PANTRANCO EMPLOYEES ASSOCIATION (PEA- G.R. No.

170689
PTGWO) and PANTRANCO RETRENCHED
EMPLOYEES ASSOCIATION (PANREA),
Petitioners,

- versus -

NATIONAL LABOR RELATIONS COMMISSION

(NLRC), PANTRANCO NORTH EXPRESS, INC.
(PNEI), PHILIPPINE NATIONAL BANK (PNB),
PHILIPPINE NATIONAL BANK-MANAGEMENT
AND DEVELOPMENT CORPORATION (PNB-
MADECOR), and MEGA PRIME REALTY AND
HOLDINGS CORPORATION (MEGA PRIME),
Respondents.
x-----------------------------x
PHILIPPINE NATIONAL BANK,
Petitioner,

- versus -

PANTRANCO EMPLOYEES ASSOCIATION, INC. G.R. No. 170705

(PEA-PTGWO), PANTRANCO RETRENCHED
EMPLOYEES ASSOCIATION (PANREA) AND
PANTRANCO ASSOCIATION OF CONCERNED
EMPLOYEES (PACE), ET AL., PHILIPPINE
NATIONAL BANK-MANAGEMENT
DEVELOPMENT CORPORATION (PNB- Present:
MADECOR), and MEGA PRIME REALTY
HOLDINGS, INC., YNARES-SANTIAGO, J.,
Respondents. Chairperson,
CARPIO,*
CHICO-NAZARIO,
NACHURA, and
PERALTA, JJ.

Promulgated:

March 17, 2009

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

DECISION

NACHURA, J.:

Before us are two consolidated petitions assailing the Court of Appeals (CA) Decision[1] dated June 3, 2005
and its Resolution[2] dated December 7, 2005 in CA-G.R. SP No. 80599.

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

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

The Gonzales family owned two corporations, namely, the PNEI and Macris Realty Corporation (Macris). PNEI
provided transportation services to the public, and had its bus terminal at the corner of Quezon and Roosevelt
Avenues in Quezon City. The terminal stood on four valuable pieces of real estate (known as Pantranco
properties) registered under the name of Macris.[9] The Gonzales family later incurred huge financial losses
despite attempts of rehabilitation and loan infusion. In March 1975, their creditors took over the management of
PNEI and Macris. By 1978, full ownership was transferred to one of their creditors, the National Investment
Development Corporation (NIDC), a subsidiary of the PNB.
Macris was later renamed as the National Realty Development Corporation (Naredeco) and eventually merged
with the National Warehousing Corporation (Nawaco) to form the new PNB subsidiary, the PNB-Madecor.
In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by Gregorio
Araneta III. In 1986, PNEI was among the several companies placed under sequestration by the Presidential
Commission on Good Government (PCGG) shortly after the historic events in EDSA. In January 1988, PCGG
lifted the sequestration order to pave the way for the sale of PNEI back to the private sector through the Asset
Privatization Trust (APT). APT thus took over the management of PNEI.

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

On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution[10] commanding the NLRC
Sheriffs to levy on the assets of PNEI in order to satisfy the P722,727,150.22 due its former employees, as full
and final satisfaction of the judgment awards in the labor cases. The sheriffs were likewise instructed to
proceed against PNB, PNB-Madecor and Mega Prime.[11] In implementing the writ, the sheriffs levied upon the
four valuable pieces of real estate located at the corner of Quezon and Roosevelt Avenues, on which the
former Pantranco Bus Terminal stood. These properties were covered by Transfer Certificate of Title (TCT)
Nos. 87881-87884, registered under the name of PNB-Madecor.[12] Subsequently, Notice of Sale of the
foregoing real properties was published in the newspaper and the sale was set on July 31, 2002. Having been
notified of the auction sale, motions to quash the writ were separately filed by PNB-Madecor and Mega Prime,
and PNB. They likewise filed their Third-Party Claims.[13] PNB-Madecor anchored its motion on its right as the
registered owner of the Pantranco properties, and Mega Prime as the successor-in-interest. For its part, PNB
sought the nullification of the writ on the ground that it was not a party to the labor case. [14] In its Third-Party
Claim, PNB alleged that PNB-Madecor was indebted to the former and that the Pantranco properties would
answer for such debt. As such, the scheduled auction sale of the aforesaid properties was not legally in
order.[15]

On September 10, 2002, the Labor Arbiter declared that the subject Pantranco properties were owned by PNB-
Madecor. It being a corporation with a distinct and separate personality, its assets could not answer for the
liabilities of PNEI. Considering, however, that PNB-Madecor executed a promissory note in favor of PNEI
for P7,884,000.00, the writ of execution to the extent of the said amount was concerned was considered
valid.[16]

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

The dispositive portion of the Labor Arbiters September 10, 2002 Resolution is quoted hereunder:

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

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

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

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

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

SO ORDERED.[18]

On appeal to the NLRC, the same was denied and the Labor Arbiters disposition was affirmed.[19] Specifically,
the NLRC concluded as follows:

(1) PNB-Madecor and Mega Prime contended that it would be impossible for
them to comply with the requirement of the labor arbiter to pay to the PNEI employees the
amount ofP7.8 million as a condition to the lifting of the levy on the properties, since the credit
was already garnished by Gerardo Uy and other creditors of PNEI. The NLRC found no
 evidence that Uy had satisfied his judgment from the promissory note, and opined that even if
the credit was in custodia legis, the claim of the PNEI employees should enjoy preference under
the Labor Code.

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

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

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

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

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

In view of the P7,884,000.00 debt of PNB-Madecor to PNEI, on June 23, 2004, an auction sale was conducted
over the Pantranco properties to satisfy the claim of the PNEI employees, wherein CPAR Realty was adjudged
as the highest bidder.[23]
On June 3, 2005, the CA rendered the assailed decision affirming the NLRC resolutions.

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

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

Both motions were denied by the appellate court.[27]

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

The Honorable Court of Appeals palpably departed from the established rules and jurisprudence
in ruling that private respondents Pantranco North Express, Inc. (PNEI), Philippine National
Bank (PNB), Philippine National Bank Management and Development Corporation (PNB-
MADECOR), Mega Prime Realty and Holdings, Inc. (Mega Prime) are not jointly and severally
answerable to the P722,727,150.22 Million NLRC money judgment awards in favor of the 4,000
individual members of the Petitioners.[28]
They claim that PNB, through PNB-Madecor, directly benefited from the operation of PNEI and had complete
control over the funds of PNEI. Hence, they are solidarily answerable with PNEI for the unpaid money claims of
the employees.[29] Citing A.C. Ransom Labor Union-CCLU v. NLRC,[30] the employees insist that where the
employer corporation ceases to exist and is no longer able to satisfy the judgment awards in favor of its
employees, the owner of the employer corporation should be made jointly and severally liable. [31] They added
that malice or bad faith need not be proven to make the owners liable.

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

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

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

Both petitions must fail.

G.R. No. 170689

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

We answer in the negative.

First, the subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the records was it
shown that PNEI owned the Pantranco properties. Petitioners, in fact, never alleged in any of their pleadings
the fact of such ownership. What was established, instead, in PNB MADECOR v. Uy[34] and PNB v. Mega
Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings Corporation v. PNB[35] was that the
properties were owned by Macris, the predecessor of PNB-Madecor. Hence, they cannot be pursued against
by the creditors of PNEI.

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

Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from
that of PNEI. PNB is sought to be held liable because it acquired PNEI through NIDC at the time when PNEI
was suffering financial reverses. PNB-Madecor is being made to answer for petitioners labor claims as the
owner of the subject Pantranco properties and as a subsidiary of PNB. Mega Prime is also included for having
acquired PNBs shares over PNB-Madecor.
The general rule is that a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected.[39] This is a fiction created by law for
convenience and to prevent injustice.[40] Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI are
corporations with their own personalities. The separate personalities of the first three corporations had been
recognized by this Court in PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and
Holdings Corporation v. PNB[41] where we stated that PNB was only a stockholder of PNB-Madecor which later
sold its shares to Mega Prime; and that PNB-Madecor was the owner of the Pantranco properties. Moreover,
these corporations are registered as separate entities and, absent any valid reason, we maintain their separate
identities and we cannot treat them as one.

Neither can we merge the personality of PNEI with PNB simply because the latter acquired the
former. Settled is the rule that where one corporation sells or otherwise transfers all its assets to another
corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor. [42]
 Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist to
warrant the piercing of the corporate veil, [43] none applies in the present case whether between PNB and
PNEI; or PNB and PNB-Madecor.

Under the doctrine of piercing the veil of corporate fiction, the court looks at the corporation as a mere
collection of individuals or an aggregation of persons undertaking business as a group, disregarding the
separate juridical personality of the corporation unifying the group.[44] Another formulation of this doctrine is that
when two business enterprises are owned, conducted and controlled by the same parties, both law and equity
will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are
distinct entities and treat them as identical or as one and the same.[45]

Whether the separate personality of the corporation should be pierced hinges on obtaining facts
appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit
the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest
of justice. After all, the concept of corporate entity was not meant to promote unfair objectives.[46]

As between PNB and PNEI, petitioners want us to disregard their separate personalities, and insist that
because the company, PNEI, has already ceased operations and there is no other way by which the judgment
in favor of the employees can be satisfied, corporate officers can be held jointly and severally liable with the
company. Petitioners rely on the pronouncement of this Court in A.C. Ransom Labor Union-CCLU v.
NLRC[47] and subsequent cases.[48]

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

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

Moreover, in the recent cases Carag v. National Labor Relations Commission[50] and McLeod v.
National Labor Relations Commission,[51] the Court explained the doctrine laid down in AC Ransom relative to
the personal liability of the officers and agents of the employer for the debts of the latter. In AC Ransom, the
Court imputed liability to the officers of the corporation on the strength of the definition of an employer in Article
212(c) (now Article 212[e]) of the Labor Code. Under the said provision, employerincludes any person acting in
the interest of an employer, directly or indirectly, but does not include any labor organization or any of its
officers or agents except when acting as employer. It was clarified in Carag and McLeod that Article 212(e) of
the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation. It
added that the governing law on personal liability of directors or officers for debts of the corporation is still
Section 31[52] of the Corporation Code.

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

Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the corporate veil
applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is
used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used
to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce
since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct
of another corporation.[54] In the absence of malice, bad faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made personally liable for corporate liabilities.[55]

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

It would not be enough, then, for the petitioners in this case, the PNEI employees, to rest
on their laurels with evidence that PNB was the owner of PNEI. Apart from proving ownership, it
is necessary to show facts that will justify us to pierce the veil of corporate fiction and hold PNB
liable for the debts of PNEI. The burden undoubtedly falls on the petitioners to prove their
affirmative allegations. In line with the basic jurisprudential principles we have explored, they
must show that PNB was using PNEI as a mere adjunct or instrumentality or has exploited or
misused the corporate privilege of PNEI.
 We do not see how the burden has been met. Lacking proof of a nexus apart from mere
ownership, the petitioners have not provided us with the legal basis to reach the assets of
corporations separate and distinct from PNEI.[56]

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

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

1. The parent corporation owns all or most of the capital stock of the subsidiary;
2. The parent and subsidiary corporations have common directors or officers;
3. The parent corporation finances the subsidiary;
4. The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation;
5. The subsidiary has grossly inadequate capital;
6. The parent corporation pays the salaries and other expenses or losses of the
subsidiary;
7. The subsidiary has substantially no business except with the parent corporation or
no assets except those conveyed to or by the parent corporation;
8. In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or its
business or financial responsibility is referred to as the parent corporations own;
9. The parent corporation uses the property of the subsidiary as its own;
10. The directors or executives of the subsidiary do not act independently in the interest
of the subsidiary, but take their orders from the parent corporation;
11. The formal legal requirements of the subsidiary are not observed.

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

G.R. No. 170705

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

It has been repeatedly stated that the Pantranco properties which were the subject of execution sale were
owned by Macris and later, the PNB-Madecor. They were never owned by PNEI or PNB. Following our earlier
discussion on the separate personalities of the different corporations involved in the instant case, the only
entity which has the right and interest to question the execution sale and the eventual right to annul the same,
if any, is PNB-Madecor or its successor-in-interest. Settled is the rule that proceedings in court must be
instituted by the real party in interest.
A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or
the party entitled to the avails of the suit.[59] Interest within the meaning of the rule means material interest, an
interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved,
or a mere incidental interest.[60] The interest of the party must also be personal and not one based on a desire
to vindicate the constitutional right of some third and unrelated party.[61] Real interest, on the other hand,
means a present substantial interest, as distinguished from a mere expectancy or a future, contingent,
subordinate, or consequential interest.[62]

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

In justifying its claim against the Pantranco properties, PNB alleges that Mega Prime, the buyer of its entire
stockholdings in PNB-Madecor was indebted to it (PNB).Considering that said indebtedness remains unpaid,
PNB insists that it has an interest over PNB-Madecor and Mega Primes assets.
Again, the contention is bereft of merit. While PNB has an apparent interest in Mega Primes assets being the
creditor of the latter for a substantial amount, its interest remains inchoate and has not yet ripened into a
present substantial interest, which would give it the standing to maintain an action involving the subject
properties. As aptly observed by the Labor Arbiter, PNB only has an inchoate right to the properties of Mega
Prime in case the latter would not be able to pay its indebtedness. This is especially true in the instant case, as
the debt being claimed by PNB is secured by the accessory contract of pledge of the entire stockholdings of
Mega Prime to PNB-Madecor.[64]

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

Besides, the issue of whether PNB has a substantial interest over the Pantranco properties has already
been laid to rest by the Labor Arbiter.[65] It is noteworthy that in its Resolution dated September 10, 2002, the
Labor Arbiter denied PNBs Third-Party Claim primarily because PNB only has an inchoate right over the
Pantranco properties.[66]Such conclusion was later affirmed by the NLRC in its Resolution dated June 30,
2003.[67] Notwithstanding said conclusion, PNB did not elevate the matter to the CA via a petition for
review. Hence it is presumed to be satisfied with the adjudication therein.[68] That decision of the NLRC has
become final as against PNB and can no longer be reviewed, much less reversed, by this Court. [69] This is in
accord with the doctrine that a party who has not appealed cannot obtain from the appellate court any
affirmative relief other than the ones granted in the appealed decision.[70]

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

SO ORDERED.
CAGAYAN VALLEY DRUG G.R. No. 151413
CORPORATION,
Petitioner, Present:
QUISUMBING, J., Chairperson,
CARPIO,
- versus - CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
COMMISSIONER OF INTERNAL Promulgated:
REVENUE,
Respondent. February 13, 2008
x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

The Case

This petition for review under Rule 45 of the Rules of Court seeks the recall of the August 31, 2000
Resolution[1] of the Court of Appeals (CA) in CA-G.R. SP No. 59778, which dismissed petitioner Cagayan
Valley Drug Corporations petition for review of the April 26, 2000 Decision [2] of the Court of Tax Appeals (CTA)
in C.T.A. Case No. 5581 on the ground of defective verification and certification against forum shopping.

The Facts

Petitioner, a corporation duly organized and existing under Philippine laws, is a duly licensed retailer of
medicine and other pharmaceutical products. It operates two drugstores, one in Tuguegarao, Cagayan, and
the other in Roxas, Isabela, under the name and style of Mercury Drug.

Petitioner alleged that in 1995, it granted 20% sales discounts to qualified senior citizens on purchases of
medicine pursuant to Republic Act No. (RA) 7432[3] and its implementing rules and regulations.

In compliance with Revenue Regulation No. (RR) 2-94, petitioner treated the 20% sales discounts granted to
qualified senior citizens in 1995 as deductions from the gross sales in order to arrive at the net sales, instead
of treating them as tax credit as provided by Section 4 of RA 7432.

On December 27, 1996, however, petitioner filed with the Bureau of Internal Revenue (BIR) a claim for tax
refund/tax credit of the full amount of the 20% sales discount it granted to senior citizens for the year 1995,
allegedly totaling to PhP 123,083 in accordance with Sec. 4 of RA 7432.

The BIRs inaction on petitioners claim for refund/tax credit compelled petitioner to file on March 18, 1998 a
petition for review before the CTA docketed as C.T.A. Case No. 5581 in order to forestall the two-year
prescriptive period provided under Sec. 230[4] of the 1977 Tax Code, as amended. Thereafter, on March 31,
2000, petitioner amended its petition for review.

The Ruling of the Court of Tax Appeals

On April 26, 2000, the CTA rendered a Decision dismissing the petition for review for lack of merit. [5]

The CTA sustained petitioners contention that pursuant to Sec. 4 of RA 7432, the 20% sales discounts
petitioner extended to qualified senior citizens in 1995 should be treated as tax credit and not as deductions
from the gross sales as erroneously interpreted in RR 2-94. The CTA reiterated its consistent holdings that RR
2-94 is an invalid administrative interpretation of the law it purports to implement as it contravenes and does
not conform to the standards RA 7432 prescribes.

Notwithstanding petitioners entitlement to a tax credit from the 20% sales discounts it extended to
qualified senior citizens in 1995, the CTA nonetheless dismissed petitioners action for refund or tax credit on
account of petitioners net loss in 1995. First, the CTA rejected the refund as it is clear that RA 7432 only grants
the 20% sales discounts extended to qualified senior citizens as tax credit and not as tax refund. Second, in
rejecting the tax credit, the CTA reasoned that while petitioner may be qualified for a tax credit, it cannot be so
extended to petitioner on account of its net loss in 1995.

The CTA ratiocinated that on matters of tax credit claim, the government applies the amount
determined to be reimbursable after proper verification against any sum that may be due and collectible from
the taxpayer. However, if no tax has been paid or if no amount is due and collectible from the taxpayer, then a
tax credit is unavailing. Moreover, it held that before allowing recovery for claims for a refund or tax credit, it
must first be established that there was an actual collection and receipt by the government of the tax sought to
be recovered. In the instant case, the CTA found that petitioner did not pay any tax by virtue of its net loss
position in 1995.

Petitioners Motion for Reconsideration was likewise denied through the appellate tax courts June 30,
2000 Resolution.[6]

The Ruling of the Court of Appeals

Aggrieved, petitioner elevated the matter before the CA, docketed as CA-G.R. SP No.
59778. On August 31, 2000, the CA issued the assailed Resolution[7] dismissing the petition on procedural
grounds. The CA held that the person who signed the verification and certification of absence of forum
shopping, a certain Jacinto J. Concepcion, President of petitioner, failed to adduce proof that he was duly
authorized by the board of directors to do so.

As far as the CA was concerned, the main issue was whether or not the verification and certification of
non-forum shopping signed by the President of petitioner is sufficient compliance with Secs. 4 and 5, Rule 7 of
the 1997 Rules of Civil Procedure.

The verification and certification in question reads:

I, JACINTO J. CONCEPCION, of legal age with office address at 2 nd Floor, Mercury

Drug Corporation, No. 7 Mercury Ave, Bagumbayan, Quezon City, under oath, hereby state
that:

1. I am the President of Cagayan Valley Drug Corporation, Petitioner in the above-

entitled case and am duly authorized to sign this Verification and Certification of Absence of
Forum Shopping by the Board of Director.

xxxx

The CA found no sufficient proof to show that Concepcion was duly authorized by the Board of
Directors of petitioner. The appellate court anchored its disposition on our ruling in Premium Marble
Resources, Inc. v. Court of Appeals (Premium), that [i]n the absence of an authority from the Board of
Directors, no person, not even the officers of the corporation, can validly bind the corporation.[8]

Hence, we have this petition.

The Issues

Petitioner raises two issues: first, whether petitioners president can sign the subject verification and
certification sans the approval of its Board of Directors. And second, whether the CTA committed reversible
error in denying and dismissing petitioners action for refund or tax credit in C.T.A. Case No. 5581.

The Courts Ruling

The petition is meritorious.

Premium not applicable

As regards the first issue, we find the CA to have erroneously relied on Premium. In said case, the
issue tackled was not on whether the president of Premium Marble Resources, Inc. was authorized to sign the
verification and certification against forum shopping, but rather on which of the two sets of officers, both
claiming to be the legal board of directors of Premium, have the authority to file the suit for and in behalf of the
company. The factual antecedents and issues in Premium are not on all fours with the instant case and is,
therefore, not applicable.

With respect to an individual litigant, there is no question that litigants must sign the sworn verification
and certification unless they execute a power of attorney authorizing another person to sign it. With respect to
a juridical person, Sec. 4, Rule 7 on verification and Sec. 5, Rule 7 on certification against forum shopping are
silent as to who the authorized signatory should be. Said rules do not indicate if the submission of a board
resolution authorizing the officer or representative is necessary.

Corporate powers exercised through board of directors

It must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation Code, clearly enunciates
that all corporate powers are exercised, all business conducted, and all properties controlled by the board of
directors. A corporation has a separate and distinct personality from its directors and officers and can only
exercise its corporate powers through the board of directors. Thus, it is clear that an individual corporate officer
cannot solely exercise any corporate power pertaining to the corporation without authority from the board of
directors. This has been our constant holding in cases instituted by a corporation.

In a slew of cases, however, we have recognized the authority of some corporate officers to sign the
verification and certification against forum shopping. In Mactan-Cebu International Airport Authority v. CA, we
recognized the authority of a general manager or acting general manager to sign the verification and certificate
against forum shopping;[9] in Pfizer v. Galan, we upheld the validity of a verification signed by an employment
specialist who had not even presented any proof of her authority to represent the company; [10] in Novelty
Philippines, Inc., v. CA, we ruled that a personnel officer who signed the petition but did not attach the authority
from the company is authorized to sign the verification and non-forum shopping certificate;[11] and in Lepanto
Consolidated Mining Company v. WMC Resources International Pty. Ltd. (Lepanto), we ruled that the
Chairperson of the Board and President of the Company can sign the verification and certificate against non-
forum shopping even without the submission of the boards authorization.[12]

In sum, we have held that the following officials or employees of the company can sign the verification
and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the
President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5)
an Employment Specialist in a labor case.

While the above cases do not provide a complete listing of authorized signatories to the verification and
certification required by the rules, the determination of the sufficiency of the authority was done on a case to
case basis. The rationale applied in the foregoing cases is to justify the authority of corporate officers or
representatives of the corporation to sign the verification or certificate against forum shopping, being in a
position to verify the truthfulness and correctness of the allegations in the petition.[13]

Authority from board of directors required

In Philippine Airlines v. Flight Attendants and Stewards Association of the Philippines, we ruled that
only individuals vested with authority by a valid board resolution may sign the certificate of non-forum shopping
on behalf of a corporation. The action can be dismissed if the certification was submitted unaccompanied by
proof of the signatorys authority.[14] We believe that appending the board resolution to the complaint or petition
is the better procedure to obviate any question on the authority of the signatory to the verification and
certification. The required submission of the board resolution is grounded on the basic precept that corporate
powers are exercised by the board of directors,[15]and not solely by an officer of the corporation. Hence, the
power to sue and be sued in any court or quasi-judicial tribunal is necessarily lodged with the said board.

There is substantial compliance with Rule 7, Secs. 4 and 5

In the case at bar, we so hold that petitioner substantially complied with Secs. 4 and 5, Rule 7 of the
1997 Revised Rules on Civil Procedure. First, the requisite board resolution has been submitted albeit
belatedly by petitioner. Second, we apply our ruling in Lepanto with the rationale that the President of petitioner
is in a position to verify the truthfulness and correctness of the allegations in the petition. Third, the President of
petitioner has signed the complaint before the CTA at the inception of this judicial claim for refund or tax credit.

Consequently, the petition in CA-G.R. SP No. 59778 ought to be reinstated. However, in view of the
enactment of RA 9282 which made the decisions of the CTA appealable to this Court, we will directly resolve
the second issue which is a purely legal one.

Petitioner entitled to tax credit

The pith of the dispute between petitioner and respondent is whether petitioner is entitled to a tax
refund or tax credit of 20% sales discount granted to senior citizens under RA 7432 or whether the discount
should be treated as a deduction from gross income.

This issue is not new, as the Court has resolved several cases involving the very same
issue. In Commissioner of Internal Revenue v. Central Luzon Drug Corporation (Central Luzon),[16] we held that
private drug companies are entitled to a tax credit for the 20% sales discounts they granted to qualified senior
citizens under RA 7432 and nullified Secs. 2.i and 4 of RR 2-94. In Bicolandia Drug Corporation (formerly
Elmas Drug Corporation) v. Commissioner of Internal Revenue,[17] we ruled that petitioner therein is entitled to
a tax credit of the cost or the full 20% sales discounts it granted pursuant to RA 7432. In the related case
of Commissioner of Internal Revenue v. Bicolandia Drug Corporation,[18] we likewise ruled that respondent drug
company was entitled to a tax credit, and we struck down RR 2-94 to be null and void for failing to conform with
the law it sought to implement.

A perusal of the April 26, 2000 CTA Decision shows that the appellate tax court correctly ruled that the
20% sales discounts petitioner granted to qualified senior citizens should be deducted from petitioners income
tax due and not from petitioners gross sales as erroneously provided in RR 2-94. However, the CTA erred in
denying the tax credit to petitioner on the ground that petitioner had suffered net loss in 1995, and ruling that
the tax credit is unavailing.
Net loss in a taxable year does not preclude grant of tax credit

It is true that petitioner did not pay any tax in 1995 since it suffered a net loss for that taxable year. This fact,
however, without more, does not preclude petitioner from availing of its statutory right to a tax credit for the
20% sales discounts it granted to qualified senior citizens. The law then applicable on this point is clear and
without any qualification. Sec. 4 (a) of RA 7432 pertinently provides:

Sec. 4. Privileges for the Senior citizens.The senior citizens shall be entitled to the following:
a) the grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishments,
restaurants and recreation centers and purchase of medicines anywhere in the
country: Provided, That private establishments may claim the cost
as tax credit. (Emphasis ours.)

The fact that petitioner suffered a net loss in 1995 will not make the tax credit due to petitioner
unavailable. This is the core issue resolved in Central Luzon, where we ruled that the net loss for a taxable
year does not bar the grant of the tax credit to a taxpayer pursuant to RA 7432 and that prior tax payments are
not required for such grant. We explained:

Although this tax credit benefit is available, it need not be used by losing ventures, since
there is no tax liability that calls for its application. Neither can it be reduced to nil by the quick
yet callow stroke of an administrative pen, simply because no reduction of taxes can instantly be
effected. By its nature, the tax credit may still be deducted from a future, not a present, tax
liability, without which it does not have any use. x x x

xxxx

While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not. On the contrary, for the existence or grant solely of such credit, neither a tax
liability nor a prior tax payment is needed. The Tax Code is in fact replete with provisions
granting or allowing tax credits, even though no taxes have been previously paid.[19]

It is thus clear that petitioner is entitled to a tax credit for the full 20% sales discounts it extended to
qualified senior citizens for taxable year 1995. Considering that the CTA has not disallowed the PhP 123,083
sales discounts petitioner claimed before the BIR and CTA, we are constrained to grant them as tax credit in
favor of petitioner.

Consequently, petitioners appeal before the CA in CA-G.R. SP No. 59778 must be granted, and,
necessarily, the April 26, 2000 CTA Decision in C.T.A. Case No. 5581 reversed and set aside.

WHEREFORE, the petition is GRANTED. The August 31, 2000 CA Resolution in CA-G.R. SP No. 59778
is ANNULLED and SET ASIDE. The April 26, 2000 CTA Decision in C.T.A. Case No. 5581 dismissing
petitioners claim for tax credit is accordingly REVERSED AND SET ASIDE. The Commissioner of Internal
Revenue is ORDERED to issue a Tax Credit Certificate in the name of petitioner in the amount of PhP
123,083. No costs.

SO ORDERED.
THE HEIRS OF THE LATE PANFILO V. G.R. No. 155056-57
PAJARILLO,
Petitioners,
Present:
-versus -
YNARES-SANTIAGO, J.,
Chairperson,
THE HON. COURT OF APPEALS, AUSTRIA-MARTINEZ,
NATIONAL LABOR RELATIONS CHICO-NAZARIO,
COMMISSION and SAMAHAN NG NACHURA, and
MGA MANGGAGAWA NG PANFILO V. REYES, JJ.
PAJARILLO, ALFREDO HOYOHOY,
HERMINIO CASTILLO, BERNARDO
ROCO, RODOLFO TORRES, JULIAN
JORVINA, LOURDES ROCO, FLORITA
YAPOC, MARLON ALDANA,
PARALUMAN ULANG, TOLENTINO
SANHI, JOHNNY SORIANO, ANDRES
CALAQUE, ROBERTO LAVAREZ,
FRANCISCO MORALES, SALVACION
PERINA, ANTONIO ABALA, ROMEO
SALONGA, AUGUR M. MANIPOL,
BIENVENIDA TEQUIL, MARIO ELEP,
ALADINO LATIGO, BERNARDINE
BANSAL, PEDRO DE BAGUIO,
RICARDO CALICA, LAURA CO,
VICENTE RECANA, ELENA TOLLEDO,
ALFREDO PLAZA, SR., HERMINIO
BALDONO, FELIPE YAPOC, ARISTON
NIPA, and ALFONSO C. BALDOMAR,
Respondents. Promulgated:

October 19, 2007

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

DECISION

CHICO-NAZARIO, J.:

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court,[1] petitioners, heirs of
Panfilo V. Pajarillo, seek to set aside the Decision,[2] and Resolution,[3] dated 12 March 2002 and 28 August
2002, respectively, of the Court of Appeals in CA-G.R. SP No. 54330 and CA-G.R. SP No. 54331, reversing
the two Per Curiam Orders dated 28 October 1996 and 10 January 1997,[4] of the National Labor Relations
Commission (NLRC) in NLRC NCR Cases No. 08-03013-87 and 01-00331-88.

Stripped of the non-essentials, the facts are as follows:

Panfilo V. Pajarillo (Panfilo) was the owner and operator of several buses plying certain routes in Metro
Manila. He used the name PVP Liner in his buses. Private respondents were employed as drivers, conductors
and conductresses by Panfilo.

During their employment with Panfilo, private respondents worked at least four times a week or for an
average of fifteen working days per month. They were required to observe a work schedule starting
from 4:00 in the morning up to 10:00 in the evening on a straight time basis. Private respondent drivers were
paid a daily commission of 10%, while private respondent conductors and conductresses received a daily
commission of 7%. In sum, each of the private respondents earned an average daily commission of
about P150.00 a day. They were not given emergency cost of living allowance (ECOLA), 13th month pay, legal
holiday pay and service incentive leave pay.[5]

The following were deducted from the private respondents daily commissions: (a) costs of washing the
assigned buses; (b) terminal fees; (c) fees for sweeping the assigned buses; (d) fees paid to the barangay
tanod at bus terminals; and (e) rental fees for the use of stereo in the assigned buses. Any employee who
refused such deductions were either barred from working or dismissed from work.[6]
Thereafter, private respondents and several co-employees formed a union called SAMAHAN NG MGA
MANGGAGAWA NG PANFILO V. PAJARILLO (respondent union). The Department of Labor and Employment
(DOLE) issued a Certificate of Registration in favor of the respondent union.[7]
 Upon learning of the formation of respondent union, Panfilo and his children ordered some of the
private respondents to sign a document affirming their trust and confidence in Panfilo and denying any
irregularities on his part. Other private respondents were directed to sign a blank document which turned out to
be a resignation letter. Private respondents refused to sign the said documents, hence, they were barred from
working or were dismissed without hearing and notice. Panfilo and his children and relatives also formed a
company union where they acted as its directors and officers.[8]

On 25 August 1987, respondent union and several employees filed a Complaint for unfair labor practice
and illegal deduction before the Labor Arbiter with Panfilo V. Pajarillo Liner as party-respondent. This was
docketed as NLRC/NCR Case No. 00-08-03013-87.[9] On 28 September 1987, the respondent union filed an
Amended Complaint alleging this time not only unfair labor practice and illegal deduction but also illegal
dismissal.[10]

On 20 January 1988, respondent union and several employees filed another Complaint for violation of
labor standard laws claiming non-payment of (1) ECOLA, (2) 13thmonth pay, (3) overtime pay, (4) legal holiday
pay, (5) premium pay, and (6) service incentive leave. The party-respondents in this complaint were PVP
LINER INC. and PANFILO V. PAJARILLO, as its General Manager/Operator. This was docketed as NLRC
Case No. 00-01-00331-88.[11]

Notifications and summons with respect to NLRC/NCR Case No. 00-08-03013-87 were addressed and
sent to PANFILO V. PAJARILLO, President/Manager, Panfilo V. Pajarillo Liner, Pasig Line St., Sta. Ana,
Manila on 31 August 1987. The Registry Return Receipt dated 4 September 1987 was addressed to Panfilo
V. Pajarillo, and a signature therein appears on top of the signature of the name of the addressee. [12] With
regard to NLRC Case No. 00-01-00331-88, notifications and summonses were addressed and sent to THE
PRESIDENT/MANAGER, PVP Liner Inc. and Panfilo V. Pajarillo, 2175 Zamora Street, Sta. Ana, Manila on
25 January 1988. The Registry Return Receipt dated 4 February 1988 was addressed to PVP Liner Inc. and
was signed by a certain Irene G. Pajarillo as the addressees agent.[13]

Panfilo denied the charges in the complaints. He maintained that private respondents were not
dismissed from work on account of their union activities; that private respondents and several of their co-
employees either resigned or were separated from work, or simply abandoned their employment long before
the respondent union was organized and registered with the DOLE; that the private respondents are not
entitled to ECOLA and 13th month pay because they received wages above the minimum provided by law; that
the private respondents are not entitled to overtime and legal holiday pay because these are already included
in their daily commissions; that the private respondents are not entitled to five days incentive leave pay
because they work only four days a week; that no deductions were made in the daily commissions of the
private respondents; that the private respondents voluntarily and directly paid certain individuals
for barangay protection and for the cleaning of the assigned buses; that he had no participation in these
activities/arrangements; that the private respondents were not dismissed from work; and that the private
respondents either abandoned their jobs or voluntarily resigned from work.[14]

Upon motion of Panfilo, the complaints in NLRC/NCR Case No. 00-08-03013-87 and NLRC Case No.
00-01-00331-88 were consolidated.[15] On 29 January 1991, Panfilo died.[16]

After hearing and submission by both parties of their respective position papers and memoranda, Labor
Arbiter Manuel P. Asuncion (Arbiter Asuncion) rendered a Decision[17] dated 28 December 1992, dismissing
the consolidated complaints for lack of merit. Thus:

IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS, the complaint should

be as it is hereby dismissed for lack of merit.

Respondent union appealed to the NLRC. On 18 June 1996, the NLRC reversed the decision of Arbiter
Asuncion and ordered the reinstatement of, and payment of backwages, ECOLA, 13th month pay, legal holiday
pay and service incentive leave pay to, private respondents.[18] The dispositive portion of the NLRC decision
reads:

Wherefore, the appealed decision is hereby set aside. Accordingly, judgment is hereby
rendered directing:
(1) The respondent, PVP Liner, Inc. to reinstate to their former positions,
without loss of seniority rights and other benefits, the following
complainants: Alfredo [Hoyohoy], Bernardo Roco, Rodolfo Torres, Julian Jorvina,
Florita Yapoc, Marlon Aldana, Paraluman Ulang, Tolentino Sanhi, Johnny
Soriano, Andres Calaque, Roberto Lavarez, Francisco Morales, Salvacion
Perina, Antonio Abala, Alfonso Baldomar, Jr., Romeo Salonga, Augur Manipol,
Bienvenida Tequil, Mario Elep, Aladino Latigo, Bernardine Bansal, Pedro de
Baguio, Ricardo Calica, Laura Co, Vicente Recana, Elena Tolledo, Alfredo Plaza,
Sr., Herminio Baldono, Felioe Yapoc, Ariston Nipa and Herminia Castillo and to
 pay them their backwages corresponding to a period of three (3) years without
qualifications and deductions;

(2) The same respondent PVP Liner, Inc. to pay amounts to be computed
in a hearing called for said purpose by the Arbitration Branch of Origin, the
aforesaid complainants their claims for emergency cost of living allowance
(ECOLA), 13th month pay, legal holiday pay and service incentive leave benefits
subject to the three-year prescriptive period provided under Article 291 of the
Labor Code, as amended;

(3) The dismissal of the claims on alleged illegal deductions of the

respondents for lack of merits; and
(4) The dismissal of the case of Lourdes Roco due to prescription.
All other claims of the complainants and the respondents are likewise DISMISSED, for
being without merit.
The Arbitration Branch of Origin is hereby directed to enforce this decision.
Panfilos counsel filed a motion for reconsideration which was partially granted by the NLRC in its Order
dated 28 October 1996, to wit:

Dictated, however, by the imperatives of due process, we find it more judicious to just
remand this case for further hearing on key questions of:

1) whether or not PVP Liner Inc. was properly impleaded as party respondent in
the consolidated cases below;
2) whether or not summons was properly served on said corporation below; and
3) whether or not the subject cases can be considered as principally money
claims which have to be litigated in intestate/testate proceedings involving the
estate of the late Panfilo V. Pajarillo.

WHEREFORE, our decision dated June 18, 1996 is hereby set aside. Let this case be
remanded to the NCR Arbitration Branch for further hearing on the questions above-
mentioned.[19]

Respondent union filed a motion for reconsideration of the above-stated Order, but this was denied by
the NLRC in its Order dated 10 January 1997.[20] Thus, respondent union filed a Petition for Certiorari under
Rule 65 before this Court. Pursuant, however, to our ruling in St. Martin Funeral Home v. National Labor
Relations Commission,[21]we remanded the petition to the Court of Appeals for proper disposition.

On 12 March 2002, the Court of Appeals rendered a Decision granting the respondent unions petition
and nullifying the Orders dated 28 October 1996 and 10 January 1997 of the NLRC. It also reinstated the
Decision dated 18 June 1986 of the NLRC.[22] The appellate court decreed:

WHEREFORE, premises considered, the PETITION FOR CERTIORARI is hereby

GRANTED. Accordingly, the Order dated October 28 1996 and January 10, 1997 of the NLRC
are hereby NULLIFIED and its Decision dated 18 June 1986 be REINSTATED.

Panfilos counsel filed a motion for reconsideration of the said decision but this was denied by the
appellate court in its Resolution dated 28 August 2002.[23]

Herein petitioners, as heirs of Panfilo, filed the instant petition before this Court assigning the following
errors:

I.THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ARRIVING AT THE CONCLUSION THAT
PVP LINER INC. WAS PROPERLY MISPLEADED, WHICH IS A NON-EXISTING CORPORATION.

II.THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT CONSIDERING THAT THERE WAS NO
PROPER AND EFFECTIVE SERVICE OF SUMMONS.

III. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN PIERCING THE VEIL OF CORPORATE
ENTITY OF PVP PAJARILLO LINER INC.

IV. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN REINSTATING THE ORDER OF THE
NLRC DATED JUNE 18, 1996, WHICH DECLARED THAT PRIVATE RESPONDENTS WERE ILLEGALLY
DISMISSED.[24]

Anent the first issue, petitioners alleged that the Decision dated 18 June 1996 of the NLRC,
ordered PVP Liner Inc. to reinstate private respondents and pay their backwages, ECOLA, 13th month pay,
legal holiday pay and service incentive leave pay; that there was no such entity as PVP Liner Inc. organized
and existing in the Philippines;that it was not possible for Arbiter Asuncion and the NLRC to acquire jurisdiction
over a non-existing company; that there can never be a service of summons or notice to a non-existent entity;
that the true employer of private respondents was Panfilo as the sole proprietor/operator of passenger buses
doing business under the tradename, PVP Liner, and not PVP Liner Inc. which was non-existent; that Panfilo
never used PVP Liner Inc. as his tradename; that the present operator of PVP Liner buses
is P.V. PAJARILLO LINER, a corporation duly registered with the Securities and Exchange Commission; that
at the time the instant case was filed before Arbiter Asuncion in 1987, the latter did not have jurisdiction
over P.V. PAJARILLO LINER because it was organized and duly registered only on 22 January 1990;
that P.V. PAJARILLO LINER has a separate and distinct personality from Panfilo as the sole operator of PVP
Liner buses; that, therefore, P.V. PAJARILLO LINER cannot be made a party or impleaded in the present
case; that the amended complaint in NLRC/NCR Case No. 00-08-03013-87 impleaded as party-
respondent PANFILO V. PAJARILLO LINER and PANFILO V. PAJARILLO, as operator and responsible
officer; that PVP Liner Inc. was not impleaded in the instant case; and that no summons was ever served
on PVP Liner Inc. in NLRC/NCR Case No. 00-08-03013-87.[25]

The contentions are bereft of merit.

In the Complaint dated 20 January 1988, PVP Liner Inc. and Panfilo were impleaded as party-
respondents, thus:

That respondent PVP Liner, Inc., is a private business entity, engaged in transportation of
passengers, duly organized and existing pursuant to law and for this purpose maintains its principal office
at 2175, Zamora Street, Sta. Ana, Manila; while individual respondent [Panfilo] is the General
Manager/Operator and may be served with summons, notices and other processes at the
aforementioned principal office.[26]

Panfilo did not question in his position paper or in his motion for consolidation of the complaints the
foregoing allegations. Neither did he assail the inclusion of PVP Liner Inc. as party-respondent in respondent
unions position paper dated 6 June 1988.

In Panfilos position paper as well as in the records of the proceedings before Arbiter Asuncion, there is
nothing that shows that Panfilo challenged the jurisdiction of Arbiter Asuncion over PVP Liner Inc. When
Arbiter Asuncion decided in favor of Panfilo, the latter said nothing about the inclusion of PVP Liner Inc. as
party respondent and the lack of jurisdiction of Arbiter Asuncion over the same. It was only when the NLRC
rendered a Decision adverse to Panfilo that the latter alleged the non-existence of PVP Liner Inc. and the fact
that Arbiter Asuncion and the NLRC had no jurisdiction over it.

Petitioners are now precluded from questioning the inclusion of PVP Liner Inc. as party-respondent as
well as the jurisdiction of Arbiter Asuncion and the NLRC over them under the principle of estoppel. It is settled
that the active participation of a party against whom the action was brought, coupled with his failure to object to
the jurisdiction of the court or quasi-judicial body where the action is pending, is tantamount to an invocation of
that jurisdiction and a willingness to abide by the resolution of the case and will bar said party from later on
impugning the court or bodys jurisdiction.[27] This Court has time and again frowned upon the undesirable
practice of a party submitting his case for decision and then accepting the judgment only if favorable, and
attacking it for lack of jurisdiction when adverse.[28]

It is apparent that Panfilo V. Pajarillo Liner and PVP Liner Inc. are one and the same entity belonging
to one and the same person, Panfilo. When PVP Liner Inc. and Panfilo V. Pajarillo Liner were impleaded as
party-respondents, it was Panfilo, through counsel, who answered the complaints and filed the position papers,
motions for reconsideration and appeals. It was also Panfilo, through counsel, who participated in the hearings
and proceedings. In fact, Abel Pajarillo (Abel), son of Panfilo, testified before Arbiter Asuncion that he was the
operations manager of PVP Liner Inc.[29] Further, both Panfilo and PVP Liner Inc. were charged jointly and
severally in the aforesaid complaints.

Apropos the second issue, petitioners alleged that the notices and summons were received by a certain
Irene G. Pajarillo (Irene) for and in behalf of the PVP Liner Inc.; that Irene was neither and could not have been
the President/Manager of PVP Liner Inc., the latter being non-existent; and that Irene was not an officer of P.V.
Pajarillo Liner.[30]

Sections 4 and 5 of Rule IV of the Revised Rules of Procedure of the NLRC provides the rule for the
service of summonses and notices in NLRC cases, viz:

Sec. 4. Service of notices and resolutions. a) Notices or summons and copies of orders,
resolutions or decisions shall be served personally by the bailiff or the duly authorized public
officer or by registered mail on the parties to the case within five (5) days from receipt thereof by
the serving officer.
 Sec. 5. Proof and completeness of service. The return is prima facie proof of the facts
indicated therein. Service by registered mail is complete upon receipt by the addressee or his
agent.[31]

Records show that Irene received the summons for NLRC Case No. 00-01-00331-88 on 4 February
1988 in behalf of PVP Liner Inc. These summonses were addressed and sent to THE
PRESIDENT/MANAGER, PVP Liner Inc. and Panfilo V. Pajarillo, 2175 Zamora Street, Sta. Ana, Manila on
25 January 1988. The Registry Return Receipt dated 4 February 1988 was addressed to PVP Liner Inc. and
was signed by Irene as the addressees agent.[32] Abel, one of the heirs of Panfilo and the Operations Manager
of PVP Liner Inc., testified during the hearing before Arbiter Asuncion that Irene was one of the secretaries of
PVP Liner Inc.[33] Hence, there was a valid service of summons.

Regarding the third issue, petitioners posited that P.V. Pajarillo Liner Inc. is an independent
corporation and cannot be considered as an adjunct or extension of Panfilo as the sole operator of PVP Liner
buses; and that at the time P.V. Pajarillo Liner Inc. was established, it had no liability or obligation which it
tried to shield or circumvent.[34]

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from
its stockholders and from other corporations to which it may be connected. However, this separate and distinct
personality of a corporation is merely a fiction created by law for convenience and to promote justice. Hence,
when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect
fraud or defend crime, or is used as a device to defeat labor laws, this separate personality of the corporation
may be disregarded or the veil of the corporate fiction pierced. This is true likewise when the corporation is
merely an adjunct, a business conduit or an alter ego of another corporation. The corporate mask may be lifted
and the corporate veil may be pierced when a corporation is but the alter ego of a person or another
corporation.[35]

It is apparent that Panfilo started his transportation business as the sole owner and operator of
passenger buses utilizing the name PVP Liner for his buses. After being charged by respondent union of
unfair labor practice, illegal deductions, illegal dismissal and violation of labor standard laws, Panfilo
transformed his transportation business into a family corporation, namely, P.V. Pajarillo Liner Inc. He and
petitioners were the incorporators, stockholders and officers therein. P.V. Pajarillo Inc. and the sole
proprietorship of Panfilo have the same business address. P.V. Pajarillo Inc. also uses the name PVP Liner in
its buses. Further, the license to operate or franchise of the sole proprietorship was merely transferred
to P.V. Pajarillo Liner Inc. The testimony of Abel during the hearing before Arbiter Asuncion is revealing, thus:

Q: Mr. Pajarillo, when did you start assuming the functions of operations manager of PVP Liner?
A: Seven years from now, sometime in the year 1984 or 1985, sir.
Q: Do you have any written appointment as Operations Manager?
A: No, sir.
Q: I noticed that your surname is Pajarillo you are one way or another related to Mr. Panfilo V. Pajarillo, is
that correct?

Witness:
A: I am the son of Panfilo Pajarillo, sir.
Q: In so far as PVP Liner is concerned and being the operations manager, are you aware if it is a single
proprietor or a corporation?
A: At the start it was a single proprietorship, lately, it has become a family corporation.

Atty. Flores, Jr. (to witness)

Q: When you became the Operations Manager of PVP Liner, is it a single proprietor or a family
Corporation?
A: It was a single proprietorship.
Q: Mr. Witness, since PVP Liner is a transportation business it has a license to operate these buses?
A: Yes, there is, sir.
Atty. Flores, Jr. (to witness)

Q: In whose name was it registered?

A: Before it was with my father Panfilo V. Pajarillo, sir.

Q: Do I understand that the licensing of this transportation company was transferred to another
person?
A: It was never transferred to another person, except now, that it has been transferred to a
corporation.[36]

It is clear from the foregoing that P.V. Pajarillo Liner Inc. was a mere continuation and successor of
the sole proprietorship of Panfilo. It is also quite obvious that Panfilo transformed his sole proprietorship into a
family corporation in a surreptitious attempt to evade the charges of respondent union. Given these
considerations, Panfilo and P.V. Pajarillo Liner Inc. should be treated as one and the same person for
purposes of liability.[37]
 Finally, petitioners averred that no unfair labor practice was committed, and that private respondents
were not illegally dismissed from work.

In its Decision dated 18 June 1996, the NLRC made an exhaustive discussion of the allegations and
evidence of both parties as regards unfair labor practice and illegal dismissal. It concluded that private
respondents, officers and members of respondent union were dismissed by reason of their union activities and
that there was no compliance with substantial and procedural due process in terminating their services. It also
held that the private respondents who were not members of the respondent union were also dismissed without
just or valid cause, and that they were denied due process. These factual findings and conclusions were
supported by substantial evidence comprised of affidavits, sworn statements, testimonies of witnesses during
hearings before Arbiter Asuncion, and other documentary evidence. These findings were sustained by the
Court of Appeals.

The rule is that findings of fact of quasi-judicial agencies like the NLRC are accorded by this Court not
only respect but even finality if they are supported by substantial evidence, or that amount of relevant evidence
which a reasonable mind might accept as adequate to justify a conclusion. [38] We find no compelling reason to
deviate from such findings of the NLRC as affirmed by the Court of Appeals.

Consequently, the private respondents are entitled to reinstatement, backwages and other privileges
and benefits under Article 279 of the Labor Code. Separation pay may be given in lieu of reinstatement if the
employee concerned occupies a position of trust and confidence. In the case at bar, however, the private
respondents, as former bus drivers, conductors and conductresses of petitioners, do not hold the position of
trust and confidence.[39]

Nonetheless, it appears from the records that some of the private respondents, namely, Augur Manipol,
Rodolfo Torres, Ricardo Calica, Paraluman Ulang, Edith Chua, Alfredo Hoyohoy, Johnny Soriano, Bernardo
Roco, Tolentino Sanhi, Salvacion Perina, Pedro L. de Baguio, Ariston Nipa, Felipe Yapoc, Laura Co,
Bienvenida Tequil, Roberto Lavarez, Francisco Morales and Herminio Castillo, had executed a
Quitclaim/Release discharging petitioners from any and all claims by way of unpaid wages, separation pay,
overtime pay, differential pay, ECOLA, 13th month pay, holiday pay, service incentive leave pay or otherwise.[40]

Generally, deeds of release, waivers, or quitclaims cannot bar employees from demanding benefits to
which they are legally entitled or from contesting the legality of their dismissal, since quitclaims are looked
upon with disfavor and are frowned upon as contrary to public policy. Where, however, the person making the
waiver has done so voluntarily, with a full understanding thereof, and the consideration for the quitclaim is
credible and reasonable, the transaction must be recognized as being a valid and binding undertaking.[41]

There is no showing that the executions of these quitclaims were tainted with deceit or coercion. On the
contrary, each of the private respondents Sinumpaang Salaysay,which accompanied the quitclaims, evinces
voluntariness and full understanding of the execution and consequence of the quitclaim. In their
said Sinumpaang Salaysay, the private respondents stated that their lawyer had extensively explained to them
the computation and the actual amount of consideration they would receive; that they were not forced or
tricked by their lawyer in accepting the same; and that they already received the amount of consideration. [42]

Further, the considerations received by the private respondents were credible and reasonable because
they were not grossly disproportionate to the computation by the NLRC of the amount of backwages and other
money claims.[43]

Given these circumstances, the quitclaims should be considered as binding on the private respondents
who executed them. It is settled that a legitimate waiver which represents a voluntary and reasonable
settlement of a workers claim should be respected as the law between the parties. [44] Accordingly, the private
respondents who made such quitclaims are already precluded from claiming reinstatement, backwages,
ECOLA, 13TH month pay, legal holiday pay, service incentive leave pay, and other monetary claims.

With regard to the other private respondents who did not execute such quitclaims, they are entitled to
reinstatement, backwages, ECOLA, 13TH month pay, legal holiday pay and service incentive leave pay in
accordance with the computation of the NLRC.

WHEREFORE, the petition is hereby DENIED. The Decision and Resolution dated 12 March 2002 and
28 August 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 54330 and CA-G.R. SP No. 54331,
are hereby AFFIRMED with the following MODIFICATIONS: (1) Private respondents Augur Manipol, Rodolfo
M. Torres, Ricardo Calica, Paraluman Ulang, Edith Chua, Alfredo Hoyohoy, Johnny Soriano, Bernardo Roco,
Tolentino Sanhi, Salvacion Perina, Pedro L. de Baguio, Ariston Nipa, Felipe Yapoc, Laura Co, Bienvenida
Tequil, Roberto Lavarez, Francisco Morales and Herminio Castillo are hereby precluded from
claiming reinstatement, backwages, ECOLA, 13THmonth pay, legal holiday pay and service incentive leave
pay by reason of their respective quitclaims; (2) Petitioners are hereby ordered to reinstate private
respondentsJulian Jorvina, Florita Yapoc, Marlon Aldana, Andres Calaque, Antonio Abala, Alfonso Baldomar,
Romeo Salonga, Mario Elep, Aladino Latigo, Bernardine Bansal, Vicente Recana, Elena Tolledo and Alfredo
Plaza, Sr., and to pay these respondents backwages from the time of their dismissal up to the finality of this
Decision. Petitioners are also ordered to pay the foregoing private respondents ECOLA, 13TH month pay,
legal holiday pay and service incentive leave pay in accordance with the computation of the NLRC. Costs
against petitioners.

SO ORDERED.

PETRON CORPORATION AND PETER C. G.R. No. 154532

MALIGRO,
Petitioners, Present:

PUNO, J., Chairperson,

- versus - SANDOVAL-GUTIERREZ,
CORONA,
NATIONAL LABOR RELATIONS AZCUNA, and
COMMISSION AND CHITO S. MANTOS , GARCIA, JJ.
Respondents.

Promulgated:

October 27, 2006

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

DECISION

GARCIA, J.:

Assailed and sought to be set aside in this petition for review under Rule 45 of the Rules of Court is
the Resolution dated November 26, 2001[1] of the Court of Appeals (CA) in CA-G.R. SP No. 67702,
dismissing the petition for certiorari thereat filed by the herein petitioners on the ground that the Verification
and Certification on Non-Forum Shopping was defective because co-petitioner Peter C. Maligro was not a
signatory thereto, as reiterated in its subsequent Resolution of July 16, 2002,[2] denying the petitioners motion
for reconsideration.

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

On May 15, 1990, Petron, through its Cebu District Office, hired the herein private respondent Chito S.
Mantos, an Industrial Engineer, as a managerial, professional and technical employee with initial designation
as a Bulk Plant Engineering Trainee. He attained regular employment status on November 15, 1990 and was
later on designated as a Bulk Plant Relief Supervisor, remaining as such for the next five years while being
assigned to the different plants and offices of Petron within the Visayas area.
It was while assigned at Petrons Cebu District Office with petitioner Peter Maligro as his immediate
superior, when Mantos, thru a Notice of Disciplinary Action dated October 29, 1996, [3] a copy of which was
received by him on November 18, 1996,[4] was suspended for 30 days from November 1 to 30, 1996 for
violating company rules and regulations regarding Absence Without Leave (AWOL), not having reported for
work during the period August 5 to 27, 1996.

Subsequently, in a notice Termination of Services bearing date November 20, 1996[5] and received by
him on November 25, 1996,[6] Mantos services were altogether terminated effective December 1, 1996, by
reason of his continued absences from August 28, 1996 onwards, as well as for Insubordination/Discourtesy
for making false accusations against his superior.
Meanwhile, on November 8, 1996, contending that he has been constructively dismissed as of August
5, 1996, Mantos filed with the National Labor Relations Commission, Regional Arbitration Branch (NLRC-
RAB), Cebu City, a complaint for illegal dismissal and other monetary claims against Petron and/or Peter C.
Maligro. The case was docketed as NLRC RAB-VII Case No. 11-1439-96.

In his complaint, Mantos made the following allegations:

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

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

For their part, Petron and Maligro averred that Mantos was dismissed for just and valid causes
effective December 1, 1996, asserting that:
xxx complainant [Mantos] incurred absences without leave (AWOL) on August 5 to 27,
1996 inclusive. He failed to comply with the instruction of a superior for him to report for work at
the Cebu City District office and to submit a formal explanation of his AWOL. From August 28,
1996, up to the filing of respondents position paper, complainant has not reported for work
but continued to receive the salary for the months of August, September and October 2,
1996. An investigation was conducted on September 2, 1996 but complainant failed to appear.
Instead he sent two (2) letters thru his counsel accusing respondent Maligro of certain acts
humiliating and prejudicing him. After a series of hearings, [Petrons] Investigation Committee in
a report and recommendation of November 19, 1996, recommended that after a 30-day
suspension, complainant should be subjected to a more severe penalty. Hence, they deny
complainants claims. [8]

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

WHEREFORE, foregoing premises considered, judgment is hereby rendered ordering

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

a. Separation Pay:
P15,420.00 x 6 years - P 92, 520.00
b. Cash equivalent of certificate of stocks - P 66,600.00
Total P159,120.00
Minus - P 56, 191.59
Net Award P102, 928.41

SO ORDERED. [9]

Explains the Labor Arbiter in his decision:

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

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

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

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

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

xxx xxx xxx

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

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

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

On July 31, 2000, the NLRC reversed the findings of the Labor Arbiter regarding Mantos constructive
dismissal as of November 1, 1996 and considered him to have been illegally dismissed only on December 1,
1996. In the same decision, the NLRC adjudged Maligro solidarily liable with Petron, and accordingly modified
the Labor Arbiters decision as follows:
WHEREFORE, the questioned Decision is MODIFIED in that
complainant was illegally suspended from November 1-30, 1996 and
was ILLEGALLY DISMISSED on December 1, 1996, accordingly and
as discussed, he should be paid separation pay based on his one month salary
(P15,420.00) per year of service computed until the month of promulgation (July, 2000) of this
Decision. In addition, complainant is entitled to full backwages from November 1, 1996 until
July, 2000.

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

Complainant is likewise entitled to ten percent (10%) of the total awards by way of
attorneys fees.
 The foregoing liabilities are solidary against respondents Petron Corporation and Peter
C. Maligro.

SO ORDERED.[11]

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

With their motion for reconsideration having been denied by the NLRC in its Resolution of August 31,
2001,[12] the petitioners elevated the case via certiorari to the CA in CA-G.R. SP No. 67702.
As stated at the threshold hereof, the CA, in its assailed Resolution of November 26,
2001, outrightly dismissed the petition for being defective in form because only petitioner Petron signed the
verification and certification on non-forum shopping without its co-petitioner Peter Maligro likewise signing the
same.

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

A. THE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS PETITION FOR

CERTIORARI ON THE GROUND THAT THE SAME FAILED TO COMPLY WITH THE
RULE ON CERTIFICATION ON NON-FORUM SHOPPING CONSIDERING THAT:

1. THERE WAS SUBSTANTIAL COMPLIANCE BY PETITIONERS

WITH THE REQUIREMENTS ON CERTIFICATION OF NON-FORUM
SHOPPING.

2. THERE WAS A REASONABLE CAUSE FOR PETITIONER

MALIGROS FAILURE TO ATTACH A VERIFICATION/CERTIFICATION
OF NON-FORUM SHOPPING.

B. THE OUTRIGHT DISMISSAL OF THE PETITION BY THE COURT OF APPEALS

WOULD DEFEAT SUBSTANTIAL JUSTICE CONSIDERING THAT THE NLRC
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION IN FINDING THAT:

1. PRIVATE RESPONDENTS COMPLAINT FOR ILLEGAL

DISMISSAL WAS NOT FILED AS A MALICIOUS SCHEME AGAINST
PETITIONERS, DESPITE OVERWHELMING EVIDENCE ON RECORD.

2. PETITIONERS DISMISSED PRIVATE RESPONDENT MANTOS

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

3. THAT PETITIONERS DISMISSED MANTOS WITHOUT

OBSERVING THE REQUISITE PROCEDURAL DUE PROCESS
BECAUSE PETITIONERS ALLEGEDLY DID NOT SEND A NOTICE OF
VIOLATION OF COMPANY RULES TO PRIVATE RESPONDENT FOR
THE OFFENSES THAT HE COMMITTED FOR THE SECOND TIME,
DESPITE CONTRARY EVIDENCE ON RECORD.

4. THAT PETITIONERS DID NOT SHOW HOW THE

INVESTIGATION COMMITTEE THAT INVESTIGATED MANTOS
VIOLATIONS OF COMPANY RULES WAS CREATED AND THAT THE
 SAME WAS BIASED AGAINST MANTOS MERELY BECAUSE ITS
CHAIRMAN WAS MANTOS SUPERIOR, DESPITE CONTRARY
EVIDENCE ON RECORD.

5. THAT PETITIONER PETER C. MALIGRO IS SOLIDARILY LIABLE WITH

PETITIONER PETRON CORPORATION FOR THE LATTERS ALLEGED
LIABILITY TO MANTOS NOTWITHSTANDING THE ABSENCE OF
EVIDENCE INDICATING THAT MALIGRO ACTED WITH BAD FAITH
AGAINST MANTOS.

6. THAT PRIVATE RESPONDENT IS ENTITLED TO AWARD OF FULL

BACKWAGES FROM 1 NOVEMBER 1996 UNTIL JULY 2000 AND TO
THE OTHER MONETARY AWARDS MADE BY THE NLRC.

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

The petition is partly meritorious.

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

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

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

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

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

In the instant case, the petitioners are the company and its operations manager,
Willy Bendol. The latter was impleaded simply because he was a co-respondent in the
illegal dismissal complaint. He has no interest in this case separate and distinct from the
company, which was the direct employer of private respondents. Any award of
reinstatement, backwages, and attorney's fees in favor of private respondents will be
enforced against the company as the real party in interest in an illegal dismissal case.
Petitioner Bendol is clearly a mere nominal party in the case. His failure to sign the
verification and certification on non-forum shopping is not a ground for the dismissal of
the petition. The appellate court erred in dismissing outright petitioners' special civil
action for certiorari solely on that ground. (Emphasis supplied.)
 In any event, considering that Maligro derives his standing or personality in the case from Petron, the
certification on non-forum shopping executed and signed only by the corporation benefited Maligro such that
the attachment of said certification to the petition in CA-G.R. SP No. 67702 should be deemed substantial
compliance with the rule on certification on non-forum shopping.

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

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

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

Essentially, the issue posed is the validity of private respondents dismissal.

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

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

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

The first set of infractions consisted of private respondents being AWOL from August 5 to 27, 1996 and
Insubordination/Discourtesy as set forth in the Notice of Violation of Company Rules and Regulations dated
August 27, 1996,[22] for which he was penalized with suspension for 30 days effective November 1 to 30,
1996 but only for the charge of being AWOL. The second set, as contained in the Notice of Violation of
Company Rules and Regulations (EM 300) dated November 12, 1996[23] consisted also of being AWOL, this
time beginning August 28, 1996, and Insubordination/Discourtesy for making false accusations against his
superior, for which he was dismissed effective December 1, 1996.
Private respondent did not report for work starting August 5, 1996 due to his belief that he has already
been dismissed as of said date. But since he failed to prove his allegation of clear acts of harassment and
humiliation, which had allegedly become so unbearable as to leave him with no choice but to forego his
continued employment, we uphold the legality of his suspension due to his unauthorized absences
from August 5 to 27, 1996.

With respect to respondents dismissal, however, we find the same unjustified.

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

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

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

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

Likewise, the petitioners failed to prove that they complied with the requisites of procedural due process
in dismissing private respondent.
 It is horn-book law that an employee sought to be dismissed must be served two (2) written notices
before termination of employment: a notice to apprise the employee of the particular acts or omissions for
which his dismissal is sought; and the subsequent notice to inform him of the employer's decision to discharge
him from the service.[26] The procedure is mandatory and non-observance thereof renders the dismissal illegal
and void.[27]

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

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

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

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

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

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

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

Petitioners failure to comply with the two-notice requirement as shown above, let alone the lack of just
cause for terminating the services of private respondent, rendered the latters dismissal illegal.
In fine, we rule and so hold that the NLRC did not gravely abuse its discretion in declaring the illegality
of private respondents dismissal.

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

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

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

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

If at all, what said findings show are the illegality itself of private respondents dismissal, the lack of just
cause therefor and the non-observance of procedural due process. Verily, the creation of the investigation
committee and said committees consideration of the insubordination charge against the private respondent,
were merely aimed to cover up the illegal dismissal or to give it a semblance of legality.
Besides, the fact that Maligro himself was the committee chairman is not itself sufficient to impute bad
faith on his part or attribute bias against him. It is undisputed that Maligro was private respondents superior,
being Petrons Operations Assistant Manager for Visayas and Mindanao. It is thus logical for him to be part of
the committee that will investigate private respondents alleged infractions of company rules and regulations. As
well, the committee was composed of three other Petron officers as members, and nowhere is there any
showing that Maligro, as committee chairman, influenced the other committee members to side against the
private respondent.
In any event, it must be stressed that private respondents allegation of bad faith on the part of Maligro
was not established in this case. We quote the NLRCs finding in this regard:

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

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

Since the circumstances obtaining in this case do not warrant private respondents reinstatement in the
light of the antagonism generated by this litigation which must have caused a severe strain in the parties'
employer-employee relationship, an award of separation pay in lieu of reinstatement, equivalent to one month
pay for every year of service, in addition to full backwages, allowances, and other benefits or the monetary
equivalent thereof, is in order. The award of attorneys fees is sanctioned by law and must be upheld.
WHEREFORE, the assailed Resolution of the Court of Appeals is SET ASIDE, and the NLRC
decision dated July 31, 2000 is AFFIRMED with the MODIFICATIONthat (1) private respondent Chito S.
Mantos is awarded separation pay equivalent to one month pay for every year of service and full backwages,
other privileges and benefits or to the monetary
equivalent thereof, computed from the date of his illegal dismissal on December 1, 1996 until the finality of this
decision; and (2) petitioner Peter C. Maligro is ABSOLVED from any liability adjudged against co-petitioner
Petron Corporation.

Costs against the petitioners.

SO ORDERED.
 CHINA BANKING CORPORATION, G.R. No. 149237
Petitioner,

Present:

PUNO, J., Chairperson,

SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

DYNE-SEM ELECTRONICS
CORPORATION,
Respondent. Promulgated:

June 11, 2006

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

DECISION
CORONA, J.:

On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed a total of P8,939,000 from
petitioner China Banking Corporation. The loan was evidenced by six promissory notes.[1]

The borrowers failed to pay when the obligations became due. Petitioner consequently instituted a complaint
for sum of money[2] on June 25, 1987 against them. The complaint sought payment of the unpaid promissory
notes plus interest and penalties.

Summons was not served on Dynetics, however, because it had already closed down. Lim, on the other hand,
filed his answer on December 15, 1987 denying that he promised to pay [the obligations] jointly and severally
to [petitioner].[3]

On January 7, 1988, the case was scheduled for pre-trial with respect to Lim. The case against Dynetics was
archived.

On September 23, 1988, an amended complaint[4] was filed by petitioner impleading respondent Dyne-
Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente Chuidian, Antonio Garcia and
Jacob Ratinoff. According to petitioner, respondent was formed and organized to be Dynetics alter ego as
established by the following circumstances:

Dynetics, Inc. and respondent are both engaged in the same line of business of manufacturing, producing,
assembling, processing, importing, exporting, buying, distributing, marketing and testing integrated circuits and
semiconductor devices;
[t]he principal office and factory site of Dynetics, Inc. located at Avocado Road, FTI Complex, Taguig, Metro
Manila, were used by respondent as its principal office and factory site;
[r]espondent acquired some of the machineries and equipment of Dynetics, Inc. from banks which acquired
the same through foreclosure;
[r]espondent retained some of the officers of Dynetics, Inc.[5]

xxx xxx xxx

On December 28, 1988, respondent filed its answer, alleging that:

5.1 [t]he incorporators as well as present stockholders of [respondent] are totally different from those of Dynetics,
Inc., and not one of them has ever been a stockholder or officer of the latter;

5.2 [n]ot one of the directors of [respondent] is, or has ever been, a director, officer, or stockholder of Dynetics,
Inc.;

5.3 [t]he various facilities, machineries and equipment being used by [respondent] in its business operations were
legitimately and validly acquired, under arms-length transactions, from various corporations which had become
absolute owners thereof at the time of said transactions; these were not just taken over nor acquired
from Dynetics by [respondent], contrary to what plaintiff falsely and maliciously alleges;

5.4 [respondent] acquired most of its present machineries and equipment as second-hand items to keep costs
down;
5.5 [t]he present plant site is under lease from Food Terminal, Inc., a government-controlled corporation, and is
located inside the FTI Complex in Taguig, Metro Manila, where a number of other firms organized in 1986 and
also engaged in the same or similar business have likewise established their factories; practical convenience,
and nothing else, was behind [respondents] choice of plant site;

5.6 [respondent] operates its own bonded warehouse under authority from the Bureau of Customs which has the
sole and absolute prerogative to authorize and assign customs bonded warehouses; again, practical
convenience played its role here since the warehouse in question was virtually lying idle and unused when said
Bureau decided to assign it to [respondent] in June 1986.[6]

On February 28, 1989, the trial court issued an order archiving the case as to Chuidian, Garcia
and Ratinoff since summons had remained unserved.

After hearing, the court a quo rendered a decision on December 27, 1991 which read:

xxx [T]he Court rules that Dyne-Sem Electronics Corporation is not an alter ego of Dynetics, Inc. Thus, Dyne-
Sem Electronics Corporation is not liable under the promissory notes.

xxx xxx xxx

WHEREFORE, judgment is hereby rendered ordering Dynetics, Inc. and Elpidio O. Lim, jointly and severally,
to pay plaintiff.

xxx xxx xxx

Anent the complaint against Dyne-Sem and the latters counterclaim, both are hereby dismissed, without costs.

SO ORDERED.[7]

From this adverse decision, petitioner appealed to the Court of Appeals[8] but the appellate court
dismissed the appeal and affirmed the trial courts decision.[9] It found that respondent was indeed not an alter
ego of Dynetics. The two corporations had different articles of incorporation. Contrary to petitioners claim, no
merger or absorption took place between the two. What transpired was a mere sale of the assets
of Dynetics to respondent. The appellate court denied petitioners motion for reconsideration.[10]

Hence, this petition for review[11] with the following assigned errors:
VI.
Issues

What is the quantum of evidence needed for the trial court to determine if the veil of corporat[e] fiction should
be pierced?

[W]hether or not the Regional Trial Court of Manila Branch 15 in its Decision dated December 27, 1991 and the
Court of Appeals in its Decision dated February 28, 2001 and Resolution dated July 27, 2001, which
affirmed en toto [Branch 15, Manila Regional Trial Courts decision,] have ruled in accordance with law and/or
applicable [jurisprudence] to the extent that the Doctrine of Piercing the Veil of Corporat[e] Fiction is not
applicable in the case at bar?[12]

We find no merit in the petition.

The question of whether one corporation is merely an alter ego of another is purely one of fact. So is
the question of whether a corporation is a paper company, a sham or subterfuge or whether petitioner adduced
the requisite quantum of evidence warranting the piercing of the veil of respondents corporate entity. This
Court is not a trier of facts. Findings of fact of the Court of Appeals, affirming those of the trial court, are final
and conclusive. The jurisdiction of this Court in a petition for review on certiorari is limited to reviewing only
errors of law, not of fact, unless it is shown, inter alia, that: (a) the conclusion is grounded entirely on
speculations, surmises and conjectures; (b) the inference is manifestly mistaken, absurd and impossible; (c)
there is grave abuse of discretion; (d) the judgment is based on a misapplication of facts; (e) the findings of fact
of the trial court and the appellate court are contradicted by the evidence on record and (f) the Court of
Appeals went beyond the issues of the case and its findings are contrary to the admissions of both parties.[13]

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

Nevertheless, being a mere fiction of law, peculiar situations or valid grounds may exist to warrant the
disregard of its independent being and the piercing of the corporate veil. [16] In Martinez v. Court of
Appeals,[17] we held:

The veil of separate corporate personality may be lifted when such personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime; or used as a shield to confuse the legitimate issues;
or when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation or
where thecorporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation; or when the corporation is used as a cloak
or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or for the protection of
the creditors. In such cases, the corporation will be considered as a mere association of persons. The liability
will directly attach to the stockholders or to the other corporation.

To disregard the separate juridical personality of a corporation, the wrongdoing must be proven clearly
and convincingly.[18]

In this case, petitioner failed to prove that Dyne-Sem was organized and controlled, and its affairs
conducted, in a manner that made it merely an instrumentality, agency, conduit or adjunct of Dynetics, or that it
was established to defraud Dynetics creditors, including petitioner.

The similarity of business of the two corporations did not warrant a conclusion that respondent was but
a conduit of Dynetics. As we held in Umali v. Court of Appeals,[19] the mere fact that the businesses of two or
more corporations are interrelated is not a justification for disregarding their separate personalities, absent
sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third
persons of their rights.
Likewise, respondents acquisition of some of the machineries and equipment of Dynetics was not proof
that respondent was formed to defraud petitioner. As the Court of Appeals found, no merger[20] took place
between Dynetics and respondent Dyne-Sem. What took place was a sale of the assets[21] of the former to the
latter. Merger is legally distinct from a sale of assets.[22] Thus, where one corporation sells or otherwise
transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts
and liabilities of the transferor.

Petitioner itself admits that respondent acquired the machineries and equipment not directly
from Dynetics but from the various corporations which successfully bidded for them in an auction sale. The
contracts of sale executed between the winning bidders and respondent showed that the assets were sold for
considerable amounts.[23] The Court of Appeals thus correctly ruled that the assets were not diverted to
respondent as an alter ego of Dynetics.[24] The machineries and equipment were transferred and disposed of
by the winning bidders in their capacity as owners. The sales were therefore valid and the transfers of the
properties to respondent legal and not in any way in contravention of petitioners rights as Dynetics creditor.
Finally, it may be true that respondent later hired Dynetics former Vice-President Luvinia Maglaya and
Assistant Corporate Counsel VirgilioGesmundo. From this, however, we cannot conclude that respondent was
an alter ego of Dynetics. In fact, even the overlapping of incorporators and stockholders of two or more
corporations will not necessarily lead to such inference and justify the piercing of the veil of corporate
fiction.[25] Much more has to be proven.

Premises considered, no factual and legal basis exists to hold respondent Dyne-Sem liable for the
obligations of Dynetics to petitioner.

WHEREFORE, the petition is hereby DENIED. The assailed Court of Appeals decision and resolution
in CA-G.R. CV No. 40672 are hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.
 [G.R. No. 131719. May 25, 2004]
THE EXECUTIVE SECRETARY, THE SECRETARY OF JUSTICE, THE SECRETARY OF LABOR AND
EMPLOYMENT, AND THE SECRETARY OF FOREIGN AFFAIRS, OWWA ADMINISTRATOR, and
POEA ADMINISTRATOR, petitioners, vs. THE HON. COURT OF APPEALS and ASIAN
RECRUITMENT COUNCIL PHILIPPINE CHAPTER (ARCO-PHIL.), INC., representing its members:
Worldcare Services Internationale, Inc., Steadfast International Recruitment Corporation,
Dragon International Manpower Services Corporation, Verdant Manpower Mobilization
Corporation, Brent Overseas Personnel, Inc., ARL Manpower Services, Inc., Dahlzhen
International Services, Inc., Interworld Placement Center, Inc., Lakas Tao Contract Services, Ltd.
Co., and SSC Multiservices, respondents.
DECISION
CALLEJO, SR., J.:
In this petition for review on certiorari, the Executive Secretary of the President of the Philippines, the
Secretary of Justice, the Secretary of Foreign Affairs, the Secretary of Labor and Employment, the POEA
Administrator and the OWWA Administrator, through the Office of the Solicitor General, assail the Decision[1] of
the Court of Appeals in CA-G.R. SP No. 38815 affirming the Order[2] of the Regional Trial Court of Quezon City
dated August 21, 1995 in Civil Case No. Q-95-24401, granting the plea of the petitioners therein for a writ of
preliminary injunction and of the writ of preliminary injunction issued by the trial court on August 24, 1995.
The Antecedents
Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995, took
effect on July 15, 1995. The Omnibus Rules and Regulations Implementing the Migrant Workers and Overseas
Filipino Act of 1995 was, thereafter, published in the April 7, 1996 issue of the Manila Bulletin. However, even
before the law took effect, the Asian Recruitment Council Philippine Chapter, Inc. (ARCO-Phil.) filed, on July
17, 1995, a petition for declaratory relief under Rule 63 of the Rules of Court with the Regional Trial Court of
Quezon City to declare as unconstitutional Section 2, paragraph (g), Section 6, paragraphs (a) to (j), (l) and
(m), Section 7, paragraphs (a) and (b), and Sections 9 and 10 of the law, with a plea for the issuance of a
temporary restraining order and/or writ of preliminary injunction enjoining the respondents therein from
enforcing the assailed provisions of the law.
In a supplement to its petition, the ARCO-Phil. alleged that Rep. Act No. 8042 was self-executory and that
no implementing rules were needed. It prayed that the court issue a temporary restraining order to enjoin the
enforcement of Section 6, paragraphs (a) to (m) on illegal recruitment, Section 7 on penalties for illegal
recruitment, and Section 9 on venue of criminal actions for illegal recruitments, viz:
Viewed in the light of the foregoing discussions, there appears to be urgent an imperative need for this
Honorable Court to maintain the status quo by enjoining the implementation or effectivity of the questioned
provisions of RA 8042, by way of a restraining order otherwise, the member recruitment agencies of the
petitioner will suffer grave or irreparable damage or injury. With the effectivity of RA 8042, a great majority of
the duly licensed recruitment agencies have stopped or suspended their operations for fear of being
prosecuted under the provisions of a law that are unjust and unconstitutional. This Honorable Court may take
judicial notice of the fact that processing of deployment papers of overseas workers for the past weeks have
come to a standstill at the POEA and this has affected thousands of workers everyday just because of the
enactment of RA 8042. Indeed, this has far reaching effects not only to survival of the overseas manpower
supply industry and the active participating recruitment agencies, the countrys economy which has survived
mainly due to the dollar remittances of the overseas workers but more importantly, to the poor and the needy
who are in dire need of income-generating jobs which can only be obtained from abroad. The loss or injury that
the recruitment agencies will suffer will then be immeasurable and irreparable. As of now, even foreign
employers have already reduced their manpower requirements from the Philippines due to their knowledge
that RA 8042 prejudiced and adversely affected the local recruitment agencies.[3]
On August 1, 1995, the trial court issued a temporary restraining order effective for a period of only twenty
(20) days therefrom.
After the petitioners filed their comment on the petition, the ARCO-Phil. filed an amended petition, the
amendments consisting in the inclusion in the caption thereof eleven (11) other corporations which it alleged
were its members and which it represented in the suit, and a plea for a temporary restraining order enjoining
the respondents from enforcing Section 6 subsection (i), Section 6 subsection (k) and paragraphs 15 and 16
thereof, Section 8, Section 10, paragraphs 1 and 2, and Sections 11 and 40 of Rep. Act No. 8042.
The respondent ARCO-Phil. assailed Section 2(g) and (i), Section 6 subsection (a) to (m), Section 7(a) to
(b), and Section 10 paragraphs (1) and (2), quoted as follows:
(g) THE STATE RECOGNIZES THAT THE ULTIMATE PROTECTION TO ALL MIGRANT WORKERS IS THE
POSSESSION OF SKILLS. PURSUANT TO THIS AND AS SOON AS PRACTICABLE, THE GOVERNMENT
SHALL DEPLOY AND/OR ALLOW THE DEPLOYMENT ONLY OF SKILLED FILIPINO WORKERS.[4]
Sec. 2 subsection (i, 2nd par.)
Nonetheless, the deployment of Filipino overseas workers, whether land-based or sea-based, by local service
contractors and manning agents employing them shall be encourages (sic). Appropriate incentives may be
extended to them.
II. ILLEGAL RECRUITMENT
SEC. 6. Definition. For purposes of this Act, illegal recruitment shall mean any act of canvassing, enlisting,
contracting, transporting, utilizing, hiring, or procuring workers and includes referring, contract services,
promising or advertising for employment abroad, whether for profit or not, when undertaken by a non-licensee
or non-holder of authority contemplated under Article 13(f) of Presidential Decree No. 442, as amended,
otherwise known as the Labor Code of the Philippines: Provided, That any such non-licensee or non-holder
who, in any manner, offers or promises for a fee employment abroad to two or more persons shall be deemed
so engaged. It shall, likewise, include the following acts, whether committed by any person, whether a non-
licensee, non-holder, licensee or holder of authority:
(a) To charge or accept directly or indirectly any amount greater than that specified in the schedule of
allowable fees prescribed by the Secretary of Labor and Employment, or to make a worker pay any amount
greater than that actually received by him as a loan or advance;
(b) To furnish or publish any false notice or information or document in relation to recruitment or employment;
(c) To give any false notice, testimony, information or document or commit any act of misrepresentation for the
purpose of securing a license or authority under the Labor Code;
(d) To induce or attempt to induce a worker already employed to quit his employment in order to offer him
another unless the transfer is designed to liberate a worker from oppressive terms and conditions of
employment;
(e) To influence or attempt to influence any person or entity not to employ any worker who has not applied for
employment through his agency;
(f) To engage in the recruitment or placement of workers in jobs harmful to public health or morality or to the
dignity of the Republic of the Philippines;
(g) To obstruct or attempt to obstruct inspection by the Secretary of Labor and Employment or by his duly
authorized representative;
(h) To fail to submit reports on the status of employment, placement vacancies, remittance of foreign exchange
earnings, separation from jobs, departures and such other matters or information as may be required by the
Secretary of Labor and Employment;
(i) To substitute or alter to the prejudice of the worker, employment contracts approved and verified by the
Department of Labor and Employment from the time of actual signing thereof by the parties up to and including
the period of the expiration of the same without the approval of the Department of Labor and Employment;
(j) For an officer or agent of a recruitment or placement agency to become an officer or member of the Board of
any corporation engaged in travel agency or to be engaged directly or indirectly in the management of a travel
agency;
(k) To withhold or deny travel documents from applicant workers before departure for monetary or financial
considerations other than those authorized under the Labor Code and its implementing rules and regulations;
(l) Failure to actually deploy without valid reason as determined by the Department of Labor and Employment;
and
(m) Failure to reimburse expenses incurred by the worker in connection with his documentation and processing
for purposes of deployment, in cases where the deployment does not actually take place without the workers
fault. Illegal recruitment when committed by a syndicate or in large scale shall be considered an offense
involving economic sabotage.
Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3) or more persons
conspiring or confederating with one another. It is deemed committed in large scale if committed against three
(3) or more persons individually or as a group.
The persons criminally liable for the above offenses are the principals, accomplices and accessories. In case
of juridical persons, the officers having control, management or direction of their business shall be liable.
SEC. 7. Penalties.
(a) Any person found guilty of illegal recruitment shall suffer the penalty of imprisonment of not less than six (6)
years and one (1) day but not more than twelve (12) years and a fine of not less than two hundred thousand
pesos (P200,000.00) nor more than five hundred thousand pesos (P500,000.00).
(b) The penalty of life imprisonment and a fine of not less than five hundred thousand pesos (P500,000.00) nor
more than one million pesos (P1,000,000.00) shall be imposed if illegal recruitment constitutes economic
sabotage as defined herein.
Provided, however, That the maximum penalty shall be imposed if the person illegally recruited is less than
eighteen (18) years of age or committed by a non-licensee or non-holder of authority.
Sec. 8.
Prohibition on Officials and Employees. It shall be unlawful for any official or employee of the Department of
Labor and Employment, the Philippine Overseas Employment Administration (POEA), or the Overseas
Workers Welfare Administration (OWWA), or the Department of Foreign Affairs, or other government agencies
involved in the implementation of this Act, or their relatives within the fourth civil degree of consanguinity or
affinity, to engage, directly or indirectly, in the business of recruiting migrant workers as defined in this Act. The
penalties provided in the immediate preceding paragraph shall be imposed upon them. (underscoring supplied)
Sec. 10, pars. 1 & 2.
Money Claims. Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor
Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within
ninety (90) calendar days after the filing of the complaint, the claims arising out of an employer-employee
relationship or by virtue of any law or contract involving Filipino workers for overseas deployment including
claims for actual, moral, exemplary and other forms of damages.
The liability of the principal/employer and the recruitment/placement agency for any and all claims under this
section shall be joint and several. This provision shall be incorporated in the contract for overseas employment
and shall be a condition precedent for its approval. The performance bond to be filed by the
recruitment/placement agency, as provided by law, shall be answerable for all money claims or damages that
may be awarded to the workers. If the recruitment/placement agency is a juridical being, the corporate officers
and directors and partners as the case may be, shall themselves be jointly and solidarily liable with the
corporation or partnership for the aforesaid claims and damages.
SEC. 11. Mandatory Periods for Resolution of Illegal Recruitment Cases. The preliminary investigations of
cases under this Act shall be terminated within a period of thirty (30) calendar days from the date of their
filing. Where the preliminary investigation is conducted by a prosecution officer and a prima facie case is
established, the corresponding information shall be filed in court within twenty-four (24) hours from the
termination of the investigation. If the preliminary investigation is conducted by a judge and a prima facie case
is found to exist, the corresponding information shall be filed by the proper prosecution officer within forty-eight
(48) hours from the date of receipt of the records of the case.
The respondent averred that the aforequoted provisions of Rep. Act No. 8042 violate Section 1, Article III
of the Constitution.[5] According to the respondent, Section 6(g) and (i) discriminated against unskilled workers
and their families and, as such, violated the equal protection clause, as well as Article II, Section 12 [6] and
Article XV, Sections 1[7] and 3(3) of the Constitution.[8] As the law encouraged the deployment of skilled Filipino
workers, only overseas skilled workers are granted rights. The respondent stressed that unskilled workers also
have the right to seek employment abroad. According to the respondent, the right of unskilled workers to due
process is violated because they are prevented from finding employment and earning a living abroad. It cannot
be argued that skilled workers are immune from abuses by employers, while unskilled workers are merely
prone to such abuses. It was pointed out that both skilled and unskilled workers are subjected to abuses by
foreign employers. Furthermore, the prohibition of the deployment of unskilled workers abroad would only
encourage fly-by-night illegal recruiters.
According to the respondent, the grant of incentives to service contractors and manning agencies to the
exclusion of all other licensed and authorized recruiters is an invalid classification. Licensed and authorized
recruiters are thus deprived of their right to property and due process and to the equality of the person. It is
understandable for the law to prohibit illegal recruiters, but to discriminate against licensed and registered
recruiters is unconstitutional.
The respondent, likewise, alleged that Section 6, subsections (a) to (m) is unconstitutional because
licensed and authorized recruitment agencies are placed on equal footing with illegal recruiters. It contended
that while the Labor Code distinguished between recruiters who are holders of licenses and non-holders
thereof in the imposition of penalties, Rep. Act No. 8042 does not make any distinction. The penalties in
Section 7(a) and (b) being based on an invalid classification are, therefore, repugnant to the equal protection
clause, besides being excessive; hence, such penalties are violative of Section 19(1), Article III of the
Constitution.[9] It was also pointed out that the penalty for officers/officials/employees of recruitment agencies
who are found guilty of economic sabotage or large-scale illegal recruitment under Rep. Act No. 8042 is life
imprisonment. Since recruitment agencies usually operate with a manpower of more than three persons, such
agencies are forced to shut down, lest their officers and/or employees be charged with large scale illegal
recruitment or economic sabotage and sentenced to life imprisonment. Thus, the penalty imposed by law,
being disproportionate to the prohibited acts, discourages the business of licensed and registered recruitment
agencies.
The respondent also posited that Section 6(m) and paragraphs (15) and (16), Sections 8, 9 and 10,
paragraph 2 of the law violate Section 22, Article III of the Constitution[10] prohibiting ex-post facto laws and bills
of attainder. This is because the provisions presume that a licensed and registered recruitment agency is guilty
of illegal recruitment involving economic sabotage, upon a finding that it committed any of the prohibited acts
under the law. Furthermore, officials, employees and their relatives are presumed guilty of illegal recruitment
involving economic sabotage upon such finding that they committed any of the said prohibited acts.
The respondent further argued that the 90-day period in Section 10, paragraph (1) within which a labor
arbiter should decide a money claim is relatively short, and could deprive licensed and registered recruiters of
their right to due process. The period within which the summons and the complaint would be served on foreign
employees and, thereafter, the filing of the answer to the complaint would take more than 90 days. This would
thereby shift on local licensed and authorized recruiters the burden of proving the defense of foreign
employers.Furthermore, the respondent asserted, Section 10, paragraph 2 of the law, which provides for the
joint and several liability of the officers and employees, is a bill of attainder and a violation of the right of the
said corporate officers and employees to due process. Considering that such corporate officers and employees
act with prior approval of the board of directors of such corporation, they should not be liable, jointly and
severally, for such corporate acts.
The respondent asserted that the following provisions of the law are unconstitutional:
SEC. 9. Venue. A criminal action arising from illegal recruitment as defined herein shall be filed with the
Regional Trial Court of the province or city where the offense was committed or where the offended party
actually resides at the time of the commission of the offense: Provided, That the court where the criminal action
is first filed shall acquire jurisdiction to the exclusion of other courts: Provided, however, That the aforestated
provisions shall also apply to those criminal actions that have already been filed in court at the time of the
effectivity of this Act.
SEC. 10. Money Claims. Notwithstanding any provision of law to the contrary, the Labor Arbiters of the
National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and
decide, within ninety (90) calendar days after the filing of the complaint, the claims arising out of an employer-
employee relationship or by virtue of any law or contract involving Filipino workers for overseas deployment
including claims for actual, moral, exemplary and other forms of damages.
Sec. 40.
The departments and agencies charged with carrying out the provisions of this Act shall, within ninety (90)
days after the effectiviy of this Act, formulate the necessary rules and regulations for its effective
implementation.
According to the respondent, the said provisions violate Section 5(5), Article VIII of the
Constitution[11] because they impair the power of the Supreme Court to promulgate rules of procedure.
In their answer to the petition, the petitioners alleged, inter alia, that (a) the respondent has no cause of
action for a declaratory relief; (b) the petition was premature as the rules implementing Rep. Act No. 8042 not
having been released as yet; (c) the assailed provisions do not violate any provisions of the Constitution; and,
(d) the law was approved by Congress in the exercise of the police power of the State. In opposition to the
respondents plea for injunctive relief, the petitioners averred that:
As earlier shown, the amended petition for declaratory relief is devoid of merit for failure of petitioner to
demonstrate convincingly that the assailed law is unconstitutional, apart from the defect and impropriety of the
petition. One who attacks a statute, alleging unconstitutionality must prove its invalidity beyond reasonable
doubt (Caleon v. Agus Development Corporation, 207 SCRA 748). All reasonable doubts should be resolved in
favor of the constitutionality of a statute (People v. Vera, 65 Phil. 56). This presumption of constitutionality is
based on the doctrine of separation of powers which enjoin upon each department a becoming respect for the
acts of the other departments (Garcia vs. Executive Secretary, 204 SCRA 516 [1991]). Necessarily, the
ancillary remedy of a temporary restraining order and/or a writ of preliminary injunction prayed for must
fall. Besides, an act of legislature approved by the executive is presumed to be within constitutional bounds
(National Press Club v. Commission on Elections, 207 SCRA 1).[12]
After the respective counsels of the parties were heard on oral arguments, the trial court issued on August
21, 1995, an order granting the petitioners plea for a writ of preliminary injunction upon a bond of P50,000. The
petitioner posted the requisite bond and on August 24, 1995, the trial court issued a writ of preliminary
injunction enjoining the enforcement of the following provisions of Rep. Act No. 8042 pending the termination
of the proceedings:
Section 2, subsections (g) and (i, 2nd par.); Section 6, subsections (a) to (m), and pars. 15 & 16; Section 7,
subsections (a) & (b); Section 8; Section 9; Section 10; pars. 1 & 2; Section 11; and Section 40 of Republic Act
No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995. [13]
The petitioners filed a petition for certiorari with the Court of Appeals assailing the order and the writ of
preliminary injunction issued by the trial court on the following grounds:
1. Respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-agencies to be
protected by the injunctive relief and/or violation of said rights by the enforcement of the assailed sections of
R.A. 8042;
2. Respondent Judge fixed a P50,000 injunction bond which is grossly inadequate to answer for the damage
which petitioner-officials may sustain, should respondent ARCO-PHIL. be finally adjudged as not being entitled
thereto.[14]
The petitioners asserted that the respondent is not the real party-in-interest as petitioner in the trial court. It
is inconceivable how the respondent, a non-stock and non-profit corporation, could sustain direct injury as a
result of the enforcement of the law. They argued that if, at all, any damage would result in the implementation
of the law, it is the licensed and registered recruitment agencies and/or the unskilled Filipino migrant workers
discriminated against who would sustain the said injury or damage, not the respondent. The respondent, as
petitioner in the trial court, was burdened to adduce preponderant evidence of such irreparable injury, but failed
to do so. The petitioners further insisted that the petition a quo was premature since the rules and regulations
implementing the law had yet to be promulgated when such petition was filed. Finally, the petitioners averred
that the respondent failed to establish the requisites for the issuance of a writ of preliminary injunction against
the enforcement of the law and the rules and regulations issued implementing the same.
On December 5, 1997, the appellate court came out with a four-page decision dismissing the petition and
affirming the assailed order and writ of preliminary injunction issued by the trial court. The appellate court,
likewise, denied the petitioners motion for reconsideration of the said decision.
The petitioners now come to this Court in a petition for review on certiorari on the following grounds:
1. Private respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-agencies to
be protected by the injunctive relief and/or violation of said rights by the enforcement of the assailed sections of
R.A. 8042;
2. The P50,000 injunction bond fixed by the court a quo and sustained by the Court of Appeals is grossly
inadequate to answer for the damage which petitioners-officials may sustain, should private respondent
ARCO-PHIL. be finally adjudged as not being entitled thereto.[15]
On February 16, 1998, this Court issued a temporary restraining order enjoining the respondents from
enforcing the assailed order and writ of preliminary injunction.
The Issues
The core issue in this case is whether or not the trial court committed grave abuse of its discretion
amounting to excess or lack of jurisdiction in issuing the assailed order and the writ of preliminary injunction on
a bond of only P50,000 and whether or not the appellate court erred in affirming the trial courts order and the
writ of preliminary injunction issued by it.
The petitioners contend that the respondent has no locus standi. It is a non-stock, non-profit organization;
hence, not the real party-in-interest as petitioner in the action. Although the respondent filed the petition in the
Regional Trial Court in behalf of licensed and registered recruitment agencies, it failed to adduce in evidence a
certified copy of its Articles of Incorporation and the resolutions of the said members authorizing it to represent
the said agencies in the proceedings. Neither is the suit of the respondent a class suit so as to vest in it a
personality to assail Rep. Act No. 8042; the respondent is service-oriented while the recruitment agencies it
purports to represent are profit-oriented. The petitioners assert that the law is presumed constitutional and, as
such, the respondent was burdened to make a case strong enough to overcome such presumption and
establish a clear right to injunctive relief.
The petitioners bewail the P50,000 bond fixed by the trial court for the issuance of a writ of preliminary
injunction and affirmed by the appellate court. They assert that the amount is grossly inadequate to answer for
any damages that the general public may suffer by reason of the non-enforcement of the assailed provisions of
the law. The trial court committed a grave abuse of its discretion in granting the respondents plea for injunctive
relief, and the appellate court erred in affirming the order and the writ of preliminary injunction issued by the
trial court.
The respondent, for its part, asserts that it has duly established its locus standi and its right to injunctive
relief as gleaned from its pleadings and the appendages thereto. Under Section 5, Rule 58 of the Rules of
Court, it was incumbent on the petitioners, as respondents in the RTC, to show cause why no injunction should
issue. It avers that the injunction bond posted by the respondent was more than adequate to answer for any
injury or damage the petitioners may suffer, if any, by reason of the writ of preliminary injunction issued by the
RTC. In any event, the assailed provisions of Rep. Act No. 8042 exposed its members to the immediate and
irreparable damage of being deprived of their right to a livelihood without due process, a property right
protected under the Constitution.
The respondent contends that the commendable purpose of the law to eradicate illegal recruiters should
not be done at the expense and to the prejudice of licensed and authorized recruitment agencies. The writ of
preliminary injunction was necessitated by the great number of duly licensed recruitment agencies that had
stopped or suspended their business operations for fear that their officers and employees would be indicted
and prosecuted under the assailed oppressive penal provisions of the law, and meted excessive penalties. The
respondent, likewise, urges that the Court should take judicial notice that the processing of deployment papers
of overseas workers have come to a virtual standstill at the POEA.
The Courts Ruling
The petition is meritorious.
The Respondent Has Locus Standi
To File the Petition in the RTC in
Representation of the Eleven
Licensed and Registered
Recruitment Agencies Impleaded
in the Amended Petition
The modern view is that an association has standing to complain of injuries to its members. This view
fuses the legal identity of an association with that of its members. [16] An association has standing to file suit for
its workers despite its lack of direct interest if its members are affected by the action. An organization has
standing to assert the concerns of its constituents.[17]
In Telecommunications and Broadcast Attorneys of the Philippines v. Commission on Elections,[18] we held
that standing jus tertii would be recognized only if it can be shown that the party suing has some substantial
relation to the third party, or that the right of the third party would be diluted unless the party in court is allowed
to espouse the third partys constitutional claims.
In this case, the respondent filed the petition for declaratory relief under Rule 64 of the Rules of Court for
and in behalf of its eleven (11) licensed and registered recruitment agencies which are its members, and which
approved separate resolutions expressly authorizing the respondent to file the said suit for and in their
behalf. We note that, under its Articles of Incorporation, the respondent was organized for the purposes inter
alia of promoting and supporting the growth and development of the manpower recruitment industry, both in
the local and international levels; providing, creating and exploring employment opportunities for the exclusive
benefit of its general membership; enhancing and promoting the general welfare and protection of Filipino
workers; and, to act as the representative of any individual, company, entity or association on matters related
to the manpower recruitment industry, and to perform other acts and activities necessary to accomplish the
purposes embodied therein. The respondent is, thus, the appropriate party to assert the rights of its members,
because it and its members are in every practical sense identical. The respondent asserts that the assailed
provisions violate the constitutional rights of its members and the officers and employees thereof.The
respondent is but the medium through which its individual members seek to make more effective the
expression of their voices and the redress of their grievances.[19]
However, the respondent has no locus standi to file the petition for and in behalf of unskilled workers. We
note that it even failed to implead any unskilled workers in its petition.Furthermore, in failing to implead, as
parties-petitioners, the eleven licensed and registered recruitment agencies it claimed to represent, the
respondent failed to comply with Section 2 of Rule 63[20] of the Rules of Court. Nevertheless, since the eleven
licensed and registered recruitment agencies for which the respondent filed the suit are specifically named in
the petition, the amended petition is deemed amended to avoid multiplicity of suits.[21]
The Assailed Order and Writ of
Preliminary Injunction Is Mooted
By Case Law
The respondent justified its plea for injunctive relief on the allegation in its amended petition that its
members are exposed to the immediate and irreparable danger of being deprived of their right to a livelihood
and other constitutional rights without due process, on its claim that a great number of duly licensed
recruitment agencies have stopped or suspended their operations for fear that (a) their officers and employees
would be prosecuted under the unjust and unconstitutional penal provisions of Rep. Act No. 8042 and meted
equally unjust and excessive penalties, including life imprisonment, for illegal recruitment and large scale illegal
recruitment without regard to whether the recruitment agencies involved are licensed and/or authorized; and,
(b) if the members of the respondent, which are licensed and authorized, decide to continue with their
businesses, they face the stigma and the curse of being labeled illegal recruiters. In granting the respondents
plea for a writ of preliminary injunction, the trial court held, without stating the factual and legal basis therefor,
that the enforcement of Rep. Act No. 8042, pendente lite, would cause grave and irreparable injury to the
respondent until the case is decided on its merits.
We note, however, that since Rep. Act No. 8042 took effect on July 15, 1995, the Court had, in a catena of
cases, applied the penal provisions in Section 6, including paragraph (m) thereof, and the last two paragraphs
therein defining large scale illegal recruitment committed by officers and/or employees of recruitment agencies
by themselves and in connivance with private individuals, and imposed the penalties provided in Section 7
thereof, including the penalty of life imprisonment.[22] The Informations therein were filed after preliminary
investigations as provided for in Section 11 of Rep. Act No. 8042 and in venues as provided for in Section 9 of
the said act. In People v. Chowdury,[23] we held that illegal recruitment is a crime of economic sabotage and
must be enforced.
In People v. Diaz,[24] we held that Rep. Act No. 8042 is but an amendment of the Labor Code of the
Philippines and is not an ex-post facto law because it is not applied retroactively. In JMM Promotion and
Management, Inc. v. Court of Appeals,[25] the issue of the extent of the police power of the State to regulate a
business, profession or calling vis--vis the equal protection clause and the non-impairment clause of the
Constitution were raised and we held, thus:
A profession, trade or calling is a property right within the meaning of our constitutional guarantees. One
cannot be deprived of the right to work and the right to make a living because these rights are property rights,
the arbitrary and unwarranted deprivation of which normally constitutes an actionable wrong.
Nevertheless, no right is absolute, and the proper regulation of a profession, calling, business or trade has
always been upheld as a legitimate subject of a valid exercise of the police power by the state particularly
when their conduct affects either the execution of legitimate governmental functions, the preservation of the
State, the public health and welfare and public morals. According to the maxim, sic utere tuo ut alienum non
laedas, it must of course be within the legitimate range of legislative action to define the mode and manner in
which every one may so use his own property so as not to pose injury to himself or others.
In any case, where the liberty curtailed affects at most the rights of property, the permissible scope of
regulatory measures is certainly much wider. To pretend that licensing or accreditation requirements violates
the due process clause is to ignore the settled practice, under the mantle of the police power, of regulating
entry to the practice of various trades or professions. Professionals leaving for abroad are required to pass
rigid written and practical exams before they are deemed fit to practice their trade. Seamen are required to
take tests determining their seamanship. Locally, the Professional Regulation Commission has begun to
require previously licensed doctors and other professionals to furnish documentary proof that they had either
re-trained or had undertaken continuing education courses as a requirement for renewal of their licenses. It is
not claimed that these requirements pose an unwarranted deprivation of a property right under the due process
clause. So long as professionals and other workers meet reasonable regulatory standards no such deprivation
exists.
Finally, it is a futile gesture on the part of petitioners to invoke the non-impairment clause of the Constitution to
support their argument that the government cannot enact the assailed regulatory measures because they
abridge the freedom to contract. In Philippine Association of Service Exporters, Inc. vs. Drilon, we held that
[t]he non-impairment clause of the Constitution must yield to the loftier purposes targeted by the
government. Equally important, into every contract is read provisions of existing law, and always, a reservation
of the police power for so long as the agreement deals with a subject impressed with the public welfare.
A last point. Petitioners suggest that the singling out of entertainers and performing artists under the assailed
department orders constitutes class legislation which violates the equal protection clause of the
Constitution. We do not agree.
The equal protection clause is directed principally against undue favor and individual or class privilege. It is not
intended to prohibit legislation which is limited to the object to which it is directed or by the territory in which it is
to operate. It does not require absolute equality, but merely that all persons be treated alike under like
conditions both as to privileges conferred and liabilities imposed. We have held, time and again, that the equal
protection clause of the Constitution does not forbid classification for so long as such classification is based on
real and substantial differences having a reasonable relation to the subject of the particular legislation. If
classification is germane to the purpose of the law, concerns all members of the class, and applies equally to
present and future conditions, the classification does not violate the equal protection guarantee. [26]
The validity of Section 6 of R.A. No. 8042 which provides that employees of recruitment agencies may be
criminally liable for illegal recruitment has been upheld in People v. Chowdury:[27]
As stated in the first sentence of Section 6 of RA 8042, the persons who may be held liable for illegal
recruitment are the principals, accomplices and accessories. An employee of a company or corporation
engaged in illegal recruitment may be held liable as principal, together with his employer, if it is shown that
he actively and consciously participated in illegal recruitment. It has been held that the existence of the
corporate entity does not shield from prosecution the corporate agent who knowingly and intentionally causes
the corporation to commit a crime. The corporation obviously acts, and can act, only by and through its human
agents, and it is their conduct which the law must deter. The employee or agent of a corporation engaged in
unlawful business naturally aids and abets in the carrying on of such business and will be prosecuted as
principal if, with knowledge of the business, its purpose and effect, he consciously contributes his efforts to its
conduct and promotion, however slight his contribution may be. [28]
By its rulings, the Court thereby affirmed the validity of the assailed penal and procedural provisions of
Rep. Act No. 8042, including the imposable penalties therefor. Until the Court, by final judgment, declares that
the said provisions are unconstitutional, the enforcement of the said provisions cannot be enjoined.
The RTC Committed Grave Abuse
of Its Discretion Amounting to
Excess or Lack of Jurisdiction in
Issuing the Assailed Order and the
Writ of Preliminary Injunction
The matter of whether to issue a writ of preliminary injunction or not is addressed to the sound discretion
of the trial court. However, if the court commits grave abuse of its discretion in issuing the said writ amounting
to excess or lack of jurisdiction, the same may be nullified via a writ of certiorari and prohibition.
In Social Security Commission v. Judge Bayona,[29] we ruled that a law is presumed constitutional until
otherwise declared by judicial interpretation. The suspension of the operation of the law is a matter of extreme
delicacy because it is an interference with the official acts not only of the duly elected representatives of the
people but also of the highest magistrate of the land.
In Younger v. Harris, Jr.,[30] the Supreme Court of the United States emphasized, thus:
Federal injunctions against state criminal statutes, either in their entirety or with respect to their separate and
distinct prohibitions, are not to be granted as a matter of course, even if such statutes are unconstitutional. No
citizen or member of the community is immune from prosecution, in good faith, for his alleged criminal
acts. The imminence of such a prosecution even though alleged to be unauthorized and, hence, unlawful is not
alone ground for relief in equity which exerts its extraordinary powers only to prevent irreparable injury to the
plaintiff who seeks its aid. 752 Beal v. Missouri Pacific Railroad Corp., 312 U.S. 45, 49, 61 S.Ct. 418, 420, 85
L.Ed. 577.
And similarly, in Douglas, supra, we made clear, after reaffirming this rule, that:
It does not appear from the record that petitioners have been threatened with any injury other than that
incidental to every criminal proceeding brought lawfully and in good faith 319 U.S., at 164, 63 S.Ct., at 881.[31]
The possible unconstitutionality of a statute, on its face, does not of itself justify an injunction against good
faith attempts to enforce it, unless there is a showing of bad faith, harassment, or any other unusual
circumstance that would call for equitable relief.[32] The on its face invalidation of statutes has been described
as manifestly strong medicine, to be employed sparingly and only as a last resort, and is generally
disfavored.[33]
To be entitled to a preliminary injunction to enjoin the enforcement of a law assailed to be unconstitutional,
the party must establish that it will suffer irreparable harm in the absence of injunctive relief and must
demonstrate that it is likely to succeed on the merits, or that there are sufficiently serious questions going to
the merits and the balance of hardships tips decidedly in its favor.[34] The higher standard reflects judicial
deference toward legislation or regulations developed through presumptively reasoned democratic processes.
Moreover, an injunction will alter, rather than maintain, the status quo, or will provide the movant with
substantially all the relief sought and that relief cannot be undone even if the defendant prevails at a trial on the
merits.[35] Considering that injunction is an exercise of equitable relief and authority, in assessing whether to
issue a preliminary injunction, the courts must sensitively assess all the equities of the situation, including the
public interest.[36] In litigations between governmental and private parties, courts go much further both to give
and withhold relief in furtherance of public interest than they are accustomed to go when only private interests
are involved.[37] Before the plaintiff may be entitled to injunction against future enforcement, he is burdened to
show some substantial hardship.[38]
The fear or chilling effect of the assailed penal provisions of the law on the members of the respondent
does not by itself justify prohibiting the State from enforcing them against those whom the State believes in
good faith to be punishable under the laws:
Just as the incidental chilling effect of such statutes does not automatically render them unconstitutional, so the
chilling effect that admittedly can result from the very existence of certain laws on the statute books does not in
itself justify prohibiting the State from carrying out the important and necessary task of enforcing these laws
against socially harmful conduct that the State believes in good faith to be punishable under its laws and the
Constitution.[39]
It must be borne in mind that subject to constitutional limitations, Congress is empowered to define what
acts or omissions shall constitute a crime and to prescribe punishments therefor. [40] The power is inherent in
Congress and is part of the sovereign power of the State to maintain peace and order. Whatever views may be
entertained regarding the severity of punishment, whether one believes in its efficiency or its futility, these are
peculiarly questions of legislative policy.[41] The comparative gravity of crimes and whether their consequences
are more or less injurious are matters for the State and Congress itself to determine. [42] Specification of
penalties involves questions of legislative policy.[43]
Due process prohibits criminal stability from shifting the burden of proof to the accused, punishing wholly
passive conduct, defining crimes in vague or overbroad language and failing to grant fair warning of illegal
conduct.[44] Class legislation is such legislation which denies rights to one which are accorded to others, or
inflicts upon one individual a more severe penalty than is imposed upon another in like case offending.[45] Bills
of attainder are legislative acts which inflict punishment on individuals or members of a particular group without
a judicial trial.Essential to a bill of attainder are a specification of certain individuals or a group of individuals,
the imposition of a punishment, penal or otherwise, and the lack of judicial trial.[46]
 Penalizing unlicensed and licensed recruitment agencies and their officers and employees and their
relatives employed in government agencies charged with the enforcement of the law for illegal recruitment and
imposing life imprisonment for those who commit large scale illegal recruitment is not offensive to the
Constitution. The accused may be convicted of illegal recruitment and large scale illegal recruitment only if,
after trial, the prosecution is able to prove all the elements of the crime charged.[47]
The possibility that the officers and employees of the recruitment agencies, which are members of the
respondent, and their relatives who are employed in the government agencies charged in the enforcement of
the law, would be indicted for illegal recruitment and, if convicted sentenced to life imprisonment for large scale
illegal recruitment, absent proof of irreparable injury, is not sufficient on which to base the issuance of a writ of
preliminary injunction to suspend the enforcement of the penal provisions of Rep. Act No. 8042 and avert any
indictments under the law.[48] The normal course of criminal prosecutions cannot be blocked on the basis of
allegations which amount to speculations about the future.[49]
There is no allegation in the amended petition or evidence adduced by the respondent that the officers
and/or employees of its members had been threatened with any indictments for violations of the penal
provisions of Rep. Act No. 8042. Neither is there any allegation therein that any of its members and/or their
officers and employees committed any of the acts enumerated in Section 6(a) to (m) of the law for which they
could be indicted. Neither did the respondent adduce any evidence in the RTC that any or all of its members or
a great number of other duly licensed and registered recruitment agencies had to stop their business
operations because of fear of indictments under Sections 6 and 7 of Rep. Act No. 8042. The respondent
merely speculated and surmised that licensed and registered recruitment agencies would close shop and stop
business operations because of the assailed penal provisions of the law. A writ of preliminary injunction to
enjoin the enforcement of penal laws cannot be based on such conjectures or speculations. The Court cannot
take judicial notice that the processing of deployment papers of overseas workers have come to a virtual
standstill at the POEA because of the assailed provisions of Rep. Act No. 8042. The respondent must adduce
evidence to prove its allegation, and the petitioners accorded a chance to adduce controverting evidence.
The respondent even failed to adduce any evidence to prove irreparable injury because of the
enforcement of Section 10(1)(2) of Rep. Act No. 8042. Its fear or apprehension that, because of time
constraints, its members would have to defend foreign employees in cases before the Labor Arbiter is based
on speculations. Even if true, such inconvenience or difficulty is hardly irreparable injury.
The trial court even ignored the public interest involved in suspending the enforcement of Rep. Act No.
8042 vis--vis the eleven licensed and registered recruitment agencies represented by the
respondent. In People v. Gamboa,[50] we emphasized the primary aim of Rep. Act No. 8042:
Preliminarily, the proliferation of illegal job recruiters and syndicates preying on innocent people anxious to
obtain employment abroad is one of the primary considerations that led to the enactment of The Migrant
Workers and Overseas Filipinos Act of 1995. Aimed at affording greater protection to overseas Filipino
workers, it is a significant improvement on existing laws in the recruitment and placement of workers for
overseas employment. Otherwise known as the Magna Carta of OFWs, it broadened the concept of illegal
recruitment under the Labor Code and provided stiffer penalties thereto, especially those that constitute
economic sabotage, i.e., Illegal Recruitment in Large Scale and Illegal Recruitment Committed by a
Syndicate.[51]
By issuing the writ of preliminary injunction against the petitioners sans any evidence, the trial court
frustrated, albeit temporarily, the prosecution of illegal recruiters and allowed them to continue victimizing
hapless and innocent people desiring to obtain employment abroad as overseas workers, and blocked the
attainment of the salutary policies[52] embedded in Rep. Act No. 8042. It bears stressing that overseas workers,
land-based and sea-based, had been remitting to the Philippines billions of dollars which over the years had
propped the economy.
In issuing the writ of preliminary injunction, the trial court considered paramount the interests of the eleven
licensed and registered recruitment agencies represented by the respondent, and capriciously overturned the
presumption of the constitutionality of the assailed provisions on the barefaced claim of the respondent that the
assailed provisions of Rep. Act No. 8042 are unconstitutional. The trial court committed a grave abuse of its
discretion amounting to excess or lack of jurisdiction in issuing the assailed order and writ of preliminary
injunction. It is for this reason that the Court issued a temporary restraining order enjoining the enforcement of
the writ of preliminary injunction issued by the trial court.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed decision of the appellate
court is REVERSED AND SET ASIDE. The Order of the Regional Trial Court dated August 21, 1995 in Civil
Case No. Q-95-24401 and the Writ of Preliminary Injunction issued by it in the said case on August 24, 1995
are NULLIFIED. No costs.
SO ORDERED.
 [G.R. No. 155214. February 13, 2004]
R & E TRANSPORT, INC., and HONORIO ENRIQUEZ, petitioners, vs. AVELINA P. LATAG, representing
her deceased husband, PEDRO M. LATAG, respondents.

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

The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the June 3, 2002
Decision[2] and the August 28, 2002 Resolution[3] of the Court of Appeals in CA-GR SP No. 67998. The
appellate court disposed as follows:

WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed Order of public
respondent NLRC is SET ASIDE. The March 14, 2001[4] [D]ecision of the Labor Arbiter a quo is
REINSTATED.[5]
The challenged Resolution denied petitioners Motion for Reconsideration.

The Factual Antecedents

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

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

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

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

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

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

SO ORDERED.

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

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

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

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

SO ORDERED.

On January 21, 2000, [petitioners] interposed an appeal before the NLRC. On March 14, 2001, the latter
handed down a [D]ecision[,] the decretal portion of which provides:
WHEREFORE, in view of the foregoing, respondents Appeal is hereby DISMISSED for failure to post a cash or
surety bond, as mandated by law.

SO ORDERED.

On April 10, 2001, [petitioners] filed a motion for reconsideration of the above resolution. On September 28,
2001, the NLRC came out with the assailed [D]ecision, which gave due course to the motion for
reconsideration.[6] (Citations omitted)
Respondent appealed to the CA, contending that under Article 223 of the Labor Code and Section 3, Rule
VI of the New Rules of Procedure of the NLRC, an employers appeal of a decision involving monetary awards
may be perfected only upon the posting of an adequate cash or surety bond.

Ruling of the Court of Appeals

The CA held that the labor arbiters May 23, 2000 Order had referred to the earlier January 10,
2000 Decision awarding respondent P277,500 as retirement benefit.
According to the appellate court, because petitioners appeal before the NLRC was not accompanied by an
appropriate cash or surety bond, such appeal was not perfected. The CA thus ruled that the labor arbiters
January 10, 2000 Decision and May 23, 2000 Order had already become final and executory.
Hence, this Petition.[7]

Issues
Petitioners submit the following issues for our consideration:
I

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

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

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

IV

Whether or not the appeal of petitioners from the Order of the labor arbiter to the NLRC involves [a] monetary
award.[8]
In short, petitioners raise these issues: (1) whether the CA acted properly when it overturned the NLRCs
factual findings; (2) whether the rule on forum shopping was violated; and (3) whether the labor arbiters Order
of May 23, 2000 involved a monetary award.

The Courts Ruling

The Petition is partly meritorious.

First Issue:
Factual Findings of the NLRC
Petitioners maintain that the CA erred in disregarding the factual findings of the NLRC and in deciding to
affirm those of the labor arbiter. Allegedly, the NLRC findings were based on substantial evidence, while those
of the labor arbiter were groundless. Petitioners add that the appellate court should have refrained from
tackling issues of fact and, instead, limited itself to those of jurisdiction or grave abuse of discretion on the part
of the NLRC.
The power of the CA to review NLRC decisions via a Rule 65 petition is now a settled issue. As early
as St. Martin Funeral Homes v. NLRC,[9] we have definitively ruled that the proper remedy to ask for the review
of a decision of the NLRC is a special civil action for certiorari under Rule 65 of the Rules of Court,[10] and that
such petition should be filed with the CA in strict observance of the doctrine on the hierarchy of
courts.[11] Moreover, it has already been explained that under Section 9 of Batas Pambansa (BP) 129, as
amended by Republic Act 7902,[12]the CA -- pursuant to the exercise of its original jurisdiction over petitions
for certiorari -- was specifically given the power to pass upon the evidence, if and when necessary, to resolve
factual issues.[13]
Likewise settled is the rule that when supported by substantial evidence,[14] factual findings made by quasi-
judicial and administrative bodies are accorded great respect and even finality by the courts. These findings
are not infallible, though; when there is a showing that they were arrived at arbitrarily or in disregard of the
evidence on record, they may be examined by the courts.[15] Hence, when factual findings of the NLRC are
contrary to those of the labor arbiter, the evidentiary facts may be reviewed by the appellate court. [16] Such is
the situation in the present case; thus, the doors to a review are open.[17]
The very same reason that behooved the CA to review the factual findings of the NLRC impels this Court
to take its own look at the findings of fact. Normally, the Supreme Court is not a trier of facts. [18] However, since
the findings of fact in the present case are conflicting,[19] it waded through the records to find out if there was
enough basis for the appellate courts reversal of the NLRC Decision.
Number of Creditable Years
of Service for Retirement Benefits
Petitioners do not dispute the fact that the late Pedro M. Latag is entitled to retirement benefits. Rather,
the bone of contention is the number of years that he should be credited with in computing those benefits. On
the one hand, we have the findings of the labor arbiter,[20] which the CA affirmed. According to those findings,
the 23 years of employment of Pedro with La Mallorca Taxi must be added to his 14 years with R & E
Transport, Inc., for a total of 37 years. On the other, we also have the findings of the NLRC [21] that Pedro must
be credited only with his service to R & E Transport, Inc., because the evidence shows that the aforementioned
companies are two different entities.
After a careful and painstaking review of the evidence on record, we support the NLRCs findings. The
labor arbiters conclusion -- that Mallorca Taxi and R & E Transport, Inc., are one and the same entity -- is
negated by the documentary evidence presented by petitioners. Their evidence[22] sufficiently shows the
following facts: 1) R & E Transport, Inc., was established only in 1978; 2) Honorio Enriquez, its president, was
not a stockholder of La Mallorca Taxi; and 3) none of the stockholders of the latter company hold stocks in the
former. In the face of such evidence, which the NLRC appreciated in its Decision, it seems that mere surmises
and self-serving assertions of Respondent Avelina Latag formed the bases for the labor arbiters conclusions as
follows:

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

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

Viewed against [petitioners] non-disclaimer [sic] that La Mallorca preceded R & E Taxi, Inc.[;] x x x that both
entities were/are owned by the Enriquez family, with [petitioner] Honorio [Enriquez] as the latters President[;
and] x x x that La Mallorca was a different entity (page 2, [petitioners] position paper), we are of the conclusion
that [Latags] stint with the Enriquez family dated back since February 1961 and thus, he should be entitled to
retirement benefits for 37 years, as of the date of the filing of this case on December 12, 1998.[23]
Furthermore, basic is the rule that the corporate veil may be pierced only if it becomes a shield for fraud,
illegality or inequity committed against a third person.[24] We have thus cautioned against the inordinate
application of this doctrine. In Philippine National Bank v. Andrada Electric & Engineering Company,[25] we
said:

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

The question of whether a corporation is a mere alter ego is one of fact. Piercing the veil of corporate fiction
may be allowed only if the following elements concur: (1) control -- not mere stock control, but complete
domination -- not only of finances, but of policy and business practice in respect to the transaction attacked,
must have been such that the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own; (2) such control must have been used by the defendant to commit a fraud or a wrong to
perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in
contravention of plaintiffs legal right; and (3) the said control and breach of duty must have proximately caused
the injury or unjust loss complained of.[26]
Respondent has not shown by competent evidence that one taxi company had stock control and complete
domination over the other or vice versa. In fact, no evidence was presented to show the alleged renaming of
La Mallorca Taxi to R & E Transport, Inc. The seven-year gap between the time the former closed shop and
the date when the latter came into being also casts doubt on any alleged intention of petitioners to commit a
wrong or to violate a statutory duty. This lacuna in the evidence compels us to reverse the Decision of the CA
affirming the labor arbiters finding of fact that the basis for computing Pedros retirement pay should be 37
years, instead of only 14 years.

Validity of the Quitclaim

and Waiver
As to the Quitclaim and Waiver signed by Respondent Avelina Latag, the appellate court committed no
error when it ruled that the document was invalid and could not bar her from demanding the benefits legally
due her husband. This is not say that all quitclaims are invalid per se. Courts, however, are wary of schemes
that frustrate workers rights and benefits, and look with disfavor upon quitclaims and waivers that bargain
these away.
Courts have stepped in to annul questionable transactions, especially where there is clear proof that a
waiver, for instance, was wangled from an unsuspecting or a gullible person; or where the agreement or
settlement was unconscionable on its face.[27] A quitclaim is ineffective in barring recovery of the full measure of a
workers rights, and the acceptance of benefits therefrom does not amount to estoppel. [28] Moreover, a quitclaim
in which the consideration is scandalously low and inequitable cannot be an obstacle to the pursuit of a
workers legitimate claim.[29]
Undisputably, Pedro M. Latag was credited with 14 years of service with R & E Transport, Inc. Article 287
of the Labor Code, as amended by Republic Act No. 7641,[30] provides:

Art. 287. Retirement. - x x x

xxxxxxxxx

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

Unless the parties provide for broader inclusions, the term one half-month salary shall mean fifteen (15) days
plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days of service
incentive leaves.
x x x x x x x x x (Italics supplied)
The rules implementing the New Retirement Law similarly provide the above-mentioned formula for
computing the one-half month salary.[31] Since Pedro was paid according to the boundary system, he is not
entitled to the 13th month[32] and the service incentive pay;[33] hence, his retirement pay should be computed on
the sole basis of his salary.
It is accepted that taxi drivers do not receive fixed wages, but retain only those sums in excess of the
boundary or fee they pay to the owners or operators of their vehicles. [34] Thus, the basis for computing
their benefits should be the average daily income. In this case, the CA found that Pedro was earning an
average of five hundred pesos (P500) per day. We thus compute his retirement pay as follows: P500 x 15 days x
14 years of service equals P105,000. Compared with this amount, the P38,850 he received, which represented
just over one third of what was legally due him, was unconscionable.

Second Issue:
Was There Forum Shopping?
Also assailed are the twin appeals that two different lawyers filed for respondent before the CA. Petitioners
argue that instead of accepting her explanation, the appellate court should have dismissed the appeals outright
for violating the rule on forum shopping.
Forum shopping is the institution of two or more actions or proceedings grounded on the same cause, on
the supposition that one or the other court would render a favorable disposition. [35] Such act is present when
there is an identity of parties, rights or causes of action, and reliefs sought in two or more pending cases. [36] It
is usually resorted to by a party against whom an adverse judgment or order has been issued in one forum, in
an attempt to seek and possibly to get a favorable opinion in another forum, other than by an appeal or a
special civil action for certiorari.[37]
We find, as the CA[38] did, that respondent has adequately explained why she had filed two appeals before
the appellate court. In the August 5, 2002 Affidavit[39] that she attached as Annex A to her Compliance to Show
Cause Order with Comment on petitioners Motion for Reconsideration,[40] she averred that she had sought the
services of another counsel to file her Petition for certiorari before the CA. She did so after her original counsel
had asked for an extension of time to file the Petition because of time constraints and a tremendous workload,
only to discover later that the original counsel had filed a similar Petition.
We cannot fault respondent for her tenacity. Besides, to disallow her appeal would not be in keeping with
the policy of labor laws[41] to shun highly technical procedural laws in the higher interest of justice.

Third Issue:
Monetary Award
Petitioners contention is that the labor arbiters January 10, 2000 Decision was supplanted by the
Compromise Agreement that had preceded the formers official release[42] to, and receipt[43] by, the parties. It
appears from the records that they had entered into an Amicable Settlement on January 21, 2000; that based
on that settlement, respondent filed a Motion to Dismiss on January 24, 2000, before the labor arbiter who
officially released on the same day his Decision dated January 10, 2000; that upon receipt of a copy thereof,
respondent filed a Manifestation and Motion to Set Aside the Motion to Dismiss; and that the labor arbiter
subsequently calendared the case for conference, held hearings thereon, and required the parties to exchange
positions -- by way of comments, replies and rejoinders -- after which he handed down his May 23, 2000
Order.
Under the circumstances, the case was in effect reopened by the proceedings held after respondent had
filed her Manifestation and Motion to Set Aside the Motion to Dismiss. This ruling is in accordance with the
fourth paragraph of Section 2, Rule V of the New Rules of Procedure of the NLRC, [44] which therefore correctly
held as follows:

x x x Thus, the further hearings conducted thereafter, to determine the validity of complainants manifestation
and motion are but mute confirmation that indeed the 10 January 2000 decision in this case has not as yet
attained finality. Finally, the appealed order of 23 May 2000 itself declaring [that] the decision stands and the
Labor Arbitration Associate of this office is directed to prepare the Writ of Execution in due course, obviously, is
a conclusion that the decision in this case has been supplanted and rendered functus officio by the herein
parties acts. Thus, when the Labor Arbiter a quo found in his appealed order that the amount of P38,850.00 is
unconscionable viewed against the amount awarded in the decision, the same became appealable
independently of the 10 January 2000 decision, which has not attained finality, in the first place.[45]

We cannot concur, however, in petitioners other contention that the May 23, 2000 Order did not involve a
monetary award. If the amicable settlement between the parties had rendered the January 10, 2000
Decision functus oficio, then it follows that the monetary award stated therein was reinstated -- by reference --
by the aforementioned Order. The appeal from the latter should perforce have followed the procedural
requirements under Article 223 of the Labor Code.
As amended, this provision explicitly provides that an appeal from the labor arbiters decision, award or
order must be made within ten (10) calendar days from receipt of a copy thereof by the party intending to
appeal it; and, if the judgment involves a monetary award, an appeal by the employer may be perfected only
upon the posting of a cash or surety bond. Such cash or bond must have been issued by a reputable bonding
company duly accredited by the NLRC in the amount equivalent to the monetary award stated in the judgment.
Sections 1, 3 and 6 of Rule VI of the New Rules of Procedure of the NLRC implement this Article.
Indeed, this Court has repeatedly ruled that the perfection of an appeal in the manner and within the
period prescribed by law is not only mandatory but jurisdictional, and the failure to perfect an appeal has the
effect of rendering the judgment final and executory.[46] Nonetheless, procedural lapses may be disregarded
because of fundamental considerations of substantial justice;[47] or because of the special circumstances of the
case combined with its legal merits or the amount and the issue involved.[48]
The requirement to post a bond to perfect an appeal has also been relaxed in cases when the amount of
the award has not been included in the decision of the labor arbiter.[49] Besides, substantial justice will be better
served in the present case by allowing petitioners appeal to be threshed out on the merits, [50] especially
because of serious errors in the factual conclusions of the labor arbiter as to the award of retirement benefits.

WHEREFORE, this Petition is partly GRANTED. The Decision of the Court of Appeals is MODIFIED by
crediting Pedro M. Latag with 14 years of service. Consequently, he is entitled to retirement pay, which is
hereby computed at P105,000 less the P38,850 which has already been received by respondent, plus six (6)
percent interest thereon from December 21, 1998 until its full payment. No costs.
 [G.R. No. 138660. February 5, 2004]

HEIRS OF TRINIDAD DE LEON VDA. DE ROXAS, petitioners, vs. COURT OF APPEALS and MAGUESUN
MANAGEMENT AND DEVELOPMENT CORPORATION, respondents.
DECISION
CARPIO, J.:

The Case

This is a petition to cite for indirect contempt the officers of Meycauayan Central Realty Corporation
(Meycauayan) for defying the final and executory Decision and Resolution of this Court in G.R. No. 118436
entitled Heirs of Manuel A. Roxas and Trinidad de Leon Vda. De Roxas v. Court of Appeals and Maguesun
Management & Development Corporation (G.R. No. 118436).[1]
The Antecedents

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

On 22 May 1997, Meycauayan filed a Petition for Intervention in G.R. No. 118436. Meycauayan alleged
that on 14 May 1992, it purchased three parcels of land from Maguesun which form part of the property
awarded to the heirs of Trinidad de Leon Vda. De Roxas (Roxas heirs). Meycauayan contended that since it is
a purchaser in good faith and for value, the Court should afford it the opportunity to be heard. Meycauayan
contends that the adverse decision in G.R. No. 118436 cannot impair its rights as a purchaser in good faith
and for value.
On 25 June 1997, this Court denied the Petition for Intervention. This Court also denied the Motion for
Reconsideration filed by Maguesun. Thus, on 21 August 1997, the Decision dated 21 March 1997 in G.R. No.
118436 became final and executory.
On 13 April 1998, the Land Registration Authority (LRA) submitted a Report to the Regional Trial Court of
Tagaytay City, Branch 18 (land registration court), in LR Case No. TG-373, praying that the land registration
court:
a) Order the LRA to cancel Decree No. N-197092 in the name of Maguesun to enable it to issue
another decree in favor of the heirs of Manuel A. Roxas and Trinidad de Leon Vda. de Roxas;

b) Order the Register of Deeds to cancel OCT No. 0-515 and all its derivative titles; and

c) Order the issuance of the Decree with respect to the decision of the Supreme Court dated 21
March 1997.

Meycauayan filed with the land registration court a Motion For Leave To Intervene And For Period Of Time
To File Opposition To The Report Dated March 25, 1998 Filed By The LRA And To File Complaint-in-
Intervention.
On 4 June 1998, the Roxas heirs filed a Motion for Clarification with this Court raising the following issues:
a) Whether it is necessary for the trial court to first order the LRA to cancel Decree No. N-197092 in the name
of Maguesun Management and Development Corporation to enable (the LRA) to issue another decree in favor
of the Heirs of Manuel A. Roxas and Trinidad de Leon Vda. de Roxas? Or is that order necessarily included in
the dispositive portion of the Supreme Court decision directing the LRA to issue with reasonable dispatch the
corresponding decree of registration and certificate of title in favor of the Roxas heirs? Please note that this
necessary implication is a consequence of the Supreme Court finding that the decree in favor of Maguesun
was wrongfully issued because it was not entitled to the registration decree as it had no registrable title, since
Zenaida Melliza (from whom Maguesun supposedly bought the lots) conveyed no title over the subject parcels
of land to Maguesun Corporation as she was not the owner thereof.

b) Whether an order from the trial court is necessary for the Register of Deeds concerned to cancel OCT No.
0-515 and all its derivative titles? Or is that order necessarily included in the dispositive portion of the Supreme
Court decision directing the LRA to issue the corresponding decree of registration and certificate of title in favor
of the Roxas heirs, considering that the original certificate of title issued to Maguesun was based on an illegal
decree of registration as found by this Honorable Court. Further, the unconditional order of the Supreme Court
to LRA to issue the corresponding certificate of title to the Roxas heirs necessarily implies that the OCT issued
to Maguesun and its derivative titles shall be canceled, for it cannot [be] assumed that the Supreme Court
intended that the same parcel of land shall be covered by more than one certificate of title.

c) Whether an order from the trial court is necessary before the LRA can comply with the Supreme Court
decision directing the LRA to issue with reasonable dispatch the corresponding decree of registration
and certificate of title in favor of the Roxas heirs?

On 23 June 1998, the Roxas heirs filed a Supplement to Motion for Clarification, the pertinent portions of
which are:
1. In petitioners Motion for Clarification, one of the items sought to be clarified is whether the derivative titles
(i.e., the titles derived from Maguesun Management and Development Corporations [Maguesun]Original
Certificate of Title No. 0-515 and issued to Meycauayan Central Realty Corp.) should be canceled, together
with Maguesuns certificates of title, so that new decree of registration and certificate of title can be issued to
petitioners, as ordered in the decision of this Honorable Court dated 21 March 1997, which has become final
and executory?

2. From the Petition for Intervention filed by Meycauayan Central Realty Corporation (Meycauayan) with this
Honorable Court on 22 May 1997, the following statements, among others, are alleged:

a. That on May 14, 1992, the intervenor purchased for value several parcels of real property from
private respondent Maguesun Management and Development Corp. covered by TCT
Nos. 24294, 24295 and 24296 containing an area of 2,019 square meters each, more or
less.

b. That prior to paying the agreed purchase price in full to respondent Maguesun, an investigation
with the Tagaytay City Office of the Register of Deeds was made to determine and
ascertain the authenticity, status and condition of the titles of Maguesun over the
aforesaid properties.

c. That investigation made by the intervenor with the Office of Register of Deeds of Tagaytay City
showed that in all the certified true copies of the titles to the properties above-mentioned
which were registered in the name of Maguesun, the last entry which appeared was the
following, to wit: x x x.

d. Appearing that the properties to be purchased by the herein intervenor from respondent
Maguesun have no existing liens and/or encumbrances and considering that the
properties do not appear to be the subject of a pending case which would affect the titles
of those who may subsequently purchase the same, the herein intervenor proceeded to
pay, in full, the total amount of ONE MILLION FIVE HUNDRED THOUSAND PESOS
(P1,500,000.00) to Maguesun. Immediately thereafter, Maguesun, through its duly
authorized officer, executed the corresponding Deeds of Absolute Sale.

e. That after the corresponding taxes and/or fees were paid by herein intervenor, the
aforementioned TCT Nos. T-24294, 24295 and 24296, were canceled and in lieu
thereof, new titles in the name of intervenor were issued by the Register of Deeds of
Tagaytay City.

f. That on March 25, 1997, an officer of the intervenor corporation was informed of a newspaper
report stating, in big bold letters, the following sub-headline, to wit:

SC RULES ON ROXAS FAMILY

LAND ROW IN TAGAYTAY.
 g. The President of herein intervenor right after secured from the Tagaytay City Office of the
Register of Deeds certified true copies of torrens titles over its Tagaytay City properties.

h. That only then, after it secured certified true copies of the titles mentioned in the preceding
paragraph from the Office of the Register of Deeds of Tagaytay City, did intervenor
come to know of the existence of a case involving the properties sold to it by respondent
Maguesun on May 14, 1992.

3. Meycauayans Petition for Intervention was denied by this Honorable Court in its Resolution dated 25 June
1997, a denial that has since become final and executory. However, as stated in petitioners Motion for
Clarification, Meycauayan committed the proscribed act of forum-shopping by filing with the trial court a motion
for leave to intervene raising again the issue of its alleged ownership of portions of the land.

4. In order to settle once and for all Meycauayans allegation that it was a buyer in good faith, and to show that
its derivative titles should be declared void and canceled by this Honorable Court, petitioners will show herein
that the sale to Meycauayan was spurious or, at the very least, it was a buyer in bad faith.

In a Resolution dated 29 July 1998, this Court acted favorably on the Roxas heirs Motion for Clarification
and its Supplement. The pertinent portions of the Resolution read:
Upon careful consideration of the points made by petitioners in their motions, this Court finds the same
meritorious and, hence, a clarification is in order. We, therefore, declare that our directive on the LRA to issue
with reasonable dispatch the corresponding decree of registration and certificate of title also includes, as part
thereof, the cancellation, without need of an order of the land registration court, of Decree No. N-197092, as
well as OCT No. 0-515, and all its derivative titles. This is a necessary consequence of the Courts earlier
finding that the foregoing documents were illegally issued in the name of respondent. But in light of Section 39
of Presidential Decree No. 1529 (the Property Registration Decree), Decree No. N-197092 which originated
from the LRA must be cancelled by the LRA itself. On account of this cancellation, it is now incumbent upon
the LRA to issue in lieu of the cancelled decree a new one in the name of petitioners as well as the
corresponding original certificate of title. Cancellation of OCT No. 0-515, on the other hand, properly devolves
upon the Register of Deeds who, under Section 40 of P.D. No. 1529, has earlier entered a copy thereof in his
record book. OCT No. 0-515 having beennullified, all titles derived therefrom must also be considered void it
appearing that there had been no intervening rights of an innocent purchaser for value involving the lots in
dispute.

ACCORDINGLY, the Court hereby resolves to GRANT petitioners Motion for Clarification together with the
Supplement thereto. For this reason, the dispositive portion of our decision dated March 21, 1997 is clarified,
thus:

First, the Register of Deeds shall CANCEL OCT No. 0-515 and all its derivative titles, namely, TCT Nos. T-
25625, T-25626, T-25627, T-25628, T-25688, T-25689, and T-25690, the latter three being already in the
name of Meycauayan Realty and Development Corporation (also designated as Meycauayan Central
Realty, Inc. and Meycauayan Realty Corporation).

Thereafter, the Land Registration Authority shall:

(a) CANCEL Decree No. N-197092 originally issued in the name of Maguesun Management and
Development Corporation without need of an order from the land registration court; and

(b) ISSUE with reasonable dispatch a new decree of registration and a new original certificate of
title (OCT) in favor of petitioners pursuant to Section 39 of Presidential Decree No. 1529.
(Emphasis added)

On 11 December 1998, the land registration court issued an order denying the LRA Report dated 25 March
1998 and the Motion for Leave to Intervene filed by Meycauayan since the Supreme Court Resolution of 29
July 1998 had rendered them moot.

The Register of Deeds of Tagaytay City then canceled TCT Nos. T-25626, T-25627, T-25628, T-25688, T-
25689, T-25690 and T-27390.[3] TCT Nos. T-25688, T-25689, T-25690 and T-27390 were derivative titles
already in the name of Meycauayan.

On 5 April 1999, the Roxas heirs filed a Motion for Issuance of Writ of Possession with the land
registration court.
On 20 April 1999, Meycauayan filed a Complaint for reconveyance, damages and quieting of title with the
trial court entitled Meycauayan Central Realty Corp. v. Heirs of Manuel A. Roxas and Trinidad de Leon Vda. de
Roxas, Maguesun Management and Development Corp., Register of Deeds of Tagaytay City, City Assessor of
Tagaytay City and Land Registration Authority.[4] The Complaint is almost an exact reproduction of the Petition
for Intervention filed by Meycauayan before this Court. The Complaint prayed for judgment:
1. Ordering the defendants Land Registration Authority and the Register of Deeds of Tagaytay City to cancel
the titles and decree of registration they issued in lieu of TCT Nos. 25688, 25689, 25690 and 27390 registered
in the name of plaintiff Meycauayan Central Realty Corporation and reconvey said properties to the plaintiff
corporation by reinstating the said cancelled titles or if the same not be possible, cause the issuance of new
decrees and titles thereto;

2. Ordering the defendant City Assessor of Tagaytay City to reinstate the Assessments for real estate taxes it
previously cancelled covering the properties of plaintiff;

3. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff actual and/or
compensatory damages in the total amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00);

4. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff the amount of TWO
HUNDRED THOUSAND PESOS (P200,000.00) as and by way of nominal damages;

5. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff exemplary damages
in the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00);

6. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff Attorneys fees in the
amount of ONE HUNDRED THOUSAND PESOS (P100,000.00); and

7. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff the costs of suit. [5]

On 6 May 1999, Meycauayan filed a Special Appearance Questioning Court Jurisdiction and Opposition to
the Motion for Issuance of Writ of Possession Against Meycauayan Central Realty Corporation with the land
registration court.
On 2 September 1999, the land registration court issued an order, the dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, let a Writ of Possession be issued against Maguesun Management
and Development Corporation in these cases. However, insofar as Meycauayan Central Realty is concerned,
let a resolution of the motion filed by the movants herein be deferred until the Supreme Court had resolved with
finality the petition for contempt of herein movant in G.R. No. 138660.

On 7 March 2000, the trial court dismissed for lack of merit Meycauayans complaint for reconveyance,
damages and quieting of title. The trial court held that (1) the nullity of OCT No. 0-515, which is the source of
Meycauayans titles, is now res judicata; (2) the complaints prayer for the trial court to annul the decision of the
Supreme Court in G.R. No. 118436 is beyond the trial courts jurisdiction; and (3) Meycauayan is guilty of forum
shopping.[6] The trial court likewise denied Meycauayans Motion for Reconsideration in an Order dated 20 June
2000.[7] On 24 August 2000, Meycauayan filed a petition for certiorari under Rule 65 of the Rules of Court with
the Court of Appeals assailing the trial courts dismissal of the complaint.
Meanwhile, the Roxas heirs filed on 2 June 1999 this petition to cite for indirect contempt the officers of
Meycauayan.
The Issues

The parties raised the following issues:

1. Whether this Courts Decision and Resolution in G.R. No. 118436 bind Meycauayan;

2. Whether Meycauayans act of filing with the trial court a complaint for reconveyance, damages and
quieting of title involving parcels of land, which were the subject of this Courts Decision and
Resolution in G.R. No. 118436, constitutes indirect contempt under Section 3, Rule 71 of the
Rules of Civil Procedure; and

3. Whether Meycauayan is guilty of forum shopping.

The Courts Ruling

The petition is meritorious. We find Meycauayans Executive Vice-President Juan M. Lamson, Jr. guilty of
indirect contempt. We also find that Meycauayan committed forum shopping, and thus Meycauayan and its
Executive Vice President Juan M. Lamson, Jr. are guilty of direct contempt.
 The Roxas heirs allege that the following acts of Meycauayan constitute indirect contempt under Section
3, Rule 71 of the Rules of Civil Procedure: (1)Meycauayans defiance of the final and executory Decision and
Resolution of this Court in G.R. No. 118436; (2) its act of filing pleadings before the land registration court to
prevent execution of the Decision and Resolution; (3) its act of filing a Complaint raising the same issues in its
Petition for Intervention which this Court had already denied and urging the trial court to ignore and
countermand the orders of this Court.
On the other hand, Meycauayan alleges that the Decision in G.R. No. 118436 does not bind Meycauayan
because it was not a party in the case. According to Meycauayan, the Decision in G.R. No. 118436 may be
enforced against Maguesun but not against Meycauayan which is a stranger to the case. Meycauayan insists
that as a purchaser in good faith and for value its rights cannot be prejudiced by the alleged fraudulent
acquisition by Maguesun of the subject properties. Meycauayan, therefore, is not liable for contempt of court
for filing an action for reconveyance, quieting of title and damages.
The issue of whether the Decision in G.R. No. 118436 binds Meycauayan was already addressed by this
Court when it denied Meycauayans Petition for Intervention. Furthermore, this Courts Resolution dated 29 July
1998 clarified the Decision dated 21 March 1997 by ordering the Register of Deeds to CANCEL OCT No. 0-
515 and all its derivative titles, namely, TCT Nos. T-25625, T-25626, T-25627, T-25628, T-25688, T-25689,
and T-25690, the latter three already in the name of Meycauayan Realty and Development Corporation
(also designated as Meycauayan Central Realty, Inc. and Meycauayan Realty Corporation). This Court
also found that there had been no intervening rights of an innocent purchaser for value involving the lots in
dispute.
Indirect Contempt

Meycauayans obstinate refusal to abide by the Courts Decision in G.R. No. 118436 has no basis in view
of this Courts clear pronouncement to the contrary. The fact that this Court specifically ordered the cancelation
of Meycauayans titles to the disputed parcels of land in the Resolution dated 29 July 1998 should have laid to
rest the issue of whether the Decision and Resolution in G.R. No. 118436 is binding on Meycauayan. Clearly,
Meycauayans defiance of this Courts Decision and Resolution by filing an action for reconveyance, quieting of
title and damages involving the same parcels of land which this Court already decided with finality constitutes
indirect contempt under Section 3(d), Rule 71 of the Rules of Civil Procedure. Section 3(d) of Rule 71 reads:
SEC. 3. Indirect contempt to be punished after charge and hearing. After a charge in writing has been filed,
and an opportunity given to the respondent to comment thereon within such period as may be fixed by the
court and to be heard by himself or counsel, a person guilty of any of the following acts may be punished for
indirect contempt:

xxx

(d) Any improper conduct tending, directly or indirectly, to impede, obstruct, or degrade the administration of
justice;

In Halili, et al. v. CIR, et al.,[8] this Court explained the concept of contempt of court:
Contempt of court is a defiance of the authority, justice or dignity of the court; such conduct as tends to bring
the authority and administration of the law into disrespect or to interfere with or prejudice parties litigant or their
witnesses during litigation (12 Am. Jur. 389, cited in 14 SCRA 813).

Contempt of court is defined as a disobedience to the Court by acting in opposition to its authority, justice and
dignity. It signifies not only a willful disregard or disobedience of the courts orders, but such conduct as tends
to bring the authority of the court and the administration of law into disrepute or in some manner to impede the
due administration of justice (17 C.J.S. 4).

This Court has thus repeatedly declared that the power to punish for contempt is inherent in all courts and is
essential to the preservation of order in judicial proceedings and to the enforcement of judgments, orders, and
mandates of the court, and consequently, to the due administration of justice (Slade Perkins vs. Director of
Prisons, 58 Phil. 271; In re Kelly, 35 Phil. 944; Commissioner of Immigration vs. Cloribel, 20 SCRA 1241;
Montalban vs. Canonoy, 38 SCRA 1).

Meycauayans continuing resistance to this Courts judgment is an affront to the Court and to the sovereign
dignity with which it is clothed.[9] Meycauayans persistent attempts to raise issues long since laid to rest by a
final and executory judgment of no less than the highest tribunal of the land constitute contumacious defiance
of the authority of this Court and impede the speedy administration of justice.[10]
Well-settled is the rule that when a court of competent jurisdiction has tried and decided a right or fact, so
long as the decision remains unreversed, it is conclusive on the parties and those in privity with them. [11] More
so where the Supreme Court has already decided the issue since the Court is the final arbiter of all justiciable
controversies properly brought before it.[12]As held in Buaya v. Stronghold Insurance Co., Inc.:[13]
x x x An existing final judgment or decree rendered upon the merits, without fraud or collusion, by a court of
competent jurisdiction acting upon a matter within its authority is conclusive of the rights of the parties and their
privies. This ruling holds in all other actions or suits, in the same or any other judicial tribunal of concurrent
jurisdiction, touching on the points or matters in issue in the first suit.

xxx

Courts will simply refuse to reopen what has been decided. They will not allow the same parties or their privies
to litigate anew a question, once it has been considered and decided with finality. Litigations must end and
terminate sometime and somewhere. The effective and efficient administration of justice requires that once a
judgment has become final, the prevailing party should not be deprived of the fruits of the verdict by
subsequent suits on the same issues filed by the same parties.

This is in accordance with the doctrine of res judicata which has the following elements: (1) the former
judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter and the parties;
(3) the judgment must be on the merits; and (4) there must be between the first and the second actions,
identity of parties, subject matter and causes of action.[14] The application of the doctrine of res judicata does
not require absolute identity of parties but merely substantial identity of parties. [15] There is substantial identity
of parties when there is community of interest or privity of interest between a party in the first and a party
in the second case even if the first case did not implead the latter.[16]
The Court ruled in G.R. No. 118436 that Meycauayans predecessor-in-interest, Maguesun, committed
actual fraud in obtaining the decree of registration of the subject properties. The Decision in G.R. No. 118436
binds Meycauayan under the principle of privity of interest since it was a successor-in-interest of Maguesun.
Meycauayan, however, insists that it was a purchaser in good faith because it had no knowledge of any
pending case involving the lots. Meycauayan claims that the trial court had already canceled the notice of lis
pendens on the titles when it purchased the lots from Maguesun. In its Memorandum, Meycauayan stresses
that to ensure the authenticity of the titles and the annotations appearing on the titles, particularly the
cancelation of the notice of lis pendens, Meycauayan checked with the Register of Deeds and the Regional
Trial Court of Tagaytay City.[17] Since Meycauayan checked with the Regional Trial Court of Tagaytay City,
Meycauayan then had actual knowledge, before it purchased the lots, of the pending case involving the lots
despite the cancelation of the notice of lis pendens on the titles.
Furthermore, as found by this Court in G.R. No. 118436, the Roxas family has been in possession of the
property uninterruptedly through their caretaker, Jose Ramirez, who resided on the property.[18] Where the land
sold is in the possession of a person other than the vendor, the purchaser must go beyond the certificates of
title and make inquiries concerning the rights of the actual possessor. [19] Meycauayan therefore cannot invoke
the right of a purchaser in good faith and could not have acquired a better right than its predecessor-in-
interest. This Court has already rejected Meycauayans claim that it was a purchaser in good faith when it ruled
in G.R. No. 118436 that there had been no intervening rights of an innocent purchaser for value involving the
lots in dispute. As held in Heirs of Pael v. Court of Appeals:[20]
In the case of Santiago Land Development Corporation vs. Court of Appeals (G.R. No. 106194, 276 SCRA 674
[1997]), petitioner maintained that as a purchaser pendente lite of the land in litigation, it had a right to
intervene under Rule 12, Section 2. We rejected this position and said that since petitioner is not a stranger to
the action between Quisumbing and the PNB, petitioner in fact having stepped into the shoes of PNB in a
manner of speaking, it follows that it cannot claim any further right to intervene in the action. As in the instant
Petition, it was argued that the denial of the Motion to Intervene would be a denial likewise of due process. But
this, too, was struck down in Santiago Land where we held that petitioner is not really denied protection. It is
represented in the action by its predecessor in interest. Indeed, since petitioner is a transferee pendente
lite with notice of the pending litigation between Reyes and private respondent Carreon, petitioner stands
exactly in the shoes of Reyes and is bound by any judgment or decree which may be rendered for or against
the latter.

Indeed, one who buys property with full knowledge of the flaws and defects of the title of his vendor and of
a pending litigation over the property gambles on the result of the litigation and is bound by the outcome of his
indifference.[21] A purchaser cannot close his eyes to facts which should put a reasonable man on guard and
then claim that he acted in good faith believing that there was no defect in the title of the vendor.[22]
For the penalty for indirect contempt, Section 7 of Rule 71 of the Rules of Court provides:
SEC. 7. Punishment for indirect contempt. If the respondent is adjudged guilty of indirect contempt committed
against a Regional Trial Court or a court of equivalent or higher rank, he may be punished by a fine not
exceeding thirty thousand pesos or imprisonment not exceeding six (6) months or both. x x x

In this case, Meycauayan Executive Vice President Juan M. Lamson, Jr. caused the preparation and the
filing of the Petition for Intervention in G.R. No. 118436 and the Complaint for Reconveyance, Damages and
Quieting of Title with the trial court.[23] Juan M. Lamson, Jr. signed the verification and certification of non-forum
shopping for the Petition for Intervention and the Complaint for Reconveyance, Damages and Quieting of Title.
Even though a judgment, decree, or order is addressed to the corporation only, the officers, as well as the
corporation itself, may be punished for contempt for disobedience to its terms, at least if they knowingly
disobey the courts mandate, since a lawful judicial command to a corporation is in effect a command to the
officers.[24] Thus, for improper conduct tending to impede the orderly administration of justice, Meycauayan
Executive Vice President Juan M. Lamson, Jr. should be fined ten thousand pesos (P10,000).[25]
Direct Contempt

Meycauayans act of filing a Complaint for Reconveyance, Quieting of Title and Damages raising the same
issues in its Petition for Intervention, which this Court had already denied, also constitutes forum
shopping. Forum shopping is the act of a party against whom an adverse judgment has been rendered in one
forum, seeking another and possibly favorable opinion in another forum other than by appeal or special civil
action of certiorari. There is also forum shopping when a party institutes two or more actions based on the
same cause on the expectation that one or the other court might look with favor on the party. [26]
In this case, the Court had already rejected Meycauayans claim on the subject lots when the Court denied
Meycauayans Petition for Intervention in G.R. No. 118436. The Court ruled that there had been no intervening
rights of an innocent purchaser for value involving the lots in dispute. The Decision of this Court in G.R. No.
118436 is already final and executory. The filing by Meycauayan of an action to re-litigate the title to the same
property, which this Court had already adjudicated with finality, is an abuse of the courts processes and
constitutes direct contempt.
Section 5 of Rule 7 of the Rules of Court provides that if the acts of the party or his counsel clearly
constitute willful and deliberate forum shopping, the same shall be a ground for summary dismissal with
prejudice and shall constitute direct contempt, as well as a cause for administrative sanctions. The fact that
Meycauayan did mention in its certification of non-forum shopping its attempt to intervene in G.R. No. 118436,
which this Court denied,[27] does not negate the existence of forum shopping. This disclosure does not
exculpate Meycauayan for deliberately seeking a friendlier forum for its case and re-litigating an issue which
this Court had already decided with finality.[28]
The general rule is that a corporation and its officers and agents may be held liable for contempt. A
corporation and those who are officially responsible for the conduct of its affairs may be punished for contempt
in disobeying judgments, decrees, or orders of a court made in a case within its jurisdiction. [29]
Under Section 1 of Rule 71 of the Rules of Court, direct contempt is punishable by a fine not exceeding
two thousand pesos (P2,000) or imprisonment not exceeding ten (10) days, or both, if committed against a
Regional Trial Court or a court of equivalent or higher rank. Hence, Meycauayan[30] and its Executive Vice
President Juan M. Lamson, Jr. are each fined P2,000 for direct contempt of court for forum shopping.
WHEREFORE, we find Meycauayan Central Realty Corporations Executive Vice President Juan M.
Lamson, Jr. GUILTY of INDIRECT CONTEMPT and FINE him TEN THOUSAND PESOS
(P10,000). Furthermore, we find Meycauayan Central Realty Corporation and its Executive Vice President
Juan M. Lamson, Jr. GUILTY of DIRECT CONTEMPT for forum shopping and FINE them TWO THOUSAND
PESOS (P2,000) each. The Court warns them that a repetition of the same or similar offense shall merit a
more severe penalty.
SO ORDERED.
 [G.R. No. 153886. January 14, 2004]
MEL V. VELARDE, petitioner, vs. LOPEZ, INC., respondent.
DECISION
CARPIO-MORALES, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court, which seeks to review the
decision[1] and resolution[2] of the Court of Appeals, raises the issue of whether the defendant in a complaint
for collection of sum of money can raise a counterclaim for retirement benefits, unpaid salaries and incentives,
and other benefits arising from services rendered by him in a subsidiary of the plaintiff corporation.
On January 6, 1997, Eugenio Lopez Jr., then President of respondent Lopez, Inc., as LENDER, and
petitioner Mel Velarde, then General Manager of Sky Vision Corporation (Sky Vision), a subsidiary of
respondent, as BORROWER, forged a notarized loan agreement covering the amount of ten million
(P10,000,000.00) pesos. The agreement expressly provided for, among other things, the manner of payment
and the circumstances constituting default which would give the lender the right to declare the loan together
with accrued interest immediately due and payable.[3]
Sec. 6 of the agreement detailed what constituted an event of default as follows:
Section 6
Each of the following events and occurrences shall constitute an Event of Default (Event of Default) under this
Agreement:
a) the BORROWER fails to make payment when due and payable of any amount he is obligated to pay under
this Agreement;
b) the BORROWER fails to mortgage in favor of the LENDER real property sufficient to cover the amount of
the LOAN.[4]
As petitioner failed to pay the installments as they became due, respondent, apparently in answer to a
proposal of petitioner respecting the settlement of the loan, advised him by letter dated July 15, 1998 that he
may use his retirement benefits in Sky Vision in partial settlement of his loan after he settles his
accountabilities to the latter and gives his written instructions to it (Sky Vision).[5]
Petitioner protested the computation indicated in the July 15, 1998 letter, he asserting that the imputed
unliquidated advances from Sky Vision had already been properly liquidated.[6]
On August 18, 1998, respondent filed a complaint for collection of sum of money with damages at the
Regional Trial Court (RTC) of Pasig City against petitioner, alleging that petitioner violated the above-quoted
Section 6 of the loan agreement as he failed to put up the needed collateral for the loan and pay the
installments as they became due, and that despite his receipt of letters of demand dated December 1,
1997[7] and January 13, 1998,[8] he refused to pay.
In his answer, petitioner alleged that the loan agreement did not reflect his true agreement with
respondent, it being merely a cover document to evidence the reward to him of ten million pesos
(P10,000,000.00) for his loyalty and excellent performance as General Manager of Sky Vision and that the
payment, if any was expected, was in the form of continued service; and that it was when he was compelled by
respondent to retire that the form of payment agreed upon was rendered impossible, prompting the late
Eugenio Lopez, Jr. to agree that his retirement benefits from Sky Vision would instead be applied to the
loan.[9]
By way of compulsory counterclaim, petitioner claimed that he was entitled to retirement benefits from Sky
Vision in the amount of P98,280,000.00, unpaid salaries in the amount of P2,740,000.00, unpaid incentives in
the amount of P500,000, unpaid share from the net income of Plaintiff corporation, equity in his service vehicle
in the amount of P1,500,000, reasonable return on the stock ownership plan for services rendered as General
Manager, and moral damages and attorneys fees.[10]
Petitioner thus prayed for the dismissal of the complaint and the award of the following sums of money in
the form of compulsory counterclaims:
1. P103,020,000.00, PLUS the value of Defendants stock options and unpaid share from the net
income with Plaintiff corporation (to be computed) as actual damages;
2. P15,000,000.00, as moral damages; and
3. P1,500,000.00, as attorneys fees plus appearance fees and the costs of suit.[11]
Respondent filed a manifestation and a motion to dismiss the counterclaim for want of jurisdiction, which
drew petitioner to assert in his comment and opposition thereto that the veil of corporate fiction must be
pierced to hold respondent liable for his counterclaims.
By Order of January 3, 2000, Branch 155 of the RTC of Pasig denied respondents motion to dismiss the
counterclaim on the following premises: A counterclaim being essentially a complaint, the principle that a
motion to dismiss hypothetically admits the allegations of the complaint is applicable; the counterclaim is
compulsory, hence, within its jurisdiction; and there is identity of interest between respondent and Sky Vision to
merit the piercing of the veil of corporate fiction.[12]
Respondents motion for reconsideration of the trial courts Order of January 3, 2000 having been denied, it
filed a Petition for Certiorari at the Court of Appeals which held that respondent is not the real party-in-interest
on the counterclaim and that there was failure to show the presence of any of the circumstances to justify the
application of the principle of piercing the veil of corporate fiction. The Orders of the trial court were thus set
aside and the counterclaims of petitioner were accordingly dismissed.[13]
The Court of Appeals having denied petitioners motion for reconsideration, the instant Petition for Review
was filed which assigns the following errors:
I.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE RTC BRANCH 155 ALLEGEDLY
ACTED WITH GRAVE ABUSE OF DISCRETION IN ISSUING THE ORDERS DATED JANUARY 3, 2000 AND
OCTOBER 9, 2000 CONSIDERING THAT THE GROUNDS RAISED BY RESPONDENT LOPEZ, INC. IN ITS
PETITION FOR CERTIORARI INVOLVED MERE ERRORS OF JUDGMENT AND NOT ERRORS OF
JURISDICTION.
II.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT RESPONDENT LOPEZ, INC. IS NOT THE
REAL PARTY-IN-INTEREST AS PARTY-DEFENDANT ON THE COUNTERCLAIMS OF PETITIONER
VELARDE CONSIDERING THAT THE FILING OF RESPONDENT LOPEZ, INC.S MANIFESTATION AND
MOTION TO DISMISS COUNTERCLAIM HAD THE EFFECT OF HYPOTHETICALLY ADMITTING THE
TRUTH OF THE MATERIAL AVERMENTS OF THE ANSWER, WHICH MATERIAL AVERMENTS
SUFFICIENTLY ALLEGED THAT RESPONDENT LOPEZ, INC. COMMITTED ACTS WHICH SHOW THAT
ITS SUBSIDIARY, SKY VISION, WAS A MERE BUSINESS CONDUIT OR ALTER EGO OF THE FORMER,
THUS, JUSTIFYING THE PIERCING OF THE VEIL OF CORPORATE FICTION.
III.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE COUNTERCLAIMS OF PETITIONER
VELARDE ARE NOT COMPULSORY.[14]
While petitioner correctly invokes the ruling in Atienza v. Court of Appeals[15] to postulate that not every
denial of a motion to dismiss can be corrected by certiorari under Rule 65 and that, as a general rule, the
remedy from such denial is to appeal in due course after a decision has been rendered on the merits, there are
exceptions thereto, as when the court in denying the motion to dismiss acted without or in excess of jurisdiction
or with patent grave abuse of discretion,[16] or when the assailed interlocutory order is patently erroneous and
the remedy of appeal would not afford adequate and expeditious relief,[17] or when the ground for the motion
to dismiss is improper venue,[18] res judicata,[19] or lack of jurisdiction[20] as in the case at bar.
Early on, it bears noting, when the case was still with the trial court, respondent filed a motion to dismiss
the counterclaims to assail its jurisdiction, respondent asserting that the counterclaims, being money claims
arising from a labor relationship, are within the exclusive competence of the National Labor Relations
Commission.[21] On the other hand, petitioner alleged that due to the tortuous manner he was coerced into
retirement, it is the Regional Trial Courts (RTCs) and not the National Labor Relations Commission which has
exclusive jurisdiction over his counterclaims.
In determining which has jurisdiction over a case, the averments of the complaint/counterclaim, taken as a
whole, are considered.[22] In his counterclaim, petitioner alleged that:
xxx
29. It was only on July 15, 1998 that Lopez, Inc. submitted a computation of the retirement benefit due to the
Defendant. (Copy attached as ANNEX 4). Immediately after receiving this computation, Defendant immediately
informed Plaintiff of the erroneous figure used as salary in the computation of benefits. This was done in a
telephone conversation with a certain Atty. Amina Amado of Lopez, Inc.
29.1 The Defendant also informed her that the so called unliquidated advances amounting to P422,922.87
since 1995 had all been properly liquidated as reflected in all the reports of the company. The Defendant
reminded Atty. Amado of unpaid incentives and salaries for 1997.
29.2 Defendant likewise informed Plaintiff that the one month for every year of service as a basis for the
computation of the Defendants retirement benefit is erroneous. This computation is even less than what the
rank and file employees get. That CEOs, COOs and senior executives of the level of ABS-CBN, Sky Vision,
Benpres, Meralco and other Lopez companies had and have received a lot more than the regular rank and file
employees. All these retired executives and records can be summoned for verification.
29.3 The circumstances of the retirement of the Defendant are not those for a simple and ordinary rank and file
employee. Mr. Lopez, III admitted that he and the Defendant have had problems which accumulated through
time and that they chose to part ways in a manner that was dignified for both of them. Treating the Defendant
as a rank and file employee is hardly dignified not just to the Defendant but also to the Lopezes whose existing
executives serving them will draw lessons from the Defendants experience.
29.4 These circumstances hardly reflect a simple retirement. The Defendant, who is known in the local and
international media community, is hardly considered a rank and file employee. Defendant was a stockholder of
the Corporation and a duly-elected member of the Board of Directors. Certain government officials can attest to
the sensitivity of issues and matters the Defendant had represented for the Lopezes that are hardly issues
handled by a simple rank and file employee. Respectable individuals in government and industry are willing to
testify to this regard.x x x[23] (Underscoring and italics supplied).
At the heart of petitioners counterclaim is his alleged forced retirement which is also the basis of his claim
for, among other things, unpaid salaries, unpaid incentives, reasonable return on the stock ownership plan,
and other benefits from a subsidiary company of the respondent.
Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the Securities Regulation Code) applies to a
corporate officers dismissal. For a corporate officers dismissal is always a corporate act and/or an intra-
corporate controversy and that its nature is not altered by the reason or wisdom which the Board of Directors
may have in taking such action.[24]
With regard to petitioners claim for unpaid salaries, unpaid share in net income, reasonable return on the
stock ownership plan and other benefits for services rendered to Sky Vision, jurisdiction thereon pertains to the
Securities Exchange Commission even if the complaint by a corporate officer includes money claims since
such claims are actually part of the prerequisite of his position and, therefore, interlinked with his relations with
the corporation.[25] The question of remuneration involving a person who is not a mere employee but a
stockholder and officer of the corporation is not a simple labor problem but a matter that comes within the area
of corporate affairs and management, and is in fact a corporate controversy in contemplation of the
Corporation Code.[26]
While petitioners counterclaims were filed on December 1, 1998, the second challenged order of the trial
court denying respondents motion for reconsideration of the denial of its motion to dismiss was issued on
October 9, 2000 at which time P.D. 902-A had been amended by R.A. 8799 (approved on July 19, 2000) which
mandated the transfer of jurisdiction over intra-corporate controversies, subject of the counterclaims, to RTCs.
But even if the subject matter of the counterclaims is now cognizable by RTCs, the filing thereof against
respondent is improper, it not being the real party-in-interest, for it is petitioners employer Sky Vision,
respondents subsidiary.
It cannot be gainsaid that a subsidiary has an independent and separate juridical personality, distinct from
that of its parent company, hence, any claim or suit against the latter does not bind the former and vice versa.
Petitioner argues nevertheless that jurisdiction over the subsidiary is justified by piercing the veil of
corporate fiction. Piercing the veil of corporate fiction is warranted, however, only in cases when the separate
legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the
case of two corporations, the law will regard the corporations as merged into one.[27] The rationale behind
piercing a corporations identity is to remove the barrier between the corporation from the persons comprising it
to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for
undertaking certain proscribed activities.[28]
In applying the doctrine of piercing the veil of corporate fiction, the following requisites must be
established: (1) control, not merely majority or complete stock control; (2) such control must have been used
by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest acts in contravention of plaintiffs legal rights; and (3) the aforesaid control and breach of
duty must proximately cause the injury or unjust loss complained of.[29]
Nowhere, however, in the pleadings and other records of the case can it be gathered that respondent has
complete control over Sky Vision, not only of finances but of policy and business practice in respect to the
transaction attacked, so that Sky Vision had at the time of the transaction no separate mind, will or existence of
its own. The existence of interlocking directors, corporate officers and shareholders is not enough justification
to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations.
This Court is thus not convinced that the real party-in-interest with regard to the counterclaim for damages
arising from the alleged tortuous manner by which petitioner was forced to retire as General Manager of Sky
Vision is respondent.
Petitioner muddles the issues by arguing that respondent fraudulently took advantage of the control over
the matter of compensation and benefits of an employee of Sky Vision to deceive petitioner into signing the
loan agreement on the misleading assurance that it was merely for the purpose of documenting the reward to
him of ten million pesos. This argument does not persuade. Petitioner, being a lawyer, is presumed to know
the legal and binding effects of loan agreements.
It bears emphasis that Sky Visions involvement in the transaction subject of the case sprang only after a
proposal was apparently proffered by petitioner that his retirement benefits from Sky Vision be used in partial
payment of his loan from respondent as gathered from the July 15, 1998 letter[30] of Rommel Duran, Vice-
President and General Manager of respondent, to petitioner reading:
Dear Mr. Velarde:
As requested, we have made computations on the outstanding amount of your loan with Lopez, Inc. should
your retirement benefits from Sky Vision Corporation/Central CATV, Inc. Sky/Central) be applied to the partial
payment of your loan. Please note that in order to effect the application of your retirement benefits to the partial
payment of your loan, you will need to give Sky/Central written instructions onthe same in the soonest
possible time.
As you will see in the attached computation, the amount of P4,077,077.13 will be applied to the payment of
your loan to retroact on January 1, 1998. The amount of P422,922.87, representing unliquidated advances
made by Sky/Central to you (see attached listing), has been deducted from your retirement pay of P4.5 million.
Should you be able to liquidate the advances as requested by Sky/Central, the said amount will be applied to
the partial payment of your loan and we shall adjust the amount of principal and interest due from you
accordingly. After the application of the amount of P4,077,077.13 to the partial payment of your loan, the
amount of P7,585,912.86 will be immediately due and demandable. The amount of P7,585,912.86 represents
the outstanding principal and interest due as of July 15, 1998.
Without the application of your retirement benefits to the partial payment of your loan, the amount of
P11,850,000.00 is due as of July 15, 1998. We reiterate our demand for full payment of your outstanding
obligation immediately. (Underscoring supplied)
As for the trial courts ruling that the agreement to set-off is an amendment of the loan agreement resulting
to an identity of interest between respondent and Sky Vision and, therefore, sufficient to pierce the veil of
corporate fiction, it is untenable. The abovequoted letter is clear that, to effect a set-off, it is a condition sine
qua non that the approval thereof by Sky/Central must be obtained, and that petitioner liquidate his advances
from Sky Vision. These conditions hardly manifest that respondent possessed that degree of control over Sky
Vision as to make the latter its mere instrumentality, agency or adjunct.
WHEREFORE, the instant petition for review on certiorari is hereby DENIED.
SO ORDERED.
 [G.R. No. 142616. July 31, 2001]
PHILIPPINE NATIONAL BANK, petitioner, vs. RITRATO GROUP INC., RIATTO INTERNATIONAL, INC., and
DADASAN GENERAL MERCHANDISE, respondent.
DECISION
KAPUNAN, J.:
In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul
and set aside the Court of Appeals' decision in C.A. G.R. S.P. No. 55374 dated March 27, 2000, affirming the
Order issuing a writ of preliminary injunction of the Regional Trial Court of Makati, Branch 147, dated June 30,
1999, and its Order dated October 4, 1999, which denied petitioner's motion to dismiss.
The antecedents of this case are as follows:
Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine
law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise
are domestic corporations, likewise, organized and existing under Philippine law.
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL), a subsidiary company of PNB, organized
and doing business in Hong Kong, extended a letter of credit in favor of the respondents in the amount of
US$300,000.00 secured by real estate mortgages constituted over four (4) parcels of land in Makati City. This
credit facility was later increased successively to US$1,140,000.00 in September 1996; to US$1,290,000.00 in
November 1996; to US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April
1998. Respondents made repayments of the loan incurred by remitting those amounts to their loan account
with PNB-IFL in Hong Kong.
However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the
terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the
foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a public
auction on May 27, 1999 at the Makati City Hall.
On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati. The
Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary restraining order. On May
28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati.The trial judge then set a
hearing on June 8, 1999. At the hearing of the application for preliminary injunction, petitioner was given a
period of seven days to file its written opposition to the application. On June 15, 1999, petitioner filed an
opposition to the application for a writ of preliminary injunction to which the respondents filed a reply. On June
25, 1999, petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the
absence of any privity between the petitioner and respondents. On June 30, 1999, the trial court judge issued
an Order for the issuance of a writ of preliminary injunction, which writ was correspondingly issued on July 14,
1999. On October 4, 1999, the motion to dismiss was denied by the trial court judge for lack of merit.
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of
preliminary injunction before the Court of Appeals. In the impugned decision,[1] the appellate court dismissed
the petition. Petitioner thus seeks recourse to this Court and raises the following errors:
1.
THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO,
CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION EXISTS
AGAINST PETITIONER, WHICH IS NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT
AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.
2.
THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR
LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS
PRAYED FOR IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ, JR., 101
SCRA 827.[2]
Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial court's
Orders dated June 30, 1999 and October 4, 1999 be set aside and the dismissal of the complaint in the instant
case.[3]
In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are two
separate entities, petitioner is still the party-in-interest in the application for preliminary injunction because it is
tasked to commit acts of foreclosing respondents' properties.[4] Respondents maintain that the entire credit
facility is void as it contains stipulations in violation of the principle of mutuality of contracts.[5] In addition,
respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate
Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL.[6]
The petition is impressed with merit.
Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the
contract:
GROUNDS
I. THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THE
DEFENDANT PNB CONTRAVENES THE PRINICIPAL OF MUTUALITY OF CONTRACTS.
II. THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREED
UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO STIPULATION THAT THE
RATE OF INTEREST SHALL BE REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF
INTEREST IS REDUCED BY LAW OR BY THE MONETARY BOARD.[7]
Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the
foreclosure and eventual sale of the property in order to protect their rights to said property by reason of void
credit facilities as bases for the real estate mortgage over the said property.[8]
 The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their
complaint, respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power and
authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. In
other words, herein petitioner is an agent with limited authority and specific duties under a special power of
attorney incorporated in the real estate mortgage. It is not privy to the loan contracts entered into by
respondents and PNB-IFL.
The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and
the party to the loan contracts, and the respondents. Yet, despite the recognition that petitioner is a mere
agent, the respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the
rescheduling of the interest to be paid by them in accordance with the terms and conditions in the documents
evidencing the credit facilities, and crediting the amount previously paid to PNB by herein respondents.[9]
Clearly, petitioner not being a party to the contract has no power to re-compute the interest rates set forth
in the contract. Respondents, therefore do not have any cause of action against petitioner.
The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL is a wholly owned
subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-
IFL.[10] In justifying its ruling, the trial court, citing the case of Koppel Phil Inc. vs. Yatco,[11] reasoned that the
corporate entity may be disregarded where a corporation is the mere alter ego, or business conduit of a person
or where the corporation is so organized and controlled and its affairs are so conducted, as to make it merely
an instrumentality, agency, conduit or adjunct of another corporation.[12]
We disagree.
The general rule is that as a legal entity, a corporation has a personality distinct and separate from its
individual stockholders or members, and is not affected by the personal rights, obligations and transactions of
the latter.[13] The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not
sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's
separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will
be confined to those arising in their respective business. The courts may in the exercise of judicial discretion
step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity.
We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court
disregarded the separate existence of the parent and the subsidiary on the ground that the latter was formed
merely for the purpose of evading the payment of higher taxes. In the case at bar, respondents failed to show
any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded.
While there exists no definite test of general application in determining when a subsidiary may be treated
as a mere instrumentality of the parent corporation, some factors have been identified that will justify the
application of the treatment of the doctrine of the piercing of the corporate veil. The case of Garrett vs.
Southern Railway Co[14] is enlightening. The case involved a suit against the Southern Railway
Company. Plaintiff was employed by Lenoir Car Works and alleged that he sustained injuries while working for
Lenoir. He, however, filed a suit against Southern Railway Company on the ground that Southern had acquired
the entire capital stock of Lenoir Car Works, hence, the latter corporation was but a mere instrumentality of the
former. The Tennessee Supreme Court stated that as a general rule the stock ownership alone by one
corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the
subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of
the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation. Said court then
outlined the circumstances which may be useful in the determination of whether the subsidiary is but a mere
instrumentality of the parent-corporation:
The Circumstances rendering the subsidiary an instrumentality. It is manifestly impossible to catalogue the
infinite variations of fact that can arise but there are certain common circumstances which are important and
which, if present in the proper combination, are controlling.
These are as follows:
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its
incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no assets except those
conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a
department or division of the parent corporation, or its business or financial responsibility is referred to as the
parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but
take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
The Tennessee Supreme Court thus ruled:
In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of the capital stock
of Lenoir by Southern, and possibly subscription to the capital stock of Lenoir The complaint must be
dismissed.
 Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable
doctrine developed to address situations where the separate corporate personality of a corporation is abused
or used for wrongful purposes. The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.[15]
In Concept Builders, Inc. v. NLRC,[16] we have laid the test in determining the applicability of the doctrine of
piercing the veil of corporate fiction, to wit:
1. Control, not mere majority or complete control, but complete domination, not only of finances but of policy
and business practice in respect to the transaction attacked so that the corporate entity as to this transaction
had at the time no separate mind, will or existence of its own.
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of
a statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiff's legal rights;
and,
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In applying the
"instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant's relationship to the operation.[17]
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is now showing of
the indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is
there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil
exist. Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or
instrumentality doctrine finds no application in the case at bar.
In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal
relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-
IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the
foreclosure proceedings. A suit against an agent cannot without compelling reasons be considered a suit
against the principal. Under the Rules of Court, every action must be prosecuted or defended in the name of
the real party-in-interest, unless otherwise authorized by law or these Rules.[18] In mandatory terms, the Rules
require that "parties-in-interest without whom no final determination can be had, an action shall be joined either
as plaintiffs or defendants."[19] In the case at bar, the injunction suit is directed only against the agent, not the
principal.
Anent the issuance of preliminary injunction, the same must be lifted as it is a mere provisional remedy but
adjunct to the main suit.[20] A writ of preliminary injunction is an ancillary or preventive remedy that may only be
resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the
pendency of the principal action. The dismissal of the principal action thus results in the denial of the prayer for
the issuance of the writ. Further, there is no showing that respondents are entitled to the issuance of the
writ. Section 3, Rule 58, of the 1997 Rules of Civil Procedure provides:
SEC. 3. Grounds for issuance of preliminary injunction.- A preliminary injunction may be granted when it is
established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the
commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either
for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the acts or acts complained of during the litigation
would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to
be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual.
Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard compensation.[21] Respondents do not deny their
indebtedness. Their properties are by their own choice encumbered by real estate mortgages. Upon the non-
payment of the loans, which were secured by the mortgages sought to be foreclosed, the mortgaged properties
are properly subject to a foreclosure sale. Moreover, respondents questioned the alleged void stipulations in
the contract only when petitioner initiated the foreclosure proceedings.Clearly, respondents have failed to
prove that they have a right protected and that the acts against which the writ is to be directed are violative of
said right.[22] The Court is not unmindful of the findings of both the trial court an the appellate court that there
may be serious grounds to nullify the provisions of the loan agreement. However, as earlier discussed,
respondents committed the mistake of filing the case against the wrong party, thus, they must suffer the
consequences of their error.
All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the
contract the provisions of which private respondents seek to declare void. Accordingly the case before the
Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith, must be
lifted.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is
hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch
147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED.
SO ORDERED.
 [A.M. No. P-01-1464. March 13, 2001]

SALVADOR O. BOOC, complainant, vs. MALAYO B. BANTUAS, SHERIFF IV, RTC, BRANCH 3, ILIGAN
CITY, respondent.
RESOLUTION
DE LEON, JR., J.:

An affidavit-complaint dated August 31, 1999 was filed before the Office of the Court Administrator (OCA)
by Salvador Booc charging Malayo B. Bantuas, Sheriff IV of the Regional Trial Court (RTC), Branch 3, Iligan
City with Gross Ignorance of the Law and Grave Abuse of Authority relative to Civil Case No. 1718 entitled,
Felipe G. Javier, Jr. vs. Rufino Booc.
Complainant is the President of five Star Marketing Corporation. On August 22, 1994 herein respondent
Sheriff Malayo B. Bantuas, pursuant to a Writ of Execution issued in Civil Case No. 1718 filed a Notice of Levy
with the Register of Deeds, Iligan City over a parcel of land covered by TCT No. T-19209 and owned by Five
Star Marketing Corporation. Complainant alleged that respondent sheriff, at the instance of plaintiff, former
Judge Felipe Javier, proceeded to file the Notice of Levy despite respondent sheriffs knowledge that the
property is owned by the corporation which was not a party to the civil case.
On July 31, 1995, the corporation through the complainant reiterated to respondent sheriff that it was the
owner of the property and Rufino Booc had no share or interest in the corporation. Hence, the corporation
demanded that respondent sheriff cancel the notice of levy, otherwise the corporation would take the
appropriate legal steps to protect its interest.
Respondent sheriff, however, did not heed the corporations demand inasmuch as on August 20, 1999 the
corporation received a Notice of Sale on Execution of Real Property, dated August 11, 1999, covering the
subject property. Respondent sheriff scheduled the public auction on August 31, 1999. Consequently, the
corporation, to protect its rights and interests, was compelled to file an action for Quieting of Title with the RTC,
Branch 4 of Iligan City.
Respondent sheriff, in his answer to the complaint filed against him before the OCA, said that he filed a
Notice of Levy with the Register of Deeds of Iligan City on the share, rights, interest and participation of Rufino
Booc in the parcel of land owned by Five Star Marketing Corporation. Respondent sheriff claimed that Rufino
Booc is the owner of around 200 shares of stock in said corporation according to a document issued by the
Securities and Exchange Commission.
Respondent sheriff stressed that the levy was made on the share, rights and/or interest and participation
which Rufino Booc, as president and stockholder, may have in the parcel of land owned by Five Star Marketing
Corporation. Claiming that he was only acting pursuant to his duties as sheriff, respondent cited Section 15,
Rule 39 of the Rules of Court which states that
x x x The officer must enforce an execution of a money judgment by levying on all the property, real and
personal of every name and nature whatsoever, and which may be disposed of for value of the judgment
debtor not exempt from execution.

Real property stocks, shares, debts, credits, and other personal property, or any interest in either real or
personal property, may be levied upon in like manner and with like effect as under a writ of execution.

Respondent sheriff said that while complainant Salvador Booc made a demand for the cancellation of levy
made, the former deemed it wise to have the judgment satisfied in accordance with Section 39 of the Rules of
Court. Respondent sheriff added that the trial court where the case for Quieting of Title filed by the corporation
was pending ordered the auction sale of the shares of stock of Rufino Booc. The corporation allegedly never
questioned said order of the RTC.
Finally, respondent sheriff averred that the corporation is merely a dummy of Rufino Booc and his brother
Sheikding Booc. Respondnet sheriff submitted as an exhibit an affidavit executed by Sheikding Booc wherein
the latter admitted that when Judge Felipe Javier won in the civil case against Rufino Booc, the latter simulated
a transfer of his shares of stock in Five Star Marketing Corporation so that the property may not be levied
upon.[1]
Complainant, in his reply to respondent sheriffs comment belied the latters allegation that the corporation
never questioned the auction sale. Complainant averred that contrary to the respondent sheriffs assertion, the
trial court in fact issued a restraining order which was withdrawn after plaintiffs counsel manifested that the
respondent sheriff would only auction Rufino Boocs shares of stock in the corporation and not the subject
property.
The OCA found respondent sheriff liable for the charges filed against him, stating that respondent sheriff
acted in bad faith when he auctioned the subject property inasmuch as Judge Mangotara had already warned
him that the public auction should pertain only to shares of stock owned by Rufino Booc in Five Star Marketing
Corporation. Respondent sheriff, however, in violation of the order issued by Judge Mangotara and in
disregard of the manifestation filed by plaintiffs counsel that the sale should involve only the shares of stock,
proceeded to auction the subject property. The OCA, thus, made the recommendation that:
1) The instant case be RE-DOCKETED as a regular administrative matter; and
2) Respondent Sheriff Malayo B. Bantuas be FINED in the amount of Ten Thousand Pesos
(P10,000.00) for conducting the auction sale in violation of the terms of the order issued by Acting
Presiding Judge Mamindiara P. Mangotara with a STERN WARNING that a commission of the
same or similar acts in the future shall be dealt with more severely.
A careful scrutiny of the records shows that respondent sheriff, in filing a notice of levy on the subject
property as well as in the certificate of sale, did not fail to mention that what was being levied upon and sold
was whatever shares, rights, interests and participation Rufino Booc, as president and stockholder in Five Star
Marketing Corporation may have on subject property. Respondent sheriff, however, overstepped his authority
when he disregarded the distinct and separate personality of the corporation from that of Rufino Booc as
stockholder of the corporation by levying on the property of the corporation.Respondent sheriff should not have
made the levy based on mere conjecture that since Rufino Booc is a stockholder and officer of the corporation,
then he might have an interest or share in the subject property.
It is settled that a corporation is clothed with a personality separate and distinct from that of its
stockholders. It may not be held liable for the personal indebtedness of its stockholders. In the case of Del
Rosario vs. Bascar, Jr.,[2] we imposed the fine of P5,000.00 on respondent sheriff Bascar for allocating unto
himself the power of the court to pierce the veil of corporate entity and improvidently assuming that since
complainant Esperanza del Rosario is the treasurer of Miradel Development Corporation, they are one and the
same. In the said case we reiterated the principle that the mere fact that one is a president of the corporation
does not render the property he owns or possesses the property of the corporation since the president, as an
individual, and the corporation are separate entities.
Based on the foregoing, respondent Sheriff Bantuas has clearly acted beyond his authority when he levied
the property of Five Star Marketing Corporation. The fact, however, that respondent sheriff, in levying said
property, had stated in the notice of levy as well as in the certificate of sale that what was being levied upon
and sold was whatever rights, shares interest and/or participation Rufino Booc, as stockholder and president in
the corporation, may have on the subject property, shows that respondent sheriffs conduct was impelled partly
by ignorance of Corporation Law and partly by mere overzealousness to comply with his duties and not by bad
faith or blatant disregard of the trial courts order. Hence, we deem that the penalty of a fine of Five Thousand
Pesos (P5,000.00) to be imposed on respondent sheriff would suffice.
WHEREFORE, respondent Malayo B. Bantuas, Sheriff IV of the RTC of Iligan City , Branch 3, is hereby
FINED in the sum of Five Thousand Pesos (P5,000.00) with the STERN WARNING that a repetition of the
same or similar acts in the future will be dealt with more severely.
SO ORDERED.
 [G.R. No. 130998. August 10, 2001]
MARUBENI CORPORATION, RYOICHI TANAKA, RYOHEI KIMURA and SHOICHI ONE, petitioners,
vs. FELIX LIRAG, respondent.
DECISION
PARDO, J.:
The case is an appeal via certiorari to annul and set aside the decision[1] of the Court of Appeals finding
petitioners Ryoichi Tanaka, Ryohei Kimura and Shoichi One, as officers of petitioner Marubeni Corporation,
jointly and severally liable with the corporation for the commission claimed by respondent Felix Lirag in the
amount of six million (P6,000,000.00) pesos arising from an oral consultancy agreement.
Petitioner Marubeni Corporation (hereafter, Marubeni) is a foreign corporation organized and existing
under the laws of Japan. It was doing business in the Philippines through its duly licensed, wholly owned
subsidiary, Marubeni Philippines Corporation. Petitioners Ryoichi Tanaka, Ryohei Kimura and Shoichi One
were officers of Marubeni assigned to its Philippine branch.[2]
On January 27, 1989, respondent Felix Lirag filed with the Regional Trial Court, Makati a complaint [3] for
specific performance and damages claiming that petitioners owed him the sum of P6,000,000.00 representing
commission pursuant to an oral consultancy agreement with Marubeni. Lirag claimed that on February 2, 1987,
petitioner Ryohei Kimura hired his consultancy group for the purpose of obtaining government contracts of
various projects. Petitioner Kimura authorized him to work on the following projects: (1) National Telephone
Project, (2) Regional Telecommunications Project; (3) Cargo Handling Equipment; (4) Maritime
Communications; (5) Philippine National Railways Depot; and (6) Bureau of Posts (Phase II). [4] Petitioners
promised to pay him six percent (6%) consultancy fee based on the total costs of the projects obtained.
The consultancy agreement was not reduced into writing because of the mutual trust between Marubeni
and the Lirag family.[5] Their close business and personal relationship dates back to 1960, when respondents
family was engaged in the textile fabric manufacturing business, in which Marubeni supplied the needed
machinery, equipment, spare parts and raw materials.[6]
In compliance with the agreement, respondent Lirag made representations with various government
officials, arranged for meetings and conferences, relayed pertinent information as well as submitted feasibility
studies and project proposals, including pertinent documents required by petitioners. As petitioners had been
impressed with respondents performance, six (6) additional projects were given to his group under the same
undertaking.[7]
One of the projects handled by respondent Lirag, the Bureau of Post project, amounting to
P100,000,000.00 was awarded to the Marubeni-Sanritsu tandem.[8] Despite respondents repeated formal
verbal demands for payment of the agreed consultancy fee, petitioners did not pay. In response to the first
demand letter, petitioners promised to reply within fifteen (15) days, but they did not do so.
Pursuant to the consultancy agreement, respondent claimed a commission of six percent (6%) of the total
contract price, or a total of P6,000,000.00, or in the alternative, that he be paid the same amount by way of
damages or as the reasonable value of the services he rendered to petitioners, and further claimed twenty
percent (20%) of the amount recoverable as attorneys fees and the costs of suit.
In their answer, petitioners denied the consultancy agreement. Petitioner Ryohei Kimura did not have the
authority to enter into such agreement in behalf of Marubeni. Only Mr. Morihiko Maruyama, the general
manager, upon issuance of a special power of attorney by the principal office in Tokyo, Japan, could enter into
any contract in behalf of the corporation. Mr. Maruyama did not discuss with respondent Lirag any of the
matters alleged in the complaint, nor agreed to the payment of commission. Moreover, Marubeni did not
participate in the bidding for the Bureau of Post project, nor benefited from the supposed project. Thus,
petitioners moved for the dismissal of the complaint.
Petitioner Shoichi One submitted a separate answer raising similar arguments.
With regard to petitioner Ryohei Kimura, the trial court did not acquire jurisdiction over his person because
he was recalled to the principal office in Tokyo, Japan before the complaint and the summons could be served
on him.
During the pre-trial conferences held on September 18 and October 16, 1989 and on January 24, March
15 and May 17, 1990, no amicable settlement was reached. Trial on the merits ensued.
On April 29, 1993, the trial court promulgated a decision and ruled that respondent is entitled to a
commission. Respondent was led to believe that there existed an oral consultancy agreement. Hence, he
performed his part of the agreement and helped petitioners get the project. The dispositive portion of the
decision reads:
WHEREFORE, defendants are ordered, jointly and severally, to pay to the plaintiff: (1) the amount of
P6,000,000.00, with interest at the legal rate (12% per annum) from January 10, 1989 until fully paid; (2) 20%
of this amount to serve as reimbursement of plaintiffs attorneys fees; and (3) to pay the cost of the suit.
SO ORDERED.
Makati, Metro Manila, April 29, 1993.
[Original Signed]
SALVADOR P. DE GUZMAN, Jr.
Pairing Judge[9]
 On May 26, 1993, petitioners interposed an appeal from the decision to the Court of Appeals.[10]
After due proceedings, on October 9, 1997, the Court of Appeals promulgated a decision affirming the
decision of the trial court. The Court of Appeals ruled that preponderance of evidence favored the existence of
a consultancy agreement between the parties. It upheld the factual findings of the trial court, thus:
Plaintiffs evidence details the efforts he exerted after having been extended an appointment by Marubeni as its
consultant. He tendered a thanksgiving dinner for the defendants at the Nandau Restaurant; he and Napoleon
Rama visited Marubenis Morihiko Maruyama in the latters office during which they discussed the BOP II
project. He arranged several conferences between the Marubeni officials andPostmaster General Angelito
Banayo. In one meeting which took place in the office of Mr. Banayo at Liwasang Bonifacio, a Mr. Ida, the
General Manager of Sanritsu, was conspicuously present. Mr. Banayo testified that Mr. Ida told him that
Sanritsu was representing Marubeni in the BOP II project (tsn., 6/11/90, pp. 15-17; 5/15/91, pp. 10-12). At least
thirty (30) conferences between plaintiff and defendants took place at the Marubeni offices, lasting at least two
hours each meeting. Eventually, the bid was awarded by the Bureau of Post to Sanritsu. Aware that Sanritsu
represented Marubeni, and in fact Marubeni assigned Sanritsu to enter its bid, plaintiff sent his bill for his
services to the defendants in a letter dated April 20, 1988. This was followed by a letter dated September 26,
1990 of plaintiffs counsel. This time Mr. Tanaka asked for 15 days within which to contact their Head Office to
seek instructions.[11]
The Court of Appeals relied on the doctrine of admission by silence[12] in upholding the existence of a
consultancy agreement, noting that petitioner Tanakas reaction to respondents September 26, 1988 demand
letter was not consistent with their claim that there was no consultancy agreement. On the contrary, it lent
credence to respondents claim that they had an existing consultancy agreement. Petitioner Tanakas response
dated October 13, 1988 to the demand letter of September 26, 1988 reads:
Referring to your letter dated September 26, 1988, we are pleased to inform you that the issue is currently
being reviewed by us and we would like to reply to you within fifteen (15) days.[13]
The Court of Appeals observed that if indeed there were no consultancy agreement, it would have been
easy for petitioners to simply deny respondents claim. Yet, they did not do so. The conglomeration of these
circumstances bolstered the existence of the oral consultancy agreement. The dispositive portion of the
decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED.[14]
Hence, this appeal.[15]
In this appeal, petitioners raise the following issues: (1) whether or not there was a consultancy agreement
between petitioners and respondent; and corollary to this, (2) whether or not respondent is entitled to receive a
commission if there was, in fact, a consultancy agreement.[16]
We find the appeal meritorious.
In deciding this appeal, we rely on the rule that a party who has the burden of proof in a civil case must
establish his case by a preponderance of evidence.[17] When the evidence of the parties is in equipoise, or
when there is a doubt as to where the preponderance of evidence lies, the party with the burden of proof fails
and the petition must thus be denied.[18]
As a general rule, factual findings of the Court of Appeals are conclusive on the parties and are not
reviewed by the Supreme Courtand they carry even more weight when the Court of Appeals affirmed the
factual findings of the trial court. It is not the function of the Supreme Court to weigh anew the evidence passed
upon by the Court of Appeals.[19] Moreover, only questions of law may be raised before the Supreme Court in a
petition for review under Rule 45 of the Revised Rules of Court.[20]
However, the rule is subject to exceptions,[21] such as when the conclusion is grounded on speculations,
surmises, or conjectures,[22] as in the instant case.
An assiduous scrutiny of the testimonial and documentary evidence extant leads us to the conclusion that
the evidence could not support a solid conclusion that a consultancy agreement, oral or written, was agreed
between petitioners and respondent. Respondent attempted to fortify his own testimony by presenting several
corroborative witnesses. However, what was apparent in the testimonies of these witnesses was the fact that
they learned about the existence of the consultancy agreement only because that was what respondent told
them.[23]
In civil cases, he who alleges a fact has the burden of proving it; a mere allegation is not evidence. [24] He
must establish his cause by a preponderance of evidence,[25] which respondent failed to establish in the instant
case.
Assuming for the sake of argument that an oral consultancy agreement has been perfected between the
parties, respondent Lirag could not still claim fees on the project that has not been awarded to Marubeni.
If respondents contentions were to be taken as truth, he would be entitled to 6% consulting fee based on
the total cost of the projects obtained,[26] or on success basis.[27] However, even respondent admitted that the
Bureau of Post project was not awarded to Marubeni, but to Sanritsu. [28] Marubeni did not even join the bidding
for the Bureau of Post project.
Respondent could not claim from Sanritsu because of the absence of any agreement between him and the
latter. When asked to clarify whether he has an existing consultancy agreement with Sanritsu, respondent
answered in the negative, thus:
COURT:
One clarificatory question-
Do you have any consultancy service contract with Marubeni/San Ritsu do you have?
 A: No, sir. I have only Consultancy Agreement on verbal basis with Marubeni.[29]
Hence, how could he be entitled to the 6% commission, when it was not his client who won in the bidding?
Respondent tried to justify his commission of roughly about P6,000,000.00 in the guise that Marubeni and
Sanritsu are sister corporations, thereby implying the need to pierce the veil of corporate fiction.Respondent
claimed that Marubeni as the supplier and real contractor of the project hired and sub-contracted the project to
Sanritsu.
We believe that this line of reasoning is too far-fetched. Not because two foreign companies came from
the same country and closely worked together on certain projects would the conclusion arise that one was the
conduit of the other, thus piercing the veil of corporate fiction.
To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and
convincingly established. It cannot be presumed. The separate personality of the corporation may be
disregarded only when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or
where necessary for the protection of creditors.[30] We could not just rely on respondents testimony regarding
the existence of the Marubeni-Sanritsu tandem to justify his claim for payment of commission. This conclusion
is too conjectural to be believed.
Aside from the self-serving testimony of respondent regarding the existence of a close working
relationship between Marubeni and Sanritsu, there was nothing that would support the conclusion that Sanritsu
was an agent of Marubeni. Mr. Lito Banayo, whom respondent presented to corroborate his testimony on this
particular issue said, thus:
ATTY. VALERO
My question is- do you know for a fact whether the impression you have about Japanese Trading Firm
working through Agents was the relationship between Marubeni and San Ritsu when Mr. Iida said that
they were working together?
A: I did not know for a fact because I did not see any contract between Marubeni and San Ritsu presented
to me.[31]
Contrary to the trial courts finding that petitioners led respondent to believe that they hired respondents
services as consultant, the evidence proved otherwise. Petitioner Shoichi One, one of the officers of Marubeni
Phils., testified that at the onset, Marubeni Phils. informed respondent that it had no authority to commit to
anything, as it all depended on the decision of the principal headquarters in Tokyo, Japan.However,
respondent Lirag insisted on providing assistance to Marubeni to get coveted government contracts because
Marubeni might encounter difficulties due to discrimination from the government. [32]Despite such knowledge,
respondent said that its alright with him as he believes Marubeni was an old time friend so he wanted to work
for those projects.[33] Hence, how could petitioners be guilty of misleading respondent on the acceptance of the
latters offer of consultancy service?
With regard to the Court of Appeals ratiocination that petitioner Tanakas response dated October 13, 1988
to the demand letter of September 26, 1988, amounted to an implied admission of the consultancy agreement,
the records showed that, to the contrary, this fact strengthened petitioners allegation that Marubeni Phils.
lacked the requisite authority to enter into any binding agreement.
As explained by petitioner Shoichi One, Marubeni Phils. could enter into a consultancy agreement only
after submitting a recommendation to the principal headquarters in Tokyo, Japan. If the office in Tokyo, Japan
agrees to hire consultants, it would then give a power of attorney to its general manager in Manila authorizing
the latter to enter into such agreement.
In the instant case, the parties did not reach the second stage as the headquarters in Tokyo, Japan did not
see it fit to hire a consultant as they decided not to participate in the bidding. Hence, no consultancy agreement
was perfected, whether oral or written. There was no absolute acceptance of respondents offer of consultancy
services.
Assuming arguendo that the petitioner accepted respondents offer of consultancy services, we could not
give legal imprimatur to the agreement. The service rendered by respondent contemplated the exploitation of
personal influence and solicitation on a public officer.
Respondent said that petitioners sought out his services because they needed somebody who can help
them penetrate and establish goodwill with the government.[34] Petitioners found it difficult to arrange a meeting
with Postmaster General Angelito Banayo because of petitioners reputation of engaging in questionable
transactions.[35] Suddenly, through the intervention of respondent, the postmaster general became accessible
to petitioners. This became possible because of respondents close personal relationship with the postmaster
general, his trusted and long-time friend.[36] Respondent testified, to wit:
Q: In other words you are saying that Marubeni and San Ritsu representatives had a conference with the
Post Master General Banayo in connection with this Project?
A: Yes and I was the one who made the arrangement.[37]
In another instance, respondent said, thus:
WITNESS:
What we have done by that first, Mr. Banayo went to Tokyo and when he was in Tokyo we were able to
arrange the Marubeni representative in Tokyo to meet and talk with Mr. Banayo in Tokyo
COURT:
Mr?
A. Banayo, the Post Master General and representatives of Marubeni in Tokyo - this was done because of
my intervention.[38]
Any agreement entered into because of the actual or supposed influence which the party has, engaging
him to influence executive officials in the discharge of their duties, which contemplates the use of personal
influence and solicitation rather than an appeal to the judgment of the official on the merits of the object sought
is contrary to public policy.[39] Consequently, the agreement, assuming that the parties agreed to the
consultancy, is null and void as against public policy.[40] Therefore, it is unenforceable before a court of
justice.[41]
In light of the foregoing, we rule that the preponderance of evidence established no consultancy
agreement between petitioners and respondent from which the latter could anchor his claim for a six percent
(6%) consultancy fee on a project that was not awarded to petitioners.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals[42] is hereby SET ASIDE.
Civil Case No. 89-3037 filed before the Regional Trial Court, Branch 143, Makati City is hereby DISMISSED.
No costs.
SO ORDERED.
 [G.R. No. 141617. August 14, 2001]
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION, petitioners, vs. RITA C.
MEJIA, as Executrix of Testate Estate of ANDREA CORDOVA VDA. DE GUTIERREZ, respondent.
DECISION
GONZAGA-REYES, J.:
In this petition for review by certiorari, petitioners pray for the setting aside of the Decision of the Court of
Appeals promulgated on 13 April 1999 and its 15 December 1999 Resolution in CA-G.R. CV No. 19281.
As culled from the decisions of the lower courts and the pleadings of the parties, the factual background of
this case is as set out herein:
Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner of a parcel of land in Camarin,
Caloocan City known as Lot 861 of the Tala Estate. The land had an aggregate area of twenty-five (25)
hectares and was covered by Transfer Certificate of Title (TCT) No. 5779 of the Registry of Deeds of Caloocan
City. The property was later subdivided into five lots with an area of five hectares each and pursuant thereto,
TCT No. 5779 was cancelled and five new transfer certificates of title were issued in the name of Gutierrez,
namely TCT No. 7123 covering Lot 861-A, TCT No. 7124 covering Lot 861-B, TCT No. 7125 covering Lot 861-
C, TCT No. 7126 covering Lot 861-D and TCT No. 7127 covering Lot 861-E.
On 21 December 1964, Gutierrez and Cardale Financing and Realty Corporation (Cardale) executed a
Deed of Sale with Mortgage relating to the lots covered by TCT Nos. 7124, 7125, 7126 and 7127, for the
consideration of P800,000.00. Upon the execution of the deed, Cardale paid Gutierrez P171,000.00. It was
agreed that the balance of P629,000.00 would be paid in several installments within five years from the date of
the deed, at an interest of nine percent per annum based on the successive unpaid principal balances.
Thereafter, the titles of Gutierrez were cancelled and in lieu thereof TCT Nos. 7531 to 7534 were issued in
favor of Cardale.
To secure payment of the balance of the purchase price, Cardale constituted a mortgage on three of the
four parcels of land covered by TCT Nos. 7531, 7532 and 7533, encompassing fifteen hectares of land. [1] The
encumbrance was annotated upon the certificates of title and the owners duplicate certificates. The owners
duplicates were retained by Gutierrez.
On 26 August 1968, owing to Cardales failure to settle its mortgage obligation, Gutierrez filed a complaint
for rescission of the contract with the Quezon City Regional Trial Court (RTC), which was docketed as Civil
Case No. Q-12366.[2] On 20 October 1969, during the pendency of the rescission case, Gutierrez died and was
substituted by her executrix, respondent Rita C. Mejia (Mejia). In 1971, plaintiffs presentation of evidence was
terminated. However, Cardale, which was represented by petitioner Adalia B. Francisco (Francisco) in her
capacity as Vice-President and Treasurer of Cardale, lost interest in proceeding with the presentation of its
evidence and the case lapsed into inactive status for a period of about fourteen years.
In the meantime, the mortgaged parcels of land covered by TCT Nos. 7532 and 7533 became delinquent
in the payment of real estate taxes in the amount of P102,300.00, while the other mortgaged property covered
by TCT No. 7531 became delinquent in the amount of P89,231.37, which culminated in their levy and auction
sale on 1 and 12 September 1983, in satisfaction of the tax arrears. The highest bidder for the three parcels of
land was petitioner Merryland Development Corporation (Merryland), whose President and majority
stockholder is Francisco. A memorandum based upon the certificate of sale was then made upon the original
copies of TCT Nos. 7531 to 7533.
On 13 August 1984, before the expiration of the one year redemption period, Mejia filed a Motion for
Decision with the trial court. The hearing of said motion was deferred, however, due to a Motion for
Postponement filed by Cardale through Francisco, who signed the motion in her capacity as officer-in-charge,
claiming that Cardale needed time to hire new counsel. However, Francisco did not mention the tax
delinquencies and sale in favor of Merryland. Subsequently, the redemption period expired and Merryland,
acting through Francisco, filed petitions for consolidation of title,[3] which culminated in the issuance of certain
orders[4] decreeing the cancellation of Cardales TCT Nos. 7531 to 7533 and the issuance of new transfer
certificates of title free from any encumbrance or third-party claim whatsoever in favor of Merryland. Pursuant
to such orders, the Register of Deeds of Caloocan City issued new transfer certificates of title in the name of
Merryland which did not bear a memorandum of the mortgage liens in favor of Gutierrez.
Thereafter, sometime in June 1985, Francisco filed in Civil Case No. Q-12366 an undated Manifestation to
the effect that the properties subject of the mortgage and covered by TCT Nos. 7531 to 7533 had been levied
upon by the local government of Caloocan City and sold at a tax delinquency sale. Francisco further claimed
that the delinquency sale had rendered the issues in Civil Case No. Q-12366 moot and academic. Agreeing
with Francisco, the trial court dismissed the case, explaining that since the properties mortgaged to Cardale
had been transferred to Merryland which was not a party to the case for rescission, it would be more
appropriate for the parties to resolve their controversy in another action.
On 14 January 1987, Mejia, in her capacity as executrix of the Estate of Gutierrez, filed with the RTC of
Quezon City a complaint for damages with prayer for preliminary attachment against Francisco, Merryland and
the Register of Deeds of Caloocan City. The case was docketed as Civil Case No. Q-49766. On 15 April 1988,
the trial court rendered a decision[5] in favor of the defendants, dismissing the complaint for damages filed by
Mejia. It was held that plaintiff Mejia, as executrix of Gutierrezs estate, failed to establish by clear and
convincing evidence her allegations that Francisco controlled Cardale and Merryland and that she had
employed fraud by intentionally causing Cardale to default in its payment of real property taxes on the
mortgaged properties so that Merryland could purchase the same by means of a tax delinquency
sale. Moreover, according to the trial court, the failure to recover the property subject of the Deed of Sale with
Mortgage was due to Mejias failure to actively pursue the action for rescission (Civil Case No. 12366), allowing
the case to drag on for eighteen years. Thus, it ruled that -
xxx xxx xxx
The act of not paying or failing to pay taxes due the government by the defendant Adalia B. Francisco, as
treasurer of Cardale Financing and Realty Corporation do not, per se, constitute perpetration of fraud or an
illegal act. It do [sic] not also constitute an act of evasion of an existing obligation (to plaintiff) if there is no clear
showing that such an act of non-payment of taxes was deliberately made despite its (Cardales) solvency and
capability to pay. There is no evidence showing that Cardale Financing and Realty Corporation was financially
capable of paying said taxes at the time.
There are times when the corporate fiction will be disregarded: (1) where all the members or stockholders
commit illegal act; (2) where the corporation is used as dummy to commit fraud or wrong; (3) where the
corporation is an agency for a parent corporation; and (4) where the stock of a corporation is owned by one
person. (I, Fletcher, 58, 59, 61 and 63). None of the foregoing reasons can be applied to the incidents in this
case: (1) there appears no illegal act committed by the stockholders of defendant Merryland Development
Corporation and Cardale Financing and Realty Corporation; (2) the incidents proven by evidence of the plaintiff
as well as that of the defendants do not show that either or both corporations were used as dummies by
defendant Adalia B. Francisco to commit fraud or wrong. To be used as [a] dummy, there has to be a showing
that the dummy corporation is controlled by the person using it. The evidence of plaintiff failed to prove that
defendant Adalia B. Francisco has controlling interest in either or both corporations. On the other hand, the
evidence of defendants clearly show that defendant Francisco has no control over either of the two
corporations; (3) none of the two corporations appears to be an agency for a parent (the other) corporation;
and (4) the stock of either of the two corporation [sic] is not owned by one person (defendant Adalia B.
Francisco). Except for defendant Adalia B. Francisco, the incorporators and stockholders of one corporation
are different from the other.
xxx xxx xxx
The said case (Civil Case No. 12366) remained pending for almost 18 years before the then Court of First
Instance, now the Regional Trial Court. Even if the trial of the said case became protracted on account of the
retirement and/or promotion of the presiding judge, as well as the transfer of the case from one sala to another,
and as claimed by the plaintiff that the defendant lost interest, (which allegation is unusual, so to speak), the
court believe [sic] that it would not have taken that long to dispose [of] said case had plaintiff not slept on her
rights, and her duty and obligation to see to it that the case is always set for hearing so that it may be
adjudicated [at] the earliest possible time. This duty pertains to both parties, but plaintiff should have been
more assertive, as it was her obligation, similar to the obligation of plaintiff relative to the service of summons
in other cases. The fact that Cardale Financing and Realty Corporation did not perform its obligation as
provided in the said Deed of Sale with Mortgage (Exhibit A) is very clear. Likewise, the fact that Andrea
Cordova, the contracting party, represented by the plaintiff in this case did not also perform her duties and/or
obligation provided in the said contract is also clear. This could have been the reason why the plaintiff in said
case (Exhibit E) slept on her rights and allowed the same to remain pending for almost 18 years. However, and
irrespective of any other reason behind the same, the court believes that plaintiff, indeed, is the one to blame
for the failure of the testate estate of the late Andrea Cordova Vda. de Gutierrez to recover the money or
property due it on the basis of Exhibit A.
xxx xxx xxx
xxx Had the plaintiff not slept on her rights and had it not been for her failure to perform her commensurate
duty to pursue vigorously her case against Cardale Financing and Realty Corporation in said Civil Case No.
12366, she could have easily known said non-payment of realty taxes on the said properties by said Cardale
Financing and Realty Corporation, or, at least the auction sales that followed, and from which she could have
redeemed said properties within the one year period provided by law, or, have availed of remedies at the time
to protect the interest of the testate estate of the late Andrea Cordova Vda. de Gutierrez.
xxx xxx xxx
The dispositive portion of the trial courts decision states -
WHEREFORE, in view of all the foregoing consideration, the court hereby renders judgment in favor of the
defendants Register of Deeds of Caloocan City, Merryland Development Corporation and Adalia B. Francisco,
and against plaintiff Rita C. Mejia, as Executrix of the Testate Estate of Andrea Cordova Vda. De Gutierrez,
and hereby orders:
1. That this case for damages be dismissed, at the same time, plaintiffs motion for reconsideration dated
September 23, 1987 is denied;
2. Plaintiff pay the defendants Merryland Development Corporation and the Register of Deeds the sum of
P20,000.00, and another sum of P20,000.00 to the defendant Adalia B. Francisco, as and for attorneys
fees and litigation expenses, and pay the costs of the proceedings.
SO ORDERED.
The Court of Appeals,[6] in its decision[7] promulgated on 13 April 1999, reversed the trial court, holding that
the corporate veil of Cardale and Merryland must be pierced in order to hold Francisco and Merryland solidarily
liable since these two corporations were used as dummies by Francisco, who employed fraud in allowing
Cardale to default on the realty taxes for the properties mortgaged to Gutierrez so that Merryland could acquire
the same free from all liens and encumbrances in the tax delinquency sale and, as a consequence thereof,
frustrating Gutierrezs rights as a mortgagee over the subject properties. Thus, the Court of Appeals premised
its findings of fraud on the following circumstances
xxx xxx xxx
xxx Appellee Francisco knew that Cardale of which she was vice-president and treasurer had an outstanding
obligation to Gutierrez for the unpaid balance of the real properties covered by TCT Nos. 7531 to 7533, which
Cardale purchased from Gutierrez which account, as of December 1988, already amounted to P4,414,271.43
(Exh. K, pp. 39-44, record); she also knew that Gutierrez had a mortgage lien on the said properties to secure
payment of the aforesaid obligation; she likewise knew that the said mortgaged properties were under litigation
in Civil Case No. Q-12366 which was an action filed by Gutierrez against Cardale for rescission of the sale
and/or recovery of said properties (Exh. E). Despite such knowledge, appellee Francisco did not inform
Gutierrezs Estate or the Executrix (herein appellant) as well as the trial court that the mortgaged properties had
incurred tax delinquencies, and that Final Notices dated July 9, 1982 had been sent by the City Treasurer of
Caloocan demanding payment of such tax arrears within ten (10) days from receipt thereof (Exhs. J & J-1, pp.
37-38, record). Both notices which were addressed to
Cardale Financing & Realty Corporation c/o Merryland Development Corporation
and sent to appellee Franciscos address at 83 Katipunan Road, White Plains, Quezon City, gave warning that
if the taxes were not paid within the aforesaid period, the properties would be sold at public auction to satisfy
the tax delinquencies.
To reiterate, notwithstanding receipt of the aforesaid notices, appellee Francisco did not inform the Estate of
Gutierrez or her executrix about the tax delinquencies and of the impending auction sale of the said
properties. Even a modicum of good faith and fair play should have encouraged appellee Francisco to at least
advise Gutierrezs Estate through her executrix (herein appellant) and the trial court which was hearing the
complaint for rescission and recovery of said properties of such fact, so that the Estate of Gutierrez, which had
a real interest on the properties as mortgagee and as plaintiff in the rescission and recovery suit, could at least
take steps to forestall the auction sale and thereby preserve the properties and protect its interests
thereon. And not only did appellee Francisco allow the auction sale to take place, but she used her other
corporation (Merryland) in participating in the auction sale and in acquiring the very properties which her first
corporation (Cardale) had mortgaged to Gutierrez. Again, appellee Francisco did not thereafter inform the
Estate of Gutierrez or its executrix (herein appellant) about the auction sale, thus precluding the Estate from
exercising its right of redemption. And it was only after the expiration of the redemption period that appellee
Francisco filed a Manifestation in Civil Case No. Q-12366 (Exh. I, p. 36, record), in which she disclosed for the
first time to the trial court and appellant that the properties subject of the case and on which Gutierrez or her
Estate had a mortgage lien, had been sold in a tax delinquency sale. And in order to further conceal her
deceptive maneuver, appellee Francisco did not divulge in her aforesaid Manifestation that it was her other
corporation (Merryland) that acquired the properties in the auction sale.
We are not impressed by appellees submission that no evidence was adduced to prove that Cardale had the
capacity to pay the tax arrears and therefore she or Cardale may not be faulted for the tax delinquency sale of
the properties in question. Appellee Franciscos bad faith or deception did not necessarily lie in Cardales or her
failure to settle the tax deliquencies in question, but in not disclosing to Gutierrezs estate or its executrix
(herein appellant) which had a mortgage lien on said properties the tax delinquencies and the impending
auction sale of the encumbered properties.
Appellee Franciscos deception is further shown by her concealment of the tax delinquency sale of the
properties from the estate or its executrix, thus preventing the latter from availing of the right of redemption of
said properties. That appellee Francisco divulged the auction sale of the properties only after such redemption
period had lapsed clearly betrays her intention to keep Gutierrezs Estate or its Executrix from availing of such
right. And as the evidence would further show, appellee Francisco had a hand in securing for Merryland
consolidation of its ownership of the properties and in seeing to it that Merrylands torrens certificates for the
properties were free from liens and encumbrances. All these appellee Francisco did even as she was fully
aware that Gutierrez or her estate had a valid and subsisting mortgage lien on the said properties.
It is likewise worthy of note that early on appellee Francisco had testified in the action for rescission of sale and
recovery of possession and ownership of the properties which Gutierrez filed against Cardale (Civil Case No.
Q-12366) in her capacity as defendant Cardales vice-president and treasurer. But then, for no plausible reason
whatsoever, she lost interest in continuing with the presentation of evidence for defendant Cardale. And then,
when appellant Mejia as executrix of Gutierrezs Estate filed on August 13, 1984 a Motion for Decision in the
aforesaid case, appellee Francisco moved to defer consideration of appellants Motion on the pretext that
defendant Cardale needed time to employ another counsel. Significantly, in her aforesaid Motion for
Postponement dated August 16, 1984 which appellee Francisco personally signed as Officer-in-Charge of
Cardale, she also did not disclose the fact that the properties subject matter of the case had long been sold at
a tax delinquency sale and acquired by her other corporation Merryland.
And as if what she had already accomplished were not enough fraudulence, appellee Francisco, acting in
behalf of Merryland, caused the issuance of new transfer certificates of title in the name of Merryland, which
did not anymore bear the mortgage lien in favor of Gutierrez. In the meantime, to further avoid payment of
the mortgage indebtedness owing to Gutierrezs estate, Cardale corporation was dissolved.Finally, to put the
properties beyond the reach of the mortgagee, Gutierrezs estate, Merryland caused the subdivision of such
properties, which were subsequently sold on installment basis.
In its petition for certiorari, petitioners argue that there is no law requiring the mortgagor to inform the
mortgagee of the tax delinquencies, if any, of the mortgaged properties. Moreover, petitioners claim that
Cardales failure to pay the realty taxes, per se, does not constitute fraud since it was not proven that Cardale
was capable of paying the taxes. Petitioners also contend that if Mejia, as executrix of Gutierrezs estate, was
not remiss in her duty to pursue Civil Case No. 12366, she could have easily learned of the non-payment of
realty taxes on the subject properties and of the auction sale that followed and thus, have redeemed the
properties or availed of some other remedy to conserve the estate of Gutierrez. In addition, Mejia could have
annotated a notice of lis pendens on the titles of the mortgaged properties, but she failed to do so. It is the
stand of petitioners that respondent has not adduced any proof that Francisco controlled both Cardale and
Merryland and that she used these two corporations to perpetuate a fraud upon Gutierrez or her estate.
Petitioners maintain that the evidence shows that, apart form the meager share of petitioner Francisco, the
stockholdings of both corporations comprise other shareholders, and the stockholders of either of them, aside
from petitioner Francisco, are composed of different persons. As to Civil Case No. 12366, petitioners insist that
the decision of the trial court in that case constitutes res judicata to the instant case.[8]
It is dicta in corporation law that a corporation is a juridical person with a separate and distinct personality
from that of the stockholders or members who compose it. [9] However, when the legal fiction of the separate
corporate personality is abused, such as when the same is used for fraudulent or wrongful ends, the courts
have not hesitated to pierce the corporate veil. One of the earliest formulations of this doctrine of piercing the
corporate veil was made in the American case of United States v. Milwaukee Refrigerator Transit Co.[10] -
If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon
as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of
legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will
regard the corporation as an association of persons.
Since then a good number of cases have firmly implanted this doctrine in Philippine jurisprudence. [11] One
such case is Umali v. Court of Appeals[12] wherein the Court declared that
Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction
that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders
may be disregarded. In such cases, the corporation will be considered as a mere association of persons. The
members or stockholders of the corporation will be considered as the corporation, that is, liability will attach
directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the 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.
With specific regard to corporate officers, the general rule is that the officer cannot be held personally
liable with the corporation, whether civilly or otherwise, for the consequences of his acts, if he acted for and in
behalf of the corporation, within the scope of his authority and in good faith. In such cases, the officers acts are
properly attributed to the corporation.[13] However, if it is proven that the officer has used the corporate fiction to
defraud a third party,[14] or that he has acted negligently, maliciously or in bad faith,[15] then the corporate veil
shall be lifted and he shall be held personally liable for the particular corporate obligation involved.
The Court, after an assiduous study of this case, is convinced that the totality of the circumstances
appertaining conduce to the inevitable conclusion that petitioner Francisco acted in bad faith. The events
leading up to the loss by the Gutierrez estate of its mortgage security attest to this. It has been established that
Cardale failed to comply with its obligation to pay the balance of the purchase price for the four parcels of land
it bought from Gutierrez covered by TCT Nos. 7531 to 7534, which obligation was secured by a mortgage upon
the lands covered by TCT Nos. 7531, 7532 and 7533. This prompted Gutierrez to file an action for rescission
of the Deed of Sale with Mortgage (Civil Case No. Q-12366), but the case dragged on for about fourteen years
when Cardale, as represented by Francisco, who was Vice-President and Treasurer of the same,[16] lost
interest in completing its presentation of evidence.
Even before 1984 when Mejia, in her capacity as executrix of Gutierrezs estate, filed a Motion for Decision
with the trial court, there is no question that Francisco knew that the properties subject of the mortgage had
become tax delinquent. In fact, as treasurer of Cardale, Francisco herself was the officer charged with the
responsibility of paying the realty taxes on the corporations properties. This was admitted by the trial court in its
decision.[17] In addition, notices dated 9 July 1982 from the City Treasurer of Caloocan demanding payment of
the tax arrears on the subject properties and giving warning that if the realty taxes were not paid within the
given period then such properties would be sold at public auction to satisfy the tax delinquencies were sent
directly to Franciscos address in White Plains, Quezon City.[18] Thus, as early as 1982, Francisco could have
informed the Gutierrez estate or the trial court in Civil Case No. Q-12366 of the tax arrears and of the notice
from the City Treasurer so that the estate could have taken the necessary steps to prevent the auction sale
and to protect its interests in the mortgaged properties, but she did no such thing. Finally, in 1983, the
properties were levied upon and sold at public auction wherein Merryland - a corporation where Francisco is a
stockholder[19] and concurrently acts as President and director[20] - was the highest bidder.
When Mejia filed the Motion for Decision in Civil Case No. Q-12366,[21] the period for redeeming the
properties subject of the tax sale had not yet expired.[22] Under the Realty Property Tax Code,[23]pursuant to
which the tax levy and sale were prosecuted,[24] both the delinquent taxpayer and in his absence, any person
holding a lien or claim over the property shall have the right to redeem the property within one year from the
date of registration of the sale.[25] However, if these persons fail to redeem the property within the time
provided, then the purchaser acquires the property free from any encumbrance or third party claim
whatsoever.[26] Cardale made no attempts to redeem the mortgaged property during this time. Moreover,
instead of informing Mejia or the trial court in Q-12366 about the tax sale, the records show that Francisco filed
a Motion for Postponement[27] in behalf of Cardale - even signing the motion in her capacity as officer-in-charge
- which worked to defer the hearing of Mejias Motion for Decision. No mention was made by Francisco of the
tax sale in the motion for postponement. Only after the redemption period had expired did Francisco decide to
reveal what had transpired by filing a Manifestation stating that the properties subject of the mortgage in favor
of Gutierrez had been sold at a tax delinquency sale; however, Francisco failed to mention that it was
Merryland that acquired the properties since she was probably afraid that if she did so the court would see
behind her fraudulent scheme. In this regard, it is also significant to note that it was Francisco herself who filed
the petitions for consolidation of title and who helped secure for Merryland titles over the subject properties free
from any encumbrance or third-party claim whatsoever.
It is exceedingly apparent to the Court that the totality of Francisos actions clearly betray an intention to
conceal the tax delinquencies, levy and public auction of the subject properties from the estate of Gutierrez
and the trial court in Civil Case No. Q-12366 until after the expiration of the redemption period when the
remotest possibility for the recovery of the properties would be extinguished. [28]Consequently, Francisco had
effectively deprived the estate of Gutierrez of its rights as mortgagee over the three parcels of land which were
sold to Cardale. If Francisco was acting in good faith, then she should have disclosed the status of the
mortgaged properties to the trial court in Civil Case No. Q-12366 - especially after Mejia had filed a Motion for
Decision, in response to which she filed a motion for postponement wherein she could easily have mentioned
the tax sale - since this action directly affected such properties which were the subject of both the sale and
mortgage.
That Merryland acquired the property at the public auction only serves to shed more light upon Franciscos
fraudulent purposes. Based on the findings of the Court of Appeals, Francisco is the controlling stockholder
and President of Merryland.[29] Thus, aside from the instrumental role she played as an officer of Cardale, in
evading that corporations legitimate obligations to Gutierrez, it appears that Franciscos actions were also
oriented towards securing advantages for another corporation in which she had a substantial interest. We
cannot agree, however, with the Court of Appeals decision to hold Merryland solidarily liable with Francisco.
The only act imputable to Merryland in relation to the mortgaged properties is that it purchased the same and
this by itself is not a fraudulent or wrongful act. No evidence has been adduced to establish that Merryland was
a mere alter ego or business conduit of Francisco. Time and again it has been reiterated that mere ownership
by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate corporate personality. [30] Neither has it been alleged or
proven that Merryland is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of Cardale.[31] Even assuming that the businesses of Cardale and
Merryland are interrelated, this alone is not justification for disregarding their separate personalities, absent
any showing that Merryland was purposely used as a shield to defraud creditors and third persons of their
rights.[32] Thus, Merrylands separate juridical personality must be upheld.
Based on a statement of account submitted by Mejia, the Court of Appeals awarded P4,314,271.43 in
favor of the estate of Gutierrez which represents the unpaid balance of the purchase price in the amount of
P629,000.00 with an interest rate of nine percent (9%) per annum, in accordance with the agreement of the
parties under the Deed of Sale with Mortgage,[33] as of December 1988.[34] Therefore, in addition to the amount
awarded by the appellate court, Francisco should pay the estate of Gutierrez interest on the unpaid balance of
the purchase price (in the amount of P629,000.00) at the rate of nine percent (9%) per annum computed from
January, 1989 until fully satisfied.
Finally, contrary to petitioners assertions, we agree with the Court of Appeals that the decision of the trial
court in Civil Case No. Q-12366 does not constitute res judicata insofar as the present case is concerned
because the decision in the first case was not a judgment on the merits. Rather, it was merely based upon the
premise that since Cardale had been dissolved and the property acquired by another corporation, the action for
rescission would not prosper. As a matter of fact, it was even expressly stated by the trial court that the parties
should ventilate their issues in another action.
WHEREFORE, the 13 April 1999 Decision of the Court of Appeals is hereby accordingly MODIFIED so as
to hold ADALIA FRANCISCO solely liable to the estate of Gutierrez for the amount of P4,314,271.43 and for
interest on the unpaid balance of the purchase price (in the amount of P629,000.00) at the rate of nine percent
(9%) per annum computed from January, 1989 until fully satisfied.MERRYLAND is hereby absolved from all
liability.
SO ORDERED.