G.R. No.

82797 February 27, 1991

GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,

vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.

A.E. Dacanay for petitioners.

Antonio Quintos Law Office for private respondent.

PARAS, J.:

This is a petition for review on certiorari of the December 29, 1987 decision * of the Court of
Appeals in CA-G.R. No. 11960 entitled "ROCES-REYES REALTY, INC. vs. HONORABLE JUDGE
REGIONAL TRIAL COURT OF MANILA, BRANCH 44, GOOD EARTH EMPORIUM, INC. and LIM KA
PING" reversing the decision of respondent Judge ** of the Regional Trial Court of Manila,
Branch 44 in Civil Case No. 85-30484, which reversed the resolution of the Metropolitan Trial
Court Of Manila, Branch 28 in Civil Case No. 09639, *** denying herein petitioners' motion to
quash the alias writ of execution issued against them.

As gathered from the records, the antecedent facts of this case, are as follows:

A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-REYES
REALTY, INC., as lessor, and GOOD EARTH EMPORIUM, INC., as lessee, for a term of three years
beginning November 1, 1981 and ending October 31, 1984 at a monthly rental of P65,000.00
(Rollo, p. 32; Annex "C" of Petition). The building which was the subject of the contract of lease
is a five-storey building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz,
Manila.

From March 1983, up to the time the complaint was filed, the lessee had defaulted in the
payment of rentals, as a consequence of which, private respondent ROCES-REYES REALTY, INC.,
(hereinafter designated as ROCES for brevity) filed on October 14, 1984, an ejectment case
(Unlawful Detainer) against herein petitioners, GOOD EARTH EMPORIUM, INC. and LIM KA
PING, hereinafter designated as GEE, (Rollo, p. 21; Annex "B" of the Petition). After the latter
had tendered their responsive pleading, the lower court (MTC, Manila) on motion of Roces
rendered judgment on the pleadings dated April 17, 1984, the dispositive portion of which
states:

Judgment is hereby rendered ordering defendants (herein petitioners) and all persons
claiming title under him to vacate the premises and surrender the same to the plaintiffs
 (herein respondents); ordering the defendants to pay the plaintiffs the rental of
P65,000.00 a month beginning March 1983 up to the time defendants actually vacate
the premises and deliver possession to the plaintiff; to pay attorney's fees in the amount
of P5,000.00 and to pay the costs of this suit. (Rollo, p. 111; Memorandum of
Respondents)

On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May 28,
1984 simultaneous with the latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On June 13,
1984, the trial court resolved such motion ruling:

After considering the motion for the issuance of a writ of execution filed by counsel for
the plaintiff (herein respondents) and the opposition filed in relation thereto and finding
that the defendant failed to file the necessary supersedeas bond, this court resolved to
grant the same for being meritorious. (Rollo, p. 112)

On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the appeal
was assigned to the Regional Trial Court (Manila) Branch XLVI. However, on August 15, 1984,
GEE thru counsel filed with the Regional Trial Court of Manila, a motion to withdraw
appeal citing as reason that they are satisfied with the decision of the Metropolitan Trial Court
of Manila, Branch XXVIII, which said court granted in its Order of August 27, 1984 and the
records were remanded to the trial court (Rollo, p. 32; CA Decision). Upon an ex-parte Motion
of ROCES, the trial court issued an Alias Writ of Execution dated February 25, 1985 (Rollo, p.
104; Annex "D" of Petitioner's Memorandum), which was implemented on February 27, 1985.
GEE thru counsel filed a motion to quash the writ of execution and notice of levy and an
urgent Ex-parte Supplemental Motion for the issuance of a restraining order, on March 7, and
20, 1985, respectively. On March 21, 1985, the lower court issued a restraining order to the
sheriff to hold the execution of the judgment pending hearing on the motion to quash the writ
of execution (Rollo, p. 22; RTC Decision). While said motion was pending resolution, GEE filed a
Petition for Relief from judgment before another court, Regional Trial Court of Manila, Branch
IX, which petition was docketed as Civil Case No. 80-30019, but the petition was dismissed and
the injunctive writ issued in connection therewith set aside. Both parties appealed to the Court
of Appeals; GEE on the order of dismissal and Roces on denial of his motion for indemnity, both
docketed as CA-G.R. No. 15873-CV. Going back to the original case, the Metropolitan Trial Court
after hearing and disposing some other incidents, promulgated the questioned Resolution,
dated April 8, 1985, the dispositive portion of which reads as follows:

Premises considered, the motion to quash the writ is hereby denied for lack of merit.

The restraining orders issued on March 11 and 23, 1985 are hereby recalled, lifted and
set aside. (Rollo, p. 20, MTC Decision)
GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces moved
to dismiss the appeal but the Court denied the motion. On certiorari, the Court of Appeals
dismissed Roces' petition and remanded the case to the RTC. Meantime, Branch IX became
vacant and the case was re-raffled to Branch XLIV.

On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million
evidenced by Exhibit "I" and another P1 million evidenced by the pacto de retro sale instrument
(Exhibit "2") were in full satisfaction of the judgment obligation, reversed the decision of the
Municipal Trial Court, the dispositive portion of which reads:

Premises considered, judgment is hereby rendered reversing the Resolution appealed

from quashing the writ of execution and ordering the cancellation of the notice of levy
and declaring the judgment debt as having been fully paid and/or Liquidated. (Rollo, p.
29).

On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court and
reinstated the Resolution of the Metropolitan Trial Court of Manila, the dispositive portion of
which is as follows:

WHEREFORE, the judgment appealed from is hereby REVERSED and the Resolution
dated April 8, 1985, of the Metropolitan Trial Court of Manila Branch XXXIII is hereby
REINSTATED. No pronouncement as to costs. (Rollo, p. 40).

GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this petition.

The main issue in this case is whether or not there was full satisfaction of the judgment debt in
favor of respondent corporation which would justify the quashing of the Writ of Execution.

A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any of
said exhibits was there any writing alluding to or referring to any settlement between the
parties of petitioners' judgment obligation (Rollo, pp. 45-48).

Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or
partial, of the judgment obligation. Likewise, there is no indication in the pacto de retro sale
which was drawn in favor of Jesus Marcos Roces and Marcos V. Roces and not the respondent
corporation, that the obligation embodied therein had something to do with petitioners'
judgment obligation with respondent corporation.

Finding that the common exhibit, Exhibit 1/A had been signed by persons other than judgment
creditors (Roces-Reyes Realty, Inc.) coupled with the fact that said exhibit was not even alleged
by GEE and Lim Ka Ping in their original motion to quash the alias writ of execution (Rollo, p. 37)
but produced only during the hearing (Ibid.) which production resulted in petitioners having to
claim belatedly that there was an "overpayment" of about half a million pesos (Rollo, pp. 25-27)
and remarking on the utter absence of any writing in Exhibits "1/A" and "2/B" to indicate
payment of the judgment debt, respondent Appellate Court correctly concluded that there was
in fact no payment of the judgment debt. As aptly observed by the said court:

What immediately catches one's attention is the total absence of any writing alluding to
or referring to any settlement between the parties of private respondents' (petitioners')
judgment obligation. In moving for the dismissal of the appeal Lim Ka Ping who was then
assisted by counsel simply stated that defendants (herein petitioners) are satisfied with
the decision of the Metropolitan Trial Court (Records of CA, p. 54).

Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution

and Notice of Levy dated March 7, 1985, there is absolutely no reference to the alleged
payment of one million pesos as evidenced by Exhibit 1 dated September 20, 1984. As
pointed out by petitioner (respondent corporation) this was brought out by Linda
Panutat, Manager of Good Earth only in the course of the latter's testimony. (Rollo, p.
37)

Article 1240 of the Civil Code of the Philippines provides that:

Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its
successor in interest nor is there positive evidence that the payment was made to a person
authorized to receive it. No such proof was submitted but merely inferred by the Regional Trial
Court (Rollo, p. 25) from Marcos Roces having signed the Lease Contract as President which was
witnessed by Jesus Marcos Roces. The latter, however, was no longer President or even an
officer of Roces-Reyes Realty, Inc. at the time he received the money (Exhibit "1") and signed
the sale with pacto de retro (Exhibit "2"). He, in fact, denied being in possession of authority to
receive payment for the respondent corporation nor does the receipt show that he signed in
the same capacity as he did in the Lease Contract at a time when he was President for
respondent corporation (Rollo, p. 20, MTC decision).

On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced by the
receipt (Exhibit "1") is the payment for a loan extended by him and Marcos Roces in favor of
Lim Ka Ping. The assertion is home by the receipt itself whereby they acknowledged payment of
the loan in their names and in no other capacity.

A corporation has a personality distinct and separate from its individual stockholders or
members. Being an officer or stockholder of a corporation does not make one's property also of
the corporation, and vice-versa, for they are separate entities (Traders Royal Bank v. CA-G.R.
No. 78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners are in no legal
sense the owners of corporate property (or credits) which is owned by the corporation as a
distinct legal person (Concepcion Magsaysay-Labrador v. CA-G.R. No. 58168, December 19,
1989). As a consequence of the separate juridical personality of a corporation, the corporate
debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit
that of the corporation (Prof. Jose Nolledo's "The Corporation Code of the Philippines, p. 5,
1988 Edition, citing Professor Ballantine).

The absence of a note to evidence the loan is explained by Jesus Marcos Roces who testified
that the IOU was subsequently delivered to private respondents (Rollo, pp. 97-98). Contrary to
the Regional Trial Court's premise that it was incumbent upon respondent corporation to prove
that the amount was delivered to the Roces brothers in the payment of the loan in the latter's
favor, the delivery of the amount to and the receipt thereof by the Roces brothers in their
names raises the presumption that the said amount was due to them.1âwphi1 There is a
disputable presumption that money paid by one to the other was due to the latter (Sec. 5(f)
Rule 131, Rules of Court). It is for GEE and Lim Ka Ping to prove otherwise. In other words, it is
for the latter to prove that the payments made were for the satisfaction of their judgment debt
and not vice versa.

The fact that at the time payment was made to the two Roces brothers, GEE was also indebted
to respondent corporation for a larger amount, is not supportive of the Regional Trial Court's
conclusions that the payment was in favor of the latter, especially in the case at bar where the
amount was not receipted for by respondent corporation and there is absolutely no indication
in the receipt from which it can be reasonably inferred, that said payment was in satisfaction of
the judgment debt. Likewise, no such inference can be made from the execution of the pacto
de retro sale which was not made in favor of respondent corporation but in favor of the two
Roces brothers in their individual capacities without any reference to the judgment obligation
in favor of respondent corporation.

In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the
sale with pacto de retro(Exhibit "2/B") all in the sum of P2 million, far exceeds petitioners'
judgment obligation in favor of respondent corporation in the sum of P1,560,000.00 by
P440,000.00, which militates against the claim of petitioner that the aforesaid amount (P2M)
was in full payment of the judgment obligation.

Petitioners' explanation that the excess is interest and advance rentals for an extension of the
lease contract (Rollo, pp. 25-28) is belied by the absence of any interest awarded in the case
and of any agreement as to the extension of the lease nor was there any such pretense in the
Motion to Quash the Alias Writ of Execution.
Petitioners' averments that the respondent court had gravely abused its discretion in arriving at
the assailed factual findings as contrary to the evidence and applicable decisions of this
Honorable Court are therefore, patently unfounded. Respondent court was correct in stating
that it "cannot go beyond what appears in the documents submitted by petitioners themselves
(Exhibits "1" and "2") in the absence of clear and convincing evidence" that would support its
claim that the judgment obligation has indeed been fully satisfied which would warrant the
quashal of the Alias Writ of Execution.

It has been an established rule that when the existence of a debt is fully established by the
evidence (which has been done in this case), the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers such a defense to the claim of
the plaintiff creditor (herein respondent corporation) (Chua Chienco v. Vargas, 11 Phil. 219;
Ramos v. Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well-
entrenched in Our jurisprudence that each party in a case must prove his own affirmative
allegations by the degree of evidence required by law (Stronghold Insurance Co. v. CA, G.R. No.
83376, May 29,1989; Tai Tong Chuache & Co. v. Insurance Commission, 158 SCRA 366).

The appellate court cannot, therefore, be said to have gravely abused its discretion in finding
lack of convincing and reliable evidence to establish payment of the judgment obligation as
claimed by petitioner. The burden of evidence resting on the petitioners to establish the facts
upon which their action is premised has not been satisfactorily discharged and therefore, they
have to bear the consequences.

PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of the Respondent
court is hereby AFFIRMED, reinstating the April 8, 1985 Resolution of the Metropolitan Trial
Court of Manila.

SO ORDERED.

Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

Good Earth Emporium Inc. vs Court of Appeals

194 SCRA 544 [GR No. 82797 February 27, 1991]

Facts: A lease contract, dated October 16, 1981, was entered into by and between Roces-Reyes
Realty Inc. as lessor, and Good Earth Emporium Inc. (GEE) as lessee for a term of three years
beginning November 1, 1981 and ending October 31, 1984 at a monthly rental of Php65,000. The
building which was the subject of the contract of lease is a five story building located at the corner
of Rizal Avenue and Bustos Street in Sta. Cruz, Manila. From March 1983 up to the complaint was
filed, the lessee had defaulted in the payment of rentals, as a consequence of which, private
respondent Roces-Reyes Realty Inc. filed on October 14, 1984 an ejectment case against herein
petitioners, Good Earth Emporium Inc. and Lim Ka Ring. After the latter had tendered their
responsive pleading, the lower court on motion of Roces rendered judgement on the pleadings
dated April 17, 1984 to which petitioners were ordered to vacate the premises and surrender the
same to the plaintiffs. On May 16, 1984, Roces filed a motion for execution which was opposed
by petitioners on May 28, 1984 simultaneous with the latter’s filing of a notice of appeal.
However, on August 15, 1984, GEE thru counsel filed a motion to withdraw said appeal citing as
reason that they are satisfied with the decision of the lower court.

Issue: Whether or not the payment made by GEE to the Roces brothers constitute payment to
private respondent corporation which would result to the extinguishment of the obligation.

Held: No. Under article 1240 of the civil code of the Philippines – Payment shall be made to the
person in whose favor the obligation has been constituted, on his successor in interest or any
person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc. or to its
successors in interest nor is there positive evidence that payment was made to a person
authorized to receive it. No such proof was submitted but merely inferred by the RTC from
Marcos Roces having signed the lease contract as President which was witnessed by Jesus Marcos
Roces. The later, however, was no longer President or even an officer of the Roces-Realty Inc at
the time he received the money and signed the sale with pacto de retro. He, in fact denied being
in possession of authority to receive payment for the respondent corporation nor does the
receipt show that he signed in the same capacity as he did in the lease contract at a time when
he was President for respondent corporation.

A corporation has a personality distinct and separate from its individual stockholders or
members. Being an officer or stockholder of a corporation does not make one’s property also of
the corporation, and vice-versa, for they are separate entities. Share owners are in no legal sense
the owners corporate property which is owned by the corporation as a distinct legal person. As
a consequence of the separate juridical personality of a corporation, the corporate debt or credit
is not the debt or credit of the stockholder, nor is the stockholder’s debt or credit that of the
corporation.

Adm. Matter No. R-181-P July 31, 1987

ADELIO C. CRUZ, complainant,

vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila, respondents.

RESOLUTION
FERNAN, J.:

In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged Quiterio L. Dalisay, Senior
Deputy Sheriff of Manila, with "malfeasance in office, corrupt practices and serious
irregularities" allegedly committed as follows:

1. Respondent sheriff attached and/or levied the money belonging to complainant Cruz when
he was not himself the judgment debtor in the final judgment of NLRC NCR Case No. 8-12389-
91 sought to be enforced but rather the company known as "Qualitrans Limousine Service,
Inc.," a duly registered corporation; and,

2. Respondent likewise caused the service of the alias writ of execution upon complainant who
is a resident of Pasay City, despite knowledge that his territorial jurisdiction covers Manila only
and does not extend to Pasay City.

In his Comments, respondent Dalisay explained that when he garnished complainant's cash
deposit at the Philtrust bank, he was merely performing a ministerial duty. While it is true that
said writ was addressed to Qualitrans Limousine Service, Inc., yet it is also a fact that
complainant had executed an affidavit before the Pasay City assistant fiscal stating that he is
the owner/president of said corporation and, because of that declaration, the counsel for the
plaintiff in the labor case advised him to serve notice of garnishment on the Philtrust bank.

On November 12, 1984, this case was referred to the Executive Judge of the Regional Trial
Court of Manila for investigation, report and recommendation.

Prior to the termination of the proceedings, however, complainant executed an affidavit of

desistance stating that he is no longer interested in prosecuting the case against respondent
Dalisay and that it was just a "misunderstanding" between them. Upon respondent's motion,
the Executive Judge issued an order dated May 29, 1986 recommending the dismissal of the
case.

It has been held that the desistance of complainant does not preclude the taking of disciplinary
action against respondent. Neither does it dissuade the Court from imposing the appropriate
corrective sanction. One who holds a public position, especially an office directly connected
with the administration of justice and the execution of judgments, must at all times be free
from the appearance of impropriety.1

We hold that respondent's actuation in enforcing a judgment against complainant who is not
the judgment debtor in the case calls for disciplinary action. Considering the ministerial nature
of his duty in enforcing writs of execution, what is incumbent upon him is to ensure that only
that portion of a decision ordained or decreed in the dispositive part should be the subject of
execution.2 No more, no less. That the title of the case specifically names complainant as one of
the respondents is of no moment as execution must conform to that directed in the dispositive
portion and not in the title of the case.

The tenor of the NLRC judgment and the implementing writ is clear enough. It directed
Qualitrans Limousine Service, Inc. to reinstate the discharged employees and pay them full
backwages. Respondent, however, chose to "pierce the veil of corporate entity" usurping a
power belonging to the court and assumed improvidently that since the complainant is the
owner/president of Qualitrans Limousine Service, Inc., they are one and the same. It is a well-
settled doctrine both in law and in equity that as a legal entity, a corporation has a personality
distinct and separate from its individual stockholders or members. The mere fact that one is
president of a corporation does not render the property he owns or possesses the property of
the corporation, since the president, as individual, and the corporation are separate entities.3

Anent the charge that respondent exceeded his territorial jurisdiction, suffice it to say that the
writ of execution sought to be implemented was dated July 9, 1984, or prior to the issuance of
Administrative Circular No. 12 which restrains a sheriff from enforcing a court writ outside his
territorial jurisdiction without first notifying in writing and seeking the assistance of the sheriff
of the place where execution shall take place.

ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio L. Dalisay NEGLIGENT in the

enforcement of the writ of execution in NLRC Case-No. 8-12389-91, and a fine equivalent to
three [3] months salary is hereby imposed with a stern warning that the commission of the
same or similar offense in the future will merit a heavier penalty. Let a copy of this Resolution
be filed in the personal record of the respondent.

SO ORDERED.

CRUZ VS. DALISAY

FACTS:
In a sworn complaint, Adelio C. Cruz charged Quiterio L. Dalisay, Senior Deputy Sheriff of Manila,
with "malfeasance in office, corrupt practices and serious irregularities". Respondent sheriff
attached and levied the money belonging to complainant Cruz when he was not himself the
judgment debtor in the final judgment sought to be enforced but rather the company known as
"Qualitrans Limousine Service, Inc.," a duly registered corporation.

ISSUE:
Whether or not the respondent erred in enforcing the judgment against the complainant?

RULING:
Yes. Respondent's actuation in enforcing a judgment against complainant who is not the
judgment debtor in the case calls for disciplinary action. Considering the ministerial nature of his
duty in enforcing writs of execution, what is incumbent upon him is to ensure that only that
portion of a decision ordained or decreed in the dispositive part should be the subject of
execution. The tenor of the NLRC judgment and the implementing writ is clear enough. It directed
Qualitrans Limousine Service, Inc. to reinstate the discharged employees and pay them full
backwages. Respondent, however, chose to "pierce the veil of corporate entity" usurping a
power belonging to the court and assumed improvidently that since the complainant is the
owner/president of Qualitrans Limousine Service, Inc., they are one and the same. It is a well-
settled doctrine both in law and in equity that as a legal entity, a corporation has a personality
distinct and separate from its individual stockholders or members. The mere fact that one is
president of a corporation does not render the property he owns or possesses the property of
the corporation, since the president, as individual, and the corporation are separate entities.

BANK OF AMERICA NT&SA, BANK OF AMERICA INTERNATIONAL, LTD., petitioners, vs. COURT
OF APPEALS, HON. MANUEL PADOLINA, EDUARDO LITONJUA, SR., and AURELIO K.
LITONJUA, JR., respondents.

DECISION
AUSTRIA-MARTINEZ, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
November 29, 1994 decision of the Court of Appeals[1] and the April 28, 1995 resolution denying
petitioners motion for reconsideration.
The factual background of the case is as follows:
On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed
a Complaint[2] before the Regional Trial Court of Pasig against the Bank of America NT&SA and
Bank of America International, Ltd. (defendant banks for brevity) alleging that: they were
engaged in the shipping business; they owned two vessels: Don Aurelio and El Champion, through
their wholly-owned corporations; they deposited their revenues from said business together with
other funds with the branches of said banks in the United Kingdom and Hongkong up to 1979;
with their business doing well, the defendant banks induced them to increase the number of
their ships in operation, offering them easy loans to acquire said vessels; [3] thereafter, the
defendant banks acquired, through their (Litonjuas) corporations as the borrowers: (a) El
Carrier[4]; (b) El General[5]; (c) El Challenger[6]; and (d) El Conqueror[7]; the vessels were registered
in the names of their corporations; the operation and the funds derived therefrom were placed
under the complete and exclusive control and disposition of the petitioners;[8] and the possession
the vessels was also placed by defendant banks in the hands of persons selected and designated
by them (defendant banks).[9]
The Litonjuas claimed that defendant banks as trustees did not fully render an account of all
the income derived from the operation of the vessels as well as of the proceeds of the subsequent
foreclosure sale;[10] because of the breach of their fiduciary duties and/or negligence of the
petitioners and/or the persons designated by them in the operation of private respondents six
vessels, the revenues derived from the operation of all the vessels declined drastically; the loans
acquired for the purchase of the four additional vessels then matured and remained unpaid,
prompting defendant banks to have all the six vessels, including the two vessels originally owned
by the private respondents, foreclosed and sold at public auction to answer for the obligations
incurred for and in behalf of the operation of the vessels; they (Litonjuas) lost sizeable amounts
of their own personal funds equivalent to ten percent (10%) of the acquisition cost of the four
vessels and were left with the unpaid balance of their loans with defendant banks. [11] The
Litonjuas prayed for the accounting of the revenues derived in the operation of the six vessels
and of the proceeds of the sale thereof at the foreclosure proceedings instituted by petitioners;
damages for breach of trust; exemplary damages and attorneys fees.[12]
Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and lack of
cause of action against them.[13]
On December 3, 1993, the trial court issued an Order denying the Motion to Dismiss, thus:

WHEREFORE, and in view of the foregoing consideration, the Motion to Dismiss is hereby
DENIED. The defendant is therefore, given a period of ten (10) days to file its Answer to the
complaint.

SO ORDERED.[14]

Instead of filing an answer the defendant banks went to the Court of Appeals on a Petition
for Review on Certiorari[15] which was aptly treated by the appellate court as a petition for
certiorari. They assailed the above-quoted order as well as the subsequent denial of their Motion
for Reconsideration.[16] The appellate court dismissed the petition and denied petitioners Motion
for Reconsideration.[17]
Hence, herein petition anchored on the following grounds:

1. RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT THE SEPARATE
PERSONALITIES OF THE PRIVATE RESPONDENTS (MERE STOCKHOLDERS) AND THE FOREIGN
CORPORATIONS (THE REAL BORROWERS) CLEARLY SUPPORT, BEYOND ANY DOUBT, THE
PROPOSITION THAT THE PRIVATE RESPONDENTS HAVE NO PERSONALITIES TO SUE.

2. THE RESPONDENT COURT OF APPEALS FAILED TO REALIZE THAT WHILE THE PRINCIPLE
OF FORUM NON CONVENIENS IS NOT MANDATORY, THERE ARE, HOWEVER, SOME GUIDELINES
TO FOLLOW IN DETERMINING WHETHER THE CHOICE OF FORUM SHOULD BE
DISTURBED. UNDER THE CIRCUMSTANCES SURROUNDING THE INSTANT CASE, DISMISSAL OF
THE COMPLAINT ON THE GROUND OF FORUM NON-CONVENIENS IS MORE APPROPRIATE AND
PROPER.

3. THE PRINCIPLE OF RES JUDICATA IS NOT LIMITED TO FINAL JUDGMENT IN THE

PHILIPPINES. IN FACT, THE PENDENCY OF FOREIGN ACTION MAY BE THE LEGAL BASIS FOR THE
DISMISSAL OF THE COMPLAINT FILED BY THE PRIVATE RESPONDENT. COROLLARY TO THIS, THE
RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT PRIVATE
RESPONDENTS ARE GUILTY OF FORUM SHOPPING. [18]

As to the first assigned error: Petitioners argue that the borrowers and the registered owners
of the vessels are the foreign corporations and not private respondents Litonjuas who are mere
stockholders; and that the revenues derived from the operations of all the vessels are deposited
in the accounts of the corporations. Hence, petitioners maintain that these foreign corporations
are the legal entities that have the personalities to sue and not herein private respondents; that
private respondents, being mere shareholders, have no claim on the vessels as owners since they
merely have an inchoate right to whatever may remain upon the dissolution of the said foreign
corporations and after all creditors have been fully paid and satisfied;[19] and that while private
respondents may have allegedly spent amounts equal to 10% of the acquisition costs of the
vessels in question, their 10% however represents their investments as stockholders in the
foreign corporations.[20]
Anent the second assigned error, petitioners posit that while the application of the principle
of forum non conveniens is discretionary on the part of the Court, said discretion is limited by the
guidelines pertaining to the private as well as public interest factors in determining whether
plaintiffs choice of forum should be disturbed, as elucidated in Gulf Oil Corp. vs.
Gilbert[21] and Piper Aircraft Co. vs. Reyno,[22] to wit:

Private interest factors include: (a) the relative ease of access to sources of proof; (b) the
availability of compulsory process for the attendance of unwilling witnesses; (c) the cost of
obtaining attendance of willing witnesses; or (d) all other practical problems that make trial of a
case easy, expeditious and inexpensive. Public interest factors include: (a) the administrative
difficulties flowing from court congestion; (b) the local interest in having localized controversies
decided at home; (c) the avoidance of unnecessary problems in conflict of laws or in the
application of foreign law; or (d) the unfairness of burdening citizens in an unrelated forum with
jury duty.[23]
 In support of their claim that the local court is not the proper forum, petitioners allege the
following:

i) The Bank of America Branches involved, as clearly mentioned in the Complaint, are based in
Hongkong and England. As such, the evidence and the witnesses are not readily available in the
Philippines;

ii) The loan transactions were obtained, perfected, performed, consummated and partially paid
outside the Philippines;

iii) The monies were advanced outside the Philippines. Furthermore, the mortgaged vessels
were part of an offshore fleet, not based in the Philippines;

iv) All the loans involved were granted to the Private Respondents foreign CORPORATIONS;

v) The Restructuring Agreements were ALL governed by the laws of England;

vi) The subsequent sales of the mortgaged vessels and the application of the sales
proceeds occurred and transpired outside the Philippines, and the deliveries of the sold
mortgaged vessels were likewise made outside the Philippines;

vii) The revenues of the vessels and the proceeds of the sales of these vessels
were ALL deposited to the Accounts of the foreign CORPORATIONS abroad; and

viii) Bank of America International Ltd. is not licensed nor engaged in trade or business in the
Philippines.[24]

Petitioners argue further that the loan agreements, security documentation and all
subsequent restructuring agreements uniformly, unconditionally and expressly provided that
they will be governed by the laws of England;[25] that Philippine Courts would then have to apply
English law in resolving whatever issues may be presented to it in the event it recognizes and
accepts herein case; that it would then be imposing a significant and unnecessary expense and
burden not only upon the parties to the transaction but also to the local court. Petitioners insist
that the inconvenience and difficulty of applying English law with respect to a wholly foreign
transaction in a case pending in the Philippines may be avoided by its dismissal on the ground
of forum non conveniens. [26]
Finally, petitioners claim that private respondents have already waived their alleged causes
of action in the case at bar for their refusal to contest the foreign civil cases earlier filed by the
petitioners against them in Hongkong and England, to wit:
1.) Civil action in England in its High Court of Justice, Queens Bench Division Commercial Court
(1992-Folio No. 2098) against (a) LIBERIAN TRANSPORT NAVIGATION. SA.; (b) ESHLEY
COMPANIA NAVIERA SA., (c) EL CHALLENGER SA; (d) ESPRIONA SHIPPING CO. SA; (e) PACIFIC
NAVIGATOS CORP. SA; (f) EDDIE NAVIGATION CORP. SA; (g) EDUARDO K. LITONJUA & (h)
AURELIO K. LITONJUA.

2.) Civil action in England in its High Court of Justice, Queens Bench Division, Commercial Court
(1992-Folio No. 2245) against (a) EL CHALLENGER S.A., (b) ESPRIONA SHIPPING COMPANY S.A.,
(c) EDUARDO KATIPUNAN LITONJUA and (d) AURELIO KATIPUNAN LITONJUA.

3.) Civil action in the Supreme Court of Hongkong High Court (Action No. 4039 of 1992), against
(a) ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA SHIPPING
COMPANY S.A., (d) PACIFIC NAVIGATORS CORPORATION (e) EDDIE NAVIGATION CORPORATION
S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN LITONJUA, JR.,
and (h) EDUARDO KATIPUNAN LITONJUA.

4.) A civil action in the Supreme Court of Hong Kong High Court (Action No. 4040 of 1992),
against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA SHIPPING
COMPANY S.A., (d) PACIFIC NAVIGATORS CORPORATION (e) EDDIE NAVIGATION CORPORATION
S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN LITONJUA, RJ.,
and (h) EDUARDO KATIPUNAN LITONJUA.

and that private respondents alleged cause of action is already barred by the pendency of
another action or by litis pendentia as shown above.[27]
On the other hand, private respondents contend that certain material facts and pleadings
are omitted and/or misrepresented in the present petition for certiorari; that the prefatory
statement failed to state that part of the security of the foreign loans were mortgages on a 39-
hectare piece of real estate located in the Philippines;[28] that while the complaint was filed only
by the stockholders of the corporate borrowers, the latter are wholly-owned by the private
respondents who are Filipinos and therefore under Philippine laws, aside from the said corporate
borrowers being but their alter-egos, they have interests of their own in the vessels.[29] Private
respondents also argue that the dismissal by the Court of Appeals of the petition for certiorari
was justified because there was neither allegation nor any showing whatsoever by the petitioners
that they had no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of
law from the Order of the trial judge denying their Motion to Dismiss; that the remedy available
to the petitioners after their Motion to Dismiss was denied was to file an Answer to the
complaint;[30] that as upheld by the Court of Appeals, the decision of the trial court in not applying
the principle of forum non conveniens is in the lawful exercise of its discretion.[31] Finally, private
respondents aver that the statement of petitioners that the doctrine of res judicataalso applies
to foreign judgment is merely an opinion advanced by them and not based on a categorical ruling
of this Court;[32] and that herein private respondents did not actually participate in the
proceedings in the foreign courts.[33]
We deny the petition for lack of merit.
It is a well-settled rule that the order denying the motion to dismiss cannot be the subject of
petition for certiorari. Petitioners should have filed an answer to the complaint, proceed to trial
and await judgment before making an appeal. As repeatedly held by this Court:

An order denying a motion to dismiss is interlocutory and cannot be the subject of the
extraordinary petition for certiorari or mandamus. The remedy of the aggrieved party is to file
an answer and to interpose as defenses the objections raised in his motion to dismiss, proceed
to trial, and in case of an adverse decision, to elevate the entire case by appeal in due course.
xxx Under certain situations, recourse to certiorari or mandamus is considered appropriate, i.e.,
(a) when the trial court issued the order without or in excess of jurisdiction; (b) where there is
patent grave abuse of discretion by the trial court; or (c) appeal would not prove to be a speedy
and adequate remedy as when an appeal would not promptly relieve a defendant from the
injurious effects of the patently mistaken order maintaining the plaintiffs baseless action and
compelling the defendant needlessly to go through a protracted trial and clogging the court
dockets by another futile case.[34]

Records show that the trial court acted within its jurisdiction when it issued the assailed
Order denying petitioners motion to dismiss. Does the denial of the motion to dismiss constitute
a patent grave abuse of discretion? Would appeal, under the circumstances, not prove to be a
speedy and adequate remedy? We will resolve said questions in conjunction with the issues
raised by the parties.
First issue. Did the trial court commit grave abuse of discretion in refusing to dismiss the
complaint on the ground that plaintiffs have no cause of action against defendants since plaintiffs
are merely stockholders of the corporations which are the registered owners of the vessels and
the borrowers of petitioners?
No. Petitioners argument that private respondents, being mere stockholders of the foreign
corporations, have no personalities to sue, and therefore, the complaint should be dismissed, is
untenable.A case is dismissible for lack of personality to sue upon proof that the plaintiff is not
the real party-in-interest. Lack of personality to sue can be used as a ground for a Motion to
Dismiss based on the fact that the complaint, on the face thereof, evidently states no cause of
action.[35] In San Lorenzo Village Association, Inc. vs. Court of Appeals,[36] this Court clarified that
a complaint states a cause of action where it contains three essential elements of a cause of
action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant,
and (3) the act or omission of the defendant in violation of said legal right. If these elements are
absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to
state a cause of action.[37] To emphasize, it is not the lack or absence of cause of action that is a
ground for dismissal of the complaint but rather the fact that the complaint states no cause of
action.[38] Failure to state a cause of action refers to the insufficiency of allegation in the pleading,
unlike lack of cause of action which refers to the insufficiency of factual basis for the
action. Failure to state a cause of action may be raised at the earliest stages of an action through
a motion to dismiss the complaint, while lack of cause of action may be raised any time after the
questions of fact have been resolved on the basis of stipulations, admissions or evidence
presented.[39]
In the case at bar, the complaint contains the three elements of a cause of action. It alleges
that: (1) plaintiffs, herein private respondents, have the right to demand for an accounting from
defendants (herein petitioners), as trustees by reason of the fiduciary relationship that was
created between the parties involving the vessels in question; (2) petitioners have the obligation,
as trustees, to render such an accounting; and (3) petitioners failed to do the same.
Petitioners insist that they do not have any obligation to the private respondents as they are
mere stockholders of the corporation; that the corporate entities have juridical personalities
separate and distinct from those of the private respondents. Private respondents maintain that
the corporations are wholly owned by them and prior to the incorporation of such entities, they
were clients of petitioners which induced them to acquire loans from said petitioners to invest
on the additional ships.
We agree with private respondents. As held in the San Lorenzo case,[40]

xxx assuming that the allegation of facts constituting plaintiffs cause of action is not as clear and
categorical as would otherwise be desired, any uncertainty thereby arising should be so
resolved as to enable a full inquiry into the merits of the action.

As this Court has explained in the San Lorenzo case, such a course, would preclude multiplicity of
suits which the law abhors, and conduce to the definitive determination and termination of the
dispute.To do otherwise, that is, to abort the action on account of the alleged fatal flaws of the
complaint would obviously be indecisive and would not end the controversy, since the institution
of another action upon a revised complaint would not be foreclosed.[41]
Second Issue. Should the complaint be dismissed on the ground of forum non-conveniens?
No. The doctrine of forum non-conveniens, literally meaning the forum is inconvenient,
emerged in private international law to deter the practice of global forum shopping,[42] that is to
prevent non-resident litigants from choosing the forum or place wherein to bring their suit for
malicious reasons, such as to secure procedural advantages, to annoy and harass the defendant,
to avoid overcrowded dockets, or to select a more friendly venue. Under this doctrine, a court,
in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most
convenient or available forum and the parties are not precluded from seeking remedies
elsewhere.[43]
 Whether a suit should be entertained or dismissed on the basis of said doctrine depends
largely upon the facts of the particular case and is addressed to the sound discretion of the trial
court.[44] In the case of Communication Materials and Design, Inc. vs. Court of Appeals,[45] this
Court held that xxx [a] Philippine Court may assume jurisdiction over the case if it chooses to do
so; provided, that the following requisites are met: (1) that the Philippine Court is one to which
the parties may conveniently resort to; (2) that the Philippine Court is in a position to make an
intelligent decision as to the law and the facts; and, (3) that the Philippine Court has or is likely
to have power to enforce its decision.[46] Evidently, all these requisites are present in the instant
case.
Moreover, this Court enunciated in Philsec. Investment Corporation vs. Court of
Appeals,[47] that the doctrine of forum non conveniens should not be used as a ground for a
motion to dismiss because Sec. 1, Rule 16 of the Rules of Court does not include said doctrine as
a ground. This Court further ruled that while it is within the discretion of the trial court to abstain
from assuming jurisdiction on this ground, it should do so only after vital facts are established, to
determine whether special circumstances require the courts desistance; and that the propriety
of dismissing a case based on this principle of forum non conveniens requires a factual
determination, hence it is more properly considered a matter of defense.[48]
Third issue. Are private respondents guilty of forum shopping because of the pendency of
foreign action?
No. Forum shopping exists where the elements of litis pendentia are present and where a
final judgment in one case will amount to res judicata in the other.[49] Parenthetically, for litis
pendentia to be a ground for the dismissal of an action there must be: (a) identity of the parties
or at least such as to represent the same interest in both actions; (b) identity of rights asserted
and relief prayed for, the relief being founded on the same acts; and (c) the identity in the two
cases should be such that the judgment which may be rendered in one would, regardless of which
party is successful, amount to res judicata in the other.[50]
In case at bar, not all the requirements for litis pendentia are present. While there may be
identity of parties, notwithstanding the presence of other respondents,[51] as well as the reversal
in positions of plaintiffs and defendants[52], still the other requirements necessary for litis
pendentia were not shown by petitioner. It merely mentioned that civil cases were filed in
Hongkong and England without however showing the identity of rights asserted and the reliefs
sought for as well as the presence of the elements of res judicata should one of the cases be
adjudged.
As the Court of Appeals aptly observed:

xxx [T]he petitioners, by simply enumerating the civil actions instituted abroad involving the
parties herein xxx, failed to provide this Court with relevant and clear specifications that would
show the presence of the above-quoted elements or requisites for res judicata. While it is true
that the petitioners in their motion for reconsideration (CA Rollo, p. 72), after enumerating the
various civil actions instituted abroad, did aver that Copies of the foreign judgments are hereto
attached and made integral parts hereof as Annexes B, C, D and E, they failed, wittingly or
inadvertently, to include a single foreign judgment in their pleadings submitted to this Court as
annexes to their petition. How then could We have been expected to rule on this issue even if
We were to hold that foreign judgments could be the basis for the application of the
aforementioned principle of res judicata?[53]

Consequently, both courts correctly denied the dismissal of herein subject complaint.
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioners.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing and Callejo, Sr., JJ., concur.

BANK OF AMERICA VS. CA

FACTS:
Private Respondents were engaged in the shipping business and owned two vessels through their
wholly-owned corporations. In order to increase the number of their vessels they obtained a loan
from the petitioner. The petitioner banks acquired, through private respondents’ corporations as
the borrowers four additional vessels. The vessels were registered in the names of their
corporations while the operation and the funds derived therefrom were placed under the
complete and exclusive control and disposition of the petitioners and the possession the vessels
was also placed by defendant banks in the hands of persons selected and designated by the
petitioner. The private respondents claimed that petitioner as trustees did not fully render an
account of all the income derived from the operation of the vessels and because of the breach of
the petitioner’s fiduciary duties and negligence they lost revenues and the said vessels prompting
the private respondents to file a complaint against petitioner. The petitioner filed a motion to
dismiss the complaint for lack of cause of action against them.

ISSUE:

Whether or not the complaint should be dismissed on the ground that plaintiffs have no cause
of action against defendants since plaintiffs are merely stockholders of the corporations which
are the registered owners of the vessels and the borrowers of petitioners?
RULING:
No. Petitioners' argument that private respondents, being mere stockholders of the foreign
corporations, have no personalities to sue, and therefore, the complaint should be dismissed, is
untenable. A case is dismissible for lack of personality to sue upon proof that the plaintiff is not
the real party-in-interest. Lack of personality to sue can be used as a ground for a Motion to
Dismiss based on the fact that the complaint, on the face thereof, evidently states no cause of
action. While the complaint was filed only by the stockholders of the corporate borrowers, the
latter are wholly-owned by the private respondents, aside from the said corporate borrowers
being but their alter-egos, they have interests of their own in the vessels. The private respondents
have the right to demand for an accounting from defendants (herein petitioners), as trustees by
reason of the fiduciary relationship that was created between the parties involving the vessels in
question.

G.R. No. 117932 July 20, 1995

AVON DALE GARMENTS, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, LILIA DUMANTAY, ET AL., respondents.

RESOLUTION

FRANCISCO, J.:

This special civil action for certiorari seeks to set aside the decision of the National Labor
Relations Commission, dated August 31, 1994, in NLRC CA 005068-93, for allegedly having been
rendered with grave abuse of discretion.

Private respondents were employees of petitioner Avon Dale Garments, Inc. and its
predecessor-in-interest, Avon Dale Shirt Factory. Following a dispute brought about by the
rotation of workers, a compromise agreement was entered into between petitioner and private
respondents wherein the latter were terminated from service and given their corresponding
separation pay.

However, upon refusal of the petitioner to include in the computation of private respondents'
separation pay the period during which the latter were employed by Avon Dale Shirt Factory,
private respondents filed a complaint with the labor arbiter claiming a deficiency in their
separation pay (docketed as NLRC-NCR-00-02-00810-93). According to private respondents,
their previous employment with petitioner's predecessor-in-interest, Avon Dale Shirt Factory,
should be credited in computing their separation pay considering that Avon Dale Shirt factory
was not dissolved and they were not in turn hired as new employees by Avon Dale Garments,
Inc.

In its decision dated May 14, 1993, the labor arbiter dismissed private respondents' complaint
and held that Avon Dale Shirt Factory and Avon Dale Garments, Inc. are not one and the same
entity as the former was in fact dissolved on December 27, 1978, when it filed its Articles of
Dissolution with the Securities and Exchange Commission.1

Private respondents appealed to the NLRC and the latter reversed the decision of the labor
arbiter after finding that upon dissolution of Avon Dale Shirt Factory, Inc., there was no showing
that its terminated employees, as creditors insofar as their separation pay were concerned,
were ever paid. Thus, petitioner Avon Dale Garments, Inc., as successor-in-interest, was held
liable for private respondents' unpaid claim.2

The instant petition is now brought before us by petitioner Avon Dale Garments, Inc., anchored
on the sole ground that, as a separate and distinct entity, it should not be held liable for private
respondents' separation pay from Avon Dale Shirt Factory.

Pending resolution of the instant petition, counsel for private respondents, instead of filing a
comment to the petition, filed a Manifestation indicating that the parties have already reached
an amicable settlement on December 27, 1994, wherein private respondents were paid their
corresponding separation pay, after which, they executed a waiver and quitclaim.3 It appeared
however, upon verification by the Office of the Solicitor General, that the aforementioned
compromise agreement was executed between the parties without the knowledge and
participation of the NLRC.4

The established rule is that compromise agreements involving labor standard cases, like the one
entered into by the parties herein, must be reduced in writing and signed in the presence of the
Regional Director or his duly authorized representative. Otherwise, they are not deemed to be
duly executed.5 For this reason, the compromise agreement submitted by private respondents'
counsel cannot be recognized by this court for being improperly executed.

Nevertheless, we find the petition to be without merit as the assailed decision is in complete
accord with the law and evidence on record.

Petitioner failed to establish that Avon Dale Garments, Inc., is a separate and distinct entity
from Avon Dale Shirt Factory, absent any showing that there was indeed an actual closure and
cessation of the operations of the latter. The mere filing of the Articles of Dissolution with the
Securities and Exchange Commission, without more, is not enough to support the conclusion
that actual dissolution of an entity in fact took place.

On the contrary, the prevailing circumstances in this case indicated that petitioner company is
not distinct from its predecessor Avon Dale Shirt Factory, but in fact merely continued the
operations of the latter under the same owners, the same business venture, at same address6,
and even continued to hire the same employees (herein private respondents).

Thus, conformably with established jurisprudence, the two entities cannot be deemed as
separate and distinct where there is a showing that one is merely the continuation of the
other.7 In fact, even a change in the corporate name does not make a new corporation,
whether effected by a special act or under a general law, it has no effect on the identity of the
corporation, or on its property, rights, or liabilities.8 Respondent NLRC therefore, did not
commit any grave abuse of discretion in holding that petitioner should likewise include private
respondents' employment with Avon Dale Shirt Factory in computing private respondents'
separation pay as petitioner failed to substantiate its claim that it is a distinct entity.

ACCORDINGLY, the instant petition is hereby DISMISSED.

SO ORDERED.

Feliciano, Romero, Melo and Vitug, JJ., concur.

AVON DALE GARMENTS VS. NLRC

FACTS:
Private respondents were employees of petitioner Avon Dale Garments, Inc. and its predecessor-
in-interest, Avon Dale Shirt Factory. Following a dispute brought about by the rotation of
workers, a compromise agreement was entered into between petitioner and private respondents
wherein the latter were terminated from service and given their corresponding separation pay.
However, upon refusal of the petitioner to include in the computation of private respondents'
separation pay the period during which the latter were employed by Avon Dale Shirt Factory,
private respondents filed a complaint with the labor arbiter claiming a deficiency in their
separation pay. According to private respondents, their previous employment with petitioner's
predecessor-in-interest, Avon Dale Shirt Factory, should be credited in computing their
separation pay considering that Avon Dale Shirt factory was not dissolved and they were not in
turn hired as new employees by Avon Dale Garments, Inc.
ISSUE:
Whether or not the petitioner is a separate and distinct entity and therefore not liable for private
respondents' separation pay from Avon Dale Shirt Factory?

RULING:
No. The two entities cannot be deemed as separate and distinct where there is a showing that
one is merely the continuation of the other. In fact, even a change in the corporate name does
not make a new corporation, whether effected by a special act or under a general law, it has no
effect on the identity of the corporation, or on its property, rights, or liabilities. The mere filing
of the Articles of Dissolution with the Securities and Exchange Commission, without more, is not
enough to support the conclusion that actual dissolution of an entity in fact took place. On the
contrary, the prevailing circumstances in this case indicated that petitioner is not distinct from
its predecessor Avon Dale Shirt Factory, but in fact merely continued the operations of the latter
under the same owners, the same business venture, at same address, and even continued to hire
the same employees (herein private respondents).

[G.R. No. 108734. May 29, 1996]

CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION,
(First Division); and Norberto Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego,
Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogello Salut, Emilio Garcia,
Jr., Mariano Rio, Paulina Basea, Aifredo Albera, Paquito Salut, Domingo Guarino,
Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares,
Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.

DECISION
HERMOSISIMA, JR., J.:

The corporate mask may be lifted and the corporate veil may be pierced when a corporation
is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where
public convenience is defeated; where a wrong is sought to be justified thereby, the corporate
fiction or the notion of legal entity should come to naught. The law in these instances will regard
the corporation as a mere association of persons and, in case of two corporations, merge them
into one.
 Thus, where a sister corporation is used as a shield to evade a corporations subsidiary liability
for damages, the corporation may not be heard to say that it has a personality separate and
distinct from the other corporation. The piercing of the corporate veil comes into play.
This special civil action ostensibly raises the question of whether the National Labor Relations
Commission committed grave abuse of discretion when it issued a break-open order to the sheriff
to be enforced against personal property found in the premises of petitioners sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan
Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents
were employed by said company as laborers, carpenters and riggers.
On November, 1981, private respondents were served individual written notices of
termination of employment by petitioner, effective on November 30, 1981. It was stated in the
individual notices that their contracts of employment had expired and the project in which they
were hired had been completed.
Public respondent found it to be, the fact, however, that at the time of the termination of
private respondents employment, the project in which they were hired had not yet been finished
and completed. Petitioner had to engage the services of sub-contractors whose workers
performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice
and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against
petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment1 ordering petitioner to
reinstate private respondents and to pay them back wages equivalent to one year or three
hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the
motion for reconsideration filed by petitioner on the ground that the said decision had already
become final and executory.2
On October 16, 1986, the NLRC Research and Information Department made the finding that
private respondents backwages amounted to P199,800.00.3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to
execute the Decision, dated December 19, 1984. The writ was partially satisfied through
garnishment of sums from petitioners debtor, the Metropolitan Waterworks and Sewerage
Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the
sheriff to collect from herein petitioner the sum of P117,414.76, representing the balance of the
judgment award, and to reinstate private respondents to their former positions.
 On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of
execution on petitioner through the security guard on duty but the service was refused on the
ground that petitioner no longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a
second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as stated in his progress
report, dated November 2, 1989:

1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro
Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by
respondent;

2. Levy was made upon personal properties he found in the premises;

3. Security guards with high-powered guns prevented him from removing the properties he had
levied upon.4

The said special sheriff recommended that a break-open order be issued to enable him to
enter petitioners premises so that he could proceed with the public auction sale of the aforesaid
personal properties on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor
Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by Hydro
(Phils.), Inc. (HPPI) of which he is the Vice-President.
On November 23, 1989, private respondents filed a Motion for Issuance of a Break-Open
Order, alleging that HPPI and petitioner corporation were owned by the same incorporator!
stockholders. They also alleged that petitioner temporarily suspended its business operations in
order to evade its legal obligations to them and that private respondents were willing to post an
indemnity bond to answer for any damages which 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 Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities
and Exchange Commission (SEC) and the General Information Sheet, dated May 15, 1987,
submitted by HPPI to the Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner1 revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

HPPI P6,999,500.00

Antonio W. Lim 2,900,000.00

Dennis S. Cuyegkeng 300.00

Elisa C. Lim 100,000.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member

Elisa C. Lim Member

Teodulo R. Dino Member

Virgilio O. Casino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa 0. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road

Valenzuela, Metro Manila.5

On the other hand, the General Information Sheet of HPPI revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

Antonio W. Lim P400,000.00

Elisa C. Lim 57,700.00

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

Antonio W. Lim Chairman

Elisa C. Lim Member

Dennis S. Cuyegkeng Member

Virgilio O. Casino Member

Teodulo R. Dino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa O. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road, Valenzuela, Metro Manila.6

On February 1, 1990, HPPI filed an Opposition to private respondents motion for issuance of
a break-open order, contending that HPPI is a corporation which is separate and distinct from
petitioner. HPPI also alleged that the two corporations are engaged in two different kinds of
businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents
motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the
order of the Labor Arbiter, issued a break-open order and directed private respondents to file a
bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties already
levied upon. It dismissed the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution,
dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the
execution of its decision despite a third-party claim on the levied property. Petitioner further
contends, that the doctrine of piercing the corporate veil should not have been applied, in this
case, in the absence of any showing that it created HPPI in order to evade its liability to private
respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete
and iron pipes, a business which is distinct and separate from petitioners construction
business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, the
same President and the same set of officers and subscribers.7
We find petitioners contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporations to which it may be connected. 8 But,
this separate and distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice.9 So, when the notion of separate juridical personality is used
to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device
to defeat the labor laws,10 this separate personality of the corporation may be disregarded or the
veil of corporate fiction pierced.11 This is true likewise when the corporation is merely an adjunct,
a business conduit or an alter ego of another corporation.12
The conditions under which the juridical entity may be disregarded vary according to the
peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down,
but certainly, there are some probative factors of identity that will justify the application of the
doctrine of piercing the corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business.13

The SEC en banc explained the instrumentality rule which the courts have applied in
disregarding the separate juridical personality of corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so that it is,
in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
instrumentality may be disregarded. The control necessary to invoke the rule is not majority or
even complete stock control but such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but
a conduit for its principal. It must be kept in mind that the control must be shown to have been
exercised at the time the acts complained of took place. Moreover, the control and breach of
duty must proximately cause the injury or unjust loss for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate
fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiffs legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.

The absence of any one of these elements prevents piercing the corporate veil. in applying the
instrumentality or alter ego doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendants relationship to that operation. 14

Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper
corporation, a sham or a subterfuge is purely one of fact.15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business
operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange
Commission on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela,
Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a
similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro
Manila.
Furthermore, the NLRC stated that:

Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of
both corporations. It would also not be amiss to note that both corporations had
the same president, the same board of directors, the same corporate officers, and substantially
the same subscribers.

From the foregoing, it appears that, among other things, the respondent (herein petitioner) and
the third-party claimant shared the same address and/or premises. Under this circumstances,
(sic) it cannot be said that the property levied upon by the sheriff were not of respondents.16

Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of backwages and to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial Relations17 where we
had the occasion to rule:

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

It is very obvious that the second corporation seeks the protective shield of a corporate
fiction whose veil in the present case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property
subject of the execution, private respondents had no other recourse but to apply for a break-
open order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This
is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which
provides that:
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his
representative entry to the place where the property subject of execution is located or kept, the
judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open
order.

Furthermore, our perusal of the records shows that the twin requirements of due notice and
hearing were complied with. Petitioner and the third-party claimant were given the opportunity
to submit evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-
open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial
agencies supported by substantial evidence are binding on this Court and are entitled to great
respect, in the absence of showing of grave abuse of a discretion.18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April
23, 1992 and December 3, 1992, are AFFIRMED.
SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.

CONCEPT BUILDERS VS. NLRC

FACTS:
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. The Labor
Arbiter rendered judgment ordering petitioner to reinstate private respondents and to pay them
back wages. The Labor Arbiter issued a writ of execution directing the sheriff to execute the
Decision. The writ was partially satisfied through garnishment of sums from petitioner's debtor.
An Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from
herein petitioner the balance of the judgment award, and to reinstate private respondents to
their former positions. A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter
alleging that the properties sought to be levied upon by the sheriff were owned by Hydro Phils.,
Inc. (HPPI) of which he is the Vice-President. 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.
ISSUE:
Whether or not the doctrine of piercing the corporate fiction should be applied?

RULING:
Yes, because the elements to pierce the veil of corporate fiction is present in the case at bar. The
test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows: 1. Control; 2. Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and
unjust act in contravention of plaintiff's legal rights; and 3. The aforesaid control and breach of
duty must proximately cause the injury or unjust loss complained of. In the case at bar, the two
corporations has the same address and occupy the same premises. Furthermore both
corporations had the same president, the same board of directors, the same corporate officers,
and substantially the same subscribers. 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 and its emergence was
skillfully orchestrated to avoid the financial liability that already attached to petitioner.

[G.R. No. 115849. January 24, 1996]

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA, petitioners, vs. COURT OF APPEALS, CARLOS EJERCITO, in
substitution of DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.

DECISION
PANGANIBAN, J.:

In the absence of a formal deed of sale, may commitments given by bank officers in an
exchange of letters and/or in a meeting with the buyers constitute a perfected and enforceable
contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of apparent
authority apply in this case? If so, may the Central Bank-appointed conservator of Producers Bank
(now First Philippine International Bank) repudiate such apparent authority after said contract
has been deemed perfected? During the pendency of a suit for specific performance, does the
filing of a derivative suit by the majority shareholders and directors of the distressed bank to
prevent the enforcement or implementation of the sale violate the ban against forum-shopping?
Simply stated, these are the major questions brought before this Court in the instant Petition
for review on certiorari under Rule 45 of the Rules of Court, to set aside the Decision
promulgated January 14, 1994 of the respondent Court of Appeals[1] in CA-G.R. CV No. 35756 and
the Resolution promulgated June 14, 1994 denying the motion for reconsideration. The
dispositive portion of the said Decision reads:

WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages
awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award
in paragraph 5 thereof to P75,000.00, to be assessed against defendant bank. In all other
aspects, said decision is hereby AFFIRMED.

All references to the original plaintiffs in the decision and its dispositive portion are deemed,
herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.

Costs against appellant bank.

The dispositive portion of the trial courts[2] decision dated July 10, 1991, on the other hand,
is as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
against the defendants as follows:

1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land
situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by
and embraced in Transfer Certificates of Title Nos. T-106932 to T-106937, inclusive, of the Land
Records of Laguna, between the plaintiffs as buyers and the defendant Producers Bank for an
agreed price of Five and One Half Million (P5,500,000.00) Pesos;

2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and
receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a
deed of absolute sale over the aforementioned six (6) parcels of land, and to immediately
deliver to the plaintiffs the owners copies of T.C.T. Nos. T-106932 to T-106937, inclusive, for
purposes of registration of the same deed and transfer of the six (6) titles in the names of the
plaintiffs;

3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio
Demetria the sums of P 200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P 100,000.00 as
exemplary damages;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorneys fees;

6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate
damages in the amount of P20,000.00;

With costs against the defendants.

After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-
rejoinder, the petition was given due course in a Resolution dated January 18, 1995. Thence, the
parties filed their respective memoranda and reply memoranda. The First Division transferred
this case to the Third Division per resolution dated October 23, 1995. After carefully deliberating
on the aforesaid submissions, the Court assigned the case to the undersigned ponente for the
writing of this Decision.

The Parties

Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines;
petitioner Bank, for brevity) is a banking institution organized and existing under the laws of the
Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal
age and was, at all times material to this case, Head Manager of the Property Management
Department of the petitioner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the
assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and Resolution sought
to be set aside through this petition.

The Facts

The facts of this case are summarized in the respondent Courts Decision,[3] as follows:

(1) In the course of its banking operations, the defendant Producer Bank of the Philippines
acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rosa,
Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The property
used to be owned by BYME Investment and Development Corporation which had them
mortgaged with the bank as collateral fora loan. The original plaintiffs, Demetrio Demetria and
Jose O. Janolo, wanted to purchase the property and thus initiated negotiations for that
purpose.

(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME Investments
legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property
Management Department of the defendant bank. The meeting was held pursuant to plaintiffs
plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo,
following the advice of defendant Rivera, made a formal purchase offer to the bank through a
letter dated August 30, 1987 (Exh. B), as follows:

August 30, 1987

The Producers Bank of the Philippines

Makati, Metro Manila
Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept.

Gentlemen:

I have the honor to submit my formal offer to purchase your properties covered by titles listed
hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less.

TCT NO. AREA

T-106932 113,580 sq.m.

T-106933 70,899 sq.m.
T-106934 52,246 sq.m.
T-106935 96,768 sq.m.
T-106936 187,114 sq.m.
T-106937 481,481 sq.m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in
cash.

Kindly contact me at Telephone Number 921-1344.

(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter
which is hereunder quoted (Exh. C):

September 1, 1987

J-P M-P GUTIERREZ ENTERPRISES

142 Charisma St., Doa Andres II
Rosario, Pasig, Metro Manila

Attention: JOSE O. JANOLO Dear Sir:

Dear Sir:

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna
(formerly owned by Byme industrial Corp.). Please be informed however that the banks counter-
offer is at P5.5 million for more than 101 hectares on lot basis.

We shall be very glad to hear your position on the matter.

Best regards.

(4)On September 17, 1987, plaintiff Janolo, responding to Riveras aforequoted reply, wrote
(Exh.

September 17, 1987

Producers Bank
Paseo de Roxas
Makati, Metro Manila

Attention: Mr. Mercurio Rivera

Gentlemen:

In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta.
Rosa Laguna, I would like to amend my previous offer and I now propose to buy the said lot at
P4.250 million in CASH.

Hoping that this proposal meets your satisfaction.

(5) There was no reply to Janolos foregoing letter of September 17, 1987. What took place was
a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President
of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the meeting. Two days
later, or on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, the following
letter (Exh. E):

The Producers Bank of the Philippines

Paseo de Roxas, Makati
Metro Manila

Attention: Mr. Mercurio Rivera

Re: 101 Hectares of Land in Sta. Rosa, Laguna

Gentlemen:

Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are
accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by
Byme In-vestment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND
(P5,500,000.00).

Thank you.

(6) On October 12, 1987, the conservator of the bank (which has been placed under
conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator in the
person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant Rivera wrote
plaintiff Demetria the following letter (Exh. F):

Attention: Atty. Demetrio Demetria

Dear Sir:

Your proposal to buy the properties the bank foreclosed from Byme Investment Corp. located at
Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for
submission to the newly designated Acting Conservator of the bank.

For your information.

(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the
bank with what plaintiff considered as a perfected contract of sale, which demands were in one
form or another refused by the bank. As detailed by the trial court in its decision, on November
17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit G) tendered payment of the
amount of P5.5 million pursuant to (our) perfected sale agreement. Defendants refused to
receive both the payment and the letter. Instead, the parcels of land involved in the transaction
were advertised by the bank for sale to any interested buyer (Exhs. H and H-1). Plaintiffs
demanded the execution by the bank of the documents on what was considered as a perfected
agreement. Thus:

Mr. Mercurio Rivera

Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila

Dear Mr. Rivera:

This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-
hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to 106937.

From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this
same lot in the amount of P5.5 million was accepted by our client thru a letter dated September
30, 1987 and was received by you on October 5, 1987.

In view of the above circumstances, we believe that an agreement has been perfected. We were
also informed that despite repeated follow-up to consummate the purchase, you now refuse to
honor your commitment. Instead, you have advertised for sale the same lot to others.

In behalf of our client, therefore, we are making this formal demand upon you to consummate
and execute the necessary actions/documentation within three (3) days from your receipt
hereof We are ready to remit the agreed amount of P5.5 million at your advice. Otherwise, we
shall be constrained to file the necessary court action to protect the interest of our client.

We trust that you will be guided accordingly.

(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter
and stated, in its communication of December 2, 1987 (Exh. I), that said letter has been referred
x x x to the office of our Conservator for proper disposition. However, no response came from
the Acting Conservator. On December 14, 1987, the plaintiffs made a second tender of payment
(Exhs. L and L-1), this time through the Acting Conservator, defendant Encarnacion. Plaintiffs
letter reads:

PRODUCERS BANK OF
 THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila

Attn.: Atty. NIDA ENCARNACION Central Bank Conservator

Gentlemen:

We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No.
258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot
covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and 106937 and registered
under Producers Bank.

This is in connection with the perfected agreement consequent from your offer of P5.5 Million as
the purchase price of the said lots. Please inform us of the date of documentation of the sale
immediately.

Kindly acknowledge receipt of our payment.

(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988,
plaintiff, through counsel, made a final demand for compliance by the bank with its obligations
under the considered perfected contract of sale (Exhibit N). As recounted by the trial court
(Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex 4 of defendants answer to
amended complaint), the defendants through Acting Conservator Encarnacion repudiated the
authority of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his
counter-offer of P5.5 Million are unauthorized or illegal. On that basis, the defendants justified
the refusal of the tenders of payment and the non-compliance with the obligations under what
the plaintiffs considered to be a perfected contract of sale.

(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the
bank, its Manager Rivera and Acting Conservator Encarnacion. The basis of the suit was that the
transaction had with the bank resulted in a perfected contract of sale. The defendants took the
position that there was no such perfected sale because the defendant Rivera is not authorized
to sell the property, and that there was no meeting of the minds as to the price.

On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar
Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner
of 80% of the Banks outstanding shares of stock, he had a substantial interest in resisting the
complaint. On July 8, 1991, the trial court issued an order denying the motion to intervene on
the ground that it was filed after trial had already been concluded. It also denied a motion for
reconsideration filed thereafter. From the trial courts decision, the Bank, petitioner Rivera and
conservator Encarnacion appealed to the Court of Appeals which subsequently affirmed with
modification the said judgment. Henry Co did not appeal the denial of his motion for
intervention.

In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted
in place of Demetria and Janolo, in view of the assignment of the latters rights in the matter in
litigation to said private respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co
and several other stockholders of the Bank, through counsel Angara Abello Concepcion Regala
and Cruz, filed an action (hereafter, the Second Case) -purportedly a derivative suit - with the
Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against
Encarnacion, Demetria and Janolo to declare any perfected sale of the property as unenforceable
and to stop Ejercito from enforcing or implementing the sale.[4] In his answer, Janolo argued that
the Second Case was barred by litis pendentia by virtue of the case then pending in the Court of
Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a Motion for Leave of
Court to Dismiss the Case Without Prejudice. Private respondent opposed this motion on the
ground, among others, that plaintiffs act of forum shopping justifies the dismissal of both cases,
with prejudice.[5] Private respondent, in his memorandum, averred that this motion is still
pending in the Makati RTC.
In their Petition[6] and Memorandum,[7] petitioners summarized their position as follows:
I.

The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito
(in substitution of Demetria and Janolo) and the bank.

II.

The Court of Appeals erred in declaring the existence of an enforceable contract of sale
between the parties.

III.

The Court of Appeals erred in declaring that the conservator does not have the power to
overrule or revoke acts of previous management.

IV.

The findings and conclusions of the Court of Appeals do not conform to the evidence on record.
 On the other hand, private respondents prayed for dismissal of the instant suit on the
ground[8] that:
I.

Petitioners have engaged in forum shopping.

II.

The factual findings and conclusions of the Court of Appeals are supported by the evidence on
record and may no longer be questioned in this case.

III.

The Court of Appeals correctly held that there was a perfected contract between Demetria and
Janolo (substituted by respondent Ejercito) and the bank.

IV.

The Court of Appeals has correctly held that the conservator, apart from being estopped from
repudiating the agency and the contract, has no authority to revoke the contract of sale.

The Issues

From the foregoing positions of the parties, the issues in this case may be summed up as
follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of the bank
officers and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?

The First Issue: Was There Forum-Shopping?

In order to prevent the vexations of multiple petitions and actions, the Supreme Court
promulgated Revised Circular No. 28-91 requiring that a party must certify under oath x x x [that]
(a) he has not (t)heretofore commenced any other action or proceeding involving the same issues
in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of his
knowledge, no such action or proceeding is pending in said courts or agencies. A violation of the
said circular entails sanctions that include the summary dismissal of the multiple petitions or
complaints. To be sure, petitioners have included a VERIFICATION/CERTIFICATION in their
Petition stating for the record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial
Court of Makati, Branch 134, involving a derivative suit filed by stockholders of petitioner Bank
against the conservator and other defendants but which is the subject of a pending Motion to
Dismiss Without Prejudice.[9]
Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are
guilty of actual forum shopping because the instant petition pending before this Court involves
identical parties or interests represented, rights asserted and reliefs sought (as that) currently
pending before the Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the issues
in the two cases are so intertwined that a judgment or resolution in either case will constitute res
judicata in the other.[10]
On the other hand, petitioners explain[11] that there is no forum-shopping because:

1) In the earlier or First Case from which this proceeding arose, the Bank was impleaded as a
defendant, whereas in the Second Case (assuming the Bank is the real party in interest in a
derivative suit), it was the plaintiff;

2) The derivative suit is not properly a suit for and in behalf of the corporation under the
circumstances;

3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and

attached to the Petition identifies the action as a derivative suit, it does not mean that it is one
and (t)hat is a legal question for the courts to decide;

4) Petitioners did not hide the Second Case as they mentioned it in the said
VERIFICATION/CERTIFICATION.

We rule for private respondent.

To begin with, forum-shopping originated as a concept in private international law,[12] where
non-resident litigants are given the option to choose the forum or place wherein to bring their
suit for various reasons or excuses, including to secure procedural advantages, to annoy and
harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. To
combat these less than honorable excuses, the principle of forum non conveniens was developed
whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is
not the most convenient or available forum and the parties are not precluded from seeking
remedies elsewhere.
 In this light, Blacks Law Dictionary[13] says that forum-shopping occurs when a party attempts
to have his action tried in a particular court or jurisdiction where he feels he will receive the most
favorable judgment or verdict. Hence, according to Words and Phrases,[14] a litigant is open to
the charge of forum shopping whenever he chooses a forum with slight connection to factual
circumstances surrounding his suit, and litigants should be encouraged to attempt to settle their
differences without imposing undue expense and vexatious situations on the courts.
In the Philippines, forum-shopping has acquired a connotation encompassing not only a
choice of venues, as it was originally understood in conflicts of laws, but also to a choice of
remedies. As to the first (choice of venues), the Rules of Court, for example, allow a plaintiff to
commence personal actions where the defendant or any of the defendants resides or may be
found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff (Rule
4, Sec. 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of pursuing civil
liabilities independently of the criminal, arising from the same set of facts. A passenger of a public
utility vehicle involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or
culpa criminal - each remedy being available independently of the others - although he cannot
recover more than once.

In either of these situations (choice of venue or choice of remedy), the litigant actually shops
for a forum of his action. This was the original concept of the term forum shopping.

Eventually, however, instead of actually making a choice of the forum of their actions, litigants,
through the encouragement of their lawyers, file their actions in all available courts, or invoke
all relevant remedies simultaneously. This practice had not only resulted to (sic) conflicting
adjudications among different courts and consequent confusion enimical (sic) to an orderly
administration of justice. It had created extreme inconvenience to some of the parties to the
action.

Thus, forum-shopping had acquired a different concept - which is unethical professional legal
practice. And this necessitated or had given rise to the formulation of rules and canons
discouraging or altogether prohibiting the practice.[15]

What therefore originally started both in conflicts of laws and in our domestic law as a
legitimate device for solving problems has been abused and misused to assure scheming litigants
of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as
already mentioned, promulgated Circular 28-91. And even before that, the Court had proscribed
it in the Interim Rules and Guidelines issued on January 11, 1983 and had struck down in several
cases[16] the inveterate use of this insidious malpractice. Forum-shopping as the filing of
repetitious suits in different courts has been condemned by Justice Andres R. Narvasa (now Chief
Justice) in Minister of Natural Resources, et al. vs. Heirs of Orval Hughes, et al., as a reprehensible
manipulation of court processes and proceedings x x x.[17] When does forum-shopping take
place?

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party

seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies
not only with respect to suits filed in the courts but also in connection with litigations
commenced in the courts while an administrative proceeding is pending, as in this case, in
order to defeat administrative processes and in anticipation of an unfavorable administrative
ruling and a favorable court ruling. This is specially so, as in this case, where the court in which
the second suit was brought, has no jurisdiction [18]

The test for determining whether a party violated the rule against forum-shopping has been
laid down in the 1986 case of Buan vs. Lopez,[19] also by Chief Justice Narvasa, and that is, forum-
shopping exists where the elements of litis pendentia are present or where a final judgment in
one case will amount to res judicata in the other, as follows:

There thus exists between the action before this Court and RTC Case No. 86-36563 identity of
parties, or at least such parties as represent the same interests in both actions, as well as
identity of rights asserted and relief prayed for, the relief being founded on the same facts, and
the identity on the two preceding particulars is such that any judgment rendered in the other
action, will, regardless of which party is successful, amount to res adjudicata in the action under
consideration: all the requisites, in fine, of auter action pendant.

xxx xxx xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563, an identity
as regards parties, or interests represented, rights asserted and relief sought, as well as basis
thereof, to a degree sufficient to give rise to the ground for dismissal known as auter action
pendant or lis pendens. That same identity puts into operation the sanction of twin dismissals
just mentioned. The application of this sanction will prevent any further delay in the
settlement of the controversy which might ensue from attempts to seek reconsideration of or
to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563 promulgated
on July 15, 1986, which dismissed the petition upon grounds which appear persuasive.

Consequently, where a litigant (or one representing the same interest or person) sues the
same party against whom another action or actions for the alleged violation of the same right
and the enforcement of the same relief is/are still pending, the defense of litis pendencia in one
case is a bar to the others; and, a final judgment in one would constitute res judicata and thus
would cause the dismissal of the rest. In either case, forum shopping could be cited by the other
party as a ground to ask for summary dismissal of the two[20] (or more) complaints or petitions,
and for the imposition of the other sanctions, which are direct contempt of court, criminal
prosecution, and disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with the Second
Case, it is obvious that there exist identity of parties or interests represented, identity of rights
or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise to the instant
petition was filed by the buyer (herein private respondent and his predecessors-in-interest)
against the seller (herein petitioners) to enforce the alleged perfected sale of real estate. On the
other hand, the complaint[21] in the Second Case seeks to declare such purported sale involving
the same real property as unenforceable as against the Bank, which is the petitioner herein. In
other words, in the Second Case, the majority stockholders, in representation of the Bank, are
seeking to accomplish what the Bank itself failed to do in the original case in the trial court. In
brief, the objective or the relief being sought, though worded differently, is the same, namely, to
enable the petitioner Bank to escape from the obligation to sell the property to respondent.
In Danville Maritime, Inc. vs. Commission on Audit,[22] this Court ruled that the filing by a party of
two apparently different actions, but with the same objective, constituted forum shopping:

In the attempt to make the two actions appear to be different, petitioner impleaded different
respondents therein - PNOC in the case before the lower court and the COA in the case before
this Court and sought what seems to be different reliefs. Petitioner asks this Court to set aside
the questioned letter-directive of the COA dated October 10, 1988 and to direct said body to
approve the Memorandum of Agreement entered into by and between the PNOC and
petitioner, while in the complaint before the lower court petitioner seeks to enjoin the PNOC
from conducting a rebidding and from selling to other parties the vessel T/T Andres Bonifacio,
and for an extension of time for it to comply with the paragraph 1 of the memorandum of
agreement and damages. One can see that although the relief prayed for in the two (2) actions
are ostensibly different, the ultimate objective in both actions is the same, that is, the approval
of the sale of vessel in favor of petitioner, and to overturn the letter-directive of the COA
of October 10, 1988 disapproving the sale. (italics supplied)

In an earlier case,[23] but with the same logic and vigor, we held:

In other words, the filing by the petitioners of the instant special civil action for certiorari and
prohibition in this Court despite the pendency of their action in the Makati Regional Trial Court,
is a species of forum-shopping. Both actions unquestionably involve the same transactions, the
same essential facts and circumstances. The petitioners claim of absence of identity simply
because the PCGG had not been impleaded in the RTC suit, and the suit did not involve certain
acts which transpired after its commencement, is specious. In the RTC action, as in the action
before this Court, the validity of the contract to purchase and sell of September 1, 1986, i.e.,
whether or not it had been efficaciously rescinded, and the propriety of implementing the same
(by paying the pledgee banks the amount of their loans, obtaining the release of the pledged
shares, etc.) were the basic issues. So, too, the relief was the same: the prevention of such
implementation and/or the restoration of the status quo ante. When the acts sought to be
restrained took place anyway despite the issuance by the Trial Court of a temporary restraining
order, the RTC suit did not become functus oflcio. It remained an effective vehicle for obtention
of relief; and petitioners remedy in the premises was plain and patent: the filing of an amended
and supplemental pleading in the RTC suit, so as to include the PCGG as defendant and seek
nullification of the acts sought to be enjoined but nonetheless done. The remedy was certainly
not the institution of another action in another forum based on essentially the same facts. The
adoption of this latter recourse renders the petitioners amenable to disciplinary action and
both their actions, in this Court as well as in the Court a quo, dismissible.

In the instant case before us, there is also identity of parties, or at least, of interests
represented. Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not name parties
in the First Case, they represent the same interest and entity, namely, petitioner Bank, because:

Firstly, they are not suing in their personal capacities, for they have no direct personal interest
in the matter in controversy. They are not principally or even subsidiarily liable; much less are
they direct parties in the assailed contract of sale; and

Secondly, the allegations of the complaint in the Second Case show that the stockholders are
bringing a derivative suit. In the caption itself, petitioners claim to have brought suit for and in
behalf of the Producers Bank of the Philippines.[24] Indeed, this is the very essence of a
derivative suit:

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation

wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials
of the corporation refuse to sue, or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; italics
supplied).

In the face of the damaging admissions taken from the complaint in the Second Case,
petitioners, quite strangely, sought to deny that the Second Case was a derivative suit, reasoning
that it was brought, not by the minority shareholders, but by Henry Co et al., who not only own,
hold or control over 80% of the outstanding capital stock, but also constitute the majority in the
Board of Directors of petitioner Bank. That being so, then they really represent the Bank. So,
whether they sued derivatively or directly, there is undeniably an identity of interests/entity
represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality of the Bank
is separate and distinct from its shareholders. But the rulings of this Court are consistent: 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.[25]
In addition to the many cases[26] where the corporate fiction has been disregarded, we now
add the instant case, and declare herewith that the corporate veil cannot be used to shield an
otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether
suing as the majority in direct actions or as the minority in a derivative suit, cannot be allowed to
trifle with court processes, particularly where, as in this case, the corporation itself has not been
remiss in vigorously prosecuting or defending corporate causes and in using and applying
remedies available to it. To rule otherwise would be to encourage corporate litigants to use their
shareholders as fronts to circumvent the stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping, even
assuming arguendo that there is identity of parties, causes of action and reliefs sought, because
it (the Bank) was the defendant in the (first) case while it was the plaintiff in the other (Second
Case), citing as authority Victronics Computers, Inc. vs. Regional Trial Court, Branch 63, Makati,
etc. et al.,[27] where the Court held:

The rule has not been extended to a defendant who, for reasons known only to him,
commences a new action against the plaintiff - instead of filing a responsive pleading in the
other case - setting forth therein, as causes of action, specific denials, special and affirmative
defenses or even counterclaims. Thus, Velhagens and Kings motion to dismiss Civil Case No. 91-
2069 by no means negates the charge of forum-shopping as such did not exist in the first place.
(italics supplied)

Petitioner pointed out that since it was merely the defendant in the original case, it could
not have chosen the forum in said case.
Respondent, on the other hand, replied that there is a difference in factual setting
between Victronics and the present suit. In the former, as underscored in the above-quoted
Court ruling, the defendants did not file any responsive pleading in the first case. In other words,
they did not make any denial or raise any defense or counter-claim therein. In the case before us
however, petitioners filed a responsive pleading to the complaint - as a result of which, the issues
were joined.
Indeed, by praying for affirmative reliefs and interposing counter-claims in their responsive
pleadings, the petitioners became plaintiffs themselves in the original case, giving unto
themselves the very remedies they repeated in the Second Case.
Ultimately, what is truly important to consider in determining whether forum-shopping
exists or not is the vexation caused the courts and parties-litigant by a party who asks different
courts and/or administrative agencies to rule on the same or related causes and/or to grant the
same or substantially the same reliefs, in the process creating the possibility of conflicting
decisions being rendered by the different fora upon the same issue. In this case, this is exactly
the problem: a decision recognizing the perfection and directing the enforcement of the contract
of sale will directly conflict with a possible decision in the Second Case barring the parties from
enforcing or implementing the said sale. Indeed, a final decision in one would constitute res
judicata in the other.[28]
The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only
sanction possible now is the dismissal of both cases with prejudice, as the other sanctions cannot
be imposed because petitioners present counsel entered their appearance only during the
proceedings in this Court, and the Petitions VERIFICATION/CERTIFICATION contained sufficient
allegations as to the pendency of the Second Case to show good faith in observing Circular 28-
91. The lawyers who filed the Second Case are not before us; thus the rudiments of due process
prevent us from motu propio imposing disciplinary measures against them in this Decision.
However, petitioners themselves (and particularly Henry Co, et al.) as litigants are admonished
to strictly follow the rules against forum-shopping and not to trifle with court proceedings and
processes. They are warned that a repetition of the same will be dealt with more severely.
Having said that, let it be emphasized that this petition should be dismissed not merely
because of forum-shopping but also because of the substantive issues raised, as will be discussed
shortly.

The Second Issue: Was The Contract Perfected?

The respondent Court correctly treated the question of whether or not there was, on the
basis of the facts established, a perfected contract of sale as the ultimate issue. Holding that a
valid contract has been established, respondent Court stated:

There is no dispute that the object of the transaction is that property owned by the defendant
bank as acquired assets consisting of six (6) parcels of land specifically identified under Transfer
Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the bank
intended to sell the property. As testified to by the Banks Deputy Conservator, Jose Entereso,
the bank was looking for buyers of the property. It is definite that the plaintiffs wanted to
purchase the property and it was precisely for this purpose that they met with defendant
Rivera, Manager of the Property Management Department of the defendant bank, in early
August 1987. The procedure in the sale of acquired assets as well as the nature and scope of
the authority of Rivera on the matter is clearly delineated in the testimony of Rivera himself,
which testimony was relied upon by both the bank and by Rivera in their appeal briefs. Thus
(TSN of July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets was turned over to me and then I published it
in the form of an inter-office memorandum distributed to all branches that these are acquired
assets for sale. I was instructed to advertise acquired assets for sale so on that basis, I have to
entertain offer; to accept offer, formal offer and upon having been offered, I present it to the
Committee. I provide the Committee with necessary information about the property such as
original loan of the borrower, bid price during the foreclosure, total claim of the bank, the
appraised value at the time the property is being offered for sale and then the information
which are relative to the evaluation of the bank to buy which the Committee considers and it is
the Committee that evaluate as against the exposure of the bank and it is also the Committee
that submit to the Conservator for final approval and once approved, we have to execute the
deed of sale and it is the Conservator that sign the deed of sale, sir.

The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the
property, dealt with and talked to the right person. Necessarily, the agenda was the price of the
property, and plaintiffs were dealing with the bank official authorized to entertain offers, to
accept offers and to present the offer to the Committee before which the said official is
authorized to discuss information relative to price determination. Necessarily, too, it being
inherent in his authority, Rivera is the officer from whom official information regarding the
price, as determined by the Committee and approved by the Conservator, can be had. And
Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony
of plaintiff Demetria is clear on this point (TSN of May 31, 1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you
ask him point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from him. (W)hen I asked him how long it
would take because he was saying that the matter of pricing will be passed upon by
the committee. And when I asked him how long it will take for the committee to
decide and he said the committee meets every week. If I am not mistaken
Wednesday and in about two weeks (sic) time, in effect what he was saying he was
not the one who was to decide. But he would refer it to the committee and he
would relay the decision of the committee to me.
Q: Please answer the question.
A: He did not say that he had the authority(.) But he said he would refer the matter to
the committee and he would relay the decision to me and he did just like that.

Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was
the Head, with Jose Entereso as one of the members.

What transpired after the meeting of early August 1987 are consistent with the authority and
the duties of Rivera and the banks internal procedure in the matter of the sale of banks assets.
As advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20, 1987 stating
that they would buy at the price of P3.5 Million in cash. The letter was for the attention of
Mercurio Rivera who was tasked to convey and accept such offers. Considering an aspect of the
official duty of Rivera as some sort of intermediary between the plaintiffs-buyers with their
proposed buying price on one hand, and the bank Committee, the Conservator and ultimately
the bank itself with the set price on the other, and considering further the discussion of price at
the meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no other
logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter
that the banks counter-offer is at P5.5 Million for more than 101 hectares on lot basis, such
counter-offer price had been determined by the Past Due Committee and approved by the
Conservator after Rivera had duly presented plaintiffs offer for discussion by the Committee of
such matters as original loan of borrower, bid price during foreclosure, total claim of the bank,
and market value. Tersely put, under the established facts, the price of P5.5 Million was, as
clearly worded in Riveras letter (Exh. E), the official and definitive price at which the bank was
selling the property.

There were averments by defendants below, as well as before this Court, that the P5.5 Million
price was not discussed by the Committee and that it was merely quoted to start negotiations
regarding the price. As correctly characterized by the trial court, this is not credible. The
testimonies of Luis Co and Jose Entereso on this point are at best equivocal and considering the
gratuitous and self-serving character of these declarations, the banks submission on this point
does not inspire belief. Both Co and Entereso, as members of the Past Due Committee of the
bank, claim that the offer of the plaintiff was never discussed by the Committee. In the same
vein, both Co and Entereso openly admit that they seldom attend the meetings of the
Committee. It is important to note that negotiations on the price had started in early August
and the plaintiffs had already offered an amount as purchase price, having been made to
understand by Rivera, the official in charge of the negotiation, that the price will be submitted
for approval by the bank and that the banks decision will be relayed to plaintiffs. From the facts,
the amount of P5.5 Million has a definite significance. It is the official bank price. At any rate,
the bank placed its official, Rivera, in a position of authority to accept offers to buy and
negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn
around and later say, as it now does, that what Rivera states as the banks action on the matter
is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a
corporation knowingly permits one of its officers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to the public as possessing power to do
those acts, the corporation will, as against any one who has in good faith dealt with the
corporation through such agent, he estopped from denying his authority (Francisco v. GSIS, 7
SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of
Appeals, G.R. No. 103957, June 14, 1993).[29]
 Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as
follows: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of
the contract; (3) Cause of the obligation which is established.
There is no dispute on requisite no. 2. The object of the questioned contract consists of the
six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or
less, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. There is, however,
a dispute on the first and third requisites.
Petitioners allege that there is no counter-offer made by the Bank, and any supposed
counter-offer which Rivera (or Co) may have made is unauthorized. Since there was no counter-
offer by the Bank, there was nothing for Ejercito (in substitution of Demetria and Janolo) to
accept.[30] They disputed the factual basis of the respondent Courts findings that there was an
offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We have
perused the evidence but cannot find fault with the said Courts findings of fact. Verily, in a
petition under Rule 45 such as this, errors of fact -if there be any - are, as a rule, not reviewable.
The mere fact that respondent Court (and the trial court as well) chose to believe the evidence
presented by respondent more than that presented by petitioners is not by itself a reversible
error. in fact, such findings merit serious consideration by this Court, particularly where, as in this
case, said courts carefully and meticulously discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let
us review the question of Riveras authority to act and petitioners allegations that the P5.5 million
counter-offer was extinguished by the P4.25 million revised offer of Janolo. Here, there are
questions of law which could be drawn from the factual findings of the respondent Court. They
also delve into the contractual elements of consent and cause.
The authority of a corporate officer in dealing with third persons may be actual or apparent.
The doctrine of apparent authority, with special reference to banks, was laid out in Prudential
Bank vs. Court of Appeals,[31] where it was held that:

Conformably, we have declared in countless decisions that the principal is liable for obligations
contracted by the agent. The agents apparent representation yields to the principals true
representation and the contract is considered as entered into between the principal and the
third person (citing National Food Authority vs. Intermediate Appellate Court, 184 SCRA 166).

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course
of dealings of the officers in their representative capacity but not for acts outside the scope of
their authority (9 C.J.S., p. 417). A bank holding out its officers and agents as worthy of
confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate
in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for
such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114).
Accordingly, a banking corporation is liable to innocent third persons where the representation
is made in the course of its business by an agent acting within the general scope of his authority
even though, in the particular case, the agent is secretly abusing his authority and attempting
to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit
(McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).

Application of these principles is especially necessary because banks have a fiduciary

relationship with the public and their stability depends on the confidence of the people in their
honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the
selection and supervision of its employees, resulting in prejudice to their depositors.

From the evidence found by respondent Court, it is obvious that petitioner Rivera has
apparent or implied authority to act for the Bank in the matter of selling its acquired assets. This
evidence includes the following:

(a) The petition itself in par. II-1 (p. 3) states that Rivera was at all times material to this case,
Manager of the Property Management Department of the Bank. By his own admission, Rivera
was already the person in charge of the Banks acquired assets (TSN, August 6, 1990, pp. 8-9);

(b) As observed by respondent Court, the land was definitely being sold by the Bank. And during
the initial meeting between the buyers and Rivera, the latter suggested that the buyers offer
should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);

(c) Rivera received the buyers letter dated August 30, 1987 offering P3.5 million (TSN, 30 July
1990, p. 11);

(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5
million (TSN, July 30, p. 11);

(e) Rivera received the letter dated September 17, 1987 containing the buyers proposal to buy
the property for P4.25 million (TSN, July 30, 1990, p. 12);

(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the
Bank (TSN, January 16, 1990, p. 18);

(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1987, during
which the Banks offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35).
At said meeting, Co, a major shareholder and officer of the Bank, confirmed Riveras statement
as to the finality of the Banks counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN,
April 26, 1990, p. 35);

(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the
officer acting for the Bank in relation to parties interested in buying assets owned/acquired by
the Bank. In fact, Rivera was the officer mentioned in the Banks advertisements offering for sale
the property in question (cf. Exhs. S and S-I).

In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et al.,[32] the Court,
through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the
apparent authority of the officer of the Bank of P.I. in charge of acquired assets is borne out by
similar circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Riveras apparent authority through
documents and testimony which seek to establish Riveras actual authority. These pieces of
evidence, however, are inherently weak as they consist of Riveras self-serving testimony and
various inter-office memoranda that purport to show his limited actual authority, of which
private respondent cannot be charged with knowledge. In any event, since the issue is apparent
authority, the existence of which is borne out by the respondent Courts findings, the evidence of
actual authority is immaterial insofar as the liability of a corporation is concerned.[33]
Petitioners also argued that since Demetria and Janolo were experienced lawyers and their
law firm had once acted for the Bank in three criminal cases, they should be charged with actual
knowledge of Riveras limited authority. But the Court of Appeals in its Decision (p. 12) had already
made a factual finding that the buyers had no notice of Riveras actual authority prior to the sale.
In fact, the Bank has not shown that they acted as its counsel in respect to any acquired assets;
on the other hand, respondent has proven that Demetria and Janolo merely associated with a
loose aggrupation of lawyers (not a professional partnership), one of whose members (Atty.
Susana Parker) acted in said criminal cases.
Petitioners also alleged that Demetrias and Janolos P4.25 million counter-offer in the letter
dated September 17, 1987 extinguished the Banks offer of P5.5 million.[34] They disputed the
respondent Courts finding that there was a meeting of minds when on 30 September 1987
Demetria and Janolo through Annex L (letter dated September 30, 1987) accepted Riveras
counter offer of P5.5 million under Annex J (letter dated September 17, 1987), citing the late
Justice Paras,[35] Art. 1319 of the Civil Code[36] and related Supreme Court rulings starting
with Beaumont vs. Prieto.[37]
However, the above-cited authorities and precedents cannot apply in the instant case
because, as found by the respondent Court which reviewed the testimonies on this point, what
was accepted by Janolo in his letter dated September 30, 1987 was the Banks offer of P5.5 million
as confirmed and reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their
meeting on September 28, 1987. Note that the said letter of September 30, 1987 begins with
(p)ursuant to our discussion last 28 September 1987 x x x.
Petitioners insist that the respondent Court should have believed the testimonies of Rivera
and Co that the September 28, 1987 meeting was meant to have the offerors improve on their
position of P5.5 million.[38] However, both the trial court and the Court of Appeals found
petitioners testimonial evidence not credible, and we find no basis for changing this finding of
fact.
Indeed, we see no reason to disturb the lower courts (both the RTC and the CA) common
finding that private respondents evidence is more in keeping with truth and logic - that during
the meeting on September 28, 1987, Luis Co and Rivera confirmed that the P5.5 million price has
been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp.
34-35).[39] Hence, assuming arguendo that the counter-offer of P4.25 million extinguished the
offer of P5.5 million, Luis Cos reiteration of the said P5.5 million price during the September 28,
1987 meeting revived the said offer. And by virtue of the September 30, 1987 letter accepting
this revived offer, there was a meeting of the minds, as the acceptance in said letter was absolute
and unqualified.
We note that the Banks repudiation, through Conservator Encarnacion, of Riveras authority
and action, particularly the latters counter-offer of P5.5 million, as being unauthorized and illegal
came only on May 12, 1988 or more than seven (7) months after Janolos acceptance. Such delay,
and the absence of any circumstance which might have justifiably prevented the Bank from acting
earlier, clearly characterizes the repudiation as nothing more than a last-minute attempt on the
Banks part to get out of a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an implied admission
on the part of the petitioners that the written offer made on September 1, 1987 was carried
through during the meeting of September 28, 1987. This is the conclusion consistent with human
experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Banks offer of P5.5 million was
raised for the first time on appeal and should thus be disregarded.

This Court in several decisions has repeatedly adhered to the principle that points of law,
theories, issues of fact and arguments not adequately brought to the attention of the trial court
need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be
raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145 SCRA
592).[40]

xxx It is settled jurisprudence that an issue which was neither averred in the complaint nor
raised during the trial in the court below cannot be raised for the first time on appeal as it
would be offensive to the basic rules of fair play, justice and due process (Dihiansan vs. CA, 153
SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. vs.
CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029,
August 30, 1990).[41]

Since the issue was not raised in the pleadings as an affirmative defense, private respondent
was not given an opportunity in the trial court to controvert the same through opposing
evidence. Indeed, this is a matter of due process. But we passed upon the issue anyway, if only
to avoid deciding the case on purely procedural grounds, and we repeat that, on the basis of the
evidence already in the record and as appreciated by the lower courts, the inevitable conclusion
is simply that there was a perfected contract of sale.

The Third Issue: Is the Contract Enforceable?

The petition alleged:[42]

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the
meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo accepted
with their letter of 30 September 1987, the contract produced thereby would be unenforceable
by action - there being no note, memorandum or writing subscribed by the Bank to evidence
such contract. (Please see Article 1403[2], Civil Code.)

Upon the other hand, the respondent Court in its Decision (p. 14) stated:

x x x Of course, the banks letter of September 1, 1987 on the official price and the plaintiffs
acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of
sale. They are however clear embodiments of the fact that a contract of sale was perfected
between the parties, such contract being binding in whatever form it may have been entered
into (case citations omitted). Stated simply, the banks letter of September 1, 1987, taken
together with plaintiffs letter dated September 30, 1987, constitute in law a sufficient
memorandum of a perfected contract of sale.

The respondent Court could have added that the written communications commenced not
only from September 1, 1987 but from Janolos August 20, 1987 letter. We agree that, taken
together, these letters constitute sufficient memoranda - since they include the names of the
parties, the terms and conditions of the contract, the price and a description of the property as
the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting on September 28,
1987 did constitute a new offer which was accepted by Janolo on September 30, 1987. Still, the
statute of frauds will not apply by reason of the failure of petitioners to object to oral testimony
proving petitioner Banks counter-offer of P5.5 million. Hence, petitioners - by such utter failure
to object - are deemed to have waived any defects of the contract under the statute of frauds,
pursuant to Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are
ratified by the failure to object to the presentation of oral evidence to prove the same, or by
the acceptance of benefits under them.

As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation
of the counter-offer of P5.5 million is aplenty -and the silence of petitioners all throughout the
presentation makes the evidence binding on them thus:
A - Yes, sir. I think it was September 28, 1987 and I was again present because Atty.
Demetria told me to accompany him and we were able to meet Luis Co at the Bank.
xxx xxx xxx
Q - Now, what transpired during this meeting with Luis Co of the Producers Bank?
A - Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q - What price?
A - The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio
Rivera is the final price and that is the price they intends (sic) to have, sir.
Q - What do you mean?
A - That is the amount they want, sir.
Q - What is the reaction of the plaintiff Demetria to Luis Cos statment (sic) that the
defendant Riveras counter-offer of 5.5 million was the defendants bank (sic) final
offer?
A - He said in a day or two, he will make final acceptance, sir.
Q - What is the response of Mr. Luis Co?
A - He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]

----0----
Q - What transpired during that meeting between you and Mr. Luis Co of the defendant
Bank?
A - We went straight to the point because he being a busy person, I told him if the
amount of P5.5 million could still be reduced and he said that was already passed
upon by the committee. What the bank expects which was contrary to what Mr.
Rivera stated. And he told me that is the final offer of the bank P5.5 million and we
should indicate our position as soon as possible.
 Q - What was your response to the answer of Mr. Luis Co?
A - I said that we are going to give him our answer in a few days and he said that was it.
Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office.
Q - For the record, your Honor please, will you tell this Court who was with Mr. Co in his
Office in Producers Bank Building during this meeting?
A - Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q - By Mr. Co you are referring to?
A - Mr. Luis Co.
Q - After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the
counter offer by the bank?
A - Yes, sir, we did. Two days thereafter we sent our acceptance to the bank which offer
we accepted, the offer of the bank which is P5.5 million.

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]

---- 0 ----
Q - According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by
the Committee and it is not within his power to reduce this amount. What can you
say to that statement that the amount of P5.5 million was reached by the
Committee?
A - It was not discussed by the Committee but it was discussed initially by Luis Co and
the group of Atty. Demetrio Demetria and Atty. Pajardo (sic), in that September 28,
1987 meeting, sir.

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

The Fourth Issue: May the Conservator Revoke

the Perfected and Enforceable Contract?
It is not disputed that the petitioner Bank was under a conservator placed by the Central
Bank of the Philippines during the time that the negotiation and perfection of the contract of sale
took place. Petitioners energetically contended that the conservator has the power to revoke or
overrule actions of the management or the board of directors of a bank, under Section 28-A of
Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or examining

department, the Monetary Board finds that a bank or a non-bank financial intermediary
performing quasi - banking functions is in a state of continuing inability or unwillingness to
maintain a state of liquidity deemed adequate to protect the interest of depositors and
creditors, the Monetary Board may appoint a conservator to take charge of the assets,
liabilities, and the management of that institution, collect all monies and debts due said
institution and exercise all powers necessary to preserve the assets of the institution,
reorganize the management thereof, and restore its viability. He shall have the power to
overrule or revoke the actions of the previous management and board of directors of the bank
or non-bank financial intermediary performing quasi-banking functions, any provision of law to
the contrary notwithstanding, and such other powers as the Monetary Board shall deem
necessary.

In the first place, this issue of the Conservators alleged authority to revoke or repudiate the
perfected contract of sale was raised for the first time in this Petition - as this was not litigated in
the trial court or Court of Appeals. As already stated earlier, issues not raised and/or ventilated
in the trial court, let alone in the Court of Appeals, cannot be raised for the first time on appeal
as it would be offensive to the basic rules of fair play, justice and due process. [43]
In the second place, there is absolutely no evidence that the Conservator, at the time the
contract was perfected, actually repudiated or overruled said contract of sale. The Banks acting
conservator at the time, Rodolfo Romey, never objected to the sale of the property to Demetria
and Janolo. What petitioners are really referring to is the letter of Conservator Encarnacion, who
took over from Romey after the sale was perfected on September 30, 1987 (Annex V, petition)
which unilaterally repudiated - not the contract - but the authority of Rivera to make a binding
offer - and which unarguably came months after the perfection of the contract. Said letter
dated May 12, 1988 is reproduced hereunder:

May 12, 1988

Atty. Noe C. Zarate

Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro Manila

Dear Atty. Zarate:

This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria
regarding the six (6) parcels of land located at Sta. Rosa, Laguna.

We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor
perfected a contract to sell and buy with any of them for the following reasons.
In the Inter-Office Memorandum dated April 25, 1986 addressed to and approved by former
Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua
detailed the functions of Property Management Department (PMD) staff and officers (Annex A),
you will immediately read that Manager Mr. Mercurio Rivera or any of his subordinates
has no authority, power or right to make any alleged counter-offer. In short, your lawyer-clients
did not deal with the authorized officers of the bank.

Moreover, under Secs. 23 and 36 of the Corporation Code of the Philippines (Batas Pambansa
Blg. 68) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the Board of
Directors/Conservator may authorize the sale of any property of the corporation/bank.

Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank
conservators (starting January, 1984) to sell the aforesaid property to any of your clients.
Apparently, what took place were just preliminary discussions/ consultations between him and
your clients, which everyone knows cannot bind the Banks Board or Conservator.

We are, therefore, constrained to refuse any tender of payment by your clients, as the same is
patently violative of corporate and banking laws. We believe that this is more than sufficient
legal justification for refusing said alleged tender.

Rest assured that we have nothing personal against your clients. All our acts are official, legal
and in accordance with law. We also have no personal interest in any of the properties of the
Bank.

Please be advised accordingly.

Very truly yours,

(Sgd.) Leonida T. Encarnacion

LEONIDA T. ENCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers
to the conservator of a bank, it must be pointed out that such powers must be related to the
(preservation of) the assets of the bank, (the reorganization of) the management thereof and
(the restoration of) its viability. Such powers, enormous and extensive as they are, cannot extend
to the post-facto repudiation of perfected transactions, otherwise they would infringe against
the non-impairment clause of the Constitution.[44] If the legislature itself cannot revoke an
existing valid contract, how can it delegate such non-existent powers to the conservator under
Section 28-A of said law?
 Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts
that are, under existing law, deemed to be defective - i.e., void, voidable, unenforceable or
rescissible. Hence, the conservator merely takes the place of a banks board of directors. What
the said board cannot do - such as repudiating a contract validly entered into under the doctrine
of implied authority - the conservator cannot do either. Ineluctably, his power is not unilateral
and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring
court actions to assail such contracts - as he has already done so in the instant case. A contrary
understanding of the law would simply not be permitted by the Constitution. Neither by common
sense. To rule otherwise would be to enable a failing bank to become solvent, at the expense of
third parties, by simply getting the conservator to unilaterally revoke all previous dealings which
had one way or another come to be considered unfavorable to the Bank, yielding nothing to
perfected contractual rights nor vested interests of the third parties who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Fact?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings
of fact by the Court of Appeals are not reviewable by the Supreme Court. In Andres vs.
Manufacturers Hanover & Trust Corporation,[45] we held:

x x x. The rule regarding questions of fact being raised with this Court in a petition for certiorari
under Rule 45 of the Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No.
59514, February 25, 1988, 158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari
under Rule 45 of the Revised Rules of Court. The jurisdiction of the Supreme Court in cases
brought to it from the Court of Appeals is limited to reviewing and revising the errors of law
imputed to it, its findings of the fact being conclusive [Chan vs. Court of Appeals, G.R. No. L-
27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has
emphatically declared that it is not the function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to reviewing errors of law that might have
been committed by the lower court (Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58
SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued
vs. Court of Appeals, G.R. No. L-47531, February 20, 1984, 127 SCRA 596). Barring, therefore, a
showing that the findings complained of are totally devoid of support in the record, or that they
are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand,
for this Court is not expected or required to examine or contrast the oral and documentary
evidence submitted by the parties [Santa Ana, Jr. vs. Hernandez, G.R. No. L-16394, December 17,
1966, 18 SCRA 973] [at pp. 144-145.]

Likewise, in Bernardo vs. Court of Appeals,[46] we held:

The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the
sufficiency of evidence and the credibility of witnesses presented. This Court so held that it is
not the function of the Supreme Court to analyze or weigh such evidence all over again. The
Supreme Courts jurisdiction is limited to reviewing errors of law that may have been committed
by the lower court. The Supreme Court is not a trier of facts. x x x

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction
and Development Corp.:[47]

The Court has consistently held that the factual findings of the trial court, as well as the Court of
Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional
circumstances where a reassessment of facts found by the lower courts is allowed are when the
conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the
inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is premised on a misapprehension of
facts; when the findings went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee. After a careful study of the case at bench, we find
none of the above grounds present to justify the re-evaluation of the findings of fact made by
the courts below.

In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance
Company, Inc. vs. Hon. Court of Appeals, et al.[48] is equally applicable to the present case:

We see no valid reason to discard the factual conclusions of the appellate court. x x x (I)t is not
the function of this Court to assess and evaluate all over again the evidence, testimonial and
documentary, adduced by the parties, particularly where, such as here, the findings of both the
trial court and the appellate court on the matter coincide. (italics supplied)

Petitioners, however, assailed the respondent Courts Decision as fraught with findings and
conclusions which were not only contrary to the evidence on record but have no bases at all,
specifically the findings that (1) the Banks counter-offer price of P5.5 million had been
determined by the past due committee and approved by conservator Romey, after Rivera
presented the same for discussion and (2) the meeting with Co was not to scale down the price
and start negotiations anew, but a meeting on the already determined price of P5.5 million.
Hence, citing Philippine National Bank vs. Court of Appeals,[49] petitioners are asking us to review
and reverse such factual findings.
The first point was clearly passed upon by the Court of Appeals,[50] thus:

There can be no other logical conclusion than that when, on September 1, 1987, Rivera
informed plaintiffs by letter that the banks counter-offer is at P5.5 Million for more than 101
hectares on lot basis, such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had duly presented plaintiffs offer for
discussion by the Committee x x x. Tersely put, under the established fact, the price of P5.5
Million was, as clearly worded in Riveras letter (Exh. E), the official and definitive price at which
the bank was selling the property. (p. 11, CA Decision)

xxx xxx xxx

xxx. The argument deserves scant consideration. As pointed out by plaintiff, during the meeting
of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vice-president of
the bank, where the topic was the possible lowering of the price, the bank official refused it and
confirmed that the P5.5 Million price had been passed upon by the Committee and could no
longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).

The respondent Court did not believe the evidence of the petitioners on this point,
characterizing it as not credible and at best equivocal, and considering the gratuitous and self-
serving character of these declarations, the banks submissions on this point do not inspire belief.
To become credible and unequivocal, petitioners should have presented then Conservator
Rodolfo Romey to testify on their behalf, as he would have been in the best position to establish
their thesis. Under the rules on evidence,[51] such suppression gives rise to the presumption that
his testimony would have been adverse, if produced.
The second point was squarely raised in the Court of Appeals, but petitioners evidence was
deemed insufficient by both the trial court and the respondent Court, and instead, it was
respondents submissions that were believed and became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the
lower courts are valid and correct. But the petitioners are now asking this Court to disturb these
findings to fit the conclusion they are espousing. This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may disregard findings of
fact by the Court of Appeals.[52] We have studied both the records and the CA Decision and we
find no such exceptions in this case. On the contrary, the findings of the said Court are supported
by a preponderance of competent and credible evidence. The inferences and conclusions are
reasonably based on evidence duly identified in the Decision. Indeed, the appellate court
patiently traversed and dissected the issues presented before it, lending credibility and
dependability to its findings. The best that can be said in favor of petitioners on this point is that
the factual findings of respondent Court did not correspond to petitioners claims, but were closer
to the evidence as presented in the trial court by private respondent. But this alone is no reason
to reverse or ignore such factual findings, particularly where, as in this case, the trial court and
the appellate court were in common agreement thereon. Indeed, conclusions of fact of a trial
judge - as affirmed by the Court of Appeals - are conclusive upon this Court, absent any serious
abuse or evident lack of basis or capriciousness of any kind, because the trial court is in a better
position to observe the demeanor of the witnesses and their courtroom manner as well as to
examine the real evidence presented.

Epilogue

In summary, there are two procedural issues involved - forum-shopping and the raising of
issues for the first time on appeal [viz., the extinguishment of the Banks offer of P5.5 million and
the conservators powers to repudiate contracts entered into by the Banks officers] - which per
se could justify the dismissal of the present case. We did not limit ourselves thereto, but delved
as well into the substantive issues - the perfection of the contract of sale and its enforceability,
which required the determination of questions of fact. While the Supreme Court is not a trier of
facts and as a rule we are not required to look into the factual bases of respondent Courts
decisions and resolutions, we did so just the same, if only to find out whether there is reason to
disturb any of its factual findings, for we are only too aware of the depth, magnitude and vigor
by which the parties, through their respective eloquent counsel, argued their positions before
this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally
under a government-appointed conservator and there is need to rehabilitate the Bank in order
to get it back on its feet x x x as many people depend on (it) for investments, deposits and well
as employment. As of June 1987, the Banks overdraft with the Central Bank had already reached
P1.023 billion x x x and there were (other) offers to buy the subject properties for a substantial
amount of money.[53]
While we do not deny our sympathy for this distressed bank, at the same time, the Court
cannot emotionally close its eyes to overriding considerations of substantive and procedural law,
like respect for perfected contracts, non-impairment of obligations and sanctions against forum-
shopping, which must be upheld under the rule of law and blind justice.
This Court cannot just gloss over private respondents submission that, while the subject
properties may currently command a much higher price, it is equally true that at the time of the
transaction in 1987, the price agreed upon of P5.5 million was reasonable, considering that the
Bank acquired these properties at a foreclosure sale for no more than P 3.5 million. [54] That the
Bank procrastinated and refused to honor its commitment to sell cannot now be used by it to
promote its own advantage, to enable it to escape its binding obligation and to reap the benefits
of the increase in land values. To rule in favor of the Bank simply because the property in question
has algebraically accelerated in price during the long period of litigation is to reward lawlessness
and delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp its
imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the
Court hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank
is REPRIMANDED for engaging in forum-shopping and WARNED that a repetition of the same or
similar acts will be dealt with more severely. Costs against petitioners.
SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.
FIRST PHILIPPINE INTERNATIONAL BANK VS. CA

FACTS:
The petitioner had an agreement with Demetrio Demetria and Jose Janolo for the two to
purchase the parcels of land for a purchase price of P5.5 million pesos. The said agreement was
made by Demetria and Janolo with the Bank’s manager, Mercurio Rivera. Later however, the
Bank, through its conservator, Leonida Encarnacion, sought the repudiation of the agreement as
it alleged that Rivera was not authorized to enter into such an agreement, hence there was no
valid contract of sale. Subsequently, Demetria and Janolo sued Producers Bank. The regional trial
court ruled in favor of Demetria et al. The Bank filed an appeal with the Court of Appeals.
Meanwhile, Henry Co, who holds 80% shares of stocks with the said Bank, filed a motion for
intervention with the trial court. The trial court denied the motion since the trial has been
concluded already and the case is now pending appeal. Subsequently, Co, filed a separate civil
case against Carlos Ejercito as successor-in-interest (assignee) of Demetria and Janolo seeking to
have the purported contract of sale be declared unenforceable against the Bank. Ejercito et al
argued that the second case constitutes forum shopping.

ISSUE: Whether or not the second case constitutes forum shopping?

RULING:
Yes. There is forum shopping because there is identity of interest and parties between the first
case and the second case. There is identity of interest because both cases sought to have the
agreement, which involves the same property, be declared unenforceable as against the
Bank. There is also identity of parties, or at least, of interests represented. Although the plaintiffs
in the Second Case (Henry L. Co. et al.) are not name parties in the First Case, they represent the
same interest and entity, namely, petitioner Bank. Petitioner cannot seek refuge in the corporate
fiction that the personality of the Bank is separate and distinct from its shareholders because
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 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. The corporate veil
cannot be used to shield an otherwise blatant violation of the prohibition against forum-
shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a
derivative suit, cannot be allowed to trifle with court processes, particularly where, as in this
case, the corporation itself has not been remiss in vigorously prosecuting or defending corporate
causes and in using and applying remedies available to it. To rule otherwise would be to
encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules
against forum shopping.

[G.R. No. 100812. June 25, 1999]

FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES

GREGORIO and LIBRADA MANUEL, respondents.

DECISION
QUISUMBING, J.:

This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the
decision[1] of the Court of Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by
Branch 135, Regional Trial Court of Makati, Metro Manila. The procedural antecedents of this
petition are as follows:
On January 23, 1985, petitioner filed a complaint[2] against private respondents to recover
three thousand four hundred twelve and six centavos (P3,412.06), representing the balance of
the jeep body purchased by the Manuels from petitioner; an additional sum of twenty thousand
four hundred fifty-four and eighty centavos (P20,454.80) representing the unpaid balance on the
cost of repair of the vehicle; and six thousand pesos (P6,000.00) for cost of suit and attorneys
fees.[3] To the original balance on the price of jeep body were added the costs of repair.[4] In their
answer, private respondents interposed a counterclaim for unpaid legal services by Gregorio
Manuel in the amount of fifty thousand pesos (P50,000) which was not paid by the incorporators,
directors and officers of the petitioner. The trial court decided the case on June 26, 1985, in favor
of petitioner in regard to the petitioners claim for money, but also allowed the counter-claim of
private respondents. Both parties appealed. On April 15, 1991, the Court of Appeals sustained
the trial courts decision.[5] Hence, the present petition.
For our review in particular is the propriety of the permissive counterclaim which private
respondents filed together with their answer to petitioners complaint for a sum of
money. Private respondent Gregorio Manuel alleged as an affirmative defense that, while he was
petitioners Assistant Legal Officer, he represented members of the Francisco family in the
intestate estate proceedings of the late Benita Trinidad. However, even after the termination of
the proceedings, his services were not paid. Said family members, he said, were also
incorporators, directors and officers of petitioner. Hence to counter petitioners collection suit,
he filed a permissive counterclaim for the unpaid attorneys fees.[6]
For failure of petitioner to answer the counterclaim, the trial court declared petitioner in
default on this score, and evidence ex-parte was presented on the counterclaim. The trial court
ruled in favor of private respondents and found that Gregorio Manuel indeed rendered legal
services to the Francisco family in Special Proceedings Number 7803- In the Matter of Intestate
Estate of Benita Trinidad. Said court also found that his legal services were not compensated
despite repeated demands, and thus ordered petitioner to pay him the amount of fifty thousand
(P50,000.00) pesos.[7]
Dissatisfied with the trial courts order, petitioner elevated the matter to the Court of
Appeals, posing the following issues:
I.

WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS IT
NEVER ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT.

II.

WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED

PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANT-
APPELLEES.

III.

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE

ALLEGED PERMISSIVE COUNTERCLAIM.[8]

Petitioner contended that the trial court did not acquire jurisdiction over it because no
summons was validly served on it together with the copy of the answer containing the permissive
counterclaim. Further, petitioner questions the propriety of its being made party to the case
because it was not the real party in interest but the individual members of the Francisco family
concerned with the intestate case.
In its assailed decision now before us for review, respondent Court of Appeals held that a
counterclaim must be answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of
Court; and nowhere does it state in the Rules that a party still needed to be summoned anew if
a counterclaim was set up against him. Failure to serve summons, said respondent court, did not
effectively negate trial courts jurisdiction over petitioner in the matter of the counterclaim. It
likewise pointed out that there was no reason for petitioner to be excused from answering the
counterclaim. Court records showed that its former counsel, Nicanor G. Alvarez, received the
copy of the answer with counterclaim two (2) days prior to his withdrawal as counsel for
petitioner. Moreover when petitioners new counsel, Jose N. Aquino, entered his appearance,
three (3) days still remained within the period to file an answer to the counterclaim. Having failed
to answer, petitioner was correctly considered in default by the trial court.[9] Even assuming that
the trial court acquired no jurisdiction over petitioner, respondent court also said, but having
filed a motion for reconsideration seeking relief from the said order of default, petitioner
was estopped from further questioning the trial courts jurisdiction.[10]
On the question of its liability for attorneys fees owing to private respondent Gregorio
Manuel, petitioner argued that being a corporation, it should not be held liable therefor because
these fees were owed by the incorporators, directors and officers of the corporation in their
personal capacity as heirs of Benita Trinidad. Petitioner stressed that the personality of the
corporation, vis--vis the individual persons who hired the services of private respondent, is
separate and distinct,[11] hence, the liability of said individuals did not become an obligation
chargeable against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:

However, this distinct and separate personality is merely a fiction created by law for
convenience and to promote justice. 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 found (sic) 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) 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. (Chemplex
Philippines, Inc. vs. Pamatian, 57 SCRA 408)

In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is
composed of the heirs of the late Benita Trinidad as directors and incorporators for whom
defendant Gregorio Manuel rendered legal services in the intestate estate case of their
deceased mother. Considering the aforestated principles and circumstances established in this
case, equity and justice demands plaintiff-appellants veil of corporate identity should be
pierced and the defendant be compensated for legal services rendered to the heirs, who are
directors of the plaintiff-appellant corporation.[12]

Now before us, petitioner assigns the following errors:

I.
THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY.

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER
PETITIONER WITH RESPECT TO THE COUNTERCLAIM.[13]

Petitioner submits that respondent court should not have resorted to piercing the veil of
corporate fiction because the transaction concerned only respondent Gregorio Manuel and the
heirs of the late Benita Trinidad.According to petitioner, there was no cause of action by said
respondent against petitioner; personal concerns of the heirs should be distinguished from those
involving corporate affairs. Petitioner further contends that the present case does not fall among
the instances wherein the courts may look beyond the distinct personality of a
corporation. According to petitioner, the services for which respondent Gregorio Manuel seeks
to collect fees from petitioner are personal in nature. Hence, it avers the heirs should have been
sued in their personal capacity, and not involve the corporation.[14]
With regard to the permissive counterclaim, petitioner also insists that there was no proper
service of the answer containing the permissive counterclaim. It claims that the counterclaim is
a separate case which can only be properly served upon the opposing party through
summons. Further petitioner states that by nature, a permissive counterclaim is one which does
not arise out of nor is necessarily connected with the subject of the opposing partys
claim. Petitioner avers that since there was no service of summons upon it with regard to the
counterclaim, then the court did not acquire jurisdiction over petitioner. Since a counterclaim is
considered an action independent from the answer, according to petitioner, then in effect there
should be two simultaneous actions between the same parties: each party is at the same time
both plaintiff and defendant with respect to the other,[15] requiring in each case separate
summonses.
In their Comment, private respondents focus on the two questions raised by petitioner. They
defend the propriety of piercing the veil of corporate fiction, but deny the necessity of serving
separate summonses on petitioner in regard to their permissive counterclaim contained in the
answer.
Private respondents maintain both trial and appellate courts found that respondent Gregorio
Manuel was employed as assistant legal officer of petitioner corporation, and that his services
were solicited by the incorporators, directors and members to handle and represent them in
Special Proceedings No. 7803, concerning the Intestate Estate of the late Benita Trinidad. They
assert that the members of petitioner corporation took advantage of their positions by not
compensating respondent Gregorio Manuel after the termination of the estate proceedings
despite his repeated demands for payment of his services. They cite findings of the appellate
court that support piercing the veil of corporate identity in this particular case. They assert that
the corporate veil may be disregarded when it is used to defeat public convenience, justify wrong,
protect fraud, and defend crime. It may also be pierced, according to them, where the corporate
entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the
stockholders or of another corporate entity. In these instances, they aver, the corporation should
be treated merely as an association of individual persons.[16]
Private respondents dispute petitioners claim that its right to due process was violated when
respondents counterclaim was granted due course, although no summons was served upon
it. They claim that no provision in the Rules of Court requires service of summons upon a
defendant in a counterclaim. Private respondents argue that when the petitioner filed its
complaint before the trial court it voluntarily submitted itself to the jurisdiction of the court. As
a consequence, the issuance of summons on it was no longer necessary. Private respondents say
they served a copy of their answer with affirmative defenses and counterclaim on petitioners
former counsel, Nicanor G. Alvarez. While petitioner would have the Court believe that
respondents served said copy upon Alvarez after he had withdrawn his appearance as counsel
for the petitioner, private respondents assert that this contention is utterly baseless. Records
disclose that the answer was received two (2) days before the former counsel for petitioner
withdrew his appearance, according to private respondents. They maintain that the present
petition is but a form of dilatory appeal, to set off petitioners obligations to the respondents by
running up more interest it could recover from them. Private respondents therefore claim
damages against petitioner.[17]
To resolve the issues in this case, we must first determine the propriety of piercing the veil
of corporate fiction.
Basic in corporation law is the principle that a corporation has a separate personality distinct
from its stockholders and from other corporations to which it may be connected.[18] However,
under the doctrine of piercing the veil of corporate entity, the corporations separate juridical
personality may be disregarded, for example, when the corporate identity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime.Also, where the corporation is a mere
alter ego or business conduit of a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation, then its distinct personality may be ignored. [19] In these
circumstances, the courts will treat the corporation as a mere aggrupation of persons and the
liability will directly attach to them. The legal fiction of a separate corporate personality in those
cited instances, for reasons of public policy and in the interest of justice, will be justifiably set
aside.
In our view, however, given the facts and circumstances of this case, the doctrine of piercing
the corporate veil has no relevant application here. Respondent court erred in permitting the
trial courts resort to this doctrine. The rationale behind piercing a corporations identity in a given
case is to remove the barrier between the corporation from the persons comprising it to thwart
the fraudulent and illegal schemes of those who use the corporate personality as a shield for
undertaking certain proscribed activities. However, in the case at bar, instead of holding certain
individuals or persons responsible for an alleged corporate act, the situation has been reversed. It
is the petitioner as a corporation which is being ordered to answer for the personal liability of
certain individual directors, officers and incorporators concerned. Hence, it appears to us that
the doctrine has been turned upside down because of its erroneous invocation. Note that
according to private respondent Gregorio Manuel his services were solicited as counsel for
members of the Francisco family to represent them in the intestate proceedings over Benita
Trinidads estate. These estate proceedings did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family members
but also from petitioner corporation on the claims that its management had requested his
services and he acceded thereto as an employee of petitioner from whom it could be deduced
he was also receiving a salary. His move to recover unpaid legal fees through a counterclaim
against Francisco Motors Corporation, to offset the unpaid balance of the purchase and repair of
a jeep body could only result from an obvious misapprehension that petitioners corporate assets
could be used to answer for the liabilities of its individual directors, officers, and
incorporators.Such result if permitted could easily prejudice the corporation, its own creditors,
and even other stockholders; hence, clearly inequitous to petitioner.
Furthermore, considering the nature of the legal services involved, whatever obligation said
incorporators, directors and officers of the corporation had incurred, it was incurred in their
personal capacity. When directors and officers of a corporation are unable to compensate a party
for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or
promoting injustice, and be thereby held liable therefor by piercing its corporate veil. While there
are no hard and fast rules on disregarding separate corporate identity, we must always be
mindful of its function and purpose. A court should be careful in assessing the milieu where the
doctrine of piercing the corporate veil may be applied. Otherwise an injustice, although
unintended, may result from its erroneous application.
The personality of the corporation and those of its incorporators, directors and officers in
their personal capacities ought to be kept separate in this case. The claim for legal fees against
the concerned individual incorporators, officers and directors could not be properly directed
against the corporation without violating basic principles governing corporations. Moreover,
every action including a counterclaim must be prosecuted or defended in the name of the real
party in interest.[20] It is plainly an error to lay the claim for legal fees of private respondent
Gregorio Manuel at the door of petitioner (FMC) rather than individual members of the Francisco
family.
However, with regard to the procedural issue raised by petitioners allegation, that it needed
to be summoned anew in order for the court to acquire jurisdiction over it, we agree with
respondent courts view to the contrary. Section 4, Rule 11 of the Rules of Court provides that a
counterclaim or cross-claim must be answered within ten (10) days from service. Nothing in the
Rules of Court says that summons should first be served on the defendant before an answer to
counterclaim must be made. The purpose of a summons is to enable the court to acquire
jurisdiction over the person of the defendant. Although a counterclaim is treated as an entirely
distinct and independent action, the defendant in the counterclaim, being the plaintiff in the
original complaint, has already submitted to the jurisdiction of the court. Following Rule 9,
Section 3 of the 1997 Rules of Civil Procedure,[21] if a defendant (herein petitioner) fails to answer
the counterclaim, then upon motion of plaintiff, the defendant may be declared in default. This
is what happened to petitioner in this case, and this Court finds no procedural error in the
disposition of the appellate court on this particular issue. Moreover, as noted by the respondent
court, when petitioner filed its motion seeking to set aside the order of default, in effect it
submitted itself to the jurisdiction of the court. As well said by respondent court:

Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that
upon its request, plaintiff-appellant was granted time to file a motion for reconsideration of the
disputed decision. Plaintiff-appellant did file its motion for reconsideration to set aside the
order of default and the judgment rendered on the counterclaim.

Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as
it vigorously insists, plaintiff-appellant is considered to have submitted to the courts jurisdiction
when it filed the motion for reconsideration seeking relief from the court. (Soriano vs. Palacio,
12 SCRA 447). A party is estopped from assailing the jurisdiction of a court after voluntarily
submitting himself to its jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Estoppel is a bar
against any claims of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37).[22]

WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED
insofar only as it held Francisco Motors Corporation liable for the legal obligation owing to private
respondent Gregorio Manuel; but this decision is without prejudice to his filing the proper suit
against the concerned members of the Francisco family in their personal capacity. No
pronouncement as to costs.
SO ORDERED.
Bellosillo, (Chairman), Puno, Mendoza, and Buena, JJ., concur.
FRANCISCO MOTORS CORPORATION VS. CA

FACTS:
Petitioner filed a complaint against private respondents, spouses Gregorio and Librada Manuel,
to recover the balance of the jeep body purchased by the latter from petitioner and the unpaid
balance on the cost of repair of the vehicle. Private respondent Gregorio Manuel alleged as an
affirmative defense that, while he was petitioner's Assistant Legal Officer, he represented
members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad.
However, even after the termination of the proceedings, his services were not paid. Said family
members, he said, were also incorporators, directors and officers of petitioner. Hence to
petitioner's collection suit, he filed a counter permissive counterclaim for the unpaid attorney's
fees.
ISSUE:
Whether or not the doctrine of piercing the veil of corporate entity should be applied?

RULING:
No. The doctrine of piercing the corporate veil has no relevant application in the case at bar. The
rationale behind piercing a corporation's identity in a given case is to remove the barrier between
the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of
those who use the corporate personality as a shield for undertaking certain proscribed activities.
However, in the case at bar, instead of holding certain individuals or persons responsible for an
alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which
is being ordered to answer for the personal liability of certain individual directors, officers and
incorporators concerned. Considering the nature of the legal services involved, whatever
obligation said incorporators, directors and officers of the corporation had incurred, it was
incurred in their personal capacity. When directors and officers of a corporation are unable to
compensate a party for a personal obligation, it is far-fetched to allege that the corporation is
perpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its
corporate veil.

[G.R. Nos. 116124-25. November 22, 2000]

BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS and GENERAL CREDIT
CORPORATION, respondents.

DECISION
YNARES-SANTIAGO, J.:

Assailed in this petition for review is the consolidated decision of the Court of Appeals dated
July 7, 1994, which reversed the separate decisions of the Regional Trial Court of Pasig City and
the Regional Trial Court of Quezon City in two cases between petitioner Reynoso and respondent
General Credit Corporation (GCC).
 Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, CCC), a
financing and investment firm, decided to organize franchise companies in different parts of the
country, wherein it shall hold thirty percent (30%) equity. Employees of the CCC were designated
as resident managers of the franchise companies. Petitioner Bibiano O. Reynoso, IV was
designated as the resident manager of the franchise company in Quezon City, known as the
Commercial Credit Corporation of Quezon City (hereinafter, CCC-QC).
CCC-QC entered into an exclusive management contract with CCC whereby the latter was
granted the management and full control of the business activities of the former. Under the
contract, CCC-QC shall sell, discount and/or assign its receivables to CCC. Subsequently, however,
this discounting arrangement was discontinued pursuant to the so-called DOSRI Rule, prohibiting
the lending of funds by corporations to its directors, officers, stockholders and other persons
with related interests therein.
On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI
Rule, CCC decided to form CCC Equity Corporation, (hereinafter, CCC-Equity), a wholly-owned
subsidiary, to which CCC transferred its thirty (30%) percent equity in CCC-QC, together with two
seats in the latters Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including
petitioner Reynoso, became employees of CCC-Equity. While petitioner continued to be the
Resident Manager of CCC-QC, he drew his salaries and allowances from CCC-Equity. Furthermore,
although an employee of CCC-Equity, petitioner, as well as all employees of CCC-QC, became
qualified members of the Commercial Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and
supervised its employees. The business activities of CCC-QC pertain to the acceptance of funds
from depositors who are issued interest-bearing promissory notes. The amounts deposited are
then loaned out to various borrowers. Petitioner, in order to boost the business activities of CCC-
QC, deposited his personal funds in the company. In return, CCC-QC issued to him its interest-
bearing promissory notes.
On August 15, 1980, a complaint for sum of money with preliminary attachment,[1] docketed
as Civil Case No. Q-30583, was instituted in the then Court of First Instance of Rizal by CCC-QC
against petitioner, who had in the meantime been dismissed from his employment by CCC-
Equity. The complaint was subsequently amended in order to include Hidelita Nuval, petitioners
wife, as a party defendant.[2] The complaint alleged that petitioner embezzled the funds of CCC-
QC amounting to P1,300,593.11. Out of this amount, at least P630,000.00 was used for the
purchase of a house and lot located at No. 12 Macopa Street, Valle Verde I, Pasig City. The
property was mortgaged to CCC, and was later foreclosed.
In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and
asserted that the sum of P1,300,593.11 represented his money placements in CCC-QC, as shown
by twenty-three (23) checks which he issued to the said company.[3]
 The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch
86, pursuant to the Judiciary Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its decision, the decretal portion of which
states:

Premises considered, the Court finds the complaint without merit. Accordingly, said complaint
is hereby DISMISSED.

By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation, humiliation

and mental anguish.

On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby
ordered:

a) to pay defendant the sum of P185,000.00 plus 14% interest per annum from October 2, 1980
until fully paid;

b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per annum from
June 24, 1981, the date of filing of Amended Answer, until fully paid; from this amount may be
deducted the remaining obligation of defendant under the promissory note of October 24,
1977, in the sum of P9,738.00 plus penalty at the rate of 1% per month from December 24,
1977 until fully paid;

c) to pay defendants P200,000.00 as moral damages;

d) to pay defendants P100,000.00 as exemplary damages;

e) to pay defendants P25,000.00 as and for attorney's fees; plus costs of the suit.

SO ORDERED.

Both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial
Credit Corporation of Quezon City was dismissed for failure to pay docket fees. Petitioner, on the
other hand, withdrew his appeal.
Hence, the decision became final and, accordingly, a Writ of Execution was issued on July 24,
1989.[4] However, the judgment remained unsatisfied,[5] prompting petitioner to file a Motion for
Alias Writ of Execution, Examination of Judgment Debtor, and to Bring Financial Records for
Examination to Court. CCC-QC filed an Opposition to petitioners motion,[6] alleging that the
possession of its premises and records had been taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
 On November 22, 1991, the Regional Trial Court of Quezon City issued an Order directing
General Credit Corporation to file its comment on petitioners motion for alias writ of
execution.[7] General Credit Corporation filed a Special Appearance and Opposition on December
2, 1991,[8] alleging that it was not a party to the case, and therefore petitioner should direct his
claim against CCC-QC and not General Credit Corporation. Petitioner filed his reply,[9] stating that
the CCC-QC is an adjunct instrumentality, conduit and agency of CCC. Furthermore, petitioner
invoked the decision of the Securities and Exchange Commission in SEC Case No. 2581,
entitled, Avelina G. Ramoso, et al., Petitioner versus General Credit Corp., et al.,
Respondents, where it was declared that General Credit Corporation, CCC-Equity and other
franchised companies including CCC-QC were declared as one corporation.
On December 9, 1991, the Regional Trial Court of Quezon City ordered the issuance of an
alias writ of execution.[10] On December 20, 1991, General Credit Corporation filed an Omnibus
Motion,[11]alleging that SEC Case No. 2581 was still pending appeal, and maintaining that the levy
on properties of the General Credit Corporation by the deputy sheriff of the court was erroneous.
In his Opposition to the Omnibus Motion, petitioner insisted that General Credit Corporation
is just the new name of Commercial Credit Corporation; hence, General Credit Corporation and
Commercial Credit Corporation should be treated as one and the same entity.
On February 13, 1992, the Regional Trial Court of Quezon City denied the Omnibus
Motion.[12] On March 5, 1992, it issued an Order directing the issuance of an alias writ of
execution.[13]
Previously, on February 21, 1992, General Credit Corporation instituted a complaint before
the Regional Trial Court of Pasig against Bibiano Reynoso IV and Edgardo C. Tanangco, in his
capacity as Deputy Sheriff of Quezon City,[14] docketed as Civil Case No. 61777, praying that the
levy on its parcel of land located in Pasig, Metro Manila and covered by Transfer Certificate of
Title No. 29940 be declared null and void, and that defendant sheriff be enjoined from
consolidating ownership over the land and from further levying on other properties of General
Credit Corporation to answer for any liability under the decision in Civil Case No. Q-30583.
The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining
order. Thus, General Credit Corporation instituted two (2) petitions for certiorari with the Court
of Appeals, docketed as CA-G.R. SP No. 27518[15] and CA-G.R. SP No. 27683. These cases were
later consolidated.
On July 7, 1994, the Court of Appeals rendered a decision in the two consolidated cases, the
dispositive portion of which reads:

WHEREFORE, in SP No. 27518 we declare the issue of the respondent court's refusal to issue a
restraining order as having been rendered moot by our Resolution of 7 April 1992 which, by
way of injunctive relief, provided that "the respondents and their representatives are hereby
enjoined from conducting an auction sale (on execution) of petitioner's properties as well as
initiating similar acts of levying (upon) and selling on execution other properties of said
petitioner". The injunction thus granted, as modified by the words in parenthesis, shall remain
in force until Civil Case No. 61777 shall have been finally terminated.

In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY and SET ASIDE, for
having been issued in excess of jurisdiction, the Order of 13 February 1992 in Civil Case No. Q-
30583 as well as any other order or process through which the petitioner is made liable under
the judgment in said Civil Case No. Q-30583.

No damages and no costs.

SO ORDERED.[16]

Hence, this petition for review anchored on the following arguments:

1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27683 WHEN IT NULLIFIED
AND SET ASIDE THE 13 FEBRUARY 1992 ORDER AND OTHER ORDERS OR PROCESS OF BRANCH
86 OF THE REGIONAL TRIAL COURT OF QUEZON CITY THROUGH WHICH GENERAL CREDIT
CORPORATION IS MADE LIABLE UNDER THE JUDGMENT THAT WAS RENDERED IN CIVIL CASE
NO. Q-30583.

2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27518 WHEN IT ENJOINED
THE AUCTION SALE ON EXECUTION OF THE PROPERTIES OF GENERAL CREDIT CORPORATION AS
WELL AS INITIATING SIMILAR ACTS OF LEVYING UPON AND SELLING ON EXECUTION OF OTHER
PROPERTIES OF GENERAL CREDIT CORPORATION.

3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT GENERAL CREDIT

CORPORATION IS A STRANGER TO CIVIL CASE NO. Q-30583, INSTEAD OF, DECLARING THAT
COMMERCIAL CREDIT CORPORATION OF QUEZON CITY IS THE ALTER EGO, INSTRUMENTALITY,
CONDUIT OR ADJUNCT OF COMMERCIAL CREDIT CORPORATION AND ITS SUCCESSOR GENERAL
CREDIT CORPORATION.

At the outset, it must be stressed that there is no longer any controversy over petitioners
claims against his former employer, CCC-QC, inasmuch as the decision in Civil Case No. Q-30583
of the Regional Trial Court of Quezon City has long become final and executory. The only issue,
therefore, to be resolved in the instant petition is whether or not the judgment in favor of
petitioner may be executed against respondent General Credit Corporation. The latter contends
that it is a corporation separate and distinct from CCC-QC and, therefore, its properties may not
be levied upon to satisfy the monetary judgment in favor of petitioner. In short, respondent
raises corporate fiction as its defense. Hence, we are necessarily called upon to apply the doctrine
of piercing the veil of corporate entity in order to determine if General Credit Corporation,
formerly CCC, may be held liable for the obligations of CCC-QC.
The petition is impressed with merit.
A corporation is an artificial being created by operation of law, having the right of succession
and the powers, attributes, and properties expressly authorized by law or incident to its
existence.[17] It is an artificial being invested by law with a personality separate and distinct from
those of the persons composing it as well as from that of any other legal entity to which it may
be related.[18] It was evolved to make possible the aggregation and assembling of huge amounts
of capital upon which big business depends. It also has the advantage of non-dependence on the
lives of those who compose it even as it enjoys certain rights and conducts activities of natural
persons.
Precisely because the corporation is such a prevalent and dominating factor in the business
life of the country, the law has to look carefully into the exercise of powers by these artificial
persons it has created.
Any piercing of the corporate veil has to be done with caution. However, the Court will not
hesitate to use its supervisory and adjudicative powers where the corporate fiction is used as an
unfair device to achieve an inequitable result, defraud creditors, evade contracts and obligations,
or to shield it from the effects of a court decision. The corporate fiction has to be disregarded
when necessary in the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al.,[19] we held:

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.

Also in the above-cited case, we stated that this Court has pierced the veil of corporate
fiction in numerous cases where it was used, among others, to avoid a judgment credit; [20] to
avoid inclusion of corporate assets as part of the estate of a decedent;[21] to avoid liability arising
from debt;[22] when made use of as a shield to perpetrate fraud and/or confuse legitimate
issues;[23] or to promote unfair objectives or otherwise to shield them.[24]
In the appealed judgment, the Court of Appeals sustained respondents arguments of
separateness and its character as a different corporation which is a non-party or stranger to this
case.
The defense of separateness will be disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an
instrument or agent of its parent. But even when there is dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is
used to defeat public convenience, justify wrong, protect fraud or defend crime. [25]
We stated in Tomas Lao Construction v. National Labor Relations Commission,[26] that the
legal fiction of a corporation being a judicial entity with 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 the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation
was intended to publicly identify it as a component of the CCC group of companies engaged in
one and the same business, i.e., investment and financing. Aside from CCC-Quezon City, other
franchise companies were organized such as CCC-North Manila and CCC-Cagayan Valley. The
organization of subsidiary corporations as what was done here is usually resorted to for the
aggrupation of capital, the ability to cover more territory and population, the decentralization of
activities best decentralized, and the securing of other legitimate advantages. But when the
mother corporation and its subsidiary cease to act in good faith and honest business judgment,
when the corporate device is used by the parent to avoid its liability for legitimate obligations of
the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice,
the law steps in to remedy the problem. When that happens, the corporate character is not
necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to
remedy injustice, such as that inflicted in this case.
Factually and legally, the CCC had dominant control of the business operations of CCC-
QC. The exclusive management contract insured that CCC-QC would be managed and controlled
by CCC and would not deviate from the commands of the mother corporation. In addition to the
exclusive management contract, CCC appointed its own employee, petitioner, as the resident
manager of CCC-QC.
Petitioners designation as resident manager implies that he was placed in CCC-QC by a
superior authority. In fact, even after his assignment to the subsidiary corporation, petitioner
continued to receive his salaries, allowances, and benefits from CCC, which later became
respondent General Credit Corporation. Not only that. Petitioner and the other permanent
employees of CCC-QC were qualified members and participants of the Employees Pension Plan
of CCC.
There are other indications in the record which attest to the applicability of the identity rule
in this case, namely: the unity of interests, management, and control; the transfer of funds to
suit their individual corporate conveniences; and the dominance of policy and practice by the
mother corporation insure that CCC-QC was an instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the same principal line of
business involving a single transaction process. Under their discounting arrangements, CCC
financed the operations of CCC-QC. The subsidiary sold, discounted, or assigned its accounts
receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971, shows the
pervasive and intensive auditing function of CCC over CCC-QC.[27] The two corporations also
shared the same office space. CCC-QC had no office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified by the
director-representative of CCC. The lawyers who filed the complaint and amended complaint
were all in-house lawyers of CCC.
The challenged decision of the Court of Appeals states that CCC, now General Credit
Corporation, is not a formal party in the case. The reason for this is that the complaint was filed
by CCC-QC against petitioner. The choice of parties was with CCC-QC. The judgment award in this
case arose from the counterclaim which petitioner set up against CCC-QC.
The circumstances which led to the filing of the aforesaid complaint are quite revealing. As
narrated above, the discounting agreements through which CCC controlled the finances of its
subordinates became unlawful when Central Bank adopted the DOSRI prohibitions. Under this
rule the directors, officers, and stockholders are prohibited from borrowing from their
company. Instead of adhering to the letter and spirit of the regulations by avoiding DOSRI loans
altogether, CCC used the corporate device to continue the prohibited practice. CCC organized still
another corporation, the CCC-Equity Corporation. However, as a wholly owned subsidiary, CCC-
Equity was in fact only another name for CCC. Key officials of CCC, including the resident
managers of subsidiary corporations, were appointed to positions in CCC-Equity.
In order to circumvent the Central Banks disapproval of CCC-QCs mode of reducing its DOSRI
lender accounts and its directive to follow Central Bank requirements, resident managers,
including petitioner, were told to observe a pseudo-compliance with the phasing out orders. For
his unwillingness to satisfactorily conform to these directives and his reluctance to resort to
illegal practices, petitioner earned the ire of his employers. Eventually, his services were
terminated, and criminal and civil cases were filed against him.
Petitioner issued twenty-three checks as money placements with CCC-QC because of
difficulties faced by the firm in implementing the required phase-out program. Funds from his
current account in the Far East Bank and Trust Company were transferred to CCC-QC. These
monies were alleged in the criminal complaints against him as having been stolen. Complaints
for qualified theft and estafa were brought by CCC-QC against petitioner. These criminal cases
were later dismissed. Similarly, the civil complaint which was filed with the Court of First Instance
of Pasig and later transferred to the Regional Trial Court of Quezon City was dismissed, but his
counterclaims were granted.
Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed CCC-
QC, in obvious fraud of its creditors. CCC-QC, instead of opposing its closure, cooperated in its
own demise. Conveniently, CCC-QC stated in its opposition to the motion for alias writ of
execution that all its properties and assets had been transferred and taken over by CCC.
Under the foregoing circumstances, the contention of respondent General Credit
Corporation, the new name of CCC, that the corporate fiction should be appreciated in its favor
is without merit.
Paraphrasing the ruling in Claparols v. Court of Industrial Relations,[28] reiterated in Concept
Builders Inc. v. National Labor Relations,[29] it is very obvious that respondent seeks the protective
shield of a corporate fiction whose veil the present case could, and should, be pierced as it was
deliberately and maliciously designed to evade its financial obligation of its employees.
If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt
and work an injustice. The decision raised to us for review is an invitation to multiplicity of
litigation. As we stated in Islamic Directorate vs. Court of Appeals,[30] the ends of justice are not
served if further litigation is encouraged when the issue is determinable based on the records.
A court judgment becomes useless and ineffective if the employer, in this case CCC as a
mother corporation, is placed beyond the legal reach of the judgment creditor who, after
protracted litigation, has been found entitled to positive relief. Courts have been organized to
put an end to controversy. This purpose should not be negated by an inapplicable and wrong use
of the fiction of the corporate veil.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and ASIDE. The
injunction against the holding of an auction sale for the execution of the decision in Civil Case No.
Q-30583 of properties of General Credit Corporation, and the levying upon and selling on
execution of other properties of General Credit Corporation, is LIFTED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

REYNOSO VS. CA

FACTS:
Commercial Credit Corporation of Quezon City (CCC-QC) entered into an exclusive management
contract with Commercial Credit Corporation (CCC) whereby the latter was granted the
management and full control of the business activities of the former. CCC designated the
petitioner, one of its employees, as a resident manager of said branch. Petitioner, in order to
boost the business activities of CCC-QC, deposited his personal funds in the company. In return,
CCC-QC issued to him its interest-bearing promissory notes. Thereafter, a complaint for sum of
money was instituted by CCC-QC against petitioner, who had in the meantime been dismissed
from his employment by CCC. The complaint alleged that petitioner embezzled the funds of CCC-
QC. In Answer with counterclaim, petitioner denied having unlawfully used funds of CCC-QC and
asserted that the sum claimed represented his money placements in CCC-QC. The complaint was
dismissed while the court found the counterclaim meritorious. The judgment remained
unsatisfied, prompting petitioner to file a Motion for Alias Writ of Execution, Examination of
Judgment Debtor, and to Bring Financial Records for Examination to Court. CCC-QC filed an
Opposition to petitioner’s motion, alleging that the possession of its premises and records had
been taken over by CCC. Meanwhile, CCC became known as the General Credit Corporation.
General Credit Corporation filed a Special Appearance and Opposition alleging that it was not a
party to the case, and therefore petitioner should direct his claim against CCC-QC and not General
Credit Corporation.

ISSUE:
Whether or not the General Credit Corporation is a separate and distinct entity from CCC-QC and
therefore the judgment in favor of petitioner cannot be executed against said corporation?

RULING:
No. The corporate fiction has to be disregarded when necessary in the interest of justice. The
defense of separateness will be disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an
instrument or agent of its parent. But even when there is dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is
used to defeat public convenience, justify wrong, protect fraud or defend crime. Factually and
legally, the CCC had dominant control of the business operations of CCC-QC. The exclusive
management contract insured that CCC-QC would be managed and controlled by CCC and would
not deviate from the commands of the mother corporation. In addition to the exclusive
management contract, CCC appointed its own employee, petitioner, as the resident manager of
CCC-QC. Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed
CCC-QC, in obvious fraud of its creditors. CCC-QC, instead of opposing its closure, cooperated in
its own demise. Conveniently, CCC-QC stated in its opposition to the motion for alias writ of
execution that all its properties and assets had been transferred and taken over by CCC. Under
the foregoing circumstances, the contention of respondent General Credit Corporation, the new
name of CCC, that the corporate fiction should be appreciated in its favor is without merit.
Simeon de Leon vs NLRC

DECISION
PUNO, J.:

This case stemmed from a complaint for illegal dismissal, unfair labor practice and refund of
cash bond filed by petitioners against respondents before the Arbitration Branch of the National
Labor Relations Commission (NLRC). The petition at bar seeks the annulment of the resolution of
the NLRC dated July 5, 1993 reversing the decision of the Labor Arbiter finding respondents liable
for the charges, and its resolution dated August 10, 1993 denying petitioners' motion for
reconsideration.
The undisputed facts are as follows:
On August 23, 1980, Fortune Tobacco Corporation (FTC) and Fortune Integrated Services,
Inc. (FISI) entered into a contract for security services where the latter undertook to provide
security guards for the protection and security of the former. The petitioners were among those
engaged as security guards pursuant to the contract.
On February 1, 1991, the incorporators and stockholders of FISI sold out lock, stock and
barrel to a group of new stockholders by executing for the purpose a "Deed of Sale of Shares of
Stock". On the same date, the Articles of Incorporation of FISI was amended changing its
corporate name to Magnum Integrated Services, Inc. (MISI). A new by-laws was likewise adopted
and approved by the Securities and Exchange Commission on June 4, 1993.
On October 15, 1991, FTC terminated the contract for security services which resulted in the
displacement of some five hundred eighty two (582) security guards assigned by FISI/MISI to FTC,
including the petitioners in this case. FTC engaged the services of two (2) other security agencies,
Asian Security Agency and Ligalig Security Services, whose security guards were posted on
October 15, 1991 to replace FISI's security guards.
Sometime in October 1991, the Fortune Tobacco Labor Union, an affiliate of the National
Federation of Labor Unions (NAFLU), and claiming to be the bargaining agent of the security
guards, sent a Notice of Strike to FISI/MISI. On November 14, 1991, the members of the union
which include petitioners picketed the premises of FTC. The Regional Trial Court of Pasig,
however, issued a writ of injunction to enjoin the picket.
On November 29, 1991, Simeon de Leon, together with sixteen (16) other complainants
instituted the instant case before the Arbitration Branch of the NLRC. The complaint was later
amended to allow the inclusion of other complainants.
The parties submitted the following issues for resolution:
 (1) Whether petitioners were illegally dismissed;
(2) Whether respondents are guilty of unfair labor practice; and
(3) Whether petitioners are entitled to the refund of their cash bond deposited with
respondent FISI.
Petitioners alleged that they were regular employees of FTC which was also using the
corporate names Fortune Integrated Services, Inc. and Magnum Integrated Services, Inc. They
were assigned to work as security guards at the company's main factory plant, its tobacco
redrying plant and warehouse. They averred that they performed their duties under the control
and supervision of FTC's security supervisors. Their services, however, were severed in October
1991 without valid cause and without due process. Petitioners claimed that their dismissal was
part of respondents' design to bust their newly-organized union which sought to enforce their
rights under the Labor Standards law.[1]
Respondent FTC, on the other hand, maintained that there was no employer-employee
relationship between FTC and petitioners. It said that at the time of the termination of their
services, petitioners were the employees of MISI which was a separate and distinct corporation
from FTC. Hence, petitioners had no cause of action against FTC.[2]
Respondent FISI, meanwhile, denied the charge of illegal dismissal and unfair labor
practice. It argued that petitioners were not dismissed from service but were merely placed on
floating status pending re-assignment to other posts. It alleged that the temporary displacement
of petitioners was not due to its fault but was the result of the pretermination by FTC of the
contract for security services.[3]
The Labor Arbiter found respondents liable for the charges. Rejecting FTC's argument that
there was no employer-employee relationship between FTC and petitioners, he ruled that FISI
and FTC should be considered as a single employer. He observed that the two corporations have
common stockholders and they share the same business address. In addition, FISI had no client
other than FTC and other corporations belonging to the group of companies owned by Lucio
Tan. The Labor Arbiter thus found respondents guilty of union busting and illegal dismissal. He
observed that not long after the stockholders of FISI sold all their stocks to a new set of
stockholders, FTC terminated the contract of security services and engaged the services of two
other security agencies. FTC did not give any reason for the termination of the contract. The
Labor Arbiter gave credence to petitioners' theory that respondents' precipitate termination of
their employment was intended to bust their union. Consequently, the Labor Arbiter ordered
respondents to pay petitioners their backwages and separation pay, to refund their cash bond
deposit, and to pay attorney's fees.[4]
On appeal, the NLRC reversed and set aside the decision of the Labor Arbiter. First, it held
that the Labor Arbiter erred in applying the "single employer" principle and concluding that there
was an employer-employee relationship between FTC and FISI on one hand, and petitioners on
the other hand. It found that at the time of the termination of the contract of security services
on October 15, 1991, FISI which, at that time, had been renamed Magnum Integrated Services,
Inc. had a different set of stockholders and officers from that of FTC. They also had separate
offices. The NLRC held that the principle of "single employer" and the doctrine of piercing the
corporate veil could not apply under the circumstances. It further ruled that the proximate cause
for the displacement of petitioners was the termination of the contract for security services by
FTC on October 15, 1991. FISI could not be faulted for the severance of petitioners' assignment
at the premises of FTC. Consequently, the NLRC held that the charge of illegal dismissal had no
basis. As regards the charge of unfair labor practice, the NLRC found that petitioners who had
the burden of proof failed to adduce any evidence to support their charge of unfair labor practice
against respondents. Hence, it ordered the dismissal of petitioners' complaint.[5]
The petitioners filed a motion for reconsideration of the resolution of the NLRC but the same
was denied.[6] Hence, this petition.
We gave due course to the petition on May 15, 1995. Thus, the ruling in St. Martin Funeral
Home vs. NLRC[7] remanding all petitions for certiorari from the decision of the NLRC to the Court
of Appeals does not apply to the case at bar.
The petition is impressed with merit.
An examination of the facts of this case reveals that there is sufficient ground to conclude
that respondents were guilty of interfering with the right of petitioners to self-organization which
constitutes unfair labor practice under Article 248 of the Labor Code.[8] Petitioners have been
employed with FISI since the 1980s and have since been posted at the premises of FTC -- its main
factory plant, its tobacco redrying plant and warehouse. It appears from the records that FISI,
while having its own corporate identity, was a mere instrumentality of FTC, tasked to provide
protection and security in the company premises. The records show that the two corporations
had identical stockholders and the same business address. FISI also had no other clients except
FTC and other companies belonging to the Lucio Tan group of companies. Moreover, the early
payslips of petitioners show that their salaries were initially paid by FTC. [9] To enforce their
rightful benefits under the laws on Labor Standards, petitioners formed a union which was later
certified as bargaining agent of all the security guards. On February 1, 1991, the stockholders of
FISI sold all their participations in the corporation to a new set of stockholders which renamed
the corporation Magnum Integrated Services, Inc. On October 15, 1991, FTC, without any
reason, preterminated its contract of security services with MISI and contracted two other
agencies to provide security services for its premises. This resulted in the displacement of
petitioners. As MISI had no other clients, it failed to give new assignments to
petitioners. Petitioners have remained unemployed since then. All these facts indicate a
concerted effort on the part of respondents to remove petitioners from the company and thus
abate the growth of the union and block its actions to enforce their demands in accordance with
the Labor Standards laws. The Court held in Insular Life Assurance Co., Ltd., Employees
Association-NATU vs. Insular Life Assurance Co., Ltd.:[10]
The test of whether an employer has interfered with and coerced employees within the
meaning of section (a) (1) is whether the employer has engaged in conduct which it may
reasonably be said tends to interfere with the free exercise of employees' rights under section 3
of the Act, and it is not necessary that there be direct evidence that any employee was in fact
intimidated or coerced by statements of threats of the employer if there is a reasonable
inference that anti-union conduct of the employer does have an adverse effect on self-
organization and collective bargaining.[11]

We are not persuaded by the argument of respondent FTC denying the presence of an
employer-employee relationship. We find that the Labor Arbiter correctly applied the doctrine
of piercing the corporate veil to hold all respondents liable for unfair labor practice and illegal
termination of petitioners' employment. It is a fundamental principle in corporation law that a
corporation is an entity separate and distinct from its stockholders and from other corporations
to which it is connected. However, when the concept of separate 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 case of two corporations, merge them into
one. The separate juridical personality of a corporation may also be disregarded when such
corporation is a mere alter ego or business conduit of another person.[12] In the case at bar, it
was shown that FISI was a mere adjunct of FTC. FISI, by virtue of a contract for security services,
provided FTC with security guards to safeguard its premises. However, records show that FISI and
FTC have the same owners and business address, and FISI provided security services only to FTC
and other companies belonging to the Lucio Tan group of companies. The purported sale of the
shares of the former stockholders to a new set of stockholders who changed the name of the
corporation to Magnum Integrated Services, Inc. appears to be part of a scheme to terminate the
services of FISI's security guards posted at the premises of FTC and bust their newly-organized
union which was then beginning to become active in demanding the company's compliance with
Labor Standards laws. Under these circumstances, the Court cannot allow FTC to use its separate
corporate personality to shield itself from liability for illegal acts committed against its
employees.
Thus, we find that the termination of petitioners' services was without basis and therefore
illegal. Under Article 279 of the Labor Code, an employee who is unjustly dismissed from work is
entitled to reinstatement without loss of seniority rights and other privileges, and to his full
backwages, inclusive of allowances, and to his other benefits or their monetary equivalent
computed from the time his compensation was witheld from him up to the time of his actual
reinstatement. However, if reinstatement is no longer possible, the employer has the alternative
of paying the employee his separation pay in lieu of reinstatement.[13]
IN VIEW WHEREOF, the petition is GRANTED. The assailed resolutions of the NLRC are SET
ASIDE. Respondents are hereby ordered to pay petitioners their full backwages, and to reinstate
them to their former position without loss of seniority rights and privileges, or to award them
separation pay in case reinstatement is no longer feasible.
 SO ORDERED.
Davide, Jr., C.J. (Chairman), Pardo and Ynares-Santiago, JJ., concur.
Kapunan J., on leave.

DE LEON VS. NLRC

FACTS:
Fortune Tobacco Corporation (FTC) and Fortune Integrated Services, Inc. (FISI) entered into a
contract for security services where the latter undertook to provide security guards for the
protection and security of the former. The petitioners were among those engaged as security
guards pursuant to the contract. Thereafter, the incorporators and stockholders of FISI sold out
stocks to a group of new stockholders. On the same date, the Articles of Incorporation of FISI was
amended changing its corporate name to Magnum Integrated Services, Inc. (MISI). FTC
terminated the contract for security services which resulted in the displacement of some five
hundred eighty two (582) security guards assigned by FISI/MISI to FTC, including the petitioners
in this case thus the petitioners filed a case for illegal dismissal.

ISSUE:
Whether or not the doctrine of piercing the veil of corporate fiction should be applied?
RULING:
Yes, the doctrine of piercing the corporate veil should be applied to hold all respondents liable
for unfair labor practice and illegal termination of petitioners' employment. When the concept
of separate 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 case of two
corporations, merge them into one. The separate juridical personality of a corporation may also
be disregarded when such corporation is a mere alter ego or business conduit of another
person. In the case at bar, it was shown that FISI was a mere adjunct of FTC. FISI, by virtue of a
contract for security services, provided FTC with security guards to safeguard its premises.
However, records show that FISI and FTC have the same owners and business address, and FISI
provided security services only to FTC and other companies belonging to the Lucio Tan group of
companies. The purported sale of the shares of the former stockholders to a new set of
stockholders who changed the name of the corporation to Magnum Integrated Services, Inc.
appears to be part of a scheme to terminate the services of FISI's security guards posted at the
premises of FTC and bust their newly-organized union which was then beginning to become
active in demanding the company's compliance with Labor Standards laws. Under these
circumstances, the Court cannot allow FTC to use its separate corporate personality to shield
itself from liability for illegal acts committed against its employees.

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

PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT

CORPORATION, petitioners, vs. ANDRADA ELECTRIC & ENGINEERING
COMPANY, respondent.

DECISION
PANGANIBAN, J.:

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

Statement of the Case

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

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

The Facts

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

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

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

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

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

(e) Installation of turbine and diesel generating sets including transformer,

switchboard, electrical wirings and pipe provided those stated units are
completely supplied with their accessories;

(f) Relocating of 2,400 V transmission line, demolition of all existing concrete

foundation and drainage canals, excavation, and earth fillings all for the
total amount of P543,500.00 as evidenced by a contract, [a] xerox copy of
 which is hereto attached as Annex A and made an integral part of this
complaint;

that aside from the work contract mentioned-above, the defendant PASUMIL required the
plaintiff to perform extra work, and provide electrical equipment and spare parts, such as:

(a) Supply of electrical devices;

(b) Extra mechanical works;

(c) Extra fabrication works;

(d) Supply of materials and consumable items;

(e) Electrical shop repair;

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

(g) Supply of electrical equipment for machinery;

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

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

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

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

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

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

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

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

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

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

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

In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate and to
incur expenses in this case, hence it is entitled to claim attorneys fees in the amount of at
least P50,000.00. Accordingly, PNB prayed that the complaint be dismissed; and that on its
counterclaim, that the plaintiff be sentenced to pay defendant PNB the sum of P50,000.00 as
attorneys fees, aside from exemplary damages in such amount that the court may seem just
and equitable in the premises.
Summons by publication was made via the Philippines Daily Express, a newspaper with editorial
office at 371 Bonifacio Drive, Port Area, Manila, against the defendant PASUMIL, which was
thereafter declared in default as shown in the August 7, 1981 Order issued by the Trial Court.

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

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

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

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

3. Costs.

SO ORDERED.

Manila, Philippines, September 4, 1986.

'(SGD) ERNESTO S. TENGCO

Judge[3]

Ruling of the Court of Appeals

Affirming the trial court, the CA held that it was offensive to the basic tenets of justice and
equity for a corporation to take over and operate the business of another corporation, while
disavowing or repudiating any responsibility, obligation or liability arising therefrom. [4]
Hence, this Petition.[5]

Issues

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

II

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

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

This Courts Ruling

The Petition is meritorious.

Main Issue:
Liability for Corporate Debts

As a general rule, questions of fact may not be raised in a petition for review under Rule 45
of the Rules of Court.[7] To this rule, however, there are some exceptions enumerated in Fuentes
v. Court of Appeals.[8] After a careful scrutiny of the records and the pleadings submitted by the
parties, we find that the lower courts misappreciated the evidence presented. [9] Overlooked by
the CA were certain relevant facts that would justify a conclusion different from that reached in
the assailed Decision.[10]
Petitioners posit that they should not be held liable for the corporate debts of PASUMIL,
because their takeover of the latters foreclosed assets did not make them assignees. On the other
hand, respondent asserts that petitioners and PASUMIL should be treated as one entity and, as
such, jointly and severally held liable for PASUMILs unpaid obligation.
As a rule, a corporation that purchases the assets of another will not be liable for the debts
of the selling corporation, provided the former acted in good faith and paid adequate
consideration for such assets, except when any of the following circumstances is present: (1)
where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction
amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation
is merely a continuation of the selling corporation, and (4) where the transaction is fraudulently
entered into in order to escape liability for those debts.[11]

Piercing the Corporate

Veil Not Warranted

A corporation is an artificial being created by operation of law. It possesses the right of

succession and such powers, attributes, and properties expressly authorized by law or incident
to its existence.[12] It has a personality separate and distinct from the persons composing it, as
well as from any other legal entity to which it may be related.[13] This is basic.
Equally well-settled is the principle that the corporate mask may be removed or the
corporate veil pierced when the corporation is just an alter ego of a person or of another
corporation.[14] For reasons of public policy and in the interest of justice, the corporate veil will
justifiably be impaled[15] only when it becomes a shield for fraud, illegality or inequity committed
against third persons.[16]
Hence, any application of the doctrine of piercing the corporate veil should be done with
caution.[17] A court should be mindful of the milieu where it is to be applied.[18] It must be certain
that the corporate fiction was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights.[19] The wrongdoing must be clearly and
convincingly established; it cannot be presumed.[20] Otherwise, an injustice that was never
unintended may result from an erroneous application.[21]
This Court has pierced the corporate veil to ward off a judgment credit,[22] to avoid inclusion
of corporate assets as part of the estate of the decedent,[23] to escape liability arising from a
debt,[24] or to perpetuate fraud and/or confuse legitimate issues[25] either to promote or to shield
unfair objectives[26] or to cover up an otherwise blatant violation of the prohibition against
forum-shopping.[27] Only in these and similar instances may the veil be pierced and
disregarded.[28]
The question of whether a corporation is a mere alter ego is one of fact. [29] Piercing the veil
of corporate fiction may be allowed only if the following elements concur: (1) control -- not mere
stock control, but complete domination -- not only of finances, but of policy and business practice
in respect to the transaction attacked, must have been such that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own; (2) such control must
have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a
statutory or other positive legal duty, or a dishonest and an unjust act in contravention of
plaintiffs legal right; and (3) the said control and breach of duty must have proximately caused
the injury or unjust loss complained of.[30]
 We believe that the absence of the foregoing elements in the present case precludes the
piercing of the corporate veil. First, other than the fact that petitioners acquired the assets of
PASUMIL, there is no showing that their control over it warrants the disregard of corporate
personalities.[31] Second, there is no evidence that their juridical personality was used to commit
a fraud or to do a wrong; or that the separate corporate entity was farcically used as a mere alter
ego, business conduit or instrumentality of another entity or person.[32] Third, respondent was
not defrauded or injured when petitioners acquired the assets of PASUMIL.[33]
Being the party that asked for the piercing of the corporate veil, respondent had the burden
of presenting clear and convincing evidence to justify the setting aside of the separate corporate
personality rule.[34] However, it utterly failed to discharge this burden;[35] it failed to establish by
competent evidence that petitioners separate corporate veil had been used to conceal fraud,
illegality or inequity.[36]
While we agree with respondents claim that the assets of the National Sugar Development
Corporation (NASUDECO) can be easily traced to PASUMIL,[37] we are not convinced that the
transfer of the latters assets to petitioners was fraudulently entered into in order to escape
liability for its debt to respondent.[38]
A careful review of the records reveals that DBP foreclosed the mortgage executed by
PASUMIL and acquired the assets as the highest bidder at the public auction conducted. [39] The
bank was justified in foreclosing the mortgage, because the PASUMIL account had incurred
arrearages of more than 20 percent of the total outstanding obligation.[40] Thus, DBP had not only
a right, but also a duty under the law to foreclose the subject properties.[41]
Pursuant to LOI No. 189-A[42] as amended by LOI No. 311,[43] PNB acquired PASUMILs assets
that DBP had foreclosed and purchased in the normal course. Petitioner bank was likewise tasked
to manage temporarily the operation of such assets either by itself or through a subsidiary
corporation.[44]
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets pursuant
to Section 6 of Act No. 3135.[45] These assets were later conveyed to PNB for a consideration, the
terms of which were embodied in the Redemption Agreement.[46] PNB, as successor-in-interest,
stepped into the shoes of DBP as PASUMILs creditor.[47] By way of a Deed of Assignment,[48] PNB
then transferred to NASUDECO all its rights under the Redemption Agreement.
In Development Bank of the Philippines v. Court of Appeals,[49] we had the occasion to resolve
a similar issue. We ruled that PNB, DBP and their transferees were not liable for Marinduque
Minings unpaid obligations to Remington Industrial Sales Corporation (Remington) after the two
banks had foreclosed the assets of Marinduque Mining. We likewise held that Remington failed
to discharge its burden of proving bad faith on the part of Marinduque Mining to justify the
piercing of the corporate veil.
 In the instant case, the CA erred in affirming the trial courts lifting of the corporate
mask.[50] The CA did not point to any fact evidencing bad faith on the part of PNB and its
transferee.[51] The corporate fiction was not used to defeat public convenience, justify a wrong,
protect fraud or defend crime.[52] None of the foregoing exceptions was shown to exist in the
present case.[53] On the contrary, the lifting of the corporate veil would result in manifest
injustice. This we cannot allow.

No Merger or Consolidation

Respondent further claims that petitioners should be held liable for the unpaid obligations
of PASUMIL by virtue of LOI Nos. 189-A and 311, which expressly authorized PASUMIL and PNB
to merge or consolidate. On the other hand, petitioners contend that their takeover of the
operations of PASUMIL did not involve any corporate merger or consolidation, because the latter
had never lost its separate identity as a corporation.
A consolidation is the union of two or more existing entities to form a new entity called the
consolidated corporation. A merger, on the other hand, is a union whereby one or more existing
corporations are absorbed by another corporation that survives and continues the combined
business.[54]
The merger, however, does not become effective upon the mere agreement of the
constituent corporations.[55] Since a merger or consolidation involves fundamental changes in the
corporation, as well as in the rights of stockholders and creditors, there must be an express
provision of law authorizing them.[56] For a valid merger or consolidation, the approval by the
Securities and Exchange Commission (SEC) of the articles of merger or consolidation is
required.[57] These articles must likewise be duly approved by a majority of the respective
stockholders of the constituent corporations.[58]
In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL
and PNB. The procedure prescribed under Title IX of the Corporation Code[59] was not followed.
In fact, PASUMILs corporate existence, as correctly found by the CA, had not been legally
extinguished or terminated.[60] Further, prior to PNBs acquisition of the foreclosed assets,
PASUMIL had previously made partial payments to respondent for the formers obligation in the
amount of P777,263.80. As of June 27, 1973, PASUMIL had paid P250,000 to respondent and,
from January 5, 1974 to May 23, 1974, another P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to
respondent.[61] LOI No. 11 explicitly provides that PNB shall study and submit recommendations
on the claims of PASUMILs creditors.[62] Clearly, the corporate separateness between PASUMIL
and PNB remains, despite respondents insistence to the contrary.[63]
 WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE. No
pronouncement as to costs.
SO ORDERED.
Vitug, (Acting Chairman), Sandoval-Gutierrez, and Carpio, JJ., concur.
Melo, (Chairman), J., Abroad, on official leave.

PNB VS. ANDRADA ELECTRIC &ENGINEERING COMPANY

FACTS:
Philippine National Bank (PNB) acquired ownership or management of some assets of the
Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the
resulting public auction by the Development Bank of the Philippines (DBP). PNB organized
National Sugar Development Corp. (NASUDECO) to take ownership and possession of the assets
and ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills. Prior
to being acquired by PNB, PASUMIL engaged the services of respondent for electrical rewinding
and repair, most of which were partially paid by the defendant PASUMIL. The respondent
demanded the payment of the unpaid balance from PNB and NASUDECO but the latter refused
to pay.

ISSUE:
Whether or not the petitioners are liable for the debts of PASUMIL?

RULING:
No. Piercing the veil of corporate fiction may be allowed only if the following elements concur:
(1) control -- not mere stock control, but complete domination -- not only of finances, but of
policy and business practice in respect to the transaction attacked, must have been such that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own; (2) such control must have been used by the defendant to commit a fraud or a wrong to
perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust
act in contravention of plaintiff’s legal right; and (3) the said control and breach of duty must
have proximately caused the injury or unjust loss complained of. The foregoing elements are
absent in the present case and therefore precludes the piercing of the corporate veil. First, other
than the fact that petitioners acquired the assets of PASUMIL, there is no showing that their
control over it warrants the disregard of corporate personalities. Second, there is no evidence
that their juridical personality was used to commit a fraud or to do a wrong; or that the separate
corporate entity was farcically used as a mere alter ego, business conduit or instrumentality of
another entity or person. Third, respondent was not defrauded or injured when petitioners
acquired the assets of PASUMIL.

[G.R. No. 142435. April 30, 2003]

ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners, vs. PACIFIC BANKING CORPORATION,
REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the Heirs of
EUGENIO D. TRINIDAD, respondents.

DECISION
QUISUMBING, J.:

This petition for review on certiorari seeks the reversal of the Decision[1] dated October 21,
1999 of the Court of Appeals in CA-G.R. CV No. 41536 which dismissed herein petitioners appeal
from the Decision[2] dated February 10, 1993 of the Regional Trial Court (RTC) of Quezon City,
Branch 84, in Civil Case No. Q-89-4152. The trial court had dismissed petitioners complaint for
annulment of real estate mortgage and the extra-judicial foreclosure thereof. Likewise brought
for our review is the Resolution[3] dated February 23, 2000 of the Court of Appeals which denied
petitioners motion for reconsideration.
The facts, as culled from records, are as follows:
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Belas Export Trading
(BET), a single proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon
City.BET was engaged in the manufacture of garments for domestic and foreign
consumption. The Lipats also owned the Mystical Fashions in the United States, which sells goods
imported from the Philippines through BET. Mrs. Lipat designated her daughter, Teresita B. Lipat,
to manage BET in the Philippines while she was managing Mystical Fashions in the United States.
In order to facilitate the convenient operation of BET, Estelita Lipat executed on December
14, 1978, a special power of attorney appointing Teresita Lipat as her attorney-in-fact to obtain
loans and other credit accommodations from respondent Pacific Banking Corporation (Pacific
Bank). She likewise authorized Teresita to execute mortgage contracts on properties owned or
co-owned by her as security for the obligations to be extended by Pacific Bank including any
extension or renewal thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to
secure for and in behalf of her mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting
to P583,854.00 to buy fabrics to be manufactured by BET and exported to Mystical Fashions in
the United States. As security therefor, the Lipat spouses, as represented by Teresita, executed a
Real Estate Mortgage over their property located at No. 814 Aurora Blvd., Cubao, Quezon
City. Said property was likewise made to secure other additional or new loans, discounting lines,
overdrafts and credit accommodations, of whatever amount, which the Mortgagor and/or
Debtor may subsequently obtain from the Mortgagee as well as any renewal or extension by the
Mortgagor and/or Debtor of the whole or part of said original, additional or new loans,
discounting lines, overdrafts and other credit accommodations, including interest and expenses
or other obligations of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly,
or indirectly, principal or secondary, as appears in the accounts, books and records of the
Mortgagee.[4]
On September 5, 1979, BET was incorporated into a family corporation named Belas Export
Corporation (BEC) in order to facilitate the management of the business. BEC was engaged in the
business of manufacturing and exportation of all kinds of garments of whatever kind and
description[5] and utilized the same machineries and equipment previously used by BET. Its
incorporators and directors included the Lipat spouses who owned a combined 300 shares out
of the 420 shares subscribed, Teresita Lipat who owned 20 shares, and other close relatives and
friends of the Lipats.[6]Estelita Lipat was named president of BEC, while Teresita became the vice-
president and general manager.
Eventually, the loan was later restructured in the name of BEC and subsequent loans were
obtained by BEC with the corresponding promissory notes duly executed by Teresita on behalf of
the corporation. A letter of credit was also opened by Pacific Bank in favor of A. O. Knitting
Manufacturing Co., Inc., upon the request of BEC after BEC executed the corresponding trust
receipt therefor.Export bills were also executed in favor of Pacific Bank for additional
finances. These transactions were all secured by the real estate mortgage over the Lipats
property.
The promissory notes, export bills, and trust receipt eventually became due and
demandable. Unfortunately, BEC defaulted in its payments. After receipt of Pacific Banks
demand letters, Estelita Lipat went to the office of the banks liquidator and asked for additional
time to enable her to personally settle BECs obligations. The bank acceded to her request but
Estelita failed to fulfill her promise.
 Consequently, the real estate mortgage was foreclosed and after compliance with the
requirements of the law the mortgaged property was sold at public auction. On January 31, 1989,
a certificate of sale was issued to respondent Eugenio D. Trinidad as the highest bidder.
On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a complaint for
annulment of the real estate mortgage, extrajudicial foreclosure and the certificate of sale issued
over the property against Pacific Bank and Eugenio D. Trinidad. The complaint, which was
docketed as Civil Case No. Q-89-4152, alleged, among others, that the promissory notes, trust
receipt, and export bills were all ultra vires acts of Teresita as they were executed without the
requisite board resolution of the Board of Directors of BEC. The Lipats also averred that assuming
said acts were valid and binding on BEC, the same were the corporations sole obligation, it having
a personality distinct and separate from spouses Lipat. It was likewise pointed out that Teresitas
authority to secure a loan from Pacific Bank was specifically limited to Mrs. Lipats sole use and
benefit and that the real estate mortgage was executed to secure the Lipats and
BETs P583,854.00 loan only.
In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners
Lipat cannot evade payments of the value of the promissory notes, trust receipt, and export bills
with their property because they and the BEC are one and the same, the latter being a family
corporation. Respondent Trinidad further claimed that he was a buyer in good faith and for value
and that petitioners are estopped from denying BECs existence after holding themselves out as
a corporation.
After trial on the merits, the RTC dismissed the complaint, thus:

WHEREFORE, this Court holds that in view of the facts contained in the record, the complaint
filed in this case must be, as is hereby, dismissed. Plaintiffs however has five (5) months and
seventeen (17) days reckoned from the finality of this decision within which to exercise their
right of redemption. The writ of injunction issued is automatically dissolved if no redemption is
effected within that period.

The counterclaims and cross-claim are likewise dismissed for lack of legal and factual basis.

No costs.

IT IS SO ORDERED.[7]

The trial court ruled that there was convincing and conclusive evidence proving that BEC was
a family corporation of the Lipats. As such, it was a mere extension of petitioners personality and
business and a mere alter ego or business conduit of the Lipats established for their own
benefit. Hence, to allow petitioners to invoke the theory of separate corporate personality would
sanction its use as a shield to further an end subversive of justice. [8] Thus, the trial court pierced
the veil of corporate fiction and held that Belas Export Corporation and petitioners (Lipats) are
one and the same. Pacific Bank had transacted business with both BET and BEC on the
supposition that both are one and the same. Hence, the Lipats were estopped from disclaiming
any obligations on the theory of separate personality of corporations, which is contrary to
principles of reason and good faith.
The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV No.
41536. Said appeal, however, was dismissed by the appellate court for lack of merit. The Court
of Appeals found that there was ample evidence on record to support the application of the
doctrine of piercing the veil of corporate fiction. In affirming the findings of the RTC, the appellate
court noted that Mrs. Lipat had full control over the activities of the corporation and used the
same to further her business interests.[9] In fact, she had benefited from the loans obtained by
the corporation to finance her business. It also found unnecessary a board resolution authorizing
Teresita Lipat to secure loans from Pacific Bank on behalf of BEC because the corporations by-
laws allowed such conduct even without a board resolution. Finally, the Court of Appeals ruled
that the mortgage property was not only liable for the original loan of P583,854.00 but likewise
for the value of the promissory notes, trust receipt, and export bills as the mortgage contract
equally applies to additional or new loans, discounting lines, overdrafts, and credit
accommodations which petitioners subsequently obtained from Pacific Bank.
The Lipats then moved for reconsideration, but this was denied by the appellate court in its
Resolution of February 23, 2000.[10]
Hence, this petition, with petitioners submitting that the court a quo erred
1) .IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION
APPLIES IN THIS CASE.
2) .IN HOLDING THAT PETITIONERS PROPERTY CAN BE HELD LIABLE UNDER THE REAL
ESTATE MORTGAGE NOT ONLY FOR THE AMOUNT OF P583,854.00 BUT ALSO FOR
THE FULL VALUE OF PROMISSORY NOTES, TRUST RECEIPTS AND EXPORT BILLS OF
BELAS EXPORT CORPORATION.
3) .IN HOLDING THAT THE IMPOSITION OF 15% ATTORNEYS FEES IN THE EXTRA-JUDICIAL
FORECLOSURE IS BEYOND THIS COURTS JURISDICTION FOR IT IS BEING RAISED FOR
THE FIRST TIME IN THIS APPEAL.
4) .IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED PROMISSORY
NOTES, THE DOLLAR ACCOMMODATIONS AND TRUST RECEIPTS DESPITE THE
EVIDENT FACT THAT THEY WERE NOT SIGNED BY HIM AND THEREFORE ARE NOT
VALID OR ARE NOT BINDING TO HIM.
5) .IN DENYING PETITIONERS MOTION FOR RECONSIDERATION AND IN HOLDING THAT
SAID MOTION FOR RECONSIDERATION IS AN UNAUTHORIZED MOTION, A MERE
SCRAP OF PAPER WHICH CAN NEITHER BIND NOR BE OF ANY CONSEQUENCE TO
APPELLANTS.[11]
 In sum, the following are the relevant issues for our resolution:
1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this
case;
2. Whether or not petitioners' property under the real estate mortgage is liable not only for
the amount of P583,854.00 but also for the value of the promissory notes, trust receipt, and
export bills subsequently incurred by BEC; and
3. Whether or not petitioners are liable to pay the 15% attorneys fees stipulated in the deed
of real estate mortgage.
On the first issue, petitioners contend that both the appellate and trial courts erred in
holding them liable for the obligations incurred by BEC through the application of the doctrine of
piercing the veil of corporate fiction absent any clear showing of fraud on their part.
Respondents counter that there is clear and convincing evidence to show fraud on part of
petitioners given the findings of the trial court, as affirmed by the Court of Appeals, that BEC was
organized as a business conduit for the benefit of petitioners.
Petitioners contentions fail to persuade this Court. A careful reading of the judgment of the
RTC and the resolution of the appellate court show that in finding petitioners mortgaged property
liable for the obligations of BEC, both courts below relied upon the alter ego doctrine or
instrumentality rule, rather than fraud in piercing the veil of corporate fiction. When the
corporation is the mere alter ego or business conduit of a person, the separate personality of the
corporation may be disregarded.[12] This is commonly referred to as the instrumentality rule or
the alter ego doctrine, which the courts have applied in disregarding the separate juridical
personality of corporations. As held in one case,

Where one corporation is so organized and controlled and its affairs are conducted so that it is,
in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
instrumentality may be disregarded. The control necessary to invoke the rule is not majority or
even complete stock control but such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is
but a conduit for its principal. xxx[13]

We find that the evidence on record demolishes, rather than buttresses, petitioners
contention that BET and BEC are separate business entities. Note that Estelita Lipat admitted that
she and her husband, Alfredo, were the owners of BET[14] and were two of the incorporators and
majority stockholders of BEC.[15] It is also undisputed that Estelita Lipat executed a special power
of attorney in favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank
on her behalf.[16] Incidentally, Teresita was designated as executive-vice president and general
manager of both BET and BEC, respectively.[17] We note further that: (1) Estelita and Alfredo Lipat
are the owners and majority shareholders of BET and BEC, respectively;[18] (2) both firms were
managed by their daughter, Teresita;[19] (3) both firms were engaged in the garment business,
supplying products to Mystical Fashion, a U.S. firm established by Estelita Lipat; (4) both firms
held office in the same building owned by the Lipats;[20] (5) BEC is a family corporation with the
Lipats as its majority stockholders; (6) the business operations of the BEC were so merged with
those of Mrs. Lipat such that they were practically indistinguishable; (7) the corporate funds were
held by Estelita Lipat and the corporation itself had no visible assets; (8) the board of directors of
BEC was composed of the Burgos and Lipat family members;[21] (9) Estelita had full control over
the activities of and decided business matters of the corporation;[22] and that (10) Estelita Lipat
had benefited from the loans secured from Pacific Bank to finance her business abroad[23] and
from the export bills secured by BEC for the account of Mystical Fashion. [24] It could not have
been coincidental that BET and BEC are so intertwined with each other in terms of ownership,
business purpose, and management. Apparently, BET and BEC are one and the same and the
latter is a conduit of and merely succeeded the former. Petitioners attempt to isolate
themselves from and hide behind the corporate personality of BEC so as to evade their liabilities
to Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate entity seeks
to prevent and remedy. In our view, BEC is a mere continuation and successor of BET, and
petitioners cannot evade their obligations in the mortgage contract secured under the name of
BEC on the pretext that it was signed for the benefit and under the name of BET. We are thus
constrained to rule that the Court of Appeals did not err when it applied the instrumentality
doctrine in piercing the corporate veil of BEC.
On the second issue, petitioners contend that their mortgaged property should not be made
liable for the subsequent credit lines and loans incurred by BEC because, first, it was not covered
by the mortgage contract of BET which only covered the loan of P583,854.00 and which allegedly
had already been paid; and, second, it was secured by Teresita Lipat without any authorization
or board resolution of BEC.
We find petitioners contention untenable. As found by the Court of Appeals, the mortgaged
property is not limited to answer for the loan of P583,854.00. Thus:

Finally, the extent to which the Lipats property can be held liable under the real estate
mortgage is not limited to P583,854.00. It can be held liable for the value of the promissory
notes, trust receipt and export bills as well.For the mortgage was executed not only for the
purpose of securing the Belas Export Tradings original loan of P583,854.00, but also for other
additional or new loans, discounting lines, overdrafts and credit accommodations, of whatever
amount, which the Mortgagor and/or Debtor may subsequently obtain from the mortgagee as
well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said
original, additional or new loans, discounting lines, overdrafts and other credit
accommodations, including interest and expenses or other obligations of the Mortgagor and/or
Debtor owing to the Mortgagee, whether directly, or indirectly principal or secondary, as
appears in the accounts, books and records of the mortgagee.[25]
 As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot
be reviewed on appeal by the Supreme Court, provided they are borne out by the record or based
on substantial evidence.[26] As noted earlier, BEC merely succeeded BET as petitioners alter ego;
hence, petitioners mortgaged property must be held liable for the subsequent loans and credit
lines of BEC.
Further, petitioners contention that the original loan had already been paid, hence, the
mortgaged property should not be made liable to the loans of BEC, is unsupported by any
substantial evidence other than Estelita Lipats self-serving testimony. Two disputable
presumptions under the rules on evidence weigh against petitioners, namely: (a) that a person
takes ordinary care of his concerns;[27]and (b) that things have happened according to the
ordinary course of nature and the ordinary habits of life.[28] Here, if the original loan had indeed
been paid, then logically, petitioners would have asked from Pacific Bank for the required
documents evidencing receipt and payment of the loans and, as owners of the mortgaged
property, would have immediately asked for the cancellation of the mortgage in the ordinary
course of things. However, the records are bereft of any evidence contradicting or overcoming
said disputable presumptions.
Petitioners contend further that the mortgaged property should not bind the loans and
credit lines obtained by BEC as they were secured without any proper authorization or board
resolution. They also blame the bank for its laxity and complacency in not requiring a board
resolution as a requisite for approving the loans.
Such contentions deserve scant consideration.
Firstly, it could not have been possible for BEC to release a board resolution since per
admissions by both petitioner Estelita Lipat and Alice Burgos, petitioners rebuttal witness, no
business or stockholders meetings were conducted nor were there election of officers held since
its incorporation. In fact, not a single board resolution was passed by the corporate board [29] and
it was Estelita Lipat and/or Teresita Lipat who decided business matters.[30]
Secondly, the principle of estoppel precludes petitioners from denying the validity of the
transactions entered into by Teresita Lipat with Pacific Bank, who in good faith, relied on the
authority of the former as manager to act on behalf of petitioner Estelita Lipat and both BET and
BEC. While the power and responsibility to decide whether the corporation should enter into a
contract that will bind the corporation is lodged in its board of directors, subject to the articles
of incorporation, by-laws, or relevant provisions of law, yet, just as a natural person may
authorize another to do certain acts for and on his behalf, the board of directors may validly
delegate some of its functions and powers to officers, committees, or agents. The authority of
such individuals to bind the corporation is generally derived from law, corporate by-laws, or
authorization from the board, either expressly or impliedly by habit, custom, or acquiescence in
the general course of business.[31] Apparent authority, is derived not merely from practice. Its
existence may be ascertained through (1) the general manner in which the corporation holds out
an officer or agent as having the power to act or, in other words, the apparent authority to act in
general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary
powers.[32]
In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of
a special power of attorney executed by Estelita Lipat. Recall that Teresita Lipat acted as the
manager of both BEC and BET and had been deciding business matters in the absence of Estelita
Lipat. Further, the export bills secured by BEC were for the benefit of Mystical Fashion owned by
Estelita Lipat.[33]Hence, Pacific Bank cannot be faulted for relying on the same authority granted
to Teresita Lipat by Estelita Lipat by virtue of a special power of attorney. It is a familiar doctrine
that if a corporation knowingly permits one of its officers or any other agent to act within the
scope of an apparent authority, it holds him out to the public as possessing the power to do those
acts; thus, the corporation will, as against anyone who has in good faith dealt with it through
such agent, be estopped from denying the agents authority.[34]
We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent
credit lines of BEC. Suffice it to state that Alfredo Lipat never disputed the validity of the real
estate mortgage of the original loan; hence, he cannot now dispute the subsequent loans
obtained using the same mortgage contract since it is, by its very terms, a continuing mortgage
contract.
On the third and final issue, petitioners assail the decision of the Court of Appeals for not
taking cognizance of the issue on attorneys fees on the ground that it was raised for the first time
on appeal.We find the conclusion of the Court of Appeals to be in accord with settled
jurisprudence. Basic is the rule that matters not raised in the complaint cannot be raised for the
first time on appeal.[35] A close perusal of the complaint yields no allegations disputing the
attorneys fees imposed under the real estate mortgage and petitioners cannot now allege that
they have impliedly disputed the same when they sought the annulment of the contract.
In sum, we find no reversible error of law committed by the Court of Appeals in rendering
the decision and resolution herein assailed by petitioners.
WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and the
Resolution dated February 23, 2000 of the Court of Appeals in CA-G.R. CV No. 41536 are
AFFIRMED. Costs against petitioners.
SO ORDERED.
Bellosillo, (Chairman), Austria-Martinez, and Callejo, Sr., JJ., concur.
LIPAT VS. PACIFIC BANKING CORPORATION

FACTS:
Petitioners owned "Bela's Export Trading" (BET), a single proprietorship with principal office at
No. 814 Aurora Boulevard, Cubao, Quezon City. In order to facilitate the convenient operation of
BET, Estelita Lipat executed a special power of attorney appointing Teresita Lipat as her attorney-
in-fact to obtain loans and other credit accommodations from respondent Pacific Banking
Corporation (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on
properties owned or co-owned by her as security for the obligations to be extended by Pacific
Bank including any extension or renewal thereof. Teresita, by virtue of the special power of
attorney, was able to secure for and in behalf of her mother and BET, a loan from Pacific Bank
and as security therefor, the Lipat spouses, as represented by Teresita, executed a Real Estate
Mortgage over their property. Thereafter, BET was incorporated into a family corporation named
Bela's Export Corporation (BEC) in order to facilitate the management of the business. Eventually,
the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC
with the corresponding promissory notes duly executed by Teresita on behalf of the corporation.
The promissory notes, export bills, and trust receipt eventually became due and demandable.
Unfortunately, BEC defaulted in its payments. Consequently, the real estate mortgage was
foreclosed and after compliance with the requirements of the law the mortgaged property was
sold at public auction. The spouses Lipat filed a complaint for annulment of the real estate
mortgage issued over the property against Pacific Bank.

ISSUE:
Whether or not the doctrine of piercing the veil of corporate fiction should be applied?

RULING:
Yes. When the corporation is the mere alter ego or business conduit of a person, the separate
personality of the corporation may be disregarded commonly referred to as the "instrumentality
rule" or the alter ego doctrine, which the courts have applied in disregarding the separate
juridical personality of corporations. The court found the evidence on record demolishes
petitioners' contention that BET and BEC are separate business entities. The petitioners were the
owners of BET and were two of the incorporators and majority stockholders of BEC. Both firms
were managed by their daughter and were engaged in the garment business. Both firms held
office in the same building owned by the Lipats. The business operations of the BEC were so
merged with those of Mrs. Lipat such that they were practically indistinguishable. It could not
have been coincidental that BET and BEC are so intertwined with each other in terms of
ownership, business purpose, and management. Apparently, BET and BEC are one and the same
and the latter is a conduit of and merely succeeded the former. Petitioners' attempt to isolate
themselves from and hide behind the corporate personality of BEC so as to evade their liabilities
to Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate entity seeks
to prevent and remedy. In our view, BEC is a mere continuation and successor of BET, and
petitioners cannot evade their obligations in the mortgage contract secured under the name of
BEC on the pretext that it was signed for the benefit and under the name of BET.