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1.) PALAY, INC. and ALBERT ONSTOTT, petitioner, vs.

JACOBO C. CLAVE, Presidential Executive Assistant NATIONAL HOUSING AUTHORITY and


NAZARIO DUMPIT respondents.
G.R. No. L-56076 September 21, 1983
MELENCIO-HERRERA, J.:
The Resolution, dated May 2, 1980, issued by Presidential Executive Assistant Jacobo Clave in O.P. Case No.
1459, directing petitioners Palay, Inc. and Alberto Onstott jointly and severally, to refund to private
respondent, Nazario Dumpit, the amount of P13,722.50 with 12% interest per annum, as resolved by the
National Housing Authority in its Resolution of July 10, 1979 in Case No. 2167, as well as the Resolution of
October 28, 1980 denying petitioners' Motion for Reconsideration of said Resolution of May 2, 1980, are
being assailed in this petition.
On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott executed in favor of private
respondent, Nazario Dumpit, a Contract to Sell a parcel of Land (Lot No. 8, Block IV) of the Crestview
Heights Subdivision in Antipolo, Rizal, with an area of 1,165 square meters, - covered by TCT No. 90454,
and owned by said corporation. The sale price was P23,300.00 with 9% interest per annum, payable with a
downpayment of P4,660.00 and monthly installments of P246.42 until fully paid. Paragraph 6 of the contract
provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the
lapse of 90 days from the expiration of the grace period of one month, without need of notice and with
forfeiture of all installments paid.
Respondent Dumpit paid the downpayment and several installments amounting to P13,722.50. The last
payment was made on December 5, 1967 for installments up to September 1967.
On May 10, 1973, or almost six (6) years later, private respondent wrote petitioner offering to update all his
overdue accounts with interest, and seeking its written consent to the assignment of his rights to a certain
Lourdes Dizon. He followed this up with another letter dated June 20, 1973 reiterating the same request.
Replying petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to
paragraph 6 of the contract, and that the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the
National Housing Authority (NHA) for reconveyance with an altenative prayer for refund (Case No. 2167). In
a Resolution, dated July 10, 1979, the NHA, finding the rescission void in the absence of either judicial or
notarial demand, ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation,
jointly and severally, to refund immediately to Nazario Dumpit the amount of P13,722.50 with 12% interest
from the filing of the complaint on November 8, 1974. Petitioners' Motion for Reconsideration of said
Resolution was denied by the NHA in its Order dated October 23, 1979. 1
On appeal to the Office of the President, upon the allegation that the NHA Resolution was contrary to law
(O.P. Case No. 1459), respondent Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution
of the NHA. Reconsideration sought by petitioners was denied for lack of merit. Thus, the present petition
wherein the following issues are raised:
I
Whether notice or demand is not mandatory under the circumstances and, therefore, may
be dispensed with by stipulation in a contract to sell.
II
Whether petitioners may be held liable for the refund of the installment payments made by
respondent Nazario M. Dumpit.

III
Whether the doctrine of piercing the veil of corporate fiction has application to the case at
bar.
IV
Whether respondent Presidential Executive Assistant committed grave abuse of discretion in
upholding the decision of respondent NHA holding petitioners solidarily liable for the refund
of the installment payments made by respondent Nazario M. Dumpit thereby denying
substantial justice to the petitioners, particularly petitioner Onstott
We issued a Temporary Restraining Order on Feb 11, 1981 enjoining the enforcement of the questioned
Resolutions and of the Writ of Execution that had been issued on December 2, 1980. On October 28, 1981,
we dismissed the petition but upon petitioners' motion, reconsidered the dismissal and gave due course to
the petition on March 15, 1982.
On the first issue, petitioners maintain that it was justified in cancelling the contract to sell without prior
notice or demand upon respondent in view of paragraph 6 thereof which provides6. That in case the BUYER falls to satisfy any monthly installment or any other payments
herein agreed upon, the BUYER shall be granted a month of grace within which to make the
payment of the t in arrears together with the one corresponding to the said month of grace.
-It shall be understood, however, that should the month of grace herein granted to the
BUYER expire, without the payment & corresponding to both months having been satisfied,
an interest of ten (10%) per cent per annum shall be charged on the amounts the BUYER
should have paid; it is understood further, that should a period of NINETY (90) DAYS elapse
to begin from the expiration of the month of grace hereinbefore mentioned, and the BUYER
shall not have paid all the amounts that the BUYER should have paid with the corresponding
interest up to the date, the SELLER shall have the right to declare this contract cancelled
and of no effect without notice, and as a consequence thereof, the SELLER may dispose of
the lot/lots covered by this Contract in favor of other persons, as if this contract had never
been entered into. In case of such cancellation of this Contract, all the amounts which may
have been paid by the BUYER in accordance with the agreement, together with all the
improvements made on the premises, shall be considered as rents paid for the use and
occupation of the above mentioned premises and for liquidated damages suffered by virtue
of the failure of the BUYER to fulfill his part of this agreement : and the BUYER hereby
renounces his right to demand or reclaim the return of the same and further obligates
peacefully to vacate the premises and deliver the same to the SELLER.
Well settled is the rule, as held in previous jurisprudence, 2 that judicial action for the rescission of a contract
is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its
terms and conditions. However, even in the cited cases, there was at least a written notice sent to the
defaulter informing him of the rescission. As stressed in University of the Philippines vs. Walfrido de los
Angeles 3 the act of a party in treating a contract as cancelled should be made known to the other. We quote
the pertinent excerpt:
Of course, it must be understood that the act of a party in treating a contract as cancelled
or resolved in account of infractions by the other contracting party must be made known to
the other and is always provisional being ever subject to scrutiny and review by the proper
court. If the other party denies that rescission is justified it is free to resort to judicial
action in its own behalf, and bring the matter to court. Then, should the court, after due
hearing, decide that the resolution of the contract was not warranted, the responsible party
will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated may consider it resolved or
rescinded, and act accordingly, without previous court action, but it proceeds at its own
risk. For it is only the final judgment of the corresponding court that will conclusively and
finally settle whether the action taken was or was not correct in law. But the law definitely
does not require that the contracting party who believes itself injured must first file suit and
wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the
party injured by the other's breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final judgment of rescission is
rendered when the law itself requires that he should exercise due diligence to minimize its
own damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous jurisprudence of this Court invoked
by respondent declaring that judicial action is necessary for the resolution of a reciprocal
obligation (Ocejo Perez & Co., vs. International Banking Corp., 37 Phil. 631; Republic vs.
Hospital de San Juan De Dios, et al., 84 Phil 820) since in every case where the
extrajudicial resolution is contested only the final award of the court of competent
jurisdiction can conclusively settle whether the resolution was proper or not. It is in this
sense that judicial action win be necessary, as without it, the extrajudicial resolution will
remain contestable and subject to judicial invalidation unless attack thereon should become
barred by acquiescense, estoppel or prescription.
Fears have been expressed that a stipulation providing for a unilateral rescission in case of
breach of contract may render nugatory the general rule requiring judicial action (v.
Footnote, Padilla Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140) but, as already
observed, in case of abuse or error by the rescinder the other party is not barred from
questioning in court such abuse or error, the practical effect of the stipulation being merely
to transfer to the defaulter the initiative of instituting suit, instead of the
rescinder (Emphasis supplied).
Of similar import is the ruling in Nera vs. Vacante 4, reading:
A stipulation entitling one party to take possession of the land and building if the other
party violates the contract does not ex propio vigore confer upon the former the right to
take possession thereof if objected to without judicial intervention and determination.
This was reiterated in Zulueta vs. Mariano 5 where we held that extrajudicial rescission has legal effect
where the other party does not oppose it. 6 Where it is objected to, a judicial determination of the issue is
still necessary.
In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned
in Court. If the debtor impugns the declaration, it shall be subject to judicial determination. 7
In this case, private respondent has denied that rescission is justified and has resorted to judicial action. It
is now for the Court to determine whether resolution of the contract by petitioners was warranted.
We hold that resolution by petitioners of the contract was ineffective and inoperative against private
respondent for lack of notice of resolution, as held in the U.P. vs. Angeles case, supra
Petitioner relies on Torralba vs. De los Angeles 8 where it was held that "there was no contract to rescind in
court because from the moment the petitioner defaulted in the timely payment of the installments, the
contract between the parties was deemed ipso facto rescinded." However, it should be noted that even in
that case notice in writing was made to the vendee of the cancellation and annulment of the contract
although the contract entitled the seller to immediate repossessing of the land upon default by the buyer.

The indispensability of notice of cancellation to the buyer was to be later underscored in Republic Act No.
6551 entitled "An Act to Provide Protection to Buyers of Real Estate on Installment Payments." which took
effect on September 14, 1972, when it specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash surrender value to the buyer.
(Emphasis supplied).
The contention that private respondent had waived his right to be notified under paragraph 6 of the contract
is neither meritorious because it was a contract of adhesion, a standard form of petitioner corporation, and
private respondent had no freedom to stipulate. A waiver must be certain and unequivocal, and intelligently
made; such waiver follows only where liberty of choice has been fully accorded. 9 Moreover, it is a matter of
public policy to protect buyers of real estate on installment payments against onerous and oppressive
conditions. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on
installment payments.
Regarding the second issue on refund of the installment payments made by private
respondent. Article 1385 of the Civil Code provides:
ART. 1385. Rescission creates the obligation to return the things which were the object of
the contract, together with their fruits, and the price with its interest; consequently, it can
be carried out only when he who demands rescission can return whatever he may be
obliged to restore.
Neither sham rescission take place when the things which are the object of the contract are
legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
As a consequence of the resolution by petitioners, rights to the lot should be restored to private respondent
or the same should be replaced by another acceptable lot. However, considering that the property had
already been sold to a third person and there is no evidence on record that other lots are still available,
private respondent is entitled to the refund of installments paid plus interest at the legal rate of 12%
computed from the date of the institution of the action. 10 It would be most inequitable if petitioners were to
be allowed to retain private respondent's payments and at the same time appropriate the proceeds of the
second sale to another.
We come now to the third and fourth issues regarding the personal liability of petitioner Onstott who was
made jointly and severally liable with petitioner corporation for refund to private respondent of the total
amount the latter had paid to petitioner company. It is basic that a corporation is invested by law with a
personality separate and distinct from those of the persons composing it as wen as from that of any other
legal entity to which it may be related. 11 As a general rule, a corporation may not be made to answer for
acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice
versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end
subversive of justice 12 ; or for purposes that could not have been intended by the law that created it 13 ; or
to defeat public convenience, justify wrong, protect fraud, or defend crime. 14 ; or to perpetuate fraud or
confuse legitimate issues 15 ; or to circumvent the law or perpetuate deception 16 ; or as an alter ego,
adjunct or business conduit for the sole benefit of the stockholders. 17
We find no badges of fraud on petitioners' part. They had literally relied, albeit mistakenly, on paragraph 6
(supra) of its contract with private respondent when it rescinded the contract to sell extrajudicially and had
sold it to a third person.
In this case, petitioner Onstott was made liable because he was then the President of the corporation and he
a to be the controlling stockholder. No sufficient proof exists on record that said petitioner used the

corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he
"appears to be the controlling stockholder". Mere ownership by a single stockholder or by another
corporation is not of itself sufficient ground for disregarding the separate corporate personality. 18 In this
respect then, a modification of the Resolution under review is called for.
WHEREFORE, the questioned Resolution of respondent public official, dated May 2, 1980, is hereby modified.
Petitioner Palay, Inc. is directed to refund to respondent Nazario M. Dumpit the amount of P13,722.50, with
interest at twelve (12%) percent per annum from November 8, 1974, the date of the filing of the Complaint.
The temporary Restraining Order heretofore issued is hereby lifted.
No costs.
SO ORDERED.
2.)ADELIO

C.

CRUZ,

complainant,vs.

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


Adm. Matter No. R-181-P

July 31, 1987

RESOLUTION
FERNAN, J.:
In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged Quiterio L. Dalisay, Senior Deputy Sheriff
of Manila, with malfeasance in office, corrupt practices and serious irregularities allegedly committed as
follows:
1. Respondent sheriff attached and/or levied the money belonging to complainant Cruz when he was not
himself the judgment debtor in the final judgment of NLRC NCR Case No. 8-12389-91 sought to be enforced
but rather the company known as Qualitrans Limousine Service, Inc., a duly registered corporation; and,
2. Respondent likewise caused the service of the alias writ of execution upon complainant who is a resident
of Pasay City, despite knowledge that his territorial jurisdiction covers Manila only and does not extend to
Pasay City.
In his Comments, respondent Dalisay explained that when he garnished complainants cash deposit at the
Philtrust bank, he was merely performing a ministerial duty. While it is true that said writ was addressed to
Qualitrans Limousine Service, Inc., yet it is also a fact that complainant had executed an affidavit before the
Pasay City assistant fiscal stating that he is the owner/president of said corporation and, because of that

declaration, the counsel for the plaintiff in the labor case advised him to serve notice of garnishment on the
Philtrust bank.
On November 12, 1984, this case was referred to the Executive Judge of the Regional Trial Court of Manila
for investigation, report and recommendation.
Prior to the termination of the proceedings, however, complainant executed an affidavit of desistance stating
that he is no longer interested in prosecuting the case against respondent Dalisay and that it was just a
misunderstanding between them. Upon respondents motion, the Executive Judge issued an order dated
May 29, 1986 recommending the dismissal of the case.
It has been held that the desistance of complainant does not preclude the taking of disciplinary action
against respondent. Neither does it dissuade the Court from imposing the appropriate corrective sanction.
One who holds a public position, especially an office directly connected with the administration of justice and
the execution of judgments, must at all times be free from the appearance of impropriety.1
We hold that respondents actuation in enforcing a judgment against complainant who is not the judgment
debtor in the case calls for disciplinary action. Considering the ministerial nature of his duty in enforcing
writs of execution, what is incumbent upon him is to ensure that only that portion of a decision ordained or
decreed in the dispositive part should be the subject of execution. 2 No more, no less. That the title of the
case specifically names complainant as one of the respondents is of no moment as execution must conform
to that directed in the dispositive portion and not in the title of the case.
The tenor of the NLRC judgment and the implementing writ is clear enough. It directed Qualitrans Limousine
Service, Inc. to reinstate the discharged employees and pay them full backwages. Respondent, however,
chose to pierce the veil of corporate entity usurping a power belonging to the court and assumed
improvidently that since the complainant is the owner/president of Qualitrans Limousine Service, Inc., they
are one and the same. It is a well-settled doctrine both in law and in equity that as a legal entity, a
corporation has a personality distinct and separate from its individual stockholders or members. The mere
fact that one is president of a corporation does not render the property he owns or possesses the property
of the corporation, since the president, as individual, and the corporation are separate entities. 3
Anent the charge that respondent exceeded his territorial jurisdiction, suffice it to say that the writ of
execution sought to be implemented was dated July 9, 1984, or prior to the issuance of Administrative
Circular No. 12 which restrains a sheriff from enforcing a court writ outside his territorial jurisdiction without
first notifying in writing and seeking the assistance of the sheriff of the place where execution shall take
place.
ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio L. Dalisay NEGLIGENT in the enforcement of
the writ of execution in NLRC Case-No. 8-12389-91, and a fine equivalent to three [3] months salary is

hereby imposed with a stern warning that the commission of the same or similar offense in the future will
merit a heavier penalty. Let a copy of this Resolution be filed in the personal record of the respondent.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.

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


JOSE REMO, JR., petitioner,
vs.
THE HON. INTERMEDIATE APPELLATE COURT and E.B. MARCHA TRANSPORT COMPANY, INC.,
represented by APIFANIO B. MARCHA, respondents.
Orbos, Cabusora, Dumlao & Sta. Ana for petitioner.

GANCAYCO, J.:
A corporation is an entity separate and distinct from its stockholders. While not in fact and in reality a
person, the law treats a corporation as though it were a person by process of fiction or by regarding it as an
artificial person distinct and separate from its individual stockholders. 1
However, the corporate fiction or the notion of legal entity may be disregarded when it "is used to defeat
public convenience, justify wrong, protect fraud, or defend crime" in which instances "the law will regard the
corporation as an association of persons, or in case of two corporations, will merge them into one." The
corporate fiction may also be disregarded when it is the "mere alter ego or business conduit of a
person." 2 There are many occasions when this Court pierced the corporate veil because of its use to protect
fraud and to justify wrong. 3 The herein petition for review of a. resolution of the Intermediate Appellate
Court dated February 8, 1984 seeking the reversal thereof and the reinstatement of its earlier decision dated
June 30, 1983 in AC-G.R. No. 68496-R 4 calls for the application of the foregoing principles.
In the latter part of December, 1977 the board of directors of Akron Customs Brokerage Corporation
(hereinafter referred to as Akron), composed of petitioner Jose Remo, Jr., Ernesto Baares, Feliciano
Coprada, Jemina Coprada, and Dario Punzalan with Lucia Lacaste as Secretary, adopted a resolution
authorizing the purchase of thirteen (13) trucks for use in its business to be paid out of a loan the
corporation may secure from any lending institution. 5
Feliciano Coprada, as President and Chairman of Akron, purchased thirteen trucks from private respondent
on January 25, 1978 for and in consideration of P525,000.00 as evidenced by a deed of absolute sale. 6 In a
side agreement of the same date, the parties agreed on a downpayment in the amount of P50,000.00 and
that the balance of P475,000.00 shall be paid within sixty (60) days from the date of the execution of the
agreement. The parties also agreed that until said balance is fully paid, the down payment of P50,000.00
shall accrue as rentals of the 13 trucks; and that if Akron fails to pay the balance within the period of 60
days, then the balance shall constitute as a chattel mortgage lien covering said cargo trucks and the parties
may allow an extension of 30 days and thereafter private respondent may ask for a revocation of the
contract and the reconveyance of all said trucks. 7
The obligation is further secured by a promissory note executed by Coprada in favor of Akron. It is stated in
the promissory note that the balance shall be paid from the proceeds of a loan obtained from the

Development Bank of the Philippines (DBP) within sixty (60) days. 8 After the lapse of 90 days, private
respondent tried to collect from Coprada but the latter promised to pay only upon the release of the DBP
loan. Private respondent sent Coprada a letter of demand dated May 10, 1978. 9 In his reply to the said
letter, Coprada reiterated that he was applying for a loan from the DBP from the proceeds of which payment
of the obligation shall be made. 10
Meanwhile, two of the trucks were sold under a pacto de retro sale to a certain Mr. Bais of the Perpetual
Loans and Savings Bank at Baclaran. The sale was authorized by a board resolution made in a meeting held
on March 15, 1978. 11
Upon inquiry, private respondent found that no loan application was ever filed by Akron with DBP. 12
In the meantime, Akron paid rentals of P500.00 a day pursuant to a subsequent agreement, from April 27,
1978 (the end of the 90-day period to pay the balance) to May 31, 1978. Thereafter, no more rental
payments were made.
On June 17, 1978, Coprada wrote private respondent begging for a grace period of until the end of the
month to pay the balance of the purchase price; that he will update the rentals within the week; and in case
he fails, then he will return the 13 units should private respondent elect to get back the same. 13 Private
respondent, through counsel, wrote Akron on August 1, 1978 demanding the return of the 13 trucks and the
payment of P25,000.00 back rentals covering the period from June 1 to August 1, 1978. 14
Again, Coprada wrote private respondent on August 8, 1978 asking for another grace period of up to August
31, 1978 to pay the balance, stating as well that he is expecting the approval of his loan application from a
certain financing company, and that ten (10) trucks have been returned to Bagbag, Novaliches. 15 On
December 9, 1978, Coprada informed private respondent anew that he had returned ten (10) trucks to
Bagbag and that a resolution was passed by the board of directors confirming the deed of assignment to
private respondent of P475,000 from the proceeds of a loan obtained by Akron from the State Investment
House, Inc. 16
In due time, private respondent filed a compliant for the recovery of P525,000.00 or the return of the 13
trucks with damages against Akron and its officers and directors, Feliciano Coprada, Dario D. Punzalan,
Jemina Coprada, Lucia Lacaste, Wilfredo Layug, Arcadio de la Cruz, Francisco Clave, Vicente Martinez,
Pacifico Dollario and petitioner with the then Court of First Instance of Rizal. Only petitioner answered the
complaint denying any participation in the transaction and alleging that Akron has a distinct corporate
personality. He was, however, declared in default for his failure to attend the pre-trial.
In the meanwhile, petitioner sold all his shares in Akron to Coprada. It also appears that Akron amended its
articles of incorporation thereby changing its name to Akron Transport International, Inc. which assumed the
liability of Akron to private respondent.
After an ex parte reception of the evidence of the private respondent, a decision was rendered on October
28, 1980, the dispositive part of which reads as follows:
Finding the evidence sufficient to prove the case of the plaintiff, judgment is hereby rendered in favor of the
plaintiff and against the defendants, ordering them jointly and severally to pay;
a the purchase price of the trucks in the amount of P525,000.00 with ... legal rate (of
interest) from the filing of the complaint until the full amount is paid;
b rentals of Bagbag property at P1,000.00 a month from August 1978 until the premises
is cleared of the said trucks;
c attorneys fees of P10,000.00, and

d costs of suit.
The P50,000.00 given as down payment shall pertain as rentals of the trucks from June 1 to August 1, 1978
which is P25,000.00 (see demand letter of Atty. Aniano Exhibit "T") and the remaining P25,000.00 shall be
from August 1, 1978 until the trucks are removed totally from the place." 17
A motion for new trial filed by petitioner was denied so he appealed to the then Intermediate Appellate Court
(IAC) wherein in due course a decision was rendered on June 30, 1 983 setting aside the said decision as far
as petitioner is concemed. However, upon a motion for reconsideration filed by private respondent dent, the
IAC, in a resolution dated February 8,1984, set aside the decision dated June 30, 1983. The appellate court
entered another decision affirming the appealed decision of the trial court, with costs against petitioner.
Hence, this petition for review wherein petitioner raises the following issues:
I. The Intermediate Appellate Court (IAC) erred in disregarding the corporate fiction and in
holding the petitioner personally liable for the obligation of the Corporation which decision is
patently contrary to law and the applicable decision thereon.
II. The Intermediate Appellate Court (IAC) committed grave error of law in its decision by
sanctioning the merger of the personality of the corporation with that of the petitioner when
the latter was held liable for the corporate debts. 18
We reverse.
The environmental facts of this case show that there is no cogent basis to pierce the corporate veil of Akron
and hold petitioner personally liable for its obligation to private respondent. While it is true that in
December, 1977 petitioner was still a member of the board of directors of Akron and that he participated in
the adoption of a resolution authorizing the purchase of 13 trucks for the use in the brokerage business of
Akron to be paid out of a loan to be secured from a lending institution, it does not appear that said
resolution was intended to defraud anyone and more particularly private respondent. It was Coprada,
President and Chairman of Akron, who negotiated with said respondent for the purchase of 13 cargo trucks
on January 25, 1978. It was Coprada who signed a promissory note to guarantee the payment of the unpaid
balance of the purchase price out of the proceeds of a loan he supposedly sought from the DBP. The word
"WE' in the said promissory note must refer to the corporation which Coprada represented in the execution
of the note and not its stockholders or directors. Petitioner did not sign the said promissory note so he
cannot be personally bound thereby.
Thus, if there was any fraud or misrepresentation that was foisted on private respondent in that there was a
forthcoming loan from the DBP when it fact there was none, it is Coprada who should account for the same
and not petitioner.
As to the sale through pacto de retro of the two units to a third person by the corporation by virtue of a
board resolution, petitioner asserts that he never signed said resolution. Be that as it may, the sale is not
inherently fraudulent as the 13 units were sold through a deed of absolute sale to Akron so that the
corporation is free to dispose of the same. Of course, it was stipulated that in case of default in payment to
private respondent of the balance of the consideration, a chattel mortgage lien shag be constituted on the
13 units. Nevertheless, said mortgage is a prior lien as against the pacto de retro sale of the 2 units.
As to the amendment of the articles of incorporation of Akron thereby changing its name to Akron Transport
International, Inc., petitioner alleges that the change of corporate name was in order to include trucking and
container yard operations in its customs brokerage of which private respondent was duly informed in a
letter. 19Indeed, the new corporation confirmed and assumed the obligation of the old corporation. There is
no indication of an attempt on the part of Akron to evade payment of its obligation to private respondent.

There is the fact that petitioner sold his shares in Akron to Coprada during the pendency of the case. Since
petitioner has no personal obligation to private respondent, it is his inherent right as a stockholder to
dispose of his shares of stock anytime he so desires.
Mention is also made of the alleged "dumping" of 10 units in the premises of private respondent at Bagbag,
Novaliches which to the mind of the Court does not prove fraud and instead appears to be an attempt on the
part of Akron to attend to its obligations as regards the said trucks. Again petitioner has no part in this.
If the private respondent is the victim of fraud in this transaction, it has not been clearly shown that
petitioner had any part or participation in the perpetration of the same. Fraud must be established by clear
and convincing evidence. If at all, the principal character on whom fault should be attributed is Feliciano
Coprada, the President of Akron, whom private respondent dealt with personally all through out. Fortunately,
private respondent obtained a judgment against him from the trial court and the said judgment has long
been final and executory.
WHEREFORE, the petition is GRANTED. The questioned resolution of the Intermediate Appellate Court dated
February 8,1984 is hereby set aside and its decision dated June 30,1983 setting aside the decision of the
trial court dated October 28, 1980 insofar as petitioner is concemed is hereby reinstated and affirmed,
without costs.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

4.) JAIME PABALAN AND EDUARDO LAGDAMEO, petitioners, vs.


NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER AMBROSIO B. SISON, ELIZABETH
RODEROS, ET AL., and THE SHERIFF OF THE NATIONAL LABOR RELATIONS
COMMISSION, respondents.
G.R. No. 89879
GANCAYCO, J.:

April 20, 1990

Once again the parameters of the liability of the officers of a corporation as to unpaid wages and other
claims of the employees of a corporation which has a separate and distinct personality are brought to fore in
this case.
On October 20, 1987, eighty-four (84) workers of the Philippine Inter-Fashion, Inc. (PIF) filed a complaint
against the latter for illegal transfer simultaneous with illegal dismissal without justifiable cause and in
violation of the provision of the Labor Code on security of tenure as well as the provisions of Batas
Pambansa Blg. 130. Complainants demanded reinstatement with full backwages, living allowance, 13th
month pay and other benefits under existing laws and/or separation pay.
On October 21, 1987, PIF, through its General Manager, was notified about the complaint and summons for
the hearing set for November 6, 1987. The hearing was re-set for November 27, 1987 for failure of
respondents to appear. On November 30, 1987 respondents (petitioners herein) moved for the cancellation
of the hearing scheduled on November 6, 1987 so that they could engage a counsel to properly represent
them preferably on November 17, 1987.

On December 10, 1987 both parties were directed to submit their respective position papers within ten (10)
days. By mutual agreement the hearing was re-set on December 21, 1987 but on said date respondents
and/or counsel failed to appear. The hearing was re-set on January 14, 1988 on which date respondents
were given a deadline to submit their position paper.
On January 4, 1988 complainants filed their position paper. On January 14, 1988 counsel for respondents
moved that he be given until January 22, 1988 to file their position paper. The labor arbiter granted the
motion. The PIF filed its position paper on January 22, 1988. The heating for February 17, 1988 was re-set
to March 9, 1988 and on March 29, 1988 on which dates respondents failed to appear.
On May 5, 1988, with leave of the labor arbiter, complainants filed their supplemental position paper
impleading the petitioners as officers of the PIF in the complaint for their illegal transfer to a new firm.
On July 13, 1988 a decision was rendered by the labor arbiter the dispositive part of which reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATION, respondent Philippine Inter-Fashion and its officers
Mr. Jaime Pabalan and Mr. Eduardo Lagdameo are hereby ordered to:
1. reinstate the sixty two (62) complainants to their former or equivalent position without loss of
seniority rights and privileges;
2. to pay, jointly and severally, their backwages and other benefits from the time they were
dismissed up to the time they are actually reinstated, the computation to be based from the latest
minimum wage law at the time of their dismissal. (See attached Annex "A" of complainants' position
paper.)
SO ORDERED.

Not satisfied therewith petitioners filed a motion for reconsideration in the First Division of the public
respondent, National Labor Relations Commission (NLRC), which nevertheless, affirmed the appealed
decision and dismissed the appeal for lack of merit in a resolution dated June 30, 1989. Petitioners were
ordered to pay the appeal fee in accordance with law.
Hence the herein petition for certiorari with prayer for the issuance of a temporary restraining order wherein
the petitioners raised the following issues:
A
THE ARBITER AND THE NLRC DID NOT ACQUIRE JURISDICTION OVER THE PERSONS OF THE
PETITIONERS AND, THEREFORE, THE DECISION AND THE RESOLUTION, UNDER DISPUTE, ARE
NULL AND VOID.
B
THE DECISION AND THE NLRC RESOLUTION SUFFER FROM A LEGAL AND CONSTITUTIONAL
INFIRMITY BECAUSE THEY SANCTION A DEPRIVATION OF PETITIONERS' PROPERTIES WITHOUT
DUE PROCESS OF LAW.
C
THE ARBITER AND THE NLRC COMMITTED A GRAVE ABUSE OF DISCRETION IN ADJUDGING
PETITIONERS HEREIN AS JOINTLY AND SEVERALLY LIABLE WITH PHILIPPINE INTER-FASHION, INC.
TO PAY THE JUDGMENT DEBT.
On September 25, 1989 this Court dismissed the petition for insufficiency in form and substance, having
failed to comply with the Rules of Court and Administrative Circular No. 1-88 requiting the verification of the

petition. A motion for reconsideration filed by the petitioners of the said resolution was denied on October
16, 1989 for failure to raise any substantial arguments to warrant a modification thereof. However, acting on
an urgent motion to include the motion for reconsideration of the resolution of September 25, 1989 in the
court's calendar which the Court granted, on November 30, 1989 the Court resolved to set aside said
resolutions of September 25, 1989 and October 16, 1989, and to require respondents to comment thereon
within ten (10) days from notice thereof. A temporary restraining order was issued enjoining respondents
from enforcing or implementing the questioned decision of the labor arbiter affirmed by the NLRC upon a
bond to be filed by petitioners in the amount of P100,000.00. However, on February 7, 1990 for failure of
petitioner to file the required bond despite extensions of time granted them, the Court resolved to lift the
temporary restraining order issued on November 13, 1989.
Now to the merit of the petition.
Petitioners do not question the merits of the decision insofar as PIF is concerned in this
proceeding.1wphi1 The first two issues they raised are to the effect that the public respondents never
acquired jurisdiction over them as they have not been served with summons and thus they were deprived
due process.
The Court finds these grounds to be devoid of merit. As the record shows while originally it was PIF which
was impleaded as respondent before the labor arbiter, petitioners also appeared in their behalf through
counsel. Thereafter when the supplemental position paper was filed by complainants, petitioners were
impleaded as respondents to which they filed an opposition inasmuch as they filed their own supplemental
position papers. They were therefore properly served with summons and they were not deprived of due
process.
Petitioners contend however that under the circumstances of the case as officers of the corporation PIF they
could not be jointly and severally held liable with the corporation for its liability in this case.
The settled rule is that the corporation is vested by law with a personality separate and distinct from the
persons composing it, including its officers as well as from that of any other legal entity to which it may be
related. Thus, a company manager acting in good faith within the scope of his authority in terminating the
services of certain employees cannot be held personally liable for damages. 2 Mere ownership by a single
stockholder or by another corporation of all or nearly all capital stocks of the corporation is not by itself
sufficient ground for disregarding the separate corporate personality. 3
As a general rule, officers of a corporation are not personally liable for their official acts unless it is shown
that they have exceeded their authority. 4 However, the legal fiction that a corporation has a personality
separate and distinct from stockholders and members may be disregarded as follows:
This finding does not ignore the legal fiction that a corporation has a personality separate and
distinct from its stockholders and members, for, as this Court had held "where the incorporators and
directors belong to a single family, the corporation and its members can be considered as one in
order to avoid its being used as an instrument to commit injustice," or to further an end subversive
of justice. In the case of Claparols vs. CIR involving almost similar facts as in this case, it was also
held that the shield of corporate fiction should be pierced when it is deliberately and maliciously
designed to evade financial obligations to employees.
To the same effect . . . (are) this Court's rulings in still other cases:
When the notion of legal entity is used as a means to perpetrate fraud or an illegal act or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, and or (to) confuse
legitimate issues the veil which protects the corporation will be lifted. 5
In this particular case complainants did not allege or show that petitioners, as officers of the corporation
deliberately and maliciously designed to evade the financial obligation of the corporation to its employees, or
used the transfer of the employees as a means to perpetrate an illegal act or as a vehicle for the evasion of
existing obligations, the circumvention of statutes, or to confuse the legitimate issues.

Indeed, in the questioned resolution of the NLRC dated June 30, 1989 there is no finding as to why
petitioners were being held jointly and severally liable for the liability and obligation of the corporation
except as to invocation of the ruling of this Court in A.C. Ransom Labor Union-CCLU vs. NLRC 6 in that the
liability in the cases of illegal termination of employees extends not only to the corporation as a corporate
entity but also to its responsible officers acting in the interest of the corporation or employer.
It must be noted, however, that A.C. Ransom Labor Union-CCLU vs. NLRC the corporation was a family
corporation and that during the strike the members of the family organized another corporation which was
the Rosario Industrial Corporation to which all the assets of the A.C. Ransom Corporation were transferred to
continue its business which acts of such officers and agents of A.C. Ransom Corporation were intended to
avoid payment of its obligations to its employees. In such case this Court considered the president of the
corporation to be personally liable together with the corporation for the satisfaction of the claim of the
employees. 7
Not one of the above circumstances has been shown to be present. Hence petitioners can not be held jointly
and severally liable with the PIF corporation under the questioned decision and resolution of the public
respondent.
WHEREFORE, the petition is GRANTED and the questioned resolution of the public respondent dated June
30, 1989 is hereby modified by relieving petitioners of any liability as officers of the PIF and holding that the
liability shall be solely that of Philippine Inter-Fashion, Inc. No costs.
SO ORDERED.

6.) BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO, BERTILLA C.


RADA, MARIETTA C. ABAEZ, LEOVINA C. JALBUENA and SANTIAGO M. RIVERA, petitioners, vs.
COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS MANUFACTURING
CO., INC., respondents.
G.R. No. 89561 September 13, 1990
REGALADO, J.:
This is a petition to review the decision of respondent Court of Appeals, dated August 3, 1989, in CA-GR CV
No. 15412, entitled "Buenaflor M. Castillo Umali, et al. vs. Philippine Machinery Parts Manufacturing Co.,
Inc., et al.," 1the dispositive portion whereof provides:
WHEREFORE, viewed in the light of the entire record, the judgment appealed from must be,
as it is hereby REVERSED. In lieu thereof, a judgment is hereby rendered1) Dismissing the complaint, with cost against plaintiffs;
2) Ordering plaintiffs-appellees to vacate the subject properties; and
3) Ordering plaintiffs-appellees to pay upon defendants' counterclaims:

a) To defendant-appellant PM Parts: (i) damages consisting of the value of


the fruits in the subject parcels of land of which they were deprived in the
sum of P26,000.00 and (ii) attorney's fees of P15,000.00
b) To defendant-appellant Bormaheco: (i) expenses of litigation in the
amount of P5,000.00 and (ii) attorney's fees of P15,000.00.
SO ORDERED.
The original complaint for annulment of title filed in the court a quo by herein petitioners included as party
defendants the Philippine Machinery Parts Manufacturing Co., Inc. (PM Parts), Insurance Corporation of the
Philippines (ICP), Bormaheco, Inc., (Bormaheco) and Santiago M. Rivera (Rivera). A Second Amended
Complaint was filed, this time impleading Santiago M. Rivera as party plaintiff.
During the pre-trial conference, the parties entered into the following stipulation of facts:
As between all parties: Plaintiff Buenaflor M. Castillo is the judicial
administratrix of the estate of Felipe Castillo in Special Proceeding No.
4053, pending before Branch IX, CFI of Quezon (per Exhibit A) which
intestate proceedings was instituted by Mauricia Meer Vda. de Castillo, the
previous administratrix of the said proceedings prior to 1970 (per exhibits
A-1 and A-2) which case was filed in Court way back in 1964;
b) The four (4) parcels of land described in paragraph 3 of the Complaint
were originally covered by TCT No. T-42104 and Tax Dec. No. 14134 with
assessed value of P3,100.00; TCT No. T 32227 and Tax Dec. No. 14132,
with assessed value of P5,130,00; TCT No. T-31762 and Tax Dec. No.
14135, with assessed value of P6,150.00; and TCT No. T-42103 with Tax
Dec. No. 14133, with assessed value of P3,580.00 (per Exhibits A-2 and B,
B-1 to B-3 C, C-1 -to C3
c) That the above-enumerated four (4) parcels of land were the subject of
the Deed of Extra-Judicial Partition executed by the heirs of Felipe Castillo
(per Exhibit D) and by virtue thereof the titles thereto has (sic) been
cancelled and in lieu thereof, new titles in the name of Mauricia Meer Vda.
de Castillo and of her children, namely: Buenaflor, Bertilla, Victoria,
Marietta and Leovina, all surnamed Castillo has (sic) been issued, namely:
TCT No. T-12113 (Exhibit E ); TCT No. T-13113 (Exhibit F); TCT No. T13116 (Exhibit G ) and TCT No. T13117 (Exhibit H )
d) That mentioned parcels of land were submitted as guaranty in the
Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage
executed on 24 October 1970 between Insurance Corporation of the
Philippines and Slobec Realty Corporation represented by Santiago Rivera
(Exhibit 1);
e) That based on the Certificate of Sale issued by the Sheriff of the
Province of Quezon in favor of Insurance Corporation of the Philippines it
was able to transfer to itself the titles over the lots in question, namely:
TCT No. T-23705 (Exhibit M), TCT No. T 23706 (Exhibit N ), TCT No. T23707 (Exhibit 0) and TCT No. T 23708 (Exhibit P);
f) That on 10 April 1975, the Insurance Corporation of the Philippines sold
to PM Parts the immovables in question (per Exhibit 6 for PM Parts) and by
reason thereof, succeeded in transferring unto itself the titles over the lots

in dispute, namely: per TCT No. T-24846 (Exhibit Q ), per TCT No. T-24847
(Exhibit R ), TCT No. T-24848 (Exhibit), TCT No. T-24849 (Exhibit T );
g) On 26 August l976, Mauricia Meer Vda. de Castillo' genther letter to
Modesto N. Cervantes stating that she and her children refused to comply
with his demands (Exhibit V-2);
h) That from at least the months of October, November and December
1970 and January 1971, Modesto N. Cervantes was the Vice-President of
Bormaheco, Inc. later President thereof, and also he is one of the Board of
Directors of PM Parts; on the other hand, Atty. Martin M. De Guzman was
the legal counsel of Bormaheco, Inc., later Executive Vice-President
thereof, and who also is the legal counsel of Insurance Corporation of the
Philippines and PM Parts; that Modesto N. Cervantes served later on as
President of PM Parts, and that Atty. de Guzman was retained by Insurance
Corporation of the Philippines specifically for foreclosure purposes only;
i) Defendant Bormaheco, Inc. on November 25, 1970 sold to Slobec Realty
and Development, Inc., represented by Santiago Rivera, President, one (1)
unit Caterpillar Tractor D-7 with Serial No. 281114 evidenced by a contract
marked Exhibit J and Exhibit I for Bormaheco, Inc.;
j) That the Surety Bond No. 14010 issued by co-defendant ICP was
likewise secured by an Agreement with Counter-Guaranty with Real Estate
Mortgage executed by Slobec Realty & Development, Inc., Mauricia Castillo
Meer, Buenaflor Castillo, Bertilla Castillo, Victoria Castillo, Marietta Castillo
and Leovina Castillo, as mortgagors in favor of ICP which document was
executed and ratified before notary public Alberto R. Navoa of the City of
Manila on October 24,1970;
k) That the property mortgaged consisted of four (4) parcels of land
situated in Lucena City and covered by TCT Nos. T-13114, T13115,
T-13116 and T-13117 of the Register of Deeds of Lucena City;
l) That the tractor sold by defendant Bormaheco, Inc. to Slobec Realty &
Development, Inc. was delivered to Bormaheco, Inc. on or about October
2,1973, by Mr. Menandro Umali for purposes of repair;
m) That in August 1976, PM Parts notified Mrs. Mauricia Meer about its
ownership and the assignment of Mr. Petronilo Roque as caretaker of the
subject property;
n) That plaintiff and other heirs are harvest fruits of the property
(daranghita) which is worth no less than Pl,000.00 per harvest.
As between plaintiffs and
defendant Bormaheco, Inc
o) That on 25 November 1970, at Makati, Rizal, Same Rivera, in
representation of the Slobec Realty & Development Corporation executed
in favor of Bormaheco, Inc., represented by its Vice-President Modesto N.
Cervantes a Chattel Mortgage concerning one unit model CAT D7
Caterpillar Crawler Tractor as described therein as security for the payment
in favor of the mortgagee of the amount of P180,000.00 (per Exhibit K)
that Id document was superseded by another chattel mortgage dated
January 23, 1971 (Exhibit 15);

p) On 18 December 1970, at Makati, Rizal, the Bormaheco, Inc.,


represented by its Vice-President Modesto Cervantes and Slobec Realty
Corporation represented by Santiago Rivera executed the sales agreement
concerning the sale of one (1) unit Model CAT D7 Caterpillar Crawler
Tractor as described therein for the amount of P230,000.00 (per Exhibit J)
which document was superseded by the Sales Agreement dated January
23,1971 (Exhibit 16);
q) Although it appears on the document entitled Chattel Mortgage (per
Exhibit K) that it was executed on 25 November 1970, and in the
document entitled Sales Agreement (per Exhibit J) that it was executed on
18 December 1970, it appears in the notarial register of the notary public
who notarized them that those two documents were executed on 11
December 1970. The certified xerox copy of the notarial register of Notary
Public Guillermo Aragones issued by the Bureau of Records Management is
hereto submitted as Exhibit BB That said chattel mortgage was superseded
by another document dated January 23, 1971;
r) That on 23 January 1971, Slobec Realty Development Corporation,
represented by Santiago Rivera, received from Bormaheco, Inc. one (1)
tractor Caterpillar Model D-7 pursuant to Invoice No. 33234 (Exhibits 9 and
9-A, Bormaheco, Inc.) and delivery receipt No. 10368 (per Exhibits 10 and
10-A for Bormaheco, Inc
s) That on 28 September 1973, Atty. Martin M. de Guzman, as counsel of
Insurance Corporation of the Philippines purchased at public auction for
said corporation the four (4) parcels of land subject of tills case (per
Exhibit L), and which document was presented to the Register of Deeds on
1 October 1973;
t) Although it appears that the realties in issue has (sic) been sold by
Insurance Corporation of the Philippines in favor of PM Parts on 1 0 April
1975, Modesto N. Cervantes, formerly Vice- President and now President of
Bormaheco, Inc., sent his letter dated 9 August 1976 to Mauricia Meer Vda.
de Castillo (Exhibit V), demanding that she and her children should vacate
the premises;
u) That the Caterpillar Crawler Tractor Model CAT D-7 which was received
by Slobec Realty Development Corporation was actually reconditioned and
repainted. " 2
We cull the following antecedents from the decision of respondent Court of Appeals:
Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The
Castillo family are the owners of a parcel of land located in Lucena City which was given as
security for a loan from the Development Bank of the Philippines. For their failure to pay the
amortization, foreclosure of the said property was about to be initiated. This problem was
made known to Santiago Rivera, who proposed to them the conversion into subdivision of
the four (4) parcels of land adjacent to the mortgaged property to raise the necessary fund.
The Idea was accepted by the Castillo family and to carry out the project, a Memorandum
of Agreement (Exh. U p. 127, Record) was executed by and between Slobec Realty and
Development, Inc., represented by its President Santiago Rivera and the Castillo family. In
this agreement, Santiago Rivera obliged himself to pay the Castillo family the sum of
P70,000.00 immediately after the execution of the agreement and to pay the additional
amount of P400,000.00 after the property has been converted into a subdivision. Rivera,
armed with the agreement, Exhibit U , approached Mr. Modesto Cervantes, President of

defendant Bormaheco, and proposed to purchase from Bormaheco two (2) tractors Model
D-7 and D-8 Subsequently, a Sales Agreement was executed on December 28,1970 (Exh. J,
p. 22, Record).
On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development, Inc.,
represented by its President, Santiago Rivera, executed a Sales Agreement over one unit of
Caterpillar Tractor D-7 with Serial No. 281114, as evidenced by the contract marked Exhibit
'16'. As shown by the contract, the price was P230,000.00 of which P50,000.00 was to
constitute a down payment, and the balance of P180,000.00 payable in eighteen monthly
installments. On the same date, Slobec, through Rivera, executed in favor of Bormaheco a
Chattel Mortgage (Exh. K, p. 29, Record) over the said equipment as security for the
payment of the aforesaid balance of P180,000.00. As further security of the aforementioned
unpaid balance, Slobec obtained from Insurance Corporation of the Phil. a Surety Bond,
with ICP (Insurance Corporation of the Phil.) as surety and Slobec as principal, in favor of
Bormaheco, as borne out by Exhibit '8' (p. 111, Record). The aforesaid surety bond was in
turn secured by an Agreement of Counter-Guaranty with Real Estate Mortgage (Exhibit I, p.
24, Record) executed by Rivera as president of Slobec and Mauricia Meer Vda. de Castillo,
Buenaflor Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and
Leovina Castillo Jalbuena, as mortgagors and Insurance Corporation of the Philippines (ICP)
as mortgagee. In this agreement, ICP guaranteed the obligation of Slobec with Bormaheco
in the amount of P180,000.00. In giving the bond, ICP required that the Castillos mortgage
to them the properties in question, namely, four parcels of land covered by TCTs in the
name of the aforementioned mortgagors, namely TCT Nos. 13114, 13115, 13116 and
13117 all of the Register of Deeds for Lucena City.
On the occasion of the execution on January 23, 1971, of the Sales Agreement Exhibit '16',
Slobec, represented by Rivera received from Bormaheco the subject matter of the said
Sales Agreement, namely, the aforementioned tractor Caterpillar Model D-7 as evidenced
by Invoice No. 33234 (Exhs. 9 and 9-A, p. 112, Record) and Delivery Receipt No. 10368
(Exhs. 10 and 10-A, p. 113). This tractor was known by Rivera to be a reconditioned and
repainted one [Stipulation of Facts, Pre-trial Order, par. (u)].
Meanwhile, for violation of the terms and conditions of the Counter-Guaranty Agreement
(Exh. 1), the properties of the Castillos were foreclosed by ICP As the highest bidder with a
bid of P285,212.00, a Certificate of Sale was issued by the Provincial Sheriff of Lucena City
and Transfer Certificates of Title over the subject parcels of land were issued by the
Register of Deeds of Lucena City in favor of ICP namely, TCT Nos. T-23705, T 23706, T23707 and T-23708 (Exhs. M to P, pp. 38-45). The mortgagors had one (1) year from the
date of the registration of the certificate of sale, that is, until October 1, 1974, to redeem
the property, but they failed to do so. Consequently, ICP consolidated its ownership over
the subject parcels of land through the requisite affidavit of consolidation of ownership
dated October 29, 1974, as shown in Exh. '22'(p. 138, Rec.). Pursuant thereto, a Deed of
Sale of Real Estate covering the subject properties was issued in favor of ICP (Exh. 23, p.
139, Rec.).
On April 10, 1975, Insurance Corporation of the Phil. ICP sold to Phil. Machinery Parts
Manufacturing Co. (PM Parts) the four (4) parcels of land and by virtue of said conveyance,
PM Parts transferred unto itself the titles over the lots in dispute so that said parcels of land
are now covered by TCT Nos. T-24846, T-24847, T-24848 and T-24849 (Exhs. Q-T, pp. 4649, Rec.).
Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a letter dated
August 9,1976 addressed to plaintiff Mrs. Mauricia Meer Castillo requesting her and her
children to vacate the subject property, who (Mrs. Castillo) in turn sent her reply expressing
her refusal to comply with his demands.

On September 29, 1976, the heirs of the late Felipe Castillo, particularly plaintiff Buenaflor
M. Castillo Umali as the appointed administratrix of the properties in question filed an action
for annulment of title before the then Court of First Instance of Quezon and docketed
thereat as Civil Case No. 8085. Thereafter, they filed an Amended Complaint on January 10,
1980 (p. 444, Record). On July 20, 1983, plaintiffs filed their Second Amended Complaint,
impleading Santiago M. Rivera as a party plaintiff (p. 706, Record). They contended that all
the aforementioned transactions starting with the Agreement of Counter-Guaranty with Real
Estate Mortgage (Exh. I), Certificate of Sale (Exh. L) and the Deeds of Authority to Sell,
Sale and the Affidavit of Consolidation of Ownership (Annexes F, G, H, I) as well as the
Deed of Sale (Annexes J, K, L and M) are void for being entered into in fraud and without
the consent and approval of the Court of First Instance of Quezon, (Branch IX) before
whom the administration proceedings has been pending. Plaintiffs pray that the four (4)
parcels of land subject hereof be declared as owned by the estate of the late Felipe Castillo
and that all Transfer Certificates of Title Nos. 13114,13115,13116,13117, 23705, 23706,
23707, 23708, 24846, 24847, 24848 and 24849 as well as those appearing as
encumbrances at the back of the certificates of title mentioned be declared as a nullity and
defendants to pay damages and attorney's fees (pp. 71071 1, Record).
In their amended answer, the defendants controverted the complaint and alleged, by way of
affirmative and special defenses that the complaint did not state facts sufficient to state a
cause of action against defendants; that plaintiffs are not entitled to the reliefs demanded;
that plaintiffs are estopped or precluded from asserting the matters set forth in the
Complaint; that plaintiffs are guilty of laches in not asserting their alleged right in due time;
that defendant PM Parts is an innocent purchaser for value and relied on the face of the title
before it bought the subject property (p. 744, Record). 3
After trial, the court a quo rendered judgment, with the following decretal portion:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, declaring the following documents:
Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage dated
October 24,1970 (Exhibit 1);
Sales Agreement dated December 28, 1970 (Exhibit J)
Chattel Mortgage dated November 25, 1970 (Exhibit K)
Sales Agreement dated January 23, 1971 (Exhibit 16);
Chattel Mortgage dated January 23, 1971 (Exhibit 17);
Certificate of Sale dated September 28, 1973 executed by the Provincial
Sheriff of Quezon in favor of Insurance Corporation of the Philippines
(Exhibit L);
null and void for being fictitious, spurious and without consideration. Consequently, Transfer
Certificates of Title Nos. T 23705, T-23706, T23707 and T-23708 (Exhibits M, N, O and P)
issued in the name of Insurance Corporation of the Philippines, are likewise null and void.
The sale by Insurance Corporation of the- Philippines in favor of defendant Philippine
Machinery Parts Manufacturing Co., Inc., over Id four (4) parcels of land and Transfer
Certificates of Title Nos. T 24846, T-24847, T-24848 and T-24849 subsequently issued by
virtue of said sale in the name of Philippine Machinery Parts Manufacturing Co., Inc., are
similarly declared null and void, and the Register of Deeds of Lucena City is hereby directed

to issue, in lieu thereof, transfer certificates of title in the names of the plaintiffs, except
Santiago Rivera.
Orders the defendants jointly and severally to pay the plaintiffs moral damages in the sum
of P10,000.00, exemplary damages in the amount of P5,000.00, and actual litigation
expenses in the sum of P6,500.00.
Defendants are likewise ordered to pay the plaintiffs, jointly and severally, the sum of
P10,000.00 for and as attomey's fees. With costs against the defendants.
SO ORDERED.

As earlier stated, respondent court reversed the aforequoted decision of the trial court and rendered the
judgment subject of this petitionPetitioners contend that respondent Court of Appeals erred:
1. In holding and finding that the actions entered into between petitioner Rivera with
Cervantes are all fair and regular and therefore binding between the parties thereto;
2. In reversing the decision of the lower court, not only based on erroneous conclusions of
facts, erroneous presumptions not supported by the evidence on record but also, holding
valid and binding the supposed payment by ICP of its obligation to Bormaheco, despite the
fact that the surety bond issued it had already expired when it opted to foreclose
extrajudically the mortgage executed by the petitioners;
3. In aside the finding of the lower court that there was necessity to pierce the veil of
corporate existence; and
4. In reversing the decision of the lower court of affirming the same

I. Petitioners aver that the transactions entered into between Santiago M. Rivera, as President of Slobec
Realty and Development Company (Slobec) and Mode Cervantes, as Vice-President of Bormaheco, such as
the Sales Agreement, 6 Chattel Mortgage 7 and the Agreement of Counter-Guaranty with Chattel/Real Estate
Mortgage, 8 are all fraudulent and simulated and should, therefore, be declared nun and void. Such
allegation is premised primarily on the fact that contrary to the stipulations agreed upon in the Sales
Agreement (Exhibit J), Rivera never made any advance payment, in the alleged amount of P50,000.00, to
Bormaheco; that the tractor was received by Rivera only on January 23, 1971 and not in 1970 as stated in
the Chattel Mortgage (Exhibit K); and that when the Agreement of Counter-Guaranty with Chattel/Real
Estate Mortgage was executed on October 24, 1970, to secure the obligation of ICP under its surety bond,
the Sales Agreement and Chattel Mortgage had not as yet been executed, aside from the fact that it was
Bormaheco, and not Rivera, which paid the premium for the surety bond issued by ICP
At the outset, it will be noted that petitioners submission under the first assigned error hinges purely on
questions of fact. Respondent Court of Appeals made several findings to the effect that the questioned
documents are valid and binding upon the parties, that there was no fraud employed by private respondents
in the execution thereof, and that, contrary to petitioners' allegation, the evidence on record reveals that
petitioners had every intention to be bound by their undertakings in the various transactions had with
private respondents. It is a general rule in this jurisdiction that findings of fact of said appellate court are
final and conclusive and, thus, binding on this Court in the absence of sufficient and convincing proof, inter
alia, that the former acted with grave abuse of discretion. Under the circumstances, we find no compelling
reason to deviate from this long-standing jurisprudential pronouncement.
In addition, the alleged failure of Rivera to pay the consideration agreed upon in the Sales Agreement, which
clearly constitutes a breach of the contract, cannot be availed of by the guilty party to justify and support an

action for the declaration of nullity of the contract. Equity and fair play dictates that one who commits a
breach of his contract may not seek refuge under the protective mantle of the law.
The evidence of record, on an overall calibration, does not convince us of the validity of petitioners'
contention that the contracts entered into by the parties are either absolutely simulated or downright
fraudulent.
There is absolute simulation, which renders the contract null and void, when the parties do not intend to be
bound at all by the same. 9 The basic characteristic of this type of simulation of contract is the fact that the
apparent contract is not really desired or intended to either produce legal effects or in any way alter the
juridical situation of the parties. The subsequent act of Rivera in receiving and making use of the tractor
subject matter of the Sales Agreement and Chattel Mortgage, and the simultaneous issuance of a surety
bond in favor of Bormaheco, concomitant with the execution of the Agreement of Counter-Guaranty with
Chattel/Real Estate Mortgage, conduce to the conclusion that petitioners had every intention to be bound by
these contracts. The occurrence of these series of transactions between petitioners and private respondents
is a strong indication that the parties actually intended, or at least expected, to exact fulfillment of their
respective obligations from one another.
Neither will an allegation of fraud prosper in this case where petitioners failed to show that they were
induced to enter into a contract through the insidious words and machinations of private respondents
without which the former would not have executed such contract. To set aside a document solemnly
executed and voluntarily delivered, the proof of fraud must be clear and convincing. 10 We are not persuaded
that such quantum of proof exists in the case at bar.
The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP does not per
se affect the validity of the bond. Petitioners themselves admit in their present petition that Rivera executed
a Deed of Sale with Right of Repurchase of his car in favor of Bormaheco and agreed that a part of the
proceeds thereof shall be used to pay the premium for the bond. 11 In effect, Bormaheco accepted the
payment of the premium as an agent of ICP The execution of the deed of sale with a right of repurchase in
favor of Bormaheco under such circumstances sufficiently establishes the fact that Rivera recognized
Bormaheco as an agent of ICP Such payment to the agent of ICP is, therefore, binding on Rivera. He is now
estopped from questioning the validity of the suretyship contract.
II. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal
fiction that a corporation is an entity with a juridical personality separate and distinct from its members or
stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of
persons. The members or stockholders of the corporation will be considered as the corporation, that is,
liability will attach directly to the officers and stockholders. 12 The doctrine applies when the corporate fiction
is used to defeat public convenience, justify wrong, protect fraud, or defend crime, 13 or when it is made as
a shield to confuse the legitimate issues 14 or where a corporation is the mere alter ego or business conduit
of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation. 15
In the case at bar, petitioners seek to pierce the V621 Of corporate entity of Bormaheco, ICP and PM Parts,
alleging that these corporations employed fraud in causing the foreclosure and subsequent sale of the real
properties belonging to petitioners While we do not discount the possibility of the existence of fraud in the
foreclosure proceeding, neither are we inclined to apply the doctrine invoked by petitioners in granting the
relief sought. It is our considered opinion that piercing the veil of corporate entity is not the proper remedy
in order that the foreclosure proceeding may be declared a nullity under the circumstances obtaining in the
legal case at bar.
In the first place, the legal corporate entity is disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or obligation. In the instant case, petitioners do not seek to
impose a claim against the individual members of the three corporations involved; on the contrary, it is
these corporations which desire to enforce an alleged right against petitioners. Assuming that petitioners
were indeed defrauded by private respondents in the foreclosure of the mortgaged properties, this fact alone

is not, under the circumstances, sufficient to justify the piercing of the corporate fiction, since petitioners do
not intend to hold the officers and/or members of respondent corporations personally liable therefor.
Petitioners are merely seeking the declaration of the nullity of the foreclosure sale, which relief may be
obtained without having to disregard the aforesaid corporate fiction attaching to respondent corporations.
Secondly, petitioners failed to establish by clear and convincing evidence that private respondents were
purposely formed and operated, and thereafter transacted with petitioners, with the sole intention of
defrauding the latter.
The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a
justification for disregarding their separate personalities, 16 absent sufficient showing that the corporate
entity was purposely used as a shield to defraud creditors and third persons of their rights.
III. The main issue for resolution is whether there was a valid foreclosure of the mortgaged properties by
ICP Petitioners argue that the foreclosure proceedings should be declared null and void for two reasons, viz.:
(1) no written notice was furnished by Bormaheco to ICP anent the failure of Slobec in paying its obligation
with the former, plus the fact that no receipt was presented to show the amount allegedly paid by ICP to
Bormaheco; and (b) at the time of the foreclosure of the mortgage, the liability of ICP under the surety bond
had already expired.
Respondent court, in finding for the validity of the foreclosure sale, declared:
Now to the question of whether or not the foreclosure by the ICP of the real estate
mortgage was in the exercise of a legal right, We agree with the appellants that the
foreclosure proceedings instituted by the ICP was in the exercise of a legal right. First, ICP
has in its favor the legal presumption that it had indemnified Bormaheco by reason of
Slobec's default in the payment of its obligation under the Sales Agreement, especially
because Bormaheco consented to ICPs foreclosure of the mortgage. This presumption is in
consonance with pars. R and Q Section 5, Rule 5, * New Rules of Court which provides that
it is disputably presumed that private transactions have been fair and regular. likewise, it is
disputably presumed that the ordinary course of business has been followed: Second, ICP
had the right to proceed at once to the foreclosure of the mortgage as mandated by the
provisions of Art. 2071 Civil Code for these further reasons: Slobec, the principal debtor,
was admittedly insolvent; Slobec's obligation becomes demandable by reason of the
expiration of the period of payment; and its authorization to foreclose the mortgage upon
Slobec's default, which resulted in the accrual of ICPS liability to Bormaheco. Third, the
Agreement of Counter-Guaranty with Real Estate Mortgage (Exh. 1) expressly grants to ICP
the right to foreclose the real estate mortgage in the event of 'non-payment or nonliquidation of the entire indebtedness or fraction thereof upon maturity as stipulated in the
contract'. This is a valid and binding stipulation in the absence of showing that it is contrary
to law, morals, good customs, public order or public policy. (Art. 1306, New Civil Code). 17
1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP which would have
entitled Bormaheco to demand payment from ICP under the suretyship contract.
Surety Bond No. B-1401 0 which was issued by ICP in favor of Bormaheco, wherein ICP and Slobec
undertook to guarantee the payment of the balance of P180,000.00 payable in eighteen (18) monthly
installments on one unit of Model CAT D-7 Caterpillar Crawler Tractor, pertinently provides in part as follows:
1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES, under this BOND will
expire Twelve (I 2) months from date hereof. Furthermore, it is hereby agreed and
understood that the INSURANCE CORPORATION OF THE PHILIPPINES will not be liable for
any claim not presented in writing to the Corporation within THIRTY (30) DAYS from the
expiration of this BOND, and that the obligee hereby waives his right to bring claim or file
any action against Surety and after the termination of one (1) year from the time his cause
of action accrues. 18

The surety bond was dated October 24, 1970. However, an annotation on the upper part thereof
states: "NOTE: EFFECTIVITY DATE OF THIS BOND SHALL BE ON JANUARY 22, 1971." 19
On the other hand, the Sales Agreement dated January 23, 1971 provides that the balance of P180,000.00
shall be payable in eighteen (18) monthly installments. 20 The Promissory Note executed by Slobec on even
date in favor of Bormaheco further provides that the obligation shall be payable on or before February 23,
1971 up to July 23, 1972, and that non-payment of any of the installments when due shall make the entire
obligation immediately due and demandable. 21
It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the obligation
expressly assumed therein. We have repeatedly held that the extent of a surety's liability is determined only
by the clause of the contract of suretyship as well as the conditions stated in the bond. It cannot be
extended by implication beyond the terms the contract. 22
Fundamental likewise is the rule that, except where required by the provisions of the contract, a demand or
notice of default is not required to fix the surety's liability. 23 Hence, where the contract of suretyship
stipulates that notice of the principal's default be given to the surety, generally the failure to comply with the
condition will prevent recovery from the surety. There are certain instances, however, when failure to comply
with the condition will not extinguish the surety's liability, such as a failure to give notice of slight defaults,
which are waived by the obligee; or on mere suspicion of possible default; or where, if a default exists, there
is excuse or provision in the suretyship contract exempting the surety for liability therefor, or where the
surety already has knowledge or is chargeable with knowledge of the default. 24
In the case at bar, the suretyship contract expressly provides that ICP shag not be liable for any claim not
filed in writing within thirty (30) days from the expiration of the bond. In its decision dated May 25 1987,
the court a quocategorically stated that '(n)o evidence was presented to show that Bormaheco demanded
payment from ICP nor was there any action taken by Bormaheco on the bond posted by ICP to guarantee
the payment of plaintiffs obligation. There is nothing in the records of the proceedings to show that ICP
indemnified Bormaheco for the failure of the plaintiffs to pay their obligation. " 25 The failure, therefore, of
Bormaheco to notify ICP in writing about Slobec's supposed default released ICP from liability under its
surety bond. Consequently, ICP could not validly foreclose that real estate mortgage executed by petitioners
in its favor since it never incurred any liability under the surety bond. It cannot claim exemption from the
required written notice since its case does not fall under any of the exceptions hereinbefore enumerated.
Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any documentary
evidence. Section 1, Rule 131 of the Rules of Court provides that the burden of evidence lies with the party
who asserts an affirmative allegation. Since ICP failed to duly prove the fact of payment, the disputable
presumption that private transactions have been fair and regular, as erroneously relied upon by respondent
Court of Appeals, finds no application to the case at bar.
2. The liability of a surety is measured by the terms of his contract, and, while he is liable to the full extent
thereof, such liability is strictly limited to that assumed by its terms. 26 While ordinarily the termination of a
surety's liability is governed by the provisions of the contract of suretyship, where the obligation of a surety
is, under the terms of the bond, to terminate at a specified time, his obligation cannot be enlarged by an
unauthorized extension thereof. 27 This is an exception to the general rule that the obligation of the surety
continues for the same period as that of the principal debtor. 28
It is possible that the period of suretyship may be shorter than that of the principal obligation, as where the
principal debtor is required to make payment by installments. 29 In the case at bar, the surety bond issued
by ICP was to expire on January 22, 1972, twelve (1 2) months from its effectivity date, whereas Slobec's
installment payment was to end on July 23, 1972. Therefore, while ICP guaranteed the payment by Slobec
of the balance of P180,000.00, such guaranty was valid only for and within twelve (1 2) months from the
date of effectivity of the surety bond, or until January 22, 1972. Thereafter, from January 23, 1972 up to
July 23, 1972, the liability of Slobec became an unsecured obligation. The default of Slobec during this
period cannot be a valid basis for the exercise of the right to foreclose by ICP since its surety contract had
already been terminated. Besides, the liability of ICP was extinguished when Bormaheco failed to file a

written claim against it within thirty (30) days from the expiration of the surety bond. Consequently, the
foreclosure of the mortgage, after the expiration of the surety bond under which ICP as surety has not
incurred any liability, should be declared null and void.
3. Lastly, it has been held that where The guarantor holds property of the principal as collateral surety for
his personal indemnity, to which he may resort only after payment by himself, until he has paid something
as such guarantor neither he nor the creditor can resort to such collaterals. 30
The Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage states that it is being issued for and
in consideration of the obligations assumed by the Mortgagee-Surety Company under the terms and
conditions of ICP Bond No. 14010 in behalf of Slobec Realty Development Corporation and in favor of
Bormaheco, Inc. 31 There is no doubt that said Agreement of Counter-Guaranty is issued for the personal
indemnity of ICP Considering that the fact of payment by ICP has never been established, it follows,
pursuant to the doctrine above adverted to, that ICP cannot foreclose on the subject properties,
IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it acquired a valid title
over the subject properties. The submission is without merit and the conclusion is specious
We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in this case.
However, its inapplicability has no bearing on the good faith or bad faith of private respondent PM Parts. It
must be noted that Modesto N. Cervantes served as Vice-President of Bormaheco and, later, as President of
PM Parts. On this fact alone, it cannot be said that PM Parts had no knowledge of the aforesaid several
transactions executed between Bormaheco and petitioners. In addition, Atty. Martin de Guzman, who is the
Executive Vice-President of Bormaheco, was also the legal counsel of ICP and PM Parts. These facts were
admitted without qualification in the stipulation of facts submitted by the parties before the trial court.
Hence, the defense of good faith may not be resorted to by private respondent PM Parts which is charged
with knowledge of the true relations existing between Bormaheco, ICP and herein petitioners. Accordingly,
the transfer certificates of title issued in its name, as well as the certificate of sale, must be declared null
and void since they cannot be considered altogether free of the taint of bad faith.
WHEREFORE, the decision of respondent Court of Appeals is hereby REVERSED and SET ASIDE, and
judgment is hereby rendered declaring the following as null and void: (1) Certificate of Sale, dated
September 28,1973, executed by the Provincial Sheriff of Quezon in favor of the Insurance Corporation of
the Philippines; (2) Transfer Certificates of Title Nos. T-23705, T-23706, T-23707 and T-23708 issued in the
name of the Insurance Corporation of the Philippines; (3) the sale by Insurance Corporation of the
Philippines in favor of Philippine Machinery Parts Manufacturing Co., Inc. of the four (4) parcels of land
covered by the aforesaid certificates of title; and (4) Transfer Certificates of Title Nos. T-24846, T-24847, T24848 and T24849 subsequently issued by virtue of said sale in the name of the latter corporation.
The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title Nos. T-24846,
T-24847, T24848 and T-24849 in the name of Philippine Machinery Parts Manufacturing Co., Inc. and to
issue in lieu thereof the corresponding transfer certificates of title in the name of herein petitioners, except
Santiago Rivera.
The foregoing dispositions are without prejudice to such other and proper legal remedies as may be
available to respondent Bormaheco, Inc. against herein petitioners.
SO ORDERED.

6.) INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO, petitioner, vs.


VOLUNTARY ARBITRATOR TEODORICO P. CALICA and INDOPHIL TEXTILE MILLS,
INC., respondents.
G.R. No. 96490 February 3, 1992
MEDIALDEA, J.:
This is a petition for certiorari seeking the nullification of the award issued by the respondent Voluntary
Arbitrator Teodorico P. Calica dated December 8, 1990 finding that Section 1 (c), Article I of the Collective
Bargaining Agreement between Indophil Textile Mills, Inc. and Indophil Textile Mill Workers Union-PTGWO
does not extend to the employees of Indophil Acrylic Manufacturing Corporation as an extension or
expansion of Indophil Textile Mills, Incorporated.
The antecedent facts are as follows:
Petitioner Indophil Textile Mill Workers Union-PTGWO is a legitimate labor organization duly registered with
the Department of Labor and Employment and the exclusive bargaining agent of all the rank-and-file
employees of Indophil Textile Mills, Incorporated. Respondent Teodorico P. Calica is impleaded in his official
capacity as the Voluntary Arbitrator of the National Conciliation and Mediation Board of the Department of
Labor and Employment, while private respondent Indophil Textile Mills, Inc. is a corporation engaged in the
manufacture, sale and export of yarns of various counts and kinds and of materials of kindred character and
has its plants at Barrio Lambakin. Marilao, Bulacan.
In April, 1987, petitioner Indophil Textile Mill Workers Union-PTGWO and private respondent Indophil Textile
Mills, Inc. executed a collective bargaining agreement effective from April 1, 1987 to March 31, 1990.
On November 3, 1967 Indophil Acrylic Manufacturing Corporation was formed and registered with the
Securities and Exchange Commission. Subsequently, Acrylic applied for registration with the Board of
Investments for incentives under the 1987 Omnibus Investments Code. The application was approved on a
preferred non-pioneer status.
In 1988, Acrylic became operational and hired workers according to its own criteria and standards.
Sometime in July, 1989, the workers of Acrylic unionized and a duly certified collective bargaining agreement
was executed.
In 1990 or a year after the workers of Acrylic have been unionized and a CBA executed, the petitioner union
claimed that the plant facilities built and set up by Acrylic should be considered as an extension or expansion
of the facilities of private respondent Company pursuant to Section 1(c), Article I of the CBA, to wit,.
c) This Agreement shall apply to the Company's plant facilities and
installations and to any extension and expansion thereat. (Rollo, p.4)
In other words, it is the petitioner's contention that Acrylic is part of the Indophil bargaining unit.
The petitioner's contention was opposed by private respondent which submits that it is a juridical entity
separate and distinct from Acrylic.

The existing impasse led the petitioner and private respondent to enter into a submission agreement on
September 6, 1990. The parties jointly requested the public respondent to act as voluntary arbitrator in the
resolution of the pending labor dispute pertaining to the proper interpretation of the CBA provision.
After the parties submitted their respective position papers and replies, the public respondent Voluntary
Arbitrator rendered its award on December 8, 1990, the dispositive portion of which provides as follows:
PREMISES CONSIDERED, it would be a strained interpretation and application of the
questioned CBA provision if we would extend to the employees of Acrylic the coverage
clause of Indophil Textile Mills CBA. Wherefore, an award is made to the effect that the
proper interpretation and application of Sec. l, (c), Art. I, of the 1987 CBA do (sic) not
extend to the employees of Acrylic as an extension or expansion of Indophil Textile Mills,
Inc. (Rollo, p.21)
Hence, this petition raising four (4) issues, to wit:
1. WHETHER OR NOT THE RESPONDENT ARBITRATOR ERRED IN
INTERPRETING SECTION 1(c), ART I OF THE CBA BETWEEN PETITIONER
UNION AND RESPONDENT COMPANY.
2. WHETHER OR NOT INDOPHIL ACRYLIC IS A SEPARATE AND DISTINCT
ENTITY FROM RESPONDENT COMPANY FOR PURPOSES OF UNION
REPRESENTATION.
3. WHETHER OR NOT THE RESPONDENT ARBITRATOR GRAVELY ABUSED
HIS DISCRETION AMOUNTING TO LACK OR IN EXCESS OF HIS
JURISDICTION.
4. WHETHER OR NOT THE RESPONDENT ARBITRATOR VIOLATED
PETITIONER UNION'S CARDINAL PRIMARY RIGHT TO DUE PROCESS.
(Rollo, pp. 6-7)
The central issue submitted for arbitration is whether or not the operations in Indophil Acrylic Corporation
are an extension or expansion of private respondent Company. Corollary to the aforementioned issue is the
question of whether or not the rank-and-file employees working at Indophil Acrylic should be recognized as
part of, and/or within the scope of the bargaining unit.
Petitioner maintains that public respondent Arbitrator gravely erred in interpreting Section l(c), Article I of
the CBA in its literal meaning without taking cognizance of the facts adduced that the creation of the
aforesaid Indophil Acrylic is but a devise of respondent Company to evade the application of the CBA
between petitioner Union and respondent Company.
Petitioner stresses that the articles of incorporation of the two corporations establish that the two entities
are engaged in the same kind of business, which is the manufacture and sale of yarns of various counts and
kinds and of other materials of kindred character or nature.
Contrary to petitioner's assertion, the public respondent through the Solicitor General argues that the
Indophil Acrylic Manufacturing Corporation is not an alter ego or an adjunct or business conduit of private
respondent because it has a separate legitimate business purpose. In addition, the Solicitor General alleges
that the primary purpose of private respondent is to engage in the business of manufacturing yarns of
various counts and kinds and textiles. On the other hand, the primary purpose of Indophil Acrylic is to
manufacture, buy, sell at wholesale basis, barter, import, export and otherwise deal in yarns of various
counts and kinds. Hence, unlike private respondent, Indophil Acrylic cannot manufacture textiles while
private respondent cannot buy or import yarns.

Furthermore, petitioner emphasizes that the two corporations have practically the same incorporators,
directors and officers. In fact, of the total stock subscription of Indophil Acrylic, P1,749,970.00 which
represents seventy percent (70%) of the total subscription of P2,500,000.00 was subscribed to by
respondent Company.
On this point, private respondent cited the case of Diatagon Labor Federation v. Ople, G.R. No. L-44493-94,
December 3, 1980, 10l SCRA 534, which ruled that two corporations cannot be treated as a single
bargaining unit even if their businesses are related. It submits that the fact that there are as many
bargaining units as there are companies in a conglomeration of companies is a positive proof that a
corporation is endowed with a legal personality distinctly its own, independent and separate from other
corporations (see Rollo, pp. 160-161).
Petitioner notes that the foregoing evidence sufficiently establish that Acrylic is but an extension or
expansion of private respondent, to wit:
(a) the two corporations have their physical plants, offices and facilities
situated in the same compound, at Barrio Lambakin, Marilao, Bulacan;
(b) many of private respondent's own machineries, such as dyeing
machines, reeling, boiler, Kamitsus among others, were transferred to and
are now installed and being used in the Acrylic plant;
(c) the services of a number of units, departments or sections of private
respondent are provided to Acrylic; and
(d) the employees of private respondent are the same persons manning
and servicing the units of Acrylic. (see Rollo, pp. 12-13)
Private respondent insists that the existence of a bonafide business relationship between Acrylic and private
respondent is not a proof of being a single corporate entity because the services which are supposedly
provided by it to Acrylic are auxiliary services or activities which are not really essential in the actual
production of Acrylic. It also pointed out that the essential services are discharged exclusively by Acrylic
personnel under the control and supervision of Acrylic managers and supervisors.
In sum, petitioner insists that the public respondent committed grave abuse of discretion amounting to lack
or in excess of jurisdiction in erroneously interpreting the CBA provision and in failing to disregard the
corporate entity of Acrylic.
We find the petition devoid of merit.
Time and again, We stress that the decisions of voluntary arbitrators are to be given the highest respect and
a certain measure of finality, but this is not a hard and fast rule, it does not preclude judicial review thereof
where want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial justice,
or erroneous interpretation of the law were brought to our attention. (see Ocampo, et al. v. National Labor
Relations Commission, G.R. No. 81677, 25 July 1990, First Division Minute Resolution citing Oceanic Bic
Division (FFW) v. Romero, G.R. No. L-43890, July 16, 1984, 130 SCRA 392)
It should be emphasized that in rendering the subject arbitral award, the voluntary arbitrator Teodorico
Calica, a professor of the U.P. Asian Labor Education Center, now the Institute for Industrial Relations, found
that the existing law and jurisprudence on the matter, supported the private respondent's contentions.
Contrary to petitioner's assertion, public respondent cited facts and the law upon which he based the award.
Hence, public respondent did not abuse his discretion.
Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal
fiction that a corporation is an entity with a juridical personality separate and distinct from its members or

stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of
persons. The members or stockholders of the corporation will be considered as the corporation, that is
liability will attach directly to the officers and stockholders. The doctrine applies when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a
shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so conducted as to make
it merely an instrumentality, agency, conduit or adjunct of another corporation. (Umali et al. v. Court of
Appeals, G.R. No. 89561, September 13, 1990, 189 SCRA 529, 542)
In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation
of the corporation is a devise to evade the application of the CBA between petitioner Union and private
respondent Company. While we do not discount the possibility of the similarities of the businesses of private
respondent and Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting the
relief sought. The fact that the businesses of private respondent and Acrylic are related, that some of the
employees of the private respondent are the same persons manning and providing for auxilliary services to
the units of Acrylic, and that the physical plants, offices and facilities are situated in the same compound, it
is our considered opinion that these facts are not sufficient to justify the piercing of the corporate veil of
Acrylic.
In the same case of Umali, et al. v. Court of Appeals (supra), We already emphasized that "the legal
corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable for a
corporate debt or obligation." In the instant case, petitioner does not seek to impose a claim against the
members of the Acrylic.
Furthermore, We already ruled in the case of Diatagon Labor Federation Local 110 of the ULGWP
v. Ople (supra) that it is grave abuse of discretion to treat two companies as a single bargaining unit when
these companies are indubitably distinct entities with separate juridical personalities.
Hence, the Acrylic not being an extension or expansion of private respondent, the rank-and-file employees
working at Acrylic should not be recognized as part of, and/or within the scope of the petitioner, as the
bargaining representative of private respondent.
All premises considered, the Court is convinced that the public respondent Voluntary Arbitrator did not
commit grave abuse of discretion in its interpretation of Section l(c), Article I of the CBA that the Acrylic is
not an extension or expansion of private respondent.
ACCORDINGLY, the petition is DENIED and the award of the respondent Voluntary Arbitrator are hereby
AFFIRMED.
SO ORDERED.

7.) EPG CONSTRUCTION COMPANY, INC., and EMMANUEL P. DE GUZMAN, petitioner, vs.
HONARABLE COURT OF APPEALS (17th Division), ( Republic of the Philippines), UNIVERSITY OF
THE PHILIPPINES, respondents.
G.R. No. 103372 June 22, 1992
CRUZ, J.:
Petitioner EPG Construction Co., Inc. and the University of the Philippines, herein private respondent,
entered into a contract for the construction of the UP Law Library Building for the stipulated price of
P7,545,000.00. The agreement included the following provision:

ARTICLE XI
GUARANTEE
CONTRACTOR guarantees that the work completed under the contract and any change
order, thereto, shall be in accordance with the plans and specification prepared by
ARCHITECT, and shall conform to the specific requirements, performances, and capacities
required by the contract, and shall be free from imperfect workmanship or materials.
CONTRACTOR shall repair at his own cost and expenses for a period of one (1) year from
date of substantial completion and acceptance of the work by the OWNER, all the work
covered under the contract and change orders that may prove defective except
maintenance works. The CONTRACTOR shall be liable in accordance with Art. 1723 of the
Civil Code in case, within 15 years from completion of the project, the building collapses on
account of defects in the construction or the use of materials of inferior quality furnished by
him or due to any violation of the terms of contract.
Upon its completion, the building was formally turned over by EPG to the private respondent. UP issued a
certification of acceptance dated January 13, 1983, reading as follows:
This is to certify that the General Construction Work of the College of Law Library Annex
Building, University of the Philippines, Diliman, Quezon City, has been satisfactorily
completed as per plans and specifications as of January 11, 1983 without any defects
whatsoever and therefore accepted.
Release of the 10% retention is hereby recommended in favor of EPG Construction, Inc.
Sometime in July, 1983, the private respondent complained to the petitioner that 6 air-conditioning units on
the third floor of the building were not cooling properly. After inspection of the equipment, EPG agreed to
shoulder the expenses for their repair, including labor and materials, in the amount of P38.000.00.
For whatever reason, the repair was never undertaken. UP repeated its complaints to EPG, which again sent
its representatives to assess the defects. Finally, it made UP a written offer to repair the system for
P194,000.00.
UP insisted that EPG was obligated to repair the defects at its own expense under the guarantee provision in
their contract. EPG demurred. UP then contracted with another company, which repaired the defects for
P190,000.00.
The private respondent subsequently demanded from EPG reimbursement of the said amount plus an equal
sum as liquidated damages. When the demand was rejected, UP sued EPG and its president, Emmanuel P.
de Guzman, in the Regional Trial Court of Quezon City. De Guzman moved to dismiss the complaint as to
him for lack of a cause of action, but the motion was denied.
After trial, judgment was rendered by Judge Antonio P. Solano requiring both defendants jointly and
severally to pay the plaintiff P190,000.00 as actual damages, P50,000.00 as liquidated damages,
P10,000.00 as attorney's fees, and costs.
The petitioners appealed to the Court of Appeals, which sustained the trial court. 1 They then came to this
Court to fault the respondent court for not holding that: 1) UP was estopped by its certificate of acceptance
from imputing liability to EPG for the defects; 2) the defects were due to force majeure or fortuitous event;
and 3) Emmanuel de Guzman has a separate personality from that of EPG Construction Co., Inc.
The petitioners argue that by issuing the certificate of acceptance, UP waived the guarantee provision and is
now estopped from invoking it. The argument is absurd. All UP certified to was that the building was in good
condition at the time it was turned over to it on January 13, 1983. It did not thereby relieve the petitioners

of liability for any defect that might arise or be discovered later during the one-year period of the guarantee.
Any other interpretation would make the guarantee provision useless to begin with as it would have
automatically become functus officio with the turn-over of the construction.
The petitioners bolster their argument by quoting Article 1719 of the Civil Code thus, "Acceptance of the
work by the employer relieves the contractor of liability . . . " and stopping there. The Article reads in full as
follows:
Art. 1719. Acceptance of the work by the employer relieves the contractor of liability for
any defect in the work, unless:
(1) The defect is hidden and the employer is not, by his special knowledge, expected to
recognize the same; or
(2) The employer expressly reserves his rights against the contractor by reason of the
defect.
The exceptions were omitted by the petitioners for obvious reasons. The defects complained against were
hidden and the employer was not expected to recognize them at the time the work was accepted. Moreover,
there was an express reservation by UP of its right to hold the contractor liable for the defects during a
period of one year.
The petitioners' contention that the defects were caused by force majeure or fortuitous event as a result of
the frequent brown-outs in Metro Manila is not meritorious. The Court is not prepared to accept that the
recurrent power cut-offs can be classified as force majeure or a fortuitous event, We agree that the real
cause of the problem, according to the petitioners' own subcontractor, was poor workmanship, as discovered
upon inspection of the cooling system, Among the detects noted were improper interlocking of the entire
electrical system in all the six units; wrong specification of the time delay relay, also in all the six units;
incorrect wiring connections on the oil pressure switches; improper setting of the Hi and Lo pressure
switches; and many missing parts like bolts and screws of panels, and the compressor terminal insulation,
and the terminal screws of a circuit breaker. 2
Curiously, it has not been shown that the cooling system in buildings within the same area have been
similarly damaged by the power cut-offs. The brown-outs have become an intolerable annoyance, but they
cannot excuse all contractual irregularities, including the petitioners' shortcomings.
The petitioners also claim that the breakdown of the cooling system was caused by the failure of UP to do
maintenance work thereon. We do not see how mere maintenance work could have corrected the abovementioned defects. At any rate, whether the repairs in the air-conditioning system can be considered mere
maintenance work is a factual issue. The resolution thereof by the lower courts is binding upon this Court in
the absence of a clear showing that it comes under the accepted exceptions to the rule. There is no such
showing here.
The final point of the petition is that Emmanuel P. de Guzman has a separate legal personality from EPG
Construction Co., Inc. and should not be held solidarity liable with it. He stresses that the acts of the
company are its own responsibility and there is no reason why any liability arising from such acts should be
ascribed to him. Thus:
It is a doctrine well-established and obtains both at law and in equity that a corporation is a
distinct legal entity to be considered as separate and apart from the individual stockholders
or members who compose it, and is not affected by the personal rights, obligations and
transactions of its stockholders or members. 3
The trial court did not explain why Emmanuel de Guzman was held solidarity liable with EPG Construction
Co., Inc., and neither did the respondent court when it affirmed the appealed decision, In its Comment on

the present petition, UP also did not refute the petitioners' argument and simply passed upon it sub
silentio although the matter was squarely raised and discussed in the petition.
Notably, when Emmanuel de Guzman moved to dismiss the complaint as to him, UP said in its opposition to
the motion that it was suing him "in his official capacity and not in his personal capacity." His inclusion as
President of the company was therefore superfluous, as De Guzman correctly contended, because his acts as
such were corporate acts imputable to EPG itself as his principal. It is settled that;
A corporation is invested by law with a personality separate and distinct from those of the
persons composing it as well as from that of any other entity to which it may be related.
Mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate
corporate personality. The general manager of a corporation therefore should not be made
personally answerable for the payment of the employee's backwages unless he had acted
maliciously or in bad faith in terminating the services of the employee. 4
The exception noted is where the official "had acted maliciously or in bad faith," in which event he may be
made personally liable for his own act. That exception is not applicable in the case at bar, because it has not
been proved that De Guzman acted maliciously or in bad faith when, as President of EPG, he sought to
protect its interests and resisted UP's claims. Whatever damage was caused to UP as a result of his acts is
the sole responsibility of EPG even though De Guzman was its principal officer and controlling stockholder.
In sum, we hold that the lower court did not err in holding EPG liable for the repair of the air-conditioning
system at its expense pursuant to the guarantee provision in the construction contract with UP. However,
Emmanuel de Guzman is not solidarily liable with it, having acted on its behalf within the scope of his
authority and without any demonstrated malice or bad faith.
WHEREFORE, the appealed decision is AFFIRMED but with the modification that EPG Construction Co., Inc.
shall be solely liable for the damages awarded in favor of the University of the Philippines. It is so ordered.

8.) REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners, vs.


HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC., respondents.
G.R. No. 100866 July 14, 1992
GUTIERREZ, JR., J.:
This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R. No. 14530
affirming the earlier decision of the Regional Trial Court of Laguna, Branch 37, at Calamba, in the
consolidated RTC Civil Case Nos. 802-84-C and 803-84-C entitled "Heirs of Eugenia V. Roxas, Inc. v. Rebecca
Boyer-Roxas" and Heirs of Eugenia V. Roxas, Inc. v. Guillermo Roxas," the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and
against the defendants, by ordering as it is hereby ordered that:
1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all persons claiming under
her to:
a) Immediately vacate the residential house near the Balugbugan pool located inside the
premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her
occupancy of the residential house until the same is vacated;
c) Remove the unfinished building erected on the land of the plaintiff within ninety (90)
days from receipt of this decision;
d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the
said unfinished building is removed from the land of the plaintiff; and
e) Pay the costs.
2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to:
a) Immediately vacate the residential house near the tennis court located within the
premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna;
b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for his
occupancy of the said residential house until the same is vacated; and
c) Pay the costs. (Rollo, p. 36)
In two (2) separate complaints for recovery of possession filed with the Regional Trial Court of Laguna
against petitioners Rebecca Boyer-Roxas and Guillermo Roxas respectively, respondent corporation, Heirs of
Eugenia V. Roxas, Inc., prayed for the ejectment of the petitioners from buildings inside the Hidden Valley
Springs Resort located at Limao, Calauan, Laguna allegedly owned by the respondent corporation.
In the case of petitioner Rebecca Boyer-Roxas (Civil Case No-802-84-C), the respondent corporation alleged
that Rebecca is in possession of two (2) houses, one of which is still under construction, built at the expense
of the respondent corporation; and that her occupancy on the two (2) houses was only upon the tolerance of
the respondent corporation.
In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent corporation alleged that
Guillermo occupies a house which was built at the expense of the former during the time when Guillermo's
father, Eriberto Roxas, was still living and was the general manager of the respondent corporation; that the
house was originally intended as a recreation hall but was converted for the residential use of Guillermo; and
that Guillermo's possession over the house and lot was only upon the tolerance of the respondent
corporation.
In both cases, the respondent corporation alleged that the petitioners never paid rentals for the use of the
buildings and the lots and that they ignored the demand letters for them to vacate the buildings.
In their separate answers, the petitioners traversed the allegations in the complaint by stating that they are
heirs of Eugenia V. Roxas and therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners of
the property, they have the right to stay within its premises.
The cases were consolidated and tried jointly.
At the pre-trial, the parties limited the issues as follows:
1) whether plaintiff is entitled to recover the questioned premises;
2) whether plaintiff is entitled to reasonable rental for occupancy of the premises in
question;

3) whether the defendant is legally authorized to pierce the veil of corporate fiction and
interpose the same as a defense in an accion publiciana;
4) whether the defendants are truly builders in good faith, entitled to occupy the
questioned premises;
5) whether plaintiff is entitled to damages and reasonable compensation for the use of the
questioned premises;
6) whether the defendants are entitled to their counterclaim to recover moral and
exemplary damages as well as attorney's fees in the two cases;
7) whether the presence and occupancy by the defendants on the premises in questioned
(sic) hampers, deters or impairs plaintiff's operation of Hidden Valley Springs Resort; and
8) whether or not a unilateral and sudden withdrawal of plaintiffs tolerance allowing
defendants' occupancy of the premises in questioned (sic) is unjust enrichment. (Original
Records, 486)
Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma. Guerrero of Branch 34
issued an Order dated April 25, 1986 inhibiting himself from further trying the case. The cases were reraffled to Branch 37 presided by Judge Odilon Bautista. Judge Bautista continued the hearing of the cases.
For failure of the petitioners (defendants below) and their counsel to attend the October 22, 1986 hearing
despite notice, and upon motion of the respondent corporation, the court issued on the same day, October
22, 1986, an Order considering the cases submitted for decision. At this stage of the proceedings, the
petitioners had not yet presented their evidence while the respondent corporation had completed the
presentation of its evidence.
The evidence of the respondent corporation upon which the lower court based its decision is as follows:
To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and
that of Victoria Roxas Villarta as well as Exhibits "A" to "M-3".
The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V
Roxas, Incorporated, was incorporated on December 4, 1962 (Exh. "C") with the primary
purpose of engaging in agriculture to develop the properties inherited from Eugenia V.
Roxas and that of y Eufrocino Roxas; that the Articles of Incorporation of the plaintiff, in
1971, was amended to allow it to engage in the resort business (Exh.
"C-1"); that the incorporators as original members of the board of directors of the plaintiff
were all members of the same family, with Eufrocino Roxas having the biggest share; that
accordingly, the plaintiff put up a resort known as Hidden Valley Springs Resort on a portion
of its land located at Bo. Limao, Calauan, Laguna, and covered by TCT No. 32639 (Exhs. "A"
and "A-l"); that improvements were introduced in the resort by the plaintiff and among
them were cottages, houses or buildings, swimming pools, tennis court, restaurant and
open pavilions; that the house near the Balugbugan Pool (Exh. "B-l") being occupied by
Rebecca B. Roxas was originally intended as staff house but later used as the residence of
Eriberto Roxas, deceased husband of the defendant Rebecca Boyer-Roxas and father of
Guillermo Roxas; that this house presently being occupied by Rebecca B. Roxas was built
from corporate funds; that the construction of the unfinished house (Exh. "B-2") was
started by the defendant Rebecca Boyer-Roxas and her husband Eriberto Roxas; that the
third building (Exh. "B-3") presently being occupied by Guillermo Roxas was originally
intended as a recreation hall but later converted as a residential house; that this house was
built also from corporate funds; that the said house occupied by Guillermo Roxas when it
was being built had nipa roofing but was later changed to galvanized iron sheets; that at
the beginning, it had no partition downstairs and the second floor was an open space; that

the conversion from a recreation hall to a residential house was with the knowledge of
Eufrocino Roxas and was not objected to by any of the Board of Directors of the plaintiff;
that most of the materials used in converting the building into a residential house came
from the materials left by Coppola, a film producer, who filmed the movie "Apocalypse
Now"; that Coppola left the materials as part of his payment for rents of the rooms that he
occupied in the resort; that after the said recreation hall was converted into a residential
house, defendant Guillermo Roxas moved in and occupied the same together with his family
sometime in 1977 or 1978; that during the time Eufrocino Roxas was still alive, Eriberto
Roxas was the general manager of the corporation and there was seldom any board
meeting; that Eufrocino Roxas together with Eriberto Roxas were (sic) the ones who were
running the corporation; that during this time, Eriberto Roxas was the restaurant and wine
concessionaire of the resort; that after the death of Eufrocino Roxas, Eriberto Roxas
continued as the general manager until his death in 1980; that after the death of Eriberto
Roxas in 1980, the defendants Rebecca B. Roxas and Guillermo Roxas, committed acts that
impeded the plaintiff's expansion and normal operation of the resort; that the plaintiff could
not even use its own pavilions, kitchen and other facilities because of the acts of the
defendants which led to the filing of criminal cases in court; that cases were even filed
before the Ministry of Tourism, Bureau of Domestic Trade and the Office of the President by
the parties herein; that the defendants violated the resolution and orders of the Ministry of
Tourism dated July 28, 1983, August 3, 1983 and November 26, 1984 (Exhs. "G", "H" and
"H-l") which ordered them or the corporation they represent to desist from and to turn over
immediately to the plaintiff the management and operation of the restaurant and wine
outlets of the said resort (Exh. "G-l"); that the defendants also violated the decision of the
Bureau of Domestic Trade dated October 23, 1983 (Exh. "C"); that on August 27, 1983,
because of the acts of the defendants, the Board of Directors of the plaintiff adopted
Resolution No. 83-12 series of 1983 (Exh. "F") authorizing the ejectment of the defendants
from the premises occupied by them; that on September 1, 1983, demand letters were
sent to Rebecca Boyer-Roxas and Guillermo Roxas (Exhs. "D" and "D-1") demanding that
they vacate the respective premises they occupy; and that the dispute between the plaintiff
and the defendants was brought before the barangay level and the same was not settled
(Exhs. "E" and "E-l"). (Original Records, pp. 454-456)
The petitioners appealed the decision to the Court of Appeals. However, as stated earlier, the appellate court
affirmed the lower court's decision. The Petitioners' motion for reconsideration was likewise denied.
Hence, this petition.
In a resolution dated February 5, 1992, we gave due course to the petition.
The petitioners now contend:
I Respondent Court erred when it refused to pierce the veil of corporate fiction over private respondent and
maintain the petitioners in their possession and/or occupancy of the subject premises considering that
petitioners are owners of aliquot part of the properties of private respondent. Besides, private respondent
itself discarded the mantle of corporate fiction by acts and/or omissions of its board of directors and/or
stockholders.
II The respondent Court erred in not holding that petitioners were in fact denied due process or their day in
court brought about by the gross negligence of their former counsel.
III The respondent Court misapplied the law when it ordered petitioner Rebecca Boyer-Roxas to remove the
unfinished building in RTC Case No. 802-84-C, when the trial court opined that she spent her own funds for
the construction thereof. (CARollo, pp. 17-18)
Were the petitioners denied due process of law in the lower court?

After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of Branch 37 the following
events transpired:
On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July 21, 1986.
Petitioner Rebecca V. Roxas received a copy of the Order on July 15, 1986, while petitioner Guillermo Roxas
received his copy on July 18, 1986. Atty. Conrado Manicad, the petitioners' counsel received another copy of
the Order on July 11, 1986. (Original Records, p. 260)
On motion of the respondent corporation's counsel, the lower court issued an Order dated July 15, 1986
cancelling the July 21, 1986 hearing and resetting the hearing to August 11, 1986. (Original records, 262263) Three separate copies of the order were sent and received by the petitioners and their counsel.
(Original Records, pp. 268, 269, 271)
A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent corporation's
counsel was denied in an Order dated August 8, 1986. Again separate copies of the Order were sent and
received by the petitioners and their counsel. (Original Records, pp. 276-279)
At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for the respondent corporation
appeared. Neither the petitioners nor their counsel appeared despite notice of hearing. The lower court then
issued an Order on the same date, to wit:
ORDER
When these cases were called for continuation of trial, Atty. Benito P. Fabie appeared before
this Court, however, the defendants and their lawyer despite receipt of the Order setting the
case for hearing today failed to appear. On Motion of Atty. Fabie, further cross examination
of witness Victoria Vallarta is hereby considered as having been waived.
The plaintiff is hereby given twenty (20) days from today within which to submit formal
offer of evidence and defendants are also given ten (10) days from receipt of such formal
offer of evidence to file their objection thereto.
In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 o'clock in
the morning. (Original Records, p. 286)
Copies of the Order were sent and received by the petitioners and their counsel on the following dates
Rebecca Boyer-Roxas on August 20, 1986, Guillermo Roxas on August 26, 1986, and Atty. Conrado Manicad
on September 19, 1986. (Original Records, pp. 288-290)
On September 1, 1986, the respondent corporation filed its "Formal Offer of Evidence." In an Order dated
September 29, 1986, the lower court issued an Order admitting exhibits "A" to "M-3" submitted by the
respondent corporation in its "Formal Offer of Evidence . . . there being no objection . . ." (Original Records,
p. 418) Copies of this Order were sent and received by the petitioners and their counsel on the following
dates: Rebecca Boyer-Roxas on October 9, 1986; Guillermo Roxas on October 9, 1986 and Atty. Conrado
Manicad on October 4, 1986 (Original Records, pp. 420, 421, 428).
The scheduled hearing on September 29, 1986 did not push through as the petitioners and their counsel
were not present prompting Atty. Benito Fabie, the respondent corporation's counsel to move that the cases
be submitted for decision. The lower court denied the motion and set the cases for hearing on October 22,
1986. However, in its Order dated September 29, 1986, the court warned that in the event the petitioners
and their counsel failed to appear on the next scheduled hearing, the court shall consider the cases
submitted for decision based on the evidence on record. (Original Records, p. 429, 430 and 431)

Separate copies of this Order were sent and received by the petitioners and their counsel on the following
dates: Rebecca Boyer-Roxas on October 9, 1986, Guillermo Roxas on October 9, 1986; and Atty. Conrado
Manicad on October 1, 1986. (Original Records, pp. 429-430)
Despite notice, the petitioners and their counsel again failed to attend the scheduled October 22, 1986
hearing. Atty. Fabie representing the respondent corporation was present. Hence, in its Order dated October
22, 1986, on motion of Atty. Fabie and pursuant to the order dated September 29, 1986, the Court
considered the cases submitted for decision. (Original Records, p. 436)
On November 14, 1986, the respondent corporation, filed a "Manifestation", stating that ". . . it is submitting
without further argument its "Opposition to the Motion for Reconsideration" for the consideration of the
Honorable Court in resolving subject incident." (Original Records, p. 442)
On December 16, 1986, the lower court issued an Order, to wit:
ORDER
Considering that the Court up to this date has not received any Motion for Reconsideration
filed by the defendants in the above-entitled cases, the Court cannot act on the Opposition
to Motion for Reconsideration filed by the plaintiff and received by the Court on November
14, 1986. (Original Records, p. 446)
On January 15, 1987, the lower court rendered the questioned decision in the two (2) cases. (Original
Records, pp. 453-459)
On January 20, 1987, Atty. Conrado Manicad, the petitioners' counsel filed an Ex-Parte Manifestation and
attached thereto, a motion for reconsideration of the October 22, 1986 Order submitting the cases for
decision. He prayed that the Order be set aside and the cases be re-opened for reception of evidence for the
petitioners. He averred that: 1) within the reglementary period he prepared the motion for reconsideration
and among other documents, the draft was sent to his law office thru his messenger; after signing the final
copies, he caused the service of a copy to the respondent corporation's counsel with the instruction that the
copy of the Court be filed; however, there was a miscommunication between his secretary and messenger in
that the secretary mailed the copy for the respondent corporation's counsel and placed the rest in an
envelope for the messenger to file the same in court but the messenger thought that it was the secretary
who would file it; it was only later on when it was discovered that the copy for the Court has not yet been
filed and that such failure to file the motion for reconsideration was due to excusable neglect and/or
accident. The motion for reconsideration contained the following allegations: that on the date set for hearing
(October 22, 1986), he was on his way to Calamba to attend the hearing but his car suffered transmission
breakdown; and that despite efforts to repair said transmission, the car remained inoperative resulting in his
absence at the said hearing. (Original Records, pp. 460-469)
On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15, 1987 decision. He
explained that he had to file the motion because the receiving clerk refused to admit the motion for
reconsideration attached to the ex-partemanifestation because there was no proof of service to the other
party. Included in the motion for reconsideration was a notice of hearing of the motion on February 3, 1987.
(Original Records, p. 476-A)
On February 4, 1987, the respondent corporation through its counsel filed a Manifestation and Motion
manifesting that they received the copy of the motion for reconsideration only today (February 4, 1987),
hence they prayed for the postponement of the hearing. (Original Records, pp. 478-479)
On the same day, February 4, 1987, the lower court issued an Order setting the hearing on February 13,
1987 on the ground that it received the motion for reconsideration late. Copies of this Order were sent
separately to the petitioners and their counsel. The records show that Atty. Manicad received his copy on
February 11, 1987. As regards the petitioners, the records reveal that Rebecca Boyer-Roxas did not receive

her copy while as regards Guillermo Roxas, somebody signed for him but did not indicate when the copy was
received. (Original Records, pp. 481-483)
At the scheduled February 13, 1987 hearing, the counsels for the parties were present. However, the
hearing was reset for March 6, 1987 in order to allow the respondent corporation to file its opposition to the
motion for reconsideration. (Order dated February 13, 1987, Original Records, p. 486) Copies of the Order
were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on
February 23, 1987; Guillermo Roxas on February 23, 1987 and Atty. Manicad on February 19, 1987.
(Original Records, pp. 487, 489-490)
The records are not clear as to whether or not the scheduled hearing on March 6, 1987 was held.
Nevertheless, the records reveal that on March 13, 1987, the lower court issued an Order denying the
motion for reconsideration.
The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila v. Court of First
Instance of Batangas, Branch I, 160 SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500
[1956]; Isaac v. Mendoza, 89 Phil. 279 [1951]; Montes v. Court of First Instance of Tayabas, 48 Phil. 640
[1926]; People v. Manzanilla, 43 Phil. 167 [1922]; United States v. Dungca, 27 Phil. 274 [1914]; and United
States v. Umali, 15 Phil. 33 [1910]) This rule, however, has its exceptions. Thus, in several cases, we ruled
that the party is not bound by the actions of his counsel in case the gross negligence of the counsel resulted
in the client's deprivation of his property without due process of law. In the case of Legarda v. Court of
Appeals (195 SCRA 418 [1991]), we said:
In People's Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this
Court ruled as follows:
Procedural technicality should not be made a bar to the vindication of a
legitimate grievance. When such technicality deserts from being an aid to
Justice, the courts are justified in excepting from its operation a particular
case. Where there was something fishy and suspicious about the
actuations of the former counsel of petitioners in the case at bar, in that he
did not give any significance at all to the processes of the court, which has
proven prejudicial to the rights of said clients, under a lame and flimsy
explanation that the court's processes just escaped his attention, it is held
that said lawyer deprived his clients of their day in court, thus entitling said
clients to petition for relief from judgment despite the lapse of the
reglementary period for filing said period for filing said petition.
In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding that the counsel's
blunder in procedure is an exception to the rule that the client is bound by the mistakes of
counsel, made the following disquisition:
Petitioners contend, through their new counsel, that the judgment
rendered against them by the respondent court was null and void, because
they were therein deprived of their day in court and divested of their
property without due process of law, through the gross ignorance, mistake
and negligence of their previous counsel. They acknowledge that, while as
a rule, clients are bound by the mistake of their counsel, the rule should
not be applied automatically to their case, as their trial counsel's blunder in
procedure and gross ignorance of existing jurisprudence changed their
cause of action and violated their substantial rights.
We are impressed with petitioner's contentions.
xxx xxx xxx

While this Court is cognizant of the rule that, generally, a client will suffer
consequences of the negligence, mistake or lack of competence of his
counsel, in the interest of Justice and equity, exceptions may be made to
such rule, in accordance with the facts and circumstances of each case.
Adherence to the general rule would, in the instant case, result in the
outright deprivation of their property through a technicality.
In its questioned decision dated November 19, 1989 the Court of Appeals found, in no
uncertain terms, the negligence of the then counsel for petitioners when he failed to file the
proper motion to dismiss or to draw a compromise agreement if it was true that they
agreed on a settlement of the case; or in simply filing an answer; and that after having
been furnished a copy of the decision by the court he failed to appeal therefrom or to file a
petition for relief from the order declaring petitioners in default. In all these instances the
appellate court found said counsel negligent but his acts were held to bind his client,
petitioners herein, nevertheless.
The Court disagrees and finds that the negligence of counsel in this case appears to be so
gross and inexcusable. This was compounded by the fact, that after petitioner gave said
counsel another chance to make up for his omissions by asking him to file a petition for
annulment of the judgment in the appellate court, again counsel abandoned the case of
petitioner in that after he received a copy of the adverse judgment of the appellate court,
he did not do anything to save the situation or inform his client of the judgment. He allowed
the judgment to lapse and become final. Such reckless and gross negligence should not be
allowed to bind the petitioner. Petitioner was thereby effectively deprived of her day in
court. (at pp. 426-427)
The herein petitioners, however, are not similarly situated as the parties mentioned in the abovecited cases.
We cannot rule that they, too, were victims of the gross negligence of their counsel.
The petitioners are to be blamed for the October 22, 1986 order issued by the lower court submitting the
cases for decision. They received notices of the scheduled hearings and yet they did not do anything. More
specifically, the parties received notice of the Order dated September 29, 1986 with the warning that if they
fail to attend the October 22, 1986 hearing, the cases would be submitted for decision based on the
evidence on record. Earlier, at the scheduled hearing on September 29, 1986, the counsel for the
respondent corporation moved that the cases be submitted for decision for failure of the petitioners and
their counsel to attend despite notice. The lower court denied the motion and gave the petitioners and their
counsel another chance by rescheduling the October 22, 1986 hearing.
Indeed, the petitioners knew all along that their counsel was not attending the scheduled hearings. They did
not take steps to change their counsel or make him attend to their cases until it was too late. On the
contrary, they continued to retain the services of Atty. Manicad knowing fully well his lapses vis-a-vis their
cases. They, therefore, cannot raise the alleged gross negligence of their counsel resulting in their denial of
due process to warrant the reversal of the lower court's decision. In a similar case, Aguila v. Court of First
Instance of Batangas, Branch 1 (supra), we ruled:
In the instant case, the petitioner should have noticed the succession of errors committed
by his counsel and taken appropriate steps for his replacement before it was altogether too
late. He did not. On the contrary, he continued to retain his counsel through the series of
proceedings that all resulted in the rejection of his cause, obviously through such counsel's
"ineptitude" and, let it be added, the clients' forbearance. The petitioner's reverses should
have cautioned him that his lawyer was mishandling his case and moved him to seek the
help of other counsel, which he did in the end but rather tardily.
Now petitioner wants us to nullify all of the antecedent proceedings and recognize his
earlier claims to the disputed property on the justification that his counsel was grossly
inept. Such a reason is hardly plausible as the petitioner's new counsel should know.

Otherwise, all a defeated party would have to do to salvage his case is claim neglect or
mistake on the part of his counsel as a ground for reversing the adverse judgment. There
would be no end to litigation if these were allowed as every shortcoming of counsel could be
the subject of challenge by his client through another counsel who, if he is also found
wanting, would likewise be disowned by the same client through another counsel, and so
on ad infinitum. This would render court proceedings indefinite, tentative and subject to
reopening at any time by the mere subterfuge of replacing counsel. (at pp. 357-358)
We now discuss the merits of the cases.
In the first assignment of error, the petitioners maintain that their possession of the questioned properties
must be respected in view of their ownership of an aliquot portion of all the properties of the respondent
corporation being stockholders thereof. They propose that the veil of corporate fiction be pierced,
considering the circumstances under which the respondent corporation was formed.
Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the heirs of Eugenia V.
Roxas, among them the petitioners herein, decided to form a corporation Heirs of Eugenia V. Roxas,
Incorporated (private respondent herein) with the inherited properties as capital of the corporation. The
corporation was incorporated on December 4, 1962 with the primary purpose of engaging in agriculture to
develop the inherited properties. The Articles of Incorporation of the respondent corporation were amended
in 1971 to allow it to engage in the resort business. Accordingly, the corporation put up a resort known as
Hidden Valley Springs Resort where the questioned properties are located.
These facts, however, do not justify the position taken by the petitioners.
The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the
members composing it. (Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 [1990]; Tan
Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205 [1988]; Yutivo Sons Hardware Company v. Court of Tax
Appeals, 1 SCRA 160 [1961]; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290
[1965]) There is no dispute that title over the questioned land where the Hidden Valley Springs Resort is
located is registered in the name of the corporation. The records also show that the staff house being
occupied by petitioner Rebecca Boyer-Roxas and the recreation hall which was later on converted into a
residential house occupied by petitioner Guillermo Roxas are owned by the respondent corporation.
Regarding properties owned by a corporation, we stated in the case of Stockholders of F. Guanzon and
Sons, Inc. v. Register of Deeds of Manila, (6 SCRA 373 [1962]):
xxx xxx xxx
. . . Properties registered in the name of the corporation are owned by it as an entity
separate and distinct from its members. While shares of stock constitute personal property,
they do not represent property of the corporation. The corporation has property of its own
which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v.
Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part of the
corporation's property, or the right to share in its proceeds to that extent when distributed
according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235),
but its holder is not the owner of any part of the capital of the corporation (Bradley v.
Bauder, 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its
property or assets (Gottfried V. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The
stockholder is not a co-owner or tenant in common of the corporate property (Harton v.
Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-376)
The petitioners point out that their occupancy of the staff house which was later used as the residence of
Eriberto Roxas, husband of petitioner Rebecca Boyer-Roxas and the recreation hall which was converted into
a residential house were with the blessings of Eufrocino Roxas, the deceased husband of Eugenia V. Roxas,
who was the majority and controlling stockholder of the corporation. In his lifetime, Eufrocino Roxas
together with Eriberto Roxas, the husband of petitioner Rebecca Boyer-Roxas, and the father of petitioner

Guillermo Roxas managed the corporation. The Board of Directors did not object to such an arrangement.
The petitioners argue that . . . the authority thus given by Eufrocino Roxas for the conversion of the
recreation hall into a residential house can no longer be questioned by the stockholders of the private
respondent and/or its board of directors for they impliedly but no leas explicitly delegated such authority to
said Eufrocino Roxas. (Rollo, p. 12)
Again, we must emphasize that the respondent corporation has a distinct personality separate from its
members. The corporation transacts its business only through its officers or agents. (Western Agro Industrial
Corporation v. Court of Appeals,supra). Whatever authority these officers or agents may have is derived
from the board of directors or other governing body unless conferred by the charter of the corporation. An
officer's power as an agent of the corporation must be sought from the statute, charter, the by-laws or in a
delegation of authority to such officer, from the acts of the board of directors, formally expressed or implied
from a habit or custom of doing business. (Vicente v. Geraldez, 52 SCRA 210 [1973])
In the present case, the record shows that Eufrocino V. Roxas who then controlled the management of the
corporation, being the majority stockholder, consented to the petitioners' stay within the questioned
properties. Specifically, Eufrocino Roxas gave his consent to the conversion of the recreation hall to a
residential house, now occupied by petitioner Guillermo Roxas. The Board of Directors did not object to the
actions of Eufrocino Roxas. The petitioners were allowed to stay within the questioned properties until
August 27, 1983, when the Board of Directors approved a Resolution ejecting the petitioners, to wit:
R E S O L U T I O N No. 83-12
RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under
them, be ejected from their occupancy of the Hidden Valley Springs compound on which
their houses have been constructed and/or are being constructed only on tolerance of the
Corporation and without any contract therefor, in order to give way to the Corporation's
expansion and improvement program and obviate prejudice to the operation of the Hidden
Valley Springs Resort by their continued interference.
RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be
authorized as he is hereby authorized to effect the ejectment, including the filing of the
corresponding suits, if necessary to do so. (Original Records, p. 327)
We find nothing irregular in the adoption of the Resolution by the Board of Directors. The petitioners' stay
within the questioned properties was merely by tolerance of the respondent corporation in deference to the
wishes of Eufrocino Roxas, who during his lifetime, controlled and managed the corporation. Eufrocino
Roxas' actions could not have bound the corporation forever. The petitioners have not cited any provision of
the corporation by-laws or any resolution or act of the Board of Directors which authorized Eufrocino Roxas
to allow them to stay within the company premises forever. We rule that in the absence of any existing
contract between the petitioners and the respondent corporation, the corporation may elect to eject the
petitioners at any time it wishes for the benefit and interest of the respondent corporation.
The petitioners' suggestion that the veil of the corporate fiction should be pierced is untenable. The separate
personality of the corporation may be disregarded only when the corporation is used "as a cloak or cover for
fraud or illegality, or to work injustice, or where necessary to achieve equity or when necessary for the
protection of the creditors." (Sulong Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon Bee
& Co., Inc., v. Jarencio, supra and Western Agro Industrial Corporation v. Court of Appeals, supra) The
circumstances in the present cases do not fall under any of the enumerated categories.
In the third assignment of error, the petitioners insist that as regards the unfinished building, Rebecca
Boyer-Roxas is a builder in good faith.
The construction of the unfinished building started when Eriberto Roxas, husband of Rebecca Boyer-Roxas,
was still alive and was the general manager of the respondent corporation. The couple used their own funds
to finance the construction of the building. The Board of Directors of the corporation, however, did not object

to the construction. They allowed the construction to continue despite the fact that it was within the
property of the corporation. Under these circumstances, we agree with the petitioners that the provision of
Article 453 of the Civil Code should have been applied by the lower courts.
Article 453 of the Civil Code provides:
If there was bad faith, not only on the part of the person who built, planted or sown on the
land of another but also on the part of the owner of such land, the rights of one and the
other shall be the same as though both had acted in good faith.
In such a case, the provisions of Article 448 of the Civil Code govern the relationship between petitioner
Rebecca-Boyer-Roxas and the respondent corporation, to wit:
Art. 448 The owner of the land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the works, sowing or planting
after payment of the indemnity provided for in articles 546 and 548, or to oblige the one
who built or planted to pay the price of the land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the land if its value is considerably
more than that of the building or trees. In such case, he shall pay reasonable rent, if the
owner of the land does not choose to appropriate the buildings or trees after proper
indemnity. The parties shall agree upon the terms of the lease and in case of disagreement,
the court shall fix the terms thereof.
WHEREFORE, the present petition is partly GRANTED. The questioned decision of the Court of Appeals
affirming the decision of the Regional Trial Court of Laguna, Branch 37, in RTC Civil Case No. 802-84-C is
MODIFIED in that subparagraphs (c) and (d) of Paragraph 1 of the dispositive portion of the decision are
deleted. In their stead, the petitioner Rebecca Boyer-Roxas and the respondent corporation are ordered to
follow the provisions of Article 448 of the Civil Code as regards the questioned unfinished building in RTC
Civil Case No. 802-84-C. The questioned decision is affirmed in all other respects.
SO ORDERED.
Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.

9.) RAUL SESBREO, petitioner, vs.


HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, respondents.
G.R. No. 89252 May 24, 1993
FELICIANO, J.:
On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the
placement, with a term of thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on 9
February 1981, issued the following documents to petitioner:
(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta
Motors Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at
17.0% per annum;
(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN
No. 2731 to petitioner, with the notation that the said security was in custodianship of

Pilipinas Bank, as per Denominated Custodian Receipt ("DCR") No. 10805 dated 9 February
1981; and
(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's
investment), with petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and
America as drawee, in the total amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However, the
checks were dishonored for having been drawn against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private respondent
Pilipinas Bank ("Pilipinas"). It reads as follows:
PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila

February 9, 1981

VALUE DATE
TO Raul Sesbreo
DENOMINATED CUSTODIAN RECEIPT
This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE
UNDERWRITES FINANCE CORPORATION, we have in our custody the following securities to
you [sic] the extent herein indicated.
SERIAL MAT. FACE ISSUED REGISTERED AMOUNT
NUMBER DATE VALUE BY HOLDER PAYEE
2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33
UNDERWRITERS
FINANCE CORP.
We further certify that these securities may be inspected by you or your duly authorized
representative at any time during regular banking hours.
Upon your written instructions we shall undertake physical delivery of the above securities
fully assigned to you should this Denominated Custodianship Receipt remain outstanding in
your favor thirty (30) days after its maturity.
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati Branch,
and handed her a demand letter informing the bank that his placement with Philfinance in the amount
reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect was asking for
the physical delivery of the underlying promissory note. Petitioner then examined the original of the DMC PN
No. 2731 and found: that the security had been issued on 10 April 1980; that it would mature on 6 April
1981; that it had a face value of P2,300,833.33, with the Philfinance as "payee" and private respondent
Delta Motors Corporation ("Delta") as "maker;" and that on face of the promissory note was stamped "NON
NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to
petitioner.

Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2 again asking private
respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly referred all
of petitioner's demand letters to Philfinance for written instructions, as has been supposedly agreed upon in
"Securities Custodianship Agreement" between Pilipinas and Philfinance. Philfinance did not provide the
appropriate instructions; Pilipinas never released DMC PN No. 2731, nor any other instrument in respect
thereof, to petitioner.
Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta for the partial
satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said
Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the promissory note,
and explained in turn that it had previously agreed with Philfinance to offset its DMC PN No. 2731 (along
with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities
and exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731,
which to date apparently remains in the custody of the SEC. 4
As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an
action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private
respondents Delta and Pilipinas. 5 The trial court, in a decision dated 5 August 1987, dismissed the complaint
and counterclaims for lack of merit and for lack of cause of action, with costs against petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated 21 March
1989, the Court of Appeals denied the appeal and held: 6
Be that as it may, from the evidence on record, if there is anyone that appears liable for the
travails of plaintiff-appellant, it is Philfinance. As correctly observed by the trial court:
This act of Philfinance in accepting the investment of plaintiff and charging
it against DMC PN No. 2731 when its entire face value was already
obligated or earmarked for set-off or compensation is difficult to
comprehend and may have been motivated with bad faith. Philfinance,
therefore, is solely and legally obligated to return the investment of
plaintiff, together with its earnings, and to answer all the damages plaintiff
has suffered incident thereto. Unfortunately for plaintiff, Philfinance was
not impleaded as one of the defendants in this case at bar; hence, this
Court is without jurisdiction to pronounce judgement against it. (p. 11,
Decision)
WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby
affirmed in toto. Cost against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings, the Court resolved to give
due course to the petition and required the parties to file their respective memoranda. 7
Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that
respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private respondent
Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent Pilipinas solidarily
liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in favor r of
petitioner, and (iii) in refusing to pierce the veil of corporate entity between Philfinance, and private

respondents Delta and Pilipinas, considering that the three (3) entities belong to the "Silverio Group of
Companies" under the leadership of Mr. Ricardo Silverio, Sr. 8
There are at least two (2) sets of relationships which we need to address: firstly, the relationship of
petitioner vis-a-visDelta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of course,
there is a third relationship that is of critical importance: the relationship of petitioner and Philfinance.
However, since Philfinance has not been impleaded in this case, neither the trial court nor the Court of
Appeals acquired jurisdiction over the person of Philfinance. It is, consequently, not necessary for present
purposes to deal with this third relationship, except to the extent it necessarily impinges upon or intersects
the first and second relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the Delta
promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to the extent of
P304,533.33. The Court of Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is
"non-negotiable" as stamped on its face (Exhibit "6"), negotiation being defined as the
transfer of an instrument from one person to another so as to constitute the transferee the
holder of the instrument (Sec. 30, Negotiable Instruments Law). A person not a holder
cannot sue on the instrument in his own name and cannot demand or receive payment
(Section 51, id.) 9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been validly
transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-maker of the
Note, was obligated to pay petitioner the portion of that Note assigned to him by the payee Philfinance.
Delta, however, disputes petitioner's contention and argues:
(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by
Philfinance as manifested by the word "non-negotiable" stamp across the face of the
Note 10 and because maker Delta and payee Philfinance intended that this Note would be
offset against the outstanding obligation of Philfinance represented by Philfinance PN No.
143-A issued to Delta as payee;
(2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if
not against its instructions; and
(3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid,
petitioner took the Note subject to the defenses available to Delta, in particular, the
offsetting of DMC PN No. 2731 against Philfinance PN No. 143-A. 11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be distinguished
from theassignment or transfer of an instrument whether that be negotiable or non-negotiable. Only an
instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by
indorsement thereof coupled with delivery, or by delivery alone where the negotiable instrument is in bearer
form. A negotiable instrument may, however, instead of being negotiated, also be assigned or transferred.
The legal consequences of negotiation as distinguished from assignment of a negotiable instrument are, of
course, different. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or

transferred, absent an express prohibition against assignment or transfer written in the face of the
instrument:
The words "not negotiable," stamped on the face of the bill of lading, did not destroy its
assignability, but the sole effect was to exempt the bill from the statutory provisions
relative thereto, and a bill, though not negotiable, may be transferred by assignment; the
assignee taking subject to the equities between the original parties. 12 (Emphasis added)
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferable" or
"non-assignable." It contained no stipulation which prohibited Philfinance from assigning or transferring, in
whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should be
quoted in full:
Philippine Underwriters Finance Corp.
Benavidez St., Makati,
Metro Manila.
Attention: Mr. Alfredo O. Banaria
SVP-Treasurer
GENTLEMEN:
This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory
Note No. 143-A, dated April 10, 1980, to mature on April 6, 1981.
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for
P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A
upon co-terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon
Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is
scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of
transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the Note
who parted with valuable consideration in good faith and without notice of such prohibition. It is not disputed
that petitioner was such an assignee or transferee. Our conclusion on this point is reinforced by the fact that
what Philfinance and Delta were doing by their exchange of their promissory notes was this: Delta invested,
by making a money market placement with Philfinance, approximately P4,600,000.00 on 10 April 1980; but
promptly, on the same day, borrowed back the bulk of that placement, i.e., P4,000,000.00, by issuing its
two (2) promissory notes: DMC PN No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus,
Philfinance was left with not P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory
notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been effected
without the consent of Delta, we note that such consent was not necessary for the validity and enforceability
of the assignment in favor of petitioner. 14 Delta's argument that Philfinance's sale or assignment of part of
its rights to DMC PN No. 2731 constituted conventional subrogation, which required its (Delta's) consent, is
quite mistaken. Conventional subrogation, which in the first place is never lightly inferred, 15 must be clearly
established by the unequivocal terms of the substituting obligation or by the evident incompatibility of the
new and old obligations on every point. 16 Nothing of the sort is present in the instant case.

It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to
Philfinance, an entity engaged in the business of buying and selling debt instruments and other securities,
and more generally, in money market transactions. In Perez v. Court of Appeals, 17 the Court, speaking
through Mme. Justice Herrera, made the following important statement:
There is another aspect to this case. What is involved here is a money market transaction.
As defined by Lawrence Smith "the money market is a market dealing in standardized
short-term credit instruments (involving large amounts) where lenders and borrowers do
not deal directly with each other but through a middle manor a dealer in the open market."
It involves "commercial papers" which are instruments "evidencing indebtness of any
person or entity. . ., which are issued, endorsed, sold or transferred or in any manner
conveyed to another person or entity, with or without recourse". The fundamental function
of the money market device in its operation is to match and bring together in a most
impersonal manner both the "fund users" and the "fund suppliers." The money market is an
"impersonal market", free from personal considerations. "The market mechanism is
intended to provide quick mobility of money and securities."
The impersonal character of the money market device overlooks the individuals or entities
concerned. The issuer of a commercial paper in the money market necessarily knows in
advance that it would be expenditiously transacted and transferred to any investor/lender
without need of notice to said issuer. In practice, no notification is given to the borrower or
issuer of commercial paper of the sale or transfer to the investor.
xxx xxx xxx
There is need to individuate a money market transaction, a relatively novel institution in the
Philippine commercial scene. It has been intended to facilitate the flow and acquisition of
capital on an impersonal basis. And as specifically required by Presidential Decree No.
678, the investing public must be given adequate and effective protection in availing of the
credit of a borrower in the commercial paper market.18 (Citations omitted; emphasis
supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731 and
Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its rights under
DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken place and indeed
none could have taken place. The essential requirements of compensation are listed in the Civil Code as
follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly
recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta acknowledged

that the relevant promissory notes were "to be offsetted (sic) against [Philfinance] PN No. 143-A upon coterminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days before
the "co-terminal maturity" date, that is to say, before any compensation had taken place. Further, the
assignment to petitioner would have prevented compensation had taken place between Philfinance and
Delta, to the extent of P304,533.33, because upon execution of the assignment in favor of petitioner,
Philfinance and Delta would have ceased to be creditors and debtors of each other in their own right to the
extent of the amount assigned by Philfinance to petitioner. Thus, we conclude that the assignment effected
by Philfinance in favor of petitioner was a valid one and that petitioner accordingly became owner of DMC PN
No. 2731 to the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14
July 1981, 19that is, after the maturity not only of the money market placement made by petitioner but also
of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified Delta of his
rights as assignee after compensation had taken place by operation of law because the offsetting
instruments had both reached maturity. It is a firmly settled doctrine that the rights of an assignee are not
any greater that the rights of the assignor, since the assignee is merely substituted in the place of the
assignor 20 and that the assignee acquires his rights subject to the equities i.e., the defenses which the
debtor could have set up against the original assignor before notice of the assignment was given to the
debtor. Article 1285 of the Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in
favor of a third person, cannot set up against the assignee the compensation which would
pertain to him against the assignor, unless the assignor was notified by the debtor at the
time he gave his consent, that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the
latter may set up the compensation of debts previous to the cession, but not of subsequent
ones.
If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had knowledge of
the assignment. (Emphasis supplied)
Article 1626 of the same code states that: "the debtor who, before having knowledge of the assignment,
pays his creditor shall be released from the obligation." In Sison v. Yap-Tico, 21 the Court explained that:
[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay;
and if he pay before notice that his debt has been assigned, the law holds him exonerated,
for the reason that it is the duty of the person who has acquired a title by transfer to
demand payment of the debt, to give his debt or notice. 22
At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981, DMC PN
No. 2731 had already been discharged by compensation. Since the assignor Philfinance could not have then
compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of Philfinance, is similarly
disabled from collecting from Delta the portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment or sale was effected on 9
February 1981. He could have notified Delta as soon as his money market placement matured on 13 March
1981 without payment thereof being made by Philfinance; at that time, compensation had yet to set in and
discharge DMC PN No. 2731. Again petitioner could have notified Delta on 26 March 1981 when petitioner
received from Philfinance the Denominated Custodianship Receipt ("DCR") No. 10805 issued by private
respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta at any time before the
maturity date of DMC PN No. 2731. Because petitioner failed to do so, and because the record is bare of any
indication that Philfinance had itself notified Delta of the assignment to petitioner, the Court is compelled to

uphold the defense of compensation raised by private respondent Delta. Of course, Philfinance remains liable
to petitioner under the terms of the assignment made by Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner contends that
Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR No. 10805 with the
following words:
Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above
securities fully assigned to you . 23
The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of Pilipinas
to pay petitioner the amount of P307,933.33 nor any assumption of liability in solidum with Philfinance and
Delta under DMC PN No. 2731. We read the DCR as a confirmation on the part of Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain
face value, to mature on 6 April 1981 and payable to the order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9
February 1981), holding that Note on behalf and for the benefit of petitioner, at least to the
extent it had been assigned to petitioner by payee Philfinance; 24
(3) petitioner may inspect the Note either "personally or by authorized representative", at
any time during regular bank hours; and
(4) upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No.
2731 (or a participation therein to the extent of P307,933.33) "should this Denominated
Custodianship receipt remain outstanding in [petitioner's] favor thirty (30) days after its
maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting
Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon maturity
thereof or any other time. We note that both in his complaint and in his testimony before the trial court,
petitioner referred merely to the obligation of private respondent Pilipinas to effect the physical delivery to
him of DMC PN No. 2731. 25 Accordingly, petitioner's theory that Pilipinas had assumed a solidary obligation
to pay the amount represented by a portion of the Note assigned to him by Philfinance, appears to be a new
theory constructed only after the trial court had ruled against him. The solidary liability that petitioner seeks
to impute Pilipinas cannot, however, be lightly inferred. Under article 1207 of the Civil Code, "there is a
solidary liability only when the law or the nature of the obligation requires solidarity," The record here
exhibits no express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has
not pointed to us to any law which imposed such liability upon Pilipinas nor has petitioner argued that the
very nature of the custodianship assumed by private respondent Pilipinas necessarily implies solidary liability
under the securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas
solidarily liable with Philfinance and private respondent Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of petitioner
under the terms of the DCR. To the contrary, we find, after prolonged analysis and deliberation, that private
respondent Pilipinas had breached its undertaking under the DCR to petitioner Sesbreo.
We believe and so hold that a contract of deposit was constituted by the act of Philfinance in designating
Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the obligation of the
depository was owed, however, to petitioner Sesbreo as beneficiary of the custodianship or depository
agreement. We do not consider that this is a simple case of a stipulation pour autri. The custodianship or
depositary agreement was established as an integral part of the money market transaction entered into by

petitioner with Philfinance. Petitioner bought a portion of DMC PN No. 2731; Philfinance as assignor-vendor
deposited that Note with Pilipinas in order that the thing sold would be placed outside the control of the
vendor. Indeed, the constituting of the depositary or custodianship agreement was equivalent to constructive
delivery of the Note (to the extent it had been sold or assigned to petitioner) to petitioner. It will be seen
that custodianship agreements are designed to facilitate transactions in the money market by providing a
basis for confidence on the part of the investors or placers that the instruments bought by them are
effectively taken out of the pocket, as it were, of the vendors and placed safely beyond their reach, that
those instruments will be there available to the placers of funds should they have need of them. The
depositary in a contract of deposit is obliged to return the security or the thing deposited upon demand of
the depositor (or, in the presented case, of the beneficiary) of the contract, even though a term for such
return may have been established in the said contract. 26 Accordingly, any stipulation in the contract of
deposit or custodianship that runs counter to the fundamental purpose of that agreement or which was not
brought to the notice of and accepted by the placer-beneficiary, cannot be enforced as against such
beneficiary-placer.
We believe that the position taken above is supported by considerations of public policy. If there is any party
that needs the equalizing protection of the law in money market transactions, it is the members of the
general public whom place their savings in such market for the purpose of generating interest
revenues. 27 The custodian bank, if it is not related either in terms of equity ownership or management
control to the borrower of the funds, or the commercial paper dealer, is normally a preferred or traditional
banker of such borrower or dealer (here, Philfinance). The custodian bank would have every incentive to
protect the interest of its client the borrower or dealer as against the placer of funds. The providers of such
funds must be safeguarded from the impact of stipulations privately made between the borrowers or dealers
and the custodian banks, and disclosed to fund-providers only after trouble has erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with it
when petitioner first demanded physical delivery thereof on 2 April 1981. We must again note, in this
connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore, compensation or
offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of complying with the demand
of the petitioner, Pilipinas purported to require and await the instructions of Philfinance, in obvious
contravention of its undertaking under the DCR to effect physical delivery of the Note upon receipt of
"written instructions" from petitioner Sesbreo. The ostensible term written into the DCR (i.e., "should this
[DCR] remain outstanding in your favor thirty [30] days after its maturity") was not a defense against
petitioner's demand for physical surrender of the Note on at least three grounds: firstly, such term was
never brought to the attention of petitioner Sesbreo at the time the money market placement with
Philfinance was made; secondly, such term runs counter to the very purpose of the custodianship or
depositary agreement as an integral part of a money market transaction; and thirdly, it is inconsistent with
the provisions of Article 1988 of the Civil Code noted above. Indeed, in principle, petitioner became entitled
to demand physical delivery of the Note held by Pilipinas as soon as petitioner's money market placement
matured on 13 March 1981 without payment from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages sustained
by arising out of its breach of duty. By failing to deliver the Note to the petitioner as depositor-beneficiary of
the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited with it.
Whether or not Pilipinas itself benefitted from such conversion or unlawful deprivation inflicted upon
petitioner, is of no moment for present purposes.Prima facie, the damages suffered by petitioner consisted
of P304,533.33, the portion of the DMC PN No. 2731 assigned to petitioner but lost by him by reason of
discharge of the Note by compensation, plus legal interest of six percent (6%) per annum containing from
14 March 1981.
The conclusion we have reached is, of course, without prejudice to such right of reimbursement as Pilipinas
may havevis-a-vis Philfinance.
III.
The third principal contention of petitioner that Philfinance and private respondents Delta and Pilipinas
should be treated as one corporate entity need not detain us for long.

In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired either by
the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to implead
Philfinance in the Petition before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been organized
as separate corporate entities. Petitioner asks us to pierce their separate corporate entities, but has been
able only to cite the presence of a common Director Mr. Ricardo Silverio, Sr., sitting on the Board of
Directors of all three (3) companies. Petitioner has neither alleged nor proved that one or another of the
three (3) concededly related companies used the other two (2) as mere alter egos or that the corporate
affairs of the other two (2) were administered and managed for the benefit of one. There is simply not
enough evidence of record to justify disregarding the separate corporate personalities of delta and Pilipinas
and to hold them liable for any assumed or undetermined liability of Philfinance to petitioner. 28
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV No.
15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED and SET ASIDE, to the
extent that such Decision and Resolution had dismissed petitioner's complaint against Pilipinas Bank. Private
respondent Pilipinas bank is hereby ORDERED to indemnify petitioner for damages in the amount of
P304,533.33, plus legal interest thereon at the rate of six percent (6%) per annum counted from 2 April
1981. As so modified, the Decision and Resolution of the Court of Appeals are hereby AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
11.) SOL LAGUIO, RENE LAOLAO, ANNALIZA ENSANDO, EDELIZA ASAS, LILIA MARAY, EVELYN
UNTALAN,* ROSARIO CHICO, REYNALDO GARCIA, MERLITA DE LOS SANTOS,* JOSEPHINE
DERONG,* GEMMA TIBALAO BANTOLO, LUCY ALMONTE,* CRISPINA VANQUARDIA,
NARCISA VENZON, NORMA ELEGANTE,* AMELIA MORENO,* ABNER PETILOS, NARCISO
HILAPO, DOLORES OLAES, MELINDA LLADOC, ERNA AZARCON, and APRIL TOY, INC.
WORKERS UNION ALAB, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION,
WELL WORLD TOYS, INC., APRIL TOYS, INC., YU SHENG LING, JENN L. WANG, EUCLIFF
CHENG, CHI SHENG LIN, NENITA C. AGUIRRE, MA. THERESA R. CADIENTE and GLICERIA
R. AGUIRRE, respondents.

[G.R. No. 108936. October 4, 1996]

RESOLUTION
FRANCISCO, J.:
Private respondent April Toy, Inc. (April for brevity) is a domestic corporation incorporated on January
6, 1989, for the purpose of manufacturing, importing, exporting, buying, selling, sub-contracting or
otherwise dealing in, at wholesale and retail, [1] stuffed toys, with principal place of business at Paraaque,
Manila. On December 20, 1989, or after almost a year of operation, April posted a memorandum[2] within its
premises and circulated a copy of the same among its employees informing them of its dire financial
condition. To avert further business reverses, April decided to shorten its corporate term up to February 28,
1990,[3] submitted a notice of dissolution to the Securities and Exchange Commission and published the
same in a newspaper of general circulation [4]. April also notified its employees, the Department of Labor and
Employment,[5] the Social Security System,[6] the Board of Investments,[7] the Bureau of Internal Revenue,
[8]
and the Municipality of Paraaque of its dissolution.
In view of Aprils cessation of operations, petitioners who initially composed of seventy-seven
employees below filed a complaint for illegal shutdown/retrenchment/dismissal and unfair labor practice.

On June 21, 1990, petitioners amended their complaint to implead private respondent private respondent
Well World Toys, Inc. (Well World for brevity), a corporation also engaged in the manufacture of stuffed
toys for export with principal office located at Las Pias, Manila.
[9]

In their complaint, petitioners basically alleged that they were original probationary
emplyees[10] of Well World but were later laid off in 1989 for starting to organize themselves into a union.
[11]
They applied with and were thereafter hired by April. On February 2, 1990, and while under the employ
of April, petitioners conducted a certification election where their union, Alyansang Likha ng mga Anak ng
Bayan (ALAB), won as the exclusive bargaining agent for the workers. Petitioners thereafter submitted a
Collective Bargaining Agreement proposal whichApril rejected in view of its cessation of operation. The
closure, petitioners declared, is Aprils clever ploy to defeat their right to self organization. [12] Petitioners
further alleged that the original incorporators and principal officers of April were likewise the original
incorporators of Well World, thus both corporations should be treated as one corporation liable for their
claims.In his decision dated December 20, 1991, the Labor Arbiter found as valid the closure of April, and
treated April and Well World as two distinct corporations. While the seventy-seven complainants were
ruled to be the employees of April, the Labor Arbiter, nevertheless, ordered Well World to give financial
assistance to its former forty-nine probationary employees who were found to have been laid off in 1989 due
to business losses. April was likewise ordered to pay its separated employees their separation pay and,
together with Well World, assessed for attorneys fees. Petitioners appealed before the National Labor
Relations Commission (NLRC), but to no avail. Hence, this petition, supported by the Office of the Solicitor
General, anchored solely on the NLRCs purported grave abuse of discretion in not finding April and Well
World as one corporation liable for their grievances.
To bolster their claim that April and Well World are one and the same corporation, petitioners argue
that both corporations have the same set of incorporators. Thus:
Incorporators of Well World Incorporators of April

Name

Citizenship

No. of
Shares

Eucliff
Cheng

Filipino

148

Jenn Li
Wang

Chinese

Yu-Sheng
Ling

Name

Citizenship

No, of
Shares

Nenita C.
Aguirre

Filipino

2,797

25

Matheresa
Cadiente

Filipino

800

Chinese

25

Gliceria R.
Aguirre

Filipino

400

Chia-Sheng
Lin

Chinese

25

Pacifico R.
Cadiente

Filipino

Chia-Yu-Yen
Lin

Chinese

25

Emalyn A.
Fernandez

Filipino

MaTheresa
Cadiente

Filipino

Erlinda M.
Hizon

Filipino

Gliceria
Aguirre

Filipino

250

4,000

(Petition, pp. 4-5; Rollo, pp. 5-6; Memorandum, pp. 7-8, Rollo, 242-243.)
Petitioners also insist that the two corporations are being managed by Mr. Jean Li Wang [13] and that their
articles of incorporation, general information sheets and certificates of increase of capital stock were
notarized by the same Notary Public. Additionally, petitioners aver that when some of them transferred
from Well World to April they were not given their separation pay, a factor which presumably proves
that April is a mere conduit of Well World. Petitioners likewise assert that their transfer from one
corporation to another was made at the time that they were on the process of organizing a union. Finally,
petitioners allege that April and Well World were engaged in the same line of business, with the latter also
supplying the former raw materials and machineries. These circumstances, petitioners claim, make their
case akin to the case of La Campana Coffee Factory Inc. v. Kaisahan ng mga Mangagawa sa La Campana
(KKM), 93 Phil. 160, where the Court considered two corporations, i.e., La Campana Coffee Factory, Inc. and
La Campana Gaugau Packing, as one and the same. We are not persuaded.
A cursory examination of the composition of April and Well Worlds incorporators and the number of
shares they own hardly supports petitioners asseveration. In fact, petitioners allegation that both
corporations were managed by a single individual, Mr. Jen Li Weng, contradicts paragraphs 7 and 8 of their
petition which state:
7. Respondents Yu-Sheng Ling, Jen Li Weng (Alias James Wang), Eucliff Cheng and Chia Sheng Lin are the
President, Managing Director, Treasurer and Secretary respectively of respondent Well World Toy, Inc., all of
whom are holding office at 399-B Real St., Talon, Las Pinas, Metro Manila. x x x.
8. Respondents Nenita C. Aguirre, Ma. Theresa R. Cadiente and Gliceria R. Aguirre are the President,
Treasurer and Secretary, respectively of respondent April Toy, Inc. all of whom are holding office at No. 6-C
Ascie Avenue, Severina Industrial Estate, Km. 16 South Superhighway Paranaque. x x x.[14]
What clearly appears therefrom is that the two corporations have two different set of officers managing their
respective affairs in two separate offices.
It is basic that a corporation is invested by law with a personality separate and distinct from those of
the persons composing it as well as from that of any other legal entity to which it may be related. Mere
substantial identity of the incorporators of the two corporations does not necessarily imply fraud, [15] nor
warrant the piercing of the veil of corporation fiction. In the absence of clear and convincing evidence
that April and Well Worlds corporate personalities were used to perpetuate fraud, or circumvent the law
said corporations were rightly treated as distinct and separate from each other. Further, petitioners emphatic
reliance with the case of La Campana is misplaced. In La Campana, unlike in this case, the two corporations,
i.e., La Campana Coffee Factory, Inc. and La Campana Gaugau Packing, were not only owned by the same
person, but moreover have a single management, business office and a single payroll for both
businesses. Indeed, the workers of La Campana Gaugau Packing were interchangeable, that is, the laborers
from gaugau factory were sometimes transferred to the coffee factory and vice-versa. [16]
We thus quote with approval the observation made by the Labor Arbiter as follows:
We can not fully subscribe to the above contention of the complainants. We do not believe that the
circumstances related by the complainants are sufficient indicia that the two corporations are one and the
same corporation although it appears that the two of the original incorporators and stockholders of April Toy,
Inc. were incorporators and minority stockholders of Well-World Toy, Inc. Hence it does not mean that the
two (2) corporations are adjunct and conduit. There is not express provision under the Corporation law
prohibiting stockholders or incorporators of a corporation to be a stockholder or incorporator of another
corporation.

The fiction that a corporation was a distinct and separate personality shall not be used as a subterfuge to
commit injustice and circumvent the law does not apply in the present case. There is no conclusive evidence
to convince us that respondent April Toy, Inc. was established and later on closed to defeat the rights of the
workers of Well-World Toy, Inc. which would otherwise support the charge of unfair labor practice. Hence, we
find that the two (2) corporations are separate and distinct entities. [17]
and, on appeal, by public respondent NLRC, thus:
[R]elative to the closure of April Toy, it is clear from the records that as early as December 1989 or long
before a certification election was conducted among its rank-and-file employees on February 2, 1990, the
employees were already aware that April Toy was suffering from financial crisis. It further appearing that
April Toy continued to suffer losses as evidenced by its financial statements ending December 31, 1989 and
its balance sheet ending March 31, 1990, the Labor Arbiter a quo correctly ruled that the eventual closure of
its business on February 27, 1990, is valid.
Anent the question of whether or not April Toy and Well- World Toy are one and the same, with the facts and
circumstances showing that the owners of April Toy are different from those of Well-World, the management
of one being different from the other, and the office of April Toy is situated more than ten kilometers away
from Well-World, plus the fact that the closure of April Toy was for valid reasons, the Labor Arbiter likewise
correctly opined that the two corporations are separate and distinct form each other, and that there is no
basis for piercing the veil of corporate fiction.[18]
Furthermore, the petition hinges on the factual findings of both the Labor Arbiter and the NLRC. It
should be stressed that the factual findings of quasi-judicial agencies like the NLRC are generally accorded
not only respect but, at times, finality if such are supported by substantial evidence [19]. Judicial review by
this Court in labor cases does not go so far as to require this Court to evaluate the sufficiency of the
evidence upon which the Labor Arbiter and respondent NLRC based their determination as our review is
limited to issues of jurisdiction or grave abuse of discretion. In the instant suit, the findings of the Labor
Arbiter was duly affirmed by respondent NLRC, findings amply supported by substantial evidence on
record. We find no cogent reason, as none was presented, to deviate from the same.
ACCORDINGLY, finding no grave abuse of discretion on the part of respondent NLRC in rendering the
assailed resolution, the instant petition is hereby DISMISSED for lack of merit.
SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., Melo, and Panganiban, JJ., concur.

12.) MATUGUINA INTEGRATED WOOD PRODUCTS, INC., petitioner, vs. The HON. COURT OF
APPEALS, DAVAO ENTERPRISES CORPORATION, The HON. MINISTER, (NOW SECRETARY)
of NATURAL RESOURCES AND PHILLIP CO, respondents.
[G.R. No. 98310. October 24, 1996]

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

The Regional Trial Court, Branch 17, Davao City, ruled in favor of the petitioner, but on appeal, was
reversed by the respondent Court of Appeals in its decision dated February 25, 1991, which found MIWPI, as
an alter ego of Milagros Matuguina and/or Matuguina Logging enterprises (MLE, to be liable to DAVENCOR
for illegal encroachment.
The following are the antecedent facts:
On June 28, 1973, the Acting Director of the Bureau of Forest Development issued Provisional Timber
License (PTL) No. 30, covering an area of 5,400 hectares to Ms. Milagros Matuguina who was then doing
business under the name of MLE, a sole proprietorship venture. A portion, covering 1,900 hectares, of the
said area was located within the territorial boundary of Gov. Generoso in Mati, Davao Oriental, and adjoined
the timber concession of Davao Enterprises Corporation (DAVENCOR), the private respondent in this case.
On July 10, 1974, petitioner Matuguina Integrated Wood Products, Inc. (MIWPI), was incorporated,
having an authorized capital stock of Ten Million Pesos (P10,000,000.00).[1] The incorporators/stockholders
of MIWPI, and their stock subscriptions were as follows:
Name No. Of Shares Subscribed Amount of Capital
Stock Subscribed
1. Henry Wee 1,160,000 1,160,000.00
2. Ma. Milagros Matuguina 400,000 400,000.00
3. Alejandro Chua Chun 200,000 200,000.00
4. Bernadita Chua 120,000 120,000.00
5. Domingo Herrera 40,000 40,000.00
6. Manuel Hernaez 40,000 40,000.00
7. Luis Valderama 40,000 40,000.00
----------------- -----------------2,000,000 2,000,000.00
=========== ===========
Milagros Matuguina became the majority stockholder of MIWPI on September 24, 1974, when the
latters Board of Directors approved by Resolution the transfer of 1,000,000 shares from Henry Wee to
Milagros Matuguina, thus giving her seventy percent (70%) stock ownership of MIWPI.
In an undated letter[2] to the Director of Forest Development (BFD) on November 26, 1974, Milagros
Matuguina requested the Director for a change of name and transfer of management of PTL No. 30, from a
single proprietorship under her name, to that of MIWPI.
This request was favorably endorsed on December 2, 1974[3] by the BFDs Acting Director, Jose Viado to
respondent Secretary of Natural Resources, who approved the same onSeptember 5, 1975. [4]

On July 17, 1975, Milagros Matuguina and petitioner MIWPI executed a Deed of Transfer [5] transferring
all of the formers rights, interests, ownership and participation in Provincial Timber License No. 30 to the
latter for and in consideration of 148,000 shares of stocks in MIWPI.
A copy of said deed was submitted to the Director of Forest Development and Petitioner MIWPI had
since been acting as holder and licensee of PTL No. 30.
On July 28, 1975, pending approval of the request to transfer the PTL to MIWPI, DAVENCOR, through
its Assistant General Manager, complained to the District Forester at Mati, Davao Oriental that Milagros
Matuguina/MLE had encroached into and was conducting logging operations in DAVENCORs timber
concession.
After investigation of DAVENCORs complaint, the Investigating Committee which looked into
DAVENCORs complaint submitted its report to the Director, finding that MLE had encroached on the
concession area of DAVENCOR. In line with this, the Director of Forest Development issued an
Order[6] on July 15, 1981, finding and declaring MLE to have encroached upon, and conducted illegal logging
operations within the licensed or concession area of DAVENCOR.
MLE appealed the Order to the Ministry of Natural Resources, which appeal was docketed as MNR CASE
No. 6450. During the pendency of the appealed case with the Minister of Natural Resources, Ma. Milagros
Matuguina disposed of her shares in petitioner MIWPI, thereby ceasing to be a stockholder of the petitioner
of March 16, 1986.[7]

[8]

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

For our Resolution is the appeal by MATUGUINA LOGGING ENTERPRISES (MLR, for short) of the Order
dated 15 July 1991 of the Director of Forest Development finding and declaring MLE to have encroached
upon, and conducted illegal logging operations within the license or concession area of DAVAO ENTERPRISES
CORPORATION. The aforesaid Order dispositively states:
WHEREFORE, there being a clear and convincing proof that Matuguina Conducted illegal operation within the
licensed area of DAVENCOR, above named respondent is hereby ordered to pay to the complainant the
equivalent value in pesos of 2,352.04 cubic meters of timber based on the market price obtaining, at the
logpond of the respondent at the time of cutting, minus the cost of production, or to restitute to the
complainant equal volume of 2,352.04 cubic meters of logs owned by respondent to be taken at respondents
logpond. The respondent is hereby directed to comply with this Order within a period of ninety (90) days
from receipt of this Order and after the lapse of the said period, no compliance has been made by the
respondent, its logging operations shall ipso facto become automatically suspended until respondent shall
have complied as directed.
The Regional Director of Region II, Davao City is hereby instructed to implement this Order and to submit
his compliance report within ten (10) days after the lapse of the ninety (90) days period within which the
respondent is directed to comply with this order.
And that the dispositive portion of the said decision states;
WHEREFORE, the Order dated 15 July 1981 of the Director of Forest Development is hereby AFFIRMED.
When the Decision of the Minister of Natural Resources became final and executory, Philip Co and
DAVENCOR requested the respondent Minister on October 30, 1986 to issue immediately a writ of execution
against MLE and/or MIWPI.[9] The Order of Execution[10] was issued on January 6, 1987 by the Minister

through the latters Assistant on Legal Affairs. The said Order directed the issuance of a writ of execution,
not only against MLE, but likewise against MIWPI. The dispositive portion of the order provides:
WHEREFORE, let a Writ of Execution be issued against Matuguina Logging Enterprises and/or Matuguina
Integrated Wood Products, Inc. For the satisfaction of the Decision of the Bureau of Forest Development
dated 15 July 1981, and the Order of this office dated 1 October 1986.
SO ORDERED.
Subsequently, a writ of execution [11] dated January 8, 1987 was issued in favor of the respondent
DAVENCOR, which states:
The City/Provincial Sheriff
Davao City
GREETINGS:
You are hereby directed to enforce, implement and execute the Order of Execution dated 06 June 1987 of
this Office in the above-entitled case against Matuguina Logging Enterprises and/or Matuguina Integrated
Wood Products, Inc. its officers or any person or corporation in its behalf and conformably with the Order
dated 15 July 1981 of the Director of Forest Development, stating dispositively.
xxx
You are hereby requested to submit your return to this Office within the period of sixty (60) days from your
receipt hereof as to action taken hereon.
SO ORDERED."
On February 11, 1987, MIWPI filed the instant complaint [12] for prohibition, damages and injunction,
with prayer for restraining order, which case was docketed as Civil Case No. 18,457-87 in the Regional Trial
Court Davao City, Branch 17. MIWPI stated its primary cause of action, the relevant portion of which reads,
viz.:
5. That plaintiff which has a distinct and separate personality of its own under the law, and was never a
party to the case between DAVENCOR and MLE, suddenly became a party to the case after the decision
became final and executory with the issuance of Annex B hereof for reasons known to the defendants alone:
6. That the issuance of Annex B hereof (the order of execution) by the defendant Minister has been made
not only without or in excess of his authority but that the same was issued patently without any factual or
legal basis, hence, a gross violation of plaintiffs constitutional rights under the due process clause;
7. That plaintiff, in the face of the order (Annex B) complained of, there being no appeal or any plain,
speedy, and adequate remedy in the ordinary course of law, does not have any alternative but to ventilate
the present recourse;
8. That defendant Minister is doing, threatens or is about to do, or is procuring or suffering to be done, some
act which definitely is in violation of the plaintiffs rights respecting the subject matter of the action, and
unless said act or acts are restrained or prohibited at least during the pendency of this case, said act or acts
would probably work not only injustice to plaintiff but world tend to render the judgment of this Honorable
court ineffectual;

9. That the commission or continuance of the acts complained of during the present litigation would not only
cause great and irreparable injury, but will also work injustice to the plaintiff, and would complicate,
aggravate and multiply the issues in this case;
10. That the plaintiff is entitled to the relief demanded, and the whole or part of such relief consist in
restraining the commission or continuance of the acts complained of, or in the performance of acts, either
for a limited period or perpetually;
11. That great and irreparable injury would inevitably result to the plaintiff before the matter can be heard
on notice, hence, immediate issuance of a restraining order is necessary and proper;
12. That the plaintiff is willing and able to file the necessary bond executed to the defendants, in an amount
to be fixed by the Court, to the effect that the plaintiff will pay to the defendants all damages which they
may sustain by reason of the injunction if the court should finally decide that the plaintiff was not entitled
thereto.
MIWPI, likewise alleges that in wantonly and imprudently procuring the Writ of Execution against it,
which DAVENCOR and Philip Co seek to enforce a 2.5 Million Peso liability of plaintiff, the latter has been
constrained to bring the present action, thereby incurring damages in the sum of P500,000.00 in concept of
actual and compensatory damages, andP250,000.00 in attorneys fees, which amount petitioner now seeks
to recover.
The trial court issued a temporary restraining order the next day, February 12, 1987, restraining and/or
enjoining the private respondents and the Hon. Secretary of Natural Resources from enforcing,
implementing and/or carrying into effect, the decision of the respondent Secretary dated October 1, 1986,
as well as the order of execution dated January 6, 1987.
On February 17, 1987, private respondent filed a Motion to Dismiss [13] alleging that the trial court had
no jurisdiction over the case under Presidential Decree No. 705, to which Motion to Dismiss, petitioner filed
an Opposition[14] dated February 1987. On March 9, 1987, the trial court issued an order [15] denying private
respondents Motion to Dismiss. Hence, private respondents filed their Answer[16] dated March 13, 1987 and
an Amended Answer[17]
In the latter pleading, private respondents raised the following special and affirmative defenses:
7. That neither Milagros Matuguina nor Matuguina Integrated Wood Products, Inc. advised defendant
Davencor of the change of name, and transfer of management of PTL No. 30. From Milagros Matuguina to
Matuguina Integrated Wood Products, Inc., during the pendency of MNR Case No. 6540 before the Bureau of
Forest Develoment and the Ministry of Natural Resources, notwithstanding that the lawyer of matuguina
Integrated Wood Products, Inc., who was also a stockholder thereof, had appeared for Milagros Matuguina in
said administrative case.
8. That plaintiff has acted in bad faith and is now in estoppel from questioning the Writ of Execution issued
against Milagros Matuguina (now Matuguina Integrated Wood Products, Inc.) to satisfy the judgment in MNR
Case No. 6540.
9. This Honorable Court has no jurisdiction over the nature and subject matter of this action, especially
because:
(a) The plaintiff has not exhausted administrative remedies available to it before initiating this
action;
(b) In the guise of entertaining an action for damages, this Court is being misled by the plaintiff
into deciding questions properly for the Department of Natural Resources to decide
exclusively in the lawful exercise of its regulatory jurisdiction;

(c) The plaintiff is now precluded and estopped from filing this action.
10. The plaintiff has no cause of action against the defendants and has not stated any in its complaint,
especially because:
(a) Having failed to exhaust administrative remedies, plaintiff is without a ripe cause of action that
can be pleaded before this Honorable Court;
(b) In substance, there is no justifiable question raised under the facts and circumstances of this
case.
Meanwhile, on June 2, 1987, the trial court issued an order [18] granting the petitioners prayer for the
issuance of a writ of preliminary injunction against the private respondents and the Secretary of Natural
Resources, ordering them to desist, refrain and prevent from enforcing respondent Secretarys Decision
dated October 1, 1986 as well as the writ of execution dated January 8, 1987.
On May 10, 1989, the trial court rendered its Decison [19] in favor of the petitioner, disposing of the
action as follows:
WHEREFORE, in view of the foregoing, finding the evidence of plaintiff, Matuguina Integrated Wood Products,
Inc. sufficient to sustain a preponderance of evidence, showing that the order of execution dated January 6,
1987, issued by the Minister of Natural Resources, through Alexander C. Castro, Assistant Minister for Legal
Affairs, included therein, plaintiff Matuguina Integrated Wood Products, Inc., despite non-inclusion of plaintiff
in the decision of the then Minister of Natural Resources, dated October 1, 1986, already final and executory
before the issuance of the order and execution, said order or execution is hereby declared null and void and
without any legal effect.
As a consequence thereof, the writ of preliminary injunction issued by this court, dated June 2, 1987 is
hereby made permanent.
Moreover, as a result of the filing of this case, defendant Philip Co and Davencor Corporation, are ordered to
jointly and severally pay the amount of P100,000.00 as actual and compensatory damages, along with
another amount of P20,000.00 as attorneys fees and costs of this action, in favor of plaintiff Matuguina
Integrated Wood Products, Inc.
SO ORDERED.
Private respondents appealed the trial courts decision on May 19, 1989. Their notice of appeal was
approved by the trial court. The appealed case was docketed with respondent Honorable Court of Appeals as
CA-G.R. SP No. 19887.
On February 25, 1991, the respondent Court rendered its Decision, [20] reversing the lower courts
pronouncement. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the decision appealed from is reversed and set aside and the Order of
Execution issued by the Minister of Natural Resources dated January 6, 1987 is affirmed. Without
pronouncement as to costs.
SO ORDERED.
In due time, petitioner filed a motion for reconsideration. [21] Private respondents filed their
opposition[22] to the same on April 2, 1991. In a Resolution[23] dated April 12, 1991, the motion was denied
by the respondent Court.

Not content with the courts pronouncement, petitioner is now before us on a Petition for Review
on Certiorari,[24] alleging that the respondent court acted with grave abuse of discretion in rendering the
questioned decision and its companion resolution, denying the motion for reconsideration.
The reasons relied upon by the Petitioner in filing its petition are hereby restated:
I
PETITIONER WAS DENIED DUE PROCESS OF LAW WHEN IT WAS MADE LIABLE BY RESPONDENT
SECRETARY OF NATURAL RESOURCES IN HIS ORDER OF EXECUTION DATED 06 JANUARY 1987
(EXHIBIT B OF ATTACHMENT O) ISSUED IN MNR CASE NO. 6540 DESPITE THE FACT THAT
PETITIONER WAS NEVER A PARTY NOR A PARTICIPANT IN THE SAID CASE: IN FACT, PETITIONER
NEVER HAD NOTICE OF THE PROCEEDINGS IN MNR CASE NO. 6540.
II
THE FAILURE TO AFFORD PETITIONER THE OPPORTUNITY TO BE HEARD IN THE ADMINISTRATIVE
LEVEL (MNR CASE NO. 6540) COULD NOT HAVE BEEN CURED BY THE INSTITUTION OF THE ACTION
FOR PROHIBITION IN THE TRIAL COURT BECAUSE SAID COURT HAD NO JURISDICTION TO
DETERMINE WHETHER PETITIONER WAS GUILTY OF ENCROACHMENT ON PRIVATE RESPONDENT
DAVENCORS TIMBER CONCESSION; FURTHERMORE, THE QUESTION ON WHETHER PETITIONER
WAS GUILTY OF ENCROACHMENT WAS NEVER PUT IN ISSUE IN THE CASE BEFORE THE TRIAL
COURT.
III
THE LIABILITY OF MILAGROS/MLE AS FOUND BY RESPONDENT SECRETARY IN ITS DECISION
DATED 01 OCTOBER 1986 (EXHIBIT A OF THE ATTACHMENT 0) CANNOT BE IMPUTED AGAINST
PETITIONER SINCE THE LATTER IS A CORPORATION HAVING A PERSONALITY SEPARATE AND
DISTINCT FROM MILAGROS/MLE.
IV
PETITIONER CANNOT BE MADE LIABLE TO PRIVATE RESPONDENTS UNDER THE DEED OF TRANSFER
DATED 18 JULY 1975 (EXHIBIT 3 OF ATTACHMENT P) AND SECTION 61 OF THE REVISED FORESTRY
CODE OF THE PHILIPPINES (P.D. 705, AS AMENDED):
A. THE ALLEGED TRANSFER OF PTL NO. 30 FROM MILAGROS/MLE TO PETITIONER NEVER BECAME
BINDING AND EFFECTIVE SINCE PTL NO. 30 REMAINED IN THE NAME OF MILAGROS/MLE
UNTIL ITS EXPIRATION ON 30 JUNE 1977: THIS IS DUE TO THE FACT THAT SAID
TRANSFER WAS NEVER APPROVED BY THE SECRETARY OF NATURAL RESOURCES.
B. GRANTING ARGUENDO THAT THERE WAS AN EFFECTIVE TRANSFER OF PTL NO. 30 FROM
MILAGROS/MLE TO PETITIONER, THE TRANSFER COULD NOT MAKE PETITIONER LIABLE
FOR THE ALLEGED ENCROACHMENT OF PRIVATE RESPONDENT DAVENCORS TIMBER
CONCESSION, SINCE:
1. SAID TRANSFER WAS EXECUTED PRIOR TO THE COMMISSION OF THE ALLEGED
ENCROACHMENT AND THE FILING OF THE ADMINISTRATIVE COMPLAINT FOR
ENCROACHMENT DATED 28 JULY 1975; THUS, PETITIONER CANNOT BE MADE
LIABLE FOR OBLIGATONS OF MILAGROS/MLE WHICH WERE INCURRED AFTER
DATE OF THE SAID TRANSFER.
2. SAID TRANSFER COVERED ONLY FORESTRY CHARGES AND OTHER GOVERNMENT FEES,
AND DID NOT INCLUDE THE PERSONAL LIABILITY OF MILAGROS/MLE THAT AROSE

FROM THE ENCROACHMENT OF THE TIMBER CONCESSION OF RESPONDENT


DAVENCOR.[25]
Private Respondent DAVENCOR and the public respondent Hon. Minister (now Secretary) of Natural
Resources filed separate Comments[26] on September 5, 1991 and June 8, 1992 respectively.
The essential issues of the present controversy boil down to the following:
Was the Petitioner denied due process when it was adjudged liable with MLE for encroaching upon the
timber concession of DAVENCOR in the respondent Minister's order of Execution?
Is the petitioner a transferee of MLE's interest, as to make it liable for the latters illegal logging
operations in DAVENCORs timber concession, or more specifically, is it possible to pierce the veil of MIWPIs
corporate existence, making it a mere conduit or successor of MLE?
Generally accepted is the principle that no man shall be affected by any proceeding to which he is a
stranger, and strangers to a case are not bound by judgment rendered by the court.In the same manner an
execution can be issued only against a party and not against one who did not have his day in court. In
Lorenzo vs. Cayetano, 78 SCRA 485 [1987], this Court held that only real parties in interest in an action are
bound by judgment therein and by writs of execution and demolition issued pursuant thereto. [27]
Indeed a judgment cannot bind persons who are not parties to the action. [28] It is elementary that
strangers to a case are not bound by the judgment rendered by the court and such judgment is not available
as an adjudication either against or in favor of such other person. A decision of a court will not operate to
divest the rights of a person who has not and has never been a party to a litigation, either as plaintiff or as
defendant. Execution of a judgment can only be issued against one who is a party to the action, and not
against one who, not being a party in the action has not yet had his day in court.[29]
The writ of execution must conform to the judgment which is to be executed, as it may not vary the
terms of the judgment it seeks to enforce. [30] Nor may it go beyond the terms of the judgment which sought
to be executed. Where the execution is not in harmony with the judgment which gives it life and exceeds it,
it has pro tanto no validity. To maintain otherwise would be to ignore the constitutional provision against
depriving a person of his property without due process of law.[31]
The writ of execution issued by the Secretary of Natural Resources on January 8, 1987 clearly varies
the term of his Decision of October 1, 1986, inasmuch as the Writ includes the MIWPI as party liable
whereas the Decision only mentions Milagros Matuguina/MLE.
There is no basis for the issuance of the Order of Execution against the petitioner. The same was issued
without giving the petitioner an opportunity to defend itself and oppose the request of DAVENCOR for the
issuance of a writ of execution against it. In fact, it does not appear that petitioner was at all furnished with
a copy of DAVENCORs letter requesting for the Execution of the Honorable Secretarys decision against
it. Petitioner was suddenly made liable upon the order of execution by the respondent Secretarys expedient
conclusions that MLE and MIWPI are one and the same, apparently on the basis merely of DAVENCORs letter
requesting for the Order, and without hearing or impleading MIWPI. Until the issuance of the Order of
execution, petitioner was not included or mentioned in the proceedings as having any participation in the
encroachment in DAVENCORs timber concession. This action of the respondent Secretary disregards the
most basic tenets of due process and elementary fairness.
The liberal atmosphere which pervades the procedure in administrative proceedings does not empower
the presiding officer to make conclusions of fact before hearing all the parties concerned. [32] In Police
Commission vs. Hon Judge Lood,[33] we held that the formalities usually attendant in court hearings need not
be present in an administrative investigation, provided that the parties are heard and given the opportunity
to adduce their evidence. The right to notice and hearing is essential to due process and its non-observance
will, as a rule, invalidate the administrative proceedings.

As observed by the appellate court, to wit:


the appellant should have filed a Motion with the Minister with Notice to the appellee to include the latter as
party liable for the judgment in order to afford the appellee an opportunity to be heard on its liability for the
judgment rendered against Ma. Milagros Matuguina doing business under the name Matuguina Logging
Enterprises.[34]
Continuing, the said court stated further that:
Nevertheless, the failure to comply with the procedure in order to satisfy the requirements of due process
was cured by the present action for prohibition where the liability of appellee has been ventilated.
We do not agree. Essentially, Prohibition is a remedy to prevent inferior courts, corporations, boards or
persons from usurping or exercising a jurisdiction or power with which they have not been vested by
law[35] As we held in Mafinco Trading Corporation vs. Ople, et al,[36] in a certiorari or prohibition case, only
issues affecting the jurisdiction of the tribunal, board and offices involved may be resolved on the basis of
undisputed facts.
The issue of whether or not petitioner is an alter ego of Milagros Matuguina/MLE, is one of fact, and
which should have been threshed out in the administrative proceedings, and not in the prohibition
proceedings in the trial court, where it is precisely the failure of the respondent Minister of Natural
Resources to proceed as mandated by law in the execution of its order which is under scrutiny.
Assuming, arguendo, that prohibition is the proper remedy for determining the propriety of piercing the
separate personality of petitioner with its stockholders, the evidence presented at said trial does not warrant
such action.
It is settled that a corporation is clothed with a personality separate and distinct from that of persons
composing it. It may not generally be held liable for that of the persons composing it. It may not be held
liable for the personal indebtedness of its stockholders or those of the entities connected with it. Conversely,
a stockholder cannot be made to answer for any of its financial obligations even if he should be its president.
[37]
But when the juridical personality of the corporation is used to defeat public convenience, justify wrong,
protect fraud or defend crime, the corporation shall be considered as a mere association of persons (Koppel,
Inc. vs. Yatco, 77 Phil 496, Palay, Inc. vs. Clave, G.R. No. 56076, September 21, 1983, 124 SCRA 638), and
its responsible officers and/or stockholders shall be individually liable (Namarco vs. Associated Finance Co.,
Inc., G.R. No. L- 20886, April 27, 1967, 19 SCRA 962). For the same reasons, a corporation shall be liable
for the obligations of a stockholder (Palacio vs. Fely Transportation Co., G.R. No. L-15121, August 31, 1963,
5 SCRA 1011), or a corporation and its successor-in-interest shall be considered as one and the liability of
the former attach to the latter.[38]
But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be
clearly and convincingly established. It cannot be presumed.[39]
In the case at bar, there is, insufficient basis for the appellate courts ruling that MIWPI is the same as
Matuguina. The trial courts observation is enlightening.
Despite apparently opposing evidence of both parties, the Court gathered and finds, that defendants
attempt to pierce the veil of corporate personality of plaintiff corporation, as to consider plaintiff corporations
merely an adjunct or alter ego of Maria Milagros Matuguina Logging Enterprises, to justify defendants claim
against plaintiff corporation, suffers heavily from insufficiency of evidence.
It is the vehement contention of defendants, to bolster its claim, that plaintiff corporation is the alter ego of
Maria Milagros Matuguina Logging Enterprises, because when Milagros Matuguina became the Chairman of
the Board of Directors of plaintiff corporation, she requested for the change of name and transfer of
management of PTL No. 30, from her single proprietorship, to plaintiff corporation.

Secondly, when Milagros Matuguina executed the deed of transfer, transferring her forest concession under
PTL No, 30, together with all the structures and improvements therein, to plaintiff corporation, for a
consideration of P14,800.00 representing 148,000 shares of stocks of plaintiff corporation actually all
existing shares of stocks of Milagros Matuguina, in plaintiff corporation represents 77.4% therein; suffice to
say that plaintiff corporation practically became an alter ego of Milagros Matuguina.
Defendants arguments on this peripheral aspect of corporate existence, do not at all indicate that such a
legal fiction, was granted.
In the first place the alleged control of plaintiff corporation was not evident in any particular corporate acts
of plaintiff corporation, wherein Maria Milagros Matuguina Logging Enterprises using plaintiff corporation,
executed acts or powers directly involving plaintiff corporation.
Neither was there any evidence of defendants, that Maria Milagros Matuguina Logging Enterprises, using the
facilities and resources of plaintiff corporation, involved itself in transaction using both single proprietorship
and plaintiff corporation in such particular line of business undertakings.
As stated by this court in resolving plaintiffs prayer for issuance of a writ of preliminary injunction, said:
There is actually, no evidence presented by defendant, showing that sometime on March 15, 1986, to
January 1987, during which period, the subject decision of Hon. Secretary of Natural Resources and
corresponding writ of execution, Maria Milagros Matuguina was a stockholder of plaintiff corporation in such
amount or was she an officer of plaintiff corporation in whatever capacity.
The above circumstances is relevant and significant to assume any such justification of including plaintiff
corporation in the subject writ of execution, otherwise as maintained by defendants, what matters most was
the control of Milagros Matuguina Logging Enterprises of plaintiff corporation in 1974 and 1975, when the
administrative case was pending, this circumstance alone without formally including plaintiff corporation in
said case, will not create any valid and sufficient justification for plaintiff corporation, to have been
supposedly included in the suit against defendants and Maria Milagros Matuguina Logging Enterprises, in the
administrative case.
Yet, granting as claimed by defendants, that in 1974 or in 1975, Maria Milagros Matuguina became the
controlling stockholder of plaintiff corporation, on account of the change of name and transfer of
management of PTL No. 30, this circumstance, we repeat, does not of itself prove that plaintiff corporation
was the alter ego of Maria Milagros Matuguina Logging Enterprise, as enunciated in various decisions of this
Court, to wit:
It is important to bear in mind that mere ownership by a single stockholder or by another corporation of all
or nearly all of the capital stocks of the corporation, is not itself a sufficient warrant for disregarding the
fiction of separate personality. (Liddel and Co. vs. Collector of Internal revenue, G.R. No. 9687, June 30,
1961).
It is recognized as lawful to obtain a corporation charter, even with a single substantial stockholder, to
engage in specific activity and such activity may co-exist with other private activities of the stockholders.
If the corporation is substantial one, conducted lawfully; without fraud on another, its separate identity is to
be respected.[40]
In this jurisdiction, it is a settled rule that conclusions and findings of fact by trial court are entitled to
great weight on appeal and should not be disturbed unless for strong and cogent reasons because the trial
court is in a better position to examine real evidence, as well as to observe the demeanor of the witnesses
while testifying in the case.[41]

It is likewise improper to state that the MIWPI is the privy or the successor-in-interest of MLE, as the
liability for the encroachment over DAVENCORs timber concession is concerned, by reason of the transfer of
interest in PTL No. 30 from MLE to MIWPI.
First at all, it does not appear indubitable that the said transfer ever became effective, since PTL No. 30
remained in the name of Milagros Matuguina/MLE until it expired on June 30, 1977. [42]
More importantly, even if it is deemed that there was a valid change of name and transfer of interest in
the PTL No. 30, this only signifies a transfer of authority, from MLE to MIWPI, to conduct logging operations
in the area covered by PTL No. 30. It does not show indubitable proof that MIWPI was a mere conduit or
successor of Milagros Matuguina/MLE, as far the latters liability for the encroachment upon DAVENCORs
concession is concerned. This is the only conclusion which we can discern from the language of Section 61 of
P.D. 705,[43] and the letters of the Acting Minister of Natural Resources to Milagros Matuguina/MLE and to
MIWPI, on September 16, 1975.[44] In Soriano vs. Court of Appeals, this Court stated in clear language, thatIt is the general rule that the protective mantle of a corporations separate and distinct personality could only
be pierced and liability attached directly to its officers and/or members stockholders, when the same is used
for fraudulent, unfair, or illegal purpose. In the case at bar, there is no showing that the Association entered
into the transaction with the private respondent for the purpose of defrauding the latter of his goods or the
payment thereof. xxx. Therefore, the general rule on corporate liability, not the exception, should be applied
in resolving this case. (G.R. No. 49834, June 22, 1989)
The respondents cite Section 61 of P.D. 705 to establish MIWPIs succession to the liability of Milagros
Matuguina/MLE:
SEC. 61. Transfer. Unless authorized by the Department Head, no licensee, lessee, or permittee may
transfer, exchange, sell, or convey his license agreement, license, lease or permit, or any of his rights or
interest therein, or any of his assets used in connection therewith.
The licensee, lessee, or permittee shall be allowed to transfer or convey his license agreement, license,
lease, or permit only if he has not violated any forestry law, rule or regulation; has been faithfully complying
with the terms and conditions of the license agreement, license, lease or permit; the transferee has all the
qualifications and none of the disqualifications to hold a license agreement, license, lease or permit; there is
no evidence that such transfer or conveyance is being made for purposes of speculation; and the transferee
shall assume all the obligations of the transferor.
The transferor shall forever be barred from acquiring another license agreement, license, lease or permit.
Even if it is mandated in the abovestated provision that the transferee shall assume all the obligations
of the transferor this does not mean that all obligations are assumed, indiscriminately.
Invariably, it is not the letter, but the spirit of the law and intent of the legislature that is
important. When the interpretation of a statute according to the exact and literal import of its words would
lead to absurdity, it should be construed according to the spirit and reason, disregarding if necessary the
letter of the law.[45]
In construing statutes, the terms used therein are generally to be given their ordinary meaning, that is,
such meaning which is ascribed to them when they are commonly used, to the end that absurdity in the law
must be avoided.[46] The term obligations as used in the final clause of the second paragraph of Section 61 of
P.D. 705 is construed to mean those obligations incurred by the transferor in the ordinary course of
business. It cannot be construed to mean those obligations or liabilities incurred by the transferor as a result
of transgressions of the law, as these are personal obligations of the transferor, and could not have been
included in the term obligations absent any modifying provision to that effect.

In the September 16, 1975 letters of Acting Director of the Bureau of Forest Development to Milagros
Matuguina and MIWPI informing them of the approval of Matuguina's request for the change of name and
transfer of management of PTL No. 30, the following statements were made by the Acting Director:
"In view hereof, (Matuguina Integrated Wood Products, Inc.) shall assume the responsibility of paying
whatever pending liabilities and/or accounts remaining unsettled, if any, by the former licensee, Milagros
Matuguina, with the government." (Emphasis ours)[47]
Accordingly, the letter's language implies that the obligations which MIWPI are to assume as transferee
of Milagros Matuguina/MLE are those obligations in favor of the government only, and not to any other
entity. Thus this would include Forestry Charges, Taxes, Fees, and similar accountabilities.
In sum, the Court makes the following pronouncements:
(a) The respondent Honorable Minister of Natural Resources gravely abuse its discretion when it
issued its Order of Execution on January 6, 1987, including therein as one of the parties liable the
petitioner Matuguina Integrated Wood Products, Inc., which was never a party to the assailed
proceeding resulting in the issuance of such Order and, without affording the same an opportunity to be
heard before it was adjudged liable.
(b) The petitioner is a corporate entity separate and distinct from Milagros Matuguina/Matuguina
Logging Enterprises, there being no clear basis for considering it as a mere conduit or alter ego of
Matuguina/MLE, and therefore, cannot be made liable for the obligations of the same for encroachment
over the timber concession of private respondent DAVENCOR.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED, and the Decision dated February 25,
1991 is SET ASIDE. The decision of the Regional Trial Court is hereby REINSTATED, and correspondingly,
Order of Execution of the respondent Secretary of Natural Resources is declared Null and Void and without
effect.
No pronouncement as to cost.
SO ORDERED.

13.) REPUBLIC OF THE PHILIPPINES, petitioner, vs. HONORABLE SANDIGANBAYAN, VICTOR


AFRICA, LOURDES AFRICA, NATHALIE AFRICA, JOSE ENRIQUE AFRICA, PAUL DELFIN
AFRICA, ROSARIO ARELLANO, RACQUEL DINGLASAN, VICTORIA N. LEGARDA, ANGELA N.
LOBREGAT, MANUEL V. NIETO, BENITO NIETO, MA. RITA N. DE LOS REYES, EVELYN
ROMERO, ROSARIO SONGCO, CARMEN N. TUAZON and RAFAEL V. VALDEZ, respondents.
[G.R. No. 106244. January 22, 1997]

D E C I S I O N[1]
BELLOSILLO, J.:

GOVERNMENT calls upon us to issue a writ of certiorari declaring null and void the 26 November 1991
and 20 May 1992 Resolutions of respondent Sandiganbayan which granted theMotion for Declaration of NonSequestration or Invalidity of Sequestration over the shares of stock of private respondents Messrs. Victor
Africa, et al., in Eastern Telecommunications Philippines, Inc. (ETPI), and which subsequently denied
reconsideration thereof thereby lifting the writ of sequestration over the subject shares.
These facts are not disputed: On 22 July 1987 the Republic of the Philippines through the Presidential
Commission on Good Government (PCGG) and the Office of the Solicitor General filed before respondent
Sandiganbayan a complaint for reconveyance, reversion, accounting, restitution and damages against
Messrs. Jose L. Africa, Manuel H. Nieto, Jr., Ferdinand E. Marcos, Imelda R. Marcos, Ferdinand R. Marcos, Jr.,
Roberto S. Benedicto, Juan Ponce Enrile and Potenciano Ilusorio before the Sandiganbayan. The complaint,
docketed as Civil Case No. 0009, alleged that defendants illegally manipulated, under the guise of expanding
the operations of Philippine Communications Satellite Corporation (PHILCOMSAT), the purchase of major
shareholdings of Cable and Wireless Limited, a London-based telecommunications company, in ETPI which
shareholdings defendants Roberto S. Benedicto, Jose L. Africa and Manuel H. Nieto Jr., by themselves and
through corporations organized by them, namely, Polygon Investors and Managers, Inc., Aerocom Investors
and Managers, Inc., and Universal Molasses Corporation, beneficially held for themselves and for defendants
Ferdinand E. Marcos and Imelda R. Marcos. [2]
Private respondents Victor Africa, Lourdes Africa, Nathalie Africa, Jose Enrique Africa, Paul Delfin Africa,
Rosario Arellano, Racquel Dinglasan, Victoria N. Legarda, Angela N. Lobregat, Manuel V. Nieto, Ramon Nieto,
Benito Nieto, Carlos Nieto, Ma. Rita N. Delos Reyes, Evelyn Romero, Rosario Songco, Carmen N. Tuazon and
Rafael V. Valdez, who are registered stockholders of ETPI, were not impleaded in Civil Case No. 0009.
Nonetheless, they were denied the dividends appertaining to their shares. Thus on at least two (2) different
occasions, i.e., on 8 November 1988 and 31 January 1991, they had to file motions for leave of court to
intervene in Civil Case No. 0009 to be able to receive their cash dividends, which motions were both
granted.[3] On 4 October 1991 they filed a Motion for Declaration of Non-Sequestration or Invalidity of
Sequestration.
Private respondents anchor their Motion for Declaration of Non-Sequestration or Invalidity of
Sequestration on the absence of a valid sequestration over their shares of stock, and on the automatic lifting
of the writ of sequestration, granting that their shares were validly sequestered, pursuant to the second and
third paragraphs of Sec. 26, Art. XVIII, 1987 Constitution, which provide
A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the
list of the sequestered or frozen properties shall forthwith be registered with the proper court. For orders
issued before the ratification of this Constitution, the corresponding judicial action or proceeding shall be
filed within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is
commenced as herein provided.
In a Resolution dated 26 November 1991, the Sandiganbayan granted the Motion for Declaration of
Non-Sequestration or Invalidity of Sequestration filed by private respondents on the ground that since no
judicial proceeding was ever commenced against them within the constitutionally-mandated six-month
period, the writ of sequestration issued over their shares of stock is deemed to have been automatically
lifted. In a Resolution dated 20 May 1992, which was promulgated 8 June 1992, the motion for
reconsideration was denied for lack of merit.
The Government through the PCGG is now before us on certiorari claiming grave abuse of discretion
amounting to lack or in excess of jurisdiction on the part of respondent Sandiganbayan in granting private
respondents' Motion for Declaration of Non-Sequestration or Invalidity of Sequestration. In the main, the
Government submits that "although private respondents have neither been formally impleaded as parties
nor have duly been served with summons in Civil Case No. 0009, there being a finding that the subject
shares were being held merely on behalf of the already impleaded defendants in Civil Case No. 0009, there
is no doubt that there is a judicial action involving private respondents." [4] We are not persuaded.

It is elementary that before a person can be deprived of his right or property he should first be
informed of the claim against him and the theory on which such claim is premised. He should be given an
opportunity to defend himself and protect his interest. Impleading him as a defendant in a complaint is just
too basic to be disregarded. For, how can he be expected to be informed of such claim, defend himself
against it, protect his interest and prepare for trial if he is not even impleaded as a defendant in a case
involving his right or property?
In the instant case, private respondents have in the past years been deprived of their dividends which
have now accrued and accumulated, without affording them an opportunity to protect and defend their
interests. Their shares of stock in ETPI have been challenged by the Government without the latter
instituting an action to recover the same, and only on the mere allegation in a collateral proceeding,
belatedly made, that they are also part of ill-gotten wealth. The Government is thus seeking to recover the
shares of stock of private respondents through an action where the named defendants are different from
private respondents herein.
The procedure is highly irregular and seriously flawed. If the Government is really interested in claiming
the shares of stock of private respondents the proper procedure is to implead them in a complaint for the
recovery of those shares. Unfortunately, it has allowed the period to lapse without impleading them. If the
defendants in Civil Case No. 0009, who have been particularly identified as having manipulated the transfer
of shares of stock in ETPI to their names allegedly under unconscionable terms and conditions, were
impleaded to be able to defend themselves and their interests, with more reason should private respondents
herein, who have not even been shown to have participated in the illicit transactions, be impleaded and
given a chance to be heard. For, the sanctified principle that no person shall be deprived of life, liberty or
property without due process of law requires that at the outset a person should first be named and included
in a suit before his very existence is disregarded and his freedom and property taken away from him.
Actions must be brought against the persons who are to be bound by the judgment obtained therein. [5]
We are not unaware of the various PCGG sequestration cases decided by this Court on 23 January 1995
where it was held that "corporations or business enterprises alleged to be repositories of 'ill-gotten' wealth
(need not) be actually and formally impleaded in the actions for the recovery thereof, in order to maintain in
effect existing sequestration thereof." [6] But those cases should be distinguished from the instant case. In
those 21 cases the companies as well as properties which former President and Mrs. Ferdinand Marcos, their
relatives, friends and business associates allegedly used as depositaries or as instruments to illegally amass
wealth, or which supposedly constituted fruits of ill-gotten wealth, were sequestered. Complaints were
thereafter filed by the PCGG against individual persons believed to be the owners or holders of the shares of
stock of the aforesaid companies. The companies were not themselves impleaded as defendants but merely
enumerated in lists annexed to the complaints against the named individuals.
The defendants therein banked on the omissions and sought the lifting of the orders of sequestration
on the ground that no proper judicial action had been filed within the time and in the manner required by
the Constitution against the corporations with which they were associated. They argued that upon the
expiration of the reglementary period the sequestration of the corporations should be deemed automatically
lifted. Under the facts especially attendant in those cases we said it should not be so. There we held that the
Constitution did not describe nor specify the kind and character of the judicial action or proceeding to be
instituted but only required that the action or proceeding involved the matter of sequestration, freezing or
provisional takeover of specific properties, having for its object the demonstration by competent evidence
that the property sequestered, frozen or taken over was indeed "ill-gotten wealth" over which the
government had a legitimate claim for recovery and other reliefs. The supposed omission was rationalized
thus
A. Error Immaterial to Requirement to File Actions or Proceedings within Constitutional Time Limits
Such a procedural defect, however, conceding its existence for the nonce, does not contradict or adversely
affect the actuality that judicial actions or proceedings had been brought within the time limits laid down by
the Constitution " for" them, i.e., with regard or in relation to, in connection with, or involving or concerning
the sequestration or seizure by the PCGG of the assets or properties in question.

Other considerations bearing upon the matter should also be taken into account.
B. Impleading Unnecessary in Cases for Recovery of Shares of Stock or Bank Deposits
As regards actions in which the complaints seek recovery of defendants' shares of stock in existing
corporations (e.g., San Miguel Corporation, Benguet Corporation, Meralco, etc.) because (they were)
allegedly purchased with misappropriated public funds, in breach of fiduciary duty, or otherwise illicit or
anomalous conditions, the impleading of said firms would clearly appear to be unnecessary. If warranted by
the evidence, judgments may be handed down against the corresponding defendants divesting them of
ownership of their stock, the acquisition thereof being illegal and consequently burdened with a constructive
trust, and imposing on them the obligation of surrendering them to the Government.
Quite the same thing may be said of illegally obtained funds deposited in banks. The impleading of the
banks would also appear unnecessary. Indeed, there would exist no cause of action against them. Judgment
may properly be rendered on the basis of competent evidence, that said funds are ill-gotten wealth over
which the defendants have no right, and should consequently be surrendered to their rightful owner, the
Government. The judgment would constitute sufficient warrant for the bank to make the corresponding
transfer of the funds.
C. Impleading Unnecessary Re Firms Which Are the Res of the Actions
And as to corporations organized with ill-gotten wealth, but are not guilty of misappropriation, fraud or other
illicit conduct in other words, the companies themselves are the object or thing involved in the action,
the res thereof there is no need to implead them either. Indeed, their impleading is not proper on the
strength alone of having been formed with ill-gotten funds, absent any other particular wrongdoing on their
part. The judgment may simply be directed against the shares of stock shown to have been issued in
consideration of ill-gotten wealth.
Such showing of having been formed with, or having received ill-gotten funds, however strong or convincing,
does not, without more, warrant identifying the corporations in question with the persons who formed or
made use of them to give the color or appearance of lawful, innocent acquisition to illegally amassed wealth
at the least, not so as (to) place on the Government the onus of impleading the former together with the
latter in actions to recover such wealth. Distinguished, in terms of juridical personality and legal culpability
from their erring members or stockholders, said corporations are not themselves guilty of the sins of the
latter, of the embezzlement, asportation, etc., that gave rise to the Government's cause of action for
recovery; their creation or organization was merely the result of their members' (or stockholders')
manipulations and maneuvers to conceal the illegal origins of the assets or monies invested therein. In this
light, they are simply the res in the actions for the recovery of illegally acquired wealth, and there is, in
principle, no cause of action against them and no ground to implead them as defendants in said actions.
The Government is, thus, not to be faulted for not making such corporations defendants in the actions
referred to. It is even conceivable that had this been attempted, motions to dismiss would have lain to
frustrate such attempts.[7]
Private respondents in the instant case, as already stated, are not even sued nor impleaded as
defendants in Civil Case No. 0009 before public respondent Sandiganbayan. Neither are they mentioned in
the complaint of the Government. Their names only surfaced when they were forced to intervene in the case
since all the cash dividends declared by the Board of Directors of ETPI were being turned over to the PCGG
including the cash dividends due them. Thus, each time a cash dividend was declared they had to file a
motion to intervene in Civil Case No. 0009 to be able to petition respondent court to order the PCGG to
release to them their respective dividends. Accordingly, private respondents had to file in Civil Case No.
0009 aMotion for Declaration of Non-Sequestration or Invalidity of Sequestration, which respondent court
granted.
Clearly, there is a material variance between the factual circumstances in the 21 sequestration cases on
one hand, and those in the instant case on the other. In the former, court actions were instituted against

natural persons suspected to be "dummies" whose shares of stock in different corporations the Government
has been trying to recover. In the case before us, no court action has ever been instituted against private
respondents. In the former, the corporations which were supposedly used as depositaries or as instruments
to illegally amass wealth, or which allegedly constituted fruits of ill-gotten wealth, were named in lists
annexed to the complaints filed against the natural persons who were suspected of being dummies. In the
latter case, there was not even a mention of private respondents' names in the complaints filed by the
Government. In the former, the Government was actually after the shares of stock of the defendantstockholders of the corporations who supposedly misappropriated public funds or who entered into illicit or
anomalous transactions prejudicial to the government, not the corporations themselves. Thus it was held
that the omission to implead the corporations was not fatal. In the latter, it appears that the Government is
after the shares of stock in the name of private respondents. Consequently, the failure to implead them is a
serious procedural flaw. Indeed, the firms in the various PCGG sequestration cases and private respondents
in the present case stand on different grounds.
Thus, since only Jose L. Africa, Manuel H. Nieto Jr., Ferdinand E. Marcos, Imelda R. Marcos, Ferdinand
R. Marcos Jr., Roberto S. Benedicto, Juan Ponce Enrile, and Potenciano Ilusorio were impleaded as
defendants in Civil Case No. 0009 while private respondents were not, only the shares of stock registered in
the names of defendants should be in issue. Those registered in the names of others, e.g., those of private
respondents, should be spared unless it can be shown in a proper proceeding that they are likewise illgotten wealth or fruits of ill-gotten wealth. In this regard, if only to uphold the rule of law, the minimum
requirement is to implead the registered owners of those shares in a formal complaint to recover them.
In the same sequestration cases, we also ruled that for lack of proof, even of the specie prima facie,
the writ of sequestration should be lifted
This Court is not unmindful of the fact that its Resolution of July 26, 1991, on the petitioner's motion for
reconsideration in G.R. No. 92755 (PCGG v. Interco) appears to sustain the proposition that actual
impleading in the recovery action of a corporation under sequestration for being a repository of illegallyacquired wealth, is necessary and requisite for such proposed or pending seizure to come under the
protective umbrella of the Constitution. But Interco is to be differentiated from the cases now under review
in that the former, as already elsewhere herein made clear, there was a lack of proof, even of theprima
facie kind, that Eduardo Cojuangco, Jr., owned any stock in Interco, the evidence on record being in fact that
said corporation had been organized as a family corporation of the Luys.
So too, this Court's judgment in the so-called "PJI Case" (Republic of the Philippines
[PCGG] v. Sandiganbayan and Rosario Olivares) may not be ragarded as on all fours with the cases under
consideration. The PJI Case involved the shares of stock in the name of eight (8) natural persons which had
never been sequestered at all.
What happened was that the PCGG simply arrogated unto itself the right to vote those unsequestered shares
on the bare claim that the eight (8) registered owners thereof were "dummies" of Benjamin Romualdez, the
real owner of the shares; and all that the PCGG had done as predicate for that act of appropriation of the
stock, was to include all the shares of PJI in a list (Annex A) appended to its complaint in Sandiganbayan
Case No. 0035, describing them as among the properties illegally acquired by Romualdez. Unfortunately, as
in Interco, the PCGG failed to substantiate by competent evidence its theory of clandestine ownership of
Romualdez; and since moreover, there had been no sequestration of the alleged dummies' shares of stock, it
was undoubtedly correct for the Sandiganbayan to grant the latter's motion for them to be recognized and
declared as the true owners of the stock in question, which judgment this Court absolutely pronounced to be
free from grave abuse of discretion.[8]
The Solicitor General explained the Interco ruling in the instant petition, [9] as well as in eight (8) [10] out
of the twenty-one (21) petitions this Court resolved on 23 January 1995 thuswise
The reason for the correctness of the (Interco) exception is obviously the doctrine of "piercing the veil of
corporate fiction." Stated simply, this doctrine states that in an action against a person, whether natural or a
corporation, that wholly owns or controls another corporation and uses this wholly owned or controlled

corporation to evade his or its obligation or liability x x x x to hide the ill-gotten wealth of any or all of the
persons impleaded therein, a judgment against any or all of the impleaded defendants may be enforced
against any or all of the said corporations even if these corporations have not been formally impleaded as
defendants in the case.
But even if we disregard the corporate fiction of ETPI, still private respondents cannot be divested of
their shares of stock unless in a proper forum they have been shown to have committed some wrongdoing in
acquiring them. A corporation is a collection of individuals and the idea of its being a legal entity apart from
its members is a mere fiction of, law introduced for convenience in conducting business. When this fiction is
used to justify wrong, protect fraud, or defend crime, the law will disregard the existence of the corporation
as a distinct legal entity and view the latter merely as an association of persons. Accordingly, the equitable
owners of the corporation shall be personally liable and the acts of the real parties will be dealt with as
though no corporation had been formed. In the instant case, only the named defendants in Civil Case No.
0009 are being accused of wrongdoing in acquiring their shares of stock in ETPI. Thus only their identified
shares of stock in ETPI should be subject to the claims of the Government.
On the other hand, private respondents who were not charged nor impleaded as defendants are
innocent until found guilty by a court of competent jurisdiction. They should be spared until found liable.
Consequently, even if the corporate veil of ETPI is pierced, they can never be divested of their shares of
stock until shown to have engaged in illicit activities in acquiring those shares. At the very least, they have
to be impleaded in a complaint for recovery thereof. For, how can their shares of stock be considered illgotten and consequently the writ of sequestration of the said shares upheld when not a single case has been
filed against private respondents for the purpose? How can the supposed prima facie case determined by the
PCGG to be existing be substantiated? To deny them their right to such shares on the much belated
allegation and merely on the basis thereof that they fronted for former President and Mrs. Ferdinand Marcos
and their cronies would simply be to unduly perpetuate the assault on the rudimentary rules of fair play.
In Republic v. Sandiganbayan [11] we said that "[w]e need only to recall at this juncture that, as in
'INTERCO,' evidence of the PCGG is nil to even come up with a prima facie case against SIPALAY (and
ALLIED). This similitude is the decisive factor that draws the instant case away from the "Final Dispositions"
made by this Court in the 1995 Republic v. Sandiganbayan case, thus making INTERCO, as supported by the
Aetna and Seno cases, the controlling precedent." [12] In the case at hand, how can the PCGG establish its
supposedprima facie finding against private respondents when it has not even filed a case against them?
The Concurring Opinion with Qualifications of Mme. Justice Melencio-Herrera in Bataan Shipyard &
Engineering Co., Inc. v. Presidential Commission an Good Government[13] cannot escape our thoughts
I consider it imperative that sequestration measures be buttressed by judicial proceedings the soonest
possible in order to settle the matter of ownership of sequestered shares and to determine whether or not
they are legally owned by the stockholders of record or are "ill-gotten wealth" subject to forfeiture in favor
of the State. Sequestration alone, being actually an ancillary remedy to a principal action, should not be
made the basis for the exercise of acts of dominion for an indefinite period of time.
Sequestration is an extraordinary, harsh, and even severe remedy. It should be confined to its lawful
parameters and exercised, with due regard, in the words of its enabling laws, to the requirements of
fairness, due process, and Justice.
Also worth mentioning is the Dissent in those oft-repeated PCGG sequestration cases where in strong
and eloquent language it was said
While government efforts to recover illegally amassed wealth should have the support from all its branches,
eagerness and zeal should not be allowed to run berserk, overriding in the process the very principles that it
is sworn to uphold. In our legal system, the ends do not justify the means. Wrongs are never corrected by
committing other wrongs, and as above discussed, the recovery of ill-gotten wealth does not and should
never justify unreasonable intrusions into constitutionally forbidden grounds. [14]

As we held in Republic v. Sandiganbayan,[15] sequestration, etc., in order to be valid must have factual
basis and must accord due process to the parties thereby affected that said remedies are not meant to
create a permanent situation as regards the property subject thereof, or divest ownership or rights, that
they are in fact merely provisional and temporary and subsist only until ownership is finally judicially
determined.
Thus, we add, sequestration if it is to adhere to constitutional due process cannot be allowed to hang
interminably and forever!
WHEREFORE, premises considered, the instant petition for certiorari is DISMISSED.
SO ORDERED.

14.)

TRADERS ROYAL BANK , petitioner , vs


GUARANTY
ASSURANCE
CORPORATION
PHILIPPINES , respondents .

TORRES

JR

No

93397

March 3

1997

COURT OF APPEALS ,
and
CENTAL
BANK

FILRITERS
of
the

Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals
dated January 29 , 1990 , [1] affirming the nullity of the transfer of Central Bank Certificate of
Indebtedness ( CBCI ) No . D891 , [2] with a face value of P500 , 000 , from the
Philippine Underwriters Finance Corporation ( Philfinance ) to the petitioner Trader
s Royal
Bank ( TRB )
, under a Repurchase Agreement[3] dated February 4 , 1981 , and a Detached
Assignment[4] dated April 27 , 1981 .
Docketed as Civil Case No . 83 - 17966 in the Regional Trial Court of Manila , Branch
32 , the action was originally filed as a Petition for Mandamus[5] under Rule 65 of the Rules of
Court , to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to
petitioner Traders Royal Bank ( TRB )
. paragraph paragraph paragraph
In the said petition

TRB stated that

3 . On November 27 , 1979 , Filriters Guaranty Assurance


Corporation ( Filriters ) executed a
Detached Assignment
xxx , whereby Filriters , as
registered owner , sold , transferred , assigned and delivered unto Philippine Underwriters Finance
Corporation ( Philfinance ) all its rights and title to Central Bank Certificates of
Indebtedness ( CBCI ) Nos . D890 to D896 , inclusive , each in the denomination of
PESOS : FIVE HUNDRED THOUSAND ( P500 , 000 ) and having an aggregate value of
PESOS : THREE MILLION FIVE HUNDTHOUSAND ( P3 , 500 , 000 . 00 )
;
4 . The aforesaid Detached Assignment ( Annex
A
) contains an express authorization
executed by the transferor intended to complete the assignment through the registration of the transfer in
the name of PhilFinance , which authorization is specifically phrased as
follows :
( Filriters ) hereby irrevocably authorized the said issuer ( Central Bank ) to
transfer the said bond / certificates on the books of its fiscal agent ; paragraph paragraph paragraph
5 . On February 4 , 1981 , petitioner entered into a Repurchase Agreement with PhilFinance
xxx , whereby , for and in consideration of the sum of PESOS : FIVE HUNDRED
THOUSAND ( P500 , 000 . 00 )
, PhilFinance sold , transferred and delivered to petitioner
CBCI 4 - year , 8th series , Serial No . D891 with a face value of P500 , 000 . 00

xxx , which CBCI was among those previously acquired by PhilFinance from Filriters as averred in
paragraph 3 of the Petition ;
6 . Pursuant to the aforesaid Repurchase Agreement ( Annex
B
)
, Philfinance agreed
to repurchase CBCI Serial No . D891 ( Annex
C
)
, at the stipulated price of
PESOS : FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTY - ONE &
11 / 100 ( P519 , 361 . 11 ) on April 27 , 1981 ; paragraph paragraph paragraph
7 . PhilFinance failed to repurchase the CBCI on the agreed date of maturity , April
27 , 1981 , when the checks it issued in favor of petitioner were dishonored for insufficient funds

8 . Owing to the default of PhilFinance , it executed a Detached Assignment in favor of the Petitioner
to enable the latter to have its title completed and registered in the books of the respondent . And by
means of said Detachment Assignment , Philfinance transferred and assigned all its rights and title in the
said CBCI ( Annex
C
) to petitioner and , furthermore , it did thereby
irrevocably
authorize the said issuer ( respondent herein ) to transfer the said bond / certificate on the books
of its fiscal agent .
xxx paragraph paragraph paragraph
9 . Petitioner presented the CBCI ( Annex
C
)
, together with the
two ( 2 ) aforementioned Detached Assignments ( Annexes
B
and
D
)
, to
the Securities Servicing Department of the respondent , and requested the latter to effect the transfer of
the CBCI on its books and to issue a new certificate in the name of petitioner as absolute owner
thereof ; paragraph paragraph paragraph
10 . Respondent failed and refused to register the transfer as requested , and continues to do so
notwithstanding petitioner
s valid and just title over the same and despite repeated demands in
writing , the latest of which is hereto attached as Annex
E
and made an integral part
hereof ;
11 . The express provisions governing the transfer of the CBCI were substantially complied with in
petitioner
s request for registration , to wit : paragraph paragraph paragraph
No transfer thereof shall be valid unless made at said office ( where the Certificate has been
registered ) by the registered owner hereof , in person or by his attorney duly authorized in
writing , and similarly noted hereon , and upon payment of a nominal transfer fee which may be
required , a new Certificate shall be issued to the transferee of the registered holder
thereof .
paragraph paragraph paragraph
and , without a doubt , the Detached Assignments presented to respondent were sufficient
authorizations in writing executed by the registered owner , Filriters , and its
transferee , PhilFinance , as required by the above - quoted
provision ;
12 . Upon such compliance with the aforesaid requirements , the ministerial duties of registering a
transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves upon the
respondent ;
paragraph paragraph paragraph
Upon these assertions , TRB prayed for the registration by the Central Bank of the subject CBCI in
its name . paragraph paragraph paragraph
On December 4 , 1984 , the Regional Trial Court trying the case took cognizance of the
defendant Central Bank of the Philippines
Motion for Admission of Amended Answer with Counter Claim
for Interpleader , [6] thereby calling to fore the respondent Filriters Guaranty Assurance
Corporation ( Filriters )
, the
registered
owner
of
the
subject
CBCI
as
respondent . paragraph paragraph paragraph
For
following

its
part , Filriters
interjected
paragraph paragraph paragraph

as

Special

Defenses

the

No

11 . Respondent is the registered owner of CBCI


. 891 ;

12 . The CBCI constitutes part of the reserve investment against liabilities required of respondent as an
insurance company under the Insurance Code ; paragraph paragraph paragraph
13 . Without any consideration or benefit whatsoever to Filriters , in violation of law and the trust
fund doctrine and to the prejudice of policyholders and to all who have present or future claim against
policies issued by Filriters , Alfredo Banaria , then Senior Vice - President - Treasury of
Filriters , without any board resolution , knowledge or consent of the board of directors of Filriters
and without any clearance or authorization from the Insurance Commissioner , executed a detached
assignment purportedly assigning CBCI No . 891 to Philfinance ; paragraph paragraph paragraph
xxx
14 . Subsequently , Alberto Fabella , Senior Vice - President - Comptroller and Pilar
Jacobe , Vice - President - Treasury of Filriters ( both of whom were holding the same positions
in Philfinance )
, without any consideration or benefit redounding to Filriters and to the grave
prejudice of Filriters , its policy holders and all who have present or future claims against its
policies , executed similar detached assignment forms transferring the CBCI to
plaintiff ; paragraph paragraph paragraph
xxx paragraph paragraph paragraph
15 . The detached assignment is patently void and inoperative because the assignment is without the
knowledge and consent of directors of Filriters , and not duly authorized in writing by the Board , as
required by Article V , Section 3 of CB Circular No . 769 ; paragraph paragraph paragraph
16 . The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the corporate
act of Filriters and as such null and void ; paragraph paragraph paragraph
a ) The assignment was executed without consideration and for that reason , the assignment is void
from the beginning ( Article 1409 , Civil Code )
;
paragraph paragraph paragraph
b ) The assignment was executed without any knowledge and consent of the board of directors of
Filriters ; paragraph paragraph paragraph
c ) The CBCI constitutes reserve investment of Filriters against liabilities , which is a requirement
under the Insurance Code for its existence as an insurance company and the pursuit of its business
operations . The assignment of the CBCI is illegal act , in the sense of malum in se or malum
prohibitum , for anyone to make , either as corporate or personal
act ;
d ) The transfer or diminution of reserve investments of Filriters is expressly prohibited by law
immoral and against public policy ; paragraph paragraph paragraph

is

e ) The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of
Filriters ( and has in fact helped in placing Filriters under conservatorship )
, an inevitable result
known to the officer who executed the detached assignment . paragraph paragraph paragraph
17 . Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the
assignment ; paragraph paragraph paragraph
a ) The CBCI No . 891 is not a negotiable instrument and as a certificate of indebtedness is not
payable to bearer but is registered in the name of Filriters ; paragraph paragraph paragraph

b ) The provision on transfer of the CBCIs , provides that the Central Bank shall treat the registered
owner as the absolute owner and that the value of the registered certificates shall be payable only to the
registered owner ; a sufficient notice to plaintiff that the assignments do not give them the registered
owner
s right as absolute owner of the CBCIs ; paragraph paragraph paragraph
c ) CB Circular 769 , Series of 1980 ( Rules and Regulations Governing CBCIs )
registered certificates are payable only to the registered owner ( Article II , Section
1 )
. paragraph paragraph paragraph

provides that

18 . Plaintiff knew full well that the assignment by Philfinance of CBCI No . 891 by Filriters is not a
regular transaction made in the usual or ordinary course of business ; paragraph paragraph paragraph
a ) The CBCI constitutes part of the reserve investments of Filriters against liabilities required by the
Insurance Code and its assignment or transfer is expressly prohibited by law . There was no attempt to
get any clearance or authorization from the Insurance
Commissioner ;
b ) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course of its
business ; paragraph paragraph paragraph
c ) The CBCI involved substantial amount and its assignment clearly constitutes disposition of
substantially all
of the assets of Filriters , which requires the affirmative action of the
stockholders ( Section
40 , Corporation [ sic ] Code )
. [7] paragraph paragraph paragraph

all or

In its Decision[8] dated April 29 , 1988 , the Regional Trial Court of Manila , Branch XXXII
found the assignment of CBCI No . D891 in favor of Philfinance , and the subsequent assignment of
the same CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and
effect . The dispositive portion of the decision reads : paragraph paragraph paragraph
ACCORDINGLY , judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance
Corporation and against the plaintiff Traders Royal Bank : paragraph paragraph paragraph
( a ) Declaring the assignment of CBCI No . 891 in favor of PhilFinance , and the subsequent
assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and of no
force and effect ; paragraph paragraph paragraph
( b ) Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to
pay the value of the proceeds of the CBCI No . D891 to the Filtriters Guaranty Assurance
Corporation ; paragraph paragraph paragraph
( c ) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance
Corp . The sum of P10 , 000 as attorney
s
fees ; and
(

to pay the costs

SO ORDERED

[9]

paragraph paragraph paragraph

paragraph paragraph paragraph

The petitioner assailed the decision of the trial court in the Court of Appeals , [10] but their appeal
likewise
failed . The
findings
of
fact
of
the
said
court
are
hereby
reproduced : paragraph paragraph paragraph
The records reveal that defendant Filriters is the registered owner of CBCI No . D891 . Under a
deed of assignment dated November 27 , 1971 , Filriters transferred CBCI No . D891 to Philippine
Underwriters Finance Corporation ( Philfinance )
. Subsequently , Philfinance transferred CBCI
No . D891 , which was still registered in the name of Filriters , to appellant Traders Royal

Bank ( TRB )
. The transfer was made under a repurchase agreement dated February
4 , 1981 , granting Philfinance the right to repurchase the instrument on or before April
27 , 1981 . When Philfinance failed to buy back the note on maturity date , it executed a deed of
assignment , dated April 27 , 1981 , conveying to appellant TRB all its rights and title to CBCI
No . D891 . paragraph paragraph paragraph
Armed with the deed of assignment , TRB then sought the transfer and registration of CBCI
No . D891 in its name before the Security and Servicing Department of the Central
Bank ( CB )
. Central Bank , however , refused to effect the transfer and registration in view
of an adverse claim filed by defendant Filriters . paragraph paragraph paragraph
Left with no other recourse , TRB filed a special civil action for mandamus against the Central Bank in the
Regional Trial Court of Manila . The suit , however , was subsequently treated by the lower court
as a case of interpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent
and the court adjudge which of them is entitled to the ownership of CBCI No . D891 . Failing to get a
favorable judgment . TRB now comes to this Court on
[11]
appeal .
paragraph paragraph paragraph
In the appellate court , petitioner argued that the subject CBCI was a negotiable
instrument , and having acquired the said certificate from Philfinance as a holder in due course , its
possession of the same is thus free from any defect of title of prior parties and from any defense available to
prior parties among themselves , and it may thus , enforce payment of the instrument for the full
amount thereof against all parties liable thereon . [12] paragraph paragraph paragraph
In ignoring said argument , the appellate court said that the CBCI is not a negotiable
instrument , since the instrument clearly stated that it was payable to Filriters , the registered
owner , whose name was inscribed thereon , and that the certificate lacked the words of negotiability
which serve as an expression of consent that the instrument may be transferred by
negotiation .
Obviously , the assignment of the certificate from Filriters to Philfinance was fictitious , having
been made without consideration , and did not conform to Central Bank Circular No . 769 ,
series
of 1980 , better known as the
Rules and Regulations Governing Central Bank Certificates of
Indebtedness
, which provided that any
assignment of registered certificates shall not be valid
unless made xxx by the registered owner thereof in person or by his representative duly authorized
in writing .
Petitioner
s claimed interest has no basis , since it was derived from Philfinance , whose
interest was inexistent , having acquired the certificate through simulation . What happened was
Philfinance merely borrowed CBCI No . D891 from Filriters , a sister corporation , to guarantee its
financing operations . paragraph paragraph paragraph
Said the Court

In the case at bar , Alfredo O . Banaria , who signed the deed of assignment purportedly for
and on behalf of Filriters , did not have the necessary written authorization from the Board of Directors
of Filriters to act for the latter . For lack of such authority , the assignment did not therefore bind
Filriters and violated at the same time Central Bank Circular No . 769 which has the force and effect of a
law , resulting in the nullity of the transfer ( People v . Que Po Lay , 94 Phil 640 ; 3M
Philippines , Inc . vs . Commissioner of Internal Revenue , 165 SCRA 778 )
In sum , Philfinance acquired no title or rights under CBCI No . D891 which it could assign or transfer
to Traders Royal Bank and which the latter can register with the Central
Bank . paragraph paragraph paragraph
WHEREFORE , the judgment appealed from is AFFIRMED ,
plaintiff - appellant . paragraph paragraph paragraph
SO ORDERED

[13]

with costs against

Petitioner
s present position rests solely on the argument that Philfinance owns 90% of Filriter
s
equity and the two corporations have identical corporate officers , thus demanding the application of the
doctrine of piercing the veil of corporate fiction , as to give validity to the transfer of the CBCI from the
registered owner to petitioner TRB . [14] This renders the payment by TRB to Philfinance for CBCI , as
actual payment to Filriters . Thus , there is no merit to the lower courts
ruling that the transfer of
the CBCI from Filriters to Philfinance was null and void for lack of consideration.
Admittedly , the subject CBCI is not a negotiable instrument in the absence of words of negotiability
within
the
meaning
of
the
negotiable
instruments
law ( Act
2031 )
. paragraph paragraph paragraph
The pertinent portions of the subject CBCI read

paragraph paragraph paragraph

xxx paragraph paragraph paragraph


The Central Bank of the Philippines ( the Bank ) for value received , hereby promises to pay to
bearer , or if this Certificate of indebtedness be registered , to FILRITERS GUARANTY ASSURANCE
CORPORATION , the registered owner hereof , the principal sum of FIVE HUNDRED THOUSAND
PESOS . paragraph paragraph paragraph
xxx paragraph paragraph paragraph
Properly understood , a certificate of indebtedness pertains to certificates for the creation and
maintenance of a permanent improvement revolving fund , is similar to a
bond ,
( 82
Minn . 202 )
.
Being equivalent to a bond , it is properly understood as an acknowledgment of
an obligation to pay a fixed sum of money .
It is usually used for the purpose of long term
loans . paragraph paragraph paragraph
that

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

stating

As worded , the instrument provides a promise


to pay Filriters Guaranty Assurance
Corporation , the registered owner hereof .
Very clearly , the instrument is payable only to
Filriters , the registered owner , whose name is inscribed thereon . It lacks the words of
negotiability which should have served as an expression of consent that the instrument may be transferred
by negotiation . [15] paragraph paragraph paragraph
A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE
CORPORATION , and to no one else , thus , discounting the petitioner
s submission that the
same is a negotiable instrument , and that it is a holder in due course of the
certificate . paragraph paragraph paragraph
The language of negotiability which characterize a negotiable paper as a credit instrument is its
freedom to circulate as a substitute for money .
Hence , freedom of negotiability is the touchstone
relating to the protection of holders in due course , and the freedom of negotiability is the foundation for
the
protection
which
the
law
throws
around
a
holder
in
due
course ( 11
Am . Jur . 2d , 32 )
.
This freedom in negotiability is totally absent in a certificate of
indebtedness as it merely acknowledges to pay a sum of money to a specified person or entity for a period
of time . paragraph paragraph paragraph
As
Appeals :

[16]

held
in
Caltex
paragraph paragraph paragraph

Philippines

Inc

vs

Court

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

of

used .
said .

What the parties meant must be determined by what they


paragraph paragraph paragraph

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

following
are
the
appellate
court
s
pronouncements

on

the

Clearly shown in the record is the fact that Philfinance


s title over CBCI No . D891 is
defective since it acquired the instrument from Filriters fictitiously . Although the deed of
assignment stated that the transfer was for
value received
, there was really no
consideration involved . What happened was Philfinance merely borrowed CBCI No . D891
from Filriters , a sister corporation . Thus , for lack of any consideration , the
assignment made is a complete nullity . paragraph paragraph paragraph
What is more , We find that the transfer made by Filriters to Philfinance did not conform to
Central Bank Circular No . 769 , series of 1980 , otherwise known as the
Rules
and Regulations Governing Central Bank Certificates of Indebtedness
, under which the
note was issued . Published in the Official Gazette on November 19 , 1980 , Section 3
thereof provides that
any assignment of registered certificates shall not be valid unless
made xxx by the registered owner thereof in person or by his representative duly authorized in
writing .
paragraph paragraph paragraph
In the case at bar , Alfredo O . Banaria , who signed the deed of assignment
purportedly for and on behalf of Filriters , did not have the necessary written authorization
from the Board of Directors of Filriters to act for the latter . For lack of such
authority , the assignment did not therefore bind Filriters and violated at the same time
Central Bank Circular No . 769 which has the force and effect of a law , resulting in the
nullity of the transfer ( People vs . Que Po Lay , 94 Phil 640 ; 3M
Philippines , Inc . vs . Commissioner of Internal Revenue , 165 SCRA
778 )
. paragraph paragraph paragraph
In sum , Philfinance acquired no title or rights under CBCI No . D891 which it could assign
or transfer to Traders Royal Bank and which the latter can register with the Central
Bank .
paragraph paragraph paragraph
Petitioner now argues that the transfer of the subject CBCI to TRB must be upheld , as the
respondent Filriters and Philfinance , though separate corporate entities on paper , have used their
corporate fiction to defraud TRB into purchasing the subject CBCI , which purchase now is refused
registration by the Central Bank .
paragraph paragraph paragraph
Says the petitioner

paragraph paragraph paragraph

Since Philfinance owns about 90% of Filriters and the two companies have the same corporate
officers , if the principle of piercing the veil of corporate entity were to be applied in this case , then
TRB
s payment to Philfinance for the CBCI purchased by it could just as well be considered a payment to
Filriters , the registered owner of the CBCI as to bar the latter from claiming , as it has , that it
never received any payment for that CBCI sold and that said CBCI was sold without its
authority . paragraph paragraph paragraph
x x x paragraph paragraph paragraph
We respectfully submit that , considering that the Court of Appeals has held that the CBCI21 was merely
borrowed by Philfinance from Filriters , a sister corporation , to guarantee
its ( Philfinance
s ) financing operations , if it were to be consistent therewith , on the issue
raised by TRB that there was a piercing a veil of corporate entity , the Court of Appeals should have ruled
that such veil of corporate entity was , in fact , pierced , and the payment by TRB to Philfinance
[17]
should be construed as payment to Filriters .
paragraph paragraph paragraph

We disagree with the Petitioner

Petitioner cannot put up the excuse of piercing the veil of corporate entity , as this is merely an
equitable remedy , and may be awarded only in cases when the corporate fiction is used to defeat public
convenience , justify wrong , protect fraud or defend crime or where a corporation is a mere alter ego
or business conduit of a person .[18]
Piercing the veil of corporate entity requires the court to see through the protective shroud which
exempts its stockholders from liabilities that ordinarily , they could be subject to , or distinguishes one
corporation from a seemingly separate one , were it not for the existing corporate fiction . But to do
this , the court must be sure that the corporate fiction was misused , to such an extent that
injustice , fraud , or
crime
was
committed
upon
another , disregarding , thus , his , her , or its rights . It is the protection of the
interests of innocent third persons dealing with the corporate entity which the law aims to protect by this
doctrine .
The corporate separateness between Filriters and Philfinance remains , despite the petitioners
insistence on the contrary . For one , other than the allegation that Filriters is 90% owned by
Philfinance , and the identity of one shall be maintained as to the other , there is nothing else which
could lead the court under the circumstances to disregard their corporate personalities .
Though it is true that when valid reasons exist , the legal fiction that a corporation is an entity with
a juridical personality separate from its stockholders and from other corporations may be
disregarded , [19] in the absence of such grounds , the general rule must be upheld . The fact that
Philfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate
status of Filriters . In Liddel & Co .
, Inc . vs . Collector of Internal Revenue , [20] the
mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate
personalities . paragraph paragraph paragraph
In the case at bar , there is sufficient showing that the petitioner was not defrauded at all when it
acquired the subject certificate of indebtedness from Philfinance . paragraph paragraph paragraph
On its face , the subject certificates states that it is registered in the name of Filriters . This
should have put the petitioner on notice , and prompted it to inquire from Filriters as to Philfinance
s
title over the same or its authority to assign the certificate . As it is , there is no showing to the effect
that petitioner had any dealings whatsoever with Filriters , nor did it make inquiries as to the ownership
of the certificate . paragraph paragraph paragraph
The
TRANSFER

terms
Thus

of
the
CBCI
No . D891
contain
a
provision

on

its

TRANSFER : This Certificate shall pass by delivery unless it is registered in the owner
s name at
any office of the Bank or any agency duly authorized by the Bank , and such registration is noted
hereon . After such registration no transfer thereof shall be valid unless made at said office ( where
the Certificate has been registered ) by the registered owner hereof , in person , or by his
attorney , duly authorized in writing and similarly noted hereon and upon payment of a nominal transfer
fee which may be required , a new Certificate shall be issued to the transferee of the registered owner
thereof . The bank or any agency duly authorized by the Bank may deem and treat the bearer of this
Certificate , or if this Certificate is registered as herein authorized , the person in whose name the
same is registered as the absolute owner of this Certificate , for the purpose of receiving payment
hereof , or on account hereof , and for all other purpose whether or not this Certificate shall be
overdue .
paragraph paragraph paragraph
This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require
Philfinance to submit such an authorization from Filriters . paragraph paragraph paragraph
Petitioner knew that Philfinance is not the registered owner of CBCI No . D891 . The fact that a
non - owner was disposing of the registered CBCI owned by another entity was a good reason for
petitioner
to
verify
or
inquire
as
to
the
title
of
Philfinance
to
dispose
of
the
CBCI . paragraph paragraph paragraph

Moreover , CBCI No . D891 is governed by CB Circular No . 769 , series


1980 , [21] known as the Rules and Regulations Governing Central Bank Certificates
Indebtedness , Section 3 , Article V of which provides that : paragraph paragraph paragraph

of
of

SECTION 3 . Assignment of Registered Certificates .


- Assignment of registered certificates
shall not be valid unless made at the office where the same have been issued and registered or at the
Securities Servicing Department , Central Bank of the Philippines , and by the registered owner
thereof , in person or by his representative , duly authorized in writing . For this purpose , the
transferee may be designated as the representative of the registered
owner .
paragraph paragraph paragraph
Petitioner , being a commercial bank , cannot feign ignorance of Central Bank Circular
769 , and its requirements . An entity which deals with corporate agents within circumstances
showing that the agents are acting in excess of corporate authority , may not hold the corporation
liable . [22] This is only fair , as everyone must , in the exercise of his rights and in the performance
of his duties , act with justice , give everyone his due , and observe honesty and good
faith . [23] paragraph paragraph paragraph
The transfer made by Filriters to Philfinance did not conform to the said Central Bank
Circular , which for all intents , is considered part of the law . As found by the courts
aquo , Alfredo O . Banaria , who had signed the deed of assignment from Filriters to
Philfinance , purportedly for and in favor of Filriters , did not have the necessary written authorization
from the Board of Directors of Filriters to act for the latter . As it is , the sale from Filriters to
Philfinance was fictitious , and therefore void and inexistent , as there was no consideration for the
same . This is fatal to the petitioner
s cause , for then , Philfinance had no title over the
subject certificate to convey to Traders Royal Bank . Nemo potest nisi quod de jure potest - no man
can do anything except what he can do lawfully . paragraph paragraph paragraph
Concededly , the subject CBCI was acquired by Filriters to form part of its legal and capital
reserves , which are required by law [24] to be maintained at a mandated level . This was pointed out
by Elias Garcia , Manager - in - Charge of respondent Filriters , in his testimony given before the
court on May 30 , 1986 . paragraph paragraph paragraph
Q Do you know this Central Bank Certificate of Indebtedness , in short ,
No . D891
in
the
face
value
of P500 , 000 . 00
subject
of
case ? paragraph paragraph paragraph
A Yes

sir

CBCI
this

paragraph paragraph paragraph

Q Why do you know this

paragraph paragraph paragraph

A Well , this was the CBCI of the company sought to be examined by the Insurance
Commission sometime in early 1981 and this CBCI No . 891 was among the CBCI
s
that were found to be missing . paragraph paragraph paragraph
Q Let me take you back further before 1981 . Did you have the knowledge of this CBCI
No . 891 before 1981 ? paragraph paragraph paragraph
A Yes , sir .
legal
company .

This CBCI is an investment of Filriters required by the Insurance Commission as


reserve
of
the

Q Legal reserve for the purpose of what

paragraph paragraph paragraph

A Well , you see , the Insurance companies are required to put up legal reserves under
Section 213 of the Insurance Code equivalent to 40 percent of the premiums receipt and
further , the Insurance Commission requires this reserve to be invested preferably in
government securities or government bonds . This is how this CBCI came to be purchased
by the company .
paragraph paragraph paragraph
It cannot , therefore , be taken out of the said fund , without violating the requirements of
the law . Thus , the unauthorized use or distribution of the same by a corporate officer of Filriters
cannot bind the said corporation , not without the approval of its Board of Directors , and the
maintenance of the required reserve fund . paragraph paragraph paragraph

Consequently , the title of Filriters over the subject certificate of indebtedness must be upheld over
the claimed interest of Traders Royal Bank . paragraph paragraph paragraph
29

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

paragraph paragraph paragraph

15.) PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, OCEANIC WIRELESS NETWORK, INC.,


DAVID M. CASTRO, MAXIMO A. MACEREN, CAESAR PARLADE, MELQUIADES C. GUTIERREZ,
EDUARDO
M.
VILLANUEVA,
and
EDILBERTO
S.
ALEJANDRO, petitioners,
vs. HONORABLESANDIGANBAYAN (Third Division), JOSE L. AFRICA +, MANUEL H.
NIETO, JR., ANDRES L. AFRICA, AEROCOM INVESTORS AND MANAGERS INC., POLYGON
INVESTORS
AND
MANAGERS,
INC.,
and
BELGOR
INVESTMENT
CORPORATION, respondents.
[G.R. Nos. 119609-10. September 21, 2001]
[G.R. Nos. 119623-25. September 21, 2001]
OCEANIC WIRELESS NETWORK, INC., MELQUIADES C. GUTIERREZ, MAXIMO A. MACEREN, and
CAESAR O. V. PARLADE, petitioners, vs.HONORABLE SANDIGANBAYAN (Third Division),
and JOSE L. AFRICA,+ MANUEL H. NIETO, JR., ANDRES L. AFRICA, AEROCOM INVESTORS &
MANAGERS, INC., POLYGON INVESTORS & MANAGERS, INC., SILANGAN INVESTORS &
MANAGERS INC., and BELGOR INVESTMENT CORPORATION, respondents.
DECISION
PARDO, J.:
What is before the Court is a joint petition[1] to annul and set aside the decision[2] of the Sandiganbayan
dismissing petitioners complaint for injunction with damages against Victor A. Africa, Jose L. Africa, + Manuel
H. Nieto, Jr. and Juan de Ocampo[3] and the resolution[4] denying petitioners motion for reconsideration.
The Facts
On August 28, 1990, the Presidential Commission on Good Government (PCGG) sent Corporate
Secretary Victor A. Africa of Oceanic Wireless Network, Inc. (OWNI), a letter dated August 3, 1990, directing
him to send notices to all stockholders of record of OWNI for special stockholders meeting to be held on
September 17, 1990. He was required to issue one qualifying share each to PCGG Commissioners Maximo A.
Maceren and David M. Castro from the unissued shares and to record the transfer in the stock and transfer
book of OWNI. Failure to comply within five (5) days from receipt thereof, Assistant Solicitor General Ramon
S. Desuasido would be designated as acting corporate secretary.

On September 17, 1990, during the special stockholders meeting of OWNI, PCGG voted all the Class A
shares in the election of directors and elected to the board of directors Commissioners Maximo A. Maceren,
Cesar O. V. Parlade and Melquiades C. Gutierrez representing the Class A shares and Colin Brooker and Terry
Miller representing Class B and C shares. The new board of directors then elected Commissioner Maximo A.
Maceren as Chairman of the Board, Melquiades C. Gutierrez as President, Assistant Solicitor General Ramon
S. Desuasido as Acting Corporate Secretary and Almario P. Velasco as Acting Treasurer. None of the
registered Class A shareholders of OWNI was present in that special stockholders meeting.
PCGG sequestered the Class A shareholding in OWNI amounting to 63,573 shares out of the total
105,955 outstanding capital stock, or about 60% of the outstanding capital stock, and PCGG voted all the
Class A shares by virtue of the following writs of sequestration, to wit:
(a) The order of sequestration, dated April 11, 1986, which covers shares of Jose L. Africa, + Roberto S.
Benedicto,+ Andres L. Africa and Victor A. Africa in OWNI. PCGG Commissioner Mary Concepcion Bautista
signed the sequestration order.
(b) The writs of sequestration, dated June 15, 1988, were issued by the PCGG against Aerocom, Polygon on
August 3, 1988 or one day after the constitutional deadline as provided in Section 26, Article XVIII of the
1987 Constitution. Furthermore, no court case has been filed against Aerocom, Polygon, Belgor Investment
Corp., Silangan Investors & Manages, Inc. and OWNI.
On October 9, 1990, Corporate Secretary Victor A. Africa wrote the Securities Exchange Commission
questioning the election of PCGG nominees as directors of the OWNI board on the ground that they were not
stockholders of OWNI.
Upon instruction of the Africa group, Atty. Victor A. Africa sent notices to all stockholders of OWNI
advising them of a special stockholders meeting of OWNI to be held on January 27, 1991, at the Holiday
Inn, Manila, for the purpose of the election of directors and other matters.
On January 27, 1991, the special stockholders meeting of OWNI took place. Stockholders owning
63,573 Class A shares were represented. Atty. Juan de Ocampo was designated as acting secretary to record
the minutes of the meeting. An election of directors for Class A shares was held. Manuel H. Nieto, Jr., Jose L.
Africa+ and Andres L. Africa were elected as directors for Class A shares for 1991 until their successors are
elected and qualified. Class B and C shareholders did not attend the meeting. No new directors for them
were elected.
The stockholders directed the new officers to dig deeper to the reported OWNI-Digitel deal. Atty. Victor
A. Africa, as corporate secretary, was directed to furnish all the banks with said resolution. The board formed
an executive committee and appointed Manuel H. Nieto, Jr. as chairman, Jose L. Africa + as member and the
incumbent directors representing Class B and C shares.
On July 8, 1991, Manuel H. Nieto, Jr., in his capacity as OWNI president, wrote the National
Telecommunications Commission (NTC), requesting the NTC to hold in abeyance the application, or if
granted, to withdraw and recall OWNIs permit and frequency allocations as the same were made by an
unauthorized board.
On July 10, 1991, Manuel H. Nieto, Jr. wrote Melquiades C. Gutierrez informing him of the new set of
directors and requested for the turnover of the management of OWNI, including all corporate records to the
new set of directors. Atty. Victor A. Africa, in compliance with the directive of the OWNI board, wrote Traders
Royal Bank informing it of the new bank signatories.
On July 30, 1991, Manuel H. Nieto, Jr. and Jose L. Africa + circularized a letter to the staff and
employees of OWNI informing them of the new set of board of directors.

On July 29, 1991, PCGG, acting for itself and in behalf of OWNI, filed with the Sandiganbayan a
complaint for injunction with damages against Victor A. Africa, Jose L. Africa, + Manuel H. Nieto, Jr. and Juan
de Ocampo.[5] PCGG sought to enjoin the defendants from interfering with PCGGs management of OWNI
and/or representing themselves as directors.
On August 1, 1991, Jose L. Africa, + Manuel H. Nieto, Jr., Andres L. Africa, Aerocom, Polygon, Belgor,
and Silangan, including OWNI itself, filed with the Sandiganbayan a separate petition for certiorari and
prohibition, with prayer for temporary restraining order (TRO) and preliminary injunction, against the PCGG.
[6]

By agreement of the parties, the Sandiganbayan jointly heard Civil Cases Nos. 0126 and 0127.
On April 25, 1994, the Sandiganbayan promulgated a decision, the dispositive portion of which reads:
(1) declaring as null and void the PCGG writs of sequestration, dated June 15, 1988 against
Aerocom Investors & Managers Inc., Polygon Investors & Managers, Inc., Silangan Investors &
Managers, Inc. and Belgor Investments, Inc. for the reason that the said writs of sequestration
were deemed automatically lifted for failure of the PCGG to commence the necessary judicial
action against the said corporations within the required six-month period pursuant to Section
26 of Article XVIII of the 1987 Constitution.
(2) declaring as null and void the order of sequestration, dated April 11, 1986, relative to the
OWNI shares owned by Jose L. Africa and Victor A. Africa on the ground that the said order of
sequestration was signed only by PCGG Commissioner Mary Concepcion Bautista in violation of
Section 3 of the Rules & Regulations of the PCGG requiring the signatures of at least two
Commissioners on such order of sequestration.
(3) declaring as null and void the acts and conduct of PCGG, its agents, nominees and
representatives in reorganizing and taking over the Board of Directors and management of
OWNI, including the acts of calling and holding a special stockholders meeting of OWNI on
September 17, 1990, the election therein of OWNI chairman and directors, president, acting
secretary and acting treasurer and the appointment of PCGG nominees as corporate officers of
OWNI;
(4) ordering all the PCGG nominees and representatives in the present Board of Directors and
management of OWNI including but not limited to respondents Maximo A. Maceren, David M.
Castro, Cesar Parlade, Melquiades C. Gutierrez, Eduardo M. Villanueva and Edilberto S.
Alejandro as well as their replacements, if any, to vacate their positions in OWNI; and
considering the interest of justice, respondents in Civil Case No. 0127 are hereby ordered to
REFRAIN and DESIST;
(a) from further implementing /acting on the basis of the Writs of Sequestration such as operating,
administering and managing the affairs and business of OWNI, or representing themselves as directors and
officers of OWNI;
(b) from disbursing, utilizing, disposing and committing the funds and assets of OWNI and/or entering into
any transactions for the benefit of Digitel;
(c) from excluding petitioners Jose L. Africa, Manuel H. Nieto, Jr. and Andres L. Africa as Chairman of the
Board, President and Treasurer, respectively, of OWNI;
(d) from making any expenditures for the use and benefit of Digitel and pursuing any and all papers/communications filed by OWNI with the National Telecommunications Commission relative to the requirements of
Digitel to comply with Digitels franchise;

(5) ordering the respondents in Civil Case No. 0127 their officers, agents, representatives and
other persons acting under their orders/instructions: (a) to vacate OWNIs office premises at
the Electra House, Esteban St., Legaspi Village, Makati; (b) to turn over all the corporate
records of OWNI to petitioner Jose L. Africa, et al.; and (c) render an accounting of all
transactions undertaken by them in the name or in behalf of OWNI, including disbursement of
corporate funds;
(6) dismissing the complaint as well as the compulsory counterclaims in Civil Case No. 0126, with
costs against the petitioners therein, PCGG.
On May 6, 1994, petitioners filed with the Sandiganbayan a motion for reconsideration [7] of the
decision; however, on March 30, 1995, the Sandiganbayan denied the motion. [8]
Hence, this joint petition with prayer for consolidation.[9]
On August 21, 1995, we granted the consolidation.[10]
Petitioners contend that:
First: the OWNI board was dormant and inactive necessitating the PCGG takeover. And in reorganizing
the OWNI board on September 17, 1990, PCGG merely performed its duty of preventing further dissipation
of the assets of OWNI in light of a 5.7 million peso payroll anomaly committed by the former Finance
Manager of OWNI;
Second: the Sandiganbayan erred in declaring null and void the writs of sequestration against
respondents Polygon Investors and Managers, Inc., Aerocom Investors and Managers, Inc., and Silangan
Investors and Managers, Inc., for failure of the PCGG to file the required cases against these companies, as
said ruling runs counter to the recent decision of the Supreme Court in the PCGG sequestration cases;
Third: the Sandiganbayan decided on non-issues or issues that were not involved in the application for
injunction, and compounded this mistake when it granted the main reliefs prayed for in Case No. 0127,
although the hearings were only in connection with prayer for the issuance of a writ of preliminary
injunction.
Fourth: the Sandiganbayan erred in ordering the ouster of non-PCGG respondents from the positions
they were holding in OWNI without first putting in place the safeguards required by the case of Cojuangco v.
Roxas.[11]
The Issue
The main issue raised is whether or not the PCGGs takeover of OWNI is legal.
The Courts Ruling
The petition must fail.
Petitioner PCGG explained that prior to September 17, 1990, OWNI was a dormant and inactive
corporation. There was no functioning board which made possible the Finance Managers embezzlement of
company funds. And in the exercise of their powers pursuant to Executive Order Nos. 1, 2, 14 and 14-A,
PCGG sequestered a majority of shares of stocks of OWNI. PCGG was only consistent with its mission of
preventing dissipation of assets of sequestered corporations or businesses when it took over control of
OWNI.

In Presidential Commission on Good Government v. Cojuanco, Jr.,[12] the Court ruled that who should
vote the sequestered shares requires the determination of the ill-gotten character of those shares and
consequently the rightful ownership thereof. The issue was still pending in the main case in the
Sandiganbayan. This is only an incident of the main case and is limited to the stockholders meeting held on
September 17, 1990. This is without prejudice to the final disposition of the merits of the main suit. The
ownership of the shares is still under litigation. It is not known whether the shares are part of the ill-gotten
wealth of former President Marcos and his cronies.
In Bataan Shipyard & Engineering Co., Inc. v. PCGG, [13] we declared the scope and extent of the powers
that the PCGG may exercise with regard to the property of businesses sequestered:
x x x the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken
over. As already earlier stressed with no little insistence, the act of sequestration, freezing or provisional
takeover of property does not import or bring about a divestment of title over said property; does not make
the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the
PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is
specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership,
for example, no court exercises effective supervision or can upon due application and hearing, grant
authority for the performance of acts of dominion.
Petitioners contend that the Sandiganbayan should not have nullified the writs of sequestration because
there was no need to file a separate action against OWNI, Polygon, Aerocom and Silangan since they had
been included in the list of the ill-gotten wealth of defendants Jose L. Africa + and Manuel H. Nieto, Jr. in Civil
Case No. 0009. Petitioners cited Republic v. Sandiganbayan (First Division), [14] in which the Court held:
1) Section 26, Article XVIII of the Constitution does not, by its terms or any fair interpretation thereof,
require that corporations or business enterprises alleged to be repositories of ill-gotten wealth, as the term
is used in said provision, be actually and formally impleaded in the actions for the recovery thereof, in order
to maintain in effect existing sequestrations thereof;
2) complaints for the recovery of ill-gotten wealth which merely identify and/or allege said corporations or
enterprises to be the instruments, repositories or the fruits of ill-gotten wealth, without more, come within
the meaning of the phrase corresponding judicial action or proceeding contemplated by the constitutional
provision referred to; the more so, that normally, said corporations, as distinguished from their stockholders
or members, are not generally suable for the latters illegal or criminal actuations in the acquisition of the
assets invested by them in the former;
3) even assuming the impleading of said corporations to be necessary and proper so that judgment may
comprehensively and effectively be rendered in the actions, amendment of the complaints to implead them
as defendants may, under existing rules of procedure, be done at any time during the pendency of the
actions thereby initiated, and even during the pendency of an appeal to the Supreme Court--a procedure
that, in any case, is not inconsistent with or proscribed by the constitutional time limits to the filing of the
corresponding complaints for--i.e., with regard or in relation to, in respect of, or in connection with, or
concerning--orders of sequestration, freezing, or provisional takeover.
In this case, the PCGGs complaint[15] for Reconveyance, Reversion, Accounting, Restitution and
Damages against Jose L. Africa,+ Manuel H. Nieto, Jr., the Marcos Spouses, Ferdinand Marcos, Jr., Roberto S.
Benedicto,+ Juan Ponce Enrile, Potenciano Ilusorio + was filed on July 22, 1987. In the complaint, Polygon,
Silangan, Aerocom and OWNI were included in the list of property as part of the defendants ill-gotten
wealth.
We find the writ of sequestration issued against OWNI not valid because the suit in Civil Case No. 0009
against Manuel H. Nieto and Jose L. Africa + as shareholders in OWNI is not a suit against OWNI.This Court
has held that failure to implead these corporations as defendants and merely annexing a list of such
corporations to the complaints is a violation of their right to due process for it would in effect be
disregarding their distinct and separate personality without a hearing.[16]

Furthermore, PCGG issued the writs of sequestration on August 3, 1988, which was beyond the period
set by the Constitution.
Article XVIII, Section 26, of the 1987 Constitution provides:
Sec. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25,
1986 in relation to the recovery of ill-gotten wealth shall remain operative for not more than eighteen
months after the ratification of this Constitution. However, in the national interest, as certified by the
President, the Congress may extend said period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the
list of the sequestered or frozen properties shall forthwith be registered with the proper court. For orders
issued before the ratification of this Constitution, the corresponding judicial action or proceeding shall be
filed within six months from its ratification. For those issued after such ratification, the judicial action or
proceeding shall be commenced within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is
commenced as herein provided."
The sequestration orders issued against respondents shall be deemed automatically lifted due to the
failure of PCGG to commence the proper judicial action or to implead the respondents therein within the
period prescribed by Article XVIII, Section 26 of the 1987 Constitution.
The lifting of the writs of sequestration will not necessarily be fatal to the main case since the lifting of
the subject orders does not ipso facto mean that the sequestered property are not ill-gotten. The effect of
the lifting of the sequestration against OWNI will merely be the termination of the role of the government as
conservator thereof. In other words, the PCGG may no longer exercise administrative or housekeeping
powers[17] and its nominees may no longer vote the sequestered shares to enable them to sit on the
corporate board of the subject firm.
The Fallo
WHEREFORE, the petitions are hereby DENIED. The decision and resolution of the Sandiganbayan are
hereby AFFIRMED.
No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Kapunan, and Ynares-Santiago, JJ., concur.

16.) UNION BANK OF THE PHILIPPINES, petitioner, vs. THE HONORABLE COURT OF APPEALS,
COMMISSIONER FE ELOISA C. GLORIA, ATTY. MANOLITO SOLLER, IN THEIR CAPACITY AS
CHAIRPERSON AND MEMBER, RESPECTIVELY, OF THE HEARING PANEL OF THE
SECURITIES AND EXCHANGE COMMISSION, EULOGIO O. YUTINGCO, CAROLINE
YUTINGCO-YAO, THERESA I. LAO, NIKON INDUSTRIAL CORPORATION, NIKOLITE
INDUSTRIAL
CORPORATION,
THAMES
PHILIPPINES,
INC.,
2000
INDUSTRIES
CORPORATION, TRADE HOPE INDUSTRIAL CORPORATION, FIRST UNI-BRANDS FOOD
CORPORATION, INTEGRAL STEEL CORPORATION, CLARION PRINTING HOUSE, INC.,
NIKON PLAZA, INC., NIKON LAND CORPORATION, EYCO PROPERTIES, INC., INTERIM

RECEIVERS AMELIA B. CABAL, as representative of SGV, INOCENCIO R. DEZA, JR., as


representative of PNB, and FLORENCIO B. ORENDAIN of EYCO, respondents.
[G.R. No. 131729. May 19, 1998]

DECISION
ROMERO, J.:
It has been about a year since the Thai baht plummeted to a record low and sparked the downspin of
most of Asias other currencies including our very own peso. The Philippines has not suffered as much from
the full impact of the regions worst financial turmoil when most neighboring economies are still sluggishly
inching their way towards recovery. Tested economic initiatives often hailed for helping save the country
from losing its hard-earned gains cannot hide the fact that some businesses are still going downhill in light
of serious liquidity problems resulting from said crisis. Private respondents present predicament is one such
example and from which they now intend to free themselves.
The road to recovery seems elusive though. Private respondents bid to salvage their collapsing business
by seeking suspension of payments a statutory device allowing distressed debtors to defer payment of their
debts now faces a major hindrance as petitioner challenges their recourse to said remedy.
The records disclose the following antecedent facts:
On September 16, 1997, private respondents EYCO Group of Companies (EYCO),[1] Eulogio O. Yutingco,
Caroline Yutingco-Yao, and Theresa T. Lao (the Yutingcos), all of whom are controlling stockholders of the
aforementioned corporations, jointly filed with the SEC a Petition for the Declaration of Suspension of
Payment[s], Formation and Appointment of Rehabilitation Receiver/Committee, Approval of
Rehabilitation Plan with Alternative Prayer for Liquidation and Dissolution of
Corporations[2] alleging, among other things, that, the present combined financial condition of the
petitioners clearly indicates that their assets are more than enough to pay off the credits but that due to
factors beyond control and anticipation of the management xxx the inability of the EYCO Group of
Companies to meet the obligations as they fall due on the schedule agreed with the [creditors] has now
become a stark reality.[3] In a footnote to said petition[4] the Yutingcos justified their inclusion as copetitioners before the SEC on the ground that they had personally bound themselves to EYCOs creditor
under a J.S.S. Clause (Joint Several Solidary Guaranty).
Upon finding the above petition to be sufficient in form and substance, the SEC Hearing Panel then
composed of Manolito S. Soller, George P. Palmares and Rommel G. Olivia issued an order[5] dated
September 19, 1997 setting its hearing on October 22, 1997. At the same time, said panel also directed the
suspension of all actions, claims and proceedings against private respondents pending before any court,
tribunal, office, board and/or commission.
Meanwhile, some of private respondents creditor, composed mainly of twenty-two (22) domestic banks
(the consortium)[6] including herein petitioner Union Bank of the Philippines, [7]also convened on September
19, 1997 for the purpose of deciding their options in the event that private respondents invoke the
provisions of Presidential Decree No. 902-A, as amended.The minutes [8] embodying the terms agreed upon
by the consortium in said meeting provided, inter alia, for the following:
. . . In response to this, the following were actions agreed upon by all the creditor banks present:
Hire a lawyer to advise the banks on the legal matters of suspension of payments. Atty. Balgos was engaged
to be the legal counsel.

Form a management committee to represent all the creditor banks. This will be composed of the first seven
banks with the highest exposures, namely:
Philippine National Bank
Far East Bank and Trust Co.
Traders Royal Bank
Allied Banking Corporation
Philippine Commercial and International Bank
Bank of Commerce
Westmont Bank
The other creditor Banks will be informed as often as needed.
Without notifying the members of the consortium, petitioner, however, decided to break away from the
group by suing private respondents in the regular courts. These cases are:
Civil Case No. 97-2184 (Union Bank of the Philippines v. Nikon Industrial Corporation, et al.) for Sum of
Money with Application for Preliminary Attachment filed before the Regional Trial Court of Makati,
Branch 148, on September 23, 1997;[9]
Civil Case No. 5360-V-97 (Union Bank of the Philippines v. Eulogio and Bee Kuan Yutingco, et
al.,) for Annulment, Rescission of Titles/Injunction with prayer for Issuance of Preliminary
Mandatory Injunction filed before the Regional Trial Court of Valenzuela, Branch 172, on September 24,
1997;[10]
Civil Case No. 66477 (Union Bank of the Philippines v. Eulogion and Bee Kuan Yutingco, et
al.) for Annulment, Rescission of Titles/Injunction with prayer for Issuance of Preliminary
Mandatory Injunction filed before the Regional Trial Court of Pasig City, Branch 157, on September 26,
1997;
Civil Case No. 66479 (Union Bank of the Philippines v. Eulogio and Bee Kuan Yutingco, et
al.) for Annulment, Rescission of Titles/Injunction with Prayer for Issuance of Preliminary
Mandatory Injunction filed before the Regional Trial Court of Pasig City, Branch 159, on September 24,
1997; and
Civil Case No. 66478 (Union Bank of the Philippines v. Eulogion and Bee Kuan Yutingco, and Enrique
Yao) for Annulment, Rescission of Titles/Injunction with prayer for Issuance of Preliminary
Mandatory Injunction filed before the Regional Trial Court of Pasig City, Branch 158, on September 25,
1997.
In the meantime, the SEC issued an order[11] on October 3, 1997, appointing (a) Amelia B. Cabal of
SGV & Co., as common representative; (b) Inoncencio Deza, Jr., of the Philippine National Bank as
representative of the creditor-banks; and (c) Atty. Florencio B. Orendain as representative of the EYCO
Group and the Yutingcos, to act collectively as interim receivers of the distressed corporations.
Aside from commencing suits in the regular courts, petitioner also vehemently opposed private
respondents petition for suspension of payments in the SEC by filing a Motion to Dismiss on October 22,
1997.[12] It contended that the SEC was bereft of jurisdiction over such petition on the ground that the

inclusion of the Yutingcos in the petition cannot be allowed since the authority and power of the Commission
under the (sic) virtue of [the] law applies only to corporations, partnership[s] and other forms of
associations, and not to individual petitioners who are not clearly covered by P.D. 902-A as
amended. According to petitioner, what should have been applied instead was the provision on suspension of
payments under Act No. 1956, otherwise known as the Insolvency Law, which mandated the filing of the
petition in the Regional Trial Court and not in the SEC. Finally, petitioner disputed private respondents
recourse to suspension of payments alleging that the latter prejudiced their creditors by fraudulently
disposing of corporate properties within the 30-day period prior to the filing of such petition.
Subsequently, a creditors meeting was again convened pursuant to SECs earlier order dated September
19, 1997, wherein the matter of creating a management committee (the Mancom) was submitted for
resolution. Apparently, only petitioner opposed the creation of said Mancom as it filed earlier with the SEC its
Motion to Dismiss.
The SEC Hearing Panel composed of Hon. Fe Eloisa C. Gloria and Manolito S. Soller subsequently issued
an Omnibus Order[13] on October 27, 1997, directing this time the creation of the Mancom consisting of
seven (7) members; four (4) of whom shall come from the creditor banks, one (1) from the non-bank
creditors, one (1) from the petitioners and one (1) to be appointed by the SEC. Moreover, the panel likewise
granted an earlier Urgent Motion for Reconsideration filed by creditor banks which sought to annotate
the September 19, 1997 suspension order on the titles of the properties of the private respondent
corporations. In issuing said order, the panel resolved that the interest of private respondents and their
creditors could be best served if such Mancom is created. It is noteworthy, however, that this directive
expressly stated that the same was without prejudice to the resolution of petitioners Motion to Dismiss
whose scheduled hearing was set by petitioner itself on October 29, 1997.
Aggrieved, petitioner immediately took recourse to the Court of Appeals on October 29, 1997 by filing
therewith a Petition for Certiorari with Prayer for the Issuance of a Temporary Restraining Order
and/or Writ of Preliminary Injunction [14] under Rule 65 of the 1997 Rules of Civil Procedure. It imputed
grave abuse of discretion on the part of the SEC Hearing Panel in precipitately issuing the suspension order
dated September 19, 1997 and in prematurely directing the creation of the Mancom prior to the scheduled
hearing of its Motion to Dismiss on October 29, 1997. Petitioner lamented that these actions of the panel
deprived it of due process by effectively rendering moot and academic its Motion to Dismiss which allegedly
presented a prejudicial question to the propriety of creating a Mancom. Furthermore, it insisted that
jurisdiction over private respondents petition properly pertained to the Regional Trial Courts under Act No.
1956 and that, in any event, private respondents were not entitled to suspension of payments since they
had already committed fraudulent dispositions of their properties.
Without giving due course to Union Banks petition, the appellate court issued a resolution[15] on
October 31, 1997 directing private respondents to submit their comment on the petition while temporarily
restraining the SEC from appointing the members of Mancom, annotating the suspension orders on the titles
of the properties of private respondents, and taking further proceedings with regard to the suspension of
payments and/or rehabilitation.
Meanwhile, members of so-called steering committee of the consortium composed of the Philippine
National Bank, Far East Bank and Trust Company, Allied Bank, Traders Royal Bank, Philippine Commercial
International Bank, Bank of Commerce, and Westmont Bank (the Intervenors) filed with the appellate court
an Urgent Motion for Intervention [16] and aConsolidated Intervention and Counter-Motion for
Contempt and for the Imposition of Disciplinary Measures Against Petitioners Counsel [17] both
dated November 3, 1997 claiming that they were not impleaded at all by petitioner in its petition before the
appellate court when in fact they had actual, material, direct and legal interest in the outcome of said case
as owners of at least eighty-five percent (85%) of private respondents obligations. Moreover, they opposed
said petition because of petitioners ostensible failure to exhaust administrative remedies in the consortium
and in the SEC and for being guilty of forum-shopping in the appellate court as its Motion to Dismiss in the
SEC was yet to be resolved at the time.
Petitioner, however, countered intervenors motion in its Opposition to Urgent Motion for
Intervention and Reply to the Comment-in-Intervention, [18] vehemently challenging the existence of a

consortium, its membership therein, the intervenors ownership of at least eighty-five percent (85%) of
private respondents obligations and their due representation of the twenty-two (22) creditor banks, the
existence of an agreement drawn up during the September 19, 1997 meeting regarding the satisfaction of
the individual exposures of the creditor banks, and its consent to the creation of the Mancom. It also denied
intervenors accusation of forum-shopping and non-exhaustion of administrative remedies on the ground that
it was acting with a sense of urgency, the Hearing Panel having already created the Mancom and was about
to appoint the members thereof at the same time.
After several exchanges of pleadings between the parties, the Court of Appeals First Division finally
rendered its assailed decision[19] on December 22, 1997, granting intervention of the seven (7) creditor
banks named above while dismissing the petition for failure to exhaust administrative remedies and forumshopping. Nothing in the said decision, however, indicates that the appellate court squarely confronted the
issue of jurisdiction raised earlier by petitioner.
Without moving for reconsideration of the appellate courts decision, petitioner elevated the said matter
to this Court through a Petition for Certiorari with Prayer for the Issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction [20] filed on December 29 1997. Petitioner,
however, seasonably amended[21] the same on January 5, 1998.
Upon being notified by petitioner that the SEC Hearing Panel had already appointed members of the
proposed Mancom on January 5, 1998, [22] this Court issued a resolution[23] on January 6, 1998, granting
the temporary restraining order (TRO) prayed for in the petition and requiring all the respondents to
comment thereon.
Both EYCO and the Yutingcos duly filed their Comment[24] on January 14, 1998 asking the Court to cite
petitioner and its counsel for contempt because of deliberate forum shopping, assailing the propriety of the
temporary restraining order which we issued, and arguing that Union Banks petition should be dismissed
outright for (1) categorizing it as having been filed both under Rule 45 and Rule 65 of the 1997 Rules of Civil
Procedure; (2) failing to move for reconsideration before the Court of Appeals; (3) failing to implead
indispensable parties; (4) raising factual allegations of fraud; (5) forum shopping; and (6) failing to exhaust
administrative remedies.
On January 27, 1998, the intervenors before the appellate court also came to as through an Urgent
Manifestation,[25] seeking the outright dismissal of the petition on grounds of forum-shopping and failure to
implead them as indispensable parties which allegedly violated Section 4, Rule 45 of the 1997 Rules of Civil
Procedure requiring that the petition should state the name of the appealing party as the petitioner and the
adverse party as respondent.
For their part, the interim receivers who are also impleaded as private respondents in the instant
petition, filed their own Comment[26] on January 30, 1998, likewise contending that petitioner failed to
exhaust administrative remedies when it leap-frogged to the Court of Appeals and that, in any case, the SEC
had jurisdiction to entertain private respondents petition for suspension of payments.
In response to the respective comments of private respondents and interim receivers, petitioner filed
its Consolidated Reply and Opposition [27] on February 5, 1998, reiterating its earlier position that (1) the
SEC had no jurisdiction to entertain private respondents petition for suspension of payments; (2) private
respondents are already bankrupt because of the alleged fraudulent disposition they have made and hence,
are no longer entitled to the remedy of suspension of payments; (3) prior motion for reconsideration is not
indispensable when, as in this case, there is an actual threat that the Mancom members would soon be
appointed; (4) intervenors are not indispensable parties; and (5) there is no forum-shopping.
Complaining that daily interests on its outstanding debts continue mounting by the millions and that
the work of SEC-appointed interim receivers has been paralyzed for quite some time, private respondents
filed an Urgent Motion[28] on February 12, 1998 praying that the temporary restraining order be lifted for
the preservation of their assets and to pave the way for rehabilitation. They likewise asked, among other
things, that their motion to cite petitioner and its counsel for contempt be immediately resolved.

Petitioner, in turn, filed a Motion to Cite Yutingcos and Their Counsel in Contempt [29] for allegedly
misleading this Court in stating that Union Bank failed to pay the required deposit for costs, that they were
not served a copy of the Amended Petition, and that they never nominated Sycip, Gorres, Velayo & Co. (the
SGV) is rehabilitation receiver.
As may be gleaned from the above factual account, there are only two basic and outstanding issues in
the instant case which require our resolution, namely:
(1) Whether the SEC can validly acquire jurisdiction over a petition for suspension of payments filed
pursuant to Section 5(d) of P.D. No. 902 A, as amended, when such petition joins as co-petitioners the
petitioning corporate entities AND individual stockholders thereof; and
(1) Whether petitioner engaged in forum-shopping and failed to exhaust administrative remedies in taking
direct recourse to the Court of Appeals to challenge the assumption of jurisdiction by the SEC Hearing
panel over private respondents petition for suspension of payments.
We shall discuss this issues seriatim.
I. Jurisdiction of the Securities and Exchange Commission.
It is already a well-settled jurisprudential precept that jurisdiction over a subject matter is conferred by
law.[30] In this regard, the pertinent provision of law conferring jurisdiction upon the SEC over petitions for
suspension of payments such as the one filed earlier by private respondents provides:
SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission
over corporations, partnerships and other forms of association registered with it as expressly granted under
existing law and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving.
xxxxxxxxx
(a) Petitions of corporations, partnerships or associations to be declared in the state of suspension of
payments in cases where the corporation, partnership or association possesses sufficient property to
cover all its debts but foresees the impossibility of meeting then when they respectively fall due or in
case where the corporation, partnership or association has no sufficient assets to cover its liabilities, but
is under the management of a Rehabilitation Receiver or Management Committee created pursuant to
this Decree. (As added by P.D. No. 1758).
As state earlier, it is precisely on the basis of above provision that petitioner now avers that the SEC
cannot validly entertain private respondents petition for suspension of payments. Its reason is that the law
vesting jurisdiction upon the SEC to hear petitions of this kind limits itself to petitions filed only by
corporations, partnerships or associations. Petitioner thus asserts that the petition filed by private
respondents with the SEC should have been dismissed because it was not such a kind of petition filed solely
by corporations when it impleaded as co-petitioners the Yutingcos who are individual persons upon whom
said body cannot acquire jurisdiction.
We fully agree with petitioner in contending that the SECs jurisdiction on matters of suspension of
payments is confined only to those initiated by corporations, partnerships or associations. Actually, this is
not the first time that the Court has encountered an issue as the one at bar. It has made a similar
pronouncement in the seminal case of Chung Ka Bio v. Intermediate Appellate Court, et al., [31] likewise
involving a petition for suspension of payments filed by a corporate entity and an individual stockholder,
where we ruled that:
This section [referring to Section 5 (d) of P.D. No. 902-A, as amended] clearly does not allow a mere
individual to file the petition which is limited to corporations, partnerships or associations. Administrative
agencies like the SEC are tribunals of limited jurisdiction and, as such, can exercise only those powers which

are specifically granted to them by their enabling statutes. Consequently, where no authority is granted to
hear petitions of individuals for suspension of payments, such petitions are beyond the competence of the
SEC. x x x.
The circumstance that Ching is a co-signer in the corporations promissory notes, collateral or guarantee or
security agreements, does not make him a proper party. Jurisdiction over the subject matter must exist as a
matter of law and cannot be fixed by agreement of the parties, acquired through, or waived, enlarged or
diminished by, any act or omission; neither can it be conferred by acquiescence of the tribunal. Hence,
Alfredo Ching, as a mere individual, cannot be allowed as a co-petitioner in SEC Case No.
2250. [Underscoring supplied]
This Court reinforced further the above dictum in Traders Royal Bank v. Court of Appeals, et al., [32] a
sequel to Chung Ka Bio, where we declared:
Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM [Philippine Blooming Mills],
the SEC could not assume jurisdiction over his person and properties. The Securities and Exchange
Commission was empowered, as rehabilitation receiver, to take custody and control of the assets and
properties of PBM only not over private individuals, except stockholders in an intra-corporate dispute (Sec.
5, P.D. 902-A and Sec. 2 of P.D. 1758). Being a nominal party in SEC Case No. 2250, Chings properties were
not included in the rehabilitation receivership that the SEC constituted to take custody of PBMs
assets. Therefore, the petitioner bank was not barred from filing a suit against Ching, as a surety for
PBM. An anomalous situation would arise if individual sureties for debtor corporations may escape liability by
simply co-filing with the corporation a petition for suspension of payments in the SEC whose jurisdiction is
limited only to corporations and their corporate assets. [Underscoring supplied]
Very recently, we reiterated said pronouncements in Modern Paper Products, Inc. et al., v. Court of
Appeals, et al.,[33] viz.:
The Court of Appeal was correct in concluding that the SEC lacked or exceeded its jurisdiction when it
included the Co spouses under a state of suspension of payments together with MPPI. x x x
It is axiomatic that jurisdiction is conferred by the Constitution or by law. It is indubitably clear from the
aforequoted Section 5 (d) that only corporations, partnerships, and associations --- NOT private individuals
--- can file with the SEC petitions to be declared in a state of suspension of payments. It logically follows
that the SEC does not have jurisdiction to entertain petitions for suspension of payments filed by parties
other than corporations, partnerships or associations. x x x [Underscoring supplied].
Notwithstanding the foregoing conclusions, this Court, however, does not subscribe to the theory espoused
by petitioner that the case filed by private respondents should be dismissed outright in its entirety.The
reason is that while it is true that the SEC cannot acquire jurisdiction over an individual filing a petition for
suspension of payments together with a corporate entity, a closer scrutiny of Chung Ka Bio andMPPI does
not in any manner suggest, even tangentially, that a petition as the one at bar must be dismissed likewise
with respect to the corporate co-petitioner. What Chung Ka Bio and MPPI respectively declared was that
Alfredo Ching, as a mere individual, cannot be allowed as a co-petitioner in SEC Case No. 2250 and
respondent Court of Appeals was correct in ordering the dismissal of the petition for suspension of
payments insofar as the Co spouses were concerned. [Underscoring supplied]
That the Court never dismissed a petition for suspension of payments as the cases involved in Chung
Ka Bio and MPPI is not without legal basis. The reason is to be found in Section 1, Rule XXIII of the REVISED
RULES OF PROCEDURE IN THE SECURITIES AND EXCHANGE COMMISSION (As amended on April 25, 1993)
which was promulgated pursuant to the rule-making powers vested in the SEC by P.D. No. 902-A, as
amended. It states:
SECTION 1. Provisions of the Rules of Court. --- The provisions of the Rules of Court, unless inconsistent,
shall have suppletory effect on those Rules. (Amended). [Underscoring Supplied].

Since we have painstakingly probed said SEC rules but unearthed nothing that squarely treats of a situation
where an individual and a corporate entity both filed together a petition for suspension of payments,
recourse must then be had to the Rules of Court which is expressly made suppletory to the SEC rules. In
this regard, we find Section 11, Rule 3 of the 1997 Rules of Civil Procedure applicable which provides:
SEC. 11. Misjoinder and non-joinder of parties. --- Neither misjoinder nor non-joinder of parties is ground
for dismissal of an action. Parties may be dropped or added by order or the court on motion of any party or
on its own initiative at any stage of the action and on such terms as are just. Any claim against a misjoined
party may be severed and proceeded with separately. (11a) [Underscoring supplied]
From the foregoing, it is thus clear that in a case of misjoinder of parties --- which in this case is the
co-filing of the petition for suspension of payments by both the Yutingcos and the EYCO group --- the
remedy has never been to dismiss the petition in its entirety but to dismiss it only as against the party upon
whom the tribunal or body cannot acquire jurisdiction. The result, therefore, is that the petition with respect
to EYCO shall subsist and may be validly acted upon by the SEC. The Yutingcos, on the other hand, shall be
dropped from the petition and be required to pursue their remedies in the regular courts of competent
jurisdiction.[34]
We are, of course, aware of the argument advanced by petitioner that the petition should be entirely
dismissed and taken out of the SECs jurisdiction on account of the alleged insolvency of private
respondents. In this regard, petitioner theorizes that private respondents have already become insolvent
when they allegedly disposed of a substantial portion of their properties in fraud of creditors, hence,
suspension of payments with the SEC is not the proper remedy.
Such argument does not persuade us. Petitioners allegation of fraudulent dispositions of private
respondents assets and the supposed insolvency of the latter are hardly of any consequence to the
assumption of jurisdiction by the SEC over the nature or subject matter of the petition for suspension of
payments. Aside from the fact that these allegations are evidentiary in nature and still remains to be proved,
we have likewise consistently ruled that what determines the nature of an action, as well as which court or
body has jurisdiction over it, are the allegations of the complaint, or a petition as in this case, and the
character of the relief sought.[35] That the merits of the case after due proceedings are later found to veer
away from the claims asserted by EYCO in its petition, as when it is shown later that it is actually insolvent
and may not be entitled to suspension of payments, does not divest the SEC at all of its jurisdiction already
acquired at its inception through the allegations made in the petition.
Neither are we convinced by petitioners reasoning that the Yutingcos and the corporate entities making
up the EYCO Group, on the basis of the footnote [36] that the former were filing the petition because they
bound themselves as surety to the corporate obligations, should be considered as mere individuals who
should file their petition for suspension of payments with the regular courts pursuant to Section 2 of the
Insolvency Law.[37] We do not see any legal ground which should lead one to such conclusion. The doctrine of
piercing the veil of corporate fiction heavily relied upon by the petitioner is entirely misplaced, as said
doctrine only applies when such corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend crime.[38]
II. Non-Exhaustion of Administrative Remedies and Forum-Shopping
Equally weak is petitioners challenge on the Court of Appeals decision dismissing its petition
for certiorari for failure to exhaust administrative remedies. Its complaint that the SEC Hearing Panel was
acting without jurisdiction in conducting proceedings relative to private respondents petition and for
rendering moot and academic its Motion to Dismiss does not justify the procedural short-cut it took to the
appellate court. Basic is the rule which has been consistently held by this Court in a long line of cases that
before a party is allowed to seek the intervention of the court, it is a pre-condition that should have availed
of all the means of administrative processes afforded by him. Hence, if a remedy within the administrative
machinery can still be resorted to by giving the administrative officer concerned every opportunity to decide
on a matter that comes within his jurisdiction, then such remedy should be exhausted first before the courts

judicial power can be sought. The premature invocation of courts intervention is fatal to ones cause of
action.[39] That this is the prevailing rule is aptly explained thus:
The underlying principle of the rule of exhaustion of administrative remedies rests on the presumption that
the administrative agency, if afforded a complete chance to pass upon the matter, will decide the same
correctly. There are both legal and practical reasons for the principle. The administrative process is intended
to provide less expensive and more speedy solutions to disputes. Where the enabling statute indicates a
procedure for administrative review and provides a system of administrative appeal or reconsideration, the
courts --- for reason of law, comity, and convenience --- will not entertain a case unless the available
administrative remedies have been resorted to and the appropriate authorities have been given an
opportunity to act and correct the errors committed in the administrative forum. [40]
In this case, petitioner was actually not without remedy to correct what it perceived and supposed was
an erroneous assumption of jurisdiction by the SEC without having recourse immediately to the Court of
Appeals. Under Section 6 (m) of P.D. No. 902-A, it has been expressly provided that "the decision, ruling or
order of any such Commissioner, bodies, boards, committees and/or officer may be appealed to the
Commission sitting en banc within thirty days after receipt by the appellant of notice of such decision, ruling
or order." Such procedure being available, could have been resorted to by petitioner which, however, it chose
to forego. Furthermore, by taking up the matter with the SEC, it could still have obtained an injunction
which it similarly sought from the appellate court via its petition for certiorari because the said body has
been empowered by Section 6 (a) of P.D. No. 902-A "to issue preliminary or permanent injunctions whether
prohibitory or mandatory, in all cases in which it has jurisdiction...." Finally, petitioner itself hardly concealed
the fact that it distrusted altogether the whole mechanism of appeal to the SEC en banc, which is why it did
not find resort thereto imperative. Thus, it explicitly stated that "it is a given that SEC will not reverse itself,
therefore, any reconsideration or appeal en banc would be a mere exercise of futility, [particularly] when
public respondent Associate Commissioner Fe Gloria is the acting Chairperson of SEC." [41] What basis does
petitioner have in casting doubt on the integrity and competence of the SEC en banc? This baseless, even
reckless, reasoning hardly deserves an iota of attention. It cannot justify a procedural short-cut quite
contrary to law. If this were so, then the SEC en banc would not have been empowered at all by the statute
to take cognizance of appeals from its subordinate units. But the lawmakers, having faith in a collegial body
such as the SEC en banc, precisely empowered it to act as such appellate body. Whatever opinion petitioner
entertains with respect to the SEC's competence cannot override the fact that the law mandates recourse
thereto.
As to the issue of forum-shopping, we fully subscribe to the Court of Appeals in ruling that such
violation existed when it declared:
"Finally, the charge that petitioner is guilty of forum shopping --- which is the institution of two or more
actions or proceedings grounded on the same cause --- cannot unceremoniously be glossed over. It is patent
that the instant petition and the pending motion to dismiss before the SEC raise identical issues, namely,
lack of jurisdiction and the propriety of the suspension of payments."[42] [Underscoring supplied]
Actually, even a simple perusal of the pleadings filed by petitioner before this Court reveals that it has
been continuously reiterating the same arguments that it had earlier raised in its Motion to Dismiss and its
Petition for Certiorari before the appellate court. Hence, we do not see why the appellate court's decision on
this aspect should not be sustained.
WHEREFORE, the instant petition is hereby DENIED for lack of merit. Finding neither reversible error
nor grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Court of Appeals,
its decision dated December 22, 1997 is AFFIRMED. Furthermore, the Temporary Restraining Order (TRO)
issued by this Court in its resolution order of January 6, 1988, is hereby LIFTED and/or
DISSOLVED. However, the Securities and Exchange Commission is directed to drop from the petition for
suspension of payments filed before it the names of Eulogio O. Yutingco, Caroline Yutingco-Yao, and Theresa
T. Lao without prejudice to their filing a separate petition in the Regional Trial Courts.
Cost against petitioner.

SO ORDERED.
Narvasa, C.J., (Chairman), and Kapunan, JJ., concur.
Purisima, J., no part, having taken part in the decision of CA.

17.) ASIONICS PHILIPPINES, INC. and/or FRANK YIH, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION, YOLANDA BOAQUINA, and JUANA GAYOLA, respondents.
[G.R.

No.

12495

0. May 19, 1998]


RESOLUTION
VITUG, J.:
In this special civil action of certiorari, petitioners Asionics Philippines, Inc. (API), and its President and
majority stockholder, Frank Yih, seek to annul and set aside the decision, [1]dated 19 May 1996, of the
National Labor Relations Commission ("NLRC") which has ordered, inter alia, that they grant separation
pay, computed at one-half (1/2) month per year of service, to private respondents Yolanda Boaquina and
Juana Gayola. Concomitantly being contested is the subsequent 16th April 1996 resolution [2] of the NLRC
denying petitioners'motion for reconsideration.
API is a domestic corporation engaged in the business of assembling semi-conductor chips and other
electronic products mainly for export. Yolanda Boaquina and Juana Gayola started working for API in 1979
and 1988, respectively, as material control clerk and as production operator. During the third quarter of
1992, API commenced negotiations with the duly recognized bargaining agent of its employees, the
Federation of Free Workers ("FFW"), for a Collective Bargaining Agreement ("CBA"). A deadlock, however,
ensued and the union decided to file a notice of strike. This event prompted the two customers of API,
Indala and CP Clare Theta J, to thereupon refrain from sending to API additional kits or materials for
assembly. API, given the circumstance that its assembly line had to thereby grind to a halt, was forced to
suspend operations pursuant to Article 286[3] of the Labor Code. Private respondents Boaquina and Gayola
were among the employees asked to take a leave from work.
Upon the resolution of the bargaining deadlock in October of 1992, a CBA was concluded between API
and FFW. The contract was signed on 30 October 1992 by the parties.Respondent Boaquina was directed to
report back since her previous assignment pertained to the issuance of raw materials needed for the
production of electronic items being ordered by Indala, one of API's client which promptly resumed its
business with API. On the other hand, Juana Gayola, among other employees, could not be recalled
forthwith because the CP Clare/Theta J account, where she was assigned as the production operator, had yet
to renew its production orders.
Inasmuch as its business activity remained critical, API was constrained to implement a company-wide
retrenchment affecting one hundred five (105) employees from a work force that otherwise totalled three
hundred four (304). The selection was based on productivity/performance standards pursuant to the
CBA. Yolanda Boaquina was one of those affected by the retrenchment and API, through its Personnel
Manager Beatriz G. Torro, advised her of such fact in its letter of 29 December 1992. In that letter, Boaquina
was informed that her services were to be dispensed with effective 31 January 1993 [4] although she did not
have to render any service for the month of January she being by then already considered to be on leave

with pay. While Juana Gayola was not supposed to be affected by the retrenchment in view of her high
performance rating, her services, nevertheless, were considered to have been ended on 04 September
1992[5] when she was ordered by API to take an indefinite leave of absence. She had not since been
recalled.
Dissatisfied with their union (FFW), Boaquina and Gayola, together with some of other co-employees,
joined the Lakas ng Manggagawa sa Pilipinas Labor Union ("Lakas Union") where they eventually became
members of its Board of Directors.
On 06 January 1993, Lakas Union filed a notice of strike against API on the ground of unfair labor
practice (ULP) allegedly committed by the latter, specifically, for union busting, termination of union
officers/members, harassment and discrimination. [6] A conciliation meeting was scheduled for 08 January
1993 by the National Conciliation and Mediation Board ("NCMB") to address the problem which meeting,
however, was reset to 14 January 1993 for failure of any representative or member of Lakas Union to
appear. On 10 January 1993, Lakas Union staged a strike.
Claiming that the strike staged by Lakas Union was illegal, API on 11 January 1993, brought before the
NLRC National Capital Region Arbitration a petition, docketed NLRC NCR Case No. 00-01-00402-93, for
declaration of illegality of the strike. Lakas Union countered that their strike was valid and staged as a
measure of self-preservation and as self-defense against the illegal dismissal of petitioners aimed at union
busting in the guise of a retrenchment program.
On 23 June 1994, Labor Arbiter Villarente, Jr., to whose sala the case was raffled, promulgated a
decision[7] declaring the strike staged by Lakas Union to be illegal. He declared:
WHEREFORE, judgment is hereby rendered declaring that the strike staged by respondents Federation of
Free Workers and the Lakas Manggagawa ng Pilipinas on January 10, 1993 and thereafter, was ILLEGAL.
Accordingly, all the registered officers of the two respondent-Unions at the time of the strike are hereby
declared to have lost their employment status (aside from the fact that ten of them earlier mentioned had
settled their cases amicably with petitioner).
Insofar as the striking members are concerned and who did not settle their cases amicably, their separation
from the service of petitioner API is hereby declared VALID under the company-wide retrenchment program
which was earlier made known to proper authorities.
SO ORDERED.[8]
Meanwhile, at the instance of several employees which included private respondents Boaquina and
Gayola, a complaint for illegal dismissal, violation of labor standards and separation pay, as well as for
recovery of moral and exemplary damages, was filed against API and/or Frank Yih before the NLRC National
Capital Region Arbitration Branch. The illegal dismissal case, docketed NLRC NCR Case No. 00-0503326 and No. 00-03-01952-93, was assigned to Labor Arbiter Potenciano S. Canizares, Jr.
On 22 June 1994, Labor Arbiter Canizares rendered his decision [9] holding petitioners guilty of illegal
dismissal. He ordered petitioners to pay private respondent Yolanda Boaquina separation pay of one-half
(1/2) month pay for every year of service, plus overtime pay, and to reinstate private respondent Juana
Gayola with full backwages from the time her salaries were withheld from her until her actual reinstatement.
The decision of Labor Arbiter Villarente, Jr., and that of Labor Arbiter Canizares were both appealed to
the NLRC.
On 20 April 1995, the Third Division of NLRC promulgated its resolution [10] which affirmed the finding of
Labor Arbiter Villarente, Jr., that the strike staged by Lakas Union was illegal.On 19 March 1996, the same
Third Division of NLRC, in the illegal dismissal case, rendered a decision [11] modifying the decision of Labor

Arbiter Canizares by declaring that private respondents were not illegally dismissed but were validly
terminated due to the retrenchment policy implemented by API. Accordingly, private respondents were
awarded separation pay and an additional one (1) month salary in favor of Juana Gayola by way of
indemnity for petitioner API's failure to properly inform her of the retrenchment. The NLRC dismissed
the claim of petitioners that private respondents should not be entitled to separation pay because of their
involvement in the strike which was declared illegal .
On 01 April 1996, petitioners moved for a reconsideration of the 19th March 1996 NLRC decision; the
motion, however, was denied by the NLRC in its resolution of 16 April 1996.
In this recourse, the following issues have been raised by petitioners; to wit:
"WHETHER OR NOT PRIVATE RESPONDENTS WHO ARE OFFICERS OF THE UNION ARE STILL ENTITLED TO
SEPARATION PAY AND INDEMNITY DESPITE HAVING PARTICIPATED IN A STRIKE THAT HAS BEEN DECLARED
ILLEGAL?
"WHETHER OR NOT A STOCKHOLDER/DIRECTOR/OFFICER OF A CORPORATION CAN BE HELD LIABLE FOR
THE OBLIGATION OF THE CORPORATION ABSENT ANY PROOF AND FINDING OF BAD FAITH? [12]
The position advanced by petitioners on the first issue is bereft of merit. It is quite evident that the
termination of employment of private respondents was due to the retrenchment policy adopted by API and
not because of the former's union activities. In a letter, dated 29 December 1992, API itself advised
respondent Boaquina that she was one of those affected by the retrenchment program of the company and
that her services were to be deemed terminated effective 31 January 1993. In their pleadings
submitted to Labor Arbiter Canizares, Jr., in connection with the illegal dismissal case, petitioners firmly
averred that the services of private respondents were being dispensed with not by reason of their union
activities but in view of the retrenchment policy of the company. The Solicitor-General correctly pointed out
the admissions made by petitioners; thus:
The fact is, complainant Boaquina was in fact part of the first batch of retrenchees. She was duly notified of
her retrenchment, as well as the proper labor authorities. Ms. Boaquina alleged in her position
paper/affidavit that:
[O]n September 12, 1992, I was illegally laid-off for no reason that I know other than my union activities. I
was recalled on October 6, 1992 and again I was laid-off in a memorandum of January 4, 1993 effective the
end of said month.
Complainant Boaquina of course failed, obvious wittingly, to tell her story truthfully. In the first place, she
was never terminated for her union activities. Asionics just concluded its CBA with the employees bargaining
representative. Asionics were also too preoccupied with more earthshaking and exigent problems, principally
that of getting the business back on its feet, to concern themselves with potential (whether real or
imagined) entanglements/complications with the union, much less of one individual member. Moreover, for
academic discussion, let us say that indeed complainant Boaquina was targeted for termination due to union
activities. Under the circumstances, she would have just been terminated outright, without recall. The truth
of the matter is, Boaquina was made to go on leave in September 1992 precisely because of the pull-out of
CP Clare Theta-J which resulted in work shortage. If she was recalled before she was finally retrenched, it
only shows that the company had been trying its best to accommodate the most possible number of
employees in its payroll, even given that it was in dire financial straits. Of course, the company cannot just
let the workers go to work and pay them their dues even though there is nothing to do.
Complainant Gayola on the other hand was separated from service owing to the fact that production totally
ceased by virtue of the blockade caused by the strike and the pull-out of Asionics last customer. In short,
the strike aggravated a bad situation by making it worse and eventually, the worst possible nightmare for
any business enterprise. There being no work whatsoever to do, complainant Gayola, like the other
employees, had to be terminated from work.[13] (italized portions found in the text)

The decision of Labor Arbiter Villarente, Jr., declaring private respondents to have lost their
employment status due to their participation in an illegal strike is of no really significance to petitioners. It
should suffice to say, as so aptly observed by the NLRC, that the retrenchment of private respondents has,
in fact, preceded the declaration of strike.
It is, instead, on the issue of joint and solidary liability of petitioner Frank Yih with API that the Court
has decided to give due course to the instant petition. The court cannot agree with the Solicitor-General in
suggesting that even if Frank Yih had no direct hand in the dismissal of the respondents he should be
personally liable therefor on account alone of his being the President and majority stockholder of the
company. The disquisition by the Court in Santos vs. NLRC [14] is quite succinct and clear. Thus "A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it. The rule is that obligations incurred by the
corporation, acting through its directors, officers and employees, are its sole liabilities. Nevertheless, being a
mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit done sparingly, the
disregard of its independent being and the lifting of the corporate veil. As a rule, this situation might arise
when a corporation is used to evade a just and due obligation or to justify a wrong, to shield or perpetrate
fraud, to carry out similar unjustifiable aims or intentions, or as a subterfuge to commit injustice and so
circumvent the law."
"xxx xxx xxx"
It is true, there were various cases when corporate officers were themselves held by the Court to be
personally accountable for the payment of wages and money claims to its employees. In A.C. Ransom Labor
Union-CCLU vs. NLRC, for instance, the Court ruled that under the Minimum Wage Law, the responsible
officer of an employer corporation could be held personally liable for nonpayment of backwages for `(i)f the
policy of the law were otherwise, the corporation employer (would) have devious ways for evading payment
of back wages. In the absence of a clear identification of the officer directly responsible for failure to pay the
backwages, the Court considered the President of the corporation as such officer. The case was cited in Chua
vs. NLRC in holding personally liable the vice-president of the company, being the highest and most ranking
official of the corporation next to the President who was dismissed, for the latters claim for unpaid wages.
A review of the above exceptional cases would readily disclose the attendance of facts and circumstances
that could rightly sanction personal liability on the part of the company officer. In A.C. Ransom, the
corporate entity was a family corporation and execution against it could not be implemented because of the
disposition posthaste of its leviable assets evidently in order to evade its just and due obligations.The
doctrine of `piercing the veil of corporate fiction was this clearly appropriate. Chua likewise involved another
family corporation, and this time the conflict was between two brothers occupying the highest ranking
positions in the company. There were incontrovertible facts which pointed to extreme personal animosity
that resulted, evidently in bad faith, in the easing out from the company of one of the brothers by the other.
The basic rule is still that which can deduced from the Courts pronouncement in Sunio vs. National Labor
Relations Commission (127 SCRA 390), thus:
We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible
with petitioner company and CIPI for the payment of the backwages of private respondents. This is
reversible error. The Assistant Regional Directors Decision failed to disclose the reason why he was made
personally liable. Respondents, however, alleged as grounds thereof, his being the owner of one-half (1/2)
interest of said corporation, and his alleged arbitrary dismissal of private respondents.
Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner
corporation. There appears to be no evidence on record that he acted maliciously or in bad faith in
terminating the services of private respondents. His act, therefore, was within the scope of his authority and
was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which it may be related. Mere
ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the separate corporate personality.Petitioner
Sunio, therefore, should not have been made personally answerable for the payment of private respondents
back salaries.
The Court, to be sure, did appear to have deviated somewhat in Gudez vs. NLRC (183 SCRA 644), however,
it should be clear from our recent pronouncement in Mam Realty Development Corporation and Manuel
Centeno vs. NLRC (244 SCRA 797), that the Sunio doctrine still prevails. [15]
Nothing on record is shown to indicate that Frank Yih has acted in bad faith or with malice in carrying
out the retrenchment program of the company. His having been held by the NLRC to be solidarily and
personally liable with API is thus legally unjustified.
WHEREFORE, the questioned decision of the NLRC is MODIFIED insofar as it holds herein petitioner
Frank Yih personally liable with Asionics Philippines, Inc., which portion of the decision is SET ASIDE; in all
other respects, however, the questioned decision is AFFIRMED and remains unaffected. No costs.
SO ORDERED.
Davide, Jr., (Chairman), Bellosillo, Panganiban, and Quisumbing, JJ., concur.

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