SECOND DIVISION

[G.R. No. 117963. February 11, 1999]

AZCOR MANUFACTURING INC., FILIPINAS PASO and/or ARTURO ZULUAGA/Owner, petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC) AND CANDIDO CAPULSO, respondents.
DECISION
BELLOSILLO, J.:

AZCOR MANUFACTURING, INC., Filipinas Paso and Arturo Zuluaga instituted this petition for certiorari
under Rule 65 of the Rules of Court to assail, for having been rendered with grave abuse of discretion
amounting to lack or excess of jurisdiction, the Decision of the National Labor Relations Commission which
reversed the decision of the Labor Arbiter dismissing the complaint of respondent Candido Capulso against
petitioners.[1]

Candido Capulso filed with the Labor Arbiter a complaint for constructive illegal dismissal and illegal
deduction of P50.00 per day for the period April to September 1989. Petitioners Azcor Manufacturing, Inc.
(AZCOR) and Arturo Zuluaga who were respondents before the Labor Arbiter (Filipinas Paso was not yet a
party then in that case) moved to dismiss the complaint on the ground that there was no employer-
employee relationship between AZCOR and herein respondent Capulso; that the latter became an
employee of Filipinas Paso effective 1 March 1990 but voluntarily resigned therefrom a year after. Capulso
later amended his complaint by impleading Filipinas Paso as additional respondent before the Labor
Arbiter.

On 14 January 1992, Labor Arbiter Felipe T. Garduque II denied the motion to dismiss holding that the
allegation of lack of employer-employee relationship between Capulso and AZCOR was not clearly
established. Thereafter, the Labor Arbiter ordered that hearings be conducted for the presentation of
evidence by both parties.

The evidence presented by Capulso showed that he worked for AZCOR as ceramics worker for more than
two (2) years starting from 3 April 1989 to 1 June 1991 receiving a daily wage of P118.00 plus other
benefits such as vacation and sick leaves. From April to September 1989 the amount of P50.00 was
deducted from his salary without informing him of the reason therefor.

In the second week of February 1991, upon his doctors recommendation, Capulso verbally requested to go
on sick leave due to bronchial asthma. It appeared that his illness was directly caused by his job as
ceramics worker where, for lack of the prescribed occupational safety gadgets, he inhaled and absorbed
harmful ceramic dusts. His supervisor, Ms. Emily Apolinaria, approved his request. Later, on 1 June 1991,
Capulso went back to petitioner AZCOR to resume his work after recuperating from his illness. He was not
allowed to do so by his supervisors who informed him that only the owner, Arturo Zuluaga, could allow him
to continue in his job. He returned five (5) times to AZCOR but when it became apparent that he would not
be reinstated, he immediately filed the instant complaint for illegal dismissal.[2]

Capulso presented the following documentary evidence in support of his claim: (a) His affidavit and
testimony to prove that he was terminated without just cause and without due process;[3] (b) Identification
card issued by AZCOR which he continued to use even after his supposed employment by Filipinas
Paso;[4] (c) Certification of SSS premium payments;[5] (d) SSS Member Assistance Form wherein he
stated that he worked with AZCOR from March 1989 to April 1991;[6] (e) Certification of Employee
Contribution with SSS;[7] and, (f) Payslips issued by AZCOR.[8]

On the other hand, petitioners alleged that Capulso was a former employee of AZCOR who resigned on 28
February 1990 as evidenced by a letter of resignation and joined Filipinas Paso on 1 March 1990 as shown
by a contract of employment; in February 1991 Capulso allegedly informed his supervisor, Ms. Emilia
Apolinaria, that he intended to go on terminal leave because he was not feeling well; on 1 March 1991 he
submitted a letter of resignation addressed to the President of Filipinas Paso, Manuel Montilla; and, in the
early part of June 1991 Capulso tried to apply for work again with Filipinas Paso but there was no vacancy.

Petitioners submitted the following documentary evidence: (a) Sworn Statement of Ms. Emilia Apolinaria
and her actual testimony to prove that respondent indeed resigned voluntarily from AZCOR to transfer to
Filipinas Paso, and thereafter, from Filipinas Paso due to failing health;[9] (b) Contract of Employment
between Filipinas Paso and respondent which took effect 1 March 1991;[10] (c) Letter of resignation of
respondent from AZCOR dated 28 February 1990, to take effect on the same date;[11] (d) Undated letter of
resignation of respondent addressed to Filipinas Paso to take effect 1 March 1991;[12] (e) BIR Form No.
W-4 filed 6 June 1990;[13] (f) Individual Income Tax Return of respondent for 1990;[14] and, (g) BIR Form
1701-B which was an alphabetical list of employees of Filipinas Paso for the year ending 31 December
1990.[15]

On 29 December 1992 the Labor Arbiter rendered a decision dismissing the complaint for illegal dismissal
for lack of merit, but ordered AZCOR and/or Arturo Zuluaga to refund to Capulso the sum of P200.00
representing the amount illegally deducted from his salary.

On appeal by Capulso, docketed as NLRC CA No. 004476-93 (NLRC NCR 00-09-05271-91), "Capulso v.
Azcor Manufacturing Inc., Filipinas Paso and/or Arturo Zuluaga/owner," the NLRC modified the Labor
Arbiters decision by: (a) declaring the dismissal of Capulso as illegal for lack of just and valid cause; (b)
ordering petitioners to reinstate Capulso to his former or equivalent position without loss of seniority rights
and without diminution of benefits; and, (c) ordering petitioners to jointly and solidarily pay Capulso his back
wages computed from the time of his dismissal up to the date of his actual reinstatement. The NLRC held in
part -

x x x x the contract of employment (Exh. 2, p. 187, Rollo) issued to complainant indicates that the work to
be done during the period was contracted with Filipinas Paso. The said contract was signed by the
Personnel Officer of Ascor Manufacturing Inc. Likewise, the contract period is for six (6) months, which
establishes a presumption that the said contract could pass either as to cover the probationary period, or
job contracting, the completion of which automatically terminates employment, whichever will work to
respondents advantage should the case be filed. However, appellant continued working with respondent
after the lapse of the contract and until the alleged termination of employment of appellant.

Secondly, the two resignation letters allegedly executed by appellant are exactly worded, which only shows
that the same were prepared by respondents-appellees plus after the fact that complainant denied having
executed and signed the same.

x x x x the letter of resignation (Exh. 3, p. 188, Rollo) supposed to have been executed by complainant-
appellant shows that he resigned from Ascor Mfg., Inc. on February 28, 1990 while Exhibit 2, page 187,
Rollo, which was the contract of Employment issued to Candido Capulso by the personnel officer of Ascor
Mfg., Inc. shows that appellant was being hired from March 1, 1990 to August 31, 1990 by respondent
Ascor Mfg., Inc. to do jobs for Filipinas Paso. A run-around of events and dates.

The events that transpired clearly show that there was no interruption in the service of complainant with
Ascor Mfg., Inc. from April 13 1989 up to June 1, 1991 when complainant was unceremoniously dismissed.

Considering that Ascor Mfg., Inc. and Filipinas Paso orchestrated the events that appeared to be in order
with the alleged execution of resignation letters which was disputed by complainant and confirmed spurious
as explained above, likewise overwhelmingly show the bad faith of respondents in the treatment of their
employees.

Petitioners motion for reconsideration was denied by the NLRC through its Resolution of 14 October 1994;
hence, the instant petition. Meanwhile, during the pendency of the case before this Court, Capulso
succumbed to asthma and heart disease.

The issue to be resolved is whether the NLRC committed grave abuse of discretion in declaring that private
respondent Capulso was illegally dismissed and in holding petitioners jointly and solidarily liable to Capulso
for back wages.

As a rule, the original and exclusive jurisdiction to review a decision or resolution of respondent NLRC in a
petition for certiorari under Rule 65 of the Rules of Court does not include a correction of its evaluation of
the evidence but is confined to issues of jurisdiction or grave abuse of discretion. The NLRCs factual
findings, if supported by substantial evidence, are entitled to great respect and even finality, unless
petitioner is able to show that it simply and arbitrarily disregarded the evidence before it or had
misappreciated the evidence to such an extent as to compel a contrary conclusion if such evidence had
been properly appreciated.[16] We find no cogent reason to disturb the findings of the NLRC.

Petitioners insist that Capulso was not really dismissed but he voluntarily resigned from AZCOR and
Filipinas Paso, and that there was nothing illegal or unusual in the letters of resignation he executed.

We disagree. To constitute a resignation, it must be unconditional and with the intent to operate as such.
There must be an intention to relinquish a portion of the term of office accompanied by an act of
relinquishment.[17] In the instant case, the fact that Capulso signified his desire to resume his work when
he went back to petitioner AZCOR after recuperating from his illness, and actively pursued his case for
illegal dismissal before the labor courts when he was refused admission by his employer, negated any
intention on his part to relinquish his job at AZCOR.

Moreover, a closer look at the subject resignation letters readily reveals the following: (a) the resignation
letter allegedly tendered by Capulso to Filipinas Paso was identically worded with that supposedly
addressed by him to AZCOR; (b) both were pre-drafted with blank spaces filled up with the purported dates
of effectivity of his resignation; and, (c) it was written in English, a language which Capulso was not
conversant with considering his low level of education. No other plausible explanation can be drawn from
these circumstances than that the subject letters of resignation were prepared by a person or persons other
than Capulso. And the fact that he categorically disowned the signatures therein and denied having
executed them clearly indicates that the resignation letters were drafted without his consent and
participation.

Even assuming for the sake of argument that the signatures were genuine, we still cannot give credence to
those letters in the absence of any showing that Capulso was aware that what he was signing then were in
fact resignation letters or that he fully understood the contents thereof. Having introduced those resignation
letters in evidence, it was incumbent upon petitioners to prove clearly and convincingly their genuineness
and due execution, especially considering the serious doubts on their authenticity. Petitioners miserably
failed in this respect.

The Labor Arbiter held that Capulsos repudiation of the signatures affixed in the letters of resignation was
weakened by the fact that he filed the case only after almost four (4) months from the date of his dismissal.
But it should be noted that private respondent still wanted his job and thus, understandably, refrained from
filing the illegal dismissal case against his employer so as not to jeopardize his chances of continuing with
his employment. True enough, when it became apparent that he was no longer welcome at AZCOR he
immediately instituted the instant case.

In addition, an action for reinstatement by reason of illegal dismissal is one based on an injury which may
be brought within four (4) years from the time of dismissal pursuant to Art. 1146 of the Civil Code. Hence,
Capulsos case which was filed after a measly delay of four (4) months should not be treated with
skepticism or cynicism. By law and settled jurisprudence, he has four (4) years to file his complaint for
illegal dismissal. A delay of merely four (4) months in instituting an illegal dismissal case is more than
sufficient compliance with the prescriptive period. It may betray an unlettered mans lack of awareness of his
rights as a lowly worker but, certainly, he must not be penalized for his tarrying.

In illegal dismissal cases like the present one, the onus of proving that the dismissal of the employee was
for a valid and authorized cause rests on the employer[18] and failure to discharge the same would mean
that the dismissal is not justified and therefore illegal.[19] Petitioners failed in this regard.

Petitioners also contend that they could not be held jointly and severally liable to Capulso for back wages
since AZCOR and Filipinas Paso are separate and distinct corporations with different corporate
personalities; and, the mere fact that the businesses of these corporations are interrelated and both owned
and controlled by a single stockholder are not sufficient grounds to disregard their separate corporate
entities.

We are not persuaded. The doctrine that a corporation is a legal entity or a person in law distinct from the
persons composing it is merely a legal fiction for purposes of convenience and to subserve the ends of
justice. This fiction cannot be extended to a point beyond its reason and policy.[20] Where, as in this case,
the corporate fiction was used as a means to perpetrate a social injustice or as a vehicle to evade
obligations or confuse the legitimate issues, it would be discarded and the two (2) corporations would be
merged as one, the first being merely considered as the instrumentality, agency, conduit or adjunct of the
other.[21]

In this particular case, there was much confusion as to the identity of Capulsos employer - whether it was
AZCOR or Filipinas Paso; but, for sure, it was petitioners' own making, as shown by the following: First,
Capulso had no knowledge that he was already working under petitioner Filipinas Paso since he continued
to retain his AZCOR Identification card; Second, his payslips contained the name of AZCOR giving the
impression that AZCOR was paying his salary; Third, he was paid the same salary and he performed the
same kind of job, in the same work area, in the same location, using the same tools and under the same
supervisor; Fourth, there was no gap in his employment as he continued to work from the time he was hired
up to the last day of his work; Fifth, the casting department of AZCOR where Capulso was working was
abolished when he, together with six (6) others, transferred to Filipinas Paso; and Sixth, the employment
contract was signed by an AZCOR personnel officer, which showed that Capulso was being hired from 1
March 1990 to 31 August 1990 by AZCOR to do jobs for Filipinas Paso. The employment contract provided
in part:
The contract is for a specific job contract only and shall be effective for the period covered, unless sooner
terminated when the job contract is completed earlier or withdrawn by client, or when the employee is
dismissed for just and lawful causes provided by law and the companys rules and regulations, in which
case the employment contract will automatically terminate.

As correctly observed by the NLRC, the contract was only for six (6) months, which could pass either as a
probationary period or a job contracting, the completion of which automatically terminated the employment.
Observe further, however, that respondent continued working even after the lapse of the period in the
contract - for whom it was not clear. It may be asked: Was the six (6)-month period probationary in nature,
in which case, after the lapse of the period he became a regular employee of Filipinas Paso? Or was the
period job-contracting in character, in which case, after the period he was deemed to have come back to
AZCOR?

Interestingly, petitioners likewise argue that it was grave abuse of discretion for the NLRC to hold them
solidarily liable to Capulso when the latter himself testified that he was not even an employee of Filipinas
Paso.[22] After causing much confusion, petitioners have the temerity to use as evidence the ignorance of
Capulso in identifying his true employer. It is evident from the foregoing discussion that Capulso was led
into believing that while he was working with Filipinas Paso, his real employer was AZCOR. Petitioners
never dealt with him openly and in good faith, nor was he informed of the developments within the
company, i.e., his alleged transfer to Filipinas Paso and the closure of AZCORs manufacturing operations
beginning 1 March 1990.[23] Understandably, he sued AZCOR alone and was constrained to implead
Filipinas Paso as additional respondent only when it became apparent that the latter also appeared to be
his employer.

In fine, we see in the totality of the evidence a veiled attempt by petitioners to deprive Capulso of what he
had earned through hard labor by taking advantage of his low level of education and confusing him as to
who really was his true employer - such a callous and despicable treatment of a worker who had rendered
faithful service to their company.

However, considering that private respondent died during the pendency of the case before this Court,
reinstatement is no longer feasible. In lieu thereof, separation pay shall be awarded. With respect to the
amount of back wages, it shall be computed from the time of private respondents illegal dismissal up to the
time of his death.

WHEREFORE, the petition is DISMISSED. The NLRC Decision of 12 September 1994 is MODIFIED.
Petitioners AZCOR MANUFACTURING, INC., FILIPINAS PASO and ARTURO ZULUAGA are ORDERED
to pay, jointly and solidarily, the heirs of private respondent Candido Capulso the amounts representing his
back wages, inclusive of allowances and other benefits, and separation pay to be computed in accordance
with law.

SO ORDERED.
[G.R. No. 142936. April 17, 2002]

PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION, petitioners,

vs. ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent.
DECISION
PANGANIBAN, J.:

Basic is the rule that a corporation has a legal personality distinct and separate from the persons and
entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime,
justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact
that the Philippine National Bank (PNB) acquired ownership or management of some assets of the
Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting public
auction by the Development Bank of the Philippines (DBP), will not make PNB liable for the PASUMILs
contractual debts to respondent.

Statement of the Case

Before us is a Petition for Review assailing the April 17, 2000 Decision[1] of the Court of Appeals (CA) in
CA-GR CV No. 57610. The decretal portion of the challenged Decision reads as follows:

WHEREFORE, the judgment appealed from is hereby AFFIRMED.[2]

The Facts

The factual antecedents of the case are summarized by the Court of Appeals as follows:

In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly organized, existing, and
operating under the laws of the Philippines, with office and principal place of business at Nos. 794-812 Del
Monte [A]venue, Quezon City, while the defendant [herein petitioner] Philippine National Bank (herein
referred to as PNB), is a semi-government corporation duly organized, existing and operating under the
laws of the Philippines, with office and principal place of business at Escolta Street, Sta. Cruz, Manila;
whereas, the other defendant, the National Sugar Development Corporation (NASUDECO in brief), is also
a semi-government corporation and the sugar arm of the PNB, with office and principal place of business at
the 2nd Floor, Sampaguita Building, Cubao, Quezon City; and the defendant Pampanga Sugar Mills
(PASUMIL in short), is a corporation organized, existing and operating under the 1975 laws of the
Philippines, and had its business office before 1975 at Del Carmen, Floridablanca, Pampanga; that the
plaintiff is engaged in the business of general construction for the repairs and/or construction of different
kinds of machineries and buildings; that on August 26, 1975, the defendant PNB acquired the assets of the
defendant PASUMIL that were earlier foreclosed by the Development Bank of the Philippines (DBP) under
LOI No. 311; that the defendant PNB organized the defendant NASUDECO in September, 1975, to take
ownership and possession of the assets and ultimately to nationalize and consolidate its interest in other
PNB controlled sugar mills; that prior to October 29, 1971, the defendant PASUMIL engaged the services of
plaintiff for electrical rewinding and repair, most of which were partially paid by the defendant PASUMIL,
leaving several unpaid accounts with the plaintiff; that finally, on October 29, 1971, the plaintiff and the
defendant PASUMIL entered into a contract for the plaintiff to perform the following, to wit

(a) Construction of one (1) power house building;

(b) Construction of three (3) reinforced concrete foundation for three (3) units 350 KW diesel engine
generating set[s];

(c) Construction of three (3) reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator
sets;

(d) Complete overhauling and reconditioning tests sum for three (3) 350 KW diesel engine generating
set[s];

(e) Installation of turbine and diesel generating sets including transformer, switchboard, electrical wirings
and pipe provided those stated units are completely supplied with their accessories;

(f) Relocating of 2,400 V transmission line, demolition of all existing concrete foundation and drainage
canals, excavation, and earth fillings all for the total amount of P543,500.00 as evidenced by a contract, [a]
xerox copy of which is hereto attached as Annex A and made an integral part of this complaint;
that aside from the work contract mentioned-above, the defendant PASUMIL required the plaintiff to
perform extra work, and provide electrical equipment and spare parts, such as:

(a) Supply of electrical devices;

(b) Extra mechanical works;

(c) Extra fabrication works;

(d) Supply of materials and consumable items;

(e) Electrical shop repair;

(f) Supply of parts and related works for turbine generator;

(g) Supply of electrical equipment for machinery;

(h) Supply of diesel engine parts and other related works including fabrication of parts.

that out of the total obligation of P777,263.80, the defendant PASUMIL had paid only P250,000.00, leaving
an unpaid balance, as of June 27, 1973, amounting to P527,263.80, as shown in the Certification of the
chief accountant of the PNB, a machine copy of which is appended as Annex C of the complaint; that out of
said unpaid balance of P527,263.80, the defendant PASUMIL made a partial payment to the plaintiff of
P14,000.00, in broken amounts, covering the period from January 5, 1974 up to May 23, 1974, leaving an
unpaid balance of P513,263.80; that the defendant PASUMIL and the defendant PNB, and now the
defendant NASUDECO, failed and refused to pay the plaintiff their just, valid and demandable obligation;
that the President of the NASUDECO is also the Vice-President of the PNB, and this official holds office at
the 10th Floor of the PNB, Escolta, Manila, and plaintiff besought this official to pay the outstanding
obligation of the defendant PASUMIL, inasmuch as the defendant PNB and NASUDECO now owned and
possessed the assets of the defendant PASUMIL, and these defendants all benefited from the works, and
the electrical, as well as the engineering and repairs, performed by the plaintiff; that because of the failure
and refusal of the defendants to pay their just, valid, and demandable obligations, plaintiff suffered actual
damages in the total amount of P513,263.80; and that in order to recover these sums, the plaintiff was
compelled to engage the professional services of counsel, to whom the plaintiff agreed to pay a sum
equivalent to 25% of the amount of the obligation due by way of attorneys fees. Accordingly, the plaintiff
prayed that judgment be rendered against the defendants PNB, NASUDECO, and PASUMIL, jointly and
severally to wit:

(1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with annual interest of 14%
from the time the obligation falls due and demandable;

(2) Condemning the defendants to pay attorneys fees amounting to 25% of the amount claim;

(3) Ordering the defendants to pay the costs of the suit.

The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint chiefly on the ground
that the complaint failed to state sufficient allegations to establish a cause of action against both
defendants, inasmuch as there is lack or want of privity of contract between the plaintiff and the two
defendants, the PNB and NASUDECO, said defendants citing Article 1311 of the New Civil Code, and the
case law ruling in Salonga v. Warner Barnes & Co., 88 Phil. 125; and Manila Port Service, et al. v. Court of
Appeals, et al., 20 SCRA 1214.

The motion to dismiss was by the court a quo denied in its Order of November 27, 1980; in the same order,
that court directed the defendants to file their answer to the complaint within 15 days.

In their answer, the defendant NASUDECO reiterated the grounds of its motion to dismiss, to wit:

That the complaint does not state a sufficient cause of action against the defendant NASUDECO because:
(a) NASUDECO is not x x x privy to the various electrical construction jobs being sued upon by the plaintiff
under the present complaint; (b) the taking over by NASUDECO of the assets of defendant PASUMIL was
solely for the purpose of reconditioning the sugar central of defendant PASUMIL pursuant to martial law
powers of the President under the Constitution; (c) nothing in the LOI No. 189-A (as well as in LOI No. 311)
authorized or commanded the PNB or its subsidiary corporation, the NASUDECO, to assume the corporate
obligations of PASUMIL as that being involved in the present case; and, (d) all that was mentioned by the
said letter of instruction insofar as the PASUMIL liabilities [were] concerned [was] for the PNB, or its
subsidiary corporation the NASUDECO, to make a study of, and submit [a] recommendation on the
problems concerning the same.

By way of counterclaim, the NASUDECO averred that by reason of the filing by the plaintiff of the present
suit, which it [labeled] as unfounded or baseless, the defendant NASUDECO was constrained to litigate and
incur litigation expenses in the amount of P50,000.00, which plaintiff should be sentenced to pay.
Accordingly, NASUDECO prayed that the complaint be dismissed and on its counterclaim, that the plaintiff
be condemned to pay P50,000.00 in concept of attorneys fees as well as exemplary damages.

In its answer, the defendant PNB likewise reiterated the grounds of its motion to dismiss, namely: (1) the
complaint states no cause of action against the defendant PNB; (2) that PNB is not a party to the contract
alleged in par. 6 of the complaint and that the alleged services rendered by the plaintiff to the defendant
PASUMIL upon which plaintiffs suit is erected, was rendered long before PNB took possession of the
assets of the defendant PASUMIL under LOI No. 189-A; (3) that the PNB take-over of the assets of the
defendant PASUMIL under LOI 189-A was solely for the purpose of reconditioning the sugar central so that
PASUMIL may resume its operations in time for the 1974-75 milling season, and that nothing in the said
LOI No. 189-A, as well as in LOI No. 311, authorized or directed PNB to assume the corporate obligation/s
of PASUMIL, let alone that for which the present action is brought; (4) that PNBs management and
operation under LOI No. 311 did not refer to any asset of PASUMIL which the PNB had to acquire and
thereafter [manage], but only to those which were foreclosed by the DBP and were in turn redeemed by the
PNB from the DBP; (5) that conformably to LOI No. 311, on August 15, 1975, the PNB and the
Development Bank of the Philippines (DBP) entered into a Redemption Agreement whereby DBP sold,
transferred and conveyed in favor of the PNB, by way of redemption, all its (DBP) rights and interest in and
over the foreclosed real and/or personal properties of PASUMIL, as shown in Annex C which is made an
integral part of the answer; (6) that again, conformably with LOI No. 311, PNB pursuant to a Deed of
Assignment dated October 21, 1975, conveyed, transferred, and assigned for valuable consideration, in
favor of NASUDECO, a distinct and independent corporation, all its (PNB) rights and interest in and under
the above Redemption Agreement. This is shown in Annex D which is also made an integral part of the
answer; [7] that as a consequence of the said Deed of Assignment, PNB on October 21, 1975 ceased to
managed and operate the above-mentioned assets of PASUMIL, which function was now actually
transferred to NASUDECO. In other words, so asserted PNB, the complaint as to PNB, had become moot
and academic because of the execution of the said Deed of Assignment; [8] that moreover, LOI No. 311 did
not authorize or direct PNB to assume the corporate obligations of PASUMIL, including the alleged
obligation upon which this present suit was brought; and [9] that, at most, what was granted to PNB in this
respect was the authority to make a study of and submit recommendation on the problems concerning the
claims of PASUMIL creditors, under sub-par. 5 LOI No. 311.

In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate and to incur expenses
in this case, hence it is entitled to claim attorneys fees in the amount of at least P50,000.00. Accordingly,
PNB prayed that the complaint be dismissed; and that on its counterclaim, that the plaintiff be sentenced to
pay defendant PNB the sum of P50,000.00 as attorneys fees, aside from exemplary damages in such
amount that the court may seem just and equitable in the premises.

Summons by publication was made via the Philippines Daily Express, a newspaper with editorial office at
371 Bonifacio Drive, Port Area, Manila, against the defendant PASUMIL, which was thereafter declared in
default as shown in the August 7, 1981 Order issued by the Trial Court.

After due proceedings, the Trial Court rendered judgment, the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant Corporation,
Philippine National Bank (PNB) NATIONAL SUGAR DEVELOPMENT CORPORATION (NASUDECO) and
PAMPANGA SUGAR MILLS (PASUMIL), ordering the latter to pay jointly and severally the former the
following:

1. The sum of P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from September
25, 1980 until fully paid;

2. The sum of P102,724.76 as attorneys fees; and,

3. Costs.

SO ORDERED.

Manila, Philippines, September 4, 1986.

'(SGD) ERNESTO S. TENGCO
Judge[3]

Ruling of the Court of Appeals

Affirming the trial court, the CA held that it was offensive to the basic tenets of justice and equity for a
corporation to take over and operate the business of another corporation, while disavowing or repudiating
any responsibility, obligation or liability arising therefrom.[4]

Hence, this Petition.[5]

Issues

In their Memorandum, petitioners raise the following errors for the Courts consideration:

The Court of Appeals gravely erred in law in holding the herein petitioners liable for the unpaid corporate
debts of PASUMIL, a corporation whose corporate existence has not been legally extinguished or
terminated, simply because of petitioners[] take-over of the management and operation of PASUMIL
pursuant to the mandates of LOI No. 189-A, as amended by LOI No. 311.

II

The Court of Appeals gravely erred in law in not applying [to] the case at bench the ruling enunciated in
Edward J. Nell Co. v. Pacific Farms, 15 SCRA 415.[6]

Succinctly put, the aforesaid errors boil down to the principal issue of whether PNB is liable for the unpaid
debts of PASUMIL to respondent.

This Courts Ruling

The Petition is meritorious.

Main Issue:
Liability for Corporate Debts

As a general rule, questions of fact may not be raised in a petition for review under Rule 45 of the Rules of
Court.[7] To this rule, however, there are some exceptions enumerated in Fuentes v. Court of Appeals.[8]
After a careful scrutiny of the records and the pleadings submitted by the parties, we find that the lower
courts misappreciated the evidence presented.[9] Overlooked by the CA were certain relevant facts that
would justify a conclusion different from that reached in the assailed Decision.[10]

Petitioners posit that they should not be held liable for the corporate debts of PASUMIL, because their
takeover of the latters foreclosed assets did not make them assignees. On the other hand, respondent
asserts that petitioners and PASUMIL should be treated as one entity and, as such, jointly and severally
held liable for PASUMILs unpaid obligation.

As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling
corporation, provided the former acted in good faith and paid adequate consideration for such assets,
except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly
agrees to assume the debts, (2) where the transaction amounts to a consolidation or merger of the
corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation, and
(4) where the transaction is fraudulently entered into in order to escape liability for those debts.[11]

Piercing the Corporate

Veil Not Warranted

A corporation is an artificial being created by operation of law. It possesses the right of succession and
such powers, attributes, and properties expressly authorized by law or incident to its existence.[12] It has a
personality separate and distinct from the persons composing it, as well as from any other legal entity to
which it may be related.[13] This is basic.

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced
when the corporation is just an alter ego of a person or of another corporation.[14] For reasons of public
policy and in the interest of justice, the corporate veil will justifiably be impaled[15] only when it becomes a
shield for fraud, illegality or inequity committed against third persons.[16]

Hence, any application of the doctrine of piercing the corporate veil should be done with caution.[17] A
court should be mindful of the milieu where it is to be applied.[18] It must be certain that the corporate
fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in
disregard of its rights.[19] The wrongdoing must be clearly and convincingly established; it cannot be
presumed.[20] Otherwise, an injustice that was never unintended may result from an erroneous
application.[21]

This Court has pierced the corporate veil to ward off a judgment credit,[22] to avoid inclusion of corporate
assets as part of the estate of the decedent,[23] to escape liability arising from a debt,[24] or to perpetuate
fraud and/or confuse legitimate issues[25] either to promote or to shield unfair objectives[26] or to cover up
an otherwise blatant violation of the prohibition against forum-shopping.[27] Only in these and similar
instances may the veil be pierced and disregarded.[28]

The question of whether a corporation is a mere alter ego is one of fact.[29] Piercing the veil of corporate
fiction may be allowed only if the following elements concur: (1) control -- not mere stock control, but
complete domination -- not only of finances, but of policy and business practice in respect to the transaction
attacked, must have been such that the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own; (2) such control must have been used by the defendant to commit a fraud
or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an
unjust act in contravention of plaintiffs legal right; and (3) the said control and breach of duty must have
proximately caused the injury or unjust loss complained of.[30]

We believe that the absence of the foregoing elements in the present case precludes the piercing of the
corporate veil. First, other than the fact that petitioners acquired the assets of PASUMIL, there is no
showing that their control over it warrants the disregard of corporate personalities.[31] Second, there is no
evidence that their juridical personality was used to commit a fraud or to do a wrong; or that the separate
corporate entity was farcically used as a mere alter ego, business conduit or instrumentality of another
entity or person.[32] Third, respondent was not defrauded or injured when petitioners acquired the assets of
PASUMIL.[33]

Being the party that asked for the piercing of the corporate veil, respondent had the burden of presenting
clear and convincing evidence to justify the setting aside of the separate corporate personality rule.[34]
However, it utterly failed to discharge this burden;[35] it failed to establish by competent evidence that
petitioners separate corporate veil had been used to conceal fraud, illegality or inequity.[36]

While we agree with respondents claim that the assets of the National Sugar Development Corporation
(NASUDECO) can be easily traced to PASUMIL,[37] we are not convinced that the transfer of the latters
assets to petitioners was fraudulently entered into in order to escape liability for its debt to respondent.[38]

A careful review of the records reveals that DBP foreclosed the mortgage executed by PASUMIL and
acquired the assets as the highest bidder at the public auction conducted.[39] The bank was justified in
foreclosing the mortgage, because the PASUMIL account had incurred arrearages of more than 20 percent
of the total outstanding obligation.[40] Thus, DBP had not only a right, but also a duty under the law to
foreclose the subject properties.[41]

Pursuant to LOI No. 189-A[42] as amended by LOI No. 311,[43] PNB acquired PASUMILs assets that DBP
had foreclosed and purchased in the normal course. Petitioner bank was likewise tasked to manage
temporarily the operation of such assets either by itself or through a subsidiary corporation.[44]

PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets pursuant to Section
6 of Act No. 3135.[45] These assets were later conveyed to PNB for a consideration, the terms of which
were embodied in the Redemption Agreement.[46] PNB, as successor-in-interest, stepped into the shoes of
DBP as PASUMILs creditor.[47] By way of a Deed of Assignment,[48] PNB then transferred to NASUDECO
all its rights under the Redemption Agreement.

In Development Bank of the Philippines v. Court of Appeals,[49] we had the occasion to resolve a similar
issue. We ruled that PNB, DBP and their transferees were not liable for Marinduque Minings unpaid
obligations to Remington Industrial Sales Corporation (Remington) after the two banks had foreclosed the
assets of Marinduque Mining. We likewise held that Remington failed to discharge its burden of proving bad
faith on the part of Marinduque Mining to justify the piercing of the corporate veil.
In the instant case, the CA erred in affirming the trial courts lifting of the corporate mask.[50] The CA did not
point to any fact evidencing bad faith on the part of PNB and its transferee.[51] The corporate fiction was
not used to defeat public convenience, justify a wrong, protect fraud or defend crime.[52] None of the
foregoing exceptions was shown to exist in the present case.[53] On the contrary, the lifting of the corporate
veil would result in manifest injustice. This we cannot allow.

No Merger or Consolidation

Respondent further claims that petitioners should be held liable for the unpaid obligations of PASUMIL by
virtue of LOI Nos. 189-A and 311, which expressly authorized PASUMIL and PNB to merge or consolidate.
On the other hand, petitioners contend that their takeover of the operations of PASUMIL did not involve any
corporate merger or consolidation, because the latter had never lost its separate identity as a corporation.

A consolidation is the union of two or more existing entities to form a new entity called the consolidated
corporation. A merger, on the other hand, is a union whereby one or more existing corporations are
absorbed by another corporation that survives and continues the combined business.[54]

The merger, however, does not become effective upon the mere agreement of the constituent
corporations.[55] Since a merger or consolidation involves fundamental changes in the corporation, as well
as in the rights of stockholders and creditors, there must be an express provision of law authorizing
them.[56] For a valid merger or consolidation, the approval by the Securities and Exchange Commission
(SEC) of the articles of merger or consolidation is required.[57] These articles must likewise be duly
approved by a majority of the respective stockholders of the constituent corporations.[58]

In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and PNB. The
procedure prescribed under Title IX of the Corporation Code[59] was not followed.

In fact, PASUMILs corporate existence, as correctly found by the CA, had not been legally extinguished or
terminated.[60] Further, prior to PNBs acquisition of the foreclosed assets, PASUMIL had previously made
partial payments to respondent for the formers obligation in the amount of P777,263.80. As of June 27,
1973, PASUMIL had paid P250,000 to respondent and, from January 5, 1974 to May 23, 1974, another
P14,000.

Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to respondent.[61] LOI
No. 11 explicitly provides that PNB shall study and submit recommendations on the claims of PASUMILs
creditors.[62] Clearly, the corporate separateness between PASUMIL and PNB remains, despite
respondents insistence to the contrary.[63]

WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE. No
pronouncement as to costs.

SO ORDERED.

Vitug, (Acting Chairman), Sandoval-Gutierrez, and Carpio, JJ., concur.

Melo, (Chairman), J., Abroad, on official leave.
G.R. No. L-30822 July 31, 1975

EDUARDO CLAPAROLS, ROMULO AGSAM and/or CLAPAROLS STEEL AND NAIL PLANT,
petitioners,
vs.
COURT OF INDUSTRIAL RELATIONS, ALLIED WORKERS' ASSOCIATION and/or DEMETRIO
GARLITOS, ALFREDO ONGSUCO, JORGE SEMILLANO, SALVADOR DOROTEO, ROSENDO
ESPINOSA, LUDOVICO BALOPENOS, ASER AMANCIO, MAXIMO QUIOYO, GAUDENCIO QUIOYO,
and IGNACIO QUIOYO, respondents.

Ruben G. Bala for petitioners.

Rolando N. Medalla for private respondents.
MAKASIAR, J.:

A petition for certiorari to set aside the order of respondent Court of Industrial Relations dated May 30, 1969
directing petitioners to pay back wages and bonuses to private respondents as well as its resolution of July
5, 1969 denying the motion for reconsideration of said order in Case No. 32-ULP-Iloilo entitled "Allied
Workers' Association, et. al., versus Eduardo Claparols, et. al.."

It appears that on August 6, 1957, a complaint for unfair labor practice was filed by herein private
respondent Allied Workers' Association, respondent Demetrio Garlitos and ten (10) respondent workers
against herein petitioners on account of the dismissal of respondent workers from petitioner Claparols Steel
and Nail Plant.

On September 16, 1963, respondent Court rendered its decision finding "Mr. Claparols guilty of union
busting and" of having "dismissed said complainants because of their union activities," and ordering
respondents "(1) To cease and desist from committing unfair labor practices against their employees and
laborers; (2) To reinstate said complainants to their former or equivalent jobs, as soon as possible, with
back wages from the date of their dismissal up to their actual reinstatement" (p. 12, Decision; p. 27, rec.).

A motion to reconsider the above decision was filed by herein petitioners, which respondent Court, sitting
en banc, denied in a resolution dated January 27, 1964.

On March 30, 1964, counsel for herein respondent workers (complainants in the ULP case) filed a motion
for execution of respondent Court's September 16, 1963 decision.

On May 14, 1964, respondent Court, in its order of September 16, 1963, granted execution and directed
herein petitioners

to reinstate the above complainants to their former or equivalent jobs within five (5) days after receipt of a
copy of this order. In order to implement the award of back wages, the Chief of the Examining Division or
any of his assistants is hereby directed to proceed to the office of the respondents at Matab-ang, Talisay,
Negros Occidental, and examine its payrolls and other pertinent records and compute the back wages of
the complainants in accordance with the decision dated September 16, 1963, and, upon termination, to
submit his report as soon as possible for further disposition (p. 7, Brief for Respondents, p. 113, rec.).

which was reiterated by respondent Court in a subsequent order dated November 10, 1964 (pp. 7-8, Brief
for Respondents, p. 113, rec.).

On December 14, 1964, respondent workers were accompanied by the Chief of Police of Talisay, Negros
Occidental to the compound of herein petitioner company to report for reinstatement per order of the court.
Respondent workers were, however, refused reinstatement by company accountant Francisco Cusi for he
had no order from plant owner Eduardo Claparols nor from his lawyer Atty. Plaridel Katalbas, to reinstate
respondent workers.

Again, on December 15, 1964, respondent workers were accompanied by a police officer to the company
compound, but then, they were again refused reinstatement by Cusi on the same ground.

On January 15, 1965, the CIR Chief Examiner Submitted his report containing three computations, to wit:

The first computation covers the period February 1, 1957 to October 31, 1964. The second is up to and
including December 7, 1962, when the corporation stopped operations, while the third is only up to June 30,
1957 when the Claparols Steel and Nail Plant ceased to operate (Annex B, Petition for Review on
Certiorari, p. 14, Brief for appellees, p. 113, rec.).
with the explanation that:

6. Since the records of the Claparols Steel Corporation show that it was established on July 1, 1957
succeeding the Claparols Steel and Nail Plant which ceased operations on June 30, 1957, and that the
Claparols Steel Corporation stopped operations on December 7, 1962, three (3) computations are
presented herein for the consideration of this Honorable Court (p. 2, Report of Examiner, p. 29, rec.).

On January 23, 1965, petitioners filed an opposition alleging that under the circumstances presently
engulfing the company, petitioner Claparols could not personally reinstate respondent workers; that
assuming the workers are entitled to back wages, the same should only be limited to three months pursuant
to the court ruling in the case of Sta. Cecilia Sawmills vs. CIR (L-19273-74, February 20, 1964); and that
since Claparols Steel Corporation ceased to operate on December 7, 1962, re-employment of respondent
workers cannot go beyond December 7, 1962.

A reply to petitioner's opposition was filed by respondent workers, alleging among others, that Claparols
Steel and Nail Plant and Claparols Steel and Nail Corporation are one and the same corporation controlled
by petitioner Claparols, with the latter corporation succeeding the former.

On November 28, 1966, after conducting a series of hearings on the report of the examiner, respondent
Court issued an order, the dispositive portion of which reads:

WHEREFORE, the Report of the. Examiner filed on January 15, 1965, is hereby approved subject to the
foregoing findings and dispositions. Consequently, the Corporation Auditing Examiner is directed to
recompute the back wages of complainants Demetrio Garlitos and Alfredo Ongsuco on the basis of
P200.00 and P270.00 a month, respectively; to compute those of complainant Ignacio Quioyo as aforesaid;
to compute the deductible earnings of complainants Ongsuco, Jorge Semillano and Garlitos, as found in
the body of this order; and to compute the bonuses of each and every complainant, except Honorato
Quioyo. Thereafter, as soon as possible, the Examiner should submit a report in compliance herewith of the
Court's further disposition (p. 24, Brief for Respondents, p. 113, rec.).

On December 7, 1966, a motion for reconsideration was filed by petitioner, assailing respondent Court's
ruling that (1) the ruling in the case of Sta. Cecilia Sawmills Inc. CIR, et. al, does not apply in the case at
bar; and (2) that bonus should be included in the recoverable wages.

On December 14, 1966, a counter-opposition was filed by private respondents alleging that petitioners'
motion for reconsideration was pro forma, it not making express reference to the testimony or documentary
evidence or to the provision of law alleged to be contrary to such findings or conclusions of respondent
Court.

On February 8, 1967, respondent Court of Industrial Relations dismissed petitioners' motion for
reconsideration for being pro forma.

Whereupon, petitioners filed a petition for certiorari with this COURT in G.R. No. L-27272 to set aside the
November 28, 1966 order of respondent Court, as well as its February 8, 1967 resolution. Petitioners
assigned therein as errors of law the very same assignment of errors it raises in the present case, to wit:

I. THE RESPONDENT COURT ERRED AND/OR ACTED WITH GRAVE ABUSE OF

DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN HOLDING IN THE ORDER
UNDER REVIEW THAT BONUSES SHOULD BE PAID TO THE RESPONDENT WORKERS
DESPITE THE FACT THAT THE SAME WAS NOT ADJUDICATED IN ITS ORIGINAL
DECISION.

II. THE RESPONDENT COURT ERRED AND/OR ACTED WITH GRAVE ABUSE OF
DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN NOT APPLYING THE
DOCTRINE LAID DOWN BY THIS HONORABLE TRIBUNAL IN THE CASE OF "STA. CECILIA
SAWMILLS, INC. VS. C.I.R., ET. AL.," G.R. No. L-19273-74, PROMULGATED ON FEBRUARY
29, 1964 (pp. 10-11, rec.).

On April 27, 1967, the Supreme Court denied petitioners' petition for certiorari (p. 77, rec. of L-27272),
which was reiterated on May 19, 1967 (p. 27, Respondent's Brief, p. 113, rec.; p. 81, rec. of L-27272).

On May 3, 1967, private respondents moved to have the workers' back wages properly recomputed. A
motion to the same end was reiterated by private respondents on June 14, 1967.
On July 13, 1967, respondent Court directed a recomputation of the back wages of respondent workers in
accordance with its order dated November 28, 1966. The said order in part reads:

WHEREFORE, the Chief Auditing Examiner of the Court or any of his assistants, is hereby directed to
recompute the back wages of the workers involved in this case in accordance with the Order of November
28, 1966 within 20 days from receipt of a copy of this Order (p. 28, Brief for Respondents, p. 113, rec.).

Then on March 21, 1968, the Chief Examiner came out with his report, the disputed portion of which
(regarding bonuses) reads:

xxx xxx xxx

4. The yearly bonuses of the employees and laborers of respondent corporation are given on the following
basis:

Basic Additional:

a. For every dependent 1% of monthly salary

b. For every dependent in elementary grade 2% of monthly salary
c. For every dependent in high school 3% of monthly salary
d. For every dependent in college 5% of monthly salary
xxx xxx xxx

7.The computed ... bonuses after deducting the earnings elsewhere of Messrs. Ongsuco, Garlitos and
Semillano are as follows:

Name x x x Bonuses x x x
1. Alfredo Ongsuco P1,620.00
2. Demetrio Garlitos 1,200.00
3. Ignacio Quioyo 455.23
4. Aser Abancio 461.00
5. Ludovico Belopeos 752.05
6. Salvador Doroteo 714.70
7. Rosendo Espinosa 1,075.40
8. Gaudencio Quioyo 1,167.92
9. Jorge Semillano 1,212.08
10. Maximo Quioyo 449.41
Total P9,107.79

(Pp. 30-31, Respondent's Brief, p. 113, rec.)

On April 16, 1968, petitioners filed their opposition to the report of the Examiner dated March 21, 1968 on
grounds already rejected by respondent Court in its order dated November 28, 1966, and by the Supreme
Court also in its ruling in G.R. No. L-27272.

On May 4, 1968, a rejoinder to petitioners' opposition was filed by private respondents, alleging among
others "that the grounds of petitioners' opposition were the same grounds raised by them before and
passed upon by respondent Court and this Honorable Tribunal; that this order of November 28, 1966 which
passed upon these issues became final and executory on June 3, 1967 from the Honorable Supreme
Court. (Order of respondent Court dated July 13, 1967). [p. 32, Brief for Respondents, p. 113, rec.].

On July 26, 1968, private respondents filed their motion for approval of the Report of the Examiner
submitted on March 21, 1968, alleging, among others, that petitioners, in their opposition, did not actually
dispute the data elicited by the Chief Examiner but rather harped on grounds which, as already stated, had
already been turned down by the Supreme Court.

On October 19, 1968, herein private respondents filed their "Constancia", submitting the case for resolution
of respondent Court of Industrial Relations.

On May 30, 1969, respondent Court issued an order, subject of the present appeal, the dispositive portion
of which reads:

WHEREFORE, there being no proof offered to substantiate respondent Eduardo Claparols' opposition, the
Examiner's Report should be, and it is hereby, APPROVED. Consequently, pursuant to the decision dated
September 16, 1963, respondent ... (petitioners herein) are hereby directed to pay the respective back
wages and bonuses of the complainants (respondents herein) ... (p. 35, Brief for Respondents; p. 113, rec.;
emphasis supplied).1wph1.t

On June 7, 1969, petitioners filed a motion for reconsideration on practically the same grounds previously
raised by them.

On June 30, 1969, respondents filed an opposition to petitioners' motion for reconsideration, with the
following allegations:

1. The issues raised, namely, whether bonuses should be included in the award for back wages had
already been resolved by respondent court in its orders dated November 28, 1966, and December 7, 1966,
and in the Resolution of the Honorable Supreme Court in G.R. No. L-27272 dated April 26, 1967 and May
19, 1967, and the same is already a settled and final issue.

2. Petitioners' motion for reconsideration is merely a rehash of previous arguments, effete and
unrejuvenated, pro forma, and intended merely to delay the proceedings.

As correctly contended by private respondents, the present petition is barred by Our resolutions of April 26,
1967 and May 19, 1967 in G.R. No. L-27272 (Eduardo Claparols, et. al. vs. CIR, et. al.) [pp. 77-83, rec. of
L- 27272], dismissing said case, wherein said petitioners invoked the applicability of the doctrine in Sta.
Cecilia Sawmills, Inc. vs. CIR, et. al. (L-19273-74, Feb. 29, 1964, 10 SCRA 433) and impugned the illegality
of the order of respondent Court dated November 28, 1966 directing the computation and payment of the
bonuses, aside from back wages on the ground that these bonuses were not included in the decision of
September 16, 1963, which had long become final.

The aforesaid resolutions in G.R. No. L-27272 constitute the law of the instant case, wherein herein
petitioners raised again practically the same issues invoked in the abovementioned case. The denial of the
petition in G.R. No. L-27272 suffices to warrant the denial of the present petition; and We need not go any
further.

However, without lending a sympathetic ear to the obvious desire of herein petitioners of this Court to re-
examine which would be an exercise in futility the final ruling in G.R. No. L-27272, which as above-
stated is the law of the instant case, but solely to remind herein petitioners, We reiterate the governing
principles.

WE uniformly held that "a bonus is not a demandable and enforceable obligation, except when it is a part of
the wage or salary compensation" (Philippine Education Co. vs. CIR and the Union of Philippine Co.
Employees [NLU], 92 Phil. 381; Ansay, et. al. vs. National Development Co., et. al., 107 Phil. 998, 999;
Emphasis supplied).

In Atok Big Wedge Mining Co. vs. Atok Big Wedge Mutual Benefit Association (92 Phil. 754), this Court,
thru Justice Labrador, held:

Whether or not bonus forms part of wages depends upon the condition or circumstance for its payment. If it
is an additional compensation WHICH THE EMPLOYER PROMISED AND AGREED to give without any
condition imposed for its payment ... then it is part of the wage. (Emphasis supplied).1wph1.t

In Altomonte vs. Philippine American Drug Co. (106 Phil. 137), the Supreme Court held that an employee is
not entitled to bonus where there is no showing that it had been granted by the employer to its employees
periodically or regularly as to become part of their wages or salaries. The clear implication is that bonus is
recoverable as part of the wage or salary where the employer regularly or periodically gives it to
employees.

American jurisprudence equally regards bonuses as part of compensation or recoverable wages.

Thus, it was held that "... it follows that in determining the regular rate of pay, a bonus which in fact
constitutes PART OF AN EMPLOYEE'S compensation, rather than a true gift or gratuity, has to be taken
into consideration." (48 Am. Jur. 2d, Labor and Labor Relations, No. 1555, citing the cases of Triple "AAA"
Co. vs. Wirtz and Haber vs. Americana Corporation; Emphasis supplied). It was further held that "... the
regular rate includes incentive bonuses paid to the employees in addition to the guaranteed base rates
regardless of any contract provision to the contrary and even though such bonuses could not be
determined or paid until such time after the pay day" (48 Am. Jur. 2d, Labor and Labor Relations, No. 1555,
citing the case of Walling vs. Harnischfeger Corp., 325 US 427, 89 L Ed 1711, 65 S Ct. 1246; Emphasis
supplied).1wph1.t
Petitioners in the present case do not dispute that as a matter of tradition, the company has been doling out
bonuses to employees. In fact, the company balance sheets for the years 1956 to 1962 contained bonus
and pension computations which were never repudiated or questioned by petitioners. As such, bonus for a
given year earmarked as a matter of tradition for distribution to employees has formed part of their
recoverable wages from the company. Moreover, with greater reason, should recovery of bonuses as part
of back wages be observed in the present case since the company, in the light of the very admission of
company accountant Francisco Cusi, distributes bonuses to its employees even if the company has
suffered losses. Specifically, petitioner company has done this in 1962 (t.s.n., p. 149, Sept. 20, 1965).

Since bonuses are part of back wages of private respondents, the order of May 30, 1969, directing the
payment of their bonuses, did not amend the decision of September 16, 1963 of respondent Court directing
payment of their wages, which has long become final and executory, in the same way that the previous
order of May 14, 1964 granting execution of said decision of September 16, 1963 also directed the
computation of the wages to be paid to private respondents as decreed by the decision of September 16,
1963. All the orders of May 30, 1969, November 28, 1966 and May 14, 1964 merely implement the already
final and executory decision of September 16, 1963.

Petitioners insist that We adopt the ruling in the Sta. Cecilia Sawmills case wherein the recoverable back
wages were limited to only three (3) months; because as in the Sta. Cecilia Sawmills case, the Claparols
Steel and Nail Plant ceased operations due to enormous business reverses.

Respondent Court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation of
June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957
up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioners. It is
very clear that the latter corporation was a continuation and successor of the first entity, and its emergence
was skillfully timed to avoid the financial liability that already attached to its predecessor, the Claparols
Steel and Nail Plant. Both predecessors and successor were owned and controlled by the petitioner
Eduardo Claparols and there was no break in the succession and continuity of the same business. This
"avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed shares of stocks of the
Claparols Steel Corporation (the second corporation) was owned by respondent (herein petitioner)
Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the
emerging Claparols Steel Corporation.

It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in
the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its
financial obligation to its employees.

It is well remembering that in Yutivo & Sons Hardware Company vs. Court of Tax Appeals (L-13203, Jan.
28, 1961, 1 SCRA 160), We held that when the notion of legal entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association or
persons, or, in the case of two corporations, will merge them into one.

In Liddel & Company, Inc. vs. Collector of Internal Revenue (L-9687, June 30, 1961, 2 SCRA 632), this
Court likewise held that where a corporation is a dummy and serves no business purpose and is intended
only as a blind, the corporate fiction may be ignored.

In Commissioner of Internal Revenue vs. Norton and Harrison Company (L-17618, Aug. 31, 1964, 11
SCRA 714), We ruled that where a corporation is merely an adjunct, business conduit or alter ego of
another corporation, the fiction of separate and distinct corporate entities should be disregarded.

To the same uniform effect are the decisions in the cases of Republic vs. Razon (L-17462, May 29, 1967,
20 SCRA 234) and A.D. Santos, Inc. vs. Vasquez (L-23586, March 20, 1968, 22 SCRA 1156).

WE agree with respondent Court of Industrial Relations, therefore, that the amount of back wages
recoverable by respondent workers from petitioners should be the amount accruing up to December 7,
1962 when the Claparols Steel Corporation ceased operations.

WHEREFORE, PETITION IS HEREBY DENIED WITH TREBLE COSTS AGAINST PETITIONERS TO BE

PAID BY THEIR COUNSEL.
[G.R. No. 127181. September 4, 2001]

LAND BANK OF THE PHILIPPINES, petitioner, vs. THE COURT OF APPEALS, ECO MANAGEMENT
CORPORATION and EMMANUEL C. OATE, respondents.
DECISION
QUISUMBING, J.:

This petition for review on certiorari seeks to reverse and set aside the decision[1] promulgated on June 17,
1996 in CA-GR No. CV-43239 of public respondent and its resolution[2] dated November 29, 1996 denying
petitioners motion for reconsideration.[3]

The facts of this case as found by the Court of Appeals and which we find supported by the records are as
follows:

On various dates in September, October, and November, 1980, appellant Land Bank of the Philippines
(LBP) extended a series of credit accommodations to appellee ECO, using the trust funds of the Philippine
Virginia Tobacco Administration (PVTA) in the aggregate amount of P26,109,000.00. The proceeds of the
credit accommodations were received on behalf of ECO by appellee Oate.

On the respective maturity dates of the loans, ECO failed to pay the same. Oral and written demands were
made, but ECO was unable to pay. ECO claims that the company was in financial difficulty for it was unable
to collect its investments with companies which were affected by the financial crisis brought about by the
Dewey Dee scandal.

xxx

On October 20, 1981, ECO proposed and submitted to LBP a Plan of Payment whereby the former would
set up a financing company which would absorb the loan obligations. It was proposed that LBP would
participate in the scheme through the conversion of P9,000,000.00 which was part of the total loan, into
equity.

On March 4, 1982, LBP informed ECO of the action taken by the formers Trust Committee concerning the
Plan of Payment which reads in part, as follows:

xxx
Please be informed that the Banks Trust Committee has deliberated on the plan of payment during its
meetings on November 6, 1981 and February 23, 1982. The Committee arrived at a decision that you may
proceed with your Plan of Payment provided Land Bank shall not participate in the undertaking in any
manner whatsoever.

In view thereof, may we advise you to make necessary revision in the proposed Plan of Payment and
submit the same to us as soon as possible. (Records, p. 428)

On May 5, 1982, ECO submitted to LBP a Revised Plan of Payment deleting the latters participation in the
proposed financing company. The Trust Committee deliberated on the Revised Plan of Payment and
resolved to reject it. LBP then sent a letter to the PVTA for the latters comments. The letter stated that if
LBP did not hear from PVTA within five (5) days from the latters receipt of the letter, such silence would be
construed to be an approval of LBPs intention to file suit against ECO and its corporate officers. PVTA did
not respond to the letter.

On June 28, 1982, Landbank filed a complaint for Collection of Sum of Money against ECO and Emmanuel
C. Oate before the Regional Trial Court of Manila, Branch 50.

After trial on the merits, a judgment was rendered in favor of LBP; however, appellee Oate was absolved
from personal liability for insufficiency of evidence.

Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP claimed that there was an
error in computation in the amounts to be paid. LBP also questioned the dismissal of the case with regard
to Oate.

On the other hand, ECO questioned its being held liable for the amount of the loan. Upon order of the court,
both parties submitted Supplemental Motions for Reconsideration and their respective Oppositions to each
others Motions.
On February 3, 1993, the trial court rendered an Amended Decision, the dispositive portion of which reads
as follows:

ACCORDINGLY, the Decision, dated December 3, 1990, is hereby modified to read as follows:

WHEREFORE, judgment is rendered ordering defendant Eco Management Corporation to pay plaintiff
Land Bank of the Philippines:

A. The sum of P26,109,000.00 representing the total amount of the ten (10) loan accommodations plus
16% interest per annum computed from the dates of their respective maturities until fully paid, broken down
as follows:

1. the principal amount of P4,000,000.00 with interest at 16% computed from September 18, 1981;
2. the principal amount of P5,000,000.00 with interest at 16% computed from September 21, 1981;
3. the principal amount of P1,000,000.00 with interest rate at 16% computed from September 28, 1981;
4. the principal amount of P1,000,000.00 with interest at 15% computed from October 5, 1981;
5. the principal amount of P2,000,000.00 with interest rate at of 16% computed from October 8, 1981;
6. the principal amount of P2,000,000.00 with interest rate at of 16% from October 23, 1981;
7. the principal amount of P814,000.00 with interest rate at of 16% computed from November 1, 1981;
8. the principal amount of P2,295,000.00 with interest rate at of 16% computed from November 6, 1981;
9. the principal amount of P3,000,000.00 with interest rate at of 16% computed from November 7, 1981;
10. the principal amount of P5,000,000.00 with interest rate at 16% computed from November 9, 1981;

B. The sum of P260,000.00 as attorneys fees; and

C. The costs of the suit.

The case as against defendant Emmanuel Oate is dismissed for insufficiency of evidence.

SO ORDERED. (Records, p. 608)[4]

The Court of Appeals affirmed in toto the amended decision of the trial court.[5]

On June 9, 1996, petitioner filed a motion for reconsideration, which was denied in a resolution dated
November 29, 1996. Hence, this present petition, assigning the following errors allegedly committed by the
Court of Appeals:

A. THE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT BASED ON THE FACTS
AS ESTABLISHED BY EVIDENCE, THERE EXISTS A SUBSTANTIAL AND JUSTIFIABLE
GROUND UPON WHICH THE LEGAL NOTION OF THE CORPORATE FICTION OF
RESPONDENT ECO MANAGEMENT CORPORATION MAY BE PIERCED.

B. THE COURT OF APPEALS GRAVELY ERRED IN NOT A[T]TACHING LIABILITY TO

RESPONDENT EMMANUEL C. OATE JOINTLY AND SEVERALLY WITH RESPONDENT ECO
MANAGEMENT CORPORATION FOR THE PRINCIPAL SUM OF P26 M PLUS INTEREST
THEREON.

C. THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF THE LOWER
COURT THE SAME NOT BEING SUPPORTED BY THE EVIDENCE AND APPLICABLE LAWS
AND JURISPRUDENCE.[6]

The primary issues for resolution here are (1) whether or not the corporate veil of ECO Management
Corporation should be pierced; and (2) whether or not Emmanuel C. Oate should be held jointly and
severally liable with ECO Management Corporation for the loans incurred from Land Bank.

Petitioner contends that the personalities of Emmanuel Oate and of ECO Management Corporation should
be treated as one, for the particular purpose of holding respondent Oate liable for the loans incurred by
corporate respondent ECO from Land Bank. According to petitioner, the said corporation was formed
ostensibly to allow Oate to acquire loans from Land Bank which he used for his personal advantage.

Petitioner submits the following arguments to support its stand: (1) Respondent Oate owns the majority of
the interest holdings in respondent corporation, specifically during the crucial time when appellees applied
for and obtained the loan from LANDBANK, sometime in September to November, 1980. (2) The acronym
ECO stands for the initials of Emmanuel C. Oate, which is the logical, sensible and concrete explanation for
the name ECO, in the absence of evidence to the contrary. (3) Respondent Oate has always referred to
himself as the debtor, not merely as an officer or a representative of respondent corporation. (4)
Respondent Oate personally paid P1 Million taken from trust accounts in his name. (5) Respondent Oate
made a personal offering to pay his personal obligation. (6) Respondent Oate controlled respondent
corporation by simultaneously holding two (2) corporate positions, viz., as Chairman and as treasurer,
beginning from the time of respondent corporations incorporation and continuously thereafter without
benefit of election. (7) Respondent corporation had not held any meeting of the stockholders or of the
Board of Directors, as shown by the fact that no proceeding of such corporate activities was filed with or
borne by the record of the Securities and Exchange Commission (SEC). The only corporate records
respondent corporation filed with the SEC were the following: Articles of Incorporation, Treasurers Affidavit,
Undertaking to Change Corporate Name, Statement of Assets and Liabilities.[7]

Private respondents, in turn, contend that Oates only participation in the transaction between petitioner and
respondent ECO was his execution of the loan agreements and promissory notes as Chairman of the
corporations Board of Directors. There was nothing in the loan agreement nor in the promissory notes
which would indicate that Oate was binding himself jointly and severally with ECO. Respondents likewise
deny that ECO stands for Emmanuel C. Oate. Respondents also note that Oate is no longer a majority
stockholder of ECO and that the payment by a third person of the debt of another is allowed under the Civil
Code. They also alleged that there was no fraud and/or bad faith in the transactions between them and
Land Bank. Hence, private respondents conclude, there is no legal ground to pierce the veil of respondent
corporations personality.[8]

At the outset, we find the matters raised by petitioner in his argumentation are mainly questions of fact
which are not proper in a petition of this nature.[9] Petitioner is basically questioning the evaluation made by
the Court of Appeals of the evidence submitted at the trial. The Court of Appeals had found that petitioners
evidence was not sufficient to justify the piercing of ECOs corporate personality.[10] Petitioner contended
otherwise. It is basic that where what is being questioned is the sufficiency of evidence, it is a question of
fact.[11] Nevertheless, even if we regard these matters as tendering an issue of law, we still find no reason
to reverse the findings of the Court of Appeals.

A corporation, upon coming into existence, is invested by law with a personality separate and distinct from
those persons composing it as well as from any other legal entity to which it may be related.[12] By this
attribute, a stockholder may not, generally, be made to answer for acts or liabilities of the said corporation,
and vice versa.[13] This separate and distinct personality is, however, merely a fiction created by law for
convenience and to promote the ends of justice.[14] For this reason, it may not be used or invoked for ends
subversive to the policy and purpose behind its creation[15] or which could not have been intended by law
to which it owes its being.[16] This is particularly true when the fiction is used to defeat public convenience,
justify wrong, protect fraud, defend crime,[17] confuse legitimate legal or judicial issues,[18] perpetrate
deception or otherwise circumvent the law.[19] This is likewise true where the corporate entity is being used
as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate
entity.[20] In all these cases, the notion of corporate entity will be pierced or disregarded with reference to
the particular transaction involved.[21]

The burden is on petitioner to prove that the corporation and its stockholders are, in fact, using the
personality of the corporation as a means to perpetrate fraud and/or escape a liability and responsibility
demanded by law. In order to disregard the separate juridical personality of a corporation, the wrongdoing
must be clearly and convincingly established.[22] In the absence of any malice or bad faith, a stockholder
or an officer of a corporation cannot be made personally liable for corporate liabilities.[23]

The mere fact that Oate owned the majority of the shares of ECO is not a ground to conclude that Oate and
ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the capital stock of
a corporation is not by itself sufficient reason for disregarding the fiction of separate corporate
personalities.[24] Neither is the fact that the name ECO represents the first three letters of Oates name
sufficient reason to pierce the veil. Even if it did, it does not mean that the said corporation is merely a
dummy of Oate. A corporation may assume any name provided it is lawful. There is nothing illegal in a
corporation acquiring the name or as in this case, the initials of one of its shareholders.

That respondent corporation in this case was being used as a mere alter ego of Oate to obtain the loans
had not been shown. Bad faith or fraud on the part of ECO and Oate was not also shown. As the Court of
Appeals observed, if shareholders of ECO meant to defraud petitioner, then they could have just easily
absconded instead of going out of their way to propose Plans of Payment.[25] Likewise, Oate volunteered
to pay a portion of the corporations debt.[26] This offer demonstrated good faith on his part to ease the debt
of the corporation of which he was a part. It is understandable that a shareholder would want to help his
corporation and in the process, assure that his stakes in the said corporation are secured. In this case, it
was established that the P1 Million did not come solely from Oate. It was taken from a trust account which
was owned by Oate and other investors.[27] It was likewise proved that the P1 Million was a loan granted
by Oate and his co-depositors to alleviate the plight of ECO.[28] This circumstance should not be construed
as an admission that he was really the debtor and not ECO.

In sum, we agree with the Court of Appeals conclusion that the evidence presented by the petitioner does
not suffice to hold respondent Oate personally liable for the debt of co-respondent ECO. No reversible error
could be attributed to respondent courts decision and resolution which petitioner assails.

WHEREFORE, the petition is DENIED for lack of merit. The decision and resolution of the Court of Appeals
in CA-G.R. CV No. 43239 are AFFIRMED. Costs against petitioner.

SO ORDERED.