Escolar Documentos
Profissional Documentos
Cultura Documentos
156759 June 5, 2013 always out and not available, thus, substituted
ALLEN A. MACASAET, NICOLAS V. QUIJANO, JR., ISAIAS service was applied;
ALBANO, LILY REYES, JANET BAY, JESUS R. GALANG, 2. Defendant Nicolas V. Quijano, at the same
AND RANDY HAGOS, Petitioners, address, thru his wife Lu-Ann Quijano, who signed
vs. to acknowledge receipt thereof. That effort (sic) to
FRANCISCO R. CO, JR., Respondent. serve the said summons personally upon said
DECISION defendant were made, but the same were
BERSAMIN, J.: ineffectual and unavailing on the ground that per
To warrant the substituted service of the summons and information of (sic) his wife said defendant is
copy of the complaint, the serving officer must first always out and not available, thus, substituted
attempt to effect the same upon the defendant in person. service was applied;
Only after the attempt at personal service has become 3. Defendants Isaias Albano, Janet Bay, Jesus R.
futile or impossible within a reasonable time may the Galang, Randy Hagos and Lily Reyes, at the same
officer resort to substituted service. address, thru Rene Esleta, Editorial Assistant of
The Case defendant AbanteTonite, a person of sufficient age
Petitioners – defendants in a suit for libel brought by and discretion working therein who signed to
respondent – appeal the decision promulgated on March acknowledge receipt thereof. That effort (sic) to
8, 20021 and the resolution promulgated on January 13, serve the said summons personally upon said
2003,2 whereby the Court of Appeals (CA) respectively defendants were made, but the same were
dismissed their petition for certiorari, prohibition and ineffectual and unavailing on the ground that per
mandamus and denied their motion for reconsideration. information of (sic) Mr. Esleta said defendants is
Thereby, the CA upheld the order the Regional Trial Court (sic) always roving outside and gathering news,
(RTC), Branch 51, in Manila had issued on March 12, 2001 thus, substituted service was applied.
denying their motion to dismiss because the substituted Original copy of summons is therefore, respectfully
service of the summons and copies of the complaint on returned duly served.
each of them had been valid and effective.3 Manila, September 22, 2000.
Antecedents On October 3, 2000, petitioners moved for the dismissal of
On July 3, 2000, respondent, a retired police officer the complaint through counsel’s special appearance in
assigned at the Western Police District in Manila, sued their behalf, alleging lack of jurisdiction over their persons
Abante Tonite, a daily tabloid of general circulation; its because of the invalid and ineffectual substituted service
Publisher Allen A. Macasaet; its Managing Director Nicolas of summons. They contended that the sheriff had made no
V. Quijano; its Circulation Manager Isaias Albano; its prior attempt to serve the summons personally on each of
Editors Janet Bay, Jesus R. Galang and Randy Hagos; and them in accordance with Section 6 and Section 7, Rule 14
its Columnist/Reporter Lily Reyes (petitioners), claiming of the Rules of Court. They further moved to drop Abante
damages because of an allegedly libelous article Tonite as a defendant by virtue of its being neither a
petitioners published in the June 6, 2000 issue of Abante natural nor a juridical person that could be impleaded as
Tonite. The suit, docketed as Civil Case No. 00-97907, was a party in a civil action.
raffled to Branch 51 of the RTC, which in due course issued At the hearing of petitioners’ motion to dismiss, Medina
summons to be served on each defendant, including testified that he had gone to the office address of
Abante Tonite, at their business address at Monica petitioners in the morning of September 18, 2000 to
Publishing Corporation, 301-305 3rd Floor, BF personally serve the summons on each defendant; that
Condominium Building, Solana Street corner A. Soriano petitioners were out of the office at the time; that he had
Street, Intramuros, Manila.4 returned in the afternoon of the same day to again attempt
In the morning of September 18, 2000, RTC Sheriff Raul to serve on each defendant personally but his attempt had
Medina proceeded to the stated address to effect the still proved futile because all of petitioners were still out
personal service of the summons on the defendants. But of the office; that some competent persons working in
his efforts to personally serve each defendant in the petitioners’ office had informed him that Macasaet and
address were futile because the defendants were then out Quijano were always out and unavailable, and that Albano,
of the office and unavailable. He returned in the afternoon Bay, Galang, Hagos and Reyes were always out roving to
of that day to make a second attempt at serving the gather news; and that he had then resorted to substituted
summons, but he was informed that petitioners were still service upon realizing the impossibility of his finding
out of the office. He decided to resort to substituted petitioners in person within a reasonable time.
service of the summons, and explained why in his sheriff’s On March 12, 2001, the RTC denied the motion to dismiss,
return dated September 22, 2005,5 to wit: and directed petitioners to file their answers to the
SHERIFF’S RETURN complaint within the remaining period allowed by the
This is to certify that on September 18, 2000, I caused the Rules of Court,6 relevantly stating:
service of summons together with copies of complaint and Records show that the summonses were served upon
its annexes attached thereto, upon the following: Allen A. Macasaet, President/Publisher of defendant
1. Defendant Allen A. Macasaet, AbanteTonite, through LuAnn Quijano; upon defendants
President/Publisher of defendant AbanteTonite, Isaias Albano, Janet Bay, Jesus R. Galang, Randy Hagos and
at Monica Publishing Corporation, Rooms 301- Lily Reyes, through Rene Esleta, Editorial Assistant of
305 3rd Floor, BF Condominium Building, Solana defendant Abante Tonite (p. 12, records). It is apparent in
corner A. Soriano Streets, Intramuros, Manila, thru the Sheriff’s Return that on several occasions, efforts to
his secretary Lu-Ann Quijano, a person of served (sic) the summons personally upon all the
sufficient age and discretion working therein, who defendants were ineffectual as they were always out and
signed to acknowledge receipt thereof. That effort unavailable, so the Sheriff served the summons by
(sic) to serve the said summons personally upon substituted service.
said defendant were made, but the same were Considering that summonses cannot be served within a
ineffectual and unavailing on the ground that per reasonable time to the persons of all the defendants, hence
information of Ms. Quijano said defendant is substituted service of summonses was validly applied.
Secretary of the President who is duly authorized to We find petitioners’ argument without merit. The rule is
receive such document, the wife of the defendant and the that certiorari will prosper only if there is a showing of
Editorial Assistant of the defendant, were considered grave abuse of discretion or an act without or in excess of
competent persons with sufficient discretion to realize the jurisdiction committed by the respondent Judge. A
importance of the legal papers served upon them and to judicious reading of the questioned orders of respondent
relay the same to the defendants named therein (Sec. 7, Judge would show that the same were not issued in a
Rule 14, 1997 Rules of Civil Procedure). capricious or whimsical exercise of judgment. There are
WHEREFORE, in view of the foregoing, the Motion to factual bases and legal justification for the assailed orders.
Dismiss is hereby DENIED for lack of merit.. From the Return, the sheriff certified that "effort to serve
Accordingly, defendants are directed to file their Answers the summons personally xxx were made, but the same
to the complaint within the period still open to them, were ineffectual and unavailing xxx.
pursuant to the rules. and upholding the trial court’s finding that there was a
SO ORDERED. substantial compliance with the rules that allowed the
Petitioners filed a motion for reconsideration, asserting substituted service.
that the sheriff had immediately resorted to substituted Furthermore, the CA ruled:
service of the summons upon being informed that they Anent the issue raised by petitioners that "Abante Tonite
were not around to personally receive the summons, and is neither a natural or juridical person who may be a party
that Abante Tonite, being neither a natural nor a juridical in a civil case," and therefore the case against it must be
person, could not be made a party in the action. dismissed and/or dropped, is untenable.
On June 29, 2001, the RTC denied petitioners’ motion for The respondent Judge, in denying petitioners’ motion for
reconsideration.7 It stated in respect of the service of reconsideration, held that:
summons, as follows: xxxx
The allegations of the defendants that the Sheriff Abante Tonite’s newspapers are circulated nationwide,
immediately resorted to substituted service of summons showing ostensibly its being a corporate entity, thus the
upon them when he was informed that they were not doctrine of corporation by estoppel may appropriately
around to personally receive the same is untenable. apply.
During the hearing of the herein motion, Sheriff Raul An unincorporated association, which represents itself to
Medina of this Branch of the Court testified that on be a corporation, will be estopped from denying its
September 18, 2000 in the morning, he went to the office corporate capacity in a suit against it by a third person
address of the defendants to personally serve summons who relies in good faith on such representation.
upon them but they were out. So he went back to serve There being no grave abuse of discretion committed by
said summons upon the defendants in the afternoon of the the respondent Judge in the exercise of his jurisdiction, the
same day, but then again he was informed that the relief of prohibition is also unavailable.
defendants were out and unavailable, and that they were WHEREFORE, the instant petition is DENIED. The assailed
always out because they were roving around to gather Orders of respondent Judge are AFFIRMED.
news. Because of that information and because of the SO ORDERED.9
nature of the work of the defendants that they are always On January 13, 2003, the CA denied petitioners’ motion for
on field, so the sheriff resorted to substituted service of reconsideration.10
summons. There was substantial compliance with the Issues
rules, considering the difficulty to serve the summons Petitioners hereby submit that:
personally to them because of the nature of their job 1. THE COURT OF APPEALS COMMITTED AN
which compels them to be always out and unavailable. ERROR OF LAW IN HOLDING THAT THE TRIAL
Additional matters regarding the service of summons COURT ACQUIRED JURISDICTION OVER HEREIN
upon defendants were sufficiently discussed in the Order PETITIONERS.
of this Court dated March 12, 2001. 2. THE COURT OF APPEALS COMMITTED
Regarding the impleading of Abante Tonite as defendant, REVERSIBLE ERROR BY SUSTAINING THE
the RTC held, viz: INCLUSION OF ABANTE TONITE AS PARTY IN
"Abante Tonite" is a daily tabloid of general circulation. THE INSTANT CASE.11
People all over the country could buy a copy of "Abante Ruling
Tonite" and read it, hence, it is for public consumption. The petition for review lacks merit.
The persons who organized said publication obviously Jurisdiction over the person, or jurisdiction in personam –
derived profit from it. The information written on the said the power of the court to render a personal judgment or
newspaper will affect the person, natural as well as to subject the parties in a particular action to the judgment
juridical, who was stated or implicated in the news. All of and other rulings rendered in the action – is an element of
these facts imply that "Abante Tonite" falls within the due process that is essential in all actions, civil as well as
provision of Art. 44 (2 or 3), New Civil Code. Assuming criminal, except in actions in rem or quasi in rem.
arguendo that "Abante Tonite" is not registered with the Jurisdiction over the defendantin an action in rem or quasi
Securities and Exchange Commission, it is deemed a in rem is not required, and the court acquires jurisdiction
corporation by estoppels considering that it possesses over an actionas long as it acquires jurisdiction over the
attributes of a juridical person, otherwise it cannot be held resthat is thesubject matter of the action. The purpose of
liable for damages and injuries it may inflict to other summons in such action is not the acquisition of
persons. jurisdiction over the defendant but mainly to satisfy the
Undaunted, petitioners brought a petition for certiorari, constitutional requirement of due process.12
prohibition, mandamusin the CA to nullify the orders of The distinctions that need to be perceived between an
the RTC dated March 12, 2001 and June 29, 2001. action in personam, on the one hand, and an action inrem
Ruling of the CA or quasi in rem, on the other hand, are aptly delineated in
On March 8, 2002, the CA promulgated its questioned Domagas v. Jensen,13 thusly:
decision,8 dismissing the petition for certiorari, The settled rule is that the aim and object of an action
prohibition, mandamus, to wit: determine its character. Whether a proceeding is in rem,
or in personam, or quasi in rem for that matter, is
determined by its nature and purpose, and by these only. Upon the filing of the complaint and the payment of the
A proceeding in personam is a proceeding to enforce requisite legal fees, the clerk of court forthwith issues the
personal rights and obligations brought against the corresponding summons to the defendant.16 The
person and is based on the jurisdiction of the person, summons is directed to the defendant and signed by the
although it may involve his right to, or the exercise of clerk of court under seal. It contains the name of the court
ownership of, specific property, or seek to compel him to and the names of the parties to the action; a direction that
control or dispose of it in accordance with the mandate of the defendant answers within the time fixed by the Rules
the court. The purpose of a proceeding in personam is to of Court; and a notice that unless the defendant so
impose, through the judgment of a court, some answers, the plaintiff will take judgment by default and
responsibility or liability directly upon the person of the may be granted the relief applied for.17 To be attached to
defendant. Of this character are suits to compel a the original copy of the summons and all copies thereof is
defendant to specifically perform some act or actions to a copy of the complaint (and its attachments, if any) and
fasten a pecuniary liability on him. An action in personam the order, if any, for the appointment of a guardian ad
is said to be one which has for its object a judgment against litem.18
the person, as distinguished from a judgment against the The significance of the proper service of the summons on
property to determine its state. It has been held that an the defendant in an action in personam cannot be
action in personam is a proceeding to enforce personal overemphasized. The service of the summons fulfills two
rights or obligations; such action is brought against the fundamental objectives, namely: (a) to vest in the court
person. As far as suits for injunctive relief are concerned, jurisdiction over the person of the defendant; and (b) to
it is well-settled that it is an injunctive act in personam. In afford to the defendant the opportunity to be heard on the
Combs v. Combs, the appellate court held that proceedings claim brought against him.19 As to the former, when
to enforce personal rights and obligations and in which jurisdiction in personam is not acquired in a civil action
personal judgments are rendered adjusting the rights and through the proper service of the summons or upon a
obligations between the affected parties is in personam. valid waiver of such proper service, the ensuing trial and
Actions for recovery of real property are in personam. judgment are void.20 If the defendant knowingly does an
On the other hand, a proceeding quasi in rem is one act inconsistent with the right to object to the lack of
brought against persons seeking to subject the property of personal jurisdiction as to him, like voluntarily appearing
such persons to the discharge of the claims assailed. In an in the action, he is deemed to have submitted himself to
action quasi in rem, an individual is named as defendant the jurisdiction of the court.21 As to the latter, the essence
and the purpose of the proceeding is to subject his of due process lies in the reasonable opportunity to be
interests therein to the obligation or loan burdening the heard and to submit any evidence the defendant may have
property. Actions quasi in rem deal with the status, in support of his defense. With the proper service of the
ownership or liability of a particular property but which summons being intended to afford to him the opportunity
are intended to operate on these questions only as to be heard on the claim against him, he may also waive
between the particular parties to the proceedings and not the process.21 In other words, compliance with the rules
to ascertain or cut off the rights or interests of all possible regarding the service of the summons is as much an issue
claimants. The judgments therein are binding only upon of due process as it is of jurisdiction.23
the parties who joined in the action. Under the Rules of Court, the service of the summons
As a rule, Philippine courts cannot try any case against a should firstly be effected on the defendant himself
defendant who does not reside and is not found in the whenever practicable. Such personal service consists
Philippines because of the impossibility of acquiring either in handing a copy of the summons to the defendant
jurisdiction over his person unless he voluntarily appears in person, or, if the defendant refuses to receive and sign
in court; but when the case is an action in rem or quasi in for it, in tendering it to him.24 The rule on personal service
rem enumerated in Section 15, Rule 14 of the Rules of is to be rigidly enforced in order to ensure the realization
Court, Philippine courts have jurisdiction to hear and of the two fundamental objectives earlier mentioned. If,
decide the case because they have jurisdiction over the res, for justifiable reasons, the defendant cannot be served in
and jurisdiction over the person of the non-resident person within a reasonable time, the service of the
defendant is not essential. In the latter instance, summons may then be effected either (a) by leaving a copy
extraterritorial service of summons can be made upon the of the summons at his residence with some person of
defendant, and such extraterritorial service of summons is suitable age and discretion then residing therein, or (b) by
not for the purpose of vesting the court with jurisdiction, leaving the copy at his office or regular place of business
but for the purpose of complying with the requirements of with some competent person in charge thereof.25 The
fair play or due process, so that the defendant will be latter mode of service is known as substituted service
informed of the pendency of the action against him and the because the service of the summons on the defendant is
possibility that property in the Philippines belonging to made through his substitute.
him or in which he has an interest may be subjected to a It is no longer debatable that the statutory requirements
judgment in favor of the plaintiff, and he can thereby take of substituted service must be followed strictly, faithfully
steps to protect his interest if he is so minded. On the other and fully, and any substituted service other than that
hand, when the defendant in an action in personam does authorized by statute is considered ineffective.26 This is
not reside and is not found in the Philippines, our courts because substituted service, being in derogation of the
cannot try the case against him because of the usual method of service, is extraordinary in character and
impossibility of acquiring jurisdiction over his person may be used only as prescribed and in the circumstances
unless he voluntarily appears in court.14 authorized by statute.27 Only when the defendant cannot
As the initiating party, the plaintiff in a civil action be served personally within a reasonable time may
voluntarily submits himself to the jurisdiction of the court substituted service be resorted to. Hence, the
by the act of filing the initiatory pleading. As to the impossibility of prompt personal service should be shown
defendant, the court acquires jurisdiction over his person by stating the efforts made to find the defendant himself
either by the proper service of the summons, or by a and the fact that such efforts failed, which statement
voluntary appearance in the action.15 should be found in the proof of service or sheriff’s
return.28 Nonetheless, the requisite showing of the
impossibility of prompt personal service as basis for law and the constitutional policy protecting the rights of
resorting to substituted service may be waived by the labor. The employment of the absorbed employees
defendant either expressly or impliedly.29 subsists. Necessarily, these absorbed employees are not
There is no question that Sheriff Medina twice attempted entitled to separation pay on account of such merger in the
to serve the summons upon each of petitioners in person absence of any other ground for its award.
at their office address, the first in the morning of
September 18, 2000 and the second in the afternoon of the This resolves a Petition for Review on Certiorari1 filed by
same date. Each attempt failed because Macasaet and Philippine Geothermal, Inc. Employees Union (Union)
Quijano were "always out and not available" and the other assailing the Decision2 dated July 23, 2009 and the
petitioners were "always roving outside and gathering Resolution3 dated November 9, 2009 of the Court of
news." After Medina learned from those present in the Appeals Eighth Division in Unocal Philippines, Inc. (now
office address on his second attempt that there was no known as Chevron Geothermal Philippines Holdings, inc.) v.
likelihood of any of petitioners going to the office during The Philippine Geothermal, Inc. Employees Union. The
the business hours of that or any other day, he concluded assailed Decision granted Unocal Philippines, Inc.'s
that further attempts to serve them in person within a (Unocal Philippines) appeal and reversed the Secretary of
reasonable time would be futile. The circumstances fully Labor's award of separation benefits to the Union. The
warranted his conclusion. He was not expected or award was granted on the premise that the merger of
required as the serving officer to effect personal service by Unocal Philippines' parent corporation with another
all means and at all times, considering that he was corporation impliedly terminated the employment of the
expressly authorized to resort to substituted service Union's members. The assailed Resolution denied the
should he be unable to effect the personal service within a Union's Motion for Reconsideration.
reasonable time. In that regard, what was a reasonable
time was dependent on the circumstances obtaining. Philippine Geothermal, Inc. Employees Union is a
While we are strict in insisting on personal service on the legitimate labor union that stands as the bargaining agent
defendant, we do not cling to such strictness should the of the rank-and-file employees of Unocal
circumstances already justify substituted service instead. Philippines.4chanrobleslaw
It is the spirit of the procedural rules, not their letter, that
governs.30 Unocal Philippines, formerly known as Philippine
In reality, petitioners’ insistence on personal service by Geothermal, Inc., is a foreign corporation incorporated
the serving officer was demonstrably superfluous. They under the laws of the State of California, United States of
had actually received the summonses served through America, licensed to do business in the Philippines for the
their substitutes, as borne out by their filing of several "exploration and development of geothermal resources as
pleadings in the RTC, including an answer with alternative sources of energy."5 It is a wholly owned
compulsory counterclaim ad cautelam and a pre-trial brief subsidiary of Union Oil Company of California (Unocal
ad cautelam. They had also availed themselves of the California),6 which, in turn, is a wholly owned subsidiary
modes of discovery available under the Rules of Court. of Union Oil Corporation (Unocal Corporation).7 Unocal
Such acts evinced their voluntary appearance in the action. Philippines operates two (2) geothermal steam fields in
Nor can we sustain petitioners’ contention that Abante Tiwi, Albay and Makiling, Banahaw, Laguna, owned by the
Tonite could not be sued as a defendant due to its not National Power Corporation.8chanrobleslaw
being either a natural or a juridical person. In rejecting
their contention, the CA categorized Abante Tonite as a On April 4, 2005, Unocal Corporation executed an
corporation by estoppel as the result of its having Agreement and Plan of Merger (Merger Agreement) with
represented itself to the reading public as a corporation Chevron Texaco Corporation (Chevron) and Blue Merger
despite its not being incorporated. Thereby, the CA Sub, Inc. (Blue Merger).9 Blue Merger is a wholly owned
concluded that the RTC did not gravely abuse its subsidiary of Chevron.10 Under the Merger Agreement,
discretion in holding that the non-incorporation of Abante Unocal Corporation merged with Blue Merger, and Blue
Tonite with the Securities and Exchange Commission was Merger became the surviving corporation.11 Chevron then
of no consequence, for, otherwise, whoever of the public became the parent corporation of the merged
who would suffer any damage from the publication of corporations:12 After the merger, Blue Merger, as the
articles in the pages of its tabloids would be left without surviving corporation, changed its name to Unocal
recourse. We cannot disagree with the CA, considering Corporation.13chanrobleslaw
that the editorial box of the daily tabloid disclosed that
basis, nothing in the box indicated that Monica Publishing On January 31, 2006, Unocal Philippines executed a
Corporation had owned Abante Tonite. Collective Bargaining Agreement with the
WHEREFORE, the Court AFFIRMS the decision Union.14chanrobleslaw
promulgated on March 8, 2002; and ORDERS petitioners
to pay the costs of suit. However, on October 20, 2006, the Union wrote Unocal
SO ORDERED. Philippines asking for the separation benefits provided for
SECOND DIVISION under the Collective Bargaining Agreement. According to
G.R. No. 190187, September 28, 2016 the Union, the Merger Agreement of Unocal Corporation,
THE PHILIPPINE GEOTHERMAL, INC. EMPLOYEES Blue Merger, and Chevron resulted in the closure and
UNION, Petitioner, v. UNOCAL PHILIPPINES, INC. (NOW cessation of operations of Unocal Philippines and the
KNOWN AS CHEVRON GEOTHERMAL PHILIPPINES implied dismissal of its employees.15chanrobleslaw
HOLDINGS, INC.), Respondent.
DECISION Unocal Philippines refused the Union's request and
LEONEN, J.: asserted that the employee-members were not
The merger of a corporation with another does not terminated and that the merger did not result in its
operate to dismiss the employees of the corporation closure or the cessation of its operations.16chanrobleslaw
absorbed by the surviving corporation. This is in keeping
with the nature and effects of a merger as provided under As Unocal Philippines and the Union were unable to agree,
they decided to submit the matter to the Department of merger.36chanrobleslaw
Labor and Employment's Administrative Intervention for
Dispute Avoidance Program.17However, they were unable Moreover, the Court of Appeals found that although
to arrive at "a mutually acceptable Unocal Corporation became a part of Chevron, Unocal
agreement." chanrobleslaw
18 Philippines still remained as a wholly owned subsidiary of
Unocal California after the merger.37 It ruled that in any
On November 24, 2006, the Union claimed that Unocal case, the Collective Bargaining Agreement only provided
Philippines was guilty of unfair labor practice and filed a for the payment of separation pay if a reduction in
Notice of Strike.19 Later, the Union withdrew its Notice of workforce results from redundancy, retrenchment or
Strike.20chanrobleslaw installation of labor-saving devices, or closure and
cessation of operations, all of which did not occur in this
On February 5, 2007, the parties agreed to submit their case.38chanrobleslaw
dispute for voluntary arbitration before the Department
of Labor and Employment, with the Secretary of Labor and The Court of Appeals also pointed out that the Union's
Employment as Voluntary Arbitrator.21 The case, members merely wanted to discontinue their
entitled In Re: Labor Dispute at Philippines, Inc./Chevron, employment with Unocal Philippines, but there was
was docketed as OS-VA-2007-04.22chanrobleslaw nothing in the Labor Code nor in the parties' Collective
Bargaining Agreement that would sanction the payment of
After the parties submitted their respective position separation pay to those who no longer wanted to work for
papers, the Secretary of Labor rendered the Decision23 on Unocal Philippines as a result of the merger.39 The
January 15, 2008 ruling that the Union's members were dispositive portion of the Decision
impliedly terminated from employment as a result of the reads:ChanRoblesVirtualawlibrary
Merger Agreement. The Secretary of Labor found that the WHEREFORE, premises considered, the Decision dated
merger resulted in new contracts and a new employer for 15 January 2008, of the Department of Labor and
the Union's members. The new contracts allegedly Employment (DOLE) in OS-VA-2007-04 is
required the employees' consent; otherwise, there was no hereby REVERSEDand SET ASIDE.
employment contract to speak of.24 Thus, the Secretary of
Labor awarded the Union separation pay under the SO ORDERED.40 (Emphasis in the original)
Collective Bargaining Agreement.25cralawred The On November 9, 2009, the Court of Appeals denied the
dispositive portion of the Decision Union's Motion for Reconsideration.41chanrobleslaw
reads:ChanRoblesVirtualawlibrary
WHEREFORE, this Office rules that Unocal and Chevron Hence, this Petition42 was filed.
merged into one corporate entity and the employees were
impliedly terminated from employment. Accordingly, they Petitioner Philippine Geothermal, Inc. Employees Union
are entitled to the separation benefits provided claims that respondent Unocal Philippines, Inc. changed
under ARTICLE XII, SECTION 2 and ANNEX "B" of the its theory of the case when, in the proceedings before the
collective bargaining [agreement] between UNOCAL Secretary of Labor, it claimed that it entered into a merger
PHILIPPINES, INC. and the PHILIPPINE GEOTHERMAL, and not a sale, but later, in its appeal before the Court of
INC. EMPLOYEES UNION. Appeals, argued that it was not a party to the
merger.43 Petitioner asserts that the Court of Appeals
Pursuant to Section 7, Rule XIX of Department Order No. erred in allowing respondent to change its theory of the
40-03, series of 2003, this Decision shall be final and case on appeal and in deciding the case on the basis of this
executory after ten (10) calendar days from receipt hereof changed theory.44chanrobleslaw
and it shall not be subject of a motion for reconsideration.
Petitioner further claims that the Court of Appeals erred
SO ORDERED.26 (Emphasis in the original) in reversing the Decision of the Secretary of Labor, who
Unocal Philippines filed before the Court of Appeals a properly ruled that petitioner's members are entitled to
Petition for Review27 questioning the Secretary of Labor's separation pay.45 It claims that the merger resulted in (a)
Decision. Unocal Philippines claimed that the Union was "the severance of the juridical tie that existed between the
not entitled to separation benefits given that Unocal employees and its original employer, Unocal
Philippines was not a party to the merger,28 that it never Corporation,"46 and (b) the implied termination of the
closed nor ceased its business, and that it did not employment of the Union's members, who had the right to
terminate its employees after the merger.29 It asserted waive their continued employment with the absorbing
that its operations continued in the same manner, and corporation.47 Petitioner insists that the the "cessation of
with the same manpower complement.30 Likewise, the operations" contemplated in the Collective Bargaining
employees kept their tenure intact and experienced no Agreement and the Memorandum of Agreement must be
changes in their salaries and benefits.31chanrobleslaw liberally interpreted to include mergers,48 and that doubts
must be resolved in favor of labor.49chanrobleslaw
In the Decision32 dated July 23, 2009, the Court of Appeals
granted the appeal of Unocal Philippines and reversed the In the Resolution50 dated January 27, 2010, this Court
Decision of the Secretary of Labor.33 It held that Unocal directed respondent to comment on the Petition.
Philippines has a separate and distinct juridical
personality from its parent company, Unocal Corporation, Respondent filed its Comment51 on March 26, 2010. It
which was the party that entered into the Merger argues that it did not change its theory on appeal. It insists
Agreement.34 The Court of Appeals ruled that Unocal that it has been consistent in arguing before the Secretary
Philippines remained undissolved and its employees were of Labor and the Court of Appeals that it was never a party
unaffected by the merger.35 It found that this was to the merger between Unocal Corporation and Blue
evidenced by the Union's assumption of its role as the duly Merger as it has always stated that it was Unocal
recognized bargaining representative of all rank-and-file Corporation who entered into the Merger
employees a few months after the Agreement.52 Respondent argues that even assuming that
it did change its theory on appeal, it may do so as an
exception to the rule since "a party may change [its] legal In Philippine Deposit Insurance Corp. v. Citibank:62
theory when its factual bases would not require the The Court begins by examining the manner by which a
presentation of further evidence by the adverse party in foreign corporation can establish its presence in the
order to meet the issue raised in the new theory."53 It Philippines. It may choose to incorporate its own
posits that the alleged new theory would still be based on subsidiary as a domestic corporation, in which case such
the evidence presented before the Secretary of Labor, subsidiary would have its own separate and independent
hence, petitioner was.not placed at a legal personality to conduct business in the country. In the
disadvantage. chanrobleslaw
54 alternative, it may create a branch in the Philippines, which
would not be a legally independent unit, and simply obtain
Respondent further argues that in any case, petitioner's a license to do business in the Philippines.63 (Emphasis
members still did not lose their employment as to warrant supplied, citations omitted)
the award of separation pay.55 The Memorandum of Respondent likewise made the following assertions in its
Agreement, the Collective Bargaining Agreement, and the Position Paper in the proceedings before the Secretary of
contemporaenous acts of the parties show that Labor:ChanRoblesVirtualawlibrary
respondent shall pay separation pay only in case the Based on the facts of this case, the Honorable Secretary of
employees actually lose their jobs due to redundancy, Labor would certainly appreciate that the business
retrenchment or installation of labor-saving devices, or transaction entered into by respondent employer was in law
closure and cessation of operation.56 As these and in fact, a merger. Hence, there is no basis to the union's
circumstances did not occur, respondent cannot grant claim.
petitioner's members separation pay.
. . . .
Petitioner filed itsReply57 on July 6, 2010. It insists that
respondent never claimed before the Secretary of Labor . . . In the present case, it is clear that the surviving
that it was not covered by the merger.58 It maintains that corporation, i.e. Unocal Philippines Inc. has continued the
respondent only insisted on this argument when it business and operations of the absorbed corporation in an
obtained the unfavorable decision from the Secretary of unchanged manner, and using the same employees with
Labor.59 Moreover, the Secretary of Labor was correct in their tenure intact and under the same terms and
ruling that, indeed, there was a cessation of operations of conditions of employment.64 (Emphasis supplied)
respondent when it merged with These statements reveal that not only did respondent fail
Chevron.60chanrobleslaw to assert that it was not a party to the Merger Agreement,
but it also referred to itself as the party who entered into
We resolve the following issues: the transaction and became the surviving corporation in
the merger. Thus, the claim that respondent is not a party
chanRoblesvirtualLawlibraryFirst, whether respondent to the merger is a new allegation raised for the first time
changed the theory of its case on appeal; on appeal before the Court of Appeals.
Second, whether the Merger Agreement executed by Raising a factual question for the first time on appeal is not
Unocal Corporation, Blue Merger, and Chevron resulted in allowed. In Tan v. Commission on Elections:65
the termination of the employment of petitioner's The aforementioned issue is now raised only for the first
members; and cralawlawlibrary time on appeal before this Court. Settled is the rule that
issues not raised in the proceedings below (COMELEC en
Lastly, whether petitioner's members are entitled to banc) cannot be raised for the first time on appeal.
separation benefits. Fairness and due process dictate that evidence and issues
not presented below cannot be taken up for the first time
As regards the first issue, we rule that respondent did, on appeal.
indeed, change the theory of its case on appeal.
Thus, in Matugas v. Commission on Elections, we reiterated
In its Petition before the Court of Appeals, respondent this rule, saying:ChanRoblesVirtualawlibrary
asserted that it was not a party to the merger as it was a The rule in appellate procedure is that a factual question
subsidiary of Unocal California and, thus, had a separate may not be raised for the first time on appeal, and
and distinct personality from Unocal Corporation. documents forming no part of the proofs before the
appellate court will not be considered in disposing of the
However, the following statement can be found in issues of" an action. This is true whether the decision
respondent's Position Paper in the proceedings before the elevated for review originated from a regular court or an
Secretary of Labor:ChanRoblesVirtualawlibrary administrative agency or quasi-judicial body, and whether
3. . . . Following the merger, Blue Merger Sub Inc. which as it was rendered in a civil case, a special proceeding, or a
above stated is a wholly owned subsidiary of Chevron criminal case. Piecemeal presentation of evidence is
Corporation changed its name to Unocal Corporation simply not in accord with orderly justice.
retaining Unocal Philippines, Inc. as its Philippine Branch to
continue to operate the aforenamed geothermal plants as, Moreover, in Vda. De Gualberto v. Go, we also
in fact[.]61 (Emphasis supplied) held:ChanRoblesVirtualawlibrary
Respondent alleges that it is a branch of Unocal In Labor Congress of the Philippines v. NLRC, we have made
Coiporation. Claiming that it is a branch is inconsistent it clear that "to allow fresh issues on appeal is violative of
with its allegation (on appeal) that it is a subsidiary of the rudiments of fair play, justice and due process."
another corporation. A branch and a subsidiary differ in Likewise, in Orosa v. Court of Appeals, the Court disallowed
its corporate existence: a branch is not a legally it because "it would be offensive to the basic rule of fair
independent unit, while a subsidiary has a separate and play, justice and due process if it considered [the] issue[s]
distinct personality from its parent corporation. raised for the first time on appeal." We cannot take an
opposite stance in the present case.66 (Citations omitted)
Respondent did state that Unocal Corporation was the Nonetheless, if respondent is indeed a party to the merger,
party to the Merger Agreement with Blue Merger and the merger still does not result in the dismissal of its
Chevron. Nonetheless, it did not use this allegation to employees.
argue that it had a separate and distinct personality from
Unocal Corporation and is, thus, not a party to the Merger The effects of a merger are provided under Section 80 of
Agreement. Respondent only raised this argument in its the Corporation Code:ChanRoblesVirtualawlibrary
appeal before the Court of Appeals. SEC. 80. Effects of merger or consolidation. — The merger
or consolidation, as provided in the preceding sections
Respondent's contention that it falls within the exception shall have the following effects:
to the rule likewise does not lie. Respondent cites Quasha
Ancheta Pena and Nolasco Law Office v. LCN Construction chanRoblesvirtualLawlibrary
Corp.67 and claims that it falls within the exception since it 1. The constituent corporations shall become a single
did not present any additional evidence on the corporation which, in case of merger, shall be the
matter:ChanRoblesVirtualawlibrary surviving corporation designated in the plan of merger;
In the interest of justice and within the sound discretion and, in case of consolidation, shall be the consolidated
of the appellate court, a party may change his legal theory corporation designated in the plan of consolidation;
on appeal, only when the factual bases thereof would not
require presentation of any further evidence by the 2. The separate existence of the constituent corporations
adverse party in order to enable it to properly meet the shall cease, except that of the surviving or the
issue raised in the new consolidated corporation;
theory.68chanroblesvirtuallawlibrary
However, this paragraph states that it is the adverse 3. The surviving or the consolidated corporation shall
party that should no longer be required to present possess all the rights, privileges, immunities and powers
additional evidence to contest the new claim, and not the and shall be subject to all the duties and liabilities of a
party presenting the new theory on appeal. Thus, it does corporation organized under this Code;
not matter that respondent no longer presented
additional evidence to support its new claim. The 4. The surviving or the consolidated corporation shall
petitioner, as the adverse party, should not have to thereupon and thereafter possess all the rights, privileges,
present further evidence on the matter before the new immunities and franchises of each of the constituent
issue may be considered. However, the issue of whether corporations; and all property, real or personal, and all
respondent is a party to the Merger Agreement may be receivables due on whatever account, including
proven otherwise by petitioner, through the presentation subscriptions to shares and other choses in action, and all
of evidence that respondent is merely a branch and not a and every other interest of, or belonging to, or due to each
subsidiary of Unocal Corporation. Thus, respondent's new constituent corporation, shall be taken and deemed to be
allegation does not fall under the exception to the rule. transferred to and vested in such surviving or consolidated
corporation without further act or deed; and
Petitioner was denied the opportunity to present evidence
to disprove respondent's new claim. Therefore, the Court 5. The surviving or the consolidated corporation shall be
of Appeals erred in taking into consideration this responsible and liable for all the liabilities and obligations
argument. of each of the constituent corporations in the same manner
as if such surviving or consolidated corporation had itself
As to the remaining issues, we rule in favor of respondent incurred such liabilities or obligations; and any claim,
and dismiss the Petition. action or proceeding pending by or against any of such
constituent corporations may be prosecuted by or against
Both the Secretary of Labor and the Court of Appeals the surviving or consolidated corporation, as the case may
found that what was entered into by Unocal Corporation, be. Neither the rights of creditors nor any lien upon the
Blue Merger, and Chevron is a merger. The primary issue property of any of such constituent corporations shall be
is what the effects of this merger on respondent's impaired by such merger or consolidation. (Emphasis
employees are. supplied)
Although this provision does not explicitly state the
We find that, whether or not respondent is a party to the merger's effect on the employees of the absorbed
Merger Agreement, there is no implied dismissal of its corporation, Bank of the Philippine Islands v. BPI
employees as a consequence of the merger. Employees Union-Davao Chapter-Federation of Unions in
BPI Unibank71 has ruled that the surviving corporation
A merger is a consolidation of two or more corporations, automatically assumes the employment contracts of the
which results in one or more corporations being absorbed absorbed corporation, such that the absorbed
into one surviving corporation.69 The separate existence corporation's employees become part of the manpower
of the absorbed corporation ceases, and the surviving complement of the surviving corporation,
corporation "retains its identity and takes over the rights, thus:ChanRoblesVirtualawlibrary
privileges, franchises, properties, claims, liabilities and Taking a second look on this point, we have come to agree
obligations of the absorbed with Justice Brion's view that it is more in keeping with the
corporation(s)."70chanrobleslaw dictates of social justice and the State policy of according
full protection to labor to deem employment contracts as
If respondent is a subsidiary of Unocal California, which, automatically assumed by the surviving corporation in a
in turn, is a subsidiary of Unocal Corporation, then the merger, even in the absence of an express stipulation in the
merger of Unocal Corporation with Blue Merger and articles of merger or the merger plan. In his dissenting
Chevron does not affect respondent or any of its opinion, Justice Brion reasoned
employees. Respondent has a separate and distinct that:ChanRoblesVirtualawlibrary
personality from its parent corporation. To my mind, due consideration of Section 80 of the
Corporation Code, the constitutionally declared policies
on work, labor and employment, and the specific FEBTC- ARTICLE XIII
BPI situation — i.e., a merger with complete "body and . . . .
Labor
soul" transfer of all that FEBTC embodied and possessed SECTION 3. The State shall afford full protection to labor, local and
and where both participating banks were willing (albeit overseas, organized and unorganized, and promote full employment
by deed, not by their written agreement) to provide for the and equality of employment opportunities for all.
affected human resources by recognizing continuity of It shall guarantee the rights of all workers to self-organization,
collective bargaining and negotiations, and peaceful concerted
employment — should point this Court to a declaration activities, including the right to strike in accordance with law. They
that in a complete merger situation where there is total shall be entitled to security of tenure, humane conditions of work, and
takeover by one corporation over another and there is a living wage. They shall also participate in policy and decision-making
silence in the merger agreement on what the fate of the processes affecting their rights and benefits as may be provided by law.
human resource complement shall be, the latter should The State shall promote the principle of shared responsibility between
workers and employers and the preferential use of voluntary modes in
not be left in legal limbo and should be properly provided settling disputes, including conciliation, and shall enforce their mutual
for, by compelling the surviving entity to absorb these compliance therewith to foster industrial peace.
employees. This is what Section 80 of the Corporation The State shall regulate the relations between workers and employers,
Code commands, as the surviving corporation has the recognizing the right of labor to its just share in the fruits of production
and the right of enterprises to reasonable returns on investments, and
legal obligation to assume all the obligations and liabilities to expansion and growth.
of the merged constituent corporation.
These constitutional provisions ensure that workers'
Not to be forgotten is that the affected employees rights are protected as they are imbued with public
managed, operated and worked on the transferred assets interest. They likewise prevent an interpretation of any
and properties as their means of livelihood; they law, rule, or agreement, which may violate worker's rights
constituted a basic component of their corporation during acquired during their employment.
its existence. In a merger and consolidation situation, they
cannot be treated without consideration of the applicable Associate Justice Arturo D. Brion's Dissenting Opinion
constitutional declarations and directives, or, worse, be in Bank of the Philippine Islands v. BPI Employees Union-
simply disregarded. If they are so treated, it is up to this Davao Chapter-Federation of Unions in BPI Unibank76 was
Court to read and interpret the law so that they are treated similarly premised on the constitutional protection
in accordance with the legal requirements of mergers and afforded to labor and the public interest carried by
consolidation, read in light of the social justice, economic employment contracts:ChanRoblesVirtualawlibrary
and social provisions of our Constitution. Hence, there is a An employment contract or contract of service essentially
need for the surviving corporation to take responsibility for has value because it embodies work — the means of
the affected employees and to absorb them into its adding value to basic raw materials and the processes for
workforce where no appropriate provision for the merged producing goods, materials and services that become the
corporation's human resources component is made in the lifeblood of corporations and, ultimately, of the nation.
Merger Plan.72 (Emphasis supplied, citations omitted) Viewed from this perspective, the employment contract or
The rationale for this ruling is anchored on the nature and contract of service is not an ordinary agreement that can
effects of a merger as provided under Section 80 of the be viewed in strictly contractual sense. It embodies work
Corporation Code, as well as the policies on work and and production and carries with it a very significant
labor enshrined in the Constitution.73chanrobleslaw element of public interest; thus, the Constitution, no less,
accords full recognition and protection to workers and
To reiterate, Section 80 of the Corporation Code provides their contribution to production.
that the surviving corporation shall possess all the rights, . . . .
privileges, properties, and receivables due of the absorbed These constitutional statements and directives, aside from
corporation. Moreover, all interests of, belonging to, or telling us to consider work, labor and employment beyond
due to the absorbed corporation "shall be taken and purely contractual terms, also provide us directions on
deemed to be transferred to and vested in such surviving how our considerations should be made, i.e., with an eye
or consolidated corporation without further act or on the interests they represent — the individual, the
deed."74 The surviving corporation likewise acquires all corporate, and more importantly, the
the liabilities and obligations of the absorbed corporation national. chanroblesvirtuallawlibrary
77
as if it had itself incurred these liabilities or Associate Justice Brion likewise discussed the nature of a
obligations.75chanrobleslaw merger agreement vis-a-vis the employment
contracts:ChanRoblesVirtualawlibrary
This acquisition of all assets, interests, and liabilities of the This recognition is not to objectify the workers as assets
absorbed corporation necessarily includes the rights and and liabilities, but to recognize — using the spirit of the
obligations of the absorbed corporation under its law and constitutional standards — their necessary
employment contracts. Consequently, the surviving involvement and need to be provided for in a merger
corporation becomes bound by the employment contracts situation. Neither does this step, directly impacting on the
entered into by the absorbed corporation. These employees' individual employment contracts, detract
employment contracts are not terminated. They subsist from the in personam character of these contracts. For in a
unless their termination is allowed by law. merger situation, no change of employer is involved; the
change is in the internal personality of the employer rather
This interpretation is consistent with the consitutional than through the introduction of a new employer which
provisions and policies on work and labor, which would have novated the contract. This conclusion
provides:ChanRoblesVirtualawlibrary proceeds from the nature of a merger as a corporate
ARTICLE II
. . . . development regulated by law and the merger's
State Policies implementation through the parties' merger agreement.
. . . . . . . .
SECTION 18. The State affirms labor as a primary social economic force. In the BPI-FEBTC situation, these employment contracts
It shall protect the rights of workers and promote their welfare.
....
are part of the obligations that the merging parties have to
account and make provisions for under the Constitution Chevron does not result in an implied termination of the
and the Corporation Code; in the absence of any clear employment of petitioner's members. Assuming
agreement, these employment contracts subsist, subject respondent is a party to the merger, its employment
to the right of the employees to reject them as they cannot contracts are deemed to subsist and continue by "the
be compelled to render service but can only be made to combined operation of the Corporation Code and the
answer in damages if the rejection constitutes a breach. In Labor Code under the backdrop of the labor and social
other words, in mergers and consolidations, these contracts justice provisions of the Constitution."83chanrobleslaw
should be held to be continuing, unless rejected by the
employees themselves or declared by the merging parties to Petitioner insists that this is contrary to its freedom to
be subject to the authorized causes for termination of contract, considering its members did not enter into
employment under Sections 282 and 283 of the Labor Code. employment contracts with the surviving corporation.
In this sense, the merging parties' control and business However, petitioner is not precluded from leaving the
decision on how employees shall be affected, in the same surviving corporation. Although the absorbed employees
manner that the affected employees' decision on whether to are retained as employees of the merged corporation, the
abide by the merger or to opt out, remain employer retains the right to terminate their employment
unsullied.78 (Emphasis in the original) for a just or authorized cause. Likewise, the employees are
Senior Associate Justice Antonio T. Carpio's Dissenting not precluded from severing their employment through
Opinion79 likewise discusses the constitutional and legal resignation or retirement. The freedom to contract and
right to security of tenure as basis for ruling that the the prohibition against involuntary servitude is still, thus,
employment contracts of the absorbed corporation preserved in this sense.84 This is the manner by which the
subsist in case of a merger:ChanRoblesVirtualawlibrary consent of the employees is considered by the law.
Upon merger, BPI, as the surviving entity, absorbs FEBTC
and continues the combined business of the two banks. Hence, assuming respondent is a party to the merger, the
BPI assumes the legal personality of FEBTC, and merger still does not operate to effect a termination of the
automatically acquires FEBTC s rights, privileges and employment of respondent's employees. Should they be
powers, as well as its liabilities and obligations. unhappy with the surviving corporation, the employees
. . . . may retire or resign from employment.
Among the obligations and liabilities of FEBTC is to
continue the employment of FEBTC employees. These Given these considerations, we rule that petitioner is not
employees have already acquired certain employment entitled to the separation benefits it claims from
status, tenure, salary and benefits. They are regular respondent.
employees of FEBTC. Since after the merger, BPI has
continued the business of FEBTC, FEBTC's obligation to Separation benefits are not granted to petitioner by law in
these employees is assumed by BPI, and BPI becomes case of voluntary resignation,85 or by any contract it
duty-bound to continue the employment of these FEBTC entered into with respondent.
employees.
The Collective Bargaining Agreement86 between
Under Article 279 of the Labor Code, regular employees petitioner and respondent
acquire security of tenure, and hence, may not be provides:ChanRoblesVirtualawlibrary
terminated by the employer except upon legal grounds. . . . Article XII
Without any of these legal grounds, the employer cannot RESPONSIBILITIES OF THE PARTIES AND INDUSTRIAL
validly terminate the employment of regular employees; PEACE
otherwise, the employees' right to security of tenure . . . .
would be violated. Section 2. ADDITIONAL RESPONSIBILITIES
. . . .
The merger of two corporations does not authorize the In the event of closure, cessation of operations,
surviving corporation to terminate the employees of the retrenchment, redundancy or installation of labor saving
absorbed corporation in the absence of just or authorized devices, the COMPANY will pay just and fair compensation
causes as provided in Articles 282 and 283 of the Labor for those who will be separated from the COMPANY. The
Code. . . . Once an employee becomes permanent, he is separation benefit is covered under a MEMORANDUM OF
protected by the security of tenure clause in the AGREEMENT as agreed upon by both parties and shall
Constitution, and he can be terminated only for just or serve as a part of this agreement (Annex
authorized causes as provided by B).87chanroblesvirtuallawlibrary
law. chanroblesvirtuallawlibrary
80 Likewise, the Memorandum of Agreement88 dated
These theories were dissents to the Decision in Bank of the November 1, 2005 betweeen petitioner and respondent
Philippine Islands. However, in the Resolution resolving states:ChanRoblesVirtualawlibrary
the Motion for Reconsideration in that case, this Court WITHESSETH: That
found it necessary to interpret Section 80 of the WHEREAS, the COMPANY and the UNION recognize the possibility that
UNOCAL PHILIPPINES, INC. may undergo at its discretion reduction in
Corporation Code and the constitutional provisions on workforce as a result of redundancy, retrenchment or installation of
labor as to strengthen the "judicial protection of the right labor saving devices, or closure and cessation of operations.
to security of tenure of employees affected by a merger WHEREAS, the COMPANY and the UNION agree that should any of the
and [avoid] confusion regarding the status of various- above-cited conditions occur that may directly affect the tenure of
existing employees, the rights of the employees should be respected
benefits."81 Thus, this Court ruled that the surviving and that the COMPANY will pay just and fair compensation for those
corporation automatically assumes the employment who will be separated from the COMPANY;
contracts of the absorbed corporation. The absorbed In view of the foregoing and in consideration of industrial peace and
corporation's employees are not impliedly dismissed, but this covenant, the parties hereby agree as follows:
become part of the manpower complement of the chanRoblevirtualLawlibrary. . . .
2. The COMPANY will provide the following separation benefits for all
surviving corporation.82chanrobleslaw regular and probationary employees in the event that they lose their
jobs as a result of the conditions cited above;
The merger of Unocal Corporation with Blue Merger and
a. Separation Pay: 2.5 months multiplied by the
current monthly base pay plus monthly equivalent WHEREFORE, the Decision dated July 23, 2009 and the
of the 13th month and 14th month pay multiplied by
the number of years service.89 Resolution dated November 9, 2009 of the Court of
Appeals in CA-G.R. SP No. 102184 are AFFIRMED. The
Merger is not one of the circumstances where the Petition for Review is DENIED considering that no
employees may claim separation pay. The only instances reversible error was committed by the Court of Appeals.
where separation pay may be awarded to petitioner are:
(a) reduction in workforce as a result of redundancy; (b) SO ORDERED.chanRoblesvirtualLawlibrary
retrenchment or installation of labor-saving devices; or
(c) closure and cessation of operations. Leonardo-De Castro,**Mendoza, (Acting Chairperson),
and Jardeleza,***JJ., concur.
Redundancy has been defined by this Court as Velasco, Jr.,*J., I concur but this case is to be differentiated
follows:ChanRoblesVirtualawlibrary from G.R. No. 195615 (Bank of Commerce vs. RPN)
[W]e believe that redundancy, for purposes of our Labor
Code, exists where the services of an employee are in
excess of what is reasonably demanded by the actual THIRD DIVISION
requirements of the enterprise. Succinctly put, a position G.R. No. 198967, March 07, 2016
is redundant where it is superfluous, and superfluity of a JOSE EMMANUEL P. GUILLERMO, Petitioner,
position or positions may be the outcome of a number of v. CRISANTO P. USON, Respondent.
factors, such as overhiring of workers, decreased volume DECISION
of business, or dropping of a particular product line or PERALTA, J.:
service activity previously manufactured or undertaken Before the Court is a petition for review
by the enterprise. The employer has no legal obligation to on certiorari under Rule 45 of the Rules of Court seeking
keep in its payroll more employees than are necessary for to annul and set aside the Court of Appeals
the operation of its business.90 (Citations omitted) Decision1 dated June 8, 2011 and Resolution2 dated
Retrenchment, on the other hand, is the reduction of October 7, 2011 in CA G.R. SP No. 115485, which
personnel to save on costs on salaries and wages due to a affirmed in toto the decision of the National Labor
considerable decline in the volume of Relations Commission (NLRC).
business.91chanrobleslaw
The facts of the case follow.
Cessation and closure of business contemplates the
stopping of business operations of the employer whether On March 11, 1996, respondent Crisanto P. Uson (Uson)
on the employer's prerogative or on account of severe began his employment with Royal Class Venture Phils., Inc.
business losses.92chanrobleslaw (Royal Class Venture) as an accounting clerk.3 Eventually,
he was promoted to the position of accounting supervisor,
None of these instances are present here. The terms do not with a salary of Php13,000.00 a month, until he was
provide that a merger is one of the instances where allegedly dismissed from employment on December 20,
petitioner may claim separation benefits for its members. 2000.4
Neither can these circumstances be interpreted as to
contemplate a merger with another corporation. In any On March 2, 2001, Uson filed with the Sub-Regional
case, if title parties intended that petitioner ought to be Arbitration . Branch No. 1, Dagupan City, of the NLRC a
granted separation pay in case of a merger, it should have Complaint for Illegal Dismissal, with prayers for
been explicitly provided for in the contract. Absent this backwages, reinstatement, salaries and 13thmonth pay,
express intention, petitioner cannot claim separation pay. moral and exemplary damages and attorney's fees against
Royal Class Venture.5
On the contention that petitioner must be awarded the
separation pay in the interest of social justice, this Court Royal Class Venture did not make an appearance in the
has held that this award is granted only under the case despite its receipt of summons.6
following exceptional cases: (1) the dismissal of the
employee was not for serious misconduct; and (2) it did On May 15, 2001, Uson filed his Position Paper7 as
not reflect on the moral character of the complainant.
employee.93chanrobleslaw
On October 22, 2001, Labor Arbiter Jose G. De Vera
In this case, there is no dismissal of the employees on rendered a Decision8 in favor of the complainant Uson and
account of the merger. Petitioner does not deny that ordering therein respondent Royal Class Venture to
respondent actually continued its normal course of reinstate him to his former position and pay his
operations after the merger, and that its members, as backwages, 13th month pay as well as moral and
employees, resumed their work with their tenure, salaries, exemplary damages and attorney's fees.
wages, and other benefits intact. Petitioner was even able
to execute with respondent, after the merger, the Royal Class Venture, as the losing party, did not file an
Collective Bargaining Agreement from which it anchors its appeal of the decision.9 Consequently, upon Uson's motion,
claims. a Writ of Execution10 dated February 15, 2002 was issued
to implement the Labor Arbiter's decision.
Given these circumstances, petitioner is not entitled to
separation pay. Although the policy of the state is to rule On May 17, 2002, an Alias Writ of Execution11 was issued.
in favor of labor in light of the social justice provisions But with the judgment still unsatisfied, a Second Alias Writ
under the Constitution, this Court cannot unduly trample of Execution12 was issued on September 11, 2002.
upon the rights of management, which are likewise
entitled to respect in the interest of fair play. Again, it was reported in the Sheriff's Return that the
Second Alias Writ of Execution dated September 11, 2002
remained "unsatisfied." Thus, on November 14, 2002, Preliminary Injunction dated June 10, 2004.25cralawred
Uson filed a Motion for Alias Writ of Execution and to Hold
Directors and Officers of Respondent Liable for In a Decision26 dated May 11, 2010, the NLRC dismissed
Satisfaction of the Decision.13 The motion quoted from a Guillermo's appeal and denied his prayers for injunction.
portion of the Sheriffs Return, which states:
chanRoblesvirtualLawlibrary On August 20, 2010, Guillermo filed a Petition
On September 12, 2002, the undersigned proceeded at the for Certiorari27 before the Court of Appeals, assailing the
stated present business office address of the respondent NLRC decision.
which is at Minien East, Sta. Barbara, Pangasinan to serve
the writ of execution. Upon arrival, I found out that the On June 8, 2011, the Court of Appeals rendered its assailed
establishment erected thereat is not [in] the respondent's Decision28 which denied Guillermo's petition and upheld
name but JOEL and SONS CORPORATION, a family all the findings of the NLRC.
corporation owned by the Guillermos of which, Jose
Emmanuel F. Guillermo the General Manager of the The appellate court found that summons was in fact
respondent, is one of the stockholders who received the served on Guillermo as President and General Manager of
writ using his nickname "Joey," [and who] concealed his Royal Class Venture, which was how the Labor Arbiter
real identity and pretended that he [was] the brother of acquired jurisdiction over the company.29 But Guillermo
Jose, which [was] contrary to the statement of the guard- subsequently refused to receive all notices of hearings and
on-duty that Jose and Joey [were] one and the same conferences as well as the order to file Royal Class
person. The former also informed the undersigned that Venture's position paper.30 Then, it was learned during
the respondent's (sic) corporation has been dissolved. execution that Royal Class Venture had been
dissolved.31 However, the Court of Appeals held that
On the succeeding day, as per [advice] by the although the judgment had become final and executory, it
[complainant's] counsel that the respondent has an may be modified or altered "as when its execution
account at the Bank of Philippine Islands Magsaysay becomes impossible or unjust."32 It also noted that the
Branch, A.B. Fernandez Ave., Dagupan City, the motion to hold officers and directors like Guillermo
undersigned immediately served a notice of garnishment, personally liable, as well as the notices to hear the same,
thus, the bank replied on the same day stating that the was sent to them by registered mail, but no pleadings
respondent [does] not have an account with the were submitted and no appearances were made by
branch.14ChanRoblesVirtualawlibrary anyone of them during the said motion's pendency.33 Thus,
On December 26, 2002, Labor Arbiter Irenarco R. the court held Guillermo liable, citing jurisprudence that
Rimando issued an Order15 granting the motion filed by hold the president of the corporation liable for the latter's
Uson. The order held that officers of a corporation are obligation to illegally dismissed employees.34 Finally, the
jointly and severally liable for the obligations of the court dismissed Guillermo's allegation that the case is an
corporation to the employees and there is no denial of due intra-corporate controversy, stating that jurisdiction is
process in holding them so even if the said officers were determined by the allegations in the complaint and the
not parties to the case when the judgment in favor of the character of the relief sought.35
employees was rendered.16Thus, the Labor Arbiter
pierced the veil of corporate fiction of Royal Class Venture From the above decision of the appellate court, Guillermo
and held herein petitioner Jose Emmanuel Guillermo filed a Motion for Reconsideration36 but the same was
(Guillermo), in his personal capacity, jointly and severally again denied by the said court in the assailed
liable with the corporation for the enforcement of the Resolution37 dated October 7, 2011.
claims of Uson.17
Hence, the instant petition.
Guillermo filed, by way of special appearance, a Motion for
Reconsideration/To Set Aside the Order of December 26, Guillermo asserts that he was impleaded in the case only
2002.18 The same, however, was not granted as, this time, more than a year after its Decision had become final and
in an Order dated November 24, 2003, Labor Arbiter Niña executory, an act which he claims to be unsupported in
Fe S. Lazaga-Rafols sustained the findings of the labor law and jurisprudence.38 He contends that the decision
arbiters before her and even castigated Guillenno for his had become final, immutable and unalterable and that any
unexplained absence in the prior proceedings despite amendment thereto is null and void.39 Guillermo assails
notice, effectively putting responsibility on Guillermo for the so-called "piercing the veil" of corporate fiction which
the case's outcome against him.19 allegedly discriminated against him when he alone was
belatedly impleaded despite the existence of other
On January 5, 2004, Guillermo filed a Motion for directors and officers in Royal Class Venture.40 He also
Reconsideration of the above Order,20 but the same was claims that the Labor Arbiter has no jurisdiction because
promptly denied by the Labor Arbiter in an Order dated the case is one of an intra-corporate controversy, with the
January 7, 2004.21 complainant Uson also claiming to be a stockholder and
director of Royal Class Venture.41
On January 26, 2004, Uson filed a Motion for Alias Writ of
Execution,22 to which Guillermo filed a Comment and In his Comment,42 Uson did not introduce any new
Opposition on April 2, 2004.23 arguments but merely cited verbatim the disquisitions of
the Court of Appeals to counter Guillermo's assertions in
On May 18, 2004, the Labor Arbiter issued an his petition.
Order24 granting Uson's Motion for the Issuance of an
Alias Writ of Execution and rejecting Guillermo's To resolve the case, the Court must confront the issue of
arguments posed in his Comment and Opposition. whether an officer of a corporation may be included as
judgment obligor in a labor case for the first time only
Guillermo elevated the matter to the NLRC by filing a after the decision of the Labor Arbiter had become final
Memorandum of Appeal with Prayer for a (Writ of) and executory, and whether the twin doctrines of
"piercing the veil of corporate fiction" and personal corporation's obligations to labor is held to be an
liability of company officers in labor cases apply. exception to the general doctrine of separate personality
of a corporation.
The petition is denied.
It also bears emphasis that in cases where personal
In the earlier labor cases of Claparols v. Court of Industrial liability attaches, not even all officers are made
Relations43 and A.C. Ransom Labor Union-CCLU v. accountable. Rather, only the "responsible officer," i.e., the
NLRC,44 persons who were not originally impleaded in the person directly responsible for and who "acted in bad
case were, even during execution, held to be solidarity faith" in committing the illegal dismissal or any act
liable with the employer corporation for the latter's violative of the Labor Code, is held solidarily liable, in
unpaid obligations to complainant-employees. These cases wherein the corporate veil is pierced.58 In other
included a newly-formed corporation which was instances, such as cases of so-called corporate tort of a
considered a mere conduit or alter ego of the originally close corporation, it is the person "actively engaged" in the
impleaded corporation, and/or the officers or management of the corporation who is held liable.59 In the
stockholders of the latter corporation.45 Liability attached, absence of a clearly identifiable officer(s) directly
especially to the responsible officers, even after final responsible for the legal infraction, the Court considers
judgment and during execution, when there was a failure the president of the corporation as such officer.60
to collect from the employer corporation the judgment
debt awarded to its workers.46 In Naguiat v. NLRC,47 the The common thread running among the aforementioned
president of the corporation was found, for the first time cases, however, is that the veil of corporate fiction can be
on appeal, to be solidarily liable to the dismissed pierced, and responsible corporate directors and officers
employees. Then, in Reynoso v. Court of Appeals,48 the veil or even a separate but related corporation, may be
of corporate fiction was pierced at the stage of execution, impleaded and held answerable solidarily in a labor case,
against a corporation not previously impleaded, when it even after final judgment and on execution, so long as it is
was established that such corporation had dominant established that such persons have deliberately used the
control of the original party corporation, which was a corporate vehicle to unjustly evade the judgment
smaller company, in such a manner that the latter's obligation, or have resorted to fraud, bad faith or malice in
closure was done by the former in order to defraud its doing so. When the shield of a separate corporate identity
creditors, including a former worker. is used to commit wrongdoing and opprobriously elude
responsibility, the courts and the legal authorities in a
The rulings of this Court in A.C. Ransom, Naguiat, labor case have not hesitated to step in and shatter the
and Reynoso, however, have since been tempered, at least said shield and deny the usual protections to the offending
in the aspects of the lifting of the corporate veil and the party, even after final judgment. The key element is the
assignment of personal liability to directors, trustees and presence of fraud, malice or bad faith. Bad faith, in this
officers in labor cases. The subsequent cases of McLeod v. instance, does not connote bad judgment or negligence
NLRC,49Spouses Santos v. NLRC50 and Carag v. NLRC,51 have but imports a dishonest purpose or some moral obliquity
all established, save for certain exceptions, the primacy of and conscious doing of wrong; it means breach of a known
Section 3152 of the Corporation Code in the matter of duty through some motive or interest or ill will; it partakes
assigning such liability for a corporation's debts, including of the nature of fraud.61
judgment obligations in labor cases. According to these
cases, a corporation is still an artificial being invested by As the foregoing implies, there is no hard and fast rule on
law with a personality separate and distinct from that of when corporate fiction may be disregarded; instead, each
its stockholders and from that of other corporations to case must be evaluated according to its peculiar
which it may be connected.53 It is not in every instance of circumstances.62 For the case at bar, applying the above
inability to collect from a corporation that the veil of criteria, a finding of personal and solidary liability against
corporate fiction is pierced, and the responsible officials a corporate officer like Guillermo must be rooted on a
are made liable. Personal liability attaches only when, as satisfactory showing of fraud, bad
enumerated by the said Section 31 of the Corporation
Code, there is a wilfull and knowing assent to patently faith or malice, or the presence of any of the justifications
unlawful acts of the corporation, there is gross negligence for disregarding the corporate fiction. As stated
or bad faith in directing the affairs of the corporation, or in McLeod,63 bad faith is a question of fact and is
there is a conflict of interest resulting in damages to the evidentiary, so that the records must first bear evidence of
corporation.54 Further, in another labor case, Pantranco malice before a finding of such may be made.
Employees Association (PEA-PTGWO), et al. v. NLRC, et
al.,55 the doctrine of piercing the corporate veil is held to It is our finding that such evidence exists in the record.
apply only in three (3) basic areas, namely: ( 1) defeat of Like the A. C. Ransom, and Naguiat cases, the case at bar
public convenience as when the corporate fiction is used involves an apparent family corporation. As in those two
as a vehicle for the evasion of an existing obligation; (2) cases, the records of the present case bear allegations and
fraud cases or when the corporate entity is used to justify evidence that Guillermo, the officer being held liable, is the
a wrong, protect fraud, or defend a crime; or (3) alter person responsible in the actual running of the company
ego cases, where a corporation is merely a farce since it is and for the malicious and illegal dismissal of the
a mere alter ego or business conduit of a person, or where complainant; he, likewise, was shown to have a role in
the corporation is so organized and controlled and its dissolving the original obligor company in an obvious
affairs are so conducted as to make it merely an "scheme to avoid liability" which jurisprudence has
instrumentality, agency, conduit or adjunct of another always looked upon with a suspicious eye in order to
corporation. In the absence of malice, bad faith, or a protect the rights of labor.64
specific provision of law making a corporate officer liable,
such corporate officer cannot be made personally liable Part of the evidence on record is the second page of the
for corporate liabilities.56 Indeed, in Reahs Corporation v. verified Position Paper of complainant (herein
NLRC,57 the conferment of liability on officers for a respondent) Crisanto P. Uson, where it was clearly alleged
that Uson was "illegally dismissed by the As for Guillermo's assertion that the case is an intra-
President/General Manager of respondent corporation corporate controversy, the Court sustains the finding of
(herein petitioner) Jose Emmanuel P. Guillermo when the appellate court that the nature of an action and the
Uson exposed the practice of the said President/General jurisdiction of a tribunal are determined by the allegations
Manager of dictating and undervaluing the shares of stock of the complaint at the time of its filing, irrespective of
of the corporation."65 The statement is proof that whether or not the plaintiff is entitled to recover upon all
Guillermo was the responsible officer in charge of running or some of the claims asserted therein.71 Although Uson is
the company as well as the one who dismissed Uson from also a stockholder and director of Royal Class Venture, it
employment. As this sworn allegation is uncontroverted - is settled in jurisprudence that not all conflicts between a
as neither the company nor Guillermo appeared before stockholder and the corporation are intra-corporate; an
the Labor Arbiter despite the service of summons and examination of the complaint must be made on whether
notices - such stands as a fact of the case, and now the complainant is involved in his capacity as a
functions as clear evidence of Guillermo's bad faith in his stockholder or director, or as an employee.72 If the latter
dismissal of Uson from employment, with the motive is found and the dispute does not meet the test of what
apparently being anger at the latter's reporting of qualities as an intra-corporate controversy, then the case
unlawful activities. is a labor case cognizable by the NLRC and is not within
the jurisdiction of any other tribunal.73In the case at bar,
Then, it is also clearly reflected in the records that it was Uson's allegation was that he was maliciously and illegally
Guillermo himself, as President and General Manager of dismissed as an Accounting Supervisor by Guillermo, the
the company, who received the summons to the case, and Company President and General Manager, an allegation
who also subsequently and without justifiable cause that was not even disputed by the latter nor by Royal Class
refused to receive all notices and orders of the Labor Venture. It raised no intra-corporate relationship issues
Arbiter that followed.66This makes Guillermo responsible between him and the corporation or Guillermo; neither
for his and his company's failure to participate in the did it raise any issue regarding the regulation of the
entire proceedings before the said office. The fact is clearly corporation. As correctly found by the appellate court,
narrated in the Decision and Orders of the Labor Arbiter, Uson's complaint and redress sought were centered alone
Uson's Motions for the Issuance of Alias Writs of Execution, on his dismissal as an employee, and not upon any other
as well as in the Decision of the NLRC and the assailed relationship he had with the company or with Guillermo.
Decision of the Court of Appeals,67 which Guillermo did Thus, the matter is clearly a labor dispute cognizable by
not dispute in any of his belated motions or pleadings, the labor tribunals.chanrobleslaw
including in his petition for certiorari before the Court of
Appeals and even in the petition currently before this WHEREFORE, the petition is DENIED. The Court of
Court.68 Thus, again, the same now stands as a finding of Appeals Decision dated June 8, 2011 and Resolution dated
fact of the said lower tribunals which binds this Court and October 7, 2011 in CA G.R. SP No. 115485 are AFFIRMED.
which it has no power to alter or revisit.69 Guillermo's
knowledge of the case's filing and existence and his SO ORDERED.cralawlawlibrary
unexplained refusal to participate in it as the responsible
official of his company, again is an indicia of his bad faith Velasco, Jr., (Chairperson), Perez, Reyes, and Jardeleza, JJ.,
and malicious intent to evade the judgment of the labor concur.chanroblesvirtuallawlibrary
tribunals.
Finally, the records likewise bear that Guillermo dissolved FIRST DIVISION
Royal Class Venture and helped incorporate a new firm, G.R. No. 184666, June 27, 2016
located in the same address as the former, wherein he is REPUBLIC OF THE PHILIPPINES, Petitioner, v. MEGA
again a stockl1older. This is borne by the Sherif11s Return PACIFIC ESOLUTIONS, INC., WILLY U. YU, BONNIE S. YU,
which reported: that at Royal Class Venture's business ENRIQUE T. TANSIPEK, ROSITA Y. TANSIPEK, PEDRO O.
address at Minien East, Sta. Barbara, Pangasinan, there is TAN, JOHNSON W. FONG, BERNARD I. FONG,
a new establishment named "Joel and Sons Corporation," AND *LAURIANO A. BARRIOS, Respondents.
a family corporation owned by the Guillermos in which DECISION
Jose Emmanuel F. Guillermo is again one of the SERENO, C.J.:
stockholders; that Guillermo received the writ of The instant case is an offshoot of this Court's Decision
execution but used the nickname "Joey" and denied being dated 13 January 2004 (2004 Decision) in a related case
Jose Emmanuel F. Guillermo and, instead, pretended to be entitled Information Technology Foundation of the
Jose's brother; that the guard on duty confirmed that Jose Philippines v. Commission on Elections.1chanrobleslaw
and Joey are one and the same person; and that the
respondent corporation Royal Class Venture had been In the 2004 case, We declared void the automation
dissolved.70 Again, the facts contained in the Sheriffs contract executed by respondent Mega Pacific eSolutions,
Return were not disputed nor controverted by Guillermo, Inc. (MPEI) and the Commission on Elections (COMELEC)
either in the hearings of Uson's Motions for Issuance of for the supply of automated counting machines (ACMs) for
Alias Writs of Execution, in subsequent motions or the 2004 national elections.
pleadings, or even in the petition before this Court.
Essentially, then, the facts form part of the records and The present case involves the attempt of petitioner
now stand as further proof of Guillermo's bad faith and Republic of the Philippines to cause the attachment of the
malicious intent to evade the judgment obligation. properties owned by respondent MPEI, as well as by its
incorporators and stockholders (individual respondents
The foregoing clearly indicate a pattern or scheme to in this case), in order to secure petitioner's interest and to
avoid the obligations to Uson and frustrate the execution ensure recovery of the payments it made to respondents
of the judgment award, which this Court, in the interest of for the invalidated automation contract.
justice, will not countenance.
At bench is a Rule 45 Petition assailing the Amended
Decision dated 22 September 2008 (Amended Decision) bidding. Despite this grant, Comelec
issued by the Court of Appeals (CA) in CA-G.R. SP No. entered into the actual Contract with
95988.2 In said Amended Decision, the CA directed the "Mega Pacific eSolutions, Inc." (MPEI), a
remand of the case to the Regional Trial Court of Makati company that joined the bidding process
City, Branch 59 (RTC Makati) for the reception of evidence but did not meet the eligibility
in relation to petitioner's application for the issuance of a requirements.
writ of preliminary attachment. The CA had reconsidered 2. Comelec accepted and irregularly paid for
and set aside its previous Decision dated 31 January 2008 MPEI's ACMs that had failed the accuracy
(First Decision)3 entitling petitioner to the issuance of said requirement of 99.9995 percent set up by
writ. the Comelec bidding rules. Acknowledging
that this rating could have been too steep,
Summarized below are the relevant facts of the case, some the Court nonetheless noted that "the
of which have already been discussed in this Court's 2004 essence of public bidding is violated by the
Decision: practice of requiring very high standards
The Facts or unrealistic specifications that cannot be
met, x x x only to water them
Republic Act No. 8436 authorized the COMELEC to use an down after the award is made. Such
automated election system for the May 1998 elections. scheme, which discourages the entry
However, the automated system failed to materialize and of bona fide bidders, is in fact a sure
votes were canvassed manually during the 1998 and the indication of fraud in the bidding,
2001 elections. designed to eliminate fair competition."
3. The software program of the counting
For the 2004 elections, the COMELEC again attempted to machines likewise failed to detect
implement the automated election system. For this previously downloaded precinct results
purpose, it invited bidders to apply for the procurement of and to prevent them from being reentered.
supplies, equipment, and services. Respondent MPEI, as This failure, which has not been corrected
lead company, purportedly formed a joint venture - x x x, would have allowed unscrupulous
known as the Mega Pacific Consortium (MPC) - together persons to repeatedly feed into the
with We Solv, SK C & C, ePLDT, Election.com and Oracle. computers the results favorable to a
Subsequently, MPEI, on behalf of MPC, submitted its bid particular candidate, an act that would
proposal to COMELEC. have translated into massive election
fraud by just a few key strokes.
The COMELEC evaluated various bid offers and 4. Neither were the ACMs able to print audit
subsequently found MPC and another company eligible to trails without loss of data - a mandatory
participate in the next phase of the bidding process.4 The requirement under Section 7 of Republic
two companies were referred to the Department of Act No. 8436. Audit trails would enable the
Science and Technology (DOST) for technical evaluation. Comelec to document the identities of the
After due assessment, the Bids and Awards Committee ACM operators responsible for data entry
(BAC) recommended that the project be awarded to MPC. and downloading, as well as the times
The COMELEC favorably acted on the recommendation when the various data were processed, in
and issued Resolution No. 6074, which awarded the order to forestall fraud and to identify the
automation project to MPC. perpetrators. The absence of audit trails
would have posed a serious threat to free
Despite the award to MPC, the COMELEC and credible elections.
and MPEI executed on 2 June 2003 the Automated 5. Comelec failed to explain satisfactorily
Counting and Canvassing Project Contract (automation why it had ignored its own bidding rules
contract)5 for the aggregate amount of P1,248,949,088. and requirements. It admitted that the
MPEI agreed to supply and deliver 1,991 units of ACMs software program used to test the ACMs
and such other equipment and materials necessary for the was merely a "demo" version, and that the
computerized electoral system in the 2004 elections. final one to be actually used in the
Pursuant to the automation contract, MPEI delivered elections was still being developed. By
1,991 ACMs to the COMELEC. The latter, for its part, made awarding the Contract and irregularly
partial payments to MPEI in the aggregate amount of paying for the supply of the ACMs without
P1.05 billion. having seen — much less, evaluated — the
final product being purchased, Comelec
The full implementation of the automation contract was desecrated the law on public bidding. It
rendered impossible by the fact that, after a painstaking would have allowed the winner to alter its
legal battle, this Court in its 2004 Decision declared the bid substantially, without any public
contract null and void.6 We held that the COMELEC bidding.
committed a clear violation of law and jurisprudence, as All in all, Comelec subverted the essence of public bidding:
well as a reckless disregard of its own bidding rules and to give the public an opportunity for fair competition and
procedure. In addition, the COMELEC entered into the a clear basis for a precise comparison of bids.8(Emphasis
contract with inexplicable haste, and without adequately supplied)
checking and observing mandatory financial, technical, As a consequence of the nullification of the automation
and legal requirements. In a subsequent Resolution, We contract, We directed the Office of the Ombudsman to
summarized the COMELEC's grave abuse of discretion as determine the possible criminal liability of persons
having consisted of the following:7 responsible for the contract.9 This Court likewise directed
1. By a formal Resolution, it awarded the the Office of the Solicitor General to protect the
project to "Mega Pacific Consortium," an government from the ill effects of the illegal disbursement
entity that had not participated in the of public funds in relation to the automation
contract.10chanrobleslaw reconsideration, the Ombudsman reversed its earlier
ruling in a Supplemental Resolution (September
After the declaration of nullity of the automation contract, Resolution), directing the dismissal of the criminal cases
the following incidents against the public officials, as well as the individual
transpired:ChanRoblesVirtualawlibrary respondents, for lack of probable cause.19chanrobleslaw
1. Private respondents in the 2004 case
moved for reconsideration of the 2004 With this development, a Petition for Certiorari was filed
Decision, but the motion was denied by with this Court on 13 October 2006 and docketed as G.R.
this Court in a Resolution dated 17 No. 174777.20 In the Petition, several
February 2004 (2004 individuals21 assailed the September Resolution of the
Resolution).11chanrobleslaw Ombudsman finding no probable cause to hold
2. The COMELEC filed a "Most Respectful respondents criminally liable. The case remains pending
Motion for Leave to Use the Automated with this Court as of this date.
Counting Machines in the Custody of the
Commission on Elections for use in the 8 COMELEC's Motion for Leave to Use ACMs in the ARMM
August 2005 Elections in the Autonomous Elections
Region for Muslim Mindanao" dated 9
December 2004 (Motion for Leave to Use The COMELEC filed a motion with this Court requesting
ACMs), which was denied by this Court in permission to use the 1,991 ACMs previously delivered by
its Resolution dated 15 June 2005 (2005 respondent MPEI, for the ARMM elections, then slated to
Resolution). be held on 8 August 2005. In its motion, the COMELEC
3. Atty. Romulo B. Macalintal (Macalintal) claimed that automation of the ARMM elections was
filed an "Omnibus Motion for Leave of mandated by Republic Act No. 9333, and since the
Court (1) to Reopen the Case; and (2) to government had no available funds to finance the
Intervene and Admit the Attached Petition automation of those elections, the ACMs could be utilized
in Intervention," which was denied by this for the 2005 elections.
Court in its Resolution dated 22 August
2006 (2006 Resolution); This Court denied the Motion in Our 2005 Resolution. We
and cralawlawlibrary ruled that allowing the use of the ACMs would have the
4. Respondent MPEI filed a Complaint for effect of illegally reversing and subverting a final decision
Damages12 (Complaint) with the RTC We had promulgated. We further ruled that the COMELEC
Makati, from which the instant case arose. was asking for permission to do what it had precisely been
The above-mentioned incidents are discussed in more prohibited from doing under the 2004 Decision. This
detail below. Court also ruled that the grant of the motion would bar or
BACKGROUND PROCEEDINGS jeopardize the recovery of government funds paid to
respondents. Considering that the COMELEC did not
Private respondents' Motion for Reconsideration present any evidence to prove that the defects had been
addressed, We held that the use of the ACMs and the
Private respondents in the 2004 case moved for software would expose the ARMM elections to the same
reconsideration of the 2004 Decision. Aside from electoral ills pointed out in the 2004 Decision.
reiterating the procedural and substantive arguments
they had raised, they also argued that the 2004 Decision Atty. Macalintal's Omnibus Motion
had exposed them to possible criminal
prosecution.13chanrobleslaw Atty. Romulo Macalintal sought to reopen the 2004 case in
order that he may be allowed to intervene as a taxpayer
This Court denied the motion in its 2004 Resolution and and citizen. His purpose for intervening was to seek
ruled that no prejudgment had been made on private another testing of the ACMs with the ultimate objective of
respondents' criminal liability. We further ruled that allowing the COMELEC to use them, this time for the 2007
although the 2004 Decision stated that the Ombudsman national elections.
shall "determine the criminal liability, if any, of the public
officials (and conspiring private individuals, if any) This Court denied his motion in Our 2006 Resolution,
involved in the subject Resolution and Contract," We did ruling that Atty. Macalintal failed to demonstrate that
not make any premature conclusion on any wrongdoing, certain supervening events and legal circumstances had
but precisely directed the Ombudsman to make that transpired to justify the reliefs sought. We in fact found
determination after conducting appropriate proceedings that, after Our determination that the ACMs had failed to
and observing due process. pass legally mandated technical requirements in 2004,
they were simply put in storage. The ACMs had remained
Similarly, it appears from the record that several criminal idle and unused since the last evaluation, at which they
and administrative Complaints had indeed been filed with failed to hurdle crucial tests. Consequently, We ruled that
the Ombudsman in relation to the declaration of nullity of if the ACMs were not good enough for the 2004 national
the automation contract.14 The Complaints were filed elections or the 2005 ARMM elections, then neither would
against several public officials and the individual they be good enough for the 2007 national elections,
respondents in this case.15chanrobleslaw considering that nothing was done to correct the flaws
that had been previously underscored in the 2004
In a Resolution issued on 28 June 2006,16 the Ombudsman Decision. We held that granting the motion would be
recommended the filing of informations before the tantamount to rendering the 2004 Decision totally
Sandiganbayan against some of the public officials and the ineffective and nugatory.
individual respondents17 for violation of Section 3(e) of
Republic Act No. 3019 (the Anti-Graft and Corrupt Moreover, because of our categorical ruling that the whole
Practices Act). However, on 27 September 2006,18 upon bidding process was void and fraudulent, the proposal to
use the illegally procured, demonstratively defective, and
fraud-prone ACMs was rendered nonsensical. Subsequently, the trial court denied the prayer for the
Thus:ChanRoblesVirtualawlibrary issuance of a writ of preliminary attachment,29 ruling that
We stress once again that the Contract entered into by the there was an absence of factual allegations as to how the
Comelec for the supply of the ACMs was declared VOID by fraud was actually committed.
the Court in its Decision, because of clear violations of law
and jurisprudence, as well as the reckless disregard by the The allegations of petitioner were found to be unreliable,
Commission of its own bidding rules and procedure. In as the latter merely copied from the declarations of the
addition, the poll body entered into the Contract with Supreme Court in Information Technology Foundation of
inexplicable haste, without adequately checking and the Phils, v. COMELEC the factual allegations of MPEI's lack
observing mandatory financial, technical and legal of qualification and noncompliance with bidding
requirements. As explained in our Decision, Comelec's requirements. The trial court further ruled that the
gravely abusive acts consisted of the following: allegations of fraud on the part of MPEI were not
supported by the COMELEC, the office in charge of
chanRoblesvirtualLawlibraryx x x x conducting the bidding for the election automation
contract. It was likewise held that there was no evidence
To muddle the issue, Comelec keeps on saying that the that respondents harbored a preconceived plan not to
"winning" bidder presented a lower price than the comply with the obligation; neither was there any
only other bidder. It ignored the fact that the whole evidence that MPEI's corporate fiction was used to
bidding process was VOID and FRAUDULENT. How perpetrate fraud. Thus, it found no sufficient basis to
then could there have been a "winning" pierce the veil of corporate fiction or to cause the
bid?22 (Emphasis supplied) attachment of the properties owned by individual
THE INSTANT CASE respondents.
Complaint for Damages filed by respondents with the Petitioner moved to set aside the trial court's Order
RTC Makati and petitioner's Answer with Counterclaim, denying the writ of attachment,30 but its motion was
with an application for a writ of preliminary denied.31chanrobleslaw
attachment, from which the instant case arose
Appeal before the CA and the First Decision
Upon the finality of the declaration of nullity of the
automation contract, respondent MPEI filed a Complaint Aggrieved, petitioner filed an appeal with the CA, arguing
for Damages before the RTC Makati, arguing that, that the trial court had acted with grave abuse of
notwithstanding the nullification of the automation discretion in denying the application for a writ of
contract, the COMELEC was still bound to pay the amount attachment.
of P200,165,681.89. This amount represented the
difference between the value of the ACMs and the support As mentioned earlier, the CA in its First
services delivered on one hand, and on the other, the Decision32 reversed and set aside the trial court's Orders
payment previously made by the and ruled that there was sufficient basis for the issuance
COMELEC.23chanrobleslaw of a writ of attachment in favor of petitioner.
Petitioner filed its Answer with Counterclaim24 and The appellate court explained that the averments of
argued that respondent MPEI could no longer recover the petitioner in support of the latter's application actually
unpaid balance from the void automation contract, since reflected pertinent conclusions reached by this Court in its
the payments made were illegal disbursements of public 2004 Decision. It held that the trial court erred in
funds. It contended that a null and void contract vests no disregarding the following findings of fact, which
rights and creates no obligations, and thus produces no remained unaltered and unreversed: (1) COMELEC
legal effect at all. Petitioner further posited that bidding rules provided that the eligibility and capacity of
respondent MPEI could not hinge its claim upon the a bidder may be proved through financial documents
principles of unjust enrichment and quasi-contract, including, among others, audited financial statements for
because such presume that the acts by which the authors the last three years; (2) MPEI was incorporated only on 27
thereof become obligated to each other are lawful, which February 2003, or 11 days prior to the bidding itself; (3)
was not the case herein.25cralawredchanrobleslaw in an attempt to disguise its ineligibility, MPEI
participated in the bidding as lead company of MPC, a
By way of a counterclaim, petitioner demanded from putative consortium, and submitted the incorporation
respondents the return of the payments made pursuant to papers and financial statements of the members of the
the automation contract.26 It argued that individual consortium; and (4) no proof of the joint venture
respondents, being the incorporators of MPEI, likewise agreement, consortium agreement, memorandum of
ought to be impleaded and held accountable for MPEI's agreement, or business plan executed among the
liabilities. The creation of MPC was, after all, merely an members of the purported consortium was ever
ingenious scheme to feign eligibility to submitted to the COMELEC.33chanrobleslaw
bid.27chanrobleslaw
According to the CA, the foregoing were glaring indicia or
Pursuant to Section 1(d) of Rule 57 of the Rules of Court, badges of fraud, which entitled petitioner to the issuance
petitioner prayed for the issuance of a writ of preliminary of the writ. It further ruled that there was sufficient reason
attachment against the properties of MPEI and individual to pierce the corporate veil of MPEI. Thus, the CA allowed
respondents. The application was grounded upon the the attachment of the properties belonging to both MPEI
fraudulent misrepresentation of respondents as to their and individual respondents.34 The CA likewise ruled that
eligibility to participate in the bidding for the COMELEC even if the COMELEC committed grave abuse of discretion
automation project and the failure of the ACMs to comply in capriciously disregarding the rules on public bidding,
with mandatory technical requirements.28chanrobleslaw this should not preclude or deter petitioner from pursuing
its claim against respondents. After all, the State is not incumbent upon petitioner to present evidence on the
estopped by the mistake of its officers and allegations of fraud to justify the issuance of the
employees.35chanrobleslaw writ.52They likewise argue that the 2004 Decision cannot
be invoked against them, since petitioner and MPEI were
Respondents moved for reconsideration36 of the First co-respondents in the 2004 case and not adverse parties
Decision of the CA. therein.53Respondents further contend that the
allegations of fraud are belied by their actual delivery of
Motion for Reconsideration before the CA and the 1,991 units of ACMs to the COMELEC, which they claim is
Amended Decision proof that they never had any intention to evade
performance.54chanrobleslaw
Upon review, the CA reconsidered its First Decision37 and
directed the remand of the case to the RTC Makati for the They further allege that this Court, in its 2004 Decision,
reception of evidence of allegations of fraud and to even recognized that it had not found any wrongdoing on
determine whether attachment should necessarily their part, and that the Ombudsman had already made a
issue.38chanrobleslaw determination that no probable cause existed with respect
to charges of violation of Anti-Graft and Corrupt Practices
The CA explained in its Amended Decision that Act.55chanrobleslaw
respondents could not be considered to have fostered a
fraudulent intent to dishonor their obligation, since they Echoing the other respondents' arguments on the lack of
had delivered 1,991 units of ACMs.39 It directed petitioner particularity in the allegations of fraud,56 respondents
to present proof of respondents' intent to defraud MPEI, Johnson Wong, Bernard Fong, Pedro Tan, and
COMELEC during the execution of the automation Lauriano Barrios likewise argue that they were not parties
contract.40 The CA likewise emphasized that the Joint to the 2004 case; thus, the 2004 Decision thereon is not
Affidavit submitted in support of petitioner's application binding on them.57 Individual respondents likewise argue
for the writ contained allegations that needed to be that the findings of fact in the 2004 Decision were not
substantiated.41 It added that proof must likewise be conclusive,58 considering that eight (8) of the fifteen (15)
adduced to verify the requisite fraud that would justify the justices allegedly refused to go along with the factual
piercing of the corporate veil of respondent findings as stated in the majority opinion.59Thereafter,
MPEI.42chanrobleslaw petitioner filed its Reply to the
Comments.60chanrobleslaw
The CA further clarified that the 2004 Decision did not
make a definite finding as to the identities of the persons Based on the submissions of both parties, the following
responsible for the illegal disbursement or of those who issues are presented to this Court for resolution:
participated in the fraudulent dealings.43 It instructed the 1. Whether petitioner has sufficiently established
trial court to consider, in its determination of whether the fraud on the part of respondents to justify the
writ of attachment should issue, the illegal, imprudent and issuance of a writ of preliminary attachment in its
hasty acts in awarding the automation contract by the favor; and cralawlawlibrary
COMELEC. In particular, these acts consisted of: (1) 2. Whether a writ of preliminary attachment may be
awarding the automation contract to MPC, an entity that issued against the properties of individual
did not participate in the bidding; and (2) signing the respondents, considering that they were not
actual automation contract with respondent MPEI, the parties to the 2004 case.
company that joined the bidding without meeting the The Court's Ruling
eligibility requirement.44chanrobleslaw
The Petition is meritorious. A writ of preliminary
Rule 45 Petition before Us attachment should issue in favor of petitioner over the
properties of respondents MPEI, Willy Yu (Willy) and the
Consequently, petitioner filed the instant Rule 45 remaining individual respondents, namely: Bonnie S. Yu
Petition,45 arguing that the CA erred in ordering the (Bonnie), Enrique T. Tansipek (Enrique), Rosita Y.
remand of the case to the trial court for the reception of Tansipek (Rosita), Pedro O. Tan (Pedro), Johnson W. Fong
evidence to determine the presence of fraud. Petitioner (Johnson), Bernard I. Fong (Bernard), and Lauriano
contends that this Court's 2004 Decision was sufficient Barrios (Lauriano). The bases for the writ are the
proof of the fraud committed by respondents in the following:
execution of the voided automation 1. Fraud on the part of respondent MPEI was
contract. Respondents allegedly committed fraud by
46 sufficiently established by the factual findings of
securing the automation contract, although MPEI was not this Court in its 2004 Decision and subsequent
qualified to bid in the first place.47 Their claim that the pronouncements.
members of MPC bound themselves to the automation 2. A writ of preliminary attachment may issue over
contract was an indication of bad faith as the contract was the properties of the individual respondents using
executed by MPEI alone.48 Neither could they deny that the doctrine of piercing the corporate veil.
the software submitted during the bidding process was 3. The factual findings of this Court that have become
not the same one that would be used on election final cannot be modified or altered, much less
day.49 They could not dissociate themselves from telltale reversed, and are controlling in the instant case.
signs such as purportedly supplying software that later 4. The delivery of 1,991 units of ACMs does not
turned out to be non-existent.50chanrobleslaw negate fraud on the part of respondents MPEI and
Willy.
In their respective Comments, respondents Willy Yu, 5. Estoppel does not lie against the state when it acts
Bonnie Yu, Enrique Tansipek, and Rosita Tansipek to rectify mistakes, errors or illegal acts of its
counter51 that this Court never ruled that individual officials and agents.
respondents were guilty of any fraud or bad faith in 6. The findings of the Ombudsman are not
connection with the automation contract, and that it was controlling in the instant case.
DISCUSSION For a writ of preliminary attachment to issue under the
above-quoted rule, the applicant must sufficiently show
I. the factual circumstances of the alleged fraud.65 In Metro,
Fraud on the part of respondent MPEI was sufficiently Inc. v. Lara's Gift and Decors, Inc.,66 We
established by the factual findings of this Court in the explained:ChanRoblesVirtualawlibrary
latter's 2004 Decision and subsequent To sustain an attachment on this ground, it must be shown
pronouncements. that the debtor in contracting the debt or incurring the
obligation intended to defraud the creditor. The fraud
Petitioner argues that the findings of this Court in the must relate to the execution of the agreement and
2004 Decision serve as sufficient basis to prove that, at the must have been the reason which induced the other
time of the execution of the automation contract, there party into giving consent which he would not have
was fraud on the part of respondents that justified the otherwise given. To constitute a ground for attachment
issuance of a writ of attachment. Respondents, however, in Section 1(d), Rule 57 of the Rules of Court, fraud should
argue the contrary. They claim that fraud had not been be committed upon contracting the obligation sued upon.
sufficiently established by petitioner. A debt is fraudulently contracted if at the time of
contracting it the debtor has a preconceived plan or
We rule in favor of petitioner. Fraud on the part of intention not to pay, as it is in this case. x x x.
respondents MPEI and Willy, as well as of the other The applicant for a writ of preliminary attachment must
individual respondents — Bonnie, Enrique, Rosita, Pedro, sufficiently show the factual circumstances of the alleged
Johnson, Bernard, and Lauriano — has been established. fraud because fraudulent intent cannot be inferred from
the debtor's mere non-payment of the debt or failure to
A writ of preliminary attachment is a provisional remedy comply with his obligation. (Emphasis supplied)
issued upon the order of the court where an action is An amendment to the Rules of Court added the phrase "in
pending. Through the writ, the property or properties of the performance thereof" to include within the scope of
the defendant may be levied upon and held thereafter by the grounds for issuance of a writ of preliminary
the sheriff as security for the satisfaction of whatever attachment those instances relating to fraud in the
judgment might be secured by the attaching creditor performance of the obligation.67chanrobleslaw
against the defendant.61 The provisional remedy of
attachment is available in order that the defendant may Fraud is a generic term that is used in various senses and
not dispose of the property attached, and thus prevent the assumes so many different degrees and forms that courts
satisfaction of any judgment that may be secured by the are compelled to content themselves with comparatively
plaintiff from the former.62chanrobleslaw few general rules for its discovery and defeat. For the
same reason, the facts and circumstances peculiar to each
The purpose and function of an attachment or case are allowed to bear heavily on the conscience and
garnishment is twofold. First, it seizes upon property of an judgment of the court or jury in determining the presence
alleged debtor in advance of final judgment and holds it or absence of fraud. In fact, the fertility of man's invention
subject to appropriation, thereby preventing the loss or in devising new schemes of fraud is so great that courts
dissipation of the property through fraud or other means. have always declined to define it, thus, reserving for
Second, it subjects the property of the debtor to the themselves the liberty to deal with it in whatever form it
payment of a creditor's claim, in those cases in which may present itself.68chanrobleslaw
personal service upon the debtor cannot be
obtained.63 This remedy is meant to secure a contingent Fraud may be characterized as the voluntary execution of
lien on the defendant's property until the plaintiff can, by a wrongful act or a wilful omission, while knowing and
appropriate proceedings, obtain a judgment and have the intending the effects that naturally and necessarily arise
property applied to its satisfaction, or to make some from that act or omission.69 In its general sense, fraud is
provision for unsecured debts in cases in which the means deemed to comprise anything calculated to deceive—
of satisfaction thereof are liable to be removed beyond the including all acts and omission and concealment involving
jurisdiction, or improperly disposed of or concealed, or a breach of legal or equitable duty, trust, or confidence
otherwise placed beyond the reach of justly reposed—resulting in damage to or in undue
creditors.64chanrobleslaw advantage over another.70 Fraud is also described as
embracing all multifarious means that human ingenuity
Petitioner relied upon Section 1(d), Rule 57 of the Rules of can device, and is resorted to for the purpose of securing
Court as basis for its application for a writ of preliminary an advantage over another by false suggestions or by
attachment. This provision suppression of truth; and it includes all surprise, trick,
states:ChanRoblesVirtualawlibrary cunning, dissembling, and any other unfair way by which
Section 1. Grounds upon which attachment may issue. At another is cheated.71chanrobleslaw
the commencement of the action or at any time before
entry of judgment, a plaintiff or any proper party may While fraud cannot be presumed, it need not be proved by
have the property of the adverse party attached as direct evidence and can well be inferred from attendant
security for the satisfaction of any judgment that may be circumstances.72 Fraud by its nature is not a thing
recovered in the following cases: susceptible of ocular observation or readily demonstrable
physically; it must of necessity be proved in many cases by
chanRoblesvirtualLawlibrary inferences from circumstances shown to have been
xxxx involved in the transaction in question.73chanrobleslaw
(d) In an action against a party who has been guilty of In the case at bar, petitioner has sufficiently discharged
a fraud in contracting the debt or incurring the the burden of demonstrating the commission of fraud by
obligation upon which the action is brought, or in respondent MPEI in the execution of the automation
theperformance thereof. (Emphasis supplied) contract in the two ways that were enumerated earlier
and discussed below:
to Comelec during the bidding process. x x x
chanRoblesvirtualLawlibraryA. Respondent MPEI had
perpetrated a scheme against petitioner to secure the x x x x
automation contract by using MPC as supposed bidder
and eventually succeeding in signing the automation However, there is no sign whatsoever of any joint
contract as MPEI alone, an entity which was ineligible venture agreement, consortium agreement,
to bid in the first place. memorandum of agreement, or business plan
executed among the members of the purported
To avoid any confusion relevant to the basis of fraud, We consortium.
quote herein the pertinent portions of this Court's 2004
Decision with regard to the identity, existence, and The only logical conclusion is that no such agreement
eligibility of MPC as bidder:74 was ever submitted to the Comelec for its
On the question of the identity and the existence of the real consideration, as part of the bidding process.
bidder, respondents insist that, contrary to petitioners'
allegations, the bidder was not Mega Pacific eSolutions, It thus follows that, prior the award of the Contract,
Inc. (MPEI), which was incorporated only on February there was no documentary or other basis for Comelec
27, 2003, or 11 days prior to the bidding itself. Rather, to conclude that a consortium had actually been
the bidder was Mega Pacific Consortium (MPC), of which formed amongst MPEI, SK C&C and WeSolv, along with
MPEI was but a part. As proof thereof, they point to the Election.com and ePLDT. Neither was there anything to
March 7, 2003 letter of intent to bid, signed by the indicate the exact relationships between and among these
president of MPEI allegedly for and on behalf of MPC. They firms; their diverse roles, undertakings and prestations, if
also call attention to the official receipt issued to MPC, any, relative to the prosecution of the project, the extent
acknowledging payment for the bidding documents, as of their respective investments (if any) in the supposed
proof that it was the "consortium" that participated in the consortium or in the project; and the precise nature and
bidding process. extent of their respective liabilities with respect to the
contract being offered for bidding. And apart from the self-
We do not agree. The March 7, 2003 letter, signed by only serving letter of March 7, 2003, there was not even any
one signatory — "Willy U. Yu, President, Mega Pacific indication that MPEI was the lead company duly
eSolutions, Inc., (Lead Company/Proponent) For: Mega authorized to act on behalf of the others.
Pacific Consortium" — and without any further proof,
does not by itself prove the existence of the consortium. It x x x x
does not show that MPEI or its president have been duly
pre-authorized by the other members of the putative Hence, had the proponent MPEI been evaluated based
consortium to represent them, to bid on their collective solely on its own experience, financial and
behalf and, more important, to commit them jointly and operational track record or lack thereof, it would
severally to the bid undertakings. The letter is purely self- surely not have qualified and would have been
serving and uncorroborated. immediately considered ineligible to bid, as
respondents readily admit.
Neither does an official receipt issued to MPC,
acknowledging payment for the bidding documents, x x x x
constitute proof that it was the purported consortium that
participated in the bidding. Such receipts are issued by At this juncture, one might ask: What, then, if there are
cashiers without any legally sufficient inquiry as to the four MOAs instead of one or none at all? Isn't it enough
real identity or existence of the supposed payor. that there are these corporations coming together to carry
out the automation project? Isn't it true, as respondent
To assure itself properly of the due existence (as well as aver, that nowhere in the RFP issued by Comelec is it
eligibility and qualification) of the putative consortium, required that the members of the joint venture execute a
Comelec's BAC should have examined the bidding single written agreement to prove the existence of a joint
documents submitted on behalf of MPC. They would have venture. x x x
easily discovered the following fatal flaws.
x x x x
x x x x
The problem is not that there are four agreements instead
The Eligibility Envelope was to contain legal of only one. The problem is that Comelec never bothered to
documents such as articles of incorporation, x x x to check. It never based its decision on documents or other
establish the bidder's financial capacity. proof that would concretely establish the existence of the
claimed consortium or joint venture or agglomeration.
In the case of a consortium or joint venture desirous of
participating in the bidding, it goes without saying that the x x x x
Eligibility Envelope would necessarily have to include a
copy of the joint venture agreement, the consortium True, copies of financial statements and incorporation
agreement or memorandum of agreement — or a business papers of the alleged "consortium" members were
plan or some other instrument of similar import — submitted. But these papers did not establish the
establishing the due existence, composition and scope of existence of a consortium, as they could have been
such aggrupation. Otherwise, how would Comelec know provided by the companies concerned for purposes other
who it was dealing with, and whether these parties are than to prove that they were part of a consortium or joint
qualified and capable of delivering the products and venture.
services being offered for bidding?
x x x x
In the instant case, no such instrument was submitted
In brief, despite the absence of competent proof as to
the existence and eligibility of the alleged consortium Respondents declare that, for purposes of assessing the
(MPC), its capacity to deliver on the Contract, and the eligibility of the bidder, the members of MPC should be
members' joint and several liability therefor, Comelec evaluated on a collective basis. Therefore, they contend,
nevertheless assumed that such consortium existed the failure of MPEI to submit financial statements (on
and was eligible. It then went ahead and considered account of its recent incorporation) should not by
the bid of MPC, to which the Contract was eventually itself disqualify MPC, since the other members of the
awarded, in gross violation of the former's own "consortium" could meet the criteria set out in the
bidding rules and procedures contained in its RFP. RFP.
Therein lies Comclec's grave abuse of discretion.
Sufficiency of the Four Agreements x x x x
Instead of one multilateral agreement executed by, and Unfortunately, this argument seems to assume that the
effective and binding on, all the five "consortium "collective" nature of the undertaking of the members of
members" — as earlier claimed by Commissioner Tuason MPC, their contribution of assets and sharing of risks, and
in open court — it turns out that what was actually the "community" of their interest in the performance of
executed were four (4) separate and distinct bilateral the Contract entitle MPC to be treated as a joint venture or
Agreements. Obviously, Comelec was furnished copies consortium; and to be evaluated accordingly on the basis
of these Agreements only after the bidding process of the members' collective qualifications when, in fact, the
had been terminated, as these were not included in evidence before the Court suggest otherwise.
the Eligibility Documents. x x x
x x x x
x x x x
Going back to the instant case, it should be recalled
At this point, it must be stressed most vigorously that that the automation Contract with Comelec was not
the submission of the four bilateral Agreements to executed by the "consortium" MPC - or by MPEI for
Comelec after the end of the bidding process did and on behalf of MPC - but by MPEI, period. The said
nothing to eliminate the grave abuse of discretion it Contract contains no mention whatsoever of any
had already committed on April 15, 2003. consortium or members thereof. This fact alone
Deficiencies Have Not Been "Cured" seems to contradict all the suppositions about a joint
undertaking that would normally apply to a joint
In any event, it is also claimed that the automation venture or consortium: that it is a commercial
Contract awarded by Comelec incorporates all documents enterprise involving a community of interest, a
executed by the "consortium" members, even if these sharing of risks, profits and losses, and so on.
documents are not referred to therein. x x x
x x x x
x x x x
To the Court, this strange and beguiling arrangement of
Thus, it is argued that whatever perceived deficiencies MPEI with the other companies does not qualify them to
there were in the supplementary contracts - those entered be treated as a consortium or joint venture, at least of the
into by MPEI and the other members of the "consortium" type that government agencies like the Comelec should be
as regards their joint and several undertakings — have dealing with. With more reason is it unable to agree to the
been cured. Better still, such deficiencies have supposedly proposal to evaluate the members of MPC on a collective
been prevented from arising as a result of the above- basis. (Emphases supplied)
quoted provisions, from which it can be immediately These findings found their way into petitioner's
established that each of the members of MPC assumes the application for a writ of preliminary attachment,75 in
same joint and several liability as the other members. which it claimed the following as bases for fraud: (1)
respondents committed fraud by securing the election
The foregoing argument is unpersuasive. First, the automation contract and, in order to perpetrate the fraud,
contract being referred to, entitled "The Automated by misrepresenting the actual bidder as MPC and MPEI as
Counting and Canvassing Project Contract," is merely acting on MPC's behalf; (2) while knowing that
between Comelec and MPEI, not the alleged MPEI was not qualified to bid for the automation contract,
consortium, MPC. To repeat, it is MPEI - not MPC - that respondents still signed and executed the contract; and
is a party to the Contract. Nowhere in that Contract is (3) respondents acted in bad faith when they claimed that
there any mention of a consortium or joint venture, of they had bound themselves to the automation contract,
members thereof, much less of joint and several because it was not executed by MPC—or by MPEI on
liability. Supposedly executed sometime in May 2003, MPC's behalf—but by MPEI alone.76chanrobleslaw
the Contract bears a notarization date of June 30, 2003,
and contains the signature of Willy U. Yu signing as We agree with petitioner that respondent MPEI
president of MPEI (not for and on behalf of MPC), committed fraud by securing the election automation
along with that of the Comelec chair. It provides in contract; and, in order to perpetrate the fraud, by
Section 3.2 that MPEI (not MPC) is to supply the misrepresenting that the actual bidder was MPC and not
Equipment and perform the Services under the MPEI, which was only acting on behalf of MPC. We
Contract, in accordance with the appendices thereof; likewise rule that respondent MPEI has defrauded
nothing whatsoever is said about any consortium or petitioner, since the former still executed the automation
joint venture or partnership. contract despite knowing that it was not qualified to bid
for the same.
xxxx
Eligibility of a Consortium Based on the Collective The established facts surrounding the eligibility,
Qualifications of Its Members qualification and existence of MPC — and of MPEI for that
matter — and the subsequent execution of the automation party was induced to give consent that would not
contract with the latter, when all taken together, otherwise have been given.79chanrobleslaw
constitute badges of fraud that We simply cannot ignore.
MPC was considered an illegitimate entity, because its One form of inducement is covered within the scope of the
existence as a joint venture had not been established. crime of estafa under Article 315, paragraph 2, of the
Notably, the essential document/s that would have shown Revised Penal Code, in which, any person who defrauds
its eligibility as a joint venture/consortium were not another by using fictitious name, or falsely pretends to
presented to the COMELEC at the most opportune time, possess power, influence, qualifications, property, credit,
that is, during the qualification stage of the bidding agency, business or imaginary transactions, or by means
process. The concealment by respondent MPEI of the of similar deceits executed prior to or simultaneously with
essential documents showing its eligibility to bid as part a the commission of fraud is held criminally liable. In Joson
joint venture is too obvious to be missed. How could it not v. People,80 this Court explained the element of
have known that the very document showing MPC as a defraudation by means of deceit, by giving a definition of
joint venture should have been included in their eligibility fraud and deceit, in this wise:ChanRoblesVirtualawlibrary
envelope? What needs to be determined therefore is whether or not
the element of defraudation by means of deceit has been
Likewise notable is the fact that these supposed established beyond reasonable doubt.
agreements, allegedly among the supposed consortium
members, were belatedly provided to the In the case of People v. Menil, Jr., the Court has defined
COMELEC after the bidding process had been terminated; fraud and deceit in this
these were not included in the Eligibility Documents wise:ChanRoblesVirtualawlibrary
earlier submitted by MPC. Similarly, as found by this Court, Fraud, in its general sense, is deemed to comprise
these documents did not prove any joint venture anything calculated to deceive, including all acts,
agreement among the parties in the first place, but were omissions, and concealment involving a breach of legal or
actually individual agreements executed by each member equitable duty, trust, or confidence justly reposed,
of the supposed consortium with respondent MPEI. resulting in damage to another, or by which an undue and
unconscientious advantage is taken of another. It is a
More startling to the dispassionate mind is the generic term embracing all multifarious means which
incongruence between the supposed actual bidder MPC, human ingenuity can devise, and which are resorted to by
on one hand, and, on the other, respondent MPEI, which one individual to secure an advantage over another by
executed the automation contract. Significantly, false suggestions or by suppression of truth and includes
respondent MPEI was not even eligible and qualified to all surprise, trick, cunning, dissembling and any unfair
bid in the first place; and yet, the automation contract way by which another is cheated. On the other hand,
itself was executed and signed singly by respondent MPEI, deceit is the false representation of a matter of fact,
not on behalf of the purported bidder MPC, without any whether by words or conduct, by false or misleading
mention whatsoever of the members of the supposed allegations, or by concealment of that which should
consortium. have been disclosed which deceives or is intended to
deceive another so that he shall act upon it to his legal
From these established facts, We can surmise that in order injury. (Emphases supplied)
to secure the automation contract, respondent MPEI For example, in People v. Comila,81 both accused-
perpetrated a scheme against petitioner by using MPC as appellants therein represented themselves to the
supposed bidder and eventually succeeding in signing the complaining witnesses to have the capacity to send them
automation contract as MPEI alone. Worse, it was to Italy for employment, even as they did not have the
respondent MPEI alone, an entity that was ineligible to bid authority or license for the purpose. It was such
in the first place, that eventually executed the automation misrepresentation that induced the complainants to part
contract. with their hard-earned money for placement and medical
fees. Both accused-appellants were criminally held liable
To a reasonable mind, the entire situation reeks of fraud, for estafa.
what with the misrepresentation of identity and
misrepresentation as to creditworthiness. It is in these In American jurisprudence, fraud may be predicated on a
kinds of fraudulent instances, when the ability to abscond false introduction or identification.82 In Union Co. v.
is greatest, to which a writ of attachment is precisely Cobb,83 the defendant therein procured the merchandise
responsive. by misrepresenting that she was Mrs. Taylor Ray and at
another time she was Mrs. Ben W. Chiles, and she forged
Further, the failure to attach the eligibility documents is their name on charge slips as revealed by the exhibits of
tantamount to failure on the part of respondent MPEI to the plaintiff. The sale of the merchandise was induced by
disclose material facts. That omission constitutes fraud. these representations, resulting in injury to the plaintiff.
Pursuant to Article 1339 of the Civil Code,77 silence or In Raser v. Moomaw,84 it was ruled that the essential
concealment does not, by itself, constitute fraud, unless elements necessary to constitute actionable fraud and
there is a special duty to disclose certain facts, or unless deceit were present in the complaint. It was alleged that,
the communication should be made according to good to induce plaintiff to procure a loan, defendant introduced
faith and the usages of commerce.78chanrobleslaw him to a woman who was falsely represented to be Annie
L. Knowles of Seattle, Washington, the owner of the
Fraud has been defined to include an inducement through property, and that plaintiff had no means of ascertaining
insidious machination. Insidious machination refers to a her true identity. On the other hand, defendant knew, or in
deceitful scheme or plot with an evil or devious purpose. the exercise of reasonable caution should have known,
Deceit exists where the party, with intent to that she was an impostor, and that plaintiff relied on the
deceive, conceals or omits to state material facts and, representations, induced his client to make the loan, and
by reason of such omission or concealment, the other had since been compelled to repay it. In the same case, the
Court ruled that false representations as to the identity of the part of respondent MPEI to deceive the relevant
a person are actionable, if made to induce another to act officials about MPC. The intent was to cure the deficiency
thereon, and such other does so act thereon to his of the winning bid, which intent miserably failed. Said this
prejudice.85chanrobleslaw Court:89
We are unconvinced, PBAC was guided by the rules,
In this case, analogous to the fraud and deceit exhibited in regulations or guidelines existing before the bid proposals
the above-mentioned circumstances, respondent MPEI were opened on November 10, 1989. The basic rule in
had no excuse not to be forthright with the documents public bidding is that bids should be evaluated based
showing MPC's eligibility to bid as a joint venture. The on the required documents submitted before and not
Invitation to Bid, as quoted in our 2004 Decision, could not after the opening of bids. Otherwise, the foundation of
have been any clearer when it stated that only bids from a fair and competitive public bidding would be
qualified entities, such as a joint venture, would be defeated. Strict observance of the rules, regulations,
entertained:ChanRoblesVirtualawlibrary and guidelines of the bidding process is the only
INVITATION TO APPLY FOR ELIGIBILITY AND TO BID safeguard to a fair, honest and competitive public
bidding.
The Commission on Elections (COMELEC), pursuant to the
mandate of Republic Act Nos. 8189 and 8436, invites In underscoring the Court's strict application of the
interested offerers, vendors, suppliers or lessors to apply pertinent rules, regulations and guidelines of the public
for eligibility and to bid for the procurement by purchase, bidding process, We have ruled in C & C Commercial vs.
lease, lease with option to purchase, or otherwise, Menor (L-28360, January 27, 1983, 120 SCRA 112), that
supplies, equipment, materials and services needed for a Nawasa properly rejected a bid of C & C Commercial to
comprehensive Automated Election System, consisting of supply asbestos cement pressure which bid did not
three (3) phases: (a) registration/verification of voters, include a tax clearance certificate as required by
(b) automated counting and consolidation of votes, and (c) Administrative Order No. 66 dated June 26, 1967. In Caltex
electronic transmission of election results, with an (Phil.) Inc., et. al. vs. Delgado Brothers, Inc. et. al., (96 Phil.
approved budget of TWO BILLION FIVE HUNDRED 368, 375), We stressed that public biddings are held for the
MILLION (Php2,500,000,000) Pesos. protection of the public and the public should be given the
best possible advantages by means of open competition
Only bids from the following entities shall be among the bidders.
entertained:
x x x x
x x x x
INTER TECHNICAL's failure to comply with what is
d. Manufacturers, suppliers and/or distributors perceived to be an elementary and customary
forming themselves into a joint venture, i.e., a group of practice in a public bidding process, that is, to enclose
two (2) or more manufacturers, suppliers and/or the Form of Bid in the original and eight separate
distributors that intend to be jointly and severally copies of the bidding documents submitted to the
responsible or liable for a particular contract, bidding committee is fatal to its cause. All the four pre-
provided that Filipino ownership thereof shall be at qualified bidders which include INTER TECHNICAL were
least sixty percent (60%); and cralawlawlibrary subject to Rule IB 2.1 of the Implementing Rules and
Regulations of P.D. 1594 in the preparation of bids, bid
e. Cooperatives duly registered with the Cooperatives bonds, and pre-qualification statement and Rule IB 2.8
Development Authority.86 (Emphases supplied) which states that the Form of Bid, among others, shall
No reasonable mind would argue that documents showing form part of the contract. INTER TECHNICAL's
the very existence of a joint venture need not be included explanation that its bid form was inadvertently left in the
in the bidding envelope showing its existence, office (p. 6, Memorandum for Private Respondent, p.
qualification, and eligibility to undertake the project, 355, Rollo) will not excuse compliance with such a simple
considering that the purpose of prequalification in any and basic requirement in the public bidding process
public bidding is to determine, at the earliest opportunity, involving a multi-million project of the
the ability of the bidder to undertake the Government. There should be strict application of the
project.87chanrobleslaw pertinent public bidding rules, otherwise the
essential requisites of fairness, good faith, and
As found by this Court in its 2004 Decision, it appears that competitiveness in the public bidding process would
the documents that were submitted after the bidding, be rendered meaningless. (Emphases supplied)
which respondents claimed would prove the existence of All these circumstances, taken together, reveal a scheme
the relationship among the members of the consortium, on the part of respondent MPEI to perpetrate fraud
were actually separate agreements individually executed against the government. The purpose of the scheme was
by the supposed members with MPEI. We had ruled that to ensure that MPEI, an entity that was ineligible to bid in
these documents were highly irregular, considering that the first place, would eventually be awarded the contract.
each of the four different and separate bilateral While respondent argues that it was merely a passive
Agreements was valid and binding only between MPEI participant in the bidding process, We cannot ignore its
and the other contracting party, leaving the other cavalier disregard of its participation in the now voided
"consortium" members total strangers thereto. automation contract.
Consequently, the other consortium members had
nothing to do with one another, as each one dealt only B. Fraud on the part of respondent MPEI was further
with MPEI.88chanrobleslaw shown by the fact that despite the failure of its ACMs to
pass the tests conducted by the DOST, respondent still
Considering that they merely showed MPEI's individual acceded to being awarded the automation contract.
agreements with the other supposed members, these
agreements confirm to our mind the fraudulent intent on Another token of fraud is established by Our findings in
relation to the failure of the ACMs to pass the tests of the another key requirement — for the counting
DOST. We quote herein the pertinent portions of this machine's software program to be able to detect
Court's 2004 Decision in relation previously downloaded precinct results and to prevent
thereto:ChanRoblesVirtualawlibrary these from being entered again into the counting
After respondent "consortium" and the other bidder, TIM, machine. This same deficiency on the part of both bidders
had submitted their respective bids on March 10, 2003, reappears on page 7 of the BAC Report, as a result of the
the Comelec's BAC — through its Technical Working recurrence of their failure to meet the said key
Group (TWG) and the DOST — evaluated their technical requirement.
proposals.
That the ability to detect previously downloaded data at
x x x x different canvassing or consolidation levels is deemed of
utmost importance can be seen from the fact that it is
According to respondents, it was only after the TWG and repeated three times in the RFP. x x x.
the DOST had conducted their separate tests and
submitted their respective reports that the BAC, on the Once again, though, Comelec chose to ignore this crucial
basis of these reports formulated its deficiency, which should have been a cause for the gravest
comments/recommendations on the bids of the concern. x x x.
consortium and TIM.
xxxx
The BAG, in its Report dated April 21, 2003, recommended Inability to Print the Audit Trail
that the Phase II project involving the acquisition of
automated counting machines be awarded to MPEI. x x x But that grim prospect is not all. The BAC Report, on pages
6 and 7, indicate that the ACMs of both bidders were
x x x x unable to print the audit trail without any loss of data. In
the case of MPC, the audit trail system was "not yet
The BAC, however, also stated on page 4 of its Report: incorporated" into its ACMs.
"Based on the 14 April 2003 report (Table 6) of the
DOST, it appears that both Mega-Pacific and TIM (Total x x x x
Information Management Corporation) failed to meet
some of the requirements. x x x Thus, the RFP on page 27 states that the ballot counting
machines and ballot counting software must print an
xxxx audit trail of all machine operations for
Failure to Meet the Required Accuracy Rating documentation and verification purposes.
Furthermore, the audit trail must be stored on the internal
The first of the key requirements was that the counting storage device and be available on demand for future
machines were to have an accuracy rating of at least printing and verifying. On pages 30-31, the RFP also
99.9995 percent. The BAC Report indicates that both requires that the city/municipal canvassing system
Mega Pacific and TIM failed to meet this standard. software be able to print an audit trail of the
canvassing operations, including therein such data as
The key requirement of accuracy rating happens to be the date and time the canvassing program was started, the
part and parcel of the Comelec's Request for Proposal log-in of the authorized users (the identity of the machine
(RFP). x x x operators), the date and time the canvass data were
downloaded into the canvassing system, and so on and so
x x x x forth. On page 33 of the RFP, we find the same audit trail
requirement with respect to
x x x Whichever accuracy rating is the right standard — the provincial/district canvassing system software; and
whether 99.995 or 99.9995 percent — the fact remains that again on pages 35-36 thereof, the same audit trail
the machines of the so-called "consort him" failed to even requirement with respect to the national canvassing
reach the lesser of the two. On this basis alone, it ought to system software.
have been disqualified and its bid rejected outright.
x x x x
At this point, the Court stresses that the essence of
public bidding is violated by the practice of requiring The said provision which respondents have quoted
very high standards or unrealistic specifications that several times, provides that ACMs are to possess certain
cannot be met — like the 99.9995 percent accuracy features divided into two classes: those that the statute
rating in this case — only to water them itself considers mandatory and other features or
down after the bid has been award.[sic] Such scheme, capabilities that the law deems optional. Among those
which discourages the entry of prospective bona considered mandatory are "provisions for audit
fide bidders, is in fact a sure indication of fraud in the trails"! x x x.
bidding, designed to eliminate fair competition.
Certainly, if no bidder meets the mandatory In brief, respondents cannot deny that the provision
requirements, standards or specifications, then no requiring audit trails is indeed mandatory,
award should be made and a failed bidding declared. considering the wording of Section 7 of RA
8436. Neither can Respondent Comelec deny that it has
x x x x relied on the BAC Report, which indicates that the
machines or the software was deficient in that respect.
Failure of Software to Detect Previously Downloaded Data And yet, the Commission simply disregarded this
shortcoming and awarded the Contract to private
Furthermore, on page 6 of the BAC Report, it appears respondent, thereby violating the very law it was
that the "consortium" as well as TIM failed to meet supposed to implement.90 (Emphases supplied)
The above-mentioned findings were further echoed by issuance of a writ of preliminary attachment over the
this Court in its 2006 Resolution with a categorical properties of the individual respondents.
conclusion that the bidding process was void and
fraudulent.91chanrobleslaw Individual respondents argue that since they were not
parties to the 2004 case, any factual findings or
Again, these factual findings found their way into the conclusions therein should not be binding upon
application of petitioner for a writ of preliminary them.96 Since they were strangers to that case, they are not
attachment,92 as it claimed that respondents could not bound by the judgment rendered by this Court.97 They
dissociate themselves from their telltale acts of supplying claim that their fundamental right to due process would
defective machines and nonexistent software.93 The latter be violated if their properties were to be attached for a
offered no defense in relation to these claims. purported corporate debt on the basis of a court ruling in
a case in which they were not given the right or
We see no reason to deviate from our finding of fraud on opportunity to be heard.98chanrobleslaw
the part of respondent MPEI in the 2004 Decision and
2006 Resolution. Despite its failure to meet the mandatory We cannot subscribe to this argument. In the first place, it
requirements set forth in the bidding procedure, could not be reasonably expected that individual
respondent still acceded to being awarded the contract. respondents would be impleaded in the 2004 case. As
These circumstances reveal its ploy to gain undue admitted by respondents, the issues resolved in the 2004
advantage over the other bidders in general, even to the Decision were limited to the following: (1) whether to
extent of cheating the government. declare Resolution No. 6074 of the COMELEC null and
void; (2) whether to enjoin the implementation of any
The word "bidding" in its comprehensive sense means further contract that may have been entered into by
making an offer or an invitation to prospective contractors, COMELEC with MPC or MPEI; and (3) whether to compel
whereby the government manifests its intention to make COMELEC to conduct a rebidding of the project. To
proposals for the purpose of securing supplies, materials, implead individual respondents then was improper,
and equipment for official business or public use, or for considering that the automation contract was entered into
public works or repair.94 Three principles involved in by respondent MPEI. This Court even acknowledged this
public bidding are as follows: (1) the offer to the public; fact by directing that the liabilities of persons responsible
(2) an opportunity for competition, and (3) a basis for an for the nullity of the contract be determined in another
exact comparison of bids. A regulation of the matter, appropriate proceeding and by directing the OSG to
which excludes any of these factors, destroys the undertake measures to protect the interests of the
distinctive character of the system and thwarts the government.
purpose of its adoption.95chanrobleslaw
At any rate, individual respondents have been fully
In the instant case, We infer from the circumstances that afforded the right to due process by being impleaded and
respondent MPEI welcomed and allowed the award of the heard in the subsequent proceedings before the courts a
automation contract, as it executed the contract despite quo. Finally, they cannot argue violation of due process, as
the full knowledge that it had not met the mandatory respondent MPEI, of which they are
requirements set forth in the RFP. Respondent acceded to incorporators/stockholders, remains vulnerable to the
and benefitted from the watering down of these piercing of its corporate veil.
mandatory requirements, resulting in undue advantage in
its favor. The fact that there were numerous mandatory A. There are red flags indicating that MPEI was used to
requirements that were simply set aside to pave the way perpetrate the fraud against petitioner, thus allowing
for the award of the automation contract does not escape the piercing of its corporate veil.
the attention of this Court. Respondent MPEI, through
respondent Willy, signed and executed the automation Petitioner seeks the issuance of a writ of preliminary
contract with COMELEC. It is therefore preposterous for attachment over the personal assets of the individual
respondent argue that it was a "passive participant" in the respondents, notwithstanding the doctrine of separate
whole bidding process. juridical personality.99 It invokes the use of the doctrine of
piercing the corporate veil, to which the canon of separate
We reject the CA's denial of petitioner's plea for the juridical personality is vulnerable, as a way to reach the
ancillary remedy of preliminary attachment, considering personal properties of the individual respondents.
that the cumulative effect of the factual findings of this Petitioner paints a picture of a sham corporation set up by
Court establishes a sufficient basis to conclude that fraud all the individual respondents for the purpose of securing
had attended the execution of the automation contract. the automation contract.
Such fraud is deducible from the 2004 Decision and
further upheld in the 2006 Resolution. It was incongruous, We agree with petitioner.
therefore, for the CA to have denied the application for a
writ of preliminary attachment, when the evidence on Veil-piercing in fraud cases requires that the legal fiction
record was the same that was used to demonstrate the of separate juridical personality is used for fraudulent or
propriety of the issuance of the writ of preliminary wrongful ends.100 For reasons discussed below, We see
attachment. This was the same evidence that We had red flags of fraudulent schemes in public procurement, all
already considered and passed upon, and on which We of which were established in the 2004 Decision, the
based Our 2004 Decision to nullify the automation totality of which strongly indicate that MPEI was a sham
contract. It would not be right for this Court to ignore corporation formed merely for the purpose of perpetrating
these illegal transactions, as to do so would be tantamount a fraudulent scheme.
to abandoning its constitutional duty of safeguarding
public interest. The red flags are as follows: (1) overly narrow
II. specifications; (2) unjustified recommendations and
Application of the piercing doctrine justifies the unjustified winning bidders; (3) failure to meet the terms
of the contract; and (4) shell or fictitious company. We Scheme: Failure to meet contract terms. Firms may
shall discuss each in detail. deliberately fail to comply with contract requirements.
The contractor will attempt to conceal such actions often
Overly Narrow Specifications by falsifying or forging supporting documentation and bill
for the work as if it were done in accordance with
The World Bank's Fraud and Corruption Awareness specifications. In many cases, the contractors must bribe
Handbook: A Handbook for Civil Servants Involved in Public inspection or project personnel to accept the substandard
Procurement, (Handbook) identifies an assortment of goods or works, or supervision agents are coerced to
fraud and corruption indicators and relevant schemes in approve substandard work. x x
public procurement.101 One of the schemes recognized by x107chanroblesvirtuallawlibrary
the Handbook is rigged As mentioned earlier, this Court already found the ACMs
specifications:ChanRoblesVirtualawlibrary to be below the standards set by the COMELEC. We
Scheme: Rigged specifications. In a competitive market reiterated their noncompliant status in Our 2005 and
for goods and services, any specifications that seem to be 2006 Resolutions.
drafted in a way that favors a particular company
deserve closer scrutiny. For example, specifications As early as 2005, when the COMELEC sought permission
that are too narrow can be used to exclude other from this Court to utilize the ACMs in the then scheduled
qualified bidders or justify improper sole source ARMM elections, We declared that the proposed use of the
awards. Unduly vague or broad specifications can machines would expose the ARMM elections to the same
allow an unqualified bidder to compete or justify dangers of massive electoral fraud that would have been
fraudulent change orders after the contract is awarded. inflicted by the projected automation of the 2004 national
Sometimes, project officials will go so far as to allow the elections. We based this pronouncement on the fact that
favored bidder to draft the the COMELEC failed to show that the deficiencies had
specifications.102chanroblesvirtuallawlibrary been cured.108 Yet again, this Court in 2006 blocked
In Our 2004 Decision, We identified a red flag of rigged another attempt to use the ACMs, this time for the 2007
bidding in the form of overly narrow specifications. As elections. We reiterated that because the ACMs had
already discussed, the accuracy requirement of 99.9995 merely remained idle and unused since their last
percent was set up by COMELEC bidding rules. This Court evaluation, in which they failed to hurdle the crucial tests,
recognized that this rating was "too high and was a sure then their defects and deficiencies could not have been
indication of fraud in the bidding, designed to cured by then.109chanrobleslaw
eliminate fair competition."103Indeed, "the essence of
public bidding is violated by the practice of requiring very Based on the foregoing, the ACMs delivered were plagued
high standards or unrealistic specifications that cannot be with defects that made them fail the requirements set for
met...only to water them down after the bid has been the automation project.
award(ed)."104chanrobleslaw
Shell or fictitious company
Unjustified Recommendations and Unjustified Winning
Bidders The Handbook regards a shell or fictitious company as a
"serious red flag," a concept that it elaborates
Questionable evaluation in a Bid Evaluation Report (BER) upon:ChanRoblesVirtualawlibrary
is an indicator of bid rigging. The Handbook Fictitious companies are by definition fraudulent and
expounds:ChanRoblesVirtualawlibrary may also serve as fronts for government officials. The
Questionable evaluation and unusual bid patterns typical scheme involves corrupt government officials
may emerge in the BER. After the completion of the creating a fictitious company that will serve as a "vehicle"
evaluation process, the Bid Evaluation Committee to secure contract awards. Often, the fictitious—or
should present to the implementing agency its BER, ghost— company will subcontract work to lower cost and
which describes the results and the process by which sometimes unqualified firms. The fictitious company may
the BEC has evaluated the bids received. The BER may also utilize designated losers as subcontractors to deliver
include a number of indicators of bid rigging, e.g., the work, thus indicating collusion.
questionable disqualifications, and unusual bid
patterns.105chanroblesvirtuallawlibrary Shell companies have no significant assets, staff or
The Handbook lists unjustified recommendations and operational capacity. They pose a serious red flag as a
unjustified winning bidders as red flags of a rigged bidder on public contracts, because they often hide the
bidding.106chanrobleslaw interests of project or government officials, concealing a
conflict of interest and opportunities for money
The red flags of questionable recommendation and laundering. Also, by definition, they have no
unjustified awards are raised in this case. As earlier experience.110chanroblesvirtuallawlibrary
discussed, the project was awarded to MPC, which proved MPEI qualifies as a shell or fictitious company. It was
to be a nonentity. It was MPEI that actually participated in nonexistent at the time of the invitation to bid; to be
the bidding process, but it was not qualified to be a bidder precise, it was incorporated only 11 days before the
in the first place. Moreover, its ACMs failed the accuracy bidding. It was a newly formed corporation and, as such,
requirement set by COMELEC. Yet, MPC — the nonentity had no track record to speak of.
— obtained a favorable recommendation from the BAC,
and the automation contract was awarded to the former. Further, MPEI misrepresented itself in the bidding
process as "lead company" of the supposed joint venture.
Failure to Meet Contract Terms The misrepresentation appears to have been an attempt
to justify its lack of experience. As a new company, it was
Failure to meet the terms of a contract is regarded as a not eligible to participate as a bidder. It could do so only
fraud by the Handbook:ChanRoblesVirtualawlibrary by pretending that it was acting as an agent of the putative
consortium.
The totality of the red flags found in this case leads Us to
The timing of the incorporation of MPEI is particularly the inevitable conclusion that MPEI was nothing but a
noteworthy. Its close nexus to the date of the invitation to sham corporation formed for the purpose of defrauding
bid and the date of the bidding (11 days) provides a strong petitioner. Its ultimate objective was to secure the
indicium of the intent to use the corporate vehicle for P1,248,949,088 automation contract. The scheme was to
fraudulent purposes. This proximity unmistakably put up a corporation that would participate in the bid and
indicates that the automation contract served as enter into a contract with the COMELEC, even if the former
motivation for the formation of MPEI: a corporation had was not qualified or authorized to do so.
to be organized so it could participate in the bidding by
claiming to be an agent of a pretended joint venture. Without the incorporation of MPEI, the defraudation of
the government would not have been possible. The
The timing of the formation of MPEI did not escape the formation of MPEI paved the way for its participation in
scrutiny of Justice Angelina Sandoval-Gutierrez, who the bid, through its claim that it was an agent of a
made this observation in her Concurring Opinion in the supposed joint venture, its misrepresentations to secure
2004 Decision:ChanRoblesVirtualawlibrary the automation contract, its misrepresentation at the time
At this juncture, it bears stressing that MPEI was of the execution of the contract, its delivery of the
incorporated only on February 27, 2003 as evidenced by defective ACMs, and ultimately its acceptance of the
its Certificate of Incorporation. This goes to show that benefits under the automation contract.
from the time the COMELEC issued its Invitation to Bid
(January 28, 2003) and Request for Proposal (February 17, The foregoing considered, veil-piercing is justified in this
2003) up to the time it convened the Pre-bid Conference case.
(February 18, 2003), MPEI was literally a non-existent
entity. It came into being only on February 27, 2003 or We shall next consider the question of whose assets shall
eleven (11) days prior to the submission of its bid, i.e. be reached by the application of the piercing doctrine.
March 10, 2003. This poses a legal obstacle to its
eligibility as a bidder. The Request for Proposal requires B. Because all the individual respondents actively
the bidder to submit financial documents that will participated in the perpetration of the fraud against
establish to the BAC's satisfaction its financial capability petitioner, their personal assets may be subject to a
which include:ChanRoblesVirtualawlibrary writ of preliminary attachment by piercing the
(1) audited financial statements of the Bidder's firm for the corporate veil.
last three (3) calendar years, stamped "RECEIVED" by the
appropriate government agency, to show its capacity to A corporation's privilege of being treated as an entity
finance the manufacture and supply of Goods called for and distinct and separate from the stockholders is confined to
a statement or record of volumes of sales; legitimate uses, and is subject to equitable limitations to
prevent its being exercised for fraudulent, unfair, or illegal
(2) Balance Sheet; purposes.112 As early as the 19th century, it has been held
that:ChanRoblesVirtualawlibrary
(3) Income Statement; and cralawlawlibrary The general proposition that a corporation is to be
regarded as a legal entity, existing separate and apart from
(4) Statement of Cash Flow. the natural persons composing it, is not disputed; but that
As correctly pointed out by petitioners, how could MPEI the statement is a mere fiction, existing only in idea, is well
comply with the above requirement of audited financial understood, and not controverted by any one who
statements for the last three (3) calendar years if it came pretends to accurate knowledge on the subject. It has been
into existence only eleven (11) days prior to the bidding? introduced for the convenience of the company in making
contracts, in acquiring property for corporate purposes, in
To do away with such complication, MPEI asserts that it suing and being sued, and to preserve the limited liability
was MP CONSORTIUM who submitted the bid on March 10, of the stockholder by distinguishing between the
2003. It pretends compliance with the requirements by corporate debts and property of the company and of the
invoking the financial capabilities and long time existence stockholders in their capacity as individuals. All fictions
of the alleged members of the MP CONSORTIUM, namely, of law have been introduced for the purpose of
Election.Com, WeSolv, SK CeC, ePLDT and Oracle. It wants convenience, and to subserve the ends of justice. It is
this Court to believe that it is MP CONSORTIUM who was in this sense that the maxim in fictione juris subsistit
actually dealing with the COMELEC and that its (MPEI) aequitasis used, and the doctrine of fictions applied. But
participation is merely that of a "lead company and when they are urged to an intent and purpose not
proponent" of the joint venture. This is hardly convincing. within the reason and policy of the fiction, they have
For one, the contract for the supply and delivery of ACM always been disregarded by the courts. Broom's, Legal
was between COMELEC and MPEI, not MP Maxims 130. "It is a certain rule," says Lord Mansfield, C.J.,
CONSORTIUM. As a matter of fad, there cannot be found in "that a fiction of law never be contradicted so as to defeat
the contract any reference to the MP CONSORTIUM or any the end for which it was invented, but for every other
member thereof for that matter. For another, the purpose it may be contradicted." Johnson v. Smith, 2 Burr,
agreements among the alleged members of MP 962.113chanroblesvirtuallawlibrary
CONSORTIUM do not show the existence of a joint-venture The main effect of disregarding the corporate fiction is
agreement. Worse, MPEI cannot produce the agreement that stockholders will be held personally liable for the acts
as to the "joint and several liability" of the alleged and contracts of the corporation, whose existence, at least
members of the MP CONSORTIUM as required by this for the purpose of the particular situation involved, is
Court in its Resolution dated October 7, ignored.114chanrobleslaw
2003. chanroblesvirtuallawlibrary
111
Respondent MPEI was formed to perpetrate the fraud We have consistently held that when the notion of legal
against petitioner. 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.115 Thus, g. Individual incorporators, acting fraudulently
considering that We find it justified to pierce the corporate
through MPEI, and in violation of the bidding
veil in the case before Us, MPEI must, perforce, be treated
rules, then subcontracted the automation
as a mere association of persons whose assets are
contract to four (4) other corporations, namely:
unshielded by corporate fiction. Such persons' individual
WeSolve Corporation, SK C&C, ePLDT and
liability shall now be determined with respect to the
election.com, to comply with the capital
matter at hand.
requirements, requisite five (5)-year corporate
standing and the technical qualifications of the
Contrary to respondent Willy's claims, his participation in
Request for Proposal;
the fraud is clearly established by his unequivocal
agreement to the execution of the automation contract
with the COMELEC, and his signature that appears on the x x x x117chanroblesvirtuallawlibrary
voided contract. As far back as in the 2004 Decision, his In response to petitioner's allegations, respondents Willy
participation as a signatory' to the automation contract and Bonnie stated in their Reply and Answer (Re: Answer
was already established:ChanRoblesVirtualawlibrary with Counterclaim dated 28 June 2004):118
The foregoing argument is unpersuasive. First, the 3.3 As far as plaintiff MPEI and defendants-in-
contract being referred to, entitled "The Automated counterclaim are concerned, they dealt with the
Counting and Canvassing Project Contract," is between COMELEC with full transparency and in utmost good
Comelec and MPEI, not the alleged consortium, MPC. To faith. All documents support its eligibility to bid for the
repeat, it is MPEI - not MPC - that is a party to the supply of the ACMs and their peripheral services, were
Contract. Nowhere in that Contract is there any mention of submitted to the COMELEC for its evaluation in full
a consortium or joint venture, of members thereof much less transparency. Pertinently, neither plaintiff MPEI nor any
of joint and several liability. Supposedly executed of its directors, stockholders, officers or employees had
sometime in May 2003, the Contract bears a notarization any participation in the evaluation of the bids and
date of June 30, 2003, and contains the signature of eventual choice of the winning
Willy U. Yu signing as president of MPEI (not for and bidder.119chanroblesvirtuallawlibrary
on behalf of MPC), along with that of the Comelec chair. Respondents Johnson's and Bernard's denials were made
It provides in Section 3.2 that MPEI (not MPC) is to supply in paragraphs 2.17 and 3.3 of their Answer with
the Equipment and perform the Services under the Counterclaim to the Republic's Counterclaim, to wit:120
Contract, in accordance with the appendices thereof; 2.17 The erroneous conclusion of fact and law in
nothing whatsoever is said about any consortium or joint paragraph 30 (f) and (g) of the Republic's answer is
venture or partnership. x x x (Emphasis supplied) denied, having been pleaded in violation of the
That his signature appears on the automation contract requirement, that only ultimate facts arc to be stated in the
means that he agreed and acceded to its terms.116 His pleadings and they are falsehoods. The truth of the matter
participation in the fraud involves his signing and is that there could not have been fraud, as these
executing the voided contract. agreements were submitted to the COMELEC for its
evaluation and assessment, as to the qualification of the
The execution of the automation contract with a non- Consortium as a bidder, a showing of transparency in
eligible entity and the subsequent award of the contract plaintiffs dealings with the Republic.121chanrobleslaw
despite the failure to meet the mandatory requirements
were "badges of fraud" in the procurement process that 3.3 As far as plaintiff MPEI and defendants-in-
should have been recognized by the CA to justify the counterclaim are concerned, they dealt with the
issuance of the writ of preliminary attachment against the COMELEC with full transparency and in utmost good
properties of respondent Willy. faith. All documents support its eligibility to bid for the
supply of the automated counting machines and its
With respect to the other individual respondents, peripheral services, were submitted to the COMELEC for
petitioner, in its Answer with Counterclaim, its evaluation in full transparency. Pertinently, the
alleged:ChanRoblesVirtualawlibrary plaintiff or any of its directors, stockholders, officers or
30. Also, inasmuch as MPEI is in truth a mere shell employees had no participation in the evaluation of the
corporation with no real assets in its name, incorporated bids and eventual choice of the winning
merely to feign eligibility for the bidding of the automated bidder.122chanroblesvirtuallawlibrary
contract when it in fact had none, to the great prejudice of As regards Enrique and Rosita, the relevant paragraphs in
the Republic, plaintiffs individual incorporators should the Answer with Counterclaim to the Republic's
likewise be made liable together with MPEI for the Counterclaim123 are quoted
automated contract amount paid to and received by the below:ChanRoblesVirtualawlibrary
latter. The following circumstances altogether manifest 2.17. The erroneous conclusion of fact and law in
that the individual incorporators merely cloaked paragraph 30 (F) and (G) of the Republic's answer is
themselves with the veil of corporate fiction to perpetrate denied, having been pleaded in violation of the
a fraud and to eschew liability therefor, thus: requirement, that only ultimate facts are to be stated in
the pleadings and they are falsehoods. The truth of the
chanRoblesvirtualLawlibraryx x x x matter is that there could not have been fraud, as these
agreements were submitted to the COMELEC for its
evaluation and assessment, as to the qualification of the
f. From the time it was incorporated until today, Consortium as a bidder, a showing of transparency in
MPEI has not complied with the reportorial
plaintiffs dealings with the Republic.124chanrobleslaw
requirements of the Securities and Exchange
Commission;
3.3. As far as the plaintiff and herein answering
defendants-in-counterclaim are concerned, they dealt
with the Commission on Elections with full
transparency and in utmost good faith. All documents
in support of its eligibility to bid for the supply of the respondents would enjoy the benefits of incorporation
automated counting machines and its peripheral services despite a clear finding of abuse of the corporate vehicle.
were submitted to the Commission on Elections for its Indeed, to allow the corporate fiction to remain intact
evaluation in full transparency. Pertinently, the plaintiff or would not subserve, but instead subvert, the ends of
any of its directors, stockholders, officers or employees justice.
had no participation in the evaluation of the bids and III.
eventual choice of the winning The factual findings of this Court that have become
bidder.125chanroblesvirtuallawlibrary final cannot be modified or altered, much less
Pedro and Laureano offer a similar defense in paragraph reversed, and are controlling in the instant case.
3.3 of their Reply and Answer with Counterclaim to the
Republic's Counterclaim126 dated 28 June 2004, which Respondents argue that the 2004 Decision did not resolve
reads:ChanRoblesVirtualawlibrary and could not have resolved the factual issue of whether
3.3. As far as plaintiff MPEI and defendants-in- they had committed any fraud, as the Supreme Court is not
counterclaim are concerned, they dealt with the a trier of facts; and the 2004 case, being a certiorari case,
COMELEC with full transparency and in utmost good did not deal with questions of fact.129chanrobleslaw
faith. All documents support its eligibility to bid for the
supply of the ACMs and their peripheral services, were Further, respondents argue that the findings of this Court
submitted to the COMELEC for its evaluation in full ought to be confined only to those issues actually raised
transparency. Pertinently, neither plaintiff MPEI nor any and resolved in the 2004 case, in accordance with the
of its directors, stockholders, officers or employees had principle of conclusiveness of judgment.130 They explain
any participation in the evaluation of the bids and that the issues resolved in the 2004 Decision were only
eventual choice of the winning limited to the following: (1) whether to declare COMELEC
bidder. chanroblesvirtuallawlibrary
127 Resolution No. 6074 null and void; (2) whether to enjoin
It can be seen from the above-quoted paragraphs that the the implementation of any further contract that may have
individual respondents never denied their participation in been entered into by COMELEC with MPC or MPEI; and (3)
the questioned transactions of MPEI, merely raising the whether to compel COMELEC to conduct a rebidding of the
defense of good faith and shifting the blame to the project.131chanrobleslaw
COMELEC. The individual respondents have, in effect,
admitted that they had knowledge of and participation in It is obvious that respondents are merely trying to escape
the fraudulent subcontracting of the automation contract the implications or effects of the nullity of the automation
to the four corporations. contract that they had executed. Section 1, Rule 65 of the
Rules of Court, clearly sets forth the instances when a
It bears stressing that the remaining individual petition for certiorari can be used as a proper
respondents, together with respondent Willy, remedy:ChanRoblesVirtualawlibrary
incorporated MPEI. As incorporators, they are expected to Section 1. Petition for certiorari. — When any tribunal,
be involved in the management of the corporation and board or officer exercising judicial or quasi-judicial
they are charged with the duty of care. This is one of the functions has acted without or in excess of its jurisdiction,
reasons for the requirement of ownership of at least one or with grave abuse of discretion amounting to lack or
share of stock by an excess of jurisdiction, and there is no appeal, or any plain,
incorporator:ChanRoblesVirtualawlibrary speedy, and adequate remedy in the ordinary course of
The reason for this, as explained by the lawmakers, is to law. a person aggrieved thereby may file a verified
avoid the confusion and/or ambiguities arising in a petition in the proper court, alleging the facts with
situation under the old corporation law where there exists certainty and praying that judgment be rendered
one set of incorporators who are not even shareholders annulling or modifying the proceedings of such tribunal,
and another set of directors/incorporators who must board or officer, and granting such incidental reliefs as law
all be shareholders of the corporation. The people who and justice may require.
deal with said corporation at such an early stage are The term "grave abuse of discretion" has a specific
confused as to who are the persons or group really meaning. An act of a court or tribunal can only be
authorized to act in behalf of the corporation. considered to have been committed with grave abuse of
(Proceedings of the Batasan Pambansa on the Proposed discretion when the act is done in a "capricious or
Corporation Code). Another reason may be anchored whimsical exercise of judgment as is equivalent to lack of
on the presumption that when an incorporator has jurisdiction."132 The abuse of discretion must be so patent
pecuniary interest in the corporation, no matter how and gross as to amount to an "evasion of a positive duty or
minimal, he will be more involved in the management to a virtual refusal to perform a duty enjoined by law, or
of corporate affairs and to a greater degree, be to act at all in contemplation of law, as where the power is
concerned with the welfare of the exercised in an arbitrary and despotic manner by reason
corporation.128chanroblesvirtuallawlibrary of passion and hostility."133 Furthermore, the use of a
As incorporators and businessmen about to embark on a petition for certiorari is restricted only to "truly
new business venture involving a sizeable capital (P300 extraordinary cases wherein the act of the lower court or
million), the remaining individual respondents should quasi-judicial body is wholly void."134 From the foregoing
have known of Willy's scheme to perpetrate the fraud definition, it is clear that the special civil action of
against petitioner, especially because the objective was a certiorari under Rule 65 can only strike down an act for
billion peso automation contract. Still, they proceeded having been done with grave abuse of discretion if the
with the illicit business venture. petitioner could manifestly show that such act was patent
and gross.135chanrobleslaw
It is clear to this Court that inequity would result if We do
not attach personal liability to all the individual We had to ascertain from the evidence whether the
respondents. With a definite finding that MPEI was used COMELEC committed grave abuse of discretion, and in the
to perpetrate the fraud against the government, it would process, were justified in making some factual findings.
be a great injustice if the remaining individual The conclusions derived from the factual findings are
inextricably intertwined with this Court's determination any future action between such parties or their
of grave abuse of discretion. They have a direct bearing privies, in the same court or any other court of
and are in fact necessary to illustrate that the award of the concurrent jurisdiction on either the same or
automation contract was done hastily and in direct different cause of action, while the judgment remains
violation of law. This Court has indeed made factual unreversed by proper authority. It has been held that in
findings based on the evidence presented before it; in turn, order that a judgment in one action can be conclusive as
these factual findings constitute the controlling legal rule to a particular matter in another action between the same
between the parties that cannot be modified or amended parties or their privies, it is essential that the issue be
by any of them. This Court is bound to consider the factual identical. If a particular point or question is in issue in
findings made in the 2004 Decision in order to declare that the second action, and the judgment will depend on
there is fraud for the purpose of issuing the writ of the determination of that particular point or question,
preliminary attachment. a former judgment between the same parties or their
privies will be final and conclusive in the second if that
Respondents appear to have misunderstood the same point or question was in issue and adjudicated
implications of the principle of conclusiveness of in the first suit (Nabus v. Court of Appeals, 193 SCRA 732
judgment on their cause. Contrary to their claims, the [1991]). Identity of cause of action is not required but
factual findings are conclusive and have been established merely identity of issue.
as the controlling legal rule in the instant case, on the basis
of the principle of res judicata—more particularly, the Justice Fcliciano, in Smith Bell & Company (Phils.), Inc. v.
principle of conclusiveness of judgment. Court of Appeals (197 SCRA 201, 210 [1991]),
reiterated Lopez v. Reyes (76 SCRA 179 [1977]) in regard
This doctrine of res judicata which is set forth in Section to the distinction between bar by former judgment which
47 of Rule 39 of the Rules of Court136 lays down two main bars the prosecution of a second action upon the same
rules, namely: (1) the judgment or decree of a court of claim, demand, or cause of action, and conclusiveness of
competent jurisdiction on the merits concludes the judgment which bars the relitigation of particular facts or
litigation between the parties and their privies and issues in another litigation between the same parties on a
constitutes a bar to a new action or suit involving the same different claim or cause of action.
cause of action either before the same or any other The general rule precluding the re-litigation of
tribunal; and (2) any right, fact, or matter in issue directly material facts or questions which were in issue and
adjudicated or necessarily involved in the determination adjudicated in former action are commonly applied to
of an action before a competent court in which a judgment all matters essentially connected with the subject
or decree is rendered on the merits is conclusively settled matter of the litigation. Thus, it extends to questions
by the judgment therein and cannot again be litigated necessarily implied in the final judgment, although no
between the parties and their privies whether or not the specific finding may have been made in reference
claims or demands, purposes, or subject matters of the thereto and although such matters were directly
two suits are the same.137chanrobleslaw referred to in the pleadings and were not actually or
formally presented. Under this rule, if the record of
These two main rules mark the distinction between the the former trial shows that the judgment could not
principles governing the two typical cases in which a have been rendered without deciding the particular
judgment may operate as evidence.138 The first general matter, it will be considered as having settled that
rule stated above and corresponding to the afore-quoted matter as to all future actions between the parties and
paragraph (b) of Section 47, Rule 39 of the Rules of Court, if a judgment necessarily presupposes certain
is referred to as "bar by former judgment"; while the premises, they are as conclusive as the judgment
second general rule, which is embodied in paragraph (c) itself.141 (Emphases supplied)
of the same section and rule, is known as "conclusiveness The foregoing disquisition finds application to the case at
of judgment."139chanrobleslaw bar.
In Calalang v. Register of Deeds of Quezon City,140 We Undeniably, the present case is merely an adjunct of the
discussed the concept of conclusiveness of judgment as 2004 case, in which the automation contract was declared
pertaining even to those matters essentially to be a nullity. Needless to say, the 2004 Decision has since
connected with the subject of litigation in the first action. become final. As earlier explained, this Court arrived at
This Court explained therein that the bar on re-litigation several factual findings showing the illegality of the
extends to those questions necessarily implied in the final automation contract; in turn, these findings were used as
judgment, although no specific finding may have been basis to justify the declaration of nullity.
made in reference thereto, and although those matters
were directly referred to in the pleadings and were not A closer scrutiny of the 2004 Decision would reveal that
actually or formally presented. If the record of the former the judgment could not have been rendered without
trial shows that the judgment could not have been deciding particular factual matters in relation to the
rendered without deciding a particular matter, it will be following: (1) identity, existence and eligibility of MPC as
considered as having settled that matter as to all future a bidder; (2) failure of the ACMs to pass DOST technical
actions between the parties; and if a judgment necessarily tests; and (3) remedial measures undertaken by the
presupposes certain premises, they are as conclusive as COMELEC after the award of the automation contract.
the judgment itself:ChanRoblesVirtualawlibrary Under the principle of conclusiveness of judgment, We are
The second concept — conclusiveness of judgment — precluded from re-litigating these facts, as these were
states that a fact or question which was in issue in a essential to the question of nullity. Otherwise stated, the
former suit and was there judicially passed upon and judgment could not have been rendered without
determined by a court of competent jurisdiction, is necessarily deciding on the above-enumerated factual
conclusively settled by the judgment therein as far as matters.
the parties to that action and persons in privity with
them are concerned and cannot be again litigated in Thus, under the principle of conclusiveness of judgment,
those material facts became binding and conclusive on the Justices wrote their Separate Opinions, each
parties, in this case MPEI and, ultimately, the persons that recommending the dismissal of the Petition.149 Of the nine
comprised it. When a right or fact has been judicially tried (9) Justices who voted to grant the Petition, four (4) joined
and determined by a court of competent jurisdiction, or the ponente in his disposition of the case,150 and two (2)
when an opportunity for that trial has been given, the Justices wrote Separate Concurring Opinions.151 As to the
judgment of the court—as long as it remains remaining two (2) Justices, one (1) Justice152 merely
unreversed—should be conclusive upon the parties concurred in the result, while the other joined another
and those in privity with them.142 Thus, the CA should Justice in her Separate Opinion.153chanrobleslaw
not have required petitioner to present further evidence
of fraud on the part of respondent Willy and MPEI, as it Contrary to the allegations of respondents, an
was already necessarily adjudged in the 2004 case. examination of the voting shows that nine (9) Justices
voted in favor of the majority opinion, without any
To allow respondents to argue otherwise would be qualification regarding the factual findings made therein.
violative of the principle of immutability of judgment. In fact, the two (2) Justices who wrote their own
When a final judgment becomes executory, it becomes Concurring Opinions echoed the lack of eligibility of MPC
immutable and unalterable and may no longer undergo and the failure of the ACMs to pass the mandatory
any modification, much less any reversal.143 In Navarro v. requirements.
Metropolitan Bank & Trust Company144 this Court
explained that the underlying reason behind this principle Finally, respondents cannot argue that, from the line of
is to avoid delay in the administration of justice and to questioning of then Justice Leonardo A. Quisumbing
avoid allowing judicial controversies to drag on during the oral arguments in the 2004 case, he did not
indefinitely, viz.:ChanRoblesVirtualawlibrary agree with the factual findings of this Court. Oral
No other procedural law principle is indeed more arguments before this Court are held precisely to test the
settled than that once a judgment becomes final, it is soundness of each proponent's contentions. The
no longer subject to change, revision, amendment or questions and statements propounded by Justices during
reversal, except only for correction of clerical errors, such an exercise are not to be construed as their definitive
or the making of nunc pro tunc entries which cause no opinions. Neither are they indicative of how a Justice shall
prejudice to any party, or where the judgment itself is vote on a particular issue; indeed, Justice Quisumbing
void. The underlying reason for the rule is two-fold: (1) to clearly states in the 2004 Decision that he concurs in the
avoid delay in the administration of justice and thus make results. At any rate, statements made by Our Members
orderly the discharge of judicial business, and (2) to put during oral arguments are not stare decisis; what is
judicial controversies to an end, at the risk of occasional conclusive are the decisions reached by the majority of the
errors, inasmuch as controversies cannot be allowed to Court.
drag on indefinitely and the rights and obligations of every IV.
litigant must not hang in suspense for an indefinite period The delivery of 1,991 units of ACMs does not negate
of time. As the Court declared in Yau v. Silverio, fraud on the part of respondents Willy and MPEI.
Litigation must end and terminate sometime and
somewhere, and it is essential to an effective and efficient The CA in its Amended Decision explained that
administration of justice that, once a judgment has respondents could not be considered to have fostered a
become final, the winning party be, not through a mere fraudulent intent to not honor their obligation, since they
subterfuge, deprived of the fruits of the verdict. Courts delivered 1,991 units of ACMs.154 In turn, respondents
must therefore guard against any scheme calculated to argue that respondent MPEI had every intention of
bring about that result. Constituted as they are to put an fulfilling its obligation, because it in fact delivered the
end to controversies, courts should frown upon any ACMs as required by the automation
attempt to prolong them. contract. chanrobleslaw
155
Respondents claim that the 2004 Decision may not be If the State is to be serious in its obligation to develop and
invoked against them, since the petitioner and the implement coordinated anti-corruption policies that
respondents were co-respondents and not adverse parties promote proper management of public affairs and public
in the 2004 case. Respondents further explain that since property, integrity, transparency and accountability,162 it
petitioner and respondents were on the same side at the needs to establish and promote effective practices aimed
time, had the same interest, and took the same position on at the prevention of corruption,163 as well as strengthen
the validity and regularity of the automation contract, our efforts at asset recovery.164chanrobleslaw
petitioner cannot now invoke the 2004 Decision against
them.156chanrobleslaw As a signatory to the United Nations Convention Against
Corruption (UNCAC),165 the Philippines acknowledges its
Contrary to respondents' contention, estoppel generally obligation to establish appropriate systems of
finds no application against the State when it acts to procurement based on transparency, competition and
rectify mistakes, errors, irregularities, or illegal acts of its objective criteria in decision-making that are effective in
officials and agents, irrespective of rank. This principle preventing corruption.166 To promote transparency, and
ensures the efficient conduct of the affairs of the State in line with the country's efforts to curb corruption, it is
without any hindrance to the implementation of laws and useful to identify certain fraud indicators or "red flags"
regulations by the government. This holds true even if its that can point to corrupt activity.167 This case - arguably
agents' prior mistakes or illegal acts shackle government the first to provide palpable examples of what could be
operations and allow others—some by malice—to profit reasonably considered as "red flags" of fraud and
from official error or misbehavior, and even if the malfeasance in public procurement - is the Court's
rectification prejudices parties who have meanwhile contribution to the nation's continuing battle against
received benefit.157 Indeed, in the 2004 Decision, this corruption, in accordance with its mandate to dispense
Court even directed the Ombudsman to determine the justice and safeguard the public interest.
possible criminal liability of public officials and private
persons responsible for the contract, and the OSG to WHEREFORE, premises considered, the Petition
undertake measures to protect the government from the is GRANTED. The Amended Decision dated 22 September
ill effects of the illegal disbursement of public 2008 of the Court of Appeals in CA-G.R. SP. No. 95988
funds.158chanrobleslaw is ANNULLED AND SET ASIDE. A new one is
entered DIRECTING the Regional Trial Court of Makati
The equitable doctrine of estoppel for the prevention of City, Branch 59, to ISSUE in Civil Case No. 04-346,
injustice and is for the protection of those who have been entitled Mega Pacific eSolutions, Inc., vs. Republic of the
misled by that which on its face was fair and whose Philippines, the Writ of Preliminary Attachment prayed for
character, as represented, parties to the deception will not, by petitioner Republic of the Philippines against the
in the interest of justice, be heard to deny.159 It cannot properties of respondent Mega Pacific eSolutions, Inc., and
therefore be utilized to insulate from liability the very Willy U. Yu, Bonnie S. Yu, Enrique T. Tansipek, Rosita Y.
perpetrators of the injustice complained of. Tansipek, Pedro O. Tan, Johnson W. Fong, Bernard I. Fong
VI. and Lauriano Barrios.
The findings of the Office of the Ombudsman are not
controlling in the instant case. No costs.
Marc 560 - 75 (6 - 62,3 62,97 (B) On August 5, 1982, the Board of Directors passed
elino 0 80 44.1 4.19 Resolution No. 4 which authorized Atty.
M. ) 9 Divinagracia to negotiate the purchase of two
Flore stations of Consolidated Broadcasting System,
te, Sr. Inc. (CBS), DYMF and DXMF in Cebu and Davao,
respectively. In consideration thereof, [People's
Salo 30 (30) - - - Broadcasting Service, Inc.] shall issue 1,250
me M. shares of stock in favor of [Consolidated
Flore Broadcasting System, Inc.]. In pursuance thereof,
te on September 1, 1982, the Corporation issued
the remaining 1,240 shares of unissued capital
Rogel 20 5 11 37 (5) 149, 151,1 stock to [Consolidated Broadcasting System,
io M. 10 0 624. 24.75 Inc.]. To complete the consideration of 1,250
Flore 75 shares, it was explained that [Salome]
te transferred her 10 shares to [Consolidated
Broadcasting System, Inc.] and distributed her
Ma. 20 5 - - (2 2,49 2,493 remaining 20 shares to her children, at 5 shares
Elena 5) 3.68 .68 each.
F.
Muyc (C) On March 1, 1983, all the 610 shares of
o [Newsounds Broadcasting Network, Inc.] were
transferred to [Rogelio, Sr.]. We were not able to
Teres - 5 - 20 (2 2,49 2,493 determine the person who endorsed the
ita F. 5) 3.69 .69 certificate in [sic] behalf [of] [Newsounds
Menc Broadcasting Network, Inc.] as the certificate was
havez not found on file. On the same day, the entire
investment of [Consolidated Broadcasting
Marc - 5 - 20 (2 2,49 2,493 System, Inc.] were transferred to [Marcelino, Sr.]
elino 0) 3.44 .44 and [Rogelio, Sr.] at the proportion of 750 shares
M. and 500 shares, respectively. The cancelled
Flore certificates of [Consolidated Broadcasting
te, Jr. System, Inc.] were endorsed by [Rogelio, Sr.] in
[sic] its behalf.
Santi 20 - - 27 75 29,9 30,29
ago C. 0 25.2 0.25 (D) On February 28 and August 1, 1983, [Marcelino,
Divin 5 Sr.] transferred 680 shares from his block to the
agrac following:
ia
News 610 - (6
Transferee No. of Date of Transfer
ound 10
Shares
Broa )
dcasti Rogelio M. Florete 370 February 28,
ng18
[Sr.] 1983
Santiago C. 270 August 1, 1983 5. Santiago Divinagracia 30,289.25
Divinagracia
6. Imelda Florete 1,000.00
Marcelino M. Florete, 20 August 1, 1983
Jr. 7. Rogelio Florete, Jr. 100.00
In its Decision36 dated March 29, 2006, the Court of Hence, on November 17, 2006, the Marcelino, Jr. Group
Appeals denied the Marcelino, Jr. Group's Petition and filed the Petition53 docketed as GR. No. 174909.
affirmed the trial court Decision.37 It also lifted the
temporary restraining order and writ of preliminary Since the Court of Appeals Decision disallowed the
injunction.38chanroblesvirtuallawlibrary immediate execution of the Regional Trial Court Decision,
Rogelio, Sr. filed on May 7, 2007 the Petition54 docketed as
The Court of Appeals ruled that the Marcelino, Jr. Group GR. No. 177275.
did not have a cause of action against those whom they
have impleaded as defendants. It also noted that the On March 16, 2009, this court ordered the consolidation
principal obligors in or perpetrators of the assailed of the Petitions docketed as GR. No. 174909 and GR. No.
transactions were persons other than those in the Rogelio, 177275.
Sr. Group who have not been impleaded as parties. Thus,
the Court of Appeals emphasized that the following For resolution are the following issues:
parties were indispensable to the case: People's
Broadcasting; Marcelino, Sr.; Consolidated Broadcasting First, whether it was proper for the Regional Trial Court
System, Inc.; Salome; Divinagracia; Teresita; and "other to dismiss the Complaint filed by the Marcelino, Jr. Group;
stockholders of [People's Broadcasting] to whom the
shares were transferred or the nominees of the Second, assuming that it was error for the Regional Trial
stockholders."39chanroblesvirtuallawlibrary Court to dismiss the Complaint and that the case may be
decided on the merits, whether the transfers of shares
The Court of Appeals further emphasized that the estates assailed by the Marcelino, Jr. Group should be nullified;
of Marcelino, Sr. and Salome had long been settled, with and
those in the Marcelino, Jr. Group participating (in their
capacity as heirs). As the Marcelino, Jr. Group failed to act Lastly, whether the Regional Trial Court's award of moral
to protect their supposed interests in shares originally and exemplary damages in favor of Rogelio, Sr. may be
accruing to Marcelino, Sr. and Salome, the group is executed at this juncture of the proceedings.
estopped from questioning the distribution of Marcelino,
Sr.'s and Salome's assets.40 Furthering the conclusion that The Marcelino, Jr. Group insists that they have sufficiently
the Marcelino, Jr. Group was bound by estoppel, the Court established causes of action accruing to them and against
of Appeals noted that the Marcelino, Jr. Group was well the Rogelio, Sr. Group.55 They add that they have
aware of the matters stated in the report furnished by impleaded all indispensable parties.56 Thus, they claim
that it was an error for the Regional Trial Court to dismiss weakness of the upper and lower extremities with
their Complaint. They assert that a resolution of the case spasticity and tremors. Motor aphasia means that the
on the merits must ensue. patient could not communicate, unable to talk, nor
responds [sic] to question or simple commands."66 Thus,
The Marcelino, Jr. Group seeks to nullify the following they conclude that all of the issuances of shares in favor of
transactions on the shares of stock of People's Marcelino, Sr. and all of the transfers of shares to and from
Broadcasting, as noted in the report of Sycip Gorres Velayo Marcelino, Sr. from July 12, 1982 are void for lack of
and Co.: consent.
(a) Issuance of 1,240 shares to Consolidated
With respect to the issuance of 610 shares to Newsounds
Broadcasting System, Inc. on September 1, 1982, Broadcasting Network, Inc. and the subsequent transfer of
610 shares to Rogelio, Sr., the Marcelino, Jr. Group argues
(b) Transfer of 10 shares from Salome to
that there is no deed of conveyance to support the transfer
Consolidated Broadcasting System, Inc. on
and that the stock certificates representing the 610 shares
September 1, 1982,
are missing. They conclude that because of the absence of
(c) Issuance of 610 shares to Newsounds the stock certificates, there is no valid delivery and
Broadcasting Network, Inc. on November 17, endorsement as required by Section 63 of the Corporation
1967, Code.67 Hence, the transfer is invalid.
(d) Transfer of 610 shares from Newsounds Regarding the increase in the authorized capital stock of
Broadcasting Network, Inc. to Rogelio, Sr. on People's Broadcasting, the Marcelino, Jr. Group argues
March 1, 1983, that the increase was procured by fraud because it was
made "by the new Board of Directors who were elected by
(e) Transfer of 750 shares from Consolidated stockholders who were transferees of the illegal,
Broadcasting System, Inc. to Marcelino, Sr. on fraudulent and anomalous transfers, and therefore have
March 1, 1983, no power and authority to procure such increase."68 They
also pray that the subscriptions to the increase be
(f) Transfer of 500 shares from Consolidated nullified.69chanroblesvirtuallawlibrary
Broadcasting System, Inc. to Rogelio, Sr.,
After a declaration that the issuances and transfers are
(g) Transfer of 680 shares from Marcelino, Sr. to the void, the Marcelino, Jr. Group prays that the capital
following: 370 shares to Rogelio, Sr., 270 shares structure of People's Broadcasting System be corrected to
to Divinagracia, 20 shares to Marcelino, Jr., and reflect the following:70chanroblesvirtuallawlibrary
20 shares to Teresita, and
Beneficial Stockholder No. of Shares %
(h) Increase in the authorized capital stock to
PI00,000,000.00 divided into 1,000,000 shares Marcelino Florete, Sr. 660 81.48
with a par value of PI00.00 per share on
December 8, 1989, and the resulting Salome Florete 100 12.35
subscriptions.57
Santiago Divinagracia 50 6.17
Villamor v. Umale82 distinguished individual suits from In Asset Privatization Trust v. Court of Appeals,89 the
class or representative suits: reasons for disallowing a direct individual suit were
Individual suits are filed when the cause of action belongs further explained:
to the individual stockholder personally, and not to the The reasons given for not allowing direct individual suit
stockholders as a group or to the corporation, e.g., denial are:
of right to inspection and denial of dividends to a
stockholder. If the cause of action belongs to a group of (1) . . . "the universally recognized doctrine that a
stockholders, such as when the rights violated belong to stockholder in a corporation has no title legal or equitable
preferred stockholders, a class or representative suit may to the corporate property; that both of these are in the
be filed to protect the stockholders in the corporation itself for the benefit of the stockholders." In
group.83chanroblesvirtuallawlibrary other words, to allow shareholders to sue separately
would conflict with the separate corporate entity
Villamor further explained that a derivative suit "is an principle;
action filed by stockholders to enforce a corporate
action."84A derivative suit, therefore, concerns "a wrong to (2) . . . that the prior rights of the creditors may be
the corporation itself."85 The real party in interest is the prejudiced. Thus, our Supreme Court held in the case
corporation, not the stockholders filing the suit. The of Evangelista v. Santos, that 'the stockholders may not
stockholders are technically nominal parties but are directly claim those damages for themselves for that
nonetheless the active persons who pursue the action for would result in the appropriation by, and the distribution
and on behalf of the corporation. among them of part of the corporate assets before the
dissolution of the corporation and the liquidation of its
Remedies through derivative suits are not expressly debts and liabilities, something which cannot be legally
provided for in our statutes—more specifically, in the done in view of Section 16 of the Corporation Law...";
Corporation Code and the Securities Regulation Code—
but they are "impliedly recognized when the said laws (3) the filing of such suits would conflict with the duty of
make corporate directors or officers liable for damages the management to sue for the protection of all concerned;
suffered by the corporation and its stockholders for
violation of their fiduciary duties."86 They are intended to (4) it would produce wasteful multiplicity of suits; and
afford reliefs to stockholders in instances where those
responsible for running the affairs of a corporation would (5) it would involve confusion in ascertaining the effect of
not otherwise act: partial recovery by an individual on the damages
However, in cases of mismanagement where the wrongful recoverable by the corporation for the same
acts are committed by the directors or trustees act.90chanrobleslaw
(3) No appraisal rights are available for the act or
The avenues for relief are, thus, mutually exclusive. The
acts complained of; and
determination of the appropriate remedy hinges on the
object of the wrong done. When the object is a specific (4) The suit is not a nuisance or harassment suit.
stockholder or a definite class of stockholders, an
individual suit or class/representative suit must be
resorted to. When the object of the wrong done is the In case of nuisance or harassment suit, the court shall
corporation itself or "the whole body of its stock and forthwith dismiss the case.
property without any severance or distribution among The fifth requisite for filing derivative suits, while not
individual holders,"91 it is a derivative suit that a included in the enumeration, is implied in the first
stockholder must resort to. In Cua, Jr. v. paragraph of Rule 8, Section 1 of the Interim Rules: The
Tan:92chanroblesvirtuallawlibrary action brought by the stockholder or member must be "in
Indeed, the Court notes American jurisprudence to the the name of [the] corporation or association. . . ." This
effect that a derivative suit, on one hand, and individual requirement has already been settled in jurisprudence.
and class suits, on the other, are mutually
exclusive, viz.:ChanRoblesVirtualawlibrary Thus, in Western Institute of Technology, Inc., et al. v. Salas,
As the Supreme Court has explained: "A shareholder's et al, this court said that "[a]mong the basic requirements
derivative suit seeks to recover for the benefit of the for a derivative suit to prosper is that the minority
corporation and its whole body of shareholders when shareholder who is suing for and on behalf of the
injury is caused to the corporation that may not otherwise corporation must allege in his complaint before the
be redressed because of failure of the corporation to proper forum that he is suing on a derivative cause of
act. Thus, 'the action is derivative, i.e., in the corporate right, action on behalf of the corporation and all other
if the gravamen of the complaint is injury to the corporation, shareholders similarly situated who wish to join [him]." ...
or to the whole body of its stock and property without any
severance or distribution among individual holders, or it Moreover, it is important that the corporation be made a
seeks to recover assets for the corporation or to prevent party to the case.94 (Citations omitted)
the dissipation of its assets.'" In contrast, "a direct action
[is one] filed by the shareholder individually (or on behalf II
of a class of shareholders to which he or she belongs) for
injury to his or her interest as a shareholder.. . . [T]he two The greater number of cases that sustained stockholders'
actions are mutually exclusive: i.e., the right of action and recourse to derivative suits involved corporate acts
recovery belongs to either the shareholders (direct amounting to mismanagement by either the corporation's
action) or the corporation (derivative action)." directors or officers in relations to third persons. Several
cases serve as examples.
Thus, in Nelson v. Anderson, the minority shareholder
alleged that the other shareholder of the corporation Hi-Yield Realty v. Court of Appeals95 affirmed the Regional
negligently managed the business, resulting in its total Trial Court's and Court of Appeals' characterization of a
failure. The appellate court concluded that the plaintiff Petition for Annulment of Real Estate Mortgage and
could not maintain the suit as a direct action: "Because the Foreclosure Sale96 as a derivative suit. The Petition was
gravamen of the complaint is injury to the whole body of its initiated by private respondent Roberto H. Torres, a
stockholders, it was for the corporation to institute and stockholder, on behalf of the corporation Honorio Torres
maintain a remedial action. A derivative action would have & Sons, Inc. Petitioner Hi-Yield Realty, Inc. was among the
been appropriate if its responsible officials had refused or defendants to the Petition, along with the related parties,
failed to act." The court went on to note that the damages Leonora, Ma. Theresa, Glenn, and Stephanie, all surnamed
shown at trial were the loss of corporate profits. Since Torres, as well as the Registers of Deeds of Marikina and
"[shareholders own neither the property nor the earnings of Quezon City. Against Hi-Yield Realty, Inc.'s claims, this
of the corporation," any damages that the plaintiff alleged court sustained the respondent's position that the Petition
that resulted from such loss of corporate profits "were was "primarily a derivative suit to redress the alleged
incidental to the injury to the corporation."93 (Emphasis unauthorized acts of its corporate officers and major
supplied, citations omitted) stockholders in connection with the
lands." chanroblesvirtuallawlibrary
97
As Ching and Wellington exemplifies, the action should be Also, the damage inflicted upon People's Broadcasting's
a proper derivative suit even if the assailed acts do not individual stockholders, if any, was indiscriminate. It was
pertain to a corporation's transactions with third not unique to those in the Marcelino, Jr. Group. It
persons. Cua, Jr. established that the pivotal consideration pertained to "the whole body of [People's Broadcasting's]
is whether the wrong done as well as the cause of action stock."125 Accordingly, it was upon People's Broadcasting
arising from it accrues to the corporation itself or to the itself that the causes of action now claimed by the
whole body of its stockholders. Ching and Marcelino Jr. Group accrued. While stockholders in the
Wellington states that if "[t]he causes of action pleaded ... Marcelino, Jr. Group were permitted to seek relief, they
do not accrue to a single shareholder or a class of should have done so not in their unique capacity as
shareholders but to the corporation itself,"122 the action individuals or as a group of stockholders but in place of
should be deemed a derivative suit. Also, in Go, an action the corporation itself through a derivative suit. As they,
"seeking to nullify and invalidate the duly constituted acts instead, sought relief in their individual capacity, they did
[of a corporation]" entails a cause of action that "rightfully so bereft of a cause of action. Likewise, they did so without
pertains to [the corporation itself and which stockholders] even the slightest averment that the requisites for the
cannot exercise . . . except through a derivative filing of a derivative suit, as spelled out in Rule 8, Section
suit."123chanroblesvirtuallawlibrary 1 of the Interim Rules of Procedure for Intra-Corporate
Controversies, have been satisfied. Since the Complaint
These are the same conditions in this case. What the lacked a cause of action and failed to comply with the
Marcelino, Jr. Group asks is the complete reversal of a requirements of the Marcelino, Jr. Group's vehicle for
number of corporate acts undertaken by People' relief, it was only proper for the Complaint to have been
Broadcasting's different boards of directors. These boards dismissed.chanRoblesvirtualLawlibrary
supposedly engaged in outright fraud or, at the very least, IV
acted in such a manner that amounts to wanton
mismanagement of People's Broadcasting's affairs. The Erroneously pursuing a derivative suit as a class suit not
ultimate effect of the remedy they seek is the only meant that the Marcelino, Jr. Group lacked a cause of
reconfiguration of People's Broadcasting's capital action; it also meant that they failed to implead an
structure. indispensable party.
The remedies that the Marcelino, Jr. Group seeks are for In derivative suits, the corporation concerned must be
People's Broadcasting itself to avail. Ordinarily, these impleaded as a party. As explained in Asset Privatization
reliefs may be unavailing because objecting stockholders Trust:
such as those in the Marcelino, Jr. Group do not hold the Not only is the corporation an indispensible party, but it is
controlling interest in People's Broadcasting. This is also the present rule that it must be served with process.
precisely the situation that the rule permitting derivative The reason given is that the judgment must be made
suits contemplates: minority shareholders having no binding upon the corporation in order that the
other recourse "whenever the directors or officers of the corporation may get the benefit of the suit and may not
corporation refuse to sue to vindicate the rights of the bring a subsequent suit against the same defendants for
corporation or are the ones to be sued and are in control the same cause of action. In other words the corporation
of the corporation."124chanroblesvirtuallawlibrary must be joined as party because it is its cause of action that
is being litigated and because judgment must be a res
The Marcelino, Jr. Group points to violations of specific ajudicata [sic] against it.126chanroblesvirtuallawlibrary
provisions of the Corporation Code that supposedly attest
to how their rights as stockholders have been besmirched. We have already discussed Go where this court concluded
However, this is not enough to sustain a claim that the that an action brought by three individual stockholders
Marcelino, Jr. Group initiated a valid individual or class was, in truth, a derivative suit. There, this court further
suit. To reiterate, whether stockholders suffer from a explained that a case cannot prosper when the proper
wrong done to or involving a corporation does not readily party is not impleaded:
vest in them a sweeping license to sue in their own As it is clear that the acts being assailed are those of PHHC,
capacity. this case cannot prosper for failure to implead the proper
party, PHCC.
The specific provisions adverted to by the Marcelino, Jr.
Group signify alleged wrongdoing committed against the An indispensable party is defined as one who has such an
corporation itself and not uniquely to those stockholders interest in the controversy or subject matter that a final
who now comprise the Marcelino, Jr. Group. A violation of adjudication cannot be made, in his absence, without
Sections 23 and 25 of the Corporation Code—on how injuring or affecting that interest. In the recent case
decision-making is vested in the board of directors and on of Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-
the board's quorum requirement—implies that a decision OLALIA-KMU) v. Keihin Philippines Corporation, the Court
had the occasion to state inclusion of an indispensable party is
that:ChanRoblesVirtualawlibrary a jurisdictional requirement:
Under Section 7, Rule 3 of the Rules of Court, "parties in While the failure to implead an indispensable party is not
interest without whom no final determination can be had per se a ground for the dismissal of an action, considering
of an action shall be joined as plaintiffs or defendants." If that said party may still be added by order of the court, on
there is a failure to implead an indispensable party, any motion of the party or on its own initiative at any stage of
judgment rendered would have no effectiveness. It is the action and/or such times as are just, it remains
"precisely 'when an indispensable party is not before the essential — as it is jurisdictional — that any indispensable
court (that) an action should be dismissed.' The absence party be impleaded in the proceedings before the court
of an indispensable party renders all subsequent actions renders judgment. This is because the absence of such
of the court null and void for want of authority to act, not indispensable party renders all subsequent actions of the
only as to the absent parties but even to those present." court null and void for want of authority to act, not only as
The purpose of the rules on joinder of indispensable to the absent parties but even as to those
parties is a complete determination of all issues not only present.131 (Emphasis supplied, citation omitted)
between the parties themselves, but also as regards other
persons who may be affected by the judgment. A decision In Metropolitan Bank and Trust Co. v. Alejo132 and Arcelona
valid on its face cannot attain real finality where there is v. Court of Appeals,133 this court clarified that the courts
want of indispensable parties. must first acquire jurisdiction over the person of an
Similarly, in the case of Plasabas v. Court of Appeals, the indispensable party. Any decision rendered by a court
Court held that a final decree would necessarily affect the without first obtaining the required jurisdiction over
rights of indispensable parties so that the Court could not indispensable parties is null and void for want of
proceed without their presence. In support thereof, the jurisdiction: "the presence of indispensable parties is
Court in Plasabas cited the following authorities, necessary to vest the court with jurisdiction, which is 'the
thus:ChanRoblesVirtualawlibrary authority to hear and determine a cause, the right to act in
The general rule with reference to the making of parties in a case.'"134chanroblesvirtuallawlibrary
a civil action requires the joinder of all indispensable
parties under any and all conditions, their presence being In Divinagracia v. Parilla,135Macawadib v. Philippine
a sine qua non of the exercise of judicial power. For this National Police Directorate for Personnel and Records
reason, our Supreme Court has held that when it appears Management,136People v. Go,137 and Valdez-Tallorin v.
of record that there are other persons interested in the Heirs of Tarona,138 among others, this court annulled
subject matter of the litigation, who are not made parties judgments rendered by lower courts in the absence of
to the action, it is the duty of the court to suspend the trial indispensible parties.
until such parties are made either plaintiffs or defendants,
x x x Where the petition failed to join as party defendant The second consequence is unavailing in this case. While
the person interested in sustaining the proceeding in the "[njeither misjoinder nor non-joinder of parties is ground
court, the same should be dismissed, x x x When an for dismissal of an action"139 and is, thus, not fatal to the
indispensable party is not before the court, the action Marcelino, Jr. Group's action, we have shown that they lack
should be dismissed. a cause of action. This warrants the dismissal of their
Complaint.
Parties in interest without whom no final determination
can be had of an action shall be joined either as plaintiffs The first consequence, however, is crucial. It determines
or defendants. The burden of procuring the presence of all the validity of the Regional Trial Court's award of damages
indispensable parties is on the plaintiff. The evident to Rogelio, Sr.
purpose of the rule is to prevent the multiplicity of suits
by requiring the person arresting a right against the Since the Regional Trial Court did not have jurisdiction,
defendant to include with him, either as co-plaintiffs or as the decision awarding damages in favor of Rogelio, Sr. is
co-defendants, all persons standing in the same position, void.
so that the whole matter in dispute may be determined
once and for all in one litigation. Apart from this, there is no basis in jurisprudence for
From all indications, PHCC is an indispensable party and awarding moral and exemplary damages in cases where
should have been impleaded, either as a plaintiff or as a individual suits that were erroneously filed were
defendant, in the complaint filed before the HLURB as it dismissed. In the analogous cases that we previously
would be directly and adversely affected by any discussed—Hi-Yield Realty, Cua, Jr., Go, and Ching and
determination therein. To belabor the point, the causes of Wellington—the dismissal alone of the erroneously filed
action, or the acts complained of, were the acts of PHCC as complaints sufficed. This court never saw the need to
a corporate body[.]127 (Citations omitted) award moral and exemplary damages. This is in keeping
with the Civil Code provisions that stipulate when the
V award of such damages is proper. We find no reason to
conclude that the Marcelino, Jr. Group acted in so
There are two consequences of a finding on appeal that malevolent, oppressive, or reckless a manner that moral
indispensable parties have not been joined. First, all and exemplary damages must be awarded in such huge
subsequent actions of the lower courts are null and void amounts as the Regional Trial Court did.
for lack of jurisdiction.128 Second, the case should be
remanded to the trial court for the inclusion of From the conclusion that the Decision awarding damages
indispensable parties. It is only upon the plaintiff's refusal is void and unwarranted, it necessarily follows that the
to comply with an order to join indispensable parties that Order of the Regional Trial Court to immediately execute
the case may be dismissed.129chanroblesvirtuallawlibrary its Decision is likewise null and void. In Arcelona, the
Decision sought to be annulled was already being
All subsequent actions of lower courts are void as to both executed. However, this court found that the assailed
the absent and present parties.130 To reiterate, the Decision was promulgated without indispensable parties
being impleaded. Hence, the Decision was ruled to have to FISLAI. The release of standby emergency credit was
been made without jurisdiction. This court nullified the evidenced by three (3) promissory notes dated February
judgment and declared: 8, 1982, April 7, 1982, and May 4, 1982 in the amounts of
A void judgment for want of jurisdiction is no judgment at P500,000.00, P600,000.00, and P800,000.00, respectively.
all. It cannot be the source of any right nor the creator All these promissory notes were signed by Guillermo B.
of any obligation. All acts performed pursuant to it and Torres, and were co-signed by either his wife, Dolores P.
all claims emanating from it have no legal effect. Hence, it Torres, or FISLAI's Special Assistant to the President,
can never become final and any writ of execution based Edmundo G. Ramos, Jr.7
on it is void: x x x it may be said to be a lawless thing which
can be treated as an outlaw and slain at sight, or ignored On May 25, 1982, University of Mindanao's Vice President
wherever and whenever it exhibits its head.140 (Emphasis for Finance, Saturnino Petalcorin, executed a deed of real
supplied) estate mortgage over University of Mindanao's property
in Cagayan de Oro City (covered by Transfer Certificate of
Accordingly, the subsequent Order of the Decision's Title No. T-14345) in favor of Bangko Sentral ng
immediate execution is also void for lack of jurisdiction. Pilipinas.8 "The mortgage served as security for FISLAI's
Contrary to Rogelio Sr.'s claim in its Petition, execution PI.9 Million loan[.]"9 It was allegedly executed on
cannot ensue. For this reason, the Petition docketed as G.R. University of Mindanao's behalf.10
No. 177275 must be denied.
As proof of his authority to execute a real estate mortgage
WHEREFORE, the Petition docketed as G.R. No. 174909 for University of Mindanao, Saturnino Petalcorin showed
is PARTLY GRANTED and the Petition docketed as G.R. a Secretary's Certificate signed on April 13, 1982 by
No. 177275 is DENIED. University of Mindanao's Corporate Secretary, Aurora de
Leon.11 The Secretary's Certificate
The Complaint filed by Marcelino M. Florete, Jr., Maria stated:chanRoblesvirtualLawlibrary
Elena F. Muyco, and Raul A. Muyco for Declaration of That at the regular meeting' of the Board of Trustees of the
Nullity of Issuances, Transfers and Sale of Shares in aforesaid corporation [University of Mindanao] duly
People's Broadcasting Service, Inc. and All Posterior convened on March 30, 1982, at which a quorum was
Subscriptions and Increases thereto with Damages is present, the following resolution was unanimously
dismissed as the complainants have no cause of action. adopted:chanRoblesvirtualLawlibrary
The award of P25,000,000.00 as moral damages and "Resolved that the University of Mindanao, Inc. be and is
P5,000,000.00 as exemplary damages in favor of Rogelio hereby authorized, to mortgage real estate properties
Florete, Sr. is deleted. The Regional Trial Court Order with the Central Bank of the Philippines to serve as
dated May 18, 2006 ordering the immediate execution of security for the credit facility of First Iligan Savings and
its Decision dated August 2, 2005 is set aside. Loan Association, hereby authorizing the President
and/or Vice-president for Finance, Saturnino R. Petalcorin
SO ORDERED.cralawlawlibrary of the University of Mindanao,- Inc. to sign, execute and
SECOND DIVISION deliver the covering mortgage document or any other
G.R. No. 194964-65, January 11, 2016 documents which may be proper[l]y required."12
UNIVERSITY OF MINDANAO, cralawlawlibrary
INC., Petitioner, v. BANGKO SENTRAL PILIPINAS, ET
AL., Respondents.
DECISION The Secretary's Certificate was supported by an excerpt
LEONEN, J.: from the minutes of the January 19, 1982 alleged meeting
Acts of an officer that arc not authorized by the board of of University of Mindanao's Board of Trustees. The
directors/trustees do not bind the corporation unless the excerpt was certified by Aurora de Leon on March 13,
corporation ratifies the acts or holds the officer out as a 1982 to be a true copy of University of Mindanao's records
person with authority to transact on its behalf. on file.13 The excerpt reads:chanRoblesvirtualLawlibrary
3 - Other Matters:
This is a Petition for Review on Certiorari1 of the Court of (a) Cagayan de Oro and Iligan properties:
Appeals' December 17, 2009 Decision2 and December 20, Resolution No. 82-1-8
2010 Resolution.3 The Court of Appeals reversed the
Cagayan De Oro City trial court's and the Iligan City trial
court's Decisions to nullify mortgage contracts involving Authorizing the Chairman to appoint Saturnino R.
University of Mindanao's properties.4 Petalcorin, Vice-President for Finance, to represent the
University of Mindanao to transact, transfer, convey, lease,
University of Mindanao is an educational institution. For mortgage, or otherwise hypothecate any or all of the
the year 1982, its Board of Trustees was chaired by following properties situated at Cagayan de Oro and Iligan
Guillermo B. Torres. His wife, Dolores P. Torres, sat as City and authorizing further Mr. Petalcorin to sign any or
University of Mindanao's Assistant Treasurer.5 all documents relative
thereto:chanRoblesvirtualLawlibrary
Before 1982, Guillermo B. Torres and Dolores P. Torres 1. A parcel of land situated at Cagayan de Oro
incorporated and operated two (2) thrift banks: (1) First City, covered and technically described in
Iligan Savings & Loan Association, Inc. (FISLAI); and (2) TRANSFER CERTIFICATE OF TITLE No. T-
Davao Savings and Loan Association, Inc. (DSLAI). 14345 of the Registry of Deeds of Cagayan
Guillermo B. Torres chaired both thrift banks. He acted as de Oro City;
FISLAI's President, while his wife, Dolores P. Torres, acted 2. A parcel of land situated at Iligan City,
as DSLAI's President and FISLAI's Treasurer.6 covered and technically described in
TRANSFER CERTIFICATE OF TITLE NO..T-
Upon Guillermo B. Torres' request, Bangko Sentral ng 15696 (a.t.) of the Registry of Deeds of
Pilipinas issued a P1.9 million standby emergency credit Iligan City; and
3. A parcel of land situated at Iligan City, One Complaint was filed before the Regional Trial Court of
covered and technically described in Cagayan de Oro City, and the other Complaint was filed
TRANSFER CERTIFICATE OF TITLE NO. T- before the Regional Trial Court of Iligan City.26
15697 (a.f.) of the Registry of Deeds of
Iligan City.14 University of Mindanao alleged in its Complaints that it did
cralawlawlibrary not obtain any loan from Bangko Sentral ng Pilipinas. It
also did not receive any loan proceeds from the bank.27
The mortgage deed executed by Saturnino Petalcorin in University of Mindanao also alleged that Aurora de Leon's
favor of Bangko Sentral ng Pilipinas was annotated on the certification was anomalous. It never authorized
certificate of title of the Cagayan de Oro City property Saturnino Petalcorin to execute real estate mortgage
(Transfer Certificate of Title No. 14345) on June 25, 1982. contracts involving its properties to secure FISLAI's debts.
Aurora de Leon's'certification was also annotated on the It never ratified the execution of the mortgage contracts.
Cagayan de Oro City property's certificate of title Moreover, as an educational institution, it cannot
(Transfer Certificate of Title No. 14345).15 mortgage its properties to secure another person's
debts.28
On October 21, 1982, Bangko Sentral ng Pilipinas granted
FISLAI an additional loan of P620,700.00. Guillermo B. On November 23, 2001, the Regional Trial Court of
Torres and Edmundo Ramos executed a promissory note Cagayan de Oro City rendered a Decision in favor of
on October 21, 1982 to cover that amount.16 University of
Mindanao,29 thus:chanRoblesvirtualLawlibrary
On November 5, 1982, Saturnino Petalcorin executed WHEREFORE, premises considered, judgment is hereby
another deed of real estate mortgage, allegedly on behalf rendered in favor of plaintiff and against
of University of Mindanao, over its two properties in Iligan defendants:chanRoblesvirtualLawlibrary
City. This mortgage served as additional security for
FISLAI's loans. The two Iligan City properties were 1. DECLARING the real estate mortgage Saturnino R.
covered by Transfer Certificates of Title Nos, T-15696 and Petalcorin executed in favor of BANGKO SENTRAL NG
T-15697.17 PILIPINAS involving Lot 421-A located in Cagayan de Oro
City with an area of 482 square meters covered by TCT No.
On January 17, 1983, Bangko Sentral ng Pilipinas' T-14345 as annuled [sic];
mortgage lien over the Iligan City properties and Aurora
de Leon's certification were annotated on Transfer 2. ORDERING the Register of Deeds of Cagayan de Oro City
Certificates of Title Nos. T-15696 and T-15697.18 On to cancel Entry No. 9951 and Entry No. 9952 annotated at
January 18, 1983, Bangko Sentral ng Pilipinas' mortgage the back of said TCT No. T-14345, Registry of Deeds of
lien over the Iligan City properties was also annotated on Cagayan de Oro City;
the tax declarations covering the Iligan City properties.19
Prayer for attorney's fee [sic] is hereby denied there being
Bangko Sentral ng Pilipinas also granted emergency no proof that in demanding payment of the emergency
advances to DSLAI on May 27, 1983 and on August 20, loan, defendant BANGKO SENTRAL NG PILIPINAS was
1984 in the amounts of P1,633,900.00 and P6,489,000.00, motivated by evident bad faith,
respectively.20
SO ORDERED.30 (Citation omitted)cralawlawlibrary
On January 11, 1985, FISLAI, DSLAI, and Land Bank of the
Philippines entered into a Memorandum of Agreement
intended to rehabilitate the thrift banks, which had been The Regional Trial Court of Cagayan de Oro City found that
suffering from their depositors' heavy withdrawals. there was no board resolution giving Saturnino Petalcorin
Among the terms of the agreement was the merger of authority to execute mortgage contracts on behalf of
FISLAI and DSLAI, with DSLAI as the surviving University of Mindanao. The Cagayan de Oro City trial
corporation. DSLAI later became known as Mindanao court gave weight to Aurora de Leon's testimony that
Savings and Loan Association, Inc. (MSLAI).21 University ofMindanao's Board of Trustees did not issue a
board resolution that would support the Secretary's
Guillermo B. Torres died on March 2, 1989.22 Certificate she issued. She testified that she signed the
Secretary's Certificate only upon Guillermo B. Torres'
MSLAI failed to recover from its losses and was liquidated orders.31
on May 24, 1991.23
Saturnino Petalcorin testified that he had no authority to
On June 18, 1999, Bangko Sentral ng Pilipinas sent a letter execute a mortgage contract on University ofMindanao's
to University of Mindanao, informing it that the bank behalf. He merely executed the contract because of
would foreclose its properties if MSLAI's total outstanding Guillermo B. Torres' request.32
obligation of P12,534,907.73 remained unpaid.24
Bangko Sentral ng Pilipinas' witness Daciano Pagui, Jr.
In its reply to Bangko Sentral ng Pilipinas' June 18, 1999 also admitted that there was no board resolution giving
letter, University of Mindanao, through its Vice President Saturnino Petalcorin authority to execute mortgage
for Accounting, Gloria E. Detoya, denied that University of contracts on behalf of University of Mindanao.33
Mindanao's properties were mortgaged. It also denied
having received any loan proceeds from Bangko Sentral ng The Regional Trial Court of Cagayan de Oro City ruled that
Pilipinas.25cralawred Saturnino Petalcorin was not authorized to execute
mortgage contracts for University of Mindanao. Hence, the
On July 16, 1999, University of Mindanao filed two mortgage of University ofMindanao's Cagayan de Oro City
Complaints for nullification and cancellation of mortgage. property was unenforceable. Saturnino Petalcorin's
unauthorized acts should be annulled.34
Bangko Sentral ng Pilipinas separately appealed the
Similarly, the Regional Trial Court of Iligan City rendered Decisions of both the Cagayan de Oro City and the Iligan
a Decision on December 7, 2001 in favor of University of City trial courts.46
Mindanao.35 The dispositive portion of the Decision
reads:chanRoblesvirtualLawlibrary After consolidating both cases, the Court of Appeals issued
WHEREFORE, premises considered, judgment is hereby a Decision on December 17, 2009 in favor of Bangko
rendered in favor of the plaintiff and against the Sentral ng Pilipinas, thus:chanRoblesvirtualLawlibrary
defendants, as follows:chanRoblesvirtualLawlibrary FOR THE REASONS STATED, the Decision dated 23
November 2001 of the Regional Trial Court of Cagayan de
1. Nullifying and canceling [sic] the subject Deed of Real Oro City, Branch 24 in Civil Case No. 99-414 and the
Estate Mortgage dated November 5, 1982 for being Decision dated 7 December 2001 of the Regional Trial
unenforceable or void contract; Court of Iligan City, Branch 1 in Civil Case No. 4790
are REVERSED and SET ASIDE. The Complaints in both
2. Ordering the Office of the Register of Deeds of Iligan City cases before the trial courts are DISMISSED. The Writ of
to cancel the entries on TCT No. T-15696 and TCT No. T- Preliminary Injunction issued by the Regional Trial Court
15697 with respect to the aforesaid Deed of Real Estate of Iligan City, Branch 1 in Civil Case No. 4790
Mortgage dated November 5, 1982 and all other entries is LIFTED and SET ASIDE.
related thereto;
SO ORDERED.47cralawlawlibrary
3. Ordering the defendant Bangko Sentral ng Pilipinas to
return the owner's duplicate copies of TCT No. T-15696
and TCT No. 15697 to the plaintiff; The Court of Appeals ruled that "[although BSP failed to
prove that the UM Board of Trustees actually passed a
4. Nullifying the subject [foreclosure [proceedings and the Board Resolution authorizing Petalcorin to mortgage the
[a]uction [s]ale conducted by defendant Atty. Gerardo subject real properties,"48 Aurora de Leon's Secretary's
Paguio, Jr. on October 8, 1999 including all the acts Certificate "clothed Petalcorin with apparent and
subsequent thereto and ordering the Register of Deeds of ostensible authority to execute the mortgage deed on its
Iligan City not to register any Certificate of Sale pursuant behalf[.]"49 Bangko Sentral ng Pilipinas merely relied in
to the said auction sale nor make any transfer of the good faith on the Secretary's Certificate.50 University of
corresponding titles, and if already registered and Mindanao is estopped from denying Saturnino
transferred, to cancel all the said entries in TCT No. T- Petalcorin's authority.51
15696 and TCT No. T-15697 and/or cancel the
corresponding new TCTs in the name of defendant Bangko Moreover, the Secretary's Certificate was notarized. This
Sentral ng Pilipinas; meant that it enjoyed the presumption of regularity as to
the truth of its statements and authenticity of the
5. Making the Preliminary Injunction per Order of this signatures.52 Thus, "BSP cannot be faulted for relying on
Court dated October 13, 2000 permanent. the [Secretary's Certificate.]"53
No pronouncement as to costs.36 (Citation The Court of Appeals also ruled that since University of
omitted)cralawlawlibrary Mindanao's officers, Guillermo B. Torres and his wife,
Dolores P. Torres, signed the promissory notes, University
of Mindanao was presumed to have knowledge of the
The Iligan City trial court found that the Secretary's transaction.54 Knowledge of an officer in relation to
Certificate issued by Aurora de Leon was fictitious37and matters within the scope of his or her authority is notice
irregular for being unnumbered.38 It also did not specify to the corporation.55
the identity, description, or location of the mortgaged
properties.39 The annotations on University of Mindanao's certificates
of title also operate as constructive notice to it that its
The Iligan City trial court gave credence to Aurora de properties were mortgaged.56 Its failure to disown the
Leon's testimony that the University of Mindanao's Board mortgages for more than a decade was implied
of Trustees did not take up the documents in its meetings. ratification.57
Saturnino Petalcorin corroborated her testimony.40
The Court of Appeals also ruled that Bangko Sentral ng
The Iligan City trial court ruled that the lack of a board Pilipinas' action for foreclosure had not yet prescribed
resolution authorizing Saturnino Petalcorin to execute because the due date extensions that Bangko Sentral ng
documents of mortgage on behalf of University of Pilipinas granted to FISLAI extended the due date of
Mindanao made the real estate mortgage contract payment to five (5) years from February 8, 1985.58 The
unenforceable under Article 140341 of the Civil bank's demand letter to Dolores P. Torres on June 18,
Code.42 The mortgage contract and the subsequent acts of 1999 also interrupted the prescriptive period.59
foreclosure and auction sale were void because the
mortgage contract was executed without University of University of Mindanao and Bangko Sentral ng Pilipinas
Mindanao' s authority.43 filed a Motion for Reconsideration60 and Motion for
Partial Reconsideration respectively of the Court of
The Iligan City trial court also ruled that the annotations Appeals' Decision. On December 20, 2010, the Court of
on the titles of University of Mindanao's properties do not Appeals issued a Resolution,
operate as notice to the University because annotations thus:chanRoblesvirtualLawlibrary
only bind third parties and not owners.44 Further, Bangko Acting on the foregoing incidents, the Court RESOLVES
Sentral ng Pilipinas' right to foreclose the University of to:chanRoblesvirtualLawlibrary
Mindanao's properties had already prescribed.45
1. GRANT the appellant's twin are LIFTED and SET
motions for extension of time to ASIDE."
file comment/opposition
and NOTE the Comment . on the
appellee's Motion for SO ORDERED.61 (Citation omitted)
Reconsideration it subsequently cralawlawlibrary
filed on June 23, 2010;
2. GRANT the appellee's three (3)
motions for extension of time to Hence, University of Mindanao filed this Petition for
file comment/opposition Review. The issues for resolution
and NOTE the Comment on the are:chanRoblesvirtualLawlibrary
appellant's Motion for Partial
Reconsideration it filed on July 26, First, whether respondent Bangko Sentral ng Pilipinas'
2010; action to foreclose the mortgaged properties had already
3. NOTE the appellant's "Motion for prescribed; and
Leave to File Attached Reply Dated
August 11, 2010" filed on August Second, whether petitioner University of Mindanao is
13, 2010 and DENY the attached bound by the real estate mortgage contracts executed by
"Reply to Comment Dated July 26, Saturnino Petalcorin.
2010";
4. DENY the appellee's Motion for We grant the Petition.
Reconsideration as it does' not I
offer any arguments sufficiently
meritorious to warrant Petitioner argues that respondent's action to foreclose its
modification or reversal of the mortgaged properties had already prescribed.
Court's 17 December 2009
Decision. The Court finds that Petitioner is mistaken.
there is no compelling reason to
reconsider its ruling; and Prescription is the mode of acquiring or losing rights
5. GRANT the appellant's Motion for through the lapse of time.62 Its purpose is "to protect the
Partial Reconsideration, as the diligent and vigilant, not those who sleep on their
Court finds it meritorious, rights."63
considering that it ruled in its
Decision that "BSP can still The prescriptive period for actions on mortgages is ten
foreclose on the UM's real (10) years from the day they may be brought.64Actions on
property in Cagayan de Oro City mortgages may be brought not upon the execution of the
covered by TCT No. T- 14345." It mortgage contract but upon default in payment of the
then follows that the injunctive obligation secured by the mortgage.65
writ issued by the RTC of Cagayan
de Oro City, Branch 24 must be A debtor is considered in default when he or she fails to
lifted. The Court's 17 December pay the obligation on due date and, subject to exceptions,
2009 Decision is after demands for payment were made by the creditor.
accordingly MODIFIED and AME Article 1169 of the Civil Code
NDED to read as provides:chanRoblesvirtualLawlibrary
follows:chanRoblesvirtualLawlibr ART. 1169. Those obliged to deliver or to do something
ary incur in delay from the time the obligee judicially or
"FOR THE REASONS extrajudicially demands from them the fulfillment of their
STATED, the Decision obligation.
dated 23 November 2001
of the Regional Trial Court However, the demand by the creditor shall not be
of Cagayan de Oro City, necessary in order that delay may
Branch 24 in Civil Case No. exist:chanRoblesvirtualLawlibrary
99-414 and the Decision
dated 7 December 2001 of (1) When the obligation or the law expressly so declare;
the Regional Trial Court of or
Iligan City, Branch 1 in
Civil Case No. 4790 (2) When from the nature and the circumstances of the
are REVERSED and SET obligation it appears that the designation of the time when
ASIDE. The Complaints in the thing is to be delivered or the service is to be rendered
both cases before the trial was a controlling motive for the establishment of the
courts are DISMISSED. The contract; or
Writs of Preliminary
Injunction issued by the (3) When demand would be useless, as when the obligor
Regional Trial Court of has rendered it beyond his power to
Iligan City, Branch 1 in perform.cralawlawlibrary
Civil Case No. 4790 and in
the Regional Trial Court of
Cagayan de Oro City, Article 1193 of the Civil'Code provides that an obligation
Branch 24 in Civil Case No. is demandable only upon due date. It
99-414 provides:chanRoblesvirtualLawlibrary
ART. 1193. Obligations for whose fulfillment a day certain petitioner's filing of its annulment of mortgage complaints
has been fixed, shall be demandable only when that day before the Regional Trial Courts of Iligan City and Cagayan
comes. De Oro City on July 16, 1999.
Obligations with a resolutory period take effect at once, Assuming that demand was necessary, respondent's
but terminate upon arrival of the day certain. action was within the ten (10)-year prescriptive period.
Respondent demanded payment of the loans in 1999 and
A day certain is understood to be that which must filed an action in the same year.
necessarily come, although it may not be known when. II
allowed to prevail where it would defeat the ends of We do not doubt the existence of the presumptions of
justice or work a legal wrong.94cralawlawlibrary "good faith" or "regular performance of official duty," yet
these presumptions are disputable and may be contradicted
and overcome by other evidence. Many civil actions are
However, this should not be interpreted to mean that such oriented towards overcoming any number of these
presumption applies to all cases, even when the act in presumptions, and a cause of action can certainly be
question is on its face beyond the corporation's power to geared towards such effect. The very purpose of trial is to
do or when the evidence contradicts the presumption. allow a party to present evidence to overcome the
disputable presumptions involved. Otherwise, if trial is
Presumptions are "inference[s] as to the existence of a fact deemed irrelevant or unnecessary, owing to the perceived
not actually known, arising from its usual connection with indisputability of the presumptions, the judicial exercise
another which is known, or a conjecture based on past would be relegated to a mere ascertainment of what
experience as to what course human affairs ordinarily presumptions apply in a given case, nothing more.
take."95 Presumptions embody values and revealed Consequently, the entire Rules of Court is rendered as
behavioral expectations under a given set of excess verbiage, save perhaps for the provisions laying
circumstances. down the legal presumptions.
Presumptions may be conclusive96 or disputable.97 If this reasoning of the Court of Appeals were ever adopted
as a jurisprudential rule, no public officer could ever be
Conclusive presumptions are presumptions that may not sued for acts executed beyond their official functions or
be overturned by evidence, however strong the evidence authority, or for tortious conduct or behavior, since such
is.98 They are made conclusive not because there is an acts would "enjoy the presumption of good faith and in the
established uniformity in behavior whenever identified regular performance of official duty." Indeed, few civil
circumstances arise. They are conclusive because they are actions of any nature would ever reach the trial stage, if a
declared as such under the law or the rules. Rule 131, case can be adjudicated by a mere determination from the
Section 2 of the Rules of Court identifies two (2) complaint or answer as to which legal presumptions are
conclusive presumptions:chanRoblesvirtualLawlibrary applicable. For-example, the presumption that a person is
SEC. 2. Conclusive presumptions.— The following are innocent of a wrong is a disputable presumption on the
instances of conclusive same level as that of the regular performance of official
presumptions:chanRoblesvirtualLawlibrary duty. A civil complaint for damages necessarily alleges
that the defendant committed a wrongful act or omission
(a) Whenever a party has, by his own declaration, act, or that would serve as basis for the award of damages. With
omission, intentionally and deliberately led another to the rationale of the Court of Appeals, such complaint can
believe a particular thing true, and to act upon such belief, be dismissed upon a motion to dismiss solely on the
he cannot, in any litigation arising out of such declaration, ground that the presumption is that a person is innocent
act or omission, be permitted to falsify it; of a wrong.102 (Emphasis supplied, citations
omitted)cralawlawlibrary
(b) The tenant is not permitted to deny the title of his
landlord at the time of the commencement of the relation
of landlord and tenant between them.cralawlawlibrary In this case, the presumption that the execution of
mortgage contracts was within petitioner's corporate
powers does not apply. Securing third-party loans is not
On the other hand, disputable, presumptions are connected to petitioner's purposes as an educational
presumptions that may be overcome by contrary institution.
evidence.99 They are disputable in recognition of the III
variability of human behavior. Presumptions are not
always true. They may be wrong under certain
Respondent argues that petitioner's act of mortgaging its Since petitioner is an entity distinct and separate not only
properties to guarantee FISLAI's loans was consistent from its own officers and shareholders but also from
with petitioner's business interests, since petitioner was FISLAI, its interests as an educational institution may not
presumably a FISLAI shareholder whose officers and be consistent with FISLAI's.
shareholders interlock with FISLAI. Respondent points
out that petitioner and its key officers held substantial Petitioner and FISLAI have different constituencies.
shares in MSLAI when DSLAI and FISLAI merged. Petitioner's constituents comprise persons who have
Therefore, it was safe to assume that when the mortgages committed to developing skills and acquiring knowledge
were executed in 1982, petitioner held substantial shares in their chosen fields by availing the formal instruction
in FISLAI.103 provided by petitioner. On the other hand, FISLAI is a
thrift bank, which constituencies comprise investors.
Parties dealing with corporations cannot simply assume
that their transaction is within the corporate powers. The While petitioner and FISLAI exist ultimately to benefit
acts of a corporation are still limited by its powers and their stockholders, their constituencies affect the means
purposes as provided in the law and its articles of by which they can maintain their existence. Their interests
incorporation. are congruent with sustaining their constituents' needs
because their existence depends on that. Petitioner can
Acquiring shares in another corporation is not a means to exist only if it continues to provide for the kind and quality
create new powers for the acquiring corporation. Being a of instruction that is needed by its constituents. Its
shareholder of another corporation does not operations and existence are placed at risk when
automatically change the nature and purpose of a resources are used on activities that are not geared
corporation's business. Appropriate amendments must be toward the attainment of its purpose. Petitioner has no
made either to the law or the articles of incorporation business in securing FISLAI, DSLAI, or MSLAI's loans. This
before a corporation can validly exercise powers outside activity is not compatible with its business of providing
those provided in law or the articles of incorporation. In quality instruction to its constituents.
other words, without an amendment, what is ultra vires
before a corporation acquires shares in other Indeed, there are instances when we disregard the
corporations is still ultra vires after such acquisition. separate corporate personalities of the corporation and its
stockholders, directors, or officers. This is called piercing
Thus, regardless of the number of shares that petitioner of the corporate veil.
had with FISLAI, DSLAI, or MSLAI, securing loans of third
persons is still beyond petitioner's power to do. It is still Corporate veil is pierced when the separate personality of
inconsistent with its purposes under the law104 and its the corporation is being used to perpetrate fraud,
articles of incorporation.105 illegalities, and injustices.108 In Lanuza, Jr. v. BF
Corporation:109chanroblesvirtuallawlibrary
In attempting to show petitioner's interest in securing Piercing the corporate veil is warranted when "[the
FISLAI's loans by adverting to their interlocking, directors separate personality of a corporation] is used as a means
and shareholders, respondent disregards petitioner's to perpetrate fraud or an illegal act, or as a vehicle for the
separate personality from its officers, shareholders, and evasion of an existing obligation, the circumvention of
other juridical persons. statutes, or to confuse legitimate issues." It is also
warranted in alter ego cases "where a corporation is
The separate personality of corporations means that they merely a farce since it is a mere alter ego or business
are "vest[ed] [with] rights, powers, and attributes [of their conduit of a person, or where the corporation is so
own] as if they were natural persons[.]"106 Their assets organized and controlled and its affairs are so conducted
and liabilities are their own and not their officers', as to make it merely an instrumentality, agency, conduit
shareholders', or another corporation's. In the same vein, or adjunct of another corporation."110cralawlawlibrary
the assets and liabilities of their officers and shareholders
are not the corporations'. Obligations incurred by
corporations are not obligations of their officers and These instances have not been shown in this case. There is
shareholders. Obligations of officers and shareholders are no evidence pointing to the possibility that petitioner used
not obligations of corporations.107 In other words, its separate personality to defraud third persons or
corporate interests are separate from the personal commit illegal acts. Neither is there evidence to show that
interests of the natural persons that comprise petitioner was merely a farce of a corporation. What has
corporations. been shown instead was that petitioner, too, had been
victimized by fraudulent and unauthorized acts of its own
Corporations are given separate personalities to allow officers and directors.
natural persons to balance the risks of business as they
accumulate capital. They are, however, given limited In this case, instead of guarding against fraud, we
competence as a means to protect the public from perpetuate fraud if we accept respondent's contentions.
fraudulent acts that may be committed using the separate IV
juridical personality given to corporations.
Petitioner's key officers, as shareholders of FISLAI, may Petitioner argues that it did not authorize Saturnino
have an interest in ensuring the viability of FISLAI by Petalcorin to mortgage its properties on its behalf. There
obtaining a loan from respondent and securing it by was no board resolution to that effect. Thus, the
whatever means. However, having interlocking officers mortgages executed by Saturnino Petalcorin were
and stockholders with FISLAI does not mean that unenforceable.111
petitioner, as an educational institution, is or must
necessarily be interested in the affairs of FISLAI. The mortgage contracts executed in favor of respondent
do not bind petitioner. They were executed without
authority from petitioner. unauthorized person on behalf of another is based on the
basic principle that contracts must be consented to by
Petitioner must exercise its.powers and conduct its both parties.115 There is no contract without meeting of
business through its Board of Trustees. Section 23 of the the minds as to the subject matter and cause of the
Corporation Code provides:chanRoblesvirtualLawlibrary obligations created under the contract.116
SEC. 23. The board of directors or trustees—Unless
otherwise provided in this Code, the corporate powers of Consent of a person cannot be presumed from
all corporations formed under this Code shall be exercised, representations of another, especially if obligations will be
all business conducted and all property of such incurred as a result. Thus, authority is required to make
corporations controlled and held by the board of directors actions made on his or her behalf binding on a person.
or trustees to be elected from among the holders of stocks, Contracts entered into by persons without authority from
or where there is no stock, from among the members of the corporation shall generally be considered ultra vires
the corporation, who shall hold office for one (1) year and and unenforceable117 against the corporation.
until their successors are elected and
qualified.cralawlawlibrary Two trial courts118 found that the Secretary's Certificate
and the board resolution were either non-existent or
fictitious. The trial courts based their findings on the
Being a juridical person, petitioner cannot conduct its testimony of the Corporate Secretary, Aurora de Leon
business, make decisions, or act in any manner without herself. She signed the Secretary's Certificate and the
action from its Board of Trustees. The Board of Trustees excerpt of the minutes of the alleged board meeting
must act as a body in order to exercise corporate powers. purporting to authorize Saturnino Petalcorin to mortgage
Individual trustees are not clothed with corporate powers petitioner's properties. There was no board meeting to
just by being a trustee. Hence, the individual trustee that effect. Guillermo B. Torres ordered the issuance of the
cannot bind the corporation by himself or herself. Secretary's Certificate. Aurora de Leon's testimony was
corroborated by Saturnino Petalcorin.
The corporation may, however, delegate through a board
resolution its corporate powers or functions to a Even the Court of Appeals, which reversed the trial courts'
representative, subject to limitations under the law and decisions, recognized that "BSP failed to prove that the UM
the corporation's articles of incorporation.112 Board of Trustees actually passed a Board Resolution
authorizing Petalcorin to mortgage the subject real
The relationship between a corporation and its properties[.]"119
representatives is governed by the general principles of
agency.113 Article 1317 of the Civil Code provides that Well-entrenched is the rule that this court, not being a
there must be authority from the principal before anyone trier of facts, is bound by the findings of fact of the trial
can act in his or her name:chanRoblesvirtualLawlibrary courts and the Court of Appeals when such findings are
ART. 1317. No one may contract in the name of another supported by evidence on record.120 Hence, not having the
without being authorized by the latter, or unless he has by proper board resolution to authorize Saturnino Petalcorin
law a right to represent him.cralawlawlibrary to execute the mortgage contracts for petitioner, the
contracts he executed are unenforceable against
petitioner. They cannot bind petitioner.
Hence, without delegation by the board of directors or
trustees, acts of a person—including those of the However, personal liabilities may be incurred by directors
corporation's directors, trustees, shareholders, or who assented to such unauthorized act121 and by the
officers—executed on behalf of the corporation are person who contracted in excess of the limits of his or her
generally not binding on the corporation.114 authority without the corporation's knowledge.122
V
Contracts entered into in another's name without
authority or valid legal representation are generally
unenforceable. The Civil Code Unauthorized acts that are merely beyond the powers of
provides:chanRoblesvirtualLawlibrary the corporation under its articles of incorporation are not
ART. 1317. . . . void ab initio.
A contract entered into in the name of another by one who In Pirovano, et al, this court explained that corporate acts
has no authority or legal representation, or who has acted may be ultra vires but not void.123 Corporate acts may be
beyond his powers, shall be unenforceable, unless it is capable of ratification:124chanroblesvirtuallawlibrary
ratified, expressly or impliedly, by the person on whose [A] distinction should be made between corporate acts or
behalf it has been executed, before it is revoked by the contracts which are illegal and those which are merely
other contracting party. ultra vires. The former contemplates the doing of an act
. . . . which is contrary to law, morals, or public order, or
contravene some rules of public policy or public duty, and
ART. 1403. The following contracts are unenforceable, are, like similar transactions between individuals, void.
unless they are ratified:chanRoblesvirtualLawlibrary They cannot serve as basis of a court action, nor acquire
validity by performance, ratification, or estoppel. Mere
(1) Those entered into in the name of another person by ultra vires acts, on the other hand, or those which are not
one who has been given no authority or legal illegal and void ab initio, but are not merely within the
representation, or who has acted beyond his scope of the articles of incorporation, are merely voidable
powers[.]cralawlawlibrary and may become binding and enforceable when ratified by
the stockholders.125cralawlawlibrary