MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION vs ANTONIO B.

MONFORT III
G.R. No. 152542 : July 8, 2004
G.R. No. 155472 : July 8, 2004
Facts:
Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is
the registered owner of a farm, fishpond and sugar cane plantation known as Haciendas San
Antonio II, Marapara, Pinanoag and Tinampa-an, all situated in Cadiz City. It also owns one
unit of motor vehicle and two units of tractors. The same allowed Ramon H. Monfort, its
Executive Vice President, to breed and maintain fighting cocks in his personal capacity at
Hacienda San Antonio. In 1997, the group of Antonio Monfort III, through force and
intimidation, allegedly took possession of the 4 Haciendas, the produce thereon and the
motor vehicle and tractors, as well as the fighting cocks of Ramon H. Monfort.
In G.R. No. 155472: The Corporation, represented by its President, Ma. Antonia M.
Salvatierra, and Ramon H. Monfort, in his personal capacity, filed against the group of
Antonio Monfort III, a complaint for delivery of motor vehicle, tractors and 378 fighting
cocks, with prayer for injunction and damages. Motion to dismiss on the ground of Ma.
Antonia M. Salvatierra's lack of capacity to sue on behalf of the Corporation was denied.
In G.R. No. 152542: Ma. Antonia M. Salvatierra filed on behalf of the Corporation a complaint
for forcible entry, preliminary mandatory injunction with temporary restraining order and
damages against the group of Antonio Monfort III.
The group of Antonio Monfort III alleged that they are possessing and controlling the
Haciendas and harvesting the produce therein on behalf of the corporation and not for
themselves. They likewise raised the affirmative defense of lack of legal capacity of Ma.
Antonia M. Salvatierra to sue on behalf of the Corporation.
Complaint was eventually dismissed.
Basis of claim of Salvatierra\s lack of capacity to sue: The group of Antonio Monfort III claims
that the March 31, 1997 Board Resolution authorizing Ma. Antonia M. Salvatierra and/or
Ramon H. Monfort to represent the Corporation is void because the purported Members of
the Board who passed the same were not validly elected officers of the Corporation.
Issue/ Held: WON Ma. Antonia M. Salvatierra has the legal capacity to sue on behalf of the
Corporation. -NO. Ma. Antonia M. Salvatierra failed to prove that four of those who
authorized her to represent the Corporation were the lawfully elected Members of the Board
of the Corporation. As such, they cannot confer valid authority for her to sue on behalf of the
corporation.
Ratio:
A corporation has no power except those expressly conferred on it by the Corporation Code
and those that are implied or incidental to its existence. In turn, a corporation exercises said
powers through its board of directors and/or its duly authorized officers and agents. Thus, it
has been observed that the power of a corporation to sue and be sued in any court is lodged
with the board of directors that exercises its corporate powers. In turn, physical acts of the

corporation, like the signing of documents, can be performed only by natural persons duly
authorized for the purpose by corporate by-laws or by a specific act of the board of directors.
Corporation failed to comply with Section 26 of the Corporation Code, requiring submission
to the SEC within thirty (30) days after the election the names, nationalities and residences
of the elected directors, trustees and officers of the Corporation.
1.
In the case at bar, the fact that four of the six Members of the Board listed in the
1996 General Information Sheet are already dead at the time the March 31, 1997 Board
Resolution was issued, does not automatically make the four signatories (i.e., Paul M.
Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said Board
Resolution (whose name do not appear in the 1996 General Information Sheet) as among
the incumbent Members of the Board. This is because it was not established that they were
duly elected to replace the said deceased Board Members.
To correct the alleged error in the General Information Sheet, the retained accountant of the
Corporation informed the SEC in its November 11, 1998 letter that the non-inclusion of the
lawfully elected directors in the 1996 General Information Sheet was attributable to its
oversight and not the fault of the Corporation. This belated attempt, however, did not erase
the doubt as to whether an election was indeed held.
2.
What further militates against the purported election of those who signed the March
31, 1997 Board Resolution was the belated submission of the alleged Minutes of the October
16, 1996 meeting where the questioned officers were elected. The issue of legal capacity of
Ma. Antonia M. Salvatierra was raised before the lower court by the group of Antonio Monfort
III as early as 1997, but the Minutes of said October 16, 1996 meeting was presented by the
Corporation only in its September 29, 1999 Comment before the Court of Appeals. Moreover,
the Corporation failed to prove that the same October 16, 1996 Minutes was submitted to
the SEC.

Philippine National Bank vs. Andrada Electric & Engineering Co.

[GR 142936, 17 April 2002]
Third Division, Panganiban (J): 3 concur, 1 on official leave
Facts: On 26 August 1975, the Philippine national Bank (PNB) acquired the assets of the
Pampanga Sugar Mills (PASUMIL) that were earlier foreclosed by the Development Bank of
the Philippines (DBP) under LOI 311. The PNB organized the National Sugar Development
Corporation (NASUDECO) in September 1975, to take ownership and possession of the
assets and ultimately to nationalize and consolidate its interest in other PNB controlled sugar
mills. Prior to 29 October 1971, PASUMIL engaged the services of the Andrada Electric &
Engineering Company (AEEC) for electrical rewinding and repair, most of which were
partially paid by PASUMIL, leaving several unpaid accounts with AEEC. On 29 October 1971,
AEEC and PASUMIL entered into a contract for AEEC to perform the (a) Construction of a
power house building; 3 reinforced concrete foundation for 3 units 350 KW diesel engine
generating sets, 3 reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo
generator sets, among others. Aside from the work contract, PASUMIL required AEEC to

perform extra work, and provide electrical equipment and spare parts. Out of the total
obligation of P777,263.80, PASUMIL had paid only P250,000.00, leaving an unpaid balance,
as of 27 June 1973, amounting to P527,263.80. Out of said unpaid balance of P527,263.80,
PASUMIL made a partial payment to AEEC of P14,000.00, in broken amounts, covering the
period from 5 January 1974 up to 23 May 1974, leaving an unpaid balance of P513,263.80.
PASUMIL and PNB, and now NASUDECO, allegedly failed and refused to pay AEEC their just,
valid and demandable obligation (The President of the NASUDECO is also the Vice-President
of the PNB. AEEC besought said official to pay the outstanding obligation of PASUMIL,
inasmuch as PNB and NASUDECO now owned and possessed the assets of PASUMIL, and
these defendants all benefited from the works, and the electrical, as well as the engineering
and repairs, performed by AEEC). Because of the failure and refusal of PNB, PASUMIL and/or
NASUDECO to pay their obligations, AEEC allegedly suffered actual damages in the total
amount of P513,263.80; and that in order to recover these sums, AEEC was compelled to
engage the professional services of counsel, to whom AEEC agreed to pay a sum equivalent
to 25% of the amount of the obligation due by way of attorney's fees. PNB and NASUDECO
filed a joint motion to dismiss on the ground that the complaint failed to state sufficient
allegations to establish a cause of action against PNB and NASUDECO, inasmuch as there is
lack or want of privity of contract between the them and AEEC. Said motion was denied by
the trial court in its 27 November order, and ordered PNB nad NASUDECO to file their
answers within 15 days. After due proceedings, the Trial Court rendered judgment in favor of
AEEC and against PNB, NASUDECO and PASUMIL; the latter being ordered to pay jointly and
severally the former (1) the sum of P513,623.80 plus interest thereon at the rate of 14% per
annum as claimed from 25 September 1980 until fully paid; (2) the sum of P102,724.76 as
attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The Court of Appeals affirmed
the decision of the trial court in its decision of 17 April 2000 (CA-GR CV 57610. PNB and
NASUDECO filed the petition for review.
Issue: Whether PNB and NASUDECO may be held liable for PASUMILs liability to AEEC.
Held: Basic is the rule that a corporation has a legal personality distinct and separate from
the persons and entities owning it. The corporate veil may be lifted only if it has been used
to shield fraud, defend crime, justify a wrong, defeat public convenience, insulate bad faith
or perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB) acquired
ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which had
earlier been foreclosed and purchased at the resulting public auction by the Development
Bank of the Philippines (DBP), will not make PNB liable for the PASUMIL's contractual debts to
Andrada Electric & Engineering Company (AEEC). Piercing the veil of corporate fiction may
be allowed only if the following elements concur: (1) control not mere stock control, but
complete domination not only of finances, but of policy and business practice in respect
to the transaction attacked, must have been such that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own; (2) such control
must have been used by the defendant to commit a fraud or a wrong to perpetuate the
violation of a statutory or other positive legal duty, or a dishonest and an unjust act in
contravention of plaintiff's legal right; and (3) the said control and breach of duty must have
proximately caused the injury or unjust loss complained of. The absence of the foregoing
elements in the present case precludes the piercing of the corporate veil. First, other than
the fact that PNB and NASUDECO acquired the assets of PASUMIL, there is no showing that
their control over it warrants the disregard of corporate personalities. Second, there is no
evidence that their juridical personality was used to commit a fraud or to do a wrong; or that

the separate corporate entity was farcically used as a mere alter ego, business conduit or
instrumentality of another entity or person. Third, AEEC was not defrauded or injured when
PNB and NASUDECO acquired the assets of PASUMIL. Hence, although the assets of
NASUDECO can be easily traced to PASUMIL, the transfer of the latter's assets to PNB and
NASUDECO was not fraudulently entered into in order to escape liability for its debt to AEEC.
Neither was there any merger or consolidation with respect to PASUMIL and PNB. The
procedure prescribed under Title IX of the Corporation Code 59 was not followed. In fact,
PASUMIL's corporate existence had not been legally extinguished or terminated. Further,
prior to PNB's acquisition of the foreclosed assets, PASUMIL had previously made partial
payments to AEEC for the former's obligation in the amount of P777,263.80. As of 27 June
1973, PASUMIL had paid P250,000 to AEEC and, from 5 January 1974 to 23 May 1974,
another P14,000. Neither did PNB expressly or impliedly agree to assume the debt of
PASUMIL to AEEC. LOI 11 explicitly provides that PNB shall study and submit
recommendations on the claims of PASUMIL's creditors. Clearly, the corporate separateness
between PASUMIL and PNB remains, despite AEEC's insistence to the contrary.

TAYAG vs. BENGUET CONSOLIDATED, INC.

G.R. No. L-23145

November 29, 1968

Facts:
Idonah Slade Perkins, died in New York in 1960, left among others, two stock certificates
covering 33,002 shares of Benguet Consolidated, the certificates being in the possession of
the County Trust Company of New York, the domiciliary administrator of the estate of the
deceased.
A dispute arose between the domiciary administrator in New York and the ancillary
administrator in the Philippines as to which of them was entitled to the possession of the
stock certificates in question. Anciallry administrator wanted possession of the shares so as
to satisfy the legitimate claims of local creditors.
On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary
administrator, County Trust Company, to "produce and deposit" them with the ancillary
administrator or with the Clerk of Court. The domiciliary administrator did not comply with
the order, and on February 11, 1964, the ancillary administrator petitioned the court to
"issue an order declaring the certificate or certificates of stocks covering the 33,002 shares
issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or]
considered as lost."
The order of the Lower Court is of the following tenor: (1) considers as lost for all purposes
in connection with the administration and liquidation of the Philippine estate of Idonah Slade
Perkins the stock certificates covering the 33,002 shares of stock standing in her name in
the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3)
directs said corporation to issue new certificates in lieu thereof, the same to be delivered by
said corporation to either the incumbent ancillary administrator or to the Probate Division of
this Court."

Appeal to the order was made by Benguet Consolidated. Appellant opposed the petition of
the ancillary administrator because the said stock certificates are in existence, they are
today in the possession of the domiciliary administrator, the County Trust Company, in New
York, U.S.A...."
Issue/ Held: WON the appeal is meritorious.- NO. The order was called for by the realities of
the situation.
Ratio: The Court took into account the factual circumstances in uphoding the oder by the
Lower Court that the shares of stock be considered lost t for all purposes in connection with
the administration and liquidation of the Philippine estate of Idonah Slade Perkins.
1.
Territorial scope of authority of administrator. It is a "general rule universally
recognized" that administration, whether principal or ancillary, certainly "extends to the
assets of a decedent found within the state or country where it was granted," the corollary
being "that an administrator appointed in one state or country has no power over property in
another state or country." Since the actual situs of the shares of stock of a domestic
corporation is in the Philippines, it should be administered by the ancillary admisnitrator.
2.
Element of fiction of loss is necessary given the factual circumstances. Since there is
a refusal, persistently adhered to by the domiciliary administrator in New York, to deliver the
shares of stocks of appellant corporation owned by the decedent to the ancillary
administrator in the Philippines, there was nothing unreasonable or arbitrary in considering
them as lost and requiring the appellant to issue new certificates in lieu thereof. Otherwise,
to yield to the stubborn refusal of the domicillary administrator, the task incumbent under
the law of the ancillary administrator could not be discharged and his responsibility fulfilled.
3.
Lawful order of the court overrides the by-laws of Benguet Consolidated. Benguet
Consolidated stresses that in the event of a contest or the pendency of an action regarding
ownership of such certificate or certificates of stock allegedly lost, stolen or destroyed, the
issuance of a new certificate or certificates would await the "final decision by [a] court
regarding the ownership [thereof]." SC held that Benguet Consolidated's obedience to a
lawful court order certainly constitutes a valid defense, assuming that such apprehension of
a possible court action against it could possibly materialize.
4.

A corporation is not immune from judicial action.

Definitions of Corporation:
"...a corporation is an artificial being created by operation of law...." It owes its life to the
state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a
corporation was conceived as an artificial person, owing its existence through creation by a
sovereign power." (Berle, The Theory of Enterprise Entity, 47 Co. Law Rev. 343 (1907).
"an artificial being, invisible, intangible, and existing only in contemplation of law." (Chief
Justice Marshall, Dartmouth College v. Woodward )
"A corporation is not in fact and in reality a person, but the law treats it as though it were a
person by process of fiction, or by regarding it as an artificial person distinct and separate
from its individual stockholders.... It owes its existence to law. It is an artificial person

created by law for certain specific purposes, the extent of whose existence, powers and
liberties is fixed by its charter." (Fletcher, Cyclopedia Corporations )
...a juristic person, resulting from an association of human beings granted legal personality
by the state, puts the matter neatly. (Pound on Jurisprudence)
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote
from Friedmann, "is the reality of the group as a social and legal entity, independent of state
recognition and concession." A corporation as known to Philippine jurisprudence is a
creature without any existence until it has received the imprimatur of the state according to
law. It is logically inconceivable therefore that it will have rights and privileges of a higher
priority than that of its creator. More than that, it cannot legitimately refuse to yield
obedience to acts of its state organs, certainly not excluding the judiciary, whenever called
upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still of
persuasive authority in our jurisdiction, comes more often within the ken of the judiciary
than the other two coordinate branches. It institutes the appropriate court action to enforce
its right. Correlatively, it is not immune from judicial control in those instances, where a duty
under the law as ascertained in an appropriate legal proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to confer
upon it not autonomy which may be conceded but license which cannot be tolerated. It is to
argue that it may, when so minded, overrule the state, the source of its very existence; it is
to contend that what any of its governmental organs may lawfully require could be ignored
at will. So extravagant a claim cannot possibly merit approval.

PHILIPPINE STOCK EXCHANGE, INC., vs. THE HONORABLE COURT OF APPEALS

G.R. No. 125469

October 27, 1997

Facts:
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its
shares to the public in order to raise funds allegedly to develop its properties and pay its
loans with several banking institutions. In January, 1995, PALI was issued a Permit to Sell its
shares to the public by the Securities and Exchange Commission (SEC). To facilitate the
trading of its shares among investors, PALI sought to course the trading of its shares through
the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the said stock
exchange an application to list its shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALI's application,
recommended to the PSE's Board of Governors the approval of PALI's listing application.

On February 14, 1996, before it could act upon PALI's application, the Board of Governors of
the PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late
President Marcos was the legal and beneficial owner of certain properties forming part of the
Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and
that the Ternate Development Corporation, which is among the stockholders of PALI, likewise
appears to have been held and continue to be held in trust by one Rebecco Panlilio for then
President Marcos and now, effectively for his estate, and requested PALI's application to be
deferred. PALI was requested to comment upon the said letter.
PALI's answer stated that the properties forming part of the Puerto Azul Beach Hotel and
Resort Complex were not claimed by PALI as its assets. On the contrary, the resort is actually
owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct
from PALI. Furthermore, the Ternate Development Corporation owns only 1.20% of PALI.
The Board of Governors of the PSE reached its decision to reject PALI's application, citing the
existence of serious claims, issues and circumstances surrounding PALI's ownership over its
assets that adversely affect the suitability of listing PALI's shares in the stock exchange.
PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr.,
bringing to the SEC's attention the action taken by the PSE. SEC rendered its Order,
reversing the PSE's decision. SEC ordered to immediately cause the listing of the PALI shares
in the Exchange.
CA: SEC had both jurisdiction and authority to look into the decision of the petitioner PSE, for
the purpose of ensuring fair administration of the exchange. Both as a corporation and as a
stock exchange, the petitioner is subject to public respondent's jurisdiction, regulation and
control. PALI complied with all the requirements for public listing, affirming the SEC's ruling.

Issue/Held: WON SEC has the authority to order the PSE to list the shares of PALI in the stock
exchange. - YES, but he Court finds that the SEC had acted arbitrarily in arrogating unto
itself the discretion of approving the application for listing in the PSE of the private
respondent PALI, since this is a matter addressed to the sound discretion of the PSE, a
corporation entity, whose business judgments are respected in the absence of bad faith.
Ratio:
1.
SEC with jurisdition. It is undeniable that the petitioner PSE is not an ordinary
corporation, in that although it is clothed with the markings of a corporate entity, it functions
as the primary channel through which the vessels of capital trade ply. The PSE's relevance to
the continued operation and filtration of the securities transactions in the country gives it a
distinct color of importance such that government intervention in its affairs becomes
justified, if not necessarily. Indeed, as the only operational stock exchange in the country
today, the PSE enjoys a monopoly of securities transactions, and as such, it yields an
immense influence upon the country's economy.
Due to this special nature of stock exchanges, the country's lawmakers has seen it wise to
give special treatment to the administration and regulation of stock exchanges

Sections 3, 6, and 38 of PD 902-A give the SEC the special mandate to be vigilant in the
supervision of the affairs of stock exchanges so that the interests of the investing public may
be fully safeguard.
Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the
SEC's challenged control authority over the petitioner PSE even as it provides that "the
Commission shall have absolute jurisdiction, supervision, and control over all corporations,
partnerships or associations, who are the grantees of primary franchises and/or a license or
permit issued by the government to operate in the Philippines. . ." The SEC's regulatory
authority over private corporations encompasses a wide margin of areas, touching nearly all
of a corporation's concerns. This authority springs from the fact that a corporation owes its
existence to the concession of its corporate franchise from the state.
The SEC's power to look into the subject ruling of the PSE, therefore, may be implied from or
be considered as necessary or incidental to the carrying out of the SEC's express power to
insure fair dealing in securities traded upon a stock exchange or to ensure the fair
administration of such exchange. It is, likewise, observed that the principal function of the
SEC is the supervision and control over corporations, partnerships and associations with the
end in view that investment in these entities may be encouraged and protected, and their
activities for the promotion of economic development.
This is not to say, however, that the PSE's management prerogatives are under the absolute
control of the SEC. The PSE is, alter all, a corporation authorized by its corporate franchise to
engage in its proposed and duly approved business.
A corporation is but an association of individuals, allowed to transact under an assumed
corporate name, and with a distinct legal personality. In organizing itself as a collective
body, it waives no constitutional immunities and perquisites appropriate to such a body. As
to its corporate and management decisions, therefore, the state will generally not interfere
with the same. Questions of policy and of management are left to the honest decision of the
officers and directors of a corporation, and the courts are without authority to substitute
their judgment for the judgment of the board of directors. The board is the business
manager of the corporation, and so long as it acts in good faith, its orders are not reviewable
by the courts.
Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant
authority to reverse the PSE's decision in matters of application for listing in the market, the
SEC may exercise such power only if the PSE's judgment is attended by bad faith. In Board of
Liquidators vs. Kalaw, it was held that bad faith does not simply connote bad judgment or
negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of
wrong. It means a breach of a known duty through some motive or interest of ill will,
partaking of the nature of fraud.
2.
There was no bad faith in the decision of PSE not to allow listing of PALI shares. In
reaching its decision to deny the application for listing of PALI, the PSE considered important
facts, which, in the general scheme, brings to serious question the qualification of PALI to
sell its shares to the public through the stock exchange.

During the time for receiving objections to the application, the PSE heard from the
representative of the late President Ferdinand E. Marcos and his family who claim the

properties of the private respondent to be part of the Marcos estate. In time, the PCGG
confirmed this claim. In fact, an order of sequestration has been issued covering the
properties of PALI, and suit for reconveyance to the state has been filed in the
Sandiganbayan Court. How the properties were effectively transferred, despite the
sequestration order, from the TDC and MSDC to Rebecco Panlilio, and to the private
respondent PALI, in only a short span of time, are not yet explained to the Court, but it is
clear that such circumstances give rise to serious doubt as to the integrity of PALI as a stock
issuer.

For the purpose of determining whether PSE acted correctly in refusing the
application of PALI, the true ownership of the properties of PALI need not be determined as
an absolute fact. What is material is that the uncertainty of the properties' ownership and
alienability exists, and this puts to question the qualification of PALI's public offering.

Feliciano vs. Commission on Audit

[GR 147402, 14 January 2004]
En Banc, Carpio (J): 13 concur
Facts: A Special Audit Team from Commission on Audit (COA) Regional Office No. VIII audited
the accounts of the Leyte Metropolitan Water District (LMWD). Subsequently, LMWD received
a letter from COA dated 19 July 1999 requesting payment of auditing fees. As General
Manager of LMWD, Engr. Ranulfo C. Feliciano sent a reply dated 12 October 1999 informing
COAs Regional Director that the water district could not pay the auditing fees. Feliciano
cited as basis for his action Sections 6 and 20 of PD 198, as well as Section 18 of RA 6758.
The Regional Director referred Felicianos reply to the COA Chairman on 18 October 1999. On
19 October 1999, Feliciano wrote COA through the Regional Director asking for refund of all
auditing fees LMWD previously paid to COA. On 16 March 2000, Feliciano received COA
Chairman Celso D. Gangans Resolution dated 3 January 2000 denying Felicianos request for
COA to cease all audit services, and to stop charging auditing fees, to LMWD. The COA also
denied Felicianos request for COA to refund all auditing fees previously paid by LMWD.
Feliciano filed a motion for reconsideration on 31 March 2000, which COA denied on 30
January 2001. On 13 March 2001, Felicaino filed the petition for certiorari.
Issue: Whether a Local Water District (LWD) is a government-owned or controlled
corporation.
Held: The Constitution recognizes two classes of corporations. The first refers to private
corporations created under a general law. The second refers to government-owned or
controlled corporations created by special charters. The Constitution emphatically prohibits
the creation of private corporations except by a general law applicable to all citizens. The
purpose of this constitutional provision is to ban private corporations created by special
charters, which historically gave certain individuals, families or groups special privileges
denied to other citizens. In short, Congress cannot enact a law creating a private corporation
with a special charter. Such legislation would be unconstitutional. Private corporations may
exist only under a general law. If the corporation is private, it must necessarily exist under a
general law. Stated differently, only corporations created under a general law can qualify as

private corporations. Under existing laws, that general law is the Corporation Code, except
that the Cooperative Code governs the incorporation of cooperatives. The Constitution
authorizes Congress to create government-owned or controlled corporations through special
charters. Since private corporations cannot have special charters, it follows that Congress
can create corporations with special charters only if such corporations are governmentowned or controlled. Obviously, LWDs are not private corporations because they are not
created under the Corporation Code. LWDs are not registered with the Securities and
Exchange Commission. Section 14 of the Corporation Code states that [A]ll corporations
organized under this code shall file with the Securities and Exchange Commission articles of
incorporation x x x. LWDs have no articles of incorporation, no incorporators and no
stockholders or members. There are no stockholders or members to elect the board
directors of LWDs as in the case of all corporations registered with the Securities and
Exchange Commission. The local mayor or the provincial governor appoints the directors of
LWDs for a fixed term of office. LWDs exist by virtue of PD 198, which constitutes their
special charter. Since under the Constitution only government-owned or controlled
corporations may have special charters, LWDs can validly exist only if they are governmentowned or controlled. To claim that LWDs are private corporations with a special charter is to
admit that their existence is constitutionally infirm. Unlike private corporations, which derive
their legal existence and power from the Corporation Code, LWDs derive their legal
existence and power from PD 198.

DBP vs. NLRC (186 SCRA 841 [1990])

G.R. No. 86932 June 27, 1990
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and DOROTHY S. ANCHETA, MA. MAGDALENA Y.
ARMARILLE, CONSTANTE A. ANCHETA, CONSTANTE B. BANAYOS, EVELYN BARRIENTOS, JOSE
BENAVIDEZ, LEONARDO BUENAAGUA, BENJAMIN BAROT, ERNESTO S. CANTILLER, EDUARDO
CANDA, ARMANDO CANDA, AIDA DE LUNA, PACIFICO M. DE JESUS, ALFREDO ESTRERA,
AURELIO A. FARINAS, FRANCISCO GREGORIO, DOMELINA GONZALES, JUANA JALANDONI,
MANUEL MALUBAY, FELICIANO OCAMPO, MABEL PADO, GEMINIANO PLETA, ERNESTO S.
SALAMAT, JULIAN TRAQUENA, JUSFIEL SILVERIO, JAMES CRISTALES, FRANCISCO BAMBIO, JOSE
T. MARCELO, JR., SUSAN M. OLIVAR, ERNESTO JULIO, CONSTANTE ANCHETA, JR., ENRIQUE
NABUA and JAVIER P. MATARO, respondents.
The Legal Counsel for petitioner.
CA. Ancheta & C.B. Banayos for private respondents.

REGALADO, J.:

The present petition for certiorari seeks the reversal of the decision of the National Labor
Relations Commission (NLRC) in, NLRC-NCR Case No. 00-07-02500-87, dated January 16,
1986, 1 which dismissed the appeal of the Development Bank of the Philippines (DBP) from
the decision of the labor arbiter ordering it to pay the unpaid wages, 13th month pay,
incentive pay and separation pay of herein private respondents.
Philippine Smelters Corporation (PSC), a corporation registered under Philippine law,
obtained a loan in 1983 from the Development Bank of the Philippines, a government-owned
financial institution created and operated in accordance with Executive Order No. 81, to
finance its iron smelting and steel manufacturing business. To secure said loan, PSC
mortgaged to DBP real properties with all the buildings and improvements thereon and
chattels, with its President, Jose T. Marcelo, Jr., as co-obligor.
By virtue of the said loan agreement, DBP became the majority stockholder of PSC, with
stockholdings in the amount of P31,000,000.00 of the total P60,226,000.00 subscribed and
paid up capital stock. Subsequently, it took over the management of PSC.
When PSC failed to pay its obligation with DBP, which amounted to P75,752,445.83 as of
March 31, 1986, DBP foreclosed and acquired the mortgaged real estate and chattels of PSC
in the auction sales held on February 25, 1987 and March 4, 1987.
On February 10, 1987, forty (40) petitioners filed a Petition for Involuntary Insolvency in the
Regional Trial Court, Branch 61 at Makati, Metropolitan Manila, docketed therein as Special
Proceeding No. M-1359, 2 against PSC and DBP, impleading as co-respondents therein
Olecram Mining Corporation, Jose Panganiban Ice Plant and Cold Storage, Inc. and PISO
Bank, with said petitioners representing themselves as unpaid employees of said private
respondents, except PISO Bank.
On February 13, 1987, herein private respondents filed a complaint with the Department of
Labor against PSC for nonpayment of salaries, 13th month pay, incentive leave pay and
separation pay. On February 20, 1987, the complaint was amended to include DBP as party
respondent. The case was thereafter indorsed to the Arbitration Branch of the National Labor
Relations Commission (NLRC). DBP filed its position paper on September 7, 1987, invoking
the absence of employer-employee relationship between private respondents and DBP and
submitting that when DBP foreclosed the assets of PSC, it did so as a foreclosing creditor.
On January 30, 1988, the labor arbiter rendered a decision, the dispositive portion of which
directed that "DBP as foreclosing creditor is hereby ordered to pay all the unpaid wages and
benefits of the workers which remain unpaid due to PSC's foreclosure." 3
On appeal by DBP, the NLRC sustained the ruling of the labor arbiter, holding DBP liable for
unpaid wages of private respondents "not as a majority stockholder of respondent PSC, but
as the foreclosing creditor who possesses the assets of said PSC by virtue of the auction sale
it held in 1987." In addition, the NLRC held that the labor arbiter is correct in assuming
jurisdiction because "the worker's preference to the amount secured by DBP by virtue of said
foreclosure sales of PSC properties arose out of or are connected or interwoven with the
labor dispute brought forth by appellees against PSC and DBP. 4 Hence, the present petition
by DBP.

DBP contends that the labor arbiter and the NLRC committed a grave abuse of discretion (1)
in assuming jurisdiction over DBP; (2) in applying the provisions of Article 110 of the Labor
Code, as amended; and (3) in not enforcing and applying Section 14 of Executive Order No.
81.
We find merit in the petition.
It is to be noted that in their comment, private respondents tried to prove the existence of
employer-employee relationship based on the fact that DBP is the majority stockholder of
PSC and that the majority of the members of the board of directors of PSC are from DBP. 5
We do not believe that these circumstances are sufficient indicia of the existence of an
employer-employee relationship as would confer jurisdiction over the case on the labor
arbiter, especially in the light of the express declaration of said labor arbiter and the NLRC
that DBP is being held liable as a foreclosing creditor. At any rate, this jurisdictional defect
was cured when DBP appealed the labor arbiter's decision to the NLRC and thereby
submitted to its jurisdiction.
The pivotal issue for resolution is whether DBP, as foreclosing creditor, could be held liable
for the unpaid wages, 13th month pay, incentive leave pay and separation pay of the
employees of PSC.
We rule in the negative.
During the dates material to the foregoing proceedings, Article 110 of the Labor Code read:
Art. 110. Worker preference in case of bankruptcy. In the event of
bankruptcy or liquidation of an employer's business, his workers shall enjoy
first preference as regards wages due them for services rendered during the
period prior to the bankruptcy or liquidation, any provision of law to the
contrary notwithstanding. Unpaid wages shall be paid in full before other
creditors may establish any claim to a share in the assets of the employer.
In conjunction therewith, Section 10, Rule VIII, Book III of the Implementing Rules and
Regulations of the Labor Code provided:
Sec. 10. Payment of wages in mm of bankruptcy.-Unpaid wages earned by the
employees before the declaration of bankruptcy or judicial liquidation of the
employer's business shall be given first preference and shall be paid in full
before other creditors may establish any claim to a share in the assets of the
employer.
Interpreting the above provisions, this Court, in Development Bank of the Philippines vs.
Hon. Labor Arbiter Ariel C. Santos, et al., 6 explicated as follows:
It is quite clear from the provisions that a declaration of bankruptcy or a
judicial liquidation must be present before the worker's preference may be
enforced. ... .

xxx xxx xxx

Moreover, the reason behind the necessity for a judicial proceeding or a
proceeding in rem before the concurrence and preference of credits may be
applied was explained by this Court in the case of Philippine Savings Bank v.
Lantin (124 SCRA 476 [1983]). We said:
The proceedings in the court below do not partake of the nature
of the insolvency proceedings or settlement of a decedent's
estate. The action filed by Ramos was only to collect the unpaid
cost of the construction of the duplex apartment. It is far from
being a general liquidation of the estate of the Tabligan
spouses.
Insolvency proceedings and settlement of a decedent's estate
are both proceedings in rem which are binding against the
whole world. All persons having interest in the subject matter
involved, whether they were notified or not, are equally bound.
Consequently, a liquidation of similar import or 'other
equivalent general liquidation must also necessarily be a
proceeding in rem so that all interested persons whether known
to the parties or not may be bound by such proceeding.
In the case at bar, although the lower court found that 'there
were no known creditors other than the plaintiff and the
defendant herein,' this can not be conclusive. It will not bar
other creditors in the event they show up and present their
claim against the petitioner bank, claiming that they also have
preferred liens against the property involved. Consequently,
Transfer Certificate of Title No. 101864 issued in favor of the
bank which is supposed to be indefeasible would remain
constantly unstable and questionable. Such could not have
been the intention of Article 2243 of the Civil Code although it
considers claims and credits under Article 2242 as statutory
fines. Neither does the De Barreto case ...
The claims of all creditors whether preferred or non- preferred, the
Identification of the preferred ones and the totality of the employer's asset
should be brought into the picture. There can then be an authoritative, fair,
and binding adjudication instead of the piece meal settlement which would
result from the questioned decision in this case.
Republic Act No. 6715, which took effect on March 21, 1989, amended Article 110 of the
Labor Code to read as follows:
Art. 110. Worker preference in case of bankruptcy. In the event of
bankruptcy or liquidation of an employer's business, his workers shall enjoy
first preference as regards their unpaid wages and other monetary claims, any

provision of law to the contrary notwithstanding. Such unpaid wages and

monetary claims shall be paid in full before the claims of the Government and
other creditors may be paid.
As a consequence, Section 1 0, Rule VIII, Book III of the Implementing Rules and Regulations
of the Labor Code was likewise amended, to wit:
Sec. 10. Payment of wages and other monetary claims in case of bankruptcy.
In case of bankruptcy or liquidation of the employer's business, the unpaid
wages and other monetary claims of the employees shall be given first
preference and shall be paid in full before the claims of government and other
creditors may be paid.
Despite said amendments, however, the same interpretation of Article 110 as applied in the
aforesaid case of Development Bank of the Philippines vs. Hon. Labor Arbiter Ariel C. Santos,
et al., supra, was adopted by this Court in the recent case of Development Bank of the
Philippines vs. National Labor Relations Commission, et. al., 7 For facility of reference,
especially the rationalization for the conclusions reached therein, we reproduce the salient
portions of the decision in this later case.
Notably, the terms "declaration" of bankruptcy or "judicial" liquidation have
been eliminated. Does this means then that liquidation proceedings have
been done away with?
We opine m the negative, upon the following considerations:
1. Because of its impact on the entire system of credit, Article 110 of the
Labor Code cannot be viewed in isolation but must be read in relation to the
Civil Code scheme on classification and preference of credits.
Article 110 of the Labor Code, in determining the reach of its
terms, cannot be viewed in isolation. Rather, Article 110 must
be read in relation to the provisions of the Civil Code concerning
the classification, concurrence and preference of credits which
provisions find particular application in insolvency proceedings
where the claims of all creditors, preferred or non-preferred,
may be adjudicated in a binding manner ... (Republic vs. Peralta
(G.R. No. L-56568, May 20, 1987, 150 SCRA 37).
2. In the same way that the Civil Code provisions on classification of credits
and the Insolvency Law have been brought into harmony, so also must the
kindred provisions of the Labor Law be made to harmonize with those laws.
3. In the event of insolvency, a principal objective should be to effect an
equitable distribution of the insolvent's property among his creditors. To
accomplish this there must first be some proceeding where notice to all of the
insolvent's creditors may be given and where the claims of preferred creditors
may be bindingly adjudicated (De Barretto vs. Villanueva, No. L-14938,

December 29, 1962, 6 SCRA 928). The rationale therefor has been expressed
in the recent case of DBP vs. Secretary of Labor (G.R. No. 79351, 28
November 1989), which we quote:
A preference of credit bestows upon the preferred creditor an
advantage of having his credit satisfied first ahead of other
claims which may be established against the debtor. Logically, it
becomes material only when the properties and assets of the
debtors are insufficient to pay his debts in full; for if the debtor
is amply able to pay his various creditors, in full, how can the
necessity exist to determine which of his creditors shall be paid
first or whether they shall be paid out of the proceeds of the
sale of the debtor's specific property? Indubitably, the
preferential right of credit attains significance only after the
properties of the debtor have been inventoried and liquidated,
and the claims held by his various creditors have been
established (Kuenzle & Streiff [Ltd.] vs. Villanueva, 41 Phil. 611
[1916]; Barretto vs. Villanueva, G.R. No. 14038, 29 December
1962, 6 SCRA 928; Philippine Savings Bank vs. Lantin, G.R.
33929, 2 September 1983,124 SCRA 476).
4. A distinction should be made between a preference of credit and a lien. A
preference applies only to claims which do not attach to specific properties. A
hen creates a charge on a particular property. The right of first preference as
regards unpaid wages recognize by Article 110 does not constitute a hen on
the property of the insolvent debtor in favor of workers. It is but a preference
of credit in their favor, a preference in application. It is a met-hod adopted to
determine and specify the order in which credits should be paid in the final
distribution of the proceeds of the insolvent's assets- It is a right to a first
preference in the discharge of the funds of the judgment debtor. in the words
of Republic vs. Peralta, supra:
Article 110 of the Labor Code does not purport to create a lien
in favor of workers or employees for unpaid wages either upon
all of the properties or upon any particular property owned by
their employer. Claims for unpaid wages do not therefore fall at
all within the category of specially preferred claims established
under Articles 2241 and 2242 of the Civil Code, except to the
extent that such claims for unpaid wages are already covered
by Article 2241, number 6: 'claims for laborers' wages, on the
goods manufactured or the work done; or by Article 2242,
number 3: 'claims of laborers and other workers engaged in the
construction, reconstruction or repair of buildings, canals and
other works, upon said buildings, canals or other works.' To the
extent that claims for unpaid wages fall outside the scope of
Article 2241, number 6 and Article 2242, number 3, they would
come within the ambit of the category of ordinary preferred
credits under Article 2244.'

5. The DBP anchors its claim on a mortgage credit. A mortgage directly and
immediately subjects the property upon which it is imposed, whoever the
possessor may be, to the fulfillment of the obligation for whose security it was
constituted (Article 2176, Civil Code). It creates a real right which is
enforceable against the whole world. It is a lien on an Identified immovable
property, which a preference is not. A recorded mortgage credit is a special
preferred credit under Article 2242 (5) of the Civil Code on classification of
credits. The preference given by Article 110, when not falling within Article
2241 (6) and Article 2242 (3) of the Civil Code and not attached to any
specific property, is an ordinary preferred credit although its impact is to move
it from second priority to first priority in the order of preference established by
Article 2244 of the Civil Code (Republic vs. Peralta, supra).
In fact, under the Insolvency Law (Section 29) a creditor holding a mortgage
or hen of any kind as security is not permitted to vote in the election of the
assignee in insolvency proceedings unless the value of his security is first
fixed or he surrenders all such property to the receiver of the insolvent's
estate.
6. Even if Article 110 and its Implementing Rule, as amended, should be
interpreted to mean 'absolute preference,' the same should be given only
prospective effect in line with the cardinal rule that laws shall have no
retroactive effect, unless the contrary is provided (Article 4, Civil Code).
Thereby, any infringement on the constitutional guarantee on non-impairment
of obligation of contracts (Section 10, Article III, 1987 Constitution) is also
avoided. In point of fact, DBP's mortgage credit antedated by several years
the amendatory law, RA No. 6715. To give Article 110 retroactive effect would
be to wipe out the mortgage in DBPs favor and expose it to a risk which it
sought to protect itself against by requiring a collateral in the form of real
property.
In fine, the right to preference given to workers under Article 110 of the Labor
Code cannot exist in any effective way prior to the time of its presentation in
distribution proceedings. It will find application when, in proceedings such as
insolvency, such unpaid wages shall be paid in full before the 'claims of the
Government and other creditors' may be paid. But, for an orderly settlement
of a debtor's assets, all creditors must be convened, their claims ascertained
and inventoried, and thereafter the preference determined in the course of
judicial proceedings which have for their object the subjection of the property
of the debtor to the payment of his debts or other lawful obligations. Thereby,
an orderly determination of preference of creditors' claims is assured
(Philippine Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124
SCRA 476); the adjudication made will be binding on all parties-in-interest,
since those proceedings are proceedings in rem; and the legal scheme of
classification, concurrence and preference of credits in the Civil Code, the
Insolvency Law, and the Labor Code is preserved in harmony.

On the foregoing considerations and it appearing that an involuntary insolvency proceeding

has been instituted against PSC, private respondents should properly assert their respective
claims in said proceeding. .
WHEREFORE, the petition is GRANTED. The decision of public respondent is hereby
ANNULLED and SET ASIDE.
SO ORDERED.
Melencio-Herrera (Chairperson) and Paras, JJ., concur.

Separate Opinions

SARMIENTO, J., dissenting:

As I held in DBP v. NLRC 1 and more recently, in Bolinao v. Padolina, 2 that on account of the
amendment introduced by Republic Act No. 6715, workers now enjoy "absolute preference"
in the payment of labor claims, above and beyond taxes due from the Government, and
credits belonging to private persons. As I said therein, Republic Act No. 6715 was enacted,
precisely, to work more favorable terms to labor-because prior to the amendment, labor
enjoyed no preference. I am afraid that the majority has misread the clear intent of the
legislature.

PADILLA, J., dissenting:

I dissent for the same reasons stated in my dissenting opinion in DBP vs. NLRC, et al., G.R.
Nos. 82763-64,19 March 1990.

Separate Opinions
SARMIENTO, J., dissenting:
As I held in DBP v. NLRC 1 and more recently, in Bolinao v. Padolina, 2 that on account of the
amendment introduced by Republic Act No. 6715, workers now enjoy "absolute preference"
in the payment of labor claims, above and beyond taxes due from the Government, and

credits belonging to private persons. As I said therein, Republic Act No. 6715 was enacted,
precisely, to work more favorable terms to labor-because prior to the amendment, labor
enjoyed no preference. I am afraid that the majority has misread the clear intent of the
legislature.

PADILLA, J., dissenting:

I dissent for the same reasons stated in my dissenting opinion in DBP vs. NLRC, et al., G.R.
Nos. 82763-64,19 March 1990.

Edward Keller & Co vs COB Group Marketing Inc., (G.R. No. L-68097)
Facts:

Edward Keller & Co., Ltd. Appointed COB Group Marketing, Inc. as exclusive distributor of its
household products. Under the agreement, Keller sold on credit its products to COB Group
Marketing
Asuncion Manahan mortgaged her land to Keller as security for COBs credit purchases
July 1970 the parties executed a second sales agreement where Tomas C Lorenzo Jr and Sr
executed a mortgage on their land as security for COB Group Marketing
8 May Bax, COBs president and general manager, stated in a BoD meeting that they owed
Keller about P179,000. He was authorized to negotiate with Keller for the settlement of the
firms liability. On the same day, Bax and Oefeli of Keller signed the conditions for the
settlement of COBs liability
Victor A. Mayo, Kellers finance manager, submitted a statement of account showing that
COB Group Marketing owed Keller P184,509.60 as of July 31, 1971; whereas
Bax although not an accountant, presented his own reconciliation statements wherein he
showed that COB Group Marketing overpaid Keller P100,596.72. He claimed overpayment
although in his answer he did not allege at all that there was an overpayment to Keller.
16 September 1971 Keller sued COB Group Marketing, its stockholders and the
mortgagors, Manahan and Lorenzo. COB was declared in default.
The lower court released a decision in favor of COB Group Marketing and Keller filed an
appeal.
Issue:

Whether or not the lower courts decision was erroneous

Who owes who?
Ruling:
We find that the lower courts erred in nullifying the admissions of liability made in 1971 by
Bax as president and general manager of COB Group Marketing and in giving credence to
the alleged overpayment computed by Bax .
The lower courts not only allowed Bax to nullify his admissions as to the liability of COB
Group Marketing but they also erroneously rendered judgment in its favor in the amount of
its supposed overpayment in the sum of P100, 596.72, in spite of the fact that COB Group
Marketing was declared in default and did not file any counterclaim for the supposed
overpayment.
The decisions of the trial court and the Appellate Court are reversed and set aside.
COB Group marketing, Inc. is ordered to pay Edward A. Keller & Co., Ltd. the sum of
P182,994.60 with 12% interest per annum from August 1, 1971 up to the date of payment
plus P20,000 as attorneys fees.
Asuncion Manahan and Tomas C. Lorenzo, Jr. are ordered to pay solidarity with COB Group
Marketing the sums of P35,000 and P25,000, respectively.
The following respondents are solidarity liable with COB Group Marketing up to the amounts
of their unpaid subscription to be applied to the companys liability herein: Jose E. Bax
P36,000; Francisco C. de Castro, P36,000; Johnny de la Fuente, P12,000; Sergio C. Ordonez,
P12,000; Trinidad C. Ordonez, P3,000; Magno C. Ordonez, P3,000; Adoracion C. Ordonez
P3,000; Tomas C. Lorenzo, Jr., P3,000 and Luz M. Aguilar-Adao, P6,000.
If after ninety (90) days from notice of the finality of the judgment in this case the judgment
against COB Group Marketing has not been satisfied fully, then the mortgages executed by
Manahan and Lorenzo should be foreclosed and the proceeds of the sales applied to the
obligation of COB Group Marketing. Said mortgage obligations should bear six percent legal
interest per annum after the expiration of the said 90-day period. Costs against the private
respondents.

LANDBANK VS CA
In 1980, ECO Management Corporation (ECO) obtained loans amounting to about P26 million
from Land Bank. ECO defaulted in its payment but in 1981, ECO submitted a Payment Plan
with the hope of restructuring its loan. The plan was rejected and Land Bank sued ECO. It
impleaded Emmanuel C. Oate, the majority stockholder of ECO who is serving as the
Chairman and treasurer of ECO.
The trial court ruled in favor of Land Bank but Oate was absolved from liabilities. The Court
of Appeals affirmed the decision of the trial court.

Land Bank appealed as it wanted Oate to be personally liable on the following grounds
(among others): a) ECO stands for Emmanuel C. Oate, b) Oate is the majority stockholder,
c) ECO was formed ostensibly to allow Oate to acquire loans from Land Bank which he used
for his personal advantage, d) Oate holds two positions in the corporation, and e) ECO
never held any board meeting which just shows only Oate was in control of the corporation.
ISSUE: Whether or not Oate should be held personally.
HELD: No. Land Bank was not able to produce sufficient evidence to prove its claim. A
corporation, upon coming into existence, is invested by law with a personality separate and
distinct from those persons composing it as well as from any other legal entity to which it
may be related. The corporate fiction is only disregarded when the fiction is used to defeat
public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or
judicial issues, perpetrate deception or otherwise 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. None of the foregoing was
proved by Land Bank.
The mere fact that Oate owned the majority of the shares of ECO is not a ground to
conclude that Oate and ECO is one and the same. Mere ownership by a single stockholder
of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for
disregarding the fiction of separate corporate personalities.
Anent the issue of the corporate name, the fact that Oates initials coincide with the
corporate name ECO is not sufficient to disregard the corporate fiction. Even if ECO does
stand for Emmanuel C. Oate, it does not mean that the said corporation is merely a
dummy of Oate. A corporation may assume any name provided it is lawful. There is nothing
illegal in a corporation acquiring the name or as in this case, the initials of one of its
shareholders.

General Credit Corp v. Alsons Dev. and Investment Corp

FACTS: Petitioner General Credit Corporation (GCC), then known as Commercial
Credit Corporation (CCC),established CCC franchise companies in different urban centers
of the country. In furtherance of its business, GCCwas able to secure license from Central
Bank (CB) and SEC to engage also in quasi-banking activities. On the other hand, respondent
CCC Equity Corporation (EQUITY) was organized in by GCC for the purpose of, among other
things, taking over the operations and management of the various franchise companies. At a
time material hereto, respondent Alsons Development and Investment Corporation
(ALSONS) and the Alcantara family, each owned, just like GCC, shares in the aforesaid GCC
franchise companies, e.g., CCC Davao and CCC Cebu. ALSONS and the Alcantara family, for
a consideration of P2M, sold their shareholdings (101,953 shares), in the CC Cfranchise
companies to EQUITY. EQUITY issued ALSONS et al., a "bearer" promissory note for P2M
with a one-year maturity date.4 years later, the Alcantara family assigned its rights and
interests over the bearer note to ALSONS which became the holder thereof. But even before
the execution of the assignment deal aforestated, letters of demand for interest payment
were already sent to EQUITY. EQUITY no longer then having assets or property to settle its
obligation nor being extended financial support by GCC, pleaded inability to pay. ALSONS,

having failed to collect on the bearer note aforementioned, filed a complaint for a sum of
money8 against EQUITY and GCC. GCC is being impleaded as party-defendant for any
judgment ALSONS might secure against EQUITY and, under the doctrine of piercing
the veil of corporate fiction, against GCC, EQUITY having been organized as a tool
and mere conduit of GCC. According to EQUITY (cross-claim against GCC): it acted merely as
intermediary or bridge for loan transactions and other dealings of GCC to its franchises and
the investing public; and is solely dependent upon GCC for its funding requirements. Hence,
GCC is solely and directly liable to ALSONS, the former having failed to provide EQUITY the
necessary funds to meet its obligations to ALSONS.GCC filed its ANSWER to Cross-claim,
stressing that it is a distinct and separate entity from EQUITY.RTC, finding that EQUITY was
but an instrumentality or adjunct of GCC and considering the legal consequences and
implications of such relationship, rendered judgment for Alson. CA affirmed.
ISSUE: WON the doctrine of "Piercing the Veil of Corporate Fiction" should be applied in the
case at bar.
HELD: YES.T he notion of separate personality, however, may be disregarded under the
doctrine "piercing the veil of corporate fiction" as in fact the court will often look at the
corporation as a mere collection of individuals or an aggregation of persons undertaking
business as a group, disregarding the separate juridical personality of the corporation
unifying the group. Another formulation of this doctrine is that when two (2) 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. Authorities are agreed on at least three (3) basic areas where piercing the veil,
with which the law covers and isolates the corporation from any other legal entity to which it
may be related, is allowed. These are: 1) defeat of public convenience, as when the
corporate fiction is used as 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 tor adjunct of
another corporation. The Court agrees with the disposition of the CA on the application of
the piercing doctrine to the transaction subject of this case. Per the Courts count, the trial
court enumerated no less than 20 documented circumstances and transactions, which,
taken as a package, indeed strongly supported the conclusion that respondent EQUITY was
but an adjunct, an instrumentality or business conduit of petitioner GCC. This relation, in
turn, provides a justifying ground to pierce petitioners corporate existence as to ALSONS
claim in question. Foremost of what the trial court referred to as "certain circumstances" are
the commonality of directors, officers and stockholders and even sharing of office between
petitioner GCC and respondent EQUITY; certain financing and management arrangements
between the two, allowing the petitioner to handle the funds of the latter; the virtual
domination if not control wielded by the petitioner over the finances, business
policies and practices of respondent EQUITY; and the establishment of
respondent EQUITY by the petitioner to circumvent CB rules. Verily, indeed, as the
relationships binding herein [respondent EQUITY and petitioner GCC] have been that of
"parent-subsidiary corporations" the foregoing principles and doctrines find suitable
applicability in the case at bar; and, it having been satisfactorily and indubitably shown that
the said relationships had been used to perform certain functions not characterized with

legitimacy, this Court feels amply justified to "pierce the veil of corporate entity" and
disregard the separate existence of the parent and subsidiary the latter having been so
controlled by the parent that its separate identity is hardly discernible thus becoming a mere
instrumentality or alter ego of the former.

Lipat vs. Pacific Banking Corporation

[GR 142435, 30 April 2003]
Second Division, Quisumbing (J): 3 concur
Facts: The spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading"
(BET), a single proprietorship with principal office at No. 814 Aurora Boulevard, Cubao,
Quezon City. BET was engaged in the manufacture of garments for domestic and foreign
consumption. The Lipats also owned the "Mystical Fashions" in the United States, which sells
goods imported from the Philippines through BET. Mrs. Lipat designated her daughter,
Teresita B. Lipat, to manage BET in the Philippines while she was managing "Mystical
Fashions" in the United States. In order to facilitate the convenient operation of BET, Estelita
Lipat executed on 14 December 1978, a special power of attorney appointing Teresita Lipat
as her attorney-in-fact to obtain loans and other credit accommodations from Pacific Banking
Corporation (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts
on properties owned or co-owned by her as security for the obligations to be extended by
Pacific Bank including any extension or renewal thereof. Sometime in April 1979, Teresita, by
virtue of the special power of attorney, was able to secure for and in behalf of her mother,
Mrs. Lipat and BET, a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to be
manufactured by BET and exported to "Mystical Fashions" in the United States. As security
therefor, the Lipat spouses, as represented by Teresita, executed a Real Estate Mortgage
over their property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property was
likewise made to secure other additional or new loans, etc. On 5 September 1979, BET was
incorporated into a family corporation named Bela's Export Corporation (BEC) in order to
facilitate the management of the business. BEC was engaged in the business of
manufacturing and exportation of all kinds of garments of whatever kind and description and
utilized the same machineries and equipment previously used by BET. Its incorporators and
directors included the Lipat spouses who owned a combined 300 shares out of the 420
shares subscribed, Teresita Lipat who owned 20 shares, and other close relatives and friends
of the Lipats. Estelita Lipat was named president of BEC, while Teresita became the vicepresident and general manager. Eventually, the loan was later restructured in the name of
BEC and subsequent loans were obtained by BEC with the corresponding promissory notes
duly executed by Teresita on behalf of the corporation. A letter of credit was also opened by
Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after
BEC executed the corresponding trust receipt therefor. Export bills were also executed in
favor of Pacific Bank for additional finances. These transactions were all secured by the real
estate mortgage over the Lipats' property. The promissory notes, export bills, and trust
receipt eventually became due and demandable. Unfortunately, BEC defaulted in its
payments. After receipt of Pacific Bank's demand letters, Estelita Lipat went to the office of
the bank's liquidator and asked for additional time to enable her to personally settle BEC's
obligations. The bank acceded to her request but Estelita failed to fulfill her promise.

Consequently, the real estate mortgage was foreclosed and after compliance with the
requirements of the law the mortgaged property was sold at public auction. On 31 January
1989, a certificate of sale was issued to respondent Eugenio D. Trinidad as the highest
bidder. On 28 November 1989, the spouses Lipat filed before the Quezon City RTC a
complaint for annulment of the real estate mortgage, extrajudicial foreclosure and the
certificate of sale issued over the property against Pacific Bank and Eugenio D. Trinidad. The
complaint alleged, among others, that the promissory notes, trust receipt, and export bills
were all ultra vires acts of Teresita as they were executed without the requisite board
resolution of the Board of Directors of BEC. The Lipats also averred that assuming said acts
were valid and binding on BEC, the same were the corporation's sole obligation, it having a
personality distinct and separate from spouses Lipat. It was likewise pointed out that
Teresita's authority to secure a loan from Pacific Bank was specifically limited to Mrs. Lipat's
sole use and benefit and that the real estate mortgage was executed to secure the Lipats'
and BET's P583,854.00 loan only. In their respective answers, Pacific Bank and Trinidad
alleged in common that petitioners Lipat cannot evade payments of the value of the
promissory notes, trust receipt, and export bills with their property because they and the
BEC are one and the same, the latter being a family corporation. Trinidad further claimed
that he was a buyer in good faith and for value and that the Lipat spouses are estopped from
denying BEC's existence after holding themselves out as a corporation. After trial on the
merits, the RTC dismissed the complaint. The Lipats timely appealed the RTC decision to the
Court of Appeals in CA-G.R. CV 41536. Said appeal, however, was dismissed by the appellate
court for lack of merit. The Lipats then moved for reconsideration, but this was denied by the
appellate court in its Resolution of 23 February 2000. The Lipat spouses filed the petition for
review on certiorari.
Issue: Whether BEC and BET are separate business entities, and thus the Lipt spouses can
isolate themselves behind the corporate personality of BEC.
Held: When the corporation is the mere alter ego or business conduit of a person, the
separate personality of the corporation may be disregarded. This is commonly referred to as
the "instrumentality rule" or the alter ego doctrine, which the courts have applied in
disregarding the separate juridical personality of corporations. As held in one case, 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. The evidence on record shows BET
and BEC are not separate business entities. (1) Estelita and Alfredo Lipat are the owners and
majority shareholders of BET and BEC, respectively; (2) both firms were managed by their
daughter, Teresita; 19 (3) both firms were engaged in the garment business, supplying
products to "Mystical Fashion," a U.S. firm established by Estelita Lipat; (4) both firms held
office in the same building owned by the Lipats; (5) BEC is a family corporation with the
Lipats as its majority stockholders; (6) the business operations of the BEC were so merged
with those of Mrs. Lipat such that they were practically indistinguishable; (7) the corporate
funds were held by Estelita Lipat and the corporation itself had no visible assets; (8) the
board of directors of BEC was composed of the Burgos and Lipat family members; (9)
Estelita had full control over the activities of and decided business matters of the
corporation; and that (10) Estelita Lipat had benefited from the loans secured from Pacific

Bank to finance her business abroad and from the export bills secured by BEC for the
account of "Mystical Fashion." It could not have been coincidental that BET and BEC are so
intertwined with each other in terms of ownership, business purpose, and management.
Apparently, BET and BEC are one and the same and the latter is a conduit of and merely
succeeded the former. The spouses' attempt to isolate themselves from and hide behind the
corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what
the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy.
BEC is a mere continuation and successor of BET, and the Lipat spouses cannot evade their
obligations in the mortgage contract secured under the name of BEC on the pretext that it
was signed for the benefit and under the name of BET.

G.R. No. 164846

June 18, 2008

STA. MONICA INDUSTRIAL AND DEVELOPMENT CORPORATION, petitioner,

vs.
THE DEPARTMENT OF AGRARIAN REFORM REGIONAL DIRECTOR FOR REGION III, PROVINCIAL
AGRARIAN REFORM OFFICER OF BULACAN, MUNICIPAL AGRARIAN REFORM OFFICER OF
CALUMPIT, BULACAN, and BASILIO DE GUZMAN, respondent.
ANG Malawak na Batas sa Repormang Pangsakahan ay binuo upang makalaya ang mga
magsasaka mula sa tali ng kahirapan at paghahari ng may-ari ng lupa.
Kapag ang kathang-isip na korporasyon ay ginamit na tabing sa katulad na pyudal na pangaalipin, ang matayog na hangarin ng batas pambukid ay nabibigo at ang mismong suliranin
na nais lunasan nito ay nananatili.
Ang belo ng kathang-isip na korporasyon ay pupunitin kapag ito ay ginamit sa maling
hangarin at di-tapat na layunin.
The Comprehensive Agrarian Reform Law1 was designed precisely to liberate peasantfarmers from the clutches of landlordism and poverty.

When corporate fiction is used as a mere smokescreen to the same form of feudal servitude,
the lofty aim of the agrarian law is thwarted and the very problem which the law seeks to
solve is perpetrated.
The veil of corporate fiction will be pierced when used for improper purposes and unfair
objectives.
Before Us is a petition for review on certiorari of the Decision2 of the Court of Appeals (CA)
dismissing the petition of Sta. Monica Industrial and Development Corporation (Sta. Monica)
to annul the Order3 of the Regional Director, Region III, Department of Agrarian Reform
(DAR) placing the landholdings of Asuncion Trinidad under the Comprehensive Agrarian
Reform Program (CARP).4
The Facts

Trinidad is the owner of five parcels of land with a total area of 4.69 hectares in Iba Este,
Calumpit, Bulacan. Private respondent Basilio De Guzman is the agricultural leasehold
tenant of Trinidad.
On April 29, 1976, a leasehold contract denominated as "Kasunduan ng Buwisan sa
Sakahan" was executed between Trinidad and De Guzman.5 As an agricultural leasehold
tenant, De Guzman was issued Certificates of Land Transfer on July 22, 1981.6
Desiring to have an emancipation patent over the land under his tillage, De Guzman filed a
petition for the issuance of patent in his name with the Office of the Regional Director of the
DAR.7 The Legal Services Division of the DAR duly sent notices to Trinidad requiring her to
comment. Instead of complying, Trinidad filed a motion for bill of particulars.8
After due proceedings, the Regional Director issued the Order9 granting the petition of De
Guzman, with the following disposition:
WHEREFORE, in light of the foregoing analysis and the reasons indicated thereon, an ORDER
is hereby issued as follows:
1. PLACING under the coverage of Operation Land Transfer (OLT) pursuant to PD
27/Executive Order No. 228 the landholdings of Asuncion Trinidad with an area of 10.6800
hectares, more or less, located at Iba Este, Calumpit, Bulacan, without prejudice to the
exercise of her retention rights if qualified under the law.
2. DIRECTING the MARO of Calumpit, Bulacan and the PARO of Baliuag, Bulacan to cause the
generation and issuance of Emancipation Patent in favor of the petitioner and other qualified
farmer-beneficiaries over the said landholding in accordance with the actual area of
tillages.10
Trinidad filed a motion for reconsideration but her motion was denied.11
A year later, petitioner Sta. Monica filed a petition for certiorari and prohibition with the CA
assailing the order of the Regional Director. In its petition, Sta. Monica claimed that while it is
true that Asuncion Trinidad was the former registered owner of a parcel of land with an area
of 83,689 square meters, the said landholding was sold on January 27, 1986.12
Petitioner was able to acquire 39,547 square meters of the Trinidad property. After the sale,
petitioner sought the registration of the portion pertaining to it before the Register of Deeds
of the Province of Bulacan. Consequently, a corresponding Transfer Certificate of Title, with
No. 301408 (now TCT No. RT 70512) was issued in favor of petitioner.13
It was asserted that there was a denial of due process of law because it was not furnished a
notice of coverage under the CARP law.14
In his comment on the petition, De Guzman argued that the alleged sale of the landholding
is illegal due to the lack of requisite clearance from the DAR. The said clearance is required
under P.D. No. 27,15 the Tenant Emancipation Decree, which prohibits transfer of covered
lands except to tenant-beneficiaries. According to De Guzman, since no clearance was
sought from, and granted by, the DAR, the sale in favor of petitioner by Trinidad is inexistent
and void. Hence, Trinidad remained the owner of the disputed property.
CA Disposition
On May 26, 2004, the CA rendered a decision dismissing the petition of Sta. Monica,
disposing as follows:

WHEREFORE, premises considered, the instant petition is hereby DENIED for lack of merit.
SO ORDERED.16
The CA held that Sta. Monica is not a real party-in-interest because it cannot be considered
as an owner of the land it bought from Trinidad, thus:17
It appears from the records of this case that the sale between Trinidad and the petitioner is
enjoined by Department Memorandum Circular No. 2-A, implementing the provisions of
Presidential Decree (P.D.) No. 27, which prohibits the transfer of ownership of landholdings
covered by P.D. No. 27 after 21 October 1972 without the requisite clearance from the DAR
except to the tenant-beneficiary. Thus, the title to the subject landholding remained with the
previous owner, Asuncion Trinidad. This effectively deprives the petitioner of interest to
question the orders of the Regional Director of the DAR relative to the latters directive
placing the subject landholding under the coverage of Operation Land Transfer and the
subsequent issuance of an Emancipation Patent in favor of private respondent De Guzman.
One having no right or interest to protect cannot invoke the jurisdiction of the court as a
party plaintiff (in this case petitioner) in an action. A real party in interest is the party who
stands to be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit.18 (Citations omitted)
The CA added that even assuming that Sta. Monica is a real party-in-interest, it was not
denied due process because it had constructive notice of the proceeding which involved its
property:
Even assuming, without admitting, that petitioner is the real party in interest by reason of
the sale of the subject landholding in its favor, it cannot be said that petitioner was denied
due process because of lack of notice of the proceedings before the DAR. It is significant to
note that Asuncion Trinidad is the treasurer of petitioner, based on the corporations General
Information Sheet. While it cannot be said that there was proper notice to the corporation,
being a corporate officer of the petitioner, there was at least constructive notice of the fact
that there was a proceeding which involved the property of the corporation of which it may
be deprived should an adverse decision be rendered by the DAR.19
The CA also ruled that the assailed orders of the Regional Director have already attained
finality because it was not appealed to the DAR Secretary.
Furthermore, the assailed orders have long become final and executory, there being no
appeal undertaken to the Secretary of the Department of Agrarian Reform. Citing Fortich vs.
Corona, et al., the Supreme Court aptly ruled in this wise:
"The orderly administration of justice requires that the judgments/resolutions of a court or
quasi-judicial body must reach a point of finality set by law, rules and regulations. The noble
purpose is to write finis to disputes once and for all. This is a fundamental principle in our
justice system, without which there would be no end to litigations. Utmost respect and
adherence to this principle must always be maintained by those who wield the power of
adjudication. Any act which violates such principle must immediately be struck down."
The rule on finality of decisions, orders or resolutions of a judicial, quasi-judicial, or
administrative body is not a question of technicality but of substance and merit, the
underlying consideration therefore being the protection of the substantive rights of the
winning party. Just as a losing party has the right to file an appeal within the prescribed
period, the winning party also has the correlative right to enjoy the finality of the resolution
of his/her case.20

Sta. Monica sought reconsideration but it was denied. Hence, the present recourse.21
Issue
Sta. Monica seeks reversal of the CA decision on the lone ground that THE ASSAILED
DECISION AND RESOLUTION OF THE COURT OF APPEALS ARE CONTRARY TO EXISTING LAWS,
RELEVANT JURISPRUDENCE ON THE MATTER AND THE FACTUAL CIRCUMSTANCES.22
Our Ruling
The petition is bereft of merit.
Trinidad is still deemed the owner of the agricultural land sold to Sta. Monica; no need for
separate notice of coverage under the CARP law.
The crux of the petition lies in the requirement of notice of coverage under the CARP law.
The statute requires a notice of coverage to be furnished and sent to the landowner.23
Notice is part of the constitutional right to due process of law. It informs the landowner of the
States intention to acquire a private land upon payment of just compensation and gives him
the opportunity to present evidence that his landholding is not covered or is otherwise
excused from the agrarian law.
There is no dispute that a notice of coverage was duly sent to Trinidad. Records show that
she participated in the DAR proceedings. As to her, the constitutional requirement of due
process was met and satisfied.
Petitioner Sta. Monica, however, claims that it is the owner of the agricultural land awarded
to De Guzman. It acquired the land from Trinidad by sale in 1986 and it was issued a transfer
certificate of title. Sta. Monica claims denial of due process of law because it was not
furnished the required notice of coverage under the CARP law.
Respondent De Guzman, on the other hand, contends that the sale between Trinidad and
Sta. Monica is null and void because it is a prohibited transaction under Presidential Decree
No. 27 (P.D. No. 27), as amended.24 De Guzman also claims that Trinidad is a corporate
officer of Sta. Monica. It was her duty to inform Sta. Monica of the pending proceeding with
the DAR.25 He maintains that Sta. Monica was not denied due process because there was
constructive notice. Sta. Monica was sufficiently informed of the pending DAR
proceedings.26
Records disclose that there was indeed a deed of sale between Trinidad and Sta. Monica over
the agricultural land awarded to De Guzman. Sta. Monica was also issued a new transfer
certificate of title over the land. If We rely solely on the sale, it is a foregone conclusion that
Sta. Monica was denied due process of law. As the owner on record of the agricultural land, it
should have been given a notice of coverage.
However, there is much to be said of the attendant circumstances that lead Us to conclude
that notice of coverage to Trinidad is also sufficient notice to Sta. Monica. Moreover, We find
that the sale between Trinidad and Sta. Monica was a mere ruse to frustrate the
implementation of the agrarian law.
First, the sale to Sta. Monica is prohibited. P.D. No. 27, as amended, forbids the transfer or
alienation of covered agricultural lands after October 21, 1972 except to the tenantbeneficiary. The agricultural land awarded to De Guzman is covered by P.D. No. 27. He was

awarded a certificate of land transfer in July 22, 1981. The sale to Sta. Monica in 1986 is void
for being contrary to law.27 Trinidad remained the owner of the agricultural land.
In Heirs of Batongbacal v. Court of Appeals,28 involving the similar issue of sale of a covered
agricultural land under P.D. No. 27, this Court held:
Clearly, therefore, Philbanking committed breach of obligation as an agricultural lessor. As
the records show, private respondent was not informed about the sale between Philbanking
and petitioner, and neither was he privy to the transfer of ownership from Juana Luciano to
Philbanking. As an agricultural lessee, the law gives him the right to be informed about
matters affecting the land he tills, without need for him to inquire about it.
xxxx
In other words, transfer of ownership over tenanted rice and/or corn lands after October 21,
1972 is allowed only in favor of the actual tenant-tillers thereon. Hence, the sale executed
by Philbanking on January 11, 1985 in favor of petitioner was in violation of the aforequoted
provision of P.D. 27 and its implementing guidelines, and must thus be declared null and
void.29 (Underscoring supplied)
Second, buyer Sta. Monica is owned and controlled by Trinidad and her family. Records show
that Trinidad, her husband and two sons own more than 98%30 of the outstanding capital
stock of Sta. Monica. They are all officers of the corporation.31 There are only two nonrelated incorporators who own less than one percent of the outstanding capital stock of Sta.
Monica and who are not officers of the corporation.
To be sure, Trinidad and her family exercise absolute control of the corporate affairs of Sta.
Monica. As owners of 98% of the outstanding capital stock, they are the beneficial owners of
all the assets of the company, including the agricultural land sold by Trinidad to Sta. Monica.
Third, Trinidad and her counsel failed to notify the DAR of the prior sale to Sta. Monica during
the administrative proceedings. Worse, Trinidad feigned ignorance of the sale by filing a
motion for bill of particulars seeking specifics from De Guzman of her alleged landholdings
which are subject of his petition with the DAR.
It is highly unusual and unbelievable for her not to know, or at least be aware, of the sale to
Sta. Monica. She herself signed the deed of sale as seller. She is also a stockholder and
officer of Sta. Monica. More importantly, she cannot feign ignorance of De Guzmans claim
because he was her agricultural tenant since the 1970s. She knows, or at least ought to
know, that the subject matter of the petition with the DAR was her own landholding, which
she sold to Sta. Monica in direct violation of P.D. No. 27.
The apparent lack of candor is heightened by the fact that both Trinidad and Sta. Monica are
represented by the same counsel, Atty. Ramon Gutierrez. We cannot stretch Our credulity on
how Trinidad filed a motion for bill of particulars with the DAR seeking specifics on the sale
to Sta. Monica when she herself signed for the vendor as a party to the transaction.
It is the duty of Atty. Gutierrez to inform the DAR, at the very first opportunity, of the sale to
Sta. Monica. He was utterly remiss of this duty. Instead of informing the DAR, Trinidad and
her counsel engaged in wild goose chase and stonewalling, feigning ignorance when they
ought to have informed the DAR of the sale to Sta. Monica. Atty. Gutierrez is reminded that,
as an officer of the court, he owes it the duty of candor, honesty and fairness.32
Fourth, it was only after an adverse decision against Trinidad that Sta. Monica suddenly filed
a petition for certiorari with the CA questioning the lack of notice of coverage under the

CARP law. It is highly unlikely that Sta. Monica, an artificial being acting only through its duly
authorized representatives, was not sufficiently informed or had no constructive knowledge
of the DAR proceedings.
Trinidad and by extension, her family members, were informed or should be sufficiently
aware of the DAR proceedings. They are all stockholders and corporate officers of Sta.
Monica. They knew, they ought to know, that Sta. Monica would suffer damage should the
DAR award, as it awarded, the agricultural land to De Guzman.
As directors and corporate officers, they owe a duty of care to the corporation to inform it of
the pending proceedings with the DAR.
Fifth, the ultimate factor that betrays Trinidad and Sta. Monica is the continued payment of
lease rentals by De Guzman. Records show that De Guzman paid and continued to pay lease
rentals to Trinidad even after she sold the land to Sta. Monica. The receipt33 dated May 30,
2002 discloses that De Guzman paid 40 cavans of palay to Clodinaldo dela Cruz, the
authorized representative of Trinidad, as lease rentals for the agricultural land.
It is incredible that Trinidad would still continue to collect lease rentals from De Guzman if
she had long sold the agricultural land to Sta. Monica in 1986. The continued payment of
lease rentals indicates that Trinidad never sold the agricultural land to Sta. Monica.
Evidently, the sale was a mere ruse to skirt coverage under the comprehensive agrarian
reform law.
All these circumstances indicate that Trinidad has remained as the real owner of the
agricultural land sold to Sta. Monica. The sale to Sta. Monica is not valid because it is
prohibited under P.D. No. 27. More importantly, it must be deemed as a mere ploy to evade
the applicable provisions of the agrarian law.
But it is a fiat that the corporate vehicle cannot be used as a shield to protect fraud or justify
wrong. Thus, the veil of corporate fiction will be pierced when it is used to defeat public
convenience and subvert public policy.
Considering that Trinidad remained to be the true and legal owner of the agricultural land,
there is no need for another notice of coverage to be sent or furnished to Sta. Monica. At the
very least, the notice to her is already notice to Sta. Monica because the corporation acted
as a mere conduit of Trinidad. The CA correctly dismissed the petition of Sta. Monica to annul
the orders of the Regional Director placing the agricultural land of Trinidad under the
agrarian reform law.
Final Note
This case can be viewed as a microcosm of the persistent agrarian reform problem in Our
country. For one, it illustrates the arduous legal battle that tenant-farmers have to endure in
order to be finally freed from the bondage of the soil. De Guzman battled for almost eight
years to acquire the agricultural land from Trinidad. Others are not as equally lucky. For
another, it shows the subtle but illegal measures taken by landowners to evade coverage
under the CARP law.
Of course, there are also tales of landowners who unduly suffer either the abuse of some
farmers or the harsh consequences of the law.
In hindsight, it is quite ironic that We are still faced with the same agrarian reform problem
which We have sought to eradicate several years ago when the CARP law was first
introduced. Feudal system of land ownership still persists in the countryside and most

farmers are still tied to their bondage. It is more ironic when the problem is taken in its
historical context, the CARP law being the fifth land reform law passed since President
Quezon.
To Our mind, part of the problem lies with the CARP law itself. As crafted, the law has its own
loopholes. It provides for a long list of exclusions. Some landowners used these exclusions to
go around the law. There is now a growing trend of land conversion in the countryside
suspiciously to evade coverage under the CARP law. Of course, the solution to this problem
lies with Congress. It is high time We sounded the call for a more realistic, rational
comprehensive agrarian reform law.
The dubious use of seemingly legal means to sidestep the CARP law persists. Corporate law
is resorted to by way of circling around the agrarian law. As this case illustrates, agricultural
lands are being transferred, simulated or otherwise, to corporations which are fully or at
least predominantly controlled by former landowners, now called stockholders. Through this
strategy, it is anticipated that the corporation, by virtue of its corporate fiction, will shield
the landowners from agricultural claims of tenant-farmers.
The use of corporate fiction as a means to evade legal liability is not new. This scheme or
device has long been perceived to be used in other fields of law, notably taxation to
minimize payment of tax with varying degrees of success and acceptability. But the
continued employment of the scheme in agrarian cases is not only deplorable; it is alarming.
It is time to put a lid on the cap.
WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
Martinez vs. CA (438 SCRA 139 [2004])
G.R. No. 131673
September 10, 2004
RUBEN MARTINEZ,* substituted by his heirs, MENA CONSTANTINO MARTINEZ, WILFRIDO C.
MARTINEZ, EMMA M. NAVA, and EDNA M. SAKHRANI, petitioners,
vs.
COURT OF APPEALS and BPI INTERNATIONAL FINANCE, respondents.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals, in CAG.R. CV No. 43985, modifying the Decision2 of the Regional Trial Court of Kalookan City,
Branch 122, in Civil Case No. C-10811.
The antecedents are as follows:
Respondent BPI International Finance3 is a foreign corporation not doing business in the
Philippines, with office address at the Bank of America Tower, 12 Harcourt Road, Central
Hongkong. It was a deposit-taking company organized and existing under and by virtue of
the laws of Hongkong, and was also engaged in investment banking operations therein.
Cintas Largas, Ltd. (CLL) was also a foreign corporation, established in Hongkong, with a
paid-up capital of HK$10,000. The registered shareholders of the CLL in Hongkong were the
Overseas Nominee, Ltd. and Shares Nominee, Ltd., which were mainly nominee
shareholders. In Hongkong, the nominee shareholder of CLL was Baker & McKenzie
Nominees, Ltd., a leading solicitor firm. However, beneficially, the company was equally
owned by Messrs. Ramon Siy, Ricardo Lopa, Wilfrido C. Martinez, and Miguel J. Lacson.4 The
registered office address of CLL in Hongkong was 22/F, Princes Building, also the office
address of Price Waterhouse & Co., a large accounting firm in Hongkong.

The bulk of the business of the CLL was the importation of molasses from the Philippines,
principally from the Mar Tierra Corporation, and the resale thereof in the international
market.5 However, Mar Tierra Corporation also sold molasses to its customers.6 Wilfrido C.
Martinez was the president of Mar Tierra Corporation, while its executive vice-president was
Blamar Gonzales. The business operations of both the CLL and Mar Tierra Corporation were
run by Wilfrido Martinez and Gonzales.
About 42% of the capital stock of Mar Tierra Corporation was owned by RJL Martinez Fishing
Corporation (RJL), the leading tuna fishing outfit in the Philippines. Petitioner Ruben Martinez
was the president of RJL and a member of the board of directors thereof. The majority
stockholders of RJL were Ruben Martinez and his brothers, Jose and Luis Martinez. Sixty-eight
(68) percent of the total assets of Ruben Martinez were in the RJL.
In 1979, respondent BPI International Finance (then AIFL) granted CLL a letter of credit in the
amount of US$3,000,000. Wilfrido Martinez signed the letter agreement with the respondent
for the CLL. The respondent and the CLL had made the following arrangements:
Cintas Largas, Ltd. will purchase molasses from the Philippines, mainly from Mar Tierra
Corporation, and then sell the molasses to foreign countries. Both the purchase of the
molasses from the Philippines and the subsequent sale thereof to foreign customers were
effected by means of Letters of Credit. A Letter of Credit would be opened by Cintas Largas,
Ltd. in favour of Mar Tierra Corporation or any other seller in the Philippines. Upon the sale
of the molasses to foreign buyers, a Letter of Credit would then be opened by such buyers,
in favour of Cintas Largas, Ltd. The Letters of Credit were effected through the Letter of
Credit Facility of Cintas Largas, Ltd. in plaintiff. The profits of Cintas Largas, Ltd. from these
transactions were then deposited in either the deposit account of Cintas Largas, Ltd. with
plaintiff or the Money Market Placement Account Nos. 063 and 084, depending upon the
instructions of Wilfrido C. Martinez and Blamar C. Gonzales, principally.7
On January 24, 1979, the CLL opened a money market placement with the respondent
bearing MMP No. 063, with an initial placement of US$390,000.8 The CLL also opened and
maintained a foreign currency account and a deposit account with the respondent. The
authorized signatory in both accounts of CLL was Wilfrido C. Martinez. Some instructions also
came from Gonzales, to be confirmed by Wilfrido Martinez.9 On March 21, 1980, petitioner
Ruben Martinez and/or his son Wilfrido C. Martinez and/or Miguel J. Lacson affixed their
signatures on the two signature cards furnished by the respondent which became MMP No.
063 and MMP No. 084. On the face of the cards, the signatories became joint account
holders of the said money market placements.10
On March 25, 1980, the CLL opened a money market placement account with the
respondent bearing MMP No. 084 with an initial placement of US$68,768.60, transferred
from MMP No. 063.11 At times, funds in MMP Nos. 063 and 084 were transferred to the CLLs
deposit account, and vice versa.
On May 19, 1980, the CLL, through Wilfrido Martinez, and the respondent, through Senen L.
Matoto and Michael Sung, Senior Manager of the Money Management Division of the
respondent, executed a letter-agreement in which the existing back-to-back credit facility
granted to the CLL way back in 1979 was extended up to July 1980, and increased to
US$5,000,000. The credit facility was to be secured as follows:
SECURITY: (i) Back-to-Back L/C to be secured by an L/C issued, by a bank acceptable to
AFHK, in favor of Cintas Largas.
(ii) AFHK L/C issued prior to receipt of Backing L/C to be secured by a 10% margin by way
of a hold out on cash deposit with AFHK with interest at LIBOR. The Backing L/C, however,
shall be opened not later than 120 days after the issuance of AFHKs L/C.
(iii) JSS of Messrs. Ramon Siy, Wilfrido C. Martinez, Ricardo Lopa and Miguel J. Lacson for
both of the above cases.
DOCUMENTATION: Standard AFHK L/C documentation.12
The facility was designed to finance the purchases of molasses made by the CLL from the
Philippines for re-export.13

In compliance with the letter-agreement, Wilfrido C. Martinez, Miguel J. Lacson, Ricardo Lopa,
and Ramon Siy executed a continuing suretyship agreement in which they bound and
obliged themselves, jointly and severally, with the CLL to pay the latters obligation under
the said credit facility.14
As of September 26, 1980, the balance of the deposit account of the CLL with the
respondent was US$1,025,052.06.15 On the other hand, the balance of the money
placement in MMP No. 063, as of September 25, 1980 was US$312,708.43,16 while the
balance of the money market placement in MMP No. 084 as of September 8, 1980 stood at
US$768,258.24.17
On October 10, 1980, Blamar Gonzales, acting for Mar Tierra Corporation, sent to the
respondent a telex confirming his telephone conversation with Michael Sung/Bing Matoto
requesting the respondent to transfer US$340,000 to Account No. FCD SA 18402-7,
registered in the name of Mar Tierra Corporation, Philippine Banking Corporation, Union
Cement Building, Port Area, Manila, as payee, with the following specific instructions: (a)
there should be no mention of Wilfrido Martinez or Mar Tierra Corporation; (b) the telex
instruction should be signed only by Wilfrido Martinez and sent only through the telex
machine of Mar Tierra Corporation; and, (c) the final confirmation of the transfer should be
made by telephone call.18 Gonzales requested the respondent, in the same telex, to confirm
its total available account so that instructions on the transfer of the funds to FCD SA 184027 could be formalized.19
On October 13, 1980, Sung sent a telex to Gonzales informing the latter of the balances of
the MMP Nos. 063 and 084 and in the CLL account deposit, with the corresponding maturity
dates thereof, thus:
1. DETAIL OF PLACEMENT IN VARIOUS A/C.
MMP 063
VALUE DATE MATURITY DATE
DATE AMOUNT
MATURITY VALUE
25/9/80
28/11/80
12-1/4 USD306,043.48
USD 312,708.43
MMP 084
25/09/80
28/11/80
12-1/4 USD751,883.88
USD 768,258.24
-------------USD1080,966.67
==============
CINTAS LARGAS
VALUE DATE MATURITY DATE
DATE AMOUNT
MATURITY VALUE
15/9/80
1 DAY CALL 10-7/8 USD 46,131.26
25/9/80
1 DAY CALL 11-1/4 USD500,000.00
(RATE ADJ: TO 12-1/4 VALUE 7/10/80)
26/9/80
31/10/80
12-1/4 USD420,831.45
USD 425,843.44
2. ACCORDING TO AIDC, O/S OF PESO LOAN IS 10,930,000.00, AND THE HOLDOUT
REQUIRED IS 120 PCT
COMPUTATION:
PESO 10,930,000.00
7.89 (EXCHANGE RATE)
1.20 (120 PCT)
----------------1,662,357.00
==========
3. ACCORDINGLY, THE FUND AVAILABLE IS APPROX. USD340,000.00. PLS REVERT.20
Sung informed Gonzales that the account available was approximately US$340,000,
considering the CLL deposit account and the money market placements.21 On October 14,
1980, the respondent received a telex from Wilfrido C. Martinez requesting that the transfer
of US$340,000 from the deposit account of the CLL or any deposit available be effected by
telegraphic transfer as soon as possible to their account, payee FCD SA 18402-7, Philippine
Banking Corporation, Port Area, Manila.22 On October 21, 1980, Wilfrido Martinez wrote the
respondent confirming his request for the transfer of US$340,000 to "their" account, FCD SA

18402-7, with the Philippine Banking Corporation, through Wells Fargo Bank of New York,
Philippine Banking Corporation Account No. FCDU SA No. 003-019205.23
The respondent complied with the request of the CLL, through Wilfrido Martinez and
Gonzales, and remitted US$340,000 as instructed.24 However, instead of deducting the
amount from the funds in the CLL foreign currency or deposit accounts and/or MMP Nos. 063
and 084, the respondent merely "posted" the US$340,000 as an account receivable of the
CLL since, at that time, the money market placements had not yet matured.25 When the
money market placements matured, however, the respondent did not collect the
US$340,000 therefrom. Instead, the respondent allowed the CLL and/or Wilfrido C. Martinez
to withdraw, up to July 3, 1981, the bulk of the CLL deposit account and MMP Nos. 084 and
063;26 hence, it failed to secure reimbursement for the US$340,000 from the said deposit
account and/or money market placements.
In the meantime, problems ensued in the reconciliation of the transactions involving the
funds of the CLL, including the MMP Nos. 063 and 084 with the respondent, as well as the
receivables of Mar Tierra Corporation. There was also a need to audit the said funds.
Sometime in July 1982, conferences were held between the executive committee of Mar
Tierra Corporation and some of its officers, including Miguel J. Lacson, where the means to
reduce the administrative expenses and accountants fees, and the possibility of placing the
CLL on an "inactive status" were discussed.27 The respondent pressured the CLL, Wilfrido
Martinez, and Gonzales to pay the US$340,000 it remitted to Account No. FCD SA 184027.28 Eventually, Wilfrido C. Martinez and Blamar Gonzales engaged the services of the
auditing firm, the Jacinto, Belano, Castro & Co., to review the flow of the CLLs funds and the
receivables of Mar Tierra Corporation.
On August 16, 1982, the CLL, through its certified public accountant, wrote the respondent
requesting the latter to furnish its accountant with a copy of the financial report prepared by
its auditors.29 An audit was, thereafter, conducted by the Jacinto, Belano, Castro & Co.,
certified public accountants of the CLL and Mar Tierra Corporation. Based on their report, the
auditors found that the CLL owed the respondent US$340,000.30
In the meantime, the respondent demanded from the CLL, Wilfrido Martinez, Lacson,
Gonzales, and petitioner Ruben Martinez, the payment of the US$340,000 remitted by it to
FCD SA 18402-7, per instructions of Gonzales and Wilfrido Martinez. No remittance was
made to the respondent. Petitioner Ruben Martinez denied knowledge of any such
remittance, as well as any liability for the amount thereof.
On June 17, 1983, the respondent filed a complaint against the CLL, Wilfrido Martinez,
Lacson, Gonzales, and petitioner Ruben Martinez, with the RTC of Kaloocan City for the
collection of the principal amount of US$340,000, with a plea for a writ of preliminary
attachment. Two alternative causes of action against the defendants were alleged therein,
viz:
FIRST ALTERNATIVE CAUSE OF ACTION
2.1 The allegations contained in the foregoing paragraphs are repleaded herein by
reference.
2.2 The remittance by plaintiff of the sum of US$340,000.00 as previously explained in the
foregoing paragraphs was made upon the express instructions of defendants GONZALES and
WILFRIDO C. MARTINEZ acting for and in behalf of the defendant CINTAS, defendants
GONZALES and WILFRIDO C. MARTINEZ being the duly authorized representatives of
defendant CINTAS to transact any and all of its business with plaintiff.
2.3 The remittance of US$340,000.00 was made under an agreement for plaintiff to advance
the said amount and for defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS to
repay plaintiff all such monies so advanced to said defendants or to their order.
2.4 In making said remittance, plaintiff acted as the agent of the foregoing defendants in
meeting the latters liability to the recipient/s of the amount so remitted.
2.5 The remittance of US$340,000.00 which remains unsettled to date is a just, binding and
lawful obligation of the defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS.

2.6 Defendant CINTAS is a reinvoicing or paper company with nominee shareholders in

Hongkong. The real and beneficial shareholders of the foregoing defendants are the
defendants LACSON and WILFRIDO C. MARTINEZ.
2.7 Defendant CINTAS is being used by the foregoing defendants as an alter ego or business
conduit for their sole benefit and/or to defeat public convenience.
2.8 Defendant CINTAS, being a mere alter ego or business conduit for the foregoing
defendants, has no corporate personality distinct and separate from that of its beneficial
shareholders and, likewise, has no substantial assets in its own name.
2.9 The remittance of US$340,000.00 as referred to previously, although made upon the
instructions of defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS, was in fact a
remittance made for the benefit of the beneficial shareholders of defendant CINTAS.
2.10 Any and all obligations of defendant CINTAS are the obligations of its beneficial
shareholders since the former is being used by the latter as an alter ego or business conduit
for their sole benefit and/or to defeat public convenience.
SECOND ALTERNATIVE CAUSE OF ACTION
3.1 The allegations contained in the foregoing paragraphs are incorporated herein by
reference.
3.2 Defendants RUBEN MARTINEZ, WILFRIDO C. MARTINEZ and LACSON are joint account
holders of Money Market Placement Account Nos. 063 and 084 (hereinafter referred to as
MMP 063 and 084 for brevity) opened and maintained by said defendants with the plaintiff.
3.3 Said money market placement accounts, although nominally opened and maintained by
said defendants, were in reality for the account and benefit of all the defendants.
3.4 Defendant CINTAS likewise opened and maintained a deposit account with plaintiff.
3.5 Defendants W.C. Martinez and Gonzales upon giving instructions to plaintiff to remit the
amount of US$340,000.00 as previously discussed also instructed plaintiff to reimburse itself
from available funds in MMP Account Nos. 063 and 084 and the defendant CINTAS deposit
account.
3.6 Due to excusable mistake, plaintiff was unable to obtain reimbursement for the
remittance it made from MMP Account Nos. 063, 084 and from the deposit account of
defendant CINTAS.
3.7 As a consequence of said mistake, plaintiff delivered to the foregoing defendants and/or
to third parties upon orders of the defendants substantially all the funds in MMP Account
Nos. 063, 084 and the deposit account of defendant CINTAS.
3.8 The amount of US$340,000.00 delivered by plaintiff to the foregoing defendants
constituted an overpayment and/or erroneous payment as defendants had no right to
demand the same; further, said amount having been unduly delivered by mistake, the
foregoing defendants were obliged to return it.
3.9 Since the foregoing defendants had no legal right to the overpayment or erroneous
payment of US$340,000.00 they, therefore, hold said money in trust for the plaintiff.
3.10 Despite numerous demands to the defendants WILFRIDO C. MARTINEZ, RUBEN
MARTINEZ, LACSON and CINTAS for restitution of the funds erroneously paid or overpaid to
said defendants, they have failed and continue to fail to make any restitution.31
The respondent prayed therein that, after due proceedings, judgment be rendered in its
favor, viz:
ON THE FIRST ALTERNATIVE CAUSE OF ACTION
4.1 Ordering defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS, jointly and
severally, liable to pay plaintiff the amount of US$340,000.00 with interests thereon from
February 20, 1982 until fully paid.
4.2 Declaring that defendant CINTAS is a mere alter ego or business conduit of defendants
LACSON and WILFRIDO C. MARTINEZ; hence, the foregoing defendants are, jointly and
severally, liable to pay plaintiff the amount of US$340,000.00 with interests thereon.
4.3 Ordering the foregoing defendants to be, jointly and severally, liable for the amount of
P100,000.00 as and for attorneys fees; and
4.4 Ordering the foregoing defendants to be, jointly and severally, liable to plaintiff for actual
damages in an amount to be proved at the trial. Or -

ON THE SECOND ALTERNATIVE CAUSE OF ACTION

5.1 Declaring that plaintiff made an erroneous payment in the amount of US$340,000.00 to
defendants LACSON, WILFRIDO C. MARTINEZ, RUBEN MARTINEZ and CINTAS.
5.2 Declaring the foregoing defendants to be, jointly and severally, liable to reimburse
plaintiff the amount of US$340,000.00 with interest thereon from February 20, 1982 until
fully paid.
5.3 Ordering defendants to be, jointly and severally, liable for the amount of P100,000.00 as
and for attorneys fees; and
5.4 Ordering defendants to be, jointly and severally, liable to plaintiff for actual damages in
an amount to be proved at the trial.
5.5 A writ of preliminary attachment be issued against the properties of the defendants
WILFRIDO C. MARTINEZ, RUBEN MARTINEZ, LACSON and CINTAS as a security for the
satisfaction of any judgment that may be recovered.
Plaintiff further prays for such other relief as may be deemed just and equitable in the
premises.32
In his answer to the complaint, petitioner Ruben Martinez interposed the following special
and affirmative defenses:
BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES, answering defendant respectfully states:

2. Defendant is not the holder, owner, depositor, trustee and has no interest whatsoever in
the account in Philippine Banking Corporation (FCD SA 18402-7) where the plaintiff remitted
the amount sought to be recovered. Hence, he did not benefit directly or indirectly from the
said remittance;
3. Defendant did not participate in any manner whatsoever in the remittance of funds from
the plaintiff to the alleged FCD Account in the Philippine Banking Corporation;
4. Defendant has not received nor benefited from the alleged remittance, "payment,"
"overpayment" or "erroneous payment" allegedly made by plaintiff; hence, insofar as he is
concerned, there is nothing to return to or to "hold in trust" for the plaintiff;
5. Plaintiffs alleged remittance of the amount by mere telex or telephone instruction was
highly irregular and questionable considering that the undertaking was that no remittance or
transfer could be done without the prior signature of the authorized signatories;
6. The alleged telex instructions to the plaintiff was for it to confirm the amounts that are
"free and available" which it did;
7. Plaintiff is guilty of estoppel or laches by making it appear that the funds so remitted are
"free and available" and by not acting within reasonable time to correct the alleged mistake;
8. The alleged remittance, "overpayment" and "erroneous payment" was manipulated by
plaintiffs own employees, officers or representatives without connivance or collusion on the
part of the answering defendant; hence, plaintiff has only itself to blame for the same;
likewise, its recourse is not against answering defendant;
9. Plaintiffs Complaint is defective in that it has failed to state the facts constituting the
"mistake" regarding its failure to obtain reimbursement from MMP 063 and 084;
10. Plaintiff is guilty of gross negligence and it only has itself to blame for its alleged loss;
11. Sometime on or about 1980, defendant was made to sign blank forms concerning
opening of money market placements and perhaps, this is how he became a "joint account
holder" of MMP 063 and 084; defendant at that time did not realize the import or
significance of his act; afterwards, defendant did not do any act or omission by which he
could be implicated in this case;
12. Assuming that defendant is a "joint account holder" of said MMP 063 and 084, plaintiff
has failed to plead defendants obligations, if any, by being said "joint account holder;"
likewise, the Complaint fails to attach the corresponding documents showing defendants
being a "joint account holder."33
The CLL was declared in default for its failure to file an answer to the complaint.
After trial, the RTC rendered its decision, the dispositive portion of which reads as follows:
PREMISES CONSIDERED, judgment is hereby rendered as follows:

1. Ordering all the defendants, jointly and severally, to pay plaintiff the amount of
US$340,000.00 or its equivalent in Philippine currency measured at the Central Bank
prevailing rate of exchange in October 1980 and with legal interest thereon computed from
the filing of plaintiffs complaint on June 17, 1983 until fully paid;
2. Declaring that defendant Cintas Largas Ltd. is a mere business conduit and alter ego of
the individual defendants, thereby holding the individual defendants, jointly and severally,
liable to pay plaintiff the aforesaid amount of US$340,000.00 or its equivalent in Philippine
Currency measured at the Central Bank prevailing rate of exchange in October 1980, with
interest thereon as above-stated;
3. Ordering all defendants to, jointly and severally, pay unto plaintiff the amount of
P50,000.00 as and for attorneys fees, plus costs.
All counterclaims and cross-claims are dismissed for lack of merit.
SO ORDERED.34
The trial court ruled that the CLL was a mere paper company with nominee shareholders in
Hongkong. It ruled that the principle of piercing the veil of corporate entity was applicable in
this case, and held the defendants liable, jointly and severally, for the claim of the
respondent, on its finding that the defendants merely used the CLL as their business
conduit. The trial court declared that the majority shareholder of Mar Tierra Corporation was
the RJL, controlled by petitioner Ruben Martinez and his brothers, Jose and Luis Martinez, as
majority shareholders thereof. Moreover, petitioner Ruben Martinez was a joint account
holder of MMP Nos. 063 and 084. The trial court, likewise, found that the auditors of Mar
Tierra Corporation and the CLL confirmed that the defendants owed US$340,000. The trial
court concluded that the respondent had established its causes of action against Wilfrido
Martinez, Lacson, Gonzales, and petitioner Ruben Martinez; hence, held all of them liable for
the claim of the respondent.
The decision was appealed to the CA. On June 27, 1997, the CA rendered its decision, the
dispositive portion of which reads:
WHEREFORE, the decision of the Court a quo dated December [19], 1991 is hereby
MODIFIED, by exonerating appellant Blamar Gonzales from any liability to appellee and the
complaint against him is DISMISSED. The decision appealed from is AFFIRMED in all other
respect.
SO ORDERED.35
The appellate court exonerated Gonzales of any liability, reasoning that he was not a
stockholder of the CLL nor of Mar Tierra Corporation, but was a mere employee of the latter
corporation.36 Petitioner Ruben Martinez sought a reconsideration of the decision of the CA,
to no avail.37
Dissatisfied with the decision and resolution of the appellate court, the petitioner, filed the
petition at bar, on the following grounds:
I
RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT HEREIN PETITIONER RUBEN
MARTINEZ IS LIABLE TO RESPONDENT BPI INTERNATIONAL FINANCE FOR REIMBURSEMENT
OF THE US$340,000.00 REMITTED BY SAID RESPONDENT BPI INTERNATIONAL FINANCE TO
FCD SA ACCOUNT NO. 18402-7 AT THE PHILIPPINE BANKING CORPORATION, PORT AREA
BRANCH.
II
RESPONDENT COURT OF APPEALS ERRED IN NOT GRANTING THE COUNTER-CLAIM OF
PETITIONER RUBEN MARTINEZ CONSIDERING THE EVIDENCE ON RECORD THAT PROVES THE
SAME.38
The paramount issue posed for resolution is whether or not the petitioner is obliged to
reimburse to the respondent the principal amount of US$340,000.
The petitioner asserts that the trial and appellate courts erred when they held him liable for
the reimbursement of US$340,000 to the respondent. He contends that he is not in actuality
a stockholder of Mar Tierra Corporation, nor a stockholder of the CLL. He was not involved in
any way in the operations of the said corporations. He added that while he may have signed

the signature cards of MMP Nos. 063 and 084 in blank, he never had any involvement in the
management and disposition of the said accounts, nor of any deposits in or withdrawals
from either or both accounts. He was not aware of any transactions between the respondent,
Wilfrido Martinez, and Gonzales, with reference to the remittance of the US$340,000 to FCD
SA 18402-7; nor did he oblige himself to pay the said amount to the respondent. According
to the petitioner, there is no evidence that he had benefited from any of the following: (a)
the remittance by the respondent of the US$340,000 to Account No. FCD SA 18402-7 owned
by Mar Tierra Corporation; (b) the money market placements in MMP Nos. 063 and 084, or,
(c) from any deposits in or withdrawals from the said account and money market
placements.
On the other hand, the appellate court found the petitioner and his co-defendants, jointly
and severally, liable to the respondent for the payment of the US$340,000 based on the
following findings of the trial court:
The Court finds that defendant Cintas Largas (Ltd.) with capitalization of $10,000.00 divided
into 1,000 shares at HK$10 per share, is a mere paper company with nominee shareholders
in Hongkong, namely: Overseas Nominees Ltd. and Shares Nominees Ltd., with defendants
Wilfrido and Miguel J. Lacson as the sole directors (Exh. A). Since the said shareholders are
mere nominee companies, it would appear that the said defendants Wilfrido and Miguel J.
Lacson who are the sole directors are the real and beneficial shareholders (t.s.n., 9-1-87, p.
5). Further, defendant Cintas Largas Ltd. has no real office in Hongkong as it is merely being
accommodated by Price Waterhouse, a large accounting office in Hongkong (t.s.n., 9-1-87,
pp. 7-8).
Defendant Cintas Largas Ltd., being a mere alter ego or business conduit for the individual
defendants with no corporate personality distinct and separate from that of its beneficial
shareholders and with no substantial assets in its own name, it is safe to conclude that the
remittance of US$340,000.00 was, in fact, a remittance made for the benefit of the
individual defendants. Plaintiff was supposed to deduct the US$340,000.00 remitted to the
foreign currency deposit account from Cintas Largas (Ltd.) funds or from money market
placement account Nos. 063 and 084 as well as Cintas Largas Ltd. deposit account (Exh. FF24).

Defendant Cintas Largas Ltd. was established only for financing (t.s.n., 12-19-88, pp. 25-26)
and the active owners of Cintas are defendants Miguel Lacson and Wilfrido C. Martinez
(t.s.n., 12-19-88, p. 22). Mar Tierra Corporation of which defendant Wilfrido Martinez is the
President and one of its owners and defendant Blamar Gonzales as the Vice President, sells
molasses to defendant Cintas Largas Ltd. Defendant Miguel J. Lacson is a business partner in
purchasing molasses for Mar Tierra Corporation. Mar Tierra Corporation was selling molasses
to Cintas Largas Ltd. which were purchased by Miguel Lacson and Wilfrido C. Martinez (t.s.n.,
12-19-88, pp. 23-24). The majority owner of Mar Tierra Corporation is RJL Martinez Fishing
Corporation which is owned by brothers Ruben Martinez, Jose Martinez and Luis Martinez
(t.s.n., 12-19-88, pp. 24-25; t.s.n., 6-20-88, pp. 11-12). The FCD SA-18402-7 account at
Philippine Banking Corporation, Port Area Branch, where the US$340,000.00 was remitted by
the plaintiff is the account of Mar Tierra Corporation, and with the interlapping connection of
the defendants to each other, these could be the reason why the funds of Cintas Largas Ltd.
were being co-mingled and controlled by defendants more particularly defendants Blamar
Gonzales and Wilfrido C. Martinez (Exhs. D, E, F, G, H, I, J, L, M, N, O, P, R, S, and T).
On the basis of the evidence, the Court finds and so holds that the cause of action of the
plaintiff against the defendants has been established.39
We do not agree with the trial court and appellate court.
We note that the question of whether or not a corporation is merely an alter ego is purely
one of fact.40 So is the question of whether or not a corporation is a paper company or a
sham or subterfuge or whether the respondent adduced the requisite quantum of evidence
warranting the piercing of the veil of corporate entity of the CLL.41 The Court is not a trier of
facts. Hence, the factual findings of the trial court, as affirmed by the appellate court, are
generally conclusive upon this Court.42 However, the rule is subject to the following

exceptions: (a) where the conclusion is a finding grounded entirely on speculation, surmise
and conjectures; (b) where the information made is manifestly mistaken; (c) where there is
grave abuse of discretion; (d) where the judgment is based on a misapplication of facts, and
the findings of facts of the trial court and the appellate court are contradicted by the
evidence on record; and (e) when certain material facts and circumstances had been
overlooked by the trial court which, if taken into account, would alter the result of the case.
We have reviewed the records and find that some substantial factual findings of the trial
court and the appellate court and, consequently, their conclusions based on the said
findings, are not supported by the evidence on record.
The general rule is that a corporation is clothed with a personality separate and distinct from
the persons composing it. Such corporation may not be held liable for the obligation of the
persons composing it; and neither can its stockholders be held liable for such obligation.43 A
corporation has a separate personality distinct from its stockholders and from other
corporation to which it may be connected.44 This separate and distinct personality of a
corporation is a fiction created by law for convenience and to prevent injustice.45
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to
warrant, albeit sparingly, the disregard of its independent being and the piercing of the
corporate veil.46 Thus, the veil of separate corporate personality may be lifted when such
personality is used to defeat public convenience, justify wrong, protect fraud or defend
crime; or used as a shield to confuse the legitimate issues; or when the corporation is
merely an adjunct, a business conduit or an alter ego of another corporation or where 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;47 or when the
corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where
necessary to achieve equity or for the protection of the creditors.48 In such cases where
valid grounds exist for piercing the veil of corporate entity, the corporation will be
considered as a mere association of persons.49 The liability will directly attach to them.50
However, mere ownership by a single stockholder or by another corporation of all or nearly
all of the capital stocks of a corporation is not by itself a sufficient ground to disregard the
separate corporate personality. The substantial identity of the incorporators of two or more
corporations does not warrantly imply that there was fraud so as to justify the piercing of the
writ of corporate fiction.51 To disregard the said separate juridical personality of a
corporation, the wrongdoing must be proven clearly and convincingly.52
The test in determining the application of the instrumentality or alter ego doctrine 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.53
In this case, the respondent failed to adduce the quantum of evidence necessary to prove
any valid ground for the piercing of the veil of corporate entity of Mar Tierra Corporation, or
of RJL for that matter, and render the petitioner liable for the respondents claim, jointly and
severally, with Wilfrido Martinez and Lacson. The mere fact that the majority stockholder of
Mar Tierra Corporation is the RJL, and that the petitioner, along with Jose and Luis Martinez,
owned about 42% of the capital stock of RJL, do not constitute sufficient evidence that the
latter corporation, and/or the petitioner and his brothers, had complete domination of Mar

Tierra Corporation. It does not automatically follow that the said corporation was used by the
petitioner for the purpose of committing fraud or wrong, or to perpetrate an injustice on the
respondent. There is no evidence on record that the petitioner had any involvement in the
purchases of molasses by Wilfrido Martinez, Gonzales and Lacson, and the subsequent sale
thereof to the CLL, through Mar Tierra Corporation. On the contrary, the evidence on record
shows that the CLL purchased molasses from Mar Tierra Corporation and paid for the same
through the credit facility granted by the respondent to the CLL. The CLL, thereafter, made
remittances to Mar Tierra Corporation from its deposit account and MMP Nos. 063 and 084
with the respondent. The close business relationship of the two corporations does not
warrant a finding that Mar Tierra Corporation was but a conduit of the CLL.
Likewise, the respondent failed to adduce preponderant evidence to prove that the Mar
Tierra Corporation and the RJL were so organized and controlled, its affairs so conducted as
to make the latter corporation merely an instrumentality, agency, conduit or adjunct of the
former or of Wilfrido Martinez, Gonzales, and Lacson for that matter, or that such
corporations were organized to defraud their creditors, including the respondent. The mere
fact, therefore, that the businesses of two or more corporations are interrelated is not a
justification for disregarding their separate personalities, absent sufficient showing that the
corporate entity was purposely used as a shield to defraud creditors and third persons of
their rights.54
Also, the mere fact that part of the proceeds of the sale of molasses made by Mar Tierra
Corporation to the CLL may have been used by the latter as deposits in its deposit account
with the respondent or in the money market placements in MMP Nos. 063 and 084, or that
the funds of Mar Tierra Corporation and the CLL with the respondent were mingled, and their
disposition controlled by Wilfrido Martinez, does not constitute preponderant evidence that
the petitioner, Wilfrido Martinez and Lacson used the Mar Tierra Corporation and the RJL to
defraud the respondent. The respondent treated the CLL and Mar Tierra Corporation as
separate entities and considered them as one and the same entity only when Wilfrido C.
Martinez and/or Blamar Gonzales failed to pay the US$340,000 remitted by the respondent
to FCD SA 18402-7. This being the case, there is no factual and legal basis to hold the
petitioner liable to the respondent for the said amount.
Contrary to the ruling of the trial court and the appellate court, the auditors of the CLL and
the Mar Tierra Corporation, in their report, did not find the petitioner liable for the
respondents claim in their report. The auditors, in fact, found the CLL alone liable for the
said amount.55 Even a cursory reading of the report will show that the name of the
petitioner was not mentioned therein.
The respondent failed to adduce evidence that the petitioner had any involvement in the
transactions between the CLL, through Wilfrido Martinez and Gonzales, and the respondent,
with reference to the remittance of the US$340,000 to FCD SA 18402-7. In fact, the said
transaction was so confidential that Gonzales even suggested to the respondent that the
name of Wilfrido Martinez or Mar Tierra Corporation be not made of record, and to authorize
only Wilfrido Martinez to sign the telex instruction:
OCT. 10, 1980
TO: AYALA FINANCE
ATTN: MICHAEL SUNG/BING MATOTO
FR: B. GONZALES
RE: TRANSFER OF FUNDS
THIS IS TO CONFRM OUR TELEPHONE CONVERSATION THAT WE WLD LIKE TO SUGGEST THE
FF PROCEDURES FOR FUND TRANSFER.
1. TLX INSTRUCTION THAT FUNDS BE TRANSFERRED TO OUR FCD ACCT BY TELEGRAPHIC
TRANSFER.
2. WE WILL ONLY USE ONE ACCT W/C IS FCD SA 18402-7 OF PHILBANKING CORPORATION,
PORT AREA BRANCH, UNION CEMENT BLDG, BONIFACIO DRIVE, PORT AREA, METRO MANILA,
PHILS.

3. PAYEE SHLD BE FCD SA 18402-7 AND NO MENTION OF W.C. MARTINEZ OR MAR TIERRA
CORP. TLX INSTRUCTION SHLD BE SIGNED BY W.C. MARTINEZ AND WILL BE SENT ONLY THRU
TLX MACHINE OF MAR TIERRA CORP.
4. FINAL CONFIRMATION OF THE TRANSFER BY TELEPHONE CALL.
PLS CONFRM TODAY TOTAL AMT. THAT IS FREE AND AVAILABLE SO WE CAN FORMALIZE
INSTRUCTION OF TRANSFER IF THE ABOVE PROCEDURE IS APPROVED BY YOU. PLS CONFRM
ALSO LIST OF CORRESPONDENT BANK IN HK.
IN CASE OF WELLS FARGO HK, WE WLD LIKE TO SUGGEST THE FF PROCEDURE:
1. WELLS FARGO HK WIL SEND A TLX TO MANILA INSTRUCTING PHIL BANKING CORP TO
CREDIT FCD SA 18402-7.
2. REIMBURSEMENT INSTRUCTION, AT THE SAME TIME WELLS FARGO HK WIL REQUEST
WELLS FARGO NEW YORK TO CREDIT FCDU NO. 003-019205 FOR THE ACCT OF PHIL
BANKING CORP.56
Even the respondent admitted, in its complaint, that the CLL, Gonzales, and Wilfrido
Martinez, bound and obliged themselves to repay the US$340,000, viz:
2.2 The remittance by plaintiff of the sum of US$340,000.00 as previously explained in the
foregoing paragraphs was made upon the express instructions of defendants GONZALES and
WILFRIDO C. MARTINEZ acting for and in behalf of the defendant CINTAS, defendants
GONZALES and WILFRIDO C. MARTINEZ being the duly authorized representatives of
defendant CINTAS to transact any and all of its business with plaintiff.
2.3 The remittance of US$340,000.00 was made under an agreement for plaintiff to advance
the said amount and for defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS to
repay plaintiff all such monies so advanced to said defendants or to their order.
2.4 In making said remittance, plaintiff acted as the agent of the foregoing defendants in
meeting the latters liability to the recipient/s of the amount so remitted.
2.5 The remittance of US$340,000.00 which remains unsettled to date is a just, binding and
lawful obligation of the defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS.
2.6 Defendant CINTAS is a reinvoicing or paper company with nominee shareholders in
Hongkong. The real and beneficial shareholders of the foregoing defendants are the
defendants LACSON, and WILFRIDO C. MARTINEZ.
2.7 Defendant CINTAS is being used by the foregoing defendants as an alter ego or business
conduit for their sole benefit and/or to defeat public convenience.
2.8 Defendant CINTAS, being a mere alter ego or business conduit for the foregoing
defendants, has no corporate personality distinct and separate from that of its beneficial
shareholders and likewise has no substantial assets in its own name.
2.9 The remittance of US$340,000.00 as referred to previously, although made upon the
instructions of defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS, was in fact a
remittance made for the benefit of the beneficial shareholders of defendant CINTAS.57
The admissions made by the respondent in its complaint are judicial admissions which
cannot be contradicted unless there is a showing that it was made through palpable mistake
or that no such admission was made.58
The respondent impleaded the petitioner only in its second alternative cause of action, on its
allegation that the latter was a joint account holder of MMP Nos. 063 and 084, simply
because he signed the signature cards with Wilfrido Martinez and/or Lacson in blank. The
trial court found the submission of the respondent duly established, based on Wilfrido
Martinezs answer to the complaint, and held the petitioner liable for the said amount based
on the signature cards in this language:
Defendants Ruben Martinez, Wilfrido C. Martinez and Miguel Lacson are joint account holders
of the money market placement account Nos. 063 and 084 (par. 17 page 4 Answer of
defendant Wilfrido C. Martinez; par. 2, page 5, Amended Answer of defendant Lacson; t.s.n.,
4-18-88, p. 7).59
The appellate court affirmed the ruling of the trial court without making any specific
reference to the aforequoted ruling of the trial court.60

We do not agree. The judicial admissions made by Wilfrido Martinez in his answer to the
complaint are not binding on the petitioner.61 The evidence on record shows that the
petitioner affixed his signatures on the signature cards merely upon the request of his son,
Wilfrido Martinez. The signature cards were printed forms of the respondent with the names
of the signatories and the supposed account holders typewritten thereon and, except for the
account number, were similarly worded, viz:
SIGNATURE CARD
Account Name:
Mr. Ruben Martinez and/or
Mr. Wilfrido C. Martinez
and/or Mr. Miguel J. Lacson Account Number: MMP-063
I.D. Card/Passport No.: _____________________________________________
Residence Address: ________________________________________________
_________________________________________ Tel.: ___________________
Office Address: ____________________________________________________
_________________________________________ Tel.: ___________________
Number of signature required to withdraw funds: _________________________
Confirmation/Correspondence to be mailed to:
___ Office
___ Residence
___ Others: ________________
__________________________
Other Instructions: _______________________________________________
_________________________________________________________________
_________________________________________________________________
Specimen of signature:
1. Sgd. (Ruben Martinez)
3. Sgd. (Wilfrido Martinez)
SIGNATURE NAME SIGNATURE NAME
2. Sgd. (Ruben Martinez)
4. Sgd. (Miguel J. Lacson)
SIGNATURE NAME SIGNATURE NAME62
The respondent failed to adduce any evidence, testimonial or documentary, including the
relevant laws63 of Hongkong where the placements were made to hold the petitioner liable
for the respondents claims. Other than the signature cards, the respondent failed to adduce
a shred of evidence to prove (a) the terms and conditions of the money market placements
of the CLL in MMP Nos. 063 and 084; and, (b) the rights and obligations of the petitioner,
Wilfrido Martinez and Lacson, over the money market placements. In light of the evidence on
record, the CLL and/or Wilfrido Martinez never surrendered their ownership over the funds in
favor of the petitioner when the latter co-signed the signature cards. The CLL and/or Wilfrido
Martinez retained complete control and dominion over the funds.
By merely affixing his signatures on the signature cards, the petitioner did not necessarily
become a joint and solidary creditor of the respondent over the said placements. Neither did
the petitioner bind himself to pay to the respondent the US$340,000 which was borrowed by
the CLL and/or Wilfrido Martinez, and later remitted to FCD SA 18402-7.
The respondent has no one but itself to blame for its failure to deduct the US$340,000 from
the foreign currency and deposit accounts and money market placements of the CLL. The
evidence on record shows that the respondent was supposed to deduct the said amount
from the money market placements of the CLL in MMP Nos. 063 and 084, but failed to do so.
The respondent remitted the amount from its own funds and, by its negligence, merely
posted the amount in the account of the CLL. Worse, the respondent allowed the CLL and
Wilfrido Martinez to withdraw the entirety of the deposits in the said accounts, without first
deducting the US$340,000. By the time the respondent realized its mistakes, the funds in
the said accounts had already been withdrawn solely by the CLL and/or Wilfrido Martinez.
This was the testimony of Michael Sung, the witness for the respondent.
Q: Do you know whether this US$340,000 was really transferred to Foreign Currency Deposit
Account No. 18402-7 of the Philippine Banking Corporation in Manila?
A: Yes.

Q: Pursuant to the procedure for fund transfer as contained in Exhs. B, C, D and E, after
having made such remittance of US$340,000.00, what was plaintiff supposed to do, if any, in
order to get reimbursement for such transfer?
A: Plaintiff was supposed to deduct the US$340,000.00 remitted to the foreign currency
deposit account from the Cintas Largas funds or from Money Market Placement Account Nos.
063 and 084 as well as the Cintas Largas, Ltd. deposit account.
Q: Do you know if plaintiff was able to obtain reimbursement of the US$340,000 remitted to
the Philippine Banking Corporation in Manila?
A: No, because instead of deducting the remittance of US$340,000 from the funds in the
money market placement accounts and/or the Cintas Largas Deposit Account, we posted the
US$340,000 remittance as an account receivable of Cintas Largas, Ltd. since at that time the
money market placement deposits have not yet matured. Subsequently, we failed to charge
the deposit and MMP accounts when they matured and Cintas Largas, Ltd. and/or Wilfrido C.
Martinez had already withdrawn the bulk of the funds contained in Money Market Placement
Account No. 063 and the Cintas Largas, Ltd. Deposit Account thus, we were unable to obtain
reimbursement therefrom.64
It cannot even be argued that if the petitioner would not be adjudged liable for the
respondents claim, he would thereby be enriching himself at the expense of the respondent.
There is no evidence on record that the petitioner withdrew a single centavo from or was
personally benefited by the funds in MMP Nos. 063 and 084. The testimonial and
documentary evidence of the respondent clearly shows that the CLL and/or Wilfrido Martinez
used and disposed of the said funds without the knowledge, involvement, and consent of the
petitioner. Furthermore, the documentary evidence of the respondent shows the following:
MMP 063
Statement of Accounts (Deposit)
Value Date
Funds In
Funds Out
Remarks

28/11/80
6,664.95
Interests earned
29/12/80
4,779.66
"
"
21/01/81
4,024.83
"
"
21/01/81
119,478.51 Purchase HK$632,041.33 @5.29 & transferred to its
statement A/C
13/02/81
2,321.99
Interests earned
"
100,015.00 Transfer to Cintas Largas A/C Receivable.
17/02/81
55.07
Interests earned
18/03/81
1,317.27
"
"
"
100,000.00 Purchase HK$525,000.00 @5.25 cheque made payable to Grand
Solid Enterprises Co., Ltd.
"
5,713.74
Transfer to A/C Receivable
(MMP-063)
_____________
US$443,975.85
============ _____________
US$443,975.85
============ 65

MMP 084
Statement of Accounts (Deposit)
Value Date
Funds In
Funds

28/11/80
16,374.36
01/12/80
488.16
"
"
04/12/80
1,089.06
"
US$250,000.00

Out

Remarks

Interests earned
"
"
Transfer to A/C of Cintas Largas

09/12/80
"
18/12/80
"

1,290.56
Interests earned
200,000.00 Transfer to Cintas Largas A/R.
1,545.42
Interests earned
200,000.00 T/T to Chase Manhattan NY for
Credit A/C Allied Capital F/O
Frank Chan B/O Grand Solid.
02/03/81
4,608.27
Interests earned
"
20,470.74
Transfer to A/C of Grand Solid
09/03/81
321.91
Interests earned
"
60,000.00
Transfer to A/C of Trinisia Ltd.
20/03/81
213.40
Interests earned
"
45,286.26
T/T to Nitto Trading & Josho
Ind. Co., Ltd., Japan.
"
2,028.02
Transfer to A/C Receivable
(MMP-084)
"
30.00 Cable Charges
_____________
US$777,815.02
============ _____________
US$777,815.02
============ 66

CINTAS LARGAS
Statement of Accounts (Deposit)
Value Date
Funds In
Funds Out
Remarks

31/10/80
5,011.99
Interests earned
17/11/80
8,067.70
"
"
"
350,000.00 Transfer to A/C of Grand Solid
09/11/80
3,062.23
Interests earned
"
350,000.00 Purchase HK$1,789,200.00 @5.112, Cheque made payable to
Grand Solid.
26/11/80
3,264.34
Interests earned
"
300,000.00 Purchase HK$1,535,100.00 @5.117, Cheque made payable to
Grand Solid
21/01/81
1,299.80
Interests earned
"
81,415.00
Remittance from C. Itoh & Co., NY
02/03/81
2,445.49
Interests earned
"
129,529.26 Transfer to Grand Solids A/C Receivable
02/04/81
143,000.00 Transfer from CLs Statement A/C
10/04/81
456.81
Interests earned
"
50,000.00
Purchase HK$267,150.00 @5.343, Cheque made payable to
Grand Solid.
13/04/81
US$ 40.89
Interests earned
21/04/81
311.66
"
"
"
US$ 50,000.00
Purchase HK$268,850.00 @5.377, cheque made payable
to Grand Solid.
28/04/81
132.04
Interests earned
"
40,000.00
Purchase HK$214,480.00 @5.362, cheque made payable to
Grand Solid.
"
52,692.00
Remittance from Dai Ichi Kangyo Bank NY. REF. KOMEIMARU
19/05/81
178,465.18
Transfer from CLs A/C Receivable
22/05/81
46,472.00
Remittance from C. Itoh & Co., NY Re. Pacific Geory.
26/05/81
28.40
Interests earned

04/06/81
1,242.80
"
"
"
50,000.00
Purchase HK$275,750.00 @5.515, Cheque made payable to
Grand Solid
11/06/81
2,252.36
Interests earned
"
66,400.00
T/T to Security Pacific Natl Bank LA for A/C of Twentieth Century
Fox Intl Corp.
"
15.00
Cable Charge
"
31.65
Purchase HK$175.00 @5.53 for payment of Business Registration Fee.
25/06/81
1,192.24
Interests earned
"
60,000.00
Purchase HK$331,500.00 @5.525, cheque made payable to
Grand Solid.
"
22,656.88
T/T to Daiwa Bank, Los Angeles for A/C of OAC Equipment Corp.
"
45,800.00
T/T to Josho Ind. Co. Ltd., Japan
"
15.00 Cable Charge
03/07/81
165.47
Interests earned
"
11,870.00
T/T to Bank of Tokyo, Kobe Branch for A/C of Furuno Electric Co.
Ref.: Mar Tierra Takashiro Maru, Eatelite Nav. and Radar.
"
15.00 Cable Charge
06/07/81
17.60
Interests earned
07/07/81
14.83
"
"
"
16,000.00
T/T to Dai Ichi Kangyo Bank, Shimizu Branch for A/C of Takashiro
Maru.
"
15.00 Cable Charge
15/09/81
US$ 482.29
Interests earned
"
US$ 1,250.00 Reimbursement of expenses paid to Price Waterhouse & Co.
17/09/81
11.91
Interests earned
"
237.43 Purchase HK$1,421.50 for cheque payment to Price Waterhouse & Co.
08/01/82
70,360.00
Remittance from C. Itoh & Co., NY
19/01/82
268.74
Interests earned
"
3,064.81
Transfer to CLs Margin A/C
"
50,000.00
Purchase HK$295,100.00, cheque made payable to Grand Solid.
"
5,952.38
Transfer to A/C of Trinisia Ltd.
TOTAL :
_____________
US$1,756,387.32
______________
US$1,732,103.25
24,284.07
Outstanding deposits
______________
US$1,756,387.32
==============
______________
US$1,756,387.32
==============
67
Clearly from the foregoing, the withdrawals from the deposit and foreign currency accounts
and MMP Nos. 063 and 084 of the CLL, after the respondent remitted the US$340,000, were
for the account of the CLL and/or Wilfrido Martinez, and not of the petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of
Appeals is REVERSED AND SET ASIDE. The complaint of the respondent against the
petitioner in Civil Case No. C-10811 is DISMISSED. No costs.
SO ORDERED.
Puno, Austria-Martinez**, Tinga, and Chico-Nazario***, JJ., concur.

Secosa vs. Heirs of Francisco, [G.R. No. 160039. June 29, 2004]

Post under case digests, Commercial Law at Wednesday, March 07, 2012 Posted by
Schizophrenic Mind
Facts: Francisco, an 18 year old 3rd year physical therapy student was riding a motorcycle. A
sand and gravel truck was traveling behind the motorcycle, which in turn was being tailed by
the Isuzu truck driven by Secosa. The Isuzu cargo truck was owned by Dassad Warehousing
and Port Services, Inc.. The three vehicles were traversing the southbound lane at a fairly
high speed. When Secosa overtook the sand and gravel truck, he bumped the motorcycle
causing Francisco to fall. The rear wheels of the Isuzu truck then ran over Francisco, which
resulted in his instantaneous death. Secosa left his truck and fled the scene of the collision.
The parents of Francisco, respondents herein, filed an action for damages against Secosa,
Dassad Warehousing and Port Services, Inc. and Dassads president, El Buenasucenso Sy.
The court a quo rendered a decision in favor of herein respondents; thus petitioners
appealed the decision to the Court of Appeals, which unfortunately affirmed the appealed
decision in toto. Hence, the present petition.
Issues:
(1) Whether or not Dassad Warehousing and Port Services, Inc. exercised the diligence of a
good father of a family in the selection and supervision of its employees; hence it cannot be
held solidary liable with the negligence of its employee.
(2) Whether or not Dassads president, El Buenasucenso Sy, can be held solidary liable with
co-petitioners.
Held:
(1) No. Dassad Warehousing and Port Services, Inc. did not exercise the required diligence of
a good father of a family in the selection and supervision of its employees. Hence, it cannot
be held solidary liable with the negligence of its employee.
Article 2176 of the Civil Code provides:
Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
On the other hand, Article 2180, in pertinent part, states:
The obligation imposed by article 2176 is demandable not only for ones own acts or
omissions, but also for those of persons for whom one is responsible x x x.
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in
any business or industry x x x.
The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.
Based on the foregoing provisions, when an injury is caused by the negligence of an
employee, there instantly arises a presumption that there was negligence on the part of the
employer, which however, may be rebutted by a clear evidence showing on the part of the
employer that it exercised the care and diligence of a good father of a family in the selection
and supervision of his employee.

In the selection of prospective employees, employers are required to examine them as to

their qualifications, experience, and service records. On the other hand, with respect to the
supervision of employees, employers should formulate standard operating procedures,
monitor their implementation, and impose disciplinary measures for breaches thereof. To
establish these factors in a trial involving the issue of explicit liability, employers must
submit concrete proof, including documentary evidence. The reason for this is to obviate the
biased nature of the employers testimony or that of his witnesses.
In the case at bar, Dassad Warehousing and Port Services, Inc. failed to conclusively prove
that it had exercised the requisite diligence of a good father of a family in the selection and
supervision of its employees. Dassad Warehousing and Port Services, Inc. failed to support
the testimony of its lone witness, Edilberto Duerme, with documentary evidence which
would have strengthened its claim of due diligence in the selection and supervision of its
employees. Such an omission is fatal on account of which, Dassad can be rightfully held
solidarily liable with its co-petitioner Secosa for the damages suffered by the heirs of
Francisco.
(2) No. Sy cannot be held solidarily liable with his co-petitioners. While it may be true that Sy
is the president of Dassad Warehousing and Port Services, Inc., such fact is not by itself
sufficient to hold him solidarily liable for the liabilities adjudged against his co-petitioners.
A corporation has a personality separate from that of its stockholders or members. The
doctrine of veil of corporation treats as separate and distinct the affairs of a corporation
and its officers and stockholders. As a 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.
The records of the case does not point toward the presence of any grounds enumerated
above that will justify the piercing of the veil of corporate entity such as to hold Sy, the
president of Dassad Warehousing and Port Services, Inc., solidarily liable with it.
Furthermore, the Isuzu cargo truck which ran over Francisco was registered in the name of
Dassad and not in the name of Sy. Secosa is an employee of Dassad and not of Sy. These
facts showed Sys exclusion from liability for damages arising from the death of Francisco.

Secosa vs. Heirs of Francisco, [G.R. No. 160039. June 29, 2004
Facts: Francisco, an 18 year old 3rd year physical therapy student was riding a motorcycle.
A sand and gravel truck was traveling behind the motorcycle, which in turn was being tailed
by the Isuzu truck driven by Secosa. The Isuzu cargo truck was owned by Dassad
Warehousing and Port Services, Inc.. The three vehicles were traversing the southbound lane
at a fairly high speed. When Secosa overtook the sand and gravel truck, he bumped the
motorcycle causing Francisco to fall. The rear wheels of the Isuzu truck then ran

over Francisco, which resulted in his instantaneous death. Secosa left his truck and fled the
scene of the collision.

The parents of Francisco, respondents herein, filed an action for damages against Secosa,
Dassad Warehousing and Port Services, Inc. and Dassads president, El Buenasucenso Sy.
The court a quo rendered a decision in favor of herein respondents; thus petitioners
appealed the decision to the Court of Appeals, which unfortunately affirmed the appealed
decision in toto. Hence, the present petition.
Issues:
(1) Whether or not Dassad Warehousing and Port Services, Inc. exercised the diligence of a
good father of a family in the selection and supervision of its employees; hence it cannot be
held solidary liable with the negligence of its employee.
(2) Whether or not Dassads president, El Buenasucenso Sy, can be held solidary liable with
co-petitioners.
Held:
(1) No. Dassad Warehousing and Port Services, Inc. did not exercise the required diligence of
a good father of a family in the selection and supervision of its employees. Hence, it cannot
be held solidary liable with the negligence of its employee.
Article 2176 of the Civil Code provides:
Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict and is governed by
the provisions of this Chapter.
On the other hand, Article 2180, in pertinent part, states:
The obligation imposed by article 2176 is demandable not only for ones own acts or
omissions, but also for those of persons for whom one is responsible x x x.
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in
any business or industry x x x.
The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.
Based on the foregoing provisions, when an injury is caused by the negligence of an
employee, there instantly arises a presumption that there was negligence on the part of the
employer, which however, may be rebutted by a clear evidence showing on the part of the
employer that it exercised the care and diligence of a good father of a family in the selection
and supervision of his employee.
In the selection of prospective employees, employers are required to examine them as to
their qualifications, experience, and service records. On the other hand, with respect to the
supervision of employees, employers should formulate standard operating procedures,

monitor their implementation, and impose disciplinary measures for breaches thereof. To
establish these factors in a trial involving the issue of explicit liability, employers
must submitconcrete proof, including documentary evidence. The reason for this is to
obviate the biased nature of the employers testimony or that of his witnesses.
In the case at bar, Dassad Warehousing and Port Services, Inc. failed to conclusively prove
that it had exercised the requisite diligence of a good father of a family in the selection and
supervision of its employees. Dassad Warehousing and Port Services, Inc. failed to support
the testimony of its lone witness, Edilberto Duerme, with documentary evidence which
would have strengthened its claim of due diligence in the selection and supervision of its
employees. Such an omission is fatal on account of which, Dassad can be rightfully held
solidarily liable with its co-petitioner Secosa for the damages suffered by the heirs
of Francisco.
(2) No. Sy cannot be held solidarily liable with his co-petitioners. While it may be true that Sy
is the president of Dassad Warehousing and Port Services, Inc., such fact is not by itself
sufficient to hold him solidarily liable for the liabilities adjudged against his co-petitioners.
A corporation has a personality separate from that of its stockholders or members. The
doctrine of veil of corporation treats as separate and distinct the affairs of a corporation
and its officers and stockholders. As a 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.
The records of the case does not point toward the presence of any grounds enumerated
above that will justify the piercing of the veil of corporate entity such as to hold Sy, the
president of Dassad Warehousing and Port Services, Inc., solidarily liable with it.
Furthermore, the Isuzu cargo truck which ran over Francisco was registered in the name of
Dassad and not in the name of Sy. Secosa is an employee of Dassad and not of Sy. These
facts showed Sys exclusion from liability for damages arising from the death ofFrancisco.
[G.R. No. 156819. December 11, 2003]

ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON, petitioners, vs. ELLICE AGROINDUSTRIAL CORPORATION, MARGO MANAGEMENT AND DEVELOPMENT CORPORATION, RAUL
E. GALA, VITALIANO N. AGUIRRE II, ADNAN V. ALONTO, ELIAS N. CRESENCIO, MOISES S.
MANIEGO, RODOLFO B. REYNO, RENATO S. GONZALES, VICENTE C. NOLAN, NESTOR N.
BATICULON, respondents.
DECISION
YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court, seeking the reversal of the
decision dated November 8, 2002[1] and the resolution dated December 27, 2002[2] of the
Court of Appeals in CA-G.R. SP No. 71979.

On March 28, 1979, the spouses Manuel and Alicia Gala, their children Guia Domingo, Ofelia
Gala, Raul Gala, and Rita Benson, and their encargados Virgilio Galeon and Julian Jader
formed and organized the Ellice Agro-Industrial Corporation.[3] The total subscribed capital
stock of the corporation was apportioned as follows:

Name Number of Shares Amount

Manuel R. Gala 11, 700 1,170,000.00
Alicia E. Gala 23,200 2,320,000.00
Guia G. Domingo 16 1,600.00
Ofelia E. Gala 40 4,000.00
Raul E. Gala 40 4,000.00
Rita G. Benson 2 200.00
Virgilio Galeon 1 100.00
Julian Jader 1 100.00
TOTAL 35,000 P3,500,000.00[4]

As payment for their subscriptions, the Gala spouses transferred several parcels of land
located in the provinces of Quezon and Laguna to Ellice. [5]

In 1982, Manuel Gala, Alicia Gala and Ofelia Gala subscribed to an additional 3,299 shares,
10,652.5 shares and 286.5 shares, respectively. [6]

On June 28, 1982, Manuel Gala and Alicia Gala acquired an additional 550 shares and 281
shares, respectively. [7]

Subsequently, on September 16, 1982, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio Galeon
and Julian Jader incorporated the Margo Management and Development Corporation
(Margo). [8] The total subscribed capital stock of Margo was apportioned as follows:

On November 10, 1982, Manuel Gala sold 13,314 of his shares in Ellice to Margo. [10]

Alicia Gala transferred 1,000 of her shares in Ellice to a certain Victor de Villa on March 2,
1983. That same day, de Villa transferred said shares to Margo. [11] A few months later, on
August 28, 1983, Alicia Gala transferred 854.3 of her shares to Ofelia Gala, 500 to Guia
Domingo and 500 to Raul Gala. [12]

Years later, on February 8, 1988, Manuel Gala transferred all of his remaining holdings in
Ellice, amounting to 2,164 shares, to Raul Gala. [13]

On July 20, 1988, Alicia Gala transferred 10,000 of her shares to Margo. [14]

Thus, as of the date on which this case was commenced, the stockholdings in Ellice were
allocated as follows:

On June 23, 1990, a special stockholders meeting of Margo was held, where a new board of
directors was elected. [15] That same day, the newly-elected board elected a new set of
officers. Raul Gala was elected as chairman, president and general manager. During the
meeting, the board approved several actions, including the commencement of proceedings
to annul certain dispositions of Margos property made by Alicia Gala. The board also
resolved to change the name of the corporation to MRG Management and Development
Corporation. [16]
Similarly, a special stockholders meeting of Ellice was held on August 24, 1990 to elect a
new board of directors. In the ensuing organizational meeting later that day, a new set of
corporate officers was elected. Likewise, Raul Gala was elected as chairman, president and
general manager.
On March 27, 1990, respondents filed against petitioners with the Securities and Exchange
Commission (SEC) a petition for the appointment of a management committee or receiver,
accounting and restitution by the directors and officers, and the dissolution of Ellice AgroIndustrial Corporation for alleged mismanagement, diversion of funds, financial losses and
the dissipation of assets, docketed as SEC Case No. 3747. [17] The petition was amended to

delete the prayer for the appointment of a management committee or receiver and for the
dissolution of Ellice. Additionally, respondents prayed that they be allowed to inspect the
corporate books and documents of Ellice. [18]
In turn, petitioners initiated a complaint against the respondents on June 26, 1991, docketed
as SEC Case No. 4027, praying for, among others, the nullification of the elections of
directors and officers of both Margo Management and Development Corporation and Ellice
Industrial Corporation; the nullification of all board resolutions issued by Margo from June 23,
1990 up to the present and all board resolutions issued by Ellice from August 24, 1990 up to
the present; and the return of all titles to real property in the name of Margo and Ellice, as
well as all corporate papers and records of both Margo and Ellice which are in the possession
and control of the respondents. [19]
The two cases were consolidated in an Order dated November 23, 1993. [20]
Meanwhile, during the pendency of the SEC cases, the shares of stock of Alicia and Ofelia
Gala in Ellice were levied and sold at public auction to satisfy a judgment rendered against
them by he Regional Trial Court of Makati, Branch 66, in Civil Case No. 42560, entitled
Regines Condominium v. Ofelia (Gala) Panes and Alicia Gala. [21]

On November 3, 1998, the SEC rendered a Joint Decision in SEC Cases Nos. 3747 and 4027,
the dispositive portion of which states:
WHEREFORE, premises considered, judgment is hereby rendered, as follows:
1. Dismissing the petition in SEC Case No. 3747,
2. Issuing the following orders in SEC Case No. 4027;
(a) Enjoining herein respondents to perform corporate acts of both Ellice and Margo, as
directors and officers thereof.
(b) Nullifying the election of the new sets of Board of Directors and Officers of Ellice and
Margo from June 23, 1990 to the present, and that of Ellice from August 24, 1990 to the
present.

(c) Ordering the respondent Raul Gala to return all the titles of real properties in the names
of Ellice and Margo which were unlawfully taken and held by him.
(d) Directing the respondents to return to herein petitioners all corporate papers, records of
both Ellice and Margo which are in their possession and control.
SO ORDERED. [22]
Respondents appealed to the SEC En Banc, which, on July 4, 2002, rendered its Decision, the
decretal portion of which reads:
WHEREFORE, the Decision of the Hearing Officer dated November 3, 1998 is hereby
REVERSED and SET ASIDE and a new one hereby rendered granting the appeal, upholding
the Amended Petition in SEC Case No. 3747, and dismissing the Petition with Prayer for
Issuance of Preliminary Restraining Order and granting the Compulsory Counterclaim in SEC
Case No. 4027.
Accordingly, appellees Alicia Gala and Guia G. Domingo are ordered as follows:
(1) jointly and solidarily pay ELLICE and/or MARGO the amount of P700,000.00 representing
the consideration for the unauthorized sale of a parcel of land to Lucky Homes and
Development Corporation (Exhs. N and CCC);
(2) jointly and severally pay ELLICE and MARGO the proceeds of sales of agricultural
products averaging P120,000.00 per month from February 17, 1988;

(3) jointly and severally indemnify the appellants P90,000.00 as attorneys fees;
(4) jointly and solidarily pay the costs of suit;
(5) turn over to the individual appellants the corporate records of ELLICE and MARGO in their
possession; and
(6) desist and refrain from interfering with the management of ELLICE and MARGO.
SO ORDERED. [23]

Petitioners filed a petition for review with the Court of Appeals which dismissed the petition
for review and affirmed the decision of the SEC En Banc. [24]
Hence, this petition, raising the following issues:
I
WHETHER OR NOT THE LOWER COURT ERRED IN NOT DECLARING AS ILLEGAL AND
CONTRARY TO PUBLIC POLICY THE PURPOSES AND MANNER IN WHICH RESPONDENT
CORPORATIONS WERE ORGANIZED WHICH WERE, E.G. TO (1) PREVENT THE GALA ESTATE
FROM BEING BROUGHT UNDER THE COVERAGE (SIC) OF THE COMPREHENSIVE AGRARIAN
REFORM PROGRAM (CARP) AND (2) PURPORTEDLY FOR ESTATE PLANNING.
II
WHETHER OR NOT THE LOWER COURT ERRED (1) IN SUSPICIOUSLY RESOLVING THE CASE
WITHIN TWO (2) DAYS FROM RECEIPT OF RESPONDENTS COMMENT; AND (2) IN NOT MAKING
A DETERMINATION OF THE ISSUES OF FACTS AND INSTEAD RITUALLY CITING THE FACTUAL
FINDINGS OF THE COMMISSION A QUO WITHOUT DISCUSSION AND ANALYSIS;
III
WHETHER OR NOT THE LOWER COURT ERRED IN RULING THAT THE ORGANIZATION OF
RESPONDENT CORPORATIONS WAS NOT ILLEGAL FOR DEPRIVING PETITIONER RITA G.
BENSON OF HER LEGITIME.
IV
WHETHER OR NOT THE LOWER COURT ERRED IN NOT PIERCING THE VEILS OF CORPORATE
FICTION OF RESPONDENTS CORPORATIONS ELLICE AND MARGO. [25]
In essence, petitioners want this Court to disregard the separate juridical personalities of
Ellice and Margo for the purpose of treating all property purportedly owned by said
corporations as property solely owned by the Gala spouses.
The petitioners first contention in support of this theory is that the purposes for which Ellice
and Margo were organized should be declared as illegal and contrary to public policy. They
claim that the respondents never pursued exemption from land reform coverage in good
faith and instead merely used the corporations as tools to circumvent land reform laws and
to avoid estate taxes. Specifically, they point out that respondents have not shown that the
transfers of the land in favor of Ellice were executed in compliance with the requirements of
Section 13 of R.A. 3844.[26] Furthermore, they alleged that respondent corporations were
run without any of the conventional corporate formalities. [27]

At the outset, the Court holds that petitioners contentions impugning the legality of the
purposes for which Ellice and Margo were organized, amount to collateral attacks which are
prohibited in this jurisdiction. [28]
The best proof of the purpose of a corporation is its articles of incorporation and by-laws.
The articles of incorporation must state the primary and secondary purposes of the
corporation, while the by-laws outline the administrative organization of the corporation,
which, in turn, is supposed to insure or facilitate the accomplishment of said purpose. [29]
In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no
sign of the allegedly illegal purposes that petitioners are complaining of. It is well to note
that, if a corporations purpose, as stated in the Articles of Incorporation, is lawful, then the
SEC has no authority to inquire whether the corporation has purposes other than those
stated, and mandamus will lie to compel it to issue the certificate of incorporation. [30]
Assuming there was even a grain of truth to the petitioners claims regarding the legality of
what are alleged to be the corporations true purposes, we are still precluded from granting
them relief. We cannot address here their concerns regarding circumvention of land reform
laws, for the doctrine of primary jurisdiction precludes a court from arrogating unto itself the
authority to resolve a controversy the jurisdiction over which is initially lodged with an
administrative body of special competence.[31] Since primary jurisdiction over any violation
of Section 13 of Republic Act No. 3844 that may have been committed is vested in the
Department of Agrarian Reform Adjudication Board (DARAB),[32] then it is with said
administrative agency that the petitioners must first plead their case. With regard to their
claim that Ellice and Margo were meant to be used as mere tools for the avoidance of estate
taxes, suffice it say that the legal right of a taxpayer to reduce the amount of what
otherwise could be his taxes or altogether avoid them, by means which the law permits,
cannot be doubted. [33]
The petitioners allegation that Ellice and Margo were run without any of the typical corporate
formalities, even if true, would not merit the grant of any of the relief set forth in their
prayer. We cannot disregard the corporate entities of Ellice and Margo on this ground. At
most, such allegations, if proven to be true, should be addressed in an administrative case
before the SEC. [34]

Thus, even if Ellice and Margo were organized for the purpose of exempting the properties of
the Gala spouses from the coverage of land reform legislation and avoiding estate taxes, we
cannot disregard their separate juridical personalities.
Next, petitioners make much of the fact that the Court of Appeals promulgated its assailed
Decision a mere two days from the time the respondents filed their Comment. They alleged
that the appellate court could not have made a deliberate study of the factual questions in
the case, considering the sheer volume of evidence available. [35] In support of this
allegation, they point out that the Court of Appeals merely adopted the factual findings of
the SEC En Banc verbatim, without deliberation and analysis. [36]
In People v. Mercado, [37] we ruled that the speed with which a lower court disposes of a
case cannot thus be attributed to the injudicious performance of its function. Indeed,
magistrates are not supposed to study a case only after all the pertinent pleadings have
been filed. It is a mark of diligence and devotion to duty that jurists study a case long before
the deadline set for the promulgation of their decision has arrived. The two-day period
between the filing of petitioners Comment and the promulgation of the decision was
sufficient time to consider their arguments and to incorporate these in the decision. As long
as the lower court does not sacrifice the orderly administration of justice in favor of a speedy
but reckless disposition of a case, it cannot be taken to task for rendering its decision with
due dispatch. The Court of Appeals in this intra-corporate controversy committed no
reversible error and, consequently, its decision should be affirmed. [38] Verily, if such swift
disposition of a case is considered a non-issue in cases where the life or liberty of a person is
at stake, then we see no reason why the same principle cannot apply when only private
rights are involved.

Furthermore, well-settled is the rule that the factual findings of the Court of Appeals are
conclusive on the parties and are not reviewable by the Supreme Court. They carry even
more weight when the Court of Appeals affirms the factual findings of a lower fact-finding
body.[39] Likewise, the findings of fact of administrative bodies, such as the SEC, will not be
interfered with by the courts in the absence of grave abuse of discretion on the part of said
agencies, or unless the aforementioned findings are not supported by substantial evidence.
[40]

however, in the interest of equity, this Court has reviewed the factual findings of the SEC En
Banc, which were affirmed in toto by the Court of Appeals, and has found no cogent reason
to disturb the same. Indeed, we are convinced that the arguments raised by the petitioners
are nothing but unwarranted conclusions of law. Specifically, they insist that the Gala
spouses never meant to part with the ownership of the shares which are in the names of
their children and encargados, and that all transfers of property to these individuals are
supposedly void for being absolutely simulated for lack of consideration.[41] However, as
correctly held by the SEC En Banc, the transfers were only relatively simulated, inasmuch as
the evident intention of the Gala spouses was to donate portions of their property to their
children and encargados. [42]
In an attempt to bolster their theory that the organization of the respondent corporations
was illegal, the petitioners aver that the legitime pertaining to petitioners Rita G. Benson
and Guia G. Domingo from the estate of their father had been subject to unwarranted
reductions as a result thereof. In sum, they claim that stockholdings in Ellice which the late
Manuel Gala had assigned to them were insufficient to cover their legitimes, since Benson
was only given two shares while Domingo received only sixteen shares out of a total number
of 35,000 issued shares. [43]
Moreover, the reliefs sought by petitioners should have been raised in a proceeding for
settlement of estate, rather than in the present intra-corporate controversy. If they are
genuinely interested in securing that part of their late fathers property which has been
reserved for them in their capacity as compulsory heirs, then they should simply exercise
their actio ad supplendam legitimam, or their right of completion of legitime.[44] Such relief
must be sought during the distribution and partition stage of a case for the settlement of the
estate of Manuel Gala, filed before a court which has taken jurisdiction over the settlement
of said estate. [45]
Finally, the petitioners pray that the veil of corporate fiction that shroud both Ellice and
Margo be pierced, consistent with their earlier allegation that both corporations were formed
for purposes contrary to law and public policy. In sum, they submit that the respondent
corporations are mere business conduits of the deceased Manuel Gala and thus may be
disregarded to prevent injustice, the distortion or hiding of the truth or the letting in of a just
defense. [46]

However, to warrant resort to the extraordinary remedy of piercing the veil of corporate
fiction, there must be proof that the corporation is being used as a cloak or cover for fraud or
illegality, or to work injustice, [47] and the petitioners have failed to prove that Ellice and
Margo were being used thus. They have not presented any evidence to show how the
separate juridical entities of Ellice and Margo were used by the respondents to commit
fraudulent, illegal or unjust acts. Hence, this contention, too, must fail.
On June 5, 2003, the petitioners filed a Reply, where, aside from reiterating the contentions
raised in their Petition, they averred that there is no proof that either capital gains taxes or
documentary stamp taxes were paid in the series of transfers of Ellice and Margo shares.
Thus, they invoke Sections 176 and 201 of the National Internal Revenue Code, which would
bar the presentation or admission into evidence of any document that purports to transfer
any benefit derived from certificates of stock if the requisite documentary stamps have not
been affixed thereto and cancelled.

Curiously, the petitioners never raised this issue before the SEC Hearing Officer, the SEC En
Banc or the Court of Appeals. Thus, we are precluded from passing upon the same for, as a
rule, no question will be entertained on appeal unless it has been raised in the court below,
for points of law, theories, issues and arguments not brought to the attention of the lower
court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot
be raised for the first time at that late stage. Basic considerations of due process impel this
rule.[48] Furthermore, even if these allegations were proven to be true, such facts would not
render the underlying transactions void, for these instruments would not be the sole means,
much less the best means, by which the existence of these transactions could be proved. For
this purpose, the books and records of a corporation, which include the stock and transfer
book, are generally admissible in evidence in favor of or against the corporation and its
members. They can be used to prove corporate acts, a corporations financial status and
other matters, including ones status as a stockholder. Most importantly, these books and
records are, ordinarily, the best evidence of corporate acts and proceedings.[49] Thus,
reference to these should have been made before the SEC Hearing Officer, for this Court will
not entertain this belated questioning of the evidence now.

It is always sad to see families torn apart by money matters and property disputes. The
concept of a close corporation organized for the purpose of running a family business or
managing family property has formed the backbone of Philippine commerce and industry.
Through this device, Filipino families have been able to turn their humble, hard-earned life
savings into going concerns capable of providing them and their families with a modicum of
material comfort and financial security as a reward for years of hard work. A family
corporation should serve as a rallying point for family unity and prosperity, not as a
flashpoint for familial strife. It is hoped that people reacquaint themselves with the concepts
of mutual aid and security that are the original driving forces behind the formation of family
corporations and use these tenets in order to facilitate more civil, if not more amicable,
settlements of family corporate disputes.
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated November
8, 2002 and the Resolution dated December 27, 2002, both of the Court of Appeals, are
AFFIRMED. Costs against petitioners.
SO ORDERED.

G.R. No. 155214. February 13, 2004]

R & E TRANSPORT, INC., and HONORIO ENRIQUEZ, petitioners, vs. AVELINA P. LATAG,
representing her deceased husband, PEDRO M. LATAG, respondents.
DECISION
PANGANIBAN, J.:
Factual issues may be reviewed by the Court of Appeals (CA) when the findings of fact of the
National Labor Relations Commission (NLRC) conflict with those of the labor arbiter. By the
same token, this Court may review factual conclusions of the CA when they are contrary to
those of the NLRC or of the labor arbiter.
The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify
the June 3, 2002 Decision[2] and the August 28, 2002 Resolution[3] of the Court of Appeals
in CA-GR SP No. 67998. The appellate court disposed as follows:
WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed Order of
public respondent NLRC is SET ASIDE. The March 14, 2001[4] [D]ecision of the Labor Arbiter
a quo is REINSTATED.[5]
The challenged Resolution denied petitioners Motion for Reconsideration.
The Factual Antecedents
The antecedents of the case are narrated by the CA as follows:
Pedro Latag was a regular employee x x x of La Mallorca Taxi since March 1, 1961. When La
Mallorca ceased from business operations, [Latag] x x x transferred to [petitioner] R & E
Transport, Inc. x x x. He was receiving an average daily salary of five hundred pesos
(P500.00) as a taxi driver.
[Latag] got sick in January 1995 and was forced to apply for partial disability with the SSS,
which was granted. When he recovered, he reported for work in September 1998 but was no
longer allowed to continue working on account of his old age.
Latag thus asked Felix Fabros, the administrative officer of [petitioners], for his retirement
pay pursuant to Republic Act 7641 but he was ignored. Thus, on December 21, 1998, [Latag]
filed a case for payment of his retirement pay before the NLRC.
Latag however died on April 30, 1999. Subsequently, his wife, Avelina Latag, substituted
him. On January 10, 2000, the Labor Arbiter rendered a decision in favor of [Latag], the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering x x x LA MALLORCA TAXI, R & E
TRANSPORT, INC. and their owner/chief executive officer HONORIO ENRIQUEZ to jointly and
severally pay MRS. AVELINA P. LATAG the sum of P277,500.00 by way of retirement pay for
her deceased husband, PEDRO M. LATAG.
SO ORDERED.

On January 21, 2000, [Respondent Avelina Latag,] with her then counsel[,] was invited to the
office of [petitioners] counsel and was offered the amount of P38,500.00[,] which she
accepted. [Respondent] was also asked to sign an already prepared quitclaim and release
and a joint motion to dismiss the case.
After a day or two, [respondent] received a copy of the January 10, 2000 [D]ecision of the
Labor Arbiter.
On January 24, 2000, [petitioners] filed the quitclaim and motion to dismiss. Thereafter, on
May 23, 2000, the Labor Arbiter issued an order, the relevant portion of which states:
WHEREFORE, the decision stands and the Labor Arbitration Associate of this Office is
directed to prepare the Writ of Execution in due course.
SO ORDERED.
On January 21, 2000, [petitioners] interposed an appeal before the NLRC. On March 14,
2001, the latter handed down a [D]ecision[,] the decretal portion of which provides:
WHEREFORE, in view of the foregoing, respondents Appeal is hereby DISMISSED for failure to
post a cash or surety bond, as mandated by law.
SO ORDERED.
On April 10, 2001, [petitioners] filed a motion for reconsideration of the above resolution. On
September 28, 2001, the NLRC came out with the assailed [D]ecision, which gave due
course to the motion for reconsideration.[6] (Citations omitted)

Respondent appealed to the CA, contending that under Article 223 of the Labor Code and
Section 3, Rule VI of the New Rules of Procedure of the NLRC, an employers appeal of a
decision involving monetary awards may be perfected only upon the posting of an adequate
cash or surety bond.
Ruling of the Court of Appeals
The CA held that the labor arbiters May 23, 2000 Order had referred to the earlier January
10, 2000 Decision awarding respondent P277,500 as retirement benefit.

According to the appellate court, because petitioners appeal before the NLRC was not
accompanied by an appropriate cash or surety bond, such appeal was not perfected. The CA
thus ruled that the labor arbiters January 10, 2000 Decision and May 23, 2000 Order had
already become final and executory.
Hence, this Petition.[7]
Issues
Petitioners submit the following issues for our consideration:
I
Whether or not the Court should respect the findings of fact [of] the NLRC as against [those]
of the labor arbiter.
II
Whether or not, in rendering judgment in favor of petitioners, the NLRC committed grave
abuse of discretion.
III
Whether or not private respondent violated the rule on forum-shopping.
IV
Whether or not the appeal of petitioners from the Order of the labor arbiter to the NLRC
involves [a] monetary award.[8]
In short, petitioners raise these issues: (1) whether the CA acted properly when it overturned
the NLRCs factual findings; (2) whether the rule on forum shopping was violated; and (3)
whether the labor arbiters Order of May 23, 2000 involved a monetary award.

The Courts Ruling

The Petition is partly meritorious.
First Issue:

Factual Findings of the NLRC

Petitioners maintain that the CA erred in disregarding the factual findings of the NLRC and in
deciding to affirm those of the labor arbiter. Allegedly, the NLRC findings were based on
substantial evidence, while those of the labor arbiter were groundless. Petitioners add that
the appellate court should have refrained from tackling issues of fact and, instead, limited
itself to those of jurisdiction or grave abuse of discretion on the part of the NLRC.
The power of the CA to review NLRC decisions via a Rule 65 petition is now a settled issue.
As early as St. Martin Funeral Homes v. NLRC,[9] we have definitively ruled that the proper
remedy to ask for the review of a decision of the NLRC is a special civil action for certiorari
under Rule 65 of the Rules of Court,[10] and that such petition should be filed with the CA in
strict observance of the doctrine on the hierarchy of courts.[11] Moreover, it has already
been explained that under Section 9 of Batas Pambansa (BP) 129, as amended by Republic
Act 7902,[12] the CA -- pursuant to the exercise of its original jurisdiction over petitions for
certiorari -- was specifically given the power to pass upon the evidence, if and when
necessary, to resolve factual issues.[13]
Likewise settled is the rule that when supported by substantial evidence,[14] factual findings
made by quasi-judicial and administrative bodies are accorded great respect and even
finality by the courts. These findings are not infallible, though; when there is a showing that
they were arrived at arbitrarily or in disregard of the evidence on record, they may be
examined by the courts.[15] Hence, when factual findings of the NLRC are contrary to those
of the labor arbiter, the evidentiary facts may be reviewed by the appellate court.[16] Such
is the situation in the present case; thus, the doors to a review are open.[17]
The very same reason that behooved the CA to review the factual findings of the NLRC
impels this Court to take its own look at the findings of fact. Normally, the Supreme Court is
not a trier of facts.[18] However, since the findings of fact in the present case are conflicting,
[19] it waded through the records to find out if there was enough basis for the appellate
courts reversal of the NLRC Decision.
Number of Creditable Years
of Service for Retirement Benefits

Petitioners do not dispute the fact that the late Pedro M. Latag is entitled to retirement
benefits. Rather, the bone of contention is the number of years that he should be credited
with in computing those benefits. On the one hand, we have the findings of the labor arbiter,
[20] which the CA affirmed. According to those findings, the 23 years of employment of
Pedro with La Mallorca Taxi must be added to his 14 years with R & E Transport, Inc., for a
total of 37 years. On the other, we also have the findings of the NLRC[21] that Pedro must be
credited only with his service to R & E Transport, Inc., because the evidence shows that the
aforementioned companies are two different entities.
After a careful and painstaking review of the evidence on record, we support the NLRCs
findings. The labor arbiters conclusion -- that Mallorca Taxi and R & E Transport, Inc., are one
and the same entity -- is negated by the documentary evidence presented by petitioners.
Their evidence[22] sufficiently shows the following facts: 1) R & E Transport, Inc., was
established only in 1978; 2) Honorio Enriquez, its president, was not a stockholder of La
Mallorca Taxi; and 3) none of the stockholders of the latter company hold stocks in the
former. In the face of such evidence, which the NLRC appreciated in its Decision, it seems
that mere surmises and self-serving assertions of Respondent Avelina Latag formed the
bases for the labor arbiters conclusions as follows:
While [Pedro M. Latag] claims that he worked as taxi driver since March 1961 since the days
of the La Mallorca Taxi, which was later renamed R & E Transport, Inc., [petitioners] limit the
employment period to 14 years.
Revolving this matter, we note [respondents] ID (Annex A, [Latag] position paper), which
appears to bear the signature of Miguel Enriquez on the front portion and the date February
27, 1961 when [x x x Latag] started with the company. We also note an SSS document
(Annex C) which shows that the date of initial coverage of Pedro Latag, with SSS No. 030772155, is February 1961.
Viewed against [petitioners] non-disclaimer [sic] that La Mallorca preceded R & E Taxi, Inc.[;]
x x x that both entities were/are owned by the Enriquez family, with [petitioner] Honorio
[Enriquez] as the latters President[; and] x x x that La Mallorca was a different entity (page
2, [petitioners] position paper), we are of the conclusion that [Latags] stint with the Enriquez
family dated back since February 1961 and thus, he should be entitled to retirement benefits
for 37 years, as of the date of the filing of this case on December 12, 1998.[23]

Furthermore, basic is the rule that the corporate veil may be pierced only if it becomes a
shield for fraud, illegality or inequity committed against a third person.[24] We have thus
cautioned against the inordinate application of this doctrine. In Philippine National Bank v.
Andrada Electric & Engineering Company,[25] we said:

x x x [A]ny application of the doctrine of piercing the corporate veil should be done with
caution. A court should be mindful of the milieu where it is to be applied. It must be certain
that the corporate fiction was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights. The wrongdoing must be clearly and
convincingly established; it cannot be presumed. Otherwise, an injustice that was never
unintended may result from an erroneous application.
xxxxxxxxx
The question of whether a corporation is a mere alter ego is one of fact. Piercing the veil of
corporate fiction may be allowed only if the following elements concur: (1) control -- not
mere stock control, but complete domination -- not only of finances, but of policy and
business practice in respect to the transaction attacked, must have been such that the
corporate entity as to this transaction had at the time no separate mind, will or existence of
its own; (2) such control must have been used by the defendant to commit a fraud or a
wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest
and an unjust act in contravention of plaintiffs legal right; and (3) the said control and
breach of duty must have proximately caused the injury or unjust loss complained of.[26]
Respondent has not shown by competent evidence that one taxi company had stock control
and complete domination over the other or vice versa. In fact, no evidence was presented to
show the alleged renaming of La Mallorca Taxi to R & E Transport, Inc. The seven-year gap
between the time the former closed shop and the date when the latter came into being also
casts doubt on any alleged intention of petitioners to commit a wrong or to violate a
statutory duty. This lacuna in the evidence compels us to reverse the Decision of the CA
affirming the labor arbiters finding of fact that the basis for computing Pedros retirement pay
should be 37 years, instead of only 14 years.
Validity of the Quitclaim

and Waiver
As to the Quitclaim and Waiver signed by Respondent Avelina Latag, the appellate court
committed no error when it ruled that the document was invalid and could not bar her from
demanding the benefits legally due her husband. This is not say that all quitclaims are
invalid per se. Courts, however, are wary of schemes that frustrate workers rights and
benefits, and look with disfavor upon quitclaims and waivers that bargain these away.

Courts have stepped in to annul questionable transactions, especially where there is clear
proof that a waiver, for instance, was wangled from an unsuspecting or a gullible person; or
where the agreement or settlement was unconscionable on its face.[27] A quitclaim is
ineffective in barring recovery of the full measure of a workers rights, and the acceptance of
benefits therefrom does not amount to estoppel.[28] Moreover, a quitclaim in which the
consideration is scandalously low and inequitable cannot be an obstacle to the pursuit of a
workers legitimate claim.[29]
Undisputably, Pedro M. Latag was credited with 14 years of service with R & E Transport, Inc.
Article 287 of the Labor Code, as amended by Republic Act No. 7641,[30] provides:
Art. 287. Retirement. - x x x
xxxxxxxxx
In the absence of a retirement plan or agreement providing for retirement benefits of
employees in the establishment, an employee upon reaching the age of sixty (60) years or
more, but not beyond sixty-five (65) years which is hereby declared the compulsory
retirement age, who has served at least five (5) years in said establishment, may retire and
shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for
every year of service, a fraction of at least six (6) months being considered as one whole
year.
Unless the parties provide for broader inclusions, the term one half-month salary shall mean
fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of
not more than five (5) days of service incentive leaves.
x x x x x x x x x (Italics supplied)

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

Second Issue:
Was There Forum Shopping?
Also assailed are the twin appeals that two different lawyers filed for respondent before the
CA. Petitioners argue that instead of accepting her explanation, the appellate court should
have dismissed the appeals outright for violating the rule on forum shopping.
Forum shopping is the institution of two or more actions or proceedings grounded on the
same cause, on the supposition that one or the other court would render a favorable
disposition.[35] Such act is present when there is an identity of parties, rights or causes of
action, and reliefs sought in two or more pending cases.[36] It is usually resorted to by a
party against whom an adverse judgment or order has been issued in one forum, in an
attempt to seek and possibly to get a favorable opinion in another forum, other than by an
appeal or a special civil action for certiorari.[37]
We find, as the CA[38] did, that respondent has adequately explained why she had filed two
appeals before the appellate court. In the August 5, 2002 Affidavit[39] that she attached as
Annex A to her Compliance to Show Cause Order with Comment on petitioners Motion for
Reconsideration,[40] she averred that she had sought the services of another counsel to file
her Petition for certiorari before the CA. She did so after her original counsel had asked for

an extension of time to file the Petition because of time constraints and a tremendous
workload, only to discover later that the original counsel had filed a similar Petition.
We cannot fault respondent for her tenacity. Besides, to disallow her appeal would not be in
keeping with the policy of labor laws[41] to shun highly technical procedural laws in the
higher interest of justice.
Third Issue:
Monetary Award
Petitioners contention is that the labor arbiters January 10, 2000 Decision was supplanted by
the Compromise Agreement that had preceded the formers official release[42] to, and
receipt[43] by, the parties. It appears from the records that they had entered into an
Amicable Settlement on January 21, 2000; that based on that settlement, respondent filed a
Motion to Dismiss on January 24, 2000, before the labor arbiter who officially released on the
same day his Decision dated January 10, 2000; that upon receipt of a copy thereof,
respondent filed a Manifestation and Motion to Set Aside the Motion to Dismiss; and that the
labor arbiter subsequently calendared the case for conference, held hearings thereon, and
required the parties to exchange positions -- by way of comments, replies and rejoinders -after which he handed down his May 23, 2000 Order.
Under the circumstances, the case was in effect reopened by the proceedings held after
respondent had filed her Manifestation and Motion to Set Aside the Motion to Dismiss. This
ruling is in accordance with the fourth paragraph of Section 2, Rule V of the New Rules of
Procedure of the NLRC,[44] which therefore correctly held as follows:
x x x Thus, the further hearings conducted thereafter, to determine the validity of
complainants manifestation and motion are but mute confirmation that indeed the 10
January 2000 decision in this case has not as yet attained finality. Finally, the appealed order
of 23 May 2000 itself declaring [that] the decision stands and the Labor Arbitration Associate
of this office is directed to prepare the Writ of Execution in due course, obviously, is a
conclusion that the decision in this case has been supplanted and rendered functus officio
by the herein parties acts. Thus, when the Labor Arbiter a quo found in his appealed order
that the amount of P38,850.00 is unconscionable viewed against the amount awarded in the

decision, the same became appealable independently of the 10 January 2000 decision,
which has not attained finality, in the first place.[45]
We cannot concur, however, in petitioners other contention that the May 23, 2000 Order did
not involve a monetary award. If the amicable settlement between the parties had rendered
the January 10, 2000 Decision functus oficio, then it follows that the monetary award stated
therein was reinstated -- by reference -- by the aforementioned Order. The appeal from the
latter should perforce have followed the procedural requirements under Article 223 of the
Labor Code.
As amended, this provision explicitly provides that an appeal from the labor arbiters
decision, award or order must be made within ten (10) calendar days from receipt of a copy
thereof by the party intending to appeal it; and, if the judgment involves a monetary award,
an appeal by the employer may be perfected only upon the posting of a cash or surety bond.
Such cash or bond must have been issued by a reputable bonding company duly accredited
by the NLRC in the amount equivalent to the monetary award stated in the judgment.
Sections 1, 3 and 6 of Rule VI of the New Rules of Procedure of the NLRC implement this
Article.
Indeed, this Court has repeatedly ruled that the perfection of an appeal in the manner and
within the period prescribed by law is not only mandatory but jurisdictional, and the failure
to perfect an appeal has the effect of rendering the judgment final and executory.[46]
Nonetheless, procedural lapses may be disregarded because of fundamental considerations
of substantial justice;[47] or because of the special circumstances of the case combined with
its legal merits or the amount and the issue involved.[48]

The requirement to post a bond to perfect an appeal has also been relaxed in cases when
the amount of the award has not been included in the decision of the labor arbiter.[49]
Besides, substantial justice will be better served in the present case by allowing petitioners
appeal to be threshed out on the merits,[50] especially because of serious errors in the
factual conclusions of the labor arbiter as to the award of retirement benefits.
WHEREFORE, this Petition is partly GRANTED. The Decision of the Court of Appeals is
MODIFIED by crediting Pedro M. Latag with 14 years of service. Consequently, he is entitled

to retirement pay, which is hereby computed at P105,000 less the P38,850 which has
already been received by respondent, plus six (6) percent interest thereon from December
21, 1998 until its full payment. No costs.
SO ORDERED.
R&E Transport Inc. vs. Latag Case Digest
R&E Transport, Inc. & Honorio Enriquez vs. Avelina Latag
G.R. No. 155214
February 13, 2004
Facts: Pedro Latag was a regular employee of La Mallorca Taxi since March 1, 1961. When La
Mallorca ceased from business operations, Latag transferred to R & E Transport, Inc. He was
receiving an average daily salary of five hundred pesos (P500.00) as a taxi driver. Latag got
sick in January 1995 and was forced to apply for partial disability with the SSS, which was
granted. When he recovered, he reported for work in September 1998 but was no longer
allowed to continue working on account of his old age. Latag thus asked Felix Fabros, the
administrative officer of [petitioners], for his retirement pay pursuant to Republic Act 7641
but he was ignored.
Thus, on December 21, 1998, Latagfiled a case for payment of his retirement pay before the
NLRC. Latag however died on April 30, 1999. Subsequently, his wife, Avelina Latag,
substituted him. On January 10, 2000, the Labor Arbiter rendered a decision in favor of
Latag.
Issue: Whether or not Latag is entitled to retirement benefits considering she signed a
waiver of quitclaim.
Ruling: The respondent is entitled to retirement benefits despite of the waiver of quitclaims.
There is no dispute the fact that the late Pedro M. Latag is entitled to retirement benefits.
Rather, the bone of contention is the number of years that he should be credited with in
computing those benefits. The findings of the NLRC that Pedro must be credited only with his
service to R & E Transport, Inc., because the evidence shows that the aforementioned
companies are two different entities. After a careful and painstaking review of the evidence
on record, the court supports the NLRC's findings.
As to the Quitclaim and Waiver signed by Respondent Latag, the CA committed no error
when it ruled that the document was invalid and could not bar her from demanding the
benefits legally due her husband. This is not say that all quitclaims are invalid per se. Courts,
however, are wary of schemes that frustrate workers' rights and benefits, and look with
disfavor upon quitclaims and waivers that bargain these away.
Undisputably, Pedro M. Latag was credited with 14 years of service with R & E Transport, Inc.
Article 287 of the Labor Code, as amended by Republic Act No. 7641, 30 provides:
Retirement. In the absence of a retirement plan or agreement providing for retirement
benefits of employees in the establishment, an employee upon reaching the age of sixty
(60) years or more, but not beyond sixty-five (65) years which is hereby declared the
compulsory retirement age, who has served at least five (5) years in said establishment,
may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month
salary for every year of service, a fraction of at least six (6) months being considered as one
whole year. Unless the parties provide for broader inclusions, the term one half-month salary

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

G.R. No. 147993

July 21, 2006
ENRIQUEZ SECURITY SERVICES, INC., petitioner,
vs.
VICTOR A. CABOTAJE, respondent.
DECISION
CORONA, J.:
Sometime in January 1979, respondent Victor A. Cabotaje was employed as a security guard
by Enriquez Security and Investigation Agency (ESIA). On November 13, 1985, petitioner
Enriquez Security Services, Inc. (ESSI) was incorporated. Respondent continued to work as
security guard in petitioners agency.
On reaching the age of 60 in July 1997,1 respondent applied for retirement.
Petitioner acknowledged that respondent was entitled to retirement benefits but opposed his
claim that the computation of such benefits must be reckoned from January 1979 when he
started working for ESIA. It claimed that the benefits must be computed only from November
13, 1985 when ESSI was incorporated.
Respondent consequently filed a complaint in the National Labor Relations Commission
(NLRC) seeking the payment of retirement benefits under Republic Act No. (RA) 7641,
otherwise known as the Retirement Pay Law.2
On January 15, 1999, labor arbiter Eduardo Carpio decided in respondents favor:
Complainant is entitled to retirement pay. This entitlement was not denied by respondents.
xxx The computation of this benefits shall cover the entire period of his employment from
January 1979 up to July 16, 1997 based on his latest monthly salary of P5,383.15 per the
payroll sheet submitted by respondents. While respondents claim that respondent
corporation was merely registered with the DOTC on November 13, 1985, they did not deny
however that complainant was an employee of the then Enriquez Security and Investigation
Agency, and that complainants services with the said security agency up to the present
respondent corporation was uninterrupted. The obligation of the new company involves not
only to absorb the workers of the dissolved company, but also to include the length of
service earned by the absorbed employee with their former employer as well. To rule
otherwise would be manifestly less than fair, certainly less than just and equitable.
xxx
xxx
xxx
WHEREFORE, judgment is hereby rendered ordering respondents to pay complainant the
grand total amount of P228,581.00 representing his retirement benefits and other money
claims.
SO ORDERED.3
On appeal, the NLRC set aside the labor arbiters award of one-month salary for every year
of service for being excessive. It ruled that under RA 7641, respondent Cabotaje was entitled
to retirement pay equivalent only to one-half month salary for every year of service. Thus:

WHEREFORE, the assailed decision is hereby set aside and a new one entered ordering
respondents to pay complainant the amount of P76,710.60 representing his retirement
benefits.
SO ORDERED.4
On March 15, 2000, the NLRC denied petitioners motion for reconsideration.5
On May 25, 2000, petitioner filed a special civil action for certiorari6 with the Court of
Appeals.
On September 26, 2000, the appellate court affirmed the NLRC decision.7 It also denied the
motion for reconsideration on May 8, 2001.8
Hence, this petition for review on certiorari9 on the following issues:
1. [w]hether or not the Retirement [Pay] Law has retroactive effect.
2. [w]hether the whole 5 days service incentive leave or just a portion thereof equivalent to
1/12 should be included in the month salary for purposes of computing the retirement
pay.
3. [w]hether or not the length of service of a retired employee in a dissolved company (his
former employer) should be included in his length of service with his last employer for
purposes of computing the retirement pay.10
We find no merit in the petition.
First. Petitioners contention that RA 7641 cannot be applied retroactively has long been
settled in the Guidelines for Effective Implementation of RA 7641 issued on October 24,
1996 by the Department of Labor and Employment. Paragraph B of the guidelines provides:
In reckoning the length of service, the period of employment with the same employer before
the effectivity date of the law on January 7, 1993 should be included.
Thus, in Rufina Patis Factory v. Lucas, Sr.,11 we held:
RA 7641 is undoubtedly a social legislation. The law has been enacted as a labor protection
measure and as a curative statute that absent a retirement plan devised by, an agreement
with, or a voluntary grant from, an employer can respond, in part at least, to the financial
well-being of workers during their twilight years soon following their life of labor. There
should be little doubt about the fact that the law can apply to labor contracts still existing at
the time the statute has taken effect, and that its benefits can be reckoned not only from the
date of the laws enactment but retroactively to the time said employment contracts have
started. (emphasis ours)
Second. Petitioners insistence that only 1/12 of the service incentive leave (SIL) should be
included in the computation of the retirement benefit has no basis. Section 1, RA 7641
provides:
x x x Unless the parties provide for broader inclusions, the term one-half (1/2) month salary
shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash
equivalent of not more than five (5) days of service incentive leave. x x x
Section 5.2, Rule II of the Implementing Rules of Book VI of the Labor Code further clarifies
what comprises the "1/2 month salary" due a retiring employee:
5.2 Components of One-half (1/2) Month Salary. For the purpose of determining the
minimum retirement pay due an employee under this Rule, the term "one-half month salary"
shall include all the following:
(a) Fifteen (15) days salary of the employee based on his latest salary rate. x x x;
(b) The cash equivalent of not more than five (5) days of service incentive leave;
(c) One-twelfth of the 13th month pay due an employee;
(d) All other benefits that the employer and employee may agree upon that should be
included in the computation of the employees retirement pay.
The foregoing rules are clear that the whole 5 days of SIL are included in the computation of
a retiring employees pay.
Third. It is a well-entrenched doctrine that the Supreme Court does not pass upon questions
of fact in an appeal by certiorari under Rule 45.12 It is not our function to assess and
evaluate the evidence all over again13 where the findings of the quasi-judicial agency and
the appellate court on the matter coincide.

The consistent rulings of the labor arbiter, the NLRC and the appellate court should be
respected and petitioners veil of corporate fiction should likewise be pierced. These are
based on the following uncontroverted facts: (1) respondent worked with ESIA and petitioner
ESSI; (2) his employment with both security agencies was continuous and uninterrupted; (3)
both agencies were owned by the Enriquez family and (4) petitioner ESSI maintained its
office in the same place where ESIA previously held office.14
The attempt to make the security agencies appear as two separate entities, when in reality
they were but one, was a devise to defeat the law and should not be permitted. Although
respect for corporate personality is the general rule, there are exceptions. In appropriate
cases, the veil of corporate fiction may be pierced as when it is used as a means to
perpetrate a social injustice or as a vehicle to evade obligations. Petitioner was thus
correctly ordered to pay respondents retirement under RA 7641, computed from January
1979 up to the time he applied for retirement in July 1997.
WHEREFORE, the petition is hereby DENIED. Theassailed decision and resolution of the Court
of Appeals are AFFIRMED.
Costs against petitioner.
SO ORDERED.
Puno, Chairperson, Sandoval-Gutierrez, Azcuna, Garcia, J.J., concur.