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

1 The complaint, as amended on June 13, 1966,


specifically alleged that plaintiff is a corporation organized
SULO NG BAYAN INC., plaintiff-appellant, and existing under the laws of the Philippines, with its
vs. principal office and place of business at San Jose del Monte,
GREGORIO ARANETA, INC., PARADISE FARMS, INC., Bulacan; that its membership is composed of natural persons
NATIONAL WATERWORKS & SEWERAGE AUTHORITY, residing at San Jose del Monte, Bulacan; that the members of
HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF the plaintiff corporation, through themselves and their
BULACAN, defendants-appellees. predecessors-in-interest, had pioneered in the clearing of the
fore-mentioned tract of land, cultivated the same since the
Hill & Associates Law Offices for appellant. Spanish regime and continuously possessed the said
property openly and public under concept of ownership
Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc. adverse against the whole world; that defendant-appellee
Gregorio Araneta, Inc., sometime in the year 1958, through
Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc. force and intimidation, ejected the members of the plaintiff
corporation from their possession of the aforementioned vast
tract of land; that upon investigation conducted by the
Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo,
members and officers of plaintiff corporation, they found out
Office of the Government Corporate Counsel for appellee
for the first time in the year 1961 that the land in question
National Waterworks & Sewerage Authority.
"had been either fraudulently or erroneously included, by
direct or constructive fraud, in Original Certificate of Title No.
Candido G. del Rosario for appellee Hacienda Caretas, Inc.
466 of the Land of Records of the province of Bulacan",
issued on May 11, 1916, which title is fictitious, non-existent
ANTONIO, J.: and devoid of legal efficacy due to the fact that "no original
survey nor plan whatsoever" appears to have been submitted
The issue posed in this appeal is whether or not plaintiff as a basis thereof and that the Court of First Instance of
corporation (non- stock may institute an action in behalf of its Bulacan which issued the decree of registration did not
individual members for the recovery of certain parcels of land acquire jurisdiction over the land registration case because
allegedly owned by said members; for the nullification of the no notice of such proceeding was given to the members of
transfer certificates of title issued in favor of defendants the plaintiff corporation who were then in actual possession
appellees covering the aforesaid parcels of land; for a of said properties; that as a consequence of the nullity of the
declaration of "plaintiff's members as absolute owners of the original title, all subsequent titles derived therefrom, such as
property" and the issuance of the corresponding certificate of Transfer Certificate of Title No. 4903 issued in favor of
title; and for damages. Gregorio Araneta and Carmen Zaragoza, which was
subsequently cancelled by Transfer Certificate of Title No.
On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed 7573 in the name of Gregorio Araneta, Inc., Transfer
an accion de revindicacion with the Court of First Instance of Certificate of Title No. 4988 issued in the name of, the
Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against National Waterworks & Sewerage Authority (NWSA), Transfer
defendants-appellees to recover the ownership and Certificate of Title No. 4986 issued in the name of Hacienda
possession of a large tract of land in San Jose del Monte, Caretas, Inc., and another transfer certificate of title in the
Bulacan, containing an area of 27,982,250 square meters, name of Paradise Farms, Inc., are therefore void. Plaintiff-
more or less, registered under the Torrens System in the appellant consequently prayed (1) that Original Certificate of
name of defendants-appellees' predecessors-in- Title No. 466, as well as all transfer certificates of title issued
and derived therefrom, be nullified; (2) that "plaintiff's the said court has been approved by the Department of
members" be declared as absolute owners in common of said Justice; that the complaint states a sufficient cause of action
property and that the corresponding certificate of title be because the subject matter of the controversy in one of
issued to plaintiff; and (3) that defendant-appellee Gregorio common interest to the members of the corporation who are
Araneta, Inc. be ordered to pay to plaintiff the damages so numerous that the present complaint should be treated as
therein specified. a class suit; and that the action is not barred by the statute
of limitations because (a) an action for the reconveyance of
On September 2, 1966, defendant-appellee Gregorio Araneta, property registered through fraud does not prescribe, and (b)
Inc. filed a motion to dismiss the amended complaint on the an action to impugn a void judgment may be brought any
grounds that (1) the complaint states no cause of action; and time. This motion was denied by the trial court in its Order
(2) the cause of action, if any, is barred by prescription and dated February 22, 1967. From the afore-mentioned Order of
laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed dismissal and the Order denying its motion for
motions to dismiss based on the same grounds. Appellee reconsideration, plaintiff-appellant appealed to the Court of
National Waterworks & Sewerage Authority did not file any Appeals.
motion to dismiss. However, it pleaded in its answer as
special and affirmative defenses lack of cause of action by On September 3, 1969, the Court of Appeals, upon finding
the plaintiff-appellant and the barring of such action by that no question of fact was involved in the appeal but only
prescription and laches. questions of law and jurisdiction, certified this case to this
Court for resolution of the legal issues involved in the
During the pendency of the motion to dismiss, plaintiff- controversy.
appellant filed a motion, dated October 7, 1966, praying that
the case be transferred to another branch of the Court of First I
Instance sitting at Malolos, Bulacan, According to defendants-
appellees, they were not furnished a copy of said motion, Appellant contends, as a first assignment of error, that the
hence, on October 14, 1966, the lower court issued an Order trial court acted without authority and jurisdiction in
requiring plaintiff-appellant to furnish the appellees copy of dismissing the amended complaint when the Secretary of
said motion, hence, on October 14, 1966, defendant- Justice had already approved the transfer of the case to any
appellant's motion dated October 7, 1966 and, consequently, one of the two branches of the Court of First Instance of
prayed that the said motion be denied for lack of notice and Malolos, Bulacan.
for failure of the plaintiff-appellant to comply with the Order
of October 14, 1966. Similarly, defendant-appellee paradise Appellant confuses the jurisdiction of a court and the venue
Farms, Inc. filed, on December 2, 1966, a manifestation of cases with the assignment of cases in the different
information the court that it also did not receive a copy of the branches of the same Court of First Instance. Jurisdiction
afore-mentioned of appellant. On January 24, 1967, the trial implies the power of the court to decide a case, while venue
court issued an Order dismissing the amended complaint. the place of action. There is no question that respondent
court has jurisdiction over the case. The venue of actions in
On February 14, 1967, appellant filed a motion to reconsider the Court of First Instance is prescribed in Section 2, Rule 4 of
the Order of dismissal on the grounds that the court had no the Revised Rules of Court. The laying of venue is not left to
jurisdiction to issue the Order of dismissal, because its the caprice of plaintiff, but must be in accordance with the
request for the transfer of the case from the Valenzuela aforesaid provision of the rules. 2The mere fact that a request
Branch of the Court of First Instance to the Malolos Branch of for the transfer of a case to another branch of the same court
has been approved by the Secretary of Justice does not way or manner succeeded to such rights. The corporation
divest the court originally taking cognizance thereof of its evidently did not have any rights violated by the defendants
jurisdiction, much less does it change the venue of the for which it could seek redress. Even if the Court should find
action. As correctly observed by the trial court, the against the defendants, therefore, the plaintiff corporation
indorsement of the Undersecretary of Justice did not order would not be entitled to the reliefs prayed for, which are
the transfer of the case to the Malolos Branch of the Bulacan recoveries of ownership and possession of the land, issuance
Court of First Instance, but only "authorized" it for the reason of the corresponding title in its name, and payment of
given by plaintiff's counsel that the transfer would be damages. Neither can such reliefs be awarded to the
convenient for the parties. The trial court is not without members allegedly deprived of their land, since they are not
power to either grant or deny the motion, especially in the parties to the suit. It appearing clearly that the action has not
light of a strong opposition thereto filed by the defendant. We been filed in the names of the real parties in interest, the
hold that the court a quo acted within its authority in denying complaint must be dismissed on the ground of lack of cause
the motion for the transfer the case to Malolos of action. 3
notwithstanding the authorization" of the same by the
Secretary of Justice. Viewed in the light of existing law and jurisprudence, We find
that the trial court correctly dismissed the amended
II complaint.

Let us now consider the substantive aspect of the Order of It is a doctrine well-established and obtains both at law and
dismissal. in equity that a corporation is a distinct legal entity to be
considered as separate and apart from the individual
In dismissing the amended complaint, the court a quo said: stockholders or members who compose it, and is not affected
by the personal rights, obligations and transactions of its
The issue of lack of cause of action raised in the motions to stockholders or members. 4 The property of the corporation is
dismiss refer to the lack of personality of plaintiff to file the its property and not that of the stockholders, as owners,
instant action. Essentially, the term 'cause of action' is although they have equities in it. Properties registered in the
composed of two elements: (1) the right of the plaintiff and name of the corporation are owned by it as an entity
(2) the violation of such right by the defendant. (Moran, Vol. separate and distinct from its members. 5 Conversely, a
1, p. 111). For these reasons, the rules require that every corporation ordinarily has no interest in the individual
action must be prosecuted and defended in the name of the property of its stockholders unless transferred to the
real party in interest and that all persons having an interest corporation, "even in the case of a one-man
in the subject of the action and in obtaining the relief corporation. 6 The mere fact that one is president of a
demanded shall be joined as plaintiffs (Sec. 2, Rule 3). In the corporation does not render the property which he owns or
amended complaint, the people whose rights were alleged to possesses the property of the corporation, since the
have been violated by being deprived and dispossessed of president, as individual, and the corporations are separate
their land are the members of the corporation and not the similarities. 7 Similarly, stockholders in a corporation engaged
corporation itself. The corporation has a separate. and in buying and dealing in real estate whose certificates of
distinct personality from its members, and this is not a mere stock entitled the holder thereof to an allotment in the
technicality but a matter of substantive law. There is no distribution of the land of the corporation upon surrender of
allegation that the members have assigned their rights to the their stock certificates were considered not to have such
corporation or any showing that the corporation has in any legal or equitable title or interest in the land, as would
support a suit for title, especially against parties other than It is fundamental that there cannot be a cause of action
the corporation. 8 'without an antecedent primary legal right conferred' by law
upon a person. 17 Evidently, there can be no wrong without a
It must be noted, however, that the juridical personality of corresponding right, and no breach of duty by one person
the corporation, as separate and distinct from the persons without a corresponding right belonging to some other
composing it, is but a legal fiction introduced for the purpose person. 18 Thus, the essential elements of a cause of action
of convenience and to subserve the ends of justice. 9 This are legal right of the plaintiff, correlative obligation of the
separate personality of the corporation may be disregarded, defendant, an act or omission of the defendant in violation of
or the veil of corporate fiction pierced, in cases where it is the aforesaid legal right. 19 Clearly, no right of action exists in
used as a cloak or cover for fraud or illegality, or to work -an favor of plaintiff corporation, for as shown heretofore it does
injustice, or where necessary to achieve equity. 10 not have any interest in the subject matter of the case which
is material and, direct so as to entitle it to file the suit as a
Thus, when "the notion of legal entity is used to defeat public real party in interest.
convenience, justify wrong, protect fraud, or defend crime, ...
the law will regard the corporation as an association of III
persons, or in the case of two corporations, merge them into
one, the one being merely regarded as part or Appellant maintains, however, that the amended complaint
instrumentality of the other. 11 The same is true where a may be treated as a class suit, pursuant to Section 12 of Rule
corporation is a dummy and serves no business purpose and 3 of the Revised Rules of Court.
is intended only as a blind, or an alter ego or business
conduit for the sole benefit of the stockholders. 12 This In order that a class suit may prosper, the following requisites
doctrine of disregarding the distinct personality of the must be present: (1) that the subject matter of the
corporation has been applied by the courts in those cases controversy is one of common or general interest to many
when the corporate entity is used for the evasion of persons; and (2) that the parties are so numerous that it is
taxes 13 or when the veil of corporate fiction is used to impracticable to bring them all before the court. 20
confuse legitimate issue of employer-employee
relationship, 14 or when necessary for the protection of Under the first requisite, the person who sues must have an
creditors, in which case the veil of corporate fiction may be interest in the controversy, common with those for whom he
pierced and the funds of the corporation may be garnished to sues, and there must be that unity of interest between him
satisfy the debts of a principal stockholder. 15 The aforecited and all such other persons which would entitle them to
principle is resorted to by the courts as a measure protection maintain the action if suit was brought by them jointly. 21
for third parties to prevent fraud, illegality or injustice. 16
As to what constitutes common interest in the subject matter
It has not been claimed that the members have assigned or of the controversy, it has been explained in Scott v.
transferred whatever rights they may have on the land in Donald 22 thus:
question to the plaintiff corporation. Absent any showing of
interest, therefore, a corporation, like plaintiff-appellant The interest that will allow parties to join in a bill of
herein, has no personality to bring an action for and in behalf complaint, or that will enable the court to dispense with the
of its stockholders or members for the purpose of recovering presence of all the parties, when numerous, except a
property which belongs to said stockholders or members in determinate number, is not only an interest in the
their personal capacities. question, but one in common in the subject Matter of the
suit; ... a community of interest growing out of the nature and
condition of the right in dispute; for, although there may not
be any privity between the numerous parties, there is G.R. No. L-48627 June 30, 1987
a common title out of which the question arises, and which
lies at the foundation of the proceedings ... [here] the only FERMIN Z. CARAM, JR. and ROSA O. DE CARAM,
matter in common among the plaintiffs, or between them petitioners
and the defendants, is an interest in the Question involved vs.
which alone cannot lay a foundation for the joinder of parties. THE HONORABLE COURT OF APPEALS and ALBERTO V.
There is scarcely a suit at law, or in equity which settles a ARELLANO, respondents.
Principle or applies a principle to a given state of facts, or in
which a general statute is interpreted, that does not involved
a Question in which other parties are interested. ... (Emphasis
supplied ) CRUZ, J.:

Here, there is only one party plaintiff, and the plaintiff We gave limited due course to this petition on the question of
corporation does not even have an interest in the subject the solidary liability of the petitioners with their co-
matter of the controversy, and cannot, therefore, represent defendants in the lower court 1 because of the challenge to
its members or stockholders who claim to own in their the following paragraph in the dispositive portion of the
individual capacities ownership of the said property. decision of the respondent court: *
Moreover, as correctly stated by the appellees, a class suit
does not lie in actions for the recovery of property where
1. Defendants are hereby ordered to jointly and severally pay
several persons claim Partnership of their respective portions
the plaintiff the amount of P50,000.00 for the preparation of
of the property, as each one could alleged and prove his
the project study and his technical services that led to the
respective right in a different way for each portion of the
organization of the defendant corporation, plus P10,000.00
land, so that they cannot all be held to have Identical title
attorney's fees; 2
through acquisition prescription. 23
The petitioners claim that this order has no support in fact
Having shown that no cause of action in favor of the plaintiff
and law because they had no contract whatsoever with the
exists and that the action in the lower court cannot be
private respondent regarding the above-mentioned services.
considered as a class suit, it would be unnecessary and an
Their position is that as mere subsequent investors in the
Idle exercise for this Court to resolve the remaining issue of
corporation that was later created, they should not be held
whether or not the plaintiffs action for reconveyance of real
solidarily liable with the Filipinas Orient Airways, a separate
property based upon constructive or implied trust had
juridical entity, and with Barretto and Garcia, their co-
already prescribed.
defendants in the lower court, ** who were the ones who
requested the said services from the private respondent. 3
ACCORDINGLY, the instant appeal is hereby DISMISSED with
costs against the plaintiff-appellant.
We are not concerned here with the petitioners' co-
defendants, who have not appealed the decision of the
Fernando, C.J., Barredo, Aquino and Concepcion, Jr., JJ., respondent court and may, for this reason, be presumed to
concur. have accepted the same. For purposes of resolving this case
before us, it is not necessary to determine whether it is the
promoters of the proposed corporation, or the corporation other prospective investors. At any rate, the airline was
itself after its organization, that shall be responsible for the eventually organized on the basis of the project study with
expenses incurred in connection with such organization. the petitioners as major stockholders and, together with
Barretto and Garcia, as principal officers.
The only question we have to decide now is whether or not
the petitioners themselves are also and personally liable for The following portion of the decision in question is also worth
such expenses and, if so, to what extent. considering:

The reasons for the said order are given by the respondent ... Since defendant Barretto was the moving spirit in the pre-
court in its decision in this wise: organization work of defendant corporation based on his
experience and expertise, hence he was logically
As to the 4th assigned error we hold that as to the compensated in the amount of P200,000.00 shares of stock
remuneration due the plaintiff for the preparation of the not as industrial partner but more for his technical services
project study and the pre-organizational services in the that brought to fruition the defendant corporation. By the
amount of P50,000.00, not only the defendant corporation same token, We find no reason why the plaintiff should not
but the other defendants including defendants Caram should be similarly compensated not only for having actively
be jointly and severally liable for this amount. As we above participated in the preparation of the project study for
related it was upon the request of defendants Barretto and several months and its subsequent revision but also in his
Garcia that plaintiff handled the preparation of the project having been involved in the pre-organization of the
study which project study was presented to defendant Caram defendant corporation, in the preparation of the franchise, in
so the latter was convinced to invest in the proposed airlines. inviting the interest of the financiers and in the training and
The project study was revised for purposes of presentation to screening of personnel. We agree that for these special
financiers and the banks. It was on the basis of this study services of the plaintiff the amount of P50,000.00 as
that defendant corporation was actually organized and compensation is reasonable. 5
rendered operational. Defendants Garcia and Caram, and
Barretto became members of the Board and/or officers of The above finding bolsters the conclusion that the petitioners
defendant corporation. Thus, not only the defendant were not involved in the initial stages of the organization of
corporation but all the other defendants who were involved in the airline, which were being directed by Barretto as the
the preparatory stages of the incorporation, who caused the main promoter. It was he who was putting all the pieces
preparation and/or benefited from the project study and the together, so to speak. The petitioners were merely among
technical services of plaintiff must be liable. 4 the financiers whose interest was to be invited and who were
in fact persuaded, on the strength of the project study, to
It would appear from the above justification that the invest in the proposed airline.
petitioners were not really involved in the initial steps that
finally led to the incorporation of the Filipinas Orient Airways. Significantly, there was no showing that the Filipinas Orient
Elsewhere in the decision, Barretto was described as "the Airways was a fictitious corporation and did not have a
moving spirit." The finding of the respondent court is that the separate juridical personality, to justify making the
project study was undertaken by the private respondent at petitioners, as principal stockholders thereof, responsible for
the request of Barretto and Garcia who, upon its completion, its obligations. As a bona fide corporation, the Filipinas Orient
presented it to the petitioners to induce them to invest in the Airways should alone be liable for its corporate acts as duly
proposed airline. The study could have been presented to authorized by its officers and directors.
In the light of these circumstances, we hold that the Republic of the Philippines
petitioners cannot be held personally liable for the SUPREME COURT
compensation claimed by the private respondent for the Manila
services performed by him in the organization of the
corporation. To repeat, the petitioners did not contract such THIRD DIVISION
services. It was only the results of such services that Barretto
and Garcia presented to them and which persuaded them to
invest in the proposed airline. The most that can be said is
that they benefited from such services, but that surely is no G.R. No. 70789 October 19, 1992
justification to hold them personally liable therefor.
Otherwise, all the other stockholders of the corporation, RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R.
including those who came in later, and regardless of the TANTOCO, SR., and ROMEO S. VERGARA, petitioners,
amount of their share holdings, would be equally and vs.
personally liable also with the petitioners for the claims of the THE INTERMEDIATE APPELLATE COURT and ILIGAN
private respondent. DIVERSIFIED PROJECTS, INC., ROMEO A. LLUCH and
ROBERTO G. BORROMEO, respondents.
The petition is rather hazy and seems to be flawed by an
ambiguous ambivalence. Our impression is that it is opposed MELO, J.:
to the imposition of solidary responsibility upon the Carams
but seems to be willing, in a vague, unexpressed offer of
When petitioners informed herein private respondents to stop
compromise, to accept joint liability. While it is true that it
the delivery of pulp wood supplied by the latter pursuant to a
does here and there disclaim total liability, the thrust of the
contract of sale between them, private respondents sued for
petition seems to be against the imposition of solidary
breach of their covenant. The court of origin dismissed the
liability only rather than against any liability at all, which is
complaint but at the same time enjoined petitioners to
what it should have categorically argued.
respect the contract of sale if circumstances warrant the full
operation in a commercial scale of petitioners' Baloi plant
Categorically, the Court holds that the petitioners are not and to continue accepting and paying for deliveries of pulp
liable at all, jointly or jointly and severally, under the first wood products from Romeo Lluch (page 14, Petition; page 20,
paragraph of the dispositive portion of the challenged Rollo). On appeal to the then Intermediate Appellate Court,
decision. So holding, we find it unnecessary to examine at Presiding Justice Ramon G. Gaviola, Jr., who spoke for the First
this time the rules on solidary obligations, which the parties- Civil Cases Division, with Justices Caguioa, Quetulio-Losa, and
needlessly, as it turns out have belabored unto death. Luciano, concurring, modified the judgment by directing
herein petitioners to pay private respondents, jointly and
WHEREFORE, the petition is granted. The petitioners are severally, the sum of P30,000.00 as moral damages and
declared not liable under the challenged decision, which is P15,000.00 as attorney's fees (pages 48-58, Rollo).
hereby modified accordingly. It is so ordered.
In the petition at bar, it is argued that the Appellate Court
Yap (Chairman), Narvasa, Melencio-Herrera, Feliciano and erred;
Sarmiento, JJ., concur.
A. . . . IN HOLDING PERSONALLY LIABLE UNDER THE
CONTRACT OF SALE PETITIONER TANTOCO WHO SIGNED
MERELY AS REPRESENTATIVE OF PETITIONER RUSTAN, AND 3. That BUYER shall have the option to buy from other
PETITIONER VERGARA WHO DID NOT SIGN AT ALL; SELLERS who are equally qualified and holders of appropriate
government authority or license to sell or dispose, that
B. . . . IN HOLDING THAT PETITIONER RUSTAN'S DECISION TO BUYER shall not buy from any other seller whose pulp woods
SUSPEND TAKING DELIVERY OF PULP WOOD FROM being sold shall have been established to have emanated
RESPONDENT LLUCH, WHICH WAS PROMPTED BY SERIOUS from the SELLER'S lumber and/or firewood concession. . . .
AND UNFORESEEN DEFECTS IN THE MILL, WAS NOT IN THE
LAWFUL EXERCISE OF ITS RIGHTS UNDER THE CONTRACT OF And that SELLER has the priority to supply the pulp wood
SALE; and materials requirement of the BUYER;

C. . . . IN AWARDING MORAL DAMAGES AND ATTORNEY'S xxx xxx xxx


FEES IN THE ABSENCE OF FRAUD OR BAD FAITH.
7. That the BUYER shall have the right to stop delivery of the
(page 18, Petition; page 24, Rollo) said raw materials by the seller covered by this contract
when supply of the same shall become sufficient until such
The generative facts of the controversy, as gathered from the time when need for said raw materials shall have become
pleadings, are fairly simple. necessarily provided, however, that the SELLER is given
sufficient notice.
Sometime in 1966, petitioner Rustan established a pulp and
paper mill in Baloi, Lano del Norte. On March 20, 1967, (pages 8-9, Petition; pages 14-15, Rollo)
respondent Lluch, who is a holder of a forest products
license, transmitted a letter to petitioner Rustan for the In the installation of the plant facilities, the technical staff of
supply of raw materials by the former to the latter. In Rustan Pulp and Paper Mills, Inc. recommended the
response thereto, petitioner Rustan proposed, among other acceptance of deliveries from other suppliers of the pulp
things, in the letter-reply: wood materials for which the corresponding deliveries were
made. But during the test run of the pulp mill, the machinery
2. That the contract to supply is not exclusive because line thereat had major defects while deliveries of the raw
Rustan shall have the option to buy from other suppliers who materials piled up, which prompted the Japanese supplier of
are qualified and holder of appropriate government authority the machinery to recommend the stoppage of the deliveries.
or license to sell and dispose pulp wood. The suppliers were informed to stop deliveries and the letter
of similar advice sent by petitioners to private respondents
These prefatory business proposals culminated in the reads:
execution, during the month of April, 1968, of a contract of
sale whereby Romeo A. Lluch agreed to sell, and Rustan Pulp Attention: Mr. Romeo A. Lluch
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 Dear Mr. Lluch:
buyer's plant in Baloi, Lanao del Norte. Of pertinent
significance to the issue at hand are the following stipulations This is to inform you that the supply of raw materials to us
in the bilateral undertaking: 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.
Private respondent Romeo Lluch sought to clarify the tenor of standard. Second, We likewise find the court a quo's finding
the letter as to whether stoppage of delivery or termination that "even with one predicament in which defendant Rustan
of the contract of sale was intended, but the query was not found itself wherein commercial operation was delayed, it
answered by petitioners. This alleged ambiguity accommodated all its suppliers of raw materials, including
notwithstanding, Lluch and the other suppliers resumed plaintiff, Romeo Lluch, by allowing them to deliver all its
deliveries after the series of talks between Romeo S. Vergara stockpiles of cut wood" (Decision, page 202, Record on
and Romeo Lluch. Appeal) to be both illogical and inconsistent. Illogical,
because as appellee Rustan itself claimed "if the plant could
On January 23, 1969, the complaint for contractual breach not be operated on a commercial scale, it would then be
was filed which, as earlier noted, was dismissed. In the illogical for defendant Rustan to continue accepting deliveries
process of discussing the merits of the appeal interposed of raw materials." Inconsistent because this kind of "concern"
therefrom, respondent Court clarified the eleven errors or "accommodation" is not usual or consistent with ordinary
assigned below by herein petitioners and it seems that business practice considering that this would mean adequate
petitioners were quite satisfied with the Appellate Court's in losses to the company. More so, if We consider that appellee
seriatim response since petitioners trimmed down their is a new company and could not therefore afford to absorb
discourse before this Court to three basic matters, relative to more losses than it already allegedly incurred by the
the nature of liability, the propriety of the stoppage, and the consequent defects in the machineries.
feasibility of awarding moral damages including attorney's
fees. Clearly therefore, this is a breach of the contract entered into
by and between appellees and appellants which warrants the
Respondent Court found it ironic that petitioners had to intervention of this Court.
exercise the prerogative regarding the stoppage of deliveries
via the letter addressed to Iligan Diversified Project, Inc. on xxx xxx xxx
September 30, 1968 because petitioners never really
stopped accepting deliveries from private respondents until . . . The letter of September 30, 1968, Exh. "D" shows that
December 23, 1968. Petitioner's paradoxial stance portrayed defendants were terminating the contract of sale (Exh. "A"),
in this manner: and refusing any future or further delivery whether on the
ground that they had sufficient supply of pulp wood materials
. . . We cannot accept the reasons given by appellees as to or that appellants cannot meet the standard of quality of
why they were stopping deliveries of pulp wood materials. pulp wood materials that Rustan needs or that there were
First, We find it preposterous for a business company like the defects in appellees' machineries resulting in an inability to
appellee to accumulate stockpiles of cut wood even after its continue full commercial operations.
letter to appellants dated September 30, 1968 stopping the
deliveries because the supply of raw materials has become Furthermore, there is evidence on record that appellees have
sufficient. The fact that appellees were buying and accepting been accepting deliveries of pulp wood materials from other
pulp wood materials from other sources other than the sources, i.e. Salem Usman, Fermin Villanueva and Pacasum
appellants even after September 30, 1968 belies that they even after September 30, 1968.
have more than sufficient supply of pulp wood materials, or
that they are unable to go into full commercial operation or Lastly, it would be unjust for the court a quo to rule that the
that their machineries are defective or even that the pulp contract of sale be temporarily suspended until Rustan, et al.,
wood materials coming from appellants are sub- are ready to accept deliveries from appellants. This would
make the resumption of the contract purely dependent on the contract when the machinery to be installed on the
the will of one party the appellees, and they could always factory did not arrive in Manila, is certainly inappropriate for
claim, as they did in the instant case, that they have more application to the case at hand because the factual milieu in
than sufficient supply of pulp wood when in fact they have the legal tussle dissected by Justice Street conveys that the
been accepting the same from other sources. Added to this, proviso relates to the birth of the undertaking and not to the
the court a quo was imposing a new condition in the contract, fulfillment of an existing obligation.
one that was not agreed upon by the parties.
In support of the second ground for allowance of the petition,
(Pages B-10, Decision; Pages 55-57, Rollo) petitioners are of the impression that the letter dated
September 30, 1968 sent to private respondents is well
The matter of Tantoco's and Vergara's joint and several within the right of stoppage guaranteed to them by
liability as a result of the alleged breach of the contract is paragraph 7 of the contract of sale which was construed by
dependent, first of all, on whether Rustan Pulp and Paper petitioners to be a temporary suspension of deliveries. There
Mills may legally exercise the right of stoppage should there is no doubt that the contract speaks loudly about petitioners'
be a glut of raw materials at its plant. prerogative but what diminishes the legal efficacy of such
right is the condition attached to it which, as aforesaid, is
And insofar as the express discretion on the part of dependent exclusively on their will for which reason, We have
petitioners is concerned regarding the right of stoppage, we no alternative but to treat the controversial stipulation as
feel that there is cogent basis for private respondent's inoperative (Article 1306, New Civil Code). It is for this same
apprehension on the illusory resumption of deliveries reason that we are not inclined to follow the interpretation of
inasmuch as the prerogative suggests a condition solely petitioners that the suspension of delivery was merely
dependent upon the will of petitioners. Petitioners can stop temporary since the nature of the suspension itself is again
delivery of pulp wood from private respondents if the supply conditioned upon petitioner's determination of the sufficiency
at the plant is sufficient as ascertained by petitioners, subject of supplies at the plant.
to re-delivery when the need arises as determined likewise
by petitioners. This is our simple understanding of the literal Neither are we prepared to accept petitioners' exculpation
import of paragraph 7 of the obligation in question. A purely grounded on frustration of the commercial object under
potestative imposition of this character must be obliterated Article 1267 of the New Civil Code, because petitioners
from the face of the contract without affecting the rest of the continued accepting deliveries from the suppliers. This
stipulations considering that the condition relates to the conduct will estop petitioners from claiming that the
fulfillment of an already existing obligation and not to its breakdown of the machinery line was an extraordinary
inception (Civil Code Annotated, by Padilla, 1987 Edition, obstacle to their compliance to the prestation. It was indeed
Volume 4, Page 160). It is, of course, a truism in legal incongruous for petitioners to have sent the letters calling for
jurisprudence that a condition which is both potestative (or suspension and yet, they in effect disregarded their own
facultative) and resolutory may be valid, even though the advice by accepting the deliveries from the suppliers. The
saving clause is left to the will of the obligor like what this demeanor of petitioners along this line was sought to be
Court, through Justice Street, said in Taylor vs. Uy Tieng Piao justified as an act of generous accommodation, which
and Tan Liuan (43 Phil. 873; 879; cited in Commentaries and entailed greater loss to them and "was not motivated by the
Jurisprudence on the Civil Code, by Tolentino, Volume 4, 1991 usual businessman's obsession with profit" (Page 34, Petition;
edition, page 152). But the conclusion drawn from the Taylor Page 40, Rollo). Altruism may be a noble gesture but
case, which allowed a condition for unilateral cancellation of 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 Republic of the Philippines
down on expenses (Section 3, (d), Rule 131, Revised Rules of SUPREME COURT
Court). Knowing fully well that they will encounter difficulty in Manila
producing output because of the defective machinery line,
petitioners opted to open the plant to greater loss, thus THIRD DIVISION
compounding the costs by accepting additional supply to the
stockpile. Verily, the petitioner's action when they Adm. Matter No. R-181-P July 31, 1987
acknowledged that "if the plant could not be operated on a
commercial scale, it would then be illogical for defendant ADELIO C. CRUZ, complainant,
Rustan to continue accepting deliveries of raw materials." vs.
(Page 202, Record on Appeal; Page 8, Decision; Page 55, QUITERIO L. DALISAY, Deputy Sheriff, RTC,
Rollo). Manila, respondents.

Petitioners argue next that Tantoco and Vergara should not RESOLUTION
have been adjudged to pay moral damages and attorney's
fees because Tantoco merely represented the interest of FERNAN, J.:
Rustan Pulp and Paper Mills, Inc. while Romeo S. Vergara was
not privy to the contract of sale. On this score, We have to
In a sworn complaint dated July 23, 1984, Adelio C. Cruz
agree with petitioners' citation of authority to the effect that
charged Quiterio L. Dalisay, Senior Deputy Sheriff of Manila,
the President and Manager of a corporation who entered into
with "malfeasance in office, corrupt practices and serious
and signed a contract in his official capacity, cannot be made
irregularities" allegedly committed as follows:
liable thereunder in his individual capacity in the absence of
stipulation to that effect due to the personality of the
1. Respondent sheriff attached and/or levied the money
corporation being separate and distinct from the person
belonging to complainant Cruz when he was not himself the
composing it (Bangued Generale Belge vs. Walter Bull and
judgment debtor in the final judgment of NLRC NCR Case No.
Co., Inc., 84 Phil. 164). And because of this precept, Vergara's
8-12389-91 sought to be enforced but rather the company
supposed non-participation in the contract of sale although
known as "Qualitrans Limousine Service, Inc.," a duly
he signed the letter dated September 30, 1968 is completely
registered corporation; and,
immaterial. The two exceptions contemplated by Article 1897
of the New Civil Code where agents are directly responsible
are absent and wanting. 2. Respondent likewise caused the service of the alias writ of
execution upon complainant who is a resident of Pasay City,
despite knowledge that his territorial jurisdiction covers
WHEREFORE, the decision appealed from is hereby MODIFIED
Manila only and does not extend to Pasay City.
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. In his Comments, respondent Dalisay explained that when he
garnished complainant's cash deposit at the Philtrust bank,
he was merely performing a ministerial duty. While it is true
SO ORDERED.
that said writ was addressed to Qualitrans Limousine Service,
Inc., yet it is also a fact that complainant had executed an
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
affidavit before the Pasay City assistant fiscal stating that he
is the owner/president of said corporation and, because of
that declaration, the counsel for the plaintiff in the labor case of corporate entity" usurping a power belonging to the court
advised him to serve notice of garnishment on the Philtrust and assumed improvidently that since the complainant is the
bank. owner/president of Qualitrans Limousine Service, Inc., they
are one and the same. It is a well-settled doctrine both in law
On November 12, 1984, this case was referred to the and in equity that as a legal entity, a corporation has a
Executive Judge of the Regional Trial Court of Manila for personality distinct and separate from its individual
investigation, report and recommendation. stockholders or members. The mere fact that one is president
of a corporation does not render the property he owns or
Prior to the termination of the proceedings, however, possesses the property of the corporation, since the
complainant executed an affidavit of desistance stating that president, as individual, and the corporation are separate
he is no longer interested in prosecuting the case against entities.3
respondent Dalisay and that it was just a "misunderstanding"
between them. Upon respondent's motion, the Executive Anent the charge that respondent exceeded his territorial
Judge issued an order dated May 29, 1986 recommending the jurisdiction, suffice it to say that the writ of execution sought
dismissal of the case. to be implemented was dated July 9, 1984, or prior to the
issuance of Administrative Circular No. 12 which restrains a
It has been held that the desistance of complainant does not sheriff from enforcing a court writ outside his territorial
preclude the taking of disciplinary action against respondent. jurisdiction without first notifying in writing and seeking the
Neither does it dissuade the Court from imposing the assistance of the sheriff of the place where execution shall
appropriate corrective sanction. One who holds a public take place.
position, especially an office directly connected with the
administration of justice and the execution of judgments, ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio L.
must at all times be free from the appearance of Dalisay NEGLIGENT in the enforcement of the writ of
impropriety.1 execution in NLRC Case-No. 8-12389-91, and a fine
equivalent to three [3] months salary is hereby imposed with
We hold that respondent's actuation in enforcing a judgment a stern warning that the commission of the same or similar
against complainant who is not the judgment debtor in the offense in the future will merit a heavier penalty. Let a copy
case calls for disciplinary action. Considering the ministerial of this Resolution be filed in the personal record of the
nature of his duty in enforcing writs of execution, what is respondent.
incumbent upon him is to ensure that only that portion of a
decision ordained or decreed in the dispositive part should be SO ORDERED.
the subject of execution.2 No more, no less. That the title of
the case specifically names complainant as one of the Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.
respondents is of no moment as execution must conform to
that directed in the dispositive portion and not in the title of Republic of the Philippines
the case. SUPREME COURT
Manila
The tenor of the NLRC judgment and the implementing writ is
clear enough. It directed Qualitrans Limousine Service, Inc. to FIRST DIVISION
reinstate the discharged employees and pay them full
backwages. Respondent, however, chose to "pierce the veil G.R. No. L-56076 September 21, 1983
PALAY, INC. and ALBERT ONSTOTT, petitioner, Respondent Dumpit paid the downpayment and several
vs. installments amounting to P13,722.50. The last payment was
JACOBO C. CLAVE, Presidential Executive Assistant made on December 5, 1967 for installments up to September
NATIONAL HOUSING AUTHORITY and NAZARIO 1967.
DUMPIT respondents.
On May 10, 1973, or almost six (6) years later, private
Santos, Calcetas-Santos & Geronimo Law Office for respondent wrote petitioner offering to update all his overdue
petitioner. accounts with interest, and seeking its written consent to the
assignment of his rights to a certain Lourdes Dizon. He
Wilfredo E. Dizon for private respondent. followed this up with another letter dated June 20, 1973
reiterating the same request. Replying petitioners informed
respondent that his Contract to Sell had long been rescinded
pursuant to paragraph 6 of the contract, and that the lot had
MELENCIO-HERRERA, J.: already been resold.

The Resolution, dated May 2, 1980, issued by Presidential Questioning the validity of the rescission of the contract,
Executive Assistant Jacobo Clave in O.P. Case No. 1459, respondent filed a letter complaint with the National Housing
directing petitioners Palay, Inc. and Alberto Onstott jointly Authority (NHA) for reconveyance with an altenative prayer
and severally, to refund to private respondent, Nazario for refund (Case No. 2167). In a Resolution, dated July 10,
Dumpit, the amount of P13,722.50 with 12% interest per 1979, the NHA, finding the rescission void in the absence of
annum, as resolved by the National Housing Authority in its either judicial or notarial demand, ordered Palay, Inc. and
Resolution of July 10, 1979 in Case No. 2167, as well as the Alberto Onstott in his capacity as President of the
Resolution of October 28, 1980 denying petitioners' Motion corporation, jointly and severally, to refund immediately to
for Reconsideration of said Resolution of May 2, 1980, are Nazario Dumpit the amount of P13,722.50 with 12% interest
being assailed in this petition. from the filing of the complaint on November 8, 1974.
Petitioners' Motion for Reconsideration of said Resolution was
On March 28, 1965, petitioner Palay, Inc., through its denied by the NHA in its Order dated October 23, 1979. 1
President, Albert Onstott executed in favor of private
respondent, Nazario Dumpit, a Contract to Sell a parcel of On appeal to the Office of the President, upon the allegation
Land (Lot No. 8, Block IV) of the Crestview Heights that the NHA Resolution was contrary to law (O.P. Case No.
Subdivision in Antipolo, Rizal, with an area of 1,165 square 1459), respondent Presidential Executive Assistant, on May 2,
meters, - covered by TCT No. 90454, and owned by said 1980, affirmed the Resolution of the NHA. Reconsideration
corporation. The sale price was P23,300.00 with 9% interest sought by petitioners was denied for lack of merit. Thus, the
per annum, payable with a downpayment of P4,660.00 and present petition wherein the following issues are raised:
monthly installments of P246.42 until fully paid. Paragraph 6
of the contract provided for automatic extrajudicial rescission I
upon default in payment of any monthly installment after the
lapse of 90 days from the expiration of the grace period of Whether notice or demand is not mandatory under the
one month, without need of notice and with forfeiture of all circumstances and, therefore, may be dispensed with by
installments paid. stipulation in a contract to sell.
II the amounts the BUYER should have paid; it is understood
further, that should a period of NINETY (90) DAYS elapse to
Whether petitioners may be held liable for the refund of the begin from the expiration of the month of grace hereinbefore
installment payments made by respondent Nazario M. mentioned, and the BUYER shall not have paid all the
Dumpit. amounts that the BUYER should have paid with the
corresponding interest up to the date, the SELLER shall have
III the right to declare this contract cancelled and of no effect
without notice, and as a consequence thereof, the SELLER
Whether the doctrine of piercing the veil of corporate fiction may dispose of the lot/lots covered by this Contract in favor
has application to the case at bar. of other persons, as if this contract had never been entered
into. In case of such cancellation of this Contract, all the
IV amounts which may have been paid by the BUYER in
accordance with the agreement, together with all the
improvements made on the premises, shall be considered as
Whether respondent Presidential Executive Assistant
rents paid for the use and occupation of the above
committed grave abuse of discretion in upholding the
mentioned premises and for liquidated damages suffered by
decision of respondent NHA holding petitioners solidarily
virtue of the failure of the BUYER to fulfill his part of this
liable for the refund of the installment payments made by
agreement : and the BUYER hereby renounces his right to
respondent Nazario M. Dumpit thereby denying substantial
demand or reclaim the return of the same and further
justice to the petitioners, particularly petitioner Onstott
obligates peacefully to vacate the premises and deliver the
same to the SELLER.
We issued a Temporary Restraining Order on Feb 11, 1981
enjoining the enforcement of the questioned Resolutions and
Well settled is the rule, as held in previous
of the Writ of Execution that had been issued on December 2,
jurisprudence, 2 that judicial action for the rescission of a
1980. On October 28, 1981, we dismissed the petition but
contract is not necessary where the contract provides that it
upon petitioners' motion, reconsidered the dismissal and
may be revoked and cancelled for violation of any of its
gave due course to the petition on March 15, 1982.
terms and conditions. However, even in the cited cases,
there was at least a written notice sent to the defaulter
On the first issue, petitioners maintain that it was justified in
informing him of the rescission. As stressed in University of
cancelling the contract to sell without prior notice or demand
the Philippines vs. Walfrido de los Angeles 3 the act of a party
upon respondent in view of paragraph 6 thereof which
in treating a contract as cancelled should be made known to
provides-
the other. We quote the pertinent excerpt:
6. That in case the BUYER falls to satisfy any monthly
Of course, it must be understood that the act of a party in
installment or any other payments herein agreed upon, the
treating a contract as cancelled or resolved in account of
BUYER shall be granted a month of grace within which to
infractions by the other contracting party must be made
make the payment of the t in arrears together with the one
known to the other and is always provisional being ever
corresponding to the said month of grace. -It shall be
subject to scrutiny and review by the proper court. If the
understood, however, that should the month of grace herein
other party denies that rescission is justified it is free to
granted to the BUYER expire, without the payment &
resort to judicial action in its own behalf, and bring the
corresponding to both months having been satisfied, an
matter to court. Then, should the court, after due hearing,
interest of ten (10%) per cent per annum shall be charged on
decide that the resolution of the contract was not warranted,
the responsible party will be sentenced to damages; in the of the stipulation being merely to transfer to the defaulter
contrary case, the resolution will be affirmed, and the the initiative of instituting suit, instead of the
consequent indemnity awarded to the party prejudiced. rescinder (Emphasis supplied).

In other words, the party who deems the contract violated Of similar import is the ruling in Nera vs. Vacante 4, reading:
may consider it resolved or rescinded, and act accordingly,
without previous court action, but it proceeds at its own A stipulation entitling one party to take possession of the
risk. For it is only the final judgment of the corresponding land and building if the other party violates the contract does
court that will conclusively and finally settle whether the not ex propio vigore confer upon the former the right to take
action taken was or was not correct in law. But the law possession thereof if objected to without judicial intervention
definitely does not require that the contracting party who and determination.
believes itself injured must first file suit and wait for a
judgment before taking extrajudicial steps to protect its This was reiterated in Zulueta vs. Mariano 5 where we held
interest. Otherwise, the party injured by the other's breach that extrajudicial rescission has legal effect where the other
will have to passively sit and watch its damages accumulate party does not oppose it. 6 Where it is objected to, a judicial
during the pendency of the suit until the final judgment of determination of the issue is still necessary.
rescission is rendered when the law itself requires that he
should exercise due diligence to minimize its own damages In other words, resolution of reciprocal contracts may be
(Civil Code, Article 2203). made extrajudicially unless successfully impugned in Court. If
the debtor impugns the declaration, it shall be subject to
We see no conflict between this ruling and the previous judicial determination. 7
jurisprudence of this Court invoked by respondent declaring
that judicial action is necessary for the resolution of a In this case, private respondent has denied that rescission is
reciprocal obligation (Ocejo Perez & Co., vs. International justified and has resorted to judicial action. It is now for the
Banking Corp., 37 Phil. 631; Republic vs. Hospital de San Juan Court to determine whether resolution of the contract by
De Dios, et al., 84 Phil 820) since in every case where the petitioners was warranted.
extrajudicial resolution is contested only the final award of
the court of competent jurisdiction can conclusively settle We hold that resolution by petitioners of the contract was
whether the resolution was proper or not. It is in this sense ineffective and inoperative against private respondent for
that judicial action win be necessary, as without it, the lack of notice of resolution, as held in the U.P. vs. Angeles
extrajudicial resolution will remain contestable and subject to case, supra
judicial invalidation unless attack thereon should become
barred by acquiescense, estoppel or prescription.
Petitioner relies on Torralba vs. De los Angeles 8 where it was
held that "there was no contract to rescind in court because
Fears have been expressed that a stipulation providing for a from the moment the petitioner defaulted in the timely
unilateral rescission in case of breach of contract may render payment of the installments, the contract between the
nugatory the general rule requiring judicial action (v. parties was deemed ipso facto rescinded." However, it should
Footnote, Padilla Civil Law, Civil Code Anno., 1967 ed. Vol. IV, be noted that even in that case notice in writing was made to
page 140) but, as already observed, in case of abuse or error the vendee of the cancellation and annulment of the contract
by the rescinder the other party is not barred from although the contract entitled the seller to immediate
questioning in court such abuse or error, the practical effect repossessing of the land upon default by the buyer.
The indispensability of notice of cancellation to the buyer was As a consequence of the resolution by petitioners, rights to
to be later underscored in Republic Act No. 6551 entitled "An the lot should be restored to private respondent or the same
Act to Provide Protection to Buyers of Real Estate on should be replaced by another acceptable lot. However,
Installment Payments." which took effect on September 14, considering that the property had already been sold to a third
1972, when it specifically provided: person and there is no evidence on record that other lots are
still available, private respondent is entitled to the refund of
Sec. 3(b) ... the actual cancellation of the contract shall take installments paid plus interest at the legal rate of 12%
place after thirty days from receipt by the buyer of the notice computed from the date of the institution of the action. 10 It
of cancellation or the demand for rescission of the contract would be most inequitable if petitioners were to be allowed to
by a notarial act and upon full payment of the cash surrender retain private respondent's payments and at the same time
value to the buyer. (Emphasis supplied). appropriate the proceeds of the second sale to another.

The contention that private respondent had waived his right We come now to the third and fourth issues regarding the
to be notified under paragraph 6 of the contract is neither personal liability of petitioner Onstott who was made jointly
meritorious because it was a contract of adhesion, a standard and severally liable with petitioner corporation for refund to
form of petitioner corporation, and private respondent had no private respondent of the total amount the latter had paid to
freedom to stipulate. A waiver must be certain and petitioner company. It is basic that a corporation is invested
unequivocal, and intelligently made; such waiver follows only by law with a personality separate and distinct from those of
where liberty of choice has been fully accorded. 9 Moreover, it the persons composing it as wen as from that of any other
is a matter of public policy to protect buyers of real estate on legal entity to which it may be related. 11 As a general rule, a
installment payments against onerous and oppressive corporation may not be made to answer for acts or liabilities
conditions. Waiver of notice is one such onerous and of its stockholders or those of the legal entities to which it
oppressive condition to buyers of real estate on installment may be connected and vice versa. However, the veil of
payments. corporate fiction may be pierced when it is used as a shield
to further an end subversive of justice 12 ; or for purposes
Regarding the second issue on refund of the installment that could not have been intended by the law that created
payments made by private respondent. Article 1385 of the it 13 ; or to defeat public convenience, justify wrong, protect
Civil Code provides: fraud, or defend crime. 14 ; or to perpetuate fraud or confuse
legitimate issues 15 ; or to circumvent the law or perpetuate
ART. 1385. Rescission creates the obligation to return the deception 16 ; or as an alter ego, adjunct or business conduit
things which were the object of the contract, together with for the sole benefit of the stockholders. 17
their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission can We find no badges of fraud on petitioners' part. They had
return whatever he may be obliged to restore. literally relied, albeit mistakenly, on paragraph 6 (supra) of
its contract with private respondent when it rescinded the
Neither sham rescission take place when the things which are contract to sell extrajudicially and had sold it to a third
the object of the contract are legally in the possession of person.
third persons who did not act in bad faith.
In this case, petitioner Onstott was made liable because he
In this case, indemnity for damages may be demanded from was then the President of the corporation and he a to be the
the person causing the loss. controlling stockholder. No sufficient proof exists on record
that said petitioner used the corporation to defraud private
respondent. He cannot, therefore, be made personally liable
just because he "appears to be the controlling stockholder". BARREDO, J.:
Mere ownership by a single stockholder or by another
corporation is not of itself sufficient ground for disregarding Appeal from the decision dated 6 October 1962 of the Court
the separate corporate personality. 18 In this respect then, a of First Instance of Manila dismissing the action in its Civil
modification of the Resolution under review is called for. Case No. 48925 brought by the herein plaintiff-appellant
Philippine First Insurance Co., Inc. to the Court of Appeals
WHEREFORE, the questioned Resolution of respondent public which could, upon finding that the said appeal raises purely
official, dated May 2, 1980, is hereby modified. Petitioner questions of law, declared itself without jurisdiction to
Palay, Inc. is directed to refund to respondent Nazario M. entertain the same and, in its resolution dated 15 July 1966,
Dumpit the amount of P13,722.50, with interest at twelve certified the records thereof to this Court for proper
(12%) percent per annum from November 8, 1974, the date determination.
of the filing of the Complaint. The temporary Restraining
Order heretofore issued is hereby lifted. The antecedent facts are set forth in the pertinent portions of
the resolution of the Court of Appeals referred to as follows:
No costs.
According to the complaint, plaintiff was originally organized
SO ORDERED. as an insurance corporation under the name of 'The Yek Tong
Lin Fire and Marine Insurance Co., Ltd.' The articles of
incorporation originally presented before the Security and
Exchange Commissioner and acknowledged before Notary
Republic of the Philippines Public Mr. E. D. Ignacio on June 1, 1953 state that the name
SUPREME COURT of the corporation was 'The Yek Tong Lin Fire and Marine
Manila Insurance Co., Ltd.' On May 26, 1961 the articles of
incorporation were amended pursuant to a certificate of the
EN BANC Board of Directors dated March 8, 1961 changing the name
of the corporation to 'Philippine First Insurance Co., Inc.'.

The complaint alleges that the plaintiff Philippine First


G.R. No. L-26370 July 31, 1970 Insurance Co., Inc., doing business under the name of 'The
Yek Tong Lin Fire and Marine Insurance Co., Lt.' signed as co-
PHILIPPINE FIRST INSURANCE COMPANY, INC., plaintiff- maker together with defendant Maria Carmen Hartigan, CGH,
appellant, a promissory note for P5,000.00 in favor of the China Banking
vs. Corporation payable within 30 days after the date of the
MARIA CARMEN HARTIGAN, CGH, and O. promissory note with the usual banking interest; that the
ENGKEE, defendants-appellees. plaintiff agreed to act as such co-maker of the promissory
note upon the application of the defendant Maria Carmen
Hartigan, CGH, who together with Antonio F. Chua and Chang
Bausa, Ampil & Suarez for plaintiff-appellant.
Ka Fu, signed an indemnity agreement in favor of the
plaintiff, undertaking jointly and severally, to pay the plaintiff
Nicasio E. Martin for defendants-appellees.
damages, losses or expenses of whatever kind or nature, By way of special defense, defendants claim that there is no
including attorney's fees and legal costs, which the plaintiff privity of contract between the plaintiff and the defendants
may sustain as a result of the execution by the plaintiff and and consequently, the plaintiff has no cause of action against
co-maker of Maria Carmen Hartigan, CGH, of the promissory them, considering that the complaint does not allege that the
note above-referred to; that as a result of the execution of plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co.,
the promissory note by the plaintiff and Maria Carmen Ltd.' are one and the same or that the plaintiff has acquired
Hartigan, CGH, the China Banking Corporation delivered to the rights of the latter. The parties after the admission of
the defendant Maria Carmen Hartigan, CGH, the sum of Exhibit A which is the amended articles of incorporation and
P5,000.00 which said defendant failed to pay in full, such that Exhibit 1 which is a demand letter dated August 16, 1962
on August 31, 1961 the same was. renewed and as of signed by the manager of the loans and discount department
November 27, 1961 there was due on account of the of the China Banking Corporation showing that the
promissory note the sum of P4,559.50 including interest. The promissory note up to said date in the sum of P4,500.00 was
complaint ends with a prayer for judgment against the still unpaid, submitted the case for decision based on the
defendants, jointly and severally, for the sum of P4,559.50 pleadings.
with interest at the rate of 12% per annum from November
23, 1961 plus P911.90 by way of attorney's fees and costs. Under date of 6 October 1962, the Court of First Instance of
Manila rendered the decision appealed. It dismissed the
Although O. Engkee was made as party defendant in the action with costs against the plaintiff Philippine First
caption of the complaint, his name is not mentioned in the Insurance Co., Inc., reasoning as follows:
body of said complaint. However, his name Appears in the
Annex A attached to the complaint which is the counter ... With these undisputed facts in mind, the parties correctly
indemnity agreement supposed to have been signed concluded that the issues for resolution by this Court are as
according to the complaint by Maria Carmen Hartigan, CGH, follows:
Antonio F. Chua and Chang Ka Fu.
(a) Whether or not the plaintiff is the real party in interest
In their answer the defendants deny the allegation that the that may validly sue on the indemnity agreement signed by
plaintiff formerly conducted business under the name and the defendants and the Yek Tong Lin Fire & Marine Insurance
style of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' Co., Ltd. (Annex A to plaintiff's complaint ); and
They admit the execution of the indemnity agreement but
they claim that they signed said agreement in favor of the (b) Whether or not a suit for indemnity or reimbursement
Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and not in may under said indemnity agreement prosper without
favor of the plaintiff. They likewise admit that they failed to plaintiff having yet paid the amount due under said
pay the promissory note when it fell due but they allege that promissory note.
since their obligation with the China Banking Corporation
based on the promissory note still subsists, the surety who In the first place, the change of name of the Yek Tong Lin Fire
co-signed the promissory note is not entitled to collect the & Marine Insurance Co., Ltd. to the Philippines First Insurance
value thereof from the defendants otherwise they will be Co., Inc. is of dubious validity. Such change of name in effect
liable for double amount of their obligation, there being no dissolved the original corporation by a process of dissolution
allegation that the surety has paid the obligation to the not authorized by our corporation law (see Secs. 62 and 67,
creditor. inclusive, of our Corporation Law). Moreover, said change of
name, amounting to a dissolution of the Yek Tong Lin Fire &
Marine Insurance Co., Ltd., does not appear to have been Last, but not least, assuming that the said change of name
effected with the written note or assent of stockholders was legal and operated to dissolve the original corporation,
representing at least two-thirds of the subscribed capital the dissolved corporation, must pursuant to Sec. 77 of our
stock of the corporation, a voting proportion required not corporation law, be deemed as continuing as a body
only for the dissolution of a corporation but also for any corporate for three (3) years from March 8, 1961 for the
amendment of its articles of incorporation (Secs. 18 and 62, purpose of prosecuting and defending suits. It is, therefore,
Corporation Law). Furthermore, such change of corporate the Yek Tong Lin Fire & Marine Insurance Co., Ltd. that is the
name appears to be against public policy and may be proper party to sue the defendants under said indemnity
effected only by express authority of law (Red Line agreement up to March 8, 1964.
Transportation Co. v. Rural Transit Co., Ltd., 60 Phil. 549, 555;
Cincinnati Cooperage Co., Ltd. vs. Vate, 26 SW 538, 539; Having arrived at the foregoing conclusions, this Court need
Pilsen Brewing Co. vs. Wallace, 125 NE 714), but there is not squarely pass upon issue (b) formulated above.
nothing in our corporation law authorizing the change of
corporate name in this jurisdiction. WHEREFORE, plaintiff's action is hereby dismissed, with costs
against the plaintiff.
In the second place, assuming that the change of name of
the Yek Tong Lin Fire & Marine Insurance Co. Ltd., to In due time, the Philippine First Insurance Company, Inc.
Philippines pine First Insurance Co., Inc., as accomplished on moved for reconsideration of the decision aforesaid, but said
March 8, 1961, is valid, that would mean that the original motion was denied on December 3, 1962 in an order worded
corporation, the Yek Tong Lin Fire & Marine Insurance Co., thus:
Ltd., became dissolved and of no further existence since
March 8, 1961, so that on May 15, 1961, the date the The motion for reconsideration, dated November 8, 1962,
indemnity agreement, Annex A, was executed, said original raises no new issue that we failed to consider in rendering
corporation bad no more power to enter into any agreement our decision of October 6, 1962. However, it gives us an
with the defendants, and the agreement entered into by it opportunity to amplify our decision as regards the question of
was ineffective for lack of capacity of said dissolved change of name of a corporation in this jurisdiction.
corporation to enter into said agreement. At any rate, even if
we hold that said change of name is valid, the fact remains We find nothing in our Corporation Law authorizing a change
that there is no evidence showing that the new entity, the of name of a corporation organized pursuant to its provisions.
Philippine First Insurance Co., Inc. has with the consent of the Sec. 18 of the Corporation Law authorizes, in our opinion,
original parties, assumed the obligations or was assigned the amendment to the Articles of Incorporation of a corporation
rights of action in the original corporation, the Yek Tong Lin only as to matters other than its corporate name. Once a
Fire & Marine Insurance Co., Ltd. In other words, there is no corporation is organized in this jurisdiction by the execution
evidence of conventional subrogation of the Plaintiffs in the and registration of its Articles of Incorporation, it shall
rights of the Yek Tong Lin Fire & Marine Insurance Co., Ltd. continue to exist under its corporate name for the lifetime of
under said indemnity agreement (Arts. 1300, 1301, New Civil its corporate existence fixed in its Articles of Incorporation,
Code). without such subrogation assignment of rights, the unless sooner legally dissolved (Sec. 11, Corp. Law).
herein plaintiff has no cause of action against the Significantly, change of name is not one of the methods of
defendants, and is, therefore, not the right party in interest dissolution of corporations expressly authorized by our
as plaintiff. Corporation Law. Also significant is the fact that the power to
change its corporate name is not one of the general powers
conferred on corporations in this jurisdiction (Sec. 13, Corp. regret that we cannot in good conscience lend approval to
Law). The enumeration of corporate powers made in our this action of the Securities and Exchange Commissioner. We
Corporation Law implies the exclusion of all others (Thomas find no justification, legal, moral, or practical, for adhering to
v. West Jersey R. Co., 101 U.S. 71, 25 L. ed. 950). It is the view taken by the Securities and Exchange Commissioner
obvious, in this connection, that change of name is not one of that the name of a corporation in the Philippines may be
the powers necessary to the exercise of the powers conferred changed by mere amendment of its Articles of Incorporation
on corporations by said Sec. 13 (see Sec. 14, Corp. Law). as to its corporate name. A change of corporate name would
serve no useful purpose, but on the contrary would most
To rule that Sec. 18 of our Corporation Law authorizes the probably cause confusion. Only a dubious purpose could
change of name of a corporation by amendment of its inspire a change of a corporate. name which, unlike a natural
Articles of Incorporation is to indulge in judicial legislation. person's name, was chosen by the incorporators themselves;
We have examined the cases cited in Volume 13 of American and our Courts should not lend their assistance to the
Jurisprudence in support of the proposition that the general accomplishment of dubious purposes.
power to alter or amend the charter of a corporation
necessarily includes the power to alter the name of a WHEREFORE, we hereby deny plaintiff's motion for
corporation, and find no justification for said conclusion reconsideration, dated November 8, 1962, for lack of merit.
arrived at by the editors of American Jurisprudence. On the
contrary, the annotations in favor of plaintiff's view appear to In this appeal appellant contends that
have been based on decisions in cases where the statute
itself expressly authorizes change of corporate name by I
amendment of its Articles of Incorporation. The correct rule in
harmony with the provisions of our Corporation Law is well THE TRIAL COURT ERRED IN HOLDING THAT IN THIS
expressed in an English case as follows: JURISDICTION, THERE IS NOTHING IN OUR CORPORATION LAW
AUTHORIZING THE CHANGE OF CORPORATE NAME;
After a company has been completely register without defect
or omission, so as to be incorporated by the name set forth in II
the deed of settlement, such incorporated company has not
the power to change its name ... Although the King by his THE TRIAL COURT ERRED IN DECLARING THAT A CHANGE OF
prerogative might incorporate by a new name, and the newly CORPORATE NAME APPEARS TO BE AGAINST PUBLIC POLICY;
named corporation might retain former rights, and
sometimes its former name also, ... it never appears to be
III
such an act as the corporation could do by itself, but required
the same power as created the corporation. (Reg. v. Registrar
THE TRIAL COURT ERRED IN HOLDING THAT A CHANGE OF
of Joint Stock Cos 10 Q.B. 839, 59 E.C.L. 839).
CORPORATE NAME HAS THE LEGAL EFFECT OF DISSOLVING
THE ORIGINAL CORPORATION:
The contrary view appears to represent the minority doctrine,
judging from the annotations on decided cases on the matter.
IV
The movant invokes as persuasive precedent the action of
THE TRIAL COURT ERRED IN HOLDING THAT THE CHANGE OF
the Securities Commissioner in tacitly approving the
NAME OF THE YEK TONG LIN FIRE & MARINE INSURANCE CO.,
Amended, Articles of Incorporation on May 26, 1961. We
LTD. IS OF DUBIOUS VALIDITY;
V of shares of any class, or would authorize shares with
preferences in any respect superior to those of outstanding
THE TRIAL COURT ERRED IN HOLDING THAT THE APPELLANT shares of any class, or would restrict the rights of any
HEREIN IS NOT THE RIGHT PARTY INTEREST TO SUE stockholder, then any stockholder who did not vote for such
DEFENDANTS-APPELLEES; corporate action may, within forty days after the date upon
which such action was authorized, object thereto in writing
IV and demand Payment for his shares. If, after such a demand
by a stockholder, the corporation and the stockholder cannot
THE TRIAL COURT FINALLY ERRED IN DISMISSING THE agree upon the value of his share or shares at the time such
COMPLAINT. corporate action was authorized, such values all be
ascertained by three disinterested persons, one of whom
Appellant's Position is correct; all the above assignments of shall be named by the stockholder, another by the
error are well taken. The whole case, however, revolves corporation, and the third by the two thus chosen. The
around only one question. May a Philippine corporation findings of the appraisers shall be final, and if their award is
change its name and still retain its original personality and not paid by the corporation within thirty days after it is made,
individuality as such? it may be recovered in an action by the stockholder against
the corporation. Upon payment by the corporation to the
stockholder of the agreed or awarded price of his share or
The answer is not difficult to find. True, under Section 6 of the
shares, the stockholder shall forthwith transfer and assign
Corporation Law, the first thing required to be stated in the
the share or shares held by him as directed by the
Articles of Incorporation of any corn corporation is its name,
corporation: Provided, however, That their own shares of
but it is only one among many matters equally if not more
stock purchased or otherwise acquired by banks, trust
important, that must be stated therein. Thus, it is also
companies, and insurance companies, should be disposed of
required, for example, to state the number and names of and
within six months after acquiring title thereto.
residences of the incorporators and the residence or location
of the principal office of the corporation, its term of
existence, the amount of its capital stock and the number of Unless and until such amendment to the articles of
shares into which it is divided, etc., etc. incorporation shall have been abandoned or the action
rescinded, the stockholder making such demand in writing
shall cease to be a stockholder and shall have no rights with
On the other hand, Section 18 explicitly permits the articles
respect to such shares, except the right to receive payment
of incorporation to be amended thus:
therefor as aforesaid.
Sec. 18. Any corporation may for legitimate corporate
A stockholder shall not be entitled to payment for his shares
purpose or purposes, amend its articles of incorporation by a
under the provisions of this section unless the value of the
majority vote of its board of directors or trustees and the
corporate assets which would remain after such payment
vote or written assent of two-thirds of its members, if it be a
would be at least equal to the aggregate amount of its debts
nonstock corporation or, if it be a stock corporation, by the
and liabilities and the aggregate par value and/or issued
vote or written assent of the stockholders representing at
value of the remaining subscribed capital stock.
least two-thirds of the subscribed capital stock of the
corporation Provided, however, That if such amendment to
the articles of incorporation should consist in extending the A copy of the articles of incorporation as amended, duly
corporate existence or in any change in the rights of holders certified to be correct by the president and the secretary of
the corporation and a majority of the board of directors or restricting the power to amend when it comes to the term of
trustees, shall be filed with the Securities and Exchange their existence and the increase or decrease of the capital
Commissioner, who shall attach the same to the original stock. There is no prohibition therein against the change of
articles of incorporation, on file in his office. From the time of name. The inference is clear that such a change is allowed,
filing such copy of the amended articles of incorporation, the for if the legislature had intended to enjoin corporations from
corporation shall have the same powers and it and the changing names, it would have expressly stated so in this
members and stockholders thereof shall thereafter be subject section or in any other provision of the law.
to the same liabilities as if such amendment had been
embraced in the original articles of incorporation: Provided, No doubt, "(the) name (of a corporation) is peculiarly
however, That should the amendment consist in extending important as necessary to the very existence of a
the corporate life, the extension shall not exceed 50 years in corporation. The general rule as to corporations is that each
any one instance. Provided, further, That the original articles corporation shall have a name by which it is to sue and be
and amended articles together shall contain all provisions sued and do all legal acts. The name of a corporation in this
required by law to be set out in the articles of respect designates the corporation in the same manner as
incorporation: And provided, further, That nothing in this the name of an individual designates the person." 1 Since an
section shall be construed to authorize any corporation to individual has the right to change his name under certain
increase or diminish its capital stock or so as to effect any conditions, there is no compelling reason why a corporation
rights or actions which accrued to others between the time of may not enjoy the same right. There is nothing sacrosanct in
filing the original articles of incorporation and the filing of the a name when it comes to artificial beings. The sentimental
amended articles. considerations which individuals attach to their names are
not present in corporations and partnerships. Of course, as in
The Securities and, Exchange Commissioner shall be entitled the case of an individual, such change may not be made
to collect and receive the sum of ten pesos for filing said exclusively. by the corporation's own act. It has to follow the
copy of the amended articles of incorporation. Provided, procedure prescribed by law for the purpose; and this is what
however, That when the amendment consists in extending is important and indispensably prescribed strict adherence
the term of corporate existence, the Securities and Exchange to such procedure.
Commissioner shall be entitled to collect and receive for the
filing of its amended articles of incorporation the same fees Local well known corporation law commentators are
collectible under existing law for the filing of articles of unanimous in the view that a corporation may change its
incorporation. The Securities & Exchange Commissioner shall name by merely amending its charter in the manner
not hereafter file any amendment to the articles of prescribed by law. 2 American authorities which have
incorporation of any bank, banking institution, or building and persuasive force here in this regard because our corporation
loan association unless accompanied by a certificate of the law is of American origin, the same being a sort of
Monetary Board (of the Central Bank) to the effect that such codification of American corporate law, 3 are of the same
amendment is in accordance with law. (As further amended opinion.
by Act No. 3610, Sec. 2 and Sec. 9. R.A. No. 337 and R.A. No.
3531.) A general power to alter or amend the charter of a
corporation necessarily includes the power to alter the name
It can be gleaned at once that this section does not only of the corporation. Ft. Pitt Bldg., etc., Assoc. v. Model Plan
authorize corporations to amend their charter; it also lays Bldg., etc., Assoc., 159 Pa. St. 308, 28 Atl. 215; In re Fidelity
down the procedure for such amendment; and, what is more
relevant to the present discussion, it contains provisos
Mut. Aid Assoc., 12 W.N.C. (Pa.) 271; Excelsior Oil Co., 3 Pa. never appears to be such an act as the corporation could do
Co. Ct. 184; Wetherill Steel Casting Co., 5 Pa. Co. Ct. 337. for itself, but required ;the same Power as created a
corporation." What seems to have been overlooked,
xxx xxx xxx therefore, is that the procedure prescribes by Section 18 of
our Corporation Law for the amendment of corporate
Under the General Laws of Rhode Island, c 176, sec. 7, charters is practically identical with that for the incorporation
relating to an increase of the capital stock of a corporation, it itself of a corporation.
is provided that 'such agreement may be amended in any
other particular, excepting as provided in the following In the appealed order of dismissal, the trial court, made the
section', which relates to a decrease of the capital stock This observation that, according to this Court in Red Line
section has been held to authorize a change in the name of a Transportation Co. v. Rural Transit Co., Ltd., 60 Phil, 549, 555,
corporation. Armington v. Palmer, 21 R.I. 109, 42 Atl. 308, 43, change of name of a corporation is against public policy. We
L.R.A. 95, 79 Am. St. Rep. 786. (Vol. 19, American and English must clarify that such is not the import of Our said decision.
Annotated Cases, p. 1239.) What this Court held in that case is simply that:

Fletcher, a standard authority on American an corporation We know of no law that empowers the Public Service
law also says: Commission or any court in this jurisdiction to authorize one
corporation to assume the name of another corporation as a
Statutes are to be found in the various jurisdictions dealing trade name. Both the Rural Transit Company, Ltd., and the
with the matter of change in corporate names. Such statutes Bachrach Motor Co., Inc., are Philippine corporations and the
have been subjected to judicial construction and have, in the very law of their creation and continued existence requires
main, been upheld as constitutional. In direct terms or by each to adopt and certify a distinctive name. The
necessary implication, they authorize corporations new incorporators 'constitute a body politic and corporate under
names and prescribe the mode of procedure for that purpose. the name stated in the certificate.' (Section 11, Act No. 1459,
The same steps must be taken under some statutes to effect as amended.) A corporation has the power 'of succession by
a change in a corporate name, as when any other its corporate name.' (Section 13, ibid.) The name of a
amendment of the corporate charter is sought .... When the corporation is therefore essential to its existence. It cannot
general law thus deals with the subject, a corporation can change its name except in the manner provided by the
change its name only in the manner provided. (6 Fletcher, statute. By that name alone is it authorized to transact
Cyclopedia of the Law of Private Corporations, 1968 Revised business. The law gives a corporation no express or implied
Volume, pp. 212-213.) (Emphasis supplied) authority to assume another name that is unappropriated;
still less that of another corporation, which is expressly set
The learned trial judge held that the above-quoted apart for it and protected by the law. If any corporation could
proposition are not supported by the weight of authority assume at pleasure as an unregistered trade name the name
because they are based on decisions in cases where the of another corporation, this practice would result in confusion
statutes expressly authorize change of corporate name by and open the door to frauds and evasions and difficulties of
amendment of the articles of incorporation. We have administration and supervision. The policy of the law as
carefully examined these authorities and We are satisfied of expressed our corporation statute and the Code of
their relevance. Even Lord Denman who has been quoted by Commerce is clearly against such a practice. (Cf. Scarsdale
His Honor from In Reg. v. Registrar of Joint Stock Cos. 10, Pub. Co. Colonial Press vs. Carter, 116 New York
Q.B., 59 E.C.L. maintains merely that the change of its name Supplement, 731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn.,
205 Illinois [Appellate Courts], 428, 434.)
In other words, what We have held to be contrary to public England. Doe v. Norton, 11 M. & W. 913, 7 Jur. 751, 12 L. J.
policy is the use by one corporation of the name of another Exch. 418.
corporation as its trade name. We are certain no one will
disagree that such an act can only "result in confusion and United States. Metropolitan Nat. Bank v. Claggett, 141 U.S.
open the door to frauds and evasions and difficulties of 520, 12 S. Ct. 60, 35 U.S. (L. ed.) 841.
administration and supervision." Surely, the Red Line case
was not one of change of name. Alabama. Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17
So. 670; North Birmingham Lumber Co. v. Sims, 157 Ala. 595,
Neither can We share the posture of His Honor that the 48 So. 84.
change of name of a corporation results in its dissolution.
There is unanimity of authorities to the contrary. Connecticut. Trinity Church v. Hall, 22 Com. 125.

An authorized change in the name of a corporation has no Illinois. Mt. Palatine Academy v. Kleinschnitz 28 III, 133; St.
more effect upon its identity as a corporation than a change Louis etc. R. Co. v. Miller, 43 Ill. 199;Reading v. Wedder, 66 III.
of name of a natural person has upon his identity. It does not 80.
affect the rights of the corporation or lessen or add to its
obligations. After a corporation has effected a change in its Indiana. Rosenthal v. Madison etc., Plank Road Co., 10 Ind.
name it should sue and be sued in its new name .... (13 Am. 358.
Jur. 276-277, citing cases.)
Kentucky. Cahill v. Bigger, 8 B. Mon. 211; Wilhite v.
A mere change in the name of a corporation, either by the Convent of Good Shepherd, 177 Ky. 251, 78 S. W. 138.
legislature or by the corporators or stockholders under
legislative authority, does not, generally speaking, affect the Maryland. Phinney v. Sheppard & Enoch Pratt Hospital, 88
identity of the corporation, nor in any way affect the rights, Md. 633, 42 Atl. 58, writ of error dismissed, 177 U.S. 170, 20
privileges, or obligations previously acquired or incurred by S. Ct. 573, 44 U.S. (L. ed.) 720.
it. Indeed, it has been said that a change of name by a
corporation has no more effect upon the identity of the
Missouri. Dean v. La Motte Lead Co., 59 Mo. 523.
corporation than a change of name by a natural person has
upon the identity of such person. The corporation, upon such
Nebraska. Carlon v. City Sav. Bank, 82 Neb. 582, 188 N. W.
change in its name, is in no sense a new corporation, nor the
334. New York First Soc of M.E. Church v. Brownell, 5 Hun
successor of the original one, but remains and continues to
464.
be the original corporation. It is the same corporation with a
different name, and its character is in no respect changed. ...
(6 Fletcher, Cyclopedia of the Law of Private Corporations, Pennsylvania. Com. v. Pittsburgh, 41 Pa. St. 278.
224-225, citing cases.)
South Carolina. South Carolina Mut Ins. Co. v. Price 67 S.C.
The change in the name of a corporation has no more effect 207, 45 S.E. 173.
upon its identity as a corporation than a change of name of a
natural person has upon his identity. It does not affect the Virginia. Wilson v. Chesapeake etc., R. Co., 21 Gratt
rights of the corporation, or lessen or add to its obligations. 654; Wright-Caesar Tobacco Co. v. Hoen,105 Va. 327, 54 S.E.
309.
Washington. King v. Ilwaco R. etc., Co., 1 Wash. 127. 23 of incorporation changing the name "The Yek Tong Lin Fire &
Pac. 924. Marine Insurance Co., Ltd." to "Philippine First Insurance Co.,
Inc." on March 8, 1961, did not automatically change the
Wisconsin. Racine Country Bank v. Ayers, 12 Wis. 512. name of said corporation on that date. To be effective,
Section 18 of the Corporation Law, earlier quoted, requires
The fact that the corporation by its old name makes a format that "a copy of the articles of incorporation as amended, duly
transfer of its property to the corporation by its new name certified to be correct by the president and the secretary of
does not of itself show that the change in name has affected the corporation and a majority of the board of directors or
a change in the identity of the corporation. Palfrey v. trustees, shall be filed with the Securities & Exchange
Association for Relief, etc., 110 La. 452, 34 So. 600. The fact Commissioner", and it is only from the time of such filing,
that a corporation organized as a state bank afterwards that "the corporation shall have the same powers and it and
becomes a national bank by complying with the provisions of the members and stockholders thereof shall thereafter be
the National Banking Act, and changes its name accordingly, subject to the same liabilities as if such amendment had
has no effect on its right to sue upon obligations or liabilities been embraced in the original articles of incorporation." It
incurred to it by its former name. Michigan Ins. Bank v. Eldred goes without saying then that appellant rightly acted in its
143 U.S. 293, 12 S. Ct. 450, 36 U.S. (L. ed.) 162. old name when on May 15, 1961, it entered into the
indemnity agreement, Annex A, with the defendant-
A deed of land to a church by a particular name has been appellees; for only after the filing of the amended articles of
held not to be affected by the fact that the church afterwards incorporation with the Securities & Exchange Commission on
took a different name. Cahill v. Bigger, 8 B. Mon (ky) 211. May 26, 1961, did appellant legally acquire its new name;
and it was perfectly right for it to file the present case In that
A change in the name of a corporation is not a divestiture of new name on December 6, 1961. Such is, but the logical
title or such a change as requires a regular transfer of title to effect of the change of name of the corporation upon its
property, whether real or personal, from the corporation actions.
under one name to the same corporation under another
name. McCloskey v. Doherty, 97 Ky. 300, 30 S. W. 649. (19 Actions brought by a corporation after it has changed its
American and English Annotated Cases 1242-1243.) name should be brought under the new name although for
the enforcement of rights existing at the time the change
As was very aptly said in Pacific Bank v. De Ro 37 Cal. 538, was made. Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17
"The changing of the name of a corporation is no more the So. 670: Newlan v. Lombard University, 62 III. 195; Thomas v.
creation of a corporation than the changing of the name of a Visitor of Frederick County School, 7 Gill & J (Md.)
natural person is the begetting of a natural person. The act, 388; Delaware, etc., R. Co. v. Trick, 23 N. J. L.
in both cases, would seem to be what the language which we 321; Northumberland Country Bank v. Eyer, 60 Pa. St.
use to designate it imports a change of name, and not a 436; Wilson v. Chesapeake etc., R. Co., 21 Gratt (Va.) 654.
change of being.
The change in the name of the corporation does not affect its
Having arrived at the above conclusion, We have agree with right to bring an action on a note given to the corporation
appellant's pose that the lower court also erred in holding under its former name. Cumberland College v. Ish, 22. Cal.
that it is not the right party in interest to sue defendants- 641; Northwestern College v. Schwagler, 37 Ia. 577. (19
appellees. 4 As correctly pointed out by appellant, the American and English Annotated Cases 1243.)
approval by the stockholders of the amendment of its articles
In consequence, We hold that the lower court erred in EN BANC
dismissing appellant's complaint. We take this opportunity,
however, to express the Court's feeling that it is apparent G.R. No. L-23606 July 29, 1968
that appellee's position is more technical than otherwise.
Nowhere in the record is it seriously pretended that the ALHAMBRA CIGAR & CIGARETTE MANUFACTURING
indebtedness sued upon has already been paid. If appellees COMPANY, INC., petitioner,
entertained any fear that they might again be made liable to vs.
Yek Tong Lin Fire & Marine Insurance Co. Ltd., or to someone SECURITIES & EXCHANGE COMMISSION, respondent.
else in its behalf, a cursory examination of the records of the
Securities & Exchange Commission would have sufficed to Gamboa and Gamboa for petitioner.
clear up the fact that Yek Tong Lin had just changed its name Office of the Solicitor General for respondent.
but it had not ceased to be their creditor. Everyone should
realize that when the time of the courts is utilized for cases SANCHEZ, J.:
which do not involve substantial questions and the claim of
one of the parties, therein is based on pure technicality that
To the question May a corporation extend its life by
can at most delay only the ultimate outcome necessarily
amendment of its articles of incorporation effected during the
adverse to such party because it has no real cause on the
three-year statutory period for liquidation when its original
merits, grave injustice is committed to numberless litigants
term of existence had already expired? the answer of the
whose meritorious cases cannot be given all the needed time
Securities and Exchange Commissioner was in the negative.
by the courts. We address this appeal once more to all
Offshoot is this appeal.
members of the bar, in particular, since it is their bounden
duty to the profession and to our country and people at large
That problem emerged out of the following controlling facts:
to help ease as fast as possible the clogged dockets of the
courts. Let us not wait until the people resort to other means
to secure speedy, just and inexpensive determination of their Petitioner Alhambra Cigar and Cigarette Manufacturing
cases. Company, Inc. (hereinafter referred to simply as Alhambra)
was duly incorporated under Philippine laws on January 15,
1912. By its corporate articles it was to exist for fifty (50)
WHEREFORE, judgment of the lower court is reversed, and
years from incorporation. Its term of existence expired on
this case is remanded to the trial court for further
January 15, 1962. On that date, it ceased transacting
proceedings consistent herewith With costs against
business, entered into a state of liquidation.
appellees.
Thereafter, a new corporation. Alhambra Industries, Inc.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,
was formed to carry on the business of Alhambra.
Castro, Fernando, Teehankee and Villamor, JJ., concur.
On May 1, 1962, Alhambra's stockholders, by resolution
named Angel S. Gamboa trustee to take charge of its
liquidation.
Republic of the Philippines
SUPREME COURT
On June 20, 1963 within Alhambra's three-year statutory
Manila
period for liquidation - Republic Act 3531 was enacted into
law. It amended Section 18 of the Corporation Law; it
empowered domestic private corporations to extend their Alhambra now invokes the jurisdiction of this Court to
corporate life beyond the period fixed by the articles of overturn the conclusion below.1
incorporation for a term not to exceed fifty years in any one
instance. Previous to Republic Act 3531, the maximum non- 1. Alhambra relies on Republic Act 3531, which amended
extendible term of such corporations was fifty years. Section 18 of the Corporation Law. Well it is to take note of
the old and the new statutes as they are framed. Section 18,
On July 15, 1963, at a special meeting, Alhambra's board of prior to and after its modification by Republic Act 3531,
directors resolved to amend paragraph "Fourth" of its articles covers the subject of amendment of the articles of
of incorporation to extend its corporate life for an additional incorporation of private corporations. A provision thereof
fifty years, or a total of 100 years from its incorporation. which remains unaltered is that a corporation may amend its
articles of incorporation "by a majority vote of its board of
On August 26, 1963, Alhambra's stockholders, representing directors or trustees and ... by the vote or written assent of
more than two-thirds of its subscribed capital stock, voted to the stockholders representing at least two-thirds of the
approve the foregoing resolution. The "Fourth" paragraph of subscribed capital stock ... "
Alhambra's articles of incorporation was thus altered to read:
But prior to amendment by Republic Act 3531, an explicit
FOURTH. That the term for which said corporation is to exist prohibition existed in Section 18, thus:
is fifty (50) years from and after the date of
incorporation, and for an additional period of fifty (50) years ... Provided, however, That the life of said corporation shall
thereafter. not be extended by said amendment beyond the time fixed
in the original articles: ...
On October 28, 1963, Alhambra's articles of incorporation as
so amended certified correct by its president and secretary This was displaced by Republic Act 3531 which enfranchises
and a majority of its board of directors, were filed with all private corporations to extend their corporate existence.
respondent Securities and Exchange Commission (SEC). Thus incorporated into the structure of Section 18 are the
following:
On November 18, 1963, SEC, however, returned said
amended articles of incorporation to Alhambra's counsel with ... Provided, however, That should the amendment consist in
the ruling that Republic Act 3531 "which took effect only on extending the corporate life, the extension shall not exceed
June 20, 1963, cannot be availed of by the said corporation, fifty years in any one instance: Provided, further, That the
for the reason that its term of existence had already expired original articles, and amended articles together shall contain
when the said law took effect in short, said law has no all provisions required by law to be set out in the articles of
retroactive effect." incorporation: ...

On December 3, 1963, Alhambra's counsel sought As we look in retrospect at the facts, we find these: From July
reconsideration of SEC's ruling aforesaid, refiled the amended 15 to October 28, 1963, when Alhambra made its attempt to
articles of incorporation. extend its corporate existence, its original term of fifty years
had already expired (January 15, 1962); it was in the midst of
On September 8, 1964, SEC, after a conference hearing, the three-year grace period statutorily fixed in Section 77 of
issued an order denying the reconsideration sought. the Corporation Law, thus: .
SEC. 77. Every corporation whose charter expires by its own principles, it does not take much effort to reach a correct
limitation or is annulled by forfeiture or otherwise, or whose conclusion. For, implicit in Section 77 heretofore quoted is
corporate existence for other purposes is terminated in any that the privilege given to prolongcorporate life under the
other manner, shall nevertheless be continued as a body amendment must be exercised before the expiry of the term
corporate for three years after the time when it would have fixed in the articles of incorporation.
been so dissolved, for the purpose of prosecuting and
defending suits by or against it and of enabling it gradually Silence of the law on the matter is not hard to understand.
to settle and close its affairs, to dispose of and convey its Specificity is not really necessary. The authority to prolong
property and to divide its capital stock, but not for the corporate life was inserted by Republic Act 3531 into a
purpose of continuing the business for which it was section of the law that deals with the power of a corporation
established.2 to amend its articles of incorporation. (For, the manner of
prolongation is through an amendment of the articles.) And it
Plain from the language of the provision is its meaning: should be clearly evident that under Section 77 no
continuance of a "dissolved" corporation as a body corporate corporation in a state of liquidation can act in any way, much
for three years has for its purpose the final closure of its less amend its articles, "for the purpose of continuing the
affairs, and no other; the corporation is specifically enjoined business for which it was established".
from "continuing the business for which it was established".
The liquidation of the corporation's affairs set forth in Section All these dilute Alhambra's position that it could revivify its
77 became necessary precisely because its life had ended. corporate life simply because when it attempted to do so,
For this reason alone, the corporate existence and juridical Alhambra was still in the process of liquidation. It is surely
personality of that corporation to do business may no longer impermissible for us to stretch the law that merely
be extended. empowers a corporation to act in liquidation to inject
therein the power to extend its corporate existence.
Worth bearing in mind, at this juncture, is the basic
development of corporation law. 3. Not that we are alone in this view. Fletcher has written:
"Since the privilege of extension is purely statutory, all of the
The common law rule, at the beginning, was rigid and statutory conditions precedent must be complied with in
inflexible in that upon its dissolution, a corporation became order that the extension may be effectuated. And, generally
legally dead for all purposes. Statutory authorizations had to these conditions must be complied with, and the steps
be provided for its continuance after dissolution "for limited necessary to effect the extension must be taken,during the
and specified purposes incident to complete liquidation of its life of the corporation, and before the expiration of the term
affairs".3 Thus, the moment a corporation's right to exist as of existence as original fixed by its charter or the general
an "artificial person" ceases, its corporate powers are law, since, as a rule, the corporation is ipso facto dissolved as
terminated "just as the powers of a natural person to take soon as that time expires. So where the extension is by
part in mundane affairs cease to exist upon his amendment of the articles of incorporation, the amendment
death".4 There is nothing left but to conduct, as it were, the must be adopted before that time. And, similarly, the filing
settlement of the estate of a deceased juridical person. and recording of a certificate of extension after that time
cannot relate back to the date of the passage of a resolution
2. Republic Act 3531, amending Section 18 of the Corporation by the stockholders in favor of the extension so as to save
Law, is silent, it is true, as to when such act of extension may the life of the corporation. The contrary is true, however, and
be made. But even with a superficial knowledge of corporate the doctrine of relation will apply, where the delay is due to
the neglect of the officer with whom the certificate is True it is, that the Alabama Supreme Court has stated in one
required to be filed, or to a wrongful refusal on his part to case.8 that a corporation empowered by statute torenew its
receive it. And statutes in some states specifically provide corporate existence may do so even after the expiration of its
that a renewal may be had within a specified time before or corporate life, provided renewal is taken advantage of within
after the time fixed for the termination of the corporate the extended statutory period for purposes of liquidation.
existence".5 That ruling, however, is inherently weak as persuasive
authority for the situation at bar for at least two
The logic of this position is well expressed in a foursquare reasons: First. That case was a suit for mandamus to compel
case decided by the Court of Appeals of Kentucky. 6There, a former corporate officer to turn over books and records that
pronouncement was made as follows: came into his possession and control by virtue of his office. It
was there held that such officer was obliged to surrender his
... But section 561 (section 2147) provides that, when any books and records even if the corporation had already
corporation expires by the terms of its articles of expired. The holding on the continued existence of the
incorporation, it may be thereafter continued to act for the corporation was a mere dictum. Second. Alabama's law is
purpose of closing up its business, but for no other purpose. different. Corporations in that state were authorized not only
The corporate life of the Home Building Association expired to extend but also to renew their corporate existence.That
on May 3, 1905. After that date, by the mandate of the very case defined the word "renew" as follows; "To make new
statute, it could continue to act for the purpose of closing up again; to restore to freshness; to make new spiritually; to
its business, but for no other purpose. The proposed regenerate; to begin again; to recommence; to resume; to
amendment was not made until January 16, 1908, or nearly restore to existence, to revive; to re-establish; to recreate; to
three years after the corporation expired by the terms of the replace; to grant or obtain an extension of Webster's New
articles of incorporation. When the corporate life of the International Dict.; 34 Cyc. 1330; Carter v. Brooklyn Life Ins.
corporation was ended, there was nothing to extend. Here it Co., 110 N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J. 379. Sec". 9
was proposed nearly three years after the corporate life of
the association had expired to revivify the dead body, and to On this point, we again draw from Fletcher: "There is a broad
make that relate back some two years and eight months. In distinction between the extension of a charter and the grant
other words, the association for two years and eight months of a new one. To renew a charter is to revive a charter which
had only existed for the purpose of winding up its business, has expired, or, in other words, "to give a new existence to
and, after this length of time, it was proposed to revivify it one which has been forfeited, or which has lost its vitality by
and make it a live corporation for the two years and eight lapse of time". To "extend" a charter is "to increase the time
months daring which it had not been such. for the existence of one which would otherwise reach its limit
at an earlier period".10Nowhere in our statute Section 18,
The law gives a certain length of time for the filing of records Corporation Law, as amended by Republic Act 3531 do we
in this court, and provides that the time may be extended by find the word "renew" in reference to the authority given to
the court, but under this provision it has uniformly been held corporations to protract their lives. Our law limits itself
that when the time was expired, there is nothing to extend, to extension of corporate existence. And, as so understood,
and that the appeal must be dismissed... So, when the extension may be made only before the term provided in the
articles of a corporation have expired, it is too late to adopt corporate charter expires.
an amendment extending the life of a corporation; for, the
corporation having expired, this is in effect to create a new Alhambra draws attention to another case 11 which declares
corporation ..."7 that until the end of the extended period for liquidation, a
dissolved corporation "does not become an extinguished
entity". But this statement was obviously lifted out of insurance corporations to extend their corporate existence
context. That case dissected the question whether or not "on or before the expiration of the term" fixed in their articles
suits can be commenced by or against a corporation within of incorporation. Republic Act 1932 was approved on June 22,
its liquidation period. Which was answered in the affirmative. 1957, long before the passage of Republic Act 3531 in 1963.
For, the corporation still exists for the settlement of its Congress, Alhambra points out, must have been aware of
affairs. Republic Act 1932 when it passed Republic Act 3531. Since
the phrase "on or before", etc., was omitted in Republic Act
People, ex rel. vs. Green, 12 also invoked by Alhambra, is as 3531, which contains no similar limitation, it follows,
unavailing. There, although the corporation amended its according to Alhambra, that it is not necessary to extend
articles to extend its existence at a time when it had no legal corporate existence on or before the expiration of its original
authority yet, it adopted the amended articles later on when term.
it had the power to extend its life and during its original term
when it could amend its articles. That Republic Act 3531 stands mute as to when extention of
corporate existence may be made, assumes no relevance.
The foregoing notwithstanding, Alhambra falls back on the We have already said, in the face of a familiar precept, that a
contention that its case is arguably within the purview of the defunct corporation is bereft of any legal faculty not
law. It says that before cessation of its corporate life, it could otherwise expressly sanctioned by law.
not have extended the same, for the simple reason that
Republic Act 3531 had not then become law. It must be Illuminating here is the explanatory note of H.B. 1774, later
remembered that Republic Act 3531 took effect on June 20, Republic Act 3531 now in dispute. Its first paragraph states
1963, while the original term of Alhambra's existence expired that "Republic Act No. 1932 allows the automatic extension
before that date on January 15, 1962. The mischief that of the corporate existence of domestic life insurance
flows from this theory is at once apparent. It would certainly corporations upon amendment of their articles of
open the gates for all defunct corporations whose charters incorporation on or before the expiration of the terms fixed
have expired even long before Republic Act 3531 came into by said articles". The succeeding lines are decisive: "This is a
being to resuscitate their corporate existence. good law, a sane and sound one. There appears to be no
valid reason why it should not be made to apply to other
4. Alhambra brings into argument Republic Act 1932, which private corporations.13
amends Section 196 of the Insurance Act, now reading as
follows: 1wph1.t The situation here presented is not one where the law under
consideration is ambiguous, where courts have to put in
SEC. 196. Any provision of law to the contrary harness extrinsic aids such as a look at another statute to
notwithstanding, every domestic life insurance corporation, disentangle doubts. It is an elementary rule in legal
formed for a limited period under the provisions of its articles hermeneutics that where the terms of the law are clear, no
of incorporation, may extend its corporate existence for a statutory construction may be permitted. Upon the basic
period not exceeding fifty years in any one instance by conceptual scheme under which corporations operate, and
amendment to its articles of incorporation on or before the with Section 77 of the Corporation Law particularly in mind,
expiration of the term so fixed in said articles ... we find no vagueness in Section 18, as amended by Republic
Act 3531. As we view it, by directing attention to Republic Act
To be observed is that the foregoing statute unlike 1932, Alhambra would seek to create obscurity in the law;
Republic Act 3531 expressly authorizes domestic
and, with that, ask of us a ruling that such obscurity be FOR THE REASONS GIVEN, the ruling of the Securities and
explained. This, we dare say, cannot be done. Exchange Commission of November 18, 1963, and its order
of September 8, 1964, both here under review, are hereby
The pari materia rule of statutory construction, in fact, affirmed.
commands that statutes must be harmonized with each
other.14 So harmonizing, the conclusion is clear that Section Costs against petitioner Alhambra Cigar & Cigarette
18 of the Corporation Law, as amended by Republic Act 3531 Manufacturing Company, Inc. So ordered.
in reference to extensions of corporate existence, is to be
read in the same light as Republic Act 1932. Which means Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,
that domestic corporations in general, as with domestic Castro, Angeles and Fernando, JJ., concur.
insurance companies, can extend corporate existence only
on or before the expiration of the term fixed in their charters. Footnotes

5. Alhambra pleads for munificence in interpretation, one .R. No. 125986 January 28, 1999
which brushes technicalities aside. Bases for this posture are
that Republic Act 3531 is a remedial statute, and that LUXURIA HOMES, INC., and/or AIDA M.
extension of corporate life is beneficial to the economy. POSADAS, petitioners,
vs.
Alhambra's stance does not induce assent. Expansive HONORABLE COURT OF APPEALS, JAMES BUILDER
construction is possible only when there is something to CONSTRUCTION and/or JAIME T. BRAVO,respondents.
expand. At the time of the passage of Republic Act 3531,
Alhambra's corporate life had already expired. It had
overstepped the limits of its limited existence. No life there is
to prolong. MARTINEZ, J.:

Besides, a new corporation Alhambra Industries, Inc., with This petition for review assails the decision of the respondent
but slight change in stockholdings 15 has already been Court of Appeals dated March 15, 1996, 1 which affirmed with
established. Its purpose is to carry on, and it actually does modification the judgment of default rendered by the
carry on,16 the business of the dissolved entity. The Regional Trial Court of Muntinlupa, Branch 276, in Civil Case
beneficial-effects argument is off the mark. No. 92-2592 granting all the reliefs prayed for in the
complaint of private respondents James Builder Construction
The way the whole case shapes up then, the only possible and/or Jaime T. Bravo.
drawbacks of Alhambra might be that, instead of the new
corporation (Alhambra Industries, Inc.) being written off, the As culled from the record, the facts are as follows:
old one (Alhambra Cigar & Cigarette Manufacturing
Company, Inc.) has to be wound up; and that the old
Petitioner Aida M. Posadas and her two (2) minor children co-
corporate name cannot be retained fully in its exact
owned a 1.6 hectare property in Sucat, Muntinlupa, which
form.17 What is important though is that the
was occupied by squatters. Petitioner Posadas entered into
word Alhambra, the name that counts [it has goodwill],
negotiations with private respondent Jaime T. Bravo
remains.
regarding the development of the said property into a
residential subdivision. On May 3, 1989, she authorized
private respondent to negotiate with the squatters to leave property which amounted to P300,000.00, and a hollow
the said property. With a written authorization, respondent blocks factory for P60,000.00. Private respondents also
Bravo buckled down to work and started negotiations with claimed that petitioner Posadas agreed that private
the squatters. respondents will develop the land into a first class subdivision
thru a management contract and that petitioner Posadas is
Meanwhile, some seven (7) months later, on December 11, unjustly refusing to comply with her obligation to finalize the
1989, petitioner Posadas and her two (2) children, through a said management contract.
Deed of Assignment, assigned the said property to petitioner
Luxuria Homes, Inc., purportedly for organizational and tax The prayer in the complaint of the private respondents before
avoidance purposes. Respondent Bravo signed as one of the the trial court reads as follows:
witnesses to the execution of the Deed of Assignment and
the Articles of Incorporation of petitioner Luxuria Homes, Inc. WHEREFORE, premises considered, it is respectfully prayed of
this Honorable Court that after hearing/trial judgment be
Then sometime in 1992, the harmonious and congenial rendered ordering defendant to:
relationship of petitioner Posadas and respondent Bravo
turned sour when the former supposedly could not accept the a) Comply with its obligation to deliver/finalize Management
management contracts to develop the 1.6 hectare property Contract of its land in Sucat, Muntinlupa, Metro Manila and to
into a residential subdivision, the latter was proposing. In pay plaintiff its balance in the amount of P1,708,489.00:
retaliation, respondent Bravo demanded payment for
services rendered in connection with the development of the b) Pay plaintiff moral and exemplary damages in the amount
land. In his statement of account dated 21 August of P500.000.00;
1991 2 respondent demanded the payment of P1,708,489.00
for various services rendered, i.e., relocation of squatters, c) Pay plaintiff actual damages in the amount of P500.000.00
preparation of the architectural design and site development (Bunkhouse/warehouse- P300.000.00, Hollow-block factory-
plan, survey and fencing. P60.000.00, lumber, cement, etc., P120.000.00, guard-
P20.000.00);
Petitioner Posadas refused to pay the amount demanded.
Thus, in September 1992, private respondents James Builder d) Pay plaintiff attorney's fee of P50.000 plus P700 per
Construction and Jaime T. Bravo instituted a complaint for appearance in court and 5% of that which may be awarded
specific performance before the trial court against petitioners by the court to plaintiff re its monetary claims:
Posadas and Luxuria Homes, Inc. Private respondents alleged
therein that petitioner Posadas asked them to clear the e) Pay cost of this suit. 3
subject parcel of land of squatters for a fee of P1,100,000.00
for which they were partially paid the amount of
On September 27, 1993, the trial court declared petitioner
P461,511.50, leaving a balance of P638,488.50. They were
Posadas in default and allowed the private respondents to
also supposedly asked to prepare a site development plan
present their evidence ex-parte. On March 8, 1994, it ordered
and an architectural design for a contract price of
petitioner Posadas, jointly and in solidum with petitioner
P450,000.00 for which they were partially paid the amount of
Luxuria Homes, Inc., to pay private respondents as follows:
P25,000.00, leaving a balance of P425,000.00. And in
anticipation of the signing of the land development contract,
1. . . . the balance of the payment for the various services
they had to construct a bunkhouse and warehouse on the
performed by Plaintiff with respect to the land covered by
TCT NO. 167895 previously No. 158290 in the total amount of attorney's fees. The Court also reduced the trial court's
P1,708,489.00. award of actual damages from P1,500,000.00 to P500,000.00
reasoning that the grant should not exceed the amount
2. . . . actual damages incurred for the construction of the prayed for in the complaint. In the prayer in the complaint
warehouse/bunks, and for the material used in the total sum respondents asked for actual damages in the amount of
of P1,500.000.00. P500,000.00 only.

3. Moral and exemplary damages of P500.000.00. Still feeling aggrieved with the resolution of this Court,
petitioners filed a motion for reconsideration. On March 17,
4. Attorney's fee of P50,000.00. 1997, this Court found merit in the petitioners' motion for
reconsideration and reinstated this petition for review.
5. And cost of this proceedings.
From their petition for review and motion for reconsideration
Defendant Aida Posadas as the Representative of the before this Court, we now synthesize the issues as follows:
Corporation Luxuria Homes, Incorporated, is further directed
to execute the management contract she committed to do, 1. Were private respondents able to present ex-parte
also in consideration of the various undertakings that Plaintiff sufficient evidence to substantiate the allegations in their
rendered for her. 4 complaint and entitle them to their prayers?

Aggrieved by the aforecited decision, petitioners appealed to 2. Can petitioner Luxuria Homes, Inc., be held liable to
respondent Court of Appeals, which, as aforestated, affirmed private respondents for the transactions supposedly entered
with modification the decision of the trial court. The appellate into between petitioner Posadas and private respondents?
court deleted the award of moral damages on the ground
that respondent James Builder Construction is a corporation 3. Can petitioners be compelled to enter into a management
and hence could not experience physical suffering and contract with private respondents?
mental anguish. It also reduced the award of exemplary
damages. The dispositive portion of the decision reads: Petitioners who were declared in default assert that the
private respondents who presented their evidence ex-
WHEREFORE, the decision appealed from is hereby AFFIRMED parte nonetheless utterly failed to substantiate the
with the modification that the award of moral damages is allegations in their complaint and as such cannot be entitled
ordered deleted and the award of exemplary damages to the to the reliefs prayed for.
plaintiff's-appellee should only be in the amount of FIFTY
THOUSAND (P50,000.00) PESOS. 5 A perusal of the record shows that petitioner Posadas
contracted respondent Bravo to render various services for
Petitioners' motion for reconsideration was denied, prompting the initial development of the property as shown by vouchers
the filing of this petition for review before this Court. evidencing payments made by petitioner Posadas to
respondent Bravo for squatter relocation, architectural
On January 15, 1997, the Third Division of this Court denied design, survey and fencing.
due course to this petition for failing to show convincingly
any reversible error on the part of the Court of Appeals. This Respondents prepared the architectural design, site
Court however deleted the grant of exemplary damages and development plan and survey in connection with petitioner
Posadas' application with the Housing and Land Use ejectment of all the squatters from the property will not
Regulatory Board (HLURB) for the issuance of the suffice.
Development Permit, Preliminary Approval and Locational
Clearance. 6 Petitioner benefited from said services as the Likewise, in the case of fencing, there is no proof that it was
Development Permit and the Locational Clearance were accomplished as alleged. Respondent Bravo claims that he
eventually issued by the HLURB in her favor. Petitioner finished sixty percent (60%) of the fencing project but he
Posadas is therefore liable to pay for these services rendered failed to present evidence showing the area sought to be
by respondents. The contract price for the survey of the land fenced and the actual area fenced by him. We therefore have
is P140,000.00. Petitioner made partial payments totaling no basis to determining the veracity respondent's allegations.
P130,000.00 leaving a payable balance of P10,000.00. We cannot assume that the said services rendered for it will
be unfair to require petitioner to pay the full amount claimed
In his testimony, 7 he alleged that the agreed price for the in case the respondents obligations were not completely
preparation of the site development plan is P500,000.00 and fulfilled.
that the preparation of the architectural designs is for
P450,000, or a total of P950,000.00 for the two contracts. In For respondents' failure to show proof of accomplishment of
his complaint however, respondent Bravo alleged that he was the aforesaid services, their claims cannot be granted. In P.T.
asked "to prepare the site development plan and the Cerna Corp. v. Court of Appeals, 10 we ruled that in civil cases,
architectural designs . . . for a contract price of P450,000.00 . the burden of proof rests upon the party who, as determined
. . " 8 The discrepancy or inconsistency was never reconciled by the pleadings or the nature of the case, asserts the
and clarified. affirmative of an issue. In this case the burden lies on the
complainant, who is duty bound to prove the allegations in
We reiterate that we cannot award an amount higher than the complaint. As this Court has held, he who alleges a fact
what was claimed in the complaint. Consequently for the has the burden of proving it and A MERE ALLEGATION IS NOT
preparation of both the architectural design and site EVIDENCE.
development plan, respondent is entitled to the amount of
P450,000.00 less partial payments made in the amount of And the rules do not change even if the defendant is
P25,000.00. In Policarpio v. RTC of Quezon City, 9 it was held declared in default. In the leading case of Lopez v.
that a court is bereft of jurisdiction to award, in a judgment Mendezona, 11 this Court ruled that after entry of judgment in
by default, a relief other than that specifically prayed for in default against a defendant who has neither appeared nor
the complaint. answered, and before final judgment in favor of the plaintiff,
the latter must establish by competent evidence all the
As regards the contracts for the ejectment of squatters and material allegations of his complaint upon which he bases his
fencing, we believe however that respondents failed to show prayer for relief. In De los Santos v. De la Cruz, 12 this Court
proof that they actually fulfilled their commitments therein. declared that a judgement by default against a defendant
Aside from the bare testimony of respondent Bravo, no other does not imply a waiver of rights except that of being heard
evidence was presented to show that all the squatters were and of presenting evidence in his favor. It does not imply
ejected from the property. Respondent Bravo failed to show admission by the defendant of the facts and causes of action
how many shanties or structures were actually occupying the of the plaintiff, because the codal section requires the latter
property before he entered the same, to serve as basis for to adduce his evidence in support of his allegations as an
concluding whether the task was finished or not. His indispensable condition before final judgment could be given
testimony alone that he successfully negotiated for the in his favor. Nor could it be interpreted as an admission by
the defendant that the plaintiff's causes of action finds only himself to blame if no award for actual damages is
support in the law or that the latter is entitled to the relief handed down.
prayed for.
In fine, as we declared in PNOC Shipping & Transport Corp. v.
We explained the rule in judgments by default in Pascua v. Court of Appeals, 16 basic is the rule that to recover actual
Florendo, 13 where we said that nowhere is it stated that the damages, the amount of loss must not only be capable of
complainants are automatically entitled to the relief prayed proof but must actually be proven with reasonable degree of
for, once the defendants are declared in default. Favorable certainty, premised upon competent proof or best evidence
relief can be granted only after the court has ascertained obtainable of the actual amount thereof.
that the evidence offered and the facts proven by the
presenting party warrant the grant of the same. Otherwise it We go to the second issue of whether Luxuria Homes, Inc.,
would be meaningless to require presentation of evidence if was a party to the transactions entered into by petitioner
everytime the other party is declared in default, a decision Posadas and private respondents and thus could be held
would automatically be rendered in favor of the non- jointly and severally with petitioner Posadas. Private
defaulting party and exactly according to the tenor of his respondents contend that petitioner Posadas surreptitiously
prayer. In Lim Tanhu v. Ramolete 14 we elaborated and said formed Luxuria Homes, Inc., and transferred the subject
that a defaulted defendant is not actually thrown out of parcel of land to it to evade payment and defraud creditors,
court. The rules see to it that any judgment against him must including private respondents. This allegation does not find
be in accordance with law. The evidence to support the support in the evidence on record.
plaintiff's cause is, of course, presented in his absence, but
the court is not supposed to admit that which is basically On the contrary we hold that respondent Court of Appeals
incompetent. Although the defendant would not be in a committed a reversible error when it upheld the factual
position to object, elementary justice requires that only legal finding of the trial court that petitioners' liability was
evidence should be considered against him. If the evidence aggravated by the fact that Luxuria Homes, Inc., was formed
presented should not be sufficient to justify a judgment for by petitioner Posadas after demand for payment had been
the plaintiff, the complaint must be dismissed. And if an made, evidently for her to evade payment of her obligation,
unfavorable judgment should be justifiable, it cannot exceed thereby showing that the transfer of her property to Luxuria
the amount or be different in kind from what is prayed for in Homes, Inc., was in fraud of creditors.
the complaint.
We easily glean from the record that private respondents
The prayer for actual damages in the amount of P500,000.00, sent demand letters on 21 August 1991 and 14 September
supposedly for the bunkhouse/warehouse, hollow-block 1991, or more than a year and a half after the execution of
factory, lumber, cement, guard, etc., which the trial court the Deed of Assignment on 11 December 1989, and the
granted and even increased to P1,500,000.00, and which this issuance of the Articles of Incorporation of petitioner Luxuria
Court would have rightly reduced to the amount prayed for in Homes on 26 January 1990. And, the transfer was made at
the complaint, was not established, as shown upon further the time the relationship between petitioner Posadas and
review of the record. No receipts or vouchers were presented private respondents was supposedly very pleasant. In fact
by private respondents to show that they actually spent the the Deed of Assignment dated 11 December 1989 and the
amount. In Salas v. Court of Appeals, 15 we said that the Articles of Incorporation of Luxuria Homes, Inc., issued 26
burden of proof of the damages suffered is on the party January 1990 were both signed by respondent Bravo himself
claiming the same. It his duty to present evidence to support as witness. It cannot be said then that the incorporation of
his claim for actual damages. If he failed to do so, he has
petitioner Luxuria Homes and the eventual transfer of the authorization letter dated May 3, 1989. The full text of Exh.
subject property to it were in fraud of private respondents as "D" reads:
such were done with the full knowledge of respondent Bravo
himself. I hereby certify that we have duly authorized the bearer,
Engineer Bravo to negotiate, in our behalf, the ejectment of
Besides petitioner Posadas is not the majority stockholder of squatters from our property of 1.6 hectares, more or less, in
petitioner Luxuria Homes, Inc., as erroneously stated by the Sucat Muntinlupa. This authority is extended to him as the
lower court. The Articles of Incorporation of petitioner Luxuria representative of the Managers; under our agreement for
Homes, Inc., clearly show that petitioner Posadas owns them to undertake the development of said area and the
approximately 33% only of the capital stock. Hence petitioner construction of housing units intended to convert the land
Posadas cannot be considered as an alter ego of petitioner into a first class subdivision.
Luxuria Homes, Inc.
The aforecited document is nothing more than a "to-whom-it-
To disregard the separate juridical personality of a may-concern" authorization letter to negotiate with the
corporation, the wrongdoing must be clearly and convincingly squatters. Although it appears that there was an agreement
established. It cannot be presumed. This is elementary. Thus for the development of the area, there is no showing that
in Bayer-Roxas v. Court of Appeals, 17 we said that the same was ever perfected and finalized. Private respondents
separate personality of the corporation may be disregarded presented in evidence only drafts of a proposed management
only when the corporation is used as a cloak or cover for contract with petitioner's handwritten marginal notes but the
fraud or illegality, or to work injustice, or where necessary for management contract was not put in its final form. The
the protection of the creditors. Accordingly in Del Roscrrio v. reason why there was no final uncorrected draft was because
NLRC, 18 where the Philsa International Placement and the parties could not agree on the stipulations of said
Services Corp. was organized and registered with the POEA in contract, which even private respondents admitted as found
1981, several years before the complainant was filed a case by the trial court. 19 As a consequence the management
in 1985, we held that this cannot imply fraud. drafts submitted by the private respondents should at best
be considered as mere unaccepted offers. We find no cogent
Obviously in the instant case, private respondents failed to reason, considering that the parties no longer are in a
show proof that petitioner Posadas acted in bad faith. harmonious relationship, for the execution of a contract to
Consequently since private respondents failed to show that develop a subdivision.
petitioner Luxuria Homes, Inc., was a party to any of the
supposed transactions, not even to the agreement to It is fundamental that there can be no contract in the true
negotiate with and relocate the squatters, it cannot be held sense in the absence of the element of agreement, or of
liable, nay jointly and in solidum, to pay private respondents. mutual assent of the parties. To compel petitioner Posadas,
In this case since it was petitioner Aida M. Posadas who whether as representative of petitioner Luxuria Homes or in
contracted respondent Bravo to render the subject services, her personal capacity, to execute a management contract
only she is liable to pay the amounts adjudged herein. under the terms and conditions of private respondents would
be to violate the principle of consensuality of contracts.
We now resolve the third and final issue. Private respondents In Philippine National Bank v. Court of Appeals, 20 we held
urge the court to compel petitioners to execute a that if the assent is wanting on the part of one who contracts,
management contract with them on the basis of the his act has no more efficacy than if it had been done under
duress or by a person of unsound mind. In ordering petitioner
Posadas to execute a management contract with private The corporate mask may be lifted and the corporate veil may
respondents, the trial court in effect is putting her under be pierced when a corporation is just but the alter ego of a
duress. person or of another corporation. Where badges of fraud
exist; where public convenience is defeated; where a wrong
The parties are bound to fulfill the stipulations in a contract is sought to be justified thereby, the corporate fiction or the
only upon its perfection. At anytime prior to the perfection of notion of legal entity should come to naught. The law in
a contract, unaccepted offers and proposals remain as such these instances will regard the corporation as a mere
and cannot be considered as binding commitments; hence association of persons and, in case of two corporations,
not demandable. merge them into one.

WHEREFORE, the petition is PARTIALLY GRANTED. The Thus, where a sister corporation is used as a shield to evade
assailed decision dated March 15, 1996, of respondent a corporation's subsidiary liability for damages, the
Honorable Court of Appeals and its Resolution dated August corporation may not be heard to say that it has a personality
12, 1996, are MODIFIED ordering PETITIONER AIDA M. separate and distinct from the other corporation. The
POSADAS to pay PRIVATE RESPONDENTS the amount of piercing of the corporate veil comes into play.
P435,000.00 as balance for the preparation of the
architectural design, site development plan and survey. All This special civil action ostensibly raises the question of
other claims of respondents are hereby DENIED for lack of whether the National Labor Relations Commission committed
merit.1wphi1.nt grave abuse of discretion when it issued a "break-open
order" to the sheriff to be enforced against personal property
SO ORDERED. found in the premises of petitioner's sister company.

Petitioner Concept Builders, Inc., a domestic corporation, with


principal office at 355 Maysan Road, Valenzuela, Metro
G.R. No. 108734 May 29, 1996 Manila, is engaged in the construction business. Private
respondents were employed by said company as laborers,
CONCEPT BUILDERS, INC., petitioner, carpenters and riggers.
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First On November, 1981, private respondents were served
Division); and Norberto Marabe; Rodolfo Raquel, individual written notices of termination of employment by
Cristobal Riego, Manuel Gillego, Palcronio Giducos, petitioner, effective on November 30, 1981. It was stated in
Pedro Aboigar, Norberto Comendador, Rogelio Salut, the individual notices that their contracts of employment had
Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo expired and the project in which they were hired had been
Albera, Paquito Salut, Domingo Guarino, Romeo Galve, completed.
Dominador Sabina, Felipe Radiana, Gavino Sualibio,
Moreno Escares, Ferdinand Torres, Felipe Basilan, and Public respondent found it to be, the fact, however, that at
Ruben Robalos, respondents. the time of the termination of private respondent's
employment, the project in which they were hired had not
yet been finished and completed. Petitioner had to engage
the services of sub-contractors whose workers performed the
HERMOSISIMA, JR., J.:p functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal The said writ had not been enforced by the special sheriff
dismissal, unfair labor practice and non-payment of their because, as stated in his progress report, dated November 2,
legal holiday pay, overtime pay and thirteenth-month pay 1989:
against petitioner.
1. All the employees inside petitioner's premises at 355
On December 19, 1984, the Labor Arbiter rendered Maysan Road, Valenzuela, Metro Manila, claimed that they
judgment 1 ordering petitioner to reinstate private were employees of Hydro Pipes Philippines, Inc. (HPPI) and
respondents and to pay them back wages equivalent to one not by respondent;
year or three hundred working days.
2. Levy was made upon personal properties he found in the
On November 27, 1985, the National Labor Relations premises;
Commission (NLRC) dismissed the motion for reconsideration
filed by petitioner on the ground that the said decision had 3. Security guards with high-powered guns prevented him
already become final and executory. 2 from removing the properties he had levied upon. 4

On October 16, 1986, the NLRC Research and Information The said special sheriff recommended that a "break-open
Department made the finding that private respondents' back order" be issued to enable him to enter petitioner's premises
wages amounted to P199,800.00. 3 so that he could proceed with the public auction sale of the
aforesaid personal properties on November 7, 1989.
On October 29, 1986, the Labor Arbiter issued a writ of
execution directing the sheriff to execute the Decision, dated On November 6, 1989, a certain Dennis Cuyegkeng filed a
December 19, 1984. The writ was partially satisfied through third-party claim with the Labor Arbiter alleging that the
garnishment of sums from petitioner's debtor, the properties sought to be levied upon by the sheriff were
Metropolitan Waterworks and Sewerage Authority, in the owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-
amount of P81,385.34. Said amount was turned over to the President.
cashier of the NLRC.
On November 23, 1989, private respondents filed a "Motion
On February 1, 1989, an Alias Writ of Execution was issued by for Issuance of a Break-Open Order," alleging that HPPI and
the Labor Arbiter directing the sheriff to collect from herein petitioner corporation were owned by the same
petitioner the sum of P117,414.76, representing the balance incorporator/stockholders. They also alleged that petitioner
of the judgment award, and to reinstate private respondents temporarily suspended its business operations in order to
to their former positions. evade its legal obligations to them and that private
respondents were willing to post an indemnity bond to
On July 13, 1989, the sheriff issued a report stating that he answer for any damages which petitioner and HPPI may
tried to serve the alias writ of execution on petitioner through suffer because of the issuance of the break-open order.
the security guard on duty but the service was refused on the
ground that petitioner no longer occupied the premises. In support of their claim against HPPI, private respondents
presented duly certified copies of the General Informations
On September 26, 1986, upon motion of private respondents, Sheet, dated May 15, 1987, submitted by petitioner to the
the Labor Arbiter issued a second alias writ of execution. Securities Exchange Commission (SEC) and the General
Information Sheet, dated May 25, 1987, submitted by HPPI to Elisa O. Lim Treasurer
the Securities and Exchange Commission.
Virgilio O. Casino Corporate Secretary
The General Information Sheet submitted by the petitioner
revealed the following: 4. Principal Office

1. Breakdown of Subscribed Capital 355 Maysan Road

Name of Stockholder Amount Subscribed Valenzuela, Metro Manila. 5

HPPI P 6,999,500.00 On the other hand, the General Information Sheet of HPPI
revealed the following:
Antonio W. Lim 2,900,000.00
1. Breakdown of Subscribed Capital
Dennis S. Cuyegkeng 300.00
Name of Stockholder Amount Subscribed
Elisa C. Lim 100,000.00
Antonio W. Lim P 400,000.00
Teodulo R. Dino 100.00
Elisa C. Lim 57,700.00
Virgilio O. Casino 100.00
AWL Trading 455,000.00
2. Board of Directors
Dennis S. Cuyegkeng 40,100.00
Antonio W. Lim Chairman
Teodulo R. Dino 100.00
Dennis S. Cuyegkeng Member
Virgilio O. Casino 100.00
Elisa C. Lim Member
2. Board of Directors
Teodulo R. Dino Member
Antonio W. Lim Chairman
Virgilio O. Casino Member
Elisa C. Lim Member
3. Corporate Officers
Dennis S. Cuyegkeng Member
Antonio W. Lim President
Virgilio O. Casino Member
Dennis S. Cuyegkeng Assistant to the President
Teodulo R. Dino Member
3. Corporate Officers veil should not have been applied, in this case, in the
absence of any showing that it created HPPI in order to evade
Antonio W. Lim President its liability to private respondents. It also contends that HPPI
is engaged in the manufacture and sale of steel, concrete
Dennis S. Cuyegkeng Assistant to the President and iron pipes, a business which is distinct and separate from
petitioner's construction business. Hence, it is of no
Elisa C. Lim Treasurer consequence that petitioner and HPPI shared the same
premises, the same President and the same set of officers
Virgilio O. Casino Corporate Secretary and subscribers. 7

4. Principal Office We find petitioner's contention to be unmeritorious.

355 Maysan Road, Valenzuela, Metro Manila. 6 It is a fundamental principle of corporation law that a
corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be
On February 1, 1990, HPPI filed an Opposition to private
connected. 8 But, this separate and distinct personality of a
respondents' motion for issuance of a break-open order,
corporation is merely a fiction created by law for convenience
contending that HPPI is a corporation which is separate and
and to promote justice. 9 So, when the notion of separate
distinct from petitioner. HPPI also alleged that the two
juridical personality is used to defeat public convenience,
corporations are engaged in two different kinds of
justify wrong, protect fraud or defend crime, or is used as a
businesses, i.e., HPPI is a manufacturing firm while petitioner
device to defeat the labor laws, 10 this separate personality of
was then engaged in construction.
the corporation may be disregarded or the veil of corporate
fiction pierced. 11 This is true likewise when the corporation is
On March 2, 1990, the Labor Arbiter issued an Order which
merely an adjunct, a business conduit or an alter ego of
denied private respondents' motion for break-open order.
another corporation. 12
Private respondents then appealed to the NLRC. On April 23,
The conditions under which the juridical entity may be
1992, the NLRC set aside the order of the Labor Arbiter,
disregarded vary according to the peculiar facts and
issued a break-open order and directed private respondents
circumstances of each case. No hard and fast rule can be
to file a bond. Thereafter, it directed the sheriff to proceed
accurately laid down, but certainly, there are some probative
with the auction sale of the properties already levied upon. It
factors of identity that will justify the application of the
dismissed the third-party claim for lack of merit.
doctrine of piercing the corporate veil, to wit:
Petitioner moved for reconsideration but the motion was
1. Stock ownership by one or common ownership of both
denied by the NLRC in a Resolution, dated December 3, 1992.
corporations.
Hence, the resort to the present petition.
2. Identity of directors and officers.
Petitioner alleges that the NLRC committed grave abuse of
3. The manner of keeping corporate books and records.
discretion when it ordered the execution of its decision
despite a third-party claim on the levied property. Petitioner
4. Methods of conducting the business. 13
further contends, that the doctrine of piercing the corporate
The SEC en banc explained the "instrumentality rule" which Thus the question of whether a corporation is a mere alter
the courts have applied in disregarding the separate juridical ego, a mere sheet or paper corporation, a sham or a
personality of corporations as follows: subterfuge is purely one of fact. 15

Where one corporation is so organized and controlled and its In this case, the NLRC noted that, while petitioner claimed
affairs are conducted so that it is, in fact, a mere that it ceased its business operations on April 29, 1986, it
instrumentality or adjunct of the other, the fiction of the filed an Information Sheet with the Securities and Exchange
corporate entity of the "instrumentality" may be disregarded. Commission on May 15, 1987, stating that its office address
The control necessary to invoke the rule is not majority or is at 355 Maysan Road, Valenzuela, Metro Manila. On the
even complete stock control but such domination of other hand, HPPI, the third-party claimant, submitted on the
instances, policies and practices that the controlled same day, a similar information sheet stating that its office
corporation has, so to speak, no separate mind, will or address is at 355 Maysan Road, Valenzuela, Metro Manila.
existence of its own, and is but a conduit for its principal. It
must be kept in mind that the control must be shown to have Furthermore, the NLRC stated that:
been exercised at the time the acts complained of took place.
Moreover, the control and breach of duty must proximately Both information sheets were filed by the same Virgilio O.
cause the injury or unjust loss for which the complaint is Casio as the corporate secretary of both corporations. It
made. would also not be amiss to note that both corporations had
the same president, thesame board of directors,
The test in determining the applicability of the doctrine of the same corporate officers, and substantially
piercing the veil of corporate fiction is as follows: the same subscribers.

1. Control, not mere majority or complete stock control, but From the foregoing, it appears that, among other things, the
complete domination, not only of finances but of policy and respondent (herein petitioner) and the third-party claimant
business practice in respect to the transaction attacked so shared the same address and/or premises. Under this
that the corporate entity as to this transaction had at the circumstances, (sic) it cannot be said that the property levied
time no separate mind, will or existence of its own; upon by the sheriff were not of respondents. 16

2. Such control must have been used by the defendant to Clearly, petitioner ceased its business operations in order to
commit fraud or wrong, to perpetuate the violation of a evade the payment to private respondents of back wages
statutory or other positive legal duty or dishonest and unjust and to bar their reinstatement to their former positions. HPPI
act in contravention of plaintiff's legal rights; and is obviously a business conduit of petitioner corporation and
its emergence was skillfully orchestrated to avoid the
3. The aforesaid control and breach of duty must proximately financial liability that already attached to petitioner
cause the injury or unjust loss complained of. corporation.

The absence of any one of these elements prevents "piercing The facts in this case are analogous to Claparols v. Court of
the corporate veil." In applying the "instrumentality" or "alter Industrial Relations, 17 where we had the occasion to rule:
ego" doctrine, the courts are concerned with reality and not
form, with how the corporation operated and the individual Respondent court's findings that indeed the Claparols Steel
defendant's relationship to that operation. 14 and Nail Plant, which ceased operation of June 30, 1957, was
SUCCEEDED by the Claparols Steel Corporation effective the Hence, the NLRC did not commit any grave abuse of
next day, July 1, 1957, up to December 7, 1962, when the discretion when it affirmed the break-open order issued by
latter finally ceased to operate, were not disputed by the Labor Arbiter.
petitioner. It is very clear that the latter corporation was a
continuation and successor of the first entity . . . . Both Finally, we do not find any reason to disturb the rule that
predecessors and successor were owned and controlled by factual findings of quasi-judicial agencies supported by
petitioner Eduardo Claparols and there was no break in the substantial evidence are binding on this Court and are
succession and continuity of the same business. This entitled to great respect, in the absence of showing of grave
"avoiding-the-liability" scheme is very patent, considering abuse of a discretion. 18
that 90% of the subscribed shares of stock of the Claparols
Steel Corporation (the second corporation) was owned by WHEREFORE, the petition is DISMISSED and the assailed
respondent . . . Claparols himself, and all the assets of the resolutions of the NLRC, dated April 23, 1992 and December
dissolved Claparols Steel and Nail plant were turned over to 3, 1992, are AFFIRMED.
the emerging Claparols Steel Corporation.
SO ORDERED.
It is very obvious that the second corporation seeks the
protective shield of a corporate fiction whose veil in the Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.
present case could, and should, be pierced as it was
deliberately and maliciously designed to evade its financial Footnotes
obligation to its employees.
G.R. No. 100812 June 25, 1999
In view of the failure of the sheriff, in the case at bar, to
effect a levy upon the property subject of the execution,
FRANCISCO MOTORS CORPORATION, petitioner,
private respondents had no other recourse but to apply for a
vs.
break-open order after the third-party claim of HPPI was
COURT OF APPEALS and SPOUSES GREGORIO and
dismissed for lack of merit by the NLRC. This is in consonance
LIBRADA MANUEL, respondents.
with Section 3, Rule VII of the NLRC Manual of Execution of
Judgment which provides that:

Should the losing party, his agent or representative, refuse or


QUISUMBING, J.:
prohibit the Sheriff or his representative entry to the place
where the property subject of execution is located or kept,
the judgment creditor may apply to the Commission or Labor This petition for review on certiorari, under Rule 45 of the
Arbiter concerned for a break-open order. Rules of Court, seeks to annul the decision 1 of the Court of
Appeals in C.A. G.R. CV No. 10014 affirming the decision
rendered by Branch 135, Regional Trial Court of Makati, Metro
Furthermore, our perusal of the records shows that the twin
Manila. The procedural antecedents of this petition are as
requirements of due notice and hearing were complied with.
follows:
Petitioner and the third-party claimant were given the
opportunity to submit evidence in support of their claim.
On January 23, 1985, petitioner filed a complaint 2 against
private respondents to recover three thousand four hundred
twelve and six centavos (P3,412.06), representing the
balance of the jeep body purchased by the Manuels from Dissatisfied with the trial court's order, petitioner elevated
petitioner; an additional sum of twenty thousand four the matter to the Court of Appeals, posing the following
hundred fifty-four and eighty centavos (P20,454.80) issues:
representing the unpaid balance on the cost of repair of the
vehicle; and six thousand pesos (P6,000.00) for cost of suit I.
and attorney's fees. 3 To the original balance on the price of
jeep body were added the costs of repair. 4 In their answer, WHETHER OR NOT THE DECISION RENDERED BY THE LOWER
private respondents interposed a counterclaim for unpaid COURT IS NULL AND VOID AS IT NEVER ACQUIRED
legal services by Gregorio Manuel in the amount of fifty JURISDICTION OVER THE PERSON OF THE DEFENDANT.
thousand pesos (P50,000) which was not paid by the
incorporators, directors and officers of the petitioner. The trial II.
court decided the case on June 26, 1985, in favor of
petitioner in regard to the petitioner's claim for money, but WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL
also allowed the counter-claim of private respondents. Both PARTY IN THE ALLEGED PERMISSIVE COUNTERCLAIM SHOULD
parties appealed. On April 15, 1991, the Court of Appeals BE HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES.
sustained the trial court's decision. 5 Hence, the present
petition.
III.
For our review in particular is the propriety of the permissive
WHETHER OR NOT THERE IS FAILURE ON THE PART OF
counterclaim which private respondents filed together with
PLAINTIFF-APPELLANT TO ANSWER THE ALLEGED PERMISSIVE
their answer to petitioner's complaint for a sum of money.
COUNTERCLAIM. 8
Private respondent Gregorio Manuel alleged as an affirmative
defense that, while he was petitioner's Assistant Legal
Petitioner contended that the trial court did not acquire
Officer, he represented members of the Francisco family in
jurisdiction over it because no summons was validly served
the intestate estate proceedings of the late Benita Trinidad.
on it together with the copy of the answer containing the
However, even after the termination of the proceedings, his
permissive counterclaim. Further, petitioner questions the
services were not paid. Said family members, he said, were
propriety of its being made party to the case because it was
also incorporators, directors and officers of petitioner. Hence
not the real party in interest but the individual members of
to petitioner's collection suit, he filed a counter permissive
the Francisco family concerned with the intestate case.
counterclaim for the unpaid attorney's fees. 6
In its assailed decision now before us for review, respondent
For failure of petitioner to answer the counterclaim, the trial
Court of Appeals held that a counterclaim must be answered
court declared petitioner in default on this score, and
in ten (10) days, pursuant to Section 4, Rule 11, of the Rules
evidence ex-parte was presented on the counterclaim. The
of Court; and nowhere does it state in the Rules that a party
trial court ruled in favor of private respondents and found
still needed to be summoned anew if a counterclaim was set
that Gregorio Manuel indeed rendered legal services to the
up against him. Failure to serve summons, said respondent
Francisco family in Special Proceedings Number 7803 "In
court, did not effectively negate trial court's jurisdiction over
the Matter of Intestate Estate of Benita Trinidad". Said court
petitioner in the matter of the counterclaim. It likewise
also found that his legal services were not compensated
pointed out that there was no reason for petitioner to be
despite repeated demands, and thus ordered petitioner to
excused from answering the counterclaim. Court records
pay him the amount of fifty thousand (P50,000.00) pesos. 7
showed that its former counsel, Nicanor G. Alvarez, received
the copy of the answer with counterclaim two (2) days prior heirs of the late Benita Trinidad as directors and
to his withdrawal as counsel for petitioner. Moreover when incorporators for whom defendant Gregorio Manuel rendered
petitioner's new counsel, Jose N. Aquino, entered his legal services in the intestate estate case of their deceased
appearance, three (3) days still remained within the period to mother. Considering the aforestated principles and
file an answer to the counterclaim. Having failed to answer, circumstances established in this case, equity and justice
petitioner was correctly considered in default by the trial demands plaintiff-appellant's veil of corporate identity should
court. 9 Even assuming that the trial court acquired no be pierced and the defendant be compensated for legal
jurisdiction over petitioner, respondent court also said, but services rendered to the heirs, who are directors of the
having filed a motion for reconsideration seeking relief from plaintiff-appellant corporation. 12
the said order of default, petitioner was estopped from
further questioning the trial court's jurisdiction. 10 Now before us, petitioner assigns the following errors:

On the question of its liability for attorney's fees owing to I.


private respondent Gregorio Manuel, petitioner argued that
being a corporation, it should not be held liable therefor THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE
because these fees were owed by the incorporators, directors OF PIERCING THE VEIL OF CORPORATE ENTITY.
and officers of the corporation in their personal capacity as
heirs of Benita Trinidad. Petitioner stressed that the II.
personality of the corporation, vis-a-vis the individual persons
who hired the services of private respondent, is separate and THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE
distinct, 11 hence, the liability of said individuals did not WAS JURISDICTION OVER PETITIONER WITH RESPECT TO THE
become an obligation chargeable against petitioner. COUNTERCLAIM. 13

Nevertheless, on the foregoing issue, the Court of Appeals Petitioner submits that respondent court should not have
ruled as follows: resorted to piercing the veil of corporate fiction because the
transaction concerned only respondent Gregorio Manuel and
However, this distinct and separate personality is merely a the heirs of the late Benita Trinidad. According to petitioner,
fiction created by law for convenience and to promote there was no cause of action by said respondent against
justice. Accordingly, this separate personality of the petitioner; personal concerns of the heirs should be
corporation may be disregarded, or the veil of corporate distinguished from those involving corporate affairs.
fiction pierced, in cases where it is used as a cloak or cover Petitioner further contends that the present case does not fall
for found (sic) illegality, or to work an injustice, or where among the instances wherein the courts may look beyond
necessary to achieve equity or when necessary for the the distinct personality of a corporation. According to
protection of creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc., petitioner, the services for which respondent Gregorio
72 SCRA 347) Corporations are composed of natural persons Manuel seeks to collect fees from petitioner are personal in
and the legal fiction of a separate corporate personality is not nature. Hence, it avers the heirs should have been sued in
a shield for the commission of injustice and inequity. their personal capacity, and not involve the corporation. 14
(Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408).
With regard to the permissive counterclaim, petitioner also
In the instant case, evidence shows that the plaintiff- insists that there was no proper service of the answer
appellant Francisco Motors Corporation is composed of the containing the permissive counterclaim. It claims that the
counterclaim is a separate case which can only be properly Private respondents dispute petitioner's claim that its right to
served upon the opposing party through summons. Further due process was violated when respondents' counterclaim
petitioner states that by nature, a permissive counterclaim is was granted due course, although no summons was served
one which does not arise out of nor is necessarily connected upon it. They claim that no provision in the Rules of Court
with the subject of the opposing party's claim. Petitioner requires service of summons upon a defendant in a
avers that since there was no service of summons upon it counterclaim. Private respondents argue that when the
with regard to the counterclaim, then the court did not petitioner filed its complaint before the trial court it
acquire jurisdiction over petitioner. Since a counterclaim is voluntarily submitted itself to the jurisdiction of the court. As
considered an action independent from the answer, a consequence, the issuance of summons on it was no longer
according to petitioner, then in effect there should be two necessary. Private respondents say they served a copy of
simultaneous actions between the same parties: each party their answer with affirmative defenses and counterclaim on
is at the same time both plaintiff and defendant with respect petitioner's former counsel, Nicanor G. Alvarez. While
to the other, 15requiring in each case separate summonses. petitioner would have the Court believe that respondents
served said copy upon Alvarez after he had withdrawn his
In their Comment, private respondents focus on the two appearance as counsel for the petitioner, private respondents
questions raised by petitioner. They defend the propriety of assert that this contention is utterly baseless. Records
piercing the veil of corporate fiction, but deny the necessity disclose that the answer was received two (2) days before
of serving separate summonses on petitioner in regard to the former counsel for petitioner withdrew his appearance,
their permissive counterclaim contained in the answer. according to private respondents. They maintain that the
present petition is but a form of dilatory appeal, to set off
Private respondents maintain both trial and appellate courts petitioner's obligations to the respondents by running up
found that respondent Gregorio Manuel was employed as more interest it could recover from them. Private
assistant legal officer of petitioner corporation, and that his respondents therefore claim damages against petitioner. 17
services were solicited by the incorporators, directors and
members to handle and represent them in Special To resolve the issues in this case, we must first determine the
Proceedings No. 7803, concerning the Intestate Estate of the propriety of piercing the veil of corporate fiction.
late Benita Trinidad. They assert that the members of
petitioner corporation took advantage of their positions by Basic in corporation law is the principle that a corporation
not compensating respondent Gregorio Manuel after the has a separate personality distinct from its stockholders and
termination of the estate proceedings despite his repeated from other corporations to which it may be
18
demands for payment of his services. They cite findings of connected. However, under the doctrine of piercing the veil
the appellate court that support piercing the veil of corporate of corporate entity, the corporation's separate juridical
identity in this particular case. They assert that the corporate personality may be disregarded, for example, when the
veil may be disregarded when it is used to defeat public corporate identity is used to defeat public convenience,
convenience, justify wrong, protect fraud, and defend crime. justify wrong, protect fraud, or defend crime. Also, where the
It may also be pierced, according to them, where the corporation is a mere alter ego or business conduit of a
corporate entity is being used as an alter ego, adjunct, or person, or where the corporation is so organized and
business conduit for the sole benefit of the stockholders or of controlled and its affairs are so conducted as to make it
another corporate entity. In these instances, they aver, the merely an instrumentality, agency, conduit or adjunct of
corporation should be treated merely as an association of another corporation, then its distinct personality may be
individual persons. 16 ignored. 19 In these circumstances, the courts will treat the
corporation as a mere aggrupation of persons and the
liability will directly attach to them. The legal fiction of a Furthermore, considering the nature of the legal services
separate corporate personality in those cited instances, for involved, whatever obligation said incorporators, directors
reasons of public policy and in the interest of justice, will be and officers of the corporation had incurred, it was incurred
justifiably set aside. in their personal capacity. When directors and officers of a
corporation are unable to compensate a party for a personal
In our view, however, given the facts and circumstances of obligation, it is far-fetched to allege that the corporation is
this case, the doctrine of piercing the corporate veil has no perpetuating fraud or promoting injustice, and be thereby
relevant application here. Respondent court erred in held liable therefor by piercing its corporate veil. While there
permitting the trial court's resort to this doctrine. The are no hard and fast rules on disregarding separate corporate
rationale behind piercing a corporation's identity in a given identity, we must always be mindful of its function and
case is to remove the barrier between the corporation from purpose. A court should be careful in assessing the milieu
the persons comprising it to thwart the fraudulent and illegal where the doctrine of piercing the corporate veil may be
schemes of those who use the corporate personality as a applied. Otherwise an injustice, although unintended, may
shield for undertaking certain proscribed activities. However, result from its erroneous application.
in the case at bar, instead of holding certain individuals or
persons responsible for an alleged corporate act, the The personality of the corporation and those of its
situation has been reversed. It is the petitioner as a incorporators, directors and officers in their personal
corporation which is being ordered to answer for the personal capacities ought to be kept separate in this case. The claim
liability of certain individual directors, officers and for legal fees against the concerned individual incorporators,
incorporators concerned. Hence, it appears to us that the officers and directors could not be properly directed against
doctrine has been turned upside down because of its the corporation without violating basic principles governing
erroneous invocation. Note that according to private corporations. Moreover, every action including a
respondent Gregorio Manuel his services were solicited as counterclaim must be prosecuted or defended in the name
counsel for members of the Francisco family to represent of the real party in interest. 20 It is plainly an error to lay the
them in the intestate proceedings over Benita Trinidad's claim for legal fees of private respondent Gregorio Manuel at
estate. These estate proceedings did not involve any the door of petitioner (FMC) rather than individual members
business of petitioner. of the Francisco family.

Note also that he sought to collect legal fees not just from However, with regard to the procedural issue raised by
certain Francisco family members but also from petitioner petitioner's allegation, that it needed to be summoned anew
corporation on the claims that its management had in order for the court to acquire jurisdiction over it, we agree
requested his services and he acceded thereto as an with respondent court's view to the contrary. Section 4, Rule
employee of petitioner from whom it could be deduced he 11 of the Rules of Court provides that a counterclaim or
was also receiving a salary. His move to recover unpaid legal cross-claim must be answered within ten (10) days from
fees through a counterclaim against Francisco Motors service. Nothing in the Rules of Court says that summons
Corporation, to offset the unpaid balance of the purchase and should first be served on the defendant before an answer to
repair of a jeep body could only result from an obvious counterclaim must be made. The purpose of a summons is to
misapprehension that petitioner's corporate assets could be enable the court to acquire jurisdiction over the person of the
used to answer for the liabilities of its individual directors, defendant. Although a counterclaim is treated as an entirely
officers, and incorporators. Such result if permitted could distinct and independent action, the defendant in the
easily prejudice the corporation, its own creditors, and even counterclaim, being the plaintiff in the original complaint, has
other stockholders; hence, clearly inequitous to petitioner. already submitted to the jurisdiction of the court. Following
Rule 9, Section 3 of the 1997 Rules of Civil Procedure, 21 if a
defendant (herein petitioner) fails to answer the
counterclaim, then upon motion of plaintiff, the defendant Republic of the Philippines
may be declared in default. This is what happened to SUPREME COURT
petitioner in this case, and this Court finds no procedural Baguio City
error in the disposition of the appellate court on this
particular issue. Moreover, as noted by the respondent court, THIRD DIVISION
when petitioner filed its motion seeking to set aside the order
of default, in effect it submitted itself to the jurisdiction of the G.R. No. 142936 April 17, 2002
court. As well said by respondent court:
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR
Further on the lack of jurisdiction as raised by plaintiff- DEVELOPMENT CORPORATION, petitioners,
appellant[,] [t]he records show that upon its request, plaintiff- vs.
appellant was granted time to file a motion for ANDRADA ELECTRIC & ENGINEERING
reconsideration of the disputed decision. Plaintiff-appellant COMPANY, respondent.
did file its motion for reconsideration to set aside the order of
default and the judgment rendered on the counterclaim. PANGANIBAN, J.:

Thus, even if the court acquired no jurisdiction over plaintiff- Basic is the rule that a corporation has a legal personality
appellant on the counterclaim, as it vigorously insists, distinct and separate from the persons and entities owning it.
plaintiff-appellant is considered to have submitted to the The corporate veil may be lifted only if it has been used to
court's jurisdiction when it filed the motion for shield fraud, defend crime, justify a wrong, defeat public
reconsideration seeking relief from the court. (Soriano vs. convenience, insulate bad faith or perpetuate injustice. Thus,
Palacio, 12 SCRA 447). A party is estopped from assailing the the mere fact that the Philippine National Bank (PNB)
jurisdiction of a court after voluntarily submitting himself to acquired ownership or management of some assets of the
its jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Pampanga Sugar Mill (PASUMIL), which had earlier been
Estoppel is a bar against any claims of lack of jurisdiction. foreclosed and purchased at the resulting public auction by
(Balais vs. Balais, 159 SCRA 37). 22 the Development Bank of the Philippines (DBP), will not make
PNB liable for the PASUMILs contractual debts to respondent.
WHEREFORE, the petition is hereby GRANTED and the
assailed decision is hereby REVERSED insofar only as it held Statement of the Case
Francisco Motors Corporation liable for the legal obligation
owing to private respondent Gregorio Manuel; but this
Before us is a Petition for Review assailing the April 17, 2000
decision is without prejudice to his filing the proper suit
Decision1 of the Court of Appeals (CA) in CA-GR CV No.
against the concerned members of the Francisco family in
57610. The decretal portion of the challenged Decision reads
their personal capacity. No pronouncement as to
as follows:
costs.1wphi1.nt
"WHEREFORE, the judgment appealed from is hereby
SO ORDERED.
AFFIRMED."2
Bellosillo, Puno, Mendoza and Buena, JJ., concur.
The Facts
The factual antecedents of the case are summarized by the (b) Construction of three (3) reinforced concrete foundation
Court of Appeals as follows: for three (3) units 350 KW diesel engine generating set[s];

"In its complaint, the plaintiff [herein respondent] alleged (c) Construction of three (3) reinforced concrete foundation
that it is a partnership duly organized, existing, and for the 5,000 KW and 1,250 KW turbo generator sets;
operating under the laws of the Philippines, with office and
principal place of business at Nos. 794-812 Del Monte (d) Complete overhauling and reconditioning tests sum for
[A]venue, Quezon City, while the defendant [herein three (3) 350 KW diesel engine generating set[s];
petitioner] Philippine National Bank (herein referred to as
PNB), is a semi-government corporation duly organized, (e) Installation of turbine and diesel generating sets
existing and operating under the laws of the Philippines, with including transformer, switchboard, electrical wirings and
office and principal place of business at Escolta Street, Sta. pipe provided those stated units are completely supplied with
Cruz, Manila; whereas, the other defendant, the National their accessories;
Sugar Development Corporation (NASUDECO in brief), is also
a semi-government corporation and the sugar arm of the (f) Relocating of 2,400 V transmission line, demolition of all
PNB, with office and principal place of business at the 2nd existing concrete foundation and drainage canals,
Floor, Sampaguita Building, Cubao, Quezon City; and the excavation, and earth fillings all for the total amount of
defendant Pampanga Sugar Mills (PASUMIL in short), is a P543,500.00 as evidenced by a contract, [a] xerox copy of
corporation organized, existing and operating under the 1975 which is hereto attached as Annex A and made an integral
laws of the Philippines, and had its business office before part of this complaint;
1975 at Del Carmen, Floridablanca, Pampanga; that the
plaintiff is engaged in the business of general construction that aside from the work contract mentioned-above, the
for the repairs and/or construction of different kinds of defendant PASUMIL required the plaintiff to perform extra
machineries and buildings; that on August 26, 1975, the work, and provide electrical equipment and spare parts, such
defendant PNB acquired the assets of the defendant PASUMIL as:
that were earlier foreclosed by the Development Bank of the
Philippines (DBP) under LOI No. 311; that the defendant PNB
(a) Supply of electrical devices;
organized the defendant NASUDECO in September, 1975, to
take ownership and possession of the assets and ultimately
(b) Extra mechanical works;
to nationalize and consolidate its interest in other PNB
controlled sugar mills; that prior to October 29, 1971, the
defendant PASUMIL engaged the services of plaintiff for (c) Extra fabrication works;
electrical rewinding and repair, most of which were partially
paid by the defendant PASUMIL, leaving several unpaid (d) Supply of materials and consumable items;
accounts with the plaintiff; that finally, on October 29, 1971,
the plaintiff and the defendant PASUMIL entered into a (e) Electrical shop repair;
contract for the plaintiff to perform the following, to wit
(f) Supply of parts and related works for turbine generator;
(a) Construction of one (1) power house building;
(g) Supply of electrical equipment for machinery;
(h) Supply of diesel engine parts and other related works (3) Ordering the defendants to pay the costs of the suit.
including fabrication of parts.
"The defendants PNB and NASUDECO filed a joint motion to
that out of the total obligation of P777,263.80, the defendant dismiss the complaint chiefly on the ground that the
PASUMIL had paid only P250,000.00, leaving an unpaid complaint failed to state sufficient allegations to establish a
balance, as of June 27, 1973, amounting to P527,263.80, as cause of action against both defendants, inasmuch as there
shown in the Certification of the chief accountant of the PNB, is lack or want of privity of contract between the plaintiff and
a machine copy of which is appended as Annex C of the the two defendants, the PNB and NASUDECO, said
complaint; that out of said unpaid balance of P527,263.80, defendants citing Article 1311 of the New Civil Code, and the
the defendant PASUMIL made a partial payment to the case law ruling in Salonga v. Warner Barnes & Co., 88 Phil.
plaintiff of P14,000.00, in broken amounts, covering the 125; and Manila Port Service, et al. v. Court of Appeals, et al.,
period from January 5, 1974 up to May 23, 1974, leaving an 20 SCRA 1214.
unpaid balance of P513,263.80; that the defendant PASUMIL
and the defendant PNB, and now the defendant NASUDECO, "The motion to dismiss was by the court a quo denied in its
failed and refused to pay the plaintiff their just, valid and Order of November 27, 1980; in the same order, that court
demandable obligation; that the President of the NASUDECO directed the defendants to file their answer to the complaint
is also the Vice-President of the PNB, and this official holds within 15 days.
office at the 10th Floor of the PNB, Escolta, Manila, and
plaintiff besought this official to pay the outstanding "In their answer, the defendant NASUDECO reiterated the
obligation of the defendant PASUMIL, inasmuch as the grounds of its motion to dismiss, to wit:
defendant PNB and NASUDECO now owned and possessed
the assets of the defendant PASUMIL, and these defendants That the complaint does not state a sufficient cause of
all benefited from the works, and the electrical, as well as the action against the defendant NASUDECO because: (a)
engineering and repairs, performed by the plaintiff; that NASUDECO is not x x x privy to the various electrical
because of the failure and refusal of the defendants to pay construction jobs being sued upon by the plaintiff under the
their just, valid, and demandable obligations, plaintiff present complaint; (b) the taking over by NASUDECO of the
suffered actual damages in the total amount of P513,263.80; assets of defendant PASUMIL was solely for the purpose of
and that in order to recover these sums, the plaintiff was reconditioning the sugar central of defendant PASUMIL
compelled to engage the professional services of counsel, to pursuant to martial law powers of the President under the
whom the plaintiff agreed to pay a sum equivalent to 25% of Constitution; (c) nothing in the LOI No. 189-A (as well as in
the amount of the obligation due by way of attorneys fees. LOI No. 311) authorized or commanded the PNB or its
Accordingly, the plaintiff prayed that judgment be rendered subsidiary corporation, the NASUDECO, to assume the
against the defendants PNB, NASUDECO, and PASUMIL, corporate obligations of PASUMIL as that being involved in
jointly and severally to wit: the present case; and, (d) all that was mentioned by the said
letter of instruction insofar as the PASUMIL liabilities [were]
(1) Sentencing the defendants to pay the plaintiffs the sum concerned [was] for the PNB, or its subsidiary corporation the
of P513,263.80, with annual interest of 14% from the time NASUDECO, to make a study of, and submit [a]
the obligation falls due and demandable; recommendation on the problems concerning the same.

(2) Condemning the defendants to pay attorneys fees "By way of counterclaim, the NASUDECO averred that by
amounting to 25% of the amount claim; reason of the filing by the plaintiff of the present suit, which it
[labeled] as unfounded or baseless, the defendant said Deed of Assignment, PNB on October 21, 1975 ceased to
NASUDECO was constrained to litigate and incur litigation managed and operate the above-mentioned assets of
expenses in the amount of P50,000.00, which plaintiff should PASUMIL, which function was now actually transferred to
be sentenced to pay. Accordingly, NASUDECO prayed that the NASUDECO. In other words, so asserted PNB, the complaint
complaint be dismissed and on its counterclaim, that the as to PNB, had become moot and academic because of the
plaintiff be condemned to pay P50,000.00 in concept of execution of the said Deed of Assignment; [8] that moreover,
attorneys fees as well as exemplary damages. LOI No. 311 did not authorize or direct PNB to assume the
corporate obligations of PASUMIL, including the alleged
"In its answer, the defendant PNB likewise reiterated the obligation upon which this present suit was brought; and [9]
grounds of its motion to dismiss, namely: (1) the complaint that, at most, what was granted to PNB in this respect was
states no cause of action against the defendant PNB; (2) that the authority to make a study of and submit
PNB is not a party to the contract alleged in par. 6 of the recommendation on the problems concerning the claims of
complaint and that the alleged services rendered by the PASUMIL creditors, under sub-par. 5 LOI No. 311.
plaintiff to the defendant PASUMIL upon which plaintiffs suit
is erected, was rendered long before PNB took possession of "In its counterclaim, the PNB averred that it was
the assets of the defendant PASUMIL under LOI No. 189-A; (3) unnecessarily constrained to litigate and to incur expenses in
that the PNB take-over of the assets of the defendant this case, hence it is entitled to claim attorneys fees in the
PASUMIL under LOI 189-A was solely for the purpose of amount of at least P50,000.00. Accordingly, PNB prayed that
reconditioning the sugar central so that PASUMIL may resume the complaint be dismissed; and that on its counterclaim,
its operations in time for the 1974-75 milling season, and that the plaintiff be sentenced to pay defendant PNB the sum
that nothing in the said LOI No. 189-A, as well as in LOI No. of P50,000.00 as attorneys fees, aside from exemplary
311, authorized or directed PNB to assume the corporate damages in such amount that the court may seem just and
obligation/s of PASUMIL, let alone that for which the present equitable in the premises.
action is brought; (4) that PNBs management and operation
under LOI No. 311 did not refer to any asset of PASUMIL "Summons by publication was made via the Philippines Daily
which the PNB had to acquire and thereafter [manage], but Express, a newspaper with editorial office at 371 Bonifacio
only to those which were foreclosed by the DBP and were in Drive, Port Area, Manila, against the defendant PASUMIL,
turn redeemed by the PNB from the DBP; (5) that which was thereafter declared in default as shown in the
conformably to LOI No. 311, on August 15, 1975, the PNB and August 7, 1981 Order issued by the Trial Court.
the Development Bank of the Philippines (DBP) entered into a
Redemption Agreement whereby DBP sold, transferred and "After due proceedings, the Trial Court rendered judgment,
conveyed in favor of the PNB, by way of redemption, all its the decretal portion of which reads:
(DBP) rights and interest in and over the foreclosed real
and/or personal properties of PASUMIL, as shown in Annex C WHEREFORE, judgment is hereby rendered in favor of
which is made an integral part of the answer; (6) that again, plaintiff and against the defendant Corporation, Philippine
conformably with LOI No. 311, PNB pursuant to a Deed of National Bank (PNB) NATIONAL SUGAR DEVELOPMENT
Assignment dated October 21, 1975, conveyed, transferred, CORPORATION (NASUDECO) and PAMPANGA SUGAR MILLS
and assigned for valuable consideration, in favor of (PASUMIL), ordering the latter to pay jointly and severally the
NASUDECO, a distinct and independent corporation, all its former the following:
(PNB) rights and interest in and under the above Redemption
Agreement. This is shown in Annex D which is also made an
integral part of the answer; [7] that as a consequence of the
1. The sum of P513,623.80 plus interest thereon at the rate The Court of Appeals gravely erred in law in holding the
of 14% per annum as claimed from September 25, 1980 until herein petitioners liable for the unpaid corporate debts of
fully paid; PASUMIL, a corporation whose corporate existence has not
been legally extinguished or terminated, simply because of
2. The sum of P102,724.76 as attorneys fees; and, petitioners[] take-over of the management and operation of
PASUMIL pursuant to the mandates of LOI No. 189-A, as
3. Costs. amended by LOI No. 311.

SO ORDERED. "II

Manila, Philippines, September 4, 1986. The Court of Appeals gravely erred in law in not applying [to]
the case at bench the ruling enunciated in Edward J. Nell Co.
v. Pacific Farms, 15 SCRA 415."6

'(SGD) ERNESTO S. TENGCO Succinctly put, the aforesaid errors boil down to the principal
Judge"3 issue of whether PNB is liable for the unpaid debts of
PASUMIL to respondent.

Ruling of the Court of Appeals This Courts Ruling

Affirming the trial court, the CA held that it was offensive to The Petition is meritorious.
the basic tenets of justice and equity for a corporation to take
over and operate the business of another corporation, while Main Issue:
disavowing or repudiating any responsibility, obligation or
liability arising therefrom.4 Liability for Corporate Debts

Hence, this Petition.5 As a general rule, questions of fact may not be raised in a
petition for review under Rule 45 of the Rules of Court. 7To this
Issues rule, however, there are some exceptions enumerated
in Fuentes v. Court of Appeals.8 After a careful scrutiny of the
In their Memorandum, petitioners raise the following errors records and the pleadings submitted by the parties, we find
for the Courts consideration: that the lower courts misappreciated the evidence
presented.9 Overlooked by the CA were certain relevant facts
"I that would justify a conclusion different from that reached in
the assailed Decision.10

Petitioners posit that they should not be held liable for the
corporate debts of PASUMIL, because their takeover of the
latters foreclosed assets did not make them assignees. On
the other hand, respondent asserts that petitioners and
PASUMIL should be treated as one entity and, as such, jointly
and severally held liable for PASUMILs unpaid presumed.20 Otherwise, an injustice that was never
obligation.1wphi1.nt unintended may result from an erroneous application. 21

As a rule, a corporation that purchases the assets of another This Court has pierced the corporate veil to ward off a
will not be liable for the debts of the selling corporation, judgment credit,22 to avoid inclusion of corporate assets as
provided the former acted in good faith and paid adequate part of the estate of the decedent,23 to escape liability arising
consideration for such assets, except when any of the from a debt,24 or to perpetuate fraud and/or confuse
following circumstances is present: (1) where the purchaser legitimate issues25 either to promote or to shield unfair
expressly or impliedly agrees to assume the debts, (2) where objectives26 or to cover up an otherwise blatant violation of
the transaction amounts to a consolidation or merger of the the prohibition against forum-shopping.27 Only in these and
corporations, (3) where the purchasing corporation is merely similar instances may the veil be pierced and disregarded. 28
a continuation of the selling corporation, and (4) where the
transaction is fraudulently entered into in order to escape The question of whether a corporation is a mere alter ego is
liability for those debts.11 one of fact.29 Piercing the veil of corporate fiction may be
allowed only if the following elements concur: (1) control --
Piercing the Corporate not mere stock control, but complete domination -- not only
of finances, but of policy and business practice in respect to
Veil Not Warranted the transaction attacked, must have been such that the
corporate entity as to this transaction had at the time no
A corporation is an artificial being created by operation of separate mind, will or existence of its own; (2) such control
law. It possesses the right of succession and such powers, must have been used by the defendant to commit a fraud or
attributes, and properties expressly authorized by law or a wrong to perpetuate the violation of a statutory or other
incident to its existence.12 It has a personality separate and positive legal duty, or a dishonest and an unjust act in
distinct from the persons composing it, as well as from any contravention of plaintiffs legal right; and (3) the said control
other legal entity to which it may be related. 13 This is basic. and breach of duty must have proximately caused the injury
or unjust loss complained of.30
Equally well-settled is the principle that the corporate mask
may be removed or the corporate veil pierced when the We believe that the absence of the foregoing elements in the
corporation is just an alter ego of a person or of another present case precludes the piercing of the corporate
corporation.14 For reasons of public policy and in the interest veil. First, other than the fact that petitioners acquired the
of justice, the corporate veil will justifiably be impaled 15 only assets of PASUMIL, there is no showing that their control over
when it becomes a shield for fraud, illegality or inequity it warrants the disregard of corporate personalities. 31 Second,
committed against third persons.16 there is no evidence that their juridical personality was used
to commit a fraud or to do a wrong; or that the separate
Hence, any application of the doctrine of piercing the corporate entity was farcically used as a mere alter ego,
corporate veil should be done with caution. 17 A court should business conduit or instrumentality of another entity or
be mindful of the milieu where it is to be applied. 18 It must be person.32 Third, respondent was not defrauded or injured
certain that the corporate fiction was misused to such an when petitioners acquired the assets of PASUMIL. 33
extent that injustice, fraud, or crime was committed against
another, in disregard of its rights. 19 The wrongdoing must be Being the party that asked for the piercing of the corporate
clearly and convincingly established; it cannot be veil, respondent had the burden of presenting clear and
convincing evidence to justify the setting aside of the Marinduque Minings unpaid obligations to Remington
separate corporate personality rule.34 However, it utterly Industrial Sales Corporation (Remington) after the two banks
failed to discharge this burden; 35 it failed to establish by had foreclosed the assets of Marinduque Mining. We likewise
competent evidence that petitioners separate corporate veil held that Remington failed to discharge its burden of proving
had been used to conceal fraud, illegality or inequity. 36 bad faith on the part of Marinduque Mining to justify the
piercing of the corporate veil.
While we agree with respondents claim that the assets of the
National Sugar Development Corporation (NASUDECO) can In the instant case, the CA erred in affirming the trial courts
be easily traced to PASUMIL,37 we are not convinced that the lifting of the corporate mask.50 The CA did not point to any
transfer of the latters assets to petitioners was fraudulently fact evidencing bad faith on the part of PNB and its
entered into in order to escape liability for its debt to transferee.51 The corporate fiction was not used to defeat
respondent.38 public convenience, justify a wrong, protect fraud or defend
crime.52 None of the foregoing exceptions was shown to exist
A careful review of the records reveals that DBP foreclosed in the present case.53 On the contrary, the lifting of the
the mortgage executed by PASUMIL and acquired the assets corporate veil would result in manifest injustice. This we
as the highest bidder at the public auction conducted. 39 The cannot allow.
bank was justified in foreclosing the mortgage, because the
PASUMIL account had incurred arrearages of more than 20 No Merger or Consolidation
percent of the total outstanding obligation. 40 Thus, DBP had
not only a right, but also a duty under the law to foreclose Respondent further claims that petitioners should be held
the subject properties.41 liable for the unpaid obligations of PASUMIL by virtue of LOI
Nos. 189-A and 311, which expressly authorized PASUMIL and
Pursuant to LOI No. 189-A42 as amended by LOI No. PNB to merge or consolidate. On the other hand, petitioners
311,43 PNB acquired PASUMILs assets that DBP had contend that their takeover of the operations of PASUMIL did
foreclosed and purchased in the normal course. Petitioner not involve any corporate merger or consolidation, because
bank was likewise tasked to manage temporarily the the latter had never lost its separate identity as a
operation of such assets either by itself or through a corporation.
subsidiary corporation.44
A consolidation is the union of two or more existing entities
PNB, as the second mortgagee, redeemed from DBP the to form a new entity called the consolidated corporation. A
foreclosed PASUMIL assets pursuant to Section 6 of Act No. merger, on the other hand, is a union whereby one or more
3135.45 These assets were later conveyed to PNB for a existing corporations are absorbed by another corporation
consideration, the terms of which were embodied in the that survives and continues the combined business. 54
Redemption Agreement.46 PNB, as successor-in-interest,
stepped into the shoes of DBP as PASUMILs creditor. 47 By The merger, however, does not become effective upon the
way of a Deed of Assignment, 48 PNB then transferred to mere agreement of the constituent corporations. 55Since a
NASUDECO all its rights under the Redemption Agreement. merger or consolidation involves fundamental changes in the
corporation, as well as in the rights of stockholders and
In Development Bank of the Philippines v. Court of creditors, there must be an express provision of law
Appeals,49 we had the occasion to resolve a similar issue. We authorizing them.56 For a valid merger or consolidation, the
ruled that PNB, DBP and their transferees were not liable for approval by the Securities and Exchange Commission (SEC)
of the articles of merger or consolidation is required. 57 These PACIFIC BANKING CORPORATION, REGISTER OF DEEDS,
articles must likewise be duly approved by a majority of the RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the
respective stockholders of the constituent corporations. 58 Heirs of EUGENIO D. TRINIDAD, respondents.

In the case at bar, we hold that there is no merger or QUISUMBING, J.:


consolidation with respect to PASUMIL and PNB. The
procedure prescribed under Title IX of the Corporation This petition for review on certiorari seeks the reversal of the
Code59 was not followed. Decision1 dated October 21, 1999 of the Court of Appeals in
CA-G.R. CV No. 41536 which dismissed herein petitioners'
In fact, PASUMILs corporate existence, as correctly found by appeal from the Decision2 dated February 10, 1993 of the
the CA, had not been legally extinguished or Regional Trial Court (RTC) of Quezon City, Branch 84, in Civil
terminated.60 Further, prior to PNBs acquisition of the Case No. Q-89-4152. The trial court had dismissed
foreclosed assets, PASUMIL had previously made partial petitioners' complaint for annulment of real estate mortgage
payments to respondent for the formers obligation in the and the extra-judicial foreclosure thereof. Likewise brought
amount of P777,263.80. As of June 27, 1973, PASUMIL had for our review is the Resolution3 dated February 23, 2000 of
paid P250,000 to respondent and, from January 5, 1974 to the Court of Appeals which denied petitioners' motion for
May 23, 1974, another P14,000. reconsideration.

Neither did petitioner expressly or impliedly agree to assume The facts, as culled from records, are as follows:
the debt of PASUMIL to respondent.61 LOI No. 11 explicitly
provides that PNB shall study and submit recommendations Petitioners, the spouses Alfredo Lipat and Estelita Burgos
on the claims of PASUMILs creditors. 62Clearly, the corporate Lipat, owned "Bela's Export Trading" (BET), a single
separateness between PASUMIL and PNB remains, despite proprietorship with principal office at No. 814 Aurora
respondents insistence to the contrary.63 Boulevard, Cubao, Quezon City. BET was engaged in the
manufacture of garments for domestic and foreign
WHEREFORE, the Petition is hereby GRANTED and the consumption. The Lipats also owned the "Mystical Fashions"
assailed Decision SET ASIDE. No pronouncement as to costs. in the United States, which sells goods imported from the
Philippines through BET. Mrs. Lipat designated her daughter,
SO ORDERED. Teresita B. Lipat, to manage BET in the Philippines while she
was managing "Mystical Fashions" in the United States.
epublic of the Philippines
SUPREME COURT In order to facilitate the convenient operation of BET, Estelita
Manila Lipat executed on December 14, 1978, a special power of
attorney appointing Teresita Lipat as her attorney-in-fact to
SECOND DIVISION obtain loans and other credit accommodations from
respondent Pacific Banking Corporation (Pacific Bank). She
G.R. No. 142435 April 30, 2003 likewise authorized Teresita to execute mortgage contracts
on properties owned or co-owned by her as security for the
ESTELITA BURGOS LIPAT and ALFREDO obligations to be extended by Pacific Bank including any
LIPAT, petitioners, extension or renewal thereof.
vs.
Sometime in April 1979, Teresita, by virtue of the special These transactions were all secured by the real estate
power of attorney, was able to secure for and in behalf of her mortgage over the Lipats' property.
mother, Mrs. Lipat and BET, a loan from Pacific Bank
amounting to P583,854.00 to buy fabrics to be manufactured The promissory notes, export bills, and trust receipt
by BET and exported to "Mystical Fashions" in the United eventually became due and demandable. Unfortunately, BEC
States. As security therefor, the Lipat spouses, as defaulted in its payments. After receipt of Pacific Bank's
represented by Teresita, executed a Real Estate Mortgage demand letters, Estelita Lipat went to the office of the bank's
over their property located at No. 814 Aurora Blvd., Cubao, liquidator and asked for additional time to enable her to
Quezon City. Said property was likewise made to secure personally settle BEC's obligations. The bank acceded to her
"other additional or new loans, discounting lines, overdrafts request but Estelita failed to fulfill her promise.
and credit accommodations, of whatever amount, which the
Mortgagor and/or Debtor may subsequently obtain from the Consequently, the real estate mortgage was foreclosed and
Mortgagee as well as any renewal or extension by the after compliance with the requirements of the law the
Mortgagor and/or Debtor of the whole or part of said original, mortgaged property was sold at public auction. On January
additional or new loans, discounting lines, overdrafts and 31, 1989, a certificate of sale was issued to respondent
other credit accommodations, including interest and Eugenio D. Trinidad as the highest bidder.
expenses or other obligations of the Mortgagor and/or Debtor
owing to the Mortgagee, whether directly, or indirectly, On November 28, 1989, the spouses Lipat filed before the
principal or secondary, as appears in the accounts, books Quezon City RTC a complaint for annulment of the real estate
and records of the Mortgagee."4 mortgage, extrajudicial foreclosure and the certificate of sale
issued over the property against Pacific Bank and Eugenio D.
On September 5, 1979, BET was incorporated into a family Trinidad. The complaint, which was docketed as Civil Case
corporation named Bela's Export Corporation (BEC) in order No. Q-89-4152, alleged, among others, that the promissory
to facilitate the management of the business. BEC was notes, trust receipt, and export bills were all ultra vires acts
engaged in the business of manufacturing and exportation of of Teresita as they were executed without the requisite board
all kinds of garments of whatever kind and description 5 and resolution of the Board of Directors of BEC. The Lipats also
utilized the same machineries and equipment previously averred that assuming said acts were valid and binding on
used by BET. Its incorporators and directors included the BEC, the same were the corporation's sole obligation, it
Lipat spouses who owned a combined 300 shares out of the having a personality distinct and separate from spouses
420 shares subscribed, Teresita Lipat who owned 20 shares, Lipat. It was likewise pointed out that Teresita's authority to
and other close relatives and friends of the Lipats. 6 Estelita secure a loan from Pacific Bank was specifically limited to
Lipat was named president of BEC, while Teresita became the Mrs. Lipat's sole use and benefit and that the real estate
vice-president and general manager. mortgage was executed to secure the Lipats' and BET's
P583,854.00 loan only.
Eventually, the loan was later restructured in the name of
BEC and subsequent loans were obtained by BEC with the In their respective answers, Pacific Bank and Trinidad alleged
corresponding promissory notes duly executed by Teresita on in common that petitioners Lipat cannot evade payments of
behalf of the corporation. A letter of credit was also opened the value of the promissory notes, trust receipt, and export
by Pacific Bank in favor of A. O. Knitting Manufacturing Co., bills with their property because they and the BEC are one
Inc., upon the request of BEC after BEC executed the and the same, the latter being a family corporation.
corresponding trust receipt therefor. Export bills were also Respondent Trinidad further claimed that he was a buyer in
executed in favor of Pacific Bank for additional finances.
good faith and for value and that petitioners are estopped dismissed by the appellate court for lack of merit. The Court
from denying BEC's existence after holding themselves out of Appeals found that there was ample evidence on record to
as a corporation. support the application of the doctrine of piercing the veil of
corporate fiction. In affirming the findings of the RTC, the
After trial on the merits, the RTC dismissed the complaint, appellate court noted that Mrs. Lipat had full control over the
thus: activities of the corporation and used the same to further her
business interests.9 In fact, she had benefited from the loans
WHEREFORE, this Court holds that in view of the facts obtained by the corporation to finance her business. It also
contained in the record, the complaint filed in this case must found unnecessary a board resolution authorizing Teresita
be, as is hereby, dismissed. Plaintiffs however has five (5) Lipat to secure loans from Pacific Bank on behalf of BEC
months and seventeen (17) days reckoned from the finality because the corporation's by-laws allowed such conduct even
of this decision within which to exercise their right of without a board resolution. Finally, the Court of Appeals ruled
redemption. The writ of injunction issued is automatically that the mortgage property was not only liable for the
dissolved if no redemption is effected within that period. original loan of P583,854.00 but likewise for the value of the
promissory notes, trust receipt, and export bills as the
The counterclaims and cross-claim are likewise dismissed for mortgage contract equally applies to additional or new loans,
lack of legal and factual basis. discounting lines, overdrafts, and credit accommodations
which petitioners subsequently obtained from Pacific Bank.
No costs.
The Lipats then moved for reconsideration, but this was
IT IS SO ORDERED. 7 denied by the appellate court in its Resolution of February 23,
2000.10
The trial court ruled that there was convincing and conclusive
evidence proving that BEC was a family corporation of the Hence, this petition, with petitioners submitting that the
Lipats. As such, it was a mere extension of petitioners' court a quo erred
personality and business and a mere alter ego or business
conduit of the Lipats established for their own benefit. Hence, 1) . . . IN HOLDING THAT THE DOCTRINE OF PIERCING THE
to allow petitioners to invoke the theory of separate VEIL OF CORPORATE FICTION APPLIES IN THIS CASE.
corporate personality would sanction its use as a shield to
further an end subversive of justice. 8 Thus, the trial court 2) . . . IN HOLDING THAT PETITIONERS' PROPERTY CAN BE
pierced the veil of corporate fiction and held that Bela's HELD LIABLE UNDER THE REAL ESTATE MORTGAGE NOT ONLY
Export Corporation and petitioners (Lipats) are one and the FOR THE AMOUNT OF P583,854.00 BUT ALSO FOR THE FULL
same. Pacific Bank had transacted business with both BET VALUE OF PROMISSORY NOTES, TRUST RECEIPTS AND
and BEC on the supposition that both are one and the same. EXPORT BILLS OF BELA'S EXPORT CORPORATION.
Hence, the Lipats were estopped from disclaiming any
obligations on the theory of separate personality of 3) . . . IN HOLDING THAT "THE IMPOSITION OF 15%
corporations, which is contrary to principles of reason and ATTORNEY'S FEES IN THE EXTRA-JUDICIAL FORECLOSURE IS
good faith. BEYOND THIS COURT'S JURISDICTION FOR IT IS BEING RAISED
FOR THE FIRST TIME IN THIS APPEAL."
The Lipats timely appealed the RTC decision to the Court of
Appeals in CA-G.R. CV No. 41536. Said appeal, however, was
4) . . . IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY appellate court show that in finding petitioners' mortgaged
THE DISPUTED PROMISSORY NOTES, THE DOLLAR property liable for the obligations of BEC, both courts below
ACCOMMODATIONS AND TRUST RECEIPTS DESPITE THE relied upon the alter ego doctrine or instrumentality rule,
EVIDENT FACT THAT THEY WERE NOT SIGNED BY HIM AND rather than fraud in piercing the veil of corporate fiction.
THEREFORE ARE NOT VALID OR ARE NOT BINDING TO HIM. When the corporation is the mere alter ego or business
conduit of a person, the separate personality of the
5) . . . IN DENYING PETITIONERS' MOTION FOR corporation may be disregarded.12 This is commonly referred
RECONSIDERATION AND IN HOLDING THAT SAID MOTION FOR to as the "instrumentality rule" or the alter ego doctrine,
RECONSIDERATION IS "AN UNAUTHORIZED MOTION, A MERE which the courts have applied in disregarding the separate
SCRAP OF PAPER WHICH CAN NEITHER BIND NOR BE OF ANY juridical personality of corporations. As held in one case,
CONSEQUENCE TO APPELLANTS."11
Where one corporation is so organized and controlled and its
In sum, the following are the relevant issues for our affairs are conducted so that it is, in fact, a mere
resolution: instrumentality or adjunct of the other, the fiction of the
corporate entity of the 'instrumentality' may be disregarded.
1. Whether or not the doctrine of piercing the veil of The control necessary to invoke the rule is not majority or
corporate fiction is applicable in this case; even complete stock control but such domination of finances,
policies and practices that the controlled corporation has, so
2. Whether or not petitioners' property under the real estate to speak, no separate mind, will or existence of its own, and
mortgage is liable not only for the amount of P583,854.00 is but a conduit for its principal. x x x . 13
but also for the value of the promissory notes, trust receipt,
and export bills subsequently incurred by BEC; and We find that the evidence on record demolishes, rather than
buttresses, petitioners' contention that BET and BEC are
3. Whether or not petitioners are liable to pay the 15% separate business entities. Note that Estelita Lipat admitted
attorney's fees stipulated in the deed of real estate that she and her husband, Alfredo, were the owners of
mortgage. BET14 and were two of the incorporators and majority
stockholders of BEC.15 It is also undisputed that Estelita Lipat
On the first issue, petitioners contend that both the appellate executed a special power of attorney in favor of her
and trial courts erred in holding them liable for the daughter, Teresita, to obtain loans and credit lines from
obligations incurred by BEC through the application of the Pacific Bank on her behalf.16 Incidentally, Teresita was
doctrine of piercing the veil of corporate fiction absent any designated as executive-vice president and general manager
clear showing of fraud on their part. of both BET and BEC, respectively. 17 We note further that: (1)
Estelita and Alfredo Lipat are the owners and majority
shareholders of BET and BEC, respectively; 18 (2) both firms
Respondents counter that there is clear and convincing
were managed by their daughter, Teresita; 19 (3) both firms
evidence to show fraud on part of petitioners given the
were engaged in the garment business, supplying products to
findings of the trial court, as affirmed by the Court of
"Mystical Fashion," a U.S. firm established by Estelita Lipat;
Appeals, that BEC was organized as a business conduit for
(4) both firms held office in the same building owned by the
the benefit of petitioners.
Lipats;20 (5) BEC is a family corporation with the Lipats as its
majority stockholders; (6) the business operations of the BEC
Petitioners' contentions fail to persuade this Court. A careful
were so merged with those of Mrs. Lipat such that they were
reading of the judgment of the RTC and the resolution of the
practically indistinguishable; (7) the corporate funds were
held by Estelita Lipat and the corporation itself had no visible the mortgage was executed not only for the purpose of
assets; (8) the board of directors of BEC was composed of the securing the Bela's Export Trading's original loan of
Burgos and Lipat family members; 21 (9) Estelita had full P583,854.00, but also for "other additional or new loans,
control over the activities of and decided business matters of discounting lines, overdrafts and credit accommodations, of
the corporation;22 and that (10) Estelita Lipat had benefited whatever amount, which the Mortgagor and/or Debtor may
from the loans secured from Pacific Bank to finance her subsequently obtain from the mortgagee as well as any
business abroad23 and from the export bills secured by BEC renewal or extension by the Mortgagor and/or Debtor of the
for the account of "Mystical Fashion."24 It could not have been whole or part of said original, additional or new loans,
coincidental that BET and BEC are so intertwined with each discounting lines, overdrafts and other credit
other in terms of ownership, business purpose, and accommodations, including interest and expenses or other
management. Apparently, BET and BEC are one and the obligations of the Mortgagor and/or Debtor owing to the
same and the latter is a conduit of and merely succeeded the Mortgagee, whether directly, or indirectly principal or
former. Petitioners' attempt to isolate themselves from and secondary, as appears in the accounts, books and records of
hide behind the corporate personality of BEC so as to evade the mortgagee.25
their liabilities to Pacific Bank is precisely what the classical
doctrine of piercing the veil of corporate entity seeks to As a general rule, findings of fact of the Court of Appeals are
prevent and remedy. In our view, BEC is a mere continuation final and conclusive, and cannot be reviewed on appeal by
and successor of BET, and petitioners cannot evade their the Supreme Court, provided they are borne out by the
obligations in the mortgage contract secured under the name record or based on substantial evidence. 26 As noted earlier,
of BEC on the pretext that it was signed for the benefit and BEC merely succeeded BET as petitioners' alter ego; hence,
under the name of BET. We are thus constrained to rule that petitioners' mortgaged property must be held liable for the
the Court of Appeals did not err when it applied the subsequent loans and credit lines of BEC.
instrumentality doctrine in piercing the corporate veil of BEC.
Further, petitioners' contention that the original loan had
On the second issue, petitioners contend that their already been paid, hence, the mortgaged property should not
mortgaged property should not be made liable for the be made liable to the loans of BEC, is unsupported by any
subsequent credit lines and loans incurred by BEC because, substantial evidence other than Estelita Lipat's self-serving
first, it was not covered by the mortgage contract of BET testimony. Two disputable presumptions under the rules on
which only covered the loan of P583,854.00 and which evidence weigh against petitioners, namely: (a) that a person
allegedly had already been paid; and, second, it was secured takes ordinary care of his concerns; 27 and (b) that things have
by Teresita Lipat without any authorization or board happened according to the ordinary course of nature and the
resolution of BEC. ordinary habits of life.28 Here, if the original loan had indeed
been paid, then logically, petitioners would have asked from
We find petitioners' contention untenable. As found by the Pacific Bank for the required documents evidencing receipt
Court of Appeals, the mortgaged property is not limited to and payment of the loans and, as owners of the mortgaged
answer for the loan of P583,854.00. Thus: property, would have immediately asked for the cancellation
of the mortgage in the ordinary course of things. However,
Finally, the extent to which the Lipats' property can be held the records are bereft of any evidence contradicting or
liable under the real estate mortgage is not limited to overcoming said disputable presumptions.
P583,854.00. It can be held liable for the value of the
promissory notes, trust receipt and export bills as well. For
Petitioners contend further that the mortgaged property Secondly, the principle of estoppel precludes petitioners from
should not bind the loans and credit lines obtained by BEC as denying the validity of the transactions entered into by
they were secured without any proper authorization or board Teresita Lipat with Pacific Bank, who in good faith, relied on
resolution. They also blame the bank for its laxity and the authority of the former as manager to act on behalf of
complacency in not requiring a board resolution as a petitioner Estelita Lipat and both BET and BEC. While the
requisite for approving the loans. power and responsibility to decide whether the corporation
should enter into a contract that will bind the corporation is
Such contentions deserve scant consideration. lodged in its board of directors, subject to the articles of
incorporation, by-laws, or relevant provisions of law, yet, just
Firstly, it could not have been possible for BEC to release a as a natural person may authorize another to do certain acts
board resolution since per admissions by both petitioner for and on his behalf, the board of directors may validly
Estelita Lipat and Alice Burgos, petitioners' rebuttal witness, delegate some of its functions and powers to officers,
no business or stockholder's meetings were conducted nor committees, or agents. The authority of such individuals to
were there election of officers held since its incorporation. In bind the corporation is generally derived from law, corporate
fact, not a single board resolution was passed by the by-laws, or authorization from the board, either expressly or
corporate board29 and it was Estelita Lipat and/or Teresita impliedly by habit, custom, or acquiescence in the general
Lipat who decided business matters.30 course of business.31 Apparent authority, is derived not
merely from practice. Its existence may be ascertained
through (1) the general manner in which the corporation
holds out an officer or agent as having the power to act or, in
other words, the apparent authority to act in general, with
which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge
thereof, whether within or beyond the scope of his ordinary
powers.32

In this case, Teresita Lipat had dealt with Pacific Bank on the
mortgage contract by virtue of a special power of attorney
executed by Estelita Lipat. Recall that Teresita Lipat acted as
the manager of both BEC and BET and had been deciding
business matters in the absence of Estelita Lipat. Further, the
export bills secured by BEC were for the benefit of "Mystical
Fashion" owned by Estelita Lipat. 33 Hence, Pacific Bank
cannot be faulted for relying on the same authority granted
to Teresita Lipat by Estelita Lipat by virtue of a special power
of attorney. It is a familiar doctrine that if a corporation
knowingly permits one of its officers or any other agent to act
within the scope of an apparent authority, it holds him out to
the public as possessing the power to do those acts; thus,
the corporation will, as against anyone who has in good faith
dealt with it through such agent, be estopped from denying
the agent's authority.34
We find no necessity to extensively deal with the liability of
Alfredo Lipat for the subsequent credit lines of BEC. Suffice it
to state that Alfredo Lipat never disputed the validity of the G.R. No. L-30822 July 31, 1975
real estate mortgage of the original loan; hence, he cannot
now dispute the subsequent loans obtained using the same EDUARDO CLAPAROLS, ROMULO AGSAM and/or
mortgage contract since it is, by its very terms, a continuing CLAPAROLS STEEL AND NAIL PLANT, petitioners,
mortgage contract. vs.
COURT OF INDUSTRIAL RELATIONS, ALLIED WORKERS'
On the third and final issue, petitioners assail the decision of ASSOCIATION and/or DEMETRIO GARLITOS, ALFREDO
the Court of Appeals for not taking cognizance of the issue on ONGSUCO, JORGE SEMILLANO, SALVADOR DOROTEO,
attorney's fees on the ground that it was raised for the first ROSENDO ESPINOSA, LUDOVICO BALOPENOS, ASER
time on appeal. We find the conclusion of the Court of AMANCIO, MAXIMO QUIOYO, GAUDENCIO QUIOYO, and
Appeals to be in accord with settled jurisprudence. Basic is IGNACIO QUIOYO,respondents.
the rule that matters not raised in the complaint cannot be
raised for the first time on appeal. 35 A close perusal of the Ruben G. Bala for petitioners.
complaint yields no allegations disputing the attorney's fees
imposed under the real estate mortgage and petitioners Rolando N. Medalla for private respondents.
cannot now allege that they have impliedly disputed the
same when they sought the annulment of the contract.

In sum, we find no reversible error of law committed by the MAKASIAR, J.:


Court of Appeals in rendering the decision and resolution
herein assailed by petitioners.
A petition for certiorari to set aside the order of respondent
Court of Industrial Relations dated May 30, 1969 directing
WHEREFORE, the petition is DENIED. The Decision dated petitioners to pay back wages and bonuses to private
October 21, 1999 and the Resolution dated February 23, respondents as well as its resolution of July 5, 1969 denying
2000 of the Court of Appeals in CA-G.R. CV No. 41536 are the motion for reconsideration of said order in Case No. 32-
AFFIRMED. Costs against petitioners. ULP-Iloilo entitled "Allied Workers' Association, et. al., versus
Eduardo Claparols, et. al.."
SO ORDERED.
It appears that on August 6, 1957, a complaint for unfair
Bellosillo, Austria-Martinez and Callejo, Sr., JJ ., concur. labor practice was filed by herein private respondent Allied
Workers' Association, respondent Demetrio Garlitos and ten
(10) respondent workers against herein petitioners on
account of the dismissal of respondent workers from
epublic of the Philippines petitioner Claparols Steel and Nail Plant.
SUPREME COURT
Manila On September 16, 1963, respondent Court rendered its
decision finding "Mr. Claparols guilty of union busting and" of
FIRST DIVISION having "dismissed said complainants because of their union
activities," and ordering respondents "(1) To cease and desist
from committing unfair labor practices against their owner Eduardo Claparols nor from his lawyer Atty. Plaridel
employees and laborers; (2) To reinstate said complainants to Katalbas, to reinstate respondent workers.
their former or equivalent jobs, as soon as possible, with
back wages from the date of their dismissal up to their actual Again, on December 15, 1964, respondent workers were
reinstatement" (p. 12, Decision; p. 27, rec.). accompanied by a police officer to the company compound,
but then, they were again refused reinstatement by Cusi on
A motion to reconsider the above decision was filed by herein the same ground.
petitioners, which respondent Court, sitting en banc, denied
in a resolution dated January 27, 1964. On January 15, 1965, the CIR Chief Examiner Submitted his
report containing three computations, to wit:
On March 30, 1964, counsel for herein respondent workers
(complainants in the ULP case) filed a motion for execution of The first computation covers the period February 1, 1957 to
respondent Court's September 16, 1963 decision. October 31, 1964. The second is up to and including
December 7, 1962, when the corporation stopped operations,
On May 14, 1964, respondent Court, in its order of while the third is only up to June 30, 1957 when the Claparols
September 16, 1963, granted execution and directed herein Steel and Nail Plant ceased to operate (Annex B, Petition for
petitioners Review on Certiorari, p. 14, Brief for appellees, p. 113, rec.).

to reinstate the above complainants to their former or with the explanation that:
equivalent jobs within five (5) days after receipt of a copy of
this order. In order to implement the award of back wages, 6. Since the records of the Claparols Steel Corporation show
the Chief of the Examining Division or any of his assistants is that it was established on July 1, 1957 succeeding the
hereby directed to proceed to the office of the respondents at Claparols Steel and Nail Plant which ceased operations on
Matab-ang, Talisay, Negros Occidental, and examine its June 30, 1957, and that the Claparols Steel Corporation
payrolls and other pertinent records and compute the back stopped operations on December 7, 1962, three (3)
wages of the complainants in accordance with the decision computations are presented herein for the consideration of
dated September 16, 1963, and, upon termination, to submit this Honorable Court (p. 2, Report of Examiner, p. 29, rec.).
his report as soon as possible for further disposition (p. 7,
Brief for Respondents, p. 113, rec.). On January 23, 1965, petitioners filed an opposition alleging
that under the circumstances presently engulfing the
which was reiterated by respondent Court in a subsequent company, petitioner Claparols could not personally reinstate
order dated November 10, 1964 (pp. 7-8, Brief for respondent workers; that assuming the workers are entitled
Respondents, p. 113, rec.). to back wages, the same should only be limited to three
months pursuant to the court ruling in the case of Sta. Cecilia
On December 14, 1964, respondent workers were Sawmills vs. CIR (L-19273-74, February 20, 1964); and that
accompanied by the Chief of Police of Talisay, Negros since Claparols Steel Corporation ceased to operate on
Occidental to the compound of herein petitioner company to December 7, 1962, re-employment of respondent workers
report for reinstatement per order of the court. Respondent cannot go beyond December 7, 1962.
workers were, however, refused reinstatement by company
accountant Francisco Cusi for he had no order from plant A reply to petitioner's opposition was filed by respondent
workers, alleging among others, that Claparols Steel and Nail
Plant and Claparols Steel and Nail Corporation are one and Whereupon, petitioners filed a petition for certiorari with this
the same corporation controlled by petitioner Claparols, with COURT in G.R. No. L-27272 to set aside the November 28,
the latter corporation succeeding the former. 1966 order of respondent Court, as well as its February 8,
1967 resolution. Petitioners assigned therein as errors of law
On November 28, 1966, after conducting a series of hearings the very same assignment of errors it raises in the present
on the report of the examiner, respondent Court issued an case, to wit:
order, the dispositive portion of which reads:
I
WHEREFORE, the Report of the. Examiner filed on January 15,
1965, is hereby approved subject to the foregoing findings THE RESPONDENT COURT ERRED AND/OR ACTED WITH
and dispositions. Consequently, the Corporation Auditing GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF
Examiner is directed to recompute the back wages of JURISDICTION, IN HOLDING IN THE ORDER UNDER REVIEW
complainants Demetrio Garlitos and Alfredo Ongsuco on the THAT BONUSES SHOULD BE PAID TO THE RESPONDENT
basis of P200.00 and P270.00 a month, respectively; to WORKERS DESPITE THE FACT THAT THE SAME WAS NOT
compute those of complainant Ignacio Quioyo as aforesaid; ADJUDICATED IN ITS ORIGINAL DECISION.
to compute the deductible earnings of complainants
Ongsuco, Jorge Semillano and Garlitos, as found in the body II
of this order; and to compute the bonuses of each and every
complainant, except Honorato Quioyo. Thereafter, as soon as THE RESPONDENT COURT ERRED AND/OR ACTED WITH
possible, the Examiner should submit a report in compliance GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF
herewith of the Court's further disposition (p. 24, Brief for JURISDICTION, IN NOT APPLYING THE DOCTRINE LAID DOWN
Respondents, p. 113, rec.). BY THIS HONORABLE TRIBUNAL IN THE CASE OF "STA.
CECILIA SAWMILLS, INC. VS. C.I.R., ET. AL.," G.R. No.
On December 7, 1966, a motion for reconsideration was filed L-19273-74, PROMULGATED ON FEBRUARY 29, 1964 (pp. 10-
by petitioner, assailing respondent Court's ruling that (1) the 11, rec.).
ruling in the case of Sta. Cecilia Sawmills Inc. CIR, et. al, does
not apply in the case at bar; and (2) that bonus should be On April 27, 1967, the Supreme Court denied petitioners'
included in the recoverable wages. petition for certiorari (p. 77, rec. of L-27272), which was
reiterated on May 19, 1967 (p. 27, Respondent's Brief, p.
On December 14, 1966, a counter-opposition was filed by 113, rec.; p. 81, rec. of L-27272).
private respondents alleging that petitioners' motion for
reconsideration was pro forma, it not making express On May 3, 1967, private respondents moved to have the
reference to the testimony or documentary evidence or to workers' back wages properly recomputed. A motion to the
the provision of law alleged to be contrary to such findings or same end was reiterated by private respondents on June 14,
conclusions of respondent Court. 1967.

On February 8, 1967, respondent Court of Industrial Relations On July 13, 1967, respondent Court directed a recomputation
dismissed petitioners' motion for reconsideration for of the back wages of respondent workers in accordance with
being pro forma. its order dated November 28, 1966. The said order in part
reads:
WHEREFORE, the Chief Auditing Examiner of the Court or any 7. Rosendo Espinosa 1,075.40
of his assistants, is hereby directed to recompute the back 8. Gaudencio Quioyo 1,167.92
wages of the workers involved in this case in accordance with 9. Jorge Semillano 1,212.08
the Order of November 28, 1966 within 20 days from receipt 10. Maximo Quioyo 449.41
of a copy of this Order (p. 28, Brief for Respondents, p. 113, Total P9,107.79
rec.).
(Pp. 30-31, Respondent's Brief, p. 113, rec.)
Then on March 21, 1968, the Chief Examiner came out with
his report, the disputed portion of which (regarding bonuses) On April 16, 1968, petitioners filed their opposition to the
reads: report of the Examiner dated March 21, 1968 on grounds
already rejected by respondent Court in its order dated
xxx xxx xxx November 28, 1966, and by the Supreme Court also in its
ruling in G.R. No. L-27272.
4. The yearly bonuses of the employees and laborers of
respondent corporation are given on the following basis: On May 4, 1968, a rejoinder to petitioners' opposition was
filed by private respondents, alleging among others "that the
Basic Additional: grounds of petitioners' opposition were the same grounds
raised by them before and passed upon by respondent Court
a. For every dependent 1% of monthly salary and this Honorable Tribunal; that this order of November 28,
1966 which passed upon these issues became final and
b. For every dependent in elementary grade 2% of monthly executory on June 3, 1967 from the Honorable Supreme
salary Court. (Order of respondent Court dated July 13, 1967). [p.
32, Brief for Respondents, p. 113, rec.].
c. For every dependent in high school 3% of monthly salary
On July 26, 1968, private respondents filed their motion for
d. For every dependent in college 5% of monthly salary approval of the Report of the Examiner submitted on March
21, 1968, alleging, among others, that petitioners, in their
opposition, did not actually dispute the data elicited by the
xxx xxx xxx
Chief Examiner but rather harped on grounds which, as
already stated, had already been turned down by the
7. The computed ... bonuses after deducting the earnings
Supreme Court.
elsewhere of Messrs. Ongsuco, Garlitos and Semillano are as
follows:
On October 19, 1968, herein private respondents filed their
"Constancia", submitting the case for resolution of
Name x x x Bonuses x x x
respondent Court of Industrial Relations.
1. Alfredo Ongsuco P1,620.00
On May 30, 1969, respondent Court issued an order, subject
2. Demetrio Garlitos 1,200.00
of the present appeal, the dispositive portion of which reads:
3. Ignacio Quioyo 455.23
4. Aser Abancio 461.00
WHEREFORE, there being no proof offered to substantiate
5. Ludovico Belopeos 752.05
respondent Eduardo Claparols' opposition, the Examiner's
6. Salvador Doroteo 714.70
Report should be, and it is hereby, APPROVED. Consequently, The aforesaid resolutions in G.R. No. L-27272 constitute the
pursuant to the decision dated September 16, 1963, law of the instant case, wherein herein petitioners raised
respondent ... (petitioners herein) are hereby directed to pay again practically the same issues invoked in the
the respective back wages and bonuses of the abovementioned case. The denial of the petition in G.R. No.
complainants (respondents herein) ... (p. 35, Brief for L-27272 suffices to warrant the denial of the present petition;
Respondents; p. 113, rec.; emphasis supplied).1wph1.t and We need not go any further.

On June 7, 1969, petitioners filed a motion for However, without lending a sympathetic ear to the obvious
reconsideration on practically the same grounds previously desire of herein petitioners of this Court to re-examine
raised by them. which would be an exercise in futility the final ruling in
G.R. No. L-27272, which as above-stated is the law of the
On June 30, 1969, respondents filed an opposition to instant case, but solely to remind herein petitioners, We
petitioners' motion for reconsideration, with the following reiterate the governing principles.
allegations:
WE uniformly held that "a bonus is not a demandable and
1. The issues raised, namely, whether bonuses should be enforceable obligation, except when it is a part of the wage
included in the award for back wages had already been or salary compensation" (Philippine Education Co. vs. CIR and
resolved by respondent court in its orders dated November the Union of Philippine Co. Employees [NLU], 92 Phil. 381;
28, 1966, and December 7, 1966, and in the Resolution of Ansay, et. al. vs. National Development Co., et. al., 107 Phil.
the Honorable Supreme Court in G.R. No. L-27272 dated April 998, 999; Emphasis supplied).
26, 1967 and May 19, 1967, and the same is already a
settled and final issue. In Atok Big Wedge Mining Co. vs. Atok Big Wedge Mutual
Benefit Association (92 Phil. 754), this Court, thru Justice
2. Petitioners' motion for reconsideration is merely a rehash Labrador, held:
of previous arguments, effete and unrejuvenated, pro forma,
and intended merely to delay the proceedings. Whether or not bonus forms part of wages depends upon the
condition or circumstance for its payment. If it is an
As correctly contended by private respondents, the present additional compensation WHICH THE EMPLOYER PROMISED
petition is barred by Our resolutions of April 26, 1967 and AND AGREED to give without any condition imposed for its
May 19, 1967 in G.R. No. L-27272 (Eduardo Claparols, et. al. payment ... then it is part of the wage. (Emphasis
vs. CIR, et. al.) [pp. 77-83, rec. of L- 27272], dismissing said supplied).1wph1.t
case, wherein said petitioners invoked the applicability of the
doctrine in Sta. Cecilia Sawmills, Inc. vs. CIR, et. al. (L-19273- In Altomonte vs. Philippine American Drug Co. (106 Phil.
74, Feb. 29, 1964, 10 SCRA 433) and impugned the illegality 137), the Supreme Court held that an employee is not
of the order of respondent Court dated November 28, 1966 entitled to bonus where there is no showing that it had been
directing the computation and payment of the bonuses, aside granted by the employer to its employees periodically or
from back wages on the ground that these bonuses were not regularly as to become part of their wages or salaries. The
included in the decision of September 16, 1963, which had clear implication is that bonus is recoverable as part of the
long become final. wage or salary where the employer regularly or periodically
gives it to employees.
American jurisprudence equally regards bonuses as part of decision of September 16, 1963 also directed the
compensation or recoverable wages. computation of the wages to be paid to private respondents
as decreed by the decision of September 16, 1963. All the
Thus, it was held that "... it follows that in determining the orders of May 30, 1969, November 28, 1966 and May 14,
regular rate of pay, a bonus which in fact constitutes PART 1964 merely implement the already final and executory
OF AN EMPLOYEE'S compensation, rather than a true gift or decision of September 16, 1963.
gratuity, has to be taken into consideration." (48 Am. Jur. 2d,
Labor and Labor Relations, No. 1555, citing the cases of Triple Petitioners insist that We adopt the ruling in the Sta. Cecilia
"AAA" Co. vs. Wirtz and Haber vs. Americana Corporation; Sawmills case wherein the recoverable back wages were
Emphasis supplied). It was further held that "... the regular limited to only three (3) months; because as in the Sta.
rate includes incentive bonuses paid to the employees in Cecilia Sawmills case, the Claparols Steel and Nail Plant
addition to the guaranteed base rates regardless of any ceased operations due to enormous business reverses.
contract provision to the contrary and even though such
bonuses could not be determined or paid until such time Respondent Court's findings that indeed the Claparols Steel
after the pay day" (48 Am. Jur. 2d, Labor and Labor Relations, and Nail Plant, which ceased operation of June 30, 1957, was
No. 1555, citing the case of Walling vs. Harnischfeger Corp., SUCCEEDED by the Claparols Steel Corporation effective the
325 US 427, 89 L Ed 1711, 65 S Ct. 1246; Emphasis next day, July 1, 1957 up to December 7, 1962, when the
supplied).1wph1.t latter finally ceased to operate, were not disputed by
petitioners. It is very clear that the latter corporation was a
Petitioners in the present case do not dispute that as a continuation and successor of the first entity, and its
matter of tradition, the company has been doling out emergence was skillfully timed to avoid the financial liability
bonuses to employees. In fact, the company balance sheets that already attached to its predecessor, the Claparols Steel
for the years 1956 to 1962 contained bonus and pension and Nail Plant. Both predecessors and successor were owned
computations which were never repudiated or questioned by and controlled by the petitioner Eduardo Claparols and there
petitioners. As such, bonus for a given year earmarked as a was no break in the succession and continuity of the same
matter of tradition for distribution to employees has formed business. This "avoiding-the-liability" scheme is very patent,
part of their recoverable wages from the company. Moreover, considering that 90% of the subscribed shares of stocks of
with greater reason, should recovery of bonuses as part of the Claparols Steel Corporation (the second corporation) was
back wages be observed in the present case since the owned by respondent (herein petitioner) Claparols himself,
company, in the light of the very admission of company and all the assets of the dissolved Claparols Steel and Nail
accountant Francisco Cusi, distributes bonuses to its Plant were turned over to the emerging Claparols Steel
employees even if the company has suffered losses. Corporation.
Specifically, petitioner company has done this in 1962 (t.s.n.,
p. 149, Sept. 20, 1965). It is very obvious that the second corporation seeks the
protective shield of a corporate fiction whose veil in the
Since bonuses are part of back wages of private respondents, present case could, and should, be pierced as it was
the order of May 30, 1969, directing the payment of their deliberately and maliciously designed to evade its financial
bonuses, did not amend the decision of September 16, 1963 obligation to its employees.
of respondent Court directing payment of their wages, which
has long become final and executory, in the same way that It is well remembering that in Yutivo & Sons Hardware
the previous order of May 14, 1964 granting execution of said Company vs. Court of Tax Appeals (L-13203, Jan. 28, 1961, 1
SCRA 160), We held that when the notion of legal entity is Republic of the Philippines
used to defeat public convenience, justify wrong, protect SUPREME COURT
fraud, or defend crime, the law will regard the corporation as Manila
an association or persons, or, in the case of two corporations,
will merge them into one. SECOND DIVISION

In Liddel & Company, Inc. vs. Collector of Internal Revenue (L- G.R. No. L-68661 July 22, 1986
9687, June 30, 1961, 2 SCRA 632), this Court likewise held
that where a corporation is a dummy and serves no business NATIONAL FEDERATION OF LABOR UNION (NAFLU) AND
purpose and is intended only as a blind, the corporate fiction TERESITA LORENZO, ET AL., petitioners,
may be ignored. vs.
HON. MINISTER BLAS OPLE, as Minister of Labor and
In Commissioner of Internal Revenue vs. Norton and Harrison Employment; LAWMAN INDUSTRIAL/LIBRA
Company (L-17618, Aug. 31, 1964, 11 SCRA 714), We ruled GARMENTS/DOLPHIN ENTERPRISES, respondents.
that where a corporation is merely an adjunct, business
conduit or alter ego of another corporation, the fiction of Olalia, Dimapilis, Olalia & Associates for petitioners.
separate and distinct corporate entities should be
disregarded.

To the same uniform effect are the decisions in the cases GUTIERREZ, JR., J.:
of Republic vs. Razon (L-17462, May 29, 1967, 20 SCRA 234)
and A.D. Santos, Inc. vs. Vasquez (L-23586, March 20, 1968, The only issue raised in this petition is whether or not, on the
22 SCRA 1156). basis of the findings of the public respondent that the
respondent company was guilty of unfair labor practice, the
WE agree with respondent Court of Industrial Relations, petitioners should be reinstated to their former positions
therefore, that the amount of back wages recoverable by without loss of seniority rights and with full backwages.
respondent workers from petitioners should be the amount
accruing up to December 7, 1962 when the Claparols Steel The background facts which led to the filing of the instant
Corporation ceased operations. petition are summarized in the assailed decision as follows:

WHEREFORE, PETITION IS HEREBY DENIED WITH TREBLE On September 8, 1982, the National Federation of Labor
COSTS AGAINST PETITIONERS TO BE PAID BY THEIR Union (NAFLU) filed a request for conciliation before the
COUNSEL. Bureau of Labor Relations requesting for the intervention in
its dispute with management involving certain money claims,
Castro (Chairman), Esguerra, Muoz Palma and Martin, JJ., refusal to conclude a collective agreement after such has
concur. been negotiated and run-away shop undertaken by
management in order to bust the union.
Teehankee, J., is on leave.
Several conferences were conducted by the Bureau to settle
the dispute amicably. In the course of the proceedings,
however, management unilaterally declared a temporary
shutdown on September 15, 1982. "On September 23, 1982, The company alleged further that it had no more plant and
the management of Lawman Industrial promised the union building because they were allegedly repossessed by the
'that it will start the normalization of operations at Lawman Pioneer Texturizing Corporation for the failure of respondent
effective January, 1983. to pay rentals as evidenced by the letter of Mr. Eugenio Tan
dated August 10, 1982 stating that respondent is given
On October 11, 1982, after all efforts to mediate the charges fifteen (15) days to settle its accounts, otherwise an action
of unfair labor practice and non-payment of certain money for repossession and ejectment would be instituted against it.
claims have failed, the union filed its notice of strike.
Nonetheless, the company offered to pay every employee
On November 9, 1982, the firm offered payment of P200,000. affected by the shutdown a separation pay of P328.95 each.
as complete settlement of all claims inclusive of the
separation pay from the company. The union rejected the On June 6, 1983, the National Federation of Labor Unions
offer which it felt was tantamount to a proposal to eliminate (NAFLU) submitted a position paper alleging that it was
the union and final separation of its members from the certified by the Bureau of Labor Relations as the sole and
company. exclusive bargaining agent of all the rank and file employees
of the said factory. Negotiations followed in October 1981
Efforts of conciliation proved futile. Until the last conference until January 1982. The management refused to grant
on January 6, 1983, the company had failed to resume substantial economic demands to the workers, hence, the
operations alleging poor business conditions. union declared a strike in July 1982. Thru the efforts of the
Bureau of Labor Relations, the strike was settled in July 1982.
Meanwhile, the union filed a complaint for unfair labor The management agreed as follows: Wage increase, Pl.00 for
practice against the management of Lawman sometime the first year; Pl.00 for the second year and P1.00 for the
December 1982 docketed as Case No. 11-695-82 (NAFLU v. third year of the contract. Vacation and sick leaves were also
Lawman) pending before the Metro Manila Branch of the granted and other fringe benefits. The collective bargaining
NLRC. agreement was suppose to be effective September 1982.

Notwithstanding the commitment of management to resume But the actual partial shutdown began in August 1982. It
operations in January, 1983 and even with the expiration on appears moreover that at night, machines were dismantled,
March 15, 1983 of the provisional shutdown, the period of hauled out and then installed at No. 43 Engineering Road,
shutdown was extended without notifying this Office of such Araneta University compound, Malabon, Metro Manila and the
extension. On March 17, 1983, this Office issued the Order name of Lawman was changed to LIBRA GARMENTS. Under
now in question. that name, new applicants for employment were called even
as the company continued to manufacture the same products
On May 20, 1983, respondent filed a motion for but under the name of LIBRA GARMENTS. When this was
reconsideration alleging that it had suffered losses as shown discovered by the workers, LIBRA GARMENTS was changed to
by its financial statements. In view thereof, it informed this DOLPHIN GARMENTS.
Ministry of its decision to effect a shutdown on September 8,
1982 and to circularize a memorandum on November 2, 1982 On March 17,1983, the Minister of Labor and Employment
announcing the cessation of operations. issued an order, stating:
In view of the foregoing, this office hereby assumes The petition is impressed with merit.
jurisdiction over the dispute at Lawman Industrial
Corporation pursuant to Art. 264 (g) of the Labor Code. All We see no reason to disturb the findings of fact of the public
employees affected by the extended shutdown which is respondent, supported as they are by substantial evidence in
highly irregular, are ordered to return to work and the light of the well established principle that findings of
management is directed to accept all returning workers administrative agencies which have acquired expertise
under the same terms and conditions prevailing previous to because their jurisdiction is confined to specific matters are
the illegal shutdown. Management is further directed to pay geiterary accorded not only respect but at times even
severance compensation including all unpaid wages previous finality, and that judicial review by this Court on labor cases
to the shutdown and after March 15, 1983 in the event that does not go so far as to evaluate the sufficiency of the
the company cannot resume operations, All pending cases evidence upon which the Deputy Minister and the Regional
including Case No. 11-695-82 (NAFLU v. Lawman) are hereby Director based their determinations but are limited to issues
ordered consolidated to this Office for resolution. Pending the of jurisdiction or grave abuse of discretion (Special Events
determination of the charges on illegal lockout run-away- and Central Shipping Office Workers Union v. San Miguel
shop and the pending money claims against the company, Corporation, 122 SCRA 557).
Lawman Industrial is hereby enjoined from transferring
ownership or otherwise effecting any encumbrance or any of The findings of the Minister of Labor and Employment
its existing assets in favor of any third party without a prior embodied in its July 31, 1984 decision are categorical:
clearance from this Office and timely notice to the union. The
company is likewise prohibited from terminating the It is clear from the records of this case that the company
employment of any of its employees pending the outcome of bargained in bad faith with the union when pending the
this dispute. negotiation of their collective agreement, the company
declared a temporary cessation of its operations which in
This order automatically enjoins a strike or lockout. reality was an illegal lockout. Evidently, the company also
maintained run-away shop when it started transferring its
On July 31, 1984, the public respondent modified its earlier machine first to Libra and then to Dolphin Garments. Failure
order and directed the private respondent to pay all accrued on the part of the company to comply with the requirements
wages and benefits including a one month's pay for its failure of notice and due process to the employees and the Labor
to comply with the requirement of notice under Batas Ministry one month before the intended 'closure' of the firm
Pambansa Blg. 130, as amended and separation pay for all is clearly against the law.
dismissed employees equivalent to one month's pay or one-
half month's pay for every year of service whichever is higher There is also evidence on the record that even after the
computed up to January, 1983 when the company had alleged 'shutdown' the company was still operating in the
declared its intention to actually close its operations. name of Lawman Industrial although production was being
However, despite a finding that the private respondent carried out by another firm called Libra Garments (later
company was guilty of unfair labor practice, the public Dolphin Garments). When the company declared in its
respondent did not order the reinstatement of the employees position paper dated May 20, 1983 that all the machines of
concerned "because the company has declared that it had Lawman had been repossessed by the owner, Pioneer
already ceased its operations completely." It is this order for Texturizing Corporation, it admitted the fact that it has
non-reinstatement which is now before us. violated the 17 March Order of this Office enjoining any
encumbrance or transfer of the properties of Lawman without
prior clearance from this Office. The evident bad faith, fraud After finding that Lawman Industrial Corporation had
and deceit committed by the company to the prejudice of transferred its business operations to Libra Garments
both the union and the employees who have existing wage Enterprises, which later changed its name to Dolphin
claims, some of which are due for execution, leads us to Garments Enterprises, the public respondent cannot deny
affirm the union's position that the veil of corporate fiction reinstatement to the petitioners simply because Lawman
should be pierced in order to safeguard the right to self- Industrial Corporation has ceased its operations.
organization and certain vested rights which had accrued in
favor of the union. As Libra/Dolphin Garments is but an alter-ego of the old
employer, Lawman Industrial, the former must bear the
It is very obvious from the above findings that the second consequences of the latter's unfair acts by reinstating the
corporation seeks the protective shield of a corporate fiction petitioners to their former positions without loss of seniority
to achieve an illegal purpose. As enunciated in the case rights (See Phil. Land-Air-Sea Labor Union (PLASLU) v. Sy
of Claparols v. Court of Industrial Relations (65 SCRA 613) its Indong Co. Rice and Corn Mill, 11 SCRA 277).
veil in the present case should, therefore, be pierced as it
was deliberately and maliciously designed to evade its To justify its closure, the respondent company argues that it
financial obligations to its employees. It is an established can no longer continue its operations due to serious losses,
principle that when the veil of corporate fiction is made as a and in support thereof, presented its financial statements for
shield to perpetrate a fraud or to confuse legitimate issues 1980-1981 and from January to June, 1986.
(here, the relation of employer-employee), the same should
be pierced (A.D. Santos, Inc. v. Vasquez, 22 SCRA 1156). The alleged losses of the respondent company are more
apparent than real. The argument of the private respondent
Thus, as Lawman Industrial Corporation was guilty of unfair are refuted by the petitioners:
labor practice, the public respondent's order for
reinstatement should follow as a matter of right. In National As of December 1981, LAWMAN's Cost of Goods
Mines and Allied Workers Union v. National Labor Relations Manufactured and Sold was P2,065,822.26 while on June 30,
Commission (118 SCRA 637), this Court held that it is an 1982, it was P 3,768,609.22. The alleged reason was the
established rule that an employer who commits an unfair entry of Direct Labor under the 'Statement of Cost of Goods
labor practice may be required to reinstate with fun Manufactured and Sold' amounting to P 1,703,768.27 for
backwages the workers affected by such act (See also 1982. This could only mean that there was a sudden increase
Compana Maritima v. United Seamen's Union, 104 Phil. 7; in production of LAWMAN necessitating an additional and
Talisay Silay Mining Co. v. Court of Industrial Relations, 106 huge labor cost, Comparing this with the past year (1981),
Phil. 1081; Velez v. PAV Watchmen's Union, 107 Phil. 689; the entry for Direct Labor was only P 398,863.40. This
Phil. Sugar Institute v. Court of Industrial Relations, et al., 109 tremendous increase in Direct Labor for the six months
Phil. 452; Big Five Products Workers Union v. Court of ending June 1982 was not sufficiently explained by LAWMAN
Industrial Relations, 8 SCRA 559; and MD Transit and Taxi Co. in the proceedings below.
v. De Guzman, 7 SCRA 726).
Even on the entry Administrative Salaries has been increased
to justify losses. For June 30, 1982, LAWMAN spent a sizable
P213,752.85 whereas for December 30, 1981, it only spent
P47,889.20 without any justifiable reason at all.
In addition, the Solicitor General submits the following Orbos, Cabusora, Dumlao & Sta. Ana for petitioner.
observations:

xxx xxx xxx


GANCAYCO, J.:
... [T]he net sales of LAWMAN for the year 1981 was,
P2,117,203.95 whereas for the shorter period of January to A corporation is an entity separate and distinct from its
June 1982, its next sales was already P2,359,479.25, stockholders. While not in fact and in reality a person, the
surpassing its entire 1981 sales. This clearly shows that the law treats a corporation as though it were a person by
firm was experiencing a sales upswing at the time of its process of fiction or by regarding it as an artificial person
shutdown, distinct and separate from its individual stockholders. 1

Following the precedent set in Lepanto Consolidated Mining However, the corporate fiction or the notion of legal entity
Co. v. Encarnacion et al (136 SCRA 256) and cases cited may be disregarded when it "is used to defeat public
therein, the petitioner-workers should be reinstated but with convenience, justify wrong, protect fraud, or defend crime" in
backwages not exceeding three years. which instances "the law will regard the corporation as an
association of persons, or in case of two corporations, will
WHEREFORE, the petition for review is GRANTED. The merge them into one." The corporate fiction may also be
appealed decision dated July 31, 1984 is hereby SET ASIDE. disregarded when it is the "mere alter ego or business
The private respondent is ordered to reinstate the petitioners conduit of a person." 2 There are many occasions when this
to positions in LIBRA/DOLPHIN GARMENTS with backwages of Court pierced the corporate veil because of its use to protect
not more than three (3) years each and without loss of fraud and to justify wrong. 3 The herein petition for review of
seniority rights and benefits being enjoyed by them prior to a. resolution of the Intermediate Appellate Court dated
the alleged closure of Lawman's Industrial Corporation. February 8, 1984 seeking the reversal thereof and the
reinstatement of its earlier decision dated June 30, 1983 in
SO ORDERED. AC-G.R. No. 68496-R 4 calls for the application of the
foregoing principles.
Republic of the Philippines
SUPREME COURT In the latter part of December, 1977 the board of directors of
Manila Akron Customs Brokerage Corporation (hereinafter referred
to as Akron), composed of petitioner Jose Remo, Jr., Ernesto
FIRST DIVISION Baares, Feliciano Coprada, Jemina Coprada, and Dario
Punzalan with Lucia Lacaste as Secretary, adopted a
G.R. No. L-67626 April 18, 1989 resolution authorizing the purchase of thirteen (13) trucks for
use in its business to be paid out of a loan the corporation
JOSE REMO, JR., petitioner, may secure from any lending institution. 5
vs.
THE HON. INTERMEDIATE APPELLATE COURT and E.B. Feliciano Coprada, as President and Chairman of Akron,
MARCHA TRANSPORT COMPANY, INC., represented by purchased thirteen trucks from private respondent on
APIFANIO B. MARCHA, respondents. January 25, 1978 for and in consideration of P525,000.00 as
evidenced by a deed of absolute sale. 6 In a side agreement
of the same date, the parties agreed on a downpayment in On June 17, 1978, Coprada wrote private respondent begging
the amount of P50,000.00 and that the balance of for a grace period of until the end of the month to pay the
P475,000.00 shall be paid within sixty (60) days from the balance of the purchase price; that he will update the rentals
date of the execution of the agreement. The parties also within the week; and in case he fails, then he will return the
agreed that until said balance is fully paid, the down 13 units should private respondent elect to get back the
payment of P50,000.00 shall accrue as rentals of the 13 same. 13 Private respondent, through counsel, wrote Akron
trucks; and that if Akron fails to pay the balance within the on August 1, 1978 demanding the return of the 13 trucks and
period of 60 days, then the balance shall constitute as a the payment of P25,000.00 back rentals covering the period
chattel mortgage lien covering said cargo trucks and the from June 1 to August 1, 1978. 14
parties may allow an extension of 30 days and thereafter
private respondent may ask for a revocation of the contract Again, Coprada wrote private respondent on August 8, 1978
and the reconveyance of all said trucks. 7 asking for another grace period of up to August 31, 1978 to
pay the balance, stating as well that he is expecting the
The obligation is further secured by a promissory note approval of his loan application from a certain financing
executed by Coprada in favor of Akron. It is stated in the company, and that ten (10) trucks have been returned to
promissory note that the balance shall be paid from the Bagbag, Novaliches. 15 On December 9, 1978, Coprada
proceeds of a loan obtained from the Development Bank of informed private respondent anew that he had returned ten
the Philippines (DBP) within sixty (60) days. 8 After the lapse (10) trucks to Bagbag and that a resolution was passed by
of 90 days, private respondent tried to collect from Coprada the board of directors confirming the deed of assignment to
but the latter promised to pay only upon the release of the private respondent of P475,000 from the proceeds of a loan
DBP loan. Private respondent sent Coprada a letter of obtained by Akron from the State Investment House, Inc. 16
demand dated May 10, 1978. 9 In his reply to the said letter,
Coprada reiterated that he was applying for a loan from the In due time, private respondent filed a compliant for the
DBP from the proceeds of which payment of the obligation recovery of P525,000.00 or the return of the 13 trucks with
shall be made. 10 damages against Akron and its officers and directors,
Feliciano Coprada, Dario D. Punzalan, Jemina Coprada, Lucia
Meanwhile, two of the trucks were sold under a pacto de Lacaste, Wilfredo Layug, Arcadio de la Cruz, Francisco Clave,
retro sale to a certain Mr. Bais of the Perpetual Loans and Vicente Martinez, Pacifico Dollario and petitioner with the
Savings Bank at Baclaran. The sale was authorized by a then Court of First Instance of Rizal. Only petitioner answered
board resolution made in a meeting held on March 15, the complaint denying any participation in the transaction
1978. 11 and alleging that Akron has a distinct corporate personality.
He was, however, declared in default for his failure to attend
Upon inquiry, private respondent found that no loan the pre-trial.
application was ever filed by Akron with DBP. 12
In the meanwhile, petitioner sold all his shares in Akron to
In the meantime, Akron paid rentals of P500.00 a day Coprada. It also appears that Akron amended its articles of
pursuant to a subsequent agreement, from April 27, 1978 incorporation thereby changing its name to Akron Transport
(the end of the 90-day period to pay the balance) to May 31, International, Inc. which assumed the liability of Akron to
1978. Thereafter, no more rental payments were made. private respondent.
After an ex parte reception of the evidence of the private I. The Intermediate Appellate Court (IAC) erred in
respondent, a decision was rendered on October 28, 1980, disregarding the corporate fiction and in holding the
the dispositive part of which reads as follows: petitioner personally liable for the obligation of the
Corporation which decision is patently contrary to law and
Finding the evidence sufficient to prove the case of the the applicable decision thereon.
plaintiff, judgment is hereby rendered in favor of the plaintiff
and against the defendants, ordering them jointly and II. The Intermediate Appellate Court (IAC) committed grave
severally to pay; error of law in its decision by sanctioning the merger of the
personality of the corporation with that of the petitioner
a the purchase price of the trucks in the amount of when the latter was held liable for the corporate debts. 18
P525,000.00 with ... legal rate (of interest) from the filing of
the complaint until the full amount is paid; We reverse.

b rentals of Bagbag property at P1,000.00 a month from The environmental facts of this case show that there is no
August 1978 until the premises is cleared of the said trucks; cogent basis to pierce the corporate veil of Akron and hold
petitioner personally liable for its obligation to private
c attorneys fees of P10,000.00, and respondent. While it is true that in December, 1977 petitioner
was still a member of the board of directors of Akron and that
d costs of suit. he participated in the adoption of a resolution authorizing the
purchase of 13 trucks for the use in the brokerage business
The P50,000.00 given as down payment shall pertain as of Akron to be paid out of a loan to be secured from a lending
rentals of the trucks from June 1 to August 1, 1978 which is institution, it does not appear that said resolution was
P25,000.00 (see demand letter of Atty. Aniano Exhibit "T") intended to defraud anyone and more particularly private
and the remaining P25,000.00 shall be from August 1, 1978 respondent. It was Coprada, President and Chairman of
until the trucks are removed totally from the place." 17 Akron, who negotiated with said respondent for the purchase
of 13 cargo trucks on January 25, 1978. It was Coprada who
A motion for new trial filed by petitioner was denied so he signed a promissory note to guarantee the payment of the
appealed to the then Intermediate Appellate Court (IAC) unpaid balance of the purchase price out of the proceeds of a
wherein in due course a decision was rendered on June 30, 1 loan he supposedly sought from the DBP. The word "WE' in
983 setting aside the said decision as far as petitioner is the said promissory note must refer to the corporation which
concemed. However, upon a motion for reconsideration filed Coprada represented in the execution of the note and not its
by private respondent dent, the IAC, in a resolution dated stockholders or directors. Petitioner did not sign the said
February 8,1984, set aside the decision dated June 30, 1983. promissory note so he cannot be personally bound thereby.
The appellate court entered another decision affirming the
appealed decision of the trial court, with costs against Thus, if there was any fraud or misrepresentation that was
petitioner. foisted on private respondent in that there was a forthcoming
loan from the DBP when it fact there was none, it is Coprada
Hence, this petition for review wherein petitioner raises the who should account for the same and not petitioner.
following issues:
As to the sale through pacto de retro of the two units to a
third person by the corporation by virtue of a board
resolution, petitioner asserts that he never signed said attend to its obligations as regards the said trucks. Again
resolution. Be that as it may, the sale is not inherently petitioner has no part in this.
fraudulent as the 13 units were sold through a deed of
absolute sale to Akron so that the corporation is free to If the private respondent is the victim of fraud in this
dispose of the same. Of course, it was stipulated that in case transaction, it has not been clearly shown that petitioner had
of default in payment to private respondent of the balance of any part or participation in the perpetration of the same.
the consideration, a chattel mortgage lien shag be Fraud must be established by clear and convincing evidence.
constituted on the 13 units. Nevertheless, said mortgage is a If at all, the principal character on whom fault should be
prior lien as against the pacto de retro sale of the 2 units. attributed is Feliciano Coprada, the President of Akron, whom
private respondent dealt with personally all through out.
As to the amendment of the articles of incorporation of Akron Fortunately, private respondent obtained a judgment against
thereby changing its name to Akron Transport International, him from the trial court and the said judgment has long been
Inc., petitioner alleges that the change of corporate name final and executory.
was in order to include trucking and container yard
operations in its customs brokerage of which private WHEREFORE, the petition is GRANTED. The questioned
respondent was duly informed in a letter. 19Indeed, the new resolution of the Intermediate Appellate Court dated February
corporation confirmed and assumed the obligation of the old 8,1984 is hereby set aside and its decision dated June
corporation. There is no indication of an attempt on the part 30,1983 setting aside the decision of the trial court dated
of Akron to evade payment of its obligation to private October 28, 1980 insofar as petitioner is concemed is hereby
respondent. reinstated and affirmed, without costs.

There is the fact that petitioner sold his shares in Akron to SO ORDERED.
Coprada during the pendency of the case. Since petitioner
has no personal obligation to private respondent, it is his Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.
inherent right as a stockholder to dispose of his shares of
stock anytime he so desires.

Mention is also made of the alleged "dumping" of 10 units in


the premises of private respondent at Bagbag, Novaliches
which to the mind of the Court does not prove fraud and
instead appears to be an attempt on the part of Akron to