1. G.R. No.
L-33172 October 18, 1979 Cease together with Bonifacia Tirante asking that the Tiaong Milling and
ERNESTO CEASE, CECILIA CEASE, MARION CEASE, TERESA CEASE-LACEBAL and
the F.L. CEASE PLANTATION CO., INC. as Trustee of properties of the defunct TIAONG
MILLING & PLANTATION CO.,petitioners,
vs.
HONORABLE COURT OF APPEALS, (Special Seventh Division), HON. MANOLO L.
MADDELA, Presiding Judge, Court of First Instance of Quezon, BENJAMIN CEASE and
FLORENCE CEASE, respondents.
GUERRERO, J:
Appeal by certiorari from the decision of the Court of Appeals in CA-G.R. No. 45474, entitled
"Ernesto Cease, et al. vs. Hon. Manolo L. Maddela, Judge of the Court of First Instance of
Quezon, et al." 1 which dismissed the petition for certiorari, mandamus, and prohibition
instituted by the petitioners against the respondent judge and the private respondents.
The antecedents of the case, as found by the appellate court, are as follows:
IT RESULTING: That the antecedents are not difficult to understand;
sometime in June 1908, one Forrest L. Cease common predecessor in
interest of the parties together with five (5) other American citizens organized
the Tiaong Milling and Plantation Company and in the course of its corporate
existence the company acquired various properties but at the same time all
the other original incorporators were bought out by Forrest L. Cease together
with his children namely Ernest, Cecilia, Teresita, Benjamin, Florence and
one Bonifacia Tirante also considered a member of the family; the charter of
the company lapsed in June 1958; but whether there were steps to liquidate
it, the record is silent; on 13 August 1959, Forrest L. Cease died and by
extrajudicial partition of his shares, among the children, this was disposed of
on 19 October 1959; it was here where the trouble among them came to
arise because it would appear that Benjamin and Florence wanted an actual
division while the other children wanted reincorporation; and proceeding on
that, these other children Ernesto, Teresita and Cecilia and aforementioned
other stockholder Bonifacia Tirante proceeded to incorporate themselves into
the F.L. Cease Plantation Company and registered it with the Securities and
Exchange Commission on 9 December, 1959; apparently in view of that,
Benjamin and Florence for their part initiated a Special Proceeding No. 3893
of the Court of First Instance of Tayabas for the settlement of the estate of
Forest L. Cease on 21 April, 1960 and one month afterwards on 19 May
1960 they filed Civil Case No. 6326 against Ernesto, Teresita and Cecilia
1 |LLB IIIB CORPORATION CASES (Atty. Acosta-Dofitas)
Plantation Corporation be declared Identical to F.L. Cease and that its
properties be divided among his children as his intestate heirs; this Civil
Case was resisted by aforestated defendants and notwithstanding efforts of
the plaintiffs to have the properties placed under receivership, they were not
able to succeed because defendants filed a bond to remain as they have
remained in possession; after that and already, during the pendency of Civil
Case No. 6326 specifically on 21 May, 1961 apparently on the eve of the
expiry of the three (3) year period provided by the law for the liquidation of
corporations, the board of liquidators of Tiaong Milling executed an
assignment and conveyance of properties and trust agreement in favor of
F.L. Cease Plantation Co. Inc. as trustee of the Tiaong Milling and Plantation
Co. so Chat upon motion of the plaintiffs trial Judge ordered that this alleged
trustee be also included as party defendant; now this being the situation, it
will be remembered that there were thus two (2) proceedings pending in the
Court of First Instance of Quezon namely Civil Case No. 6326 and Special
Proceeding No. 3893 but both of these were assigned to the Honorable
Respondent Judge Manolo L. Maddela p. 43 and the case was finally heard
and submitted upon stipulation of facts pp, 34-110, rollo; and trial Judge by
decision dated 27 December 1969 held for the plaintiffs Benjamin and
Florence, the decision containing the following dispositive part:
VIEWED IN THE LIGHT OF ALL THE FOREGOING,
judgment is hereby rendered in favor of plaintiffs and against
the defendants declaring that:
1) The assets or properties of the defunct Tiaong Milling and
Plantation Company now appearing under the name of F.L.
Cease Plantation Company as Trustee, is the estate also of
the deceased Forrest L. Cease and ordered divided, share
and share alike, among his six children the plaintiffs and the
defendants in accordance with Rule 69, Rules of Court;
2) The Resolution to Sell dated October 12, 1959 and the
Transfer and Conveyance with Trust Agreement is hereby
set aside as improper and illegal for the purposes and effect
that it was intended and, therefore, null and void;
3) That F.L. Cease Plantation Company is removed as
'Trustee for interest against the estate and essential to the
protection of plaintiffs' rights and is hereby ordered to deliver
and convey all the properties and assets of the defunct
Tiaong Milling now under its name, custody and control to
 whomsoever be appointed as Receiver - disqualifying and of
the parties herein - the latter to act accordingly upon proper
assumption of office; and
4) Special Proceedings No. 3893 for administration is
terminated and dismissed; the instant case to proceed but
on issues of damages only and for such action inherently
essential for partition.
SO ORDERED.
Lucena City, December 27, 1969., pp. 122-a-123, rollo.
upon receipt of that, defendants there filled a notice of appeal p. 129, rollo
together with an appeal bond and a record on appeal but the plaintiffs moved
to dismiss the appeal on the ground that the judgment was in fact
interlocutory and not appealable p. 168 rollo and this position of defendants
was sustained by trial Judge, His Honor ruling that
IN VIEW OF THE FOREGOING, the appeal interposed by
plaintiffs is hereby dismissed as premature and the Record
on Appeal is necessarily disapproved as improper at this
stage of the proceedings.
SO ORDERED.
Lucena City, April 27, 1970.
and so it was said defendants brought the matter first to the Supreme Court,
on mandamus on 20 May, 1970 to compel the appeal and certiorari and
prohibition to annul the order of 27 April, 1970 on the ground that the
decision was "patently erroneous" p. 16, rollo; but the Supreme Court
remanded the case to this Court of Appeals by resolution of 27 May 1970, p.
173, and this Court of Appeals on 1 July 1970 p. 175 dismissed the petition
so far as the mandamus was concerned taking the view that the decision
sought to be appealed dated 27 December, 1969 was interlocutory and not
appealable but on motion for reconsideration of petitioners and since there
was possible merit so far as its prayer for certiorari and prohibition was
concerned, by resolution of the Court on 19 August, 1970, p. 232, the petition
was permitted to go ahead in that capacity; and it is the position of petitioners
that the decision of 27 December, 1969 as well as the order of 27 April, 1970
suffered of certain fatal defects, which respondents deny and on their part
2 |LLB IIIB CORPORATION CASES (Atty. Acosta-Dofitas)
raise the preliminary point that this Court of Appeals has no authority to give
relief to petitioners because not
in aid of its appellate jurisdiction,
and that the questions presented cannot be raised for the first time before
this Court of Appeals;
Respondent Court of Appeals in its decision promulgated December 9, 1970 dismissed the
petition with costs against petitioners, hence the present petition to this Court on the following
assignment of errors:
THE COURT OF APPEALS ERRED -
I. IN SANCTIONING THE WRONGFUL EXERCISE OF JURISDICTION BEYOND THE
LIMITS OF AUTHORITY CONFERRED BY LAW UPON THE LOWER COURT, WHEN IT
PROCEEDED TO HEAR, ADJUDGE AND ADJUDICATE -
(a) Special Proceedings No. 3893 for the settlement of the Estate of Forrest
L. Cease, simultaneously and concurrently with -
(b) Civil Case No. 6326, wherein the lower Court ordered Partition under
Rule 69, Rules of Court -
THE ISSUE OF LEGAL OWNERSHIP OF THE PROPERTIES COMMONLY INVOLVED IN
BOTH ACTIONS HAVING BEEN RAISED AT THE OUTSET BY THE TIAONG MILLING
AND PLANTATION COMPANY, AS THE REGISTERED OWNER OF SUCH PROPERTIES
UNDER ACT 496.
II. IN AFFIRMING - UNSUPPORTED BY ANY EVIDENCE WHATSOEVER NOR CITATION
OF ANY LAW TO JUSTIFY - THE UNWARRANTED CONCLUSION THAT SUBJECT
PROPERTIES, FOUND BY THE LOWER COURT AND THE COURT OF APPEALS AS
ACTUALLY REGISTERED IN THE NAME OF PETITIONER CORPORATION AND/OR ITS
PREDECESSOR IN INTEREST, THE TIAONG MILLING AND PLANTATION COMPANY,
DURING ALL THE 50 YEARS OF ITS CORPORATE EXISTENCE "ARE ALSO
PROPERTIES OF THE ESTATE OF FOREST L. CEASE."
III. IN AFFIRMING THE ARBITRARY CONCLUSION OF THE LOWER COURT THAT ITS
DECISION OF DECEMBER 27,1969 IS AN "INTERLUCUTORY DECISION." IN DISMISSED
NG THE PETITION FOR WRIT OF MANDAMUS, AND IN AFFIRMING THE MANIFESTLY
UNJUST JUDGMENT RENDERED WHICH CONTRADICTS THE FINDINGS OF ULTIMATE
FACTS THEREIN CONTAINED.
During the period that ensued after the filing in this Court of the respective briefs and the
subsequent submission of the case for decision, some incidents had transpired, the summary
of which may be stated as follows:
1. Separate from this present appeal, petitioners filed a petition for certiorari and prohibition in
this Court, docketed as G.R. No. L-35629 (Ernesto Cease, et al. vs. Hon. Manolo L. Maddela,
et al.) which challenged the order of respondent judge dated September 27, 1972 appointing
his Branch Clerk of Court, Mr. Eleno M. Joyas, as receiver of the properties subject of the
appealed civil case, which order, petitioners saw as a virtual execution of the lower court's
judgment (p. 92, rollo). In Our resolution of November 13, 1972, issued in G.R. No. L-35629,
the petition was denied since respondent judge merely appointed an auxilliary receiver for the
preservation of the properties as well as for the protection of the interests of all parties in Civil
Case No. 6326; but at the same time, We expressed Our displeasure in the appointment of
the branch clerk of court or any other court personnel for that matter as receiver. (p. 102,
rollo).
2. Meanwhile, sensing that the appointed receiver was making some attempts to take
possession of the properties, petitioners filed in this present appeal an urgent petition to
restrain proceedings in the lower court. We resolved the petition on January 29, 1975 by
issuing a corresponding temporary restraining order enjoining the court a quo from
implementing its decision of December 27, 1969, more particularly, the taking over by a
receiver of the properties subject of the litigation, and private respondents Benjamin and
Florence Cease from proceeding or taking any action on the matter until further orders from
this Court (pp. 99-100, rollo). Private respondents filed a motion for reconsideration of Our
resolution of January 29, 1975. After weighing the arguments of the parties and taking note of
Our resolution in G.R. No. L-35629 which upheld the appointment of a receiver, We issued
another resolution dated April 11, 1975 lifting effective immediately Our previous temporary
restraining order which enforced the earlier resolution of January 29, 1975 (pp. 140-141,
rollo).
3. On February 6, 1976, private respondents filed an urgent petition to restrain proceedings
below in view of the precipitate replacement of the court appointed receiver Mayor Francisco
Escueta (vice Mr. Eleno M. Joyas) and the appointment of Mr. Guillermo Lagrosa on the eve
of respondent Judge Maddela's retirement (p. 166, rollo). The urgent petition was denied in
Our resolution of February 18, 1976 (p. 176, rollo).
4. Several attempts at a compromise agreement failed to materialize. A Tentative
Compromise Agreement dated July 30, 1975 was presented to the Court on August 6, 1976
for the signature of the parties, but respondents "unceremoniously" repudiated the same by
leaving the courtroom without the permission of the court (Court of First Instance of Quezon,
Branch 11) as a result of which respondents and their counsel were cited for contempt (p.
195, 197, rollo) that respondents' reason for the repudiation appears to be petitioners' failure
to render an audited account of their administration covering the period from May 31, 1961 up
3 |LLB IIIB CORPORATION CASES (Atty. Acosta-Dofitas)
to January 29, 1974, plus the inclusion of a provision on waiver and relinquishment by
respondents of whatever rights that may have accrued to their favor by virtue of the lower
court's decision and the affirmative decision of the appellate court.
We go now to the alleged errors committed by the respondent Court of Appeals.
As can be gleaned from petitioners' brief and the petition itself, two contentions underlie the
first assigned error. First, petitioners argue that there was an irregular and arbitrarte
termination and dismissal of the special proceedings for judicial administration simultaneously
ordered in the lower court . s decision in Civil Case No. 6326 adjudicating the partition of the
estate, without categorically, reasoning the opposition to the petition for administration
Second, that the issue of ownership had been raised in the lower court when Tiaong Milling
asserted title over the properties registered in its corporate name adverse to Forrest L. Cease
or his estate, and that the said issue was erroneously disposed of by the trial court in the
partition proceedings when it concluded that the assets or properties of the defunct company
is also the estate of the deceased proprietor.
The propriety of the dismissal and termination of the special proceedings for judicial
administration must be affirmed in spite of its rendition in another related case in view of the
established jurisprudence which favors partition when judicial administration become,
unnecessary. As observed by the Court of Appeals, the dismissal at first glance is wrong, for
the reason that what was actually heard was Civil Case No. 6326. The technical consistency,
however, it is far less importance than the reason behind the doctrinal rule against placing an
estate under administration. Judicial rulings consistently hold the view that where partition is
possible, either judicial or extrajudicial, the estate should not be burdened with an
administration proceeding without good and compelling reason. When the estate has no
creditors or pending obligations to be paid, the beneficiaries in interest are not bound to
submit the property to judicial administration which is always long and costly, or to apply for
the appointment of an administrator by the court, especially when judicial administration is
unnecessary and superfluous. Thus -
When a person dies without leaving pending obligations to be paid, his heirs,
whether of age or not, are bound to submit the property to a judicial
administration, which is always long and costly, or to apply for the
appointment of an administrator by the court. It has been uniformly held that
in such case the judicial administration and the appointment of an
administrator are superfluous and unnecessary proceedings (Ilustre vs.
Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil, 434; Bondad
vs. Bondad, 34 Phil., 232; Baldemor vs. Malangyaon, 34 Phil., 367; Fule vs.
Fule, 46 Phil., 317). Syllabus, Intestate estate of the deceased Luz Garcia.
Pablo G. Utulo vs. Leona Pasion Viuda de Garcia, 66 Phil. 302.
 Where the estate has no debts, recourse may be had to an administration
proceeding only if the heirs have good reasons for not resorting to an action
for partition. Where partition is possible, either in or out of court, the estate
should not be burdened with an administration proceeding without good and
compelling reasons. (Intestate Estate of Mercado vs. Magtibay, 96 Phil. 383)
In the records of this case, We find no indication of any indebtedness of the estate. No
creditor has come up to charge the estate within the two-year period after the death of Forrest
L. Cease, hence, the presumption under Section 1, Rule 74 that the estate is free from
creditors must apply. Neither has the status of the parties as legal heirs, much less that of
respondents, been raised as an issue. Besides, extant in the records is the stipulation of the
parties to submit the pleadings and contents of the administration proceedings for the
cognizance of the trial judge in adjudicating the civil case for partition (Respondents' Brief, p,
20, rollo). As respondents observe, the parties in both cases are the same, so are the
properties involved; that actual division is the primary objective in both actions; the theory and
defense of the respective parties are likewise common; and that both cases have been
assigned to the same respondent judge. We feel that the unifying effect of the foregoing
circumstances invites the wholesome exception to the structures of procedural rule, thus
allowing, instead, room for judicial flexibility. Respondent judge's dismissal of the
administration proceedings then, is a judicious move, appreciable in today's need for effective
and speedy administration of justice. There being ample reason to support the dismissal of
the special proceedings in this appealed case, We cannot see in the records any compelling
reason why it may not be dismissed just the same even if considered in a separate action.
This is inevitably certain specially when the subject property has already been found
appropriate for partition, thus reducing the petition for administration to a mere unnecessary
solicitation.
The second point raised by petitioners in their first assigned error is equally untenable. In
effect, petitioners argue that the action for partition should not have prospered in view of the
repudiation of the co-ownership by Tiaong Milling and Plantation Company when, as early in
the trial court, it already asserted ownership and corporate title over the properties adverse to
the right of ownership of Forrest L. Cease or his estate. We are not unmindful of the doctrine
relied upon by petitioners in Rodriguez vs. Ravilan, 17 Phil. 63 wherein this Court held that in
an action for partition, it is assumed that the parties by whom it is prosecuted are all co-
owners or co-proprietors of the property to be divided, and that the question of common
ownership is not to be argued, not the fact as to whether the intended parties are or are not
the owners of the property in question, but only as to how and in what manner and proportion
the said property of common ownership shall be distributed among the interested parties by
order of the Court. Consistent with this dictum, it has been field that if any party to a suit for
partition denies thepro-indiviso character of the estate whose partition is sought, and claims
instead, exclusive title thereto the action becomes one for recovery of property cognizable in
the courts of ordinary jurisdiction. 2
4 |LLB IIIB CORPORATION CASES (Atty. Acosta-Dofitas)
Petitioners' argument has only theoretical persuasion, to say the least, rather apparent than
real. It must be remembered that when Tiaong Milling adduced its defense and raised the
issue of ownership, its corporate existence already terminated through the expiration of its
charter. It is clear in Section 77 of Act No. 1459 (Corporation Law) that upon the expiration of
the charter period, the corporation ceases to exist and is dissolvedipso facto except for
purposes connected with the winding up and liquidation. The provision allows a three year,
period from expiration of the charter within which the entity gradually settles and closes its
affairs, disposes and convey its property and to divide its capital stock, but not for the
purpose of continuing the business for which it was established. At this terminal stage of its
existence, Tiaong Milling may no longer persist to maintain adverse title and ownership of the
corporate assets as against the prospective distributees when at this time it merely holds the
property in trust, its assertion of ownership is not only a legal contradiction, but more so, to
allow it to maintain adverse interest would certainly thwart the very purpose of liquidation and
the final distribute loll of the assets to the proper, parties.
We agree with the Court of Appeals in its reasoning that substance is more important than
form when it sustained the dismissal of Special Proceedings No. 3893, thus -
a) As to the dismissal of Special Proceedings No. 3893, of course, at first
glance, this was wrong, for the reason that the case trial had been heard was
Civil Case No. 6326; but what should not be overlooked either is Chat
respondent Judge was the same Judge that had before him in his own sala,
said Special Proceedings No. 3893, p. 43 rollo, and the parties to the present
Civil Case No. 6326 had themselves asked respondent Judge to take judicial
notice of the same and its contents page 34, rollo; it is not difficult to see that
when respondent Judge in par. 4 of the dispositive part of his decision
complained of, ordered that,
4) Special Proceedings No. 3893 for administration is
terminated and dismissed; the instant case to proceed but
on issues of damages only and for such action inherently
essential or partition. p. 123, rollo,
in truth and in fact, His Honor was issuing that order also within Civil Case
No. 632 but in connection with Special Proceedings No. 389:3: for substance
is more important Chan form, the contending par ties in both proceedings
being exactly the same, but not only this, let it not be forgotten that when His
Honor dismissed Special Proceedings No. 3893, that dismissal precisely was
a dismissal that petitioners herein had themselves sought and solicited from
respondent Judge as petitioners themselves are in their present petition pp.
5-6, rollo; this Court must find difficulty in reconciling petitioners' attack with
the fact that it was they themselves that had insisted on that dismissal; on the
principle that not he who is favored but he who is hurt by a judicial order is he
 only who should be heard to complain and especially since extraordinary
legal remedies are remedies in extermies granted to parties ' who have been
the victims not merely of errors but of grave wrongs, and it cannot be seen
how one who got what he had asked could be heard to claim that he had
been the victim of a wrong, petitioners should not now complain of an order
they had themselves asked in order to attack such an order afterwards; if at
all, perhaps, third parties, creditors, the Bureau of Internal Revenue, might
have been prejudiced, and could have had the personality to attack that
dismissal of Special Proceedings No. 3893, but not petitioners herein, and it
is not now for this Court of Appeals to protect said third persons who have
not come to the Court below or sought to intervene herein;
On the second assigned error, petitioners argue that no evidence has been found to support
the conclusion that the registered properties of Tiaong Milling are also properties of the estate
of Forrest L. Cease; that on the contrary, said properties are registered under Act No. 496 in
the name of Tiaong Milling as lawful owner and possessor for the last 50 years of its
corporate existence.
We do not agree. In reposing ownership to the estate of Forrest L. Cease, the trial court
indeed found strong support, one that is based on a well-entrenched principle of law. In
sustaining respondents' theory of "merger of Forrest L. Cease and The Tiaong Milling as one
personality", or that "the company is only the business conduit and alter ego of the deceased
Forrest L. Cease and the registered properties of Tiaong Milling are actually properties of
Forrest L. Cease and should be divided equally, share and share alike among his six
children, ... ", the trial court did aptly apply the familiar exception to the general rule by
disregarding the legal fiction of distinct and separate corporate personality and regarding the
corporation and the individual member one and the same. In shredding the fictitious corporate
veil, the trial judge narrated the undisputed factual premise, thus:
While the records showed that originally its incorporators were aliens, friends
or third-parties in relation of one to another, in the course of its existence, it
developed into a close family corporation. The Board of Directors and
stockholders belong to one family the head of which Forrest L. Cease always
retained the majority stocks and hence the control and management of its
affairs. In fact, during the reconstruction of its records in 1947 before the
Security and Exchange Commission only 9 nominal shares out of 300
appears in the name of his 3 eldest children then and another person close
to them. It is likewise noteworthy to observe that as his children increase or
perhaps become of age, he continued distributing his shares among them
adding Florence, Teresa and Marion until at the time of his death only 190
were left to his name. Definitely, only the members of his family benefited
from the Corporation.
5 |LLB IIIB CORPORATION CASES (Atty. Acosta-Dofitas)
The accounts of the corporation and therefore its operation, as well as that of
the family appears to be indistinguishable and apparently joined together. As
admitted by the defendants (Manifestation of Compliance with Order of
March 7, 1963 [Exhibit "21"] the corporation 'never' had any account with any
banking institution or if any account was carried in a bank on its behalf, it was
in the name of Mr. Forrest L. Cease. In brief, the operation of the Corporation
is merged with those of the majority stockholders, the latter using the former
as his instrumentality and for the exclusive benefits of all his family. From the
foregoing indication, therefore, there is truth in plaintiff's allegation that the
corporation is only a business conduit of his father and an extension of his
personality, they are one and the same thing. Thus, the assets of the
corporation are also the estate of Forrest L. Cease, the father of the parties
herein who are all legitimate children of full blood.
A rich store of jurisprudence has established the rule known as the doctrine of disregarding or
piercing the veil of corporate fiction. Generally, a corporation is invested by law with a
personality separate and distinct from that of the persons composing it as well as from that of
any other legal entity to which it may be related. By virtue of this attribute, a corporation may
not, generally, be made to answer for acts or liabilities of its stockholders or those of the legal
entities to which it may be connected, and vice versa. This separate and distinct personality
is, however, merely a fiction created by law for convenience and to promote the ends of
justice (Laguna Transportation Company vs. Social Security System, L-14606, April 28, 1960;
La Campana Coffee Factory, Inc. vs. Kaisahan ng mga Manggagawa sa La Campana, L-
5677, May 25, 1953). For this reason, it may not be used or invoked for ends subversive of
the policy and purpose behind its creation (Emiliano Cano Enterprises, Inc. vs. CIR, L-20502,
Feb. 26, 1965) or which could not have been intended by law to which it owes its being
McConnel vs. Court of Appeals, L- 10510, March 17, 1961, 1 SCRA 722). This is particularly
true where the fiction is used to defeat public convenience, justify wrong, protect fraud,
defend crime (Yutivo Sons Hardware Company vs. Court of Tax Appeals, L-13203, Jan. 28,
1961, 1 SCRA 160), confuse legitimate legal or judicial issues (R. F. Sugay & Co. vs. Reyes,
L-20451, Dec. 28, 1964), perpetrate deception or otherwise circumvent the law (Gregorio
Araneta, Inc. vs. reason de Paterno, L-2886, Aug. 22, 1952, 49 O.G. 721). 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 (McConnel vs. Court of
Appeals, supra; Commissioner of Internal Revenue vs. Norton Harrison Co., L-7618, Aug. 31,
1964).
In any of these cases, the notion of corporate entity will be pierced or disregarded, and the
corporation will be treated merely as an association of persons or, where there are two
corporations, they will be merged as one, the one being merely regarded as part or the
instrumentality of the otter (Koppel [Phil.] Inc. vs. Yatco, 77 Phil. 496, Yutivo Sons Hardware
Company vs. Court of Tax Appeals, supra).
So must the case at bar add to this jurisprudence. An indubitable deduction from the findings
of the trial court cannot but lead to the conclusion that the business of the corporation is
largely, if not wholly, the personal venture of Forrest L. Cease. There is not even a shadow of
a showing that his children were subscribers or purchasers of the stocks they own. Their
participation as nominal shareholders emanated solely from Forrest L. Cease's gratuitous
dole out of his own shares to the benefit of his children and ultimately his family.
Were we sustain the theory of petitioners that the trial court acted in excess of jurisdiction or
abuse of discretion amounting to lack of jurisdiction in deciding Civil Case No. 6326 as a case
for partition when the defendant therein, Tiaong Milling and Plantation Company, Inc. as
registered owner asserted ownership of the assets and properties involved in the litigation,
which theory must necessarily be based on the assumption that said assets and properties of
Tiaong Milling and Plantation Company, Inc. now appearing under the name of F. L. Cease
Plantation Company as Trustee are distinct and separate from the estate of Forrest L. Cease
to which petitioners and respondents as legal heirs of said Forrest L. Cease are equally
entitled share and share alike, then that legal fiction of separate corporate personality shall
have been used to delay and ultimately deprive and defraud the respondents of their
successional rights to the estate of their deceased father. For Tiaong Milling and Plantation
Company shall have been able to extend its corporate existence beyond the period of its
charter which lapsed in June, 1958 under the guise and cover of F. L, Cease Plantation
Company, Inc. as Trustee which would be against the law, and as Trustee shall have been
able to use the assets and properties for the benefit of the petitioners, to the great prejudice
and defraudation. of private respondents. Hence, it becomes necessary and imperative to
pierce that corporate veil.
Under the third assigned error, petitioners claim that the decision of the lower court in the
partition case is not interlocutory but rather final for it consists of final and determinative
dispositions of the contentions of the parties. We find no merit in petitioners' stand.
Under the 1961 pronouncement and ruling of the Supreme Court in Vda. de Zaldarriaga vs.
Enriquez, 1 SCRA 1188 (and the sequel case of Vda. de Zaldarriaga vs. Zaldarriaga, 2 SCRA
356), the lower court's dismissal of petitioners' proposed appeal from its December 27, 1969
judgment as affirmed by the Court of Appeals on the ground of prematurity in that the
judgment was not final but interlocutory was in order. As was said in said case:
It is true that in Africa vs. Africa, 42 Phil. 934 and other cases it was held -
contrary to the rule laid down in Ron vs. Mojica, 8 Phil. 328; Rodriguez vs.
Ravilan, 17 Phil. 63 - that in a partition case where defendant relies on the
defense of exclusive ownership, the action becomes one for title and the
decision or order directing partition is final, but the ruling to this effect has
been expressly reversed in the Fuentebella case which, in our opinion,
expresses the correct view, considering that a decision or order directing
partition is not final because it leaves something more to be done in the trial
6 |LLB IIIB CORPORATION CASES (Atty. Acosta-Dofitas)
court for the complete disposition of the case, namely, the appointment of
commissioners, the proceedings to be had before them, the submission of
their report which, according to law, must be set for hearing. In fact, it is only
after said hearing that the court may render a final judgment finally disposing
of the action (Rule 71, section 7, Rules of Court). (1 SCRA at page 1193).
It should be noted, however, that the said ruling in Zaldarriaga as based on Fuentebella vs.
Carrascoso, XIV Lawyers Journal 305 (May 27, 1942), has been expressly abandoned by the
Court in Miranda vs. Court of Appeals, 71 SCRA 295; 331-333 (June 18, 1976) wherein Mr.
Justice Teehankee, speaking for the Court, laid down the following doctrine:
The Court, however, deems it proper for the guidance of the bench and bar
to now declare as is clearly indicated from the compelling reasons and
considerations hereinabove stated:
- that the Court considers the better rule to be that stated in H. E. Heacock
Co. vs. American Trading Co., to wit, that where the primary purpose of a
case is to ascertain and determine who between plaintiff and defendant is the
true owner and entitled to the exclusive use of the disputed property, "the
judgment . . . rendered by the lower court [is] a judgment on the merits as to
those questions, and [that] the order of the court for an accounting was
based upon, and is incidental to the judgment on the merits. That is to say,
that the judgment . . . [is] a final judgment ... that in this kind of a case an
accounting is a mere incident to the judgment; that an appeal lies from the
rendition of the judgment as rendered ... "(as is widely held by a great
number of judges and members of the bar, as shown by the cases so
decided and filed and still pending with the Court) for the fundamental
reasons therein stated that "this is more in harmony with the administration
of justice and the spirit and intent of the [Rules]. If on appeal the judgment of
the lower court is affirmed, it would not in the least work an injustice to any of
the legal rights of [appellee]. On the other hand, if for any reason this court
should reverse the judgment of the lower court, the accounting would be a
waste of time and money, and might work a material injury to the [appellant];
and
- that accordingly, the contrary ruling in Fuentebella vs. Carrascoso which
expressly reversed the Heacock case and a line of similar decisions and
ruled that such a decision for recovery of property with accounting "is not
final but merely interlocutory and therefore not appealable" and subsequent
cases adhering to the same must be now in turn abandoned and set aside.
Fuentebella adopted instead the opposite line of conflicting decisions mostly
in partition proceedings and exemplified by Ron vs. Mojica 8 Phil. 928 (under
 the old Code of Civil Procedure) that an order for partition of real property is
not final and appealable until after the actual partition of the property as
reported by the court appointed commissioners and approved by the court in
its judgmentaccepting the report. lt must be especially noted that such rule
governing partitions is now so expressly provided and spelled out in Rule 69
of the Rules of Court, with special reference to Sections 1, 2, 3, 6, 7 and 11,
to wit, that there must first be a preliminar, order for partition of the real
estate (section 2) and where the parties-co-owners cannot agree, the court
appointed commissioners make a plan of actual partition which must first be
passed upon and accepted by the trial court and embodied in a judgment to
be rendered by it (sections 6 and 11). In partition cases, it must be further
borne in mind that Rule 69, section 1 refers to "a person having the right to
compel the partition of real estate," so that the general rule of partition that an
appeal will not lie until the partition or distribution proceedings are terminated
will not apply where appellant claims exclusive ownership of the whole
property and denies the adverse party's right to any partition, as was the
ruling inVillanueva vs. Capistrano and Africa vs .Africa, supra, Fuentebellas
express rehearsal of these cases must likewise be deemed now also
abandoned in view of the Court's expressed preference for the rationale of
the Heacock case.
The Court's considered opinion is that imperative considerations
of public policy and of sound practice in the courts and adherence to
the constitutional mandate of simplified, just, speedy and inexpensive
determination of every action call for considering such judgments for
recovery of property with accounting as final judgments which are
duly appealable (and would therefore become final and executory if not
appealed within the reglementary period) with the accounting as a mere
incident of the judgment to be rendered during the course of the appeal as
provided in Rule 39, section 4 or to be implemented at the execution stage
upon final affirmance on appeal of the judgment (as in Court of Industrial
Relations unfair labor practice cases ordering the reinstatement of the worker
with accounting, computation and payment of his backwages less earnings
elsewhere during his layoff) and that the only reason given in Fuentebelia for
the contrary ruling, viz, "the general harm that would follow from throwing the
door open to multiplicity of appeals in a single case" of lesser import and
consequence. (Emphasis copied).
The miranda ruling has since then been applied as the new rule by a unanimous Court
in Valdez vs. Bagasao, 82 SCRA 22 (March 8, 1978).
If there were a valid genuine claim of Exclusive ownership of the inherited properties on the
part of petitioners to respondents' action for partition, then under the Miranda ruling,
7 |LLB IIIB CORPORATION CASES (Atty. Acosta-Dofitas)
petitioners would be sustained, for as expressly held therein " the general rule of partition that
an appeal will not lie until the partition or distribution proceedings are terminated will not apply
where appellant claims exclusive ownership of the whole property and denies the adverse
party's right to any partition."
But this question has now been rendered moot and academic for the very issue of exclusive
ownership claimed by petitioners to deny and defeat respondents' right to partition - which is
the very core of their rejected appeal - has been squarely resolved herein against them, as if
the appeal had been given due course. The Court has herein expressly sustained the trial
court's findings, as affirmed by the Court of Appeals, that the assets or properties of the
defunct company constitute the estate of the deceased proprietor (supra at page 7) and the
defunct company's assertion of ownership of the properties is a legal contradiction and would
but thwart the liquidation and final distribution and partition of the properties among the
parties hereof as children of their deceased father Forrest L. Cease. There is therefore no
further hindrance to effect the partition of the properties among the parties in implementation
of the appealed judgment.
One last consideration. Parties are brothers and sisters, legal heirs of their deceased father,
Forrest L. Cease. By all rights in law and jurisprudence, each is entitled to share and share
alike in the estate, which the trial court correctly ordained and sustained by the appellate
court. Almost 20 years have lapsed since the filing of Special Proceedings No. 3893 for the
administration of the Estate of Forrest L. Cease and Civil Case No. 6326 for liquidation and
partition of the assets of the defunct Tiaong Milling and Plantation Co., Inc. A succession of
receivers were appointed by the court to take, keep in possession, preserve and manage
properties of the corporation which at one time showed an income of P386,152.90 and
expenses of P308,405.01 for the period covering January 1, 1960 to August 31, 1967 as per
Summary of Operations of Commissioner for Finance appointed by the Court (Brief for
Respondents, p. 38). In the meantime, ejectment cases were filed by and against the heirs in
connection with the properties involved, aggravating the already strained relations of the
parties. A prudent and practical realization of these circumstances ought and must constrain
the parties to give each one his due in law and with fairness and dispatch that their basic
rights be enjoyed. And by remanding this case to the court a quo for the actual partition of the
properties, the substantial rights of everyone of the heirs have not been impaired, for in fact,
they have been preserved and maintained.
WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed from is hereby
AFFIRMED with costs against the petitioners.
2. G.R. No. L-19550 June 19, 1967
HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL
BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN,
in his capacity as Acting Director, National Bureau of Investigation; SPECIAL
PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR.
and ASST. FISCAL MANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of
Manila; JUDGE ROMAN CANSINO, Municipal Court of Manila; JUDGE HERMOGENES
CALUAG, Court of First Instance of Rizal-Quezon City Branch, and JUDGE DAMIAN
JIMENEZ, Municipal Court of Quezon City, respondents.
Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David for
petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de
Castro, Assistant Solicitor General Frine C. Zaballero, Solicitor Camilo D. Quiason and
Solicitor C. Padua for respondents.
CONCEPCION, C.J.:
1 petition. However, by resolution dated June 29, 1962, the writ was partially lifted or dissolved,
Upon application of the officers of the government named on the margin — hereinafter
referred to as Respondents-Prosecutors — several judges 2 — hereinafter referred to as
Respondents-Judges — issued, on different dates, 3 a total of 42 search warrants against
petitioners herein4 and/or the corporations of which they were officers, 5 directed to the any
peace officer, to search the persons above-named and/or the premises of their offices,
warehouses and/or residences, and to seize and take possession of the following personal
property to wit:
Books of accounts, financial records, vouchers, correspondence, receipts, ledgers,
journals, portfolios, credit journals, typewriters, and other documents and/or papers
showing all business transactions including disbursements receipts, balance sheets
and profit and loss statements and Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or
"used or intended to be used as the means of committing the offense," which is described in
the applications adverted to above as "violation of Central Bank Laws, Tariff and Customs
Laws, Internal Revenue (Code) and the Revised Penal Code."
Alleging that the aforementioned search warrants are null and void, as contravening the
Constitution and the Rules of Court — because, inter alia: (1) they do not describe with
particularity the documents, books and things to be seized; (2) cash money, not mentioned in
the warrants, were actually seized; (3) the warrants were issued to fish evidence against the
8 |LLB IIIB CORPORATION CASES (Atty. Acosta-Dofitas)
aforementioned petitioners in deportation cases filed against them; (4) the searches and
seizures were made in an illegal manner; and (5) the documents, papers and cash money
seized were not delivered to the courts that issued the warrants, to be disposed of in
accordance with law — on March 20, 1962, said petitioners filed with the Supreme Court this
original action for certiorari, prohibition, mandamus and injunction, and prayed that, pending
final disposition of the present case, a writ of preliminary injunction be issued restraining
Respondents-Prosecutors, their agents and /or representatives from using the effects seized
as aforementioned or any copies thereof, in the deportation cases already adverted to, and
that, in due course, thereafter, decision be rendered quashing the contested search warrants
and declaring the same null and void, and commanding the respondents, their agents or
representatives to return to petitioners herein, in accordance with Section 3, Rule 67, of the
Rules of Court, the documents, papers, things and cash moneys seized or confiscated under
the search warrants in question.
In their answer, respondents-prosecutors alleged, 6 (1) that the contested search warrants are
valid and have been issued in accordance with law; (2) that the defects of said warrants, if
any, were cured by petitioners' consent; and (3) that, in any event, the effects seized are
admissible in evidence against herein petitioners, regardless of the alleged illegality of the
aforementioned searches and seizures.
On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the
insofar as the papers, documents and things seized from the offices of the corporations
above mentioned are concerned; but, the injunction was maintained as regards the papers,
documents and things found and seized in the residences of petitioners herein. 7
Thus, the documents, papers, and things seized under the alleged authority of the warrants in
question may be split into two (2) major groups, namely: (a) those found and seized in the
offices of the aforementioned corporations, and (b) those found and seized in the residences
of petitioners herein.
As regards the first group, we hold that petitioners herein have no cause of action to assail
the legality of the contested warrants and of the seizures made in pursuance thereof, for the
simple reason that said corporations have their respective personalities, separate and distinct
from the personality of herein petitioners, regardless of the amount of shares of stock or of
the interest of each of them in said corporations, and whatever the offices they hold therein
may be.8 Indeed, it is well settled that the legality of a seizure can be contested only by the
party whose rights have been impaired thereby, 9 and that the objection to an unlawful search
and seizure is purely personal and cannot be availed of by third parties. 10 Consequently,
petitioners herein may not validly object to the use in evidence against them of the
documents, papers and things seized from the offices and premises of the corporations
adverted to above, since the right to object to the admission of said papers in evidence
belongsexclusively to the corporations, to whom the seized effects belong, and may not be
invoked by the corporate officers in proceedings against them in their individual
capacity. 11 Indeed, it has been held:
. . . that the Government's action in gaining possession of papers belonging to
the corporation did not relate to nor did it affect the personal defendants. If these
papers were unlawfully seized and thereby the constitutional rights of or any one
were invaded, they were the rights of the corporation and not the rights of the other
defendants. Next, it is clear that a question of the lawfulness of a seizure can be
raised only by one whose rights have been invaded. Certainly, such a seizure, if
unlawful, could not affect the constitutional rights of defendants whose property had
not been seized or the privacy of whose homes had not been disturbed; nor could
they claim for themselves the benefits of the Fourth Amendment, when its violation, if
any, was with reference to the rights of another. Remus vs. United
States (C.C.A.)291 F. 501, 511. It follows, therefore, that the question of the
admissibility of the evidence based on an alleged unlawful search and seizure
does not extend to the personal defendants but
embraces only the corporation whose property was taken. . . . (A Guckenheimer &
Bros. Co. vs. United States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.)
With respect to the documents, papers and things seized in the residences of petitioners
herein, the aforementioned resolution of June 29, 1962, lifted the writ of preliminary injunction
previously issued by this Court,12 thereby, in effect, restraining herein Respondents-
Prosecutors from using them in evidence against petitioners herein.
In connection with said documents, papers and things, two (2) important questions need be
settled, namely: (1) whether the search warrants in question, and the searches and seizures
made under the authority thereof, are valid or not, and (2) if the answer to the preceding
question is in the negative, whether said documents, papers and things may be used in
evidence against petitioners herein.1äwphï1.ñët
Petitioners maintain that the aforementioned search warrants are in the nature of general
warrants and that accordingly, the seizures effected upon the authority there of are null and
void. In this connection, the Constitution13 provides:
The right of the people to be secure in their persons, houses, papers, and effects
against unreasonable searches and seizures shall not be violated, and no warrants
shall issue but upon probable cause, to be determined by the judge after examination
under oath or affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched, and the persons or things to be
seized.
Two points must be stressed in connection with this constitutional mandate, namely: (1) that
no warrant shall issue but upon probable cause, to be determined by the judge in the manner
9 |LLB IIIB CORPORATION CASES (Atty. Acosta-Dofitas)
set forth in said provision; and (2) that the warrant shall particularly describe the things to be
seized.
None of these requirements has been complied with in the contested warrants. Indeed, the
same were issued upon applications stating that the natural and juridical person therein
named had committed a "violation of Central Ban Laws, Tariff and Customs Laws, Internal
Revenue (Code) and Revised Penal Code." In other words, nospecific offense had been
alleged in said applications. The averments thereof with respect to the offense committed
were abstract. As a consequence, it was impossible for the judges who issued the warrants
to have found the existence of probable cause, for the same presupposes the introduction of
competent proof that the party against whom it is sought has performed particular acts, or
committed specific omissions, violating a given provision of our criminal laws. As a matter of
fact, the applications involved in this case do not allege any specific acts performed by herein
petitioners. It would be the legal heresy, of the highest order, to convict anybody of a
"violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and
Revised Penal Code," — as alleged in the aforementioned applications — without reference
to any determinate provision of said laws or
To uphold the validity of the warrants in question would be to wipe out completely one of the
most fundamental rights guaranteed in our Constitution, for it would place the sanctity of the
domicile and the privacy of communication and correspondence at the mercy of the whims
caprice or passion of peace officers. This is precisely the evil sought to be remedied by the
constitutional provision above quoted — to outlaw the so-called general warrants. It is not
difficult to imagine what would happen, in times of keen political strife, when the party in
power feels that the minority is likely to wrest it, even though by legal means.
Such is the seriousness of the irregularities committed in connection with the disputed search
warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of
Court 14 by providing in its counterpart, under the Revised Rules of Court 15 that "a search
warrant shall not issue but upon probable cause in connection with one specific offense." Not
satisfied with this qualification, the Court added thereto a paragraph, directing that "no search
warrant shall issue for more than one specific offense."
The grave violation of the Constitution made in the application for the contested search
warrants was compounded by the description therein made of the effects to be searched for
and seized, to wit:
Books of accounts, financial records, vouchers, journals, correspondence, receipts,
ledgers, portfolios, credit journals, typewriters, and other documents and/or papers
showing all business transactions including disbursement receipts, balance sheets
and related profit and loss statements.
Thus, the warrants authorized the search for and seizure of records pertaining to all business
transactions of petitioners herein, regardless of whether the transactions were legal or illegal.
The warrants sanctioned the seizure of all records of the petitioners and the aforementioned
corporations, whatever their nature, thus openly contravening the explicit command of our Bill
of Rights — that the things to be seized be particularly described — as well as tending to
defeat its major objective: the elimination of general warrants.
Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain
that, even if the searches and seizures under consideration were unconstitutional, the
documents, papers and things thus seized are admissible in evidence against petitioners
herein. Upon mature deliberation, however, we are unanimously of the opinion that the
position taken in the Moncado case must be abandoned. Said position was in line with the
American common law rule, that the criminal should not be allowed to go free merely
"because the constable has blundered," 16 upon the theory that the constitutional prohibition
against unreasonable searches and seizures is protected by means other than the exclusion
of evidence unlawfully obtained, 17 such as the common-law action for damages against the
searching officer, against the party who procured the issuance of the search warrant and
against those assisting in the execution of an illegal search, their criminal punishment,
resistance, without liability to an unlawful seizure, and such other legal remedies as may be
provided by other laws.
However, most common law jurisdictions have already given up this approach and eventually
adopted the exclusionary rule, realizing that this is the only practical means of enforcing the
constitutional injunction against unreasonable searches and seizures. In the language of
Judge Learned Hand:
As we understand it, the reason for the exclusion of evidence competent as such,
which has been unlawfully acquired, is that exclusion is the only practical way of
enforcing the constitutional privilege. In earlier times the action of trespass against
the offending official may have been protection enough; but that is true no longer.
Only in case the prosecution which itself controls the seizing officials, knows that it
cannot profit by their wrong will that wrong be repressed.18
In fact, over thirty (30) years before, the Federal Supreme Court had already declared:
If letters and private documents can thus be seized and held and used in evidence
against a citizen accused of an offense, the protection of the 4th Amendment,
declaring his rights to be secure against such searches and seizures, is of no value,
and, so far as those thus placed are concerned, might as well be stricken from the
Constitution. The efforts of the courts and their officials to bring the guilty to
punishment, praiseworthy as they are, are not to be aided by the sacrifice of those
great principles established by years of endeavor and suffering which have resulted
in their embodiment in the fundamental law of the land.19
10 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
This view was, not only reiterated, but, also, broadened in subsequent decisions on the same
Federal Court. 20After reviewing previous decisions thereon, said Court held, in Mapp vs.
Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional documentation of the
right of privacy free from unreasonable state intrusion, and after its dozen years on
our books, are led by it to close the only courtroom door remaining open to evidence
secured by official lawlessness in flagrant abuse of that basic right, reserved to all
persons as a specific guarantee against that very same unlawful conduct. We hold
that all evidence obtained by searches and seizures in violation of the Constitution is,
by that same authority, inadmissible in a State.
Since the Fourth Amendment's right of privacy has been declared enforceable
against the States through the Due Process Clause of the Fourteenth, it is
enforceable against them by the same sanction of exclusion as it used against the
Federal Government. Were it otherwise, then just as without the Weeks rule the
assurance against unreasonable federal searches and seizures would be "a form of
words," valueless and underserving of mention in a perpetual charter of inestimable
human liberties, so too, without that rule the freedom from state invasions of privacy
would be so ephemeral and so neatly severed from its conceptual nexus with the
freedom from all brutish means of coercing evidence as not to permit this Court's
high regard as a freedom "implicit in the concept of ordered liberty." At the time that
the Court held in Wolf that the amendment was applicable to the States through the
Due Process Clause, the cases of this Court as we have seen, had steadfastly held
that as to federal officers the Fourth Amendment included the exclusion of the
evidence seized in violation of its provisions. Even Wolf "stoutly adhered" to that
proposition. The right to when conceded operatively enforceable against the States,
was not susceptible of destruction by avulsion of the sanction upon which its
protection and enjoyment had always been deemed dependent under the Boyd,
Weeks and Silverthorne Cases. Therefore, in extending the substantive protections
of due process to all constitutionally unreasonable searches — state or federal — it
was logically and constitutionally necessarily that the exclusion doctrine — an
essential part of the right to privacy — be also insisted upon as an essential
ingredient of the right newly recognized by the Wolf Case. In short, the admission of
the new constitutional Right by Wolf could not tolerate denial of its most important
constitutional privilege, namely, the exclusion of the evidence which an accused had
been forced to give by reason of the unlawful seizure. To hold otherwise is to grant
the right but in reality to withhold its privilege and enjoyment. Only last year the Court
itself recognized that the purpose of the exclusionary rule to "is to deter — to compel
respect for the constitutional guaranty in the only effectively available way — by
removing the incentive to disregard it" . . . .
 The ignoble shortcut to conviction left open to the State tends to destroy the entire
system of constitutional restraints on which the liberties of the people rest. Having
once recognized that the right to privacy embodied in the Fourth Amendment is
enforceable against the States, and that the right to be secure against rude invasions
of privacy by state officers is, therefore constitutional in origin, we can no longer
permit that right to remain an empty promise. Because it is enforceable in the same
manner and to like effect as other basic rights secured by its Due Process
Clause, we can no longer permit it to be revocable at the whim of any police officer
who, in the name of law enforcement itself, chooses to suspend its enjoyment. Our
decision, founded on reason and truth, gives to the individual no more than that
which the Constitution guarantees him to the police officer no less than that to which
honest law enforcement is entitled, and, to the courts, that judicial integrity so
necessary in the true administration of justice. (emphasis ours.)
Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the
constitutional injunction against unreasonable searches and seizures. To be sure, if the
applicant for a search warrant has competent evidence to establish probable cause of the
commission of a given crime by the party against whom the warrant is intended, then there is
no reason why the applicant should not comply with the requirements of the fundamental law.
Upon the other hand, if he has no such competent evidence, then it is not possible for the
Judge to find that there is probable cause, and, hence, no justification for the issuance of the
warrant. The only possible explanation (not justification) for its issuance is the necessity
of fishing evidence of the commission of a crime. But, then, this fishing expedition is
indicative of the absence of evidence to establish a probable cause.
Moreover, the theory that the criminal prosecution of those who secure an illegal search
warrant and/or make unreasonable searches or seizures would suffice to protect the
constitutional guarantee under consideration, overlooks the fact that violations thereof are, in
general, committed By agents of the party in power, for, certainly, those belonging to the
minority could not possibly abuse a power they do not have. Regardless of the handicap
under which the minority usually — but, understandably — finds itself in prosecuting agents
of the majority, one must not lose sight of the fact that the psychological and moral effect of
the possibility 21 of securing their conviction, is watered down by the pardoning power of the
party for whose benefit the illegality had been committed.
In their Motion for Reconsideration and Amendment of the Resolution of this Court dated
June 29, 1962, petitioners allege that Rooms Nos. 81 and 91 of Carmen Apartments, House
No. 2008, Dewey Boulevard, House No. 1436, Colorado Street, and Room No. 304 of the
Army-Navy Club, should be included among the premises considered in said Resolution as
residences of herein petitioners, Harry S. Stonehill, Robert P. Brook, John J. Brooks and Karl
Beck, respectively, and that, furthermore, the records, papers and other effects seized in the
offices of the corporations above referred to include personal belongings of said petitioners
and other effects under their exclusive possession and control, for the exclusion of which they
11 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
have a standing under the latest rulings of the federal courts of federal courts of the United
States. 22
We note, however, that petitioners' theory, regarding their alleged possession of and control
over the aforementioned records, papers and effects, and the alleged "personal" nature
thereof, has Been Advanced, notin their petition or amended petition herein, but in the Motion
for Reconsideration and Amendment of the Resolution of June 29, 1962. In other words, said
theory would appear to be readjustment of that followed in said petitions, to suit the approach
intimated in the Resolution sought to be reconsidered and amended. Then, too, some of the
affidavits or copies of alleged affidavits attached to said motion for reconsideration, or
submitted in support thereof, contain either inconsistent allegations, or allegations
inconsistent with the theory now advanced by petitioners herein.
Upon the other hand, we are not satisfied that the allegations of said petitions said motion for
reconsideration, and the contents of the aforementioned affidavits and other papers
submitted in support of said motion, have sufficiently established the facts or conditions
contemplated in the cases relied upon by the petitioners; to warrant application of the views
therein expressed, should we agree thereto. At any rate, we do not deem it necessary to
express our opinion thereon, it being best to leave the matter open for determination in
appropriate cases in the future.
We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is hereby,
abandoned; that the warrants for the search of three (3) residences of herein petitioners, as
specified in the Resolution of June 29, 1962, are null and void; that the searches and
seizures therein made are illegal; that the writ of preliminary injunction heretofore issued, in
connection with the documents, papers and other effects thus seized in said residences of
herein petitioners is hereby made permanent; that the writs prayed for are granted, insofar as
the documents, papers and other effects so seized in the aforementioned residences are
concerned; that the aforementioned motion for Reconsideration and Amendment should be,
as it is hereby, denied; and that the petition herein is dismissed and the writs prayed for
denied, as regards the documents, papers and other effects seized in the twenty-nine (29)
places, offices and other premises enumerated in the same Resolution, without special
pronouncement as to costs.
It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.
 Wherefore, the Register of Deeds of Quezon City is hereby ordered to lift, expunge or
delete the annotation of lis pendens on Transfer Certificates of Title Nos. 116716,
3. G.R. No. 124715 January 24, 2000 116717, 116718, 116719 and 5182 and it is hereby further ordered that the
properties covered by the same titles as well as those properties by (sic) Transfer
Certificate of Title Nos. 613494, 363123, 236236 and 263236 are excluded from
RUFINA LUY LIM, petitioner,
these proceedings.
vs.
COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED DISTRIBUTING,
INC., ACTIVE DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION SO ORDERED.
COMPANY, INC. respondents.
Subsequently, Rufina Luy Lim filed a verified amended petition 9 which contained the following
BUENA, J.: averments:

May a corporation, in its universality, be the proper subject of and be included in the inventory 3. The late Pastor Y. Lim personally owned during his lifetime the following business
of the estate of a deceased person? entities, to wit:

Petitioner disputes before us through the instant petition for review on certiorari, the Business
Address:
decision1 of the Court of Appeals promulgated on 18 April 1996, in CA-GR SP No. 38617, Entity
which nullified and set aside the orders dated 04 July 1995 2, 12 September 19953 and 15
xxx xxx xxx
September 19954 of the Regional Trial Court of Quezon City, Branch 93, sitting as a probate
court. Alliance Block 3, Lot 6, Dacca
Marketing, BF Homes,
Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose estate is the Inc. Parañaque, Metro
subject of probate proceedings in Special Proceedings Q-95-23334, entitled, "In Re: Intestate Manila.
Estate of Pastor Y. Lim Rufina Luy Lim, represented by George Luy, Petitioner".1âwphi1.nêt xxx xxx xxx

Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed Speed 910 Barrio Niog,
Distributing, Inc., Active Distributing, Inc. and Action Company are corporations formed, Distributing Aguinaldo Highway,
organized and existing under Philippine laws and which owned real properties covered under Inc. Bacoor, Cavite.
the Torrens system. xxx xxx xxx
Auto Truck 2251 Roosevelt
On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and
TBA Corp. Avenue, Quezon City.
duly represented by her nephew George Luy, fried on 17 March 1995, a joint petition 5 for the
administration of the estate of Pastor Y. Lim before the Regional Trial Court of Quezon City. xxx xxx xxx
Active Block 3, Lot 6, Dacca
Private respondent corporations, whose properties were included in the inventory of the Distributors, BF Homes,
estate of Pastor Y. Lim, then filed a motion 6 for the lifting of lis pendens and motion7 for Inc. Parañaque, Metro
exclusion of certain properties from the estate of the decedent. Manila.

In an order8 dated 08 June 1995, the Regional Trial Court of Quezon City, Branch 93, sitting xxx xxx xxx
as a probate court, granted the private respondents' twin motions, in this wise: Action 100 20th Avenue
Company Murphy, Quezon City

12 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 or 92-D Mc-Arthur
Highway Valenzuela
Bulacan.
3.1 Although the above business entities dealt and engaged in business with
the public as corporations, all their capital, assets and equity were however,
personally owned by the late Pastor Y Lim. Hence the alleged stockholders
and officers appearing in the respective articles of incorporation of the above
business entities were mere dummies of Pastor Y. Lim, and they were listed
therein only for purposes of registration with the Securities and Exchange
Commission.
4. Pastor Lim, likewise, had Time, Savings and Current Deposits with the following
banks: (a) Metrobank, Grace Park, Caloocan City and Quezon Avenue, Quezon City
Branches and (b) First Intestate Bank (formerly Producers Bank), Rizal Commercial
Banking Corporation and in other banks whose identities are yet to be determined.
On 04 July 1995, the Regional Trial Court acting on petitioner's motion issued an order 10,
thus:
Wherefore, the order dated 08 June 1995 is hereby set aside and the Registry of
Deeds of Quezon City is hereby directed to reinstate the annotation of lis pendens in
case said annotation had already been deleted and/or cancelled said TCT Nos.
116716, 116717, 116718, 116719 and 51282.
Further more (sic), said properties covered by TCT Nos. 613494, 365123, 236256
and 236237 by virtue of the petitioner are included in the instant petition.
SO ORDERED.
On 04 September 1995, the probate court appointed Rufina Lim as special
administrator11 and Miguel Lim and Lawyer Donald Lee, as co-special administrators of the
estate of Pastor Y. Lim, after which letters of administration were accordingly issued.

5. That the following real properties, although registered in the name of the above In an order12 dated 12 September 1995, the probate court denied anew private respondents'
entities, were actually acquired by Pastor Y. Lim during his marriage with petitioner, motion for exclusion, in this wise:
to wit:
The issue precisely raised by the petitioner in her petition is whether the corporations
Corporation Title Location are the mere alter egos or instrumentalities of Pastor Lim, Otherwise (sic) stated, the
issue involves the piercing of the corporate veil, a matter that is clearly within the
xxx xxx xxx jurisdiction of this Honorable Court and not the Securities and Exchange
k. Auto Truck TCT No. 617726 Sto. Domingo TBA Commission. Thus, in the case of Cease vs. Court of Appeals, 93 SCRA 483, the
Corporation Cainta, Rizal crucial issue decided by the regular court was whether the corporation involved
therein was the mere extension of the decedent. After finding in the affirmative, the
q. Alliance Marketing TCT No. 27896 Prance, Metro Manila Court ruled that the assets of the corporation are also assets of the estate.

Copies of the above-mentioned Transfer Certificate of Title and/or Tax Declarations A reading of P.D. 902, the law relied upon by oppositors, shows that the SEC's
are hereto attached as Annexes "C" to "W". exclusive (sic) applies only to intra-corporate controversy. It is simply a suit to settle
the intestate estate of a deceased person who, during his lifetime, acquired several
xxx xxx xxx properties and put up corporations as his instrumentalities.

7. The aforementioned properties and/or real interests left by the late Pastor Y. Lim, SO ORDERED.
are all conjugal in nature, having been acquired by him during the existence of his
marriage with petitioner. On 15 September 1995, the probate court acting on an ex parte motion filed by petitioner,
issued an order13 the dispositive portion of which reads:
8. There are other real and personal properties owned by Pastor Y. Lim which
petitioner could not as yet identify. Petitioner, however will submit to this Honorable Wherefore, the parties and the following banks concerned herein under enumerated
Court the identities thereof and the necessary documents covering the same as soon are hereby ordered to comply strictly with this order and to produce and submit to the
as possible. special administrators, through this Honorable Court within (5) five days from receipt
13 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 of this order their respective records of the savings/current accounts/time deposits
and other deposits in the names of Pastor Lim and/or corporations above-mentioned,
showing all the transactions made or done concerning savings/current accounts from
January 1994 up to their receipt of this court order.
xxx xxx xxx
SO ORDERED.
Private respondent filed a special civil action for certiorari14, with an urgent prayer for a
restraining order or writ of preliminary injunction, before the Court of Appeals questioning the
orders of the Regional Trial Court, sitting as a probate court.
On 18 April 1996, the Court of Appeals, finding in favor of herein private respondents,
rendered the assailed decision15, the decretal portion of which declares:
Wherefore, premises considered, the instant special civil action for certiorari is
hereby granted, The impugned orders issued by respondent court on July 4, 1995
and September 12, 1995 are hereby nullified and set aside. The impugned order
issued by respondent on September 15, 1995 is nullified insofar as petitioner
corporations" bank accounts and records are concerned.
SO ORDERED.
Through the expediency of Rule 45 of the Rules of Court, herein petitioner Rufina Luy Lim
now comes before us with a lone assignment of
error16:
The respondent Court of Appeals erred in reversing the orders of the lower court
which merely allowed the preliminary or provisional inclusion of the private
respondents as part of the estate of the late deceased (sic) Pastor Y. Lim with the
respondent Court of Appeals arrogating unto itself the power to repeal, to disobey or
to ignore the clear and explicit provisions of Rules 81,83,84 and 87 of the Rules of
Court and thereby preventing the petitioner, from performing her duty as special
administrator of the estate as expressly provided in the said Rules.
Petitioner's contentions tread on perilous grounds.
In the instant petition for review, petitioner prays that we affirm the orders issued by the
probate court which were subsequently set aside by the Court of Appeals.
14 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Yet, before we delve into the merits of the case, a review of the rules on jurisdiction over
probate proceedings is indeed in order.
The provisions of Republic Act 7691 17, which introduced amendments to Batas Pambansa
Blg. 129, are pertinent:
Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the "Judiciary
Reorganization Act of 1980", is hereby amended to read as follows:
Sec. 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive
jurisdiction:
xxx xxx xxx
(4) In all matters of probate, both testate and intestate, where the gross value of the
estate exceeds One Hundred Thousand Pesos (P100,000) or, in probate matters in
Metro Manila, where such gross value exceeds Two Hundred Thousand Pesos
(P200,000);
xxx xxx xxx
Sec. 3. Section 33 of the same law is hereby amended to read as follows:
Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in Civil Cases. — Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts shall exercise:
1. Exclusive original jurisdiction over civil actions and probate proceedings,
testate and intestate, including the grant of provisional remedies in proper
cases, where the value of the personal property, estate or amount of the
demand does not exceed One Hundred Thousand Pesos (P100,000) or, in
Metro Manila where such personal property, estate or amount of the demand
does not exceed Two Hundred Thousand Pesos (P200,000), exclusive of
interest, damages of whatever kind, attorney's fees, litigation expenses and
costs, the amount of which must be specifically alleged, Provided, that
interest, damages of whatever kind, attorney's, litigation expenses and costs
shall be included in the determination of the filing fees, Provided further, that
where there are several claims or causes of actions between the same or
different parties, embodied in the same complaint, the amount of the demand
shall be the totality of the claims in all the causes of action, irrespective of
whether the causes of action arose out of the same or different transactions;
 xxx xxx xxx
Simply put, the determination of which court exercises jurisdiction over matters of probate
depends upon the gross value of the estate of the decedent.
As to the power and authority of the probate court, petitioner relies heavily on the principle
that a probate court may pass upon title to certain properties, albeit provisionally, for the
purpose of determining whether a certain property should or should not be included in the
inventory.
In a litany of cases, We defined the parameters by which the court may extend its probing
arms in the determination of the question of title in probate proceedings.
This Court, in PASTOR, JR. vs. COURT OF APPEALS,18 held:
. . . As a rule, the question of ownership is an extraneous matter which the probate
court cannot resolve with finality. Thus, for the purpose of determining whether a
certain property should or should not be included in the inventory of estate properties,
the Probate Court may pass upon the title thereto, but such determination is
provisional, not conclusive, and is subject to the final decision in a separate action to
resolve title.
We reiterated the rule in PEREIRA vs. COURT OF APPEALS19:
. . . The function of resolving whether or not a certain property should be included in
the inventory or list of properties to be administered by the administrator is one
clearly within the competence of the probate court. However, the court's
determination is only provisional in character, not conclusive, and is subject to the
final decision in a separate action which may be instituted by the parties.
Further, in MORALES vs. CFI OF CAVITE20 citing CUIZON vs. RAMOLETE21, We made an
exposition on the probate court's limited jurisdiction:
It is a well-settled rule that a probate court or one in charge of proceedings whether
testate or intestate cannot adjudicate or determine title to properties claimed to be a
part of the estate and which are equally claimed to belong to outside parties. All that
the said court could do as regards said properties is to determine whether they
should or should not be included in the inventory or list of properties to be
administered by the administrator. If there is no dispute, well and good; but if there is,
then the parties, the administrator and the opposing parties have to resort to an
ordinary action for a final determination of the conflicting claims of title because the
probate court cannot do so.
15 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Again, in VALERA vs. INSERTO22, We had occasion to elucidate, through Mr. Justice Andres
Narvasa23:
Settled is the rule that a Court of First Instance (now Regional Trial Court), acting as
a probate court, exercises but limited jurisdiction, and thus has no power to take
cognizance of and determine the issue of title to property claimed by a third person
adversely to the decedent, unless the claimant and all other parties having legal
interest in the property consent, expressly or impliedly, to the submission of the
question to the probate court for adjudgment, or the interests of third persons are not
thereby prejudiced, the reason for the exception being that the question of whether or
not a particular matter should be resolved by the court in the exercise of its general
jurisdiction or of its limited jurisdiction as a special court (e.g. probate, land
registration, etc.), is in reality not a jurisdictional but in essence of procedural one,
involving a mode of practice which may be waived. . . .
. . . . These considerations assume greater cogency where, as here, the Torrens title
is not in the decedent's name but in others, a situation on which this Court has
already had occasion to rule . . . . (emphasis Ours)
Petitioner, in the present case, argues that the parcels of land covered under the Torrens
system and registered in the name of private respondent corporations should be included in
the inventory of the estate of the decedent Pastor Y. Lim, alleging that after all the
determination by the probate court of whether these properties should be included or not is
merely provisional in nature, thus, not conclusive and subject to a final determination in a
separate action brought for the purpose of adjudging once and for all the issue of title.
Yet, under the peculiar circumstances, where the parcels of land are registered in the name
of private respondent corporations, the jurisprudence pronounced in BOLISAY
vs., ALCID 24 is of great essence and finds applicability, thus:
It does not matter that respondent-administratrix has evidence purporting to support
her claim of ownership, for, on the other hand, petitioners have a Torrens title in their
favor, which under the law is endowed with incontestability until after it has been set
aside in the manner indicated in the law itself, which of course, does not include,
bringing up the matter as a mere incident in special proceedings for the settlement of
the estate of deceased persons. . . .
. . . . In regard to such incident of inclusion or exclusion, We hold that if a property
covered by Torrens title is involved, the presumptive conclusiveness of such title
should be given due weight, and in the absence of strong compelling evidence to the
contrary, the holder thereof should be considered as the owner of the property in
controversy until his title is nullified or modified in an appropriate ordinary action,
 particularly, when as in the case at bar, possession of the property itself is in the
persons named in the title. . . .
A perusal of the records would reveal that no strong compelling evidence was ever presented
by petitioner to bolster her bare assertions as to the title of the deceased Pastor Y. Lim over
the properties. Even so, P.D. 1529, otherwise known as, "The Property Registration Decree",
proscribes collateral attack on Torrens Title, hence:
xxx xxx xxx
Sec. 48. Certificate not subject to collateral attack. — A certificate of title shall not be
subject to collateral attack. It cannot be altered, modified or cancelled except in a
direct proceeding in accordance with law.
In CUIZON vs. RAMOLETE, where similarly as in the case at bar, the property subject of the
controversy was duly registered under the Torrens system, We categorically stated:
. . . Having been apprised of the fact that the property in question was in the
possession of third parties and more important, covered by a transfer certificate of
title issued in the name of such third parties, the respondent court should have
denied the motion of the respondent administrator and excluded the property in
question from the inventory of the property of the estate. It had no authority to deprive
such third persons of their possession and ownership of the property. . . .
Inasmuch as the real properties included in the inventory of the estate of the Late Pastor Y.
Lim are in the possession of and are registered in the name of private respondent
corporations, which under the law possess a personality separate and distinct from their
stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the
presumption of conclusiveness of said titles in favor of private respondents should stand
undisturbed.
Accordingly, the probate court was remiss in denying private respondents' motion for
exclusion. While it may be true that the Regional Trial Court, acting in a restricted capacity
and exercising limited jurisdiction as a probate court, is competent to issue orders involving
inclusion or exclusion of certain properties in the inventory of the estate of the decedent, and
to adjudge, albeit, provisionally the question of title over properties, it is no less true that such
authority conferred upon by law and reinforced by jurisprudence, should be exercised
judiciously, with due regard and caution to the peculiar circumstances of each individual case.
Notwithstanding that the real properties were duly registered under the Torrens system in the
name of private respondents, and as such were to be afforded the presumptive
16 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
conclusiveness of title, the probate court obviously opted to shut its eyes to this gleamy fact
and still proceeded to issue the impugned orders.
By its denial of the motion for exclusion, the probate court in effect acted in utter disregard of
the presumption of conclusiveness of title in favor of private respondents. Certainly, the
probate court through such brazen act transgressed the clear provisions of law and infringed
settled jurisprudence on this matter.
Moreover, petitioner urges that not only the properties of private respondent corporations are
properly part of the decedent's estate but also the private respondent corporations
themselves. To rivet such flimsy contention, petitioner cited that the late Pastor Y. Lim during
his lifetime, organized and wholly-owned the five corporations, which are the private
respondents in the instant case. 25 Petitioner thus attached as Annexes "F" 26 and "G"27 of the
petition for review affidavits executed by Teresa Lim and Lani Wenceslao which among
others, contained averments that the incorporators of Uniwide Distributing, Inc. included on
the list had no actual and participation in the organization and incorporation of the said
corporation. The affiants added that the persons whose names appeared on the articles of
incorporation of Uniwide Distributing, Inc., as incorporators thereof, are mere dummies since
they have not actually contributed any amount to the capital stock of the corporation and have
been merely asked by the late Pastor Y. Lim to affix their respective signatures thereon.
It is settled that a corporation is clothed with personality separate and distinct from that of the
persons composing it. It may not generally be held liable for that of the persons composing it.
It may not be held liable for the personal indebtedness of its stockholders or those of the
entities connected with it.28
Rudimentary is the rule that a corporation is invested by law with a personality distinct and
separate from its stockholders or members. In the same vein, a corporation by legal fiction
and convenience is an entity shielded by a protective mantle and imbued by law with a
character alien to the persons comprising it.
Nonetheless, the shield is not at all times invincible. Thus, in FIRST PHILIPPINE
INTERNATIONAL BANK vs.COURT OF APPEALS29, We enunciated:
. . . When the fiction is urged as a means of perpetrating a fraud or an illegal act or as
a vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or
crime, the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals. . . .
Piercing the veil of corporate entity requires the court to see through the protective shroud
which exempts its stockholders from liabilities that ordinarily, they could be subject to, or
distinguishes one corporation from a seemingly separate one, were it not for the existing the affiants. For this reason, affidavits are generally rejected for being hearsay,
corporate fiction.30 unless the affiant themselves are placed on the witness stand to testify thereon.

The corporate mask may be lifted and the corporate veil may be pierced when a corporation As to the order36 of the lower court, dated 15 September 1995, the Court of Appeals correctly
is just but the alter ego of a person or of another corporation. Where badges of fraud exist, observed that the Regional Trial Court, Branch 93 acted without jurisdiction in issuing said
where public convenience is defeated; where a wrong is sought to be justified thereby, the order; The probate court had no authority to demand the production of bank accounts in the
corporate fiction or the notion of legal entity should come to naught. 31 name of the private respondent corporations.

Further, the test in determining the applicability of the doctrine of piercing the veil of corporate WHEREFORE, in view of the foregoing disquisitions, the instant petition is hereby
fiction is as follows: 1) Control, not mere majority or complete stock control, but complete DISMISSED for lack of merit and the decision of the Court of Appeals which nullified and set
domination, not only of finances but of policy and business practice in respect to the aside the orders issued by the Regional Trial Court, Branch 93, acting as a probate court,
transaction attacked so that the corporate entity as to this transaction had at the time no dated 04 July 1995 and 12 September 1995 is AFFIRMED.1
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 right; and (3) The
aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of. The absence of any of these elements prevent "piercing the corporate veil". 32

Mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of
separate corporate personalities.33

Moreover, to disregard the separate juridical personality of a corporation, the wrong-doing

must be clearly and convincingly established. It cannot be presumed. 34

Granting arguendo that the Regional Trial Court in this case was not merely acting in a
limited capacity as a probate court, petitioner nonetheless failed to adduce competent
evidence that would have justified the court to impale the veil of corporate fiction. Truly, the
reliance reposed by petitioner on the affidavits executed by Teresa Lim and Lani Wenceslao
is unavailing considering that the aforementioned documents possess no weighty probative
value pursuant to the hearsay rule. Besides it is imperative for us to stress that such affidavits
are inadmissible in evidence inasmuch as the affiants were not at all presented during the
course of the proceedings in the lower court. To put it differently, for this Court to uphold the
admissibility of said documents would be to relegate from Our duty to apply such basic rule of
evidence in a manner consistent with the law and jurisprudence.

Our pronouncement in PEOPLE BANK AND TRUST COMPANY vs. LEONIDAS35 finds
pertinence:

Affidavits are classified as hearsay evidence since they are not generally prepared by 4. G.R. No. L-4935 May 28, 1954
the affiant but by another who uses his own language in writing the affiant's
statements, which may thus be either omitted or misunderstood by the one writing J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA
them. Moreover, the adverse party is deprived of the opportunity to cross-examine ARANETA, INC., plaintiff-appellee,
17 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
vs.
QUIRINO BOLAÑOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch,
to recover possesion of registered land situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and description of
the land sought to be recovered. The original complaint described the land as a portion of a
lot registered in plaintiff's name under Transfer Certificate of Title No. 37686 of the land
record of Rizal Province and as containing an area of 13 hectares more or less. But the
complaint was amended by reducing the area of 6 hectares, more or less, after the defendant
had indicated the plaintiff's surveyors the portion of land claimed and occupied by him. The
second amendment became necessary and was allowed following the testimony of plaintiff's
surveyors that a portion of the area was embraced in another certificate of title, which was
plaintiff's Transfer Certificate of Title No. 37677. And still later, in the course of trial, after
defendant's surveyor and witness, Quirino Feria, had testified that the area occupied and
claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff again, with
the leave of court, amended its complaint to make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous,
exclusive and public and notorious possession (of land in dispute) under claim of ownership,
adverse to the entire world by defendant and his predecessor in interest" from "time in-
memorial". The answer further alleges that registration of the land in dispute was obtained by
plaintiff or its predecessors in interest thru "fraud or error and without knowledge (of) or
interest either personal or thru publication to defendant and/or predecessors in interest." The
answer therefore prays that the complaint be dismissed with costs and plaintiff required to
reconvey the land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without
any right to the land in question and ordering him to restore possession thereof to plaintiff and
to pay the latter a monthly rent of P132.62 from January, 1940, until he vacates the land, and
also to pay the costs.
Appealing directly to this court because of the value of the property involved, defendant
makes the following assignment or errors:
18 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
I. The trial court erred in not dismissing the case on the ground that the case was not
brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the litigation.
V. The trial court erred in holding that the land in dispute is covered by transfer
certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and lawful owner
of the land.
VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the
amount of P132.62 monthly from January, 1940, until he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation
to the defendant.
As to the first assigned error, there is nothing to the contention that the present action is not
brought by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of
Court require is that an action be broughtin the name of, but not necessarily by, the real party
in interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action,
that is to file the complaint, in the name of the plaintiff. That practice appears to have been
followed in this case, since the complaint is signed by the law firm of Araneta and Araneta,
"counsel for plaintiff" and commences with the statement "comes now plaintiff, through its
undersigned counsel." It is true that the complaint also states that the plaintiff is "represented
herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is
nothing against one corporation being represented by another person, natural or juridical, in a
suit in court. The contention that Gregorio Araneta, Inc. can not act as managing partner for
plaintiff on the theory that it is illegal for two corporations to enter into a partnership is without
merit, for the true rule is that "though a corporation has no power to enter into a partnership, it
may nevertheless enter into a joint venture with another where the nature of that venture is in
line with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston,
80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record to
indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its
managing partner" is not in line with the corporate business of either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may be
answered by mere reference to section 4 of Rule 17, Rules of Court, which sanctions such
amendment. It reads:
Sec. 4. Amendment to conform to evidence. — When issues not raised by the
pleadings are tried by express or implied consent of the parties, they shall be treated
in all respects, as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to
raise these issues may be made upon motion of any party at my time, even of the
trial of these issues. If evidence is objected to at the trial on the ground that it is not
within the issues made by the pleadings, the court may allow the pleadings to be
amended and shall be so freely when the presentation of the merits of the action will
be subserved thereby and the objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in maintaining his action or defense
upon the merits. The court may grant a continuance to enable the objecting party to
meet such evidence.
Under this provision amendment is not even necessary for the purpose of rendering judgment
on issues proved though not alleged. Thus, commenting on the provision, Chief Justice
Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of Civil
Procedure, ruled that where the facts shown entitled plaintiff to relief other than that
asked for, no amendment to the complaint is necessary, especially where defendant
has himself raised the point on which recovery is based, and that the appellate court
treat the pleadings as amended to conform to the evidence, although the pleadings
were not actually amended. (I Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage of
the trial, that the land in dispute "is that described or represented in Exhibit A and in Exhibit B
enclosed in red pencil with the name Quirino Bolaños," defendant later changed his lawyer
and also his theory and tried to prove that the land in dispute was not covered by plaintiff's
certificate of title. The evidence, however, is against defendant, for it clearly establishes that
plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with
an area of 5,297,429.3 square meters, more or less, covered by transfer certificate of title No.
37686 of the land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio,
having an area of 74,789 square meters, more or less, covered by transfer certificate of title
No. 37677 of the land records of the same province, both lots having been originally
registered on July 8, 1914 under original certificate of title No. 735. The identity of the lots
was established by the testimony of Antonio Manahan and Magno Faustino, witnesses for
plaintiff, and the identity of the portion thereof claimed by defendant was established by the
19 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
testimony of his own witness, Quirico Feria. The combined testimony of these three
witnesses clearly shows that the portion claimed by defendant is made up of a part of lot 4-B-
3-C and major on portion of lot 4-B-4, and is well within the area covered by the two transfer
certificates of title already mentioned. This fact also appears admitted in defendant's answer
to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in 1914, the
decree of registration can no longer be impugned on the ground of fraud, error or lack of notice to
defendant, as more than one year has already elapsed from the issuance and entry of the decree.
Neither court the decree be collaterally attacked by any person claiming title to, or interest in, the land
prior to the registration proceedings. (Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could title to
that land in derogation of that of plaintiff, the registered owner, be acquired by prescription or adverse
possession. (Section 46, Act No. 496.) Adverse, notorious and continuous possession under claim of
ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of
Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure possession
under a decree of registration does not prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.)
A recent decision of this Court on this point is that rendered in the case of Jose Alcantara et al., vs.
Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant should be
sentenced to pay plaintiff P132.62 monthly from January, 1940, until he vacates the premises.' But it
appears from the record that that reasonable compensation for the use and occupation of the premises,
as stipulated at the hearing was P10 a month for each hectare and that the area occupied by defendant
was 13.2619 hectares. The total rent to be paid for the area occupied should therefore be P132.62 a
month. It is appears from the testimony of J. A. Araneta and witness Emigdio Tanjuatco that as early as
1939 an action of ejectment had already been filed against defendant. And it cannot be supposed that
defendant has been paying rents, for he has been asserting all along that the premises in question
'have always been since time immemorial in open, continuous, exclusive and public and notorious
possession and under claim of ownership adverse to the entire world by defendant and his
predecessors in interest.' This assignment of error is thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to
dismiss alleging that there is pending before the Court of First Instance of Rizal another action between
the same parties and for the same cause and seeking to sustain that allegation with a copy of the
complaint filed in said action. But an examination of that complaint reveals that appellant's allegation is
not correct, for the pretended identity of parties and cause of action in the two suits does not appear.
That other case is one for recovery of ownership, while the present one is for recovery of possession.
And while appellant claims that he is also involved in that order action because it is a class suit, the
complaint does not show that such is really the case. On the contrary, it appears that the action seeks
relief for each individual plaintiff and not relief for and on behalf of others. The motion for dismissal is
clearly without merit.Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.
5. G.R. No. 89561 September 13, 1990
BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO,
BERTILLA C. RADA, MARIETTA C. ABAÑEZ, LEOVINA C. JALBUENA and SANTIAGO
M. RIVERA, petitioners,
vs.
COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS
MANUFACTURING CO., INC.,respondents.
Edmundo T. Zepeda for petitioners.
Martin M. De Guzman for respondent BORMAHECO, Inc.
Renato J. Robles for P.M. Parts Manufacturing Co., Inc.
REGALADO, J.:
This is a petition to review the decision of respondent Court of Appeals, dated August 3,
1989, in CA-GR CV No. 15412, entitled "Buenaflor M. Castillo Umali, et al. vs. Philippine
Machinery Parts Manufacturing Co., Inc., et al.," 1the dispositive portion whereof provides:
WHEREFORE, viewed in the light of the entire record, the judgment
appealed from must be, as it is hereby REVERSED. In lieu thereof, a
judgment is hereby rendered-
1) Dismissing the complaint, with cost against plaintiffs;
2) Ordering plaintiffs-appellees to vacate the subject properties; and
3) Ordering plaintiffs-appellees to pay upon defendants' counterclaims:
a) To defendant-appellant PM Parts: (i) damages consisting
of the value of the fruits in the subject parcels of land of
which they were deprived in the sum of P26,000.00 and (ii)
attorney's fees of P15,000.00
b) To defendant-appellant Bormaheco: (i) expenses of
litigation in the amount of P5,000.00 and (ii) attorney's fees
of P15,000.00.
SO ORDERED.
20 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
The original complaint for annulment of title filed in the court a quo by herein petitioners
included as party defendants the Philippine Machinery Parts Manufacturing Co., Inc. (PM
Parts), Insurance Corporation of the Philippines (ICP), Bormaheco, Inc., (Bormaheco) and
Santiago M. Rivera (Rivera). A Second Amended Complaint was filed, this time impleading
Santiago M. Rivera as party plaintiff.
During the pre-trial conference, the parties entered into the following stipulation of facts:
As between all parties: Plaintiff Buenaflor M. Castillo is the
judicial administratrix of the estate of Felipe Castillo in
Special Proceeding No. 4053, pending before Branch IX,
CFI of Quezon (per Exhibit A) which intestate proceedings
was instituted by Mauricia Meer Vda. de Castillo, the
previous administratrix of the said proceedings prior to 1970
(per exhibits A-1 and A-2) which case was filed in Court way
back in 1964;
b) The four (4) parcels of land described in paragraph 3 of
the Complaint were originally covered by TCT No. T-42104
and Tax Dec. No. 14134 with assessed value of P3,100.00;
TCT No. T 32227 and Tax Dec. No. 14132, with assessed
value of P5,130,00; TCT No. T-31762 and Tax Dec. No.
14135, with assessed value of P6,150.00; and TCT No. T-
42103 with Tax Dec. No. 14133, with assessed value of
P3,580.00 (per Exhibits A-2 and B, B-1 to B-3 C, C-1 -to C3
c) That the above-enumerated four (4) parcels of land were
the subject of the Deed of Extra-Judicial Partition executed
by the heirs of Felipe Castillo (per Exhibit D) and by virtue
thereof the titles thereto has (sic) been cancelled and in lieu
thereof, new titles in the name of Mauricia Meer Vda. de
Castillo and of her children, namely: Buenaflor, Bertilla,
Victoria, Marietta and Leovina, all surnamed Castillo has
(sic) been issued, namely: TCT No. T-12113 (Exhibit E );
TCT No. T-13113 (Exhibit F); TCT No. T-13116 (Exhibit G )
and TCT No. T13117 (Exhibit H )
d) That mentioned parcels of land were submitted as
guaranty in the Agreement of Counter-Guaranty with
Chattel-Real Estate Mortgage executed on 24 October 1970
between Insurance Corporation of the Philippines and
Slobec Realty Corporation represented by Santiago Rivera
(Exhibit 1);
 e) That based on the Certificate of Sale issued by the Sheriff
of the Province of Quezon in favor of Insurance Corporation
of the Philippines it was able to transfer to itself the titles
over the lots in question, namely: TCT No. T-23705 (Exhibit
M), TCT No. T 23706 (Exhibit N ), TCT No. T-23707 (Exhibit
0) and TCT No. T 23708 (Exhibit P);
f) That on 10 April 1975, the Insurance Corporation of the
Philippines sold to PM Parts the immovables in question (per
Exhibit 6 for PM Parts) and by reason thereof, succeeded in
transferring unto itself the titles over the lots in dispute,
namely: per TCT No. T-24846 (Exhibit Q ), per TCT No. T-
24847 (Exhibit R ), TCT No. T-24848 (Exhibit), TCT No. T-
24849 (Exhibit T );
g) On 26 August l976, Mauricia Meer Vda. de Castillo'
genther letter to Modesto N. Cervantes stating that she and
her children refused to comply with his demands (Exhibit V-
2);
h) That from at least the months of October, November and
December 1970 and January 1971, Modesto N. Cervantes
was the Vice-President of Bormaheco, Inc. later President
thereof, and also he is one of the Board of Directors of PM
Parts; on the other hand, Atty. Martin M. De Guzman was
the legal counsel of Bormaheco, Inc., later Executive Vice-
President thereof, and who also is the legal counsel of
Insurance Corporation of the Philippines and PM Parts; that
Modesto N. Cervantes served later on as President of PM
Parts, and that Atty. de Guzman was retained by Insurance
Corporation of the Philippines specifically for foreclosure
purposes only;
i) Defendant Bormaheco, Inc. on November 25, 1970 sold to
Slobec Realty and Development, Inc., represented by
Santiago Rivera, President, one (1) unit Caterpillar Tractor
D-7 with Serial No. 281114 evidenced by a contract marked
Exhibit J and Exhibit I for Bormaheco, Inc.;
j) That the Surety Bond No. 14010 issued by co-defendant
ICP was likewise secured by an Agreement with Counter-
Guaranty with Real Estate Mortgage executed by Slobec
Realty & Development, Inc., Mauricia Castillo Meer,
21 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Buenaflor Castillo, Bertilla Castillo, Victoria Castillo, Marietta
Castillo and Leovina Castillo, as mortgagors in favor of ICP
which document was executed and ratified before notary
public Alberto R. Navoa of the City of Manila on October
24,1970;
k) That the property mortgaged consisted of four (4) parcels
of land situated in Lucena City and covered by TCT Nos. T-
13114, T13115,
T-13116 and T-13117 of the Register of Deeds of Lucena
City;
l) That the tractor sold by defendant Bormaheco, Inc. to
Slobec Realty & Development, Inc. was delivered to
Bormaheco, Inc. on or about October 2,1973, by Mr.
Menandro Umali for purposes of repair;
m) That in August 1976, PM Parts notified Mrs. Mauricia
Meer about its ownership and the assignment of Mr.
Petronilo Roque as caretaker of the subject property;
n) That plaintiff and other heirs are harvest fruits of the
property (daranghita) which is worth no less than Pl,000.00
per harvest.
As between plaintiffs and
defendant Bormaheco, Inc
o) That on 25 November 1970, at Makati, Rizal, Same
Rivera, in representation of the Slobec Realty &
Development Corporation executed in favor of Bormaheco,
Inc., represented by its Vice-President Modesto N.
Cervantes a Chattel Mortgage concerning one unit model
CAT D7 Caterpillar Crawler Tractor as described therein as
security for the payment in favor of the mortgagee of the
amount of P180,000.00 (per Exhibit K) that Id document was
superseded by another chattel mortgage dated January 23,
1971 (Exhibit 15);
p) On 18 December 1970, at Makati, Rizal, the Bormaheco,
Inc., represented by its Vice-President Modesto Cervantes
and Slobec Realty Corporation represented by Santiago
Rivera executed the sales agreement concerning the sale of
 one (1) unit Model CAT D7 Caterpillar Crawler Tractor as
described therein for the amount of P230,000.00 (per Exhibit
J) which document was superseded by the Sales Agreement
dated January 23,1971 (Exhibit 16);
q) Although it appears on the document entitled Chattel
Mortgage (per Exhibit K) that it was executed on 25
November 1970, and in the document entitled Sales
Agreement (per Exhibit J) that it was executed on 18
December 1970, it appears in the notarial register of the
notary public who notarized them that those two documents
were executed on 11 December 1970. The certified xerox
copy of the notarial register of Notary Public Guillermo
Aragones issued by the Bureau of Records Management is
hereto submitted as Exhibit BB That said chattel mortgage
was superseded by another document dated January 23,
1971;
r) That on 23 January 1971, Slobec Realty Development
Corporation, represented by Santiago Rivera, received from
Bormaheco, Inc. one (1) tractor Caterpillar Model D-7
pursuant to Invoice No. 33234 (Exhibits 9 and 9-A,
Bormaheco, Inc.) and delivery receipt No. 10368 (per
Exhibits 10 and 10-A for Bormaheco, Inc
s) That on 28 September 1973, Atty. Martin M. de Guzman,
as counsel of Insurance Corporation of the Philippines
purchased at public auction for said corporation the four (4)
parcels of land subject of tills case (per Exhibit L), and which
document was presented to the Register of Deeds on 1
October 1973;
t) Although it appears that the realties in issue has (sic) been
sold by Insurance Corporation of the Philippines in favor of
PM Parts on 1 0 April 1975, Modesto N. Cervantes, formerly
Vice- President and now President of Bormaheco, Inc., sent
his letter dated 9 August 1976 to Mauricia Meer Vda. de
Castillo (Exhibit V), demanding that she and her children
should vacate the premises;
u) That the Caterpillar Crawler Tractor Model CAT D-7 which
was received by Slobec Realty Development Corporation
was actually reconditioned and repainted. " 2
22 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
We cull the following antecedents from the decision of respondent Court of Appeals:
Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de
Castillo. The Castillo family are the owners of a parcel of land located in
Lucena City which was given as security for a loan from the Development
Bank of the Philippines. For their failure to pay the amortization, foreclosure
of the said property was about to be initiated. This problem was made known
to Santiago Rivera, who proposed to them the conversion into subdivision of
the four (4) parcels of land adjacent to the mortgaged property to raise the
necessary fund. The Idea was accepted by the Castillo family and to carry
out the project, a Memorandum of Agreement (Exh. U p. 127, Record) was
executed by and between Slobec Realty and Development, Inc., represented
by its President Santiago Rivera and the Castillo family. In this agreement,
Santiago Rivera obliged himself to pay the Castillo family the sum of
P70,000.00 immediately after the execution of the agreement and to pay the
additional amount of P400,000.00 after the property has been converted into
a subdivision. Rivera, armed with the agreement, Exhibit U , approached Mr.
Modesto Cervantes, President of defendant Bormaheco, and proposed to
purchase from Bormaheco two (2) tractors Model D-7 and D-8 Subsequently,
a Sales Agreement was executed on December 28,1970 (Exh. J, p. 22,
Record).
On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development,
Inc., represented by its President, Santiago Rivera, executed a Sales
Agreement over one unit of Caterpillar Tractor D-7 with Serial No. 281114, as
evidenced by the contract marked Exhibit '16'. As shown by the contract, the
price was P230,000.00 of which P50,000.00 was to constitute a down
payment, and the balance of P180,000.00 payable in eighteen monthly
installments. On the same date, Slobec, through Rivera, executed in favor of
Bormaheco a Chattel Mortgage (Exh. K, p. 29, Record) over the said
equipment as security for the payment of the aforesaid balance of
P180,000.00. As further security of the aforementioned unpaid balance,
Slobec obtained from Insurance Corporation of the Phil. a Surety Bond, with
ICP (Insurance Corporation of the Phil.) as surety and Slobec as principal, in
favor of Bormaheco, as borne out by Exhibit '8' (p. 111, Record). The
aforesaid surety bond was in turn secured by an Agreement of Counter-
Guaranty with Real Estate Mortgage (Exhibit I, p. 24, Record) executed by
Rivera as president of Slobec and Mauricia Meer Vda. de Castillo, Buenaflor
Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and
Leovina Castillo Jalbuena, as mortgagors and Insurance Corporation of the
Philippines (ICP) as mortgagee. In this agreement, ICP guaranteed the
obligation of Slobec with Bormaheco in the amount of P180,000.00. In giving
the bond, ICP required that the Castillos mortgage to them the properties in
question, namely, four parcels of land covered by TCTs in the name of the
aforementioned mortgagors, namely TCT Nos. 13114, 13115, 13116 and
13117 all of the Register of Deeds for Lucena City.
On the occasion of the execution on January 23, 1971, of the Sales
Agreement Exhibit '16', Slobec, represented by Rivera received from
Bormaheco the subject matter of the said Sales Agreement, namely, the
aforementioned tractor Caterpillar Model D-7 as evidenced by Invoice No.
33234 (Exhs. 9 and 9-A, p. 112, Record) and Delivery Receipt No. 10368
(Exhs. 10 and 10-A, p. 113). This tractor was known by Rivera to be a
reconditioned and repainted one [Stipulation of Facts, Pre-trial Order, par.
(u)].
Meanwhile, for violation of the terms and conditions of the Counter-Guaranty
Agreement (Exh. 1), the properties of the Castillos were foreclosed by ICP
As the highest bidder with a bid of P285,212.00, a Certificate of Sale was
issued by the Provincial Sheriff of Lucena City and Transfer Certificates of
Title over the subject parcels of land were issued by the Register of Deeds of
Lucena City in favor of ICP namely, TCT Nos. T-23705, T 23706, T-23707
and T-23708 (Exhs. M to P, pp. 38-45). The mortgagors had one (1) year
from the date of the registration of the certificate of sale, that is, until October
1, 1974, to redeem the property, but they failed to do so. Consequently, ICP
consolidated its ownership over the subject parcels of land through the
requisite affidavit of consolidation of ownership dated October 29, 1974, as
shown in Exh. '22'(p. 138, Rec.). Pursuant thereto, a Deed of Sale of Real
Estate covering the subject properties was issued in favor of ICP (Exh. 23, p.
139, Rec.).
On April 10, 1975, Insurance Corporation of the Phil. ICP sold to Phil.
Machinery Parts Manufacturing Co. (PM Parts) the four (4) parcels of land
and by virtue of said conveyance, PM Parts transferred unto itself the titles
over the lots in dispute so that said parcels of land are now covered by TCT
Nos. T-24846, T-24847, T-24848 and T-24849 (Exhs. Q-T, pp. 46-49, Rec.).
Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a
letter dated August 9,1976 addressed to plaintiff Mrs. Mauricia Meer Castillo
requesting her and her children to vacate the subject property, who (Mrs.
Castillo) in turn sent her reply expressing her refusal to comply with his
demands.
On September 29, 1976, the heirs of the late Felipe Castillo, particularly
plaintiff Buenaflor M. Castillo Umali as the appointed administratrix of the
properties in question filed an action for annulment of title before the then
Court of First Instance of Quezon and docketed thereat as Civil Case No.
23 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
8085. Thereafter, they filed an Amended Complaint on January 10, 1980 (p.
444, Record). On July 20, 1983, plaintiffs filed their Second Amended
Complaint, impleading Santiago M. Rivera as a party plaintiff (p. 706,
Record). They contended that all the aforementioned transactions starting
with the Agreement of Counter-Guaranty with Real Estate Mortgage (Exh. I),
Certificate of Sale (Exh. L) and the Deeds of Authority to Sell, Sale and the
Affidavit of Consolidation of Ownership (Annexes F, G, H, I) as well as the
Deed of Sale (Annexes J, K, L and M) are void for being entered into in fraud
and without the consent and approval of the Court of First Instance of
Quezon, (Branch IX) before whom the administration proceedings has been
pending. Plaintiffs pray that the four (4) parcels of land subject hereof be
declared as owned by the estate of the late Felipe Castillo and that all
Transfer Certificates of Title Nos. 13114,13115,13116,13117, 23705, 23706,
23707, 23708, 24846, 24847, 24848 and 24849 as well as those appearing
as encumbrances at the back of the certificates of title mentioned be
declared as a nullity and defendants to pay damages and attorney's fees (pp.
71071 1, Record).
In their amended answer, the defendants controverted the complaint and
alleged, by way of affirmative and special defenses that the complaint did not
state facts sufficient to state a cause of action against defendants; that
plaintiffs are not entitled to the reliefs demanded; that plaintiffs are estopped
or precluded from asserting the matters set forth in the Complaint; that
plaintiffs are guilty of laches in not asserting their alleged right in due time;
that defendant PM Parts is an innocent purchaser for value and relied on the
face of the title before it bought the subject property (p. 744, Record). 3
After trial, the court a quo rendered judgment, with the following decretal
portion:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against the defendants, declaring the following documents:
Agreement of Counter-Guaranty with Chattel-Real Estate
Mortgage dated October 24,1970 (Exhibit 1);
Sales Agreement dated December 28, 1970 (Exhibit J)
Chattel Mortgage dated November 25, 1970 (Exhibit K)
Sales Agreement dated January 23, 1971 (Exhibit 16);
 Chattel Mortgage dated January 23, 1971 (Exhibit 17);
Certificate of Sale dated September 28, 1973 executed by
the Provincial Sheriff of Quezon in favor of Insurance
Corporation of the Philippines (Exhibit L);
null and void for being fictitious, spurious and without consideration.
Consequently, Transfer Certificates of Title Nos. T 23705, T-23706, T23707
and T-23708 (Exhibits M, N, O and P) issued in the name of Insurance
Corporation of the Philippines, are likewise null and void.
The sale by Insurance Corporation of the- Philippines in favor of defendant
Philippine Machinery Parts Manufacturing Co., Inc., over Id four (4) parcels of
land and Transfer Certificates of Title Nos. T 24846, T-24847, T-24848 and
T-24849 subsequently issued by virtue of said sale in the name of Philippine
Machinery Parts Manufacturing Co., Inc., are similarly declared null and void,
and the Register of Deeds of Lucena City is hereby directed to issue, in lieu
thereof, transfer certificates of title in the names of the plaintiffs, except
Santiago Rivera.
Orders the defendants jointly and severally to pay the plaintiffs moral
damages in the sum of P10,000.00, exemplary damages in the amount of
P5,000.00, and actual litigation expenses in the sum of P6,500.00.
Defendants are likewise ordered to pay the plaintiffs, jointly and severally, the
sum of P10,000.00 for and as attomey's fees. With costs against the
defendants.
SO ORDERED. 4
As earlier stated, respondent court reversed the aforequoted decision of the trial court and
rendered the judgment subject of this petition-
Petitioners contend that respondent Court of Appeals erred:
1. In holding and finding that the actions entered into between petitioner
Rivera with Cervantes are all fair and regular and therefore binding between
the parties thereto;
2. In reversing the decision of the lower court, not only based on erroneous
conclusions of facts, erroneous presumptions not supported by the evidence
on record but also, holding valid and binding the supposed payment by ICP
24 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
of its obligation to Bormaheco, despite the fact that the surety bond issued it
had already expired when it opted to foreclose extrajudically the mortgage
executed by the petitioners;
3. In aside the finding of the lower court that there was necessity to pierce
the veil of corporate existence; and
5
4. In reversing the decision of the lower court of affirming the same
I. Petitioners aver that the transactions entered into between Santiago M. Rivera, as
President of Slobec Realty and Development Company (Slobec) and Mode Cervantes, as
Vice-President of Bormaheco, such as the Sales Agreement, 6 Chattel Mortgage 7 and the
Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage, 8are all fraudulent and
simulated and should, therefore, be declared nun and void. Such allegation is premised
primarily on the fact that contrary to the stipulations agreed upon in the Sales Agreement
(Exhibit J), Rivera never made any advance payment, in the alleged amount of P50,000.00,
to Bormaheco; that the tractor was received by Rivera only on January 23, 1971 and not in
1970 as stated in the Chattel Mortgage (Exhibit K); and that when the Agreement of Counter-
Guaranty with Chattel/Real Estate Mortgage was executed on October 24, 1970, to secure
the obligation of ICP under its surety bond, the Sales Agreement and Chattel Mortgage had
not as yet been executed, aside from the fact that it was Bormaheco, and not Rivera, which
paid the premium for the surety bond issued by ICP
At the outset, it will be noted that petitioners submission under the first assigned error hinges
purely on questions of fact. Respondent Court of Appeals made several findings to the effect
that the questioned documents are valid and binding upon the parties, that there was no fraud
employed by private respondents in the execution thereof, and that, contrary to petitioners'
allegation, the evidence on record reveals that petitioners had every intention to be bound by
their undertakings in the various transactions had with private respondents. It is a general rule
in this jurisdiction that findings of fact of said appellate court are final and conclusive and,
thus, binding on this Court in the absence of sufficient and convincing proof, inter alia, that
the former acted with grave abuse of discretion. Under the circumstances, we find no
compelling reason to deviate from this long-standing jurisprudential pronouncement.
In addition, the alleged failure of Rivera to pay the consideration agreed upon in the Sales
Agreement, which clearly constitutes a breach of the contract, cannot be availed of by the
guilty party to justify and support an action for the declaration of nullity of the contract. Equity
and fair play dictates that one who commits a breach of his contract may not seek refuge
under the protective mantle of the law.
The evidence of record, on an overall calibration, does not convince us of the validity of
petitioners' contention that the contracts entered into by the parties are either absolutely
simulated or downright fraudulent.
There is absolute simulation, which renders the contract null and void, when the parties do
not intend to be bound at all by the same. 9 The basic characteristic of this type of simulation
of contract is the fact that the apparent contract is not really desired or intended to either
produce legal effects or in any way alter the juridical situation of the parties. The subsequent
act of Rivera in receiving and making use of the tractor subject matter of the Sales
Agreement and Chattel Mortgage, and the simultaneous issuance of a surety bond in favor of
Bormaheco, concomitant with the execution of the Agreement of Counter-Guaranty with
Chattel/Real Estate Mortgage, conduce to the conclusion that petitioners had every intention
to be bound by these contracts. The occurrence of these series of transactions between
petitioners and private respondents is a strong indication that the parties actually intended, or
at least expected, to exact fulfillment of their respective obligations from one another.
Neither will an allegation of fraud prosper in this case where petitioners failed to show that
they were induced to enter into a contract through the insidious words and machinations of
private respondents without which the former would not have executed such contract. To set
aside a document solemnly executed and voluntarily delivered, the proof of fraud must be
clear and convincing. 10 We are not persuaded that such quantum of proof exists in the case
at bar.
The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP
does not per se affect the validity of the bond. Petitioners themselves admit in their present
petition that Rivera executed a Deed of Sale with Right of Repurchase of his car in favor of
Bormaheco and agreed that a part of the proceeds thereof shall be used to pay the premium
for the bond. 11 In effect, Bormaheco accepted the payment of the premium as an agent of
ICP The execution of the deed of sale with a right of repurchase in favor of Bormaheco under
such circumstances sufficiently establishes the fact that Rivera recognized Bormaheco as an
agent of ICP Such payment to the agent of ICP is, therefore, binding on Rivera. He is now
estopped from questioning the validity of the suretyship contract.
II. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore
exist, the legal fiction that a corporation is an entity with a juridical personality separate and
distinct from its members or stockholders may be disregarded. In such cases, the corporation
will be considered as a mere association of persons. The members or stockholders of the
corporation will be considered as the corporation, that is, liability will attach directly to the
officers and stockholders. 12 The doctrine applies when the corporate fiction is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, 13 or when it is made as a
shield to confuse the legitimate issues 14 or where a corporation is the mere alter ego or
business conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation. 15
In the case at bar, petitioners seek to pierce the V621 Of corporate entity of Bormaheco, ICP
and PM Parts, alleging that these corporations employed fraud in causing the foreclosure and
25 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
subsequent sale of the real properties belonging to petitioners While we do not discount the
possibility of the existence of fraud in the foreclosure proceeding, neither are we inclined to
apply the doctrine invoked by petitioners in granting the relief sought. It is our considered
opinion that piercing the veil of corporate entity is not the proper remedy in order that the
foreclosure proceeding may be declared a nullity under the circumstances obtaining in the
legal case at bar.
In the first place, the legal corporate entity is disregarded only if it is sought to hold the
officers and stockholders directly liable for a corporate debt or obligation. In the instant case,
petitioners do not seek to impose a claim against the individual members of the three
corporations involved; on the contrary, it is these corporations which desire to enforce an
alleged right against petitioners. Assuming that petitioners were indeed defrauded by private
respondents in the foreclosure of the mortgaged properties, this fact alone is not, under the
circumstances, sufficient to justify the piercing of the corporate fiction, since petitioners do not
intend to hold the officers and/or members of respondent corporations personally liable
therefor. Petitioners are merely seeking the declaration of the nullity of the foreclosure sale,
which relief may be obtained without having to disregard the aforesaid corporate fiction
attaching to respondent corporations. Secondly, petitioners failed to establish by clear and
convincing evidence that private respondents were purposely formed and operated, and
thereafter transacted with petitioners, with the sole intention of defrauding the latter.
The mere fact, therefore, that the businesses of two or more corporations are interrelated is
not a justification for disregarding their separate personalities, 16 absent sufficient showing
that the corporate entity was purposely used as a shield to defraud creditors and third
persons of their rights.
III. The main issue for resolution is whether there was a valid foreclosure of the mortgaged
properties by ICP Petitioners argue that the foreclosure proceedings should be declared null
and void for two reasons, viz.: (1) no written notice was furnished by Bormaheco to ICP anent
the failure of Slobec in paying its obligation with the former, plus the fact that no receipt was
presented to show the amount allegedly paid by ICP to Bormaheco; and (b) at the time of the
foreclosure of the mortgage, the liability of ICP under the surety bond had already expired.
Respondent court, in finding for the validity of the foreclosure sale, declared:
Now to the question of whether or not the foreclosure by the ICP of the real
estate mortgage was in the exercise of a legal right, We agree with the
appellants that the foreclosure proceedings instituted by the ICP was in the
exercise of a legal right. First, ICP has in its favor the legal presumption that
it had indemnified Bormaheco by reason of Slobec's default in the payment
of its obligation under the Sales Agreement, especially because Bormaheco
consented to ICPs foreclosure of the mortgage. This presumption is in
consonance with pars. R and Q Section 5, Rule 5, * New Rules of Court
 which provides that it is disputably presumed that private transactions have
been fair and regular. likewise, it is disputably presumed that the ordinary
course of business has been followed: Second, ICP had the right to proceed
at once to the foreclosure of the mortgage as mandated by the provisions of
Art. 2071 Civil Code for these further reasons: Slobec, the principal debtor,
was admittedly insolvent; Slobec's obligation becomes demandable by
reason of the expiration of the period of payment; and its authorization to
foreclose the mortgage upon Slobec's default, which resulted in the accrual
of ICPS liability to Bormaheco. Third, the Agreement of Counter-Guaranty
with Real Estate Mortgage (Exh. 1) expressly grants to ICP the right to
foreclose the real estate mortgage in the event of 'non-payment or non-
liquidation of the entire indebtedness or fraction thereof upon maturity as
stipulated in the contract'. This is a valid and binding stipulation in the
absence of showing that it is contrary to law, morals, good customs, public
order or public policy. (Art. 1306, New Civil Code). 17
1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP
which would have entitled Bormaheco to demand payment from ICP under the suretyship
contract.
Surety Bond No. B-1401 0 which was issued by ICP in favor of Bormaheco, wherein ICP and
Slobec undertook to guarantee the payment of the balance of P180,000.00 payable in
eighteen (18) monthly installments on one unit of Model CAT D-7 Caterpillar Crawler Tractor,
pertinently provides in part as follows:
1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES,
under this BOND will expire Twelve (I 2) months from date hereof.
Furthermore, it is hereby agreed and understood that the INSURANCE
CORPORATION OF THE PHILIPPINES will not be liable for any claim not
presented in writing to the Corporation within THIRTY (30) DAYS from the
expiration of this BOND, and that the obligee hereby waives his right to bring
claim or file any action against Surety and after the termination of one (1)
year from the time his cause of action accrues. 18
The surety bond was dated October 24, 1970. However, an annotation on the upper
part thereof states: "NOTE: EFFECTIVITY DATE OF THIS BOND SHALL BE ON
JANUARY 22, 1971." 19
On the other hand, the Sales Agreement dated January 23, 1971 provides that the balance of
P180,000.00 shall be payable in eighteen (18) monthly installments. 20 The Promissory Note
executed by Slobec on even date in favor of Bormaheco further provides that the obligation
shall be payable on or before February 23, 1971 up to July 23, 1972, and that non-payment
26 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
of any of the installments when due shall make the entire obligation immediately due and
demandable. 21
It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the
obligation expressly assumed therein. We have repeatedly held that the extent of a surety's
liability is determined only by the clause of the contract of suretyship as well as the conditions
stated in the bond. It cannot be extended by implication beyond the terms the contract. 22
Fundamental likewise is the rule that, except where required by the provisions of the contract,
a demand or notice of default is not required to fix the surety's liability. 23 Hence, where the
contract of suretyship stipulates that notice of the principal's default be given to the surety,
generally the failure to comply with the condition will prevent recovery from the surety. There
are certain instances, however, when failure to comply with the condition will not extinguish
the surety's liability, such as a failure to give notice of slight defaults, which are waived by the
obligee; or on mere suspicion of possible default; or where, if a default exists, there is excuse
or provision in the suretyship contract exempting the surety for liability therefor, or where the
surety already has knowledge or is chargeable with knowledge of the default. 24
In the case at bar, the suretyship contract expressly provides that ICP shag not be liable for
any claim not filed in writing within thirty (30) days from the expiration of the bond. In its
decision dated May 25 1987, the court a quocategorically stated that '(n)o evidence was
presented to show that Bormaheco demanded payment from ICP nor was there any action
taken by Bormaheco on the bond posted by ICP to guarantee the payment of plaintiffs
obligation. There is nothing in the records of the proceedings to show that ICP indemnified
Bormaheco for the failure of the plaintiffs to pay their obligation. " 25 The failure, therefore, of
Bormaheco to notify ICP in writing about Slobec's supposed default released ICP from liability
under its surety bond. Consequently, ICP could not validly foreclose that real estate mortgage
executed by petitioners in its favor since it never incurred any liability under the surety bond.
It cannot claim exemption from the required written notice since its case does not fall under
any of the exceptions hereinbefore enumerated.
Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any
documentary evidence. Section 1, Rule 131 of the Rules of Court provides that the burden of
evidence lies with the party who asserts an affirmative allegation. Since ICP failed to duly
prove the fact of payment, the disputable presumption that private transactions have been fair
and regular, as erroneously relied upon by respondent Court of Appeals, finds no application
to the case at bar.
2. The liability of a surety is measured by the terms of his contract, and, while he is liable to
the full extent thereof, such liability is strictly limited to that assumed by its terms. 26 While
ordinarily the termination of a surety's liability is governed by the provisions of the contract of
suretyship, where the obligation of a surety is, under the terms of the bond, to terminate at a
specified time, his obligation cannot be enlarged by an unauthorized extension thereof. 27 This
is an exception to the general rule that the obligation of the surety continues for the same
period as that of the principal debtor. 28
It is possible that the period of suretyship may be shorter than that of the principal obligation,
as where the principal debtor is required to make payment by installments. 29 In the case at
bar, the surety bond issued by ICP was to expire on January 22, 1972, twelve (1 2) months
from its effectivity date, whereas Slobec's installment payment was to end on July 23, 1972.
Therefore, while ICP guaranteed the payment by Slobec of the balance of P180,000.00, such
guaranty was valid only for and within twelve (1 2) months from the date of effectivity of the
surety bond, or until January 22, 1972. Thereafter, from January 23, 1972 up to July 23,
1972, the liability of Slobec became an unsecured obligation. The default of Slobec during
this period cannot be a valid basis for the exercise of the right to foreclose by ICP since its
surety contract had already been terminated. Besides, the liability of ICP was extinguished
when Bormaheco failed to file a written claim against it within thirty (30) days from the
expiration of the surety bond. Consequently, the foreclosure of the mortgage, after the
expiration of the surety bond under which ICP as surety has not incurred any liability, should
be declared null and void.
3. Lastly, it has been held that where The guarantor holds property of the principal as
collateral surety for his personal indemnity, to which he may resort only after payment by
himself, until he has paid something as such guarantor neither he nor the creditor can resort
to such collaterals. 30
The Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage states that it is being
issued for and in consideration of the obligations assumed by the Mortgagee-Surety
Company under the terms and conditions of ICP Bond No. 14010 in behalf of Slobec Realty
Development Corporation and in favor of Bormaheco, Inc. 31 There is no doubt that said
Agreement of Counter-Guaranty is issued for the personal indemnity of ICP Considering that
the fact of payment by ICP has never been established, it follows, pursuant to the doctrine
above adverted to, that ICP cannot foreclose on the subject properties,
parties before the trial court. Hence, the defense of good faith may not be resorted to by
private respondent PM Parts which is charged with knowledge of the true relations existing
between Bormaheco, ICP and herein petitioners. Accordingly, the transfer certificates of title
issued in its name, as well as the certificate of sale, must be declared null and void since they
cannot be considered altogether free of the taint of bad faith.
WHEREFORE, the decision of respondent Court of Appeals is hereby REVERSED and SET
ASIDE, and judgment is hereby rendered declaring the following as null and void: (1)
Certificate of Sale, dated September 28,1973, executed by the Provincial Sheriff of Quezon in
favor of the Insurance Corporation of the Philippines; (2) Transfer Certificates of Title Nos. T-
23705, T-23706, T-23707 and T-23708 issued in the name of the Insurance Corporation of
the Philippines; (3) the sale by Insurance Corporation of the Philippines in favor of Philippine
Machinery Parts Manufacturing Co., Inc. of the four (4) parcels of land covered by the
aforesaid certificates of title; and (4) Transfer Certificates of Title Nos. T-24846, T-24847, T-
24848 and T24849 subsequently issued by virtue of said sale in the name of the latter
corporation.
The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of
Title Nos. T-24846, T-24847, T24848 and T-24849 in the name of Philippine Machinery Parts
Manufacturing Co., Inc. and to issue in lieu thereof the corresponding transfer certificates of
title in the name of herein petitioners, except Santiago Rivera.
The foregoing dispositions are without prejudice to such other and proper legal remedies as
may be available to respondent Bormaheco, Inc. against herein petitioners.

IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it
acquired a valid title over the subject properties. The submission is without merit and the
conclusion is specious

We have stated earlier that the doctrine of piercing the veil of corporate fiction is not
applicable in this case. However, its inapplicability has no bearing on the good faith or bad
faith of private respondent PM Parts. It must be noted that Modesto N. Cervantes served as
Vice-President of Bormaheco and, later, as President of PM Parts. On this fact alone, it 6. G.R. No. L-13203 January 28, 1961
cannot be said that PM Parts had no knowledge of the aforesaid several transactions
executed between Bormaheco and petitioners. In addition, Atty. Martin de Guzman, who is YUTIVO SONS HARDWARE COMPANY, petitioner,
the Executive Vice-President of Bormaheco, was also the legal counsel of ICP and PM Parts. vs.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE, respondents.
These facts were admitted without qualification in the stipulation of facts submitted by the
27 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Sycip, Quisumbing, Salazar & Associates for petitioner.
Office of the Solicitor General for respondents.
GUTIERREZ DAVID, J.:
This is a petition for review of a decision of the Court of Tax Appeals ordering petitioner to pay to respondent
Collector of Internal Revenue the sum of P1,266,176.73 as sales tax deficiency for the third quarter of 1947 to the
fourth quarter of 1950; inclusive, plus 75% surcharge thereon, equivalent to P349,632.54, or a sum total of
P2,215,809.27, plus costs of the suit.
From the stipulation of facts and the evidence adduced by both parties, it appears that petitioner Yutivo Sons
Hardware Co. (hereafter referred to as Yutivo) is a domestic corporation, organized under the laws of the Philippines,
with principal office at 404 Dasmariñas St., Manila. Incorporated in 1916, it was engaged, prior to the last world war,
in the importation and sale of hardware supplies and equipment. After the liberation, it resumed its business and until
June of 1946 bought a number of cars and trucks from General Motors Overseas Corporation (hereafter referred to
as GM for short), an American corporation licensed to do business in the Philippines. As importer, GM paid sales tax
prescribed by sections 184, 185 and 186 of the Tax Code on the basis of its selling price to Yutivo. Said tax being
collected only once on original sales, Yutivo paid no further sales tax on its sales to the public.
On June 13, 1946, the Southern Motors, Inc. (hereafter referred to as SM) was organized to engage in the business
of selling cars, trucks and spare parts. Its original authorized capital stock was P1,000,000 divided into 10,000
shares with a par value of P100 each.
At the time of its incorporation 2,500 shares worth P250,000 appear to have been subscribed into equal proportions
by Yu Khe Thai, Yu Khe Siong, Hu Kho Jin, Yu Eng Poh, and Washington Sycip. The first three named subscribers
are brothers, being sons of Yu Tiong Yee, one of Yutivo's founders. The latter two are respectively sons of Yu Tiong
Sin and Albino Sycip, who are among the founders of Yutivo.
After the incorporation of SM and until the withdrawal of GM from the Philippines in the middle of 1947, the cars and
tracks purchased by Yutivo from GM were sold by Yutivo to SM which, in turn, sold them to the public in the Visayas
and Mindanao.
When GM decided to withdraw from the Philippines in the middle of 1947, the U.S. manufacturer of GM cars and
trucks appointed Yutivo as importer for the Visayas and Mindanao, and Yutivo continued its previous arrangement of
selling exclusively to SM. In the same way that GM used to pay sales taxes based on its sales to Yutivo, the latter,
as importer, paid sales tax prescribed on the basis of its selling price to SM, and since such sales tax, as already
stated, is collected only once on original sales, SM paid no sales tax on its sales to the public.
On November 7, 1950, after several months of investigation by revenue officers started in July, 1948, the Collector of
Internal Revenue made an assessment upon Yutivo and demanded from the latter P1,804,769.85 as deficiency
sales tax plus surcharge covering the period from the third quarter of 1947 to the fourth quarter of 1949; or from July
1, 1947 to December 31, 1949, claiming that the taxable sales were the retail sales by SM to the public and not the
sales at wholesale made by, Yutivo to the latter inasmuch as SM and Yutivo were one and the same corporation, the
former being the subsidiary of the latter.
The assessment was disputed by the petitioner, and a reinvestigation of the case having been made by the agents of
the Bureau of Internal Revenue, the respondent Collector in his letter dated November 15, 1952 countermanded his
demand for sales tax deficiency on the ground that "after several investigations conducted into the matter no
sufficient evidence could be gathered to sustain the assessment of this Office based on the theory that Southern
Motors is a mere instrumentality or subsidiary of Yutivo." The withdrawal was subject, however, to the general power
of review by the now defunct Board of Tax Appeals. The Secretary of Finance to whom the papers relative to the
28 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
case were endorsed, apparently not agreeing with the withdrawal of the assessment, returned them to the
respondent Collector for reinvestigation.
After another investigation, the respondent Collector, in a letter to petitioner dated December 16, 1954, redetermined
that the aforementioned tax assessment was lawfully due the government and in addition assessed deficiency sales
tax due from petitioner for the four quarters of 1950; the respondents' last demand was in the total sum of
P2,215,809.27 detailed as follows:
Deficiency 75% Total Amount
Sales Tax Surcharge Due
Assessment (First) of November 7, 1950
for deficiency sales Tax for the period
from 3rd Qrtr 1947 to 4th Qrtr 1949 P1,031,296.6 P1,804,769.0
inclusive 0 P773,473.45 5
Additional Assessment for period from
1st to 4th Qrtr 1950, inclusive 234,880.13 176,160.09 411,040.22
Total amount demanded per letter of P1,266,176.7 P2,215,809.2
December 16, 1954 3 P949,632.54 7
This second assessment was contested by the petitioner Yutivo before the Court of Tax Appeals, alleging that there
is no valid ground to disregard the corporate personality of SM and to hold that it is an adjunct of petitioner Yutivo;
(2) that assuming the separate personality of SM may be disregarded, the sales tax already paid by Yutivo should
first be deducted from the selling price of SM in computing the sales tax due on each vehicle; and (3) that the
surcharge has been erroneously imposed by respondent. Finding against Yutivo and sustaining the respondent
Collector's theory that there was no legitimate or bona fide purpose in the organization of SM — the apparent
objective of its organization being to evade the payment of taxes — and that it was owned (or the majority of the
stocks thereof are owned) and controlled by Yutivo and is a mere subsidiary, branch, adjunct, conduit,
instrumentality or alter ego of the latter, the Court of Tax Appeals — with Judge Roman Umali not taking part —
disregarded its separate corporate existence and on April 27, 1957, rendered the decision now complained of. Of the
two Judges who signed the decision, one voted for the modification of the computation of the sales tax as
determined by the respondent Collector in his decision so as to give allowance for the reduction of the tax already
paid (resulting in the reduction of the assessment to P820,509.91 exclusive of surcharges), while the other voted for
affirmance. The dispositive part of the decision, however, affirmed the assessment made by the Collector.
Reconsideration of this decision having been denied, Yutivo brought the case to this Court thru the present petition
for review.
It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporation petitions to which it may be connected. However, "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, or in the case of two corporations merge them into one. (Koppel [Phil.],
Inc. vs. Yatco, 77 Phil. 496, citing I Fletcher Cyclopedia of Corporation, Perm Ed., pp. 135 136; United States vs.
Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255 per Sanborn, J.) Another rule is that, when the corporation
is the "mere alter ego or business conduit of a person, it may be disregarded." (Koppel [Phil.], Inc. vs. Yatco, supra.)
After going over the voluminous record of the present case, we are inclined to rule that the Court of Tax Appeals was
not justified in finding that SM was organized for no other purpose than to defraud the Government of its lawful
revenues. In the first place, this corporation was organized in June, 1946 when it could not have caused Yutivo any
tax savings. From that date up to June 30, 1947, or a period of more than one year, GM was the importer of the cars
and trucks sold to Yutivo, which, in turn resold them to SM. During that period, it is not disputed that GM as importer,
was the one solely liable for sales taxes. Neither Yutivo or SM was subject to the sales taxes on their sales of cars
and trucks. The sales tax liability of Yutivo did not arise until July 1, 1947 when it became the importer and simply
continued its practice of selling to SM. The decision, therefore, of the Tax Court that SM was organized purposely as
a tax evasion device runs counter to the fact that there was no tax to evade.
Making the observation from a newspaper clipping (Exh. "T") that "as early as 1945 it was known that GM was
preparing to leave the Philippines and terminate its business of importing vehicles," the court below speculated that
Yutivo anticipated the withdrawal of GM from business in the Philippines in June, 1947. This observation, which was
made only in the resolution on the motion for reconsideration, however, finds no basis in the record. On the other
hand, GM had been an importer of cars in the Philippines even before the war and had but recently resumed its
operation in the Philippines in 1946 under an ambitious plan to expand its operation by establishing an assembly
plant here, so that it could not have been expected to make so drastic a turnabout of not merely abandoning the
assembly plant project but also totally ceasing to do business as an importer. Moreover, the newspaper clipping,
Exh. "T", was published on March 24, 1947, and clipping, merely reported a rumored plan that GM would abandon
the assembly plant project in the Philippines. There was no mention of the cessation of business by GM which must
not be confused with the abandonment of the assembly plant project. Even as respect the assembly plant, the
newspaper clipping was quite explicit in saying that the Acting Manager refused to confirm that rumor as late as
March 24, 1947, almost a year after SM was organized.
At this juncture, it should be stated that the intention to minimize taxes, when used in the context of fraud, must be
proved to exist by clear and convincing evidence amounting to more than mere preponderance, and cannot be
justified by a mere speculation. This is because fraud is never lightly to be presumed. (Vitelli & Sons vs. U.S 250
U.S. 355; Duffin vs. Lucas, 55 F (2d) 786; Budd vs. Commr., 43 F (2d) 509; Maryland Casualty Co. vs. Palmette
Coal Co., 40 F (2d) 374; Schoonfield Bros., Inc. vs. Commr., 38 BTA 943; Charles Heiss vs. Commr 36 BTA 833;
Kerbaugh vs. Commr 74 F (2d) 749; Maddas vs. Commr., 114 F. (2d) 548; Moore vs. Commr., 37 BTA 378; National
City Bank of New York vs. Commr., 98 (2d) 93; Richard vs. Commr., 15 BTA 316; Rea Gane vs. Commr., 19 BTA
518). (See also Balter, Fraud Under Federal Law, pp. 301-302, citing numerous authorities: Arroyo vs. Granada, et
al., 18 Phil. 484.) Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at
the most, create only suspicion. (Haygood Lumber & Mining Co. vs. Commr., 178 F (2d) 769; Dalone vs. Commr.,
100 F (2d) 507).
In the second place, SM was organized and it operated, under circumstance that belied any intention to evade sales
taxes. "Tax evasion" is a term that connotes fraud thru the use of pretenses and forbidden devices to lessen or
defeat taxes. The transactions between Yutivo and SM, however, have always been in the open, embodied in private
and public documents, constantly subject to inspection by the tax authorities. As a matter of fact, after Yutivo
became the importer of GM cars and trucks for Visayas and Mindanao, it merely continued the method of distribution
that it had initiated long before GM withdrew from the Philippines.
On the other hand, if tax saving was the only justification for the organization of SM, such justification certainly
ceased with the passage of Republic Act No. 594 on February 16, 1951, governing payment of advance sales tax by
the importer based on the landed cost of the imported article, increased by mark-ups of 25%, 50%, and 100%,
depending on whether the imported article is taxed under sections 186, 185 and 184, respectively, of the Tax Code.
Under Republic Act No. 594, the amount at which the article is sold is immaterial to the amount of the sales tax. And
yet after the passage of that Act, SM continued to exist up to the present and operates as it did many years past in
the promotion and pursuit of the business purposes for which it was organized.
In the third place, sections 184 to 186 of the said Code provides that the sales tax shall be collected "once only on
every original sale, barter, exchange . . , to be paid by the manufacturer, producer or importer." The use of the word
"original" and the express provision that the tax was collectible "once only" evidently has made the provisions
susceptible of different interpretations. In this connection, it should be stated that a taxpayer has the legal right to
decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law
permits. (U.S. vs. Isham 17 Wall. 496, 506; Gregory vs. Helvering 293 U.S. 465, 469; Commr. vs. Tower, 327 U.S.
280; Lawton vs. Commr 194 F (2d) 380). Any legal means by the taxpayer to reduce taxes are all right Benry vs.
Commr. 25 T. Cl. 78). A man may, therefore, perform an act that he honestly believes to be sufficient to exempt him
from taxes. He does not incur fraud thereby even if the act is thereafter found to be insufficient. Thus in the case
29 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
of Court Holding Co. vs. Commr. 2 T. Cl. 531, it was held that though an incorrect position in law had been taken by
the corporation there was no suppression of the facts, and a fraud penalty was not justified.
The evidence for the Collector, in our opinion, falls short of the standard of clear and convincing proof of fraud. As a
matter of fact, the respondent Collector himself showed a great deal of doubt or hesitancy as to the existence of
fraud. He even doubted the validity of his first assessment dated November 7, 1959. It must be remembered that the
fraud which respondent Collector imputed to Yutivo must be related to its filing of sales tax returns of less taxes than
were legally due. The allegation of fraud, however, cannot be sustained without the showing that Yutivo, in filing said
returns, did so fully knowing that the taxes called for therein called for therein were less than what were legally due.
Considering that respondent Collector himself with the aid of his legal staff, and after some two years of investigation
and duty of investigation and study concluded in 1952 that Yutivo's sales tax returns were correct — only to reverse
himself after another two years — it would seem harsh and unfair for him to say in 1954 that Yutivo fully knew in
October 1947 that its sales tax returns were inaccurate.
On this point, one other consideration would show that the intent to save taxes could not have existed in the minds of
the organizers of SM. The sales tax imposed, in theory and in practice, is passed on to the vendee, and is usually
billed separately as such in the sales invoice. As pointed out by petitioner Yutivo, had not SM handled the retail, the
additional tax that would have been payable by it, could have been easily passed off to the consumer, especially
since the period covered by the assessment was a "seller's market" due to the post-war scarcity up to late 1948, and
the imposition of controls in the late 1949.
It is true that the arrastre charges constitute expenses of Yutivo and its non-inclusion in the selling price by Yutivo
cost the Government P4.00 per vehicle, but said non-inclusion was explained to have been due to an inadvertent
accounting omission, and could hardly be considered as proof of willful channelling and fraudulent evasion of sales
tax. Mere understatement of tax in itself does not prove fraud. (James Nicholson, 32 BTA 377, affirmed 90 F. (2)
978, cited in Merten's Sec. 55.11 p. 21) The amount involved, moreover, is extremely small inducement for Yutivo to
go thru all the trouble of organizing SM. Besides, the non-inclusion of these small arrastre charges in the sales tax
returns of Yutivo is clearly shown in the records of Yutivo, which is uncharacteristic of fraud (See Insular Lumber Co.
vs. Collector, G.R. No. L-719, April 28, 1956.)
We are, however, inclined to agree with the court below that SM was actually owned and controlled by petitioner as
to make it a mere subsidiary or branch of the latter created for the purpose of selling the vehicles at retail and
maintaining stores for spare parts as well as service repair shops. It is not disputed that the petitioner, which is
engaged principally in hardware supplies and equipment, is completely controlled by the Yutivo, Young or Yu family.
The founders of the corporation are closely related to each other either by blood or affinity, and most of its
stockholders are members of the Yu (Yutivo or Young) family. It is, likewise, admitted that SM was organized by the
leading stockholders of Yutivo headed by Yu Khe Thai. At the time of its incorporation 2,500 shares worth
P250,000.00 appear to have been subscribed in five equal proportions by Yu Khe Thai, Yu Khe Siong, Yu Khe Jin,
Yu Eng Poh and Washington Sycip. The first three named subscribers are brothers, being the sons of Yu Tien Yee,
one of Yutivo's founders. Yu Eng Poh and Washington Sycip are respectively sons of Yu Tiong Sing and Alberto
Sycip who are co-founders of Yutivo. According to the Articles of Incorporation of the said subscriptions, the amount
of P62,500 was paid by the aforenamed subscribers, but actually the said sum was advanced by Yutivo. The
additional subscriptions to the capital stock of SM and subsequent transfers thereof were paid by Yutivo itself. The
payments were made, however, without any transfer of funds from Yutivo to SM. Yutivo simply charged the accounts
of the subscribers for the amount allegedly advanced by Yutivo in payment of the shares. Whether a charge was to
be made against the accounts of the subscribers or said subscribers were to subscribe shares appears to constitute
a unilateral act on the part of Yutivo, there being no showing that the former initiated the subscription.
The transactions were made solely by and between SM and Yutivo. In effect, it was Yutivo who undertook the
subscription of shares, employing the persons named or "charged" with corresponding account as nominal
stockholders. Of course, Yu Khe Thai, Yu Khe Jin, Yu Khe Siong and Yu Eng Poh were manifestly aware of these
subscriptions, but considering that they were the principal officers and constituted the majority of the Board of
Directors of both Yutivo and SM, their subscriptions could readily or easily be that of Yutivo's Moreover, these
persons were related to death other as brothers or first cousins. There was every reason for them to agree in order
to protect their common interest in Yutivo and SM.
The issued capital stock of SM was increased by additional subscriptions made by various person's but except Ng
Sam Bak and David Sycip, "payments" thereof were effected by merely debiting 'or charging the accounts of said
stockholders and crediting the corresponding amounts in favor of SM, without actually transferring cash from Yutivo.
Again, in this instance, the "payments" were Yutivo, by effected by the mere unilateral act of Yutivo a accounts of the
virtue of its control over the individual persons charged, would necessarily exercise preferential rights and control
directly or indirectly, over the shares, it being the party which really undertook to pay or underwrite payment thereof.
The shareholders in SM are mere nominal stockholders holding the shares for and in behalf of Yutivo, so even
conceding that the original subscribers were stockholders bona fide Yutivo was at all times in control of the majority
of the stock of SM and that the latter was a mere subsidiary of the former.
Apart from the accounting system, other facts corroborate or independently show that SM is a branch or department
of Yutivo. Even the branches of SM in Bacolod, Iloilo, Cebu, and Davao treat Yutivo — Manila as their "Head Office"
or "Home Office" as shown by their letters of remittances or other correspondences. These correspondences were
actually received by Yutivo and the reference to Yutivo as the head or home office is obvious from the fact that all
cash collections of the SM's branches are remitted directly to Yutivo. Added to this fact, is that SM may freely use
forms or stationery of Yutivo
The fact that SM is a mere department or adjunct of Yutivo is made more patent by the fact that arrastre conveying,
and charges paid for the "operation of receiving, loading or unloading" of imported cars and trucks on piers and
wharves, were charged against SM. Overtime charges for the unloading of cars and trucks as requested by Yutivo
and incurred as part of its acquisition cost thereof, were likewise charged against and treated as expenses of SM. If
Yutivo were the importer, these arrastre and overtime charges were Yutivo's expenses in importing goods and not
SM's. But since those charges were made against SM, it plainly appears that Yutivo had sole authority to allocate its
expenses even as against SM in the sense that the latter is a mere adjunct, branch or department of the former.

True, petitioner and other recorded stockholders transferred their shareholdings, but the transfers were made to their
Proceeding to another aspect of the relation of the parties, the management fees due from SM to Yutivo were taken
immediate relatives, either to their respective spouses and children or sometimes brothers or sisters. Yutivo's shares
up as expenses of SM and credited to the account of Yutivo. If it were to be assumed that the two organizations are
in SM were transferred to immediate relatives of persons who constituted its controlling stockholders, directors and
separate juridical entities, the corresponding receipts or receivables should have been treated as income on the part
officers. Despite these purported changes in stock ownership in both corporations, the Board of Directors and
of Yutivo. But such management fees were recorded as "Reserve for Bonus" and were therefore a liability reserve
officers of both corporations remained unchanged and Messrs. Yu Khe Thai, Yu Khe Siong Hu Khe Jin and Yu Eng
and not an income account. This reserve for bonus were subsequently distributed directly to and credited in favor of
Poll (all of the Yu or Young family) continued to constitute the majority in both boards. All these, as observed by the
the employees and directors of Yutivo, thereby clearly showing that the management fees were paid directly to
Court of Tax Appeals, merely serve to corroborate the fact that there was a common ownership and interest in the
Yutivo officers and employees.
two corporations.

Briefly stated, Yutivo financed principally, if not wholly, the business of SM and actually extended all the credit to the
SM is under the management and control of Yutivo by virtue of a management contract entered into between the two
latter not only in the form of starting capital but also in the form of credits extended for the cars and vehicles allegedly
parties. In fact, the controlling majority of the Board of Directors of Yutivo is also the controlling majority of the Board
sold by Yutivo to SM as well as advances or loans for the expenses of the latter when the capital had been
of Directors of SM. At the same time the principal officers of both corporations are identical. In addition both
exhausted. Thus, the increases in the capital stock were made in advances or "Guarantee" payments by Yutivo and
corporations have a common comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivo's president,
credited in favor of SM. The funds of SM were all merged in the cash fund of Yutivo. At all times Yutivo thru officers
Yu Khe Thai. There is therefore no doubt that by virtue of such control, the business, financial and management
and directors common to it and SM, exercised full control over the cash funds, policies, expenditures and obligations
policies of both corporations could be directed towards common ends.
of the latter.

Another aspect relative to Yutivo's control over SM operations relates to its cash transactions. All cash assets of SM
were handled by Yutivo and all cash transactions of SM were actually maintained thru Yutivo. Any and all receipts of
cash by SM including its branches were transmitted or transferred immediately and directly to Yutivo in Manila upon
receipt thereof. Likewise, all expenses, purchases or other obligations incurred by SM are referred to Yutivo which in
turn prepares the corresponding disbursement vouchers and payments in relation there, the payment being made
out of the cash deposits of SM with Yutivo, if any, or in the absence thereof which occurs generally, a corresponding
charge is made against the account of SM in Yutivo's books. The payments for and charges against SM are made by
Yutivo as a matter of course and without need of any further request, the latter would advance all such cash
requirements for the benefit of SM. Any and all payments and cash vouchers are made on Yutivo stationery and
made under authority of Yutivo's corporate officers, without any copy thereof being furnished to SM. All detailed
records such as cash disbursements, such as expenses, purchases, etc. for the account of SM, are kept by Yutivo
and SM merely keeps a summary record thereof on the basis of information received from Yutivo.
All the above plainly show that cash or funds of SM, including those of its branches which are directly remitted to
Yutivo, are placed in the custody and control of Yutivo, resources and subject to withdrawal only by Yutivo. SM's
being under Yutivo's control, the former's operations and existence became dependent upon the latter.
Consideration of various other circumstances, especially when taken together, indicates that Yutivo treated SM
merely as its department or adjunct. For one thing, the accounting system maintained by Yutivo shows that it
maintained a high degree of control over SM accounts. All transactions between Yutivo and SM are recorded and
effected by mere debit or credit entries against the reciprocal account maintained in their respective books of
accounts and indicate the dependency of SM as branch upon Yutivo.
30 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Southern Motors being but a mere instrumentality, or adjunct of Yutivo, the Court of Tax Appeals correctly
disregarded the technical defense of separate corporate entity in order to arrive at the true tax liability of Yutivo.
Petitioner contends that the respondent Collector had lost his right or authority to issue the disputed assessment by
reason of prescription. The contention, in our opinion, cannot be sustained. It will be noted that the first assessment
was made on November 7, 1950 for deficiency sales tax from 1947 to 1949. The corresponding returns filed by
petitioner covering the said period was made at the earliest on October 1, as regards the third quarter of 1947, so
that it cannot be claimed that the assessment was not made within the five-year period prescribed in section 331 of
the Tax Code invoked by petitioner. The assessment, it is admitted, was withdrawn by the Collector on insufficiency
of evidence, but November 15, 1952 due to insufficiency of evidence, but the withdrawal was made subject to the
approval of the Secretary of Finance and the Board of Tax Appeals, pursuant to the provisions of section 9 of
Executive Order No. 401-A, series of 1951. The decision of the previous assessment of November 7, Collector
countermanding the as 1950 was forwarded to the Board of Tax Appeals through the Secretary of Finance but that
official, apparently disagreeing with the decision, sent it back for re-investigation. Consequently, the assessment of
November 7, 1950 cannot be considered to have been finally withdrawn. That the assessment was subsequently
reiterated in the decision of respondent Collector on December 16, 1954 did not alter the fact that it was made
seasonably. In this connection, it would appear that a warrant of distraint and levy had been issued on March 28,
1951 in relation with this case and by virtue thereof the properties of Yutivo were placed under constructive distraint.
Said warrant and constructive distraint have not been lifted up to the present, which shows that the assessment of
November 7, 1950 has always been valid and subsisting.
Anent the deficiency sale tax for 1950, considering that the assessment thereof was made on December 16, 1954,
the same was assessed well within the prescribed five-year period.
Petitioner argues that the original assessment of November 7, 1950 did not extend the prescriptive period on
assessment. The argument is untenable, for, as already seen, the assessment was never finally withdrawn, since it
was not approved by the Secretary of Finance or of the Board of Tax Appeals. The authority of the Secretary to act
upon the assessment cannot be questioned, for he is expressly granted such authority under section 9 of Executive
Order No. 401-And under section 79 (c) of the Revised Administrative Code, he has "direct control, direction and
supervision over all bureaus and offices under his jurisdiction and may, any provision of existing law to the contrary
not withstanding, repeal or modify the decision of the chief of said Bureaus or offices when advisable in public
interest."
It should here also be stated that the assessment in question was consistently protested by petitioner, making
several requests for reinvestigation thereof. Under the circumstances, petitioner may be considered to have waived
the defense of prescription.
"Estoppel has been employed to prevent the application of the statute of limitations against the
government in certain instances in which the taxpayer has taken some affirmative action to prevent the
collection of the tax within the statutory period. It is generally held that a taxpayer is estopped to repudiate
waivers of the statute of limitations upon which the government relied. The cases frequently involve
dissolved corporations. If no waiver has been given, the cases usually show come conduct directed to a
postponement of collection, such, for example, as some variety of request to apply an overassessment.
The taxpayer has 'benefited' and 'is not in a position to contest' his tax liability. A definite representation of
implied authority may be involved, and in many cases the taxpayer has received the 'benefit' of being
saved from the inconvenience, if not hardship of immediate collection. "
Conceivably even in these cases a fully informed Commissioner may err to the sorrow of the revenues, but
generally speaking, the cases present a strong combination of equities against the taxpayer, and few will
seriously quarrel with their application of the doctrine of estoppel." (Mertens Law of Federal Income
Taxation, Vol. 10-A, pp. 159-160.)
It is also claimed that section 9 of Executive Order No. 401-A, series of 1951 — es involving an original assessment
of more than P5,000 — refers only to compromises and refunds of taxes, but not to total withdrawal of the
assessment. The contention is without merit. A careful examination of the provisions of both sections 8 and 9 of
Executive Order No. 401-A, series of 1951, reveals the procedure prescribed therein is intended as a check or
control upon the powers of the Collector of Internal Revenue in respect to assessment and refunds of taxes. If it be
conceded that a decision of the Collector of Internal Revenue on partial remission of taxes is subject to review by the
Secretary of Finance and the Board of Tax Appeals, then with more reason should the power of the Collector to
withdraw totally an assessment be subject to such review.
We find merit, however, in petitioner's contention that the Court of Tax Appeals erred in the imposition of the 5%
fraud surcharge. As already shown in the early part of this decision, no element of fraud is present.
Pursuant to Section 183 of the National Internal Revenue Code the 50% surcharge should be added to the
deficiency sales tax "in case a false or fraudulent return is willfully made." Although the sales made by SM are in
substance by Yutivo this does not necessarily establish fraud nor the willful filing of a false or fraudulent return.
The case of Court Holding Co. v. Commissioner of Internal Revenue (August 9, 1943, 2 TC 531, 541-549) is in point.
The petitioner Court Holding Co. was a corporation consisting of only two stockholders, to wit: Minnie Miller and her
husband Louis Miller. The only assets of third husband and wife corporation consisted of an apartment building
which had been acquired for a very low price at a judicial sale. Louis Miller, the husband, who directed the
31 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
company's business, verbally agreed to sell this property to Abe C. Fine and Margaret Fine, husband and wife, for
the sum of $54,000.00, payable in various installments. He received $1,000.00 as down payment. The sale of this
property for the price mentioned would have netted the corporation a handsome profit on which a large corporate
income tax would have to be paid. On the afternoon of February 23, 1940, when the Millers and the Fines got
together for the execution of the document of sale, the Millers announced that their attorney had called their attention
to the large corporate tax which would have to be paid if the sale was made by the corporation itself. So instead of
proceeding with the sale as planned, the Millers approved a resolution to declare a dividend to themselves "payable
in the assets of the corporation, in complete liquidation and surrender of all the outstanding corporate stock." The
building, which as above stated was the only property of the corporation, was then transferred to Mr. and Mrs. Miller
who in turn sold it to Mr. and Mrs. Fine for exactly the same price and under the same terms as had been previously
agreed upon between the corporation and the Fines.
The return filed by the Court Holding Co. with the respondent Commissioner of Internal Revenue reported no taxable
gain as having been received from the sale of its assets. The Millers, of course, reported a long term capital gain on
the exchange of their corporate stock with the corporate property. The Commissioner of Internal Revenue contended
that the liquidating dividend to stockholders had no purpose other than that of tax avoidance and that, therefore, the
sale by the Millers to the Fines of the corporation's property was in substance a sale by the corporation itself, for
which the corporation is subject to the taxable profit thereon. In requiring the corporation to pay the taxable profit on
account of the sale, the Commissioner of Internal Revenue, imposed a surcharge of 25% for delinquency, plus an
additional surcharge as fraud penalties.
The U. S. Court of Tax Appeals held that the sale by the Millers was for no other purpose than to avoid the tax and
was, in substance, a sale by the Court Holding Co., and that, therefore, the said corporation should be liable for the
assessed taxable profit thereon. The Court of Tax Appeals also sustained the Commissioner of Internal Revenue on
the delinquency penalty of 25%. However, the Court of Tax Appeals disapproved the fraud penalties, holding that an
attempt to avoid a tax does not necessarily establish fraud; that it is a settled principle that a taxpayer may diminish
his tax liability by means which the law permits; that if the petitioner, the Court Holding Co., was of the opinion that
the method by which it attempted to effect the sale in question was legally sufficient to avoid the imposition of a tax
upon it, its adoption of that methods not subject to censure; and that in taking a position with respect to a question of
law, the substance of which was disclosed by the statement indorsed on it return, it may not be said that that position
was taken fraudulently. We quote in full the pertinent portion of the decision of the Court of Tax Appeals: .
". . . The respondent's answer alleges that the petitioner's failure to report as income the taxable profit on
the real estate sale was fraudulent and with intent to evade the tax. The petitioner filed a reply denying
fraud and averring that the loss reported on its return was correct to the best of its knowledge and belief.
We think the respondent has not sustained the burden of proving a fraudulent intent. We have concluded
that the sale of the petitioner's property was in substance a sale by the petitioner, and that the liquidating
dividend to stockholders had no purpose other than that of tax avoidance. But the attempt to avoid tax
does not necessarily establish fraud. It is a settled principle that a taxpayer may diminish his liability by any
means which the law permits. United States v. Isham, 17 Wall. 496; Gregory v. Helvering, supra;
Chrisholm v. Commissioner, 79 Fed. (2d) 14. If the petitioner here was of the opinion that the method by
which it attempted to effect the sale in question was legally sufficient to avoid the imposition of tax upon it,
its adoption of that method is not subject to censure. Petitioner took a position with respect to a question of
law, the substance of which was disclosed by the statement endorsed on its return. We can not say, under
the record before us, that that position was taken fraudulently. The determination of the fraud penalties is
reversed."
When GM was the importer and Yutivo, the wholesaler, of the cars and trucks, the sales tax was paid only once and
on the original sales by the former and neither the latter nor SM paid taxes on their subsequent sales. Yutivo might
have, therefore, honestly believed that the payment by it, as importer, of the sales tax was enough as in the case of
GM Consequently, in filing its return on the basis of its sales to SM and not on those by the latter to the public, it
cannot be said that Yutivo deliberately made a false return for the purpose of defrauding the government of its
revenues which will justify the imposition of the surcharge penalty.
We likewise find meritorious the contention that the Tax Court erred in computing the alleged deficiency sales tax on 50% 74,244.30 37,122.16 111,366.46
the selling price of SM without previously deducting therefrom the sales tax due thereon. The sales tax provisions
(sees. 184.186, Tax Code) impose a tax on original sales measured by "gross selling price" or "gross value in 75% 8,000.00 6,000.00 14,000.00
money". These terms, as interpreted by the respondent Collector, do not include the amount of the sales tax, if TOTAL P20,220,413.77 P1,809,205.67 P22,038,619.44
invoiced separately. Thus, General Circular No. 431 of the Bureau of Internal Revenue dated July 29, 1939, which
implements sections 184.186 of the Tax Code provides: " Less Taxes Paid by
Yutivo 988,655.76
. . .'Gross selling price' or gross value in money' of the articles sold, bartered, exchanged, transferred as Deficiency Tax still due P820,549.91
the term is used in the aforecited sections (sections 184, 185 and 186) of the National Internal Revenue
Code, is the total amount of money or its equivalent which the purchaser pays to the vendor to receive or
get the goods. However, if a manufacturer, producer, or importer, in fixing the gross selling price of an This is the exact amount which, according to Presiding Judge Nable of the Court of Tax Appeals, Yutivo would pay,
article sold by him has included an amount intended to cover the sales tax in the gross selling price of the exclusive of the surcharges.
articles, the sales tax shall be based on the gross selling price less the amount intended to cover the tax, if
the same is billed to the purchaser as a separate item.
Petitioner finally contends that the Court of Tax Appeals erred or acted in excess of its jurisdiction in promulgating
judgment for the affirmance of the decision of respondent Collector by less than the statutory requirement of at least
General Circular No. 440 of the same Bureau reads: two votes of its judges. Anent this contention, section 2 of Republic Act No. 1125, creating the Court of Tax Appeals,
provides that "Any two judges of the Court of Tax Appeals shall constitute a quorum, and the concurrence of two
judges shall be necessary to promulgate decision thereof. . . . " It is on record that the present case was heard by
Amount intended to cover the tax must be billed as a separate em so as not to pay a tax on the tax. — On two judges of the lower court. And while Judge Nable expressed his opinion on the issue of whether or not the
sales made after he third quarter of 1939, the amount intended to cover the sales tax must be billed to the amount of the sales tax should be excluded from the gross selling price in computing the deficiency sales tax due
purchaser as separate items in the, invoices in order that the reduction thereof from the gross ailing price from the petitioner, the opinion, apparently, is merely an expression of his general or "private sentiment" on the
may be allowed in the computation of the merchants' percentage tax on the sales. Unless billed to the particular issue, for he concurred the dispositive part of the decision. At any rate, assuming that there is no valid
purchaser as a separate item in the invoice, the amounts intended to cover the sales tax shall be decision for lack of concurrence of two judges, the case was submitted for decision of the court below on March 28,
considered as part of the gross selling price of the articles sold, and deductions thereof will not be allowed, 1957 and under section 13 of Republic Act 1125, cases brought before said court hall be decided within 30 days
(Cited in Dalupan, Nat. Int. Rev. Code, Annotated, Vol. II, pp. 52-53.) after submission thereof. "If no decision is rendered by the Court within thirty days from the date a case is submitted
for decision, the party adversely affected by said ruling, order or decision, may file with said Court a notice of his
Yutivo complied with the above circulars on its sales to SM, and as separately billed, the sales taxes did not form intention to appeal to the Supreme Court, and if no decision has as yet been rendered by the Court, the aggrieved
part of the "gross selling price" as the measure of the tax. Since Yutivo had previously billed the sales tax separately party may file directly with the Supreme Court an appeal from said ruling, order or decision, notwithstanding the
in its sales invoices to SM General Circulars Nos. 431 and 440 should be deemed to have been complied. foregoing provisions of this section." The case having been brought before us on appeal, the question raised by
Respondent Collector's method of computation, as opined by Judge Nable in the decision complained of — petitioner as become purely academic.

. . . is unfair, because . . .(it is) practically imposing tax on a tax already paid. Besides, the adoption of the IN VIEW OF THE FOREGOING, the decision of the Court of Tax Appeals under review is hereby modified in that
procedure would in certain cases elevate the bracket under which the tax is based. The late payment is petitioner shall be ordered to pay to respondent the sum of P820,549.91, plus 25% surcharge thereon for late
already penalized, thru the imposition of surcharges, by adopting the theory of the Collector, we will be payment.
creating an additional penalty not contemplated by law."
So ordered without costs.
If the taxes based on the sales of SM are computed in accordance with Gen. Circulars Nos. 431 and 440 the total
deficiency sales taxes, exclusive of the 25% and 50% surcharges for late payment and for fraud, would amount only
to P820,549.91 as shown in the following computation:

Sales Taxes Due

Gross Sales of Total Gross Selling
Rates of and Computed
Vehicles Exclusive Price Charged to
Sales Tax under Gen. Cir 7. G.R. No. 128066 June 19, 2000
of Sales Tax the Public
Nos. 431 & 400
5% P11,912,219.57 P595,610.98 P12,507,83055 JARDINE DAVIES INC., petitioner,
7% 909,559.50 63,669.16 973,228.66 vs.
10% 2,618,695.28 261,869.53 2,880,564.81 COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

15% 3,602,397.65 540,359.65 4,142,757.30

x - - - - - - - - - - - - - - - - - - - - - - -x
20% 267,150.50 53,430.10 320,580.60
30% 837,146.97 251,114.09 1,088,291.06
G.R. No. 128069
32 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
PURE FOODS CORPORATION, petitioner,
vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.
BELLOSILLO, J.:
This is rather a simple case for specific performance with damages which could have been resolved through
mediation and conciliation during its infancy stage had the parties been earnest in expediting the disposal of this
case. They opted however to resort to full court proceedings and denied themselves the benefits of alternative
dispute resolution, thus making the process more arduous and long-drawn.
The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To
remedy and curtail further losses due to the series of power failures, petitioner PURE FOODS CORPORATION
(hereafter PUREFOODS) decided to install two (2) 1500 KW generators in its food processing plant in San Roque,
Marikina City.
Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several suppliers
and dealers were invited to attend a pre-bidding conference to discuss the conditions, propose scheme and
specifications that would best suit the needs of PUREFOODS. Out of the eight (8) prospective bidders who attended
the pre-bidding conference, only three (3) bidders, namely, respondent FAR EAST MILLS SUPPLY CORPORATION
(hereafter FEMSCO), MONARK and ADVANCE POWER submitted bid proposals and gave bid bonds equivalent to
5% of their respective bids, as required.
Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS
confirmed the award of the contract to FEMSCO —
Gentlemen:
This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and Installation of two (2)
units of 1500 KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on your
proposal number PC 28-92 dated November 20, 1992, subject to the following basic terms and conditions:
1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for the local
portion and the labor for the imported materials, payable by progress billing twice a month, with ten
percent (10%) retention. The retained amount shall be released thirty (30) days after acceptance of the
completed project and upon posting of Guarantee Bond in an amount equivalent to twenty percent (20%)
of the contract price. The Guarantee Bond shall be valid for one (1) year from completion and acceptance
of project. The contract price includes future increase/s in costs of materials and labor;
2. The projects shall be undertaken pursuant to the attached specifications. It is understood that any item
required to complete the project, and those not included in the list of items shall be deemed included and
covered and shall be performed;
3. All materials shall be brand new;
4. The project shall commence immediately and must be completed within twenty (20) working days after
the delivery of Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase price for
every day of delay;
33 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and shall
procure All Risk Insurance equivalent to the contract price upon commencement of the project. The All
Risk Insurance Policy shall be endorsed in favor of and shall be delivered to Pure Foods Corporation;
6. Warranty of one (1) year against defective material and/or workmanship.
Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and conditions.
Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractor's
all-risk insurance policy in the amount of P6,137,293.00 which PUREFOODS through its Vice President Benedicto
G. Tope acknowledged in a letter dated 18 December 1992. FEMSCO also made arrangements with its principal and
started the PUREFOODS project by purchasing the necessary materials. PUREFOODS on the other hand returned
FEMSCO's Bidder's Bond in the amount of P1,000,000.00, as requested.
Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L.
Dimayuga unilaterally canceled the award as "significant factors were uncovered and brought to (their) attention
which dictate (the) cancellation and warrant a total review and re-bid of (the) project." Consequently, FEMSCO
protested the cancellation of the award and sought a meeting with PUREFOODS. However, on 26 March 1993,
before the matter could be resolved, PUREFOODS already awarded the project and entered into a contract with
JARDINE NELL, a division of Jardine Davies, Inc. (hereafter JARDINE), which incidentally was not one of the
bidders.1âwphi1.nêt
FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from
delivering and installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both
PUREFOODS and JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its unwarranted
interference and inducement. Trial ensued. After FEMSCO presented its evidence, JARDINE filed a Demurrer to
Evidence.
On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, 1 granted JARDINE's Demurrer to Evidence. The trial
court concluded that "[w]hile it may seem to the plaintiff that by the actions of the two defendants there is something
underhanded going on, this is all a matter of perception, and unsupported by hard evidence, mere suspicions and
suppositions would not stand up very well in a court of law." 2 Meanwhile trial proceeded as regards the case against
PUREFOODS.
On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of
P2,300,000.00 representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of
US$14,000.00 or its peso equivalent, and P900,000.00 representing contractor's mark-up on installation work,
considering that it would be impossible to compel PUREFOODS to honor, perform and fulfill its contractual
obligations in view of PUREFOOD's contract with JARDINE and noting that construction had already started thereon;
(c) to pay attorney's fees in an amount equivalent to 20% of the total amount due; and, (d) to pay the costs. The trial
court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis.
Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994
Resolution of the trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of
the complaint against it, while PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it
to pay FEMSCO.
On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. 3 It also
reversed the 27 June 1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for
inducing PUREFOODS to violate the latter's contract with FEMSCO. As such, JARDINE was ordered to pay
FEMSCO P2,000,000.00 for moral damages. In addition, PUREFOODS was also directed to pay FEMSCO
P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages as well as 20% of the total amount
due as attorney's fees.
On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by
PUREFOODS and JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which
were subsequently consolidated.
PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a
misapprehension of facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the
latter's bid proposal and award of the project but more of a qualified acceptance constituting a counter-offer which
required FEMSCO's express conforme. Since PUREFOODS never received FEMSCO's conforme, PUREFOODS
was very well within reason to revoke its qualified acceptance or counter-offer. Hence, no contract was perfected
between PUREFOODS and FEMSCO. PUREFOODS also contends that it was never in bad faith when it dealt with
FEMSCO. Hence moral and exemplary damages should not have been awarded.
Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed
contract between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latter's alleged
contract with FEMSCO. Moreover, JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral
damages. But granting arguendo that the award of moral damages is proper, P2,000,000.00 is extremely excessive.
In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract
between PUREFOODS and FEMSCO; and second, granting there existed a perfected contract, whether there is any
showing that JARDINE induced or connived with PUREFOODS to violate the latter's contract with FEMSCO.
A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons bind
themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to
do." 4 There can be no contract unless the following requisites concur: (a) consent of the contracting parties; (b)
object certain which is the subject matter of the contract; and, (c) cause of the obligation which is established. 5A
contract binds both contracting parties and has the force of law between them.
Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From
that moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and law. 6 To produce a
contract, the acceptance must not qualify the terms of the offer. However, the acceptance may be express or
implied. 7 For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the acceptance
can be withdrawn or revoked before it is made known to the offeror.
In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation.
The controversy lies in the consent — whether there was an acceptance of the offer, and if so, if it was
communicated, thereby perfecting the contract.
To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner
PUREFOODS started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code,
which provides that "[a]dvertisements for bidders are simply invitations to make proposals," applies. Accordingly, the
Terms and Conditions of the Bidding disseminated by petitioner PUREFOODS constitutes the "advertisement" to bid
on the project. The bid proposals or quotations submitted by the prospective suppliers including respondent
FEMSCO, are the offers. And, the reply of petitioner PUREFOODS, the acceptance or rejection of the respective
offers.
Quite obviously, the 12 December 1992 letter of petitioner. PUREFOODS to FEMSCO constituted acceptance of
respondent FEMSCO's offer as contemplated by law. The tenor of the letter, i.e., "This will confirm that Pure Foods
34 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
has awarded to your firm (FEMSCO) the project," could not be more categorical. While the same letter enumerated
certain "basic terms and conditions," these conditions were imposed on the performance of the obligation rather than
on the perfection of the contract. Thus, the first "condition" was merely a reiteration of the contract price and billing
scheme based on the Terms and Conditions of Bidding and the bid or previous offer of respondent FEMSCO. The
second and third "conditions" were nothing more than general statements that all items and materials including those
excluded in the list but necessary to complete the project shall be deemed included and should be brand new. The
fourth "condition" concerned the completion of the work to be done, i.e., within twenty (20) days from the delivery of
the generator set, the purchase of which was part of the contract. The fifth "condition" had to do with the putting up of
a performance bond and an all-risk insurance, both of which should be given upon commencement of the project.
The sixth "condition" related to the standard warranty of one (1) year. In fine, the enumerated "basic terms and
conditions" were prescriptions on how the obligation was to be performed and implemented. They were far from
being conditions imposed on the perfection of the contract.
In Babasa v. Court of Appeals 8 we distinguished between a condition imposed on the perfection of a contract and a
condition imposed merely on the performance of an obligation. While failure to comply with the first condition results
in the failure of a contract, failure to comply with the second merely gives the other party options and/or remedies to
protect his interests.
We thus agree with the conclusion of respondent appellate court which affirmed the trial court —
As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the
contract has already been made. The letter only serves as a confirmation of such decision. Hence, to the
Court's mind, there is already an acceptance made of the offer received by Purefoods. Notwithstanding the
terms and conditions enumerated therein, the offer has been accepted and/or amplified the details of the
terms and conditions contained in the Terms and Conditions of Bidding given out by Purefoods to
prospective bidders. 9
But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional
counter-offer," respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an
implied acceptance, if not a clear indication of its acquiescence to, the "conditional counter-offer," which expressly
stated that the performance bond and the contractor's all-risk insurance should be given upon the commencement of
the contract. Corollarily, the acknowledgment thereof by petitioner PUREFOODS, not to mention its return of
FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that respondent FEMSCO indeed
consented to the "conditional counter-offer." After all, as earlier adverted to, an acceptance may either be express or
implied, 10 and this can be inferred from the contemporaneous and subsequent acts of the contracting parties.
Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent
FEMSCO's conforme would only be a mere surplusage. The discussion of the price of the project two (2) months
after the 12 December 1992 letter can be deemed as nothing more than a pressure being exerted by petitioner
PUREFOODS on respondent FEMSCO to lower the price even after the contract had been perfected. Indeed from
the facts, it can easily be surmised that petitioner PUREFOODS was haggling for a lower price even after agreeing
to the earlier quotation, and was threatening to unilaterally cancel the contract, which it eventually did. Petitioner
PUREFOODS also makes an issue out of the absence of a purchase order (PO). Suffice it to say that purchase
orders or POs do not make or break a contract. Thus, even the tenor of the subsequent letter of petitioner
PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the award to your company of the project,"
presupposes that the contract has been perfected. For, there can be no cancellation if the contract was not perfected
in the first place.
Petitioner PUREFOODS also argues that it was never in bad faith.1avvphi1 On the contrary, it believed in good faith
that no such contract was perfected. We are not convinced. We subscribe to the factual findings and conclusions of
the trial court which were affirmed by the appellate court —
 Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted
with bad faith and this was further aggravated by the subsequent inking of a contract between defendant
Purefoods and erstwhile co-defendant Jardine. It is very evident that Purefoods thought that by the
expedient means of merely writing a letter would automatically cancel or nullify the existing contract
entered into by both parties after a process of bidding. This, to the Court's mind, is a flagrant violation of
the express provisions of the law and is contrary to fair and just dealings to which every man is due. 11

This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. 12 In the
instant case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately
ordered equipment from its suppliers on account of the urgency of the project, only to be canceled later. We thus
sustain respondent appellate court's award of moral damages. We however reduce the award from P2,000,000.00 to
P1,000,000.00, as moral damages are never intended to enrich the recipient. Likewise, the award of exemplary
damages by way of example for the public good is excessive and should be reduced to P100,000.00.

Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral
damages to respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We
agree. While it may seem that petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO,
we find no specific evidence on record to support such perception. Likewise, there is no showing whatsoever that
petitioner JARDINE induced petitioner PUREFOODS. The similarity in the design submitted to petitioner
PUREFOODS by both petitioner JARDINE and respondent FEMSCO, and the tender of a lower quotation by
petitioner JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS to
violate its contract with respondent FEMSCO.

WHEREFORE, judgment is hereby rendered as follows:

(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing
the 27 June 1994 resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay
private respondent FAR EAST MILLS SUPPLY CORPORATION P2,000,000.00 as moral damages is
REVERSED and SET ASIDE for insufficiency of evidence; and

(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering
petitioner PUREFOODS CORPORATION to pay private respondent FAR EAST MILLS SUPPLY
CORPORATION the sum of P2,300,000.00 representing the value of engineering services it rendered,
US$14,000.00 or its peso equivalent, and P900,000.00 representing the contractor's mark-up on
installation work, as well as attorney's fees equivalent to twenty percent (20%) of the total amount due, is
AFFIRMED. In addition, petitioner PURE FOODS CORPORATION is ordered to pay private respondent
FAR EAST MILLS SUPPLY CORPORATION moral damages in the amount of P1,000,000.00 and 8. G.R. No. L-22973 January 30, 1968
exemplary damages in the amount of P1,000,000.00. Costs against petitioner.
MAMBULAO LUMBER COMPANY, plaintiff-appellant,
vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines
Norte,defendants-appellees.

Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant.

Tomas Besa and Jose B. Galang for defendants-appellees.

ANGELES, J.:

An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil Case No.
52089, entitled "Mambulao Lumber Company, plaintiff, versus Philippine National Bank and Anacleto Heraldo,

35 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
defendants", dismissing the complaint against both defendants and sentencing the plaintiff to pay to defendant
Philippine National Bank (PNB for short) the sum of P3,582.52 with interest thereon at the rate of 6% per annum
from December 22, 1961 until fully paid, and the costs of suit.
In seeking the reversal of the decision, the plaintiff advances several propositions in its brief which may be
restated as follows:
1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not
P58,213.51 as concluded by the court a quo; hence, the proceeds of the foreclosure sale of its real
property alone in the amount of P56,908.00 on that date, added to the sum of P738.59 it remitted to the
PNB thereafter was more than sufficient to liquidate its obligation, thereby rendering the subsequent
foreclosure sale of its chattels unlawful;
2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the additional sum of
P298.54 as expenses of the foreclosure sale;
3. That the subsequent foreclosure sale of its chattels is null and void, not only because it had already
settled its indebtedness to the PNB at the time the sale was effected, but also for the reason that the said
sale was not conducted in accordance with the provisions of the Chattel Mortgage Law and the venue
agreed upon by the parties in the mortgage contract;
4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and
5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff's
vigorous opposition thereto, and in taking possession thereof after the sale thru force, intimidation,
coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff for damages
and attorney's fees.
The antecedent facts of the case, as found by the trial court, are as follows:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch of
defendant PNB and the former offered real estate, machinery, logging and transportation equipments as
collaterals. The application, however, was approved for a loan of P100,000 only. To secure the payment of
the loan, the plaintiff mortgaged to defendant PNB a parcel of land, together with the buildings and
improvements existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao),
province of Camarines Norte, and covered by Transfer Certificate of Title No. 381 of the land records of
said province, as well as various sawmill equipment, rolling unit and other fixed assets of the plaintiff, all
situated in its compound in the aforementioned municipality.
On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which the
plaintiff signed a promissory note wherein it promised to pay to the PNB the said sum in five equal yearly
installments at the rate of P6,528.40 beginning July 31, 1957, and every year thereafter, the last of which
would be on July 31, 1961.
On October 19, 1956, the PNB made another release of P15,500 as part of the approved loan
granted to the plaintiff and so on the said date, the latter executed another promissory note wherein it
agreed to pay to the former the said sum in five equal yearly installments at the rate of P3,679.64
beginning July 31, 1957, and ending on July 31, 1961.
36 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
The plaintiff failed to pay the amortization on the amounts released to and received by it. Repeated
demands were made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so. Upon
inspection and verification made by employees of the PNB, it was found that the plaintiff had already
stopped operation about the end of 1957 or early part of 1958.
On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the parcel of land, together with the improvements existing thereon,
covered by Transfer Certificate of Title No. 381 of the land records of Camarines Norte, and to sell it at
public auction in accordance with the provisions of Act No. 3135, as amended, for the satisfaction of the
unpaid obligation of the plaintiff, which as of September 22, 1961, amounted to P57,646.59, excluding
attorney's fees. In compliance with the request, on October 16, 1961, the Provincial Sheriff of Camarines
Norte issued the corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff.
According to the notice, the mortgaged property would be sold at public auction at 10:00 a.m. on
November 21, 1961, at the ground floor of the Court House in Daet, Camarines Norte.
On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting
him to take possession of the chattels mortgaged to it by the plaintiff and sell them at public auction also
on November 21, 1961, for the satisfaction of the sum of P57,646.59, plus 6% annual interest therefore
from September 23, 1961, attorney's fees equivalent to 10% of the amount due and the costs and
expenses of the sale. On the same day, the PNB sent notice to the plaintiff that the former was foreclosing
extrajudicially the chattels mortgaged by the latter and that the auction sale thereof would be held on
November 21, 1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines Norte, where the mortgaged
chattels were situated.
On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the chattels
mortgaged by the plaintiff and made an inventory thereof in the presence of a PC Sergeant and a
policeman of the municipality of Jose Panganiban. On November 9, 1961, the said Deputy Sheriff issued
the corresponding notice of public auction sale of the mortgaged chattels to be held on November 21,
1961, at 10:00 a.m., at the plaintiff's compound situated in the municipality of Jose Panganiban, Province
of Camarines Norte.
On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter, one
to the Naga Branch of the PNB and another to the Provincial Sheriff of Camarines Norte, protesting
against the foreclosure of the real estate and chattel mortgages on the grounds that they could not be
effected unless a Court's order was issued against it (plaintiff) for said purpose and that the foreclosure
proceedings, according to the terms of the mortgage contracts, should be made in Manila. In said letter to
the Naga Branch of the PNB, it was intimated that if the public auction sale would be suspended and the
plaintiff would be given an extension of ninety (90) days, its obligation would be settled satisfactorily
because an important negotiation was then going on for the sale of its "whole interest" for an amount more
than sufficient to liquidate said obligation.
The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a request for
extension of the foreclosure sale of the mortgaged chattels and so it advised the Sheriff of Camarines
Norte to defer it to December 21, 1961, at the same time and place. A copy of said advice was sent to the
plaintiff for its information and guidance.
The foreclosure sale of the parcel of land, together with the buildings and improvements thereon,
covered by Transfer Certificate of Title No. 381, was, however, held on November 21, 1961, and the said
property was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem the
same within a period of one year. On the same date, Deputy Provincial Sheriff Heraldo executed a
certificate of sale in favor of the PNB and a copy thereof was sent to the plaintiff.
 In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent a
bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full settlement of the balance of the
obligation of the plaintiff after the application thereto of the sum of P56,908.00 representing the proceeds
of the foreclosure sale of parcel of land described in Transfer Certificate of Title No. 381. In the said letter,
the plaintiff reiterated its request that the foreclosure sale of the mortgaged chattels be discontinued on the
grounds that the mortgaged indebtedness had been fully paid and that it could not be legally effected at a
place other than the City of Manila.
Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the first
paragraph of this opinion, sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of
P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 (day following the date of the
questioned foreclosure of plaintiff's chattels) until fully paid, and the costs. Mambulao Lumber Company interposed
the instant appeal.
We shall discuss the various points raised in appellant's brief in seriatim.

In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines Norte
The first question Mambulao Lumber Company poses is that which relates to the amount of its indebtedness
that it had fully paid its obligation to the PNB, and enclosed therewith a copy of its letter to the latter dated
to the PNB arising out of the principal loans and the accrued interest thereon. It is contended that its obligation under
December 14, 1961.
the terms of the two promissory notes it had executed in favor of the PNB amounts only to P56,485.87 as of
November 21, 1961, when the sale of real property was effected, and not P58,213.51 as found by the trial court.
On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff
acknowledging the remittance of P738.59 with the advice, however, that as of that date the balance of the
There is merit to this claim. Examining the terms of the promissory note executed by the appellant in favor of
account of the plaintiff was P9,161.76, to which should be added the expenses of guarding the mortgaged
the PNB, we find that the agreed interest on the loan of P43,000.00 — P27,500.00 released on August 2, 1956 as
chattels at the rate of P4.00 a day beginning December 19, 1961. It was further explained in said letter that
per promissory note of even date (Exhibit C-3), and P15,500.00 released on October 19, 1956, as per promissory
the sum of P57,646.59, which was stated in the request for the foreclosure of the real estate mortgage, did
note of the same date (Exhibit C-4) — was six per cent (6%) per annum from the respective date of said notes "until
not include the 10% attorney's fees and expenses of the sale. Accordingly, the plaintiff was advised that
paid". In the statement of account of the appellant as of September 22, 1961, submitted by the PNB, it appears that
the foreclosure sale scheduled on the 21st of said month would be stopped if a remittance of P9,161.76,
in arriving at the total indebtedness of P57,646.59 as of that date, the PNB had compounded the principal of the loan
plus interest thereon and guarding fees, would be made.
and the accrued 6% interest thereon each time the yearly amortizations became due, and on the basis of these
compounded amounts charged additional delinquency interest on them up to September 22, 1961; and to this
On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m. and erroneously computed total of P57,646.59, the trial court added 6% interest per annum from September 23, 1961 to
they were awarded to the PNB for the sum of P4,200 and the corresponding bill of sale was issued in its November 21 of the same year. In effect, the PNB has claimed, and the trial court has adjudicated to it, interest on
favor by Deputy Provincial Sheriff Heraldo. accrued interests from the time the various amortizations of the loan became due until the real estate mortgage
executed to secure the loan was extra-judicially foreclosed on November 21, 1961. This is an error. Section 5 of Act
No. 2655 expressly provides that in computing the interest on any obligation, promissory note or other instrument or
In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised the
contract, compound interest shall not be reckoned, except by agreement, or in default thereof, whenever the debt is
plaintiff giving it priority to repurchase the chattels acquired by the former at public auction. This offer was
judicially claimed. This is also the clear mandate of Article 2212 of the new Civil Code which provides that interest
reiterated in a letter dated January 3, 1962, of the Attorney of the Naga Branch of the PNB to the plaintiff,
due shall earn legal interest only from the time it is judicially demanded, and of Article 1959 of the same code which
with the suggestion that it exercise its right of redemption and that it apply for the condonation of the
ordains that interest due and unpaid shall not earn interest. Of course, the parties may, by stipulation, capitalize the
attorney's fees. The plaintiff did not follow the advice but on the contrary it made known of its intention to
interest due and unpaid, which as added principal shall earn new interest; but such stipulation is nowhere to be
file appropriate action or actions for the protection of its interests.
found in the terms of the promissory notes involved in this case. Clearly therefore, the trial court fell into error when it
awarded interest on accrued interests, without any agreement to that effect and before they had been judicially
On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in Jose demanded.
Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security Guard of the premises,
that the properties therein had been auctioned and bought by the PNB, which in turn sold them to Mariano
Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor of the
Bundok. Upon being advised that the purchaser would take delivery of the things he bought, Salgado was
PNB. With respect to the amount of P298.54 allowed as expenses of the extra-judicial sale of the real property,
at first reluctant to allow any piece of property to be taken out of the compound of the plaintiff. The
appellant maintains that the same has no basis, factual or legal, and should not have been awarded. It likewise
employees of the PNB explained that should Salgado refuse, he would be exposing himself to a litigation
decries the award of attorney's fees which, according to the appellant, should not be deducted from the proceeds of
wherein he could be held liable to pay big sum of money by way of damages. Apprehensive of the risk that
the sale of the real property, not only because there is no express agreement in the real estate mortgage contract to
he would take, Salgado immediately sent a wire to the President of the plaintiff in Manila, asking advice as
pay attorney's fees in case the same is extra-judicially foreclosed, but also for the reason that the PNB neither spent
to what he should do. In the meantime, Mariano Bundok was able to take out from the plaintiff's compound
nor incurred any obligation to pay attorney's fees in connection with the said extra-judicial foreclosure under
two truckloads of equipment.
consideration.

In the afternoon of the same day, Salgado received a telegram from plaintiff's President directing
There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this respect, the
him not to deliver the "chattels" without court order, with the information that the company was then filing
trial court said:
an action for damages against the PNB. On the following day, May 25, 1962, two trucks and men of
Mariano Bundok arrived but Salgado did not permit them to take out any equipment from inside the
compound of the plaintiff. Thru the intervention, however, of the local police and PC soldiers, the trucks of The parcel of land, together with the buildings and improvements existing thereon covered by
Mariano Bundok were able finally to haul the properties originally mortgaged by the plaintiff to the PNB, Transfer Certificate of Title No. 381, was sold for P56,908. There was, however, no evidence how much
which were bought by it at the foreclosure sale and subsequently sold to Mariano Bundok. was the expenses of the foreclosure sale although from the pertinent provisions of the Rules of Court, the
Sheriff's fees would be P1 for advertising the sale (par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54
as his commission for the sale (par. n, Sec. 7, Rule 130 of the Old Rules) or a total of P298.54.

37 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 There is really no evidence of record to support the conclusion that the PNB is entitled to the amount awarded legal staff of the PNB, we are reluctant to exonerate herein appellant from the payment of the stipulated attorney's
as expenses of the extra-judicial foreclosure sale. The court below committed error in applying the provisions of the fees on this ground alone, considering the express agreement between the parties in the mortgage contract under
Rules of Court for purposes of arriving at the amount awarded. It is to be borne in mind that the fees enumerated which appellant became liable to pay the same. At any rate, we find merit in the contention of the appellant that the
under paragraphs k and n, Section 7, of Rule 130 (now Rule 141) are demandable, only by a sheriff serving award of P5,821.35 in favor of the PNB as attorney's fees is unconscionable and unreasonable, considering that all
processes of the court in connection with judicial foreclosure of mortgages under Rule 68 of the new Rules, and not that the branch attorney of the said bank did in connection with the foreclosure sale of the real property was to file a
in cases of extra-judicial foreclosure of mortgages under Act 3135. The law applicable is Section 4 of Act 3135 which petition with the provincial sheriff of Camarines Norte requesting the latter to sell the same in accordance with the
provides that the officer conducting the sale is entitled to collect a fee of P5.00 for each day of actual work performed provisions of Act 3135.
in addition to his expenses in connection with the foreclosure sale. Admittedly, the PNB failed to prove during the trial
of the case, that it actually spent any amount in connection with the said foreclosure sale. Neither may expenses for
The principle that courts should reduce stipulated attorney's fees whenever it is found under the circumstances
publication of the notice be legally allowed in the absence of evidence on record to support it. 1 It is true, as pointed
of the case that the same is unreasonable, is now deeply rooted in this jurisdiction to entertain any serious objection
out by the appellee bank, that courts should take judicial notice of the fees provided for by law which need not be
to it. Thus, this Court has explained:
proved; but in the absence of evidence to show at least the number of working days the sheriff concerned actually
spent in connection with the extra-judicial foreclosure sale, the most that he may be entitled to, would be the amount
of P10.00 as a reasonable allowance for two day's work — one for the preparation of the necessary notices of sale, But the principle that it may be lawfully stipulated that the legal expenses involved in the collection of
and the other for conducting the auction sale and issuance of the corresponding certificate of sale in favor of the a debt shall be defrayed by the debtor does not imply that such stipulations must be enforced in
buyer. Obviously, therefore, the award of P298.54 as expenses of the sale should be set aside. accordance with the terms, no matter how injurious or oppressive they may be. The lawful purpose to be
accomplished by such a stipulation is to permit the creditor to receive the amount due him under his
contract without a deduction of the expenses caused by the delinquency of the debtor. It should not be
But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in case the
permitted for him to convert such a stipulation into a source of speculative profit at the expense of the
same is extra-judicially foreclosed, cannot be favorably considered, as would readily be revealed by an examination
debtor.
of the pertinent provision of the mortgage contract. The parties to the mortgage appear to have stipulated under
paragraph (c) thereof, inter alia:
Contracts for attorney's services in this jurisdiction stands upon an entirely different footing from
contracts for the payment of compensation for any other services. By express provision of section 29 of
. . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the Mortgagee his
the Code of Civil Procedure, an attorney is not entitled in the absence of express contract to recover more
attorney-in-fact to sell the property mortgaged under Act 3135, as amended, to sign all documents and to
than a reasonable compensation for his services; and even when an express contract is made the court
perform all acts requisite and necessary to accomplish said purpose and to appoint its substitute as such
can ignore it and limit the recovery to reasonable compensation if the amount of the stipulated fee is found
attorney-in-fact with the same powers as above specified. In case of judicial foreclosure, the Mortgagor
by the court to be unreasonable. This is a very different rule from that announced in section 1091 of the
hereby consents to the appointment of the Mortgagee or any of its employees as receiver, without any
Civil Code with reference to the obligation of contracts in general, where it is said that such obligation has
bond, to take charge of the mortgaged property at once, and to hold possession of the same and the rents,
the force of law between the contracting parties. Had the plaintiff herein made an express contract to pay
benefits and profits derived from the mortgaged property before the sale, less the costs and expenses of
his attorney an uncontingent fee of P2,115.25 for the services to be rendered in reducing the note here in
the receivership; the Mortgagor hereby agrees further that in all cases, attorney's fees hereby fixed at Ten
suit to judgment, it would not have been enforced against him had he seen fit to oppose it, as such a fee is
Per cent (10%) of the total indebtedness then unpaid which in no case shall be less than P100.00
obviously far greater than is necessary to remunerate the attorney for the work involved and is therefore
exclusive of all fees allowed by law, and the expenses of collection shall be the obligation of the Mortgagor
unreasonable. In order to enable the court to ignore an express contract for an attorney's fees, it is not
and shall with priority, be paid to the Mortgagee out of any sums realized as rents and profits derived from
necessary to show, as in other contracts, that it is contrary to morality or public policy (Art. 1255, Civil
the mortgaged property or from the proceeds realized from the sale of the said property and this mortgage
Code). It is enough that it is unreasonable or unconscionable. 4
shall likewise stand as security therefor. . . .

Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees
We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure sale
stipulated appear excessive, unconscionable, or unreasonable, because a lawyer is primarily a court officer charged
mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in all cases" appears to be part of the
with the duty of assisting the court in administering impartial justice between the parties, and hence, the fees should
second sentence, a reading of the whole context of the stipulation would readily show that it logically refers to extra-
be subject to judicial control. Nor should it be ignored that sound public policy demands that courts disregard
judicial foreclosure found in the first sentence and to judicial foreclosure mentioned in the next sentence. And the
stipulations for counsel fees, whenever they appear to be a source of speculative profit at the expense of the debtor
ambiguity in the stipulation suggested and pointed out by the appellant by reason of the faulty sentence construction
or mortgagor. 5 And it is not material that the present action is between the debtor and the creditor, and not between
should not be made to defeat the otherwise clear intention of the parties in the agreement.
attorney and client. As court have power to fix the fee as between attorney and client, it must necessarily have the
right to say whether a stipulation like this, inserted in a mortgage contract, is valid. 6
It is suggested by the appellant, however, that even if the above stipulation to pay attorney's fees were
applicable to the extra-judicial foreclosure sale of its real properties, still, the award of P5,821.35 for attorney's fees
In determining the compensation of an attorney, the following circumstances should be considered: the
has no legal justification, considering the circumstance that the PNB did not actually spend anything by way of
amount and character of the services rendered; the responsibility imposed; the amount of money or the value of the
attorney's fees in connection with the sale. In support of this proposition, appellant cites authorities to the effect: (1)
property affected by the controversy, or involved in the employment; the skill and experience called for in the
that when the mortgagee has neither paid nor incurred any obligation to pay an attorney in connection with the
performance of the service; the professional standing of the attorney; the results secured; and whether or not the fee
foreclosure sale, the claim for such fees should be denied; 2 and (2) that attorney's fees will not be allowed when the
is contingent or absolute, it being a recognized rule that an attorney may properly charge a much larger fee when it is
attorney conducting the foreclosure proceedings is an officer of the corporation (mortgagee) who receives a salary
to be contingent than when it is not. 7 From the stipulation in the mortgage contract earlier quoted, it appears that the
for all the legal services performed by him for the corporation. 3 These authorities are indeed enlightening; but they
agreed fee is 10% of the total indebtedness, irrespective of the manner the foreclosure of the mortgage is to be
should not be applied in this case. The very same authority first cited suggests that said principle is not absolute, for
effected. The agreement is perhaps fair enough in case the foreclosure proceedings is prosecuted judicially but,
there is authority to the contrary. As to the fact that the foreclosure proceeding's were handled by an attorney of the
surely, it is unreasonable when, as in this case, the mortgage was foreclosed extra-judicially, and all that the attorney
38 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
did was to file a petition for foreclosure with the sheriff concerned. It is to be assumed though, that the said branch
attorney of the PNB made a study of the case before deciding to file the petition for foreclosure; but even with this in
mind, we believe the amount of P5,821.35 is far too excessive a fee for such services. Considering the above
circumstances mentioned, it is our considered opinion that the amount of P1,000.00 would be more than sufficient to
compensate the work aforementioned.
The next issue raised deals with the claim that the proceeds of the sale of the real properties alone together
with the amount it remitted to the PNB later was more than sufficient to liquidate its total obligation to herein appellee
bank. Again, we find merit in this claim. From the foregoing discussion of the first two errors assigned, and for
purposes of determining the total obligation of herein appellant to the PNB as of November 21, 1961 when the real
estate mortgage was foreclosed, we have the following illustration in support of this conclusion:1äwphï1.ñët
A. -
I. Principal Loan
(a) Promissory note dated August 2, 1956 P27,500.00
(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961 8,751.78
were followed by another letter to the appellee bank on December 14, 1961, wherein herein appellant, in no
uncertain terms, reiterated its objection to the scheduled sale of its chattels on December 21, 1961 at Jose
Panganiban, Camarines Norte for the reasons therein stated that: (1) it had settled in full its total obligation to the
PNB by the sale of the real estate and its subsequent remittance of the amount of P738.59; and (2) that the
contemplated sale at Jose Panganiban would violate their agreement embodied under paragraph (i) in the Chattel
Mortgage which provides as follows:
(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the parties
hereto agree that the corresponding complaint for foreclosure or the petition for sale should be filed with
the courts or the sheriff of the City of Manila, as the case may be; and that the Mortgagor shall pay
attorney's fees hereby fixed at ten per cent (10%) of the total indebtedness then unpaid but in no case
shall it be less than P100.00, exclusive of all costs and fees allowed by law and of other expenses incurred
in connection with the said foreclosure. [Emphasis supplied]
Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter disregard of the
objection of herein appellant to the sale of its chattels at Jose Panganiban, Camarines Norte and not in the City of
Manila as agreed upon, the PNB proceeded with the foreclosure sale of said chattels. The trial court, however,
justified said action of the PNB in the decision appealed from in the following rationale:

(b) Promissory note dated October 19, 1956 P15,500.00

While it is true that it was stipulated in the chattel mortgage contract that a petition for the extra-
(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961 4,734.08 judicial foreclosure thereof should be filed with the Sheriff of the City of Manila, nevertheless, the effect
thereof was merely to provide another place where the mortgage chattel could be sold in addition to those
II. Sheriff's fees [for two (2) day's work] 10.00 specified in the Chattel Mortgage Law. Indeed, a stipulation in a contract cannot abrogate much less
III. Attorney's fee 1,000.00 impliedly repeal a specific provision of the statute. Considering that Section 14 of Act No. 1508 vests in the
mortgagee the choice where the foreclosure sale should be held, hence, in the case under consideration,
the PNB had three places from which to select, namely: (1) the place of residence of the mortgagor; (2) the
P57,495.86
Total obligation as of Nov. 21, 1961 place of the mortgaged chattels were situated; and (3) the place stipulated in the contract. The PNB
selected the second and, accordingly, the foreclosure sale held in Jose Panganiban, Camarines Norte,
B. - was legal and valid.
I. Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961 P56,908.00
To the foregoing conclusion, We disagree. While the law grants power and authority to the mortgagee to sell
II. Additional amount remitted to the PNB on Dec. 18, 1961 738.59
the mortgaged property at a public place in the municipality where the mortgagor resides or where the property is
situated, 8 this Court has held that the sale of a mortgaged chattel may be made in a place other than that where it is
P57,646.59 found, provided that the owner thereof consents thereto; or that there is an agreement to this effect between the
Total amount of Payment made to PNB as of Dec. 18, 1961
mortgagor and the mortgagee. 9 But when, as in this case, the parties agreed to have the sale of the mortgaged
P57,495.86 chattels in the City of Manila, which, any way, is the residence of the mortgagor, it cannot be rightly said that
Deduct: Total obligation to the PNB mortgagee still retained the power and authority to select from among the places provided for in the law and the
place designated in their agreement over the objection of the mortgagor. In providing that the mortgaged chattel may
P 150.73
Excess Payment to the PNB be sold at the place of residence of the mortgagor or the place where it is situated, at the option of the mortgagee,
========
the law clearly contemplated benefits not only to the mortgagor but to the mortgagee as well. Their right arising
thereunder, however, are personal to them; they do not affect either public policy or the rights of third persons. They
From the foregoing illustration or computation, it is clear that there was no further necessity to foreclose the may validly be waived. So, when herein mortgagor and mortgagee agreed in the mortgage contract that in cases of
mortgage of herein appellant's chattels on December 21, 1961; and on this ground alone, we may declare the sale of both judicial and extra-judicial foreclosure under Act 1508, as amended, the corresponding complaint for foreclosure
appellant's chattels on the said date, illegal and void. But we take into consideration the fact that the PNB must have or the petition for sale should be filed with the courts or the Sheriff of Manila, as the case may be, they waived their
been led to believe that the stipulated 10% of the unpaid loan for attorney's fees in the real estate mortgage was corresponding rights under the law. The correlative obligation arising from that agreement have the force of law
legally maintainable, and in accordance with such belief, herein appellee bank insisted that the proceeds of the sale between them and should be complied with in good faith. 10
of appellant's real property was deficient to liquidate the latter's total indebtedness. Be that as it may, however, we
still find the subsequent sale of herein appellant's chattels illegal and objectionable on other grounds. By said agreement the parties waived the legal venue, and such waiver is valid and legally effective,
because it, was merely a personal privilege they waived, which is not contrary, to public policy or to the
That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of its real prejudice of third persons. It is a general principle that a person may renounce any right which the law
estate mortgage on November 21, 1961, can not be doubted, as shown not only by its letter to the PNB on gives unless such renunciation is expressly prohibited or the right conferred is of such nature that its
November 19, 1961, but also in its letter to the provincial sheriff of Camarines Norte on the same date. These letters renunciation would be against public policy. 11

39 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 On the other hand, if a place of sale is specified in the mortgage and statutory requirements in
regard thereto are complied with, a sale is properly conducted in that place. Indeed, in the absence of a
statute to the contrary, a sale conducted at a place other than that stipulated for in the mortgage is invalid,
unless the mortgagor consents to such sale. 12
Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should make a return
of his doings which shall particularly describe the articles sold and the amount received from each article. From this,
it is clear that the law requires that sale be made article by article, otherwise, it would be impossible for him to state
the amount received for each item. This requirement was totally disregarded by the Deputy Sheriff of Camarines
Norte when he sold the chattels in question in bulk, notwithstanding the fact that the said chattels consisted of no
less than twenty different items as shown in the bill of sale. 13 This makes the sale of the chattels manifestly
objectionable. And in the absence of any evidence to show that the mortgagor had agreed or consented to such sale
in gross, the same should be set aside.
It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in accordance
with its terms, or where the proceedings as to the sale of foreclosure do not comply with the statute. 14 This rule
applies squarely to the facts of this case where, as earlier shown, herein appellee bank insisted, and the appellee
deputy sheriff of Camarines Norte proceeded with the sale of the mortgaged chattels at Jose Panganiban,
Camarines Norte, in utter disregard of the valid objection of the mortgagor thereto for the reason that it is not the
place of sale agreed upon in the mortgage contract; and the said deputy sheriff sold all the chattels (among which
were a skagit with caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and Sawmill equipment consisting
of a 150 HP Murphy Engine, plainer, large circular saws etc.) as a single lot in violation of the requirement of the law
to sell the same article by article. The PNB has resold the chattels to another buyer with whom it appears to have
actively cooperated in subsequently taking possession of and removing the chattels from appellant compound by
force, as shown by the circumstance that they had to take along PC soldiers and municipal policemen of Jose
Panganiban who placed the chief security officer of the premises in jail to deprive herein appellant of its possession
thereof. To exonerate itself of any liability for the breach of peace thus committed, the PNB would want us to believe
that it was the subsequent buyer alone, who is not a party to this case, that was responsible for the forcible taking of
the property; but assuming this to be so, still the PNB cannot escape liability for the conversion of the mortgaged
chattels by parting with its interest in the property. Neither would its claim that it afterwards gave a chance to herein
appellant to repurchase or redeem the chattels, improve its position, for the mortgagor is not under obligation to take
affirmative steps to repossess the chattels that were converted by the mortgagee. 15 As a consequence of the said
wrongful acts of the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that herein
appellant is entitled to collect from them, jointly and severally, the full value of the chattels in question at the time
they were illegally sold by them. To this effect was the holding of this Court in a similar situation. 16
The effect of this irregularity was, in our opinion to make the plaintiff liable to the defendant for the full
value of the truck at the time the plaintiff thus carried it off to be sold; and of course, the burden is on the
defendant to prove the damage to which he was thus subjected. . . .
This brings us to the problem of determining the value of the mortgaged chattels at the time of their sale in
1961. The trial court did not make any finding on the value of the chattels in the decision appealed from and denied
altogether the right of the appellant to recover the same. We find enough evidence of record, however, which may be
used as a guide to ascertain their value. The record shows that at the time herein appellant applied for its loan with
the PNB in 1956, for which the chattels in question were mortgaged as part of the security therefore, herein appellant
submitted a list of the chattels together with its application for the loan with a stated value of P107,115.85. An official
of the PNB made an inspection of the chattels in the same year giving it an appraised value of P42,850.00 and a
market value of P85,700.00. 17 The same chattels with some additional equipment acquired by herein appellant with
part of the proceeds of the loan were reappraised in a re-inspection conducted by the same official in 1958, in the
report of which he gave all the chattels an appraised value of P26,850.00 and a market value of
P48,200.00. 18 Another re-inspection report in 1959 gave the appraised value as P19,400.00 and the market value at
P25,600.00. 19 The said official of the PNB who made the foregoing reports of inspection and re-inspections testified
in court that in giving the values appearing in the reports, he used a conservative method of appraisal which, of
40 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
course, is to be expected of an official of the appellee bank. And it appears that the values were considerably
reduced in all the re-inspection reports for the reason that when he went to herein appellant's premises at the time,
he found the chattels no longer in use with some of the heavier equipments dismantled with parts thereof kept in the
bodega; and finding it difficult to ascertain the value of the dismantled chattels in such condition, he did not give them
anymore any value in his reports. Noteworthy is the fact, however, that in the last re-inspection report he made of the
chattels in 1961, just a few months before the foreclosure sale, the same inspector of the PNB reported that the
heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed free from rains" 20 showing that
although they were no longer in use at the time, they were kept in a proper place and not exposed to the elements.
The President of the appellant company, on the other hand, testified that its caterpillar (tractor) alone is worth
P35,000.00 in the market, and that the value of its two trucks acquired by it with part of the proceeds of the loan and
included as additional items in the mortgaged chattels were worth no less than P14,000.00. He likewise appraised
the worth of its Murphy engine at P16,000.00 which, according to him, when taken together with the heavy
equipments he mentioned, the sawmill itself and all other equipment forming part of the chattels under consideration,
and bearing in mind the current cost of equipments these days which he alleged to have increased by about five (5)
times, could safely be estimated at P120,000.00. This testimony, except for the appraised and market values
appearing in the inspection and re-inspection reports of the PNB official earlier mentioned, stand uncontroverted in
the record; but We are not inclined to accept such testimony at its par value, knowing that the equipments of herein
appellant had been idle and unused since it stopped operating its sawmill in 1958 up to the time of the sale of the
chattels in 1961. We have no doubt that the value of chattels was depreciated after all those years of inoperation,
although from the evidence aforementioned, We may also safely conclude that the amount of P4,200.00 for which
the chattels were sold in the foreclosure sale in question was grossly unfair to the mortgagor. Considering, however,
the facts that the appraised value of P42,850.00 and the market value of P85,700.00 originally given by the PNB
official were admittedly conservative; that two 6 x 6 trucks subsequently bought by the appellant company had
thereafter been added to the chattels; and that the real value thereof, although depreciated after several years of
inoperation, was in a way maintained because the depreciation is off-set by the marked increase in the cost of heavy
equipment in the market, it is our opinion that the market value of the chattels at the time of the sale should be fixed
at the original appraised value of P42,850.00.
Herein appellant's claim for moral damages, however, seems to have no legal or factual basis. Obviously, an
artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright,
serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. 21 A
corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral
damages. The same cannot be considered under the facts of this case, however, not only because it is admitted that
herein appellant had already ceased in its business operation at the time of the foreclosure sale of the chattels, but
also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its
reputation or business standing would undoubtedly be the same whether the sale was conducted at Jose
Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with
the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage
contract, to which their attentions were timely called by herein appellant, and in disposing of the chattels in gross for
the miserable amount of P4,200.00, herein appellant should be awarded exemplary damages in the sum of
P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein
appellant.
WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from should be, as
hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of the province of Camarines Norte are
ordered to pay, jointly and severally, to Mambulao Lumber Company the total amount of P56,000.73, broken as
follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the value of the chattels at the time of the sale with
interest at the rate of 6% per annum from December 21, 1961, until fully paid, P10,000.00 in exemplary damages,
and P3,000.00 as attorney's fees. Costs against both appellees.
 9. G.R. No. L-32409 February 27, 1971
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, petitioners,
vs.
HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue,
ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, et
al, respondents.
DECISION
VILLAMOR, J:
This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary mandatory and
prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the
laws of the Philippines, and its President, Frederick E. Seggerman, pray this Court to declare null and void Search
Warrant No. 2-M-70 issued by respondent Judge on February 25, 1970; to order respondents to desist from
enforcing the same and/or keeping the documents, papers and effects seized by virtue thereof, as well as from
enforcing the tax assessments on petitioner corporation alleged by petitioners to have been made on the basis of the
said documents, papers and effects, and to order the return of the latter to petitioners. We gave due course to the
petition but did not issue the writ of preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are as follows:

41 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to
respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of
Section 46(a) of the National Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly
Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents,
to make and file the application for search warrant which was attached to the letter.
In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness, respondent Arturo
Logronio, went to the Court of First Instance of Rizal. They brought with them the following papers: respondent
Vera’s aforesaid letter-request; an application for search warrant already filled up but still unsigned by respondent De
Leon; an affidavit of respondent Logronio subscribed before respondent De Leon; a deposition in printed form of
respondent Logronio already accomplished and signed by him but not yet subscribed; and a search warrant already
accomplished but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of
Court to take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent
Judge was informed that thedepositions had already been taken. The stenographer, upon request of respondent
Judge, read to him her stenographic notes; and thereafter, respondent Judge asked respondent Logronio to take the
oath and warned him that if his deposition was found to be false and without legal basis, he could be charged for
perjury. Respondent Judge signed respondent de Leon’s application for search warrant and respondent
Logronio’s deposition, Search Warrant No. 2-M-70 was then sign by respondent Judge and accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search warrant
petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners’ lawyers protested the
search on the ground that no formal complaint or transcript of testimony was attached to the warrant. The agents
nevertheless proceeded with their search which yielded six boxes of documents.
On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the search warrant
be quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that the
search warrant be declared null and void, and that the respondents be ordered to pay petitioners, jointly and
severally, damages and attorney’s fees. On March 18, 1970, the respondents, thru the Solicitor General, filed an
answer to the petition. After hearing, the court, presided over by respondent Judge, issued on July 29, 1970, an
order dismissing the petition for dissolution of the search warrant. In the meantime, or on April 16, 1970, the Bureau
of Internal Revenue made tax assessments on petitioner corporation in the total sum of P2,594,729.97, partly, if not
entirely, based on the documents thus seized. Petitioners came to this Court.
The petition should be granted for the following reasons:
1. Respondent Judge failed to personally examine the complainant and his witness.
The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of Court are:
“(3) The right of the people to be secure in their persons, houses, papers and effects against unreasonable
searches andseizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined
by the judge afterexamination under oath or affirmation of the complainant and the witnesses he may produce, and
42 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
particularly describing the place to be searched, and the persons or things to be seized.” (Art. III, Sec. 1,
Constitution.)
“SEC. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon probable cause in
connection with one specific offense to be determined by the judge or justice of the peace after examination under
oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be
searched and the persons or things to be seized.
“No search warrant shall issue for more than one specific offense.
“SEC. 4. Examination of the applicant. The judge or justice of the peace must, before issuing the warrant,
personally examine on oath or affirmation the complainant and any witnesses he may produce and take
their depositions in writing, and attach them to the record, in addition to any affidavits presented to him.” (Rule 126,
Revised Rules of Court.)
The examination of the complainant and the witnesses he may produce, required by Art. III, Sec. 1, par. 3, of the
Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be conducted by the judge
himself and not by others. Thephrase “which shall be determined by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce,” appearing in the said constitutional provision,
was introduced by Delegate Francisco as an amendment to the draft submitted by the Sub-Committee of Seven. The
following discussion in the Constitutional Convention (Laurel, Proceedings of the Philippine Constitutional
Convention, Vol. III, pp. 755-757) is enlightening:
“SR. ORENSE. Vamos a dejar compañero los piropos y vamos al grano.
En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de la justicia mediante
el registroinmediato y la incautacion del cuerpo del delito, no cree Su Señoria que causaria cierta demora el
procedimiento apuntado en su enmienda en tal forma que podria frustrar los fines de la justicia o si Su Señoria
encuentra un remedio para esto casos con el fin de compaginar los fines de la justicia con los derechos del individuo
en su persona, bienes etcetera, etcetera.
“SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Señoria pregunta por la siguiente razon: el
que solicita un mandamiento de registro tiene que hacerlo por escrito y ese escrito no aparecer en la Mesa del Juez
sin que alguien vaya el juez a presentar ese escrito o peticion de sucuestro. Esa persona que presenta
el registro puede ser el mismo denunciante o alguna persona que solicita dicho mandamiento de registro. Ahora
toda la enmienda en esos casos consiste en que haya peticion deregistro y el juez no se atendra solamente a sea
peticion sino que el juez examiner a ese denunciante y si tiene testigos tambin examiner a los testigos.
“SR. ORENSE. No cree Su Señoria que el tomar le declaracion de ese denunciante por escrito siempre requeriria
algun tiempo?.
“SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo posible las
vejaciones injustas con la expedicion arbitraria de los mandamientos de registro. Creo que entre dos males
debemos escoger. el menor.

xxx xxx xxx
“MR. LAUREL.. . . The reason why we are in favor of this amendment is because we are incorporating in our
constitution something of a fundamental character. Now, before a judge could issue a search warrant, he must be
under the obligation to examine personally under oath the complainant and if he has any witness, the witnesses that
he may produce . . .”
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and candid, for it requires
the judge, before issuing a search warrant, to “personally examine on oath or affirmation the complainant and any
witnesses he may produce . . .”
Personal examination by the judge of the complainant and his witnesses is necessary to enable him to determine the
existence or non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3,
Rule 126 of the Revised Rules of Court, both of which prohibit the issuance of warrants except “upon probable
cause.” The determination of whether or not a probable cause exists calls for the exercise of judgment after a judicial
appraisal of facts and should not be allowed to be delegated in the absence of any rule to the contrary.
In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant
(respondent De Leon) and his witness (respondent Logronio). While it is true that the complainant’s application for
search warrant and the witness’ printed-form deposition were subscribed and sworn to before respondent Judge, the
latter did not ask either of the two any question the answer to which could possibly be the basis for determining
whether or not there was probable cause against herein petitioners. Indeed, the participants seem to have attached
so little significance to the matter that notes of the proceedings before respondent Judge were not even taken. At this
juncture it may be well to recall the salient facts. The transcript of stenographic notes (pp. 61-76, April 1, 1970,
Annex J-2 of the Petition) taken at the hearing of this case in the court below shows that per instruction of
respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of Court, took the depositions of the complainant
and his witness, and that stenographic notes thereof were taken by Mrs. Gaspar. At that time respondent Judge was
at the sala hearing a case. After respondent Judge was through with the hearing, Deputy Clerk Gonzales,
stenographer Gaspar, complainant De Leon and witness Logronio went to respondent Judge’s chamber and
informed the Judge that they had finished the depositions. Respondent Judge then requested the stenographer to
read to him her stenographic notes. Special Deputy Clerk Gonzales testified as follows:
“A And after finishing reading the stenographic notes, the Honorable Judge requested or instructed them, requested
Mr. Logronio to raise his hand and warned him if his deposition will be found to be false and without legal basis, he
can be charged criminally for perjury. The Honorable Court told Mr. Logronio whether he affirms the facts contained
in his deposition and the affidavit executed before Mr. Rodolfo de Leon.
“Q And thereafter?
“A And thereafter, he signed the deposition of Mr. Logronio.
“Q Who is this he?
“A The Honorable Judge.
“Q The deposition or the affidavit?
“A The affidavit, Your Honor.”
43 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Thereafter, respondent Judge signed the search warrant.
The participation of respondent Judge in the proceedings which led to the issuance of Search Warrant No. 2-M-70
was thus limited to listening to the stenographer’s readings of her notes, to a few words of warning against the
commission of perjury, and to administering the oath to the complainant and his witness. This cannot be consider a
personal examination. If there was an examination at all of the complainant and his witness, it was the one
conducted by the Deputy Clerk of Court. But, as stated, the Constitution and the rules require a personal
examination by the judge. It was precisely on account of the intention of the delegates to the Constitutional
Convention to make it a duty of the issuing judge to personally examine the complainant and his witnesses that the
question of how much time would be consumed by the judge in examining them came up before the Convention, as
can be seen from the record of the proceedings quoted above. The reading of the stenographic notes to respondent
Judge did not constitute sufficient compliance with the constitutional mandate and the rule; for by that manner
respondent Judge did not have the opportunity to observe the demeanor of the complainant and his witness, and to
propound initial and follow-up questions which the judicial mind, on account of its training, was in the best position to
conceive. These were important in arriving at a sound inference on the all-important question of whether or not there
was probable cause.
2. The search warrant was issued for more than one specific offense.
Search Warrant No. 2-M-70 was issued for “[v]iolation of Sec. 46(a) of the National Internal Revenue Code in relation
to all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209.” The question is: Was the said
search warrant issued “in connection with one specific offense,” as required by Sec. 3, Rule 126?
To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred to above.
Thus we find the following:
Sec. 46(a) requires the filing of income tax returns by corporations.
Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the information required
under the Tax Code.
Sec. 208 penalizes “[a]ny person who distills, rectifies, repacks, compounds, or manufactures any article subject to a
specific tax, without having paid the privilege tax therefore, or who aids or abets in the conduct of illicit distilling,
rectifying, compounding, or illicit manufacture of any article subject to specific tax . . .,” and provides that in the case
of a corporation, partnership, or association, the official and/or employee who caused the violation shall be
responsible.
Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output removed, or to
pay the tax due thereon.
The search warrant in question was issued for at least four distinct offenses under the Tax Code. The first is the
violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are interrelated. The second is
the violation of Sec. 53 (withholding of income taxes at source). The third is the violation of Sec. 208 (unlawful
pursuit of business or occupation); and the fourth is the violation of Sec. 209 (failure to make a return of receipts,
sales, business or gross value of output actually removed or to pay the tax due thereon). Even in their classification
the six above-mentioned provisions are embraced in two different titles: Secs. 46(a), 53, 72 and 73 are under Title II
(Income Tax); while Secs. 208 and 209 are under Title V (Privilege Tax on Business and Occupation).
Respondents argue that Stonehill, et al. vs. Diokno, et al., L-19550, June 19, 1967 (20 SCRA 383), is not applicable,
because there the search warrants were issued for “violation of Central Bank Laws, Internal Revenue (Code) and
Revised Penal Code;” whereas, here Search Warrant No 2-M-70 was issued for violation of only one code, i.e., the
National Internal Revenue Code. The distinction more apparent than real, because it was precisely on account of the
Stonehill incident, which occurred sometime before the present Rules of Court took effect on January 1, 1964, that
this Court amended the former rule by inserting therein the phrase “in connection with one specific offense,” and
adding the sentence “No search warrant shall issue for more than one specific offense,” in what is now Sec. 3, Rule
126. Thus we said in Stonehill:
“Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this
Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court that ‘a search warrant shall not issue
but upon probable cause in connection with one specific offense.’ Not satisfied with this qualification, the Court
added thereto a paragraph, directing that ‘no search warrant shall issue for more than one specific offense.’”
3. The search warrant does not particularly describe the things to be seized.
The documents, papers and effects sought to be seized are described in Search Warrant No. 2-M-70 in this manner:
“Unregistered and private books of accounts (ledgers, journals, columnars, receipts and disbursements books,
customers ledgers); receipts for payments received; certificates of stocks and securities; contracts, promissory notes
and deeds of sale; telex and coded messages; business communications, accounting and business
records; checks and check stubs; records of bank deposits and withdrawals; and records of foreign remittances,
covering the years 1966 to 1970.”
The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of the
Revised Rules of Court, that the warrant should particularly describe the things to be seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion, said:
“The grave violation of the Constitution made in the application for the contested search warrants was compounded
by the description therein made of the effects to be searched for and seized, to wit:
‘Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit
journals, typewriters, and other documents and/or paper showing all business transactions including disbursement
receipts, balance sheets and related profit and loss statements.’
44 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
“Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of
petitioners herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure
of all records of the petitioners and the aforementioned corporations, whatever their nature, thus openly contravening
the explicit command of our Bill of Rights that the things to be seized be particularly described as well as tending to
defeat its major objective: the elimination of general warrants.”
While the term “all business transactions” does not appear in Search Warrant No. 2-M-70, the said warrant
nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants, for the
language used therein is so all-embracing as to include all conceivable records of petitioner corporation, which, if
seized, could possibly render its business inoperative.
In Uy Kheytin, et al. vs. Villareal, etc., et al., 42 Phil. 886, 896, this Court had occasion to explain the purpose of the
requirement that the warrant should particularly describe the place to be searched and the things to be seized, to wit:
“. . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search warrant
should particularly describe the place to be searched and the things to be seized. The evident purpose and intent of
this requirement is to limit the things to be seized to those, and only those, particularly described in the search
warrant to leave the officers of the law with no discretion regarding what articles they shall seize, to the end that
‘unreasonable searches and seizures’ may not be made, that abuses may not be committed. That this is the correct
interpretation of this constitutional provision is borne out by American authorities.”
The purpose as thus explained could, surely and effectively, be defeated under the search warrant issued in this
case.
A search warrant may be said to particularly describe the things to be seized when the description therein is as
specific as the circumstances will ordinarily allow (People vs. Rubio; 57 Phil. 384); or when the description expresses
a conclusion of fact not of law by which the warrant officer may be guided in making the search and seizure (idem.,
dissent of Abad Santos, J.,); or when the things described are limited to those which bear direct relation to the
offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of Court). The herein search warrant
does not conform to any of the foregoing tests. If the articles desired to be seized have any direct relation to an
offense committed, the applicant must necessarily have some evidence, other than those articles, to prove the said
offense; and the articles subject of search and seizure should come in handy merely to strengthen such evidence. In
this event, the description contained in the herein disputed warrant should have mentioned, at least, the dates,
amounts, persons, and other pertinent data regarding the receipts of payments, certificates of stocks and securities,
contracts, promissory notes, deeds of sale, messages and communications, checks, bank deposits and withdrawals,
records of foreign remittances, among others, enumerated in the warrant.
Respondents contend that certiorari does not lie because petitioners failed to file a motion for reconsideration of
respondent Judge’s order of July 29, 1970. The contention is without merit. In the first place, when the questions
raised before this Court are the same as those which were squarely raised in and passed upon by the court below,
the filing of a motion for reconsideration in said court before certiorari can be instituted in this Court is no longer a
prerequisite. (Pajo, etc., et al. vs. Ago, et al., 108 Phil., 905). In the second place, the rule requiring the filing of a
motion for reconsideration before an application for a writ of certiorari can be entertained was never intended to be
applied without considering the circumstances. (Matutina vs. Buslon, et al., 109 Phil., 140.) In the case at bar time is
of the essence in view of the tax assessments sought to be enforced by respondent officers of the Bureau of Internal
Revenue against petitioner corporation, On account of which immediate and more direct action becomes necessary.
(Matute vs. Court of Appeals, et al., 26 SCRA 768.) Lastly, the rule does not apply where, as in this case, the
deprivation of petitioners’ fundamental right to due process taints the proceeding against them in the court below not
only with irregularity but also with nullity. (Matute vs. Court of Appeals, et al., supra.)
It is next contended by respondents that a corporation is not entitled to protection against unreasonable search and
seizures. Again, we find no merit in the contention.
“Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged with a
violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its constitutional
powers, cannot refuse to produce the books and papers of such corporation, we do not wish to be understood as
holding that a corporation is not entitled to immunity, under the 4th Amendment, against unreasonable searches and
seizures. A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal
entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. Its
property cannot be taken without compensation. It can only be proceeded against by due process of law, and is
protected, under the 14th Amendment, against unlawful discrimination . . .” (Hale v. Henkel, 201 U.S. 43, 50 L. ed.
652.)
“In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a
corporation, the ground that it was not privileged from producing its books and papers. But the rights of a corporation
against unlawful search and seizure are to be protected even if the same result might have been achieved in a lawful
way.” (Silverthorne Lumber Company, et al. v. United States of America, 251 U.S. 385, 64 L. ed. 319.)
In Stonehill, et al. vs. Diokno, et al., supra, this Court impliedly recognized the right of a corporation to object against
unreasonable searches and seizures, thus:
“As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the
contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have
their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the
amount of shares of stock or the interest of each of them in said corporations, whatever, the offices they hold therein
may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have
been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be
availed of by third parties. Consequently, petitioners herein may not validly object to the use in evidence against
them of the documents, papers and things seized from the offices and premises of the corporations adverted to
above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations,
45 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in
their individual capacity . . .”
In the Stonehill case only the officers of the various corporations in whose offices documents, papers and effects
were searched and seized were the petitioners. In the case at bar, the corporation to whom the seized documents
belong, and whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner corporation here
stands on a different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely as claimed by petitioners at least partly as in effect admitted by respondents based on the documents seized by virtue of
Search Warrant No. 2-M-70. Furthermore, the fact that the assessments were made some one and one-half months after the search and seizure on February 25, 1970, is a strong indication that the
documents thus seized served as basis for the assessments. Those assessments should therefore not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by respondent Judge is declared null and void; respondents are permanently enjoined from enforcing
the said search warrant; the documents, papers and effects seized thereunder are ordered to be returned to petitioners; and respondent officials the Bureau of Internal Revenue and their representatives
are permanently enjoined from enforcing the assessments mentioned in Annex “G” of the present petition, as well as other assessments based on the documents, papers and effects seized under the
search warrant herein nullified, and from using the same against petitioners in any criminal or other proceeding. No pronouncement as to costs.
10. G.R. No. 98239 April 25, 1996
CONSUELO VALDERRAMA, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, FIRST DIVISION AND MARIA ANDREA
SAAVEDRA,respondents.
MENDOZA, J.:p
On October 27, 1983, Maria Andrea Saavedra, herein private respondent, filed a complaint against the COMMODEX
(Phils.), Inc., petitioner Consuelo Valderrama as owner, Tranquilino Valderrama as executive vice president and
Jose Ma. Togle as vice president and general manager, for reinstatement and backwages. 1 On December 2, 1986,
the Labor Arbiter rendered a decision, finding private respondent to have been illegally dismissed and holding the
respondent COMMODEX liable. It was shown that private respondent had been dismissed from her employment due
to her pregnancy, contrary to allegations of petitioner and her corespondents therein that the termination of her
employment was due to redundancy and retrenchment. 2 The dispositive portion of the Labor Arbiter's decision
reads:
WHEREFORE, judgment is hereby rendered ordering respondent company:
1. to reinstate complainant to her former position with full backwages at the rate of P1,474.00
per month from the date she was illegally dismissed on 16 March 1983 until actually reinstated
without loss of seniority right and other benefits which she could have earned were it not for her
illegal dismissal;
 2. to pay complainant moral and exemplary damages in the amount of P20,000.00 and
P5,000.00, respectively; and,
3. to pay complainant attorney's fees equivalent to ten (10%) percent of the total award.
A writ of execution was granted, but it was returned unsatisfied. 3 The sheriff reported that COMMODEX had ceased
operation, while the individual officers, who were corespondents in the case, took the position that the writ could not
be enforced against them on the ground that the dispositive portion of the decision mentioned only COMMODEX.
Private respondent filed a Motion for Clarification in which she prayed:
WHEREFORE, it is most respectfully prayed that the dispositive part of the decision be clarified
to read as follows:
WHEREFORE, judgment is hereby rendered ordering respondents jointly and severally:
1. to reinstate complainant to her former position with full backwages at the rate of P1,474.00
per month from the date she was illegally dismissed on 16 March 1983 until actually reinstated
without loss of seniority right and other benefits which she could have earned were it not for her
illegal dismissal;
2. to pay complainant moral and exemplary damages in the amount of P20,000.00 and
P5,000.00, respectively; and
3. to pay complainant attorney's fee equivalent to ten (10%) percent of the total award.
Private respondent contended that the body of the decision clearly held the petitioner and her corespondents therein
to be liable and that
[t]herefore, this Office is not precluded from correcting the inadvertence by clarifying the words
"respondent company" which ought to have been "respondents jointly and severally" in order to
make the fallo or dispositive part correspond or correlate with the body of the final decision,
considering that the unjust dismissal of the complainant constitutes tort or quasidelict. (Article
2176, New Civil Code).
Petitioner and her corespondents therein filed an opposition to the motion for clarification. They contended that the
decision of the Labor Arbiter had become final and executory and could no longer be amended. 4
In reply private respondent argued that no amendment of a final decision was being sought but only the correction of
a mistake or a clarification of an ambiguity because "the exclusion [of the other respondents] in the dispositive part of
the decision is merely a clerical error or mistake, since in the body of the decision they [petitioner and corespondents
therein] were included, hence said error or mistake can yet be corrected even if the decision is already final." 5
On April 12, 1988, the Labor Arbiter, citing our ruling in A.C. Ransom Labor Union-CCLU v. NLRC, 6 which held the
president of a corporation responsible and personally liable for payment of backwages, granted the private
respondent's motion and set it for hearing for reception of evidence of the relationship of the petitioner and her
corespondents therein to COMMODEX. Private respondent then presented the Articles of Incorporation, List of
Stockholders and the General Information Sheet of COMMODEX, 7 which showed that of the 2,000 shares of stocks
46 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
of the corporation, Consuelo Valderrama owned 1,993 8 and that she was chairman of the board and president of
respondent company. 9
On July 25, 1988, the Labor Arbiter declared petitioner Consuelo Valderrama liable for the payment of the monetary
awards contained in the dispositive portion of the decision dated December 2, 1986, 10 thus:
WHEREFORE, respondent Consuelo Valderrama, as Chairman of the Board and President of
respondent Commodex (Phils.), Inc. who is originally impleaded is hereby deemed included as
party respondent and she should, as she is hereby held liable for the awards to complainant
Maria Andrea L. Saavedra.
To obviate the further issuance of a Writ of Execution against her, she should, as she is hereby
ordered to pay aforenamed complainant the monetary awards ordained in the Decision herein.
SO ORDERED.
Petitioner appealed to the NLRC. In a resolution dated February 26, 1991, the First Division of the NLRC affirmed
the Labor Arbiter's order and dismissed the appeal for lack of merit. 11 Hence, this petition. Petitioner alleges that:
1. The Decision dated 02 December 1986 has become final and executory, and, hence, can no
longer be substantially amended as to include liability on the part of herein Petitioner, who was
originally not named as liable in the dispositive portion of the said Decision; and
2. Petitioner cannot and should not be held personally liable jointly and severally with
Commodex (Phils.), Inc. for the awards adjudged in favor of herein Private Respondent
Saavedra.
We find these contentions to be without merit.
First. The rule that once a judgment becomes final it can no longer be disturbed, altered, or modified is not an
inflexible one. It admits of exceptions, as where facts and circumstances transpire after a judgment has become final
and executory which render its execution impossible or unjust. In such a case the modification of the decision may
be sought by the interested party and the court will modify and alter the judgment to harmonize it with justice and the
facts. 12
In the case at bar, modification of the judgment is appropriate considering that the company is no longer in operation
and there is no showing that it has filed bankruptcy proceedings in which private respondent might file a claim and
pursue her remedy under Article 110 of the Labor Code. Holding petitioner personally liable for the judgment in this
cases is eminently just and proper considering that, although the dispositive portion of the decision mentions only the
"respondent company," the text repeatedly mentions "respondents" in assessing liability for the illegal dismissal of
private respondent. For indeed petitioner and others were respondents below and there can be no doubt of their
personal liability. The mere happenstance that only the company is mentioned should not, therefore, be allowed to
obscure the fact that in the text of the decision petitioner and her corespondents below were found guilty of having
illegally dismissed private respondents and of claiming that private respondent's employment was terminated
because of retrenchment, when the truth was that she was dismissed for pregnancy. Hence they should be held
personally liable for private respondent's reinstatement with backwages. 13
"Indeed it is well said that to get the true intent and meaning of a decision, no specific portion thereof should be
resorted to but same must be considered in its entirety (Escarella vs. Director of Lands, 83 Phil., 491; 46, Off. Gaz.
No. 11, p. 5487; I Moran's Comments on the Rules of Court, 1957 ed., p. 478)." 14
Second. Not only is it clear by reference to the text of the decision of the Labor Arbiter that COMMODEX as well as
its officers were being held liable so that no substantial amendment of the decision was really made by the Labor
Arbiter in ordering petitioner to comply with that decision, but under the Labor Code, petitioner is herself considered
an employer. In A.C. Ransom Labor Union-CCLU v. NLRC, 15 we held:
(a) Article 265 of the Labor Code, in part, expressly provides:
Any worker whose employment has been terminated as a consequence of an unlawful lockout
shall be entitled to reinstatement with full backwages.
Article 273 of the Code provides that:
Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine
of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more
than six (6) months.
(b) How can the foregoing provisions be implemented when the employer is a corporation? The
answer is found in Article 212(c) of the Labor Code which provides:
(c) "Employer" includes any person acting in the interest of an employer, directly or indirectly.
The term shall not include any labor organization or any of its officers or agents except when
acting as employer.
The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is
an artificial person, it must have an officer who can be presumed to be the employer, being the
"person acting in the interest of (the) employer" RANSOM. The corporation, only in the technical
sense, is the employer.
The responsible officer of an employer corporation can be held personally, not to say even
criminally, liable for the non-payment of back wages. That is the policy of the law. In the
Minimum Wage Law, Section 15(b) provided:
(b) If any violation of this Act is committed by a corporation, trust, partnership or association, the
manager or in his default, the person acting as such when the violation took place, shall be
responsible. In the case of a government corporation, the managing head shall be made
responsible, except when shown that the violation was due to an act or commission of some
other person, over whom he has no control, in which case the latter shall be held responsible.
In PD 525, where a corporation fails to pay the emergency allowance therein provided, the
prescribed penalty "shall be imposed upon the guilty officer or officers" of the corporation.
(c) If the policy of the law were otherwise, the corporation employer can have devious ways for
evading payment of back wages. In the instant case, it would appear that RANSOM, in 1969,
foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized
ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win
their case. RANSOM actually ceased operations on May 1, 1973, after the December 19, 1972
Decision of the Court of Industrial Relations was promulgated against RANSOM.
47 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
(d) The record does not clearly identify "the officer or officers" of RANSOM directly responsible
for failure to pay the back wages of the 22 strikers. In the absence of definite proof in that
regard, we believe it should be presumed that the responsible officer is the President of the
corporation who can be deemed the chief operation officer thereof. Thus, in RA 602, criminal
responsibility is with the "Manager or in his default, the person acting as such." In RANSOM, the
President appears to be the Manager.
(e) Considering that non-payment of the back wages of the 22 strikers has been a continuing
situation, it is our opinion that the personal liability of the RANSOM President, at the time the
back wages were ordered to be paid should also be a continuing joint and several personal
liabilities of all who may have thereafter succeeded to the office of president; otherwise the 22
strikers may be deprived of their rights by the election of a president without leviable assets.
Petitioner seeks to distinguish that case from the one at bar on the ground that the dispositive portion of the decision
in that case actually ordered the "officers and agents" of A. C. Ransom to cease and desist from committing further
acts of certain labor practice. Thus:
IN VIEW OF ALL THE FOREGOING, . . . the A.C. Ransom Philippine Corporation is guilty of
unfair labor practice of interference and discrimination hereinabove held and specified, ordering
its officers and agents to cease and desist from committing the same; finding the strike legal and
justified; and to reinstate immediately to their respective positions with backwages from July 25,
1969 until actually reinstated, without loss of seniority rights and other privileges appurtenant to
their employment. 16
A corporation can only act through its officers and agents. That is why the cease and desist order was directed to the
"officers and agents" of A. C. Ransom, which was actually found guilty of unfair labor practice. But that case clearly
also holds that any decision against the company can be enforced against the officers in their personal capacities
should the corporation fail to satisfy the judgment against it. The quoted portion of that decision explaining the basis
for such ruling makes that clear. Agreeably with the ruling in A.C. Ransom Labor Union-CCLUit was held in another
case that "where the employer corporation is no longer existing and [is] unable to satisfy the judgment in favor of the
employee, the officer should be held liable for acting on behalf of the corporation." 17
Similarly it was held in Carmelcraft Corp. v. NLRC: 18
We also find untenable the contention of Carmen Yulo that she is not liable for the acts of the
petitioner company, assuming it had acted illegally, because the Carmelcraft Corporation is a
distinct and separate entity with a legal personality of its own. Yulo claims she is only an agent
of the company carrying out the decisions of its board of directors. We do not agree. Our finding
is that she is in fact and legal effect the corporation, being not only its president and general
manager but also its owner.
In this case, the documents presented by the private respondent show that petitioner controlled the company owning
1,993 of its 2,000 shares, with the rest of the stockholders owning only nominal amounts.
Third. Petitioner says the failure of private respondent to make a timely appeal bars her from enforcing the decision
in her favor against her (petitioner) and the officers of the corporation because the decision of December 2, 1986 of
the Labor Arbiter is now final and can no longer be amended.
We have already explained that there was really no amendment of the decision but only a clarification. But even if
appeal was required in order to correct the error, in the interest of substantial justice, especially in cases involving
rights of workers, the procedural lapse in this case may be disregarded. As held in General Baptist Bible College
v.NLRC: 19

Technicalities have no room in labor cases, where the Rules of Court are applicable only in
order to effectuate the objectives of the Labor Code and not to defeat them. The pertinent
provisions of the Revised Rules of Court of the Philippines and prevailing jurisprudence may be
applied by analogy or in a suppletory character to effect an expeditious resolution of labor
controversies in a practical and convenient manner. We are inclined to overlook a procedural
defect if only to promote substantial justice.

General rules of procedure are merely suppletory in character vis-a-vis labor disputes which are primarily governed
by labor laws. 20 Furthermore, as provided in Art. 4 of the Labor Code, "all doubts in the implementation and
interpretation of this code, including its implementing rules and regulations shall be rendered in favor of labor." 21 The
rule that the NLRC may disregard technical rules of procedure in order to give life to the constitutional mandate for
the protection of labor is well settled. 22 WHEREFORE, the petition is DISMISSED for lack of merit.

11. G.R. No. L-27155 May 18, 1978

PHILIPPINE NATIONAL BANK, petitioner,

vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN
GENERAL INSURANCE COMPANY, INC., respondents.

Medina, Locsin, Coruña, & Sumbillo for petitioner.

Manuel Lim & Associates for private respondents.

ANTONIO, J.:

Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of
Manila in Civil Case No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita Gueco Tapnio,
as third-party plaintiff, the sum of P2,379.71, plus 12% interest per annum from September 19, 1957 until the same
is fully paid, P200.00 attorney's fees and costs, the same amounts which Rita Gueco Tapnio was ordered to pay the
Philippine American General Insurance Co., Inc., to be paid directly to the Philippine American General Insurance
Co., Inc. in full satisfaction of the judgment rendered against Rita Gueco Tapnio in favor of the former; plus P500.00
attorney's fees for Rita Gueco Tapnio and costs. The basic action is the complaint filed by Philamgen (Philippine
American General Insurance Co., Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of
the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf of respondents Tapnio and
Gueco, pursuant to an indemnity agreement. Petitioner Bank was made third-party defendant by Tapnio and Gueco
on the theory that their failure to pay the debt was due to the fault or negligence of petitioner.

The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of
Manila, are quoted hereunder:

Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of the
Philippine National Bank Branch at San Fernando, Pampanga, to guarantee the payment of

48 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
defendant Rita Gueco Tapnio's account with said Bank. In turn, to guarantee the payment of
whatever amount the bonding company would pay to the Philippine National Bank, both
defendants executed the indemnity agreement, Exh. B. Under the terms and conditions of this
indemnity agreement, whatever amount the plaintiff would pay would earn interest at the rate of
12% per annum, plus attorney's fees in the amount of 15 % of the whole amount due in case of
court litigation.
The original amount of the bond was for P4,000.00; but the amount was later reduced to
P2,000.00.
It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of
P2,000.00, plus accumulated interests unpaid, which she failed to pay despite demands. The
Bank wrote a letter of demand to plaintiff, as per Exh. C; whereupon, plaintiff paid the bank on
September 18, 1957, the full amount due and owing in the sum of P2,379.91, for and on account
of defendant Rita Gueco's obligation (Exhs. D and D-1).
Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and
F), but to no avail.
Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when
demand was made upon her by plaintiff for her to pay her debt to the Bank, that she told the
Plaintiff that she did not consider herself to be indebted to the Bank at all because she had an
agreement with one Jacobo-Nazon whereby she had leased to the latter her unused export
sugar quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at the rate of P2.80
per picul, or for a total of P2,800.00, which was already in excess of her obligation guaranteed
by plaintiff's bond, Exh. A. This lease agreement, according to her, was with the knowledge of
the bank. But the Bank has placed obstacles to the consummation of the lease, and the delay
caused by said obstacles forced 'Nazon to rescind the lease contract. Thus, Rita Gueco Tapnio
filed her third-party complaint against the Bank to recover from the latter any and all sums of
money which may be adjudged against her and in favor of the plaitiff plus moral damages,
attorney's fees and costs.
Insofar as the contentions of the parties herein are concerned, we quote with approval the
following findings of the lower court based on the evidence presented at the trial of the case:
It has been established during the trial that Mrs. Tapnio had an export sugar
quota of 1,000 piculs for the agricultural year 1956-1957 which she did not
need. She agreed to allow Mr. Jacobo C. Tuazon to use said quota for the
consideration of P2,500.00 (Exh. "4"-Gueco). This agreement was called a
contract of lease of sugar allotment.
At the time of the agreement, Mrs. Tapnio was indebted to the Philippine
National Bank at San Fernando, Pampanga. Her indebtedness was known
as a crop loan and was secured by a mortgage on her standing crop
including her sugar quota allocation for the agricultural year corresponding
to said standing crop. This arrangement was necessary in order that when
Mrs. Tapnio harvests, the P.N.B., having a lien on the crop, may effectively
enforce collection against her. Her sugar cannot be exported without sugar
quota allotment Sometimes, however, a planter harvest less sugar than her
quota, so her excess quota is utilized by another who pays her for its use.
This is the arrangement entered into between Mrs. Tapnio and Mr. Tuazon
regarding the former's excess quota for 1956-1957 (Exh. "4"-Gueco).
49 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Since the quota was mortgaged to the P.N.B., the contract of lease had to
be approved by said Bank, The same was submitted to the branch manager
at San Fernando, Pampanga. The latter required the parties to raise the
consideration of P2.80 per picul or a total of P2,800.00 (Exh. "2-Gueco")
informing them that "the minimum lease rental acceptable to the Bank, is
P2.80 per picul." In a letter addressed to the branch manager on August 10,
1956, Mr. Tuazon informed the manager that he was agreeable to raising
the consideration to P2.80 per picul. He further informed the manager that
he was ready to pay said amount as the funds were in his folder which was
kept in the bank.
Explaining the meaning of Tuazon's statement as to the funds, it was stated
by him that he had an approved loan from the bank but he had not yet
utilized it as he was intending to use it to pay for the quota. Hence, when he
said the amount needed to pay Mrs. Tapnio was in his folder which was in
the bank, he meant and the manager understood and knew he had an
approved loan available to be used in payment of the quota. In said Exh. "6-
Gueco", Tuazon also informed the manager that he would want for a notice
from the manager as to the time when the bank needed the money so that
Tuazon could sign the corresponding promissory note.
Further Consideration of the evidence discloses that when the branch manager of the Philippine
National Bank at San Fernando recommended the approval of the contract of lease at the price
of P2.80 per picul (Exh. 1 1-Bank), whose recommendation was concurred in by the Vice-
president of said Bank, J. V. Buenaventura, the board of directors required that the amount be
raised to 13.00 per picul. This act of the board of directors was communicated to Tuazon, who in
turn asked for a reconsideration thereof. On November 19, 1956, the branch manager submitted
Tuazon's request for reconsideration to the board of directors with another recommendation for
the approval of the lease at P2.80 per picul, but the board returned the recommendation unacted
upon, considering that the current price prevailing at the time was P3.00 per picul (Exh. 9-Bank).
The parties were notified of the refusal on the part of the board of directors of the Bank to grant
the motion for reconsideration. The matter stood as it was until February 22, 1957, when Tuazon
wrote a letter (Exh. 10-Bank informing the Bank that he was no longer interested to continue the
deal, referring to the lease of sugar quota allotment in favor of defendant Rita Gueco Tapnio.
The result is that the latter lost the sum of P2,800.00 which she should have received from
Tuazon and which she could have paid the Bank to cancel off her indebtedness,
The court below held, and in this holding we concur that failure of the negotiation for the lease of
the sugar quota allocation of Rita Gueco Tapnio to Tuazon was due to the fault of the directors
of the Philippine National Bank, The refusal on the part of the bank to approve the lease at the
rate of P2.80 per picul which, as stated above, would have enabled Rita Gueco Tapnio to realize
the amount of P2,800.00 which was more than sufficient to pay off her indebtedness to the
Bank, and its insistence on the rental price of P3.00 per picul thus unnecessarily increasing the
value by only a difference of P200.00. inevitably brought about the rescission of the lease
contract to the damage and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00.
The unreasonableness of the position adopted by the board of directors of the Philippine
National Bank in refusing to approve the lease at the rate of P2.80 per picul and insisting on the
rate of P3.00 per picul, if only to increase the retail value by only P200.00 is shown by the fact
that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on
standing crops, assignment of leasehold rights and interests on her properties, and surety
bonds, aside from the fact that from Exh. 8-Bank, it appears that she was offering to execute a
real estate mortgage in favor of the Bank to replace the surety bond This statement is further
 bolstered by the fact that Rita Gueco Tapnio apparently had the means to pay her obligation fact
that she has been granted several value of almost P80,000.00 for the agricultural years from
1952 to 56. 1
Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the
present petition.
The petitioner contends that the Court of Appeals erred:
(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita
Gueco Tapnio by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease contract,
and its unreasonable insistence on the rental price of P3.00 instead of P2.80 per picul; and
(2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the
petitioner, the latter's Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota
leased by respondent Rita Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and
under the Corporation Law, to safeguard and protect its rights and interests under the deed of assignment, which
include the right to approve or disapprove the said lease of sugar quota and in the exercise of that authority, its
Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar quota subject
of the lease between private respondents and Jacobo C. Tuazon. It argued further that both under its Charter and
the Corporation Law, petitioner, acting thru its Board of Directors, has the perfect right to adopt a policy with respect
to fixing of rental prices of export sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did not act
arbitrarily since the said Board was guided by statistics of sugar price and prices of sugar quotas prevailing at the
time. Since the fixing of the rental of the sugar quota is a function lodged with petitioner's Board of Directors and is a
matter of policy, the respondent Court of Appeals could not substitute its own judgment for that of said Board of
Directors, which acted in good faith, making as its basis therefore the prevailing market price as shown by statistics
which were then in their possession.
Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a
creditor, it shall be deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be required
to return to respondent Philamgen the sum of P2,379.71, plus interest, which amount had been previously paid to
petitioner by said insurance company in behalf of the principal debtor, herein respondent Rita Gueco Tapnio, and
without recourse against respondent Rita Gueco Tapnio.
We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to reviewing
only errors of law, accepting as conclusive the factual fin dings of the Court of Appeals upon its own assessment of
the evidence. 2
The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon
was executed on April 17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank
at San Fernando, Pampanga. This arrangement was necessary because Tapnio's indebtedness to petitioner was
secured by a mortgage on her standing crop including her sugar quota allocation for the agricultural year
corresponding to said standing crop. The latter required the parties to raise the consideration to P2.80 per picul, the
minimum lease rental acceptable to the Bank, or a total of P2,800.00. Tuazon informed the Branch Manager, thru a
letter dated August 10, 1956, that he was agreeable to raising the consideration to P2.80 per picul. He further
informed the manager that he was ready to pay the said sum of P2,800.00 as the funds were in his folder which was
kept in the said Bank. This referred to the approved loan of Tuazon from the Bank which he intended to use in
paying for the use of the sugar quota. The Branch Manager submitted the contract of lease of sugar quota allocation
50 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
to the Head Office on September 7, 1956, with a recommendation for approval, which recommendation was
concurred in by the Vice-President of the Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of Directors
of petitioner required that the consideration be raised to P3.00 per picul.
Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On
November 19, 1956, the Branch Manager submitted the request for reconsideration and again recommended the
approval of the lease at P2.80 per picul, but the Board returned the recommendation unacted, stating that the current
price prevailing at that time was P3.00 per picul.
On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the
lease of sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota,
resulting in her loss in the sum of P2,800.00 which she should have received had the lease in favor of Tuazon been
implemented.
It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration
of the lease from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the
Branch Manager of the Bank on August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per
picul was acceptable to him and that he even offered to use the loan secured by him from petitioner to pay in full the
sum of P2,800.00 which was the total consideration of the lease. This arrangement was not only satisfactory to the
Branch Manager but it was also approves by Vice-President J. V. Buenaventura of the PNB. Under that
arrangement, Rita Gueco Tapnio could have realized the amount of P2,800.00, which was more than enough to pay
the balance of her indebtedness to the Bank which was secured by the bond of Philamgen.
There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the
disapproval of the lease by the Board of Directors of petitioner. The issue, therefore, is whether or not petitioner is
liable for the damage caused.
As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since the
same must be utilized during the milling season, because any allotment which is not filled during such milling season
may be reallocated by the Sugar Quota Administration to other holders of allotments. 3 There was no proof that there
was any other person at that time willing to lease the sugar quota allotment of private respondents for a price higher
than P2.80 per picul. "The fact that there were isolated transactions wherein the consideration for the lease was
P3.00 a picul", according to the trial court, "does not necessarily mean that there are always ready takers of said
price. " The unreasonableness of the position adopted by the petitioner's Board of Directors is shown by the fact that
the difference between the amount of P2.80 per picul offered by Tuazon and the P3.00 per picul demanded by the
Board amounted only to a total sum of P200.00. Considering that all the accounts of Rita Gueco Tapnio with the
Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on her
properties, and surety bonds and that she had apparently "the means to pay her obligation to the Bank, as shown by
the fact that she has been granted several sugar crop loans of the total value of almost P80,000.00 for the
agricultural years from 1952 to 1956", there was no reasonable basis for the Board of Directors of petitioner to have
rejected the lease agreement because of a measly sum of P200.00.
While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was
mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the
interest of private respondents, that degree of care, precaution and vigilance which the circumstances justly demand
in approving or disapproving the lease of said sugar quota. The law makes it imperative that every person "must in
the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith, 4 This petitioner failed to do. Certainly, it knew that the agricultural year was about to expire,
that by its disapproval of the lease private respondents would be unable to utilize the sugar quota in question. In
failing to observe the reasonable degree of care and vigilance which the surrounding circumstances reasonably
impose, petitioner is consequently liable for the damages caused on private respondents. Under Article 21 of the
New Civil Code, "any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage." The afore-cited provisions on human relations
were intended to expand the concept of torts in this jurisdiction by granting adequate legal remedy for the untold
number of moral wrongs which is impossible for human foresight to specifically provide in the statutes. 5

A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules
governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the
principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial
person. All of the authorities agree that a principal or master is liable for every tort which he expressly directs or
authorizes, and this is just as true of a corporation as of a natural person, A corporation is liable, therefore, whenever
a tortious act is committed by an officer or agent under express direction or authority from the stockholders or
members acting as a body, or, generally, from the directors as the governing body." 6

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.

Fernando, Aquino, Concepcion, Jr., and Santos, JJ., concur.

12. G.R. No. L-31061 August 17, 1976

Separate Opinions

SULO NG BAYAN INC., plaintiff-appellant,

BARREDO, J., concurring:
vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS & SEWERAGE
concurs on the basis of Article 19 of the Civil Code, or at least, of equity. He reserves his opinion on the matter of AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF BULACAN, defendants-appellees.
torts relied upon in the main opinion.
Hill & Associates Law Offices for appellant.
Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.
Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.
Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the Government Corporate Counsel for
appellee National Waterworks & Sewerage Authority.
Candido G. del Rosario for appellee Hacienda Caretas, Inc.

ANTONIO, J.:

The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an action in behalf of
its individual members for the recovery of certain parcels of land allegedly owned by said members; for the
nullification of the transfer certificates of title issued in favor of defendants appellees covering the aforesaid parcels
of land; for a declaration of "plaintiff's members as absolute owners of the property" and the issuance of the
corresponding certificate of title; and for damages.

On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First
Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against defendants-appellees to recover the
ownership and possession of a large tract of land in San Jose del Monte, Bulacan, containing an area of 27,982,250
square meters, more or less, registered under the Torrens System in the name of defendants-appellees'
predecessors-in-interest. 1 The complaint, as amended on June 13, 1966, specifically alleged that plaintiff is a
corporation organized and existing under the laws of the Philippines, with its principal office and place of business at
San Jose del Monte, Bulacan; that its membership is composed of natural persons residing at San Jose del Monte,
Bulacan; that the members of the plaintiff corporation, through themselves and their predecessors-in-interest, had
pioneered in the clearing of the fore-mentioned tract of land, cultivated the same since the Spanish regime and
continuously possessed the said property openly and public under concept of ownership adverse against the whole
world; that defendant-appellee Gregorio Araneta, Inc., sometime in the year 1958, through force and intimidation,
ejected the members of the plaintiff corporation fro their possession of the aforementioned vast tract of land; that
upon investigation conducted by the members and officers of plaintiff corporation, they found out for the first time in

51 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
the year 1961 that the land in question "had been either fraudelently or erroneously included, by direct or Appellant contends, as a first assignment of error, that the trial court acted without authority and jurisdiction in
constructive fraud, in Original Certificate of Title No. 466 of the Land of Records of the province of Bulacan", issued dismissing the amended complaint when the Secretary of Justice had already approved the transfer of the case to
on May 11, 1916, which title is fictitious, non-existent and devoid of legal efficacy due to the fact that "no original any one of the two branches of the Court of First Instance of Malolos, Bulacan.
survey nor plan whatsoever" appears to have been submitted as a basis thereof and that the Court of First Instance
of Bulacan which issued the decree of registration did not acquire jurisdiction over the land registration case because
Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in the different
no notice of such proceeding was given to the members of the plaintiff corporation who were then in actual
branches of the same Court of First Instance. Jurisdiction implies the power of the court to decide a case, while
possession of said properties; that as a consequence of the nullity of the original title, all subsequent titles derived
venue the place of action. There is no question that respondent court has jurisdiction over the case. The venue of
therefrom, such as Transfer Certificate of Title No. 4903 issued in favor of Gregorio Araneta and Carmen Zaragoza,
actions in the Court of First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying of
which was subsequently cancelled by Transfer Certificate of Title No. 7573 in the name of Gregorio Araneta, Inc.,
venue is not left to the caprice of plaintiff, but must be in accordance with the aforesaid provision of the rules. 2The
Transfer Certificate of Title No. 4988 issued in the name of, the National Waterworks & Sewerage Authority (NWSA),
mere fact that a request for the transfer of a case to another branch of the same court has been approved by the
Transfer Certificate of Title No. 4986 issued in the name of Hacienda Caretas, Inc., and another transfer certificate of
Secretary of Justice does not divest the court originally taking cognizance thereof of its jurisdiction, much less does it
title in the name of Paradise Farms, Inc., are therefore void. Plaintiff-appellant consequently prayed (1) that Original
change the venue of the action. As correctly observed by the trial court, the indorsement of the Undersecretary of
Certificate of Title No. 466, as well as all transfer certificates of title issued and derived therefrom, be nullified; (2)
Justice did not order the transfer of the case to the Malolos Branch of the Bulacan Court of First Instance, but only
that "plaintiff's members" be declared as absolute owners in common of said property and that the corresponding
"authorized" it for the reason given by plaintiff's counsel that the transfer would be convenient for the parties. The trial
certificate of title be issued to plaintiff; and (3) that defendant-appellee Gregorio Araneta, Inc. be ordered to pay to
court is not without power to either grant or deny the motion, especially in the light of a strong opposition thereto filed
plaintiff the damages therein specified.
by the defendant. We hold that the court a quo acted within its authority in denying the motion for the transfer the
case to Malolos notwithstanding the authorization" of the same by the Secretary of Justice.
On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the amended complaint
on the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any, is barred by
II
prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the
same grounds. Appellee National Waterworks & Sewerage Authority did not file any motion to dismiss. However, it
pleaded in its answer as special and affirmative defenses lack of cause of action by the plaintiff-appellant and the Let us now consider the substantive aspect of the Order of dismissal.
barring of such action by prescription and laches.
In dismissing the amended complaint, the court a quo said:
During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7, 1966, praying that
the case be transferred to another branch of the Court of First Instance sitting at Malolos, Bulacan, According to
The issue of lack of cause of action raised in the motions to dismiss refer to the lack of
defendants-appellees, they were not furnished a copy of said motion, hence, on October 14, 1966, the lower court
personality of plaintiff to file the instant action. Essentially, the term 'cause of action' is composed
issued an Order requiring plaintiff-appellant to furnish the appellees copy of said motion, hence, on October 14,
of two elements: (1) the right of the plaintiff and (2) the violation of such right by the defendant.
1966, defendant-appellant's motion dated October 7, 1966 and, consequently, prayed that the said motion be denied
(Moran, Vol. 1, p. 111). For these reasons, the rules require that every action must be
for lack of notice and for failure of the plaintiff-appellant to comply with the Order of October 14, 1966. Similarly,
prosecuted and defended in the name of the real party in interest and that all persons having an
defendant-appellee paradise Farms, Inc. filed, on December 2, 1966, a manifestation information the court that it
interest in the subject of the action and in obtaining the relief demanded shall be joined as
also did not receive a copy of the afore-mentioned of appellant. On January 24, 1967, the trial court issued an Order
plaintiffs (Sec. 2, Rule 3). In the amended complaint, the people whose rights were alleged to
dismissing the amended complaint.
have been violated by being deprived and dispossessed of their land are the members of the
corporation and not the corporation itself. The corporation has a separate. and distinct
On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds that the court had personality from its members, and this is not a mere technicality but a matter of substantive law.
no jurisdiction to issue the Order of dismissal, because its request for the transfer of the case from the Valenzuela There is no allegation that the members have assigned their rights to the corporation or any
Branch of the Court of First Instance to the Malolos Branch of the said court has been approved by the Department showing that the corporation has in any way or manner succeeded to such rights. The
of Justice; that the complaint states a sufficient cause of action because the subject matter of the controversy in one corporation evidently did not have any rights violated by the defendants for which it could seek
of common interest to the members of the corporation who are so numerous that the present complaint should be redress. Even if the Court should find against the defendants, therefore, the plaintiff corporation
treated as a class suit; and that the action is not barred by the statute of limitations because (a) an action for the would not be entitled to the reliefs prayed for, which are recoveries of ownership and possession
reconveyance of property registered through fraud does not prescribe, and (b) an action to impugn a void judgment of the land, issuance of the corresponding title in its name, and payment of damages. Neither
may be brought any time. This motion was denied by the trial court in its Order dated February 22, 1967. From the can such reliefs be awarded to the members allegedly deprived of their land, since they are not
afore-mentioned Order of dismissal and the Order denying its motion for reconsideration, plaintiff-appellant appealed parties to the suit. It appearing clearly that the action has not been filed in the names of the real
to the Court of Appeals. parties in interest, the complaint must be dismissed on the ground of lack of cause of action. 3

On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in the appeal but Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed the amended
only questions of law and jurisdiction, certified this case to this Court for resolution of the legal issues involved in the complaint.
controversy.
It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be
I considered as separate and apart from the individual stockholders or members who compose it, and is not affected
by the personal rights, obligations and transactions of its stockholders or members. 4 The property of the corporation
is its property and not that of the stockholders, as owners, although they have equities in it. Properties registered in
the name of the corporation are owned by it as an entity separate and distinct from its members. 5Conversely, a
52 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the Under the first requisite, the person who sues must have an interest in the controversy, common with those for whom
corporation, "even in the case of a one-man corporation. 6 The mere fact that one is president of a corporation does he sues, and there must be that unity of interest between him and all such other persons which would entitle them to
not render the property which he owns or possesses the property of the corporation, since the president, as maintain the action if suit was brought by them jointly. 21
individual, and the corporation are separate similarities. 7 Similarly, stockholders in a corporation engaged in buying
and dealing in real estate whose certificates of stock entitled the holder thereof to an allotment in the distribution of
As to what constitutes common interest in the subject matter of the controversy, it has been explained in Scott v.
the land of the corporation upon surrender of their stock certificates were considered not to have such legal or
Donald 22 thus:
equitable title or interest in the land, as would support a suit for title, especially against parties other than the
corporation. 8
The interest that will allow parties to join in a bill of complaint, or that will enable the court to
dispense with the presence of all the parties, when numerous, except a determinate number, is
It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the persons
not only an interest in the question, but one in common in the subject Matter of the suit; ... a
composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of
community of interest growing out of the nature and condition of the right in dispute; for,
justice. 9 This separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in
although there may not be any privity between the numerous parties, there is a common title out
cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or where necessary to
of which the question arises, and which lies at the foundation of the proceedings ... [here] the
achieve equity. 10
only matter in common among the plaintiffs, or between them and the defendants, is an interest
in the Question involved which alone cannot lay a foundation for the joinder of parties. There is
Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend scarcely a suit at law, or in equity which settles a Principle or applies a principle to a given state
crime, ... the law will regard the corporation as an association of persons, or in the case of two corporations, merge of facts, or in which a general statute is interpreted, that does not involved a Question in which
them into one, the one being merely regarded as part or instrumentality of the other. 11 The same is true where a other parties are interested. ... (Emphasis supplied )
corporation is a dummy and serves no business purpose and is intended only as a blind, or an alter ego or business
conduit for the sole benefit of the stockholders. 12 This doctrine of disregarding the distinct personality of the
Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in the subject
corporation has been applied by the courts in those cases when the corporate entity is used for the evasion of
matter of the controversy, and cannot, therefore, represent its members or stockholders who claim to own in their
taxes 13 or when the veil of corporate fiction is used to confuse legitimate issue of employer-employee
individual capacities ownership of the said property. Moreover, as correctly stated by the appellees, a class suit does
relationship, 14 or when necessary for the protection of creditors, in which case the veil of corporate fiction may be
not lie in actions for the recovery of property where several persons claim Partnership of their respective portions of
pierced and the funds of the corporation may be garnished to satisfy the debts of a principal stockholder. 15 The
the property, as each one could alleged and prove his respective right in a different way for each portion of the land,
aforecited principle is resorted to by the courts as a measure protection for third parties to prevent fraud, illegality or
so that they cannot all be held to have Identical title through acquisition prescription. 23
injustice. 16

Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower court cannot be
It has not been claimed that the members have assigned or transferred whatever rights they may have on the land in
considered as a class suit, it would be unnecessary and an Idle exercise for this Court to resolve the remaining issue
question to the plaintiff corporation. Absent any showing of interest, therefore, a corporation, like plaintiff-appellant
of whether or not the plaintiffs action for reconveyance of real property based upon constructive or implied trust had
herein, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of
already prescribed.
recovering property which belongs to said stockholders or members in their personal capacities.

ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.
It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right conferred' by law
upon a person. 17 Evidently, there can be no wrong without a corresponding right, and no breach of duty by one
person without a corresponding right belonging to some other person. 18 Thus, the essential elements of a cause of
action are legal right of the plaintiff, correlative obligation of the defendant, an act or omission of the defendant in
violation of the aforesaid legal right. 19 Clearly, no right of action exists in favor of plaintiff corporation, for as shown
heretofore it does not have any interest in the subject matter of the case which is material and, direct so as to entitle
it to file the suit as a real party in interest.

III

Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant to Section 12 of
Rule 3 of the Revised Rules of Court.

In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter of the
controversy is one of common or general interest to many persons; and (2) that the parties are so numerous that it is
impracticable to bring them all before the court. 20

53 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 13. G.R. No. 100866 July 14, 1992

REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners,

vs.
HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC., respondents.

GUTIERREZ, JR., J.:

This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R. No. 14530 affirming the
earlier decision of the Regional Trial Court of Laguna, Branch 37, at Calamba, in the consolidated RTC Civil Case
Nos. 802-84-C and 803-84-C entitled "Heirs of Eugenia V. Roxas, Inc. v. Rebecca Boyer-Roxas" and Heirs of
Eugenia V. Roxas, Inc. v. Guillermo Roxas," the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against
the defendants, by ordering as it is hereby ordered that:

1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all persons claiming under her
to:

a) Immediately vacate the residential house near the Balugbugan pool located inside the
premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her
occupancy of the residential house until the same is vacated;

c) Remove the unfinished building erected on the land of the plaintiff within ninety (90) days from
receipt of this decision;

54 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the said
unfinished building is removed from the land of the plaintiff; and
e) Pay the costs.
2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to:
a) Immediately vacate the residential house near the tennis court located within the premises of
the Hidden Valley Springs Resort at Limao, Calauan, Laguna;
b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for his
occupancy of the said residential house until the same is vacated; and
c) Pay the costs. (Rollo, p. 36)
In two (2) separate complaints for recovery of possession filed with the Regional Trial Court of Laguna against
petitioners Rebecca Boyer-Roxas and Guillermo Roxas respectively, respondent corporation, Heirs of Eugenia V.
Roxas, Inc., prayed for the ejectment of the petitioners from buildings inside the Hidden Valley Springs Resort
located at Limao, Calauan, Laguna allegedly owned by the respondent corporation.
In the case of petitioner Rebecca Boyer-Roxas (Civil Case No-802-84-C), the respondent corporation alleged that
Rebecca is in possession of two (2) houses, one of which is still under construction, built at the expense of the
respondent corporation; and that her occupancy on the two (2) houses was only upon the tolerance of the
respondent corporation.
In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent corporation alleged that
Guillermo occupies a house which was built at the expense of the former during the time when Guillermo's father,
Eriberto Roxas, was still living and was the general manager of the respondent corporation; that the house was
originally intended as a recreation hall but was converted for the residential use of Guillermo; and that Guillermo's
possession over the house and lot was only upon the tolerance of the respondent corporation.
In both cases, the respondent corporation alleged that the petitioners never paid rentals for the use of the buildings
and the lots and that they ignored the demand letters for them to vacate the buildings.
In their separate answers, the petitioners traversed the allegations in the complaint by stating that they are heirs of
Eugenia V. Roxas and therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners of the property,
they have the right to stay within its premises.
The cases were consolidated and tried jointly.
At the pre-trial, the parties limited the issues as follows:
1) whether plaintiff is entitled to recover the questioned premises;
2) whether plaintiff is entitled to reasonable rental for occupancy of the premises in question;
55 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
3) whether the defendant is legally authorized to pierce the veil of corporate fiction and interpose
the same as a defense in an accion publiciana;
4) whether the defendants are truly builders in good faith, entitled to occupy the questioned
premises;
5) whether plaintiff is entitled to damages and reasonable compensation for the use of the
questioned premises;
6) whether the defendants are entitled to their counterclaim to recover moral and exemplary
damages as well as attorney's fees in the two cases;
7) whether the presence and occupancy by the defendants on the premises in questioned ( sic)
hampers, deters or impairs plaintiff's operation of Hidden Valley Springs Resort; and
8) whether or not a unilateral and sudden withdrawal of plaintiffs tolerance allowing defendants'
occupancy of the premises in questioned (sic) is unjust enrichment. (Original Records, 486)
Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma. Guerrero of Branch 34 issued an
Order dated April 25, 1986 inhibiting himself from further trying the case. The cases were re-raffled to Branch 37
presided by Judge Odilon Bautista. Judge Bautista continued the hearing of the cases.
For failure of the petitioners (defendants below) and their counsel to attend the October 22, 1986 hearing despite
notice, and upon motion of the respondent corporation, the court issued on the same day, October 22, 1986, an
Order considering the cases submitted for decision. At this stage of the proceedings, the petitioners had not yet
presented their evidence while the respondent corporation had completed the presentation of its evidence.
The evidence of the respondent corporation upon which the lower court based its decision is as follows:
To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and that
of Victoria Roxas Villarta as well as Exhibits "A" to "M-3".
The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V
Roxas, Incorporated, was incorporated on December 4, 1962 (Exh. "C") with the primary
purpose of engaging in agriculture to develop the properties inherited from Eugenia V. Roxas
and that of y Eufrocino Roxas; that the Articles of Incorporation of the plaintiff, in 1971, was
amended to allow it to engage in the resort business (Exh.
"C-1"); that the incorporators as original members of the board of directors of the plaintiff were all
members of the same family, with Eufrocino Roxas having the biggest share; that accordingly,
the plaintiff put up a resort known as Hidden Valley Springs Resort on a portion of its land
located at Bo. Limao, Calauan, Laguna, and covered by TCT No. 32639 (Exhs. "A" and "A-l");
that improvements were introduced in the resort by the plaintiff and among them were cottages,
houses or buildings, swimming pools, tennis court, restaurant and open pavilions; that the house
near the Balugbugan Pool (Exh. "B-l") being occupied by Rebecca B. Roxas was originally
intended as staff house but later used as the residence of Eriberto Roxas, deceased husband of
the defendant Rebecca Boyer-Roxas and father of Guillermo Roxas; that this house presently
being occupied by Rebecca B. Roxas was built from corporate funds; that the construction of the
unfinished house (Exh. "B-2") was started by the defendant Rebecca Boyer-Roxas and her
husband Eriberto Roxas; that the third building (Exh. "B-3") presently being occupied by
Guillermo Roxas was originally intended as a recreation hall but later converted as a residential
 house; that this house was built also from corporate funds; that the said house occupied by
Guillermo Roxas when it was being built had nipa roofing but was later changed to galvanized
iron sheets; that at the beginning, it had no partition downstairs and the second floor was an
open space; that the conversion from a recreation hall to a residential house was with the
knowledge of Eufrocino Roxas and was not objected to by any of the Board of Directors of the
plaintiff; that most of the materials used in converting the building into a residential house came
from the materials left by Coppola, a film producer, who filmed the movie "Apocalypse Now"; that
Coppola left the materials as part of his payment for rents of the rooms that he occupied in the
resort; that after the said recreation hall was converted into a residential house, defendant
Guillermo Roxas moved in and occupied the same together with his family sometime in 1977 or
1978; that during the time Eufrocino Roxas was still alive, Eriberto Roxas was the general
manager of the corporation and there was seldom any board meeting; that Eufrocino Roxas
together with Eriberto Roxas were (sic) the ones who were running the corporation; that during
this time, Eriberto Roxas was the restaurant and wine concessionaire of the resort; that after the
death of Eufrocino Roxas, Eriberto Roxas continued as the general manager until his death in
1980; that after the death of Eriberto Roxas in 1980, the defendants Rebecca B. Roxas and
Guillermo Roxas, committed acts that impeded the plaintiff's expansion and normal operation of
the resort; that the plaintiff could not even use its own pavilions, kitchen and other facilities
because of the acts of the defendants which led to the filing of criminal cases in court; that cases
were even filed before the Ministry of Tourism, Bureau of Domestic Trade and the Office of the
President by the parties herein; that the defendants violated the resolution and orders of the
Ministry of Tourism dated July 28, 1983, August 3, 1983 and November 26, 1984 (Exhs. "G", "H"
and "H-l") which ordered them or the corporation they represent to desist from and to turn over
immediately to the plaintiff the management and operation of the restaurant and wine outlets of
the said resort (Exh. "G-l"); that the defendants also violated the decision of the Bureau of
Domestic Trade dated October 23, 1983 (Exh. "C"); that on August 27, 1983, because of the
acts of the defendants, the Board of Directors of the plaintiff adopted Resolution No. 83-12
series of 1983 (Exh. "F") authorizing the ejectment of the defendants from the premises
occupied by them; that on September 1, 1983, demand letters were sent to Rebecca Boyer-
Roxas and Guillermo Roxas (Exhs. "D" and "D-1") demanding that they vacate the respective
premises they occupy; and that the dispute between the plaintiff and the defendants was
brought before the barangay level and the same was not settled (Exhs. "E" and "E-l"). (Original
Records, pp. 454-456)
The petitioners appealed the decision to the Court of Appeals. However, as stated earlier, the appellate court
affirmed the lower court's decision. The Petitioners' motion for reconsideration was likewise denied.
Hence, this petition.
In a resolution dated February 5, 1992, we gave due course to the petition.
The petitioners now contend:
I Respondent Court erred when it refused to pierce the veil of corporate fiction over private respondent and maintain
the petitioners in their possession and/or occupancy of the subject premises considering that petitioners are owners
of aliquot part of the properties of private respondent. Besides, private respondent itself discarded the mantle of
corporate fiction by acts and/or omissions of its board of directors and/or stockholders.
II The respondent Court erred in not holding that petitioners were in fact denied due process or their day in court
brought about by the gross negligence of their former counsel.
56 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
III The respondent Court misapplied the law when it ordered petitioner Rebecca Boyer-Roxas to remove the
unfinished building in RTC Case No. 802-84-C, when the trial court opined that she spent her own funds for the
construction thereof. (CA Rollo, pp. 17-18)
Were the petitioners denied due process of law in the lower court?
After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of Branch 37 the following events
transpired:
On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July 21, 1986. Petitioner
Rebecca V. Roxas received a copy of the Order on July 15, 1986, while petitioner Guillermo Roxas received his copy
on July 18, 1986. Atty. Conrado Manicad, the petitioners' counsel received another copy of the Order on July 11,
1986. (Original Records, p. 260)
On motion of the respondent corporation's counsel, the lower court issued an Order dated July 15, 1986 cancelling
the July 21, 1986 hearing and resetting the hearing to August 11, 1986. (Original records, 262-263) Three separate
copies of the order were sent and received by the petitioners and their counsel. (Original Records, pp. 268, 269, 271)
A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent corporation's counsel was
denied in an Order dated August 8, 1986. Again separate copies of the Order were sent and received by the
petitioners and their counsel. (Original Records, pp. 276-279)
At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for the respondent corporation appeared.
Neither the petitioners nor their counsel appeared despite notice of hearing. The lower court then issued an Order on
the same date, to wit:
ORDER
When these cases were called for continuation of trial, Atty. Benito P. Fabie appeared before
this Court, however, the defendants and their lawyer despite receipt of the Order setting the
case for hearing today failed to appear. On Motion of Atty. Fabie, further cross examination of
witness Victoria Vallarta is hereby considered as having been waived.
The plaintiff is hereby given twenty (20) days from today within which to submit formal offer of
evidence and defendants are also given ten (10) days from receipt of such formal offer of
evidence to file their objection thereto.
In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 o'clock in the
morning. (Original Records, p. 286)
Copies of the Order were sent and received by the petitioners and their counsel on the following dates — Rebecca
Boyer-Roxas on August 20, 1986, Guillermo Roxas on August 26, 1986, and Atty. Conrado Manicad on September
19, 1986. (Original Records, pp. 288-290)
On September 1, 1986, the respondent corporation filed its "Formal Offer of Evidence." In an Order dated September
29, 1986, the lower court issued an Order admitting exhibits "A" to "M-3" submitted by the respondent corporation in
its "Formal Offer of Evidence . . . there being no objection . . ." (Original Records, p. 418) Copies of this Order were
sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on October 9,
1986; Guillermo Roxas on October 9, 1986 and Atty. Conrado Manicad on October 4, 1986 (Original Records, pp.
420, 421, 428).
The scheduled hearing on September 29, 1986 did not push through as the petitioners and their counsel were not
present prompting Atty. Benito Fabie, the respondent corporation's counsel to move that the cases be submitted for
decision. The lower court denied the motion and set the cases for hearing on October 22, 1986. However, in its
Order dated September 29, 1986, the court warned that in the event the petitioners and their counsel failed to appear
on the next scheduled hearing, the court shall consider the cases submitted for decision based on the evidence on
record. (Original Records, p. 429, 430 and 431)
Separate copies of this Order were sent and received by the petitioners and their counsel on the following dates:
Rebecca Boyer-Roxas on October 9, 1986, Guillermo Roxas on October 9, 1986; and Atty. Conrado Manicad on
October 1, 1986. (Original Records, pp. 429-430)
Despite notice, the petitioners and their counsel again failed to attend the scheduled October 22, 1986 hearing. Atty.
Fabie representing the respondent corporation was present. Hence, in its Order dated October 22, 1986, on motion
of Atty. Fabie and pursuant to the order dated September 29, 1986, the Court considered the cases submitted for
decision. (Original Records, p. 436)
On November 14, 1986, the respondent corporation, filed a "Manifestation", stating that ". . . it is submitting without
further argument its "Opposition to the Motion for Reconsideration" for the consideration of the Honorable Court in
resolving subject incident." (Original Records, p. 442)
On December 16, 1986, the lower court issued an Order, to wit:
ORDER
Considering that the Court up to this date has not received any Motion for Reconsideration filed
by the defendants in the above-entitled cases, the Court cannot act on the Opposition to Motion
for Reconsideration filed by the plaintiff and received by the Court on November 14, 1986.
(Original Records, p. 446)
On January 15, 1987, the lower court rendered the questioned decision in the two (2) cases. (Original Records, pp.
453-459)
On January 20, 1987, Atty. Conrado Manicad, the petitioners' counsel filed an Ex-Parte Manifestation and attached
thereto, a motion for reconsideration of the October 22, 1986 Order submitting the cases for decision. He prayed that
the Order be set aside and the cases be re-opened for reception of evidence for the petitioners. He averred that: 1)
within the reglementary period he prepared the motion for reconsideration and among other documents, the draft
was sent to his law office thru his messenger; after signing the final copies, he caused the service of a copy to the
respondent corporation's counsel with the instruction that the copy of the Court be filed; however, there was a
miscommunication between his secretary and messenger in that the secretary mailed the copy for the respondent
corporation's counsel and placed the rest in an envelope for the messenger to file the same in court but the
messenger thought that it was the secretary who would file it; it was only later on when it was discovered that the
copy for the Court has not yet been filed and that such failure to file the motion for reconsideration was due to
excusable neglect and/or accident. The motion for reconsideration contained the following allegations: that on the
date set for hearing (October 22, 1986), he was on his way to Calamba to attend the hearing but his car suffered
transmission breakdown; and that despite efforts to repair said transmission, the car remained inoperative resulting
in his absence at the said hearing. (Original Records, pp. 460-469)
57 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15, 1987 decision. He
explained that he had to file the motion because the receiving clerk refused to admit the motion for reconsideration
attached to the ex-parte manifestation because there was no proof of service to the other party. Included in the
motion for reconsideration was a notice of hearing of the motion on February 3, 1987. (Original Records, p. 476-A)
On February 4, 1987, the respondent corporation through its counsel filed a Manifestation and Motion manifesting
that they received the copy of the motion for reconsideration only today (February 4, 1987), hence they prayed for
the postponement of the hearing. (Original Records, pp. 478-479)
On the same day, February 4, 1987, the lower court issued an Order setting the hearing on February 13, 1987 on the
ground that it received the motion for reconsideration late. Copies of this Order were sent separately to the
petitioners and their counsel. The records show that Atty. Manicad received his copy on February 11, 1987. As
regards the petitioners, the records reveal that Rebecca Boyer-Roxas did not receive her copy while as regards
Guillermo Roxas, somebody signed for him but did not indicate when the copy was received. (Original Records, pp.
481-483)
At the scheduled February 13, 1987 hearing, the counsels for the parties were present. However, the hearing was
reset for March 6, 1987 in order to allow the respondent corporation to file its opposition to the motion for
reconsideration. (Order dated February 13, 1987, Original Records, p. 486) Copies of the Order were sent and
received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on February 23, 1987;
Guillermo Roxas on February 23, 1987 and Atty. Manicad on February 19, 1987. (Original Records, pp. 487, 489-
490)
The records are not clear as to whether or not the scheduled hearing on March 6, 1987 was held. Nevertheless, the
records reveal that on March 13, 1987, the lower court issued an Order denying the motion for reconsideration.
The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila v. Court of First Instance of
Batangas, Branch I, 160 SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza,
89 Phil. 279 [1951]; Montes v. Court of First Instance of Tayabas, 48 Phil. 640 [1926]; People v. Manzanilla, 43 Phil.
167 [1922]; United States v. Dungca, 27 Phil. 274 [1914]; and United States v. Umali, 15 Phil. 33 [1910]) This rule,
however, has its exceptions. Thus, in several cases, we ruled that the party is not bound by the actions of his
counsel in case the gross negligence of the counsel resulted in the client's deprivation of his property without due
process of law. In the case of Legarda v. Court of Appeals (195 SCRA 418 [1991]), we said:
In People's Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this Court
ruled as follows:
Procedural technicality should not be made a bar to the vindication of a
legitimate grievance. When such technicality deserts from being an aid to
Justice, the courts are justified in excepting from its operation a particular
case. Where there was something fishy and suspicious about the actuations
of the former counsel of petitioners in the case at bar, in that he did not give
any significance at all to the processes of the court, which has proven
prejudicial to the rights of said clients, under a lame and flimsy explanation
that the court's processes just escaped his attention, it is held that said
lawyer deprived his clients of their day in court, thus entitling said clients to
petition for relief from judgment despite the lapse of the reglementary period
for filing said period for filing said petition.
 In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding that the counsel's
blunder in procedure is an exception to the rule that the client is bound by the mistakes of
counsel, made the following disquisition:
Petitioners contend, through their new counsel, that the judgment rendered
against them by the respondent court was null and void, because they were
therein deprived of their day in court and divested of their property without
due process of law, through the gross ignorance, mistake and negligence of
their previous counsel. They acknowledge that, while as a rule, clients are
bound by the mistake of their counsel, the rule should not be applied
automatically to their case, as their trial counsel's blunder in procedure and
gross ignorance of existing jurisprudence changed their cause of action and
violated their substantial rights.
We are impressed with petitioner's contentions.
xxx xxx xxx
While this Court is cognizant of the rule that, generally, a client will suffer
consequences of the negligence, mistake or lack of competence of his
counsel, in the interest of Justice and equity, exceptions may be made to
such rule, in accordance with the facts and circumstances of each case.
Adherence to the general rule would, in the instant case, result in the
outright deprivation of their property through a technicality.
In its questioned decision dated November 19, 1989 the Court of Appeals found, in no uncertain
terms, the negligence of the then counsel for petitioners when he failed to file the proper motion
to dismiss or to draw a compromise agreement if it was true that they agreed on a settlement of
the case; or in simply filing an answer; and that after having been furnished a copy of the
decision by the court he failed to appeal therefrom or to file a petition for relief from the order
declaring petitioners in default. In all these instances the appellate court found said counsel
negligent but his acts were held to bind his client, petitioners herein, nevertheless.
The Court disagrees and finds that the negligence of counsel in this case appears to be so gross
and inexcusable. This was compounded by the fact, that after petitioner gave said counsel
another chance to make up for his omissions by asking him to file a petition for annulment of the
judgment in the appellate court, again counsel abandoned the case of petitioner in that after he
received a copy of the adverse judgment of the appellate court, he did not do anything to save
the situation or inform his client of the judgment. He allowed the judgment to lapse and become
final. Such reckless and gross negligence should not be allowed to bind the petitioner. Petitioner
was thereby effectively deprived of her day in court. (at pp. 426-427)
The herein petitioners, however, are not similarly situated as the parties mentioned in the abovecited cases. We
cannot rule that they, too, were victims of the gross negligence of their counsel.
The petitioners are to be blamed for the October 22, 1986 order issued by the lower court submitting the cases for
decision. They received notices of the scheduled hearings and yet they did not do anything. More specifically, the
parties received notice of the Order dated September 29, 1986 with the warning that if they fail to attend the October
22, 1986 hearing, the cases would be submitted for decision based on the evidence on record. Earlier, at the
scheduled hearing on September 29, 1986, the counsel for the respondent corporation moved that the cases be
58 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
submitted for decision for failure of the petitioners and their counsel to attend despite notice. The lower court denied
the motion and gave the petitioners and their counsel another chance by rescheduling the October 22, 1986 hearing.
Indeed, the petitioners knew all along that their counsel was not attending the scheduled hearings. They did not take
steps to change their counsel or make him attend to their cases until it was too late. On the contrary, they continued
to retain the services of Atty. Manicad knowing fully well his lapses vis-a-vis their cases. They, therefore, cannot
raise the alleged gross negligence of their counsel resulting in their denial of due process to warrant the reversal of
the lower court's decision. In a similar case, Aguila v. Court of First Instance of Batangas, Branch 1 (supra), we ruled:
In the instant case, the petitioner should have noticed the succession of errors committed by his
counsel and taken appropriate steps for his replacement before it was altogether too late. He did
not. On the contrary, he continued to retain his counsel through the series of proceedings that all
resulted in the rejection of his cause, obviously through such counsel's "ineptitude" and, let it be
added, the clients' forbearance. The petitioner's reverses should have cautioned him that his
lawyer was mishandling his case and moved him to seek the help of other counsel, which he did
in the end but rather tardily.
Now petitioner wants us to nullify all of the antecedent proceedings and recognize his earlier
claims to the disputed property on the justification that his counsel was grossly inept. Such a
reason is hardly plausible as the petitioner's new counsel should know. Otherwise, all a defeated
party would have to do to salvage his case is claim neglect or mistake on the part of his counsel
as a ground for reversing the adverse judgment. There would be no end to litigation if these
were allowed as every shortcoming of counsel could be the subject of challenge by his client
through another counsel who, if he is also found wanting, would likewise be disowned by the
same client through another counsel, and so on ad infinitum. This would render court
proceedings indefinite, tentative and subject to reopening at any time by the mere subterfuge of
replacing counsel. (at pp. 357-358)
We now discuss the merits of the cases.
In the first assignment of error, the petitioners maintain that their possession of the questioned properties must be
respected in view of their ownership of an aliquot portion of all the properties of the respondent corporation being
stockholders thereof. They propose that the veil of corporate fiction be pierced, considering the circumstances under
which the respondent corporation was formed.
Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the heirs of Eugenia V. Roxas,
among them the petitioners herein, decided to form a corporation — Heirs of Eugenia V. Roxas, Incorporated
(private respondent herein) with the inherited properties as capital of the corporation. The corporation was
incorporated on December 4, 1962 with the primary purpose of engaging in agriculture to develop the inherited
properties. The Articles of Incorporation of the respondent corporation were amended in 1971 to allow it to engage in
the resort business. Accordingly, the corporation put up a resort known as Hidden Valley Springs Resort where the
questioned properties are located.
These facts, however, do not justify the position taken by the petitioners.
The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the
members composing it. (Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 [1990]; Tan Boon
Bee & Co., Inc. v. Jarencio, 163 SCRA 205 [1988]; Yutivo Sons Hardware Company v. Court of Tax Appeals, 1
SCRA 160 [1961]; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 [1965]) There is no
dispute that title over the questioned land where the Hidden Valley Springs Resort is located is registered in the
name of the corporation. The records also show that the staff house being occupied by petitioner Rebecca Boyer-
Roxas and the recreation hall which was later on converted into a residential house occupied by petitioner Guillermo RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be
Roxas are owned by the respondent corporation. Regarding properties owned by a corporation, we stated in the authorized as he is hereby authorized to effect the ejectment, including the filing of the
case of Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, (6 SCRA 373 [1962]): corresponding suits, if necessary to do so. (Original Records, p. 327)

xxx xxx xxx We find nothing irregular in the adoption of the Resolution by the Board of Directors. The petitioners' stay within the
questioned properties was merely by tolerance of the respondent corporation in deference to the wishes of Eufrocino
Roxas, who during his lifetime, controlled and managed the corporation. Eufrocino Roxas' actions could not have
. . . Properties registered in the name of the corporation are owned by it as an entity separate
bound the corporation forever. The petitioners have not cited any provision of the corporation by-laws or any
and distinct from its members. While shares of stock constitute personal property, they do not
resolution or act of the Board of Directors which authorized Eufrocino Roxas to allow them to stay within the
represent property of the corporation. The corporation has property of its own which consists
company premises forever. We rule that in the absence of any existing contract between the petitioners and the
chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould , 145 Iowa 1,
respondent corporation, the corporation may elect to eject the petitioners at any time it wishes for the benefit and
123 N.W. 743). A share of stock only typifies an aliquot part of the corporation's property, or the
interest of the respondent corporation.
right to share in its proceeds to that extent when distributed according to law and equity (Hall &
Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but its holder is not the owner of any part
of the capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to the The petitioners' suggestion that the veil of the corporate fiction should be pierced is untenable. The separate
possession of any definite portion of its property or assets (Gottfried V. Miller, 104 U.S., 521; personality of the corporation may be disregarded only when the corporation is used "as a cloak or cover for fraud or
Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of the illegality, or to work injustice, or where necessary to achieve equity or when necessary for the protection of the
corporate property (Harton v. Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-376) creditors." (Sulong Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon Bee & Co., Inc., v.
Jarencio, supra and Western Agro Industrial Corporation v. Court of Appeals, supra) The circumstances in the
present cases do not fall under any of the enumerated categories.
The petitioners point out that their occupancy of the staff house which was later used as the residence of Eriberto
Roxas, husband of petitioner Rebecca Boyer-Roxas and the recreation hall which was converted into a residential
house were with the blessings of Eufrocino Roxas, the deceased husband of Eugenia V. Roxas, who was the In the third assignment of error, the petitioners insist that as regards the unfinished building, Rebecca Boyer-Roxas
majority and controlling stockholder of the corporation. In his lifetime, Eufrocino Roxas together with Eriberto Roxas, is a builder in good faith.
the husband of petitioner Rebecca Boyer-Roxas, and the father of petitioner Guillermo Roxas managed the
corporation. The Board of Directors did not object to such an arrangement. The petitioners argue that . . . the
The construction of the unfinished building started when Eriberto Roxas, husband of Rebecca Boyer-Roxas, was still
authority thus given by Eufrocino Roxas for the conversion of the recreation hall into a residential house can no
alive and was the general manager of the respondent corporation. The couple used their own funds to finance the
longer be questioned by the stockholders of the private respondent and/or its board of directors for they impliedly but
construction of the building. The Board of Directors of the corporation, however, did not object to the construction.
no leas explicitly delegated such authority to said Eufrocino Roxas. (Rollo, p. 12)
They allowed the construction to continue despite the fact that it was within the property of the corporation. Under
these circumstances, we agree with the petitioners that the provision of Article 453 of the Civil Code should have
Again, we must emphasize that the respondent corporation has a distinct personality separate from its members. been applied by the lower courts.
The corporation transacts its business only through its officers or agents. (Western Agro Industrial Corporation v.
Court of Appeals, supra). Whatever authority these officers or agents may have is derived from the board of directors
Article 453 of the Civil Code provides:
or other governing body unless conferred by the charter of the corporation. An officer's power as an agent of the
corporation must be sought from the statute, charter, the by-laws or in a delegation of authority to such officer, from
the acts of the board of directors, formally expressed or implied from a habit or custom of doing business. (Vicente v. If there was bad faith, not only on the part of the person who built, planted or sown on the land of
Geraldez, 52 SCRA 210 [1973]) another but also on the part of the owner of such land, the rights of one and the other shall be
the same as though both had acted in good faith.
In the present case, the record shows that Eufrocino V. Roxas who then controlled the management of the
corporation, being the majority stockholder, consented to the petitioners' stay within the questioned properties. In such a case, the provisions of Article 448 of the Civil Code govern the relationship between petitioner Rebecca-
Specifically, Eufrocino Roxas gave his consent to the conversion of the recreation hall to a residential house, now Boyer-Roxas and the respondent corporation, to wit:
occupied by petitioner Guillermo Roxas. The Board of Directors did not object to the actions of Eufrocino Roxas. The
petitioners were allowed to stay within the questioned properties until August 27, 1983, when the Board of Directors
Art. 448 — The owner of the land on which anything has been built, sown or planted in good
approved a Resolution ejecting the petitioners, to wit:
faith, shall have the right to appropriate as his own the works, sowing or planting after payment
of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to
R E S O L U T I O N No. 83-12 pay the price of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is considerably more than that of the
building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not
RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under
choose to appropriate the buildings or trees after proper indemnity. The parties shall agree upon
them, be ejected from their occupancy of the Hidden Valley Springs compound on which their
the terms of the lease and in case of disagreement, the court shall fix the terms thereof.
houses have been constructed and/or are being constructed only on tolerance of the
Corporation and without any contract therefor, in order to give way to the Corporation's
expansion and improvement program and obviate prejudice to the operation of the Hidden WHEREFORE, the present petition is partly GRANTED. The questioned decision of the Court of Appeals affirming
Valley Springs Resort by their continued interference. the decision of the Regional Trial Court of Laguna, Branch 37, in RTC Civil Case No. 802-84-C is MODIFIED in that
subparagraphs (c) and (d) of Paragraph 1 of the dispositive portion of the decision are deleted. In their stead, the
59 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
petitioner Rebecca Boyer-Roxas and the respondent corporation are ordered to follow the provisions of Article 448 of
the Civil Code as regards the questioned unfinished building in RTC Civil Case No. 802-84-C. The questioned
decision is affirmed in all other respects.

14. G.R. No. 91889 August 27, 1993

MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO REDOVAN, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES, JR., MARIA
THERESA V. VELOSO AND CASTRENSE C. VELOSO, respondents.

Virgilio E. Dulay for petitioners.

Torres, Tobias, Azura & Jocson for private respondents.

NOCON, J.:

This is a petition for review on certiorari to annul and set aside the decision 1 of the Court of Appeals affirming the
decision 2 of the Regional Trial Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and 2880-P, the dispositive
portion of which reads, as follows:

Wherefore, in view of all the foregoing considerations, in this Court hereby renders judgment, as
follows:

In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc. and Virgilio E.
Dulay for annulment or declaration of nullity of the decision of the Metropolitan Trial Court,
Branch 46, Pasay City, in its Civil Case No. 38-81 entitled "Edgardo D. Pabalan, et al., vs.
Spouses Florentino Manalastas, et al.," is dismissed for lack of merits;

In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for
cancellation of title of Manuel A. Torres, Jr. (TCT No. 24799 of the Register of Deeds of Pasay
City) and reconveyance, is dismissed for lack or merit, and,

60 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay are
ordered to surrender and deliver possession of the parcel of land, together with all the
improvements thereon, described in Transfer Certificate of Title No. 24799 of the Register of
Deeds of Pasay City, in favor of therein plaintiffs Manuel A. Torres, Jr. as owner and Edgardo D.
Pabalan as real estate administrator of said Manuel A. Torres, Jr.; to account for and return to
said plaintiffs the rentals from dwelling unit No. 8-A of the apartment building (Dulay Apartment)
from June 1980 up to the present, to indemnify plaintiffs, jointly and severally, expenses of
litigation in the amount of P4,000.00 and attorney's fees in the sum of P6,000.00, for all the three
(3) cases. Co-defendant Nepomuceno Redovan is ordered to pay the current and subsequent
rentals on the premises leased by him to plaintiffs.
As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject property
within the one year statutory period for redemption, private respondent Torres filed an Affidavit of Consolidation of
Ownership 13 with the Registry of Deeds of Pasay City and TCT No. 24799 14 was subsequently issued to private
respondent Manuel Torres on April 23, 1979.
On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession against private
respondents spouses Veloso and Manuel Dulay in LRC Case No. 1742-P. However, when petitioner Virgilio Dulay
was never authorized by the petitioner corporation to sell or mortgage the subject property, the trial court ordered
private respondent Torres to implead petitioner corporation as an indispensable party but the latter moved for the
dismissal of his petition which was granted in an Order dated April 8, 1980.

The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay Enterprises, Inc. and N.
Redovan, dismissed for lack of merit. With costs against the three (3) aforenamed defendants. 3
The facts as found by the trial court are as follows:
On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator of Torres, filed an
action against petitioner corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment Unit No.
8-A for the recovery of possession, sum of money and damages with preliminary injunction in Civil Case, No. 8198-P
with the then Court of First Instance of Rizal.

Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members of its Board of On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso and Torres for
Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and general manager, Atty. the cancellation of the Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P with the then Court
Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay with 10 shares; Celia Dulay- of First Instance of Rizal.
Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and designated as secretary, owned a property
covered by TCT No. 17880 4 and known as Dulay Apartment consisting of sixteen (16) apartment units on a six
On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses Florentino and Elvira
hundred eighty-nine (689) square meters lot, more or less, located at Seventh Street (now Buendia Extension) and
Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with petitioner corporation as intervenor for ejectment in Civil
F.B. Harrison Street, Pasay City.
Case No. 38-81 with the Metropolitan Trial Court of Pasay City which rendered a decision on April 25, 1985,
dispositive portion of which reads, as follows:
Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction of its hotel
project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from petitioner Virgilio Dulay to
Wherefore, judgment is hereby rendered in favor of the plaintiff (herein private respondents) and
be able to continue the hotel project. As a result of said loan, petitioner Virgilio Dulay occupied one of the unit
against the defendants:
apartments of the subject property since property since 1973 while at the same time managing the Dulay Apartment
at his shareholdings in the corporation was subsequently increased by his father. 5
1. Ordering the defendants and all persons claiming possession under them to vacate the
premises.
On December 23, 1976, Manuel Dulay by virtue of Board Resolution
No 18 6 of petitioner corporation sold the subject property to private respondents spouses Maria Theresa and
Castrense Veloso in the amount of P300,000.00 as evidenced by the Deed of Absolute Sale. 7 Thereafter, TCT No. 2. Ordering the defendants to pay the rents in the sum of P500.000 a month from May, 1979
17880 was cancelled and TCT No. 23225 was issued to private respondent Maria Theresa Veloso. 8Subsequently, until they shall have vacated the premises with interest at the legal rate;
Manuel Dulay and private respondents spouses Veloso executed a Memorandum to the Deed of Absolute Sale of
December 23, 1976 9 dated December 9, 1977 giving Manuel Dulay within (2) years or until December 9, 1979 to
3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00 and P1,000.00 as
repurchase the subject property for P200,000.00 which was, however, not annotated either in TCT No. 17880 or TCT
other expenses of litigation and for them to pay the costs of the suit. 15
No. 23225.

Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action against the presiding judge of
On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the
the Metropolitan Trial Court of Pasay City, private respondents Pabalan and Torres for the annulment of said
subject property to private respondent Manuel A. Torres for a loan of P250,000.00 which was duly annotated as
decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P.
Entry No. 68139 in TCT No. 23225. 10

Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject property was sold
on April 5, 1978 to private respondent Torres as the highest bidder in an extrajudicial foreclosure sale as evidenced
by the Certificate of Sheriff's Sale 11 issued on April 20, 1978.
On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right to
Redeem 12 in favor of Manuel Dulay assigning her right to repurchase the subject property from private respondent
Torres as a result of the extra sale held on April 25, 1978.
Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in favor of private
respondents.
Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision on October
23, 1989, the dispositive portion of which reads, as follows:
PREMISES CONSIDERED, the decision being appealed should be as it is hereby AFFIRMED in
full. 16

61 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on January 26, 1990.
Hence, this petition.
During the pendency of this petition, private respondent Torres died on April 3, 1991 as shown in his death
certificate 17 and named Torres-Pabalan Realty & Development Corporation as his heir in his holographic will 18dated
October 31, 1986.
Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied the doctrine of
piercing the veil of corporate entity in the instant case considering that the sale of the subject property between
private respondents spouses Veloso and Manuel Dulay has no binding effect on petitioner corporation as Board
Resolution No. 18 which authorized the sale of the subject property was resolved without the approval of all the
members of the board of directors and said Board Resolution was prepared by a person not designated by the
corporation to be its secretary.
We do not agree.
Section 101 of the Corporation Code of the Philippines provides:
Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide
otherwise, any action by the directors of a close corporation without a meeting shall
nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all the directors, or
2. All the stockholders have actual or implied knowledge of the action and make no prompt
objection thereto in writing; or
3. The directors are accustomed to take informal action with the express or implied acquiese of
all the stockholders, or
4. All the directors have express or implied knowledge of the action in question and none of
them makes prompt objection thereto in writing.
If a directors' meeting is held without call or notice, an action taken therein within the corporate
powers is deemed ratified by a director who failed to attend, unless he promptly files his written
objection with the secretary of the corporation after having knowledge thereof.
In the instant case, petitioner corporation is classified as a close corporation and consequently a board resolution
authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its
president. At any rate, corporate action taken at a board meeting without proper call or notice in a close corporation
is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the
corporation after having knowledge of the meeting which, in his case, petitioner Virgilio Dulay failed to do.
It is relevant to note that although a corporation is an entity which has a personality distinct and separate from its
individual stockholders or members, 19 the veil of corporate fiction may be pierced when it is used to defeat public
convenience justify wrong, protect fraud or defend crime. 20 The privilege of being treated as an entity distinct and
separate from its stockholder or members is therefore confined to its legitimate uses and is subject to certain
62 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
limitations to prevent the commission of fraud or other illegal or unfair act. When the corporation is used merely as
an alter ego or business conduit of a person, the law will regard the corporation as the act of that person. 21 The
Supreme Court had repeatedly disregarded the separate personality of the corporation where the corporate entity
was used to annul a valid contract executed by one of its members.
Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private respondents spouses
Veloso is null and void as the alleged Board Resolution No. 18 was passed without the knowledge and consent of
the other members of the board of directors cannot be sustained. As correctly pointed out by the respondent Court of
Appeals:
Appellant Virgilio E. Dulay's protestations of complete innocence to the effect that he never
participated nor was even aware of any meeting or resolution authorizing the mortgage or sale
of the subject premises (see par. 8, affidavit of Virgilio E. Dulay, dated May 31, 1984, p. 14, Exh.
"21") is difficult to believe. On the contrary, he is very much privy to the transactions involved. To
begin with, he is a incorporator and one of the board of directors designated at the time of the
organization of Manuel R. Dulay Enterprise, Inc. In ordinary parlance, the said entity is loosely
referred to as a "family corporation". The nomenclature, if imprecise, however, fairly reflects the
cohesiveness of a group and the parochial instincts of the individual members of such an
aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its incorporators
being close relatives namely, three (3) children and their father whose name identifies their
corporation (Articles of Incorporation of Manuel R. Dulay Enterprises, Inc. Exh. "31-A"). 22
Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit 23 that he was a signatory
witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor of private
respondent Torres indicates that he was aware of the transaction executed between his father and private
respondents and had, therefore, adequate knowledge about the sale of the subject property to private respondents.
Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject property to
private respondents by Manuel Dulay is valid and binding. As stated by the trial court:
. . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria Theresa V.
Veloso and Castrense C. Veloso, was a corporate act of the former and not a personal
transaction of Manuel R. Dulay. This is so because Manuel R. Dulay was not only president and
treasurer but also the general manager of the corporation. The corporation was a closed family
corporation and the only non-relative in the board of directors was Atty. Plaridel C. Jose who
appeared on paper as the secretary. There is no denying the fact, however, that Maria Socorro
R. Dulay at times acted as secretary. . . ., the Court can not lose sight of the fact that the Manuel
R. Dulay Enterprises, Inc. is a closed family corporation where the incorporators and directors
belong to one single family. It cannot be concealed that Manuel R. Dulay as president, treasurer
and general manager almost had absolute control over the business and affairs of the
corporation. 24
Moreover, the appellate courts will not disturb the findings of the trial judge unless he has plainly overlooked certain
facts of substance and value that, if considered, might affect the result of the case, 25 which is not present in the
instant case.
Petitioners' contention that private respondent Torres never acquired ownership over the subject property since the
latter was never in actual possession of the subject property nor was the property ever delivered to him is also
without merit.
Paragraph 1, Article 1498 of the New Civil Code provides:
 When the sale is made through a public instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the contract, if from the deed the contrary do not
appear or cannot clearly be inferred.

Under the aforementioned article, the mere execution of the deed of sale in a public document is equivalent to the
delivery of the property. Likewise, this Court had held that:

It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one year after the registration of the sale. As
such, he is entitled to the possession of the said property and can demand it at any time
following the consolidation of ownership in his name and the issuance to him of a new transfer
certificate of title. The buyer can in fact demand possession of the land even during the
redemption period except that he has to post a bond in accordance with Section 7 of Act No.
3133 as amended. No such bond is required after the redemption period if the property is not
redeemed. Possession of the land then becomes an absolute right of the purchaser as
confirmed owner. 26

Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of Sale in
deemed equivalent to delivery.

Finally, we hold that the respondent appellate court did not err in denying petitioner's motion for reconsideration
despite the fact that private respondents failed to submit their comment to said motion as required by the respondent 15. G.R. No. L-41337 June 30, 1988
appellate court from resolving petitioners' motion for reconsideration without the comment of the private respondent
which was required merely to aid the court in the disposition of the motion. The courts are as much interested as the TAN BOON BEE & CO., INC., petitioner,
parties in the early disposition of cases before them. To require otherwise would unnecessarily clog the courts' vs.
dockets. WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED. THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF BRANCH XVIII of the Court of First
Instance of Manila, GRAPHIC PUBLISHING, INC., and PHILIPPINE AMERICAN CAN DRUG
COMPANY,respondents.

De Santos, Balgos & Perez Law Office for petitioner.

Araneta Mendoza & Papa Law Office for respondent Phil. American Drug Company.

PARAS, J.:

This is a petition for certiorari, with prayer for preliminary injunction, to annul and set aside the March 26, 1975 Order
of the then Court of First Instance of Manila, Branch XXIII, setting aside the sale of "Heidelberg" cylinder press
executed by the sheriff in favor of the herein petitioner, as well as the levy on the said property, and ordering the
sheriff to return the said machinery to its owner, herein private respondent Philippine American Drug Company.

Petitioner herein, doing business under the name and style of Anchor Supply Co., sold on credit to herein private
respondent Graphic Publishing, Inc. (GRAPHIC for short) paper products amounting to P55,214.73. On December
20, 1972, GRAPHIC made partial payment by check to petitioner in the total amount of P24,848.74; and on
December 21, 1972, a promissory note was executed to cover the balance of P30,365.99. In the said promissory
note, it was stipulated that the amount will be paid on monthly installments and that failure to pay any installment
would make the amount immediately demandable with an interest of 12% per annum. On September 6, 1973, for
failure of GRAPHIC to pay any installment, petitioner filed with the then Court of First Instance of Manila, Branch
XXIII, presided over by herein respondent judge, Civil Case No. 91857 for a Sum of Money (Rollo, pp. 36-38).
Respondent judge declared GRAPHIC in default for failure to file its answer within the reglementary period and

63 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
plaintiff (petitioner herein) was allowed to present its evidence ex parte. In a Decision dated January 18, 1974
(Ibid., pp. 39-40), the trial court ordered GRAPHIC to pay the petitioner the sum of P30,365.99 with 12% interest
from March 30, 1973 until fully paid, plus the costs of suit. On motion of petitioner, a writ of execution was issued by
respondent judge; but the aforestated writ having expired without the sheriff finding any property of GRAPHIC, an
alias writ of execution was issued on July 2, 1974.
Pursuant to the said issued alias writ of execution, the executing sheriff levied upon one (1) unit printing machine
Identified as "Original Heidelberg Cylinder Press" Type H 222, NR 78048, found in the premises of GRAPHIC. In a
Notice of Sale of Execution of Personal Property dated July 29, 1974, said printing machine was scheduled for
auction sale on July 26, 1974 at 10:00 o'clock at 14th St., Cor. Atlanta St., Port Area, Manila ( lbid., p. 45); but in a
letter dated July 19, 1974, herein private respondent, Philippine American Drug Company (PADCO for short) had
informed the sheriff that the printing machine is its property and not that of GRAPHIC, and accordingly, advised the
sheriff to cease and desist from carrying out the scheduled auction sale on July 26, 1974. Notwithstanding the said
letter, the sheriff proceeded with the scheduled auction sale, sold the property to the petitioner, it being the highest
bidder, and issued a Certificate of Sale in favor of petitioner (Rollo, p. 48). More than five (5) hours after the auction
sale and the issuance of the certificate of sale, PADCO filed an "Affidavit of Third Party Claim" with the Office of the
City Sheriff (Ibid., p. 47). Thereafter, on July 30,1974, PADCO filed with the Court of First Instance of Manila, Branch
XXIII, a Motion to Nullify Sale on Execution (With Injunction) (Ibid., pp, 49-55), which was opposed by the petitioner
(Ibid., pp. 5668). Respondent judge, in an Order dated March 26, 1975 (Ibid., pp. 64-69), ruled in favor of PADCO.
The decretal portion of the said order, reads:
WHEREFORE, the sale of the 'Heidelberg cylinder press executed by the Sheriff in favor of the
plaintiff as well as the levy on the said property is hereby set aside and declared to be without
any force and effect. The Sheriff is ordered to return the said machinery to its owner, the
Philippine American Drug Co.
Petitioner filed a Motion For Reconsideration (Ibid., pp. 7093) and an Addendum to Motion for Reconsideration (Ibid.,
pp. 94-08), but in an Order dated August 13, 1975, the same was denied for lack of merit (Ibid., p. 109). Hence, the
instant petition.
In a Resolution dated September 12, 1975, the Second Division of this Court resolved to require the respondents to
comment, and to issue a temporary restraining order (Rollo, p. 111 ). After submission of the parties' Memoranda,
the case was submitted for decision in the Resolution of November 28, 1975 (Ibid., p. 275).
Petitioner, to support its stand, raised two (2) issues, to wit:
I
THE RESPONDENT JUDGE GRAVELY EXCEEDED, IF NOT ACTED WITHOUT JURISDICTION WHEN HE
ACTED UPON THE MOTION OF PADCO, NOT ONLY BECAUSE SECTION 17, RULE 39 OF THE RULES OF
COURT WAS NOT COMPLIED WITH, BUT ALSO BECAUSE THE CLAIMS OF PADCO WHICH WAS NOT A
PARTY TO THE CASE COULD NOT BE VENTILATED IN THE CASE BEFORE HIM BUT IN INDEPENDENT
PROCEEDING.
II
THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION WHEN HE REFUSED TO PIERCE THE
PADCO'S (IDENTITY) AND DESPITE THE ABUNDANCE OF EVIDENCE CLEARLY SHOWING THAT PADCO
WAS CONVENIENTLY SHIELDING UNDER THE THEORY OF CORPORATE PETITION.
64 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Petitioner contends that respondent judge gravely exceeded, if not, acted without jurisdiction, in nullifying the sheriffs
sale not only because Section 17, Rule 39 of the Rules of Court was not complied with, but more importantly
because PADCO could not have litigated its claim in the same case, but in an independent civil proceeding.
This contention is well-taken.
In the case of Bayer Philippines, Inc. vs. Agana (63 SCRA 355, 366-367 [1975]), this Court categorically ruled as
follows:
In other words, constitution, Section 17 of Rule 39 of the Revised Rules of Court, the rights of
third-party claimants over certain properties levied upon by the sheriff to satisfy the judgment
should not be decided inthe action where the third-party claims have been presented, but in the
separate action instituted by the claimants.
... Otherwise stated, the court issuing a writ of execution is supposed to enforce the authority
only over properties of the judgment debtor, and should a third party appeal- to claim the
property levied upon by the sheriff, the procedure laid down by the Rules is that such claim
should be the subject of a separate and independent action.
xxx xxx xxx
... This rule is dictated by reasons of convenience, as "intervention is more likely to inject
confusion into the issues between the parties in the case . . . with which the third-party claimant
has nothing to do and thereby retard instead of facilitate the prompt dispatch of the controversy
which is the underlying objective of the rules of pleading and practice." Besides, intervention
may not be permitted after trial has been concluded and a final judgment rendered in the case.
However, the fact that petitioner questioned the jurisdiction of the court during the initial hearing of the case but
nevertheless actively participated in the trial, bars it from questioning now the court's jurisdiction. A party who
voluntarily participated in the trial, like the herein petitioner, cannot later on raise the issue of the court's lack of
jurisdiction (Philippine National Bank vs. Intermediate Appellate Court, 143 SCRA [1986]).
As to the second issue (the non-piercing of PADCO's corporate Identity) the decision of respondent judge is as
follows:
The plaintiff, however, contends that the controlling stockholders of the Philippine American
Drug Co. are also the same controlling stockholders of the Graphic Publishing, Inc. and,
therefore, the levy upon the said machinery which was found in the premises occupied by the
Graphic Publishing, Inc. should be upheld. This contention cannot be sustained because the two
corporations were duly incorporated under the Corporation Law and each of them has a juridical
personality distinct and separate from the other and the properties of one cannot be levied upon
to satisfy the obligation of the other. This legal preposition is elementary and fundamental.
It is true that a corporation, upon coming into being, is invested by law with a personality separate and distinct from
that of the persons composing it as well as from any other legal entity to which it may be related (Yutivo & Sons
Hardware Company vs. Court of Tax Appeals, 1 SCRA 160 [1961]; and Emilio Cano Enterprises, Inc. vs. CIR, 13
SCRA 290 [1965]). As a matter of fact, the doctrine that a corporation is a legal entity distinct and separate from the
members and stockholders who compose it is recognized and respected in all cases which are within reason and the
law (Villa Rey Transit, Inc. vs. Ferrer, 25 SCRA 845 [1968]). However, this separate and distinct personality is merely
a fiction created by law for convenience and to promote justice (Laguna Transportation Company vs. SSS, 107 Phil.
833 [1960]). Accordingly, this separate personality of the corporation may be disregarded, or the veil of corporate
fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work an injustice, or where
necessary to achieve equity or when necessary for the protection of creditors (Sulo ng Bayan, Inc. vs. Araneta, Inc.,
72 SCRA 347 [1976]). Corporations are composed of natural persons and the legal fiction of a separate corporate
personality is not a shield for the commission of injustice and inequity (Chenplex Philippines, Inc., et al. vs. Hon.
Pamatian et al., 57 SCRA 408 (19741). Likewise, this is true when the corporation is merely an adjunct, business
conduit or alter ego of another corporation. In such case, the fiction of separate and distinct corporation entities
should be disregarded (Commissioner of Internal Revenue vs. Norton & Harrison, 11 SCRA 714 [1964]).

In the instant case, petitioner's evidence established that PADCO was never engaged in the printing business; that
the board of directors and the officers of GRAPHIC and PADCO were the same; and that PADCO holds 50% share
of stock of GRAPHIC. Petitioner likewise stressed that PADCO's own evidence shows that the printing machine in
question had been in the premises of GRAPHIC since May, 1965, long before PADCO even acquired its alleged title
on July 11, 1966 from Capitol Publishing. That the said machine was allegedly leased by PADCO to GRAPHIC on
January 24, 1966, even before PADCO purchased it from Capital Publishing on July 11, 1966, only serves to show
that PADCO's claim of ownership over the printing machine is not only farce and sham but also unbelievable.

Considering the aforestated principles and the circumstances established in this case, respondent judge should have
pierced PADCO's veil of corporate Identity.

Respondent PADCO argues that if respondent judge erred in not piercing the veil of its corporate fiction, the error is 16. G.R. No. 108734 May 29, 1996
merely an error of judgment and not an error of jurisdiction correctable by appeal and not by certiorari.

CONCEPT BUILDERS, INC., petitioner,

To this argument of respondent, suffice it to say that the same is a mere technicality. In the case of Rubio vs.
Mariano (52 SCRA 338, 343 [1973]), this Court ruled:
While We recognize the fact that these movants — the MBTC, the Phillips spouses, the Phillips
corporation and the Hacienda Benito, Inc.— did raise in their respective answers the issue as to
the propriety of the instant petition for certiorari on the ground that the remedy should have been
appeal within the reglementary period, We considered such issue as a mere technicality which
would have accomplished nothing substantial except to deny to the petitioner the right to litigate
the matters he raised ...
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo Raquel,
Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut,
Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo
Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe
Basilan, and Ruben Robalos, respondents.
HERMOSISIMA, JR., J.:p

Litigations should, as much as possible, be decided on their merits and not on technicality (De las Alas vs. Court of
Appeals, 83 SCRA 200, 216 [1978]). Every party-litigant must be afforded the amplest opportunity for the proper and
just determination of his cause, free from the unacceptable plea of technicalities (Heirs of Ceferino Morales vs. Court
of Appeals, 67 SCRA 304, 310 [1975]).
The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego
of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a
wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The
law in these instances will regard the corporation as a mere association of persons and, in case of two corporations,
merge them into one.

PREMISES CONSIDERED, the March 26,1975 Order of the then Court of First Instance of Manila, is ANNULLED Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the
and SET ASIDE, and the Temporary Restraining Order issued is hereby made permanent. corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The
piercing of the corporate veil comes into play.

This special civil action ostensibly raises the question of whether the National Labor Relations Commission
committed grave abuse of discretion when it issued a "break-open order" to the sheriff to be enforced against
personal property found in the premises of petitioner's sister company.

Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela,
Metro Manila, is engaged in the construction business. Private respondents were employed by said company as
laborers, carpenters and riggers.

65 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
On November, 1981, private respondents were served individual written notices of termination of employment by The said special sheriff recommended that a "break-open order" be issued to enable him to enter petitioner's
petitioner, effective on November 30, 1981. It was stated in the individual notices that their contracts of employment premises so that he could proceed with the public auction sale of the aforesaid personal properties on November 7,
had expired and the project in which they were hired had been completed. 1989.

Public respondent found it to be, the fact, however, that at the time of the termination of private respondent's On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the
employment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-
the services of sub-contractors whose workers performed the functions of private respondents. President.

Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their
legal holiday pay, overtime pay and thirteenth-month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to reinstate private respondents
and to pay them back wages equivalent to one year or three hundred working days.
On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI
and petitioner corporation were owned by the same incorporator/stockholders. They also alleged that petitioner
temporarily suspended its business operations in order to evade its legal obligations to them and that private
respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may
suffer because of the issuance of the break-open order.

In support of their claim against HPPI, private respondents presented duly certified copies of the General
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration
Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities Exchange Commission (SEC) and
filed by petitioner on the ground that the said decision had already become final and executory. 2
the General Information Sheet, dated May 25, 1987, submitted by HPPI to the Securities and Exchange
Commission.
On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents'
back wages amounted to P199,800.00. 3
The General Information Sheet submitted by the petitioner revealed the following:

On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated
1. Breakdown of Subscribed Capital
December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioner's debtor, the
Name of Stockholder Amount Subscribed
Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the
HPPI P 6,999,500.00
cashier of the NLRC.
Antonio W. Lim 2,900,000.00
Dennis S. Cuyegkeng 300.00
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from Elisa C. Lim 100,000.00
herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private Teodulo R. Dino 100.00
respondents to their former positions. Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner
Dennis S. Cuyegkeng Member
through the security guard on duty but the service was refused on the ground that petitioner no longer occupied the
Elisa C. Lim Member
premises.
Teodulo R. Dino Member
Virgilio O. Casino Member

On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of 3. Corporate Officers

execution. Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa O. Lim Treasurer
The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November
Virgilio O. Casino Corporate Secretary
2, 1989:
4. Principal Office
355 Maysan Road

1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they Valenzuela, Metro Manila. 5

were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent; On the other hand, the General Information Sheet of HPPI revealed the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
2. Levy was made upon personal properties he found in the premises; Antonio W. Lim P 400,000.00

Elisa C. Lim 57,700.00

3. Security guards with high-powered guns prevented him from removing the properties he had levied upon. 4 AWL Trading 455,000.00
Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

66 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 Antonio W. Lim Chairman 1. Stock ownership by one or common ownership of both corporations.
Elisa C. Lim Member

Dennis S. Cuyegkeng Member

2. Identity of directors and officers.
Virgilio O. Casino Member

Teodulo R. Dino Member

3. Corporate Officers 3. The manner of keeping corporate books and records.

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

4. Methods of conducting the business. 13
Elisa C. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding the separate
355 Maysan Road, Valenzuela, Metro Manila. 6 juridical personality of corporations as follows:

On February 1, 1990, HPPI filed an Opposition to private respondents' motion for issuance of a break-open order,
contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two
corporations are engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was
then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents' motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor
Arbiter, issued a break-open order and directed private respondents to file a bond. Thereafter, it directed the sheriff
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:
to proceed with the auction sale of the properties already levied upon. It dismissed the third-party claim for lack of
merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3,
1992.
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 instances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but
a conduit for its principal. It must be kept in mind that the control must be shown to have been
exercised at the time the acts complained of took place. Moreover, the control and breach of
duty must proximately cause the injury or unjust loss for which the complaint is made.
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;

Hence, the resort to the present petition.

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
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision contravention of plaintiff's legal rights; and
despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the
corporate veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
to evade its liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of
complained of.
steel, concrete and iron pipes, a business which is distinct and separate from petitioner's construction business.
Hence, it is of no consequence that petitioner and HPPI shared the same premises, the same President and the
same set of officers and subscribers. 7 The absence of any one of these elements prevents "piercing the corporate veil." In applying the
"instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendant's relationship to that operation. 14
We find petitioner's contention to be unmeritorious.

Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its
subterfuge is purely one of fact. 15
stockholders and from other corporations to which it may be connected. 8 But, this separate and distinct personality of
a corporation is merely a fiction created by law for convenience and to promote justice. 9 So, when the notion of
separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it
used as a device to defeat the labor laws, 10 this separate personality of the corporation may be disregarded or the filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office
veil of corporate fiction pierced. 11 This is true likewise when the corporation is merely an adjunct, a business conduit address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant,
or an alter ego of another corporation. 12 submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road,
Valenzuela, Metro Manila.
The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and
circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some Furthermore, the NLRC stated that:
probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:
67 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 Both information sheets were filed by the same Virgilio O. Casiño as the corporate secretary of
both corporations. It would also not be amiss to note that both corporations had
the same president, thesame board of directors, the same corporate officers, and substantially
the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein petitioner) and
the third-party claimant shared the same address and/or premises. Under this circumstances,
(sic) it cannot be said that the property levied upon by the sheriff were not of respondents. 16
Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by
substantial evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave
abuse of a discretion. 18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and
December 3, 1992, are AFFIRMED.

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back
wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner
corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to
petitioner corporation.

The facts in this case are analogous to Claparols v. Court of Industrial Relations, 17 where we had the occasion to
rule:

Respondent court's findings that indeed the Claparols Steel and Nail Plant, which ceased
operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the
next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were
not disputed by petitioner. It is very clear that the latter corporation was a continuation and
successor of the first entity . . . . Both predecessors and successor were owned and controlled
by petitioner Eduardo Claparols and there was no break in the succession and continuity of the 17. G.R. No. L-9687 June 30, 1961
same business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the
subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was
owned by respondent . . . Claparols himself, and all the assets of the dissolved Claparols Steel LIDDELL & CO., INC., petitioner-appellant,
and Nail plant were turned over to the emerging Claparols Steel Corporation. vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee.
It is very obvious that the second corporation seeks the protective shield of a corporate fiction
whose veil in the present case could, and should, be pierced as it was deliberately and Ozaeta, Lichauco and Picazo for petitioner-appellant.
maliciously designed to evade its financial obligation to its employees.
Office of the Solicitor General for respondent-appellee.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution,
private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was BENGZON, C.J.:
dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of
Execution of Judgment which provides that:
Statement. This is an appeal from the decision of the Court of Tax Appeals imposing a tax
deficiency liability of P1,317,629.61 on Liddell & Co., Inc.
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his
representative entry to the place where the property subject of execution is located or kept, the
judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open Said Company lists down several issues which may be boiled to the following:
order.

(a) Whether or not Judge Umali of the Tax Court below could validly participate in the
Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied
with. Petitioner and the third-party claimant were given the opportunity to submit evidence in support of their claim. making of the decision;

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the (b) Whether or not Liddell & Co. Inc., and the Liddell Motors, Inc. are (practically)
Labor Arbiter. identical corporations, the latter being merely .the alter ego of the former;

68 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 (c) Whether or not, granting the identical nature of the corporations, the assessment On March 8, 1949, stock dividends were again issued by Liddell & Co. and in
of tax liability, including the surcharge thereon by the Court of Tax Appeals, is accordance with the agreements, Exhibits A, B, and C, the stocks of said company
correct. stood as follows:

Undisputed Facts. The parties submitted a partial stipulation of facts, each reserving the right No. of Per
to present additional evidence. Name Amount
Shares Cent
Frank Liddell 13,688 P1,368,800 72.00%
Said undisputed facts are substantially as follows:
Irene Liddell 1 100 .01%
The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation Mercedes
establish in the Philippines on February 1, 1946, with an authorized capital of Vecin 1 100 .01%
P100,000 divided into 1000 share at P100 each. Of this authorized capital, 196 Charles Kurz 1,225 122,500 6.45%
shares valued at P19,600 were subscribed and paid by Frank Liddell while the other E.J. Darras 1,225 122,500 6.45%
four shares were in the name of Charles Kurz, E.J. Darras, Angel Manzano and
Julian Serrano at one shares each. Its purpose was to engage in the business of Angel
importing and retailing Oldsmobile and Chevrolet passenger cars and GMC and Manzano 1,150 115,000 6.06%
Chevrolet trucks.. Julian Serrano 710 71,000 3.74%
E. Hasim 500 50,000 2.64%
On January 31, 1947, with the limited paid-in capital of P20,000, Liddell & Co. was
able to declare a 90% stock dividend after which declaration on, Frank Liddells G. W. Kernot 500 50,000 2.64%
holding in the Company increased to 1,960 shares and the employees, Charles Kurz
E.J. Darras, Angel Manzano and Julian Serrano at 10 share each. The declaration of 19,000 P1,900,000 100.00%
stock dividend was followed by a resolution increasing the authorized capital of the
company to P1,000.000 which the Securities & Exchange Commission approved on On November 15, 1948, in accordance with a resolution of a special meeting of the Board of
March 3, 1947. Upon such approval, Frank Liddell subscribed to 3,000 additional Directors of Liddell & Co., stock dividends were again declared. As a result of said declaration
shares, for which he paid into the corporation P300,000 so that he had in his own and in accordance with the agreements, Exhibits, A, B, and C, the stockholdings in the
name 4,960 shares. company appeared to be:

On May 24, 1957, Frank Liddell, on one hand and Messrs. Kurz, Darras, Manzano No. of
and Serrano on the other, executed an agreement (Exhibit A) which was further Name Amount Per Cent
Shares
supplemented by two other agreements (Exhibits B and C) dated May 24, 1947 and
Frank Liddell 19,738 P1,973,800 65.791%
June 3, 1948, wherein Frank Liddell transferred (On June 7, 1948) to various
employees of Liddell & Co. shares of stock. Irene Liddell 1 100 .003%
Mercedes
At the annual meeting of stockholders of Liddell & Co. held on March 9, 1948, a Vecin 1 100 .003%
100% stock dividend was declared, thereby increasing the issued capital stock of aid Charles Kurz 2,215 221,500 7.381%
corporation from P1,000.000 to P 3,000,000 which increase was duly approved by
E.J. Darras 2,215 221,500 7.381%
the Securities and Exchange Commission on June 7, 1948. Frank Liddell subscribed
to and paid 20% of the increase of P400,000. He paid 25% thereof in the amount of Angel
P100,000 and the balance of P3,000,000 was merely debited to Frank Liddell- Manzano 1,810 181,000 6.031%
Drawing Account and credited to Subscribed Capital Stock on December 11, 1948. Julian
Serrano 1,700 170,000 5.670%

69 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 E. Hasim 830 83,000 2.770%
G. W. Kernot 1,490 149,000 4.970%
30,000 P3,000,000 100.000%
On the basis of the agreement Exhibit A, (May, 1947) "40%" of the earnings available for
dividends accrued to Frank Liddell although at the time of the execution of aid instrument,
Frank Liddell owned all of the shares in said corporation. 45% accrued to the employees,
parties thereto; Kurz 12-1/2%; Darras 12-1/2%; A. Manzano 12-1/2% and Julian Serrano 7-
1/2%. The agreement Exhibit A was also made retroactive to 1946. Frank Liddell reserved
the right to reapportion the 45% dividends pertaining to the employees in the future for the
purpose of including such other faithful and efficient employees as he may subsequently
designate. (As a matter of fact, Frank Liddell did so designate two additional employees
namely: E. Hasim and G. W. Kernot). It was for such inclusion of future faithful employees
that Exhibits B-1 and C were executed. As per Exhibit C, dated May 13, 1948, the 45% given
by Frank Liddell to his employees was reapportioned as follows: C. Kurz — 12,%; E. J.
Darras — 12%; A. Manzano — l2%; J. Serrano — 3-1/2%; G. W. Kernot — 2%.
Exhibit B contains the employees' definition in detail of the manner by which they sought to
prevent their share-holdings from being transferred to others who may be complete strangers
to the business on Liddell & Co.
From 1946 until November 22, 1948 when the purpose clause of the Articles of Incorporation
of Liddell & Co. Inc., was amended so as to limit its business activities to importations of
automobiles and trucks, Liddell & Co. was engaged in business as an importer and at the
same time retailer of Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet
trucks.
On December 20, 1948, the Liddell Motors, Inc. was organized and registered with the
Securities and Exchange Commission with an authorized capital stock of P100,000 of which
P20,000 was subscribed and paid for as follows: Irene Liddell wife of Frank Liddell 19,996
shares and Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E. del Rosario and Esmenia
Silva, 1 share each.
At about the end of the year 1948, Messrs. Manzano, Kurz and Kernot resigned from their
respective positions in the Retail Dept. of Liddell & Co. and they were taken in and employed
by Liddell Motors, Inc.: Kurz as Manager-Treasurer, Manzano as General Sales Manager for
cars and Kernot as General Sales Manager for trucks.
Beginning January, 1949, Liddell & Co. stopped retailing cars and trucks; it conveyed them
instead to Liddell Motors, Inc. which in turn sold the vehicles to the public with a steep mark-
70 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
up. Since then, Liddell & Co. paid sales taxes on the basis of its sales to Liddell Motors Inc.
considering said sales as its original sales.
Upon review of the transactions between Liddell & Co. and Liddell Motors, Inc. the Collector
of Internal Revenue determined that the latter was but an alter ego of Liddell & Co.
Wherefore, he concluded, that for sales tax purposes, those sales made by Liddell Motors,
Inc. to the public were considered as the original sales of Liddell & Co. Accordingly, the
Collector of Internal Revenue assessed against Liddell & Co. a sales tax deficiency, including
surcharges, in the amount of P1,317,629.61. In the computation, the gross selling price of
Liddell Motors, Inc. to the general public from January 1, 1949 to September 15, 1950, was
made the basis without deducting from the selling price, the taxes already paid by Liddell &
Co. in its sales to the Liddell Motors Inc.
The Court of Tax Appeals upheld the position taken by the Collector of Internal Revenue.
A. Judge Umali: Appellant urges the disqualification on of Judge Roman M. Umali to
participate in the decision of the instant case because he was Chief of the Law Division, then
Acting Deputy Collector and later Chief Counsel of the Bureau of Internal Revenue during the
time when the assessment in question was made. 1 In refusing to disqualify himself despite
admission that had held the aforementioned offices, Judge Umali stated that he had not in
any way participated, nor expressed any definite opinion, on any question raised by the
parties when this case was presented for resolution before the said bureau. Furthermore,
after careful inspection of the records of the Bureau, he (Judge Umali as well as the other
members of the court below), had not found any indication that he had expressed any opinion
or made any decision that would tend to disqualify him from participating in the consideration
of the case in the Tax Court.
At this juncture, it is well to consider that petitioner did not question the truth of Judge Umali's
statements. In view thereof, this Tribunal is not inclined to disqualify said judge. Moreover, in
furtherance of the presumption of the judge's moral sense of responsibility this Court has
adopted, and now here repeats, the ruling that the mere participation of a judge in prior
proceedings relating to the subject in the capacity of an administrative official does not
necessarily disqualify him from acting as judge.2
Appellant also contends that Judge Umali signed the said decision contrary to the provision of
Section 13, Republic Act No. 1125; 3 that whereas the case was submitted for decision of the
Court of Tax Appeals on July 12, 1955, and the decision of Associate Judge Luciano and
Judge Nable were both signed on August 11, 1955 (that is, on the last day of the 30-day
period provided for in Section 13, Republic Act No. 1125), Judge Umali signed the decision
August 31, 1955 or 20 days after the lapse of the 30-day period allotted by law.
By analogy it may be said that inasmuch as in Republic Act No. 1125 (law creating the Court
of Tax Appeals) like the law governing the procedure in the court of Industrial Relations, there
is no provision invalidating decisions rendered after the lapse of 30 days, the requirement of
Section 13, Republic Act No. 1125 should be construed as directory. 4
Besides as pointed out by appellee, the third paragraph of Section 13 of Republic Act No.
1125 (quoted in the margin)5 confirms this view; because in providing for two thirty-day
periods, the law means that decision may still be rendered within the second period of thirty
days (Judge Umali signed his decision within that period).
B. Identity of the two corporations: On the question whether or not Liddell Motors, Inc. is
the alter ego of Liddell & Co. Inc., we are fully convinced that Liddell & Co. is wholly owned
by Frank Liddell. As of the time of its organization, 98% of the capital stock belonged to Frank
Liddell. The 20% paid-up subscription with which the company began its business was paid
by him. The subsequent subscriptions to the capital stock were made by him and paid with
his own money.
These stipulations and conditions appear in Exhibit A: (1) that Frank Liddell had the authority
to designate in the future the employee who could receive earnings of the corporation; to
apportion among the stock holders the share in the profits; (2) that all certificates of stock in
the names of the employees should be deposited with Frank Liddell duly indorsed in blank by
the employees concerned; (3) that each employee was required to sign an agreement with
the corporation to the effect that, upon his death or upon his retirement or separation for any
cause whatsoever from the corporation, the said corporation should, within a period of sixty
days therefor, have the absolute and exclusive option to purchase and acquire the whole of
the stock interest of the employees so dying, resigning, retiring or separating.
These stipulations in our opinion attest to the fact that Frank Liddell also owned it. He
supplied the original his complete control over the corporation.
As to Liddell Motors, Inc. we are fully persuaded that Frank Liddell also owned it. He supplied
the original capital funds.6 It is not proven that his wife Irene, ostensibly the sole incorporator
of Liddell Motors, Inc. had money of her own to pay for her P20,000 initial subscription. 7 Her
income in the United States in the years 1943 and 1944 and the savings therefrom could not
be enough to cover the amount of subscription, much less to operate an expensive trade like
the retail of motor vehicles. The alleged sale of her property in Oregon might have been true,
but the money received therefrom was never shown to have been saved or deposited so as
to be still available at the time of the organization of the Liddell Motors, Inc.
The evidence at hand also shows that Irene Liddell had scant participation in the affairs of
Liddell Motors, Inc. She could hardly be said to possess business experience. The income
tax forms record no independent income of her own. As a matter of fact, the checks that
represented her salary and bonus from Liddell Motors, Inc. found their way into the personal
account of Frank Liddell. Her frequent absences from the country negate any active
participation in the affairs of the Motors company.
71 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
There are quite a series of conspicuous circumstances that militate against the separate and
distinct personality of Liddell Motors, Inc. from Liddell & Co. 8 We notice that the bulk of the
business of Liddell & Co. was channeled through Liddell Motors, Inc. On the other hand,
Liddell Motors, Inc. pursued no activities except to secure cars, trucks, and spare parts from
Liddell & Co. Inc. and then sell them to the general public. These sales of vehicles by Liddell
& Co. to Liddell Motors, Inc. for the most part were shown to have taken place on the same
day that Liddell Motors, Inc. sold such vehicles to the public. We may even say that the cars
and trucks merely touched the hands of Liddell Motors, Inc. as a matter of formality.
During the first six months of 1949, Liddell & Co. issued ten (10) checks payable to Frank
Liddell which were deposited by Frank Liddell in his personal account with the Philippine
National Bank. During this time also, he issued in favor of Liddell Motors, Inc. six (6) checks
drawn against his personal account with the same bank. The checks issued by Frank Liddell
to the Liddell Motors, Inc. were significantly for the most part issued on the same day when
Liddell & Co. Inc. issued the checks for Frank Liddell 9 and for the same amounts.
It is of course accepted that the mere fact that one or more corporations are owned and
controlled by a single stockholder is not of itself sufficient ground for disregarding separate
corporate entities. Authorities10 support the rule that it is lawful to obtain a corporation charter,
even with a single substantial stockholder, to engage in a specific activity, and such activity
may co-exist with other private activities of the stockholder. If the corporation is a substantial
one, conducted lawfully and without fraud on another, its separate identity is to be respected.
Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned
and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the
disregard of the separate corporate identity of one from the other. There is, however, in this
instant case, a peculiar consequence of the organization and activities of Liddell Motors, Inc.
Under the law in force at the time of its incorporation the sales tax on original sales of cars
(sections 184, 185 and 186 of the National Internal Revenue Code), was progressive, i.e.
10% of the selling price of the car if it did not exceed P5000, and 15% of the price if more
than P5000 but not more than P7000, etc. This progressive rate of the sales tax naturally
would tempt the taxpayer to employ a way of reducing the price of the first sale. And Liddell
Motors, Inc. was the medium created by Liddell & Co. to reduce the price and the tax liability.
Let us illustrate: a car with engine motor No. 212381 was sold by Liddell & Co. Inc. to Liddell
Motors, Inc. on January 17, 1948 for P4,546,000.00 including tax; the price of the car was
P4,133,000.23, the tax paid being P413.22, at 10%. And when this car was later sold (on the
same day) by Liddell Motors, Inc. to P.V. Luistro for P5500, no more sales tax was paid. 11 In
this price of P5500 was included the P413.32 representing taxes paid by Liddell & Co. Inc. in
the sale to Liddell Motors, Inc. Deducting P413.32 representing taxes paid by Liddell & Co.,
Inc. the price of P5500, the balance of P5,087.68 would have been the net selling price of
Liddell & Co., Inc. to the general public (had Liddell Motors, Inc. not participated and
intervened in the sale), and 15% sales tax would have been due. In this transaction, P349.68 In view of the foregoing, the decision appealed from is hereby modified: Liddell & Co., Inc. is
in the form of taxes was evaded. All the other transactions (numerous) examined in this light declared liable only for the amount of P426,811.67 with 25% surcharge for late payment and
will inevitably reveal that the Government coffers had been deprived of a sizeable amount of 6% interest thereon from the time the judgment becomes final.
taxes.
As it appears that, during the pendency of this litigation appellant paid under protest to the
As opined in the case of Gregory v. Helvering, 12 "the legal right of a taxpayer to decrease the Government the total amount assessed by the Collector, the latter is hereby required to return
amount of what otherwise would be his taxes, or altogether avoid them by means which the the excess to the petitioner. No costs.
law permits, cannot be doubted." But, as held in another case, 13 "where a corporation is a
dummy, is unreal or a sham and serves no business purpose and is intended only as a blind,
the corporate form may be ignored for the law cannot countenance a form that is bald and a
mischievous fiction."

Consistently with this view, the United States Supreme Court 14 held that "a taxpayer may gain
advantage of doing business thru a corporation if he pleases, but the revenue officers in
proper cases, may disregard the separate corporate entity where it serves but as a shield for
tax evasion and treat the person who actually may take the benefits of the transactions as the
person accordingly taxable."

Thus, we repeat: to allow a taxpayer to deny tax liability on the ground that the sales were
made through an other and distinct corporation when it is proved that the latter is virtually
owned by the former or that they are practically one and the same is to sanction a
circumvention of our tax laws.15 18. G.R. No. 117963 February 11, 1999

C. Tax liability computation: In the Yutivo case16 the same question involving the computation AZCOR MANUFACTURING INC., FILIPINAS PASO and/or ARTURO
of the alleged deficiency sales tax has been raised. In accordance with our ruling in said case ZULUAGA/Owner, petitioners,
we hold as correctly stated by Judge Nable in his concurring and dissenting opinion on this vs.
case, that the deficiency sales tax should be based on the selling price obtained by Liddell NATIONAL LABOR RELATIONS COMMISSION (NLRC) AND CANDIDO
Motors, Inc. to the public AFTER DEDUCTING THE TAX ALREADY PAID BY LIDDELL & CAPULSO, respondents.
CO., INC. in its sales to Liddell Motors, Inc.

On the imposition of the 50% surcharge by reason of fraud, we see that the transactions
between Liddell Motors Inc. and Liddell & Co., Inc. have always been embodied in proper
documents, constantly subject to inspection by the tax authorities. Liddell & Co., Inc. have
always made a full report of its income and receipts in its income tax returns.
Paraphrasing our decision in the Yutivo case, we may now say, in filing its return on the basis
of its sales to Liddell Motors, Inc. and not on those by the latter to the public, it cannot be held
that the Liddell & Co., Inc. deliberately made a false return for the purpose of defrauding the
government of its revenue, and should suffer a 50% surcharge. But penalty for late payment
(25%) should be imposed.
BELLOSILLO, J.:
AZCOR MANUFACTURING, INC., Filipinas Paso and Arturo Zuluaga instituted this petition
for certiorari under Rule 65 of the Rules of Court to assail, for having been rendered with
grave abuse of discretion amounting to lack or excess of jurisdiction, the Decision of the
National Labor Relations Commission which reversed the decision of the Labor Arbiter
dismissing the complaint of respondent Candido Capulso against petitioners. 1
Candido Capuslo file with the Labor Arbiter a complaint for constructive illegal dismissal and
illegal deduction of P50.00 per day for the period April to September 1989. Petitioners Azcor
Manufacturing, Inc. (AZCOR) and Arturo Zuluaga who were respondents before the Labor

72 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Arbiter (Filipinas Paso was not yet a party then in that case) moved to dismiss the complaint
on the ground that there was no employer-employee relationship between AZCOR and herein
respondent Capulso; .that the latter became an employee of Filipinas Paso effective 1 March
1996 but voluntarily resigned there from a year after, Capulso later amended his complaint by
impleading Filipinas Paso as additional respondent before the Labor Arbiter.
On 14 January 1592, Labor Arbiter Felipe T. Garduque II denied the motion to dismiss
holding that the allegation of lack of employer-employee relationship between Capulso and
AZCOR was not clearly established. Thereafter, the Labor Arbiter ordered that hearings be
conducted for the presentation of evidence by both parties.
The evidence presented by Capulso showed that he worked for AZCOR as ceramics worker
for more than two (2) years starting from 3 April 1989 to 1 June 1991 receiving a daily wage
of P118.00 plus other benefits such as vacation and sick leaves. From April to September
1989 the amount of P50.00 was deducted from his salary without informing him of the reason
therefor.
In the second week of February 1991, upon his doctor's recommendation, Capulso verbally
requested to go on sick leave due to bronchial asthma. It appeared that his illness was,
directly caused by his job as ceramics worker where, for lack of the prescribed occupational
safety gadgets, he inhaled and absorbed harmful ceramic dusts. His supervisor, Ms. Emily
Apolinaria, approved his request. Later, on 1 June 1991, Capulso went back to petitioner
AZCOR to resume his work after recuperating from his illness. He was not allowed to do so
by his supervisors who informed him that only the owner, Arturo Zuluaga, could allow him to
continue in his job. He returned five (5) times to AZCOR but when it became apparent that he
would not be reinstated, he immediately filed the instant complaint for illegal dismissal. 2
Capulso presented the following documentary evidence in support of his claim: (a) His
affidavit and testimony to prove that he was terminated without just cause and without due
process; 3 (b) Identification card issued by AZCOR which he continued to use even after his
supposed employment by Filipinas Paso; 4 (c) Certification of SSS premium payments; 5 (d)
SSS Member Assistance Form wherein he stated that he worked with AZCOR from March
1989 to April 1991; 6 (e) Certification of Employee Contribution with SSS; 7 and, (f) Payslips
issued by AZCOR. 8
On the other hand, petitioners alleged that Capulso was a former employee of AZCOR who
resigned on 28 February 1990 as evidenced by a letter of resignation and joined Filipinas
Paso on 1 March 1990 as shown by a contract of employment; in February 1991 Capulso
allegedly informed his supervisor, Ms. Emilia Apolinaria, that he intended to go on terminal
leave because he was not feeling well; on 1 March 1991 he submitted a letter of resignation
addressed to the President of Filipinas Paso, Manuel Montilla; and, in the early part of June
1991 Capulso tried to apply for work again with Filipinas Paso but there was no vacancy.
73 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Petitioners submitted the following documentary evidence: (a) Sworn Statement of Ms. Emilia
Apolinaria and her actual testimony to prove that respondent indeed resigned voluntarily from
AZCOR to transfer to Filipinas Paso, and thereafter, from Filipinas Paso hug to failing
health; 9 (b) Contract of Employment between Filipinas Paso and respondent which took
effect 1 March 1991; 10 (c) Letter of resignation of respondent from AZCOR dated 28
February 1990, to take effect on the same date; 11 (d) Undated letter of resignation of
respondent addressed to Filipinas Paso to take effect 1 March 1991; 12 (e) BIR Form No. W-4
filed 6 June 1990; 13 (f) Individual Income Tax Return of respondent for 1990; 14 and, (g) BIR
Form 1701-B which was an alphabetical list of employees of Filipinas Paso for the year
ending 31 December 1990. 15
On 29 December 1992 the Labor Arbiter rendered a decision dismissing the complaint for
illegal dismissal for lack of merit, but ordered AZCOR and/or Arturo Zuluaga to refund to
Capulso the sum of P200.00 representing the amount illegally deducted from his salary.
On appeal by Capulso, docketed as NLRC CA No. 004476-93 (NLRC NCR 00-09-05271-91),
"Capulso v. Azcor Manufacturing Inc., Filipinas Paso and/or Arturo Zuluaga/owner," the
NLRC modified the Labor Arbiter's decision by: (a) declaring the dismissal of Capulso as
illegal for lack of just and valid cause; (b) ordering petitioners to reinstate Capulso to his
former or equivalent position without loss of Seniority rights and without diminution of
benefits, and, (c) ordering petitioners to jointly and solidarily pay Capulso his backwages
computed from the time of his dismissal up to the date of his actual reinstatement. The NLRC
held in part-
. . . . the contract of employment (Exh. 2, p. 187, Rollo) issued to complainant
indicates that the work to be done during the period was contracted with
Filipinas Paso. The said contract was signed by, the Personnel Officer of
Ascor Manufacturing Inc. Likewise, the contract period is for six (6) months,
which establishes a presumption that the said contract could pass either as
to cover the probationary period, or job contracting, the completion of which
automatically terminates employment, whichever will work to respondent's
advantage should the case be filed. However, appellant continued working
with respondent after the lapse of the contract and until the alleged
termination of employment of appellant.
Secondly, the two resignation letters allegedly executed by appellant are
exactly worded, which only shows that the same work were prepared by
respondents-appellees plus after the fact that complainant denied having
executed and signed the same.
. . . . the letter of resignation (Exh. "3", p. 188, Rollo) supposed to have been
executed by complainant-appellant shows that he resigned from Ascor Mfg.,
Inc. on February 28, 1990 while Exhibit "2", page 187, Rollo, which was the
 contract of Employment issued to Candido Capulso by the personnel officer
of Ascor Mfg., Inc. shows that appellant was being hired from March 1, 1990
to August 31, 1990 by respondent Ascor Mfg., Inc. to do jobs for Filipinas
Paso; A run-around of events and dates.
The events that transpired clearly show that there was no interruption in the
service of complainant with Ascor Mfg., Inc. from April 13 1989 up to June 1,
1991 when complainant was unceremoniously dismissed.
Considering that Ascor Mfg., Inc. and Filipinas Paso orchestrated the events
that appeared to be in order with the alleged execution of resignation letters
which was disputed by complainant and confirmed spurious as explained
above, likewise overwhelmingly show the bad faith of respondents in the
treatment of their employees.
Petitioners' motion for reconsideration was denied by the NLRC through its Resolution of 14
October 1994; hence, the instant-petition. Meanwhile, during the pendency of the case before
this Court, Capulso succumbed to asthma and heart disease.
The issue to be resolved is whether the NLRC committed grave abuse of discretion in
declaring that private respondent Capulso was illegally dismissed and in holding petitioners
jointly and solidarily liable to Capulso for back wages.
As a rule the original and exclusive jurisdiction to review a decision or resolution of
respondent NLRC in a petition for certiorari under Rule 65 of the Rules of Court does not
include a correction of its evaluation of the evidence but is confined to issues of jurisdiction or
grave abuse of discretion. The NLRC factual findings, if supported by substantial evidence,
are entitled to great respect and even finality, unless petitioner is able to show that it simply
and arbitrarily disregarded the evidence before it or had misappreciated the evidence to such
an extent as to compel a contrary conclusion if such evidence had been properly
appreciated. 16 We find no cogent reason to disturb the findings of the NLCR.
Petitioners insist that Capulso was not really dismissed but he voluntarily resigned from
AZCOR and Filipinas Paso, and that there was nothing illegal or unusual in the letters of
resignation he executed.
We disagree. To constitute a resignation, it must be unconditional and with the intent to
operate as such. There must be an intention to relinquish a portion of the term of office
accompanied by an act of relinquishment. 17 In the instant case, the fact that Capulso
signified his desire to resume his work when he went back to petitioner AZCOR after
recuperating from his illness, and actively pursued his case for illegal dismissal before the
labor courts when he was refused admission by his employer, negated any intention on his
part to relinquish his job at AZCOR.
74 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Moreover, a closer look at the subject resignation letters readily reveals the following: (a) the
resignation letter allegedly tendered by Capulso to Filipinas Paso was identically worded with
that supposedly addressed by him to AZCOR; (b) both were pre-drafted with blank spaces
filled up with the purported dates of effectivity of his resignation; and, (c) it was written in
English, a language which Capulso was not conversant with considering his low level of
education. No other plausible explanation can be drawn from these circumstances than that
the subject letters of resignation were prepared by a person or persons other than Capulso.
And the fact that he categorically disowned the signatures therein and denied having
executed them clearly indicates that the resignation letters were drafted, without his consent
and participation.
Even assuming for the sake of argument that the signatures were, genuine, we still cannot
give credence to those letters in the absence of any showing that Capulso was aware that
what he was signing then were in fact resignation letters or that he fully understood the
contents thereof. Having introduced those resignation letters in evidence, it was incumbent
upon petitioners to prove clearly and convincingly their genuineness and due execution,
especially considering the serious doubts an their authenticity. Petitioners miserably failed in
this respect.
The Labor Arbiter held that Capulso's repudiation of the signatures affixed in the letters of
resignation was weakened by the fact that he filed the case only after almost four (4) months
from the date of his dismissal. But it should be noted that private respondent still wanted his
job and thus, understandably, refrained from filing the illegal dismissal case against his
employer so as not to jeopardize his chances of continuing with his employment. True
enough, when it became apparent that he was no longer welcome at AZCOR he immediately
instituted the instant case.
In addition, an action for reinstatement by reason of illegal dismissal is one based on an injury
which may be brought within four (4) years from the time of dismissal pursuant to Art. 1146 of
the Civil Code. Hence, Capulso's case which was filed after a measly delay of four (4) months
should not be treated with skepticism or cynicism. By law and settled jurisprudence, he has
four (4) years to file his complaint for illegal dismissal. A delay of merely four (4) months in
instituting an illegal dismissal case is more than sufficient compliance with the prescriptive
period. It may betray an unlettered man's lack of awareness of his rights as a lowly worker
but, certainly, he must not be penalized for his tarrying.
In illegal dismissal cases like the present one, the onus of proving that the dismissal of the
employee was for a valid and authorized cause rests on the employer 18 and failure to
discharge the same would mean that the dismissal is not justified and therefore
illegal. 19 Petitioners failed in this regard.
Petitioners also contend that they could not be held jointly and severally liable to Capulso for
back wages since AZCOR and Filipinas Paso are separate and distinct corporations with
different corporate personalities; and, the mere fact that the businesses of these corporations
are interrelated and both owned and controlled by a single stockholder are not sufficient
grounds to disregard their separate corporate entities.
We are not persuaded. The doctrine that a corporation is a legal entity or a person in law
distinct from the persons composing it is merely a legal fiction for purposes of convenience
and to subserve the ends of justice. This fiction cannot be extended to a point beyond its
reason and policy. 20 Where, as in this case, the corporate fiction was used as a means to
perpetrate a social injustice or as a vehicle to evade obligations or confuse the legitimate
issues, it would be discarded and the two (2) corporations would be merged as one, the first
being merely considered as the instrumentality, agency, conduit or adjunct of the other. 21
In this particular case, there was much confusion as to the identity of Capulso's employer -
whether it was AZCOR or Filipinas Paso; but, for sure, it was petitioners' own making, as
shown by the following: First, Capulso had no knowledge that he was already working under
petitioner Filipinas Paso since he contained to retain his AZCOR Identification card; Second,
his payslips contained the name of AZCOR giving the impression that AZCOR was paying his
salary; Third, he was paid the same salary and he performed the same kind of job, in the
same work area, in the same location, using the same tools and under the same
supervisor; Fourth, there was no gap in his employment as he continued to work from the
time he was hired up to the last day of his work; Fifth, the casting department of AZCOR
where Capulso was working was abolished when he, together with six (6) others, transferred
to Filipinas Paso; and Sixth, the employment contract was signed by an AZCOR personnel
officer, which showed that Capulso was being hired from 1 March 1990 to 31 August 1990 by
AZCOR to do jobs for Filipinas Paso. The employment contract provided in part:
employee of Filipinas Paso. 22 After causing much confusion, petitioners have the temerity to
use as evidence the ignorance of Capulso in identifying his true employer. It is evident from
the foregoing discussion that Capulso was led into believing that while he was working with
Filipinas Paso, his real employer was AZCOR. Petitioners never dealt with him openly and in
good faith, nor was he informed of the developments within the company, i.e., his alleged
transfer to Filipinas Paso and the closure of AZCOR's manufacturing operations beginning 1
March 1990. 23 Understandably, he sued AZCOR alone and was constrained to implead
Filipinas Paso as additional respondent only when it became apparent that the latter also
appeared to be his employer.
In fine, we see in the totality of the evidence a veiled attempt by petitioners to deprive
Capulso of what he had earned through hard labor by taking advantage of his low level of
education and confusing. him as to who really was his true employer - such a callous and
despicable treatment of a worker who had rendered faithful service to their company.
However, considering that private respondent died during the pendency of the case before
this Court, reinstatement is no longer feasible. In lieu thereof, separation pay shall be
awarded. With respect to the amount of back wages, it shall be computed from the time of
private respondent's illegal dismissal up to the time of his death.
WHEREFORE, the petition is DISMISSED. The NLRC Decision of 12 September 1994 is
MODIFIED. Petitioners AZCOR MANUFACTURING, INC., FILIPINAS PASO and ARTURO
ZULUAGA are ORDERED to pay, jointly and solidarily, the heirs of private respondent
Candido Capulso the amounts representing his back wages, inclusive of allowances and
other benefits, and separation pay to, be computed in accordance with law.

The contract is for a specific job contract only and shall be effective for the
period covered, unless sooner terminated when the job contract is completed
earlier or withdrawn by client, or when the employee is dismissed for just and
lawful causes provided by law and the company's rules and regulations, in
which case the employment contract will automatically terminate.

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

Interestingly, petitioners likewise argue that it was grave abuse of discretion for the NLRC to
hold them solidarily, liable to Capulso when the latter himself testified that he was not even an
75 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 19. G.R. No. L-20451 December 28, 1964

R. F. SUGAY and CO., INC., petitioner,

vs.
PABLO C. REYES, CESAR CURATA, PACIFIC PRODUCTS, INC., and WORKMEN'S
COMPENSATION COMMISSION, respondents.

G. S. Mangay for petitioner.

Ross, Selph & Carrascoso and Reyes & Flores for respondent Pacific Products, Inc.
R. P. Decena for respondent Cesar Curata
Villavieja & Martinez for respondent Workmen's Compensation Commission.

PAREDES, J.:

This is a Workmen's Compensation Case, the compensability of the injuries suffered by the
claimants, Pablo C. Reyes, and Cesar Curata, being admitted by all the parties. The only
issue requiring determination is, who among the three (3) persons (Romulo Sugay, R. F.
Sugay & Co., Inc., and Pacific Products, Inc.) is the statutory employer of said claimants and
who should be liable for their disability compensation.

In the evening of January 13, 1961, respondents Pablo Reyes and Cesar Curata suffered
burns of various degrees, while painting the building of the Pacific Products, Inc., caused by a
fire of accidental origin, resulting in their temporary disability from work. For said injuries they

76 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
filed claims for disability and medical expenses against the R. F. Sugay & Co., Inc., Romulo
F. Sugay and the Pacific Products, Inc. The R. F. Sugay & Co., Inc., answered the claim,
alleging that the corporation was not the employer of the claimants but it was the Pacific
Products, Inc., which had an administration and supervision job contract with Romulo F.
Sugay, who, aside from being the President of the corporation, bearing his name, had also a
business of his own, distinct and separate from said corporation; and that the Regional Office
of the Department of Labor had no jurisdiction over the subject matter. Romulo F. Sugay did
not file an Answer, but voluntarily appeared during the hearing and disclaimed liability. The
Answer of Pacific Products, Inc., contained the customary admissions and denials, and
averred that its business was mainly in the manufacture and sale of lacquer and other
painting materials. As defenses, it stated that the claimants were the employees of
respondents R. F. Sugay Construction Co., Inc., and/or Romulo F. Sugay that as a result of
the, fire, it incurred a loss of P2,000,000.00, occasioned by the employment of incompetent
men in the painting of its factory by the Sugays.
The Hearing Officer dismissed the case with respect, to R. F. Sugay & Co., Inc., and Romulo
F. Sugay "for want of employer-employee relationship with the claimants, either directly or
through an independent contractor" declaring:
WHEREFORE, the Pacific Products, Inc., is hereby adjudged to pay through this
office, the following benefits to the claimants as follows:
1. To PABLO C. REYES, the sum of P490.05 as temporary total disability benefits
plus P44.53 for permanent partial disability of index finger plus P40.20 for the middle
finger plus P49.48 for the ring finger; plus hospital and medical expenses of P659.70
or a total of ONE THOUSAND TWO HUNDRED EIGHTY-THREE and 96/100
PESOS (P1,283.96) as total benefits under the Act.
2. To CESAR CURATA, the sum of P415.80 as temporary total disability
compensation plus P477.75 and P273.00 for impairment of his right and left feet plus
P4,459.96 as medical and hospital expenses or a total of FIVE THOUSAND SIX
HUNDRED TWENTY-FIVE and 80/100 PESOS (P5,625.80) as total benefits under
the Act.
3. To pay to this office the sum of EIGHTEEN PESOS (P18.00) as fees for the two
claims pursuant to Section 55 of the Act.
The respondents, ROMULO F. SUGAY and R. F. SUGAY & CO., INC., should be as
they are hereby exempted from any liability for lack of employer-employee
relationship with the claimants.
Pacific Products, Inc., appealed the above decision to the Commission. On August 24, 1962,
Commissioner Jose Sanchez rendered judgment affirming the compensability of the injuries
77 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
and the amounts due them, but modified the decision of the Hearing Officer, by finding that R.
F. Sugay & Co., Inc., was the statutory employer of the claimants and should be liable to
them. Pacific Products, Inc., was absolved from all responsibility. In the decision, the
Associate Commissioner, made the following findings and conclusions, to wit:
xxx xxx xxx
A careful study of the evidence leads us to the conclusion that, although the accident
happened within the premises of the respondent Pacific Products, Inc., the
responsibility for the payment of the compensation due in this case should be lodged
somewhere else. In the first place, even the evidence presented by the claimants and
the other two respondents clearly established the fact that the accident occurred
while the claimant, were painting the Office of Pacific Products Inc., an undertaking
which had nothing to do with the business of the latter. It was fairly shown that Pacific
Products, Inc., was engaged in the manufacture and sale of paints, varnish and other
allied products, and, therefore, the work which was then being undertaken in its office
at the time of the accident has nothing to do with the nature of its business. The
records disclose that the injured painter were hired, through an intermediary, by R. F.
Sugay & Co., which was purposely established "to engage itself in the constructions,
repairs, remodelling of all kinds of houses, residences, edifices and all such other
buildings and all kinds of construction works allied thereto." (Exh. "11", Articles of
Incorporation of R. F. Sugay & Co., Inc., page 241 Records of the case.)
xxx xxx xxx
The evidence adduced by the parties indicates rather clearly that, except for the fact
that the Pacific Products, Inc. supplied the paint, it did not exercise any of the above-
enumerated powers. The claimants were hired by one Rodolfo Babatid pursuant to
the instruction received by the latter from Romulo Sugay. They were paid by Eduardo
Sugay, brother of Romulo and Secretary of R. F. Sugay & Co., and were under the
control of these persons during the time they were painting the office of Pacific
Products, Inc. Following the rulings enunciated in the abovecited decisions of the
Supreme Court.1 we are constrained to disagree with the Hearing Officer's decision in
so far as it held that respondent Pacific Products, Inc. should be solely responsible
for the payment of the compensation he awarded in favor of the claimants. Neither
can we see the reason of the Hearing Officer in ordering said respondent to pay the
compensation in this case after ruling categorically that "the herein claimants
were casual employees of Pacific Products, Inc." A casual employee,' by the way, is
one "whose employment is purely casual and is not for the purposes of the
occupation or business of the employer." (Section 39[b] Workmen's. Compensation
Act, as amended.)
xxx xxx xxx
 ... In a situation like this, much weight should be given to the testimony of a person and as such, the latter should be made answerable to the compensation due to the claimants.
who does not stand to lose or gain from the outcome of the case. Rodolfo Babatid, We, however, agree with the Commission that "the dual roles of Romulo F. Sugay should not
who was presented by both the respondent Romulo Sugay and the claimants, swore be allowed to confuse the facts relating to employer-employee relationship." It is a legal
on the witness stand that he has been for a long time, an employee of the firm R. F. truism that when the veil of corporate fiction is made as a shield to perpetrate a fraud and/or
Sugay & Co. and that he hired the other painters pursuant to Sugay as president of confuse legitimate issues (here, the relation of employer-employee), the same should be
said firm. This witness, and the two claimants were in unison in declaring that they pierced. Verily the R. F. Sugay & Co., Inc. is a business conduit of R. F. Sugay.
were paid by the firm, thru its secretary Eduardo Sugay, who directly supervised
them in their work. That the claimants were of the belief that they were hired by R. F. IN VIEW HEREOF, the writ is denied, and the judgment appealed from, is hereby affirmed, in
Sugay & Co., thru Mr. Babatid, is also shown by their declarations under oath that all respects. Costs taxed against petitioner R. F. Sugay & Co., Inc., in both instances.
they were paid thru the company payroll; which they signed. ... . These two persons,
as already adverted to above, expressed their honest belief that they were connected
with R. F. Sugay & Co., having been hired by one who was known to be a trusted
employee of said business establishment. Under this set of facts it may be said that
R. F. Sugay & Co., is now estopped from denying any relationship with the claimants
because, thru its responsible officials, it made others believe that the painters hired
by Mr. Babatid were being employed by it. Without insinuating that the dual role
played by Romulo F. Sugay was intended to be used as a subterfuge of the
corporation to cloak the responsibilities of the corporation under his presidency, we 20. G.R. No. L-2294 May 25, 1951
must state that such dual roles cannot be allowed to confuse the facts relating to
employer-employee relationships. FILIPINAS COMPAÑIA DE SEGUROS, petitioner,
vs.
The Commission en banc, on September 19, 1962, denied the motion for reconsideration CHRISTERN, HUENEFELD and CO., INC., respondent.
stating that there was "nothing to warrant a modification much less a reversal, of the decision
sought to be reviewed." In the appeal of R. F. Sugay & Co., to this Court, it is insisted that Ramirez and Ortigas for petitioner.
Pacific Products, Inc. was the employer of the claimants. Ewald Huenefeld for respondent.

At the outset, We would wish to point out that this case is an appeal from the decision of the PARAS, C.J.:
Workmen's Compensation Commission. Needless to state, in this class of proceedings, only
questions of law should be raised, the findings of facts made by the Commission, being
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after
conclusive and binding upon this Court. (Bernardo vs. Pascual, L-13260, October 31, 1960.)
payment of corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros,
Indeed, We are authorized to inquire into the facts, but only when the conclusions thereupon
fire policy No. 29333 in the sum of P1000,000, covering merchandise contained in a building
are not supported by the evidence. In the case at bar, however, We find that the findings of
located at No. 711 Roman Street, Binondo Manila. On February 27, 1942, or during the
facts made by the Commissioner and concurred in by the Commission en banc are fully
Japanese military occupation, the building and insured merchandise were burned. In due time
supported by the evidence on record which clearly points out that R. F. Sugay & Co., is the
the respondent submitted to the petitioner its claim under the policy. The salvage goods were
statutory employer of the claimants. The decisive elements showing that it is the employer,
sold at public auction and, after deducting their value, the total loss suffered by the
are present, such as selection and engagement; payment of wages; power of dismissal, and
respondent was fixed at P92,650. The petitioner refused to pay the claim on the ground that
control (Viaña vs. Alejo-Alagadan, et al., May 31, 1956). These powers were lodged in R. F.
the policy in favor of the respondent had ceased to be in force on the date the United States
Sugay & Co. On this very score alone, the petition for review should be dismissed.
declared war against Germany, the respondent Corporation (though organized under and by
virtue of the laws of the Philippines) being controlled by the German subjects and the
There was a faint attempt by the petitioning corporation, to evade liability, by advancing the petitioner being a company under American jurisdiction when said policy was issued on
theory that Romulo P. Sugay, its President, was the one who entered into a contract of October 1, 1941. The petitioner, however, in pursuance of the order of the Director of Bureau
administration and supervision for the painting of the factory of the Pacific Products, Inc., and of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the respondent
making it appear that said Romulo F. Sugay acted as an agent of the Pacific Products, Inc., the sum of P92,650 on April 19, 1943.

78 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the
purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory
of the petitioner is that the insured merchandise were burned up after the policy issued in
1941 in favor of the respondent corporation has ceased to be effective because of the
outbreak of the war between the United States and Germany on December 10, 1941, and
that the payment made by the petitioner to the respondent corporation during the Japanese
military occupation was under pressure. After trial, the Court of First Instance of Manila
dismissed the action without pronouncement as to costs. Upon appeal to the Court of
Appeals, the judgment of the Court of First Instance of Manila was affirmed, with costs. The
case is now before us on appeal by certiorari from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the respondent
corporation became an enemy when the United States declared war against Germany,
relying on English and American cases which held that a corporation is a citizen of the
country or state by and under the laws of which it was created or organized. It rejected the
theory that nationality of private corporation is determine by the character or citizenship of its
controlling stockholders.
There is no question that majority of the stockholders of the respondent corporation were
German subjects. This being so, we have to rule that said respondent became an enemy
corporation upon the outbreak of the war between the United States and Germany. The
English and American cases relied upon by the Court of Appeals have lost their force in view
of the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz
Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-
153, in which the controls test has been adopted. In "Enemy Corporation" by Martin Domke, a
paper presented to the Second International Conference of the Legal Profession held at the
Hague (Netherlands) in August. 1948 the following enlightening passages appear:
Since World War I, the determination of enemy nationality of corporations has been
discussion in many countries, belligerent and neutral. A corporation was subject to
enemy legislation when it was controlled by enemies, namely managed under the
influence of individuals or corporations, themselves considered as enemies. It was
the English courts which first the Daimler case applied this new concept of "piercing
the corporate veil," which was adopted by the peace of Treaties of 1919 and the
Mixed Arbitral established after the First World War.
The United States of America did not adopt the control test during the First World
War. Courts refused to recognized the concept whereby American-registered
corporations could be considered as enemies and thus subject to domestic legislation
and administrative measures regarding enemy property.
World War II revived the problem again. It was known that German and other enemy
interests were cloaked by domestic corporation structure. It was not only by legal
79 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
ownership of shares that a material influence could be exercised on the management
of the corporation but also by long term loans and other factual situations. For that
reason, legislation on enemy property enacted in various countries during World War
II adopted by statutory provisions to the control test and determined, to various
degrees, the incidents of control. Court decisions were rendered on the basis of such
newly enacted statutory provisions in determining enemy character of domestic
corporation.
The United States did not, in the amendments of the Trading with the Enemy Act
during the last war, include as did other legislations the applications of the control test
and again, as in World War I, courts refused to apply this concept whereby the
enemy character of an American or neutral-registered corporation is determined by
the enemy nationality of the controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and other
administrative practice in the treatment of foreign-owned property in the United
States allowed to large degree the determination of enemy interest in domestic
corporations and thus the application of the control test. Court decisions sanctioned
such administrative practice enacted under the First War Powers Act of 1941, and
more recently, on December 8, 1947, the Supreme Court of the United States
definitely approved of the control theory. In Clark vs. Uebersee Finanz Korporation,
A. G., dealing with a Swiss corporation allegedly controlled by German interest, the
Court: "The property of all foreign interest was placed within the reach of the vesting
power (of the Alien Property Custodian) not to appropriate friendly or neutral assets
but to reach enemy interest which masqueraded under those innocent fronts. . . . The
power of seizure and vesting was extended to all property of any foreign country or
national so that no innocent appearing device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the
appealed decision. However, we may add that, in Haw Pia vs. China Banking
Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation
came within the meaning of the word "enemy" as used in the Trading with the Enemy Acts of
civilized countries not only because it was incorporated under the laws of an enemy country
but because it was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that
"anyone except a public enemy may be insured." It stands to reason that an insurance policy
ceases to be allowable as soon as an insured becomes a public enemy.
Effect of war, generally. — All intercourse between citizens of belligerent powers
which is inconsistent with a state of war is prohibited by the law of nations. Such
prohibition includes all negotiations, commerce, or trading with the enemy; all acts
which will increase, or tend to increase, its income or resources; all acts of voluntary
 submission to it; or receiving its protection; also all acts concerning the transmission
of money or goods; and all contracts relating thereto are thereby nullified. It further
prohibits insurance upon trade with or by the enemy, upon the life or lives of aliens
engaged in service with the enemy; this for the reason that the subjects of one
country cannot be permitted to lend their assistance to protect by insurance the
commerce or property of belligerent, alien subjects, or to do anything detrimental too
their country's interest. The purpose of war is to cripple the power and exhaust the
resources of the enemy, and it is inconsistent that one country should destroy its
enemy's property and repay in insurance the value of what has been so destroyed, or
that it should in such manner increase the resources of the enemy, or render it aid,
and the commencement of war determines, for like reasons, all trading intercourse
with the enemy, which prior thereto may have been lawful. All individuals therefore,
who compose the belligerent powers, exist, as to each other, in a state of utter
exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year, or for
some other specified term it is plain that when the parties become alien enemies, the
contractual tie is broken and the contractual rights of the parties, so far as not vested.
lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)
The respondent having become an enemy corporation on December 10, 1941, the insurance
policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had
ceased to be valid and enforcible, and since the insured goods were burned after December
10, 1941, and during the war, the respondent was not entitled to any indemnity under said
policy from the petitioner. However, elementary rules of justice (in the absence of specific
provision in the Insurance Law) require that the premium paid by the respondent for the
period covered by its policy from December 11, 1941, should be returned by the petitioner.
The Court of Appeals, in deciding the case, stated that the main issue hinges on the question
of whether the policy in question became null and void upon the declaration of war between
the United States and Germany on December 10, 1941, and its judgment in favor of the
respondent corporation was predicated on its conclusion that the policy did not cease to be in
force. The Court of Appeals necessarily assumed that, even if the payment by the petitioner
to the respondent was involuntary, its action is not tenable in view of the ruling on the validity
of the policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to
by the appellee was not unjust but the exercise of its lawful right to claim for and received the
payment of the insurance policy," and that the ruling of the Bureau of Financing to the effect
that "the appellee was entitled to payment from the appellant was, well founded." Factually,
there can be no doubt that the Director of the Bureau of Financing, in ordering the petitioner
to pay the claim of the respondent, merely obeyed the instruction of the Japanese Military
Administration, as may be seen from the following: "In view of the findings and conclusion of
this office contained in its decision on Administrative Case dated February 9, 1943 copy of
which was sent to your office and the concurrence therein of the Financial Department of the
80 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Japanese Military Administration, and following the instruction of said authority, you are
hereby ordered to pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of
said claim, however, should be made by means of crossed check." (Emphasis supplied.)
It results that the petitioner is entitled to recover what paid to the respondent under the
circumstances on this case. However, the petitioner will be entitled to recover only the
equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance
with the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent corporation is
ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the amount
of the premium, in Philippine currency, that should be returned by the petitioner for the
unexpired term of the policy in question, beginning December 11, 1941. Without costs. So
ordered.
21. G.R. No. 80352 September 29, 1989
BENJAMIN G. INDINO, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (SECOND DIVISION), and DASMARIÑAS
INDUSTRIAL & STEELWORKS CORPORATION and/or PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION (PNCC), Formerly CONSTRUCTION DEVELOPMENT
CORPORATION OF THE PHILIPPINES (CDCP), respondents.
Amado A. Caballero for petitioner. The Government Corporate Counsel for respondent
Dasmarinas Industrial & Steelworks Corporation.
SARMIENTO, J.:
The main issue in this petition for certiorari assailing the two resolutions dated August 20,
1987 1 and October 5, 1987 2 of the respondent National Labor Relations Commission
(NLRC) in NLRC Case No. 10-3268-85, is the validity of the petitioner's separation from the
employ of private respondent Dasmarinas Industrial and Steelworks Corporation (DISC).
The petitioner, Benjamin G. Indino, joined the Philippine National Construction Corporation
(PNCC) as a project personnel officer on December 12, 1974. On January 6, 1981, he was
transferred to private respondent DISC, a sister corporation of PNCC, which assigned him to
its Philphos Project in Isabel, Leyte.
On July 27, 1983, while the petitioner was on a paid vacation leave, he received a "letter-
memorandum" from Roman B. Lopez, DISC personnel manager, informing him that his
services were no longer needed at the Philphos Project in Leyte. The "letter- memorandum"
reads:
Date July 27, 1983
The significant business reverses being experienced by the company makes
(sic) it imperative to take drastic measures to reduce both its work force and
operating costs. We regret to inform you, therefore, that your employment
with DISC shall be terminated at the close of business hours on August
27,1983, or after thirty (30) days from your receipt hereof.
2. That complainant likewise agreed to be paid only fifty
percent (50%) of his back wages/salaries and other
allowances by the respondent starting July 27, 1983 up to
September 30, 1983, and by this Joint Motion to Dismiss
both parties are foregoing and condoning whatever claims
each party may have against each other under NLRC-NCR
CASE No. 7-3590-83;
3. That both parties hereby mutually and jointly move for the
dismissal of the above-entitled case.
Makati, Metro Manila

Relatively, you can elect to submit a formal resignation in which case you September 30, 1983.
shall also be entitled to separation pay and other benefits applicable under
existing policies. You may also take advantage of your earned leave during SGD. BENJAMIN G. INDINO SGD. ORLANDO B.
the period July 27,1983 to August 27, 1983. TIONGSON

The Personnel Administration Department (PAD), will be gIad to answer your Complainant President
questions pertaining to your formal separation. Please accomplish the
necessary clearance on or before July 30, 1983. Dasmariñas Industrial & Steelworks Corp.

SGD. ROMAN B. LOPEZ Assisted by:

Personnel Manager 3 SGD. JOSE A. CABATUANDO JR.

Immediately after receipt of the "letter-memorandum," the petitioner filed with
the NLRC a complaint for illegal dismissal against private respondent DISC;
it was docketed as NLRC-NCR CASE No. 7- 3590-83. 4 The case, however,
was prematurely terminated upon a joint motion to dismiss, dated September
30, 1983, filed by the parties, and which reads:
Comes (sic) now both parties in the above-entitled case and unto this
Honorable Commission respectfully state:
Counsel for the respondent 5
On the basis of that agreement, the petitioner was reinstated on October 1,
1983 at respondent DISC's central office, occupying the position of Project
Administrative Officer III. 6 Barely two months after his reinstatement,
however, or on December 14, 1983, the petitioner received another "letter-
memorandum" from respondent DISC, again terminating his services. The
"letter-memorandum" states:

1. That both parties mutually agreed to settle their December 14,1983

differences and petitioner/complainant agreed to return to
work tomorrow October 1, 1983. On the other hand,
respondent accepted his willingness to return to work at any
project or office where he may be assigned;
As we have completed most of our major projects and about to complete the
Philippine Phosphate Fertilizer Project plus the fact that there has been a low
project in sales/marketing due to critical economic situation, the company is
forced to take drastic measures to reduce both its work force and operating

81 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
costs. We regret to inform you, therefore, that your employment with DISC
shall be terminated at the close of business hours on January 15, 1984, or
thirty (30) days from your receipt hereof.
Relatively, you can elect to submit a formal resignation in which case you
shall also be entitled to separation pay and other benefits applicable under
existing policies. You may also take advantage of your earned leaves during
the period December 15, 1983 to January 15,1984.
The Personnel Administration Department (PAD) will be glad to answer your
questions pertaining to your formal separation. Please accomplish the
necessary clearance on or before January 15, 1984.
(SGD.) ROMAN B. LOPEZ
Personnel Manager 7
Accordingly, pursuant to this "formal separation," the petitioner received from
DISC the amount of P20,458.52 as separation benefits. 8
The petitioner, however, refused to accept his termination; on October 7,
1985, he filed a complaint for illegal dismissal, unpaid wages, moral and
exemplary damages, and attorney's fees against respondent DISC. 9 Later,
he amended his complaint and impleaded the Philippine National
Construction Corporation (PNCC) as additional respondent. 10 On February
10, 1987, Labor Arbiter Ricardo C. Nora, to whom the case was assigned,
dismissed the petitioner's complaint for lack of merit.
Dissatisfied with the labor arbiter's decision, the petitioner appealed to the
respondent NLRC. The latter, however, finding no error in the appealed
judgment, issued a resolution on August 10, 1987 affirming the same and
denying the petitioner's appeal. A motion for reconsideration seasonably filed
by the petitioner was denied on October 5, 1987. Hence, this petition.
The petitioner insists that his removal was unjustified and illegal and was
carried out to circumvent the compromise agreement he had earlier entered
into with respondent DISC which provided, among others, his reinstatement
in any of the offices or projects of respondent DISC. The aforementioned
compromise agreement, he avers, is already the law between them and
precludes his separation or dismissal. Moreover, the petitioner points out, the
reason for his separation in the "letter-memorandum" of December 14, 1983
is but a rehash of that in the first "letter-memorandum" of July 27, 1983. The
82 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
petitioner concludes that the later move by DISC at ostensible retrenchment
had been made in bad faith and manifested its thinly-veiled desire to dismiss
him. The petitioner likewise makes capital of the failure of the respondent
DISC to show that it was incurring, or at least about to incur, losses, which
would warrant its retrenchment policy. As such, his removal from
employment was unjustified and amounted to an illegal dismissal. Finally, the
petitioner substantiates the inclusion of the Philippine National Construction
Corporation (PNCC) as a party respondent in the case with the fact that
PNCC was originally his employer but which later transferred him to
respondent DISC, the PNCC sister company. This, according to the
petitioner, shows the link between the two respondents and for purposes of
this case, deprives them of their separate personality.
We find the petition impressed with merit.
The failure of the respondent DISC to show proof of its actual or imminent
losses that would justify drastic cuts in personnel or costs, is fatal to its
cause. Article 283 (then Article 284) of the Labor Code provides that an
"employer may also terminate the employment of any employee due to the
installation of labor-saving devices, redundancy, retrenchment to prevent
losses or the closing or cessation of operation of the establishment or
undertaking unless the closing is for the purpose of circumventing the
provisions of this title." 11 Clearly, under the said provision of law, the right of
an employer to terminate the services of any employee is predicated on the
existence of any of the following causes: (1) installation of labor- saving
devices; (2) redundancy; (3) retrenchment to prevent losses; and (4) the
closing or cessation of operation of the establishment or undertaking, unless
the closing is for the purpose of circumventing the provisions of law. 12 Thus,
while business reverses can be a just cause for terminating
employees, 13 they must be sufficiently proven by the employer. 14 This is
precisely mandated under par. (b) of Article 277 (formerly 278) of the Labor
Code which states, among others, that "(T) he burden of proving that the
termination was for a valid or authorized cause shall rest on the employer."
Admittedly, the assassination of' Senator Benigno "Ninoy" Aquino on August
21, 1983 produced extremely adverse political, social, and economic
conditions that resulted in widespread business failures. Not all enterprises,
however, experienced severe economic setbacks; a number, in fact,
flourished during that financially bleak period.
It is almost an inflexible rule that employers who contemplate terminating the
services of their workers cannot be so arbitrary and ruthless as to find flimsy
excuses for their decisions. This must be so considering that the dismissal of
an employee from work involves not only the loss of his position but more
important, his means of livelihood. 15 Applying this caveat to the case at bar,
it was therefore incumbent for respondent DISC, before putting into effect
any retrenchment process on its work force, to show by convincing evidence
that it was being wrecked by serious financial problems. Simply stating its
state of insolvency or its impending doom will not be sufficient. To do so
would render the security of tenure of workers and employees illusory. In a
grander scale, to hold as valid and legal the respondent DISC's act would be
disastrous to labor. Any employer desirous of ridding itself of its employees
could then easily do so without need to adduce proof in support of its action.
We can not countenance this. Security of tenure is a right guaranteed to
employees and workers by the Constitution and should not be denied on the
basis of mere speculation. 16
Another point that makes the respondent DISC's cause suspect is that, as
correctly pointed out by the petitioner, the reason it gave in its "letter-
memorandum" dated December 14, 1983 terminating his services was
simply a rehash of its (DISC'S) "letter-memorandum" dated July 27, 1983,
which ultimately produced the compromise agreement between the parties. It
will be noted that on July 27, 1983, the event (Ninoy Aquino's assassination)
that led to the near collapse of the national economy, had not yet taken
place. Respondent DISC's use of basically the same reason thus shows its
all-too-apparent effort to remove the petitioner from its payroll. Taken in the
light of the then just recently concluded compromise agreement between the
parties, the act of DISC in subsequently dismissing the petitioner just two
months-and-a-half after his reinstatement appears as having been made in
bad faith. Surely, if the basis for the second "letter-memorandum" is the
same as that of the first, there is no reason why the petitioner could not be
retained as in the first instance. The ground of DISC's retrenchment policy
being basically no different from the first, it is therefore covered by the
compromise agreement reached by the parties earlier.
Finally, considering that the petitioner started his employment originally with
the Philippine National Construction Company (PNCC) but was only
transferred later to its sister company, the respondent DISC, the inclusion of
the former as party respondent in this action is justified and proper. The so-
called separate and distinct personality of PNCC could be validly ignored
inasmuch as it would unjustly prejudice the petitioner vis-a-vis whatever
benefits he may receive by reason of his illegal dismissal. This has been
demonstrated by the amount of the separation pay given to the petitioner by
respondent DISC which appears to correspond only to the period in which
the former was in the employ of the latter. The period when the petitioner
was still in the employ of PNCC was apparently ignored. This omission
should not be allowed inasmuch as there is no showing that PNCC gave the
83 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
petitioner separation benefits before he was transferred to DISC. It should
always be borne in mind that the fiction of law that a corporation, as a
juridical entity, has a distinct and separate personality, was envisaged for
convenience and to serve justice; therefore, it should not be used as a
subterfuge to commit injustice and circumvent labor laws. 17
WHEREFORE, the petition is granted, the assailed resolutions of the
National Labor Relations Commission dated August 20, 1987 and October 5,
1987 are ANNULLED and SET ASIDE. The respondent Dasmarinas
Industrial & Steelworks Corporation is hereby ORDERED to REINSTATE the
petitioner to his former position without loss of seniority rights and privileges,
and to PAY the petitioner three (3) years back wages without any
qualifications. Costs against the respondent Dasmarinas Industrial &
Steelworks Corporation.
22. G.R. No. 101897. March 5, 1993.
LYCEUM OF THE PHILIPPINES, INC., petitioner,
VS.
COURT OF APPEALS, LYCEUM OF APARRI, LYCEUM OF CABAGAN, LYCEUM OF
CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO, INC., BUHI
LYCEUM, CENTRAL LYCEUM OF CATANDUANES, LYCEUM OF SOUTHERN
PHILIPPINES, LYCEUM OF EASTERN MINDANAO, INC. and WESTERN PANGASINAN
LYCEUM, INC., respondents.
Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padilla for petitioner.
Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for respondents.
Froilan Siobal for Western Pangasinan Lyceum.
SYLLABUS
1. CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF PROPOSED NAME
WHICH IS IDENTICAL OR CONFUSINGLY SIMILAR TO THAT OF ANY EXISTING
CORPORATION, PROHIBITED; CONFUSION AND DECEPTION EFFECTIVELY
PRECLUDED BY THE APPENDING OF GEOGRAPHIC NAMES TO THE WORD
"LYCEUM". — The Articles of Incorporation of a corporation must, among other things, set
out the name of the corporation. Section 18 of the Corporation Code establishes a restrictive
rule insofar as corporate names are concerned: "Section 18. Corporate name. — No
corporate name may be allowed by the Securities an Exchange Commission if the proposed
name is identical or deceptively or confusingly similar to that of any existing corporation or to
any other name already protected by law or is patently deceptive, confusing or contrary to
existing laws. When a change in the corporate name is approved, the Commission shall issue
an amended certificate of incorporation under the amended name." The policy underlying the
prohibition in Section 18 against the registration of a corporate name which is "identical or
deceptively or confusingly similar" to that of any existing corporation or which is "patently
deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud
upon the public which would have occasion to deal with the entity concerned, the evasion of
legal obligations and duties, and the reduction of difficulties of administration and supervision
over corporations. We do not consider that the corporate names of private respondent
institutions are "identical with, or deceptively or confusingly similar" to that of the petitioner
institution. True enough, the corporate names of private respondent entities all carry the word
"Lyceum" but confusion and deception are effectively precluded by the appending of
geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri"
can be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum
of Camalaniugan" would be confused with the Lyceum of the Philippines.
2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM," NOT
ATTENDED WITH EXCLUSIVITY. — It is claimed, however, by petitioner that the word
"Lyceum" has acquired a secondary meaning in relation to petitioner with the result that word,
although originally a generic, has become appropriable by petitioner to the exclusion of other
institutions like private respondents herein. The doctrine of secondary meaning originated in
the field of trademark law. Its application has, however, been extended to corporate names
sine the right to use a corporate name to the exclusion of others is based upon the same
principle which underlies the right to use a particular trademark or tradename. In Philippine
Nut Industry, Inc. v. Standard Brands, Inc., the doctrine of secondary meaning was
elaborated in the following terms: " . . . a word or phrase originally incapable of exclusive
appropriation with reference to an article on the market, because geographically or otherwise
descriptive, might nevertheless have been used so long and so exclusively by one producer
with reference to his article that, in that trade and to that branch of the purchasing public, the
word or phrase has come to mean that the article was his product." The question which
arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name
has been for such length of time and with such exclusivity as to have become associated or
identified with the petitioner institution in the mind of the general public (or at least that portion
of the general public which has to do with schools). The Court of Appeals recognized this
issue and answered it in the negative: "Under the doctrine of secondary meaning, a word or
phrase originally incapable of exclusive appropriation with reference to an article in the
market, because geographical or otherwise descriptive might nevertheless have been used
so long and so exclusively by one producer with reference to this article that, in that trade and
to that group of the purchasing public, the word or phrase has come to mean that the article
was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been
referred to as the distinctiveness into which the name or phrase has evolved through the
substantial and exclusive use of the same for a considerable period of time. . . . No evidence
was ever presented in the hearing before the Commission which sufficiently proved that the
word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If there was
any of this kind, the same tend to prove only that the appellant had been using the disputed
word for a long period of time. . . . In other words, while the appellant may have proved that it
had been using the word 'Lyceum' for a long period of time, this fact alone did not amount to
84 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
mean that the said word had acquired secondary meaning in its favor because the appellant
failed to prove that it had been using the same word all by itself to the exclusion of others.
More so, there was no evidence presented to prove that confusion will surely arise if the
same word were to be used by other educational institutions. Consequently, the allegations of
the appellant in its first two assigned errors must necessarily fail." We agree with the Court of
Appeals. The number alone of the private respondents in the case at bar suggests strongly
that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential
for applicability of the doctrine of secondary meaning. Petitioner's use of the word "Lyceum"
was not exclusive but was in truth shared with the Western Pangasinan Lyceum and a little
later with other private respondent institutions which registered with the SEC using "Lyceum"
as part of their corporation names. There may well be other schools using Lyceum or Liceo in
their names, but not registered with the SEC because they have not adopted the corporate
form of organization.
3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE WHETHER THEY
ARE CONFUSINGLY OR DECEPTIVELY SIMILAR TO ANOTHER CORPORATE ENTITY'S
NAME. — petitioner institution is not entitled to a legally enforceable exclusive right to use the
word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of
their corporate names. To determine whether a given corporate name is "identical" or
"confusingly or deceptively similar" with another entity's corporate name, it is not enough to
ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate
names in their entirety and when the name of petitioner is juxtaposed with the names of
private respondents, they are not reasonably regarded as "identical" or "confusingly or
deceptively similar" with each other.
DECISION
FELICIANO, J:
Petitioner is an educational institution duly registered with the Securities and Exchange
Commission ("SEC"). When it first registered with the SEC on 21 September 1950, it used
the corporate name Lyceum of the Philippines, Inc. and has used that name ever since.
On 24 February 1984, petitioner instituted proceedings before the SEC to compel the private
respondents, which are also educational institutions, to delete the word "Lyceum" from their
corporate names and permanently to enjoin them from using "Lyceum" as part of their
respective names.
Some of the private respondents actively participated in the proceedings before the SEC.
These are the following, the dates of their original SEC registration being set out below
opposite their respective names:
Western Pangasinan Lyceum — 27 October 1950
Lyceum of Cabagan — 31 October 1962 from the other corporate name. The SEC also noted that petitioner had registered as a
corporation ahead of the Lyceum of Baguio, Inc. in point of time, 1 and ordered the latter to
Lyceum of Lallo, Inc. — 26 March 1972 change its name to another name "not similar or identical [with]" the names of previously
registered entities.
Lyceum of Aparri — 28 March 1972
The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court in a
case docketed as G.R. No. L-46595. In a Minute Resolution dated 14 September 1977, the
Lyceum of Tuao, Inc. — 28 March 1972
Court denied the Petition for Review for lack of merit. Entry of judgment in that case was
made on 21 October 1977. 2
Lyceum of Camalaniugan — 28 March 1972
Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the
The following private respondents were declared in default for failure to file an answer despite educational institutions it could find using the word "Lyceum" as part of their corporate name,
service of summons: and advised them to discontinue such use of "Lyceum." When, with the passage of time, it
became clear that this recourse had failed, petitioner instituted before the SEC SEC-Case
Buhi Lyceum; No. 2579 to enforce what petitioner claims as its proprietary right to the word "Lyceum." The
SEC hearing officer rendered a decision sustaining petitioner's claim to an exclusive right to
Central Lyceum of Catanduanes; use the word "Lyceum." The hearing officer relied upon the SEC ruling in the Lyceum of
Baguio, Inc. case (SEC-Case No. 1241) and held that the word "Lyceum" was capable of
Lyceum of Eastern Mindanao, Inc.; and appropriation and that petitioner had acquired an enforceable exclusive right to the use of that
word.
Lyceum of Southern Philippines
On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing
officer was reversed and set aside. The SEC En Banc did not consider the word "Lyceum" to
Petitioner's original complaint before the SEC had included three (3) other entities:
have become so identified with petitioner as to render use thereof by other institutions as
productive of confusion about the identity of the schools concerned in the mind of the general
1. The Lyceum of Malacanay; public. Unlike its hearing officer, the SEC En Banc held that the attaching of geographical
names to the word "Lyceum" served sufficiently to distinguish the schools from one another,
2. The Lyceum of Marbel; and especially in view of the fact that the campuses of petitioner and those of the private
respondents were physically quite remote from each other. 3
3. The Lyceum of Araullo
Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991,
The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay and the however, the Court of Appeals affirmed the questioned Orders of the SEC En Banc. 4
Lyceum of Marbel, for failure to serve summons upon these two (2) entities. The case against Petitioner filed a motion for reconsideration, without success.
the Liceum of Araullo was dismissed when that school motu proprio change its corporate
name to "Pamantasan ng Araullo." Before this Court, petitioner asserts that the Court of Appeals committed the following errors:

The background of the case at bar needs some recounting. Petitioner had sometime before 1. The Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R. No.
commenced in the SEC a proceeding (SEC-Case No. 1241) against the Lyceum of Baguio, L-46595 did not constitute stare decisis as to apply to this case and in not holding that said
Inc. to require it to change its corporate name and to adopt another name not "similar [to] or Resolution bound subsequent determinations on the right to exclusive use of the word
identical" with that of petitioner. In an Order dated 20 April 1977, Associate Commissioner Lyceum.
Julio Sulit held that the corporate name of petitioner and that of the Lyceum of Baguio, Inc.
were substantially identical because of the presence of a "dominant" word, i.e., "Lyceum," the 2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc.
name of the geographical location of the campus being the only word which distinguished one was incorporated earlier than petitioner.
85 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary
meaning in favor of petitioner.
4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be
appropriated by the petitioner to the exclusion of others. 5
We will consider all the foregoing ascribed errors, though not necessarily seriatim. We begin
by noting that the Resolution of the Court in G.R. No. L-46595 does not, of course, constitute
res adjudicata in respect of the case at bar, since there is no identity of parties. Neither is
stare decisis pertinent, if only because the SEC En Banc itself has re-examined Associate
Commissioner Sulit's ruling in the Lyceum of Baguio case. The Minute Resolution of the
Court in G.R. No. L-46595 was not a reasoned adoption of the Sulit ruling.
The Articles of Incorporation of a corporation must, among other things, set out the name of
the corporation. 6 Section 18 of the Corporation Code establishes a restrictive rule insofar as
corporate names are concerned:
"SECTION 18. Corporate name. — No corporate name may be allowed by the Securities an
Exchange Commission if the proposed name is identical or deceptively or confusingly similar
to that of any existing corporation or to any other name already protected by law or is patently
deceptive, confusing or contrary to existing laws. When a change in the corporate name is
approved, the Commission shall issue an amended certificate of incorporation under the
amended name." (Emphasis supplied)
The policy underlying the prohibition in Section 18 against the registration of a corporate
name which is "identical or deceptively or confusingly similar" to that of any existing
corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing
laws," is the avoidance of fraud upon the public which would have occasion to deal with the
entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties
of administration and supervision over corporations. 7
We do not consider that the corporate names of private respondent institutions are "identical
with, or deceptively or confusingly similar" to that of the petitioner institution. True enough, the
corporate names of private respondent entities all carry the word "Lyceum" but confusion and
deception are effectively precluded by the appending of geographic names to the word
"Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the
general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would
be confused with the Lyceum of the Philippines.
Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn
referred to a locality on the river Ilissius in ancient Athens "comprising an enclosure dedicated
to Apollo and adorned with fountains and buildings erected by Pisistratus, Pericles and
Lycurgus frequented by the youth for exercise and by the philosopher Aristotle and his
86 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
followers for teaching." 8 In time, the word "Lyceum" became associated with schools and
other institutions providing public lectures and concerts and public discussions. Thus today,
the word "Lyceum" generally refers to a school or an institution of learning. While the Latin
word "lyceum" has been incorporated into the English language, the word is also found in
Spanish (liceo) and in French (lycee). As the Court of Appeals noted in its Decision, Roman
Catholic schools frequently use the term; e.g., "Liceo de Manila," "Liceo de Baleno" (in
Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as generic in
character as the word "university." In the name of the petitioner, "Lyceum" appears to be a
substitute for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee"
frequently denotes a secondary school or a college. It may be (though this is a question of
fact which we need not resolve) that the use of the word "Lyceum" may not yet be as
widespread as the use of "university," but it is clear that a not inconsiderable number of
educational institutions have adopted "Lyceum" or "Liceo" as part of their corporate names.
Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use
this word to designate an entity which is organized and operating as an educational
institution.
It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary
meaning in relation to petitioner with the result that that word, although originally a generic,
has become appropriable by petitioner to the exclusion of other institutions like private
respondents herein.
The doctrine of secondary meaning originated in the field of trademark law. Its application
has, however, been extended to corporate names sine the right to use a corporate name to
the exclusion of others is based upon the same principle which underlies the right to use a
particular trademark or tradename. 10 In Philippine Nut Industry, Inc. v. Standard Brands,
Inc., 11 the doctrine of secondary meaning was elaborated in the following terms:
" . . . a word or phrase originally incapable of exclusive appropriation with reference to an
article on the market, because geographically or otherwise descriptive, might nevertheless
have been used so long and so exclusively by one producer with reference to his article that,
in that trade and to that branch of the purchasing public, the word or phrase has come to
mean that the article was his product." 12
The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its
corporate name has been for such length of time and with such exclusivity as to have
become associated or identified with the petitioner institution in the mind of the general public
(or at least that portion of the general public which has to do with schools). The Court of
Appeals recognized this issue and answered it in the negative:
"Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive
appropriation with reference to an article in the market, because geographical or otherwise
descriptive might nevertheless have been used so long and so exclusively by one producer
with reference to this article that, in that trade and to that group of the purchasing public, the
word or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio
Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into
which the name or phrase has evolved through the substantial and exclusive use of the same
for a considerable period of time. Consequently, the same doctrine or principle cannot be
made to apply where the evidence did not prove that the business (of the plaintiff) has
continued for so long a time that it has become of consequence and acquired a good will of
considerable value such that its articles and produce have acquired a well-known reputation,
and confusion will result by the use of the disputed name (by the defendant) (Ang Si Heng vs.
Wellington Department Store, Inc., 92 Phil. 448).
With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the
aforementioned requisites. No evidence was ever presented in the hearing before the
Commission which sufficiently proved that the word 'Lyceum' has indeed acquired secondary
meaning in favor of the appellant. If there was any of this kind, the same tend to prove only
that the appellant had been using the disputed word for a long period of time. Nevertheless,
its (appellant) exclusive use of the word (Lyceum) was never established or proven as in fact
the evidence tend to convey that the cross-claimant was already using the word 'Lyceum'
seventeen (17) years prior to the date the appellant started using the same word in its
corporate name. Furthermore, educational institutions of the Roman Catholic Church had
been using the same or similar word like 'Liceo de Manila,' 'Liceo de Baleno' (in Baleno,
Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before appellant started using the word
'Lyceum'. The appellant also failed to prove that the word 'Lyceum' has become so identified
with its educational institution that confusion will surely arise in the minds of the public if the
same word were to be used by other educational institutions.
In other words, while the appellant may have proved that it had been using the word 'Lyceum'
for a long period of time, this fact alone did not amount to mean that the said word had
acquired secondary meaning in its favor because the appellant failed to prove that it had
been using the same word all by itself to the exclusion of others. More so, there was no
evidence presented to prove that confusion will surely arise if the same word were to be used
by other educational institutions. Consequently, the allegations of the appellant in its first two
assigned errors must necessarily fail." 13 (Underscoring partly in the original and partly
supplied)
We agree with the Court of Appeals. The number alone of the private respondents in the case
at bar suggests strongly that petitioner's use of the word "Lyceum" has not been attended
with the exclusivity essential for applicability of the doctrine of secondary meaning. It may be
noted also that at least one of the private respondents, i.e., the Western Pangasinan Lyceum,
Inc., used the term "Lyceum" seventeen (17) years before the petitioner registered its own
corporate name with the SEC and began using the word "Lyceum." It follows that if any
institution had acquired an exclusive right to the word "Lyceum," that institution would have
been the Western Pangasinan Lyceum, Inc. rather than the petitioner institution.
87 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
In this connection, petitioner argues that because the Western Pangasinan Lyceum, Inc.
failed to reconstruct its records before the SEC in accordance with the provisions of R.A. No.
62, which records had been destroyed during World War II, Western Pangasinan Lyceum
should be deemed to have lost all rights it may have acquired by virtue of its past registration.
It might be noted that the Western Pangasinan Lyceum, Inc. registered with the SEC soon
after petitioner had filed its own registration on 21 September 1950. Whether or not Western
Pangasinan Lyceum, Inc. must be deemed to have lost its rights under its original 1933
registration, appears to us to be quite secondary in importance; we refer to this earlier
registration simply to underscore the fact that petitioner's use of the word "Lyceum" was
neither the first use of that term in the Philippines nor an exclusive use thereof. Petitioner's
use of the word "Lyceum" was not exclusive but was in truth shared with the Western
Pangasinan Lyceum and a little later with other private respondent institutions which
registered with the SEC using "Lyceum" as part of their corporation names. There may well
be other schools using Lyceum or Liceo in their names, but not registered with the SEC
because they have not adopted the corporate form of organization.
We conclude and so hold that petitioner institution is not entitled to a legally enforceable
exclusive right to use the word "Lyceum" in its corporate name and that other institutions may
use "Lyceum" as part of their corporate names. To determine whether a given corporate
name is "identical" or "confusingly or deceptively similar" with another entity's corporate
name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One
must evaluate corporate names in their entirety and when the name of petitioner is
juxtaposed with the names of private respondents, they are not reasonably regarded as
"identical" or "confusingly or deceptively similar" with each other.
WHEREFORE, the petitioner having failed to show any reversible error on the part of the
public respondent Court of Appeals, the Petition for Review is DENIED for lack of merit, and
the Decision of the Court of Appeals dated 28 June 1991 is hereby AFFIRMED. No
pronouncement as to costs.
 23. G.R. No. 96161 February 21, 1992

PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL
DEVELOPMENT, INC.,petitioners,
vs.
COURT OF APPEALS, SECURITIES & EXCHANGE COMMISSION and STANDARD
PHILIPS CORPORATION,respondents.

Emeterio V. Soliven & Associates for petitioners.

Narciso A. Manantan for private respondent.

MELENCIO-HERRERA, J.:

Petitioners challenge the Decision of the Court of Appeals, dated 31 July 1990, in CA-GR Sp.
No. 20067, upholding the Order of the Securities and Exchange Commission, dated 2
January 1990, in SEC-AC No. 202, dismissing petitioners' prayer for the cancellation or
removal of the word "PHILIPS" from private respondent's corporate name.

Petitioner Philips Export B.V. (PEBV), a foreign corporation organized under the laws of the
Netherlands, although not engaged in business here, is the registered owner of the
trademarks PHILIPS and PHILIPS SHIELD EMBLEM under Certificates of Registration Nos.
R-1641 and R-1674, respectively issued by the Philippine Patents Office (presently known as
the Bureau of Patents, Trademarks and Technology Transfer). Petitioners Philips Electrical
Lamps, Inc. (Philips Electrical, for brevity) and Philips Industrial Developments, Inc. (Philips
Industrial, for short), authorized users of the trademarks PHILIPS and PHILIPS SHIELD
EMBLEM, were incorporated on 29 August 1956 and 25 May 1956, respectively. All petitioner
corporations belong to the PHILIPS Group of Companies.

Respondent Standard Philips Corporation (Standard Philips), on the other hand, was issued a
Certificate of Registration by respondent Commission on 19 May 1982.

88 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
On 24 September 1984, Petitioners filed a letter complaint with the Securities & Exchange
Commission (SEC) asking for the cancellation of the word "PHILIPS" from Private
Respondent's corporate name in view of the prior registration with the Bureau of Patents of
the trademark "PHILIPS" and the logo "PHILIPS SHIELD EMBLEM" in the name of Petitioner,
PEBV, and the previous registration of Petitioners Philips Electrical and Philips Industrial with
the SEC.
As a result of Private Respondent's refusal to amend its Articles of Incorporation, Petitioners
filed with the SEC, on 6 February 1985, a Petition (SEC Case No. 2743) praying for the
issuance of a Writ of Preliminary Injunction, alleging, among others, that Private
Respondent's use of the word PHILIPS amounts to an infringement and clear violation of
Petitioners' exclusive right to use the same considering that both parties engage in the same
business.
In its Answer, dated 7 March 1985, Private Respondent countered that Petitioner PEBV has
no legal capacity to sue; that its use of its corporate name is not at all similar to Petitioners'
trademark PHILIPS when considered in its entirety; and that its products consisting of chain
rollers, belts, bearings and cutting saw are grossly different from Petitioners' electrical
products.
After conducting hearings with respect to the prayer for Injunction; the SEC Hearing Officer,
on 27 September 1985, ruled against the issuance of such Writ.
On 30 January 1987, the same Hearing Officer dismissed the Petition for lack of merit. In so
ruling, the latter declared that inasmuch as the SEC found no sufficient ground for the
granting of injunctive relief on the basis of the testimonial and documentary evidence
presented, it cannot order the removal or cancellation of the word "PHILIPS" from Private
Respondent's corporate name on the basis of the same evidence adopted in toto during trial
on the merits. Besides, Section 18 of the Corporation Code (infra) is applicable only when the
corporate names in question are identical. Here, there is no confusing similarity between
Petitioners' and Private Respondent's corporate names as those of the Petitioners contain at
least two words different from that of the Respondent. Petitioners' Motion for Reconsideration
was likewise denied on 17 June 1987.
On appeal, the SEC en banc affirmed the dismissal declaring that the corporate names of
Petitioners and Private Respondent hardly breed confusion inasmuch as each contains at
least two different words and, therefore, rules out any possibility of confusing one for the
other.
On 30 January 1990, Petitioners sought an extension of time to file a Petition for Review
on Certiorari before this Court, which Petition was later referred to the Court of Appeals in a
Resolution dated 12 February 1990.
89 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
In deciding to dismiss the petition on 31 July 1990, the Court of
Appeals 1 swept aside Petitioners' claim that following the ruling in Converse Rubber
Corporation v. Universal Converse Rubber Products, Inc., et al, (G. R. No. L-27906, January
8, 1987, 147 SCRA 154), the word PHILIPS cannot be used as part of Private Respondent's
corporate name as the same constitutes a dominant part of Petitioners' corporate names. In
so holding, the Appellate Court observed that the Converse case is not four-square with the
present case inasmuch as the contending parties in Converse are engaged in a similar
business, that is, the manufacture of rubber shoes. Upholding the SEC, the Appellate Court
concluded that "private respondents' products consisting of chain rollers, belts, bearings and
cutting saw are unrelated and non-competing with petitioners' products i.e. electrical lamps
such that consumers would not in any probability mistake one as the source or origin of the
product of the other."
The Appellate Court denied Petitioners' Motion for Reconsideration on 20 November 1990,
hence, this Petition which was given due course on 22 April 1991, after which the parties
were required to submit their memoranda, the latest of which was received on 2 July 1991. In
December 1991, the SEC was also required to elevate its records for the perusal of this
Court, the same not having been apparently before respondent Court of Appeals.
We find basis for petitioners' plea.
As early as Western Equipment and Supply Co. v. Reyes, 51 Phil. 115 (1927), the Court
declared that a corporation's right to use its corporate and trade name is a property right, a
right in rem, which it may assert and protect against the world in the same manner as it may
protect its tangible property, real or personal, against trespass or conversion. It is regarded,
to a certain extent, as a property right and one which cannot be impaired or defeated by
subsequent appropriation by another corporation in the same field (Red Line Transportation
Co. vs. Rural Transit Co., September 8, 1934, 20 Phil 549).
A name is peculiarly important as necessary to the very existence of a corporation (American
Steel Foundries vs. Robertson, 269 US 372, 70 L ed 317, 46 S Ct 160; Lauman vs. Lebanon
Valley R. Co., 30 Pa 42; First National Bank vs. Huntington Distilling Co. 40 W Va 530, 23 SE
792). Its name is one of its attributes, an element of its existence, and essential to its identity
(6 Fletcher [Perm Ed], pp. 3-4). The general rule as to corporations is that each corporation
must have a name by which it is to sue and be sued and do all legal acts. The name of a
corporation in this respect designates the corporation in the same manner as the name of an
individual designates the person (Cincinnati Cooperage Co. vs. Bate. 96 Ky 356, 26 SW 538;
Newport Mechanics Mfg. Co. vs. Starbird. 10 NH 123); and the right to use its corporate
name is as much a part of the corporate franchise as any other privilege granted (Federal
Secur. Co. vs. Federal Secur. Corp., 129 Or 375, 276 P 1100, 66 ALR 934; Paulino vs.
Portuguese Beneficial Association, 18 RI 165, 26 A 36).
A corporation acquires its name by choice and need not select a name identical with or
similar to one already appropriated by a senior corporation while an individual's name is
thrust upon him (See Standard Oil Co. of New Mexico, Inc. v. Standard Oil Co. of California,
56 F 2d 973, 977). A corporation can no more use a corporate name in violation of the rights
of others than an individual can use his name legally acquired so as to mislead the public and
injure another (Armington vs. Palmer, 21 RI 109. 42 A 308).
Our own Corporation Code, in its Section 18, expressly provides that:
No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly
similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing
law.Where a change in a corporate name is approved, the commission shall
issue an amended certificate of incorporation under the amended name.
(Emphasis supplied)
The statutory prohibition cannot be any clearer. To come within its scope, two requisites must
be proven, namely:
(1) that the complainant corporation acquired a prior right over the use of such corporate
name; and
(2) the proposed name is either:
(a) identical; or
(b) deceptively or confusingly similar
to that of any existing corporation or to any other name already protected by law; or
(c) patently deceptive, confusing or contrary to existing law.
The right to the exclusive use of a corporate name with freedom from infringement by
similarity is determined by priority of adoption (1 Thompson, p. 80 citing Munn v. Americana
Co., 82 N. Eq. 63, 88 Atl. 30; San Francisco Oyster House v. Mihich, 75 Wash. 274, 134 Pac.
921). In this regard, there is no doubt with respect to Petitioners' prior adoption of' the name
''PHILIPS" as part of its corporate name. Petitioners Philips Electrical and Philips Industrial
were incorporated on 29 August 1956 and 25 May 1956, respectively, while Respondent
Standard Philips was issued a Certificate of Registration on 12 April 1982, twenty-six (26)
years later (Rollo, p. 16). Petitioner PEBV has also used the trademark "PHILIPS" on
90 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
electrical lamps of all types and their accessories since 30 September 1922, as evidenced by
Certificate of Registration No. 1651.
The second requisite no less exists in this case. In determining the existence of confusing
similarity in corporate names, the test is whether the similarity is such as to mislead a person,
using ordinary care and discrimination. In so doing, the Court must look to the record as well
as the names themselves (Ohio Nat. Life Ins. Co. v. Ohio Life Ins. Co., 210 NE 2d 298).
While the corporate names of Petitioners and Private Respondent are not identical, a reading
of Petitioner's corporate names, to wit: PHILIPS EXPORT B.V., PHILIPS ELECTRICAL
LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC., inevitably leads one to
conclude that "PHILIPS" is, indeed, the dominant word in that all the companies affiliated or
associated with the principal corporation, PEBV, are known in the Philippines and abroad as
the PHILIPS Group of Companies.
Respondents maintain, however, that Petitioners did not present an iota of proof of actual
confusion or deception of the public much less a single purchaser of their product who has
been deceived or confused or showed any likelihood of confusion. It is settled, however, that
proof of actual confusion need not be shown. It suffices that confusion is probably or likely to
occur (6 Fletcher [Perm Ed], pp. 107-108, enumerating a long line of cases).
It may be that Private Respondent's products also consist of chain rollers, belts, bearing and
the like, while petitioners deal principally with electrical products. It is significant to note,
however, that even the Director of Patents had denied Private Respondent's application for
registration of the trademarks "Standard Philips & Device" for chain, rollers, belts, bearings
and cutting saw. That office held that PEBV, "had shipped to its subsidiaries in the Philippines
equipment, machines and their parts which fall under international class where "chains,
rollers, belts, bearings and cutting saw," the goods in connection with which Respondent is
seeking to register 'STANDARD PHILIPS' . . . also belong" ( Inter Partes Case No. 2010,
June 17, 1988, SEC Rollo).
Furthermore, the records show that among Private Respondent's primary purposes in its
Articles of Incorporation (Annex D, Petition p. 37, Rollo) are the following:
To buy, sell, barter, trade, manufacture, import, export, or otherwise acquire,
dispose of, and deal in and deal with any kind of goods, wares, and
merchandise such as but not limited to plastics, carbon products, office
stationery and supplies, hardware parts, electrical wiring devices, electrical
component parts, and/or complement of industrial, agricultural or commercial
machineries, constructive supplies, electrical supplies and other merchandise
which are or may become articles of commerce except food, drugs and
cosmetics and to carry on such business as manufacturer, distributor, dealer,
indentor, factor, manufacturer's representative capacity for domestic or
foreign companies. (emphasis ours)
For its part, Philips Electrical also includes, among its primary purposes, the following:
To develop manufacture and deal in electrical products, including electronic,
mechanical and other similar products . . . (p. 30, Record of SEC Case No.
2743)
Given Private Respondent's aforesaid underlined primary purpose, nothing could prevent it
from dealing in the same line of business of electrical devices, products or supplies which fall
under its primary purposes. Besides, there is showing that Private Respondent not only
manufactured and sold ballasts for fluorescent lamps with their corporate name printed
thereon but also advertised the same as, among others, Standard Philips (TSN, before the
SEC, pp. 14, 17, 25, 26, 37-42, June 14, 1985; pp. 16-19, July 25, 1985). As aptly pointed out
by Petitioners, [p]rivate respondent's choice of "PHILIPS" as part of its corporate name
[STANDARD PHILIPS CORPORATION] . . . tends to show said respondent's intention to ride
on the popularity and established goodwill of said petitioner's business throughout the world"
(Rollo, p. 137). The subsequent appropriator of the name or one confusingly similar thereto
usually seeks an unfair advantage, a free ride of another's goodwill (American Gold Star
Mothers, Inc. v. National Gold Star Mothers, Inc., et al, 89 App DC 269, 191 F 2d 488).
In allowing Private Respondent the continued use of its corporate name, the SEC maintains
that the corporate names of Petitioners PHILIPS ELECTRICAL LAMPS. INC. and PHILIPS
INDUSTRIAL DEVELOPMENT, INC. contain at least two words different from that of the
corporate name of respondent STANDARD PHILIPS CORPORATION, which words will
readily identify Private Respondent from Petitioners and vice-versa.
True, under the Guidelines in the Approval of Corporate and Partnership Names formulated
by the SEC, the proposed name "should not be similar to one already used by another
corporation or partnership. If the proposed name contains a word already used as part of the
firm name or style of a registered company; the proposed name must contain two other
words different from the company already registered" (Emphasis ours). It is then pointed out
that Petitioners Philips Electrical and Philips Industrial have two words different from that of
Private Respondent's name.
What is lost sight of, however, is that PHILIPS is a trademark or trade name which was
registered as far back as 1922. Petitioners, therefore, have the exclusive right to its use which
must be free from any infringement by similarity. A corporation has an exclusive right to the
use of its name, which may be protected by injunction upon a principle similar to that upon
which persons are protected in the use of trademarks and tradenames (18 C.J.S. 574). Such
principle proceeds upon the theory that it is a fraud on the corporation which has acquired a
right to that name and perhaps carried on its business thereunder, that another should
attempt to use the same name, or the same name with a slight variation in such a way as to
induce persons to deal with it in the belief that they are dealing with the corporation which has
given a reputation to the name (6 Fletcher [Perm Ed], pp. 39-40, citingBorden Ice Cream Co.
91 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
v. Borden's Condensed Milk Co., 210 F 510). Notably, too, Private Respondent's name
actually contains only a single word, that is, "STANDARD", different from that of Petitioners
inasmuch as the inclusion of the term "Corporation" or "Corp." merely serves the Purpose of
distinguishing the corporation from partnerships and other business organizations.
The fact that there are other companies engaged in other lines of business using the word
"PHILIPS" as part of their corporate names is no defense and does not warrant the use by
Private Respondent of such word which constitutes an essential feature of Petitioners'
corporate name previously adopted and registered and-having acquired the status of a well-
known mark in the Philippines and internationally as well (Bureau of Patents Decision No. 88-
35 [TM], June 17, 1988, SEC Records).
In support of its application for the registration of its Articles of Incorporation with the SEC,
Private Respondent had submitted an undertaking "manifesting its willingness to change its
corporate name in the event another person, firm or entity has acquired a prior right to the
use of the said firm name or one deceptively or confusingly similar to it." Private respondent
must now be held to its undertaking.
As a general rule, parties organizing a corporation must choose a name at
their peril; and the use of a name similar to one adopted by another
corporation, whether a business or a nonbusiness or non-profit organization
if misleading and likely to injure it in the exercise in its corporate functions,
regardless of intent, may be prevented by the corporation having the prior
right, by a suit for injunction against the new corporation to prevent the use of
the name (American Gold Star Mothers, Inc. v. National Gold Star Mothers,
Inc., 89 App DC 269, 191 F 2d 488, 27 ALR 2d 948).
WHEREFORE, the Decision of the Court of Appeals dated 31 July 1990, and its Resolution
dated 20 November 1990, are SET ASIDE and a new one entered ENJOINING private
respondent from using "PHILIPS" as a feature of its corporate name, and ORDERING the
Securities and Exchange Commission to amend private respondent's Articles of Incorporation
by deleting the word PHILIPS from the corporate name of private respondent. No costs.
 24. G.R. No. L-28351 July 28, 1977

UNIVERSAL MILLS CORPORATION, petitioner,

vs.
UNIVERSAL TEXTILE MILLS, INC., respondent.

Emigdio G. Tanjuatco for petitioner.

Picazo, Santayana, Reyes, Tayao & Alfonso for respondent.

BARREDO, J.:

Appeal from the order of the Securities and Exchange Commission in S.E.C. Case No. 1079,
entitled In the Matter of the Universal Textile Mills, Inc. vs. Universal Mills Corporation, a
petition to have appellant change its corporate name on the ground that such name is
"confusingly and deceptively similar" to that of appellee, which petition the Commission
granted.

According to the order, "the Universal Textile Mills, Inc. was organ on December 29, 1953, as
a textile manufacturing firm for which it was issued a certificate of registration on January 8,
1954. The Universal Mills Corporation, on the other hand, was registered in this Commission
on October 27, 1954, under its original name, Universal Hosiery Mills Corporation, having as
its primary purpose the "manufacture and production of hosieries and wearing apparel of all
kinds." On May 24, 1963, it filed an amendment to its articles of incorporation changing its
name to Universal Mills Corporation, its present name, for which this Commission issued the
certificate of approval on June 10, 1963.

The immediate cause of this present complaint, however, was the occurrence of a fire which
gutted respondent's spinning mills in Pasig, Rizal. Petitioner alleged that as a result of this fire
and because of the similarity of respondent's name to that of herein complainant, the news
items appearing in the various metropolitan newspapers carrying reports on the fire created
uncertainty and confusion among its bankers, friends, stockholders and customers prompting
petitioner to make announcements, clarifying the real Identity of the corporation whose
property was burned. Petitioner presented documentary and testimonial evidence in support
of this allegation.
92 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 On the other hand, respondent's position is that the names of the two
corporations are not similar and even if there be some similarity, it is not
confusing or deceptive; that the only reason that respondent changed its
name was because it expanded its business to include the manufacture of
fabrics of all kinds; and that the word 'textile' in petitioner's name is dominant
and prominent enough to distinguish the two. It further argues that petitioner
failed to present evidence of confusion or deception in the ordinary course of
business; that the only supposed confusion proved by complainant arose out
of an extraordinary occurrence — a disastrous fire. (pp. 16-&17, Record.)
Upon these premises, the Commission held:
From the facts proved and the jurisprudence on the matter, it appears
necessary under the circumstances to enjoin the respondent Universal Mills
Corporation from further using its present corporate name. Judging from
what has already happened, confusion is not only apparent, but possible. It
does not matter that the instance of confusion between the two corporate
names was occasioned only by a fire or an extraordinary occurrence. It is
precisely the duty of this Commission to prevent such confusion at all times
and under all circumstances not only for the purpose of protecting the
corporations involved but more so for the protection of the public.
In today's modern business life where people go by tradenames and
corporate images, the corporate name becomes the more important. This
Commission cannot close its eyes to the fact that usually it is the sound of all
the other words composing the names of business corporations that sticks to
the mind of those who deal with them. The word "textile" in Universal Textile
Mills, Inc.' can not possibly assure the exclusion of all other entities with
similar names from the mind of the public especially so, if the business they
are engaged in are the same, like in the instant case.
This Commission further takes cognizance of the fact that when respondent
filed the amendment changing its name to Universal Mills Corporation, it
correspondingly filed a written undertaking dated June 5, 1963 and signed by
its President, Mr. Mariano Cokiat, promising to change its name in the event
that there is another person, firm or entity who has obtained a prior right to
the use of such name or one similar to it. That promise is still binding upon
the corporation and its responsible officers. (pp. 17-18, Record.)
It is obvious that the matter at issue is within the competence of the Securities and Exchange
Commission to resolve in the first instance in the exercise of the jurisdiction it used to
possess under Commonwealth Act 287 as amended by Republic Act 1055 to administer the
application and enforcement of all laws affecting domestic corporations and associations,
93 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
reserving to the courts only conflicts of judicial nature, and, of course, the Supreme Court's
authority to review the Commissions actuations in appropriate instances involving possible
denial of due process and grave abuse of discretion. Thus, in the case at bar, there being no
claim of denial of any constitutional right, all that We are called upon to determine is whether
or not the order of the Commission enjoining petitioner to its corporate name constitutes, in
the light of the circumstances found by the Commission, a grave abuse of discretion.
We believe it is not. Indeed, it cannot be said that the impugned order is arbitrary and
capricious. Clearly, it has rational basis. The corporate names in question are not Identical,
but they are indisputably so similar that even under the test of "reasonable care and
observation as the public generally are capable of using and may be expected to exercise"
invoked by appellant, We are apprehensive confusion will usually arise, considering that
under the second amendment of its articles of incorporation on August 14, 1964, appellant
included among its primary purposes the "manufacturing, dyeing, finishing and selling of
fabrics of all kinds" in which respondent had been engaged for more than a decade ahead of
petitioner. Factually, the Commission found existence of such confusion, and there is
evidence to support its conclusion. Since respondent is not claiming damages in this
proceeding, it is, of course, immaterial whether or not appellant has acted in good faith, but
We cannot perceive why of all names, it had to choose a name already being used by
another firm engaged in practically the same business for more than a decade enjoying well
earned patronage and goodwill, when there are so many other appropriate names it could
possibly adopt without arousing any suspicion as to its motive and, more importantly, any
degree of confusion in the mind of the public which could mislead even its own customers,
existing or prospective. Premises considered, there is no warrant for our interference.
As this is purely a case of injunction, and considering the time that has elapsed since the
facts complained of took place, this decision should not be deemed as foreclosing any further
remedy which appellee may have for the protection of its interests.
WHEREFORE, with the reservation already mentioned, the appealed decision is affirmed.
Costs against petitioners.
 25. G.R. No. L-54580 December 29, 1987

ARMCO STEEL CORPORATION (OF THE PHILIPPINES), petitioner,

vs.
SECURITIES AND EXCHANGE COMMISSION, ARMCO STEEL CORPORATION (of Ohio,
U.S.A.) and ARMCO MARSTEEL ALLOY CORPORATION, respondents.

GANCAYCO, J.:

On July 1, 1965 ARMCO Steel Corporation, a corporation organized in Ohio, U.S.A.,

hereinafter called ARMCO-OHIO, obtained from the Philippine Patent Office, Certificate of
Registration No. 11750 for its trademark consisting of the word "ARMCO" and a triangular
device for "ferrous metals and ferrous metal castings and forgings." On April 14, 1971,
pursuant to trademark rules, the petitioner filed with the said patent office an "Affidavit of Use"
for said trademark, which was subsequently accepted and for which the Patent Office issued
the corresponding notice of acceptance of "Affidavit of Use."

ARMCO Marsteel-Alloy Corporation was also incorporated on July 11, 1972 under its original
name Marsteel Alloy Company, Inc. but on March 28, 1973 its name was changed to
ARMCO-Marsteel Alloy Corporation hereinafter called ARMCO-Marsteel, by amendment of
its Articles of Incorporation after the ARMCO-Ohio purchased 40% of its capital stock. Both
said corporations are engaged in the manufacture of steel products. Its article of incorporation
in part reads as follows as to its purposes: "to manufacture, process ... and deal in all kinds,
form, and combinations of iron, steel or other metals and all or any products or articles
particularly consisting of iron, steel or other metals .... .

On the other hand ARMCO Steel Corporation was incorporated in the Philippines on April 25,
1973, hereinafter called ARMCO-Philippines. A pertinent portion of its articles of incorporation
provides as among its purposes: "to contract, fabricate ... manufacture ... regarding pipelines,
steel frames ... ."

ARMCO-Ohio and ARMCO-Marsteel then filed a petition in the Securities and Exchange
Commission (SEC) to compel ARMCO-Philippines to change its corporate name on the
ground that it is very similar, if not exactly the same as the name of one of the petitioners,
which is docketed as SEC Case No. 1187. In due course an order was issued by the SEC on
February 14, 1975 granting the petition, the dispositive part of which reads as follows:

94 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 In view of the foregoing, the respondent, ARMCO STEEL CORPORATION,
is hereby ordered to take out 'ARMCO' and substitute another word in lieu
thereof in its corporate name by amending the articles of incorporation to that
effect, within thirty (30) days from date of receipt of a copy of this Order; after
which, three (3) copies of the amended articles of incorporation, duly certified
by a majority of the board of directors and countersigned by the president
and secretary of the corporation, shall be submitted to this Commission,
together with the corresponding filing fees, as required by law. 1
A motion for reconsideration of the said order was filed by said respondent on March 6. 1975
but this was denied in, an order of April 16, 1965 as the motion was filed out of time, a copy
of the questioned order having been received by respondent on February 18, 1975 so that
said order had become final and executory. 2 A motion for reconsideration filed by respondent
to set aside said order of April 16, 1965 was also denied by the SEC on June 23, 1975. 3 An
appeal was interposed by respondent to the Court of Appeals which was docketed as CA
G.R. No. 04448-R but the appeal was dismissed in a resolution of January 13, 1976, on the
ground that the appeal was perfected beyond the reglementary period allowed by law.
On March 22, 1976 said respondent amended its articles of incorporation by changing its
name to "ARMCO structures, Inc." which was filed with and approved by the SEC.
Nevertheless, in an order of January 6, 1977, the SEC issued an order requiring respondent,
its directors and officers to comply with the aforesaid order of the Commission of February
14, 1975 within ten (10) days from notice thereof. 5
A manifestation and motion was filed by respondent informing SEC that it had already
changed its corporate name with the approval of the SEC to ARMCO Structures, Inc. in
substantial compliance with the said order or in the alternative prayed for a hearing to
determine if there is a confusing similarity between the names of the petitioners on one hand
and the ARMCO Structures, Inc. on the other.
Petitioners then filed a comment to said manifestation alleging that the change of name of
said respondent was not done in good faith and is not in accordance with the order of the
Commission of February 14, 1975 so that drastic action should be taken against the
respondent and its officers. Subsequently, petitioners filed a motion to cite said respondent,
its directors and officers in contempt for disobeying the orders of February 14, 1975 and
January 6, 1977. In an order of August 31, 1977, the SEC finding that the respondent, its
directors, and officers have not complied with the final order of February 14, 1975 required
them to appeal before the Commission on September 22, 1977 at 10:00 o'clock in the
morning to show cause why they should not be punished for contempt by the Commission. 6
After the hearing the parties submitted their respective memoranda. In another order of
January 17, 1979, the SEC finding that the respondent did not make the proper disclosure of
95 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
the circumstances when it amended its articles of incorporation and submitted the same for
the approval of the SEC thus said respondent, its directors, and officers were ordered within
ten (10) days from notice to comply with the order of February 14, 1975. An appeal was
interposed by the respondent to the SEC en banc. The Commission en banc in an order of
December 14, 1979 dismissed the appeal for lack of merit. 7
Hence, the herein petition for review filed by ARMCO-Philippines wherein it seeks the
reversal of the orders of the SEC of December 14, 1979 and August 6, 1980 and that the
order of February 14, 1975 be declared functus oficio for having been substantially complied
with by the petitioner. The grounds of the petition are as follows:
I
THE SECURITIES AND EXCHANGE COMMISSION ERRED WHEN IT DID
NOT CONSIDER ITS ORDER DATED FEBRUARY 14,1975 FUNCTUS
OFFICIO PURSUANT TO THE LEGAL MAXIM CESSANTE LEGIS
RATIONE CESSAT ET IPSA LEX' AFTER PETITIONER HAD
SUBSTANTIALLY COMPLIED IN GOOD FAITH WITH SAID ORDER AND
SAID COMPLIANCE HAD ACHIEVED THE PURPOSE OF THE ORDER, BY
CHANGING ITS CORPORATE NAME WITH THE APPROVAL OF SAID
COMMISSION.
II
THE COMMISSION ERRED WHEN IT DID NOT FIND THAT ITS
APPROVAL OF PETITIONER'S AMENDED ARTICLES OF
INCORPORATION CHANGING PETITIONER'S CORPORATE NAME
FROM "ARMCO STEEL CORPORATION" TO "ARMCO STRUCTURES,
INCORPORATED" WAS REGULAR AND LEGAL.
III
THE COMMISSION ERRED WHEN IT DID NOT FIND THAT PRIVATE
RESPONDENTS WERE NO LONGER ENTITLED TO THE RELIEF
AWARDED BY THE ORDER DATED FEBRUARY 14,1975 CONSIDERING
THAT SAID ORDER HAD BECOME FUNCTUS OFFICIO AND FURTHER
ENFORCEMENT THEREOF WILL BE INEQUITABLE AS IT WILL DEPRIVE
PETITIONER OF EQUAL PROTECTION OF LAWS.
IV
 THE COMMISSION ERRED WHEN, THERE BEING A DISPUTE AS TO
WHETHER OR NOT THE PURPOSE OF THE ORDER DATED FEBRUARY
14,1975 HAD BEEN COMPLIED WITH AND WHETHER THERE WAS
STILL CONFUSING SIMILARITY BETWEEN THE CORPORATE NAMES
OF RESPONDENTS AND THE NEW NAME OF PETITIONER, IT DID NOT
GRANT PETITIONER'S PRAYER THAT A HEART NG BE HELD TO
THRESH THE ISSUE."
The Court finds no merit in the petition.
The order of the public respondent SEC of February 14, 1975 which has long become final
and executory clearly spells out that petitioner must "take out ARMCO and substitute another
word in lieu thereof in its corporate name by amending the articles of incorporation to that
effect, ... ." Far from complying with said order petitioner amended its corporate name into
ARMCO Structures, Inc., and secured its approval by the SEC on March 22, 1976. That this
amendment was made by petitioner without the knowledge of the proper authorities of the
SEC is home by the fact that thereafter on January 6, 1977 an order was issued by the SEC
requiring petitioner, its board of directors, and officers to comply with the order of the
Commission of February 14, 1975. When the attention of the SEC was called by petitioner
that the change of corporate name had been undertaken by it to ARMCO Structures, Inc. and
asked that it be considered as a substantial compliance with the order of February 14, 1975,
the SEC in its order of January 17, 1979 speaking through its hearing officer Antonio R.
Manabat ruled as follows:
The Order of February 14, 1975, cannot but be clearer than what it purports
to require or demand from respondent. Under in no distinct terms, it enjoins
the removal or deletion of the word 'Armco' from respondent's corporate
name, which was not so complied with. The Commission, therefore, cannot
give its imprimatur to the new corporate name because there was no
compliance at all.
The fact that the Securities and Exchange Commission issued its certificate
of filing of amended articles of incorporation on March 22, 1976, is nothing
but an illusory approval of the change of corporate name and a self-induced
protection from the Commission to further exact compliance of the Order of
February 14, 1975. Craftily, the Securities and Exchange Commission and/or
its administrative personnel were made to issue such certificate during its
unguarded moment. Verily, the certificate could not have been issued were it
not for such lapses or had respondent been in good faith by making the
proper disclosures of the circumstances which led it to amend its articles of
incorporation.
96 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Correctly pointed out by petitioners, a 'new determination as to whether or
not there is confusing similarity between petitioners' names and that of
'Armco Structures, Incorporated,' cannot be ordered without transgression on
the rule of, or the decisional law on, finality of judgment. 8
The Court finds that the said amendment in the corporate name of petitioner is not in
substantial compliance with the order of February 14, 1975. Indeed it is in contravention
therewith. To repeat, the order was for the removal of the word "ARMCO" from the corporate
name of the petitioner which it failed to do. And even if this change of corporate name was
erroneously accepted and approved in the SEC it cannot thereby legalize nor change what is
clearly unauthorized if not contemptuous act of petitioner in securing the registration of a new
corporate name against the very order of the SEC of February 14, 1975. Certainly the said
order of February 14, 1975 is not rendered functus oficio thereby. Had petitioner revealed at
the time of the registration of its amended corporate name that there was the said order, the
registration of the amended corporate name could not have been accepted and approved by
the persons in-charge of the registration. The actuations in this respect of petitioner are far
from regular much less in good faith.
The arguments of the petitioner that the SEC had approved the registration of several other
entities with one principal word common to all as "ARMCO," and that there is no confusing
similarity between the corporate names of respondents and the new name of petitioner,
would indeed in effect be reopening the final and executory order of the SEC of February 14,
1975 which had already foreclosed the issue. Indeed, in said final order the SEC made the
following findings which are conclusive and well-taken:
The only question for resolution in this case is whether therespondent's name
ARMCO STEEL CORPORATION is similar, if not Identical with that of
petitioner, ARMCO STEEL CORPORATION (of Ohio, U.S.A.) and of
petitioner, ARMCO-MARSTEEL ALLOY CORPORATION, as to create
uncertainty and confusion in the minds of the public.
By mere looking at the names it is clear that the name of petitioner, ARMCO
STEEL CORPORATION (of Ohio, U.S.A.), and that of the respondent,
ARMCO STEEL CORPORATION, are not only similar but Identical and the
words "of Ohio, U.S.A.," are being used only to Identify petitioner ARMCO
STEEL-OHIO as a U.S. corporation.
It is indisputable that ARMCO-STEEL-OHIO, having patented the term
'Armco' as part of its trademark on its steel products, is entitled to protection
in the use thereof in the Philippines. The term "Armco" is now being used on
the products being manufactured and sold in this country by Armco-Marsteel
by virtue of its tie-up with ARMCO-STEEL-OHIO. Clearly, the two companies
have the right to the exclusive use and enjoyment of said term.
 ARMCO STEEL-PHILIPPINES, has not only an Identical name but also a
similar line of business, as shown above, as that of ARMCO STEEL- OHIO.
People who are buying and using products bearing the trademark "Armco"
might be led to believe that such products are manufactured by the
respondent, when in fact, they might actually be produced by the petitioners.
Thus, the goodwill that should grow and inure to the benefit of petitioners
could be impaired and prejudiced by the continued use of the same term by
the respondent.
Obviously, the petition for review is designed to further delay if not simply evade compliance
with the said final and executory SEC order. Petitioner also seeks a review of the orders of
execution of the SEC of the said February 14, 1975 order. An order or resolution granting
execution of the final judgment cannot be appealed 9 otherwise there will be no end to the
litigation. 10
WHEREFORE, the petition is DISMISSED for lack of merit with costs against petitioner. This
decision is immediately executory.
97 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
26. G.R. No. 51765 March 3, 1997
REPUBLIC PLANTERS BANK, petitioner,
vs.
HON. ENRIQUE A. AGANA, SR., as Presiding Judge, Court of First Instance of Rizal,
Branch XXVIII, Pasay City, ROBES-FRANCISCO REALTY & DEVELOPMENT
CORPORATION and ADALIA F. ROBES, respondents.
HERMOSISIMA, JR., J.:
This is a petition for certiorari seeking the annulment of the Decision 1 of the then Court of
First Instance of Rizal 2for having been rendered in grave abuse of discretion. Private
respondents Robes-Francisco Realty and Development Corporation (hereafter, "the
Corporation") and Adalia F. Robes filed in the court a quo, an action for specific performance
to compel petitioner to redeem 800 preferred shares of stock with a face value of P8,000.00
and to pay 1% quarterly interest thereon as quarterly dividend owing them under the terms
and conditions of the certificates of stock.
The court a quo rendered judgment in favor of private respondents; hence, this instant
petition.
Herein parties debate only legal issues, no issues of fact having been raised by them in the
court a quo. For ready reference, however, the following narration of pertinent transactions
and events is in order:
On September 18, 1961, private respondent Corporation secured a loan from petitioner in the
amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were
issued to private respondent Corporation, through its officers then, private respondent Adalia
F. Robes and one Carlos F. Robes. In other words, instead of giving the legal tender totaling
to the full amount of the loan, which is P120,000.00, petitioner lent such amount partially in
the form of money and partially in the form of stock certificates numbered 3204 and 3205,
each for 400 shares with a par value of P10.00 per share, or for P4,000.00 each, for a total of
P8,000.00. Said stock certificates were in the name of private respondent Adalia F. Robes
and Carlos F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F.
Robes.
Said certificates of stock bear the following terms and conditions: right to receive a quarterly dividend of One Per Centum (1%), cumulative and
participating, clearly and unequivocably [sic] indicates that the same are
The Preferred Stock shall have the following rights, preferences, "interest bearing stocks" which are stocks issued by a corporation under an
qualifications and limitations, to wit: agreement to pay a certain rate of interest thereon (5 Thompson, Sec. 3439).
As such, plaintiffs become entitled to the payment thereof as a matter of right
without necessity of a prior declaration of dividend.
1. Of the right to receive a quarterly dividend of One Per Centum (1%),
cumulative and participating.
On the question of the redemption by the defendant of said preferred shares
of stock, the very wordings of the terms and conditions in said stock
xxx xxx xxx
certificates clearly allows the same.
2. That such preferred shares may be redeemed, by the system of drawing
To allow the herein defendant not to redeem said preferred shares of stock
lots, at any time after two (2) years from the date of issue at the option of the
and/or pay the interest due thereon despite the clear import of said
Corporation. . . .
provisions by the mere invocation of alleged Central Bank Circulars
prohibiting the same is tantamount to an impairment of the obligation of
On January 31, 1979, private respondents proceeded against petitioner and filed a Complaint contracts enshrined in no less than the fundamental law itself.
anchored on private respondents' alleged rights to collect dividends under the preferred
shares in question and to have petitioner redeem the same under the terms and conditions of
Moreover, the herein defendant is considered in estoppel from taking shelter
the stock certificates. Private respondents attached to their complaint, a letter-demand dated
behind a General Banking Act provision to the effect that it cannot buy its
January 5, 1979 which, significantly, was not formally offered in evidence.
own shares of stocks considering that the very terms and conditions in said
stock certificates allowing their redemption are its own handiwork.
Petitioner filed a Motion to Dismiss 3 private respondents' Complaint on the following grounds:
(1) that the trial court had no jurisdiction over the subject-matter of the action; (2) that the
As to the claim by the defendant that plaintiffs' cause of action is barred by
action was unenforceable under substantive law; and (3) that the action was barred by the
prescription, suffice it to state that the running of the prescriptive period was
statute of limitations and/or laches.
considered interrupted by the written extrajudicial demands made by the
plaintiffs from the defendant. 7
Petitioner's Motion to Dismiss was denied by the trial court in an Order dated March 16,
1979. 4 Petitioner then filed its Answer on May 2, 1979. 5 Thereafter, the trial court gave the
Aggrieved by the decision of the trial court, petitioner elevated the case before us essentially
parties ten (10) days from July 30, 1979 to submit their respective memoranda after the
on pure questions of law. Petitioner's statement of the issues that it submits for us to
submission of which the case would be deemed submitted for resolution. 6
adjudicate upon, is as follows:
On September 7, 1979, the trial court rendered the herein assailed decision in favor of private
A. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF
respondents. In ordering petitioner to pay private respondents the face value of the stock
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
certificates as redemption price, plus 1% quarterly interest thereon until full payment, the trial
ORDERING PETITIONER TO PAY RESPONDENT ADALIA F. ROBES THE
court ruled:
AMOUNT OF P8213.69 AS INTERESTS FROM 1961 TO 1979 ON HER
PREFERRED SHARES.
There being no issue of fact raised by either of the parties who filed their
respective memoranda delineating their respective contentions, a judgment
B. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF
on the pleadings, conformably with an earlier order of the Court, appears to
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
be in order.
ORDERING PETITIONER TO REDEEM RESPONDENT ADALIA F. ROBES'
PREFERRED SHARES FOR P8,000.00.
From a further perusal of the pleadings, it appears that the provision of the
stock certificates in question to the effect that the plaintiffs shall have the
98 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 C. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
DISREGARDING THE ORDER OF THE CENTRAL BANK TO PETITIONER
TO DESIST FROM REDEEMING ITS PREFERRED SHARES AND FROM
PAYING DIVIDENDS THEREON . . . .
D. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE COMPLAINT
DOES NOT STATE A CAUSE OF ACTION.
E. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE CLAIM OF
RESPONDENT ADALIA F. ROBES IS BARRED BY PRESCRIPTION OR
LACHES. 8
The petition is meritorious.
Before passing upon the merits of this petition, it may be pertinent to provide an overview on
the nature of preferred shares and the redemption thereof, considering that these issues lie at
the heart of the dispute.
A preferred share of stock, on one hand, is one which entitles the holder thereof to certain
preferences over the holders of common stock. The preferences are designed to induce
persons to subscribe for shares of a corporation. 9 Preferred shares take a multiplicity of
forms. The most common forms may be classified into two: (1) preferred shares as to assets;
and (2) preferred shares as to dividends. The former is a share which gives the holder thereof
preference in the distribution of the assets of the corporation in case of liquidation; 10 the latter
is a share the holder of which is entitled to receive dividends on said share to the extent
agreed upon before any dividends at all are paid to the holders of common stock. 11 There is
no guaranty, however, that the share will receive any dividends. Under the old Corporation
Law in force at the time the contract between the petitioner and the private respondents was
entered into, it was provided that "no corporation shall make or declare any dividend except
from the surplus profits arising from its business, or distribute its capital stock or property
other than actual profits among its members or stockholders until after the payment of its
debts and the termination of its existence by limitation or lawful dissolution." 12 Similarly, the
present Corporation Code 13 provides that the board of directors of a stock corporation may
declare dividends only out of unrestricted retained earnings. 14 The Code, in Section 43,
adopting the change made in accounting terminology, substituted the phrase "unrestricted
retained earnings," which may be a more precise term, in place of "surplus profits arising from
its business" in the former law. Thus, the declaration of dividends is dependent upon the
availability of surplus profit or unrestricted retained earnings, as the case may be.
Preferences granted to preferred stockholders, moreover, do not give them a lien upon the
property of the corporation nor make them creditors of the corporation, the right of the former
being always subordinate to the latter. Dividends are thus payable only when there are profits
earned by the corporation and as a general rule, even if there are existing profits, the board of
99 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
directors has the discretion to determine whether or not dividends are to be
declared. 15 Shareholders, both common and preferred, are considered risk takers who invest
capital in the business and who can look only to what is left after corporate debts and
liabilities are fully paid. 16
Redeemable shares, on the other hand, are shares usually preferred, which by their terms
are redeemable at a fixed date, or at the option of either issuing corporation, or the
stockholder, or both at a certain redemption price. 17 A redemption by the corporation of its
stock is, in a sense, a repurchase of it for cancellation. 18 The present Code allows
redemption of shares even if there are no unrestricted retained earnings on the books of the
corporation. This is a new provision which in effect qualifies the general rule that the
corporation cannot purchase its own shares except out of current retained
earnings. 19 However, while redeemable shares may be redeemed regardless of the
existence of unrestricted retained earnings, this is subject to the condition that the corporation
has, after such redemption, assets in its books to cover debts and liabilities inclusive of
capital stock. Redemption, therefore, may not be made where the corporation is insolvent or if
such redemption will cause insolvency or inability of the corporation to meet its debts as they
mature. 20
We come now to the merits of the case. The petitioner argues that it cannot be compelled to
redeem the preferred shares issued to the private respondent. We agree. Respondent judge,
in ruling that petitioner must redeem the shares in question, stated that:
On the question of the redemption by the defendant of said preferred shares
of stock, the very wordings of the terms and conditions in said stock
certificates clearly allows the same. 21
What respondent judge failed to recognize was that while the stock certificate does
allow redemption, the option to do so was clearly vested in the petitioner bank. The
redemption therefore is clearly the type known as "optional". Thus, except as
otherwise provided in the stock certificate, the redemption rests entirely with the
corporation and the stockholder is without right to either compel or refuse the
redemption of its stock. 22Furthermore, the terms and conditions set forth therein use
the word "may". It is a settled doctrine in statutory construction that the word "may"
denotes discretion, and cannot be construed as having a mandatory effect. We fail to
see how respondent judge can ignore what, in his words, are the "very wordings of
the terms and conditions in said stock certificates" and construe what is clearly a
mere option to be his legal basis for compelling the petitioner to redeem the shares in
question.
The redemption of said shares cannot be allowed. As pointed out by the petitioner, the
Central Bank made a finding that said petitioner has been suffering from chronic reserve
deficiency, 23 and that such finding resulted in a directive, issued on January 31, 1973 by then
Gov. G.S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of defined as the failure or neglect, for an unreasonable length of time, to do that which by
the petitioner bank prohibiting the latter from redeeming any preferred share, on the ground exercising due diligence could or should have been done earlier; it is negligence or omission
that said redemption would reduce the assets of the Bank to the prejudice of its depositors to assert a right within a reasonable time, warranting a presumption that the party entitled to
and creditors.24 Redemption of preferred shares was prohibited for a just and valid reason. assert it either has abandoned it or declined to assert it. 28
The directive issued by the Central Bank Governor was obviously meant to preserve the
status quo, and to prevent the financial ruin of a banking institution that would have resulted Considering that the terms and conditions set forth in the stock certificate clearly indicate that
in adverse repercussions, not only to its depositors and creditors, but also to the banking redemption of the preferred shares may be made at any time after the lapse of two years
industry as a whole. The directive, in limiting the exercise of a right granted by law to a from the date of issue, private respondents should have taken it upon themselves, after the
corporate entity, may thus be considered as an exercise of police power. The respondent lapse of the said period, to inquire from the petitioner the reason why the said shares have
judge insists that the directive constitutes an impairment of the obligation of contracts. It has, not been redeemed. As it is, not only two years had lapsed, as agreed upon, but an additional
however, been settled that the Constitutional guaranty of non-impairment of obligations of sixteen years passed before the private respondents saw it fit to demand their right. The
contract is limited by the exercise of the police power of the state, the reason being that petitioner, at the time it issued said preferred shares to the private respondents in 1961, could
public welfare is superior to private rights. 25 not have known that it would be suffering from chronic reserve deficiency twelve years later.
Had the private respondents been vigilant in asserting their rights, the redemption could have
The respondent judge also stated that since the stock certificate granted the private been effected at a time when the petitioner bank was not suffering from any financial crisis.
respondents the right to receive a quarterly dividend of One Per Centum (1%) cumulative and
participating, it "clearly and unequivocably (sic) indicates that the same are "interest bearing WHEREFORE, the instant petition, being impressed with merit, is hereby GRANTED. The
stocks" or stocks issued by a corporation under an agreement to pay a certain rate of interest challenged decision of respondent judge is set aside and the complaint against the petitioner
thereon. As such, plaintiffs (private respondents herein) become entitled to the payment is dismissed. Costs against the private respondents.
thereof as a matter of right without necessity of a prior declaration of dividend." 26 There is no
legal basis for this observation. Both Sec. 16 of the Corporation Law and Sec. 43 of the
present Corporation Code prohibit the issuance of any stock dividend without the approval of
stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the purpose. These provisions underscore the fact
that payment of dividends to a stockholder is not a matter of right but a matter of consensus.
Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay
interest before dividends are paid to common stockholders, is legal only when construed as
requiring payment of interest as dividends from net earnings or surplus only. 27 Clearly, the
respondent judge, in compelling the petitioner to redeem the shares in question and to pay
the corresponding dividends, committed grave abuse of discretion amounting to lack or
excess of jurisdiction in ignoring both the terms and conditions specified in the stock
certificate, as well as the clear mandate of the law.

Anent the issue of prescription, this Court so holds that the claim of private respondent is
already barred by prescription as well as laches. Art. 1144 of the New Civil Code provides
that a right of action that is founded upon a written contract prescribes in ten (10) years. The
letter-demand made by the private respondents to the petitioner was made only on January
5, 1979, or almost eighteen years after receipt of the written contract in the form of the stock
certificate. As noted earlier, this letter-demand, significantly, was not formally offered in
evidence, nor were any other evidence of demand presented. Therefore, we conclude that
the only time the private respondents saw it fit to assert their rights, if any, to the preferred
shares of stock, was after the lapse of almost eighteen years. The same clearly indicates that
the right of the private respondents to any relief under the law has already prescribed.
Moreover, the claim of the private respondents is also barred by laches. Laches has been
100 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 27.G.R. No. 117097 March 21, 1997

SAMAHAN NG OPTOMETRISTS SA PILIPINAS, ILOCOS SUR-ABRA CHAPTER,

EDUARDO MA. GUIRNALDA, DANTE G. PACQUING and OCTAVIO A. DE
PERALTA, petitioners,
vs.
ACEBEDO INTERNATIONAL CORPORATION and the HON. COURT OF
APPEALS, respondents.

HERMOSISIMA, JR., J.:

Before us is a petition seeking the review and ultimately the reversal of the decision 1 of the
Court of Appeals 2which rejected what petitioners vehemently claim to be a prohibition, under
Republic Act (R.A.) No. 1998, popularly known as the old Optometry Law, against the
employment by corporations, usually optical shops and eyeware stores, of optometrists, such
practice, according to petitioners, being an indirect violation of the rule against corporations
exercising professions reserved only to natural persons. Petitioners understandably did not
welcome the herein assailed decision because they have, earlier, obtained a
decision 3 favorable to them from the Regional Trial Court of Candon, Ilocos Sur, Branch 23,
presided over by Judge Gabino Balbin, Jr. The said judge had, in the main, ruled that the
operations of private respondent Acebedo International Corporation involves the practice of
optometry which is precluded by R.A. No. 1998.

The undisputed facts of the case, as found by the respondent Court of Appeals and quoted
by petitioners, are as follows:

On February 22, 1991, . . . [private respondent] filed an application with the

Office of the Mayor of Candon, Ilocos Sur, for the issuance of a permit for the
opening and operation of a branch of the Acebedo Optical in that
municipality.

The application was opposed by the . . . [petitioner] Samahan ng

Optometrists sa Pilipinas (SOP) which contended that . . . [private
respondent] is a juridical entity not qualified to practice optometry.

On March 6, 1991, . . . [private respondent] filed its answer, arguing it is not

the corporation, but the optometrists employed by it, who would be practicing
optometry.

101 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 On April 17, 1991, the Mayor of Candon created a committee, composed of
public respondents Eduardo Ma. Guirnalda, Dante G. Pacquing and Octavio
de Peralta, to pass on [private respondent's] application.
On September 26, 1991 the committee rendered a decision denying [private
respondent's] application for a mayor's permit to operate a branch in Candon
and ordering . . . [private respondent] to close its establishment within fifteen
(15) days from receipt of the decision. Acebedo moved for a reconsideration
but its motion was denied on November 14, 1991. . . . [Private respondent]
was ordered to close its establishment within ten (10) days from receipt of
the order.
On December 9, 1991, . . . [private respondent] filed with the Court of
Appeals a petition for certiorari (CA G.R SP No. 26782), questioning the
decision of respondent committee. Its petition, however, was referred to the
court a quo, which on December 16, 1992, dismissed Acebedo's petition.
Hence, . . . [the] appeal [to the respondent Court of Appeals]. 4
The singular issue, admittedly extensively debated and intensely contested not only by the
members of the optometry profession and the players in the business of selling optical ware,
supplies, substances and instruments but also by the members of the Senate during the
deliberations respecting R. A. 8050, otherwise known as Revised New Optometry Law, is
this: May corporations, engaged in the business of selling optical wares, supplies, substances
and instruments which, as an incident to and in the ordinary course of the business hire
optometrists, be said to be practicing the profession of optometry which, by legal mandate,
may only be engaged in by natural persons possessed of specific legal qualifications?
The trial court resolved this issue in the affirmative. In so finding, it explained, thus:
The denial of the application of Acebedo rested on the grounds that it is
operating an optical shop and it is practicing optometry where its charter
does not grant to it authority to practice the former. Acebedo submits that the
findings of the Commission have no basis both in law and in fact. It argues
that the hiring of optometrists by the petitioner is merely incidental to its main
business which is the sale of optical products. Acebedo contends further that
its employees have a personality separate and distinct from that of Acebedo
which is a juridical entity, and it cannot therefore be considered as engaged
in optometry.
The Court disagrees.
Quoted for the enlightenment of both parties is a portion of the contested
Decision, to wit:
102 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
The visit revealed the following:
1. The establishment was manned by three personnel: Dr. Salvador
Pagarigan, optometrist; Miss Lilibeth Begonia, receptionist; and a Laboratory
technician, who refused to give his name;
2. There were several shelves containing eyeglasses;
3. There were benches where, according to Miss Begonia, would-be clients
can sit while waiting for their turn to be examined;
4. An examination room complete with an optical chair and optical charts;
and,
5. An optical laboratory.
The Court is very much aware of the existence of several shops owned by
Acebedo. They are operating up to the present. But the Court has to rely in
this case on the findings of the Commission created by the Mayor of Candon
in the absence of proof that the same was arrived at hastily and without
regard for the rights of the parties. In fact, the contested Decision was issued
only after an ocular inspection was conducted and the parties have submitted
their respective memorandum.
The findings of the Commission reveal that the operation of Acebedo's local
shop involves the practice of optometry. If indeed Acebedo is engaged in the
sale of optical products, the absence of sales clerks more than demonstrate
its real business. In the contested Decision, the floor plan of the shop was
even commented on as that of an optical shop. As noted by the members of
the Commission, there was also a banner in front of the shop prominently
display advertising free consultations (libreng consulta sa mata). These facts,
taken together, denote that Acebedo was operating in Candon an optical
shop contrary to law.
While it is also true that a corporation has a personality separate and distinct
from that of its personnel, the veil of corporate fiction cannot be used for the
purpose of some illegal activity. The veil of corporate fiction can be pierced,
as in this case, and the acts of the personnel of the corporation will be
considered as those of the corporation. Acebedo then is engaged in the
practice of optometry. 5
Disagreeing with the foregoing decision of the trial court, private respondent appealed
therefrom and asked the respondent Court of Appeals to reverse the same on the ground that
the court a quo erred in concluding that private respondent was engaged in the practice of
optometry by operating an optical shop.
Respondent appellate court found that private respondent's contentions merited the reversal
of the court a quo'sdecision. The respondent court, speaking through Court of Appeals
Presiding Justice, now Supreme Court Associate Justice Vicente V. Mendoza, ratiocinated in
this wise:
First. . . . [Private respondent] maintains that it is not practicing optometry nor
is it operating an optical clinic. The contention has merit. The amended
Articles of Incorporation of . . . [private respondent] in part states:
PRIMARY PURPOSES
1. To own, maintain, conduct, operate and carry on the
business of dispensing opticians and optical establishments,
and in the course of the business, to buy, sell, ship, store
and otherwise use, deal in, acquire and dispose of every
kind of optical, ophthalmic and scientific instrument, glass,
lens, optical solutions or equipment necessary or convenient
to the operation and conduct of the general business of
dispensing opticians.
SECONDARY PURPOSES
xxx xxx xxx
3. To do all and everything necessary, suitable or proper for
the accomplishment of any of the purposes, the attainment
of any of the objects, or in the exercise of any of the powers
herein set forth, either alone or in conjunction with other
corporations, firms or individuals and either as principal or
agents and to do every other act or acts, thing or things,
incidental or appurtenant to or growing out of or connected
with the abovementioned objects, purposes or powers.
Clearly, the corporation is not an optical clinic. Nor is it — but rather the
optometrists employed by it who are — engaged in the practice of optometry.
Petitioner-appellant simply dispenses optical and ophthalmic instruments and
supplies.
103 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
Indeed, the Optometry Law (Rep. Act No. 1998), which . . . [petitioners] cite,
does not prohibit corporations, like . . . [private respondent] from employing
licensed optometrists.
What it prohibits is the practice of the profession without license by those
engaged in it. This is clear from sec. 2 of the law which provides:
No person shall practice or attempt to practice optometry as
defined in this Act, without holding a valid certificate of
registration as optometrist issued to him by the Board of
Examiners in Optometry herein created and in accordance
with the provisions hereof: Provided, that valid certificates of
registration as optometrists shall be issued to optometrists of
good moral character now registered in accordance with the
provisions of chapter thirty-three of the Revised
Administrative Code, who shall, by application within a
period of one year from the effectivity of this Act, be exempt
from the provisions of sections eleven, twelve and twenty-
three of this Act. . . .
The prohibition is thus addressed to natural persons who are required to
have "a valid certificate of registration as optometrist" and who must be of
"good moral character". The prohibition can have no application to . . .
[private respondent] which is not itself engaged in the practice of optometry.
As the Professional Regulation Commission said, "Acebedo Optical,
Acebedo Optical Clinic, Acebedo Optical Co., Inc. and Acebedo International,
Inc. are not natural persons who can take the Optometrist licensure
examinations. They are not, and cannot be registered as Optometrist under
RA 1998 [The Optometry Law]. 6
Petitioners filed a Motion for Reconsideration of the aforegoing decision. It was, however,
denied by respondent appellate court. Hence, this petition anchored on the following sole
ground:
ISSUE
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN DECLARING THAT PRIVATE
RESPONDENT ACEBEDO INTERNATIONAL
CORPORATION DOES NOT VIOLATE THE OPTOMETRY
LAW (RA NO. 1998) WHEN IT EMPLOYS OPTOMETRISTS
TO ENGAGE IN THE PRACTICE OF OPTOMETRY UNDER
ITS NAME AND FOR ITS BEHALF
 The herein petitioner most respectfully submits that the private respondent Sec. 4. Acts Constituting the practice of Optometry. Any of
Acebedo International Corporation flagrantly violates R.A. No. 1998 and the the following acts constitute the practice of optometry:
Corporation Code of the Philippines when it employs optometrists to engage
in the practice of optometry under its name and for its behalf. 7 a) The examination of the human eye through the
employment of subjective and objective procedures,
We hold that the petition lacks merit. including the use of specific topical diagnostic
pharmaceutical agents or drugs and instruments, tools,
Private respondent does not deny that it employs optometrists whose role in the operations of equipment, implements, visual aids, apparatuses, machines,
its optical shops is to administer the proper eye examination in order to determine the correct ocular exercises and related devices, for the purpose of
type and grade of lenses to prescribe to persons purchasing the same from private determining the condition and acuity of human vision to
respondent's optical shops. Petitioners vehemently insist that in so employing said correct and improve the same in accordance with
optometrists, private respondent is in effect itself practicing optometry. Such practice, subsections (b), (c) and (d) hereof; vision to correct and
petitioners conclude, is in violation of RA. No. 1998, which, it must be noted at this juncture, improve the same in accordance with subsections (b), (c)
has been repealed and superseded by R.A. 8050. and (d) hereof;

Petitioners' contentions are, however, untenable. The fact that private respondent hires b) The prescription and dispensing of ophthalmic lenses,
optometrists who practice their profession in the course of their employment in private prisms, contact lenses and their accessories and solutions,
respondent's optical shops, does not translate into a practice of optometry by private frames and their accessories, and supplies for the purpose
respondent itself. Private respondent is a corporation created and organized for the purpose of correcting and treating defects, deficiencies and
of conducting the business of selling optical lenses or eyeglasses, among others. The abnormalities of vision.
clientele of private respondent understably, would largely be composed of persons with
defective vision and thus need the proper lenses to correct the same and enable them to gain c) The conduct of ocular exercises and vision training, the
normal vision. The determination of the proper lenses to sell to private respondent's clientele provision of orthoptics and other devices and procedures to
entails the employment of optometrists who have been precisely trained for that purpose. aid and correct abnormalities of human vision, and the
Private respondent's business is not the determination itself of the proper lenses needed by installation of prosthetic devices;
persons with defective vision. Private respondent's business, rather, is the buying and
importing of eyeglasses and lenses and other similar or allied instruments from suppliers d) The counseling of patients with regard to vision and eye
thereof and selling the same to consumers. care and hygiene;

For petitioners' argument to hold water, there need be clear showing that R.A. No. 1998 e) The establishment of offices, clinics, and similar places
prohibits a corporation from hiring optometrists, for only then would it be undeniably evident where optometric services are offered; and
that the intention of the legislature is to preclude the formation of the so-called optometry
corporations because such is tantamount to the practice of the profession of optometry which f) The collection of professional fees for the performance of
is legally exercisable only by natural persons and professional partnerships. We have any of the acts mentioned in paragraphs (a), (b), (c) and (d)
carefully reviewed R.A. No. 1998 however, and we find nothing therein that supports of this section.
petitioner's insistent claims. 8
Sec. 5. Prohibition Against the Unauthorized Practice of
It is significant to note that even under R.A. No. 8050, known as the Revised Optometry Optometry. — No person shall practice optometry as defined
Law, 9 we find no prohibition against the hiring by corporations of optometrists. The pertinent in Section 3 of this Act nor perform any of the acts,
provisions of R.A. No. 8050 regarding the practice of optometry, are reproduced below for constituting the practice of optometry as setforth in Section 4
ready reference: hereof, without having been first admitted to the practice of
this profession under the provisions of this Act and its
THE PRACTICE OF OPTOMETRY implementing rules and regulations: Provided, That this
104 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )
 prohibition shall not apply to regularly licensed and duly
registered physicians who have received post-graduate
training in the diagnosis and treatment of eye
diseases: Provided, however, That the examination of the
human eye by duly registered physicians in connection with
the physical examination of patients shall not be considered
as practice of optometry:Provided, further, That public health
workers trained and involved in the government's blindness
prevention program may conduct only visual acuity test and
visual screening.

Sec. 6. Disclosure of Authority to Practice. — An optometrist

shall be required to indicate his professional license number
and the date of its expiration in the documents he issues or
signs in connection with the practice of his profession. He
shall also display his certificate of registration in a
conspicuous area of his clinic or office.

All told, there is no law that prohibits the hiring by corporations of optometrists or considers
the hiring by corporations of optometrists as a practice by the corporation itself of the
profession of optometry. WHEREFORE, the instant petition is hereby DISMISSED.

105 | L L B I I I B C O R P O R A T I O N C A S E S ( A t t y . A c o s t a - D o f i t a s )