But that grim prospect is not all. The BAC Report, on pages 6 and 7, indicate that the ACMs of both bidders were
unable to print the audit trail without any loss of data. In the case of MPC, the audit trail system was "not yet
incorporated" into its ACMs.
xxxx
Thus, the RFP on page 27 states that the ballot counting machines and ballot counting software must print an
audit trail of all machine operations for documentation and verification purposes. Furthermore, the audit trail
must be stored on the internal storage device and be available on demand for future printing and verifying. On
pages 30-31, the RFP also requires that the city/municipal canvassing system software be able to print an audit
trail of the canvassing operations, including therein such data as the date and time the canvassing program was
started, the log-in of the authorized users (the identity of the machine operators), the date and time the canvass
data were downloaded into the canvassing system, and so on and so forth. On page 33 of the RFP, we find the
same audit trail requirement with respect to theprovincial/district canvassing system software; and again on
pages 35-36 thereof, the same audit trail requirement with respect to the national canvassing system software.
xxxx
The said provision which respondents have quoted several times, provides that ACMs are to possess certain
features divided into two classes: those that the statute itself considers mandatory and other features or
capabilities that the law deems optional. Among those considered mandatory are "provisions for audit trails"! x
x x.
In brief, respondents cannot deny that the provision requiring audit trails is indeed mandatory, considering
the wording of Section 7 of RA 8436. Neither can Respondent Comelec deny that it has relied on the BAC Report,
which indicates that the machines or the software was deficient in that respect. And yet, the Commission simply
disregarded this shortcoming and awarded the Contract to private respondent, thereby violating the very law it
was supposed to implement.90 (Emphases supplied)
The above-mentioned findings were further echoed by this Court in its 2006 Resolution with a categorical
conclusion that the bidding process was void and fraudulent.91chanrobleslaw
Again, these factual findings found their way into the application of petitioner for a writ of preliminary
attachment,92 as it claimed that respondents could not dissociate themselves from their telltale acts of supplying
defective machines and nonexistent software. 93 The latter offered no defense in relation to these claims.
We see no reason to deviate from our finding of fraud on the part of respondent MPEI in the 2004 Decision and
2006 Resolution. Despite its failure to meet the mandatory requirements set forth in the bidding procedure,
respondent still acceded to being awarded the contract. These circumstances reveal its ploy to gain undue
advantage over the other bidders in general, even to the extent of cheating the government.
The word "bidding" in its comprehensive sense means making an offer or an invitation to prospective contractors,
whereby the government manifests its intention to make proposals for the purpose of securing supplies, materials,
and equipment for official business or public use, or for public works or repair. 94 Three principles involved in
public bidding are as follows: (1) the offer to the public; (2) an opportunity for competition, and (3) a basis for an
exact comparison of bids. A regulation of the matter, which excludes any of these factors, destroys the distinctive
character of the system and thwarts the purpose of its adoption.95chanrobleslaw
In the instant case, We infer from the circumstances that respondent MPEI welcomed and allowed the award of
the automation contract, as it executed the contract despite the full knowledge that it had not met the
mandatory requirements set forth in the RFP. Respondent acceded to and benefitted from the watering down of
these mandatory requirements, resulting in undue advantage in its favor. The fact that there were numerous
mandatory requirements that were simply set aside to pave the way for the award of the automation contract
does not escape the attention of this Court. Respondent MPEI, through respondent Willy, signed and executed the
automation contract with COMELEC. It is therefore preposterous for respondent argue that it was a "passive
13
participant" in the whole bidding process.
We reject the CA's denial of petitioner's plea for the ancillary remedy of preliminary attachment, considering that
the cumulative effect of the factual findings of this Court establishes a sufficient basis to conclude that fraud had
attended the execution of the automation contract. Such fraud is deducible from the 2004 Decision and further
upheld in the 2006 Resolution. It was incongruous, therefore, for the CA to have denied the application for a writ
of preliminary attachment, when the evidence on record was the same that was used to demonstrate the
propriety of the issuance of the writ of preliminary attachment. This was the same evidence that We had already
considered and passed upon, and on which We based Our 2004 Decision to nullify the automation contract. It
would not be right for this Court to ignore these illegal transactions, as to do so would be tantamount to
abandoning its constitutional duty of safeguarding public interest.
II.
Application of the piercing doctrine justifies the issuance of a writ of preliminary attachment over the
properties of the individual respondents.
Individual respondents argue that since they were not parties to the 2004 case, any factual findings or conclusions
therein should not be binding upon them.96 Since they were strangers to that case, they are not bound by the
judgment rendered by this Court.97 They claim that their fundamental right to due process would be violated if
their properties were to be attached for a purported corporate debt on the basis of a court ruling in a case in
which they were not given the right or opportunity to be heard. 98chanrobleslaw
We cannot subscribe to this argument. In the first place, it could not be reasonably expected that individual
respondents would be impleaded in the 2004 case. As admitted by respondents, the issues resolved in the 2004
Decision were limited to the following: (1) whether to declare Resolution No. 6074 of the COMELEC null and void;
(2) whether to enjoin the implementation of any further contract that may have been entered into by COMELEC
with MPC or MPEI; and (3) whether to compel COMELEC to conduct a rebidding of the project. To implead
individual respondents then was improper, considering that the automation contract was entered into by
respondent MPEI. This Court even acknowledged this fact by directing that the liabilities of persons responsible for
the nullity of the contract be determined in another appropriate proceeding and by directing the OSG to
undertake measures to protect the interests of the government.
At any rate, individual respondents have been fully afforded the right to due process by being impleaded and
heard in the subsequent proceedings before the courts a quo. Finally, they cannot argue violation of due process,
as respondent MPEI, of which they are incorporators/stockholders, remains vulnerable to the piercing of its
corporate veil.
A. There are red flags indicating that MPEI was used to perpetrate the fraud against petitioner, thus
allowing the piercing of its corporate veil.
Petitioner seeks the issuance of a writ of preliminary attachment over the personal assets of the individual
respondents, notwithstanding the doctrine of separate juridical personality.99 It invokes the use of the doctrine of
piercing the corporate veil, to which the canon of separate juridical personality is vulnerable, as a way to reach
the personal properties of the individual respondents. Petitioner paints a picture of a sham corporation set up by
all the individual respondents for the purpose of securing the automation contract.
We agree with petitioner.
Veil-piercing in fraud cases requires that the legal fiction of separate juridical personality is used for fraudulent or
wrongful ends.100 For reasons discussed below, We see red flags of fraudulent schemes in public procurement, all
of which were established in the 2004 Decision, the totality of which strongly indicate that MPEI was a sham
corporation formed merely for the purpose of perpetrating a fraudulent scheme.
The red flags are as follows: (1) overly narrow specifications; (2) unjustified recommendations and unjustified
winning bidders; (3) failure to meet the terms of the contract; and (4) shell or fictitious company. We shall discuss
each in detail.
Overly Narrow Specifications
The World Bank's Fraud and Corruption Awareness Handbook: A Handbook for Civil Servants Involved in Public
Procurement, (Handbook) identifies an assortment of fraud and corruption indicators and relevant schemes in
public procurement.101 One of the schemes recognized by the Handbook is rigged
specifications:ChanRoblesVirtualawlibrary
Scheme: Rigged specifications. In a competitive market for goods and services, any specifications that seem to
be drafted in a way that favors a particular company deserve closer scrutiny. For example, specifications that
are too narrow can be used to exclude other qualified bidders or justify improper sole source awards. Unduly
vague or broad specifications can allow an unqualified bidder to compete or justify fraudulent change orders
after the contract is awarded. Sometimes, project officials will go so far as to allow the favored bidder to draft
the specifications.102chanroblesvirtuallawlibrary
In Our 2004 Decision, We identified a red flag of rigged bidding in the form of overly narrow specifications. As
already discussed, the accuracy requirement of 99.9995 percent was set up by COMELEC bidding rules. This Court
recognized that this rating was "too high and was a sure indication of fraud in the bidding, designed to
eliminate fair competition."103Indeed, "the essence of public bidding is violated by the practice of requiring very
high standards or unrealistic specifications that cannot be met...only to water them down after the bid has been
award(ed)."104chanrobleslaw
Unjustified Recommendations and Unjustified Winning Bidders
Questionable evaluation in a Bid Evaluation Report (BER) is an indicator of bid rigging. The Handbook
expounds:ChanRoblesVirtualawlibrary
Questionable evaluation and unusual bid patterns may emerge in the BER. After the completion of the
evaluation process, the Bid Evaluation Committee should present to the implementing agency its BER, which
describes the results and the process by which the BEC has evaluated the bids received. The BER may include
a number of indicators of bid rigging, e.g., questionable disqualifications, and unusual bid
patterns.105chanroblesvirtuallawlibrary
The Handbook lists unjustified recommendations and unjustified winning bidders as red flags of a rigged
bidding.106chanrobleslaw
The red flags of questionable recommendation and unjustified awards are raised in this case. As earlier discussed,
the project was awarded to MPC, which proved to be a nonentity. It was MPEI that actually participated in the
bidding process, but it was not qualified to be a bidder in the first place. Moreover, its ACMs failed the accuracy
requirement set by COMELEC. Yet, MPC — the nonentity — obtained a favorable recommendation from the BAC,
and the automation contract was awarded to the former.
Failure to Meet Contract Terms
Failure to meet the terms of a contract is regarded as a fraud by the Handbook:ChanRoblesVirtualawlibrary
Scheme: Failure to meet contract terms. Firms may deliberately fail to comply with contract requirements. The
contractor will attempt to conceal such actions often by falsifying or forging supporting documentation and bill for
the work as if it were done in accordance with specifications. In many cases, the contractors must bribe
inspection or project personnel to accept the substandard goods or works, or supervision agents are coerced to
approve substandard work. x x x107chanroblesvirtuallawlibrary
As mentioned earlier, this Court already found the ACMs to be below the standards set by the COMELEC. We
reiterated their noncompliant status in Our 2005 and 2006 Resolutions.
As early as 2005, when the COMELEC sought permission from this Court to utilize the ACMs in the then scheduled
ARMM elections, We declared that the proposed use of the machines would expose the ARMM elections to the
same dangers of massive electoral fraud that would have been inflicted by the projected automation of the 2004
national elections. We based this pronouncement on the fact that the COMELEC failed to show that the
deficiencies had been cured.108 Yet again, this Court in 2006 blocked another attempt to use the ACMs, this time
for the 2007 elections. We reiterated that because the ACMs had merely remained idle and unused since their last
evaluation, in which they failed to hurdle the crucial tests, then their defects and deficiencies could not have
14
been cured by then.109chanrobleslaw
Based on the foregoing, the ACMs delivered were plagued with defects that made them fail the requirements set
for the automation project.
Shell or fictitious company
The Handbook regards a shell or fictitious company as a "serious red flag," a concept that it elaborates
upon:ChanRoblesVirtualawlibrary
Fictitious companies are by definition fraudulent and may also serve as fronts for government officials. The
typical scheme involves corrupt government officials creating a fictitious company that will serve as a "vehicle" to
secure contract awards. Often, the fictitious—or ghost— company will subcontract work to lower cost and
sometimes unqualified firms. The fictitious company may also utilize designated losers as subcontractors to
deliver the work, thus indicating collusion.
Shell companies have no significant assets, staff or operational capacity. They pose a serious red flag as a bidder
on public contracts, because they often hide the interests of project or government officials, concealing a conflict
of interest and opportunities for money laundering. Also, by definition, they have no
experience.110chanroblesvirtuallawlibrary
MPEI qualifies as a shell or fictitious company. It was nonexistent at the time of the invitation to bid; to be
precise, it was incorporated only 11 days before the bidding. It was a newly formed corporation and, as such, had
no track record to speak of.
Further, MPEI misrepresented itself in the bidding process as "lead company" of the supposed joint venture. The
misrepresentation appears to have been an attempt to justify its lack of experience. As a new company, it was not
eligible to participate as a bidder. It could do so only by pretending that it was acting as an agent of the putative
consortium.
The timing of the incorporation of MPEI is particularly noteworthy. Its close nexus to the date of the invitation to
bid and the date of the bidding (11 days) provides a strong indicium of the intent to use the corporate vehicle for
fraudulent purposes. This proximity unmistakably indicates that the automation contract served as motivation for
the formation of MPEI: a corporation had to be organized so it could participate in the bidding by claiming to be
an agent of a pretended joint venture.
The timing of the formation of MPEI did not escape the scrutiny of Justice Angelina Sandoval-Gutierrez, who made
this observation in her Concurring Opinion in the 2004 Decision:ChanRoblesVirtualawlibrary
At this juncture, it bears stressing that MPEI was incorporated only on February 27, 2003 as evidenced by its
Certificate of Incorporation. This goes to show that from the time the COMELEC issued its Invitation to Bid
(January 28, 2003) and Request for Proposal (February 17, 2003) up to the time it convened the Pre-bid
Conference (February 18, 2003), MPEI was literally a non-existent entity. It came into being only on February 27,
2003 or eleven (11) days prior to the submission of its bid, i.e. March 10, 2003.This poses a legal obstacle to its
eligibility as a bidder. The Request for Proposal requires the bidder to submit financial documents that will
establish to the BAC's satisfaction its financial capability which include:ChanRoblesVirtualawlibrary
(1) audited financial statements of the Bidder's firm for the last three (3) calendar years, stamped "RECEIVED" by
the appropriate government agency, to show its capacity to finance the manufacture and supply of Goods called
for and a statement or record of volumes of sales;
(2) Balance Sheet;
(3) Income Statement; and cralawlawlibrary
(4) Statement of Cash Flow.
As correctly pointed out by petitioners, how could MPEI comply with the above requirement of audited financial
statements for the last three (3) calendar years if it came into existence only eleven (11) days prior to the
bidding?
To do away with such complication, MPEI asserts that it was MP CONSORTIUM who submitted the bid on March 10,
2003. It pretends compliance with the requirements by invoking the financial capabilities and long time existence
of the alleged members of the MP CONSORTIUM, namely, Election.Com, WeSolv, SK CeC, ePLDT and Oracle. It
wants this Court to believe that it is MP CONSORTIUM who was actually dealing with the COMELEC and that its
(MPEI) participation is merely that of a "lead company and proponent" of the joint venture. This is hardly
convincing. For one, the contract for the supply and delivery of ACM was between COMELEC and MPEI, not MP
CONSORTIUM.As a matter of fad, there cannot be found in the contract any reference to the MP CONSORTIUM or
any member thereof for that matter. For another, the agreements among the alleged members of MP
CONSORTIUM do not show the existence of a joint-venture agreement. Worse, MPEI cannot produce the agreement
as to the "joint and several liability" of the alleged members of the MP CONSORTIUM as required by this Court in
its Resolution dated October 7, 2003.111chanroblesvirtuallawlibrary
Respondent MPEI was formed to perpetrate the fraud against petitioner.
The totality of the red flags found in this case leads Us to the inevitable conclusion that MPEI was nothing but a
sham corporation formed for the purpose of defrauding petitioner. Its ultimate objective was to secure the
P1,248,949,088 automation contract. The scheme was to put up a corporation that would participate in the bid
and enter into a contract with the COMELEC, even if the former was not qualified or authorized to do so.
Without the incorporation of MPEI, the defraudation of the government would not have been possible. The
formation of MPEI paved the way for its participation in the bid, through its claim that it was an agent of a
supposed joint venture, its misrepresentations to secure the automation contract, its misrepresentation at the
time of the execution of the contract, its delivery of the defective ACMs, and ultimately its acceptance of the
benefits under the automation contract.
The foregoing considered, veil-piercing is justified in this case.
We shall next consider the question of whose assets shall be reached by the application of the piercing doctrine.
B. Because all the individual respondents actively participated in the perpetration of the fraud against
petitioner, their personal assets may be subject to a writ of preliminary attachment by piercing the
corporate veil.
A corporation's privilege of being treated as an entity distinct and separate from the stockholders is confined to
legitimate uses, and is subject to equitable limitations to prevent its being exercised for fraudulent, unfair, or
illegal purposes.112 As early as the 19th century, it has been held that:ChanRoblesVirtualawlibrary
The general proposition that a corporation is to be regarded as a legal entity, existing separate and apart from the
natural persons composing it, is not disputed; but that the statement is a mere fiction, existing only in idea, is
well understood, and not controverted by any one who pretends to accurate knowledge on the subject. It has
been introduced for the convenience of the company in making contracts, in acquiring property for corporate
purposes, in suing and being sued, and to preserve the limited liability of the stockholder by distinguishing
between the corporate debts and property of the company and of the stockholders in their capacity as
individuals. All fictions of law have been introduced for the purpose of convenience, and to subserve the ends
of justice. It is in this sense that the maxim in fictione juris subsistit aequitasis used, and the doctrine of fictions
applied. But when they are urged to an intent and purpose not within the reason and policy of the fiction,
they have always been disregarded by the courts. Broom's, Legal Maxims 130. "It is a certain rule," says Lord
Mansfield, C.J., "that a fiction of law never be contradicted so as to defeat the end for which it was invented, but
for every other purpose it may be contradicted." Johnson v. Smith, 2 Burr, 962.113chanroblesvirtuallawlibrary
The main effect of disregarding the corporate fiction is that stockholders will be held personally liable for the acts
and contracts of the corporation, whose existence, at least for the purpose of the particular situation involved, is
ignored.114chanrobleslaw
We have consistently held that when the notion of legal entity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, the law will regard the corporation as anassociation of persons.115 Thus,
considering that We find it justified to pierce the corporate veil in the case before Us, MPEI must, perforce, be
treated as a mere association of persons whose assets are unshielded by corporate fiction. Such persons' individual
liability shall now be determined with respect to the matter at hand.
15

Contrary to respondent Willy's claims, his participation in the fraud is clearly established by his unequivocal
agreement to the execution of the automation contract with the COMELEC, and his signature that appears on the
voided contract. As far back as in the 2004 Decision, his participation as a signatory' to the automation contract
was already established:ChanRoblesVirtualawlibrary
The foregoing argument is unpersuasive. First, the contract being referred to, entitled "The Automated Counting
and Canvassing Project Contract," is between Comelec and MPEI, not the alleged consortium, MPC. To repeat, it
is MPEI - not MPC - that is a party to the Contract. Nowhere in that Contract is there any mention of a consortium
or joint venture, of members thereof much less of joint and several liability. Supposedly executed sometime in
May 2003, the Contract bears a notarization date of June 30, 2003, and contains the signature of Willy U. Yu
signing as president of MPEI (not for and on behalf of MPC), along with that of the Comelec chair. It provides in
Section 3.2 that MPEI (not MPC) is to supply the Equipment and perform the Services under the Contract, in
accordance with the appendices thereof; nothing whatsoever is said about any consortium or joint venture or
partnership. x x x (Emphasis supplied)
That his signature appears on the automation contract means that he agreed and acceded to its terms. 116 His
participation in the fraud involves his signing and executing the voided contract.
The execution of the automation contract with a non-eligible entity and the subsequent award of the contract
despite the failure to meet the mandatory requirements were "badges of fraud" in the procurement process that
should have been recognized by the CA to justify the issuance of the writ of preliminary attachment against the
properties of respondent Willy.
With respect to the other individual respondents, petitioner, in its Answer with Counterclaim,
alleged:ChanRoblesVirtualawlibrary
30. Also, inasmuch as MPEI is in truth a mere shell corporation with no real assets in its name, incorporated
merely to feign eligibility for the bidding of the automated contract when it in fact had none, to the great
prejudice of the Republic, plaintiffs individual incorporators should likewise be made liable together with
MPEI for the automated contract amount paid to and received by the latter. The following circumstances
altogether manifest that the individual incorporators merely cloaked themselves with the veil of corporate fiction
to perpetrate a fraud and to eschew liability therefor, thus:
chanRoblesvirtualLawlibraryx x x x
f. From the time it was incorporated until today, MPEI has not complied with the reportorial requirements of
the Securities and Exchange Commission;
g. Individual incorporators, acting fraudulently through MPEI, and in violation of the bidding rules,
then subcontracted the automation contract to four (4) other corporations, namely: WeSolve
Corporation, SK C&C, ePLDT and election.com, to comply with the capital requirements, requisite five (5)-
year corporate standing and the technical qualifications of the Request for Proposal;
x x x x117chanroblesvirtuallawlibrary
In response to petitioner's allegations, respondents Willy and Bonnie stated in their Reply and Answer (Re: Answer
with Counterclaim dated 28 June 2004):118
3.3 As far as plaintiff MPEI and defendants-in-counterclaim are concerned, they dealt with the COMELEC with
full transparency and in utmost good faith. All documents support its eligibility to bid for the supply of the ACMs
and their peripheral services, were submitted to the COMELEC for its evaluation in full transparency. Pertinently,
neither plaintiff MPEI nor any of its directors, stockholders, officers or employees had any participation in the
evaluation of the bids and eventual choice of the winning bidder.119chanroblesvirtuallawlibrary
Respondents Johnson's and Bernard's denials were made in paragraphs 2.17 and 3.3 of their Answer with
Counterclaim to the Republic's Counterclaim, to wit:120
2.17 The erroneous conclusion of fact and law in paragraph 30 (f) and (g) of the Republic's answer is denied,
having been pleaded in violation of the requirement, that only ultimate facts arc to be stated in the pleadings and
they are falsehoods. The truth of the matter is that there could not have been fraud, as these agreements were
submitted to the COMELEC for its evaluation and assessment, as to the qualification of the Consortium as a bidder,
a showing of transparency in plaintiffs dealings with the Republic. 121chanrobleslaw
3.3 As far as plaintiff MPEI and defendants-in-counterclaim are concerned, they dealt with the COMELEC with
full transparency and in utmost good faith. All documents support its eligibility to bid for the supply of the
automated counting machines and its peripheral services, were submitted to the COMELEC for its evaluation in full
transparency. Pertinently, the plaintiff or any of its directors, stockholders, officers or employees had no
participation in the evaluation of the bids and eventual choice of the winning bidder.122chanroblesvirtuallawlibrary
As regards Enrique and Rosita, the relevant paragraphs in the Answer with Counterclaim to the Republic's
Counterclaim123 are quoted below:ChanRoblesVirtualawlibrary
2.17. The erroneous conclusion of fact and law in paragraph 30 (F) and (G) of the Republic's answer is denied,
having been pleaded in violation of the requirement, that only ultimate facts are to be stated in the pleadings and
they are falsehoods. The truth of the matter is that there could not have been fraud, as these agreements were
submitted to the COMELEC for its evaluation and assessment, as to the qualification of the Consortium as a bidder,
a showing of transparency in plaintiffs dealings with the Republic. 124chanrobleslaw
3.3. As far as the plaintiff and herein answering defendants-in-counterclaim are concerned, they dealt with
the Commission on Elections with full transparency and in utmost good faith. All documents in support of its
eligibility to bid for the supply of the automated counting machines and its peripheral services were submitted to
the Commission on Elections for its evaluation in full transparency. Pertinently, the plaintiff or any of its
directors, stockholders, officers or employees had no participation in the evaluation of the bids and eventual
choice of the winning bidder.125chanroblesvirtuallawlibrary
Pedro and Laureano offer a similar defense in paragraph 3.3 of their Reply and Answer with Counterclaim to the
Republic's Counterclaim126 dated 28 June 2004, which reads:ChanRoblesVirtualawlibrary
3.3. As far as plaintiff MPEI and defendants-in-counterclaim are concerned, they dealt with the COMELEC with
full transparency and in utmost good faith. All documents support its eligibility to bid for the supply of the ACMs
and their peripheral services, were submitted to the COMELEC for its evaluation in full transparency. Pertinently,
neither plaintiff MPEI nor any of its directors, stockholders, officers or employees had any participation in the
evaluation of the bids and eventual choice of the winning bidder.127chanroblesvirtuallawlibrary
It can be seen from the above-quoted paragraphs that the individual respondents never denied their participation
in the questioned transactions of MPEI, merely raising the defense of good faith and shifting the blame to the
COMELEC. The individual respondents have, in effect, admitted that they had knowledge of and participation in
the fraudulent subcontracting of the automation contract to the four corporations.
It bears stressing that the remaining individual respondents, together with respondent Willy, incorporated MPEI.
As incorporators, they are expected to be involved in the management of the corporation and they are charged
with the duty of care. This is one of the reasons for the requirement of ownership of at least one share of stock by
an incorporator:ChanRoblesVirtualawlibrary
The reason for this, as explained by the lawmakers, is to avoid the confusion and/or ambiguities arising in a
situation under the old corporation law where there exists one set of incorporators who are not even
shareholders and another set of directors/incorporators who must all be shareholders of the corporation. The
people who deal with said corporation at such an early stage are confused as to who are the persons or group
really authorized to act in behalf of the corporation. (Proceedings of the Batasan Pambansa on the Proposed
Corporation Code). Another reason may be anchored on the presumption that when an incorporator has
pecuniary interest in the corporation, no matter how minimal, he will be more involved in the management
of corporate affairs and to a greater degree, be concerned with the welfare of the
corporation.128chanroblesvirtuallawlibrary
As incorporators and businessmen about to embark on a new business venture involving a sizeable capital (P300
million), the remaining individual respondents should have known of Willy's scheme to perpetrate the fraud
against petitioner, especially because the objective was a billion peso automation contract. Still, they proceeded
with the illicit business venture.
It is clear to this Court that inequity would result if We do not attach personal liability to all the individual
16
respondents. With a definite finding that MPEI was used to perpetrate the fraud against the government, it would
be a great injustice if the remaining individual respondents would enjoy the benefits of incorporation despite a
clear finding of abuse of the corporate vehicle. Indeed, to allow the corporate fiction to remain intact would not
subserve, but instead subvert, the ends of justice.
III.
The factual findings of this Court that have become final cannot be modified or altered, much less reversed,
and are controlling in the instant case.
Respondents argue that the 2004 Decision did not resolve and could not have resolved the factual issue of whether
they had committed any fraud, as the Supreme Court is not a trier of facts; and the 2004 case, being a certiorari
case, did not deal with questions of fact.129chanrobleslaw
Further, respondents argue that the findings of this Court ought to be confined only to those issues actually raised
and resolved in the 2004 case, in accordance with the principle of conclusiveness of judgment. 130 They explain
that the issues resolved in the 2004 Decision were only limited to the following: (1) whether to declare COMELEC
Resolution No. 6074 null and void; (2) whether to enjoin the implementation of any further contract that may
have been entered into by COMELEC with MPC or MPEI; and (3) whether to compel COMELEC to conduct a
rebidding of the project.131chanrobleslaw
It is obvious that respondents are merely trying to escape the implications or effects of the nullity of the
automation contract that they had executed. Section 1, Rule 65 of the Rules of Court, clearly sets forth the
instances when a petition for certiorari can be used as a proper remedy:ChanRoblesVirtualawlibrary
Section 1. Petition for certiorari. — When any tribunal, board or officer exercising judicial or quasi-judicial
functions has acted without or in excess of its jurisdiction, or with grave abuse of discretion amounting to lack or
excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of
law. a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty
and praying that judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer,
and granting such incidental reliefs as law and justice may require.
The term "grave abuse of discretion" has a specific meaning. An act of a court or tribunal can only be considered
to have been committed with grave abuse of discretion when the act is done in a "capricious or whimsical exercise
of judgment as is equivalent to lack of jurisdiction."132 The abuse of discretion must be so patent and gross as to
amount to an "evasion of a positive duty or to a virtual refusal to perform a duty enjoined by law, or to act at all
in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of passion
and hostility."133 Furthermore, the use of a petition for certiorari is restricted only to "truly extraordinary cases
wherein the act of the lower court or quasi-judicial body is wholly void."134 From the foregoing definition, it is
clear that the special civil action of certiorari under Rule 65 can only strike down an act for having been done
with grave abuse of discretion if the petitioner could manifestly show that such act was patent and
gross.135chanrobleslaw
We had to ascertain from the evidence whether the COMELEC committed grave abuse of discretion, and in the
process, were justified in making some factual findings. The conclusions derived from the factual findings are
inextricably intertwined with this Court's determination of grave abuse of discretion. They have a direct bearing
and are in fact necessary to illustrate that the award of the automation contract was done hastily and in direct
violation of law. This Court has indeed made factual findings based on the evidence presented before it; in turn,
these factual findings constitute the controlling legal rule between the parties that cannot be modified or
amended by any of them. This Court is bound to consider the factual findings made in the 2004 Decision in order
to declare that there is fraud for the purpose of issuing the writ of preliminary attachment.
Respondents appear to have misunderstood the implications of the principle of conclusiveness of judgment on
their cause. Contrary to their claims, the factual findings are conclusive and have been established as the
controlling legal rule in the instant case, on the basis of the principle of res judicata—more particularly, the
principle of conclusiveness of judgment.
This doctrine of res judicata which is set forth in Section 47 of Rule 39 of the Rules of Court136 lays down two main
rules, namely: (1) the judgment or decree of a court of competent jurisdiction on the merits concludes the
litigation between the parties and their privies and constitutes a bar to a new action or suit involving the same
cause of action either before the same or any other tribunal; and (2) any right, fact, or matter in issue directly
adjudicated or necessarily involved in the determination of an action before a competent court in which a
judgment or decree is rendered on the merits is conclusively settled by the judgment therein and cannot again be
litigated between the parties and their privies whether or not the claims or demands, purposes, or subject
matters of the two suits are the same.137chanrobleslaw
These two main rules mark the distinction between the principles governing the two typical cases in which a
judgment may operate as evidence.138 The first general rule stated above and corresponding to the afore-quoted
paragraph (b) of Section 47, Rule 39 of the Rules of Court, is referred to as "bar by former judgment"; while the
second general rule, which is embodied in paragraph (c) of the same section and rule, is known as "conclusiveness
of judgment."139chanrobleslaw
In Calalang v. Register of Deeds of Quezon City,140 We discussed the concept of conclusiveness of judgment as
pertaining even to those matters essentially connected with the subject of litigation in the first action. This Court
explained therein that the bar on re-litigation extends to those questions necessarily implied in the final
judgment, although no specific finding may have been made in reference thereto, and although those matters
were directly referred to in the pleadings and were not actually or formally presented. If the record of the former
trial shows that the judgment could not have been rendered without deciding a particular matter, it will be
considered as having settled that matter as to all future actions between the parties; and if a judgment
necessarily presupposes certain premises, they are as conclusive as the judgment
itself:ChanRoblesVirtualawlibrary
The second concept — conclusiveness of judgment — states that a fact or question which was in issue in a
former suit and was there judicially passed upon and determined by a court of competent jurisdiction, is
conclusively settled by the judgment therein as far as the parties to that action and persons in privity with
them are concerned and cannot be again litigated in any future action between such parties or their privies,
in the same court or any other court of concurrent jurisdiction on either the same or different cause of
action, while the judgment remains unreversed by proper authority. It has been held that in order that a
judgment in one action can be conclusive as to a particular matter in another action between the same parties or
their privies, it is essential that the issue be identical. If a particular point or question is in issue in the second
action, and the judgment will depend on the determination of that particular point or question, a former
judgment between the same parties or their privies will be final and conclusive in the second if that same
point or question was in issue and adjudicated in the first suit (Nabus v. Court of Appeals, 193 SCRA 732
[1991]). Identity of cause of action is not required but merely identity of issue.
Justice Fcliciano, in Smith Bell & Company (Phils.), Inc. v. Court of Appeals (197 SCRA 201, 210 [1991]),
reiterated Lopez v. Reyes (76 SCRA 179 [1977]) in regard to the distinction between bar by former judgment which
bars the prosecution of a second action upon the same claim, demand, or cause of action, and conclusiveness of
judgment which bars the relitigation of particular facts or issues in another litigation between the same parties on
a different claim or cause of action.
The general rule precluding the re-litigation of material facts or questions which were in issue and
adjudicated in former action are commonly applied to all matters essentially connected with the subject
matter of the litigation. Thus, it extends to questions necessarily implied in the final judgment, although no
specific finding may have been made in reference thereto and although such matters were directly referred
to in the pleadings and were not actually or formally presented. Under this rule, if the record of the former
trial shows that the judgment could not have been rendered without deciding the particular matter, it will be
considered as having settled that matter as to all future actions between the parties and if a judgment
necessarily presupposes certain premises, they are as conclusive as the judgment itself. 141 (Emphases
supplied)
The foregoing disquisition finds application to the case at bar.
Undeniably, the present case is merely an adjunct of the 2004 case, in which the automation contract was
declared to be a nullity. Needless to say, the 2004 Decision has since become final. As earlier explained, this
Court arrived at several factual findings showing the illegality of the automation contract; in turn, these findings
were used as basis to justify the declaration of nullity.
17
A closer scrutiny of the 2004 Decision would reveal that the judgment could not have been rendered without
deciding particular factual matters in relation to the following: (1) identity, existence and eligibility of MPC as a
bidder; (2) failure of the ACMs to pass DOST technical tests; and (3) remedial measures undertaken by the
COMELEC after the award of the automation contract. Under the principle of conclusiveness of judgment, We are
precluded from re-litigating these facts, as these were essential to the question of nullity. Otherwise stated, the
judgment could not have been rendered without necessarily deciding on the above-enumerated factual matters.
Thus, under the principle of conclusiveness of judgment, those material facts became binding and conclusive on
the parties, in this case MPEI and, ultimately, the persons that comprised it. When a right or fact has been
judicially tried and determined by a court of competent jurisdiction, or when an opportunity for that trial has
been given, the judgment of the court—as long as it remains unreversed—should be conclusive upon the parties
and those in privity with them.142 Thus, the CA should not have required petitioner to present further evidence
of fraud on the part of respondent Willy and MPEI, as it was already necessarily adjudged in the 2004 case.
To allow respondents to argue otherwise would be violative of the principle of immutability of judgment. When a
final judgment becomes executory, it becomes immutable and unalterable and may no longer undergo any
modification, much less any reversal.143 In Navarro v. Metropolitan Bank & Trust Company144 this Court explained
that the underlying reason behind this principle is to avoid delay in the administration of justice and to avoid
allowing judicial controversies to drag on indefinitely, viz.:ChanRoblesVirtualawlibrary
No other procedural law principle is indeed more settled than that once a judgment becomes final, it is no
longer subject to change, revision, amendment or reversal, except only for correction of clerical errors, or
the making of nunc pro tunc entries which cause no prejudice to any party, or where the judgment itself is
void. The underlying reason for the rule is two-fold: (1) to avoid delay in the administration of justice and thus
make orderly the discharge of judicial business, and (2) to put judicial controversies to an end, at the risk of
occasional errors, inasmuch as controversies cannot be allowed to drag on indefinitely and the rights and
obligations of every litigant must not hang in suspense for an indefinite period of time. As the Court declared
in Yau v. Silverio,
Litigation must end and terminate sometime and somewhere, and it is essential to an effective and efficient
administration of justice that, once a judgment has become final, the winning party be, not through a mere
subterfuge, deprived of the fruits of the verdict. Courts must therefore guard against any scheme calculated to
bring about that result. Constituted as they are to put an end to controversies, courts should frown upon any
attempt to prolong them.
Indeed, just as a losing party has the right to file an appeal within the prescribed period, the winning party also
has the correlative right to enjoy the finality of the resolution of his case by the execution and satisfaction of the
judgment. Any attempt to thwart this rigid rule and deny the prevailing litigant his right to savor the fruit of his
victory must immediately be struck down. x x x. (Emphasis supplied)145chanroblesvirtuallawlibrary
In the instant case, adherence to respondents' position would mean a complete disregard of the factual findings
We made in the 2004 Decision, and would certainly be tantamount to reversing the same. This would invariably
cause further delay in the efforts to recover the amounts of government money illegally disbursed to respondents
back in 2004.
Next, respondents argue that the findings of fact in the 2004 Decision are not conclusive146 considering that eight
(8) of the fifteen (15) justices of this Court refused to go along with the factual findings as stated in the majority
opinion.147 This argument fails to convince.
Fourteen (14) Justices participated in the promulgation of the 2004 Decision. Out of the fourteen (14) Justices,
three (3) Justices registered their dissent,148 and two (2) Justices wrote their Separate Opinions, each
recommending the dismissal of the Petition.149 Of the nine (9) Justices who voted to grant the Petition, four (4)
joined the ponente in his disposition of the case,150 and two (2) Justices wrote Separate Concurring Opinions.151 As
to the remaining two (2) Justices, one (1) Justice152 merely concurred in the result, while the other joined another
Justice in her Separate Opinion.153chanrobleslaw
Contrary to the allegations of respondents, an examination of the voting shows that nine (9) Justices voted in
favor of the majority opinion, without any qualification regarding the factual findings made therein. In fact, the
two (2) Justices who wrote their own Concurring Opinions echoed the lack of eligibility of MPC and the failure of
the ACMs to pass the mandatory requirements.
Finally, respondents cannot argue that, from the line of questioning of then Justice Leonardo A. Quisumbing
during the oral arguments in the 2004 case, he did not agree with the factual findings of this Court. Oral
arguments before this Court are held precisely to test the soundness of each proponent's contentions. The
questions and statements propounded by Justices during such an exercise are not to be construed as their
definitive opinions. Neither are they indicative of how a Justice shall vote on a particular issue; indeed, Justice
Quisumbing clearly states in the 2004 Decision that he concurs in the results. At any rate, statements made by Our
Members during oral arguments are not stare decisis; what is conclusive are the decisions reached by the majority
of the Court.
IV.
The delivery of 1,991 units of ACMs does not negate fraud on the part of respondents Willy and MPEI.
The CA in its Amended Decision explained that respondents could not be considered to have fostered a fraudulent
intent to not honor their obligation, since they delivered 1,991 units of ACMs.154 In turn, respondents argue that
respondent MPEI had every intention of fulfilling its obligation, because it in fact delivered the ACMs as required
by the automation contract.155chanrobleslaw
We disagree with the CA and respondents. The fact that the ACMs were delivered cannot induce this Court to
disregard the fraud respondent MPEI had employed in securing the award of the automation contract, as
established above. Furthermore, they cannot cite the fact of delivery in their favor, considering that the ACMs
delivered were substandard and noncompliant with the requirements initially set for the automation project.
In Our 2004 Decision, We already found the ACMs to be below the standards set by the COMELEC. The
noncompliant status of these ACMs was reiterated by this Court in its 2005 and 2006 Resolutions. The CA therefore
gravely erred in considering the delivery of 1,991 ACMs as evidence of respondents' willingness to perform the
obligation (and thus, their lack of fraud) considering that, as exhaustively discussed earlier, the ACMs delivered
were plagued with defects and failed to meet the requirements set for the automation project.
Under Article 1233 of the New Civil Code, a debt shall not be understood to have been paid, unless the thing or
service in which the obligation consists has been completely delivered or rendered. In this case, respondents
cannot be considered to have performed their obligation, because the ACMs were defective.
V.
Estoppel does not lie against the State when it acts to rectify the mistakes, errors or illegal acts of its officials
and agents.
Respondents claim that the 2004 Decision may not be invoked against them, since the petitioner and the
respondents were co-respondents and not adverse parties in the 2004 case. Respondents further explain that since
petitioner and respondents were on the same side at the time, had the same interest, and took the same position
on the validity and regularity of the automation contract, petitioner cannot now invoke the 2004 Decision against
them.156chanrobleslaw
Contrary to respondents' contention, estoppel generally finds no application against the State when it acts to
rectify mistakes, errors, irregularities, or illegal acts of its officials and agents, irrespective of rank. This principle
ensures the efficient conduct of the affairs of the State without any hindrance to the implementation of laws and
regulations by the government. This holds true even if its agents' prior mistakes or illegal acts shackle government
operations and allow others—some by malice—to profit from official error or misbehavior, and even if the
rectification prejudices parties who have meanwhile received benefit.157 Indeed, in the 2004 Decision, this Court
even directed the Ombudsman to determine the possible criminal liability of public officials and private persons
responsible for the contract, and the OSG to undertake measures to protect the government from the ill effects of
the illegal disbursement of public funds.158chanrobleslaw
The equitable doctrine of estoppel for the prevention of injustice and is for the protection of those who have
been misled by that which on its face was fair and whose character, as represented, parties to the deception will
18
not, in the interest of justice, be heard to deny.159 It cannot therefore be utilized to insulate from liability the
very perpetrators of the injustice complained of.
VI.
The findings of the Office of the Ombudsman are not controlling in the instant case.
Respondents further claim that this Court has recognized the fact that it did not determine or adjudge any fraud
that may have been committed by individual respondents. Rather, it referred the matter to the Ombudsman for
the determination of criminal liability.160 The Ombudsman in fact made its own determination that there was no
probable cause to hold individual respondents criminally liable.161chanrobleslaw
Respondents miss the point. The main issue in the instant case is whether respondents are guilty of fraud in
obtaining and executing the automation contract, to justify the issuance of a writ of preliminary attachment in
petitioner's favor. Meanwhile, the issue relating to the proceedings before the Ombudsman (and this Court in G.R.
No. 174777) pertains to the finding of lack of probable cause for the possible criminal liability of respondents
under the Anti-Graft and Corrupt Practices Act.
The matter before Us involves petitioner's application for a writ of preliminary attachment in relation to its
recovery of the expended amount under the voided contract, and not the determination of whether there is
probable cause to hold respondents liable for possible criminal liability due to the nullification of the automation
contract. Whether or not the Ombudsman has found probable cause for possible criminal liability on the part of
respondents is not controlling in the instant case.
CONCLUSION
If the State is to be serious in its obligation to develop and implement coordinated anti-corruption policies that
promote proper management of public affairs and public property, integrity, transparency and accountability,162 it
needs to establish and promote effective practices aimed at the prevention of corruption, 163 as well as strengthen
our efforts at asset recovery.164chanrobleslaw
As a signatory to the United Nations Convention Against Corruption (UNCAC),165 the Philippines acknowledges its
obligation to establish appropriate systems of procurement based on transparency, competition and objective
criteria in decision-making that are effective in preventing corruption.166 To promote transparency, and in line
with the country's efforts to curb corruption, it is useful to identify certain fraud indicators or "red flags" that can
point to corrupt activity.167 This case - arguably the first to provide palpable examples of what could be
reasonably considered as "red flags" of fraud and malfeasance in public procurement - is the Court's contribution
to the nation's continuing battle against corruption, in accordance with its mandate to dispense justice and
safeguard the public interest.
WHEREFORE, premises considered, the Petition is GRANTED. The Amended Decision dated 22 September 2008 of
the Court of Appeals in CA-G.R. SP. No. 95988 is ANNULLED AND SET ASIDE. A new one is entered DIRECTING the
Regional Trial Court of Makati City, Branch 59, to ISSUE in Civil Case No. 04-346, entitled Mega Pacific eSolutions,
Inc., vs. Republic of the Philippines, the Writ of Preliminary Attachment prayed for by petitioner Republic of the
Philippines against the properties of respondent Mega Pacific eSolutions, Inc., and Willy U. Yu, Bonnie S. Yu,
Enrique T. Tansipek, Rosita Y. Tansipek, Pedro O. Tan, Johnson W. Fong, Bernard I. Fong and Lauriano Barrios.
No costs.
SO ORDERED.cha
G.R. No. 198967, March 07, 2016
JOSE EMMANUEL P. GUILLERMO, Petitioner, v. CRISANTO P. USON, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set
aside the Court of Appeals Decision1 dated June 8, 2011 and Resolution2 dated October 7, 2011 in CA G.R. SP No.
115485, which affirmed in toto the decision of the National Labor Relations Commission (NLRC).
The facts of the case follow.
On March 11, 1996, respondent Crisanto P. Uson (Uson) began his employment with Royal Class Venture Phils., Inc.
(Royal Class Venture) as an accounting clerk.3 Eventually, he was promoted to the position of accounting
supervisor, with a salary of Php13,000.00 a month, until he was allegedly dismissed from employment on
December 20, 2000.4
On March 2, 2001, Uson filed with the Sub-Regional Arbitration . Branch No. 1, Dagupan City, of the NLRC a
Complaint for Illegal Dismissal, with prayers for backwages, reinstatement, salaries and 13 thmonth pay, moral and
exemplary damages and attorney's fees against Royal Class Venture.5
Royal Class Venture did not make an appearance in the case despite its receipt of summons.6
On May 15, 2001, Uson filed his Position Paper7 as complainant.
On October 22, 2001, Labor Arbiter Jose G. De Vera rendered a Decision8 in favor of the complainant Uson and
ordering therein respondent Royal Class Venture to reinstate him to his former position and pay his backwages,
13th month pay as well as moral and exemplary damages and attorney's fees.
Royal Class Venture, as the losing party, did not file an appeal of the decision.9 Consequently, upon Uson's motion,
a Writ of Execution10 dated February 15, 2002 was issued to implement the Labor Arbiter's decision.
On May 17, 2002, an Alias Writ of Execution11 was issued. But with the judgment still unsatisfied, a Second Alias
Writ of Execution12 was issued on September 11, 2002.
Again, it was reported in the Sheriff's Return that the Second Alias Writ of Execution dated September 11, 2002
remained "unsatisfied." Thus, on November 14, 2002, Uson filed a Motion for Alias Writ of Execution and to Hold
Directors and Officers of Respondent Liable for Satisfaction of the Decision. 13 The motion quoted from a portion of
the Sheriffs Return, which states:
chanRoblesvirtualLawlibrary
On September 12, 2002, the undersigned proceeded at the stated present business office address of the
respondent which is at Minien East, Sta. Barbara, Pangasinan to serve the writ of execution. Upon arrival, I found
out that the establishment erected thereat is not [in] the respondent's name but JOEL and SONS CORPORATION, a
family corporation owned by the Guillermos of which, Jose Emmanuel F. Guillermo the General Manager of the
respondent, is one of the stockholders who received the writ using his nickname "Joey," [and who] concealed his
real identity and pretended that he [was] the brother of Jose, which [was] contrary to the statement of the
guard-on-duty that Jose and Joey [were] one and the same person. The former also informed the undersigned that
the respondent's (sic) corporation has been dissolved.
19
On the succeeding day, as per [advice] by the [complainant's] counsel that the respondent has an account at the
Bank of Philippine Islands Magsaysay Branch, A.B. Fernandez Ave., Dagupan City, the undersigned immediately
served a notice of garnishment, thus, the bank replied on the same day stating that the respondent [does] not
have an account with the branch.14ChanRoblesVirtualawlibrary
On December 26, 2002, Labor Arbiter Irenarco R. Rimando issued an Order15 granting the motion filed by Uson.
The order held that officers of a corporation are jointly and severally liable for the obligations of the corporation
to the employees and there is no denial of due process in holding them so even if the said officers were not
parties to the case when the judgment in favor of the employees was rendered. 16Thus, the Labor Arbiter pierced
the veil of corporate fiction of Royal Class Venture and held herein petitioner Jose Emmanuel Guillermo
(Guillermo), in his personal capacity, jointly and severally liable with the corporation for the enforcement of the
claims of Uson.17
Guillermo filed, by way of special appearance, a Motion for Reconsideration/To Set Aside the Order of December
26, 2002.18 The same, however, was not granted as, this time, in an Order dated November 24, 2003, Labor
Arbiter Niña Fe S. Lazaga-Rafols sustained the findings of the labor arbiters before her and even castigated
Guillenno for his unexplained absence in the prior proceedings despite notice, effectively putting responsibility on
Guillermo for the case's outcome against him.19
On January 5, 2004, Guillermo filed a Motion for Reconsideration of the above Order, 20 but the same was promptly
denied by the Labor Arbiter in an Order dated January 7, 2004.21
On January 26, 2004, Uson filed a Motion for Alias Writ of Execution,22 to which Guillermo filed a Comment and
Opposition on April 2, 2004.23
On May 18, 2004, the Labor Arbiter issued an Order24 granting Uson's Motion for the Issuance of an Alias Writ of
Execution and rejecting Guillermo's arguments posed in his Comment and Opposition.
Guillermo elevated the matter to the NLRC by filing a Memorandum of Appeal with Prayer for a (Writ of)
Preliminary Injunction dated June 10, 2004.25cralawred
In a Decision26 dated May 11, 2010, the NLRC dismissed Guillermo's appeal and denied his prayers for injunction.
On August 20, 2010, Guillermo filed a Petition for Certiorari27 before the Court of Appeals, assailing the NLRC
decision.
On June 8, 2011, the Court of Appeals rendered its assailed Decision28 which denied Guillermo's petition and
upheld all the findings of the NLRC.
The appellate court found that summons was in fact served on Guillermo as President and General Manager of
Royal Class Venture, which was how the Labor Arbiter acquired jurisdiction over the company.29 But Guillermo
subsequently refused to receive all notices of hearings and conferences as well as the order to file Royal Class
Venture's position paper.30 Then, it was learned during execution that Royal Class Venture had been
dissolved.31 However, the Court of Appeals held that although the judgment had become final and executory, it
may be modified or altered "as when its execution becomes impossible or unjust." 32 It also noted that the motion
to hold officers and directors like Guillermo personally liable, as well as the notices to hear the same, was sent to
them by registered mail, but no pleadings were submitted and no appearances were made by anyone of them
during the said motion's pendency.33 Thus, the court held Guillermo liable, citing jurisprudence that hold the
president of the corporation liable for the latter's obligation to illegally dismissed employees. 34 Finally, the court
dismissed Guillermo's allegation that the case is an intra-corporate controversy, stating that jurisdiction is
determined by the allegations in the complaint and the character of the relief sought. 35
From the above decision of the appellate court, Guillermo filed a Motion for Reconsideration 36 but the same was
again denied by the said court in the assailed Resolution37 dated October 7, 2011.
Hence, the instant petition.
Guillermo asserts that he was impleaded in the case only more than a year after its Decision had become final and
executory, an act which he claims to be unsupported in law and jurisprudence.38 He contends that the decision
had become final, immutable and unalterable and that any amendment thereto is null and void. 39 Guillermo
assails the so-called "piercing the veil" of corporate fiction which allegedly discriminated against him when he
alone was belatedly impleaded despite the existence of other directors and officers in Royal Class Venture. 40 He
also claims that the Labor Arbiter has no jurisdiction because the case is one of an intra-corporate controversy,
with the complainant Uson also claiming to be a stockholder and director of Royal Class Venture. 41
In his Comment,42 Uson did not introduce any new arguments but merely cited verbatim the disquisitions of the
Court of Appeals to counter Guillermo's assertions in his petition.
To resolve the case, the Court must confront the issue of whether an officer of a corporation may be included as
judgment obligor in a labor case for the first time only after the decision of the Labor Arbiter had become final
and executory, and whether the twin doctrines of "piercing the veil of corporate fiction" and personal liability of
company officers in labor cases apply.
The petition is denied.
In the earlier labor cases of Claparols v. Court of Industrial Relations43 and A.C. Ransom Labor Union-CCLU v.
NLRC,44 persons who were not originally impleaded in the case were, even during execution, held to be solidarity
liable with the employer corporation for the latter's unpaid obligations to complainant-employees. These included
a newly-formed corporation which was considered a mere conduit or alter ego of the originally impleaded
corporation, and/or the officers or stockholders of the latter corporation. 45 Liability attached, especially to the
responsible officers, even after final judgment and during execution, when there was a failure to collect from the
employer corporation the judgment debt awarded to its workers.46 In Naguiat v. NLRC,47 the president of the
corporation was found, for the first time on appeal, to be solidarily liable to the dismissed employees. Then,
in Reynoso v. Court of Appeals,48 the veil of corporate fiction was pierced at the stage of execution, against a
corporation not previously impleaded, when it was established that such corporation had dominant control of the
original party corporation, which was a smaller company, in such a manner that the latter's closure was done by
the former in order to defraud its creditors, including a former worker.
The rulings of this Court in A.C. Ransom, Naguiat, and Reynoso, however, have since been tempered, at least in
the aspects of the lifting of the corporate veil and the assignment of personal liability to directors, trustees and
officers in labor cases. The subsequent cases of McLeod v. NLRC,49Spouses Santos v. NLRC50 and Carag v.
NLRC,51 have all established, save for certain exceptions, the primacy of Section 3152 of the Corporation Code in
the matter of assigning such liability for a corporation's debts, including judgment obligations in labor cases.
According to these cases, a corporation is still an artificial being invested by law with a personality separate and
distinct from that of its stockholders and from that of other corporations to which it may be connected. 53 It is not
in every instance of inability to collect from a corporation that the veil of corporate fiction is pierced, and the
responsible officials are made liable. Personal liability attaches only when, as enumerated by the said Section 31
of the Corporation Code, there is a wilfull and knowing assent to patently unlawful acts of the corporation, there
is gross negligence or bad faith in directing the affairs of the corporation, or there is a conflict of interest
resulting in damages to the corporation.54 Further, in another labor case, Pantranco Employees Association (PEA-
PTGWO), et al. v. NLRC, et al.,55 the doctrine of piercing the corporate veil is held to apply only in three (3) basic
areas, namely: ( 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion
of an existing obligation; (2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or (3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or
business conduit of a person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. In the
absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate
officer cannot be made personally liable for corporate liabilities.56 Indeed, in Reahs Corporation v. NLRC,57 the
conferment of liability on officers for a corporation's obligations to labor is held to be an exception to the general
doctrine of separate personality of a corporation.
It also bears emphasis that in cases where personal liability attaches, not even all officers are made accountable.
Rather, only the "responsible officer," i.e., the person directly responsible for and who "acted in bad faith" in
20
committing the illegal dismissal or any act violative of the Labor Code, is held solidarily liable, in cases wherein
the corporate veil is pierced.58 In other instances, such as cases of so-called corporate tort of a close corporation,
it is the person "actively engaged" in the management of the corporation who is held liable. 59 In the absence of a
clearly identifiable officer(s) directly responsible for the legal infraction, the Court considers the president of the
corporation as such officer.60
The common thread running among the aforementioned cases, however, is that the veil of corporate fiction can
be pierced, and responsible corporate directors and officers or even a separate but related corporation, may be
impleaded and held answerable solidarily in a labor case, even after final judgment and on execution, so long as it
is established that such persons have deliberately used the corporate vehicle to unjustly evade the judgment
obligation, or have resorted to fraud, bad faith or malice in doing so. When the shield of a separate corporate
identity is used to commit wrongdoing and opprobriously elude responsibility, the courts and the legal authorities
in a labor case have not hesitated to step in and shatter the said shield and deny the usual protections to the
offending party, even after final judgment. The key element is the presence of fraud, malice or bad faith. Bad
faith, in this instance, does not connote bad judgment or negligence but imports a dishonest purpose or some
moral obliquity and conscious doing of wrong; it means breach of a known duty through some motive or interest or
ill will; it partakes of the nature of fraud.61
As the foregoing implies, there is no hard and fast rule on when corporate fiction may be disregarded; instead,
each case must be evaluated according to its peculiar circumstances.62 For the case at bar, applying the above
criteria, a finding of personal and solidary liability against a corporate officer like Guillermo must be rooted on a
satisfactory showing of fraud, bad
faith or malice, or the presence of any of the justifications for disregarding the corporate fiction. As stated
in McLeod,63 bad faith is a question of fact and is evidentiary, so that the records must first bear evidence of
malice before a finding of such may be made.
It is our finding that such evidence exists in the record. Like the A. C. Ransom, and Naguiat cases, the case at bar
involves an apparent family corporation. As in those two cases, the records of the present case bear allegations
and evidence that Guillermo, the officer being held liable, is the person responsible in the actual running of the
company and for the malicious and illegal dismissal of the complainant; he, likewise, was shown to have a role in
dissolving the original obligor company in an obvious "scheme to avoid liability" which jurisprudence has always
looked upon with a suspicious eye in order to protect the rights of labor.64
Part of the evidence on record is the second page of the verified Position Paper of complainant (herein
respondent) Crisanto P. Uson, where it was clearly alleged that Uson was "illegally dismissed by the
President/General Manager of respondent corporation (herein petitioner) Jose Emmanuel P. Guillermo when Uson
exposed the practice of the said President/General Manager of dictating and undervaluing the shares of stock of
the corporation."65 The statement is proof that Guillermo was the responsible officer in charge of running the
company as well as the one who dismissed Uson from employment. As this sworn allegation is uncontroverted - as
neither the company nor Guillermo appeared before the Labor Arbiter despite the service of summons and notices
- such stands as a fact of the case, and now functions as clear evidence of Guillermo's bad faith in his dismissal of
Uson from employment, with the motive apparently being anger at the latter's reporting of unlawful activities.
Finally, the records likewise bear that Guillermo dissolved Royal Class Venture and helped incorporate a new firm,
located in the same address as the former, wherein he is again a stockl1older. This is borne by the Sherif11s
Return which reported: that at Royal Class Venture's business address at Minien East, Sta. Barbara, Pangasinan,
there is a new establishment named "Joel and Sons Corporation," a family corporation owned by the Guillermos in
which Jose Emmanuel F. Guillermo is again one of the stockholders; that Guillermo received the writ of execution
but used the nickname "Joey" and denied being Jose Emmanuel F. Guillermo and, instead, pretended to be Jose's
brother; that the guard on duty confirmed that Jose and Joey are one and the same person; and that the
respondent corporation Royal Class Venture had been dissolved.70 Again, the facts contained in the Sheriffs Return
were not disputed nor controverted by Guillermo, either in the hearings of Uson's Motions for Issuance of Alias
Writs of Execution, in subsequent motions or pleadings, or even in the petition before this Court. Essentially,
then, the facts form part of the records and now stand as further proof of Guillermo's bad faith and malicious
intent to evade the judgment obligation.
The foregoing clearly indicate a pattern or scheme to avoid the obligations to Uson and frustrate the execution of
the judgment award, which this Court, in the interest of justice, will not countenance.
As for Guillermo's assertion that the case is an intra-corporate controversy, the Court sustains the finding of the
appellate court that the nature of an action and the jurisdiction of a tribunal are determined by the allegations of
the complaint at the time of its filing, irrespective of whether or not the plaintiff is entitled to recover upon all or
some of the claims asserted therein.71 Although Uson is also a stockholder and director of Royal Class Venture, it is
settled in jurisprudence that not all conflicts between a stockholder and the corporation are intra-corporate; an
examination of the complaint must be made on whether the complainant is involved in his capacity as a
stockholder or director, or as an employee.72 If the latter is found and the dispute does not meet the test of what
qualities as an intra-corporate controversy, then the case is a labor case cognizable by the NLRC and is not within
the jurisdiction of any other tribunal.73In the case at bar, Uson's allegation was that he was maliciously and
illegally dismissed as an Accounting Supervisor by Guillermo, the Company President and General Manager, an
allegation that was not even disputed by the latter nor by Royal Class Venture. It raised no intra-corporate
relationship issues between him and the corporation or Guillermo; neither did it raise any issue regarding the
regulation of the corporation. As correctly found by the appellate court, Uson's complaint and redress sought were
centered alone on his dismissal as an employee, and not upon any other relationship he had with the company or
with Guillermo. Thus, the matter is clearly a labor dispute cognizable by the labor tribunals.chanrobleslaw
WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated June 8, 2011 and Resolution dated
October 7, 2011 in CA G.R. SP No. 115485 are AFFIRMED.
SO ORDERED.cr

Then, it is also clearly reflected in the records that it was Guillermo himself, as President and General Manager of
the company, who received the summons to the case, and who also subsequently and without justifiable cause
refused to receive all notices and orders of the Labor Arbiter that followed. 66This makes Guillermo responsible for
his and his company's failure to participate in the entire proceedings before the said office. The fact is clearly
narrated in the Decision and Orders of the Labor Arbiter, Uson's Motions for the Issuance of Alias Writs of
Execution, as well as in the Decision of the NLRC and the assailed Decision of the Court of Appeals,67 which
Guillermo did not dispute in any of his belated motions or pleadings, including in his petition for certiorari before
the Court of Appeals and even in the petition currently before this Court.68 Thus, again, the same now stands as a
finding of fact of the said lower tribunals which binds this Court and which it has no power to alter or
revisit.69 Guillermo's knowledge of the case's filing and existence and his unexplained refusal to participate in it as
the responsible official of his company, again is an indicia of his bad faith and malicious intent to evade the
judgment of the labor tribunals.

21
 On December 23, 1998, upon his assumption of office, Customs Commissioner Nelson Tan transmitted another
demand letter to URC affirming the assessment of ₱99,216,580.10 by Commissioner Mendoza.
G.R. No. 161759 July 2, 2014

On January 18, 1999, Magleo, in behalf of URC, replied by letter to Commissioner Tan’s affirmance by denying
COMMISSIONER OF CUSTOMS, Petitioner,
liability, insisting instead that only ₱28,933,079.20 should be paid by way of compromise.
vs.
OILINK INTERNATIONAL CORPORATION, Respondent.
On March 26, 1999, Commissioner Tan responded by rejecting Magleo’s proposal, and directed URC to pay
₱99,216,580.10.
DECISION

BERSAMIN, J.:
This appeal is brought by the Commissioner of Customs to seek the review and reversal of the decision
promulgated on September 29, 2003,1 whereby the Court of Appeals (CA) affirmed the adverse ruling of the Court
of Tax Appeals (CTA) declaring the assessment for deficiency taxes and duties against Oilink International
Corporation (Oilink) null and void.
On May 24, 1999, Manuel Co, URC’s President, conveyed to Commissioner Tan URC’s willingness to pay only
₱94,216,580.10, of which the initial amount of ₱28,264,974.00 would be taken from the collectibles of Oilink from
the National Power Corporation, and the balance to be paid in monthly installments over a period ofthree years to
be secured with corresponding post-dated checks and its future available tax credits.
On July 2, 1999, Commissioner Tan made a final demand for the total liability of ₱138,060,200.49 upon URC and
Oilink.

Antecedents
The antecedents are summarized in the assailed decision.2
On September 15, 1966, Union Refinery Corporation (URC) was established under the Corporation Code of the
Philippines. In the course of its business undertakings, particularly in the period from 1991 to 1994, URC imported
oil products into the country.
On January 11, 1996, Oilink was incorporated for the primary purpose of manufacturing, importing, exporting,
buying, selling or dealing in oil and gas, and their refinements and by-products at wholesale and retail of
petroleum. URC and Oilink had interlocking directors when Oilink started its business.
On July 8, 1999, Co requested from Commissioner Tan a complete finding of the facts and law in support ofthe
assessment made in the latter’s July 2, 1999 final demand.
Also on July 8, 1999, Oilink formally protested the assessment on the ground that it was not the party liable for
the assessed deficiency taxes.
On July 12, 1999, after receiving the July 8, 1999 letter from Co, Commissioner Tan communicated in writing the
detailed computation of the tax liability, stressing that the Bureau of Customs (BoC) would not issue any clearance
to Oilink unless the amount of ₱138,060,200.49 demanded as Oilink’s tax liability befirst paid, and a performance
bond be posted by URC/Oilink to secure the payment of any adjustments that would result from the BIR’s review
of the liabilities for VAT, excise tax, special duties, penalties, etc.

In applying for and in expediting the transfer of the operator’s name for the Customs Bonded Warehouse Thus, on July 30, 1999, Oilink appealed to the CTA, seeking the nullification of the assessment for having been
thenoperated by URC, Esther Magleo, the Vice-President and General Manager of URC, sent a letter dated January issued without authority and with grave abuse of discretion tantamount to lack of jurisdiction because the
15, 1996 to manifest that URC and Oilink had the same Board of Directors and that Oilink was 100% owned by URC. Government was thereby shifting the imposition from URC to Oilink.

On March 4, 1998, Oscar Brillo, the District Collector of the Port of Manila, formally demanded that URC pay the Decision of the CTA
taxes and duties on its oil imports that had arrived between January 6, 1991 and November 7, 1995 at the Port of
Lucanin in Mariveles, Bataan.
On July 9, 2001, the CTA rendered its decision declaring as null and void the assessment of the Commissioner of
Customs, to wit:
On April 16, 1998, Brillo made another demand letter to URC for the payment of the reduced sum of
₱289,287,486.60 for the Value-Added Taxes (VAT), special duties and excisetaxes for the years 1991-1995.
IN THE LIGHT OF ALL THE FOREGOING, the petition is hereby GRANTED. The assailed assessment issued by
Respondent against herein Petitioner OILINK INTERNATIONAL CORPORATION is hereby declared NULL and VOID.
On April 23, 1998, URC, through its counsel, responded to the demands by seeking the landed computations of the
assessments, and challenged the inconsistencies of the demands.
SO ORDERED.3

On November 25, 1998, then Customs Commissioner Pedro C. Mendoza formally directed that URC pay the amount
The Commissioner of Customs seasonably filed a motion for reconsideration,4 but the CTA denied the motion for
of ₱119,223,541.71 representing URC’s special duties, VAT,and Excise Taxes that it had failed to pay at the time
lack of merit.5
of the release of its 17 oil shipments that had arrived in the Sub-port of Mariveles from January 1, 1991 to
September 7, 1995.
Judgment of the CA
On December 21, 1998, Commissioner Mendoza wrote again to require URC to pay deficiency taxes but in the
reduced sum of ₱99,216,580.10.
22
Aggrieved, the Commissioner of Customs brought a petition for review in the CA upon the following issues,
namely: (a) the CTA gravely erred in holding that it had jurisdiction over the subject matter; (b) the CTA gravely
erred in holding that Oilink had a cause of action; and (c) the CTA gravely erred in holding that the Commissioner
of Customs could not pierce the veil of corporate fiction.
On the issue of the jurisdiction of the CTA, the CA held:
x x x the case at bar is very much within the purview of the jurisdiction of the Court ofTax Appeals since it is
undisputed that what is involved herein is the respondent’s liability for payment of money to the Government as
evidenced by the demand letters sent by the petitioner. Hence, the Court of Tax Appeals did noterr in taking
cognizance of the petition for review filed by the respondent.
xxxx
We find the petitioner’s submission untenable. The principle of non-exhaustion of administrative remedy is not an
iron-clad rule for there are instances that immediate resort to judicial action may be proper. Verily, a cursory
examination of the factual milieu of the instant case indeed reveals that exhaustion ofadministrative remedy
would be unavailing because it was the Commissioner of Customs himself who was demanding from the respondent
payment of tax liability. In addition, it may be recalled that a crucial issue inthe petition for review filed by the
respondent before the CTA is whether or not the doctrine of piercing the veil of corporate fiction validly applies.
Indubitably, this is purely a question of law where judicial recourse may certainly be resorted to. 6
As to whether or not the Commissioner of Customs could lawfully pierce the veil of corporate fiction in order to
treat Oilink as the mere alter ego of URC, the CA concurred with the CTA, quoting the latter’s following findings:
In the case at bar, the said wrongdoing was not clearly and convincingly established by Respondent. He did not
submit any evidence to support his allegations but merely submitted the case for decision based on the pleadings
and evidence presented by petitioner. Stated otherwise, should the Respondent sufficiently provethat OILINK was
merely set up in order to avoid the payment of taxes or for some other purpose which will defeat public
convenience, justify wrong, protect fraud or defend crime, this Court will not hesitate to pierce the veil of
corporate fiction by URC and OILINK.7
Issues
Hence, this appeal, whereby the Commissioner of Customs reiterates the issues raised in the CA.
Ruling of the Court
We affirm the judgment of the CA.
1.
The CTA had jurisdiction over the controversy
There is no question that the CTA had the jurisdiction over the case. Republic Act No. 1125, the law creating the
CTA, defined the appellate jurisdiction of the CTA as follows:
Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by
appeal, as herein provided:
xxxx
2. Decisions of the Commissioner ofCustoms in cases involving liability for Customs duties, fees or other money
charges; seizure, detention or release of property affected; fines, forfeitures or other penalties imposed in
relation thereto;or other matters arising under the Customs Law or other law or part of law administered by the
Bureau of Customs;
xxxx
Nonetheless, the Commissioner of Customs contends that the CTA should not take cognizance of the casebecause
of the lapse of the 30-day period within which to appeal, arguing that on November 25, 1998 URC had already
received the BoC’s final assessment demanding payment of the amount due within 10 days, but filed the petition
only on July 30, 1999.8
We rule against the Commissioner of Customs. The CTA correctly ruled that the reckoning date for Oilink’s appeal
was July 12, 1999, not July 2, 1999, because it was on the former date that the Commissioner of Customs denied
the protest of Oilink.Clearly, the filing of the petition on July 30, 1999 by Oilink was well within its reglementary
period to appeal. The insistence by the Commissioner of Customs on reckoning the reglementary period to appeal
from November 25, 1998, the date when URC received the final demand letter, is unwarranted. We note that the
November 25, 1998 final demand letter of the BoC was addressed to URC, not to Oilink. As such, the final demand
sentto URC did not bind Oilink unless the separate identities of the corporations were disregarded in order to
consider them as one.
2.
Oilink had a valid cause of action
The Commissioner of Customs positsthat the final demand letter dated July 2, 1999 from which Oilink appealed
was not the final "action" or "ruling" from which an appeal could be taken as contemplated by Section 2402 of the
Tariff and Customs Code; that what Section 7 of RA No. 1125 referred to as a decision that was appealable to the
CTA was a judgment or order of the Commissioner of Customs that was final in nature, not merely an interlocutory
one; that Oilink did notexhaust its administrative remedies under Section 2308 of the Tariff and Customs Code by
paying the assessment under protest; that only when the ensuing decision of the Collector and then the adverse
decision of the Commissioner of Customs would it be proper for Oilink to seek judicial relief from the CTA; and
that, accordingly, the CTA should have dismissed the petition for lack of cause of action.
The position of the Commissioner of Customs lacks merit.
The CA correctly held that the principle of non-exhaustion of administrative remedies was not an iron-clad rule
because there were instances in which the immediate resort to judicial action was proper. This was one such
exceptional instance when the principle did not apply. As the records indicate, the Commissioner of Customs
already decided to deny the protest by Oilink on July 12, 1999, and stressed then that the demand to pay was
final. In that instance, the exhaustion of administrative remedies would have been an exercise in futility because
it was already the Commissioner of Customs demanding the payment of the deficiency taxes and duties.
3.
There was no ground to pierce
the veil of corporate existence
23
A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those
of the persons composing it as well as from any other legal entity to which it may be related. For this reason, a
stockholder is generally not made to answer for the acts or liabilities of the corporation, and viceversa. The
separate and distinct personality of the corporation is, however, a mere fiction established by law for convenience
and to promote the ends of justice. It may not be used or invoked for ends that subvert the policy and purpose
behind its establishment, or intended by law to which the corporation owes its being. This is true particularly
when the fiction is used to defeat public convenience, to justify wrong, to protectfraud, to defend crime, to
confuse legitimate legal or judicial issues, to perpetrate deception or otherwise to circumvent the law. This is
likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole
benefit of the stockholders or of another corporate entity. In such instances, the veil of corporate entity will be
pierced or disregarded with reference to the particular transaction involved. 9
In Philippine National Bank v. Ritratto Group, Inc., 10 the Court has outlined the following circumstances thatare
useful in the determination of whether a subsidiary is a mere instrumentality of the parent-corporation, viz:
1. Control, not mere majority or complete control, but complete domination, not only of finances butof policy and
business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at
the time no separatemind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a
statutory or other positive legal duty, or dishonest and, unjust act incontravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
In applying the "instrumentality" or"alter ego" doctrine, the courts are concerned with reality, not form, and with
how the corporation operated and the individual defendant's relationship to the operation.11 Consequently, the
absence of any one of the foregoing elements disauthorizes the piercing of the corporate veil.
Indeed, the doctrine of piercing the corporate veil has no application here because the Commissioner of Customs
did not establish that Oilink had been set up to avoid the payment of taxes or duties, or for purposes that would
defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues,
perpetrate deception or otherwise circumvent the law. It is also noteworthy that from the outset the
Commissioner of Customs sought to collect the deficiency taxes and duties from URC, and that it was only on July
2, 1999 when the Commissioner of Customs sent the demand letter to both URC and Oilink. That was revealing,
because the failure of the Commissioner of Customs to pursue the remedies against Oilink from the outset
manifested that its belated pursuit of Oilink was only an afterthought. WHEREFORE, the Court AFFIRMS the
decision promulgated by the Court of Appeals on September 29, 2003.
No pronouncement on costs of suit.
SO ORDERED.
G.R. No. 182770 September 17, 2014
WPM INTERNATIONAL TRADING, INC. and WARLITO P. MANLAPAZ, Petitioners,
vs.
FE CORAZON LABAYEN, Respondent.
DECISION
BRION, J.:
We review in this petition for review on certiorari1 the decision2 dated September 28, 2007 and the
resolution3 dated April 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 68289 that affirmed with
modification the decision4 of the Regional Trial Court (RTC), Branch 77, Quezon City.
The Factual Background
The respondent, Fe Corazon Labayen, is the owner of H.B.O. Systems Consultants, a management and consultant
firm. The petitioner, WPM International Trading, Inc. (WPM), is a domestic corporation engaged in the restaurant
business, while Warlito P. Manlapaz (Manlapaz) is its president.
Sometime in 1990, WPM entered into a management agreement with the respondent, by virtue of which the
respondent was authorized to operate, manage and rehabilitate Quickbite, a restaurant owned and operated by
WPM. As part of her tasks, the respondent looked for a contractor who would renovate the two existing Quickbite
outlets in Divisoria, Manila and Lepanto St., University Belt, Manila. Pursuant to the agreement, the respondent
engaged the services of CLN Engineering Services (CLN) to renovate Quickbite-Divisoria at the cost of ₱432,876.02.
On June 13, 1990, Quickbite-Divisoria’s renovation was finally completed, and its possession was delivered to the
respondent. However, out of the ₱432,876.02 renovation cost, only the amount of ₱320,000.00 was paid to CLN,
leaving a balance of ₱112,876.02.
Complaint for Sum of Money (Civil Case No. Q-90-7013)
On October 19, 1990, CLN filed a complaint for sum of money and damages before the RTC against the respondent
and Manlapaz, which was docketed as Civil Case No. Q-90-7013. CLN later amended the complaint to exclude
Manlapaz as defendant. The respondent was declared in default for her failure to file a responsive pleading.
The RTC, in its January 28, 1991 decision, found the respondent liable to pay CLN actual damages inthe amount of
₱112,876.02 with 12% interest per annum from June 18,1990 (the date of first demand) and 20% of the amount
recoverable as attorney’s fees.
Complaint for Damages (Civil Case No. Q-92-13446)
Thereafter, the respondent instituted a complaint for damages against the petitioners, WPM and Manlapaz. The
respondent alleged that in Civil Case No. Q-90-7013, she was adjudged liable for a contract that she entered into
for and in behalf of the petitioners, to which she should be entitled to reimbursement; that her participation in
the management agreement was limited only to introducing Manlapaz to Engineer Carmelo Neri (Neri), CLN’s
general manager; that it was actually Manlapaz and Neri who agreed on the terms and conditions of the
agreement; that when the complaint for damages was filed against her, she was abroad; and that she did not
know of the case until she returned to the Philippines and received a copy of the decision of the RTC.
24
In her prayer, the respondent sought indemnification in the amount of ₱112,876.60 plus interest at 12%per annum
from June 18, 1990 until fully paid; and 20% of the award as attorney’s fees. She likewise prayed that an award of
₱100,000.00 as moral damages and ₱20,000.00 as attorney’s fees be paid to her.
In his defense, Manlapaz claims that it was his fellow incorporator/director Edgar Alcansajewho was in-charge
with the daily operations of the Quickbite outlets; that when Alcansaje left WPM, the remaining directors were
compelled to hire the respondent as manager; that the respondent had entered intothe renovation agreement
with CLN in her own personal capacity; that when he found the amount quoted by CLN too high, he instructed the
respondent to either renegotiate for a lower price or to look for another contractor; that since the respondent had
exceeded her authority as agent of WPM, the renovation agreement should only bind her; and that since WPM has
a separate and distinct personality, Manlapaz cannot be made liable for the respondent’s claim.
Manlapaz prayed for the dismissal of the complaint for lack of cause of action, and by way of counterclaim, for
the award of ₱350,000.00 as moral and exemplary damages and ₱50,000.00 attorney’s fees.
The RTC, through an order dated March 2, 1993 declared WPM in default for its failure to file a responsive
pleading.
The Decision of the RTC
In its decision, the RTC held that the respondent is entitled to indemnity from Manlapaz. The RTC found that
based on the records, there is a clear indication that WPM is a mere instrumentality or business conduit of
Manlapaz and as such, WPM and Manlapaz are considered one and the same. The RTC also found that Manlapaz
had complete control over WPM considering that he is its chairman, president and treasurer at the same time. The
RTC thus concluded that Manlapaz is liable in his personal capacity to reimburse the respondent the amount she
paid to CLN inconnection with the renovation agreement.
The petitioners appealed the RTC decision with the CA. There, they argued that in view of the respondent’s act of
entering into a renovation agreement with CLN in excess of her authority as WPM’s agent, she is not entitled to
indemnity for the amount she paid. Manlapaz also contended that by virtue ofWPM’s separate and distinct
personality, he cannot be madesolidarily liable with WPM.
The Ruling of the Court of Appeals
On September 28, 2007, the CA affirmed, with modification on the award of attorney’s fees, the decision of the
RTC.The CA held that the petitioners are barred from raising as a defense the respondent’s alleged lack of
authority to enter into the renovation agreement in view of their tacit ratification of the contract.
The CA likewise affirmed the RTC ruling that WPM and Manlapaz are one and the same based on the following: (1)
Manlapaz is the principal stockholder of WPM; (2) Manlapaz had complete control over WPM because he
concurrently held the positions of president, chairman of the board and treasurer, in violation of the Corporation
Code; (3) two of the four other stockholders of WPM are employed by Manlapaz either directly or indirectly; (4)
Manlapaz’s residence is the registered principal office of WPM; and (5) the acronym "WPM" was derived from
Manlapaz’s initials. The CA applied the principle of piercing the veil of corporate fiction and agreed with the RTC
that Manlapaz cannot evade his liability by simply invoking WPM’s separate and distinct personality.
After the CA's denial of their motion for reconsideration, the petitioners filed the present petition for review on
certiorari under Rule 45 of the Rules of Court.
The Petition
The petitioners submit that the CA gravely erred in sustaining the RTC’s application of the principle of piercing
the veil of corporate fiction. They argue that the legal fiction of corporate personality could only be discarded
upon clear and convincing proof that the corporation is being used as a shield to avoid liability or to commit a
fraud. Since the respondent failed to establish that any of the circumstances that would warrant the piercing is
present, Manlapaz claims that he cannot be made solidarily liable with WPM to answerfor damages allegedly
incurred by the respondent.
The petitioners further argue that, assuming they may be held liable to reimburse to the respondentthe amount
she paid in Civil Case No. Q-90-7013, such liability is only limited to the amount of ₱112,876.02, representing the
balance of the obligation to CLN, and should not include the twelve 12% percent interest, damages and attorney’s
fees.
The Issues
The core issues are: (1) whether WPM is a mere instrumentality, alter-ego, and business conduit of Manlapaz; and
(2) whether Manlapaz is jointly and severally liable with WPM to the respondent for reimbursement, damages and
interest.
Our Ruling
We find merit in the petition.
We note, at the outset, that the question of whether a corporation is a mere instrumentality or alter-ego of
another is purely one of fact.5 This is also true with respect to the question of whether the totality of the
evidence adduced by the respondentwarrants the application of the piercing the veil of corporate fiction
doctrine.6
Generally, factual findings of the lower courts are accorded the highest degree of respect, if not finality. When
adopted and confirmed by the CA, these findings are final and conclusive and may not be reviewed on
appeal,7save in some recognized exceptions8 among others, when the judgment is based on misapprehension of
facts.
We have reviewed the records and found that the application of the principle of piercing the veil of corporate
fiction is unwarranted in the present case.
On the Application ofthe Principle of Piercing the Veil of Corporate Fiction
The rule is settled that a corporation has a personality separate and distinct from the persons acting for and in its
behalf and, in general, from the people comprising it. 9 Following this principle, the obligations incurred by the
corporate officers, orother persons acting as corporate agents, are the direct accountabilities ofthe corporation
they represent, and not theirs. Thus, a director, officer or employee of a corporation is generally not held
personally liable for obligations incurred by the corporation;10 it is only in exceptional circumstances that solidary
liability will attach to them.
Incidentally, the doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when
the separate and distinct corporate personality defeats public convenience, as when the corporate fiction is used
as a vehicle for the evasion of an existing obligation; b) in fraud cases, or when the corporate entity is used to
justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a corporation is
essentially a farce, since it is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs so conducted as to make it merely aninstrumentality, agency, conduit or
adjunct of another corporation.11
25
Piercing the corporate veil based on the alter ego theory requires the concurrence of three elements, namely: Since no harm could be said to have been proximately caused by Manlapaz for which the latter could be held
solidarily liable with WPM, and considering that there was no proof that WPM had insufficient funds, there was no
sufficient justification for the RTC and the CA to have ruled that Manlapaz should be held jointly and severally
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances
liable to the respondent for the amount she paid to CLN. Hence, only WPM is liable to indemnify the respondent.
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;
Finally, we emphasize that the piercing of the veil of corporate fiction is frowned upon and thus, must be done
with caution.15 It can only be done if it has been clearly established that the separate and distinct personality of
(2) Such control must have beenused by the defendant to commit fraud or wrong, to perpetuate the
the corporation is used to justify a wrong, protect fraud, or perpetrate a deception. The court must be certain
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against
plaintiff’s legal right; and
another, in disregard of its rights; it cannot be presumed.

(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss
On the Award of Moral Damages
complained of.

On the award of moral damages, we find the same in order in view of WPM's unjustified refusal to pay a just debt.
The absence of any ofthese elements prevents piercing the corporate veil. 12
Under Article 2220 of the New Civil Code,16 moral damages may be awarded in cases of a breach of contract where
the defendant acted fraudulently or in bad faith or was guilty of gross negligence amounting to bad faith.
In the present case, the attendantcircumstances do not establish that WPM is a mere alter ego of Manlapaz.
In the present case, when payment for the balance of the renovation cost was demanded, WPM, instead of
Aside from the fact that Manlapaz was the principal stockholder of WPM, records do not show that WPM was complying with its obligation, denied having authorized the respondent to contract in its behalf and accordingly
organized and controlled, and its affairs conducted in a manner that made it merely an instrumentality, agency, refused to pay. Such cold refusal to pay a just debt amounts to a breach of contract in bad faith, as contemplated
conduit or adjunct ofManlapaz. As held in Martinez v. Court of Appeals,13 the mere ownership by a by Article 2220. Hence, the CA's order to pay moral damages was in order.
singlestockholder of even all or nearly all of the capital stocks ofa corporation is not by itself a sufficient ground
to disregard the separate corporate personality. To disregard the separate juridical personality of a corporation,
WHEREFORE, in light of the foregoing, the decision dated September 28, 2007 of the Court of Appeals in CA-G.R.
the wrongdoing must be clearly and convincingly established.14
CV No. 68289 is MODIFIED and.that petitioner Warlito P. Manlapaz is ABSOLVED from any liability under the
renovation agreement.
Likewise, the records of the case do not support the lower courts’ finding that Manlapaz had control or domination
over WPM or its finances. That Manlapaz concurrentlyheld the positions of president, chairman and treasurer, or
SO ORDERED.
that the Manlapaz’s residence is the registered principal office of WPM, are insufficient considerations to prove
that he had exercised absolutecontrol over WPM.

In this connection, we stress thatthe control necessary to invoke the instrumentality or alter ego rule is not
majority or even complete stock control but such domination of finances, policies and practices that the alawlawlibrary
controlled corporation has, so tospeak, no separate mind, will or existence of its own, and is but a conduit for its
principal. 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.

Here, the respondent failed to prove that Manlapaz, acting as president, had absolute control over
WPM.1âwphi1 Even granting that he exercised a certain degree of control over the finances, policies and practices
of WPM, in view of his position as president, chairman and treasurer of the corporation, such control does not
necessarily warrant piercing the veil of corporate fiction since there was not a single proof that WPM was formed
to defraud CLN or the respondent, or that Manlapaz was guilty of bad faith or fraud.

On the contrary, the evidence establishes that CLN and the respondent knew and acted on the knowledgethat
they were dealing with WPM for the renovation of the latter’s restaurant, and not with Manlapaz. That WPM later
reneged on its monetary obligation to CLN, resulting to the filing of a civil case for sum of money against the
respondent, does not automatically indicate fraud, in the absence of any proof to support it.

This Court also observed that the CA failed to demonstrate how the separate and distinct personalityof WPM was
used by Manlapaz to defeat the respondent’s right for reimbursement. Neither was there any showing that WPM
attempted to avoid liability or had no property against which to proceed.

26
 complaint for sum of money was filed in the RTC of Makati, Branch 136 seeking to hold petitioners NMIC, DBP, and
PNB solidarily liable for the amount owing Hercon, Inc.11 The case was docketed as Civil Case No. 15375.
G.R. No. 167530 March 13, 2013

Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger. This prompted the
PHILIPPINE NATIONAL BANK, Petitioner,
amendment of the complaint to substitute HRCC for Hercon, Inc.12
vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.
Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No. 50 creating the APT
for the expeditious disposition and privatization of certain government corporations and/or the assets thereof.
x-----------------------x
Pursuant to the said Proclamation, on February 27, 1987, DBP and PNB executed their respective deeds of transfer
in favor of the National Government assigning, transferring and conveying certain assets and liabilities, including
G.R. No. 167561 their respective stakes in NMIC.13 In turn and on even date, the National Government transferred the said assets
and liabilities to the APT as trustee under a Trust Agreement. 14 Thus, the complaint was amended for the second
time to implead and include the APT as a defendant.
ASSET PRIVATIZATION TRUST, Petitioner,
vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent. In its answer,15 NMIC claimed that HRCC had no cause of action. It also asserted that its contract with HRCC was
entered into by its then President without any authority. Moreover, the said contract allegedly failed to comply
with laws, rules and regulations concerning government contracts. NMIC further claimed that the contract amount
x-----------------------x
was manifestly excessive and grossly disadvantageous to the government. NMIC made counterclaims for the
amounts already paid to Hercon, Inc. and attorney’s fees, as well as payment for equipment rental for four trucks,
G.R. No. 167603 replacement of parts and other services, and damage to some of NMIC’s properties. 16

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, For its part, DBP’s answer17 raised the defense that HRCC had no cause of action against it because DBP was not
vs. privy to HRCC’s contract with NMIC. Moreover, NMIC’s juridical personality is separate from that of DBP. DBP
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent. further interposed a counterclaim for attorney’s fees.18

DECISION PNB’s answer19 also invoked lack of cause of action against it. It also raised estoppel on HRCC’s part and laches as
defenses, claiming that the inclusion of PNB in the complaint was the first time a demand for payment was made
on it by HRCC. PNB also invoked the separate juridical personality of NMIC and made counterclaims for moral
LEONARDO-DE CASTRO, J.:
damages and attorney’s fees.20

These petitions for review on certiorari1 assail the Decision2 dated November 30, 2004 and the Resolution3 dated
APT set up the following defenses in its answer21: lack of cause of action against it, lack of privity between
March 22, 2005 of the Court of Appeals in CA-G.R. CV No. 57553. The said Decision affirmed the Decision4 dated
Hercon, Inc. and APT, and the National Government’s preferred lien over the assets of NMIC.22
November 6, 1995 of the Regional Trial Court (RTC) of Makati City, Branch 62, granting a judgment award of
₱8,370,934.74, plus legal interest, in favor of respondent Hydro Resources Contractors Corporation (HRCC) with
the modification that the Privatization and Management Office (PMO), successor of petitioner Asset Privatization After trial, the RTC of Makati rendered a Decision dated November 6, 1995 in favor of HRCC. It pierced the
Trust (APT),5 has been held solidarily liable with Nonoc Mining and Industrial Corporation (NMIC)6 and petitioners corporate veil of NMIC and held DBP and PNB solidarily liable with NMIC:
Philippine National Bank (PNB) and Development Bank of the Philippines (DBP), while the Resolution denied
reconsideration separately prayed for by PNB, DBP, and APT.
On the issue of whether or not there is sufficient ground to pierce the veil of corporate fiction, this Court likewise
finds for the plaintiff.
Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on the properties of
Marinduque Mining and Industrial Corporation (MMIC). As a result of the foreclosure, DBP and PNB acquired
From the documentary evidence adduced by the plaintiff, some of which were even adopted by defendants and
substantially all the assets of MMIC and resumed the business operations of the defunct MMIC by organizing
DBP and PNB as their own evidence (Exhibits "I", "I-1", "I-2", "I-3", "I-4", "I-5", "I5-A", "I-5-B", "I-5-C", "I-5-D" and
NMIC.7 DBP and PNB owned 57% and 43% of the shares of NMIC, respectively, except for five qualifying shares. 8As
submarkings, inclusive), it had been established that except for five (5) qualifying shares, NMIC is owned by
of September 1984, the members of the Board of Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa,
defendants DBP and PNB, with the former owning 57% thereof, and the latter 43%. As of September 24, 1984, all
Ruben Ancheta, Geraldo Agulto, and Faustino Agbada, were either from DBP or PNB. 9
the members of NMIC’s Board of Directors, namely, Messrs. Jose Tengco, Jr., Rolando M. Zosa, Ruben Ancheta,
Geraldo Agulto, and Faustino Agbada are either from DBP or PNB (Exhibits "I-5", "I-5-C", "I-5-D").
Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and Road Construction
Program in 1985 for a total contract price of ₱35,770,120. After computing the payments already made by NMIC
The business of NMIC was then also being conducted and controlled by both DBP and PNB. In fact, it was Rolando
under the program and crediting the NMIC’s receivables from
M. Zosa, then Governor of DBP, who was signing and entering into contracts with third persons, on behalf of NMIC.

Hercon, Inc., the latter found that NMIC still has an unpaid balance of ₱8,370,934.74.10 Hercon, Inc. made several
In this jurisdiction, it is well-settled that "where it appears that the business enterprises are owned, conducted
demands on NMIC, including a letter of final demand dated August 12, 1986, and when these were not heeded, a
and controlled by the same parties, both law and equity will, when necessary to protect the rights of third
27
persons, disregard legal fiction that two (2) corporations are distinct entities, and treat them as identical." (Phil.
Veterans Investment Development Corp. vs. CA, 181 SCRA 669).
From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of both DBP and PNB.
Thus, the DBP and PNB are jointly and severally liable with NMIC for the latter’s unpaid obligations to plaintiff. 23
Having found DBP and PNB solidarily liable with NMIC, the dispositive portion of the Decision of the trial court
reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff HYDRO RESOURCES
CONTRACTORS CORPORATION and against the defendants NONOC
MINING AND INDUSTRIAL CORPORATION, DEVELOPMENT BANK OF THE PHILIPPINES and PHILIPPINE NATIONAL BANK,
ordering the aforenamed defendants, to pay the plaintiff jointly and severally, the sum of ₱8,370,934.74 plus
legal interest thereon from date of demand, and attorney’s fees equivalent to 25% of the judgment award.
The complaint against APT is hereby dismissed. However, APT, as trustee of NONOC MINING AND INDUSTRIAL
CORPORATION is directed to ensure compliance with this Decision.24
DBP and PNB filed their respective appeals in the Court of Appeals. Both insisted that it was wrong for the RTC to
pierce the veil of NMIC’s corporate personality and hold DBP and PNB solidarily liable with NMIC.25
The Court of Appeals rendered the Decision dated November 30, 2004, affirmed the piercing of the veil of the
corporate personality of NMIC and held DBP, PNB, and APT solidarily liable with NMIC. In particular, the Court of
Appeals made the following findings:
In the case before Us, it is indubitable that [NMIC] was owned by appellants DBP and PNB to the extent of 57% and
43% respectively; that said two (2) appellants are the only stockholders, with the qualifying stockholders of five
(5) consisting of its own officers and included in its charter merely to comply with the requirement of the law as
to number of incorporators; and that the directorates of DBP, PNB and [NMIC] are interlocked.
xxxx
We find it therefore correct for the lower court to have ruled that:
"From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of both DBP and PNB.
Thus, the DBP and PNB are jointly and severally liable with NMIC for the latter’s unpaid obligation to
plaintiff."26(Citation omitted.)
The Court of Appeals then concluded that, "in keeping with the concept of justice and fair play," the corporate
veil of NMIC should be pierced, ratiocinating:
For to treat NMIC as a separate legal entity from DBP and PNB for the purpose of securing beneficial contracts,
and then using such separate entity to evade the payment of a just debt, would be the height of injustice and
iniquity. Surely that could not have been the intendment of the law with respect to corporations. x x x. 27
The dispositive portion of the Decision of the Court of Appeals reads:
WHEREFORE, premises considered, the Decision appealed from is hereby MODIFIED. The judgment in favor of
appellee Hydro Resources Contractors Corporation in the amount of ₱8,370,934.74 with legal interest from date of
demand is hereby AFFIRMED, but the dismissal of the case as against Assets Privatization Trust is REVERSED, and
its successor the Privatization and Management Office is INCLUDED as one of those jointly and severally liable for
such indebtedness. The award of attorney’s fees is DELETED.
All other claims and counter-claims are hereby DISMISSED.
Costs against appellants.28
The respective motions for reconsideration of DBP, PNB, and APT were denied. 29
Hence, these consolidated petitions.30
All three petitioners assert that NMIC is a corporate entity with a juridical personality separate and distinct from
both PNB and DBP. They insist that the majority ownership by DBP and PNB of NMIC is not a sufficient ground for
disregarding the separate corporate personality of NMIC because NMIC was not a mere adjunct, business conduit or
alter ego of DBP and PNB. According to them, the application of the doctrine of piercing the corporate veil is
unwarranted as nothing in the records would show that the ownership and control of the shareholdings of NMIC by
DBP and PNB were used to commit fraud, illegality or injustice. In the absence of evidence that the stock control
by DBP and PNB over NMIC was used to commit some fraud or a wrong and that said control was the proximate
cause of the injury sustained by HRCC, resort to the doctrine of "piercing the veil of corporate entity" is
misplaced.31
DBP and PNB further argue that, assuming they may be held solidarily liable with NMIC to pay NMIC’s exclusive and
separate corporate indebtedness to HRCC, such liability of the two banks was transferred to and assumed by the
National Government through the APT, now the PMO, under the respective deeds of transfer both dated February
27, 1997 executed by DBP and PNB pursuant to Proclamation No. 50 dated December 8, 1986 and Administrative
Order No. 14 dated February 3, 1987.32
For its part, the APT contends that, in the absence of an unqualified assumption by the National Government of
all liabilities incurred by NMIC, the National Government through the APT could not be held liable for NMIC’s
contractual liability. The APT asserts that HRCC had not sufficiently shown that the APT is the successor-in-
interest of all the liabilities of NMIC, or of DBP and PNB as transferors, and that the adjudged liability is included
among the liabilities assigned and transferred by DBP and PNB in favor of the National Government.33
HRCC counters that both the RTC and the CA correctly applied the doctrine of "piercing the veil of corporate
fiction." It claims that NMIC was the alter ego of DBP and PNB which owned, conducted and controlled the
business of NMIC as shown by the following circumstances: NMIC was owned by DBP and PNB, the officers of DBP
and PNB were also the officers of NMIC, and DBP and PNB financed the operations of NMIC. HRCC further argues
that a parent corporation may be held liable for the contracts or obligations of its subsidiary corporation where
the latter is a mere agency, instrumentality or adjunct of the parent corporation. 34
Moreover, HRCC asserts that the APT was properly held solidarily liable with DBP, PNB, and NMIC because the APT
assumed the obligations of DBP and PNB as the successor-in-interest of the said banks with respect to the assets
and liabilities of NMIC.35 As trustee of the Republic of the Philippines, the APT also assumed the responsibility of
the Republic pursuant to the following provision of Section 2.02 of the respective deeds of transfer executed by
DBP and PNB in favor of the Republic:
SECTION 2. TRANSFER OF BANK’S LIABILITIES
28
 xxxx
2.02 With respect to the Bank’s liabilities which are contingent and those liabilities where the Bank’s creditors
consent to the transfer thereof is not obtained, said liabilities shall remain in the books of the BANK with the
GOVERNMENT funding the payment thereof.36
After a careful review of the case, this Court finds the petitions impressed with merit.
A corporation is an artificial entity created by operation of law. It possesses the right of succession and such
powers, attributes, and properties expressly authorized by law or incident to its existence.37 It has a personality
separate and distinct from that of its stockholders and from that of other corporations to which it may be
connected.38 As a consequence of its status as a distinct legal entity and as a result of a conscious policy decision
to promote capital formation,39 a corporation incurs its own liabilities and is legally responsible for payment of its
obligations.40 In other words, by virtue of the separate juridical personality of a corporation, the corporate debt or
credit is not the debt or credit of the stockholder.41 This protection from liability for shareholders is the principle
of limited liability.42
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when
the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the
interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality
or inequity committed against third persons.43
However, the rule is that a court should be careful in assessing the milieu where the doctrine of the corporate veil
may be applied. Otherwise an injustice, although unintended, may result from its erroneous application. 44 Thus,
cutting through the corporate cover requires an approach characterized by due care and caution:
Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should
be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to
such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The
wrongdoing must be clearly and convincingly established; it cannot be presumed. x x x.45 (Emphases supplied;
citations omitted.)
Sarona v. National Labor Relations Commission46 has defined the scope of application of the doctrine of piercing
the corporate veil:
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud
cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego
cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation. (Citation omitted.)
Here, HRCC has alleged from the inception of this case that DBP and PNB (and the APT as assignee of DBP and
PNB) should be held solidarily liable for using NMIC as alter ego.47 The RTC sustained the allegation of HRCC and
pierced the corporate veil of NMIC pursuant to the alter ego theory when it concluded that NMIC "is a mere
adjunct, business conduit or alter ego of both DBP and PNB."48 The Court of Appeals upheld such conclusion of the
trial court.49 In other words, both the trial and appellate courts relied on the alter ego theory when they
disregarded the separate corporate personality of NMIC.
In this connection, case law lays down a three-pronged test to determine the application of the alter ego theory,
which is also known as the instrumentality theory, namely:
(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 right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss
complained of.50 (Emphases omitted.)
The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be completely under
the control and domination of the parent.51 It examines the parent corporation’s relationship with the
subsidiary.52 It inquires whether a subsidiary corporation is so organized and controlled and its affairs are so
conducted as to make it a mere instrumentality or agent of the parent corporation such that its separate
existence as a distinct corporate entity will be ignored.53 It seeks to establish whether the subsidiary corporation
has no autonomy and the parent corporation, though acting through the subsidiary in form and appearance, "is
operating the business directly for itself."54
The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using the
subsidiary corporation be unjust, fraudulent or wrongful.55 It examines the relationship of the plaintiff to the
corporation.56 It recognizes that piercing is appropriate only if the parent corporation uses the subsidiary in a way
that harms the plaintiff creditor.57 As such, it requires a showing of "an element of injustice or fundamental
unfairness."58
The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s control, exerted in
a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered. 59 A causal connection
between the fraudulent conduct committed through the instrumentality of the subsidiary and the injury suffered
or the damage incurred by the plaintiff should be established. The plaintiff must prove that, unless the corporate
veil is pierced, it will have been treated unjustly by the defendant’s exercise of control and improper use of the
corporate form and, thereby, suffer damages.60
To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence of three
elements: control of the corporation by the stockholder or parent corporation, fraud or fundamental unfairness
imposed on the plaintiff, and harm or damage caused to the plaintiff by the fraudulent or unfair act of the
corporation. The absence of any of these elements prevents piercing the corporate veil. 61
This Court finds that none of the tests has been satisfactorily met in this case.
In applying the 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.62 With respect to the control element, it
refers not to paper or formal control by majority or even complete stock control but actual control which amounts
to "such domination of finances, policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its principal." 63 In addition, the control must
be shown to have been exercised at the time the acts complained of took place. 64
Both the RTC and the Court of Appeals applied the alter ego theory and penetrated the corporate cover of NMIC
based on two factors: (1) the ownership by DBP and PNB of effectively all the stocks of NMIC, and (2) the alleged
interlocking directorates of DBP, PNB and NMIC.65 Unfortunately, the conclusion of the trial and appellate courts
that the DBP and PNB fit the alter ego theory with respect to NMIC’s transaction with HRCC on the premise of
complete stock ownership and interlocking directorates involved a quantum leap in logic and law exposing a gap in
reason and fact.
29
While ownership by one corporation of all or a great majority of stocks of another corporation and their management and control of Sibagat Timber Corporation by the directors/officers of Del Rosario & Sons Logging
interlocking directorates may serve as indicia of control, by themselves and without more, however, these Enterprises, Inc.
circumstances are insufficient to establish an alter ego relationship or connection between DBP and PNB on the
one hand and NMIC on the other hand, that will justify the puncturing of the latter’s corporate cover. This Court
Here, DBP and PNB maintain an address different from that of NMIC.79 As already discussed, there was insufficient
has declared that "mere ownership by a single stockholder or by another corporation of all or nearly all of the
proof of interlocking directorates. There was not even an allegation of similarity of corporate officers. Instead of
capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
evidence that DBP and PNB assumed and controlled the management of NMIC, HRCC’s evidence shows that NMIC
personality."66 This Court has likewise ruled that the "existence of interlocking directors, corporate officers and
operated as a distinct entity endowed with its own legal personality. Thus, what obtains in this case is a factual
shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other
backdrop different from, not similar to, Sibagat Timber Corporation.
public policy considerations."67

In relation to the second element, to disregard the separate juridical personality of a corporation, the wrongdoing
True, the findings of fact of the Court of Appeals are conclusive and cannot be reviewed on appeal to this Court,
or unjust act in contravention of a plaintiff’s legal rights must be clearly and convincingly established; it cannot
provided they are borne out of the record or are based on substantial evidence.68 It is equally true that the
be presumed. Without a demonstration that any of the evils sought to be prevented by the doctrine is present, it
question of whether one corporation is merely an alter ego of another is purely one of fact. So is the question of
does not apply.80
whether a corporation is a paper company, a sham or subterfuge or whether the requisite quantum of evidence
has been adduced warranting the piercing of the veil of corporate personality. 69 Nevertheless, it has been held in
Sarona v. National Labor Relations Commission70 that this Court has the power to resolve a question of fact, such In this case, the Court of Appeals declared:
as whether a corporation is a mere alter ego of another entity or whether the corporate fiction was invoked for
fraudulent or malevolent ends, if the findings in the assailed decision are either not supported by the evidence on
We are not saying that PNB and DBP are guilty of fraud in forming NMIC, nor are we implying that NMIC was used
record or based on a misapprehension of facts.
to conceal fraud. x x x.81

In this case, nothing in the records shows that the corporate finances, policies and practices of NMIC were
dominated by DBP and PNB in such a way that NMIC could be considered to have no separate mind, will or
existence of its own but a mere conduit for DBP and PNB. On the contrary, the evidence establishes that HRCC
knew and acted on the knowledge that it was dealing with NMIC, not with NMIC’s stockholders. The letter proposal
of Hercon, Inc., HRCC’s predecessor-in-interest, regarding the contract for NMIC’s mine stripping and road
construction program was addressed to and accepted by NMIC.71 The various billing reports, progress reports,
statements of accounts and communications of Hercon, Inc./HRCC regarding NMIC’s mine stripping and road
construction program in 1985 concerned NMIC and NMIC’s officers, without any indication of or reference to the
control exercised by DBP and/or PNB over NMIC’s affairs, policies and practices. 72
HRCC has presented nothing to show that DBP and PNB had a hand in the act complained of, the alleged undue
disregard by NMIC of the demands of HRCC to satisfy the unpaid claims for services rendered by HRCC in
connection with NMIC’s mine stripping and road construction program in 1985. On the contrary, the overall picture
painted by the evidence offered by HRCC is one where HRCC was dealing with NMIC as a distinct juridical person
acting through its own corporate officers.73
Moreover, the finding that the respective boards of directors of NMIC, DBP, and PNB were interlocking has no
basis. HRCC’s Exhibit "I-5,"74 the initial General Information Sheet submitted by NMIC to the Securities and
Exchange Commission, relied upon by the trial court and the Court of Appeals may have proven that DBP and PNB
owned the stocks of NMIC to the extent of 57% and 43%, respectively. However, nothing in it supports a finding
that NMIC, DBP, and PNB had interlocking directors as it only indicates that, of the five members of NMIC’s board
of directors, four were nominees of either DBP or PNB and only one was a nominee of both DBP and PNB. 75 Only
two members of the board of directors of NMIC, Jose Tengco, Jr. and Rolando Zosa, were established to be
members of the board of governors of DBP and none was proved to be a member of the board of directors of
PNB.76 No director of NMIC was shown to be also sitting simultaneously in the board of governors/directors of both
DBP and PNB.
In reaching its conclusion of an alter ego relationship between DBP and PNB on the one hand and NMIC on the
other hand, the Court of Appeals invoked Sibagat Timber Corporation v. Garcia, 77 which it described as "a case
under a similar factual milieu."78 However, in Sibagat Timber Corporation, this Court took care to enumerate the
circumstances which led to the piercing of the corporate veil of Sibagat Timber Corporation for being the alter
ego of Del Rosario & Sons Logging Enterprises, Inc. Those circumstances were as follows: holding office in the
same building, practical identity of the officers and directors of the two corporations and assumption of
Such a declaration clearly negates the possibility that DBP and PNB exercised control over NMIC which DBP and
PNB used "to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or
dishonest and unjust act in contravention of plaintiff’s legal rights." It is a recognition that, even assuming that
DBP and PNB exercised control over NMIC, there is no evidence that the juridical personality of NMIC was used by
DBP and PNB to commit a fraud or to do a wrong against HRCC.
There being a total absence of evidence pointing to a fraudulent, illegal or unfair act committed against HRCC by
DBP and PNB under the guise of NMIC, there is no basis to hold that NMIC was a mere alter ego of DBP and PNB. As
this Court ruled in Ramoso v. Court of Appeals82:
As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the
contrary appears. When the notion of legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, the law will regard the corporation as an association of persons. Also, the corporate entity
may be disregarded in the interest of justice in such cases as fraud that may work inequities among members of
the corporation internally, involving no rights of the public or third persons. In both instances, there must have
been fraud, and proof of it. For the separate juridical personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly established. It cannot be presumed.
As regards the third element, in the absence of both control by DBP and PNB of NMIC and fraud or fundamental
unfairness perpetuated by DBP and PNB through the corporate cover of NMIC, no harm could be said to have been
proximately caused by DBP and PNB on HRCC for which HRCC could hold DBP and PNB solidarily liable with
NMIC.1âwphi1
Considering that, under the deeds of transfer executed by DBP and PNB, the liability of the APT as transferee of
the rights, titles and interests of DBP and PNB in NMIC will attach only if DBP and PNB are held liable, the APT
incurs no liability for the judgment indebtedness of NMIC. Even HRCC recognizes that "as assignee of DBP and PNB
's loan receivables," the APT simply "stepped into the shoes of DBP and PNB with respect to the latter's rights and
obligations" in NMIC.83 As such assignee, therefore, the APT incurs no liability with respect to NMIC other than
whatever liabilities may be imputable to its assignors, DBP and PNB.
Even under Section 2.02 of the respective deeds of transfer executed by DBP and PNB which HRCC invokes, the
APT cannot be held liable. The contingent liability for which the National Government, through the APT, may be

30
held liable under the said provision refers to contingent liabilities of DBP and PNB. Since DBP and PNB may not be
held solidarily liable with NMIC, no contingent liability may be imputed to the APT as well. Only NMIC as a distinct
and separate legal entity is liable to pay its corporate obligation to HRCC in the amount of ₱8,370,934.74, with
legal interest thereon from date of demand.
As trustee of the. assets of NMIC, however, the APT should ensure compliance by NMIC of the judgment against it.
The APT itself acknowledges this.84
WHEREFORE, the petitions are hereby GRANTED.
The complaint as against Development Bank of the Philippines, the Philippine National Bank, and the Asset
Privatization Trust, now the Privatization and Management Office, is DISMISSED for lack of merit. The Asset
Privatization Trust, now the Privatization and Management Office, as trustee of Nonoc Mining and Industrial
Corporation, now the Philnico Processing Corporation, is DIRECTED to ensure compliance by the Nonoc Mining and
Industrial Corporation, now the Philnico Processing Corporation, with this Decision. SO ORDERED.
G.R. No. 203355, August 18, 2015
LEO R. ROSALES, EDGAR SOLIS JONATHAN G. RANIOLA, LITO FELICIANO, RAYMUNDO DIDAL, JR., NESTOR
SALIN, ARNULFO S. ABRIL, RUBEN FLORES, DANTE FERMA AND MELCHOR SELGA,Petitioners, v. NEW A.N.J.H.
ENTERPRISES & N.H. OIL MILL CORPORATION, NOEL AWAYAN, MA. FE AWAYAN, BYRON ILAGAN, HEIDI A.
ILAGAN AND AVELINO AWAYAN, Respondents.
DECISION
VELASCO JR., J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the September 5, 2012
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 124395, which, in turn, affirmed the Resolutions of the
National Labor Relations Commission (NLRC) dated December 28, 20112 and February 28, 20123 in NLRC-LAC Case
No. 07-001796-11.
Respondent New ANJH Enterprises (New ANJH) is a sole proprietorship owned by respondent Noel Awayan (Noel).
Petitioners are its former employees who worked as machine operators, drivers, helpers, lead and boiler men.
Allegedly due to dwindling capital, on February 11, 2010, Noel wrote the Director of the Department of Labor and
Employment (DOLE) Region IV-A a letter regarding New ANJH's impending cessation of operations and the sale of
its assets to respondent NH Oil Mill Corporation (NH Oil), as well as the termination of thirty-three (33) employees
by reason thereof.4 On February 13, 2010, Noel met with the 33 affected employees, which included petitioners,
to inform them of his plan.5 On even date, he gave the employees uniformly-worded Notices dated February 12,
20106 informing them of the cessation of operations of New ANJH effective March 15, 2010 and the sale of its
assets to a corporation. Noel also offered the employees, including petitioners, their separation pay.
On March 5, 2010, Noel signed a Deed of Sale selling the equipment, machines, tools and/or other devices being
used by New ANJH Enterprises for the manufacturing and/or extraction of coconut oil for P950,000 to NH Oil, as
represented by respondent Heidi A. Ilagan (Heidi), Noel's sister. 7cralawrednad
Parenthetically, the Articles of Incorporation of NH Oil were prepared on January 27, 2010 with Noel appearing to
have more than two-thirds (2/3) of the subscribed capital stock of the corporation.8 The remaining shares had
been subscribed by Heidi and other members of the Awayan family.9cralawrednad
On March 8, 2010, respondents New ANJH and Noel filed before the NLRC Sub-Regional Arbitration Branch No. IV
(NLRC-SRAB-IV), San Pablo City a "Letter Request for Intervention," which was docketed as SRAB-IV-03-5066-10-L.
The letter request reads:cralawlawlibrary
Please be informed that the business operations of the New ANJH Enterprises, a single Proprietorship engaged in
oil extraction situated in San Pablo City, will be permanently closed effective 15 March 2010 due to lack of
capital caused by enormous uncollected receivables/debts and the necessity for the plant to undergo general
repairs and maintenance.
xxxx
In this connection, we respectfully request that we be allowed to effect the payment of the separation
benefits to our employees before your Office and with your kind intervention to ensure that we are properly
guided by the provisions of law in this undertaking.10 (Emphasis supplied)
On March. 16, 2010, petitioners Lito Feliciano (Feliciano), Edgar Solis (Solis), and Nestor Salin (Salin) received
their respective separation pays, signed the corresponding check vouchers and executedQuitclaims and
Release before Labor Arbiter Melchisedek A. Guan (LA Guan) of NLRC SRAB-IV San Pablo Office.11cralawrednad
On March 27, 2010, petitioner Leo Rosales (Rosales) similarly received his separation pay from Noel and signed
a Quitclaim and Release.12 On March 29, 2010, the other petitioners, Amulfo Abril (Abril), Raymundo Didal (Didal),
Ruben Flores (Flores), Melchor Selga (Selga), Jonathan Ranola (Ranola), and Dante Ferma (Ferma) also received
their separation benefits and signed their respective Quitclaims and Release and check vouchers.13cralawrednad
Following the payments thus made to petitioners and their execution of Quitclaims and Release, LA Guan issued
four (4) Orders, to wit: three Orders all dated March 22, 2010 for petitioners Feliciano, Solis, and Salin; 14 and one
Order dated April 8, 2010 for petitioners Abril, Flores, Didal, Ferma, Rosales, Selga and Ranola. 15 In the said
Orders, LA Guan declared the "labor dispute" between New ANJH and petitioners as "dismissed with prejudice on
ground of settlement."16cralawrednad
Petitioners, however, filed a complaint for illegal dismissal, docketed as NLRC Case No. RAB-IV-04-00649-10-L,
with NLRC Regional Arbitration Branch IV (NLRC-RAB-IV) in Calamba City. They alleged in their complaint that
while New ANJH stopped its operations on March 15, 2010, it resumed its operations as NH Oil using the same
machineries and with the same owners and management.17 Petitioners thus claimed that the sale of the assets of
New ANJH to NH Oil was a circumvention of their security of tenure.
In a Decision dated April 29, 2011,18 Executive Labor Arbiter Generoso V. Santos (ELA Santos) found that
petitioners had been illegally dismissed and ordered their reinstatement and the payment of One Million Six
Thousand Forty-Five and 87/100 Pesos (P1,006,045.87) corresponding to the petitioners' full backwages less the
amount paid to them as their respective "separation pay." In ruling for the petitioners, ELA Santos ratiocinated
that the buyer "in the 'impending sale' undisclosed in the notices of [petitioners] is divulged by subsequent
development to be practically the same as the seller." Hence, for ELA Santos, it was extremely difficult to
conclude that the sale was genuine and can validly justify the termination of the petitioners.
Respondents filed their Notice of Appeal with Appeal Memorandum19 along with a Verified Motion to Reduce
Bond20 with the NLRC. They also posted 60% of the award ordered by the LA, or Six Hundred Three Thousand Six
Hundred Twenty-Seven and 52/100 Pesos (P603,627.52), as their appeal bond.21cralawrednad
Meanwhile, petitioners also filed a Memorandum of Partial Appeal contending that ELA Santos erred in failing to
award them moral and exemplary damages.22cralawrednad
On September 24, 2011, the NLRC issued a Decision23 denying respondents' Verified Motion to Reduce Bond for lack
of merit and so dismissing their appeal for non-perfection. In the same Decision, the NLRC also granted
petitioners' partial appeal by modifying ELA Santos' Decision to include the award of P20,000.00 to each petitioner
as moral and exemplary damages.24cralawrednad
Respondents filed their Motion for Reconsideration with Motion to Admit Additional Appeal Cash
Bond25cralawredwith corresponding payment of additional cash bond.26cralawrednad
While the motion was opposed by petitioners,27 the NLRC, in its Resolution dated December 28, 2011,28reversed its
earlier Decision and ordered the dismissal of petitioners' complaint on the ground that it was barred by the Orders
31
issued by LA Guan under the doctrine of res judicata. Further, the NLRC pointed out that the sale of New ANJH's
assets to NH Oil Mill was in the exercise of sound management prerogative and there was no proof that it was
made to defeat petitioners' security of tenure.
In its Resolution dated February 28, 2012,29 the NLRC denied petitioners' Motion for Reconsideration. Hence,
petitioners filed a petition for certiorari with the CA.
In the assailed Decision,30 the appellate court denied the petition for certiorari, thereby affirming the NLRC's
Resolutions dated December 28, 2011 and February 28, 2012.
In its Decision, the appellate court held that private respondents had substantially complied with the rule
requiring the posting of an appeal bond equivalent to the total award given to the employees. More importantly,
so the CA held, the Orders rendered by LA Guan in NLRC Case No. SRAB IV-03-5066-10-L were considered final and
binding upon the parties and had the force and effect of a judgment rendered by the labor arbiter. Thus, the
appellate court declared that the petitioners' complaint for illegal dismissal was already barred by res judicata.
Aggrieved by the CA's Decision, petitioners are now before this Court on a petition for review on certiorari.
We find the petition to be with merit.
The suspension of the period to perfect the appeal upon the filing of a motion to reduce bond
On the issue of perfecting the appeal, the CA was correct when it pointed out that Rule VI of the New Rules of
Procedure of the NLRC provides that a motion to reduce bond shall be entertained "upon the posting of a bond in a
reasonable amount in relation to the monetary award." As to what the "reasonable amount" is, the NLRC has wide
discretion in determining the reasonableness of the bond for purposes of perfecting an appeal. In Garcia v. KJ
Commercial,31 this Court explained:cralawlawlibrary
The filing of a motion to reduce bond and compliance with the two conditions stop the running of the period to
perfect an appeal. x x x
xxxx
The NLRC has full discretion to grant or deny the motion to reduce bond, and it may rule on the motion
beyond the 10-day period within which to perfect an appeal. Obviously, at the time of the filing of the motion
to reduce bond and posting of a bond in a reasonable amount, there is no assurance whether the appellant's
motion is indeed based on "meritorious ground" and whether the bond he or she posted is of a "reasonable
amount." Thus, the appellant always runs the risk of failing to perfect an appeal.
x x x In order to give full effect to the provisions on motion to reduce bond, the appellant must be allowed to
wait for the ruling of the NLRC on the motion even beyond the 10-day period to perfect an appeal. If the
NLRC grants the motion and rules that there is indeed meritorious ground and that the amount of the bond posted
is reasonable, then the appeal is perfected. If the NLRC denies the motion, the appellant may still file a motion
for reconsideration as provided under Section 15, Rule VII of the Rules. If the NLRC grants the motion for
reconsideration and rules that there is indeed meritorious ground and that the amount of the bond posted is
reasonable, then the appeal is perfected. If the NLRC denies the motion, then the decision of the labor arbiter
becomes final and executory.
xxx
In any case, the rule that the filing of a motion to reduce bond shall not stop the running of the period to perfect
an appeal is not absolute. The Court may relax the rule. InIntertranz Container Lines, Inc. v. Bautista, the Court
held:cralawlawlibrary
"Jurisprudence tells us that in labor cases, an appeal from a decision involving a monetary award may be
perfected only upon the posting of cash or surety bond. The Court, however, has relaxed this requirement under
certain exceptional circumstances in order to resolve controversies on their merits. These circumstances include:
(1) fundamental consideration of substantial justice; (2) prevention of miscarriage of justice or of unjust
enrichment; and (3) special circumstances of the case combined with its legal merits, and the amount and the
issue involved."32 (emphasis and underscoring supplied)
In this case, the NLRC had reconsidered its original position and declared that the 60% bond was reasonable given
the merits of the justification provided by respondents in their Motion to Reduce Bond, as supplemented by their
Motion for Reconsideration with Motion to Admit Additional Appeal Cash Bond. The CA affirmed the merits of the
grounds cited by respondents in their motions and the reasonableness of the bond originally posted by
respondents. This is in accord with the guidelines established in McBurnie v. Ganzon,33 where this Court declared
that the posting of a provisional cash or surety bond equivalent to ten percent (10%) of the monetary award
subject of the appeal is sufficient provided that there is meritorious ground therefor, viz:cralawlawlibrary
[O]n the matter of the filing and acceptance of motions to reduce appeal bond, as provided in Section 6, Rule VI
of the 2011 NLRC Rules of Procedure, the Court hereby RESOLVES that henceforth, the following guidelines shall
be observed:cralawlawlibrary
(a) The filing of a motion to reduce appeal bond shall be entertained by the NLRC subject to the following
conditions: (1) there is meritorious ground; and (2) a bond in a reasonable amount is posted;
(b) For purposes of compliance with condition no. (2), a motion shall be accompanied by the posting of a
provisional cash or surety bond equivalent to ten percent (10%) of the monetary award subject of the appeal,
exclusive of damages and attorney's fees;
(c) Compliance with the foregoing conditions shall suffice to suspend the running of the 10-day reglementary
period to perfect an appeal from the labor arbiter's decision to the NLRC;
(d) The NLRC retains its authority and duty to resolve the motion to reduce bond and determine the final amount
of bond that shall be posted by the appellant, still in accordance with the standards of meritorious grounds and
reasonable amount; and
(e) In the event that the NLRC denies the motion to reduce bond, or requires a bond that exceeds the amount
of the provisional bond, the appellant shall be given a fresh period of ten (10) days from notice of the NLRC
order within which to perfect the appeal by posting the required appeal bond. 34 emphasis and underscoring
added)
It is noted that the respondents have eventually posted the full amount of the award ordered by the labor arbiter.
Thus, given the absence of grave abuse of discretion on the part of the NLRC and the affirmation of the CA of the
reasonableness of the motions and the amount of bond posted, there is no ground for this Court to reverse the
CA's finding that the appeal had been perfected.
Res Judicata does not bar the filing of the complaints for illegal dismissal
On the matter of the application of the doctrine of res judicata, however, this Court is loath to sustain the finding
of the appellate court and the NLRC. For res judicata to apply, the concurrence of the following requisites must
be verified: (1) the former judgment is final; (2) it is rendered by a court having jurisdiction over the subject
matter and the parties; (3) it is a judgment or an order on the merits; (4) there is-between the first and the
second actions-identity of parties, of subject matter, and of causes of action. 35cralawrednad
The petitioners dispute the existence of all of the foregoing requisites. First, petitioners contend that LA Guan
does not have jurisdiction to issue the Orders in SRAB-IV-03-5066-10-L since, in the first place, Noel's letter
request for guidance in the payment of separation pay is allegedly not a "labor dispute."
Article 219 (previously Article 212) of the Labor Code defines a "labor dispute" as "any controversy ormatter
concerning terms and conditions of employment or the association or representation of persons in negotiating,
fixing, maintaining, changing or arranging the terms and conditions of employment, regardless of whether the
disputants stand in the proximate relation of employer and employee." As separation pay concerns a term and
condition of employment, Noel's request to be guided in the payment thereof is clearly a labor dispute under the
Labor Code.
The proper payment of separation pay further falls under the jurisdiction of the labor arbiter pursuant to Art. 224
32
(previously Art. 217) of the Labor Code, as it is mandated as a necessary condition for the termination of
employees, viz,:cralawlawlibrary
Art. 224. Jurisdiction of the Labor Arbiters and the Commission.
(a) Except as otherwise provided under this Code,the Labor Arbiters shall have original and exclusive jurisdiction
to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision
without extension, even in the absence of stenographic notes, the following cases involving all workers, whether
agricultural or non agricultural:ChanRoblesvirtualLawlibrary
1. Unfair labor practice cases;
2. Termination disputes;
xxxx
6. Except claims for employees compensation, social security, medicare and maternity benefits, all other
claims arising from employer-employee relations, including those of persons in domestic or household
service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether
accompanied with a claim for reinstatement. (Emphasis supplied)
The invocation of the labor arbiter's jurisdiction by way of a letter request instead of a complaint is of no
moment, as it is well-settled that the application of technical rules of procedure is relaxed in labor cases.
The third requisite, however, is not present. The Orders rendered by LA Guan cannot be considered as
constituting a judgment on the merits. The Orders simply manifest that petitioners "are amenable to the
computations made by the company respecting their separation pay." Nothing more. They do not clearly state the
petitioners' right or New ANJH's corresponding duty as a result of the termination.36cralawrednad
Similarly, the fourth requisite is- also absent. While there may be substantial identity of the parties, there is no
identity of subject matter or cause of action. In SME Bank, Inc. v. De Guzman,37 this Court held that the
acceptance of separation pay is an issue distinct from the legality of the dismissal of the employees. We
held:cralawlawlibrary
The conformity of the employees to the corporation's act of considering them as terminated and their subsequent
acceptance of separation pay does not remove the taint of illegal dismissal. Acceptance of separation pay does
not bar the employees from subsequently contesting the legality of their dismissal, nor does it estop them
from challenging the legality of their separation from the service.38 (Emphasis supplied)
In the absence of the third and fourth requisites, the appellate court should have proceeded to rule on the validity
of petitioners' termination.
Piercing the veil of corporate existence is justified in the present case.
The application of the doctrine of piercing the veil of corporate fiction is frowned upon. However, this Court will
not hesitate to disregard the corporate fiction if it is used to such an extent that injustice, fraud, or crime is
committed against another in disregard of his rights.39cralawrednad
In this case, petitioners advance the application of the doctrine because they were terminated from employment
on the pretext that there will be an impending permanent closure of the business as a result of an intended sale
of its assets to an undisclosed corporation, and that there will be a change in the management. The termination
notices received by petitioners identically read:cralawlawlibrary
Nais po naming ipaabot sa inyo na ang New ANJH Enterprises ay ihihinto na ang operasyon dahil sa nagpasya ako
bilang may-ari na ipagbili na ang ari-arian nito sa iba kung kayat magkakaroon ng pagpapalit sa pamumunuan nito.
Kaugnay po nito at ayon sa itinatadhana ng batas ay nais kong ipaabot sa inyo na 30 araw matapos ninyong
matanggap ang pasabing ito o simula sa Marso 15, 2010 ay ititigil na ang operasyon ng New ANJH Enterprises at sa
nasabi ring petsa ay matatapos na rin ang pagtratrabaho o "employment" ninyo sa New ANJH Enterprises. 40
Subsequent events, however, revealed that the buyer of the assets of their employer was a corporation owned by
the same employer and members of his family. Furthermore, the business re-opened in less than a month under
the same management.
Admittedly, mere ownership by a single stockholder of all or nearly all of the capital stock of the corporation does
not by itself justify piercing the corporate veil. Nonetheless, in this case, other circumstances show that the buyer
of the assets of petitioners' employer is none other than his alter ego.41 We quote with approval the observations
of ELA Santos:cralawlawlibrary
Respondents did not allege that they informed complainants neither did they state in the notices of termination
that the buyer in the "impending sale" is NH Oil Mill. Pondering on these observations, this Office finds it too
difficult to surmise that respondents' omission was not deliberate, and so this Office holds that Noel was not in
good faith in dealing with complainants. The information disclosed by the Certificate of Registration and Articles
of Incorporation of NH Oil Mill explains respondents' motive. Its stockholders are members of [Noel's] family
known to complainants, and Noel is the controlling stockholder and director. The immediate resumption of
operation after cessation of operation on March 15, 2010 further explains it. While complainants failed to prove
that the stockholders in NH Oil Mill were those who managed ANJH, respondents did not dispute that there was
no change in the management people, premises, tools, devices, equipment, and machinery under NH Oil Mill.
The buyer in the "impending sale" undisclosed in the notices to complainants is divulged by subsequent
development to be practically the same as the seller. These things are inconsistent with good faith.
xxxx
Here, complainants' employment was terminated for the alleged sale of assets of ANJH to NH Oil Mill that would
allegedly entail [a] change of management. The Deed of Sale dated March 5, 2010 [that] respondents presented
(Annex "20", respondents position paper) to prove the "sale," states that [for] the consideration of Nine Hundred
Fifty Thousand Pesos (Php950,000.00), Noel sold to NH Oil Mill the equipment, machines, tool and/or other
devises being used by ANJH for manufacturing and/or extraction of coconut oil. This Office cannot simply accept
it as sufficient proof of sale by the seller to a distinct and separate entity.
xxxx
The subscribed capital stock of Noel and Heidi [in NH Oil] are worth Php790,000.00 and Php190,000.00,
respectively, or the total of Php980,000.00. Respondents claim that Noel was managing ANJH and Heidi was its
Secretary. The Deed of Sale is signed by Noel and Heidi, Noel as [sellerl, and Heidi as representative of NH Oil
Mill.Respondents did not enumerate what [were] the equipment etc. subject of the "sale," and how they were
depreciated, and what [were] the equipment/machines owned by Avelino and rented by NH Oil Mill and for how
much? Therefrom, it is extremely difficult to conclude by quantum of evidence acceptable to [a] reasonable mind,
[that] the "sale to a distinct entity" is genuine. And while the notices of termination state that there would be [a]
change in management, this Office notes that respondents do not deny that Noel and Heidi continue to
manage NH Oil Mill. Therefore, as far as complainants' employment is concerned, this Office pierces the veil of
corporate fiction of NH Oil Mill and finds that the purported sale thereto of the assets of ANJH is insufficient to
validly terminate such employment. This Office cannot rule otherwise without running afoul to the mandate of the
Constitution securing to the workingman his employment, and guaranteeing to him full protection. So this Office
declares that complainants were illegally dismissed.42 (emphasis and underscoring supplied)
Clearly, the milieu of the present case compels this Court to remove NH Oil's corporate mask as it had become,
and was used as, a shield for fraud, illegality and inequity against the petitioners.
WHEREFORE, the instant petition is GRANTED and the Decision dated September 5, 2012 of the Court of Appeals
in CA-G.R. SP No. 124395, affirming the Resolutions of the National Labor Relations Commission (NLRC) dated
December 28, 2011 and February 28, 2012 in NLRC-LAC Case No. 07-001796-11, is hereby REVERSED and SET
ASIDE. The Decision of Executive Labor Arbiter Generoso Santos in NLRC Case No. RAB-IV-04-00649-10-L to the
effect that petitioners were illegally dismissed isREINSTATED.
SO ORDERED.
33
 areas covered by applications since it knows that it can only participate in mining activities through corporations
which are deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned
G.R. No. 195580 April 21, 2014
by MBMI, they were likewise disqualified from engaging in mining activities through MPSAs, which are reserved
only for Filipino citizens.
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and MCARTHUR
MINING, INC., Petitioners,
In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of Republic Act No. (RA)
vs.
7942 or the Philippine Mining Act of 1995 which provided:
REDMONT CONSOLIDATED MINES CORP., Respondent.

Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms, whether in singular or
DECISION
plural, shall mean:

VELASCO, JR., J.:

xxxx

Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and Mining Development
Corp. (Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), which seeks to
reverse the October 1, 2010 Decision1 and the February 15, 2011 Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in mining and exploring certain areas of the province of
Palawan. After inquiring with the Department of Environment and Natural Resources (DENR), it learned that the
areas where it wanted to undertake exploration and mining activities where already covered by Mineral
Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an
MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the
Department of Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay Sumbiling,
Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which includes an area of 3,720 hectares in
Barangay Malatagao, Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining Corporation
(MMC) and, on November 6, 2006, assigned to petitioner McArthur. 2
Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining
& Development Corporation (PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B,
DENR on January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277
hectares in barangays Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed,
transferred and/or assigned its rights and interests over the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly
EPA-IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of
Palawan. SMMI subsequently conveyed, transferred and assigned its rights and interest over the said MPSA
application to Tesoro.
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation,
partnership, association, or cooperative organized or authorized for the purpose of engaging in mining, with
technical and financial capability to undertake mineral resources development and duly registered in accordance
with law at least sixty per cent (60%) of the capital of which is owned by citizens of the Philippines: Provided,
That a legally organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an
exploration permit, financial or technical assistance agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is immaterial because they also applied for Financial
or Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and
AFTA-IVB-07 for Narra, which are granted to foreign-owned corporations. Nevertheless, they claimed that the
issue on nationality should not be raised since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60%
of their capital is owned by citizens of the Philippines. They asserted that though MBMI owns 40% of the shares of
PLMC (which owns 5,997 shares of Narra),3 40% of the shares of MMC (which owns 5,997 shares of McArthur)4 and
40% of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro),5 the shares of MBMI will not make it the
owner of at least 60% of the capital stock of each of petitioners. They added that the best tool used in
determining the nationality of a corporation is the "control test," embodied in Sec. 3 of RA 7042 or the Foreign
Investments Act of 1991. They also claimed that the POA of DENR did not have jurisdiction over the issues in
Redmont’s petition since they are not enumerated in Sec. 77 of RA 7942. Finally, they stressed that Redmont has
no personality to sue them because it has no pending claim or application over the areas applied for by
petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants to engage in mining activities. On the other
hand, [Redmont] having filed its own applications for an EPA over the areas earlier covered by the MPSA
application of respondents may be considered if and when they are qualified under the law. The violation of the
requirements for the issuance and/or grant of permits over mining areas is clearly established thus, there is
reason to believe that the cancellation and/or revocation of permits already issued under the premises is in order
and open the areas covered to other qualified applicants.
xxxx

WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Mining and
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions
Development, Inc., and Narra Nickel Mining and Development Corp. as, DISQUALIFIED for being considered as
for the denial of petitioners’ applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.
Foreign Corporations. Their Mineral Production Sharing Agreement (MPSA) are hereby x x x DECLARED NULL AND
VOID.6
In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned
and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is
a considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the
34
The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a 100% Canadian
company and declared their MPSAs null and void. In the same Resolution, it gave due course to Redmont’s EPAs.
Thereafter, on February 7, 2008, the POA issued an Order7 denying the Motion for Reconsideration filed by
petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of Appeal 8 and
Memorandum of Appeal9 with the Mines Adjudication Board (MAB) while Narra separately filed its Notice of
Appeal10and Memorandum of Appeal.11
In their respective memorandum, petitioners emphasized that they are qualified persons under the law. Also,
through a letter, they informed the MAB that they had their individual MPSA applications converted to FTAAs.
McArthur’s FTAA was denominated as AFTA-IVB-0912 on May 2007, while Tesoro’s MPSA application was converted
to AFTA-IVB-0813 on May 28, 2007, and Narra’s FTAA was converted to AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint 15 with the
Securities and Exchange Commission (SEC), seeking the revocation of the certificates for registration of petitioners
on the ground that they are foreign-owned or controlled corporations engaged in mining in violation of Philippine
laws. Thereafter, Redmont filed on September 1, 2008 a Manifestation and Motion to Suspend Proceeding before
the MAB praying for the suspension of the proceedings on the appeals filed by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon City, Branch 92
(RTC) a Complaint16 for injunction with application for issuance of a temporary restraining order (TRO) and/or writ
of preliminary injunction, docketed as Civil Case No. 08-63379. Redmont prayed for the deferral of the MAB
proceedings pending the resolution of the Complaint before the SEC.
But before the RTC can resolve Redmont’s Complaint and applications for injunctive reliefs, the MAB issued an
Order on September 10, 2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and SETS ASIDE the
Resolution dated 14 December 2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-DENR Case Nos.
2001-01, 2007-02 and 2007-03, and its Order dated 07 February 2008 denying the Motions for Reconsideration of
the Appellants. The Petition filed by Redmont Consolidated Mines Corporation on 02 January 2007 is hereby
ordered DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmont’s application for a TRO and setting
the case for hearing the prayer for the issuance of a writ of preliminary injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration19 of the September 10, 2008 Order
of the MAB. Subsequently, it filed a Supplemental Motion for Reconsideration 20 on September 29, 2008.
Before the MAB could resolve Redmont’s Motion for Reconsideration and Supplemental Motion for Reconsideration,
Redmont filed before the RTC a Supplemental Complaint21 in Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order22 granting the issuance of a writ of preliminary injunction enjoining
the MAB from finally disposing of the appeals of petitioners and from resolving Redmont’s Motion for
Reconsideration and Supplement Motion for Reconsideration of the MAB’s September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying Redmont’s Motion for Reconsideration and
Supplemental Motion for Reconsideration and resolving the appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by the MAB. On
October 1, 2010, the CA rendered a Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10, 2008 and July 1, 2009
of the Mining Adjudication Board are reversed and set aside. The findings of the Panel of Arbitrators of the
Department of Environment and Natural Resources that respondents McArthur, Tesoro and Narra are foreign
corporations is upheld and, therefore, the rejection of their applications for Mineral Product Sharing Agreement
should be recommended to the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or Technical Assistance
Agreement (FTAA) or conversion of their MPSA applications to FTAA, the matter for its rejection or approval is left
for determination by the Secretary of the DENR and the President of the Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed by petitioners.
After a careful review of the records, the CA found that there was doubt as to the nationality of petitioners when
it realized that petitioners had a common major investor, MBMI, a corporation composed of 100% Canadians.
Pursuant to the first sentence of paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other laws pertaining to
the exploitation of natural resources, the CA used the "grandfather rule" to determine the nationality of
petitioners. It provided:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens
shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least
60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be
recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation
or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be recorded as belonging to
aliens.24(emphasis supplied)
In determining the nationality of petitioners, the CA looked into their corporate structures and their
corresponding common shareholders. Using the grandfather rule, the CA discovered that MBMI in effect owned
majority of the common stocks of the petitioners as well as at least 60% equity interest of other majority
shareholders of petitioners through joint venture agreements. The CA found that through a "web of corporate
layering, it is clear that one common controlling investor in all mining corporations involved x x x is MBMI." 25 Thus,
it concluded that petitioners McArthur, Tesoro and Narra are also in partnership with, or privies-in-interest of,
MBMI.
Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into FTAA applications
suspicious in nature and, as a consequence, it recommended the rejection of petitioners’ MPSA applications by the
Secretary of the DENR.
With regard to the settlement of disputes over rights to mining areas, the CA pointed out that the POA has
jurisdiction over them and that it also has the power to determine the of nationality of petitioners as a
prerequisite of the Constitution prior the conferring of rights to "co-production, joint venture or production-
sharing agreements" of the state to mining rights. However, it also stated that the POA’s jurisdiction is limited
only to the resolution of the dispute and not on the approval or rejection of the MPSAs. It stipulated that only the
Secretary of the DENR is vested with the power to approve or reject applications for MPSA.
35
Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which considered petitioners The Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign corporations based on the
McArthur, Tesoro and Narra as foreign corporations. Nevertheless, the CA determined that the POA’s declaration "Grandfather Rule" is contrary to law, particularly the express mandate of the Foreign Investments Act
that the MPSAs of McArthur, Tesoro and Narra are void is highly improper. of 1991, as amended, and the FIA Rules.

While the petition was pending with the CA, Redmont filed with the Office of the President (OP) a petition dated V.
May 7, 2010 seeking the cancellation of petitioners’ FTAAs. The OP rendered a Decision 26 on April 6, 2011, wherein
it canceled and revoked petitioners’ FTAAs for violating and circumventing the "Constitution x x x[,] the Small
The Court of Appeals erred when it applied the exceptions to the res inter alios acta rule.
Scale Mining Law and Environmental Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment
Act and E.O. 584."27 The OP, in affirming the cancellation of the issued FTAAs, agreed with Redmont stating that
petitioners committed violations against the abovementioned laws and failed to submit evidence to negate them. VI.
The Decision further quoted the December 14, 2007 Order of the POA focusing on the alleged misrepresentation
and claims made by petitioners of being domestic or Filipino corporations and the admitted continued mining
The Court of Appeals erred when it concluded that the conversion of the MPSA Applications into FTAA
operation of PMDC using their locally secured Small Scale Mining Permit inside the area earlier applied for an MPSA
Applications were of "suspicious nature" as the same is based on mere conjectures and surmises without
application which was eventually transferred to Narra. It also agreed with the POA’s estimation that the filing of
any shred of evidence to show the same.31
the FTAA applications by petitioners is a clear admission that they are "not capable of conducting a large scale
mining operation and that they need the financial and technical assistance of a foreign entity in their operation,
that is why they sought the participation of MBMI Resources, Inc."28 The Decision further quoted: We find the petition to be without merit.

The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the This case not moot and academic
violations and lack of qualification of the respondent corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign corporation of the earlier MPSA is an admission that indeed the
The claim of petitioners that the CA erred in not rendering the instant case as moot is without merit.
respondent is not Filipino but rather of foreign nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that they are
conducting operation only through their local counterparts. 29 Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable controversy by virtue
of supervening events, so that a declaration thereon would be of no practical use or value." 32 Thus, the courts
"generally decline jurisdiction over the case or dismiss it on the ground of mootness." 33
The Motion for Reconsideration of the Decision was further denied by the OP in a Resolution30 dated July 6, 2011.
Petitioners then filed a Petition for Review on Certiorari of the OP’s Decision and Resolution with the CA,
docketed as CA-G.R. SP No. 120409. In the CA Decision dated February 29, 2012, the CA affirmed the Decision and The "mootness" principle, however, does accept certain exceptions and the mere raising of an issue of "mootness"
Resolution of the OP. Thereafter, petitioners appealed the same CA decision to this Court which is now pending will not deter the courts from trying a case when there is a valid reason to do so. In David v. Macapagal-Arroyo
with a different division. (David), the Court provided four instances where courts can decide an otherwise moot case, thus:

Thus, the instant petition for review against the October 1, 2010 Decision of the CA. Petitioners put forth the 1.) There is a grave violation of the Constitution;
following errors of the CA:
2.) The exceptional character of the situation and paramount public interest is involved;
I.
3.) When constitutional issue raised requires formulation of controlling principles to guide the bench,
The Court of Appeals erred when it did not dismiss the case for mootness despite the fact that the the bar, and the public; and
subject matter of the controversy, the MPSA Applications, have already been converted into FTAA
applications and that the same have already been granted.
4.) The case is capable of repetition yet evading review.34

II.
All of the exceptions stated above are present in the instant case. We of this Court note that a grave violation of
the Constitution, specifically Section 2 of Article XII, is being committed by a foreign corporation right under our
The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction considering that the country’s nose through a myriad of corporate layering under different, allegedly, Filipino corporations. The
Panel of Arbitrators has no jurisdiction to determine the nationality of Narra, Tesoro and McArthur. intricate corporate layering utilized by the Canadian company, MBMI, is of exceptional character and involves
paramount public interest since it undeniably affects the exploitation of our Country’s natural resources. The
corresponding actions of petitioners during the lifetime and existence of the instant case raise questions as what
III.
principle is to be applied to cases with similar issues. No definite ruling on such principle has been pronounced by
the Court; hence, the disposition of the issues or errors in the instant case will serve as a guide "to the bench, the
The Court of Appeals erred when it did not dismiss the case on account of Redmont’s willful forum bar and the public."35 Finally, the instant case is capable of repetition yet evading review, since the Canadian
shopping. company, MBMI, can keep on utilizing dummy Filipino corporations through various schemes of corporate layering
and conversion of applications to skirt the constitutional prohibition against foreign mining in Philippine soil.
IV.
36
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error presented by petitioners since both involve the
conversion of MPSA applications to FTAA applications. Petitioners propound that the CA erred in ruling against
them since the questioned MPSA applications were already converted into FTAA applications; thus, the issue on
the prohibition relating to MPSA applications of foreign mining corporations is academic. Also, petitioners would
want us to correct the CA’s finding which deemed the aforementioned conversions of applications as suspicious in
nature, since it is based on mere conjectures and surmises and not supported with evidence.
We disagree.
The CA’s analysis of the actions of petitioners after the case was filed against them by respondent is on point. The
changing of applications by petitioners from one type to another just because a case was filed against them, in
truth, would raise not a few sceptics’ eyebrows. What is the reason for such conversion? Did the said conversion
not stem from the case challenging their citizenship and to have the case dismissed against them for being "moot"?
It is quite obvious that it is petitioners’ strategy to have the case dismissed against them for being "moot."
Consider the history of this case and how petitioners responded to every action done by the court or appropriate
government agency: on January 2, 2007, Redmont filed three separate petitions for denial of the MPSA
applications of petitioners before the POA. On June 15, 2007, petitioners filed a conversion of their MPSA
applications to FTAAs. The POA, in its December 14, 2007 Resolution, observed this suspect change of applications
while the case was pending before it and held:
The filing of the Financial or Technical Assistance Agreement application is a clear admission that the respondents
are not capable of conducting a large scale mining operation and that they need the financial and technical
assistance of a foreign entity in their operation that is why they sought the participation of MBMI Resources, Inc.
The participation of MBMI in the corporation only proves the fact that it is the Canadian company that will provide
the finances and the resources to operate the mining areas for the greater benefit and interest of the same and
not the Filipino stockholders who only have a less substantial financial stake in the corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the
violations and lack of qualification of the respondent corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign corporation of the earlier MPSA is an admission that indeed the
respondent is not Filipino but rather of foreign nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that they are
conducting operation only through their local counterparts. 36
On October 1, 2010, the CA rendered a Decision which partially granted the petition, reversing and setting aside
the September 10, 2008 and July 1, 2009 Orders of the MAB. In the said Decision, the CA upheld the findings of the
POA of the DENR that the herein petitioners are in fact foreign corporations thus a recommendation of the
rejection of their MPSA applications were recommended to the Secretary of the DENR. With respect to the FTAA
applications or conversion of the MPSA applications to FTAAs, the CA deferred the matter for the determination of
the Secretary of the DENR and the President of the Republic of the Philippines.37
In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the dismissal of the petition
asserting that on April 5, 2010, then President Gloria Macapagal-Arroyo signed and issued in their favor FTAA No.
05-2010-IVB, which rendered the petition moot and academic. However, the CA, in a Resolution dated February
15, 2011 denied their motion for being a mere "rehash of their claims and defenses."38 Standing firm on its
Decision, the CA affirmed the ruling that petitioners are, in fact, foreign corporations. On April 5, 2011,
petitioners elevated the case to us via a Petition for Review on Certiorari under Rule 45, questioning the Decision
of the CA. Interestingly, the OP rendered a Decision dated April 6, 2011, a day after this petition for review was
filed, cancelling and revoking the FTAAs, quoting the Order of the POA and stating that petitioners are foreign
corporations since they needed the financial strength of MBMI, Inc. in order to conduct large scale mining
operations. The OP Decision also based the cancellation on the misrepresentation of facts and the violation of the
"Small Scale Mining Law and Environmental Compliance Certificate as well as Sections 3 and 8 of the Foreign
Investment Act and E.O. 584."39 On July 6, 2011, the OP issued a Resolution, denying the Motion for
Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the fact of the OP’s
Decision and Resolution. In their Reply, petitioners chose to ignore the OP Decision and continued to reuse their
old arguments claiming that they were granted FTAAs and, thus, the case was moot. Petitioners filed a
Manifestation and Submission dated October 19, 2012,40 wherein they asserted that the present petition is moot
since, in a remarkable turn of events, MBMI was able to sell/assign all its shares/interest in the "holding
companies" to DMCI Mining Corporation (DMCI), a Filipino corporation and, in effect, making their respective
corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have this case dismissed for being "moot." Their final
act, wherein MBMI was able to allegedly sell/assign all its shares and interest in the petitioner "holding companies"
to DMCI, only proves that they were in fact not Filipino corporations from the start. The recent divesting of
interest by MBMI will not change the stand of this Court with respect to the nationality of petitioners prior the
suspicious change in their corporate structures. The new documents filed by petitioners are factual evidence that
this Court has no power to verify.
The only thing clear and proved in this Court is the fact that the OP declared that petitioner corporations have
violated several mining laws and made misrepresentations and falsehood in their applications for FTAA which lead
to the revocation of the said FTAAs, demonstrating that petitioners are not beyond going against or around the
law using shifty actions and strategies. Thus, in this instance, we can say that their claim of mootness is moot in
itself because their defense of conversion of MPSAs to FTAAs has been discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners’ nationality, whether Filipino or foreign. In their
previous petitions, they had been adamant in insisting that they were Filipino corporations, until they submitted
their Manifestation and Submission dated October 19, 2012 where they stated the alleged change of corporate
ownership to reflect their Filipino ownership. Thus, there is a need to determine the nationality of petitioner
corporations.
Basically, there are two acknowledged tests in determining the nationality of a corporation: the control test and
the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which
implemented the requirement of the Constitution and other laws pertaining to the controlling interests in
enterprises engaged in the exploitation of natural resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens
shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least
60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be
recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation
or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos
and the other 50,000 shall be recorded as belonging to aliens.
37
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality,"
pertains to the control test or the liberal rule. On the other hand, the second part of the DOJ Opinion which
provides, "if the percentage of the Filipino ownership in the corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage shall be counted as Philippine nationality," pertains to the
stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners were constant in advocating the application of the "control test"
under RA 7042, as amended by RA 8179, otherwise known as the Foreign Investments Act (FIA), rather than using
the stricter grandfather rule. The pertinent provision under Sec. 3 of the FIA provides:
growth and general welfare of the country. In such agreements, the State shall promote the development and use
of local scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into different types of agreements for the
exploration, development, and utilization of natural resources with entities who are deemed Filipino due to 60
percent ownership of capital is pertinent to this case, since the issues are centered on the utilization of our
country’s natural resources or specifically, mining. Thus, there is a need to ascertain the nationality of petitioners
since, as the Constitution so provides, such agreements are only allowed corporations or associations "at least 60
percent of such capital is owned by such citizens." The deliberations in the Records of the 1986 Constitutional
Commission shed light on how a citizenship of a corporation will be determined:

SECTION 3. Definitions. - As used in this Act: Mr. BENNAGEN: Did I hear right that the Chairman’s interpretation of an independent national economy is freedom
from undue foreign control? What is the meaning of undue foreign control?
a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or association
wholly owned by the citizens of the Philippines; a corporation organized under the laws of the Philippines of which MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty and the welfare of
at least sixty percent (60%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a the Filipino in the economic sphere.
trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided,
MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not simply freedom from foreign
That were a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission
control? I think that is the meaning of independence, because as phrased, it still allows for foreign control.
(SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of
each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of
the members of the Board of Directors, in order that the corporation shall be considered a Philippine national. MR. VILLEGAS: It will now depend on the interpretation because if, for example, we retain the 60/40 possibility in
(emphasis supplied) the cultivation of natural resources, 40 percent involves some control; not total control, but some control.

The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition of a MR. BENNAGEN: In any case, I think in due time we will propose some amendments.
"Philippine National" under Sec. 3 of the FIA does not provide for it. They further claim that the grandfather rule
"has been abandoned and is no longer the applicable rule."41 They also opined that the last portion of Sec. 3 of the
MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.
FIA admits the application of a "corporate layering" scheme of corporations. Petitioners claim that the clear and
unambiguous wordings of the statute preclude the court from construing it and prevent the court’s use of
discretion in applying the law. They said that the plain, literal meaning of the statute meant the application of Mr. BENNAGEN: Yes.
the control test is obligatory.
Thank you, Mr. Vice-President.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the Constitution
and pertinent laws, then it becomes illegal. Further, the pronouncement of petitioners that the grandfather rule
xxxx
has already been abandoned must be discredited for lack of basis.

MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely,
Art. XII, Sec. 2 of the Constitution provides:
60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.

Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of
MR. VILLEGAS: That is right.
potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by
the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be under the full control and supervision of MR. NOLLEDO: In teaching law, we are always faced with the question: ‘Where do we base the equity
the State. The State may directly undertake such activities, or it may enter into co-production, joint venture or requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock
production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of of a corporation’? Will the Committee please enlighten me on this?
whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law.
MR. VILLEGAS: We have just had a long discussion with the members of the team from the UP Law Center who
provided us with a draft. The phrase that is contained here which we adopted from the UP draft is ‘60 percent of
xxxx the voting stock.’

The President may enter into agreements with Foreign-owned corporations involving either technical or financial MR. NOLLEDO: That must be based on the subscribed capital stock, because unless declared delinquent, unpaid
assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils capital stock shall be entitled to vote.
according to the general terms and conditions provided by law, based on real contributions to the economic
38
MR. VILLEGAS: That is right. In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC
Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint
venture corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%]
MR. NOLLEDO: Thank you.
invests in other joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated
differently, where the 60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent apply. (emphasis supplied)
equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the
grandfather rule?
After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the
grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in the corporate
MR. VILLEGAS: Yes, that is the understanding of the Committee. ownership of petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino equity ownership of
petitioners Narra, McArthur and Tesoro, since their common investor, the 100% Canadian corporation––MBMI,
funded them. However, petitioners also claim that there is "doubt" only when the stockholdings of Filipinos are
MR. NOLLEDO: Therefore, we need additional Filipino capital?
less than 60%.43

MR. VILLEGAS: Yes.42 (emphasis supplied)

It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in cases
where corporate layering is present.
Elementary in statutory construction is when there is conflict between the Constitution and a statute, the
Constitution will prevail. In this instance, specifically pertaining to the provisions under Art. XII of the Constitution
on National Economy and Patrimony, Sec. 3 of the FIA will have no place of application. As decreed by the
honorable framers of our Constitution, the grandfather rule prevails and must be applied.
The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to convince this
Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an example of an instance where
"doubt" as to the ownership of the corporation exists. It would be ludicrous to limit the application of the said
word only to the instances where the stockholdings of non-Filipino stockholders are more than 40% of the total
stockholdings in a corporation. The corporations interested in circumventing our laws would clearly strive to have
"60% Filipino Ownership" at face value. It would be senseless for these applying corporations to state in their
respective articles of incorporation that they have less than 60% Filipino stockholders since the applications will
be denied instantly. Thus, various corporate schemes and layerings are utilized to circumvent the application of
the Constitution.

Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation, direct
or indirect, of MBMI, the grandfather rule must be used.
The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a corporation for
purposes, among others, of determining compliance with nationality requirements (the ‘Investee Corporation’).
McArthur Mining, Inc.
Such manner of computation is necessary since the shares in the Investee Corporation may be owned both by
individual stockholders (‘Investing Individuals’) and by corporations and partnerships (‘Investing Corporation’). The
said rules thus provide for the determination of nationality depending on the ownership of the Investee To establish the actual ownership, interest or participation of MBMI in each of petitioners’ corporate structure,
Corporation and, in certain instances, the Investing Corporation. they have to be "grandfathered."

Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its application from
Corporation. The first case is the ‘liberal rule’, later coined by the SEC as the Control Test in its 30 May 1990 SMMI. McArthur has a capital stock of ten million pesos (PhP 10,000,000) divided into 10,000 common shares at
Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares belonging to one thousand pesos (PhP 1,000) per share, subscribed to by the following: 44
corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered
as of Philippine nationality.’ Under the liberal Control Test, there is no need to further trace the ownership of the
60% (or more) Filipino stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-
owned is considered as Filipino.

The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7
of the 1967 SEC Rules which states, "but if the percentage of Filipino ownership in the corporation or partnership
is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine
nationality." Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation
and the Investee Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino
ownership.

Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing
Corporation and added to the shares directly owned in the Investee Corporation x x x.

xxxx
39
 Name Nationality Number of Shares Amount Subscribed Amount Paid

Madridejos Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00

Corporation

MBMI Resources, Inc. Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00

Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60

(emphasis supplied)

Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and composition as McArthur. In fact, it would seem that MBMI is also a major investor and "controls"45 MBMI and also, similar nominal
shareholders were present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell (Cawkell):

Madridejos Mining Corporation

Name Nationality Number of Shares Amount Subscribed Amount Paid

Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0

Development

Corp.

MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00

Inc.

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

40
 Hernando

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

(emphasis supplied)

Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with respect to the number of shares they subscribed to in the corporation, which is quite absurd since Olympic is the major stockholder in MMC.
MBMI’s 2006 Annual Report sheds light on why Olympic failed to pay any amount with respect to the number of shares it subscribed to. It states that Olympic entered into joint venture agreements with several Philippine companies,
wherein it holds directly and indirectly a 60% effective equity interest in the Olympic Properties. 46 Quoting the said Annual report:

On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic") entered into a series of agreements including a Property Purchase and Development Agreement (the Transaction Documents) with respect to
three nickel laterite properties in Palawan, Philippines (the "Olympic Properties"). The Transaction Documents effectively establish a joint venture between the Company and Olympic for purposes of developing the Olympic Properties. The
Company holds directly and indirectly an initial 60% interest in the joint venture. Under certain circumstances and upon achieving certain milestones, the Company may earn up to a 100% interest, subject to a 2.5% net revenue
royalty.47 (emphasis supplied)

Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering was utilized by MBMI to gain control over McArthur. It is apparent that MBMI has more than 60% or more equity interest in McArthur,
making the latter a foreign corporation.

Tesoro Mining and Development, Inc.

Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos (PhP 10,000,000) divided into ten thousand (10,000) common shares at PhP 1,000 per share, as demonstrated below:

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00

Mining, Inc.

MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60

Resources, Inc.

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

41
Esguerra

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60

(emphasis supplied)

Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the corporate structure of petitioner McArthur, down to the last centavo. All the other shareholders are the same: MBMI, Salazar, Esguerra,
Agcaoili, Mason and Cawkell. The figures under "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same. Delving deeper, we scrutinize SMMI’s corporate structure:

Sara Marie Mining, Inc.

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0

Development

Corp.

MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,794,000.00

Inc.

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

42
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

(emphasis supplied)

After subsequently studying SMMI’s corporate structure, it is not farfetched for us to spot the glaring similarity between SMMI and MMC’s corporate structure. Again, the presence of identical stockholders, namely: Olympic, MBMI, Amanti
Limson (Limson), Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under the headings "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same except for the amount paid by MBMI which
now reflects the amount of two million seven hundred ninety four thousand pesos (PhP 2,794,000). Oddly, the total value of the amount paid is two million eight hundred nine thousand nine hundred pesos (PhP 2,809,900).

Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic’s participation in SMMI’s corporate structure, it is clear that MBMI is in control of Tesoro and owns 60% or more equity interest in Tesoro. This makes petitioner
Tesoro a non-Filipino corporation and, thus, disqualifies it to participate in the exploitation, utilization and development of our natural resources.

Narra Nickel Mining and Development Corporation

Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDC’s MPSA application, whose corporate structure’s arrangement is similar to that of the first two petitioners discussed. The capital stock of Narra is ten
million pesos (PhP 10,000,000), which is divided into ten thousand common shares (10,000) at one thousand pesos (PhP 1,000) per share, shown as follows:

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00

Mining &

Development

Corp.

MBMI Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00

Resources, Inc.

43
Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00

Mendoza, Jr.

Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernandez

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Bocalan

Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00

Robert L. American 1 PhP 1,000.00 PhP 1,000.00

McCurdy

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,800,000.00

(emphasis supplied)

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in this corporate structure.

Patricia Louise Mining & Development Corporation

Using the grandfather method, we further look and examine PLMDC’s corporate structure:

Name Nationality Number of Shares Amount Subscribed Amount Paid

Palawan Alpha South Resources Development Corporation Filipino 6,596 PhP 6,596,000.00 PhP 0

MBMI Resources, Canadian 3,396 PhP 3,396,000.00 PhP 2,796,000.00

Inc.

Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00

44
 Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00

Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60

(emphasis supplied)

Yet again, the usual players in petitioners’ corporate structures are present. Similarly, the amount of money paid by the 2nd tier majority stock holder, in this case, Palawan Alpha South Resources and Development Corp. (PASRDC), is zero.

45
Studying MBMI’s Summary of Significant Accounting Policies dated October 31, 2005 explains the reason behind the
intricate corporate layering that MBMI immersed itself in:
JOINT VENTURES The Company’s ownership interests in various mining ventures engaged in the acquisition,
exploration and development of mineral properties in the Philippines is described as follows:
(a) Olympic Group
The Philippine companies holding the Olympic Property, and the ownership and interests therein, are as follows:
Olympic- Philippines (the "Olympic Group")
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an effective equity
interest in the Olympic Property of 60.0%. Pursuant to a shareholders’ agreement, the Company exercises joint
control over the companies in the Olympic Group.
(b) Alpha Group
The Philippine companies holding the Alpha Property, and the ownership interests therein, are as follows:
Alpha- Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Narra Nickel Mining & Development Corporation (Narra) 60.4%
Under a joint venture agreement the Company holds directly and indirectly an effective equity interest in the
Alpha Property of 60.4%. Pursuant to a shareholders’ agreement, the Company exercises joint control over the
companies in the Alpha Group.48 (emphasis supplied)
Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and Narra are not
Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is
derived from grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. Going further and
adding to the picture, MBMI’s Summary of Significant Accounting Policies statement– –regarding the "joint venture"
agreements that it entered into with the "Olympic" and "Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra.
Noticeably, the ownership of the "layered" corporations boils down to MBMI, Olympic or corporations under the
"Alpha" group wherein MBMI has joint venture agreements with, practically exercising majority control over the
corporations mentioned. In effect, whether looking at the capital structure or the underlying relationships
between and among the corporations, petitioners are NOT Filipino nationals and must be considered foreign since
60% or more of their capital stocks or equity interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CA’s use of the exception of the res inter alios acta or the "admission by co-partner or
agent" rule and "admission by privies" under the Rules of Court in the instant case, by pointing out that statements
made by MBMI should not be admitted in this case since it is not a party to the case and that it is not a "partner" of
petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent of the party within the
scope of his authority and during the existence of the partnership or agency, may be given in evidence against
such party after the partnership or agency is shown by evidence other than such act or declaration itself. The
same rule applies to the act or declaration of a joint owner, joint debtor, or other person jointly interested with
the party.
Sec. 31. Admission by privies.- Where one derives title to property from another, the act, declaration, or omission
of the latter, while holding the title, in relation to the property, is evidence against the former.
Petitioners claim that before the above-mentioned Rule can be applied to a case, "the partnership relation must
be shown, and that proof of the fact must be made by evidence other than the admission itself."49 Thus,
petitioners assert that the CA erred in finding that a partnership relationship exists between them and MBMI
because, in fact, no such partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a
joint venture, MBMI have a joint interest" with Narra, Tesoro and McArthur. They challenged the conclusion of the
CA which pertains to the close characteristics of
"partnerships" and "joint venture agreements." Further, they asserted that before this particular partnership can
be formed, it should have been formally reduced into writing since the capital involved is more than three
thousand pesos (PhP 3,000). Being that there is no evidence of written agreement to form a partnership between
petitioners and MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who bind themselves to contribute money, property, or industry
to a common fund with the intention of dividing the profits among themselves.50 On the other hand, joint ventures
have been deemed to be "akin" to partnerships since it is difficult to distinguish between joint ventures and
partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their association are so similar and closely akin
to a partnership that it is ordinarily held that their rights, duties, and liabilities are to be tested by rules which
are closely analogous to and substantially the same, if not exactly the same, as those which govern partnership. In
fact, it has been said that the trend in the law has been to blur the distinctions between a partnership and a joint
venture, very little law being found applicable to one that does not apply to the other. 51
Though some claim that partnerships and joint ventures are totally different animals, there are very few rules
that differentiate one from the other; thus, joint ventures are deemed "akin" or similar to a partnership. In fact,
in joint venture agreements, rules and legal incidents governing partnerships are applied.52
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Accordingly, culled from the incidents and records of this case, it can be assumed that the relationships entered
between and among petitioners and MBMI are no simple "joint venture agreements." As a rule, corporations are
prohibited from entering into partnership agreements; consequently, corporations enter into joint venture
agreements with other corporations or partnerships for certain transactions in order to form "pseudo
partnerships."
Obviously, as the intricate web of "ventures" entered into by and among petitioners and MBMI was executed to
circumvent the legal prohibition against corporations entering into partnerships, then the relationship created
should be deemed as "partnerships," and the laws on partnership should be applied. Thus, a joint venture
agreement between and among corporations may be seen as similar to partnerships since the elements of
partnership are present.
Considering that the relationships found between petitioners and MBMI are considered to be partnerships, then
the CA is justified in applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a joint venture, MBMI
have a joint interest" with Narra, Tesoro and McArthur.
Panel of Arbitrators’ jurisdiction
We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant case. The POA has
jurisdiction to settle disputes over rights to mining areas which definitely involve the petitions filed by Redmont
against petitioners Narra, McArthur and Tesoro. Redmont, by filing its petition against petitioners, is asserting the
right of Filipinos over mining areas in the Philippines against alleged foreign-owned mining corporations. Such
claim constitutes a "dispute" found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have
exclusive and original jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.: 53
The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or opposition to an
application for mineral agreement. The POA therefore has the jurisdiction to resolve any adverse claim, protest,
or opposition to a pending application for a mineral agreement filed with the concerned Regional Office of the
MGB. This is clear from Secs. 38 and 41 of the DENR AO 96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of publication/posting/radio announcements, the authorized
officer(s) of the concerned office(s) shall issue a certification(s) that the publication/posting/radio announcement
have been complied with. Any adverse claim, protest, opposition shall be filed directly, within thirty (30) calendar
days from the last date of publication/posting/radio announcement, with the concerned Regional Office or
through any concerned PENRO or CENRO for filing in the concerned Regional Office for purposes of its resolution
by the Panel of Arbitrators pursuant to the provisions of this Act and these implementing rules and regulations.
Upon final resolution of any adverse claim, protest or opposition, the Panel of Arbitrators shall likewise issue a
certification to that effect within five (5) working days from the date of finality of resolution thereof. Where
there is no adverse claim, protest or opposition, the Panel of Arbitrators shall likewise issue a Certification to that
effect within five working days therefrom.
xxxx
No Mineral Agreement shall be approved unless the requirements under this Section are fully complied with and
any adverse claim/protest/opposition is finally resolved by the Panel of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the Certification issued by the Panel of Arbitrators as
provided in Section 38 hereof, the concerned Regional Director shall initially evaluate the Mineral Agreement
applications in areas outside Mineral reservations. He/She shall thereafter endorse his/her findings to the Bureau
for further evaluation by the Director within fifteen (15) working days from receipt of forwarded documents.
Thereafter, the Director shall endorse the same to the secretary for consideration/approval within fifteen working
days from receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen (15) working days
from receipt of the Certification issued by the Panel of Arbitrators as provided for in Section 38 hereof, the same
shall be evaluated and endorsed by the Director to the Secretary for consideration/approval within fifteen days
from receipt of such endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under
Sec. 77(a) specifically refer only to those disputes relative to the applications for a mineral agreement or
conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further
elucidated by Secs. 219 and 43 of DENR AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43 and 57
above, any adverse claim, protest or opposition specified in said sections may also be filed directly with the Panel
of Arbitrators within the concerned periods for filing such claim, protest or opposition as specified in said
Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional Director shall also cause the posting of the application on the
bulletin boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where the proposed contract area is located once a week for two
(2) consecutive weeks in a language generally understood in the locality. After forty-five (45) days from the last
date of publication/posting has been made and no adverse claim, protest or opposition was filed within the said
forty-five (45) days, the concerned offices shall issue a certification that publication/posting has been made and
that no adverse claim, protest or opposition of whatever nature has been filed. On the other hand, if there be any
adverse claim, protest or opposition, the same shall be filed within forty-five (45) days from the last date of
publication/posting, with the Regional Offices concerned, or through the Department’s Community Environment
and Natural Resources Officers (CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to be
47
filed at the Regional Office for resolution of the Panel of Arbitrators. However previously published valid and
subsisting mining claims are exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this section are fully complied with and
any opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel of Arbitrators.
(Emphasis supplied.)
rejection of the MPSA applications, which is vested only upon the Secretary of the DENR. Thus, the finding of the
POA, with respect to the rejection of petitioners’ MPSA applications being that they are foreign corporation, is
valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not the POA, that has
jurisdiction over the MPSA applications of petitioners.

It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under This postulation is incorrect.
Sec. 77(a) specifically refer only to those disputes relative to the applications for a mineral agreement or
conferment of mining rights.
It is basic that the jurisdiction of the court is determined by the statute in force at the time of the
commencement of the action.54
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further
elucidated by Secs. 219 and 43 of DENRO AO 95-936, which reads:
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization

Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43 and 57
Act of 1980" reads:
above, any adverse claim, protest or opposition specified in said sections may also be filed directly with the Panel
of Arbitrators within the concerned periods for filing such claim, protest or opposition as specified in said
Sections. Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall exercise exclusive original jurisdiction:

Sec. 43. Publication/Posting of Mineral Agreement Application.- 1. In all civil actions in which the subject of the litigation is incapable of pecuniary estimation.

xxxx On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:

The Regional Director or concerned Regional Director shall also cause the posting of the application on the Section 77. Panel of Arbitrators.—
bulletin boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where the proposed contract area is located once a week for two
x x x Within thirty (30) days, after the submission of the case by the parties for the decision, the panel
(2) consecutive weeks in a language generally understood in the locality. After forty-five (45) days from the last
shall have exclusive and original jurisdiction to hear and decide the following:
date of publication/posting has been made and no adverse claim, protest or opposition was filed within the said
forty-five (45) days, the concerned offices shall issue a certification that publication/posting has been made and
that no adverse claim, protest or opposition of whatever nature has been filed. On the other hand, if there be any (c) Disputes involving rights to mining areas
adverse claim, protest or opposition, the same shall be filed within forty-five (45) days from the last date of
publication/posting, with the Regional offices concerned, or through the Department’s Community Environment
(d) Disputes involving mineral agreements or permits
and Natural Resources Officers (CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to be
filed at the Regional Office for resolution of the Panel of Arbitrators. However, previously published valid and
subsisting mining claims are exempted from posted/posting required under this Section. It is clear that POA has exclusive and original jurisdiction over any and all disputes involving rights to mining
areas. One such dispute is an MPSA application to which an adverse claim, protest or opposition is filed by another
interested applicant.1âwphi1 In the case at bar, the dispute arose or originated from MPSA applications where
No mineral agreement shall be approved unless the requirements under this section are fully complied with and
petitioners are asserting their rights to mining areas subject of their respective MPSA applications. Since
any opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel of Arbitrators.
respondent filed 3 separate petitions for the denial of said applications, then a controversy has developed
(Emphasis supplied.)
between the parties and it is POA’s jurisdiction to resolve said disputes.

These provisions lead us to conclude that the power of the POA to resolve any adverse claim, opposition, or
Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with the DENR Regional
protest relative to mining rights under Sec. 77(a) of RA 7942 is confined only to adverse claims, conflicts and
Office or any concerned DENRE or CENRO are MPSA applications. Thus POA has jurisdiction.
oppositions relating to applications for the grant of mineral rights.

Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary jurisdiction. Euro-
POA’s jurisdiction is confined only to resolutions of such adverse claims, conflicts and oppositions and it has no
med Laboratories v. Province of Batangas55 elucidates:
authority to approve or reject said applications. Such power is vested in the DENR Secretary upon
recommendation of the MGB Director. Clearly, POA’s jurisdiction over "disputes involving rights to mining areas"
has nothing to do with the cancellation of existing mineral agreements. (emphasis ours) The doctrine of primary jurisdiction holds that if a case is such that its determination requires the expertise,
specialized training and knowledge of an administrative body, relief must first be obtained in an administrative
proceeding before resort to the courts is had even if the matter may well be within their proper jurisdiction.
Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to resolve disputes over MPSA
applications subject of Redmont’s petitions. However, said jurisdiction does not include either the approval or
48
Whatever may be the decision of the POA will eventually reach the court system via a resort to the CA and to this
Court as a last recourse.

Selling of MBMI’s shares to DMCI

As stated before, petitioners’ Manifestation and Submission dated October 19, 2012 would want us to declare the
instant petition moot and academic due to the transfer and conveyance of all the shareholdings and interests of
MBMI to DMCI, a corporation duly organized and existing under Philippine laws and is at least 60% Philippine-
owned.56 Petitioners reasoned that they now cannot be considered as foreign-owned; the transfer of their shares
supposedly cured the "defect" of their previous nationality. They claimed that their current FTAA contract with
the State should stand since "even wholly-owned foreign corporations can enter into an FTAA with the
State."57Petitioners stress that there should no longer be any issue left as regards their qualification to enter into
FTAA contracts since they are qualified to engage in mining activities in the Philippines. Thus, whether the
"grandfather rule" or the "control test" is used, the nationalities of petitioners cannot be doubted since it would
pass both tests.

The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and said fact should be
disregarded. The manifestation can no longer be considered by us since it is being tackled in G.R. No. 202877
pending before this Court.1âwphi1 Thus, the question of whether petitioners, allegedly a Philippine-owned
corporation due to the sale of MBMI's shareholdings to DMCI, are allowed to enter into FTAAs with the State is a
non-issue in this case.

In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines. When in the mind of the Court there is
doubt, based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the
corporation, then it may apply the "grandfather rule."

WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of Appeals Decision dated
October 1, 2010 and Resolution dated February 15, 2011 are hereby AFFIRMED.

SO ORDERED.

49