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:

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

27. Petitioner submitted to NPC prequalification documents of its supplier Fuji . . . which included a statement of capital-production-sales tie up with Niigata Engineering Co., Ltd. which is a licensee of SEMT for PC type engines . . . These also show that Fuji was a licensee of SEMT for PA type engines. 28. NPC, from 1982 to 1986, had already issued 24 orders to Fuji valued at P28,000,000.00. . . . [Growth Link] filed [a] petition for mandamus with preliminary injunction and damages with the trial court on February 8, 1988. In an order dated February 15, 1988, the trial court required the [NPC] and other respondents [therein] to file their Comment and/or Answer. . . . At the hearing on February 24, 1988, the [NPC and other] respondents [therein] and/or counsel failed to appear but upon motion of . . . Growth Link's counsel, the latter was allowed to present its evidence ex parte insofar as the issuance of the writ is concerned. Thereafter, or on March 4, 1988, the court granted the issuance of the writ, subject to the filing by petitioner of a surety bond in the amount of P2,245,821.53 . . . However, said order of March 4, 1988 was set aside in an order dated April 18, 1988 for the reason that [the] . . . one who received the summons . . . [was] not authorized to receive summons for the corporation nor the individual defendants [therein] . . . [T]he trial court acquired jurisdiction over [them] only upon their voluntary appearance in court on March 18, 1988. . . . When [Growth Link] filed the bond . . . the same was approved by the Court and the writ of preliminary mandatory injunction was issued: . . . directing the . . . NPC or its duly authorized representatives to honor, comply and/or abide with the said Purchase Orders and/or Indent Orders mentioned in the petition as well as to refrain, 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 . . . The trial court resolved Growth Link's application for preliminary mandatory injunction in an order dated June 3, 1988 declaring, among others, that: [T]here is pending [a] motion for reconsideration dated October 20, 1987 filed by [Growth Link] with [NPC] . . . [which denied Growth Link's] request for reconsideration without even investigating . . . The [NPC] condemned [Growth Link] as a blacklisted bidder and supplier without hearing and thus deprived [it] of its rights without due process. . . . and ordering that: . . . [NPC], during the pendency of said motion for reconsideration and while the same is unresolved finally by the Court, to temporarily LIFT the suspension of petitioner as duly accredited NPC supplier, CANCEL its name from [NPC's] blacklist, and ALLOW [Growth Link] to participate and/or submit its bid proposals at NPC biddings, upon the same bond of P2,245,821.53 previously filed by [Growth Link] . . . . Napocor's motion for reconsideration of the aforecited order was denied on September 27, 1988. After trial on the merits, the court a quo rendered the decision dated September 10, 1991 in favor of petitioner Growth Link, Inc. 9 The trial court found the NPC guilty of gross evident bad faith in its dealings with Growth Link as its duly accredited supplier. Consequently, it ordered the NPC and its officers and members of the Board of Directors, to jointly and severally pay Growth Link the following amounts: a) P230,000.00 representing the cost of the replaced piston skirts under P.O. No. 086653 plus 12% interest thereto [sic] per annum from April 9, 1986 until fully paid; b) P16,870.00 [which was] the amount deducted by [NPC] from [Growth Link]'s outstanding collectibles, plus 12% interest thereto [sic] per annum from November 18, 1985 until fully paid; c) P144,000.00 for payment of items delivered under P.O. No. 095435 plus 12% interest thereto [sic] per annum from November 13, 1986 until fully paid; d) P27,650.00 for payment of items delivered under P.O. No. 096345 plus 12% interest thereto [sic] per annum from April 4, 1987 until fully paid; e) P182,070.00 for payment of items delivered under P.O. No. 096626 plus 12% interest thereto [sic] per annum from April 4, 1987 until fully paid; f) P176,356.00 representing unrealized commission on the cancelled Indent Order No. 08114 dated May 24, 1985 plus 12% interest thereto [sic] per annum from November, 1985 until fully paid; g) P1,249,745.00 representing unrealized commission on the Foreign Inquiry Nos. F2c84-3/5-1027 and 1028Tr for Pielstick Engine Spares, plus 12% interest thereto [sic] per annum from September, 1986 until fully paid; h) P6,216,583.00 representing unrealized commissions on various items bidded where [Growth Link] was the lowest bidder but which was not awarded by NPC to it, plus 12% interest thereto [sic] per annum from July, 1986 until fully paid;

i) P1,419,853.00 representing unpaid commission from the disregarded lowest bid of [Growth Link's] principal on NPC Foreign Inquiry Nos. FPS85-11/26-12AA, FPS85-11/26-121AA and FPS85-11/6-005AA, plus 12% interest thereto [sic] per annum from October, 1987 until fully paid; j) P2,000,000.00 for compensatory damage[s] suffered by petitioner due to loss of business relationship and standing here and abroad; k) P1,500,000.00 for moral and exemplary damages suffered by [Growth Link]; l) P30,000.00 plus 30% of the principal amount recoverable, as and for attorney's fees; m) P40,000.00 as litigation expenses (premiums paid on the injunction bond, etc.); and n) Costs of suit. 10 Refusing to concede its solidary liability for the aforegoing amounts, the NPC, 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; II THE LOWER COURT ERRED IN APPLYING ART. 1571 OF THE CIVIL CODE; III THE LOWER COURT ERRED IN FINDING THAT NAPOCOR BREACHED ITS WRIT OF PRELIMINARY INJUNCTION; IV THE LOWER COURT ERRED IN AWARDING THE ENTIRE AMOUNT OF DAMAGES, MORE OR LESS, PESOS P13.2 MILLION, AS PRAYED FOR BY GROWTH LINK; V THE LOWER COURT ERRED IN HOLDING NAPOCOR JOINTLY AND SEVERALLY LIABLE WITH ITS OFFICERS. 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. The Court of Appeals reasoned: . . . 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. The writ of preliminary mandatory injunction dated September 28, 1988 which directed NPC, among other things, to refrain, 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, was honored by NPC more in its breach than in its compliance. NPC continued to disallow [Growth Link] to participate in any bidding. 2. 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 . . . . NPC never filed any action against [Growth Link] within the six months period from the delivery of the piston skirts, piston rings, and others despite the fact that it was in possession, control, and disposition of the items . . . and [Growth Link] could not do anything to prevent switching, damaging, and/or pilferage as the items are in the full possession and control of NPC. 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]. 3. Due process was denied by NPC to [Growth Link]. NPC just received with deaf ears and closed eyes, the several letters of explanation of [Growth Link], and the latter's request for reconsideration and/or investigation was simply wastebasketed. 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. But NPC condemned [Growth Link] as a blacklisted bidder and supplier without hearing and deprived [Growth Link) of its rights without due process. Additionally, We find the action of Napocor in requiring [Growth Link] to replace the two (2) pielstick piston skirts . . . unjustified. . . . [T]he pielstick skirts when delivered on January 16, 1985 were inspected by the Quality Assurance Group of Napocor itself composed of Engrs. A.C. Mangosing, Jr. 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.O." On the basis of such findings, the piston skirts were accepted and approved for payment and on February 25, 1985, Napocor paid Growth Link the net amount of P227,470.00 . . . . In the fact-finding report and verification of the delivery of the pielstick piston skirts, We note with significance the findings of R. E. Agcaoili, Chief Engineer, Inspection/Test of Napocor as approved by L. F. Osilla, Manager of Napocor Assurance Group Utility Operations, that the delivered items are definitely piston skirts intended for Pielstick Diesel engine for Gen. Santos Plant; both items (in one crate) appeared new; they were adequately provided with protective wax coating and further preserved with pellucid plastic sheet wrappers; closer scrutiny on the piston skirt . . . showed that there were no signs of damages and/or unusual imperfection except for slight dents on the pheriphery

[sic] of the piston pin hole which was considered insignificant and will not in any way affect the soundness of the item. . . . When these pielstick piston skirts arrived at the Gen. Santos Diesel Plant and re-inspected . . . the inspection report of Mr. Padilla stated that the delivered items were second hand and with damages, hence, they were rejected by the end-user and reshipped to Manila . . . . During the negotiations with Napocor, Mr. Teodoro Miguel of Growth Link committed to replace the rejected items . . . otherwise, Growth Link would be required to refund the amount of P227,470.00. On top of that, Napocor deducted the sum of P16,870.50 from [Growth Link's] outstanding collectibles as evidenced by PNB Check No. 102690 per NPC Credit Memo No. 030910. . . . [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 . . . was shipped from Japan direct to Napocor and accepted and received by the end-user on May 30, 1985 but was questioned after a year later on June 3, 1986 by Mr. Romeo Perlado, NPC VP-Visayas Region claiming that said piston rings "did not reach its normal expected life of 12,000 RH" and requested that they be replaced, otherwise, they will put on record that its supplier has a bad supply of materials. [Growth Link] was treated similarly by Napocor with regard to . . . (4) pieces of Right Hand Exhaust Valve Body which, upon delivery to NPC's old warehouse at Port Area, Manila on October 13, 1986, were immediately rejected by the Quality Assurance Group on the ground that they were manufactured by Fuji Diesel Co., Ltd., which is not a licensee of S.E.M.T. 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]. Because of the admission of Napocor's witness, A.C. Mangosing, Jr. that he knew of instances of switching cargoes in the Port of Manila . . . 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 . . . coupled with the fact that when they were originally landed and inspected, the same were found by Napocor's own engineers to be brand new . . . We, therefore, 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]. Moreover, We find no merit in Napocor's contention that the trial court erred in applying Art. 1571 of the Civil Code. . . . . . . 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, accepted and certified to by Napocor's representatives as brand new and in accordance with its P.O. No. 086653. As a matter of fact, that shipment was recommended for payment and was actually paid for by Napocor. Moreover, 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 . . . . On the question of the lower court's findings that the Napocor breached its writ of preliminary injunction, another factor upon which the lower court based its finding that Napocor committed gross evident bad faith, We only have to cite by reference that portion of the decision appealed from . . . . Additionally, on the basis of the facts established, 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. But while the respondent appellate court affirmed the trial court's finding of gross evident bad faith on the part of NPC, 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 Court of Appeals ruled: An invitation to bid is not an offer which, if accepted, matures into a contract. In the language of Article 1326 of the Civil Code, "advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears." The reservation in the Invitation to Bid, 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. Cloribel, 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. vs. Menor, 120 SCRA 112). Under the guidance of the aforecited authorities, We find no justification for the award given by the trial court to [Growth Link] in paragraphs "g", "h", and "i" of the decision appealed from, 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, therefore, give the winning bidder a vested right to its earnings and commissions arising therefrom, [Foreign Inquiries] as mere invitations to make offers or proposals, do not, by itself, produce a contract that would ensure earnings and/or commissions for the bidder. Hence, 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. 12 As to the awards for compensatory, moral and exemplary damages, the respondent Court of Appeals found valid basis therefor under the circumstances of these consolidated cases, but respondent appellate court was no less struck by the enormity of the amounts awarded by the trial court as damages. Thus it reduced the same in this wise: . . . [W]hile we affirm the findings and conclusion of the trial court as valid basis of the award for damages, We find the awards of P2,000,000.00 and P1,500,000.00 for compensatory damages and for moral and exemplary damages, respectively, to be too huge, under the circumstances of this case that calls for this court's duty to tone down petitioner's fantastic claims (Baluyot vs. Lopez, 51 O.G. #2, p. 784). They are, therefore, hereby reduced to P1,000,000.00 for compensatory damages and to P500,000.00 for moral and exemplary damages.

Likewise finding NPC's objection to the trial court's finding of solidary liability to be justified, considering that the officers and members of the Board of Directors of NPC were sued in their official capacities, the respondent Court of Appeals held: Finally, We find that the lower court erred in holding the individual respondents "jointly and severally" liable with Napocor. It is significant to point out that both the original Petition and Amended Petition for Mandamus filed by [Growth Link], contain identical allegations in identifying the individual respondents in this case, thus: 2. Respondent, NATIONAL POWER CORPORATION . . . ; Respondents-Members of the NPC Board of Directors; HON. EDGARDO B. ESPIRITU . . . is being sued in his official capacity as Chairman of the NPC Board of Directors; HON. ERNESTO M. ABOITIZ . . . is being sued in his official capacity as the Vice-Chairman of the NPC Board of Directors and President of the Respondent firm; HON. JUANITO N. FERRER, HON. NESTOR M. NOGUERRA, HON. CRISPIN T. UBALDO and HON. DOMINGO R. VIDANES . . . are being sued in their official capacities as Members of the NPC Board of Directors . . . ; Respondent, HON. CONRADO D. DEL ROSARIO . . . is being sued in his former official capacities as Vice-Chairman of the NPC Board and President of Respondent firm . . . ; and Respondent, MARCELINO ILAO . . . is being sued in his official capacity as NPC vice-President-General Counsel . . . . 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, there is no allegation whatsoever that would justify the imposition of a "joint and several" liability with (Napocor) of the individual respondents who, as officers of Napocor, were being sued in their respective official capacities. Neither did petitioner show, much less claim, 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. 13 From the Decision of the Court of Appeals, 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, for the upgrading of the amounts granted as compensatory, 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; while NPC prays only for the reduction of the amount granted as and by way of attorney's fees, which prayer, we should point out, is significantly premised on the acceptance of all the other findings and conclusions of the Court of Appeals, including its affirmance of the trial court's finding of gross evident bad faith on the part of NPC. We find the instant consolidated petitions to be both wanting in merit. I G.R. No. 113103 A cursory review of the above errors raised by the NPC before the Court of Appeals, shows that the NPC never assigned the issue of the exorbitant amount awarded to Growth Link as and by way of attorney's fees, as an error on appeal. Thus, insofar as the amount of the attorney's fees granted by the trial court is concerned, the same must be deemed no longer open to modification, much less, reduction, the person supposedly aggrieved thereby having resonantly been silent on this issue in its appeal before the respondent court. At any rate, this court, in at least two (2) occasions, has allowed an award of 20% 14 to 25% 15 of the total indebtedness involved in the litigation. In fact, the NPC cites these cases in its Petition. In this case, Growth Link prayed for and was awarded by the trial court, the amount of P30,000.00 and 30% of the amount recoverable, as and by way of attorney's fees. While said amount may itself be huge by ordinary standards, 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. Thus, 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, is not in itself gargantuan, exorbitant and unconscionable. The matter of 5% differential will not make it so, if we consider the complexities of the instant case, the determination, now conclusive, that [the NPC] acted with gross and evident bad faith, in blacklisting private respondent . . . . The determination of amount of attorney's fees largely depends on the court's discretion. So long as it has sound basis, it will not be interfered with. . . . Here the lower court was further guided by the complex nature of this case, involving as it did several causes of action each of which proved difficult to establish, and made more so by petitioner's sustained albeit unjustified, resistance. . . . Thus this suit was a compelled recourse against arbitrary and capricious conduct and the denial of the rudimentary requirements of due process. 16

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, suffice it to say that the trial court undisputedly awarded exemplary damages, which award is itself a legal justification, under Article 2208 17 of the Civil Code, for the award of attorney's fees. II G.R. No. 116000 First. 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, because they did not appeal the trial court's decision. Growth Link specifically cites the Notice of Appeal filed by the NPC to be personal only to the NPC. This submission, however, is, in the first place, belied by the caption of the Notice of Appeal in question, which states, "NATIONAL POWER CORPORATION, ET AL., Respondents." This same caption can be found in NPC's Motion for Reconsideration. Significantly, Growth Link's Opposition to the Motion for Reconsideration made reference to the NPC officers and members of the Board of Directors, in its arguments. At any rate, technicalities that defeat substantial justice are, by this court's policy, an unpreferred basis to deprive parties of their statutory right to appeal a decision that is fatally flawed in certain respects. In the second place, the finding of solidary liability among the NPC and its officers and members of the Board of Directors, is patently baseless. The decision of the trial court contains no such allegation, 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, bad faith, or ill-motive in their personal dealings with Growth Link. In fact, it was only in the dispositive portion of the decision of the court a quo that solidary liability as such was first mentioned. NPC's officers and members of the Board of Directors were sued merely as nominal parties in their official capacities as such. 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. Therefore, as a bonafide government corporation, NPC should alone be liable for its corporate acts as duly authorized by its officers and directors. 18 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 and 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] . . . ). 19 We repeat, there was nothing in Growth Link's petition nor in the mass of evidence proffered, 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. 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. Thus, 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. Second. Growth Link takes exception to the reduction made by the respondent Court of Appeals of the award for compensatory, moral and exemplary damages. 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." We empathize with Growth Link, especially with its owner-president, Teodoro Miguel, whose sincere testimony as to the irreparable damage wrought on his business and personal reputation by NPC's act of blacklisting his company, does call for some reparation in the form of substantial damages. However, substantial damages do not translate into excessive damages. 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, 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, attacks as to its being a result of passion, prejudice or corruption. Two million pesos (P2,000,000.00) as compensatory damages and one and a half million pesos (P1,500,000.00) as moral and exemplary damages, are too much. While NPC may be accountable for lost profits that Growth Link may have gained from its dealings with the NPC itself, 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. NPC may have accredited Growth Link as a supplier, but it did not thereby become Growth Link's insurer for all and any profitable contracts that Growth Link may obtain. Thus, we find the reduction of the awards of damages by the respondent Court of Appeals, to be warranted under the facts and circumstances of the instant case.

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

G.R. No. 58168 December 19, 1989 CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA MAGSAYSAYCORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners, vs. THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of the Estate of the late Genaro F. Magsaysay respondents. In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the decision of the Court of Appeals dated July l3, 1981, 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, and [2] its resolution dated September 7, 1981, denying their motion for reconsideration. Petitioners are raising a purely legal question; whether or not respondent Court of Appeals correctly denied their motion for intervention. On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales. In her complaint, she alleged that in 1958, she and her husband acquired, thru conjugal funds, a parcel of land with improvements, known as "Pequena Island", covered by TCT No. 3258; that after the death of her husband, she discovered [a] an annotation at the back of TCT No. 3258 that "the land was acquired by her husband from his separate capital;" [b] the registration of a Deed of Assignment dated June 25, 1976 purportedly executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258 was cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed of Mortgage dated April 28, 1977 in the amount of P 2,700,000.00 executed by SUBIC in favor of FILMANBANK; that the foregoing acts were void and done in an attempt to defraud the conjugal partnership considering that the land is conjugal, her marital consent to the annotation on TCT No. 3258 was not obtained, 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, if obtained, was secured by mistake, violence and intimidation. She further alleged that the assignment in favor of SUBIC was without consideration and consequently null and void. 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. 22431 and to issue a new title in her favor. On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for intervention on the ground that on June 20, 1978, their brother conveyed to them one-half (1/2 ) of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, 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. On July 26, 1979, the court denied the motion for intervention, 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. On appeal, respondent Court of Appeals found no factual or legal justification to disturb the findings of the lower court. 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, such that with the denial of the motion for intervention, they are not left without any remedy or judicial relief under existing law. Petitioners' motion for reconsideration was denied. Hence, the instant recourse. 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, 1978. 2 Such transfer, petitioners posit, clothes them with an interest, protected by law, in the matter of litigation. Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 & 853 (1927), 3 petitioners strongly argue that their ownership of 41.66% of the entire outstanding capital stock of SUBIC entitles them to a significant vote in the corporate affairs; 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. Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, 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. In the case of Batama Farmers' Cooperative Marketing Association, Inc. v. Rosal, 4 we held: "As clearly stated in Section 2 of Rule 12 of the Rules of Court, to be permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either of the parties or an interest against both, 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 ." To allow intervention, [a] it must be shown that the movant has legal interest in the matter in litigation, or otherwise qualified; and [b] consideration must be given as to whether the adjudication of the rights of the original parties may be delayed or prejudiced, or whether the intervenor's rights may be protected in a separate proceeding or not. Both requirements must concur as the first is not more important than the second. 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

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

G.R. No. 125469 October 27, 1997 PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND, INC., respondents. The Securities and Exchange Commission is the government agency, under the direct general supervision of the Office of the President, 1 with the immense task of enforcing the Revised Securities Act, and all other duties assigned to it by pertinent laws. Among its inumerable functions, and one of the most important, is the supervision of all corporations, partnerships or associations, who are grantees of primary franchise and/or a license or permit issued by the government to operate in the Philippines. 2 Just how far this regulatory authority extends, particularly, with regard to the Petitioner Philippine Stock Exchange, Inc. is the issue in the case at bar. In this Petition for Review on Certiorari, petitioner assails the resolution of the respondent Court of Appeals, dated June 27, 1996, which affirmed the decision of the Securities and Exchange Commission ordering the petitioner Philippine Stock Exchange, Inc. to allow the private respondent Puerto Azul Land, Inc. to be listed in its stock market, thus paving the way for the public offering of PALI's shares. The facts of the case are undisputed, and are hereby restated in sum. The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. In January, 1995, PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange Commission (SEC). To facilitate the trading of its shares among investors, PALI sought to course the trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the said stock exchange an application to list its shares, with supporting documents attached. On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALI's application, recommended to the PSE's Board of Governors the approval of PALI's listing application. On February 14, 1996, before it could act upon PALI's application, the Board of Governors of the PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and that the Ternate Development Corporation, which is among the stockholders of PALI, likewise appears to have been held and continue to be held in trust by one Rebecco Panlilio for then President Marcos and now, effectively for his estate, and requested PALI's application to be deferred. PALI was requested to comment upon the said letter. PALI's answer stated that the properties forming part of the Puerto Azul Beach Hotel and Resort Complex were not claimed by PALI as its assets. On the contrary, the resort is actually owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI. Furthermore, the Ternate Development Corporation owns only 1.20% of PALI. The Marcoses responded that their claim is not confined to the facilities forming part of the Puerto Azul Hotel and Resort Complex, thereby implying that they are also asserting legal and beneficial ownership of other properties titled under the name of PALI. On February 20, 1996, 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. On March 4, 1996, the PSE was informed that the Marcoses received a Temporary Restraining Order on the same date, enjoining the Marcoses from, among others, "further impeding, obstructing, delaying or interfering in any manner by or any means with the consideration, processing and approval by the PSE of the initial public offering of PALI." The TRO was issued by Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case No. 65561, pending in Branch 69 thereof. In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its decision to reject PALI's application, citing the existence of serious claims, issues and circumstances surrounding PALI's ownership over its assets that adversely affect the suitability of listing PALI's shares in the stock exchange. On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SEC's attention the action taken by the PSE in the application of PALI for the listing of its shares with the PSE, and requesting that the SEC, in the exercise of its supervisory and regulatory powers over stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSE's action on PALI's listing application and institute such measures as are just and proper under the circumstances. On the same date, or on April 11, 1996, the SEC wrote to 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. On April 22, 1996, the PSE submitted a letter to the SEC containing its comments to the April 11, 1996 letter of PALI. On April 24, 1996, the SEC rendered its Order, reversing the PSE's decision. The dispositive portion of the said order reads: WHEREFORE, premises considered, and invoking the Commissioner's authority and jurisdiction under Section 3 of the Revised Securities Act, in conjunction with Section 3, 6(j) and 6(m) of Presidential Decree No. 902-A, the decision of the Board of Governors of the Philippine Stock Exchange denying the listing of shares of Puerto Azul Land, Inc., is

hereby set aside, and the PSE is hereby ordered to immediately cause the listing of the PALI shares in the Exchange, without prejudice to its authority to require PALI to disclose such other material information it deems necessary for the protection of the investigating public. This Order shall take effect immediately. SO ORDERED. PSE filed a motion for reconsideration of the said order on April 29, 1996, which was, however denied by the Commission in its May 9, 1996 Order which states: WHEREFORE, premises considered, the Commission finds no compelling reason to reconsider its order dated April 24, 1996, and in the light of recent developments on the adverse claim against the PALI properties, PSE should require PALI to submit full disclosure of material facts and information to protect the investing public. In this regard, PALI is hereby ordered to amend its registration statements filed with the Commission to incorporate the full disclosure of these material facts and information. Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a Petition for Review (with Application for Writ of Preliminary Injunction and Temporary Restraining Order), assailing the above mentioned orders of the SEC, submitting the following as errors of the SEC: I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT POWER, JURISDICTION, OR AUTHORITY; 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; II. 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; III. 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; AND IV. 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. On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a Comment and Motion to Dismiss. On June 10, 1996, PSE fled its Reply to Comment and Opposition to Motion to Dismiss. On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSE's Petition for Review. Hence, this Petition by the PSE. The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision of the petitioner PSE, pursuant to Section 3 3 of the Revised Securities Act in relation to Section 6(j) and 6(m) 4 of P.D. No. 902-A, and Section 38(b) 5 of the Revised Securities Act, and for the purpose of ensuring fair administration of the exchange. Both as a corporation and as a stock exchange, the petitioner is subject to public respondent's jurisdiction, regulation and control. Accepting the argument that the public respondent has the authority merely to supervise or regulate, would amount to serious consequences, considering that the petitioner is a stock exchange whose business is impressed with public interest. Abuse is not remote if the public respondent is left without any system of control. If the securities act vested the public respondent with jurisdiction and control over all corporations; the power to authorize the establishment of stock exchanges; the right to supervise and regulate the same; and the power to alter and supplement rules of the exchange in the listing or delisting of securities, then the law certainly granted to the public respondent the plenary authority over the petitioner; and the power of review necessarily comes within its authority. All in all, the court held that PALI complied with all the requirements for public listing, affirming the SEC's ruling to the effect that: . . . 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. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the Exchange; 2. In applying its clear and reasonable standards on the suitability for listing of shares, PSE has failed to justify why it acted differently on the application of PALI, as compared to the IPOs of other companies similarly situated that were allowed listing in the Exchange; 3. 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, 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; 4. No action has been filed in any court of competent jurisdiction seeking to nullify PALI's ownership over the disputed properties, neither has the government instituted recovery proceedings against these properties. Yet the import of PSE's decision in denying PALI's application is that it would be PALI, not the Marcoses, that must go to court to prove the legality of its ownership on these properties before its shares can be listed.

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

authority over private corporations encompasses a wide margin of areas, touching nearly all of a corporation's concerns. This authority springs from the fact that a corporation owes its existence to the concession of its corporate franchise from the state. The SEC's power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as necessary or incidental to the carrying out of the SEC's express power to insure fair dealing in securities traded upon a stock exchange or to ensure the fair administration of such exchange. 7 It is, likewise, observed that the principal function of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected, and their activities for the promotion of economic development. 8 Thus, 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. We affirm that the SEC is the entity with the primary say as to whether or not securities, including shares of stock of a corporation, may be traded or not in the stock exchange. This is in line with the SEC's mission to ensure proper compliance with the laws, such as the Revised Securities Act and to regulate the sale and disposition of securities in the country. 9 As the appellate court explains: Paramount policy also supports the authority of the public respondent to review petitioner's denial of the listing. Being a stock exchange, the petitioner performs a function that is vital to the national economy, as the business is affected with public interest. As a matter of fact, it has often been said that the economy moves on the basis of the rise and fall of stocks being traded. By its economic power, the petitioner certainly can dictate which and how many users are allowed to sell securities thru the facilities of a stock exchange, if allowed to interpret its own rules liberally as it may please. Petitioner can either allow or deny the entry to the market of securities. To repeat, the monopoly, unless accompanied by control, becomes subject to abuse; hence, considering public interest, then it should be subject to government regulation. The role of the SEC in our national economy cannot be minimized. The legislature, through the Revised Securities Act, Presidential Decree No. 902-A, and other pertinent laws, 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.
10

This is not to say, however, that the PSE's management prerogatives are under the absolute control of the SEC. The PSE is, alter all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. One of the PSE's main concerns, as such, is still the generation of profit for its stockholders. Moreover, the PSE has all the rights pertaining to corporations, including the right to sue and be sued, to hold property in its own name, to enter (or not to enter) into contracts with third persons, and to perform all other legal acts within its allocated express or implied powers. A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such a body. 11 As to its corporate and management decisions, therefore, the state will generally not interfere with the same. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board of directors. The board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts. 12 Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSE's decision in matters of application for listing in the market, the SEC may exercise such power only if the PSE's judgment is attended by bad faith. In Board of Liquidators vs. Kalaw, 13 it was held that bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest of ill will, partaking of the nature of fraud. In reaching its decision to deny the application for listing of PALI, the PSE considered important facts, which, in the general scheme, brings to serious question the qualification of PALI to sell its shares to the public through the stock exchange. During the time for receiving objections to the application, the PSE heard from the representative of the late President Ferdinand E. Marcos and his family who claim the properties of the private respondent to be part of the Marcos estate. In time, the PCGG confirmed this claim. In fact, an order of sequestration has been issued covering the properties of PALI, and suit for reconveyance to the state has been filed in the Sandiganbayan Court. How the properties were effectively transferred, despite the sequestration order, from the TDC and MSDC to Rebecco Panlilio, and to the private respondent PALI, in only a short span of time, are not yet explained to the Court, but it is clear that such circumstances give rise to serious doubt as to the integrity of PALI as a stock issuer. The petitioner was in the right when it refused application of PALI, for a contrary ruling was not to the best interest of the general public. The purpose of the Revised Securities Act, after all, is to give adequate and effective protection to the investing public against fraudulent representations, or false promises, and the imposition of worthless ventures. 14 It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts detrimental to legitimate business, thus: The Securities Act, often referred to as the "truth in securities" Act, was designed not only to provide investors with adequate information upon which to base their decisions to buy and sell securities, 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. (Tenth Annual Report, U.S. Securities & Exchange Commission, p. 14).

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

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

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

G.R. No. L-23783

April 25, 1968

JRS BUSINESS CORPORATION and JOSE R. DA SILVA, petitioners, vs.THE HON. AGUSTIN P. MONTESA, Judge of the Court of First Instance of Manila, and THE IMPERIAL INSURANCE, INC., respondents. This present petition for mandamus with preliminary mandatory injunction against the then respondent Judge, now retired, Agustin P. Montesa, of the Court of First Instance of Manila, has its roots in a 1964 decision of this Court. 1 Petitioners JRS Business Corporation and Jose R. Da Silva were two of the petitioners in the above proceeding. The principal respondent in this petition, Imperial Insurance, Inc., had a similar role therein. As set forth in the opening paragraph of the decision then rendered: "Petitioner J. R. Da Silva, is the President of the JRS Business Corporation, an establishment duly franchised by the Congress of the Philippines, to conduct a messenger and delivery express service. On July 12, 1961, the respondent, Imperial Insurance, Inc., presented with the CFI of Manila, a complaint . . ., for a sum of money against the petitioner corporation. After the defendants therein have submitted their Answer, the parties entered into a Compromise Agreement, assisted by their respective counsels. . . ." 2 The compromise agreement noted an indebtedness of petitioners, as defendants, in the amount of P61,172.32, an obligation, joint and several in character, and contained a promise to pay to then plaintiff, respondent Imperial Insurance, Inc., such amount within sixty (60) days from March 16, 1962 or, on or before May 14, 1962. The failure for any reason to pay in full such amount on that date would entitle respondent Imperial Insurance, Inc., as plaintiff, "to move for the execution of the decision to be rendered" based on such compromise agreement. Then came, on March 17, 1962, the lower court decision embodying the contents of the aforesaid compromise agreement, the dispositive portion thereof reading: "WHEREFORE, the Court hereby approves the above-quoted compromise agreement and renders judgment in accordance therewith, enjoining the parties to comply faithfully and strictly with the terms and conditions thereof, without special pronouncement as to costs." One day after the failure to pay such judgment debt, on May 15, 1962, respondent Imperial Insurance, Inc. filed a motion for the issuance of a writ of execution. On May 23, 1962, a writ of execution was issued by the Sheriff of Manila, the auction sale being set for June 21, 1962. 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, Manila, all the properties of said corporation contained in the Notices of Sale dated May 26, 1962, and June 2, 1962 (the latter notice being for the whole capital stocks of the defendant, JRS Business Corporation, the business name, right of operation, the whole assets, furnitures and equipments, the total liabilities and Net Worth, books of accounts. . .), were bought by respondent Imperial Insurance, Inc., for P10,000.00, which was the highest bid offered. Immediately after the sale, respondent Insurance Company took possession of the properties and started running the affairs and operating the business of the JRS Business Corporation." That was the background for that previous certiorari proceeding, the main question raised being whether the business name or trade name, franchise and capital stocks of the then petitioner JRS Business Corporation were properties or property rights which could be the subject of levy, execution and sale? This Court in its 1964 decision answered in the negative. It made clear why: "The compromise agreement and the judgment based thereon, do not contain any special decree or order making the franchise answerable for the judgment debt. The same thing may be stated with respect to petitioner's trade name or business name and its capital stock. Incidentally, 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. Like that of a franchise, 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. As we have stated heretofore, no such directive appears in the decision. Moreover, 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, for that matter, represents the interest and is the property of stockholders in the corporation, who can only be deprived thereof in the manner provided by law. . . ." It was then the decision of the Court in that proceeding "that the inclusion of the franchise, the trade name and/or business name and the capital stock of the petitioner corporation, in the sale of the properties of the JRS Business Corporation, has no justification. The sale of the properties of petitioner corporation is SET ASIDE, in so far as it authorizes the levy and sale of its franchise, trade name and capital stocks." The present petition for mandamus with preliminary mandatory injunction is premised on the contention that respondent Judge failed to execute properly the above decision. According to the present petition, on September 2, 1964, after the aforementioned decision became final and executory, "a certified copy of said decision had been duly transmitted by this Honorable Court to the Court of First Instance of Manila. . . ." 3 Then came "a motion for execution and an amended motion for execution, respectively, of said decision," in which the abovenamed petitioners prayed among other things "for the immediate return or restitution of the aforesaid franchise, trade name and capital stocks" as well as for indemnification in the amount of P132,500. 4 After such motions were heard by respondent Judge Montesa, 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." 5 Clearly, he pointed out that the writ of execution could not include anything not embodied in the decision. He admitted that he could not modify it, stressing that it is only such decision, "that must be enforced, nothing more, nothing less." He therefore enjoined "the Sheriff of Manila . . . to act accordingly in the sale of properties of defendants." He likewise disallowed the claim for damages against the then plaintiff, now respondent Imperial Insurance, Inc. 6 In pursuance of the above order of September 18, 1964, the Sheriff of Manila, wrote a letter on October 2, 1964, to respondent Imperial Insurance, Inc., the highest bidder at the public auction sale then in possession of the properties of petitioner JRS Business Corporation, notifying it of the above order of respondent Judge. 7 Then came the motion for restitution, the denial of which is the basis of the present petition, wherein after setting forth the issuance of the above order of respondent Judge of September 18, 1964 and the notice of the Sheriff of Manila in compliance of such order to respondent Imperial insurance, Inc. that the franchise, trade name and the capital stocks of defendant JRS Business Corporation are excluded from the public auction sale, immediate restitution thereof is prayed for by present petitioners. 8 The above motion for restitution was denied by respondent Judge in an order of October 19, 1964, for lack of merit. 9

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, in the opinion of petitioners, is the proper remedy.10 Petitioners likewise sought a preliminary mandatory injunction in order allegedly to prevent further injury to them.11 This Court did not issue a preliminary mandatory injunction. In the answer of respondents, which was joined by petitioner JRS Business Corporation, having come under a different management after such public auction sale, there was an admission of respondent Judge Montesa issuing an order of September 18, 1964 directing the Sheriff of Manila to act in accordance with the decision of this Court of July 31, 1964, as well as of the step taken by the Sheriff of Manila in a communication of October 2, 1964, to respondent Imperial Insurance, Inc. notifying it of such order with the qualification "that petitioner JRS Business Corporation has always been in possession of its franchise, tradename, and capital stock and respondent Imperial Insurance, Inc. was never in possession thereof. That the respondent Imperial Insurance, Inc. actually purchased on the public auction sale of the Sheriff of Manila were, among other things, " the rights, interests and participation of the herein petitioner Jose R. Da Silva in the JRS Business Corporation. The decision of this Honorable Court in G.R. No. L-19891 does not set aside the sale of the rights, interests and participation of the herein petitioner Jose R. Da Silva in the JRS Business Corporation."12 Further, the denial of the motion for restitution of petitioner Da Silva was in the answer alleged to be "fully justified since respondent Imperial Insurance, Inc. never took actual or physical custody and possession thereof and petitioner Jose R. Da Silva lost his rights, interests and participation therein." 13 It is the stand therefore of respondents that mandamus does not lie in the present case, 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. Respondents likewise denied liability for any alleged actual or moral damages, as well as for attorney's fees. The prayer is for the dismissal of the petition. Mandamus does not lie, and the petition must be dismissed. With petitioner JRS Business Corporation having joined in the answer filed by respondents, the sole petitioner, in effect, is Jose R. Da Silva whose rights, if any, in this present petition, are traceable to the decision of this Court of July 31, 1964. It is quite categorical; its dispositive portion reads thus: "The sale of the properties of petitioner corporation is SET ASIDE, in so far as it authorizes the levy and sale its franchise, trade name and capital stocks." The winning party clearly is the JRS Business Corporation, the franchise, trade name and capital stocks of which were held as not being included in the sale at public auction. As admitted in the petition, the above decision was, by virtue of the writ of execution filed by petitioners, carried out. Such order in part reads: "The sale at public auction of the properties of the petitioner must, therefore, conform with the above-quoted decision of the Supreme Court and nothing else. The writ of execution can not include anything not embodied in the decision rendered by this Court. It can not modify the said decision. It is only the said decision that must be enforced, nothing more, nothing less."14 What is even more decisive insofar as petitioner Jose R. 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. The decision is silent as to any alleged right of petitioner Jose R. Da Silva, which might have been mistakenly included in the public auction sale. Such being the case, there is no clear legal right that he could invoke, which could have been the basis of a motion for restitution, the denial of which would have given rise to a petition for mandamus. 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, 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.15 On the face of the motion for restitution, which was denied, no motion for reconsideration having been thereafter filed, the failure to perform a duty resulting from an office as well as the exclusion of petitioner Jose R. Da Silva from the use and enjoyment of a right could not be predicated. Such being the case, mandamus cannot be availed of. According to former Chief Justice Moran, "only specific legal rights may be enforced by mandamus if they are clear and certain. If the legal rights of the petitioner are not well defined, clear, and certain, the petition must be dismissed. 16 In support of the above view, Viuda e Hijos de Crispulo Zamora v. Wright,17 was cited. 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, and that petitioner must have clear, legal right to the thing demanded and that it must be the legal duty of the defendant to perform the required act."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, that the right sought to be enforced must be certain and clear, and that the writ not issue in cases where the right is doubtful."19 To the same effect is the formulation of such doctrine by former Justice Barrera: "Stated otherwise, the writ never issues in doubtful cases. It neither confers powers nor imposes duties. It is simply a command to exercise a power already possessed and to perform a duty already imposed." 20 WHEREFORE, this petition for mandamus is denied. Without special pronouncement as to costs. 1wph1.t

G.R. No. 84197 July 28, 1989 PIONEER INSURANCE & SURETY CORPORATION, petitioner, vs. THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents. G.R. No. 84157 July 28, 1989 JACOB S. LIM, petitioner, vs.COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents. The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV No. 66195 which modified the decision of the then Court of First Instance of Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against all defendants (respondents in G.R. No. 84197) was dismissed but in all other respects the trial court's decision was affirmed. The dispositive portion of the trial court's decision reads as follows: WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay plaintiff the amount of P311,056.02, with interest at the rate of 12% per annum compounded monthly; plus 15% of the amount awarded to plaintiff as attorney's fees from July 2,1966, until full payment is made; plus P70,000.00 moral and exemplary damages. It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses aside from Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is further required to pay cross party plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half, the amount of Pl84,878.74 with interest from the filing of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in the amount of P184,878.84 with interest from the filing of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in the amount of P50,000.00 for each of the two Cervanteses. Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another P20,000.00 to Constancio B. Maglana as attorney's fees. WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants Bormaheco, the Cervanteses and Constancio B. Maglana, is dismissed. Instead, plaintiff is required to indemnify the defendants Bormaheco and the Cervanteses the amount of P20,000.00 as attorney's fees and the amount of P4,379.21, per year from 1966 with legal rate of interest up to the time it is paid. Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00 as attorney's fees and costs. No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith. 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, is not an act of bad faith. When a man tries to protect his rights, he should not be saddled with moral or exemplary damages. Furthermore, the rights exercised were provided for in the Rules of Court, and it was the court that ordered it, in the exercise of its discretion. No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it only secured the attachment prayed for by the plaintiff Pioneer. 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, then nobody would engage in the insurance business. No further claim or counter-claim for or against anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16) In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. On May 17, 1965, at Tokyo, Japan, 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 $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No. PIC718, arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on July 18,1965. On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and spare parts. It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), 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. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. 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

damages, losses, costs, damages, taxes, penalties, 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, reimburse and make good to Pioneer, its successors and assigns, 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. On June 10, 1965, 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. It was stipulated therein that Lim transfer and convey to the surety the two aircrafts. 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. 776), respectively. Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paid a total sum of P298,626.12. Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the aircrafts, On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana. In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the contracts signed by Lim and, by way of counterclaim, 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, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants. As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint against all the defendants was dismissed. In all other respects the trial court's decision was affirmed. We first resolve G.R. No. 84197. 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. (Rollo - G. R. No. 84197, p. 10) The petitioner questions the following findings of the appellate court: We find no merit in plaintiffs appeal. 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 P295,000.00. Defendants' alleged obligation to Pioneer amounts to P295,000.00, hence, plaintiffs instant action for the recovery of the amount of P298,666.28 from defendants will no longer prosper. 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. Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from defendants, hence, it instituted the action is utterly devoid of merit. Plaintiff did not even present any evidence that it is the attorney-in-fact of the reinsurance company, authorized to institute an action for and in behalf of the latter. To qualify a person to be a real party in interest in whose name an action must be prosecuted, he must appear to be the present real owner of the right sought to be enforced (Moran, Vol. I, Comments on the Rules of Court, 1979 ed., p. 155). 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. Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest is meant a present substantial interest as distinguished from a mere expectancy or a future, contingent, subordinate or consequential interest (Garcia v. David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans, 1 NW 2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35). Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real party in interest as it has already been paid by the reinsurer the sum of P295,000.00 the bulk of defendants' alleged obligation to Pioneer. In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer, the former was able to foreclose extra-judicially one of the subject airplanes and its spare engine, realizing the total amount of P37,050.00 from the sale of the mortgaged chattels. Adding the sum of P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00, it is patent that plaintiff has been overpaid in the amount of P33,383.72 considering that the total amount it had paid to JDA totals to only P298,666.28. To allow plaintiff Pioneer to recover from defendants the amount in excess of P298,666.28 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. Well settled is the rule that no person should unjustly enrich himself at the expense of another (Article 22, New Civil Code). (Rollo-84197, pp. 24-25).

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, 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; (Rollo, p. 11) (2) even assuming hypothetically that it was paid by its reinsurer, 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; (3) pursuant to the indemnity agreements, the petitioner is entitled to recover from respondents Bormaheco and Maglana; 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. The records belie the petitioner's contention that the issue on the reinsurance money was never raised by the parties. A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were: 1. 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. If the answer to the preceding question is in the negative, has Pioneer still any claim against defendants, considering the amount it has realized from the sale of the mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R. No. 84157). In resolving these issues, 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, collected the proceeds of such reinsurance in the sum of P295,000, and paid with the said amount the bulk of its alleged liability to JDA under the said surety bond, it is plain that on this score it no longer has any right to collect to the extent of the said amount. On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants for the amount paid to it by the reinsurers, notwithstanding that the cause of action pertains to the latter, Pioneer says: The reinsurers opted instead that the Pioneer Insurance & Surety Corporation shall pursue alone the case.. . . . Pioneer Insurance & Surety Corporation is representing the reinsurers to recover the amount.' In other words, insofar as the amount paid to it by the reinsurers Pioneer is suing defendants as their attorney-in-fact. But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as attorney-in- fact of the reinsurers for any amount. Lastly, and most important of all, Pioneer has no right to institute and maintain in its own name an action for the benefit of the reinsurers. 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, and this is so even where the name of the principal is disclosed in the complaint. 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.' This provision is mandatory. 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. This Court has held in various cases that an attorney-in-fact is not a real party in interest, that there is no law permitting an action to be brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v. San Diego G.R. No. L22347,1968, 23 SCRA 706, 710-714. The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00 from the reinsurers, the uninsured portion of what it paid to JDA is the difference between the two amounts, or P3,666.28. This is the amount for which Pioneer may sue defendants, assuming that the indemnity agreement is still valid and effective. But since the amount realized from the sale of the mortgaged chattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or a total of P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore, Pioneer has no more claim against defendants. (Record on Appeal, pp. 360-363). The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering this admitted payment, the only issue that cropped up was the effect of payment made by the reinsurers to the petitioner. Therefore, 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. In general a reinsurer, 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. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925). The rules of practice in actions on original insurance policies are in general applicable to actions or contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134). Hence the applicable law is Article 2207 of the new Civil Code, to wit: Art. 2207. If the plaintiffs property has been insured, 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, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals (154 SCRA 650 [1987]): Note that if a property is insured and the owner receives the indemnity from the insurer, 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, then the aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured. (Emphasis supplied). It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer. Accordingly, 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, therefore, has no cause of action against the respondents. Nevertheless, 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. It does not, however, cite any grounds except its allegation that respondent "Maglanas defense and evidence are certainly incredible" (p. 12, Rollo) to back up its contention. On the other hand, 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. The trial court stated: Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective after the execution of the chattel mortgage. Testimonies of defendants Francisco Cervantes and Modesto Cervantes. Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to issue the bond provided that the same would be mortgaged to it, but this was not possible because the planes were still in Japan and could not be mortgaged here in the Philippines. As soon as the aircrafts were brought to the Philippines, they would be mortgaged to Pioneer Insurance to cover the bond, and this indemnity agreement would be cancelled. 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. 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, which necessarily means that the indemnity agreement had ceased to have any force and effect at the time this action was instituted. Sec 2, Rule 129, Revised Rules of Court. Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes and spare parts, no longer has any further action against the defendants as indemnitors to recover any unpaid balance of the price. The indemnity agreement was ipso jure extinguished upon the foreclosure of the chattel mortgage. These defendants, as indemnitors, would be entitled to be subrogated to the right of Pioneer should they make payments to the latter. Articles 2067 and 2080 of the New Civil Code of the Philippines. 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. SAL or Lim, 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, the alternative remedies open to Pioneer were as provided in Article 1484 of the New Civil Code, known as the Recto Law. Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure and the instant suit. Such being the case, as provided by the aforementioned provisions, Pioneer shall have no further action against the purchaser to recover any unpaid balance and any agreement to the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-6. The operation of the foregoing provision cannot be escaped from through the contention that Pioneer is not the vendor but JDA. The reason is that Pioneer is actually exercising the rights of JDA as vendor, having subrogated it in such rights. 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. Pascual, et al. v. Universal Motors Corporation, G.R. No. L27862, Nov. 20,1974, 61 SCRA 124. The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates discharged these defendants from any liability as alleged indemnitors. The change of the maturity dates of the obligations of Lim, or SAL extinguish the original obligations thru novations thus discharging the indemnitors.

The principal hereof shall be paid in eight equal successive three months interval installments, the first of which shall be due and payable 25 August 1965, the remainder of which ... 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. However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim and JDA, modifying the maturity dates of the obligations, 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, the remainder of which ... shall be due and payable on the 4th day ... of each succeeding months and the last of which shall be due and payable 4th June 1967. Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates different from that fixed in the aforesaid memorandum; the due date of the first installment appears as October 15, 1965, and those of the rest of the installments, the 15th of each succeeding three months, that of the last installment being July 15, 1967. These restructuring of the obligations with regard to their maturity dates, effected twice, were done without the knowledge, much less, would have it believed that these defendants Maglana (sic). 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. But if that were so, there would have been the corresponding documents in the form of a written notice to as well as written conformity of these defendants, and there are no such document. 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. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538. Art. 2079. 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, (New Civil Code).' Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571. Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same. Consequently, Pioneer has no more cause of action to recover from these defendants, as supposed indemnitors, what it has paid to JDA. By virtue of an express stipulation in the surety bond, the failure of JDA to present its claim to Pioneer within ten days from default of Lim or SAL on every installment, released Pioneer from liability from the claim. Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity. Art. 1318. 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. 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. The instant action is clearly unfounded insofar as plaintiff drags these defendants and defendant Maglana.' (Record on Appeal, pp. 363369, Rollo of G.R. No. 84157). We find no cogent reason to reverse or modify these findings. Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious. We now discuss the merits of G.R. No. 84157. Petitioner Jacob S. Lim poses the following issues: l. 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'). (Rollo, p. 6). These questions are premised on the petitioner's theory that as a result of the failure of respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was created, 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. The petitioner, therefore, 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, to wit: However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total amount of P184,878.74 as correctly found by the trial court, with interest from the filing of the cross-complaints until the amount is fully paid. Defendant Lim should pay one-half of the said amount to Bormaheco and the Cervanteses and the other one-half to defendant Maglana. It is established in the records that defendant Lim had duly received the amount of Pl51,000.00 from defendants Bormaheco and Maglana representing the latter's participation in the ownership of the

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

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

[G.R. No. 116123. March 13, 1997] SERGIO F. NAGUIAT, doing business under the name and style SERGIO F. NAGUIAT ENT., INC., & CLARK FIELD TAXI, INC., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), NATIONAL ORGANIZATION OF WORKINGMEN and its members, LEONARDO T. GALANG, et al., respondents. Are private respondent-employees of petitioner Clark Field Taxi, Inc., who were separated from service due to the closure of Clark Air Base, entitled to separation pay and, if so, 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, 1994,ii[2] and May 31, 1994.iii[3] The February 28, 1994 Resolution affirmed with modifications the decision iv[4] of Labor Arbiter Ariel C. Santos in NLRC Case No. RAB-III-12-2477-91. The second Resolution denied the motion for reconsideration of herein petitioners. The NLRC modified the decision of the labor arbiter by granting separation pay to herein individual respondents in the increased amount of US$120.00 for every year of service or its peso equivalent, and holding Sergio F. Naguiat Enterprises, Inc., Sergio F. Naguiat and Antolin T. Naguiat, jointly and severally liable with Clark Field Taxi, Inc. ("CFTI"). 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. Sergio F. Naguiat was CFTI's president, while Antolin T. Naguiat was its vice-president. Like Sergio F. Naguiat Enterprises, Incorporated ("Naguiat Enterprises"), a trading firm, it was a family-owned corporation. Individual respondents were previously employed by CFTI as taxicab drivers. During their employment, they were required to pay a daily "boundary fee" in the amount of US$26.50 for those working from 1:00 a.m. to 12:00 noon, and US$27.00 for those working from 12:00 noon to 12:00 midnight. All incidental expenses for the maintenance of the vehicles they were driving were accounted against them, including gasoline expenses. The drivers worked at least three to four times a week, depending on the availability of taxicabs. They earned not less than US$15.00 daily. In excess of that amount, however, they were required to make cash deposits to the company, which they could later withdraw every fifteen days. Due to the phase-out of the US military bases in the Philippines, from which Clark Air Base was not spared, the AAFES was dissolved, and the services of individual respondents were officially terminated on November 26, 1991. The AAFES Taxi Drivers Association ("drivers' union"), through its local president, Eduardo Castillo, and CFTI held negotiations as regards separation benefits that should be awarded in favor of the drivers. They arrived at an agreement that the separated drivers will be given P500.00 for every year of service as severance pay. Most of the drivers accepted said amount in December 1991 and January 1992. However, individual respondents herein refused to accept theirs. Instead, after disaffiliating themselves from the drivers' union, individual respondents, through the National Organization of Workingmen ("NOWM"), a labor organization which they subsequently joined, filed a complaint v[5] against "Sergio F. Naguiat doing business under the name and style Sergio F. Naguiat Enterprises, Inc., Army-Air Force Exchange Services (AAFES) with Mark Hooper as Area Service Manager, Pacific Region, and AAFES Taxi Drivers Association with Eduardo Castillo as President," for payment of separation pay due to termination/phase-out. Said complaint was later amended vi[6] to include additional taxi drivers who were similarly situated as complainants, and CFTI with Antolin T. Naguiat as vice president and general manager, as party respondent. In their complaint, herein private respondents alleged that they were regular employees of Naguiat Enterprises, although their individual applications for employment were approved by CFTI. They claimed to have been assigned to Naguiat Enterprises after having been hired by CFTI, and that the former thence managed, controlled and supervised their employment. They averred further that they were entitled to separation pay based on their latest daily earnings of US$15.00 for working sixteen (16) days a month. In their position paper submitted to the labor arbiter, herein petitioners claimed that the cessation of business of CFTI on November 26, 1991, was due to "great financial losses and lost business opportunity" resulting from the phase-out of Clark Air Base brought about by the Mt. Pinatubo eruption and the expiration of the RP-US military bases agreement. They admitted that CFTI had agreed with the drivers' union, through its President Eduardo Castillo who claimed to have had blanket authority to negotiate with CFTI in behalf of union members, to grant its taxi driver-employees separation pay equivalent to P500.00 for every year of service. The labor arbiter, finding the individual complainants to be regular workers of CFTI, ordered the latter to pay them P1,200.00 for every year of service "for humanitarian consideration," setting aside the earlier agreement between CFTI and the drivers' union of P500.00 for every year of service. 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, at the time it ceased operations, CFTI was profitably earning and the cessation of its business was due to the untimely closure of Clark Air Base. In not awarding separation pay in accordance with the Labor Code, the labor-arbiter explained:

"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."vii[7] and thus, simply awarded an amount for "humanitarian consideration." Herein individual private respondents appealed to the NLRC. In its Resolution, the NLRC modified the decision of the labor arbiter by granting separation pay to the private respondents. The concluding paragraphs of the NLRC Resolution read: "The contention of complainant is partly correct. One-half month salary should be US$120.00 but this amount can not be paid to the complainant in U.S. Dollar which is not the legal tender in the Philippines. Paras, in commenting on Art. 1249 of the New Civil Code, defines legal tender as 'that which a debtor may compel a creditor to accept in payment of the debt. The complainants who are the creditors in this instance can be compelled to accept the Philippine peso which is the legal tender, in which case, the table of conversion (exchange rate) at the time of payment or satisfaction of the judgment should be used. However, since the choice is left to the debtor, (respondents) they may choose to pay in US dollar.' (Phoenix Assurance Co. vs. Macondray & Co. Inc., L-25048, May 13, 1975) In discharging the above obligations, Sergio F. Naguiat Enterprises, which is headed by Sergio F. Naguiat and Antolin Naguiat, father and son at the same time the President and Vice-President and General Manager, respectively, should be joined as indispensable party whose liability is joint and several. (Sec. 7, Rule 3, Rules of Court)" viii[8] As mentioned earlier, the motion for reconsideration of herein petitioners was denied by the NLRC. Hence, this petition with prayer for issuance of a temporary restraining order. Upon posting by the petitioners of a surety bond, a temporary restraining orderix[9] was issued by this Court enjoining execution of the assailed Resolutions. Issues The petitioners raise the following issues before this Court for resolution: "I. Whether or not public respondent NLRC (3rd Div.) committed grave abuse of discretion amounting to lack of jurisdiction in issuing the appealed resolution; II. Whether or not Messrs. Teofilo Rafols and Romeo N. Lopez could validly represent herein private respondents; and, III. Whether or not the resolution issued by public respondent is contrary to law." x[10] Petitioners also submit two additional issues by way of a supplement xi[11] to their petition, to Wit: that Petitioners Sergio F. Naguiat and Antolin Naguiat were denied due process; and that petitioners were not furnished copies of private respondents' appeal to the NLRC. As to the procedural lapse of insufficient copies of the appeal, the proper forum before which petitioners should have raised it is the NLRC. They, however, failed to question this in their motion for reconsideration. As a consequence, they are deemed to have waived the same and voluntarily submitted themselves to the jurisdiction of the appellate body. Anent the first issue raised in their original petition, 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. 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 $240.00. On the second issue, petitioners aver that NOWM cannot make legal representations in behalf of individual respondents who should, instead, be bound by the decision of the union (AAFES Taxi Drivers Association) of which they were members. As to the third issue, petitioners incessantly insist that Sergio F. Naguiat Enterprises, Inc. is a separate and distinct juridical entity which cannot be held jointly and severally liable for the obligations of CFTI. And similarly, Sergio F. Naguiat and Antolin Naguiat were merely officers and stockholders of CFTI and, thus, could not be held personally accountable for corporate debts. Lastly, Sergio and Antolin Naguiat assail the Resolution of NLRC holding them solidarily liable despite not having been impleaded as parties to the complaint. Individual respondents filed a comment separate from that of NOWM. In sum, both aver that petitioners had the opportunity but failed to refute, the taxi drivers' claim of having an average monthly earning of $240.00; that individual respondents became members of NOWM after disaffiliating themselves from the AAFES Taxi Drivers Association which, through the manipulations of its President Eduardo Castillo, unconscionably compromised their separation pay; and that Naguiat Enterprises, being their indirect employer, is solidarily liable under the law for violation of the Labor Code, in this case, for nonpayment of their separation pay. The Solicitor General unqualifiedly supports the allegations of private respondents. In addition, 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. The Court's Ruling As will be discussed below, the petition is partially meritorious. First Issue: Amount of Separation Pay

Firmly, we reiterate the rule that in a petition for certiorari filed pursuant to Rule 65 of the Rules of Court, which is the only way a labor case may reach the Supreme Court, the petitioner/s must clearly show that the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion.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, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only great respect but even finality; and are binding upon this Court unless there is a showing of grave abuse of discretion, or where it is clearly shown that they were arrived at arbitrarily or in disregard of the evidence on record. xiii[13] Nevertheless, this Court carefully perused the records of the instant case if only to determine whether public respondent committed grave abuse of discretion, amounting to lack of jurisdiction, in granting the clamor of private respondents that their separation pay should be based on the amount of $240.00, allegedly their minimum monthly earnings as taxi drivers of petitioners. In their amended complaint before the Regional Arbitration Branch in San Fernando, Pampanga, herein private respondents set forth in detail the work schedule and financial arrangement they had with their employer. Therefrom they inferred that their monthly take-home pay amounted to not less than $240.00. Herein petitioners did not bother to refute nor offer any evidence to controvert said allegations. Remaining undisputed, the labor arbiter adopted such facts in his decision. Petitioners did not even appeal from the decision of the labor arbiter nor manifest any error in his findings and conclusions. Thus, petitioners are in estoppel for not having questioned such facts when they had all opportunity to do so. Private respondents, like petitioners, are bound by the factual findings of Respondent Commission. Petitioners also claim that the closure of their taxi business was due to great financial losses brought about by the eruption of Mt. Pinatubo which made the roads practically impassable to their taxicabs. Likewise well-settled is the rule that business losses or financial reverses, in order to sustain retrenchment of personnel or closure of business and warrant exemption from payment of separation pay, must be proved with clear and satisfactory evidence. xiv[14] The records, however, are devoid of such evidence. The labor arbiter; as affirmed by NLRC, correctly found that petitioners stopped their taxi business within Clark Air Base because of the phase-out of U.S. military presence thereat. It was not due to any great financial loss because petitioners' taxi business was earning profitably at the time of its closure. With respect to the amount of separation pay that should be granted, 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, the separation pay shall be equivalent to one (1) month pay or at least one-half () month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1 ) whole year." Considering the above, 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 $120.00 (one-half of $240.00 monthly pay) or its peso equivalent for every year of service. Second Issue: NOWM's Personality to Represent Individual Respondents-Employees On the question of NOWM's authority to represent private respondents, we hold petitioners in estoppel for not having seasonably raised this issue before the labor arbiter or the NLRC. NOWM was already a party-litigant as the organization representing the taxi driver-complainants before the labor arbiter. 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. Therefore, they are now estopped from raising such question before this Court. In any event, petitioners acknowledged before this Court that the taxi drivers allegedly represented by NOWM, are themselves parties in this case. 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, supervised and controlled employment terms of the taxi drivers, making it their indirect employer. As adverted to earlier, factual findings of quasi-judicial bodies are binding upon the court in the absence of a showing of grave abuse of discretion. Unfortunately, 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. We again remind those concerned that decisions, however concisely written, must distinctly and clearly set forth the facts and law upon which they are based. xvii[17] This rule applies as well to dispositions by quasi-judicial and administrative bodies. Naguiat Enterprises Not Liable In impleading Naguiat Enterprises as solidarily liable for the obligations of CFTI, respondents rely on Articles 106, xviii[18] 107xix[19] and 109xx[20] of the Labor Code. Based on factual submissions of the parties, the labor arbiter, however, found that individual respondents were regular employees of CFTI who received wages on a boundary or commission basis. We find no reason to make a contrary finding. 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, equipment, machinery, and work premises, among

others; and (2) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer.xxi[21] Independent contractors, meanwhile, are those who exercise independent employment, 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.xxii[22] From the evidence proffered by both parties, there is no substantial basis to hold that Naguiat Enterprises is an indirect employer of individual respondents much less a labor only contractor. On the contrary, petitioners submitted documents such as the drivers' applications for employment with CFTI,xxiii[23] and social security remittancesxxiv[24] and payrollxxv[25] of Naguiat Enterprises showing that none of the individual respondents were its employees. Moreover, in the contract xxvi[26] between CFTI and AAFES, the former, as concessionaire, 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, pursuant to their concessionaire's contract. This indicates that CFTI became the owner of the taxicabs which became the principal investment and asset of the company. Private respondents failed to substantiate their claim that Naguiat Enterprises managed, supervised and controlled their employment. It appears that they were confused on the personalities of Sergio F. Naguiat as an individual who was the president of CFTI, and Sergio F. Naguiat Enterprises, Inc., as a separate corporate entity with a separate business. They presumed that Sergio F. Naguiat, who was at the same time a stockholder and director xxvii[27] of Sergio F. Naguiat Enterprises, Inc., was managing and controlling the taxi business on behalf of the latter. A closer scrutiny and analysis of the records, however, evince the truth of the matter: that Sergio F. Naguiat, in supervising the-taxi drivers and determining their employment terms, was rather carrying out his responsibilities as president of CFTI. Hence, Naguiat Enterprises as a separate corporation does not appear to be involved at all in the taxi business. To illustrate further, we refer to the testimony of a driver-claimant on cross examination. "Atty. Suarez Is it not true that you applied not with Sergio F. Naguiat but with Clark Field Taxi? Witness I applied for (sic) Sergio F. Naguiat Atty. Suarez Sergio F. Naguiat as an individual or the corporation? Witness 'Sergio F. Naguiat na tao.' Atty. Suarez Who is Sergio F. Naguiat? Witness He is the one managing the Sergio F. Naguiat Enterprises and he is the one whom we believe as our employer. Atty. Suarez What is exactly the position of Sergio F. Naguiat with the Sergio F. Naguiat Enterprises? Witness He is the owner, sir. Atty. Suarez How about with Clark Field Taxi Incorporated what is the position of Mr. Naguiat? Witness What I know is that he is a concessionaire. Atty. Suarez But do you also know that Sergio F. Naguiat is the President of Clark Field Taxi, Incorporated? Witness

Yes. sir. Atty. Suarez How about Mr. Antolin Naguiat what is his role in the taxi services, the operation of the Clark Field Taxi, Incorporated? Witness He is the vice president."xxviii[28] And, although the witness insisted that Naguiat Enterprises was his employer, he could not deny that he received his salary from the office of CFTI inside the base.xxix[29] Another driver-claimant admitted, upon the prodding of counsel for the corporations, that Naguiat Enterprises was in the trading business while CFTI was in taxi services.xxx[30] In addition, the Constitutionxxxi[31] of CFTI-AAFES Taxi Drivers Association which, admittedly, was the union of individual respondents while still working at Clark Air Base, states that members thereof are the employees of CFTI and "(f)or collective bargaining purposes, the definite employer is the Clark Field Taxi Inc." From the foregoing, the ineludible conclusion is that CFTI was the actual and direct employer of individual respondents, and that Naguiat Enterprises was neither their indirect employer nor labor-only contractor. It was not involved at all in the taxi business. CFTI president solidarily liable Petitioner-corporations would likewise want to avoid the solidary liability of their officers. To bolster their position, Sergio F. Naguiat and Antolin T. Naguiat specifically aver that they were denied due process since they were not parties to the complaint below.xxxii[32] In the broader interest of justice, we, however, hold that Sergio F. Naguiat, in his capacity as president of CFTI, cannot be exonerated from joint and several liability in the payment of separation pay to individual respondents. A.C. Ransom Labor Union-CCLU vs. NLRCxxxiii[33] is the case in point. A.C. Ransom Corporation was a family corporation, the stockholders of which were members of the Hernandez family. In 1973, it filed an application for clearance to close or cease operations, which was duly granted by the Ministry of Labor and Employment, without prejudice to the right of employees to seek redress of grievance, if any. Backwages of 22 employees, who engaged in a strike prior to the closure, were subsequently computed at P164,984.00. Up to September 1976, the union filed about ten (10) motions for execution against the corporation, but none could be implemented, presumably for failure to find leviable assets of said corporation. In its last motion for execution, the union asked that officers and agents of the company be held personally liable for payment of the backwages. This was granted by the labor arbiter. In the corporation's appeal to the NLRC, one of the issues raised was: "Is the judgment against a corporation to reinstate its dismissed employees with backwages, enforceable against its officer and agents, in their individual, private and personal capacities, who were not parties in the case where the judgment was rendered?" The NLRC answered in the negative, on the ground that officers of a corporation are not liable personally for official acts unless they exceeded the scope of their authority. On certiorari, this Court reversed the NLRC and upheld the labor arbiter. In imposing joint and several liability upon the company president, the Court, speaking through Mme. Justice Ameurfina Melencio-Herrera, 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, directly or indirectly . The term shall not include any labor organization or any of its officers or agents except when acting as employer.' The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the 'person acting in the interest of (the) employer' RANSOM. The corporation, only in the technical sense, is the employer. The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for nonpayment of back wages. That is the policy of the law. x x x (c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. 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. In the absence of definite proof in that regard, we believe it should be presumed that the responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. Thus, in RA 602, criminal responsibility is with the 'Manager or in his default, the person acting as such.' In RANSOM, the President appears to be the Manager." (Underscoring supplied.) Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed the business. Thus, applying the ruling in A. C. Ransom, he falls within the meaning of an "employer" as contemplated by the Labor Code, who may be held jointly and severally liable for the obligations of the corporation to its dismissed employees. Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were "close family corporations" xxxiv[34] owned by the Naguiat family. Section 100, paragraph 5, (under Title XII on Close Corporations) of the Corporation Code, states:

"(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, the stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance." (underscoring supplied) Nothing in the records show whether CFTI obtained "reasonably adequate liability insurance;" thus, what remains is to determine whether there was corporate tort. Our jurisprudence is wanting as to the definite scope of "corporate tort." Essentially, "tort" consists in the violation of a right given or the omission of a duty imposed by law.xxxv[35] Simply stated, tort is a breach of a legal duty. 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, which is the condition obtaining at bar. CFTI failed to comply with this law-imposed duty or obligation. Consequently, its stockholder who was actively engaged in the management or operation of the business should be held personally liable. Furthermore, in MAM Realty Development vs. NLRC,xxxvii[37] the Court recognized that a director or officer may still be held solidarily liable with a corporation by specific provision of law. Thus: "x x x A corporation, being a juridical entity, may act only through its directors, officers and employees. Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent. True, solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as, generally, in the following cases: 4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action." (footnotes omitted) As pointed out earlier, 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. In fact, 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, only Sergio F. Naguiat, in his individual and personal capacity, principally bound himself to comply with the obligation thereunder, i.e., "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, if it should be finally adjudged that said principals were not entitled thereto."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. xxxix[39] In the present case, Sergio Naguiat is held solidarily liable for corporate tort because he had actively engaged in the management and operation of CFTI, a close corporation. Antolin Naguiat not personally liable Antolin T. Naguiat was the vice president of the CFTI. Although he carried the title of "general manager" as well, it had not been shown that he had acted in such capacity. Furthermore, no evidence on the extent of his participation in the management or operation of the business was proffered. In this light, he cannot be held solidarily liable for the obligations of CFTI and Sergio Naguiat to the private respondents. Fourth Issue: No Denial of Due Process Lastly, in petitioners' Supplement to their original petition, they assail the NLRC Resolution holding Sergio F. Naguiat and Antolin T. Naguiat jointly and severally liable with petitioner-corporations in the payment of separation pay, averring denial of due process since the individual Naguiats were not impleaded as parties to the complaint. We advert to the case of A.C. Ransom once more. The officers of the corporation were not parties to the case when the judgment in favor of the employees was rendered. The corporate officers raised this issue when the labor arbiter granted the motion of the employees to enforce the judgment against them. In spite of this, the Court held the corporation president solidarily liable with the corporation. Furthermore, Sergio and Antolin Naguiat voluntarily submitted themselves to the jurisdiction of the labor arbiter when they, in their individual capacities, filed a position paper xl[40] together with CFTI, before the arbiter. They cannot now claim to have been denied due process since they availed of the opportunity to present their positions. WHEREFORE, the foregoing premises considered, the petition is PARTLY GRANTED. The assailed February 28, 1994 Resolution of the NLRC is hereby MODIFIED as follows: (1) Petitioner Clark Field Taxi, Incorporated, and Sergio F. Naguiat, president and co-owner thereof, are ORDERED to pay, jointly and severally, the individual respondents their separation pay computed at US$120.00 for every year of service, or its peso equivalent at the time of payment or satisfaction of the judgment; (2) Petitioner Sergio F. Naguiat Enterprises, Incorporated, and Antolin T. Naguiat are ABSOLVED from liability in the payment of separation pay to individual respondents. SO ORDERED.

G.R. No. 82558 August 20, 1990 WESTERN AGRO INDUSTRIAL CORPORATION and ANTONIO RODRIGUEZ, petitioners vs. HON. COURT OF APPEALS and SIA'S AUTOMOTIVE AND DIESEL PARTS, INC., respondents. 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. The petitioners were ordered by both the trial court and the Court of Appeals to pay, jointly and severally, the sum of P84,626.70, the interests thereon from June 6,1983 until paid, twenty-five percent (25%) of the amounts awarded as attorney's fees, and costs. On June 6, 1983 respondent SIA Automotive and Diesel Parts, Inc. (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. The complaint alleged that WESGRO is doing business through Antonio Rodriguez and on different occasions in 1980, 1981 and 1982, Rodriguez, representing WESGRO bought on credit different automotive spare parts from the private respondent amounting to P100,753.80; that the said amount has long become over due and yet the petitioners refused to pay despite repeated demands. The complaint prayed among others that the defendants jointly and severally pay the plaintiff: (a) the principal sum of P100,753.80 plus legal interest and the sum equivalent to 25% in the form of attorney's fees as stipulated in the invoices covering the accounts. In its answer with counterclaim, WESGRO admitted that it bought on credit various automotive spare parts from the respondent corporation on different occasions in 1980, 1981 and 1982, represented by Antonio Rodriguez but denied that its total obligation was P100,753.80. WESGRO alleged that this amount is bloated because it had already made various payments on different dates. For his part, Antonio Rodriguez filed a motion to dismiss on the ground that the complaint states no cause of action against him. 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. The trial court denied the motion to dismiss in its order dated November 23, 1983. 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, yet under the circumstances above-mentioned, the Court finds it necessary to include defendant, Antonio Rodriguez, as party defendant, for the Court to arrive at a judicious adjudication on the matter. (Rollo, p.43) Rodriguez filed with the then Intermediate Appellate Court a petition for certoriari, prohibition and mandamus for the review of the aforestated order. The petition (docketed as Case No. AC-62562) was, however, denied. In his answer with counterclaim, Rodriguez denied that "... WESGRO is doing business through answering defendant such allegation, being misleading as he is only one of the officers representing WESGRO in various business transactions ..." (Rollo p. 45) and that "... his dealings with the plaintiff were always in the name of WESGRO, a fact which is recognized by the plaintiff." (Rollo, p. 46). He, however, admitted that he had represented WESGRO in purchasing certain spare parts on credit. After several postponements, the pre-trial was held on April 9, 1984. On this same date, the trial court issued a PreTrial Order, to wit: Parties agreed that the defendant, Western Agro Industrial Corporation ordered from the plaintiff, automotive spare parts which have not been paid. Payment was agreed by Western Agro Industrial Corporation and Sia's Automotive and Diesel Parts, Inc. that the defendant agreed to pay the plaintiff the sum of P85,000.00, more or less. The only question now remaining in litigation is the remaining sum of P15,000.00, more or less. (Original Records, p. 68) The initial hearing of the case was held on May 24, 1984. Upon agreement of the parties, the pre-trial order was amended to change the sum of P85000.00 to P84,626.70. Upon the initiative of the petitioners' counsel, the order was further amended to show that ... it is only defendant Western Agro Industrial Corporation that is admitting the liability not the defendant Antonio Rodriguez. (TSN page 15, May 24, 1984). During the same hearing, the respondent corporation rested its case after presenting the corporation's manager Juanito V. Lim, as its sole witness together with several documents. On the other hand, the petitioners manifested that after a review of the nature of the plaintiff's evidence they decided not to present any evidence. Instead, they would simply file a memorandum. The motion was granted by the trial court in its order dated July 5, 1984. On October 51,1984, the trial court rendered a decision, the dispositive portion of which reads: WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants, ordering defendants to pay jointly and severally to the plaintiff the sum of P84,626.70 with legal rate of interest from the filing of the complaint on June 6, 1983 until fully paid; to pay, jointly and severally 25% of the amount awarded to plaintiff as attorney's fees; and to pay the costs.

The Counterclaim is DISMISSED (Original Records, pp. 101-102) As stated earlier, the trial court's decision was affirmed by the Court of Appeals. A motion for reconsideration was denied. Hence, this petition. The issues raised can be categorized into the following: first, whether or not the petitioner are bound by the PRETRIAL ORDER of the trial court; and second, whether or not petitioner Antonio Rodriguez can be made solidarily liable with the petitioner corporation for debts incurred by the latter. Anent the first issue, the petitioners capitalize on the fact that a copy of the pre-trial Order was not served on them. They theorize that since the Pre-trial order was promulgated by the trial court without the direct participation of the parties, the latter, are not bound by the order until such time that the same is served upon them, otherwise, admissions may be stated in the pre-trial order which were not made at, all during the Pre-Trial Conference. The petitioners contend that the trial court erroneously stated that the petitioner corporation admitted its liability. The petitioners are correct in stating that notice to the parties of a Pre-Trial Order is indispensable, to afford them an opportunity to check the accuracy of what transpired during a pre-trial conference. Procedural due process demands that such notice be served upon the parties in the same manner as other orders, resolution and decision of the court in order that they may become binding upon the parties. We, however take exception to the literal application of the rule in the instant case. 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 P85,00.00 in the Pre-Trial Order to P84,626.70 as agreed upon by the parties. The petitioner asked that the admitted amount be amended to make the obligation reflect the truth. This can be gleaned from the tenor of the proceedings during the trial of the case on May 24, 1984 where Atty. Benjamin C. Santos the petitioners' counsel was present and where the following transpired: Atty. Bonifacio: I will connect the materiality of this, Your Honor, because that is included in our complaint in the claim of one hundred thousand something like that more or less. This amount is deemed included because Western Agro Industrial Corporation only admitted more or less eighty-five thousand which is now the... Court: What is involved here according to you is fifteen thousand. Atty. Bonifacio: Yes, Your Honor. Court: Only fifteen thousand pesos (P15,000.00). Atty. Bonifacio: Because of your agreement stating to remand this to the lower court for hearing because that is the only amount involved now. Court: As matter of fact, I have issued an order to the effect. Atty. Bonifacio: Yes, Your Honor. We have read it. But we are just marking more or less the admitted amount of P85,000.00. Atty. Santos: To be exact, it would appear to be eighty-four thousand... Court: I have issued an order. Let me see the records. Pre-trial Order-Parties agreed that the defendant Western Agro Industrial Corporation ordered from the plaintiff, automotive spare parts, which have not been paid. 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 P85,000.00 more or less. The only question now remaining in litigation is the remaining sum of P15.000.00 more or less. Why do you have to prove the P85,000,00? Atty. Bonifacio: We are just marking those exhibits, Your Honor.

Court: This is the pre-trial order. Just mark those exhibits. Atty. Bonifacio: The admitted amount is actually P84,626.70, Your Honor. We are not proving the controverted portion of P15,000.00. Court: What is the use when the defendant had admitted? Atty. Bonifacio: This is the controverted portion, Your Honor. Court: Precisely, I am asking you to show evidence on the P15,000.00 which is the controversy. Atty. Bonifacio: We are now going to that, Your Honor. Court: What about this Worth Tucking? Atty. Bonifacio: The Worthy Trucking is the sister company of he defendant, Your Honor. Court: But that is already admitted by them. They will pay you already. They agreed to pay you, is it not? You read your pretrial older and that has not been questioned by any of the paties. Atty. Santos: Except for the exact amount. The order says P85,000.00 more or less.The order is still correct. Court: You now correct the amount. Atty. Santos: Based on the document of plaintiff it is P84,626.70, Your Honor This is the amount admitted by defendant Western Agro Industrial only. Court: Is that correct? Atty. Bonifacio: Is that correct? Yes, Your Honor. It is because in the pre-trial order it is P85,000.00 more or less. But the exact amount is P84,626.70. Court: Order At the hearing today, the parties agreed that the defendants Western Agro Industrial Corporation and Antonio Rodriguez are indebted tothe plaintiff in the amount of P84,626.70. Atty. Santos: May we interrupt at this juncture, Your Honor, it is only defendant Western Agro Industrial Corporation that is admitting the liability, not the defendant Antonio Rodriguez. Court: Remove that Antonio Rodriguez. WHEREFORE, the pre-trial order dated April 9, 1984 is hereby amended so as to correct the sum of P85,000.00 to P84,626.70. Atty. Bonifacio: Yes, Your Honor. (TSN, May 24, 1984, p. 10-15) The petitioners are bound by their own admissions during the trial. Section 2, Rule 129 of the Rules of Court povides that "Admissions made by the parties in the pleadings, or in the course of the trial or other proceedings do not require

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.

And insofar as the express discretion on the part of petitioners is concerned regarding the right of stoppage, 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. Petitioners can stop delivery of pulp wood from private respondents if the supply at the plant is sufficient as ascertained by petitioners, subject to redelivery when the need arises as determined likewise by petitioners. This is Our simple understanding of the literal import of paragraph 7 of the obligation in question. 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, by Padilla, 1987 Edition, Volume 4, Page 160). It is, of course, a truism in legal jurisprudence that a condition which is both potestative (or facultative) and resolutory may be valid, even though the saving clause is left to the will of the obligor like what this Court, through Justice Street, said in Taylor vs. Uy Tieng Piao and Tan Liuan (43 Phil. 873; 879; cited in Commentaries and Jurisprudence on the Civil Code, by Tolentino, Volume 4, 1991 edition, page 152). But the conclusion drawn from the Taylor case, which allowed a condition for unilateral cancellation of the contract when the machinery to be installed on the factory did not arrive in Manila, 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. In support of the second ground for allowance of the petition, petitioners are of the impression that the letter dated September 30, 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. 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, as aforesaid, is dependent exclusively on their will for which reason, We have no alternative but to treat the controversial stipulation as inoperative (Article 1306, New Civil Code). 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. Neither are We prepared to accept petitioners' exculpation grounded on frustration of the commercial object under Article 1267 of the New Civil Code, because petitioners continued accepting deliveries from the suppliers. This conduct will estop petitioners from claiming that the breakdown of the machinery line was an extraordinary obstacle to their compliance to the prestation. It was indeed incongruous for petitioners to have sent the letters calling for suspension and yet, they in effect disregarded their own advice by accepting the deliveries from the suppliers. The demeanor of petitioners along this line was sought to be justified as an act of generous accommodation, which entailed greater loss to them and "was not motivated by the usual businessman's obsession with profit" (Page 34, Petition; Page 40, Rollo). 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, (d), Rule 131, Revised Rules of Court). Knowing fully well that they will encounter difficulty in producing output because of the defective machinery line, petitioners opted to open the plant to greater loss, thus compounding the costs by accepting additional supply to the stockpile. Verily, 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." (Page 202, Record on Appeal; Page 8, Decision; Page 55, Rollo). 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, Inc. while Romeo S. Vergara was not privy to the contract of sale. On this score, 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, 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. Walter Bull and Co., Inc., 84 Phil. 164). And because of this precept, Vergara's supposed non-participation in the contract of sale although he signed the letter dated September 30, 1968 is completely immaterial. The two exceptions contemplated by Article 1897 of the New Civil Code where agents are directly responsible are absent and wanting. WHEREFORE, 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.

G.R. No. L-20214

March 17, 1923

G. C. ARNOLD, plaintiff-appellant, vs. WILLITS & PATTERSON, LTD., defendant-appellee.

STATEMENT For a number of years prior to the times alleged in the complaint, the plaintiff was in the employ of the International Banking Corporation of Manila, and it is conceded that he is a competent and experienced business man. July 31, 1916, C. D. Willits and I. L. Patterson were partners doing business in San Francisco, California, under the name of Willits & Patterson. The plaintiff was then in San Francisco, and as a result of negotiations the plaintiff and the firm entered into a written contract, known in the record as Exhibit A, 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. The plaintiff returned to Manila and entered on the discharge of his duties under the contract. As a result of plaintiff's employment and the world war conditions, the business of the firm in the Philippines very rapidly increased and grew beyond the fondest hopes of either party. 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. Meanwhile Patterson retired from the firm and Willits became the sole owner of its assets. For convenience of operation and to serve his own purpose, Willits organized a corporation under the laws of California with its principal office at San Francisco, in and by which he subscribed for, and became the exclusive owner of all the capital stock except a few shares for organization purposes only, and the name of the firm was used as the name of the corporation. A short time after that Willits came to Manila and organized a corporation here known as Willits & Patterson, Ltd., in and to which he again subscribed for all of the capital stock except the nominal shares necessary to qualify the directors. In legal effect, the San Francisco corporation took over and acquired all of the assets and liabilities of the Manila corporation. 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, there was a conference between him and the plaintiff over the disputed construction of Exhibit A. As a result of which another instrument, known in the record as Exhibit B, was prepared in the form of a letter which the plaintiff addressed to Willits at Manila on November 10, 1919, the purpose of which was to more clearly define and specify the compensation which the plaintiff was to receive for his services. Willits received and confirmed this letter by signing the name of Willits & Patterson, By C.d. Willits. At the time both corporations were legally organized, and there is nothing in the corporate minutes to show that Exhibit B was ever formally ratified or approved by either corporation. After its organization, 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. 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, and among other things was a statement of July 31, 1921, showing that there was due and owing the plaintiff under Exhibit B the sum of P106,277.50. A short time previous to that date, the San Francisco corporation became involved in financial trouble, and all of its assets were turned over to a "creditors' committee." When this statement was received, the "creditors' committee" immediately protested its allowance. An attempt was made without success to adjust the matter on a friendly basis and without litigation. January 10, 1922, the plaintiff brought this action to recover from the defendant the sum of P106,277.50 with legal interest and costs, and written instruments known in the record as Exhibits A and B were attached to, and made a part of, the complaint. For answer, the defendant admits the formal parts of the complaint, the execution of Exhibit A and denies each and every other allegation, except as specifically admitted, 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, and that it is not an agreement which was ever entered into with the plaintiff by the defendant or the firm, and, as a separate defense and counterclaim, it alleges that on the 30th of June, 1920, there was a balance due and owing the plaintiff from the defendant under the contract Exhibit A of the sum of P8,741.05. That his salary from June 30, 1920, to July 31, 1921, under Exhibit A was $400 per month, or a total of P10,400. That about July 6, 1921, the plaintiff wrongfully took P30,000 from the assets of the firm, and that he is now indebted to the firm in the sum of P10,858.95, with interest and costs, from which it prays judgement. The plaintiff admits that he withdrew the P30,000, but alleges that it was with the consent and authority of the defendant, and denies all other new matter in the answer. Upon such issues a trial was had, and the lower court rendered judgment in favor of the defendant as prayed for in its counterclaim, from which the plaintiff appeals, 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, and that the defendant assumed all partnership obligations, and in failing to render judgment for the plaintiff, as prayed for, and in dismissing his complaint, and denying plaintiff's motion for a new trial. JOHNS, 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, 1921," and "what is due the plaintiff under that contract." Plaintiff contends that his services were performed under Exhibits A and B, and that the defendant assumed all of the obligations of the original partnership under Exhibit A, and is now seeking to deny its liability under, and repudiate, Exhibit B. 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, 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, and to do such other business as might be deemed advisable for which he was to receive, first, the travelling expenses of his wife and self from San Francisco to Manila, second, the minimum salary of $200 per month, third, a brokerage of 1 per cent upon all purchases and sales of merchandise, except for the account of the coconut oil mill, fourth, one-half of the profits on any transaction in the name of the firm or himself not provided for in the agreement. That the agreement also provided that if it be found that the business was operated at a loss, Arnold should receive a monthly salary of $400 during such period. That the business was operated at a loss from June 30, 1920, to July 31, 1921, and that for such reason, he was entitled to nothing more than a salary of $400 per month, or for that period P10,400. Adding this amount to the P8,741.05, which the defendant admits he owed Arnold on June 30, 1920, makes a total of P19,141.05, leaving a balance due the defendant as set out in the counterclaim. In other words, that the plaintiff's compensation was measured by, and limited to, the above specified provisions in the contract Exhibit A, and that the defendant corporation is not bound by the terms or provisions of Exhibit B, which is as follows: WILLITS & PATTERSON, LTD. MANILA, P. I., Nov. 10, 1919. CHAS. D. WILLITS, Esq.,

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

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

SEC. 669. So, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affair, 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. SEC. 656. In accordance with a well-known rule of the law of agency, notice to corporate officers or agents within the scope or apparent scope of their authority is attributed to the corporation. SEC. 667. As a general rule, if a corporation with knowledge of its agents unauthorized act received and enjoys the benefits thereof, it impliedly ratifies the unauthorized act if it is one capable of ratification by parol. In its article on corporations, Corpus Juris, 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, and as a general rule where a corporation, through its proper officers or board, takes and retains the benefits of the unauthorized act or contract of an officer or agent, with full knowledge of all the material facts, it thereby ratifies and becomes bound by such act of contract, together with all the liabilities and burdens resulting therefrom, and in some jurisdiction this rule is, in effect, declared by statute. Thus the corporation is liable on the ground of ratification where, with knowledge of the facts, it accepts the benefit of services rendered under an unauthorized contract of employment . . . . Applying the law to the facts. Mr. Larkin, an experienced accountant, was employed by the local corporation, and from time to time and in the ordinary course of business made and prepared financial statements showing its assets and liabilities, true copies of which were sent to the home office in San Francisco. It appears upon their face that plaintiff's compensation was made and founded on Exhibit B, 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. In the course of business in the early part of 1920, plaintiff, as manager of the defendant, sold 500 tons of oil for future delivery at P740 per ton. Due to break in the market, plaintiff was able to purchase the oil at P380 per ton or a profit of P180,000. It appears from Exhibit B under the heading of "Profits" that: On all the business transacted between Willits & Patterson, Ltd. and others than Willits & Patterson, San Francisco, half the profit are to be credited to may account and half to the Profit & Loss account Willits & Patterson, Ltd., Manila. The purchasers paid P105,000 on the contracts and gave their notes for P75,000, and it was agreed that all of the oil purchased should be held as security for the full payment of the purchase price. As a result, the defendant itself received the P105,000 in cash, P75,000 in notes, and still holds the 500 tons of oil as security for the balance of the purchase price. This transaction was shown in the semi-annual financial statement for the period ending December 31, 1920. That is to say, the business was transacted by and through the plaintiff, and the defendant received and accepted all of the profits on the deal, and the statement which was rendered gave him a credit for P90,737.88, or half the profit as provided in the contract Exhibit B, with interest. Although the previous financial statements show upon their face that the account of plaintiff was credit with several small items on the same basis, it was not until the 23d of March, 1921, that any objection was ever made by anyone, and objection was made for the first time by the creditors' committee in a cable of that date. As we analyze the facts Exhibit B was, in legal effect, ratified and approved and is now binding upon the defendant corporation, and the plaintiff is entitled to recover for his services on that writing as it modified the original contract Exhibit A. It appears from the statement prepared by accountant Larkin founded upon Exhibit B that the plaintiff is entitled to recover P106,277.50. It is very apparent that his statement was based upon the assumption that there was a net profit of P180,000 on the 500 tons of oil, of which the plaintiff was entitled to one-half. In the absence of any other proof, 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, 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. Hence, 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. It appears that at the time of the sale the defendant only received P105,000 in cash, and that it took and accepted the promissory notes of Cruz & Tan Chong Say, the purchasers, for P75,000 more which have been collected and may never be. Hence, 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. The judgment of the lower court is reversed, and a money judgment will be entered here in favor of the plaintiff and against the defendant for the sum of P68,527.50, with thereon at the rate of 6 per cent per annum from the 10th day of January, 1922. In addition thereto, 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 P75,000 which were executed by Cruz & Tan Chong Say, as a part of the purchase price of the oil, and that he is entitled to have and receive one-half of all the proceeds from the notes or either of them, and that also he have judgment against the defendant for costs. So ordered. G.R. No. L-5677 May 25, 1953

LA CAMPANA FACTORY, INC., and TAN TONG doing business under the trial name "LA CAMPANA GAUGAU PACKING", petitioners, vs. KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA (KKM) and THE COURT OF INDUSTRIAL RELATIONS, respondents.

Tan Tong, one of the herein petitioners, 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, Manila, which was later transferred to Espaa Extension, Quezon City. But on July 6, 1950, Tan Tong, with himself and members of his family corporation known as La Campana Factory Co., Inc., with its principal office located in the same place as that of La Campana Gaugau Packing. About a year before the formation of the corporation, or on July 11, 1949, Tan Tong had entered into a collective bargaining agreement with the Philippine Legion of Organized Workers, known as PLOW for short, to which the union of Tan Tong's employees headed by Manuel E. Sadde was then affiliated. Seceding, however, from the PLOW, Tan Tong's employees later formed their own organization known as Kaisahan Ng Mga Manggagawa Sa La Campana, one of the herein respondents, and applied for registration in the Department of Labor as an independent entity. Pending consideration of this application, the Department gave the new organization legal standing by issuing it a permit as an affiliate to the Kalipunan Ng Mga Manggagawa. On July 19, 1951, the Kaisahan Ng Mga Manggagawa Sa La Campana, hereinafter to be referred to as the respondent Kaisahan, which, as of that date, counted with 66 members workers all of them of both La Campana Gaugau Packing and La Campana Coffee Factory Co., Inc. presented a demand for higher wages and more privileges, the demand being addressed to La Campana Starch and Coffee Factory, by which name they sought to designate, so it appears, the La Campana Gaugau Packing and the La Campana Coffee Factory Co., Inc. 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, the said Department certified the dispute to the Court of Industrial Relations on July 17, 1951, the case being there docketed as Case No. 584-V. With the case already pending in the industrial court, the Secretary of Labor, on September 5, 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, and, in consequence, on the 20th of the same month, also suspended the permit of its affiliate, the respondent Kaisahan. We have it from the court's order of January 15, 1952, which forms one of the annexes to the present petition, that following the revocation of the Kaisahan's permit, "La Campana Gaugau and Coffee Factory" (obviously the combined name of La Campana Gaugau Packing and La Campana Coffee Factory Co., Inc,) and the PLOW, which had been allowed to intervene as a party having an interest in the dispute, filed separate motions for the dismissal of the case on the following grounds: 1. That the action is directed against two different entities with distinct personalities, with "La Campana Starch Factory" and the "La Campana Coffee Factory, Inc."; 2. That the workers of the "La Campana Coffee Factory, Inc." are less than thirty-one; 3. That the petitioning union has no legal capacity to sue, because its registration as an organized union has been revoked by the Department of Labor on September 5, 1951; and 4. That there is an existing valid contract between the respondent "La Campana Gaugau Packing" and the intervenor PLOW, where-in the petitioner's members are contracting parties bound by said contract. Several hearings were held on the above motions, in the course of which ocular inspections were also made, and on the basis of the evidence received and the facts observed in the ocular inspections, the Court of Industrial Relations denied the said motions in its order of January 14, 1952, because if found as a fact that: A. While the coffee corporation is a family corporation with Mr. Tan Tong, his wife, and children as the incorporations and stockhelders (Exhibit 1), the La Campana Gaugau Packing is merely a business name (Exhibit 4). B. According to the contract of lease (Exhibit 23), Mr. Tan Tong., propriety and manager of the Ka Campana Gaugau Factory, leased a space of 200 square meters in the bodega housing the gaugau factory to his son Tan Keng Lim, manager of the La Campana Coffee Factory. But the lease was executed only on September 1, 1951, while the dispute between the parties was pending before the Court. C. There is only one entity La Campana Starch and Coffee Factory, as shown by the signboard (Exhibit 1), the advertisement in the delivery trucks (Exhibit I-1), the packages of gaugau(Exhibit K), and delivery forms (Exhibits J, J-1, and J-2). D. All the laborers working in the gaugau or in the coffee factory receive their pay from the same person, the cashier, Miss Natividad Garcia, secretary of Mr. Tan Tong; and they are transferred from the gaugau to the coffee and vice-versa as the management so requires. E. There has been only one payroll for the entire La Campana personnel and only one person preparing the same Miss Natividad Garcia, secretary of Mr. Tan Tong. But after the case at bar was certified to this Court on July 17, 1951, the company began making separate payrolls for the coffee factory (Exhibits M-2 and M-3, and for the gaugau factory (Exhibits O-2, O-3 and O-4). It is to be noted that before July 21, 1951, the coffee payrolls all began with number "41-Maria Villanueva" with 24 or more laborers (Exhibits M and M-1), whereas beginning July 21, 1951, the payrolls for the coffee factory began with No. 1Loreta Bernabe with only 14 laborers (Exhibits M-2 and M-3). F. During the ocular inspection made in the factory on August 26, 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. There were also women employees working paper wrappers for gaugau, and, in the same place there were about 3,000 cans to be used as containers for coffee.

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

G.R. No. L-22614

August 29, 1969

RAMIREZ TELEPHONE CORPORATION, petitioner, vs.BANK OF AMERICA, E.F. HERBOSA, THE SHERIFF OF MANILA and THE COURT OF APPEALS, respondents.

This is a petition for review on certiorari of a decision of the Court of Appeals of February 27, 1964, wherein the judgment of the lower court was reversed and another entered dismissing the complaint of plaintiff, now petitioner, Ramirez Telephone Corporation, and ordering it to pay to defendant, now respondent, Bank of America, the sum of P500.00 and to the third-party defendant E.F. Herbosa, now likewise respondent, the same amount, both in the concept of attorney's fees, the costs being adjudged likewise against petitioner. 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 P3,000.00 in the form of actual damages, and to pay the costs of these proceedings. Likewise, judgment is hereby rendered sentencing the third-party defendant, E.F. Herbosa, to indemnify or reimburse the thirdparty plaintiff, Bank of America, 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.F. Herbosa are hereby ordered dismissed. The facts as found by the Court of Appeals, which we cannot review are set forth in its decision, thus: 2 Resultando: Que los hechos al parecer, no son muy embrollados; el demandado, Herbosa era y es dueno del edificio No. 612, Int. 3 Sta. Mesa; se lo habia dado en arrendamiento a Ruben R. Ramirez, y como este era el presidente de la Ramirez Telephone Corporation, el taller de la corporacion aunque su oficina central estaba en la Escolta, Natividad Building, Exh. D. fue trasladado al local: pero habiendose amontonado los alquilares sin pagar, Herbosa presento demanda de desahucio contra Ramirez en el Juzgado Municipal de Manila el 10 de Noviembre, 1949, y elevada la causa al Juzgado del 1.a Instancia, Herbosa pudo conseguir decision favorable alli el 14 de Octubre, 1950, pero en la vispera de la promulgacion de la sentencia a su favor habia ya conseguido mandamiento de embargo preventivo contra Ramirez, Exh. A, y el mismo, servido al Bank of America el 13 de Octubre, 1950, Exh. 2, lease como sigue: Civil Case No. 10620 E.F. Herbosa, Plaintiff -- versus -GARNISHMENT

Ruben R. Ramirez, Defendant To: Bank of America Manila Greetings: You and each of you are hereby notified that, by virtue of an order of attachment issued by the Court of First Instance of Manila, copy of which is hereto attached, levy is hereby made (or attachment is hereby levied) upon all the goods, effects, interests, credits, money, stocks, shares, any interests in stocks and shares and all debts owing by you to the defendant, Ruben R. Ramirez ---------, in the above entitled case, and any other personal property in your possession or under your control, belonging to the said defendant --------- on this date, to cover the amount of P2,400.00 and specially the ... . xxx Manila, Philippines, October 13, 1950 MACARIO M. OFILADA Sheriff of Manila (Exh. 2); y fue contestado por el banco el mismo dia de la siguiente manera: Dear Sir: In reply to your Garnishment of October 13, 1950, issued under the above-subject case, we wish to inform you that we do not hold any fund in the name of the defendant, Ruben R. Ramirez. Yours very truly, (Exh. 3); pero el Sheriff reitero el embargo el 17 de Octubre, 1950, Exh. B, notificando al Bank of America de que quedaba embargado, "... the interest or participation which the defendant Ruben R. Ramirez may or might have in the deposit of the Ramirez Telephone, Inc., with that Bank sufficient to cover the said amount of P2,400.00"; Exh. B; y xxx xxx

la institucion bancaria en contestacion al Sheriff, de fecha 17 de Octubre, 1950 o sea el mismo dia, hizo constar que: "... we are holding the amount of P2,400.00 in the name of the Ramirez Telephone, Inc. subject to your further orders," Exh. G; es decir acato la notificacion del embargo de los fondos de la Ramirez Telephone; ahora bien, recuerdase de que en aquella fecha, 17 de Octubre, 1950, es Ramirez Telephone tenia en deposito con el Bank of America, la suma de P4,789.53, Exh. 9; de manera que con el embargo, se redujo los fondos libres a la cantidad de P2,389.53; pero el dia siguiente, el Ramirez Telephone retiro la suma de P1,500.00, quedando por tanto como ultimo balance, nada mas que unos P889.00; de esto surgio la presente contienda, pues, el 19 de Octubre, 1950, la Ramirez Telephone por medio de su presidente, el mismo demandado, Ruben Ramirez, ya mencionado, habiendo expedido el 19 de Octubre, 1950, otro cheque en la suma de P2,320.00 a favor de la Ray Electronics, en pago de ciertos equipos vendidos por este ultimo, Exhs. 15, 17, L, el cheque Exh. N, este cheque al ser presentado a la Bank of America, fue rechazado por lo que el abogado de la Ramirez Telephone el 23 de Octubre, 1950, envio carta de requerimiento al Bank of America, Exh. 14, manifestando que su cliente habia sufrido "considerable damage and embarrassment," y advirtiendole que si no se le diera completa satisfaccion el dia siguiente, el presentaria la demanda correspondiente, "without further notice," Exh. 14; esta carta la contesto la institucion bancaria el 24 de Octubre, 1950, alegando que, "With reference to your letter dated October 23, 1950, in which you are writing in behalf of the Ramirez Telephone Corporation, it is suggested that you obtain a release from the Court on Civil Case No. 10620, Ruben E. Ramirez, defendant. "This Bank is acting only in accordance with the garnishment and has no interest whatsoever in the funds held," Exh. 15; pero conforme con su advertencia, el abogado dela Ramirez Telephone, Inc., incoo esta accion el 28 de Octubre, cuatro dias despues; y el motivo deaccion se de hace consistir en que el banco, "... knows or should have known that Ruben N. 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. Ramirez happens to be its President and General Manager.' par. 4, demanda; y alegando que con motivo de ello y la siguiente devolucion de su cheque a favor de la Ray Electronics sin pagar, esta habia cancelado su pedido para los equipos necesarios en la construccion de sus lineas telefonicas en la region bicolana, asi que todas sus operaciones se habian quedado paralizadas, par. 5 id.; la demandada Bank of America, emplazada de la demandada, presento mocion de sobresimiento, que denegada, el 4 de Diciembre, 1950, el banco sometio su contestacion el 23 de Diciembre, 1950 con reconvencion para despues presentar demanda contra el Sheriff, el 25 de Agosto, 1953, y Contra Herbosa, el 16 de Agosto, 1955; y este ultimo a su vez en contestacion, presento contra reclamacion o mejor dicho, reconvencion contra la misma demandante, Ramirez Telephone, y tambien contra el Bank of America, el 10 de Septiembre, 1955, y el Juzgado Inferior, despues de la vista, como ya se ha dicho, dictamino en favor de la demandante contra el Bank of America en la contra-demanda de este contra aquel; ... ." It was further found by the Court of Appeals:3 Considerando: Que el testimonio de Estanislao Herbosa al efecto de que; si bien Ruben R. Ramirez era su inquilino al principio, pero es que mas tarde, este lo habia manifestado que "the shop of company was established downstairs," e decir que la Ramirez Telephone Corporation a la verdad ocupaba el local alquilado, tanto que Ruben R. Ramirez solia pagar el alquilar en cheques de la Ramirez Telephone Corporation, y esta declaracion, t.n. 10 y 11, 25 June 1956, estando corroborada no solamente por el Exh. 12, en donde Ruben R. Ramirez, en papel con el embrete de la Ramirez Telephone, habia enviado el abogado de Herbosa, el cheque No. C-78900, manifestando en la carta de que: In accordance with your agreement yesterday with my attorney, Mr. Jose L. de Leon, I am sending you herewith check No. C-78900 for the amount of P812.60, rentals for the premises I am occupying at the rate of P161.00 a month for the period from February 1, 1949 to June 30, 1949, both dates, inclusive, plus P7.00 for the court costs.' Exh. 12; y esta carta, leida en relacion con el Exh. 3, en donde se ve que Ruben R. Ramirez y tenia fondos depositados en el banco mencionado, Bank of America, asi que resulta evidente que lo fondos de la Ramirez Telephone los eran a la verdad, fondos de que buenasanta podia disponer su Presidente, Ruben R. Ramirez, para el pago de los alquilares por el debidos a Herbosa, y luego, tambien resulta evidente de que la casa por el alquilada Ramirez Telephone, y estos hechos agregados el otro hecho tambien probado, de que el 75% de las acciones de la compania pertenecia a Ruben Ramirez y su esposa Rizalina P. de Ramirez, Exh. E, 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. Ramirez, especialmente teniendo en cuenta que el embargo solo abarcaba, "The interest or participation which the defendant Ruben R. Ramirez may or might have in the deposit of the Ramirez Telephone, Inc., in the amount of P2,400.00" Exh. B; cuando entonces estaba depositada la cantidad de P4,857.28, Exh. 9, era un acto de justicia a favor del acreedor Herbosa y a la verdad, de no haberse permitido el mencionado embargo, este se hubiera visto en igual situacion que aquel pobre agraviado que como se dice vulgarmente, tras de cornudo, fue apaleado; ... .

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

G.R. No. 98185 December 11, 1992 SIBAGAT TIMBER CORPORATION, petitioner, vs.ADOLFO B. GARCIA, USIPHIL, INC. and STRONGHOLD INSURANCE CO., INC., respondents.

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

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

G.R. No. 115849

January 24, 1996

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO RIVERA, petitioners, vs.

COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE JANOLO, respondents. In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters and/or in a meeting with the buyers constitute a perfected and enforceable contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of "apparent authority" apply in this case? If so, may the Central Bank-appointed conservator of Producers Bank (now First Philippine International Bank) repudiate such "apparent authority" after said contract has been deemed perfected? During the pendency of a suit for specific performance, does the filing of a "derivative suit" by the majority shareholders and directors of the distressed bank to prevent the enforcement or implementation of the sale violate the ban against forum-shopping? Simply stated, these are the major questions brought before this Court in the instant Petition for review on certiorari under Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of the respondent Court of Appeals 1 in CA-G.R CV No. 35756 and the Resolution promulgated June 14, 1994 denying the motion for reconsideration. The dispositive portion of the said Decision reads: WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed against defendant bank. In all other aspects, said decision is hereby AFFIRMED. All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito. Costs against appellant bank. The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand, is as follows: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows: 1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T106937, inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos; 2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels of land, and to immediately deliver to the plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for purposes of registration of the same deed and transfer of the six (6) titles in the names of the plaintiffs; 3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the sums of P200,000.00 each in moral damages; 4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as exemplary damages ; 5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by way of attorney's fees; 6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages in the amount of P20,000.00; With costs against the defendants. After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition was given due course in a Resolution dated January 18, 1995. Thence, the parties filed their respective memoranda and reply memoranda. The First Division transferred this case to the Third Division per resolution dated October 23, 1995. After carefully deliberating on the aforesaid submissions, the Court assigned the case to the undersigned ponente for the writing of this Decision. The Parties Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for brevity) is a banking institution organized and existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all times material to this case, Head-Manager of the Property Management Department of the petitioner Bank. Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo. Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through this petition. The Facts The facts of this case are summarized in the respondent Court's Decision 3 as follows:

(1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rose, Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME Investment and Development Corporation which had them mortgaged with the bank as collateral for a loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated negotiations for that purpose. (2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment's legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management Department of the defendant bank. The meeting was held pursuant to plaintiffs' plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal purchase offer to the bank through a letter dated August 30, 1987 (Exh. "B"), as follows: August 30, 1987 The Producers Bank of the Philippines Makati, Metro Manila Attn. Mr. Mercurio Q. Rivera Manager, Property Management Dept. Gentleman: I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less. TCT NO. T-106932 T-106933 T-106934 T-106935 T-106936 T-106937 AREA 113,580 sq. m. 70,899 sq. m. 52,246 sq. m. 96,768 sq. m. 187,114 sq. m. 481,481 sq. m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in cash. Kindly contact me at Telephone Number 921-1344. (3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter which is hereunder quoted (Exh. "C"): September 1, 1987 JP M-P GUTIERREZ ENTERPRISES 142 Charisma St., Doa Andres II Rosario, Pasig, Metro Manila Attention: JOSE O. JANOLO Dear Sir: Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly owned by Byme Industrial Corp.). Please be informed however that the bank's counter-offer is at P5.5 million for more than 101 hectares on lot basis. We shall be very glad to hear your position on the on the matter. Best regards. (4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote (Exh. "D"): September 17, 1987 Producers Bank Paseo de Roxas Makati, Metro Manila Attention: Mr. Mercurio Rivera

Gentlemen: In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa, Laguna, I would like to amend my previous offer and I now propose to buy the said lot at P4.250 million in CASH.. Hoping that this proposal meets your satisfaction. (5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took place was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, the following letter (Exh. "E"): The Producers Bank of the Philippines Paseo de Roxas, Makati Metro Manila Attention: Mr. Mercurio Rivera Re: 101 Hectares of Land in Sta. Rosa, Laguna Gentlemen: Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme Investment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00). Thank you. (6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator in the person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. "F"): Attention: Atty. Demetrio Demetria Dear Sir: Your proposal to buy the properties the bank foreclosed from Byme investment Corp. located at Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for submission to the newly designated Acting Conservator of the bank. For your information. (7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff considered as a perfected contract of sale, which demands were in one form or another refused by the bank. As detailed by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit "G") tendered payment of the amount of P5.5 million "pursuant to (our) perfected sale agreement." Defendants refused to receive both the payment and the letter. Instead, the parcels of land involved in the transaction were advertised by the bank for sale to any interested buyer (Exh, "H" and "H-1"). Plaintiffs demanded the execution by the bank of the documents on what was considered as a "perfected agreement." Thus: Mr. Mercurio Rivera Manager, Producers Bank Paseo de Roxas, Makati Metro Manila Dear Mr. Rivera: This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to 106937. From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in the amount of P5.5 million was accepted by our client thru a letter dated September 30, 1987 and was received by you on October 5, 1987. In view of the above circumstances, we believe that an agreement has been perfected. We were also informed that despite repeated follow-up to consummate the purchase, you now refuse to honor your commitment. Instead, you have advertised for sale the same lot to others. In behalf of our client, therefore, we are making this formal demand upon you to consummate and execute the necessary actions/documentation within three (3) days from your receipt hereof. We are ready to remit the agreed amount of P5.5 million at your advice. Otherwise, we shall be constrained to file the necessary court action to protect the interest of our client.

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

On the other hand, petitioners prayed for dismissal of the instant suit on the ground 8 that: I.

Petitioners have engaged in forum shopping. II. The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and may no longer be questioned in this case. III. The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo (substituted by; respondent Ejercito) and the bank. IV. The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the agency and the contract, has no authority to revoke the contract of sale. The Issues From the foregoing positions of the parties, the issues in this case may be summed up as follows: 1) Was there forum-shopping on the part of petitioner Bank? 2) Was there a perfected contract of sale between the parties? 3) Assuming there was, was the said contract enforceable under the statute of frauds? 4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or to revoke the said contract? 5) Did the respondent Court commit any reversible error in its findings of facts? The First Issue: Was There Forum-Shopping? In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised Circular No. 28-91 requiring that a party "must certify under oath . . . [that] (a) he has not (t)heretofore commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no such action or proceeding is pending" in said courts or agencies. A violation of the said circular entails sanctions that include the summary dismissal of the multiple petitions or complaints. To be sure, petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating "for the record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders of petitioner Bank against the conservator and other defendants but which is the subject of a pending Motion to Dismiss Without Prejudice. 9 Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual forum shopping because the instant petition pending before this Court involves "identical parties or interests represented, rights asserted and reliefs sought (as that) currently pending before the Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the issues in the two cases are so interwined that a judgement or resolution in either case will constitute res judicata in the other." 10 On the other hand, petitioners explain 11 that there is no forum-shopping because: 1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as a defendant, whereas in the "Second Case" (assuming the Bank is the real party in interest in a derivative suit), it was plaintiff; 2) "The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances"; 3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the Petition identifies the action as a "derivative suit," it "does not mean that it is one" and "(t)hat is a legal question for the courts to decide"; 4) Petitioners did not hide the Second Case at they mentioned it in the said VERIFICATION/CERTIFICATION. We rule for private respondent. To begin with, forum-shopping originated as a concept in private international law. 12, where non-resident litigants are given the option to choose the forum or place wherein to bring their suit for various reasons or excuses, including to secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. To combat these less than honorable excuses, the principle of forum non conveniens was developed whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most "convenient" or available forum and the parties are not precluded from seeking remedies elsewhere.

In this light, 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." Hence, according to Words and Phrases14, "a litigant is open to the charge of "forum shopping" whenever he chooses a forum with slight connection to factual circumstances surrounding his suit, and litigants should be encouraged to attempt to settle their differences without imposing undue expenses and vexatious situations on the courts". In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of venues, as it was originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice of venues), the Rules of Court, for example, allow a plaintiff to commence personal actions "where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec, 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of pursuing civil liabilities independently of the criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or culpa criminal each remedy being available independently of the others although he cannot recover more than once. In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of his action, This was the original concept of the term forum shopping. Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies simultaneously. This practice had not only resulted to (sic) conflicting adjudications among different courts and consequent confusion enimical (sic) to an orderly administration of justice. It had created extreme inconvenience to some of the parties to the action. Thus, "forum shopping" had acquired a different concept which is unethical professional legal practice. And this necessitated or had given rise to the formulation of rules and canons discouraging or altogether prohibiting the practice.
15

What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for solving problems has been abused and mis-used to assure scheming litigants of dubious reliefs. To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned, promulgated Circular 28-91. And even before that, the Court had prescribed it in the Interim Rules and Guidelines issued on January 11, 1983 and had struck down in several cases 16 the inveterate use of this insidious malpractice. Forum shopping as "the filing of repetitious suits in different courts" has been condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et al., "as a reprehensible manipulation of court processes and proceedings . . ." 17 when does forum shopping take place? There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in connection with litigations commenced in the courts while an administrative proceeding is pending, as in this case, in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, where the court in which the second suit was brought, has no jurisdiction.18 The test for determining whether a party violated the rule against forum shopping has been laid dawn in the 1986 case of Buan vs. Lopez 19, also by Chief Justice Narvasa, and that is, forum shopping exists where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in the other, as follows: There thus exists between the action before this Court and RTC Case No. 86-36563 identity of parties, or at least such parties as represent the same interests in both actions, as well as identity of rights asserted and relief prayed for, the relief being founded on the same facts, and the identity on the two preceding particulars is such that any judgment rendered in the other action, will, regardless of which party is successful, amount to res adjudicata in the action under consideration: all the requisites, in fine, of auter action pendant. As already observed, there is between the action at bar and RTC Case No. 86-36563, an identity as regards parties, or interests represented, rights asserted and relief sought, as well as basis thereof, to a degree sufficient to give rise to the ground for dismissal known as auter action pendant or lis pendens. That same identity puts into operation the sanction of twin dismissals just mentioned. The application of this sanction will prevent any further delay in the settlement of the controversy which might ensue from attempts to seek reconsideration of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15, 1986, which dismissed the petition upon grounds which appear persuasive. Consequently, where a litigant (or one representing the same interest or person) sues the same party against whom another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still pending, the defense of litis pendencia in one case is bar to the others; and, a final judgment in one would constitute res judicata and thus would cause the dismissal of the rest. In either case, forum shopping could be cited by the other party as a ground to ask for summary dismissal of the two 20 (or more) complaints or petitions, and for imposition of the other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action against the erring lawyer. Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious that there exist identity of parties or interests represented, identity of rights or causes and identity of reliefs sought. Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed by the buyer (herein private respondent and his predecessors-in-interest) against the seller (herein petitioners) to enforce the alleged perfected sale of

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

The rule has not been extended to a defendant who, for reasons known only to him, commences a new action against the plaintiff instead of filing a responsive pleading in the other case setting forth therein, as causes of action, specific denials, special and affirmative defenses or even counterclaims, Thus, Velhagen's and King's motion to dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did not exist in the first place. (emphasis supplied) Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the forum in said case. Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and the present suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file any responsive pleading in the first case. In other words, they did not make any denial or raise any defense or counter-claim therein In the case before us however, petitioners filed a responsive pleading to the complaint as a result of which, the issues were joined. Indeed, by praying for affirmative reliefs and interposing counterclaims in their responsive pleadings, the petitioners became plaintiffs themselves in the original case, giving unto themselves the very remedies they repeated in the Second Case. Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the vexation caused the courts and parties-litigant by a party who asks different courts and/or administrative agencies to rule on the same or related causes and/or to grant the same or substantially the same reliefs, in the process creating the possibility of conflicting decisions being rendered by the different fora upon the same issue. In this case, this is exactly the problem: a decision recognizing the perfection and directing the enforcement of the contract of sale will directly conflict with a possible decision in the Second Case barring the parties front enforcing or implementing the said sale. Indeed, a final decision in one would constitute res judicata in the other 28. The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction possible now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed because petitioners' present counsel entered their appearance only during the proceedings in this Court, and the Petition's VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the Second Case to show good faith in observing Circular 28-91. The Lawyers who filed the Second Case are not before us; thus the rudiments of due process prevent us from motu propio imposing disciplinary measures against them in this Decision. However, petitioners themselves (and particularly Henry Co, et al.) as litigants are admonished to strictly follow the rules against forum-shopping and not to trifle with court proceedings and processes They are warned that a repetition of the same will be dealt with more severely. Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-shopping but also because of the substantive issues raised, as will be discussed shortly. The Second Issue: Was The Contract Perfected? The respondent Court correctly treated the question of whether or not there was, on the basis of the facts established, a perfected contract of sale as the ultimate issue. Holding that a valid contract has been established, respondent Court stated: There is no dispute that the object of the transaction is that property owned by the defendant bank as acquired assets consisting of six (6) parcels of land specifically identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the bank intended to sell the property. As testified to by the Bank's Deputy Conservator, Jose Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs wanted to purchase the property and it was precisely for this purpose that they met with defendant Rivera, Manager of the Property Management Department of the defendant bank, in early August 1987. The procedure in the sale of acquired assets as well as the nature and scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera himself, which testimony was relied upon by both the bank and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20): A: The procedure runs this way: Acquired assets was turned over to me and then I published it in the form of an inter-office memorandum distributed to all branches that these are acquired assets for sale. I was instructed to advertise acquired assets for sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon having been offered, I present it to the Committee. I provide the Committee with necessary information about the property such as original loan of the borrower, bid price during the foreclosure, total claim of the bank, the appraised value at the time the property is being offered for sale and then the information which are relative to the evaluation of the bank to buy which the Committee considers and it is the Committee that evaluate as against the exposure of the bank and it is also the Committee that submit to the Conservator for final approval and once approved, we have to execute the deed of sale and it is the Conservator that sign the deed of sale, sir. The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt with and talked to the right person. Necessarily, the agenda was the price of the property, and plaintiffs were dealing with the bank official authorized to entertain offers, to accept offers and to present the offer to the Committee before which the said official is authorized to discuss information relative to price determination. Necessarily, too, it being inherent in his authority, Rivera is the officer from whom official information regarding the price, as determined by the Committee and approved by the Conservator, can be had. And Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony of plaintiff Demetria is clear on this point (TSN of May 31,1990, pp. 27-28): Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him point-blank his authority to sell any property? A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it would take because he was saying that the matter of pricing will be passed upon by the committee. And when I asked him how long it will take for the committee to decide and he said the committee meets every week. If I am not mistaken Wednesday and in about two week's ( sic) time, in effect what he was saying he was not the one who was to decide. But he would refer it to the committee and he would relay the decision of the committee to me.

Q Please answer the question. A He did not say that he had the authority (.) But he said he would refer the matter to the committee and he would relay the decision to me and he did just like that. "Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the Head, with Jose Entereso as one of the members. What transpired after the meeting of early August 1987 are consistent with the authority and the duties of Rivera and the bank's internal procedure in the matter of the sale of bank's assets. As advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the attention of Mercurio Rivera who was tasked to convey and accept such offers. Considering an aspect of the official duty of Rivera as some sort of intermediary between the plaintiffs-buyers with their proposed buying price on one hand, and the bank Committee, the Conservator and ultimately the bank itself with the set price on the other, and considering further the discussion of price at the meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for more than 101 hectares on lot basis," such counter-offer price had been determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer for discussion by the Committee of such matters as original loan of borrower, bid price during foreclosure, total claim of the bank, and market value. Tersely put, under the established facts, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at which the bank was selling the property. There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not discussed by the Committee and that price. As correctly characterized by the trial court, this is not credible. The testimonies of Luis Co and Jose Entereso on this point are at best equivocal and considering the gratuitous and self-serving character of these declarations, the bank's submission on this point does not inspire belief. Both Co ad Entereso, as members of the Past Due Committee of the bank, claim that the offer of the plaintiff was never discussed by the Committee. In the same vein, both Co and Entereso openly admit that they seldom attend the meetings of the Committee. It is important to note that negotiations on the price had started in early August and the plaintiffs had already offered an amount as purchase price, having been made to understand by Rivera, the official in charge of the negotiation, that the price will be submitted for approval by the bank and that the bank's decision will be relayed to plaintiffs. From the facts, the official bank price. At any rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around and later say, as it now does, that what Rivera states as the bank's action on the matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, he estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, 1993). 29 Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: "(1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established." There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. There is, however, a dispute on the first and third requisites. Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by the Bank, there was nothing for Ejercito (in substitution of Demetria and Janolo) to accept." 30 They disputed the factual basis of the respondent Court's findings that there was an offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We have perused the evidence but cannot find fault with the said Court's findings of fact. Verily, in a petition under Rule 45 such as this, errors of fact if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and the trial court as well) chose to believe the evidence presented by respondent more than that presented by petitioners is not by itself a reversible error. In fact, such findings merit serious consideration by this Court, particularly where, as in this case, said courts carefully and meticulously discussed their findings. This is basic. Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the question of Rivera's authority to act and petitioner's allegations that the P5.5 million counter-offer was extinguished by the P4.25 million revised offer of Janolo. Here, there are questions of law which could be drawn from the factual findings of the respondent Court. They also delve into the contractual elements of consent and cause. The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of "apparent authority", with special reference to banks, was laid out in Prudential Bank vs. Court of Appeals31, where it was held that: Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent. 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. Intermediate Appellate Court, 184 SCRA 166). A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scape of their authority (9 C.J.S., p. 417). A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though,

in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021). Application of these principles is especially necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors. From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied authority to act for the Bank in the matter of selling its acquired assets. This evidence includes the following: (a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case, Manager of the Property Management Department of the Bank". By his own admission, Rivera was already the person in charge of the Bank's acquired assets (TSN, August 6, 1990, pp. 8-9); (b) As observed by respondent Court, the land was definitely being sold by the Bank. And during the initial meeting between the buyers and Rivera, the latter suggested that the buyers' offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17); (c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990, p.11); (d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July 30, p. 11); (e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12); (f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN, January 16, 1990, p. 18); (g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994, during which the Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and officer of the Bank, confirmed Rivera's statement as to the finality of the Bank's counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35); (h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for the Bank in relation to parties interested in buying assets owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Bank's advertisements offering for sale the property in question ( cf. Exhs. "S" and "S-1"). In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32, the Court, through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of the officer of the Bank of P.I. in charge of acquired assets is borne out by similar circumstances surrounding his dealings with buyers. To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents and testimony which seek to establish Rivera's actual authority. These pieces of evidence, however, are inherently weak as they consist of Rivera's selfserving testimony and various inter-office memoranda that purport to show his limited actual authority, of which private respondent cannot be charged with knowledge. In any event, since the issue is apparent authority, the existence of which is borne out by the respondent Court's findings, the evidence of actual authority is immaterial insofar as the liability of a corporation is concerned 33. Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law firm" had once acted for the Bank in three criminal cases, they should be charged with actual knowledge of Rivera's limited authority. But the Court of Appeals in its Decision (p. 12) had already made a factual finding that the buyers had no notice of Rivera's actual authority prior to the sale. In fact, the Bank has not shown that they acted as its counsel in respect to any acquired assets; on the other hand, respondent has proven that Demetria and Janolo merely associated with a loose aggrupation of lawyers (not a professional partnership), one of whose members (Atty. Susana Parker) acted in said criminal cases. Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter dated September 17, 1987 extinguished the Bank's offer of P5.5 million 34 .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, 1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J" (letter dated September 17, 1987)", citing the late Justice Paras35, Art. 1319 of the Civil Code 36 and related Supreme Court rulings starting with Beaumont vs. Prieto 37. However, the above-cited authorities and precedents cannot apply in the instant case because, as found by the respondent Court which reviewed the testimonies on this point, what was "accepted" by Janolo in his letter dated September 30, 1987 was the Bank's offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the said letter of September 30, 1987 begins with"(p)ursuant to our discussion last 28 September 1987 . . . Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the September 28, 1987 meeting "was meant to have the offerors improve on their position of P5.5. million." 38 However, both the trial court and the Court of Appeals found petitioners' testimonial evidence "not credible", and we find no basis for changing this finding of fact. Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding that private respondents' evidence is more in keeping with truth and logic that during the meeting on September 28, 1987, Luis Co and Rivera "confirmed that the P5.5 million price has been passed upon by the Committee and could no longer be lowered (TSN of April 27,

1990, pp. 34-35)"39. Hence, assuming arguendo that the counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis Co's reiteration of the said P5.5 million price during the September 28, 1987 meeting revived the said offer. And by virtue of the September 30, 1987 letter accepting this revived offer, there was a meeting of the minds, as the acceptance in said letter was absolute and unqualified. We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and action, particularly the latter's counter-offer of P5.5 million, as being "unauthorized and illegal" came only on May 12, 1988 or more than seven (7) months after Janolo' acceptance. Such delay, and the absence of any circumstance which might have justifiably prevented the Bank from acting earlier, clearly characterizes the repudiation as nothing more than a last-minute attempt on the Bank's part to get out of a binding contractual obligation. Taken together, the factual findings of the respondent Court point to an implied admission on the part of the petitioners that the written offer made on September 1, 1987 was carried through during the meeting of September 28, 1987. This is the conclusion consistent with human experience, truth and good faith. It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for the first time on appeal and should thus be disregarded. This Court in several decisions has repeatedly adhered to the principle that points of law, theories, issues of fact and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145 SCRA 592). 40 . . . It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the trial in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990). 41 Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given an opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a matter of due process. But we passed upon the issue anyway, if only to avoid deciding the case on purely procedural grounds, and we repeat that, on the basis of the evidence already in the record and as appreciated by the lower courts, the inevitable conclusion is simply that there was a perfected contract of sale. The Third Issue: Is the Contract Enforceable? The petition alleged42: Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo accepted with their letter of 30 September 1987, the contract produced thereby would be unenforceable by action there being no note, memorandum or writing subscribed by the Bank to evidence such contract. (Please see article 1403[2], Civil Code.) Upon the other hand, the respondent Court in its Decision (p, 14) stated: . . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs' acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of sale. They are however clear embodiments of the fact that a contract of sale was perfected between the parties, such contract being binding in whatever form it may have been entered into (case citations omitted). Stated simply, the banks' letter of September 1, 1987, taken together with plaintiffs' letter dated September 30, 1987, constitute in law a sufficient memorandum of a perfected contract of sale. The respondent Court could have added that the written communications commenced not only from September 1, 1987 but from Janolo's August 20, 1987 letter. We agree that, taken together, these letters constitute sufficient memoranda since they include the names of the parties, the terms and conditions of the contract, the price and a description of the property as the object of the contract. But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did constitute a "new" offer which was accepted by Janolo on September 30, 1987. Still, the statute of frauds will not apply by reason of the failure of petitioners to object to oral testimony proving petitioner Bank's counter-offer of P5.5 million. Hence, petitioners by such utter failure to object are deemed to have waived any defects of the contract under the statute of frauds, pursuant to Article 1405 of the Civil Code: Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them. As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer of P5.5 million is a plenty and the silence of petitioners all throughout the presentation makes the evidence binding on them thus; A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria told me to accompany him we were able to meet Luis Co at the Bank. Q Now, what transpired during this meeting with Luis Co of the Producers Bank? A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.

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

power to overrule or revoke the actions of the previous management and board of directors of the bank or non-bank financial intermediary performing quasi-banking functions, any provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall deem necessary. In the first place, this issue of the 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. As already stated earlier, issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals, "cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process." 43 In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected, actually repudiated or overruled said contract of sale. The Bank's acting conservator at the time, Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter of Conservator Encarnacion, who took over from Romey after the sale was perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated not the contract but the authority of Rivera to make a binding offer and which unarguably came months after the perfection of the contract. Said letter dated May 12, 1988 is reproduced hereunder: May 12, 1988 Atty. Noe C. Zarate Zarate Carandang Perlas & Ass. Suite 323 Rufino Building Ayala Avenue, Makati, Metro-Manila Dear Atty. Zarate: This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna. We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a "contract to sell and buy" with any of them for the following reasons. In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions of Property Management Department (PMD) staff and officers (Annex A.), you will immediately read that Manager Mr. Mercurio Rivera or any of his subordinates has no authority, power or right to make any alleged counter-offer. In short, your lawyer-clients did not deal with the authorized officers of the bank. Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates Pambansa Blg. 68.) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator may authorize the sale of any property of the corportion/bank.. Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators (starting January, 1984) to sell the aforesaid property to any of your clients. Apparently, what took place were just preliminary discussions/consultations between him and your clients, which everyone knows cannot bind the Bank's Board or Conservator. We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently violative of corporate and banking laws. We believe that this is more than sufficient legal justification for refusing said alleged tender. Rest assured that we have nothing personal against your clients. All our acts are official, legal and in accordance with law. We also have no personal interest in any of the properties of the Bank. Please be advised accordingly. Very truly yours, (Sgd.) Leonida T. Encarnacion LEONIDA T. EDCARNACION Acting Conservator In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank, it must be pointed out that such powers must be related to the "(preservation of) the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its viability." Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution 44. If the legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to the conservator under Section 28-A of said law? Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank's board of directors. What the said board cannot do such as repudiating a contract validly entered into under the doctrine of implied authority the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts as he has already

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

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

G.R. No. 86932 June 27, 1990 DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION and DOROTHY S. ANCHETA, MA. MAGDALENA Y. ARMARILLE, CONSTANTE A. ANCHETA, CONSTANTE B. BANAYOS, EVELYN BARRIENTOS, JOSE BENAVIDEZ, LEONARDO BUENAAGUA, BENJAMIN BAROT, ERNESTO S. CANTILLER, EDUARDO CANDA, ARMANDO CANDA, AIDA DE LUNA, PACIFICO M. DE JESUS, ALFREDO ESTRERA, AURELIO A. FARINAS, FRANCISCO GREGORIO, DOMELINA GONZALES, JUANA JALANDONI, MANUEL MALUBAY, FELICIANO OCAMPO, MABEL PADO, GEMINIANO PLETA, ERNESTO S. SALAMAT, JULIAN TRAQUENA, JUSFIEL SILVERIO, JAMES CRISTALES, FRANCISCO BAMBIO, JOSE T. MARCELO, JR., SUSAN M. OLIVAR, ERNESTO JULIO, CONSTANTE ANCHETA, JR., ENRIQUE NABUA and JAVIER P. MATARO, respondents. The present petition for certiorari seeks the reversal of the decision of the National Labor Relations Commission (NLRC) in, NLRC-NCR Case No. 00-07-02500-87, dated January 16, 1986, 1 which dismissed the appeal of the Development Bank of the Philippines (DBP) from the decision of the labor arbiter ordering it to pay the unpaid wages, 13th month pay, incentive pay and separation pay of herein private respondents. Philippine Smelters Corporation (PSC), a corporation registered under Philippine law, obtained a loan in 1983 from the Development Bank of the Philippines, a government-owned financial institution created and operated in accordance with Executive Order No. 81, to finance its iron smelting and steel manufacturing business. To secure said loan, PSC mortgaged to DBP real properties with all the buildings and improvements thereon and chattels, with its President, Jose T. Marcelo, Jr., as co-obligor. By virtue of the said loan agreement, DBP became the majority stockholder of PSC, with stockholdings in the amount of P31,000,000.00 of the total P60,226,000.00 subscribed and paid up capital stock. Subsequently, it took over the management of PSC. When PSC failed to pay its obligation with DBP, which amounted to P75,752,445.83 as of March 31, 1986, DBP foreclosed and acquired the mortgaged real estate and chattels of PSC in the auction sales held on February 25, 1987 and March 4, 1987. On February 10, 1987, forty (40) petitioners filed a Petition for Involuntary Insolvency in the Regional Trial Court, Branch 61 at Makati, Metropolitan Manila, docketed therein as Special Proceeding No. M-1359, 2 against PSC and DBP, impleading as co-respondents therein Olecram Mining Corporation, Jose Panganiban Ice Plant and Cold Storage, Inc. and PISO Bank, with said petitioners representing themselves as unpaid employees of said private respondents, except PISO Bank. On February 13, 1987, herein private respondents filed a complaint with the Department of Labor against PSC for nonpayment of salaries, 13th month pay, incentive leave pay and separation pay. On February 20, 1987, the complaint was amended to include DBP as party respondent. The case was thereafter indorsed to the Arbitration Branch of the National Labor Relations Commission (NLRC). DBP filed its position paper on September 7, 1987, invoking the absence of employer-employee relationship between private respondents and DBP and submitting that when DBP foreclosed the assets of PSC, it did so as a foreclosing creditor. On January 30, 1988, the labor arbiter rendered a decision, the dispositive portion of which directed that "DBP as foreclosing creditor is hereby ordered to pay all the unpaid wages and benefits of the workers which remain unpaid due to PSC's foreclosure." 3 On appeal by DBP, the NLRC sustained the ruling of the labor arbiter, holding DBP liable for unpaid wages of private respondents "not as a majority stockholder of respondent PSC, but as the foreclosing creditor who possesses the assets of said PSC by virtue of the auction sale it held in 1987." In addition, the NLRC held that the labor arbiter is correct in assuming jurisdiction because "the worker's preference to the amount secured by DBP by virtue of said foreclosure sales of PSC properties arose out of or are connected or interwoven with the labor dispute brought forth by appellees against PSC and DBP. 4 Hence, the present petition by DBP. DBP contends that the labor arbiter and the NLRC committed a grave abuse of discretion (1) in assuming jurisdiction over DBP; (2) in applying the provisions of Article 110 of the Labor Code, as amended; and (3) in not enforcing and applying Section 14 of Executive Order No. 81. We find merit in the petition. It is to be noted that in their comment, private respondents tried to prove the existence of 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. 5 We do not believe that these circumstances are sufficient indicia of the existence of an employer-employee relationship as would confer jurisdiction over the case on the labor arbiter, especially in the light of the express declaration of said labor arbiter and the NLRC that DBP is being held liable as a foreclosing creditor. At any rate, this jurisdictional defect was cured when DBP appealed the labor arbiter's decision to the NLRC and thereby submitted to its jurisdiction. The pivotal issue for resolution is whether DBP, as foreclosing creditor, could be held liable for the unpaid wages, 13th month pay, incentive leave pay and separation pay of the employees of PSC. We rule in the negative.

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

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

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

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

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

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

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

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

GUATSON INTERNATIONAL TRAVEL AND TOURS, INC., PHILIPPINE INTEGRATED LABOR ASSISTANCE CORPORATION, MERCURY EXPRESS INTERNATIONAL COURIER SERVICES, INC., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION AND JOLLY ALMORADIE, respondents. March 9, 1994 Petitioners Guatson Travel and Tours, Inc. (hereinafter referred to as Guatson Travel), Philippine Integrated Labor Assistance Corp. (Philac) and Mercury Express International Courier Services, Inc. (MEREX) assail the Decision, rendered by the National Labor Relations Commission in Case No. NLRC-NCR-00-11-0451-88 entitled "Jolly M. Almoradie v. Guatson's Travel Company, Philac and MEREX," dated March 21, 1991 and its Resolution, dated May 31, 1991, denying the petitioners' Motion for Reconsideration. In the questioned decision, the NLRC found that Mr. Henry Ocier's (Vice-President and General Manager of petitioner Guatson Travel) actuation of threatening and forcing private respondent, Jolly M. Almoradie, to resign amounted to illegal dismissal and thus ordered petitioners to pay private respondent backwages, computed from the date of his dismissal on November 1988, until the decision was rendered on February 28, 1991 or the amount of P50,328.00; and to pay separation pay equivalent to one-half (1/2) month for every year of service, for seven (7) years or the amount of P6,524.00. From the records it appears that Jolly M. Almoradie was first employed by Mercury Express International Courier Service, Inc. (MEREX) in October, 1983 as Messenger receiving a monthly salary of P800.00. When it closed its operations, Almoradie was absorbed by MEREX's sister company Philippine Integrated Labor Assistance Corp. (Philac), likewise as Messenger with an increased salary of P1,200.00. In September, 1986, Almoradie was transferred to Guatson Travel, allegedly also a sister company of MEREX and Philac, as Liaison Officer with a salary of P1,864.00. Thereafter, he was promoted to the position of Sales Representative sometime in April, 1988. On April 30, 1988, Almoradie was issued three separate memoranda as follows: IOM/88-7 Please explain in writing within 24 hrs. or not later than Monday morning the reason why you don't want to sell. 1 IOM/88-71 Please explain in writing why did you went (sic) to BEMIL and who sent you there. 2 IOM-88 Explain in writing not later than Monday the following: 1. The reason why you want to be a messenger and no more a sales representative; 2. That I'm always confronting (sic) you, as what you've told me personally; 3. Why you will not answer in writing the memo issued to you by Lou Cantara on 30 Apr; 5. Why when you were asked last Friday to join the Sales Blitz to Sta. Ana you said yes and you change (sic) your mind when you were asked again last Saturday; 7. Why you have forgotten the situation wherein you refuse (sic) to sell a certain product recommended by Myrna; 8. The meaning of "You pirated me from Philac . . . 3 Within the time frame specified, Almoradie responded to each of the charges, the essence of which are as follows: 1. It is not true that I do not want to sale (sic) the rates & package tour of Our Company as imputed and charge (sic), because since April, 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 truth however is that, I am hampered in my sales promotion and solicitation of customer, due to financial constraint considering that the kind and nature of work entails much expenses for which I shouldered (sic) with my personal money. 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, meeting people and soliciting prospective clients. 2. Bemil is a customer of our company. With respect to the ticketing and booking of Bemil passengers, undertaking (sic) by the sales department of our company, I used to go Bemil (sic) to inquire whether they have passengers for booking and ticketing. As a matter of fact, I went to Bemil to pick-up their ticketing and booking for their passengers last Monday, April 29, 1988 (sic) and then returned the following day, Saturday April 30, 1988, to deliver the ticket. 3.1. Considering that the job of sales representative entails so much expense in the performance thereof (sic), 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), I have taught (sic) it better that I like my position as messenger, that (sic) as sales representative, although the later (sic) position is more dignified, hence I prefer to be entered to my messenger position. 3.2. That I admit of the often confrontation conducted (sic) by Vice President/General Manager, even in the absence of my error or fault (sic) . . . 3.3. It is not true that I did not or fail to answer the memo issued by Lou Cantara, since I was given until May 2, 1988 to answer the same . . .

3.5. As scheduled, I said yes to the sales blitz to Sta. Ana, 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, but if I was not able to join it is not the reason my change of mind (sic), but because the Vice-President/General Manager of Our Company, Henry Ocier summoned me to his office and had a very lengthy confrontation of me (sic), and when I go out (sic) after the confrontation to join the sales blitz-krieg to Sta. Ana last Saturday, April 30, 1988, Mr. Oscar Vanderlipe who heads the sales Group (sic) were (sic) already gone. 3.7. I deny vehemently that I refuse to sale (sic) a certain product recommended by Myrna de Vera because the same is totally false. Since April 1, 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, 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. If sometimes I make no sales, which all sales representative suffer and are beset such (sic), however, cannot be considered as refusal to sale (sic). The only product of our Company that Myrna briefed, taught and required as to (sic) our rates and Package Tours which I've been selling since April 1, 1988 up to present. (sic) On May 4, 1988, Almoradie was reverted to the position of Messenger, yet sometime in September, 1988, he was again given the position of Account Executive, the nature of work of which is similar to that of a sales representative. 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. In the morning of October 1, 1988, Almoradie was allegedly summoned by Henry Ocier to his office and was there and then forced by the latter to resign. 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. Ocier allegedly even provided the pen and paper on which Almoradie wrote and signed the resignation letter dictated by Ocier himself. 5 On that same day, Almoradie sought the help of a friend, Isagani Mallari, who advised him to report the matter to the Barangay Captain. 6 Subsequently, Almoradie filed a complaint for illegal Dismissal on November 14, 1988. The Labor Arbiter, however dismissed his case based on the following conclusions: In examining the facts and the arguments, it is difficult to abide by the impression that complainant was forced to resign. Apart from the averment of respondent Guatson that Mr. Ocier was out of town when the resignation letter was executed that he just saw the resignation letter when he arrived. 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. 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. Apparently, 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. The only graceful exit to the complainant was to execute his letter of resignation. As his letter of resignation shows, it was executed in his own handwriting spontaneously out of his own free will. 8 Upon Almoradie's appeal, the NLRC reversed the decision of the Labor Arbiter on his finding that complainant was not forced to resign, anchoring its conclusion to the fact that Almoradie was a permanent employee who has been working for the Ocier's for five long years; that he was receiving a fairly good salary considering that he is single; that he had no potential employer at the time of his resignation; that there was no evidence to show that Mr. Henry Ocier was indeed not in town on October 1, 1988, when he allegedly forced Almoradie to resign; 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. The issue therefore, boils down to the question of whether Jolly Almoradie was indeed illegally dismissed by being forced to resign in the manner narrated by him. From a synthesis of the evidence on record, we fully agree with the finding of the NLRC that Jolly Almoradie's resignation was NOT voluntary. 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. It appears that as early as April, 1988, when Almoradie was promoted as Sales Representative he had caught the ire of management, so much so that he was issued no less than three memoranda on one day ordering him to answer certain charges. 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, unless it was a scheme of management to really rid him from the company. Apparently, Almoradie is not cut out for a sales job, and hence could be dismissed or forced to resign for failing to make good on his job on sales. On the other hand, 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. We do not agree with petitioners' proposition that Mr. Ocier's mere utterances of the words "I will file charges against you," and "I have a very good lawyer," do not constitute force or coercion as to vitiate the free will of Almoradie in writing his resignation letter. Intimidation may vitiate consent when the following requisites are present: (1) that the intimidation caused the consent to be given; 2) that the threatened act be unjust or unlawful; 3) that the threat be real or serious, there being evident disproportion between the evil and the resistance which all man can offer, leading to the choice of doing that act which is forced on the person to do as the lesser evil; 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. 9

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

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

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

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

G.R. No. 116781 September 5, 1997 TOMAS LAO CONSTRUCTION, LVM CONSTRUCTION CORPORATION, THOMAS and JAMES DEVELOPERS (PHIL.), INC., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, MARIO O. LABENDIA, SR., ROBERTO LABENDIA, NARCISO ADAN, FLORENCIO GOMEZ, ERNESTO BAGATSOLON, SALVADOR BABON, PATERNO BISNAR, CIRPRIANO BERNALES, ANGEL MABUHAY, SR., LEO SURIGAO, and ROQUE MORILLO, respondents. 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. VIII (NLRC RAB VIII), Tacloban City. Alleging that they were hired for various periods as construction workers in different capacities they described their contractual terms as follows: (a) Roberto Labendia, general construction foreman, from 1971 to 17 October 1990 at P3,700/month; (b) Narciso Adan, tireman, from October 1981 to November 1990 at P75.00/day; (c) Florencio Gomez, welder, from July 1983 to July 1990 at P260.00/day; (d) Ernesto Bagatsolon leadman/checker, from June 1982 to October 1990 at P2,800/month; (e) Salvador Babon, clerk/timekeeper/paymaster, from June 1982 to October 1990 at P3,200/month; (f) Paterno Bisnar, road grader operator, from January 1979 to October 1990 at 105/day; (g) Cipriano Bernales, instrument man, from February 1980 to November 1990 at P3,200/month; (h) Angel Mabulay, Sr., dump truck driver, from August 1974 to October 1990 at P90/day; (I) Leo Surigao, payloader operator, from March 1975 to January 1978 at P100/day; (J) Mario Labendia, Sr. surveyor/foreman, from August 1971 to July 1990 at P2,900/month; and, (k) Roque Morillo, company watchman, from August 1983 to October 1990 at P3,200/month. 1 Within the periods of their respective employments, they alternately worked for petitioners Tomas Lao Corporation (TLC), Thomas and James Developers (T&J) and LVM Construction Corporation (LVM), altogether informally referred to as the "Lao Group of Companies," the three (3) entities comprising a business conglomerate exclusively controlled and managed by members of the Lao family. TLC, T&J and LVM are engaged in the construction of public roads and bridges. Under joint venture agreements they entered into among each other, they would undertake their projects either simultaneously or successively so that, whenever necessary, they would lease tools and equipment to one another. Each one would also allow the utilization of their employees by the other two (2). With this arrangement, workers were transferred whenever necessary to ongoing projects of the same company or of the others, or were rehired after the completion of the project or project phase to which they were assigned. Soon after, however, TLC ceased its operations 2 while T&J and LVM stayed on. Sometime in 1989 Andres Lao, Managing Director of LVM and President of T&J, 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. These were to be used allegedly for audit purposes pursuant to a joint venture agreement between LVM and T&J. To ensure compliance with the directive, the company ordered the withholding of the salary of any employee who refused to sign. Quite notably, the contracts expressly described the construction workers as project employees whose employments were for a definite period, i.e., upon the expiration of the contract period or the completion of the project for which the workers was hired. 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. Resultantly, their salaries were withheld. 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. Since the workers stood firm in their refusal to comply with the directives their services were terminated. NLRC RAB VIII dismissed the complaints lodged before it, 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. 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. The labor court however granted each employee a separation pay of P6,435.00 computed at one-half (1/2) month salary for every year of service, uniformly rounded at five (5) years. 6 The decision of Labor Arbiter Gabino A. Velasquez, Jr., 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. 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. In granting monetary awards to complainants, 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), intermingling and commingling all its resources, including manpower facility." 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; (b) assuming that the workers were regular employees, NLRC failed to consider that they were terminated for cause; (c) assuming further that the employees were illegally dismissed, NLRC erred in awarding back wages in excess of three (3) years; and, (d) assuming finally that the decision is correct, NLRC erred when it pierced the veil of corporate personality of petitioner-corporations. 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. They cite Policy Instruction No. 20 of the Department of Labor which defines project employees as those employed in connection with a particular construction project, adding that the ruling in Sandoval Shipyards, Inc. v. NLRC 8 applies squarely to the instant case because there the Court declared that the employment of project employees is co-terminous with the

completion of the project regardless of the number of projects in which they have worked. And as their employment is one for a definite period, 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. 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. As additional ground, 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. 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," the duration (and scope) of which are specified at the time the employees are engaged for the project. "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, but which is distinct and separate and identifiable as such from the undertakings of the company. Such job or undertaking begins and ends at determined or determinable times. 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, the repeated re-hiring and the continuing need for their services over a long span of time (the shortest, at seven [7] years) have undeniably made them regular employees. Thus, we held that where the employment of project employees is extended long after the supposed project has been finished, the employees are removed from the scope of project employees and considered regular employees. 10 While length of time may not be a controlling test for project employment, 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, necessary and indispensable to the usual business or trade of the employer. In the case at bar, private respondents had already gone through the status of project employees. 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. We note petitioners' own admission [t]hese construction projects have been prosecuted by either of the three petitioners, either individually or in a joint venture with one another. Likewise, these construction projects have been prosecuted by either of the three petitioners, either simultaneously, one construction project overlapping another and/or one project commencing immediately after another project has been completed or terminated. Perhaps because of their capacity to prosecute government projects and their good record and performance, 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. 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. However, 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. 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, provided that the worker shall be available when called to report for a project. Although primarily applicable to regular seasonal workers, this set-up can likewise be applied to project workers insofar as the effect of temporary cessation of work is concerned. 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. Clearly, 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. In a final attempt to convince the Court that private respondents were indeed project employees, 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. This argument however cannot defeat the workers' status of regularity. We apply by analogy the case of Industrial-Commercial-Agricultural Workers Organization v. CIR 13 which deals with regular seasonal employees. There we held That during the temporary layoff the laborers are free to seek other employment is natural, since the laborers are not being paid, yet must find means of support. A period during which the Central is forced to suspend or cease operation for a time . . . should not mean starvation for employees and their families (emphasis supplied). Truly, the cessation of construction activities at the end of every project is a foreseeable suspension of work. Of course, 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. Similar to the case of regular seasonal employees, the employment relation is not severed by merely being suspended. 14 The employees are, strictly speaking, not separated from services but merely on leave of absence without pay until they are reemployed. 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. Contrary to petitioners' assertion, our ruling in Sandoval Shipyards is inapplicable considering the special circumstances attendant to the present case. In Sandoval, the hiring of construction workers, unlike in the instant case, was intermittent and not continuous for the "shipyard merely accepts contracts for shipbuilding or for repair of

vessels from third parties and, only on occasions when it has work contract of this nature that it hires workers to do the job which, needless to say, lasts only for less than a year or longer." 16 Moreover, if private respondents were indeed employed as "project employees," 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. 17 The records show that they did not. Policy Instruction No. 20 is explicit that employers of project employees are exempted from the clearance requirement but not from the submission of termination report. 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. 18 Nowhere in the New Labor Code is it provided that the reportorial requirement is dispensed with. The fact is that Department Order No. 19 superseding Policy Instruction No. 20 expressly provides that the report of termination is one of the indicators of project employment. 19 We agree with the NLRC that the execution of the project employment contracts was "farcical." 20 Obviously, the contracts were a scheme of petitioners to prevent respondents' from being considered as regular employees. It imposed time frames into an otherwise flexible employment period of private respondents some of whom were employed as far back as 1969. Clearly, here was an attempt to circumvent labor laws on tenurial security. Settled is the rule that when periods have been imposed to preclude the acquisition of tenurial security by the employee, they should be struck down as contrary to public morals, good customs or public order. 21 Worth noting is that petitioners had engaged in various joint venture agreements in the past without having to draft project employment contracts. That they would require execution of employment contracts and waivers at this point, ostensibly to be used for audit purposes, is a suspect excuse, 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.e., that it is much cheaper and economical to re-hire or re-employ the same workers than to train a new set of employees. 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. We need not belabor this point. The NLRC was correct in finding that the workers were illegally dismissed. The rule is that in effecting a valid dismissal, the mandatory requirements of substantive and procedural due process must be strictly complied with. These were wanting in the present case. Private respondents were dismissed allegedly because of insubordination or blatant refusal to comply with a lawful directive of their employer. 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, the willfulness being characterized by a wrongful and perverse attitude; and, (b) the order violated must have been reasonable, lawful, made known to the employee and must pertain to the duties which he has been engaged to discharge. 22 The refusal of private respondents was willful but not in the sense of plain and perverse insubordination. 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. 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. This act of self-preservation should not merit them the extreme penalty of dismissal. The allegation of petitioners that private respondents are guilty of abandonment of duty is without merit. The elements of abandonment are: (a) failure to report for work or absence without valid or justifiable reason, and, (b) a clear intention to sever the employer-employee relationship, with the second element as the more determinative factor manifested by some overt acts. 23 In this case, private respondents Roberto Labendia and Mario Labendia were forced to leave their respective duties because their salaries were withheld. They could not simply sit idly and allow their families to starve. They had to seek employment elsewhere, albeit temporarily, in order to survive. On the other hand, 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. 24 Private respondents did not intend to sever ties with petitioner and permanently abandon their jobs; otherwise, they would not have filed this complaint for illegal dismissal. 25 Petitioners submit that since private respondents were only project employees, they are not entitled to security of tenure. This is incorrect. In Archbuild Masters and Construction, Inc. v. NLRC 26 we held . . . a project employee hired for a specific task also enjoys security of tenure. 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 . . . . 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 burden of proving that an employee has been lawfully dismissed therefore lies with the employer. In the case at bar, the assertions of petitioners were self-serving and insufficient to substantiate their claim of proximate project completion. 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. Finding that the dismissal was without just cause, we find it unnecessary to dwell on the non-observance of procedural due process. 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. Petitioners charge as erroneous the grant to private respondents by NLRC of back wages in excess of three (3) years or, in the alternative, to an award of separation pay if reinstatement is no longer feasible. We disagree. Since the illegal dismissal was made in 1990 or after the effectivity of the amendatory provision of RA No. 6715 on 21 March 1989, private respondents' back wages should be computed on the basis of Art. 279 of the

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

G.R. No. L-28694 May 13, 1981 TELEPHONE ENGINEERING & SERVICE COMPANY, INC., petitioner, vs.WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF RIZAL and LEONILA SANTOS GATUS, for herself and in behalf of her minor children, Teresita, Antonina and Reynaldo, all surnamed GATUS, respondents. These certiorari proceedings stem from the award rendered against petitioner Telephone Engineering and Services, Co., Inc. (TESCO) on October 6, 1967 by the Acting Referee of Regional Office No. 4, Quezon City Sub-Regional Office, Workmen's Compensation Section, in favor of respondent Leonila S. Gatus and her children, dependents of the deceased employee Pacifico L. Gatus. The principal contention is that the award was rendered without jurisdiction as there was no employer-employee relationship between petitioner and the deceased. Petitioner is a domestic corporation engaged in the business of manufacturing telephone equipment with offices at Sheridan Street, Mandaluyong, Rizal. Its Executive Vice-President and General Manager is Jose Luis Santiago. It has a sister company, the Utilities Management Corporation (UMACOR), with offices in the same location. UMACOR is also under the management of Jose Luis Santiago. On September 8, 1964, UMACOR employed the late Pacifica L. Gatus as Purchasing Agent. On May 16, 1965, Pacifico L. Gatus was detailed with petitioner company. He reported back to UMACOR on August 1, 1965. On January 13, 1967, he contracted illness and although he retained to work on May 10, 1967, he died nevertheless on July 14, 1967 of "liver cirrhosis with malignant degeneration." On August 7, 1967, his widow, respondent Leonila S. Gatus, filed a "Notice and Claim for Compensation" with Regional Office No. 4, Quezon City Sub-Regional Office, Workmen's Compensation Section, alleging therein that her deceased husband was an employee of TESCO, and that he died of liver cirrhosis. 1 On August 9, 1967, and Office wrote petitioner transmitting the Notice and for Compensation, 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. 3428). 2 An "Employer's Report of Accident or Sickness" was thus submitted with UMACOR indicated as the employer of the deceased. The Report was signed by Jose Luis Santiago. In answer to questions Nos. 8 and 17, the employer stated that it would not controvert the claim for compensation, and admitted that the deceased employee contracted illness "in regular occupation." 3 On the basis of this Report, the Acting Referee awarded death benefits in the amount of P5,759.52 plus burial expenses of P200.00 in favor of the heirs of Gatus in a letter-award dated October 6, 1967 4 against TESCO. Replying on October 27, 1967, TESCO, through Jose Luis Santiago, 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. 5 On November 6, 1967, TESCO requested for an extension of ten days within which to file a Motion for Reconsideration, 6 and on November 15, 1967, asked for an additional extension of five days. 7 TESCO filed its "Motion for Reconsideration and/or Petition to Set Aside Award" on November 18, 1967, alleging as grounds therefor, 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, and that the illness for which compensation is sought is not an occupational disease, hence, not compensable under the law. 8 The extension requested was denied. The Motion for Reconsideration was likewise denied in an Order issued by the Chief of Section of the Regional Office dated December 28, 1967 9 predicated on two grounds: that the alleged mistake or negligence was not excusable, and that the basis of the award was not the theory of direct causation alone but also on that of aggravation. On January 28, 1968, an Order of execution was issued by the same Office. On February 3, 1968, petitioner filed an "Urgent Motion to Compel Referee to Elevate the Records to the Workmen's Compensation Commission for Review." 10 Meanwhile, the Provincial Sheriff of Rizal levied on and attached the properties of TESCO on February 17, 1968, and scheduled the sale of the same at public auction on February 26, 1968. On February 28, 1968, 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, 1967, and to show proof that said Motion for Reconsideration was filed within the reglementary period, with the warning that failure to comply would result in the dismissal of the Motion. However, before this Order could be released, TESCO filed with this Court, on February 22, 1968, 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. On February 29, 1968, this Court required respondents to answer the Petition but denied Injunction. 11 TESCO'S Urgent Motion dated April 2, 1968, 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, 1968. TESCO asserts: 1wph1.t I. II. That the respondent Workmen's Compensation Commission has no jurisdiction nor authority to render the award (Annex 'D', Petition) against your petitioner there being no employer-employee relationship between it and the deceased Gatus; . 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; That this Honorable Court has jurisdiction to nullify the award of respondent commission.

III.

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, the deceased having been an employee of UMACOR and not of

TESCO. In support of this contention, petitioner submitted photostat copies of the payroll of UMACOR for the periods May 16-31, 1967 and June 1-15, 1967 12 showing the name of the deceased as one of the three employees listed under the Purchasing Department of UMACOR. 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, 1967. 13 Both public and private respondents contend, on the other hand, that TESCO is estopped from claiming lack of employer employee relationship. To start with, 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. 14 The lack of employer-employee relationship, however, is a matter of defense that the employer should properly raise in the proceedings below. The determination of this relationship involves a finding of fact, which is conclusive and binding and not subject to review by this Court. 15 Viewed in the light of these criteria, we note that it is only in this Petition before us that petitioner denied, for the first time, the employer-employee relationship. In fact, in its letter dated October 27, 1967 to the Acting Referee, in its request for extension of time to file Motion for Reconsideration, in its "Motion for Reconsideration and/or Petition to Set Aside Award," and in its "Urgent Motion to Compel the Referee to Elevate Records to the Commission for Review," petitioner represented and defended itself as the employer of the deceased. Nowhere in said documents did it allege that it was not the employer. Petitioner even admitted that TESCO and UMACOR are sister companies operating under one single management and housed in the same building. Although respect for the corporate personality as such, is the general rule, there are exceptions. In appropriate cases, the veil of corporate fiction may be pierced as when the same is made as a shield to confuse the legitimate issues. 16 While, indeed, jurisdiction cannot be conferred by acts or omission of the parties, TESCO'S denial at this stage that it is the employer of the deceased is obviously an afterthought, a devise to defeat the law and evade its obligations. 17 This denial also constitutes a change of theory on appeal which is not allowed in this jurisdiction. 18 Moreover, issues not raised before the Workmen's Compensation Commission cannot be raised for the first time on appeal. 19 For that matter, a factual question may not be raised for the first time on appeal to the Supreme Court. 20 This certiorari proceeding must also be held to have been prematurely brought. Before a petition for certiorari can be instituted, all remedies available in the trial Court must be exhausted first. 21 certiorari cannot be resorted to when the remedy of appeal is present. 22 What is sought to be annulled is the award made by the Referee. However, TESCO did not pursue the remedies available to it under Rules 23, 24 and 25 of the Rules of the Workmen's Compensation Commission, namely, an appeal from the award of the Referee, within fifteen days from notice, to the Commission; a petition for reconsideration of the latter's resolution, if adverse, to the Commission en banc; and within ten days from receipt of an unfavorable decision by the latter, an appeal to this Court. As petitioner had not utilized these remedies available to it, certiorari win not he, it being prematurely filed. As this Court ruled in the case of Manila Jockey Club, Inc. vs. Del Rosario, 2 SCRA 462 (1961). 1wph1.t An aggrieved party by the decision of a Commissioner should seek a reconsideration of the decision by the Commission en banc. If the decision is adverse to him, he may appeal to the Supreme Court. An appeal brought to the Supreme Court without first resorting to the remedy referred to is premature and may be dismissed. Although this rule admits of exceptions, as where public welfare and the advancement of public policy so dictate, the broader interests of justice so require, or where the Orders complained of were found to be completely null and void or that the appeal was not considered the appropriate remedy, 23 the case at bar does not fan within any of these exceptions. WHEREFORE, this Petition is hereby dismissed. SO ORDERED. Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.1

G.R. No. L-15594

October 31, 1960

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

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

G.R. No. L-10510

March 17, 1961

M. MC CONNEL, W. P. COCHRANE, RICARDO RODRIGUEZ, ET AL., petitioners, vs. THE COURT OF APPEALS and DOMINGA DE LOS REYES, assisted by her husband, SABINO PADILLA, respondents. The issue before us in the correctness of the decision of the Court of Appeals that, under the circumstances of record, there was justification for disregarding the corporate entity of the Park Rite Co., Inc., and holding its controlling stockholders personally responsible for a judgment against the corporation. The Court of Appeals found that the Park Rite Co., Inc., a Philippine corporation, was originally organized on or about April 15, 1947, with a capital stock of 1,500 shares at P1.00 a share. 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. It turned out that in operating its parking business, the corporation occupied and used not only the Samanillo lot it had leased but also an adjacent lot belonging to the respondents-appellees Padilla, without the owners' knowledge and consent. When the latter discovered the truth around October of 1947, they demanded payment for the use and occupation of the lot. The corporation (then controlled by petitioners Cirilo Parades and Ursula Tolentino, who had purchased and held 1,496 of its 1,500 shares) disclaimed liability, blaming the original incorporators, McConnel, Rodriguez and Cochrane. Whereupon, the lot owners filed against it a complaint for forcible entry in the Municipal Court of Manila on 7 October 1947 (Civil Case No. 4031). Judgment was rendered in due course on 13 November 1947, ordering the Park Rite Co., Inc. to pay P7,410.00 plus legal interest as damages from April 15, 1947 until return of the lot. Restitution not having been made until 31 January 1948, the entire judgment amounted to P11,732.50. Upon execution, the corporation was found without any assets other than P550.00 deposited in Court. After their application to the judgment credit, there remained a balance of P11,182.50 outstanding and unsatisfied. The judgment creditors then filed suit in the Court of First Instance of Manila against the corporation and its past and present stockholders, to recover from them, jointly and severally, the unsatisfied balance of the judgment, plus legal interest and costs. The Court of First Instance denied recovery; but on appeal, the Court of Appeals (CA-G.R. No. 8434-R) reversed, finding that the corporation was a mere alter ego or business conduit of the principal stockholders that controlled it for their own benefit, and adjudged them responsible for the amounts demanded by the lot owners, as follows: WHEREFORE, premises considered, the decision appealed from is reversed. 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, 1947 to January 31, 1948 at the rate of P1,235.00 a month, with legal interest thereon from the time of the filing of the complaint. Deducting the P550.00 which was paid at the time when the corporation was already acquired by the said defendants-appellees Cirilo Paredes and Ursula Tolentino, they are hereby ordered to pay to plaintiffs-appellants Dominga de los Reyes and Sabino Padilla the sum of P6,036.66 with legal interest therein from the time of the filing of the complaint until fully paid. Defendant-appellee RICARDO RODRIGUEZ is hereby ordered to pay to the plaintiffs-appellants Dominga de los Reyes and Sabino Padilla the sum of P1,742.64 with legal interest thereon from the time of the filing of the complaint and until it is fully paid. In addition thereto the defendants-appellees Cirilo Paredes, Ursula Tolentino and Ricardo Rodriguez shall pay the costs proportionately in both instances. IT IS SO ORDERED. Cirilo Paredes and Ursula Tolentino then resorted to this court. We granted certiorari. On the main issue whether the individual stockholders maybe held liable for obligations contracted by the corporation, 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, or else to defeat public convenience, justify wrong, protect fraud, or defend crime (Koppel [Phil.] Inc. vs. Yatco, 77 Phil. 496; Arnold vs. Willits and Patterson, 44 Phil. 364). 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., 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. 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, W. P. Cochrane, and Ricardo Rodriguez. 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. When it was originally organized on or about April 15, 1947, the original incorporators were M. McConnel, W. P. Cochrane, Ricardo Rodriguez, Benedicto M. Dario and Aurea Ordrecio with a capital stock of P1,500.00 divided into 1,500 shares at P1.00 a share. McConnel and Cochrane each owned 500 shares, Ricardo Rodriguez 408 shares, and Dario and Ordrecio 1 share each. It is obvious that the shares of the last two named persons were merely qualifying shares. Then or about August 22, 1947 the defendants Cirilo Paredes and Ursula Tolentino purchased 1,496 shares of the said corporation and the remaining four shares were acquired by Bienvenido J. Claudio, Quintin C. Paredes, Segundo Tarictican, and Paulino Marquez at one share each. 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., Inc. That the corporation was a mere

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

G.R. No. 75112 October 16, 1990 FILAMER CHRISTIAN INSTITUTE, petitioner, vs.HONORABLE COURT OF APPEALS, HONORABLE ENRIQUE P. SUPLICO, in his capacity as Judge of the Regional Trial Court,. Branch XIV, Roxas City and the late POTENCIANO KAPUNAN, SR., as substituted by his heirs, namely: LEONA KAPUNAN TIANGCO, CICERO KAPUNAN, JESUS KAPUNAN, SANTIAGO KAPUNAN, POTENCIANO KAPUNAN, JR., PAZ KAPUNAN PUBLICO, SUSA KAPUNAN GENUINO and ERLINDA KAPUNAN TESORO, respondents. 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, Branch 14 in Civil Case No. 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, Sr. Private respondent Potenciano Kapunan, Sr., an eighty-two-year old retired schoolteacher (now deceased), was struck by the Pinoy jeep owned by petitioner Filamer and driven by its alleged employee, Funtecha, as Kapunan, Sr. was walking along Roxas Avenue, Roxas City at 6:30 in the evening of October 20, 1977. As a result of the accident, Kapunan, Sr. suffered multiple injuries for which he was hospitalized for a total of twenty (20) days. Evidence showed that at the precise time of the vehicular accident, only one headlight of the jeep was functioning. Funtecha, who only had a student driver's permit, was driving after having persuaded Allan Masa, the authorized driver, to turn over the wheels to him. The two fled from the scene after the incident. A tricycle driver brought the unconscious victim to the hospital. Thereafter, Kapunan, Sr. instituted a criminal case against Funtecha alone in the City Court of Roxas City for serious physical injuries through reckless imprudence. Kapunan, Sr. reserved his right to file an independent civil action. The inferior court found Funtecha guilty as charged and on appeal, his conviction was affirmed by the then Court of First Instance of Capiz. 2 Pursuant to his reservation, Kapunan, Sr. commenced a civil case for damages 3 before the RTC of Roxas City. Named defendants in the complaint were petitioner Filamer and Funtecha. Also included was Agustin Masa, the director and president of Filamer Christian Institute, in his personal capacity in that he personally authorized and allowed said Daniel Funtecha who was his houseboy at the time of the incident, 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. His son, Allan Masa, who was with Funtecha at the time of the accident, was not impleaded as a codefendant. 4 On December 14, 1983, the trial court rendered judgment finding not only petitioner Filamer and Funtecha to be at fault but also Allan Masa, a non-party. Thus: WHEREFORE, finding the averments in the complaint as supported by preponderance of evidence to be reasonable and justified, and that defendants Daniel Funtecha, Filamer Christian Institute and Allan Masa are at fault and negligent of the acts complained of which causes (sic) injury to plaintiff, judgment is hereby rendered in favor of the plaintiff and against the defendants, namely: Daniel Funtecha and Filamer Christian Institute, the employer whose liability is primary and direct, jointly and severally, to pay plaintiff the following: (1) to pay the sum of TWO THOUSAND NINE HUNDRED FIFTY PESOS AND FIFTY CENTAVOS (P2,950.50) as medical expenses (Exh. "A"); (2) to pay TWO HUNDRED FORTY ONE PESOS (P241.00) as doctor's fee (Exh. "C"); (3) to pay THREE HUNDRED NINETY PESOS (P390.00) as additional expenses incurred for thirty-nine days at P10.00 a day, for remuneration of plaintiff's helper while recuperating; (4) to pay FOUR THOUSAND PESOS (P4,000.00) as Court litigation expenses; (5) to pay THREE THOUSAND PESOS (P3,000.00) as loss of earnings capacity; (6) to pay TWENTY THOUSAND (P20,000.00) pesos as moral damages; (7) to pay FOUR THOUSAND FIVE HUNDRED PESOS (P4,500.00) as attorney's fees; (8) to pay TWENTY THOUSAND PESOS (P20,000.00)as insurance indemnity on the policy contract; 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.

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, being his son. However, the court absolved defendant Agustin Masa from any personal liability with respect to the complaint filed against him in his personal and private capacity, cause he was not in the vehicle during the alleged incident. For failure to prove their respective counterclaims filed by the defendant Daniel Funtecha, Dr. Agustin Masa, and Filamer Christian Institute, as against the herein plaintiff, same are hereby dismissed. 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. The record shows that the defendant Daniel Funtecha while driving the said vehicle was having a student drivers license marked Exh. "1" and accompanied by Allan Masa who is the authorized driver of said vehicle with a professional drivers license as shown by Exh. "3". 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. "2-Masa and FCI". 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, 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 Zenith Insurance Corporation as third party defendant is hereby ordered to pay in favor of the defendant and third party plaintiff, Filamer Christian Institute, the following: (1) to pay TWENTY THOUSAND PESOS (P20,000.00) as third party liability as provided in the Zenith Insurance Corporation policy (Exh. "2"); (2) to pay TEN THOUSAND PESOS (P10,000.00)as moral damages; (3) to pay FOUR THOUSAND PESOS (P4,000.00) as Court litigation and actual expenses; (4) to pay THREE THOUSAND PESOS (P3,000.00) as attorney's fees; The defendants Daniel Funtecha, Filamer Christian Institute and third party defendant Zenith Insurance Corporation are hereby ordered jointly and severally, to pay the costs of the suit. 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, said lower court's decision became final as to Funtecha. For failure of the insurance firm to pay the docket fees, its appeal was dismissed on September 18, 1984. On December 17, 1985, the Appellate Court rendered the assailed judgment affirming the trial court's decision in toto. 6 Hence the present recourse by petitioner Filamer. 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. We agree. The Civil Code provides: Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. Art. 2180. 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. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. 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. (Emphasis supplied). 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. In disclaiming liability, petitioner Filamer has invoked the provisions of the Labor Code, 7 specifically Section 14, Rule X of Book III which reads: Sec. 14. Working scholars. There is no employer-employee relationship between students on the one hand, and schools, colleges or universities on the other, where students work for the latter in exchange for the privilege to study free of charge; provided the students are given real opportunity, including such facilities as may be reasonable, necessary to finish their chosen court under such arrangement. (Emphasis supplied).

It is manifest that under the just-quoted provision of law, petitioner Filamer cannot be considered as Funtecha's employer. 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. He was assigned to clean the school passageways from 4:00 a.m. to 6:00 a.m. with sufficient time to prepare for his 7:30 a.m. classes. As admitted by Agustin Masa in open court, Funtecha was not included in the company payroll. 8 The wording of Section 14 is clear and explicit and leaves no room for equivocation. 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, as espoused by private respondents, is to read into the law something that was not legislated there in the first place. 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. But even if we were to concede the status of an employee on Funtecha, still the primary responsibility for his wrongdoing cannot be imputed to petitioner Filamer for the plain reason that at the time of the accident, it has been satisfactorily shown that Funtecha was not acting within the scope of his supposed employment. His duty was to sweep the school passages for two hours every morning before his regular classes. 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. In other words, at the time of the injury, Funtecha was not engaged in the execution of the janitorial services for which he was employed, but for some purpose of his own. It is but fair therefore that Funtecha should bear the full brunt of his tortious negligence. Petitioner Filamer cannot be made liable for the damages he had caused. 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, the authorized driver of the Pinoy jeep and undisputably an employee of petitioner. 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, Sr. But under the present set of circumstances, even if the trial court did find Allan guilty of negligence, such conclusion would not be binding on Allan. 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 axiomatic that no man shall be affected by a proceeding to which he is a stranger. 9 WHEREFORE, in view of the foregoing, the decision under review of the Court of Appeals is hereby SET ASIDE. The complaint for damages 10 is ordered DISMISSED as against petitioner Filamer Christian Institute for lack of cause of action. No costs.

Separate Opinions

GUTIERREZ, JR., J., concurring: I concur but limit my concurrence on the employee-employer relationship to labor law situations.

Separate Opinions GUTIERREZ, JR., J., concurring: I concur but limit my concurrence on the employee-employer relationship to labor law situations.

G.R. No. 89879 April 20, 1990 JAIME PABALAN AND EDUARDO LAGDAMEO, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER AMBROSIO B. SISON, ELIZABETH RODEROS, ET AL., and THE SHERIFF OF THE NATIONAL LABOR RELATIONS COMMISSION, 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 October 20, 1987, eighty-four (84) workers of the Philippine Inter-Fashion, Inc. (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. 130. Complainants demanded reinstatement with full backwages, living allowance, 13th month pay and other benefits under existing laws and/or separation pay. On October 21, 1987, PIF, through its General Manager, was notified about the complaint and summons for the hearing set for November 6, 1987. The hearing was re-set for November 27, 1987 for failure of respondents to appear. On November 30, 1987 respondents (petitioners herein) moved for the cancellation of the hearing scheduled on November 6, 1987 so that they could engage a counsel to properly represent them preferably on November 17, 1987. On December 10, 1987 both parties were directed to submit their respective position papers within ten (10) days. By mutual agreement the hearing was re-set on December 21, 1987 but on said date respondents and/or counsel failed to appear. The hearing was re-set on January 14, 1988 on which date respondents were given a deadline to submit their position paper. On January 4, 1988 complainants filed their position paper. On January 14, 1988 counsel for respondents moved that he be given until January 22, 1988 to file their position paper. The labor arbiter granted the motion. The PIF filed its position paper on January 22, 1988. The heating for February 17, 1988 was re-set to March 9, 1988 and on March 29, 1988 on which dates respondents failed to appear. On May 5, 1988, with leave of the labor arbiter, 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, 1988 a decision was rendered by the labor arbiter the dispositive part of which reads as follows: IN VIEW OF THE FOREGOING CONSIDERATION, respondent Philippine Inter-Fashion and its officers Mr. Jaime Pabalan and Mr. Eduardo Lagdameo are hereby ordered to: 1. reinstate the sixty two (62) complainants to their former or equivalent position without loss of seniority rights and privileges; 2. to pay, jointly and severally, their backwages and other benefits from the time they were dismissed up to the time they are actually reinstated, the computation to be based from the latest minimum wage law at the time of their dismissal. (See attached Annex "A" of complainants' position paper.) Not satisfied therewith petitioners filed a motion for reconsideration in the First Division of the public respondent, National Labor Relations Commission (NLRC), which nevertheless, affirmed the appealed decision and dismissed the appeal for lack of merit in a resolution dated June 30, 1989. Petitioners were ordered to pay the appeal fee in accordance with law. 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, THEREFORE, THE DECISION AND THE RESOLUTION, UNDER DISPUTE, ARE NULL AND VOID. 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. 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, INC. TO PAY THE JUDGMENT DEBT.

On September 25, 1989 this Court dismissed the petition for insufficiency in form and substance, having failed to comply with the Rules of Court and Administrative Circular No. 1-88 requiting the verification of the petition. A motion for reconsideration filed by the petitioners of the said resolution was denied on October 16, 1989 for failure to raise any substantial arguments to warrant a modification thereof. However, acting on an urgent motion to include the motion for reconsideration of the resolution of September 25, 1989 in the court's calendar which the Court granted, on November 30, 1989 the Court resolved to set aside said resolutions of September 25, 1989 and October 16, 1989, and to require respondents to comment thereon within ten (10) days from notice thereof. 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 P100,000.00. However, on February 7, 1990 for failure of petitioner to file the required bond despite extensions of time granted them, the Court resolved to lift the temporary restraining order issued on November 13, 1989. Now to the merit of the petition. Petitioners do not question the merits of the decision insofar as PIF is concerned in this proceeding. 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. The Court finds these grounds to be devoid of merit. As the record shows while originally it was PIF which was impleaded as respondent before the labor arbiter, petitioners also appeared in their behalf through counsel. Thereafter when the supplemental position paper was filed by complainants, petitioners were impleaded as respondents to which they filed an opposition inasmuch as they filed their own supplemental position papers. They were therefore properly served with summons and they were not deprived of due process. 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 settled rule is that the corporation is vested by law with a personality separate and distinct from the persons composing it, including its officers as well as from that of any other legal entity to which it may be related. Thus, 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. 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 a general rule, officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. However, 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, for, as this Court had held "where the incorporators and directors belong to a single family, the corporation and its members can be considered as one in order to avoid its being used as an instrument to commit injustice," or to further an end subversive of justice. In the case of Claparols vs. CIR involving almost similar facts as in this case, 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. To the same effect . . . (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, the circumvention of statutes, and or (to) confuse legitimate issues the veil which protects the corporation will be lifted. In this particular case complainants did not allege or show that petitioners, as officers of the corporation deliberately and maliciously designed to evade the financial obligation of the corporation to its employees, 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 circumvention of statutes, or to confuse the legitimate issues. Indeed, in the questioned resolution of the NLRC dated June 30, 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.C. Ransom Labor Union-CCLU vs. 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. It must be noted, however, that A.C. Ransom Labor Union-CCLU vs. 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. Ransom Corporation were transferred to continue its business which acts of such officers and agents of A.C. Ransom Corporation were intended to avoid payment of its obligations to its employees. 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. Not one of the above circumstances has been shown to be present. Hence petitioners can not be held jointly and severally liable with the PIF corporation under the questioned decision and resolution of the public respondent. WHEREFORE, the petition is GRANTED and the questioned resolution of the public respondent dated June 30, 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, Inc. No costs.

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

Continental Bank in the total amount of P146,818.68, that is the balance including the interest after deducting the sum of P28,736.47 deposited by the said accused with the bank as marginal deposit and forfeited by the said from the value of the said goods, in the said sum of P71,023.60. (Original Records, p. 1). In reviewing the evidence, 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. Sia sometime prior to 24 May, 1963, was General Manager of the Metal Manufacturing Company of the Philippines, Inc. engaged in the manufacture of steel office equipment; on 31 May, 1963, because his company was in need of raw materials to be imported from abroad, he applied for a letter of credit to import steel sheets from Mitsui Bussan Kaisha, Ltd. of Tokyo, Japan, the application being directed to the Continental Bank, herein complainant, Exhibit B and his application having been approved, the letter of credit was opened on 5 June, 1963 in the amount of $18,300, Exhibit D; and the goods arrived sometime in July, 1963 according to accused himself, tsn. II:7; now from here on there is some debate on the evidence; according to Complainant Bank, there was permitted delivery of the steel sheets only upon execution of a trust receipt, Exhibit A; while according to the accused, 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, tsn. II:8; but there is no question - and this is not debated - that the bill of exchange issued for the purpose of collecting the unpaid account thereon having fallen due (see Exh. B) neither accused nor his company having made payment thereon notwithstanding demands, Exh. C and C-1, dated 17 and 27 December, 1963, and the accounts having reached the sum in pesos of P46,818.68 after deducting his deposit valued at P28,736.47; that was the reason why upon complaint by Continental Bank, the Fiscal filed the information after preliminary investigation as has been said on 22 October, 1964. (Rollo [CA], pp. 103- 104). The first issue raised, which in effect combines the first three errors assigned, is whether petitioner Jose O. Sia, having only acted for and in behalf of the Metal Manufacturing Company of the Philippines (Metal Company, for short) as President thereof in dealing with the complainant, the Continental Bank, (Bank for short) he may be liable for the crime charged.chanroblesvirtualawlibrary chanrobles virtual law library In discussing this question, petitioner proceeds, in the meantime, on the assumption that the acts imputed to him would constitute the crime of estafa, which he also disputes, 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, accordingly, assumed sole obligation under the trust receipt (Exhibit A). In disputing the theory of petitioner, the Solicitor General relies on the general principle that when a corporation commits an act which would constitute a punishable offense under the law, it is the responsible officers thereof, acting for the corporation, who would be punished for the crime, 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, an abstract being. If the defense theory is followed unscrupulously legions would form corporations to commit swindle right and left where nobody could be convicted, for it would be futile and ridiculous to convict an abstract being that can not be pinched and confined in jail like a natural, living person, hence the result of the defense theory would be hopeless chose in business and finance. It is completely untenable. (Rollo [CA], p. 108.) The above-quoted observation of the trial court would seem to be merely restating a general principle that for crimes committed by a corporation, the responsible officers thereof would personally bear the criminal liability. (People vs. Tan Boon Kong, 54 Phil. 607. See also Tolentino, Commercial Laws of the Philippines, p. 625, citing cases.) chanrobles virtual law library The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case, 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, and the same law makes the person who fails to perform the act in the prescribed manner expressly liable criminally. The performance of the act is an obligation directly imposed by the law on the corporation. Since it is a responsible officer or officers of the corporation who actually perform the act for the corporation, they must of necessity be the ones to assume the criminal liability; otherwise this liability as created by the law would be illusory, and the deterrent effect of the law, negated.chanroblesvirtualawlibrary chanrobles virtual law library In the present case, 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. The act is imposed by agreement of parties, as a practice observed in the usual pursuit of a business or a commercial transaction. The offense may arise, if at all, from the peculiar terms and condition agreed upon by the parties to the transaction, not by direct provision of the law. The intention of the parties, therefore, is a factor determinant of whether a crime was committed or whether a civil obligation alone intended by the parties. With this explanation, the distinction adverted to between the Tan Boon Kong case and the case at bar should come out clear and meaningful. 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 existence of a criminal liability on his part may not be said to be beyond any doubt. In all criminal prosecutions, the existence of criminal liability for which the accused is made answerable must be clear and certain. The maxim that all doubts must be resolved in favor of the accused is always of compelling force in the prosecution of offenses. 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. In the case of Samo vs. People, L-17603-04, May 31, 1962, the accused was not clearly shown to be acting other than in his own behalf, not in behalf of a corporation.chanroblesvirtualawlibrary chanrobles virtual law library The next question is whether the violation of a trust receipt constitutes estafa under Art. 315 (1-[2]) of the Revised Penal Code, as also raised by the petitioner. We now entertain grave doubts, in the light of the promulgation of P.D. 115 providing for the regulation of trust receipts transaction, which is a very comprehensive piece of legislation, and includes an express provision that if the violation or offense is committed by a corporation, partnership, association or other juridical entities the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to civil liabilities arising from the criminal offense. The question that suggests itself is, therefore, whether the provisions of the Revised Penal Code, Article 315, par. 1 (b) are not adequate to justify the punishment of the act made punishable by P.D. 115, that the necessity was felt for the promulgation of the decree. To answer this question, it is imperative to make an indepth analysis of the conditions usually embodied in a

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

chanrobles virtual law libSeparate Opinions TEEHANKEE, J., concurring: In concur. 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 P46,818.68 .... including the interest after deducting the sum of P28,736.47" which sum, according to the very information, 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, in the said sum of P 71,023.60" 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.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 deposit (which was from corporate funds, and not a deposit made by the petitioner, as wrongly alleged in the information), the receipt of the steel sheets, then manufactured into finished products (which could not technically be done under the terms of the trust receipt required by the bank, under which the very sheets were supposed to be sold by the corporation) and the nonpayment of the credit extended by the bank. 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.chanroblesvirtualawlibrary chanrobles virtual law library In the recent case of People vs. Cuevo, G. R. No. L-27607, decided by the Court on May 7, 1981, the Court, for lack of necessary votes, affirmed the dismissal of the same charge of estafa, for non-payment of the debt evidenced by the trust receipt, by the trial court presided by Judge Ruperto Kapunan, Jr. who ruled that "the holder of a trust receipt who disposed of the goods covered thereby and in violation of its terms, 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. 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, to wit," ' (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, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased' (53 Am. Jr. 961, cited in Samo vs. People, 115 Phil. 346, 349), sustains the lower court's rationale in dismissing the information that the contract covered by a trust receipt is merely a secured loan. 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." ** chanrobles virtual law library The charge in the case at bar against petitioner-accused must accordingly be dismissed. MELENCIO-HERRERA, J., 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. 315, par. 1 (b) of the Revised Penal Code, for being contrary to the rulings in People vs. Yu Chai Ho, 53 Phil. 874 (1928); PNB vs. Arrozal, 103 Phil. 213 (1958), and Samo vs. People, 5 SCRA 355 (1962).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, 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, as its General Manager, and was presumably authorized to do so. 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, a trust receipt being essentially a financing transaction. It was only upon the promulgation of PD 115 on January 29, 1973 that responsible directors, officers, employees or other officials of a corporation, partnership, associations or other juridical entities are made expressly responsible for violation of the terms of a trust receipt agreement committed by said corporation, partnership, association or other juridical entities.law library anrobles virtual laSeparate Opinions TEEHANKEE, J., concurring: In concur. 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 46,818.68 .... including the interest after deducting the sum of P 28,736.47" which sum, according to the very information, 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, in the said sum of P 71,023.60" 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.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 deposit (which was from corporate funds, and not a deposit made by the petitioner, as wrongly alleged in the information), the receipt of the steel sheets, then manufactured into finished products (which could not technically be done under the terms of the trust receipt required by the bank, under which the very sheets were supposed to be sold by the corporation) and the nonpayment of the credit extended by the bank. 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.chanroblesvirtualawlibrary chanrobles virtual law library

In the recent case of People vs. Cuevo, G. R. No. L-27607, decided by the Court on May 7, 1981, the Court, for lack of necessary votes, affirmed the dismissal of the same charge of estafa, for non-payment of the debt evidenced by the trust receipt, by the trial court presided by Judge Ruperto Kapunan, Jr. who ruled that "the holder of a trust receipt who disposed of the goods covered thereby and in violation of its terms, 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. 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, to wit," ' (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, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased' (53 Am. Jr. 961, cited in Samo vs. People, 115 Phil. 346, 349), sustains the lower court's rationale in dismissing the information that the contract covered by a trust receipt is merely a secured loan. 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."* chanrobles virtual law library The charge in the case at bar against petitioner-accused must accordingly be dismissed. MELENCIO-HERRERA, J., 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. 315, par. 1 (b) of the Revised Penal Code, for being contrary to the rulings in People vs. Yu Chai Ho, 53 Phil. 874 (1928); PNB vs. Arrozal, 103 Phil. 213 (1958), and Samo vs. People, 5 SCRA 355 (1962).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, 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, as its General Manager, and was presumably authorized to do so. 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, a trust receipt being essentially a financing transaction. It was only upon the promulgation of PD 115 on January 29, 1973 that responsible directors, officers, employees or other officials of a corporation, partnership, associations or other juridical entities are made expressly responsible for violation of the terms of a trust receipt agreement committed by said corporation, partnership, association or other juridical entities. chanrobles virtual law librarySeparate Opinions TEEHANKEE, J., concurring: In concur. 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 46,818.68 .... including the interest after deducting the sum of P 28,736.47" which sum, according to the very information, 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, in the said sum of P 71,023.60" 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.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 deposit (which was from corporate funds, and not a deposit made by the petitioner, as wrongly alleged in the information), the receipt of the steel sheets, then manufactured into finished products (which could not technically be done under the terms of the trust receipt required by the bank, under which the very sheets were supposed to be sold by the corporation) and the nonpayment of the credit extended by the bank. 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.chanrobles virtual law library In the recent case of People vs. Cuevo, G. R. No. L-27607, decided by the Court on May 7, 1981, the Court, for lack of necessary votes, affirmed the dismissal of the same charge of estafa, for non-payment of the debt evidenced by the trust receipt, by the trial court presided by Judge Ruperto Kapunan, Jr. who ruled that "the holder of a trust receipt who disposed of the goods covered thereby and in violation of its terms, 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. 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, to wit," ' (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, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased' (53 Am. Jr. 961, cited in Samo vs. People, 115 Phil. 346, 349), sustains the lower court's rationale in dismissing the information that the contract covered by a trust receipt is merely a secured loan. 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."* The charge in the case at bar against petitioner-accused must accordingly be dismissed. MELENCIO-HERRERA, J., 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. 315, par. 1 (b) of the Revised Penal Code, for being contrary to the rulings in People vs. Yu Chai Ho, 53 Phil. 874 (1928); PNB vs. Arrozal, 103 Phil. 213 (1958), and Samo vs. People, 5 SCRA 355 (1962).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, 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, as its General Manager, and was presumably authorized to do so. 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, a trust receipt being essentially a financing transaction. It was only upon the promulgation of PD 115 on January 29, 1973 that responsible directors, officers, employees or other officials of a corporation, partnership, associations or other juridical entities are made expressly responsible for violation of the terms of a trust receipt agreement committed by said corporation, partnership, association or other juridical entities.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-22973 January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines Norte, defendantsappellees. Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant. Tomas Besa and Jose B. Galang for defendants-appellees. ANGELES, J.: An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil Case No. 52089, entitled "Mambulao Lumber Company, plaintiff, versus Philippine National Bank and Anacleto Heraldo, defendants", dismissing the complaint against both defendants and sentencing the plaintiff to pay to defendant Philippine National Bank (PNB for short) the sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 until fully paid, and the costs of suit. In seeking the reversal of the decision, the plaintiff advances several propositions in its brief which may be restated as follows: 1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as concluded by the court a quo; hence, the proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB thereafter was more than sufficient to liquidate its obligation, thereby rendering the subsequent foreclosure sale of its chattels unlawful; 2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the additional sum of P298.54 as expenses of the foreclosure sale; 3. That the subsequent foreclosure sale of its chattels is null and void, not only because it had already settled its indebtedness to the PNB at the time the sale was effected, but also for the reason that the said sale was not conducted in accordance with the provisions of the Chattel Mortgage Law and the venue agreed upon by the parties in the mortgage contract; 4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and 5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff's vigorous opposition thereto, and in taking possession thereof after the sale thru force, intimidation, coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff for damages and attorney's fees. The antecedent facts of the case, as found by the trial court, are as follows: On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch of defendant PNB and the former offered real estate, machinery, logging and transportation equipments as collaterals. The application, however, was approved for a loan of P100,000 only. To secure the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel of land, together with the buildings and improvements existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao), province of Camarines Norte, and covered by Transfer Certificate of Title No. 381 of the land records of said province, as well as various sawmill equipment, rolling unit and other fixed assets of the plaintiff, all situated in its compound in the aforementioned municipality. On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which the plaintiff signed a promissory note wherein it promised to pay to the PNB the said sum in five equal yearly installments at the rate of P6,528.40 beginning July 31, 1957, and every year thereafter, the last of which would be on July 31, 1961. On October 19, 1956, the PNB made another release of P15,500 as part of the approved loan granted to the plaintiff and so on the said date, the latter executed another promissory note wherein it agreed to pay to the former the said sum in five equal yearly installments at the rate of P3,679.64 beginning July 31, 1957, and ending on July 31, 1961.

The plaintiff failed to pay the amortization on the amounts released to and received by it. Repeated demands were made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so. Upon inspection and verification made by employees of the PNB, it was found that the plaintiff had already stopped operation about the end of 1957 or early part of 1958. On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession of the parcel of land, together with the improvements existing thereon, covered by Transfer Certificate of Title No. 381 of the land records of Camarines Norte, and to sell it at public auction in accordance with the provisions of Act No. 3135, as amended, for the satisfaction of the unpaid obligation of the plaintiff, which as of September 22, 1961, amounted to P57,646.59, excluding attorney's fees. In compliance with the request, on October 16, 1961, the Provincial Sheriff of Camarines Norte issued the corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff. According to the notice, the mortgaged property would be sold at public auction at 10:00 a.m. on November 21, 1961, at the ground floor of the Court House in Daet, Camarines Norte. On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession of the chattels mortgaged to it by the plaintiff and sell them at public auction also on November 21, 1961, for the satisfaction of the sum of P57,646.59, plus 6% annual interest therefore from September 23, 1961, attorney's fees equivalent to 10% of the amount due and the costs and expenses of the sale. On the same day, the PNB sent notice to the plaintiff that the former was foreclosing extrajudicially the chattels mortgaged by the latter and that the auction sale thereof would be held on November 21, 1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines Norte, where the mortgaged chattels were situated. On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the chattels mortgaged by the plaintiff and made an inventory thereof in the presence of a PC Sergeant and a policeman of the municipality of Jose Panganiban. On November 9, 1961, the said Deputy Sheriff issued the corresponding notice of public auction sale of the mortgaged chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff's compound situated in the municipality of Jose Panganiban, Province of Camarines Norte. On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter, one to the Naga Branch of the PNB and another to the Provincial Sheriff of Camarines Norte, protesting against the foreclosure of the real estate and chattel mortgages on the grounds that they could not be effected unless a Court's order was issued against it (plaintiff) for said purpose and that the foreclosure proceedings, according to the terms of the mortgage contracts, should be made in Manila. In said letter to the Naga Branch of the PNB, it was intimated that if the public auction sale would be suspended and the plaintiff would be given an extension of ninety (90) days, its obligation would be settled satisfactorily because an important negotiation was then going on for the sale of its "whole interest" for an amount more than sufficient to liquidate said obligation. The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a request for extension of the foreclosure sale of the mortgaged chattels and so it advised the Sheriff of Camarines Norte to defer it to December 21, 1961, at the same time and place. A copy of said advice was sent to the plaintiff for its information and guidance. The foreclosure sale of the parcel of land, together with the buildings and improvements thereon, covered by Transfer Certificate of Title No. 381, was, however, held on November 21, 1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem the same within a period of one year. On the same date, Deputy Provincial Sheriff Heraldo executed a certificate of sale in favor of the PNB and a copy thereof was sent to the plaintiff. In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full settlement of the balance of the obligation of the plaintiff after the application thereto of the sum of P56,908.00 representing the proceeds of the foreclosure sale of parcel of land described in Transfer Certificate of Title No. 381. In the said letter, the plaintiff reiterated its request that the foreclosure sale of the mortgaged chattels be discontinued on the grounds that the mortgaged indebtedness had been fully paid and that it could not be legally effected at a place other than the City of Manila. In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines Norte that it had fully paid its obligation to the PNB, and enclosed therewith a copy of its letter to the latter dated December 14, 1961. On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff acknowledging the remittance of P738.59 with the advice, however, that as of that date the balance of the account of the plaintiff was P9,161.76, to which should be added the expenses of guarding the mortgaged chattels at the rate of P4.00 a day beginning December 19, 1961. It was further explained in said letter that the sum of P57,646.59, which was stated in the request for the foreclosure of the real estate mortgage, did not include the 10% attorney's fees and expenses of the sale. Accordingly, the plaintiff was advised that the foreclosure sale scheduled on the 21st of said month would be stopped if a remittance of P9,161.76, plus interest thereon and guarding fees, would be made. On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m. and they were awarded to the PNB for the sum of P4,200 and the corresponding bill of sale was issued in its favor by Deputy Provincial Sheriff Heraldo. In a letter dated December 26, 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. This offer was reiterated in a letter dated January 3, 1962, of the Attorney of the Naga Branch of the PNB to the plaintiff, with the suggestion that it exercise its right of redemption and that it apply for the condonation of the attorney's fees. 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. On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in Jose Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security Guard of the premises, that the properties therein had been auctioned and bought by the PNB, which in turn sold them to Mariano Bundok. Upon being advised that the purchaser would take delivery of the things he bought, Salgado was at first reluctant to allow any piece of property to be taken out of the compound of the plaintiff. The employees of the PNB explained that should Salgado refuse, he would be exposing himself to a litigation wherein he could be held liable to pay big sum of money by way of damages. Apprehensive of the risk that he would take, Salgado immediately sent a wire to the President of the plaintiff in Manila, asking advice as to what he should do. In the meantime, Mariano Bundok was able to take out from the plaintiff's compound two

truckloads of equipment. In the afternoon of the same day, Salgado received a telegram from plaintiff's President directing him not to deliver the "chattels" without court order, with the information that the company was then filing an action for damages against the PNB. On the following day, May 25, 1962, two trucks and men of Mariano Bundok arrived but Salgado did not permit them to take out any equipment from inside the compound of the plaintiff. Thru the intervention, however, of the local police and PC soldiers, the trucks of Mariano Bundok were able finally to haul the properties originally mortgaged by the plaintiff to the PNB, which were bought by it at the foreclosure sale and subsequently sold to Mariano Bundok. Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the first paragraph of this opinion, sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 (day following the date of the questioned foreclosure of plaintiff's chattels) until fully paid, and the costs. Mambulao Lumber Company interposed the instant appeal. We shall discuss the various points raised in appellant's brief in seriatim. 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. 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 P56,485.87 as of November 21, 1961, when the sale of real property was effected, and not P58,213.51 as found by the trial court. There is merit to this claim. Examining the terms of the promissory note executed by the appellant in favor of the PNB, we find that the agreed interest on the loan of P43,000.00 P27,500.00 released on August 2, 1956 as per promissory note of even date (Exhibit C3), and P15,500.00 released on October 19, 1956, 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". In the statement of account of the appellant as of September 22, 1961, submitted by the PNB, it appears that in arriving at the total indebtedness of P57,646.59 as of that date, the PNB had compounded the principal of the loan and the accrued 6% interest thereon each time the yearly amortizations became due, and on the basis of these compounded amounts charged additional delinquency interest on them up to September 22, 1961; and to this erroneously computed total of P57,646.59, the trial court added 6% interest per annum from September 23, 1961 to November 21 of the same year. In effect, the PNB has claimed, and the trial court has adjudicated to it, 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, 1961. This is an error. Section 5 of Act No. 2655 expressly provides that in computing the interest on any obligation, promissory note or other instrument or contract, compound interest shall not be reckoned, except by agreement, or in default thereof, whenever the debt is judicially claimed. 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, and of Article 1959 of the same code which ordains that interest due and unpaid shall not earn interest. Of course, the parties may, by stipulation, capitalize the interest due and unpaid, which as added principal shall earn new interest; but such stipulation is nowhere to be found in the terms of the promissory notes involved in this case. Clearly therefore, the trial court fell into error when it awarded interest on accrued interests, without any agreement to that effect and before they had been judicially demanded. Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor of the PNB. With respect to the amount of P298.54 allowed as expenses of the extra-judicial sale of the real property, appellant maintains that the same has no basis, factual or legal, and should not have been awarded. It likewise decries the award of attorney's fees which, according to the appellant, should not be deducted from the proceeds of the sale of the real property, 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, 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. There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this respect, the trial court said: The parcel of land, together with the buildings and improvements existing thereon covered by Transfer Certificate of Title No. 381, was sold for P56,908. There was, however, no evidence how much was the expenses of the foreclosure sale although from the pertinent provisions of the Rules of Court, the Sheriff's fees would be P1 for advertising the sale (par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his commission for the sale (par. n, Sec. 7, Rule 130 of the Old Rules) or a total of P298.54. 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. The court below committed error in applying the provisions of the Rules of Court for purposes of arriving at the amount awarded. It is to be borne in mind that the fees enumerated under paragraphs k and n, Section 7, of Rule 130 (now Rule 141) are demandable, only by a sheriff serving processes of the court in connection with judicial foreclosure of mortgages under Rule 68 of the new Rules, and not in cases of extra-judicial foreclosure of mortgages under Act 3135. The law applicable is Section 4 of Act 3135 which provides that the officer conducting the sale is entitled to collect a fee of P5.00 for each day of actual work performed in addition to his expenses in connection with the foreclosure sale. Admittedly, the PNB failed to prove during the trial of the case, that it actually spent any amount in connection with the said foreclosure sale. Neither may expenses for publication of the notice be legally allowed in the absence of evidence on record to support it. 1 It is true, as pointed out by the appellee bank, that courts should take judicial notice of the fees provided for by law which need not be proved; but in the absence of evidence to show at least the number of working days the sheriff concerned actually spent in connection with the extra-judicial foreclosure sale, the most that he may be entitled to, would be the amount of P10.00 as a reasonable allowance for two day's work one for the preparation of the necessary notices of sale, and the other for conducting the auction sale and issuance of the corresponding certificate of sale in favor of the buyer. Obviously, therefore, the award of P298.54 as expenses of the sale should be set aside. 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, cannot be favorably considered, as would readily be revealed by an examination of the pertinent provision of the mortgage contract. The parties to the mortgage appear to have stipulated under paragraph (c) thereof, inter alia: . . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell the property mortgaged under Act 3135, as amended, to sign all documents and to perform all acts requisite and necessary to accomplish said

purpose and to appoint its substitute as such attorney-in-fact with the same powers as above specified. In case of judicial foreclosure, the Mortgagor hereby consents to the appointment of the Mortgagee or any of its employees as receiver, without any bond, to take charge of the mortgaged property at once, and to hold possession of the same and the rents, benefits and profits derived from the mortgaged property before the sale, less the costs and expenses of the receivership; the Mortgagor hereby agrees further that in all cases, attorney's fees hereby fixed at Ten Per cent (10%) of the total indebtedness then unpaid which in no case shall be less than P100.00 exclusive of all fees allowed by law, and the expenses of collection shall be the obligation of the Mortgagor and shall with priority, 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. . . . We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure sale mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in all cases" appears to be part of the second sentence, 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. 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. It is suggested by the appellant, however, that even if the above stipulation to pay attorney's fees were applicable to the extrajudicial foreclosure sale of its real properties, still, the award of P5,821.35 for attorney's fees has no legal justification, considering the circumstance that the PNB did not actually spend anything by way of attorney's fees in connection with the sale. In support of this proposition, 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, the claim for such fees should be denied; 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. 3 These authorities are indeed enlightening; but they should not be applied in this case. The very same authority first cited suggests that said principle is not absolute, for there is authority to the contrary. As to the fact that the foreclosure proceeding's were handled by an attorney of the legal staff of the PNB, we are reluctant to exonerate herein appellant from the payment of the stipulated attorney's fees on this ground alone, considering the express agreement between the parties in the mortgage contract under which appellant became liable to pay the same. At any rate, we find merit in the contention of the appellant that the award of P5,821.35 in favor of the PNB as attorney's fees is unconscionable and unreasonable, 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. 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, is now deeply rooted in this jurisdiction to entertain any serious objection to it. Thus, 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, no matter how injurious or oppressive they may be. The lawful purpose to be accomplished by such a stipulation is to permit the creditor to receive the amount due him under his contract without a deduction of the expenses caused by the delinquency of the debtor. It should not be permitted for him to convert such a stipulation into a source of speculative profit at the expense of the debtor. Contracts for attorney's services in this jurisdiction stands upon an entirely different footing from contracts for the payment of compensation for any other services. By express provision of section 29 of the Code of Civil Procedure, an attorney is not entitled in the absence of express contract to recover more than a reasonable compensation for his services; 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. 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, where it is said that such obligation has the force of law between the contracting parties. Had the plaintiff herein made an express contract to pay his attorney an uncontingent fee of P2,115.25 for the services to be rendered in reducing the note here in suit to judgment, it would not have been enforced against him had he seen fit to oppose it, as such a fee is obviously far greater than is necessary to remunerate the attorney for the work involved and is therefore unreasonable. In order to enable the court to ignore an express contract for an attorney's fees, it is not necessary to show, as in other contracts, that it is contrary to morality or public policy (Art. 1255, Civil Code). It is enough that it is unreasonable or unconscionable. 4 Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees stipulated appear excessive, unconscionable, or unreasonable, because a lawyer is primarily a court officer charged with the duty of assisting the court in administering impartial justice between the parties, and hence, the fees should be subject to judicial control. Nor should it be ignored that sound public policy demands that courts disregard stipulations for counsel fees, whenever they appear to be a source of speculative profit at the expense of the debtor or mortgagor. 5 And it is not material that the present action is between the debtor and the creditor, and not between attorney and client. As court have power to fix the fee as between attorney and client, it must necessarily have the right to say whether a stipulation like this, inserted in a mortgage contract, is valid. 6 In determining the compensation of an attorney, the following circumstances should be considered: the amount and character of the services rendered; the responsibility imposed; the amount of money or the value of the property affected by the controversy, or involved in the employment; the skill and experience called for in the performance of the service; the professional standing of the attorney; the results secured; and whether or not the fee is contingent or absolute, 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. 7 From the stipulation in the mortgage contract earlier quoted, it appears that the agreed fee is 10% of the total indebtedness, irrespective of the manner the foreclosure of the mortgage is to be effected. The agreement is perhaps fair enough in case the foreclosure proceedings is prosecuted judicially but, surely, it is unreasonable when, as in this case, the mortgage was foreclosed extra-judicially, and all that the attorney did was to file a petition for foreclosure with the sheriff concerned. It is to be assumed though, that the said branch attorney of the PNB made a study of the case before deciding to file the petition for foreclosure; but even with this in mind, we believe the amount of P5,821.35 is far too excessive a fee for such services. Considering the above circumstances mentioned, it is our considered opinion that the amount of P1,000.00 would be more than sufficient to compensate the work aforementioned. The next issue raised deals with the claim that the proceeds of the sale of the real properties alone together with the amount it remitted to the PNB later was more than sufficient to liquidate its total obligation to herein appellee bank. Again, we find merit in this claim. From the foregoing discussion of the first two errors assigned, and for purposes of determining the total obligation of herein

appellant to the PNB as of November 21, 1961 when the real estate mortgage was foreclosed, we have the following illustration in support of this conclusion:1wph1.t A. -I.Principal Loan(a) Promissory note dated August 2, 1956 P27,500.00(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 19618,751.78(b) Promissory note dated October 19, 1956 P15,500.00(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 19614,734.08II.Sheriff's fees [for two (2) day's work]10.00III.Attorney's fee1,000.00 Total obligation as of Nov. 21, 1961 P57,495.86B. -I.Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961P56,908.00II.Additional amount remitted to the PNB on Dec. 18, 1961738.59 Total amount of Payment made to PNB as of Dec. 18, 1961 P57,646.59 Deduct: Total obligation to the PNB P57,495.86Excess Payment to the PNB P 150.73 ======== From the foregoing illustration or computation, it is clear that there was no further necessity to foreclose the mortgage of herein appellant's chattels on December 21, 1961; and on this ground alone, we may declare the sale of appellant's chattels on the said date, illegal and void. 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 in accordance with such belief, herein appellee bank insisted that the proceeds of the sale of appellant's real property was deficient to liquidate the latter's total indebtedness. Be that as it may, however, we still find the subsequent sale of herein appellant's chattels illegal and objectionable on other grounds. That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of its real estate mortgage on November 21, 1961, can not be doubted, as shown not only by its letter to the PNB on November 19, 1961, but also in its letter to the provincial sheriff of Camarines Norte on the same date. These letters were followed by another letter to the appellee bank on December 14, 1961, wherein herein appellant, in no uncertain terms, reiterated its objection to the scheduled sale of its chattels on December 21, 1961 at Jose Panganiban, Camarines Norte for the reasons therein stated that: (1) it had settled in full its total obligation to the PNB by the sale of the real estate and its subsequent remittance of the amount of P738.59; and (2) that the contemplated sale at Jose Panganiban would violate their agreement embodied under paragraph (i) in the Chattel Mortgage which provides as follows: (i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the parties hereto agree that the corresponding complaint for foreclosure or the petition for sale should be filed with the courts or the sheriff of the City of Manila, as the case may be; and that the Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%) of the total indebtedness then unpaid but in no case shall it be less than P100.00, exclusive of all costs and fees allowed by law and of other expenses incurred in connection with the said foreclosure. [Emphasis supplied] Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter disregard of the objection of herein appellant to the sale of its chattels at Jose Panganiban, Camarines Norte and not in the City of Manila as agreed upon, the PNB proceeded with the foreclosure sale of said chattels. The trial court, however, justified said action of the PNB in the decision appealed from in the following rationale: 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, nevertheless, 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. Indeed, a stipulation in a contract cannot abrogate much less impliedly repeal a specific provision of the statute. Considering that Section 14 of Act No. 1508 vests in the mortgagee the choice where the foreclosure sale should be held, hence, in the case under consideration, the PNB had three places from which to select, namely: (1) the place of residence of the mortgagor; (2) the place of the mortgaged chattels were situated; and (3) the place stipulated in the contract. The PNB selected the second and, accordingly, the foreclosure sale held in Jose Panganiban, Camarines Norte, was legal and valid. To the foregoing conclusion, We disagree. 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, 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, provided that the owner thereof consents thereto; or that there is an agreement to this effect between the mortgagor and the mortgagee. 9 But when, as in this case, the parties agreed to have the sale of the mortgaged chattels in the City of Manila, which, any way, is the residence of the mortgagor, 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. In providing that the mortgaged chattel may be sold at the place of residence of the mortgagor or the place where it is situated, at the option of the mortgagee, the law clearly contemplated benefits not only to the mortgagor but to the mortgagee as well. Their right arising thereunder, however, are personal to them; they do not affect either public policy or the rights of third persons. They may validly be waived. So, when herein mortgagor and mortgagee agreed in the mortgage contract that in cases of both judicial and extra-judicial foreclosure under Act 1508, as amended, the corresponding complaint for foreclosure or the petition for sale should be filed with the courts or the Sheriff of Manila, as the case may be , they waived their corresponding rights under the law. The correlative obligation arising from that agreement have the force of law between them and should be complied with in good faith. 10 By said agreement the parties waived the legal venue, and such waiver is valid and legally effective, because it, was merely a personal privilege they waived, which is not contrary, to public policy or to the prejudice of third persons. 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. 11 On the other hand, if a place of sale is specified in the mortgage and statutory requirements in regard thereto are complied with, a sale is properly conducted in that place. Indeed, in the absence of a statute to the contrary, a sale conducted at a place other than that stipulated for in the mortgage is invalid, unless the mortgagor consents to such sale. 12

Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should make a return of his doings which shall particularly describe the articles sold and the amount received from each article. From this, it is clear that the law requires that sale be made article by article, otherwise, it would be impossible for him to state the amount received for each item. This requirement was totally disregarded by the Deputy Sheriff of Camarines Norte when he sold the chattels in question in bulk, notwithstanding the fact that the said chattels consisted of no less than twenty different items as shown in the bill of sale. 13 This makes the sale of the chattels manifestly objectionable. And in the absence of any evidence to show that the mortgagor had agreed or consented to such sale in gross, the same should be set aside. It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in accordance with its terms, or where the proceedings as to the sale of foreclosure do not comply with the statute. 14 This rule applies squarely to the facts of this case where, as earlier shown, herein appellee bank insisted, and the appellee deputy sheriff of Camarines Norte proceeded with the sale of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard of the valid objection of the mortgagor thereto for the reason that it is not the place of sale agreed upon in the mortgage contract; and the said deputy sheriff sold all the chattels (among which were a skagit with caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and Sawmill equipment consisting of a 150 HP Murphy Engine, plainer, large circular saws etc.) as a single lot in violation of the requirement of the law to sell the same article by article. The PNB has resold the chattels to another buyer with whom it appears to have actively cooperated in subsequently taking possession of and removing the chattels from appellant compound by force, as shown by the circumstance that they had to take along PC soldiers and municipal policemen of Jose Panganiban who placed the chief security officer of the premises in jail to deprive herein appellant of its possession thereof. To exonerate itself of any liability for the breach of peace thus committed, the PNB would want us to believe that it was the subsequent buyer alone, who is not a party to this case, that was responsible for the forcible taking of the property; but assuming this to be so, still the PNB cannot escape liability for the conversion of the mortgaged chattels by parting with its interest in the property. Neither would its claim that it afterwards gave a chance to herein appellant to repurchase or redeem the chattels, improve its position, for the mortgagor is not under obligation to take affirmative steps to repossess the chattels that were converted by the mortgagee. 15 As a consequence of the said wrongful acts of the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that herein appellant is entitled to collect from them, jointly and severally, the full value of the chattels in question at the time they were illegally sold by them. To this effect was the holding of this Court in a similar situation. 16 The effect of this irregularity was, in our opinion to make the plaintiff liable to the defendant for the full value of the truck at the time the plaintiff thus carried it off to be sold; and of course, the burden is on the defendant to prove the damage to which he was thus subjected. . . . This brings us to the problem of determining the value of the mortgaged chattels at the time of their sale in 1961. The trial court did not make any finding on the value of the chattels in the decision appealed from and denied altogether the right of the appellant to recover the same. We find enough evidence of record, however, which may be used as a guide to ascertain their value. The record shows that at the time herein appellant applied for its loan with the PNB in 1956, for which the chattels in question were mortgaged as part of the security therefore, herein appellant submitted a list of the chattels together with its application for the loan with a stated value of P107,115.85. An official of the PNB made an inspection of the chattels in the same year giving it an appraised value of P42,850.00 and a market value of P85,700.00. 17 The same chattels with some additional equipment acquired by herein appellant with part of the proceeds of the loan were reappraised in a re-inspection conducted by the same official in 1958, in the report of which he gave all the chattels an appraised value of P26,850.00 and a market value of P48,200.00. 18 Another re-inspection report in 1959 gave the appraised value as P19,400.00 and the market value at P25,600.00. 19 The said official of the PNB who made the foregoing reports of inspection and reinspections testified in court that in giving the values appearing in the reports, he used a conservative method of appraisal which, of course, is to be expected of an official of the appellee bank. 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, he found the chattels no longer in use with some of the heavier equipments dismantled with parts thereof kept in the bodega; and finding it difficult to ascertain the value of the dismantled chattels in such condition, he did not give them anymore any value in his reports. Noteworthy is the fact, however, that in the last re-inspection report he made of the chattels in 1961, just a few months before the foreclosure sale, the same inspector of the PNB reported that the heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed free from rains" 20 showing that although they were no longer in use at the time, they were kept in a proper place and not exposed to the elements. The President of the appellant company, on the other hand, testified that its caterpillar (tractor) alone is worth P35,000.00 in the market, and that the value of its two trucks acquired by it with part of the proceeds of the loan and included as additional items in the mortgaged chattels were worth no less than P14,000.00. He likewise appraised the worth of its Murphy engine at P16,000.00 which, according to him, when taken together with the heavy equipments he mentioned, the sawmill itself and all other equipment forming part of the chattels under consideration, and bearing in mind the current cost of equipments these days which he alleged to have increased by about five (5) times, could safely be estimated at P120,000.00. This testimony, except for the appraised and market values appearing in the inspection and re-inspection reports of the PNB official earlier mentioned, stand uncontroverted in the record; but We are not inclined to accept such testimony at its par value, knowing that the equipments of herein appellant had been idle and unused since it stopped operating its sawmill in 1958 up to the time of the sale of the chattels in 1961. We have no doubt that the value of chattels was depreciated after all those years of inoperation, although from the evidence aforementioned, We may also safely conclude that the amount of P4,200.00 for which the chattels were sold in the foreclosure sale in question was grossly unfair to the mortgagor. Considering, however, the facts that the appraised value of P42,850.00 and the market value of P85,700.00 originally given by the PNB official were admittedly conservative; that two 6 x 6 trucks subsequently bought by the appellant company had thereafter been added to the chattels; and that the real value thereof, although depreciated after several years of inoperation, was in a way maintained because the depreciation is off-set by the marked increase in the cost of heavy equipment in the market, it is our opinion that the market value of the chattels at the time of the sale should be fixed at the original appraised value of P42,850.00. Herein appellant's claim for moral damages, however, seems to have no legal or factual basis. Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. 21 A corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages. The same cannot be considered under the facts of this case, however, not only because it is admitted that herein appellant had already ceased in its business operation at the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their attentions were timely called by herein appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein appellant. WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from should be, as hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of the province of Camarines Norte are ordered to pay, jointly and severally, to Mambulao Lumber Company the total amount of P56,000.73, broken as follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the value of the chattels at the time of the sale with interest at the rate of 6% per annum from December 21, 1961, until fully paid, P10,000.00 in exemplary damages, and P3,000.00 as attorney's fees. Costs against both appellees.

ABSCBNBroadcastingCorporationv. WorldInteractiveNetworkSystems[WINS] JapanCo., Ltd., G.R. No. 169332, February11, 2008

In 1999, ABS-CBN Broadcasting Corporation [ABS-CBN] granted World Interactive Network Systems Japan Co., Ltd. [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]. In 2002, ABS-CBN, alleging breach, notified WINS of its intention to terminate the Licensing Agreement. 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. The sole arbitrator thereafter appointed, after hearing, found in favor of WINS and ordered ABS-CBN to pay damages.

ABS-CBN filed in the Court of Appeals [CA] a petition for review under Rule 43 [the Petition for Review] or, in the alternative, a petition for certiorari under Rule 65 [the Petition for Certiorari], collectively the ABS-CBN Petition]. It alleged serious errors of fact and law and/ or grave abuse of discretion on the part of the arbitrator. WINS meanwhile filed a petition in the Regional Trial Court [RTC] for confirmation of the arbitral award [the Petition for Confirmation]. ABS-CBN sought to enjoin the RTC from further proceeding on the Petition for Confirmation in a supplemental petition filed in the CA. After this supplemental petition was admitted, the RTC issued an order holding in abeyance any further action on the Petition for Confirmation. The CA dismissed the ABS-CBN Petition for lack of jurisdiction as the Terms of Reference1 provided that the arbitrators decision shall be final and not subject to appeal and that no motion for reconsideration shall be filed. 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 RTCs decision confirming, vacating or modifying the award. And that a petition for certiorari is proper only if the RTC refused or neglected to inquire into the facts of an award. ABS-CBN, unsuccessful in obtaining a reconsideration of the CA decision, filed a Rule 45 petition in the Supreme Court. The issue before it, the Supreme Court said, is whether or not an party, aggrieved by an arbitral award, may file in the CA a petition for review under Rule 43 or certiorari under Rule 65, 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. 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. Under the rule in statutory construction, expressio unius est exclusio alterius, the explicit mention of one thing in a statute means the elimination of others not specifically mentioned. 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. It necessarily follows that in the RTC a party may not seek to overturn an award upon any of these grounds. In Adamson v. Court of Appeals2, 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. 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. If errors of fact and/or law are raised, a Rule 43 petition is proper4. If grave abuse of discretion or lack of jurisdiction is alleged, a Rule 65 petition may be filed. 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. 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; ( b) a petition for review under Rule 43 on the ground of errors of fact, of law or mixed errors of law or fact; 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. The judicial remedies on appeal are, however, mutually exclusive and not cumulative or successive. The issues that may be raised in a petition for review are errors of fact, law or mixed questions of fact and law. 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. Certiorari cannot be availed of where appeal is the proper remedy. It cannot be used as a substitute for a lapsed appeal7. Moreover, the alleged grave abuse of discretion of the arbitrator pertained more to the latters appreciation of the issues and the evidence of the parties. Therefore, the issues clearly fall under the classification of errors of fact and law.

This article was prepared by Custodio O. Parlade, of-counsel of the Parlade Hildawa Parlade Eco & Panga and president emeritus of the Philippine Dispute Resolution Center, Inc. For further information on this topic, please contact Custodio O. Parlade at (632) 687 5362; by mail at 26th Floor, The Orient Square, F. Ortigas, Jr., Ortigas Center, Pasig City 1605 Philippines, or by e-mail at: coparlade@phpeplaw.com or gingparlade@yahoo.com ABS CBN Broadcasting Corporation vs. CA [301 SCRA 572 (Jan 21 1999)] Power of the Board of Directors Delegation to Executive Committee Facts: In 1990, ABS CBN and Viva executed a Film Exhibition Agreement whereby Viva gave ABS CBN an exclusive right to exhibit some Viva films. Said agreement contained a stipulation that ABS shall have the right of first refusal to the next 24 Viva films for TV telecast, provided that such right shall be exercised by ABS from the actual offer in writing. Hence, through this agreement, Viva offered ABS a list of 36 films from which ABS may exercise its right of first refusal. ABS however, through VP Concio, did not accept the list since she could only tick off 10 films. This rejection was embodied in a letter. In 1992, Viva again approached ABS with a list consisting of 52 original films where Viva proposed to sell these airing rights for P60M. Vivas Vic del Rosario and ABS general manager Eugenio Lopez III met at the Tamarind Grill to discuss this package proposal. What transcribed at that meeting was subject to conflicting versions. According to Lopez, he and del Rosario agreed that ABS was granted exclusive film rights to 14 films for P36M, and that this was put in writing in a napkin, signed by Lopez and given to del Rosario. On the other hand, del Rosario denied the existence of the napkin in which Lopez wrote something, and insisted that what he and Lopez discussed was Vivas film package of the 52 original films for P60M stated above, and that Lopez refused said offer, allegedly signifying his intent to send a counter proposal. When the counter proposal arrived, Vivas BoD rejected it, hence, he sold the rights to the 52 original films to RBS. Thus, ABS filed before RTC a complaint for specific performance with prayer for TRO against RBS and Viva. RTC issued the TRO enjoining the airing of the films subject of controversy. After hearing, 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. The agreement between Lopez and del Rosario was subject to

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

ASSET PRIVATIZATION TRUST, petitioner, vs., COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock Holders of Marinduque Mining and Industrial Corporation, respondents. 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, Makati City. The Makati RTCs order upheld and confirmed the award made by the Arbitration Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION (or approximately P4.5 BILLION, including interest). Ironically, 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 latters 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).
The antecedent facts of the case

The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have been authorized by Republic Act No. 1828, as amended by Republic Acts No. 2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on July 3, 1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board, granted MMIC the exclusive right to explore, develop and exploit nickel, cobalt and other minerals in the Surigao mineral reservation.[1] MMIC is a domestic corporation engaged in mining with respondents Jesus S. Cabarrus, Sr. as President and among its original stockholders. The Philippine Government undertook to support the financing of MMIC by purchase of MMIC debenture and extension of guarantees. Further, the Philippine Government obtained a firm, 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, Asian Development Bank, Kobe Steel, of amount not exceeding US$100 Million.[2] DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the unutilized portion of the Government commitment. Thereafter, the Government extended accommodations to MMIC in various amounts. On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement[3] whereby MMIC, as mortgagor, agreed to constitute a mortgage in favor of PNB and DBP as mortgagees, over all MMICs assets, subject of real estate and chattel mortgage executed by the mortgagor, and additional assets described and identified, including assets of whatever kind, nature or description, which the mortgagor may acquire whether in substitution of, in replenishment, or in addition thereto. Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes the event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when due.[4] Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated events of defaults, circumstances by which the mortgagor may be declared in default, the procedure therefor, waiver of period to foreclose, authority of Trustee before, during and after foreclosure, including taking possession of the mortgaged properties.[5] In various request for advances/remittances of loans of huge amounts, Deeds of Undertakings, Promissory Notes, Loans Documents, Deeds of Real Estate Mortgages, 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 1984, DBP and PNBs financial exposure both in loans and in equity in MMIC had reached tremendous proportions, and MMIC was having a difficult time meeting its financial obligations. MMIC had an outstanding loan with DBP in the amount of P13,792,607,565.92 as of August 31, 1984 and in the amount of P8,789,028,249.38 as of July 15, 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 (P22,668,537,770.05), Philippine Currency.[6] Thus, 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.[7] On April 30, 1984, the FRP was approved by the Board of Directors of the MMIC.[8] However, the proposed FRP had never been formally adopted, approved or ratified by either PNB or DBP.[9] In August and September 1984, 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, and in compliance with the directive of Presidential Decree No. 385, DBP and PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose the mortgages in accordance with the Mortgage Trust Agreement.[10] The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial Corporation, and Island Cement Corporation. In 1986, these assets were transferred to the Asset Privatization Trust (APT).[11] On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a derivative suit against DBP and PNB before the RTC of Makati, Branch 62, for Annulment of Foreclosures, Specific Performance and Damages.[12] The suit, docketed as Civil Case No. 9900, prayed that the court: (1) annul the foreclosure, restore the foreclosed assets to MMIC, and require the banks to account for their use and operation in the interim; (2) direct the banks to honor and perform their commitments under the alleged FRP; and (3) pay moral and exemplary damages, attorneys fees, litigation expenses and costs.

In the course of the trial, private respondents and petitioner APT, as successor of the DBP and PNBs interest in MMIC, mutually agreed to submit the case to arbitration by entering into a Compromise and Arbitration Agreement, stipulating, inter alia: NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual covenants contain herein, the parties agreed as follows: 1. Withdrawal and Compromise. 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. In withdrawing their dispute form the court and in choosing to resolve it through arbitration, the parties have agreed that: (a) their respective money claims shall be reduced to purely money claims; and

(b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC accounts, APT shall likewise succeed to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No. 9900 to be transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the responsibility of, be discharged by and be enforceable against APT, the partied having agreed to drop PNB and DBP from the arbitration. 2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be submitted instead to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial Court of this Compromise and Arbitration Agreement, 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. 9900.[13] The Compromise and Arbitration Agreement limited the issues to the following: 5. Issues. The issues to be submitted for the Committees 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; (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.[14] This agreement was presented for approval to the trial court. On October 14, 1992, the Makati RTC, Branch 62, issued an order, to wit: WHEREFORE, this Court orders: 1. 2. Substituting PNB and DBP with the Asset Privatization Trust as party defendant. Approving the Compromise and Arbitration Agreement dated October 6, 1992, attached as Annex C of the Omnibus Motion. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure money claims; and The Complaint is hereby DISMISSED.[15]

3. 4.

The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as Members. On November 24, 1993, after conducting several hearings, the Arbitration Committee rendered a majority decision in favor of MMIC, the pertinent portions of which read as follows: Since, as this Committee finds, there is no foreclosure at all was not legally and validly done, the Committee holds and so declares that the loans of PNB and DBP to MMIC, for the payment and recovery of which the void foreclosure sales were undertaken, continue to remain outstanding and unpaid. Defendant APT as the successor-in-interest of PNB and DBP to the said loans is therefore entitled and retains the right, to collect the same from MMIC pursuant to and based on the loan documents signed by MMIC, subject to the legal and valid defenses that the latter may duly and seasonably interpose. Such loans shall, however, 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. The documentary evidence submitted and adopted by both parties (Exhibits 3, 3-B; Exhibits 100; 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 P22,668,537,770.05, more or less. Therefore, defendant APT can, and is still entitled to, collect the outstanding obligations of MMIC to PNB and DBP amounting to P22,668.537,770.05, more or less, 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. Simply put, DBP shall share in the award of damages to, and in obligations of MMIC in proportion to its 87% equity in the total capital stock of MMIC. As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to 87%. So pursuant to the above provision of the Compromise and Arbitration Agreement, the 87% equity of DBP is hereby deducted from the actual damages of P19,486,118,654.00 resulting in the net actual damages of P2,531,635,425.02 plus interest. DISPOSITION

WHEREFORE, premises considered, judgment is hereby rendered: 1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of P2,531,635,425.02 with interest thereon at the legal rate of six per cent (6%) per annum reckoned from August 3, 9, and 24, 1984, pari passu, as and for actual damages. Payment of these actual damages shall be offset by APT from the outstanding and unpaid loans of the MMIC with DBP and PNB, which have not been converted into equity. Should there be any balance due to the MMIC after the offsetting, 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 P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement; 2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of P13,000,000.00 as and for moral and exemplary damages. Payment of these moral and exemplary damages shall be offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been converted into equity. Should there be any balance due to MMIC after the offsetting, 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 P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement; 3. Ordering the defendant to pay to the plaintiff, Jesus 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 supercede it, pursuant to paragraph (9) of the Compromise and Arbitration Agreement, as and for moral damages; and 4. Ordering the defendant to pay arbitration costs. This Decision is FINAL and EXECUTORY. IT IS SO ORDERED.[16] Motions for reconsiderations were filed by both parties, but the same were denied. On October 17, 1994, private respondents filed in the same Civil Case No. 9900 an Application/Motion for Confirmation of Arbitration Award. Petitioner countered with an Opposition and Motion to Vacate Judgment raising the following grounds: 1. The plaintiffs Application/Motion is improperly filed with this branch of the Court, considering that the said motion is neither a part nor the continuation of the proceedings in Civil Case No. 9900 which was dismissed upon motion of the parties. In fact, the defendants in the said Civil Case No. 9900 were the Development Bank of the Philippines and the Philippine National Bank (PNB); 2. Under Section 22 of Rep. Act 876, 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, (not necessarily with this Honorable Court) for an order confirming the award; 3. 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. The arbitration award sought to be confirmed herein far exceeded the issues submitted and even granted moral damages to one of the herein plaintiffs; 4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award where the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual final and definite award upon the subject matter submitted to them was not made.[17] Private respondents filed a REPLY AND OPPOSITION dated November 10, 1984, arguing that a dismissal of Civil case No. 9900 was merely a qualified dismissal to pave the way for the submission of the controversy to arbitration, and operated simply as a mere suspension of the proceedings. They denied that the Arbitration Committee had exceeded its powers. In an Order dated November 28, 1994, the trial court confirmed the award of the Arbitration Committee. The dispositive portion of said order reads: WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and Arbitration Agreement dated October 6, 1992, the Decision of the Arbitration Committee promulgated on November 24, 1993, as affirmed in a Resolution dated July 26, 1994, and finally settled and clarified in the Separate Opinion dated September 2, 1994 of Committee Member Elma, and the pertinent provisions of RA 876,also known as the Arbitration Law, this Court GRANTS PLAINTIFFS APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD, AND JUDGMENT IS HEREBY RENDERED: (a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC, except the DBP, the sum of P3,811,757,425.00, as and for actual damages, which shall be partially satisfied from the funds held under escrow in the amount of P503,000,000.00 pursuant to the Escrow Agreement dated April 22, 1988. The Balance of the award, after the escrow funds are fully applied, shall be executed against the APT; (b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00 as and moral and exemplary damages; (c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as and for moral damages; and (d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of P1,705,410.22 as arbitration costs.

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

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

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

As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a separate opinion: 1. The various loans and advances made by DBP and PNB to MMIC have become overdue and remain unpaid. 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. Restructuring simply connotes that the obligations are past due that is why it is restructurable; 2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only means that MMIC had been informed or notified that its obligations were past due and that foreclosure is forthcoming; 3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or proceeding with the foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC should have insisted on the FRP. Yet Cabarrus himself opposed the FRP; 4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with honest and sincere belief that foreclosure was the only alternative; a decision further explained by Dr. Placido Mapa who testified that foreclosure was, in the judgment of PNB, the best move to save MMIC itself. Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we adopted as Exh. 37-A for the respondent, may I know from you, Dr. Mapa what you meant by that the decision to foreclose was neither precipitate nor arbitrary? A : Well, it is not a whimsical decision but rather decision arrived at after weighty considerations of the information that we have received, 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. Q : And this statement that it was premised upon the known fact that means, it was referring to the decision to foreclose, was premised upon the known fact that the rehabilitation plan earlier approved by the stockholders was no longer feasible, just what is meant by no longer feasible? A : Because the revenue that they were counting on to make the rehabilitation plan possible, 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. Q : And I supposed that was you were referring to when you stated that the production targets and assumed prices of MMICs products, among other projections, used in the financial reorganization program that will make it viable were not met nor expected to be met? A : Yes.

Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely unjustified in foreclosing the mortgages? In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts in PNB-DBP were past due. The drawing up of the FRP is the best proof of this. When MMIC adopted a restructuring program for its loan, it only meant that these loans were already due and unpaid. If these loans were restructurable because they were already due and unpaid, they are likewise forecloseable. The option is with the PNB-DBP on what steps to take. The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to foreclose. Neither does it mean that the FRP is legally binding and implementable. It must be pointed that said FRP will, in effect, supersede the existing and past due loans of MMIC with PNB-DBP. It will become the new loan agreement between the lenders and the borrowers. As in all other contracts, there must therefore be a meeting of minds of the parties; the PNB and DBP must have to validly adopt and ratify such FRP before they can be bound by it; before it can be implemented. In this case, not an iota of proof has been presented by the PLAINTIFFS showing that PNB and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to support its allegation in this regard.[42] Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385, which took effect on January 31, 1974. The decree requires government financial institutions to foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding obligations. The pertinent provisions of said decree read as follows: SEC. 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this Decree to foreclose the collaterals and/or securities for any loan, credit, accommodations, and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as appearing in the books of account and/or related records of the financial institutions concerned. 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, including the right to foreclosure on loans, credits, accommodations and/or guarantees on which the arrearages are less than twenty percent (20%). SEC. 2. No restraining order, 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, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties, 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. (Underscoring supplied.) 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. In any case, a disputable presumption exists in favor of petitioner that official duty has been regularly performed and ordinary course of business has been followed.[43]

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, attorneys 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 FRPs 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 MMICs equity (at that time) and as MMICs 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 DBPs 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, MMICs 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 corporations 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. DBPs 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 corporations 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

G.R. No. L-22619

December 2, 1924

NATIONAL COAL COMPANY, plaintiff-appellee, vs. THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant. Attorney-General Villa-Real for appellant. Perfecto J. Salas Rodriguez for appellee.

JOHNSON, J.: This action was brought in the Court of First Instance of the City of Manila on the 17th day of July, 1923, for the purpose of recovering the sum of P12,044.68, alleged to have been paid under protest by the plaintiff company to the defendant, as specific tax on 24,089.3 tons of coal. Said company is a corporation created by Act No. 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. It claimed exemption from taxes under the provision of sections 14 and 15 of Act No. 2719, and prayed for a judgment ordering the defendant to refund to the plaintiff said sum of P12,044.68, with legal interest from the date of the presentation of the complaint, and costs against the defendant. The defendant answered denying generally and specifically all the material allegations of the complaint, except the legal existence and personality of the plaintiff. As a special defense, the defendant alleged (a) that the sum of P12,044.68 was paid by the plaintiff without protests, and (b) that said sum was due and owing from the plaintiff to the Government of the Philippine Islands under the provisions of

section 1496 of the Administrative Code and prayed that the complaint be dismissed, with costs against the plaintiff. Upon the issue thus presented, the case was brought on for trial. After a consideration of the evidence adduced by both parties, the Honorable Pedro Conception, judge, held that the words "lands owned by any person, etc.," in section 15 of Act No. 2719 should be understood to mean "lands held in lease or usufruct," in harmony with the other provision of said Act; that the coal lands possessed by the plaintiff, belonging to the Government, fell within the provisions of section 15 of Act No. 2719; and that a tax of P0.04 per ton of 1,016 kilos on each ton of coal extracted therefrom, as provided in said section, was the only tax which should be collected from the plaintiff; and sentenced the defendant to refund to the plaintiff the sum of P11,081.11 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. 2719. From that sentence the defendant appealed, and now makes the following assignments of error: I. The court below erred in holding that section 15 of Act No. 2719 does not refer to coal lands owned by persons and corporations. II. The court below erred in holding that the plaintiff was not subject to the tax prescribed in section 1496 of the Administrative Code. The question confronting us in this appeal is whether the plaintiff is subject to the taxes under section 15 of Act No. 2719, or to the specific taxes under section 1496 of the Administrative Code. The plaintiff corporation was created on the 10th day of March, 1917, by Act No. 2705, for the purpose of developing the coal industry in the Philippine Island, in harmony with the general plan of the Government to encourage the development of the natural resources of the country, and to provided facilities therefor. By said Act, 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, extracting, transporting and selling the coal contained in said deposits." (Sec. 2, Act No. 2705.) By the same law (Act No. 2705) the Government of the Philippine Islands is made the majority stockholder, evidently in order to insure proper government supervision and control, and thus to place the Government in a position to render all possible encouragement, assistance and help in the prosecution and furtherance of the company's business. On May 14, 1917, two months after the passage of Act No. 2705, creating the National Coal Company, the Philippine Legislature passed Act No. 2719 "to provide for the leasing and development of coal lands in the Philippine Islands." On October 18, 1917, upon petition of the National Coal Company, the Governor-General, by Proclamation No. 39, withdrew "from settlement, entry, sale or other disposition, all coal-bearing public lands within the Province of Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas." Almost immediately after the issuance of said proclamation the National Coal Company took possession of the coal lands within the said reservation, with an area of about 400 hectares, without any further formality, contract or lease. Of the 30,000 shares of stock issued by the company, the Government of the Philippine Islands is the owner of 29,809 shares, that is, of 99 1/3 per centum of the whole capital stock. If we understand the theory of the plaintiff-appellee, it is, 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. 2719 and not to the provisions of the section 1496 of the Administrative Code. 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. Was the plaintiff the owner of the land from which the coal in question was mined? If the evidence shows the affirmative, then the judgment should be affirmed. If the evidence shows that the land does not belong to the plaintiff, then the judgment should be reversed, unless the plaintiff's rights fall under section 3 of said Act. The only witness presented by the plaintiff upon the question of the ownership of the land in question was Mr. Dalmacio Costas, who stated that he was a member of the board of directors of the plaintiff corporation; that the plaintiff corporation took possession of the land in question by virtue of the proclamation of the Governor-General, known as Proclamation No. 39 of the year 1917; that no document had been issued in favor of the plaintiff corporation; that said corporation had received no permission from the Secretary of Agriculture and Natural Resources; that it took possession of said lands covering an area of about 400 hectares, from which the coal in question was mined, solely, by virtue of said proclamation (Exhibit B, No. 39). Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-General, on the 18th day of October, 1917, and provided: "Pursuant to the provision of section 71 of Act No. 926, I hereby withdraw from settlement, entry, sale, or other disposition, all coal-bearing public lands within the Province of Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas." 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, entry, sale, or other disposition. There is nothing in said proclamation which authorizes the plaintiff or any other person to enter upon said reversations and to mine coal, and no provision of law has been called to our attention, 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. The plaintiff is a private corporation. The mere fact that the Government happens to the majority stockholder does not make it a public corporation. Act No. 2705, as amended by Act No. 2822, makes it subject to all of the provisions of the Corporation Law, in so far as they are not inconsistent with said Act (No. 2705). No provisions of Act No. 2705 are found to be inconsistent with the provisions of the Corporation Law. As a private corporation, it has no greater rights, powers or privileges than any other corporation which might be organized for the same purpose under the Corporation Law, 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. While it is true that said proclamation No. 39 withdrew "from settlement, entry, sale, or other disposition of coal-bearing public lands within the Province of Zamboanga . . . and the Island of Polillo," it made no provision for the occupation and operation by the plaintiff, to the exclusion of other persons or corporations who might, under proper permission, enter upon the operate coal mines. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-4043

May 26, 1952

CENON S. CERVANTES, petitioner, vs. THE AUDITOR GENERAL, respondent. Cenon Cervantes in his own behalf. Office of the Solicitor General Pompeyo Diaz and Solicitor Felix V. Makasiar for respondent. REYES, J.: 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, otherwise known as the NAFCO. It appears that petitioner was in 1949 the manager of the NAFCO with a salary of P15,000 a year. By a resolution of the Board of Directors of this corporation approved on January 19 of that year, he was granted quarters allowance of not exceeding P400 a month effective the first of that month. Submitted the Control Committee of the Government Enterprises Council for approval, the said resolution was on August 3, 1949, disapproved by the said Committee on strenght of the recommendation of the NAFCO auditor, concurred in by the Auditor General, (1) that quarters allowance constituted additional compensation prohibited by the charter of the NAFCO, which fixes the salary of the general manager thereof at the sum not to exceed P15,000 a year, and (2) that the precarious financial condition of the corporation did not warrant the granting of such allowance. On March 16, 1949, the petitioner asked the Control Committee to reconsider its action and approve his claim for allowance for January to June 15, 1949, amounting to P1,650. The claim was again referred by the Control Committee to the auditor General for comment. The latter, in turn referred it to the NAFCO auditor, who reaffirmed his previous recommendation and emphasized that the fact that the corporation's finances had not improved. In view of this, 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. But as the petitioner insisted on his claim the Auditor General Informed him on June 19, 1950, of his refusal to modify his decision. Hence this petition for review. The NAFCO was created by the Commonwealth Act No. 332, approved on June 18, 1939, with a capital stock of P20,000,000, 51 per cent of which was to be able to be subscribed by the National Government and the remainder to be offered to provincial, municipal, and the city governments and to the general public. 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. 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. The members of the board were to receive each a per diem of not to exceed P30 for each day of meeting actually attended, except the chairman of the board, who was to be at the same time the general manager of the corporation and to receive a salary not to exceed P15,000 per annum. On October 4, 1946, Republic Act No. 51 was approved authorizing the President of the Philippines, among other things, to effect such reforms and changes in government owned and controlled corporations for the purpose of promoting simplicity, economy and efficiency in their operation Pursuant to this authority, the President on October 4, 1947, promulgated Executive Order No. 93 creating the Government Enterprises Council to be composed of the President of the Philippines as chairman, the Secretary of Commerce and Industry as vice-chairman, the chairman of the board of directors and managing heads of all such corporations as ex-officio members, and such additional members as the President might appoint from time to time with the consent of the Commission on Appointments. 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. The Executive Order also provided that the council was to have a Control Committee composed of the Secretary of Commerce and Industry as chairman, 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, and with the power, among others (1) To supervise, for and under the direction of the President, all the corporations owned or controlled by the Government for the purpose of insuring efficiency and economy in their operations; (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 (3) To carry out the policies and measures formulated by the Government Enterprises Council with the approval of the President. (Sec. 3, Executive Order No. 93.) With its controlling stock owned by the Government and the power of appointing its directors vested in the President of the Philippines, there can be no question that the NAFCO is Government controlled corporation subject to the provisions of Republic Act No. 51 and the executive order (No. 93) promulgated in accordance therewith. Consequently, it was also subject to the powers of the Control Committee created in said executive order, 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. It can hardly be questioned that under these powers the Control Committee had the right to pass upon, and consequently to approve or disapprove, 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. That the Control Committee had good grounds for disapproving the resolution is also clear, for, as pointed out by the Auditor General and the NAFCO auditor, 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.

It is argued, however, that Executive Order No. 93 is null and void, not only because it is based on a law that is unconstitutional as an illegal delegation of legislature power to executive, but also because it was promulgated beyond the period of one year limited in said law. The second ground ignores the rule that in the computation of the time for doing an act, the first day is excluded and the last day included (Section 13 Rev. Ad. Code.) As the act was approved on October 4, 1946, 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, 1947, it is obvious that under the above rule the said executive order was promulgated within the period given. As to the first ground, 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. (11 Am. Jur. 957). Republic Act No. 51 in authorizing the President of the Philippines, among others, to make reforms and changes in government-controlled corporations, 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, economy and efficiency in their operations. The standard was set and the policy fixed. The President had to carry the mandate. This he did by promulgating the executive order in question which, tested by the rule above cited, does not constitute an undue delegation of legislative power. 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 P15,000 per anum. But regardless of whether quarters allowance should be considered as compensation or not, 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. 93. And in any event, petitioner's contention that quarters allowance is not compensation, a proposition on which American authorities appear divided, cannot be insisted on behalf of officers and employees working for the Government of the Philippines and its Instrumentalities, including, naturally, governmentcontrolled corporations. This is so because Executive Order No. 332 of 1941, which prohibits the payment of additional compensation to those working for the Government and its Instrumentalities, including government-controlled corporations, was in 1945 amended by Executive Order No. 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." The amendment is a clear indication that quarters allowance was meant to be included in the term "additional compensation", for otherwise the amendment would not have expressly excepted it from the prohibition. This being so, we hold that, for the purpose of the executive order just mentioned, quarters allowance is considered additional compensation and, therefore, prohibited. In view of the foregoing, the petition for review is dismissed, with costs. Paras, C.J., Feria, Pablo, Bengzon, Tuason, Montemayor and Bautista Angelo, JJ., concur.

On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature of the Philippine Island in "an Act for the leasing and development of coal lands in the Philippine Islands" (Act No. 2719), made liberal provision. 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," thereby giving a clear indication that no "coal-bearing lands of the public domain" had been disposed of by virtue of said proclamation. Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in the amendments thereof found in Act No. 2822, 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. lawphi1.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. 2705, and has no greater powers nor privileges than the ordinary private corporation, except those mentioned, perhaps, in section 10 of Act No. 2719, and they do not change the situation here. (2) It mined on public lands between the month of July, 1920, and the months of March, 1922, 24,089.3 tons of coal.

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

Magtanggol C. Gunigundo for petitioner. Prospero A. Crescini for Marilao Water District.

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

2) not only was the waterworks system turned over to the Water District without compensation. but a subsidy was illegally authorized for it; 3) the Water District was being run with "negligence, apathy, indifference and mismanagement," and was not providing adequate and efficient service to the community, but this notwithstanding, the consumers were being billed in full and threatened with disconnection for failure to pay bills on time; in fact, one of the consumers who complained had his water service cut off; 4) the consumers were consequently "forced to organize themselves into a corporation last October 3, 1983 ... for the purpose of demanding adequate and sufficient supply of water and efficient management of the waterworks in Marilao, Bulacan. 16 Acting on the complaint, particularly on the application for temporary restraining order and preliminary injunction set out therein, the Trial Court issued an Order on December 22, 1983 setting the application for preliminary hearing, requiring the respondents to answer the petition and restraining them until further orders from collecting any water bill, disconnecting any water service, transferring any property of the waterworks, or disbursing any amount in favor of any person. The order was modified on January 6, 1984 to allow the respondents to pay the district's outstanding obligations to Meralco, by way of exception to the restraining order. On January 13, 1984 the Marilao Water District filed its Answer with Compulsory Counterclaim, denying the material allegations of the petition and asserting as affirmative defenses (a) the Court's lack of jurisdiction of the subject matter, and (b) the failure of the petition to state a cause of action. 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); and the matter of the propriety of water rates, within the primary administrative jurisdiction of the LWUA and the quasi-judicial jurisdiction of the National Water Resources Council. On the same date, Marilao Water District filed a motion for admission of its third-party complaint against the officers and directors of the petitioner corporation, 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 other respondents also filed their answer through the Provincial Fiscal of Bulacan, setting up the same affirmative defense of lack of jurisdiction on the part of the Trial Court; 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 petitioner the Marilao Consumers Association filed a reply, and an answer to the counterclaim, on January 26, 1984. It averred that since the Marilao Water District had not been organized under the Corporation Code, the SEC had no jurisdiction over a proceeding for its dissolution; and that under Section 45 of PD 198, the proceeding to determine if the dissolution of the water district is for the best interest of the people, is within the competence of a regular court of justice, 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, or the exorbitant rates imposed by it. 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, 17 which has a personality distinct from theirs. The Trial Court found for the respondents. It dismissed the Consumers Association's suit by Order handed down on June 8, 1984 which pertinently reads as follows: After a consideration of the arguments raised by the herein parties, 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. WHEREFORE, the instant petition, the third-party complaint, and the compulsory counterclaim filed herein are hereby DISMISSED, for lack of jurisdiction. Its motion for reconsideration having been denied, by Order dated September 20, 1984, the Consumers Association filed with this Court a petition for review on certiorari, which was docketed as G.R. No. 68742. The case was however referred to the Intermediate Appellate Court by this Court's Second Division, in a Resolution dated November 19, 1984, where it was docketed as AC-G.R. S.P. No. 04862. But there in the Intermediate Appellate Court, the Consumers Association's cause also met with failure. The Appellate Court, in its Decision promulgated on September 10, 1985, ruled that its cause could not prosper because 1) it had availed of the wrong remedy, i.e., the special civil action of certiorari; the Order of June 8, 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; and 2) even if the certiorari action be treated as an appeal, it was 14 unerringly clear that the controversy ... falls within the competence of the SEC in virtue of P.D. 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, between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation,

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

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, 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. 26 The controversy, therefore, between the Consumers Association, on the one hand, and Marilao District and its corespondents, on the other, is not within the jurisdiction of the SEC. In their answer with counterclaim in the proceedings a quo, the respondents advocated the theory that the case falls within the jurisdiction of the LWUA and/or the National Water Resources Council. The LWUA does not appear to have any adjudicatory functions. It is, as already pointed out, "primarily a specialized lending institution for the promotion, development and financing of local water utilities, 27 with power to prescribe minimum standards and regulations regarding maintenance, operation, personnel training, accounting and fiscal practices for local water utilities, to furnish technical assistance and personnel training programs therefor; monitor and evaluate local water standards; and effect systems integration, joint investment and operations, district annexation and deannexation whenever economically warranted. 28 The LWUA has quasi-judicial power only as regards rates or charges fixed by water districts, which it may review to establish compliance with the provisions of PD 198, 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. 29 The rates or charges established by respondent Marilao Water District do not appear to be at issue in the controversy at bar. The National Water Resources Council, on the other hand, is conferred "original jurisdiction over all disputes relating to appropriation, utilization, exploitation, development, control, conservation and protection of waters within the meaning and context of the provisions of ..." (the Code by which said Council was created, Presidential Decree No. 1067, otherwise known as the Water Code of the Philippines); 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. 31 It also has authority to review questions of annexations and deannexations (addition to or exclusion from the district of territory). Again it does not appear that the case at bar is a water rights controversy or one involving annexation or deannexation. What essentially is sought by the Consumers Association is the dissolution of the Marilao Water District, on the ground that its formation was illegal and invalid; the waterworks system had been turned over to it without compensation and a subsidy illegally authorized for it; and the Water District was being run with "negligence, apathy, indifference and mismanagement," and was not providing adequate and efficient service to the community. 32 Now, as already above stated, the dissolution of a water district is governed by Section 45 of PD 198, as amended, stating that it "may be dissolved by resolution of its board of directors filed in the manner of filing the resolution forming the district," subject to enumerated pre-requisites. 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, of proceedings for the dissolution of the water district, 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; and 2) all bondholders and other creditors have been notified and consent to said transfer and dissolution; 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; 2) after compliance with the foregoing requisites, 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; 3) submission of the resolution of the Sangguniang Bayan dissolving the water district to the head of the local government concerned for approval, and ultimately to the LWUA for final approval and filing. The Consumer Association's action therefore is, in fine, in the nature of a mandamus suit, seeking to compel the board of directors of the Marilao Water District, and its alleged co-conspirators, the Sangguniang Bayan and the Mayor of Marilao to go through the process above described for the dissolution of the water district. In this sense, and indeed, taking account of the nature of the proceedings for dissolution just described, it seems plain that the case does not fall within the limited jurisdiction of the SEC., but within the general jurisdiction of Regional Trial Courts. WHEREFORE, the Decision of the Intermediate Appellate Court of September 10, 1985 affirming that of the Regional Trial Court of June 8, 1984 is REVERSED and SET ASIDE, and the case is remanded to the Regional Trial Court for further proceedings and adjudication in accordance with law. No costs. SO ORDERED. Cruz and Medialdea, JJ., concur.

Grio-Aquino, J., took no part

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 95237-38 September 13, 1991 DAVAO CITY WATER DISTRICT, CAGAYAN DE ORO CITY WATER DISTRICT, METRO CEBU WATER DISTRICT, ZAMBOANGA CITY WATER DISTRICT, LEYTE METRO WATER DISTRICT, BUTUAN CITY WATER DISTRICT, CAMARINES NORTE WATER DISTRICT, LAGUNA WATER DISTRICT, DUMAGUETE CITY WATER DISTRICT, LA UNION WATER DISTRICT, BAYBAY WATER DISTRICT, METRO LINGAYEN WATER DISTRICT, URDANETA WATER DISTRICT, COTABATO CITY WATER DISTRICT, MARAWI WATER DISTRICT, TAGUM WATER DISTRICT, DIGOS WATER DISTRICT, BISLIG WATER DISTRICT, and MECAUAYAN WATER DISTRICT, petitioners, vs. CIVIL SERVICE COMMISSION, and COMMISSION ON AUDIT, respondents.

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

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

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

of the remaining members of the Board of Directors constituting a quorum. Vacancies occurring within the last six months of an unexpired term shall also be filled by the Board in the above manner. The director thus appointed shall serve the unexpired term only; (as amended by PD 768). and the compensation and personal liability of the members of the Board of Directors: Sec. 13. Compensation. Each director shall receive a per diem, to be determined by the board, for each meeting of the board actually attended by him, 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. No director shall receive other compensation for services to the district. Any per diem in excess of P50.00 shall be subject to approval of the Administration (as amended by PD 768). Sec. 14. Personal Liability. No director may be held to be personally liable for any action of the district. Noteworthy, the above quoted provisions of PD 198, as amended, are similar to those which are actually contained in other corporate charters. 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. In other words, PD 198, as amended, is the very law which gives a water district juridical personality. While it is true that a resolution of a local sanggunian is still necessary for the final creation of a district, this Court is of the opinion that said resolution cannot be considered as its charter, the same being intended only to implement the provisions of said decree. In passing a resolution forming a water district, the local sanggunian is entrusted with no authority or discretion to grant a charter for the creation of a private corporation. It is merely given the authority for the formation of a water district, on a local option basis, to be exercised under and in pursuance of PD 198. More than the aforequoted provisions, what is of important interest in the case at bar is Section 3, par. (b) of the same decree which reads: Sec. 3(b). Appointing authority. The person empowered to appoint the members of the Board of Directors of a local water district, depending upon the geographic coverage and population make-up of the particular district. 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, the appointing authority shall be the mayor of that city or municipality, as the case may be; otherwise, the appointing authority shall be the governor of the province within which the district is located: Provided, 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, initial appointment shall be extended by the governor of the province. Subsequent appointments shall be as specified herein. If portions of more than one province are included within the boundary of the district, 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). The above-quoted section definitely sets to naught petitioners' contention that they are 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. In contrast, the members of the Board of Directors or trustees of a private corporation are elected from among the members and stockholders thereof. It would not be amiss to emphasize at this point that a private corporation is created for the private purpose, benefit, aim and end of its members or stockholders. Necessarily, said members or stockholders should be given a free hand to choose those who will compose the governing body of their corporation. But this is not the case here and this clearly indicates that petitioners are definitely not private corporations. The foregoing disquisition notwithstanding, We are, however, 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. As these employees are equally protected by the constitutional guarantee to security of tenure, We find it necessary to rule for the protection of such right which cannot be impaired by a subsequent ruling of this Court. Thus, 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. ACCORDINGLY, the petition is hereby DISMISSED. Petitioners are declared "government-owned or controlled corporations with original charter" which fall under the jurisdiction of the public respondents CSC and COA. Separate Opinions BIDIN, J., dissenting: I regret I have to register my dissent in this case. I agree with the main ponencia that P.D. 198, as amended, 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, rules and regulations therein laid down. The issue, 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. IX-B, Sec. 2[1] of the 1987 Constitution. P.D. 198 is a general legislation which authorizes the formation of water districts. However, 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. Thus, Section 2 of P.D. 198, among others, provides:

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

Sec. 4. Title. The provisions of this Title shall be known and referred to as the "Local Water District Law." CHAPTER II. Purpose and Formation Sec. 5. Purpose. Local water districts may be formed pursuant to this Title for the purposes of (a) acquiring, installing, improving, maintaining and operating water supply and distribution systems for domestic, industrial, municipal and agricultural uses for residents and lands within the boundaries of such districts, (b) providing, maintaining and operating wastewater collection, treatment and disposal facilities, and (c) conducting such other functions and operations incidental to water resource development, utilization and disposal within such districts, as are necessary or incidental to said purpose. Sec. 6. Formation of District. This Act is the source of authorization and power to form and maintain a district. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public service and supplying public wants. As such, a district shall exercise the powers, rights and privileges given to private corporations under existing laws, in addition to the powers granted in, and subject to such restrictions imposed, under this Act. Sec. 7. Filing of Resolution. A certifted copy of the resolution or resolutions forming a district shall be forwarded to the office of the Secretary of the Administration. If found by the Administration to conform to the requirements of Section 6 and the policy objectives in Section 2, the resolution shall be duly filed. The district shall be deemed duly formed and existing upon the date of such filing. A certified copy of said resolution showing the filing stamp of the Administration shall be maintained in the office of the district. Upon such filing, the local government or governments concerned shall lose ownership, supervision and control or any right whatsoever over the district except as provided herein. (Emphasis supplied) It is apparent that insofar as the formation of local water districts are concerned, P.D. 198 is not an original charter but a general act authorizing the formation of water districts on local option basis (Sec. 2, P.D. 198) similar to the Corporation Code. What is chartered, formed and created under P.D. 198 as a government corporation is the "Local Water Utilities Administration" attached to the Office of the President as follows: Sec. 49. Charter. There is hereby chartered, 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. The provisions of this title shall be and constitute the charter of the Administration. On the other hand, local water districts are formed by resolutions of the respective Provincial, City and Municipal councils (Sec. 7, P.D. 198) filed with the Local Water Utilities Administration, a government corporation chartered under Section 49, P.D. 198 and attached to the Office of the President. Consequently, without the requisite resolution of the Sanggunian concerned forming the water district having been filed with the Local Water Utility Administration, no water district is formed. 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. Once formed, a water district is subject to the provisions of P.D. 198 and no longer under the jurisdiction of any political administration which shall thereafter lose ownership, supervision and control over the district (Sec. 7, PD 198). In view of the foregoing, 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. G.R. No. 79182 September 11, 1991 PNOC-ENERGY DEVELOPMENT CORPORATION, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION (Third Division) and DANILO MERCADO, respondents. This is a petition for certiorari to set aside the Resolution * dated July 3, 1987 of respondent National Labor Relations Commission (NLRC for brevity) which affirmed the decision dated April 30, 1986 of Labor Arbiter Vito J. Minoria of the NLRC, Regional Arbitration Branch No. VII at Cebu City in Case No. RAB-VII-0556-85 entitled "Danilo Mercado, Complainant, vs. Philippine National Oil Company-Energy Development Corporation, Respondent", ordering the reinstatement of complainant Danilo Mercado and the award of various monetary claims. 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, 1979. He held various positions ranging from clerk, general clerk to shipping clerk during his employment at its Cebu office until his transfer to its establishment at Palimpinon, Dumaguete, Oriental Negros on September 5, 1984. On June 30, 1985, private respondent Mercado was dismissed. His last salary was P1,585.00 a month basic pay plus P800.00 living allowance (Labor Arbiter's Decision, Annex "E" of Petition, Rollo, p. 52). The grounds for the dismissal of Mercado are allegedly serious acts of dishonesty committed as follows: 1. On ApriI 12, 1985, Danilo Mercado was ordered to purchase 1,400 pieces of nipa shingles from Mrs. Leonardo Nodado of Banilad, Dumaguete City, for the total purchase price of Pl,680.00. Against company policy, regulations and specific orders, Danilo Mercado withdrew the nipa shingles from the supplier but paid the amount of P1,000.00 only. Danilo Mercado appropriated the balance of P680.00 for his personal use; 2. In the same transaction stated above, the supplier agreed to give the company a discount of P70.00 which Danilo Mercado did not report to the company;

3. On March 28, 1985, Danilo Mercado was instructed to contract the services of Fred R. Melon of Dumaguete City, for the fabrication of rubber stamps, for the total amount of P28.66. Danilo Mercado paid the amount of P20.00 to Fred R. Melon and appropriated for his personal use the balance of P8.66. In addition, private respondent, Danilo Mercado violated company rules and regulations in the following instances: 1. On June 5, 1985, Danilo Mercado was absent from work without leave, without proper turn-over of his work, causing disruption and delay of company work activities; 2. On June 15, 1985, Danilo Mercado went on vacation leave without prior leave, against company policy, rules and regulations. (Petitioner's Memorandum, Rollo, p. 195). On September 23, 1985, private respondent Mercado filed a complaint for illegal dismissal, retirement benefits, separation pay, unpaid wages, etc. against petitioner PNOC-EDC before the NLRC Regional Arbitration Branch No. VII docketed as Case No. RAB-VII-0556-85. After private respondent Mercado filed his position paper on December 16, 1985 (Annex "B" of the Petition, Rollo, pp. 28-40), petitioner PNOC-EDC filed its Position Paper/Motion to Dismiss on January 15, 1986, 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, Rollo, pp. 4145), which was assailed by private respondent Mercado in his Opposition to the Position Paper/Motion to Dismiss dated March 12, 1986 (Annex "D" of the Petition, Rollo, pp. 46-50). The Labor Arbiter ruled in favor of private respondent Mercado. The dispositive onion of said decision reads as follows: WHEREFORE, in view of the foregoing, 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; 2) To pay complainant the amount of P10,000.00 representing his personal share of his savings account with the respondents; 3) To pay complainants the amount of P30,000.00 moral damages; P20,000.00 exemplary damages and P5,000.00 attorney's fees; 4) To pay complainant the amount of P792.50 as his proportionate 13th month pay for 1985. 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. SO ORDERED. (Labor Arbiter's Decision, Rollo, p. 56) The appeal to the NLRC was dismissed for lack of merit on July 3, 1987 and the assailed decision was affirmed. Hence, this petition. The issues raised by petitioner in this instant petition are: 1. Whether or not matters of employment affecting the PNOC-EDC, a government-owned and controlled corporation, are within the jurisdiction of the Labor Arbiter and the NLRC. 2. Assuming the affirmative, whether or not the Labor Arbiter and the NLRC are justified in ordering the reinstatement of private respondent, payment of his savings, and proportionate 13th month pay and payment of damages as well as attorney's fee. Petitioner PNOC-EDC alleges that it is a corporation wholly owned and controlled by the government; that the Energy Development Corporation is a subsidiary of the Philippine National Oil Company which is a government entity created under Presidential Decree No. 334, as amended; that being a government-owned and controlled corporation, it is governed by the Civil Service Law as provided for in Section 1, Article XII-B of the 1973 Constitution, Section 56 of Presidential Decree No. 807 (Civil Service Decree) and Article 277 of Presidential Decree No. 442, as amended (Labor Code). The 1973 Constitution provides: The Civil Service embraces every branch, agency, subdivision and instrumentality of the government including government-owned or controlled corporations. Petitioner PNOC-EDC argued that since Labor Arbiter Minoria rendered the decision at the time when the 1973 Constitution was in force, said decision is null and void because under the 1973 Constitution, government-owned and controlled corporations were governed by the Civil Service Law. Even assuming that PNOC-EDC has no original or special charter and

Section 2(i), Article IX-B of the 1987 Constitution provides that: The Civil Service embraces all branches, subdivision, instrumentalities and agencies of the Government, including government-owned or controlled corporations with original charters. such circumstances cannot give validity to the decision of the Labor Arbiter (Ibid., pp. 192-193). This issue has already been laid to rest in the case of PNOC-EDC vs. Leogardo, 175 SCRA 26 (July 5, 1989), involving the same petitioner and the same issue, where this Court ruled that the doctrine that employees of government-owned and/or con controlled corporations, 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, has been supplanted by the present Constitution. "Thus, under the present state of the law, the test in determining whether a government-owned or controlled corporation is subject to the Civil Service Law are the manner of its creation, 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." Specifically, 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.). The fact that the case arose at the time when the 1973 Constitution was still in effect, 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. NLRC, G.R. No. 69870, 168 SCRA 122 [1988]). In the case at bar, the decision of the NLRC was promulgated on July 3, 1987. Accordingly, this case falls squarely under the rulings of the aforementioned cases. As regards the second issue, the record shows that PNOC-EDC's accusations of dishonesty and violations of company rules are not supported by evidence. Nonetheless, while acknowledging the rule that administrative bodies are not governed by the strict rules of evidence, 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., p. 196). On the other hand, private respondent contends that as can be seen from petitioner's Motion for Reconsideration and/or Appeal dated July 28, 1986 (Annex "F" of the Petition, Rollo, pp. 57- 64), 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, p. 104). Petitioner PNOC-EDC filed its Position Paper/Motion to Dismiss dated January 15, 1986 (Annex "C" of the Petition Rollo, pp. 41-45) before the Regional Arbitration Branch No. VII of Cebu City and its Motion for Reconsideration and/or Appeal dated July 28, 1986 (Annex "F" of the Petition, Rollo, pp. 57-64) before the NLRC of Cebu City. Indisputably, the requirements of due process are satisfied when the parties are given an opportunity to submit position papers. 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. There is no denial of due process where the party submitted its position paper and flied its motion for reconsideration (Odin Security Agency vs. De la Serna, 182 SCRA 472 [February 21, 1990]). 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.H. Valderama and Sons, Inc. vs. Drilon, 181 SCRA 308 [January 22, 1990]). Furthermore, 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. NLRC, 187 SCRA 784 [July 27, 1990]; Lopez Sugar Corporation vs. Federation of Free Workers, 189 SCRA 179 [August 30, 1990]). 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. NLRC, 182 SCRA 848 [February 28, 1990]). A careful study of the records shows no substantive reason to depart from these established principles. While it is true that loss of trust or breach of confidence is a valid ground for dismissing an employee, such loss or breach of trust must have some basis (Gubac v. NLRC, 187 SCRA 412 [July 13, 1990]). As found by the Labor Arbiter, the accusations of petitioner PNOC-EDC against private respondent Mercado have no basis. Mrs. Leonardo Nodado, from whom the nipa shingles were purchased, sufficiently explained in her affidavit (Rollo, p. 36) that the total purchase price of P1,680.00 was paid by respondent Mercado as agreed upon. The alleged discount given by Mrs. Nodado is not supported by evidence as well as the alleged appropriation of P8.66 from the cost of fabrication of rubber stamps. The Labor Arbiter, likewise, found no evidence to support the alleged violation of company rules. On the contrary, he found respondent Mercado's explanation in his affidavit (Rollo, pp. 38-40) as to the alleged violations to be satisfactory. Moreover, these findings were never contradicted by petitioner petitioner PNOC-EDC. PREMISES CONSIDERED, the petition is DENIED and the resolution of respondent NLRC dated July 3, 1987 is AFFIRMED with the modification that the moral damages are reduced to Ten Thousand (P10,000.00) Pesos, and the exemplary damages reduced to Five Thousand (P5,000.00) Pesos. SO ORDERED. Melencio-Herrera (Chairperson), Padilla and Regalado, JJ., concur.

Sarmiento, J., is on leave.

G.R. No. 80767 April 22, 1991 BOY SCOUTS OF THE PHILIPPINES, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, FORTUNATO ESGUERRA, ROBERTO MALABORBOR, ESTANISLAO MISA, VICENTE EVANGELISTA, and MARCELINO GARCIA, respondents. This Petition for Certiorari is directed at (1) the Decision, 1 dated 27 February 1987, and (2) the Resolution 2 dated 16 October 1987, both issued by the National Labor Relations Commission ("NLRC") in Case No. 1637-84. Private respondents Fortunato C. Esquerra, Roberto O. Malaborbor, Estanislao M. Misa, Vicente N. Evangelista and Marcelino P. Garcia, had all been rank-and-file employees of petitioner Boy Scouts of the Philippines ("BSP"). At the time of termination of their services in February 1985, private respondents were stationed at the BSP Camp in Makiling, Los Baos, Laguna. The events which led to such termination of services are as follows: On 19 October 1984, the Secretary-General of petitioner BSP issued Special Orders Nos. 80, 81, 83, 84 and 85 addressed separately to the five (5) private respondents, informing them that on 20 November 1984, they were to be transferred from the BSP Camp in Makiling to the BSP Land Grant in Asuncion, Davao del Norte. These Orders were opposed by private respondents who, on 4 November 1984, appealed the matter to the BSP National President. On 6 November 1984, petitioner BSP conducted a pre-transfer briefing at its National Headquarters in Manila. 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, and that each of them would receive a relocation allowance equivalent to one (1) month's basic pay. This assurance, however, failed to persuade private respondents to abandon their opposition to the transfer orders issued by the BSP Secretary-General. On 13 November 1984, a complaint 3 (docketed as NLRC Case No. 16-84J) for illegal transfer was filed with the then Ministry of Labor and Employment, Sub-Regional Arbitration Branch IV, San Pablo City, Laguna. Private respondents there sought to enjoin implementation of Special Orders Nos. 80, 81, 83, 84 and 85, alleging, among other things, that said orders were

"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." On 21 November 1984 (or the day immediately following the date of scheduled transfer), 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. The Memorandum was a direct result of the refusal by private respondents, two (2) days earlier, to accept from petitioner BSP their respective boat tickets to Davao del Norte and their relocation allowances. Meanwhile, in a letter of the same date, the BSP National President informed private respondents that their refusal to comply with the Special Orders was not sufficiently justified and constituted rank disobedience. Memoranda subsequently issued by the BSP Secretary-General stressed that such refusal as well as the explanations proffered therefor, were unacceptable and could altogether result in termination of employment with petitioner BSP. These warnings notwithstanding, private respondents continued pertinaciously to disobey the disputed transfer orders. Petitioner BSP consequently imposed a five-day suspension on the five (5) private respondents, in the latter part of January 1985. Subsequently, by Special Order dated 12 February 1985 issued by the BSP Secretary-General, private respondents' services were ordered terminated effective 15 February 1985. On 22 February 1985, private respondents amended their original complaint to include charges of illegal dismissal and unfair labor practice against petitioner BSP. 4 The Labor Arbiter thereafter proceeded to hear the complaint. In a decision 5 dated 31 July 1985, the Labor Arbiter ordered the dismissal of private respondents' complaint for lack of merit. On 27 February 1987, however, the ruling of the Labor Arbiter was reversed by public respondent, NLRC, which held that private respondents had been illegally dismissed by petitioner BSP. The dispositive portion of the NLRC decision read: WHEREFORE, 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. SO ORDERED. The Court notes at the outset that in the Position Paper 6 filed by petitioner BSP with the Labor Arbiter, it was alleged in the second paragraph thereof, that petitioner is a "civic service, non-stock and non-profit organization, relying mostly [on] government and public support, existing under and by virtue of Commonwealth Act No. 111, as amended, by Presidential Decree No. 460 . . . " 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, respectively. The same allegation, moreover, appeared in the Comment 10 (also treated as the Memorandum) submitted to this Court by the Solicitor General on behalf of public respondent NLRC; for their part, private respondents stated in their Appeal Memorandum 11 with the NLRC that petitioner BSP is "by mandate of law a Public Corporation," a statement reiterated by them in their Memorandum 12 before this Court. In a Resolution dated 9 August 1989, 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. Petitioner, private respondents, the Office of the Solicitor General and the Office of the Government Corporate Counsel filed their respective comments. 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, subdivisions, instrumentality mentalities and agencies of the Government, including government-owned or controlled corporations with original charters. 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. The responses of the parties, on the one hand, and of the Office of the Solicitor General and the Office of the Government Corporate Counsel, upon the other hand, in compliance with the Resolution of this Court of 9 August 1989, present a noteworthy uniformity. Petitioner BSP and private respondents submit substantially the same view "that the BSP is a purely private organization". In contrast, the Solicitor General and the Government Corporate Counsel take much the same position, that is, that the BSP is a "public corporation' or a "quasi-public corporation" and, as well, a "government controlled corporation." 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, voluntary, non-political, non-sectarian and nongovernmental organization, with obligations towards nation building and with international orientation. The BSP, petitioner stresses, does not receive any monetary or financial subsidy from the Government whether on the national or local level. 13 Petitioner declares that it is a "purely private organization" directed and controlled by its National Executive Board the members of which are, it is said, all "voluntary scouters," including seven (7) Cabinet Secretaries. 14

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

The second aspect that the Court must take into account relates to the governance of the BSP. The composition of the National Executive Board of the BSP includes, as noted from Section 5 of its charter quoted earlier, includes seven (7) Secretaries of Executive Departments. 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, Culture and Sports) by themselves do not constitute a majority of the members of the National Executive Board. We must note at the same time that the appointments of members of the National Executive Board, 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, who is the President of the Philippines. Vacancies to the Board are filled by a majority vote of the remaining members thereof, but again subject to ratification and confirmation by the Chief Scout. 18 We must assume that such confirmation or ratification involves the exercise of choice or discretion on the part of ratifying or confirming power. It does appears therefore that there is substantial governmental (i.e., Presidential) participation or intervention in the choice of the majority of the members of the National Executive Board of the BSP. The third aspect relates to the character of the assets and funds of the BSP. The original assets of the BSP were acquired by purchase or gift or other equitable arrangement with the Boy Scouts of America, of which the BSP was part before the establishment of the Commonwealth of the Philippines. The BSP charter, however, does not indicate that such assets were public or statal in character or had originated from the Government or the State. According to petitioner BSP, its operating funds used for carrying out its purposes and programs, are derived principally from membership dues paid by the Boy Scouts themselves and from property rentals. In this respect, the BSP appears similar to private non-stock, non-profit corporations, although its charter expressly envisages donations and contributions to it from the Government and any of its agencies and instrumentalities. 19 We note only that BSP funds have not apparently heretofore been regarded as public funds by the Commission on Audit, considering that such funds have not been audited by the Commission. While the BSP may be seen to be a mixed type of entity, combining aspects of both public and private entities, we believe that considering the character of its purposes and its functions, 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, the BSP, as presently constituted under its charter, is a government-controlled corporation within the meaning of Article IX. (B) (2) (1) of the Constitution. 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, Culture and Sports ("DECS"). 20 An "agency of the Government" is defined as referring to any of the various units of the Government including a department, bureau, office, instrumentality, government-owned or-controlled corporation, or local government or distinct unit therein. 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, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations. 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, and vested by law with functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges, and the monetary authority of the State. 23 (Emphasis supplied) We believe that the BSP is appropriately regarded as "a government instrumentality" under the 1987 Administrative Code. 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. 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. 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. In National Housing Corporation v. Juco, 24 decided in 1985, the Court, speaking through Mr. Justice Gutierrez, 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. Section 1, Article XII-B of the [19731 Constitution specifically provides: The Civil Service embraces every branch, agency, subdivision and instrumentality of the Government, including every government-owned or controlled corporation. . . . The 1935 Constitution had a similar provision in its Section 1, Article XII which stated: A Civil Service embracing all branches and subdivisions of the Government shall be provided by law. 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. The same explicit intent is shown by the addition

of "agency" and "instrumentality" to branches and subdivisions of the Government. All offices and firms of the government are covered. The amendments introduced in 1973 are not idle exercises or meaningless gestures. 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. 25 The complaint in NLRC Case No. 1637-84 having been filed on 13 November 1984, when the 1973 Constitution was still in force, our ruling in Juco applies in the case at bar. 26 In view of the foregoing, 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. 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. The appealed Decision and Resolution in this case, having been rendered without jurisdiction, vested no rights and imposed no liabilities upon any of the parties here involved. That neither party had expressly raised the issue of jurisdiction in the pleadings poses no obstacle to this ruling of the Court, which may motu proprio take cognizance of the issue of existence or absence of jurisdiction and pass upon the same. 27 ACCORDINGLY, the Decision of the Labor Arbiter dated 31 July 1985, and the Decision dated 27 February 1987 and Resolution dated 16 October 1987, issued by public respondent NLRC, in NLRC Case No. 1637-84, are hereby SET ASIDE. All other orders and resolutions rendered in this case by the Labor Arbiter and the NLRC are likewise SET ASIDE. No pronouncement as to costs. Fernan, C.J., Gutierrez, Jr., Bidin and Davide Jr., JJ., concur.

G.R. No. L-2886

August 22, 1952

GREGORIO ARANETA, INC., plaintiff-appellant, vs. PAZ TUASON DE PATERNO and JOSE VIDAL, defendants-appellants. This is a three-cornered contest between the purchasers, the seller, and the mortgagee of certain portions (approximately 40,703 square meters) of a big block of residential land in the district of Santa Mesa, Manila. The plaintiff, which is the purchaser, and the mortgagee elevated this appeal. Though not an appellant, the seller and mortgagor has made assignments of error in her brief, some to strengthen the judgment and others for the purpose of new trial. The case is extremely complicated and multiple issues were raised. The salient facts in so far as they are not controverted are these. Paz Tuason de Paterno is the registered owner of the aforesaid land, which was subdivided into city lots. Most of these lots were occupied by lessees who had contracts of lease which were to expire on December 31,1952, 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, all things being equal. Smaller lots were occupied by tenants without formal contract. In 1940 and 1941 Paz Tuason obtained from Jose Vidal several loans totalling P90,098 and constituted a first mortgage on the aforesaid property to secure the debt. In January and April, 1943, she obtained additional loans of P30,000 and P20,000 upon the same security. On each of the last-mentioned occasions the previous contract of mortgage was renewed and the amounts received were consolidated. In the first novated contract the time of payment was fixed at two years and in the second and last at four years. New conditions not relevant here were also incorporated into the new contracts. There was, besides, a separate written agreement entitled "Penalidad del Documento de Novacion de Esta Fecha" which, unlike the principal contracts, was not registered. The tenor of this separate agreement, all copies, of which were alleged to have been destroyed or lost, was in dispute and became the subject of conflicting evidence. The lower court did not make categorical findings on this point, however, and it will be our task to do so at the appropriate place in this decision. In 1943 Paz Tuason decided to sell the entire property for the net amount of P400,000 and entered into negotiations with Gregorio Araneta, Inc. for this purpose. The result of the negotiations was the execution on October 19, 1943, of a contract called "Promesa de Compra y Venta" and identified as Exhibit "1." This contract provided that subject to the preferred right of the lessees and that of Jose Vidal as mortgagee, Paz Tuason would sell to Gregorio Araneta, Inc. and the latter would buy for the said amount of P400,000 the entire estate under these terms. El precio sera pagado como sigue: un 40 por ciento juntamente con la carta de aceptacion del arrendatario, un 20 por ciento delprecio al otorgarse la escritura de compromiso de venta, y el remanente 40 por ciento al otorgarse la escritura de venta definitiva, la cual sera otorgada despues de que se habiese canceladola hipoteca a favor de Jose Vidal que pesa sobre dichos lotes. Lacomision del 5 por ciento que corresponde a Jose Araneta serapagada al otorgarse la escritura de compromiso de venta.

Paz Tuason se obliga a entregar mediante un propio las cartasque dirigira a este efecto a los arrendatarios, de conformidad con el formulario adjunto, que se marca como Apendice A. Expirado el plazo arriba mencionado, Paz Tuason otorgara las escrituras correspondientes de venta a los arrendatarios que hayan decidido comprar sus respectivos lotes. 9. Los alquieres correspondientes a este ao se prorratearan entre la vendedora y el comprador, correspondiendo al comprador los alquileres correspondientes a Noviembre y Diciembre de este ao y asimismo sera por cuenta del comprador el amillaramiento correspondiente a dichos meses. 10. Paz Tuason, reconoce haver recibido en este acto de Gregorio Araneta, Inc., la suma de Ciento Noventa Mil Pesos (P190,000)como adelanto del precio de venta que Gregorio Araneta, Inc., tuviere que pagar a Paz Tuason. La cantidad que Paz Tuason recibe en este acto sera aplicadapor ella a saldar su deuda con Jose Vidal, los amillaramientos, sobre el utilizado por Paz Tuason para otros fines. 11. Una vez determinados los lotes que Paz Tuason podra vendera Gregorio Araneta, Inc., Paz Tuason otorgara una escritura deventa definitiva sobre dichos lotes a favor de Gregorio Araneta, Inc. Gregorio Araneta, Inc., 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 P190,000 que se entrega en virtud de esta escritura. El 10 por ciento remanente se pagara a Paz Tuazon, una vez se haya cancelado la hipoteca que pesa actualmente sobre el terreno. No obstante la dispuesto en el parrafo 8, 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. 12. Si la mencionada cantidad de P190,000 excediere del 90 por ciento de la cantidad que Gregorio Araneta, Inc., tuviere que vender a dicho comprador, el saldo sera pagado inmediatamente por Paz Tuazon, tomandolo de las cantidades que reciba de los arrendatarios como precio de venta. In furtherance of this promise to buy and sell, letters were sent the lessees giving them until August 31, 1943, an option to buy the lots they occupied at the price and terms stated in said letters. 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. These sales, as far as the record would show, have been respected by the seller. With the elimination of the lots sold or be sold to the tenants there remained unencumbered, except for the mortgage to Jose Vidal, Lots 1, 8-16 and 18 which have an aggregate area of 14,810.20 square meters; and on December 2, 1943, Paz Tuason and Gregorio Araneta, Inc. executed with regard to these lots an absolute deed of sale, the terms of which, except in two respects, were similar to those of the sale to the lessees. This deed, copy of which is attached to the plaintiff's complaint as Exhibit A, provided, among other things, 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," making a total sum of One Hundred Thirty-Nine Thousand Eightythree pesos and Thirty-two centavos (P139,083.32), ninety (90%) per cent of which amount, i.e., the sum of One Hundred Twenty-five Thousand One Hundred Seventy-four Pesos and Ninety-nine centavos (P125,174.99), the Vendor acknowledges to have received by virtue of the advance of One Hundred Ninety Thousand (P190,000) Pesos made by the Vendee to the Vendor upon the execution of the aforesaid contract entitled "Promesa de Compra y Venta". The balance of Sixty-Four Thousand Eight Hundred Twenty-five Pesos and One centavo (P64,825.01) between the sum of P125,174.99, has been returned by the Vendor to the Vendee, which amount the Vendee acknowledges to have received by these presents; The aforesaid sum of P190,000 was delivered by the Vendee to the Vendor by virtue of four checks issued by the Vendee against the Bank of the Philippine Islands, as follows: No. C-286445 in favor of Paz Tuason de PaternoP13,476.62No. C-286444 in favor of the City Treasurer, Manila3,373.38No. C-286443 in favor of Jose Vidal30,000.00No. C-286442 in favor of Jose Vidal143,150.00 TotalP190,000.00The return of the sum of P64,825.01 was made by the Vendor to the Vendee in a liquidation which reads as follows: Hemos recibido de Da. Paz Tuason de Paterno la cantidad de Sesenta y Cuatro mil Ochocientos Veinticinco Pesos y un centimo (P64,825.01) enconcepto de devolucion que nos hace del excesode lo pagadoa ella deP190,000.00Menos el 90% de P139,083.32, importe de los lotes que vamos a comprar125,174.99 Exceso64,825.01Cheque BIF No. D-442988 de Simplicio del Rosario21,984.20Cheque PNB No. 177863-K de L.E. Dumas21,688.60Cheque PNB No. 267682-K de Alfonso Sycip20,000.00Cheque PNB No. 83940 de Josefina de Pabalan4,847.96Billetes recibidos de Alfonso Sycip 42.96P68,563.21Menos las comisiones de 5 % recibidas de Josefina de PabalanP538.60L.E. Dumas1,084.43Angela S. Tuason1,621.94 3,244.97P65,318.24Menos cheque BIF No. C-288642 a favor de Da. Paz Tuason de Paterno que le entregamos como exceso 493.23P64,825.01Manila, Noviembre 2, 1943 GREGORIO ARANETA, INCORPORATED Por; (Fdo.) "JOSE ARANETA

PresidenteRecibido cheque No. C-288642 BIF-P493.23 Por: (Fdo.) "M.J. GONZALEZIn view of the foregoing liquidation, the vendor acknowledges fully and unconditionally, having received the sum of P125,174.99 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, up to the present time, not yet collected the same. The ten (10%) per cent balance of the purchase price not yet paid in the total sum of P13,908.33 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, or sooner at the option of the Vendee. This Deed of Sale is executed by the Vendor free from all liens and encumbrances, with the only exception of the existing lease contracts on parcels Nos. 1, 10, 11, and 16, which lease contracts will expire on December 31, 1953, with the understanding, however, 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. It is therefore clearly understood that the Vendor will pay the existing mortgage on her property in favor of Jose Vidal. 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. Should any of the aforesaid lessees of lots Nos. 2, 3, 4, 5, 6, 7, 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, the Vendor shall be bound to sell the same to the herein Vendee, Gregorio Araneta, Incorporated, in conformity with the terms and conditions provided in the aforesaid contract of "Promesa de Compra y Venta"; 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 remaining area of the property of the Vendor subject to Transfer Certificates of Title Nos. 60471 and 60472, are lots Nos. 2, 3, 4, 5, 6, 7, 9, and 17, all of the Consolidation of lots Nos. 20 and 117 of plan II-4755, G.L.R.O. Record No. 7680. Before the execution of the above deed, that is, on October 20, 1943, the day immediately following the signing of the agreement to buy and sell, Paz Tuason had offered to Vidal the check for P143,150 mentioned in Exhibit A, in full settlement of her mortgage obligation, but the mortgagee had refused to receive that check or to cancel the 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, 1943. Because of this refusal of Vidal's Paz Tuason, through Atty. Alfonso Ponce Enrile, commenced an action against the mortgagee in October or the early paret of November 1943. the record of that case was destroyed and no copy of the complaint was presented in evidence. 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 P143,150 previously turned down by Vidal, another certified check for P12,932.61, also drawn by Gregorio Araneta, Inc., in favor of Vidal, and one ordinary check for P30,000 issued by Paz Tuazon. 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. 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, 1945; and neither was the case reconstituted afterward. This failure of the suit for the cancellation of Vidal's mortgage, coupled with the destruction of the checks tendered to the mortgagee, the nullification of the bank deposit on which those checks had been drawn, and the tremendous rise of real estate value following the termination of the war, gave occasion to the breaking off the schemes outlined in Exhibits 1 and A; Paz Tuason after liberation repudiated them for the reasons to be hereafter set forth. The instant action was the offshoot, begun by Gregorio Araneta, Inc. 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, and a deed of cancellation of the mortgage to Vidal. Vidal came into the case in virtue of a summon issued by order of the court, and filed a cross-claim against Paz Tuazon to foreclose his mortgage. It should be stated that the outset that all the parties are in agreement that Vidal's loans are still outstanding. Paz Tuason's counsel concede that the tender of payment to Vidal was legally defective and did not operate to discharge the mortgage, while the plaintiff is apparently uninterested in this feature of the case considering the matter one largely between the mortgagor and the mortgagee, although to a certain degree this notion is incorrect. At any rate, the points of discord between Paz Tuason and Vidal concern only the accrual of interest on the loans, Vidal's claim to attorney's fees, and the application of the debt moratorium law which the debtor now invokes. These matters will be taken up in the discussion of the controversy between Paz Tuason and Jose Vidal. The principal bone of contention between Gregorio Araneta, Inc., and Paz Tuason was the validity of the deed of sale of Exhibit A on which the suit was predicated. The lower court's judgment was that this contract was invalid and was so declared, "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, en concepto de pago de losterrenos, en moneda corriente, segun el cambio que debiaregir al tiempo de otorgarse la escritura segun la escalade "Ballentine", descontando, sin embargo, de dichas cantidades cualesquiera que la demandante haya estadorecibiendo como alquileres de los terrenos supuestamentevendidos a ella." The court based its opinion that Exhibit 1. His Honor, Judge Sotero Rodas, agreedwith the defendant that under paragraph 8 of Exhibit 1 there was to be no absolute sale to Gregorio Araneta, Inc., unless Vidal's mortgage was cancelled. In our opinion the trial court was in error in its interpretation of Exhibit 1. The contemplated execution of an absolute deed of sale was not contingent on the cancellation of Vidal's mortgage. 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, Inc." The lots which could be sold

to Gregorio Araneta, Inc. were definitely known by October 31, 1943, which was the expiry of the tenants' option to buy, and the lots included in the absolute of which the occupants' option to buy lapsed unconditionally. Such deed as Exhibit A was then in a condition to be made. Vidal's mortgage was not an obstacle to the sale. An amount had been set aside to take care of it, and the parties, it would appear, were confident that the suit against the mortgagee would succeed. The only doubt in their minds was in the amount to which Vidal was entitled. The failure of the court to try and decide that the case was not foreseen either. This refutes, were think, the charge that there was undue rush on the part of the plaintiff to push across the sale. The fact that simultaneously with Exhibit A similar deeds were given the lessees who had elected to buy their leaseholds, which comprise an area about twice as big as the lots described in Exhibit A, and the further fact that the sale to the lessees have never been questioned and the proceeds thereof have been received by the defendant, should add to dispel any suspicion of bad faith on the part of the plaintiff. If anyone was in a hurry it could have been the defendant. The clear preponderance of the evidence that Paz Tuason was pressed for cash and that the payment of the mortgage was only an incident, or a necessary means to effectuate the sale. Otherwise she could have settled her mortgage obligation merely by selling a portion of her estate, say, some of the lots leased to tenants who, except two who were in concentration camps, were only too anxious to buy and own the lots on which their houses were built. Whatever the terms of Exhibit 1, 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. 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. It is as possible proof or fraud that the discrepancies between the two documents bear some attention. It was alleged that Attorneys Salvador Araneta and J. Antonio Araneta who the defendant said had been her attorneys and had drawn Exhibit A, and not informed or had misinformed her about its contents; that being English, she had not read the deed of sale; 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. The evidence does not support the defendant. Except in two particulars, Exhibit A was a substantial compliance with Exhibit 1 in furtherance of which Exhibit A was made. 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. This provisional deduction was not onerous or unusual. 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. 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, although his percentage was later reduced to 10 as in the case of Gregorio Araneta, Inc. It has also been that the validity of the sales to the tenants has not been contested; that these sales embraced in the aggregate 24,245.40 square meters for P260,916.68 as compared to 14,811.20 square meters sold to Gregorio Araneta, Inc. for P139,083.32; that the seller has already received from the tenant purchasers 90 per cent of the purchase money. There is good reason to believe that had Gregorio Araneta, Inc. not insisted on charging to the defendant the loss of the checks deposited with the court, the sale in question would have gone the smooth way of the sales to the tenants. Thus Dindo Gonzales, defendant's son, declared: P. Despues de haberse presentado esta demanda, recuerda usted haber tenido conversacion con Salvador Araneta acerca de este asunto? R. Si Seor. P. Usted fue quien se acerco al seor Salvador Araneta? R. Si, seor. P. Quiero usted decir al Honorable Juzgado que era lo que usted dijo al seor Salvador Araneta? R. No creo que es propio que yo diga, por tratarse de mi madre. P. En otras palabras, usted quiere decir que no quiere usted que se vuelva decir o repetir ante este Honorable Juzgado lo que usted dijo al seor Salvador Araneta, pues, se trata de su madre? R. No, seor. P. Puede usted decirnos que quiso usted decir cuando que no quisiera decir? R. Voy a decir lo que Salvador Araneta, yo me acerque a Don Salvador Araneta, y yo le dije que es una verguenza de que nosotros, en la familia tengamos que ir a la Corte por este, y tambien dije que mi madre de por si quiere vender el terreno a ellos, porque mi madre quiere pagar al seor Vidal, y que es una verguenza, siendo entre parientes, tener que venir por este; era lo que yo dije al seor Salvador Araneta. xxx xxx xxx

P. No recuerda usted tambien dijo al seor Salvador Araneta que usted no comulgaba con ella (su madre) en este asunto? R. Si, Seor; porque yo creia que mi madre solamente queria anular esta venta, pero cuando me dijo el seor La O y sus abogados que, encima de quitar la propiedad, todavia tendria ella que pagar al seor Vidal, este no veso claro .

xxx

xxx

xxx

P. Ahora bien; de tal suerte que, tal como nosotros desperendemos de su testimonio, tanto, usted como, su madre, esteban muy conformes en la venta, es asi? R. Si, seor. The other stipulation embodied in Exhibit A which had no counterpart in Exhibit 1 was that by which Gregorio Araneta Inc. would hold Paz Tuason liable for the lost checks and which, as stated, appeared to be at the root of the whole trouble between the plaintiff and the defendant. The stipulation reads: In view of the foregoing liquidation, the Vendor acknowledges fully and unconditionally, having received the sum of P125,174.99 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, up to the present time, not yet collected the same. It was argued that no person in his or her right senses would knowingly have agreed to a covenant so iniquitous and unreasonable. In the light of all the circumstances, it is difficult to believe that the defendant was deceived into signing Exhibit A, in spite of the provision of which she and her son complaint. Intelligent and well educated who had been managing her affairs, she had an able attorney who was assisting her in the suit against Vidal, a case which was instituted precisely to carry into effect Exhibit A or Exhibit 1, and a son who is leading citizen and a business-man and knew the English language very well if she did not. Dindo Gonzalez took active part in, if he was not the initiator of the negotiations that led to the execution of Exhibit 1, of which he was an attesting witness besides. If the defendant signed Exhibit A without being apprised of its import, it can hardly be conceived that she did not have her attorney or her son read it to her afterward. The transaction involved the alienation of property then already worth a fortune and now assessed by the defendant at several times higher. 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, 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. It would look as if she gambled on the chance that no signed copy of the deed had been saved from the war. She could not have forgotten having signed so important a document even if she had not understood some of its provisions. From the unreasonableness and inequity of the aforequoted Exhibit A it is not to be presumed that the defendant did not understand it. It was highly possible that she did not attach much importance to it, 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. Technical objections are made against the deed of sale. First of these is that Jose Araneta, since deceased, was defendant's agent and at the same time the president of Gregorio Araneta, Inc. The trial court found that Jose Araneta was not Paz Tuason's agent or broker. This finding is contrary to the clear weight of the evidence, although the point would be irrelevant, if the court were right in its holding that Exhibit A was void on another ground, i.e., it was inconsistent with Exhibit 1. Without taking into account defendant's Exhibit 7 and 8, which the court rejected and which, in our opinion, should have been admitted, Exhibit 1 is decisive of the defendant's assertion. 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, although the commission was to be charged to the purchasers, while in paragraph 13 the defendant promised, in consideration of Jose Araneta's services rendered to her, to assign to him all her right, title and interest to and in certain lots not embraced in the sales to Gregorio Araneta, Inc. or the tenants. However, the trial court hypothetically admitting the existence of the relation of principal and agent between Paz Tuason and Jose Araneta, pointed out that not Jose Araneta but Gregorio Araneta, Inc. was the purchaser, and cited the well-known distinction between the corporation and its stockholders. In other words, the court opined that the sale to Gregorio Araneta, Inc. was not a sale to Jose Araneta the agent or broker. 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.J.S. 380: "The courts, at law and in equity, 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.". It will at once be noted that this principle does not fit in with the facts of the case at bar. Gregorio Araneta, Inc. had long been organized and engaged in real estate business. The corporate entity was not used to circumvent the law or perpetrate deception. There is no denying that Gregorio Araneta, Inc. entered into the contract for itself and for its benefit as a corporation. 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, nor is there reason to suppose, that if Paz Tuason had known Jose Araneta to Gregorio Araneta, Inc's president, which she knew, she would not have gone ahead with the deal. From her point of view and from the point of view of public interest, it would have made no difference, except for the brokerage fee, whether Gregorio Araneta, Inc. or Jose Araneta was the purchaser. Under these circumstances the result of the suggested disregard of a technicality would be, 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. 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. "The courts," it has been said, "will not ignore the corporate entity in order to further the perpetration of a fraud." (18 C.J.S. 381.)

The corporate theory aside, and granting for the nonce that Jose Araneta and Gregorio Araneta, Inc. were identical and that the acts of one where the acts of the other, the relation between the defendant and Jose Araneta did not fall within the purview of article 1459 of the Spanish Civil Code.1 Agency is defined in article 1709 in broad term, and we have not come across any commentary or decision dealing directly with the precise meaning of agency as employed in article 1459. But in the opinion of Manresa(10 Manresa 4th ed. 100), 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, while Scaevola (Vol. 23, p. 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. 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, is the reason underlying various classes of incapacity enumerated in article 1459. And as American courts commenting on similar prohibition at common law put it, 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. So the ban of paragraph 2 of article 1459 connotes the idea of trust and confidence; and so where the relationship does not involve considerations of good faith and integrity the prohibition should not and does not apply. To come under the prohibition, the agent must be in a fiduciary with his principal. Tested by this standard, Jose Araneta was not an agent within the meaning of article 1459. By Exhibits 7 and 8 he was to be nothing more than a go-between or middleman between the defendant and the purchaser, bringing them together to make the contract themselves. There was no confidence to be betrayed. Jose Araneta was not authorize to make a binding contract for the defendant. He was not to sell and he did not sell the defendant's property. He was to look for a buyer and the owner herself was to make, and did make, the sale. He was not to fix the price of the sale because the price had been already fixed in his commission. He was not to make the terms of payment because these, too, were clearly specified in his commission. In fine, Jose Araneta was left no power or discretion whatsoever, which he could abuse to his advantage and to the owner's prejudice. 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, Inc. were her attorneys also. 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, it was not likely that she employed Atty. Salvador Araneta and J. Antonio Araneta as her attorneys in her dealings with Gregorio Araneta, Inc., knowing, as she did, their identity with the buyer. If she had needed legal counsels, in this transaction it seems certain that she would have availed herself of the services of Mr. Ponce Enrile who was allegedly representing her in another case to pave the way for the sale. The fact that Attys. Salvador and Araneta and J. Antonio Araneta drew Exhibits 1 and A, undertook to write the letters to the tenants and the deeds of sale to the latter, and charged the defendant the corresponding fees for all this work, did not themselves prove that they were the seller's attorneys. These letters and documents were wrapped up with the contemplated sale in which Gregorio Araneta, Inc. was interested, and could very well have been written by Attorneys Araneta and Araneta in furtherance of Gregorio Araneta's own interest. 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. Granting that Attorney Araneta and Araneta were attorneys for the defendant, yet they were not forbidden to buy the property in question. Attorneys are only prohibited from buying their client's property which is the subject of litigation. (Art. 1459, No. 5, Spanish Civil Code.) The questioned sale was effected before the subject thereof became involved in the present action. There was already at the time of the sale a litigation over this property between the defendant and Vidal, but Attys. Salvador Araneta and J. Antonio Araneta were not her attorneys in that case. From the pronouncement that Exhibit A is valid, however, 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, or of the funds against which they had been issued. 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. The law and the evidence on this branch of the case revealed these facts, of some of which passing mention has already been made. The aforesaid checks, one for P143,150 and one for P12,932.61, were issued by Gregorio Araneta, Inc. and payable to Vidal, and were drawn against the Bank of the Philippines with which Gregorio Araneta, Inc. 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." Under banking laws and practice, 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, for all intents and purposes, the latter became the depositor of the drawee bank, with rights and duties of one such relation." 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, which in the case was 90 days. 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. This is the consensus of the evidence for both parties which does not materially differ on this proposition. The checks were never collected and the account against which they were drawn was not used or claimed by Gregorio Araneta, Inc.; and since that account "was opened during the Japanese occupation and in Japanese currency," the checks "became obsolete as the account subject thereto is considered null and void in accordance with Executive Order No. 49 of the President of the Philippines", according to the Bank. 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. The limitation imposed by the Bank as to time would adversely affect the payee, Jose Vidal, who is not trying to recover on the instruments but on the contrary rejected them from the outset, insisting that the payment was premature. As far as Vidal was concerned, it was of no importance whether the certification was or was not restricted. On the other hand,

neither the plaintiff nor the defendant now insists that Vidal should present, or should have presented, the checks for collection. They in fact agree that the offer of those checks to Vidal did not, for technical reason, work to wipe out the mortgage. But as to Gregorio Araneta and Paz Tuason, the conditions specified in the certification and the prevailing regulations of the Bank were the law of the case. Not only this, but they were aware of and abided by those regulations and practice, as instanced by the fact that the parties presented testimony to prove those regulations and practice. And that Gregorio Araneta, Inc. knew that Vidal had not cashed the checks within 90 days is not, and could not successfully be denied. In these circumstances, the stipulation in Exhibit A that the defendant or seller "shall not hold the vendee responsible for any loss of these checks" was unconscionable, void and unenforceable in so far as the said stipulation would stretch the defendant's liability for this checks beyond 90 days. It was not in accord with law, 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. 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 the extent that the contract Exhibit A would hold the vendor responsible for those checks after they had lapsed, the said contract was without consideration. The checks having become obsolete, the benefit in exchange for which the defendant had consented to be responsible for them had vanished. The sole motivation on her part for the stipulation was the fact that by the checks the mortgage might or was to be released. After 90 days the defendant stood to gain absolutely nothing by them, which had become veritable scraps of paper, while the ownership of the deposit had reverted to the plaintiff which alone could withdraw and make use of it. 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, by writing new checks either to Vidal or to the defendant, as was done with the check for P30,000, or placing the deposit at the defendant's disposal. The check for P30,000 intended for the penalty previously had been issued in the name of Vidal and certified, too, but by mutual agreement it was changed to an ordinary check payable to Paz Tuason. Although that check was also deposited with the court and lost, its loss undoubtedly was imputable to the defendant's account, and she did not seem to disown her liability for it. Let it be remembered that the idea of certifying the lost checks was all the plaintiff's. 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. 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. And let it also be kept in mind that Gregorio Araneta, Inc. was not a mere accommodator in writing these checks. It was as much interested in the cancellation of the mortgage as Paz Tuason. Coming down to Vidal's cross-claim Judge Rodas rendered no judgment other than declaring that the mortgage remained intact and subsisting. The amount to be paid Vidal was not named and the question whether interest and attorney's fees were due was not passed upon. The motion for reconsideration of the decision by Vidal's attorney's praying that Paz Tuason be sentenced to pay the creditor P244,917.90 plus interest at the rate of 1 percent monthly from September 10, 1948 and that the mortgaged property be ordered sold in case of default within 90 days, and another motion by the defendant seeking specification of the amount she had to pay the mortgagee were summarily denied by Judge Potenciano Pecson, to whom the motions were submitted, Judge Rodas by that time having been appointed to the Court of Appeals. All the facts and evidence on this subject are on the record, however, and we may just as well determine from these facts and evidence the amount to which the mortgagee is entitled, instead of remanding the case for new trial, if only to avoid further delay if the disposition of this case. It is obvious that Vidal had a right to judgment for his credit and to foreclose the mortgage if the credit was not paid. There is no dispute as to the amount of the principal and there is agreement that the loans made in 1943, in Japanese war notes, should be computed under the Ballantyne conversion table. As has been said, 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, 1943, which was reached a considerable amount. It was contended that, having offered to pay Vidal her debt in that month, the defendant was relieved thereafter from paying such interest. 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, 1943, plus the penalty provided in the instrument "Penalidad del Documento de Novacion de Esta Fecha." The mortgagor maintains that although these checks may not have constituted a valid payment for the purpose of discharging the debt, yet they did for the purpose of stopping the running of interest. 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, if rejected, equivalent to the actual production and tender of the money, instrument or property. (Sec. 24, Rule 123.) 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 addition to 12 per cent interest per annum up to the time of the offer to redeem, a further payment of 6 per cent per annum from the date of the officer to redeem. (Fabros vs. Villa Agustin, 18 Phil., 336.) A tender by the debtor of the amount of this debt, if made in the proper manner, will suspend the running of interest on the debt for the time of such tender. (30 Am. Jur., 42.) In the case of Fabrosa vs. Villa Agustin, supra, a parcel of land had been sold on execution to one Tabliga. Within the period of redemption Fabros, to whom the land had been mortgaged by the execution debtor, had offered to redeem the land from the execution creditor and purchaser at public auction. 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; nevertheless he was sentenced to pay 6 per cent interest from the date of the offer.

This court on appeal held that "there is no reason for this other (6 per cent) interest, which appears to be a penalty for delinquency while there was no delinquency." The court cited an earlier decision, Martinez vs. Campbell, 10 Phil., 626, 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, and an offer is made of the amount due for the repurchase of the property to which said right refers, 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." In the light of these decisions and law, the next query is; Did the mortgagor have the right under the contract to pay the mortgage on October 20, 1943? The answer to this question requires an inquiry into the provision of the "Penalidad del Documento de Novacion de Esta Fecha." 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 . . ., if at the time of such offer of payment he considered it advantageous to his interest." This was gist of Vidal's testimony and that of Lucio M. Tiangco, one of Vidal's former attorneys who, as notary public, had authenticated the document. Vidal's above testimony was ordered stricken out as hearsay, for Vidal was blind and, according to him, only had his other lawyer read the document to him. We are of the opinion that the court erred in excluding Vidal's statement. There is no reason to suspect that Vidal's attorney did not correctly read the paper to him. The reading was a contemporaneous incident of the writing and the circumstances under which the document was read precluded every possibility of design, premeditation, or fabrication. Nevertheless, Vidal's testimony, like the testimony of Lucio M. Tiangco's, was based on recollection which, with the lapse of time, was for from infallible. By contrast, the testimony of Attorneys Ponce Enrile, Salvador Araneta, and J. Antonio Araneta does not suffer from such weakness and is entitled to full faith and credit. 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. And the results of their study and deliberation were translated into concrete action and embodied in a letter which has been preserved. In line with the results of their study, action was instituted in court to compel acceptance by Vidal of the checks consigned with the complaint, and before the suit was commenced, and with the document before him, Atty. Ponce Enrile, in behalf of his client, wrote Vidal demanding that he accept the payment and execute a deed of cancellation of the mortgage. In his letter Atty. 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, in addition to interest due, the penalty of P30,000 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, 1943." Atty. Ponce Enrile's concept of the agreement, formed after mature and careful reading of it, jibes with the only possible reason for the insertion of the penalty provision. There was no reason for the penalty unless it was for defendant's paying her debt before the end of the agreed period. It was to Vidal's interest that the mortgage be not settled in the near future, first, because his money was earning good interest and was guaranteed by a solid security, and second, which was more important, he, in all probability, shared the common belief that Japanese war notes were headed for a crash and that four years thence, judging by the trends of the war, the hostilities would be over. To say, as Vidal says, that the debtor could not pay the mortgage within four years and, at the same time, that there would be penalty if she paid after that period, would be a contradiction. Moreover, adequate remedy was provided for failure to pay or after the expiration of the mortgage: increased rate or interest, foreclosure of the mortgage, and attorney's fees. It is therefore to be concluded that the defendant's offer to pay Vidal in October, 1943, was in accordance with the parties' contract and terminated the debtor's obligation to pay interest. The technical defects of the consignation had to do with the discharge of the mortgage, which is conceded on all sides to be still in force because of the defects. 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. These principles regard reality rather than technicality, substance rather than form. 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. 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. 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. If the creditor had told the debtor that he wanted cash or an ordinary check, which Vidal now seems to think Paz Tuason should have tendered, certainly Vidal's wishes would have been fulfilled, gladly. The plain truth was that the mortgagee bent all his efforts to put off the payment, and thanks to the defects which he now, with obvious inconsistency, points out, the mortgage has not perished with the checks. Falling within the reasons for the stoppage of interest are attorney's fees. In fact there is less merit in the claim for attorney's fees than in the claim for interest; for the creditor it was who by his refusal brought upon himself this litigation, refusal which, as just shown, resulted greatly to his benefit. Vidal, however, is entitled to the penalty, a point which the debtor seems to a grant. 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. 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. 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. "In obligations with a penalty clause the penalty shall substitute indemnity for damages and the payment of interest. . ." (Art. 1152, Civil Code of Spain.). To summarize, the following are our findings and decision: The contract of sale Exhibit A was valid and enforceable, but the loss of the checks for P143,150 and P12,932.61 and invalidation of the corresponding deposit is to be borne by the buyer. Gregorio Araneta, Inc. the value of these checks as well as the several payments made by Paz Tuason to Gregorio Araneta, Inc. shall be deducted from the sum of P190,000 which the buyer advanced to the seller on the

execution of Exhibit 1. The buyer shall be entitled to the rents on the land which was the subject of the sale, rents which may have been collected by Paz Tuason after the date of the sale. Paz Tuason shall pay Jose Vidal the amount of the mortgage and the stipulated interest up to October 20,1943, plus the penalty of P30,000, provided that the loans obtained during the Japanese occupation shall be reduced according to the Ballantyne scale of payment, and provided that the date basis of the computation as to the penalty is the date of the filing of the suit against Vidal. 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, otherwise the property mortgaged shall be ordered sold provided by law. Vidal's mortgage is superior to the purchaser's right under Exhibit A, which is hereby declared subject to said mortgage. Should Gregorio Araneta, Inc. be forced to pay the mortgage, it will be subrogated to the right of the mortgagee. 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 court also shall hear and decide all other controversies relative to the liquidation which may have been overlooked at this decision, in a manner not inconsistent with the above findings and judgment. The mortgagor is not entitled to suspension of payment under the debt moratorium law or orders. 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; there is no allegation or proof that she has. In the second place, 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. In the third place, prompt settlement of the mortgage is necessary to the settlement of the dispute and liquidation between Gregorio Araneta, Inc. and Paz Tuason. If for no other reason, Paz Tuason would do well to forego the benefits of the moratorium law. There shall be no special judgments as to costs of either instance. RESOLUTION December 22, 1952TUASON, J.: The motion for reconsideration of the plaintiff, Gregorio Araneta, Inc., and the defendant, Paz Tuason de Paterno, are in large part devoted to the question, extensively discussed in the decision, of the validity of the contract of sale Exhibit A. The arguments are not new and at least were given due consideration in the deliberation and study of the case. We find no reason for disturbing our decision on this phase of the case. 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 P139,083.32 less P47,825.70 which plaintiff paid and the defendant actually collected during the occupation, or the sum of P92,233.32, or at most, (b) the purchase price of the lot in the sum of P139,083.32," as well as the alleged over-payment by the defendant-appellee, 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, in the manner not inconsistent with the above findings and judgment." These payments and disbursement are matters of accounting which, not having been put directly in issue or given due attention at the trial and in the appealed decision, can better be treshed out in the proposed rehearing where each party will have an opportunity to put forward his views and reasons, with supporting evidence if necessary, on how the various items in question should be regarded and credited, in the light of our decision. 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. There are no substantial features of the case that have not been weighed carefully in arriving at our conclusions. It is our considered opinion that the decision is in accord with law, reason and equity. 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. From page 20 of his brief, 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. Defendant Paz Tuason has admitted the amount of capital due. That is a fact. She only requests that interest be granted up to October 20,1943, and that the moratorium law be applied. Whether this is possible or not is a legal question, which can be decided by this court. 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, the judgment did not adjudicate the foreclosure of the mortgage nor did it fix the amount due on the mortgage. The pronouncement that the mortgage was in full force and effect was a conclusion which the mortgagor did not and does not now question. There was therefore virtually no decision that could be executed. Vidal himself moved in the Court of First Instance for amendment of the decision alleging, correctly, that "the court failed to act on the cross-claim of Jose Vidal dated April 22, 1947, where he demanded foreclosure of the mortgage . . . ." That motion like Paz Tuason's motion to complete the judgment, was summarily denied.

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

As between all parties: Plaintiff Buenaflor M. Castillo is the judicial administratrix of the estate of Felipe Castillo in Special Proceeding No. 4053, pending before Branch IX, CFI of Quezon (per Exhibit A) which intestate proceedings was instituted by Mauricia Meer Vda. de Castillo, the previous administratrix of the said proceedings prior to 1970 (per exhibits A-1 and A-2) which case was filed in Court way back in 1964; b) The four (4) parcels of land described in paragraph 3 of the Complaint were originally covered by TCT No. T-42104 and Tax Dec. No. 14134 with assessed value of P3,100.00; TCT No. T 32227 and Tax Dec. No. 14132, with assessed value of P5,130,00; TCT No. T-31762 and Tax Dec. No. 14135, with assessed value of P6,150.00; and TCT No. T-42103 with Tax Dec. No. 14133, with assessed value of P3,580.00 (per Exhibits A-2 and B, B-1 to B-3 C, C-1 -to C3 c) That the above-enumerated four (4) parcels of land were the subject of the Deed of Extra-Judicial Partition executed by the heirs of Felipe Castillo (per Exhibit D) and by virtue thereof the titles thereto has (sic) been cancelled and in lieu thereof, new titles in the name of Mauricia Meer Vda. de Castillo and of her children, namely: Buenaflor, Bertilla, Victoria, Marietta and Leovina, all surnamed Castillo has (sic) been issued, namely: TCT No. T-12113 (Exhibit E ); TCT No. T-13113 (Exhibit F); TCT No. T-13116 (Exhibit G ) and TCT No. T13117 (Exhibit H ) d) That mentioned parcels of land were submitted as guaranty in the Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage executed on 24 October 1970 between Insurance Corporation of the Philippines and Slobec Realty Corporation represented by Santiago Rivera (Exhibit 1); e) That based on the Certificate of Sale issued by the Sheriff of the Province of Quezon in favor of Insurance Corporation of the Philippines it was able to transfer to itself the titles over the lots in question, namely: TCT No. T-23705 (Exhibit M), TCT No. T 23706 (Exhibit N ), TCT No. T-23707 (Exhibit 0) and TCT No. T 23708 (Exhibit P); f) That on 10 April 1975, the Insurance Corporation of the Philippines sold to PM Parts the immovables in question (per Exhibit 6 for PM Parts) and by reason thereof, succeeded in transferring unto itself the titles over the lots in dispute, namely: per TCT No. T-24846 (Exhibit Q ), per TCT No. T-24847 (Exhibit R ), TCT No. T-24848 (Exhibit), TCT No. T-24849 (Exhibit T ); g) On 26 August l976, Mauricia Meer Vda. de Castillo' genther letter to Modesto N. Cervantes stating that she and her children refused to comply with his demands (Exhibit V-2); h) That from at least the months of October, November and December 1970 and January 1971, Modesto N. Cervantes was the Vice-President of Bormaheco, Inc. later President thereof, and also he is one of the Board of Directors of PM Parts; on the other hand, Atty. Martin M. De Guzman was the legal counsel of Bormaheco, Inc., later Executive Vice-President thereof, and who also is the legal counsel of Insurance Corporation of the Philippines and PM Parts; that Modesto N. Cervantes served later on as President of PM Parts, and that Atty. de Guzman was retained by Insurance Corporation of the Philippines specifically for foreclosure purposes only; i) Defendant Bormaheco, Inc. on November 25, 1970 sold to Slobec Realty and Development, Inc., represented by Santiago Rivera, President, one (1) unit Caterpillar Tractor D-7 with Serial No. 281114 evidenced by a contract marked Exhibit J and Exhibit I for Bormaheco, Inc.; j) That the Surety Bond No. 14010 issued by co-defendant ICP was likewise secured by an Agreement with CounterGuaranty with Real Estate Mortgage executed by Slobec Realty & Development, Inc., Mauricia Castillo Meer, Buenaflor Castillo, Bertilla Castillo, Victoria Castillo, Marietta Castillo and Leovina Castillo, as mortgagors in favor of ICP which document was executed and ratified before notary public Alberto R. Navoa of the City of Manila on October 24,1970; k) That the property mortgaged consisted of four (4) parcels of land situated in Lucena City and covered by TCT Nos. T13114, T13115, T-13116 and T-13117 of the Register of Deeds of Lucena City; l) That the tractor sold by defendant Bormaheco, Inc. to Slobec Realty & Development, Inc. was delivered to Bormaheco, Inc. on or about October 2,1973, by Mr. Menandro Umali for purposes of repair; m) That in August 1976, PM Parts notified Mrs. Mauricia Meer about its ownership and the assignment of Mr. Petronilo Roque as caretaker of the subject property; n) That plaintiff and other heirs are harvest fruits of the property (daranghita) which is worth no less than Pl,000.00 per harvest. As between plaintiffs and defendant Bormaheco, Inc o) That on 25 November 1970, at Makati, Rizal, Same Rivera, in representation of the Slobec Realty & Development Corporation executed in favor of Bormaheco, Inc., represented by its Vice-President Modesto N. Cervantes a Chattel Mortgage concerning one unit model CAT D7 Caterpillar Crawler Tractor as described therein as security for the payment in favor of the mortgagee of the amount of P180,000.00 (per Exhibit K) that Id document was superseded by another chattel mortgage dated January 23, 1971 (Exhibit 15); p) On 18 December 1970, at Makati, Rizal, the Bormaheco, Inc., represented by its Vice-President Modesto Cervantes and Slobec Realty Corporation represented by Santiago Rivera executed the sales agreement concerning the sale of one (1) unit Model CAT D7 Caterpillar Crawler Tractor as described therein for the amount of P230,000.00 (per Exhibit J) which

document was superseded by the Sales Agreement dated January 23,1971 (Exhibit 16); q) Although it appears on the document entitled Chattel Mortgage (per Exhibit K) that it was executed on 25 November 1970, and in the document entitled Sales Agreement (per Exhibit J) that it was executed on 18 December 1970, it appears in the notarial register of the notary public who notarized them that those two documents were executed on 11 December 1970. The certified xerox copy of the notarial register of Notary Public Guillermo Aragones issued by the Bureau of Records Management is hereto submitted as Exhibit BB That said chattel mortgage was superseded by another document dated January 23, 1971; r) That on 23 January 1971, Slobec Realty Development Corporation, represented by Santiago Rivera, received from Bormaheco, Inc. one (1) tractor Caterpillar Model D-7 pursuant to Invoice No. 33234 (Exhibits 9 and 9-A, Bormaheco, Inc.) and delivery receipt No. 10368 (per Exhibits 10 and 10-A for Bormaheco, Inc s) That on 28 September 1973, Atty. Martin M. de Guzman, as counsel of Insurance Corporation of the Philippines purchased at public auction for said corporation the four (4) parcels of land subject of tills case (per Exhibit L), and which document was presented to the Register of Deeds on 1 October 1973; t) Although it appears that the realties in issue has (sic) been sold by Insurance Corporation of the Philippines in favor of PM Parts on 1 0 April 1975, Modesto N. Cervantes, formerly Vice- President and now President of Bormaheco, Inc., sent his letter dated 9 August 1976 to Mauricia Meer Vda. de Castillo (Exhibit V), demanding that she and her children should vacate the premises; u) That the Caterpillar Crawler Tractor Model CAT D-7 which was received by Slobec Realty Development Corporation was actually reconditioned and repainted. " 2 We cull the following antecedents from the decision of respondent Court of Appeals: Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The Castillo family are the owners of a parcel of land located in Lucena City which was given as security for a loan from the Development Bank of the Philippines. For their failure to pay the amortization, foreclosure of the said property was about to be initiated. This problem was made known to Santiago Rivera, who proposed to them the conversion into subdivision of the four (4) parcels of land adjacent to the mortgaged property to raise the necessary fund. The Idea was accepted by the Castillo family and to carry out the project, a Memorandum of Agreement (Exh. U p. 127, Record) was executed by and between Slobec Realty and Development, Inc., represented by its President Santiago Rivera and the Castillo family. In this agreement, Santiago Rivera obliged himself to pay the Castillo family the sum of P70,000.00 immediately after the execution of the agreement and to pay the additional amount of P400,000.00 after the property has been converted into a subdivision. Rivera, armed with the agreement, Exhibit U , approached Mr. Modesto Cervantes, President of defendant Bormaheco, and proposed to purchase from Bormaheco two (2) tractors Model D-7 and D-8 Subsequently, a Sales Agreement was executed on December 28,1970 (Exh. J, p. 22, Record). On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development, Inc., represented by its President, Santiago Rivera, executed a Sales Agreement over one unit of Caterpillar Tractor D-7 with Serial No. 281114, as evidenced by the contract marked Exhibit '16'. As shown by the contract, the price was P230,000.00 of which P50,000.00 was to constitute a down payment, and the balance of P180,000.00 payable in eighteen monthly installments. On the same date, Slobec, through Rivera, executed in favor of Bormaheco a Chattel Mortgage (Exh. K, p. 29, Record) over the said equipment as security for the payment of the aforesaid balance of P180,000.00. As further security of the aforementioned unpaid balance, Slobec obtained from Insurance Corporation of the Phil. a Surety Bond, with ICP (Insurance Corporation of the Phil.) as surety and Slobec as principal, in favor of Bormaheco, as borne out by Exhibit '8' (p. 111, Record). The aforesaid surety bond was in turn secured by an Agreement of Counter-Guaranty with Real Estate Mortgage (Exhibit I, p. 24, Record) executed by Rivera as president of Slobec and Mauricia Meer Vda. de Castillo, Buenaflor Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and Leovina Castillo Jalbuena, as mortgagors and Insurance Corporation of the Philippines (ICP) as mortgagee. In this agreement, ICP guaranteed the obligation of Slobec with Bormaheco in the amount of P180,000.00. In giving the bond, ICP required that the Castillos mortgage to them the properties in question, namely, four parcels of land covered by TCTs in the name of the aforementioned mortgagors, namely TCT Nos. 13114, 13115, 13116 and 13117 all of the Register of Deeds for Lucena City. On the occasion of the execution on January 23, 1971, of the Sales Agreement Exhibit '16', Slobec, represented by Rivera received from Bormaheco the subject matter of the said Sales Agreement, namely, the aforementioned tractor Caterpillar Model D-7 as evidenced by Invoice No. 33234 (Exhs. 9 and 9-A, p. 112, Record) and Delivery Receipt No. 10368 (Exhs. 10 and 10-A, p. 113). This tractor was known by Rivera to be a reconditioned and repainted one [Stipulation of Facts, Pre-trial Order, par. (u)]. Meanwhile, for violation of the terms and conditions of the Counter-Guaranty Agreement (Exh. 1), the properties of the Castillos were foreclosed by ICP As the highest bidder with a bid of P285,212.00, a Certificate of Sale was issued by the Provincial Sheriff of Lucena City and Transfer Certificates of Title over the subject parcels of land were issued by the Register of Deeds of Lucena City in favor of ICP namely, TCT Nos. T-23705, T 23706, T-23707 and T-23708 (Exhs. M to P, pp. 38-45). The mortgagors had one (1) year from the date of the registration of the certificate of sale, that is, until October 1, 1974, to redeem the property, but they failed to do so. Consequently, ICP consolidated its ownership over the subject parcels of land through the requisite affidavit of consolidation of ownership dated October 29, 1974, as shown in Exh. '22'(p. 138, Rec.). Pursuant thereto, a Deed of Sale of Real Estate covering the subject properties was issued in favor of ICP (Exh. 23, p. 139, Rec.). On April 10, 1975, Insurance Corporation of the Phil. ICP sold to Phil. Machinery Parts Manufacturing Co. (PM Parts) the four (4) parcels of land and by virtue of said conveyance, PM Parts transferred unto itself the titles over the lots in dispute so that

said parcels of land are now covered by TCT Nos. T-24846, T-24847, T-24848 and T-24849 (Exhs. Q-T, pp. 46-49, Rec.). Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a letter dated August 9,1976 addressed to plaintiff Mrs. Mauricia Meer Castillo requesting her and her children to vacate the subject property, who (Mrs. Castillo) in turn sent her reply expressing her refusal to comply with his demands. On September 29, 1976, the heirs of the late Felipe Castillo, particularly plaintiff Buenaflor M. Castillo Umali as the appointed administratrix of the properties in question filed an action for annulment of title before the then Court of First Instance of Quezon and docketed thereat as Civil Case No. 8085. Thereafter, they filed an Amended Complaint on January 10, 1980 (p. 444, Record). On July 20, 1983, plaintiffs filed their Second Amended Complaint, impleading Santiago M. Rivera as a party plaintiff (p. 706, Record). They contended that all the aforementioned transactions starting with the Agreement of CounterGuaranty with Real Estate Mortgage (Exh. I), Certificate of Sale (Exh. L) and the Deeds of Authority to Sell, Sale and the Affidavit of Consolidation of Ownership (Annexes F, G, H, I) as well as the Deed of Sale (Annexes J, K, L and M) are void for being entered into in fraud and without the consent and approval of the Court of First Instance of Quezon, (Branch IX) before whom the administration proceedings has been pending. Plaintiffs pray that the four (4) parcels of land subject hereof be declared as owned by the estate of the late Felipe Castillo and that all Transfer Certificates of Title Nos. 13114,13115,13116,13117, 23705, 23706, 23707, 23708, 24846, 24847, 24848 and 24849 as well as those appearing as encumbrances at the back of the certificates of title mentioned be declared as a nullity and defendants to pay damages and attorney's fees (pp. 71071 1, Record). In their amended answer, the defendants controverted the complaint and alleged, by way of affirmative and special defenses that the complaint did not state facts sufficient to state a cause of action against defendants; that plaintiffs are not entitled to the reliefs demanded; that plaintiffs are estopped or precluded from asserting the matters set forth in the Complaint; that plaintiffs are guilty of laches in not asserting their alleged right in due time; that defendant PM Parts is an innocent purchaser for value and relied on the face of the title before it bought the subject property (p. 744, Record). 3 After trial, the court a quo rendered judgment, with the following decretal portion: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, declaring the following documents: Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage dated October 24,1970 (Exhibit 1); Sales Agreement dated December 28, 1970 (Exhibit J) Chattel Mortgage dated November 25, 1970 (Exhibit K) Sales Agreement dated January 23, 1971 (Exhibit 16); Chattel Mortgage dated January 23, 1971 (Exhibit 17); Certificate of Sale dated September 28, 1973 executed by the Provincial Sheriff of Quezon in favor of Insurance Corporation of the Philippines (Exhibit L); null and void for being fictitious, spurious and without consideration. Consequently, Transfer Certificates of Title Nos. T 23705, T-23706, T23707 and T-23708 (Exhibits M, N, O and P) issued in the name of Insurance Corporation of the Philippines, are likewise null and void. The sale by Insurance Corporation of the- Philippines in favor of defendant Philippine Machinery Parts Manufacturing Co., Inc., over Id four (4) parcels of land and Transfer Certificates of Title Nos. T 24846, T-24847, T-24848 and T-24849 subsequently issued by virtue of said sale in the name of Philippine Machinery Parts Manufacturing Co., Inc., are similarly declared null and void, and the Register of Deeds of Lucena City is hereby directed to issue, in lieu thereof, transfer certificates of title in the names of the plaintiffs, except Santiago Rivera. Orders the defendants jointly and severally to pay the plaintiffs moral damages in the sum of P10,000.00, exemplary damages in the amount of P5,000.00, and actual litigation expenses in the sum of P6,500.00. Defendants are likewise ordered to pay the plaintiffs, jointly and severally, the sum of P10,000.00 for and as attomey's fees. With costs against the defendants. SO ORDERED. 4 As earlier stated, respondent court reversed the aforequoted decision of the trial court and rendered the judgment subject of this petitionPetitioners contend that respondent Court of Appeals erred: 1. In holding and finding that the actions entered into between petitioner Rivera with Cervantes are all fair and regular and therefore binding between the parties thereto;

2. In reversing the decision of the lower court, not only based on erroneous conclusions of facts, erroneous presumptions not supported by the evidence on record but also, holding valid and binding the supposed payment by ICP 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.

Melencio-Herrera (Chairman), Paras and Padilla, JJ., concur. Sarmiento, J., is on leave.

NATIONAL MARKETING CORPORATION (NAMARCO), plaintiff-appellant, vs.ASSOCIATED FINANCE COMPANY, INC., and FRANCISCO SYCIP, defendants. FRANCISCO SYCIP, defendant-appellee. April 27, 1967 Appeal by the National Marketing Corporation hereinafter referred to as NAMARCO, from the decision of the Court of First Instance of Manila in Civil Case No. 45770 ordering the Associated Finance Company, Inc. hereinafter referred to as the ASSOCIATED to pay the NAMARCO the sum of P403,514.28, with legal interest thereon from the date of filing of the action until fully paid, P80,702.26 as liquidated damages, P5,000.00 as attorney's fees, plus costs, but dismissing the complaint insofar as defendant Francisco Sycip was concerned, as well as the latter's counterclaim. The appeal is only from that portion of the decision dismissing the case as against Francisco Sycip. On March 25, 1958, ASSOCIATED, a domestic corporation, through its President, appellee Francisco Sycip, entered into an agreement to exchange sugar with NAMARCO, represented by its then General Manager, Benjamin Estrella, whereby the former would deliver to the latter 22,516 bags (each weighing 100 pounds) of "Victorias" and/or "National" refined sugar in exchange for 7,732.71 bags of "Busilak" and 17,285.08 piculs of "Pasumil" raw sugar belonging to NAMARCO, 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). Pursuant thereto, on May 19,1958, NAMARCO delivered to ASSOCIATED 7,732.71 bars of "Busilak" and 17,285.08 piculs of "Pasumil" domestic raw sugar. As ASSOCIATED failed to deliver to NAMARCO the 22,516 bags of "Victoria" and/or "National" refined sugar agreed upon, the latter, on January 12, 1959, demanded in writing from the ASSOCIATED either (a) immediate delivery thereof before January 20, or (b) payment of its equivalent cash value amounting to P372,639.80. On January 19, 1959, ASSOCIATED, through Sycip, offered to pay NAMARCO the value of 22,516 bags of refined sugar at the rate of P15.30 per bag, but the latter rejected the offer. Instead, on January 21 of the same year it demanded payment of the 7,732.71 bags of "Busilak" raw sugar at P15.30 per bag, amounting to P118,310.40. and of the 17,285.08 piculs of "Pasumil" raw sugar at P16.50 per picul, amounting, to P285.203.82, or a total price of P403,514.28 for both kinds of sugar, based on the sugar quotations (Exh. H) as of March 20, 1958 the date when the exchange agreement was entered into. As ASSOCIATED refused to deliver the raw sugar or pay for the refined sugar delivered to it, inspite of repeated demands therefore, NAMARCO instituted the present action in the lower court to recover the sum of P403,514.28 in payment of the raw sugar received by defendants from it; P80,702.86 as liquidated damages; P10,000.00 as attorney's fees, expenses of litigation and exemplary damages, with legal interest thereon from the filing of the complaint until fully paid. In their amended answer defendants, by way of affirmative defenses, alleged that the correct value of the sugar delivered by NAMARCO to them was P259,451.09 or P13.30 per bag of 100 lbs. weight (quedan basis) and not P403,514.38 as claimed by NAMARCO. As counterclaim they prayed for the award of P500,000.00 as moral damages, P100,000.00 as exemplary damages and P10,000.00 as attorney's fees. After due trial court rendered the appealed judgment. The appeal was taken to the Court of Appeals, but on January 15, 1963 the latter certified the case to us for final adjudication pursuant to sections 17 and 31 of the Judiciary Act of 1948, as amended, the amount involved being more than P200,000.00, exclusive of interests and cost. The only issue to be resolved is whether, upon the facts found by the trial court, which, in our opinion, are fully supported by the evidence Francisco Sycip may be held liable, jointly and severally with his co-defendant, for the sums of money adjudged in favor of NAMARCO.

The evidence of record shows that, of the capital stock of ASSOCIATED, Sycip owned P60,000.00 worth of shares, while his wife the second biggest stockholder owned P20,000.00 worth of shares; that the par value of the subscribed capital stock of ASSOCIATED was only P105,000.00; that negotiations that lead to the execution of the exchange agreement in question were conducted exclusively by Sycip on behalf of ASSOCIATED; that, as a matter of fact, in the course of his testimony, Sycip referred to himself as the one who contracted or transacted the business in his personal capacity, and asserted that the exchange agreement was his personal contract; that it was Sycip who made personal representations and gave assurances that ASSOCIATED was in actual possession of the 22,516 bags of "Victorias" and/or "National" refined sugar which the latter had agreed to deliver to NAMARCO, and that the same was ready for delivery; that, as a matter of fact, ASSOCIATED was at that time already insolvent; that when NAMARCO made demands upon ASSOCIATED to deliver the 22,516 bags of refined sugar it was under obligation to deliver to the former, ASSOCIATED and Sycip, instead of making delivery of the sugar, offered to pay its value at the rate of P15.30 per bag a clear indication that they did not have the sugar contracted for.1wph1.t The foregoing facts, fully established by the evidence, 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, with full knowledge, on his part, on the fact that ASSOCIATED whom he represented and over whose business and affairs he had absolute control, was in no position to comply with the obligation it had assumed. Consequently, 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. To the contrary, upon the proven facts, We feel perfectly justified in "piercing the veil of corporate fiction" and in holding Sycip personally liable, jointly and severally with his co-defendant, for the sums of money adjudged in favor of appellant. It is settled law in this and other jurisdictions that when the corporation is the mere alter ego of a person, the corporate fiction may be disregarded; the same being true when the corporation is controlled, and its affairs are so conducted as to make it merely an instrumentality, agency or conduit of another (Koppel Phils., etc. vs. Yatco, etc., 43 O.G. No. 11. Nov. 1947; Yutivo Sons, etc. vs. Court of Tax Appeals, etc., G.R. No. L-13203, promulgated on January 28, 1961).
Wherefore, the decision appealed from is modified by sentencing defendant-appellee Francisco Sycip to pay, jointly and severally with the Associated Finance Company, Inc., the sum of money which the trial court sentenced the latter to pay to the National Marketing Corporation, as follows: the sum of FOUR HUNDRED THREE THOUSAND FIVE HUNDRED FOURTEEN PESOS, and TWENTY-EIGHT CENTAVOS P403,514.28), 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 (P80,702.86) as liquidated damages and P5,000.00 as attorney's fees and further to pay the costs. With costs.

G.R. No. L-15121

August 31, 1962

GREGORIO PALACIO, in his own behalf and in behalf of his minor child, MARIO PALACIO, plaintiffs-appellants, vs.FELY TRANSPORTATION COMPANY, defendant-appellee. This is an appeal by the plaintiffs from the decision of the Court of First Instance of Manila which dismissed their complaint. Originally taken to the Court of Appeals, this appeal was certified to this Court on the ground that it raises purely questions of law. 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, 1954, plaintiffs allege, among other things, "that about December, 1952, the defendant company hired Alfredo Carillo as driver of AC-787 (687) (a registration for 1952) owned and operated by the said defendant company; that on December 24, 1952, at about 11:30 a.m., while the driver Alfonso (Alfredo) Carillo was driving AC-687 at Halcon Street, Quezon City, wilfully, unlawfully and feloniously and in a negligent, reckless and imprudent manner, run over a child Mario Palacio of the herein plaintiff Gregorio Palacio; that on account of the aforesaid injuries, Mario Palacio suffered a simple fracture of the right tenor (sic), complete third, thereby hospitalizing him at the Philippine Orthopedic Hospital from December 24, 1952, up to January 8, 1953, and continued to be treated for a period of five months thereafter; 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 P10.00 a day for the support of his big family; 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, he was forced to sell one air compressor (heavy duty) and one heavy duty electric drill, for a sacrifice sale of P150.00 which could easily sell at P350.00; that as a consequence of the negligent and reckless act of the driver Alfredo Carillo of the herein defendant company, the herein plaintiffs were forced to litigate this case in Court for an agreed amount of P300.00 for attorney's fee; that the herein plaintiffs have now incurred the amount of P500.00 actual expenses for transportation, representation and similar expenses for gathering evidence and witnesses; and that because of the nature of the injuries of plaintiff Mario Palacio and the fear that the child might become a useless invalid, the herein plaintiff Gregorio Palacio has suffered moral damages which could be conservatively estimated at P1,200.00. On May 23, 1956, defendant Fely Transportation Co., filed a Motion to Dismiss on the grounds (1) that there is no cause of action against the defendant company, and (2) that the cause of action is barred by prior judgment.. In its Order, dated June 8, 1956, this Court deferred the determination of the grounds alleged in the Motion to Dismiss until the trial of this case. On June 20, 1956, defendant filed its answer. By way of affirmative defenses, it alleges (1) that complaint states no cause of action against defendant, and (2) that the sale and transfer of the jeep AC-687 by Isabelo Calingasan to the Fely Transportation was made on December 24, 1955, long after the driver Alfredo Carillo of said jeep had been convicted and had served his sentence in Criminal Case No. Q-1084 of the Court of First Instance of Quezon City, in which both the civil and criminal cases were simultaneously tried by agreement of the parties in said case. In the Counterclaim of the Answer, defendant alleges that in view of the filing of this complaint which is a clearly unfounded civil action merely to harass the defendant, it was compelled to engage the services of a lawyer for an agreed amount of P500.00. During the trial, plaintiffs presented the transcript of the stenographic notes of the trial of the case of "People of the Philippines vs. Alfredo Carillo, Criminal Case No. Q-1084," in the Court of First Instance of Rizal, Quezon City (Branch IV), as Exhibit

"A".1wph1.t It appears from Exhibit "A" that Gregorio Palacio, one of the herein plaintiffs, testified that Mario Palacio, the other plaintiff, is his son; that as a result of the reckless driving of accused Alfredo Carillo, his child Mario was injured and hospitalized from December 24, 1952, to January 8, 1953; that during all the time that his child was in the hospital, he watched him during the night and his wife during the day; that during that period of time he could not work as he slept during the day; that before his child was injured, he used to earn P10.00 a day on ordinary days and on Sundays from P20 to P50 a Sunday; that to meet his expenses he had to sell his compressor and electric drill for P150 only; and that they could have been sold for P300 at the lowest price. 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. Q1084) an attempt was unsuccessfully made by the prosecution to prove moral damages allegedly suffered by herein plaintiff Gregorio Palacio. 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. During the trial of this case, plaintiff Gregorio Palacio testified substantially to the same facts. The Court of First Instance of Quezon City in its decision in Criminal Case No. 1084 (Exhibit "2") determined and thoroughly discussed the civil liability of the accused in that case. The dispositive part thereof reads as follows: IN VIEW OF THE FOREGOING, 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, by way of consequential damages, in the sum of P500.00 which the Court deems reasonable; with subsidiary imprisonment in case of insolvency but not to exceed /3 of the principal penalty imposed; and to pay the costs. On the basis of these facts, the lower court held action is barred by the judgment in the criminal case and, that under Article 103 of the Revised Penal Code, the person subsidiarily liable to pay damages is Isabel Calingasan, the employer, and not the defendant corporation. Against that decision the plaintiffs appealed, 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. Q-1084 OF THE COURT OF FIRST INSTANCE OF QUEZON CITY FOR THE REASON THAT THE INCORPORATORS OF THE FELY TRANSPORTATION COMPANY, THE DEFENDANT-APPELLEE HEREIN, ARE ISABELO CALINGASAN HIMSELF, HIS SON AND DAUGHTERS; THE LOWER COURT ERRED IN NOT CONSIDERING THAT THE INTENTION OF ISABELO CALINGASAN IN INCORPORATING THE FELY TRANSPORTATION COMPANY, THE DEFENDANT-APPELLEE HEREIN, 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. With respect to the first and second assignments of errors, 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, after the conviction of Alfred Carillo in 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, to evade his subsidiary civil liability. The Court agrees with this contention of the plaintiffs. Isabelo Calingasan and defendant Fely Transportation may be regarded as one and the same person. 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. This conclusion is borne out by the fact that the incorporators of the Fely Transportation are Isabelo Calingasan, his wife, his son, Dr. Calingasan, and his two daughters. 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. (La Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et al., G.R. No. L-5677, May 25, 1953) Furthermore, 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. And while it is true that Isabelo Calingasan is not a party in this case, yet, is held in the case of Alonso v. Villamor, 16 Phil. 315, this Court can substitute him in place of the defendant corporation as to the real party in interest. This is so in order to avoid multiplicity of suits and thereby save the parties unnecessary expenses and delay. (Sec. 2, Rule 17, Rules of Court; Cuyugan v. Dizon. 79 Phil. 80; Quison v. Salud, 12 Phil. 109.) Accordingly, defendants Fely Transportation and Isabelo Calingasan should be held subsidiarily liable for P500.00 which Alfredo Carillo was ordered to pay in the criminal case and which amount he could not pay on account of insolvency. 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. 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, from the discussion prayer in the brief on appeal, that they are insisting the subsidiary civil liability of the defendant. As a matter of fact, the record shows that plaintiffs merely presented the transcript of the stenographic notes (Exhibit "A") taken at the hearing of the criminal case, which Gregorio Palacio corroborated, in support of their claim for damages. This rules out the defense of res judicata, because such liability proceeds precisely from the judgment in the criminal action, where the accused was found guilty and ordered to pay an indemnity in the sum P500.00.

WHEREFORE, the decision of the lower court is hereby reversed and defendants Fely Transportation and Isabelo Calingasan are ordered to pay, jointly and severally, the plaintiffs the amount of P500.00 and the costs.

G.R. No. L-23893

October 29, 1968

VILLA REY TRANSIT, INC., plaintiff-appellant, vs.EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION CO., INC. and PUBLIC SERVICE COMMISSION, defendants. EUSEBIO E. FERRER and PANGASINAN TRANSPORTATION CO., INC., defendants-appellants. PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant, vs.JOSE M. VILLARAMA, third-party defendant-appellee. This is a tri-party appeal from the decision of the Court of First Instance of Manila, Civil Case No. 41845, declaring null and void the sheriff's sale of two certificates of public convenience in favor of defendant Eusebio E. Ferrer and the subsequent sale thereof by the latter to defendant Pangasinan Transportation Co., Inc.; declaring the plaintiff Villa Rey Transit, Inc., to be the lawful owner of the said certificates of public convenience; and ordering the private defendants, jointly and severally, to pay to the plaintiff, the sum of P5,000.00 as and for attorney's fees. The case against the PSC was dismissed. The rather ramified circumstances of the instant case can best be understood by a chronological narration of the essential facts, to wit: Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit, pursuant to certificates of public convenience granted him by the Public Service Commission (PSC, for short) in Cases Nos. 44213 and 104651, which authorized him to operate a total of thirty-two (32) units on various routes or lines from Pangasinan to Manila, and vice-versa. On January 8, 1959, he sold the aforementioned two certificates of public convenience to the Pangasinan Transportation Company, Inc. (otherwise known as Pantranco), for P350,000.00 with the condition, among others, that the seller (Villarama) "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer." Barely three months thereafter, or on March 6, 1959: a corporation called Villa Rey Transit, Inc. (which shall be referred to hereafter as the Corporation) was organized with a capital stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each; P200,000.00 was the subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was one of the incorporators, and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and sister-in-law of Jose M. Villarama; of the subscribed capital stock, P105,000.00 was paid to the treasurer of the corporation, who was Natividad R. Villarama. In less than a month after its registration with the Securities and Exchange Commission (March 10, 1959), the Corporation, on April 7, 1959, bought five certificates of public convenience, forty-nine buses, tools and equipment from one Valentin Fernando, for the sum of P249,000.00, of which P100,000.00 was paid upon the signing of the contract; P50,000.00 was payable upon the final approval of the sale by the PSC; P49,500.00 one year after the final approval of the sale; and the balance of P50,000.00 "shall be paid by the BUYER to the different suppliers of the SELLER." The very same day that the aforementioned contract of sale was executed, the parties thereto immediately applied with the PSC for its approval, with a prayer for the issuance of a provisional authority in favor of the vendee Corporation to operate the service therein involved.1 On May 19, 1959, the PSC granted the provisional permit prayed for, upon the condition that "it may be modified or revoked by the Commission at any time, 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." Before the PSC could take final action on said application for approval of sale, however, the Sheriff of Manila, on July 7, 1959, levied on two of the five certificates of public convenience involved therein, namely, those issued under PSC cases Nos. 59494 and 63780, pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil Case No. 13798, in favor of Eusebio Ferrer, plaintiff, judgment creditor, against Valentin Fernando, defendant, judgment debtor. The Sheriff made and entered the levy in the records of the PSC. On July 16, 1959, a public sale was conducted by the Sheriff of the said two certificates of public convenience. Ferrer was the highest bidder, and a certificate of sale was issued in his name.

Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approval their corresponding contract of sale to the PSC.2 Pantranco therein prayed that it be authorized provisionally to operate the service involved in the said two certificates. The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case No. 124057, and that of Ferrer and Pantranco, Case No. 126278, were scheduled for a joint hearing. In the meantime, to wit, on July 22, 1959, the PSC issued an order disposing that during the pendency of the cases and before a final resolution on the aforesaid applications, the Pantranco shall be the one to operate provisionally the service under the two certificates embraced in the contract between Ferrer and Pantranco. The Corporation took issue with this particular ruling of the PSC and elevated the matter to the Supreme Court, 3 which decreed, after deliberation, that until the issue on the ownership of the disputed certificates shall have been finally settled by the proper court, the Corporation should be the one to operate the lines provisionally. On November 4, 1959, the Corporation filed in the Court of First Instance of Manila, a complaint for the annulment of the sheriff's sale of the aforesaid two certificates of public convenience (PSC Cases Nos. 59494 and 63780) in favor of the defendant Ferrer, and the subsequent sale thereof by the latter to Pantranco, against Ferrer, Pantranco and the PSC. The plaintiff Corporation prayed therein that all the orders of the PSC relative to the parties' dispute over the said certificates be annulled. In separate answers, 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, and, therefore, the Sheriff's levy and the consequent sale at public auction of the certificates referred to, as well as the sale of the same by Ferrer to Pantranco, were valid and regular, and vested unto Pantranco, a superior right thereto. Pantranco, on its part, filed a third-party complaint against Jose M. Villarama, alleging that Villarama and the Corporation, are one and the same; 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, which stipulated that Villarama "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer." Upon the joinder of the issues in both the complaint and third-party complaint, the case was tried, and thereafter decision was rendered in the terms, as above stated. As stated at the beginning, all the parties involved have appealed from the decision. They submitted a joint record on appeal. Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey Transit, Inc. (Corporation) is a distinct and separate entity from Jose M. Villarama; that the restriction clause in the contract of January 8, 1959 between Pantranco and Villarama is null and void; that the Sheriff's sale of July 16, 1959, is likewise null and void; and the failure to award damages in its favor and against Villarama. Ferrer, for his part, challenges the decision insofar as it holds that the sheriff's sale is null and void; and the sale of the two certificates in question by Valentin Fernando to the Corporation, is valid. He also assails the award of P5,000.00 as attorney's fees in favor of the Corporation, and the failure to award moral damages to him as prayed for in his counterclaim. The Corporation, on the other hand, prays for a review of that portion of the decision awarding only P5,000.00 as attorney's fees, and insisting that it is entitled to an award of P100,000.00 by way of exemplary damages. After a careful study of the facts obtaining in the case, the vital issues to be resolved are: (1) Does the stipulation between Villarama and Pantranco, as contained in the deed of sale, that the former "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER," apply to new lines only or does it include existing lines?; (2) Assuming that said stipulation covers all kinds of lines, is such stipulation valid and enforceable?; (3) In the affirmative, that said stipulation is valid, did it bind the Corporation? For convenience, We propose to discuss the foregoing issues by starting with the last proposition. The evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the Corporation, alleging that he did not become such, because he did not have sufficient funds to invest, his wife, however, was an incorporator with the least subscribed number of shares, and was elected treasurer of the Corporation. The finances of the Corporation which, under all concepts in the law, are supposed to be under the control and administration of the treasurer keeping them as trust fund for the Corporation, were, nonetheless, manipulated and disbursed as if they were the private funds of Villarama, 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. The following testimony of Villarama, 4 together with the other evidence on record, attests to that effect: Q. Doctor, I want to go back again to the incorporation of the Villa Rey Transit, Inc. You heard the testimony presented here by the bank regarding the initial opening deposit of ONE HUNDRED FIVE THOUSAND PESOS, of which amount Eighty-Five Thousand Pesos was a check drawn by yourself personally. 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, or your wife, had spent the money of the stockholders given to her for incorporation. Will you please tell the Honorable Court if you knew at the time your wife was spending the money to pay debts, you personally knew she was spending the money of the incorporators? A. You know my money and my wife's money are one. We never talk about those things.

Q. Doctor, 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?

A. Q. A. Q. A. Q. A. Q. A. Q.

Because sometimes she uses my money, and sometimes the money given to her she gives to me and I deposit the money. Actually, aside from your wife, you were also the custodian of some of the incorporators here, in the beginning? Not necessarily, they give to my wife and when my wife hands to me I did not know it belonged to the incorporators. It supposes then your wife gives you some of the money received by her in her capacity as treasurer of the corporation? Maybe. What did you do with the money, deposit in a regular account? Deposit in my account. Of all the money given to your wife, she did not receive any check? I do not remember. Is it usual for you, Doctor, to be given Fifty Thousand Pesos without even asking what is this? xxx xxx xxx

JUDGE:

Reform the question.

Q. The subscription of your brother-in-law, Mr. Reyes, is Fifty-Two Thousand Pesos, did your wife give you Fifty-two Thousand Pesos? A. I have testified before that sometimes my wife gives me money and I do not know exactly for what.

The evidence further shows that the initial cash capitalization of the corporation of P105,000.00 was mostly financed by Villarama. Of the P105,000.00 deposited in the First National City Bank of New York, representing the initial paid-up capital of the Corporation, P85,000.00 was covered by Villarama's personal check. The deposit slip for the said amount of P105,000.00 was admitted in evidence as Exh. 23, which shows on its face that P20,000.00 was paid in cash and P85,000.00 thereof was covered by Check No. F-50271 of the First National City Bank of New York. The testimonies of Alfonso Sancho 5 and Joaquin Amansec,6 both employees of said bank, have proved that the drawer of the check was Jose Villarama himself. Another witness, Celso Rivera, accountant of the Corporation, testified that while in the books of the corporation there appears an entry that the treasurer received P95,000.00 as second installment of the paid-in subscriptions, and, subsequently, also P100,000.00 as the first installment of the offer for second subscriptions worth P200,000.00 from the original subscribers, yet Villarama directed him (Rivera) to make vouchers liquidating the sums.7 Thus, it was made to appear that the P95,000.00 was delivered to Villarama in payment for equipment purchased from him, and the P100,000.00 was loaned as advances to the stockholders. The said accountant, however, testified that he was not aware of any amount of money that had actually passed hands among the parties involved, 8 and actually the only money of the corporation was the P105,000.00 covered by the deposit slip Exh. 23, of which as mentioned above, P85,000.00 was paid by Villarama's personal check. Further, the evidence shows that when the Corporation was in its initial months of operation, Villarama purchased and paid with his personal checks Ford trucks for the Corporation. Exhibits 20 and 21 disclose that the said purchases were paid by Philippine Bank of Commerce Checks Nos. 992618-B and 993621-B, respectively. These checks have been sufficiently established by Fausto Abad, Assistant Accountant of Manila Trading & Supply Co., from which the trucks were purchased 9 and Aristedes Solano, an employee of the Philippine Bank of Commerce,10 as having been drawn by Villarama. Exhibits 6 to 19 and Exh. 22, 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, are very illuminating evidence. Villarama has assailed the admissibility of these exhibits, contending that no evidentiary value whatsoever should be given to them since "they were merely photostatic copies of the originals, the best evidence being the originals themselves." According to him, at the time Pantranco offered the said exhibits, 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. 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, thus: (1) opponent's possession of the original; (2) reasonable notice to opponent to produce the original; (3) satisfactory proof of its existence; and (4) failure or refusal of opponent to produce the original in court. 11 Villarama has practically admitted the second and fourth requisites.12 As to the third, he admitted their previous existence in the files of the Corporation and also that he had seen some of them.13 Regarding the first element, Villarama's theory is that since even at the time of the issuance of the subpoena duces tecum, the originals were already missing, therefore, the Corporation was no longer in possession of the same. However, 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. It is enough that the circumstances are such as to indicate that the writing is in his possession or under his control. Neither is it required that the party entitled to the custody of the instrument should, on being notified to produce it, admit having it in his possession. 14 Hence, secondary evidence is admissible where he denies having it in his possession. The party calling for such evidence may introduce a copy thereof as in the case of loss. For, among the exceptions to the best evidence rule is "when the original has been lost, destroyed, or cannot be produced in court."15 The originals of the vouchers in question must be deemed to have been lost, as even the Corporation admits such loss. Viewed upon this light, there can be no doubt as to the admissibility in evidence of Exhibits 6 to 19 and 22.

Taking account of the foregoing evidence, together with Celso Rivera's testimony, 16 it would appear that: Villarama supplied the organization expenses and the assets of the Corporation, such as trucks and equipment; 17 there was no actual payment by the original subscribers of the amounts of P95,000.00 and P100,000.00 as appearing in the books;18 Villarama made use of the money of the Corporation and deposited them to his private accounts;19 and the Corporation paid his personal accounts.20 Villarama himself admitted that he mingled the corporate funds with his own money. 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." 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. They show beyond doubt that the Corporation is his alter ego. 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. On the contrary, he has admitted them with offered excuses. Villarama has admitted, for instance, having paid P85,000.00 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. Villarama (her husband) incurred while he was still the owner of Villa Rey Transit, a single proprietorship." But with his admission that he had received P350,000.00 from Pantranco for the sale of the two certificates and one unit,24 it becomes difficult to accept Villarama's explanation that he and his wife, after consultation, 25 spent the money of their relatives (the stockholders) when they were supposed to have their own money. Even if Pantranco paid the P350,000.00 in check to him, as claimed, it could have been easy for Villarama to have deposited said check in his account and issued his own check to pay his obligations. And there is no evidence adduced that the said amount of P350,000.00 was all spent or was insufficient to settle his prior obligations in his business, and in the light of the stipulation in the deed of sale between Villarama and Pantranco that P50,000.00 of the selling price was earmarked for the payments of accounts due to his creditors, the excuse appears unbelievable. On his having paid for purchases by the Corporation of trucks from the Manila Trading & Supply Co. with his personal checks, his reason was that he was only sharing with the Corporation his credit with some companies. 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, and since he had loaned money to the Corporation, this would be set off by the latter's paying his bills. Villarama admitted, however, that the corporate funds in his possession were not only for registration fees but for other important obligations which were not specified.26 Indeed, while Villarama was not the Treasurer of the Corporation but was, allegedly, only a part-time manager, 27 he admitted not only having held the corporate money but that he advanced and lent funds for the Corporation, and yet there was no Board Resolution allowing it.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, especially in the management and disposition of its funds, was so extensive and intimate that it is impossible to segregate and identify which money belonged to whom. The interference of Villarama in the complex affairs of the corporation, and particularly its finances, are much too inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks to separate personal responsibilities from corporate undertakings. 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. 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. 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, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, 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. Upon the foregoing considerations, We are of the opinion, and so hold, that the preponderance of evidence have shown that the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and binding against the said Corporation. 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. 31 Where the Corporation is substantially the alter ego of the covenantor to the restrictive agreement, it can be enjoined from competing with the covenantee. 32 The Corporation contends that even on the supposition that Villa Rey Transit, Inc. and Villarama are one and the same, 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. The clause in dispute reads thus: (4) The SELLER shall not, for a period of ten (10) years from the date of this sale apply for any TPU service identical or competing with the BUYER. (Emphasis supplied) As We read the disputed clause, 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. The word "apply" as broadly used has for frame of reference, a service by the seller on lines or routes that would compete with the buyer along the routes acquired by the latter. In this jurisdiction, prior authorization is needed before anyone can operate a TPU service,33whether the service consists in a new line or an old one acquired from a previous operator. The clear intention of the parties was to prevent the seller from conducting any competitive line for 10 years since, anyway, he has bound himself not to apply for authorization to operate along such lines for the duration of such period. 34

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, this would, in effect, 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, thus defeating the intention of the parties. For what would prevent the seller, under the circumstances, 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, Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. (Art. 19, New Civil Code.) 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 parties intended to effect the least restriction. We are persuaded, after an examination of the supposed drafts, that the scope of the final stipulation, while not as long and prolix as those in the drafts, is just as broad and comprehensive. At most, it can be said that the re-wording was done merely for brevity and simplicity. The evident intention behind the restriction was to eliminate the sellers as a competitor, and this must be, 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. On this matter, Corbin, an authority on Contracts has this to say.36 When one buys the business of another as a going concern, he usually wishes to keep it going; he wishes to get the location, the building, the stock in trade, and the customers. He wishes to step into the seller's shoes and to enjoy the same business relations with other men. He is willing to pay much more if he can get the "good will" of the business, meaning by this the good will of the customers, that they may continue to tread the old footpath to his door and maintain with him the business relations enjoyed by the seller. ... In order to be well assured of this, 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, 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. With trifling exceptions, said changes have been a continuous development of a general rule. 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," as being against the benefit of the state. Later, however, the rule became well established that if the restraint was limited to "a certain time" and within "a certain place," such contracts were valid and not "against the benefit of the state." Later cases, and we think the rule is now well established, have held that a contract in restraint of trade is valid providing there is a limitation upon either time or place . A contract, however, which restrains a man from entering into business or trade without either a limitation as to time or place, will be held invalid. 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, contracts like the one we are discussing will be sustained. The general tendency, we believe, of modern authority, is to make the test whether the restraint is reasonably necessary for the protection of the contracting parties. If the contract is reasonably necessary to protect the interest of the parties, it will be upheld. (Emphasis supplied.) Analyzing the characteristics of the questioned stipulation, We find that although it is in the nature of an agreement suppressing competition, it is, however, merely ancillary or incidental to the main agreement which is that of sale. The suppression or restraint is only partial or limited: first, in scope, it refers only to application for TPU by the seller in competition with the lines sold to the buyer; second, in duration, it is only for ten (10) years; and third, with respect to situs or territory, the restraint is only along the lines covered by the certificates sold. In view of these limitations, coupled with the consideration of P350,000.00 for just two certificates of public convenience, and considering, furthermore, that the disputed stipulation is only incidental to a main agreement, the same is reasonable and it is not harmful nor obnoxious to public service.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, thereby establishing monopoly or predominance approximating thereto. We believe the main purpose of the restraint was to protect for a limited time the business of the buyer. Indeed, the evils of monopoly are farfetched here. There can be no danger of price controls or deterioration of the service because of the close supervision of the Public Service Commission.39 This Court had stated long ago,40 that "when one devotes his property to a use in which the public has an interest, 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." Regarding that aspect of the clause that it is merely ancillary or incidental to a lawful agreement, the underlying reason sustaining its validity is well explained in 36 Am. Jur. 537-539, to wit: ... Numerous authorities hold that a covenant which is incidental to the sale and transfer of a trade or business, and which purports to bind the seller not to engage in the same business in competition with the purchaser, is lawful and enforceable. While such covenants are designed to prevent competition on the part of the seller, it is ordinarily neither their purpose nor effect to stifle competition generally in the locality, nor to prevent it at all in a way or to an extent injurious to the public. The business in the hands of the purchaser is carried on just as it was in the hands of the seller; the former merely takes the place of the latter; the commodities of the trade are as open to the public as they were before; the same competition exists as existed before; there is the same employment furnished to others after as before; the profits of the business go as they did before to swell the sum of public wealth; the public has the same opportunities of purchasing, if it is a mercantile business; and production is not lessened if it is a manufacturing plant.

The reliance by the lower court on tile case of Red Line Transportation Co. v. Bachrach41 and finding that the stipulation is illegal and void seems misplaced. In the said Red Line case, the agreement therein sought to be enforced was virtually a division of territory between two operators, each company imposing upon itself an obligation not to operate in any territory covered by the routes of the other. Restraints of this type, among common carriers have always been covered by the general rule invalidating agreements in restraint of trade.
42

Neither are the other cases relied upon by the plaintiff-appellee applicable to the instant case. In Pampanga Bus Co., Inc. v. Enriquez,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. The restraint was the principal objective. On the other hand, in Red Line Transportation Co., Inc. v. Gonzaga,44 the restraint there in question not to ask for extension of the line, or trips, or increase of equipment was not an agreement between the parties but a condition imposed in the certificate of public convenience itself. Upon the foregoing considerations, 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. Having arrived at this conclusion, and considering that the preponderance of the evidence have shown that Villa Rey Transit, Inc. is itself the alter ego of Villarama, We hold, as prayed for in Pantranco's third party complaint, that the said Corporation should, until the expiration of the 1-year period abovementioned, be enjoined from operating the line subject of the prohibition. To avoid any misunderstanding, it is here to be emphasized that the 10-year prohibition upon Villarama is not against his application for, or purchase of, certificates of public convenience, but merely the operation of TPU along the lines covered by the certificates sold by him to Pantranco. Consequently, the sale between Fernando and the Corporation is valid, 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. In view of the ancient rule of caveat emptor prevailing in this jurisdiction, what was acquired by Ferrer in the sheriff's sale was only the right which Fernando, judgment debtor, had in the certificates of public convenience on the day of the sale. 45 Accordingly, 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, the rights, interests, or participation which the defendant, VALENTIN A. FERNANDO in the above entitled case may have in the following realty/personalty is attached or levied upon, to wit: The rights, interests and participation on the Certificates of Public Convenience issued to Valentin A. Fernando, in Cases Nos. 59494, etc. ... Lines Manila to Lingayen, Dagupan, etc. vice versa." Such notice of levy only shows that Ferrer, the vendee at auction of said certificates, merely stepped into the shoes of the judgment debtor. Of the same principle is the provision of Article 1544 of the Civil Code, that "If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property." There is no merit in Pantranco and Ferrer's theory that the sale of the certificates of public convenience in question, between the Corporation and Fernando, was not consummated, it being only a conditional sale subject to the suspensive condition of its approval by the Public Service Commission. While section 20(g) of the Public Service Act provides that "subject to established limitation and exceptions and saving provisions to the contrary, it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and authorization of the Commission previously had ... to sell, alienate, mortgage, encumber or lease its property, franchise, certificates, privileges, or rights or any part thereof, ...," the same section also provides: ... Provided, however, That nothing herein contained shall be construed to prevent the transaction from being negotiated or completed before its approval or to prevent the sale, alienation, or lease by any public service of any of its property in the ordinary course of its business. It is clear, therefore, that the requisite approval of the PSC is not a condition precedent for the validity and consummation of the sale. Anent the question of damages allegedly suffered by the parties, each of the appellants has its or his own version to allege. Villa Rey Transit, Inc. claims that by virtue of the "tortious acts" of defendants (Pantranco and Ferrer) in acquiring 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, which necessitated the latter to file the action to annul the sheriff's sale to Ferrer and the subsequent transfer to Pantranco, it is entitled to collect actual and compensatory damages, and attorney's fees in the amount of P25,000.00. The evidence on record, however, does not clearly show that said defendants acted in bad faith in their acquisition of the certificates in question. They believed that because the bill of sale has yet to be approved by the Public Service Commission, the transaction was not a consummated sale, and, therefore, the title to or ownership of the certificates was still with the seller. The award by the lower court of attorney's fees of P5,000.00 in favor of Villa Rey Transit, Inc. is, therefore, without basis and should be set aside. Eusebio Ferrer's charge that by reason of the filing of the action to annul the sheriff's sale, he had suffered and should be awarded moral, exemplary damages and attorney's fees, cannot be entertained, in view of the conclusion herein reached that the sale by Fernando to the Corporation was valid. Pantranco, on the other hand, justifies its claim for damages with the allegation that when it purchased ViIlarama's business for P350,000.00, 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, Inc. It is further claimed by Pantranco that the underhanded manner in which Villarama violated the contract is pertinent in establishing punitive or moral damages. Its contention as to the proper measure of damages is that it should be the purchase price of P350,000.00 that it paid to Villarama. 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, 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. PREMISES CONSIDERED, the judgment appealed from is hereby modified as follows:

1. The sale of the two certificates of public convenience in question by Valentin Fernando to Villa Rey Transit, Inc. is declared preferred over that made by the Sheriff at public auction of the aforesaid certificate of public convenience in favor of Eusebio Ferrer; 2. Reversed, insofar as it dismisses the third-party complaint filed by Pangasinan Transportation Co. against Jose M. Villarama, holding that Villa Rey Transit, Inc. is an entity distinct and separate from the personality of Jose M. Villarama, and insofar as it awards the sum of P5,000.00 as attorney's fees in favor of Villa Rey Transit, Inc.; 3. 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; and 4. On equitable considerations, without costs. So ordered.

G.R. No. L-9687

June 30, 1961

LIDDELL & CO., INC., petitioner-appellant, vs.THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee. Statement. This is an appeal from the decision of the Court of Tax Appeals imposing a tax deficiency liability of P1,317,629.61 on Liddell & Co., Inc. 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; (b) Whether or not Liddell & Co. Inc., and the Liddell Motors, Inc. are (practically) identical corporations, the latter being merely .the alter ego of the former; (c) Whether or not, granting the identical nature of the corporations, the assessment of tax liability, including the surcharge thereon by the Court of Tax Appeals, is correct. Undisputed Facts. The parties submitted a partial stipulation of facts, each reserving the right to present additional evidence. Said undisputed facts are substantially as follows: The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation establish in the Philippines on February 1, 1946, with an authorized capital of P100,000 divided into 1000 share at P100 each. Of this authorized capital, 196 shares valued at P19,600 were subscribed and paid by Frank Liddell while the other four shares were in the name of Charles Kurz, E.J. Darras, Angel Manzano and Julian Serrano at one shares each. Its purpose was to engage in the business of importing and retailing Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks.. On January 31, 1947, with the limited paid-in capital of P20,000, Liddell & Co. was able to declare a 90% stock dividend after which declaration on, Frank Liddells holding in the Company increased to 1,960 shares and the employees, Charles Kurz E.J. Darras, Angel Manzano and Julian Serrano at 10 share each. The declaration of stock dividend was followed by a resolution increasing the authorized capital of the company to P1,000.000 which the Securities & Exchange Commission approved on March 3, 1947. Upon such approval, Frank Liddell subscribed to 3,000 additional shares, for which he paid into the corporation P300,000 so that he had in his own name 4,960 shares. On May 24, 1957, Frank Liddell, on one hand and Messrs. Kurz, Darras, Manzano and Serrano on the other, executed an agreement (Exhibit A) which was further supplemented by two other agreements (Exhibits B and C) dated May 24, 1947 and June 3, 1948, wherein Frank Liddell transferred (On June 7, 1948) to various employees of Liddell & Co. shares of stock. At the annual meeting of stockholders of Liddell & Co. held on March 9, 1948, a 100% stock dividend was declared, thereby increasing the issued capital stock of aid corporation from P1,000.000 to P 3,000,000 which increase was duly approved by the Securities and Exchange Commission on June 7, 1948. Frank Liddell subscribed to and paid 20% of the increase of P400,000. He paid 25% thereof in the amount of P100,000 and the balance of P3,000,000 was merely debited to Frank Liddell-Drawing Account and credited to Subscribed Capital Stock on December 11, 1948. On March 8, 1949, stock dividends were again issued by Liddell & Co. and in accordance with the agreements, Exhibits A, B, and C, the stocks of said company stood as follows: NameNo. of SharesAmountPer CentFrank Liddell13,688P1,368,80072.00%Irene Liddell1100.01%Mercedes Vecin1100.01%Charles Kurz1,225122,5006.45%E.J. Darras1,225122,5006.45%Angel Manzano1,150115,0006.06%Julian Serrano71071,0003.74%E. Hasim50050,0002.64%G. W. Kernot 500 50,000 2.64%19,000P1,900,000100.00%On November 15, 1948, in accordance with a resolution of a special meeting of the Board of Directors of Liddell & Co., stock dividends were again declared. As a result of said declaration and in accordance with the agreements, Exhibits, A, B, and C, the stockholdings in the company appeared to be: NameNo. of SharesAmountPer CentFrank Liddell19,738P1,973,80065.791%Irene Liddell1100.003%Mercedes Vecin1100.003%Charles Kurz2,215221,5007.381%E.J. Darras2,215221,5007.381%Angel Manzano1,810181,0006.031%Julian Serrano1,700170,0005.670%E. Hasim83083,0002.770%G. W. Kernot 1,490

149,000 4.970%30,000P3,000,000100.000%On the basis of the agreement Exhibit A, (May, 1947) "40%" of the earnings available for dividends accrued to Frank Liddell although at the time of the execution of aid instrument, Frank Liddell owned all of the shares in said corporation. 45% accrued to the employees, parties thereto; Kurz 12-1/2%; Darras 12-1/2%; A. Manzano 12-1/2% and Julian Serrano 7-1/2%. The agreement Exhibit A was also made retroactive to 1946. Frank Liddell reserved the right to reapportion the 45% dividends pertaining to the employees in the future for the purpose of including such other faithful and efficient employees as he may subsequently designate. (As a matter of fact, Frank Liddell did so designate two additional employees namely: E. Hasim and G. W. Kernot). It was for such inclusion of future faithful employees that Exhibits B-1 and C were executed. As per Exhibit C, dated May 13, 1948, the 45% given by Frank Liddell to his employees was reapportioned as follows: C. Kurz 12,%; E. J. Darras 12%; A. Manzano l2%; J. Serrano 3-1/2%; G. W. Kernot 2%. Exhibit B contains the employees' definition in detail of the manner by which they sought to prevent their share-holdings from being transferred to others who may be complete strangers to the business on Liddell & Co. From 1946 until November 22, 1948 when the purpose clause of the Articles of Incorporation of Liddell & Co. Inc., was amended so as to limit its business activities to importations of automobiles and trucks, Liddell & Co. was engaged in business as an importer and at the same time retailer of Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks. On December 20, 1948, the Liddell Motors, Inc. was organized and registered with the Securities and Exchange Commission with an authorized capital stock of P100,000 of which P20,000 was subscribed and paid for as follows: Irene Liddell wife of Frank Liddell 19,996 shares and Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E. del Rosario and Esmenia Silva, 1 share each. At about the end of the year 1948, Messrs. Manzano, Kurz and Kernot resigned from their respective positions in the Retail Dept. of Liddell & Co. and they were taken in and employed by Liddell Motors, Inc.: Kurz as Manager-Treasurer, Manzano as General Sales Manager for cars and Kernot as General Sales Manager for trucks. Beginning January, 1949, Liddell & Co. stopped retailing cars and trucks; it conveyed them instead to Liddell Motors, Inc. which in turn sold the vehicles to the public with a steep mark-up. Since then, Liddell & Co. paid sales taxes on the basis of its sales to Liddell Motors Inc. considering said sales as its original sales. Upon review of the transactions between Liddell & Co. and Liddell Motors, Inc. the Collector of Internal Revenue determined that the latter was but an alter ego of Liddell & Co. Wherefore, he concluded, that for sales tax purposes, those sales made by Liddell Motors, Inc. to the public were considered as the original sales of Liddell & Co. Accordingly, the Collector of Internal Revenue assessed against Liddell & Co. a sales tax deficiency, including surcharges, in the amount of P1,317,629.61. In the computation, the gross selling price of Liddell Motors, Inc. to the general public from January 1, 1949 to September 15, 1950, was made the basis without deducting from the selling price, the taxes already paid by Liddell & Co. in its sales to the Liddell Motors Inc. The Court of Tax Appeals upheld the position taken by the Collector of Internal Revenue. A. Judge Umali: Appellant urges the disqualification on of Judge Roman M. Umali to participate in the decision of the instant case because he was Chief of the Law Division, then Acting Deputy Collector and later Chief Counsel of the Bureau of Internal Revenue during the time when the assessment in question was made. 1 In refusing to disqualify himself despite admission that had held the aforementioned offices, Judge Umali stated that he had not in any way participated, nor expressed any definite opinion, on any question raised by the parties when this case was presented for resolution before the said bureau. Furthermore, after careful inspection of the records of the Bureau, he (Judge Umali as well as the other members of the court below), had not found any indication that he had expressed any opinion or made any decision that would tend to disqualify him from participating in the consideration of the case in the Tax Court. At this juncture, it is well to consider that petitioner did not question the truth of Judge Umali's statements. In view thereof, this Tribunal is not inclined to disqualify said judge. Moreover, in furtherance of the presumption of the judge's moral sense of responsibility this Court has adopted, and now here repeats, the ruling that the mere participation of a judge in prior proceedings relating to the subject in the capacity of an administrative official does not necessarily disqualify him from acting as judge. 2 Appellant also contends that Judge Umali signed the said decision contrary to the provision of Section 13, Republic Act No. 1125; 3 that whereas the case was submitted for decision of the Court of Tax Appeals on July 12, 1955, and the decision of Associate Judge Luciano and Judge Nable were both signed on August 11, 1955 (that is, on the last day of the 30-day period provided for in Section 13, Republic Act No. 1125), Judge Umali signed the decision August 31, 1955 or 20 days after the lapse of the 30-day period allotted by law. By analogy it may be said that inasmuch as in Republic Act No. 1125 (law creating the Court of Tax Appeals) like the law governing the procedure in the court of Industrial Relations, there is no provision invalidating decisions rendered after the lapse of 30 days, the requirement of Section 13, Republic Act No. 1125 should be construed as directory. 4 Besides as pointed out by appellee, the third paragraph of Section 13 of Republic Act No. 1125 (quoted in the margin) 5 confirms this view; because in providing for two thirty-day periods, the law means that decision may still be rendered within the second period of thirty days (Judge Umali signed his decision within that period). B. Identity of the two corporations: On the question whether or not Liddell Motors, Inc. is the alter ego of Liddell & Co. Inc., we are fully convinced that Liddell & Co. is wholly owned by Frank Liddell. As of the time of its organization, 98% of the capital stock belonged to Frank Liddell. The 20% paid-up subscription with which the company began its business was paid by him. The subsequent subscriptions to the capital stock were made by him and paid with his own money. These stipulations and conditions appear in Exhibit A: (1) that Frank Liddell had the authority to designate in the future the employee who could receive earnings of the corporation; to apportion among the stock holders the share in the profits; (2) that all certificates of stock in the names of the employees should be deposited with Frank Liddell duly indorsed in blank by the employees concerned; (3) that each employee was required to sign an agreement with the corporation to the effect that, upon his death or upon his retirement or

separation for any cause whatsoever from the corporation, the said corporation should, within a period of sixty days therefor, have the absolute and exclusive option to purchase and acquire the whole of the stock interest of the employees so dying, resigning, retiring or separating. These stipulations in our opinion attest to the fact that Frank Liddell also owned it. He supplied the original his complete control over the corporation. As to Liddell Motors, Inc. we are fully persuaded that Frank Liddell also owned it. He supplied the original capital funds. 6 It is not proven that his wife Irene, ostensibly the sole incorporator of Liddell Motors, Inc. had money of her own to pay for her P20,000 initial subscription.7 Her income in the United States in the years 1943 and 1944 and the savings therefrom could not be enough to cover the amount of subscription, much less to operate an expensive trade like the retail of motor vehicles. The alleged sale of her property in Oregon might have been true, but the money received therefrom was never shown to have been saved or deposited so as to be still available at the time of the organization of the Liddell Motors, Inc. The evidence at hand also shows that Irene Liddell had scant participation in the affairs of Liddell Motors, Inc. She could hardly be said to possess business experience. The income tax forms record no independent income of her own. As a matter of fact, the checks that represented her salary and bonus from Liddell Motors, Inc. found their way into the personal account of Frank Liddell. Her frequent absences from the country negate any active participation in the affairs of the Motors company. There are quite a series of conspicuous circumstances that militate against the separate and distinct personality of Liddell Motors, Inc. from Liddell & Co.8 We notice that the bulk of the business of Liddell & Co. was channeled through Liddell Motors, Inc. On the other hand, Liddell Motors, Inc. pursued no activities except to secure cars, trucks, and spare parts from Liddell & Co. Inc. and then sell them to the general public. These sales of vehicles by Liddell & Co. to Liddell Motors, Inc. for the most part were shown to have taken place on the same day that Liddell Motors, Inc. sold such vehicles to the public. We may even say that the cars and trucks merely touched the hands of Liddell Motors, Inc. as a matter of formality. During the first six months of 1949, Liddell & Co. issued ten (10) checks payable to Frank Liddell which were deposited by Frank Liddell in his personal account with the Philippine National Bank. During this time also, he issued in favor of Liddell Motors, Inc. six (6) checks drawn against his personal account with the same bank. The checks issued by Frank Liddell to the Liddell Motors, Inc. were significantly for the most part issued on the same day when Liddell & Co. Inc. issued the checks for Frank Liddell 9 and for the same amounts. It is of course accepted that the mere fact that one or more corporations are owned and controlled by a single stockholder is not of itself sufficient ground for disregarding separate corporate entities. Authorities 10 support the rule that it is lawful to obtain a corporation charter, even with a single substantial stockholder, to engage in a specific activity, and such activity may co-exist with other private activities of the stockholder. If the corporation is a substantial one, conducted lawfully and without fraud on another, its separate identity is to be respected. Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other. There is, however, in this instant case, a peculiar consequence of the organization and activities of Liddell Motors, Inc. Under the law in force at the time of its incorporation the sales tax on original sales of cars (sections 184, 185 and 186 of the National Internal Revenue Code), was progressive, i.e. 10% of the selling price of the car if it did not exceed P5000, and 15% of the price if more than P5000 but not more than P7000, etc. This progressive rate of the sales tax naturally would tempt the taxpayer to employ a way of reducing the price of the first sale. And Liddell Motors, Inc. was the medium created by Liddell & Co. to reduce the price and the tax liability. Let us illustrate: a car with engine motor No. 212381 was sold by Liddell & Co. Inc. to Liddell Motors, Inc. on January 17, 1948 for P4,546,000.00 including tax; the price of the car was P4,133,000.23, the tax paid being P413.22, at 10%. And when this car was later sold (on the same day) by Liddell Motors, Inc. to P.V. Luistro for P5500, no more sales tax was paid. 11 In this price of P5500 was included the P413.32 representing taxes paid by Liddell & Co. Inc. in the sale to Liddell Motors, Inc. Deducting P413.32 representing taxes paid by Liddell & Co., Inc. the price of P5500, the balance of P5,087.68 would have been the net selling price of Liddell & Co., Inc. to the general public (had Liddell Motors, Inc. not participated and intervened in the sale), and 15% sales tax would have been due. In this transaction, P349.68 in the form of taxes was evaded. 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. As opined in the case of Gregory v. Helvering,12 "the legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them by means which the law permits, cannot be doubted." But, as held in another case, 13 "where a corporation is a dummy, is unreal or a sham and serves no business purpose and is intended only as a blind, the corporate form may be ignored for the law cannot countenance a form that is bald and a mischievous fiction." Consistently with this view, the United States Supreme Court14 held that "a taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue officers in proper cases, may disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take the benefits of the transactions as the person accordingly taxable." Thus, we repeat: to allow a taxpayer to deny tax liability on the ground that the sales were made through an other and distinct corporation when it is proved that the latter is virtually owned by the former or that they are practically one and the same is to sanction a circumvention of our tax laws.15 C. Tax liability computation: In the Yutivo case16 the same question involving the computation of the alleged deficiency sales tax has been raised. 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, that the deficiency sales tax should be based on the selling price obtained by Liddell Motors, Inc. to the public AFTER DEDUCTING THE TAX ALREADY PAID BY LIDDELL & CO., INC. in its sales to Liddell Motors, Inc.

On the imposition of the 50% surcharge by reason of fraud, we see that the transactions between Liddell Motors Inc. and Liddell & Co., Inc. have always been embodied in proper documents, constantly subject to inspection by the tax authorities. Liddell & Co., Inc. have always made a full report of its income and receipts in its income tax returns. Paraphrasing our decision in the Yutivo case, we may now say, in filing its return on the basis of its sales to Liddell Motors, Inc. and not on those by the latter to the public, it cannot be held that the Liddell & Co., Inc. deliberately made a false return for the purpose of defrauding the government of its revenue, and should suffer a 50% surcharge. But penalty for late payment (25%) should be imposed. In view of the foregoing, the decision appealed from is hereby modified: Liddell & Co., Inc. is declared liable only for the amount of P426,811.67 with 25% surcharge for late payment and 6% interest thereon from the time the judgment becomes final. As it appears that, during the pendency of this litigation appellant paid under protest to the Government the total amount assessed by the Collector, the latter is hereby required to return the excess to the petitioner. No costs. Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, De Leon and Natividad, JJ., concur.

G.R. No. L-17618

August 31, 1964

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.NORTON and HARRISON COMPANY, respondent. 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, we find no legal basis to support the assessment in question against petitioner. If at all, the assessment should have been directed against JACKBILT, the manufacturer. Accordingly, the decision appealed from is reversed, and the surety bond filed to guarantee payment of said assessment is ordered cancelled. No pronouncement as to costs. Norton and Harrison is a corporation organized in 1911, (1) to buy and sell at wholesale and retail, all kinds of goods, wares, and merchandise; (2) to act as agents of manufacturers in the United States and foreign countries; and (3) to carry on and conduct a general wholesale and retail mercantile establishment in the Philippines. Jackbilt is, likewise, a corporation organized on February 16, 1948 primarily for the purpose of making, producing and manufacturing concrete blocks. Under date of July 27, 1948. Norton and Jackbilt entered into an agreement whereby Norton was made the sole and exclusive distributor of concrete blocks manufactured by Jackbilt. Pursuant to this agreement, whenever an order for concrete blocks was received by the Norton & Harrison Co. from a customer, the order was transmitted to Jackbilt which delivered the merchandise direct to the customer. Payment for the goods is, however, made to Norton, which in turn pays Jackbilt the amount charged the customer less a certain amount, as its compensation or profit. To exemplify the sales

procedures adopted by the Norton and Jackbilt, the following may be cited. In the case of the sale of 420 pieces of concrete blocks to the American Builders on April 1, 1952, the purchaser paid to Norton the sum of P189.00 the purchase price. Out of this amount Norton paid Jackbilt P168.00, the difference obviously being its compensation. As per records of Jackbilt, the transaction was considered a sale to Norton. It was under this procedure that the sale of concrete blocks manufactured by Jackbilt was conducted until May 1, 1953, when the agency agreement was terminated and a management agreement between the parties was entered into. The management agreement provided that Norton would sell concrete blocks for Jackbilt, for a fixed monthly fee of P2,000.00, which was later increased to P5,000.00. During the existence of the distribution or agency agreement, or on June 10, 1949, Norton & Harrison acquired by purchase all the outstanding shares of stock of Jackbilt. Apparently, due to this transaction, the Commissioner of Internal Revenue, after conducting an investigation, assessed the respondent Norton & Harrison for deficiency sales tax and surcharges in the amount of P32,662.90, making as basis thereof the sales of Norton to the Public. In other words, the Commissioner considered the sale of Norton to the public as the original sale and not the transaction from Jackbilt. The period covered by the assessment was from July 1, 1949 to May 31, 1953. As Norton and Harrison did not conform with the assessment, the matter was brought to the Court of Tax Appeals. The Commissioner of Internal Revenue contends that since Jackbilt was owned and controlled by Norton & Harrison, the corporate personality of the former (Jackbilt) should be disregarded for sales tax purposes, 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. The Norton & Harrison Company contended otherwise that is, the transaction subject to tax is the sale from Jackbilt to Norton. Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1wph1.t The majority of the Tax Court, in relieving Norton & Harrison of liability under the assessment, 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, wares or merchandise, such tax to be based on the gross selling price of such goods, wares or merchandise. The term "original sale" has been defined as the first sale by every manufacturer, producer or importer. (Sec. 5, Com. Act No. 503.) Subsequent sales by persons other than the manufacturer, producer or importer are not subject to the sales tax. If JACKBILT actually sold concrete blocks manufactured by it to petitioner under the distributorship or agency agreement of July 27, 1948, such sales constituted the original sales which are taxable under Section 186 of the Revenue Code, while the sales made to the public by petitioner are subsequent sales which are not taxable. But it appears to us that there was no such sale by JACKBILT to petitioner. Petitioner merely acted as agent for JACKBILT in the marketing of its products. This is shown by the fact that petitioner merely accepted orders from the public for the purchase of JACKBILT blocks. The purchase orders were transmitted to JACKBILT which delivered the blocks to the purchaser directly. There was no instance in which the blocks ordered by the purchasers were delivered to the petitioner. Petitioner never purchased concrete blocks from JACKBILT so that it never acquired ownership of such concrete blocks. This being so, petitioner could not have sold JACKBILT blocks for its own account. It did so merely as agent of JACKBILT. The distributorship agreement of July 27, 1948, is denominated by the parties themselves as an "agency for marketing" JACKBILT products. ... . Therefore, 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. The deficiency sales tax should have been assessed against JACKBILT and not against petitioner which merely acted as the former's agent. Presiding Judge Nable of the same Court expressed a partial dissent, stating: Upon the aforestated circumstances, which disclose Norton's control over and direction of Jackbilt's affairs, the corporate personality of Jackbilt should be disregarded, 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. Consequently, the percentage tax should be computed on the basis of the sales of Jackbilt blocks to the public. The majority opinion is now before Us on appeal by the Commissioner of Internal Revenue, on four (4) assigned errors, all of which pose the following propositions: (1) whether the acquisition of all the stocks of the Jackbilt by the Norton & Harrison Co., merged the two corporations into a single corporation; (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. 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., Inc. v. Coll. of Int. Rev. L-9687, June 30, 1961). However, in the case at bar, we find sufficient grounds to support the theory that the separate identities of the two companies should be disregarded. Among these circumstances, which we find not successfully refuted by appellee Norton are: (a) Norton and Harrison owned all the outstanding stocks of Jackbilt; of the 15,000 authorized shares of Jackbilt on March 31, 1958, 14,993 shares belonged to Norton and Harrison and one each to seven others; (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. For instance, James E. Norton is the President, Treasurer, Director and Stockholder of Norton. He also occupies the same positions in Jackbilt corporation, the only change being, in the Jackbilt, he is merely a nominal stockholder. The same is true with Mr. Jordan, F. M. Domingo, Mr. Mantaring, Gilbert Golden and Gerardo Garcia, 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, 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, to pay advances for the purchase of equipment, materials rations and salaries of employees of Jackbilt and other sundry expenses. There was no limit to the advances given to Jackbilt so much so that as of May 31, 1956, the unpaid advances amounted to P757,652.45, which were not paid in cash by Jackbilt, but was offset by shares of stock issued to Norton, the absolute and sole owner of Jackbilt; (d) Norton treats Jackbilt employees as its own. Evidence shows that Norton paid the salaries of Jackbilt employees and gave the same privileges as Norton employees, an indication that Jackbilt employees were also Norton's employees. Furthermore service rendered in any one of the two companies were taken into account

for purposes of promotion; (e) Compensation given to board members of Jackbilt, indicate that Jackbilt is merely a department of Norton. The income tax return of Norton for 1954 shows that as President and Treasurer of Norton and Jackbilt, he received from Norton P56,929.95, but received from Jackbilt the measly amount of P150.00, a circumstance which points out that remuneration of purported officials of Jackbilt are deemed included in the salaries they received from Norton. The same is true in the case of Eduardo Garcia, an employee of Norton but a member of the Board of Jackbilt. His Income tax return for 1956 reveals that he received from Norton in salaries and bonuses P4,220.00, but received from Jackbilt, by way of entertainment, representation, travelling and transportation allowances P3,000.00. However, in the withholding statement (Exh. 28-A), it was shown that the total of P4,200.00 and P3,000.00 (P7,220.00) was received by Garcia from Norton, thus portraying the oneness of the two companies. The Income Tax Returns of Albert Golden and Dioscoro Ramos both employees of Norton but board members of Jackbilt, also disclose the game method of payment of compensation and allowances. The offices of Norton and Jackbilt are located in the same compound. Payments were effected by Norton of accounts for Jackbilt and vice versa. Payments were also made to Norton of accounts due or payable to Jackbilt and vice versa. Norton and Harrison, while not denying the presence of the set up stated above, tried to explain that the control over the affairs of Jackbilt was not made in order to evade payment of taxes; that the loans obtained by it which were given to Jackbilt, were necessary for the expansion of its business in the manufacture of concrete blocks, which would ultimately benefit both corporations; that the transactions and practices just mentioned, are not unusual and extraordinary, but pursued in the regular course of business and trade; that there could be no confusion in the present set up of the two corporations, because they have separate Boards, their cash assets are entirely and strictly separate; cashiers and official receipts and bank accounts are distinct and different; they have separate income tax returns, separate balance sheets and profit and loss statements. These explanations notwithstanding an over-all appraisal of the circumstances presented by the facts of the case, yields to the conclusion that the Jackbilt is merely an adjunct, business conduit or alter ego, of Norton and Harrison and that the fiction of corporate entities, separate and distinct from each, should be disregarded. This is a case where the doctrine of piercing the veil of corporate fiction, should be made to apply. In the case of Liddell & Co. Inc. v. Coll. of Int. Rev., supra, it was held: There are quite a series of conspicuous circumstances that militates against the separate and distinct personality of Liddell Motors Inc., from Liddell & Co. We notice that the bulk of the business of Liddell & Co. was channel Red through Liddell Motors, Inc. On the other hand, Liddell Motors Inc. pursued no activities except to secure cars, trucks, and spare parts from Liddell & Co., Inc. and then sell them to the general public. These sales of vehicles by Liddell & Co, to Liddell Motors. Inc. for the most part were shown to have taken place on the same day that Liddell Motors, Inc. sold such vehicles to the public. We may even say that the cars and trucks merely touched the hands of Liddell Motors, Inc. as a matter of formality. Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other. There is however, in this instant case, a peculiar sequence of the organization and activities of Liddell Motors, Inc. As opined in the case of Gregory v. Helvering "the legal right of a tax payer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted". But as held in another case, "where a corporation is a dummy, is unreal or a sham and serves no business purpose and is intended only as a blind, the corporate form may be ignored for the law cannot countenance a form that is bald and a mischievous fictions". ... a taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue officers in proper cases, may disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take benefits of the transactions as the person accordingly taxable. ... 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. (and cases cited therein.) In the case of Yutivo Sons Hardware Co. v. Court of Tax Appeals, L-13203, Jan. 28, 1961, 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. Therein, this Court said: We are, however, inclined to agree with the court below that SM was actually owned and controlled by petitioner as to make it a mere subsidiary or branch of the latter created for the purpose of selling the vehicles at retail (here concrete blocks) ... . It may not be amiss to state in this connection, the advantages to Norton in maintaining a semblance of separate entities. If the income of Norton should be considered separate from the income of Jackbilt, then each would declare such earning separately for income tax purposes and thus pay lesser income tax. The combined taxable Norton-Jackbilt income would subject Norton to a higher tax. Based upon the 1954-1955 income tax return of Norton and Jackbilt (Exhs. 7 & 8), and assuming that both of them are operating on the same fiscal basis and their returns are accurate, we would have the following result: Jackbilt declared a taxable net income of P161,202.31 in which the income tax due was computed at P37,137.00 (Exh. 8); whereas Norton declared as taxable, a net income of P120,101.59, on which the income tax due was computed at P25,628.00. The total of these liabilities is P50,764.84. On the other hand, if the net taxable earnings of both corporations are combined, during the same taxable year, the tax due on their total which is P281,303.90 would be P70,764.00. So that, even on the question of income tax alone, it would be to the advantages of Norton that the corporations should be regarded as separate entities. WHEREFORE, 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, plus 25% surcharge thereon. Costs against appellee Norton & Harrison.

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

ink. 4. The strike became the subject of Cases Nos. 2848 ULP and 2880 ULP of the Court of Industrial Relations which, on December 19, 1972, ordered RANSOM "its officers and agents to reinstate the 22 strikers with back wages from July 25, 1969. 5. On April 2, 1973, RANSOM filed an application for clearance to close or cease operations effective May 1, 1973, which was granted by the Ministry of Labor and Employment in its Order of June 7, 1973, without prejudice to the right of employees to seek redress of grievance, if any. Although it has stopped operations, RANSOM has continued its personality as a corporation. For practical purposes, reinstatement of the 22 strikers has been precluded. As a matter of fact, reinstatement is not an issue in this case. 6. Back wages of the 22 strikers were subsequently computed at P164,984.00, probably in early 1974. The exact date is not reflected in the record. 7. Up to September 9, 1976, petitioner UNION had filed about ten (10) motions for execution against RANSOM; but all of them could not be implemented, presumably for failure to find leviable assets of RANSOM; although it appears that, in 1975, RANSOM had sold machineries and equipment for P28million to Revelations Manufacturing Corporation. 8. Directly related to this case is the last Motion for Execution, dated December 18, 1978, filed by petitioner UNION wherein it asked that officers and agents of RANSOM be held personally liable for payment of the back wages. That Motion was granted by Labor Arbiter, Tito F. Genilo, on March 11, 1980 (The GENILO ORDER), wherein he expressly authorized a Writ of Execution to be issued for P164,984.00 (the back wages) against RANSOM and seven officers and directors of the Company who are the named individual respondents herein. RANSOM took an appeal to NLRC which affirmed the GENILO ORDER, except as modified in the body of its decision of July 31, 1984. 9. In RANSOM's appeal to the NLRC, two issues were raised: (a) One of the issues was: THE DECISION OF THE INDUSTRIAL RELATIONS COURT HAVING BECOME FINAL AND EXECUTORY IN 1973, 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, must fail. Suffice it to state also that the statute of limitations has been devised to operate primarily against those who sleep on their rights, not against those who assert their right but fail for causes beyond their control. The above recital of facts contradicts respondent's contention that the CIR decision of August 19, 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, ENFORCEABLE AGAINST ITS OFFICERS AND AGENTS IN THEIR INDIVIDUAL, PRIVATE AND PERSONAL CAPACITIES WHO WERE NOT PARTIES IN THE CASE WHERE THE JUDGMENT WAS RENDERED; The NLRC ruling was: As to the liability of the respondent's officers and agents, we agree with the contention of the respondent-appellant that there is nothing in the Order dated May 11, 1986 that would justify the holding of the individual officers and agents of respondent in their personal capacity. As a general rule, officers of the corporation are not liable personally for the official acts unless they have exceeded the scope of their authority. In the absence of evidence showing that the officers mentioned in the Order of the Labor Arbiter dated March 11, 1980 have exceeded their authority, the writ of execution can not be enforced against them, especially so since they were not given a chance to be heard. RANSOM and the seven individual respondents in this case have not appealed from the ruling of the NLRC that Section 6, Rule 39, is not invocable by them in regards to the execution of the decision of December 19, 1972. Hence, the issue can no longer be raised herein. Even if the said section were applicable, the 5-year period therein mentioned may not have expired by December 18, 1978 because the period should be counted only from the time the back wages were determined, which could have been in early 1974. We now come to the NLRC's decision upholding non-personal liabilities of the individual respondents herein for back wages of the 22 strikers. (a) Article 265 of the labor Code, in part. expressly provides: Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with fill back wages. Article 273 of the Code provides that:

Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more than six (6) months. (b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor Code which provides: (c) 'Employer includes any person acting in the interest of an employer directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as employer. The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the "person acting in the interest of (the) employer" RANSOM. The corporation, only in the technical sense, is the employer. The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is the policy of the law. In the Minimum Wage Law, Section 15(b) provided: (b) If any violation of his Act is committed by a corporation, trust, partnership or association, the manager or in his default, the person acting as such when the violation took place, shall be responsible. In the case of a government corporation, the managing head shall be made responsible, except when shown that the violation was due to an act or commission of some other person, over whom he has no control, in which case the latter shall be held responsible. In PD 525, where a corporation fails to pay the emergency allowance therein provided, the prescribed penalty "shall be imposed upon the guilty officer or officers" of the corporation. (c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. in the instant case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased operation on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM. (d) The record does not clearly Identify "the officer or officers" of RANSOM directly responsible for failure to pay the back wages of the 22 strikers. In the absence of definite proof in that regard, we believe it should be presumed that the responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. Thus, in RA 602, criminal responsibility is with the "Manager" or in his default, the person acting as such. In RANSOM, the President appears to be the Manager. (e) Considering that non-payment of the back wages of the 22 strikers has been a continuing situation, it is our opinion What the personal liability of the RANSOM President, at the time the back wages were ordered to be paid should also be a continuing joint and several personal liabilities of all who x-ray have thereafter succeeded to the office of president; otherwise, the 22 strikers may be deprived of their rights by the election of a president without leviable assets. WHEREFORE, the questioned Decision of the National Labor Relations Commission is SET ASIDE, and the Order of Labor Arbiter Tito F. Genilo of March 11, 1980 is reinstated with the modification that personal liability for the back wages due the 22 strikers shall be limited to Ruben Hernandez, who was President of RANSOM in 1974, 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. G.R. No. 85416 July 24, 1990 FRANCISCO V. DEL ROSARIO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and LEONARDO V. ATIENZA, respondents. In POEA Case No. 85-06-0394, the Philippine Overseas Employment Administration (POEA) promulgated a decision on February 4, 1986 dismissing the complaint for money claims for lack of merit. The decision was appealed to the National Labor Relations Commission (NLRC), which on April 30, 1987 reversed the POEA decision and ordered Philsa Construction and Trading Co., Inc. (the recruiter) and Arieb Enterprises (the foreign employer) to jointly and severally pay private respondent the peso equivalent of $16,039.00, as salary differentials, and $2,420.03, as vacation leave benefits. The case was elevated to the Supreme Court, but the petition was dismissed on August 31, 1987 and entry of judgment was made on September 24, 1987. 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. Private respondent moved for the issuance of an alias writ against the officers of Philsa. This motion was opposed by the officers, led by petitioner, the president and general manager of the corporation. On February 12, 1988, the POEA issued a resolution, the dispositive portion of which read: WHEREFORE, premises considered, let an alias writ of Execution be issued and the handling sheriff is ordered to execute against the properties of Mr. Francisco V. del -Rosario and if insufficient, against the cash and/or surety bond of Bonding Company concerned for the full satisfaction of the judgment awarded.

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

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