G.R. No. 113103 June 13, 1997 NATIONAL POWER CORPORATION, THE NATIONAL POWER CORPORATION BOARD OF DIRECTORS, CONRADO D.

DEL ROSARIO and MARCELINO ILAO, petitioners, vs. THE HON. COURT OF APPEALS, HON. TOMAS V. TADEO, JR., in his capacity as Presiding Judge, Regional Trial Court of Quezon City, Branch 105 and GROWTH LINK, INC., respondents. GROWTH LINK, INC., petitioner, vs. COURT OF APPEALS and NATIONAL POWER CORPORATION, respondents. Raising the sole issue of the illegality of the award of an exorbitant and unconscionable amount as attorney's fees granted 1 by the Regional Trial Court 2 in a Petition for Mandamus with Preliminary Mandatory Injunction and Damages 3 and affirmed by the Court of Appeals 4 in its Decisions 5 in CA-G.R. SP No. 26898, entitled, "Growth Link, Inc. v. National Power Corporation, et al.," therein respondents-appellants National Power Corporation (NPC), the NPC Board of Directors, Conrado D. del Rosario and Marcelino Ilao, petition this court to reverse said Decision "insofar as the award of attorney's fees is concerned." 6 Growth Link, Inc. (hereafter, Growth Link), which is the petitioner-appellee in CA-G.R. SP No. 26898, for its part, comes before us with a separate Petition in challenge of the same Decision which we are asked to completely reverse, Growth Link praying 7 instead for the affirmance in toto of the trial court decision. Growth Link's Petition is docketed as G.R. No. 116000. In a Resolution 8 dated September 28, 1994, we granted the Motion for Consolidation filed by Growth Link and forthwith ordered the consolidation of G.R. Nos. 113103 and 116000. We proceed from the following premises: The facts of the case as summarized by the trial court are as follows: 1. [Growth Link] is a duly registered domestic corporation while . . . NPC is a duly organized government corporate entity while the individual [petitioners] are officers and/or members of the NPC Board of Directors, except that [petitioners] Conrado Del Rosario and Crispin T. Ubaldo are no longer connected with . . . NPC; (ON THE FIRST CAUSE OF ACTION): 2. That on October 23, 1984, [Growth Link] was duly awarded Purchase Order (PO) No. 086653 to suply (sic) NPC, subject to certain terms therein expressed, two (2) pieces Pielstick Piston Skirt specified under Code No. 02.005.0171.00, Plate No. 6.02.005.04 at the total price of P230,000.00; 3. That subject Piston Skirts were actually delivered to and received by the NPC Manila (RWSS) Warehouwe (sic) on January 16, 1985, subjected to actual visual inspection and were found conforming to technical specifications per PO, hence were accepted and approved for payment; 4. That said Piston Skirts were later shipped by NPC to the end-user, the General Santos Diesel Plant (GSDP), which acknowledged delivery thereof as of January 29, 1985; 5. That under date 24 May 1985, four (4) months from delivery, the following findings/observations were allegedly reported found in said Piston Skirts, namely: (a) damage[d]/used O-rings; (b) scratches on mid-span; (c) scratches on top and bottom portion of skirts; (d) carbon residue/deposit on top grove of piston skirts; 6. That the amount of P16,879.50 was deducted by NPC from [Growth Link's] other receivables thru PNB Check No. 102690 per NPC Credit Memo No. 030910; 7. That under date 6 March 1986, [Growth Link] was in receipt of a letter from the then NPC President, Hon. G. Y. Itchon, formally demanding immediate replacements of the Piston Skirts, otherwise, NPC will be contrained (sic) to demand the refund of P227,470 as purchase costs of the items and P23,051 as cost of delivery . . . plus applicable interest charges reckoned from date of receipt of NPC payment, meanwhile said amounts are withheld from [Growth Link's] outstanding receivables from NPC, pending replacements with the warning that a repetition of similar delivery or any subsequent infraction shall amount to immediate cancellation of [Growth Link's] accreditation with the NPC and prosecution of appropriate legal action; 8. That as direct consequence of the pressures aforecited and despite the actual investigation findings on the rejected items by the foreign principal's authorized representative . . . [Growth Link] was eventually constrained to replace, as [it] actually did replace the questioned piston skirts, and the rejected items shipped back to Japan for evaluation/analysis; ON THE SECOND CAUSE OF ACTION:

9. That under date 23 February 1984, [NPC] ordered thru [Growth Link], under Indent Order (I.O.) No. 07600, Pielstick Engine Pistol Rings for the Panay Diesel Power Plant (PDPP-Dingle) per Inquiry No. F2C84-3/26-1053TR, PR No. 07381, worth FOB Y1.87 M; 10 That subject piston rings were shipped from Japan direct to consignee, the NPC, and were accepted and received by the end-user, PDPP-Dingle Panay, on May 30, 1985; 11. That under date 3 June 1986, almost a year later, Mr. Romeo A. Perlado, NPC VP-Visayas Region, addressed a Memo to Ms. C.V. Daplas, NPC Manager, Procurement Division, [that the Pielstick Engine Piston Rings for PDPPDingle Panay under] Indent Order No. N-07600 did not reach its normal expected life of 12,000 RH and [that Ms. Daplas is] to . . . check and verify who was the supplier of these materials and . . . request them to replace their materials, if not . . . [to] put on record that . . . this supplier [gave] a bad supply of materials; 12. That upon the intercession of [Growth Link], the foreign supplier of said indented piston rings telexed NPC to send thru [Growth Link] all damaged rings/circumstantial data for manufacturer's analysis/evaluation with further info that other NPC orders supplied by Fuji includes [sic] the same items per IO 7395, 7501 and 7694; 13. That acting upon the foreign supplier's telex message aforecited, Ms. Cecilia V. Daplas, the NPC Manager, Procurement Division, Diliman, Quezon City, in a Memorandum dated 11 July 1986, to the NPC VP Visayas Region, requested [for] two sets of these rings, one of which will be sent to the manufacturer and the other for an analysis by an independent party in the Philippines with the further request that the rings to be sent . . . should bear the markings of the manufacturer in order to avoid any room for doubt or denials that the damaged rings are their manufacture[d] [products]; 14. That in his report . . . dated April 6, 1987, Naciano T. Caballero, Manager, CMTS Department, addressed to Mr. J.C. Guaderrama, Manager, Materials Management Department, NPC, re: PDPP-I Pielstick Piston Rings, stated: 1. Our inspections failed to produce the rejected pieces as there are no available damaged piston rings at the plant to be presented to Procurement per memo of Ms. Cecilia V. Daplas, Manager, Procurement Division dated 11 July 1986 addressed to VP-VRC . . . forwarded to this office for proper action; 2. Operating indicators and maintenance data fail to completely show evidence that will substantiate earlier reports of premature damage. 15. That six (6) months later herein petitioner was in receipt of a letter dated October 16, 1987 from NPC VPAdministrator, Ms. P. A. Segovia (Ms. Segovia was among those previously furnished the Caballero Report dated April 6, 1987, to the effect that the 4 pieces of the damaged rings are now available for release with the demand that all rejected piston ring[s] be now completely replaced by genuine parts manufactured by S.E.M.T. — licensed manufacturer); ON [THE] THIRD CAUSE OF ACTION: 16. That under date 14 June 1986, [Growth Link] was awarded Purchase Order (PO) No. 095435 to deliver four (4) pieces of Right Hand Exhaust Valve Body, Part No. 02.015.0226.00; Plate No. 02.015.11 and another four (4) pieces of Left Hand Exhaust Valve Body, Part No. 02.015.0117.00; Plate No. 02.015.12 at the NPC Old Bldg. Port Area, Manila; 17. That upon delivery at the NPC Old Warehouse, Port Area, Manila on October 13, 1986 subject Valve Body were forthwith immediately rejected by the Quality Assurance Group on ground that they are manufactured by Fuji Diesel Co., Ltd., which is not a licensee of S.E.M.T. Pielstick [and] that only Pielstick engine spare parts coming from the manufacturer or its licensees shall be accepted; 18. That the rejected exhaust valve body items still remain at the NPC Warehouse, Port Area, Manila; ON THE FOURTH CAUSE OF ACTION: 19. The existence of the memo of NPC's General Counsel . . . of January 28, 1987 . . . is admitted; ON THE FIFTH CAUSE OF ACTION: 20. Under date 12 October 1987 [Growth Link] was in receipt of a leter (sic) dated 1 October 1987 from the . . . then NPC President C. D. Del Rosario, that NPC is constrained to refrain transacting business with [Growth Link and] further alleging [that] certain subsequent deliveries by petitioner were either rejected or found with missing items as additional infractions, thus: a. the 72 pieces of Screws covered by IO No. M-08354-AA allegedly did not conform with the dimensions of the original part; b. the shipment consisting of washer, nut and screw for Pielstick Engine covered by IO No. M-07692 dated April 24, 1984 [had] four (4) missing items out of the eight (8) items ordered; c. BBC Turbocharger spares covered by PO No. 096345 dated October 9, 1985 and PO No. 096626 dated November 10, 1985 [were] rejected on March 10, 1987 by the Quality Assurance Dept. on grounds that the items

delivered were found to be manufactured by IHI, Japan which although a BBC licensee, was not specified manufacturer on [Growth Link's] bid offer; d. Pielstick Engine spares covered by IO No. N-08186 dated July 20, 1985 shipped direct from Japan arrived at Aplaya, reported[ly] short-shipped . . . 21. The existence of the Reply communication and [Growth Link's] motion for reconsideration is admitted; 22. [Growth Link] was pre-qualified as an NPC supplier in 1982. The following facts have also been shown: 1. Since 1982 when, as admitted, [Growth Link] was pre-qualified as NPC supplier, up to the time in 1987 when . . . NPC refused to do business with petitioner, the latter had numerous sales through public biddings with a total value of over P60 million . . . 2. [Growth Link] was the lowest bidder and the most advantageous bidder in several other biddings . . . but NPC did not issue the awards. 3. As a matter [of ] procedure, NPC dealt only with accredited suppliers and NPC recognized [Growth Link] as duly accredited. . . . 4. At the start in 1982 [Growth Link] complied with the accreditation requirements of NPC by submitting voluminous documents like the articles of incorporation of GLI, corporate profile, appointment of [Growth Link] as exclusive supplier and distributor of spare parts by foreign manufacturers . . ., suppliers' warranties . . . catalogues, company profile and other information about foreign suppliers . . . And, more importantly, it did not anymore undergo the same process ad (sic) subsequent biddings [that Growth Link] participated in. So that the accreditation was a continuing one and not on a per transaction basis. 5. On February 13, 1987 NPC announced its decision to stop transacting business with [Growth Link] . . . and was blacklisted due to violation of the conditions of the contract. . . . 6. The grounds for the cancellation of [Growth Link's] accreditation . . . are three, namely: a). that [Growth Link] supplied second hand piston skirts; b). that piston rings supplied by it did not reach the required running hours; c). that [Growth Link] supplied exhaust valve bodies manufactured by Fuji Diesel Ltd. which was not licensed by SEMT. 7. [Growth Link] refuted the charges in several letters . . . and was asking for opportunity to be heard at a formal hearing on [the] request for reconsideration but same was not acted upon by NPC. 8. [NPC's] witness Alejandro admitted that he knew of instances of switching cargoes in the Port Area of Manila (tsn, Oct. 16, 1990, p. 23). 9. On October 23, 1984, [Growth Link] was awarded by NPC Purchase Order No. 088653 to supply NPC two (2) pieces of Pielstick Skirt specified under Code No. 02.005.017.00, Plate No. 6.02.005.04 at the total price of P230,000.00 . . . These items were manufactured in Japan by Fuji Diesel Ltd. 10. From Japan these were shipped to the Philippines on board Everett Orient Line vessel . . . and Bureau of Customs tagged the shipment as brand new. . . . 11. Subject piston skirts were actually delivered to and received by NPC Manila (RWSS) Warehouse on January 16, 1985 and subjected to actual visual inspection and were found conforming to technical specifications per PO, hence, were accepted and approved for payment. . . . 12. Having complied with all the terms and conditions in the PO, [Growth Link was] paid by . . . NPC for said piston skirts. 13. The piston skirts were shipped by NPC to end-user, the General Santos Diesel Plant (GSDP) and the latter rejected the items in view of the findings made on May 24, 1985 of a) damaged/used O-rings; b) scratches on midspan; c) scratches on top and bottom portion of skirts; d) carbon residue/deposit on top grove of piston skirts . . . . 14. On June 18, 1985 [Growth Link] notified foreign supplier (Fuji Diesel) of the findings of the end-user . . . Fuji sent to the Philippines its own investigator to conduct inspection/investigation and on August 6, 1985 said Fuji investigator submitted his findings on the rejected piston skirts as follows: 1. The rejected/inspected items were not the ones supplied by us for [the] following reasons:

. Procurement Division. . 24. .. NPC VP-Visayas Region. 15. V. However. are highly respected and prominent companies . stated: further verification revealed that the rejected items by GSDP were not the one[s] supplied by the principal of Growth Link Inc. 21. NPC . or any of its licensees.a) Identification marks engraved on the rejected items are different from the standard markings of FUJI DIESEL LTD. In his report . a third party surveyor. . [Growth Link's] foreign suppliers. N-07600 did not reach its normal expected life of 12. . . . Port Area. The piston skirts were covered with plastic material The bolts and nuts which are included in the delivery were similarly wrapped with plastic material and musking [sic] tape which is place (sic) in one of the piston skirts. issued a certification that (a) the two (2) pieces of Pielstick Piston Skirts covered by PO 086653 were brand new parts manufactured by our company. NPC's Osilla in his report dated September 10. . [the] following were observed: a) Reamer bolts that were part of the Fuji supplied items were missing. c) The presence of rust on the upper portion of the item indicates that the item is not new. which is similar to that in the P. scratches and dents were noted on the pheriphery [sic] of the piston pin holes. . This was considered insignificant and will not in any way affect the soundness of the item. or almost a year later. NPC Manager. . b) The items supplied by Fuji were part of a production batch made up of 16 items. . on October 13. Romeo A. . . On June 3. Caballero. NPC's witness Mangosing in his report .. . that the purchased piston rings covered by I. . . Daplas and that operating indicators and maintenance data fail to completely show evidence that will substantiate reports of premature damage . . The two pieces of piston skirt inspected were packed in a single Palo China crate. CMTS Dept.O. 1986. The alleged piston rings remained with . for reason that NPC refuses to issue the authorization to obtain possession of subject item with complete description/identification/marking for manufacturer['s] purposes. 18. . . On May 14.. NPC's Agcaoili stated: . found that the rejected items were second hand and not manufactured in Japan. Ltd. . received at Gen. . same were shipped from Japan direct to consignee [sic].000 RH . 20. Manila. . Visayas Regional Office. . 25.M. which were delivered to NPC Old Warehouse. 1986 Fuji Diesel Co. . after careful analysis. in a communication dated April 6. No. . Pielstick [and] that only Pielstick engine spare parts coming from the manufacturer or its licensees shall be accepted. Perlado. 19. . . The items . Quezon City. Ltd. 16. and [were] obviously second hand. 17. Engr. .T. 1985 . which excluded Fuji as manufacturer of the particular items.. . Diliman. PDPP. . .O. Ltd.E. Fuji and I & N International. .. But [Growth Link] did not accept the return of the rejected items for reason [that] there was nothing in the PO . 07600 for the Panay Diesel Power Plant (PDPP).T. 1986. . telexed NPC to send thru [it] all damaged rings/circumstantial data for manufacturer's analysis/evaluation . NPC's Mangosing confirmed Agcaoili's findings in a separate report. thus: . . . On the photographs taken of the rejected items. . upon intercession of [Growth Link].O. and were accepted and received by the end-user. A look through the open and uncovered spaces between the piston skirt and the crating material show[s] that the wax protective coating is thoroughly applied. b) Fuji did not supply nuts that were part of the reject. Materials Management Dept. 1985. Each of the 16 items was engraved with the assigned number within the series 65511 to 65526. . and Plate No. C. but (b) the two (2) pieces of Piston Skirt recently returned had been identified as products of other than [Fuji] company. As to the Pielstick Piston Rings ordered by NPC from petitioner on February 23. 1984 under I. . NPC Manager. which is not a licensee of S. .. . Guadarrama. . . NPC Manager. . Azuma Kako Co. the NPC. The description of the delivery was written on a piece of plywood specifying the corresponding Code No. The piston skirt was provided with a wax protective coating. 22. 1987 to Mr. stated that: our inspection failed to produce the rejected pieces as there are no available damaged piston rings at the plant to be presented to Procurement per Memo of Ms. It only required a certificate of compliance from [the] manufacturer upon delivery which was complied with and for reason that the manufacturer was not specified to be S. Closer scrutiny on the piston skirt thru the uncovered and wide spaces between the crating materials showed that there were no signs of damages and/or unusual imperfections except for slight dents on the periphery of the piston pin hole. Naciancino T. — the company [that] manufactured the items . on May 30. . addressed a Memo to Ms. . noted that the defects he found on the piston skirts delivered by [Growth Link] were slight dents and scratches. 26. 23. .E. these were rejected by NPC Quality Assurance group on ground that they are manufactured by Fuji Diesel Co.M. . supplied against [NPC's] subject order. 2. Santos had serious defects . [Growth Link's] foreign supplier of the piston rings. Daplas. As to the exhaust valve bodies.

00 for payment of items delivered under P. CANCEL its name from [NPC's] blacklist. . . the [NPC and other] respondents [therein] and/or counsel failed to appear but upon motion of . Consequently. plus 12% interest thereto [sic] per annum from July. . . No. had already issued 24 orders to Fuji valued at P28. . In an order dated February 15.000. 1987 filed by [Growth Link] with [NPC] . .070. 1985 plus 12% interest thereto [sic] per annum from November.249.650. 1991 in favor of petitioner Growth Link. . . Napocor's motion for reconsideration of the aforecited order was denied on September 27. 08114 dated May 24. among others. . 1986 until fully paid. [NPC]. . directing the . The trial court resolved Growth Link's application for preliminary mandatory injunction in an order dated June 3. 1988. No. 095435 plus 12% interest thereto [sic] per annum from November 13. comply and/or abide with the said Purchase Orders and/or Indent Orders mentioned in the petition as well as to refrain.745. which is a licensee of SEMT for PC type engines . c) P144. [Growth Link] filed [a] petition for mandamus with preliminary injunction and damages with the trial court on February 8. [T]he trial court acquired jurisdiction over [them] only upon their voluntary appearance in court on March 18. These also show that Fuji was a licensee of SEMT for PA type engines.245. 1987 until fully paid. d) P27. plus 12% interest thereto [sic] per annum from September. 1987 until fully paid. . [which denied Growth Link's] request for reconsideration without even investigating . 1985 until fully paid. The [NPC] condemned [Growth Link] as a blacklisted bidder and supplier without hearing and thus deprived [it] of its rights without due process. NPC or its duly authorized representatives to honor. the court granted the issuance of the writ. 1988 was set aside in an order dated April 18. However. After trial on the merits. No.000. and ALLOW [Growth Link] to participate and/or submit its bid proposals at NPC biddings. . 1986 until fully paid. Growth Link's counsel. which included a statement of capital-production-sales tie up with Niigata Engineering Co. . 1988 for the reason that [the] .O.245. 1986 until fully paid.000. . Petitioner submitted to NPC prequalification documents of its supplier Fuji . 1986 until fully paid. . . plus 12% interest thereto [sic] per annum from November 18. . or on March 4. .216. . . f) P176. Inc. 1988. e) P182.00 [which was] the amount deducted by [NPC] from [Growth Link]'s outstanding collectibles. upon the same bond of P2. . 1988. . subject to the filing by petitioner of a surety bond in the amount of P2.00 representing the cost of the replaced piston skirts under P. and ordering that: . . 1988. No. .821. . it ordered the NPC and its officers and members of the Board of Directors. b) P16. NPC. the same was approved by the Court and the writ of preliminary mandatory injunction was issued: .00 representing unrealized commissions on various items bidded where [Growth Link] was the lowest bidder but which was not awarded by NPC to it.00 representing unrealized commission on the cancelled Indent Order No.821. 096626 plus 12% interest thereto [sic] per annum from April 4. . . . .27. .O. When [Growth Link] filed the bond . one who received the summons . . h) P6. the trial court required the [NPC] and other respondents [therein] to file their Comment and/or Answer. said order of March 4. to temporarily LIFT the suspension of petitioner as duly accredited NPC supplier.53 . . cease and desist from cancelling the standing accreditation of [Growth Link] with [NPC] and allow the former to participate in any bidding or award like any other accredited suppliers .O.870.O. 28. . the court a quo rendered the decision dated September 10. . F2c84-3/5-1027 and 1028Tr for Pielstick Engine Spares.00 for payment of items delivered under P. 1988.00 representing unrealized commission on the Foreign Inquiry Nos. 1985 until fully paid.583. 9 The trial court found the NPC guilty of gross evident bad faith in its dealings with Growth Link as its duly accredited supplier. . Thereafter. during the pendency of said motion for reconsideration and while the same is unresolved finally by the Court.. . . 096345 plus 12% interest thereto [sic] per annum from April 4.00 for payment of items delivered under P. .000. 1988 declaring. 1988. from 1982 to 1986. that: [T]here is pending [a] motion for reconsideration dated October 20. 086653 plus 12% interest thereto [sic] per annum from April 9. . [was] not authorized to receive summons for the corporation nor the individual defendants [therein] .53 previously filed by [Growth Link] . . At the hearing on February 24. g) P1. to jointly and severally pay Growth Link the following amounts: a) P230. Ltd. . .00. . the latter was allowed to present its evidence ex parte insofar as the issuance of the writ is concerned. .356.

Santos Plant. cease or desist from cancelling the standing accreditation of [Growth Link] with the [NPC] and allow the former to participate in any bidding or award like any other accredited suppliers.). Due process was denied by NPC to [Growth Link]. and n) Costs of suit. NPC just received with deaf ears and closed eyes. . We find the action of Napocor in requiring [Growth Link] to replace the two (2) pielstick piston skirts . The question of warranty for hidden defects or implied warranty on the quality or fitness of the items delivered by petitioner and received by NPC could have been avoided had NPC complied with the requirement of law . control. AS PRAYED FOR BY GROWTH LINK. Inspection/Test of Napocor as approved by L.00 for moral and exemplary damages suffered by [Growth Link]. 10 Refusing to concede its solidary liability for the aforegoing amounts. . We note with significance the findings of R. the several letters of explanation of [Growth Link].000. piston rings. among other things. and disposition of the items .853. . IV THE LOWER COURT ERRED IN AWARDING THE ENTIRE AMOUNT OF DAMAGES. 1571 OF THE CIVIL CODE. . NPC continued to disallow [Growth Link] to participate in any bidding. Mangosing. the NPC. The writ of preliminary mandatory injunction dated September 28. was honored by NPC more in its breach than in its compliance. as and for attorney's fees.C. 1987 until fully paid. Additionally. j) P2. 1985.500. [T]he pielstick skirts when delivered on January 16.00 as litigation expenses (premiums paid on the injunction bond. MORE OR LESS. . II THE LOWER COURT ERRED IN APPLYING ART. But NPC condemned [Growth Link] as a blacklisted bidder and supplier without hearing and deprived [Growth Link) of its rights without due process.419. and Roberto Agcaoili whose report stated that said piston skirts were subjected to "actual visual inspection and were found conforming to technical specifications per P. FPS85-11/26-121AA and FPS85-11/6-005AA. FPS85-11/26-12AA. F. NPC never filed any action against [Growth Link] within the six months period from the delivery of the piston skirts. . Chief Engineer. and/or pilferage as the items are in the full possession and control of NPC. . and the latter's request for reconsideration and/or investigation was simply wastebasketed. they were adequately provided with protective wax coating and further preserved with pellucid plastic sheet wrappers. to refrain.00 . . Agcaoili. A. 3. . III THE LOWER COURT ERRED IN FINDING THAT NAPOCOR BREACHED ITS WRIT OF PRELIMINARY INJUNCTION. l) P30. k) P1. and others despite the fact that it was in possession. closer scrutiny on the piston skirt . the piston skirts were accepted and approved for payment and on February 25. Manager of Napocor Assurance Group Utility Operations. m) P40. 11 The respondent Court of Appeals rejected the first three assigned errors and in effect affirmed the trial court's findings of gross evident bad faith on the part of NPC. damaging. and its officers and members of its Board of Directors appealed the trial court's decision to the Court of Appeals and sought its reversal on the basis of the following assignment of errors: I THE LOWER COURT GRAVELY ERRED IN FINDING NAPOCOR GUILTY OF GROSS EVIDENT BAD FAITH. Osilla. Jr. In the fact-finding report and verification of the delivery of the pielstick piston skirts.2 MILLION. Napocor paid Growth Link the net amount of P227.000.00 plus 30% of the principal amount recoverable.000. 1988 which directed NPC. etc. plus 12% interest thereto [sic] per annum from October. showed that there were no signs of damages and/or unusual imperfection except for slight dents on the pheriphery . . . And yet there was strong ground [for Growth Link's] request considering that the items alleged to be defective were not the same items delivered or shipped by [Growth Link's] foreign supplier direct to NPC or NPC's end-user. and [Growth Link] could not do anything to prevent switching. .i) P1. We find that the trial court based its conclusions of gross evident bad faith in Napocor's dealings with [Growth Link] on the following: 1.00 representing unpaid commission from the disregarded lowest bid of [Growth Link's] principal on NPC Foreign Inquiry Nos. V THE LOWER COURT ERRED IN HOLDING NAPOCOR JOINTLY AND SEVERALLY LIABLE WITH ITS OFFICERS.000. . Thus [Growth Link] was left at the mercy of NPC who [sic] arbitrarily withheld payment or deducted payment from other items unless the items which NPC concluded as defective be replaced by [Growth Link]. 1985 were inspected by the Quality Assurance Group of Napocor itself composed of Engrs.470." On the basis of such findings. that the delivered items are definitely piston skirts intended for Pielstick Diesel engine for Gen. both items (in one crate) appeared new.00 for compensatory damage[s] suffered by petitioner due to loss of business relationship and standing here and abroad. . .000.O. The Court of Appeals reasoned: . . . PESOS P13. 2. unjustified. E.

Jr. [W]hile we affirm the findings and conclusion of the trial court as valid basis of the award for damages.000. they were rejected by the end-user and reshipped to Manila . . . We find no justification for the award given by the trial court to [Growth Link] in paragraphs "g". the manufacturer's certificate of authenticity and warranty cited by Napocor that allows a rejected item to be returned for repair and replacement provides that the "claims (of defect) must be reported within a reasonable period from the date of delivery" precisely to prevent a substitution of the thing delivered .00 and P1. We. Moreover. . to be too huge. No. on the basis of the facts established. . . When these pielstick piston skirts arrived at the Gen. 086653.G.00 for compensatory damages and to P500.500. We find no merit in Napocor's contention that the trial court erred in applying Art. 51 O. 1571 of the Civil Code. We find the awards of P2. Mr. [Growth Link] was [also] made to answer for an alleged discrepancy in the Pielstick Engine Piston Rings for the Panay Diesel Power Plant (PDPP-Dingle) which .000.O. the same were found by Napocor's own engineers to be brand new .000. The Court of Appeals ruled: An invitation to bid is not an offer which. give the winning bidder a vested right to its earnings and commissions arising therefrom. .C. which supposedly represent commissions unrealized by [Growth Link] on the basis of mere Foreign Inquiries for the reason that unlike Purchase or Indent Orders which are the result of approved bids and. "advertisements for bidders are simply invitations to make proposals. and "i" of the decision appealed from. do not.. which is not a licensee of S. . of the advertiser's right "to reject any and all bids" is one of the terms and conditions therein which the bidder has accepted (Surigao Mineral Reservation Board vs. Thus it reduced the same in this wise: . therefore. 1986 by Mr. therefore. A. We cannot fault [Growth Link] for entertaining the idea that there was a switching of the brand new pielsticks with old ones considering the lapse of time between the delivery and the rejection . . 030910.50 from [Growth Link's] outstanding collectibles as evidenced by PNB Check No. .M. . 120 SCRA 112). . . 1985 but was questioned after a year later on June 3. respectively. Padilla stated that the delivered items were second hand and with damages. . #2. was shipped from Japan direct to Napocor and accepted and received by the end-user on May 30. 102690 per NPC Credit Memo No.870. the amounts awarded by the trial court merely on the basis of [Growth Link's] various unapproved bids are too speculative and uncertain to justify the awards. (4) pieces of Right Hand Exhaust Valve Body which. . hence. . p. that shipment was recommended for payment and was actually paid for by Napocor. otherwise. . They are. under the circumstances of this case that calls for this court's duty to tone down petitioner's fantastic claims (Baluyot vs. 784). 24 SCRA 491) and such reservation does not make it obligatory for a government agency to award its contract to the lowest bidder (C & C Commercial Corp. coupled with the fact that when they were originally landed and inspected.000. Under the guidance of the aforecited authorities. Cloribel.000 RH" and requested that they be replaced. . . . "h". [Foreign Inquiries] as mere invitations to make offers or proposals. Santos Diesel Plant and re-inspected . . NPC VP-Visayas Region claiming that said piston rings "did not reach its normal expected life of 12. produce a contract that would ensure earnings and/or commissions for the bidder. agree and affirm the lower court's findings that Napocor's gross evident bad faith was reflected in the aforecited actions taken against [Growth Link]. We cannot accept this argument especially considering that the facts clearly show that the pielsticks piston skirts in question when delivered to Napocor were inspected. In the language of Article 1326 of the Civil Code. During the negotiations with Napocor. ." The reservation in the Invitation to Bid. We only have to cite by reference that portion of the decision appealed from . But while the respondent appellate court affirmed the trial court's finding of gross evident bad faith on the part of NPC. another factor upon which the lower court based its finding that Napocor committed gross evident bad faith. if accepted. [Growth Link] was treated similarly by Napocor with regard to . .. Additionally.[sic] of the piston pin hole which was considered insignificant and will not in any way affect the soundness of the item. 1986. On the question of the lower court's findings that the Napocor breached its writ of preliminary injunction. . it reversed the trial court insofar as it found NPC liable for amounts claimed by Growth Link to be unrealized commissions properly accruing to them had the NPC recognized them as the lowest and most advantageous bidder under several foreign inquiries. the respondent Court of Appeals found valid basis therefor under the circumstances of these consolidated cases.000. Moreover.470. As a matter of fact. otherwise. . Because of the admission of Napocor's witness. therefore. . Menor. but respondent appellate court was no less struck by the enormity of the amounts awarded by the trial court as damages. the inspection report of Mr. Teodoro Miguel of Growth Link committed to replace the rejected items . . . . . On top of that. . Hence.E. Napocor deducted the sum of P16.000.00 for compensatory damages and for moral and exemplary damages. were immediately rejected by the Quality Assurance Group on the ground that they were manufactured by Fuji Diesel Co. . 12 As to the awards for compensatory. . they will put on record that its supplier has a bad supply of materials. upon delivery to NPC's old warehouse at Port Area. moral and exemplary damages.T. Growth Link would be required to refund the amount of P227. Romeo Perlado.00. by itself. Mangosing. hereby reduced to P1. Ltd. . . accepted and certified to by Napocor's representatives as brand new and in accordance with its P. . . unless the contrary appears. that he knew of instances of switching cargoes in the Port of Manila . matures into a contract. Manila on October 13. vs.00 for moral and exemplary damages. The above instances are in addition to the grounds mentioned by the trial court as constitutive of the pressure imposed by Napocor upon [Growth Link]. and the advertiser is not bound to accept the highest or lowest bidder. . Lopez. it can readily be seen that Napocor virtually dragged its feet to thwart the effectivity of the writ of preliminary mandatory injunction issued by the lower court. .

. 13 From the Decision of the Court of Appeals. JUANITO N. At any rate. Growth Link prayed for and was awarded by the trial court. the amount of P30. has allowed an award of 20% 14 to 25% 15 of the total indebtedness involved in the litigation. 113103 A cursory review of the above errors raised by the NPC before the Court of Appeals. for the upgrading of the amounts granted as compensatory. In this case. as officers of Napocor. HON.000. we should point out. .R. It is significant to point out that both the original Petition and Amended Petition for Mandamus filed by [Growth Link]. . the respondent Court of Appeals held: Finally. is being sued in his official capacity as the Vice-Chairman of the NPC Board of Directors and President of the Respondent firm. . HON. much less. and Respondent. Thus. as an error on appeal. HON. is significantly premised on the acceptance of all the other findings and conclusions of the Court of Appeals. So long as it has sound basis. . . DEL ROSARIO . ERNESTO M. EDGARDO B. the determination. is being sued in his official capacity as Chairman of the NPC Board of Directors. . this court. The matter of 5% differential will not make it so. No. . NATIONAL POWER CORPORATION . considering that the officers and members of the Board of Directors of NPC were sued in their official capacities. Respondents-Members of the NPC Board of Directors. . any circumstance which would necessitate the piercing of Napocor's corporate veil so as to make the individual respondents personally liable for Napocor's obligations. While said amount may itself be huge by ordinary standards. HON. now conclusive. we believe that the same is warranted when tested against the criteria that serve as reglementary guide for the courts to determine the proper amount of attorney's fees due the winning party. VIDANES . if we consider the complexities of the instant case. . . . ABOITIZ . NOGUERRA. Respondent. . While the Amended Petition added the words "or respondents" to its prayer that the trial court order respondent corporation to pay the amounts claimed therein. . . the same must be deemed no longer open to modification. in at least two (2) occasions. . . In fact. the NPC cites these cases in its Petition. were being sued in their respective official capacities.Likewise finding NPC's objection to the trial court's finding of solidary liability to be justified. exorbitant and unconscionable. . . involving as it did several causes of action each of which proved difficult to establish. MARCELINO ILAO . . We find the instant consolidated petitions to be both wanting in merit. . insofar as the amount of the attorney's fees granted by the trial court is concerned. we agree with Growth Link when it pleads that: We take the citations as an implied admission by [the NPC] that an award of 25% of the obligation. Thus. is being sued in his former official capacities as Vice-Chairman of the NPC Board and President of Respondent firm . CRISPIN T. shows that the NPC never assigned the issue of the exorbitant amount awarded to Growth Link as and by way of attorney's fees. NESTOR M. . . . . much less claim. UBALDO and HON. The determination of amount of attorney's fees largely depends on the court's discretion. contain identical allegations in identifying the individual respondents in this case. and made more so by petitioner's sustained albeit unjustified. CONRADO D. thus: 2. resistance.00 and 30% of the amount recoverable. Respondent. We find that the lower court erred in holding the individual respondents "jointly and severally" liable with Napocor. I G. ESPIRITU . there is no allegation whatsoever that would justify the imposition of a "joint and several" liability with (Napocor) of the individual respondents who. Thus this suit was a compelled recourse against arbitrary and capricious conduct and the denial of the rudimentary requirements of due process. is being sued in his official capacity as NPC vice-President-General Counsel . it will not be interfered with. both Growth Link and the NPC and its officers and members of the Board of Directors invoke this court's review powers: Growth Link prays for the restoration of the amounts awarded by the trial court as unrealized commissions in bids where it was the lowest and most advantageous bidder but which were disregarded in the face of NPC's unilateral and arbitrary blacklisting of Growth Link. . HON. are being sued in their official capacities as Members of the NPC Board of Directors . in blacklisting private respondent . 16 . reduction. FERRER. Neither did petitioner show. is not in itself gargantuan. Here the lower court was further guided by the complex nature of this case. DOMINGO R. as and by way of attorney's fees. the person supposedly aggrieved thereby having resonantly been silent on this issue in its appeal before the respondent court. while NPC prays only for the reduction of the amount granted as and by way of attorney's fees. which prayer. HON. that [the NPC] acted with gross and evident bad faith. including its affirmance of the trial court's finding of gross evident bad faith on the part of NPC. . . . moral and exemplary damages to their original amounts as awarded by the trial court and for the reinstatement of the finding of solidary liability among NPC and its officers and members of the Board of Directors. . .

Inc. finding or conclusion regarding particular acts committed by said officers and members of the Board of Directors that show them to have been individually guilty of unmistakable malice. or to work an injustice. v. 20 and this judicial discretion is largely addressed towards tempering any tendency to award excessive damages so much so that it stands vulnerable to and actually magnetizes. there was nothing in Growth Link's petition nor in the mass of evidence proffered. 19 We repeat. NPC may have accredited Growth Link as a supplier. Respondents. Necessarily. attacks as to its being a result of passion. does call for some reparation in the form of substantial damages. Significantly. v. However." We empathize with Growth Link.. 18 This is so. which states. 13 SCRA 290 [1965]). While NPC may be accountable for lost profits that Growth Link may have gained from its dealings with the NPC itself. Thus. is. the trial court gravely erred in holding said officers and directors to be jointly and severally liable with the NPC for the damages suffered by Growth Link but caused by the NPC alone as a corporate entity. Therefore. NPC cannot be made to bear the burden of answering for what other profits that Growth Link may have earned from other contracts with other companies. for the award of attorney's fees. II G. . NPC should alone be liable for its corporate acts as duly authorized by its officers and directors.Anent the claim of NPC that the decision of the trial court does not contain any discussion of the basis for the award of attorney's fees. to be warranted under the facts and circumstances of the instant case. Araneta." (Sulo ng Bayan. Emilio Cano Enterprises. . The records even bear out that every single offense taken by the NPC against Growth Link arose from a corporate decision and was executed as a corporate act. as a bonafide government corporation. separate and distinct from that of the persons composing it as well as from any other legal entity to which it may be related. suffice it to say that the trial court undisputedly awarded exemplary damages. in the first place. A corporation is an artificial person and can transact its business only through its officers and agents. ET AL. It is well-settled that the award of damages as well as attorney's fees lies upon the discretion of the court in the context of the facts and circumstances of each case.000.500. Teodoro Miguel. which award is itself a legal justification. It submits that "the damages awarded by the lower court are not even adequate compensation for the injuries visited upon petitioner by the precipitate and irresponsible conduct of private respondent" and that the amounts as determined by the trial court were "even conservative in view of the demonstrated income-potential of petitioner. This submission. moral and exemplary damages. Court of Tax Appeals. substantial damages do not translate into excessive damages. "NATIONAL POWER CORPORATION.000.R. At any rate. 1 SCRA 160 [1961]. ).00) as moral and exemplary damages. Jarencio. whose sincere testimony as to the irreparable damage wrought on his business and personal reputation by NPC's act of blacklisting his company. especially with its owner-president. Growth Link insists that the decision of the trial court should be deemed final and executory insofar as NPC's officers and members of the Board of Directors are concerned. Growth Link specifically cites the Notice of Appeal filed by the NPC to be personal only to the NPC.. however. because a corporation "is invested by law with a separate personality. The decision of the trial court contains no such allegation." This same caption can be found in NPC's Motion for Reconsideration.. the finding of solidary liability among the NPC and its officers and members of the Board of Directors. an unpreferred basis to deprive parties of their statutory right to appeal a decision that is fatally flawed in certain respects. They were impleaded by Growth Link not in their personal capacities as individuals but in their official capacities as officers and members of the Board of Directors through whom the NPC conducts business and undertakes its operations pursuant to its avowed corporate purposes. v. 163 SCRA 205 [1988] citing Yutivo and Sons Hardware Company v. because they did not appeal the trial court's decision. Growth Link takes exception to the reduction made by the respondent Court of Appeals of the award for compensatory. .00) as compensatory damages and one and a half million pesos (P1. prejudice or corruption. or where necessary to achieve equity or when necessary for the protection of creditors. 72 SCRA 347 [1976] . somebody has to act for it. but it did not thereby become Growth Link's insurer for all and any profitable contracts that Growth Link may obtain. in its arguments. Court of Industrial Relations. NPC's officers and members of the Board of Directors were sued merely as nominal parties in their official capacities as such. belied by the caption of the Notice of Appeal in question.000. by this court's policy. In the second place. or ill-motive in their personal dealings with Growth Link. before the court a quo that established the factual or legal basis to hold the officers and members of the Board of Directors of the NPC jointly and severally liable with the NPC for the damages suffered by Growth Link because of acts of gross evident bad faith on the part of the NPC as a corporate entity acting through its officers and directors. Inc. it was only in the dispositive portion of the decision of the court a quo that solidary liability as such was first mentioned. Thus. is patently baseless. Inc. technicalities that defeat substantial justice are. The separate personality of the corporation may be disregarded." (Tan Boon Bee & Co. under Article 2208 17 of the Civil Code. Two million pesos (P2. are too much. Growth Link's Opposition to the Motion for Reconsideration made reference to the NPC officers and members of the Board of Directors. 116000 First. In fact. bad faith. we find the reduction of the awards of damages by the respondent Court of Appeals. Inc. or the veil of corporate fiction pierced and the individual stockholders may be personally liable to obligations of the corporation only when the corporation is used "as a cloak or cover for fraud or illegality. No. Second.

however. We. in behalf of the NPC: Clearly. these admissions cannot still prevail over the rules and regulations governing the bidding for NPC contracts. . not absolute and correspondingly admits of exceptions. with approval. in the Petition for Mandamus with Preliminary Mandatory Injunction and Damages. . is. This rule should apply with more reason when the parties had agreed to submit an issue for resolution of the trial court on the basis of the evidence presented." Thus. just like any other rule. . The right shall also be reserved to reject the bid of a bidder who has previously failed to perform properly or complete on time contracts of a similar nature. As aforesaid. . the instant consolidated petitions are HEREBY DISMISSED for lack of merit. et al. . by this change of theory at this belated stage of the proceedings. it had. All told. Mandamus will not lie to compel the acceptance of the bid of an unsuccessful bidder (Borromeo vs. in its Answer. No pronouncement as to costs. however. 21 Statements made in an Answer are merely statements of fact which the party filing it expects to prove. Reservation of rights to reject any or all bids. much less pretend ignorance of. By participating in the public bidding. We are hardly surprised. the reserved discretion of the NPC to accept or reject any bid.R SP No. In fine. but they are not evidence. . . and that consequently these claims have been transmuted into judicial admissions. as to anything about NPC's liability for unrealized commissions based on quasi-delict. .Third. not only of [Growth Link] but of all other bidders. it is not NAPOCOR's ministerial duty to make an automatic award to [Growth Link] even if it was the lowest bidder. that the basis for the unrealized commissions was not necessarily contract but quasi-delict. no factual finding in the decision of the trial court and no error assigned before the Court of Appeals. or in this case. as well. known as such to the agency head or director. but the right shall be reserved to reject any or all bids. [I]n spite of the presence of judicial admissions in a party's pleading. Growth Link has been a regular bidder for NPC contracts. also to disregard the bid of any failing bidder. With more reason. 512 [1935]). . Growth Link apparently relied on the general rule that non-denial of allegations in the complaint results in admissions thereof. that the NPC admitted its liability for such unrealized commissions in its Answer. or any bid which is obviously unbalanced or below what the work can be done for. 26898 to have been rendered in accordance with the applicable law and jurisprudence. failed to deny the claims for unrealized commissions as laid out in Growth Link's petition. Growth Link cites two (2) reasons: first. which are not directly refuted in the Answer. . . Sec. Neither could Growth Link have forgotten the well-settled rule that this discretion is of such wide latitude that the courts will not generally interfere with the exercise thereof by the government. unless it is apparent that it is used as a shield to a fraudulent award 22 or an unfairness or injustice is clearly shown. find no allegation in Growth Link's petition. Furthermore. among which is the reservation of its right to reject any and all bids to be made therein. 62 Phil. [Growth Link] has no cause of action . Growth Link insists that because the NPC allegedly. and second. 24 And then there is Growth Link's submission that its claims for unrealized commissions are made proceeding not from facts founded on contract but from facts establishing NPC's culpability under quasi-delict. NAPOCOR reserved the "right to reject the bid of any bidder. It cannot deny. in effect. City of Manila. By its own assertion. and to accept or reject any items of any bid unless such bid is qualified by specific limitations.. . Growth Link contests the deletion by the respondent Court of Appeals of the awards made by the trial court for unrealized commissions from bids disregarded by the NPC albeit Growth Link was the lowest and most advantageous bidder. . however. 23 We thus quote. which necessarily and inherently include the reservation by the NPC of its right to reject any or all bids. are deemed admissions but neither are they evidence that will prevail over documentary proofs. statements made in the complaint. after NAPOCOR was ordered to cease from cancelling [Growth Link's] accreditation and to allow the latter to participate in any bidding. . the trial court is still given leeway to consider other evidence presented. to waive any informality in the bids received. This rule. NAPOCOR has the right to reject any and all bids. 393 of the National Accounting and Auditing Manual provides: Sec. on the ground that the said amounts were "too speculative and uncertain". we find the Decision of the Court of Appeals in CA-G. WHEREFORE. 393. We disagree. — The contract will be awarded to the contractor whose proposal appears to be the most advantageous to the Government. the following postulations of the Solicitor General. or a bid of a bidder who is not in a position to perform the contract. if warranted. because Growth Link indeed has no perfected contract whatsoever to show in order to prove that its claims for unrealized commissions are anything more than an attempt to collect on mere proposal-bids that may have been the lowest and most advantageous in their class but nonetheless remain subject to the explicit reservation by the NPC of its prerogative to reject any or all bids. admitted the existence and merit of such claims. [Growth Link] submitted itself to the conditions laid down by NAPOCOR. Assuming arguendo that the NPC did not deny the claims for unrealized commissions as alleged by Growth Link in its mandamus petition with damages. .

and [b] consideration must be given as to whether the adjudication of the rights of the original parties may be delayed or prejudiced. known as "Pequena Island". as a result of which TCT No. The appellate court further stated that whatever claims the petitioners have against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding. v. in the matter of litigation. She prayed that the Deed of Assignment and the Deed of Mortgage be annulled and that the Register of Deeds be ordered to cancel TCT No. and [c] the registration of Deed of Mortgage dated April 28." To allow intervention. In her complaint. Phil. she alleged that in 1958. FELICIDAD P. In this petition for review on certiorari. Invoking the principle enunciated in the case of PNB v. Petitioners are raising a purely legal question. whether or not respondent Court of Appeals correctly denied their motion for intervention. violence and intimidation. 1978. Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales. 3 petitioners strongly argue that their ownership of 41. Hence. that the foregoing acts were void and done in an attempt to defraud the conjugal partnership considering that the land is conjugal. 857. 58168 December 19. their brother conveyed to them one-half (1/2 ) of his shareholdings in SUBIC or a total of 416.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC." [b] the registration of a Deed of Assignment dated June 25. 22431 and to issue a new title in her favor. Rosal. or whether the intervenor's rights may be protected in a separate proceeding or not. such that with the denial of the motion for intervention. 1976 purportedly executed by the late Senator in favor of SUBIC. filed a motion for intervention on the ground that on June 20. 22431 issued in the name of SUBIC. 1981.G. Petitioners' motion for reconsideration was denied. petitioners seek to reverse and set aside [1] the decision of the Court of Appeals dated July l3. SOLEDAD MAGSAYSAY-CABRERA. Oil Co.66% of the entire outstanding capital stock of SUBIC entitles them to a significant vote in the corporate affairs. the party must have a legal interest in the matter in litigation. THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY. 1977 in the amount of P 2. 1979. brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban. On July 26. herein petitioners. petitioners.. 5 The interest which entitles a person to intervene in a suit between other parties must be in the matter in litigation and of such direct and immediate character that the intervenor will either gain or lose by the direct legal operation and . Jose Corpuz. denying their motion for reconsideration. 3258 was not obtained. No. 2 Such transfer. or in the success of either of the parties or an interest against both. to be permitted to intervene in a pending action. In the case of Batama Farmers' Cooperative Marketing Association. Subic Land Corporation (SUBIC). if obtained. 4 we held: "As clearly stated in Section 2 of Rule 12 of the Rules of Court. thru conjugal funds. 1979. Special Administratrix of the Estate of the late Genaro F. Viewed in the light of Section 2. vs. petitioners posit. and ruled that petitioners have no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its stockholders. 1981. 49 Phil. and MERCEDES MAGSAYSAY-DIAZ. that after the death of her husband. clothes them with an interest. respondent Court of Appeals found no factual or legal justification to disturb the findings of the lower court. 1979. Magsaysay respondents. Both requirements must concur as the first is not more important than the second. assisted be her husband. the instant recourse. Dr. MAGSAYSAY. 1989 CONCEPCION MAGSAYSAY-LABRADOR. Inc. On March 7. she and her husband acquired. widow and special administratix of the estate of the late Senator Genaro Magsaysay.R. 3258 that "the land was acquired by her husband from his separate capital. 1978. that they are affected by the action of the widow of their late brother for it concerns the only tangible asset of the corporation and that it appears that they are more vitally interested in the outcome of the case than SUBIC. Rule 12 of the Revised Rules of Court. On appeal. Petitioners anchor their right to intervene on the purported assignment made by the late Senator of a certain portion of his shareholdings to them as evidenced by a Deed of Sale dated June 20. Adelaida Rodriguez-Magsaysay. a parcel of land with improvements. her marital consent to the annotation on TCT No. 3258.000. 1 affirming that of the Court of First Instance of Zambales and Olongapo City which denied petitioners' motion to intervene in an annulment suit filed by herein private respondent. sisters of the late senator. She further alleged that the assignment in favor of SUBIC was without consideration and consequently null and void. the change made by the Register of Deeds of the titleholders was effected without the approval of the Commissioner of Land Registration and that the late Senator did not execute the purported Deed of Assignment or his consent thereto.700. Veg. covered by TCT No. they are not left without any remedy or judicial relief under existing law. this Court affirms the respondent court's holding that petitioners herein have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings below. [a] it must be shown that the movant has legal interest in the matter in litigation. she discovered [a] an annotation at the back of TCT No. they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC.566.00 executed by SUBIC in favor of FILMANBANK. LUISA MAGSAYSAYCORPUZ. or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof . 3258 was cancelled and TCT No. protected by law. the court denied the motion for intervention. or otherwise qualified. On February 9. and [2] its resolution dated September 7. was secured by mistake.862 & 853 (1927).

As earlier stated. Their motion to reconsider the denial of their motion to intervene was granted. after payment of the corporate debts and obligations. Costs against petitioners. Concepcion Labrador. much less effected as to prejudice third parties. The transfer must be registered in the books of the corporation to affect third persons. Revised Rules of Court. 8 Petitioners further contend that the availability of other remedies. shall be valid. 6 The words "an interest in the subject" mean a direct interest in the cause of action as pleaded. their interest is purely inchoate.effect of the judgment. The petitioners cannot claim the right to intervene on the strength of the transfer of shares allegedly executed by the late Senator. [3] SEC Case No. owing to the fact that the latter is willing to compromise with widow-respondent and since a compromise involves the giving of reciprocal concessions. however. 001770. Branch XXII. if persons not parties of the action could be allowed to intervene. by motion. Section 63 of the Corporation Code provides. 122122 before the CFI of Manila. of petitioners-movants is indirect. Shareholders are in no legal sense the owners of corporate property. as declared by the Court of appeals. contingent. et al. conjectural. and which would put the intervenor in a legal position to litigate a fact alleged in the complaint. Subic Land Corp. v. WHEREFORE. . entitled "Concepcion Magsaysay-Labrador. sought to intervene. Otherwise. Neither do we lend credence to petitioners' argument that they are more interested in the outcome of the case than the corporation-assignee." And even assuming arguendo that there was a valid transfer. [4] SP No. petitioners are nonetheless barred from intervening inasmuch as their rights can be ventilated and amply protected in another proceeding. that the movant's interest may be protected in a separate proceeding is a factor to be considered in allowing or disallowing a motion for intervention. expensive and interminable.. While a share of stock represents a proportionate or aliquot interest in the property of the corporation. petitioners herein filing a contingent claim pursuant to Section 5. And this is not the policy of the law. etc. or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution. We cannot give credit to such averment. Q-26739 before the CFI of Rizal. the instant petition is hereby DENIED. [2] Civil Case No. enumerated as follows: [1] Special Proceedings No. The law on corporations is explicit. which is owned by the corporation as a distinct legal person. is totally immaterial to the availability of the remedy of intervention. 2577-0 before the CFI of Zambales. his interest in the corporate property being equitable or beneficial in nature. Rule 86. filed by respondent praying. 11 Perforce. It is significant to note at this juncture that as per records. except as between the parties. Intervenors". 7 Here. At the very least. seeking to annul the purported Deed of Assignment in favor of SUBIC and its annotation at the back of TCT No. involving the validity of the transfer by the late Genaro Magsaysay of one-half of his shareholdings in Subic Land Corporation. there are four pending cases involving the parties herein. proceedings will become unnecessarily complicated. 9 Petitioners' interests are no doubt amply protected in these cases. et al. without the establishment of which plaintiff could not recover. no transfer was ever recorded. Panganiban. The factual findings of the trial court are clear on this point. thus: "No transfer. The corporation did not keep books and records.. remote. the number of the certificate or certificates and the number of shares transferred. petitioners. the only conceivable concession the corporation may give is a total or partial relinquishment of the corporate assets. it does not vest the owner thereof with any legal right or title to any of the property. consequential and collateral. "Adelaida Rodriguez-Magsaysay v. the date of the transfer. Branch IV. et al. if it exists at all. There. the interest. 10 Such claim all the more bolsters the contingent nature of petitioners' interest in the subject of litigation.". 3258 in the name of respondent's deceased husband. among other things that she be declared in her capacity as the surviving spouse and administratrix of the estate of Genaro Magsaysay as the sole subscriber and stockholder of SUBIC. Branch III. until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction.

Inc. On the same date. which is among the stockholders of PALI. 1 with the immense task of enforcing the Revised Securities Act. and all other duties assigned to it by pertinent laws. PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange Commission (SEC). 2 Just how far this regulatory authority extends. 1996. 1996. On the contrary. The dispositive portion of the said order reads: WHEREFORE. the PSE submitted a letter to the SEC containing its comments to the April 11. thereby implying that they are also asserting legal and beneficial ownership of other properties titled under the name of PALI. the Board of Governors of the PSE reached its decision to reject PALI's application. In its regular meeting held on March 27. the PSE wrote Chairman Magtanggol Gunigundo of the Presidential Commission on Good Government (PCGG) requesting for comments on the letters of the PALI and the Marcoses. Furthermore. the PSE was informed that the Marcoses received a Temporary Restraining Order on the same date. the decision of the Board of Governors of the Philippine Stock Exchange denying the listing of shares of Puerto Azul Land.D. Inc. and invoking the Commissioner's authority and jurisdiction under Section 3 of the Revised Securities Act. thus paving the way for the public offering of PALI's shares. On February 14. who are grantees of primary franchise and/or a license or permit issued by the government to operate in the Philippines.. Inc. under the direct general supervision of the Office of the President. petitioner. Inc. or on April 11. PALI wrote a letter to the SEC addressed to the then Acting Chairman. the SEC wrote to the PSE. The Marcoses responded that their claim is not confined to the facilities forming part of the Puerto Azul Hotel and Resort Complex. (PSE). The Puerto Azul Land. the Ternate Development Corporation owns only 1. 1997 PHILIPPINE STOCK EXCHANGE. On February 20. 1996. On March 4. effectively for his estate. 125469 October 27. Inc. dated June 27. is the issue in the case at bar. to be listed in its stock market. 1996. is .. with supporting documents attached. had sought to offer its shares to the public in order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. citing the existence of serious claims. The Securities and Exchange Commission is the government agency.20% of PALI. upon a perusal of PALI's application. premises considered. issues and circumstances surrounding PALI's ownership over its assets that adversely affect the suitability of listing PALI's shares in the stock exchange. particularly.. No. INC. in the exercise of its supervisory and regulatory powers over stock exchanges under Section 6(j) of P. before it could act upon PALI's application. Perfecto R. and are hereby restated in sum. Among its inumerable functions. THE HONORABLE COURT OF APPEALS." The TRO was issued by Judge Martin S. petitioner assails the resolution of the respondent Court of Appeals. 1995. the Board of Governors of the PSE received a letter from the heirs of Ferdinand E. the Listing Committee of the PSE. Marcos. obstructing. among others. On April 22. claiming that the late President Marcos was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and that the Ternate Development Corporation. processing and approval by the PSE of the initial public offering of PALI. the SEC rendered its Order. Inc. Inc. 902-A. (PALI). The facts of the case are undisputed. 1996. 1996. Jr. recommended to the PSE's Board of Governors the approval of PALI's listing application. and the Puerto Azul Country Club. Executive Judge of the RTC of Pasig City in Civil Case No. Villarama. and requested PALI's application to be deferred. 6(j) and 6(m) of Presidential Decree No. a domestic real estate corporation. vs. reversing the PSE's decision. PALI was requested to comment upon the said letter. the resort is actually owned by Fantasia Filipina Resort. On April 11. and one of the most important. 1996. 1996. delaying or interfering in any manner by or any means with the consideration. bringing to the SEC's attention the action taken by the PSE in the application of PALI for the listing of its shares with the PSE. attaching thereto the letter of PALI and directing the PSE to file its comments thereto within five days from its receipt and for its authorized representative to appear for an "inquiry" on the matter. 1996. 65561. pending in Branch 69 thereof. INC. is the supervision of all corporations. with regard to the Petitioner Philippine Stock Exchange. PALI's answer stated that the properties forming part of the Puerto Azul Beach Hotel and Resort Complex were not claimed by PALI as its assets. 902-A. review the PSE's action on PALI's listing application and institute such measures as are just and proper under the circumstances.R. which affirmed the decision of the Securities and Exchange Commission ordering the petitioner Philippine Stock Exchange. to allow the private respondent Puerto Azul Land. No. On April 24. in conjunction with Section 3. likewise appears to have been held and continue to be held in trust by one Rebecco Panlilio for then President Marcos and now. PALI sought to course the trading of its shares through the Philippine Stock Exchange. for which purpose it filed with the said stock exchange an application to list its shares. 1996. respondents. partnerships or associations. SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND. In January. and requesting that the SEC. On February 8.G.. enjoining the Marcoses from. "further impeding. Yasay. entities distinct from PALI. 1996 letter of PALI. To facilitate the trading of its shares among investors. In this Petition for Review on Certiorari.

JURISDICTION. This Order shall take effect immediately. the power to authorize the establishment of stock exchanges. In applying its clear and reasonable standards on the suitability for listing of shares. 1996 Order which states: WHEREFORE. Dissatisfied with this ruling. AND IV. On June 4. neither has the government instituted recovery proceedings against these properties. Accepting the argument that the public respondent has the authority merely to supervise or regulate. regulation and control. the assertions of the Marcoses that they are owners of the disputed properties were not substantiated enough to overcome the strength of a title to properties issued under the Torrens System as evidence of ownership thereof. . the petitioner is subject to public respondent's jurisdiction. would amount to serious consequences. 4. PSE should require PALI to submit full disclosure of material facts and information to protect the investing public. and the power to alter and supplement rules of the exchange in the listing or delisting of securities. and the PSE is hereby ordered to immediately cause the listing of the PALI shares in the Exchange. 1996. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA LEGIS AND WHICH FORM PART OF NAVAL/MILITARY RESERVATION. without prejudice to its authority to require PALI to disclose such other material information it deems necessary for the protection of the investigating public. then the law certainly granted to the public respondent the plenary authority over the petitioner. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE CONSTITUTION. 1996. SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS. Both as a corporation and as a stock exchange. All in all. pursuant to Section 3 3 of the Revised Securities Act in relation to Section 6(j) and 6(m) 4 of P. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT POWER. 1996. OR AUTHORITY. and for the purpose of ensuring fair administration of the exchange. 1996 a Petition for Review (with Application for Writ of Preliminary Injunction and Temporary Restraining Order). In this regard. the PSE filed with the Court of Appeals on May 17. affirming the SEC's ruling to the effect that: . SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN DISAPPROVING PALI'S LISTING APPLICATION. PSE has failed to justify why it acted differently on the application of PALI. a Comment and Motion to Dismiss. The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision of the petitioner PSE. II. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the Exchange. however denied by the Commission in its May 9. On June 10. 1996. 902-A. PALI filed its Comment to the Petition for Review and subsequently. No. Yet the import of PSE's decision in denying PALI's application is that it would be PALI.D. If the securities act vested the public respondent with jurisdiction and control over all corporations. and the power of review necessarily comes within its authority. assailing the above mentioned orders of the SEC. this Petition by the PSE. that must go to court to prove the legality of its ownership on these properties before its shares can be listed. and Section 38(b) 5 of the Revised Securities Act. considering that the petitioner is a stock exchange whose business is impressed with public interest.hereby set aside. the Commission finds no compelling reason to reconsider its order dated April 24. as compared to the IPOs of other companies similarly situated that were allowed listing in the Exchange. It appears that the claims and issues on the title to PALI's properties were even less serious than the claims against the assets of the other companies in that. . 3. . SO ORDERED. the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving the application of PALI for listing of its shares in the face of the following considerations: 1. Hence. PALI is hereby ordered to amend its registration statements filed with the Commission to incorporate the full disclosure of these material facts and information. which was. PSE fled its Reply to Comment and Opposition to Motion to Dismiss. PSE filed a motion for reconsideration of the said order on April 29. Abuse is not remote if the public respondent is left without any system of control. 1996. the court held that PALI complied with all the requirements for public listing. and in the light of recent developments on the adverse claim against the PALI properties. premises considered. 2. not the Marcoses. the Court of Appeals promulgated its Resolution dismissing the PSE's Petition for Review. No action has been filed in any court of competent jurisdiction seeking to nullify PALI's ownership over the disputed properties. On June 27. submitting the following as errors of the SEC: I. the right to supervise and regulate the same. III.

Moreover. On February 25. to which PALI had previously agreed to comply. whether the discretion method or the system of public disclosure adhered to by the SEC. who are the grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines. is enough authority to uphold the SEC's challenged control authority over the petitioner PSE even as it provides that "the Commission shall have absolute jurisdiction. the powers of the SEC over stock exchanges under the Revised Securities Act are specifically enumerated. The PSE's relevance to the continued operation and filtration of the securities transactions in the country gives it a distinct color of importance such that government intervention in its affairs becomes justified. if not necessarily. It is fundamental that forest lands or military reservations are non-alienable. the PSE retains the discretion to accept or reject applications for listing. No. As a matter of fact. filed the instant Petition for Review on Certiorari. partnerships or associations. 19961 the PSE. On May 16. It is. the PALI properties are now titled. the PCGG filed a Motion for Leave to file a Petition for Intervention.D. would reveal that the properties of PALI. Indeed. Under presidential decree No. likewise. A reading of Republic of the Philippines vs." The SEC's regulatory . PSE argues that the SEC has no jurisdiction over sequestered corporations. from which the country's security policies are patterned. 1997. This was followed up by the PCGG's Petition for Intervention on October 21. Thus. 1996. It is undeniable that the petitioner PSE is not an ordinary corporation. which were derived from the Ternate Development Corporation (TDC) and the Monte del Sol Development Corporation (MSDC). 1996. 1996. 1988. 1996) and the Solicitor General (December 26. supervision. . A property losses its public character the moment it is covered by a title. they can no longer be re-opened considering that the one year period has already passed. and right of supervision and control over all corporations under Sec. Lastly. the case records reveal the truth that PALI did not comply with the listing rules and disclosure requirements. is erroneous and ignores well settled jurisprudence on land titles. It categorically declares that the assets of these corporations were sequestered by the PCGG on March 10. the PSE enjoys a monopoly of securities transactions. likewise filed its Comment on December 26. and control over all corporations. standing alone.In addition. the titles have long been settled by a final judgment. the said rule precludes the reversal of the decision of the PSE to deny PALI's listing application. PALI filed its Comment thereto on January 17. and concealed material information. The point is. Section 3 of Presidential Decree 902-A. are under sequestration by the PCGG. 105205. and subject of forfeiture proceedings in the Sandiganbayan. as the only operational stock exchange in the country today. and as such. G. In connection with this. absent a showing of bad faith on the part of the PSE. Thus. intimated that the Court of Appeals' sanction that PALI's ownership over its properties can no longer be questioned. read together with the general grant of jurisdiction. The matter of sequestration of PALI's properties and the fact that the same form part of military/naval/forest reservations were not reflected in PALI's application. such title is void. Respondent PALI filed its Comment to the petition on October 17. when a title covers a forest reserve or a government reservation. PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to list the shares of PALI in the stock exchange. That a certificate of title issued under the Torrens System is a conclusive evidence of ownership is not an absolute rule and admits certain exceptions. when the same are made in good faith. This ruling of the Court is the "law of the case" between the Republic and TDC and MSDC. the argument that the PALI properties belong to the Military/Naval Reservation does not inspire belief. . On August 15. 1997. 1986 and April 4. Authorities are in abundance even in the United States. taking exception to the rulings of the SEC and the Court of Appeals. 1997. On the same date. As it is. the determination of what standard to apply in allowing PALI's application for listing. 1997. Under the listing rules of the PSE. 902-A. it being the government agency that exercises both supervisory and regulatory authority over all corporations. the powers of the SEC over stock exchanges are more limited as compared to its authority over ordinary corporations. In answer to the PCGG's motion for leave to file petition for intervention. after it was granted an extension. it yields an immense influence upon the country's economy. the country's lawmakers has seen it wise to give special treatment to the administration and regulation of stock exchanges. the PSE filed its Consolidated Reply to the comments of respondent PALI (October 17. 1996). likewise. nor with corporations whose properties are under sequestration. should be addressed to the Securities Commission. which in turn are given more lee-way in making the decision whether or not to allow corporations to offer their stock to the public through the stock exchange. A supplemental Comment was filed by PALI on October 25. representing the SEC and the Court of Appeals. even if an issuer has complied with the PSE listing rules and requirements. in that although it is clothed with the markings of a corporate entity. in the absence of a clear mandate for the effectivity of such policy. 1996. 240 SCRA 376. 6 These provisions. In fact. Sadiganbayan. PSE. PSE retains the discretion to accept or reject the issuer's listing application if the PSE determines that the listing shall not serve the interests of the investing public. PALI's documents supporting its application contained misrepresentations and misleading statements. give the SEC the special mandate to be vigilant in the supervision of the affairs of stock exchanges so that the interests of the investing public may be fully safeguard. assails the SEC's and the Court of Appeals reliance on the alleged policy of "full disclosure" to uphold the listing of PALI's shares with the PSE. This is in accord with the "business judgment rule" whereby the SEC and the courts are barred from intruding into business judgments of corporations. it functions as the primary channel through which the vessels of capital trade ply. PALI filed its Rejoinder to the said consolidated reply of PSE. and these do not include the power to reverse the decisions of the stock exchange. The Office of the Solicitor General. 902-A. to the effect of giving the Securities Commission less control over stock exchanges. Due to this special nature of stock exchanges.R. whereas the PSE filed its own Comment on January 20. and the final decree having been registered. since certificates of title have been issued to PALI and more than one year has since lapsed. 3 of P.

an order of sequestration has been issued covering the properties of PALI. has entrusted to it the serious responsibility of enforcing all laws affecting corporations and other forms of associations not otherwise vested in some other government office. often referred to as the "truth in securities" Act. During the time for receiving objections to the application. as such. including shares of stock of a corporation. is to give adequate and effective protection to the investing public against fraudulent representations. This authority springs from the fact that a corporation owes its existence to the concession of its corporate franchise from the state. are not yet explained to the Court. the monopoly. it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to deny the application for listing in the stock exchange of the private respondent PALI. The SEC's action was affirmed by the Court of Appeals. Securities Act emphasized its avowed protection to acts detrimental to legitimate business. to hold property in its own name. In Board of Liquidators vs. Moreover. . The SEC's power to look into the subject ruling of the PSE. the PSE considered important facts. (Tenth Annual Report. 13 it was held that bad faith does not simply connote bad judgment or negligence. may be traded or not in the stock exchange. which. The legislature. is still the generation of profit for its stockholders.S. 11 As to its corporate and management decisions. if allowed to interpret its own rules liberally as it may please. notwithstanding the regulatory power of the SEC over the PSE. in only a short span of time. We affirm that the SEC is the entity with the primary say as to whether or not securities. or false promises. In fact. therefore. Petitioner can either allow or deny the entry to the market of securities. 902-A. its orders are not reviewable by the courts. 7 It is. it waives no constitutional immunities and perquisites appropriate to such a body. in the general scheme. By its economic power. becomes subject to abuse. and so long as it acts in good faith. Securities & Exchange Commission. observed that the principal function of the SEC is the supervision and control over corporations. therefore. and the courts are without authority to substitute their judgment for the judgment of the board of directors. as the business is affected with public interest. from the TDC and MSDC to Rebecco Panlilio. and with a distinct legal personality. 9 As the appellate court explains: Paramount policy also supports the authority of the public respondent to review petitioner's denial of the listing. In organizing itself as a collective body. alter all. U.S. the petitioner performs a function that is vital to the national economy. 10 This is not to say. likewise. The board is the business manager of the corporation. partnerships and associations with the end in view that investment in these entities may be encouraged and protected. despite the sequestration order. the state will generally not interfere with the same. it has often been said that the economy moves on the basis of the rise and fall of stocks being traded. considering public interest. after all. then it should be subject to government regulation. the PSE heard from the representative of the late President Ferdinand E. In reaching its decision to deny the application for listing of PALI. allowed to transact under an assumed corporate name. The PSE is. Kalaw. Being a stock exchange. and to the private respondent PALI. As a matter of fact.authority over private corporations encompasses a wide margin of areas. hence. The petitioner was in the right when it refused application of PALI. such as the Revised Securities Act and to regulate the sale and disposition of securities in the country. 14 It is to be observed that the U. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation. How the properties were effectively transferred. 14). the SEC may exercise such power only if the PSE's judgment is attended by bad faith. 12 Thus. for a contrary ruling was not to the best interest of the general public. was designed not only to provide investors with adequate information upon which to base their decisions to buy and sell securities. 8 Thus. including the right to sue and be sued. A corporation is but an association of individuals. the PCGG confirmed this claim. however. Presidential Decree No. the PSE has all the rights pertaining to corporations. the petitioner certainly can dictate which and how many users are allowed to sell securities thru the facilities of a stock exchange. and their activities for the promotion of economic development. To repeat. Marcos and his family who claim the properties of the private respondent to be part of the Marcos estate. One of the PSE's main concerns. to enter (or not to enter) into contracts with third persons. that the PSE's management prerogatives are under the absolute control of the SEC. It means a breach of a known duty through some motive or interest of ill will. but also to protect legitimate business seeking to obtain capital through honest presentation against competition from crooked promoters and to prevent fraud in the sale of securities. and other pertinent laws. brings to serious question the qualification of PALI to sell its shares to the public through the stock exchange. through the Revised Securities Act. and to perform all other legal acts within its allocated express or implied powers. The purpose of the Revised Securities Act. and the imposition of worthless ventures. The role of the SEC in our national economy cannot be minimized. but it is clear that such circumstances give rise to serious doubt as to the integrity of PALI as a stock issuer. and suit for reconveyance to the state has been filed in the Sandiganbayan Court. may be implied from or be considered as necessary or incidental to the carrying out of the SEC's express power to insure fair dealing in securities traded upon a stock exchange or to ensure the fair administration of such exchange. partaking of the nature of fraud. thus: The Securities Act. This is in line with the SEC's mission to ensure proper compliance with the laws. unless accompanied by control. touching nearly all of a corporation's concerns. a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. p. In time. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. and the resultant authority to reverse the PSE's decision in matters of application for listing in the market.

or . or any order of the Commission. Also. and therefore beyond private dominion. a corporation entity. and as such. are required to divulge truthfully and accurately. gives the SEC the power to promulgate such rules and regulations as it may consider appropriate in the public interest for the enforcement of the said laws. to Rebecco Panlilio and later on to PALI. the effects of such an act are chiefly (1) prevention of excesses and fraudulent transactions. a fact is deemed material if it tends to induce or otherwise effect the sale or purchase of its securities. Thus. to be effective. The second paragraph of Section 4 of the said law. endorsed. and empower the Commission to issue a stop order suspending the effectiveness of any registration statement which is found to include any untrue statement of a material fact or to omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. or (2) The issuer or registrant — (i) is not solvent or not in sound financial condition. to exercise its judgment in the manner it deems appropriate for its business identity. on the other hand. merely by requirement of that their details be revealed. . has supervision and control over all corporations and over the securities market as a whole. listed or applying for listing. In any case. In this connection. the SEC has manifested that it has adopted the policy of "full material disclosure" where all companies. transferred or in any other manner conveyed to the public. (v) is in any way dishonest or is not of good repute. The question as to what policy is. there is the claim that the properties were owned by TDC and MSDC and were transferred in violation of sequestration orders. The observation that the title of PALI over its properties is absolute and can no longer be assailed is of no moment. (Idem). 16 Pertinently. In connection with this. is given ample authority in determining appropriate policies. Section 9 of the Revised Securities Act sets forth the possible Grounds for the Rejection of the registration of a security: — The Commission may reject a registration statement and refuse to issue a permit to sell the securities included in such registration statement if it finds that — (1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading.As has been pointed out. must be made in good faith. which operating indirectly through investment services and expert investors. shall be issued. (ii) has violated or has not complied with the provisions of this Act. and were held only in trust by Rebecco Panlilio. The inscription in the registry. as it is an established rule that a registration of a certificate of title does not confer ownership over the properties described therein to the person named as owner. the Revised Securities Act. for the protection of the investing public. on the other hand. therefore. (2) placing the market during the early stages of the offering of a security a body of information. the Revised Securities Act sets substantial and procedural standards which a proposed issuer of securities must satisfy. At this juncture. as the primary market for securities. criminal and civil sanctions. the PSE has established its name and goodwill. unless exempt by law. it is proper to observe that the concept of government absolutism is a thing of the past. 15 While the employment of this policy is recognized and sanctioned by the laws. will tend to produce a more accurate appraisal of a security. Presidential Decree No. as long as no rights are trampled upon. all material information about themselves and the securities they sell. whose business judgments are respected in the absence of bad faith. and in performing its other functions under pertinent laws. . but is left to the sound discretion of the Securities and Exchange Commission. and public welfare is safeguarded. and this puts to question the qualification of PALI's public offering. the Commission may refuse to permit a registration statement to become effective if it appears on its face to be incomplete or inaccurate in any material respect. In mandating the SEC to administer the Revised Securities Act. and under pain of administrative. and should remain so. (iv) has been engaged or is engaged or is about to engage in fraudulent transaction. In sum. The defense of indefeasibility of a Torrens Title does not extend to a transferee who takes the certificate of title with notice of a flaw. Pursuant to this regulatory authority. 902-A. provides that no security. and it has the right to protect such goodwill by maintaining a reasonable standard of propriety in the entities who choose to transact through its facilities. unless registered in accordance with the rules and regulations that shall be promulgated in the public interest and for the protection of investors by the Commission. . nonetheless. besides the claim of the Marcoses that such properties belong to the Marcos estate. or the rules promulgated pursuant thereto. impose before the security can be registered. If any of these claims is established to be true. since this is a matter addressed to the sound discretion of the PSE. What is material is that the uncertainty of the properties' ownership and alienability exists. It was reasonable for the PSE. in the public interest and for the protection of investors. under Section 3 thereof. for the purpose of determining whether PSE acted correctly in refusing the application of PALI. the Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for listing in the PSE of the private respondent PALI. sold. the true ownership of the properties of PALI need not be determined as an absolute fact. provides that the SEC. (iii) has failed to comply with any of the applicable requirements and conditions that the Commission may. It is also alleged by the petitioner that these properties belong to naval and forest reserves. or should be relied upon in approving the registration and sale of securities in the SEC is not for the Court to determine. as regulatory agency. the certificates of title over the subject properties now held by PALI map be disregarded.

therefore. and the SEC is mandated by law to safeguard these interests. affirming the decision of the Philippine Stock Exchange to deny the application for listing of the private respondent Puerto Azul Land. discounting. In order to effectively exercise such jurisdiction. This measure was meant to protect the interests of the investing public against fraudulent and worthless securities. the Court finds that the private respondent PALI. by rules or regulations or by order. on at least two points (nos. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing clarity. 3. therefore. and functions provided by Presidential Decree Numbered 902A. the provisions of which cannot be amended or supplanted by mere administrative issuance. or (5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security would not work to the prejudice of the public interest or as a fraud upon the purchasers or investors. following the policies and rules therefore provided. The Decisions of the Court of Appeals and the Securities and Exchange Commission dated July 27. or principal stockholder of the issuer is disqualified to be such officer. Powers with respect to exchanges and securities. 5 Sec. Footnotes 3 Sec. in the exercise of its vested authority. (m) To exercise such other powers as may be provided by law as well as those which may be implied from. (3) The listing or striking from listing of any security. ACCORDINGLY. member of the board of directors. the (Securities and Exchange) Commission shall possess the following powers: (j) To authorize the establishment and operation of stock exchanges. in the light of national or regional requirements for such activities with the view to promote. to be determined by the Securities and Exchange Commission. after appropriate notice and opportunity for hearing. (b) The Commission is further authorized. — This Act shall be administered by the (Securities and Exchange) Commission which shall continue to have the organization. any imputation of arbitrariness and whimsical animation on its part. to a certain extent. . the SEC must recognize and implement the mandate of the law.(vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary to government rules and regulations. to alter or supplement the rules of such exchange (insofar as necessary or appropriate to effect such changes) in respect of such matters as (1) Safeguards in respect of the financial responsibility of members and adequate provision against the evasion of financial responsibility through the use of corporate forms or special partnerships. 38. 1996 and April 24. thereby lending support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock exchange. The Commission shall. 6. — (a) . the Court hereby GRANTS the Petition for Review on Certiorari. the Court finds that the PSE has acted with justified circumspection. including the authority to determine their number. 4 Sec. size and location. it determines that such exchange has not made the changes so requested. except as otherwise expressly provided. are hereby REVERSED and SET ASIDE. (3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business principles. particularly the Revised Securities Act. and that such changes are necessary or appropriate for the protection of investors or to insure fair dealing in securities traded upon such exchange. director or principal stockholder. and a new Judgment is hereby ENTERED. As it is. Inc. However. This does not discount the effectivity of whatever method the SEC. commodity exchanges and such other similar organizations and to supervise and regulale the same. powers. (4) An officer. the express powers granted to the Commission or to achieve the objectives and purposes of this Decree. In resume. . Its action in refusing to allow the listing of PALI in the stock exchange is justified by the law and by the circumstances attendant to this case. 708. untenable. Administrative Agency. if after making appropriate request in writing to a securities exchange that such exchange effect on its own behalf specified changes in the rules and practices and. in view of the foregoing considerations. (2) The limitation or prohibition of the registration or trading in any security within a specified period after the issuance or primary distribution thereof. 1758. and of the issuer. 1653. and 1799 and Executive Order No. have the power to promulgate such rules and regulations as it may consider appropriate in the public interest for the enforcement of the provisions hereof. . or which are necessary or incidental to the carrying out of. chooses in setting the standard for public offerings of corporations wishing to do so. (Emphasis Ours) A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance of securities dependent. 1996 respectively. on the merits of the securities themselves. (4) Hours of trading. The absolute reliance on the full disclosure method in the registration of securities is. conserve or rationalize investment.

August 14. 14 Makati Stock Exchange. et al. 902-A. 169 SCRA 109. 16 See Sections 4. and of closing accounts. L-18805. 54330. sales of securities of issuers in default. 6 SCRA 757. et. Presidential Decree No. 246 SCRA 738. 14 SCRA 620. al. 1989. 1967. (Approved by the SEC Chairman on February 8. vs.R. method. 37 SCRA 823. and (12) Minimum deposits on margin accounts. 1971.R. 1973). Sec. 15 See SEC Rules Requiring Disclosure of Material Facts by Corporations Whose Securities are Listed in Any Stock Exchange or Registered/Licensed under the Revised Securities Act. January 13. and sales involving other special circumstances. 1973. and place of soliciting business. Inc. G. 10. including the method of reporting short sales.R. June 30. Inc. No. 1962. 1965. February 26. L-23004. listing.. 6(j). stopped sales. 106425 & 106431-32. 6 See Sec. (10) Minimum units of trading. Securities and Exchange Commission. 58507-08. bankruptcy or receivership. 13 No. 206 SCRA 567. 9 Securities and Exchange Commission vs Court of Appeals. and other charges. Hon. February 27. 20 SCRA 987. No. Nos. and published in the Bulletin Today on February 19. (6) Fictitious accounts. and deliveries.. 8. 7 Section 6(m). CFI of Pangasinan. interests. 8. Nos. Revised Securities Act. Revised Securities Act. (8) he reporting of transactions on the exchange upon tickets maintained by or with the consent of the exchange. July 21. 11 Bache & Co. Branch VIII. No. L-32409. Securities and Exchange Commission. L-15350. (Phil. (9) The fixing of reasonable rates of commission. PD. and 11. Lantin.1995. (7) The time and method of making settlements. 902-A. . November 30. G.). 9. No.(5) The manner. G. 12 Sales vs. (11) Odd-lot purchases and sales. vs. Judge Ruiz. payments. 1992. 10 Pineda vs. 8 Abad vs.

1964 and the notice of the Sheriff of Manila in compliance of such order to respondent Imperial insurance." He likewise disallowed the claim for damages against the then plaintiff. No. AGUSTIN P. on March 17. nothing more. all the properties of said corporation contained in the Notices of Sale dated May 26. as plaintiff. for lack of merit. . The failure for any reason to pay in full such amount on that date would entitle respondent Imperial Insurance. Inc. Imperial Insurance. "that must be enforced. 9 ." 3 Then came "a motion for execution and an amended motion for execution. presented with the CFI of Manila. wrote a letter on October 2." The present petition for mandamus with preliminary mandatory injunction is premised on the contention that respondent Judge failed to execute properly the above decision. Da Silva. the whole assets. had a similar role therein. the parties entered into a Compromise Agreement. 1962. the law mandates that property necessary for the enjoyment of said franchise can only be sold to satisfy a judgment debt if the decision especially so provides. . respondent Imperial Insurance. as defendants. . nothing less. . Inc. filed a motion for the issuance of a writ of execution. and THE IMPERIAL INSURANCE. INC. of the Court of First Instance of Manila. wherein after setting forth the issuance of the above order of respondent Judge of September 18. for P10. has its roots in a 1964 decision of this Court. 1964. who can only be deprived thereof in the manner provided by law. 7 Then came the motion for restitution. of said decision. Da Silva were two of the petitioners in the above proceeding. respondent Insurance Company took possession of the properties and started running the affairs and operating the business of the JRS Business Corporation. 1964. furnitures and equipments.. vs. after the aforementioned decision became final and executory. The principal respondent in this petition. On May 23. and June 2. Like that of a franchise. 1962. 1962. "to move for the execution of the decision to be rendered" based on such compromise agreement. were bought by respondent Imperial Insurance. Immediately after the sale. is the President of the JRS Business Corporation. Inc.." It was then the decision of the Court in that proceeding "that the inclusion of the franchise. Inc. This present petition for mandamus with preliminary mandatory injunction against the then respondent Judge. an order was issued by him quoting the dispositive portion of the decision of this Court and emphasizing that the sale at the public auction must "conform with the above-quoted decision of the Supreme Court and nothing else. without special pronouncement as to costs. L-23783 April 25.R. 1964. the denial of which is the basis of the present petition. Inc. now respondent Imperial Insurance. an establishment duly franchised by the Congress of the Philippines. As set forth in the opening paragraph of the decision then rendered: "Petitioner J. . a trade name or business name cannot be sold separately from the franchise and the capital stock of the petitioner corporation or any other corporation. 8 The above motion for restitution was denied by respondent Judge in an order of October 19. to act accordingly in the sale of properties of defendants.G." in which the abovenamed petitioners prayed among other things "for the immediate return or restitution of the aforesaid franchise.. Inc. respondent Imperial Insurance. such amount within sixty (60) days from March 16. 1962. stressing that it is only such decision. Montesa. books of accounts. As noted in the 1964 decision of this Court: "In the sale which was conducted in the premises of the JRS Business Corporation at 1341 Perez St. Paco. the Court hereby approves the above-quoted compromise agreement and renders judgment in accordance therewith.172." That was the background for that previous certiorari proceeding. for a sum of money against the petitioner corporation. JRS Business Corporation. on or before May 14. a writ of execution was issued by the Sheriff of Manila. . for that matter.000. 1961. the main question raised being whether the business name or trade name. trade name and the capital stocks of defendant JRS Business Corporation are excluded from the public auction sale.32. . According to the present petition. 1968 JRS BUSINESS CORPORATION and JOSE R. 1962 (the latter notice being for the whole capital stocks of the defendant. Inc. 1962. . Moreover. trade name and capital stocks" as well as for indemnification in the amount of P132. 6 In pursuance of the above order of September 18. It made clear why: "The compromise agreement and the judgment based thereon. an obligation... On July 12. joint and several in character. he pointed out that the writ of execution could not include anything not embodied in the decision. 4 After such motions were heard by respondent Judge Montesa. represents the interest and is the property of stockholders in the corporation. . 1962. Inc. the auction sale being set for June 21. ." 2 The compromise agreement noted an indebtedness of petitioners. in so far as it authorizes the levy and sale of its franchise. notifying it of the above order of respondent Judge. which was the highest bid offered.THE HON. execution and sale? This Court in its 1964 decision answered in the negative. Manila. The sale of the properties of petitioner corporation is SET ASIDE. . immediate restitution thereof is prayed for by present petitioners. R. Inc. MONTESA.. the Sheriff of Manila. the highest bidder at the public auction sale then in possession of the properties of petitioner JRS Business Corporation." One day after the failure to pay such judgment debt. franchise and capital stocks of the then petitioner JRS Business Corporation were properties or property rights which could be the subject of levy. 1964. to respondent Imperial Insurance. As we have stated heretofore. the respondent. Agustin P. on September 2." 5 Clearly.00. After the defendants therein have submitted their Answer. assisted by their respective counsels.500. the lower court decision embodying the contents of the aforesaid compromise agreement. no such directive appears in the decision. petitioners. on May 15.. the dispositive portion thereof reading: "WHEREFORE. trade name and capital stocks. respectively.. now retired. Then came. a complaint . that the franchise. . 1962 or. . and contained a promise to pay to then plaintiff. Judge of the Court of First Instance of Manila. the trade name and/or business name and the capital stock of the petitioner corporation. The same thing may be stated with respect to petitioner's trade name or business name and its capital stock. . . respondents. to conduct a messenger and delivery express service. in the sale of the properties of the JRS Business Corporation. 1 Petitioners JRS Business Corporation and Jose R. He admitted that he could not modify it. the total liabilities and Net Worth. "a certified copy of said decision had been duly transmitted by this Honorable Court to the Court of First Instance of Manila. in the amount of P61.). the trade name or business name corresponds to the initials of the President of the petitioner corporation and there can be no serious dispute regarding the fact that a trade name or business name and capital stock are necessarily included in the enjoyment of the franchise. Imperial Insurance. has no justification. do not contain any special decree or order making the franchise answerable for the judgment debt. the business name. right of operation. DA SILVA. enjoining the parties to comply faithfully and strictly with the terms and conditions thereof.." He therefore enjoined "the Sheriff of Manila . Incidentally.

11 This Court did not issue a preliminary mandatory injunction. no motion for reconsideration having been thereafter filed. The decision is silent as to any alleged right of petitioner Jose R. which was joined by petitioner JRS Business Corporation. Da Silva in the JRS Business Corporation. Da Silva. Da Silva in the JRS Business Corporation. in the opinion of petitioners. That the respondent Imperial Insurance. are traceable to the decision of this Court of July 31. Without special pronouncement as to costs.R. which could have been the basis of a motion for restitution. nothing less. by virtue of the writ of execution filed by petitioners. which was denied. among other things. the failure to perform a duty resulting from an office as well as the exclusion of petitioner Jose R. as well as of the step taken by the Sheriff of Manila in a communication of October 2. Such being the case. the sole petitioner.17 was cited. 1964. as well as for attorney's fees. Da Silva's plea is concerned is the undeniable fact that the right recognized in the 1964 decision of this Court is a right appertaining to the JRS Business Corporation. and capital stock and respondent Imperial Insurance. interests and participation therein. petitioner Da Silva not being excluded from any lawful right resulting from a failure of respondent Judge Montesa to comply with the duty specifically enjoined upon him by law. Viuda e Hijos de Crispulo Zamora v. Inc. the above decision was. 1964 directing the Sheriff of Manila to act in accordance with the decision of this Court of July 31. It is quite categorical. It is only the said decision that must be enforced. the denial of the motion for restitution of petitioner Da Silva was in the answer alleged to be "fully justified since respondent Imperial Insurance. carried out. Da Silva from the use and enjoyment of a right could not be predicated. Mandamus is the proper remedy if it could be shown that there was neglect on the part of a tribunal in the performance of an act. Mandamus does not lie."19 To the same effect is the formulation of such doctrine by former Justice Barrera: "Stated otherwise. Inc. " the rights. therefore. The prayer is for the dismissal of the petition. Such being the case. legal right to the thing demanded and that it must be the legal duty of the defendant to perform the required act."12 Further. trade name and capital stocks. tradename. in effect. 16 In support of the above view. there is no clear legal right that he could invoke. With petitioner JRS Business Corporation having joined in the answer filed by respondents. its dispositive portion reads thus: "The sale of the properties of petitioner corporation is SET ASIDE. this petition for mandamus is denied. The decision of this Honorable Court in G. 1äwphï1. and the petition must be dismissed." 20 WHEREFORE. in this present petition. is the proper remedy. Wright. in so far as it authorizes the levy and sale its franchise. In the answer of respondents."18 As expressed by the then Justice Recto in a subsequent opinion: "It is well established that only specific legal rights are enforceable by mandamus. is Jose R.15 On the face of the motion for restitution. If the legal rights of the petitioner are not well defined. Da Silva lost his rights. which specifically the law enjoins as a duty or an unlawful exclusion of a party from the use and enjoyment of a right to which he is entitled. if any. 1964."14 What is even more decisive insofar as petitioner Jose R. the writ never issues in doubtful cases. It can not modify the said decision. the franchise. As admitted in the petition. interests and participation of the herein petitioner Jose R. conform with the above-quoted decision of the Supreme Court and nothing else. It is simply a command to exercise a power already possessed and to perform a duty already imposed." 13 It is the stand therefore of respondents that mandamus does not lie in the present case. Da Silva whose rights. interests and participation of the herein petitioner Jose R. As was there categorically stated: "This court has held that it is fundamental that the duties to be enforced by mandamus must be those which are clear and enjoined by law or by reason of official station. Respondents likewise denied liability for any alleged actual or moral damages. to respondent Imperial Insurance.ñët . there was an admission of respondent Judge Montesa issuing an order of September 18.10 Petitioners likewise sought a preliminary mandatory injunction in order allegedly to prevent further injury to them. having come under a different management after such public auction sale. 1964. Inc. the denial of which would have given rise to a petition for mandamus. nothing more. which might have been mistakenly included in the public auction sale. The writ of execution can not include anything not embodied in the decision rendered by this Court. trade name and capital stocks of which were held as not being included in the sale at public auction. clear. Such order in part reads: "The sale at public auction of the properties of the petitioner must. that the right sought to be enforced must be certain and clear. the petition must be dismissed. It neither confers powers nor imposes duties." The winning party clearly is the JRS Business Corporation.The above denial by respondent Judge is alleged in the present petition to be a grave abuse of his discretion and a neglect as well as a refusal to perform an act specifically enjoined upon him as a duty by virtue of which mandamus. Inc. mandamus cannot be availed of. L-19891 does not set aside the sale of the rights. and that petitioner must have clear. and that the writ not issue in cases where the right is doubtful. According to former Chief Justice Moran. notifying it of such order with the qualification "that petitioner JRS Business Corporation has always been in possession of its franchise. never took actual or physical custody and possession thereof and petitioner Jose R. was never in possession thereof. "only specific legal rights may be enforced by mandamus if they are clear and certain. and certain. No. actually purchased on the public auction sale of the Sheriff of Manila were.

for it only secured the attachment prayed for by the plaintiff Pioneer.000. No. WHEREFORE. 1965. the third-party defendant. the plaintiff is required to pay Constancio B. INC.00 to be paid in installments. Lim requiring Lim to pay plaintiff the amount of P311. petitioner. No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith.878. plaintiff is required to indemnify the defendants Bormaheco and the Cervanteses the amount of P20. MAGLANA and JACOB S. the Cervanteses and Constancio B. On May 22. per year from 1966 with legal rate of interest up to the time it is paid. in the exercise of its discretion.84 with interest from the filing of the cross-complaints until the amount is fully paid.878.00 moral and exemplary damages. The fact that the properties of the Bormaheco and the Cervanteses were attached and that they were required to file a counterbond in order to dissolve the attachment. No. LIM.1965. vs. Lim is further required to pay cross party plaintiff. Japan. and another P20. one signed by Maglana and the other jointly signed by Lim for SAL. LIM. with interest at the rate of 12% per annum compounded monthly..00 for each of the two Cervanteses. Furthermore. petitioner in G.02. Jacob S.056. 84197 July 28. Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US $109. No. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. BORDER MACHINERY & HEAVY EQUIPMENT.R.000. FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA. When a man tries to protect his rights. he should not be saddled with moral or exemplary damages. BORDER MACHINERY and HEAVY EQUIPMENT CO. at Tokyo. the complaint of plaintiff Pioneer against defendants Bormaheco.878.making a total of P184. 24197. respondents. COURT OF APPEALS. is dismissed.. 84157) was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. 15-16) In 1965. pp. plus P70..74 with interest from the filing of the cross-complaints until the amount is fully paid. Defendant Jacob S. Instead. PIONEER INSURANCE AND SURETY CORPORATION.00 as attorney's fees and costs. Furthermore. Furthermore.00 to Bormaheco and the Cervanteses. The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G. CV No. No damage is decided against Malayan Insurance Company.00. judgment is rendered against defendant Jacob S. 84197) against all defendants (respondents in G. 84197) as surety executed and issued its Surety Bond No. No.R.00 as attorney's fees and the amount of P4.00 to Constancio B. 84157 July 28. Inc. 84197) was dismissed but in all other respects the trial court's decision was affirmed. 66195 which modified the decision of the then Court of First Instance of Manila in Civil Case No. CONSTANCIO M. One DC-3 Aircraft with Registry No.R. in view of all above. No. It appears that Border Machinery and Heavy Equipment Company. the Cervanteses one-half and Maglana the other half. On May 17. the rights exercised were provided for in the Rules of Court. G.. INC. Bormaheco and the Cervanteses.G.. 1965. arrived in Manila on July 18. then nobody would engage in the insurance business. 1989 JACOB S.000. Maglana as attorney's fees.G. until full payment is made. plus moral and exemplary damages in the amount of P50.000. he is required to pay P20. plus moral and exemplary damages in the amount of P184. in behalf of its principal. 66135. It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses aside from Pl51. No further claim or counter-claim for or against anybody is declared by this Court. Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in the purchase of the above aircrafts and spare parts. Maglana. Pioneer Insurance and Surety Corporation (Pioneer. Lim. THE HON.1966. PIC718. No. Inc. respondents.R. The indemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all . is not an act of bad faith. vs. If an insurance company would be liable for damages in performing an act which is clearly within its power and which is the reason for its being. Lim (petitioner in G. petitioner.R. (BORMAHECO).R. No.000. The dispositive portion of the trial court's decision reads as follows: WHEREFORE. Bormaheco.000. Maglana the amount of P20. plus 15% of the amount awarded to plaintiff as attorney's fees from July 2. The plaintiffs complaint (petitioner in G.COURT OF APPEALS. 1989 PIONEER INSURANCE & SURETY CORPORATION.379. for the balance price of the aircrafts and spare parts. (Rollo . the amount of Pl84. and it was the court that ordered it. arrived in Manila on June 7.R.000.1965 while the other aircraft. (Bormaheco).R. 6639 (Exhibit C) in favor of JDA.000.74.21. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer.

050. 776). Well settled is the rule that no person should unjustly enrich himself at the expense of another (Article 22. Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City. taxes. Comments on the Rules of Court. 1965. 1979 ed. As stated earlier. the former was able to foreclose extra-judicially one of the subject airplanes and its spare engine.00 — the bulk of defendants' alleged obligation to Pioneer.00. p. On June 10. 88 Phil. Oglleaby v. Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and respondents. 67 Phil.050.. 669. (Rollo-84197. Pioneer paid a total sum of P298. The Cervanteses and Maglana. Plaintiff did not even present any evidence that it is the attorney-in-fact of the reinsurance company. It is undisputed that plaintiff Pioneer had reinsured its risk of liability under the surety bond in favor of JDA and subsequently collected the proceeds of such reinsurance in the sum of P295.G. Defendants' alleged obligation to Pioneer amounts to P295. It was stipulated therein that Lim transfer and convey to the surety the two aircrafts. it is patent that plaintiff has been overpaid in the amount of P33. costs. pp. reimburse and make good to Pioneer. In their Answers. the appellate court modified the trial court's decision in that the plaintiffs complaint against all the defendants was dismissed. Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the contracts signed by Lim and.12.000.00. 2d 667. hence. contingent. 1966. We first resolve G. 24-25). Weber v. Bormaheco and Maglana. R. Vol. quoting 47 C. No. subordinate or consequential interest (Garcia v.666. By real party in interest is meant a present substantial interest as distinguished from a mere expectancy or a future. Warner Barnes & Co. Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety.damages.626. 84197. I. . charges and expenses of whatever kind and nature which Pioneer may incur in consequence of having become surety upon the bond/note and to pay. 35). To allow plaintiff Pioneer to recover from defendants the amount in excess of P298. Based on the foregoing premises. he must appear to be the present real owner of the right sought to be enforced (Moran. Flowers v. however. 385 III. New Civil Code). its successors and assigns. No. 125. To qualify a person to be a real party in interest in whose name an action must be prosecuted.383. plaintiff Pioneer cannot be considered as the real party in interest as it has already been paid by the reinsurer the sum of P295. 97 P. In all other respects the trial court's decision was affirmed. 84197. In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer. it instituted the action is utterly devoid of merit. plaintiffs instant action for the recovery of the amount of P298. 1 NW 2d 424. respectively.. David..28 would be tantamount to unjust enrichment as it has already been paid by the reinsurance company of the amount plaintiff has paid to JDA as surety of defendant Lim vis-a-vis defendant Lim's liability to JDA. by way of counterclaim. realizing the total amount of P37.72 considering that the total amount it had paid to JDA totals to only P298. Petitioner Pioneer Insurance and Surety Corporation avers that: RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT.R.00. (Rollo . Plaintiff Pioneer is not the real party in interest to institute the instant action as it does not stand to be benefited or injured by the judgment. Adding the sum of P37.28. Maglana. On July 19.00 from the sale of the mortgaged chattels.00. Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from defendants. a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants. sought for damages for being exposed to litigation and for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question. After trial on the merits. damages.000.E. authorized to institute an action for and in behalf of the latter. 131). 155). filed a third party claim alleging that they are co-owners of the aircrafts. losses. p. 10) The petitioner questions the following findings of the appellate court: We find no merit in plaintiffs appeal. The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No. the Cervanteses. Springfield Marine Bank. penalties.666. to the proceeds of the reinsurance amounting to P295. Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in favor of the former. hence. 2d 1600. 27. Ltd. It has been held that the real party in interest is the party who would be benefited or injured by the judgment or the party entitled to the avails of the suit (Salonga v. City of Cheye. Germans. 52 N.000. 414.28 from defendants will no longer prosper.V. all sums and amounts of money which it or its representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature.666.000.

notwithstanding that the cause of action pertains to the latter.A.. the petitioner is entitled to recover from respondents Bormaheco and Maglana.126 GA. Limjuco and Gonzalo.666.00. Co. 360-363). Considering this admitted payment. L22347. p.R. and this is so even where the name of the principal is disclosed in the complaint.72. 1134). and (4) the principle of unjust enrichment is not applicable considering that whatever amount he would recover from the co-indemnitor will be paid to the reinsurer. it is plain that on this score it no longer has any right to collect to the extent of the said amount. Lastly. on payment of a loss acquires the same rights by subrogation as are acquired in similar cases where the original insurer pays a loss (Universal Ins. 380. The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Ins. 12. the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. . 2207. . still none of the respondents had any interest in the matter since the reinsurance is strictly between the petitioner and the re-insurer pursuant to section 91 of the Insurance Code. or P3.000. assuming that the indemnity agreement is still valid and effective. (Record on Appeal. Rep. Pioneer has no more claim against defendants. The real party in interest is the party who would be benefitted or injured by the judgment or is the party entitled to the avails of the suit. La. Therefore. But since the amount realized from the sale of the mortgaged chattels are P35. 23 SCRA 706. Co.666.1968. No. 84157). Has Pioneer a cause of action against defendants with respect to so much of its obligations to JDA as has been paid with reinsurance money? 2. there is not the slightest indication in the complaint that Pioneer is suing as attorney-in. Hence the applicable law is Article 2207 of the new Civil Code.fact of the reinsurers for any amount. 484.050. and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of. Pioneer is still overpaid by P33.00 for one of the airplanes and P2. v. Therefore. the only issue that cropped up was the effect of payment made by the reinsurers to the petitioner.E.The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner was paid by its reinsurer in the aforesaid amount. The total amount paid by Pioneer to JDA is P299. the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. the trial court made the following findings: It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor of JDA. pp. The rules of practice in actions on original insurance policies are in general applicable to actions or contracts of reinsurance. (Rollo. But in the first place. Since Pioneer has collected P295.' This provision is mandatory. Con. .00 for a spare engine. In general a reinsurer. that there is no law permitting an action to be brought by an attorney-in-fact.. and most important of all.050.C.00 from the reinsurers. Rep. considering the amount it has realized from the sale of the mortgaged properties? (Record on Appeal. (Delaware. This Court has held in various cases that an attorney-in-fact is not a real party in interest. It is well-settled that an action brought by an attorney-in-fact in his own name instead of that of the principal will not prosper. This is the amount for which Pioneer may sue defendants. Arroyo v.28. that is suing defendants for the amount paid to it by the reinsurers. 330. 11) (2) even assuming hypothetically that it was paid by its reinsurer. has Pioneer still any claim against defendants. 18 Phil. 46 F 2nd 925). 359. Annex B of G.383. as this matter has never been raised by any of the parties herein both in their answers in the court below and in their respective briefs with respondent court. If the answer to the preceding question is in the negative. No. Pioneer has no right to institute and maintain in its own name an action for the benefit of the reinsurers. to wit: Art. p. (3) pursuant to the indemnity agreements.000. and paid with the said amount the bulk of its alleged liability to JDA under the said surety bond. In resolving these issues. v. If the plaintiffs property has been insured. San Diego G.' In other words. Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be prosecuted in the name of the real party in interest. 55 S. instead of the reinsurance (sic). Pennsylvania Fire Ins. 710-714. If the amount paid by the insurance company does not fully cover the injury or loss. the petitioner's argument that the respondents had no interest in the reinsurance contract as this is strictly between the petitioner as insured and the reinsuring company pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis. On the question of why it is Pioneer. Co. 7 Ann. The records belie the petitioner's contention that the issue on the reinsurance money was never raised by the parties. the uninsured portion of what it paid to JDA is the difference between the two amounts. Pioneer says: The reinsurers opted instead that the Pioneer Insurance & Surety Corporation shall pursue alone the case. A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were: 1. C. Granada and Gentero.. Old Time Molasses Co. or a total of P37. Pioneer Insurance & Surety Corporation is representing the reinsurers to recover the amount. 19 Phil. Filipinos Industrial Corporation v.R. insofar as the amount paid to it by the reinsurers Pioneer is suing defendants as their attorney-in-fact. collected the proceeds of such reinsurance in the sum of P295.29.000. Luchauco v. .

et al. Heald Lumber Co. known as the Recto Law. Filipinas Investment & Finance Corp. The reason is that Pioneer is actually exercising the rights of JDA as vendor.' Cruz. 23 SCRA 791.R. it is provided in said article that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not fully cover the loss. This is judicial admission and aside from the chattel mortgage there is no other security for the claim sought to be enforced by this action. (Emphasis supplied). Prescinding from the foregoing. The following is averred under oath by Pioneer in the original complaint: The various conflicting claims over the mortgaged properties have impaired and rendered insufficient the security under the chattel mortgage and there is thus no other sufficient security for the claim sought to be enforced by this action. 1031 [1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. SAL or Lim. we find the trial court's findings on the matter replete with evidence to substantiate its finding that the counter-indemnitors are not liable to the petitioner. therefore.24772. Accordingly. they would be mortgaged to Pioneer Insurance to cover the bond. Rule 129. May 27. L. Pioneer Insurance. As soon as the aircrafts were brought to the Philippines. The operation of the foregoing provision cannot be escaped from through the contention that Pioneer is not the vendor but JDA. having subrogated it in such rights. Pioneer.1974. Court of Appeals (154 SCRA 650 [1987]): Note that if a property is insured and the owner receives the indemnity from the insurer. The indemnity agreement was ipso jure extinguished upon the foreclosure of the chattel mortgage. Testimonies of defendants Francisco Cervantes and Modesto Cervantes. or SAL extinguish the original obligations thru novations thus discharging the indemnitors. It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer. which necessarily means that the indemnity agreement had ceased to have any force and effect at the time this action was instituted. On the other hand. as provided by the aforementioned provisions. 795-6.1968. the petitioner argues that the appeal as regards the counter indemnitors should not have been dismissed on the premise that the evidence on record shows that it is entitled to recover from the counter indemnitors. agreed to issue the bond provided that the same would be mortgaged to it. Pioneer shall have no further action against the purchaser to recover any unpaid balance and any agreement to the contrary is void. Such being the case. Sec 2.Interpreting the aforesaid provision. having foreclosed the chattel mortgage on the planes and spare parts. the indemnity agreement ceased to be valid and effective after the execution of the chattel mortgage. Evidently. has no cause of action against the respondents. 61 SCRA 124. the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured. et al. v. 20. knowing the value of the aircrafts and the spare parts involved. no longer has any further action against the defendants as indemnitors to recover any unpaid balance of the price. Independently of the preceding proposition Pioneer's election of the remedy of foreclosure precludes any further action to recover any unpaid balance of the price. Air Lines. The trial court stated: Apart from the foregoing proposition. having failed to pay the second to the eight and last installments to JDA and Pioneer as surety having made of the payments to JDA. Rollo) to back up its contention. The restructuring of the obligations of SAL or Lim. It does not. These defendants. under this legal provision. 12. as indemnitors. . but this was not possible because the planes were still in Japan and could not be mortgaged here in the Philippines. v. Pascual. v. the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against the respondents for the reason that the petitioner was not the real party in interest in the complaint and. would be entitled to be subrogated to the right of Pioneer should they make payments to the latter. No. we ruled in the case of Phil. (101 Phil. Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure and the instant suit. Nov. L27862. Universal Motors Corporation. cite any grounds except its allegation that respondent "Maglanas defense and evidence are certainly incredible" (p. then the aggrieved party is the one entitled to recover the deficiency. the alternative remedies open to Pioneer were as provided in Article 1484 of the New Civil Code. Nevertheless. Inc. Revised Rules of Court. The change of the maturity dates of the obligations of Lim. Nor may the application of the provision be validly opposed on the ground that these defendants and defendant Maglana are not the vendee but indemnitors. G. thru the change of their maturity dates discharged these defendants from any liability as alleged indemnitors. Articles 2067 and 2080 of the New Civil Code of the Philippines. No. and this indemnity agreement would be cancelled. however.

Rollo of G.' (Record on Appeal. Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity. would have it believed that these defendants Maglana (sic). 12.. By virtue of an express stipulation in the surety bond. Art. v. (Rollo. Art. at the trial of this case. The consequence of this was the extinguishment of the obligations and of the surety bond secured by the indemnity agreement which was thereby also extinguished. Applicable by analogy are the rulings of the Supreme Court in the case of Kabankalan Sugar Co.878. Constancio Maglana and petitioner Lim to incorporate. p. 562-563. and those of the rest of the installments. 55 Phil. and the case of Asiatic Petroleum Co.. 1318. Spouses Cervantes. pp. Hizon David.000. were done without the knowledge. Pacheco. Pioneer has no more cause of action to recover from these defendants. the first of which shall be due and payable 25 August 1965. Defendant Lim should pay one-half of the said amount to Bormaheco and the Cervanteses and the other one-half to defendant Maglana. effected twice. Climacom et al. The instant action is clearly unfounded insofar as plaintiff drags these defendants and defendant Maglana. Vol.. released Pioneer from liability from the claim. 538. 316-317. These restructuring of the obligations with regard to their maturity dates. 1965. questions the appellate court's findings ordering him to reimburse certain amounts given by the respondents to the petitioner as their contributions to the intended corporation. v. Hence. modifying the maturity dates of the obligations. No. Lim poses the following issues: l. Ltd.. Pioneer produced a memorandum executed by SAL or Lim and JDA. Not only that.R. We find no cogent reason to reverse or modify these findings.) 36 O. 563. Petitioner Jacob S. (New Civil Code). What legal rules govern the relationship among co-investors whose agreement was to do business through the corporate vehicle but who failed to incorporate the entity in which they had chosen to invest? How are the losses to be treated in situations where their contributions to the intended 'corporation' were invested not through the corporate form? This Petition presents these fundamental questions which we believe were resolved erroneously by the Court of Appeals ('CA'). 2079. what it has paid to JDA. pp. as follows: The principal hereof shall be paid in eight equal successive three month interval installments the first of which shall be due and payable 4 September 1965. VI. (C. v. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or became illegal. Therefore. the due date of the first installment appears as October 15. 84157). much less. No. defendant Lim should be held liable to pay his co-defendants' cross-claims in the total amount of P184.. Pioneer also produced eight purported promissory notes bearing maturity dates different from that fixed in the aforesaid memorandum. and there are no such document.The principal hereof shall be paid in eight equal successive three months interval installments.A.R. Consequently. 4th ed. 84197 is not meritorious. shall be due and payable on the 4th day .. therefore. However. there would have been the corresponding documents in the form of a written notice to as well as written conformity of these defendants. the failure of JDA to present its claim to Pioneer within ten days from default of Lim or SAL on every installment. Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same. the remainder of which . 6). a de facto partnership among them was created. 1571. that of the last installment being July 15. It is established in the records that defendant Lim had duly received the amount of Pl51. We now discuss the merits of G. 84157. The petitioner. 553. of each succeeding months and the last of which shall be due and payable 4th June 1967. M. pp. it is our conclusion that the petition in G. with interest from the filing of the cross-complaints until the amount is fully paid.00 from defendants Bormaheco and Maglana representing the latter's participation in the ownership of the .. Pioneer's official Numeriano Carbonel would have it believed that these defendants and defendant Maglana knew of and consented to the modification of the obligations. No.G. the 15th of each succeeding three months. shall be due and payable on the 26th day x x x of each succeeding three months and the last of which shall be due and payable 26th May 1967. Stevenson & Co. 45 Phil.74 as correctly found by the trial court. as supposed indemnitors. But if that were so. Vol.' Manresa. and that as a consequence of such relationship all must share in the losses and/or gains of the venture in proportion to their contribution. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty The mere failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any extension time referred to herein.F.. 1967. to wit: However. These questions are premised on the petitioner's theory that as a result of the failure of respondents Bormaheco. the remainder of which .. 532.R. These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety by reason of the filing of the instant case against them and the attachment and garnishment of their properties. 363369.

subject airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred additional expenses, hence, the total sum of P 184,878.74. We first state the principles. While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association should be governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a corporation and who carry on business under the corporate name occupy the position of partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons associate themselves together under articles to purchase property to carry on a business, and their organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners inter se, and their rights as members of the company to the property acquired by the company will be recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain persons associated themselves as a corporation for the development of land for irrigation purposes, and each conveyed land to the corporation, and two of them contracted to pay a third the difference in the proportionate value of the land conveyed by him, and no stock was ever issued in the corporation, it was treated as a trustee for the associates in an action between them for an accounting, and its capital stock was treated as partnership assets, sold, and the proceeds distributed among them in proportion to the value of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between themselves, when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when necessary to do justice between the parties; thus, one who takes no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a partner with other subscribers who engage in business under the name of the pretended corporation, so as to be liable as such in an action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between certain stockholders and other stockholders, who were also directors, will not be implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied). In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the pretrial despite notification. In his answer, the petitioner denied having received any amount from respondents Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court, however, found through Exhibit 58, that the petitioner received the amount of P151,000.00 representing the participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the subject airplanes and spare parts. The record shows that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses. It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite his representations to them. This gives credence to the cross-claims of the respondents to the effect that they were induced and lured by the petitioner to make contributions to a proposed corporation which was never formed because the petitioner reneged on their agreement. Maglana alleged in his cross-claim: ... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand his airline business. Lim was to procure two DC-3's from Japan and secure the necessary certificates of public convenience and necessity as well as the required permits for the operation thereof. Maglana sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share of the undertaking. Lim in an undertaking sometime on or about August 9,1965, promised to incorporate his airline in accordance with their agreement and proceeded to acquire the planes on his own account. Since then up to the filing of this answer, Lim has refused, failed and still refuses to set up the corporation or return the money of Maglana. (Record on Appeal, pp. 337-338). while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and third party complaint: Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase two airplanes and spare parts from Japan which the latter considered as their lawful contribution and participation in the proposed corporation to be known as SAL. Arrangements and negotiations were undertaken by defendant Lim. Down payments were advanced by defendants Bormaheco and the Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants, defendant Lim in connivance with the plaintiff, signed and executed the alleged chattel mortgage and surety bond agreement in his personal capacity as the alleged proprietor of the SAL. The answering defendants learned for the first time of this trickery and misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to file an adverse claim in the form of third party claim. Notwithstanding repeated oral demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to surrender the possession of the two planes and their accessories and or return the amount advanced by the former amounting to an aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the latter ignored, omitted and refused to comply with them. (Record on Appeal, pp. 341-342). Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts. WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is AFFIRMED.

. G.R. No. L-27155 May 18, 1978 PHILIPPINE NATIONAL BANK, petitioner, vs.THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., respondents. Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of Manila in Civil Case No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita Gueco Tapnio, as third-party plaintiff, the sum of P2,379.71, plus 12% interest per annum from September 19, 1957 until the same is fully paid, P200.00 attorney's fees and costs, the same amounts which Rita Gueco Tapnio was ordered to pay the Philippine American General Insurance Co., Inc., to be paid directly to the Philippine American General Insurance Co., Inc. in full satisfaction of the judgment rendered against Rita Gueco Tapnio in favor of the former; plus P500.00 attorney's fees for Rita Gueco Tapnio and costs. The basic action is the complaint filed by Philamgen (Philippine American General Insurance Co., Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf of respondents Tapnio and Gueco, pursuant to an indemnity agreement. Petitioner Bank was made third-party defendant by Tapnio and Gueco on the theory that their failure to pay the debt was due to the fault or negligence of petitioner. The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of Manila, are quoted hereunder: Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of the Philippine National Bank Branch at San Fernando, Pampanga, to guarantee the payment of defendant Rita Gueco Tapnio's account with said Bank. In turn, to guarantee the payment of whatever amount the bonding company would pay to the Philippine National Bank, both defendants executed the indemnity agreement, Exh. B. Under the terms and conditions of this indemnity agreement, whatever amount the plaintiff would pay would earn interest at the rate of 12% per annum, plus attorney's fees in the amount of 15 % of the whole amount due in case of court litigation. The original amount of the bond was for P4,000.00; but the amount was later reduced to P2,000.00. It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of P2,000.00, plus accumulated interests unpaid, which she failed to pay despite demands. The Bank wrote a letter of demand to plaintiff, as per Exh. C; whereupon, plaintiff paid the bank on September 18, 1957, the full amount due and owing in the sum of P2,379.91, for and on account of defendant Rita Gueco's obligation (Exhs. D and D-1). Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and F), but to no avail. Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand was made upon her by plaintiff for her to pay her debt to the Bank, that she told the Plaintiff that she did not consider herself to be indebted to the Bank at all because she had an agreement with one Jacobo-Nazon whereby she had leased to the latter her unused export sugar quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at the rate of P2.80 per picul, or for a total of P2,800.00, which was already in excess of her obligation guaranteed by plaintiff's bond, Exh. A. This lease agreement, according to her, was with the knowledge of the bank. But the Bank has placed obstacles to the consummation of the lease, and the delay caused by said obstacles forced 'Nazon to rescind the lease contract. Thus, Rita Gueco Tapnio filed her third-party complaint against the Bank to recover from the latter any and all sums of money which may be adjudged against her and in favor of the plaitiff plus moral damages, attorney's fees and costs. Insofar as the contentions of the parties herein are concerned, we quote with approval the following findings of the lower court based on the evidence presented at the trial of the case: It has been established during the trial that Mrs. Tapnio had an export sugar quota of 1,000 piculs for the agricultural year 1956-1957 which she did not need. She agreed to allow Mr. Jacobo C. Tuazon to use said quota for the consideration of P2,500.00 (Exh. "4"-Gueco). This agreement was called a contract of lease of sugar allotment. At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National Bank at San Fernando, Pampanga. Her indebtedness was known as a crop loan and was secured by a mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to said standing crop. This arrangement was necessary in order that when Mrs. Tapnio harvests, the P.N.B., having a lien on the crop, may effectively enforce collection against her. Her sugar cannot be exported without sugar quota allotment Sometimes, however, a planter harvest less sugar than her quota, so her excess quota is utilized by another who pays her for its use. This is the arrangement entered into between Mrs. Tapnio and Mr. Tuazon regarding the former's excess quota for 1956-1957 (Exh. "4"Gueco). Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said Bank, The same was submitted to the branch manager at San Fernando, Pampanga. The latter required the parties to raise the consideration of P2.80 per picul or a total of P2,800.00 (Exh. "2-Gueco") informing them that "the minimum lease rental acceptable to the Bank, is P2.80 per picul." In a letter addressed to the branch manager on August 10, 1956, Mr. Tuazon informed the manager that he was agreeable to raising the consideration to P2.80 per picul. He further informed the manager that he was ready to pay said amount as the funds were in his folder which was kept in the bank. Explaining the meaning of Tuazon's statement as to the funds, it was stated by him that he had an approved loan from the bank but he had not yet utilized it as he was intending to use it to pay for the quota. Hence, when he said the amount needed to pay Mrs. Tapnio was in his folder which was in the bank, he meant and the manager understood and knew he had an approved loan available to be used in payment of the quota. In said Exh. "6-Gueco", Tuazon

also informed the manager that he would want for a notice from the manager as to the time when the bank needed the money so that Tuazon could sign the corresponding promissory note. Further Consideration of the evidence discloses that when the branch manager of the Philippine National Bank at San Fernando recommended the approval of the contract of lease at the price of P2.80 per picul (Exh. 1 1-Bank), whose recommendation was concurred in by the Vice-president of said Bank, J. V. Buenaventura, the board of directors required that the amount be raised to 13.00 per picul. This act of the board of directors was communicated to Tuazon, who in turn asked for a reconsideration thereof. On November 19, 1956, the branch manager submitted Tuazon's request for reconsideration to the board of directors with another recommendation for the approval of the lease at P2.80 per picul, but the board returned the recommendation unacted upon, considering that the current price prevailing at the time was P3.00 per picul (Exh. 9-Bank). The parties were notified of the refusal on the part of the board of directors of the Bank to grant the motion for reconsideration. The matter stood as it was until February 22, 1957, when Tuazon wrote a letter (Exh. 10-Bank informing the Bank that he was no longer interested to continue the deal, referring to the lease of sugar quota allotment in favor of defendant Rita Gueco Tapnio. The result is that the latter lost the sum of P2,800.00 which she should have received from Tuazon and which she could have paid the Bank to cancel off her indebtedness, The court below held, and in this holding we concur that failure of the negotiation for the lease of the sugar quota allocation of Rita Gueco Tapnio to Tuazon was due to the fault of the directors of the Philippine National Bank, The refusal on the part of the bank to approve the lease at the rate of P2.80 per picul which, as stated above, would have enabled Rita Gueco Tapnio to realize the amount of P2,800.00 which was more than sufficient to pay off her indebtedness to the Bank, and its insistence on the rental price of P3.00 per picul thus unnecessarily increasing the value by only a difference of P200.00. inevitably brought about the rescission of the lease contract to the damage and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00. The unreasonableness of the position adopted by the board of directors of the Philippine National Bank in refusing to approve the lease at the rate of P2.80 per picul and insisting on the rate of P3.00 per picul, if only to increase the retail value by only P200.00 is shown by the fact that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on her properties, and surety bonds, aside from the fact that from Exh. 8-Bank, it appears that she was offering to execute a real estate mortgage in favor of the Bank to replace the surety bond This statement is further bolstered by the fact that Rita Gueco Tapnio apparently had the means to pay her obligation fact that she has been granted several value of almost P80,000.00 for the agricultural years from 1952 to 56. 1 Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the present petition. The petitioner contends that the Court of Appeals erred: (1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita Gueco Tapnio by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease contract, and its unreasonable insistence on the rental price of P3.00 instead of P2.80 per picul; and (2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the petitioner, the latter's Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota leased by respondent Rita Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul. Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and under the Corporation Law, to safeguard and protect its rights and interests under the deed of assignment, which include the right to approve or disapprove the said lease of sugar quota and in the exercise of that authority, its Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar quota subject of the lease between private respondents and Jacobo C. Tuazon. It argued further that both under its Charter and the Corporation Law, petitioner, acting thru its Board of Directors, has the perfect right to adopt a policy with respect to fixing of rental prices of export sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did not act arbitrarily since the said Board was guided by statistics of sugar price and prices of sugar quotas prevailing at the time. Since the fixing of the rental of the sugar quota is a function lodged with petitioner's Board of Directors and is a matter of policy, the respondent Court of Appeals could not substitute its own judgment for that of said Board of Directors, which acted in good faith, making as its basis therefore the prevailing market price as shown by statistics which were then in their possession. Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a creditor, it shall be deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be required to return to respondent Philamgen the sum of P2,379.71, plus interest, which amount had been previously paid to petitioner by said insurance company in behalf of the principal debtor, herein respondent Rita Gueco Tapnio, and without recourse against respondent Rita Gueco Tapnio. We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to reviewing only errors of law, accepting as conclusive the factual fin dings of the Court of Appeals upon its own assessment of the evidence. 2 The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon was executed on April 17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank at San Fernando, Pampanga. This arrangement was necessary because Tapnio's indebtedness to petitioner was secured by a mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to said standing crop. The latter required the parties to raise the consideration to P2.80 per picul, the

after being informed of the action of the Board of Directors. with a recommendation for approval. On February 22. that he was agreeable to raising the consideration to P2.800." 6 WHEREFORE. 1957. asked for a reconsideration thereof. generally. J. or a total of P2.800.00 a picul". therefore. but the Board returned the recommendation unacted. because any allotment which is not filled during such milling season may be reallocated by the Sugar Quota Administration to other holders of allotments.80 per picul was acceptable to him and that he even offered to use the loan secured by him from petitioner to pay in full the sum of P2. and observe honesty and good faith. is whether or not petitioner is liable for the damage caused. that degree of care. Under Article 21 of the New Civil Code. since the same must be utilized during the milling season. petitioner is consequently liable for the damages caused on private respondents. for the protection of the interest of private respondents. It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration of the lease from P2. 1956. resulting in her loss in the sum of P2. . according to the trial court. give everyone his due. Tuazon wrote a letter.80 per picul. "The fact that there were isolated transactions wherein the consideration for the lease was P3. 4 This petitioner failed to do. 5 A corporation is civilly liable in the same manner as natural persons for torts. or a total of P2. This arrangement was not only satisfactory to the Branch Manager but it was also approves by Vice-President J." The afore-cited provisions on human relations were intended to expand the concept of torts in this jurisdiction by granting adequate legal remedy for the untold number of moral wrongs which is impossible for human foresight to specifically provide in the statutes. Tuazon. A corporation is liable. Buenaventura of the PNB.000.00. While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was mortgaged to the Bank.800. whenever a tortious act is committed by an officer or agent under express direction or authority from the stockholders or members acting as a body. This notwithstanding. which was more than enough to pay the balance of her indebtedness to the Bank which was secured by the bond of Philamgen.50 to P2. thru a letter dated August 10. This referred to the approved loan of Tuazon from the Bank which he intended to use in paying for the use of the sugar quota. as shown by the fact that she has been granted several sugar crop loans of the total value of almost P80. the latter certainly cannot escape its responsibility of observing. precaution and vigilance which the circumstances justly demand in approving or disapproving the lease of said sugar quota. In failing to observe the reasonable degree of care and vigilance which the surrounding circumstances reasonably impose. On November 19. because "generally speaking. and surety bonds and that she had apparently "the means to pay her obligation to the Bank. Under that arrangement.minimum lease rental acceptable to the Bank. the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation. stating that the current price prevailing at that time was P3. Tuazon informed the Branch Manager. There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the disapproval of the lease by the Board of Directors of petitioner.00 which she should have received had the lease in favor of Tuazon been implemented. V. in his letter to the Branch Manager of the Bank on August 10. which recommendation was concurred in by the Vice-President of the Bank. 3 There was no proof that there was any other person at that time willing to lease the sugar quota allotment of private respondents for a price higher than P2. in view of the foregoing. Tapnio failed to utilize her sugar quota.00 per picul. from the directors as the governing body.80 per picul. there was no reasonable basis for the Board of Directors of petitioner to have rejected the lease agreement because of a measly sum of P200.00 as the funds were in his folder which was kept in the said Bank. He further informed the manager that he was ready to pay the said sum of P2. the Board of Directors of petitioner required that the consideration be raised to P3. therefore. "does not necessarily mean that there are always ready takers of said price. Mr. Hence. The law makes it imperative that every person "must in the exercise of his rights and in the performance of his duties.00 which was the total consideration of the lease.00 per picul. Considering that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing crops. The issue.800-00.00 per picul demanded by the Board amounted only to a total sum of P200. All of the authorities agree that a principal or master is liable for every tort which he expressly directs or authorizes. The crop year 1956-1957 ended and Mrs. it knew that the agricultural year was about to expire.00. the Branch Manager submitted the request for reconsideration and again recommended the approval of the lease at P2. act with justice. Buenaventura. Certainly.00. 1956.00 for the agricultural years from 1952 to 1956". and whether the servant or agent be a natural or artificial person.800. V. 1956. they readily agreed. The Branch Manager submitted the contract of lease of sugar quota allocation to the Head Office on September 7. As observed by the trial court. or. Rita Gueco Tapnio could have realized the amount of P2. that by its disapproval of the lease private respondents would be unable to utilize the sugar quota in question.80 per picul. Tuazon informed him that the minimum lease rental of P2.80 per picul.800.80 per picul offered by Tuazon and the P3. " The unreasonableness of the position adopted by the petitioner's Board of Directors is shown by the fact that the difference between the amount of P2.00. good customs or public policy shall compensate the latter for the damage. the decision of the Court of Appeals is hereby AFFIRMED. 1956. informing the Bank that he was no longer interested in continuing the lease of sugar quota allotment. and this is just as true of a corporation as of a natural person. assignment of leasehold rights and interests on her properties. time is of the essence in the approval of the lease of sugar quota allotments. "any person who wilfully causes loss or injury to another in a manner that is contrary to morals.

a trading firm. including gasoline expenses. a labor organization which they subsequently joined. 1994. after disaffiliating themselves from the drivers' union. In excess of that amount.[G. herein private respondents alleged that they were regular employees of Naguiat Enterprises. at the time it ceased operations." setting aside the earlier agreement between CFTI and the drivers' union of P500. finding the individual complainants to be regular workers of CFTI." for payment of separation pay due to termination/phase-out. The NLRC modified the decision of the labor arbiter by granting separation pay to herein individual respondents in the increased amount of US$120.. & CLARK FIELD TAXI.00 for those working from 12:00 noon to 12:00 midnight. Inc. The drivers worked at least three to four times a week.. Naguiat Enterprises. Said complaint was later amended vi[6] to include additional taxi drivers who were similarly situated as complainants. they were required to pay a daily "boundary fee" in the amount of US$26. Inc. filed a complaint v[5] against "Sergio F. Sergio F. and US$27. the AAFES was dissolved. Naguiat doing business under the name and style Sergio F. ("CFTI"). respondents. petitioners. Incorporated ("Naguiat Enterprises"). it was a family-owned corporation. LEONARDO T. Pinatubo eruption and the expiration of the RP-US military bases agreement. NATIONAL ORGANIZATION OF WORKINGMEN and its members. and AAFES Taxi Drivers Association with Eduardo Castillo as President. In their complaint. who were separated from service due to the closure of Clark Air Base. Are private respondent-employees of petitioner Clark Field Taxi. INC. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION).00 for every year of service. RAB-III-12-2477-91. doing business under the name and style SERGIO F.iii[3] The February 28.50 for those working from 1:00 a. 1994. NAGUIAT ENT. In not awarding separation pay in accordance with the Labor Code. In their position paper submitted to the labor arbiter. Naguiat was CFTI's president. they were required to make cash deposits to the company. However. 1997] SERGIO F. Pacific Region. however. Naguiat as vice president and general manager. NAGUIAT. Inc. Sergio F. through its President Eduardo Castillo who claimed to have had blanket authority to negotiate with CFTI in behalf of union members. in what amount? Are officers of corporations ipso facto liable jointly and severally with the companies they represent for the payment of separation pay? These questions are answered by the Court in resolving this petition for certiorari under Rule 65 of the Rules of Court assailing the Resolutions of the National Labor Relations Commission (Third Division) i[1] promulgated on February 28. March 13.. Naguiat and Antolin T.00 for every year of service "for humanitarian consideration. et al.00 daily.00 for working sixteen (16) days a month. The labor arbiter. entitled to separation pay and. Santos in NLRC Case No. which they could later withdraw every fifteen days. and the services of individual respondents were officially terminated on November 26. GALANG. as party respondent. although their individual applications for employment were approved by CFTI. herein petitioners claimed that the cessation of business of CFTI on November 26.00 for every year of service or its peso equivalent.00 for every year of service as severance pay. individual respondents. No.ii[2] and May 31. through its local president. Due to the phase-out of the US military bases in the Philippines. Eduardo Castillo. INC. Naguiat was its vice-president. the labor-arbiter explained: . Naguiat Enterprises. Army-Air Force Exchange Services (AAFES) with Mark Hooper as Area Service Manager. and holding Sergio F. individual respondents herein refused to accept theirs. vs. jointly and severally liable with Clark Field Taxi.. 1991. to 12:00 noon. They arrived at an agreement that the separated drivers will be given P500. while Antolin T. They admitted that CFTI had agreed with the drivers' union. They earned not less than US$15. if so..R. Instead. All incidental expenses for the maintenance of the vehicles they were driving were accounted against them. and CFTI with Antolin T. was due to "great financial losses and lost business opportunity" resulting from the phase-out of Clark Air Base brought about by the Mt. CFTI was profitably earning and the cessation of its business was due to the untimely closure of Clark Air Base. 1991. and CFTI held negotiations as regards separation benefits that should be awarded in favor of the drivers. through the National Organization of Workingmen ("NOWM"). and that the former thence managed. They claimed to have been assigned to Naguiat Enterprises after having been hired by CFTI. Inc. Naguiat. The labor arbiter rejected the allegation of CFTI that it was forced to close business due to "great financial losses and lost business opportunity" since. Like Sergio F. They averred further that they were entitled to separation pay based on their latest daily earnings of US$15.m. Most of the drivers accepted said amount in December 1991 and January 1992. 1994 Resolution affirmed with modifications the decision iv[4] of Labor Arbiter Ariel C. controlled and supervised their employment. During their employment. The AAFES Taxi Drivers Association ("drivers' union"). Individual respondents were previously employed by CFTI as taxicab drivers..00 for every year of service. from which Clark Air Base was not spared. 116123.200. The Facts The following facts are derived from the records of the case: Petitioner CFTI held a concessionaire's contract with the Army Air Force Exchange Services ("AAFES") for the operation of taxi services within Clark Air Base. Naguiat Enterprises. depending on the availability of taxicabs. The second Resolution denied the motion for reconsideration of herein petitioners.. ordered the latter to pay them P1. to grant its taxi driver-employees separation pay equivalent to P500.

is a separate and distinct juridical entity which cannot be held jointly and severally liable for the obligations of CFTI. Naguiat Enterprises. Lastly. both aver that petitioners had the opportunity but failed to refute. In addition.00. They. As to the third issue. 1249 of the New Civil Code. father and son at the same time the President and Vice-President and General Manager. Rule 3. is solidarily liable under the law for violation of the Labor Code. One-half month salary should be US$120. May 13. Sergio and Antolin Naguiat assail the Resolution of NLRC holding them solidarily liable despite not having been impleaded as parties to the complaint. However. The Court's Ruling As will be discussed below. petitioners aver that NOWM cannot make legal representations in behalf of individual respondents who should. Sergio F. On the second issue. since the choice is left to the debtor. Naguiat and Antolin Naguiat were merely officers and stockholders of CFTI and. In its Resolution. thus.. Inc. vs. 7. Dollar which is not the legal tender in the Philippines.00. Naguiat and Antolin Naguiat were denied due process. Macondray & Co. that individual respondents became members of NOWM after disaffiliating themselves from the AAFES Taxi Drivers Association which." Herein individual private respondents appealed to the NLRC. As to the procedural lapse of insufficient copies of the appeal. The concluding paragraphs of the NLRC Resolution read: "The contention of complainant is partly correct. In sum. As a consequence. this petition with prayer for issuance of a temporary restraining order. Anent the first issue raised in their original petition. And similarly."To allow respondents exemption from its (sic) obligation to pay separation pay would be inhuman to complainants but to impose a monetary obligation to an employer whose profitable business was abruptly shot (sic) down by force majeure would be unfair and unjust to say the least. unconscionably compromised their separation pay. Lopez could validly represent herein private respondents. the taxi drivers' claim of having an average monthly earning of $240. Individual respondents filed a comment separate from that of NOWM. could not be held personally accountable for corporate debts. III. and that Naguiat Enterprises.' (Phoenix Assurance Co. which is headed by Sergio F. petitioners incessantly insist that Sergio F. petitioners contend that NLRC committed grave abuse of discretion amounting to lack or excess of jurisdiction in unilaterally increasing the amount of severance pay granted by the labor arbiter. Upon posting by the petitioners of a surety bond. and that petitioners were not furnished copies of private respondents' appeal to the NLRC. Rules of Court)" viii[8] As mentioned earlier. the table of conversion (exchange rate) at the time of payment or satisfaction of the judgment should be used. Issues The petitioners raise the following issues before this Court for resolution: "I. in this case. instead. The complainants who are the creditors in this instance can be compelled to accept the Philippine peso which is the legal tender. through the manipulations of its President Eduardo Castillo. Sergio F. a temporary restraining orderix[9] was issued by this Court enjoining execution of the assailed Resolutions. Teofilo Rafols and Romeo N. be bound by the decision of the union (AAFES Taxi Drivers Association) of which they were members. Whether or not the resolution issued by public respondent is contrary to law. however. (respondents) they may choose to pay in US dollar. Whether or not Messrs.00 but this amount can not be paid to the complainant in U. he submits that the separate personalities of respondent corporations and their officers should be disregarded and considered one and the same as these were used to perpetrate injustice to their employees. Whether or not public respondent NLRC (3rd Div. The Solicitor General unqualifiedly supports the allegations of private respondents. being their indirect employer. respectively. First Issue: Amount of Separation Pay . Naguiat Enterprises. II. They claim that this was not supported by substantial evidence since it was based simply on the self-serving allegation of respondents that their monthly take-home pay was not lower than $240." x[10] Petitioners also submit two additional issues by way of a supplement xi[11] to their petition. Hence. the proper forum before which petitioners should have raised it is the NLRC."vii[7] and thus. Paras. for nonpayment of their separation pay. simply awarded an amount for "humanitarian consideration. L-25048. the motion for reconsideration of herein petitioners was denied by the NLRC. the NLRC modified the decision of the labor arbiter by granting separation pay to the private respondents. Inc. (Sec. and. 1975) In discharging the above obligations. in commenting on Art. should be joined as indispensable party whose liability is joint and several. failed to question this in their motion for reconsideration.) committed grave abuse of discretion amounting to lack of jurisdiction in issuing the appealed resolution. to Wit: that Petitioners Sergio F. the petition is partially meritorious. in which case. Naguiat and Antolin Naguiat.S. defines legal tender as 'that which a debtor may compel a creditor to accept in payment of the debt. they are deemed to have waived the same and voluntarily submitted themselves to the jurisdiction of the appellate body.

the separation pay shall be equivalent to one (1) month pay or at least one-half (½) month pay for every year of service. in granting the clamor of private respondents that their separation pay should be based on the amount of $240. Remaining undisputed. making it their indirect employer. this Court carefully perused the records of the instant case if only to determine whether public respondent committed grave abuse of discretion. xvi[16] Third Issue: Liability of PetitionerCorporations and Their Respective Officers The resolution of this issue involves another factual finding that Naguiat Enterprises actually managed. whichever is higher. In any event. herein private respondents set forth in detail the work schedule and financial arrangement they had with their employer.xii[12] Long-standing and well-settled in Philippine jurisprudence is the judicial dictum that findings of fact of administrative agencies and quasi-judicial bodies. xviii[18] 107xix[19] and 109xx[20] of the Labor Code. Likewise well-settled is the rule that business losses or financial reverses. Pampanga. are bound by the factual findings of Respondent Commission. With respect to the amount of separation pay that should be granted.00. Naguiat Enterprises Not Liable In impleading Naguiat Enterprises as solidarily liable for the obligations of CFTI. As adverted to earlier. petitioners are in estoppel for not having questioned such facts when they had all opportunity to do so.S. xiv[14] The records. Petitioners did not even appeal from the decision of the labor arbiter nor manifest any error in his findings and conclusions. we hold petitioners in estoppel for not having seasonably raised this issue before the labor arbiter or the NLRC. as affirmed by NLRC. are devoid of such evidence. the labor arbiter. Private respondents. petitioners acknowledged before this Court that the taxi drivers allegedly represented by NOWM. We again remind those concerned that decisions. the labor arbiter adopted such facts in his decision. supervised and controlled employment terms of the taxi drivers. which have acquired expertise because their jurisdiction is confined to specific matters. But petitioners who were party-respondents in said complaint did not assail the juridical personality of NOWM and the validity of its representations in behalf of the complaining taxi drivers before the quasijudicial bodies. Therefrom they inferred that their monthly take-home pay amounted to not less than $240. the NLRC did not discuss or give any explanation for holding Naguiat Enterprises and its officers jointly and severally liable in discharging CFTI's liability for payment of separation pay. Based on factual submissions of the parties. Pinatubo which made the roads practically impassable to their taxicabs. Therefore. must be proved with clear and satisfactory evidence.Firmly.00 (one-half of $240. In their amended complaint before the Regional Arbitration Branch in San Fernando. however concisely written. Labor-only contracting exists where: (1) the person supplying workers to an employer does not have substantial capital or investment in the form of tools. military presence thereat. the petitioner/s must clearly show that the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion. respondents rely on Articles 106. found that individual respondents were regular employees of CFTI who received wages on a boundary or commission basis. equipment. machinery. xvii[17] This rule applies as well to dispositions by quasi-judicial and administrative bodies. in order to sustain retrenchment of personnel or closure of business and warrant exemption from payment of separation pay. xiii[13] Nevertheless. amounting to lack of jurisdiction. allegedly their minimum monthly earnings as taxi drivers of petitioners.00. and are binding upon this Court unless there is a showing of grave abuse of discretion. Second Issue: NOWM's Personality to Represent Individual Respondents-Employees On the question of NOWM's authority to represent private respondents." Considering the above.00 monthly pay) or its peso equivalent for every year of service. correctly found that petitioners stopped their taxi business within Clark Air Base because of the phase-out of U. like petitioners. we reiterate the rule that in a petition for certiorari filed pursuant to Rule 65 of the Rules of Court. Herein petitioners did not bother to refute nor offer any evidence to controvert said allegations. Petitioners also claim that the closure of their taxi business was due to great financial losses brought about by the eruption of Mt. We find no reason to make a contrary finding. are themselves parties in this case. among . however. and work premises. are generally accorded not only great respect but even finality. we find that NLRC did not commit grave abuse of discretion in ruling that individual respondents were entitled to separation payxv[15] in the amount $120. factual findings of quasi-judicial bodies are binding upon the court in the absence of a showing of grave abuse of discretion. Article 283 of the Labor Code provides: "x x x In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses. It was not due to any great financial loss because petitioners' taxi business was earning profitably at the time of its closure. NOWM was already a party-litigant as the organization representing the taxi driver-complainants before the labor arbiter. Unfortunately. A fraction of at least six (6) months shall be considered one (1 ) whole year. they are now estopped from raising such question before this Court. The labor arbiter. Thus. which is the only way a labor case may reach the Supreme Court. or where it is clearly shown that they were arrived at arbitrarily or in disregard of the evidence on record. must distinctly and clearly set forth the facts and law upon which they are based. however.

Naguiat Enterprises as a separate corporation does not appear to be involved at all in the taxi business. This indicates that CFTI became the owner of the taxicabs which became the principal investment and asset of the company.xxii[22] From the evidence proffered by both parties. as a separate corporate entity with a separate business. are those who exercise independent employment. Naguiat Enterprises? Witness He is the owner. supervised and controlled their employment. Atty. Suarez Sergio F. Suarez Is it not true that you applied not with Sergio F. was managing and controlling the taxi business on behalf of the latter. pursuant to their concessionaire's contract. Naguiat with the Sergio F. who was at the same time a stockholder and director xxvii[27] of Sergio F. Naguiat Enterprises.xxiii[23] and social security remittancesxxiv[24] and payrollxxv[25] of Naguiat Enterprises showing that none of the individual respondents were its employees. in the contract xxvi[26] between CFTI and AAFES. To illustrate further. was rather carrying out his responsibilities as president of CFTI. Naguiat Enterprises.' Atty.. Inc. and (2) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer. Naguiat. Hence. Atty. petitioners submitted documents such as the drivers' applications for employment with CFTI. Private respondents failed to substantiate their claim that Naguiat Enterprises managed. Naguiat as an individual who was the president of CFTI. agreed to purchase from AAFES for a certain amount within a specified period a fleet of vehicles to be "ke(pt) on the road" by CFTI. Incorporated? Witness . the former. Suarez How about with Clark Field Taxi Incorporated what is the position of Mr. Naguiat Enterprises and he is the one whom we believe as our employer. It appears that they were confused on the personalities of Sergio F. Naguiat as an individual or the corporation? Witness 'Sergio F. contracting to do a piece of work according to their own methods without being subject to control of their employer except as to the result of their work. in supervising the-taxi drivers and determining their employment terms. Naguiat is the President of Clark Field Taxi. Naguiat? Witness What I know is that he is a concessionaire. Naguiat but with Clark Field Taxi? Witness I applied for (sic) Sergio F. Naguiat? Witness He is the one managing the Sergio F. Suarez Who is Sergio F. Naguiat Atty. meanwhile. Naguiat.others. however. and Sergio F. A closer scrutiny and analysis of the records. sir. "Atty. as concessionaire. On the contrary. Naguiat na tao. Atty. evince the truth of the matter: that Sergio F. Suarez But do you also know that Sergio F.. there is no substantial basis to hold that Naguiat Enterprises is an indirect employer of individual respondents much less a labor only contractor.xxi[21] Independent contractors. Inc. Suarez What is exactly the position of Sergio F. They presumed that Sergio F. we refer to the testimony of a driver-claimant on cross examination. Moreover.

the ineludible conclusion is that CFTI was the actual and direct employer of individual respondents. we.C. that Naguiat Enterprises was in the trading business while CFTI was in taxi services. Ransom Labor Union-CCLU vs. he could not deny that he received his salary from the office of CFTI inside the base.' The foregoing was culled from Section 2 of RA 602. was the president of CFTI who actively managed the business. the union asked that officers and agents of the company be held personally liable for payment of the backwages. In its last motion for execution. This was granted by the labor arbiter. states: . Thus. That is the policy of the law. in his capacity as president of CFTI. without prejudice to the right of employees to seek redress of grievance. if any.' In RANSOM. speaking through Mme. the definite employer is the Clark Field Taxi Inc. petitioners also conceded that both CFTI and Naguiat Enterprises were "close family corporations" xxxiv[34] owned by the Naguiat family." (Underscoring supplied. the union filed about ten (10) motions for execution against the corporation." From the foregoing. presumably for failure to find leviable assets of said corporation."xxviii[28] And. on the ground that officers of a corporation are not liable personally for official acts unless they exceeded the scope of their authority. To bolster their position. however. he falls within the meaning of an "employer" as contemplated by the Labor Code. the President appears to be the Manager. Up to September 1976. enforceable against its officer and agents. Justice Ameurfina Melencio-Herrera. who may be held jointly and severally liable for the obligations of the corporation to its dismissed employees.Yes. although the witness insisted that Naguiat Enterprises was his employer. which was duly granted by the Ministry of Labor and Employment. Incorporated? Witness He is the vice president. Naguiat and Antolin T. It was not involved at all in the taxi business. sir. Moreover. The responsible officer of an employer corporation can be held personally. Naguiat. admittedly. only in the technical sense. criminal responsibility is with the 'Manager or in his default. Naguiat. In the absence of definite proof in that regard. Section 100. the Constitutionxxxi[31] of CFTI-AAFES Taxi Drivers Association which. The term shall not include any labor organization or any of its officers or agents except when acting as employer. the Court. liable for nonpayment of back wages. Ransom. the operation of the Clark Field Taxi.xxxii[32] In the broader interest of justice. Backwages of 22 employees. Sergio F. but none could be implemented. NLRCxxxiii[33] is the case in point. admittedly.00. it must have an officer who can be presumed to be the employer. is the employer. the stockholders of which were members of the Hernandez family.C. Ransom Corporation was a family corporation. who engaged in a strike prior to the closure. In imposing joint and several liability upon the company president. we believe it should be presumed that the responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. ratiocinated this wise: "(b) How can the foregoing (Articles 265 and 273 of the Labor Code) provisions be implemented when the employer is a corporation? The answer is found in Article 212(c) of the Labor Code which provides: '(c) 'Employer' includes any person acting in the interest of an employer. one of the issues raised was: "Is the judgment against a corporation to reinstate its dismissed employees with backwages. In 1973. Antolin Naguiat what is his role in the taxi services.xxx[30] In addition. The corporation. it filed an application for clearance to close or cease operations. upon the prodding of counsel for the corporations.) Sergio F. CFTI president solidarily liable Petitioner-corporations would likewise want to avoid the solidary liability of their officers. applying the ruling in A. was the union of individual respondents while still working at Clark Air Base. who were not parties in the case where the judgment was rendered?" The NLRC answered in the negative. A. paragraph 5. Naguiat specifically aver that they were denied due process since they were not parties to the complaint below. x x x (d) The record does not clearly identify 'the officer or officers' of RANSOM directly responsible for failure to pay the back wages of the 22 strikers. cannot be exonerated from joint and several liability in the payment of separation pay to individual respondents. Thus. A. In the corporation's appeal to the NLRC. being the 'person acting in the interest of (the) employer' RANSOM.xxix[29] Another driver-claimant admitted. On certiorari. this Court reversed the NLRC and upheld the labor arbiter. in their individual. the corporation employer can have devious ways for evading payment of back wages. private and personal capacities. the Minimum Wage Law. x x x (c) If the policy of the law were otherwise. (under Title XII on Close Corporations) of the Corporation Code. the person acting as such. were subsequently computed at P164. Suarez How about Mr. and that Naguiat Enterprises was neither their indirect employer nor labor-only contractor. in RA 602. Atty. hold that Sergio F. C.984. directly or indirectly . not to say even criminally. states that members thereof are the employees of CFTI and "(f)or collective bargaining purposes. Since RANSOM is an artificial person.

" Essentially. in petitioners' Supplement to their original petition. Our jurisprudence is wanting as to the definite scope of "corporate tort. if it should be finally adjudged that said principals were not entitled thereto. Naguiat. We advert to the case of A. 1994 Resolution of the NLRC is hereby MODIFIED as follows: (1) Petitioner Clark Field Taxi. filed a position paper xl[40] together with CFTI. Naguiat and Antolin T.. Although he carried the title of "general manager" as well. In fact. it had not been shown that he had acted in such capacity. Consequently. in MAM Realty Development vs. president and co-owner thereof. In spite of this. Sergio and Antolin Naguiat voluntarily submitted themselves to the jurisdiction of the labor arbiter when they. In this light. in their individual capacities. Thus: "x x x A corporation. before the arbiter. in posting the surety bond required by this Court for the issuance of a temporary restraining order enjoining the execution of the assailed NLRC Resolutions. and Antolin T. the stockholders shall be held to strict fiduciary duties to each other and among themselves. in his individual and personal capacity. principally bound himself to comply with the obligation thereunder. Obligations incurred by them. They cannot now claim to have been denied due process since they availed of the opportunity to present their positions.e. "tort" consists in the violation of a right given or the omission of a duty imposed by law.xxxvii[37] the Court recognized that a director or officer may still be held solidarily liable with a corporation by specific provision of law. by specific provision of law. The corporate officers raised this issue when the labor arbiter granted the motion of the employees to enforce the judgment against them." (footnotes omitted) As pointed out earlier. the individual respondents their separation pay computed at US$120. jointly and severally. no evidence on the extent of his participation in the management or operation of the business was proffered. the Court held the corporation president solidarily liable with the corporation. or its peso equivalent at the time of payment or satisfaction of the judgment. what remains is to determine whether there was corporate tort. "to guarantee the payment to private respondents of any damages which they may incur by reason of the issuance of a temporary restraining order sought." thus. Naguiat Enterprises. Antolin Naguiat not personally liable Antolin T. its stockholder who was actively engaged in the management or operation of the business should be held personally liable. generally. Ransom once more. Naguiat are ABSOLVED from liability in the payment of separation pay to individual respondents. NLRC." (underscoring supplied) Nothing in the records show whether CFTI obtained "reasonably adequate liability insurance."(5) To the extent that the stockholders are actively engage(d) in the management or operation of the business and affairs of a close corporation. officers and employees. Furthermore. Sergio Naguiat is held solidarily liable for corporate tort because he had actively engaged in the management and operation of CFTI. are not theirs but the direct accountabilities of the corporation they represent.00 for every year of service. True."xxxviii[38] The Court here finds no application to the rule that a corporate officer cannot be held solidarily liable with a corporation in the absence of evidence that he had acted in bad faith or with malice. only Sergio F. Naguiat jointly and severally liable with petitioner-corporations in the payment of separation pay. trustee or officer is made. averring denial of due process since the individual Naguiats were not impleaded as parties to the complaint. When a director. and Sergio F. CFTI failed to comply with this law-imposed duty or obligation. WHEREFORE. xxxix[39] In the present case. a close corporation. they assail the NLRC Resolution holding Sergio F. xxxvi[36] Article 283 of the Labor Code mandates the employer to grant separation pay to employees in case of closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses. Furthermore. the fifth paragraph of Section 100 of the Corporation Code specifically imposes personal liability upon the stockholder actively managing or operating the business and affairs of the close corporation. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance.xxxv[35] Simply stated. being a juridical entity. Naguiat was the vice president of the CFTI. which is the condition obtaining at bar. the petition is PARTLY GRANTED. Fourth Issue: No Denial of Due Process Lastly. personally liable for his corporate action. solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as. (2) Petitioner Sergio F. Naguiat. Incorporated. Furthermore. Incorporated. tort is a breach of a legal duty. acting as such corporate agents. in the following cases: Σχλ−αω 4. may act only through its directors. the foregoing premises considered. The assailed February 28. SO ORDERED. he cannot be held solidarily liable for the obligations of CFTI and Sergio Naguiat to the private respondents. The officers of the corporation were not parties to the case when the judgment in favor of the employees was rendered. . i.C. are ORDERED to pay.

. p.. He. For his part. The only question now remaining in litigation is the remaining sum of P15.43) Rodriguez filed with the then Intermediate Appellate Court a petition for certoriari." (Rollo p.G. 1984). it is only defendant Western Agro Industrial Corporation that is admitting the liability not the defendant Antonio Rodriguez. more or less. a fact which is recognized by the plaintiff. the trial court issued a PreTrial Order. The petitioners question the binding effect of the pre-trial order in this case and the liability imposed upon an officer solidarily with the corporation he represented. however.00 to P84.00. automotive spare parts which have not been paid. however. AC-62562) was. Instead. 1983 until fully paid. Lim.80. 1990 WESTERN AGRO INDUSTRIAL CORPORATION and ANTONIO RODRIGUEZ. 1981 and 1982. Antonio Rodriguez filed a motion to dismiss on the ground that the complaint states no cause of action against him. During the same hearing. the Court finds it necessary to include defendant. p.. to wit: Parties agreed that the defendant. In his answer with counterclaim. 45) and that ". jointly and severally 25% of the amount awarded to plaintiff as attorney's fees. that the said amount has long become over due and yet the petitioners refused to pay despite repeated demands.80.1983 until paid. 1984.R. 1984. being misleading as he is only one of the officers representing WESGRO in various business transactions . 1983 respondent SIA Automotive and Diesel Parts. WESGRO is doing business through answering defendant such allegation. 46). May 24. 1984. On June 6.626. as party defendant.000. twenty-five percent (25%) of the amounts awarded as attorney's fees. WESGRO alleged that this amount is bloated because it had already made various payments on different dates. The motion was granted by the trial court in its order dated July 5. On this same date.00. representing WESGRO bought on credit different automotive spare parts from the private respondent amounting to P100. judgment is rendered in favor of the plaintiff and against the defendants.753. the trial court rendered a decision.. the dispositive portion of which reads: WHEREFORE. and to pay the costs. 1981 and 1982. The trial court ruled: While it is true that contracts entered into by authorized officers or agents of a Corporation are contracts of the Corporation as a distinct entity. Rodriguez denied that ". Western Agro Industrial Corporation ordered from the plaintiff. (TSN page 15. p. The petition (docketed as Case No. The petitioners were ordered by both the trial court and the Court of Appeals to pay. ordering defendants to pay jointly and severally to the plaintiff the sum of P84.. they would simply file a memorandum. No. The trial court denied the motion to dismiss in its order dated November 23. respondents. as its sole witness together with several documents. HON.. admitted that he had represented WESGRO in purchasing certain spare parts on credit. In its answer with counterclaim. that the defendant agreed to pay the plaintiff the sum of P85. (SIA) filed with the Regional Trial Court of Caloocan City a complaint for "sum of money and damages" against petitioners Western Agro Industrial Corporation (WESGRO) and/or Antonio Rodriguez. (Rollo. COURT OF APPEALS and SIA'S AUTOMOTIVE AND DIESEL PARTS.000. Upon the initiative of the petitioners' counsel. the pre-trial was held on April 9. yet under the circumstances above-mentioned. the order was further amended to show that . and costs. denied. After several postponements. jointly and severally. Antonio Rodriguez. the pre-trial order was amended to change the sum of P85000. the respondent corporation rested its case after presenting the corporation's manager Juanito V.626. represented by Antonio Rodriguez but denied that its total obligation was P100. more or less. The complaint prayed among others that the defendants jointly and severally pay the plaintiff: (a) the principal sum of P100. Payment was agreed by Western Agro Industrial Corporation and Sia's Automotive and Diesel Parts. The complaint alleged that WESGRO is doing business through Antonio Rodriguez and on different occasions in 1980.. the petitioners manifested that after a review of the nature of the plaintiff's evidence they decided not to present any evidence.1984. 68) The initial hearing of the case was held on May 24. the sum of P84. He alleged that he is a director and officer of WESGRO and that he entered into the purchase contract with the respondent corporation in his capacity as officer or agent of WESGRO and therefore such contract was with WESGRO as a distinct legal entity and did not confer rights much less liabilities on him. 1983.80 plus legal interest and the sum equivalent to 25% in the form of attorney's fees as stipulated in the invoices covering the accounts.753.753.70.. Inc. 82558 August 20." (Rollo.70.626. the interests thereon from June 6. his dealings with the plaintiff were always in the name of WESGRO. WESGRO admitted that it bought on credit various automotive spare parts from the respondent corporation on different occasions in 1980. On the other hand.70 with legal rate of interest from the filing of the complaint on June 6. to pay. for the Court to arrive at a judicious adjudication on the matter. (Original Records. INC. Upon agreement of the parties. On October 51. petitioners vs. . Rodriguez. prohibition and mandamus for the review of the aforestated order. Inc..

Court: What is involved here according to you is fifteen thousand.The Counterclaim is DISMISSED (Original Records.000. resolution and decision of the court in order that they may become binding upon the parties. Let me see the records. 101-102) As stated earlier. The issues raised can be categorized into the following: first. I have issued an order to the effect. Bonifacio: Because of your agreement stating to remand this to the lower court for hearing because that is the only amount involved now. which have not been paid. 1984 where Atty. automotive spare parts. This can be gleaned from the tenor of the proceedings during the trial of the case on May 24. Atty.00 more or less. pp. Court: Only fifteen thousand pesos (P15.. the petitioners capitalize on the fact that a copy of the pre-trial Order was not served on them. it would appear to be eighty-four thousand. however take exception to the literal application of the rule in the instant case. Santos the petitioners' counsel was present and where the following transpired: Atty.00 in the Pre-Trial Order to P84. Bonifacio: Yes. Pre-trial Order-Parties agreed that the defendant Western Agro Industrial Corporation ordered from the plaintiff. The record shows that the petitioners knew all along the existence of the Pre-trial Order and that the petitioner's counsel actively participated in the amendment of the order to change the amount of the corporation's liability which was P85.00 more or less.00? Atty. all during the Pre-Trial Conference. Court: I have issued an order. because that is included in our complaint in the claim of one hundred thousand something like that more or less. Your Honor. Procedural due process demands that such notice be served upon the parties in the same manner as other orders. We have read it. to afford them an opportunity to check the accuracy of what transpired during a pre-trial conference.000. the latter. Atty.70 as agreed upon by the parties. are not bound by the order until such time that the same is served upon them.00. But we are just marking more or less the admitted amount of P85. admissions may be stated in the pre-trial order which were not made at. whether or not the petitioner are bound by the PRETRIAL ORDER of the trial court. Bonifacio: Yes. They theorize that since the Pre-trial order was promulgated by the trial court without the direct participation of the parties. The petitioner asked that the admitted amount be amended to make the obligation reflect the truth. Atty. The petitioners contend that the trial court erroneously stated that the petitioner corporation admitted its liability... A motion for reconsideration was denied. this petition. Your Honor. and second.000. the trial court's decision was affirmed by the Court of Appeals. Atty. Why do you have to prove the P85. Bonifacio: I will connect the materiality of this.00). Court: As matter of fact.626. This amount is deemed included because Western Agro Industrial Corporation only admitted more or less eighty-five thousand which is now the. Your Honor. Hence.00. Benjamin C. Anent the first issue. The only question now remaining in litigation is the remaining sum of P15.000. Payment was agreed by Western Agro Industrial Corporation and Sia's Automotive and Diesel Part Incorporated that the defendant agreed to pay the plaintiff the sum of P85.000. Your Honor. The petitioners are correct in stating that notice to the parties of a Pre-Trial Order is indispensable. Santos: To be exact. . We. whether or not petitioner Antonio Rodriguez can be made solidarily liable with the petitioner corporation for debts incurred by the latter.. otherwise. Bonifacio: We are just marking those exhibits.

Section 2. is it not? You read your pretrial older and that has not been questioned by any of the paties.626.626.000. Santos: Based on the document of plaintiff it is P84.00 which is the controversy. Your Honor. I am asking you to show evidence on the P15.000.00 more or less.626. WHEREFORE. Bonifacio: Is that correct? Yes. or in the course of the trial or other proceedings do not require . Your Honor. Just mark those exhibits. the parties agreed that the defendants Western Agro Industrial Corporation and Antonio Rodriguez are indebted tothe plaintiff in the amount of P84. Court: What about this Worth Tucking? Atty. Court: Precisely. But the exact amount is P84. Atty. Bonifacio: This is the controverted portion. Your Honor. not the defendant Antonio Rodriguez.70.Court: This is the pre-trial order.626.000. Rule 129 of the Rules of Court povides that "Admissions made by the parties in the pleadings. 1984. 1984 is hereby amended so as to correct the sum of P85. Your Honor.626. May 24. Atty. (TSN. Court: Order At the hearing today. Your Honor. Court: Remove that Antonio Rodriguez. Bonifacio: The admitted amount is actually P84. Court: But that is already admitted by them.70. Your Honor This is the amount admitted by defendant Western Agro Industrial only. Santos: May we interrupt at this juncture. Bonifacio: Yes. Atty.00 more or less. Court: What is the use when the defendant had admitted? Atty. They will pay you already.000. The order says P85. Atty. Your Honor.70.70. Santos: Except for the exact amount. It is because in the pre-trial order it is P85. Atty. Bonifacio: We are now going to that. Bonifacio: The Worthy Trucking is the sister company of he defendant. Atty. Court: You now correct the amount. We are not proving the controverted portion of P15. p. Court: Is that correct? Atty. They agreed to pay you.00 to P84.The order is still correct.70. it is only defendant Western Agro Industrial Corporation that is admitting the liability.00. 10-15) The petitioners are bound by their own admissions during the trial. the pre-trial order dated April 9.000. Your Honor.

proof and cannot be contradicted unless previously shown to have been made through palpable mistake." The petitioners have not shown that their admissions were tainted by palpable mistake. They cannot claim that they had no notice of the pre-trial order. It should be noted, however, that the admission regarding the amount of liability stated in the Pre-Trial Order pertained only to the petitioner corporation. This was clarified during the trial. Hence, the parties agreed during the pre-trial order's amendment that it was only the petitioner corporation which admitted its indebtedness to the respondent corporation in the amount of P84,626.70. This brings us to the issue as to whether or not Antonio Rodriguez was correctly made solidarily liable with the petitioner corporation for the P84,626.70 debt incurred by the latter. In deciding this issue the appellate court ruled: While it is true that contracts entered into the authorized officers or agents of a corporation are contracts of the corporation as a distinct entity, yet the admission of appellant Rodriguez that he represented the corporation on different occasions in 1980, 1981, and 1982 and by reason of this presentation defendant WESGRO bought on credit spare parts amounting to P100,000.00. more or less, laid the basis for impleadinghim. The Court a quo was correct to include him as a proper party to arrive at a 'judicious adjudication on the matter.' It should also be mentioned here that in defendant's (Rodriguez) Answer (par. 3), he admitted having represented WESGRO in various business transactions. However, defendant WESGRO admitted they are only liable for P47,727.60. Since there is the problem of who should shoulder the total obligation, the court was right in impleading defendant Rodriguez. Moreover, defendant's (Rodriguez) motion to dismiss was denied by the court a quo and its petition for certiorari based on such denial was likewise dismissed by this Court in AC GR Sp No. 02562. This Court in its decision dated April 30,1984 ruled as follows: Considered in that light, we fail to see how respondent Judge could have acted with grave abuse of discretion in denying petitioner's motion to dismiss. It was clearly alleged in the complaint in Case No. C-10798 that petitioner acting for and in behalf of defendant corporation, incurred the obligation involved. He directly dealt and transacted with plaintiff corporation, which, trusting in his representations, agreed to deliver and in fact, delivered the goods on credit. Petitioner is therefore a proper party whose inclusion as defendant in this case is necessary if complete relief is to be accorded to party plaintiff. In the foregoing instances, it is likewise pertinent to cite Section 13, Rule 3 of the Rules of Court, which provides: Section 13. Alternative defendants where the plaintiff is uncertain against which of several persons he is entitled to relief, he may join any or all of them as defendants in the alternative although a right to relief against one may be inconsistent with a right to relief against the other. (Rollo, p. 28-29) It appears, therefore, that the appellate courts ruling that Antonio Rodriguez is solidarily liable with WESGRO for the latter's P84,626.70 obligation to SIA is based principally on the ground that Rodriguez represented WESGRO in its dealings with SIA. It is significant to note that SIA never questioned the legal personality of WESGRO. Hence, we can assume that WESGRO is a bona fide corporation. Therefore, as a bona fide corporation, WESGRO should alone be liable for its corporate acts as duly authorized by its officers and directors. (Caram Jr. v. Court of Appeals, 151 SCRA 372 [1987]). This is so, because a corporation "is invested by law with a separate personality, separate and distinct from that of the persons composing it as well as from any other legal entity to which it may be related." (Tan Boon Bee & Co Inc. v. Jarencio, 163 SCRA 205 [1988] citing Yutivo and Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 [1965]). A corporation is an artificial person and can transact its business only through its officers or agents. Necessarily, somebody has to act for it. The separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced and the individual stockholders may be personally liable to obligations of the corporation only when the corporation is used "as a cloak or cover for fraud or illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors." (Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon Bee & Co., Inc. v. Jarencio, supra). In the case at bar, there is no showing that Antonio Rodriguez, a director and officer of WESGRO was not authorized by the corporation to enter into purchase contracts with SIA. Moreover, the respondent corporation has not shown any circumstances which would necessitate the piercing of the corporate veil so as to make Rodriguez personally liable for the obligations incurred by the petitioner. Hence, the inevitable conclusion is that he was acting in behalf of the corporation when he executed the purchase contracts with the respondent corporation. In other words, Rodriguez' acts in representing the petitioner corporation in its dealings with the respondent corporation are corporate acts for which only the corporation should be made liable for any obligations arising from them. WHEREFORE, the instant petition is hereby PARTLY GRANTED. The questioned decision of the Court of Appeals is modified in that petitioner Antonio Rodriguez is declared not liable jointly and severally or otherwise with petitioner WESTERN AGRO INDUSTRIAL CORPORATION for the money awards in favor of respondent Sia's Automotive and Diesel Parts, Inc. The decision is affirmed in other respects.

G.R. No. 70789 October 19, 1992 RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R. TANTOCO, SR., and ROMEO S. VERGARA, petitioners, vs. THE INTERMEDIATE APPELLATE COURT and ILIGAN DIVERSIFIED PROJECTS, INC., ROMEO A. LLUCH and ROBERTO G. BORROMEO, respondents. When petitioners informed herein private respondents to stop the delivery of pulp wood supplied by the latter pursuant to a contract of sale between them, private respondents sued for breach of their covenant. The court of origin dismissed the complaint but at the same time enjoined petitioners to respect the contract of sale if circumstances warrant the full operation in a commercial scale of petitioners' Baloi plant and to continue accepting and paying for deliveries of pulp wood products from Romeo Lluch (page 14, Petition; page 20, Rollo). On appeal to the then Intermediate Appellate Court, Presiding Justice Ramon G. Gaviola, Jr., who spoke for the First Civil Cases Division, with Justices Caguioa, Quetulio-Losa, and Luciano, concurring, modified the judgment by directing herein petitioners to pay private respondents, jointly and severally, the sum of P30,000.00 as moral damages and P15,000.00 as attorney's fees (pages 48-58, Rollo). In the petition at bar, it is argued that the Appellate Court erred; A. . . . IN HOLDING PERSONALLY LIABLE UNDER THE CONTRACT OF SALE PETITIONER TANTOCO WHO SIGNED MERELY AS REPRESENTATIVE OF PETITIONER RUSTAN, AND PETITIONER VERGARA WHO DID NOT SIGN AT ALL; B. . . . IN HOLDING THAT PETITIONER RUSTAN'S DECISION TO SUSPEND TAKING DELIVERY OF PULP WOOD FROM RESPONDENT LLUCH, WHICH WAS PROMPTED BY SERIOUS AND UNFORESEEN DEFECTS IN THE MILL, WAS NOT IN THE LAWFUL EXERCISE OF ITS RIGHTS UNDER THE CONTRACT OF SALE; and C. . . . IN AWARDING MORAL DAMAGES AND ATTORNEY'S FEES IN THE ABSENCE OF FRAUD OR BAD FAITH. (page 18, Petition; page 24, Rollo) The generative facts of the controversy, as gathered from the pleadings, are fairly simple. Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lano del Norte. On March 20, 1967, respondent Lluch, who is a holder of a forest products license, transmitted a letter to petitioner Rustan for the supply of raw materials by the former to the latter. In response thereto, petitioner Rustan proposed, among other things, in the letter-reply: 2. That the contract to supply is not exclusive because Rustan shall have the option to buy from other suppliers who are qualified and holder of appropriate government authority or license to sell and dispose pulp wood. These prefatory business proposals culminated in the execution, during the month of April, 1968, of a contract of sale whereby Romeo A. Lluch agreed to sell, and Rustan Pulp and Paper Mill, Inc. undertook to pay the price of P30.00 per cubic meter of pulp wood raw materials to be delivered at the buyer's plant in Baloi, Lanao del Norte. Of pertinent significance to the issue at hand are the following stipulations in the bilateral undertaking: 3. That BUYER shall have the option to buy from other SELLERS who are equally qualified and holders of appropriate government authority or license to sell or dispose, that BUYER shall not buy from any other seller whose pulp woods being sold shall have been established to have emanated from the SELLER'S lumber and/or firewood concession. . . . And that SELLER has the priority to supply the pulp wood materials requirement of the BUYER; 7. That the BUYER shall have the right to stop delivery of the said raw materials by the seller covered by this contract when supply of the same shall become sufficient until such time when need for said raw materials shall have become necessarily provided, however, that the SELLER is given sufficient notice. (pages 8-9, Petition; pages 14-15, Rollo) In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills, Inc. recommended the acceptance of deliveries from other suppliers of the pulp wood materials for which the corresponding deliveries were made. But during the test run of the pulp mill, the machinery line thereat had major defects while deliveries of the raw materials piled up, which prompted the Japanese supplier of the machinery to recommend the stoppage of the deliveries. The suppliers were informed to stop deliveries and the letter of similar advice sent by petitioners to private respondents reads: Septem968 Iligan Diversified Projects, Inc. Iligan City

Attention: Mr. Romeo A. Lluch Dear Mr. Lluch: This is to inform you that the supply of raw materials to us has become sufficient and we will not be needing further delivery from you. As per the terms of our contract, please stop delivery thirty (30) days from today. Very truly yours, RUSTAN PULP AND PAPER MILLS, INC. By:DR. ROMEO S. VERGARA Resident Manager Private respondent Romeo Lluch sought to clarify the tenor of the letter as to whether stoppage of delivery or termination of the contract of sale was intended, but the query was not answered by petitioners. This alleged ambiguity notwithstanding, Lluch and the other suppliers resumed deliveries after the series of talks between Romeo S. Vergara and Romeo Lluch. On January 23, 1969, the complaint for contractual breach was filed which, as earlier noted, was dismissed. In the process of discussing the merits of the appeal interposed therefrom, respondent Court clarified the eleven errors assigned below by herein petitioners and it seems that petitioners were quite satisfied with the Appellate Court's in seriatim response since petitioners trimmed down their discourse before this Court to three basic matters, relative to the nature of liability, the propriety of the stoppage, and the feasibility of awarding moral damages including attorney's fees. Respondent Court found it ironic that petitioners had to exercise the prerogative regarding the stoppage of deliveries via the letter addressed to Iligan Diversified Project, Inc. on September 30, 1968 because petitioners never really stopped accepting deliveries from private respondents until December 23, 1968. Petitioner's paradoxial stance portrayed in this manner: . . . We cannot accept the reasons given by appellees as to why they were stopping deliveries of pulp wood materials. First, We find it preposterous for a business company like the appellee to accumulate stockpiles of cut wood even after its letter to appellants dated September 30, 1968 stopping the deliveries because the supply of raw materials has become sufficient. The fact that appellees were buying and accepting pulp wood materials from other sources other than the appellants even after September 30, 1968 belies that they have more than sufficient supply of pulp wood materials, or that they are unable to go into full commercial operation or that their machineries are defective or even that the pulp wood materials coming from appellants are sub-standard. Second, We likewise find the court a quo's finding that "even with one predicament in which defendant Rustan found itself wherein commercial operation was delayed, it accommodated all its suppliers of raw materials, including plaintiff, Romeo Lluch, by allowing them to deliver all its stockpiles of cut wood" (Decision, page 202, Record on Appeal) to be both illogical and inconsistent. Illogical, because as appellee Rustan itself claimed "if the plant could not be operated on a commercial scale, it would then be illogical for defendant Rustan to continue accepting deliveries of raw materials." Inconsistent because this kind of "concern" or "accommodation" is not usual or consistent with ordinary business practice considering that this would mean adequate losses to the company. More so, if We consider that appellee is a new company and could not therefore afford to absorb more losses than it already allegedly incurred by the consequent defects in the machineries. Clearly therefore, this is a breach of the contract entered into by and between appellees and appellants which warrants the intervention of this Court. . . . The letter of September 30, 1968, Exh. "D" shows that defendants were terminating the contract of sale (Exh. "A"), and refusing any future or further delivery — whether on the ground that they had sufficient supply of pulp wood materials or that appellants cannot meet the standard of quality of pulp wood materials that Rustan needs or that there were defects in appellees' machineries resulting in an inability to continue full commercial operations. Furthermore, there is evidence on record that appellees have been accepting deliveries of pulp wood materials from other sources, i.e. Salem Usman, Fermin Villanueva and Pacasum even after September 30, 1968. Lastly, it would be unjust for the court a quo to rule that the contract of sale be temporarily suspended until Rustan, et al., are ready to accept deliveries from appellants. This would make the resumption of the contract purely dependent on the will of one party — the appellees, and they could always claim, as they did in the instant case, that they have more than sufficient supply of pulp wood when in fact they have been accepting the same from other sources. Added to this, the court a quo was imposing a new condition in the contract, one that was not agreed upon by the parties. (Pages B-10, Decision; Pages 55-57, Rollo) The matter of Tantoco's and Vergara's joint and several liability as a result of the alleged breach of the contract is dependent, first of all, on whether Rustan Pulp and Paper Mills may legally exercise the right of stoppage should there be a glut of raw materials at its plant.

the petitioner's action when they acknowledged that "if the plant could not be operated on a commercial scale. it would then be illogical for defendant Rustan to continue accepting deliveries of raw materials. The two exceptions contemplated by Article 1897 of the New Civil Code where agents are directly responsible are absent and wanting. Altruism may be a noble gesture but petitioners' stance in this respect hardly inspires belief for such an excuse is inconsistent with a normal business enterprise which takes ordinary care of its concern in cutting down on expenses (Section 3. is dependent exclusively on their will for which reason. which allowed a condition for unilateral cancellation of the contract when the machinery to be installed on the factory did not arrive in Manila. through Justice Street. Walter Bull and Co. We have to agree with petitioners' citation of authority to the effect that the President and Manager of a corporation who entered into and signed a contract in his official capacity. defendant-appellee.. Neither are We prepared to accept petitioners' exculpation grounded on frustration of the commercial object under Article 1267 of the New Civil Code. cannot be made liable thereunder in his individual capacity in the absence of stipulation to that effect due to the personality of the corporation being separate and distinct from the person composing it (Bangued Generale Belge vs. 1991 edition. Rollo). L-20214 March 17. In support of the second ground for allowance of the petition. vs.And insofar as the express discretion on the part of petitioners is concerned regarding the right of stoppage. Page 55. Rule 131. A purely potestative imposition of this character must be obliterated from the face of the contract without affecting the rest of the stipulations considering that the condition relates to the fulfillment of an already existing obligation and not to its inception (Civil Code Annotated. Knowing fully well that they will encounter difficulty in producing output because of the defective machinery line. cited in Commentaries and Jurisprudence on the Civil Code. the decision appealed from is hereby MODIFIED in the sense that only petitioner Rustan Pulp and Paper Mills is ordered to pay moral damages and attorney's fees as awarded by respondent Court. Rollo). Petition. said in Taylor vs. No. This conduct will estop petitioners from claiming that the breakdown of the machinery line was an extraordinary obstacle to their compliance to the prestation. On this score. of course. This is Our simple understanding of the literal import of paragraph 7 of the obligation in question. Vergara was not privy to the contract of sale. as aforesaid. We have no alternative but to treat the controversial stipulation as inoperative (Article 1306. Inc. by Padilla. Volume 4. 84 Phil. page 152). Inc. Page 40. WILLITS & PATTERSON. Vergara's supposed non-participation in the contract of sale although he signed the letter dated September 30. WHEREFORE. by Tolentino. 873. Uy Tieng Piao and Tan Liuan (43 Phil. 1923 G. Revised Rules of Court). ARNOLD.. even though the saving clause is left to the will of the obligor like what this Court. a truism in legal jurisprudence that a condition which is both potestative (or facultative) and resolutory may be valid. C. G. It is. plaintiff-appellant. But the conclusion drawn from the Taylor case. Petitioners argue next that Tantoco and Vergara should not have been adjudged to pay moral damages and attorney's fees because Tantoco merely represented the interest of Rustan Pulp and Paper Mills. .R. It is for this same reason that We are not inclined to follow the interpretation of petitioners that the suspension of delivery was merely temporary since the nature of the suspension itself is again conditioned upon petitioner's determination of the sufficiency of supplies at the plant. 879. thus compounding the costs by accepting additional supply to the stockpile. Page 160). Volume 4. because petitioners continued accepting deliveries from the suppliers. 1968 sent to private respondents is well within the right of stoppage guaranteed to them by paragraph 7 of the contract of sale which was construed by petitioners to be a temporary suspension of deliveries. New Civil Code). petitioners are of the impression that the letter dated September 30. Verily. The demeanor of petitioners along this line was sought to be justified as an act of generous accommodation. 1987 Edition. It was indeed incongruous for petitioners to have sent the letters calling for suspension and yet. LTD. they in effect disregarded their own advice by accepting the deliveries from the suppliers. There is no doubt that the contract speaks loudly about petitioners' prerogative but what diminishes the legal efficacy of such right is the condition attached to it which. Record on Appeal. while Romeo S. Petitioners can stop delivery of pulp wood from private respondents if the supply at the plant is sufficient as ascertained by petitioners. (d). 1968 is completely immaterial. Page 8. subject to redelivery when the need arises as determined likewise by petitioners. which entailed greater loss to them and "was not motivated by the usual businessman's obsession with profit" (Page 34. We feel that there is cogent basis for private respondent's apprehension on the illusory resumption of deliveries inasmuch as the prerogative suggests a condition solely dependent upon the will of petitioners. is certainly inappropriate for application to the case at hand because the factual milieu in the legal tussle dissected by Justice Street conveys that the proviso relates to the birth of the undertaking and not to the fulfillment of an existing obligation." (Page 202.. petitioners opted to open the plant to greater loss. Decision. And because of this precept. 164).

with interest and costs. D. 10.. and. A short time previous to that date. he was entitled to nothing more than a salary of $400 per month. under Exhibit A was $400 per month. An attempt was made without success to adjust the matter on a friendly basis and without litigation. and that for such reason. That the business was operated at a loss from June 30. or for that period P10. the travelling expenses of his wife and self from San Francisco to Manila. Esq. CHAS. and that it is not an agreement which was ever entered into with the plaintiff by the defendant or the firm. As a result of which another instrument. second. one-half of the profits on any transaction in the name of the firm or himself not provided for in the agreement. known in the record as Exhibit B.05. Nov. the San Francisco corporation became involved in financial trouble. was prepared in the form of a letter which the plaintiff addressed to Willits at Manila on November 10. J.: In their respective briefs opposing counsel agree that the important questions involved are "what was the contract under which the plaintiff rendered services for five years ending July 31. that the plaintiff's compensation was measured by. by which the plaintiff was employed as the agent of the firm in the Philippine Islands for certain purposes for the period of five years at a minimum salary of $200 per month and travelling expenses. and alleges that what is known as Exhibit B was signed by Willits without the authority of the defendant corporation or the firm of Willits & Patterson. as a separate defense and counterclaim. which the defendant admits he owed Arnold on June 30. 1921. leaving a balance due the defendant as set out in the counterclaim. 1919. as prayed for. the purpose of which was to more clearly define and specify the compensation which the plaintiff was to receive for his services. in and to which he again subscribed for all of the capital stock except the nominal shares necessary to qualify the directors. In other words. Arnold should receive a monthly salary of $400 during such period. Upon such issues a trial was had. Ltd. Willits and I. 1920. known in the record as Exhibit A. As a result of plaintiff's employment and the world war conditions. there was a balance due and owing the plaintiff from the defendant under the contract Exhibit A of the sum of P8. to July 31. and all of its assets were turned over to a "creditors' committee. and among other things was a statement of July 31.400. and it is conceded that he is a competent and experienced business man. 1919. MANILA.277. showing that there was due and owing the plaintiff under Exhibit B the sum of P106.277. In legal effect. That his salary from June 30. After its organization. 1920. and denies all other new matter in the answer.000. from which it prays judgement. A dispute arose between the plaintiff and the firm as to the construction of Exhibit A as to the amount which plaintiff should receive for his services.141. and denying plaintiff's motion for a new trial. The plaintiff admits that he withdrew the P30. Patterson were partners doing business in San Francisco. except as specifically admitted. A short time after that Willits came to Manila and organized a corporation here known as Willits & Patterson. third. and that the defendant assumed all of the obligations of the original partnership under Exhibit A. 1921. At the time both corporations were legally organized. July 31. and written instruments known in the record as Exhibits A and B were attached to. a brokerage of 1 per cent upon all purchases and sales of merchandise. L. P. the Manila corporation employed a regular accountant whose duty it was to audit the accounts of the company and render financial statements both for the use of the local banks and the local and parent corporations at San Francisco. the minimum salary of $200 per month. the business of the firm in the Philippines very rapidly increased and grew beyond the fondest hopes of either party.. and that the defendant assumed all partnership obligations.400. the plaintiff was in the employ of the International Banking Corporation of Manila. which is as follows: WILLITS & PATTERSON. the San Francisco corporation took over and acquired all of the assets and liabilities of the Manila corporation. and limited to. under the name of Willits & Patterson. the above specified provisions in the contract Exhibit A. By C. C. the "creditors' committee" immediately protested its allowance.50. and there is nothing in the corporate minutes to show that Exhibit B was ever formally ratified or approved by either corporation." and "what is due the plaintiff under that contract.741. it alleges that on the 30th of June. the complaint. the plaintiff brought this action to recover from the defendant the sum of P106. The defendant admits that Exhibit A was the original contract between Arnold and the firm of Willits & Patterson by which he came to the Philippine Islands. to July 31.05.741. Willits organized a corporation under the laws of California with its principal office at San Francisco. Meanwhile Patterson retired from the firm and Willits became the sole owner of its assets.05. but alleges that it was with the consent and authority of the defendant. and as a result of negotiations the plaintiff and the firm entered into a written contract. Willits. The plaintiff was then in San Francisco. That the agreement also provided that if it be found that the business was operated at a loss. there was a conference between him and the plaintiff over the disputed construction of Exhibit A. and in dismissing his complaint. first. 1920. Adding this amount to the P8.95. D. the defendant admits the formal parts of the complaint. and repudiate. except for the account of the coconut oil mill. and the name of the firm was used as the name of the corporation. January 10. and that it was therein agreed that he was to be employed for a period of five years as the agent of Willits & Patterson in the Philippine Islands to operate a certain oil mill. California. and in failing to render judgment for the plaintiff. and made a part of. That about July 6. Willits received and confirmed this letter by signing the name of Willits & Patterson.d.. in and by which he subscribed for. . fourth.000 from the assets of the firm. WILLITS. and became the exclusive owner of all the capital stock except a few shares for organization purposes only. and is now seeking to deny its liability under. the execution of Exhibit A and denies each and every other allegation. 1921. or a total of P10. From time to time and in the ordinary course of business such statements of account were prepared by the accountant and duly forwarded to the home office. I. the plaintiff wrongfully took P30. and that the defendant corporation is not bound by the terms or provisions of Exhibit B. For convenience of operation and to serve his own purpose. makes a total of P19. and to do such other business as might be deemed advisable for which he was to receive. 1916. and the lower court rendered judgment in favor of the defendant as prayed for in its counterclaim." When this statement was received. At the time that Willits was in Manila and while to all intents and purposes he was the sole owner of the stock of corporations. and that he is now indebted to the firm in the sum of P10. The plaintiff returned to Manila and entered on the discharge of his duties under the contract. 1922. 1920. contending that the trial court erred in not holding that the contract between the parties is that which is embodied in Exhibits A and B. JOHNS.STATEMENT For a number of years prior to the times alleged in the complaint. from which the plaintiff appeals. 1921.858. 1921." Plaintiff contends that his services were performed under Exhibits A and B. LTD. For answer.50 with legal interest and costs. Exhibit B.

followed and at all times in force and effect. and was the owner of all of its stock. Where Willits & Patterson. basis the commission is on the f. Exhibit A provided: "(a) That the net profits from said coconut oil business shall be divided in equal shares between the said parties hereto. b. in legal effect. except for the account of the coconut mills. It appears from an analysis of Exhibit B that it was for the mutual interest of both parties. that he subscribed for all of the capital stock of the corporation. which took over and acquired all of the assets of the firm's business in California then being conducted under the name and style of Willits & Patterson. price. Ltd. and as a result of conferences between Willits and the plaintiff. On all business transacted between Willits & Patterson. From a small beginning. and through the subsequent acts and conduct of the parties. San Francisco. Ltd. o. the business was then in a very flourishing conditions and growing fast. Profits. as it was modified by Exhibit B. that the original contract Exhibit A was made between the plaintiff and the old firm at San Francisco on July 31. or Willits & Patterson. f.) CHAS. in the State of California. and others than Willits & Patterson. Ltd. ( c) that the net profits from all other business should be divided in equal half shares between the parties hereto. I do not participate in any profits on business transacted between Willits & Patterson. price These commissions are credited to me in San Francisco. D. he subscribed for all of its capital stock. The plaintiff contends that the signing of Exhibit B in the manner and under the conditions in which it was signed. the plaintiff might well contend that he was entitled to one-half of all the profits and a brokerage of 1 per cent from all purchases and sales. If such purchases or sales are on an f. On all other business. Manila. and that in truth and in fact he was the owner of all of its capital stock. or purchases made from them by Manila. Willits and I. San Francisco.. Manila. if on a c. L. 1919. A short time prior to that date Willits organized a corporation in San Francisco. pay me a commission of one per cent on all purchases made for them in the Philippines or sales made to them by Manila and one per cent on all sales made for them in the Philippines. account. That after it was organized the Manila corporation kept separate records and account books of its own. basis the commission is computed on the c. which under the volume of business . Among other things. Manila. he was to all intents and purposes the legal owner of all the stock in both corporations. WILLITS There is no dispute about any of the following facts: That at the inception C. in legal effect. Willits & Patterson. After this was done he caused a new corporation to be organized under the laws of the Philippine Islands with principal office at Manila." Under the above provisions. If the foregoing conforms to your understanding of our agreement. half the profits are to be credited to my account and half to the Profit & Loss account of Willits & Patterson. o. Ltd.Present. I of course do not participate in the earnings of such stock. and Willits acquired all of his interests and thereafter continued the business under the name and style of Willits & Patterson. have their own funds invested in the capital stock or a corporation. from which it conclusively appears that plaintiff was basing his claim for services upon Exhibit A. WILLITS: My understanding of the intent of my agreement with Willits & Patterson is as under: Commissions. That is to say. please confirm below.) G. Manila. and that from time to time financial statements were made and forwarded to the home office. such as the Cooperative Coconut Products Co. DEAR MR. to cover a period of five years from that date. (Sgd. 1916. which took over and acquired all the business and assets of the firm of Willits & Patterson in the Philippine Islands. became and is now binding upon the defendant. It also appears from the evidence that the parent corporation at San Francisco took over and acquired all of the assets and liabilities of the local corporation at Manila. after it was signed November 10. b.D. Ltd.. in and to which. 1919. i. i. Exhibit B was addressed and signed in the manner and form above stated in the City of Manila. f. San Francisco. half the profits are to be credited to my account and half to the Profit & Loss account of Willits & Patterson. or any other business we may undertake as agents or managers. as between the plaintiff and Willits. any more than Willits & Patterson would participate in the earnings of stock held by me on my account. San Francisco. That at no time after Exhibit B was signed was there ever any dispute between plaintiff and Willits as to the compensation for plaintiff's services. After both corporations were organized the above letter was drafted and signed.. except those for the account of the coconut oil mills. Yours faithfully. and that at the time it was signed by Willits. that later Patterson retired from the firm. C. that on November 10. Exhibit B was approved. and Willits & Patterson. (b) that Arnold should receive a brokerage of 1 per cent from all purchases and sales of merchandise. and the profits were very large and were running into big money. It will be noted that Exhibit B was executed in Manila. ARNOLD Confirmed: WILLITS & PATTERSON By (Sgd. that plaintiff entered upon the discharged of his duties and continued his services in the Philippine Islands to someone for the period of five years.. Patterson constituted the firm of Willits & Patterson doing business in the City of San Francisco. was ratified and.

it being understood. he would have a claim for more than P160. and capable of acting in either.then existing would run into a very large sum of money. the absence of the formal evidence of the character of the act cannot preclude judicial inquiry on the subject. after the corporation was formed. says: While of course a corporation cannot ratify a contract which is strictly ultra vires. and taken over by. It is very significant that the claim or defense which is now interposed by the creditors' committee was never made or asserted at any previous time by the defendant. 15 L. vol. and to protect them from the plaintiff having and making a much larger claim under Exhibit A. the parent corporation at San Francisco. It is elementary law that if Exhibit B is a binding contract between the plaintiff and Willits and the corporations. but.) Ruling Case Law. 137 1. and it is well settled that where a corporation with full knowledge of the unauthorized act of its officer or agents acquiesces in and consents to such acts. for whom was he working? His contract was made with the original firm of Willits & Patterson. It must also be remembered that there can be no corporate existence without persons to compose it. it may by ratification render binding on it a contract. the signing of Exhibit B was for the mutual interests of both parties. as the owner of all of the stock. Willits was. in legal effect. it is equally binding upon the creditors' committee. Thompson on Corporations. under the conditions then existing. . and affect the transaction of its business. After Exhibit B was signed it was recognized by Willits that the plaintiff's services were to be performed and measured by its term and provisions. I. that Arnold might well contend for a much larger sum of money for his services. and. then in that department of the law fraud would enjoy an immunity awarded to it in no other. or was done ostensibly as such. This separate existence is to a certain extent a legal fiction. the fiction must be ignored. and all of its assets were merged in. Larkin. He continued his employment and rendered his services after the corporation were organized and Exhibit B was signed just the same as he did before. The record recites that "the defendant admits that from July 31. because. by the persons uniting in one body. 199 Pac. For whom did he work after the partnership was merged in the corporation and ceased to exist? It is very apparent that.000. the testimony is conclusive that both of them were what is known as a one man corporation. in which the Supreme Court of Ohio says: "So long as a proper use is made of the fiction that a corporation is an entity apart from its shareholders. and a possible interest to conceal their character when acting in their corporate capacity. and that firm was dissolved and it ceased to exist. however." It being admitted that the plaintiff worked "under his contract of employment" for the period of five years. the question naturally arises. and that it never was made by Willits. that Exhibit B was prepared and signed. vs. and that he approved it in their interest. no higher degree of evidence is requisite in establishing ratification on the part of a corporation. the plaintiff could not and did not continue to work for the firm. Although the plaintiff was president of the local corporation. As a general rule such ratification need not be manifested by any voted or formal resolution of the corporation or be authenticated by the corporate seal. but where it is urged to an end subversive of its policy." Where the stock of a corporation is owned by one person whereby the corporation functions only for the benefit of such individual owner.. and Willits. Mackay Wall Plaster Co. A. 666. and the question determined whether the act in question. than is requisite in showing an antecedent authorization. the accountant. section 663. the plaintiff faithfully performed all the duties incumbent upon him under his contract of employment. R. vol.. As a matter of fact. the corporation and the individual should be deemed to be the same.. and there never was any dispute between plaintiff and Willits upon that question. though done by shareholders. and could not make any defense which it could not make. 249. it would never have made the defense which is now made by the creditors' committee. especially where the acquiescence results in prejudice to a third person. it is harmless. The assent or approval of a corporation to acts done on its account may be inferred in the same manner that the absent of a natural person may be. in the record that if plaintiff's cause of action was now founded upon Exhibit A. and it is very apparent that if he had remained in control of the corporation. and with respect to their individual interest as shareholders. there can be no association without associates. and. Gypsum Co. S. In the very nature of things. If it were otherwise. and to settle all disputed questions. 1916 to July 31. In truth and in fact Willits and both corporations recognized his employment and accepted the benefits of his services. — was done simply as individuals. 7. the stockholders having a dual capacity. 145. because convenient.. or such is the issue. the author quotes from a decision in 49 Ohio State. and both corporations recognized and accepted his services. says: The proposition that a corporation has an existence separate and distinct from its membership has its limitations. entered into on its behalf by its officers or agents without authority. In the same section. it appears from the statement of Mr. (U. the owner and holder of all the stock in both corporations. to control the corporation. that this admission does not include an admission that the plaintiff placed a proper interpretation upon his right to remuneration under said contract of employment. should not be called in question. was the force and dominant power which controlled them. — that is to say. 1921. and that if the contract Exhibit A was to be enforced according to its terms. it thereby ratifies them. It was for such reason and after personal conferences between them. 2d ed. SEC. and it is very apparent that Exhibit B was to the mutual interest of both parties. in the same manner as if the act had been clothed with all the formalities of a corporate act. yet. section 10." There is no claim or pretense that there was any fraud or collusion between plaintiff and Willits. The controversy first arose after the corporation was in financial trouble and the appointment of what is known in the record as a "creditors' committee. and which it in the first instance could not have made. It would not have any higher or better legal right than the corporation itself. he continued his employment for the full period of five years. It must be noted that this separate existence is for particular purposes. courts will disregard this legal fiction and operate upon both the corporation and the persons composing it. The record is conclusive that at the time he signed Exhibit B. This must be so. Whenever necessary for the interests of the public or for the protection or enforcement of the rights of the membership. as a matter of fact.

and that such statements were made and prepared by the accountant on the assumption that Exhibit B was in full force and effect as between the plaintiff and the defendant. an officer has been allowed in his official capacity to manage its affair. and still holds the 500 tons of oil as security for the balance of the purchase price. As a result. Hence. 656. 669. and that it took and accepted the promissory notes of Cruz & Tan Chong Say.000 on the contracts and gave their notes for P75. SEC.737. the purchasers. . ratified and approved and is now binding upon the defendant corporation. This transaction was shown in the semi-annual financial statement for the period ending December 31. his authority to represent the corporation may be inferred from the manner in which he has been permitted by the directors to transact its business.000 in cash. and others than Willits & Patterson. Corpus Juris. and that also he have judgment against the defendant for costs..000 in notes. and the statement which was rendered gave him a credit for P90. with thereon at the rate of 6 per cent per annum from the 10th day of January. INC. and as a general rule where a corporation. As a general rule. and from time to time and in the ordinary course of business made and prepared financial statements showing its assets and liabilities.SEC.000 more which have been collected and may never be. G. SEC. and the defendant received and accepted all of the profits on the deal. In its article on corporations. and objection was made for the first time by the creditors' committee in a cable of that date. It is very apparent that his statement was based upon the assumption that there was a net profit of P180. So. when.527. it impliedly ratifies the unauthorized act if it is one capable of ratification by parol. declared by statute. Ltd.000 on the 500 tons of oil. the defendant itself received the P105. judgment will be rendered against the defendant in substance and to the effect that the plaintiff is the owner of an undivided one-half interest in the promissory notes for P75. Hence. . It appears upon their face that plaintiff's compensation was made and founded on Exhibit B. in section 2241 says: Ratification by a corporation of a transaction not previously authorized is more easily inferred where the corporation receives and retains property under it.000. Larkin. it must follow that the amount evidence by the notes cannot now be deemed or treated as profits on the deal and cannot be until such times as the notes are paid. an experienced accountant. The judgment of the lower court is reversed. that any objection was ever made by anyone. 1920. Due to break in the market. or half the profit as provided in the contract Exhibit B. In the course of business in the early part of 1920. notice to corporate officers or agents within the scope or apparent scope of their authority is attributed to the corporation.277. it was not until the 23d of March. together with all the liabilities and burdens resulting therefrom. and the record shows that the defendant took and now has the possession of all of the oil secure the payment of the price at which it was sold. 1921. The purchasers paid P105. vs. it thereby ratifies and becomes bound by such act of contract. Applying the law to the facts. and that he is entitled to have and receive one-half of all the proceeds from the notes or either of them. It appears from the statement prepared by accountant Larkin founded upon Exhibit B that the plaintiff is entitled to recover P106. No. was employed by the local corporation. takes and retains the benefits of the unauthorized act or contract of an officer or agent. plaintiff was able to purchase the oil at P380 per ton or a profit of P180. KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA (KKM) and THE COURT OF INDUSTRIAL RELATIONS.. sold 500 tons of oil for future delivery at P740 per ton. 667. . 1922. in legal effect. with interest. of which the plaintiff was entitled to one-half. half the profit are to be credited to may account and half to the Profit & Loss account Willits & Patterson. and it was agreed that all of the oil purchased should be held as security for the full payment of the purchase price.88. the profit on the deal to the defendant at the time of the sale would amount to the difference between what the defendant paid for the oil and the amount which it received for the oil at the time it sold the oil. and in some jurisdiction this rule is. Thus the corporation is liable on the ground of ratification where. for P75. Mr. As we analyze the facts Exhibit B was.50. we have the right to assume that the 500 tons of oil was worth the amount which the defendant paid for them at the time of the purchase or P380 per ton. with knowledge of the facts.R. Ltd. L-5677 May 25. It appears that at the time of the sale the defendant only received P105.000 which were executed by Cruz & Tan Chong Say. 1953 LA CAMPANA FACTORY. it accepts the benefit of services rendered under an unauthorized contract of employment . . through its proper officers or board. true copies of which were sent to the home office in San Francisco. So ordered. San Francisco. petitioners.50. In the absence of any other proof. Manila. and a money judgment will be entered here in favor of the plaintiff and against the defendant for the sum of P68. in the usual course of business of a corporation. with full knowledge of all the material facts. respondents. P75. It appears from Exhibit B under the heading of "Profits" that: On all the business transacted between Willits & Patterson. and the plaintiff is entitled to recover for his services on that writing as it modified the original contract Exhibit A.000 in cash. in effect. That is to say. In addition thereto. Although the previous financial statements show upon their face that the account of plaintiff was credit with several small items on the same basis. In accordance with a well-known rule of the law of agency. if a corporation with knowledge of its agents unauthorized act received and enjoys the benefits thereof. the business was transacted by and through the plaintiff. and TAN TONG doing business under the trial name "LA CAMPANA GAUGAU PACKING". as a part of the purchase price of the oil. plaintiff. as manager of the defendant.000.

Seceding. whereas beginning July 21. 3. with its principal office located in the same place as that of La Campana Gaugau Packing. 1952. O-3 and O-4). the demand being addressed to La Campana Starch and Coffee Factory. 2. leased a space of 200 square meters in the bodega housing the gaugau factory to his son Tan Keng Lim. as of that date. 1951. C. 584-V.. Inc. the La Campana Gaugau Packing and the La Campana Coffee Factory Co. . because if found as a fact that: A. 1952. Mr. that following the revocation of the Kaisahan's permit.. Several hearings were held on the above motions. "La Campana Gaugau and Coffee Factory" (obviously the combined name of La Campana Gaugau Packing and La Campana Coffee Factory Co. where-in the petitioner's members are contracting parties bound by said contract. filed separate motions for the dismissal of the case on the following grounds: 1. the packages of gaugau(Exhibit K). Tan Tong. 1Loreta Bernabe with only 14 laborers (Exhibits M-2 and M-3). the payrolls for the coffee factory began with No. and applied for registration in the Department of Labor as an independent entity. and they are transferred from the gaugau to the coffee and vice-versa as the management so requires. one of the herein respondents. Pending consideration of this application. Tan Tong had entered into a collective bargaining agreement with the Philippine Legion of Organized Workers. known as PLOW for short. Tan Tong. so it appears. — presented a demand for higher wages and more privileges. with himself and members of his family corporation known as La Campana Factory Co. While the coffee corporation is a family corporation with Mr. and children as the incorporations and stockhelders (Exhibit 1). E. the advertisement in the delivery trucks (Exhibit I-1). That the workers of the "La Campana Coffee Factory. 1951." are less than thirty-one. the Court of Industrial Relations denied the said motions in its order of January 14. 1951. has since 1932 been engaged in the business of buying and selling gaugau under the trade name La Campana Gaugau Packing with an establishment in Binondo. Inc. J-1. propriety and manager of the Ka Campana Gaugau Factory. his wife. on the 20th of the same month. also suspended the permit of its affiliate. to which the union of Tan Tong's employees headed by Manuel E. which was later transferred to España Extension.. 1951. revoked the Kalipunan Ng Mga Kaisahang Manggagawa's permit as a labor union on the strength of information received that it was dominated by subversive elements. with "La Campana Starch Factory" and the "La Campana Coffee Factory. D. With the case already pending in the industrial court. Tan Tong. which. F. the Kaisahan Ng Mga Manggagawa Sa La Campana. in the course of which ocular inspections were also made. That the action is directed against two different entities with distinct personalities. Tan Tong's employees later formed their own organization known as Kaisahan Ng Mga Manggagawa Sa La Campana. the said Department certified the dispute to the Court of Industrial Relations on July 17. There is only one entity La Campana Starch and Coffee Factory. But after the case at bar was certified to this Court on July 17. Tan Tong.. and J-2). from the PLOW.000 cans to be used as containers for coffee. Manila. the case being there docketed as Case No. the company began making separate payrolls for the coffee factory (Exhibits M-2 and M-3. That the petitioning union has no legal capacity to sue. We have it from the court's order of January 15. 1951. But on July 6. Miss Natividad Garcia. in the same place there were about 3. 1951. in consequence. That there is an existing valid contract between the respondent "La Campana Gaugau Packing" and the intervenor PLOW. the cashier. by which name they sought to designate. 1951 the Court has found the following: In the ground floor and second floor of the gaugau factory there were hundreds of bags of raw coffee behind the pile of gaugau sacks. and on the basis of the evidence received and the facts observed in the ocular inspections. There has been only one payroll for the entire La Campana personnel and only one person preparing the same — Miss Natividad Garcia.. B.". hereinafter to be referred to as the respondent Kaisahan. 1951. secretary of Mr. About a year before the formation of the corporation. the Secretary of Labor. the Department gave the new organization legal standing by issuing it a permit as an affiliate to the Kalipunan Ng Mga Manggagawa. According to the contract of lease (Exhibit 23). Tan Tong. As the demand was not granted and an attempt at settlement through the mediation of the Conciliation Service of the Department of Labor had given no result. one of the herein petitioners.. secretary of Mr. It is to be noted that before July 21. There were also women employees working paper wrappers for gaugau. however.Tan Tong. or on July 11. and 4. and. All the laborers working in the gaugau or in the coffee factory receive their pay from the same person. 1950. while the dispute between the parties was pending before the Court. the La Campana Gaugau Packing is merely a business name (Exhibit 4). and for the gaugau factory (Exhibits O-2. because its registration as an organized union has been revoked by the Department of Labor on September 5. 1949.) and the PLOW. which had been allowed to intervene as a party having an interest in the dispute. Quezon City. the respondent Kaisahan. and delivery forms (Exhibits J. and. But the lease was executed only on September 1. Inc. Inc. manager of the La Campana Coffee Factory. counted with 66 members — workers all of them of both La Campana Gaugau Packing and La Campana Coffee Factory Co. Inc. which forms one of the annexes to the present petition. on September 5. Sadde was then affiliated. as shown by the signboard (Exhibit 1). During the ocular inspection made in the factory on August 26. the coffee payrolls all began with number "41-Maria Villanueva" with 24 or more laborers (Exhibits M and M-1). On July 19. 1951. Inc.

the laborers of the gaugau factory and the coffee factory were interchangeable. "(1) that the petitioner La Campana Coffee Factory. 1951. 103). R. No. on July 17. according to them. the union president invited the Court to examine the contents of delivery truck No. Jur. had a separate permit from the Department of Labor. Disregarding Corporate Entity. R. its personality to sue for ad in behalf of its members. For once jurisdiction is acquired by the Court of Industrial Relations it is retained until the case is completely decided. The concept cannot. .) . will be disregarded by the courts. there is only one management for the business of gaugau and coffee with whom the laborers are dealing regarding their work. Tan Tong and his family. (Annex G. as found by the industrial court — and this finding is conclusive upon us — La Campana Gaugau Packing and La Campana Coffee Factory Co. ( Ibid. when the person who was discharging the office of cashier for both branches of the business began preparing separate payrolls for the two. has only 14 employees. Inc. with costs against the petitioner. a corporation and the individual or individuals owning all its stocks and assets will be treated as identical. And above all. section 4.. 73 Phil. This permit was suspended on September 30. . (2) that the suspension of respondent union's permit by the Secretary of Labor has the effect of taking away the union's right to collective bargaining under section 2 of Commonwealth Act No. when in reality they are but one.F. be extended to a point beyond its reason and policy. The second point raised by petitioners is likewise with-out merit. NLU. it is to be noted that before the certification of the case to this Court on July 17. L. in an appropriate case and in furtherance of the ends of justice. only 5 of whom are members of the respondent union and therefore the absence of the jurisdictional number (30) as provided by sections 1 and 4 of Commonwealth Act No. the two factories have but one office. Hence. 612. (Exhibit M-Intervenor. In view of all these. for the very Exhibit MM-Intervenor regarding the permit. later joined by the PLOW. the laborers from the gaugau factory were sometimes transferred to the coffee factory and vice-versa. True. — The doctrine that a corporation is a legal entity existing separate and apart from the person composing it is a legal theory introduced for purposes of convenience and to subserve the ends of justice. . 374. 34 A. To show that those trucks carried both coffee and gaugau. With regards to the alleged lack of personality. an entity existing separate and apart fro the persons composing it. the corporate entity being disregarded where used as a cloak or cover for fraud or illegality. This jurisdiction was not when the Department of Labor suspended the permit of the respondent Kaisahan as a labor organization. is in reality owned exclusively by Tan Tong and his family. 1951. the petitioner Kaisahan Ng Mga Manggagawa Sa La Campana. conclusively shows the preexistence of said permit. though an incorporated business. especially if the stockholders or officers of the two corporations are substantially the same or their system of operation unified. .R. L-22614 August 29. (13 Am. Inc. is but a device to defeat the ends of the law (the Act governing capital and labor relations) and should not be permitted to prevail. 160-161. Inc. as one business though with two trade names. As found by the Court of industrial Relations. This contention loses force when it is noted that. as an independent union. (Manila Hotel Employees Association vs. L. for the reason. but they do contend that the industrial court has no jurisdiction to try the case as against La Campana Coffee Factory. 103. petitioner. and when invoked in support of an end subversive of this policy. therefore. are operating under one single management. 1951. when this case forwarded to this Court. there being more than 30 laborers involved and the Secretary of Labor having certified the dispute to the Court of Industrial Relations. C. that is... petitioners obviously do not question the fact that the number of employees of the La Campana Gaugau Packing involved in the case is more than the jurisdictional number (31) required bylaw. E. ." As to the first ground. But it is settled that this fiction of law. A subsidiary or auxiliary corporation which is created by a parent corporation merely as an agency for the latter may sometimes be regarded as identical with the parent corporation. there were found inside the said truck boxes of gaugau and cans of coffee. In the first place. Tan Tong and La Campana Coffee Factory. and. that is. of the record). except after July 17. Inc. it should not be overlooked that.).) Their motion for reconsideration of the above order having been denied. that is. (same as La Campana Coffee Factory Co. the filing of action against the Ka Campana Starch and Coffee Factory is proper and justified. 213 and consequently. the petition is denied. the coffee factory is a corporation and. 162. and held that: .. Manila Hotel Co. G. the day the case was certified to the Court of Industrial Relations. HERBOSA. respondents.. A. one management and one payroll. 73 Phil. filed the present petition for certiorari on the grounds that the Court of Industrial Relations had no jurisdiction to take cognizance of the case. 401. 599. the attempt to make the two factories appears as two separate businesses. as also found by the industrial court. and upon examination.) In the present case Tan Tong appears to be the owner of the gaugau factory. Inc. by legal fiction. page 55.The Court found out also that there were 16 trucks used both for the delivery of coffee and gaugau. see Annotation 1 A. 1969 RAMIREZ TELEPHONE CORPORATION. T-582 parked in a garage between the gaugau building and the coffee factory. that court duly acquired jurisdiction over the case (International Oil Factory vs. It is not true that. Inc. vs. Thus. which has been introduced as a matter of convenience and to subserve the ends of justice cannot be invoked to further an end subversive of that purpose. et al. the petitioner's permit. s. And the coffee factory. THE SHERIFF OF MANILA and THE COURT OF APPEALS.. because the latter has allegedly only 14 laborers and only of these are members of the respondent Kaisahan.BANK OF AMERICA.) In view of the foregoing. had not yet been issued.

. to cover the amount of P2.00 and specially the . belonging to the said defendant --------. the interest or participation which the defendant Ruben R. and to pay the costs of these proceedings. 3 Sta. The judgment of the Court of First Instance which was reversed by the Court of Appeals reads as follows:1 In view of the foregoing considerations. judgment is hereby rendered in favor of the plaintiff and against the defendant Bank of America ordering the latter to pay the former the sum of P3. Philippines. el taller de la corporacion aunque su oficina central estaba en la Escolta.a Instancia. D. shares. notificando al Bank of America de que quedaba embargado. 1950. the sum of P500. Exh. in the above entitled case. both in the concept of attorney's fees. servido al Bank of America el 13 de Octubre. y el mismo. OFILADA Sheriff of Manila (Exh. Likewise. Inc. pero el Sheriff reitero el embargo el 17 de Octubre. interests. . Defendant To: Bank of America Manila Greetings: You and each of you are hereby notified that. 2. y fue contestado por el banco el mismo dia de la siguiente manera: Dear Sir: In reply to your Garnishment of October 13. pero en la vispera de la promulgacion de la sentencia a su favor habia ya conseguido mandamiento de embargo preventivo contra Ramirez. 2). y elevada la causa al Juzgado del 1.000. which we cannot review are set forth in its decision. Herbosa. we wish to inform you that we do not hold any fund in the name of the defendant.F.versus -GARNISHMENT Ruben R. the costs being adjudged likewise against petitioner. Herbosa pudo conseguir decision favorable alli el 14 de Octubre. effects. the same amount. now respondent.400. 1950 MACARIO M. Exh. credits. 3). no son muy embrollados. Bank of America.00". now likewise respondent. Natividad Building. copy of which is hereto attached. by virtue of an order of attachment issued by the Court of First Instance of Manila. with that Bank sufficient to cover the said amount of P2. wherein the judgment of the lower court was reversed and another entered dismissing the complaint of plaintiff.. 1950.on this date. 1950. xxx Manila. fue trasladado al local: pero habiendose amontonado los alquilares sin pagar. and ordering it to pay to defendant. 1950. Bank of America. B. Ramirez.00 in the form of actual damages. Mesa. B. to indemnify or reimburse the thirdparty plaintiff..F.400. Herbosa.F. any interests in stocks and shares and all debts owing by you to the defendant.This is a petition for review on certiorari of a decision of the Court of Appeals of February 27. Exh. Int. Ramirez Telephone Corporation. Ramirez. ". Ramirez. el demandado. Herbosa presento demanda de desahucio contra Ramirez en el Juzgado Municipal de Manila el 10 de Noviembre. (Exh.00 and to the third-party defendant E. Ramirez may or might have in the deposit of the Ramirez Telephone. Ruben R. Exh. any sum or sums which the latter may pay the plaintiff by virtue of this judgment The third-party complaint against the Sheriff of Manila as well as the counterclaim of defendant Bank of America and thirdparty defendant E. 10620 E. y como este era el presidente de la Ramirez Telephone Corporation.. issued under the above-subject case. Herbosa. levy is hereby made (or attachment is hereby levied) upon all the goods. Exh. E. lease como sigue: Civil Case No. now petitioner. thus: 2 Resultando: Que los hechos al parecer. Plaintiff -. and any other personal property in your possession or under your control. Yours very truly. 1964. Ramirez ---------. The facts as found by the Court of Appeals. judgment is hereby rendered sentencing the third-party defendant. Ruben R. money. A. 612.. y xxx xxx . Herbosa era y es dueno del edificio No. Herbosa are hereby ordered dismissed. se lo habia dado en arrendamiento a Ruben R. 1949. stocks.F. October 13.

it is suggested that you obtain a release from the Court on Civil Case No.la institucion bancaria en contestacion al Sheriff.400. Ramirez happens to be its President and General Manager. de fecha 17 de Octubre. 1949 to June 30. . 3. estando corroborada no solamente por el Exh. de Ramirez.00. . es Ramirez Telephone tenia en deposito con el Bank of America. Exh. quedando por tanto como ultimo balance. 17.. Ruben E. C-78900 for the amount of P812. esta carta la contesto la institucion bancaria el 24 de Octubre. la demandada Bank of America. este lo habia manifestado que "the shop of company was established downstairs. y el motivo deaccion se de hace consistir en que el banco.. 1950. leida en relacion con el Exh.28. era un acto de justicia a favor del acreedor Herbosa y a la verdad.. como ya se ha dicho. demanda. L. y Contra Herbosa.n. ahora bien. Ramirez the defendant in said Civil Case and whose property or fund was ordered attached has no personal deposit in that bank and that the Ramirez Telephone Corporation is entirely a distinct and separate entity regardless of the fact that Ruben R. de no haberse permitido el mencionado embargo. otro cheque en la suma de P2. pues.. se redujo los fondos libres a la cantidad de P2." Exh. pero es que mas tarde. este cheque al ser presentado a la Bank of America. la suma de P4. par. despues de la vista. nada mas que unos P889. t.. para el pago de los alquilares por el debidos a Herbosa. manifestando que su cliente habia sufrido "considerable damage and embarrassment. el 19 de Octubre. subject to your further orders.00 a favor de la Ray Electronics. el presentaria la demanda correspondiente. el mismo demandado. C-78900. si bien Ruben R. presento contra reclamacion o mejor dicho. 10 y 11.389. 1949. pero conforme con su advertencia. 14. hizo constar que: ".53. y el Juzgado Inferior. y luego. cuando entonces estaba depositada la cantidad de P4. 1953. pero el dia siguiente. 1950. tras de cornudo. envio carta de requerimiento al Bank of America.. el cheque No." Exh. fue rechazado por lo que el abogado de la Ramirez Telephone el 23 de Octubre. 1950." Exh.. "without further notice." e decir que la Ramirez Telephone Corporation a la verdad ocupaba el local alquilado. 14. Ramirez may or might have in the deposit of the Ramirez Telephone. Ramirez. Ramirez solia pagar el alquilar en cheques de la Ramirez Telephone Corporation. N. el 25 de Agosto. 25 June 1956. Inc. "The interest or participation which the defendant Ruben R. 12. fondos de que buenasanta podia disponer su Presidente. we are holding the amount of P2. 1950 o sea el mismo dia. 15. Ramirez era su inquilino al principio. de manera que con el embargo. que denegada. Ramirez. especialmente teniendo en cuenta que el embargo solo abarcaba. recuerdase de que en aquella fecha. Exh. esta habia cancelado su pedido para los equipos necesarios en la construccion de sus lineas telefonicas en la region bicolana. fue apaleado. 10620. 9. cuatro dias despues. 1950. es decir acato la notificacion del embargo de los fondos de la Ramirez Telephone. el 10 de Septiembre. este se hubiera visto en igual situacion que aquel pobre agraviado que como se dice vulgarmente. Ramirez Telephone. y esta carta. .00" Exh." y advirtiendole que si no se le diera completa satisfaccion el dia siguiente. incoo esta accion el 28 de Octubre.00 for the court costs. 17 de Octubre..00 in the name of the Ramirez Telephone. "With reference to your letter dated October 23. Inc. en donde se ve que Ruben R. E.00 a month for the period from February 1. alegando que. 1955. 5 id. de Leon. plus P7. . y este ultimo a su vez en contestacion. 1950 con reconvencion para despues presentar demanda contra el Sheriff. en donde Ruben R. asi que todas sus operaciones se habian quedado paralizadas. asi que resulta evidente que lo fondos de la Ramirez Telephone los eran a la verdad. Ramirez. Bank of America.60.00. y tambien contra el Bank of America. 9. 4. defendant. el banco sometio su contestacion el 23 de Diciembre. todos estos no pueden menos de justificar la conclusion de que el embargo de los fondos de la Ramirez Telephone por y en virtud de un mandamiento judicial de embargo contra Ruben R.500. la Ramirez Telephone por medio de su presidente. tanto que Ruben R. "This Bank is acting only in accordance with the garnishment and has no interest whatsoever in the funds held. el Ramirez Telephone retiro la suma de P1. reconvencion contra la misma demandante. I am sending you herewith check No. in which you are writing in behalf of the Ramirez Telephone Corporation.320. Ruben R. manifestando en la carta de que: In accordance with your agreement yesterday with my attorney. habia enviado el abogado de Herbosa. Ramirez y tenia fondos depositados en el banco mencionado.53. el 4 de Diciembre. y esta declaracion. ya mencionado. 1950. el 16 de Agosto. en papel con el embrete de la Ramirez Telephone. dictamino en favor de la demandante contra el Bank of America en la contra-demanda de este contra aquel.. both dates. el abogado dela Ramirez Telephone.. B. Exh. knows or should have known that Ruben N. en pago de ciertos equipos vendidos por este ultimo. tambien resulta evidente de que la casa por el alquilada Ramirez Telephone. y estos hechos agregados el otro hecho tambien probado. presento mocion de sobresimiento. Ramirez. rentals for the premises I am occupying at the rate of P161. 15. G. . Mr.. el cheque Exh. emplazada de la demandada. 1950. 12. de esto surgio la presente contienda.857. 1955. inclusive. Exhs. de que el 75% de las acciones de la compania pertenecia a Ruben Ramirez y su esposa Rizalina P. Inc.' par.' Exh. Exh. y alegando que con motivo de ello y la siguiente devolucion de su cheque a favor de la Ray Electronics sin pagar.789." It was further found by the Court of Appeals:3 Considerando: Que el testimonio de Estanislao Herbosa al efecto de que. Jose L. habiendo expedido el 19 de Octubre. Ruben Ramirez. in the amount of P2.400. 1950. ".

vs.S. to repeat. June 30. La Campana Coffee Factory. Petitioner's main grievance in the first assigned error is that the Court of Appeals disregarded its corporate personality. Laguna Transportation Co. 1960. From the facts as found which must remain undisturbed.F. vs.. the Court of Appeals erred in declaring instead that it is petitioner that should pay respondents attorneys' fees. Willits & Patterson. L10510. the principle is restated thus: "Even with regard to corporations duly organized and existing under the law. which must be considered conclusive and binding on us. was one and the same. petitioner. 77 Phil. C. as noted. L-8431. vs.F. . in view of a number of cases decided by this Court. March 17. there are exceptions. The next two errors assigned likewise fail to call for a reversal of the judgment now on appeal. respondents. Inc. 1958. the Bank of America and E. In appropriate cases. namely. with costs against petitioner Ramirez Telephone Corporation. the lawyer of both respondents." In support of the above principle. While respect for the corporate personality as such is the general rule.. to determine. appealed. GARCIA. PREMISES CONSIDERED. Kaisahan ng mga Manggagawa sa La Campana. Inc.. Ramirez Telephone Corporation.ADOLFO B. which is a matter for the Court of Appeals. the latest of which is Albert v. 496. Oct. 8 In that resolution. this alleged error likewise is not meritorious. 160. Madrigal Shipping Co. it relies on the general principle "that the corporate entity will not be disregarded no matter how large the holding a particular stockholder may have in the corporation. not for us. University Publishing Co. Ltd. Ogilvie.. Herbosa. McConnel vs. Fely Transportation Co. Ruben R. i. L-14606. Yatco. USIPHIL. vs. Palacio vs. 376. Inc.. L-15121. No. Collector of Internal Revenue. Court of First Instance 7 reaffirming a 1965 resolution in Albert v. 634. G. we have in many a case pierced the veil of corporate fiction to administer the ends of justice. the judgment of the Court of Appeals of February 27. 1961. 44 Phil. 1992 SIBAGAT TIMBER CORPORATION. likewise. Since. Inc. INC. The second alleged error would find fault with the decision because the Court of Appeals allegedly did not take into account a significant fact.R. the decision of the Court of Appeals is in accordance with law on the facts as found. INC.. assigning the following alleged errors: 4 I The Court of Appeals erred in not applying the settled legal principle that a corporation has a personality separate and distinct from that of its stockholders and. Hence...). The last assigned error would in effect seek a restatement of the damages awarded petitioner on the theory that the Court of Appeals decided the matter erroneously. vs. plaintiff in the lower court. We are not called upon to consider this particular assignment of error as it is essentially factual. Marvel Building Corporation vs.. the funds of a corporation cannot be reached to satisfy the debt of its stockholders. that only one lawyer represented both the respondent Bank of America and respondent E." 5 Petitioner would thus maintain that the personality as an entity separate and distinct from its major stockholders.e. Ramirez and his wife. therefore. 94 Phil. 1964 is affirmed. 1962. April 28. Herbosa. David. is that its funds as a corporation cannot be garnished to satisfy the debts of a principal stockholder. L-9687. this is such a case. the first assigned error cannot be sustained. was not to be disregarded even if they did own 75% of the stock of the corporation. Inc. 6 The conclusion that would thus emerge. as we made clear in the foregoing.S. III The Court of Appeals erred in not granting petitioner damages as awarded by the lower court. the veil of corporate fiction may be pierced. vs.. August 31.. Koppel (Phil. This assignment of error has no merit. 93 Phil. now petitioner. and STRONGHOLD INSURANCE CO. in petitioner's opinion. 30. Inc. the following cases were cited: Arnold vs.The aforestated facts notwithstanding. 1961.A. S. Liddel & Co. II The Court of Appeals erred in not taking into account the significant fact that when the events that gave rise to this case took place. 98185 December 11.

. yet. 1988. 20799 entitled. that he is the office manager of Sibagat Timber Corporation (p. the court employees who were deputized to serve the restraining order arrived at the place where the auction sale was to be held.M. 1988. which he scheduled for sale at public auction on September 7. Policarpio C. 1988. INC. vs. RTC. Case No. . HA-90071 1720-1 and Panel Switch Board. which he scheduled for sale at public auction on September 8. at 11:10 A. Garcia. who was entrusted with the implementation of the writ of execution issued by the Regional Trial Court. 1990. 1988 by the Executive Judge of that court. and that a certificate of sale for each of the personal properties to be auctioned on that day had already been issued to USIPHIL. One (1) Unit Generating Set with Cummins Engine No. Adolfo B. prohibition and injunction with restraining order and writ of preliminary injunction and damages (Spl. the Court of Appeals dismissed the appeal. President and General Manager. Prohibition and Injunction with Restraining Order & Writ of Preliminary Injunction and Damages" in Special Civil Case No. 60 Cycles. a petition for "Certiorari. Rule 39 of the Rules of Court. Pursuant to Section 17. One (1) Generating Set with CAT D-311 Series H No. 1074304 Model V-855QC and Generator 125 KVA No. the petitioner herein. w/ Radiator and X-2 Triple Drum Model 142 Yarder and blade. through Mariano Rana. Engine Block CAT D-4600." levied on the following personal properties of Del Rosario & Sons. Branch I. 1991 in CA-G. id. herein petitioner Sibagat Corporation. 548. 20799). 7180 entitled. Petitioner's motion for reconsideration was denied by the Court of Appeals. On August 30.. 1990. 50. 1988 at 10:00 o'clock in the morning. that he is the administrative manager of Del Rosario and Sons Logging Enterprises. 58. Del Rosario & Sons Logging Enterprises.M. On the same date (August 30. 1988) that levy was made by the sheriff.: One (1) Unit CAT Grader with SN 99E-5016. Record). this petition for review under Rule 45 of the Rules of Court. and One (1) Unit White Logging (5) tonner not in running condition.M. respondent USIPHIL. Garcia.R. petitioner filed in the Regional Trial Court of Butuan City. Inc.. 548.. No. the judgment creditor. Mariano Rana. in a concurrent capacity (p. 1991. INC. On September 7. at 2:00 P. Makati. No. On September 6. As pointed out by the Court of Appeals in its decision: Gleaned from the records of this case. the parties were directed to submit simultaneous memoranda. among others. "Sibagat Timber Corp. On March 9. "USIPHIL. Branch 147. an indemnity bond was posted by the judgment creditor. However. Inc. the third-party claimant for and in behalf of petitioner testified. One (1) TD-25B w/ Hyster D988. In the meantime. Metro Manila in Civil Case No. 30KVA One (1) pc. 51B4241 w/ Generator No. Inc.R. Del Rosario. is not a separate and distinct entity from the judgment debtor.. Triple Drum Model BY B14 SN-9PI55E One (1) TD-25A w/ No. filed a formal motion to dismiss the petition which the trial court granted on February 28. Inc. A temporary restraining order was issued on September 6. He also levied on: One (1) Unit Reo Logging Truck (5) tonner not in running condition. et al. vs. 1988. Inc. INC. Hence. Engine Number. Thereafter the case was deemed submitted for resolution. The main issue raised by the petitioner is the supposed error of the Court of Appeals in piercing the veil of corporate entity and in holding that the third-party claimant. as the only bidder and purchaser.. that the officers of the Sibagat Timber Corporation are: Mr.This is a petition for review on certiorari of the decision of the Court of Appeals dated February 15." affirming the decision of the Regional Trail Court which dismissed the petitioner's petition for certiorari.. filed a third-party claim alleging that it is the lawful owner of the levied machinery and equipment. to indemnify the respondent sheriff against the claim of the third-party claimant. ). After the hearing on the application for preliminary injunction was held on September 15. Butuan City). respondent Sheriff Adolfo B. On February 15. Del Rosario and Sons Logging Enterprises. they were told by sheriff Garcia that the auction sale was finished at 10:30 A. by virtue of deeds of sale executed in its favor by Del Rosario & Sons Logging Enterprises. 1988. the petitioner appealed the order of dismissal to the Court of Appeals (CA G. Inc. USIPHIL. 30TH 211 1800 RPM.

petitioner is just a conduit. Cecilio M. The petitioner further contends that the Court of Appeals erroneously disregarded the decision of this Court in G. Jasmin A. to shield them (Villanueva vs. the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED. disregard the legal fiction that two corporations are distinct entities.R. (Aguedo F. 181 SCRA 669). or business conduit of a person or where the corporation is so organized and controlled and its affairs are so conducted. and (3) the Del Rosarios assumed management and control of Sibagat and have been acting for and managing its business (p. No. 84497 entitled. not the ownership of the properties subject of the execution. Inc. Inc. CA. G. Veterans Investment Development Corp. and the Directors are: Policarpio Del Rosario. That allegation has no merit. p. No.Miss Conchita C. where it appears that two business enterprises are owned. Cel Rosario (pp.. 3. (2) the officers and directors of both corporations are practically the same.. and Cristeta Del Rosario. 115849 January 24. Policarpio C. Inc. This may not be in a petition for review under Rule 45 for it is not the function of this Court to examine and weigh evidence already considered in the proceedings below.. 204 SCRA 850). Jr." It was a procedural question.). that circumstance will not be a legal obstacle to the piercing of the corporate fiction. CA. and treat them as identical (Phil. 1996 FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO RIVERA. CA. agency. . Inc. 84497 held that petitioner is the owner of the properties levied under execution. Del Rosario. Vol. Our jurisdiction is limited to reviewing only errors of law that may have been committed by the lower courts (Navarra vs. The corporate entity is disregarded where a corporation is the mere alter ego. The Hon.. conduit or adjunct of another corporation. Cel Rosario. Adre. 29. Agbayani Commercial Laws of the Philippines. The theory of corporate entity was not meant to promote unfair objectives or otherwise. as to make it merely an instrumentality. the officers of the company are: Mr. Vice-President and General Manager (p.). Petitioner vs. if not an adjunct of Del Rosario & Sons Logging Enterprises. The issue of ownership being raised now by the petitioner involves a factual question requiring an assessment of the evidence. Rollo. conducted. hold office in the same building. vs. Rollo). Inc. As found by both the trial and appellate courts.) WHEREFORE. No. Court of Appeals. Mrs. In such a case. Del Rosario. id. (p. bolster the conclusion that petitioner is an alter ego of the Del Rosario & Sons Logging Enterprises. the real ownership becomes unimportant and may be disregard for the two entities may/can be treated as only one agency or instrumentality. Mrs. Vice-President/General Manager/Director and Treasurer. Jr. respectively. citing decided cases. Jasmin Del Rosario. Likewise. The issue raised in that case was "whether or not an action for prohibition will prosper as a remedy for acts already accomplished. Inc. and Vicente C.R. 30. vs. 30. Meris and Cuison Engineering and Machinery Co. 198 SCRA 211). 172 SCRA 876).) The circumstances that: (1) petitioner and Del Rosario & Sons Logging Enterprises. 61-63.. On the part of Del Rosario and Sons Logging Enterprises. President." wherein this Court held that private respondents (herein petitioner) are the actual owners of the properties subject of execution by virtue of a sale in their favor by Del Rosario & Sons Logging Enterprises.R.. Miss Conchita Del Rosario. The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues (Jacinto vs. 1984 Ed. petitioners. Querubin Del Rosario. and controlled by the same parties. Assuming arguendo that this Court in G. when necessary to protect the rights of third persons. both law and equity will. Cristina Del Rosario. "Alfonso Escovilla. Id. Respondents. Sibagat Timber Corporation and Conchita del Rosario. 60.

jointly and severally. and to immediately deliver to the plaintiffs the owner's copies of T. to set aside the Decision promulgated January 14. Laguna? Does the doctrine of "apparent authority" apply in this case? If so. between the plaintiffs as buyers and the defendant Producers Bank for an agreed price of Five and One Half Million (P5. T-106932 to T106937. 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof to P75. petitioner Bank. Ordering the defendants. in substitution of DEMETRIO DEMETRIA.500. 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. upon finality of this decision and receipt from the plaintiffs the amount of P5.000.5 Million. After carefully deliberating on the aforesaid submissions. Sta. for brevity) is a banking institution organized and existing under the laws of the Republic of the Philippines.C. The Parties Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines.106937.00 for and by way of attorney's fees. Head-Manager of the Property Management Department of the petitioner Bank. Rosa. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at Don Jose. to legally refer to the plaintiff-appellee Carlos C.T. for brevity) is of legal age and is the assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo. Laguna with an area of 101 hectares. 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. Costs against appellant bank. T-106932 to T. respondents. Rosa. actual and moderate damages in the amount of P20.R CV No. at all times material to this case.COURT OF APPEALS. the decision of the lower court is MODIFIED by the elimination of the damages awarded under paragraphs 3.00 each in moral damages. the Court assigned the case to the undersigned ponente for the writing of this Decision. judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows: 1. Ordering the defendants to pay the plaintiffs. for brevity) is of legal age and was. CARLOS EJERCITO. With costs against the defendants. 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. inclusive. Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through this petition. All references to the original plaintiffs in the decision and its dispositive portion are deemed. Thence. After the parties filed their comment. The First Division transferred this case to the Third Division per resolution dated October 23. 1995. 2. In all other aspects. jointly and severally. the petition was given due course in a Resolution dated January 18.000. inclusive.00) Pesos.000. Janolo and Demetrio Demetria the sums of P200. sur-rejoinder and reply to sur-rejoinder. 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. to pay plaintiffs the sum of P100. to be assessed against defendant bank.000. said decision is hereby AFFIRMED. 1994 of the respondent Court of Appeals 1 in CA-G. Nos. 1994 denying the motion for reconsideration.00 as exemplary damages . to pay the plaintiffs the amount of P400. Ordering the defendants. 1991. 3. 4. to execute in favor of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels of land. premises considered. The Facts The facts of this case are summarized in the respondent Court's Decision 3 as follows: .000. rejoinder. 1995. for purposes of registration of the same deed and transfer of the six (6) titles in the names of the plaintiffs. is as follows: WHEREFORE. The dispositive portion of the trial court's2 decision dated July 10.000. Petitioner Mercurio Rivera (petitioner Rivera. the parties filed their respective memoranda and reply memoranda. The dispositive portion of the said Decision reads: WHEREFORE. Ordering defendant Producers Bank of the Philippines. to pay plaintiffs Jose A. In the absence of a formal deed of sale. jointly and severally. herein and hereafter. reply.00. 35756 and the Resolution promulgated June 14. on the other hand. jointly and severally.00. 5. of the Land Records of Laguna. more or less. Respondent Carlos Ejercito (respondent Ejercito. 6. Ordering the defendants. covered by and embraced in Transfer Certificates of Title Nos. and JOSE JANOLO. Ejercito.

16. Gentleman: I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder located at Sta. 1987 (Exh. Rose. 1987 JP M-P GUTIERREZ ENTERPRISES 142 Charisma St.768 sq. wanted to purchase the property and thus initiated negotiations for that purpose. Doña Andres II Rosario. The meeting was held pursuant to plaintiffs' plan to buy the property (TSN of Jan. 1987. m. and covered by Transfer Certificates of Title Nos. Metro Manila Attn. 1987 The Producers Bank of the Philippines Makati. plaintiff Janolo. in cash. (4) On September 17. 1990. Metro Manila Attention: Mr. following the advice of defendant Rivera. "C"): September 1. T-106932 to T-106937.. (3) On September 1. Rosa. Mercurio Q. JANOLO Dear Sir: Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. 1987.500. m. as follows: August 30.580 sq. plaintiff Janolo. Mr. made a formal purchase offer to the bank through a letter dated August 30. After the meeting. The property used to be owned by BYME Investment and Development Corporation which had them mortgaged with the bank as collateral for a loan. Demetrio Demetria and Jose O. 96. responding to Rivera's aforequoted reply.114 sq. "D"): September 17. 1987 Producers Bank Paseo de Roxas Makati. We shall be very glad to hear your position on the on the matter. My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3.246 sq.). upon the suggestion of BYME investment's legal counsel. defendant Rivera made on behalf of the bank a formal reply by letter which is hereunder quoted (Exh. Property Management Dept. Laguna. met with defendant Mercurio Rivera. Manager of the Property Management Department of the defendant bank. Laguna. Jose Fajardo. Sta.(1) In the course of its banking operations. (2) In the early part of August 1987 said plaintiffs. m. 70. 481. 7-10). The original plaintiffs. pp. m. Rivera Manager.00) PESOS. Metro Manila Attention: JOSE O. Laguna (formerly owned by Byme Industrial Corp. Kindly contact me at Telephone Number 921-1344. 52.000. the defendant Producer Bank of the Philippines acquired six parcels of land with a total area of 101 hectares located at Don Jose. m. m. Pasig. Mercurio Rivera . TCT NO. Rosa. Best regards.481 sq. 187.5 million for more than 101 hectares on lot basis. "B"). with a total area of 101 hectares. Janolo. T-106932 T-106933 T-106934 T-106935 T-106936 T-106937 AREA 113. more or less. wrote (Exh.899 sq. Please be informed however that the bank's counter-offer is at P5.

250 million in CASH." Thus: Mr. We are ready to remit the agreed amount of P5. Encarnacion.500. Two days later. "H" and "H-1"). Laguna. defendant Rivera wrote plaintiff Demetria the following letter (Exh. I would like to amend my previous offer and I now propose to buy the said lot at P4. 1987 and was received by you on October 5. Plaintiffs demanded the execution by the bank of the documents on what was considered as a "perfected agreement. 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. Demetrio Demetria Dear Sir: Your proposal to buy the properties the bank foreclosed from Byme investment Corp. Laguna Gentlemen: Pursuant to our discussion last 28 September 1987.Gentlemen: In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Producers Bank Paseo de Roxas. Laguna. 1987. Makati Metro Manila Attention: Mr. What took place was a meeting on September 28. In view of the above circumstances. 1987. Makati Metro Manila Dear Mr. Rivera as well as Fajardo. we are making this formal demand upon you to consummate and execute the necessary actions/documentation within three (3) days from your receipt hereof. "F"): Attention: Atty. 1987. and which are covered by TCT No. 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. to purchase your 101-hectare lot located in Sta. the following letter (Exh. we are pleased to inform you that we are accepting your offer for us to purchase the property at Sta. 1987. "E"): The Producers Bank of the Philippines Paseo de Roxas. Rosa. formerly owned by Byme Investment. Thank you. Mr. Mercurio Rivera Manager. (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. Janolo.. In behalf of our client. you now refuse to honor your commitment. Rosa. Rivera: This is in connection with the offer of our client.00). 1987 of this same lot in the amount of P5. On November 4. for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5. Mercurio Rivera Re: 101 Hectares of Land in Sta. it appears that your counter-offer dated September 1.5 million was accepted by our client thru a letter dated September 30. Otherwise. therefore. plaintiff Janolo sent to the bank. we believe that an agreement has been perfected.5 million "pursuant to (our) perfected sale agreement. you have advertised for sale the same lot to others. (6) On October 12.000. we shall be constrained to file the necessary court action to protect the interest of our client. (5) There was no reply to Janolo's foregoing letter of September 17. . Rosa. Rosa. 1987 between the plaintiffs and Luis Co." Defendants refused to receive both the payment and the letter. plaintiffs through a letter to defendant Rivera (Exhibit "G") tendered payment of the amount of P5. Laguna.5 million at your advice. or on September 30. Instead. on November 17. 1987. As detailed by the trial court in its decision. From the documents at hand. attended the meeting. the parcels of land involved in the transaction were advertised by the bank for sale to any interested buyer (Exh. which demands were in one form or another refused by the bank. Hoping that this proposal meets your satisfaction. Instead. located at Sta. the Senior Vice-President of defendant bank. For your information. Jose O. the BYME lawyer. Rosa. We were also informed that despite repeated follow-up to consummate the purchase. T-106932 to 106937. 1987. through Rivera.

Makati. The defendants took the position that there was no such perfected sale because the defendant Rivera is not authorized to sell the property. Henry L." 5 Private respondent. On the other hand. (10) On May 16. 1988 (Annex "4" of defendant's answer to amended complaint). in view of the assignment of the latters' rights in the matter in litigation to said private respondent. among others. to the office of our Conservator for proper disposition" However. 106935. 92-1606. filed an action (hereafter. The findings and conclusions of the Court of Appeals do not conform to the evidence on record. During the pre-trial conference in the Second Case. 258387 in the amount of P5. through defendant Rivera. in its communication of December 2. Henry Co did not appeal the denial of his motion for intervention. petitioners prayed for dismissal of the instant suit on the ground 8 that: I. in . In their Petition6 and Memorandum7. The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke acts of previous management. Co (the brother of Luis Co). In the course of the proceedings in the respondent Court. Henry Co and several other stockholders of the Bank. Mr. with prejudice.5 Million are unauthorized or illegal. 1992. As recounted by the trial court (Original Record. p. plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice.: Atty. . no response came from the Acting Conservator. during the pendency of the proceedings in the Court of Appeals. averred that this motion is still pending in the Makati RTC. On March 14. On July 11. against Encarnacion. acknowledged receipt of the foregoing letter and stated. JANOLO. on May 3. the Bank. alleging that as owner of 80% of the Bank's outstanding shares of stock. III. "I"). 1991. petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals which subsequently affirmed with modification the said judgment.behalf of our client.5 million as our agreed purchase price of the 101-hectare lot covered by TCT Nos. "L" and "L-1"). II. 1991. 1988. On that basis. the trial court issued an order denying the motion to intervene on the ground that it was filed after trial had already been concluded. 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. that plaintiff's act of forum shopping justifies the dismissal of both cases. 1987 (Exh. . 106936 and 106937 and registered under Producers Bank.5 Million as the purchase price of the said lots. its Manager Rivers and Acting Conservator Encarnacion. 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. Kindly acknowledge receipt of our payment. Then. JOSE O. On December 14. 1987. plaintiffs filed a suit for specific performance with damages against the bank. this time through the Acting Conservator. The basis of the suit was that the transaction had with the bank resulted in a perfected contract of sale. 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. that said letter has been "referred . It also denied a motion for reconsideration filed thereafter. defendant Encarnacion. through counsel. 106932. and that there was no meeting of the minds as to the price. MBTC Check No. . plaintiff. 1988. Metro Manila Attn. (9) The foregoing letter drew no response for more than four months. Carlos Ejercito was substituted in place of Demetria and Janolo. 106934. 656). Plaintiffs' letter reads: PRODUCERS BANK OF THE PHILIPPINES Paseo de Roxas.We trust that you will be guided accordingly. the plaintiffs made a second tender of payment (Exh. On July 8. Please inform us of the date of documentation of the sale immediately. docketed as Civil Case No. NIDA ENCARNACION Central Bank Conservator We are sending you herewith. he had a substantial interest in resisting the complaint. IV. through counsel Angara Abello Concepcion Regala and Cruz. through counsel Sycip Salazar Hernandez and Gatmaitan. Janolo argued that the Second Case was barred by litis pendentia by virtue of the case then pending in the Court of Appeals. 106933. the "Second Case") — purportedly a "derivative suit" — with the Regional Trial Court of Makati. The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties. in his memorandum. in a reply letter dated May 12. Branch 134. From the trial court's decision. the defendants through Acting Conservator Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with the plaintiffs. This is in connection with the perfected agreement consequent from your offer of P5. petitioners summarized their position as follows: I. filed a motion to intervene in the trial court. made a final demand for compliance by the bank with its obligations under the considered perfected contract of sale (Exhibit "N"). (8) Defendant bank. "Private respondent opposed this motion on the ground. particularly his counter-offer of P5.

To be sure." 10 On the other hand. To combat these less than honorable excuses. has no authority to revoke the contract of sale." it "does not mean that it is one" and "(t)hat is a legal question for the courts to decide". 28-91 requiring that a party "must certify under oath . forum-shopping originated as a concept in private international law. A violation of the said circular entails sanctions that include the summary dismissal of the multiple petitions or complaints. or any other tribunal or agency. the Supreme Court promulgated Revised Circular No. where non-resident litigants are given the option to choose the forum or place wherein to bring their suit for various reasons or excuses. The Issues From the foregoing positions of the parties. petitioners explain 11 that there is no forum-shopping because: 1) In the earlier or "First Case" from which this proceeding arose. it was plaintiff. 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. . In fact. 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. the principle of forum non conveniens was developed whereby a court. (b) to the best of his knowledge. 92-1606 before the Regional Trial Court of Makati. to avoid overcrowded dockets. including to secure procedural advantages. respondent Ejercito) and the bank. . 4) Petitioners did not hide the Second Case at they mentioned it in the said VERIFICATION/CERTIFICATION. rights asserted and reliefs sought (as that) currently pending before the Regional Trial Court. 9 Private respondent Ejercito vigorously argues that in spite of this verification. apart from being estopped from repudiating the agency and the contract. 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. 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. We rule for private respondent.Petitioners have engaged in forum shopping. [that] (a) he has not (t)heretofore commenced any other action or proceeding involving the same issues in the Supreme Court. in conflicts of law cases. The Court of Appeals has correctly held that the conservator. Makati Branch 134 in the Second Case. to annoy and harass the defendant. 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. or to select a more friendly venue. 12. The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo (substituted by. 2) "The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances". . IV. petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating "for the record(. II.) the pendency of Civil Case No. the issues in the two cases are so interwined that a judgement or resolution in either case will constitute res judicata in the other. the Court of Appeals. III. Branch 134. petitioners are guilty of actual forum shopping because the instant petition pending before this Court involves "identical parties or interests represented. whereas in the "Second Case" (assuming the Bank is the real party in interest in a derivative suit). To begin with. no such action or proceeding is pending" in said courts or agencies. 3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the Petition identifies the action as a "derivative suit. the Bank was impleaded as a defendant.

1983 and had struck down in several cases 16 the inveterate use of this insidious malpractice. Black's 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. according to Words and Phrases14. are given a choice of pursuing civil liabilities independently of the criminal. Applying the foregoing principles in the case before us and comparing it with the Second Case. 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. Narvasa (now Chief Justice) in Minister of Natural Resources. the litigant actually shops for a forum of his action. This was the original concept of the term forum shopping. 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. and for imposition of the other sanctions. And this necessitated or had given rise to the formulation of rules and canons discouraging or altogether prohibiting the practice. identity of rights or causes and identity of reliefs sought. That same identity puts into operation the sanction of twin dismissals just mentioned. as a result of an adverse opinion in one forum. In the Philippines. Lopez 19. through the encouragement of their lawyers. where the court in which the second suit was brought. also by Chief Justice Narvasa. to a degree sufficient to give rise to the ground for dismissal known as auter action pendant or lis pendens. amount to res adjudicata in the action under consideration: all the requisites. in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and a favorable court ruling. will. culpa aquiliana or culpa criminal — each remedy being available independently of the others — although he cannot recover more than once. but also to a choice of remedies. 1986. a party seeks a favorable opinion (other than by appeal or certiorari) in another. as in this case. 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 mis-used to assure scheming litigants of dubious reliefs." 17 when does forum shopping take place? There is forum-shopping whenever. forum shopping has acquired a connotation encompassing not only a choice of venues. Sec.18 The test for determining whether a party violated the rule against forum shopping has been laid dawn in the 1986 case of Buan vs. Consequently. Eventually. for example. . vs. criminal prosecution. there is between the action at bar and RTC Case No. "as a reprehensible manipulation of court processes and proceedings . as in this case. . file their actions in all available courts. of auter action pendant. In either of these situations (choice of venue or choice of remedy). arising from the same set of facts. Thus. Very simply stated. as it was originally understood in conflicts of laws. Heirs of Orval Hughes. as already mentioned. 86-36563. "a litigant is open to the charge of "forum shopping" whenever he chooses a forum with slight connection to factual circumstances surrounding his suit. This practice had not only resulted to (sic) conflicting adjudications among different courts and consequent confusion enimical (sic) to an orderly administration of justice.. has no jurisdiction. instead of actually making a choice of the forum of their actions.In this light. the Supreme Court. Forum shopping as "the filing of repetitious suits in different courts" has been condemned by Justice Andres R. To avoid or minimize this unethical practice of subverting justice. "forum shopping" had acquired a different concept — which is unethical professional legal practice. In either case. 2 [b]). 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. A passenger of a public utility vehicle involved in a vehicular accident may sue on culpa contractual. it is obvious that there exist identity of parties or interests represented. an identity as regards parties. which are direct contempt of court. the defense of litis pendencia in one case is bar to the others. at the election of the plaintiff" (Rule 4.. the Court had prescribed it in the Interim Rules and Guidelines issued on January 11. 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 . or where the plaintiff or any of the plaintiffs resides. As to remedies. and disciplinary action against the erring lawyer. and the identity on the two preceding particulars is such that any judgment rendered in the other action. and. aggrieved parties. for example. rights asserted and relief sought. allow a plaintiff to commence personal actions "where the defendant or any of the defendants resides or may be found. a final judgment in one would constitute res judicata and thus would cause the dismissal of the rest. et al. the Rules of Court. the relief being founded on the same facts. 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. regardless of which party is successful. et al. As already observed. And even before that. as well as identity of rights asserted and relief prayed for. or at least such parties as represent the same interests in both actions. This is specially so. 86-36563 identity of parties. and that is. 86-36563 promulgated on July 15. and litigants should be encouraged to attempt to settle their differences without imposing undue expenses and vexatious situations on the courts". however. litigants. It had created extreme inconvenience to some of the parties to the action. as well as basis thereof. in fine. which dismissed the petition upon grounds which appear persuasive. 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." Hence. or interests represented. or invoke all relevant remedies simultaneously. promulgated Circular 28-91. As to the first (choice of venues).

To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping. dismissible. 22. approval of the sale of vessel in favor of petitioner and to overturn the letter-directive of the COA of October 10. In the instant case before us. the majority stockholders. for they have no direct personal interest in the matter in controversy. 1986. reasoning that it was brought. too. then they really represent the Bank. quite strangely. et al. we now add the instant case. hold or control over 80% of the outstanding capital stock. so as to include the PCGG as defendant and seek nullification of the acts sought to be enjoined but nonetheless done. Makati. with the corporation as the real party in interest. 1988 disapproving the sale. emphasis supplied). et al.. 27 where Court held: . 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. whenever the officials of the corporation refuse to sue. 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. Finally. the objective or the relief being sought. the validity of the contract to purchase and sell of September 1. which is the petitioner herein. In an earlier case 23 but with the same logic and vigor. the circumvention of statutes. and petitioners' remedy in the premises was plain and patent: the filing of an amended and supplemental pleading in the RTC suit. In other words. the allegations of the complaint in the Second Case show that the stockholders are bringing a "derivative suit". or at least. Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is separate and distinct from its shareholders. 47 [1979]. in this Court as well as in the Court a quo. they represent the same interest and entity. It remained an effective vehicle for obtention of relief. petitioner Bank. they are not suing in their personal capacities. In such actions.e. Inc. there is undeniably an identity of interests/entity represented. and for an extension of time for it to comply with the paragraph 1 of the memorandum of agreement and damages. and the suit did not involve certain acts which transpired after its commencement. They are not principally or even subsidiarily liable. In the face of the damaging admissions taken from the complaint in the Second Case. So. vs. or are the ones to be sued or hold the control of the corporation. though worded differently. Both actions unquestionably involve the same transactions. and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. in the Second Case. petitioner Bank argued that there cannot be any forum shopping.. but with the same objective. "because it (the Bank) was the defendant in the (first) case while it was the plaintiff in the other (Second Case)". When the acts sought to be restrained took place anyway despite the issuance by the Trial Court of a temporary restraining order. 90 SCRA 40.real estate. The remedy was certainly not the institution of another action in another forum based on essentially the same facts. namely.) were the basic issues. much less are they direct parties in the assailed contract of sale. the same essential facts and circumstances. in representation of the Bank. obtaining the release of the pledged shares. On the other hand. vs. In the RTC action. the achievement or perfection of a monopoly or generally the perpetration of knavery or crime. the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. etc. is the same. as in the action before this Court. we held: In other words. Indeed. namely. Petitioner asks this Court to set aside the questioned letter-directive of the COA dated October 10. Although the plaintiffs in the Second Case (Henry L. The petitioners' claim of absence of identity simply because the PCGG had not been impleaded in the RTC suit. to enable the petitioner Bank to escape from the obligation to sell the property to respondent. who not only own.citing as authority Victronics Computers. the complaint 21 in the Second Case seeks to declare such purported sale involving the same real property "as unenforceable as against the Bank".) are not name parties in the First Case. 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 suing stockholder is regarded as a nominal party. 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 holdsstock in order to protect or vindicate corporate rights. Victoriano. as in this case. this Court ruled that the filing by a party of two apparently different actions. sought to deny that the Second Case was a derivative suit. are seeking to accomplish what the Bank itself failed to do in the original case in the trial court. causes of action and reliefs sought. 1988 and to direct said body to approve the Memorandum of Agreement entered into by and between the PNOC and petitioner. That being so. even assuming arguendo that there is identity of parties. because: Firstly. that is. (Gamboa v. One can see that although the relief prayed for in the two (2) actions are ostensibly different. and the propriety of implementing the same (by paying the pledgee banks the amount of their loans.. whether suing as the majority in direct actions or as the minority in a derivative suit. whether they sued "derivatively" or directly. petitioners claim to have brought suit "for and in behalf of the Producers Bank of the Philippines" 24. is a species of forum-shopping. So. i. petitioners. not by the minority shareholders. In brief. is specious." 25 In addition to the many cases 26 where the corporate fiction has been disregarded. In Danville Maritime. Commission on Audit. etc. the ultimate objective in both actions is the same. Shareholders. and Secondly. In the caption itself. but by Henry Co et al. whether or not it had been efficaciously rescinded. 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. cannot be allowed to trifle with court processes. Co.. Inc. 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". Branch 63. Regional Trial Court. there is also identity of parties. of interests represented. The adoption of this latter recourse renders the petitioners amenable to disciplinary action and both their actions. but also constitute the majority in the Board of Directors of petitioner Bank. particularly where. the RTC suit did not become functus oficio. constituted forum shopping: In the attempt to make the two actions appear to be different. (emphasis supplied). the relief was the same: the prevention of such implementation and/or the restoration of the status quo ante.

as causes of action. pp. as underscored in the above-quoted Court ruling. But he would refer it to the committee and he would relay the decision of the committee to me. petitioners themselves (and particularly Henry Co. bid price during the foreclosure. 1990. by praying for affirmative reliefs and interposing counter–claims in their responsive pleadings. Thus (TSN of July 30. replied that there is a difference in factual setting between Victronics and the present suit. the bank was looking for buyers of the property. And Rivera confirmed his authority when he talked with the plaintiff in August 1987. It is definite that the plaintiffs wanted to purchase the property and it was precisely for this purpose that they met with defendant Rivera. it could not have chosen the forum in said case. 91-2069 by no means negates the charge of forum-shopping as such did not exist in the first place. I was instructed to advertise acquired assets for sale so on that basis.1990. total claim of the bank. 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. as will be discussed shortly. Not point blank although it came from him. the agenda was the price of the property. the defendants did not file any responsive pleading in the first case. on the other hand. As testified to by the Bank's Deputy Conservator. a perfected contract of sale as the ultimate issue. 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. formal offer and upon having been offered. (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. they did not make any denial or raise any defense or counter-claim therein In the case before us however. thus the rudiments of due process prevent us from motu propio imposing disciplinary measures against them in this Decision. The plaintiffs. for reasons known only to him. Ultimately. Indeed. on the basis of the facts established. let it be emphasized that this petition should be dismissed not merely because of forum-shopping but also because of the substantive issues raised. In this case. In other words. The Second Issue: Was The Contract Perfected? The respondent Court correctly treated the question of whether or not there was. And when I asked him how long it will take for the committee to decide and he said the committee meets every week. I provide the Committee with necessary information about the property such as original loan of the borrower. Necessarily. to accept offer. The foregoing conclusion finding the existence of forum-shopping notwithstanding. pp. the only sanction possible now is the dismissal of both cases with prejudice. It is likewise beyond cavil that the bank intended to sell the property. and plaintiffs were dealing with the bank official authorized to entertain offers. I present it to the Committee. Velhagen's and King's motion to dismiss Civil Case No. In the former. Manager of the Property Management Department of the defendant bank. Indeed. a final decision in one would constitute res judicata in the other 28.) 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.The rule has not been extended to a defendant who. the petitioners became plaintiffs themselves in the original case. T-106932 to T-106937. et al. If I am not mistaken Wednesday and in about two week's ( sic) time. in the process creating the possibility of conflicting decisions being rendered by the different fora upon the same issue. Jose Entereso. it being inherent in his authority. commences a new action against the plaintiff — instead of filing a responsive pleading in the other case — setting forth therein. (emphasis supplied) Petitioner pointed out that since it was merely the defendant in the original case. did you ask him point-blank his authority to sell any property? A: No. as determined by the Committee and approved by the Conservator. we have to execute the deed of sale and it is the Conservator that sign the deed of sale. as the other sanctions cannot be imposed because petitioners' present counsel entered their appearance only during the proceedings in this Court. the issues were joined. special and affirmative defenses or even counterclaims. petitioners filed a responsive pleading to the complaint — as a result of which. dealt with and talked to the right person. Thus. 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. Rivera is the officer from whom official information regarding the price. Mercurio Rivera. can be had. The testimony of plaintiff Demetria is clear on this point (TSN of May 31. Holding that a valid contract has been established. 27-28): Q: When you went to the Producers Bank and talked with Mr. The Lawyers who filed the Second Case are not before us. giving unto themselves the very remedies they repeated in the Second Case. 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. sir. 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. I have to entertain offer. Necessarily. Respondent. 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. specific denials. too. in effect what he was saying he was not the one who was to decide. . which testimony was relied upon by both the bank and by Rivera in their appeal briefs. therefore. in early August 1987. at that meeting of August 1987 regarding their purpose of buying the property. However. sir. and the Petition's VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the Second Case to show good faith in observing Circular 28-91. 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 front enforcing or implementing the said sale. Having said that.

PNB v. p. there can be no other logical conclusion than that when. with Jose Entereso as one of the members. The object of the questioned contract consists of the six (6) parcels of land in Sta. as against any one who has in good faith dealt with the corporation through such agent. total claim of the bank. Laguna with an aggregate area of about 101 hectares. not reviewable. and considering further the discussion of price at the meeting of August resulting in a formal offer of P3. under the established facts. and any supposed counter-offer which Rivera (or Co) may have made is unauthorized. the plaintiffs made a formal offer by a letter dated August 20. let us review the question of Rivera's authority to act and petitioner's allegations that the P5. to do acts within the scope of an apparent authority.25 million revised offer of Janolo. Court of Appeals. Here. this is not credible. "Parenthetically. 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. claim that the offer of the plaintiff was never discussed by the Committee. p. as members of the Past Due Committee of the bank. Rosa. as it now does.5 Million price was not discussed by the Committee and that price. or any other agent. he estopped from denying his authority (Francisco v. as well as before this Court. that the price will be submitted for approval by the bank and that the bank's decision will be relayed to plaintiffs. 417). A — He did not say that he had the authority (. 7 SCRA 577. where it was held that: Conformably. 2. The agent's apparent representation yields to the principal's true representation and the contract is considered as entered into between the principal and the third person (citing National Food Authority vs. more or less. It is a familiar doctrine." 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. as in this case. There were averments by defendants below. as clearly worded in Rivera's letter (Exh. the official bank price. From the facts. As correctly characterized by the trial court. and covered by Transfer Certificates of Title Nos. however. 583-584. and in addition to the foregoing disquisitions by the Court of Appeals. In the same vein.5 million. 1993). the Conservator and ultimately the bank itself with the set price on the other. 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 scape of their authority (9 C. Since there was no counter-offer by the Bank. T-106932 to T-106937. . there are questions of law which could be drawn from the factual findings of the respondent Court." 30 They disputed the factual basis of the respondent Court's findings that there was an offer made by Janolo for P3. June 14. that what Rivera states as the bank's action on the matter is not in fact so. 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. No.S. 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. 114). What transpired after the meeting of early August 1987 are consistent with the authority and the duties of Rivera and the bank's internal procedure in the matter of the sale of bank's assets. Petitioners allege that "there is no counter-offer made by the Bank. a dispute on the first and third requisites. The doctrine of "apparent authority". and the bank Committee. 1987 stating that they would buy at the price of P3. we have declared in countless decisions that the principal is liable for obligations contracted by the agent.J. Rivera.5 Million in cash. in a position of authority to accept offers to buy and negotiate the sale by having the offer officially acted upon by the bank. and market value.5 million. the bank placed its official. The letter was for the attention of Mercurio Rivera who was tasked to convey and accept such offers. 184 SCRA 166).5 Million for more than 101 hectares on lot basis. 94 SCRA 357. errors of fact — if there be any .5 Million was. such findings merit serious consideration by this Court. There is. The authority of a corporate officer in dealing with third persons may be actual or apparent. having been made to understand by Rivera. in a petition under Rule 45 such as this. to which the Bank counter-offered P5. At any rate. 369-370. The bank cannot turn around and later say.R. said courts carefully and meticulously discussed their findings. and thus holds him out to the public as possessing power to do those acts. the price of P5. Tersely put. "E"). Prudential Bank v. 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.are. both Co and Entereso openly admit that they seldom attend the meetings of the Committee. Be that as it may. They also delve into the contractual elements of consent and cause. that the P5. the Committee referred to was the Past Due Committee of which Luis Co was the Head. 29 Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: "(1) Consent of the contracting parties. Court of Appeals. Court of Appeals31. 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. Intermediate Appellate Court." There is no dispute on requisite no. As advised by Rivera. We have perused the evidence but cannot find fault with the said Court's findings of fact.5 million counter-offer was extinguished by the P4. 103957. 1987. the bank's submission on this point does not inspire belief. 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. as a rule. (3) Cause of the obligation which is established..) 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. on September 1. Accordingly. the doctrine of ostensible authority. the official and definitive price at which the bank was selling the property. GSIS. there was nothing for Ejercito (in substitution of Demetria and Janolo) to accept. 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. bid price during foreclosure. with special reference to banks.Q — Please answer the question. This is basic. the corporation will. was laid out in Prudential Bank vs. Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5. that if a corporation knowingly permits one of its officers. Verily. G. particularly where. In fact. Both Co ad Entereso. (2) Object certain which is the subject matter of the contract. the official in charge of the negotiation.5 Million in cash.

the existence of which is borne out by the respondent Court's findings. Court of Appeals. 21. through Justice Jose A. 8-9). are inherently weak as they consist of Rivera's selfserving testimony and various inter-office memoranda that purport to show his limited actual authority. Susana Parker) acted in said criminal cases. p. the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person. al. they should be charged with actual knowledge of Rivera's limited authority. Prieto 37. p. 52 ND 752. 1987. pp. Exhs. 1994. 1987 containing the buyers' proposal to buy the property for P4. on the other hand. Petitioners also alleged that Demetria's and Janolo's P4. However. In the very recent case of Limketkai Sons Milling. 204 NW 818. and we find no basis for changing this finding of fact. 12). But the Court of Appeals in its Decision (p. 1990. million. 1987)". p. Art. confirmed that the P5.5. April 26. (h) In its newspaper advertisements and announcements. of which private respondent cannot be charged with knowledge. In fact.5 million 34 . 1990. 1990.I. TSN.5 million (TSN. p.5 million (TSN. the latter suggested that the buyers' offer should be no less than P3. By his own admission. 1990. 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. II-i (p. the land was definitely being sold by the Bank. Co." 38 However.3 million (TSN.5 million was the final price of the Bank (TSN. January 16.11). April 26. To be sure. respondent has proven that Demetria and Janolo merely associated with a loose aggrupation of lawyers (not a professional partnership). April 26. it is obvious that petitioner Rivera has apparent or implied authority to act for the Bank in the matter of selling its acquired assets. Note that the said letter of September 30. the above-cited authorities and precedents cannot apply in the instant case because. "S" and "S-1"). for his own ultimate benefit (McIntosh v. Luis Co and Rivera "confirmed that the P5. 1987 meeting "was meant to have the offerors improve on their position of P5. 1319 of the Civil Code 36 and related Supreme Court rulings starting with Beaumont vs. 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. These pieces of evidence. 1987 begins with"(p)ursuant to our discussion last 28 September 1987 . both the trial court and the Court of Appeals found petitioners' testimonial evidence "not credible". (d) Rivera signed the letter dated September 1. August 6.5 million (TSN. . 16-17). pp. Dakota Trust Co. January 16. in charge of acquired assets is borne out by similar circumstances surrounding his dealings with buyers. Manager of the Property Management Department of the Bank". petitioners attempted to repudiate Rivera's apparent authority through documents and testimony which seek to establish Rivera's actual authority. however. This evidence includes the following: (a) The petition itself in par. 18). 12) had already made a factual finding that the buyers had no notice of Rivera's actual authority prior to the sale. 1987 offering to sell the property for P5. 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. et. Jose Fajardo by Rivera and Co during their meeting on September 28. a major shareholder and officer of the Bank.. Rivera was the officer mentioned in the Bank's advertisements offering for sale the property in question ( cf. Inc.5 million as confirmed and reiterated to Demetria and Atty. 1990. the Bank has not shown that they acted as its counsel in respect to any acquired assets. 1987 offering P3. 1990. Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the September 28. July 30.in the particular case. 1990. citing the late Justice Paras35. 35). p. affirmed the doctrine of apparent authority as it held that the apparent authority of the officer of the Bank of P. 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. And during the initial meeting between the buyers and Rivera. . 40 ALR 1021). what was "accepted" by Janolo in his letter dated September 30. the evidence of actual authority is immaterial insofar as the liability of a corporation is concerned 33. (e) Rivera received the letter dated September 17. (g) Rivera arranged the meeting between the buyers and Luis Co on September 28. R. 34-35). vs. since the issue is apparent authority.32. Indeed. At said meeting. one of whose members (Atty. July 30. confirmed Rivera's statement as to the finality of the Bank's counter-offer of P5. 1987 extinguished the Bank's offer of P5. 1987) "accepted" Rivera's counter offer of P5. (f) Rivera. 3) states that Rivera was "at all times material to this case. during which the Bank's offer of P5. the Court.They disputed the respondent Court's finding that "there was a meeting of minds when on 30 September 1987 Demetria and Janolo through Annex "L" (letter dated September 30.5 million under Annex "J" (letter dated September 17. 11). p. In fact. 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. 1987 was the Bank's offer of P5.5 million price has been passed upon by the Committee and could no longer be lowered (TSN of April 27. as found by the respondent Court which reviewed the testimonies on this point. In any event. . From the evidence found by respondent Court. 1987. (c) Rivera received the buyers' letter dated August 30.5 million was confirmed by Rivera (TSN. Rivera was already the person in charge of the Bank's acquired assets (TSN. pp. (b) As observed by respondent Court.25 million (TSN. in a telephone conversation. Melo. 30 July 1990.25 million counter-offer in the letter dated September 17.

assuming arguendo that the counter-offer of P4. 1987. Indeed. IAC. as they cannot be raised for the first time on appeal (Santos vs. The respondent Court could have added that the written communications commenced not only from September 1. the respondent Court in its Decision (p. the price and a description of the property as the object of the contract. are ratified by the failure to object to the presentation of oral evidence to prove the same. . the contract produced thereby would be unenforceable by action — there being no note. November 14. Taken together.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. 1990). such contract being binding in whatever form it may have been entered into (case citations omitted). August 30. 1987. referred to in No.) Upon the other hand. if only to avoid deciding the case on purely procedural grounds. through Conservator Encarnacion. 1987. 145 SCRA 592). We agree that. constitute in law a sufficient memorandum of a perfected contract of sale.5 million price during the September 28. 1987 was carried through during the meeting of September 28. 2 of article 1403. Ramos vs.R. . Luis Co's reiteration of the said P5. . what transpired during this meeting with Luis Co of the Producers Bank? A Atty. And by virtue of the September 30. taken together with plaintiffs' letter dated September 30. the terms and conditions of the contract. Demetria asked Mr. 1987 letter. Of course. memorandum or writing subscribed by the Bank to evidence such contract. and we repeat that. the banks' letter of September 1. CA. 1987 on the official price and the plaintiffs' acceptance of the price on September 30. But we passed upon the issue anyway. 1987. and ordinarily will not be. particularly the latter's counter-offer of P5. 1987 did constitute a "new" offer which was accepted by Janolo on September 30. truth and good faith. sir. G. CA. on the basis of the evidence already in the record and as appreciated by the lower courts. theories. the inevitable conclusion is simply that there was a perfected contract of sale. private respondent was not given an opportunity in the trial court to controvert the same through opposing evidence. . Still. Q Now. or by the acceptance of benefits under them. This is the conclusion consistent with human experience. 77029. as being "unauthorized and illegal" came only on May 12. 1987 but from Janolo's August 20.5 million. 1988 or more than seven (7) months after Janolo' acceptance. The Third Issue: Is the Contract Enforceable? The petition alleged42: Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5. there was a meeting of the minds.5 million. Hence. the statute of frauds will not apply by reason of the failure of petitioners to object to oral testimony proving petitioner Bank's counter-offer of P5. of Rivera's authority and action. IAC. As private respondent pointed out in his Memorandum. 175 SCRA 70 [1989]. these letters constitute sufficient memoranda — since they include the names of the parties. this is a matter of due process.1990. Hence. clearly characterizes the repudiation as nothing more than a last-minute attempt on the Bank's part to get out of a binding contractual obligation. formal contracts of sale. Demetria told me to accompany him we were able to meet Luis Co at the Bank. considered by a reviewing court. But let it be assumed arguendo that the counter-offer during the meeting on September 28. petitioners — by such utter failure to object — are deemed to have waived any defects of the contract under the statute of frauds. are not.25 million extinguished the offer of P5. I think it was September 28. No. We note that the Bank's repudiation. in themselves. 1987 meeting revived the said offer.5 million. vs. 1987. 14) stated: . Dulos Realty & Development Corp. oral testimony on the reaffirmation of the counter-offer of P5. as the acceptance in said letter was absolute and unqualified. Luis Co whether the price could be reduced. 40 . pp. Such delay. 153 SCRA 713 [1987]. Gevero vs. 74243.5 million is a plenty — and the silence of petitioners all throughout the presentation makes the evidence binding on them thus. . (Please see article 1403[2]. A Yes. It also bears noting that this issue of extinguishment of the Bank's offer of P5. They are however clear embodiments of the fact that a contract of sale was perfected between the parties. 1987 letter accepting this revived offer. 1987 and I was again present because Atty. justice and due process (Dihiansan vs. 157 SCRA 425 [1988]. 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. 147 SCRA 434 [1987]. taken together. 1986. sir. Anchuelo vs. Contracts infringing the Statute of Frauds. IAC.5 million during the meeting of 28 September 1987. IAC. pursuant to Article 1405 of the Civil Code: Art. issues of fact and arguments not adequately brought to the attention of the trial court need not be. and the absence of any circumstance which might have justifiably prevented the Bank from acting earlier. 1405. 41 Since the issue was not raised in the pleadings as an affirmative defense. 34-35)"39. the bank's letter of September 1. and it was this verbal offer that Demetria and Janolo accepted with their letter of 30 September 1987. 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. Civil Code. Stated simply.

5 million was reached by the Committee and it is not within his power to reduce this amount. Co himself. Demetrio Demetria. 18-21. [Direct testimony of Atty.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. at pp. Jose Fajardo. we did.5 million pesos and Mr. 1987 meeting. pp. Q What was your response to the answer of Mr.] The Fourth Issue: May the Conservator Revoke the Perfected and Enforceable Contract. Atty.] Q What transpired during that meeting between you and Mr. Demetrio Demetria and Atty. [Direct testimony of Mercurio Rivera. sir. 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. Q After this meeting with Mr. TSN. sir. TSN. I told him if the amount of P5. What the bank expects which was contrary to what Mr. sir. and the management of that institution. the Monetary Board may appoint a conservator to take charge of the assets.? Two days thereafter we sent our acceptance to the bank which offer we accepted. Mercurio [Rivera] was with us at the time at his office. reorganize the management thereof. the offer of the bank which is P5. A That is the amount they want. Atty. Luis Co. sir. Pajardo (sic) in that September 28. Co in his Office in Producers Bank Building during this meeting? A Mr. 30 July 1990. sir. and restore its viability. sir. 34-36. 265 (otherwise known as the Central Bank Act) as follows: Whenever. Fajardo and I and Mr. at pp. Luis Co?. Luis Co. 14-15. he will make final acceptance. liabilities. A He said he will wait for the position of Atty. Mercurio Rivera is the final price and that is the price they intends (sic) to have. 1990. He shall have the . collect all monies and debts due said institution and exercise all powers necessary to preserve the assets of the institution.Q What price? A The 5.5 million and we should indicate our position as soon as possible. Q What is the reaction of the plaintiff Demetria to Luis Co's statement ( sic) that the defendant Rivera's counter-offer of 5. Luis Co said that the amount cited by Mr.5 million could still be reduced and he said that was already passed upon by the committee. What can you say to that statement that the amount of P5. 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. Rivera stated. Demetria. TSN. Q What do you mean?. under Section 28-A of Republic Act No. Fajardo and I. Luis Co of the defendant Bank? A We went straight to the point because he being a busy person. January 16. Q For the record. on the basis of a report submitted by the appropriate supervising or examining department. Q By Mr. 26 April 1990. did you and your partner accede on ( sic) the counter offer by the bank? A Yes. the amount of P5. will you tell this Court who was with Mr. And he told me that is the final offer of the bank P5. Luis Co? A I said that we are going to give him our answer in a few days and he said that was it. Q What is the response of Mr. Rivera. Co you are referring to? A Mr. Mr.5 million was the defendant's bank (sic) final offer? A He said in a day or two. 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.5 million. your Honor please. [Direct testimony of Atty. Demetria.] Q According to Atty.

Zarate: This pertains to your letter dated May 5. Pascua detailed the functions of Property Management Department (PMD) staff and officers (Annex A. Rivera was authorized by the old board or by any of the bank conservators (starting January. We also have no personal interest in any of the properties of the Bank. Rosa." Such powers. Producers Bank Senior Manager Perfecto M. 28-A of the Central Bank Act (Rep.. the conservator merely takes the place of a bank's board of directors. 1988 Atty. enormous and extensive as they are. In short. "cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play. We are. His authority would be only to bring court actions to assail such contracts — as he has already . In the first place. actually repudiated or overruled said contract of sale. 23 and 36 of the Corporation Code of the Philippines (Bates Pambansa Blg. this issue of the Conservator's 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. EDCARNACION Acting Conservator In the third place. void. 68. and such other powers as the Monetary Board shall deem necessary. As already stated earlier. Ineluctably. Mercurio Rivera or any of his subordinates has no authority. 1984) to sell the aforesaid property to any of your clients. unenforceable or rescissible. In the "Inter-Office Memorandum" dated April 25. you will immediately read that Manager Mr. issues not raised and/or ventilated in the trial court. therefore. Zarate Zarate Carandang Perlas & Ass.. what took place were just preliminary discussions/consultations between him and your clients. therefore. Laguna. at the time the contract was perfected. 265. Moreover. 1988 is reproduced hereunder: May 12. 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. who took over from Romey after the sale was perfected on September 30. legal and in accordance with law. deemed to be defective — i. let alone in the Court of Appeals. (Sgd. Janolo and Demetria regarding the six (6) parcels of land located at Sta. otherwise they would infringe against the non-impairment clause of the Constitution 44. under existing law. Rest assured that we have nothing personal against your clients. Section 28-A merely gives the conservator power to revoke contracts that are.). 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. Suite 323 Rufino Building Ayala Avenue. Please be advised accordingly. power or right to make any alleged counter-offer. Apparently. only the Board of Directors/Conservator may authorize the sale of any property of the corportion/bank. Very truly yours. We believe that this is more than sufficient legal justification for refusing said alleged tender. Act No. cannot extend to the post-facto repudiation of perfected transactions. constrained to refuse any tender of payment by your clients. never objected to the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter of Conservator Encarnacion. Metro-Manila Dear Atty. 1986 addressed to and approved by former Acting Conservator Mr. as the same is patently violative of corporate and banking laws. Rodolfo Romey. justice and due process. as amended). Said letter dated May 12. The Bank's acting conservator at the time. Noe C. while admittedly. (the reorganization of) the management thereof and (the restoration of) its viability. your lawyer-clients did not deal with the authorized officers of the bank.) Leonida T. there is absolutely no evidence that the Conservator. the Central Bank law gives vast and far-reaching powers to the conservator of a bank. Makati. 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. voidable. his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. which everyone knows cannot bind the Bank's Board or Conservator. Rustia. it must be pointed out that such powers must be related to the "(preservation of) the assets of the bank. 1988 on behalf of Attys. any provision of law to the contrary notwithstanding.e. how can it delegate such non-existent powers to the conservator under Section 28-A of said law? Obviously." 43 In the second place. under Sec. Hence. Andres I. All our acts are official.) and Sec.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. 1987 (Annex V. Our records do not show that Mr. Encarnacion LEONIDA T. If the legislature itself cannot revoke an existing valid contract.

the price of P5. testimonial and documentary. vs. where the topic was the possible lowering of the price. 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. R. as clearly worded in Rivera's letter (Exh. under the established fact. February 25. . No. G. 1987. the bank's submissions on this point do not inspire belief. a showing that the findings complained of are totally devoid of support in the record. The first point was clearly passed upon by the Court of Appeals 50. by simply getting the conservator to unilaterally revoke all previous dealings which had one way or another or come to be considered unfavorable to the Bank. at the expense of third parties. 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 bank official refused it and confirmed that the P5. 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.5 million" Hence. . are final and conclusive and may not be reviewed on appeal. such findings must stand. The argument deserves scant consideration. particularly where. when the inference made is manifestly absurd. 127 SCRA 596). Corona vs. 18 SCRA 973] [at pp. Tersely put. June 30. 15. As pointed out by plaintiff. The Supreme Court's jurisdiction is limited to reviewing errors of law that may have been committed by the lower court.5 Million was. the official and definitive price at which the bank was selling the property. but a meeting on the already determined price of P5. G.5 million had been determined by the past due committee and approved by conservator Romey. Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.R. findings of fact by the Court of Appeals are not reviewable by the Supreme Court. No. July 25.5 Million for more than 101 hectares on lot basis. R. "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. when there is grave abuse of discretion in the appreciation of facts. To rule otherwise would be to enable a failing bank to become solvent. 1990.done so in the instant case.] Likewise. petitioners are asking us to review and reverse such factual findings. 1988. . L27488. No. vs. as well as the Court of Appeals. April 28. R. surmises or conjectures. or that they are so glaringly erroneous as to constitute serious abuse of discretion. such as here. The Supreme Court is not a trier of facts. De la Merced. during the meeting of September 28. relating to the sufficiency of evidence and the credibility of witnesses presented. 34-35) (p. Manufacturers Hanover & Trust Corporation. 11. 1984. its findings of the fact being conclusive " [Chan vs. the senior vice-president of the bank. . This Court so held that it is not the function of the Supreme Court to analyze or weigh such evidence all over again. assailed the respondent Court's Decision as "fraught with findings and conclusions which were not only contrary to the evidence on record but have no bases at all. No. however. we held: . mistaken or impossible. reiterating a long line of decisions]. in Bernardo vs. G. Court of Appeals 46. G. Neither by common sense. L-16394. Court of Appeals.R. for this Court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties" [Santa Ana. adduced by the parties. December 17. characterizing it as "not credible" and "at best equivocal and considering the gratuitous and self-serving character of these declarations. . 1983. 1974. citing Philippine National Bank vs. This Court has emphatically declared that "it is not the function of the Supreme Court to analyze or weigh such evidence all over again. Jr. Court of Appeals. A contrary understanding of the law would simply not be permitted by the Constitution. we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below. L-47531." . The respondent Court did not believe the evidence of the petitioners on this point. (p. 158 SCRA 138. 33 SCRA 737. when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. G. 58 SCRA 89. "E"). Hernandez. 144-145. 121 SCRA 865. "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 . Tibe. its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court" (Tiongco v. February 20. 47: The Court has consistently held that the factual findings of the trial court. thus: There can be no other logical conclusion than that when. CA Decision). Court of Appeals. CA Decision) . Rivera and Luis Co. In the same vein. No. (emphasis supplied) Petitioners. on September 1. . G. (I)t is not the function of this Court to assess and evaluate all over again the evidence. 1987 between the plaintiffs. the ruling of this Court in the recent case of South Sea Surety and Insurance Company Inc. After a careful study of the case at bench. the findings of both the trial court and the appellate court on the matter coincide. Court of Appeals and Goldrock Construction and Development Corp. In Andres vs. No. Baniqued vs. 1970. As held in the recent case of Chua Tiong Tay vs.R. Court of Appeals 49. after Rivera presented the same for discussion" and (2) "the meeting with Co was not to scale down the price and start negotiations anew. pp. . "Barring. 45. et al. . when the judgment is premised on a misapprehension of facts. The Fifth Issue: Were There Reversible Errors of Facts? Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court. Hon. ." specifically the findings that (1) the "Bank's counter-offer price of P5. therefore.5 Million price had been passed upon by the Committee and could no longer be lowered (TSN of April 27. . L-62482. . 59514. yielding nothing to perfected contractual rights nor vested interests of the third parties who had dealt with the Bank. . L-24426. 48 is equally applicable to the present case: We see no valid reason to discard the factual conclusions of the appellate court. Court of Appeals. 1966. we held: The resolution of this petition invites us to closely scrutinize the facts of the case.

it is equally true that at the time of the transaction in 1987. Moreover. 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. while the subject properties may currently command a much higher price. Indeed. In fine. the extinguishment of the Bank's offer of P5. As of June 1987. the price agreed upon of P5. we did so just the same. conclusions of fact of a trial judge — as affirmed by the Court of Appeals — are conclusive upon this Court. petitioners should have presented then Conservator Rodolfo Romey to testify on their behalf. argued their positions before this Court. at the same time. 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. considering that the Bank acquired these properties at a foreclosure sale for no more than P3. 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. On the contrary. The assailed Decision is AFFIRMED. there are settled exceptions where the Supreme Court may disregard findings of fact by the Court of Appeals 52. That the Bank procrastinated and refused to honor its commitment to sell cannot now be used by it to promote its own advantage. there are two procedural issues involved forum-shopping and the raising of issues for the first time on appeal [ viz.. non-impairment of obligations and sanctions against forum-shopping. particularly where. the Bank's overdraft with the Central Bank had already reached P1. as in this case. . the Court cannot emotionally close its eyes to overriding considerations of substantive and procedural law. The second point was squarely raised in the Court of Appeals. To be sure. if produced. the appellate court patiently traversed and dissected the issues presented before it. But this alone is no reason to reverse or ignore such factual findings. Certainly. which must be upheld under the rule of law and blind justice. finding no reversible error in the questioned Decision and Resolution. the Court cannot stamp its imprimatur on such outrageous proposition. Indeed. such suppression gives rise to the presumption that his testimony would have been adverse. Epilogue.To become credible and unequivocal. Costs against petitioners. and instead. lending credibility and dependability to its findings. This Court cannot just gloss over private respondent's submission that. deposits and well as employment. the Court hereby DENIES the petition. and there were (other) offers to buy the subject properties for a substantial amount of money. 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 . 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. but delved as well into the substantive issues — the perfection of the contract of sale and its enforceability. We have studied both the records and the CA Decision and we find no such exceptions in this case. which required the determination of questions of fact." 53 While we do not deny our sympathy for this distressed bank. WHEREFORE. but petitioners' evidence was deemed insufficient by both the trial court and the respondent Court. 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 Court's decisions and resolutions. 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.023 billion .5 million and the conservator's powers to repudiate contracts entered into by the Bank's officers] — which per se could justify the dismissal of the present case. We did not limit ourselves thereto. . the trial court and the appellate court were in common agreement thereon. like respect for perfected contracts. . But the petitioners are now asking this Court to disturb these findings to fit the conclusion they are espousing. but were closer to the evidence as presented in the trial court by private respondent. Under the rules on evidence 51. . the findings of the said Court are supported by a preponderance of competent and credible evidence. In summary. This we cannot do. as many people depend on (it) for investments. it was respondent's submissions that were believed and became bases of the conclusions arrived at. The inferences and conclusions are seasonably based on evidence duly identified in the Decision. to enable it to escape its binding obligation and to reap the benefits of the increase in land values. magnitude and vigor by which the parties through their respective eloquent counsel.5 million was reasonable.5 million 54. as he would have been in the best position to establish their thesis. . it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are valid and correct. absent any serious abuse or evident lack of basis or capriciousness of any kind.

with stockholdings in the amount of P31. OLIVAR. 4 Hence. ENRIQUE NABUA and JAVIER P. holding DBP liable for unpaid wages of private respondents "not as a majority stockholder of respondent PSC. ANCHETA. herein private respondents filed a complaint with the Department of Labor against PSC for nonpayment of salaries. ARMANDO CANDA. a corporation registered under Philippine law. 1986.000. Jose T. Marcelo. The case was thereafter indorsed to the Arbitration Branch of the National Labor Relations Commission (NLRC). CONSTANTE B. EDUARDO CANDA. with said petitioners representing themselves as unpaid employees of said private respondents. AIDA DE LUNA. 2 against PSC and DBP. BANAYOS. but as the foreclosing creditor who possesses the assets of said PSC by virtue of the auction sale it held in 1987. At any rate. EVELYN BARRIENTOS.00 of the total P60. Jr. vs. dated January 16." 3 On appeal by DBP.83 as of March 31. CONSTANTE A. the NLRC held that the labor arbiter is correct in assuming jurisdiction because "the worker's preference to the amount secured by DBP by virtue of said foreclosure sales of PSC properties arose out of or are connected or interwoven with the labor dispute brought forth by appellees against PSC and DBP. 00-07-02500-87. FRANCISCO BAMBIO. The present petition for certiorari seeks the reversal of the decision of the National Labor Relations Commission (NLRC) in. M-1359. To secure said loan. and PISO Bank. ERNESTO S. incentive leave pay and separation pay of the employees of PSC. especially in the light of the express declaration of said labor arbiter and the NLRC that DBP is being held liable as a foreclosing creditor. . MAGDALENA Y. invoking the absence of employer-employee relationship between private respondents and DBP and submitting that when DBP foreclosed the assets of PSC. By virtue of the said loan agreement. When PSC failed to pay its obligation with DBP. 1990 DEVELOPMENT BANK OF THE PHILIPPINES. DBP contends that the labor arbiter and the NLRC committed a grave abuse of discretion (1) in assuming jurisdiction over DBP. it did so as a foreclosing creditor. PACIFICO M. a government-owned financial institution created and operated in accordance with Executive Order No. MA. 86932 June 27. incentive leave pay and separation pay. 1987 and March 4. CANTILLER. NLRC-NCR Case No. which amounted to P75. to finance its iron smelting and steel manufacturing business. ANCHETA. FARINAS. with its President. obtained a loan in 1983 from the Development Bank of the Philippines. as co-obligor. JAMES CRISTALES. ARMARILLE.00 subscribed and paid up capital stock. Jose Panganiban Ice Plant and Cold Storage. SALAMAT. DBP foreclosed and acquired the mortgaged real estate and chattels of PSC in the auction sales held on February 25.NATIONAL LABOR RELATIONS COMMISSION and DOROTHY S. PSC mortgaged to DBP real properties with all the buildings and improvements thereon and chattels.000. respondents. JUANA JALANDONI. ERNESTO JULIO." In addition. MABEL PADO. SUSAN M. JOSE T. We find merit in the petition. docketed therein as Special Proceeding No. ALFREDO ESTRERA. 1 which dismissed the appeal of the Development Bank of the Philippines (DBP) from the decision of the labor arbiter ordering it to pay the unpaid wages. We rule in the negative. 13th month pay.G. JULIAN TRAQUENA. 81. No. 1987. 13th month pay. MANUEL MALUBAY. On February 13. DBP became the majority stockholder of PSC.226. the dispositive portion of which directed that "DBP as foreclosing creditor is hereby ordered to pay all the unpaid wages and benefits of the workers which remain unpaid due to PSC's foreclosure. Inc. private respondents tried to prove the existence of employeremployee relationship based on the fact that DBP is the majority stockholder of PSC and that the majority of the members of the board of directors of PSC are from DBP. 1987. JR. 81. MARCELO. On January 30.445.. DBP filed its position paper on September 7. the present petition by DBP. the complaint was amended to include DBP as party respondent. 1986. Subsequently. impleading as co-respondents therein Olecram Mining Corporation. the labor arbiter rendered a decision. LEONARDO BUENAAGUA. it took over the management of PSC. BENJAMIN BAROT. forty (40) petitioners filed a Petition for Involuntary Insolvency in the Regional Trial Court. JOSE BENAVIDEZ. except PISO Bank.. CONSTANTE ANCHETA. DOMELINA GONZALES. FRANCISCO GREGORIO. JR. AURELIO A. 5 We do not believe that these circumstances are sufficient indicia of the existence of an employer-employee relationship as would confer jurisdiction over the case on the labor arbiter. as amended. 1988. MATARO. The pivotal issue for resolution is whether DBP.R. GEMINIANO PLETA. this jurisdictional defect was cured when DBP appealed the labor arbiter's decision to the NLRC and thereby submitted to its jurisdiction. 1987. On February 10. (2) in applying the provisions of Article 110 of the Labor Code. and (3) in not enforcing and applying Section 14 of Executive Order No. It is to be noted that in their comment. the NLRC sustained the ruling of the labor arbiter. incentive pay and separation pay of herein private respondents. Metropolitan Manila.000. 1987. petitioner. as foreclosing creditor.752. ERNESTO S. could be held liable for the unpaid wages. Branch 61 at Makati.. JUSFIEL SILVERIO. 13th month pay. 1987. On February 20. DE JESUS. FELICIANO OCAMPO. Philippine Smelters Corporation (PSC).

.. Interpreting the above provisions. Insolvency proceedings and settlement of a decedent's estate are both proceedings in rem which are binding against the whole world. 110. et al. It is far from being a general liquidation of the estate of the Tabligan spouses.' this can not be conclusive. As a consequence. which took effect on March 21. amended Article 110 of the Labor Code to read as follows: Art.-Unpaid wages earned by the employees before the declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. Santos. National Labor Relations Commission. this Court. The claims of all creditors whether preferred or non. Section 1 0.. Rule VIII. 110. the terms "declaration" of bankruptcy or "judicial" liquidation have been eliminated. to wit: Sec. 7 For facility of reference. was adopted by this Court in the recent case of Development Bank of the Philippines vs. Book III of the Implementing Rules and Regulations of the Labor Code provided: Sec. Such unpaid wages and monetary claims shall be paid in full before the claims of the Government and other creditors may be paid. fair. Moreover. 6715. . Neither does the De Barreto case .. We said: The proceedings in the court below do not partake of the nature of the insolvency proceedings or settlement of a decedent's estate. 101864 issued in favor of the bank which is supposed to be indefeasible would remain constantly unstable and questionable. whether they were notified or not. the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of government and other creditors may be paid. al. et al.preferred. Worker preference in case of bankruptcy. in Development Bank of the Philippines vs. Article 110 of the Labor Code read: Art. All persons having interest in the subject matter involved. any provision of law to the contrary notwithstanding.. Book III of the Implementing Rules and Regulations of the Labor Code was likewise amended. 10.. — In case of bankruptcy or liquidation of the employer's business. his workers shall enjoy first preference as regards their unpaid wages and other monetary claims. — In the event of bankruptcy or liquidation of an employer's business. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. Such could not have been the intention of Article 2243 of the Civil Code although it considers claims and credits under Article 2242 as statutory fines. Consequently. 1989. — In the event of bankruptcy or liquidation of an employer's business. Payment of wages in mm of bankruptcy. Labor Arbiter Ariel C. Payment of wages and other monetary claims in case of bankruptcy . his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation. Rule VIII. There can then be an authoritative. Santos.. Republic Act No. 6 explicated as follows: It is quite clear from the provisions that a declaration of bankruptcy or a judicial liquidation must be present before the worker's preference may be enforced. the reason behind the necessity for a judicial proceeding or a proceeding in rem before the concurrence and preference of credits may be applied was explained by this Court in the case of Philippine Savings Bank v. although the lower court found that 'there were no known creditors other than the plaintiff and the defendant herein. Hon. are equally bound. any provision of law to the contrary notwithstanding. Hon. et. Worker preference in case of bankruptcy. and binding adjudication instead of the piece meal settlement which would result from the questioned decision in this case. Lantin (124 SCRA 476 [1983]). Labor Arbiter Ariel C. however. . Consequently. especially the rationalization for the conclusions reached therein. supra. Notably. In the case at bar. Section 10. Does this means then that liquidation proceedings have been done away with? . The action filed by Ramos was only to collect the unpaid cost of the construction of the duplex apartment. Despite said amendments. Transfer Certificate of Title No. It will not bar other creditors in the event they show up and present their claim against the petitioner bank. a liquidation of similar import or 'other equivalent general liquidation must also necessarily be a proceeding in rem so that all interested persons whether known to the parties or not may be bound by such proceeding. the same interpretation of Article 110 as applied in the aforesaid case of Development Bank of the Philippines vs. the Identification of the preferred ones and the totality of the employer's asset should be brought into the picture. we reproduce the salient portions of the decision in this later case. In conjunction therewith. 10.During the dates material to the foregoing proceedings. claiming that they also have preferred liens against the property involved.

supra). should be interpreted to mean 'absolute preference. A hen creates a charge on a particular property.] vs. A distinction should be made between a preference of credit and a lien. Villanueva. Article III. RA No. which a preference is not. number 6: 'claims for laborers' wages. 6715. G. L-14938. DBP's mortgage credit antedated by several years the amendatory law.We opine m the negative. 1962. in proceedings such as insolvency. 4. 3. canals or other works. 6. No. Villanueva. The rationale therefor has been expressed in the recent case of DBP vs.It is a right to a first preference in the discharge of the funds of the judgment debtor.' the same should be given only prospective effect in line with the cardinal rule that laws shall have no retroactive effect. 611 [1916]. Because of its impact on the entire system of credit. In point of fact. A preference applies only to claims which do not attach to specific properties. G. except to the extent that such claims for unpaid wages are already covered by Article 2241. a preference in application. in full.R.' 5. It is a lien on an Identified immovable property. any infringement on the constitutional guarantee on non-impairment of obligation of contracts (Section 10. 2 September 1983. 28 November 1989). in the words of Republic vs. as amended. to the fulfillment of the obligation for whose security it was constituted (Article 2176. Logically. The DBP anchors its claim on a mortgage credit. cannot be viewed in isolation. such unpaid wages shall be paid in full before the 'claims of the . Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code.124 SCRA 476). upon said buildings. Lantin. which we quote: A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first ahead of other claims which may be established against the debtor. preferred or non-preferred. the preferential right of credit attains significance only after the properties of the debtor have been inventoried and liquidated. or by Article 2242. Civil Code). in determining the reach of its terms. Barretto vs. The right of first preference as regards unpaid wages recognize by Article 110 does not constitute a hen on the property of the insolvent debtor in favor of workers. the right to preference given to workers under Article 110 of the Labor Code cannot exist in any effective way prior to the time of its presentation in distribution proceedings. Civil Code).R. upon the following considerations: 1. In the same way that the Civil Code provisions on classification of credits and the Insolvency Law have been brought into harmony. It will find application when. To give Article 110 retroactive effect would be to wipe out the mortgage in DBPs favor and expose it to a risk which it sought to protect itself against by requiring a collateral in the form of real property.. concurrence and preference of credits which provisions find particular application in insolvency proceedings where the claims of all creditors. when not falling within Article 2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific property. 150 SCRA 37). is an ordinary preferred credit although its impact is to move it from second priority to first priority in the order of preference established by Article 2244 of the Civil Code (Republic vs. No. In fact. reconstruction or repair of buildings. number 6 and Article 2242. The preference given by Article 110. 41 Phil. Peralta (G. No.R. Article 110 must be read in relation to the provisions of the Civil Code concerning the classification. and the claims held by his various creditors have been established (Kuenzle & Streiff [Ltd. 6 SCRA 928. number 3: 'claims of laborers and other workers engaged in the construction. It is but a preference of credit in their favor. A recorded mortgage credit is a special preferred credit under Article 2242 (5) of the Civil Code on classification of credits. It creates a real right which is enforceable against the whole world. unless the contrary is provided (Article 4.R. L-56568. they would come within the ambit of the category of ordinary preferred credits under Article 2244. 1987 Constitution) is also avoided. for if the debtor is amply able to pay his various creditors. It is a met-hod adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvent's assets. Philippine Savings Bank vs. under the Insolvency Law (Section 29) a creditor holding a mortgage or hen of any kind as security is not permitted to vote in the election of the assignee in insolvency proceedings unless the value of his security is first fixed or he surrenders all such property to the receiver of the insolvent's estate. In the event of insolvency. Villanueva. may be adjudicated in a binding manner . Even if Article 110 and its Implementing Rule. a principal objective should be to effect an equitable distribution of the insolvent's property among his creditors. May 20. (Republic vs. supra: Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. 29 December 1962. Thereby. whoever the possessor may be. Peralta. Rather. Article 110 of the Labor Code cannot be viewed in isolation but must be read in relation to the Civil Code scheme on classification and preference of credits. number 3.. In fine. Secretary of Labor (G.' To the extent that claims for unpaid wages fall outside the scope of Article 2241. Peralta. 6 SCRA 928). To accomplish this there must first be some proceeding where notice to all of the insolvent's creditors may be given and where the claims of preferred creditors may be bindingly adjudicated (De Barretto vs. A mortgage directly and immediately subjects the property upon which it is imposed. December 29. No. 79351. canals and other works. 1987. on the goods manufactured or the work done. it becomes material only when the properties and assets of the debtors are insufficient to pay his debts in full. Article 110 of the Labor Code. so also must the kindred provisions of the Labor Law be made to harmonize with those laws. 33929. how can the necessity exist to determine which of his creditors shall be paid first or whether they shall be paid out of the proceeds of the sale of the debtor's specific property? Indubitably. 14038. 2.

the adjudication made will be binding on all parties-in-interest. G. and credits belonging to private persons. the Insolvency Law. WHEREFORE. 2 that on account of the amendment introduced by Republic Act No. precisely. concurrence and preference of credits in the Civil Code. Padolina. L-33929. in Bolinao v.. 6715. Separate Opinions SARMIENTO. PADILLA. Republic Act No. 2 that on account of the amendment introduced by Republic Act No. above and beyond taxes due from the Government.. . Padolina. 82763-64. and the Labor Code is preserved in harmony. NLRC. The decision of public respondent is hereby ANNULLED and SET ASIDE. Lantin. .. No. But. et al. Nos. an orderly determination of preference of creditors' claims is assured (Philippine Savings Bank vs. and credits belonging to private persons. Separate Opinions SARMIENTO. for an orderly settlement of a debtor's assets. J. workers now enjoy "absolute preference" in the payment of labor claims.Government and other creditors' may be paid. On the foregoing considerations and it appearing that an involuntary insolvency proceeding has been instituted against PSC. and the legal scheme of classification. since those proceedings are proceedings in rem. private respondents should properly assert their respective claims in said proceeding. NLRC 1 and more recently. Thereby. 6715. workers now enjoy "absolute preference" in the payment of labor claims.R. PADILLA. September 2. NLRC. dissenting: I dissent for the same reasons stated in my dissenting opinion in DBP vs. 82763-64. G.19 March 1990. I am afraid that the majority has misread the clear intent of the legislature. Nos. J.. the petition is GRANTED. their claims ascertained and inventoried. 1983. dissenting: As I held in DBP v. et al. As I said therein. in Bolinao v. 124 SCRA 476). NLRC 1 and more recently. to work more favorable terms to labor-because prior to the amendment. J. As I said therein. Republic Act No.19 March 1990. and thereafter the preference determined in the course of judicial proceedings which have for their object the subjection of the property of the debtor to the payment of his debts or other lawful obligations. I am afraid that the majority has misread the clear intent of the legislature. dissenting: I dissent for the same reasons stated in my dissenting opinion in DBP vs. to work more favorable terms to labor-because prior to the amendment. precisely. 6715 was enacted. J. labor enjoyed no preference. dissenting: As I held in DBP v.R.. 6715 was enacted. labor enjoyed no preference. above and beyond taxes due from the Government.. all creditors must be convened.

Borres. The sole issue raised in this petition is the ruling of the Court of Appeals that: Thus. Ilarde of the Regional Trial Court of Iloilo held Phividec Railways. was injured in an accident that was later held by the trial and respondent courts to be due to the negligence of Phividec Railways. (2) where the transaction amounts to a consolidation or merger of the corporations. By the same token. the Panay Railways. The transfer of the shares of stock of PRI to PHILSUCOM did not divest PRI of its juridical personality or of its capacity to direct its own affairs and conduct its own business under the control of its own board of directors. 5 which. 3 It alleged that upon the sale to PHILSUCOM of PRI. Yatco. (Panay ). except: (1) where the purchaser expressly or impliedly agrees to assume such debts. (3) where . 85266 January 30. negligent and so liable to the plaintiff for damages. 9 In Yutivo Sons Hardware Co. When PRI was sold by PHIVIDEC to PHILSUCOM on May 25. On May 25. The decision was affirmed on appeal by the respondent court. PHIVIDEC cannot hide behind the veil of corporate fiction in order to evade this liability. particularly the stipulation already quoted above. or the distortion or hiding of the truth. Two days later. It disclaimed liability on the ground that in the Agreement concluded between PHIVIDEC and PHILSUCOM. No." 8 The rule is that: Where it appears that two business enterprises are owned. applying the Koppel precedent just cited. claim or liability that may arise out of or result from acts or omissions. 4 which is now faulted for grave abuse of discretion in this petition. nor could the veil of corporate fiction be made a shield to confuse claimants such as plaintiffappellee. PHIVIDEC had expressly assumed liability for any claim arising before the turn-over of PRI to PHILSUCOM. Indeed.R. . declared that the veil of corporate fiction may be pierced when it is used to defeat public convenience. to operate the railway assets acquired from PHIVIDEC. it has not accurately quoted. however. And since the accident in question took place before said turn-over and since after said turn-over PRI ceased to exist (in the sense that its railways operations were taken over by PHILSUCOM thru the Panay RW) the only logical conclusion is that PHIVIDEC should be solely liable for the damages to the plaintiff in the case at bar. This case arose when Violeta M. citing Fletcher.. petitioner. the petitioner invokes the case of E. PHILSUCOM caused the creation of a wholly-owned subsidiary. It is the position of the petitioner that PHIVIDEC and PRI are entirely distinct and separate corporations although the latter is its subsidiary. "to prevent injustice. Nell v. (PRI). disregard the legal fiction that two corporations are distinct entities. Inc. private respondent herein. it is answerable for its own obligations. COURT OF APPEALS and VIOLETA MONTELIBANO BORRES. 10 this Court held: It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected.J. when the corporation is the "mere alter ego or business conduit of a person.G. by virtue of which PHIVIDEC held PHILSUCOM harmless from any claim or liability arising out of any act or transaction "prior to the turn-over. v. However. the legal fiction of PRI as a separate corporate entity from PHIVIDEC disappeared pursuant to and in view of the representations and warranties contained in the agreement of sale between PHIVIDEC and PHILSUCOM. justify wrong. The concept of piercing the veil of corporate fiction is a mystique to many people. In Koppel v. With the exception of the Liabilities and Contracts specified in Annexes 4 and 5 of the preceding paragraph. what the Court said in the Nell Case was: Generally where one corporation sells or otherwise transfers all of its assets to another corporation. Court of Tax Appeals. justify wrong.. conducted and controlled by the same parties. "when the notion of legal entity is used to defeat public convenience. On January 21. 1979. and treat them as identical. Inc. Norton and Harrison Co. the corporate name of PRI was changed to Panay Railways. contracts or transactions prior to the turn-over. it was provided that: D. or defend crime. both law and equity will. 1979.. In fact. 2 whereupon the latter filed with leave of court a third-party complaint against the herein petitioner. After trial. It also held that as PRI was a wholly-owned subsidiary of PHIVIDEC. Borres filed a complaint for damages against PRI and Panay Railways Inc. especially the layman. 7 It added that when the corporation is the mere alter ego or business conduit of a person it may be disregarded. Another rule is that. protect fraud or defend crime. Pacific Farms. 11 this Court likewise ruled that where a corporation is merely an adjunct. 1980. Inc." the law will regard the corporation as an association of persons. 1990 PHILIPPINE VETERANS INVESTMENT DEVELOPMENT CORPORATION. protect fraud. To support this stand. when necessary to protect the rights of third persons. business conduit or alter ego of another corporation the fiction of separate and distinct corporate entities should be disregarded. or in the case of two corporations merge them into one. 6 the Court.. Judge Ricardo M. 1979. the latter is not liable for the debts and liabilities of the transferor. Inc. But it is not as esoteric as all that as this case will demonstrate. it may be disregarded. which cannot be passed on to the petitioner as its own liability. vs. contrary to the suggestion in the petition." By virtue of this provision. PHIVIDEC hereby holds PHILSUCOM harmless from and against any action. We must sustain the respondents. petitioner Philippine Veterans Investment Development Corporation (PHIVIDEC) sold all its rights and interests in the PRI to the Philippine Sugar Commission (PHILSUCOM). 1 The accident occurred on March 29. the latter should answer for PRI's liability." In Commissioner of Internal Revenue v. respondents. or to let in a just defense. the piercing of the veil of corporate fiction is called for in the case at bar.

that veil must be pierced and PHIVIDEC and PRI regarded as one and the same entity. Manila Electric. In the interest of justice and equity. as correctly pointed out by the respondent court: Besides.holding company (PHIVIDEC in the present case) assumes complete control of the operations of its subsidiary's business. it should follow that PHIVIDEC cannot evade its liability for the injuries sustained by the private respondent. and (4) where the transaction is entered into fraudulently in order to escape liability for such debts. This circumstance renders applicable the rule cited by third-party plaintiff-appellee (Costan v. WHEREFORE. It is so ordered. particularly the stipulation exempting the latter from any "claim or liability arising out of any act or transaction" prior to the turn-over.the purchasing corporation is merely a continuation of the selling corporation. Since the accident happened before that agreement and PRI ceased to exist after the turn-over. the separate corporate existence of the subsidiary must be disregarded. A contrary conclusion would leave the private respondent without any recourse for her legitimate claim. 24 F 2nd 383) that if a parent. with costs against the petitioner. . such that the holding company will be responsible for the negligence of the employees of the subsidiary as if it were the holding company's own employees. and to prevent the veil of corporate fiction from denying her the reparation to which she is entitled. It is clear from the evidence of record that by virtue of the agreement between PHIVIDEC and PHILSUCOM. PHIVIDEC had expressly assumed liability for any claim against PRI. the challenged decision is AFFIRMED and the petition is DENIED. PHIVIDEC'S act of selling PRI to PHILSUCOM shows that PHVIDEC had complete control of PRI's business. Moreover.

3. dated May 31. On April 30. vs..864. because since April. 2. Jolly M. to resign amounted to illegal dismissal and thus ordered petitioners to pay private respondent backwages.00. as I have stated in my number one (1) explanation and I have to use my own personal money to promote and solicit customer without any funding of our company (sic). Saturday April 30. . When it closed its operations. The truth however is that. .00. until the decision was rendered on February 28. INC. Almoradie responded to each of the charges. 1991 and its Resolution. respondents. petitioners.200. INC. It is not true that I do not want to sale (sic) the rates & package tour of Our Company as imputed and charge (sic). 7. rendered by the National Labor Relations Commission in Case No. NATIONAL LABOR RELATIONS COMMISSION AND JOLLY ALMORADIE. Why you have forgotten the situation wherein you refuse (sic) to sell a certain product recommended by Myrna. 2 IOM-88 Explain in writing not later than Monday the following: 1. allegedly also a sister company of MEREX and Philac. 1988 (sic) and then returned the following day. (MEREX) in October. Considering that the job of sales representative entails so much expense in the performance thereof (sic).GUATSON INTERNATIONAL TRAVEL AND TOURS. I am hampered in my sales promotion and solicitation of customer. As a matter of fact I have brought this matter to the Vice President and General Manager if only an appropriation be set aside for the expenses in going around. 1991. 1988. since I was given until May 2. Why when you were asked last Friday to join the Sales Blitz to Sta. In September. 1988 to answer the same .524. Bemil is a customer of our company. Inc. . (Philac) and Mercury Express International Courier Services. (MEREX) assail the Decision. Almoradie. Thereafter. (Philac). 1 IOM/88-71 Please explain in writing why did you went (sic) to BEMIL and who sent you there. to deliver the ticket. he was promoted to the position of Sales Representative sometime in April. hence I prefer to be entered to my messenger position. undertaking (sic) by the sales department of our company. (hereinafter referred to as Guatson Travel). MERCURY EXPRESS INTERNATIONAL COURIER SERVICES.328. likewise as Messenger with an increased salary of P1. I used to go Bemil (sic) to inquire whether they have passengers for booking and ticketing. 3. . 3. the essence of which are as follows: 1. or not later than Monday morning the reason why you don't want to sell. That I admit of the often confrontation conducted (sic) by Vice President/General Manager. Philippine Integrated Labor Assistance Corp. As a matter of fact. even in the absence of my error or fault (sic) . In the questioned decision. 5. 1991 or the amount of P50. . 1988 (sic) when I was transferred from Accounting to sales department of our Company I was able to sale (sic) almost 110 dollars to 21 passengers. the NLRC found that Mr. . computed from the date of his dismissal on November 1988. meeting people and soliciting prospective clients. 1988. The reason why you want to be a messenger and no more a sales representative. Philac and MEREX. 3. From the records it appears that Jolly M. Henry Ocier's (Vice-President and General Manager of petitioner Guatson Travel) actuation of threatening and forcing private respondent. 3. March 9. denying the petitioners' Motion for Reconsideration. 2. It is not true that I did not or fail to answer the memo issued by Lou Cantara. for seven (7) years or the amount of P6. due to financial constraint considering that the kind and nature of work entails much expenses for which I shouldered (sic) with my personal money. 1986. 1994 Petitioners Guatson Travel and Tours. PHILIPPINE INTEGRATED LABOR ASSISTANCE CORPORATION. That I'm always confronting (sic) you. Inc. Almoradie was absorbed by MEREX's sister company Philippine Integrated Labor Assistance Corp.00. The meaning of "You pirated me from Philac . I went to Bemil to pick-up their ticketing and booking for their passengers last Monday. 3 Within the time frame specified.2.00. 1988.1. .. Almoradie v. 8. as what you've told me personally. April 29. Guatson's Travel Company. Almoradie was transferred to Guatson Travel. as Liaison Officer with a salary of P1. With respect to the ticketing and booking of Bemil passengers.00. and to pay separation pay equivalent to one-half (1/2) month for every year of service. Ana you said yes and you change (sic) your mind when you were asked again last Saturday. 1983 as Messenger receiving a monthly salary of P800. although the later (sic) position is more dignified. that (sic) as sales representative. NLRC-NCR-00-11-0451-88 entitled "Jolly M. I have taught (sic) it better that I like my position as messenger. Almoradie was issued three separate memoranda as follows: IOM/88-7 Please explain in writing within 24 hrs. Inc. Why you will not answer in writing the memo issued to you by Lou Cantara on 30 Apr. Almoradie was first employed by Mercury Express International Courier Service." dated March 21.

5 On that same day. it is difficult to abide by the impression that complainant was forced to resign. that he had no potential employer at the time of his resignation. 6 Subsequently. As his letter of resignation shows. it was executed in his own handwriting spontaneously out of his own free will. The only product of our Company that Myrna briefed. Why he was again promoted to the position of Account Executive after he was reverted back to the rank of a messenger from being a Sales Representative is rather intriguing. If sometimes I make no sales. which all sales representative suffer and are beset such (sic). anchoring its conclusion to the fact that Almoradie was a permanent employee who has been working for the Ocier's for five long years. Apparently. Ocier taunted Almoradie with threats that it he will not resign. he will file charges against him which would adversely affect his chances of getting employed in the future. however dismissed his case based on the following conclusions: In examining the facts and the arguments. Mr. complainant resented his resignation without any plausible or cogent reason as he had earlier resented to be a sales representative for which he was made to explain the reasons why. that there was no evidence to show that Mr. it would be difficult to dismiss him while being a messenger since he is a permanent employee and there would not be enough basis to make him resign. Almoradie sought the help of a friend.3. The issue therefore. April 30. 1988. because in truth I am very interested in such sales business attack since it is in connection with my function as a sales representative that will surely enhance and sharpen my sales acumen. who advised him to report the matter to the Barangay Captain. we fully agree with the finding of the NLRC that Jolly Almoradie's resignation was NOT voluntary. cannot be considered as refusal to sale (sic). and when I go out (sic) after the confrontation to join the sales blitz-krieg to Sta. Almoradie was reverted to the position of Messenger. he was again given the position of Account Executive. 1988. 3. The only graceful exit to the complainant was to execute his letter of resignation. when Almoradie was promoted as Sales Representative he had caught the ire of management. I have ever since until now ventured and performed the selling of rates and package tour which are every products (sic) for sales department of our company. Almoradie filed a complaint for illegal Dismissal on November 14. Ocier allegedly even provided the pen and paper on which Almoradie wrote and signed the resignation letter dictated by Ocier himself. the nature of work of which is similar to that of a sales representative. and his reaction immediately after his forced resignation by seeking the assistance of a friend who was placed in a similar situation before and in reporting the incident to the Barangay Chairman to seek redress. It appears that as early as April. I deny vehemently that I refuse to sale (sic) a certain product recommended by Myrna de Vera because the same is totally false. when he allegedly forced Almoradie to resign." do not constitute force or coercion as to vitiate the free will of Almoradie in writing his resignation letter. On the other hand. 1988. 1988. Oscar Vanderlipe who heads the sales Group (sic) were (sic) already gone.5. Henry Ocier summoned me to his office and had a very lengthy confrontation of me (sic). that he was receiving a fairly good salary considering that he is single. 8 Upon Almoradie's appeal. Ocier was out of town when the resignation letter was executed that he just saw the resignation letter when he arrived. Henry Ocier was indeed not in town on October 1. boils down to the question of whether Jolly Almoradie was indeed illegally dismissed by being forced to resign in the manner narrated by him. 1988 when I was transferred to the sales department of our company where from the very beginning I was briefed and taught and learned about the nature of my job and the product to sale (sic) by Myrna (sic) de Vera herself. Almoradie was allegedly summoned by Henry Ocier to his office and was there and then forced by the latter to resign. Since April 1. From a synthesis of the evidence on record. and hence could be dismissed or forced to resign for failing to make good on his job on sales. Almoradie is not cut out for a sales job. Ocier's mere utterances of the words "I will file charges against you. leading to the choice of doing that act which is forced on the person to do as the lesser evil. so much so that he was issued no less than three memoranda on one day ordering him to answer certain charges. 7 There is reason to believe that complainant apparently defied the order for his transfer or designation as account executive earlier before he executed his resignation letter. 3) that the threat be real or serious. there being evident disproportion between the evil and the resistance which all man can offer. 1988 up to present." and "I have a very good lawyer. The NLRC did not err in disregarding the conclusions reached by the Labor Arbiter because the latter's findings are not supported by substantial evidence. The Labor Arbiter. In the morning of October 1. Almoradie accepted the transfer with the understanding that he will solely discharge the duties of an account executive and will no longer be required to do messengerial work. Apparently. As scheduled. yet sometime in September. 9 . Isagani Mallari. however. It must be concluded that his designation as account executive is a management prerogative which under the circumstance is untainted with any unfair labor practice. but because the Vice-President/General Manager of Our Company. I said yes to the sales blitz to Sta. the NLRC reversed the decision of the Labor Arbiter on his finding that complainant was not forced to resign. 2) that the threatened act be unjust or unlawful. 1988. We do not agree with petitioners' proposition that Mr. (sic) On May 4. Ana last Saturday. 1988. 1988. unless it was a scheme of management to really rid him from the company. Ana. taught and required as to (sic) our rates and Package Tours which I've been selling since April 1. but if I was not able to join it is not the reason my change of mind (sic).7. Intimidation may vitiate consent when the following requisites are present: (1) that the intimidation caused the consent to be given. and 4) that it produces a well-grounded fear from the fact that the person from whom it comes has the necessary means or ability to inflict the threatened injury to his person or property. Apart from the averment of respondent Guatson that Mr.

Guatson Travel Company. Henry Ocier and his capacity to make good his threat by refusing to give a favorable recommendation on Almoradie's performance. C. . This threat is not farfetched. Narvasa. v. et al. 11 Reinstatement. Where there is a finding of illegal dismissal. Moreover. amounting to intimidation in the manner stated in the Lichauco de Leon case. JJ. Regalado and Puno. the decision of the NLRC is hereby MODIFIED to the extent that the award of backwages should be computed based on a three-year period. Philac Merex have separate and distinct legal personalities such that the latter companies should not be held liable. assuming.The moment that a person by whom respect and reverence are due should wrongly exert pressure upon his subordinates. Secretary of Labor. July 21. in this case in 1988. up to a maximum of three years. concur. Padilla. petitioners argues that the companies. while the separation pay of one month for every year of service should be computed from the time petitioner was employed by Merex and should include the three-year period as backwages. Under the doctrine of piercing the veil of corporate fiction. In the computation of separation pay. applying the Mercury Drug Rule. separation pay is awarded. 12 As the term suggests. however. there was no showing that private respondent was paid separation pay when he was absorbed by Philac upon closure of Merex. No. when valid ground exists. We have applied this doctrine in the case of "Philippine Scout Veterans Security and Investigation Agency (PSVSIA).. 10 With his limited skills and the scarcity of employment opportunities it would really be difficult for him to find a job. 1993. The three companies are owned by one family. 14 instead of one-half (1/2) month as awarded by the NLRC. must be included. 13 However the award of separation pay should be." G. as we have consistently ruled. We uphold the NLRC. nor was there evidence that he resigned from Philac when he transferred to Guatson Travel. the three (3) year period wherein backwages are awarded. In lieu of reinstatement.J. SO ORDERED. in order to exact from said subordinates an act against their will. supra. will not be required not only for the reason that it was not prayed for by the respondent. the latter is helpless in not complying with the former's demand for his resignation. Considering further the influence of Mr. 15 WHEREFORE. The Hon. the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. the employee is entitled to both reinstatement and award of backwages from the time the compensation was withheld. Henry Ocier did not only say that he will file charges against Almoradie and that he has a good lawyer but he even threatened to block his future employment should the latter not file his resignation.R. equivalent to one (1) month for every year of service. The companies are located in one building and use the same messengerial service. Almoradie. The petition is hereby DISMISSED for lack of merit. for the sake of argument that private respondent was illegally dismissed.. Anent NLRC's grant of separation pay and backwages to private respondent Jolly M. the same is enough to vitiate consent. separation pay is the amount that an employee receives at the time of his severance from the service and is designed to provide the employee with the wherewithal during the period that he is looking for another employment. Almoradie is not even a college graduate. such that majority of the officers of the companies are the same. 92357. but also because the relationship between Almoradie and Ocier had become strained as to preclude a harmonious working relationship.

"Capulso v. . petitioners alleged that Capulso was a former employee of AZCOR who resigned on 28 February 1990 as evidenced by a letter of resignation and joined Filipinas Paso on 1 March 1990 as shown by a contract of employment. The said contract was signed by. he immediately filed the instant complaint for illegal dismissal. Manuel Montilla.that the latter became an employee of Filipinas Paso effective 1 March 1996 but voluntarily resigned there from a year after. FILIPINAS PASO and/or ARTURO ZULUAGA/Owner. 6 (e) Certification of Employee Contribution with SSS. AZCOR MANUFACTURING. on 1 June 1991. 10 (c) Letter of resignation of respondent from AZCOR dated 28 February 1990. which establishes a presumption that the said contract could pass either as to cover the probationary period. Petitioners Azcor Manufacturing. or job contracting. the contract of employment (Exh. respondents. (b) ordering petitioners to reinstate Capulso to his former or equivalent position without loss of Seniority rights and without diminution of benefits. on 1 March 1991 he submitted a letter of resignation addressed to the President of Filipinas Paso. in February 1991 Capulso allegedly informed his supervisor.00 was deducted from his salary without informing him of the reason therefor. directly caused by his job as ceramics worker where. 7 and. the Personnel Officer of Ascor Manufacturing Inc. 3 (b) Identification card issued by AZCOR which he continued to use even after his supposed employment by Filipinas Paso. It appeared that his illness was. . 1 Candido Capuslo file with the Labor Arbiter a complaint for constructive illegal dismissal and illegal deduction of P50. 14 and. Ms. for having been rendered with grave abuse of discretion amounting to lack or excess of jurisdiction. From April to September 1989 the amount of P50. 12 (e) BIR Form No." the NLRC modified the Labor Arbiter's decision by: (a) declaring the dismissal of Capulso as illegal for lack of just and valid cause.R. 5 (d) SSS Member Assistance Form wherein he stated that he worked with AZCOR from March 1989 to April 1991. vs. but ordered AZCOR and/or Arturo Zuluaga to refund to Capulso the sum of P200. Inc. could allow him to continue in his job. and.00 plus other benefits such as vacation and sick leaves. from Filipinas Paso hug to failing health.00 per day for the period April to September 1989. (AZCOR) and Arturo Zuluaga who were respondents before the Labor Arbiter (Filipinas Paso was not yet a party then in that case) moved to dismiss the complaint on the ground that there was no employer-employee relationship between AZCOR and herein respondent Capulso. Emilia Apolinaria. INC. 1999 AZCOR MANUFACTURING INC. Arturo Zuluaga. petitioners. (c) ordering petitioners to jointly and solidarily pay Capulso his backwages computed from the time of his dismissal up to the date of his actual reinstatement. Filipinas Paso and Arturo Zuluaga instituted this petition for certiorari under Rule 65 of the Rules of Court to assail.00 representing the amount illegally deducted from his salary. .G. the Labor Arbiter ordered that hearings be conducted for the presentation of evidence by both parties. 9 (b) Contract of Employment between Filipinas Paso and respondent which took effect 1 March 1991. Ms. Later. Capulso verbally requested to go on sick leave due to bronchial asthma. 2. Petitioners submitted the following documentary evidence: (a) Sworn Statement of Ms. Likewise. In the second week of February 1991. for lack of the prescribed occupational safety gadgets. 13 (f) Individual Income Tax Return of respondent for 1990. . .. Azcor Manufacturing Inc. Rollo) issued to complainant indicates that the work to be done during the period was contracted with Filipinas Paso. the Decision of the National Labor Relations Commission which reversed the decision of the Labor Arbiter dismissing the complaint of respondent Candido Capulso against petitioners. NATIONAL LABOR RELATIONS COMMISSION (NLRC) AND CANDIDO CAPULSO. 15 On 29 December 1992 the Labor Arbiter rendered a decision dismissing the complaint for illegal dismissal for lack of merit. Thereafter. 11 (d) Undated letter of resignation of respondent addressed to Filipinas Paso to take effect 1 March 1991. The evidence presented by Capulso showed that he worked for AZCOR as ceramics worker for more than two (2) years starting from 3 April 1989 to 1 June 1991 receiving a daily wage of P118. that he intended to go on terminal leave because he was not feeling well. W-4 filed 6 June 1990. docketed as NLRC CA No. upon his doctor's recommendation. the contract period is for six (6) months. 8 On the other hand. and thereafter. to take effect on the same date. 187. (g) BIR Form 1701-B which was an alphabetical list of employees of Filipinas Paso for the year ending 31 December 1990. he inhaled and absorbed harmful ceramic dusts. Capulso went back to petitioner AZCOR to resume his work after recuperating from his illness. whichever will work to respondent's advantage should the case be filed. p. approved his request. Emilia Apolinaria and her actual testimony to prove that respondent indeed resigned voluntarily from AZCOR to transfer to Filipinas Paso. The NLRC held in part.. Capulso later amended his complaint by impleading Filipinas Paso as additional respondent before the Labor Arbiter. He returned five (5) times to AZCOR but when it became apparent that he would not be reinstated. Labor Arbiter Felipe T. (f) Payslips issued by AZCOR. He was not allowed to do so by his supervisors who informed him that only the owner. His supervisor. No. 004476-93 (NLRC NCR 00-09-05271-91). On appeal by Capulso. 4 (c) Certification of SSS premium payments. Filipinas Paso and/or Arturo Zuluaga/owner. and. Garduque II denied the motion to dismiss holding that the allegation of lack of employer-employee relationship between Capulso and AZCOR was not clearly established.. 117963 February 11. in the early part of June 1991 Capulso tried to apply for work again with Filipinas Paso but there was no vacancy. On 14 January 1592. the completion of which automatically terminates employment. Emily Apolinaria. 2 Capulso presented the following documentary evidence in support of his claim: (a) His affidavit and testimony to prove that he was terminated without just cause and without due process.

True enough. (c) it was written in English. 1990 by respondent Ascor Mfg. he has four (4) years to file his complaint for illegal dismissal. he must not be penalized for his tarrying. and Filipinas Paso orchestrated the events that appeared to be in order with the alleged execution of resignation letters which was disputed by complainant and confirmed spurious as explained above. . are entitled to great respect and even finality. 1991 when complainant was unceremoniously dismissed. . Capulso's case which was filed after a measly delay of four (4) months should not be treated with skepticism or cynicism. Considering that Ascor Mfg. . and actively pursued his case for illegal dismissal before the labor courts when he was refused admission by his employer. To constitute a resignation. The issue to be resolved is whether the NLRC committed grave abuse of discretion in declaring that private respondent Capulso was illegally dismissed and in holding petitioners jointly and solidarily liable to Capulso for back wages. There must be an intention to relinquish a portion of the term of office accompanied by an act of relinquishment. to do jobs for Filipinas Paso. Meanwhile. As a rule the original and exclusive jurisdiction to review a decision or resolution of respondent NLRC in a petition for certiorari under Rule 65 of the Rules of Court does not include a correction of its evaluation of the evidence but is confined to issues of jurisdiction or grave abuse of discretion. Petitioners miserably failed in this respect. page 187. Inc. Inc. the instant-petition. understandably. . Capulso succumbed to asthma and heart disease. Inc. Petitioners' motion for reconsideration was denied by the NLRC through its Resolution of 14 October 1994. negated any intention on his part to relinquish his job at AZCOR. In addition. A run-around of events and dates.. Inc. from April 13 1989 up to June 1. especially considering the serious doubts an their authenticity. certainly. 1146 of the Civil Code. Having introduced those resignation letters in evidence. hence.. and that there was nothing illegal or unusual in the letters of resignation he executed. Rollo) supposed to have been executed by complainant-appellant shows that he resigned from Ascor Mfg. Hence. But it should be noted that private respondent still wanted his job and thus. 16 We find no cogent reason to disturb the findings of the NLCR. refrained from filing the illegal dismissal case against his employer so as not to jeopardize his chances of continuing with his employment. a language which Capulso was not conversant with considering his low level of education. It may betray an unlettered man's lack of awareness of his rights as a lowly worker but.. we still cannot give credence to those letters in the absence of any showing that Capulso was aware that what he was signing then were in fact resignation letters or that he fully understood the contents thereof. The events that transpired clearly show that there was no interruption in the service of complainant with Ascor Mfg. Secondly. and. By law and settled jurisprudence. A delay of merely four (4) months in instituting an illegal dismissal case is more than sufficient compliance with the prescriptive period. likewise overwhelmingly show the bad faith of respondents in the treatment of their employees. And the fact that he categorically disowned the signatures therein and denied having executed them clearly indicates that the resignation letters were drafted. it must be unconditional and with the intent to operate as such.However. Petitioners insist that Capulso was not really dismissed but he voluntarily resigned from AZCOR and Filipinas Paso. The Labor Arbiter held that Capulso's repudiation of the signatures affixed in the letters of resignation was weakened by the fact that he filed the case only after almost four (4) months from the date of his dismissal. it was incumbent upon petitioners to prove clearly and convincingly their genuineness and due execution. 1990 to August 31. Rollo. which was the contract of Employment issued to Candido Capulso by the personnel officer of Ascor Mfg. appellant continued working with respondent after the lapse of the contract and until the alleged termination of employment of appellant. . "3". Inc. genuine. if supported by substantial evidence. 188. which only shows that the same work were prepared by respondents-appellees plus after the fact that complainant denied having executed and signed the same. without his consent and participation. We disagree. Moreover. the fact that Capulso signified his desire to resume his work when he went back to petitioner AZCOR after recuperating from his illness. Even assuming for the sake of argument that the signatures were. on February 28. a closer look at the subject resignation letters readily reveals the following: (a) the resignation letter allegedly tendered by Capulso to Filipinas Paso was identically worded with that supposedly addressed by him to AZCOR. No other plausible explanation can be drawn from these circumstances than that the subject letters of resignation were prepared by a person or persons other than Capulso. the letter of resignation (Exh.. The NLRC factual findings. 17 In the instant case. 1990 while Exhibit "2".. (b) both were pre-drafted with blank spaces filled up with the purported dates of effectivity of his resignation. during the pendency of the case before this Court. the two resignation letters allegedly executed by appellant are exactly worded. p. shows that appellant was being hired from March 1. when it became apparent that he was no longer welcome at AZCOR he immediately instituted the instant case. an action for reinstatement by reason of illegal dismissal is one based on an injury which may be brought within four (4) years from the time of dismissal pursuant to Art. unless petitioner is able to show that it simply and arbitrarily disregarded the evidence before it or had misappreciated the evidence to such an extent as to compel a contrary conclusion if such evidence had been properly appreciated.

reinstatement is no longer feasible. he was paid the same salary and he performed the same kind of job. in which case. This fiction cannot be extended to a point beyond its reason and policy. but. there was no gap in his employment as he continued to work from the time he was hired up to the last day of his work. we see in the totality of the evidence a veiled attempt by petitioners to deprive Capulso of what he had earned through hard labor by taking advantage of his low level of education and confusing. and separation pay to. and Sixth. WHEREFORE. the petition is DISMISSED. the mere fact that the businesses of these corporations are interrelated and both owned and controlled by a single stockholder are not sufficient grounds to disregard their separate corporate entities. Second. the first being merely considered as the instrumentality. after the period he was deemed to have come back to AZCOR? Interestingly. the onus of proving that the dismissal of the employee was for a valid and authorized cause rests on the employer 18 and failure to discharge the same would mean that the dismissal is not justified and therefore illegal. In lieu thereof. Fifth. separation pay shall be awarded. In fine. the contract was only for six (6) months. unless sooner terminated when the job contract is completed earlier or withdrawn by client. nor was he informed of the developments within the company. that respondent continued working even after the lapse of the period in the contract . We are not persuaded. which could pass either as a probationary period or a job contracting. the completion of which automatically terminated the employment. or when the employee is dismissed for just and lawful causes provided by law and the company's rules and regulations. 23 Understandably. It may be asked: Was the six (6)-month period probationary in nature. however. However. Petitioners never dealt with him openly and in good faith. FILIPINAS PASO and ARTURO ZULUAGA are ORDERED to pay. be computed in accordance with law. The NLRC Decision of 12 September 1994 is MODIFIED. the employment contract was signed by an AZCOR personnel officer. 19 Petitioners failed in this regard. in the same work area. the heirs of private respondent Candido Capulso the amounts representing his back wages. and. Third. petitioners likewise argue that it was grave abuse of discretion for the NLRC to hold them solidarily.for whom it was not clear.In illegal dismissal cases like the present one. he sued AZCOR alone and was constrained to implead Filipinas Paso as additional respondent only when it became apparent that the latter also appeared to be his employer. as in this case. The employment contract provided in part: The contract is for a specific job contract only and shall be effective for the period covered. which showed that Capulso was being hired from 1 March 1990 to 31 August 1990 by AZCOR to do jobs for Filipinas Paso. together with six (6) others. 20 Where. liable to Capulso when the latter himself testified that he was not even an employee of Filipinas Paso.. him as to who really was his true employer . the casting department of AZCOR where Capulso was working was abolished when he. it would be discarded and the two (2) corporations would be merged as one. in which case the employment contract will automatically terminate. for sure. petitioners have the temerity to use as evidence the ignorance of Capulso in identifying his true employer. the corporate fiction was used as a means to perpetrate a social injustice or as a vehicle to evade obligations or confuse the legitimate issues.whether it was AZCOR or Filipinas Paso. jointly and solidarily. after the lapse of the period he became a regular employee of Filipinas Paso? Or was the period job-contracting in character. It is evident from the foregoing discussion that Capulso was led into believing that while he was working with Filipinas Paso. it was petitioners' own making. transferred to Filipinas Paso. The doctrine that a corporation is a legal entity or a person in law distinct from the persons composing it is merely a legal fiction for purposes of convenience and to subserve the ends of justice. agency. his alleged transfer to Filipinas Paso and the closure of AZCOR's manufacturing operations beginning 1 March 1990. Fourth. considering that private respondent died during the pendency of the case before this Court. Petitioners AZCOR MANUFACTURING. With respect to the amount of back wages. conduit or adjunct of the other.. Petitioners also contend that they could not be held jointly and severally liable to Capulso for back wages since AZCOR and Filipinas Paso are separate and distinct corporations with different corporate personalities. inclusive of allowances and other benefits. in which case. it shall be computed from the time of private respondent's illegal dismissal up to the time of his death. 21 In this particular case.such a callous and despicable treatment of a worker who had rendered faithful service to their company. Observe further. 22 After causing much confusion. in the same location. . there was much confusion as to the identity of Capulso's employer . using the same tools and under the same supervisor. INC. his payslips contained the name of AZCOR giving the impression that AZCOR was paying his salary.e. his real employer was AZCOR. Capulso had no knowledge that he was already working under petitioner Filipinas Paso since he contained to retain his AZCOR Identification card. As correctly observed by the NLRC. i. as shown by the following: First.

vs.). NLRC 8 applies squarely to the instant case because there the Court declared that the employment of project employees is co-terminous with the . CIRPRIANO BERNALES. ANGEL MABUHAY. from June 1982 to October 1990 at P2. and. (f) Paterno Bisnar. ROBERTO LABENDIA. (I) Leo Surigao. LVM CONSTRUCTION CORPORATION. (c) assuming further that the employees were illegally dismissed. Each one would also allow the utilization of their employees by the other two (2).G. their salaries were withheld. Since the workers stood firm in their refusal to comply with the directives their services were terminated. Inc.. general construction foreman. (d) Ernesto Bagatsolon leadman/checker. petitioners.e. intermingling and commingling all its resources. FLORENCIO GOMEZ. From October to December 1990 private respondents individually filed complaints for illegal dismissal against petitioners with the National Labor Relations Commission Regional Arbitration Branch No. These were to be used allegedly for audit purposes pursuant to a joint venture agreement between LVM and T&J. respondents.900/month. SALVADOR BABON. NARCISO ADAN. NLRC RAB VIII dismissed the complaints lodged before it.. Tacloban City. NLRC erred when it pierced the veil of corporate personality of petitioner-corporations. The labor court however granted each employee a separation pay of P6. (k) Roque Morillo. The main thrust of petitioners' expostulation is that respondents have no valid cause to complain about their employment contracts since these documents merely formalized their status as project employees. 20 of the Department of Labor which defines project employees as those employed in connection with a particular construction project. LABENDIA. NLRC failed to consider that they were terminated for cause. from August 1974 to October 1990 at P90/day. (J) Mario Labendia. Managing Director of LVM and President of T&J. whenever necessary. upon the expiration of the contract period or the completion of the project for which the workers was hired. NATIONAL LABOR RELATIONS COMMISSION. they would lease tools and equipment to one another. finding that private respondents were project employees whose employments could be terminated upon completion of the projects or project phase for which they were hired.00 computed at one-half (1/2) month salary for every year of service.R. they would undertake their projects either simultaneously or successively so that. NLRC erred in awarding back wages in excess of three (3) years. (b) Narciso Adan. NLRC disregarded the veil of corporate fiction and treated the three (3) corporations as forming only one entity on the basis of the admission of petitioners that "the three (3) operated as one (1). They were also required to explain why their services should not be terminated for violating company rules and warned that failure to satisfactorily explain would be construed as "disinterest" in continued employment with the company. SR. tireman.200/month. i. With this arrangement.200/month.. from 1971 to 17 October 1990 at P3. PATERNO BISNAR. Sr.. Thomas and James Developers (T&J) and LVM Construction Corporation (LVM). the company ordered the withholding of the salary of any employee who refused to sign. from August 1983 to October 1990 at P3. (h) Angel Mabulay. MARIO O. they alternately worked for petitioners Tomas Lao Corporation (TLC). clerk/timekeeper/paymaster.00/day. Under joint venture agreements they entered into among each other.. or were rehired after the completion of the project or project phase to which they were assigned. 1997 TOMAS LAO CONSTRUCTION. They cite Policy Instruction No. Soon after. instrument man. was reversed on appeal by the Fourth Division of the National Labor Relations Commission (NLRC) of Cebu City which found that private respondents were regular employees who were dismissed without just cause and denied due process. In granting monetary awards to complainants. LEO SURIGAO. including manpower facility. v. surveyor/foreman. The NLRC also overruled the fixing by the Labor Arbiter of the term of employment of complainants uniformly at five (5) years since the periods of employment of the construction workers as alleged in their complaints were never refuted by petitioners. and ROQUE MORILLO. (c) Florencio Gomez. T&J and LVM are engaged in the construction of public roads and bridges. (d) assuming finally that the decision is correct. 6 The decision of Labor Arbiter Gabino A. Jr. and. THOMAS and JAMES DEVELOPERS (PHIL. company watchman. from January 1979 to October 1990 at 105/day.. 3 issued a memorandum 4 requiring all workers and company personnel to sign employment contract forms and clearances which were issued on 1 July 1989 but antedated 10 January 1989. Resultantly. VIII (NLRC — RAB VIII). from August 1971 to July 1990 at P2. welder. (g) Cipriano Bernales. uniformly rounded at five (5) years. No. TLC. altogether informally referred to as the "Lao Group of Companies. Velasquez. (e) Salvador Babon." the three (3) entities comprising a business conglomerate exclusively controlled and managed by members of the Lao family. 1 Within the periods of their respective employments. (b) assuming that the workers were regular employees. dump truck driver. from June 1982 to October 1990 at P3. It upheld petitioners' contention that the execution of their employment contracts was to forestall the eventuality of being compelled to pay the workers their salaries even if there was no more work to be done due to the completion of the projects or project phases. ERNESTO BAGATSOLON.700/month. Sometime in 1989 Andres Lao. INC. Alleging that they were hired for various periods as construction workers in different capacities they described their contractual terms as follows: (a) Roberto Labendia. the contracts expressly described the construction workers as project employees whose employments were for a definite period. from July 1983 to July 1990 at P260.00/day. SR. adding that the ruling in Sandoval Shipyards." 7 Petitioners now lay their cause before us and assign the following errors: (a) NLRC erred in classifying the employees as regular instead of project employees. from October 1981 to November 1990 at P75. from March 1975 to January 1978 at P100/day. TLC ceased its operations 2 while T&J and LVM stayed on. To ensure compliance with the directive.435. road grader operator.200/month. Quite notably. Sr. Except for Florencio Gomez 5 all private respondents refused to sign contending that this scheme was designed by their employer to downgrade their status from regular employees to mere project employees. 116781 September 5. from February 1980 to November 1990 at P3.800/month. payloader operator. workers were transferred whenever necessary to ongoing projects of the same company or of the others. however.

Truly. In Sandoval. "Project" in the realm of business and industry refers to a particular job or undertaking that is within the regular or usual business of employer. they are not entitled to separation pay nor is their employer required to obtain clearance from the Secretary of Labor in connection with their termination. since the laborers are not being paid. necessary and indispensable to the usual business or trade of the employer. Likewise. . it can be a strong factor in determining whether the employee was hired for a specific undertaking or in fact tasked to perform functions which are vital. our ruling in Sandoval Shipyards is inapplicable considering the special circumstances attendant to the present case. The principal test in determining whether particular employees are "project employees" distinguished from "regular employees" is whether the "project employees" are assigned to carry out "specific project or undertaking. unlike in the instant case. at least one of the three petitioners had an on-going construction project and/or one of the three petitioners' construction project overlapped that of another. We apply by analogy the case of Industrial-Commercial-Agricultural Workers Organization v. Contrary to petitioners' assertion. This is beneficial to both the employer and employee for it prevents the unjust situation of "coddling labor at the expense of capital" and at the same time enables the workers to attain the status of regular employees. In the case at bar. A period during which the Central is forced to suspend or cease operation for a time . Clearly. 14 The employees are. the repeated re-hiring and the continuing need for their services over a long span of time (the shortest. . private respondents had already gone through the status of project employees. Perhaps because of their capacity to prosecute government projects and their good record and performance. As additional ground. either simultaneously. In a final attempt to convince the Court that private respondents were indeed project employees. 11 The denial by petitioners of the existence of a work pool in the company because their projects were not continuous is amply belied by petitioners themselves who admit that — All the employees of either of the three petitioners were actually assigned to a particular project to remain in said project until the completion or termination of that project. the employment relation is not severed by merely being suspended. petitioners point out that the workers were not regularly maintained in the payroll and were free to offer their services to other companies when there were no on-going projects. There we held — That during the temporary layoff the laborers are free to seek other employment is natural. 9 While it may be allowed that in the instant case the workers were initially hired for specific projects or undertakings of the company and hence can be classified as project employees. 12 A work pool may exist although the workers in the pool do not receive salaries and are free to seek other employment during temporary breaks in the business. this set-up can likewise be applied to project workers insofar as the effect of temporary cessation of work is concerned. CIR 13 which deals with regular seasonal employees. Of course.completion of the project regardless of the number of projects in which they have worked. This argument however cannot defeat the workers' status of regularity. the hiring of construction workers. the cessation of construction activities at the end of every project is a foreseeable suspension of work. at seven [7] years) have undeniably made them regular employees. And as their employment is one for a definite period. should not mean starvation for employees and their families (emphasis supplied). the continuous rehiring of the same set of employees within the framework of the Lao Group of Companies is strongly indicative that private respondents were an integral part of a work pool from which petitioners drew its workers for its various projects. Petitioners thus argue that their dismissal from the service of private respondents was legal since the projects for which they were hired had already been completed. But their employments became non-coterminous with specific projects when they started to be continuously re-hired due to the demands of petitioners' business and were re-engaged for many more projects without interruption. strictly speaking. but which is distinct and separate and identifiable as such from the undertakings of the company. yet must find means of support. either individually or in a joint venture with one another. after the completion of that particular project or when their services are no longer needed in the project or particular phase of the project where they were assigned. they were transferred and rehired in another on-going project. one construction project overlapping another and/or one project commencing immediately after another project has been completed or terminated. not separated from services but merely on leave of absence without pay until they are reemployed." the duration (and scope) of which are specified at the time the employees are engaged for the project. provided that the worker shall be available when called to report for a project. they claim that Mario Labendia and Roberto Labendia had absented themselves without leave giving management no choice but to sever their employment. We are not convinced. Although primarily applicable to regular seasonal workers. 15 Thus we cannot affirm the argument that non-payment of salary or non-inclusion in the payroll and the opportunity to seek other employment denote project employment. these construction projects have been prosecuted by either of the three petitioners. Similar to the case of regular seasonal employees. 10 While length of time may not be a controlling test for project employment. Thus. the employees are removed from the scope of project employees and considered regular employees. no compensation can be demanded from the employer because the stoppage of operations at the end of a project and before the start of a new one is regular and expected by both parties to the labor relations. Such job or undertaking begins and ends at determined or determinable times. We note petitioners' own admission — [t]hese construction projects have been prosecuted by either of the three petitioners. However. was intermittent and not continuous for the "shipyard merely accepts contracts for shipbuilding or for repair of . we held that where the employment of project employees is extended long after the supposed project has been finished.

in order to survive. they are not entitled to security of tenure. the contracts were a scheme of petitioners to prevent respondents' from being considered as regular employees. We have consistently held that failure of the employer to file termination reports after every project completion proves that the employees are not project employees. A termination of his employment must be for a lawful cause and must be done in a manner which affords him the proper notice and hearing . 6715 on 21 March 1989. the willfulness being characterized by a wrongful and perverse attitude. They could not simply sit idly and allow their families to starve. . Private respondents were dismissed allegedly because of insubordination or blatant refusal to comply with a lawful directive of their employer. We need not belabor this point. In Archbuild Masters and Construction." petitioners should have submitted a report of termination to the nearest public employment office every time their employment was terminated due to completion of each construction project. to an award of separation pay if reinstatement is no longer feasible. 23 In this case. lasts only for less than a year or longer. the mandatory requirements of substantive and procedural due process must be strictly complied with.e. (b) the order violated must have been reasonable. These were wanting in the present case. We disagree. it would be the height of injustice to validate abandonment in this particular case as a ground for dismissal of respondents thereby making petitioners benefit from a gross and unjust situation which they themselves created. in the alternative. Inc. The allegation of petitioners that private respondents are guilty of abandonment of duty is without merit. a project employee hired for a specific task also enjoys security of tenure. The workers therefore had no option but to disobey the directive which they deemed unreasonable and unlawful because it would result in their being downsized to mere project workers. Finding that the dismissal was without just cause. On the other hand. They had to seek employment elsewhere. The services of the employees were terminated not because of contract expiration but as sanction for their refusal to sign the project employment forms and quitclaims. otherwise. made known to the employee and must pertain to the duties which he has been engaged to discharge. In the case at bar. v. only on occasions when it has work contract of this nature that it hires workers to do the job which. It imposed time frames into an otherwise flexible employment period of private respondents some of whom were employed as far back as 1969. . . 22 The refusal of private respondents was willful but not in the sense of plain and perverse insubordination. Suffice it to state that private respondents were not priorly notified of their impending dismissal and that they were not provided ample opportunity to defend themselves. good customs or public order. 20 expressly provides that the report of termination is one of the indicators of project employment. 21 Worth noting is that petitioners had engaged in various joint venture agreements in the past without having to draft project employment contracts. 24 Private respondents did not intend to sever ties with petitioner and permanently abandon their jobs. needless to say. (b) a clear intention to sever the employer-employee relationship. 18 Nowhere in the New Labor Code is it provided that the reportorial requirement is dispensed with. It was dictated by necessity and justifiable reasons — for what appeared to be an innocent memorandum was actually a veiled attempt to deny them their rightful status as regular employees. 20 is explicit that employers of project employees are exempted from the clearance requirement but not from the submission of termination report." 20 Obviously.. 279 of the . Petitioners charge as erroneous the grant to private respondents by NLRC of back wages in excess of three (3) years or. they should be struck down as contrary to public morals. That they would require execution of employment contracts and waivers at this point. The rule is that in effecting a valid dismissal. 25 Petitioners submit that since private respondents were only project employees. if private respondents were indeed employed as "project employees. here was an attempt to circumvent labor laws on tenurial security. This act of self-preservation should not merit them the extreme penalty of dismissal. we find it unnecessary to dwell on the non-observance of procedural due process. and. the assertions of petitioners were self-serving and insufficient to substantiate their claim of proximate project completion. The burden of proving that an employee has been lawfully dismissed therefore lies with the employer. private respondents' back wages should be computed on the basis of Art. that it is much cheaper and economical to re-hire or re-employ the same workers than to train a new set of employees. 19 We agree with the NLRC that the execution of the project employment contracts was "farcical. Policy Instruction No. This is incorrect." 16 Moreover. albeit temporarily. The fact is that Department Order No. To allow employers to exercise their prerogative to terminate a project worker's employment based on gratuitous assertions of project completion would destroy the constitutionally protected right of labor to security of tenure (emphasis supplied). The elements of abandonment are: (a) failure to report for work or absence without valid or justifiable reason. and. 19 superseding Policy Instruction No. Clearly. considering that petitioners enforced the directive by withholding the salary of any employee who spurned the order. We likewise reject petitioners' justification in re-hiring private respondents i. with the second element as the more determinative factor manifested by some overt acts. they would not have filed this complaint for illegal dismissal. private respondents Roberto Labendia and Mario Labendia were forced to leave their respective duties because their salaries were withheld. lawful. NLRC 26 we held — . . ostensibly to be used for audit purposes. is a suspect excuse. Since the illegal dismissal was made in 1990 or after the effectivity of the amendatory provision of RA No.vessels from third parties and. It is precisely because of this costsaving benefit to the employer that the law deems it fair that the employees be given a regular status. 17 The records show that they did not. . The NLRC was correct in finding that the workers were illegally dismissed. Settled is the rule that when periods have been imposed to preclude the acquisition of tenurial security by the employee. But willful disobedience of the employer's lawful orders as a just cause for the dismissal of the employees envisages the concurrence of at least two (2) requisites: (a) the employee's assailed conduct must have been willful or intentional.

Chiu Siok Lian (wife of Tomas Lao). both law and equity will.Labor Code which states that "(a)n employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full back wages. a fraction of at least six (6) months being considered as one whole year." 29 Finally. we disregard the separate personalities of the three (3) corporations and at the same time declare the members of the corporations jointly and severally liable with the corporations for the monetary awards due to private respondents. . 31 we hold that the liability of petitioners extends to the responsible officers acting in the interest of the corporations. All other claims of the parties are DISMISSED for lack of merit. therefore it should not be used as a subterfuge to commit injustice and circumvent labor laws. inclusive of allowances. Petitioners are engaged in the same line of business under one management and use the same equipment including manpower services. Petitioners are ordered to reinstate private respondents to their former positions without loss of seniority rights and other privileges with full back wages.e. Where it appears that [three] business enterprises are owned. whichever is higher. when necessary to protect the rights of third persons. Lao. In the event that reinstatement is no longer feasible. WHEREFORE. Lao Y." Conformably with our ruling in Bustamante v. Emmanuel Lao and Ismaelita Maluto. inclusive of allowances. SSS and Medicare documents. Vicente Lao Chua. petitioners are directed to pay private respondents separation pay equivalent to one month salary for every year of service. and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement. Lao is the Managing Director of LVM Construction. public respondent NLRC did not err in disregarding the veil of separate corporate personality and holding petitioners jointly and severally liable for private respondents' back wages and separation pay. affidavits. and treat them as identical. In the event that reinstatement is no longer feasible. Tin. It should always be borne in mind that the fiction of law that a corporation as a juridical entity has a distinct and separate personality was envisaged for convenience and to serve justice. the petition is DENIED and the decision of the National Labor Relations Commission dated 05 August 1994 is AFFIRMED. Heng. i. Lao Hian Beng is the same Tomas Lao who owns Tomas Lao Corporation and is the majority stockholder of T&J. since petitioners failed to adduce competent evidence to the contrary. A majority of the outstanding shares of stock in LVM and T&J is owned by the Lao family. 30 Consonant with our earlier ruling. a fraction of at least six (6) months being considered one (1) year in the computation thereof. and President and Managing Director of the Lao Group of Companies. disregard the legal fiction that the [three] corporations are distinct entities. The Lao Group of Companies therefore is a closed corporation where the incorporators and directors belong to a single family. back wages shall be computed from the time of illegal termination until the time of the finality of the decision. The records disclose that the three (3) corporations were in fact substantially owned and controlled by members of the Lao family composed of Lao Hian Beng alias Tomas Lao. undiminished by earnings derived elsewhere during the period of their illegal dismissal. Costs against petitioners. conducted and controlled by the same parties. Lao E. Andrew C. NLRC 27 the illegally dismissed employees are entitled to full back wages. In view of the peculiar circumstances of this case. Andrew C. and full back wages computed from the time compensation was withheld until the finality of this decision. The separation pay shall be equivalent to "at least one (1) month salary or to one (1) month salary for every year of service. T&J is 100% owned by the Laos as reflected in its Articles of Incorporation. SO ORDERED. 28 The award shall be based on the documents submitted by private respondents. computed from the time compensation was withheld up to the time of actual reinstatement.

with offices in the same location. the Utilities Management Corporation (UMACOR). 1967. That petitioner can never be estopped from questioning the jurisdiction of respondent commission specially considering that jurisdiction is never conferred by the acts or omission of the parties. the Provincial Sheriff of Rizal levied on and attached the properties of TESCO on February 17. dependents of the deceased employee Pacifico L. in favor of respondent Leonila S. 1967. 1968. and Office wrote petitioner transmitting the Notice and for Compensation. UMACOR is also under the management of Jose Luis Santiago.759. 1967. Replying on October 27. Its Executive Vice-President and General Manager is Jose Luis Santiago. he died nevertheless on July 14. and admitted that the deceased employee contracted illness "in regular occupation. Rizal. II.WORKMEN'S COMPENSATION COMMISSION.00 in favor of the heirs of Gatus in a letter-award dated October 6. and requiring it to submit an Employer's Report of Accident or Sickness pursuant to Section 37 of the Workmen's Compensation Act (Act No. On May 16. for herself and in behalf of her minor children. 8 and 17. Gatus. on February 22. for the issuance of a temporary restraining order to enjoin the Sheriff from proceeding with the auction sale of its properties was denied in our Resolution dated May 8. informed the Acting Referee that it would avail of the 15-days-notice given to it to state its non-conformity to the award and contended that the cause of the illness contracted by Gatus was in no way aggravated by the nature of his work. 1967. That the respondent Workmen's Compensation Commission has no jurisdiction nor authority to render the award (Annex 'D'. and to show proof that said Motion for Reconsideration was filed within the reglementary period. 4. Co. this Court required respondents to answer the Petition but denied Injunction. 1968. No. 1967. Teresita. That this Honorable Court has jurisdiction to nullify the award of respondent commission. TESCO takes the position that the Commission has no jurisdiction to render a valid award in this suit as there was no employer-employee relationship between them. 1968. that the admission made in the "Employer's Report of Accident or Sickness" was due to honest mistake and/or excusable negligence on its part.. Petitioner is a domestic corporation engaged in the business of manufacturing telephone equipment with offices at Sheridan Street. the employer stated that it would not controvert the claim for compensation. 1965. Gatus. PROVINCIAL SHERIFF OF RIZAL and LEONILA SANTOS GATUS. Workmen's Compensation Section. On February 29. 1968. TESCO requested for an extension of ten days within which to file a Motion for Reconsideration. Pacifico L. 2 An "Employer's Report of Accident or Sickness" was thus submitted with UMACOR indicated as the employer of the deceased.G. 1967. 1968. Gatus was detailed with petitioner company. his widow. hence. 1967 of "liver cirrhosis with malignant degeneration. before this Order could be released. alleging therein that her deceased husband was an employee of TESCO.. INC. the Acting Referee awarded death benefits in the amount of P5. the Commission issued an Order requiring petitioner to submit verified or true copies of the Motion for Reconsideration and/or Petition to Set Aside Award and Order of December 28.R. The Report was signed by Jose Luis Santiago. 1967. The Motion for Reconsideration was likewise denied in an Order issued by the Chief of Section of the Regional Office dated December 28. However. In answer to questions Nos. Inc. and that the illness for which compensation is sought is not an occupational disease. The present petition for "Certiorari with Preliminary Injunction" seeking to annul the award and to enjoin the Sheriff from levying and selling its properties at public auction. 1964. and that he died of liver cirrhosis. 8 The extension requested was denied. . 6 and on November 15. an Order of execution was issued by the same Office. respondent Leonila S." 10 Meanwhile. petitioner. The principal contention is that the award was rendered without jurisdiction as there was no employer-employee relationship between petitioner and the deceased. 1968. Gatus as Purchasing Agent. On February 28. On January 28. TESCO. He reported back to UMACOR on August 1. 1967 4 against TESCO. 3428). filed a "Notice and Claim for Compensation" with Regional Office No. Antonina and Reynaldo. 1968. Mandaluyong. 4. not compensable under the law. all surnamed GATUS. 1965." On August 7. On February 3. and scheduled the sale of the same at public auction on February 26. Petition) against your petitioner there being no employer-employee relationship between it and the deceased Gatus. 1 On August 9. Quezon City Sub-Regional Office. the deceased having been an employee of UMACOR and not of . TESCO asserts: 1äwphï1. 7 TESCO filed its "Motion for Reconsideration and/or Petition to Set Aside Award" on November 18. through Jose Luis Santiago. 1967.ñët I. On January 13. he contracted illness and although he retained to work on May 10. Workmen's Compensation Section. Gatus and her children. Quezon City Sub-Regional Office. On September 8." 3 On the basis of this Report. asked for an additional extension of five days. TESCO filed with this Court. with the warning that failure to comply would result in the dismissal of the Motion. 1967. It has a sister company. 1968. UMACOR employed the late Pacifica L. 1981 TELEPHONE ENGINEERING & SERVICE COMPANY. respondents. 1967 by the Acting Referee of Regional Office No.52 plus burial expenses of P200. and that the basis of the award was not the theory of direct causation alone but also on that of aggravation. III. L-28694 May 13. These certiorari proceedings stem from the award rendered against petitioner Telephone Engineering and Services. 11 TESCO'S Urgent Motion dated April 2. petitioner filed an "Urgent Motion to Compel Referee to Elevate the Records to the Workmen's Compensation Commission for Review. 1967 9 predicated on two grounds: that the alleged mistake or negligence was not excusable. vs. (TESCO) on October 6. 1968. alleging as grounds therefor. 5 On November 6.

certiorari win not he. 1967 12 showing the name of the deceased as one of the three employees listed under the Purchasing Department of UMACOR. concur. indeed. TESCO'S denial at this stage that it is the employer of the deceased is obviously an afterthought. Although this rule admits of exceptions. namely. The determination of this relationship involves a finding of fact. Nowhere in said documents did it allege that it was not the employer. 19 For that matter. As this Court ruled in the case of Manila Jockey Club. Fernandez and Guerrero. on the other hand. in its "Motion for Reconsideration and/or Petition to Set Aside Award. within fifteen days from notice. It also presented a photostat copy of a check of UMACOR payable to the deceased representing his salary for the period June 14 to July 13. if adverse. a devise to defeat the law and evade its obligations. An appeal brought to the Supreme Court without first resorting to the remedy referred to is premature and may be dismissed. 22 What is sought to be annulled is the award made by the Referee. as where public welfare and the advancement of public policy so dictate. In fact. Teehankee (Chairman). we note that it is only in this Petition before us that petitioner denied. 17 This denial also constitutes a change of theory on appeal which is not allowed in this jurisdiction. 21 certiorari cannot be resorted to when the remedy of appeal is present. JJ.ñët An aggrieved party by the decision of a Commissioner should seek a reconsideration of the decision by the Commission en banc. Although respect for the corporate personality as such. 24 and 25 of the Rules of the Workmen's Compensation Commission. However. is the general rule. 23 the case at bar does not fan within any of these exceptions. If the decision is adverse to him." and in its "Urgent Motion to Compel the Referee to Elevate Records to the Commission for Review. petitioner submitted photostat copies of the payroll of UMACOR for the periods May 16-31. to the Commission. vs. 13 Both public and private respondents contend. Before a petition for certiorari can be instituted. this Petition is hereby dismissed. a few basic principles should be re-stated the existence of employer-employee relationship is the jurisdictional foundation for recovery of compensation under the Workmen's Compensation Law. which is conclusive and binding and not subject to review by this Court." petitioner represented and defended itself as the employer of the deceased. Inc. Makasiar. he may appeal to the Supreme Court. it being prematurely filed. a petition for reconsideration of the latter's resolution. the broader interests of justice so require.. 14 The lack of employer-employee relationship. an appeal from the award of the Referee. 2 SCRA 462 (1961). 16 While. In appropriate cases. or where the Orders complained of were found to be completely null and void or that the appeal was not considered the appropriate remedy. 15 Viewed in the light of these criteria. SO ORDERED. for the first time. 1967 to the Acting Referee. WHEREFORE. jurisdiction cannot be conferred by acts or omission of the parties. the employer-employee relationship. that TESCO is estopped from claiming lack of employer – employee relationship. To start with. 20 This certiorari proceeding must also be held to have been prematurely brought. and within ten days from receipt of an unfavorable decision by the latter. As petitioner had not utilized these remedies available to it. to the Commission en banc. In support of this contention.1 . a factual question may not be raised for the first time on appeal to the Supreme Court. the veil of corporate fiction may be pierced as when the same is made as a shield to confuse the legitimate issues. 1äwphï1. 1967 and June 1-15. an appeal to this Court. all remedies available in the trial Court must be exhausted first. 1967. 18 Moreover.TESCO. Petitioner even admitted that TESCO and UMACOR are sister companies operating under one single management and housed in the same building. issues not raised before the Workmen's Compensation Commission cannot be raised for the first time on appeal. is a matter of defense that the employer should properly raise in the proceedings below. however. there are exceptions. in its letter dated October 27. TESCO did not pursue the remedies available to it under Rules 23. in its request for extension of time to file Motion for Reconsideration. Del Rosario.

Ariston Cano and Rodolfo Cano. And since Salvador Labastida joined the cause of the respondents and asked for the dismissal of this case. The trial judge erred in not striking out from the records all evidence in support of the case insofar as the order of dismissal of July 3. 1957. Honorata Cruz. Respondent Ariston Cano was exonerated for lack of evidence that he committed the acts imputed to him. Emiliano Cano Employees and Workers Union [PTUC]. and after hearing the case rendered judgment thereon. respondent Emilio and Rodolfo Cano were ordered to reinstate the complainant with back wages from the date of separation to the date of actual reinstatement. and in ordering the payment of back to Honorata Cruz. however. Consequently. 1959. petitioner. vs. On December 11. issued an order. for the reconsideration of the order of the trial court dated July 3. Santiago. let this case be. This motion. and Albino Tanghal. 1960 RODOLFO CANO. finding that the dismissal of Honorata Cruz was without justification and constituted an act of interference in the union affiliation and/or activities of the employee. 1957. prayed that respondents be ordered to desist from further committing the unfair labor acts complained of and to reinstate complainants to their former positions with corresponding back wages. Carlos E. field supervisor and manager. evidence for the complainants continued to be taken. respectively. 2. Santiago without the aid or supervision of the court's prosecutor. The trial judge. the court ordered the dismissal of the entire case. the court en banc issued a resolution in the following tenor: This is a motion filed by counsel for petitioner on July 9. Petitioner now claims that it was wrong for the Court en banc to have entertained the motion it appearing that it was filed without the aid or supervision of the court prosecutor. Salvador Labastida. It was. complainants Cayetano Olba and Albino Tanghal moved to be dropped from the complaint. 1957.COURT OF INDUSTRIAL RELATIONS and HONORATA CRUZ. was never acted upon by the court. as it is hereby. the judge a quo. and. as prayed for in his communication dated January 11. set for hearing. On March 10. The court en banc erred in denying his motion for reconsideration. including that of respondents. L-15594 October 31. After their motion to dismiss was denied. respondents. No. on August 21. after considering the evidence taken sustaining the movants' allegation. The contention is unmeritorious. only Rodolfo1 comes to this Court by way of the instant petition to review by certiorari. 1957 is hereby set aside in the sense that this case is reinstated as far as it affects the rights of the individual Honorate Cruz. Thereafter. 1956. dated January 7. . There is no question that the formal charge (for unfair labor practice) in this case was filed by the court prosecutor. In a complaint filed by the Acting Prosecutor of the Court of Industrial Relations (in Case No. in substance. after the hearing of this incident. the order of July 3. 5. which precipitated the partial reinstatement of the case after it was previously ordered dismissed. Assailing the court's decision as well as the resolution of the court en banc denying his motion for reconsideration. 4. Thus. Atty. In the meantime. The court en banc erred in entertaining the motion for reconsideration (of the order of dismissal) filed by Atty. therefore. On July 9. mainly for the reason that the president of the Union was not authorized by them to cause the withdrawal of their individual complaints. 1957 was not disturbed. 957-ULP. after two of the complainants had already testified. 1. thereafter. 3. The motion for reconsideration of the aforesaid decision having been denied by the court en banc. It appearing that said motion alleges facts which should be substantiated. that — 1. The motion for reconsideration. Cayetano Olba. representing complainants Honorata Cruz and Salvador Labastida filed a motion for reconsideration of the aforesaid order of dismissal. 1958 (folio 147). and of unfair labor practice. 1953. Carlos E. acting upon a motion then filed by the complainant Union (through its president). respondents filed answer denying the acts imputed to them and claiming that the separation of complainants was for reasons other than their union affiliation or activities. 1957. Emilio Cano. remanded to the judge a quo for the reception of evidence in support of said motion for reconsideration.G. "president and proprietor. in rendering decision therein. erred in setting aside the order of dismissal and in ordering the reinstatement of the complaint. complainants vs. of Emilio Cano Enterprises" were charged with unfair labor practice for having allegedly dismissed the complainants after they had refused to accede to respondents' demand to disaffiliate from or dissolve their labor union and to disengage in union activities. Finally. designated merely to receive evidence in connection with the allegation in the motion for reconsideration. the trial judge continued receiving evidence. accordingly. 1957. the dispositive portion of which reads: Wherefore. let this case be dismissed with respect to him. The matter was. on July 3.R. petitioner claims. The trial judge erred in rendering judgment against the deceased Emilio Cano without ordering the proper substitution of parties. was filed by counsel for complainants Cruz and Labastida.

Independently of the above. 20. "to remove. and destroy not only the complaint but also the evidence in support of such complaint. . It is believed that under the broad powers of this Court pursuant to Section 5 (b) of Republic Act 875. 4. but shall act according to justice and equity and substantial merits of the case (Sec. In the second place. with costs against the petitioner. 2. motu proprio ordered the reinstatement of the case as far as complaint Cruz was concerned. instead of transmitting his finding to the court en banc in order that the latter may itself properly dispose of the motion for reconsideration filed before it. her refusal thereof was justified because of the absence of a stipulation as to her back pay. The trial judge would then certainly have arrived at the same conclusion and rendered the same decision. Labrador. of Emilio Cano Enterprises". eliminate. the complainant union was able to present documentary evidence and testimonies of Labastida. a regular complaint for unfair labor practice. No. obliterate. formally starts the proceeding. So ordered. and complainants Cayetano Olba. filed by counsel for two of the complainants even without the intervention of the court prosecutor. because the effect of the dismissal of the complaint in respect of the other three complainants was. there is nothing in the records to sustain the view that the dismissal of complainant Honorata Cruz was justified. By specific provision of law. the action taken by the said court. Hence. being supported by substantial evidence. as amended). For the same reason adduced above. the trial judge. petitioner contends that the court should have stricken from the records and disregarded all the evidence in support of the case. With the above considerations. It is evidence therefrom that they were sued not in their individual capacities. 1959 and the resolution of the court en banc dated February 4. is enforceable against his successor in office. among others. president and proprietor. it cannot be claimed that the act complained of caused respondent (herein petitioner) any material injury. the next question raised herein would also fail. but as such officials of the establishment. and proceeded with the hearing of the case on the merits ultimately leading to the promulgation of the disputed decision. in urging them to resign their affiliation with the complainant union. The judgment rendered against the deceased. the judgment for the payment of such back pay is correct. tending to establish that on several occasions they were threatened. as in prosecution of offenses punishable under the penal code. . in our mind. in the interest of speedy and objective administration of labor laws. Reyes." Answering this contention. filed supervisor. the evidence treating solely the case of Honorata Cruz. 3. Ferraren and Olba. . concur. who died during the pendency of the case in the lower court and before the promulgation of the decision. is well within the authority granted by the Industrial Peace Act. To our mind. cannot be adjudged guilty of the acts charged and sentenced in a decision promulgated after his death. Albino Tanghal and Salvador Labastida. C. 1959 are hereby affirmed. as affirmed by the court en banc. C. is. L. B. Lastly. except those portions thereof5 personal to him. cowed and intimidated by respondents. Bautista Angelo. this does not necessarily bestow and said officer absolute control and supervision over the said proceeding. Even if the trial judge forwarded his findings and recommendation to the court en banc. the decision of the trial court of January 7. A. more particularly Emilio Cano. insofar as not affected by the order reinstating the case with respect to Honorata Cruz. Admittedly. in disregarding technicality in order to arrive at the proper determination of the facts of the case. J. and Paredes. must remain undisturbed. strike our. and we quote with approval: It is noted. Although there was some kind of non-observance by the trial judge of the court's own rules. and manager. the latter would have. after the reception of evidence supporting movants' allegations of fact contained in their motion for reconsideration's. Padilla. and must affect the complaint of the remaining complainant Honorata Cruz. It is in consonance with the spirit and intent of the law that the court en banc took cognizance of the motion for the partial reinstatement of the case. 3 we find it insufficient to disturb the decision rendered therein. precisely on this same alleged lack of jurisdiction of the trial judge. Respondent were named in the complaint as "Emilio Cano. considering that said evidence is closely related and having a bearing to the alleged unfair labor practice supposedly committed against said Honorata Cruz. which denial amounted to an affirmance of the action taken by the trial judge4 and may be considered. Paras. Gutierrez David.. The contention is similarly without merit. the court said. which was reinstated. issued the same other and caused the case to be remanded to the court a quo for trial on the merits. we find it unnecessary to pass upon the other points raised by petitioner. 103. This is borne out by the subsequent denial by the court en banc of herein petitioner's motion for reconsideration of the main decision. Petitioner also claims that respondent Emilio Cano. In the first place. Bengzon.While under the Industrial Peace Act. investigation and determination of complaints for unfair labor practice. in the light of its subsequent action.. that during the hearing of this case and before the respective motions to withdraw were filed by complainant union.. aside from the rule that the Court of Industrial Relations is not bound to observe strictly technical rules or legal formalities. sufficient to support the finding that this employee was unjustly dismissed because of her union activities. 2 the rules of procedure observed in ordinary court litigations are not to be controlling in the hearing. JJ. particularly as to whether petitioner complainants authorized the dismissal of their case. J. The finding of the trial judge. based. therefore. the evidence adduced by the above-named complainants cannot in any way be suppressed. Ariston Cano and Rodolfo Cano . to be filed by the court-prosecutor. respectively. to have cured whatever procedural defect may have been committed. While it is true that an offer to take her back was made at the conclusion of the hearing. to quote petitioner. Wherefore.

McConnel and Cochrane each owned 500 shares. Whereupon. Inc. Arnold vs. Ursula Tolentino and Ricardo Rodriguez shall pay the costs proportionately in both instances.R.036. was originally organized on or about April 15. blaming the original incorporators. ET AL. W. they demanded payment for the use and occupation of the lot. there was justification for disregarding the corporate entity of the Park Rite Co.496 of its 1.. assisted by her husband. and Dario and Ordrecio 1 share each.. with legal interest thereon from the time of the filing of the complaint.00 plus legal interest as damages from April 15. the original incorporators were M. 4031). On the main issue whether the individual stockholders maybe held liable for obligations contracted by the corporation. they are hereby ordered to pay to plaintiffs-appellants Dominga de los Reyes and Sabino Padilla the sum of P6. 77 Phil.. the entire judgment amounted to P11. SABINO PADILLA.66 with legal interest therein from the time of the filing of the complaint until fully paid. It is obvious that the shares of the last two named persons were merely qualifying shares. McConnel.00 which was paid at the time when the corporation was already acquired by the said defendants-appellees Cirilo Paredes and Ursula Tolentino. The Court of First Instance denied recovery. the corporation occupied and used not only the Samanillo lot it had leased but also an adjacent lot belonging to the respondents-appellees Padilla. COCHRANE.500.500 shares at P1. 1947 to January 31. Inc. upon the plaintiffs when it occupied the lot of the latter without its prior knowledge and consent and without paying the reasonable rentals for the occupation of said lot. McConnel. W. 1947 until return of the lot. or else to defeat public convenience. Cirilo Paredes and Ursula Tolentino then resorted to this court. justify wrong. 44 Phil. Cochrane.. the corporation was found without any assets other than P550.50.500 shares) disclaimed liability. premises considered. L-10510 March 17.00 deposited in Court. Cochrane. the Court of Appeals (CA-G.496 shares of the said corporation and the remaining four shares were acquired by Bienvenido J.. petitioners. Claudio. The issue before us in the correctness of the decision of the Court of Appeals that. Defendants-appellees Cirilo Paredes and Ursula Tolentino are hereby declared liable to the plaintiffs-appellants for the rentals due on the lot in question from August 22.00 a share. The judgment creditors then filed suit in the Court of First Instance of Manila against the corporation and its past and present stockholders. There is also no doubt in our mind that the corporation was a mere alter ego or business conduit of the defendants Cirilo Paredes and Ursula Tolentino. and before them — the defendants M. McConnel.00 a month. When the latter discovered the truth around October of 1947. After their application to the judgment credit. Deducting the P550. The evidence clearly shows that these persons completely dominated and controlled the corporation and that the functions of the corporation were solely for their benefits. No. with a capital stock of 1. there remained a balance of P11.G. 1947. protect fraud. vs. as follows: WHEREFORE. 1947 the defendants Cirilo Paredes and Ursula Tolentino purchased 1.. Ricardo Rodriguez 408 shares. the unsatisfied balance of the judgment. The Court of Appeals has made express findings to the following effect: There is no question that a wrong has been committed by the so-called Park Rite Co. without the owners' knowledge and consent. jointly and severally. The corporation leased from Rafael Perez Rosales y Samanillo a vacant lot on Juan Luna street (Manila) which it used for parking motor vehicles for a consideration. Inc.] Inc. No.742. and adjudged them responsible for the amounts demanded by the lot owners. Then or about August 22. In addition thereto the defendants-appellees Cirilo Paredes. Dario and Aurea Ordrecio with a capital stock of P1.64 with legal interest thereon from the time of the filing of the complaint and until it is fully paid.. and holding its controlling stockholders personally responsible for a judgment against the corporation. Upon execution. ordering the Park Rite Co. to recover from them. P.. The Court of Appeals found that the Park Rite Co. plus legal interest and costs. MC CONNEL. Inc. 496. THE COURT OF APPEALS and DOMINGA DE LOS REYES.R.182. Benedicto M. but on appeal.732. W. Ricardo Rodriguez.. Inc. Segundo Tarictican. vs. the decision appealed from is reversed. and Paulino Marquez at one share each. Paredes. It turned out that in operating its parking business. That the corporation was a mere . RICARDO RODRIGUEZ. We granted certiorari.00 divided into 1. 1947. 1948 at the rate of P1. Judgment was rendered in due course on 13 November 1947. and Ricardo Rodriguez. to pay P7. Rodriguez and Cochrane.500 shares at P1. It is obvious that the last four shares bought by these four persons were merely qualifying shares and that to all intents and purposes the spouses Cirilo Paredes and Ursula Tolentino composed the so-called Park Rite Co. Yatco.410. respondents. IT IS SO ORDERED. who had purchased and held 1.00 a share. Quintin C. Willits and Patterson. P. When it was originally organized on or about April 15. 8434-R) reversed.50 outstanding and unsatisfied. a Philippine corporation. 1961 M. under the circumstances of record. The corporation (then controlled by petitioners Cirilo Parades and Ursula Tolentino. Restitution not having been made until 31 January 1948. P. the lot owners filed against it a complaint for forcible entry in the Municipal Court of Manila on 7 October 1947 (Civil Case No. 364). this Court has already answered the question in the affirmative wherever circumstances have shown that the corporate entity is being used as an alter ego or business conduit for the sole benefit of the stockholders. finding that the corporation was a mere alter ego or business conduit of the principal stockholders that controlled it for their own benefit. or defend crime (Koppel [Phil.235. Defendant-appellee RICARDO RODRIGUEZ is hereby ordered to pay to the plaintiffs-appellants Dominga de los Reyes and Sabino Padilla the sum of P1.

This is further shown by the fact that the funds of the corporation were kept by Cirilo Paredes in his own name (p. (Emphasis supplied). Barrera and Dizon. To hold the latter liable for the corporation's obligations is not to ignore the corporation's separate entity. that conclusion is amply justified where it is shown.) The corporation itself had no visible assets. T. but an action to have non-parties to the judgment held responsible for its payment. took no part. . The error of this stand is apparent. JJ.N. Concepcion and Paredes. Bautista. since the Rules of Court provide for enforcement by mere motion during those five years. except perhaps the toll house. Angelo. JJ. and conclusively show that the corporation is a mere instrumentality of the individual stockholder's. originally begun in the Court of First Instance. 1950. Inc. Bengzon. It was for this reason that the judgment against it could not be fully satisfied . C. because the second action.J. Actg. Finding no error in the judgment appealed from. was not an action to enforce the judgment of the Municipal Court.. hence the latter must individually answer for the corporate obligations.extension of their personality is shown by the fact that the office of Cirilo Paredes and that of Park Rite Co. in the same floor and in the same room — at 507 Wilson Building.. as correctly found by the trial court. 14. with costs against petitioners-appellants Cirilo Paredes and Ursula Tolentino. The petitioners-appellants insist that the Court could have no jurisdiction over an action to enforce a judgment within five (5) years from its rendition. that the operations of the corporation were so merged with those of the stockholders as to be practically indistinguishable from them. Labrador. The facts thus found can not be varied by us.S.. November 8. were located in the same building. but merely to apply the established principle that such entity can not be invoked or used for purposes that could not have been intended by the law that created that separate personality.. While the mere ownership of all or nearly all of the capital stock of a corporation is a mere business conduit of the stockholder. the wire fence around the lot and the signs thereon. as in the case before us. concur. the same is hereby affirmed.

was struck by the Pinoy jeep owned by petitioner Filamer and driven by its alleged employee. (5) to pay THREE THOUSAND PESOS (P3.G.00) as loss of earnings capacity.000. namely: Daniel Funtecha and Filamer Christian Institute.00) as Court litigation expenses. 1990 FILAMER CHRISTIAN INSTITUTE. Kapunan. Kapunan. and that defendants Daniel Funtecha. . Sr.000.R. Sr.50) as medical expenses (Exh. Allan Masa. (8) to pay TWENTY THOUSAND PESOS (P20. the director and president of Filamer Christian Institute. was not impleaded as a codefendant. Kapunan. The two fled from the scene after the incident. V-4222 which found petitioner Filamer Christian Institute and Daniel Funtecha negligent and therefore answerable for the resulting injuries caused to private respondent Potenciano Kapunan. to pay plaintiff the following: (1) to pay the sum of TWO THOUSAND NINE HUNDRED FIFTY PESOS AND FIFTY CENTAVOS (P2.00) as doctor's fee (Exh. Filamer Christian Institute and Allan Masa are at fault and negligent of the acts complained of which causes (sic) injury to plaintiff. jointly and severally. This is a petition for review of the decision 1 of the Court of Appeals affirming the judgment of the Regional Trial Court (RTC) of Roxas City. respondents. Sr.00) as attorney's fees. finding the averments in the complaint as supported by preponderance of evidence to be reasonable and justified. to turn over the wheels to him. Sr. was walking along Roxas Avenue.00) as additional expenses incurred for thirty-nine days at P10. Named defendants in the complaint were petitioner Filamer and Funtecha. in his personal capacity in that he personally authorized and allowed said Daniel Funtecha who was his houseboy at the time of the incident.. vs.00) pesos as moral damages. the trial court rendered judgment finding not only petitioner Filamer and Funtecha to be at fault but also Allan Masa. Thus: WHEREFORE. Funtecha. "C").000. His son. only one headlight of the jeep was functioning. who was with Funtecha at the time of the accident. Sr. POTENCIANO KAPUNAN. No. for remuneration of plaintiff's helper while recuperating. as substituted by his heirs. to drive the vehicle in question despite his knowledge and awareness that the latter did not have the necessary license or permit to drive said vehicle. a non-party. who only had a student driver's permit. Funtecha.000. suffered multiple injuries for which he was hospitalized for a total of twenty (20) days. instituted a criminal case against Funtecha alone in the City Court of Roxas City for serious physical injuries through reckless imprudence. in his capacity as Judge of the Regional Trial Court. Roxas City at 6:30 in the evening of October 20. and without prejudice to the right of defendant Filamer Christian Institute to demand from co-defendant Daniel Funtecha part-time employee and/or Allan Masa a full time employee reimbursement of the damages paid to herein plaintiff. Branch XIV. judgment is hereby rendered in favor of the plaintiff and against the defendants. was driving after having persuaded Allan Masa. JR. SR.HONORABLE COURT OF APPEALS. Roxas City and the late POTENCIANO KAPUNAN. 2 Pursuant to his reservation.500. Thereafter. Sr. (3) to pay THREE HUNDRED NINETY PESOS (P390. Kapunan. SUPLICO. Private respondent Potenciano Kapunan. 1977. HONORABLE ENRIQUE P. PAZ KAPUNAN PUBLICO.. A tricycle driver brought the unconscious victim to the hospital.00)as insurance indemnity on the policy contract. 4 On December 14. "A"). 1983. SUSA KAPUNAN GENUINO and ERLINDA KAPUNAN TESORO. namely: LEONA KAPUNAN TIANGCO. JESUS KAPUNAN. an eighty-two-year old retired schoolteacher (now deceased). reserved his right to file an independent civil action. the employer whose liability is primary and direct. Branch 14 in Civil Case No. Also included was Agustin Masa. CICERO KAPUNAN. as Kapunan. (6) to pay TWENTY THOUSAND (P20. (4) to pay FOUR THOUSAND PESOS (P4. (7) to pay FOUR THOUSAND FIVE HUNDRED PESOS (P4.950. his conviction was affirmed by the then Court of First Instance of Capiz.. SANTIAGO KAPUNAN. petitioner. the authorized driver. The inferior court found Funtecha guilty as charged and on appeal. As a result of the accident. Sr. Evidence showed that at the precise time of the vehicular accident. 75112 October 16.. commenced a civil case for damages 3 before the RTC of Roxas City. (2) to pay TWO HUNDRED FORTY ONE PESOS (P241.00 a day.

is called a quasi-delict and is governed by the provisions of this Chapter.00) as third party liability as provided in the Zenith Insurance Corporation policy (Exh. 2176. 1984. It is petitioner Filamer's basic contention that it cannot be held responsible for the tortious act of Funtecha on the ground that there is no existing employer-employee relationship between them. This Court finds that defendant Daniel Funtecha while driving the said vehicle is considered as authorized driver in accordance with the policy in question marked Exh. (3) to pay FOUR THOUSAND PESOS (P4. The defendants Daniel Funtecha. provided the students are given real opportunity. Agustin Masa. where students work for the latter in exchange for the privilege to study free of charge. petitioner Filamer has invoked the provisions of the Labor Code. Rule X of Book III which reads: Sec.00) as attorney's fees. if there is no pre-existing contractual relation between the parties. and Filamer Christian Institute. cause he was not in the vehicle during the alleged incident. The record shows that the defendant Daniel Funtecha while driving the said vehicle was having a student drivers license marked Exh.000. We agree. Working scholars.00) as Court litigation and actual expenses.000. (2) to pay TEN THOUSAND PESOS (P10. In disclaiming liability. colleges or universities on the other. The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observe all the diligence of a good father of a family to prevent damage. Filamer Christian Institute and third party defendant Zenith Insurance Corporation are hereby ordered jointly and severally. and schools. The legal issue in this appeal is whether or not the term "employer" as used in Article 2180 is applicable to petitioner Filamer with reference to Funtecha. For failure to prove their respective counterclaims filed by the defendant Daniel Funtecha.The defendant Agustin Masa as director of defendant Filamer Christian Institute has also failed to exercise the diligence required of a good father of a family in the supervision of his employee Allan Masa. the Appellate Court rendered the assailed judgment affirming the trial court's decision in toto. (Emphasis supplied). For failure of the insurance firm to pay the docket fees. being his son. 2180. 6 Hence the present recourse by petitioner Filamer. 7 specifically Section 14. necessary to finish their chosen court under such arrangement. Such fault or negligence.000. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks. On December 17. same are hereby dismissed. even though the former are not engaged in any business or industry. However. said lower court's decision became final as to Funtecha. to pay the costs of the suit. "2"). The Civil Code provides: Art. is obliged to pay for the damage done. the following: (1) to pay TWENTY THOUSAND PESOS (P20. . 5 Only petitioner Filamer and third-party defendant Zenith Insurance Corporation appealed the lower court's judgment to the Court of Appeals and as a consequence. The Zenith Insurance Corporation as third party defendant is hereby ordered to pay in favor of the defendant and third party plaintiff. "2-Masa and FCI". "1" and accompanied by Allan Masa who is the authorized driver of said vehicle with a professional drivers license as shown by Exh. Finding the averments in the third party complaint filed by defendant Filamer Christian Institute as supported by preponderance of evidence as shown by their exhibits to be reasonable and justified. The Zenith Insurance Corporation as third party defendant has failed to prove that there was a policy violation made by the defendant Filamer Christian Institute which absolves them from liability under the aforesaid insurance policy. (Emphasis supplied).000. Dr. The obligation imposed by article 2176 is demandable not only for one's own acts or omissions but also for those of persons for whom one is responsible. Art.00)as moral damages. there being fault or negligence. "3". Filamer Christian Institute. including such facilities as may be reasonable. 1985. as against the herein plaintiff. (4) to pay THREE THOUSAND PESOS (P3. — There is no employer-employee relationship between students on the one hand. Whoever by act or omission causes damage to another. 14. judgment is hereby rendered in favor of the said defendant and third party plaintiff Filamer Christian Institute as against third party defendant Zenith Insurance Corporation. the court absolved defendant Agustin Masa from any personal liability with respect to the complaint filed against him in his personal and private capacity. its appeal was dismissed on September 18.

Funtecha was not engaged in the execution of the janitorial services for which he was employed. Separate Opinions GUTIERREZ. concurring: I concur but limit my concurrence on the employee-employer relationship to labor law situations. Private respondents' attempt to hold petitioner Filamer directly and primarily answerable to the injured party under Article 2180 of the Civil Code would have prospered had they proceeded against Allan Masa. such conclusion would not be binding on Allan. the decision under review of the Court of Appeals is hereby SET ASIDE. J. No costs.. But even if we were to concede the status of an employee on Funtecha. JR.. As admitted by Agustin Masa in open court. with sufficient time to prepare for his 7:30 a. The complaint for damages 10 is ordered DISMISSED as against petitioner Filamer Christian Institute for lack of cause of action. Taking the wheels of the Pinoy jeep from the authorized driver at 6:30 in the evening and then driving the vehicle in a reckless manner resulting in multiple injuries to a third person were certainly not within the ambit of his assigned tasks.m. 8 The wording of Section 14 is clear and explicit and leaves no room for equivocation. In other words. It is but fair therefore that Funtecha should bear the full brunt of his tortious negligence. Sr. His duty was to sweep the school passages for two hours every morning before his regular classes. classes. is to read into the law something that was not legislated there in the first place. the authorized driver of the Pinoy jeep and undisputably an employee of petitioner. To dismiss the implementing rule as one which governs only the "personal relationship" between the school and its students and not where there is already a third person involved.. even if the trial court did find Allan guilty of negligence. It was Allan's irresponsible act of entrusting the wheels of the vehicle to the inexperienced Funtecha which set into motion the chain of events leading to the accident resulting in injuries to Kapunan. still the primary responsibility for his wrongdoing cannot be imputed to petitioner Filamer for the plain reason that at the time of the accident. but for some purpose of his own. The provision of Section 14 is obviously intended to eliminate an erstwhile gray area in labor relations and seeks to define in categorical terms the precise status of working scholars in relation to the learning institutions in which they work for the privilege of a free education. concurring: I concur but limit my concurrence on the employee-employer relationship to labor law situations. to 6:00 a. it has been satisfactorily shown that Funtecha was not acting within the scope of his supposed employment. He was assigned to clean the school passageways from 4:00 a. as espoused by private respondents. But under the present set of circumstances. JR. Petitioner Filamer cannot be made liable for the damages he had caused.. Funtecha belongs to that special category of students who render service to the school in exchange for free tuition Funtecha worked for petitioner for two hours daily for five days a week. petitioner Filamer cannot be considered as Funtecha's employer. at the time of the injury. Funtecha was not included in the company payroll.m. 9 WHEREFORE. It must be recalled that Allan was never impleaded in the complaint for damages and should be considered as a stranger as far as the trial court's judgment is concerned.It is manifest that under the just-quoted provision of law. in view of the foregoing. It is axiomatic that no man shall be affected by a proceeding to which he is a stranger. J. Separate Opinions GUTIERREZ.m. .

and THE SHERIFF OF THE NATIONAL LABOR RELATIONS COMMISSION. the computation to be based from the latest minimum wage law at the time of their dismissal. jointly and severally. 89879 April 20. to pay. B THE DECISION AND THE NLRC RESOLUTION SUFFER FROM A LEGAL AND CONSTITUTIONAL INFIRMITY BECAUSE THEY SANCTION A DEPRIVATION OF PETITIONERS' PROPERTIES WITHOUT DUE PROCESS OF LAW. eighty-four (84) workers of the Philippine Inter-Fashion. (PIF) filed a complaint against the latter for illegal transfer simultaneous with illegal dismissal without justifiable cause and in violation of the provision of the Labor Code on security of tenure as well as the provisions of Batas Pambansa Blg. 1989.) Not satisfied therewith petitioners filed a motion for reconsideration in the First Division of the public respondent. LABOR ARBITER AMBROSIO B. INC.. By mutual agreement the hearing was re-set on December 21. UNDER DISPUTE. C THE ARBITER AND THE NLRC COMMITTED A GRAVE ABUSE OF DISCRETION IN ADJUDGING PETITIONERS HEREIN AS JOINTLY AND SEVERALLY LIABLE WITH PHILIPPINE INTER-FASHION. THE DECISION AND THE RESOLUTION. Petitioners were ordered to pay the appeal fee in accordance with law. The PIF filed its position paper on January 22. ARE NULL AND VOID. 1987 both parties were directed to submit their respective position papers within ten (10) days. On October 21. On January 14. 2. 1988 complainants filed their position paper. 1988 to file their position paper. Inc. 1988 a decision was rendered by the labor arbiter the dispositive part of which reads as follows: IN VIEW OF THE FOREGOING CONSIDERATION. (See attached Annex "A" of complainants' position paper. 1988 and on March 29. The labor arbiter granted the motion. vs. 1988 on which dates respondents failed to appear. 1990 JAIME PABALAN AND EDUARDO LAGDAMEO. Hence the herein petition for certiorari with prayer for the issuance of a temporary restraining order wherein the petitioners raised the following issues: A THE ARBITER AND THE NLRC DID NOT ACQUIRE JURISDICTION OVER THE PERSONS OF THE PETITIONERS AND. 1988. respondents. Once again the parameters of the liability of the officers of a corporation as to unpaid wages and other claims of the employees of a corporation which has a separate and distinct personality are brought to fore in this case. On January 4. 130. On May 5. The hearing was re-set for November 27. living allowance. 1987. PIF. THEREFORE. with leave of the labor arbiter. which nevertheless. through its General Manager. 1987 so that they could engage a counsel to properly represent them preferably on November 17. On November 30. 1988. Complainants demanded reinstatement with full backwages. On December 10.G. affirmed the appealed decision and dismissed the appeal for lack of merit in a resolution dated June 30. 1988 was re-set to March 9. Jaime Pabalan and Mr.NATIONAL LABOR RELATIONS COMMISSION. 1987 respondents (petitioners herein) moved for the cancellation of the hearing scheduled on November 6. 1987 for failure of respondents to appear. reinstate the sixty two (62) complainants to their former or equivalent position without loss of seniority rights and privileges. No. The hearing was re-set on January 14. complainants filed their supplemental position paper impleading the petitioners as officers of the PIF in the complaint for their illegal transfer to a new firm. On July 13. 1987. respondent Philippine Inter-Fashion and its officers Mr. 13th month pay and other benefits under existing laws and/or separation pay. National Labor Relations Commission (NLRC). their backwages and other benefits from the time they were dismissed up to the time they are actually reinstated. TO PAY THE JUDGMENT DEBT. was notified about the complaint and summons for the hearing set for November 6. 1988 on which date respondents were given a deadline to submit their position paper. 1987. 1988 counsel for respondents moved that he be given until January 22. ET AL. 1987 but on said date respondents and/or counsel failed to appear. SISON. The heating for February 17. . On October 20. 1987.R. petitioners. ELIZABETH RODEROS. Eduardo Lagdameo are hereby ordered to: 1.

or used the transfer of the employees as a means to perpetrate an illegal act or as a vehicle for the evasion of existing obligations. . the legal fiction that a corporation has a personality separate and distinct from stockholders and members may be disregarded as follows: This finding does not ignore the legal fiction that a corporation has a personality separate and distinct from its stockholders and members. Ransom Labor Union-CCLU vs. 1989 this Court dismissed the petition for insufficiency in form and substance. WHEREFORE. 1989 the Court resolved to set aside said resolutions of September 25. and to require respondents to comment thereon within ten (10) days from notice thereof.000. including its officers as well as from that of any other legal entity to which it may be related. Petitioners contend however that under the circumstances of the case as officers of the corporation PIF they could not be jointly and severally held liable with the corporation for its liability in this case. the petition is GRANTED and the questioned resolution of the public respondent dated June 30. Now to the merit of the petition. in the questioned resolution of the NLRC dated June 30. NLRC in that the liability in the cases of illegal termination of employees extends not only to the corporation as a corporate entity but also to its responsible officers acting in the interest of the corporation or employer. on February 7.00. However. . a company manager acting in good faith within the scope of his authority in terminating the services of certain employees cannot be held personally liable for damages. or to confuse the legitimate issues. 1989. It must be noted. The settled rule is that the corporation is vested by law with a personality separate and distinct from the persons composing it. the circumvention of statutes. They were therefore properly served with summons and they were not deprived of due process. as this Court had held "where the incorporators and directors belong to a single family. Thus. 1989 in the court's calendar which the Court granted. Thereafter when the supplemental position paper was filed by complainants. 2 Mere ownership by a single stockholder or by another corporation of all or nearly all capital stocks of the corporation is not by itself sufficient ground for disregarding the separate corporate personality. As the record shows while originally it was PIF which was impleaded as respondent before the labor arbiter.On September 25. Ransom Corporation were intended to avoid payment of its obligations to its employees. Indeed. Petitioners do not question the merits of the decision insofar as PIF is concerned in this proceeding. however. Hence petitioners can not be held jointly and severally liable with the PIF corporation under the questioned decision and resolution of the public respondent. As a general rule. 1989 is hereby modified by relieving petitioners of any liability as officers of the PIF and holding that the liability shall be solely that of Philippine Inter-Fashion. Ransom Corporation were transferred to continue its business which acts of such officers and agents of A. Inc. However. having failed to comply with the Rules of Court and Administrative Circular No. officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. the Court resolved to lift the temporary restraining order issued on November 13. NLRC the corporation was a family corporation and that during the strike the members of the family organized another corporation which was the Rosario Industrial Corporation to which all the assets of the A.C. 1989 there is no finding as to why petitioners were being held jointly and severally liable for the liability and obligation of the corporation except as to invocation of the ruling of this Court in A. . CIR involving almost similar facts as in this case. In this particular case complainants did not allege or show that petitioners. the circumvention of statutes. No costs. A temporary restraining order was issued enjoining respondents from enforcing or implementing the questioned decision of the labor arbiter affirmed by the NLRC upon a bond to be filed by petitioners in the amount of P100. the corporation and its members can be considered as one in order to avoid its being used as an instrument to commit injustice. 1989 and October 16. Not one of the above circumstances has been shown to be present. To the same effect . as officers of the corporation deliberately and maliciously designed to evade the financial obligation of the corporation to its employees. petitioners also appeared in their behalf through counsel. 1989 for failure to raise any substantial arguments to warrant a modification thereof. (are) this Court's rulings in still other cases: When the notion of legal entity is used as a means to perpetrate fraud or an illegal act or as a vehicle for the evasion of an existing obligation. petitioners were impleaded as respondents to which they filed an opposition inasmuch as they filed their own supplemental position papers. acting on an urgent motion to include the motion for reconsideration of the resolution of September 25. In such case this Court considered the president of the corporation to be personally liable together with the corporation for the satisfaction of the claim of the employees. and or (to) confuse legitimate issues the veil which protects the corporation will be lifted. The Court finds these grounds to be devoid of merit. for. on November 30. However.C." or to further an end subversive of justice. Ransom Labor Union-CCLU vs. 1-88 requiting the verification of the petition.C. it was also held that the shield of corporate fiction should be pierced when it is deliberately and maliciously designed to evade financial obligations to employees. The first two issues they raised are to the effect that the public respondents never acquired jurisdiction over them as they have not been served with summons and thus they were deprived due process. In the case of Claparols vs. 1989. 1990 for failure of petitioner to file the required bond despite extensions of time granted them.C. A motion for reconsideration filed by the petitioners of the said resolution was denied on October 16. that A.

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both dates inclusive. in the following manner. Respondent. Philippines. misapplied and converted to his own personal use and benefit. SIA. failed and refused to return the said cold rolled sheets or account for the proceeds thereof. THE PEOPLE OF THE PHILIPPINES. unlawfully and feloniously defraud the Continental Bank. which cold rolled steel sheets were consigned to the Continental Bank.R.023.60 under a trust receipt agreement under L/C No. (MEMAP) and on behalf of said company. to wit: the said accused. Inc. with intent to defraud. but the said accused. L-30896 April 28. in his capacity as president and general manager of the Metal Manufacturing of the Philippines. in the City of Manila. Petitioner. under an information which reads: chanrobles virtual law library That in. about or during the period comprised' between July 24. under the express obligation on the part of said accused of holding the said steel sheets in trust and selling them and turning over the proceeds of the sale to the Continental Bank. vs. far from complying with his aforesaid obligation and despite demands made upon him to do so. No. once in possession of the said goods. 1963. if sold. a banking institution duly organized and doing business in the City of Manila. 1963 and December 31. to the damage and prejudice of the said . obtained delivery of 150 M/T Cold Rolled Steel Sheets valued at P 71.chanrobles virtual law libraryvirtual law library Petition for review of the decision of the Court of Appeals affirming the decision of the Court of First Instance of Manila convicting the appellant of estafa. 63/109. which the said accused willfully. the said accused did then and there willfully. 1983 JOSE O.xxxiv xxxv xxxvi xxxvii xxxviii xxxix xl G. unlawfully and feloniously misappropriated.

there was permitted delivery of the steel sheets only upon execution of a trust receipt.818. which he also disputes.300. association or other juridical entities the penalty provided for in this Decree shall be imposed upon the directors. that the necessity was felt for the promulgation of the decree. The maxim that all doubts must be resolved in favor of the accused is always of compelling force in the prosecution of offenses. the existence of a criminal liability on his part may not be said to be beyond any doubt. Since it is a responsible officer or officers of the corporation who actually perform the act for the corporation. 103.818.) chanrobles virtual law library The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case. on 31 May. the distinction adverted to between the Tan Boon Kong case and the case at bar should come out clear and meaningful.47 deposited by the said accused with the bank as marginal deposit and forfeited by the said from the value of the said goods. the application being directed to the Continental Bank. the existence of criminal liability for which the accused is made answerable must be clear and certain. for short) as President thereof in dealing with the complainant. To answer this question. It is completely untenable. assumed sole obligation under the trust receipt (Exhibit A). citing cases. 625. May 31. II:7.68. negated. because his company was in need of raw materials to be imported from abroad. (Bank for short) he may be liable for the crime charged.that the bill of exchange issued for the purpose of collecting the unpaid account thereon having fallen due (see Exh. the Solicitor General relies on the general principle that when a corporation commits an act which would constitute a punishable offense under the law. an abstract being. (Original Records. of Tokyo. C and C-1. People. supra-may however not be squarely applicable to the instant case in that the corporation was directly required by law to do an act in a given manner. p. 1963. In all criminal prosecutions. p. Sia. which in effect combines the first three errors assigned. Article 315. while according to the accused. that is the balance including the interest after deducting the sum of P28. in the meantime. If the defense theory is followed unscrupulously legions would form corporations to commit swindle right and left where nobody could be convicted. the accused was not clearly shown to be acting other than in his own behalf. acting for the corporation. from the peculiar terms and condition agreed upon by the parties to the transaction. p. on the assumption that the acts imputed to him would constitute the crime of estafa. without prejudice to civil liabilities arising from the criminal offense. In disputing the theory of petitioner. 1964. 1963. a distinction is to be found with the Tan Boon Kong case in that the act alleged to be a crime is not in the performance of an act directly ordained by law to be performed by the corporation. tsn. hence the result of the defense theory would be hopeless chose in business and finance. Exhibit A. engaged in the manufacture of steel office equipment. the responsible officers thereof would personally bear the criminal liability. herein complainant. (Rollo [CA].736. not by direct provision of the law. accordingly. as a practice observed in the usual pursuit of a business or a commercial transaction. it is imperative to make an indepth analysis of the conditions usually embodied in a . Exhibit B and his application having been approved. With this explanation.47. 1963. In reviewing the evidence. the Fiscal filed the information after preliminary investigation as has been said on 22 October. (People vs. is a factor determinant of whether a crime was committed or whether a civil obligation alone intended by the parties. therefore.D. The question that suggests itself is. petitioner proceeds. 1963 according to accused himself. Sia sometime prior to 24 May. We now entertain grave doubts. now from here on there is some debate on the evidence. not in behalf of a corporation. 607. (Rollo [CA]. II:8. in the light of the promulgation of P.Continental Bank in the total amount of P146. it is the responsible officers thereof. but seeks to avoid liability on his theory that the Bank knew all along that petitioner was dealing with him only as an officer of the Metal Company which was the true and actual applicant for the letter of credit (Exhibit B) and which. and the deterrent effect of the law. is whether petitioner Jose O. partnership. 108. dated 17 and 27 December.chanroblesvirtualawlibrary chanrobles virtual law library In discussing this question. in the said sum of P71. Exh. Japan. he applied for a letter of credit to import steel sheets from Mitsui Bussan Kaisha. The act is imposed by agreement of parties. and the accounts having reached the sum in pesos of P46. whether the provisions of the Revised Penal Code. 1). they must of necessity be the ones to assume the criminal liability. 54 Phil. Tan Boon Kong.60. The first issue raised. the Continental Bank. living person.68 after deducting his deposit valued at P28.chanroblesvirtualawlibrary chanrobles virtual law library In the present case. as also raised by the petitioner.) The above-quoted observation of the trial court would seem to be merely restating a general principle that for crimes committed by a corporation. This Court has thus far not ruled on the criminal liability of an officer of a corporation signing in behalf of said corporation a trust receipt of the same nature as that involved herein. 315 (1-[2]) of the Revised Penal Code. therefore.023. but there is no question . Commercial Laws of the Philippines. the letter of credit was opened on 5 June. 115. according to Complainant Bank. which is a very comprehensive piece of legislation. otherwise this liability as created by the law would be illusory.D. B) neither accused nor his company having made payment thereon notwithstanding demands. 1 (b) are not adequate to justify the punishment of the act made punishable by P. that was the reason why upon complaint by Continental Bank. In the case of Samo vs. 115 providing for the regulation of trust receipts transaction. the goods were delivered to him sometime before he executed that trust receipt in fact they had already been converted into steel office equipment by the time he signed said trust receipt. The offense may arise.104). officers. pp. Inc. The performance of the act is an obligation directly imposed by the law on the corporation. having only acted for and in behalf of the Metal Manufacturing Company of the Philippines (Metal Company. The Court of Appeals has subscribed to this view when it quoted approvingly from the decision of the trial court the following: chanrobles virtual law library A corporation is an artificial person. Ltd. Exhibit D. 1962. and the same law makes the person who fails to perform the act in the prescribed manner expressly liable criminally. L-17603-04. par. tsn. who would be punished for the crime. was General Manager of the Metal Manufacturing Company of the Philippines. In the absence of an express provision of law making the petitioner liable for the criminal offense committed by the corporation of which he is a president as in fact there is no such provisions in the Revised Penal Code under which petitioner is being prosecuted. the Court of Appeals came up with the following findings of facts which the Solicitor General alleges should be conclusive upon this Court: chanrobles virtual law library There is no debate on certain antecedents: Accused Jose 0. 1963 in the amount of $18. and includes an express provision that if the violation or offense is committed by a corporation. and the goods arrived sometime in July. See also Tolentino.chanroblesvirtualawlibrary chanrobles virtual law library The next question is whether the violation of a trust receipt constitutes estafa under Art. if at all. for it would be futile and ridiculous to convict an abstract being that can not be pinched and confined in jail like a natural. The intention of the parties.736. employees or other officials or persons therein responsible for the offense.and this is not debated .

D. p. between the allegation and the evidence. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof. not denied by the People. not be said to have been satisfied in the instance case. et al. the significance of which should be properly evaluated. the approval of the L/C and the making of the marginal deposit and the effective importation of the goods. in connection with the same letter of credit. Sia. July 5.n. moreover. which could possibly give rise to a case of imprisonment for non-payment of a debt. the bank is not in the same concept as the jewelry owner with full power of disposition of the goods.B. 115 now seeks to punish expressly.trust receipt to best their legal sufficiency to constitute the basis for holding the violation of said conditions as estafa under Article 315 of the Revised Penal Code which P.chanroblesvirtualawlibrary chanrobles virtual law library It is also worthy of note that while the trust receipt speaks of authority to sell. only the corporation benefited. instead of returning them to the owner as is his obligation. never to subject the "entrustee" to criminal prosecution. vs. a trust being thus created in the full sense as contemplated by Art. are deemed to have consciously entered into a purely commercial transaction that could give rise only to civil liability. violation of the element of trust not being intended to be in the same concept as how it is understood in the criminal sense. People vs. and acquires legal standing as such receipt only upon acceptance by the "entrustee. (1).1949. Since the trust receipt has. 24 SCRA 3. Abana. May 24. 71 SCRA 68. (Original Records. Asst. the intent of the parties should govern. Bautista. 78.N. 108) One view is to consider the transaction as merely that of a security of a loan. "before the Continental Bank approved the application for a letter of credit (Exhibit 'D'). pledge or otherwise." as a distinct condition from that of "to sell the goods or procure their sale" (Section 4." to use the term used in P. Abendan.. and by that loan. L-1502. May 7. there would then be no basis for holding him criminally liable. 76 Phil. 115. par. and the former misappropriates for his personal use and benefit. one as giving rise only to civil liability for the violation of the condition thereof. Viuda e Hijos de Angel Jose. 81 Phil. the Continental Bank examined the financial capabilities of the applicant. Without being made so liable personally as the corporation is. to be executed upon the arrival of the goods imported. If under the trust receipt the bank is made to appear as the owner. Speaking of such liability alone. may be not as an ordinary pledge as observed in P. Jose O. it would appear as positively established that the intention of the parties in entering into the "trust receipt" agreement is merely to afford a stronger security for the loan evidenced by the letter of credit. for if it were really so. however. People vs. the importer should be the real owner of the goods. may therefore. 711. The other view is that the bank as the owner and "entrustor" delivers the goods to the "entrustee. 115. for instance. L-39. with costs de oficio." the trust receipt transaction itself. This fact is. more of a legal fiction than fact.chanroblesvirtualawlibrary chanrobles virtual law library Consequently.chanroblesvirtualawlibrary chanrobles virtual law library FOR ALL THE FOREGOING. Unlike. L-39758. in the event of a violation of the terms of the trust receipt. 726) but neither as a transaction falling under Article 315-1 (b) of the Revised Penal Code giving rise to criminal liability. the allegation of the information is to effect that the misappropriation or conversion was for the personal use and benefit of the petitioner. the former should be adopted as more favorable to the supposed offender. not embodied in the trust agreement. February 1. just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the importer.. all through the efforts of the importer who has to find his supplier.D. a feature totally absent in the case of the transaction between the jewel-owner and his agent. the trust receipt in question reads: chanrobles virtual law library I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR THE SAID BANK as its property with liberty to sell the same for its account but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either way of conditional sale.) chanrobles virtual law library There is.D. 1946. Ernesto Garlit. citing In re Dunlap C (206 Fed. People vs. 115 has express provision relative to the "manufacture or process of the good with the purpose of ultimate sale.chanroblesvirtualawlibrary chanrobles virtual law library As executed. Manager of the Foreign Department. People vs. Note that what is embodied in the receipt in question is the sale of imported goods. yet. it was but an artificial expedient. Metal Manufacturing Company of the Philippines because that was the bank's standard procedure (Testimony of Mr. We reverse the decision of the Court of Appeals and hereby acquit the petitioner. The requirement in criminal prosecution.D. as generating also criminal liability. Again. it could dispose of the goods in any manner it wants. which it cannot do. that there must be strict harmony. arrange for the payment and shipment of the imported goods-all these circumstances would negate any intent of subjecting the importer to criminal prosecution.s. the antecedent acts consisting of the application of the L/C. when several pieces of jewelry are received by a person from the owner for sale on commission. chanrobles virtual law library In case of sale I/we further agree to hand the proceeds as soon as received to the BANK to apply against the relative acceptance (as described above) and for the payment of any other indebtedness of mine/ours to CONTINENTAL BANK. 1. before the promulgation of P. 814. Continental Bank.82 Phil. August 30. (Duran vs. L-1481. 1968. L-24804. . ( Ibid). as the Bank had full knowledge of. therefore.chanroblesvirtualawlibrary chanrobles virtual law library We consider the view that the trust receipt arrangement gives rise only to civil liability as the more feasible. thus impressing on the trust receipt vagueness and ambiguity which should not be the basis for criminal prosecution. the manufacture thereof not having been mentioned. 1965). " with the authority to sell the goods. the petitioner was never intended to be equally liable as the corporation. if only from the fact that the trust receipt transaction is susceptible to two reasonable interpretation. which the bank does not have. The transaction being contractual. for the bank has previously extended a loan which the L/C represents to the importer. the fact is undisputed that the imported goods were to be manufactured into finished products first before they could be sold. 1948. 315. 1976. As stated in petitioner's brief (page 2). Parayno. and the other. P. t. as previously explained and demonstrated. by its nature. 63 Phil. " From this fact. as one arising from the contract. not the petitioner personally. and that the trust element is but and inherent feature of the security aspect of the arrangement where the goods are placed in the possession of the "entrustee. subsequently covered by the trust receipt. The parties. but with the obligation to give the proceeds to the "entrustor" or return the goods themselves if not sold. 1 (b). one circumstance appearing on record. January 28. with respect to which there is variance between the allegation and the evidence. for any violation of the trust receipt. either the jewelries or the proceeds of the sale. CA.chanroblesvirtualawlibrary chanrobles virtual law library It is worthy of note that the civil liability imposed by the trust receipt is exclusively on the Metal Company. not variance. This is made clearly so upon consideration of the fact that in the violation of the trust agreement and in the absence of positive evidence to the contrary. The Continental Bank did not examine the financial capabilities of herein petitioner. as distinguished from the civil liability arising out of a crime.

as wrongly alleged in the information). the receipt of the steel sheets. 346. the deposit (which was from corporate funds.. concurring: In concur.60" representing the value of the cold rolled steel sheets imported by the corporation with the bank's financing under its letter of credit and released to the importer corporation under trust receipt in favor of the bank. the persons who executed the trust receipts acted in their own individual capacities unlike in this case where petitioner acted for and on behalf of the Metal Manufacturing Company.. and not a deposit made by the petitioner. for non-payment of the debt evidenced by the trust receipt. par. 874 (1928). 1973 that responsible directors.law library anrobles virtual laSeparate Opinions TEEHANKEE. for being contrary to the rulings in People vs. Jr.47" which sum.818.47" which sum. including the interest after deducting the sum of P 28.818. in the said sum of P 71. J. by the trial court presided by Judge Ruperto Kapunan. and not a deposit made by the petitioner. association or other juridical entities. partnership. the Court. partnership. under which the very sheets were supposed to be sold by the corporation) and the nonpayment of the credit extended by the bank. 5 SCRA 355 (1962). cited in Samo vs.. according to the very information.68 . 961. and who may not be able to acquire credit except through utilization. I reiterate my separate opinion therein supporting the more liberal interpretation that the trust receipt transaction "gives rise only to civil liability on the part of the offender" and holding that the very definition of a trust receipt.chanroblesvirtualawlibrary chanrobles virtual law library . it was " deposited by the said accused with the [Continental] bank as marginal deposit and forfeited by the said bank from the value of said goods.60" representing the value of the cold rolled steel sheets imported by the corporation with the bank's financing under its letter of credit and released to the importer corporation under trust receipt in favor of the bank. and was presumably authorized to do so. then manufactured into finished products (which could not technically be done under the terms of the trust receipt required by the bank. then manufactured into finished products (which could not technically be done under the terms of the trust receipt required by the bank. the receipt of the steel sheets. officers. Petitioner personally cannot be charged and convicted for the crime of estafa for failure of the corporation (MEMAP) represented by him as president and general manager to pay "the balance of P46.chanroblesvirtualawlibrary chanrobles virtual law library All these acts were corporate acts with the accused duly representing the corporation as its president and general manager: the application for bank financing. J. associations or other juridical entities are made expressly responsible for violation of the terms of a trust receipt agreement committed by said corporation. under which the very sheets were supposed to be sold by the corporation) and the nonpayment of the credit extended by the bank. it was " deposited by the said accused with the [Continental] bank as marginal deposit and forfeited by the said bank from the value of said goods.. and Samo vs. G.chanroblesvirtualawlibrary chanrobles virtual law library I concur in so far as the Decision holds that petitioner should not be held liable for the crime of Estafa considering that in the cases above enumerated. concurring and dissenting: chanrobles virtual law library I dissent in so far as the Decision states that violation of the terms of a trust receipt does not constitute Estafa under Art. according to the very information. a trust receipt being essentially a financing transaction. PNB vs. for lack of necessary votes. decided by the Court on May 7. of the merchandise imported or purchased' (53 Am. There is not the slightest evidence nor intimation that these corporate acts were unauthorized or that petitioner personally had committed any fraud or deceit in connection therewith or that he had personally been responsible for or benefited from the corporation's failure to pay the bank the balance due under the trust receipt. in the said sum of P 71... who ruled that "the holder of a trust receipt who disposed of the goods covered thereby and in violation of its terms." ' (A) trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise. Jr.. J. 1 (b) of the Revised Penal Code." ** chanrobles virtual law library The charge in the case at bar against petitioner-accused must accordingly be dismissed. failed to deliver to the bank the proceeds of the sale as payment of the debt secured by the trust receipt" incurs only civil and not criminal liability for non-payment of the debt thus incurred. No. to wit. R.chanrobles virtual law libSeparate Opinions TEEHANKEE. People. 1981. Arrozal. People. 53 Phil. There is not the slightest evidence nor intimation that these corporate acts were unauthorized or that petitioner personally had committed any fraud or deceit in connection therewith or that he had personally been responsible for or benefited from the corporation's failure to pay the bank the balance due under the trust receipt. Petitioner personally cannot be charged and convicted for the crime of estafa for failure of the corporation (MEMAP) represented by him as president and general manager to pay "the balance of P 46. 103 Phil. as wrongly alleged in the information).023.68 . MELENCIO-HERRERA. concurring: In concur.. including the interest after deducting the sum of P28. 213 (1958)..736. the deposit (which was from corporate funds. as collateral. as its General Manager. employees or other officials of a corporation. 315. L-27607. affirmed the dismissal of the same charge of estafa.023. Cuevo. 115 Phil. This Court has not as yet laid down a ruling on the criminal liability of a corporation officer signing a trust receipt on behalf of the corporation. 349).chanroblesvirtualawlibrary chanrobles virtual law library All these acts were corporate acts with the accused duly representing the corporation as its president and general manager: the application for bank financing. The goods imported by the small importer and retail dealer through the bank's financing remain of their own property and risk and the old capitalist orientation of putting them in jail for estafa for non-payment of the secured loan (granted after they had been fully investigated by the bank as good credit risks) through the fiction of the trust receipt device should no longer be permitted in this day and age. It was only upon the promulgation of PD 115 on January 29. Yu Chai Ho.736.chanroblesvirtualawlibrary chanrobles virtual law library In the recent case of People vs. sustains the lower court's rationale in dismissing the information that the contract covered by a trust receipt is merely a secured loan.

. associations or other juridical entities are made expressly responsible for violation of the terms of a trust receipt agreement committed by said corporation. It was only upon the promulgation of PD 115 on January 29. and Samo vs. Yu Chai Ho. The goods imported by the small importer and retail dealer through the bank's financing remain of their own property and risk and the old capitalist orientation of putting them in jail for estafa for non-payment of the secured loan (granted after they had been fully investigated by the bank as good credit risks) through the fiction of the trust receipt device should no longer be permitted in this day and age. 5 SCRA 355 (1962). 1973 that responsible directors. decided by the Court on May 7. of the merchandise imported or purchased' (53 Am.chanrobles virtual law library . J. 961.. 315. employees or other officials of a corporation. who ruled that "the holder of a trust receipt who disposed of the goods covered thereby and in violation of its terms. the Court. People. par. as collateral. of the merchandise imported or purchased' (53 Am."* The charge in the case at bar against petitioner-accused must accordingly be dismissed. according to the very information. partnership. 1 (b) of the Revised Penal Code."* chanrobles virtual law library The charge in the case at bar against petitioner-accused must accordingly be dismissed. 1 (b) of the Revised Penal Code. 1981. 874 (1928). PNB vs. for lack of necessary votes. cited in Samo vs. sustains the lower court's rationale in dismissing the information that the contract covered by a trust receipt is merely a secured loan. including the interest after deducting the sum of P 28. Arrozal. association or other juridical entities. R. then manufactured into finished products (which could not technically be done under the terms of the trust receipt required by the bank. 346.68 . 53 Phil. and not a deposit made by the petitioner. to wit. and who may not be able to acquire credit except through utilization. 874 (1928)." ' (A) trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise. Yu Chai Ho. 115 Phil. The goods imported by the small importer and retail dealer through the bank's financing remain of their own property and risk and the old capitalist orientation of putting them in jail for estafa for non-payment of the secured loan (granted after they had been fully investigated by the bank as good credit risks) through the fiction of the trust receipt device should no longer be permitted in this day and age. 213 (1958). to wit. L-27607. People.In the recent case of People vs. concurring: In concur. PNB vs. cited in Samo vs. as wrongly alleged in the information). 346. 213 (1958). MELENCIO-HERRERA. partnership. 103 Phil.chanrobles virtual law library In the recent case of People vs. No. 53 Phil. affirmed the dismissal of the same charge of estafa. Cuevo. Jr. 115 Phil. par. 349). officers. MELENCIO-HERRERA. for being contrary to the rulings in People vs. I reiterate my separate opinion therein supporting the more liberal interpretation that the trust receipt transaction "gives rise only to civil liability on the part of the offender" and holding that the very definition of a trust receipt. the deposit (which was from corporate funds. and who may not be able to acquire credit except through utilization. 103 Phil. for non-payment of the debt evidenced by the trust receipt. L-27607.818. 1981. J.023. chanrobles virtual law librarySeparate Opinions TEEHANKEE. the persons who executed the trust receipts acted in their own individual capacities unlike in this case where petitioner acted for and on behalf of the Metal Manufacturing Company. failed to deliver to the bank the proceeds of the sale as payment of the debt secured by the trust receipt" incurs only civil and not criminal liability for non-payment of the debt thus incurred. G. Cuevo. J. by the trial court presided by Judge Ruperto Kapunan. No. who ruled that "the holder of a trust receipt who disposed of the goods covered thereby and in violation of its terms. and was presumably authorized to do so." ' (A) trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise. in the said sum of P 71. sustains the lower court's rationale in dismissing the information that the contract covered by a trust receipt is merely a secured loan.chanrobles virtual law library All these acts were corporate acts with the accused duly representing the corporation as its president and general manager: the application for bank financing.. 315. This Court has not as yet laid down a ruling on the criminal liability of a corporation officer signing a trust receipt on behalf of the corporation. under which the very sheets were supposed to be sold by the corporation) and the nonpayment of the credit extended by the bank. affirmed the dismissal of the same charge of estafa. Petitioner personally cannot be charged and convicted for the crime of estafa for failure of the corporation (MEMAP) represented by him as president and general manager to pay "the balance of P 46. People. by the trial court presided by Judge Ruperto Kapunan. Jr. Arrozal. People.. 961.chanroblesvirtualawlibrary chanrobles virtual law library I concur in so far as the Decision holds that petitioner should not be held liable for the crime of Estafa considering that in the cases above enumerated. 349). for non-payment of the debt evidenced by the trust receipt. failed to deliver to the bank the proceeds of the sale as payment of the debt secured by the trust receipt" incurs only civil and not criminal liability for non-payment of the debt thus incurred. for being contrary to the rulings in People vs. concurring and dissenting: chanrobles virtual law library I dissent in so far as the Decision states that violation of the terms of a trust receipt does not constitute Estafa under Art. 5 SCRA 355 (1962). as its General Manager. as collateral. for lack of necessary votes. G.60" representing the value of the cold rolled steel sheets imported by the corporation with the bank's financing under its letter of credit and released to the importer corporation under trust receipt in favor of the bank. Jr.47" which sum. it was " deposited by the said accused with the [Continental] bank as marginal deposit and forfeited by the said bank from the value of said goods. and Samo vs.. the receipt of the steel sheets.736.. R. the Court. There is not the slightest evidence nor intimation that these corporate acts were unauthorized or that petitioner personally had committed any fraud or deceit in connection therewith or that he had personally been responsible for or benefited from the corporation's failure to pay the bank the balance due under the trust receipt. concurring and dissenting: I dissent in so far as the Decision states that violation of the terms of a trust receipt does not constitute Estafa under Art. Jr. I reiterate my separate opinion therein supporting the more liberal interpretation that the trust receipt transaction "gives rise only to civil liability on the part of the offender" and holding that the very definition of a trust receipt. decided by the Court on May 7. a trust receipt being essentially a financing transaction.

1956. coercion. J. versus Philippine National Bank and Anacleto Heraldo. vs. intimidation.213. That its total indebtedness to the PNB as of November 21. 1973 that responsible directors.582. Republic of the Philippines SUPREME COURT Manila EN BANC G. 1957. entitled "Mambulao Lumber Company. 1968 MAMBULAO LUMBER COMPANY. together with the buildings and improvements existing thereon. as well as various sawmill equipment. in utter disregard of plaintiff's vigorous opposition thereto.821. dated April 2. partnership. 1964. having illegally sold the chattels. the plaintiff mortgaged to defendant PNB a parcel of land. the PNB is liable to plaintiff for damages and attorney's fees. It was only upon the promulgation of PD 115 on January 29.87 and not P58. all situated in its compound in the aforementioned municipality.51 as concluded by the court a quo. That it is not liable to pay PNB the amount of P5. the latter executed another promissory note wherein it agreed to pay to the former the said sum in five equal yearly installments at the rate of P3.485. the PNB made another release of P15. Galang for defendants-appellees. 1956. officers. added to the sum of P738. a trust receipt being essentially a financing transaction. is liable to the plaintiff for its value. 1961 until fully paid. That for the acts of the PNB in proceeding with the sale of the chattels.679. That the PNB. On October 19.500. On August 2. L-22973 January 30. 1957. situated in the poblacion of Jose Panganiban (formerly Mambulao). hence. as its General Manager. 1961. and the costs of suit. Ernesto P. 1956 the plaintiff applied for an industrial loan of P155. 4. defendants". the proceeds of the foreclosure sale of its real property alone in the amount of P56. employees or other officials of a corporation. 52089. and by detaining its "man-in-charge" of said properties. province of Camarines Norte.35 for attorney's fees and the additional sum of P298. association or other juridical entities. are as follows: On May 5. 1961.R. PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines Norte. and was presumably authorized to do so. and covered by Transfer Certificate of Title No. logging and transportation equipments as collaterals. . rolling unit and other fixed assets of the plaintiff.54 as expenses of the foreclosure sale. plaintiff. thereby rendering the subsequent foreclosure sale of its chattels unlawful. 1961.64 beginning July 31.52 with interest thereon at the rate of 6% per annum from December 22. machinery. 2. associations or other juridical entities are made expressly responsible for violation of the terms of a trust receipt agreement committed by said corporation. partnership. 381 of the land records of said province. The antecedent facts of the case. was only P56. and every year thereafter.: An appeal from a decision. plaintiff-appellant. of the Court of First Instance of Manila in Civil Case No. This Court has not as yet laid down a ruling on the criminal liability of a corporation officer signing a trust receipt on behalf of the corporation. the persons who executed the trust receipts acted in their own individual capacities unlike in this case where petitioner acted for and on behalf of the Metal Manufacturing Company. the plaintiff advances several propositions in its brief which may be restated as follows: 1. No. To secure the payment of the loan.00 on that date. the PNB released from the approved loan the sum of P27. ANGELES. for which the plaintiff signed a promissory note wherein it promised to pay to the PNB the said sum in five equal yearly installments at the rate of P6. the last of which would be on July 31. Tomas Besa and Jose B. dismissing the complaint against both defendants and sentencing the plaintiff to pay to defendant Philippine National Bank (PNB for short) the sum of P3. and ending on July 31.528. In seeking the reversal of the decision.I concur in so far as the Decision holds that petitioner should not be held liable for the crime of Estafa considering that in the cases above enumerated.59 it remitted to the PNB thereafter was more than sufficient to liquidate its obligation. and in taking possession thereof after the sale thru force. was approved for a loan of P100. however.500 as part of the approved loan granted to the plaintiff and so on the said date.40 beginning July 31. as found by the trial court.000 only. The application.000 with the Naga Branch of defendant PNB and the former offered real estate. 3. That the subsequent foreclosure sale of its chattels is null and void. not only because it had already settled its indebtedness to the PNB at the time the sale was effected.908. but also for the reason that the said sale was not conducted in accordance with the provisions of the Chattel Mortgage Law and the venue agreed upon by the parties in the mortgage contract. and 5. defendantsappellees. Vilar and Arthur Tordesillas for plaintiff-appellant.

several employees of the PNB arrived in the compound of the plaintiff in Jose Panganiban. Camarines Norte. 1961.m. held on November 21. he would be exposing himself to a litigation wherein he could be held liable to pay big sum of money by way of damages. on October 16. 1961. According to the notice. the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession of the chattels mortgaged to it by the plaintiff and sell them at public auction also on November 21. covered by Transfer Certificate of Title No. On November 9. and to sell it at public auction in accordance with the provisions of Act No. 1962.161. wrote to the plaintiff acknowledging the remittance of P738. at 10:00 a. however. This offer was reiterated in a letter dated January 3. In a letter dated December 14.161. which in turn sold them to Mariano Bundok.00. would be made.908. Deputy Provincial Sheriff Heraldo executed a certificate of sale in favor of the PNB and a copy thereof was sent to the plaintiff.The plaintiff failed to pay the amortization on the amounts released to and received by it.59. the plaintiff reiterated its request that the foreclosure sale of the mortgaged chattels be discontinued on the grounds that the mortgaged indebtedness had been fully paid and that it could not be legally effected at a place other than the City of Manila.908. Apprehensive of the risk that he would take. On November 19. and they informed Luis Salgado. covered by Transfer Certificate of Title No. for the satisfaction of the unpaid obligation of the plaintiff. In the meantime. at the plaintiff's compound situated in the municipality of Jose Panganiban. 1961. the Manager of the Naga Branch of the PNB advised the plaintiff giving it priority to repurchase the chattels acquired by the former at public auction. that as of that date the balance of the account of the plaintiff was P9. 1961. In the said letter. Upon being advised that the purchaser would take delivery of the things he bought. to which should be added the expenses of guarding the mortgaged chattels at the rate of P4. plus 6% annual interest therefore from September 23. on November 21. together with the improvements existing thereon. Repeated demands were made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so. Mariano Bundok was able to take out from the plaintiff's compound two .. In a letter dated December 26. with the suggestion that it exercise its right of redemption and that it apply for the condonation of the attorney's fees. posted as registered air mail matter. Camarines Norte. 381. 1961. On December 21. 1961. of the Attorney of the Naga Branch of the PNB to the plaintiff.646. was. one to the Naga Branch of the PNB and another to the Provincial Sheriff of Camarines Norte. protesting against the foreclosure of the real estate and chattel mortgages on the grounds that they could not be effected unless a Court's order was issued against it (plaintiff) for said purpose and that the foreclosure proceedings. Upon inspection and verification made by employees of the PNB. On September 27. the foreclosure sale of the mortgaged chattels was held at 10:00 a. it was found that the plaintiff had already stopped operation about the end of 1957 or early part of 1958. On the same day. On the same date. however. 1961.200 and the corresponding bill of sale was issued in its favor by Deputy Provincial Sheriff Heraldo. and enclosed therewith a copy of its letter to the latter dated December 14. excluding attorney's fees. In a letter dated December 16. the Provincial Sheriff of Camarines Norte issued the corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff. the plaintiff sent a bank draft for P738. as amended.59. In said letter to the Naga Branch of the PNB. Accordingly. The plaintiff did not follow the advice but on the contrary it made known of its intention to file appropriate action or actions for the protection of its interests. 1961. subject to the right of the plaintiff to redeem the same within a period of one year. On November 8. 381. 3135. the plaintiff sent separate letters. did not include the 10% attorney's fees and expenses of the sale. in Mambulao. the Attorney of the Naga Branch of the PNB. The foreclosure sale of the parcel of land. between 9:00 and 12:00 a.m.76. Province of Camarines Norte. A copy of said advice was sent to the plaintiff for its information and guidance. Salgado was at first reluctant to allow any piece of property to be taken out of the compound of the plaintiff. that the properties therein had been auctioned and bought by the PNB.76. On November 6. the plaintiff was advised that the foreclosure sale scheduled on the 21st of said month would be stopped if a remittance of P9. Salgado immediately sent a wire to the President of the plaintiff in Manila. its obligation would be settled satisfactorily because an important negotiation was then going on for the sale of its "whole interest" for an amount more than sufficient to liquidate said obligation. On May 24.646. the PNB sent notice to the plaintiff that the former was foreclosing extrajudicially the chattels mortgaged by the latter and that the auction sale thereof would be held on November 21. 1961. 1961. It was further explained in said letter that the sum of P57. the said Deputy Sheriff issued the corresponding notice of public auction sale of the mortgaged chattels to be held on November 21.m. 1961. according to the terms of the mortgage contracts. attorney's fees equivalent to 10% of the amount due and the costs and expenses of the sale. In compliance with the request. 1961. Chief Security Guard of the premises.59. allegedly in full settlement of the balance of the obligation of the plaintiff after the application thereto of the sum of P56. 1961. 1961. 1961 (but apparently posted several days later). 1961. Deputy Provincial Sheriff Anacleto Heraldo took possession of the chattels mortgaged by the plaintiff and made an inventory thereof in the presence of a PC Sergeant and a policeman of the municipality of Jose Panganiban. the plaintiff advised the Provincial Sheriff of Camarines Norte that it had fully paid its obligation to the PNB. 1961. The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a request for extension of the foreclosure sale of the mortgaged chattels and so it advised the Sheriff of Camarines Norte to defer it to December 21. 381 of the land records of Camarines Norte.m.59 to the Naga Branch of the PNB. for the satisfaction of the sum of P57. and they were awarded to the PNB for the sum of P4. together with the buildings and improvements thereon.00 a day beginning December 19. 1961. the mortgaged property would be sold at public auction at 10:00 a. Camarines Norte. plus interest thereon and guarding fees. The employees of the PNB explained that should Salgado refuse. the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession of the parcel of land.59 with the advice. 1961. at the ground floor of the Court House in Daet. should be made in Manila. 1961. it was intimated that if the public auction sale would be suspended and the plaintiff would be given an extension of ninety (90) days. 1962. On December 18. which was stated in the request for the foreclosure of the real estate mortgage. and the said property was sold to the PNB for the sum of P56. where the mortgaged chattels were situated. at the same time and place. asking advice as to what he should do.00 representing the proceeds of the foreclosure sale of parcel of land described in Transfer Certificate of Title No.. amounted to P57. 1961.646. which as of September 22.

1961. The law applicable is Section 4 of Act 3135 which provides that the officer conducting the sale is entitled to collect a fee of P5. In the afternoon of the same day. as pointed out by the appellee bank. This is also the clear mandate of Article 2212 of the new Civil Code which provides that interest due shall earn legal interest only from the time it is judicially demanded. it appears that in arriving at the total indebtedness of P57. as per promissory note of the same date (Exhibit C-4) — was six per cent (6%) per annum from the respective date of said notes "until paid". which as added principal shall earn new interest. The court below committed error in applying the provisions of the Rules of Court for purposes of arriving at the amount awarded. and should not have been awarded. therefore. There is really no evidence of record to support the conclusion that the PNB is entitled to the amount awarded as expenses of the extra-judicial foreclosure sale.54 as expenses of the sale should be set aside. The first question Mambulao Lumber Company poses is that which relates to the amount of its indebtedness to the PNB arising out of the principal loans and the accrued interest thereon. 7. But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in case the same is extra-judicially foreclosed. Thru the intervention. 1961. 1962. and of Article 1959 of the same code which ordains that interest due and unpaid shall not earn interest. 1 It is true. There is reason for the appellant to assail the award of P298. Rule 130 of the Old Rules) or a total of P298. It is contended that its obligation under the terms of the two promissory notes it had executed in favor of the PNB amounts only to P56. which were bought by it at the foreclosure sale and subsequently sold to Mariano Bundok. n. It likewise decries the award of attorney's fees which. k. This is an error. Clearly therefore. we find that the agreed interest on the loan of P43. Salgado received a telegram from plaintiff's President directing him not to deliver the "chattels" without court order. the PNB failed to prove during the trial of the case. May 25. interest on accrued interests from the time the various amortizations of the loan became due until the real estate mortgage executed to secure the loan was extra-judicially foreclosed on November 21. as would readily be revealed by an examination of the pertinent provision of the mortgage contract.59 as of that date. and not P58. We shall discuss the various points raised in appellant's brief in seriatim.00 released on August 2. together with the buildings and improvements existing thereon covered by Transfer Certificate of Title No. only by a sheriff serving processes of the court in connection with judicial foreclosure of mortgages under Rule 68 of the new Rules. by stipulation. of the local police and PC soldiers. In effect. but such stipulation is nowhere to be found in the terms of the promissory notes involved in this case.00 released on October 19. Admittedly. promissory note or other instrument or contract. 1961. Mambulao Lumber Company interposed the instant appeal. On the following day. Rule 130 of the Old Rules) and P297. 1961 to November 21 of the same year. 1956 as per promissory note of even date (Exhibit C3). Of course. the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell the property mortgaged under Act 3135. Sec.52 with interest thereon at the rate of 6% per annum from December 22. not only because there is no express agreement in the real estate mortgage contract to pay attorney's fees in case the same is extra-judicially foreclosed.54. and P15.00 as a reasonable allowance for two day's work — one for the preparation of the necessary notices of sale.000. and to this erroneously computed total of P57. compound interest shall not be reckoned.500. 2655 expressly provides that in computing the interest on any obligation. would be the amount of P10. and not in cases of extra-judicial foreclosure of mortgages under Act 3135.582. the parties may.485.646. no evidence how much was the expenses of the foreclosure sale although from the pertinent provisions of the Rules of Court. to sign all documents and to perform all acts requisite and necessary to accomplish said . For the purpose of extra-judicial foreclosure. according to the appellant. inter alia: .59. without any agreement to that effect and before they had been judicially demanded. but also for the reason that the PNB neither spent nor incurred any obligation to pay attorney's fees in connection with the said extra-judicial foreclosure under consideration. whenever the debt is judicially claimed. except by agreement. Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor of the PNB.908.54 as his commission for the sale (par. and the costs. and the trial court has adjudicated to it.54 allowed as expenses of the extra-judicial sale of the real property. the trial court rendered the decision appealed from which. the trial court said: The parcel of land. 1961 (day following the date of the questioned foreclosure of plaintiff's chattels) until fully paid. .00 for each day of actual work performed in addition to his expenses in connection with the foreclosure sale. 1956. Section 5 of Act No. that courts should take judicial notice of the fees provided for by law which need not be proved. with the information that the company was then filing an action for damages against the PNB. Section 7. the award of P298. the most that he may be entitled to.213. the trial court added 6% interest per annum from September 23. when the sale of real property was effected.51 as found by the trial court. however. that it actually spent any amount in connection with the said foreclosure sale. factual or legal. It is to be borne in mind that the fees enumerated under paragraphs k and n. capitalize the interest due and unpaid. or in default thereof. In the statement of account of the appellant as of September 22.87 as of November 21. 1961. In this respect. Examining the terms of the promissory note executed by the appellant in favor of the PNB. two trucks and men of Mariano Bundok arrived but Salgado did not permit them to take out any equipment from inside the compound of the plaintiff. Obviously. The parties to the mortgage appear to have stipulated under paragraph (c) thereof. Neither may expenses for publication of the notice be legally allowed in the absence of evidence on record to support it. Sec. the trucks of Mariano Bundok were able finally to haul the properties originally mortgaged by the plaintiff to the PNB. but in the absence of evidence to show at least the number of working days the sheriff concerned actually spent in connection with the extra-judicial foreclosure sale. the PNB has claimed. Upon the foregoing facts. sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3. and the other for conducting the auction sale and issuance of the corresponding certificate of sale in favor of the buyer. 381. There was.500. and on the basis of these compounded amounts charged additional delinquency interest on them up to September 22.truckloads of equipment.646. should not be deducted from the proceeds of the sale of the real property. cannot be favorably considered. the trial court fell into error when it awarded interest on accrued interests. With respect to the amount of P298. . as stated in the first paragraph of this opinion.54 as expenses of the sale. appellant maintains that the same has no basis. as amended. 7. submitted by the PNB. the PNB had compounded the principal of the loan and the accrued 6% interest thereon each time the yearly amortizations became due. was sold for P56. however. of Rule 130 (now Rule 141) are demandable. the Sheriff's fees would be P1 for advertising the sale (par. There is merit to this claim.00 — P27.

In support of this proposition. considering the express agreement between the parties in the mortgage contract under which appellant became liable to pay the same. 6 In determining the compensation of an attorney. it would not have been enforced against him had he seen fit to oppose it. the Mortgagor hereby agrees further that in all cases..821. less the costs and expenses of the receivership. At any rate. and whether or not the fee is contingent or absolute. be paid to the Mortgagee out of any sums realized as rents and profits derived from the mortgaged property or from the proceeds realized from the sale of the said property and this mortgage shall likewise stand as security therefor. whenever they appear to be a source of speculative profit at the expense of the debtor or mortgagor.e. We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure sale mentioned thereunder. the amount of money or the value of the property affected by the controversy. we believe the amount of P5. . it appears that the agreed fee is 10% of the total indebtedness. Nor should it be ignored that sound public policy demands that courts disregard stipulations for counsel fees. Thus. Had the plaintiff herein made an express contract to pay his attorney an uncontingent fee of P2. This is a very different rule from that announced in section 1091 of the Civil Code with reference to the obligation of contracts in general. As court have power to fix the fee as between attorney and client. By express provision of section 29 of the Code of Civil Procedure.115. The next issue raised deals with the claim that the proceeds of the sale of the real properties alone together with the amount it remitted to the PNB later was more than sufficient to liquidate its total obligation to herein appellee bank. It should not be permitted for him to convert such a stipulation into a source of speculative profit at the expense of the debtor. the professional standing of the attorney. inserted in a mortgage contract. the Mortgagor hereby consents to the appointment of the Mortgagee or any of its employees as receiver. we find merit in this claim. and to hold possession of the same and the rents. and even when an express contract is made the court can ignore it and limit the recovery to reasonable compensation if the amount of the stipulated fee is found by the court to be unreasonable.821. an attorney is not entitled in the absence of express contract to recover more than a reasonable compensation for his services. is valid. as in this case. as in other contracts.35 for attorney's fees has no legal justification. The principle that courts should reduce stipulated attorney's fees whenever it is found under the circumstances of the case that the same is unreasonable. that the said branch attorney of the PNB made a study of the case before deciding to file the petition for foreclosure. the claim for such fees should be denied. it is not necessary to show. and the expenses of collection shall be the obligation of the Mortgagor and shall with priority. the award of P5. however. It is enough that it is unreasonable or unconscionable. it must necessarily have the right to say whether a stipulation like this.00 would be more than sufficient to compensate the work aforementioned. the fees should be subject to judicial control. In case of judicial foreclosure. but they should not be applied in this case. benefits and profits derived from the mortgaged property before the sale. that even if the above stipulation to pay attorney's fees were applicable to the extrajudicial foreclosure sale of its real properties. we find merit in the contention of the appellant that the award of P5. It is suggested by the appellant.00 exclusive of all fees allowed by law. still. The lawful purpose to be accomplished by such a stipulation is to permit the creditor to receive the amount due him under his contract without a deduction of the expenses caused by the delinquency of the debtor. It is to be assumed though. Again. it being a recognized rule that an attorney may properly charge a much larger fee when it is to be contingent than when it is not. Civil Code). considering that all that the branch attorney of the said bank did in connection with the foreclosure sale of the real property was to file a petition with the provincial sheriff of Camarines Norte requesting the latter to sell the same in accordance with the provisions of Act 3135. it is unreasonable when. irrespective of the manner the foreclosure of the mortgage is to be effected. 7 From the stipulation in the mortgage contract earlier quoted. the mortgage was foreclosed extra-judicially. unconscionable. it is our considered opinion that the amount of P1.25 for the services to be rendered in reducing the note here in suit to judgment. And the ambiguity in the stipulation suggested and pointed out by the appellant by reason of the faulty sentence construction should not be made to defeat the otherwise clear intention of the parties in the agreement. that it is contrary to morality or public policy (Art. the responsibility imposed. From the foregoing discussion of the first two errors assigned. but even with this in mind. 1255. where it is said that such obligation has the force of law between the contracting parties. for there is authority to the contrary. appellant cites authorities to the effect: (1) that when the mortgagee has neither paid nor incurred any obligation to pay an attorney in connection with the foreclosure sale. 2 and (2) that attorney's fees will not be allowed when the attorney conducting the foreclosure proceedings is an officer of the corporation (mortgagee) who receives a salary for all the legal services performed by him for the corporation. a reading of the whole context of the stipulation would readily show that it logically refers to extra-judicial foreclosure found in the first sentence and to judicial foreclosure mentioned in the next sentence. because a lawyer is primarily a court officer charged with the duty of assisting the court in administering impartial justice between the parties. is now deeply rooted in this jurisdiction to entertain any serious objection to it. to take charge of the mortgaged property at once. judicially or extra-judicially. 4 Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees stipulated appear excessive. . considering the circumstance that the PNB did not actually spend anything by way of attorney's fees in connection with the sale. Considering the above circumstances mentioned. the skill and experience called for in the performance of the service. attorney's fees hereby fixed at Ten Per cent (10%) of the total indebtedness then unpaid which in no case shall be less than P100. no matter how injurious or oppressive they may be. this Court has explained: But the principle that it may be lawfully stipulated that the legal expenses involved in the collection of a debt shall be defrayed by the debtor does not imply that such stipulations must be enforced in accordance with the terms.000. The agreement is perhaps fair enough in case the foreclosure proceedings is prosecuted judicially but. . i.821. the results secured. The very same authority first cited suggests that said principle is not absolute.35 is far too excessive a fee for such services. as such a fee is obviously far greater than is necessary to remunerate the attorney for the work involved and is therefore unreasonable.purpose and to appoint its substitute as such attorney-in-fact with the same powers as above specified. the following circumstances should be considered: the amount and character of the services rendered. 3 These authorities are indeed enlightening. As to the fact that the foreclosure proceeding's were handled by an attorney of the legal staff of the PNB. and all that the attorney did was to file a petition for foreclosure with the sheriff concerned. and hence. While the phrase "in all cases" appears to be part of the second sentence.35 in favor of the PNB as attorney's fees is unconscionable and unreasonable. or involved in the employment. Contracts for attorney's services in this jurisdiction stands upon an entirely different footing from contracts for the payment of compensation for any other services. without any bond. or unreasonable. we are reluctant to exonerate herein appellant from the payment of the stipulated attorney's fees on this ground alone. and for purposes of determining the total obligation of herein . and not between attorney and client. In order to enable the court to ignore an express contract for an attorney's fees. 5 And it is not material that the present action is between the debtor and the creditor. surely.

the PNB had three places from which to select. as the case may be . they waived their corresponding rights under the law. the corresponding complaint for foreclosure or the petition for sale should be filed with the courts or the Sheriff of Manila.00. justified said action of the PNB in the decision appealed from in the following rationale: While it is true that it was stipulated in the chattel mortgage contract that a petition for the extra-judicial foreclosure thereof should be filed with the Sheriff of the City of Manila. however. as the case may be. in the case under consideration. The correlative obligation arising from that agreement have the force of law between them and should be complied with in good faith. are personal to them. however. Their right arising thereunder. Be that as it may.00III. nevertheless. as shown not only by its letter to the PNB on November 19.Attorney's fee1. 1508 vests in the mortgagee the choice where the foreclosure sale should be held. 1961 when the real estate mortgage was foreclosed. Indeed. 1956 to Nov. (2) the place of the mortgaged chattels were situated. the foreclosure sale held in Jose Panganiban. however. a sale is properly conducted in that place.19. 1956 P15.08II.495. 11 On the other hand. as amended. 2.59 Total amount of Payment made to PNB as of Dec. accordingly. So.59. was legal and valid. Camarines Norte for the reasons therein stated that: (1) it had settled in full its total obligation to the PNB by the sale of the real estate and its subsequent remittance of the amount of P738. In providing that the mortgaged chattel may be sold at the place of residence of the mortgagor or the place where it is situated. it cannot be rightly said that mortgagee still retained the power and authority to select from among the places provided for in the law and the place designated in their agreement over the objection of the mortgagor. But we take into consideration the fact that the PNB must have been led to believe that the stipulated 10% of the unpaid loan for attorney's fees in the real estate mortgage was legally maintainable. and that the Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%) of the total indebtedness then unpaid but in no case shall it be less than P100. as in this case. and (2) that the contemplated sale at Jose Panganiban would violate their agreement embodied under paragraph (i) in the Chattel Mortgage which provides as follows: (i) In case of both judicial and extra-judicial foreclosure under Act 1508. That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of its real estate mortgage on November 21. Camarines Norte. can not be doubted. The trial court. 1961 P57. was merely a personal privilege they waived. 18. the law clearly contemplated benefits not only to the mortgagor but to the mortgagee as well.000. Considering that Section 14 of Act No. 21. if a place of sale is specified in the mortgage and statutory requirements in regard thereto are complied with. illegal and void. 1961P56. we may declare the sale of appellant's chattels on the said date. the parties hereto agree that the corresponding complaint for foreclosure or the petition for sale should be filed with the courts or the sheriff of the City of Manila. they do not affect either public policy or the rights of third persons. 18. 21. herein appellee bank insisted that the proceeds of the sale of appellant's real property was deficient to liquidate the latter's total indebtedness. 1961. hence.Proceeds of the foreclosure sale of the real estate mortgage on Nov. the parties agreed to have the sale of the mortgaged chattels in the City of Manila.646. because it. as amended. which.500. 1961. Camarines Norte and not in the City of Manila as agreed upon. exclusive of all costs and fees allowed by law and of other expenses incurred in connection with the said foreclosure. They may validly be waived. 12 . and (3) the place stipulated in the contract. While the law grants power and authority to the mortgagee to sell the mortgaged property at a public place in the municipality where the mortgagor resides or where the property is situated.86B. we have the following illustration in support of this conclusion:1äwphï1. a sale conducted at a place other than that stipulated for in the mortgage is invalid. the PNB proceeded with the foreclosure sale of said chattels.Additional amount remitted to the PNB on Dec. We disagree. wherein herein appellant. 1961. and such waiver is valid and legally effective.751. namely: (1) the place of residence of the mortgagor. to public policy or to the prejudice of third persons. unless the mortgagor consents to such sale.00(1) Interest at 6% per annum from Aug.73 ======== From the foregoing illustration or computation. reiterated its objection to the scheduled sale of its chattels on December 21. but also in its letter to the provincial sheriff of Camarines Norte on the same date. Indeed. which is not contrary. 1961738. when herein mortgagor and mortgagee agreed in the mortgage contract that in cases of both judicial and extra-judicial foreclosure under Act 1508. in no uncertain terms. a stipulation in a contract cannot abrogate much less impliedly repeal a specific provision of the statute. we still find the subsequent sale of herein appellant's chattels illegal and objectionable on other grounds. 10 By said agreement the parties waived the legal venue. and in accordance with such belief. or that there is an agreement to this effect between the mortgagor and the mortgagee.78(b) Promissory note dated October 19. To the foregoing conclusion. and in utter disregard of the objection of herein appellant to the sale of its chattels at Jose Panganiban. -I.appellant to the PNB as of November 21. These letters were followed by another letter to the appellee bank on December 14.Principal Loan(a) Promissory note dated August 2. it is clear that there was no further necessity to foreclose the mortgage of herein appellant's chattels on December 21. 1961. 1956 to Nov.500.86Excess Payment to the PNB P 150.908.00 Total obligation as of Nov. at the option of the mortgagee. 21. 1956 P27.59 Deduct: Total obligation to the PNB P57. 1961 P57. -I. 21. 19618.ñët A.734.00(1) Interest at 6% per annum from Oct. any way. The PNB selected the second and.00II.495. provided that the owner thereof consents thereto. 8 this Court has held that the sale of a mortgaged chattel may be made in a place other than that where it is found. 19614. and on this ground alone. in the absence of a statute to the contrary. the effect thereof was merely to provide another place where the mortgage chattel could be sold in addition to those specified in the Chattel Mortgage Law. It is a general principle that a person may renounce any right which the law gives unless such renunciation is expressly prohibited or the right conferred is of such nature that its renunciation would be against public policy. [Emphasis supplied] Notwithstanding the abovequoted agreement in the chattel mortgage contract.Sheriff's fees [for two (2) day's work]10. 1961 at Jose Panganiban. 9 But when. is the residence of the mortgagor.

the full value of the chattels in question at the time they were illegally sold by them. An official of the PNB made an inspection of the chattels in the same year giving it an appraised value of P42. the same should be set aside. of course. moral shock or social humiliation which are basis of moral damages. testified that its caterpillar (tractor) alone is worth P35. Camarines Norte.700. however. he used a conservative method of appraisal which. and finding it difficult to ascertain the value of the dismantled chattels in such condition. jointly and severally. may also be a ground for the award of moral damages. still the PNB cannot escape liability for the conversion of the mortgaged chattels by parting with its interest in the property. in utter disregard of the valid objection of the mortgagor thereto for the reason that it is not the place of sale agreed upon in the mortgage contract. it is clear that the law requires that sale be made article by article. the PNB would want us to believe that it was the subsequent buyer alone. notwithstanding the fact that the said chattels consisted of no less than twenty different items as shown in the bill of sale.000. however. It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in accordance with its terms. seems to have no legal or factual basis. Section 14 of Act 1508. who is not a party to this case.850. a Herring Hall Safe. wounded feelings. The record shows that at the time herein appellant applied for its loan with the PNB in 1956. fright. and bearing in mind the current cost of equipments these days which he alleged to have increased by about five (5) times. for which the chattels in question were mortgaged as part of the security therefore. 18 Another re-inspection report in 1959 gave the appraised value as P19.00 originally given by the PNB official were admittedly conservative. the same inspector of the PNB reported that the heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed free from rains" 20 showing that although they were no longer in use at the time. and that the real value thereof. however. Camarines Norte. mental anguish.00 in the market.00 and a market value of P85. could safely be estimated at P120.200. as earlier shown.00 and the market value of P85. the facts that the appraised value of P42. And it appears that the values were considerably reduced in all the reinspection reports for the reason that when he went to herein appellant's premises at the time.00. and the said deputy sheriff sold all the chattels (among which were a skagit with caterpillar engine. on the other hand. The President of the appellant company. and of course. that in the last re-inspection report he made of the chattels in 1961. plainer. or in Manila which is the place agreed upon by the parties in the mortgage contract. three GMC 6 x 6 trucks. 13 This makes the sale of the chattels manifestly objectionable.700. and Sawmill equipment consisting of a 150 HP Murphy Engine. herein appellant submitted a list of the chattels together with its application for the loan with a stated value of P107. From this.Moreover. but We are not inclined to accept such testimony at its par value. which may be used as a guide to ascertain their value.600.00.000. when taken together with the heavy equipments he mentioned.00 and the market value at P25. . 14 This rule applies squarely to the facts of this case where. if besmirched.00. Noteworthy is the fact. that was responsible for the forcible taking of the property. in the report of which he gave all the chattels an appraised value of P26. We have to declare that herein appellant is entitled to collect from them. therefore. according to him. as amended.00. We may also safely conclude that the amount of P4. however. This brings us to the problem of determining the value of the mortgaged chattels at the time of their sale in 1961. the sawmill itself and all other equipment forming part of the chattels under consideration. otherwise.00 which. it is our opinion that the market value of the chattels at the time of the sale should be fixed at the original appraised value of P42. although depreciated after several years of inoperation. 16 The effect of this irregularity was. This testimony.00 for which the chattels were sold in the foreclosure sale in question was grossly unfair to the mortgagor. Herein appellant's claim for moral damages. or where the proceedings as to the sale of foreclosure do not comply with the statute. . that two 6 x 6 trucks subsequently bought by the appellant company had thereafter been added to the chattels. the burden is on the defendant to prove the damage to which he was thus subjected.00. and the appellee deputy sheriff of Camarines Norte proceeded with the sale of the mortgaged chattels at Jose Panganiban. . Neither would its claim that it afterwards gave a chance to herein appellant to repurchase or redeem the chattels. he found the chattels no longer in use with some of the heavier equipments dismantled with parts thereof kept in the bodega.850. 21 A corporation may have a good reputation which. not only because it is admitted that herein appellant had already ceased in its business operation at the time of the foreclosure sale of the chattels. is to be expected of an official of the appellee bank.200. herein appellee bank insisted.000. The PNB has resold the chattels to another buyer with whom it appears to have actively cooperated in subsequently taking possession of and removing the chattels from appellant compound by force. stand uncontroverted in the record. provides that the officer making the sale should make a return of his doings which shall particularly describe the articles sold and the amount received from each article.) as a single lot in violation of the requirement of the law to sell the same article by article.850. knowing that the equipments of herein appellant had been idle and unused since it stopped operating its sawmill in 1958 up to the time of the sale of the chattels in 1961. 15 As a consequence of the said wrongful acts of the PNB and the Deputy Sheriff of Camarines Norte. . large circular saws etc. To this effect was the holding of this Court in a similar situation. and that the value of its two trucks acquired by it with part of the proceeds of the loan and included as additional items in the mortgaged chattels were worth no less than P14. Obviously. He likewise appraised the worth of its Murphy engine at P16. they were kept in a proper place and not exposed to the elements.000. just a few months before the foreclosure sale. however. but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at Jose Panganiban. Considering. except for the appraised and market values appearing in the inspection and re-inspection reports of the PNB official earlier mentioned. but assuming this to be so. And in the absence of any evidence to show that the mortgagor had agreed or consented to such sale in gross. The same cannot be considered under the facts of this case. it would be impossible for him to state the amount received for each item. 19 The said official of the PNB who made the foregoing reports of inspection and reinspections testified in court that in giving the values appearing in the reports. although from the evidence aforementioned. To exonerate itself of any liability for the breach of peace thus committed.00. The trial court did not make any finding on the value of the chattels in the decision appealed from and denied altogether the right of the appellant to recover the same.115. an artificial person like herein appellant corporation cannot experience physical sufferings. he did not give them anymore any value in his reports. improve its position. We find enough evidence of record.400. as shown by the circumstance that they had to take along PC soldiers and municipal policemen of Jose Panganiban who placed the chief security officer of the premises in jail to deprive herein appellant of its possession thereof. This requirement was totally disregarded by the Deputy Sheriff of Camarines Norte when he sold the chattels in question in bulk. serious anxiety.00 and a market value of P48. for the mortgagor is not under obligation to take affirmative steps to repossess the chattels that were converted by the mortgagee.850. We have no doubt that the value of chattels was depreciated after all those years of inoperation. was in a way maintained because the depreciation is off-set by the marked increase in the cost of heavy equipment in the market. in our opinion to make the plaintiff liable to the defendant for the full value of the truck at the time the plaintiff thus carried it off to be sold.85. 17 The same chattels with some additional equipment acquired by herein appellant with part of the proceeds of the loan were reappraised in a re-inspection conducted by the same official in 1958.

00 as attorney's fees. it is set aside. G. as hereby. the decision appealed from should be.. after hearing. ABS-CBN. P42. alleging breach.850. The Philippine National Bank and the Deputy Sheriff of the province of Camarines Norte are ordered to pay. No. notified WINS of its intention to terminate the Licensing Agreement. The circumstances of the case also warrant the award of P3. 169332. February11.00 the value of the chattels at the time of the sale with interest at the rate of 6% per annum from December 21. Ltd. In 2002. jointly and severally.000.00 as attorney's fees for herein appellant. 1961.00..73 overpaid by the latter to the PNB.200. WHEREFORE AND CONSIDERING ALL THE FOREGOING.R.000. .73.00 in exemplary damages. Ltd. Costs against both appellees. WorldInteractiveNetworkSystems[WINS] JapanCo. 2008 In 1999. and P3. P10.000. to Mambulao Lumber Company the total amount of P56. herein appellant should be awarded exemplary damages in the sum of P10. until fully paid. [“WINS”]. an exclusive license to distribute and sublicense the distribution of a television service known as “The Filipino Channel” [“TFC”] in Japan [the Licensing Agreement”].But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract. WINS commenced arbitration pursuant to the arbitration clause in the Licensing Agreement alleging that ABS-CBN wanted to renegotiate the terms thereof to allow it to demand higher fees.00. ABS-CBN Broadcasting Corporation [“ABS-CBN”] granted World Interactive Network Systems Japan Co. and in disposing of the chattels in gross for the miserable amount of P4.000. broken as follows: P150. to which their attentions were timely called by herein appellant. ABSCBNBroadcastingCorporationv.. found in favor of WINS and ordered ABS-CBN to pay damages. The sole arbitrator thereafter appointed.000.

a petition for certiorari under Rule 65 [the “Petition for Certiorari”]. Said agreement contained a stipulation that ABS shall have the right of first refusal to the next 24 Viva films for TV telecast. It alleged serious errors of fact and law and/ or grave abuse of discretion on the part of the arbitrator. and that this was put in writing in a napkin.ABS-CBN filed in the Court of Appeals [“CA”] a petition for review under Rule 43 [the “Petition for Review”] or. did not accept the list since she could only tick off 10 films. Viva’s Vic del Rosario and ABS’ general manager Eugenio Lopez III met at the Tamarind Grill to discuss this package proposal. Errors of fact and/or law and grave abuse of discretion are not included as grounds of a petition to vacate an award in the RTC. Parlade at (632) 687 5362. a Rule 43 petition is proper4. Outside of the enumerated grounds in Section 24 of RA 876. the aggrieved party may file either a petition for review under Rule 43 or a petition for certiorari under Rule 653. After hearing. The remedies available to an aggrieved party to an arbitral award are: (a) a petition to vacate the award on any of the grounds provided in Section 24 of RA 876. is whether or not an party. Pasig City 1605 Philippines. The CA dismissed the ABS-CBN Petition for lack of jurisdiction as the Terms of Reference1 provided that the arbitrator’s decision shall be final and not subject to appeal and that no motion for reconsideration shall be filed. Viva again approached ABS with a list consisting of 52 original films where Viva proposed to sell these airing rights for P60M. F. vacating or modifying the award. aggrieved by an arbitral award. If errors of fact and/or law are raised. Court of Appeals2. In 1992. or by e-mail at: coparlade@phpeplaw. the explicit mention of one thing in a statute means the elimination of others not specifically mentioned. Viva offered ABS a list of 36 films from which ABS may exercise its right of first refusal. unsuccessful in obtaining a reconsideration of the CA decision. Hence. RTC issued the TRO enjoining the airing of the films subject of controversy. provided that such right shall be exercised by ABS from the actual offer in writing. by mail at 26th Floor.com ABS CBN Broadcasting Corporation vs. It cannot be used as a substitute for a lapsed appeal7.com or gingparlade@yahoo. ( b) a petition for review under Rule 43 on the ground of errors of fact. filed a Rule 45 petition in the Supreme Court. Inc. Under the rule in statutory construction. the Court held that a petition to vacate an award in the RTC which is not based on the grounds enumerated in Section 24 of RA 876 should be dismissed. law or mixed questions of fact and law. the issues clearly fall under the classification of errors of fact and law. WINS meanwhile filed a petition in the Regional Trial Court [“RTC”] for confirmation of the arbitral award [the “Petition for Confirmation”]. expressio unius est exclusio alterius. the alleged grave abuse of discretion of the arbitrator pertained more to the latter’s appreciation of the issues and the evidence of the parties. The agreement between Lopez and del Rosario was subject to . This rejection was embodied in a letter. Those that may raised in a petition for certiorari are errors of jurisdiction or grave abuse of discretion amounting to lack or excess of jurisdiction. Ortigas Center. through this agreement. the RTC issued an order holding in abeyance any further action on the Petition for Confirmation. On the other hand. collectively the “ABS-CBN Petition”]. a Rule 65 petition may be filed. In Adamson v. The judicial remedies on appeal are. It held that only the RTC had jurisdiction over the questions raised by ABS-CBN and that its jurisdiction may be invoked only in an appeal from the RTC’s decision confirming. Any agreement stipulating that the decision of the arbitrator is final and not subject to appeal or that there shall be no further judicial recourse if either party disagrees with the whole or part of the award cannot be held to preclude in proper cases the power of judicial review which is inherent in courts5. allegedly signifying his intent to send a counter proposal. ABS-CBN sought to enjoin the RTC from further proceeding on the Petition for Confirmation in a supplemental petition filed in the CA. however. The issues that may be raised in a petition for review are errors of fact. through VP Concio. Therefore. mutually exclusive and not cumulative or successive. What transcribed at that meeting was subject to conflicting versions. For further information on this topic. ABS CBN and Viva executed a Film Exhibition Agreement whereby Viva gave ABS CBN an exclusive right to exhibit some Viva films. Moreover.. of-counsel of the Parlade Hildawa Parlade Eco & Panga and president emeritus of the Philippine Dispute Resolution Center. may file in the CA a petition for review under Rule 43 or certiorari under Rule 65. he and del Rosario agreed that ABS was granted exclusive film rights to 14 films for P36M. ABS-CBN. instead of filing a petition to vacate the award when the grounds invoked in the petition are the grounds for vacating an award under Republic Act No. of law or mixed errors of law or fact. CA [301 SCRA 572 (Jan 21 1999)] Power of the Board of Directors Delegation to Executive Committee Facts: In 1990. in the alternative. and insisted that what he and Lopez discussed was Viva’s film package of the 52 original films for P60M stated above. Certiorari cannot be availed of where appeal is the proper remedy. According to Lopez. Thus. 876 [“RA 876”] The Supreme Court said that Section 24 of RA 876 explicitly states that an award may be vacated only in any one of the case enumerated in Section 24. It necessarily follows that in the RTC a party may not seek to overturn an award upon any of these grounds. hence. please contact Custodio O. the Supreme Court said. Parlade. ABS however. The Orient Square. Viva’s BoD rejected it. and (c) a petition for certiorari under Rule 65 on the ground that the arbitrator acted without or in excess of his jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction6. Jr. he sold the rights to the 52 original films to RBS. RTC rendered its decision in favor of RBS and Viva contending that there was no meeting of minds on the price and terms of the offer. ABS filed before RTC a complaint for specific performance with prayer for TRO against RBS and Viva. If grave abuse of discretion or lack of jurisdiction is alleged. Ortigas. The issue before it. This article was prepared by Custodio O. When the counter proposal arrived. After this supplemental petition was admitted. del Rosario denied the existence of the napkin in which Lopez wrote something. And that a petition for certiorari is proper only if the RTC refused or neglected to inquire into the facts of an award. signed by Lopez and given to del Rosario. and that Lopez refused said offer.

Viva BoD approval. But ABS. Delegation to officers makes the latter agents of the corporation. Assuming arguendo that del Rosario did enter into a contract with Lopez at Tamarind Grill. the acceptance must be absolute and must not qualify the terms of the offer. It already refused the 26 films. A contract is a meeting of minds between 2 persons whereby one binds himself to give something or to render some service to another for a consideration. and terms of payment. Under the Corporation Code. are exercised by the BoD. consideration. For such officers to be deemed fully clothed by the corporation to exercise a power of the Board. actually made a counter offer. then. . or one that involves a new proposal. when del Rosario met with Lopez at the Tamarind Grill. There is no contract unless the following requisites concur: (1) consent of the contracting parties (2) object certain which is the subject of the contract (3) cause of the obligation. when something is desired which is not exactly what is proposed in the offer. this petition for certiorari with SC. The offer must be certain. In any event. In the case at bar. a contract is produced. Lopez claims that it had not fully exercised its right of first refusal over 24 films since it only chose 10. the package of 52 films was Viva’s offer to enter into a new Exhibition Agreement. there was no basis for ABS’ demand that a contract was entered into between them. That del Rosario did not have the authority to accept ABS’ counter offer was best evidenced by his submission of the counter proposal to Viva’s BoD for the latter’s approval. When Viva’s BoD rejected the counter proposal. and accordingly. That the 1990 Agreement with the right of first refusal was already exercised by Ms. The contention of Lopez that their meeting in Tamarind Grill was a continuation of their right of first refusal agreement over the remaining 14 films is untenable. and such 1990 Agreement was an entirely new contract other than the 1992 alleged agreement at the Tamarind Grill. there was no acceptance. this acceptance did not bind Viva since there was no proof whatsoever that del Rosario had specific authority to do so. Consequently. CA affirmed. A qualified acceptance. unconditional. Once there is concurrence between the offer and the acceptance upon the subject matter. unless otherwise provided by said law. must be for specific purposes. He insists that SC give credence to his testimony that he and del Rosario discussed the airing of the remaining 14 films under the right of first refusal agreement in Tamarind Grill where there was a contract written in the alleged napkin. then no contract could have been executed. and without variance of any sort from the proposal. Held: NO. there was no meeting of the minds between del Rosario and Lopez. and since this was rejected by the board. The delegation. such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer. the general rules of agency ad to the binding effects of their acts would apply. it must be plain. However. the latter must specially authorize them to do so. Hence. except for the executive committee. Concio when it rejected the offer. which is established. To convert the offer into a contract. such as the power to enter into contracts. ABS’ right of first refusal had already been exercised when Ms. corporate powers. through its counter proposal sent to Viva. The acceptance should be unqualified. Clearly. Issue: Whether or not there was a perfected contract between Lopez and del Rosario. constitutes a counter offer and is a rejection of the original offer. unequivocal. the board may delegate such powers to either an executive committee or officials or contracted managers. Contracts that are consensual in nature are perfected upon mere meeting of the minds. Concio wrote to Viva choosing only 10 out of the 36 films offered by del Rosario.

The Philippine Government undertook to support the financing of MMIC by purchase of MMIC debenture and extension of guarantees. vs. including assets of whatever kind.[4] Article V of the Mortgage Trust Agreement prescribes in detail.[9] In August and September 1984. CABARRUS. Nonoc Mining Corporation.ASSET PRIVATIZATION TRUST.. 1985.[10] The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed corporations. SR. CABARRUS. for Annulment of Foreclosures. and Island Cement Corporation.38 as of July 15. of amount not exceeding US$100 Million. In 1986. Makati City. (2) direct the banks to honor and perform their commitments under the alleged FRP. The Makati RTC’s order upheld and confirmed the award made by the Arbitration Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the Government. as amended by Republic Acts No. 1968. which expressly includes the event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when due. CABARRUS. including interest). attorney’s fees. Branch 62. a Memorandum of Agreement was drawn on July 3. Deeds of Real Estate Mortgages. 385. Jesus S. filed a derivative suit against DBP and PNB before the RTC of Makati. JESUS S. Cabarrus.607. DBP and PNB as mortgagees of MMIC assets.. as President and among its original stockholders. 1828.028. JAIME T. cobalt and other minerals in the Surigao mineral reservation. 1984. respondents. docketed as Civil Case No. develop and exploit nickel. COURT OF APPEALS.[11] On February 28.770.[1] MMIC is a domestic corporation engaged in mining with respondents Jesus S. Deeds of Undertakings. and additional assets described and identified. 2077 and 4167. together with the other stockholders of MMIC. By 1984. petitioner.792. granted MMIC the exclusive right to explore. PASTOR. the FRP was approved by the Board of Directors of the MMIC.[5] In various request for advances/remittances of loans of huge amounts. Sr. Maricalum Mining and Industrial Corporation. the proposed FRP had never been formally adopted. prayed that the court: (1) annul the foreclosure. 1984 and in the amount of P8. restore the foreclosed assets to MMIC. MMIC. Cabarrus. . whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board. during and after foreclosure.[6] Thus. nature or description. or in addition thereto. the Philippine Government obtained a firm. a financial restructuring plan (FRP) designed to reduce MMIC'’ interest expense through debt conversion to equity was drafted by the Sycip Gorres Velayo accounting firm. MMIC had an outstanding loan with DBP in the amount of P13. 1981. ANTONIO U. subject of real estate and chattel mortgage executed by the mortgagor. JR.5 BILLION. Specific Performance and Damages. and require the banks to account for their use and operation in the interim. 1984 or a total Government exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven Thousand Seven Hundred Seventy and 05/100 (P22. the staggering amount of damages was imposed on the Government for exercising its legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the latter’s failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP). Sr. 9900. and in compliance with the directive of Presidential Decree No.789. over all MMIC’s assets. On July 13. approved or ratified by either PNB or DBP. JOSE MIGUEL CABARRUS. the Government extended accommodations to MMIC in various amounts. the procedure therefor.05). PNB and DBP executed a Mortgage Trust Agreement[3] whereby MMIC.[2] DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the unutilized portion of the Government commitment.249. The antecedent facts of the case The development.. as the various loans and advances made by DBP and PNB to MMIC had become overdue and since any restructuring program relative to the loans was no longer feasible. Further. and in addition to the enumerated events of defaults. commitment from the DBP and/or other government financing institutions to subscribed in MMIC and issue guarantee/s for foreign loans or deferred payment arrangements secured from the US Eximbank. namely.92 as of August 31. circumstances by which the mortgagor may be declared in default. and MIGUEL M. ALEJANDRO S.5 BILLION (or approximately P4.565. and MMIC was having a difficult time meeting its financial obligations. as Minority Stock Holders of Marinduque Mining and Industrial Corporation.668.[8] However. Promissory Notes.. MMIC invariably committed to pay either on demand or under certain terms the loans and accommodations secured from or guaranteed by both DBP and PNB. by virtue of which laws. Asian Development Bank..[7] On April 30. authority of Trustee before. The petition for review on certiorari before us seeks us to reverse and set aside the decision of the Court of Appeals which denied due course to the petition for certiorari filed by the Asset Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62. Ironically. agreed to constitute a mortgage in favor of PNB and DBP as mortgagees. waiver of period to foreclose. Article IV of the Mortgage Trust Agreement provides for Events of Default. MIRANDA. including taking possession of the mortgaged properties. in replenishment. as mortgagor. JESUS S. Kobe Steel. DBP and PNB’s financial exposure both in loans and in equity in MMIC had reached tremendous proportions. ANTONIO. Philippine Currency. JR. litigation expenses and costs. and (3) pay moral and exemplary damages. exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have been authorized by Republic Act No. represented by herein petitioner APT for damages in the amount of P2. Loans Documents.[12] The suit. decided to exercise their right to extrajudicially foreclose the mortgages in accordance with the Mortgage Trust Agreement. these assets were transferred to the Asset Privatization Trust (APT).537. Thereafter. which the mortgagor may acquire whether in substitution of.

the partied having agreed to drop PNB and DBP from the arbitration.02 plus interest. The parties hereby agree that (a) the controversy in Civil Case No. this Court orders: 1. however. the Arbitration Committee rendered a majority decision in favor of MMIC. continue to remain outstanding and unpaid. Submission. valid and in good faith. 4. As this Committee holds that the FRP is valid.635. DBP shall share in the award of damages to. inter alia: NOW. On November 24.537.668. 1992. more or less.425. more or less. Exhibits “100”. private respondents and petitioner APT. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure money claims. with the approval of the Trial Court of this Compromise and Arbitration Agreement.00 resulting in the net actual damages of P2. 9900 shall be submitted instead to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. 9900. Jose C.486. DBP’s equity in MMIC is raised to 87%. the Committee holds and so declares that the loans of PNB and DBP to MMIC. for and in consideration of the foregoing premises and the mutual covenants contain herein. collect the outstanding obligations of MMIC to PNB and DBP amounting to P22. THEREFORE. and (b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC accounts. The parties have agreed to withdraw their respective claims from the Trial Court and to resolve their dispute through arbitration by praying to the Trial Court to issue a Compromise Judgment based on this Compromise and Arbitration Agreement.668.[13] The Compromise and Arbitration Agreement limited the issues to the following: 5. DISPOSITION . subject to the legal and valid defenses that the latter may duly and seasonably interpose. and The Complaint is hereby DISMISSED. Therefore. and including. as successor of the DBP and PNB’s interest in MMIC. as this Committee finds. to collect the same from MMIC pursuant to and based on the loan documents signed by MMIC. “3-B”.[14] This agreement was presented for approval to the trial court.[15] 3.05. the Makati RTC. Substituting PNB and DBP with the Asset Privatization Trust as party defendant. On October 14. the parties agreed as follows: 1. be discharged by and be enforceable against APT. 9900 shall.654. 1992. (b) Whether or not the actions leading to. be reduced by the amount which APT may have realized from the sale of the seized assets of MMIC which by agreement should no longer be returned even if the foreclosure were found to be null and void. 9900 to be transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the responsibility of.537.770. and also Exhibit “ZZZ”) as their exhibits would show that the total outstanding obligation due to DBP and PNB as of the date of foreclosure is P22. Approving the Compromise and Arbitration Agreement dated October 6. issued an order. attached as Annex “C” of the Omnibus Motion. mutually agreed to submit the case to arbitration by entering into a “Compromise and Arbitration Agreement. Simply put. defendant APT can.118. 1993. The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as Chairman. In withdrawing their dispute form the court and in choosing to resolve it through arbitration. the pertinent portions of which read as follows: Since. the 87% equity of DBP is hereby deducted from the actual damages of P19.In the course of the trial. be transferred and reduced to pure pecuniary/money claims with the parties waiving and foregoing all other forms of reliefs which they prayed for or should have payed for in Civil Case No. and is still entitled to.” stipulating.05. with interest thereon as stipulated in the loan documents from the date of foreclosure up to the time they are fully paid less the proportionate liability of DBP as owner of 87% of the total capitalization of MMIC under the FRP. 2. The documentary evidence submitted and adopted by both parties (Exhibits “3”. for the payment and recovery of which the void foreclosure sales were undertaken. Defendant APT as the successor-in-interest of PNB and DBP to the said loans is therefore entitled and retains the right. Withdrawal and Compromise. and in obligations of MMIC in proportion to its 87% equity in the total capital stock of MMIC. 2. APT shall likewise succeed to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No. Sison and former Court of Appeals Justice Magdangal Elma as Members. the parties have agreed that: (a) their respective money claims shall be reduced to purely money claims. The issues to be submitted for the Committee’s resolution shall be: (a) Whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors. there is no foreclosure at all was not legally and validly done. Issues. Such loans shall.531. the PNB-DBP foreclosure of the MMIC assets were proper. Branch 62.770. So pursuant to the above provision of the Compromise and Arbitration Agreement. after conducting several hearings. Atty. to wit: WHEREFORE.

the sum of P3.000. and finally settled and clarified in the Separate Opinion dated September 2.000.000.705. except the DBP.425. . 1994 of Committee Member Elma.000. as affirmed in a Resolution dated July 26. 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement.00 as and for moral damages. 3. and operated simply as “a mere suspension of the proceedings. 2. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs filing the derivative suit and (2) the regularity of the foreclosure proceedings.00.22 as arbitration costs. the Decision of the Arbitration Committee promulgated on November 24. Act 876. Sr.. an arbitration under a contract or submission shall be deemed a special proceedings and a party to the controversy which was arbitrated may apply to the court having jurisdiction.000. the defendants in the said Civil Case No.635.000. 1988.000. arguing that a dismissal of Civil case No. premises considered.” Petitioner countered with an “Opposition and Motion to Vacate Judgment” raising the following grounds: 1. Act 876. Under Section 22 of Rep. as and for actual damages.00 as and moral and exemplary damages. the sum of P2. IT IS SO ORDERED. Ordering the defendant to pay arbitration costs. (not necessarily with this Honorable Court) for an order confirming the award. except the DBP. and (d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of P1.00 pursuant to the Escrow Agreement dated April 22. In fact. (c) Ordering the defendant to pay to Jesus S.757. The Balance of the award. as and for actual damages. Under Section 24 of Rep. 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement. the sum of P13. except the DBP.000. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation. Should there be any balance due to the MMIC after the offsetting. In an Order dated November 28. Cabarrus. the Court must make an order vacating the award where the arbitrators exceeded their powers. and the pertinent provisions of RA 876. shall be executed against the APT.WHEREFORE. the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the amount of P503. that a mutual final and definite award upon the subject matter submitted to them was not made.000.000. as and for moral damages.531.000.” They denied that the Arbitration Committee had exceeded its powers. private respondents filed in the same Civil Case No. Sr. 2. which shall be partially satisfied from the funds held under escrow in the amount of P503.also known as the Arbitration Law. 4. or so imperfectly executed them. Payment of these actual damages shall be offset by APT from the outstanding and unpaid loans of the MMIC with DBP and PNB. 9900 which was dismissed upon motion of the parties.[16] Motions for reconsiderations were filed by both parties.00 as and for moral and exemplary damages.02 with interest thereon at the legal rate of six per cent (6%) per annum reckoned from August 3. 9900 were the Development Bank of the Philippines and the Philippine National Bank (PNB). the trial court confirmed the award of the Arbitration Committee. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation. which have not been converted into equity. 1994. 1988 or to such subsequent escrow agreement that would supercede it.000. 1984. but the same were denied. 1994. judgment is hereby rendered: 1. and in the light of the parties [sic] Compromise and Arbitration Agreement dated October 6. The dispositive portion of said order reads: WHEREFORE. this Court GRANTS PLAINTIFFS’ APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD. On October 17.[17] Private respondents filed a “REPLY AND OPPOSITION” dated November 10. to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22. considering that the said motion is neither a part nor the continuation of the proceedings in Civil Case No. after the escrow funds are fully applied. and 24. The arbitration award sought to be confirmed herein far exceeded the issues submitted and even granted moral damages to one of the herein plaintiffs. (b) Ordering the defendant to pay to the MMIC.000. the sum of P10. 1984. Jesus Cabarrus. 9900 an “Application/Motion for Confirmation of Arbitration Award. 1993. premises considered. AND JUDGMENT IS HEREBY RENDERED: (a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC. 9.425.410. 3. Payment of these moral and exemplary damages shall be offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB.000. the sum of P13. 1994. pursuant to paragraph (9) of the Compromise and Arbitration Agreement. the sum of P10. 9900 was merely a “qualified dismissal” to pave the way for the submission of the controversy to arbitration. except the DBP.00 held under escrow pursuant to the Escrow Agreement dated April 22. and 4..00 held under escrow pursuant to the Escrow Agreement dated April 22. pari passu. Should there be any balance due to MMIC after the offsetting. The plaintiff’s Application/Motion is improperly filed with this branch of the Court. 1992. This Decision is FINAL and EXECUTORY.811. which have not been converted into equity. Ordering the defendant to pay to the plaintiff. the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the of P503.00.

[22] . and the final edict of the Arbitration Committee’s decision. 1994.[20] On July 12. TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL CASE. petitioner alleged that: I THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS.[19] As ground therefor. IN ISSUING THE QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD. and with this Court’s Confirmation. 1994 and January 18. 1994. the Court of Appeals.” The dispositive portion of the Order of the trial court dated October 14. 8 paragraph 2 of the Compromise and Arbitration Agreement. resolutions.[21] The petition is impressed with merit. 9900 HAD LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER THE SAME CIVIL CASE AND IN NOT RULING THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC.[18] On December 27. 1995 for having been issued without or in excess of jurisdiction and/or with grave abuse of discretion. 9900. 1995. Branch 62. petitioner received private respondents’ motion for Execution and Appointment of Custodian of Proceeds of Execution dated February 6. in turn. HAD PREVIOUSLY BEEN DISMISSED. IV THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APT’S PETITION FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER CONFIRMING THE AWARD V THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN TO RECKON THE COUNTING OF THE PERIOD TO FILE A MOTION FOR RECONSIDERATION. NOT FROM THE DATE OF SERVICE OF THE COURT’S COPY CONFIRMING THE AWARD. the instant petition for review on certiorari imputing to the Court of Appeals the following errors. CIVIL CASE NO. II THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION. officially and actually received a copy of the Order of this Court dated November 28. the trial court handed down its order denying APT’s motion for reconsideration for lack of merit and for having been filed out of time. 1992 stated in no uncertain terms: 4. BUT FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING COUNSEL’S COPY THEREOF. 1995. III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT TRIAL COURT SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE RESPONDENTS’ MOTION/PETITION FOR CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS OF THE MOTION TO VACATE ARBITRAL AWARD. judgments or decisions of any court in all cases. BRANCH 62 WHICH HAS PREVIOULSY DISMISSED CIVIL CASE NO. On January 18. 1996 to annul and declare as void the Orders of the RTC-Makati dated November 28. submitted their reply and opposition thereto. The Complaint is hereby DISMISSED. petitioner filed its motion for reconsideration of the Order dated November 28. awards. 1994. SO ORDERED. ASSIGNMENT OF ERRORS I THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI REGIONAL TRIAL COURT. II THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS ESTOPPED FROM QUESTIONING THE ARBITRATION AWARD. The trial court declared that “considering that the defendant APT through counsel. 1995. or after the lapse of 21 days. 1995. 1994. III THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION FOR RECONSIDERATION. through its fifth Division denied due course and dismissed the petition for certiorari.In reiteration of the mandates of Stipulation No.” On February 7. 1994 on December 6. did not have jurisdiction to confirm the arbitral award The use of the term “dismissed” is not a “mere semantic imperfection. was clearly filed beyond the 15-day reglementary period prescribed or provided for by law for the filing of an appeal from final orders. Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary restraining order and/or preliminary injunction dated February 13. the Motion for Reconsideration thereof filed by the defendant APT on December 27. WHEN PETITIONER QUESTIONED THE JURISDICTION OF THE RTC-MAKATI. HAS THE COURT AUTHORITY. Private respondents. Hence. I The RTC of Makati. and by necessary implication for the filling of a motion for reconsideration thereof. the issuance of the Arbitration Committee’s Award shall henceforth be final and executory. 10 and Stipulation No. BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE THE ARBITRAL AWARD.

quash. as the law requires. more limited than judicial review of a trial. as will be hereinafter demonstrated. both parties as well as said court are bound by such error. however.[26] One such exception was enunciated in Tijam vs. not the end.[31] Errors of law and fact." Petitioner’s situation is different because from the outset. The Court of Appeals in dismissing APT’s petition for certiorari upheld the trial court’s denial of APT’s motion for reconsideration of the trial court’s order confirming the arbitral award. Sibonghanoy. It is erroneous then to argue. the petition for certiorari could not be resorted to as substitute to the lost right of appeal. In the instant case.[28] provides that: x x x An appeal may be taken from an order made in a proceeding under this Act. are insufficient to invalidate an award fairly and honestly made. Petition for Certiorari: .” as again. It could not have validly reacquired jurisdiction over the said case on mere motion of one of the parties. has acted without or in excess of its or his jurisdiction. or motion without trial on the issues involved. let alone to confer that jurisdiction. or from a judgment entered upon an award through certiorari proceedings. As a rule.[30] They will not review the findings of law and fact contained in an award. speedy.When any tribunal.[32] Judicial review of an arbitration is. neither waiver nor estoppel shall apply to confer jurisdiction upon a court barring highly meritorious and exceptional circumstances. consequently. Section 29 of Republic Act No. Branch 62 had no jurisdiction to confirm the arbitral award. the Regional Trial Court to which the award was submitted for confirmation has acted without jurisdiction. 876. x x x. nor any plain. thus. it has consistently held the position that the RTC. board or officer. board or officer exercising judicial functions. Thus. as in this case. or with grave abuse of discretion and there is no appeal. III Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper. Consequently. or an erroneous decision of matters submitted to the judgment of the arbitrators. IV The nature and limits of the Arbitrators’ powers. this matter being legislative in character.”[25] As a rule the. It is neither for the courts nor for the parties to violate or disregard that rule. worse. that petitioner APT was charged with the knowledge that the “case was merely stayed until arbitration finished. terminate. the respondent court erred in dismissing the special civil action for certiorari. in confirming said award which is grossly and patently not in accord with the arbitration agreement. but such appeals shall be limited to question of law. However. and will not undertake to substitute their judgment for that of the arbitrators.” By its own action. Section 1 of Rule 65 provides: SEC 1.[29] Courts are without power to amend or overrule merely because of disagreement with matters of law or facts determined by the arbitrators.The term “dismiss” has a precise definition in law. Branch 62 had lost jurisdiction over the vase.”[23] Admittedly the correct procedure was for the parties to go back to the court where the case was pending to have the award confirmed by said court. The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to confirm the arbitral award because it sought affirmative relief in said court by asking that the arbitral award be vacated. on the ground that said motion was filed beyond the 15-day reglementary period. it is too late for the loser to question the jurisdiction or power of the court. the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as to the facts. the invocation of this defense may de done at any time. and adequate remedy in the ordinary course of law.[33] . Petitioner’s prayer for the setting aside of the arbitral award was not inconsistent with its disavowal of the court’s jurisdiction. discontinue. speedy remedy in the course of law. of such tribunal. The rule is that “Where the court itself clearly has no jurisdiction over the subject matter or the nature of the action. as private respondents do.[24] neither of the parties questioned said dismissal. Conclude. as there was no “pending action” to speak of. does not preclude a party aggrieved by the arbitral award from resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court where. the order of Branch 62 in very clear terms stated that the “complaint was dismissed. “To dispose of an action suit. of litigation. a person aggrieved thereby may file a verified petition in the proper court alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings. The aforequoted provision. or with grave abuse of discretion and there is no appeal. consequently. II Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati. Branch 62 made the fatal mistake of issuing a final order dismissing the case. it cannot be said that it was estopped from questioning the RTC’s jurisdiction. since any other rule would make an award the commencement.[27] where it was held that “after voluntarily submitting a cause and encountering an adverse decision on the merits. the petition to confirm the arbitral award should have been filed as a new case and raffled accordingly to one of the branches of the Regional Trial Court. it being from the pleadings and the evidence that the trial court lacked jurisdiction and/or committed grave abuse of discretion in taking cognizance of private respondent’ motion to confirm the arbitral award and. The Rules of Court is specific on how a new case may be initiated and such is not done by mere motion in a particular branch of the RTC. Thus. nor any plain. We do not agree. While Branch 62 should have merely suspended the case and not dismissed it.

The arbitrators in their award may grant any remedy or relief which they deem just and equitable and within the scope of the agreement of the parties. under Sections 24 and 25. Section 24 of the same law enumerating the grounds for vacating an award states: SEC. thing or property referred to in the award. or in refusing to hear evidence pertinent and material to the controversy. Where the conditions described in Articles 2038. The arbitrators shall have the power to decide only those matters which have been submitted to them. or (d) That the arbitrators exceeded their powers. Section 25 which enumerates the grounds for modifying the award provides: SEC. 2039. 25. we find that the arbitrators came out with an award in excess of their powers and palpably devoid of factual and legal basis. The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the mortgages of MMIC whose obligations were past due. the arbitrators’ awards is not absolute and without exceptions. – In any one of the following cases. Sections 24 and 25 of the Arbitration Law provide grounds for vacating. the defect could have been amended or disregarded by the court. and willfully refrained from disclosing such disqualifications or any other misbehavior by which the rights of any party have been materially prejudiced. therefore. (Underscoring ours). Grounds for vacating award. Finally. that a mutual.[39] we held: x x x. The foreclosure was not a wrongful act of the banks and. Accordingly. Thus. upon the application of any party to the controversy which was arbitrated: (a) Where there was an evident miscalculation of figures. Court of Appeals. or (b) Where the arbitrators have awarded upon a matter not submitted to them.[34] The parties to such an agreement are bound by the arbitrators’ award only to the extent and in the manner prescribed by the contract and only if the award is rendered in conformity thereto. [40] In the same manner. There was no financial restructuring agreement to speak of that could have constituted an impediment to the exercise of the bank’s right to foreclose. their award must be vacated. but not be limited to. or (b) That there was evident partiality or corruption in arbitrators or any of them. 2044 of the Civil Code that the finality of the arbitrators’ awards is not absolute and without exceptions. – The award must be made in writing and signed and acknowledged by a majority of the arbitrators. of the Arbitration Law. Each party shall be furnished with a copy of the award. not affecting the merits of the decision upon the matter submitted. that one or more of the arbitrators was disqualified to act as such under section nine hereof. if there is only one. the court must make an order modifying or correcting the award. which shall include. Additionally. (Underscoring ours). or other undue means. and by the sole arbitrator. could not be the basis of any award of damages. rescinding or modifying an arbitration award. or so imperfectly executed them. there are grounds for vacating. fraud.”[41] Against the backdrop of the foregoing provisions and principles. the arbitration award may also be annulled. an award must be vacated if it was made in “ manifest disregard of the law. the specific performance of a contract. if and when the factual circumstances referred to in the abovecited provisions are present. The arbitrators cannot resolve issues beyond the scope of the submission agreement. final and definite award upon the subject matter submitted to them was not made. 876 provides: SEC. 20. In Chung Fu Industries (Phils. foreclosure of mortgage was fully justified. judicial review of the award is properly warranted. or an evident mistake in the description of any person. It is stated explicitly under Art. The terms of the award shall be confined to such disputes.) vs. the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings: (a) The award was procured by corruption. V There was no financial structuring program. 24. modifying or rescinding an arbitrator’s award. if more than one. the arbitrators' award may be annulled or rescinded. Section 20 of R. or (c) Where the award is imperfect in a matter of form not affecting the merits of the controversy. Where the conditions described in Articles 2038. and 2040 applicable to both compromises and arbitration are obtaining.Nonetheless. it should be stressed that while a court is precluded from overturning an award for errors in determination of factual issues. if an examination of the record reveals no support whatever for the arbitrators’ determinations.[35] Thus. Form and contents of award. Grounds for modifying or correcting award – In anyone of the following cases. . or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown.[36] 2039[37] and 2040[38] of the Civil Code applicable to compromises and arbitration are attendant. nevertheless. and if it had been a commissioner’s report.A.

credit. it is not a whimsical decision but rather decision arrived at after weighty considerations of the information that we have received. whether such restraining order. it only means that MMIC had been informed or notified that its obligations were past due and that foreclosure is forthcoming. “L-1”. At that stage. PNB and DBP had to initiate foreclosure proceedings as mandated by P. If these loans were restructurable because they were already due and unpaid. including the right to foreclosure on loans. Dr. It must be pointed that said FRP will. It will become the new loan agreement between the lenders and the borrowers. after the lapse of sixty (60) days from the issuance of this Decree to foreclose the collaterals and/or securities for any loan. SEC. The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to foreclose. 4. a member of the Arbitration Committee who wrote a separate opinion: 1. When MMIC adopted a restructuring program for its loan. accommodations and/or guarantees on which the arrearages are less than twenty percent (20%). Cabarrus. 385. Neither does it mean that the FRP is legally binding and implementable. The various loans and advances made by DBP and PNB to MMIC have become overdue and remain unpaid. Mapa what you meant by “that the decision to foreclose was neither precipitate nor arbitrary”? A : Well. credits. may I know from you.[43] . When MMIC thru its board and the stockholders agreed and adopted the FRP. Yet Cabarrus himself opposed the FRP. (Underscoring supplied. The fact that a FRP was drawn up is enough to establish that MMIC has not been complying with the terms of the loan agreement. not an iota of proof has been presented by the PLAINTIFFS showing that PNB and DBP ratified and adopted the FRP. Q : And I supposed that was you were referring to when you stated that the production targets and assumed prices of MMIC’s products. there must therefore be a meeting of minds of the parties. supersede the existing and past due loans of MMIC with PNB-DBP. it can readily be seen and it cannot quite be denied that MMIC accounts in PNB-DBP were past due. a decision further explained by Dr. a disputable presumption exists in favor of petitioner that official duty has been regularly performed and ordinary course of business has been followed. temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof. in effect. The decree requires government financial institutions to foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding obligations. the PNB and DBP must have to validly adopt and ratify such FRP before they can be bound by it. it was referring to the decision to foreclose. it was done without bad faith but with honest and sincere belief that foreclosure was the only alternative. amount to at least twenty percent (20%) of the total outstanding obligations. The option is with the PNB-DBP on what steps to take. 2. 1974. In any case. 1. and we adopted as Exh. The pertinent provisions of said decree read as follows: SEC. Was PNB and DBP absolutely unjustified in foreclosing the mortgages? In this connection. which took effect on January 31. Sison. including accrued interest and other charges. It shall be mandatory for government financial institutions. Q : And this statement that “it was premised upon the known fact” that means. 37-A for the respondent. just what is meant “by no longer feasible”? A : Because the revenue that they were counting on to make the rehabilitation plan possible. Restructuring simply connotes that the obligations are past due that is why it is “restructurable”. as appearing in the books of account and/or related records of the financial institutions concerned. No restraining order. was not anymore expected to be forthcoming because it will result in a short fall compared to the prices that were actually taking place in the market. temporary or permanent injunction is sought by the borrower(s) or any third party or parties.) Private respondents’ thesis that the foreclosure proceedings were null and void because of lack of publication in the newspaper is nothing more than a mere unsubstantiated allegation not borne out by the evidence. it only meant that these loans were already due and unpaid. No. who filed this case supposedly in behalf of MMIC should have insisted on the FRP. This shall be without prejudice to the exercise by the government financial institutions of such rights and/or remedies available to them under their respective contracts with their debtor. Jose C. except after due hearing in which it is established by the borrower and admitted by the government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after the filing of foreclosure proceedings. The drawing up of the FRP is the best proof of this. and listening to the prospects which reported to us that we had assumed would be the premises of the financial rehabilitation plan was not materialized nor expected to materialized. and/or guarantees granted by them whenever the arrearages on such account. “L” which was marked as Exh.” Which brings me to my last point in this separate opinion. accommodations. As in all other contracts. MMIC also knew that PNB-DBP had the option of either approving the FRP or proceeding with the foreclosure. they are likewise “forecloseable”. In this case.As correctly stated by Mr. Placido Mapa who testified that foreclosure was. used in the financial reorganization program that will make it viable were not met nor expected to be met? A : Yes. 3.D. in the judgment of PNB. “Q : Now in this portion of Exh. including interest and other charges. among other projections. So when PNB-DBP proceeded with the foreclosure. was premised upon the known fact that the rehabilitation plan earlier approved by the stockholders was no longer feasible. 2. the best move to save MMIC itself. before it can be implemented. PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to support its allegation in this regard.[42] Moreover.

VI Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of the case, the arbitrators in making the award went beyond the arbitration agreement. In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for judgment in their favor: 1. Declaring the foreclosure effected by the defendants DBP and PNB on the assets of MMIC null and void and directing said defendants to restore the foreclosed assets to the possession of MMIC, to render an accounting of their use and/or operation of said assets and to indemnify MMIC for the loss occasioned by its dispossession or the deterioration thereof; 2. Directing the defendants DBP and PNB to honor and perform their commitments under the financial reorganization plan which was approved at the annual stockholders’ meeting of MMIC on 30 April 1984; 3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs actual damages consisting of the loss of value of their investment amounting to not less than P80,000,000.00, the damnum emerges and lucrum cessans in such amount as may be establish during the trial, moral damages in such amount as this Honorable Court may deem just and equitable in the premises, exemplary damages in such amount as this Honorable Court may consider appropriate for the purpose of setting an example for the public good, attorney’s fees and litigation expenses in such amounts as may be proven during the trial, and the costs legally taxable in this litigation. Further, Plaintiffs pray for such other reliefs as may be just and equitable in the premises.[44] Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties clearly and explicitly defined and limited the issues to the following: (a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors; (b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and in good faith.[45] Item No. 8 of the Agreement provides for the period by which the Committee was to render its decision, as well as the nature thereof: 8. Decision. The committee shall issue a decision on the controversy not later than six (6) months from the date of its constitution. In the event the committee finds that PLAINTIFFS have the personality to file this suit and extra-judicial foreclosure of the MMIC assets wrongful, it shall make an award in favor of the PLAINTIFFS (excluding DBP), in an amount as may be established or warranted by the evidence which shall be payable in Philippine Pesos at the time of the award. Such award shall be paid by the APT or its successor-ininterest within sixty (60) days from the date of the award in accordance with the provisions of par. 9 hereunder. x x x. The PLAINTIFFS’ remedies under this Section shall be in addition to other remedies that may be available to the PLAINTIFFS, all such remedies being cumulative and not exclusive of each other. On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to sue and/or that the extra-judicial foreclosure is valid and legal, it shall also make an award in favor of APT based on the counterclaims of DBP and PNB in an amount as may be established or warranted by the evidence. This decision of the arbitration committee in favor of APT shall likewise finally settle all issues regarding the foreclosure of the MMIC assets so that the funds held in escrow mentioned in par. 9 hereunder will thus be released in full in favor of APT.[46] The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring valid the FRP; (b) in awarding damages to MMIC which was not a party to the derivative suit; and (c) in awarding moral damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when it ruled on the validity of, and gave effect to, the proposed FRP. In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the “validity of the foreclosure” and to transform the reliefs prayed for therein into pure money claims. There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the proposed FRP. It cannot be overemphasized that a FRP, as a contract, requires the consent of the parties thereto.[47] The contract must bind both contracting parties.[48] Private respondents even by their own admission recognized that the FRP had yet not been carried out and that the loans of MMIC had not yet been converted into equity.[49] However, the arbitration Committee not only declared the FRP valid and effective, but also converted the loans of MMIC into equity raising the equity of DBP to 87%.[50] The Arbitration Committee ruled that there was “a commitment to carry out the FRP”[51] on the ground of promissory estoppel. Similarly, the principle of promissory estoppel applies in the present case considering as we observed, the fact that the government (that is Alfredo Velayo) was the FRP’s proponent. Although the plaintiffs are agreed that the government executed no formal agreement, the fact remains that the DBP itself which made representations that the FRP constituted a “way out” for MMIC. The Committee believes that although the DBP did not formally agree (assuming that the board and stockholders’ approvals were not formal enough), it is bound

nonetheless if only for its conspicuous representations. Although the DBP sat in the board in a dual capacity-as holder of 36% of MMIC’s equity (at that time) and as MMIC’s creditor-the DBP can not validly renege on its commitments simply because at the same time, it held interest against the MMIC. The fact, of course, is that as APT itself asserted, the FRP was being “carried out” although apparently, it would supposedly fall short of its targets. Assuming that the FRP would fail to meet its targets, the DBP-and so this Committee holds-can not, in any event, brook any denial that it was bound to begin with, and the fact is that adequate or not (the FRP), the government is still bound by virtue of its acts. The FRP, of course, did not itself promise a resounding success, although it raised DBP’s equity in MMIC to 87%. It is not excuse, however, for the government to deny its commitments.[52] Atty. Sison, however, did not agree and correctly observed that: But the doctrine of promissory estoppel can hardly find application here. The nearest that there can be said of any estoppel being present in this case is the fact that the board of MMIC was, at the time the FRP was adopted, mostly composed of PNB and DBP representatives. But those representatives, singly or collectively, are not themselves PNB or DBP. They are individuals with personalities separate and distinct from the banks they represent. PNB and DBP have different boards with different members who may have different decisions. It is unfair to impose upon them the decision of the board of another company and thus pin them down on the equitable principle of estoppel. Estoppel is a principle based on equity and it is certainly not equitable to apply it in this particular situation. Otherwise the rights of entirely separate, distinct and autonomous legal entities like PNB and DBP with thousands of stockholders will be suppressed and rendered nugatory.[53] As a rule, a corporation exercises its powers, including the power to enter into contracts, through its board of directors. While a corporation may appoint agents to enter into a contract in its behalf, the agent, should not exceed his authority.[54] In the case at bar, there was no showing that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into a debt-for-equity swap. And if they had such authority, there was no showing that the banks, through their board of directors, had ratified the FRP. Further, how could the MMIC be entitled to a big amount of moral damages when its credit reputation was not exactly something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral damages include besmirched reputation which a corporation may possibly suffer. A corporation whose overdue and unpaid debts to the Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag about. As Atty. Sison in his separate opinion persuasively put it: Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral damages. While the Supreme Court may have awarded moral damages to a corporation for besmirched reputation in Mambulao vs. PNB 22 SCRA 359, such ruling cannot find application in this case. It must be pointed out that when the supposed wrongful act of foreclosure was done, MMIC’s credit reputation was no longer a desirable one. The company then was already suffering from serious financial crisis which definitely projects an image not compatible with good and wholesome reputation. So it could not be said that there was a “reputation” besmirches by the act of foreclosure.[55]
The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a party to the derivative suit.

Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of the proceedings. As it is, the award of damages to MMIC, which was not a party before the Arbitration Committee, is a complete nullity. Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the stockholder filing suit for the corporation’s behalf is only nominal party. The corporation should be included as a party in the 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. x x x. [56] It is a condition sine qua non that the corporation be impleaded as a party becausex x x. Not only is the corporation an indispensible party, but it is also the present rule that it must be served with process. The reason given is that the judgment must be made binding upon the corporation and in order that the corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of action. In other words the corporations must be joined as party because it is its cause of action that is being litigated and because judgment must be a res ajudicata against it.[57] The reasons given for not allowing direct individual suit are: (1) x x x “the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the corporate property; that both of these are in the corporation itself for the benefit of the stockholders.” In other words, to allow shareholders to sue separately would conflict with the separate corporate entity principle; (2) x x x that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case of Evangelista v. Santos, that “the stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be legally done in view of section 16 of the Corporation Law xxx;”

(3) the filing of such suits would conflict with the duty of the management to sue for the protection of all concerned; (4) it would produce wasteful multiplicity of suits; and (5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on the damages recoverable by the corporation for the same act.[58] If at all an award was due MMIC, which it was not, the same should have been given sans deduction, regardless of whether or not the party liable had equity in the corporation, in view of the doctrine that a corporation has a personality separate and distinct from its individual stockholders or members. DBP’s alleged equity, even if it were indeed 87%, did not give it ownership over any corporate property, including the monetary award, its right over said corporate property being a mere expectancy or inchoate right.[59]Notably, the stipulation even had the effect of prejudicing the other creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a derivative suit, in which the aggrieved party or the real party in interest is supposedly the MMIC, and at the same time award moral damages to an individual stockholder, to wit: WHEREFORE, premises considered, judgment is hereby rendered: 3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supersede it, pursuant to paragraph (9), Compromise and Arbitration Agreement, as and for moral damages; x x x[60] The majority decision of the Arbitration Committee sought to justify its award of moral damages to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by the government were assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus is the majority stockholder. It then acknowledge that Cabarrus had already recovered said assets in the RTC, but that “he won no more than actual damages. While the Committee cannot possibly speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on account of that specific foreclosure, damages the Committee believes and so holds, he Jesus S. Cabarrus, Sr., may be awarded in this proceeding.”[61] Cabarrus’ cause of action for the seizure of the assets belonging to IEI, of which he is the majority stockholder, having been ventilated in a complaint he previously filed with the RTC, from which he obtained actual damages, he was barred res judicata from filing a similar case in another court, this time asking for moral damages which he failed to get from the earlier case.[62] Worse, private respondents violated the rule against non-forum shopping. It is a basic postulate that s corporation has a personality separate and distinct from its stockholders.[63] The properties foreclosed belonged to MMIC, not to its stockholders. Hence, if wrong was committed in the foreclosure, it was done against the corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result in the appropriation by, and the distribution to, him part of the corporation’s assets before the dissolution of the corporation and the liquidation of its debts and liabilities. The Arbitration Committee, therefore, passed upon matters not submitted to it. Moreover, said cause of action had already been decided in a separate case. It is thus quite patent that the arbitration committee exceeded the authority granted to it by the parties’ Compromise and Arbitration Agreement by awarding moral damages to Jesus S. Cabarrus, Sr. Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral damages to Jesus S. Cabarrus, Sr.: It is clear and it cannot be disputed therefore that based on these stipulated issues, the parties themselves have agreed that the basic ingredient of the causes of action in this case is the wrong committed on the corporation (MMIC) for the alleged illegal foreclosure of its assets. By agreeing to this stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that the cause of action pertains only to the corporation (MMIC) and that they are filing this for and in behalf of MMIC. Perforce this has to be so because it is the basic rule in Corporation Law that “the shareholders have no title, legal or equitable to the property which is owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated that ‘a stockholder is not the co-owner of corporate property.’ Since the property or assets foreclosed belongs [sic] to MMIC, the wrong committed, if any, is done against the corporation. There is therefore no direct injury or direct violation of the rights of Cabarrus et al. There is no way, legal or equitable, by which Cabarrus et al. could recover damages in their personal capacities even assuming or just because the foreclosure is improper or invalid. The Compromise and Arbitration Agreement itself and the elementary principles of Corporation Law say so. Therefore, I am constrained to dissent from the award of moral damages to Cabarrus.[64] From the foregoing discussions, it is evident that, not only did the arbitration committee exceed its powers or so imperfectly execute them, but also, its findings and conclusions are palpably devoid of any factual basis and in manifest disregard of the law. We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings and memoranda filed with this Court, as well as in the Court of Appeals, raised and extensively discussed the issues on the merits. Such being the case, there is sufficient basis for us to resolve the controversy between the parties anchored on the records and the pleadings before us.[65] WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders of the Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19, 1995, is hereby REVERSED and SET ASIDE, and the decision of the Arbitration Committee is hereby VACATED. SO ORDERED

Said company is a corporation created by Act No. defendant-appellant.044. and (b) that said sum was due and owing from the plaintiff to the Government of the Philippine Islands under the provisions of . with legal interest from the date of the presentation of the complaint.68 was paid by the plaintiff without protests. plaintiff-appellee. Perfecto J.3 tons of coal. J. It claimed exemption from taxes under the provision of sections 14 and 15 of Act No. Salas Rodriguez for appellee. Attorney-General Villa-Real for appellant. the defendant alleged (a) that the sum of P12. 2719. L-22619 December 2. and costs against the defendant.G. and prayed for a judgment ordering the defendant to refund to the plaintiff said sum of P12. as specific tax on 24. 2705 of the Philippine Legislature for the purpose of developing the coal industry in the Philippine Islands and is actually engaged in coal mining on reserved lands belonging to the Government.: This action was brought in the Court of First Instance of the City of Manila on the 17th day of July. for the purpose of recovering the sum of P12. 1924 NATIONAL COAL COMPANY.044.R. THE COLLECTOR OF INTERNAL REVENUE. 1923. As a special defense. alleged to have been paid under protest by the plaintiff company to the defendant.089.68. The defendant answered denying generally and specifically all the material allegations of the complaint. except the legal existence and personality of the plaintiff.044. JOHNSON.68. vs. No.

and sentenced the defendant to refund to the plaintiff the sum of P11. Department of Mindanao and Sulu. assistance and help in the prosecution and furtherance of the company's business. 2705. By said Act. it is. sale. 2719 "to provide for the leasing and development of coal lands in the Philippine Islands. and the Island of Polillo. without any further formality. for the purpose of developing the coal industry in the Philippine Island. Republic of the Philippines SUPREME COURT Manila EN BANC . that the plaintiff corporation took possession of the land in question by virtue of the proclamation of the Governor-General. 2719 should be understood to mean "lands held in lease or usufruct.000 shares of stock issued by the company. all coal-bearing public lands within the Province of Zamboanga. creating the National Coal Company. and thus to place the Government in a position to render all possible encouragement. that said corporation had received no permission from the Secretary of Agriculture and Natural Resources. belonging to the Government. enter upon the operate coal mines. from which the coal in question was mined. Of the 30. held that the words "lands owned by any person. as provided in said section. in so far as they are not inconsistent with said Act (No. On May 14. by Act No. Dalmacio Costas. then the judgment should be affirmed. The court below erred in holding that section 15 of Act No. in harmony with the general plan of the Government to encourage the development of the natural resources of the country. 2705. the company was granted the general powers of a corporation "and such other powers as may be necessary to enable it to prosecute the business of developing coal deposits in the Philippine Island and of mining." in section 15 of Act No. contract or lease. No provisions of Act No.11 which is the difference between the amount collected under section 1496 of the Administrative Code and the amount which should have been collected under the provisions of said section 15 of Act No.) By the same law (Act No. 2705 are found to be inconsistent with the provisions of the Corporation Law. No. by virtue of which the plaintiff was entitled to enter upon any of the lands so reserved by said proclamation without first obtaining permission therefor. that the coal lands possessed by the plaintiff. the Governor-General. There is nothing in said proclamation which authorizes the plaintiff or any other person to enter upon said reversations and to mine coal. extracting. 2705). Act No. Was the plaintiff the owner of the land from which the coal in question was mined? If the evidence shows the affirmative. that is. powers or privileges than any other corporation which might be organized for the same purpose under the Corporation Law. judge. and to provided facilities therefor. solely. 2. 2719 does not refer to coal lands owned by persons and corporations. 2705) the Government of the Philippine Islands is made the majority stockholder. . that it claims to be the owner of the land from which it has mined the coal in question and is therefore subject to the provisions of section 15 of Act No." It will be noted that said proclamation only provided that all coal-bearing public lands within said province and island should be withdrawn from settlement. two months after the passage of Act No. under proper permission. the Philippine Legislature passed Act No. From that sentence the defendant appealed. The court below erred in holding that the plaintiff was not subject to the tax prescribed in section 1496 of the Administrative Code.081. After a consideration of the evidence adduced by both parties. Act No. to the exclusion of other persons or corporations who might. by virtue of said proclamation (Exhibit B. 2705." Almost immediately after the issuance of said proclamation the National Coal Company took possession of the coal lands within the said reservation. If we understand the theory of the plaintiff-appellee. 2719. evidently in order to insure proper government supervision and control. 2719. 1917. with an area of about 400 hectares. entry. entry.809 shares. The plaintiff is a private corporation. with costs against the plaintiff. all coal-bearing public lands within the Province of Zamboanga. withdrew "from settlement. and no provision of law has been called to our attention. 926. or other disposition of coal-bearing public lands within the Province of Zamboanga ." in harmony with the other provision of said Act. as amended by Act No. 39). 2705. or to the specific taxes under section 1496 of the Administrative Code. 1917. of 99 1/3 per centum of the whole capital stock. Said proclamation (Exhibit B) was issued by Francis Burton Harrison. who stated that he was a member of the board of directors of the plaintiff corporation. then Governor-General. and provided: "Pursuant to the provision of section 71 of Act No.. I hereby withdraw from settlement. and certainly it was not the intention of the Legislature to give it a preference or right or privilege over other legitimate private corporations in the mining of coal. sale.04 per ton of 1. II. transporting and selling the coal contained in said deposits. unless the plaintiff's rights fall under section 3 of said Act. 39 withdrew "from settlement. 2719." (Sec. The mere fact that the Government happens to the majority stockholder does not make it a public corporation. makes it subject to all of the provisions of the Corporation Law. the Honorable Pedro Conception. entry. As a private corporation. then the judgment should be reversed. 39 of the year 1917. Province of Tayabas. 2719 and not to the provisions of the section 1496 of the Administrative Code. it has no greater rights. and the Island of Polillo. If the evidence shows that the land does not belong to the plaintiff. that no document had been issued in favor of the plaintiff corporation. While it is true that said proclamation No. and now makes the following assignments of error: I. or other disposition. etc. Province of Tayabas. the case was brought on for trial. 39. the Government of the Philippine Islands is the owner of 29. sale. on the 18th day of October. The only witness presented by the plaintiff upon the question of the ownership of the land in question was Mr. Upon the issue thus presented. The plaintiff corporation was created on the 10th day of March. sale or other disposition. That contention of the plaintiff leads us to an examination of the evidence upon the question of the ownership of the land from which the coal in question was mined. that it took possession of said lands covering an area of about 400 hectares. was the only tax which should be collected from the plaintiff.016 kilos on each ton of coal extracted therefrom. by Proclamation No." it made no provision for the occupation and operation by the plaintiff. The question confronting us in this appeal is whether the plaintiff is subject to the taxes under section 15 of Act No. 1917. known as Proclamation No. and the Island of Polillo. upon petition of the National Coal Company.section 1496 of the Administrative Code and prayed that the complaint be dismissed. entry. 1917. or other disposition. Department of Mindanao and Sulu." On October 18. and that a tax of P0. fell within the provisions of section 15 of Act No. . 2822.

concurred in by the Auditor General. otherwise known as the NAFCO. it was also subject to the powers of the Control Committee created in said executive order. for. and with the power. 93) promulgated in accordance therewith. with a capital stock of P20. the President on October 4. 93 creating the Government Enterprises Council to be composed of the President of the Philippines as chairman. who reaffirmed his previous recommendation and emphasized that the fact that the corporation's finances had not improved. Submitted the Control Committee of the Government Enterprises Council for approval. of his refusal to modify his decision. among others — (1) To supervise. 1952 CENON S. economy and efficiency in their operation Pursuant to this authority. By a resolution of the Board of Directors of this corporation approved on January 19 of that year. and consequently to approve or disapprove. to effect such reforms and changes in government owned and controlled corporations for the purpose of promoting simplicity. 3. It can hardly be questioned that under these powers the Control Committee had the right to pass upon. No. The management the corporation was vested in a board of directors of not more than 5 members appointed by the president of the Philippines with the consent of the Commission on Appointments. disapproved by the said Committee on strenght of the recommendation of the NAFCO auditor. among which is the power of supervision for the purpose of insuring efficiency and economy in the operations of the corporation and also the power to pass upon the program of activities and the yearly budget of expenditures approved by the board of directors. 332. the petitioner asked the Control Committee to reconsider its action and approve his claim for allowance for January to June 15. Republic Act No. 1939. among other things. That the Control Committee had good grounds for disapproving the resolution is also clear. the granting of the allowance amounted to an illegal increase of petitioner's salary beyond the limit fixed in the corporate charter and was furthermore not justified by the precarious financial condition of the corporation. 93. The members of the board were to receive each a per diem of not to exceed P30 for each day of meeting actually attended. and such additional members as the President might appoint from time to time with the consent of the Commission on Appointments. and the city governments and to the general public.000 a year. On October 4. . for and under the direction of the President. municipal. (2) To pass upon the program of activities and the yearly budget of expenditures approved by the respective Boards of Directors of the said corporations. and (2) that the precarious financial condition of the corporation did not warrant the granting of such allowance.R. amounting to P1. 51 was approved authorizing the President of the Philippines.: This is a petition to review a decision of the Auditor General denying petitioner's claim for quarters allowance as manager of the National Abaca and Other Fibers Corporation.G. except the chairman of the board. 51 and the executive order (No. 1949. Cenon Cervantes in his own behalf. Office of the Solicitor General Pompeyo Diaz and Solicitor Felix V. But as the petitioner insisted on his claim the Auditor General Informed him on June 19. CERVANTES. who was to be at the same time the general manager of the corporation and to receive a salary not to exceed P15. approved on June 18. the said resolution was on August 3. the Secretary of Commerce and Industry as vice-chairman. 1949. 1947. Hence this petition for review.000. 51 per cent of which was to be able to be subscribed by the National Government and the remainder to be offered to provincial. Makasiar for respondent. promulgated Executive Order No. But the corporation was made subject to the provisions of the corporation law in so far as they were compatible with the provisions of its charter and the purposes of which it was created and was to enjoy the general powers mentioned in the corporation law in addition to those granted in its charter. L-4043 May 26. the chairman of the board of directors and managing heads of all such corporations as ex-officio members. he was granted quarters allowance of not exceeding P400 a month effective the first of that month.) With its controlling stock owned by the Government and the power of appointing its directors vested in the President of the Philippines. (Sec.000 a year. The latter. respondent. vs. The NAFCO was created by the Commonwealth Act No. and (3) To carry out the policies and measures formulated by the Government Enterprises Council with the approval of the President. a member to be designated by the President from among the members of the council as vice-chairman and the secretary as ex-officio member. Consequently. there can be no question that the NAFCO is Government controlled corporation subject to the provisions of Republic Act No. (1) that quarters allowance constituted additional compensation prohibited by the charter of the NAFCO.000. THE AUDITOR GENERAL. The claim was again referred by the Control Committee to the auditor General for comment. as pointed out by the Auditor General and the NAFCO auditor. In view of this. The Executive Order also provided that the council was to have a Control Committee composed of the Secretary of Commerce and Industry as chairman. petitioner. It appears that petitioner was in 1949 the manager of the NAFCO with a salary of P15. REYES.000 per annum. the auditor General also reiterated his previous opinion against the granting of the petitioner's claim and so informed both the Control Committee and the petitioner. J. Executive Order No.650. 1946. The council was to advise the President in the excercise of his power of supervision and control over these corporations and to formulate and adopt such policy and measures as might be necessary to coordinate their functions and activities. in turn referred it to the NAFCO auditor. the resolution of the NAFCO board of directors granting quarters allowance to the petitioners as such allowance necessarily constitute an item of expenditure in the corporation's budget. On March 16. 1950. 1949. all the corporations owned or controlled by the Government for the purpose of insuring efficiency and economy in their operations. which fixes the salary of the general manager thereof at the sum not to exceed P15.

lawphi1. the resolution of the board of the directors authorizing payment thereof to the petitioner cannot be given effect since it was disapproved by the Control Committee in the exercise of powers granted to it by Executive Order No. 2822. Neither is there any provision in Act No. 332 of 1941. naturally.000 per anum. (2) It mined on public lands between the month of July. 957). and has no greater powers nor privileges than the ordinary private corporation. economy and efficiency in their operations. 1946. perhaps. the petition for review is dismissed. however. the first day is excluded and the last day included (Section 13 Rev. 1947. The second ground ignores the rule that in the computation of the time for doing an act. nor in the amendments thereof found in Act No. 93. among others.) As the act was approved on October 4. Ad. Feria.J. This he did by promulgating the executive order in question which. The standard was set and the policy fixed. does not constitute an undue delegation of legislative power. therefore. JJ. It is also contended that the quarters allowance is not compensation and so the granting of it to the petitioner by the NAFCO board of directors does not contravene the provisions of the NAFCO charter that the salary of the chairman of said board who is also to be general manager shall not exceed P15. concur. Republic Act No." The amendment is a clear indication that quarters allowance was meant to be included in the term "additional compensation".. prohibited. it is obvious that under the above rule the said executive order was promulgated within the period given. that Executive Order No. in section 10 of Act No. C. which authorizes the National Coal Company to enter upon any of the reserved coal lands without first having obtained permission from the Secretary of Agriculture and Natural Resources. . tested by the rule above cited. quarters allowance is considered additional compensation and. including government-controlled corporations. Section 1 of said Act provides: "Coal-bearing lands of the public domain in the Philippine Island shall not be disposed of in any manner except as provided in this Act. 2705. 51 in authorizing the President of the Philippines. and the President was given a period of one year within which to promulgate his executive order and that the order was in fact promulgated on October 4. Montemayor and Bautista Angelo. not only because it is based on a law that is unconstitutional as an illegal delegation of legislature power to executive. 2719. and before the issuance of said proclamation. 1920. except those mentioned. we hold that. and the months of March. but also because it was promulgated beyond the period of one year limited in said law. 2719). with costs. a proposition on which American authorities appear divided. petitioner's contention that quarters allowance is not compensation. lays down a standard and policy that the purpose shall be to meet the exigencies attendant upon the establishment of the free and independent government of the Philippines and to promote simplicity. which prohibits the payment of additional compensation to those working for the Government and its Instrumentalities. Tuason. the Legislature of the Philippine Island in "an Act for the leasing and development of coal lands in the Philippine Islands" (Act No.089. 24. and they do not change the situation here. the rule is that so long as the Legislature "lays down a policy and a standard is established by the statute" there is no undue delegation. In view of the foregoing. 1917. cannot be insisted on behalf of officers and employees working for the Government of the Philippines and its Instrumentalities. for otherwise the amendment would not have expressly excepted it from the prohibition. 93 is null and void. 2705 creating the National Coal Company. was in 1945 amended by Executive Order No. Bengzon. On the 14th day of May. to make reforms and changes in government-controlled corporations. including. Pablo. The President had to carry the mandate. Code. Paras.It is argued. And in any event.3 tons of coal. As to the first ground. Jur. This being so.. governmentcontrolled corporations. But regardless of whether quarters allowance should be considered as compensation or not. 77 by expressly exempting from the prohibition the payment of quarters allowance "in favor of local government officials and employees entitled to this under existing law.net The following propositions are fully sustained by the facts and the law: (1) The National Coal Company is an ordinary private corporation organized under Act No. This is so because Executive Order No. 1922. for the purpose of the executive order just mentioned. (11 Am." thereby giving a clear indication that no "coal-bearing lands of the public domain" had been disposed of by virtue of said proclamation. made liberal provision.

MUNICIPALITY OF MARILAO. 1922. concur. not subject to any other provisions of Act No. 926. petitioners.net Third. nor to any other provisions of said Act. sale. imposed upon lessees or holders. prior to the existence of said Act. therefore. All "coal-bearing lands of the public domain in the Philippine Islands shall not be disposed of in any manner except as provided in this Act. it is difficult to understand why the internal revenue duty and tax in said section was made different from the obligations mentioned in section 3 of said Act. is the plaintiff subject to the provisions of section 1496 of the Administrative Code? Section 1496 of the Administrative Code provides that "on all coal and coke there shall be collected. 1917. it is so ordered. 2719 provides an internal revenue duty and tax upon unreserved. 1991 MARILAO WATER CONSUMERS ASSOCIATION." A reading of said Act clearly shows that the tax imposed thereby is imposed upon two classes of persons only — lessees and owners. Said article provides for a specific internal revenue tax upon all things manufactured or produced in the Philippine Islands for domestic sale or consumption. Governor-General. while the defendant contends. (4) It is admitted that it is neither the owner nor the lessee of the lands upon which said coal was mined. firm. No. MARILAO. INTERMEDIATE APPELLATE COURT. 2719. associations. the judgment appealed from is hereby revoked. 2719) provides an internal revenue duty and tax imposed upon any person. Street. that it is subject to pay the internal revenue tax under the provisions of section 1496 of the Administrative Code. who may be the owner of "coalbearing lands. (6) That the National Coal Company entered upon said land and mined said coal. respondents. 6 which provides for specific taxes. The plaintiff contends that it was liable only to pay the internal revenue and other fees and taxes provided for under section 15 of Act No. by reason of what he believed to be some difference in the interpretation of the language used in Spanish and English. as taxes under the provisions of article 1946 of the Administrative Code on the 15th day of December.50 a ton. associations or corporations which had already. SANGGUNIANG BAYAN. association or corporation. and MARILAO WATER DISTRICT. But. unappropriated coalbearing public lands which may be leased by the Secretary of Agriculture and Natural Resources. by authority of section 1 of Act No. The internal revenue duty and tax which must be paid upon coal-bearing lands owned by any person. that Act No. The lower court had some trouble in determining what was the correct interpretation of section 15 of said Act. that said Act (No. an examination of the provisions of Act No. fifty centavos. That being the issue. withdrawing from settlement. Avanceña. per metric ton. If section 15 means that the persons. 72807 September 9. and the defendant is hereby relieved from all responsibility under the complaint. and. From all of the foregoing facts we find that the issue is well defined between the plaintiff and the defendant. . so far as the record shows. To repeat. Malcolm. firms. we are clearly of the opinion. BULACAN. From all of the foregoing. It having been demonstrated that the plaintiff has produced coal in the Philippine Islands and is not a lessee or owner of the land from which the coal was produced.(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0. Therefore. the plaintiff is obliged to pay the internal revenue duty provided for in section 1496 of the Administrative Code. Section 15 cannot certainty refer to "holders or lessees of coal lands' for the reason that practically all of the other provisions of said Act has reference to lessees or holders. it will be noted. vs. it seems to be made plain that the plaintiff is neither a lessee nor an owner of coal-bearing lands. without any lease or other authority from either the Secretary of Agriculture and Natural Resources or any person having the power to grant a leave or authority." and the obligation to the Government which shall be imposed by said Secretary upon the lessee. firms. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G. association or corporation. JJ. An examination of said Act (No. 2719 becomes necessary. that said section 15 has reference only to persons. And. 2719) discloses the following facts important for consideration here: First.." Second. and so hold. entry. but for any person or corporation of the Philippine Islands or of the United States. unappropriated coalbearing public lands. under the facts of record. of the 18th day of October. Provisions for leasing by the Secretary of Agriculture and Natural Resources of "unreserved.. INC. without any finding as to costs. or other dispositon all coal-bearing public lands within the Province of Zamboanga and the Island of Polillo. first. While there is some ground for confusion in the use of the language in Spanish and English. and is. or corporation mentioned therein are holders or lessees of coal lands only." Said section (1496) is a part of article. BULACAN. become the owners of coal lands. lawphi1. and is not subject to the payment of the internal revenue tax under section 15 of Act No. second. Villamor. was not a reservation for the benefit of the National Coal Company. and upon things imported from the United States or foreign countries. 2719. firm. considering all the provisions of said Act.R. 2719. Ostrand and Romualdez. we are persuaded. (5) The proclamation of Francis Burton Harrison.

12 The decree also established a government corporation attached to the Office of the President.' 5 b) the number and qualifications of the members of the boards of directors. PD 198 authorizes the formation. (of which) shall however be subject to review by the Administration" (LWUA). which shall be contained in the enabling resolution. maintenance. it is "the source of authorization and power to form and maintain a (water) district. or region thereof. 9 the compensation and liabilities of members of the board. 10 The resolution shall contain a "statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 44" of the law. it says. and prohibit any person from selling or otherwise disposing of water for public purposes within their service areas where district facilities are available to provide such service. water districts may be created by the different local legislative bodies by the passage of a resolution to this effect. 7 their terms of office (which shall be in staggered periods of two. Bulacan. the decree adds. NARVASA. performing public services and supplying public wants." It has the following specific powers and duties. It prescribes. 1 the Regional Trial Court. 4 The decree specifies the terms under which water districts may be formed and operate. Impleaded as respondents were the Marilao Water District. four and six years). . It was pursuant to the foregoing rules and norms that the Marilao Water District was formed by Resolution of the Sangguniang Bayan of the Municipality of Marilao dated September 18. Inc. a district is subject to its provisions and is not under the jurisdiction of any political subdivision. accounting and fiscal practices for local water utilities. 1983 filed with the Regional Trial Court at Malolos. served by said system. They are authorized not only to "exercise all the powers which are expressly granted" by said decree. 2 Under PD 198. Gunigundo for petitioner. 14 (1) prescribe minimum standards and regulations in order to assure acceptable standards of construction materials and supplies. and governs the operation of water districts throughout the country. The claim was made by a non-stock. (2) furnish technical assistance and personnel training programs for local water utilities. particularly — a) the name by which a water district shad be known. 1982. 1982 after ascertaining that it conformed to the requirements of the law. (3) monitor and evaluate local water standards. and those "which are necessarily implied from or incidental to" said powers. lays down the powers and functions. and (4) effect systems integration. or the Securities & Exchange Commission. and shall include the name of the city. administer. under such schedules of rates and charges as may be determined by their boards. operate and maintain all watersheds within their territorial boundaries. and subject to such restrictions imposed under. subject to the terms of the decree. supervise and control structures within their service areas. and Mayor Nicanor V." 11 The juridical entities thus created and organized under PD 198 are considered quasi-public corporations. Bulacan. known as the Local Water Utilities Administration (LWUA) 13 to function primarily as "a specialized lending institution for the promotion development and financing of local water utilities. they may also exercise the powers. joint investment and operations. as amended.:p Involved in this appeal is the determination of which triburial has jurisdiction over the dissolution of a water district organized and operating as a quasi-public corporation under the provisions of Presidential Decree No. district annexation and deannexation whenever economically warranted. or province. the exercise . 'Water District. The petition prayed for the dissolution of the water district on the basis chiefly of the following allegations. The primary function of these water districts is to sell water to residents within their territory.. Crescini for Marilao Water District. safeguard and protect the use of the waters therein..Magtanggol C. as well as the Municipality of Marilao. "shall state or infer that the local legislative body has the power to dissolve. but nothing in the resolution of formation. to wit: 1) there had been no real. non-profit corporation known as the Marilao Water Consumers Association." Once formed. its Sangguniang Bayan. 3 They shall manage. in a petition dated December 12. the Act. In addition to the powers granted in. with the date of expiration of term of office for each. GUILLERMO. 15 The claim was thereafter made that the creation of the Marilao Water District in the manner aforestated was defective and illegal. but also "the power of eminent domain. Prospero A. but only a "farcical" public hearing prior to the creation of the Water District. municipality. 198. followed by the words. 8 the manner of filling up vacancies in the board. which resolution was thereafter forwarded to the LWUA and "duly filed" by it on October 4. personnel training. rights and privileges given to private corporations under existing laws. 6 the manner of their selection and initial appointment by the head of the local political subdivision. J. operation. alter or affect the district beyond that specifically provided for in this Act.

but a subsidy was illegally authorized for it..e. and 2) even if the certiorari action be treated as an appeal. Marilao Water District filed a motion for admission of its third-party complaint against the officers and directors of the petitioner corporation. indifference and mismanagement. and neither the LWUA nor the National Water Resources Council is competent to take cognizance of the matter of dissolution of the water district and recovery of its waterworks system. in a Resolution dated November 19. 1984 which pertinently reads as follows: After a consideration of the arguments raised by the herein parties. members or associates. falls within the competence of the SEC in virtue of P. is within the competence of a regular court of justice. The Consumers Association also opposed admission of the third-party complaint on the ground that its individual officers are not personally amenable to suit for acts of the corporation. particularly on the application for temporary restraining order and preliminary injunction set out therein. between and among stockholders. 1984 being a final order in the sense that it "left nothing else to be done in the case the proper remedy was appeal under Rule 41 of the Rules of Court and not a certiorari suit under Rule 65.2) not only was the waterworks system turned over to the Water District without compensation. members or associates. 1984. On the same date. S. and the compulsory counterclaim filed herein are hereby DISMISSED. 16 Acting on the complaint. respectively.R. or the exorbitant rates imposed by it.. the proceeding to determine if the dissolution of the water district is for the best interest of the people. setting up the same affirmative defense of lack of jurisdiction on the part of the Trial Court.. and that under Section 45 of PD 198. i. WHEREFORE. between any or all of them and the corporation. No. 1984. 4) the consumers were consequently "forced to organize themselves into a corporation last October 3. the Order of June 8. It dismissed the Consumers Association's suit by Order handed down on June 8. The other respondents also filed their answer through the Provincial Fiscal of Bulacan. The Appellate Court. But there in the Intermediate Appellate Court. On January 13. or disbursing any amount in favor of any person. and failure of the petition to state a cause of action since it admitted that it was by resolution of the Marilao Sangguniang Bayan that the Marilao Water District was constituted. the third-party complaint. The petitioner — the Marilao Consumers Association filed a reply. the Consumers Association filed with this Court a petition for review on certiorari. and an answer to the counterclaim. ruled that its cause could not prosper because — 1) it had availed of the wrong remedy. for the purpose of demanding adequate and sufficient supply of water and efficient management of the waterworks in Marilao. the SEC had no jurisdiction over a proceeding for its dissolution.R. Bulacan. the Consumers Association's cause also met with failure. 1984 the Marilao Water District filed its Answer with Compulsory Counterclaim. 1983 . in fact. Its motion for reconsideration having been denied. it was 14 unerringly clear that the controversy . which was docketed as G. 3) the Water District was being run with "negligence. the Court is more inclined to take the position of the respondents that the Securities and Exchange Commission has the exclusive and original jurisdiction over this case. No. the consumers were being billed in full and threatened with disconnection for failure to pay bills on time.P. denying the material allegations of the petition and asserting as affirmative defenses (a) the Court's lack of jurisdiction of the subject matter. 1983 setting the application for preliminary hearing. 1984.D. by way of exception to the restraining order. 68742. The order was modified on January 6. the Trial Court issued an Order on December 22. the special civil action of certiorari." and was not providing adequate and efficient service to the community. within the primary administrative jurisdiction of the LWUA and the quasi-judicial jurisdiction of the National Water Resources Council. requiring the respondents to answer the petition and restraining them until further orders from collecting any water bill. The Trial Court found for the respondents. for lack of jurisdiction. 1985. It averred that since the Marilao Water District had not been organized under the Corporation Code. by Order dated September 20. 1984 to allow the respondents to pay the district's outstanding obligations to Meralco. where it was docketed as AC-G. 17 which has a personality distinct from theirs. one of the consumers who complained had his water service cut off. the instant petition.. and (b) the failure of the petition to state a cause of action. 04862. but this notwithstanding. apathy. it being claimed that they had instigated the filing of the petition simply because one of them was a political adversary of the respondent Mayor. The case was however referred to the Intermediate Appellate Court by this Court's Second Division. and between such corporation. and the matter of the propriety of water rates. . on January 26. The answer alleged that the matter of the water district's dissolution fell under the original and exclusive jurisdiction of the Securities & Exchange Commission (SEC). transferring any property of the waterworks. 902-A 18 Which provides that said agency "shall have original and exclusive jurisdiction to hear and decide cases involving: a) xxx xxx xxx b) Controversies arising out of intra-corporate or partnership relations.. partnership or association of which they are stockholders. in its Decision promulgated on September 10. disconnecting any water service.

In any case. one of the conditions for availing of it is that there should be "no appeal. respectively. the Court is not prepared to have the case at bar finally determined on this procedural issue. 45. between and among stockholders. the case was referred to the Intermediate Appellate Court. That prior to the adoption of any such resolution: (1) another public entity has acquired the assets of the district and has assumed all obligations and liabilities attached thereto. Dissolution. For although described as quasipublic corporations. are filed not with the Securities and Exchange Commission but with the LWUA. partnerships and associations formed or operating under its provisions. the petition for review on certiorari at bar. it had first asked for and been granted an extension of thirty (30) days within which to file a petition for review on certiorari. The "Provincial Water Utilities Act of 1973" has a specific provision governing dissolution of water districts created thereunder This is Section 45 of PD 198 25 reading as follows: SEC. or amend the articles of incorporation or by-laws. by Resolution of this Court's Second Division dated November 19. speedy and adequate remedy in the ordinary course of law.partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity . of said Code. or involuntary. it is with it that the resolution of dissolution is filed. it is the LWUA which is the administrative body involved in the voluntary dissolution of a water district. The SEC which is charged with enforcement of the Corporation Code as regards corporations. the number of their directors. as required by paragraph 25 of the Interim Rules & Guidelines of this Court. nor any plain. They have no incorporators.. who have the right to vote for directors. their charters. the SEC has no power of oversight over such activities of water districts as selling water. and granted the same powers as private corporations. members or associates (or) between any or all of them and the corporation. partnership or association of which they are stockholders. Between the water district and those who are recipients of its water services there exists not the relationship of corporation-and-stockholder. members or associates. not the Securities and Exchange Commission. water districts are not really corporations. it is quite evident that the Order of the Trial Court of June 8. Under this provision. fuling the rates and charges therefor 22 or the management. in which reversal of the Appellate Tribunal's decision is sought. operation and maintenance of watersheds within their territorial boundaries. administration. rights and privileges given to private corporations under existing laws 21 are entirely distinct from corporations organized under the Corporation Code. inclusive. unless it should appear in a given case that appeal would otherwise be an inefficacious or inadequate remedy. etc. that before doing so. . All these argue against conceding jurisdiction in the Securities and Exchange Commission over proceedings for the dissolution of water districts. 1984. has no power of supervision or control over the activities of water districts. there can be no such thing as a relation of corporation and stockholders or members in a water district for the simple reason that in the latter there are no stockholders or members. evidently because it was felt that certain factual issues had yet to be determined. is really a final order. The extraordinary remedy of a special civil action of certiorari or prohibition is not the appropriate recourse because precisely. dismissing the action of the Consumers Association. 19 A resort to the latter instead of the former would ordinarily be fatal. 1984. the special civil action of certiorari. not the Securities and Exchange Commission. i. all things considered. the firmly settled principle is that the remedy against such a final order is the ordinary remedy of an appeal. 23 That function of supervision or control over water districts is entrusted to the Local Water Utilities Administration. as amended. and not articles of incorporation drawn up under the Corporation Code. by Resolution dated November 4. stockholders or members. the manner of their selection and replacement. or pass resolutions.C. or the supervision and control of structures within the service areas of the district. that the former had in fact availed of the remedy of appeal by certiorari under Rule 45 of the Rules of Court. the Intermediate Appellate Court quite overlooked the fact. 1985. and the prohibition of any person from selling or otherwise disposing of water for public purposes within their service areas where district facilities are available to provide such service. however. and that the law does indeed vest exclusive jurisdiction over the subject matter of the case in the Regional Trial Court. Turning first to the adjective issue. or otherwise perform such other acts as are authorized to stockholders or members of corporations by the Corporation Code. The Appellate Court subsequently denied the petitioner's motion for reconsideration." within the contemplation of Section 5 of the Corporation Code so as to bring controversies involving them within the competence and cognizance of the SEC. And this provision is evidently quite distinct and different from those on dissolution of corporations "formed or organized under the provisions of xx (the Corporation) Code" set out in Sections 117 to 121. 24 Consequently.. It is these resolutions qua charters. (2) all bondholders and other creditors have been notified and they consent to said transfer and dissolution. More particularly. the petitioner insisting that the remedy resorted to by it was correct but misunderstood by the I. the SEC obviously can have no claim to any expertise. but that subsequently. in other words. or the safeguarding and protection of the use of the waters therein.A.. although considered as quasi-public corporations and authorized to exercise the powers. which set forth the name of the water districts. In a word. The juridical entities known as water districts created by PD 198. either solely on questions of law — in which case the appeal may be taken only to the Supreme Court — or questions of fact and law — in which event the appeal should be brought to the Court of Appeals. The Corporation Code has nothing whatever to do with their formation and organization. all the terms and conditions for their organization and operation being particularly spelled out in PD 198. as regards the activities of water districts just mentioned. — A district may be dissolved by resolution of its board of directors filed in the manner of filing the resolution forming the district: Provided. 20 In holding that Marilao Water District had resorted to the wrong remedy against the Trial Court's order dismissing its suit.e. and (3) a court of competent jurisdiction has found that said transfer and dissolution are in the best interest of the public. their powers. There can therefore be no such thing in a water district as "intra-corporate or partnership relations. it finally disposed of the proceeding and left nothing more to be done by the Court on the merits. Now. but that of a service agency and users or customers. The resolutions creating them. not seriously disputed by the Marilao Water District and its co-respondents. instead of an appeal. under which dissolution may be voluntary (by vote of the stockholders or members). PD 902-A. generally effected by the filing of the corresponding resolution with the Securities and Exchange Commission. Hence. implementing Batas Pambansa Bilang 129. commenced by the filing of a verified complaint also with the SEC.

. seeking to compel the board of directors of the Marilao Water District. as already pointed out. WHEREFORE. 26 The controversy. and effect systems integration. and the Water District was being run with "negligence. b) the commencement by the water district in a court of competent jurisdiction of a proceeding to obtain a declaration that "said transfer and dissolution are in the best interest of the public. otherwise known as the Water Code of the Philippines). The LWUA does not appear to have any adjudicatory functions. exploitation. Presidential Decree No. it seems plain that the case does not fall within the limited jurisdiction of the SEC. The National Water Resources Council. between the Consumers Association. 32 Now. on the one hand. In this sense. 1985 — affirming that of the Regional Trial Court of June 8. and ultimately to the LWUA for final approval and filing. development and financing of local water utilities. accounting and fiscal practices for local water utilities. concur. of proceedings for the dissolution of the water district. What essentially is sought by the Consumers Association is the dissolution of the Marilao Water District.. joint investment and operations. in fine. 31 It also has authority to review questions of annexations and deannexations (addition to or exclusion from the district of territory). 28 The LWUA has quasi-judicial power only as regards rates or charges fixed by water districts. control. the Decision of the Intermediate Appellate Court of September 10.." and was not providing adequate and efficient service to the community. 27 with power to prescribe minimum standards and regulations regarding maintenance." (the Code by which said Council was created. 29 The rates or charges established by respondent Marilao Water District do not appear to be at issue in the controversy at bar. In their answer with counterclaim in the proceedings a quo." subject to enumerated pre-requisites. to furnish technical assistance and personnel training programs therefor. is not within the jurisdiction of the SEC. . without prejudice to appeal being taken therefrom by a water concessionaire to the National Water Resources Council whose decision thereon shall be appealable to the Office of the President. on the other hand. the adoption by the board of directors of the water district of a resolution dissolving the water district and its submission to the Sangguniang Bayan concerned for approval. on the other. district annexation and deannexation whenever economically warranted. Cruz and Medialdea. conservation and protection of waters within the meaning and context of the provisions of . the dissolution of a water district is governed by Section 45 of PD 198. taking account of the nature of the proceedings for dissolution just described. the Sangguniang Bayan and the Mayor of Marilao to go through the process above described for the dissolution of the water district. monitor and evaluate local water standards. and indeed. and its alleged co-conspirators. and the case is remanded to the Regional Trial Court for further proceedings and adjudication in accordance with law. personnel training.There can be even less debate about the fact that the SEC has no jurisdiction over the co-respondents of the Marilao Water District — the Municipality of Marilao. operation. as amended. the respondents advocated the theory that the case falls within the jurisdiction of the LWUA and/or the National Water Resources Council. but within the general jurisdiction of Regional Trial Courts. and 2) all bondholders and other creditors have been notified and consent to said transfer and dissolution.. 3) submission of the resolution of the Sangguniang Bayan dissolving the water district to the head of the local government concerned for approval. 1067. in the nature of a mandamus suit. stating that it "may be dissolved by resolution of its board of directors filed in the manner of filing the resolution forming the district. No costs. the waterworks system had been turned over to it without compensation and a subsidy illegally authorized for it. 1984 — is REVERSED and SET ASIDE. development. apathy. on the ground that its formation was illegal and invalid. utilization. 2) after compliance with the foregoing requisites. indifference and mismanagement. 30 and its decision on water rights controversies may be appealed to the Court of First Instance of the province where the subject matter of the controversy is situated. 33 The procedure for dissolution thus consists of the following steps: 1) the initiation by the board of directors of the water district motu proprio or at the relation of an interested party. It is. "primarily a specialized lending institution for the promotion. as already above stated. The Consumer Association's action therefore is. which it may review to establish compliance with the provisions of PD 198. including: a) the ascertainment by said board that — 1) another public entity has acquired the assets of the district and has assumed all obligations and liabilities attached thereto. its Sangguniang Bayan and its Mayor — who are accused of a "conspiracy" with the water district in respect of the anomalies described in the Consumer Associations' petition. is conferred "original jurisdiction over all disputes relating to appropriation. and Marilao District and its corespondents. Again it does not appear that the case at bar is a water rights controversy or one involving annexation or deannexation. JJ. SO ORDERED. therefore.

LEYTE METRO WATER DISTRICT. and MECAUAYAN WATER DISTRICT. 1991 DAVAO CITY WATER DISTRICT. BUTUAN CITY WATER DISTRICT. MARAWI WATER DISTRICT. DIGOS WATER DISTRICT. 95237-38 September 13. respondents.Griño-Aquino. ZAMBOANGA CITY WATER DISTRICT. METRO CEBU WATER DISTRICT. and COMMISSION ON AUDIT. CIVIL SERVICE COMMISSION.R. CAMARINES NORTE WATER DISTRICT. DUMAGUETE CITY WATER DISTRICT. LAGUNA WATER DISTRICT.. No. J. vs. METRO LINGAYEN WATER DISTRICT. TAGUM WATER DISTRICT. took no part Republic of the Philippines SUPREME COURT Manila EN BANC G. URDANETA WATER DISTRICT. COTABATO CITY WATER DISTRICT. . LA UNION WATER DISTRICT. petitioners. CAGAYAN DE ORO CITY WATER DISTRICT. BAYBAY WATER DISTRICT. BISLIG WATER DISTRICT.

(emphasis supplied) . to shed light on. including government-owned and controlled corporations with original charters. LWUA maintained that only those water districts with subsidies from the government fall within the COA's jurisdiction and only to the extent of the amount of such subsidies. that created the Metro Iloilo Water District was the resolution of the Sangguniang Panglunsod of Iloilo City. 1985. the Commission resolved to rule. 2(1) The Commission on Audit shall have the power. 90-575 by issuing Resolution No. rules and regulations therein laid down. Resolution No. as it hereby rules. The respondents. the CSC suspended the implementation of Resolution No. 90-575.R. 198. IX of PD No. subdivisions. as amended. the matter of hiring and firing of its officers and employees should be governed by the Civil Service Law. the Commission resolved. COA opined that the audit of the water districts is simply an act of discharging the visitorial power vested in them by law (letter of COA to LWUA dated August 13. that the implementation of CSC. Gabaton and Metro Iloilo Water District v. this Court ruled in the case of Tanjay Water District v. pursuant to the provision of the Government Auditing Code of the Phils. issued Resolution No. 198. and the (LWUA). 2(1). 1990 be deferred in the meantime pending clarification from the Supreme Court are regards its conflicting decisions in the cases of Tanjay Water District v. 26. et al. Henceforth. and granted with regulatory power necessary to optimize public service from water utilities operations. are the Civil Service Commission (CSC) and the Commission on Audit (COA). Rollo) In the meanwhile. No. rules and regulations. 172 SCRA 253): Significantly. and settle all accounts pertaining to the revenue and receipts of. The decree further created and formed the "Local Water Utilities Administration" (LWUA). en banc. It is to be observed that just like the question of whether the employees of the water districts falls under the coverage of the Civil Service Law. Inasmuch as PD No. 807). there exists a divergence of opinions between COA on one hand. or any of its subdivisions. Marcos by virtue of his legislative power under Proclamation No. on May 16.R. 85760. on the other hand. et al. 35. It authorized the different local legislative bodies to form and create their respective water districts through a resolution they will pass subject to the guidelines. and expenditures or uses of funds and property. in view of all the foregoing. (Sec. 575 dated June 27. the dispositive portion of which reads: NOW THEREFORE. Art. 1989. agencies or instrumentalities. 90-770 which reads: NOW. Public respondent NLRC did not commit any grave abuse of discretion in holding that the operative act. Rollo)." Presidential Decree No. and respondent Tarlac Water District and all water districts in the country. 63742. as amended by Presidential Decrees Nos. rules and regulations. The reason behind this is Sec. Tanjay Water District. 198 was issued by the then President Ferdinand E. authority. On April 17. Hence.Whether or not the Local Water Districts formed and created pursuant to the provisions of Presidential Decree No. and on a post audit basis. 198. 37. with respect to the authority of COA to audit the different water districts. Section 2(1) of the 1987 Constitution provides that the Civil Service embraces all branches. instrumentalities. THEREFORE. As an offshoot of the immediately cited ruling. 768 and 1479. audit. on the other hand. said PD 198 cannot be considered as the charter itself creating the Water District. all appointments of personnel of the different local water districts in the country shall be submitted to the Commission for appropriate action. the conflict between the water districts and the COA is also dependent on the final determination of whether or not water districts are government-owned or controlled corporations with original charter. However. (Rollo. are government-owned or controlled corporations with original charter falling under the Civil Service Law and/or covered by the visitorial power of the Commission on Audit is the issue which the petitioners entreat this Court. Article IX-D of the 1987 constitution which reads: Sec. p. (p. or pertaining to the Government. National Labor Relations Commission. the CSC. On the other hand. and agencies of the government. Gabaton. and duty to examine. the employees of Water Districts are not covered by Civil Service Laws as the latter do (sic) not have original charters. in view of all the foregoing. 1081. owned or held in trust by. otherwise known as the "Provincial Water Utilities Act of 1973. pp. as amended. being quasi-public corporations created by law to perform public services and supply public wants. Art. they come under the coverage of the Civil Service Law. (G. 1990. VIII and Sec." the Third Division of this Court ruled in a minute resolution: Considering that PD 198 is a general legislation empowering and/or authorizing government agencies and entities to create water districts. including government-owned or controlled corporations with original charters. Article IX (B). 22). 29-30. Petitioners are among the more than five hundred (500) water districts existing throughout the country formed pursuant to the provisions of Presidential Decree No. No. entitled "Metro Iloilo Water District v. both government agencies and represented in this case by the Solicitor General. In adherence to the just cited ruling. is the original charter of the petitioner. as it hereby resolves to rule that Local Water Districts. a national agency attached to the National Economic and Development Authority (NEDA).. National Labor Relations Commission. in G.

partly reads: "The only question here is whether or not local water districts are governmkent owned or controlled corporations whose employees are subject to the provisions of the Civil Service Law. Section 25 of PD 198 exempting the employees of water districts from the application of the Civil Service Law was removed from the statute books: We grant the petition for the following reasons: 1. Thus. 1984. As such its officers and employees are part of the Civil Service (Sec. and as such its officers and employees are covered by the Civil Service Law. — The district and its employees. promulgated on 29 November 1988. 170 SCRA 79. as amended. By "government-owned or controlled corporation with original charter. 1989. The Court's pronoucement in this case. 198. 82819. P. [1973] Constitution. In another case (Hagonoy Water District v. 198. be subject to review by the Administration. Said net revenue representing income from water sales and sewerage service charges. Holding on to this ruling. G. 1978. We rule against the petitioners and reiterate Our ruling in Tanjay case declaring water districts government-owned or controlled corporations with original charter.D. (G. wiped away Section 25 of PD 198 quoted above. In all its essential terms. 1479. 1479. 25 by Sec. in National Service Corporation (NASECO) v. and which provides as follows: Exemption from Civil Service. Art. a general legislation which cannot be considered as the charter itself creating the water districts. Thus. 868). wages emoluments. 4 of PD No. in the case of Lumanta v. The BWD is a corporation created pursuant to a special law — PD No. the company involved had been organized . August 31. XII-B. No. less pro-rata share of debt service and expenses for fuel or energy for pumping during the preceding fiscal year. as amended.R. hence they are outside the jurisdiction of respondents CSC and COA. PD 198 is a special law applicable only to the different water districts created pursuant thereto. We held: The Court.R. No. being engaged in a proprietary function. et al. No 69870. — The district may exercise all the powers which are expressly granted by this Title or which are necessarily implied from or incidental to the powers and purposes herein stated. That the total of all salaries. however. The fact that said decree generally applies to all water districts throughout the country does not change the fact that PD 198 is a special law. 1. known as the Provincial Water Utilities Act of 1973" which went onto effect in 25 May 1973. NLRC (G. however. As early as Baguio Water District v. 81490. 82). No.R. as extensively quoted in the Tanjay case. supra. The Labor Arbiter failed to take into accout the provisions of Presidential Decree No. 198 was amended ro read as Sec. Section 25 of PD No. February 8. We already ruled that a water district is a corporation created pursuant to a special law — P. 198. Collective Bargaining shall be available only to personnel below supervisory levels: Provided. which went into effect on 11 June 1978. For the purpose of carrying out the objectives of this Act. xxx xxx xxx 3. Accordingly. 1479. petitioners contend that they are private corporations which are only regarded as quasi-public or semi-public because they serve public interest and convenience and that since PD 198 is a general legislation. benefits or other compensation paid to all employees in any month shall not exceed fifty percent (50%) of average net monthy revenue..D. a district is hereby granted the power of eminent domain. and Section 26 of PD 198 was renumbered as Section 25 in the following manner: Section 26 of the same decree PD 198 is hereby amended to read as Section 25 as follows: Section 25. 1479. NLRC." We mean government owned or controlled corporation created by a special law and not under the Corporation Code of the Philippines. are hereby exempt from the provisions of the Civil Service Law." in effect held that government-owned and controlled corporations with original charter refer to corporations chartered by special law as distinguished from corporations organized under our general incorporation statute — the Corporations Code.Petitioners' main argument is that they are private corporations without original charter. 165 SCRA 272). the exercise thereof shall. it is obvious that it pertains to a special purpose which is intended to meet a particular set of conditions and cirmcumstances. quoting extensively from the deliberations of 1986 Constitutional Commission in respect of the intent and meaning of the new phrase "with original character. After a fair consideration of the parties' arguments coupled with a careful study of the applicable laws as well as the constitutional provisions involved. In NASECO. 1988. Section 26 of PD No. National Labor Relations Commission. Reliance is made on the Metro Iloilo case which declared petitioners as quasipublic corporations created by virtue of PD 198. G. Ascertained from a consideration of the whole statute. No. Authorization. No. 127 SCRA 730). PD No. the operative act which created a water district is not the said decree but the resolution of the sanggunian concerned. this Court's resolution in Metro Iloilo case declaring PD 198 as a general legislation is hereby abandoned. 65428. February 20. 198 was repealed by Section 3 of PD No. The Labor Arbiter asserted jurisdiction over the alleged illegal dismissal of private respondent Villanueva by relying on Section 25 of Presidential decree No. The amendatory decree took effect on June 11. We ruled once again that local water districts are quasi-public corporations whose employees belong to the Civil Service.R. Trajano.

or region thereof. municipality. it must be observed that PD 198. it is clear that what has been excluded from the coverage of the CSC are those corporations created pursuant to the Corporation Code. shall expire on December 31 of each even-numbered year. the legislative body of any city. served by said system. 9. It is to be noted that PD 198. . 11. 768 and 1479). thereafter a list of nominees shall be submitted to the appointing authority for his appointment of a replacement director from the list of nominees. No consideration may thus be given to petitioners' contention that the operative act which created the water districts are the resolutions of the respective local sanggunians and that consequently. a district is subject to the provisions of this Act and not under the jurisdiction of any political subdivision. — In the event of a vacancy in the board of directors occurring more than six months before expiration of any director's term. that if the district has availed of the financial assistance of the Administration. excluded from the scope of the Civil Service. . and one for a maximum term of six years. as amended is the source of authorization and power to form and maintain a district. or institution being represented by the director whose term will expire on December 31 and solicit nominations from these organizations to fill the position for the ensuing term. To form a district. — This Act is the source of authorization and power to form and maintain a district. a bank chartered by a special statute. the appointing authority shall appoint any qualified person of the category to the vacant position. association. Sec. thus: Sec. One member shall be a representative of civic-oriented service clubs. but on the contrary. the secretary of the district shall contact each known organization. (emphasis supplied) From the foregoing pronouncement. Said appointments shall be made from a list of nominees. Section 6 of said decree provides: Sec. but not more then two. submitted pursuant to Section 10. selection shall be made from said list of nominees by majority vote of the seated directors of the district constituting a quorum. Significantly. followed by the words "Water District. commercial or financial organizations. their terms of office: Sec. the manner of filling up vacancies:Sec. 6. For example. Appointment. municipality or province shall enact a resolution containing the following: a) The name of the local water district. . (as amended by PD 768). Thus. serve notice to or request the secretary of the district for nominations and within 30 days. . Number and Qualification. the vacancy shall be filled from such list by a majority vote . or the mayor of the city or municipality in the event the resolution forming the adoption of the district is by the city or municipal board of councilors. contains all the essential terms necessary to constitute a charter creating a juridical person. governmentowned or controlled corporations like NASECO are effectively. Terms of office of all directors in a given district shall be such that the term of at least one director. One nomination may be submitted in writing by each such organization to the Secretary of the district on or before November 1 of such year: This list of nominees shall be transmitted by the Secretary of the district to the office of the appointing authority on or before November 15 of such year and he shall make his appointment from the list submitted on or before December 15. 8. — The Board of Directors of a district shall be composed of five citizens of the Philippines who are of voting age and residents within the district.10. — On or before October 1 of each even numbered year. the manner of their appointment and nominations. . one member of representative of professional associations. two for a maximum term of four years. No public official shall serve as director. 6. Once formed. Sec. (as amended by PDs Nos. . Initial nominations for all five seats of the board shall be solicited by the legislative body or bodies at the time of adoption of the resolution forming the district. Formation of District. as amended. they were created pursuant to a special law and are governed primarily by its provision. one member a representative of educational institutions and one member a representative of women's organization. two shall be appointed for a maximum term of two years. the remaining directors shall within 30 days. the appointing authority shall make such appointment. In the event the appointing authority fails to make his appointments on or before December 15. or province." It also prescribes for the numbers and qualifications of the members of the Board of Directors: Sec. 12. Regular terms of office after the initial terms shall be for six years commencing on January 1 of odd-numbered years. — Board members shall be appointed by the appointing authority. who shall select the initial directors therefrom within 15 days after receipt of such nominations. petitioners are not created under the said code. which shall include the name of the city. a list of nominees shall be submitted to the provincial governor in the event the resolution forming the district is by a provincial board. If no nominations are submitted. Thirty days thereafter. cannot be considered as their charter. Moreover.under the general incorporation statute and was a sbusidiary of the National Investment Development Corporation (NIDC) which in turn was a subsidiary of the Philippine National Bank. one member a representative of business. . In the absence of such nominations. If within 30 days after submission to him of a list of nominees the appointing authority fails to make an appointment. — Of the five initial directors of each newly formed district. the Administration may appoint any of its personnel to sit in the board of directors with all the rights and privileges appertaining to a regular member for such period as the indebtedness remains unpaid in which case the board shall be composed of six members. Provided. Vacancies. subject to review and approval of the Administration. Directors may be removed for cause only. PD 198. however. Term of Office. Nominations. if any. Section 6(a) provides for the name that will be used by a water district.

are similar to those which are actually contained in other corporate charters. More than the aforequoted provisions. is the very law which gives a water district juridical personality. The director thus appointed shall serve the unexpired term only. Section 2 of P. In contrast. The conclusion is inescapable that the said decree is in truth and in fact the charter of the different water districts for it clearly defines the latter's primary purpose and its basic organizational set-up. Sec. the operative act which creates a water district is not said decree but the resolution of the Sanggunian concerned forming and maintaining a local water district. not unaware of the serious repercussion this may bring to the thousands of water districts' employees throughout the country who stand to be affected because they do not have the necessary civil service eligibilities. for each meeting of the board actually attended by him.D. PD 198. as amended. — No director may be held to be personally liable for any action of the district. The above-quoted section definitely sets to naught petitioners' contention that they are private corporations. said members or stockholders should be given a free hand to choose those who will compose the governing body of their corporation. to be determined by the board. — The person empowered to appoint the members of the Board of Directors of a local water district..D. and the compensation and personal liability of the members of the Board of Directors: Sec.00 shall be subject to approval of the Administration (as amended by PD 768). initial appointment shall be extended by the governor of the province. otherwise. In other words. as amended. 198. Petitioners are declared "government-owned or controlled corporations with original charter" which fall under the jurisdiction of the public respondents CSC and COA. Noteworthy. (b) of the same decree which reads: Sec. Thus. the above quoted provisions of PD 198. Compensation. depending upon the geographic coverage and population make-up of the particular district. It would not be amiss to emphasize at this point that a private corporation is created for the private purpose. We are. IX-B. the appointing authority shall be the governor of the province within which the district is located: Provided. 14. par. the local sanggunian is entrusted with no authority or discretion to grant a charter for the creation of a private corporation. J. 3(b). as amended. If portions of more than one province are included within the boundary of the district. those employees who have already acquired their permanent employment status at the time of the promulgation of this decision cannot be removed by the mere reason that they lack the necessary civil service eligibilities. among others. We find it necessary to rule for the protection of such right which cannot be impaired by a subsequent ruling of this Court. That if the existing waterworks system in the city or municipality established as a water district under this Decree is operated and managed by the province. It is merely given the authority for the formation of a water district. (as amended by PD 768). this Court is of the opinion that said resolution cannot be considered as its charter. — Each director shall receive a per diem. In the event that more than seventy-five percent of the total active water service connections of a local water districts are within the boundary of any city or municipality. rules and regulations therein laid down. Appointing authority. ACCORDINGLY. 13. the same being intended only to implement the provisions of said decree. As these employees are equally protected by the constitutional guarantee to security of tenure. 198. No director shall receive other compensation for services to the district. Separate Opinions BIDIN. on a local option basis. however. 198 is a general legislation which authorizes the formation of water districts. Any per diem in excess of P50. But this is not the case here and this clearly indicates that petitioners are definitely not private corporations. It is clear therefrom that the power to appoint the members who will comprise the Board of Directors belongs to the local executives of the local subdivision units where such districts are located. what is of important interest in the case at bar is Section 3.of the remaining members of the Board of Directors constituting a quorum. authorizes the different local legislative bodies (Sanggunian) to form and create their respective water districts through a Resolution which they will pass subject to the guidelines. Personal Liability. Vacancies occurring within the last six months of an unexpired term shall also be filled by the Board in the above manner. dissenting: I regret I have to register my dissent in this case. Thus. Necessarily. the petition is hereby DISMISSED. In passing a resolution forming a water district. However. The issue. to be resolved is whether the local water districts so created are government-owned or controlled corporations with original charters embraced by the Civil Service as contemplated by Art. The foregoing disquisition notwithstanding. While it is true that a resolution of a local sanggunian is still necessary for the final creation of a district. I agree with the main ponencia that P. to be exercised under and in pursuance of PD 198. Sec. the members of the Board of Directors or trustees of a private corporation are elected from among the members and stockholders thereof. aim and end of its members or stockholders. benefit.D. provides: . but no director shag receive per diems in any given month in excess of the equivalent of the total per diems of four meetings in any given month. P. the appointing authority shall be the mayor of that city or municipality. as the case may be. 2[1] of the 1987 Constitution. Subsequent appointments shall be as specified herein. therefore. and the appointing authority is to be the governors then the power to appoint shall rotate between the governors involved with the initial appointments made by the governor in whose province the greatest number of service connections exists (as amended by PD 768).

provides: Sec. Formation of District. If found by the Administration to conform to the requirements of Section 6 and the policy objectives in Section 2. PD 198). 198 and no longer under the jurisdiction of any political administration which shall thereafter lose ownership. Sec. Filing of Resolution. 198 as a government corporation is the "Local Water Utilities Administration" attached to the Office of the President as follows: Sec. installing. Charter. 198) filed with the Local Water Utilities Administration. maintaining and operating water supply and distribution systems for domestic. . . J. 198) similar to the Corporation Code. 2[1] of the 1987 Constitution. LOCAL WATER DISTRICT LAW CHAPTER I.D. 2. 2. On the other hand. supervision and control over the district (Sec. municipal and agricultural uses for residents and lands within the boundaries of such districts. rights and privileges given to private corporations under existing laws. (Emphasis supplied) Implementing the above policy. no water district is formed. IX-B. industrial.D. I vote to Grant the petition and to declare petitioners as quasi-public corporations performing public service without original charters and therefore not embraced by the Civil Service. in addition to the powers granted in. therefore. to be resolved is whether the local water districts so created are government-owned or controlled corporations with original charters embraced by the Civil Service as contemplated by Art.— A certifted copy of the resolution or resolutions forming a district shall be forwarded to the office of the Secretary of the Administration. . — Title . a district shall exercise the powers. supervision and control or any right whatsoever over the district except as provided herein. .D. The provisions of this title shall be and constitute the charter of the Administration.Sec. What gives the water districts juridical personality is the resolution of the respective Sanggunian forming the district and filed with the Local Water Utilities Administration. 198. . Once formed. and subject to such restrictions imposed. (b) providing. . Section 2 of P. The district shall be deemed duly formed and existing upon the date of such filing.D. Declaration of Policy — . I agree with the main ponencia that P. 7. 7. P. As such. 198. as amended. without the requisite resolution of the Sanggunian concerned forming the water district having been filed with the Local Water Utility Administration. as are necessary or incidental to said purpose. P. Upon such filing. treatment and disposal facilities. Purpose and Formation Sec. Declaration of Policy — . . 2. Purpose. P. — Local water districts may be formed pursuant to this Title for the purposes of (a) acquiring. authorizes the different local legislative bodies (Sanggunian) to form and create their respective water districts through a Resolution which they will pass subject to the guidelines. However. and (c) conducting such other functions and operations incidental to water resource development. For purposes of this Act. a district shall be considered as a quasi-public corporation performing public service and supplying public wants. a government corporation chartered under Section 49. created and formed a government corporation to be known as the "Local Water Utilities Administration which is hereby attached to the Office of the President. (Emphasis supplied) Implementing the above policy. 198 provides: TITLE II. To encourage the formulation of such local water districts and the transfer thereto of existing water supply and waste water disposal facilities. 198 and attached to the Office of the President. the operative act which creates a water district is not said decree but the resolution of the Sanggunian concerned forming and maintaining a local water district. P.D. 198 provides: TITLE II. Title. City and Municipal councils (Sec. 198 is not an original charter but a general act authorizing the formation of water districts on local option basis (Sec. on a local option basis.D. rules and regulations therein laid down. What is chartered.. Title II of P. — The provisions of this Title shall be known and referred to as the "Local Water District Law. — Title Sec. . maintaining and operating wastewater collection. Separate Opinions BIDIN. 7. dissenting: I regret I have to register my dissent in this case. (Emphasis supplied) It is apparent that insofar as the formation of local water districts are concerned.D. P. the local government or governments concerned shall lose ownership. local water districts are formed by resolutions of the respective Provincial.D. The issue. . this Decree provides by general act the authority for the formation thereof. In view of the foregoing. a water district is subject to the provisions of P. formed and created under P. — There is hereby chartered. — This Act is the source of authorization and power to form and maintain a district. To encourage the formulation of such local water districts and the transfer thereto of existing water supply and waste water disposal facilities.D. A certified copy of said resolution showing the filing stamp of the Administration shall be maintained in the office of the district. . Sec. LOCAL WATER DISTRICT LAW CHAPTER I. Consequently. Thus. this Decree provides by general act the authority for the formation thereof. Sec. among others. Title II of P. 5. under this Act." CHAPTER II. on a local option basis. the resolution shall be duly filed. 198 is a general legislation which authorizes the formation of water districts.D. 6. 4. improving. 49. utilization and disposal within such districts.D.

198 and attached to the Office of the President. as are necessary or incidental to said purpose. a government corporation chartered under Section 49. — There is hereby chartered. (Emphasis supplied) It is apparent that insofar as the formation of local water districts are concerned. City and Municipal councils (Sec. 2. 1985. In the same transaction stated above. The provisions of this title shall be and constitute the charter of the Administration. 198 as a government corporation is the "Local Water Utilities Administration" attached to the Office of the President as follows: Sec. He held various positions ranging from clerk. utilization and disposal within such districts. Upon such filing.NATIONAL LABOR RELATIONS COMMISSION (Third Division) and DANILO MERCADO. respondents. The factual background of this case is as follows: Private respondent Danilo Mercado was first employed by herein petitioner Philippine National Oil Company-Energy Development Corporation (PNOC-EDC for brevity) on August 13.00 only. created and formed a government corporation to be known as the "Local Water Utilities Administration which is hereby attached to the Office of the President. 7.R. a district shall be considered as a quasi-public corporation performing public service and supplying public wants. Philippine National Oil Company-Energy Development Corporation.D. Dumaguete City. 198 is not an original charter but a general act authorizing the formation of water districts on local option basis (Sec. ordering the reinstatement of complainant Danilo Mercado and the award of various monetary claims. p. PD 198). Danilo Mercado was ordered to purchase 1.D. Oriental Negros on September 5. His last salary was P1. Filing of Resolution.D. maintaining and operating water supply and distribution systems for domestic.680. Regional Arbitration Branch No. Title. the resolution shall be duly filed. On June 30.Sec. — The provisions of this Title shall be known and referred to as the "Local Water District Law.— A certifted copy of the resolution or resolutions forming a district shall be forwarded to the office of the Secretary of the Administration. a district shall exercise the powers. 6. ." CHAPTER II. Purpose and Formation Sec.400 pieces of nipa shingles from Mrs. in addition to the powers granted in. — Local water districts may be formed pursuant to this Title for the purposes of (a) acquiring. I vote to Grant the petition and to declare petitioners as quasi-public corporations performing public service without original charters and therefore not embraced by the Civil Service. 1979. P. Danilo Mercado appropriated the balance of P680. What is chartered. local water districts are formed by resolutions of the respective Provincial. A certified copy of said resolution showing the filing stamp of the Administration shall be maintained in the office of the district. Against company policy. 52). If found by the Administration to conform to the requirements of Section 6 and the policy objectives in Section 2.00. the supplier agreed to give the company a discount of P70. Once formed. vs. 4. 1987 of respondent National Labor Relations Commission (NLRC for brevity) which affirmed the decision dated April 30. Sec. maintaining and operating wastewater collection. What gives the water districts juridical personality is the resolution of the respective Sanggunian forming the district and filed with the Local Water Utilities Administration. 7.D. Consequently. under this Act. rights and privileges given to private corporations under existing laws. Formation of District. installing. 1985. 198 and no longer under the jurisdiction of any political administration which shall thereafter lose ownership. supervision and control or any right whatsoever over the district except as provided herein. 1986 of Labor Arbiter Vito J. Respondent". Purpose.00 a month basic pay plus P800. As such.D. Leonardo Nodado of Banilad. This is a petition for certiorari to set aside the Resolution * dated July 3. Sec. general clerk to shipping clerk during his employment at its Cebu office until his transfer to its establishment at Palimpinon. 198) similar to the Corporation Code. regulations and specific orders. The district shall be deemed duly formed and existing upon the date of such filing. Minoria of the NLRC. Rollo. Dumaguete. VII at Cebu City in Case No. 1991 PNOC-ENERGY DEVELOPMENT CORPORATION. industrial. municipal and agricultural uses for residents and lands within the boundaries of such districts. supervision and control over the district (Sec. vs. Danilo Mercado withdrew the nipa shingles from the supplier but paid the amount of P1.000. RAB-VII-0556-85 entitled "Danilo Mercado. treatment and disposal facilities. a water district is subject to the provisions of P. petitioner. (b) providing. G. and (c) conducting such other functions and operations incidental to water resource development. 79182 September 11.00 living allowance (Labor Arbiter's Decision. without the requisite resolution of the Sanggunian concerned forming the water district having been filed with the Local Water Utility Administration. private respondent Mercado was dismissed. and subject to such restrictions imposed. 2. On ApriI 12. P.00 which Danilo Mercado did not report to the company. The grounds for the dismissal of Mercado are allegedly serious acts of dishonesty committed as follows: 1. no water district is formed. for the total purchase price of Pl. On the other hand. For purposes of this Act.585. Annex "E" of Petition. 49. P. — This Act is the source of authorization and power to form and maintain a district. No. formed and created under P. P. improving. 7. 198) filed with the Local Water Utilities Administration. 1984.D. the local government or governments concerned shall lose ownership. Charter. In view of the foregoing. Complainant. 5.00 for his personal use.

In addition. etc.000.00 to Fred R. that the Energy Development Corporation is a subsidiary of the Philippine National Oil Company which is a government entity created under Presidential Decree No. whether or not the Labor Arbiter and the NLRC are justified in ordering the reinstatement of private respondent. 442. Melon and appropriated for his personal use the balance of P8. rules and regulations. 1986. it is governed by the Civil Service Law as provided for in Section 1. Danilo Mercado paid the amount of P20.00 moral damages. private respondent. causing disruption and delay of company work activities. 807 (Civil Service Decree) and Article 277 of Presidential Decree No. On June 15. Rollo. Respondents are hereby further ordered to deposit the aforementioned amounts with this Office within ten days from receipt of a copy of this decision for further disposition. pp. 56) The appeal to the NLRC was dismissed for lack of merit on July 3. Danilo Mercado violated company rules and regulations in the following instances: 1. Rollo. that being a government-owned and controlled corporation. Danilo Mercado was instructed to contract the services of Fred R. Rollo. retirement benefits.00 exemplary damages and P5. and proportionate 13th month pay and payment of damages as well as attorney's fee. Assuming the affirmative. 1985.00 attorney's fees. which was assailed by private respondent Mercado in his Opposition to the Position Paper/Motion to Dismiss dated March 12. 1987 and the assailed decision was affirmed. 2) To pay complainant the amount of P10.000. 195). without proper turn-over of his work. After private respondent Mercado filed his position paper on December 16. 1985. P20. said decision is null and void because under the 1973 Constitution. payment of his savings. 46-50). unpaid wages.50 as his proportionate 13th month pay for 1985. On September 23. Petitioner PNOC-EDC alleges that it is a corporation wholly owned and controlled by the government. The issues raised by petitioner in this instant petition are: 1. are within the jurisdiction of the Labor Arbiter and the NLRC. 1985 (Annex "B" of the Petition. 1985. separation pay. as amended (Labor Code). Danilo Mercado was absent from work without leave. On March 28. Melon of Dumaguete City. 1986 (Annex "D" of the Petition. in view of the foregoing. VII docketed as Case No. pp. Article XII-B of the 1973 Constitution.000.66. (Petitioner's Memorandum. 3) To pay complainants the amount of P30. government-owned and controlled corporations were governed by the Civil Service Law. Section 56 of Presidential Decree No. against company policy. Whether or not matters of employment affecting the PNOC-EDC. against petitioner PNOC-EDC before the NLRC Regional Arbitration Branch No.66. p. 2. 28-40).00 representing his personal share of his savings account with the respondents. The dispositive onion of said decision reads as follows: WHEREFORE. for the fabrication of rubber stamps. Petitioner PNOC-EDC argued that since Labor Arbiter Minoria rendered the decision at the time when the 1973 Constitution was in force. RAB-VII-0556-85. Even assuming that PNOC-EDC has no original or special charter and . petitioner PNOC-EDC filed its Position Paper/Motion to Dismiss on January 15. SO ORDERED. praying for the dismissal of the case on the ground that the Labor Arbiter and/or the NLRC had no jurisdiction over the case (Annex "C" of the Petition. (Labor Arbiter's Decision. The 1973 Constitution provides: The Civil Service embraces every branch. pp.000. private respondent Mercado filed a complaint for illegal dismissal. 2. 4) To pay complainant the amount of P792. The Labor Arbiter ruled in favor of private respondent Mercado. a government-owned and controlled corporation. subdivision and instrumentality of the government including government-owned or controlled corporations. this petition. for the total amount of P28. Danilo Mercado went on vacation leave without prior leave. agency. respondents are hereby ordered: 1) To reinstate complainant to his former position with full back wages from the date of his dismissal up to the time of his actual reinstatement without loss of seniority rights and other privileges. Rollo. 4145). as amended. 334. Hence. Rollo. 1985. On June 5.3. p.

p. Petitioner's subsequent Motion for Reconsideration and/or Appeal has the effect of curing whatever irregularity might have been committed in the proceedings below (T. VII of Cebu City and its Motion for Reconsideration and/or Appeal dated July 28. 1987. 1990]. There is no denial of due process where the party submitted its position paper and flied its motion for reconsideration (Odin Security Agency vs. On the contrary. Lopez Sugar Corporation vs. pp. 1986 (Annex "F" of the Petition. private respondent contends that as can be seen from petitioner's Motion for Reconsideration and/or Appeal dated July 28. PREMISES CONSIDERED. 57. On the other hand. the requirements of due process are satisfied when the parties are given an opportunity to submit position papers. 187 SCRA 412 [July 13. Nodado is not supported by evidence as well as the alleged appropriation of P8. 187 SCRA 784 [July 27. the PNOC-EDC having been incorporated under the General Corporation Law was held to be a government owned or controlled corporation whose employees are subject to the provisions of the Labor Code (Ibid. 36) that the total purchase price of P1. has been supplanted by the present Constitution.00) Pesos. NLRC. 41-45) before the Regional Arbitration Branch No. 1987 is AFFIRMED with the modification that the moral damages are reduced to Ten Thousand (P10. 57-64) before the NLRC of Cebu City. The Labor Arbiter. A careful study of the records shows no substantive reason to depart from these established principles. while acknowledging the rule that administrative bodies are not governed by the strict rules of evidence. under the present state of the law. found no evidence to support the alleged violation of company rules. pp. No. 1990]). involving the same petitioner and the same issue.00 was paid by respondent Mercado as agreed upon. NLRC. the record shows that PNOC-EDC's accusations of dishonesty and violations of company rules are not supported by evidence. Drilon.. the petition is DENIED and the resolution of respondent NLRC dated July 3.R. De la Serna. Mrs. p.000. 196). sufficiently explained in her affidavit (Rollo. this case falls squarely under the rulings of the aforementioned cases. Accordingly. NLRC. 168 SCRA 122 [1988]). pp. 1989). vs. such circumstances cannot give validity to the decision of the Labor Arbiter (Ibid. 69870. p. the test in determining whether a government-owned or controlled corporation is subject to the Civil Service Law are the manner of its creation. Furthermore. Valderama and Sons. pp. 189 SCRA 179 [August 30. Indisputably.000. 1990]).00) Pesos. these findings were never contradicted by petitioner petitioner PNOC-EDC. As regards the second issue. Petitioner PNOC-EDC filed its Position Paper/Motion to Dismiss dated January 15. the latter never questioned the findings of facts of the Labor Arbiter but simply limited its objection to the lack of legal basis in view of its stand that the NLRC had no jurisdiction over the case (Private Respondent's Memorandum. Rollo. NLRC. 38-40) as to the alleged violations to be satisfactory.H. 181 SCRA 308 [January 22. What the fundamental law abhors is not the absence of previous notice but rather the absolute lack of opportunity to ventilate a party's side. from whom the nipa shingles were purchased." Specifically. Melencio-Herrera (Chairperson). including government-owned or controlled corporations with original charters. such that government corporations created by special charter are subject to its provisions while those incorporated under the General Corporation Law are not within its coverage. 175 SCRA 26 (July 5. he found respondent Mercado's explanation in his affidavit (Rollo. In the case at bar. Federation of Free Workers. Article IX-B of the 1987 Constitution provides that: The Civil Service embraces all branches. The alleged discount given by Mrs.). 1990]). Leogardo. where this Court ruled that the doctrine that employees of government-owned and/or con controlled corporations.66 from the cost of fabrication of rubber stamps.Section 2(i). pp.. 1990]). whether created by special law or formed as subsidiaries under the General Corporation law are governed by the Civil Service Law and not by the Labor Code. does not deprive the NLRC of jurisdiction on the premise that it is the 1987 Constitution that governs because it is the Constitution in place at the time of the decision (NASECO v. 1986 (Annex "C" of the Petition Rollo. 182 SCRA 848 [February 28. 182 SCRA 472 [February 21. the accusations of petitioner PNOC-EDC against private respondent Mercado have no basis. . Moreover.. Leonardo Nodado. concur. 1986 (Annex "F" of the Petition. 104). As found by the Labor Arbiter. the decision of the NLRC was promulgated on July 3. SO ORDERED. Inc. Nonetheless. Padilla and Regalado. subdivision. "Thus. and the exemplary damages reduced to Five Thousand (P5. Rollo. petitioner PNOC-EDC alleges that the labor arbiter's propensity to decide the case through the position papers submitted by the parties is violative of due process thereby rendering the decision null and void (Ibid. G.680. Judicial review by this Court does not go so far as to evaluate the sufficiency of the evidence but is limited to issues of jurisdiction or grave abuse of discretion (Filipinas Manufacturers Bank vs. This issue has already been laid to rest in the case of PNOC-EDC vs. such loss or breach of trust must have some basis (Gubac v. likewise. it has been consistently held that findings of administrative agencies which have acquired expertise because their jurisdiction is confined to specific matters are accorded not only respect but even finality (Asian Construction and Development Corporation vs. JJ. 1990]). instrumentalities and agencies of the Government. 192-193). The fact that the case arose at the time when the 1973 Constitution was still in effect. Rollo.64). While it is true that loss of trust or breach of confidence is a valid ground for dismissing an employee.

1 dated 27 February 1987. 83. This assurance. The events which led to such termination of services are as follows: On 19 October 1984. 1991 BOY SCOUTS OF THE PHILIPPINES. and MARCELINO GARCIA. a complaint 3 (docketed as NLRC Case No. Vicente N. respondents. the Secretary-General of petitioner BSP issued Special Orders Nos. appealed the matter to the BSP National President. vs. however. 80767 April 22. These Orders were opposed by private respondents who. Estanislao M. 16-84J) for illegal transfer was filed with the then Ministry of Labor and Employment. 1637-84. No. alleging. and that each of them would receive a relocation allowance equivalent to one (1) month's basic pay. 81. Evangelista and Marcelino P. Private respondents there sought to enjoin implementation of Special Orders Nos. and (2) the Resolution 2 dated 16 October 1987. J.Sarmiento. G. Sub-Regional Arbitration Branch IV. 80. NATIONAL LABOR RELATIONS COMMISSION. private respondents were stationed at the BSP Camp in Makiling. Laguna. At the time of termination of their services in February 1985. on 4 November 1984. 80. informing them that on 20 November 1984. failed to persuade private respondents to abandon their opposition to the transfer orders issued by the BSP Secretary-General. VICENTE EVANGELISTA. Private respondents Fortunato C. had all been rank-and-file employees of petitioner Boy Scouts of the Philippines ("BSP"). they were to be transferred from the BSP Camp in Makiling to the BSP Land Grant in Asuncion. On 6 November 1984. Los Baños. both issued by the National Labor Relations Commission ("NLRC") in Case No. Misa. petitioner. Laguna. FORTUNATO ESGUERRA. Garcia. ROBERTO MALABORBOR. 83. 84 and 85 addressed separately to the five (5) private respondents. among other things. San Pablo City.R. that said orders were . petitioner BSP conducted a pre-transfer briefing at its National Headquarters in Manila. Davao del Norte. Malaborbor. Private respondents were in attendance during the briefing and they were there assured that their transfer to Davao del Norte would not involve any diminution in salary. is on leave.. ESTANISLAO MISA. Roberto O. 81. Esquerra. On 13 November 1984. This Petition for Certiorari is directed at (1) the Decision. 84 and 85.

moreover. instrumentality mentalities and agencies of the Government. 14 . that the BSP is a "public corporation' or a "quasi-public corporation" and. 13 Petitioner declares that it is a "purely private organization" directed and controlled by its National Executive Board the members of which are. Petitioner. . Memoranda subsequently issued by the BSP Secretary-General stressed that such refusal as well as the explanations proffered therefor. In a decision 5 dated 31 July 1985. The BSP." a statement reiterated by them in their Memorandum 12 before this Court. that petitioner is a "civic service. all "voluntary scouters. private respondents stated in their Appeal Memorandum 11 with the NLRC that petitioner BSP is "by mandate of law a Public Corporation. in a letter of the same date. upon the other hand. this Court required the parties and the Office of the Government Corporate Counsel to file a comment on the question of whether or not petitioner BSP is in fact a government-owned or controlled corporation. a "government controlled corporation. for their part. that is. These warnings notwithstanding. by Special Order dated 12 February 1985 issued by the BSP Secretary-General. 111. and of the Office of the Solicitor General and the Office of the Government Corporate Counsel. the ruling of the Labor Arbiter was reversed by public respondent. private respondents continued pertinaciously to disobey the disputed transfer orders. In contrast. the BSP National President informed private respondents that their refusal to comply with the Special Orders was not sufficiently justified and constituted rank disobedience. The answer to the central issue will determine whether or not private respondent NLRC had jurisdiction to render the Decision and Resolution which are here sought to be nullified." including seven (7) Cabinet Secretaries. private respondents. the Labor Arbiter ordered the dismissal of private respondents' complaint for lack of merit. two (2) days earlier. which held that private respondents had been illegally dismissed by petitioner BSP. the Solicitor General and the Government Corporate Counsel take much the same position. non-political. present a noteworthy uniformity. The Memorandum was a direct result of the refusal by private respondents. to accept from petitioner BSP their respective boat tickets to Davao del Norte and their relocation allowances. 4 The Labor Arbiter thereafter proceeded to hear the complaint. Meanwhile. the Office of the Solicitor General and the Office of the Government Corporate Counsel filed their respective comments. In a Resolution dated 9 August 1989. NLRC." Petitioner BSP's compliance with our Resolution invokes the following provisions of its Constitution and Bylaws: The Boy Scouts of the Philippines declares that it is an independent. 460 . The responses of the parties. it was alleged in the second paragraph thereof. existing under and by virtue of Commonwealth Act No. SO ORDERED. Petitioner BSP consequently imposed a five-day suspension on the five (5) private respondents. in the latter part of January 1985. with obligations towards nation building and with international orientation. Subsequently. as amended. relying mostly [on] government and public support. private respondents' services were ordered terminated effective 15 February 1985."indubitable and irrefutable action[s] prejudicial not only to [them] but to [their] families and [would] seriously affect [their] economic stability and solvency considering the present cost of living. The same allegation. as well. The Court notes at the outset that in the Position Paper 6 filed by petitioner BSP with the Labor Arbiter. it is said. on the one hand. voluntary. premises considered the Decision appealed from is hereby SET ASIDE and a new one entered ordering the respondent-appellee [petitioner BSP] to reinstate the complainants-appellants [private respondents] to their former positions without loss of seniority rights and other benefits appurtenant thereto and with full backwages from the time they were illegally dismissed from the service up to the date of their actual reinstatement. On 22 February 1985. private respondents amended their original complaint to include charges of illegal dismissal and unfair labor practice against petitioner BSP. were unacceptable and could altogether result in termination of employment with petitioner BSP. does not receive any monetary or financial subsidy from the Government whether on the national or local level. non-sectarian and nongovernmental organization. appeared in the Comment 10 (also treated as the Memorandum) submitted to this Court by the Solicitor General on behalf of public respondent NLRC. Petitioner BSP and private respondents submit substantially the same view "that the BSP is a purely private organization". however. " A similar allegation was contained in the Brief for Appellee 7 and in the Petition 8 and Memorandum 9 filed by petitioner BSP with public respondent NLRC and this Court. in compliance with the Resolution of this Court of 9 August 1989. respectively. The dispositive portion of the NLRC decision read: WHEREFORE. the BSP Camp Manager in Makiling issued a Memorandum requiring the five (5) private respondents to explain why they should not be charged administratively for insubordination. subdivisions. . The central issue is whether or not the BSP is embraced within the Civil Service as that term is defined in Article IX (B) (2) (1) of the 1987 Constitution which reads as follows: The Civil Service embraces all branches. On 27 February 1987. by Presidential Decree No." On 21 November 1984 (or the day immediately following the date of scheduled transfer). including government-owned or controlled corporations with original charters. non-stock and non-profit organization. petitioner stresses.

rules and regulations not inconsistent with the laws of the Philippines. the Court considers that the following need to be considered in arriving at the appropriate legal characterization of the BSP for purposes of determining whether its officials and staff members are embraced in the Civil Service. . It is further alleged that the BSP's assets and liabilities. 13. 460 conferred upon it the powers which ordinary private corporations organized under the Corporation Code have: Sec. BSP's functions as set out in its statutory charter do have a public aspect. (b) the charter and life members of the Boy Scouts of the Philippines. subject to ratification and confirmation by the Chief Scout. more specifically.D. ." The Solicitor General stressed that the BSP was created in order to "promote. moral. It shall inculcate in the youth patriotism and nationalism. submitted that the BSP is a government-owned or controlled corporation. BSP's functions do relate to the fostering of the public virtues of citizenship and patriotism and the general improvement of the moral spirit and fiber of our youth. 111 entitled "An Act to Create a Public Corporation to be known as the Boy Scouts of the Philippines and to Define its Powers and Purposes. (e) the Secretary of Education and Culture. for they pertain to the educational. indicating that the BSP had lost its personality or standing as a public corporation. and the Secretary of local Government and Community Development. like the Solicitor General. unlike most public corporations which are created for a political purpose. the Secretary of Labor. and to receive real and personal property by gift. unlike the Solicitor General. devise. (c) the Chairman of the Board of Trustees of the Philippine Scouting Foundation. suggests that the BSP is more of a "quasi corporation" than a "public corporation. which is directly chartered by special law or if organized under the general corporation law is owned or controlled by the government directly. been accorded constitutional recognition. 2. intellectual. . spiritual. official transactions and financial statements have never been subjected to audit by the government auditing office. to train them in scoutcraft. who shall be the Head of State. to have offices and conduct its business and affairs in the City of Manila and in the several provinces." 5 He further noted that the BSP's objectives and purposes are "solely of a benevolent character and not for pecuniary profit by its members. No. Private respondents finally state that the appointments of BSP officers and staff were not approved or confirmed by the Civil Service Commission. it had lost that status when Section 2 of Commonwealth Act No. The Government Corporate Counsel submits. The Solicitor General's Office. The views of the Office of the Solicitor General and the Office of the Government Corporate Counsel on the above issue appeared to be generally similar. and to teach them patriotism. is not vested with political or governmental powers to be exercised for the public good or public welfare in connection with the administration of civil government. 111 as amended by P. the Secretary of Social Welfare. through organization. and (i) three representatives of the cultural minorities. Firstly. The said corporation shall have perpetual succession with power to sue and be sued. using the methods which are now in common use by boy scouts. or bequest. Private respondents also point out that the BSP is registered as a private employer with the Social Security System and that all its staff members and employees are covered by the Social Security Act." The BSP. or indirectly through a parent corporation or subsidiary corporation. (d) the Regional Chairman of the Scout Regions of the Philippines. whether performing governmental or proprietary functions. The social value of activities like those to which the BSP dedicates itself by statutory mandate have in fact. (f) an equal number of individuals from the private sector. all members of the National Executive Board shall be either by appointment or cooption." the following: Sec. and the Scouts of their respective regions. the Secretary of Finance. i. 17 (Emphasis supplied) The Government Corporate Counsel.Private respondents submitted a supplementary memorandum arguing that while petitioner BSP was created as a public corporation. 2029 (approved on 4 February 1986) which reads as follows: A government-owned or controlled corporation is a stock or a non-stock corporation. .e. Except for the Regional Chairman who shall be elected by the Regional Scout Councils during their annual meetings. Examining the relevant statutory provisions and the arguments outlined above.. and to alter or destroy the same at pleasure. (h) one Scout of Senior age from each Scout Region to represent the boy membership. At the same time. and kindred virtues. and cooperation with other agencies the ability of boys to do things for themselves and others. describes the BSP as a "public corporation" but. Nevertheless. The State recognizes the vital role of the youth in nation-building and shall promote and protect their physical. 16 The Solicitor General also underscored the extent of government participation in the BSP under its charter as reflected in the composition of its governing body: The governing body of the said corporation shall consist of a National Executive Board composed of (a) the President of the Philippines or his representative. that the BSP falls within the ambit of the term "government-owned or controlled corporation" as defined in Section 2 of P. Article II of the 1987 Constitution includes in the "Declaration of Principles and State Policies. and social well-being. (g) the National President of the Girl Scouts of the Philippines. to adopt a seal. being audited rather by the private auditing firm of Sycip Gorres Velayo and Co. the Commission on Audit. to the extent of at least a majority of its outstanding capital stock or its outstanding voting capital stock. BSP is not a public corporation in the same sense that municipal corporations or local governments are public corporations. self-reliance. although it had appeared for the NLRC and filed a Comment on the latter's behalf on the merits of the Petition for Certiorari. having been created by virtue of Commonwealth Act No.D. civic and social development of the youth which constitutes a very substantial and important part of the nation. to make and adopt by-laws. the public character of BSP's functions and activities must be conceded. to hold such real and personal estate as shall be necessary for corporate purposes. the Secretary of Youth and Sports. and generally to do all such acts and things (including the establishment of regulations for the election of associates and successors: as may be necessary to carry into effect the provisions of the Act and promote the purposes of said corporation. BSP's functions can not also be described as proprietary functions in the same sense that the functions or activities of governmentowned or controlled corporations like the National Development Company or the National Steel Corporation can be described as proprietary or "business-like" in character. the Secretary of National Defense. courage. and encourage their involvement in public and civic affairs. No. BSP's sanctions do not relate to the governance of any part of territory of the Philippines.

held: There should no longer be any question at this time that employees of government-owned or controlled corporations are governed by the civil service law and civil service rules and regulations. Presidential) participation or intervention in the choice of the majority of the members of the National Executive Board of the BSP. Section 1. In this respect. the BSP appears similar to private non-stock. The third aspect relates to the character of the assets and funds of the BSP. The same explicit intent is shown by the addition . The 1935 Constitution had a similar provision in its Section 1. . Justice Gutierrez. speaking through Mr. however. This term includes regulatory agencies. The seven (7) Secretaries (now six [6] in view of the abolition of the Department of Youth and Sports and merger thereof into the Department of Education. Article XII which stated: A Civil Service embracing all branches and subdivisions of the Government shall be provided by law. agency. It thus appears that the BSP may be regarded as both a "government controlled corporation with an original charter" and as an "instrumentality" of the Government within the meaning of Article IX (B) (2) (1) of the Constitution. does not indicate that such assets were public or statal in character or had originated from the Government or the State. non-profit corporations. includes seven (7) Secretaries of Executive Departments. and the monetary authority of the State. 18 We must assume that such confirmation or ratification involves the exercise of choice or discretion on the part of ratifying or confirming power. government-owned or-controlled corporation. 22 (Emphasis supplied) The same Code describes a "chartered institution" in the following terms: Chartered institution –– refers to any agency organized or operating under a special charter.e. administering special funds. According to petitioner BSP. It does appears therefore that there is substantial governmental (i. the Court. we believe that considering the character of its purposes and its functions. We are fortified in this conclusion when we note that the Administrative Code of 1987 designates the BSP as one of the attached agencies of the Department of Education. Juco. considering that such funds have not been audited by the Commission. 21 "Government instrumentality" is in turn defined in the 1987 Administrative Code in the following manner: Instrumentality –– refers to any agency of the National Government. including every government-owned or controlled corporation. instrumentality. although its charter expressly envisages donations and contributions to it from the Government and any of its agencies and instrumentalities. the statutory designation of the BSP as "a public corporation" and the substantial participation of the Government in the selection of members of the National Executive Board of the BSP. and vested by law with functions relating to specific constitutional policies or objectives. The original assets of the BSP were acquired by purchase or gift or other equitable arrangement with the Boy Scouts of America. The composition of the National Executive Board of the BSP includes. or local government or distinct unit therein. 19 We note only that BSP funds have not apparently heretofore been regarded as public funds by the Commission on Audit. as noted from Section 5 of its charter quoted earlier. It remains only to note that even before the effectivity of the 1987 Constitution employees of the BSP already fell within the scope of the Civil Service. This term includes the state universities and colleges. 24 decided in 1985. the BSP. 23 (Emphasis supplied) We believe that the BSP is appropriately regarded as "a government instrumentality" under the 1987 Administrative Code. endowed with some if not all corporate powers. subdivision and instrumentality of the Government. . While the BSP may be seen to be a mixed type of entity. bureau. The BSP charter. office. its operating funds used for carrying out its purposes and programs. of which the BSP was part before the establishment of the Commonwealth of the Philippines. combining aspects of both public and private entities. We must note at the same time that the appointments of members of the National Executive Board. (B) (2) (1) of the Constitution. The inclusion of "government-owned or controlled corporations" within the embrace of the civil service shows a deliberate effort of the framers to plug an earlier loophole which allowed government-owned or controlled corporations to avoid the full consequences of the all encompassing coverage of the civil service system. chartered institutions and government-owned or controlled corporations. and enjoying operational autonomy usually through a charter. 20 An "agency of the Government" is defined as referring to any of the various units of the Government including a department. is a government-controlled corporation within the meaning of Article IX. are derived principally from membership dues paid by the Boy Scouts themselves and from property rentals. In National Housing Corporation v. Culture and Sports ("DECS"). Article XII-B of the [19731 Constitution specifically provides: The Civil Service embraces every branch. . Culture and Sports) by themselves do not constitute a majority of the members of the National Executive Board..The second aspect that the Court must take into account relates to the governance of the BSP. vested with special functions or jurisdiction by law. not integrated within the department framework. except only the appointments of the Regional Chairman and Scouts of Senior age from the various Scout Regions. are subject to ratification and confirmation by the Chief Scout. It follows that the employees of petitioner BSP are embraced within the Civil Service and are accordingly governed by the Civil Service Law and Regulations. as presently constituted under its charter. but again subject to ratification and confirmation by the Chief Scout. who is the President of the Philippines. Vacancies to the Board are filled by a majority vote of the remaining members thereof.

25 The complaint in NLRC Case No.1952. we hold that both the Labor Arbiter and public respondent NLRC had no jurisdiction over the complaint filed by private respondents in NLRC Case No. Paz Tuason de Paterno is the registered owner of the aforesaid land. which is the purchaser. The salient facts in so far as they are not controverted are these. some to strengthen the judgment and others for the purpose of new trial. The tenor of this separate agreement. concur. Inc. Lacomision del 5 por ciento que corresponde a Jose Araneta serapagada al otorgarse la escritura de compromiso de venta. of a contract called "Promesa de Compra y Venta" and identified as Exhibit "1. the seller and mortgagor has made assignments of error in her brief. Paz Tuason would sell to Gregorio Araneta. 1952 GREGORIO ARANETA. The result of the negotiations was the execution on October 19. There was. On each of the last-mentioned occasions the previous contract of mortgage was renewed and the amounts received were consolidated. Manila.J. and the latter would buy for the said amount of P400. was in dispute and became the subject of conflicting evidence. besides. That neither party had expressly raised the issue of jurisdiction in the pleadings poses no obstacle to this ruling of the Court. In the first novated contract the time of payment was fixed at two years and in the second and last at four years. INC. a separate written agreement entitled "Penalidad del Documento de Novacion de Esta Fecha" which.000 and P20.. L-2886 August 22. all copies.703 square meters) of a big block of residential land in the district of Santa Mesa. They carry the strong message that civil service coverage is broad and all-embracing insofar as employment in the government in any of its governmental or corporate arms is concerned.000 and entered into negotiations with Gregorio Araneta. defendants-appellants. and it will be our task to do so at the appropriate place in this decision. Though not an appellant. Fernan. 1637-84. neither labor agency had before it any matter which could validly have been passed upon by it in the exercise of original or appellate jurisdiction. 1943. C. El precio sera pagado como sigue: un 40 por ciento juntamente con la carta de aceptacion del arrendatario. in NLRC Case No.. Bidin and Davide Jr. y el remanente 40 por ciento al otorgarse la escritura de venta definitiva.. plaintiff-appellant. The appealed Decision and Resolution in this case. Gutierrez. The amendments introduced in 1973 are not idle exercises or meaningless gestures.098 and constituted a first mortgage on the aforesaid property to secure the debt. In 1940 and 1941 Paz Tuason obtained from Jose Vidal several loans totalling P90.of "agency" and "instrumentality" to branches and subdivisions of the Government. In 1943 Paz Tuason decided to sell the entire property for the net amount of P400. and the mortgagee of certain portions (approximately 40. the seller. 1637-84. our ruling in Juco applies in the case at bar. New conditions not relevant here were also incorporated into the new contracts. The plaintiff. the Decision of the Labor Arbiter dated 31 July 1985. .. The lower court did not make categorical findings on this point. un 20 por ciento delprecio al otorgarse la escritura de compromiso de venta. In January and April.000 the entire estate under these terms. 27 ACCORDINGLY. G. Jr. when the 1973 Constitution was still in force. PAZ TUASON DE PATERNO and JOSE VIDAL. vs. All offices and firms of the government are covered." This contract provided that subject to the preferred right of the lessees and that of Jose Vidal as mortgagee. and carried a stipulation to the effect that in the event the owner and lessor should decide to sell the property the lessees were to be given priority over other buyers if they should desire to buy their leaseholds. No. for this purpose. 1637-84 having been filed on 13 November 1984. was not registered. Smaller lots were occupied by tenants without formal contract. No pronouncement as to costs.000 upon the same security. This is a three-cornered contest between the purchasers.. Most of these lots were occupied by lessees who had contracts of lease which were to expire on December 31. all things being equal. are hereby SET ASIDE. The case is extremely complicated and multiple issues were raised. la cual sera otorgada despues de que se habiese canceladola hipoteca a favor de Jose Vidal que pesa sobre dichos lotes. which was subdivided into city lots. 1943. 26 In view of the foregoing. unlike the principal contracts. JJ. and the Decision dated 27 February 1987 and Resolution dated 16 October 1987.R. All other orders and resolutions rendered in this case by the Labor Arbiter and the NLRC are likewise SET ASIDE. and the mortgagee elevated this appeal. however. of which were alleged to have been destroyed or lost. vested no rights and imposed no liabilities upon any of the parties here involved. she obtained additional loans of P30. issued by public respondent NLRC. which may motu proprio take cognizance of the issue of existence or absence of jurisdiction and pass upon the same. having been rendered without jurisdiction. Inc.

C-288642 a favor de Da.00No.083. correspondiendo al comprador los alquileres correspondientes a Noviembre y Diciembre de este año y asimismo sera por cuenta del comprador el amillaramiento correspondiente a dichos meses.825. Los alquieres correspondientes a este año se prorratearan entre la vendedora y el comprador. Inc. i.984. and on December 2. tuviere que vender a dicho comprador.32).23P64.00 TotalP190. (Fdo.000 was delivered by the Vendee to the Vendor by virtue of four checks issued by the Vendee against the Bank of the Philippine Islands. among other things.000)como adelanto del precio de venta que Gregorio Araneta.688.. the Vendor acknowledges to have received by virtue of the advance of One Hundred Ninety Thousand (P190. In furtherance of this promise to buy and sell. The aforesaid sum of P190.. Inc.Paz Tuason se obliga a entregar mediante un propio las cartasque dirigira a este efecto a los arrendatarios. 1943 GREGORIO ARANETA. Inc. except in two respects. Gregorio Araneta. copy of which is attached to the plaintiff's complaint as Exhibit A.825. 267682-K de Alfonso Sycip20. the terms of which.244. INCORPORATED Por. C-286445 in favor of Paz Tuason de PaternoP13. With the elimination of the lots sold or be sold to the tenants there remained unencumbered.43Angela S. Si la mencionada cantidad de P190. Dumas21. Paz Tuason and Gregorio Araneta. This deed. except for the mortgage to Jose Vidal.97P65. 11.01) enconcepto de devolucion que nos hace del excesode lo pagadoa ella deP190. an option to buy the lots they occupied at the price and terms stated in said letters.174. Inc. No obstante la dispuesto en el parrafo 8. La cantidad que Paz Tuason recibe en este acto sera aplicadapor ella a saldar su deuda con Jose Vidal.083. C-286444 in favor of the City Treasurer. Expirado el plazo arriba mencionado.94 3. de conformidad con el formulario adjunto.00Cheque PNB No.174. Noviembre 2. 12. 9.96Billetes recibidos de Alfonso Sycip 42.E.000. 8-16 and 18 which have an aggregate area of 14.000.476. Most of the tenants who held contracts of lease took advantage of the opportunity thus extended and after making the stipulated payments were giving their deeds of conveyance. 177863-K de L..99 Exceso64.20Cheque PNB No. cualquier arrendatario que decida comprar el lote que occupa con contrato de arrendamiento podra optar por pedir el otorgamiento inmediato a su favor el acto de la escritura de venta definitiva pagando en el acto el 50 por ciento del precio (ademas del 40 por ciento que debio incluir en su carta de aceptacion) y el remanente de 10 por ciento inmediatemente despues de cancelarse la hipoteca que pesa sobre el terreno. were similar to those of the sale to the lessees. provided.01Cheque BIF No. the sum of One Hundred Twenty-five Thousand One Hundred Seventy-four Pesos and Ninety-nine centavos (P125. 10. reconoce haver recibido en este acto de Gregorio Araneta. The balance of Sixty-Four Thousand Eight Hundred Twenty-five Pesos and One centavo (P64.318.38No.847.000 excediere del 90 por ciento de la cantidad que Gregorio Araneta.000 que se entrega en virtud de esta escritura.e. Inc. which amount the Vendee acknowledges to have received by these presents. Paz Tuason de Paterno la cantidad de Sesenta y Cuatro mil Ochocientos Veinticinco Pesos y un centimo (P64. importe de los lotes que vamos a comprar125.084. Inc.563. los amillaramientos. sobre el utilizado por Paz Tuason para otros fines. pagara el precio de venta como sigue: 90 por ciento del mismo al otorgarse la escritura de venta definitiva descontandose de la cantidad que entonces se tenga que pagar de adelanto de P190. C-286442 in favor of Jose Vidal143.000) Pesos made by the Vendee to the Vendor upon the execution of the aforesaid contract entitled "Promesa de Compra y Venta". la suma de Ciento Noventa Mil Pesos (P190. 83940 de Josefina de Pabalan4. Paz Tuason. Tuason1.96P68.21Menos las comisiones de 5 % recibidas de Josefina de PabalanP538. as follows: The aforesaid lots are being sold by he Vendor to the Vendee separately at the prices mentioned in paragraph (6) of the aforesaid contract entitled "Promesa de Compra y Venta. Paz Tuason otorgara una escritura deventa definitiva sobre dichos lotes a favor de Gregorio Araneta. una vez se haya cancelado la hipoteca que pesa actualmente sobre el terreno. as follows: No.00The return of the sum of P64.01Manila.825.60L. as far as the record would show.825. tuviere que pagar a Paz Tuason..E.373. tomandolo de las cantidades que reciba de los arrendatarios como precio de venta. Manila3. Una vez determinados los lotes que Paz Tuason podra vendera Gregorio Araneta.24Menos cheque BIF No.174." making a total sum of One Hundred Thirty-Nine Thousand Eightythree pesos and Thirty-two centavos (P139.) "JOSE ARANETA . el saldo sera pagado inmediatamente por Paz Tuazon.01 was made by the Vendor to the Vendee in a liquidation which reads as follows: Hemos recibido de Da. 1943.. has been returned by the Vendor to the Vendee.00Menos el 90% de P139.99). 1943. Paz Tuason otorgara las escrituras correspondientes de venta a los arrendatarios que hayan decidido comprar sus respectivos lotes.810.. executed with regard to these lots an absolute deed of sale. El 10 por ciento remanente se pagara a Paz Tuazon. Inc.20 square meters.99.01) between the sum of P125. Paz Tuason de Paterno que le entregamos como exceso 493.62No. Dumas1. These sales.150. ninety (90%) per cent of which amount. Lots 1.000.32. letters were sent the lessees giving them until August 31. que se marca como Apendice A.000. D-442988 de Simplicio del Rosario21.60Cheque PNB No. have been respected by the seller.825.621. C-286443 in favor of Jose Vidal30.

Vidal's claim to attorney's fees. another certified check for P12. Vidal came into the case in virtue of a summon issued by order of the court. and 16. sin embargo.99 of the present legal currency and hereby expressly declares that she will not hold the Vendee responsible for any loss that she might suffer due to the fact that two of the checks paid to her by the Vendee were issued in favor of Jose Vidal and the latter has. But the action against Vidal never came on for trial and the record and the checks were destroyed during the war operations in January or February. the nullification of the bank deposit on which those checks had been drawn. which lease contracts will expire on December 31. agreedwith the defendant that under paragraph 8 of Exhibit 1 there was to be no absolute sale to Gregorio Araneta. G. and neither was the case reconstituted afterward. 4. 2. Before the execution of the above deed. 9 and 17 fail to carry out their respective obligations under the option to purchase exercised by them so that the rights of the lessee to purchase the respective property leased by him is cancelled. and Paz Tuason was the validity of the deed of sale of Exhibit A on which the suit was predicated. Paz Tuason's counsel concede that the tender of payment to Vidal was legally defective and did not operate to discharge the mortgage. 1943. 1945. At any rate.23 Por: (Fdo. but the mortgagee had refused to receive that check or to cancel the mortgage.000 issued by Paz Tuazon.61. up to the present time. gave occasion to the breaking off the schemes outlined in Exhibits 1 and A. begun by Gregorio Araneta. Inc." The court based its opinion that Exhibit 1. having received the sum of P125. and the application of the debt moratorium law which the debtor now invokes.. or sooner at the option of the Vendee. C-288642 BIF-P493. The liquidation of the amounts respectively due between the Vendor and the Vendee in connection with the rents and real estate taxes as stipulated in paragraph (9) of the contract entitled "Promesa de Compara y Venta" will be adjusted between the parties in a separate document. the record of that case was destroyed and no copy of the complaint was presented in evidence. The lower court's judgment was that this contract was invalid and was so declared." The lots which could be sold . Attached to the complaint or deposited with the clerk of court by Attorney Ponce Enrile simultaneously with the docketing of the suit were the check for P143.. segun el cambio que debiaregir al tiempo de otorgarse la escritura segun la escalade "Ballentine".) "M. The remaining area of the property of the Vendor subject to Transfer Certificates of Title Nos. de dichas cantidades cualesquiera que la demandante haya estadorecibiendo como alquileres de los terrenos supuestamentevendidos a ella. Inc. Paz Tuason after liberation repudiated them for the reasons to be hereafter set forth. 4. It should be stated that the outset that all the parties are in agreement that Vidal's loans are still outstanding. 11. the points of discord between Paz Tuason and Vidal concern only the accrual of interest on the loans. These matters will be taken up in the discussion of the controversy between Paz Tuason and Jose Vidal. 7680. In our opinion the trial court was in error in its interpretation of Exhibit 1. also drawn by Gregorio Araneta. 9. and filed a cross-claim against Paz Tuazon to foreclose his mortgage. en moneda corriente. Should any of the aforesaid lessees of lots Nos. 1953. 7. 60471 and 60472. 1.L. although to a certain degree this notion is incorrect. These three checks were supposed to cover the whole indebtedness to Vidal including the principal and interest up to that time and the penalty provided in the separate agreement. "sin per juicio de que la demandada Paz Tuason de Paterno pague a la entidad demandante todas las cantidades que habia estado recibiendo de lareferida entidad demandante. It is therefore clearly understood that the Vendor will pay the existing mortgage on her property in favor of Jose Vidal. The contemplated execution of an absolute deed of sale was not contingent on the cancellation of Vidal's mortgage. contending that by the separate agreement before mentioned payment of the mortgage was not to be effected totally or partially before the end of four years from April. not yet collected the same. with the only exception of the existing lease contracts on parcels Nos. descontando. on October 20. that is. the Vendor shall be bound to sell the same to the herein Vendee.R. 10. 5. Inc.150 mentioned in Exhibit A. coupled with the destruction of the checks tendered to the mortgagee. The documentary stamps to be affixed to this deed will be for the account of the Vendor while the expenses for the registration of this document will be for the account of the Vendee. The instant action was the offshoot. 20 and 117 of plan II-4755.33 will be paid by the Vendee to the Vendor when the existing mortgage over the property sold by the Vendor to the Vendee is duly cancelled in the office of the Register of Deeds. Incorporated. in favor of Vidal. with the understanding. commenced an action against the mortgagee in October or the early paret of November 1943. the day immediately following the signing of the agreement to buy and sell. 1943. The principal bone of contention between Gregorio Araneta. Judge Sotero Rodas. and the tremendous rise of real estate value following the termination of the war. in conformity with the terms and conditions provided in the aforesaid contract of "Promesa de Compra y Venta". Inc. Paz Tuason had offered to Vidal the check for P143. This failure of the suit for the cancellation of Vidal's mortgage.932. and one ordinary check for P30. in full settlement of her mortgage obligation. all of the Consolidation of lots Nos. Inc. Alfonso Ponce Enrile. 2. while the plaintiff is apparently uninterested in this feature of the case considering the matter one largely between the mortgagor and the mortgagee. that this sale is being executed free from any option or right on the part of the lessees to purchase the lots respectively leased by them. The ten (10%) per cent balance of the purchase price not yet paid in the total sum of P13. however. en concepto de pago de losterrenos. His Honor. 5. 3.908. This Deed of Sale is executed by the Vendor free from all liens and encumbrances. 6. 6. 7. GONZALEZIn view of the foregoing liquidation. through Atty.150 previously turned down by Vidal. Record No.J. 3. to compel Paz Tuason to deliver to the plaintiff a clear title to the lots described in Exhibit A free from all liens and encumbrances. What Exhibit 1 did provide (eleventh paragraph) was that such deed of absolute sale should be executed "una vez determinado los lotes que Paz Tuason podra vender a Gregorio Araneta. Because of this refusal of Vidal's Paz Tuason. unless Vidal's mortgage was cancelled.O.PresidenteRecibido cheque No. and a deed of cancellation of the mortgage to Vidal. the vendor acknowledges fully and unconditionally. and 17. Gregorio Araneta.174. are lots Nos..

916. that if she had not trusted the said attorneys she would not have been so foolish as to affix her signature to a contract so one-sided. it would appear. The validity of the subsequent sale must of necessity depend on what it said and not on the provisions of the promise to buy and sell. some of the lots leased to tenants who. Voy a decir lo que Salvador Araneta. This refutes.083. and the lots included in the absolute of which the occupants' option to buy lapsed unconditionally. Usted fue quien se acerco al señor Salvador Araneta? R. y que es una verguenza. were only too anxious to buy and own the lots on which their houses were built. P. she had not read the deed of sale. Señor. were definitely known by October 31. or a necessary means to effectuate the sale. encima de quitar la propiedad. It has also been that the validity of the sales to the tenants has not been contested. señor. defendant's son. The tenants who had bought their lots had been granted the privilege to deduct as much as 40 per cent of the stipulated price pending discharge of the mortgage. yo me acerque a Don Salvador Araneta. should add to dispel any suspicion of bad faith on the part of the plaintiff. The clear preponderance of the evidence that Paz Tuason was pressed for cash and that the payment of the mortgage was only an incident. the sale in question would have gone the smooth way of the sales to the tenants. the charge that there was undue rush on the part of the plaintiff to push across the sale. One departure was the proviso that 10 per cent of the purchase price should be paid only after Vidal's mortgage should have been cancelled.to Gregorio Araneta. Vidal's mortgage was not an obstacle to the sale. say. Inc. Si Señor. Antonio Araneta who the defendant said had been her attorneys and had drawn Exhibit A. declared: P. porque yo creia que mi madre solamente queria anular esta venta. en la familia tengamos que ir a la Corte por este. todavia tendria ella que pagar al señor Vidal.68 as compared to 14. Whatever the terms of Exhibit 1. era lo que yo dije al señor Salvador Araneta. No recuerda usted tambien dijo al señor Salvador Araneta que usted no comulgaba con ella (su madre) en este asunto? R. xxx xxx xxx P. that these sales embraced in the aggregate 24. Inc. . Quiero usted decir al Honorable Juzgado que era lo que usted dijo al señor Salvador Araneta? R. were confident that the suit against the mortgagee would succeed. It was alleged that Attorneys Salvador Araneta and J. except two who were in concentration camps.20 square meters sold to Gregorio Araneta.811. Exhibit A was a substantial compliance with Exhibit 1 in furtherance of which Exhibit A was made. for P139. and the parties. Otherwise she could have settled her mortgage obligation merely by selling a portion of her estate.40 square meters for P260. The fact that simultaneously with Exhibit A similar deeds were given the lessees who had elected to buy their leaseholds. Despues de haberse presentado esta demanda. porque mi madre quiere pagar al señor Vidal. y yo le dije que es una verguenza de que nosotros. Except in two particulars. Inc. Such deed as Exhibit A was then in a condition to be made. An amount had been set aside to take care of it. The evidence does not support the defendant. If anyone was in a hurry it could have been the defendant. were think. Si. and the further fact that the sale to the lessees have never been questioned and the proceeds thereof have been received by the defendant. the plaintiff and the defendant were at perfect liberty to make a new agreement different from or even contrary to the provisions of that document. este no veso claro . It is as possible proof or fraud that the discrepancies between the two documents bear some attention. which comprise an area about twice as big as the lots described in Exhibit A. not insisted on charging to the defendant the loss of the checks deposited with the court. P. P. tener que venir por este. although his percentage was later reduced to 10 as in the case of Gregorio Araneta. Puede usted decirnos que quiso usted decir cuando que no quisiera decir? R. y tambien dije que mi madre de por si quiere vender el terreno a ellos. 1943. that being English. which was the expiry of the tenants' option to buy. siendo entre parientes. pues. that the seller has already received from the tenant purchasers 90 per cent of the purchase money. No creo que es propio que yo diga. recuerda usted haber tenido conversacion con Salvador Araneta acerca de este asunto? R. señor. Si. pero cuando me dijo el señor La O y sus abogados que. It was not onerous or unusual that the vendee should withhold a relatively small portion of the purchase price before all the impediments to the final consummation of the sale had been removed. Inc. usted quiere decir que no quiere usted que se vuelva decir o repetir ante este Honorable Juzgado lo que usted dijo al señor Salvador Araneta. This provisional deduction was not onerous or unusual. No. There is good reason to believe that had Gregorio Araneta. The failure of the court to try and decide that the case was not foreseen either. Thus Dindo Gonzales. The only doubt in their minds was in the amount to which Vidal was entitled. por tratarse de mi madre. P. and not informed or had misinformed her about its contents. En otras palabras.32. se trata de su madre? R.245.

was not a sale to Jose Araneta the agent or broker. it was inconsistent with Exhibit 1.xxx xxx xxx P." (18 C. 381. not to stop the commission of deceit by the purchaser but to pave the way for the evasion of a legitimate and binding commitment buy the seller. pointed out that not Jose Araneta but Gregorio Araneta. es asi? R.S. From her point of view and from the point of view of public interest. The contract and the roles of the parties who participated therein were exactly as they purported to be and were fully revealed to the seller. There is no pretense. In the light of all the circumstances. to assign to him all her right. or the tenants. From the unreasonableness and inequity of the aforequoted Exhibit A it is not to be presumed that the defendant did not understand it. she would not have gone ahead with the deal. The defendant would have the court ignore this distinction and apply to this case the other well-known principle which is thus stated in 18 C. tal como nosotros desperendemos de su testimonio. not yet collected the same. had long been organized and engaged in real estate business. In paragraph 8 of Exhibit 1 Jose Araneta was referred to as defendant's agent or broker "who acts in this transaction" and who as such was to receive a commission of 5 per cent. Ahora bien. Technical objections are made against the deed of sale." it has been said. a case which was instituted precisely to carry into effect Exhibit A or Exhibit 1. Inc. tanto. Inc's president. which the court rejected and which. However. will disregard the fiction of corporate entity apart from the members of the corporation when it is attempted to be used as a means of accomplishing a fraud or an illegal act. Inc. Without taking into account defendant's Exhibit 7 and 8. although the commission was to be charged to the purchasers. which she knew. was defendant's agent and at the same time the president of Gregorio Araneta.J. the trial court hypothetically admitting the existence of the relation of principal and agent between Paz Tuason and Jose Araneta. She could not have forgotten having signed so important a document even if she had not understood some of its provisions. The stipulation reads: In view of the foregoing liquidation. having received the sum of P125.. The transaction involved the alienation of property then already worth a fortune and now assessed by the defendant at several times higher. usted como. in consideration of Jose Araneta's services rendered to her. was the purchaser. while in paragraph 13 the defendant promised. Si. esteban muy conformes en la venta. up to the present time. Inc. she had an able attorney who was assisting her in the suit against Vidal. Inc. It was highly possible that she did not attach much importance to it. entered into the contract for itself and for its benefit as a corporation. "will not ignore the corporate entity in order to further the perpetration of a fraud. "The courts. since deceased. Dindo Gonzalez took active part in. señor. If the defendant signed Exhibit A without being apprised of its import. the Vendor acknowledges fully and unconditionally. as stated. Inc. Under these circumstances the result of the suggested disregard of a technicality would be.". that if Paz Tuason had known Jose Araneta to Gregorio Araneta.174. should have been admitted. It will at once be noted that this principle does not fit in with the facts of the case at bar. and that only after she was confronted with the signed copy of the document on the witness did she spring up the defense of fraud. would hold Paz Tuason liable for the lost checks and which. First of these is that Jose Araneta. and cited the well-known distinction between the corporation and its stockholders. It would look as if she gambled on the chance that no signed copy of the deed had been saved from the war.e. This finding is contrary to the clear weight of the evidence. at law and in equity. title and interest to and in certain lots not embraced in the sales to Gregorio Araneta. convinced that Vidal could be forced to accept the checks and not foreseeing the fate that lay in store for the case against the mortgagee. it would have made no difference.) . appeared to be at the root of the whole trouble between the plaintiff and the defendant. i. in our opinion. It was argued that no person in his or her right senses would knowingly have agreed to a covenant so iniquitous and unreasonable. Gregorio Araneta. or Jose Araneta was the purchaser. Inc. The principle invoked by the defendant is resorted to by the courts as a measure or protection against deceit and not to open the door to deceit. nor is there reason to suppose. The corporate entity was not used to circumvent the law or perpetrate deception. 380: "The courts. Intelligent and well educated who had been managing her affairs. whether Gregorio Araneta. In other words. Doubts in defendant's veracity are enhanced by the fact that she denied or at least pretended in her answer to be ignorant of the existence of Exhibit A. although the point would be irrelevant. su madre. and a son who is leading citizen and a business-man and knew the English language very well if she did not. except for the brokerage fee. it can hardly be conceived that she did not have her attorney or her son read it to her afterward. There is no denying that Gregorio Araneta. it is difficult to believe that the defendant was deceived into signing Exhibit A. The other stipulation embodied in Exhibit A which had no counterpart in Exhibit 1 was that by which Gregorio Araneta Inc. The trial court found that Jose Araneta was not Paz Tuason's agent or broker.J. if he was not the initiator of the negotiations that led to the execution of Exhibit 1.99 of the present legal currency and hereby expressly declares that she will not hold the Vendee responsible for any loss that she might suffer due to the fact that two of the checks paid to her by the Vendee were used in favor of Jose Vidal and the latter has. in spite of the provision of which she and her son complaint. if the court were right in its holding that Exhibit A was void on another ground. the court opined that the sale to Gregorio Araneta. Exhibit 1 is decisive of the defendant's assertion. Inc. of which he was an attesting witness besides. de tal suerte que.S.

had a deposit in the certification stated that they were to be "void if not presented for payment date of acceptance" office (Bank) within 90 days from date of acceptance. He was not to sell and he did not sell the defendant's property. did not themselves prove that they were the seller's attorneys. and since that account "was opened during the Japanese occupation and in Japanese currency. and granting for the nonce that Jose Araneta and Gregorio Araneta. In this connection Scaevola observes that the fear that greed might get the better of the sentiments of loyalty and disinterestedness which should animate an administrator or agent. was interested. knowing.61. it was not likely that she employed Atty. who is not trying to recover on the instruments but on the contrary rejected them from the outset. The limitation imposed by the Bank as to time would adversely affect the payee. and could very well have been written by Attorneys Araneta and Araneta in furtherance of Gregorio Araneta's own interest. is the reason underlying various classes of incapacity enumerated in article 1459. Antonio Araneta as her attorneys in her dealings with Gregorio Araneta. Inc. one for P143." But the transfer of the corresponding funds from the credit of the depositor to that of that of the payee had to be coextensive with the life of the checks. bringing them together to make the contract themselves. He was not to fix the price of the sale because the price had been already fixed in his commission. Salvador and Araneta and J. and charged the defendant the corresponding fees for all this work. as she did. Tested by this standard. As far as Vidal was concerned. He was to look for a buyer and the owner herself was to make. the law does not trust human nature to resist the temptations likely to arise of antogonism between the interest of the seller and the buyer. the relation between the defendant and Jose Araneta did not fall within the purview of article 1459 of the Spanish Civil Code. No. Inc. Granting that Attorney Araneta and Araneta were attorneys for the defendant. while Scaevola (Vol. for all intents and purposes.932. p. If she had needed legal counsels.. agent in the sense there used is one who accepts another's representation to perform in his name certain acts of more or less transcendency. Jose Vidal. and did make. Whether the Bank of the Philippines could lawfully limit the negotiability of certified checks to a period less than the period provided by the Statute of Limitations does not seem material. And as American courts commenting on similar prohibition at common law put it. Inc. 5. Ponce Enrile who was allegedly representing her in another case to pave the way for the sale.150 and one for P12. Jose Araneta was not an agent within the meaning of article 1459. 49 of the President of the Philippines". and payable to Vidal. The aforesaid checks. the sale. Jose Araneta was left no power or discretion whatsoever. This is the consensus of the evidence for both parties which does not materially differ on this proposition. These letters and documents were wrapped up with the contemplated sale in which Gregorio Araneta. But in the opinion of Manresa(10 Manresa 4th ed. In collecting the fees from the defendant they did what any other buyer could have appropriately done since all such expenses normally were to be defrayed by the seller. with rights and duties of one such relation. Antonio Araneta were not her attorneys in that case. too. their identity with the buyer. 403) says that the agent's in capacity to buy his principal's property rests in the fact that the agent and the principal form one juridicial person. it was of no importance whether the certification was or was not restricted. according to the Bank. The fact that Attys. 1459.1 Agency is defined in article 1709 in broad term.The corporate theory aside. undertook to write the letters to the tenants and the deeds of sale to the latter. Salvador Araneta and J. or of the funds against which they had been issued. On this point the trial court's opinion is likewise against the defendant. Since attorney Ponce Enrile was the defendant's lawyer in the suit against Vidal. however. were clearly specified in his commission. and we have not come across any commentary or decision dealing directly with the precise meaning of agency as employed in article 1459. Salvador Araneta and J. of some of which passing mention has already been made. 23. There was already at the time of the sale a litigation over this property between the defendant and Vidal. He was not to make the terms of payment because these. The checks were never collected and the account against which they were drawn was not used or claimed by Gregorio Araneta. in this transaction it seems certain that she would have availed herself of the services of Mr. by the clarification" the funds represented by the check were transferred from the credit of the maker to that of the payee or holder. and were drawn against the Bank of the Philippines with which Gregorio Araneta. (Art. Inc. By Exhibits 7 and 8 he was to be nothing more than a go-between or middleman between the defendant and the purchaser. the agent must be in a fiduciary with his principal. Inc. Inc. In fine. If the checks were not presented for payment within that period they became invalid and the funds were automatically restored to the credit of the drawer though not as a current deposit but as special deposit. were identical and that the acts of one where the acts of the other. 100). were issued by Gregorio Araneta. the latter became the depositor of the drawee bank. but Attys. The law and the evidence on this branch of the case revealed these facts. There was no confidence to be betrayed. To come under the prohibition.." Under banking laws and practice. and so where the relationship does not involve considerations of good faith and integrity the prohibition should not and does not apply. . Attorneys are only prohibited from buying their client's property which is the subject of litigation. which in the case was 90 days. insisting that the payment was premature.) The questioned sale was effected before the subject thereof became involved in the present action. Jose Araneta was not authorize to make a binding contract for the defendant. which he could abuse to his advantage and to the owner's prejudice. So the ban of paragraph 2 of article 1459 connotes the idea of trust and confidence. Defendant's other ground for repudiating Exhibit A is that the law firm of Araneta & Araneta who handled the preparation of that deed and represented by Gregorio Araneta. and." the checks "became obsolete as the account subject thereto is considered null and void in accordance with Executive Order No. On the other hand. Antonio Araneta drew Exhibits 1 and A. The matter of who should bear this loss does not depend upon the validity of the sale but on the extent and scope of the clause hereinbefore quoted as applied to the facts of the present case. it does not follow that the defendant should be held liable for the loss of the certified checks attached to the complaint against Vidal or deposited with the court. were her attorneys also. Inc. yet they were not forbidden to buy the property in question. Spanish Civil Code. From the pronouncement that Exhibit A is valid.

void and unenforceable in so far as the said stipulation would stretch the defendant's liability for this checks beyond 90 days. as instanced by the fact that the parties presented testimony to prove those regulations and practice. But as to Gregorio Araneta and Paz Tuason. but they were aware of and abided by those regulations and practice. . After 90 days the defendant stood to gain absolutely nothing by them. It is obvious that Vidal had a right to judgment for his credit and to foreclose the mortgage if the credit was not paid. Jur. 42. 336. the defendant was relieved thereafter from paying such interest. There is no dispute as to the amount of the principal and there is agreement that the loans made in 1943.. its loss undoubtedly was imputable to the defendant's account. It is to be recalled that Paz Tuason deposited with the court three checks which were intended to cover the principal and interest up to October. Rule 123. Although that check was also deposited with the court and lost. The sole motivation on her part for the stipulation was the fact that by the checks the mortgage might or was to be released. but by mutual agreement it was changed to an ordinary check payable to Paz Tuason. to whom the land had been mortgaged by the execution debtor. As has been said. Not only this. Villa Agustin. the checks for collection. Inc. 1943. instrument or property. The trial court ruled that the redemptioner was not obliged to pay the stipulated interest of 12 per cent after he offered to redeem the property. It was not in accord with law. for technical reason. was not a mere accommodator in writing these checks. yet they did for the purpose of stopping the running of interest. and she did not seem to disown her liability for it. equivalent to the actual production and tender of the money.000 intended for the penalty previously had been issued in the name of Vidal and certified. Within the period of redemption Fabros. should be computed under the Ballantyne conversion table. And that Gregorio Araneta. the conditions specified in the certification and the prevailing regulations of the Bank were the law of the case. however. The plaintiff would not trust the defendant and studiously so arranged matters that she could not by any possibility put a finger on the money. It was as much interested in the cancellation of the mortgage as Paz Tuason. 24. 1948 and that the mortgaged property be ordered sold in case of default within 90 days. and we may just as well determine from these facts and evidence the amount to which the mortgagee is entitled. which had become veritable scraps of paper. or should have presented. All the facts and evidence on this subject are on the record. supra.) In the case of Fabrosa vs.917. instead of remanding the case for new trial. had offered to redeem the land from the execution creditor and purchaser at public auction. a parcel of land had been sold on execution to one Tabliga. To make Paz Tuason responsible for those checks after they expired and when they were absolutely useless would be like holding an obligor to answer for the loss or destruction of something which the obligee kept in its safe with no power given the obligor to protect it or interfere with the obligee's possession. to whom the motions were submitted.) It is not accord with either the letter or the spirit of the law to impose upon the person affecting a redemption of property. in Japanese war notes. and could not successfully be denied. Judge Rodas by that time having been appointed to the Court of Appeals. The check for P30. plus the penalty provided in the instrument "Penalidad del Documento de Novacion de Esta Fecha. What the plaintiff could and should have done if the disputed stipulation was to be kept alive was to keep the funds accessible for the purpose of paying the mortgage." The mortgagor maintains that although these checks may not have constituted a valid payment for the purpose of discharging the debt. They in fact agree that the offer of those checks to Vidal did not. The amount to be paid Vidal was not named and the question whether interest and attorney's fees were due was not passed upon. (Sec. which was reached a considerable amount. To the extent that the contract Exhibit A would hold the vendor responsible for those checks after they had lapsed. work to wipe out the mortgage. having offered to pay Vidal her debt in that month. in addition to 12 per cent interest per annum up to the time of the offer to redeem. too. It was contended that. while the ownership of the deposit had reverted to the plaintiff which alone could withdraw and make use of it.90 plus interest at the rate of 1 percent monthly from September 10. the said contract was without consideration. or placing the deposit at the defendant's disposal. In these circumstances. the benefit in exchange for which the defendant had consented to be responsible for them had vanished. if only to avoid further delay if the disposition of this case. by writing new checks either to Vidal or to the defendant. nevertheless he was sentenced to pay 6 per cent interest from the date of the offer. (Fabros vs. knew that Vidal had not cashed the checks within 90 days is not. if made in the proper manner. The defendant draws attention to the following citations: An offer in writing to pay a particular sum of money or to deliver a written instrument or specific personal property is. Let it be remembered that the idea of certifying the lost checks was all the plaintiff's.) A tender by the debtor of the amount of this debt. 1943. For all the practical intents and purposes the plaintiff dealt directly with the mortgagee and excluded the defendant from meddling in the manner of payment to Vidal. the stipulation in Exhibit A that the defendant or seller "shall not hold the vendee responsible for any loss of these checks" was unconscionable. 18 Phil.. if rejected. where the parties do not see eye-to-eye was in regard to the mortgagee's claim to attorney's fees and interest from October. a further payment of 6 per cent per annum from the date of the officer to redeem. Coming down to Vidal's cross-claim Judge Rodas rendered no judgment other than declaring that the mortgage remained intact and subsisting.neither the plaintiff nor the defendant now insists that Vidal should present. and another motion by the defendant seeking specification of the amount she had to pay the mortgagee were summarily denied by Judge Potenciano Pecson. equity or good conscience to hold a party responsible for something he or she had no access to and could not make use of but which was under the absolute control and disposition of the other party. The motion for reconsideration of the decision by Vidal's attorney's praying that Paz Tuason be sentenced to pay the creditor P244. The checks having become obsolete.000. Inc. Villa Agustin. as was done with the check for P30. And let it also be kept in mind that Gregorio Araneta. (30 Am. will suspend the running of interest on the debt for the time of such tender.

the penalty of P30. 626. Vidal. one of Vidal's former attorneys who. . as notary public." In the light of these decisions and law. because his money was earning good interest and was guaranteed by a solid security. But the matter of the suspension of the running of interest on the loan stands of a different footing and is governed by different principles. The document was the subject of a close and concerted study on their part with the object of finding the rights and obligations of the mortgagee and the mortgagor in the premises and mapping out the course to be pursued. as just shown. Civil Code of Spain. The technical defects of the consignation had to do with the discharge of the mortgage. It is therefore to be concluded that the defendant's offer to pay Vidal in October. which appears to be a penalty for delinquency while there was no delinquency. first. It is precisely the mortgagor's contention that he was to pay said penalty if and when she paid the mortgage before the expiration of the four-year period provided in the mortgage contract. at the same time. Tiangco. for the creditor it was who by his refusal brought upon himself this litigation. wrote Vidal demanding that he accept the payment and execute a deed of cancellation of the mortgage. 1943. If the creditor had told the debtor that he wanted cash or an ordinary check. Campbell. Ponce Enrile reminded Vidal that the recital in the "Penalidad del Documento de Novacion de Esta Fecha" was "to the effect that should the debtor wish to pay the debt before the expiration of the period the reinstated (two years) such debtor would have to pay. It was to Vidal's interest that the mortgage be not settled in the near future.000 — this is in addition to the penalty clause of 10 per cent of the total amount due inserted in the document of mortgage of January 20. with the lapse of time. Moreover. There is no reason to suspect that Vidal's attorney did not correctly read the paper to him. "In obligations with a penalty clause the penalty shall substitute indemnity for damages and the payment of interest. and before the suit was commenced. or fabrication. in addition to interest due. which was more important. for Vidal was blind and. . shared the common belief that Japanese war notes were headed for a crash and that four years thence. which Vidal now seems to think Paz Tuason should have tendered. 1943? The answer to this question requires an inquiry into the provision of the "Penalidad del Documento de Novacion de Esta Fecha. We are of the opinion that the court erred in excluding Vidal's statement. There was no reason for the penalty unless it was for defendant's paying her debt before the end of the agreed period. By contrast. Falling within the reasons for the stoppage of interest are attorney's fees.150 and P12. certainly Vidal's wishes would have been fulfilled. formed after mature and careful reading of it. was for from infallible. he. where this doctrine was laid down: "When the right of redemption is exercised within the term fixed by section 465 of the Code of Civil Procedure. Inc. only had his other lawyer read the document to him." The court cited an earlier decision. jibes with the only possible reason for the insertion of the penalty provision.. Did the mortgagor have the right under the contract to pay the mortgage on October 20. Vidal's testimony. a point which the debtor seems to a grant. in behalf of his client. Inc. And the results of their study and deliberation were translated into concrete action and embodied in a letter which has been preserved. which is conceded on all sides to be still in force because of the defects. that there would be penalty if she paid after that period. Tiangco's. Antonio Araneta does not suffer from such weakness and is entitled to full faith and credit. the following are our findings and decision: The contract of sale Exhibit A was valid and enforceable. 10 Phil. according to him. if at the time of such offer of payment he considered it advantageous to his interest. Good faith of the offer or and ability to make good the offer should in simple justice excuse the debtor from paying interest after the offer was rejected. as Vidal says. with obvious inconsistency. was in accordance with the parties' contract and terminated the debtor's obligation to pay interest. 1943. Vidal's above testimony was ordered stricken out as hearsay. and thanks to the defects which he now. Salvador Araneta. and second. Gregorio Araneta.This court on appeal held that "there is no reason for this other (6 per cent) interest. the value of these checks as well as the several payments made by Paz Tuason to Gregorio Araneta. action was instituted in court to compel acceptance by Vidal of the checks consigned with the complaint. the next query is.61 and invalidation of the corresponding deposit is to be borne by the buyer. To summarize. substance rather than form. In fact there is less merit in the claim for attorney's fees than in the claim for interest. Martinez vs. the mortgage has not perished with the checks. premeditation. foreclosure of the mortgage. judging by the trends of the war. and with the document before him." Atty. would be a contradiction. it is neither reasonable nor just that the repurchaser should pay interest on the redemption money after the time when he offered to repurchase and tendered the money therefor. Nevertheless. shall be deducted from the sum of P190. resulted greatly to his benefit. Ponce Enrile. and J. The reading was a contemporaneous incident of the writing and the circumstances under which the document was read precluded every possibility of design..). In his letter Atty. was based on recollection which. . the testimony of Attorneys Ponce Enrile. Atty. Ponce Enrile's concept of the agreement.000 which the buyer advanced to the seller on the . The plain truth was that the mortgagee bent all his efforts to put off the payment." (Art. refusal which. is entitled to the penalty. This penalty was designed to take the place of the interest which the creditor would be entitled to collect if the duration of the mortgage had not been cut short and from which interest the debtor has been relieved. like the testimony of Lucio M. the hostilities would be over. The suspension of the running of the interest is premised on the thesis that the debt was considered paid as of the date the offer to pay the principal was made. and attorney's fees. In line with the results of their study. and an offer is made of the amount due for the repurchase of the property to which said right refers. that the debtor could not pay the mortgage within four years and. in all probability. points out. To say. however. . Technical defects of the offer cannot be adduced to destroy its effects when the objection to accept the payment was based on entirely different grounds. gladly. These principles regard reality rather than technicality.932." Vidal introduced oral evidence to the effect that he reserved unto himself in that agreement the right "to accept or refuse the total payment of the loan outstanding . but the loss of the checks for P143. A debtor can not be considered delinquent who offered checks backed by sufficient deposit or ready to pay cash if the creditor chose that means of payment. had authenticated the document." This was gist of Vidal's testimony and that of Lucio M. 1152. adequate remedy was provided for failure to pay or after the expiration of the mortgage: increased rate or interest.

32. of the validity of the contract of sale Exhibit A. where he demanded foreclosure of the mortgage . that "the court failed to act on the cross-claim of Jose Vidal dated April 22. was summarily denied. which can be decided by this court. be forced to pay the mortgage. She only requests that interest be granted up to October 20. Whether this is possible or not is a legal question. (b) the purchase price of the lot in the sum of P139.233. and that the moratorium law be applied.32. Paz Tuason de Paterno. Should Gregorio Araneta. it will be subrogated to the right of the mortgagee. 1947. 1952TUASON. Inc.: The motion for reconsideration of the plaintiff. The vehement protest that this court should not modify the conclusion of the lower court on interest and attorney's fees is actually and entirely contrary to the cross-claimant's own suggestion in his brief." — as well as the alleged over-payment by the defendant-appellee. are in large part devoted to the question. There are no substantial features of the case that have not been weighed carefully in arriving at our conclusions. Paz Tuason shall pay the amount that shall have been found due under the contracts of mortgage within 90 days from the time the court's judgment upon the liquidation shall have become final. There was therefore virtually no decision that could be executed. We find no reason for disturbing our decision on this phase of the case. correctly. Inc. Vidal's mortgage is superior to the purchaser's right under Exhibit A. provided that the loans obtained during the Japanese occupation shall be reduced according to the Ballantyne scale of payment. From page 20 of his brief. It is our considered opinion that the decision is in accord with law.1943. in the manner not inconsistent with the above findings and judgment. The plaintiff-appellant's alternative proposition — to wit: "Should this Honorable Court declare that the purchase price was not paid and that plaintiff has to bear the loss due to the invalidation of the occupation currency. its loss should be limited to: (a) the purchase price of P139. That is a fact. can better be treshed out in the proposed rehearing where each party will have an opportunity to put forward his views and reasons.825. we copy these passages: We submit that this Honorable Court is in a position now to render judgment in the foreclosure of mortgage suit as no further issue of fact need be acted upon by the trial court. not having been put directly in issue or given due attention at the trial and in the appealed decision. Among other reasons: the bulk of the debt was a pre-war obligation and the moratorium as to such obligations has been abrogated unless the debtor has suffered war damages and has filed claim for them. Inc. extensively discussed in the decision. The mortgagor is not entitled to suspension of payment under the debt moratorium law or orders.1943. reason and equity. Vidal himself moved in the Court of First Instance for amendment of the decision alleging." These payments and disbursement are matters of accounting which. The court also shall hear and decide all other controversies relative to the liquidation which may have been overlooked at this decision. which is hereby declared subject to said mortgage.083.70 which plaintiff paid and the defendant actually collected during the occupation.execution of Exhibit 1. plus the penalty of P30. In the second place. may be taken up in the liquidation under the reservation in the judgment that "the court (below) shall hold a rehearing for the purpose of liquidation as herein provided" and "shall also hear and decide all other controversies relative to the liquidation which may have been overlooked in this decision.32 less P47. in a manner not inconsistent with the above findings and judgment. otherwise the property mortgaged shall be ordered sold provided by law. The buyer shall be entitled to the rents on the land which was the subject of the sale. As to Jose Vidal's motion: There is nothing to add to or detract from what has been said in the decision relative to the interest on the loans and attorney's fees. and Paz Tuason. This case will be remanded to the court of origin with instruction to hold a rehearing for the purpose of liquidation as herein provided. the judgment did not adjudicate the foreclosure of the mortgage nor did it fix the amount due on the mortgage. prompt settlement of the mortgage is necessary to the settlement of the dispute and liquidation between Gregorio Araneta. If for no other reason. Defendant Paz Tuason has admitted the amount of capital due." That motion like Paz Tuason's motion to complete the judgment. or the sum of P92. and provided that the date basis of the computation as to the penalty is the date of the filing of the suit against Vidal. RESOLUTION December 22. . In the third place. The arguments are not new and at least were given due consideration in the deliberation and study of the case. on how the various items in question should be regarded and credited. there is no allegation or proof that she has. Unnecessary loss of time and expenses to the parties herein will be avoided by this Honorable Court by rendering judgment in the foreclosure of mortgage suit as follows: In reality. There shall be no special judgments as to costs of either instance. the debtor herself caused her creditor to be brought into the case which resulted in the filing of the cross-claim to foreclose the mortgage. . Paz Tuason would do well to forego the benefits of the moratorium law. .083.000. rents which may have been collected by Paz Tuason after the date of the sale.. Gregorio Araneta. and the defendant. The pronouncement that the mortgage was in full force and effect was a conclusion which the mortgagor did not and does not now question. J. in the light of our decision. with supporting evidence if necessary. . or at most. Paz Tuason shall pay Jose Vidal the amount of the mortgage and the stipulated interest up to October 20.

but the trial court declared the sale void in accordance with the main contention of the defendant. BERTILLA C. in our opinion. 1990 BUENAFLOR C.. and was not intended to be. No. UMALI. of the Civil Code of Spain. was one of the most bitterly debated issues. DE CASTILLO. mistakes which.000. et al... 89561 September 13.. the case should have been remanded to the court of origin for further proceedings in the form stated by Paz Tuason's counsel." 1 the dispositive portion whereof provides: WHEREFORE. vs.000. we deemed unnecessary. RIVERA. INC. Insurance Corporation of the Philippines (ICP). denied. G. and 3) Ordering plaintiffs-appellees to pay upon defendants' counterclaims: a) To defendant-appellant PM Parts: (i) damages consisting of the value of the fruits in the subject parcels of land of which they were deprived in the sum of P26. The original complaint for annulment of title filed in the court a quo by herein petitioners included as party defendants the Philippine Machinery Parts Manufacturing Co. Rescission of the contract. any pronouncement touching this point. it is true. RESOLUTION January 26. 827. Bormaheco. The second motion for reconsideration is. in the nature of an extension of time of payment. the checks having been destroyed and the funds against which they were drawn having become of no value. by our decision.000. The question of who should bear the loss of this amount. if not uncalled for.. Castillo Umali. as it is hereby REVERSED. the judgment appealed from must be. In lieu thereof. VICTORIA M. RADA. in CA-GR CV No. the portion of the purchase price which is said not to have been satisfied until now was actually received by checks by the vendor and deposited by her with the court in the suit against Vidal.In strict accordance with the procedure. vs. to decide the controversies between Vidal and Paz Tuason upon the records and the briefs already submitted. dated August 3. Inc. vs. this Court's judgment was not. 15412. are to be corrected in a new trial thereby ordered. therefore. We did not follow the above course believing it best. respondents. During the pre-trial conference. viewed in the light of the entire record. 1989. which was still in force when this case was tried. 821. this time impleading Santiago M. SO ORDERED." (Song Fo & Co. with cost against plaintiffs.) In the present case. the vendee did not fail or refuse to pay by plan or design. Both the mortgagor and the mortgagee agree on this. in accordance with the understanding if not express agreement between vendor and vendee. (PM Parts). the parties entered into the following stipulation of facts: . and passed no judgment on the matter of rescission. Hawaiian-Philippine Co. albeit big portion. of the price was not. and PHILIPPINE MACHINERY PARTS MANUFACTURING CO. granting there was failure or refusal to pay.. in the interest of the parties themselves and following Vidal's attorney's own suggestion. 47 Phil. In the second place. except possibly in connection with the alleged overcharges by the vendee arising from honest mistakes of accounting.00 and (ii) attorney's fees of P15. (Bormaheco) and Santiago M. This is a petition to review the decision of respondent Court of Appeals. et al.R. "The general rule is that recission will not be permitted for a slight or casual breach of the contract. 1953TUASON. petitioners. but only for such breaches as are so substantial and fundamental as to defeat the object of the parties. VDA. Philippine Machinery Parts Manufacturing Co.. In contemplation of the Civil Code there was no default. CASTILLO. BORMAHECO. a judgment is hereby rendered1) Dismissing the complaint. Inc. J. 2) Ordering plaintiffs-appellees to vacate the subject properties. was alternative prayer in the cross-complaint.: In the second motion for reconsideration by defendant-appellee it is urged that the sale be resolved for failure of plaintiff-appellant to pay the entire purchase price of the property sold. The three motions for reconsideration are denied. ABAÑEZ. MARIETTA C..00. MAURICIA M. INC.. and in adjudging the vendee to be the party to shoulder the said loss and ordering the said vendee to pay the amount to the vendor. the nonpayment of a portion. such failure as would justify recission under Articles 1124 and 1505 et seq. For this reason. JALBUENA and SANTIAGO M. Inc. and because rescission was not pressed on appeal. Rivera as party plaintiff.000.00 b) To defendant-appellant Bormaheco: (i) expenses of litigation in the amount of P5. entitled "Buenaflor M. As a matter of fact.COURT OF APPEALS.00 and (ii) attorney's fees of P15. LEOVINA C. Rivera (Rivera). A Second Amended Complaint was filed.

T13117 (Exhibit H ) d) That mentioned parcels of land were submitted as guaranty in the Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage executed on 24 October 1970 between Insurance Corporation of the Philippines and Slobec Realty Corporation represented by Santiago Rivera (Exhibit 1). 14132. T13115.150.. 14010 issued by co-defendant ICP was likewise secured by an Agreement with CounterGuaranty with Real Estate Mortgage executed by Slobec Realty & Development. and who also is the legal counsel of Insurance Corporation of the Philippines and PM Parts. Inc. TCT No. 1971 (Exhibit 15). was delivered to Bormaheco. Mauricia Castillo Meer. TCT No. T-13116 and T-13117 of the Register of Deeds of Lucena City.000. Modesto N. Menandro Umali for purposes of repair. the Bormaheco. the Insurance Corporation of the Philippines sold to PM Parts the immovables in question (per Exhibit 6 for PM Parts) and by reason thereof.00 (per Exhibit K) that Id document was superseded by another chattel mortgage dated January 23. T-23705 (Exhibit M). succeeded in transferring unto itself the titles over the lots in dispute. and that Atty. No. Inc.130. on the other hand. T 23708 (Exhibit P). with assessed value of P3. T-13113 (Exhibit F).. f) That on 10 April 1975. j) That the Surety Bond No. e) That based on the Certificate of Sale issued by the Sheriff of the Province of Quezon in favor of Insurance Corporation of the Philippines it was able to transfer to itself the titles over the lots in question. TCT No. represented by its Vice-President Modesto N. and also he is one of the Board of Directors of PM Parts. namely: Buenaflor.As between all parties: Plaintiff Buenaflor M. Cervantes a Chattel Mortgage concerning one unit model CAT D7 Caterpillar Crawler Tractor as described therein as security for the payment in favor of the mortgagee of the amount of P180. No. with assessed value of P5. Rizal. November and December 1970 and January 1971. Buenaflor Castillo. Inc. that Modesto N. Victoria Castillo. p) On 18 December 1970. Mauricia Meer Vda. TCT No.00. CFI of Quezon (per Exhibit A) which intestate proceedings was instituted by Mauricia Meer Vda. namely: TCT No. Inc. De Guzman was the legal counsel of Bormaheco. de Guzman was retained by Insurance Corporation of the Philippines specifically for foreclosure purposes only. Atty. namely: TCT No. 14133. T-24847 (Exhibit R ). on or about October 2.00. represented by Santiago Rivera. de Castillo' genther letter to Modesto N. T 32227 and Tax Dec. T-23707 (Exhibit 0) and TCT No. Navoa of the City of Manila on October 24. C-1 -to C3 c) That the above-enumerated four (4) parcels of land were the subject of the Deed of Extra-Judicial Partition executed by the heirs of Felipe Castillo (per Exhibit D) and by virtue thereof the titles thereto has (sic) been cancelled and in lieu thereof. new titles in the name of Mauricia Meer Vda. Cervantes served later on as President of PM Parts. h) That from at least the months of October. T-24846 (Exhibit Q ). to Slobec Realty & Development. Bertilla. TCT No. Inc. TCT No.1973. Cervantes was the Vice-President of Bormaheco. Cervantes stating that she and her children refused to comply with his demands (Exhibit V-2). T-24848 (Exhibit). TCT No.00. As between plaintiffs and defendant Bormaheco. T-42104 and Tax Dec. Marietta Castillo and Leovina Castillo. 281114 evidenced by a contract marked Exhibit J and Exhibit I for Bormaheco. T-42103 with Tax Dec. i) Defendant Bormaheco. Petronilo Roque as caretaker of the subject property. Inc. Mauricia Meer about its ownership and the assignment of Mr.. and TCT No. TCT No. per TCT No.000. by Mr. de Castillo and of her children. Martin M. de Castillo. B-1 to B-3 C. 14134 with assessed value of P3. Inc. Rizal. No. namely: per TCT No. Same Rivera.. T-24849 (Exhibit T ). with assessed value of P6. at Makati. Inc. l) That the tractor sold by defendant Bormaheco. k) That the property mortgaged consisted of four (4) parcels of land situated in Lucena City and covered by TCT Nos. on November 25. b) The four (4) parcels of land described in paragraph 3 of the Complaint were originally covered by TCT No. the previous administratrix of the said proceedings prior to 1970 (per exhibits A-1 and A-2) which case was filed in Court way back in 1964. Inc. later President thereof.100. later Executive Vice-President thereof.. Victoria. T-13116 (Exhibit G ) and TCT No. 14135.580. Inc. Inc. Marietta and Leovina. T-31762 and Tax Dec.00 (per Exhibit J) which . T-12113 (Exhibit E ). n) That plaintiff and other heirs are harvest fruits of the property (daranghita) which is worth no less than Pl. Inc o) That on 25 November 1970. as mortgagors in favor of ICP which document was executed and ratified before notary public Alberto R.000.00 (per Exhibits A-2 and B. pending before Branch IX.00 per harvest.. Castillo is the judicial administratrix of the estate of Felipe Castillo in Special Proceeding No. g) On 26 August l976. represented by its Vice-President Modesto Cervantes and Slobec Realty Corporation represented by Santiago Rivera executed the sales agreement concerning the sale of one (1) unit Model CAT D7 Caterpillar Crawler Tractor as described therein for the amount of P230.1970. at Makati. T13114. T 23706 (Exhibit N ). m) That in August 1976. PM Parts notified Mrs. all surnamed Castillo has (sic) been issued. Bertilla Castillo. President. one (1) unit Caterpillar Tractor D-7 with Serial No. 1970 sold to Slobec Realty and Development. in representation of the Slobec Realty & Development Corporation executed in favor of Bormaheco. No. 4053.

. Modesto Cervantes. 33234 (Exhibits 9 and 9-A. 138. q) Although it appears on the document entitled Chattel Mortgage (per Exhibit K) that it was executed on 25 November 1970.00. the price was P230. ICP consolidated its ownership over the subject parcels of land through the requisite affidavit of consolidation of ownership dated October 29. de Castillo. Santiago Rivera obliged himself to pay the Castillo family the sum of P70. who proposed to them the conversion into subdivision of the four (4) parcels of land adjacent to the mortgaged property to raise the necessary fund. and which document was presented to the Register of Deeds on 1 October 1973. K. Record) was executed by and between Slobec Realty and Development. 10368 (Exhs. ICP required that the Castillos mortgage to them the properties in question. that is. represented by Rivera received from Bormaheco the subject matter of the said Sales Agreement. 38-45). executed a Sales Agreement over one unit of Caterpillar Tractor D-7 with Serial No. Santiago Rivera. p. pp. Rec. In giving the bond. Inc. M to P. Victoria Castillo. Inc. p. On the occasion of the execution on January 23. Slobec. as shown in Exh. This problem was made known to Santiago Rivera. As further security of the aforementioned unpaid balance. 23. As shown by the contract. de Castillo. it appears in the notarial register of the notary public who notarized them that those two documents were executed on 11 December 1970. President of defendant Bormaheco. Slobec. On the same date. Pursuant thereto.document was superseded by the Sales Agreement dated January 23. four parcels of land covered by TCTs in the name of the aforementioned mortgagors. " 2 We cull the following antecedents from the decision of respondent Court of Appeals: Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. namely TCT Nos. Inc. u) That the Caterpillar Crawler Tractor Model CAT D-7 which was received by Slobec Realty Development Corporation was actually reconditioned and repainted. 1971. Rivera. Bertilla Castillo-Rada. represented by Santiago Rivera. ICP sold to Phil. Bormaheco. For their failure to pay the amortization. T 23706. Meanwhile. until October 1. Slobec obtained from Insurance Corporation of the Phil. one (1) tractor Caterpillar Model D-7 pursuant to Invoice No. 113). Inc. through Rivera.00 of which P50.00. as counsel of Insurance Corporation of the Philippines purchased at public auction for said corporation the four (4) parcels of land subject of tills case (per Exhibit L). 1). a Certificate of Sale was issued by the Provincial Sheriff of Lucena City and Transfer Certificates of Title over the subject parcels of land were issued by the Register of Deeds of Lucena City in favor of ICP namely. the properties of the Castillos were foreclosed by ICP As the highest bidder with a bid of P285.00 immediately after the execution of the agreement and to pay the additional amount of P400. 139. Record) and Delivery Receipt No.1971 (Exhibit 16). p. 1975. 1971. 13116 and 13117 all of the Register of Deeds for Lucena City. The Castillo family are the owners of a parcel of land located in Lucena City which was given as security for a loan from the Development Bank of the Philippines. for violation of the terms and conditions of the Counter-Guaranty Agreement (Exh. namely. demanding that she and her children should vacate the premises.President and now President of Bormaheco.00 was to constitute a down payment. in favor of Bormaheco. a Surety Bond. t) Although it appears that the realties in issue has (sic) been sold by Insurance Corporation of the Philippines in favor of PM Parts on 1 0 April 1975.000. J.00. and Slobec Realty and Development. PM Parts transferred unto itself the titles over the lots in dispute so that . On January 23.1970 (Exh. Record). The mortgagors had one (1) year from the date of the registration of the certificate of sale. Pre-trial Order. Insurance Corporation of the Phil. namely. represented by its President. a Memorandum of Agreement (Exh. The certified xerox copy of the notarial register of Notary Public Guillermo Aragones issued by the Bureau of Records Management is hereto submitted as Exhibit BB That said chattel mortgage was superseded by another document dated January 23. 24.212.000. foreclosure of the said property was about to be initiated. 10368 (per Exhibits 10 and 10-A for Bormaheco. and the balance of P180. 127. 281114. Consequently. 29. The Idea was accepted by the Castillo family and to carry out the project.000. Marietta Castillo and Leovina Castillo Jalbuena. to redeem the property. with ICP (Insurance Corporation of the Phil. 10 and 10-A. approached Mr. de Guzman. Exhibit U .00 after the property has been converted into a subdivision. 1971. the aforementioned tractor Caterpillar Model D-7 as evidenced by Invoice No. executed in favor of Bormaheco a Chattel Mortgage (Exh. Record) over the said equipment as security for the payment of the aforesaid balance of P180. as mortgagors and Insurance Corporation of the Philippines (ICP) as mortgagee. Buenaflor Castillo Umali.) and delivery receipt No. armed with the agreement.000. Modesto N. In this agreement. This tractor was known by Rivera to be a reconditioned and repainted one [Stipulation of Facts. and proposed to purchase from Bormaheco two (2) tractors Model D-7 and D-8 Subsequently. formerly Vice. 22. r) That on 23 January 1971. Inc. ICP guaranteed the obligation of Slobec with Bormaheco in the amount of P180. U p. 111. Martin M. p. Atty. TCT Nos.000. of the Sales Agreement Exhibit '16'. Inc. a Sales Agreement was executed on December 28. In this agreement. (PM Parts) the four (4) parcels of land and by virtue of said conveyance. 13114. Machinery Parts Manufacturing Co. p. T-23705. Record).000. p. as evidenced by the contract marked Exhibit '16'. de Castillo (Exhibit V)..) as surety and Slobec as principal. 13115. and in the document entitled Sales Agreement (per Exhibit J) that it was executed on 18 December 1970. Slobec Realty Development Corporation.. 1974. a Deed of Sale of Real Estate covering the subject properties was issued in favor of ICP (Exh.000. but they failed to do so. sent his letter dated 9 August 1976 to Mauricia Meer Vda. Record) executed by Rivera as president of Slobec and Mauricia Meer Vda. '22'(p.00 payable in eighteen monthly installments. The aforesaid surety bond was in turn secured by an Agreement of Counter-Guaranty with Real Estate Mortgage (Exhibit I. 1974. (u)]. 33234 (Exhs. as borne out by Exhibit '8' (p. represented by its President Santiago Rivera and the Castillo family. received from Bormaheco. Bormaheco. Rec. Cervantes. On April 10. T-23707 and T-23708 (Exhs. 9 and 9-A.). par. Inc s) That on 28 September 1973.). 112.

L and M) are void for being entered into in fraud and without the consent and approval of the Court of First Instance of Quezon. Q-T. Transfer Certificates of Title Nos.). 1976.500. sent a letter dated August 9. 1971 (Exhibit 17).13117. In holding and finding that the actions entered into between petitioner Rivera with Cervantes are all fair and regular and therefore binding between the parties thereto. 744. T-24848 and T-24849 (Exhs. I). Mauricia Meer Castillo requesting her and her children to vacate the subject property. T23707 and T-23708 (Exhibits M. are similarly declared null and void. T-24847.00. particularly plaintiff Buenaflor M. T-23706. H. Mr. SO ORDERED. The sale by Insurance Corporation of the. 8085.000. that plaintiffs are not entitled to the reliefs demanded. . the heirs of the late Felipe Castillo. declaring the following documents: Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage dated October 24.Philippines in favor of defendant Philippine Machinery Parts Manufacturing Co. On July 20. Plaintiffs pray that the four (4) parcels of land subject hereof be declared as owned by the estate of the late Felipe Castillo and that all Transfer Certificates of Title Nos. 71071 1. except Santiago Rivera. G. null and void for being fictitious. 1970 (Exhibit K) Sales Agreement dated January 23. With costs against the defendants. Sales Agreement dated December 28. T 24846. Defendants are likewise ordered to pay the plaintiffs. Record).1970 (Exhibit 1). Modesto Cervantes. Castillo) in turn sent her reply expressing her refusal to comply with his demands. Rivera as a party plaintiff (p. L) and the Deeds of Authority to Sell. that plaintiffs are estopped or precluded from asserting the matters set forth in the Complaint. Orders the defendants jointly and severally to pay the plaintiffs moral damages in the sum of P10. transfer certificates of title in the names of the plaintiffs. the sum of P10..13116.000.. who (Mrs. that plaintiffs are guilty of laches in not asserting their alleged right in due time. respondent court reversed the aforequoted decision of the trial court and rendered the judgment subject of this petitionPetitioners contend that respondent Court of Appeals erred: 1. 24847. They contended that all the aforementioned transactions starting with the Agreement of CounterGuaranty with Real Estate Mortgage (Exh. N. Thereafter. that defendant PM Parts is an innocent purchaser for value and relied on the face of the title before it bought the subject property (p.13115. 3 After trial. exemplary damages in the amount of P5. 1973 executed by the Provincial Sheriff of Quezon in favor of Insurance Corporation of the Philippines (Exhibit L). 444. jointly and severally. Sale and the Affidavit of Consolidation of Ownership (Annexes F. and the Register of Deeds of Lucena City is hereby directed to issue. 4 As earlier stated. 23707. T 23705. T-24846. in lieu thereof. the court a quo rendered judgment. In their amended answer. 1970 (Exhibit J) Chattel Mortgage dated November 25. Consequently. with the following decretal portion: WHEREFORE. 706. O and P) issued in the name of Insurance Corporation of the Philippines. Record). 1971 (Exhibit 16). plaintiffs filed their Second Amended Complaint.00 for and as attomey's fees. the defendants controverted the complaint and alleged.00. spurious and without consideration. 1983. impleading Santiago M. Castillo Umali as the appointed administratrix of the properties in question filed an action for annulment of title before the then Court of First Instance of Quezon and docketed thereat as Civil Case No. are likewise null and void. 24848 and 24849 as well as those appearing as encumbrances at the back of the certificates of title mentioned be declared as a nullity and defendants to pay damages and attorney's fees (pp. judgment is hereby rendered in favor of the plaintiffs and against the defendants. 13114. T-24848 and T-24849 subsequently issued by virtue of said sale in the name of Philippine Machinery Parts Manufacturing Co.00. Rec. PM Parts. On September 29.000.. Certificate of Sale (Exh. 23706. 1980 (p. Inc. Record). over Id four (4) parcels of land and Transfer Certificates of Title Nos..said parcels of land are now covered by TCT Nos. by way of affirmative and special defenses that the complaint did not state facts sufficient to state a cause of action against defendants. I) as well as the Deed of Sale (Annexes J.1976 addressed to plaintiff Mrs. through its President. Chattel Mortgage dated January 23. and actual litigation expenses in the sum of P6. 23708. 23705. pp. 24846. (Branch IX) before whom the administration proceedings has been pending. Inc. T-24847. Record). Thereafter. they filed an Amended Complaint on January 10. 46-49. Certificate of Sale dated September 28. K.

2. In reversing the decision of the lower court, not only based on erroneous conclusions of facts, erroneous presumptions not supported by the evidence on record but also, holding valid and binding the supposed payment by ICP of its obligation to Bormaheco, despite the fact that the surety bond issued it had already expired when it opted to foreclose extrajudically the mortgage executed by the petitioners; 3. In aside the finding of the lower court that there was necessity to pierce the veil of corporate existence; and 4. In reversing the decision of the lower court of affirming the same
5

I. Petitioners aver that the transactions entered into between Santiago M. Rivera, as President of Slobec Realty and Development Company (Slobec) and Mode Cervantes, as Vice-President of Bormaheco, such as the Sales Agreement, 6 Chattel Mortgage 7 and the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage, 8 are all fraudulent and simulated and should, therefore, be declared nun and void. Such allegation is premised primarily on the fact that contrary to the stipulations agreed upon in the Sales Agreement (Exhibit J), Rivera never made any advance payment, in the alleged amount of P50,000.00, to Bormaheco; that the tractor was received by Rivera only on January 23, 1971 and not in 1970 as stated in the Chattel Mortgage (Exhibit K); and that when the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage was executed on October 24, 1970, to secure the obligation of ICP under its surety bond, the Sales Agreement and Chattel Mortgage had not as yet been executed, aside from the fact that it was Bormaheco, and not Rivera, which paid the premium for the surety bond issued by ICP At the outset, it will be noted that petitioners submission under the first assigned error hinges purely on questions of fact. Respondent Court of Appeals made several findings to the effect that the questioned documents are valid and binding upon the parties, that there was no fraud employed by private respondents in the execution thereof, and that, contrary to petitioners' allegation, the evidence on record reveals that petitioners had every intention to be bound by their undertakings in the various transactions had with private respondents. It is a general rule in this jurisdiction that findings of fact of said appellate court are final and conclusive and, thus, binding on this Court in the absence of sufficient and convincing proof, inter alia, that the former acted with grave abuse of discretion. Under the circumstances, we find no compelling reason to deviate from this long-standing jurisprudential pronouncement. In addition, the alleged failure of Rivera to pay the consideration agreed upon in the Sales Agreement, which clearly constitutes a breach of the contract, cannot be availed of by the guilty party to justify and support an action for the declaration of nullity of the contract. Equity and fair play dictates that one who commits a breach of his contract may not seek refuge under the protective mantle of the law. The evidence of record, on an overall calibration, does not convince us of the validity of petitioners' contention that the contracts entered into by the parties are either absolutely simulated or downright fraudulent. There is absolute simulation, which renders the contract null and void, when the parties do not intend to be bound at all by the same. 9 The basic characteristic of this type of simulation of contract is the fact that the apparent contract is not really desired or intended to either produce legal effects or in any way alter the juridical situation of the parties. The subsequent act of Rivera in receiving and making use of the tractor subject matter of the Sales Agreement and Chattel Mortgage, and the simultaneous issuance of a surety bond in favor of Bormaheco, concomitant with the execution of the Agreement of CounterGuaranty with Chattel/Real Estate Mortgage, conduce to the conclusion that petitioners had every intention to be bound by these contracts. The occurrence of these series of transactions between petitioners and private respondents is a strong indication that the parties actually intended, or at least expected, to exact fulfillment of their respective obligations from one another. Neither will an allegation of fraud prosper in this case where petitioners failed to show that they were induced to enter into a contract through the insidious words and machinations of private respondents without which the former would not have executed such contract. To set aside a document solemnly executed and voluntarily delivered, the proof of fraud must be clear and convincing. 10 We are not persuaded that such quantum of proof exists in the case at bar. The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP does not per se affect the validity of the bond. Petitioners themselves admit in their present petition that Rivera executed a Deed of Sale with Right of Repurchase of his car in favor of Bormaheco and agreed that a part of the proceeds thereof shall be used to pay the premium for the bond. 11 In effect, Bormaheco accepted the payment of the premium as an agent of ICP The execution of the deed of sale with a right of repurchase in favor of Bormaheco under such circumstances sufficiently establishes the fact that Rivera recognized Bormaheco as an agent of ICP Such payment to the agent of ICP is, therefore, binding on Rivera. He is now estopped from questioning the validity of the suretyship contract. II. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of persons. The members or stockholders of the corporation will be considered as the corporation, that is, liability will attach directly to the officers and stockholders. 12 The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, 13 or when it is made as a shield to confuse the legitimate issues 14 or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. 15 In the case at bar, petitioners seek to pierce the V621 Of corporate entity of Bormaheco, ICP and PM Parts, alleging that these corporations employed fraud in causing the foreclosure and subsequent sale of the real properties belonging to petitioners While we do not discount the possibility of the existence of fraud in the foreclosure proceeding, neither are we inclined to apply the doctrine invoked by petitioners in granting the relief sought. It is our considered opinion that piercing the veil of corporate entity is not the proper remedy in order that the foreclosure proceeding may be declared a nullity under the

circumstances obtaining in the legal case at bar. In the first place, the legal corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable for a corporate debt or obligation. In the instant case, petitioners do not seek to impose a claim against the individual members of the three corporations involved; on the contrary, it is these corporations which desire to enforce an alleged right against petitioners. Assuming that petitioners were indeed defrauded by private respondents in the foreclosure of the mortgaged properties, this fact alone is not, under the circumstances, sufficient to justify the piercing of the corporate fiction, since petitioners do not intend to hold the officers and/or members of respondent corporations personally liable therefor. Petitioners are merely seeking the declaration of the nullity of the foreclosure sale, which relief may be obtained without having to disregard the aforesaid corporate fiction attaching to respondent corporations. Secondly, petitioners failed to establish by clear and convincing evidence that private respondents were purposely formed and operated, and thereafter transacted with petitioners, with the sole intention of defrauding the latter. The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a justification for disregarding their separate personalities, 16 absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights. III. The main issue for resolution is whether there was a valid foreclosure of the mortgaged properties by ICP Petitioners argue that the foreclosure proceedings should be declared null and void for two reasons, viz.: (1) no written notice was furnished by Bormaheco to ICP anent the failure of Slobec in paying its obligation with the former, plus the fact that no receipt was presented to show the amount allegedly paid by ICP to Bormaheco; and (b) at the time of the foreclosure of the mortgage, the liability of ICP under the surety bond had already expired. Respondent court, in finding for the validity of the foreclosure sale, declared: Now to the question of whether or not the foreclosure by the ICP of the real estate mortgage was in the exercise of a legal right, We agree with the appellants that the foreclosure proceedings instituted by the ICP was in the exercise of a legal right. First, ICP has in its favor the legal presumption that it had indemnified Bormaheco by reason of Slobec's default in the payment of its obligation under the Sales Agreement, especially because Bormaheco consented to ICPs foreclosure of the mortgage. This presumption is in consonance with pars. R and Q Section 5, Rule 5, * New Rules of Court which provides that it is disputably presumed that private transactions have been fair and regular. likewise, it is disputably presumed that the ordinary course of business has been followed: Second, ICP had the right to proceed at once to the foreclosure of the mortgage as mandated by the provisions of Art. 2071 Civil Code for these further reasons: Slobec, the principal debtor, was admittedly insolvent; Slobec's obligation becomes demandable by reason of the expiration of the period of payment; and its authorization to foreclose the mortgage upon Slobec's default, which resulted in the accrual of ICPS liability to Bormaheco. Third, the Agreement of Counter-Guaranty with Real Estate Mortgage (Exh. 1) expressly grants to ICP the right to foreclose the real estate mortgage in the event of 'non-payment or non-liquidation of the entire indebtedness or fraction thereof upon maturity as stipulated in the contract'. This is a valid and binding stipulation in the absence of showing that it is contrary to law, morals, good customs, public order or public policy. (Art. 1306, New Civil Code). 17 1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP which would have entitled Bormaheco to demand payment from ICP under the suretyship contract. Surety Bond No. B-1401 0 which was issued by ICP in favor of Bormaheco, wherein ICP and Slobec undertook to guarantee the payment of the balance of P180,000.00 payable in eighteen (18) monthly installments on one unit of Model CAT D-7 Caterpillar Crawler Tractor, pertinently provides in part as follows: 1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES, under this BOND will expire Twelve (I 2) months from date hereof. Furthermore, it is hereby agreed and understood that the INSURANCE CORPORATION OF THE PHILIPPINES will not be liable for any claim not presented in writing to the Corporation within THIRTY (30) DAYS from the expiration of this BOND, and that the obligee hereby waives his right to bring claim or file any action against Surety and after the termination of one (1) year from the time his cause of action accrues. 18 The surety bond was dated October 24, 1970. However, an annotation on the upper part thereof states: "NOTE: EFFECTIVITY DATE OF THIS BOND SHALL BE ON JANUARY 22, 1971." 19 On the other hand, the Sales Agreement dated January 23, 1971 provides that the balance of P180,000.00 shall be payable in eighteen (18) monthly installments. 20 The Promissory Note executed by Slobec on even date in favor of Bormaheco further provides that the obligation shall be payable on or before February 23, 1971 up to July 23, 1972, and that nonpayment of any of the installments when due shall make the entire obligation immediately due and demandable. 21 It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly assumed therein. We have repeatedly held that the extent of a surety's liability is determined only by the clause of the contract of suretyship as well as the conditions stated in the bond. It cannot be extended by implication beyond the terms the contract. 22 Fundamental likewise is the rule that, except where required by the provisions of the contract, a demand or notice of default is not required to fix the surety's liability. 23 Hence, where the contract of suretyship stipulates that notice of the principal's default be given to the surety, generally the failure to comply with the condition will prevent recovery from the surety. There are certain instances, however, when failure to comply with the condition will not extinguish the surety's liability, such as a failure to give notice of slight defaults, which are waived by the obligee; or on mere suspicion of possible default; or where, if a default exists, there is excuse or provision in the suretyship contract exempting the surety for liability therefor, or where the surety already has knowledge or is chargeable with knowledge of the default. 24

In the case at bar, the suretyship contract expressly provides that ICP shag not be liable for any claim not filed in writing within thirty (30) days from the expiration of the bond. In its decision dated May 25 1987, the court a quo categorically stated that '(n)o evidence was presented to show that Bormaheco demanded payment from ICP nor was there any action taken by Bormaheco on the bond posted by ICP to guarantee the payment of plaintiffs obligation. There is nothing in the records of the proceedings to show that ICP indemnified Bormaheco for the failure of the plaintiffs to pay their obligation. " 25 The failure, therefore, of Bormaheco to notify ICP in writing about Slobec's supposed default released ICP from liability under its surety bond. Consequently, ICP could not validly foreclose that real estate mortgage executed by petitioners in its favor since it never incurred any liability under the surety bond. It cannot claim exemption from the required written notice since its case does not fall under any of the exceptions hereinbefore enumerated. Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any documentary evidence. Section 1, Rule 131 of the Rules of Court provides that the burden of evidence lies with the party who asserts an affirmative allegation. Since ICP failed to duly prove the fact of payment, the disputable presumption that private transactions have been fair and regular, as erroneously relied upon by respondent Court of Appeals, finds no application to the case at bar. 2. The liability of a surety is measured by the terms of his contract, and, while he is liable to the full extent thereof, such liability is strictly limited to that assumed by its terms. 26 While ordinarily the termination of a surety's liability is governed by the provisions of the contract of suretyship, where the obligation of a surety is, under the terms of the bond, to terminate at a specified time, his obligation cannot be enlarged by an unauthorized extension thereof. 27 This is an exception to the general rule that the obligation of the surety continues for the same period as that of the principal debtor. 28 It is possible that the period of suretyship may be shorter than that of the principal obligation, as where the principal debtor is required to make payment by installments. 29 In the case at bar, the surety bond issued by ICP was to expire on January 22, 1972, twelve (1 2) months from its effectivity date, whereas Slobec's installment payment was to end on July 23, 1972. Therefore, while ICP guaranteed the payment by Slobec of the balance of P180,000.00, such guaranty was valid only for and within twelve (1 2) months from the date of effectivity of the surety bond, or until January 22, 1972. Thereafter, from January 23, 1972 up to July 23, 1972, the liability of Slobec became an unsecured obligation. The default of Slobec during this period cannot be a valid basis for the exercise of the right to foreclose by ICP since its surety contract had already been terminated. Besides, the liability of ICP was extinguished when Bormaheco failed to file a written claim against it within thirty (30) days from the expiration of the surety bond. Consequently, the foreclosure of the mortgage, after the expiration of the surety bond under which ICP as surety has not incurred any liability, should be declared null and void. 3. Lastly, it has been held that where The guarantor holds property of the principal as collateral surety for his personal indemnity, to which he may resort only after payment by himself, until he has paid something as such guarantor neither he nor the creditor can resort to such collaterals. 30 The Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage states that it is being issued for and in consideration of the obligations assumed by the Mortgagee-Surety Company under the terms and conditions of ICP Bond No. 14010 in behalf of Slobec Realty Development Corporation and in favor of Bormaheco, Inc. 31 There is no doubt that said Agreement of Counter-Guaranty is issued for the personal indemnity of ICP Considering that the fact of payment by ICP has never been established, it follows, pursuant to the doctrine above adverted to, that ICP cannot foreclose on the subject properties, IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it acquired a valid title over the subject properties. The submission is without merit and the conclusion is specious We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in this case. However, its inapplicability has no bearing on the good faith or bad faith of private respondent PM Parts. It must be noted that Modesto N. Cervantes served as Vice-President of Bormaheco and, later, as President of PM Parts. On this fact alone, it cannot be said that PM Parts had no knowledge of the aforesaid several transactions executed between Bormaheco and petitioners. In addition, Atty. Martin de Guzman, who is the Executive Vice-President of Bormaheco, was also the legal counsel of ICP and PM Parts. These facts were admitted without qualification in the stipulation of facts submitted by the parties before the trial court. Hence, the defense of good faith may not be resorted to by private respondent PM Parts which is charged with knowledge of the true relations existing between Bormaheco, ICP and herein petitioners. Accordingly, the transfer certificates of title issued in its name, as well as the certificate of sale, must be declared null and void since they cannot be considered altogether free of the taint of bad faith. WHEREFORE, the decision of respondent Court of Appeals is hereby REVERSED and SET ASIDE, and judgment is hereby rendered declaring the following as null and void: (1) Certificate of Sale, dated September 28,1973, executed by the Provincial Sheriff of Quezon in favor of the Insurance Corporation of the Philippines; (2) Transfer Certificates of Title Nos. T23705, T-23706, T-23707 and T-23708 issued in the name of the Insurance Corporation of the Philippines; (3) the sale by Insurance Corporation of the Philippines in favor of Philippine Machinery Parts Manufacturing Co., Inc. of the four (4) parcels of land covered by the aforesaid certificates of title; and (4) Transfer Certificates of Title Nos. T-24846, T-24847, T-24848 and T24849 subsequently issued by virtue of said sale in the name of the latter corporation. The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title Nos. T-24846, T-24847, T24848 and T-24849 in the name of Philippine Machinery Parts Manufacturing Co., Inc. and to issue in lieu thereof the corresponding transfer certificates of title in the name of herein petitioners, except Santiago Rivera. The foregoing dispositions are without prejudice to such other and proper legal remedies as may be available to respondent Bormaheco, Inc. against herein petitioners. SO ORDERED.

jointly and severally with his co-defendant. entered into an agreement to exchange sugar with NAMARCO.514. Instead.516 bags (each weighing 100 pounds) of "Victorias" and/or "National" refined sugar in exchange for 7.00 as exemplary damages and P10.28 for both kinds of sugar. 1958 — the date when the exchange agreement was entered into. amounting to P118.08 piculs of "Pasumil" raw sugar at P16. offered to pay NAMARCO the value of 22. with legal interest thereon from the date of filing of the action until fully paid. On March 25. P80. through Sycip. NAMARCO delivered to ASSOCIATED 7. through its President.30 per bag of 100 lbs.000.ASSOCIATED FINANCE COMPANY. JJ. Inc.30 per bag.516 bags of "Victoria" and/or "National" refined sugar agreed upon.38 as claimed by NAMARCO.702. In their amended answer defendants.30 per bag. upon the facts found by the trial court. concur.71 bags of "Busilak" and 17. After due trial court rendered the appealed judgment.451. As counterclaim they prayed for the award of P500.08 piculs of "Pasumil" domestic raw sugar. April 27.285.. Benjamin Estrella. the amount involved being more than P200.Melencio-Herrera (Chairman). in our opinion. and FRANCISCO SYCIP.40.285.00 as attorney's fees. to P285.310. NAMARCO instituted the present action in the lower court to recover the sum of P403.732. as amended.203..514.00 as moral damages. represented by its then General Manager. Sarmiento. 1967 Appeal by the National Marketing Corporation — hereinafter referred to as NAMARCO. 1963 the latter certified the case to us for final adjudication pursuant to sections 17 and 31 of the Judiciary Act of 1948. on January 12. The appeal was taken to the Court of Appeals. defendant-appellee. is on leave. 1959. but on January 15. — which.639. but the latter rejected the offer.1958. inspite of repeated demands therefore. plaintiff-appellant. NATIONAL MARKETING CORPORATION (NAMARCO). appellee Francisco Sycip.00 as attorney's fees. As ASSOCIATED refused to deliver the raw sugar or pay for the refined sugar delivered to it.86 as liquidated damages.000. are fully supported by the evidence — Francisco Sycip may be held liable. from the decision of the Court of First Instance of Manila in Civil Case No. the latter.08 piculs of "Pasumil" raw sugar belonging to NAMARCO. Pursuant thereto. or a total price of P403. by way of affirmative defenses.71 bars of "Busilak" and 17. As ASSOCIATED failed to deliver to NAMARCO the 22.732. H) as of March 20.28.00.71 bags of "Busilak" raw sugar at P15.000. Paras and Padilla.516 bags of refined sugar at the rate of P15.50 per picul.000.514. FRANCISCO SYCIP. weight (quedan basis) and not P403. exclusive of interests and cost. ASSOCIATED.514. as well as the latter's counterclaim. defendants. P5. P10. P80. 1959. On January 19. amounting. . 1958. J. demanded in writing from the ASSOCIATED either (a) immediate delivery thereof before January 20. both agreeing to pay liquidated damages equivalent to 20% of the contractual value of the sugar should either party fail to comply with the terms and conditions stipulated (Exhibit A). whereby the former would deliver to the latter 22. INC. but dismissing the complaint insofar as defendant Francisco Sycip was concerned. based on the sugar quotations (Exh. expenses of litigation and exemplary damages.09 or P13.000. for the sums of money adjudged in favor of NAMARCO.000. ASSOCIATED. alleged that the correct value of the sugar delivered by NAMARCO to them was P259. 45770 ordering the Associated Finance Company.80. vs.285. P100. with legal interest thereon from the filing of the complaint until fully paid.82.702. on May 19. plus costs. on January 21 of the same year it demanded payment of the 7. The appeal is only from that portion of the decision dismissing the case as against Francisco Sycip. and of the 17. or (b) payment of its equivalent cash value amounting to P372. — hereinafter referred to as the ASSOCIATED — to pay the NAMARCO the sum of P403.. The only issue to be resolved is whether.732. a domestic corporation.28 in payment of the raw sugar received by defendants from it.00 as attorney's fees.26 as liquidated damages.

000. 1955... the decision appealed from is modified by sentencing defendant-appellee Francisco Sycip to pay.FELY TRANSPORTATION COMPANY. and that because of the nature of the injuries of plaintiff Mario Palacio and the fear that the child might become a useless invalid. defendant filed its answer. To the contrary. 1961). that it was Sycip who made personal representations and gave assurances that ASSOCIATED was in actual possession of the 22.. This is an appeal by the plaintiffs from the decision of the Court of First Instance of Manila which dismissed their complaint. thereby hospitalizing him at the Philippine Orthopedic Hospital from December 24. vs.R. Originally taken to the Court of Appeals. etc. the corporate fiction may be disregarded.000. ASSOCIATED was at that time already insolvent. Q-1084. Sycip owned P60.00.. 1954. With costs. defendant alleges that in view of the filing of this complaint which is a clearly unfounded civil action merely to harass the defendant. and TWENTY-EIGHT CENTAVOS P403. among other things. that. and asserted that the exchange agreement was his personal contract. representation and similar expenses for gathering evidence and witnesses. that the par value of the subscribed capital stock of ASSOCIATED was only P105. No. in his own behalf and in behalf of his minor child. and (2) that the sale and transfer of the jeep AC-687 by Isabelo Calingasan to the Fely Transportation was made on December 24. at about 11:30 a. Mario Palacio suffered a simple fracture of the right tenor (sic). Quezon City. that the plaintiff Gregorio Palacio herein is a welder by occupation and owner of a small welding shop and because of the injuries of his child he has abandoned his shop where he derives income of P10.516 bags of "Victorias" and/or "National" refined sugar which the latter had agreed to deliver to NAMARCO.R. instead of making delivery of the sugar. etc. etc.1äwphï1.000. dated June 8. wilfully. vs. can lead to no other conclusion than that Sycip was guilty of fraud because through false representations he succeeded in inducing NAMARCO to enter into the aforesaid exchange agreement. this Court deferred the determination of the grounds alleged in the Motion to Dismiss until the trial of this case. 1956.00. vs.00. Nov. as a matter of fact. Criminal Case No. offered to pay its value at the rate of P15. fully established by the evidence. and continued to be treated for a period of five months thereafter. this appeal was certified to this Court on the ground that it raises purely questions of law. the same being true when the corporation is controlled. No. We feel perfectly justified in "piercing the veil of corporate fiction" and in holding Sycip personally liable. On May 23. Inc. complete third. as follows: the sum of FOUR HUNDRED THREE THOUSAND FIVE HUNDRED FOURTEEN PESOS. was in no position to comply with the obligation it had assumed. it alleges (1) that complaint states no cause of action against defendant.516 bags of refined sugar it was under obligation to deliver to the former. Quezon City (Branch IV). Q-1084 of the Court of First Instance of Quezon City.ñët The foregoing facts. jointly and severally with his co-defendant. for a sacrifice sale of P150. promulgated on January 28.G. In the Counterclaim of the Answer.702. plaintiffs allege. while his wife — the second biggest stockholder — owned P20. It is settled law in this and other jurisdictions that when the corporation is the mere alter ego of a person.28).00 actual expenses for transportation. Yutivo Sons. Sycip referred to himself as the one who contracted or transacted the business in his personal capacity. 1952. with full knowledge. on his part. L-13203. jointly and severally with the Associated Finance Company.. he was forced to sell one air compressor (heavy duty) and one heavy duty electric drill. 1956.86) as liquidated damages and P5. 1962 GREGORIO PALACIO. reckless and imprudent manner. for the sums of money adjudged in favor of appellant. G. In its Order. long after the driver Alfredo Carillo of said jeep had been convicted and had served his sentence in Criminal Case No. 11.00 worth of shares. the sum of money which the trial court sentenced the latter to pay to the National Marketing Corporation. defendant-appellee. agency or conduit of another (Koppel Phils. upon the proven facts.The evidence of record shows that. filed a Motion to Dismiss on the grounds (1) that there is no cause of action against the defendant company. By way of affirmative defenses. Wherefore. plaintiffs-appellants. 1947. L-15121 August 31. and that the same was ready for delivery. he can not now seek refuge behind the general principle that a corporation has a personality distinct and separate from that of its stockholders and that the latter are not personally liable for the corporate obligations. The parties in this case adopt the following findings of fact of the lower court: In their complaint filed with this Court on May 15.200." in the Court of First Instance of Rizal. No. that on account of the aforesaid injuries.00 a day for the support of his big family. On June 20. the defendant company hired Alfredo Carillo as driver of AC-787 (687) (a registration for 1952) owned and operated by the said defendant company. 1952. 1953. G. Alfredo Carillo. with interest at the legal rate from the date of the filing of the action until fully paid plus an additional amount of EIGHTY THOUSAND SEVEN HUNDRED TWO PESOS and EIGHTY-SIX CENTAVOS (P80.00. and (2) that the cause of action is barred by prior judgment. MARIO PALACIO. in which both the civil and criminal cases were simultaneously tried by agreement of the parties in said case. that. that the herein plaintiffs have now incurred the amount of P500. ASSOCIATED and Sycip. Court of Tax Appeals. the herein plaintiff Gregorio Palacio has suffered moral damages which could be conservatively estimated at P1. and its affairs are so conducted as to make it merely an instrumentality. 1956. 1952. Yatco. as a matter of fact. "that about December. that as a consequence of the negligent and reckless act of the driver Alfredo Carillo of the herein defendant company. in the course of his testimony. as Exhibit .m. that negotiations that lead to the execution of the exchange agreement in question were conducted exclusively by Sycip on behalf of ASSOCIATED.00 as attorney's fees and further to pay the costs. that during the period that the plaintiff's (Gregorio Palacio's) child was in the hospital and who said child was under treatment for five months in order to meet the needs of his big family.00 for attorney's fee. of the capital stock of ASSOCIATED. while the driver Alfonso (Alfredo) Carillo was driving AC-687 at Halcon Street. up to January 8. run over a child Mario Palacio of the herein plaintiff Gregorio Palacio.00 which could easily sell at P350. that when NAMARCO made demands upon ASSOCIATED to deliver the 22. 43 O. the herein plaintiffs were forced to litigate this case in Court for an agreed amount of P300.00 worth of shares. it was compelled to engage the services of a lawyer for an agreed amount of P500. that on December 24.. etc. During the trial. plaintiffs presented the transcript of the stenographic notes of the trial of the case of "People of the Philippines vs. on the fact that ASSOCIATED whom he represented and over whose business and affairs he had absolute control.30 per bag — a clear indication that they did not have the sugar contracted for.514. defendant Fely Transportation Co..000. unlawfully and feloniously and in a negligent. Consequently.

Q-1084 OF THE COURT OF FIRST INSTANCE OF QUEZON CITY FOR THE REASON THAT THE INCORPORATORS OF THE FELY TRANSPORTATION COMPANY. Rule 17. his child Mario was injured and hospitalized from December 24.. WAS TO EVADE HIS CIVIL LIABILITY AS A RESULT OF THE CONVICTION OF HIS DRIVER OF VEHICLE AC-687 THEN OWNED BY HIM: THE LOWER COURT ERRED IN HOLDING THAT THE CAUSE OF ACTION OF THE PLAINTIFFS-APPELLANTS IS BARRED BY PRIOR JUDGMENT.00 which Alfredo Carillo was ordered to pay in the criminal case and which amount he could not pay on account of insolvency. plaintiff Gregorio Palacio testified substantially to the same facts. Q1084) an attempt was unsuccessfully made by the prosecution to prove moral damages allegedly suffered by herein plaintiff Gregorio Palacio. to January 8. The Court of First Instance of Quezon City in its decision in Criminal Case No. his wife. that under Article 103 of the Revised Penal Code. because such liability proceeds precisely from the judgment in the criminal action. Salud. As a matter of fact. May 25. Likewise an attempt was made in vain by the private prosecutor in that case to prove the agreed attorney's fees between him and plaintiff Gregorio Palacio and the expenses allegedly incurred by the herein plaintiffs in connection with that case. which Gregorio Palacio corroborated. Calingasan. et al. his son. The dispositive part thereof reads as follows: IN VIEW OF THE FOREGOING. that as a result of the reckless driving of accused Alfredo Carillo. 1953. one of the herein plaintiffs. and that they could have been sold for P300 at the lowest price. This is so in order to avoid multiplicity of suits and thereby save the parties unnecessary expenses and delay. Against that decision the plaintiffs appealed. that during that period of time he could not work as he slept during the day. 315. that they are insisting the subsidiary civil liability of the defendant. the other plaintiff. Quison v. from the discussion prayer in the brief on appeal. On the basis of these facts. to evade his subsidiary civil liability. where the accused was found guilty and ordered to pay an indemnity in the sum P500. This rules out the defense of res judicata. defendants Fely Transportation and Isabelo Calingasan should be held subsidiarily liable for P500. he watched him during the night and his wife during the day.. Villamor. L-5677.1äwphï1. contending that: THE LOWER COURT ERRED IN NOT SUSTAINING THAT THE DEFENDANT-APPELLEE IS SUBSIDIARILY LIABLE FOR DAMAGES AS A RESULT OF CRIMINAL CASE NO. after the conviction of Alfred Carillo in Criminal Case No. the lower court held action is barred by the judgment in the criminal case and. and to pay the costs. With respect to the first and second assignments of errors. yet. During the trial of this case. The Court agrees with this contention of the plaintiffs. 2. Kaisahan ng mga Manggagawa. the failure of the defendant corporation to prove that it has other property than the jeep (AC-687) strengthens the conviction that its formation was for the purpose above indicated. THE DEFENDANT-APPELLEE HEREIN. that before his child was injured. Rules of Court. 79 Phil.) Accordingly.ñët It appears from Exhibit "A" that Gregorio Palacio. We believe that this is one case where the defendant corporation should not be heard to say that it has a personality separate and distinct from its members when to allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to further an end subversive of justice. This conclusion is borne out by the fact that the incorporators of the Fely Transportation are Isabelo Calingasan. 16 Phil. No. During the trial of the criminal case against the driver of the jeep in the Court of First Instance of Quezon City (Criminal Case No. Q-1084 of the Court of First Instance of Quezon City was merely an attempt on the part of Isabelo Calingasan its president and general manager.00 a day on ordinary days and on Sundays from P20 to P50 a Sunday. Dr. that during all the time that his child was in the hospital. While there seems to be some confusion on part of the plaintiffs as to the theory on which the is based — whether ex-delito or quasi ex-delito (culpa aquiliana) — We are convinced. etc. with subsidiary imprisonment in case of insolvency but not to exceed ¹/3 of the principal penalty imposed. v. the Court finds the accused Alfredo Carillo y Damaso guilty beyond reasonable doubt of the crime charged in the information and he is hereby sentenced to suffer imprisonment for a period of Two Months & One Day of Arresto Mayor. to indemnify the offended party. And while it is true that Isabelo Calingasan is not a party in this case. HIS SON AND DAUGHTERS. testified that Mario Palacio. THE LOWER COURT ERRED IN NOT CONSIDERING THAT THE INTENTION OF ISABELO CALINGASAN IN INCORPORATING THE FELY TRANSPORTATION COMPANY. 80. the record shows that plaintiffs merely presented the transcript of the stenographic notes (Exhibit "A") taken at the hearing of the criminal case. Isabelo Calingasan and defendant Fely Transportation may be regarded as one and the same person. Dizon. 1084 (Exhibit "2") determined and thoroughly discussed the civil liability of the accused in that case. et al. plaintiffs contend that the defendant corporate should be made subsidiarily liable for damages in the criminal case because the sale to it of the jeep in question. 1953) Furthermore. G. 12 Phil. the employer. 1952. (La Campana Coffee Factory. . ARE ISABELO CALINGASAN HIMSELF. THE DEFENDANT-APPELLEE HEREIN.00. (Sec. It is evident that Isabelo Calingasan's main purpose in forming the corporation was to evade his subsidiary civil liability 1 resulting from the conviction of his driver. Alfredo Carillo. in the sum of P500. he used to earn P10. that to meet his expenses he had to sell his compressor and electric drill for P150 only.00 which the Court deems reasonable. the person subsidiarily liable to pay damages is Isabel Calingasan. 109. and his two daughters. is his son. Cuyugan v. by way of consequential damages. We also sustain plaintiffs' third assignment of error and hold that the present action is not barred by the judgment of the Court of First Instance of Quezon City in the criminal case. in support of their claim for damages."A". and not the defendant corporation. this Court can substitute him in place of the defendant corporation as to the real party in interest. is held in the case of Alonso v.R.

and she subscribed for P1. 1959. 1968 VILLA REY TRANSIT. the balance of P199. the decision of the lower court is hereby reversed and defendants Fely Transportation and Isabelo Calingasan are ordered to pay. 41845. (otherwise known as Pantranco).WHEREFORE. however. FERRER and PANGASINAN TRANSPORTATION CO. judgment creditor. Villarama. on July 7. This is a tri-party appeal from the decision of the Court of First Instance of Manila. defendants-appellants.00 was paid to the treasurer of the corporation.R. namely. and PUBLIC SERVICE COMMISSION..000. INC. The Sheriff made and entered the levy in the records of the PSC.00 was paid upon the signing of the contract.00. INC. 59494 and 63780. of which P100. the Sheriff of Manila. the Corporation.. 1959. and vice-versa. Jose M. 44213 and 104651. of the subscribed capital stock. for short) in Cases Nos. with a prayer for the issuance of a provisional authority in favor of the vendee Corporation to operate the service therein involved. Inc. On January 8. plaintiff-appellant.000.000. that the seller (Villarama) "shall not for a period of 10 years from the date of this sale. bought five certificates of public convenience. jointly and severally.. Ferrer and the subsequent sale thereof by the latter to defendant Pangasinan Transportation Co.000 shares of the par value of P100. for P350.000.000. apply for any TPU service identical or competing with the buyer.." Before the PSC could take final action on said application for approval of sale. third-party plaintiff-appellant. judgment debtor. L-23893 October 29.00 one year after the final approval of the sale. pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil Case No. EUSEBIO E. The case against the PSC was dismissed. P49.EUSEBIO E. In less than a month after its registration with the Securities and Exchange Commission (March 10. Inc. Villarama) was one of the incorporators.00 with the condition. which authorized him to operate a total of thirty-two (32) units on various routes or lines from Pangasinan to Manila.00 and the costs. third-party defendant-appellee. on April 7. 1959. the sum of P5. and the balance of P50. who was Natividad R. vs. shall be subject to whatever action that may be taken on the basic application and shall be valid only during the pendency of said application.00 was the subscribed stock.. declaring the plaintiff Villa Rey Transit. Villarama (wife of Jose M. jointly and severally. G. Inc.1 On May 19. plaintiff. No.00 was payable upon the final approval of the sale by the PSC. under the business name of Villa Rey Transit. The rather ramified circumstances of the instant case can best be understood by a chronological narration of the essential facts. a public sale was conducted by the Sheriff of the said two certificates of public convenience. . levied on two of the five certificates of public convenience involved therein. defendant. Civil Case No. PANGASINAN TRANSPORTATION CO.500. tools and equipment from one Valentin Fernando.00. defendants.000.000." The very same day that the aforementioned contract of sale was executed.. P105.000. VILLARAMA. forty-nine buses. the PSC granted the provisional permit prayed for.00 was subscribed by the brother and sister-in-law of Jose M. pursuant to certificates of public convenience granted him by the Public Service Commission (PSC. FERRER.. to wit: Prior to 1959.000. and a certificate of sale was issued in his name. Ferrer was the highest bidder.000. 13798. INC.000. Natividad R. vs. 1959: a corporation called Villa Rey Transit. upon the condition that "it may be modified or revoked by the Commission at any time. (which shall be referred to hereafter as the Corporation) was organized with a capital stock of P500.00 each. those issued under PSC cases Nos. Inc.00 divided into 5.00 as and for attorney's fees. 1959). he sold the aforementioned two certificates of public convenience to the Pangasinan Transportation Company. INC. among others.. to pay to the plaintiff. in favor of Eusebio Ferrer. or on March 6. against Valentin Fernando. On July 16.. 1959. to be the lawful owner of the said certificates of public convenience. P200.00 "shall be paid by the BUYER to the different suppliers of the SELLER.JOSE M. the plaintiffs the amount of P500. P50. Villarama was an operator of a bus transportation. PANGASINAN TRANSPORTATION CO. Villarama. and ordering the private defendants. for the sum of P249. 1959. the parties thereto immediately applied with the PSC for its approval." Barely three months thereafter. declaring null and void the sheriff's sale of two certificates of public convenience in favor of defendant Eusebio E.

that until the issue on the ownership of the disputed certificates shall have been finally settled by the proper court. the PSC issued an order disposing that during the pendency of the cases and before a final resolution on the aforesaid applications. were scheduled for a joint hearing. 1959. The Corporation took issue with this particular ruling of the PSC and elevated the matter to the Supreme Court. by Fernando and the Corporation. The Corporation. under all concepts in the law. nonetheless. 1959 between Pantranco and Villarama is null and void. a complaint for the annulment of the sheriff's sale of the aforesaid two certificates of public convenience (PSC Cases Nos. against Ferrer. We never talk about those things. of which amount Eighty-Five Thousand Pesos was a check drawn by yourself personally. 59494 and 63780) in favor of the defendant Ferrer. After a careful study of the facts obtaining in the case. Case No. that the Sheriff's sale of July 16. Doctor. or your wife. is such stipulation valid and enforceable?. Doctor.2 Pantranco therein prayed that it be authorized provisionally to operate the service involved in the said two certificates. all the parties involved have appealed from the decision.000. and the sale of the two certificates in question by Valentin Fernando to the Corporation. He also assails the award of P5. the vital issues to be resolved are: (1) Does the stipulation between Villarama and Pantranco. They submitted a joint record on appeal. 124057. filed a third-party complaint against Jose M. challenges the decision insofar as it holds that the sheriff's sale is null and void. Inc. is likewise null and void. the Corporation should be the one to operate the lines provisionally. the Corporation filed in the Court of First Instance of Manila. attests to that effect: Q. Ferrer. Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey Transit. Case No.00 as attorney's fees. had spent the money of the stockholders given to her for incorporation. The evidence has disclosed that Villarama. You know my money and my wife's money are one. on July 22. the Sheriff's levy and the consequent sale at public auction of the certificates referred to. Villarama. because he did not have sufficient funds to invest." apply to new lines only or does it include existing lines?. Q. you personally knew she was spending the money of the incorporators? A. was an incorporator with the least subscribed number of shares. apply for any TPU service identical or competing with the buyer. In the meantime. The applications for approval of sale.Thereafter. As stated at the beginning. as above stated. and insisting that it is entitled to an award of P100. In separate answers. however. after deliberation. Villarama. You heard the testimony presented here by the bank regarding the initial opening deposit of ONE HUNDRED FIVE THOUSAND PESOS. are one and the same. 1959.000. 1959. The following testimony of Villarama. 4 together with the other evidence on record. (3) In the affirmative.000. and was elected treasurer of the Corporation. We propose to discuss the foregoing issues by starting with the last proposition. filed before the PSC. and. are supposed to be under the control and administration of the treasurer keeping them as trust fund for the Corporation. In the direct examination you told the Court that the reason you drew a check for Eighty-Five Thousand Pesos was because you and your wife. Pantranco and the PSC. and the failure to award moral damages to him as prayed for in his counterclaim. and the subsequent sale thereof by the latter to Pantranco. APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER. in such a way and extent that Villarama appeared to be the actual owner-treasurer of the business without regard to the rights of the stockholders. Pantranco. The plaintiff Corporation prayed therein that all the orders of the PSC relative to the parties' dispute over the said certificates be annulled. (Corporation) is a distinct and separate entity from Jose M. that said stipulation is valid. that the former "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF THIS SALE. (2) Assuming that said stipulation covers all kinds of lines. and thereafter decision was rendered in the terms. as contained in the deed of sale. as well as the sale of the same by Ferrer to Pantranco. therefore. On November 4. to wit. were. The finances of the Corporation which. Inc. which stipulated that Villarama "shall not for a period of 10 years from the date of this sale. manipulated and disbursed as if they were the private funds of Villarama. on its part. albeit was not an incorporator or stockholder of the Corporation. I want to go back again to the incorporation of the Villa Rey Transit. is valid. that Villarama and/or the Corporation was disqualified from operating the two certificates in question by virtue of the aforementioned agreement between said Villarama and Pantranco. on the other hand.00 by way of exemplary damages. the case was tried. his wife. prays for a review of that portion of the decision awarding only P5." Upon the joinder of the issues in both the complaint and third-party complaint. the Pantranco shall be the one to operate provisionally the service under the two certificates embraced in the contract between Ferrer and Pantranco. that the restriction clause in the contract of January 8. the defendants Ferrer and Pantranco averred that the plaintiff Corporation had no valid title to the certificates in question because the contract pursuant to which it acquired them from Fernando was subject to a suspensive condition — the approval of the PSC — which has not yet been fulfilled. a superior right thereto. alleging that he did not become such. and the failure to award damages in its favor and against Villarama. Ferrer sold the two certificates of public convenience to Pantranco. did it bind the Corporation? For convenience. your answer then is that since your money and your wife's money are one money and you did not know when your wife was paying debts with the incorporator's money? . and jointly submitted for approval their corresponding contract of sale to the PSC. 3 which decreed. and vested unto Pantranco. and that of Ferrer and Pantranco. were valid and regular. Will you please tell the Honorable Court if you knew at the time your wife was spending the money to pay debts. for his part. alleging that Villarama and the Corporation.00 as attorney's fees in favor of the Corporation. 126278.

did your wife give you Fifty-two Thousand Pesos? A. contending that no evidentiary value whatsoever should be given to them since "they were merely photostatic copies of the originals.00 was loaned as advances to the stockholders. respectively. Villarama's theory is that since even at the time of the issuance of the subpoena duces tecum. 23. as even the Corporation admits such loss. Of the P105. Because sometimes she uses my money.000. and. Celso Rivera. I have testified before that sometimes my wife gives me money and I do not know exactly for what.6 both employees of said bank. 992618-B and 993621-B. Assistant Accountant of Manila Trading & Supply Co.10 as having been drawn by Villarama. The said accountant. 22. she did not receive any check? I do not remember. Mr. and (4) failure or refusal of opponent to produce the original in court. subsequently. P85. Q. however.00 was delivered to Villarama in payment for equipment purchased from him. which are photostatic copies of ledger entries and vouchers showing that Villarama had co-mingled his personal funds and transactions with those made in the name of the Corporation. A.. Of all the money given to your wife. However. to be given Fifty Thousand Pesos without even asking what is this? xxx xxx xxx JUDGE: Reform the question. Viewed upon this light. or cannot be produced in court.A. (3) satisfactory proof of its existence.00 covered by the deposit slip Exh. there can be no doubt as to the admissibility in evidence of Exhibits 6 to 19 and 22. What did you do with the money. Q. you were also the custodian of some of the incorporators here. The subscription of your brother-in-law.00 as the first installment of the offer for second subscriptions worth P200.00 was admitted in evidence as Exh. deposit in a regular account? Deposit in my account.000. which shows on its face that P20. F-50271 of the First National City Bank of New York. 23. Reyes. of which as mentioned above. testified that he was not aware of any amount of money that had actually passed hands among the parties involved. in the beginning? Not necessarily. It is enough that the circumstances are such as to indicate that the writing is in his possession or under his control. accountant of the Corporation. representing the initial paid-up capital of the Corporation. Q.00 thereof was covered by Check No. 8 and actually the only money of the corporation was the P105. Doctor. For. therefore.000. have proved that the drawer of the check was Jose Villarama himself. among the exceptions to the best evidence rule is "when the original has been lost.00 was mostly financed by Villarama. the originals were already missing.000. at the time Pantranco offered the said exhibits. he admitted their previous existence in the files of the Corporation and also that he had seen some of them. 14 Hence. Q. Is it usual for you. Villarama purchased and paid with his personal checks Ford trucks for the Corporation. are very illuminating evidence. Q. Section 5 of Rule 130 of the Rules of Court provides for the requisites for the admissibility of secondary evidence when the original is in the custody of the adverse party. on being notified to produce it. A. it was made to appear that the P95.00 was covered by Villarama's personal check. Villarama has assailed the admissibility of these exhibits.000.000."15 The originals of the vouchers in question must be deemed to have been lost. the best evidence being the originals themselves. (2) reasonable notice to opponent to produce the original. Further.000. yet Villarama directed him (Rivera) to make vouchers liquidating the sums. A.000. The deposit slip for the said amount of P105.000. Q. P85.12 As to the third. A.13 Regarding the first element.00 was paid by Villarama's personal check. The testimonies of Alfonso Sancho 5 and Joaquin Amansec.000. It supposes then your wife gives you some of the money received by her in her capacity as treasurer of the corporation? Maybe. . Another witness.7 Thus.000. thus: (1) opponent's possession of the original.00 was paid in cash and P85. it was the most likely possessor of the originals thereof because they were stolen from the files of the Corporation and only Pantranco was able to produce the alleged photostat copies thereof. 11 Villarama has practically admitted the second and fourth requisites. and the P100. an employee of the Philippine Bank of Commerce.00 deposited in the First National City Bank of New York. the evidence shows that when the Corporation was in its initial months of operation. from which the trucks were purchased 9 and Aristedes Solano. Neither is it required that the party entitled to the custody of the instrument should. the Corporation was no longer in possession of the same.000.000. also P100. they give to my wife and when my wife hands to me I did not know it belonged to the incorporators.00 as second installment of the paid-in subscriptions. Exhibits 6 to 19 and Exh. aside from your wife." According to him. These checks have been sufficiently established by Fausto Abad. and sometimes the money given to her she gives to me and I deposit the money. destroyed. Actually.00 from the original subscribers. it is not necessary for a party seeking to introduce secondary evidence to show that the original is in the actual possession of his adversary. secondary evidence is admissible where he denies having it in his possession. Exhibits 20 and 21 disclose that the said purchases were paid by Philippine Bank of Commerce Checks Nos. admit having it in his possession. is Fifty-Two Thousand Pesos. The evidence further shows that the initial cash capitalization of the corporation of P105. testified that while in the books of the corporation there appears an entry that the treasurer received P95. The party calling for such evidence may introduce a copy thereof as in the case of loss.

24 it becomes difficult to accept Villarama's explanation that he and his wife. precisely.00 was all spent or was insufficient to settle his prior obligations in his business. his reason was that he was only sharing with the Corporation his credit with some companies. only a part-time manager. (Emphasis supplied) As We read the disputed clause. The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases which are within reason and the law. and since he had loaned money to the Corporation. it could have been easy for Villarama to have deposited said check in his account and issued his own check to pay his obligations. anyway. and in the light of the stipulation in the deed of sale between Villarama and Pantranco that P50.00 and P100. And there is no evidence adduced that the said amount of P350. Inc. Inc. a single proprietorship. however.00 of the initial capital of the Corporation with the lame excuse that "his wife had requested him to reimburse the amount entrusted to her by the incorporators and which she had used to pay the obligations of Dr. for instance. after consultation. the circumvention of statutes. 25 spent the money of their relatives (the stockholders) when they were supposed to have their own money. that the corporate funds in his possession were not only for registration fees but for other important obligations which were not specified.000. the achievement or perfection of a monopoly or generally the perpetration of knavery or crime. 21 He also admitted that gasoline purchases of the Corporation were made in his name22 because "he had existing account with Stanvac which was properly secured and he wanted the Corporation to benefit from the rebates that he received." But with his admission that he had received P350. Even if Pantranco paid the P350.000. prior authorization is needed before anyone can operate a TPU service. and yet there was no Board Resolution allowing it. 16 it would appear that: Villarama supplied the organization expenses and the assets of the Corporation.000. And his main reason for mingling his funds with that of the Corporation and for the latter's paying his private bills is that it would be more convenient that he kept the money to be used in paying the registration fees on time. Villarama admitted. this would be set off by the latter's paying his bills. and so hold. while Villarama was not the Treasurer of the Corporation but was.20 Villarama himself admitted that he mingled the corporate funds with his own money. It is significant that not a single one of the acts enumerated above as proof of Villarama's oneness with the Corporation has been denied by him.Taking account of the foregoing evidence. for a period of ten (10) years from the date of this sale apply for any TPU service identical or competing with the BUYER.000. that the preponderance of evidence have shown that the Villa Rey Transit. he has admitted them with offered excuses. and particularly its finances. For the rule is that a seller or promisor may not make use of a corporate entity as a means of evading the obligation of his covenant. as claimed. 17 there was no actual payment by the original subscribers of the amounts of P95. The clear intention of the parties was to prevent the seller from conducting any competitive line for 10 years since. it can be enjoined from competing with the covenantee.000. and that the restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and binding against the said Corporation. We are of the opinion. 30 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. Villarama has admitted. a service by the seller on lines or routes that would compete with the buyer along the routes acquired by the latter.26 Indeed. 31 Where the Corporation is substantially the alter ego of the covenantor to the restrictive agreement.28 Villarama's explanation on the matter of his involvement with the corporate affairs of the Corporation only renders more credible Pantranco's claim that his control over the corporation. It is the very essence of incorporation that the acts and conduct of the corporation be carried out in its own corporate name because it has its own personality. and Villarama are one and the same. the excuse appears unbelievable. seeks to separate personal responsibilities from corporate undertakings. especially in the management and disposition of its funds. The interference of Villarama in the complex affairs of the corporation. 34 .000. 27 he admitted not only having held the corporate money but that he advanced and lent funds for the Corporation. together with Celso Rivera's testimony. it is evident from the context thereof that the intention of the parties was to eliminate the seller as a competitor of the buyer for ten years along the lines of operation covered by the certificates of public convenience subject of their transaction. with his personal checks.000. On his having paid for purchases by the Corporation of trucks from the Manila Trading & Supply Co. are much too inconsistent with the ends and purposes of the Corporation law. which. allegedly. The word "apply" as broadly used has for frame of reference.19 and the Corporation paid his personal accounts. They show beyond doubt that the Corporation is his alter ego.00 in check to him.33whether the service consists in a new line or an old one acquired from a previous operator. he has bound himself not to apply for authorization to operate along such lines for the duration of such period. 29 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. 32 The Corporation contends that even on the supposition that Villa Rey Transit." 23 The foregoing circumstances are strong persuasive evidence showing that Villarama has been too much involved in the affairs of the Corporation to altogether negative the claim that he was only a part-time general manager. The clause in dispute reads thus: (4) The SELLER shall not.00 as appearing in the books. Villarama (her husband) incurred while he was still the owner of Villa Rey Transit.18 Villarama made use of the money of the Corporation and deposited them to his private accounts.00 of the selling price was earmarked for the payments of accounts due to his creditors. such as trucks and equipment. having paid P85.00 from Pantranco for the sale of the two certificates and one unit. In this jurisdiction. Villarama. Upon the foregoing considerations. the restrictive clause in the contract between Villarama and Pantranco does not include the purchase of existing lines but it only applies to application for the new lines. On the contrary. is an alter ego of Jose M. was so extensive and intimate that it is impossible to segregate and identify which money belonged to whom.

coupled with the consideration of P350. (Emphasis supplied. after an examination of the supposed drafts. While such covenants are designed to prevent competition on the part of the seller. the commodities of the trade are as open to the public as they were before. Corbin. With trifling exceptions. The suppression or restraint is only partial or limited: first.. the public has the same opportunities of purchasing. considering such factors as the good will35 that the seller had already gained from the riding public and his adeptness and proficiency in the trade. nor to prevent it at all in a way or to an extent injurious to the public. act with justice. and this must be." such contracts were valid and not "against the benefit of the state. in scope. the same competition exists as existed before. furthermore.. We believe the main purpose of the restraint was to protect for a limited time the business of the buyer. 537-539. Later. it is ordinarily neither their purpose nor effect to stifle competition generally in the locality. he usually wishes to keep it going. If the contract is reasonably necessary to protect the interest of the parties. We are persuaded. with respect to situs or territory.. In order to be well assured of this. Numerous authorities hold that a covenant which is incidental to the sale and transfer of a trade or business. the rule became well established that if the restraint was limited to "a certain time" and within "a certain place. however. the evils of monopoly are farfetched here. of modern authority. it will be upheld. There can be no danger of price controls or deterioration of the service because of the close supervision of the Public Service Commission. from having a representative or dummy apply in the latter's name and then later on transferring the same by sale to the seller? Since stipulations in a contract is the law between the contracting parties. Jur. that the disputed stipulation is only incidental to a main agreement. an authority on Contracts has this to say. we believe.40 that "when one devotes his property to a use in which the public has an interest.00 for just two certificates of public convenience. . Indeed. allow the seller just the same to compete with the buyer as long as his authority to operate is only acquired thru transfer or sale from a previous operator. Every person must. in the exercise of his rights and in the performance of his duties. the parties intended to effect the least restriction. thus defeating the intention of the parties. New Civil Code.000. the former merely takes the place of the latter. is just as broad and comprehensive. to wit: . it can be said that the re-wording was done merely for brevity and simplicity. thereby establishing monopoly or predominance approximating thereto.39 This Court had stated long ago. in duration. merely ancillary or incidental to the main agreement which is that of sale. The early cases show plainly a disposition to avoid and annul all contract which prohibited or restrained any one from using a lawful trade "at any time or at any place. . second.36 When one buys the business of another as a going concern. he virtually grants to the public an interest in that use and submits it to such public use under reasonable rules and regulations to be fixed by the Public Utility Commission. and third. and production is not lessened if it is a manufacturing plant. under the circumstances.) Analyzing the characteristics of the questioned stipulation. contracts like the one we are discussing will be sustained. our jurisprudence on the matter 37says: The law concerning contracts which tend to restrain business or trade has gone through a long series of changes from time to time with the changing condition of trade and commerce. He is willing to pay much more if he can get the "good will" of the business. is lawful and enforceable. it refers only to application for TPU by the seller in competition with the lines sold to the buyer. The public welfare of course must always be considered and if it be not involved and the restraint upon one party is not greater than protection to the other requires. said changes have been a continuous development of a general rule. however. will be held invalid.) We are not impressed of Villarama's contention that the re-wording of the two previous drafts of the contract of sale between Villarama and Pantranco is significant in that as it now appears. The general tendency. while not as long and prolix as those in the drafts. He wishes to step into the seller's shoes and to enjoy the same business relations with other men.. and observe honesty and good faith. For what would prevent the seller. and considering. A contract. the same is reasonable and it is not harmful nor obnoxious to public service. and which purports to bind the seller not to engage in the same business in competition with the purchaser. however. the underlying reason sustaining its validity is well explained in 36 Am. We find that although it is in the nature of an agreement suppressing competition." Regarding that aspect of the clause that it is merely ancillary or incidental to a lawful agreement. that the scope of the final stipulation. he wishes to get the location. 19. he obtains and pays for the seller's promise not to reopen business in competition with the business sold. As to whether or not such a stipulation in restraint of trade is valid. it is only for ten (10) years.If the prohibition is to be applied only to the acquisition of new certificates of public convenience thru an application with the Public Service Commission. have held that a contract in restraint of trade is valid providing there is a limitation upon either time or place . if it is a mercantile business. is to make the test whether the restraint is reasonably necessary for the protection of the contracting parties. this would. the stock in trade. At most. give everyone his due. On this matter. the profits of the business go as they did before to swell the sum of public wealth. The business in the hands of the purchaser is carried on just as it was in the hands of the seller. meaning by this the good will of the customers. and we think the rule is now well established. that they may continue to tread the old footpath to his door and maintain with him the business relations enjoyed by the seller." as being against the benefit of the state. In view of these limitations. in effect. the restraint is only along the lines covered by the certificates sold. the building.38 It does not appear that the ultimate result of the clause or stipulation would be to leave solely to Pantranco the right to operate along the lines in question. which restrains a man from entering into business or trade without either a limitation as to time or place. and the customers. The evident intention behind the restriction was to eliminate the sellers as a competitor. (Art. there is the same employment furnished to others after as before." Later cases. it is.

until the expiration of the 1-year period abovementioned. however. privileges. FERNANDO — in the above entitled case may have in the following realty/personalty is attached or levied upon. It is further claimed by Pantranco that the underhanded manner in which Villarama violated the contract is pertinent in establishing punitive or moral damages. franchise. does not clearly show that said defendants acted in bad faith in their acquisition of the certificates in question. The award by the lower court of attorney's fees of P5. Inc. or trips. Inc. Gonzaga. as prayed for in Pantranco's third party complaint. to wit: The rights. each company imposing upon itself an obligation not to operate in any territory covered by the routes of the other. if it should be movable property. The evidence on record. In the said Red Line case. that the said Corporation should. etc. or increase of equipment — was not an agreement between the parties but a condition imposed in the certificate of public convenience itself. VALENTIN A.000. but merely the operation of TPU along the lines covered by the certificates sold by him to Pantranco. v. Enriquez. Dagupan. 45 Accordingly. On the other hand. It is clear.000. is. without basis and should be set aside.. Restraints of this type.44 the restraint there in question not to ask for extension of the line. In Pampanga Bus Co. the transaction was not a consummated sale. and. among common carriers have always been covered by the general rule invalidating agreements in restraint of trade. Consequently. or purchase of. and attorney's fees in the amount of P25... Inc. judgment debtor." the same section also provides: . encumber or lease its property.. in Cases Nos. interests. Fernando. Lines — Manila to Lingayen. In view of the ancient rule of caveat emptor prevailing in this jurisdiction.. the vendee at auction of said certificates. that the requisite approval of the PSC is not a condition precedent for the validity and consummation of the sale. v. and considering that the preponderance of the evidence have shown that Villa Rey Transit. therefore. Having arrived at this conclusion. They believed that because the bill of sale has yet to be approved by the Public Service Commission. therefore.00.. interests and participation on the Certificates of Public Convenience issued to Valentin A. While section 20(g) of the Public Service Act provides that "subject to established limitation and exceptions and saving provisions to the contrary. therefore. We hold. it shall be unlawful for any public service or for the owner. such that the rightful ownership of the disputed certificates still belongs to the plaintiff being the prior purchaser in good faith and for value thereof.. the ownership shall be transferred to the person who may have first taken possession thereof in good faith.. the title to or ownership of the certificates was still with the seller. While We are fully in accord with Pantranco's claim of entitlement to damages it suffered as a result of Villarama's breach of his contract with it. however. in Red Line Transportation Co. what was acquired by Ferrer in the sheriff's sale was only the right which Fernando..43the undertaking of the applicant therein not to apply for the lifting of restrictions imposed on his certificates of public convenience was not an ancillary or incidental agreement. 42 Neither are the other cases relied upon by the plaintiff-appellee applicable to the instant case. 59494. the judgment appealed from is hereby modified as follows: . Eusebio Ferrer's charge that by reason of the filing of the action to annul the sheriff's sale. Inc.00 in favor of Villa Rey Transit. the record does not sufficiently supply the necessary evidentiary materials upon which to base the award and there is need for further proceedings in the lower court to ascertain the proper amount." Such notice of levy only shows that Ferrer. . each of the appellants has its or his own version to allege. exemplary damages and attorney's fees. merely stepped into the shoes of the judgment debtor.00 that it paid to Villarama. was not consummated. vice versa. the agreement therein sought to be enforced was virtually a division of territory between two operators. . Its contention as to the proper measure of damages is that it should be the purchase price of P350. between the Corporation and Fernando. certificates." There is no merit in Pantranco and Ferrer's theory that the sale of the certificates of public convenience in question.. despite constructive and actual knowledge on their part of a prior sale executed by Fernando in favor of the said corporation. PREMISES CONSIDERED.. or participation which the defendant.000. To avoid any misunderstanding. cannot be entertained. alienate. on the other hand. the rights. it is here to be emphasized that the 10-year prohibition upon Villarama is not against his application for. justifies its claim for damages with the allegation that when it purchased ViIlarama's business for P350. v. the sale between Fernando and the Corporation is valid. Inc. it being only a conditional sale subject to the suspensive condition of its approval by the Public Service Commission. which necessitated the latter to file the action to annul the sheriff's sale to Ferrer and the subsequent transfer to Pantranco.000. etc. alienation. had in the certificates of public convenience on the day of the sale. Our conclusion is that the stipulation prohibiting Villarama for a period of 10 years to "apply" for TPU service along the lines covered by the certificates of public convenience sold by him to Pantranco is valid and reasonable. Pantranco. it intended to build up the traffic along the lines covered by the certificates but it was rot afforded an opportunity to do so since barely three months had elapsed when the contract was violated by Villarama operating along the same lines in the name of Villa Rey Transit. Provided. Anent the question of damages allegedly suffered by the parties. Of the same principle is the provision of Article 1544 of the Civil Code. certificates of public convenience.The reliance by the lower court on tile case of Red Line Transportation Co. is itself the alter ego of Villarama. Inc. by the "Notice of Levy Upon Personalty" the Commissioner of Public Service was notified that "by virtue of an Order of Execution issued by the Court of First Instance of Pangasinan. to sell. in view of the conclusion herein reached that the sale by Fernando to the Corporation was valid. Upon the foregoing considerations. be enjoined from operating the line subject of the prohibition. lessee or operator thereof.00. or lease by any public service of any of its property in the ordinary course of its business. Villa Rey Transit. mortgage. he had suffered and should be awarded moral. Bachrach41 and finding that the stipulation is illegal and void seems misplaced. That nothing herein contained shall be construed to prevent the transaction from being negotiated or completed before its approval or to prevent the sale. The restraint was the principal objective. or rights or any part thereof. that "If the same thing should have been sold to different vendees. without the approval and authorization of the Commission previously had . claims that by virtue of the "tortious acts" of defendants (Pantranco and Ferrer) in acquiring the certificates of public convenience in question. it is entitled to collect actual and compensatory damages.

Statement. Inc. 1946. Said undisputed facts are substantially as follows: The petitioner.. shares of stock. (c) Whether or not. of SharesAmountPer CentFrank Liddell19. 1948. the stocks of said company stood as follows: NameNo.000.0003. with the limited paid-in capital of P20. Villarama.0005.000.000. and C. So ordered. E.000 was merely debited to Frank Liddell-Drawing Account and credited to Subscribed Capital Stock on December 11. No.000 divided into 1000 share at P100 each. Kernot 500 50.670%E. Said Company lists down several issues which may be boiled to the following: (a) Whether or not Judge Umali of the Tax Court below could validly participate in the making of the decision. Darras2. At the annual meeting of stockholders of Liddell & Co. The sale of the two certificates of public convenience in question by Valentin Fernando to Villa Rey Transit.5006..700170.01%Charles Kurz1. 1947. Inc. On equitable considerations. Of this authorized capital. against Jose M. a 100% stock dividend was declared. Frank Liddell subscribed to 3. insofar as it dismisses the third-party complaint filed by Pangasinan Transportation Co. Liddell & Co. W. the assessment of tax liability.000. held on March 9. Undisputed Facts. On January 31. wherein Frank Liddell transferred (On June 7. Hasim83083. Liddell & Co. 1948.J.031%Julian Serrano1.810181. respondent-appellee. each reserving the right to present additional evidence.61 on Liddell & Co. holding that Villa Rey Transit. executed an agreement (Exhibit A) which was further supplemented by two other agreements (Exhibits B and C) dated May 24.381%Angel Manzano1.R. Angel Manzano and Julian Serrano at one shares each. Reversed.0006. including the surcharge thereon by the Court of Tax Appeals.45%Angel Manzano1.225122.000100. Manzano and Serrano on the other. and 4. B.06%Julian Serrano71071. Kernot 1.1. 196 shares valued at P19. 1947 and June 3. on one hand and Messrs. On May 24. the stockholdings in the company appeared to be: NameNo. Inc.64%19. The declaration of stock dividend was followed by a resolution increasing the authorized capital of the company to P1..64%G.J.368.738P1.629. Upon such approval. of SharesAmountPer CentFrank Liddell13.003%Charles Kurz2. for short) is a domestic corporation establish in the Philippines on February 1.00 as attorney's fees in favor of Villa Rey Transit.381%E.THE COLLECTOR OF INTERNAL REVENUE.45%E.000 so that he had in his own name 4. 2.000.960 shares.000 2. Darras1.770%G. Inc. stock dividends were again issued by Liddell & Co.000. Angel Manzano and Julian Serrano at 10 share each. Inc.J.00%Irene Liddell1100. without costs. He paid 25% thereof in the amount of P100.the alter ego of the former. 1949. with an authorized capital of P100.960 shares and the employees.. Inc.688P1.000P1. is an entity distinct and separate from the personality of Jose M.000 to P 3. INC.215221. 1948. On March 8. is correct.000 and the balance of P3. Frank Liddell subscribed to and paid 20% of the increase of P400. granting the identical nature of the corporations.900. 1948) to various employees of Liddell & Co. (b) Whether or not Liddell & Co.80072.0002. (Liddell & Co. This is an appeal from the decision of the Court of Tax Appeals imposing a tax deficiency liability of P1.5006.. 1957. 1961 LIDDELL & CO.973. thereby increasing the issued capital stock of aid corporation from P1. W.000 additional shares.000 which the Securities & Exchange Commission approved on March 3. G. B. Exhibits.5007..215221.000. and C.000 which increase was duly approved by the Securities and Exchange Commission on June 7.003%Mercedes Vecin1100. Darras. 1948.5007. in accordance with a resolution of a special meeting of the Board of Directors of Liddell & Co.01%Mercedes Vecin1100. and in accordance with the agreements. petitioner-appellant.150115.0002. Its purpose was to engage in the business of importing and retailing Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks. Darras.J.. As a result of said declaration and in accordance with the agreements.317. 1947. Frank Liddells holding in the Company increased to 1.0006. Frank Liddell. 1948. the latter being merely .. The case is remanded to the trial court for the reception of evidence in consonance with the above findings as regards the amount of damages suffered by Pantranco.225122. Inc.80065. Exhibits A. is declared preferred over that made by the Sheriff at public auction of the aforesaid certificate of public convenience in favor of Eusebio Ferrer. The parties submitted a partial stipulation of facts. for which he paid into the corporation P300. A.74%E.791%Irene Liddell1100. and the Liddell Motors. L-9687 June 30. are (practically) identical corporations. Charles Kurz E. was able to declare a 90% stock dividend after which declaration on.00%On November 15.490 . vs. stock dividends were again declared. Darras.600 were subscribed and paid by Frank Liddell while the other four shares were in the name of Charles Kurz. Hasim50050. Villarama. 3. and insofar as it awards the sum of P5. Kurz.

Inc.000 was subscribed and paid for as follows: Irene Liddell wife of Frank Liddell 19. Kurz 12-1/2%. Manzano 12-1/2% and Julian Serrano 7-1/2%. 1125 (quoted in the margin) 5 confirms this view. Liddell & Co. Accordingly. Judge Umali signed the decision August 31. the law means that decision may still be rendered within the second period of thirty days (Judge Umali signed his decision within that period). it is well to consider that petitioner did not question the truth of Judge Umali's statements. (May. Republic Act No.. 1125 should be construed as directory. Republic Act No. 1948. and now here repeats. Kurz and Kernot resigned from their respective positions in the Retail Dept. paid sales taxes on the basis of its sales to Liddell Motors Inc. Inc. J. that for sales tax purposes. it conveyed them instead to Liddell Motors. on the last day of the 30-day period provided for in Section 13. Inc. Manzano — l2%.000100. 3 that whereas the case was submitted for decision of the Court of Tax Appeals on July 12. Umali to participate in the decision of the instant case because he was Chief of the Law Division. 1125). was engaged in business as an importer and at the same time retailer of Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks. 1955 or 20 days after the lapse of the 30-day period allotted by law. on any question raised by the parties when this case was presented for resolution before the said bureau. upon his death or upon his retirement or . because in providing for two thirty-day periods. Kernot). Lichauco. del Rosario and Esmenia Silva. E.317. then Acting Deputy Collector and later Chief Counsel of the Bureau of Internal Revenue during the time when the assessment in question was made. E.000 4. he (Judge Umali as well as the other members of the court below). Manzano. Serrano — 3-1/2%. parties thereto.: Kurz as Manager-Treasurer. after careful inspection of the records of the Bureau. in furtherance of the presumption of the judge's moral sense of responsibility this Court has adopted. those sales made by Liddell Motors. this Tribunal is not inclined to disqualify said judge. Exhibit B contains the employees' definition in detail of the manner by which they sought to prevent their share-holdings from being transferred to others who may be complete strangers to the business on Liddell & Co. These stipulations and conditions appear in Exhibit A: (1) that Frank Liddell had the authority to designate in the future the employee who could receive earnings of the corporation. Manzano as General Sales Manager for cars and Kernot as General Sales Manager for trucks. the taxes already paid by Liddell & Co.970%30. a sales tax deficiency. 1948 when the purpose clause of the Articles of Incorporation of Liddell & Co. W. the Collector of Internal Revenue assessed against Liddell & Co. It was for such inclusion of future faithful employees that Exhibits B-1 and C were executed. had not found any indication that he had expressed any opinion or made any decision that would tend to disqualify him from participating in the consideration of the case in the Tax Court. Inc. considering said sales as its original sales. the Liddell Motors. Frank Liddell reserved the right to reapportion the 45% dividends pertaining to the employees in the future for the purpose of including such other faithful and efficient employees as he may subsequently designate. Republic Act No.000 of which P20. 1125. B. Liddell & Co. In the computation. the third paragraph of Section 13 of Republic Act No.629. is wholly owned by Frank Liddell. At this juncture. A. the Collector of Internal Revenue determined that the latter was but an alter ego of Liddell & Co. Marcial P. 1 share each. Inc. in the amount of P1. the 45% given by Frank Liddell to his employees was reapportioned as follows: C. (2) that all certificates of stock in the names of the employees should be deposited with Frank Liddell duly indorsed in blank by the employees concerned. stopped retailing cars and trucks. J. In view thereof. Liddell & Co.%. K. Frank Liddell did so designate two additional employees namely: E. At about the end of the year 1948. 2 Appellant also contends that Judge Umali signed the said decision contrary to the provision of Section 13. the ruling that the mere participation of a judge in prior proceedings relating to the subject in the capacity of an administrative official does not necessarily disqualify him from acting as judge. Bromwell. Identity of the two corporations: On the question whether or not Liddell Motors. including surcharges. The Court of Tax Appeals upheld the position taken by the Collector of Internal Revenue. 4 Besides as pointed out by appellee. Frank Liddell owned all of the shares in said corporation.996 shares and Messrs. Inc. is the alter ego of Liddell & Co. Judge Umali stated that he had not in any way participated. Kernot — 2%. E. Kurz — 12. to apportion among the stock holders the share in the profits. which in turn sold the vehicles to the public with a steep mark-up. 1955 (that is. Darras 12-1/2%. nor expressed any definite opinion. the gross selling price of Liddell Motors. G. From 1946 until November 22. to the general public from January 1. (As a matter of fact. and the decision of Associate Judge Luciano and Judge Nable were both signed on August 11. On December 20. Beginning January. and Liddell Motors. was organized and registered with the Securities and Exchange Commission with an authorized capital stock of P100. As of the time of its organization.61. 1947) "40%" of the earnings available for dividends accrued to Frank Liddell although at the time of the execution of aid instrument. we are fully convinced that Liddell & Co. W. he concluded.000. 1949 to September 15. By analogy it may be said that inasmuch as in Republic Act No. 1125 (law creating the Court of Tax Appeals) like the law governing the procedure in the court of Industrial Relations. The agreement Exhibit A was also made retroactive to 1946. dated May 13. Hasim and G. (3) that each employee was required to sign an agreement with the corporation to the effect that. and they were taken in and employed by Liddell Motors. 45% accrued to the employees.. Judge Umali: Appellant urges the disqualification on of Judge Roman M. 1 In refusing to disqualify himself despite admission that had held the aforementioned offices. Since then. As per Exhibit C. Inc.000%On the basis of the agreement Exhibit A. The 20% paid-up subscription with which the company began its business was paid by him. Darras — 12%. was amended so as to limit its business activities to importations of automobiles and trucks. Messrs. Inc. 98% of the capital stock belonged to Frank Liddell. 1949. of Liddell & Co. V. Moreover. 1948. the requirement of Section 13. was made the basis without deducting from the selling price. Upon review of the transactions between Liddell & Co. 1955. to the public were considered as the original sales of Liddell & Co. The subsequent subscriptions to the capital stock were made by him and paid with his own money.149. A. Furthermore. in its sales to the Liddell Motors Inc. Wherefore. 1950.000P3. Inc. there is no provision invalidating decisions rendered after the lapse of 30 days. A.

issued ten (10) checks payable to Frank Liddell which were deposited by Frank Liddell in his personal account with the Philippine National Bank. the tax paid being P413. was the medium created by Liddell & Co. issued the checks for Frank Liddell 9 and for the same amounts.087. Inc. Inc. 13 "where a corporation is a dummy. Inc. All the other transactions (numerous) examined in this light will inevitably reveal that the Government coffers had been deprived of a sizeable amount of taxes. may disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take the benefits of the transactions as the person accordingly taxable. Inc. in this instant case. within a period of sixty days therefor. 10% of the selling price of the car if it did not exceed P5000. resigning." Consistently with this view. the corporate form may be ignored for the law cannot countenance a form that is bald and a mischievous fiction. Liddell Motors. for the most part were shown to have taken place on the same day that Liddell Motors. were significantly for the most part issued on the same day when Liddell & Co. and 15% of the price if more than P5000 but not more than P7000. The checks issued by Frank Liddell to the Liddell Motors. he issued in favor of Liddell Motors.32 representing taxes paid by Liddell & Co. and such activity may co-exist with other private activities of the stockholder. and 15% sales tax would have been due. in the sale to Liddell Motors. Inc. The evidence at hand also shows that Irene Liddell had scant participation in the affairs of Liddell Motors. Let us illustrate: a car with engine motor No. Inc. retiring or separating. Inc. to P. however. These stipulations in our opinion attest to the fact that Frank Liddell also owned it. its separate identity is to be respected. that the deficiency sales tax should be based on the selling price obtained by Liddell Motors. the balance of P5. Her frequent absences from the country negate any active participation in the affairs of the Motors company." But. to Liddell Motors.000 initial subscription. And Liddell Motors. etc. as held in another case. On the other hand. found their way into the personal account of Frank Liddell. She could hardly be said to possess business experience. Inc. INC. the United States Supreme Court14 held that "a taxpayer may gain advantage of doing business thru a corporation if he pleases. Accordingly. to the general public (had Liddell Motors. Inc. and Liddell Motors. Deducting P413. to the public AFTER DEDUCTING THE TAX ALREADY PAID BY LIDDELL & CO. six (6) checks drawn against his personal account with the same bank.V.32 representing taxes paid by Liddell & Co. Inc. We may even say that the cars and trucks merely touched the hands of Liddell Motors. much less to operate an expensive trade like the retail of motor vehicles. to engage in a specific activity. in its sales to Liddell Motors.. Authorities 10 support the rule that it is lawful to obtain a corporation charter. Inc.133. During this time also. Inc. pursued no activities except to secure cars.546. at 10%.8 We notice that the bulk of the business of Liddell & Co. There is.00 including tax. If the corporation is a substantial one. Inc. Tax liability computation: In the Yutivo case16 the same question involving the computation of the alleged deficiency sales tax has been raised.7 Her income in the United States in the years 1943 and 1944 and the savings therefrom could not be enough to cover the amount of subscription. Inc. 1948 for P4. Inc. the price of the car was P4. 6 It is not proven that his wife Irene.. In this transaction. In accordance with our ruling in said case we hold as correctly stated by Judge Nable in his concurring and dissenting opinion on this case. Under the law in force at the time of its incorporation the sales tax on original sales of cars (sections 184. P349. 212381 was sold by Liddell & Co. Inc. on January 17. This progressive rate of the sales tax naturally would tempt the taxpayer to employ a way of reducing the price of the first sale. The alleged sale of her property in Oregon might have been true. As to Liddell Motors. Inc. And when this car was later sold (on the same day) by Liddell Motors. Inc. Inc.e. He supplied the original his complete control over the corporation. Liddell & Co. but the money received therefrom was never shown to have been saved or deposited so as to be still available at the time of the organization of the Liddell Motors. 11 In this price of P5500 was included the P413. the checks that represented her salary and bonus from Liddell Motors. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other.22. 185 and 186 of the National Internal Revenue Code).23. Inc. Luistro for P5500. cannot be doubted. ostensibly the sole incorporator of Liddell Motors. or altogether avoid them by means which the law permits. During the first six months of 1949.12 "the legal right of a taxpayer to decrease the amount of what otherwise would be his taxes.000.separation for any cause whatsoever from the corporation. As a matter of fact. to reduce the price and the tax liability. The income tax forms record no independent income of her own. no more sales tax was paid. Inc.15 C. Inc. Inc. was channeled through Liddell Motors. These sales of vehicles by Liddell & Co. Inc. As opined in the case of Gregory v. to Liddell Motors. Inc. conducted lawfully and without fraud on another. even with a single substantial stockholder. and then sell them to the general public. from Liddell & Co. Inc. is unreal or a sham and serves no business purpose and is intended only as a blind. and spare parts from Liddell & Co. have the absolute and exclusive option to purchase and acquire the whole of the stock interest of the employees so dying. sold such vehicles to the public. Inc. we are fully persuaded that Frank Liddell also owned it. i. we repeat: to allow a taxpayer to deny tax liability on the ground that the sales were made through an other and distinct corporation when it is proved that the latter is virtually owned by the former or that they are practically one and the same is to sanction a circumvention of our tax laws. but the revenue officers in proper cases. the mere fact that Liddell & Co. the price of P5500. a peculiar consequence of the organization and activities of Liddell Motors." Thus. Inc. . was progressive. as a matter of formality. There are quite a series of conspicuous circumstances that militate against the separate and distinct personality of Liddell Motors.68 would have been the net selling price of Liddell & Co.. not participated and intervened in the sale). Helvering.000. had money of her own to pay for her P20.68 in the form of taxes was evaded. He supplied the original capital funds. trucks. the said corporation should. It is of course accepted that the mere fact that one or more corporations are owned and controlled by a single stockholder is not of itself sufficient ground for disregarding separate corporate entities.

a corporation organized on February 16. L-17618 August 31. Under date of July 27. made to Norton. Padilla.. Pursuant to this agreement. Jackbilt is. Concepcion. as its compensation or profit. the manufacturer. we find no legal basis to support the assessment in question against petitioner. If at all. Inc. J. petitioner. Inc.R. we see that the transactions between Liddell Motors Inc. the decision appealed from is reversed. and merchandise. Inc. we may now say. and should suffer a 50% surcharge. JJ. in filing its return on the basis of its sales to Liddell Motors. is declared liable only for the amount of P426. Paraphrasing our decision in the Yutivo case. concur. Dizon. (1) to buy and sell at wholesale and retail. Inc. But penalty for late payment (25%) should be imposed. producing and manufacturing concrete blocks.On the imposition of the 50% surcharge by reason of fraud.. the decision appealed from is hereby modified: Liddell & Co. No costs.67 with 25% surcharge for late payment and 6% interest thereon from the time the judgment becomes final. As it appears that. To exemplify the sales . 1948 primarily for the purpose of making. it cannot be held that the Liddell & Co. G. Norton and Jackbilt entered into an agreement whereby Norton was made the sole and exclusive distributor of concrete blocks manufactured by Jackbilt. respondent. 1948. have always made a full report of its income and receipts in its income tax returns. the latter is hereby required to return the excess to the petitioner. De Leon and Natividad. No pronouncement as to costs.. Liddell & Co. constantly subject to inspection by the tax authorities. deliberately made a false return for the purpose of defrauding the government of its revenue. Inc. all kinds of goods. whenever an order for concrete blocks was received by the Norton & Harrison Co. Norton and Harrison is a corporation organized in 1911. 1964 COMMISSIONER OF INTERNAL REVENUE. the order was transmitted to Jackbilt which delivered the merchandise direct to the customer.B. likewise. and Liddell & Co.811. and not on those by the latter to the public. Accordingly.. vs. This is an appeal interposed by the Commissioner of Internal Revenue against the following judgment of the Court of Tax Appeals: IN VIEW OF THE FOREGOING. Payment for the goods is.NORTON and HARRISON COMPANY. Labrador. and the surety bond filed to guarantee payment of said assessment is ordered cancelled. the assessment should have been directed against JACKBILT. Reyes. and (3) to carry on and conduct a general wholesale and retail mercantile establishment in the Philippines. No.L. (2) to act as agents of manufacturers in the United States and foreign countries. Barrera.. In view of the foregoing. during the pendency of this litigation appellant paid under protest to the Government the total amount assessed by the Collector. wares. which in turn pays Jackbilt the amount charged the customer less a certain amount.. Paredes. have always been embodied in proper documents. from a customer. however.

Mr. or on June 10. and the sale of Jackbilt blocks by petitioner to the public must be considered as the original sales from which the sales tax should be computed. Gilbert Golden and Gerardo Garcia.000 authorized shares of Jackbilt on March 31. the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court.000. making as basis thereof the sales of Norton to the Public. June 30. It was under this procedure that the sale of concrete blocks manufactured by Jackbilt was conducted until May 1. which we find not successfully refuted by appellee Norton are: (a) Norton and Harrison owned all the outstanding stocks of Jackbilt. the Commissioner considered the sale of Norton to the public as the original sale and not the transaction from Jackbilt. 1961). an indication that Jackbilt employees were also Norton's employees. Act No.. This being so. (b) Norton constituted Jackbilt's board of directors in such a way as to enable it to actually direct and manage the other's affairs by making the same officers of the board for both companies..652. and this is shown by the fact that the loans obtained from the RFC and Bank of America were used in the expansion program of Jackbilt. the taxable selling price of JACKBILT blocks under the aforesaid agreement is the price charged to the public and not the amount billed by JACKBILT to petitioner. Petitioner merely acted as agent for JACKBILT in the marketing of its products.ñët The majority of the Tax Court. The Commissioner of Internal Revenue contends that since Jackbilt was owned and controlled by Norton & Harrison.662. 1958. we find sufficient grounds to support the theory that the separate identities of the two companies should be disregarded. The Norton & Harrison Company contended otherwise — that is. to pay advances for the purchase of equipment. producer or importer are not subject to the sales tax.. 5. Furthermore service rendered in any one of the two companies were taken into account . During the existence of the distribution or agency agreement. Apparently. he is merely a nominal stockholder. while the sales made to the public by petitioner are subsequent sales which are not taxable. 1948. Domingo. 1949. There was no limit to the advances given to Jackbilt so much so that as of May 31. after conducting an investigation.993 shares belonged to Norton and Harrison and one each to seven others. the absolute and sole owner of Jackbilt. As Norton and Harrison did not conform with the assessment. 503. Coll. materials rations and salaries of employees of Jackbilt and other sundry expenses. It did so merely as agent of JACKBILT. Norton is the President. the corporate personality of the former (Jackbilt) should be disregarded for sales tax purposes. petitioner could not have sold JACKBILT blocks for its own account. Wherefore. Consequently. in the case at bar.procedures adopted by the Norton and Jackbilt. Out of this amount Norton paid Jackbilt P168. 1952. If JACKBILT actually sold concrete blocks manufactured by it to petitioner under the distributorship or agency agreement of July 27. the unpaid advances amounted to P757. the matter was brought to the Court of Tax Appeals. The period covered by the assessment was from July 1. in relieving Norton & Harrison of liability under the assessment. due to this transaction. for a fixed monthly fee of P2. which were not paid in cash by Jackbilt. He also occupies the same positions in Jackbilt corporation.90.00. However. but was offset by shares of stock issued to Norton. wares or merchandise. merged the two corporations into a single corporation. 1949 to May 31. (2) whether the basis of the computation of the deficiency sales tax should be the sale of the blocks to the public and not to Norton. 1953. which was later increased to P5. when the agency agreement was terminated and a management agreement between the parties was entered into. As per records of Jackbilt.45. (Sec. Therefore. Inc. and the transactions between these two corporations relative to the concrete blocks should be ignored in determining the percentage tax for which Norton is liable. the following may be cited. For instance. 1953. L-9687. of the 15. the only change being. Presiding Judge Nable of the same Court expressed a partial dissent. which disclose Norton's control over and direction of Jackbilt's affairs. assessed the respondent Norton & Harrison for deficiency sales tax and surcharges in the amount of P32.000. . F.00. producer or importer. Treasurer. 1956. It has been settled that the ownership of all the stocks of a corporation by another corporation does not necessarily breed an identity of corporate interest between the two companies and be considered as a sufficient ground for disregarding the distinct personalities (Liddell & Co. Mantaring. wares or merchandise. all of which pose the following propositions: (1) whether the acquisition of all the stocks of the Jackbilt by the Norton & Harrison Co. The management agreement provided that Norton would sell concrete blocks for Jackbilt. James E. the purchaser paid to Norton the sum of P189. the percentage tax should be computed on the basis of the sales of Jackbilt blocks to the public. Director and Stockholder of Norton. M. Among these circumstances. This is shown by the fact that petitioner merely accepted orders from the public for the purchase of JACKBILT blocks. Com. The term "original sale" has been defined as the first sale by every manufacturer. stating: Upon the aforestated circumstances. made the following observations: The law applicable to the case is Section 186 of the National Internal Revenue Code which imposes a percentage tax of 7% on every original sale of goods. Evidence shows that Norton paid the salaries of Jackbilt employees and gave the same privileges as Norton employees. 1äwphï1. the transaction was considered a sale to Norton. (d) Norton treats Jackbilt employees as its own. Rev. the corporate personality of Jackbilt should be disregarded. Petitioner never purchased concrete blocks from JACKBILT so that it never acquired ownership of such concrete blocks. The majority opinion is now before Us on appeal by the Commissioner of Internal Revenue. on four (4) assigned errors.00 the purchase price. In other words. the transaction subject to tax is the sale from Jackbilt to Norton. 1948. the Commissioner of Internal Revenue. The purchase orders were transmitted to JACKBILT which delivered the blocks to the purchaser directly. The distributorship agreement of July 27. in the Jackbilt. 14. such sales constituted the original sales which are taxable under Section 186 of the Revenue Code. Norton & Harrison acquired by purchase all the outstanding shares of stock of Jackbilt.) Subsequent sales by persons other than the manufacturer. There was no instance in which the blocks ordered by the purchasers were delivered to the petitioner. Jordan. while they are merely employees of the North they are Directors and nominal stockholders of the Jackbilt (c) Norton financed the operations of the Jackbilt. The deficiency sales tax should have been assessed against JACKBILT and not against petitioner which merely acted as the former's agent. such tax to be based on the gross selling price of such goods. the difference obviously being its compensation. In the case of the sale of 420 pieces of concrete blocks to the American Builders on April 1. of Int.. But it appears to us that there was no such sale by JACKBILT to petitioner. v. is denominated by the parties themselves as an "agency for marketing" JACKBILT products. without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. . The same is true with Mr.00.

Payments were effected by Norton of accounts for Jackbilt and vice versa. Court of Tax Appeals. that the loans obtained by it which were given to Jackbilt. It may not be amiss to state in this connection. but pursued in the regular course of business and trade. 28. v. a taxpayer may gain advantage of doing business thru a corporation if he pleases.00. The income tax return of Norton for 1954 shows that as President and Treasurer of Norton and Jackbilt.303. The Income Tax Returns of Albert Golden and Dioscoro Ramos both employees of Norton but board members of Jackbilt. were necessary for the expansion of its business in the manufacture of concrete blocks.00.00. If the income of Norton should be considered separate from the income of Jackbilt. Costs against appellee Norton & Harrison. This is a case where the doctrine of piercing the veil of corporate fiction. The total of these liabilities is P50. as a matter of formality. thus portraying the oneness of the two companies. L-13203. of Norton and Harrison and that the fiction of corporate entities. tried to explain that the control over the affairs of Jackbilt was not made in order to evade payment of taxes. and assuming that both of them are operating on the same fiscal basis and their returns are accurate. a net income of P120. The combined taxable Norton-Jackbilt income would subject Norton to a higher tax. We notice that the bulk of the business of Liddell & Co.00. 8). may disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take benefits of the transactions as the person accordingly taxable. inclined to agree with the court below that SM was actually owned and controlled by petitioner as to make it a mere subsidiary or branch of the latter created for the purpose of selling the vehicles at retail (here concrete blocks) . while not denying the presence of the set up stated above. .764. These explanations notwithstanding an over-all appraisal of the circumstances presented by the facts of the case. separate and distinct from each. an employee of Norton but a member of the Board of Jackbilt. Inc. 28-A). v.. a circumstance which points out that remuneration of purported officials of Jackbilt are deemed included in the salaries they received from Norton. even on the question of income tax alone. His Income tax return for 1956 reveals that he received from Norton in salaries and bonuses P4. are not unusual and extraordinary. or altogether avoid them. in this instant case. Liddell Motors Inc.00) was received by Garcia from Norton. As opined in the case of Gregory v. if the net taxable earnings of both corporations are combined. Jan. Therein. the corporate form may be ignored for the law cannot countenance a form that is bald and a mischievous fictions". Inc. The offices of Norton and Jackbilt are located in the same compound. . by way of entertainment. WHEREFORE. this Court made a similar ruling where the circumstances of unity of corporate identities have been shown and which are identical to those obtaining in the case under consideration. Rev. 7 & 8). yields to the conclusion that the Jackbilt is merely an adjunct. to Liddell Motors. should be disregarded.202..) In the case of Yutivo Sons Hardware Co.764. Inc. the advantages to Norton in maintaining a semblance of separate entities. by means which the law permits. because they have separate Boards. sold such vehicles to the public. On the other hand.84.137. but the revenue officers in proper cases. and then sell them to the general public. representation.. whereas Norton declared as taxable.90 would be P70. We may even say that the cars and trucks merely touched the hands of Liddell Motors.95.. to allow a taxpayer to deny tax liability on the ground that the sales were made through another and distinct corporation when it is proved that the latter is virtually owned by the former or that they are practically one and the same is to sanction a circumvention of our tax laws. travelling and transportation allowances P3. cashiers and official receipts and bank accounts are distinct and different. the mere fact that Liddell & Co. (and cases cited therein. . But as held in another case. Norton and Harrison. but received from Jackbilt the measly amount of P150. Helvering "the legal right of a tax payer to decrease the amount of what otherwise would be his taxes. was channel Red through Liddell Motors. in the withholding statement (Exh. plus 25% surcharge thereon. indicate that Jackbilt is merely a department of Norton. Accordingly. we would have the following result: Jackbilt declared a taxable net income of P161. business conduit or alter ego.220.. Coll.101..200.628.929.. during the same taxable year. pursued no activities except to secure cars. and Liddell Motors. So that. The same is true in the case of Eduardo Garcia. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other.000. then each would declare such earning separately for income tax purposes and thus pay lesser income tax. he received from Norton P56. a peculiar sequence of the organization and activities of Liddell Motors. should be made to apply. they have separate income tax returns.. but received from Jackbilt. In the case of Liddell & Co. is unreal or a sham and serves no business purpose and is intended only as a blind. this Court said: We are. These sales of vehicles by Liddell & Co. that there could be no confusion in the present set up of the two corporations. Payments were also made to Norton of accounts due or payable to Jackbilt and vice versa.220.00.. 1961. (e) Compensation given to board members of Jackbilt.00 and P3. which would ultimately benefit both corporations.00 (P7. and spare parts from Liddell & Co.59. the decision appealed from should be as it is hereby reversed and another entered making the appellee Norton & Harrison liable for the deficiency sales taxes assessed against it by the appellant Commissioner of Internal Revenue. Inc. Inc. Inc. . it would be to the advantages of Norton that the corporations should be regarded as separate entities. their cash assets are entirely and strictly separate. it was shown that the total of P4. it was held: There are quite a series of conspicuous circumstances that militates against the separate and distinct personality of Liddell Motors Inc.00 (Exh. of Int. however. from Liddell & Co. Inc.31 in which the income tax due was computed at P37. However.for purposes of promotion. on which the income tax due was computed at P25. Based upon the 1954-1955 income tax return of Norton and Jackbilt (Exhs. for the most part were shown to have taken place on the same day that Liddell Motors. trucks. supra. There is however. also disclose the game method of payment of compensation and allowances. "where a corporation is a dummy. cannot be doubted". On the other hand. that the transactions and practices just mentioned. Inc. separate balance sheets and profit and loss statements. the tax due on their total which is P281.000.

. in the RANSOM Compound. vs. First Division.C. CELESTINO C. 3. Respondent A. NATIONAL LABOR RELATIONS COMMISSION. It has a compound in Las Pinas Rizal. Sr. RUBEN HERNANDEZ.C. employees of RANSOM. On June 6. Hernandez. MAXIMO C. the same Hernandez family organized another corporation. the stockholders of which were/are members of the Hernandez family. PORFIRIO R. JR. C. most of them being members of petitioner Labor UNION. During 1969. HERNANDEZ & MA. CORNEJO. FRANCISCO HERNANDEZ. LAURA H.) CORPORATION. was lifted on June 21st with most of the strikers returning and being allowed to resume their work by RANSOM Twenty-two (22) strikers were refused reinstatement by the Company. for short) was established in 1933 by Maximo C.R. petitioner. RANSOM LABOR UNION-CCLU. HERNANDEZ. A. It was a "family" corporation. VALENCIA. where it has been engaged in the manufacture mainly of ink and articles associated with ink. in the business of manufacture of ink and products associated with . for short) which also engaged. 1986 A.G. 2. respondents. 1961. RANSOM (PHILS. ROSARIO HERNANDEZ. L-69494 June 10. went on strike and established a picket line which. No. Rosario Industrial Corporation (ROSARIO. The facts relevant to this case may be related as follows: 1. however. Ransom (Philippines) Corporation (RANSOM.

Hence. On April 2. 1976. RANSOM took an appeal to NLRC which affirmed the GENILO ORDER. 1978. especially so since they were not given a chance to be heard. ENFORCEABLE AGAINST ITS OFFICERS AND AGENTS IN THEIR INDIVIDUAL. 6. The exact date is not reflected in the record. 1978 because the period should be counted only from the time the back wages were determined. RANSOM had sold machineries and equipment for P28million to Revelations Manufacturing Corporation. dated December 18. two issues were raised: (a) One of the issues was: THE DECISION OF THE INDUSTRIAL RELATIONS COURT HAVING BECOME FINAL AND EXECUTORY IN 1973. For practical purposes. in part. which could have been in early 1974. Although it has stopped operations. 4. 7. That Motion was granted by Labor Arbiter. 2848 — ULP and 2880 — ULP of the Court of Industrial Relations which. not against those who assert their right but fail for causes beyond their control.984. on March 11.984. 1986 that would justify the holding of the individual officers and agents of respondent in their personal capacity. 1969. if any. without prejudice to the right of employees to seek redress of grievance. wherein he expressly authorized a Writ of Execution to be issued for P164. IS IT ENFORCEABLE BY A WRIT OF EXECUTION ISSUED IN 1980 OR MORE THAN FIVE YEARS AFTER THE FINALITY OF THE DECISION SOUGHT TO BE ENFORCED? The corresponding ruling made by NLRC was: Perforce respondent's theory that execution proceedings must stop after the lapse of five (5) years and that a motion to revive need be filed. 8. 1973. Even if the said section were applicable. In RANSOM's appeal to the NLRC. in 1975. Tito F. Article 273 of the Code provides that: . the 5-year period therein mentioned may not have expired by December 18. The above recital of facts contradicts respondent's contention that the CIR decision of August 19. but all of them could not be implemented.ink. 9. Up to September 9. RANSOM and the seven individual respondents in this case have not appealed from the ruling of the NLRC that Section 6. The NLRC ruling was: As to the liability of the respondent's officers and agents. 5. RANSOM has continued its personality as a corporation.00. which was granted by the Ministry of Labor and Employment in its Order of June 7. Rule 39.00 (the back wages) against RANSOM and seven officers and directors of the Company who are the named individual respondents herein. 1973. must fail. RANSOM filed an application for clearance to close or cease operations effective May 1. we agree with the contention of the respondent-appellant that there is nothing in the Order dated May 11. expressly provides: Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with fill back wages. Directly related to this case is the last Motion for Execution. Back wages of the 22 strikers were subsequently computed at P164. 1980 have exceeded their authority. 1980 (The GENILO ORDER). As a matter of fact. 1972. 1973. probably in early 1974. the writ of execution can not be enforced against them. on December 19. Suffice it to state also that the statute of limitations has been devised to operate primarily against those who sleep on their rights. 1984. 1972. petitioner UNION had filed about ten (10) motions for execution against RANSOM. PRIVATE AND PERSONAL CAPACITIES WHO WERE NOT PARTIES IN THE CASE WHERE THE JUDGMENT WAS RENDERED. is not invocable by them in regards to the execution of the decision of December 19. although it appears that. filed by petitioner UNION wherein it asked that officers and agents of RANSOM be held personally liable for payment of the back wages. In the absence of evidence showing that the officers mentioned in the Order of the Labor Arbiter dated March 11. Genilo. except as modified in the body of its decision of July 31. reinstatement of the 22 strikers has been precluded. reinstatement is not an issue in this case. ordered RANSOM "its officers and agents to reinstate the 22 strikers with back wages from July 25. 1972 had remained dormant to require a motion to revive. (b) The second issue raised was: IS THE JUDGMENT AGAINST A CORPORATION TO REINSTATE ITS DISMISSED EMPLOYEES WITH BACKWAGES. The strike became the subject of Cases Nos. the issue can no longer be raised herein. presumably for failure to find leviable assets of RANSOM. officers of the corporation are not liable personally for the official acts unless they have exceeded the scope of their authority. (a) Article 265 of the labor Code. As a general rule. We now come to the NLRC's decision upholding non-personal liabilities of the individual respondents herein for back wages of the 22 strikers.

after the December 19. Private respondent moved for the issuance of an alias writ against the officers of Philsa.03. In RANSOM. where a corporation fails to pay the emergency allowance therein provided. but the petition was dismissed on August 31. 85-06-0394. 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM. the questioned Decision of the National Labor Relations Commission is SET ASIDE.R. being the "person acting in the interest of (the) employer" RANSOM. vs.00. the POEA issued a resolution. criminal responsibility is with the "Manager" or in his default. 1988. the President appears to be the Manager. trust. The corporation. petitioner. against the cash and/or surety bond of Bonding Company concerned for the full satisfaction of the judgment awarded. let an alias writ of Execution be issued and the handling sheriff is ordered to execute against the properties of Mr. the prescribed penalty "shall be imposed upon the guilty officer or officers" of the corporation. In the case of a government corporation. 1987 reversed the POEA decision and ordered Philsa Construction and Trading Co. shall be responsible. led by petitioner. the corporation employer can have devious ways for evading payment of back wages. and $2. liable for non-payment of back wages. In the Minimum Wage Law. which on April 30. the Minimum Wage Law. who was President of RANSOM in 1974. the person acting as such when the violation took place. (the recruiter) and Arieb Enterprises (the foreign employer) to jointly and severally pay private respondent the peso equivalent of $16.. as salary differentials. is the employer. the managing head shall be made responsible. (d) The record does not clearly Identify "the officer or officers" of RANSOM directly responsible for failure to pay the back wages of the 22 strikers. and the Order of Labor Arbiter Tito F. NATIONAL LABOR RELATIONS COMMISSION and LEONARDO V. in the instant case. In POEA Case No. 1990 FRANCISCO V. .420. except when shown that the violation was due to an act or commission of some other person. the Philippine Overseas Employment Administration (POEA) promulgated a decision on February 4.039. not to say even criminally. A writ of execution was issued by the POEA but it was returned unsatisfied as Philsa was no longer operating and was financially incapable of satisfying the judgment. The decision was appealed to the National Labor Relations Commission (NLRC). ATIENZA. in which case the latter shall be held responsible. jointly and severally with other Presidents of the same corporation who had been elected as such after 1972 or up to the time the corporate life was terminated. premises considered. partnership or association. at the time the back wages were ordered to be paid should also be a continuing joint and several personal liabilities of all who x-ray have thereafter succeeded to the office of president. G. the person acting as such. del -Rosario and if insufficient. in RA 602. No. otherwise. we believe it should be presumed that the responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. In the absence of definite proof in that regard. as vacation leave benefits. only in the technical sense. Inc. over whom he has no control. 1987 and entry of judgment was made on September 24. (c) If the policy of the law were otherwise. The foregoing was culled from Section 2 of RA 602. foreseeing the possibility or probability of payment of back wages to the 22 strikers. the president and general manager of the corporation. Section 15(b) provided: (b) If any violation of his Act is committed by a corporation. The case was elevated to the Supreme Court. in 1969. organized ROSARIO to replace RANSOM. Francisco V. it would appear that RANSOM. Genilo of March 11. the manager or in his default. 1987. DEL ROSARIO. Thus. In PD 525. 1986 dismissing the complaint for money claims for lack of merit. the 22 strikers may be deprived of their rights by the election of a president without leviable assets. Since RANSOM is an artificial person. This motion was opposed by the officers. with the latter to be eventually phased out if the 22 strikers win their case.Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more than six (6) months. That is the policy of the law. On February 12. respondents. it is our opinion What the personal liability of the RANSOM President. (b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor Code which provides: (c) 'Employer includes any person acting in the interest of an employer directly or indirectly. WHEREFORE. (e) Considering that non-payment of the back wages of the 22 strikers has been a continuing situation. it must have an officer who can be presumed to be the employer. 85416 July 24. 1980 is reinstated with the modification that personal liability for the back wages due the 22 strikers shall be limited to Ruben Hernandez. RANSOM actually ceased operation on May 1. 1973. the dispositive portion of which read: WHEREFORE. The responsible officer of an employer corporation can be held personally. The term shall not include any labor organization or any of its officers or agents except when acting as employer.

L-15121. No. several years before private respondent filed his complaint with the POEA in 1985. Yatco. was founded primarily on the following findings of the POEA — 6.R. On September 23. Philsa International Placement & Services Corp. at the time Philsa allowed its license to lapse in 1985 and even at the time it was delisted in 1986. Consider the following undisputed facts: (1) Private respondent filed his complaint with the POEA on June 4. 77 Phil. justify wrong. 13 SCRA 290]. 1978 but was already delisted from the list of agencies/entities on August 15. 124 SCRA 638]. (3) The POEA dismissed private respondent's complaint on February 4.. Thus.. see also Palay. Inc. February 26. it also appears that another corporation. Corporation Code. Clave. An intent to evade payment of his claims cannot therefore be implied from the expiration of Philsa's license and its delisting. the corporation shall be considered as a mere association of persons [Koppel (Phil. Emilio Cano Enterprises. represented by Mr. represented by the same Mr. del Rosario as its President/ General Manager. 1988. April 27. Court of Industrial Relations. 44. it appears that Philsa Construction & Trading Co. 1986.R. was formerly a registered construction contractor whose authority was originally issued on July 21. there was yet no judgment in favor of private respondent. 5 SCRA 1011. and its responsible officers and/or stockholders shall be held individually liable [Namarco v. 1986 for inactivity. 1961. Yatco.. 142 SCRA 269. 1988. On October 21. Per the certification issued by the Licensing Division of this Office. or a corporation and its successor-in-interest shall be considered as one and the liability of the former shall attach to the latter [Koppel v. 1. petitioner's motion for reconsideration was denied. 1965.). 496 (1946). Ransom is totally misplaced. G. 7. 1985. Metro Manila. citing 1 Fletcher. 1988 the Court issued a temporary restraining order enjoining the enforcement of the NLRC's decision dated September 23. The action of the NLRC affirming the issuance of an alias writ of execution against petitioner. August 31. composed of practically the same set of incorporators/stockholders. The conclusion that Philsa allowed its license to expire so as to evade payment of private respondent's claim is not supported by the facts. 1985. .R. the Court finds grave abuse of discretion on the part of the NLRC. Cyclopedia of Corporations. C. G. However. del Rosario. the wrongdoing must be clearly and convincingly established. G. Art. 56076. (4) Philsa was delisted for inactivity on August 15. v. 1967.R. 2 SCRA 632]. alleging that the NLRC gravely abused its discretion. supra. v. It cannot be presumed. G. 19 SCRA 962].. No. with office address at 126 Pioneer St. But for the separate juridical personality of a corporation to be disregarded. Francisco V. protect fraud or defend crime. Collector of Internal Revenue. this petition was filed on October 28. 69494. After considering the undisputed facts and the arguments raised in the pleadings.. 1989. Under the law a corporation is bestowed juridical personality. separate and distinct from its stockholders [Civil Code. President and General Manager. (2) The last renewal of Philsa's license expired on October 12. and an application of the ruling of the Court in A. 2]. G. June 30. v. L-20886.Petitioner appealed to the NLRC.C. The petition was given due course on June 14. 1988 and resolution dated October 21. Mandaluyong. Per another certification issued by the Licensing Division of this Office. was registered as a licensed private employment agency whose license was issued on November 5. the NLRC dismissed the appeal. L9687. For the same reasons. v. L-20502. Neither will the organization of Philsa International Placement and Services Corp. Liddell & Co. Inc. Associated Finance Co. we find that the NLRC's reliance on the findings of the POEA and the ruling in A. June 10. But when the juridical personality of the corporation is used to defeat public convenience. 1987 that the judgment awarding differentials and benefits to private respondent was rendered.R. 1981. 1986. 1988. * (5) The dismissal of the complaint was appealed to the NLRC and it was only on April 30. 1983.. on the theory that the corporate personality of Philsa should be disregarded. Inc. No. The creation of the second corporation could not therefore have been in anticipation of private respondent's money claims and the consequent adverse judgment against Philsa Likewise. Inc. No. September 21. Francisco V. 135-136. G. NLRC. 1986. Philsa's corporate personality therefore remains inviolable. Inc. a corporation shall be liable for the obligations of a stockholder [Palacio v. No. 1962. Thus. No. Ransom Labor Union-CCLU v. substantial identity of the incorporators of the two corporations does not necessarily imply fraud. On November 10. sec. Fely Transportation Company.R. 1988. In this regard we find the NLRC's decision wanting. and its registration with the POEA as a private employment agency imply fraud since it was organized and registered in 1981.

sec. [At p. C. a cash bond shall be refunded to a recruiter who surrenders his license only upon posting of a surety bond of similar amount valid for three (3) years [Rule II.) In the case now before us. All these. together with the filing of cash and surety bonds [Rule 11.J. As provided in the POEA Rules and Regulations — . 2.. and La Campana Gaugau Packing were substantially owned by the same person. the workers in one factory worked also in the other factory.. Fernan. On this score alone. 602 (the old Minimum Wage Law. the Claparols Steel and Nail Plant. and failure to replenish shall cause the suspension or cancellation of the recruiter's license [Rule II. 19]. foreseeing the possibility or probability of payment of back wages to the 22 strikers..The circumstances of this case distinguish it from those in earlier decisions of the Court in labor cases where the veil of corporate fiction was pierced. Inc.] Quite evidently. Ransom is inapplicable to this case. Francisco V. Moreover. Court of Industrial Relations. No. organized ROSARIO to replace RANSOM. RANSOM actually ceased operations on May 1. Jr. we also find that. these bonds do not answer for a single specific liability. it would appear that RANSOM. As earlier stated. to ensure recovery from the recruiter. . Inc. considering that the non-payment of the workers was a continuing situation. all the assets of the steel and nail plant were transferred to the new corporation. C. It must be emphasized that the claim for differentials and benefits was actually directed against the foreign employer. v. sec.R. the rules of the Administration and relevant issuances of the Ministry and all liabilities which the Administration may impose. July 31. 1988 and October 21. The bonds shall answer for all valid and legal claims arising from violations of the conditions for the grant and use of the license or authority and contracts of employment. respectively. In A. in 1969. Furthermore. C. In Claparols v. The bonds shall likewise guarantee compliance with the provisions of the Labor Code and its implementing rules and regulations relating to recruitment and placement... 1957 and was succeeded on the next day. The laborers of the gaugau factory and the coffee factory were also interchangeable. 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM. sec. one management. the ruling in A. engaging in the same business and operating in the same compound. he being the chief operation officer or "manager" who could be held criminally liable for violations of Republic Act No. in POEA Case No. Ransom.. C. after the December 19. [Rule II. They had one office. Kaisahan ng Manggagawa sa La Campana (KKM) 93 Phil.. with the latter to be eventually phased out if the 22 strikers win their case. not only has there been a failure to establish fraud. Moreover. 4. JJ. 1(d) (3)]. dated September 23. In La Campana Coffee Factory. the Court adjudged its President. Ransom. 20]. La Campana Coffee Factory. Gutierrez. G. the "responsible officer" of the corporation. 1988.. A new corporation was created. the bonds are subject to replenishment when they are garnished. the NLRC should not have affirmed the POEA. an undertaking required by the rules of the POEA [Rule II. Both corporations were substantially owned and controlled by the same person and there was no break or cessation in operations. Philsa became liable only because of its undertaking to be jointly and severally bound with the foreign employer. the Court finds it appropriate to point out that a judgment against a recruiter should initially be enforced against the cash and surety bonds filed with the POEA. 4]. see. 85-06-0394 are SET ASIDE. 274. L-30822. WHEREFORE. but it has also not been shown that petitioner is the corporate officer responsible for private respondent's predicament. personally liable for the backwages awarded. 1973. 65 SCRA 613. i. owned by the same family. 1988 is MADE PERMANENT. SO ORDERED. which was ordered to pay its workers backwages. At this juncture. concur. and a single payroll for both businesses. In the instant case. del Rosario and if insufficient. the petition is GRANTED and the decision and resolution of the NLRC. July 1. Thus. sec. the Court said: .] The distinguishing marks of fraud were therefore clearly apparent in A. The temporary restraining order issued by the Court on November 10. the obligations guaranteed by the bonds are continuing. contrary to the NLRC'S holding. .. ceased operations on June 30.e.. 160 (1953). in order to ensure that overseas workers shall find satisfaction for awards in their favor. 1975. It is therefore surprising why the POEA ordered execution "against the properties of Mr. Feliciano and Bidin. Thus. 1957 by the Claparols Steel Corporation. but for all sorts of liabilities of the recruiter to the worker and to the POEA. against the cash and/or surety bond of Bonding Company concerned for the till satisfaction of the judgment awarded" in complete disregard of the scheme outlined in the POEA Rules and Regulations.