On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed
CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS
COMMISSION, (First Division); and Norberto Marabe, Rodolfo Raquel,
Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto
Comendador, Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea,
Aifredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador
Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres,
Felipe Basilan, and Ruben Robalos, respondents.
HERMOSISIMA, JR., J.:
The corporate mask may be lifted and the corporate veil may be pierced when a
corporation is just but the alter ego of a person or of another corporation. Where badges of
fraud exist; where public convenience is defeated; where a wrong is sought to be justified
thereby, the corporate fiction or the notion of legal entity should come to naught. The law in
these instances will regard the corporation as a mere association of persons and, in case of
two corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporations subsidiary
liability for damages, the corporation may not be heard to say that it has a personality
separate and distinct from the other corporation. The piercing of the corporate veil comes into
play.
This special civil action ostensibly raises the question of whether the National Labor
Relations Commission committed grave abuse of discretion when it issued a break-open order
to the sheriff to be enforced against personal property found in the premises of petitioners
sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with principal office
at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction
business. Private respondents were employed by said company as laborers, carpenters and
riggers.
On November, 1981, private respondents were served individual written notices of
termination of employment by petitioner, effective on November 30, 1981. It was stated in the
individual notices that their contracts of employment had expired and the project in which they
were hired had been completed.
Public respondent found it to be, the fact, however, that at the time of the termination of
private respondents employment, the project in which they were hired had not yet been
finished and completed. Petitioner had to engage the services of sub-contractors whose
workers performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor
practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay
against petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment1 ordering petitioner to
reinstate private respondents and to pay them back wages equivalent to one year or three
hundred working days.
the motion for reconsideration filed by petitioner on the ground that the said decision had
already become final and executory.2
On October 16, 1986, the NLRC Research and Information Department made the
finding that private respondents backwages amounted to P199,800.00.3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to
execute the Decision, dated December 19, 1984. The writ was partially satisfied through
garnishment of sums from petitioners debtor, the Metropolitan Waterworks and Sewerage
Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the
NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter
directing the sheriff to collect from herein petitioner the sum of P117,414.76, representing the
balance of the judgment award, and to reinstate private respondents to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of
execution on petitioner through the security guard on duty but the service was refused on the
ground that petitioner no longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a
second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as stated in his
progress report, dated November 2, 1989:
1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro
Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by
respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from removing the properties he
had levied upon.4
The said special sheriff recommended that a break-open order be issued to enable him
to enter petitioners premises so that he could proceed with the public auction sale of the
aforesaid personal properties on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the
Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned
by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.
On November 23, 1989, private respondents filed a Motion for Issuance of a Break-
Open Order, alleging that HPPI and petitioner corporation were owned by the same
incorporator! stockholders. They also alleged that petitioner temporarily suspended its
business operations in order to evade its legal obligations to them and that private
respondents were willing to post an indemnity bond to answer for any damages which Elisa 0. Lim Treasurer
petitioner and HPPI may suffer because of the issuance of the break-open order.
In support of their claim against HPPI, private respondents presented duly certified Virgilio O. Casino Corporate Secretary
copies of the General Informations Sheet, dated May 15, 1987, submitted by petitioner to the
Securities and Exchange Commission (SEC) and the General Information Sheet, 4. Principal Office
dated May 15, 1987, submitted by HPPI to the Securities and Exchange Commission.
355 Maysan Road
The General Information Sheet submitted by the petitioner1 revealed the following:
Valenzuela, Metro Manila.5
1. Breakdown of Subscribed Capital
On the other hand, the General Information Sheet of HPPI revealed the following:
Name of Stockholder Amount Subscribed
1. Breakdown of Subscribed Capital
HPPI P6,999,500.00
Name of Stockholder Amount Subscribed
Antonio W. Lim 2,900,000.00
Antonio W. Lim P400,000.00
Dennis S. Cuyegkeng 300.00
Elisa C. Lim 57,700.00
Elisa C. Lim 100,000.00
AWL Trading 455,000.00
Teodulo R. Dino 100.00
Dennis S. Cuyegkeng 40,100.00
Virgilio O. Casino 100.00
Teodulo R. Dino 100.00
2. Board of Directors
Virgilio O. Casino 100.00
Antonio W. Lim Chairman
2. Board of Directors
Dennis S. Cuyegkeng Member
Antonio W. Lim Chairman
Elisa C. Lim Member
Elisa C. Lim Member
Teodulo R. Dino Member
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Virgilio O. Casino Member
3. Corporate Officers
Teodulo R. Dino Member
Antonio W. Lim President
3. Corporate Officers
Dennis S. Cuyegkeng Assistant to the President
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila.6
On February 1, 1990, HPPI filed an Opposition to private respondents motion for
issuance of a break-open order, contending that HPPI is a corporation which is separate and
distinct from petitioner. HPPI also alleged that the two corporations are engaged in two
different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then
engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents
motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside
the order of the Labor Arbiter, issued a break-open order and directed private respondents to
file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties
already levied upon. It dismissed the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a
Resolution, dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered
the execution of its decision despite a third-party claim on the levied property. Petitioner
further contends, that the doctrine of piercing the corporate veil should not have been applied,
in this case, in the absence of any showing that it created HPPI in order to evade its liability to
private respondents. It also contends that HPPI is engaged in the manufacture and sale of
steel, concrete and iron pipes, a business which is distinct and separate from petitioners
construction business. Hence, it is of no consequence that petitioner and HPPI shared the
same premises, the same President and the same set of officers and subscribers.7
We find petitioners contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity separate
and distinct from its stockholders and from other corporations to which it may be
connected.8 But, this separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice.9 So, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend
crime, or is used as a device to defeat the labor laws,10 this separate personality of the
corporation may be disregarded or the veil of corporate fiction pierced.11 This is true likewise
when the corporation is merely an adjunct, a business conduit or an alter ego of another
corporation.12
The conditions under which the juridical entity may be disregarded vary according to the
peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid
down, but certainly, there are some probative factors of identity that will justify the application
of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.13
The SEC en banc explained the instrumentality rule which the courts have applied in
disregarding the separate juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of
the instrumentality may be disregarded. The control necessary to invoke the rule is not
majority or even complete stock control but such domination of finances, policies and
practices that the controlled corporation has, so to speak, no separate mind, will or existence
of its own, and is but a conduit for its principal. It must be kept in mind that the control must be
shown to have been exercised at the time the acts complained of took place. Moreover, the
control and breach of duty must proximately cause the injury or unjust loss for which the
complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate
fiction is as follows:
1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act
in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
The absence of any one of these elements prevents piercing the corporate veil. in applying
the instrumentality or alter ego doctrine, the courts are concerned with reality and not form,
with how the corporation operated and the individual defendants relationship to that
operation. 14
Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper
corporation, a sham or a subterfuge is purely one of fact.15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business
operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange
Commission on May 15, 1987, stating that its office address is at 355 Maysan Road,
Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the
same day, a similar information sheet stating that its office address is at 355 Maysan Road,
Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary
of both corporations. It would also not be amiss to note that both corporations had
the same president, the same board of directors, the same corporate officers, and
substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein petitioner)
and the third-party claimant shared the same address and/or premises. Under this
circumstances, (sic) it cannot be said that the property levied upon by the sheriff were not of
respondents.16
Clearly, petitioner ceased its business operations in order to evade the payment to
private respondents of backwages and to bar their reinstatement to their former
positions. HPPI is obviously a business conduit of petitioner corporation and its emergence
was skillfully orchestrated to avoid the financial liability that already attached to petitioner
corporation.
The facts in this case are analogous to Claparols v. Court of Industrial Relations17 where
we had the occasion to rule:
Respondent courts findings that indeed the Claparols Steel and Nail Plant, which ceased
operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective
the next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate,
were not disputed by petitioner. it is very clear that the latter corporation was a continuation
and successor of the first entity x x x. Both predecessors and successor were owned and
controlled by petitioner Eduardo Claparols and there was no break in the succession and
continuity of the same business. This avoiding-the-liability scheme is very patent, considering
that 90% of the subscribed shares of stock of the Claparols Steel Corporation (the second
corporation) was owned by respondent x x x Claparols himself, and all the assets of the
dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel
Corporation.
It is very obvious that the second corporation seeks the protective shield of a corporate
fiction whose veil in the present case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property
subject of the execution, private respondents had no other recourse but to apply for a break-
open order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC.
This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment
which provides that:
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his
representative entry to the place where the property subject of execution is located or kept,
the judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-
open order.
Furthermore, our perusal of the records shows that the twin requirements of due notice
and hearing were complied with. Petitioner and the third-party claimant were given the
opportunity to submit evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the
break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial
agencies supported by substantial evidence are binding on this Court and are entitled to great
respect, in the absence of showing of grave abuse of a discretion.18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC,
dated April 23, 1992 and December 3, 1992, are AFFIRMED.
SO ORDERED.
HEIRS OF FE TAN UY (REPRESENTED BY HER HEIR, MANLING UY
LIM), Petitioners, v.INTERNATIONAL EXCHANGE BANK, RESPONDENT.
[G.R. NO. 166283]
GOLDKEY DEVELOPMENT CORPORATION, PETITIONER. VS. INTERNATIONAL
EXCHANGE BANK,Respondents.
Before the Court are two consolidated petitions for review on certiorari under Rule 45 of the
l997 Revised Rules of Civil Procedure, assailing the August 16, 2004 Decision1 and the
December 2, 2004 Resolution2of the Court of Appeals (CA) in CA-G.R. CV No. 69817 entitled
“International Exchange Bank v. Hammer Garments Corp., et al.”
The Facts
On several occasions, from June 23, 1997 to September 3, 1997, respondent International
Exchange Bank (iBank), granted loans to Hammer Garments Corporation (Hammer), covered nevertheless held her liable for the outstanding obligation of Hammer because she was an
by promissory notes and deeds of assignment, in the following amounts:3 officer and stockholder of the said corporation. The RTC agreed with Goldkey that as a third-
party mortgagor, its liability was limited to the properties mortgaged. It came to the conclusion,
Date of Promissory Note Amount however, that Goldkey and Hammer were one and the same entity for the following reasons:
June 23, 1997 P 5,599,471.33 (1) both were family corporations of Chua and Uy, with Chua as the President and Chief
July 24, 1997 2,700,000.00 Operating Officer; (2) both corporations shared the same office and transacted business from
July 25, 1997 2,300,000.00 the same place, (3) the assets of Hammer and Goldkey were co-mingled; and (4) when Chua
August 1, 1997 2,938,505.04 absconded, both Hammer and Goldkey ceased to operate. As such, the piercing of the veil of
August 1, 1997 3,361,494.96 corporate fiction was warranted. Uy, as an officer and stockholder of Hammer and Goldkey,
August 14, 1997 980,000.00 was found liable to iBank together with Chua, Hammer and Goldkey for the deficiency of
August 21, 1997 2,527,200.00 P13,420,177.62.
August 21, 1997 3,146,715.00
September 3, 1997 1,385,511.75 Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the case to the CA. On August
Total P24,938,898.08 16, 2004, it promulgated its decision affirming the findings of the RTC. The CA found that
iBank was not negligent in evaluating the financial stability of Hammer. According to the
These were made pursuant to the Letter-Agreement,4 dated March 23, appellate court, iBank was induced to grant the loan because petitioners, with intent to
defraud the bank, submitted a falsified Financial Report for 1996 which incorrectly declared
1996, between iBank and Hammer, represented by its President and General Manager, the assets and cashflow of Hammer.16 Because petitioners acted maliciously and in bad faith
Manuel Chua (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting Hammer a P 25 Million-Peso and used the corporate fiction to defraud iBank, they should be treated as one and the same
Omnibus Line.5 The loans were secured by a P 9 Million-Peso Real Estate as Hammer.17
Mortgage6 executed on July 1, 1997 by Goldkey Development Corporation (Goldkey) over
several of its properties and a P 25 Million-Peso Surety Agreement7 signed by Chua and his Hence, these petitions filed separately by the heirs of Uy and Goldkey. On February 9, 2005,
wife, Fe Tan Uy (Uy), on April 15, 1996. this Court ordered the consolidation of the two cases.18

As of October 28, 1997, Hammer had an outstanding obligation of P25,420,177.62 to The Issues
iBank.8 Hammer defaulted in the payment of its loans, prompting iBank to foreclose on
Goldkey’s third-party Real Estate Mortgage. The mortgaged properties were sold for P 12 Petitioners raise the following issues:
million during the foreclosure sale, leaving an unpaid balance of P 13,420,177.62.9 For failure
of Hammer to pay the deficiency, iBank filed a Complaint10 for sum of money on December Whether or not a trial court, under the facts of this case, can go out of the issues raised
16, 1997 against Hammer, Chua, Uy, and Goldkey before the Regional Trial Court, Makati by the pleadings;19
City (RTC).11
Whether or not there is guilt by association in those cases where the veil of corporate
Despite service of summons, Chua and Hammer did not file their respective answers and fiction may be pierced;20 and
were declared in default. In her separate answer, Uy claimed that she was not liable to iBank
because she never executed a surety agreement in favor of iBank. Goldkey, on the other Whether or not the “alter ego” theory in disregarding the corporate personality of a
hand, also denies liability, averring that it acted only as a third-party mortgagor and that it was corporation is applicable to Goldkey.21
a corporation separate and distinct from Hammer.12
Simplifying the issues in this case, the Court must resolve the following: (1) whether Uy can
Meanwhile, iBank applied for the issuance of a writ of preliminary attachment which was be held liable to iBank for the loan obligation of Hammer as an officer and stockholder of the
granted by the RTC in its December 17, 1997 Order.13 said corporation; and (2) whether Goldkey can be held liable for the obligation of Hammer for
being a mere alter ego of the latter.
The Notice of Levy on Attachment of Real Properties, dated July 15, 1998, covering the
properties under the name of Goldkey, was sent by the sheriff to the Registry of Deeds of The Court’s Ruling
Quezon City.14

The RTC, in its Decision,15 dated December 27, 2000, ruled in favor of iBank. While it made The petitions are partly meritorious.
the pronouncement that the signature of Uy on the Surety Agreement was a forgery, it

Uy is not liable; The piercing of the
veil of corporate fiction is not justified
The heirs of Uy argue that the latter could not be held liable for being merely an officer of
Hammer and Goldkey because it was not shown that she had committed any actionable
wrong22 or that she had participated in the transaction between Hammer and iBank. They
further claim that she had cut all ties with Hammer and her husband long before the execution
of the loan.23
The Court finds in favor of Uy.
Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a
legal personality separate and distinct from those acting for and in its behalf and, in general,
from the people comprising it. Following this principle, obligations incurred by the corporation,
acting through its directors, officers and employees, are its sole liabilities. A director, officer or
employee of a corporation is generally not held personally liable for obligations incurred by the
corporation.24 Nevertheless, this legal fiction may be disregarded if it is used as a means to
perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues.25
This is consistent with the provisions of the Corporation Code of the Philippines, which states:
Sec. 31. Liability of directors, trustees or officers. – Directors or trustees who wilfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any personal
or pecuniary interest in conflict with their duty as such directors or trustees shall be liable
jointly and severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
Solidary liability will then attach to the directors, officers or employees of the corporation in
certain circumstances, such as:
1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote
for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross
negligence in directing the corporate affairs; and (c) are guilty of conflict of interest to the
prejudice of the corporation, its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
thereto;
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific provision of law, personally liable for
his corporate action.26
Before a director or officer of a corporation can be held personally liable for corporate
obligations, however, the following requisites must concur: (1) the complainant must allege in
the complaint that the director or officer assented to patently unlawful acts of the corporation,
or that the officer was guilty of gross negligence or bad faith; and (2) the complainant must
clearly and convincingly prove such unlawful acts, negligence or bad faith.27
While it is true that the determination of the existence of any of the circumstances that would
warrant the piercing of the veil of corporate fiction is a question of fact which cannot be the
subject of a petition for review on certiorari under Rule 45, this Court can take cognizance of
factual issues if the findings of the lower court are not supported by the evidence on record or
are based on a misapprehension of facts.28
In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy
committed an act as an officer of Hammer that would permit the piercing of the corporate veil.
A reading of the complaint reveals that with regard to Uy, iBank did not demand that she be
held liable for the obligations of Hammer because she was a corporate officer who committed
bad faith or gross negligence in the performance of her duties such that the lifting of the
corporate mask would be merited. What the complaint simply stated is that she, together with
her errant husband Chua, acted as surety of Hammer, as evidenced by her signature on the
Surety Agreement which was later found by the RTC to have been forged.29
Considering that the only basis for holding Uy liable for the payment of the loan was proven to
be a falsified document, there was no sufficient justification for the RTC to have ruled that Uy
should be held jointly and severally liable to iBank for the unpaid loan of Hammer. Neither did
the CA explain its affirmation of the RTC’s ruling against Uy. The Court cannot give credence
to the simplistic declaration of the RTC that liability would attach directly to Uy for the sole
reason that she was an officer and stockholder of Hammer.
At most, Uy could have been charged with negligence in the performance of her duties as
treasurer of Hammer by allowing the company to contract a loan despite its precarious
financial position. Furthermore, if it was true, as petitioners claim, that she no longer
performed the functions of a treasurer, then she should have formally resigned as treasurer to
isolate herself from any liability that could result from her being an officer of the corporation.
Nonetheless, these shortcomings of Uy are not sufficient to justify the piercing of the corporate
veil which requires that the negligence of the officer must be so gross that it could amount to
bad faith and must be established by clear and convincing evidence. Gross negligence is one
that is characterized by the lack of the slightest care, acting or failing to act in a situation
where there is a duty to act, wilfully and intentionally with a conscious indifference to the
consequences insofar as other persons may be affected.30
It behooves this Court to emphasize that the piercing of the veil of corporate fiction is frowned
upon and can only be done if it has been clearly established that the separate and distinct
personality of the corporation is used to justify a wrong, protect fraud, or perpetrate a
deception.31 As aptly explained in Philippine National Bank v. Andrada Electric & Engineering
Company:32
Hence, any application of the doctrine of piercing the corporate veil should be done with
caution. A court should be mindful of the milieu where it is to be applied. It must be certain that
the corporate fiction was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights. The wrongdoing must be clearly and
convincingly established; it cannot be presumed. Otherwise, an injustice that was never
unintended may result from an erroneous application.33
Indeed, there is no showing that Uy committed gross negligence. And in the absence of any of
the aforementioned requisites for making a corporate officer, director or stockholder
personally liable for the obligations of a corporation, Uy, as a treasurer and stockholder of
Hammer, cannot be made to answer for the unpaid debts of the corporation.
Goldkey is a mere alter ego of Hammer
Goldkey contends that it cannot be held responsible for the obligations of its stockholder,
Chua.34Moreover, it theorizes that iBank is estopped from expanding Goldkey’s liability
beyond the real estate mortgage.35 It adds that it did not authorize the execution of the said
mortgage.36 Finally, it passes the blame on to iBank for failing to exercise the requisite due
diligence in properly evaluating Hammer’s creditworthiness before it was extended an
omnibus line.37
The Court disagrees with Goldkey.
There is no reason to discount the findings of the CA that iBank duly inspected the viability of
Hammer and satisfied itself that the latter was a good credit risk based on the Financial
Statement submitted. In addition, iBank required that the loan be secured by Goldkey’s Real
Estate Mortgage and the Surety Agreement with Chua and Uy. The records support the
factual conclusions made by the RTC and the CA.
To the Court’s mind, Goldkey’s argument, that iBank is barred from pursuing Goldkey for the
satisfaction of the unpaid obligation of Hammer because it had already limited its liability to the
real estate mortgage, is completely absurd. Goldkey needs to be reminded that it is being
sued not as a consequence of the real estate mortgage, but rather, because it acted as an
alter ego of Hammer. Accordingly, they must be treated as one and the same entity, making
Goldkey accountable for the debts of Hammer.
In fact, it is Goldkey who is now precluded from denying the validity of the Real Estate
Mortgage. In its Answer with Affirmative Defenses and Compulsory Counterclaim, dated
January 5, 1998, it already admitted that it acted as a third-party mortgagor to secure the
obligation of Hammer to iBank.38 Thus, it cannot, at this late stage, question the due execution
of the third-party mortgage.
Similarly, Goldkey is undoubtedly mistaken in claiming that iBank is seeking to enforce an
obligation of Chua. The records clearly show that it was Hammer, of which Chua was the
president and a stockholder, which contracted a loan from iBank. What iBank sought was
redress from Goldkey by demanding that the veil of corporate fiction be lifted so that it could
not raise the defense of having a separate juridical personality to evade liability for the
obligations of Hammer.
Under a variation of the doctrine of piercing the veil of corporate fiction, when two business
enterprises are owned, conducted and controlled by the same parties, both law and equity
will, when necessary to protect the rights of third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as identical or one and the same.39
While the conditions for the disregard of the juridical entity may vary, the following are some
probative factors of identity that will justify the application of the doctrine of piercing the
corporate veil, as laid down in Concept Builders, Inc. v NLRC:40
(1) Stock ownership by one or common ownership of both corporations;
(2) Identity of directors and officers;
(3) The manner of keeping corporate books and records, and
(4) Methods of conducting the business.41
These factors are unquestionably present in the case of Goldkey and
Hammer, as observed by the RTC, as follows:
1. Both corporations are family corporations of defendants Manuel Chua and his wife Fe Tan
Uy. The other incorporators and shareholders of the two corporations are the brother and
sister of Manuel Chua (Benito Ng Po Hing and Nenita Chua Tan) and the sister of Fe Tan Uy,
Milagros Revilla. The other incorporator/share holder is Manling Uy, the daughter of Manuel
Chua Uy Po Tiong and Fe Tan Uy.
The stockholders of Hammer Garments as of March 23, 1987, aside from spouses Manuel
and Fe Tan Uy are: Benito Chua, brother Manuel Chua, Nenita Chua Tan, sister of Manuel
Chua and Tessie See Chua Tan. On March 8, 1988, the shares of Tessie See Chua Uy were
assigned to Milagros T. Revilla, thereby consolidating the shares in the family of Manuel Chua
and Fe Tan Uy.
2. Hammer Garments and Goldkey share the same office and practically transact their
business from the same place.
3. Defendant Manuel Chua is the President and Chief Operating Officer of both corporations.
All business transactions of Goldkey and Hammer are done at the instance of defendant
Manuel Chua who is authorized to do so by the corporations.
The promissory notes subject of this complaint are signed by him as Hammer’s President and
General Manager. The third-party real estate mortgage of defendant Goldkey is signed by him
for Goldkey to secure the loan obligation of Hammer Garments withplaintiff "iBank''. The other
third-party real estate mortgages which Goldkey executed in favor of the other creditor banks
of Hammer are also signed by Manuel Chua.
4. The assets of Goldkey and Hammer are co-mingled. The real properties of Goldkey are
mortgaged to secure Hammer's obligation with creditor hanks.
The proceeds of at least two loans which Hammer obtained from plaintiff "iBank", purportedly
to finance its export to WalMart are instead used to finance the purchase of a manager's
check payable to Goldkey. The defendants' claim that Goldkey is a creditor of Hammer to
justify its receipt of the Manager's cheek is not substantiated by evidence. Despite subpoenas
issued by this Court, Goldkey thru its treasurer, defendant Fe Tan Uy and or its corporate
secretary Manling Uy failed to produce the Financial Statement of Goldke.
5. When defendant Manuel Chua "disappeared", the defendant Goldkey ceased to operate
despite the claim that the other "officers" and stockholders like Benito Chua, Nenita Chua Tan,
Fe Tan Uy, Manling Uy and Milagros T. Revilla are still around and may be able to continue
the business of Goldkey, if it were different or distinct from Hammer which suffered financial
set back.42
Based on the foregoing findings of the RTC, it was apparent that Goldkey was merely an
adjunct of Hammer and, as such, the legal fiction that it has a separate personality from that of
Hammer should be brushed aside as they are, undeniably, one and the same.
WHEREFORE, the petitions are PARTLY GRANTED. The August 16, 2004 Decision and the
December 2, 2004 Resolution of the Court of Appeals, in CA-G.R. CV No. 69817, are
hereby MODIFIED. Fe Tan Uy is released from any liability arising from the debts incurred by
Hammer from iBank. Hammer Garments Corporation, Manuel Chua Uy Po Tiong and Goldkey
Development Corporation are jointly and severally liable to pay International Exchange Bank
the sum of P13,420,177.62 representing the unpaid loan obligation of Hammer as of
December 12, 1997 plus interest. No costs.
SO ORDERED.
G.R. No. 167530 March 13, 2013
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.
x-----------------------x
G.R. No. 167561
ASSET PRIVATIZATION TRUST, Petitioner,
vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.
x-----------------------x
G.R. No. 167603
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
These petitions for review on certiorari1 assail the Decision2 dated November 30, 2004 and
the Resolution3 dated March 22, 2005 of the Court of Appeals in CA-G.R. CV No. 57553. The
said Decision affirmed the Decision4 dated November 6, 1995 of the Regional Trial Court
(RTC) of Makati City, Branch 62, granting a judgment award of ₱8,370,934.74, plus legal
interest, in favor of respondent Hydro Resources Contractors Corporation (HRCC) with the
modification that the Privatization and Management Office (PMO), successor of petitioner
Asset Privatization Trust (APT),5 has been held solidarily liable with Nonoc Mining and
Industrial Corporation (NMIC)6 and petitioners Philippine National Bank (PNB) and
Development Bank of the Philippines (DBP), while the Resolution denied reconsideration
separately prayed for by PNB, DBP, and APT.
Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on the
properties of Marinduque Mining and Industrial Corporation (MMIC). As a result of the
foreclosure, DBP and PNB acquired substantially all the assets of MMIC and resumed the
business operations of the defunct MMIC by organizing NMIC.7 DBP and PNB owned 57%
and 43% of the shares of NMIC, respectively, except for five qualifying shares.8As of
September 1984, the members of the Board of Directors of NMIC, namely, Jose Tengco, Jr.,
Rolando Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino Agbada, were either from DBP
or PNB.9
Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and
Road Construction Program in 1985 for a total contract price of ₱35,770,120. After computing
the payments already made by NMIC under the program and crediting the NMIC’s receivables
from
Hercon, Inc., the latter found that NMIC still has an unpaid balance of
₱8,370,934.74.10 Hercon, Inc. made several demands on NMIC, including a letter of final
demand dated August 12, 1986, and when these were not heeded, a complaint for sum of
money was filed in the RTC of Makati, Branch 136 seeking to hold petitioners NMIC, DBP,
and PNB solidarily liable for the amount owing Hercon, Inc.11 The case was docketed as Civil
Case No. 15375.
Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger.
This prompted the amendment of the complaint to substitute HRCC for Hercon, Inc.12
Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No.
50 creating the APT for the expeditious disposition and privatization of certain government
corporations and/or the assets thereof. Pursuant to the said Proclamation, on February 27,
1987, DBP and PNB executed their respective deeds of transfer in favor of the National
Government assigning, transferring and conveying certain assets and liabilities, including their
respective stakes in NMIC.13 In turn and on even date, the National Government transferred
the said assets and liabilities to the APT as trustee under a Trust Agreement.14 Thus, the
complaint was amended for the second time to implead and include the APT as a defendant.
In its answer,15 NMIC claimed that HRCC had no cause of action. It also asserted that its
contract with HRCC was entered into by its then President without any authority. Moreover,
the said contract allegedly failed to comply with laws, rules and regulations concerning
government contracts. NMIC further claimed that the contract amount was manifestly
excessive and grossly disadvantageous to the government. NMIC made counterclaims for the
amounts already paid to Hercon, Inc. and attorney’s fees, as well as payment for equipment
rental for four trucks, replacement of parts and other services, and damage to some of NMIC’s
properties.16
For its part, DBP’s answer17 raised the defense that HRCC had no cause of action against it
because DBP was not privy to HRCC’s contract with NMIC. Moreover, NMIC’s juridical
personality is separate from that of DBP. DBP further interposed a counterclaim for attorney’s
fees.18
PNB’s answer19 also invoked lack of cause of action against it. It also raised estoppel on
HRCC’s part and laches as defenses, claiming that the inclusion of PNB in the complaint was
the first time a demand for payment was made on it by HRCC. PNB also invoked the separate
juridical personality of NMIC and made counterclaims for moral damages and attorney’s
fees.20
APT set up the following defenses in its answer21: lack of cause of action against it, lack of
privity between Hercon, Inc. and APT, and the National Government’s preferred lien over the
assets of NMIC.22
After trial, the RTC of Makati rendered a Decision dated November 6, 1995 in favor of HRCC.
It pierced the corporate veil of NMIC and held DBP and PNB solidarily liable with NMIC:
On the issue of whether or not there is sufficient ground to pierce the veil of corporate fiction,
this Court likewise finds for the plaintiff.
From the documentary evidence adduced by the plaintiff, some of which were even adopted
by defendants and DBP and PNB as their own evidence (Exhibits "I", "I-1", "I-2", "I-3", "I-4", "I-
5", "I5-A", "I-5-B", "I-5-C", "I-5-D" and submarkings, inclusive), it had been established that
except for five (5) qualifying shares, NMIC is owned by defendants DBP and PNB, with the
former owning 57% thereof, and the latter 43%. As of September 24, 1984, all the members of
NMIC’s Board of Directors, namely, Messrs. Jose Tengco, Jr., Rolando M. Zosa, Ruben
Ancheta, Geraldo Agulto, and Faustino Agbada are either from DBP or PNB (Exhibits "I-5", "I-
5-C", "I-5-D").
The business of NMIC was then also being conducted and controlled by both DBP and PNB.
In fact, it was Rolando M. Zosa, then Governor of DBP, who was signing and entering into
contracts with third persons, on behalf of NMIC.
In this jurisdiction, it is well-settled that "where it appears that the business enterprises are
owned, conducted and controlled by the same parties, both law and equity will, when
necessary to protect the rights of third persons, disregard legal fiction that two (2) corporations
are distinct entities, and treat them as identical." (Phil. Veterans Investment Development
Corp. vs. CA, 181 SCRA 669).
From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of
both DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with NMIC for the
latter’s unpaid obligations to plaintiff.23
Having found DBP and PNB solidarily liable with NMIC, the dispositive portion of the Decision
of the trial court reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff
HYDRO RESOURCES CONTRACTORS CORPORATION and against the defendants
NONOC
MINING AND INDUSTRIAL CORPORATION, DEVELOPMENT BANK OF THE PHILIPPINES
and PHILIPPINE NATIONAL BANK, ordering the aforenamed defendants, to pay the plaintiff
jointly and severally, the sum of ₱8,370,934.74 plus legal interest thereon from date of
demand, and attorney’s fees equivalent to 25% of the judgment award.
The complaint against APT is hereby dismissed. However, APT, as trustee of NONOC
MINING AND INDUSTRIAL CORPORATION is directed to ensure compliance with this
Decision.24
DBP and PNB filed their respective appeals in the Court of Appeals. Both insisted that it was
wrong for the RTC to pierce the veil of NMIC’s corporate personality and hold DBP and PNB
solidarily liable with NMIC.25
The Court of Appeals rendered the Decision dated November 30, 2004, affirmed the piercing
of the veil of the corporate personality of NMIC and held DBP, PNB, and APT solidarily liable
with NMIC. In particular, the Court of Appeals made the following findings:
In the case before Us, it is indubitable that [NMIC] was owned by appellants DBP and PNB to
the extent of 57% and 43% respectively; that said two (2) appellants are the only
stockholders, with the qualifying stockholders of five (5) consisting of its own officers and
included in its charter merely to comply with the requirement of the law as to number of
incorporators; and that the directorates of DBP, PNB and [NMIC] are interlocked.
xxxx
We find it therefore correct for the lower court to have ruled that:
"From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of
both DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with NMIC for the
latter’s unpaid obligation to plaintiff."26(Citation omitted.)
The Court of Appeals then concluded that, "in keeping with the concept of justice and fair
play," the corporate veil of NMIC should be pierced, ratiocinating:
For to treat NMIC as a separate legal entity from DBP and PNB for the purpose of securing
beneficial contracts, and then using such separate entity to evade the payment of a just debt,
would be the height of injustice and iniquity. Surely that could not have been the intendment of
the law with respect to corporations. x x x.27
The dispositive portion of the Decision of the Court of Appeals reads:
WHEREFORE, premises considered, the Decision appealed from is hereby MODIFIED. The
judgment in favor of appellee Hydro Resources Contractors Corporation in the amount of
₱8,370,934.74 with legal interest from date of demand is hereby AFFIRMED, but the
dismissal of the case as against Assets Privatization Trust is REVERSED, and its successor
the Privatization and Management Office is INCLUDED as one of those jointly and severally
liable for such indebtedness. The award of attorney’s fees is DELETED.
All other claims and counter-claims are hereby DISMISSED.
Costs against appellants.28
The respective motions for reconsideration of DBP, PNB, and APT were denied.29
Hence, these consolidated petitions.30
All three petitioners assert that NMIC is a corporate entity with a juridical personality separate
and distinct from both PNB and DBP. They insist that the majority ownership by DBP and PNB
of NMIC is not a sufficient ground for disregarding the separate corporate personality of NMIC
because NMIC was not a mere adjunct, business conduit or alter ego of DBP and PNB.
According to them, the application of the doctrine of piercing the corporate veil is unwarranted
as nothing in the records would show that the ownership and control of the shareholdings of
NMIC by DBP and PNB were used to commit fraud, illegality or injustice. In the absence of
evidence that the stock control by DBP and PNB over NMIC was used to commit some fraud
or a wrong and that said control was the proximate cause of the injury sustained by HRCC,
resort to the doctrine of "piercing the veil of corporate entity" is misplaced.31
DBP and PNB further argue that, assuming they may be held solidarily liable with NMIC to pay
NMIC’s exclusive and separate corporate indebtedness to HRCC, such liability of the two
banks was transferred to and assumed by the National Government through the APT, now the
PMO, under the respective deeds of transfer both dated February 27, 1997 executed by DBP
and PNB pursuant to Proclamation No. 50 dated December 8, 1986 and Administrative Order
No. 14 dated February 3, 1987.32
For its part, the APT contends that, in the absence of an unqualified assumption by the
National Government of all liabilities incurred by NMIC, the National Government through the
APT could not be held liable for NMIC’s contractual liability. The APT asserts that HRCC had
not sufficiently shown that the APT is the successor-in-interest of all the liabilities of NMIC, or
of DBP and PNB as transferors, and that the adjudged liability is included among the liabilities
assigned and transferred by DBP and PNB in favor of the National Government.33
HRCC counters that both the RTC and the CA correctly applied the doctrine of "piercing the
veil of corporate fiction." It claims that NMIC was the alter ego of DBP and PNB which owned,
conducted and controlled the business of NMIC as shown by the following circumstances:
NMIC was owned by DBP and PNB, the officers of DBP and PNB were also the officers of
NMIC, and DBP and PNB financed the operations of NMIC. HRCC further argues that a
parent corporation may be held liable for the contracts or obligations of its subsidiary
corporation where the latter is a mere agency, instrumentality or adjunct of the parent
corporation.34
Moreover, HRCC asserts that the APT was properly held solidarily liable with DBP, PNB, and
NMIC because the APT assumed the obligations of DBP and PNB as the successor-in-
interest of the said banks with respect to the assets and liabilities of NMIC.35 As trustee of the
Republic of the Philippines, the APT also assumed the responsibility of the Republic pursuant
to the following provision of Section 2.02 of the respective deeds of transfer executed by DBP
and PNB in favor of the Republic:
SECTION 2. TRANSFER OF BANK’S LIABILITIES
xxxx
2.02 With respect to the Bank’s liabilities which are contingent and those liabilities where the
Bank’s creditors consent to the transfer thereof is not obtained, said liabilities shall remain in
the books of the BANK with the GOVERNMENT funding the payment thereof.36
After a careful review of the case, this Court finds the petitions impressed with merit.
A corporation is an artificial entity created by operation of law. It possesses the right of
succession and such powers, attributes, and properties expressly authorized by law or
incident to its existence.37 It has a personality separate and distinct from that of its
stockholders and from that of other corporations to which it may be connected. 38 As a
consequence of its status as a distinct legal entity and as a result of a conscious policy
decision to promote capital formation,39 a corporation incurs its own liabilities and is legally
responsible for payment of its obligations.40 In other words, by virtue of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or credit of the
stockholder.41 This protection from liability for shareholders is the principle of limited liability.42
Equally well-settled is the principle that the corporate mask may be removed or the corporate
veil pierced when the corporation is just an alter ego of a person or of another corporation. For
reasons of public policy and in the interest of justice, the corporate veil will justifiably be
impaled only when it becomes a shield for fraud, illegality or inequity committed against third
persons.43
However, the rule is that a court should be careful in assessing the milieu where the doctrine
of the corporate veil may be applied. Otherwise an injustice, although unintended, may result
from its erroneous application.44 Thus, cutting through the corporate cover requires an
approach characterized by due care and caution:
Hence, any application of the doctrine of piercing the corporate veil should be done with
caution. A court should be mindful of the milieu where it is to be applied. It must be certain that
the corporate fiction was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights. The wrongdoing must be clearly and
convincingly established; it cannot be presumed. x x x.45 (Emphases supplied; citations
omitted.)
Sarona v. National Labor Relations Commission46 has defined the scope of application of the
doctrine of piercing the corporate veil:
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1)
defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion
of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong,
protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce
since it is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation. (Citation omitted.)
Here, HRCC has alleged from the inception of this case that DBP and PNB (and the APT as
assignee of DBP and PNB) should be held solidarily liable for using NMIC as alter ego.47 The
RTC sustained the allegation of HRCC and pierced the corporate veil of NMIC pursuant to the
alter ego theory when it concluded that NMIC "is a mere adjunct, business conduit or alter ego
of both DBP and PNB."48 The Court of Appeals upheld such conclusion of the trial court.49 In
other words, both the trial and appellate courts relied on the alter ego theory when they
disregarded the separate corporate personality of NMIC.
In this connection, case law lays down a three-pronged test to determine the application of the
alter ego theory, which is also known as the instrumentality theory, namely:
(1) Control, not mere majority or complete stock control, but complete domination,
not only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong,
to perpetuate the violation of a statutory or other positive legal duty, or dishonest
and unjust act in contravention of plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the
injury or unjust loss complained of.50 (Emphases omitted.)
The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be
completely under the control and domination of the parent.51 It examines the parent
corporation’s relationship with the subsidiary.52 It inquires whether a subsidiary corporation is
so organized and controlled and its affairs are so conducted as to make it a mere
instrumentality or agent of the parent corporation such that its separate existence as a distinct
corporate entity will be ignored.53 It seeks to establish whether the subsidiary corporation has
no autonomy and the parent corporation, though acting through the subsidiary in form and
appearance, "is operating the business directly for itself."54
The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in
using the subsidiary corporation be unjust, fraudulent or wrongful.55 It examines the
relationship of the plaintiff to the corporation.56 It recognizes that piercing is appropriate only if
the parent corporation uses the subsidiary in a way that harms the plaintiff creditor.57 As such,
it requires a showing of "an element of injustice or fundamental unfairness."58
The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s
control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm
suffered.59 A causal connection between the fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff
should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will
have been treated unjustly by the defendant’s exercise of control and improper use of the
corporate form and, thereby, suffer damages.60
To summarize, piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements: control of the corporation by the stockholder or parent
corporation, fraud or fundamental unfairness imposed on the plaintiff, and harm or damage
caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of any of
these elements prevents piercing the corporate veil.61
This Court finds that none of the tests has been satisfactorily met in this case.
In applying the alter ego doctrine, the courts are concerned with reality and not form, with how
the corporation operated and the individual defendant’s relationship to that operation.62 With
respect to the control element, it refers not to paper or formal control by majority or even
complete stock control but actual control which amounts to "such domination of finances,
policies and practices that the controlled corporation has, so to speak, no separate mind, will
or existence of its own, and is but a conduit for its principal."63 In addition, the control must be
shown to have been exercised at the time the acts complained of took place.64
Both the RTC and the Court of Appeals applied the alter ego theory and penetrated the
corporate cover of NMIC based on two factors: (1) the ownership by DBP and PNB of
effectively all the stocks of NMIC, and (2) the alleged interlocking directorates of DBP, PNB
and NMIC.65 Unfortunately, the conclusion of the trial and appellate courts that the DBP and
PNB fit the alter ego theory with respect to NMIC’s transaction with HRCC on the premise of
complete stock ownership and interlocking directorates involved a quantum leap in logic and
law exposing a gap in reason and fact.
While ownership by one corporation of all or a great majority of stocks of another corporation
and their interlocking directorates may serve as indicia of control, by themselves and without
more, however, these circumstances are insufficient to establish an alter ego relationship or
connection between DBP and PNB on the one hand and NMIC on the other hand, that will
justify the puncturing of the latter’s corporate cover. This Court has declared that "mere
ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality."66 This Court has likewise ruled that the "existence of interlocking directors,
corporate officers and shareholders is not enough justification to pierce the veil of corporate
fiction in the absence of fraud or other public policy considerations."67
True, the findings of fact of the Court of Appeals are conclusive and cannot be reviewed on
appeal to this Court, provided they are borne out of the record or are based on substantial
evidence.68 It is equally true that the question of whether one corporation is merely an alter
ego of another is purely one of fact. So is the question of whether a corporation is a paper
company, a sham or subterfuge or whether the requisite quantum of evidence has been
adduced warranting the piercing of the veil of corporate personality.69 Nevertheless, it has
been held in Sarona v. National Labor Relations Commission70 that this Court has the power
to resolve a question of fact, such as whether a corporation is a mere alter ego of another
entity or whether the corporate fiction was invoked for fraudulent or malevolent ends, if the
findings in the assailed decision are either not supported by the evidence on record or based
on a misapprehension of facts.
In this case, nothing in the records shows that the corporate finances, policies and practices of
NMIC were dominated by DBP and PNB in such a way that NMIC could be considered to
have no separate mind, will or existence of its own but a mere conduit for DBP and PNB. On
the contrary, the evidence establishes that HRCC knew and acted on the knowledge that it
was dealing with NMIC, not with NMIC’s stockholders. The letter proposal of Hercon, Inc.,
HRCC’s predecessor-in-interest, regarding the contract for NMIC’s mine stripping and road
construction program was addressed to and accepted by NMIC.71 The various billing reports,
progress reports, statements of accounts and communications of Hercon, Inc./HRCC
regarding NMIC’s mine stripping and road construction program in 1985 concerned NMIC and
NMIC’s officers, without any indication of or reference to the control exercised by DBP and/or
PNB over NMIC’s affairs, policies and practices.72
HRCC has presented nothing to show that DBP and PNB had a hand in the act complained
of, the alleged undue disregard by NMIC of the demands of HRCC to satisfy the unpaid claims
for services rendered by HRCC in connection with NMIC’s mine stripping and road
construction program in 1985. On the contrary, the overall picture painted by the evidence
offered by HRCC is one where HRCC was dealing with NMIC as a distinct juridical person
acting through its own corporate officers.73
Moreover, the finding that the respective boards of directors of NMIC, DBP, and PNB were
interlocking has no basis. HRCC’s Exhibit "I-5,"74 the initial General Information Sheet
submitted by NMIC to the Securities and Exchange Commission, relied upon by the trial court
and the Court of Appeals may have proven that DBP and PNB owned the stocks of NMIC to
the extent of 57% and 43%, respectively. However, nothing in it supports a finding that NMIC,
DBP, and PNB had interlocking directors as it only indicates that, of the five members of
NMIC’s board of directors, four were nominees of either DBP or PNB and only one was a
nominee of both DBP and PNB.75 Only two members of the board of directors of NMIC, Jose
Tengco, Jr. and Rolando Zosa, were established to be members of the board of governors of
DBP and none was proved to be a member of the board of directors of PNB.76 No director of
NMIC was shown to be also sitting simultaneously in the board of governors/directors of both
DBP and PNB.
In reaching its conclusion of an alter ego relationship between DBP and PNB on the one hand
and NMIC on the other hand, the Court of Appeals invoked Sibagat Timber Corporation v.
Garcia,77 which it described as "a case under a similar factual milieu."78 However, in Sibagat
Timber Corporation, this Court took care to enumerate the circumstances which led to the
piercing of the corporate veil of Sibagat Timber Corporation for being the alter ego of Del
Rosario & Sons Logging Enterprises, Inc. Those circumstances were as follows: holding office
in the same building, practical identity of the officers and directors of the two corporations and
assumption of management and control of Sibagat Timber Corporation by the
directors/officers of Del Rosario & Sons Logging Enterprises, Inc.
Here, DBP and PNB maintain an address different from that of NMIC.79 As already discussed,
there was insufficient proof of interlocking directorates. There was not even an allegation of
similarity of corporate officers. Instead of evidence that DBP and PNB assumed and controlled
the management of NMIC, HRCC’s evidence shows that NMIC operated as a distinct entity
endowed with its own legal personality. Thus, what obtains in this case is a factual backdrop
different from, not similar to, Sibagat Timber Corporation.
In relation to the second element, to disregard the separate juridical personality of a
corporation, the wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be
clearly and convincingly established; it cannot be presumed. Without a demonstration that any
of the evils sought to be prevented by the doctrine is present, it does not apply.80
In this case, the Court of Appeals declared:
We are not saying that PNB and DBP are guilty of fraud in forming NMIC, nor are we implying
that NMIC was used to conceal fraud. x x x.81
Such a declaration clearly negates the possibility that DBP and PNB exercised control over
NMIC which DBP and PNB used "to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s
legal rights." It is a recognition that, even assuming that DBP and PNB exercised control over
NMIC, there is no evidence that the juridical personality of NMIC was used by DBP and PNB
to commit a fraud or to do a wrong against HRCC.
There being a total absence of evidence pointing to a fraudulent, illegal or unfair act
committed against HRCC by DBP and PNB under the guise of NMIC, there is no basis to hold
that NMIC was a mere alter ego of DBP and PNB. As this Court ruled in Ramoso v. Court of
Appeals82:
As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient
reason to the contrary appears. When the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation
as an association of persons. Also, the corporate entity may be disregarded in the interest of
justice in such cases as fraud that may work inequities among members of the corporation
internally, involving no rights of the public or third persons. In both instances, there must have
been fraud, and proof of it. For the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly established. It cannot be
presumed.
As regards the third element, in the absence of both control by DBP and PNB of NMIC and
fraud or fundamental unfairness perpetuated by DBP and PNB through the corporate cover of
NMIC, no harm could be said to have been proximately caused by DBP and PNB on HRCC
for which HRCC could hold DBP and PNB solidarily liable with NMIC.1âwphi1
Considering that, under the deeds of transfer executed by DBP and PNB, the liability of the
APT as transferee of the rights, titles and interests of DBP and PNB in NMIC will attach only if
DBP and PNB are held liable, the APT incurs no liability for the judgment indebtedness of
NMIC. Even HRCC recognizes that "as assignee of DBP and PNB 's loan receivables," the
APT simply "stepped into the shoes of DBP and PNB with respect to the latter's rights and
obligations" in NMIC.83 As such assignee, therefore, the APT incurs no liability with respect to
NMIC other than whatever liabilities may be imputable to its assignors, DBP and PNB.
Even under Section 2.02 of the respective deeds of transfer executed by DBP and PNB which
HRCC invokes, the APT cannot be held liable. The contingent liability for which the National
Government, through the APT, may be held liable under the said provision refers to contingent
liabilities of DBP and PNB. Since DBP and PNB may not be held solidarily liable with NMIC,
no contingent liability may be imputed to the APT as well. Only NMIC as a distinct and
separate legal entity is liable to pay its corporate obligation to HRCC in the amount of
₱8,370,934.74, with legal interest thereon from date of demand.
As trustee of the. assets of NMIC, however, the APT should ensure compliance by NMIC of
the judgment against it. The APT itself acknowledges this.84
WHEREFORE, the petitions are hereby GRANTED.
The complaint as against Development Bank of the Philippines, the Philippine National Bank,
and the Asset Privatization Trust, now the Privatization and Management Office, is
DISMISSED for lack of merit. The Asset Privatization Trust, now the Privatization and
Management Office, as trustee of Nonoc Mining and Industrial Corporation, now the Philnico
Processing Corporation, is DIRECTED to ensure compliance by the Nonoc Mining and
Industrial Corporation, now the Philnico Processing Corporation, with this Decision.
SO ORDERED.
PHILIPPINE NATIONAL BANK, petitioner,
vs.
RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL
MERCHANDISE,respondents.
KAPUNAN, J.:
In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner
seeks to annul and set aside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374
dated March 27, 2000, affirming the Order issuing a writ of preliminary injunction of the
Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and its Order dated October
4, 1999, which denied petitioner's motion to dismiss.
The antecedents of this case are as follows:
Petitioner Philippine National Bank is a domestic corporation organized and existing under
Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and
Dadasan General Merchandise are domestic corporations, likewise, organized and existing
under Philippine law.
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB,
organized and doing business in Hong Kong, extended a letter of credit in favor of the
respondents in the amount of US$300,000.00 secured by real estate mortgages constituted
over four (4) parcels of land in Makati City. This credit facility was later increased successively
to US$1,140,000.00 in September 1996; to US$1,290,000.00 in November 1996; to
US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April 1998.
Respondents made repayments of the loan incurred by remitting those amounts to their loan
account with PNB-IFL in Hong Kong.
However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70.
Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB,
notified the respondents of the foreclosure of all the real estate mortgages and that the
properties subject thereof were to be sold at a public auction on May 27, 1999 at the Makati
City Hall.
On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a
writ of preliminary injunction and/or temporary restraining order before the Regional Trial Court
of Makati. The Executive Judge of the Regional Trial Court of Makati issued a 72-hour
temporary restraining order. On May 28, 1999, the case was raffled to Branch 147 of the
Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. At the
hearing of the application for preliminary injunction, petitioner was given a period of seven
days to file its written opposition to the application. On June 15, 1999, petitioner filed an
opposition to the application for a writ of preliminary injunction to which the respondents filed a
reply. On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure to state
a cause of action and the absence of any privity between the petitioner and respondents. On
June 30, 1999, the trial court judge issued an Order for the issuance of a writ of preliminary
injunction, which writ was correspondingly issued on July 14, 1999. On October 4, 1999, the
motion to dismiss was denied by the trial court judge for lack of merit.
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ
of preliminary injunction before the Court of Appeals. In the impugned decision,1 the appellate
court dismissed the petition. Petitioner thus seeks recourse to this Court and raises the
following errors:
1.
THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE
COMPLAINT A QUO, CONSIDERING THAT BY THE ALLEGATIONS OF THE
COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS
NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT
AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.
2.
THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL
COURT TO ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF
PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN
THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ
JR., 101 SCRA 827.2
Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the
trial court's Orders dated June 30, 1999 and October 4, 1999 be set aside and the dismissal of
the complaint in the instant case.3
In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-
IFL are two separate entities, petitioner is still the party-in-interest in the application for
preliminary injunction because it is tasked to commit acts of foreclosing respondents'
properties.4 Respondents maintain that the entire credit facility is void as it contains
stipulations in violation of the principle of mutuality of contracts.5 In addition, respondents
justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate
Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL.6
The petition is impressed with merit.
Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions
of the contract:
GROUNDS
I
THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE
DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF
MUTUALITY OF CONTRACTS.
II
THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE
OF INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY
DEFENDANT, THERE WAS NO STIPULATION THAT THE RATE OF INTEREST
SHALL BE REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE
OF INTEREST IS REDUCED BY LAW OR BY THE MONETARY BOARD.7
Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from
the foreclosure and eventual sale of the property in order to protect their rights to said property
by reason of void credit facilities as bases for the real estate mortgage over the said property. 8
The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In
their complaint, respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL
with full power and authority to, inter alia, foreclose on the properties mortgaged to secure
their loan obligations with PNB-IFL. In other words, herein petitioner is an agent with limited
authority and specific duties under a special power of attorney incorporated in the real estate
mortgage. It is not privy to the loan contracts entered into by respondents and PNB-IFL.
The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's
principal and the party to the loan contracts, and the respondents. Yet, despite the recognition
that petitioner is a mere agent, the respondents in their complaint prayed that the petitioner
PNB be ordered to re-compute the rescheduling of the interest to be paid by them in
accordance with the terms and conditions in the documents evidencing the credit facilities,
and crediting the amount previously paid to PNB by herein respondents.9
Clearly, petitioner not being a part to the contract has no power to re-compute the interest
rates set forth in the contract. Respondents, therefore, do not have any cause of action
against petitioner.
The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a
wholly owned subsidiary of defendant Philippine National Bank, the suit against the defendant
PNB is a suit against PNB-IFL.10 In justifying its ruling, the trial court, citing the case of Koppel
Phil. Inc. vs. Yatco,11 reasoned that the corporate entity may be disregarded where a
corporation is the mere alter ego, or business conduit of a person or where the corporation is
so organized and controlled and its affairs are so conducted, as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.12
We disagree.
The general rule is that as a legal entity, a corporation has a personality distinct and separate
from its individual stockholders or members, and is not affected by the personal rights,
obligations and transactions of the latter.13 The mere fact that a corporation owns all of the
stocks of another corporation, taken alone is not sufficient to justify their being treated as one
entity. If used to perform legitimate functions, a subsidiary's separate existence may be
respected, and the liability of the parent corporation as well as the subsidiary will be confined
to those arising in their respective business. The courts may in the exercise of judicial
discretion step in to prevent the abuses of separate entity privilege and pierce the veil of
corporate entity.
We find, however, that the ruling in Koppel finds no application in the case at bar. In said
case, this Court disregarded the separate existence of the parent and the subsidiary on the
ground that the latter was formed merely for the purpose of evading the payment of higher
taxes. In the case at bar, respondents fail to show any cogent reason why the separate
entities of the PNB and PNB-IFL should be disregarded.
While there exists no definite test of general application in determining when a subsidiary may
be treated as a mere instrumentality of the parent corporation, some factors have been
identified that will justify the application of the treatment of the doctrine of the piercing of the
corporate veil. The case of Garrett vs. Southern Railway Co.14 is enlightening. The case
involved a suit against the Southern Railway Company. Plaintiff was employed by Lenoir Car
Works and alleged that he sustained injuries while working for Lenoir. He, however, filed a suit
against Southern Railway Company on the ground that Southern had acquired the entire
capital stock of Lenoir Car Works, hence, the latter corporation was but a mere instrumentality
of the former. The Tennessee Supreme Court stated that as a general rule the stock
ownership alone by one corporation of the stock of another does not thereby render the
dominant corporation liable for the torts of the subsidiary unless the separate corporate
existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that
it is but an instrumentality or adjunct of the dominant corporation. Said Court then outlined the
circumstances which may be useful in the determination of whether the subsidiary is but a
mere instrumentality of the parent-corporation:
The Circumstance rendering the subsidiary an instrumentality. It is manifestly
impossible to catalogue the infinite variations of fact that can arise but there are
certain common circumstances which are important and which, if present in the
proper combination, are controlling.
These are as follows:
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the
subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation
or no assets except those conveyed to or by the parent corporation.
 (h) In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or its
business or financial responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the
interest of the subsidiary but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
The Tennessee Supreme Court thus ruled:
In the case at bar only two of the eleven listed indicia occur, namely, the ownership
of most of the capital stock of Lenoir by Southern, and possibly subscription to the
capital stock of Lenoir. . . The complaint must be dismissed.
Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an
equitable doctrine developed to address situations where the separate corporate personality
of a corporation is abused or used for wrongful purposes. The doctrine applies when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend
crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation
is the mere alter ego or business conduit of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.15
In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the applicability of
the doctrine of piercing the veil of corporate fiction, to wit:
1. Control, not mere majority or complete control, but complete domination, not only
of finances but of policy and business practice in respect to the transaction attacked
so that the corporate entity as to this transaction had at the time no separate mind,
will or existence of its own.
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and,
unjust act in contravention of plaintiffs legal rights; and,
3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with
reality and not form, with how the corporation operated and the individual
defendant's relationship to the operation.17
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no
showing of the indicative factors that the former corporation is a mere instrumentality of the
latter are present. Neither is there a demonstration that any of the evils sought to be
prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the
doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds
no application in the case at bar.
In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the
significant legal relationship involved in this case since the petitioner was not sued because it
is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an
attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent
cannot without compelling reasons be considered a suit against the principal. Under the Rules
of Court, every action must be prosecuted or defended in the name of the real party-in-
interest, unless otherwise authorized by law or these Rules.18 In mandatory terms, the Rules
require that "parties-in-interest without whom no final determination can be had, an action
shall be joined either as plaintiffs or defendants."19 In the case at bar, the injunction suit is
directed only against the agent, not the principal.
Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere
provisional remedy but adjunct to the main suit.20 A writ of preliminary injunction is an ancillary
or preventive remedy that may only be resorted to by a litigant to protect or preserve his rights
or interests and for no other purpose during the pendency of the principal action. The
dismissal of the principal action thus results in the denial of the prayer for the issuance of the
writ. Further, there is no showing that respondents are entitled to the issuance of the writ.
Section 3, Rule 58, of the 1997 Rules of Civil Procedure provides:
SECTION 3. Grounds for issuance of preliminary injunction. — A preliminary
injunction may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of
such relief consists in restraining the commission or continuance of the act or acts
complained of, or in requiring the performance of an act or acts, either for a limited
period or perpetually,
(b) That the commission, continuance or non-performance of the acts or acts
complained of during the litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to
do, or is procuring or suffering to be done, some act or acts probably in violation of
the rights of the applicant respecting the subject of the action or proceeding, and
tending to render the judgment ineffectual.
Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to
avoid injurious consequences which cannot be remedied under any standard
compensation.21 Respondents do not deny their indebtedness. Their properties are by their
own choice encumbered by real estate mortgages. Upon the non-payment of the loans, which
were secured by the mortgages sought to be foreclosed, the mortgaged properties are
properly subject to a foreclosure sale. Moreover, respondents questioned the alleged void
stipulations in the contract only when petitioner initiated the foreclosure proceedings. Clearly,
respondents have failed to prove that they have a right protected and that the acts against
which the writ is to be directed are violative of said right.22 The Court is not unmindful of the
findings of both the trial court and the appellate court that there may be serious grounds to
nullify the provisions of the loan agreement. However, as earlier discussed, respondents
committed the mistake of filing the case against the wrong party, thus, they must suffer the
consequences of their error.
All told, respondents do not have a cause of action against the petitioner as the latter is not
privy to the contract the provisions of which respondents seek to declare void. Accordingly,
the case before the Regional Trial Court must be dismissed and the preliminary injunction
issued in connection therewith, must be lifted.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of
the Court of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4,
1999 of the Regional Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are hereby
ANNULLED and SET ASIDE and the complaint in said case DISMISSED.
SO ORDERED.
G.R. No. 186433 November 27, 2013
NUCCIO SAVERIO and NS INTERNATIONAL INC., Petitioners,
vs.
ALFONSO G. PUYAT, Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari,1 filed by petitioners Nuccio Saverio and NS
International, Inc. (NS) against respondent Alfonso G. Puyat, challenging the October 27,
2008 decision2 and the February 10, 2009 resolution3 of the Court of Appeals (CA) in CA-G.R.
CV. No. 87879. The CA decision affirmed the December 15, 2004 decision4 of the Regional
Trial Court RTC) of Makati City, Branch 136, in Civil Case No. 00-594. The CA subsequently
denied the petitioners motion for reconsideration.
The Factual Antecedents
On July 22, 1996, the respondent granted a loan to NSI. The loan was made pursuant to the
Memorandum of Agreement and Promissory Note (MOA)5 between the respondent and NSI,
represented by Nuccio. It was agreed that the respondent would extend a credit line with a
limit of ₱500,000.00 to NSI, to be paid within thirty (30) days from the time of the signing of the
document. The loan carried an interest rate of 17% per annum, or at an adjusted rate of 25%
per annum if payment is beyond the stipulated period. The petitioners received a total amount
of ₱300,000.00 and certain machineries intended for their fertilizer processing plant business
(business). The proposed business, however, failed to materialize.
On several occasions, Nuccio made personal payments amounting to ₱600,000.00. However,
as of December 16, 1999, the petitioners allegedly had an outstanding balance of
₱460,505.86. When the petitioners defaulted in the payment of the loan, the respondent filed
a collection suit with the RTC, alleging mainly that the petitioners still owe him the value of the
machineries as shown by the Breakdown of Account6 he presented.
The petitioners refuted the respondent’s allegation and insisted that they have already paid
the loan, evidenced by the respondent’s receipt for the amount of ₱600,000.00. They
submitted that their remaining obligation to pay the machineries’ value, if any, had long been
extinguished by their business’ failure to materialize. They posited that, even assuming
without conceding that they are liable, the amount being claimed is inaccurate, the penalty
and the interest imposed are unconscionable, and an independent accounting is needed to
determine the exact amount of their liability.
The RTC Ruling
In its decision dated December 15, 2004, the RTC found that aside from the cash loan, the
petitioners’ obligation to the respondent also covered the payment of the machineries’ value.
The RTC also brushed aside the petitioners’ claim of partnership. The RTC thus ruled that the
payment of ₱600,000.00 did not completely extinguish the petitioners’ obligation.
The RTC also found merit in the respondent’s contention that the petitioners are one and the
same. Based on Nuccio’s act of entering a loan with the respondent for purposes of financing
NSI’s proposed business and his own admission during cross-examination that the word "NS"
in NSI’s name stands for "Nuccio Saverio," the RTC found that the application of the doctrine
of piercing the veil of corporate fiction was proper.
The RTC, moreover, concluded that the interest rates stipulated in the MOA were not usurious
and that the respondent is entitled to attorney’s fees on account of the petitioners’ willful
breach of the loan obligation. Thus, principally relying on the submitted Breakdown of
Account, the RTC ordered the petitioners, jointly and severally, to pay the balance of
₱460,505.86, at 12% interest, and attorney’s fees equivalent to 25% of the total amount due.
The CA Ruling
The petitioners appealed the RTC ruling to the CA. There, they argued that in view of the lack
of proper accounting and the respondent’s failure to substantiate his claims, the exact amount
of their indebtedness had not been proven. Nuccio also argued that by virtue of NSI’s
separate and distinct personality, he cannot be made solidarily liable with NSI.
On October 27, 2008, the CA rendered a decision7 declaring the petitioners jointly and
severally liable for the amount that the respondent sought. The appellate court likewise held
that since the petitioners neither questioned the delivery of the machineries nor their valuation,
their obligation to pay the amount of ₱460,505.86 under the Breakdown of Account remained
unrefuted.
The CA also affirmed the RTC ruling that petitioners are one and the same for the following
reasons: (1) Nuccio owned forty percent (40%) of NSI; (2) Nuccio personally entered into the
loan contract with the respondent because there was no board resolution from NSI; (3) the
petitioners were represented by the same counsel; (4) the failure of NSI to object to Nuccio’s
acts shows the latter’s control over the corporation; and (5) Nuccio’s control over NSI was
used to commit a wrong or fraud. It further adopted the RTC’s findings of bad faith and willful
breach of obligation on the petitioners’ part, and affirmed its award of attorney’s fees.
The Petition
The petitioners submit that the CA gravely erred in ruling that a proper accounting was not
necessary. They argue that the Breakdown of Account - which the RTC used as a basis in
awarding the claim, as affirmed by the CA - is hearsay since the person who prepared it,
Ramoncito P. Puyat, was not presented in court to authenticate it. They also point to the
absence of the award’s computation in the RTC ruling, arguing that assuming they are still
indebted to the respondent, the specific amount of their indebtedness remains undetermined,
thus the need for an accounting to determine their exact liability.
They further question the CA’s findings of solidary liability. They submit that in the absence of
any showing that corporate fiction was used to defeat public convenience, justify a wrong,
protect fraud or defend a crime, or where the corporation is a mere alter ego or business
conduit of a person, Nuccio’s mere ownership of forty percent (40%) does not justify the
piercing of the separate and distinct personality of NSI.
The Case for the Respondent
The respondent counters that the issues raised by the petitioners in the present petition –
pertaining to the correctness of the calibration of the documentary and testimonial evidence by
the RTC, as affirmed by the CA, in awarding the money claims – are essentially factual, not
legal. These issues, therefore, cannot, as a general rule, be reviewed by the Supreme Court
in an appeal by certiorari. In other words, the resolution of the assigned errors is beyond the
ambit of a Rule 45 petition.
The Issue
The case presents to us the issue of whether the CA committed a reversible error in affirming
the RTC’s decision holding the petitioners jointly and severally liable for the amount claimed.
Our Ruling
After a review of the parties’ contentions, we hold that a remand of the case to the court of
origin for a complete accounting and determination of the actual amount of the petitioners’
indebtedness is called for.
The determination of questions of fact is improper in a Rule 45 proceeding; Exceptions.
The respondent questions the present petition’s propriety, and contends that in a petition for
review on certiorari under Rule 45 of the Rules of Court, only questions of law may be raised.
He argues that the petitioners are raising factual issues that are not permissible under the
present petition and these issues have already been extensively passed upon by the RTC and
the CA. The petitioners, on the other hand, assert that the exact amount of their indebtedness
has not been determined with certainty. They insist that the amount of ₱460,505.86 awarded
in favor of the respondent has no basis because the latter failed to substantiate his claim.
They also maintain that the Breakdown of Account used by the lower courts in arriving at the
collectible amount is unreliable for the respondent’s failure to adduce supporting documents
for the alleged additional expenses charged against them. With no independent determination
of the actual amount of their indebtedness, the petitioners submit that an order for a proper
accounting is imperative.
We agree with the petitioners. While we find the fact of indebtedness to be undisputed, the
determination of the extent of the adjudged money award is not, because of the lack of any
supporting documentary and testimonial evidence. These evidentiary issues, of course, are
necessarily factual, but as we held in The Insular Life Assurance Company, Ltd. v. Court of
Appeals,8 this Court may take cognizance even of factual issues under exceptional
circumstances. In this cited case, we held:
It is a settled rule that in the exercise of the Supreme Court's power of review, the Court is not
a trier of facts and does not normally undertake the re-examination of the evidence presented
by the contending parties during the trial of the case considering that the findings of facts of
the CA are conclusive and binding on the Court. However, the Court had recognized several
exceptions to this rule, to wit: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its
findings the Court of Appeals went beyond the issues of the case, or its findings are contrary
to the admissions of both the appellant and the appellee; (7) when the findings are contrary to
the trial court; (8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the petitioner's
main and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record;
and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed
by the parties, which, if properly considered, would justify a different conclusion.
We note in this regard that the RTC, in awarding the amount of ₱460,505.86 in favor of the
respondent, principally relied on the Breakdown of Account. Under this document, numerous
entries, including the cash loan, were enumerated and identified with their corresponding
amounts. It included the items of expenses allegedly chargeable to the petitioners, the value
of the machineries, the amount credited as paid, and the interest and penalty allegedly
incurred.
A careful perusal of the records, however, reveals that the entries in the Breakdown of
Account and their corresponding amounts are not supported by the respondent’s presented
evidence. The itemized expenses, as repeatedly pointed out by the petitioners, were not
proven, and the remaining indebtedness, after the partial payment of ₱600,000.00, was
merely derived by the RTC from the Breakdown of Account.
Significantly, the RTC ruling neither showed how the award was computed nor how the
interest and penalty were calculated. In fact, it merely declared the petitioners liable for the
amount claimed by the respondent and adopted the breakdown of liability in the Breakdown of
Account. This irregularity is even aggravated by the RTC’s explicit refusal to explain why the
payment of ₱600,000.00 did not extinguish the debt. While it may be true that the petitioners’
indebtedness, aside from the cash loan of ₱300,000.00, undoubtedly covered the value of the
machineries, the RTC decision was far from clear and instructive on the actual remaining
indebtedness (inclusive of the machineries’ value, penalties and interests) after the partial
payment was made and how these were all computed.
We, thus, find it unacceptable for the RTC to simply come up with a conclusion that the
payment of ₱600,000.00 did not extinguish the debt, or, assuming it really did not, that the
remaining amount of indebtedness amounts exactly to ₱460,505.86, without any showing of
how this balance was arrived at. To our mind, the RTC’s ruling, in so far as the determination
of the actual indebtedness is concerned, is incomplete.
What happened at the RTC likewise transpired at the CA when the latter affirmed the
appealed decision; the CA merely glossed over the contention of the petitioners, and adopted
the RTC’s findings without giving any enlightenment. To reiterate, nowhere in the decisions of
the RTC and the CA did they specify how the award, including the penalty and interest, was
determined. The petitioners were left in the dark as to how their indebtedness of ₱300,000.00,
after making a payment of ₱600,000.00, ballooned to ₱460,505.86. Worse, unsubstantiated
expenses, appearing in the Breakdown of Account, were charged to them.
We, therefore, hold it inescapable that the prayer for proper accounting to determine the
petitioners’ actual remaining indebtedness should be granted. As this requires presentation of
additional evidence, a remand of the case is only proper and in order.
Piercing the veil of corporate fiction is not justified. The petitioners are not one and the same.
At the outset, we note that the question of whether NSI is an alter ego of Nuccio is a factual
one. This is also true with respect to the question of whether the totality of the evidence
adduced by the respondent warrants the application of the piercing the veil of corporate fiction
doctrine. As we did in the issue of accounting, we hold that the Court may properly wade into
the piercing the veil issue although purely factual questions are involved.
After a careful study of the records and the findings of both the RTC and the CA, we hold that
their conclusions, based on the given findings, are not supported by the evidence on record.
The rule is settled that a corporation is vested by law with a personality separate and distinct
from the persons composing it. Following this principle, a stockholder, generally, is not
answerable for the acts or liabilities of the corporation, and vice versa. The obligations
incurred by the corporate officers, or other persons acting as corporate agents, are the direct
accountabilities of the corporation they represent, and not theirs. A director, officer or
employee of a corporation is generally not held personally liable for obligations incurred by the
corporation9 and while there may be instances where solidary liabilities may arise, these
circumstances are exceptional.10
Incidentally, we have ruled that mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stocks of the corporation is not, by itself, a
sufficient ground for disregarding the separate corporate personality. Other than mere
ownership of capital stocks, circumstances showing that the corporation is being used to
commit fraud or proof of existence of absolute control over the corporation have to be proven.
In short, before the corporate fiction can be disregarded, alter-ego elements must first be
sufficiently established.
In Hi-Cement Corporation v. Insular Bank of Asia and America (later PCI-Bank, now Equitable
PCI-Bank),11 we refused to apply the piercing the veil doctrine on the ground that the
corporation was a mere alter ego because mere ownership by a stockholder of all or nearly all
of the capital stocks of a corporation does not, by itself, justify the disregard of the separate
corporate personality. In this cited case, we ruled that in order for the ground of corporate
ownership to stand, the following circumstances should also be established: (1) that the
stockholders had control or complete domination of the corporation’s finances and that the
latter had no separate existence with respect to the act complained of; (2) that they used such
control to commit a wrong or fraud; and (3) the control was the proximate cause of the loss or
injury.
Applying these principles to the present case, we opine and so hold that the attendant
circumstances do not warrant the piercing of the veil of NSI’s corporate fiction.
Aside from the undisputed fact of Nuccio’s 40% shareholdings with NSI, the RTC applied the
piercing the veil doctrine based on the following reasons. First, there was no board resolution
authorizing Nuccio to enter into a contract of loan. Second, the petitioners were represented
by one and the same counsel. Third, NSI did not object to Nuccio’s act of contracting the loan.
Fourth, the control over NSI was used to commit a wrong or fraud. Fifth, Nuccio’s admission
that "NS" in the corporate name "NSI" means "Nuccio Saverio."
We are not convinced of the sufficiency of these cited reasons. In our view, the RTC failed to
provide a clear and convincing explanation why the doctrine was applied. It merely declared
that its application of the doctrine of piercing the veil of corporate fiction has a basis,
specifying for this purpose the act of Nuccio’s entering into a contract of loan with the
respondent and the reasons stated above.
The records of the case, however, do not show that Nuccio had control or domination over
NSI’s finances.1âwphi1 The mere fact that it was Nuccio who, in behalf of the corporation,
signed the MOA is not sufficient to prove that he exercised control over the corporation’s
finances. Neither the absence of a board resolution authorizing him to contract the loan nor
NSI’s failure to object thereto supports this conclusion. These may be indicators that, among
others, may point the proof required to justify the piercing the veil of corporate fiction, but by
themselves, they do not rise to the level of proof required to support the desired conclusion. It
should be noted in this regard that while Nuccio was the signatory of the loan and the money
was delivered to him, the proceeds of the loan were unquestionably intended for NSI’s
proposed business plan. That the business did not materialize is not also sufficient proof to
justify a piercing, in the absence of proof that the business plan was a fraudulent scheme
geared to secure funds from the respondent for the petitioners’ undisclosed goals.
Considering that the basis for holding Nuccio liable for the payment of the loan has been
proven to be insufficient, we find no justification for the RTC to hold him jointly and solidarily
liable for NSI’s unpaid loan. Similarly, we find that the CA ruling is wanting in sufficient
explanation to justify the doctrine’s application and affirmation of the RTC’s ruling. With these
points firmly in mind, we hold that NSI’s liability should not attach to Nuccio.
On the final issue of the award of attorney’s fees, Article 1229 of the New Civil Code provides:
Article 1229. The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no performance,
the penalty may also be reduced by the courts if it is iniquitous or unconscionable.
Under the circumstances of the case, we find the respondent’s entitlement to attorney’s fees
to be justified. There is no doubt that he was forced to litigate to protect his interest, i.e., to
recover his money. We find, however, that in view of the partial payment of ₱600,000.00, the
award of attorney’s fees equivalent to 25% should be reduced to 10% of the total amount due.
The award of appearance fee of ₱3,000.00 and litigation cost of ₱10,000.00 should, however,
stand as these are costs necessarily attendant to litigation.
WHEREFORE, the petition is GRANTED. The October 27, 2008 decision and the February
10, 2009 resolution of the Court of Appeals in CA-G.R. CV. No. 87879 are REVERSED AND
SET ASIDE. The case is REMANDED to the Regional Trial Court of Makati City, Branch 136,
for proper accounting and reception of such evidence as may be needed to determine the
actual amount of petitioner NS International, Inc.’s indebtedness, and to adjudicate
respondent Alfonso G. Puyat’s claims as such evidence may warrant.
SO ORDERED.
G.R. No. 161759 July 2, 2014
COMMISSIONER OF CUSTOMS, Petitioner,
vs.
OILINK INTERNATIONAL CORPORATION, Respondent.
DECISION
BERSAMIN, J.:
This appeal is brought by the Commissioner of Customs to seek the review and reversal of
the decision promulgated on September 29, 2003,1 whereby the Court of Appeals (CA)
affirmed the adverse ruling of the Court of Tax Appeals (CTA) declaring the assessment for
deficiency taxes and duties against Oilink International Corporation (Oilink) null and void.
Antecedents
The antecedents are summarized in the assailed decision.2
On September 15, 1966, Union Refinery Corporation (URC) was established under the
Corporation Code of the Philippines. In the course of its business undertakings, particularly in
the period from 1991 to 1994, URC imported oil products into the country.
On January 11, 1996, Oilink was incorporated for the primary purpose of manufacturing,
importing, exporting, buying, selling or dealing in oil and gas, and their refinements and by-
products at wholesale and retail of petroleum. URC and Oilink had interlocking directors when
Oilink started its business.
In applying for and in expediting the transfer of the operator’s name for the Customs Bonded
Warehouse thenoperated by URC, Esther Magleo, the Vice-President and General Manager
of URC, sent a letter dated January 15, 1996 to manifest that URC and Oilink had the same
Board of Directors and that Oilink was 100% owned by URC.
On March 4, 1998, Oscar Brillo, the District Collector of the Port of Manila, formally demanded
that URC pay the taxes and duties on its oil imports that had arrived between January 6, 1991
and November 7, 1995 at the Port of Lucanin in Mariveles, Bataan.
On April 16, 1998, Brillo made another demand letter to URC for the payment of the reduced
sum of ₱289,287,486.60 for the Value-Added Taxes (VAT), special duties and excisetaxes for
the years 1991-1995.
On April 23, 1998, URC, through its counsel, responded to the demands by seeking the
landed computations of the assessments, and challenged the inconsistencies of the demands.
On November 25, 1998, then Customs Commissioner Pedro C. Mendoza formally directed
that URC pay the amount of ₱119,223,541.71 representing URC’s special duties, VAT,and
Excise Taxes that it had failed to pay at the time of the release of its 17 oil shipments that had
arrived in the Sub-port of Mariveles from January 1, 1991 to September 7, 1995.
On December 21, 1998, Commissioner Mendoza wrote again to require URC to pay
deficiency taxes but in the reduced sum of ₱99,216,580.10.
On December 23, 1998, upon his assumption of office, Customs Commissioner Nelson Tan
transmitted another demand letter to URC affirming the assessment of ₱99,216,580.10 by
Commissioner Mendoza.
On January 18, 1999, Magleo, in behalf of URC, replied by letter to Commissioner Tan’s
affirmance by denying liability, insisting instead that only ₱28,933,079.20 should be paid by
way of compromise.
On March 26, 1999, Commissioner Tan responded by rejecting Magleo’s proposal, and
directed URC to pay ₱99,216,580.10.
On May 24, 1999, Manuel Co, URC’s President, conveyed to Commissioner Tan URC’s
willingness to pay only ₱94,216,580.10, of which the initial amount of ₱28,264,974.00 would
be taken from the collectibles of Oilink from the National Power Corporation, and the balance
to be paid in monthly installments over a period ofthree years to be secured with
corresponding post-dated checks and its future available tax credits.
On July 2, 1999, Commissioner Tan made a final demand for the total liability of
₱138,060,200.49 upon URC and Oilink.
On July 8, 1999, Co requested from Commissioner Tan a complete finding of the facts and
law in support ofthe assessment made in the latter’s July 2, 1999 final demand.
Also on July 8, 1999, Oilink formally protested the assessment on the ground that it was not
the party liable for the assessed deficiency taxes.
On July 12, 1999, after receiving the July 8, 1999 letter from Co, Commissioner Tan
communicated in writing the detailed computation of the tax liability, stressing that the Bureau
of Customs (BoC) would not issue any clearance to Oilink unless the amount of
₱138,060,200.49 demanded as Oilink’s tax liability befirst paid, and a performance bond be
posted by URC/Oilink to secure the payment of any adjustments that would result from the
BIR’s review of the liabilities for VAT, excise tax, special duties, penalties, etc.
Thus, on July 30, 1999, Oilink appealed to the CTA, seeking the nullification of the
assessment for having been issued without authority and with grave abuse of discretion
tantamount to lack of jurisdiction because the Government was thereby shifting the imposition
from URC to Oilink.
Decision of the CTA
On July 9, 2001, the CTA rendered its decision declaring as null and void the assessment of
the Commissioner of Customs, to wit:
IN THE LIGHT OF ALL THE FOREGOING, the petition is hereby GRANTED. The assailed
assessment issued by Respondent against herein Petitioner OILINK INTERNATIONAL
CORPORATION is hereby declared NULL and VOID.
SO ORDERED.3
The Commissioner of Customs seasonably filed a motion for reconsideration,4 but the CTA
denied the motion for lack of merit.5
Judgment of the CA
Aggrieved, the Commissioner of Customs brought a petition for review in the CA upon the
following issues, namely: (a) the CTA gravely erred in holding that it had jurisdiction over the
subject matter; (b) the CTA gravely erred in holding that Oilink had a cause of action; and (c)
the CTA gravely erred in holding that the Commissioner of Customs could not pierce the veil
of corporate fiction.
On the issue of the jurisdiction of the CTA, the CA held:
x x x the case at bar is very much within the purview of the jurisdiction of the Court ofTax
Appeals since it is undisputed that what is involved herein is the respondent’s liability for
payment of money to the Government as evidenced by the demand letters sent by the
petitioner. Hence, the Court of Tax Appeals did noterr in taking cognizance of the petition for
review filed by the respondent.
xxxx
We find the petitioner’s submission untenable. The principle of non-exhaustion of
administrative remedy is not an iron-clad rule for there are instances that immediate resort to
judicial action may be proper. Verily, a cursory examination of the factual milieu of the instant
case indeed reveals that exhaustion ofadministrative remedy would be unavailing because it
was the Commissioner of Customs himself who was demanding from the respondent payment
of tax liability. In addition, it may be recalled that a crucial issue inthe petition for review filed
by the respondent before the CTA is whether or not the doctrine of piercing the veil of
corporate fiction validly applies. Indubitably, this is purely a question of law where judicial
recourse may certainly be resorted to.6
As to whether or not the Commissioner of Customs could lawfully pierce the veil of corporate
fiction in order to treat Oilink as the mere alter ego of URC, the CA concurred with the CTA,
quoting the latter’s following findings:
In the case at bar, the said wrongdoing was not clearly and convincingly established by
Respondent. He did not submit any evidence to support his allegations but merely submitted
the case for decision based on the pleadings and evidence presented by petitioner. Stated
otherwise, should the Respondent sufficiently provethat OILINK was merely set up in order to
avoid the payment of taxes or for some other purpose which will defeat public convenience,
justify wrong, protect fraud or defend crime, this Court will not hesitate to pierce the veil of
corporate fiction by URC and OILINK.7
Issues
Hence, this appeal, whereby the Commissioner of Customs reiterates the issues raised in the
CA.
Ruling of the Court
We affirm the judgment of the CA.
1.
The CTA had jurisdiction over the controversy
There is no question that the CTA had the jurisdiction over the case. Republic Act No. 1125,
the law creating the CTA, defined the appellate jurisdiction of the CTA as follows:
Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided:
xxxx
2. Decisions of the Commissioner ofCustoms in cases involving liability for Customs duties,
fees or other money charges; seizure, detention or release of property affected; fines,
forfeitures or other penalties imposed in relation thereto;or other matters arising under the
Customs Law or other law or part of law administered by the Bureau of Customs;
xxxx
Nonetheless, the Commissioner of Customs contends that the CTA should not take
cognizance of the casebecause of the lapse of the 30-day period within which to appeal,
arguing that on November 25, 1998 URC had already received the BoC’s final assessment
demanding payment of the amount due within 10 days, but filed the petition only on July 30,
1999.8
We rule against the Commissioner of Customs. The CTA correctly ruled that the reckoning
date for Oilink’s appeal was July 12, 1999, not July 2, 1999, because it was on the former date
that the Commissioner of Customs denied the protest of Oilink.Clearly, the filing of the petition
on July 30, 1999 by Oilink was well within its reglementary period to appeal. The insistence by
the Commissioner of Customs on reckoning the reglementary period to appeal from
November 25, 1998, the date when URC received the final demand letter, is unwarranted. We
note that the November 25, 1998 final demand letter of the BoC was addressed to URC, not
to Oilink. As such, the final demand sentto URC did not bind Oilink unless the separate
identities of the corporations were disregarded in order to consider them as one.
2.
Oilink had a valid cause of action
The Commissioner of Customs positsthat the final demand letter dated July 2, 1999 from
which Oilink appealed was not the final "action" or "ruling" from which an appeal could be
taken as contemplated by Section 2402 of the Tariff and Customs Code; that what Section 7
of RA No. 1125 referred to as a decision that was appealable to the CTA was a judgment or
order of the Commissioner of Customs that was final in nature, not merely an interlocutory
one; that Oilink did notexhaust its administrative remedies under Section 2308 of the Tariff
and Customs Code by paying the assessment under protest; that only when the ensuing
decision of the Collector and then the adverse decision of the Commissioner of Customs
would it be proper for Oilink to seek judicial relief from the CTA; and that, accordingly, the CTA
should have dismissed the petition for lack of cause of action.
The position of the Commissioner of Customs lacks merit.
The CA correctly held that the principle of non-exhaustion of administrative remedies was not
an iron-clad rule because there were instances in which the immediate resort to judicial action
was proper. This was one such exceptional instance when the principle did not apply. As the
records indicate, the Commissioner of Customs already decided to deny the protest by Oilink
on July 12, 1999, and stressed then that the demand to pay was final. In that instance, the
exhaustion of administrative remedies would have been an exercise in futility because it was
already the Commissioner of Customs demanding the payment of the deficiency taxes and
duties.
3.
There was no ground to pierce
the veil of corporate existence
A corporation, upon coming into existence, is invested by law with a personality separate and
distinct from those of the persons composing it as well as from any other legal entity to which
it may be related. For this reason, a stockholder is generally not made to answer for the acts
or liabilities of the corporation, and viceversa. The separate and distinct personality of the
corporation is, however, a mere fiction established by law for convenience and to promote the
ends of justice. It may not be used or invoked for ends that subvert the policy and purpose
behind its establishment, or intended by law to which the corporation owes its being. This is
true particularly when the fiction is used to defeat public convenience, to justify wrong, to
protectfraud, to defend crime, to confuse legitimate legal or judicial issues, to perpetrate
deception or otherwise to circumvent the law. This is likewise true where the corporate entity
is being used as an alter ego, adjunct, or business conduit for the sole benefit of the
stockholders or of another corporate entity. In such instances, the veil of corporate entity will
be pierced or disregarded with reference to the particular transaction involved. 9
In Philippine National Bank v. Ritratto Group, Inc.,10 the Court has outlined the following
circumstances thatare useful in the determination of whether a subsidiary is a mere
instrumentality of the parent-corporation, viz:
1. Control, not mere majority or complete control, but complete domination, not only of
finances butof policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separatemind, will or existence of its
own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetrate the violation of a statutory or other positive legal duty, or dishonest and, unjust act
incontravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
In applying the "instrumentality" or"alter ego" doctrine, the courts are concerned with reality,
not form, and with how the corporation operated and the individual defendant's relationship to
the operation.11 Consequently, the absence of any one of the foregoing elements
disauthorizes the piercing of the corporate veil.
Indeed, the doctrine of piercing the corporate veil has no application here because the
Commissioner of Customs did not establish that Oilink had been set up to avoid the payment
of taxes or duties, or for purposes that would defeat public convenience, justify wrong, protect
fraud, defend crime, confuse legitimate legal or judicial issues, perpetrate deception or
otherwise circumvent the law. It is also noteworthy that from the outset the Commissioner of
Customs sought to collect the deficiency taxes and duties from URC, and that it was only on
July 2, 1999 when the Commissioner of Customs sent the demand letter to both URC and
Oilink. That was revealing, because the failure of the Commissioner of Customs to pursue the
remedies against Oilink from the outset manifested that its belated pursuit of Oilink was only
an afterthought. WHEREFORE, the Court AFFIRMS the decision promulgated by the Court of
Appeals on September 29, 2003.
No pronouncement on costs of suit.
SO ORDERED.
G.R. No. 182770 September 17, 2014
WPM INTERNATIONAL TRADING, INC. and WARLITO P. MANLAPAZ, Petitioners,
vs.
FE CORAZON LABAYEN, Respondent.
DECISION
BRION, J.:
We review in this petition for review on certiorari1 the decision2 dated September 28, 2007 and
the resolution3 dated April 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 68289
that affirmed with modification the decision4 of the Regional Trial Court (RTC), Branch 77,
Quezon City.
The Factual Background
The respondent, Fe Corazon Labayen, is the owner of H.B.O. Systems Consultants, a
management and consultant firm. The petitioner, WPM International Trading, Inc. (WPM), is a
domestic corporation engaged in the restaurant business, while Warlito P. Manlapaz
(Manlapaz) is its president.
Sometime in 1990, WPM entered into a management agreement with the respondent, by
virtue of which the respondent was authorized to operate, manage and rehabilitate Quickbite,
a restaurant owned and operated by WPM. As part of her tasks, the respondent looked for a
contractor who would renovate the two existing Quickbite outlets in Divisoria, Manila and
Lepanto St., University Belt, Manila. Pursuant to the agreement, the respondent engaged the
services of CLN Engineering Services (CLN) to renovate Quickbite-Divisoria at the cost of
₱432,876.02.
On June 13, 1990, Quickbite-Divisoria’s renovation was finally completed, and its possession
was delivered to the respondent. However, out of the ₱432,876.02 renovation cost, only the
amount of ₱320,000.00 was paid to CLN, leaving a balance of ₱112,876.02.
Complaint for Sum of Money (Civil Case No. Q-90-7013)
On October 19, 1990, CLN filed a complaint for sum of money and damages before the RTC
against the respondent and Manlapaz, which was docketed as Civil Case No. Q-90-7013.
CLN later amended the complaint to exclude Manlapaz as defendant. The respondent was
declared in default for her failure to file a responsive pleading.
The RTC, in its January 28, 1991 decision, found the respondent liable to pay CLN actual
damages inthe amount of ₱112,876.02 with 12% interest per annum from June 18,1990 (the
date of first demand) and 20% of the amount recoverable as attorney’s fees.
Complaint for Damages (Civil Case No. Q-92-13446)
Thereafter, the respondent instituted a complaint for damages against the petitioners, WPM
and Manlapaz. The respondent alleged that in Civil Case No. Q-90-7013, she was adjudged
liable for a contract that she entered into for and in behalf of the petitioners, to which she
should be entitled to reimbursement; that her participation in the management agreement was
limited only to introducing Manlapaz to Engineer Carmelo Neri (Neri), CLN’s general manager;
that it was actually Manlapaz and Neri who agreed on the terms and conditions of the
agreement; that when the complaint for damages was filed against her, she was abroad; and
that she did not know of the case until she returned to the Philippines and received a copy of
the decision of the RTC.
In her prayer, the respondent sought indemnification in the amount of ₱112,876.60 plus
interest at 12%per annum from June 18, 1990 until fully paid; and 20% of the award as
attorney’s fees. She likewise prayed that an award of ₱100,000.00 as moral damages and
₱20,000.00 as attorney’s fees be paid to her.
In his defense, Manlapaz claims that it was his fellow incorporator/director Edgar
Alcansajewho was in-charge with the daily operations of the Quickbite outlets; that when
Alcansaje left WPM, the remaining directors were compelled to hire the respondent as
manager; that the respondent had entered intothe renovation agreement with CLN in her own
personal capacity; that when he found the amount quoted by CLN too high, he instructed the
respondent to either renegotiate for a lower price or to look for another contractor; that since
the respondent had exceeded her authority as agent of WPM, the renovation agreement
should only bind her; and that since WPM has a separate and distinct personality, Manlapaz
cannot be made liable for the respondent’s claim.
Manlapaz prayed for the dismissal of the complaint for lack of cause of action, and by way of
counterclaim, for the award of ₱350,000.00 as moral and exemplary damages and
₱50,000.00 attorney’s fees.
The RTC, through an order dated March 2, 1993 declared WPM in default for its failure to file
a responsive pleading.
The Decision of the RTC
In its decision, the RTC held that the respondent is entitled to indemnity from Manlapaz. The
RTC found that based on the records, there is a clear indication that WPM is a mere
instrumentality or business conduit of Manlapaz and as such, WPM and Manlapaz are
considered one and the same. The RTC also found that Manlapaz had complete control over
WPM considering that he is its chairman, president and treasurer at the same time. The RTC
thus concluded that Manlapaz is liable in his personal capacity to reimburse the respondent
the amount she paid to CLN inconnection with the renovation agreement.
The petitioners appealed the RTC decision with the CA. There, they argued that in view of the
respondent’s act of entering into a renovation agreement with CLN in excess of her authority
as WPM’s agent, she is not entitled to indemnity for the amount she paid. Manlapaz also
contended that by virtue ofWPM’s separate and distinct personality, he cannot be
madesolidarily liable with WPM.
The Ruling of the Court of Appeals
On September 28, 2007, the CA affirmed, with modification on the award of attorney’s fees,
the decision of the RTC.The CA held that the petitioners are barred from raising as a defense
the respondent’s alleged lack of authority to enter into the renovation agreement in view of
their tacit ratification of the contract.
The CA likewise affirmed the RTC ruling that WPM and Manlapaz are one and the same
based on the following: (1) Manlapaz is the principal stockholder of WPM; (2) Manlapaz had
complete control over WPM because he concurrently held the positions of president, chairman
of the board and treasurer, in violation of the Corporation Code; (3) two of the four other
stockholders of WPM are employed by Manlapaz either directly or indirectly; (4) Manlapaz’s
residence is the registered principal office of WPM; and (5) the acronym "WPM" was derived
from Manlapaz’s initials. The CA applied the principle of piercing the veil of corporate fiction
and agreed with the RTC that Manlapaz cannot evade his liability by simply invoking WPM’s
separate and distinct personality.
After the CA's denial of their motion for reconsideration, the petitioners filed the present
petition for review on certiorari under Rule 45 of the Rules of Court.
The Petition
The petitioners submit that the CA gravely erred in sustaining the RTC’s application of the
principle of piercing the veil of corporate fiction. They argue that the legal fiction of corporate
personality could only be discarded upon clear and convincing proof that the corporation is
being used as a shield to avoid liability or to commit a fraud. Since the respondent failed to
establish that any of the circumstances that would warrant the piercing is present, Manlapaz
claims that he cannot be made solidarily liable with WPM to answerfor damages allegedly
incurred by the respondent.
The petitioners further argue that, assuming they may be held liable to reimburse to the
respondentthe amount she paid in Civil Case No. Q-90-7013, such liability is only limited to
the amount of ₱112,876.02, representing the balance of the obligation to CLN, and should not
include the twelve 12% percent interest, damages and attorney’s fees.
The Issues
The core issues are: (1) whether WPM is a mere instrumentality, alter-ego, and business
conduit of Manlapaz; and (2) whether Manlapaz is jointly and severally liable with WPM to the
respondent for reimbursement, damages and interest.
Our Ruling
We find merit in the petition.
We note, at the outset, that the question of whether a corporation is a mere instrumentality or
alter-ego of another is purely one of fact.5 This is also true with respect to the question of
whether the totality of the evidence adduced by the respondentwarrants the application of the
piercing the veil of corporate fiction doctrine.6
Generally, factual findings of the lower courts are accorded the highest degree of respect, if
not finality. When adopted and confirmed by the CA, these findings are final and conclusive
and may not be reviewed on appeal,7save in some recognized exceptions8 among others,
when the judgment is based on misapprehension of facts.
We have reviewed the records and found that the application of the principle of piercing the
veil of corporate fiction is unwarranted in the present case.
On the Application ofthe Principle of Piercing the Veil of Corporate Fiction
The rule is settled that a corporation has a personality separate and distinct from the persons
acting for and in its behalf and, in general, from the people comprising it.9 Following this
principle, the obligations incurred by the corporate officers, orother persons acting as
corporate agents, are the direct accountabilities ofthe corporation they represent, and not
theirs. Thus, a director, officer or employee of a corporation is generally not held personally
liable for obligations incurred by the corporation;10 it is only in exceptional circumstances that
solidary liability will attach to them.
Incidentally, the doctrine of piercing the corporate veil applies only in three (3) basic instances,
namely: a) when the separate and distinct corporate personality defeats public convenience,
as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b)
in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or
defend a crime; or c) is used in alter ego cases, i.e., where a corporation is essentially a farce,
since it is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs so conducted as to make it merely aninstrumentality,
agency, conduit or adjunct of another corporation.11
Piercing the corporate veil based on the alter ego theory requires the concurrence of three
elements, namely:
(1) Control, not mere majority or complete stock control, but complete domination,
not only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;
(2) Such control must have beenused by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the
injury or unjust loss complained of.
The absence of any ofthese elements prevents piercing the corporate veil.12
In the present case, the attendantcircumstances do not establish that WPM is a mere alter
ego of Manlapaz.
Aside from the fact that Manlapaz was the principal stockholder of WPM, records do not show
that WPM was organized and controlled, and its affairs conducted in a manner that made it
merely an instrumentality, agency, conduit or adjunct ofManlapaz. As held in Martinez v. Court
of Appeals,13 the mere ownership by a singlestockholder of even all or nearly all of the capital
stocks ofa corporation is not by itself a sufficient ground to disregard the separate corporate
personality. To disregard the separate juridical personality of a corporation, the wrongdoing
must be clearly and convincingly established.14
Likewise, the records of the case do not support the lower courts’ finding that Manlapaz had
control or domination over WPM or its finances. That Manlapaz concurrentlyheld the positions
of president, chairman and treasurer, or that the Manlapaz’s residence is the registered
principal office of WPM, are insufficient considerations to prove that he had exercised
absolutecontrol over WPM.
In this connection, we stress thatthe control necessary to invoke the instrumentality or alter
ego rule is not majority or even complete stock control but such domination of finances,
policies and practices that the controlled corporation has, so tospeak, no separate mind, will
or existence of its own, and is but a conduit for its principal. The control must be shown to
have been exercised at the time the acts complained of took place. Moreover, the control and
breach of duty must proximately cause the injury or unjust loss for which the complaint is
made.
Here, the respondent failed to prove that Manlapaz, acting as president, had absolute control
over WPM.1âwphi1 Even granting that he exercised a certain degree of control over the
finances, policies and practices of WPM, in view of his position as president, chairman and
treasurer of the corporation, such control does not necessarily warrant piercing the veil of
corporate fiction since there was not a single proof that WPM was formed to defraud CLN or
the respondent, or that Manlapaz was guilty of bad faith or fraud.
On the contrary, the evidence establishes that CLN and the respondent knew and acted on
the knowledgethat they were dealing with WPM for the renovation of the latter’s restaurant,
and not with Manlapaz. That WPM later reneged on its monetary obligation to CLN, resulting
to the filing of a civil case for sum of money against the respondent, does not automatically
indicate fraud, in the absence of any proof to support it.
This Court also observed that the CA failed to demonstrate how the separate and distinct
personalityof WPM was used by Manlapaz to defeat the respondent’s right for reimbursement.
Neither was there any showing that WPM attempted to avoid liability or had no property
against which to proceed.
Since no harm could be said to have been proximately caused by Manlapaz for which the
latter could be held solidarily liable with WPM, and considering that there was no proof that
WPM had insufficient funds, there was no sufficient justification for the RTC and the CA to
have ruled that Manlapaz should be held jointly and severally liable to the respondent for the
amount she paid to CLN. Hence, only WPM is liable to indemnify the respondent.
Finally, we emphasize that the piercing of the veil of corporate fiction is frowned upon and
thus, must be done with caution.15 It can only be done if it has been clearly established that
the separate and distinct personality of the corporation is used to justify a wrong, protect
fraud, or perpetrate a deception. The court must be certain that the corporate fiction was
misused to such an extent that injustice, fraud, or crime was committed against another, in
disregard of its rights; it cannot be presumed.
On the Award of Moral Damages
On the award of moral damages, we find the same in order in view of WPM's unjustified
refusal to pay a just debt. Under Article 2220 of the New Civil Code,16 moral damages may be
awarded in cases of a breach of contract where the defendant acted fraudulently or in bad
faith or was guilty of gross negligence amounting to bad faith.
In the present case, when payment for the balance of the renovation cost was demanded,
WPM, instead of complying with its obligation, denied having authorized the respondent to
contract in its behalf and accordingly refused to pay. Such cold refusal to pay a just debt
amounts to a breach of contract in bad faith, as contemplated by Article 2220. Hence, the
CA's order to pay moral damages was in order.
WHEREFORE, in light of the foregoing, the decision dated September 28, 2007 of the Court
of Appeals in CA-G.R. CV No. 68289 is MODIFIED and.that petitioner Warlito P. Manlapaz is
ABSOLVED from any liability under the renovation agreement.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 174938 October 1, 2014
GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,
vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B.
COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, Respondents.
DECISION
LEONEN, J.:
Corporate representatives may be compelled to submit to arbitration proceedings pursuant to
a contract entered into by the corporation they represent if there are allegations of bad faith or
malice in their acts representing the corporation.
This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and October
5, 2006 resolution. The Court of Appeals affirmed the trial court's decision holding that
petitioners, as director, should submit themselves as parties tothe arbitration proceedings
between BF Corporation and Shangri-La Properties, Inc. (Shangri-La).
In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against
Shangri-Laand the members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco,
Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos.1
BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it
entered into agreements with Shangri-La wherein it undertook to construct for Shangri-La a
mall and a multilevel parking structure along EDSA.2
Shangri-La had been consistent in paying BF Corporation in accordance with its progress
billing statements.3However, by October 1991, Shangri-La started defaulting in payment.4
BF Corporation alleged that Shangri-La induced BF Corporation to continue with the
construction of the buildings using its own funds and credit despite Shangri-La’s
default.5 According to BF Corporation, ShangriLa misrepresented that it had funds to pay for
its obligations with BF Corporation, and the delay in payment was simply a matter of delayed
processing of BF Corporation’s progress billing statements.6
BF Corporation eventually completed the construction of the buildings.7 Shangri-La allegedly
took possession of the buildings while still owing BF Corporation an outstanding balance.8
BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the
balance owed to it.9 It also alleged that the Shangri-La’s directors were in bad faith in directing
Shangri-La’s affairs. Therefore, they should be held jointly and severally liable with Shangri-La
for its obligations as well as for the damages that BF Corporation incurred as a result of
Shangri-La’s default.10
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III,
and Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF
Corporation’s failure to submit its dispute to arbitration, in accordance with the arbitration
clauseprovided in its contract, quoted in the motion as follows:11
35. Arbitration
(1) Provided always that in case any dispute or difference shall arise between the Owner or
the Project Manager on his behalf and the Contractor, either during the progress or after the
completion or abandonment of the Works as to the construction of this Contract or as to any
matter or thing of whatsoever nature arising there under or inconnection therewith (including
any matter or thing left by this Contract to the discretion of the Project Manager or the
withholding by the Project Manager of any certificate to which the Contractor may claim to be
entitled or the measurement and valuation mentioned in clause 30(5)(a) of these Conditions or
the rights and liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions), the
owner and the Contractor hereby agree to exert all efforts to settle their differences or dispute
amicably. Failing these efforts then such dispute or difference shall be referred to arbitration in
accordance with the rules and procedures of the Philippine Arbitration Law.
xxx xxx xxx
(6) The award of such Arbitrators shall be final and binding on the parties. The decision of the
Arbitrators shall be a condition precedent to any right of legal action that either party may have
against the other. . . .12 (Underscoring in the original)
On August 19, 1993, BF Corporation opposed the motion to suspend proceedings.13
In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend
proceedings.14
On December 8, 1993, petitioners filed an answer to BF Corporation’s complaint, with
compulsory counter claim against BF Corporation and crossclaim against Shangri-La.15 They
alleged that they had resigned as members of Shangri-La’s board of directors as of July 15,
1991.16
After the Regional Trial Court denied on February 11, 1994 the motion for reconsideration of
its November 18, 1993 order, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,Maximo G.
Licauco III, and Benjamin Ramos filed a petition for certiorari with the Court of Appeals.17
On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the
submission of the dispute to arbitration.18
Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition for review on
certiorari with this court.19On March 27, 1998, this court affirmed the Court of Appeals’
decision, directing that the dispute be submitted for arbitration.20
Another issue arose after BF Corporation had initiated arbitration proceedings. BF Corporation
and Shangri-La failed to agree as to the law that should govern the arbitration
proceedings.21 On October 27, 1998, the trial court issued the order directing the parties to
conduct the proceedings in accordance with Republic Act No. 876. 22
Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification,
both seeking to clarify the term, "parties," and whether Shangri-La’s directors should be
included in the arbitration proceedings and served with separate demands for arbitration. 23
Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying that
they be excluded from the arbitration proceedings for being non-parties to Shangri-La’s and
BF Corporation’s agreement.24
On July 28, 2003, the trial court issued the order directing service of demands for arbitration
upon all defendants in BF Corporation’s complaint.25 According to the trial court, Shangri-La’s
directors were interested parties who "must also be served with a demand for arbitration to
give them the opportunity to ventilate their side of the controversy, safeguard their interest and
fend off their respective positions."26 Petitioners’ motion for reconsideration ofthis order was
denied by the trial court on January 19, 2005.27
Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse of
discretion in the issuance of orders compelling them to submit to arbitration proceedings
despite being third parties to the contract between Shangri-La and BF Corporation.28
In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’ petition for
certiorari. The Court of Appeals ruled that ShangriLa’s directors were necessary parties in the
arbitration proceedings.30 According to the Court of Appeals:
[They were] deemed not third-parties tothe contract as they [were] sued for their acts in
representation of the party to the contract pursuant to Art. 31 of the Corporation Code, and
that as directors of the defendant corporation, [they], in accordance with Art. 1217 of the Civil
Code, stand to be benefited or injured by the result of the arbitration proceedings, hence,
being necessary parties, they must be joined in order to have complete adjudication of the
controversy. Consequently, if [they were] excluded as parties in the arbitration proceedings
and an arbitral award is rendered, holding [Shangri-La] and its board of directors jointly and
solidarily liable to private respondent BF Corporation, a problem will arise, i.e., whether
petitioners will be bound bysuch arbitral award, and this will prevent complete determination of
the issues and resolution of the controversy.31
The Court of Appeals further ruled that "excluding petitioners in the arbitration proceedings . . .
would be contrary to the policy against multiplicity of suits."32
The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003 and
January 19, 2005 of public respondent RTC, Branch 157, Pasig City, in Civil Case No. 63400,
are AFFIRMED.33
The Court of Appeals denied petitioners’ motion for reconsideration in the October 5, 2006
resolution.34
On November 24, 2006, petitioners filed a petition for review of the May 11, 2006 Court of
Appeals decision and the October 5, 2006 Court of Appeals resolution.35
The issue in this case is whether petitioners should be made parties to the arbitration
proceedings, pursuant to the arbitration clause provided in the contract between BF
Corporation and Shangri-La.
Petitioners argue that they cannot be held personally liable for corporate acts or
obligations.36 The corporation is a separate being, and nothing justifies BF Corporation’s
allegation that they are solidarily liable with Shangri-La.37Neither did they bind themselves
personally nor did they undertake to shoulder Shangri-La’s obligations should it fail in its
obligations.38 BF Corporation also failed to establish fraud or bad faith on their part.39
Petitioners also argue that they are third parties to the contract between BF Corporation and
Shangri-La.40Provisions including arbitration stipulations should bind only the parties.41 Based
on our arbitration laws, parties who are strangers to an agreement cannot be compelled to
arbitrate.42
Petitioners point out thatour arbitration laws were enacted to promote the autonomy of parties
in resolving their disputes.43 Compelling them to submit to arbitration is against this purpose
and may be tantamount to stipulating for the parties.44
Separate comments on the petition werefiled by BF Corporation, and Maximo G. Licauco III,
Alfredo C.Ramos and Benjamin C. Ramos.45
Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners that
Shangri-La’sdirectors, being non-parties to the contract, should not be made personally liable
for Shangri-La’s acts.46 Since the contract was executed only by BF Corporation and Shangri-
La, only they should be affected by the contract’s stipulation.47 BF Corporation also failed to
specifically allege the unlawful acts of the directors that should make them solidarily liable with
Shangri-La for its obligations.48
Meanwhile, in its comment, BF Corporation argued that the courts’ ruling that the parties
should undergo arbitration "clearly contemplated the inclusion of the directors of the
corporation[.]"49 BF Corporation also argued that while petitioners were not parties to the
agreement, they were still impleaded under Section 31 of the Corporation Code.50Section 31
makes directors solidarily liable for fraud, gross negligence, and bad faith.51 Petitioners are not
really third parties to the agreement because they are being sued as Shangri-La’s
representatives, under Section 31 of the Corporation Code.52
BF Corporation further argued that because petitioners were impleaded for their solidary
liability, they are necessary parties to the arbitration proceedings.53 The full resolution of all
disputes in the arbitration proceedings should also be done in the interest of justice.54
In the manifestation dated September 6, 2007, petitioners informed the court that the Arbitral
Tribunal had already promulgated its decision on July 31, 2007.55 The Arbitral Tribunal denied
BF Corporation’s claims against them.56Petitioners stated that "[they] were included by the
Arbitral Tribunal in the proceedings conducted . . . notwithstanding [their] continuing objection
thereto. . . ."57 They also stated that "[their] unwilling participation in the arbitration case was
done ex abundante ad cautela, as manifested therein on several occasions."58 Petitioners
informed the court that they already manifested with the trial court that "any action taken on
[the Arbitral Tribunal’s decision] should be without prejudice to the resolution of [this] case."59
Upon the court’s order, petitioners and Shangri-La filed their respective memoranda.
Petitioners and Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos reiterated
their arguments that they should not be held liable for Shangri-La’s default and made parties
to the arbitration proceedings because only BF Corporation and Shangri-La were parties to
the contract.
In its memorandum, Shangri-La argued that petitioners were impleaded for their solidary
liability under Section 31 of the Corporation Code. Shangri-La added that their exclusion from
the arbitration proceedings will result in multiplicity of suits, which "is not favored in this
jurisdiction."60 It pointed out that the case had already been mooted by the termination of the
arbitration proceedings, which petitioners actively participated in.61 Moreover, BF Corporation
assailed only the correctness of the Arbitral Tribunal’s award and not the part absolving
Shangri-La’s directors from liability.62
BF Corporation filed a counter-manifestation with motion to dismiss63 in lieu of the required
memorandum.
In its counter-manifestation, BF Corporation pointed out that since "petitioners’ counterclaims
were already dismissed with finality, and the claims against them were likewise dismissed with
finality, they no longer have any interest orpersonality in the arbitration case. Thus, there is no
longer any need to resolve the present Petition, which mainly questions the inclusion of
petitioners in the arbitration proceedings."64 The court’s decision in this case will no longer
have any effect on the issue of petitioners’ inclusion in the arbitration proceedings.65
The petition must fail.
The Arbitral Tribunal’s decision, absolving petitioners from liability, and its binding effect on BF
Corporation, have rendered this case moot and academic.
The mootness of the case, however, had not precluded us from resolving issues so that
principles may be established for the guidance of the bench, bar, and the public. In De la
Camara v. Hon. Enage,66 this court disregarded the fact that petitioner in that case already
escaped from prison and ruled on the issue of excessive bails:
While under the circumstances a ruling on the merits of the petition for certiorari is
notwarranted, still, as set forth at the opening of this opinion, the fact that this case is moot
and academic should not preclude this Tribunal from setting forth in language clear and
unmistakable, the obligation of fidelity on the part of lower court judges to the unequivocal
command of the Constitution that excessive bail shall not be required.67
This principle was repeated in subsequent cases when this court deemed it proper to clarify
important matters for guidance.68
Thus, we rule that petitioners may be compelled to submit to the arbitration proceedings in
accordance with Shangri-Laand BF Corporation’s agreement, in order to determine if the
distinction between Shangri-La’s personality and their personalities should be disregarded.
This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to avoid
litigation and settle disputes amicably and more expeditiously by themselves and through their
choice of arbitrators.
The policy in favor of arbitration has been affirmed in our Civil Code,69 which was approved as
early as 1949. It was later institutionalized by the approval of Republic Act No. 876,70 which
expressly authorized, made valid, enforceable, and irrevocable parties’ decision to submit
their controversies, including incidental issues, to arbitration. This court recognized this policy
in Eastboard Navigation, Ltd. v. Ysmael and Company, Inc.:71
As a corollary to the question regarding the existence of an arbitration agreement, defendant
raises the issue that, even if it be granted that it agreed to submit its dispute with plaintiff to
arbitration, said agreement is void and without effect for it amounts to removing said dispute
from the jurisdiction of the courts in which the parties are domiciled or where the dispute
occurred. It is true that there are authorities which hold that "a clause in a contract providing
that all matters in dispute between the parties shall be referred to arbitrators and to them
alone, is contrary to public policy and cannot oust the courts of jurisdiction" (Manila Electric
Co. vs. Pasay Transportation Co., 57 Phil., 600, 603), however, there are authorities which
favor "the more intelligent view that arbitration, as an inexpensive, speedy and amicable
method of settling disputes, and as a means of avoiding litigation, should receive every
encouragement from the courts which may be extended without contravening sound public
policy or settled law" (3 Am. Jur., p. 835). Congress has officially adopted the modern view
when it reproduced in the new Civil Code the provisions of the old Code on Arbitration. And
only recently it approved Republic Act No. 876 expressly authorizing arbitration of future
disputes.72 (Emphasis supplied)
In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses
are liberally construed to favor arbitration. Thus, in LM Power Engineering Corporation v.
Capitol Industrial Construction Groups, Inc.,73 this court said:
Being an inexpensive, speedy and amicable method of settling disputes, arbitration — along
with mediation, conciliation and negotiation — is encouraged by the Supreme Court. Aside
from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially
of the commercial kind. It is thus regarded as the "wave of the future" in international civil and
commercial disputes. Brushing aside a contractual agreement calling for arbitration between
the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution
methods, courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should
be granted. Any doubt should be resolved in favor of arbitration.74(Emphasis supplied)
A more clear-cut statement of the state policy to encourage arbitration and to favor
interpretations that would render effective an arbitration clause was later expressed in
Republic Act No. 9285:75
SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to actively promote
party autonomy in the resolution of disputes or the freedom of the party to make their own
arrangements to resolve their disputes. Towards this end, the State shall encourage and
actively promote the use of Alternative Dispute Resolution (ADR) as an important means to
achieve speedy and impartial justice and declog court dockets. As such, the State shall
provide means for the use of ADR as an efficient tool and an alternative procedure for the
resolution of appropriate cases. Likewise, the State shall enlist active private sector
participation in the settlement of disputes through ADR. This Act shall be without prejudice to
the adoption by the Supreme Court of any ADR system, such as mediation, conciliation,
arbitration, or any combination thereof as a means of achieving speedy and efficient means of
resolving cases pending before all courts in the Philippines which shall be governed by such
rules as the Supreme Court may approve from time to time.
....
SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have due regard to
the policy of the law in favor of arbitration.Where action is commenced by or against multiple
parties, one or more of whomare parties who are bound by the arbitration agreement although
the civil action may continue as to those who are not bound by such arbitration agreement.
(Emphasis supplied)
Thus, if there is an interpretation that would render effective an arbitration clause for purposes
ofavoiding litigation and expediting resolution of the dispute, that interpretation shall be
adopted. Petitioners’ main argument arises from the separate personality given to juridical
persons vis-à-vis their directors, officers, stockholders, and agents. Since they did not sign the
arbitration agreement in any capacity, they cannot be forced to submit to the jurisdiction of the
Arbitration Tribunal in accordance with the arbitration agreement. Moreover, they had already
resigned as directors of Shangri-Laat the time of the alleged default.
Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and
distinct from Shangri-La.
A corporation is an artificial entity created by fiction of law.76 This means that while it is not a
person, naturally, the law gives it a distinct personality and treats it as such. A corporation, in
the legal sense, is an individual with a personality that is distinct and separate from other
persons including its stockholders, officers, directors, representatives,77 and other juridical
entities. The law vests in corporations rights,powers, and attributes as if they were natural
persons with physical existence and capabilities to act on their own.78 For instance, they have
the power to sue and enter into transactions or contracts. Section 36 of the Corporation Code
enumerates some of a corporation’s powers, thus:
Section 36. Corporate powers and capacity.– Every corporation incorporated under this Code
has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate ofincorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this
Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or
repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell
treasury stocks in accordance with the provisions of this Code; and to admit
members to the corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage
and otherwise deal with such real and personal property, including securities and
bonds of other corporations, as the transaction of the lawful business of the
corporation may reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as provided in this
Code;
9. To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no
corporation, domestic or foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers and employees; and
11. To exercise such other powers asmay be essential or necessary to carry out its
purpose or purposes as stated in its articles of incorporation. (13a)
Because a corporation’s existence is only by fiction of law, it can only exercise its rights and
powers through itsdirectors, officers, or agents, who are all natural persons. A corporation
cannot sue or enter into contracts without them.
A consequence of a corporation’s separate personality is that consent by a corporation
through its representatives is not consent of the representative, personally. Its obligations,
incurred through official acts of its representatives, are its own. A stockholder, director, or
representative does not become a party to a contract just because a corporation executed a
contract through that stockholder, director or representative.
Hence, a corporation’s representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations and liabilities
incurred on or in behalf of the corporation.
Petitioners are also correct that arbitration promotes the parties’ autonomy in resolving their
disputes. This court recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty
Corporation79 that an arbitration clause shall not apply to persons who were neither parties to
the contract nor assignees of previous parties, thus:
A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on
arbitration, binds the parties thereto, as well as their assigns and heirs. But only
they.80 (Citations omitted)
Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court ruled:
The provision to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract. As a rule, contracts are respected as the
law between the contracting parties and produce effect as between them, their assigns and
heirs. Clearly, only parties to the Agreement . . . are bound by the Agreement and its
arbitration clause as they are the only signatories thereto.82 (Citation omitted)
This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals Co.,
Inc.83 and Stanfilco Employees v. DOLE Philippines, Inc., et al.84
As a general rule, therefore, a corporation’s representative who did not personally bind himself
or herself to an arbitration agreement cannot be forced to participate in arbitration proceedings
made pursuant to an agreement entered into by the corporation. He or she is generally not
considered a party to that agreement.
However, there are instances when the distinction between personalities of directors,
officers,and representatives, and of the corporation, are disregarded. We call this piercing the
veil of corporate fiction.
Piercing the corporate veil is warranted when "[the separate personality of a corporation] is
used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse legitimate issues."85 It is also
warranted in alter ego cases "where a corporation is merely a farce since it is a mere alter ego
or business conduit of a person, or where the corporation is so organized and controlled and
its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct
of another corporation."86
When corporate veil is pierced, the corporation and persons who are normally treated as
distinct from the corporation are treated as one person, such that when the corporation is
adjudged liable, these persons, too, become liable as if they were the corporation.
Among the persons who may be treatedas the corporation itself under certain circumstances
are its directors and officers. Section 31 of the Corporation Code provides the instances when
directors, trustees, or officers may become liable for corporate acts:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any personal
or pecuniary interest in conflict with their duty as such directors or trustees shall be liable
jointly and severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed inhim in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall
be liable as a trustee for the corporation and must account for the profits which otherwise
would have accrued to the corporation. (n)
Based on the above provision, a director, trustee, or officer of a corporation may be made
solidarily liable with it for all damages suffered by the corporation, its stockholders or
members, and other persons in any of the following cases:
a) The director or trustee willfully and knowingly voted for or assented to a patently
unlawful corporate act;
b) The director or trustee was guilty of gross negligence or bad faith in directing
corporate affairs; and
c) The director or trustee acquired personal or pecuniary interest in conflict with his
or her duties as director or trustee.
Solidary liability with the corporation will also attach in the following instances:
a) "When a director or officer has consented to the issuance of watered stocks or
who, having knowledge thereof, did not forthwith file with the corporate secretary his
written objection thereto";87
b) "When a director, trustee or officer has contractually agreed or stipulated to hold
himself personally and solidarily liable with the corporation";88 and
c) "When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action."89
When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these persons and
the corporation should be treated as one. Without a trial, courts and tribunals have no basis
for determining whether the veil of corporate fiction should be pierced. Courts or tribunals do
not have such prior knowledge. Thus, the courts or tribunals must first determine whether
circumstances exist towarrant the courts or tribunals to disregard the distinction between the
corporation and the persons representing it. The determination of these circumstances must
be made by one tribunal or court in a proceeding participated in by all parties involved,
including current representatives of the corporation, and those persons whose personalities
are impliedly the sameas the corporation. This is because when the court or tribunal finds that
circumstances exist warranting the piercing of the corporate veil, the corporate
representatives are treated as the corporation itself and should be held liable for corporate
acts. The corporation’s distinct personality is disregarded, and the corporation is seen as a
mere aggregation of persons undertaking a business under the collective name of the
corporation.
Hence, when the directors, as in this case, are impleaded in a case against a corporation,
alleging malice orbad faith on their part in directing the affairs of the corporation, complainants
are effectively alleging that the directors and the corporation are not acting as separate
entities. They are alleging that the acts or omissions by the corporation that violated their
rights are also the directors’ acts or omissions.90 They are alleging that contracts executed by
the corporation are contracts executed by the directors. Complainants effectively pray that the
corporate veilbe pierced because the cause of action between the corporation and the
directors is the same.
In that case, complainants have no choice but to institute only one proceeding against the
parties.1âwphi1 Under the Rules of Court, filing of multiple suits for a single cause of action is
prohibited. Institution of more than one suit for the same cause of action constitutes splitting
the cause of action, which is a ground for the dismissal ofthe others. Thus, in Rule 2:
Section 3. One suit for a single cause of action. — A party may not institute more than one
suit for a single cause of action. (3a)
Section 4. Splitting a single cause of action;effect of. — If two or more suits are instituted on
the basis of the same cause of action, the filing of one or a judgment upon the merits in any
one is available as a ground for the dismissal of the others. (4a)
It is because the personalities of petitioners and the corporation may later be found to be
indistinct that we rule that petitioners may be compelled to submit to arbitration.
However, in ruling that petitioners may be compelled to submit to the arbitration proceedings,
we are not overturning Heirs of Augusto Salas wherein this court affirmed the basic arbitration
principle that only parties to an arbitration agreement may be compelled to submit to
arbitration. In that case, this court recognizedthat persons other than the main party may be
compelled to submit to arbitration, e.g., assignees and heirs. Assignees and heirs may be
considered parties to an arbitration agreement entered into by their assignor because the
assignor’s rights and obligations are transferred to them upon assignment. In other words, the
assignor’s rights and obligations become their own rights and obligations. In the same way,
the corporation’s obligations are treated as the representative’s obligations when the
corporate veil is pierced. Moreover, in Heirs of Augusto Salas, this court affirmed its policy
against multiplicity of suits and unnecessary delay. This court said that "to split the proceeding
into arbitration for some parties and trial for other parties would "result in multiplicity of suits,
duplicitous procedure and unnecessary delay."91 This court also intimated that the interest of
justice would be best observed if it adjudicated rights in a single proceeding.92 While the facts
of that case prompted this court to direct the trial court to proceed to determine the issues of
thatcase, it did not prohibit courts from allowing the case to proceed to arbitration, when
circumstances warrant.
Hence, the issue of whether the corporation’s acts in violation of complainant’s rights, and the
incidental issue of whether piercing of the corporate veil is warranted, should be determined in
a single proceeding. Such finding would determine if the corporation is merely an aggregation
of persons whose liabilities must be treated as one with the corporation.
However, when the courts disregard the corporation’s distinct and separate personality from
its directors or officers, the courts do not say that the corporation, in all instances and for all
purposes, is the same as its directors, stockholders, officers, and agents. It does not result in
an absolute confusion of personalities of the corporation and the persons composing or
representing it. Courts merely discount the distinction and treat them as one, in relation to a
specific act, in order to extend the terms of the contract and the liabilities for all damages to
erring corporate officials who participated in the corporation’s illegal acts. This is done so that
the legal fiction cannot be used to perpetrate illegalities and injustices.
Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the
corporate veil, parties who are normally treated as distinct individuals should be made to
participate in the arbitration proceedings in order to determine ifsuch distinction should indeed
be disregarded and, if so, to determine the extent of their liabilities.
In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to
prove the existence of circumstances that render petitioners and the other directors solidarily
liable. It ruled that petitioners and Shangri-La’s other directors were not liable for the
contractual obligations of Shangri-La to BF Corporation. The Arbitral Tribunal’s decision was
made with the participation of petitioners, albeit with their continuing objection. In view of our
discussion above, we rule that petitioners are bound by such decision.
WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006 and
resolution of October 5, 2006 are AFFIRMED.
SO ORDERED.
G.R. No. 192571 July 23, 2013
ABBOTT LABORATORIES, PHILIPPINES, CECILLE A. TERRIBLE, EDWIN D. FEIST,
MARIA OLIVIA T. YABUTMISA, TERESITA C. BERNARDO, AND ALLAN G.
ALMAZAR, Petitioners,
vs.
PEARLIE ANN F. ALCARAZ, Respondent.
Assailed in this petition for review on certiorari1 are the Decision2 dated December 10,2009 Nature of Employment : Probationary
and Resolution3 dated June 9, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 101045
which pronounced that the National Labor Relations Commission (NLRC) did not gravely Effectivity : February 15, 2005 to August 14, 2005
abuse its discretion when it ruled that respondent Pearlie Ann F. Alcaraz (Alcaraz) was
illegally dismissed from her employment.
Basic Salary : ₱110,000.00/ month

The Facts
It is understood that you agree to abide by all existing policies, rules and regulations of the
company, as well as those, which may be hereinafter promulgated.
On June 27, 2004, petitioner Abbott Laboratories, Philippines (Abbott) caused the publication
in a major broadsheet newspaper of its need for a Medical and Regulatory Affairs Manager
Unless renewed, probationary appointment expires on the date indicated subject to earlier
(Regulatory Affairs Manager) who would: (a) be responsible for drug safety surveillance
termination by the Company for any justifiable reason.
operations, staffing, and budget; (b) lead the development and implementation of standard
operating procedures/policies for drug safety surveillance and vigilance; and (c) act as the
primary interface with internal and external customers regarding safety operations and If you agree to the terms and conditions of your employment, please signify your conformity
queries.4 Alcaraz - who was then a Regulatory Affairs and Information Manager at Aventis below and return a copy to HRD.
Pasteur Philippines, Incorporated (another pharmaceutical company like Abbott) – showed
interest and submitted her application on October 4, 2004.5 Welcome to Abbott!

On December 7, 2004, Abbott formally offered Alcaraz the abovementioned position which Very truly yours,
was an item under the company’s Hospira Affiliate Local Surveillance Unit (ALSU)
department.6 In Abbott’s offer sheet.7 it was stated that Alcaraz was to be employed on a Sgd.
probationary basis.8 Later that day, she accepted the said offer and received an electronic EDWIN D. FEIST
mail (e-mail) from Abbott’s Recruitment Officer, petitioner Teresita C. Bernardo (Bernardo), General Manager
confirming the same. Attached to Bernardo’s e-mail were Abbott’s organizational chart and a
job description of Alcaraz’s work.9 CONFORME:

On February 12, 2005, Alcaraz signed an employment contract which stated, inter alia, that Sgd.
she was to be placed on probation for a period of six (6) months beginning February 15, 2005 PEARLIE ANN FERRER-ALCARAZ
to August 14, 2005. The said contract was also signed by Abbott’s General Manager,
petitioner Edwin Feist (Feist):10
During Alcaraz’s pre-employment orientation, petitioner Allan G. Almazar (Almazar), Hospira’s
Country Transition Manager, briefed her on her duties and responsibilities as Regulatory
PROBATIONARY EMPLOYMENT Affairs Manager, stating that: (a) she will handle the staff of Hospira ALSU and will directly
report to Almazar on matters regarding Hopira’s local operations, operational budget, and
Dear Pearl, performance evaluation of the Hospira ALSU Staff who are on probationary status; (b) she
must implement Abbott’s Code of Good Corporate Conduct (Code of Conduct), office policies
After having successfully passed the pre-employment requirements, you are hereby appointed on human resources and finance, and ensure that Abbott will hire people who are fit in the
as follows: organizational discipline; (c) petitioner Kelly Walsh (Walsh), Manager of the Literature Drug
Surveillance Drug Safety of Hospira, will be her immediate supervisor; (d) she should always
Position Title : Regulatory Affairs Manager coordinate with Abbott’s human resource officers in the management and discipline of the
staff; (e) Hospira ALSU will spin off from Abbott in early 2006 and will be officially incorporated
and known as Hospira, Philippines. In the interim, Hospira ALSU operations will still be under
Department : Hospira
Abbott’s management, excluding the technical aspects of the operations which is under the
control and supervision of Walsh; and (f) the processing of information and/or raw material
The terms of your employment are: data subject of Hospira ALSU operations will be strictly confined and controlled under the
computer system and network being maintained and operated from the United States. For this
purpose, all those involved in Hospira ALSU are required to use two identification cards: one,
to identify them as Abbott’s employees and another, to identify them as Hospira employees.11
On March 3, 2005, petitioner Maria Olivia T. Yabut-Misa (Misa), Abbott’s Human Resources
(HR) Director, sent Alcaraz an e-mail which contained an explanation of the procedure for
evaluating the performance of probationary employees and further indicated that Abbott had
only one evaluation system for all of its employees. Alcaraz was also given copies of Abbott’s
Code of Conduct and Probationary Performance Standards and Evaluation (PPSE) and
Performance Excellence Orientation Modules (Performance Modules) which she had to apply
in line with her task of evaluating the Hospira ALSU staff.12
Abbott’s PPSE procedure mandates that the job performance of a probationary employee
should be formally reviewed and discussed with the employee at least twice: first on the third
month and second on the fifth month from the date of employment. The necessary
Performance Improvement Plan should also be made during the third-month review in case of
a gap between the employee’s performance and the standards set. These performance
standards should be discussed in detail with the employee within the first two (2) weeks on the
job. It was equally required that a signed copy of the PPSE form must be submitted to
Abbott’s Human Resources Department (HRD) and shall serve as documentation of the
employee’s performance during his/her probationary period. This shall form the basis for
recommending the confirmation or termination of the probationary employment.13
During the course of her employment, Alcaraz noticed that some of the staff had disciplinary
problems. Thus, she would reprimand them for their unprofessional behavior such as non-
observance of the dress code, moonlighting, and disrespect of Abbott officers. However,
Alcaraz’s method of management was considered by Walsh to be "too strict."14 Alcaraz
approached Misa to discuss these concerns and was told to "lie low" and let Walsh handle the
matter. Misa even assured her that Abbott’s HRD would support her in all her management
decisions.15
On April 12, 2005, Alcaraz received an e-mail from Misa requesting immediate action on the
staff’s performance evaluation as their probationary periods were about to end. This Alcaraz
eventually submitted.16
On April 20, 2005, Alcaraz had a meeting with petitioner Cecille Terrible (Terrible), Abbott’s
former HR Director, to discuss certain issues regarding staff performance standards. In the
course thereof, Alcaraz accidentally saw a printed copy of an e-mail sent by Walsh to some
staff members which essentially contained queries regarding the former’s job performance.
Alcaraz asked if Walsh’s action was the normal process of evaluation. Terrible said that it was
not.17
On May 16, 2005, Alcaraz was called to a meeting with Walsh and Terrible where she was
informed that she failed to meet the regularization standards for the position of Regulatory
Affairs Manager.18 Thereafter, Walsh and Terrible requested Alcaraz to tender her resignation,
else they be forced to terminate her services. She was also told that, regardless of her choice,
she should no longer report for work and was asked to surrender her office identification
cards. She requested to be given one week to decide on the same, but to no avail.19
On May 17, 2005, Alcaraz told her administrative assistant, Claude Gonzales (Gonzales), that
she would be on leave for that day. However, Gonzales told her that Walsh and Terrible
already announced to the whole Hospira ALSU staff that Alcaraz already resigned due to
health reasons.20
On May 23, 2005, Walsh, Almazar, and Bernardo personally handed to Alcaraz a letter stating
that her services had been terminated effective May 19, 2005.21 The letter detailed the
reasons for Alcaraz’s termination – particularly, that Alcaraz: (a) did not manage her time
effectively; (b) failed to gain the trust of her staff and to build an effective rapport with them; (c)
failed to train her staff effectively; and (d) was not able to obtain the knowledge and ability to
make sound judgments on case processing and article review which were necessary for the
proper performance of her duties.22 On May 27, 2005, Alcaraz received another copy of the
said termination letter via registered mail.23
Alcaraz felt that she was unjustly terminated from her employment and thus, filed a complaint
for illegal dismissal and damages against Abbott and its officers, namely, Misa, Bernardo,
Almazar, Walsh, Terrible, and Feist.24 She claimed that she should have already been
considered as a regular and not a probationary employee given Abbott’s failure to inform her
of the reasonable standards for her regularization upon her engagement as required under
Article 29525 of the Labor Code. In this relation, she contended that while her employment
contract stated that she was to be engaged on a probationary status, the same did not
indicate the standards on which her regularization would be based. 26 She further averred that
the individual petitioners maliciously connived to illegally dismiss her when: (a) they
threatened her with termination; (b) she was ordered not to enter company premises even if
she was still an employee thereof; and (c) they publicly announced that she already resigned
in order to humiliate her.27
On the contrary, petitioners maintained that Alcaraz was validly terminated from her
probationary employment given her failure to satisfy the prescribed standards for her
regularization which were made known to her at the time of her engagement.28
The LA Ruling
In a Decision dated March 30, 2006,29 the LA dismissed Alcaraz’s complaint for lack of merit.
The LA rejected Alcaraz’s argument that she was not informed of the reasonable standards to
qualify as a regular employee considering her admissions that she was briefed by Almazar on
her work during her pre-employment orientation meeting30 and that she received copies of
Abbott’s Code of Conduct and Performance Modules which were used for evaluating all types
of Abbott employees.31 As Alcaraz was unable to meet the standards set by Abbott as per her
performance evaluation, the LA ruled that the termination of her probationary employment was
justified.32 Lastly, the LA found that there was no evidence to conclude that Abbott’s officers
and employees acted in bad faith in terminating Alcaraz’s employment.33
Displeased with the LA’s ruling, Alcaraz filed an appeal with the National Labor Relations
Commission (NLRC).
The NLRC Ruling
On September 15, 2006, the NLRC rendered a Decision,34 annulling and setting aside the
LA’s ruling, the dispositive portion of which reads:
WHEREFORE, the Decision of the Labor Arbiter dated 31 March 2006 [sic] is hereby
reversed, annulled and set aside and judgment is hereby rendered:
1. Finding respondents Abbot [sic] and individual respondents to have committed
illegal dismissal;
2. Respondents are ordered to immediately reinstate complainant to her former
position without loss of seniority rights immediately upon receipt hereof;
3. To jointly and severally pay complainant backwages computed from 16 May 2005
until finality of this decision. As of the date hereof the backwages is computed at
a. Backwages for 15 months - PhP 1,650,000.00
b. 13th month pay - 110,000.00
TOTAL PhP 1,760,000.00
4. Respondents are ordered to pay complainant moral damages of ₱50,000.00 and
exemplary damages of ₱50,000.00.
5. Respondents are also ordered to pay attorney’s fees of 10% of the total award.
6. All other claims are dismissed for lack of merit.
SO ORDERED.35
The NLRC reversed the findings of the LA and ruled that there was no evidence showing that
Alcaraz had been apprised of her probationary status and the requirements which she should
have complied with in order to be a regular employee.36 It held that Alcaraz’s receipt of her job
description and Abbott’s Code of Conduct and Performance Modules was not equivalent to
her being actually informed of the performance standards upon which she should have been
evaluated on.37 It further observed that Abbott did not comply with its own standard operating
procedure in evaluating probationary employees.38 The NLRC was also not convinced that
Alcaraz was terminated for a valid cause given that petitioners’ allegation of Alcaraz’s "poor
performance" remained unsubstantiated.39
Petitioners filed a motion for reconsideration which was denied by the NLRC in a Resolution
dated July 31, 2007.40
Aggrieved, petitioners filed with the CA a Petition for Certiorari with Prayer for Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction, docketed as CA G.R. SP
No. 101045 (First CA Petition), alleging grave abuse of discretion on the part of NLRC when it
ruled that Alcaraz was illegally dismissed.41
Pending resolution of the First CA Petition, Alcaraz moved for the execution of the NLRC’s
Decision before the LA, which petitioners strongly opposed. The LA denied the said motion in
an Order dated July 8, 2008 which was, however, eventually reversed on appeal by the
NLRC.42 Due to the foregoing, petitioners filed another Petition for Certiorari with the CA,
docketed as CA G.R. SP No. 111318 (Second CA Petition), assailing the propriety of the
execution of the NLRC decision.43
The CA Ruling
With regard to the First CA Petition, the CA, in a Decision44 dated December 10, 2009,
affirmed the ruling of the NLRC and held that the latter did not commit any grave abuse of
discretion in finding that Alcaraz was illegally dismissed.
It observed that Alcaraz was not apprised at the start of her employment of the reasonable
standards under which she could qualify as a regular employee.45 This was based on its
examination of the employment contract which showed that the same did not contain any
standard of performance or any stipulation that Alcaraz shall undergo a performance
evaluation before she could qualify as a regular employee.46 It also found that Abbott was
unable to prove that there was any reasonable ground to terminate Alcaraz’s
employment.47 Abbott moved for the reconsideration of the aforementioned ruling which was,
however, denied by the CA in a Resolution48 dated June 9, 2010.
The CA likewise denied the Second CA Petition in a Resolution dated May 18, 2010 (May 18,
2010 Resolution) and ruled that the NLRC was correct in upholding the execution of the NLRC
Decision.49 Thus, petitioners filed a motion for reconsideration.
While the petitioners’ motion for reconsideration of the CA’s May 18, 2010 Resolution was
pending, Alcaraz again moved for the issuance of a writ of execution before the LA. On June
7, 2010, petitioners received the LA’s order granting Alcaraz’s motion for execution which they
in turn appealed to the NLRC – through a Memorandum of Appeal dated June 16, 2010 (June
16, 2010 Memorandum of Appeal ) – on the ground that the implementation of the LA’s order
would render its motion for reconsideration moot and academic.50
Meanwhile, petitioners’ motion for reconsideration of the CA’s May 18, 2010 Resolution in the
Second CA Petition was denied via a Resolution dated October 4, 2010.51 This attained
finality on January 10, 2011 for petitioners’ failure to timely appeal the same.52 Hence, as it
stands, only the issues in the First CA petition are left to be resolved.
Incidentally, in her Comment dated November 15, 2010, Alcaraz also alleges that petitioners
were guilty of forum shopping when they filed the Second CA Petition pending the resolution
of their motion for reconsideration of the CA’s December 10, 2009 Decision i.e., the decision
in the First CA Petition.53 She also contends that petitioners have not complied with the
certification requirement under Section 5, Rule 7 of the Rules of Court when they failed to
disclose in the instant petition the filing of the June 16, 2010 Memorandum of Appeal filed
before the NLRC.54
The Issues Before the Court
The following issues have been raised for the Court’s resolution: (a) whether or not petitioners
are guilty of forum shopping and have violated the certification requirement under Section 5,
Rule 7 of the Rules of Court; (b) whether or not Alcaraz was sufficiently informed of the
reasonable standards to qualify her as a regular employee; (c) whether or not Alcaraz was
validly terminated from her employment; and (d) whether or not the individual petitioners
herein are liable.
The Court’s Ruling
A. Forum Shopping and
Violation of Section 5, Rule 7
of the Rules of Court.
At the outset, it is noteworthy to mention that the prohibition against forum shopping is
different from a violation of the certification requirement under Section 5, Rule 7 of the Rules
of Court. In Sps. Ong v. CA,55 the Court explained that:
x x x The distinction between the prohibition against forum shopping and the certification
requirement should by now be too elementary to be misunderstood. To reiterate, compliance
with the certification against forum shopping is separate from and independent of the
avoidance of the act of forum shopping itself. There is a difference in the treatment between
failure to comply with the certification requirement and violation of the prohibition against
forum shopping not only in terms of imposable sanctions but also in the manner of enforcing
them. The former constitutes sufficient cause for the dismissal without prejudice to the filing of
the complaint or initiatory pleading upon motion and after hearing, while the latter is a ground
for summary dismissal thereof and for direct contempt. x x x. 56
As to the first, forum shopping takes place when a litigant files multiple suits involving the
same parties, either simultaneously or successively, to secure a favorable judgment. It exists
where the elements of litis pendentia are present, namely: (a) identity of parties, or at least
such parties who represent the same interests in both actions; (b) identity of rights asserted
and relief prayed for, the relief being founded on the same facts; and (c) the identity with
respect to the two preceding particulars in the two (2) cases is such that any judgment that
may be rendered in the pending case, regardless of which party is successful, would amount
to res judicata in the other case.57
In this case, records show that, except for the element of identity of parties, the elements of
forum shopping do not exist. Evidently, the First CA Petition was instituted to question the
ruling of the NLRC that Alcaraz was illegally dismissed. On the other hand, the Second CA
Petition pertains to the propriety of the enforcement of the judgment award pending the
resolution of the First CA Petition and the finality of the decision in the labor dispute between
Alcaraz and the petitioners. Based on the foregoing, a judgment in the Second CA Petition will
not constitute res judicata insofar as the First CA Petition is concerned. Thus, considering that
the two petitions clearly cover different subject matters and causes of action, there exists no
forum shopping.
As to the second, Alcaraz further imputes that the petitioners violated the certification
requirement under Section 5, Rule 7 of the Rules of Court58 by not disclosing the fact that it
filed the June 16, 2010 Memorandum of Appeal before the NLRC in the instant petition.
In this regard, Section 5(b), Rule 7 of the Rules of Court requires that a plaintiff who files a
case should provide a complete statement of the present status of any pending case if the
latter involves the same issues as the one that was filed. If there is no such similar pending
case, Section 5(a) of the same rule provides that the plaintiff is obliged to declare under oath
that to the best of his knowledge, no such other action or claim is pending.
Records show that the issues raised in the instant petition and those in the June 16, 2010
Memorandum of Appeal filed with the NLRC likewise cover different subject matters and
causes of action. In this case, the validity of Alcaraz’s dismissal is at issue whereas in the said
Memorandum of Appeal, the propriety of the issuance of a writ of execution was in question.
Thus, given the dissimilar issues, petitioners did not have to disclose in the present petition
the filing of their June 16, 2010 Memorandum of Appeal with the NLRC. In any event,
considering that the issue on the propriety of the issuance of a writ of execution had been
resolved in the Second CA Petition – which in fact had already attained finality – the matter of
disclosing the June 16, 2010 Memorandum of Appeal is now moot and academic.
Having settled the foregoing procedural matter, the Court now proceeds to resolve the
substantive issues.
B. Probationary employment;
grounds for termination.
A probationary employee, like a regular employee, enjoys security of tenure. However, in
cases of probationary employment, aside from just or authorized causes of termination, an
additional ground is provided under Article 295 of the Labor Code, i.e., the probationary
employee may also be terminated for failure to qualify as a regular employee in accordance
with the reasonable standards made known by the employer to the employee at the time of
the engagement.59 Thus, the services of an employee who has been engaged on probationary
basis may be terminated for any of the following: (a) a just or (b) an authorized cause; and (c)
when he fails to qualify as a regular employee in accordance with reasonable standards
prescribed by the employer.60
Corollary thereto, Section 6(d), Rule I, Book VI of the Implementing Rules of the Labor Code
provides that if the employer fails to inform the probationary employee of the reasonable
standards upon which the regularization would be based on at the time of the engagement,
then the said employee shall be deemed a regular employee, viz.:
(d) In all cases of probationary employment, the employer shall make known to the employee
the standards under which he will qualify as a regular employee at the time of his
engagement. Where no standards are made known to the employee at that time, he shall be
deemed a regular employee.
In other words, the employer is made to comply with two (2) requirements when dealing with a
probationary employee: first, the employer must communicate the regularization standards to
the probationary employee; and second, the employer must make such communication at the
time of the probationary employee’s engagement. If the employer fails to comply with either,
the employee is deemed as a regular and not a probationary employee.
Keeping with these rules, an employer is deemed to have made known the standards that
would qualify a probationary employee to be a regular employee when it has exerted
reasonable efforts to apprise the employee of what he is expected to do or accomplish during
the trial period of probation. This goes without saying that the employee is sufficiently made
aware of his probationary status as well as the length of time of the probation.
The exception to the foregoing is when the job is self-descriptive in nature, for instance, in the
case of maids, cooks, drivers, or messengers.61 Also, in Aberdeen Court, Inc. v. Agustin,62 it
has been held that the rule on notifying a probationary employee of the standards of
regularization should not be used to exculpate an employee who acts in a manner contrary to
basic knowledge and common sense in regard to which there is no need to spell out a policy
or standard to be met. In the same light, an employee’s failure to perform the duties and
responsibilities which have been clearly made known to him constitutes a justifiable basis for a
probationary employee’s non-regularization.
In this case, petitioners contend that Alcaraz was terminated because she failed to qualify as
a regular employee according to Abbott’s standards which were made known to her at the
time of her engagement. Contrarily, Alcaraz claims that Abbott never apprised her of these
standards and thus, maintains that she is a regular and not a mere probationary employee.
The Court finds petitioners’ assertions to be well-taken.
A punctilious examination of the records reveals that Abbott had indeed complied with the
above-stated requirements. This conclusion is largely impelled by the fact that Abbott clearly
conveyed to Alcaraz her duties and responsibilities as Regulatory Affairs Manager prior to,
during the time of her engagement, and the incipient stages of her employment. On this score,
the Court finds it apt to detail not only the incidents which point out to the efforts made by
Abbott but also those circumstances which would show that Alcaraz was well-apprised of her
employer’s expectations that would, in turn, determine her regularization:
(a) On June 27, 2004, Abbott caused the publication in a major broadsheet
newspaper of its need for a Regulatory Affairs Manager, indicating therein the job
description for as well as the duties and responsibilities attendant to the aforesaid
position; this prompted Alcaraz to submit her application to Abbott on October 4,
2004;
(b) In Abbott’s December 7, 2004 offer sheet, it was stated that Alcaraz was to be
employed on a probationary status;
(c) On February 12, 2005, Alcaraz signed an employment contract which specifically
stated, inter alia, that she was to be placed on probation for a period of six (6)
months beginning February 15, 2005 to August 14, 2005;
(d) On the day Alcaraz accepted Abbott’s employment offer, Bernardo sent her
copies of Abbott’s organizational structure and her job description through e-mail;
(e) Alcaraz was made to undergo a pre-employment orientation where Almazar
informed her that she had to implement Abbott’s Code of Conduct and office policies
on human resources and finance and that she would be reporting directly to Walsh;
(f) Alcaraz was also required to undergo a training program as part of her
orientation;
(g) Alcaraz received copies of Abbott’s Code of Conduct and Performance Modules
from Misa who explained to her the procedure for evaluating the performance of
probationary employees; she was further notified that Abbott had only one
evaluation system for all of its employees; and
(h) Moreover, Alcaraz had previously worked for another pharmaceutical company
and had admitted to have an "extensive training and background" to acquire the
necessary skills for her job.63
Considering the totality of the above-stated circumstances, it cannot, therefore, be doubted
that Alcaraz was well-aware that her regularization would depend on her ability and capacity
to fulfill the requirements of her position as Regulatory Affairs Manager and that her failure to
perform such would give Abbott a valid cause to terminate her probationary employment.
Verily, basic knowledge and common sense dictate that the adequate performance of one’s
duties is, by and of itself, an inherent and implied standard for a probationary employee to be
regularized; such is a regularization standard which need not be literally spelled out or
mapped into technical indicators in every case. In this regard, it must be observed that the
assessment of adequate duty performance is in the nature of a management prerogative
which when reasonably exercised – as Abbott did in this case – should be respected. This is
especially true of a managerial employee like Alcaraz who was tasked with the vital
responsibility of handling the personnel and important matters of her department.
In fine, the Court rules that Alcaraz’s status as a probationary employee and her consequent
dismissal must stand. Consequently, in holding that Alcaraz was illegally dismissed due to her
status as a regular and not a probationary employee, the Court finds that the NLRC committed
a grave abuse of discretion.
To elucidate, records show that the NLRC based its decision on the premise that Alcaraz’s
receipt of her job description and Abbott’s Code of Conduct and Performance Modules was
not equivalent to being actually informed of the performance standards upon which she should
have been evaluated on.64 It, however, overlooked the legal implication of the other attendant
circumstances as detailed herein which should have warranted a contrary finding that Alcaraz
was indeed a probationary and not a regular employee – more particularly the fact that she
was well-aware of her duties and responsibilities and that her failure to adequately perform the
same would lead to her non-regularization and eventually, her termination.
Accordingly, by affirming the NLRC’s pronouncement which is tainted with grave abuse of
discretion, the CA committed a reversible error which, perforce, necessitates the reversal of its
decision.
C. Probationary employment;
termination procedure.
A different procedure is applied when terminating a probationary employee; the usual two-
notice rule does not govern.65 Section 2, Rule I, Book VI of the Implementing Rules of the
Labor Code states that "if the termination is brought about by the x x x failure of an employee
to meet the standards of the employer in case of probationary employment, it shall be
sufficient that a written notice is served the employee, within a reasonable time from the
effective date of termination."
As the records show, Alcaraz's dismissal was effected through a letter dated May 19, 2005
which she received on May 23, 2005 and again on May 27, 2005. Stated therein were the
reasons for her termination, i.e., that after proper evaluation, Abbott determined that she failed
to meet the reasonable standards for her regularization considering her lack of time and
people management and decision-making skills, which are necessary in the performance of
her functions as Regulatory Affairs Manager.66 Undeniably, this written notice sufficiently
meets the criteria set forth above, thereby legitimizing the cause and manner of Alcaraz’s
dismissal as a probationary employee under the parameters set by the Labor Code.67
D. Employer’s violation of
company policy and
procedure.
Nonetheless, despite the existence of a sufficient ground to terminate Alcaraz’s employment
and Abbott’s compliance with the Labor Code termination procedure, it is readily apparent that
Abbott breached its contractual obligation to Alcaraz when it failed to abide by its own
procedure in evaluating the performance of a probationary employee.
Veritably, a company policy partakes of the nature of an implied contract between the
employer and employee. In Parts Depot, Inc. v. Beiswenger,68 it has been held that:
Employer statements of policy . . . can give rise to contractual rights in employees without
evidence that the parties mutually agreed that the policy statements would create contractual
rights in the employee, and, hence, although the statement of policy is signed by neither party,
can be unilaterally amended by the employer without notice to the employee, and contains no
reference to a specific employee, his job description or compensation, and although no
reference was made to the policy statement in pre-employment interviews and the employee
does not learn of its existence until after his hiring. Toussaint, 292 N.W .2d at 892. The
principle is akin to estoppel. Once an employer establishes an express personnel policy and
the employee continues to work while the policy remains in effect, the policy is deemed an
implied contract for so long as it remains in effect. If the employer unilaterally changes the
policy, the terms of the implied contract are also thereby changed.1âwphi1 (Emphasis and
underscoring supplied.)
Hence, given such nature, company personnel policies create an obligation on the part of both
the employee and the employer to abide by the same.
Records show that Abbott’s PPSE procedure mandates, inter alia, that the job performance of
a probationary employee should be formally reviewed and discussed with the employee at
least twice: first on the third month and second on the fifth month from the date of
employment. Abbott is also required to come up with a Performance Improvement Plan during
the third month review to bridge the gap between the employee’s performance and the
standards set, if any.69 In addition, a signed copy of the PPSE form should be submitted to
Abbott’s HRD as the same would serve as basis for recommending the confirmation or
termination of the probationary employment.70
In this case, it is apparent that Abbott failed to follow the above-stated procedure in evaluating
Alcaraz. For one, there lies a hiatus of evidence that a signed copy of Alcaraz’s PPSE form
was submitted to the HRD. It was not even shown that a PPSE form was completed to
formally assess her performance. Neither was the performance evaluation discussed with her
during the third and fifth months of her employment. Nor did Abbott come up with the
necessary Performance Improvement Plan to properly gauge Alcaraz’s performance with the
set company standards.
While it is Abbott’s management prerogative to promulgate its own company rules and even
subsequently amend them, this right equally demands that when it does create its own
policies and thereafter notify its employee of the same, it accords upon itself the obligation to
faithfully implement them. Indeed, a contrary interpretation would entail a disharmonious
relationship in the work place for the laborer should never be mired by the uncertainty of flimsy
rules in which the latter’s labor rights and duties would, to some extent, depend.
In this light, while there lies due cause to terminate Alcaraz’s probationary employment for her
failure to meet the standards required for her regularization, and while it must be further
pointed out that Abbott had satisfied its statutory duty to serve a written notice of termination,
the fact that it violated its own company procedure renders the termination of Alcaraz’s
employment procedurally infirm, warranting the payment of nominal damages. A further
exposition is apropos.
Case law has settled that an employer who terminates an employee for a valid cause but does
so through invalid procedure is liable to pay the latter nominal damages.
In Agabon v. NLRC (Agabon),71 the Court pronounced that where the dismissal is for a just
cause, the lack of statutory due process should not nullify the dismissal, or render it illegal, or
ineffectual. However, the employer should indemnify the employee for the violation of his
statutory rights.72 Thus, in Agabon, the employer was ordered to pay the employee nominal
damages in the amount of ₱30,000.00.73
Proceeding from the same ratio, the Court modified Agabon in the case of Jaka Food
Processing Corporation v. Pacot (Jaka)74 where it created a distinction between procedurally
defective dismissals due to a just cause, on one hand, and those due to an authorized cause,
on the other.
It was explained that if the dismissal is based on a just cause under Article 282 of the Labor
Code (now Article 296) but the employer failed to comply with the notice requirement, the
sanction to be imposed upon him should be tempered because the dismissal process was, in
effect, initiated by an act imputable to the employee; if the dismissal is based on an authorized
cause under Article 283 (now Article 297) but the employer failed to comply with the notice
requirement, the sanction should be stiffer because the dismissal process was initiated by the
employer’s exercise of his management prerogative.75 Hence, in Jaka, where the employee
was dismissed for an authorized cause of retrenchment76 – as contradistinguished from the
employee in Agabon who was dismissed for a just cause of neglect of duty77 – the Court
ordered the employer to pay the employee nominal damages at the higher amount of
₱50,000.00.
Evidently, the sanctions imposed in both Agabon and Jaka proceed from the necessity to
deter employers from future violations of the statutory due process rights of employees.78 In
similar regard, the Court deems it proper to apply the same principle to the case at bar for the
reason that an employer’s contractual breach of its own company procedure – albeit not
statutory in source – has the parallel effect of violating the laborer’s rights. Suffice it to state,
the contract is the law between the parties and thus, breaches of the same impel recompense
to vindicate a right that has been violated. Consequently, while the Court is wont to uphold the
dismissal of Alcaraz because a valid cause exists, the payment of nominal damages on
account of Abbott’s contractual breach is warranted in accordance with Article 2221 of the
Civil Code.79
Anent the proper amount of damages to be awarded, the Court observes that Alcaraz’s
dismissal proceeded from her failure to comply with the standards required for her
regularization. As such, it is undeniable that the dismissal process was, in effect, initiated by
an act imputable to the employee, akin to dismissals due to just causes under Article 296 of
the Labor Code. Therefore, the Court deems it appropriate to fix the amount of nominal
damages at the amount of ₱30,000.00, consistent with its rulings in both Agabon and Jaka.
E. Liability of individual
petitioners as corporate
officers.
It is hornbook principle that personal liability of corporate directors, trustees or officers
attaches only when: (a) they assent to a patently unlawful act of the corporation, or when they
are guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders or other persons; (b) they
consent to the issuance of watered down stocks or when, having knowledge of such issuance,
do not forthwith file with the corporate secretary their written objection; (c) they agree to hold
themselves personally and solidarily liable with the corporation; or (d) they are made by
specific provision of law personally answerable for their corporate action.80
In this case, Alcaraz alleges that the individual petitioners acted in bad faith with regard to the
supposed crude manner by which her probationary employment was terminated and thus,
should be held liable together with Abbott. In the same vein, she further attributes the loss of
some of her remaining belongings to them.81
Alcaraz’s contention fails to persuade.
A judicious perusal of the records show that other than her unfounded assertions on the
matter, there is no evidence to support the fact that the individual petitioners herein, in their
capacity as Abbott’s officers and employees, acted in bad faith or were motivated by ill will in
terminating
Alcaraz’s services. The fact that Alcaraz was made to resign and not allowed to enter the
workplace does not necessarily indicate bad faith on Abbott’s part since a sufficient ground
existed for the latter to actually proceed with her termination. On the alleged loss of her
personal belongings, records are bereft of any showing that the same could be attributed to
Abbott or any of its officers. It is a well-settled rule that bad faith cannot be presumed and he
who alleges bad faith has the onus of proving it. All told, since Alcaraz failed to prove any
malicious act on the part of Abbott or any of its officers, the Court finds the award of moral or
exemplary damages unwarranted.
WHEREFORE, the petition is GRANTED. The Decision dated December 10, 2009 and
Resolution dated June 9, 2010 of the Court of Appeals in CA-G.R. SP No. 101045 are hereby
REVERSED and SET ASIDE. Accordingly, the Decision dated March 30, 2006 of the Labor
Arbiter is REINSTATED with the MODIFICATION that petitioner Abbott Laboratories,
Philippines be ORDERED to pay respondent Pearlie Ann F. Alcaraz nominal damages in the
amount of ₱30,000.00 on account of its breach of its own company procedure.
SO ORDERED.
G.R. No. 192571 April 22, 2014
ABBOTT LABORATORIES, PHILIPPINES, CECILLE A. TERRIBLE, EDWIN D. FEIST,
MARIA OLIVIA T. YABUT-MISA, TERESITA C. BERNARDO, AND ALLAN G.
ALMAZAR, Petitioners,
vs.
PEARLIE ANN F. ALCARAZ, Respondent.
RESOLUTION
PERLAS-BERNABE, J.:
For resolution is respondent Pearlie Ann Alcaraz's (Alcaraz) Motion for Reconsideration dated
August 23, 2013 of the Court's Decision dated July 23, 2013 (Decision).1
At the outset, there appears to be no substantial argument in the said motion sufficient for the
Court to depart from the pronouncements made in the initial ruling. But if only to address
Akaraz's novel assertions, and to so placate any doubt or misconception in the resolution of
this case, the Court proceeds to shed light on the matters indicated below.
A. Manner of review.
Alcaraz contends that the Court should not have conducted a re-weighing of evidence since a
petition for review on certiorari under Rule 45 of the Rules of Court (Rules) is limited to the
review of questions of law. She submits that since what was under review was a ruling of the
Court of Appeals (CA) rendered via a petition for certiorari under Rule 65 of the Rules, the
Court should only determine whether or not the CA properly determined that the National
Labor Relations Commission (NLRC) committed a grave abuse of discretion.
The assertion does not justify the reconsideration of the assailed Decision.
A careful perusal of the questioned Decision will reveal that the Court actually resolved the
controversy under the above-stated framework of analysis. Essentially, the Court found the
CA to have committed an error in holding that no grave abuse of discretion can be ascribed to
the NLRC since the latter arbitrarily disregarded the legal implication of the attendant
circumstances in this case which should have simply resulted in the finding that Alcaraz was
apprised of the performance standards for her regularization and hence, was properly a
probationary employee. As the Court observed, an employee’s failure to perform the duties
and responsibilities which have been clearly made known to him constitutes a justifiable basis
for a probationary employee’s non-regularization. As detailed in the Decision, Alcaraz was
well-apprised of her duties and responsibilities as well as the probationary status of her
employment:
(a) On June 27, 2004, [Abbott Laboratories, Philippines (Abbott)] caused the
publication in a major broadsheet newspaper of its need for a Regulatory Affairs
Manager, indicating therein the job description for as well as the duties and
responsibilities attendant to the aforesaid position; this prompted Alcaraz to submit
her application to Abbott on October 4, 2004;
(b) In Abbott’s December 7, 2004 offer sheet, it was stated that Alcaraz was to be
employed on a probationary status;
(c) On February 12, 2005, Alcaraz signed an employment contract which specifically
stated, inter alia, that she was to be placed on probation for a period of six (6)
months beginning February 15, 2005 to August 14, 2005;
(d) On the day Alcaraz accepted Abbott’s employment offer, Bernardo sent her
copies of Abbott’s organizational structure and her job description through e-mail;
(e) Alcaraz was made to undergo a pre-employment orientation where [Allan G.
Almazar] informed her that she had to implement Abbott’s Code of Conduct and
office policies on human resources and finance and that she would be reporting
directly to [Kelly Walsh];
(f) Alcaraz was also required to undergo a training program as part of her
orientation;
(g) Alcaraz received copies of Abbott’s Code of Conduct and Performance Modules
from [Maria Olivia T. Yabut-Misa] who explained to her the procedure for evaluating
the performance of probationary employees; she was further notified that Abbott had
only one evaluation system for all of its employees; and
(h) Moreover, Alcaraz had previously worked for another pharmaceutical company
and had admitted to have an "extensive training and background" to acquire the
necessary skills for her job.2
Considering the foregoing incidents which were readily observable from the records, the Court
reached the conclusion that the NLRC committed grave abuse of discretion, viz.:
[I]n holding that Alcaraz was illegally dismissed due to her status as a regular and not a
probationary employee, the Court finds that the NLRC committed a grave abuse of discretion.
To elucidate, records show that the NLRC based its decision on the premise that Alcaraz’s
receipt of her job description and Abbott’s Code of Conduct and Performance Modules was
not equivalent to being actually informed of the performance standards upon which she should
have been evaluated on. It, however, overlooked the legal implication of the other attendant
circumstances as detailed herein which should have warranted a contrary finding that Alcaraz
was indeed a probationary and not a regular employee – more particularly the fact that she
was well-aware of her duties and responsibilities and that her failure to adequately perform the
same would lead to her non-regularization and eventually, her termination.3
Consequently, since the CA found that the NLRC did not commit grave abuse of discretion
and denied the certiorari petition before it, the reversal of its ruling was thus in order.
At this juncture, it bears exposition that while NLRC decisions are, by their nature, final and
executory4 and, hence, not subject to appellate review,5 the Court is not precluded from
considering other questions of law aside from the CA’s finding on the NLRC’s grave abuse of
discretion. While the focal point of analysis revolves on this issue, the Court may deal with
ancillary issues – such as, in this case, the question of how a probationary employee is
deemed to have been informed of the standards of his regularization – if only to determine if
the concepts and principles of labor law were correctly applied or misapplied by the NLRC in
its decision. In other words, the Court’s analysis of the NLRC’s interpretation of the
environmental principles and concepts of labor law is not completely prohibited in – as it is
complementary to – a Rule 45 review of labor cases.
Finally, if only to put to rest Alcaraz’s misgivings on the manner in which this case was
reviewed, it bears pointing out that no "factual appellate review" was conducted by the Court
in the Decision. Rather, the Court proceeded to interpret the relevant rules on probationary
employment as applied to settled factual findings. Besides, even on the assumption that a
scrutiny of facts was undertaken, the Court is not altogether barred from conducting the same.
This was explained in the case of Career Philippines Shipmanagement, Inc. v. Serna6 wherein
the Court held as follows:
Accordingly, we do not re-examine conflicting evidence, re-evaluate the credibility of
witnesses, or substitute the findings of fact of the NLRC, an administrative body that has
expertise in its specialized field. Nor do we substitute our "own judgment for that of the tribunal
in determining where the weight of evidence lies or what evidence is credible." The factual
findings of the NLRC, when affirmed by the CA, are generally conclusive on this Court.
Nevertheless, there are exceptional cases where we, in the exercise of our discretionary
appellate jurisdiction may be urged to look into factual issues raised in a Rule 45 petition. For
instance, when the petitioner persuasively alleges that there is insufficient or insubstantial
evidence on record to support the factual findings of the tribunal or court a quo, as Section 5,
Rule 133 of the Rules of Court states in express terms that in cases filed before administrative
or quasi-judicial bodies, a fact may be deemed established only if supported by substantial
evidence.7(Emphasis supplied)
B. Standards for regularization;
conceptual underpinnings.
Alcaraz posits that, contrary to the Court’s Decision, one’s job description cannot by and of
itself be treated as a standard for regularization as a standard denotes a measure of quantity
or quality. By way of example, Alcaraz cites the case of a probationary salesperson and asks
how does such employee achieve regular status if he does not know how much he needs to
sell to reach the same.
The argument is untenable.
First off, the Court must correct Alcaraz’s mistaken notion: it is not the probationary
employee’s job description but the adequate performance of his duties and responsibilities
which constitutes the inherent and implied standard for regularization. To echo the
fundamental point of the Decision, if the probationary employee had been fully apprised by his
employer of these duties and responsibilities, then basic knowledge and common sense
dictate that he must adequately perform the same, else he fails to pass the probationary trial
and may therefore be subject to termination.8
The determination of "adequate performance" is not, in all cases, measurable by quantitative
specification, such as that of a sales quota in Alcaraz’s example. It is also hinged on the
qualitative assessment of the employee’s work; by its nature, this largely rests on the
reasonable exercise of the employer’s management prerogative. While in some instances the
standards used in measuring the quality of work may be conveyed – such as workers who
construct tangible products which follow particular metrics, not all standards of quality
measurement may be reducible to hard figures or are readily articulable in specific pre-
engagement descriptions. A good example would be the case of probationary employees
whose tasks involve the application of discretion and intellect, such as – to name a few –
lawyers, artists, and journalists. In these kinds of occupation, the best that the employer can
do at the time of engagement is to inform the probationary employee of his duties and
responsibilities and to orient him on how to properly proceed with the same. The employer
cannot bear out in exacting detail at the beginning of the engagement what he deems as
"quality work" especially since the probationary employee has yet to submit the required
output. In the ultimate analysis, the communication of performance standards should be
perceived within the context of the nature of the probationary employee’s duties and
responsibilities.
The same logic applies to a probationary managerial employee who is tasked to supervise a
particular department, as Alcaraz in this case.1âwphi1 It is hardly possible for the employer, at
the time of the employee’s engagement, to map into technical indicators, or convey in precise
detail the quality standards by which the latter should effectively manage the department.
Factors which gauge the ability of the managerial employee to either deal with his
subordinates (e.g., how to spur their performance, or command respect and obedience from
them), or to organize office policies, are hardly conveyable at the outset of the engagement
since the employee has yet to be immersed into the work itself. Given that a managerial role
essentially connotes an exercise of discretion, the quality of effective management can only
be determined through subsequent assessment. While at the time of engagement, reason
dictates that the employer can only inform the probationary managerial employee of his duties
and responsibilities as such and provide the allowable parameters for the same. Verily, as
stated in the Decision, the adequate performance of such duties and responsibilities is, by and
of itself, an implied standard of regularization.
In this relation, it bears mentioning that the performance standard contemplated by law should
not, in all cases, be contained in a specialized system of feedbacks or evaluation. The Court
takes judicial notice of the fact that not all employers, such as simple businesses or small-
scale enterprises, have a sophisticated form of human resource management, so much so
that the adoption of technical indicators as utilized through "comment cards" or "appraisal"
tools should not be treated as a prerequisite for every case of probationary engagement. In
fact, even if a system of such kind is employed and the procedures for its implementation are
not followed, once an employer determines that the probationary employee fails to meet the
standards required for his regularization, the former is not precluded from dismissing the
latter. The rule is that when a valid cause for termination exists, the procedural infirmity
attending the termination only warrants the payment of nominal damages. This was the
principle laid down in the landmark cases of Agabon v. NLRC9 (Agabon) and Jaka Food
Processing Corporation v. Pacot10 (Jaka). In the assailed Decision, the Court actually
extended the application of the Agabon and Jaka rulings to breaches of company procedure,
notwithstanding the employer’s compliance with the statutory requirements under the Labor
Code.11 Hence, although Abbott did not comply with its own termination procedure, its non-
compliance thereof would not detract from the finding that there subsists a valid cause to
terminate Alcaraz’s employment. Abbott, however, was penalized for its contractual breach
and thereby ordered to pay nominal damages.
As a final point, Alcaraz cannot take refuge in Aliling v. Feliciano12 (Aliling) since the same is
not squarely applicable to the case at bar. The employee in Aliling, a sales executive, was
belatedly informed of his quota requirement. Thus, considering the nature of his position, the
fact that he was not informed of his sales quota at the time of his engagement changed the
complexion of his employment. Contrarily, the nature of Alcaraz's duties and responsibilities
as Regulatory Affairs Manager negates the application of the foregoing. Records show that
Alcaraz was terminated because she (a) did not manage her time effectively; (b) failed to gain
the trust of her staff and to build an effective rapport with them; (c) failed to train her staff
effectively; and (d) was not able to obtain the knowledge and ability to make sound judgments
on case processing and article review which were necessary for the proper performance of
her duties.13 Due to the nature and variety of these managerial functions, the best that Abbott
could have done, at the time of Alcaraz's engagement, was to inform her of her duties and
responsibilities, the adequate performance of which, to repeat, is an inherent and implied
standard for regularization; this is unlike the circumstance in Aliling where a quantitative
regularization standard, in the term of a sales quota, was readily articulable to the employee at
the outset. Hence, since the reasonableness of Alcaraz's assessment clearly appears from
the records, her termination was justified. Bear in mind that the quantum of proof which the
employer must discharge is only substantial evidence which, as defined in case law, means
that amount of relevant evidence as a reasonable mind might accept as adequate to support a
conclusion, even if other minds, equally reasonable, might conceivably opine otherwise.14 To
the Court's mind, this threshold of evidence Abbott amply overcame in this case.
All told, the Court hereby denies the instant motion for reconsideration and thereby upholds
the Decision in the main case.
WHEREFORE, the motion for reconsideration dated August 23, 2013 of the Court's Decision
dated July 23, 2013 in this case is hereby DENIED.
SO ORDERED.
POLYMER RUBBER CORPORATION AND JOSEPH ANG, Petitioners, v. BAYOLO
SALAMUDING,Respondent.
DECISION
REYES, J.:
The instant petition1 assails the Decision2 dated June 30, 2008 of the Court of Appeals (CA) in
CA-G.R. SP No. 98387 directing the recall of the alias writ of execution and the lifting of the
notice of levy on the shares of stocks of petitioner Joseph Ang (Ang). The Resolution3 dated
November 5, 2008 denied the motion for reconsideration thereof.
The antecedent facts are as follows:cralavvonlinelawlibrary
Herein respondent Bayolo Salamuding (Salamuding), Mariano Gulanan and Rodolfo Raif
(referred to as the complainants) were employees of petitioner Polymer Rubber Corporation
(Polymer), who were dismissed after allegedly committing certain irregularities against
Polymer.
On July 24, 1990, the three employees filed a complaint against Polymer and Ang (petitioners)
for unfair labor practice, illegal dismissal, non-payment of overtime services, violation of
Presidential Decree No. 851, with prayer for reinstatement and payment of back wages,
attorney’s fees, moral and exemplary damages.4
On November 21, 1990, the Labor Arbiter (LA) rendered a decision, the dispositive portion of
which reads:cralavvonlinelawlibrary
WHEREFORE, judgment is hereby rendered dismissing the complainant unfair labor practice
(sic) but directing the respondent the following:cralavvonlinelawlibrary
1. Reinstate complainants to their former position with full back wages from the time they
were illegally dismissed up to the time of reinstatement.
2. To pay individual complainants their 13th month pay and for the year 1990 in the following
amount:cralavvonlinelawlibrary
a. Mariano Gulanan.................[P]3,194
b. Rodolfo Raif.......................[P]3,439
c. Bayolo Salam[u]ding.............[P]3,284
3. To pay individual complainants overtime in the amount of [P]1,335 each.
4. To pay individual complainants overtime in the amount of [P]6,608.80 each.
5. To pay individual complainants moral and exemplary damages in the amount of [P]10,000
each.
6. To pay attorney’s fee equivalent to ten (10) percent of the total monetary award of the
complainants.
SO ORDERED.5nadcralavvonlinelawlibrary
A writ of execution was subsequently issued on April 18, 1991 to implement the aforesaid
judgment.6
The petitioners appealed to the National Labor Relations Commission (NLRC).
On April 7, 1992, the NLRC affirmed the decision of the LA with modifications. The NLRC
deleted the award of moral and exemplary damages, service incentive pay, and modified the
computation of 13th month pay.7 The corresponding Entry of Judgment was made on
September 25, 1992,8 and an alias writ of execution was issued on October 29, 1992, based
on the NLRC decision.9
The case was subsequently elevated to the Supreme Court (SC) on a petition for certiorari. In
a Resolution dated September 29, 1993, the Court affirmed the disposition of the NLRC with
the further modification that the award of overtime pay to the complainants was deleted.10
On September 30, 1993, Polymer ceased its operations.11
Upon a motion dated November 11, 1994, the LA a quo issued a writ of execution on
November 16, 1994 based on the SC resolution. Since the writ of execution was returned
unsatisfied, another alias writ of execution was issued on June 4, 1997.12
In the latter part of 2004, Polymer with all its improvements in the premises was gutted by
fire.13
On December 2, 2004, the complainants filed a Motion for Recomputation and Issuance of
Fifth (5th) Alias Writ of Execution. The Research and Computation Unit of the NLRC came up
with the total amount of P2,962,737.65. Due to the failure of the petitioners to
comment/oppose the amount despite notice, the LA approved said amount.14
Thus, on April 26, 2005, the LA issued a 5th Alias Writ of Execution 15 prayed for commanding
the sheriff to collect the amount.
In the implementation of this alias writ of execution dated April 26, 2005, the shares of stocks
of Ang at USA Resources Corporation were levied.
On November 10, 2005, the petitioners moved to quash the 5th alias writ of execution, and to
lift the notice of garnishment.16 They alleged that: a) Ang should not be held jointly and
severally liable with Polymer since it was only the latter which was held liable in the decision
of the LA, NLRC and the Supreme Court; b) the computation of the monetary award in favor of
the complainants in the amount of P2,962,737.65 was misleading, anomalous and highly
erroneous; and c) the decision sought to be enforced by mere motion is already barred by the
statute of limitations.17
In an Order18 dated December 16, 2005, the LA granted the motion. The LA ordered the
quashal and recall of the writ of execution, as well as the lifting of the notice of levy on Ang’s
shares of stocks.
The LA ruled that the Decision dated November 21, 1990 did not contain any pronouncement
that Ang was also liable. To hold Ang liable at this stage when the decision had long become
final and executory will vary the tenor of the judgment, or in excess of its terms. As to the
extent of the computation of the backwages, the same must only cover the period during
which the company was in actual operation. Further, the LA found that the complainant’s
motion to execute the LA’s decision was already barred by the statute of
limitations. The fallo of the decision reads:cralavvonlinelawlibrary
WHEREFORE, premises all considered, an order is hereby rendered quashing and recalling
the Writ of Execution and lifting the Notice of Levy on the Shares of Stocks of respondent
Joseph Ang.19nadcralavvonlinelawlibrary
On appeal, the NLRC affirmed the findings of the LA in a Decision20 dated September 27,
2006. It, however, made a pronouncement that the complainants did not sleep on their rights
as they continued to file series of motions for the execution of the monetary award and are,
thus, not barred by the statute of limitations. The appeal on the aspect of the lifting of the
notice of levy on the shares of stocks of Ang was dismissed. The dispositive portion of the
decision reads as follows:cralavvonlinelawlibrary
WHEREFORE, the assailed Order dated December 16, 2005 is hereby AFFIRMED with
MODIFICATION declaring the rights of the complainants to execute the Decision dated
November 21, 1990 not having barred by the statute of limitations. The appeal is hereby,
DISMISSED for lack of merit.21
On January 12, 2007, the NLRC denied the motion for reconsideration of the foregoing
decision.22
Undeterred, Salamuding filed a Petition for Certiorari23 before the CA.
On June 30, 2008, the CA found merit with the petition.24 The CA stated that there has to be
a responsible person or persons working in the interest of Polymer who may also be
considered as the employer, invoking the cases of NYK Int’l. Knitwear Corp. Phils. v.
NLRC25 and A.C. Ransom Labor Union-CCLU v. NLRC.26 Since Ang as the director of
Polymer was considered the highest ranking officer of Polymer, he was therefore properly
impleaded and may be held jointly and severally liable for the obligations of Polymer to its
dismissed employees. Thus, the dispositive portion of the assailed decision reads as
follows:cralavvonlinelawlibrary
WHEREFORE, the petition is granted in part. The Decision dated September 27, 2006 and
the Resolution dated January 12, 2007 of respondent NLRC are hereby annulled and set
aside insofar as they direct the recall and quashal of the Writ of Execution and lifting of the
Notice of Levy on the shares of stock of respondent Joseph Ang. The Order dated December
16, 2005 of the Honorable Labor Arbiter Ramon Valentin C. Reyes is nullified.
Let the records of the case be remanded to the Labor Arbiter for execution of the Decision
dated November 21, 1990 as modified by the NLRC against the respondents Polymer Rubber
Corporation and Joseph Ang.27
Aggrieved by the CA decision, the petitioners filed the instant petition raising the following
questions of law:cralavvonlinelawlibrary
a. That upon the finality of the Decision, the same can no longer be altered or modified[;]
b. That the Officer of the Corporation cannot be personally held liable and be made to pay the
liability of the corporation[;]
c. That the losing party cannot be held liable to pay the salaries and benefits of the employees
beyond the companies [sic] existence;chanroblesvirtualawlibrary
d. That the separation pay of employees of the company which has closed its business
permanently is only half month salary for every year of service.28
There is merit in the petition.
“A corporation, as a juridical entity, may act only through its directors, officers and
employees. Obligations incurred as a result of the directors’ and officers’ acts as corporate
agents, are not their personal liability but the direct responsibility of the corporation they
represent. As a rule, they are only solidarily liable with the corporation for the illegal
termination of services of employees if they acted with malice or bad faith.”29
To hold a director or officer personally liable for corporate obligations, two requisites must
concur: (1) it must be alleged in the complaint that the director or officer assented to patently
unlawful acts of the corporation or that the officer was guilty of gross negligence or bad faith;
and (2) there must be proof that the officer acted in bad faith.30
In the instant case, the CA imputed bad faith on the part of the petitioners when Polymer
ceased its operations the day after the promulgation of the SC resolution in 1993 which was
allegedly meant to evade liability. The CA found it necessary to pierce the corporate fiction
and pointed at Ang as the responsible person to pay for Salamuding’s money claims. Except
for this assertion, there is nothing in the records that show that Ang was responsible for the
acts complained of. At any rate, we find that it will require a great stretch of imagination to
conclude that a corporation would cease its operations if only to evade the payment of the
adjudged monetary awards in favor of three (3) of its employees.
The dispositive portion of the LA Decision dated November 21, 1990 which Salamuding
attempts to enforce does not mention that Ang is jointly and severally liable with
Polymer. Ang is merely one of the incorporators of Polymer and to single him out and require
him to personally answer for the liabilities of Polymer is without basis. In the absence of a
finding that he acted with malice or bad faith, it was error for the CA to hold him responsible.
In Aliling v. Feliciano,31 the Court explained to wit:cralavvonlinelawlibrary
The CA held the president of WWWEC, Jose B. Feliciano, San Mateo and Lariosa jointly and
severally liable for the monetary awards of Aliling on the ground that the officers are
considered “employers” acting in the interest of the corporation. The CA cited NYK
International Knitwear Corporation Philippines (NYK) v. National Labor Relations
Commission in support of its argument. Notably, NYK in turn cited A.C. Ransom Labor Union-
CCLU v. NLRC.
Such ruling has been reversed by the Court in Alba v. Yupangco, where the Court
ruled:cralavvonlinelawlibrary
“By Order of September 5, 2007, the Labor Arbiter denied respondent’s motion to quash the
3rd alias writ. Brushing aside respondent’s contention that his liability is merely joint, the Labor
Arbiter ruled:cralavvonlinelawlibrary
Such issue regarding the personal liability of the officers of a corporation for the payment of
wages and money claims to its employees, as in the instant case, has long been resolved by
the Supreme Court in a long list of cases [A.C. Ransom Labor Union-CLU vs. NLRC (142
SCRA 269) and reiterated in the cases of Chua vs. NLRC (182 SCRA 353), Gudez vs.
NLRC(183 SCRA 644)]. In the aforementioned cases,
the Supreme Court has expressly held that the irresponsible officer of the corporation
(e.g., President) is liable for the corporation’s obligations to its workers. Thus, respondent
Yupangco, being the president of the respondent YL Land and Ultra Motors Corp., is properly
jointly and severally liable with the defendant corporations for the labor claims of
Complainants Alba and De Guzman. x x x

xxxx
As reflected above, the Labor Arbiter held that respondent’s liability is solidary.
There is solidary liability when the obligation expressly so states, when the law so provides, or
when the nature of the obligation so requires. MAM Realty Development Corporation v.
NLRC, on solidary liability of corporate officers in labor disputes,
enlightens:cralavvonlinelawlibrary
x x x A corporation being a juridical entity, may act only through its directors, officers and
employees. Obligations incurred by them, acting as such corporate agents are not theirs but
the direct accountabilities of the corporation they represent. True solidary liabilities may at
times be incurred but only when exceptional circumstances warrant such as, generally, in the
following cases:cralavvonlinelawlibrary
1. When directors and trustees or, in appropriate cases, the officers of a
corporation:cralavvonlinelawlibrary
(a) vote for or assent to patently unlawful acts of the corporation;chanroblesvirtualawlibrary
(b) act in bad faith or with gross negligence in directing the corporate
affairs;chanroblesvirtualawlibrary
xxxx
In labor cases, for instance, the Court has held corporate directors and officers solidarily liable
with the corporation for the termination of employment of employees done with malice or in
bad faith.”32 (Citations omitted and underscoring ours)
To hold Ang personally liable at this stage is quite unfair. The judgment of the LA, as affirmed
by the NLRC and later by the SC had already long become final and executory. It has been
held that a final and executory judgment can no longer be altered. The judgment may no
longer be modified in any respect, even if the modification is meant to correct what is
perceived to be an erroneous conclusion of fact or law, and regardless of whether the
modification is attempted to be made by the court rendering it or by the highest Court of the
land.33 “Since the alias writ of execution did not conform, is different from and thus went
beyond or varied the tenor of the judgment which gave it life, it is a nullity. To maintain
otherwise would be to ignore the constitutional provision against depriving a person of his
property without due process of law.”34
Anent the computation of their liability for the payment of separation pay in lieu of
reinstatement in favor of Salamuding, the Court agrees with the ruling of the LA that it must be
computed only up to the time Polymer ceased operations in September 1993. The
computation must be based on the number of days when Polymer was in actual
operation.35 It cannot be held liable to pay separation pay beyond such closure of business
because even if the illegally dismissed employees would be reinstated, they could not possibly
work beyond the time of the cessation of its operation.36 In the case of Chronicle Securities
Corp. v. NLRC,37 we ruled that even an employer who is “found guilty of unfair labor practice
in dismissing his employee may not be ordered so to pay backwages beyond the date of
closure of business where such closure was due to legitimate business reasons and not
merely an attempt to defeat the order of reinstatement.”38
WHEREFORE, the petition is GRANTED. The Decision dated June 30, 2008 and the
Resolution dated November 5, 2008 of the Court of Appeals in CA-G.R. SP No. 98387
are SET ASIDE. The Decision of the National Labor Relations Commission dated September
27, 2006 is REINSTATED. Let the records of the case be remanded to the Labor Arbiter for
proper computation of the award in accordance with this decision.
SO ORDERED.
G. R. No. 186732, June 13, 2013
ALPS TRANSPORTATION AND/OR ALFREDO E. PEREZ, Petitioners, v. ELPIDIO M.
RODRIGUEZ,Respondent.
Before this Court is a Rule 45 Petition for Review1 assailing the Decision2 and Resolution3 of
the Court of Appeals (CA) in CA-G.R. SP No. 100163.
THE FACTS
Respondent Elpidio Rodriguez (Rodriguez) was previously employed as a bus conductor.4 He
entered into an employment contract with Contact Tours Manpower5 (Contact Tours) and was
assigned to work with petitioner bus company, ALPS Transportation.6
During the course of his employment, Rodriguez was found to have committed irregularities
on 26 April 2003,7 12 October 2003,8 and 26 January 2005.9 The latest irregularity report
dated 26 January 2005 stated that he had collected bus fares without issuing corresponding
tickets to passengers. The report was annotated with the word “Terminate.”10
Rodriguez alleged that he was dismissed from his employment on 27 January 2005, or the
day after the issuance of the last irregularity report. However, he did not receive any written
notice of termination.11He went back to the bus company a number of times, but it refused to
readmit him.12
On 11 August 2005, Rodriguez filed before the labor arbiter a complaint for illegal dismissal,
nonpayment of 13th month pay, and damages against ALPS Transportation and Alfredo
Perez, the proprietor of petitioner bus company.13
In response to the complaint, petitioners stated that they did not have any prerogative to
dismiss Rodriguez, as he was not their employee, but that of Contact Tours.14 In fact, based
on their agreement with Contact Tours, it was supposedly the latter that had the obligation to
inform respondent of the contents of the reports and to decide on the appropriate
sanctions.15 Petitioners further explained that due to the issuance of the three irregularity
reports against Rodriguez, they wrote to Contact Tours and recommended the termination of
respondent’s assignment to them.16
During the pendency of the illegal dismissal case before the labor arbiter, ALPS
Transportation charged Rodriguez with theft before the Office of the Provincial Prosecutor of
Tanauan, Batangas.17 However, petitioners eventually filed an Affidavit of Desistance and
withdrew the criminal charges against respondent.18
On 12 January 2006, the labor arbiter dismissed the illegal dismissal complaint for lack of
merit.19 He explained that no evidence had been adduced to support the contention of
Rodriguez that the latter had been terminated on 27 January 2005.20 Moreover, during the
mandatory conference, the representative of Contact Tours manifested that the company had
not dismissed Rodriguez, and that it was in fact willing to reinstate him to his former
position.21 Thus, the labor arbiter concluded that Rodriguez had not been illegally dismissed,
and was actually an employee of Contact Tours, and not of ALPS Transportation. 22
Rodriguez appealed the dismissal to the National Labor Relations Commission (NLRC). On
28 February 2007, the NLRC set aside the decision of the labor arbiter and entered a new
one, the dispositive portion of which reads:cralavvonlinelawlibrary
WHEREFORE, the assailed Decision dated January 12, 2006 is hereby SET ASIDE and a
new one is being entered, directing the respondents to reinstate the complainant to his former
position without loss of seniority rights and privileges but without backwages.
SO ORDERED.23
In so concluding, the NLRC ruled that Contact Tours was a labor-only contractor. 24 Thus,
Rodriguez should be considered as a regular employee of ALPS Transportation. 25
As regards the claim of illegal dismissal, the NLRC found that Rodriguez failed to prove that
his services were illegally terminated by petitioners, and that he was prevented from returning
to work.26 However, the bus company likewise failed to prove that he had abandoned his
work.27 Thus, citing previous rulings of this Court, the NLRC held that in case the parties fail to
prove either abandonment or termination, the employer should order the employee to report
back for work, accept the latter, and reinstate the employee to the latter’s former position.
However, an award for backwages is not warranted, as the parties must bear the burden of
their own loss.28
Dissatisfied with the ruling of the NLRC, Rodriguez filed a Rule 65 Petition for Certiorari with
the CA.
After a review of the records, the CA concluded that the NLRC acted with grave abuse of
discretion in rendering the assailed decision. The appellate court ruled that, in termination
cases, it is the employer who bears the burden of proving that the employee was not illegally
dismissed.29 Here, the CA found that ALPS Transportation failed to present convincing
evidence that Rodriguez had indeed collected bus fares without issuing corresponding tickets
to passengers. The appellate court held that the irregularity reports were mere allegations, the
truth of which had not been established by evidence.30
Moreover, the CA gave no credence to ALPS Transportation’s argument that Rodriguez had
not yet been terminated when he filed the illegal dismissal complaint, as he had not yet
received any notice of termination.31 The appellate court explained that, before the illegal
dismissal complaint was filed, more than six months had lapsed since respondent was last
given a bus assignment by ALPS Transportation.32Thus, the CA concluded that the argument
of the bus company was only an excuse to cover up the latter’s mistake in terminating him
without due process of law.33
The CA then ordered ALPS Transportation to reinstate Rodriguez and to pay him full
backwages, viz:cralavvonlinelawlibrary
WHEREFORE, the petition is GRANTED. Alfredo Perez is declared guilty of having committed
illegal dismissal. Accordingly, only the portions of the assailed dispositions ordering the
reinstatement of Elpidio Rodriguez to his former position without loss of seniority rights
is AFFIRMED and the phrase, “but without backwages” is ANNULLED and SET ASIDE. In
lieu thereof, Alfredo Perez is ORDERED to pay Elpidio Rodriguez backwages computed from
the time he was illegally dismissed until his actual reinstatement. No costs.
SO ORDERED.34
Aggrieved by the appellate court’s decision, petitioners filed the instant Rule 45 Petition before
this Court.
THE ISSUES
As culled from the records and the submissions of the parties, the issues in this case are as
follows:cralavvonlinelawlibrary
1. Whether respondent Rodriguez was validly dismissed; and
2. Assuming that respondent was illegally dismissed, whether ALPS Transportation
and/or Alfredo E. Perez is liable for the dismissal.
THE COURT’S RULING
We uphold the assailed Decision and Resolution and rule that respondent Rodriguez has
been illegally dismissed.
For a dismissal to be valid, the rule is that the employer must comply with both substantive
and procedural due process requirements.35 Substantive due process requires that the
dismissal must be pursuant to either a just or an authorized cause under Articles 282, 283 or
284 of the Labor Code.36Procedural due process, on the other hand, mandates that the
employer must observe the twin requirements of notice and hearing before a dismissal can be
effected.37
Thus, to determine the validity of Rodriguez’s dismissal, we first discuss whether his
employment was terminated for a just cause.

Petitioners argue that the dismissal of Rodriguez was brought about by his act of collecting
fare from a passenger without issuing the corresponding ticket.38 This was not the first
irregularity report issued against respondent, as similar reports had been issued against him
on 26 April 200339 and 12 October 2003.40 Thus, the company had lost trust and confidence in
him, as he had committed serious misconduct by stealing company revenue.41 Petitioners
therefore submit that the dismissal was valid under Article 282 of the Labor Code.42
For his part, Rodriguez denies the contents of the irregularity report.43 He states that the
report consists of a mere charge, but is bereft of the necessary proof.44 Moreover, he submits
that while the bus company filed a criminal complaint against him for the same act, the
complaint was dismissed pursuant to an Affidavit of Desistance, in which the bus company
stated that “the incident arose out of [a] misunderstanding between them.”45 Finally, he
contends that the company’s invocation of the 2003 irregularity reports to support his
dismissal effected in 2005 was a mere afterthought.46 In any event, he maintains that even
those alleged infractions were not duly supported by evidence.47
We find for respondent and rule that the employer failed to prove that the dismissal was due to
a just cause.
The Labor Code provides that the burden of proving that the termination of an employee was
for a just or authorized cause lies with the employer.48 If the employer fails to meet this
burden, the conclusion would be that the dismissal was unjustified and, therefore, illegal.49
Here, we agree with Rodriguez’s position that the 26 January 2005 irregularity report, which
served as the basis of his dismissal, may only be considered as an uncorroborated allegation
if unsupported by substantial evidence. On this matter, we quote with favor the ruling of the
appellate court:cralavvonlinelawlibrary
[T]he nature of work of a bus conductor involves inherent or normal occupational risks of
incurring money shortages and uncollected fares. A conductor’s job is to collect exact fares
from the passengers and remit his collections to the company. Evidence must, therefore, be
substantial and not based on mere surmises or conjectures for to allow an employer to
terminate the employment of a worker based on mere allegations places the latter in an
uncertain situation and at the sole mercy of the employer. An accusation that is not
substantiated will not ripen into a holding that there is just cause for dismissal. A mere
accusation of wrongdoing or a mere pronouncement of lack of confidence is not sufficient
cause for a valid dismissal of an employee. Thus, the failure of the [petitioners] to convincingly
show that the [respondent] misappropriated the bus fares renders the dismissal to be without
a valid cause. To add, jurisprudence dictates that [if] doubt exists between the evidence
presented by the employer and the employee, the scales of justice must be tilted in favor of
the latter.50 (Citations omitted)
Thus, we rule that petitioners have failed to prove that the termination of Rodriguez’s
employment was due to a just cause.
Turning to the issue of procedural due process, both parties are in agreement that Rodriguez
was not given a written notice specifying the grounds for his termination and giving him a
reasonable opportunity to explain his side; a hearing which would have given him the
opportunity to respond to the charge and present evidence in his favor; and a written notice of
termination indicating that after considering all the circumstances, management has
concluded that his dismissal is warranted. Clearly, therefore, the inescapable conclusion is
that procedural due process is wanting in the case at bar.
Having found that Rodriguez was illegally dismissed, we now rule on petitioners’ liabilities and
respondent’s entitlements under the law.
An illegally dismissed employee is entitled to the twin remedies of reinstatement and payment
of full backwages. In Santos v. National Labor Relations Commission,51 we
explained:cralavvonlinelawlibrary
The normal consequences of a finding that an employee has been illegally dismissed are,
firstly, that the employee becomes entitled to reinstatement to his former position without loss
of seniority rights and, secondly, the payment of backwages corresponding to the period from
his illegal dismissal up to actual reinstatement. The statutory intent on this matter is clearly
discernible. Reinstatement restores the employee who was unjustly dismissed to the position
from which he was removed, that is, to his status quo ante dismissal, while the grant of
backwages allows the same employee to recover from the employer that which he had lost by
way of wages as a result of his dismissal. These twin remedies — reinstatement and payment
of backwages — make the dismissed employee whole who can then look forward to continued
employment. Thus, do these two remedies give meaning and substance to the constitutional
right of labor to security of tenure. (Citations omitted)
Thus, the CA committed no reversible error in upholding the NLRC’s order to reinstate
Rodriguez and in directing the payment of his full backwages, from the time he was illegally
dismissed until his actual reinstatement.
As to who should bear the burden of satisfying respondent’s lawful claims, petitioners submit
that since Rodriguez was an employee of Contact Tours, the latter is liable for the settlement
of his claims.
We do not agree.
“The presumption is that a contractor is a labor-only contractor unless he overcomes the
burden of proving that it has substantial capital, investment, tools, and the like.”52 While ALPS
Transportation is not the contractor itself, since it is invoking Contact Tours’ status as a
legitimate job contractor in order to avoid liability, it bears the burden of proving that Contact
Tours is an independent contractor.53
It is thus incumbent upon ALPS Transportation to present sufficient proof that Contact Tours
has substantial capital, investment and tools in order to successfully impute liability to the
latter. However, aside from making bare assertions and offering the Kasunduan between
Rodriguez and Contact Tours in evidence,54 ALPS Transportation has failed to present any
proof to substantiate the former’s status as a legitimate job contractor. Hence, the legal
presumption that Contact Tours is a labor-only contractor has not been overcome.
As a labor-only contractor, therefore, Contact Tours is deemed to be an agent of ALPS
Transportation. 55Thus, the latter is responsible to Contact Tours’ employees in the same
manner and to the same extent as if they were directly employed by the bus company.56
Finally, the CA correctly ruled that since ALPS Transportation is a sole proprietorship owned
by petitioner Alfredo Perez, it is he who must be held liable for the payment of backwages to
Rodriguez.57 A sole proprietorship does not possess a juridical personality separate and
distinct from that of the owner of the enterprise.58 Thus, the owner has unlimited personal
liability for all the debts and obligations of the business, and it is against him that a decision for
illegal dismissal is to be enforced.59
WHEREFORE, the instant Rule 45 Petition for Review is DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. SP No. 100163 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 194062 June 17, 2013
REPUBLIC GAS CORPORATION, ARNEL U. TY, MARI ANTONETTE N. TY, ORLANDO
REYES, FERRER SUAZO and ALVIN U. TV, Petitioners,
vs.
PETRON CORPORATION, PILIPINAS SHELL PETROLEUM CORPORATION, and SHELL
INTERNATIONAL PETROLEUM COMPANY LIMITED, Respondents.
DECISION
PERALTA, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by
petitioners seeking the reversal of the Decision1 dated July 2, 2010, and Resolution2 dated
October 11, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 106385.
Stripped of non-essentials, the facts of the case, as summarized by the CA, are as follows:
Petitioners Petron Corporation ("Petron" for brevity) and Pilipinas Shell Petroleum Corporation
("Shell" for brevity) are two of the largest bulk suppliers and producers of LPG in the
Philippines. Petron is the registered owner in the Philippines of the trademarks GASUL and
GASUL cylinders used for its LGP products. It is the sole entity in the Philippines authorized to
allow refillers and distributors to refill, use, sell, and distribute GASUL LPG containers,
products and its trademarks.
Pilipinas Shell, on the other hand, is the authorized user in the Philippines of the tradename,
trademarks, symbols or designs of its principal, Shell International Petroleum Company
Limited, including the marks SHELLANE and SHELL device in connection with the production,
sale and distribution of SHELLANE LPGs. It is the only corporation in the Philippines
authorized to allow refillers and distributors to refill, use, sell and distribute SHELLANE LGP
containers and products. Private respondents, on the other hand, are the directors and
officers of Republic Gas Corporation ("REGASCO" for brevity), an entity duly licensed to
engage in, conduct and carry on, the business of refilling, buying, selling, distributing and
marketing at wholesale and retail of Liquefied Petroleum Gas ("LPG").
LPG Dealers Associations, such as the Shellane Dealers Association, Inc., Petron Gasul
Dealers Association, Inc. and Totalgaz Dealers Association, received reports that certain
entities were engaged in the unauthorized refilling, sale and distribution of LPG cylinders
bearing the registered tradenames and trademarks of the petitioners. As a consequence, on
February 5, 2004, Genesis Adarlo (hereinafter referred to as Adarlo), on behalf of the
aforementioned dealers associations, filed a letter-complaint in the National Bureau of
Investigation ("NBI") regarding the alleged illegal trading of petroleum products and/or
underdelivery or underfilling in the sale of LPG products.
Acting on the said letter-complaint, NBI Senior Agent Marvin E. De Jemil (hereinafter referred
to as "De Jemil") was assigned to verify and confirm the allegations contained in the letter-
complaint. An investigation was thereafter conducted, particularly within the areas of
Caloocan, Malabon, Novaliches and Valenzuela, which showed that several persons and/or
establishments, including REGASCO, were suspected of having violated provisions of Batas
Pambansa Blg. 33 (B.P. 33). The surveillance revealed that REGASCO LPG Refilling Plant in
Malabon was engaged in the refilling and sale of LPG cylinders bearing the registered marks
of the petitioners without authority from the latter. Based on its General Information Sheet filed
in the Securities and Exchange Commission, REGASCO’s members of its Board of Directors
are: (1) Arnel U. Ty – President, (2) Marie Antoinette Ty – Treasurer, (3) Orlando Reyes –
Corporate Secretary, (4) Ferrer Suazo and (5) Alvin Ty (hereinafter referred to collectively as
private respondents).
De Jemil, with other NBI operatives, then conducted a test-buy operation on February 19,
2004 with the former and a confidential asset going undercover. They brought with them four
(4) empty LPG cylinders bearing the trademarks of SHELLANE and GASUL and included the
same with the purchase of J&S, a REGASCO’s regular customer. Inside REGASCO’s refilling
plant, they witnessed that REGASCO’s employees carried the empty LPG cylinders to a
refilling station and refilled the LPG empty cylinders. Money was then given as payment for
the refilling of the J&S’s empty cylinders which included the four LPG cylinders brought in by
De Jemil and his companion. Cash Invoice No. 191391 dated February 19, 2004 was issued
as evidence for the consideration paid.
After leaving the premises of REGASCO LPG Refilling Plant in Malabon, De Jemil and the
other NBI operatives proceeded to the NBI headquarters for the proper marking of the LPG
cylinders. The LPG cylinders refilled by REGASCO were likewise found later to be
underrefilled.
Thus, on March 5, 2004, De Jemil applied for the issuance of search warrants in the Regional
Trial Court, Branch 24, in the City of Manila against the private respondents and/or occupants
of REGASCO LPG Refilling Plant located at Asucena Street, Longos, Malabon, Metro Manila
for alleged violation of Section 2 (c), in relation to Section 4, of B.P. 33, as amended by PD
1865. In his sworn affidavit attached to the applications for search warrants, Agent De Jemil
alleged as follows:
"x x x.
"4. Respondent’s REGASCO LPG Refilling Plant-Malabon is not one of those entities
authorized to refill LPG cylinders bearing the marks of PSPC, Petron and Total Philippines
Corporation. A Certification dated February 6, 2004 confirming such fact, together with its
supporting documents, are attached as Annex "E" hereof.
6. For several days in the month of February 2004, the other NBI operatives and I conducted
surveillance and investigation on respondents’ REGASCO LPG refilling Plant-Malabon. Our
surveillance and investigation revealed that respondents’ REGASCO LPG Refilling Plant-
Malabon is engaged in the refilling and sale of LPG cylinders bearing the marks of Shell
International, PSPC and Petron.
x x x.
8. The confidential asset and I, together with the other operatives of the NBI, put together a
test-buy operation. On February 19, 2004, I, together with the confidential asset, went
undercover and executed our testbuy operation. Both the confidential assets and I brought
with us four (4) empty LPG cylinders branded as Shellane and Gasul. x x x in order to have a
successful test buy, we decided to "ride-on" our purchases with the purchase of Gasul and
Shellane LPG by J & S, one of REGASCO’s regular customers.
9. We proceeded to the location of respondents’ REGASCO LPG Refilling Plant-Malabon and
asked from an employee of REGASCO inside the refilling plant for refill of the empty LPG
cylinders that we have brought along, together with the LPG cylinders brought by J & S. The
REGASCO employee, with some assistance from other employees, carried the empty LPG
cylinders to a refilling station and we witnessed the actual refilling of our empty LPG cylinders.
10. Since the REGASCO employees were under the impression that we were together with J
& S, they made the necessary refilling of our empty LPG cylinders alongside the LPG
cylinders brought by J & S. When we requested for a receipt, the REGASCO employees
naturally counted our LPG cylinders together with the LPG cylinders brought by J & S for
refilling. Hence, the amount stated in Cash Invoice No. 191391 dated February 19, 2004,
equivalent to Sixteen Thousand Two Hundred Eighty-Six and 40/100 (Php16,286.40),
necessarily included the amount for the refilling of our four (4) empty LPG cylinders. x x x.
11. After we accomplished the purchase of the illegally refilled LPG cylinders from
respondents’ REGASCO LPG Refilling Plant-Malabon, we left its premises bringing with us
the said LPG cylinders. Immediately, we proceeded to our headquarters and made the proper
markings of the illegally refilled LPG cylinders purchased from respondents’ REGASCO LPG
Refilling Plant-Malabon by indicating therein where and when they were purchased. Since
REGASCO is not an authorized refiller, the four (4) LPG cylinders illegally refilled by
respondents’ REGASCO LPG Refilling Plant-Malabon, were without any seals, and when
weighed, were underrefilled. Photographs of the LPG cylinders illegally refilled from
respondents’ REGASCO LPG Refilling Plant-Malabon are attached as Annex "G" hereof. x x
x."
After conducting a personal examination under oath of Agent De Jemil and his witness, Joel
Cruz, and upon reviewing their sworn affidavits and other attached documents, Judge Antonio
M. Eugenio, Presiding Judge of the RTC, Branch 24, in the City of Manila found probable
cause and correspondingly issued Search Warrants Nos. 04-5049 and 04-5050.
Upon the issuance of the said search warrants, Special Investigator Edgardo C. Kawada and
other NBI operatives immediately proceeded to the REGASCO LPG Refilling Station in
Malabon and served the search warrants on the private respondents. After searching the
premises of REGASCO, they were able to seize several empty and filled Shellane and Gasul
cylinders as well as other allied paraphernalia.
Subsequently, on January 28, 2005, the NBI lodged a complaint in the Department of Justice
against the private respondents for alleged violations of Sections 155 and 168 of Republic Act
(RA) No. 8293, otherwise known as the Intellectual Property Code of the Philippines.
On January 15, 2006, Assistant City Prosecutor Armando C. Velasco recommended the
dismissal of the complaint. The prosecutor found that there was no proof introduced by the
petitioners that would show that private respondent REGASCO was engaged in selling
petitioner’s products or that it imitated and reproduced the registered trademarks of the
petitioners. He further held that he saw no deception on the part of REGASCO in the conduct
of its business of refilling and marketing LPG. The Resolution issued by Assistant City
Prosecutor Velasco reads as follows in its dispositive portion:
"WHEREFORE, foregoing considered, the undersigned finds the evidence against the
respondents to be insufficient to form a well-founded belief that they have probably committed
violations of Republic Act No. 9293. The DISMISSAL of this case is hereby respectfully
recommended for insufficiency of evidence."
On appeal, the Secretary of the Department of Justice affirmed the prosecutor’s dismissal of
the complaint in a Resolution dated September 18, 2008, reasoning therein that:
"x x x, the empty Shellane and Gasul LPG cylinders were brought by the NBI agent
specifically for refilling. Refilling the same empty cylinders is by no means an offense in itself –
it being the legitimate business of Regasco to engage in the refilling and marketing of liquefied
petroleum gas. In other words, the empty cylinders were merely filled by the employees of
Regasco because they were brought precisely for that purpose. They did not pass off the
goods as those of complainants’ as no other act was done other than to refill them in the
normal course of its business.
"In some instances, the empty cylinders were merely swapped by customers for those which court a quo to correct any error attributed to it by re-examination of the legal and factual
are already filled. In this case, the end-users know fully well that the contents of their cylinders circumstances of the case.6
are not those produced by complainants. And the reason is quite simple – it is an independent
refilling station. However, this rule is not absolute as jurisprudence has laid down several recognized
exceptions permitting a resort to the special civil action for certiorari without first filing a motion
"At any rate, it is settled doctrine that a corporation has a personality separate and distinct for reconsideration, viz.:
from its stockholders as in the case of herein respondents. To sustain the present allegations,
the acts complained of must be shown to have been committed by respondents in their (a) Where the order is a patent nullity, as where the court a quo has no jurisdiction;
individual capacity by clear and convincing evidence. There being none, the complaint must
necessarily fail. As it were, some of the respondents are even gainfully employed in other
(b) Where the questions raised in the certiorari proceedings have been duly raised
business pursuits. x x x."3
and passed upon by the lower court, or are the same as those raised and passed
upon in the lower court.
Dispensing with the filing of a motion for reconsideration, respondents sought recourse to the
CA through a petition for certiorari.
(c) Where there is an urgent necessity for the resolution of the question and any
further delay would prejudice the interests of the Government or of the petitioner or
In a Decision dated July 2, 2010, the CA granted respondents’ certiorari petition. The fallo the subject matter of the petition is perishable;
states:
(d) Where, under the circumstances, a motion for reconsideration would be useless;
WHEREFORE, in view of the foregoing premises, the petition filed in this case is hereby
GRANTED. The assailed Resolution dated September 18, 2008 of the Department of Justice
(e) Where petitioner was deprived of due process and there is extreme urgency for
in I.S. No. 2005-055 is hereby REVERSED and SET ASIDE.
relief;

SO ORDERED.4
(f) Where, in a criminal case, relief from an order of arrest is urgent and the granting
of such relief by the trial court is improbable;
Petitioners then filed a motion for reconsideration. However, the same was denied by the CA
in a Resolution dated October 11, 2010.
(g) Where the proceedings in the lower court are a nullity for lack of due process;

Accordingly, petitioners filed the instant Petition for Review on Certiorari raising the following
(h) Where the proceeding was ex parte or in which the petitioner had no opportunity
issues for our resolution:
to object; and,

Whether the Petition for Certiorari filed by RESPONDENTS should have been denied outright.
(i) Where the issue raised is one purely of law or public interest is involved.7

Whether sufficient evidence was presented to prove that the crimes of Trademark
In the present case, the filing of a motion for reconsideration may already be dispensed with
Infringement and Unfair Competition as defined and penalized in Section 155 and Section 168
considering that the questions raised in this petition are the same as those that have already
in relation to Section 170 of Republic Act No. 8293 (The Intellectual Property Code of the
been squarely argued and passed upon by the Secretary of Justice in her assailed resolution.
Philippines) had been committed.
Apropos the second and third issues, the same may be simplified to one core issue: whether
Whether probable cause exists to hold INDIVIDUAL PETITIONERS liable for the offense
probable cause exists to hold petitioners liable for the crimes of trademark infringement and
charged.5
unfair competition as defined and penalized under Sections 155 and 168, in relation to Section
170 of Republic Act (R.A.) No. 8293.
Let us discuss the issues in seriatim.
Section 155 of R.A. No. 8293 identifies the acts constituting trademark infringement as
Anent the first issue, the general rule is that a motion for reconsideration is a condition sine follows:
qua non before a certiorari petition may lie, its purpose being to grant an opportunity for the
Section 155. Remedies; Infringement. – Any person who shall, without the consent of the
owner of the registered mark:
155.1 Use in commerce any reproduction, counterfeit, copy or colorable imitation of a
registered mark of the same container or a dominant feature thereof in connection with the
sale, offering for sale, distribution, advertising of any goods or services including other
preparatory steps necessary to carry out the sale of any goods or services on or in connection
with which such use is likely to cause confusion, or to cause mistake, or to deceive; or
155.2 Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant
feature thereof and apply such reproduction, counterfeit, copy or colorable imitation to labels,
signs, prints, packages, wrappers, receptacles or advertisements intended to be used in
commerce upon or in connection with the sale, offering for sale, distribution, or advertising of
goods or services on or in connection with which such use is likely to cause confusion, or to
cause mistake, or to deceive, shall be liable in a civil action for infringement by the registrant
for the remedies hereinafter set forth: Provided, That the infringement takes place at the
moment any of the acts stated in Subsection 155.1 or this subsection are committed
regardless of whether there is actual sale of goods or services using the infringing material.8
From the foregoing provision, the Court in a very similar case, made it categorically clear that
the mere unauthorized use of a container bearing a registered trademark in connection with
the sale, distribution or advertising of goods or services which is likely to cause confusion,
mistake or deception among the buyers or consumers can be considered as trademark
infringement.9
Here, petitioners have actually committed trademark infringement when they refilled, without
the respondents’ consent, the LPG containers bearing the registered marks of the
respondents. As noted by respondents, petitioners’ acts will inevitably confuse the consuming
public, since they have no way of knowing that the gas contained in the LPG tanks bearing
respondents’ marks is in reality not the latter’s LPG product after the same had been illegally
refilled. The public will then be led to believe that petitioners are authorized refillers and
distributors of respondents’ LPG products, considering that they are accepting empty
containers of respondents and refilling them for resale.
As to the charge of unfair competition, Section 168.3, in relation to Section 170, of R.A. No.
8293 describes the acts constituting unfair competition as follows:
Section 168. Unfair Competition, Rights, Regulations and Remedies. x x x.
168.3 In particular, and without in any way limiting the scope of protection against unfair
competition, the following shall be deemed guilty of unfair competition:
(a) Any person, who is selling his goods and gives them the general appearance of goods of
another manufacturer or dealer, either as to the goods themselves or in the wrapping of the
packages in which they are contained, or the devices or words thereon, or in any other feature
of their appearance, which would be likely to influence purchasers to believe that the goods
offered are those of a manufacturer or dealer, other than the actual manufacturer or dealer, or
who otherwise clothes the goods with such appearance as shall deceive the public and
defraud another of his legitimate trade, or any subsequent vendor of such goods or any agent
of any vendor engaged in selling such goods with a like purpose;
xxxx
Section 170. Penalties. Independent of the civil and administrative sanctions imposed by law,
a criminal penalty of imprisonment from two (2) years to five (5) years and a fine ranging from
Fifty thousand pesos (₱50,000) to Two hundred thousand pesos (₱200,000), shall be
imposed on any person who is found guilty of committing any of the acts mentioned in Section
155, Section 168 and Subsection 169.1.
From jurisprudence, unfair competition has been defined as the passing off (or palming off) or
attempting to pass off upon the public of the goods or business of one person as the goods or
business of another with the end and probable effect of deceiving the public.10
Passing off (or palming off) takes place where the defendant, by imitative devices on the
general appearance of the goods, misleads prospective purchasers into buying his
merchandise under the impression that they are buying that of his competitors. Thus, the
defendant gives his goods the general appearance of the goods of his competitor with the
intention of deceiving the public that the goods are those of his competitor.11
In the present case, respondents pertinently observed that by refilling and selling LPG
cylinders bearing their registered marks, petitioners are selling goods by giving them the
general appearance of goods of another manufacturer.
What's more, the CA correctly pointed out that there is a showing that the consumers may be
misled into believing that the LPGs contained in the cylinders bearing the marks "GASUL" and
"SHELLANE" are those goods or products of the petitioners when, in fact, they are not.
Obviously, the mere use of those LPG cylinders bearing the trademarks "GASUL" and
"SHELLANE" will give the LPGs sold by REGASCO the general appearance of the products of
the petitioners.
In sum, this Court finds that there is sufficient evidence to warrant the prosecution of
petitioners for trademark infringement and unfair competition, considering that petitioner
Republic Gas Corporation, being a corporation, possesses a personality separate and distinct
from the person of its officers, directors and stockholders.12Petitioners, being corporate
officers and/or directors, through whose act, default or omission the corporation commits a
crime, may themselves be individually held answerable for the crime.13 Veritably, the CA
appropriately pointed out that petitioners, being in direct control and supervision in the
management and conduct of the affairs of the corporation, must have known or are aware that
the corporation is engaged in the act of refilling LPG cylinders bearing the marks of the
respondents without authority or consent from the latter which, under the circumstances, could
probably constitute the crimes of trademark infringement and unfair competition. The
existence of the corporate entity does not shield from prosecution the corporate agent who
knowingly and intentionally caused the corporation to commit a crime. Thus, petitioners
cannot hide behind the cloak of the separate corporate personality of the corporation to
escape criminal liability. A corporate officer cannot protect himself behind a corporation where
he is the actual, present and efficient actor.14

WHEREFORE, premises considered, the petition is hereby DENIED and the Decision dated
July 2, 2010 and Resolution dated October 11, 2010 of the Court of Appeals in CA-G.R. SP
No. 106385 are AFFIRMED.

SO ORDERED.