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Republic of the Philippines BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the balance

SUPREME COURT owed to it.9 It also alleged that the Shangri-La’s directors were in bad faith in directing Shangri-
Manila La’s affairs. Therefore, they should be held jointly and severally liable with Shangri-La for its
obligations as well as for the damages that BF Corporation incurred as a result of Shangri-La’s
SECOND DIVISION default.10

G.R. No. 174938 October 1, 2014 On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and
Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF Corporation’s failure
to submit its dispute to arbitration, in accordance with the arbitration clauseprovided in its contract,
GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,
quoted in the motion as follows:11
vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B.
COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, Respondents. 35. Arbitration

DECISION (1) Provided always that in case any dispute or difference shall arise between the Owner or the
Project Manager on his behalf and the Contractor, either during the progress or after the
completion or abandonment of the Works as to the construction of this Contract or as to any
LEONEN, J.:
matter or thing of whatsoever nature arising there under or inconnection therewith (including any
matter or thing left by this Contract to the discretion of the Project Manager or the withholding by
Corporate representatives may be compelled to submit to arbitration proceedings pursuant to a the Project Manager of any certificate to which the Contractor may claim to be entitled or the
contract entered into by the corporation they represent if there are allegations of bad faith or measurement and valuation mentioned in clause 30(5)(a) of these Conditions or the rights and
malice in their acts representing the corporation. liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions), the owner and the
Contractor hereby agree to exert all efforts to settle their differences or dispute amicably. Failing
This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and October 5, these efforts then such dispute or difference shall be referred to arbitration in accordance with the
2006 resolution. The Court of Appeals affirmed the trial court's decision holding that petitioners, as rules and procedures of the Philippine Arbitration Law.
director, should submit themselves as parties tothe arbitration proceedings between BF
Corporation and Shangri-La Properties, Inc. (Shangri-La). xxx xxx xxx

In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri- (6) The award of such Arbitrators shall be final and binding on the parties. The decision of the
Laand the members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Arbitrators shall be a condition precedent to any right of legal action that either party may have
Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos.1 against the other. . . .12 (Underscoring in the original)

BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered On August 19, 1993, BF Corporation opposed the motion to suspend proceedings.13
into agreements with Shangri-La wherein it undertook to construct for Shangri-La a mall and a
multilevel parking structure along EDSA.2
In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend
proceedings.14
Shangri-La had been consistent in paying BF Corporation in accordance with its progress billing
statements.3However, by October 1991, Shangri-La started defaulting in payment.4
On December 8, 1993, petitioners filed an answer to BF Corporation’s complaint, with compulsory
counter claim against BF Corporation and crossclaim against Shangri-La.15 They alleged that they
BF Corporation alleged that Shangri-La induced BF Corporation to continue with the construction had resigned as members of Shangri-La’s board of directors as of July 15, 1991.16
of the buildings using its own funds and credit despite Shangri-La’s default.5 According to BF
Corporation, ShangriLa misrepresented that it had funds to pay for its obligations with BF
After the Regional Trial Court denied on February 11, 1994 the motion for reconsideration of its
Corporation, and the delay in payment was simply a matter of delayed processing of BF
November 18, 1993 order, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,Maximo G. Licauco III,
Corporation’s progress billing statements.6
and Benjamin Ramos filed a petition for certiorari with the Court of Appeals.17

BF Corporation eventually completed the construction of the buildings.7 Shangri-La allegedly took
On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the
possession of the buildings while still owing BF Corporation an outstanding balance.8
submission of the dispute to arbitration.18
Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition for review on certiorari The dispositive portion of the Court of Appeals’ decision reads:
with this court.19On March 27, 1998, this court affirmed the Court of Appeals’ decision, directing
that the dispute be submitted for arbitration.20 WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003 and January
19, 2005 of public respondent RTC, Branch 157, Pasig City, in Civil Case No. 63400, are
Another issue arose after BF Corporation had initiated arbitration proceedings. BF Corporation AFFIRMED.33
and Shangri-La failed to agree as to the law that should govern the arbitration proceedings.21 On
October 27, 1998, the trial court issued the order directing the parties to conduct the proceedings The Court of Appeals denied petitioners’ motion for reconsideration in the October 5, 2006
in accordance with Republic Act No. 876.22 resolution.34

Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification, both On November 24, 2006, petitioners filed a petition for review of the May 11, 2006 Court of Appeals
seeking to clarify the term, "parties," and whether Shangri-La’s directors should be included in the decision and the October 5, 2006 Court of Appeals resolution.35
arbitration proceedings and served with separate demands for arbitration.23
The issue in this case is whether petitioners should be made parties to the arbitration proceedings,
Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying that they be pursuant to the arbitration clause provided in the contract between BF Corporation and Shangri-
excluded from the arbitration proceedings for being non-parties to Shangri-La’s and BF La.
Corporation’s agreement.24
Petitioners argue that they cannot be held personally liable for corporate acts or obligations. 36 The
On July 28, 2003, the trial court issued the order directing service of demands for arbitration upon corporation is a separate being, and nothing justifies BF Corporation’s allegation that they are
all defendants in BF Corporation’s complaint.25 According to the trial court, Shangri-La’s directors solidarily liable with Shangri-La.37Neither did they bind themselves personally nor did they
were interested parties who "must also be served with a demand for arbitration to give them the undertake to shoulder Shangri-La’s obligations should it fail in its obligations.38 BF Corporation
opportunity to ventilate their side of the controversy, safeguard their interest and fend off their also failed to establish fraud or bad faith on their part.39
respective positions."26 Petitioners’ motion for reconsideration ofthis order was denied by the trial
court on January 19, 2005.27
Petitioners also argue that they are third parties to the contract between BF Corporation and
Shangri-La.40Provisions including arbitration stipulations should bind only the parties. 41 Based on
Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse of our arbitration laws, parties who are strangers to an agreement cannot be compelled to arbitrate.42
discretion in the issuance of orders compelling them to submit to arbitration proceedings despite
being third parties to the contract between Shangri-La and BF Corporation.28
Petitioners point out thatour arbitration laws were enacted to promote the autonomy of parties in
resolving their disputes.43 Compelling them to submit to arbitration is against this purpose and may
In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’ petition for certiorari. be tantamount to stipulating for the parties.44
The Court of Appeals ruled that ShangriLa’s directors were necessary parties in the arbitration
proceedings.30 According to the Court of Appeals:
Separate comments on the petition werefiled by BF Corporation, and Maximo G. Licauco III,
Alfredo C.Ramos and Benjamin C. Ramos.45
[They were] deemed not third-parties tothe contract as they [were] sued for their acts in
representation of the party to the contract pursuant to Art. 31 of the Corporation Code, and that as
Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners that
directors of the defendant corporation, [they], in accordance with Art. 1217 of the Civil Code, stand
Shangri-La’sdirectors, being non-parties to the contract, should not be made personally liable for
to be benefited or injured by the result of the arbitration proceedings, hence, being necessary
Shangri-La’s acts.46 Since the contract was executed only by BF Corporation and Shangri-La, only
parties, they must be joined in order to have complete adjudication of the controversy.
they should be affected by the contract’s stipulation.47 BF Corporation also failed to specifically
Consequently, if [they were] excluded as parties in the arbitration proceedings and an arbitral
allege the unlawful acts of the directors that should make them solidarily liable with Shangri-La for
award is rendered, holding [Shangri-La] and its board of directors jointly and solidarily liable to
its obligations.48
private respondent BF Corporation, a problem will arise, i.e., whether petitioners will be bound
bysuch arbitral award, and this will prevent complete determination of the issues and resolution of
the controversy.31 Meanwhile, in its comment, BF Corporation argued that the courts’ ruling that the parties should
undergo arbitration "clearly contemplated the inclusion of the directors of the corporation[.]" 49 BF
Corporation also argued that while petitioners were not parties to the agreement, they were still
The Court of Appeals further ruled that "excluding petitioners in the arbitration proceedings . . .
would be contrary to the policy against multiplicity of suits."32 impleaded under Section 31 of the Corporation Code.50Section 31 makes directors solidarily liable
for fraud, gross negligence, and bad faith.51 Petitioners are not really third parties to the agreement
because they are being sued as Shangri-La’s representatives, under Section 31 of the Enage,66 this court disregarded the fact that petitioner in that case already escaped from prison
Corporation Code.52 and ruled on the issue of excessive bails:

BF Corporation further argued that because petitioners were impleaded for their solidary liability, While under the circumstances a ruling on the merits of the petition for certiorari is notwarranted,
they are necessary parties to the arbitration proceedings.53 The full resolution of all disputes in the still, as set forth at the opening of this opinion, the fact that this case is moot and academic should
arbitration proceedings should also be done in the interest of justice.54 not preclude this Tribunal from setting forth in language clear and unmistakable, the obligation of
fidelity on the part of lower court judges to the unequivocal command of the Constitution that
In the manifestation dated September 6, 2007, petitioners informed the court that the Arbitral excessive bail shall not be required.67
Tribunal had already promulgated its decision on July 31, 2007.55 The Arbitral Tribunal denied BF
Corporation’s claims against them.56Petitioners stated that "[they] were included by the Arbitral This principle was repeated in subsequent cases when this court deemed it proper to clarify
Tribunal in the proceedings conducted . . . notwithstanding [their] continuing objection thereto. . . important matters for guidance.68
."57 They also stated that "[their] unwilling participation in the arbitration case was done ex
abundante ad cautela, as manifested therein on several occasions."58 Petitioners informed the Thus, we rule that petitioners may be compelled to submit to the arbitration proceedings in
court that they already manifested with the trial court that "any action taken on [the Arbitral accordance with Shangri-Laand BF Corporation’s agreement, in order to determine if the
Tribunal’s decision] should be without prejudice to the resolution of [this] case." 59 distinction between Shangri-La’s personality and their personalities should be disregarded.

Upon the court’s order, petitioners and Shangri-La filed their respective memoranda. Petitioners This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to avoid
and Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos reiterated their arguments litigation and settle disputes amicably and more expeditiously by themselves and through their
that they should not be held liable for Shangri-La’s default and made parties to the arbitration choice of arbitrators.
proceedings because only BF Corporation and Shangri-La were parties to the contract.
The policy in favor of arbitration has been affirmed in our Civil Code,69 which was approved as
In its memorandum, Shangri-La argued that petitioners were impleaded for their solidary liability early as 1949. It was later institutionalized by the approval of Republic Act No. 876, 70 which
under Section 31 of the Corporation Code. Shangri-La added that their exclusion from the expressly authorized, made valid, enforceable, and irrevocable parties’ decision to submit their
arbitration proceedings will result in multiplicity of suits, which "is not favored in this controversies, including incidental issues, to arbitration. This court recognized this policy in
jurisdiction."60 It pointed out that the case had already been mooted by the termination of the Eastboard Navigation, Ltd. v. Ysmael and Company, Inc.:71
arbitration proceedings, which petitioners actively participated in. 61 Moreover, BF Corporation
assailed only the correctness of the Arbitral Tribunal’s award and not the part absolving Shangri-
La’s directors from liability.62 As a corollary to the question regarding the existence of an arbitration agreement, defendant
raises the issue that, even if it be granted that it agreed to submit its dispute with plaintiff to
arbitration, said agreement is void and without effect for it amounts to removing said dispute from
BF Corporation filed a counter-manifestation with motion to dismiss63 in lieu of the required the jurisdiction of the courts in which the parties are domiciled or where the dispute occurred. It is
memorandum. true that there are authorities which hold that "a clause in a contract providing that all matters in
dispute between the parties shall be referred to arbitrators and to them alone, is contrary to public
In its counter-manifestation, BF Corporation pointed out that since "petitioners’ counterclaims were policy and cannot oust the courts of jurisdiction" (Manila Electric Co. vs. Pasay Transportation Co.,
already dismissed with finality, and the claims against them were likewise dismissed with finality, 57 Phil., 600, 603), however, there are authorities which favor "the more intelligent view that
they no longer have any interest orpersonality in the arbitration case. Thus, there is no longer any arbitration, as an inexpensive, speedy and amicable method of settling disputes, and as a means
need to resolve the present Petition, which mainly questions the inclusion of petitioners in the of avoiding litigation, should receive every encouragement from the courts which may be extended
arbitration proceedings."64 The court’s decision in this case will no longer have any effect on the without contravening sound public policy or settled law" (3 Am. Jur., p. 835). Congress has
issue of petitioners’ inclusion in the arbitration proceedings.65 officially adopted the modern view when it reproduced in the new Civil Code the provisions of the
old Code on Arbitration. And only recently it approved Republic Act No. 876 expressly authorizing
The petition must fail. arbitration of future disputes.72 (Emphasis supplied)

The Arbitral Tribunal’s decision, absolving petitioners from liability, and its binding effect on BF In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses are
Corporation, have rendered this case moot and academic. liberally construed to favor arbitration. Thus, in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc.,73 this court said:
The mootness of the case, however, had not precluded us from resolving issues so that principles
may be established for the guidance of the bench, bar, and the public. In De la Camara v. Hon. Being an inexpensive, speedy and amicable method of settling disputes, arbitration — along with
mediation, conciliation and negotiation — is encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of the legal sense, is an individual with a personality that is distinct and separate from other persons
commercial kind. It is thus regarded as the "wave of the future" in international civil and including its stockholders, officers, directors, representatives, 77 and other juridical entities. The law
commercial disputes. Brushing aside a contractual agreement calling for arbitration between the vests in corporations rights,powers, and attributes as if they were natural persons with physical
parties would be a step backward. existence and capabilities to act on their own.78 For instance, they have the power to sue and
enter into transactions or contracts. Section 36 of the Corporation Code enumerates some of a
Consistent with the above-mentioned policy of encouraging alternative dispute resolution corporation’s powers, thus:
methods, courts should liberally construe arbitration clauses. Provided such clause is susceptible
of an interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any Section 36. Corporate powers and capacity.– Every corporation incorporated under this Code has
doubt should be resolved in favor of arbitration.74(Emphasis supplied) the power and capacity:

A more clear-cut statement of the state policy to encourage arbitration and to favor interpretations 1. To sue and be sued in its corporate name;
that would render effective an arbitration clause was later expressed in Republic Act No. 9285:75
2. Of succession by its corporate name for the period of time stated in the articles of
SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to actively promote incorporation and the certificate ofincorporation;
party autonomy in the resolution of disputes or the freedom of the party to make their own
arrangements to resolve their disputes. Towards this end, the State shall encourage and actively 3. To adopt and use a corporate seal;
promote the use of Alternative Dispute Resolution (ADR) as an important means to achieve
speedy and impartial justice and declog court dockets. As such, the State shall provide means for
4. To amend its articles of incorporation in accordance with the provisions of this Code;
the use of ADR as an efficient tool and an alternative procedure for the resolution of appropriate
cases. Likewise, the State shall enlist active private sector participation in the settlement of
disputes through ADR. This Act shall be without prejudice to the adoption by the Supreme Court of 5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal
any ADR system, such as mediation, conciliation, arbitration, or any combination thereof as a the same in accordance with this Code;
means of achieving speedy and efficient means of resolving cases pending before all courts in the
Philippines which shall be governed by such rules as the Supreme Court may approve from time 6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury
to time. stocks in accordance with the provisions of this Code; and to admit members to the
corporation if it be a non-stock corporation;
....
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have due regard to the otherwise deal with such real and personal property, including securities and bonds of
policy of the law in favor of arbitration.Where action is commenced by or against multiple parties, other corporations, as the transaction of the lawful business of the corporation may
one or more of whomare parties who are bound by the arbitration agreement although the civil reasonably and necessarily require, subject to the limitations prescribed by law and the
action may continue as to those who are not bound by such arbitration agreement. (Emphasis Constitution;
supplied)
8. To enter into merger or consolidation with other corporations as provided in this Code;
Thus, if there is an interpretation that would render effective an arbitration clause for purposes
ofavoiding litigation and expediting resolution of the dispute, that interpretation shall be adopted. 9. To make reasonable donations, including those for the public welfare or for hospital,
Petitioners’ main argument arises from the separate personality given to juridical persons vis-à-vis charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation,
their directors, officers, stockholders, and agents. Since they did not sign the arbitration domestic or foreign, shall give donations in aid of any political party or candidate or for
agreement in any capacity, they cannot be forced to submit to the jurisdiction of the Arbitration purposes of partisan political activity;
Tribunal in accordance with the arbitration agreement. Moreover, they had already resigned as
directors of Shangri-Laat the time of the alleged default. 10. To establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers and employees; and
Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and
distinct from Shangri-La. 11. To exercise such other powers asmay be essential or necessary to carry out its
purpose or purposes as stated in its articles of incorporation. (13a)
A corporation is an artificial entity created by fiction of law.76 This means that while it is not a
person, naturally, the law gives it a distinct personality and treats it as such. A corporation, in the
Because a corporation’s existence is only by fiction of law, it can only exercise its rights and alter ego cases "where a corporation is merely a farce since it is a mere alter ego or business
powers through itsdirectors, officers, or agents, who are all natural persons. A corporation cannot conduit of a person, or where the corporation is so organized and controlled and its affairs are so
sue or enter into contracts without them. conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation."86
A consequence of a corporation’s separate personality is that consent by a corporation through its
representatives is not consent of the representative, personally. Its obligations, incurred through When corporate veil is pierced, the corporation and persons who are normally treated as distinct
official acts of its representatives, are its own. A stockholder, director, or representative does not from the corporation are treated as one person, such that when the corporation is adjudged liable,
become a party to a contract just because a corporation executed a contract through that these persons, too, become liable as if they were the corporation.
stockholder, director or representative.
Among the persons who may be treatedas the corporation itself under certain circumstances are
Hence, a corporation’s representatives are generally not bound by the terms of the contract its directors and officers. Section 31 of the Corporation Code provides the instances when
executed by the corporation. They are not personally liable for obligations and liabilities incurred directors, trustees, or officers may become liable for corporate acts:
on or in behalf of the corporation.
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and
Petitioners are also correct that arbitration promotes the parties’ autonomy in resolving their knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross
disputes. This court recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty Corporation 79 that negligence or bad faith in directing the affairs of the corporation or acquire any personal or
an arbitration clause shall not apply to persons who were neither parties to the contract nor pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and
assignees of previous parties, thus: severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.
A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on
arbitration, binds the parties thereto, as well as their assigns and heirs. But only they.80 (Citations When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any
omitted) interest adverse to the corporation in respect of any matter which has been reposed inhim in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be
Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court ruled: liable as a trustee for the corporation and must account for the profits which otherwise would have
accrued to the corporation. (n)
The provision to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract. As a rule, contracts are respected as the law Based on the above provision, a director, trustee, or officer of a corporation may be made
between the contracting parties and produce effect as between them, their assigns and heirs. solidarily liable with it for all damages suffered by the corporation, its stockholders or members,
Clearly, only parties to the Agreement . . . are bound by the Agreement and its arbitration clause and other persons in any of the following cases:
as they are the only signatories thereto.82 (Citation omitted)
a) The director or trustee willfully and knowingly voted for or assented to a patently
This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals Co., unlawful corporate act;
Inc.83 and Stanfilco Employees v. DOLE Philippines, Inc., et al.84
b) The director or trustee was guilty of gross negligence or bad faith in directing corporate
As a general rule, therefore, a corporation’s representative who did not personally bind himself or affairs; and
herself to an arbitration agreement cannot be forced to participate in arbitration proceedings made
pursuant to an agreement entered into by the corporation. He or she is generally not considered a c) The director or trustee acquired personal or pecuniary interest in conflict with his or her
party to that agreement. duties as director or trustee.

However, there are instances when the distinction between personalities of directors, officers,and Solidary liability with the corporation will also attach in the following instances:
representatives, and of the corporation, are disregarded. We call this piercing the veil of corporate
fiction. a) "When a director or officer has consented to the issuance of watered stocks or who,
having knowledge thereof, did not forthwith file with the corporate secretary his written
Piercing the corporate veil is warranted when "[the separate personality of a corporation] is used objection thereto";87
as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate issues."85 It is also warranted in
b) "When a director, trustee or officer has contractually agreed or stipulated to hold that case, this court recognizedthat persons other than the main party may be compelled to submit
himself personally and solidarily liable with the corporation";88 and to arbitration, e.g., assignees and heirs. Assignees and heirs may be considered parties to an
arbitration agreement entered into by their assignor because the assignor’s rights and obligations
c) "When a director, trustee or officer is made, by specific provision of law, personally are transferred to them upon assignment. In other words, the assignor’s rights and obligations
liable for his corporate action."89 become their own rights and obligations. In the same way, the corporation’s obligations are
treated as the representative’s obligations when the corporate veil is pierced. Moreover, in Heirs of
Augusto Salas, this court affirmed its policy against multiplicity of suits and unnecessary delay.
When there are allegations of bad faith or malice against corporate directors or representatives, it
This court said that "to split the proceeding into arbitration for some parties and trial for other
becomes the duty of courts or tribunals to determine if these persons and the corporation should parties would "result in multiplicity of suits, duplicitous procedure and unnecessary delay." 91 This
be treated as one. Without a trial, courts and tribunals have no basis for determining whether the court also intimated that the interest of justice would be best observed if it adjudicated rights in a
veil of corporate fiction should be pierced. Courts or tribunals do not have such prior knowledge. single proceeding.92 While the facts of that case prompted this court to direct the trial court to
Thus, the courts or tribunals must first determine whether circumstances exist towarrant the courts proceed to determine the issues of thatcase, it did not prohibit courts from allowing the case to
or tribunals to disregard the distinction between the corporation and the persons representing it. proceed to arbitration, when circumstances warrant.
The determination of these circumstances must be made by one tribunal or court in a proceeding
participated in by all parties involved, including current representatives of the corporation, and
those persons whose personalities are impliedly the sameas the corporation. This is because Hence, the issue of whether the corporation’s acts in violation of complainant’s rights, and the
when the court or tribunal finds that circumstances exist warranting the piercing of the corporate incidental issue of whether piercing of the corporate veil is warranted, should be determined in a
veil, the corporate representatives are treated as the corporation itself and should be held liable single proceeding. Such finding would determine if the corporation is merely an aggregation of
for corporate acts. The corporation’s distinct personality is disregarded, and the corporation is persons whose liabilities must be treated as one with the corporation.
seen as a mere aggregation of persons undertaking a business under the collective name of the
corporation. However, when the courts disregard the corporation’s distinct and separate personality from its
directors or officers, the courts do not say that the corporation, in all instances and for all
Hence, when the directors, as in this case, are impleaded in a case against a corporation, alleging purposes, is the same as its directors, stockholders, officers, and agents. It does not result in an
malice orbad faith on their part in directing the affairs of the corporation, complainants are absolute confusion of personalities of the corporation and the persons composing or representing
effectively alleging that the directors and the corporation are not acting as separate entities. They it. Courts merely discount the distinction and treat them as one, in relation to a specific act, in
are alleging that the acts or omissions by the corporation that violated their rights are also the order to extend the terms of the contract and the liabilities for all damages to erring corporate
directors’ acts or omissions.90 They are alleging that contracts executed by the corporation are officials who participated in the corporation’s illegal acts. This is done so that the legal fiction
contracts executed by the directors. Complainants effectively pray that the corporate veilbe cannot be used to perpetrate illegalities and injustices.
pierced because the cause of action between the corporation and the directors is the same.
Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the
In that case, complainants have no choice but to institute only one proceeding against the corporate veil, parties who are normally treated as distinct individuals should be made to
parties.1âwphi1 Under the Rules of Court, filing of multiple suits for a single cause of action is participate in the arbitration proceedings in order to determine ifsuch distinction should indeed be
prohibited. Institution of more than one suit for the same cause of action constitutes splitting the disregarded and, if so, to determine the extent of their liabilities.
cause of action, which is a ground for the dismissal ofthe others. Thus, in Rule 2:
In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to prove
Section 3. One suit for a single cause of action. — A party may not institute more than one suit for the existence of circumstances that render petitioners and the other directors solidarily liable. It
a single cause of action. (3a) ruled that petitioners and Shangri-La’s other directors were not liable for the contractual
obligations of Shangri-La to BF Corporation. The Arbitral Tribunal’s decision was made with the
participation of petitioners, albeit with their continuing objection. In view of our discussion above,
Section 4. Splitting a single cause of action;effect of. — If two or more suits are instituted on the we rule that petitioners are bound by such decision.
basis of the same cause of action, the filing of one or a judgment upon the merits in any one is
available as a ground for the dismissal of the others. (4a)
WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006 and
resolution of October 5, 2006 are AFFIRMED.
It is because the personalities of petitioners and the corporation may later be found to be indistinct
that we rule that petitioners may be compelled to submit to arbitration.
SO ORDERED.
However, in ruling that petitioners may be compelled to submit to the arbitration proceedings, we
are not overturning Heirs of Augusto Salas wherein this court affirmed the basic arbitration
principle that only parties to an arbitration agreement may be compelled to submit to arbitration. In
THIRD DIVISION On September 12, 2002, the undersigned proceeded at the stated present business office address
of the respondent which is at Minien East, Sta. Barbara, Pangasinan to serve the writ of execution.
G.R. No. 198967, March 07, 2016 Upon arrival, I found out that the establishment erected thereat is not [in] the respondent's name
but JOEL and SONS CORPORATION, a family corporation owned by the Guillermos of which,
Jose Emmanuel F. Guillermo the General Manager of the respondent, is one of the stockholders
JOSE EMMANUEL P. GUILLERMO, Petitioner, v. CRISANTO P. USON, Respondent.
who received the writ using his nickname "Joey," [and who] concealed his real identity and
pretended that he [was] the brother of Jose, which [was] contrary to the statement of the guard-on-
DECISION duty that Jose and Joey [were] one and the same person. The former also informed the
undersigned that the respondent's (sic) corporation has been dissolved.
PERALTA, J.:
On the succeeding day, as per [advice] by the [complainant's] counsel that the respondent has an
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking account at the Bank of Philippine Islands Magsaysay Branch, A.B. Fernandez Ave., Dagupan City,
to annul and set aside the Court of Appeals Decision1 dated June 8, 2011 and Resolution2 dated the undersigned immediately served a notice of garnishment, thus, the bank replied on the same
October 7, 2011 in CA G.R. SP No. 115485, which affirmed in toto the decision of the National day stating that the respondent [does] not have an account with the
Labor Relations Commission (NLRC). branch.14ChanRoblesVirtualawlibrary
On December 26, 2002, Labor Arbiter Irenarco R. Rimando issued an Order15 granting the motion
The facts of the case follow. filed by Uson. The order held that officers of a corporation are jointly and severally liable for the
obligations of the corporation to the employees and there is no denial of due process in holding
On March 11, 1996, respondent Crisanto P. Uson (Uson) began his employment with Royal Class them so even if the said officers were not parties to the case when the judgment in favor of the
Venture Phils., Inc. (Royal Class Venture) as an accounting clerk.3 Eventually, he was promoted to employees was rendered.16Thus, the Labor Arbiter pierced the veil of corporate fiction of Royal
the position of accounting supervisor, with a salary of Php13,000.00 a month, until he was Class Venture and held herein petitioner Jose Emmanuel Guillermo (Guillermo), in his personal
allegedly dismissed from employment on December 20, 2000.4 capacity, jointly and severally liable with the corporation for the enforcement of the claims of
Uson.17
On March 2, 2001, Uson filed with the Sub-Regional Arbitration . Branch No. 1, Dagupan City, of
the NLRC a Complaint for Illegal Dismissal, with prayers for backwages, reinstatement, salaries Guillermo filed, by way of special appearance, a Motion for Reconsideration/To Set Aside the
and 13thmonth pay, moral and exemplary damages and attorney's fees against Royal Class Order of December 26, 2002.18 The same, however, was not granted as, this time, in an Order
Venture.5 dated November 24, 2003, Labor Arbiter Niña Fe S. Lazaga-Rafols sustained the findings of the
labor arbiters before her and even castigated Guillenno for his unexplained absence in the prior
Royal Class Venture did not make an appearance in the case despite its receipt of summons.6 proceedings despite notice, effectively putting responsibility on Guillermo for the case's outcome
against him.19
On May 15, 2001, Uson filed his Position Paper7 as complainant.
On January 5, 2004, Guillermo filed a Motion for Reconsideration of the above Order, 20 but the
On October 22, 2001, Labor Arbiter Jose G. De Vera rendered a Decision 8 in favor of the same was promptly denied by the Labor Arbiter in an Order dated January 7, 2004. 21
complainant Uson and ordering therein respondent Royal Class Venture to reinstate him to his
former position and pay his backwages, 13th month pay as well as moral and exemplary damages On January 26, 2004, Uson filed a Motion for Alias Writ of Execution, 22 to which Guillermo filed a
and attorney's fees. Comment and Opposition on April 2, 2004.23

Royal Class Venture, as the losing party, did not file an appeal of the decision. 9 Consequently, On May 18, 2004, the Labor Arbiter issued an Order24 granting Uson's Motion for the Issuance of
upon Uson's motion, a Writ of Execution10 dated February 15, 2002 was issued to implement the an Alias Writ of Execution and rejecting Guillermo's arguments posed in his Comment and
Labor Arbiter's decision. Opposition.

On May 17, 2002, an Alias Writ of Execution11 was issued. But with the judgment still unsatisfied, Guillermo elevated the matter to the NLRC by filing a Memorandum of Appeal with Prayer for a
a Second Alias Writ of Execution12 was issued on September 11, 2002. (Writ of) Preliminary Injunction dated June 10, 2004.25cralawred

Again, it was reported in the Sheriff's Return that the Second Alias Writ of Execution dated In a Decision26 dated May 11, 2010, the NLRC dismissed Guillermo's appeal and denied his
September 11, 2002 remained "unsatisfied." Thus, on November 14, 2002, Uson filed a Motion for prayers for injunction.
Alias Writ of Execution and to Hold Directors and Officers of Respondent Liable for Satisfaction of
the Decision.13 The motion quoted from a portion of the Sheriffs Return, which states: On August 20, 2010, Guillermo filed a Petition for Certiorari27 before the Court of Appeals,
chanRoblesvirtualLawlibrary
assailing the NLRC decision. considered a mere conduit or alter ego of the originally impleaded corporation, and/or the officers
or stockholders of the latter corporation.45 Liability attached, especially to the responsible officers,
On June 8, 2011, the Court of Appeals rendered its assailed Decision 28 which denied Guillermo's even after final judgment and during execution, when there was a failure to collect from the
petition and upheld all the findings of the NLRC. employer corporation the judgment debt awarded to its workers.46 In Naguiat v. NLRC,47 the
president of the corporation was found, for the first time on appeal, to be solidarily liable to the
The appellate court found that summons was in fact served on Guillermo as President and dismissed employees. Then, in Reynoso v. Court of Appeals,48 the veil of corporate fiction was
General Manager of Royal Class Venture, which was how the Labor Arbiter acquired jurisdiction pierced at the stage of execution, against a corporation not previously impleaded, when it was
over the company.29 But Guillermo subsequently refused to receive all notices of hearings and established that such corporation had dominant control of the original party corporation, which was
conferences as well as the order to file Royal Class Venture's position paper. 30 Then, it was a smaller company, in such a manner that the latter's closure was done by the former in order to
learned during execution that Royal Class Venture had been dissolved. 31 However, the Court of defraud its creditors, including a former worker.
Appeals held that although the judgment had become final and executory, it may be modified or
altered "as when its execution becomes impossible or unjust."32 It also noted that the motion to The rulings of this Court in A.C. Ransom, Naguiat, and Reynoso, however, have since been
hold officers and directors like Guillermo personally liable, as well as the notices to hear the same, tempered, at least in the aspects of the lifting of the corporate veil and the assignment of personal
was sent to them by registered mail, but no pleadings were submitted and no appearances were liability to directors, trustees and officers in labor cases. The subsequent cases of McLeod v.
made by anyone of them during the said motion's pendency.33 Thus, the court held Guillermo NLRC,49Spouses Santos v. NLRC50 and Carag v. NLRC,51 have all established, save for certain
liable, citing jurisprudence that hold the president of the corporation liable for the latter's obligation exceptions, the primacy of Section 3152 of the Corporation Code in the matter of assigning such
to illegally dismissed employees.34 Finally, the court dismissed Guillermo's allegation that the case liability for a corporation's debts, including judgment obligations in labor cases. According to these
is an intra-corporate controversy, stating that jurisdiction is determined by the allegations in the cases, a corporation is still an artificial being invested by law with a personality separate and
complaint and the character of the relief sought.35 distinct from that of its stockholders and from that of other corporations to which it may be
connected.53 It is not in every instance of inability to collect from a corporation that the veil of
From the above decision of the appellate court, Guillermo filed a Motion for Reconsideration 36 but corporate fiction is pierced, and the responsible officials are made liable. Personal liability attaches
the same was again denied by the said court in the assailed Resolution 37 dated October 7, 2011. only when, as enumerated by the said Section 31 of the Corporation Code, there is a wilfull and
knowing assent to patently unlawful acts of the corporation, there is gross negligence or bad faith
Hence, the instant petition. in directing the affairs of the corporation, or there is a conflict of interest resulting in damages to
the corporation.54 Further, in another labor case, Pantranco Employees Association (PEA-
Guillermo asserts that he was impleaded in the case only more than a year after its Decision had PTGWO), et al. v. NLRC, et al.,55 the doctrine of piercing the corporate veil is held to apply only in
become final and executory, an act which he claims to be unsupported in law and three (3) basic areas, namely: ( 1) defeat of public convenience as when the corporate fiction is
jurisprudence.38 He contends that the decision had become final, immutable and unalterable and used as a vehicle for the evasion of an existing obligation; (2) fraud cases or when the corporate
that any amendment thereto is null and void.39 Guillermo assails the so-called "piercing the veil" of entity is used to justify a wrong, protect fraud, or defend a crime; or (3) alter ego cases, where a
corporate fiction which allegedly discriminated against him when he alone was belatedly corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where
impleaded despite the existence of other directors and officers in Royal Class Venture. 40 He also the corporation is so organized and controlled and its affairs are so conducted as to make it
claims that the Labor Arbiter has no jurisdiction because the case is one of an intra-corporate merely an instrumentality, agency, conduit or adjunct of another corporation. In the absence of
controversy, with the complainant Uson also claiming to be a stockholder and director of Royal malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate
Class Venture.41 officer cannot be made personally liable for corporate liabilities.56 Indeed, in Reahs Corporation v.
NLRC,57 the conferment of liability on officers for a corporation's obligations to labor is held to be
In his Comment,42 Uson did not introduce any new arguments but merely cited verbatim the an exception to the general doctrine of separate personality of a corporation.
disquisitions of the Court of Appeals to counter Guillermo's assertions in his petition.
It also bears emphasis that in cases where personal liability attaches, not even all officers are
To resolve the case, the Court must confront the issue of whether an officer of a corporation may made accountable. Rather, only the "responsible officer," i.e., the person directly responsible for
be included as judgment obligor in a labor case for the first time only after the decision of the and who "acted in bad faith" in committing the illegal dismissal or any act violative of the Labor
Labor Arbiter had become final and executory, and whether the twin doctrines of "piercing the veil Code, is held solidarily liable, in cases wherein the corporate veil is pierced. 58 In other instances,
of corporate fiction" and personal liability of company officers in labor cases apply. such as cases of so-called corporate tort of a close corporation, it is the person "actively engaged"
in the management of the corporation who is held liable.59 In the absence of a clearly identifiable
The petition is denied. officer(s) directly responsible for the legal infraction, the Court considers the president of the
corporation as such officer.60
In the earlier labor cases of Claparols v. Court of Industrial Relations43 and A.C. Ransom Labor
Union-CCLU v. NLRC,44 persons who were not originally impleaded in the case were, even during The common thread running among the aforementioned cases, however, is that the veil of
execution, held to be solidarity liable with the employer corporation for the latter's unpaid corporate fiction can be pierced, and responsible corporate directors and officers or even a
obligations to complainant-employees. These included a newly-formed corporation which was separate but related corporation, may be impleaded and held answerable solidarily in a labor
case, even after final judgment and on execution, so long as it is established that such persons Court.68 Thus, again, the same now stands as a finding of fact of the said lower tribunals which
have deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have binds this Court and which it has no power to alter or revisit.69 Guillermo's knowledge of the case's
resorted to fraud, bad faith or malice in doing so. When the shield of a separate corporate identity filing and existence and his unexplained refusal to participate in it as the responsible official of his
is used to commit wrongdoing and opprobriously elude responsibility, the courts and the legal company, again is an indicia of his bad faith and malicious intent to evade the judgment of the
authorities in a labor case have not hesitated to step in and shatter the said shield and deny the labor tribunals.
usual protections to the offending party, even after final judgment. The key element is the
presence of fraud, malice or bad faith. Bad faith, in this instance, does not connote bad judgment Finally, the records likewise bear that Guillermo dissolved Royal Class Venture and helped
or negligence but imports a dishonest purpose or some moral obliquity and conscious doing of incorporate a new firm, located in the same address as the former, wherein he is again a
wrong; it means breach of a known duty through some motive or interest or ill will; it partakes of stockl1older. This is borne by the Sherif11s Return which reported: that at Royal Class Venture's
the nature of fraud.61 business address at Minien East, Sta. Barbara, Pangasinan, there is a new establishment named
"Joel and Sons Corporation," a family corporation owned by the Guillermos in which Jose
As the foregoing implies, there is no hard and fast rule on when corporate fiction may be Emmanuel F. Guillermo is again one of the stockholders; that Guillermo received the writ of
disregarded; instead, each case must be evaluated according to its peculiar circumstances.62 For execution but used the nickname "Joey" and denied being Jose Emmanuel F. Guillermo and,
the case at bar, applying the above criteria, a finding of personal and solidary liability against a instead, pretended to be Jose's brother; that the guard on duty confirmed that Jose and Joey are
corporate officer like Guillermo must be rooted on a satisfactory showing of fraud, bad one and the same person; and that the respondent corporation Royal Class Venture had been
dissolved.70 Again, the facts contained in the Sheriffs Return were not disputed nor controverted
faith or malice, or the presence of any of the justifications for disregarding the corporate fiction. As by Guillermo, either in the hearings of Uson's Motions for Issuance of Alias Writs of Execution, in
stated in McLeod,63 bad faith is a question of fact and is evidentiary, so that the records must first subsequent motions or pleadings, or even in the petition before this Court. Essentially, then, the
bear evidence of malice before a finding of such may be made. facts form part of the records and now stand as further proof of Guillermo's bad faith and malicious
intent to evade the judgment obligation.
It is our finding that such evidence exists in the record. Like the A. C. Ransom, and Naguiat cases,
the case at bar involves an apparent family corporation. As in those two cases, the records of the The foregoing clearly indicate a pattern or scheme to avoid the obligations to Uson and frustrate
present case bear allegations and evidence that Guillermo, the officer being held liable, is the the execution of the judgment award, which this Court, in the interest of justice, will not
person responsible in the actual running of the company and for the malicious and illegal dismissal countenance.
of the complainant; he, likewise, was shown to have a role in dissolving the original obligor
company in an obvious "scheme to avoid liability" which jurisprudence has always looked upon As for Guillermo's assertion that the case is an intra-corporate controversy, the Court sustains the
with a suspicious eye in order to protect the rights of labor.64 finding of the appellate court that the nature of an action and the jurisdiction of a tribunal are
determined by the allegations of the complaint at the time of its filing, irrespective of whether or not
Part of the evidence on record is the second page of the verified Position Paper of complainant the plaintiff is entitled to recover upon all or some of the claims asserted therein. 71 Although Uson
(herein respondent) Crisanto P. Uson, where it was clearly alleged that Uson was "illegally is also a stockholder and director of Royal Class Venture, it is settled in jurisprudence that not all
dismissed by the President/General Manager of respondent corporation (herein petitioner) Jose conflicts between a stockholder and the corporation are intra-corporate; an examination of the
Emmanuel P. Guillermo when Uson exposed the practice of the said President/General Manager complaint must be made on whether the complainant is involved in his capacity as a stockholder
of dictating and undervaluing the shares of stock of the corporation." 65 The statement is proof that or director, or as an employee.72 If the latter is found and the dispute does not meet the test of
Guillermo was the responsible officer in charge of running the company as well as the one who what qualities as an intra-corporate controversy, then the case is a labor case cognizable by the
dismissed Uson from employment. As this sworn allegation is uncontroverted - as neither the NLRC and is not within the jurisdiction of any other tribunal.73In the case at bar, Uson's allegation
company nor Guillermo appeared before the Labor Arbiter despite the service of summons and was that he was maliciously and illegally dismissed as an Accounting Supervisor by Guillermo, the
notices - such stands as a fact of the case, and now functions as clear evidence of Guillermo's Company President and General Manager, an allegation that was not even disputed by the latter
bad faith in his dismissal of Uson from employment, with the motive apparently being anger at the nor by Royal Class Venture. It raised no intra-corporate relationship issues between him and the
latter's reporting of unlawful activities. corporation or Guillermo; neither did it raise any issue regarding the regulation of the corporation.
As correctly found by the appellate court, Uson's complaint and redress sought were centered
Then, it is also clearly reflected in the records that it was Guillermo himself, as President and alone on his dismissal as an employee, and not upon any other relationship he had with the
General Manager of the company, who received the summons to the case, and who also company or with Guillermo. Thus, the matter is clearly a labor dispute cognizable by the labor
subsequently and without justifiable cause refused to receive all notices and orders of the Labor tribunals.chanrobleslaw
Arbiter that followed.66This makes Guillermo responsible for his and his company's failure to
participate in the entire proceedings before the said office. The fact is clearly narrated in the WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated June 8, 2011 and
Decision and Orders of the Labor Arbiter, Uson's Motions for the Issuance of Alias Writs of Resolution dated October 7, 2011 in CA G.R. SP No. 115485 are AFFIRMED.
Execution, as well as in the Decision of the NLRC and the assailed Decision of the Court of
Appeals,67 which Guillermo did not dispute in any of his belated motions or pleadings, including in SO ORDERED.cralawlawlibrary
his petition for certiorari before the Court of Appeals and even in the petition currently before this
Republic of the Philippines On April 16, 1998, Brillo made another demand letter to URC for the payment of the reduced sum
SUPREME COURT of ₱289,287,486.60 for the Value-Added Taxes (VAT), special duties and excisetaxes for the
Manila years 1991-1995.

FIRST DIVISION On April 23, 1998, URC, through its counsel, responded to the demands by seeking the landed
computations of the assessments, and challenged the inconsistencies of the demands.
G.R. No. 161759 July 2, 2014
On November 25, 1998, then Customs Commissioner Pedro C. Mendoza formally directed that
COMMISSIONER OF CUSTOMS, Petitioner, URC pay the amount of ₱119,223,541.71 representing URC’s special duties, VAT,and Excise
vs. Taxes that it had failed to pay at the time of the release of its 17 oil shipments that had arrived in
OILINK INTERNATIONAL CORPORATION, Respondent. the Sub-port of Mariveles from January 1, 1991 to September 7, 1995.

DECISION On December 21, 1998, Commissioner Mendoza wrote again to require URC to pay deficiency
taxes but in the reduced sum of ₱99,216,580.10.
BERSAMIN, J.:
On December 23, 1998, upon his assumption of office, Customs Commissioner Nelson Tan
transmitted another demand letter to URC affirming the assessment of ₱99,216,580.10 by
This appeal is brought by the Commissioner of Customs to seek the review and reversal of the Commissioner Mendoza.
decision promulgated on September 29, 2003,1 whereby the Court of Appeals (CA) affirmed the
adverse ruling of the Court of Tax Appeals (CTA) declaring the assessment for deficiency taxes
and duties against Oilink International Corporation (Oilink) null and void. On January 18, 1999, Magleo, in behalf of URC, replied by letter to Commissioner Tan’s
affirmance by denying liability, insisting instead that only ₱28,933,079.20 should be paid by way of
compromise.
Antecedents
On March 26, 1999, Commissioner Tan responded by rejecting Magleo’s proposal, and directed
The antecedents are summarized in the assailed decision.2
URC to pay ₱99,216,580.10.

On September 15, 1966, Union Refinery Corporation (URC) was established under the On May 24, 1999, Manuel Co, URC’s President, conveyed to Commissioner Tan URC’s
Corporation Code of the Philippines. In the course of its business undertakings, particularly in the willingness to pay only ₱94,216,580.10, of which the initial amount of ₱28,264,974.00 would be
period from 1991 to 1994, URC imported oil products into the country.
taken from the collectibles of Oilink from the National Power Corporation, and the balance to be
paid in monthly installments over a period ofthree years to be secured with corresponding post-
On January 11, 1996, Oilink was incorporated for the primary purpose of manufacturing, importing, dated checks and its future available tax credits.
exporting, buying, selling or dealing in oil and gas, and their refinements and by-products at
wholesale and retail of petroleum. URC and Oilink had interlocking directors when Oilink started its
On July 2, 1999, Commissioner Tan made a final demand for the total liability of ₱138,060,200.49
business.
upon URC and Oilink.

In applying for and in expediting the transfer of the operator’s name for the Customs Bonded
On July 8, 1999, Co requested from Commissioner Tan a complete finding of the facts and law in
Warehouse thenoperated by URC, Esther Magleo, the Vice-President and General Manager of support ofthe assessment made in the latter’s July 2, 1999 final demand.
URC, sent a letter dated January 15, 1996 to manifest that URC and Oilink had the same Board of
Directors and that Oilink was 100% owned by URC.
Also on July 8, 1999, Oilink formally protested the assessment on the ground that it was not the
party liable for the assessed deficiency taxes.
On March 4, 1998, Oscar Brillo, the District Collector of the Port of Manila, formally demanded that
URC pay the taxes and duties on its oil imports that had arrived between January 6, 1991 and
November 7, 1995 at the Port of Lucanin in Mariveles, Bataan. On July 12, 1999, after receiving the July 8, 1999 letter from Co, Commissioner Tan
communicated in writing the detailed computation of the tax liability, stressing that the Bureau of
Customs (BoC) would not issue any clearance to Oilink unless the amount of ₱138,060,200.49
demanded as Oilink’s tax liability befirst paid, and a performance bond be posted by URC/Oilink to
secure the payment of any adjustments that would result from the BIR’s review of the liabilities for As to whether or not the Commissioner of Customs could lawfully pierce the veil of corporate
VAT, excise tax, special duties, penalties, etc. fiction in order to treat Oilink as the mere alter ego of URC, the CA concurred with the CTA,
quoting the latter’s following findings:
Thus, on July 30, 1999, Oilink appealed to the CTA, seeking the nullification of the assessment for
having been issued without authority and with grave abuse of discretion tantamount to lack of In the case at bar, the said wrongdoing was not clearly and convincingly established by
jurisdiction because the Government was thereby shifting the imposition from URC to Oilink. Respondent. He did not submit any evidence to support his allegations but merely submitted the
case for decision based on the pleadings and evidence presented by petitioner. Stated otherwise,
Decision of the CTA should the Respondent sufficiently provethat OILINK was merely set up in order to avoid the
payment of taxes or for some other purpose which will defeat public convenience, justify wrong,
protect fraud or defend crime, this Court will not hesitate to pierce the veil of corporate fiction by
On July 9, 2001, the CTA rendered its decision declaring as null and void the assessment of the URC and OILINK.7
Commissioner of Customs, to wit:
Issues
IN THE LIGHT OF ALL THE FOREGOING, the petition is hereby GRANTED. The assailed
assessment issued by Respondent against herein Petitioner OILINK INTERNATIONAL
CORPORATION is hereby declared NULL and VOID. Hence, this appeal, whereby the Commissioner of Customs reiterates the issues raised in the CA.

SO ORDERED.3 Ruling of the Court

The Commissioner of Customs seasonably filed a motion for reconsideration,4 but the CTA denied We affirm the judgment of the CA.
the motion for lack of merit.5
1.
Judgment of the CA
The CTA had jurisdiction over the controversy
Aggrieved, the Commissioner of Customs brought a petition for review in the CA upon the
following issues, namely: (a) the CTA gravely erred in holding that it had jurisdiction over the There is no question that the CTA had the jurisdiction over the case. Republic Act No. 1125, the
subject matter; (b) the CTA gravely erred in holding that Oilink had a cause of action; and (c) the law creating the CTA, defined the appellate jurisdiction of the CTA as follows:
CTA gravely erred in holding that the Commissioner of Customs could not pierce the veil of
corporate fiction. Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to
review by appeal, as herein provided:
On the issue of the jurisdiction of the CTA, the CA held:
xxxx
x x x the case at bar is very much within the purview of the jurisdiction of the Court ofTax Appeals
since it is undisputed that what is involved herein is the respondent’s liability for payment of money 2. Decisions of the Commissioner ofCustoms in cases involving liability for Customs duties, fees or
to the Government as evidenced by the demand letters sent by the petitioner. Hence, the Court of other money charges; seizure, detention or release of property affected; fines, forfeitures or other
Tax Appeals did noterr in taking cognizance of the petition for review filed by the respondent. penalties imposed in relation thereto;or other matters arising under the Customs Law or other law
or part of law administered by the Bureau of Customs;
xxxx
xxxx
We find the petitioner’s submission untenable. The principle of non-exhaustion of administrative
remedy is not an iron-clad rule for there are instances that immediate resort to judicial action may Nonetheless, the Commissioner of Customs contends that the CTA should not take cognizance of
be proper. Verily, a cursory examination of the factual milieu of the instant case indeed reveals the casebecause of the lapse of the 30-day period within which to appeal, arguing that on
that exhaustion ofadministrative remedy would be unavailing because it was the Commissioner of November 25, 1998 URC had already received the BoC’s final assessment demanding payment
Customs himself who was demanding from the respondent payment of tax liability. In addition, it of the amount due within 10 days, but filed the petition only on July 30, 1999.8
may be recalled that a crucial issue inthe petition for review filed by the respondent before the
CTA is whether or not the doctrine of piercing the veil of corporate fiction validly applies.
Indubitably, this is purely a question of law where judicial recourse may certainly be resorted to. 6
We rule against the Commissioner of Customs. The CTA correctly ruled that the reckoning date It may not be used or invoked for ends that subvert the policy and purpose behind its
for Oilink’s appeal was July 12, 1999, not July 2, 1999, because it was on the former date that the establishment, or intended by law to which the corporation owes its being. This is true particularly
Commissioner of Customs denied the protest of Oilink.Clearly, the filing of the petition on July 30, when the fiction is used to defeat public convenience, to justify wrong, to protectfraud, to defend
1999 by Oilink was well within its reglementary period to appeal. The insistence by the crime, to confuse legitimate legal or judicial issues, to perpetrate deception or otherwise to
Commissioner of Customs on reckoning the reglementary period to appeal from November 25, circumvent the law. This is likewise true where the corporate entity is being used as an alter ego,
1998, the date when URC received the final demand letter, is unwarranted. We note that the adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity.
November 25, 1998 final demand letter of the BoC was addressed to URC, not to Oilink. As such, In such instances, the veil of corporate entity will be pierced or disregarded with reference to the
the final demand sentto URC did not bind Oilink unless the separate identities of the corporations particular transaction involved.9
were disregarded in order to consider them as one.
In Philippine National Bank v. Ritratto Group, Inc.,10 the Court has outlined the following
2. circumstances thatare useful in the determination of whether a subsidiary is a mere instrumentality
of the parent-corporation, viz:
Oilink had a valid cause of action
1. Control, not mere majority or complete control, but complete domination, not only of finances
The Commissioner of Customs positsthat the final demand letter dated July 2, 1999 from which butof policy and business practice in respect to the transaction attacked so that the corporate
Oilink appealed was not the final "action" or "ruling" from which an appeal could be taken as entity as to this transaction had at the time no separatemind, will or existence of its own;
contemplated by Section 2402 of the Tariff and Customs Code; that what Section 7 of RA No.
1125 referred to as a decision that was appealable to the CTA was a judgment or order of the 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the
Commissioner of Customs that was final in nature, not merely an interlocutory one; that Oilink did violation of a statutory or other positive legal duty, or dishonest and, unjust act incontravention of
notexhaust its administrative remedies under Section 2308 of the Tariff and Customs Code by plaintiff's legal rights; and
paying the assessment under protest; that only when the ensuing decision of the Collector and
then the adverse decision of the Commissioner of Customs would it be proper for Oilink to seek 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
judicial relief from the CTA; and that, accordingly, the CTA should have dismissed the petition for complained of.
lack of cause of action.
In applying the "instrumentality" or"alter ego" doctrine, the courts are concerned with reality, not
The position of the Commissioner of Customs lacks merit. form, and with how the corporation operated and the individual defendant's relationship to the
operation.11 Consequently, the absence of any one of the foregoing elements disauthorizes the
The CA correctly held that the principle of non-exhaustion of administrative remedies was not an piercing of the corporate veil.
iron-clad rule because there were instances in which the immediate resort to judicial action was
proper. This was one such exceptional instance when the principle did not apply. As the records Indeed, the doctrine of piercing the corporate veil has no application here because the
indicate, the Commissioner of Customs already decided to deny the protest by Oilink on July 12, Commissioner of Customs did not establish that Oilink had been set up to avoid the payment of
1999, and stressed then that the demand to pay was final. In that instance, the exhaustion of taxes or duties, or for purposes that would defeat public convenience, justify wrong, protect fraud,
administrative remedies would have been an exercise in futility because it was already the defend crime, confuse legitimate legal or judicial issues, perpetrate deception or otherwise
Commissioner of Customs demanding the payment of the deficiency taxes and duties. circumvent the law. It is also noteworthy that from the outset the Commissioner of Customs sought
to collect the deficiency taxes and duties from URC, and that it was only on July 2, 1999 when the
3. Commissioner of Customs sent the demand letter to both URC and Oilink. That was revealing,
because the failure of the Commissioner of Customs to pursue the remedies against Oilink from
There was no ground to pierce the outset manifested that its belated pursuit of Oilink was only an afterthought. WHEREFORE,
the Court AFFIRMS the decision promulgated by the Court of Appeals on September 29, 2003.
the veil of corporate existence
No pronouncement on costs of suit.
A corporation, upon coming into existence, is invested by law with a personality separate and
distinct from those of the persons composing it as well as from any other legal entity to which it SO ORDERED.
may be related. For this reason, a stockholder is generally not made to answer for the acts or
liabilities of the corporation, and viceversa. The separate and distinct personality of the corporation
is, however, a mere fiction established by law for convenience and to promote the ends of justice.
Republic of the Philippines That on or about April 25, 1994, in Makati, Metro Manila, and within the jurisdiction of this
SUPREME COURT Honorable Court, the above-named accused, confederating together and mutually helping each
Manila other, by means of deceit, with unfaithfulness or abuse of confidence on the part of accused
Eugene Yang and taking advantage of his position as senior manager of the Bank of Commerce
SECOND DIVISION (Bancom), did then and there willfully, unlawfully and feloniously defraud Bancom as follows: That
Bancapital Development Corporation (Bancap) thru accused Nite, Bradley and Escalambre by
means of fraudulent misreoresentations; offered and confirmed for sale Php250 Million worth of
G.R. No. 211535 July 22, 2015
Treasury bills at a discounted price of Php243,215,972.52 to Bancom which was actually
purchased and fully paid by Bancom, when in truth and in fact Bancap which was not authorized
BANK OF COMMERCE, Petitioner, to trade security did not actually have such Treasury bills worth Php250 Million as only Php88
vs. Million worth of Treasury bills was delivered to Bancom upon receipt by Bancap of the full payment
MARILYN P. NITE, Respondent. thereof; that accused Eugene Yang, senior manager of Bancom, willfully, unlawfully and
feloniously caused the preparation, issuance and signing of the manager’s check in payment of
DECISION the treasury bills in question on the basis of the trading order he himself approved and Bancap’s
confirmation of sale signed by accused Nite and Escalambre, and, once in possession of the full
CARPIO, Acting C.J.: payment thereof, the above-named accused misappropriated, misapplied and converted the same
to their own personal use and benefit and despite repeated demands failed to deliver the
remaining Treasury bills worth Php162 Million, to the damage and prejudice of Bancom, its
The Case creditors and stockholders, in the amount of Php162 Million Pesos.

Before the Court is a petition for review on certiorari assailing the 22 November 2013 CONTRARY TO LAW.7
Decision1 and 28 February 2004 Resolution2 of the Court of Appeals in CA-G.R. CV No. 81500.
The Court of Appeals affirmed in toto the Order dated 4 April 2003 3 and the Omnibus Order dated
5 January 20044 of the Regional Trial Court of Makati, Branch 150 (trial court) in Criminal Case The case was docketed as Criminal Case No. 94-5268. The two cases were tried jointly.
Nos. 94-5267 and 94-5268.
Since Bradley was still at large during the trial, and the proceedings against Escalambre and Yang
The Antecedent Facts were suspended pending their petition for certiorari and mandamus before the Court of Appeals in
connection with the denial of their demurrer to evidence, as separate trial was conducted against
Nite after she was arrested in the United States of America for overstaying and brought back to
Respondent Marilyn Nite (Nite) was charged, together with Nunelon Bradley (Bradley) and Victoria the Philippines.
Magalona-Escalambre (Escalambre), with violation of Section 19 of Batas Pambansa Bilang
1785 (BP Blg. 178) in an Information that reads:
In Criminal Case No. 94-5267, the thrust of the prosecution’s argument was that Nite, as President
of Bancapital Development Corporation (Bancap), violated Section 19 of BP Blg. 178 when
That on or about April 25, 1994, in the Municipality of Makati, Metro Manila, and within the Bancap sold ₱250 million worth of treasury bills to Bank of Commerce (Bancom) without being
jurisdiction of the Honorable Court, the above-named accused, doing business under the name registered as broker, dealer, or salesman of securities. In Criminal Case No. 94-5268, the
and style of Bancapital Development Corporation (Bancap) did then and there, willfully and prosecution alleged that Nite defrauded Bancom by falsely pretending to posses and own ₱250
feloniously engage in the business of selling securities, particularly treasury bills (T-bills) with Bank million worth of treasury bills that Bancap supposedly sold to Bancom when none of the treasury
of Commerce (Bancom) in the amount of ₱250 Million without having been registered as a broker, bills described in the Confirmation of Sale and Letter of Undertaking issued by Bancap were ever
dealer or salesman with the Securities and Exchange Commission, in violation of said law. delivered to Bancom. The prosecution alleged that Bancom paid Bancap the amount of
₱243,215,972.52 as payment for the treasury bills but Bancap only delivered substitute bills in the
CONTRARY TO LAW.6 amount of ₱88 million.

The case docketed as Criminal Case No. 94-5267. The Ruling of the Trial Court

Nite was also charged, together with Bradley, Escalambre, and Eugene Yang (Yang), with Estafa In a Decision dated 6 December 2002,8 the trial court ruled as follows:
in an Information that reads:
WHEREFORE, the foregoing considered, accused MARILYN NITE is hereby ACQUITTED of the SO ORDERED."
charge of violating Sec. 19 of Batas Pambansa Bilang 178 under Criminal Case No. 94-5267 and
likewise acquitted of the charge of Estafa under Criminal Case No. 94-5268. SO ORDERED.10

She, however, is hereby ordered to pay BANK OF COMMERCE the amount of Php162 million, It was the prosecution’s turn to file a motion for reconsideration, alleging that the trial court erred in
representing the civil obligation of BANCAPITAL. absolving Nite of her civil liability to Bancom. The prosecution alleged that the trial court erred in
not piercing the corporate veil of Bancap when it was adequately shown that Nite used the
Let, therefore, the cash bond of accused Nite be released to her by the Office of the Clerk of Court company to perpetuate fraud and to evade an existing obligation.
RTC, Makati City, upon surrender of the original official receipt.
In its Omnibus Order dated 5 January 2004, the trial court denied the motion for lack or merit.
SO ORDERED.9
Bancom sought relief from the Court of Appeals in CA-G.R. CV No. 81500.
The trial court ruled that in Criminal Case No. 94-5267, the prosecution was not able to establish
that Bancap acted as a primary dealer that needed to be accredited. According to the trial court, The Ruling of the Court of Appeals
Bancap acted as a secondary dealer and did not buy the treasury bills directly from the Central
Bank. In Criminal Case No. 9405268, the trial court ruled that the element of deceit was non-
In its 22 November 2013 Decision, the Court of Appeals affirmed the trial court’s Order dated 4
existent and that at the time of the transaction, Bancom was aware that Bancap was not in
April 2003 and Omnibus Order dated 5 January 2004.
physical possession of the treasury bills subject of the sale.

The Court of Appeals ruled that Bancom wanted to impose the civil liability of Bancap on Nite
However, the trial court ruled that Nite, being a responsible officer of Bancap, was civilly liable to
when the claim for the contractual obligation should have been against Bancap itself. The Court of
Bancom in the amount of ₱162 million which represented the treasury bills that Bancap undertook
Appeals agreed with the trial court that Bancap was only a secondary dealer and as such, there
to deliver to Bancom since only ₱88 million worth substitute treasury bills had been delivered to
and accepted by Bancom. was no need for it to secure the license required for primary dealers under BP Blg. 178. The
Courth of Appeals further ruled that the transaction between Bancom and Bancap was not
patently unlawful. The Court of Appeals ruled that Bancom was aware of the risks it was taking
Nite filed a partial motion for reconsideration. when it entered into a contract with Bancap and agreed for the delivery of the treasury bills at a
future particular time.
In the assailed 4 April 2003 Order, the trial court granted the partial motion for reconsideration, in
resolving the motion, the trial court ruled that Bancap’s charter allowed it to engage in the buying The Court of Appeals ruled that it could not automatically make Bancap’s contractual obligation as
and selling of government securities as part of its secondary purpose. The trial court added that the contractual obligation of Nite. Further, the doctrine of piercing the veil of corporate fiction
even if the buying and selling of securities were outside the scope of Bancap’s primary purpose, imposed the burden of the corporatio’s obligations on its erring officers and shareholders. In this
the acts could only be considered as ultra vires and not illegal. The trial court could not disregard case, none of Bancap’s offer officers, and not even the corporation itself, were impleaded, and
the rule on separate corporate identity absent any evidence that Bancap was used as a tool to thus, the Court of Appeals could not make a complete determination of the corporation’s liability.
commit fraud, injustice, or crime against Bancom. The dispositive portion of the Order reads: According to the Court of Appeals, the remedy of Bancom was to file a civil action impleading all
the parties to the contract.
WHEREFORE, premises considered, the Motion for Partial Reconsideration is hereby GRANTED.
The DECISION dated December 6, 2002 insofar as the civil aspect of the case is concerned The dispositive portion of the Decision reads:
finding accused Nite civilly liable to BANCOM in the amount of Php162 million, representing the
treasury bills BANCAP failed to deliver to BANCOM is hereby set aside. Accordingly, the
dispositive portion of the said decision shall now read as follows: WHEREFORE, premises considered, the assailed Order of the Regional Trial Court of Makati City,
Branch 150 dated 4 April 2003, and its subsequent Omnibus dated 5 January 2004 are hereby
AFFIRMED IN TOTO.
"WHEREFORE, the foregoing considered, accused MARILYN NITE is hereby acquitted of the
charge of violating Sec. 19 of Batas Pambansa Bilang 178 under Criminal Case No. 9405267 and
SO ORDERED.11
likewise acquitted of the charge of Estafa under Criminal Case No. 94-5268.

Bancom filed a motion for reconsideration. In its Resolution promulgated on 28 February 2014, the
Let, therefore, the cash bond of accused Nite be release to her by the Office of the Clerk of Court,
Court of Appeals denied the motion for lack of merit.
RTC, Makati,upon surrender of the original official receipt.
Hence, Bancom filed a petition for review before this Court. Bancom alleges that his case falls under the exception to the general rule and that Nite should be
held personally liable for Bancap’s obligation. Bancom alleges that Nite signed the Confirmation of
The Issues Sale knowing that Bancap did not have the treasury bills, and thus, sale was illegal.

Bancom raises the following issues before this Court: Bancom’s arguments have no merit.

I. The Court of Appeals gravely erred in ruling that the civil liability was only attributable to To hold a director or officer personally liable for corporate obligations, two requisites must concur:
Bancap and not to respondent Nite despite the latter’s active participation in the (1) complainant must allege in the complaint that the director or officer assented to patently
commission of patently unlawful acts against petitioner Bancom. unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and
(2) complaint must clearly and convincingly prove such unlawful acts, negligence or bad faith. 15 To
hold a director personally liable for debts of the corporation, and thus pierce the veil of corporate
II. The Court of Appeals erred in not piercing the corporate veil of Bancap even though fiction, the bad faith or wrongdoing of the director must be established clearly and convincingly.16
the same was being used to perpetuate fraud.
It is settled that the transaction between Bancom and Bancap is an ordinary sale. We give weight
The Ruling of this Court
to the finding of both the trial court and the Court of Appeals that Bancap’s liability arose from its
contractual obligation to Bancom. The trial court and the Court of Appeals found that Bancom and
We deny the petition. Bancap had been dealing with each other as seller and buyer of treasury bills from December
1992 until the transaction subject of this case on 25 April 1994, which was no different from their
Nite was acquitted by the trial court of violation of Section 19 of BP Blg. 178 and estafa. Hence, previous transactions. Nite, as Bancap’s President, cannot be held personally liable for Bancap’s
the only issue here is Nite’s civil liability after her acquittal. obligation unless it can be shown that she acted fraudulently. However, the issue of fraud had
been resolved with finality when the trial court acquitted Nite of estafa on the ground that the
Bancom asserts that the Court of Appeals erred in ruling that the civil liability it is claiming pertains element of deceit is non-existent in the case. The acquittal had long become final and the finding
to Bancap’s and not to Nite’s. Bancom cited Section 31 of the Corporation Code which provides: is conclusive on this Court. The prosecution failed to show that Nite acted in bad faith. It is no
longer open for review. Nite’s act of signing the Confirmation of Sale, by itself, does not make the
corporate liability her personal liability.
Section 31. Liability of directors, trustees or officers. – Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the corporation or acquire any personal or In addition, we consider the testimony of Lagrimas Nuqui, the Legal Officer in Charge of the
pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and Government Securities Department of the Bangko Sentral ng Pilipinas from 1994 to 1998, who
severally for all damages resulting therefrom suffered by the corporation, its stockholders or explained that primary issues of treasury bills are supposed to be issued only to accredited
members and other persons. dealers but these accredited banks can sell to anyone who need not be accredited, and such
buyers, who may be corporations or individuals, are classified as the secondary market. The trial
court and the Court of Appeals found that Bancap sold the treasury bills as a secondary
Bancom insists that while the question raised is one of fact, the factual findings of the lower court, dealer.17 As such, Bancap’s act of selling securities to Bancom is at most ultra vires and not
sustained by the Court of Appeals, are based on a misapprehension of facts. Bancom alleges that patently unlawful.
since Nite actively participated in the commission of a patently unlawful act, she is personally
liable to Bancom for the amount of treasury bills undelivered by Bancap.
Base on the foregoing, we cannot hold Nite Personally liable for Bancap’s corporate liability.
We do not agree.
WHEREFORE, we DENY the petition.
The general rule is that a corporation is invested by law with a personality separate and distinct
from that of the persons composing it, or from any other legal entity that it may be related to. 12 The SO ORDERED.
obligations of a corporation, acting through its directors, officers, and employees, are its own sole
liabilities.13 Therefore, the corporation’s directors, officers, or employees are generally not
personally liable for the obligations of the corporation.14
FIRST DIVISION For the 2004 elections, the COMELEC again attempted to implement the automated election
system. For this purpose, it invited bidders to apply for the procurement of supplies, equipment,
June 27, 2016 and services. Respondent MPEI, as lead company, purportedly formed a joint venture - known as
the Mega Pacific Consortium (MPC) - together with We Solv, SK C & C, ePLDT, Election.com and
Oracle. Subsequently, MPEI, on behalf of MPC, submitted its bid proposal to COMELEC.
G.R. No. 184666

The COMELEC evaluated various bid offers and subsequently found MPC and another company
REPUBLIC OF THE PHILIPPINES, Petitioner,
eligible to participate in the next phase of the bidding process. 4 The two companies were referred
vs.
to the Department of Science and Technology (DOST) for technical evaluation. After due
MEGA PACIFIC Esolutions, INC., WILLY U. YU, BONNIE S. YU, ENRIQUE T. TANSIPEK,
assessment, the Bids and Awards Committee (BAC) recommended that the project be awarded to
ROSITA Y. TANSIPEK, PEDRO O. TAN, JOHNSON W. FONG, BERNARD I. FONG,
MPC. The COMELEC favorably acted on the recommendation and issued Resolution No. 6074,
and *LAURIANO A. BARRIOS, Respondents.
which awarded the automation project to MPC.

DECISION
Despite the award to MPC, the COMELEC and MPEI executed on 2 June 2003 the Automated
Counting and Canvassing Project Contract (automation contract)5 for the aggregate amount of
SERENO, CJ.: ₱l,248,949,088. MPEI agreed to supply and deliver 1,991 units of ACMs and such other
equipment and materials necessary for the computerized electoral system in the 2004 elections.
The instant case is an offshoot of this Court's Decision dated 13 January 2004 (2004 Decision) in Pursuant to the automation contract, MPEI delivered 1,991 ACMs to the COMELEC. The latter, for
a related case entitled Information Technology Foundation of the Philippines v. Commission on its part, made partial payments to MPEI in the aggregate amount of ₱l.05 billion.
Elections .1
The full implementation of the automation contract was rendered impossible by the fact that, after
In the 2004 case, We declared void the automation contract executed by respondent Mega Pacific a painstaking legal battle, this Court in its 2004 Decision declared the contract null and void.6 We
eSolutions, Inc. (MPEI) and the Commission on Elections (COMELEC) for the supply of held that the COMELEC committed a clear violation of law and jurisprudence, as well as a
automated counting machines (ACMs) for the 2004 national elections. reckless disregard of its own bidding rules and procedure. In addition, the COMELEC entered into
the contract with inexplicable haste, and without adequately checking and observing mandatory
The present case involves the attempt of petitioner Republic of the Philippines to cause the financial, technical, and legal requirements. In a subsequent Resolution, We summarized the
attachment of the properties owned by respondent MPEI, as well as by its incorporators and COMELEC's grave abuse of discretion as having consisted of the following: 7
stockholders (individual respondents in this case), in order to secure petitioner's interest and to
ensure recovery of the payments it made to respondents for the invalidated automation contract. 1. By a formal Resolution, it awarded the project to "Mega Pacific Consortium," an entity that
had not participated in the bidding. Despite this grant, Comelec entered into the actual Contract
At bench is a Rule 45 Petition assailing the Amended Decision dated 22 September 2008 with "Mega Pacific eSolutions, Inc." (MPEI), a company that joined the bidding process but
(Amended Decision) issued by the Court of Appeals (CA) in CA-G.R. SP No. 95988.2 In said did not meet the eligibility requirements.
Amended Decision, the CA directed the remand of the case to the Regional Trial Court of Makati
City, Branch 59 (RTC Makati) for the reception of evidence in relation to petitioner's application for 2. Comelec accepted and irregularly paid for MPEI's ACMs that had failed the accuracy
the issuance of a writ of preliminary attachment. The CA had reconsidered and set aside its requirement of 99.9995 percent set up by the Comelec bidding rules. Acknowledging that this
previous Decision dated 31 January 2008 (First Decision)3 entitling petitioner to the issuance of rating could have been too steep, the Court nonetheless noted that "the essence of public bidding
said writ. is violated by the practice of requiring very high standards or unrealistic specifications that cannot
be met, x x x only to water them down after the award is made. Such scheme, which
Summarized below are the relevant facts of the case, some of which have already been discussed discourages the entry of bona fide bidders, is in fact a sure indication of fraud in the
in this Court's 2004 Decision: bidding, designed to eliminate fair competition."

THE FACTS 3. The software program of the counting machines likewise failed to detect previously downloaded
precinct results and to prevent them from being reentered. This failure, which has not been
corrected x x x, would have allowed unscrupulous persons to repeatedly feed into the computers
Republic Act No. 8436 authorized the COMELEC to use an automated election system for the the results favorable to a particular candidate, an act that would have translated into massive
May 1998 elections. However, the automated system failed to materialize and votes were election fraud by just a few key strokes.
canvassed manually during the 1998 and the 2001 elections.
4. Neither were the ACMs able to print audit trails without loss of data - a Private respondents in the 2004 case moved for reconsideration of the 2004 Decision. Aside from
reiterating the procedural and substantive arguments they had raised, they also argued that the
mandatory requirement under Section 7 of Republic Act No. 8436. Audit trails would enable the 2004 Decision had exposed them to possible criminal prosecution. 13
Comelec to document the identities of the ACM operators responsible for data entry and
downloading, as well as the times when the various data were processed, in order to forestall This Court denied the motion in its 2004 Resolution and ruled that no prejudgment had been made
fraud and to identify the perpetrators. The absence of audit trails would have posed a serious on private respondents' criminal liability. We further ruled that although the 2004 Decision stated
threat to free and credible elections. that the Ombudsman shall "determine the criminal liability, if any, of the public officials (and
conspiring private individuals, if any) involved in the subject Resolution and Contract," We did not
5. Comelec failed to explain satisfactorily why it had ignored its own bidding rules and make any premature conclusion on any wrongdoing, but precisely directed the Ombudsman to
requirements. It admitted that the software program used to test the ACMs was merely a "demo" make that determination after conducting appropriate proceedings and observing due process.
version, and that the final one to be actually used in the elections was still being developed. By
awarding the Contract and irregularly paying for the supply of the ACMs without having seen -- Similarly, it appears from the record that several criminal and administrative Complaints had
much less, evaluated -- the final product being purchased, Comelec desecrated the law on public indeed been filed with the Ombudsman in relation to the declaration of nullity of the automation
bidding. It would have allowed the winner to alter its bid substantially, without any public bidding. contract. 14 The Complaints were filed against several public officials and the individual
respondents in this case. 15
All in all, Comelec subverted the essence of public bidding: to give the public an opportunity for
fair competition and a clear basis for a precise comparison of bids.8 (Emphasis supplied) In a Resolution issued on 28 June 2006, 16 the Ombudsman recommended the filing of
informations before the Sandiganbayan against some of the public officials and the individual
As a consequence of the nullification of the automation contract, We directed the Office of the respondents17 for violation of Section 3(e) of Republic Act No. 3019 (the Anti-Graft and Corrupt
Ombudsman to determine the possible criminal liability of persons responsible for the Practices Act). However, on 27 September 2006, 18 upon reconsideration, the Ombudsman
contract.9 This Court likewise directed the Office of the Solicitor General to protect the government reversed its earlier ruling in a Supplemental Resolution (September Resolution), directing the
from the ill effects of the illegal disbursement of public funds in relation to the automation dismissal of the criminal cases against the public officials, as well as the individual respondents,
contract. 10 for lack of probable cause. 19

After the declaration of nullity of the automation contract, the following incidents transpired: With this development, a Petition for Certiorari was filed with this Court on 13 October 2006 and
docketed as G.R. No. 174777.20 In the Petition, several individuals21 assailed the September
Resolution of the Ombudsman finding no probable cause to hold respondents criminally liable.
1. Private respondents in the 2004 case moved for reconsideration of the 2004 Decision, but the The case remains pending with this Court as of this date.
motion was denied by this Court in a Resolution dated 17 February 2004 (2004 Resolution). 11
COMELEC's Motion for Leave to
2. The COMELEC filed a "Most Respectful Motion for Leave to Use the Automated Counting Use ACMs in the ARMM Elections
Machines in the Custody of the Commission on Elections for use in the 8 August 2005 Elections in
the Autonomous Region for Muslim Mindanao" dated 9 December 2004 (Motion for Leave to Use
ACMs), which was denied by this Court in its Resolution dated 15 June 2005 (2005 Resolution). The COMELEC filed a motion with this Court requesting permission to use the 1,991 ACMs
previously delivered by respondent MPEI, for the ARMM elections, then slated to be held on 8
August 2005. In its motion, the COMELEC claimed that automation of the ARMM elections was
3. Atty. Romulo B. Macalintal (Macalintal) filed an "Omnibus Motion for Leave of Court (1) to
mandated by Republic Act No. 9333, and since the government had no available funds to finance
Reopen the Case; and (2) to Intervene and Admit the Attached Petition in Intervention," which was the automation of those elections, the ACMs could be utilized for the 2005 elections.
denied by this Court in its Resolution dated 22 August 2006 (2006 Resolution); and
This Court denied the Motion in Our 2005 Resolution. We ruled that allowing the use of the ACMs
4. Respondent MPEI filed a Complaint for Damages12 (Complaint) with the RTC Makati, from
would have the effect of illegally reversing and subverting a final decision We had promulgated.
which the instant case arose.
We further ruled that the COMELEC was asking for permission to do what it had precisely been
prohibited from doing under the 2004 Decision. This Court also ruled that the grant of the motion
The above-mentioned incidents are discussed in more detail below. would bar or jeopardize the recovery of government funds paid to respondents. Considering that
the COMELEC did not present any evidence to prove that the defects had been addressed, We
BACKGROUND PROCEEDINGS held that the use of the ACMs and the software would expose the ARMM elections to the same
electoral ills pointed out in the 2004 Decision.
Private respondents' Motion for Reconsideration
Atty. Macalintal's Omnibus Motion Upon the finality of the declaration of nullity of the automation contract, respondent MPEI filed a
Complaint for Damages before the RTC Makati, arguing that, notwithstanding the nullification of
Atty. Romulo Macalintal sought to reopen the 2004 case in order that he may be allowed to the automation contract, the COMELEC was still bound to pay the amount of ₱200,165,681.89.
intervene as a taxpayer and citizen. His purpose for intervening was to seek another testing of the This amount represented the difference between the value of the ACMs and the support services
ACMs with the ultimate objective of allowing the COMELEC to use them, this time for the 2007 delivered on one hand, and on the other, the payment previously made by the COMELEC.23
national elections.
Petitioner filed its Answer with Counterclaim24 and argued that respondent MPEI could no longer
This Court denied his motion in Our 2006 Resolution, ruling that Atty. Macalintal failed to recover the unpaid balance from the void automation contract, since the payments made were
demonstrate that certain supervening events and legal circumstances had transpired to justify the illegal disbursements of public funds. It contended that a null and void contract vests no rights and
reliefs sought. We in fact found that, after Our determination that the ACMs had failed to pass creates no obligations, and thus produces no legal effect at all. Petitioner further posited that
legally mandated technical requirements in 2004, they were simply put in storage. The ACMs had respondent MPEI could not hinge its claim upon the principles of unjust enrichment and quasi-
remained idle and unused since the last evaluation, at which they failed to hurdle crucial tests. contract, because such presume that the acts by which the authors thereof become obligated to
Consequently, We ruled that if the ACMs were not good enough for the 2004 national elections or each other are lawful, which was not the case herein.25
the 2005 ARMM elections, then neither would they be good enough for the 2007 national
elections, considering that nothing was done to correct the flaws that had been previously By way of a counterclaim, petitioner demanded from respondents the return of the payments
underscored in the 2004 Decision. We held that granting the motion would be tantamount to made pursuant to the automation contract.26 It argued that individual respondents, being the
rendering the 2004 Decision totally ineffective and nugatory. incorporators of MPEI, likewise ought to be impleaded and held accountable for MPEI's liabilities.
The creation of MPC was, after all, merely an ingenious scheme to feign eligibility to bid. 27
Moreover, because of our categorical ruling that the whole bidding process was void
and fraudulent, the proposal to use the illegally procured, demonstratively defective, and fraud- Pursuant to Section l(d) of Rule 57 of the Rules of Court, petitioner prayed for the issuance of a
prone ACMs was rendered nonsensical. Thus: writ of preliminary attachment against the properties of MPEI and individual respondents. The
application was grounded upon the fraudulent misrepresentation of respondents as to their
We stress once again that the Contract entered into by the Comelec for the supply of the ACMs eligibility to participate in the bidding for the COMELEC automation project and the failure of the
was declared VOID by the Court in its Decision, because of clear violations of law and ACMs to comply with mandatory technical requirements.28
jurisprudence, as well as the reckless disregard by the Commission of its own bidding rules and
procedure. In addition, the poll body entered into the Contract with inexplicable haste, without Subsequently, the trial court denied the prayer for the issuance of a writ of preliminary
adequately checking and observing mandatory financial, technical and legal requirements. As attachment, 29 ruling that there was an absence of factual allegations as to how the fraud was
explained in our Decision, Comclec's gravely abusive acts consisted of the following: actually committed.

xxxx The allegations of petitioner were found to be unreliable, as the latter merely copied from the
declarations of the Supreme Court in Information Technology Foundation of the Phils. v.
To muddle the issue, Comelec keeps on saying that the "winning" bidder presented a lower COMELEC the factual allegations of MPEI's lack of qualification and noncompliance with bidding
price than the only other bidder. It ignored the fact that the whole bidding process was requirements. The trial court further ruled that the allegations of fraud on the part of MPEI were not
VOID and FRAUDULENT. How then could there have been a "winning" bid? 22 (Emphasis supported by the COMELEC, the office in charge of conducting the bidding for the election
supplied) automation contract. It was likewise held that there was no evidence that respondents harbored a
preconceived plan not to comply with the obligation; neither was there any evidence that MPEI's
corporate fiction was used to perpetrate fraud. Thus, it found no sufficient basis to pierce the veil
THE INSTANT CASE
of corporate fiction or to cause the attachment of the properties owned by individual respondents.

Complaint for Damages filed by


Petitioner moved to set aside the trial court's Order denying the writ of attachment, 30 but its motion
respondents with the RTC Makati
was denied.31
and petitioner's Answer with
Counterclaim, with an application
for a writ of preliminary attachment, Appeal before the CA and the First
from which the instant case arose Decision

Aggrieved, petitioner filed an appeal with the CA, arguing that the trial court had acted with grave
abuse of discretion in denying the application for a writ of attachment.
As mentioned earlier, the CA in its First Decision32 reversed and set aside the trial court's Orders contract with respondent MPEI, the company that joined the bidding without meeting the eligibility
and ruled that there was sufficient basis for the issuance of a writ of attachment in favor of requirement.44
petitioner.
Rule 45 Petition before Us
The appellate court explained that the averments of petitioner in support of the latter's application
actually reflected pertinent conclusions reached by this Court in its 2004 Decision. It held that the Consequently, petitioner filed the instant Rule 45 Petition,45 arguing that the CA erred in ordering
trial court erred in disregarding the following findings of fact, which remained unaltered and the remand of the case to the trial court for the reception of evidence to determine the presence of
unreversed: (1) COMELEC bidding rules provided that the eligibility and capacity of a bidder may fraud. Petitioner contends that this Court's 2004 Decision was sufficient proof of the fraud
be proved through financial documents including, among others, audited financial statements for committed by respondents in the execution of the voided automation contract. 46 Respondents
the last three years; (2) MPEI was incorporated only on 27 February 2003, or 11 days prior to the allegedly committed fraud by securing the automation contract, although MPEI was not qualified to
bidding itself; (3) in an attempt to disguise its ineligibility, MPEI participated in the bidding as lead bid in the first place.47 Their claim that the members of MPC bound themselves to the automation
company of MPC, a putative consortium, and submitted the incorporation papers and financial contract was an indication of bad faith as the contract was executed by MPEI alone. 48 Neither
statements of the members of the consortium; and (4) no proof of the joint venture agreement, could they deny that the software submitted during the bidding process was not the same one that
consortium agreement, memorandum of agreement, or business plan executed among the would be used on election day.49 They could not dissociate themselves from telltale signs such as
members of the purported consortium was ever submitted to the COMELEC.33 purportedly supplying software that later turned out to be non-existent. 50

According to the CA, the foregoing were glaring indicia or badges of fraud, which entitled petitioner In their respective Comments, respondents Willy Yu, Bonnie Yu, Enrique Tansipek, and Rosita
to the issuance of the writ. It further ruled that there was sufficient reason to pierce the corporate Tansipek counter51that this Court never ruled that individual respondents were guilty of any fraud
veil of MPEI. Thus, the CA allowed the attachment of the properties belonging to both MPEI and or bad faith in connection with the automation contract, and that it was incumbent upon petitioner
individual respondents.34 The CA likewise ruled that even if the COMELEC committed grave to present evidence on the allegations of fraud to justify the issuance of the writ. 52 They likewise
abuse of discretion in capriciously disregarding the rules on public bidding, this should not argue that the 2004 Decision cannot be invoked against them, since petitioner and MPEI were co-
preclude or deter petitioner from pursuing its claim against respondents. After all, the State is not respondents in the 2004 case and not adverse parties therein. 53Respondents further contend that
estopped by the mistake of its officers and employees.35 the allegations of fraud are belied by their actual delivery of 1,991 units of ACMs to the
COMELEC, which they claim is proof that they never had any intention to evade performance. 54
Respondents moved for reconsideration36 of the First Decision of the CA.
They further allege that this Court, in its 2004 Decision, even recognized that it had not found any
Motion for Reconsideration before wrongdoing on their part, and that the Ombudsman had already made a determination that no
the CA and the Amended Decision probable cause existed with respect to charges of violation of Anti-Graft and Corrupt Practices
Act.55
Upon review, the CA reconsidered its First Decision37 and directed the remand of the case to the
RTC Makati for the reception of evidence of allegations of fraud and to determine whether Echoing the other respondents' arguments on the lack of particularity in the allegations of
attachment should necessarily issue.38 fraud, 56 respondents MPEI, Johnson Wong, Bernard Fong, Pedro Tan, and Lauriano Barrios
likewise argue that they were not parties to the 2004 case; thus, the 2004 Decision thereon is not
The CA explained in its Amended Decision that respondents could not be considered to have binding on them.57 Individual respondents likewise argue that the findings of fact in the 2004
fostered a fraudulent intent to dishonor their obligation, since they had delivered 1,991 units of Decision were not conclusive,58 considering that eight (8) of the fifteen (15) justices allegedly
ACMs.39 It directed petitioner to present proof of respondents' intent to defraud COMELEC during refused to go along with the factual findings as stated in the majority opinion.59 Thereafter,
the execution of the automation contract.40 The CA likewise emphasized that the Joint Affidavit petitioner filed its Reply to the Comments.60
submitted in support of petitioner's application for the writ contained allegations that needed to be
substantiated.41 It added that proof must likewise be adduced to verify the requisite fraud that Based on the submissions of both parties, the following issues are presented to this Court for
would justify the piercing of the corporate veil of respondent MPEI.42 resolution:

The CA further clarified that the 2004 Decision did not make a definite finding as to the identities of 1. Whether petitioner has sufficiently established fraud on the part of respondents to
the persons responsible for the illegal disbursement or of those who participated in the fraudulent justify the issuance of a writ of preliminary attachment in its favor; and
dealings.43 It instructed the trial court to consider, in its determination of whether the writ of
attachment should issue, the illegal, imprudent and hasty acts in awarding the automation contract 2. Whether a writ of preliminary attachment may be issued against the properties of
by the COMELEC. In particular, these acts consisted of: (1) awarding the automation contract to individual respondents, considering that they were not parties to the 2004 case.
MPC, an entity that did not participate in the bidding; and (2) signing the actual automation
THE COURT'S RULING attachment is available in order that the defendant may not dispose of the property attached, and
thus prevent the satisfaction of any judgment that may be secured by the plaintiff from the
The Petition is meritorious. A writ of preliminary attachment should issue in favor of petitioner over former. 62
the properties of respondents MPEI, Willy Yu (Willy) and the remaining individual respondents,
namely: Bonnie S. Yu (Bonnie), Enrique T. Tansipek (Enrique), Rosita Y. Tansipek (Rosita), Pedro The purpose and function of an attachment or garnishment is twofold. First, it seizes upon property
O. Tan (Pedro), Johnson W. Fong (Johnson), Bernard I. Fong (Bernard), and Lauriano Barrios of an alleged debtor in advance of final judgment and holds it subject to appropriation, thereby
(Lauriano). The bases for the writ are the following: preventing the loss or dissipation of the property through fraud or other means. Second, it subjects
the property of the debtor to the payment of a creditor's claim, in those cases in which personal
1. Fraud on the part of respondent MPEI was sufficiently established by the factual service upon the debtor cannot be obtained.63 This remedy is meant to secure a contingent lien on
findings of this Court in its 2004 Decision and subsequent pronouncements. the defendant's property until the plaintiff can, by appropriate proceedings, obtain a judgment and
have the property applied to its satisfaction, or to make some provision for unsecured debts in
cases in which the means of satisfaction thereof are liable to be removed beyond the jurisdiction,
2. A writ of preliminary attachment may issue over the properties of the individual or improperly disposed of or concealed, or otherwise placed beyond the reach of creditors. 64
respondents using the doctrine of piercing the corporate veil.

Petitioner relied upon Section l (d), Rule 57 of the Rules of Court as basis for its application for a
3. The factual findings of this Court that have become final cannot be modified or altered, writ of preliminary attachment. This provision states:
much less reversed, and are controlling in the instant case.
Section 1. Grounds upon which attachment may issue. At the commencement of the action or at
4. The delivery of 1,991 units of ACMs does not negate fraud on the part of respondents
any time before entry of judgment, a plaintiff or any proper party may have the property of the
MPEI and Willy.
adverse party attached as security for the satisfaction of any judgment that may be recovered in
the following cases:
5. Estoppel does not lie against the state when it acts to rectify mistakes, errors or illegal
acts of its officials and agents. xxxx

6. The findings of the Ombudsman are not controlling in the instant case.
(d) In an action against a party who has been guilty of a fraud in contracting the debt or
incurring the obligation upon which the action is brought or in the performance thereof.
DISCUSSION (Emphasis supplied)

I. For a writ of preliminary attachment to issue under the above-quoted rule, the applicant must
sufficiently show the factual circumstances of the alleged fraud. 65 In Metro, Inc. v. Lara's Gift and
Fraud on the part of respondent MPEI was sufficiently established by the factual findings of Decors, Inc., 66We explained:
this Court in the latter's 2004 Decision and subsequent pronouncements.
To sustain an attachment on this ground, it must be shown that the debtor in contracting the debt
Petitioner argues that the findings of this Court in the 2004 Decision serve as sufficient basis to or incurring the obligation intended to defraud the creditor. The fraud must relate to the
prove that, at the time of the execution of the automation contract, there was fraud on the part of execution of the agreement and must have been the reason which induced the other party
respondents that justified the issuance of a writ of attachment. Respondents, however, argue the into giving consent which he would not have otherwise given. To constitute a ground for
contrary. They claim that fraud had not been sufficiently established by petitioner. attachment in Section 1 (d), Rule 57 of the Rules of Court, fraud should be committed upon
contracting the obligation sued upon. A debt is fraudulently contracted if at the time of contracting
We rule in favor of petitioner. Fraud on the part of respondents MPEI and Willy, as well as of the it the debtor has a preconceived plan or intention not to pay, as it is in this case. x x x.
other individual respondents - Bonnie, Enrique, Rosita, Pedro, Johnson, Bernard, and Lauriano -
has been established. The applicant for a writ of preliminary attachment must sufficiently show the factual circumstances
of the alleged fraud because fraudulent intent cannot be inferred from the debtor's mere non-
A writ of preliminary attachment is a provisional remedy issued upon the order of the court where payment of the debt or failure to comply with his obligation. (Emphasis supplied)
an action is pending.1âwphi1 Through the writ, the property or properties of the defendant may be
levied upon and held thereafter by the sheriff as security for the satisfaction of whatever judgment
might be secured by the attaching creditor against the defendant.61 The provisional remedy of
An amendment to the Rules of Court added the phrase "in the performance thereof' to include and on behalf of MPC. They also call attention to the official receipt issued to MPC,
within the scope of the grounds for issuance of a writ of preliminary attachment those instances acknowledging payment for the bidding documents, as proof that it was the "consortium" that
relating to fraud in the performance of the obligation.67 participated in the bidding process.

Fraud is a generic term that is used in various senses and assumes so many different degrees We do not agree. The March 7, 2003 letter, signed by only one signatory - "Willy U. Yu, President,
and forms that courts are compelled to content themselves with comparatively few general rules Mega Pacific eSolutions, Inc., (Lead Company/Proponent) For: Mega Pacific Consortium" - and
for its discovery and defeat. For the same reason, the facts and circumstances peculiar to each without any further proof, does not by itself prove the existence of the consortium. It does not
case are allowed to bear heavily on the conscience and judgment of the court or jury in show that MPEI or its president have been duly pre-authorized by the other members of the
determining the presence or absence of fraud. In fact, the fertility of man's invention in devising putative consortium to represent them, to bid on their collective behalf and, more important, to
new schemes of fraud is so great that courts have always declined to define it, thus, reserving for commit them jointly and severally to the bid undertakings. The letter is purely self-serving and
themselves the liberty to deal with it in whatever form it may present itself.68 uncorroborated.

Fraud may be characterized as the voluntary execution of a wrongful act or a wilful omission, while Neither does an official receipt issued to MPC, acknowledging payment for the bidding
knowing and intending the effects that naturally and necessarily arise from that act or documents, constitute proof that it was the purported consortium that participated in the bidding.
omission.69 In its general sense, fraud is deemed to comprise anything calculated to deceive- Such receipts are issued by cashiers without any legally sufficient inquiry as to the real identity or
including all acts and omission and concealment involving a breach of legal or equitable duty, existence of the supposed payor.
trust, or confidence justly reposed-resulting in damage to or in undue advantage over
another.70 Fraud is also described as embracing all multifarious means that human ingenuity can To assure itself properly of the due existence (as well as eligibility and qualification) of the putative
device, and is resorted to for the purpose of securing an advantage over another by false consortium, Comelec's BAC should have examined the bidding documents submitted on behalf of
suggestions or by suppression of truth; and it includes all surprise, trick, cunning, dissembling, and MPC. They would have easily discovered the following fatal flaws.
any other unfair way by which another is cheated.71
xxxx
While fraud cannot be presumed, it need not be proved by direct evidence and can well be
inferred from attendant circumstances.72 Fraud by its nature is not a thing susceptible of ocular
The Eligibility Envelope was to contain legal documents such as articles of incorporation, x x x to
observation or readily demonstrable physically; it must of necessity be proved in many cases by
establish the bidder's financial capacity.
inferences from circumstances shown to have been involved in the transaction in question. 73

In the case at bar, petitioner has sufficiently discharged the burden of demonstrating the In the case of a consortium or joint venture desirous of participating in the bidding, it goes without
commission of fraud by respondent MPEI in the execution of the automation contract in the two saying that the Eligibility Envelope would necessarily have to include a copy of the joint venture
ways that were enumerated earlier and discussed below: agreement, the consortium agreement or memorandum of agreement -- or a business plan or
some other instrument of similar import -- establishing the due existence, composition and scope
of such aggrupation. Otherwise, how would Comelec know who it was dealing with, and whether
A. Respondent MPEI had perpetrated a these parties are qualified and capable of delivering the products and services being offered for
scheme against petitioner to secure the bidding?
automation contract by using MPC as
supposed bidder and eventually succeeding
in signing the automation contract as In the instant case, no such instrument was submitted to Comelec during the bidding
process. x x x
MPEI alone, an entity which was ineligible
to hid in the first place.
xxxx
To avoid any confusion relevant to the basis of fraud, We quote herein the pertinent portions of
this Court's 2004 Decision with regard to the identity, existence, and eligibility of MPC as bidder:74 However, there is no sign whatsoever of any joint venture agreement, consortium
agreement, memorandum of agreement, or business plan executed among the members of
the purported consortium.
On the question of the identity and the existence of the real bidder, respondents insist that,
contrary to petitioners' allegations, the bidder was not Mega Pacific eSolutions. Inc. (MPEI), which
was incorporated only on February 27, 2003, or 11 days prior to the bidding itself. Rather, The only logical conclusion is that no such agreement was ever submitted to the Comelec
the bidder was Mega Pacific Consortium (MPC), of which MPEI was but a part. As proof thereof, for its consideration, as part of the bidding process.
they point to the March 7, 2003 letter of intent to bid, signed by the president of MPEI allegedly for
It thus follows that, prior the award of the Contract, there was no documentary or other was eventually awarded, in gross violation of the former's own bidding rules and
basis for Comelec to conclude that a consortium had actually been formed amongst MPEI, procedures contained in its RFP. Therein lies Comelec's grave abuse of discretion.
SK C&C and WeSolv, along with Election.com and ePLDT. Neither was there anything to
indicate the exact relationships between and among these firms; their diverse roles, undertakings Sufficiency of the Four Agreements
and prestations, if any, relative to the prosecution of the project, the extent of their respective
investments (if any) in the supposed consortium or in the project; and the precise nature and
Instead of one multilateral agreement executed by, and effective and binding on, all the five
extent of their respective liabilities with respect to the contract being offered for bidding. And apart
"consortium members" -- as earlier claimed by Commissioner Tuason in open court -- it turns out
from the self-serving letter of March 7, 2003, there was not even any indication that MPEI was the
lead company duly authorized to act on behalf of the others. that what was actually executed were four (4) separate and distinct bilateral
Agreements. Obviously, Comelec was furnished copies of these Agreements only after the
bidding process had been terminated, as these were not included in the Eligibility
xxxx Documents. x x x

Hence, had the proponent MPEI been evaluated based solely on its own experience, xxxx
financial and operational track record or lack thereof, it would surely not have qualified and
would have been immediately considered ineligible to bid, as respondents readily admit.
At this point, it must be stressed most vigorously that the submission of the four bilateral
Agreements to Comelec after the end of the bidding process did nothing to eliminate the
xxxx grave abuse of discretion it had already committed on April 15, 2003.

At this juncture, one might ask: What, then, if there are four MOAs instead of one or none at all? Deficiencies Have Not Been "Cured"
Isn't it enough that there are these corporations coming together to carry out the automation
project? Isn't it
In any event, it is also claimed that the automation Contract awarded by Comelec incorporates all
documents executed by the "consortium" members, even if these documents are not referred to
true, as respondent aver, that nowhere in the RFP issued by Comelec is it required that the therein. x x x
members of the joint venture execute a single written agreement to prove the existence of a joint
venture. x x x
xxxx
xxxx
Thus, it is argued that whatever perceived deficiencies there were in the supplementary contracts -
- those entered into by MPEI and the other members of the "consortium" as regards their joint and
The problem is not that there are four agreements instead of only one.1âwphi1 The problem is several undertakings -- have been cured. Better still, such deficiencies have supposedly been
that Comelec never bothered to check. It never based its decision on documents or other proof prevented from arising as a result of the above-quoted provisions, from which it can be
that would concretely establish the existence of the claimed consortium or joint venture or immediately established that each of the members of MPC assumes the same joint and several
agglomeration. liability as the other members.

xxxx The foregoing argument is unpersuasive. First, the contract being referred to, entitled "The
Automated Counting and Canvassing Project Contract," is between Comelec and MPEI, not
True, copies of financial statements and incorporation papers of the alleged "consortium" the alleged consortium, MPC. To repeat, it is MPEI -- not MPC -that is a party to the
members were submitted. But these papers did not establish the existence of a consortium, as Contract. Nowhere in that Contract is there any mention of a consortium or joint venture, of
they could have been provided by the companies concerned for purposes other than to prove that members thereof, much less of joint and several liability. Supposedly executed sometime
they were part of a consortium or joint venture. in May 2003, the Contract bears a notarization date of June 30, 2003, and contains the
signature of Willy U. Yu signing as president of MPEI (not for and on behalf of MPC), along
xxxx with that of the Comelec chair. It provides in Section 3.2 that MPEI (not MPC) is to supply
the Equipment and perform the Services under the Contract, in accordance with the
appendices thereof; nothing whatsoever is said about any consortium or joint venture or
In brief, despite the absence of competent proof as to the existence and eligibility of the partnership.
alleged consortium (MPC), its capacity to deliver on the Contract, and the members' joint
and several liability therefor, Comelec nevertheless assumed that such consortium existed
and was eligible. It then went ahead and considered the bid of MPC, to which the Contract xxxx
Eligibility of a Consortium Based on the Collective respondent MPEI has defrauded petitioner, since the former still executed the automation contract
Qualifications of Its Members despite knowing that it was not qualified to bid for the same.

Respondents declare that, for purposes of assessing the eligibility of the bidder, the members of The established facts surrounding the eligibility, qualification and existence of MPC - and of MPEI
MPC should be evaluated on a collective basis. Therefore, they contend, the failure of MPEI to for that matter - and the subsequent execution of the automation contract with the latter, when all
submit financial statements (on account of its recent incorporation) should not by itself taken together, constitute badges of fraud that We simply cannot ignore. MPC was considered an
disqualify MPC, since the other members of the "consortium" could meet the criteria set illegitimate entity, because its existence as a joint venture had not been established. Notably, the
out in the RFP. essential document/s that would have shown its eligibility as a joint venture/consortium were not
presented to the COMELEC at the most opportune time, that is, during the qualification stage of
xxxx the bidding process. The concealment by respondent MPEI of the essential documents showing
its eligibility to bid as part a joint venture is too obvious to be missed. How could it not have known
that the very document showing MPC as a joint venture should have been included in their
Unfortunately, this argument seems to assume that the "collective" nature of the undertaking of the eligibility envelope?
members of MPC, their contribution of assets and sharing of risks, and the "community" of their
interest in the performance of the Contract entitle MPC to be treated as a joint venture or
consortium; and to be evaluated accordingly on the basis of the members' collective qualifications Likewise notable is the fact that these supposed agreements, allegedly among the supposed
when, in fact, the evidence before the Court suggest otherwise. consortium members, were belatedly provided to the COMELEC after the bidding process had
been terminated; these were not included in the Eligibility Documents earlier submitted by MPC.
Similarly, as found by this Court, these documents did not prove any joint venture agreement
xxxx
among the parties in the first place, but were actually individual agreements executed by each
member of the supposed consortium with respondent MPEI.
Going back to the instant case, it should be recalled that the automation Contract with
Comelec was not executed by the "consortium" MPC -- or by MPEI for and on behalf of
More startling to the dispassionate mind is the incongruence between the supposed actual bidder
MPC -- but by MPEI, period. The said Contract contains no mention whatsoever of any
MPC, on one hand, and, on the other, respondent MPEI, which executed the automation contract.
consortium or members thereof. This fact alone seems to contradict all the suppositions
Significantly, respondent MPEI was not even eligible and qualified to bid in the first place; and yet,
about a joint undertaking that would normally apply to a joint venture or consortium: that it
the automation contract itself was executed and signed singly by respondent MPEI, not on behalf
is a commercial enterprise involving a community of interest, a sharing of risks, profits and
of the purported bidder MPC, without any mention whatsoever of the members of the supposed
losses, and so on.
consortium.

xxxx
From these established facts, We can surmise that in order to secure the automation contract,
respondent MPEI perpetrated a scheme against petitioner by using MPC as supposed bidder and
To the Court, this strange and beguiling arrangement of MPEI with the other companies does not eventually succeeding in signing the automation contract as MPEI alone. Worse, it was
qualify them to be treated as a consortium or joint venture, at least of the type that government respondent MPEI alone, an entity that was ineligible to bid in the first place, that eventually
agencies like the Comelec should be dealing with. With more reason is it unable to agree to the executed the automation contract.
proposal to evaluate the members of MPC on a collective basis. (Emphases supplied)
To a reasonable mind, the entire situation reeks of fraud, what with the misrepresentation of
These findings found their way into petitioner's application for a writ of preliminary attachment, 75 in identity and misrepresentation as to creditworthiness. It is in these kinds of fraudulent instances,
which it claimed the following as bases for fraud: (1) respondents committed fraud by securing the when the ability to abscond is greatest, to which a writ of attachment is precisely responsive.
election automation contract and, in order to perpetrate the fraud, by misrepresenting the actual
bidder as MPC and MPEI as merely acting on MPC's behalf; (2) while knowing that MPEI was not
Further, the failure to attach the eligibility documents is tantamount to failure on the part of
qualified to bid for the automation contract, respondents still signed and executed the contract; respondent MPEI to disclose material facts. That omission constitutes fraud.
and (3) respondents acted in bad faith when they claimed that they had bound themselves to the
automation contract, because it was not executed by MPC-or by MPEI on MPC's behalf- but by
MPEI alone. 76 Pursuant to Article 1339 of the Civil Code,77 silence or concealment does not, by itself, constitute
fraud, unless there is a special duty to disclose certain facts, or unless the communication should
be made according to good faith and the usages of commerce. 78
We agree with petitioner that respondent MPEI committed fraud by securing the election
automation contract; and, in order to perpetrate the fraud, by misrepresenting that the actual
bidder was MPC and not MPEI, which was only acting on behalf of MPC. We likewise rule that Fraud has been defined to include an inducement through insidious machination. Insidious
machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists
where the party, with intent to deceive, conceals or omits to state material facts and, by reason induced his client to make the loan, and had since been compelled to repay it. In the same case,
of such omission or concealment, the other party was induced to give consent that would not the Court ruled that false representations as to the identity of a person are actionable, if made to
otherwise have been given.79 induce another to act thereon, and such other does so act thereon to his prejudice.85

One form of inducement is covered within the scope of the crime of estafa under Article 315, In this case, analogous to the fraud and deceit exhibited in the abovementioned circumstances,
paragraph 2, of the Revised Penal Code, in which, any person who defrauds another by using respondent MPEI had no excuse not to be forthright with the documents showing MPC's eligibility
fictitious name, or falsely pretends to possess power, influence, qualifications, property, credit, to bid as a joint venture. The Invitation to Bid, as quoted in our 2004 Decision, could not have
agency, business or imaginary transactions, or by means of similar deceits executed prior to or been any clearer when it stated that only bids from qualified entities, such as a joint venture, would
simultaneously with the commission of fraud is held criminally liable. In Jason v. People,80this be entertained:
Court explained the element of defraudation by means of deceit, by giving a definition of fraud and
deceit, in this wise: INVITATION TO APPLY FOR ELIGIBILITY AND TO BID

What needs to be determined therefore is whether or not the element of defraudation by means of The Commission on Elections (COMELEC), pursuant to the mandate of Republic Act Nos. 8189
deceit has been established beyond reasonable doubt. and 8436, invites interested offerors, vendors, suppliers or lessors to apply for eligibility and to bid
for the procurement by purchase, lease, lease with option to purchase, or otherwise, supplies,
In the case of People v. Menil, Jr., the Court has defined fraud and deceit in this wise: equipment, materials and services needed for a comprehensive Automated Election System,
consisting of three (3) phases: (a) registration/verification of voters, (b) automated counting and
Fraud, in its general sense, is deemed to comprise anything calculated to deceive, including all consolidation of votes, and (c) electronic transmission of election results, with an approved budget
acts, omissions, and concealment involving a breach of legal or equitable duty, trust, or of TWO BILLION FIVE HUNDRED MILLION (Php2,500,000,000) Pesos.
confidence justly reposed, resulting in damage to another, or by which an undue and
unconscientious advantage is taken of another. It is a generic term embracing all multifarious Only bids from the following entities shall be entertained:
means which human ingenuity can devise, and which are resorted to by one individual to secure
an advantage over another by false suggestions or by suppression of truth and includes all xxxx
surprise, trick, cunning, dissembling and any unfair way by which another is cheated. On the
other hand, deceit is the false representation of a matter of fact, whether by words or
conduct, by false or misleading allegations, or by concealment of that which should have d. Manufacturers, suppliers and/or distributors forming themselves into a joint
been disclosed which deceives or is intended to deceive another so that he shall act upon venture, i.e., a group of two (2) or more manufacturers, suppliers and/or distributors that
it to his legal injury. (Emphases supplied) intend to be jointly and severally responsible or liable for a particular contract, provided
that Filipino ownership thereof shall be at least sixty percent (60%); and

For example, in People v. Comila,81both accused-appellants therein represented themselves to 86


e. Cooperatives duly registered with the Cooperatives Development Authority. (Emphases
the complaining witnesses to have the capacity to send them to Italy for employment, even as they
supplied)
did not have the authority or license for the purpose. It was such misrepresentation that induced
the complainants to part with their hard-earned money for placement and medical fees. Both
accused-appellants were criminally held liable for estafa. No reasonable mind would argue that documents showing the very existence of a joint venture
need not be included in the bidding envelope showing its existence, qualification, and eligibility to
undertake the project, considering that the purpose of prequalification in any public bidding is to
In American jurisprudence, fraud may be predicated on a false introduction or
determine, at the earliest opportunity, the ability of the bidder to undertake the project.87
identification. 82 In Union Co. v. Cobb, 83the defendant therein procured the merchandise by
misrepresenting that she was Mrs. Taylor Ray and at another time she was Mrs. Ben W. Chiles,
and she forged their name on charge slips as revealed by the exhibits of the plaintiff. The sale of As found by this Court in its 2004 Decision, it appears that the documents that were submitted
the merchandise was induced by these representations, resulting in injury to the plaintiff. after the bidding, which respondents claimed would prove the existence of the relationship among
the members of the consortium, were actually separate agreements individually executed by the
supposed members with MPEI. We had ruled that these documents were highly irregular,
In Raser v. Moomaw,84it was ruled that the essential elements necessary to constitute actionable
considering that each of the four different and separate bilateral Agreements was valid and
fraud and deceit were present in the complaint. It was alleged that, to induce plaintiff to procure a
binding only between MPEI and the other contracting party, leaving the other "consortium"
loan, defendant introduced him to a woman who was falsely represented to be Annie L. Knowles
members total strangers thereto. Consequently, the other consortium members had nothing to do
of Seattle, Washington, the owner of the property, and that plaintiff had no means of ascertaining
with one another, as each one dealt only with MPEI.88
her true identity. On the other hand, defendant knew, or in the exercise of reasonable caution
should have known, that she was an impostor, and that plaintiff relied on the representations,
Considering that they merely showed MPEI's individual agreements with the other supposed conducted by the DOST, respondent still
members, these agreements confirm to our mind the fraudulent intent on the part of respondent acceded to being awarded the automation
MPEI to deceive the relevant officials about MPC. The intent was to cure the deficiency of the contract.
winning bid, which intent miserably failed. Said this Court:89
Another token of fraud is established by Our findings in relation to the failure of the ACMs to pass
We are unconvinced, PBAC was guided by the rules, regulations or guidelines existing before the the tests of the DOST. We quote herein the pertinent portions of this Court's 2004 Decision in
bid proposals were opened on November 10, 1989. The basic rule in public bidding is that bids relation thereto:
should be evaluated based on the required documents submitted before and not after the
opening of bids. Otherwise, the foundation of a fair and competitive public bidding would After respondent "consortium" and the other bidder, TIM, had submitted their respective bids on
be defeated. Strict observance of the rules, regulations, and guidelines of the bidding March 10, 2003, the Comelec's BAC - - through its Technical Working Group (TWG) and the
process is the only safeguard to a fair, honest and competitive public bidding. DOST - evaluated their technical proposals.

In underscoring the Court's strict application of the pertinent rules, regulations and guidelines of xxxx
the public bidding process, We have ruled in C & C Commercial vs. Menor (L-28360, January 27,
1983, 120 SCRA 112), that Nawasa properly rejected a bid of C & C Commercial to supply
According to respondents, it was only after the TWG and the DOST had conducted their separate
asbestos cement pressure which bid did not include a tax clearance certificate as required by
tests and submitted their respective reports that the BAC, on the basis of these reports formulated
Administrative Order No. 66 dated June 26, 1967. In Caltex (Phil.) Inc., et. al. vs. Delgado
its comments/recommendations on the bids of the consortium and TIM.
Brothers, Inc. et. al., (96 Phil. 368, 375), We stressed that public biddings are held for the
protection of the public and the public should be given the best possible advantages by means of
open competition among the bidders. The BAC, in its Report dated April 21, 2003, recommended that the Phase II project involving the
acquisition of automated counting machines be awarded to MPEI. x x x
xxxx
xxxx
INTER TECHNICAL's failure to comply with what is perceived to be an elementary and
customary practice in a public bidding process, that is, to enclose the Form of Bid in the The BAC, however, also stated on page 4 of its Report: "Based on the 14 April 2003 report
original and eight separate copies of the bidding documents submitted to the bidding (Table 6) of the DOST, it appears that both Mega-Pacific and TIM (Total Information
committee is fatal to its cause. All the four pre-qualified bidders which include INTER Management Corporation) failed to meet some of the requirements. x x x
TECHNICAL were subject to Rule IB 2.1 of the
xxxx
Implementing Rules and Regulations of P.D. 1594 in the preparation of bids, bid bonds, and pre-
qualification statement and Rule IB 2.8 which states that the Form of Bid, among others, shall form Failure to Meet the Required Accuracy Rating
part of the contract. INTER TECHNICAL's explanation that its bid form was inadvertently left in the
office (p. 6, Memorandum for Private Respondent, p. 355, Rollo) will not excuse compliance with The first of the key requirements was that the counting machines were to have an accuracy rating
such a simple and basic requirement in the public bidding process involving a multi-million project of at least 99.9995 percent. The BAC Report indicates that both Mega Pacific and TIM failed
of the Government. There should be strict application of the pertinent public bidding rules, to meet this standard.
otherwise the essential requisites of fairness, good faith, and competitiveness in the public
bidding process would be rendered meaningless. (Emphases supplied)
The key requirement of accuracy rating happens to be part and parcel of the Comelec's
Request for Proposal (RFP). x x x
All these circumstances, taken together, reveal a scheme on the part of respondent MPEI to
perpetrate fraud against the government. The purpose of the scheme was to ensure that MPEI, an
entity that was ineligible to bid in the first place, would eventually be awarded the contract. While xxxx
respondent argues that it was merely a passive participant in the bidding process, We cannot
ignore its cavalier disregard of its participation in the now voided automation contract. x x x Whichever accuracy rating is the right standard - whether 99.995 or 99.9995 percent – the
fact remains that the machines of the so-called "consortium" failed to even reach the lesser of the
B. Fraud on the part of respondent MPEI two. On this basis alone, it ought to have been disqualified and its bid rejected outright.
was further shown by the fact that despite
the failure of its ACMs to pass the tests
At this point, the Court stresses that the essence of public bidding is violated by the the provincial/district canvassing system software; and again on pages 35-36 thereof, the same
practice of requiring very high standards or unrealistic specifications that cannot be met - audit trail requirement with respect to the national canvassing system software.
like the 99.9995 percent accuracy rating in this case - only to water them down after the bid
has been award.[sic]Such scheme, which discourages the entry of prospective bona xxxx
fide bidders, is in fact a sure indication of fraud in the bidding, designed to eliminate fair
competition. Certainly, if no bidder meets the mandatory requirements, standards or
specifications, then no award should be made and a failed bidding declared. The said provision which respondents have quoted several times, provides that ACMs are to
possess certain features divided into two classes: those that the statute itself
considers mandatory and other features or capabilities that the law deems optional. Among those
xxxx considered mandatory are "provisions for audit trails"! x x x.

Failure of Software to Detect Previously Downloaded Data In brief, respondents cannot deny that the provision requiring audit trails is indeed
mandatory, considering the wording of Section 7 of RA 8436. Neither can Respondent
Furthermore, on page 6 of the BAC Report, it appears that the "consortium" as well as TIM Comelec deny that it has relied on the BAC Report, which indicates that the machines or the
failed to meet another key requirement - for the counting machine's software program to software was deficient in that respect. And yet, the Commission simply disregarded this
be able to detect previously downloaded precinct results and to prevent these from being shortcoming and awarded the Contract to private respondent, thereby violating the very law it was
entered again into the counting machine. This same deficiency on the part of both bidders supposed to implement.90 (Emphases supplied)
reappears on page 7 of the BAC Report, as a result of the recurrence of their failure to meet the
said key requirement. The above-mentioned findings were further echoed by this Court in its 2006 Resolution with a
categorical conclusion that the bidding process was void and fraudulent. 91 Again, these factual
That the ability to detect previously downloaded data at different canvassing or consolidation findings found their way into the application of petitioner for a writ of preliminary attachment,92 as it
levels is deemed of utmost importance can be seen from the fact that it is repeated three times in claimed that respondents could not dissociate themselves from their telltale acts of supplying
the RFP. x x x. defective machines and nonexistent software.93 The latter offered no defense in relation to these
claims.
Once again, though, Comelec chose to ignore this crucial deficiency, which should have been a
cause for the gravest concern. x x x. We see no reason to deviate from our finding of fraud on the part of respondent MPEI in the 2004
Decision and 2006 Resolution. Despite its failure to meet the mandatory requirements set forth in
xxxx the bidding procedure, respondent still acceded to being awarded the contract. These
circumstances reveal its ploy to gain undue advantage over the other bidders in general, even to
the extent of cheating the government.
Inability to Print the Audit Trail
The word "bidding" in its comprehensive sense means making an offer or an invitation to
But that grim prospect is not all. The BAC Report, on pages 6 and 7, indicate that the ACMs of
prospective contractors, whereby the government manifests its intention to make proposals for the
both bidders were unable to print the audit trail without any loss of data. In the case of MPC, the
purpose of securing supplies, materials, and equipment for official business or public use, or for
audit trail system was "not yet incorporated" into its ACMs.
public works or repair.94 Three principles involved in public bidding are as follows: (1) the offer to
the public; (2) an opportunity for competition, and (3) a basis for an exact comparison of bids. A
xxxx regulation of the matter, which excludes any of these factors, destroys the distinctive character of
the system and thwarts the purpose of its adoption.95
Thus, the RFP on page 27 states that the ballot counting machines and ballot counting
software must print an audit trail of all machine operations for documentation and In the instant case, We infer from the circumstances that respondent MPEI welcomed and allowed
verification purposes. Furthermore, the audit trail must be stored on the internal storage device the award of the automation contract, as it executed the contract despite the full knowledge that it
and be available on demand for future printing and verifying. On pages 30-31, the RFP also had not met the mandatory requirements set forth in the RFP. Respondent acceded to and
requires that the city/municipal canvassing system software be able to print an audit trail of the benefitted from the watering down of these mandatory requirements, resulting in undue advantage
canvassing operations, including therein such data as the date and time the canvassing in its favor. The fact that there were numerous mandatory requirements that were simply set aside
program was started, the log-in of the authorized users (the identity of the machine operators), the to pave the way for the award of the automation contract does not escape the attention of this
date and time the canvass data were downloaded into the canvassing system, and so on and so Court. Respondent MPEI, through respondent Willy, signed and executed the automation contract
forth. On page 33 of the RFP, we find the same audit trail requirement with respect to with COMELEC. It is therefore preposterous for respondent argue that it was a "passive
participant" in the whole bidding process.
We reject the CA's denial of petitioner's plea for the ancillary remedy of preliminary attachment, personality is vulnerable, as a way to reach the personal properties of the individual respondents.
considering that the cumulative effect of the factual findings of this Court establishes a sufficient Petitioner paints a picture of a sham corporation set up by all the individual respondents for the
basis to conclude that fraud had attended the execution of the automation contract. Such fraud is purpose of securing the automation contract.
deducible from the 2004 Decision and further upheld in the 2006 Resolution. It was incongruous,
therefore, for the CA to have denied the application for a writ of preliminary attachment, when the We agree with petitioner.
evidence on record was the same that was used to demonstrate the propriety of the issuance of
the writ of preliminary attachment. This was the same evidence that We had already considered
Veil-piercing in fraud cases requires that the legal fiction of separate juridical personality is used
and passed upon, and on which We based Our 2004 Decision to nullify the automation contract. It
would not be right for this Court to ignore these illegal transactions, as to do so would be for fraudulent or wrongful ends. 100 For reasons discussed below, We see red flags of fraudulent
tantamount to abandoning its constitutional duty of safeguarding public interest. schemes in public procurement, all of which were established in the 2004 Decision, the totality of
which strongly indicate that MPEI was a sham corporation formed merely for the purpose of
perpetrating a fraudulent scheme.
II.
The red flags are as follows: (1) overly narrow specifications; (2) unjustified recommendations and
Application of the piercing doctrine justifies the issuance of a writ of preliminary unjustified winning bidders; (3) failure to meet the terms of the contract; and (4) shell or fictitious
attachment over the properties of the individual respondents. company. We shall discuss each in detail.

Individual respondents argue that since they were not parties to the 2004 case, any factual Overly Narrow Specifications
findings or conclusions therein should not be binding upon them.96 Since they were strangers to
that case, they are not bound by the judgment rendered by this Court.97 They claim that their
The World Bank's Fraud and Corruption Awareness Handbook: A Handbook for Civil Servants
fundamental right to due process would be violated if their properties were to be attached for a
Involved in Public Procurement, (Handbook) identifies an assortment of fraud and corruption
purported corporate debt on the basis of a court ruling in a case in which they were not given the
right or opportunity to be heard.98 indicators and relevant schemes in public procurement. 101 One of the schemes recognized by the
Handbook is rigged specifications:
We cannot subscribe to this argument. In the first place, it could not be reasonably expected that
Scheme: Rigged specifications. In a competitive market for goods and services, any
individual respondents would be impleaded in the 2004 case. As admitted by respondents, the
specifications that seem to be drafted in a way that favors aparticular company deserve closer
issues resolved in the 2004 Decision were limited to the following: (1) whether to declare
scrutiny. For example, specifications that are too narrow can be used to exclude other qualified
Resolution No. 6074 of the COMELEC null and void; (2) whether to enjoin the implementation of
bidders or justify improper sole source awards. Unduly vague or broad specifications can allow
any further contract that may have been entered into by COMELEC with MPC or MPEI; and (3)
whether to compel COMELEC to conduct a rebidding of the project. To implead individual an unqualified bidder to compete or justify fraudulent change orders after the contract is awarded.
Sometimes, project officials will go so far as to allow the favored bidder to draft the
respondents then was improper, considering that the automation contract was entered into by
specifications. 102
respondent MPEI. This Court even acknowledged this fact by directing that the liabilities of
persons responsible for the nullity of the contract be determined in another appropriate proceeding
and by directing the OSG to undertake measures to protect the interests of the government. In Our 2004 Decision, We identified a red flag of rigged bidding in the form of overly narrow
specifications. As already discussed, the accuracy requirement of 99.9995 percent was set up by
COMELEC bidding rules. This Court recognized that this rating was "too high and was a sure
At any rate, individual respondents have been fully afforded the right to due process by being
indication of fraud in the bidding, designed to eliminate fair competition." 103 Indeed, "the
impleaded and heard in the subsequent proceedings before the courts a quo. Finally, they cannot
argue violation of due process, as respondent MPEI, of which they are incorporators/stockholders, essence of public bidding is violated by the practice of requiring very high standards or unrealistic
remains vulnerable to the piercing of its corporate veil. specifications that cannot be met. . . only to water them down after the bid has been
award(ed)." 104
A. There are red flags indicating that
Unjustified Recommendations and
MPEI was used to perpetrate the fraud
Unjustified Winning Bidders
against petitioner, thus allowing the
piercing of its corporate veil. Questionable evaluation in a Bid Evaluation Report (BER) is an
indicator of bid rigging. The Handbook expounds:

Petitioner seeks the issuance of a writ of preliminary attachment over the personal assets of the
Questionable evaluation and unusual bid patterns may emerge in the BER. After the
individual respondents, notwithstanding the doctrine of separate juridical personality. 99 It invokes
completion of the evaluation process, the Bid Evaluation Committee should present to the
the use of the doctrine of piercing the corporate veil, to which the canon of separate juridical
implementing agency its BER, which describes the results and the process by which the Fictitious companies are by definition fraudulent and may also serve as fronts for government
BEC has evaluated the bids received. The BER may include a number of indicators of bid officials. The typical scheme involves corrupt government officials creating a fictitious company
rigging, e.g., questionable disqualifications, and unusual bid patterns.105 that will serve as a "vehicle" to secure contract awards. Often, the fictitious-or ghost-company will
subcontract work to lower cost and sometimes unqualified firms. The fictitious company may also
The Handbook lists unjustified recommendations and unjustified winning bidders as red flags of a utilize designated losers as subcontractors to deliver the work, thus indicating collusion.
rigged bidding. 106
Shell companies have no significant assets, staff or operational capacity. They pose a serious
The red flags of questionable recommendation and unjustified awards are raised in this case. As red flagas a bidder on public contracts, because they often hide the interests of project or
earlier discussed, the project was awarded to MPC, which proved to be a nonentity. It was MPEI government officials, concealing a conflict of interest and opportunities for money
that actually participated in the bidding process, but it was not qualified to be a bidder in the first laundering. Also, by definition, they have no experience. 110
place. Moreover, its ACMs failed the accuracy requirement set by COMELEC. Yet, MPC - the
nonentity - obtained a favorable recommendation from the BAC, and the automation contract was MPEI qualifies as a shell or fictitious company. It was nonexistent at the time of the invitation to
awarded to the former. bid; to be precise, it was incorporated only 11 days before the bidding. It was a newly formed
corporation and, as such, had no track record to speak of.
Failure to Meet Contract Terms
Further, MPEI misrepresented itself in the bidding process as "lead company" of the supposed
Failure to meet the terms of a contract is regarded as a fraud by the Handbook: joint venture. The misrepresentation appears to have been an attempt to justify its lack of
experience. As a new company, it was not eligible to participate as a bidder. It could do so only by
pretending that it was acting as an agent of the putative consortium.
Scheme: Failure to meet contract terms. Firms may deliberately fail to comply with contract
requirements. The contractor will attempt to conceal such actions often by falsifying or forging
supporting documentation and bill for the work as if it were done in accordance with specifications. The timing of the incorporation of MPEI is particularly noteworthy. Its close nexus to the date of the
In many cases, the contractors must bribe inspection or project personnel to accept the invitation to bid and the date of the bidding (11 days) provides a strong indicium of the intent to
substandard goods or works, or supervision agents are coerced to approve substandard work. x x use the corporate vehicle for fraudulent purposes. This proximity unmistakably indicates that the
x 107 automation contract served as motivation for the formation of MPEI: a corporation had to be
organized so it could participate in the bidding by claiming to be an agent of a pretended joint
venture.
As mentioned earlier, this Court already found the ACMs to be below the standards set by the
COMELEC. We reiterated their noncompliant status in Our 2005 and 2006 Resolutions. As early
as 2005, when the COMELEC sought permission from this Court to utilize the ACMs in the then The timing of the formation of MPEI did not escape the scrutiny of Justice Angelina Sandoval-
scheduled ARMM elections, We declared that the proposed use of the machines would expose Gutierrez, who made this observation in her Concurring Opinion in the 2004 Decision:
the ARMM elections to the same dangers of massive electoral fraud that would have been inflicted
by the projected automation of the 2004 national elections. We based this pronouncement on the At this juncture, it bears stressing that MPEI was incorporated only on February 27, 2003 as
fact that the COMELEC failed to show that the deficiencies had been cured. 108 Yet again, this evidenced by its Certificate of Incorporation. This goes to show that from the time the COMELEC
Court in 2006 blocked another attempt to use the ACMs, this time for the 2007 elections. We issued its Invitation to Bid (January 28, 2003) and Request for Proposal (February 17, 2003) up to
reiterated that because the ACMs had merely remained idle and unused since their last the time it convened the Pre-bid Conference (February 18, 2003), MPEI was literally a non-
evaluation, in which they failed to hurdle the crucial tests, then their defects and deficiencies could existent entity. It came into being only on February 27, 2003 or eleven (11) days prior to the
not have been cured by then. 109 submission of its bid, i.e. March 10, 2003. This poses a legal obstacle to its eligibility as a
bidder. The Request for Proposal requires the bidder to submit financial documents that will
Based on the foregoing, the ACMs delivered were plagued with defects that made them fail the establish to the BAC's satisfaction its financial capability which include:
requirements set for the automation project.
(1) audited financial statements ofthe Bidder's firm for the last three (3) calendar years, stamped
Shell or fictitious company "RECEIVED" by the appropriate government agency, to show its capacity to finance the
manufacture and supply of Goods called for and a statement or record of volumes of sales;
The Handbook regards a shell or fictitious company as a "serious red flag," a concept that it
elaborates upon: (2) Balance Sheet;

(3) Income Statement; and


(4) Statement of Cash Flow. A corporation's privilege of being treated as an entity distinct and separate from the stockholders
is confined to legitimate uses, and is subject to equitable limitations to prevent its being exercised
As correctly pointed out by petitioners, how could MPEI comply with the above requirement of for fraudulent, unfair, or illegal purposes. 112 As early as the 19th century, it has been held that:
audited financial statements for the last three (3) calendar years if it came into existence only
eleven (11) days prior to the bidding? The general proposition that a corporation is to be regarded as a legal entity, existing separate
and apart from the natural persons composing it, is not disputed; but that the statement is a mere
To do away with such complication, MPEI asserts that it was MP CONSORTIUM who submitted fiction, existing only in idea, is well understood, and not controverted by any one who pretends to
the bid on March 10, 2003. It pretends compliance with the requirements by invoking the financial accurate knowledge on the subject. It has been introduced for the convenience of the company in
capabilities and long time existence of the alleged members of the MP CONSORTIUM, namely, making contracts, in acquiring property for corporate purposes, in suing and being sued, and to
Election.Com, WeSolv, SK CeC, ePLDT and Oracle. It wants this Court to believe that it is MP preserve the limited liability of the stockholder by distinguishing between the corporate debts and
CONSORTIUM who was actually dealing with the COMELEC and that its (MPEI) participation is property of the company and of the stockholders in their capacity as individuals. All fictions of
merely that of a "lead company and proponent" of the joint venture. This is hardly convincing. For law have been introduced for the purpose of convenience, and to subserve the ends of
one, the contract for the supply and delivery of ACM was between COMELEC and MPEI, not MP justice. It is in this sense that the maxim in fictione juris subsistit aequitas is used, and the
CONSORTIUM. As a matter of fact, there cannot he found in the contract any reference to the MP doctrine of fictions applied. But when they are urged to an intent and purpose not within the
CONSORTIUM or any member thereof for that matter. For another, the agreements among the reason and policy of the fiction, they have always been disregarded by the courts. Broom's,
alleged members of MP CONSORTIUM do not show the existence of a joint-venture agreement. Legal Maxims 130. "It is a certain rule," says Lord Mansfield, C.J., "that a fiction of law never be
Worse, MPEI cannot produce the agreement as to the "joint and several liability" of the alleged contradicted so as to defeat the end for which it was invented, but for every other purpose it may
members of the MP CONSORTIUM as required by this Court in its Resolution dated October 7, be contradicted.'' Johnson v. Smith, 2 Burr., 962.113
2003. 111
The main effect of disregarding the corporate fiction is that stockholders will be held personally
Respondent MPEI was formed to liable for the acts and contracts of the corporation, whose existence, at least for the purpose of the
perpetrate the fraud against petitioner. particular situation involved, is ignored. 114

The totality of the red flags found in this case leads Us to the inevitable conclusion that MPEI was We have consistently held that when the notion of legal entity is used to defeat public
nothing but a sham corporation formed for the purpose of defrauding petitioner. Its ultimate convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as
objective was to secure the ₱1,248,949,088 automation contract. The scheme was to put up a an association of persons. 115 Thus, considering that We find it justified to pierce the corporate veil
corporation that would participate in the bid and enter into a contract with the COMELEC, even if in the case before Us, MPEI must, perforce, be treated as a mere association of persons whose
the former was not qualified or authorized to do so. assets are unshielded by corporate fiction. Such persons' individual liability shall now be
determined with respect to the matter at hand.
Without the incorporation of MPEI, the defraudation of the government would not have been
possible. The formation of MPEI paved the way for its participation in the bid, through its claim that Contrary to respondent Willy's claims, his participation in the fraud is clearly established by his
it was an agent of a supposed joint venture, its misrepresentations to secure the automation unequivocal agreement to the execution of the automation contract with the COMELEC, and his
contract, its misrepresentation at the time of the execution of the contract, its delivery of the signature that appears on the voided contract. As far back as in the 2004 Decision, his
defective ACMs, and ultimately its acceptance of the benefits under the automation contract. participation as a signatory to the automation contract was already established:

The foregoing considered, veil-piercing is justified in this case. The foregoing argument is unpersuasive. First, the contract being referred to, entitled "The
Automated Counting and Canvassing Project Contract,'' is between Comelec and MPEI, not the
alleged consortium, MPC. To repeat, it is MPEI -- not MPC -- that is a party to the
We shall next consider the question of whose assets shall be reached by the application of the Contract. Nowhere in that Contract is there any mention of a consortium or joint venture, of
piercing doctrine.
members thereof,much less of joint and several liability. Supposedly executed sometime in May
2003, the Contract bears a notarization date of June 30, 2003, and contains the signature of
B. Because all the individual Willy U. Yu signing as president of MPEI (not for and on behalf of MPC), along with that of
respondents actively participated in the the Comclec chair. It provides in Section 3.2 that MPEI (not MPC) is to supply the Equipment and
perpetration of the fraud against petitioner, perform the Services under the Contract, in accordance with the appendices thereof; nothing
their personal assets may be subject to a whatsoever is said about any consortium or joint venture or partnership. x x x (Emphasis supplied)
writ of preliminary attachment by piercing
the corporate veil.
That his signature appears on the automation contract means that he agreed and acceded to its 2.17 The erroneous conclusion of fact and law in paragraph 30 (f) and (g) of the Republic's answer
terms. 116 His participation in the fraud involves his signing and executing the voided contract. is denied, having been pleaded in violation of the requirement, that only ultimate facts are to be
stated in the pleadings and they are falsehoods. The truth of the matter is that there could not
The execution of the automation contract with a non-eligible entity and the subsequent award of have been fraud, as these agreements were submitted to the COMELEC for its evaluation and
the contract despite the failure to meet the mandatory requirements were "badges of fraud" in the assessment, as to the qualification of the Consortium as a bidder, a showing of transparency in
procurement process that should have been recognized by the CA to justify the issuance of the plaintiff's dealings with the Republic. 121
writ of preliminary attachment against the properties of respondent Willy.
3.3 As far as plaintiff MPEI and defendants-in-counterclaim are concerned, they dealt with
With respect to the other individual respondents, petitioner, in its Answer with Counterclaim, the COMELEC with full transparency and in utmost good faith. All documents support its
alleged: eligibility to bid for the supply of the automated counting machines and its peripheral services,
were submitted to the COMELEC for its evaluation in full transparency. Pertinently, the plaintiff or
any of its directors, stockholders, officers or employees had no participation in the evaluation of
30. Also, inasmuch as MPEI is in truth a mere shell corporation with no real assets in its name, the bids and eventual choice of the winning bidder.122
incorporated merely to feign eligibility for the bidding of the automated contract when it in fact had
none, to the great prejudice of the Republic, plaintiff's individual incorporators should likewise
be made liable together with MPEI for the automated contract amount paid to and received by As regards Enrique and Rosita, the relevant paragraphs in the Answer with Counterclaim to the
the latter. The following circumstances altogether manifest that the individual incorporators merely Republic's Counterclaim 123 are quoted below:
cloaked themselves with the veil of corporate fiction to perpetrate a fraud and to eschew liability
therefor, thus: 2.17. The erroneous conclusion of fact and law in paragraph 30 (F) and (G) of the Republic's
answer is denied, having been pleaded in violation of the requirement, that only ultimate facts are
xxxx to be stated in the pleadings and they are falsehoods. The truth of the matter is that there could
not have been fraud, as these agreements were submitted to the COMELEC for its evaluation and
assessment, as to the qualification of the Consortium as a bidder, a showing of transparency in
f. From the time it was incorporated until today, MPEI has not complied with the reportorial plaintiffs dealings with the Republic. 124
requirements of the Securities and Exchange Commission;
3.3. As far as the plaintiff and herein answering defendants-in-counterclaim are concerned,
g. Individual incorporators, acting fraudulently through MPEI, and in violation of the they dealt with the Commission on Elections with full transparency and in utmost good
bidding rules, then subcontracted the automation contract to four (4) other faith. All documents in support of its eligibility to bid for the supply of the automated counting
corporations, namely: WeSolve Corporation, SK C&C, ePLDT and election.com, to comply with
machines and its peripheral services were submitted to the Commission on Elections for its
the capital requirements, requisite five (5)-year corporate standing and the technical qualifications evaluation in full transparency. Pertinently, the plaintiff or any of its directors, stockholders, officers
of the Request for Proposal;
or employees had no participation in the evaluation of the bids and eventual choice of the winning
bidder.125
x x x x117
Pedro and Laureano offer a similar defense in paragraph 3.3 of their Reply and Answer with
In response to petitioner's allegations, respondents Willy and Bonnie stated in their Reply and Counterclaim to the Republic's Counterclaim 126 dated 28 June 2004, which reads:
Answer (Re: Answer with Counterclaim dated 28 June 2004): 118
3.3. As far as plaintiff MPEI and defendants-in-counterclaim are concerned, they dealt with the
3.3 As far as plaintiff MPEI and defendants-in-counterclaim are concerned, they dealt with COMELEC with full transparency and in utmost good faith. All documents support its eligibility
the COMELEC with full transparency and in utmost good faith. All documents support its to bid for the supply of the ACMs and their peripheral services, were submitted to the COMELEC
eligibility to bid for the supply of the ACMs and their peripheral services, were submitted to the for its evaluation in full transparency. Pertinently, neither plaintiff MPEI nor any of its directors,
COMELEC for its evaluation in full transparency. Pertinently, neither plaintiff MPEI nor any of its stockholders, officers or employees had any participation in the evaluation of the bids and
directors, stockholders, officers or employees had any participation in the evaluation of the bids eventual choice of the winning bidder. 127
and eventual choice of the winning bidder. 119
It can be seen from the above-quoted paragraphs that the individual respondents never denied
Respondents Johnson's and Bernard’s denials were made in paragraphs 2.17 and 3.3 of their their participation in the questioned transactions of MPEI, merely raising the defense of good faith
Answer with Counterclaim to the Republic’s Counterclaim, to wit:120 and shifting the blame to the COMELEC. The individual respondents have, in effect, admitted that
they had knowledge of and participation in the fraudulent subcontracting of the automation
contract to the four corporations.
It bears stressing that the remaining individual respondents, together with respondent Willy, It is obvious that respondents are merely trying to escape the implications or effects of the nullity
incorporated MPEI. As incorporators, they are expected to be involved in the management of the of the automation contract that they had executed. Section 1,Rule 65 of the Rules of Court, clearly
corporation and they are charged with the duty of care. This is one of the reasons for the sets forth the instances when a petition for certiorari can be used as a proper remedy:
requirement of ownership of at least one share of stock by an incorporator:
Section 1. Petition for certiorari. - When any tribunal, board or officer exercising judicial or quasi-
The reason for this, as explained by the lawmakers, is to avoid the confusion and/or ambiguities judicial functions has acted without or in excess of its jurisdiction, or with grave abuse of discretion
arising in a situation under the old corporation law where there exists one set of incorporators who amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and
are not even shareholders and another set of directors/incorporators who must all be adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified
shareholders of the corporation. The people who deal with said corporation at such an early petition in the proper court, alleging the facts with certainty and praying that judgment be rendered
stage are confused as to who are the persons or group really authorized to act in behalf of the annulling or modifying the proceedings of such tribunal, board or officer, and granting such
corporation. (Proceedings of the Batasan Pambansa on the Proposed Corporation incidental reliefs as law and justice may require.
Code). Another reason may be anchored on the presumption that when an incorporator has
pecuniary interest in the corporation, no matter how minimal, he will be more involved in The term "grave abuse of discretion" has a specific meaning. An act of a court or tribunal can only
the management of corporate affairs and to a greater degree, be concerned with the welfare be considered to have been committed with grave abuse of discretion when the act is done in a
of the corporation. 128 "capricious or whimsical exercise of judgment as is equivalent to lack of jurisdiction." 132 The abuse
of discretion must be so patent and gross as to amount to an "evasion of a positive duty or to a
As incorporators and businessmen about to embark on a new business venture involving a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where
sizeable capital (₱300 million), the remaining individual respondents should have known of Willy's the power is exercised in an arbitrary and despotic manner by reason of passion and
scheme to perpetrate the fraud against petitioner, especially because the objective was a billion hostility." 133 Furthermore, the use of a petition for certiorari is restricted only to "truly extraordinary
peso automation contract. Still, they proceeded with the illicit business venture. cases wherein the act of the lower court or quasi-judicial body is wholly void." 134 From the
foregoing definition, it is clear that the special civil action of certiorari under Rule 65 can only strike
It is clear to this Court that inequity would result if We do not attach personal liability to all the down an act for having been done with grave abuse of discretion if the petitioner could manifestly
individual respondents. With a definite finding that MPEI was used to perpetrate the fraud against show that such act was patent and gross. 135
the government, it would be a great injustice if the remaining individual respondents would enjoy
the benefits of incorporation despite a clear finding of abuse of the corporate vehicle. Indeed, to We had to ascertain from the evidence whether the COMELEC committed grave abuse of
allow the corporate fiction to remain intact would not subserve, but instead subvert, the ends of discretion, and in the process, were justified in making some factual findings. The conclusions
justice. derived from the factual findings are inextricably intertwined with this Court's determination of
grave abuse of discretion. They have a direct bearing and are in fact necessary to illustrate that
III. the award of the automation contract was done hastily and in direct violation of law. This Court has
indeed made factual findings based on the evidence presented before it; in turn, these factual
findings constitute the controlling legal rule between the parties that cannot be modified or
The factual findings of this Court that have become final
amended by any of them. This Court is bound to consider the factual findings made in the 2004
cannot be modified or altered, much less reversed,
Decision in order to declare that there is fraud for the purpose of issuing the writ of preliminary
and are controlling in the instant case.
attachment.

Respondents argue that the 2004 Decision did not resolve and could not have resolved the factual
Respondents appear to have misunderstood the implications of the principle of conclusiveness of
issue of whether they had committed any fraud, as the Supreme Court is not a trier of facts; and
judgment on their cause. Contrary to their claims, the factual findings are conclusive and have
the 2004 case, being a certioraricase, did not deal with questions of fact. 129
been established as the controlling legal rule in the instant case, on the basis of the principle
of res judicata-moreparticularly, the principle of conclusiveness of judgment.
Further, respondents argue that the findings of this Court ought to be confined only to those issues
actually raised and resolved in the 2004 case, in accordance with the principle of conclusiveness
This doctrine of res judicata which is set forth in Section 47 of Rule 39 of the Rules of Court136 lays
of judgment. 130 They explain that the issues resolved in the 2004 Decision were only limited to
down two main rules, namely: (1) the judgment or decree of a court of competent jurisdiction on
the following: (l)whether to declare COMELEC Resolution No. 6074 null and void; (2) whether to
the merits concludes the litigation between the parties and their privies and constitutes a bar to a
enjoin the implementation of any further contract that may have been entered into by COMELEC
new action or suit involving the same cause of action either before the same or any other tribunal;
with MPC or MPEI; and (3) whether to compel COMELEC to conduct a rebidding of the project. 131
and (2) any right, fact, or matter in issue directly adjudicated or necessarily involved in the
determination of an action before a competent court in which a judgment or decree is rendered on
the merits is conclusively settled by the judgment therein and cannot again be litigated between
the parties and their privies whether or not the claims or demands, purposes, or subject matters of and were not actually or formally presented. Under this rule, if the record of the former trial
the two suits are the same. 137 shows that the judgment could not have been rendered without deciding the particular
matter, it will be considered as having settled that matter as to all future actions between
These two main rules mark the distinction between the principles governing the two typical cases the parties and if a judgment necessarily presupposes certain premises, they are as
in which a judgment may operate as evidence. 138 The first general rule stated above and conclusive as the judgment itself. 141 (Emphases supplied)
corresponding to the
The foregoing disquisition finds application to the case at bar. Undeniably, the present case is
afore-quoted paragraph (b) of Section 47, Rule 39 of the Rules of Court, is referred to as "bar by merely an adjunct of the 2004 case, in which the automation contract was declared to be a nullity.
former judgment"; while the second general rule, which is embodied in paragraph (c) of the same Needless to say, the 2004 Decision has since become final. As earlier explained, this Court
section and rule, is known as "conclusiveness of judgment." 139 arrived at several factual findings showing the illegality of the automation contract; in turn, these
findings were used as basis to justify the declaration of nullity.
In Calalang v. Register of Deeds of Quezon City, 140 We discussed the concept of conclusiveness
of judgment as pertaining even to those matters essentially connected with the subject of litigation A closer scrutiny of the 2004 Decision would reveal that the judgment could not have been
in the first action. This Court explained therein that the bar on re-litigation extends to those rendered without deciding particular factual matters in relation to the following: (1) identity,
questions necessarily implied in the final judgment, although no specific finding may have been existence and eligibility of MPC as a bidder; (2) failure of the ACMs to pass DOST technical tests;
made in reference thereto, and although those matters were directly referred to in the pleadings and (3) remedial measures undertaken by the COMELEC after the award of the automation
and were not actually or formally presented. If the record of the former trial shows that the contract. Under the principle of conclusiveness of judgment, We are precluded from re-litigating
judgment could not have been rendered without deciding a particular matter, it will be considered these facts, as these were essential to the question of nullity. Otherwise stated, the judgment
as having settled that matter as to all future actions between the parties; and if a judgment could not have been rendered without necessarily deciding on the above-enumerated factual
necessarily presupposes certain premises, they are as conclusive as the judgment itself: matters.

The second concept - conclusiveness of judgment - states that a fact or question which Thus, under the principle of conclusiveness of judgment, those material facts became binding and
was in issue in a former suit and was there judicially passed upon and determined by a conclusive on the parties, in this case MPEI and, ultimately, the persons that comprised it. When a
court of competent jurisdiction, is conclusively settled by the judgment therein as far as right or fact has been judicially tried and determined by a court of competent jurisdiction, or when
the parties to that action and persons in privity with them are concerned and cannot be an opportunity for that trial has been given, the judgment of the court-as long as it remains
again litigated in any future action between such parties or their privies, in the same court unreversed-should be conclusive upon the parties and those in privity with them. 142 Thus,
or any other court of concurrent jurisdiction on either the same or different cause of action, the CA should not have required petitioner to present further evidence of fraud on the part of
while the judgment remains unreversed by proper authority. It has been held that in order that respondent Willy and MPEI, as it was already necessarily adjudged in the 2004 case.
a judgment in one action can be conclusive as to a particular matter in another action between the
same parties or their privies, it is essential that the issue be identical. If a particular point or To allow respondents to argue otherwise would be violative of the principle of immutability of
question is in issue in the second action, and the judgment will depend on the judgment. When a final judgment becomes executory, it becomes immutable and unalterable and
determination of that particular point or question, a former judgment between the same may no longer undergo any modification, much less any reversal. 143 In Navarro v. Metropolitan
parties or their privies will be final and conclusive in the second if that same point or Bank & Trust Company144this Court explained that the underlying reason behind this principle is to
question was in issue and adjudicated in the first suit (Nabus v. Court of Appeals, 193 SCRA avoid delay in the administration of justice and to avoid allowing judicial controversies to drag on
732 [1991]). Identity of cause of action is not required but merely identity of issue. indefinitely, viz.:

Justice Feliciano, in Smith Bell & Company (Phils), Inc. v. Court of Appeals (197 SCRA 201, 210 No other procedural law principle is indeed more settled than that once a judgment
[1991]), reiterated Lopez v. Reyes (76 SCRA 179 [1977]) in regard to the distinction between bar becomes final, it is no longer subject to change, revision, amendment or reversal, except
by former judgment which bars the prosecution of a second action upon the same claim, demand, only for correction of clerical errors, or the making of nunc pro tunc entries which cause no
or cause of action, and conclusiveness of judgment which bars the relitigation of particular facts or prejudice to any party, or where the judgment itself is void. The underlying reason for the rule
issues in another litigation between the same parties on a different claim or cause of action. is two-fold: (1) to avoid delay in the administration of justice and thus make orderly the discharge
of judicial business, and (2) to put judicial controversies to an end, at the risk of occasional errors,
The general rule precluding the re-litigation of material facts or questions which were in inasmuch as controversies cannot be allowed to drag on indefinitely and the rights and obligations
issue and adjudicated in former action are commonly applied to all matters essentially of every litigant must not hang in suspense for an indefinite period of time. As the Court declared
connected with the subject matter of the litigation. Thus, it extends to questions in Yau v. Silverio,
necessarily implied in the final judgment, although no specific finding may have been made
in reference thereto and although such matters were directly ref erred to in the pleadings
Litigation must end and terminate sometime and somewhere, and it is essential to an effective and The delivery of 1,991 units of ACMs does not negate fraud on
efficient administration of justice that, once a judgment has become final, the winning party be, not the part of respondents Willy and MPEI.
through a mere subterfuge, deprived of the fruits of the verdict. Courts must therefore guard
against any scheme calculated to bring about that result. Constituted as they are to put an end to The CA in its Amended Decision explained that respondents could not be considered to have
controversies, courts should frown upon any attempt to prolong them. fostered a fraudulent intent to not honor their obligation, since they delivered 1,991 units of
ACMs. 154 In turn, respondents argue that respondent MPEI had every intention of fulfilling its
Indeed, just as a losing party has the right to file an appeal within the prescribed period, the obligation, because it in fact delivered the ACMs as required by the automation contract. 155
winning party also has the correlative right to enjoy the finality of the resolution of his case by the
execution and satisfaction of the judgment. Any attempt to thwart this rigid rule and deny the We disagree with the CA and respondents.1âwphi1 The fact that the ACMs were delivered cannot
prevailing litigant his right to savor the fruit of his victory must immediately be struck down. x x x. induce this Court to disregard the fraud respondent MPEI had employed in securing the award of
(Emphasis supplied) 145 the automation contract, as established above. Furthermore, they cannot cite the fact of delivery in
their favor, considering that the ACMs delivered were substandard and noncompliant with the
In the instant case, adherence to respondents' position would mean a complete disregard of the requirements initially set for the automation project.
factual findings We made in the 2004 Decision, and would certainly be tantamount to reversing the
same. This would invariably cause further delay in the efforts to recover the amounts of In Our 2004 Decision, We already found the ACMs to be below the standards set by the
government money illegally disbursed to respondents back in 2004. COMELEC. The noncompliant status of these ACMs was reiterated by this Court in its 2005 and
2006 Resolutions. The CA therefore gravely erred in considering the delivery of 1,991 ACMs as
Next, respondents argue that the findings of fact in the 2004 Decision are not evidence of respondents' willingness to perform the obligation (and thus, their lack of fraud)
conclusive146 considering that eight (8) of the fifteen (15) justices of this Court refused to go along considering that, as exhaustively discussed earlier, the ACMs delivered were plagued with defects
with the factual findings as stated in the majority opinion. 147 This argument fails to convince. and failed to meet the requirements set for the automation project.

Fourteen (14) Justices participated in the promulgation of the 2004 Decision.1âwphi1 Out of the Under Article 1233 of the New Civil Code, a debt shall not be understood to have been paid,
fourteen (14) Justices, three (3) Justices registered their dissent, 148 and two (2) Justices wrote unless the thing or service in which the obligation consists has been completely delivered or
their Separate Opinions, each recommending the dismissal of the Petition. 149 Of the nine (9) rendered. In this case, respondents cannot be considered to have performed their obligation,
Justices who voted to grant the Petition, four (4) joined the ponente in his disposition of the because the ACMs were defective.
case, 150 and two (2) Justices wrote Separate Concurring Opinions. 151 As to the remaining two (2)
Justices, one (1) Justice 152 merely concurred in the result, while the other joined another Justice v.
in her Separate Opinion. 153
Estoppel does not lie against the State when it acts to rectify
Contrary to the allegations of respondents, an examination of the voting shows that nine (9) the mistakes, errors or illegal acts of its officials and agents.
Justices voted in favor of the majority opinion, without any qualification regarding the factual
findings made therein. In fact, the two (2) Justices who wrote their own Concurring Opinions
Respondents claim that the 2004 Decision may not be invoked against them, since the petitioner
echoed the lack of eligibility of MPC and the failure of the ACMs to pass the mandatory
requirements. and the respondents were co-respondents and not adverse parties in the 2004 case. Respondents
further explain that since petitioner and respondents were on the same side at the time, had the
same interest, and took the same position on the validity and regularity of the automation contract,
Finally, respondents cannot argue that, from the line of questioning of then Justice Leonardo A. petitioner cannot now invoke the 2004 Decision against them. 156
Quisumbing during the oral arguments in the 2004 case, he did not agree with the factual findings
of this Court. Oral arguments before this Court are held precisely to test the soundness of each
Contrary to respondents' contention, estoppel generally finds no application against the State
proponent's contentions. The questions and statements propounded by Justices during such an
when it acts to rectify mistakes, errors, irregularities, or illegal acts of its officials and agents,
exercise are not to be construed as their definitive opinions. Neither are they indicative of how a
irrespective of rank. This principle ensures the efficient conduct of the affairs of the State without
Justice shall vote on a particular issue; indeed, Justice Quisumbing clearly states in the 2004
any hindrance to the implementation of laws and regulations by the government. This holds true
Decision that he concurs in the results. At any rate, statements made by Our Members during oral
even if its agents' prior mistakes or illegal acts shackle government operations and allow others-
arguments are not stare decisis; what is conclusive are the decisions reached by the majority of
the Court. some by malice-to profit from official error or misbehavior, and even if the rectification prejudices
parties who have meanwhile received benefit. 157 Indeed, in the 2004 Decision, this Court even
directed the Ombudsman to determine the possible criminal liability of public officials and private
IV. persons responsible for the contract, and the OSG to undertake measures to protect the
government from the ill effects of the illegal disbursement of public funds. 158
The equitable doctrine of estoppel for the prevention of injustice and is for the protection of those WHEREFORE, premises considered, the Petition is GRANTED. The Amended Decision dated 22
who have been misled by that which on its face was fair and whose character, as represented, September 2008 of the Court of Appeals in CA-G.R. SP. No. 95988 is ANNULLED AND SET
parties to the deception will not, in the interest of justice, be heard to deny. 159 It cannot therefore ASIDE. A new one is entered DIRECTING the Regional Trial Court of Makati City, Branch 59,
be utilized to insulate from liability the very perpetrators of the injustice complained of. to ISSUE in Civil Case No. 04-346, entitled Mega Pacific eSolutions, Inc., vs. Republic of the
Philippines, the Writ of Preliminary Attachment prayed for by petitioner Republic of the Philippines
VI. against the properties of respondent Mega Pacific eSolutions, Inc., and Willy U. Yu, Bonnie S. Yu,
Enrique T. Tansipek, Rosita Y. Tansipek, Pedro O. Tan, Johnson W. Fong, Bernard I. Fong and
Lauriano Barrios.
The findings of the Office of the Ombudsman
are not controlling in the instant case.
No costs.
Respondents further claim that this Court has recognized the fact that it did not determine or
adjudge any fraud that may have been committed by individual respondents. Rather, it referred SO ORDERED.
the matter to the Ombudsman for the determination of criminal liability. 160 The Ombudsman in fact
made its own determination that there was no probable cause to hold individual respondents
criminally liable. 161

Respondents miss the point. The main issue in the instant case is whether respondents are guilty
of fraud in obtaining and executing the automation contract, to justify the issuance of a writ of
preliminary attachment in petitioner's favor. Meanwhile, the issue relating to the proceedings
before the Ombudsman (and this Court in G.R. No. 174777) pertains to the finding of lack of
probable cause for the possible criminal liability of respondents under the Anti-Graft and Corrupt
Practices Act.

The matter before Us involves petitioner's application for a writ of preliminary attachment in
relation to its recovery of the expended amount under the voided contract, and not the
determination of whether there is probable cause to hold respondents liable for possible criminal
liability due to the nullification of the automation contract. Whether or not the Ombudsman has
found probable cause for possible criminal liability on the part of respondents is not controlling in
the instant case.

CONCLUSION

If the State is to be serious in its obligation to develop and implement coordinated anti-corruption
policies that promote proper management of public affairs and public property, integrity,
transparency and accountability, 162 it needs to establish and promote effective practices aimed at
the prevention of corruption, 163 as well as strengthen our efforts at asset recovery. 164

As a signatory to the United Nations Convention Against Corruption (UNCAC), 165 the Philippines
acknowledges its obligation to establish appropriate systems of procurement based on
transparency, competition and objective criteria in decision-making that are effective in preventing
corruption. 166 To promote transparency, and in line with the country's efforts to curb corruption, it
is useful to identify certain fraud indicators or "red flags" that can point to corrupt activity. 167 This
case - arguably the first to provide palpable examples of what could be reasonably considered as
"red flags" of fraud and malfeasance in public procurement - is the Court's contribution to the
nation's continuing battle against corruption, in accordance with its mandate to dispense justice
and safeguard the public interest.
Republic of the Philippines The RTC, in its January 28, 1991 decision, found the respondent liable to pay CLN actual
SUPREME COURT damages inthe amount of ₱112,876.02 with 12% interest per annum from June 18,1990 (the date
Manila of first demand) and 20% of the amount recoverable as attorney’s fees.

SECOND DIVISION Complaint for Damages (Civil Case No. Q-92-13446)

G.R. No. 182770 September 17, 2014 Thereafter, the respondent instituted a complaint for damages against the petitioners, WPM and
Manlapaz. The respondent alleged that in Civil Case No. Q-90-7013, she was adjudged liable for
WPM INTERNATIONAL TRADING, INC. and WARLITO P. MANLAPAZ, Petitioners, a contract that she entered into for and in behalf of the petitioners, to which she should be entitled
vs. to reimbursement; that her participation in the management agreement was limited only to
FE CORAZON LABAYEN, Respondent. introducing Manlapaz to Engineer Carmelo Neri (Neri), CLN’s general manager; that it was
actually Manlapaz and Neri who agreed on the terms and conditions of the agreement; that when
the complaint for damages was filed against her, she was abroad; and that she did not know of the
DECISION
case until she returned to the Philippines and received a copy of the decision of the RTC.

BRION, J.:
In her prayer, the respondent sought indemnification in the amount of ₱112,876.60 plus interest at
12%per annum from June 18, 1990 until fully paid; and 20% of the award as attorney’s fees. She
We review in this petition for review on certiorari1 the decision2 dated September 28, 2007 and the likewise prayed that an award of ₱100,000.00 as moral damages and ₱20,000.00 as attorney’s
resolution3 dated April 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 68289 that fees be paid to her.
affirmed with modification the decision4 of the Regional Trial Court (RTC), Branch 77, Quezon
City.
In his defense, Manlapaz claims that it was his fellow incorporator/director Edgar Alcansajewho
was in-charge with the daily operations of the Quickbite outlets; that when Alcansaje left WPM, the
The Factual Background remaining directors were compelled to hire the respondent as manager; that the respondent had
entered intothe renovation agreement with CLN in her own personal capacity; that when he found
The respondent, Fe Corazon Labayen, is the owner of H.B.O. Systems Consultants, a the amount quoted by CLN too high, he instructed the respondent to either renegotiate for a lower
management and consultant firm. The petitioner, WPM International Trading, Inc. (WPM), is a price or to look for another contractor; that since the respondent had exceeded her authority as
domestic corporation engaged in the restaurant business, while Warlito P. Manlapaz (Manlapaz) is agent of WPM, the renovation agreement should only bind her; and that since WPM has a
its president. separate and distinct personality, Manlapaz cannot be made liable for the respondent’s claim.

Sometime in 1990, WPM entered into a management agreement with the respondent, by virtue of Manlapaz prayed for the dismissal of the complaint for lack of cause of action, and by way of
which the respondent was authorized to operate, manage and rehabilitate Quickbite, a restaurant counterclaim, for the award of ₱350,000.00 as moral and exemplary damages and ₱50,000.00
owned and operated by WPM. As part of her tasks, the respondent looked for a contractor who attorney’s fees.
would renovate the two existing Quickbite outlets in Divisoria, Manila and Lepanto St., University
Belt, Manila. Pursuant to the agreement, the respondent engaged the services of CLN The RTC, through an order dated March 2, 1993 declared WPM in default for its failure to file a
Engineering Services (CLN) to renovate Quickbite-Divisoria at the cost of ₱432,876.02. responsive pleading.

On June 13, 1990, Quickbite-Divisoria’s renovation was finally completed, and its possession was The Decision of the RTC
delivered to the respondent. However, out of the ₱432,876.02 renovation cost, only the amount of
₱320,000.00 was paid to CLN, leaving a balance of ₱112,876.02.
In its decision, the RTC held that the respondent is entitled to indemnity from Manlapaz. The RTC
found that based on the records, there is a clear indication that WPM is a mere instrumentality or
Complaint for Sum of Money (Civil Case No. Q-90-7013) business conduit of Manlapaz and as such, WPM and Manlapaz are considered one and the
same. The RTC also found that Manlapaz had complete control over WPM considering that he is
On October 19, 1990, CLN filed a complaint for sum of money and damages before the RTC its chairman, president and treasurer at the same time. The RTC thus concluded that Manlapaz is
against the respondent and Manlapaz, which was docketed as Civil Case No. Q-90-7013. CLN liable in his personal capacity to reimburse the respondent the amount she paid to CLN
later amended the complaint to exclude Manlapaz as defendant. The respondent was declared in inconnection with the renovation agreement.
default for her failure to file a responsive pleading.
The petitioners appealed the RTC decision with the CA. There, they argued that in view of the Our Ruling
respondent’s act of entering into a renovation agreement with CLN in excess of her authority as
WPM’s agent, she is not entitled to indemnity for the amount she paid. Manlapaz also contended We find merit in the petition.
that by virtue ofWPM’s separate and distinct personality, he cannot be madesolidarily liable with
WPM.
We note, at the outset, that the question of whether a corporation is a mere instrumentality or
alter-ego of another is purely one of fact.5 This is also true with respect to the question of whether
The Ruling of the Court of Appeals the totality of the evidence adduced by the respondentwarrants the application of the piercing the
veil of corporate fiction doctrine.6
On September 28, 2007, the CA affirmed, with modification on the award of attorney’s fees, the
decision of the RTC.The CA held that the petitioners are barred from raising as a defense the Generally, factual findings of the lower courts are accorded the highest degree of respect, if not
respondent’s alleged lack of authority to enter into the renovation agreement in view of their tacit finality. When adopted and confirmed by the CA, these findings are final and conclusive and may
ratification of the contract. not be reviewed on appeal,7save in some recognized exceptions8 among others, when the
judgment is based on misapprehension of facts.
The CA likewise affirmed the RTC ruling that WPM and Manlapaz are one and the same based on
the following: (1) Manlapaz is the principal stockholder of WPM; (2) Manlapaz had complete We have reviewed the records and found that the application of the principle of piercing the veil of
control over WPM because he concurrently held the positions of president, chairman of the board corporate fiction is unwarranted in the present case.
and treasurer, in violation of the Corporation Code; (3) two of the four other stockholders of WPM
are employed by Manlapaz either directly or indirectly; (4) Manlapaz’s residence is the registered
On the Application ofthe Principle of Piercing the Veil of Corporate Fiction
principal office of WPM; and (5) the acronym "WPM" was derived from Manlapaz’s initials. The CA
applied the principle of piercing the veil of corporate fiction and agreed with the RTC that
Manlapaz cannot evade his liability by simply invoking WPM’s separate and distinct personality. The rule is settled that a corporation has a personality separate and distinct from the persons
acting for and in its behalf and, in general, from the people comprising it.9 Following this principle,
After the CA's denial of their motion for reconsideration, the petitioners filed the present petition for the obligations incurred by the corporate officers, orother persons acting as corporate agents, are
review on certiorari under Rule 45 of the Rules of Court. the direct accountabilities ofthe corporation they represent, and not theirs. Thus, a director, officer
or employee of a corporation is generally not held personally liable for obligations incurred by the
corporation;10 it is only in exceptional circumstances that solidary liability will attach to them.
The Petition
Incidentally, the doctrine of piercing the corporate veil applies only in three (3) basic instances,
The petitioners submit that the CA gravely erred in sustaining the RTC’s application of the namely: a) when the separate and distinct corporate personality defeats public convenience, as
principle of piercing the veil of corporate fiction. They argue that the legal fiction of corporate when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud
personality could only be discarded upon clear and convincing proof that the corporation is being cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or
used as a shield to avoid liability or to commit a fraud. Since the respondent failed to establish that c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter
any of the circumstances that would warrant the piercing is present, Manlapaz claims that he ego or business conduit of a person, or where the corporation is so organized and controlled and
cannot be made solidarily liable with WPM to answerfor damages allegedly incurred by the its affairs so conducted as to make it merely aninstrumentality, agency, conduit or adjunct of
respondent. another corporation.11

The petitioners further argue that, assuming they may be held liable to reimburse to the Piercing the corporate veil based on the alter ego theory requires the concurrence of three
respondentthe amount she paid in Civil Case No. Q-90-7013, such liability is only limited to the elements, namely:
amount of ₱112,876.02, representing the balance of the obligation to CLN, and should not include
the twelve 12% percent interest, damages and attorney’s fees.
(1) Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction attacked
The Issues so that the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own;
The core issues are: (1) whether WPM is a mere instrumentality, alter-ego, and business conduit
of Manlapaz; and (2) whether Manlapaz is jointly and severally liable with WPM to the respondent (2) Such control must have beenused by the defendant to commit fraud or wrong, to
for reimbursement, damages and interest. perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust
act in contravention of plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or Since no harm could be said to have been proximately caused by Manlapaz for which the latter
unjust loss complained of. could be held solidarily liable with WPM, and considering that there was no proof that WPM had
insufficient funds, there was no sufficient justification for the RTC and the CA to have ruled that
The absence of any ofthese elements prevents piercing the corporate veil.12 Manlapaz should be held jointly and severally liable to the respondent for the amount she paid to
CLN. Hence, only WPM is liable to indemnify the respondent.
In the present case, the attendantcircumstances do not establish that WPM is a mere alter ego of
Manlapaz. Finally, we emphasize that the piercing of the veil of corporate fiction is frowned upon and thus,
must be done with caution.15 It can only be done if it has been clearly established that the separate
and distinct personality of the corporation is used to justify a wrong, protect fraud, or perpetrate a
Aside from the fact that Manlapaz was the principal stockholder of WPM, records do not show that
deception. The court must be certain that the corporate fiction was misused to such an extent that
WPM was organized and controlled, and its affairs conducted in a manner that made it merely an
injustice, fraud, or crime was committed against another, in disregard of its rights; it cannot be
instrumentality, agency, conduit or adjunct ofManlapaz. As held in Martinez v. Court of presumed.
Appeals,13 the mere ownership by a singlestockholder of even all or nearly all of the capital stocks
ofa corporation is not by itself a sufficient ground to disregard the separate corporate personality.
To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly On the Award of Moral Damages
and convincingly established.14
On the award of moral damages, we find the same in order in view of WPM's unjustified refusal to
Likewise, the records of the case do not support the lower courts’ finding that Manlapaz had pay a just debt. Under Article 2220 of the New Civil Code, 16 moral damages may be awarded in
control or domination over WPM or its finances. That Manlapaz concurrentlyheld the positions of cases of a breach of contract where the defendant acted fraudulently or in bad faith or was guilty
president, chairman and treasurer, or that the Manlapaz’s residence is the registered principal of gross negligence amounting to bad faith.
office of WPM, are insufficient considerations to prove that he had exercised absolutecontrol over
WPM. In the present case, when payment for the balance of the renovation cost was demanded, WPM,
instead of complying with its obligation, denied having authorized the respondent to contract in its
In this connection, we stress thatthe control necessary to invoke the instrumentality or alter ego behalf and accordingly refused to pay. Such cold refusal to pay a just debt amounts to a breach of
rule is not majority or even complete stock control but such domination of finances, policies and contract in bad faith, as contemplated by Article 2220. Hence, the CA's order to pay moral
practices that the controlled corporation has, so tospeak, no separate mind, will or existence of its damages was in order.
own, and is but a conduit for its principal. The control must be shown to have been exercised at
the time the acts complained of took place. Moreover, the control and breach of duty must WHEREFORE, in light of the foregoing, the decision dated September 28, 2007 of the Court of
proximately cause the injury or unjust loss for which the complaint is made. Appeals in CA-G.R. CV No. 68289 is MODIFIED and.that petitioner Warlito P. Manlapaz is
ABSOLVED from any liability under the renovation agreement.
Here, the respondent failed to prove that Manlapaz, acting as president, had absolute control over
WPM.1âwphi1 Even granting that he exercised a certain degree of control over the finances, SO ORDERED.
policies and practices of WPM, in view of his position as president, chairman and treasurer of the
corporation, such control does not necessarily warrant piercing the veil of corporate fiction since
there was not a single proof that WPM was formed to defraud CLN or the respondent, or that
Manlapaz was guilty of bad faith or fraud.

On the contrary, the evidence establishes that CLN and the respondent knew and acted on the
knowledgethat they were dealing with WPM for the renovation of the latter’s restaurant, and not
with Manlapaz. That WPM later reneged on its monetary obligation to CLN, resulting to the filing of
a civil case for sum of money against the respondent, does not automatically indicate fraud, in the
absence of any proof to support it.

This Court also observed that the CA failed to demonstrate how the separate and distinct
personalityof WPM was used by Manlapaz to defeat the respondent’s right for reimbursement.
Neither was there any showing that WPM attempted to avoid liability or had no property against
which to proceed.
Republic of the Philippines of the defunct MMIC by organizing NMIC.7 DBP and PNB owned 57% and 43% of the shares of
SUPREME COURT NMIC, respectively, except for five qualifying shares.8As of September 1984, the members of the
Manila Board of Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo
Agulto, and Faustino Agbada, were either from DBP or PNB.9
FIRST DIVISION
Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and Road
G.R. No. 167530 March 13, 2013 Construction Program in 1985 for a total contract price of ₱35,770,120. After computing the
payments already made by NMIC under the program and crediting the NMIC’s receivables from
PHILIPPINE NATIONAL BANK, Petitioner,
vs. Hercon, Inc., the latter found that NMIC still has an unpaid balance of ₱8,370,934.74. 10 Hercon,
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent. Inc. made several demands on NMIC, including a letter of final demand dated August 12, 1986,
and when these were not heeded, a complaint for sum of money was filed in the RTC of Makati,
Branch 136 seeking to hold petitioners NMIC, DBP, and PNB solidarily liable for the amount owing
x-----------------------x
Hercon, Inc.11 The case was docketed as Civil Case No. 15375.

G.R. No. 167561


Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger. This
prompted the amendment of the complaint to substitute HRCC for Hercon, Inc.12
ASSET PRIVATIZATION TRUST, Petitioner,
vs.
Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No. 50
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.
creating the APT for the expeditious disposition and privatization of certain government
corporations and/or the assets thereof. Pursuant to the said Proclamation, on February 27, 1987,
x-----------------------x DBP and PNB executed their respective deeds of transfer in favor of the National Government
assigning, transferring and conveying certain assets and liabilities, including their respective
G.R. No. 167603 stakes in NMIC.13 In turn and on even date, the National Government transferred the said assets
and liabilities to the APT as trustee under a Trust Agreement.14 Thus, the complaint was amended
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, for the second time to implead and include the APT as a defendant.
vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent. In its answer,15 NMIC claimed that HRCC had no cause of action. It also asserted that its contract
with HRCC was entered into by its then President without any authority. Moreover, the said
DECISION contract allegedly failed to comply with laws, rules and regulations concerning government
contracts. NMIC further claimed that the contract amount was manifestly excessive and grossly
disadvantageous to the government. NMIC made counterclaims for the amounts already paid to
LEONARDO-DE CASTRO, J.: Hercon, Inc. and attorney’s fees, as well as payment for equipment rental for four trucks,
replacement of parts and other services, and damage to some of NMIC’s properties.16
These petitions for review on certiorari1 assail the Decision 2 dated November 30, 2004 and the
Resolution3 dated March 22, 2005 of the Court of Appeals in CA-G.R. CV No. 57553. The said For its part, DBP’s answer17 raised the defense that HRCC had no cause of action against it
Decision affirmed the Decision4 dated November 6, 1995 of the Regional Trial Court (RTC) of because DBP was not privy to HRCC’s contract with NMIC. Moreover, NMIC’s juridical personality
Makati City, Branch 62, granting a judgment award of ₱8,370,934.74, plus legal interest, in favor is separate from that of DBP. DBP further interposed a counterclaim for attorney’s fees.18
of respondent Hydro Resources Contractors Corporation (HRCC) with the modification that the
Privatization and Management Office (PMO), successor of petitioner Asset Privatization Trust
(APT),5 has been held solidarily liable with Nonoc Mining and Industrial Corporation (NMIC) 6 and PNB’s answer19 also invoked lack of cause of action against it. It also raised estoppel on HRCC’s
petitioners Philippine National Bank (PNB) and Development Bank of the Philippines (DBP), while part and laches as defenses, claiming that the inclusion of PNB in the complaint was the first time
the Resolution denied reconsideration separately prayed for by PNB, DBP, and APT. a demand for payment was made on it by HRCC. PNB also invoked the separate juridical
personality of NMIC and made counterclaims for moral damages and attorney’s fees.20
Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on the
properties of Marinduque Mining and Industrial Corporation (MMIC). As a result of the foreclosure, APT set up the following defenses in its answer21: lack of cause of action against it, lack of privity
DBP and PNB acquired substantially all the assets of MMIC and resumed the business operations between Hercon, Inc. and APT, and the National Government’s preferred lien over the assets of
NMIC.22
After trial, the RTC of Makati rendered a Decision dated November 6, 1995 in favor of HRCC. It The Court of Appeals rendered the Decision dated November 30, 2004, affirmed the piercing of
pierced the corporate veil of NMIC and held DBP and PNB solidarily liable with NMIC: the veil of the corporate personality of NMIC and held DBP, PNB, and APT solidarily liable with
NMIC. In particular, the Court of Appeals made the following findings:
On the issue of whether or not there is sufficient ground to pierce the veil of corporate fiction, this
Court likewise finds for the plaintiff. In the case before Us, it is indubitable that [NMIC] was owned by appellants DBP and PNB to the
extent of 57% and 43% respectively; that said two (2) appellants are the only stockholders, with
From the documentary evidence adduced by the plaintiff, some of which were even adopted by the qualifying stockholders of five (5) consisting of its own officers and included in its charter
defendants and DBP and PNB as their own evidence (Exhibits "I", "I-1", "I-2", "I-3", "I-4", "I-5", "I5- merely to comply with the requirement of the law as to number of incorporators; and that the
A", "I-5-B", "I-5-C", "I-5-D" and submarkings, inclusive), it had been established that except for five directorates of DBP, PNB and [NMIC] are interlocked.
(5) qualifying shares, NMIC is owned by defendants DBP and PNB, with the former owning 57%
thereof, and the latter 43%. As of September 24, 1984, all the members of NMIC’s Board of xxxx
Directors, namely, Messrs. Jose Tengco, Jr., Rolando M. Zosa, Ruben Ancheta, Geraldo Agulto,
and Faustino Agbada are either from DBP or PNB (Exhibits "I-5", "I-5-C", "I-5-D"). We find it therefore correct for the lower court to have ruled that:

The business of NMIC was then also being conducted and controlled by both DBP and PNB. In "From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of both
fact, it was Rolando M. Zosa, then Governor of DBP, who was signing and entering into contracts DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with NMIC for the latter’s
with third persons, on behalf of NMIC. unpaid obligation to plaintiff."26(Citation omitted.)

In this jurisdiction, it is well-settled that "where it appears that the business enterprises are owned, The Court of Appeals then concluded that, "in keeping with the concept of justice and fair play,"
conducted and controlled by the same parties, both law and equity will, when necessary to protect the corporate veil of NMIC should be pierced, ratiocinating:
the rights of third persons, disregard legal fiction that two (2) corporations are distinct entities, and
treat them as identical." (Phil. Veterans Investment Development Corp. vs. CA, 181 SCRA 669).
For to treat NMIC as a separate legal entity from DBP and PNB for the purpose of securing
beneficial contracts, and then using such separate entity to evade the payment of a just debt,
From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of both would be the height of injustice and iniquity. Surely that could not have been the intendment of the
DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with NMIC for the latter’s law with respect to corporations. x x x.27
unpaid obligations to plaintiff.23
The dispositive portion of the Decision of the Court of Appeals reads:
Having found DBP and PNB solidarily liable with NMIC, the dispositive portion of the Decision of
the trial court reads:
WHEREFORE, premises considered, the Decision appealed from is hereby MODIFIED. The
judgment in favor of appellee Hydro Resources Contractors Corporation in the amount of
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff ₱8,370,934.74 with legal interest from date of demand is hereby AFFIRMED, but the dismissal of
HYDRO RESOURCES CONTRACTORS CORPORATION and against the defendants NONOC the case as against Assets Privatization Trust is REVERSED, and its successor the Privatization
and Management Office is INCLUDED as one of those jointly and severally liable for such
MINING AND INDUSTRIAL CORPORATION, DEVELOPMENT BANK OF THE PHILIPPINES and indebtedness. The award of attorney’s fees is DELETED.
PHILIPPINE NATIONAL BANK, ordering the aforenamed defendants, to pay the plaintiff jointly
and severally, the sum of ₱8,370,934.74 plus legal interest thereon from date of demand, and All other claims and counter-claims are hereby DISMISSED.
attorney’s fees equivalent to 25% of the judgment award.
Costs against appellants.28
The complaint against APT is hereby dismissed. However, APT, as trustee of NONOC MINING
AND INDUSTRIAL CORPORATION is directed to ensure compliance with this Decision. 24
The respective motions for reconsideration of DBP, PNB, and APT were denied.29
DBP and PNB filed their respective appeals in the Court of Appeals. Both insisted that it was
Hence, these consolidated petitions.30
wrong for the RTC to pierce the veil of NMIC’s corporate personality and hold DBP and PNB
solidarily liable with NMIC.25
All three petitioners assert that NMIC is a corporate entity with a juridical personality separate and
distinct from both PNB and DBP. They insist that the majority ownership by DBP and PNB of
NMIC is not a sufficient ground for disregarding the separate corporate personality of NMIC A corporation is an artificial entity created by operation of law. It possesses the right of succession
because NMIC was not a mere adjunct, business conduit or alter ego of DBP and PNB. According and such powers, attributes, and properties expressly authorized by law or incident to its
to them, the application of the doctrine of piercing the corporate veil is unwarranted as nothing in existence.37 It has a personality separate and distinct from that of its stockholders and from that of
the records would show that the ownership and control of the shareholdings of NMIC by DBP and other corporations to which it may be connected.38 As a consequence of its status as a distinct
PNB were used to commit fraud, illegality or injustice. In the absence of evidence that the stock legal entity and as a result of a conscious policy decision to promote capital formation,39 a
control by DBP and PNB over NMIC was used to commit some fraud or a wrong and that said corporation incurs its own liabilities and is legally responsible for payment of its obligations. 40 In
control was the proximate cause of the injury sustained by HRCC, resort to the doctrine of other words, by virtue of the separate juridical personality of a corporation, the corporate debt or
"piercing the veil of corporate entity" is misplaced.31 credit is not the debt or credit of the stockholder.41 This protection from liability for shareholders is
the principle of limited liability.42
DBP and PNB further argue that, assuming they may be held solidarily liable with NMIC to pay
NMIC’s exclusive and separate corporate indebtedness to HRCC, such liability of the two banks Equally well-settled is the principle that the corporate mask may be removed or the corporate veil
was transferred to and assumed by the National Government through the APT, now the PMO, pierced when the corporation is just an alter ego of a person or of another corporation. For
under the respective deeds of transfer both dated February 27, 1997 executed by DBP and PNB reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled
pursuant to Proclamation No. 50 dated December 8, 1986 and Administrative Order No. 14 dated only when it becomes a shield for fraud, illegality or inequity committed against third persons. 43
February 3, 1987.32
However, the rule is that a court should be careful in assessing the milieu where the doctrine of
For its part, the APT contends that, in the absence of an unqualified assumption by the National the corporate veil may be applied. Otherwise an injustice, although unintended, may result from its
Government of all liabilities incurred by NMIC, the National Government through the APT could not erroneous application.44 Thus, cutting through the corporate cover requires an approach
be held liable for NMIC’s contractual liability. The APT asserts that HRCC had not sufficiently characterized by due care and caution:
shown that the APT is the successor-in-interest of all the liabilities of NMIC, or of DBP and PNB as
transferors, and that the adjudged liability is included among the liabilities assigned and Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A
transferred by DBP and PNB in favor of the National Government.33 court should be mindful of the milieu where it is to be applied. It must be certain that the corporate
fiction was misused to such an extent that injustice, fraud, or crime was committed against
HRCC counters that both the RTC and the CA correctly applied the doctrine of "piercing the veil of another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it
corporate fiction." It claims that NMIC was the alter ego of DBP and PNB which owned, conducted cannot be presumed. x x x.45 (Emphases supplied; citations omitted.)
and controlled the business of NMIC as shown by the following circumstances: NMIC was owned
by DBP and PNB, the officers of DBP and PNB were also the officers of NMIC, and DBP and PNB Sarona v. National Labor Relations Commission46 has defined the scope of application of the
financed the operations of NMIC. HRCC further argues that a parent corporation may be held doctrine of piercing the corporate veil:
liable for the contracts or obligations of its subsidiary corporation where the latter is a mere
agency, instrumentality or adjunct of the parent corporation.34
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat
of public convenience as when the corporate fiction is used as a vehicle for the evasion of an
Moreover, HRCC asserts that the APT was properly held solidarily liable with DBP, PNB, and existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect
NMIC because the APT assumed the obligations of DBP and PNB as the successor-in-interest of fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a
the said banks with respect to the assets and liabilities of NMIC.35 As trustee of the Republic of the mere alter ego or business conduit of a person, or where the corporation is so organized and
Philippines, the APT also assumed the responsibility of the Republic pursuant to the following controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit
provision of Section 2.02 of the respective deeds of transfer executed by DBP and PNB in favor of or adjunct of another corporation. (Citation omitted.)
the Republic:
Here, HRCC has alleged from the inception of this case that DBP and PNB (and the APT as
SECTION 2. TRANSFER OF BANK’S LIABILITIES assignee of DBP and PNB) should be held solidarily liable for using NMIC as alter ego. 47 The RTC
sustained the allegation of HRCC and pierced the corporate veil of NMIC pursuant to the alter ego
xxxx theory when it concluded that NMIC "is a mere adjunct, business conduit or alter ego of both DBP
and PNB."48 The Court of Appeals upheld such conclusion of the trial court. 49 In other words, both
2.02 With respect to the Bank’s liabilities which are contingent and those liabilities where the the trial and appellate courts relied on the alter ego theory when they disregarded the separate
Bank’s creditors consent to the transfer thereof is not obtained, said liabilities shall remain in the corporate personality of NMIC.
books of the BANK with the GOVERNMENT funding the payment thereof.36
In this connection, case law lays down a three-pronged test to determine the application of the
After a careful review of the case, this Court finds the petitions impressed with merit. alter ego theory, which is also known as the instrumentality theory, namely:
(1) Control, not mere majority or complete stock control, but complete domination, not that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and
only of finances but of policy and business practice in respect to the transaction attacked is but a conduit for its principal."63 In addition, the control must be shown to have been exercised
so that the corporate entity as to this transaction had at the time no separate mind, will or at the time the acts complained of took place.64
existence of its own;
Both the RTC and the Court of Appeals applied the alter ego theory and penetrated the corporate
(2) Such control must have been used by the defendant to commit fraud or wrong, to cover of NMIC based on two factors: (1) the ownership by DBP and PNB of effectively all the
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust stocks of NMIC, and (2) the alleged interlocking directorates of DBP, PNB and
act in contravention of plaintiff’s legal right; and NMIC.65 Unfortunately, the conclusion of the trial and appellate courts that the DBP and PNB fit
the alter ego theory with respect to NMIC’s transaction with HRCC on the premise of complete
(3) The aforesaid control and breach of duty must have proximately caused the injury or stock ownership and interlocking directorates involved a quantum leap in logic and law exposing a
unjust loss complained of.50 (Emphases omitted.) gap in reason and fact.

The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be While ownership by one corporation of all or a great majority of stocks of another corporation and
completely under the control and domination of the parent.51 It examines the parent corporation’s their interlocking directorates may serve as indicia of control, by themselves and without more,
relationship with the subsidiary.52 It inquires whether a subsidiary corporation is so organized and however, these circumstances are insufficient to establish an alter ego relationship or connection
controlled and its affairs are so conducted as to make it a mere instrumentality or agent of the between DBP and PNB on the one hand and NMIC on the other hand, that will justify the
parent corporation such that its separate existence as a distinct corporate entity will be puncturing of the latter’s corporate cover. This Court has declared that "mere ownership by a
ignored.53 It seeks to establish whether the subsidiary corporation has no autonomy and the single stockholder or by another corporation of all or nearly all of the capital stock of a corporation
parent corporation, though acting through the subsidiary in form and appearance, "is operating the is not of itself sufficient ground for disregarding the separate corporate personality." 66 This Court
business directly for itself."54 has likewise ruled that the "existence of interlocking directors, corporate officers and shareholders
is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other
public policy considerations."67
The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in
using the subsidiary corporation be unjust, fraudulent or wrongful.55 It examines the relationship of
the plaintiff to the corporation.56 It recognizes that piercing is appropriate only if the parent True, the findings of fact of the Court of Appeals are conclusive and cannot be reviewed on appeal
corporation uses the subsidiary in a way that harms the plaintiff creditor.57 As such, it requires a to this Court, provided they are borne out of the record or are based on substantial evidence.68 It is
showing of "an element of injustice or fundamental unfairness."58 equally true that the question of whether one corporation is merely an alter ego of another is
purely one of fact. So is the question of whether a corporation is a paper company, a sham or
subterfuge or whether the requisite quantum of evidence has been adduced warranting the
The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s
piercing of the veil of corporate personality.69 Nevertheless, it has been held in Sarona v. National
control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm
Labor Relations Commission70 that this Court has the power to resolve a question of fact, such as
suffered.59 A causal connection between the fraudulent conduct committed through the
whether a corporation is a mere alter ego of another entity or whether the corporate fiction was
instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff
invoked for fraudulent or malevolent ends, if the findings in the assailed decision are either not
should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will supported by the evidence on record or based on a misapprehension of facts.
have been treated unjustly by the defendant’s exercise of control and improper use of the
corporate form and, thereby, suffer damages.60
In this case, nothing in the records shows that the corporate finances, policies and practices of
NMIC were dominated by DBP and PNB in such a way that NMIC could be considered to have no
To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence
separate mind, will or existence of its own but a mere conduit for DBP and PNB. On the contrary,
of three elements: control of the corporation by the stockholder or parent corporation, fraud or
the evidence establishes that HRCC knew and acted on the knowledge that it was dealing with
fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the
NMIC, not with NMIC’s stockholders. The letter proposal of Hercon, Inc., HRCC’s predecessor-in-
fraudulent or unfair act of the corporation. The absence of any of these elements prevents piercing
interest, regarding the contract for NMIC’s mine stripping and road construction program was
the corporate veil.61
addressed to and accepted by NMIC.71 The various billing reports, progress reports, statements of
accounts and communications of Hercon, Inc./HRCC regarding NMIC’s mine stripping and road
This Court finds that none of the tests has been satisfactorily met in this case. construction program in 1985 concerned NMIC and NMIC’s officers, without any indication of or
reference to the control exercised by DBP and/or PNB over NMIC’s affairs, policies and
In applying the alter ego doctrine, the courts are concerned with reality and not form, with how the practices.72
corporation operated and the individual defendant’s relationship to that operation.62 With respect to
the control element, it refers not to paper or formal control by majority or even complete stock HRCC has presented nothing to show that DBP and PNB had a hand in the act complained of, the
control but actual control which amounts to "such domination of finances, policies and practices alleged undue disregard by NMIC of the demands of HRCC to satisfy the unpaid claims for
services rendered by HRCC in connection with NMIC’s mine stripping and road construction a recognition that, even assuming that DBP and PNB exercised control over NMIC, there is no
program in 1985. On the contrary, the overall picture painted by the evidence offered by HRCC is evidence that the juridical personality of NMIC was used by DBP and PNB to commit a fraud or to
one where HRCC was dealing with NMIC as a distinct juridical person acting through its own do a wrong against HRCC.
corporate officers.73
There being a total absence of evidence pointing to a fraudulent, illegal or unfair act committed
Moreover, the finding that the respective boards of directors of NMIC, DBP, and PNB were against HRCC by DBP and PNB under the guise of NMIC, there is no basis to hold that NMIC was
interlocking has no basis. HRCC’s Exhibit "I-5,"74 the initial General Information Sheet submitted a mere alter ego of DBP and PNB. As this Court ruled in Ramoso v. Court of Appeals82:
by NMIC to the Securities and Exchange Commission, relied upon by the trial court and the Court
of Appeals may have proven that DBP and PNB owned the stocks of NMIC to the extent of 57% As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient
and 43%, respectively. However, nothing in it supports a finding that NMIC, DBP, and PNB had reason to the contrary appears. When the notion of legal entity is used to defeat public
interlocking directors as it only indicates that, of the five members of NMIC’s board of directors, convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as
four were nominees of either DBP or PNB and only one was a nominee of both DBP and an association of persons. Also, the corporate entity may be disregarded in the interest of justice
PNB.75 Only two members of the board of directors of NMIC, Jose Tengco, Jr. and Rolando Zosa, in such cases as fraud that may work inequities among members of the corporation internally,
were established to be members of the board of governors of DBP and none was proved to be a involving no rights of the public or third persons. In both instances, there must have been fraud,
member of the board of directors of PNB.76 No director of NMIC was shown to be also sitting and proof of it. For the separate juridical personality of a corporation to be disregarded, the
simultaneously in the board of governors/directors of both DBP and PNB. wrongdoing must be clearly and convincingly established. It cannot be presumed.

In reaching its conclusion of an alter ego relationship between DBP and PNB on the one hand and As regards the third element, in the absence of both control by DBP and PNB of NMIC and fraud
NMIC on the other hand, the Court of Appeals invoked Sibagat Timber Corporation v. or fundamental unfairness perpetuated by DBP and PNB through the corporate cover of NMIC, no
Garcia,77 which it described as "a case under a similar factual milieu." 78 However, in Sibagat harm could be said to have been proximately caused by DBP and PNB on HRCC for which HRCC
Timber Corporation, this Court took care to enumerate the circumstances which led to the piercing could hold DBP and PNB solidarily liable with NMIC.1âwphi1
of the corporate veil of Sibagat Timber Corporation for being the alter ego of Del Rosario & Sons
Logging Enterprises, Inc. Those circumstances were as follows: holding office in the same
Considering that, under the deeds of transfer executed by DBP and PNB, the liability of the APT
building, practical identity of the officers and directors of the two corporations and assumption of
as transferee of the rights, titles and interests of DBP and PNB in NMIC will attach only if DBP and
management and control of Sibagat Timber Corporation by the directors/officers of Del Rosario &
Sons Logging Enterprises, Inc. PNB are held liable, the APT incurs no liability for the judgment indebtedness of NMIC. Even
HRCC recognizes that "as assignee of DBP and PNB 's loan receivables," the APT simply
"stepped into the shoes of DBP and PNB with respect to the latter's rights and obligations" in
Here, DBP and PNB maintain an address different from that of NMIC. 79 As already discussed, NMIC.83 As such assignee, therefore, the APT incurs no liability with respect to NMIC other than
there was insufficient proof of interlocking directorates. There was not even an allegation of whatever liabilities may be imputable to its assignors, DBP and PNB.
similarity of corporate officers. Instead of evidence that DBP and PNB assumed and controlled the
management of NMIC, HRCC’s evidence shows that NMIC operated as a distinct entity endowed
Even under Section 2.02 of the respective deeds of transfer executed by DBP and PNB which
with its own legal personality. Thus, what obtains in this case is a factual backdrop different from,
not similar to, Sibagat Timber Corporation. HRCC invokes, the APT cannot be held liable. The contingent liability for which the National
Government, through the APT, may be held liable under the said provision refers to contingent
liabilities of DBP and PNB. Since DBP and PNB may not be held solidarily liable with NMIC, no
In relation to the second element, to disregard the separate juridical personality of a corporation, contingent liability may be imputed to the APT as well. Only NMIC as a distinct and separate legal
the wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be clearly and entity is liable to pay its corporate obligation to HRCC in the amount of ₱8,370,934.74, with legal
convincingly established; it cannot be presumed. Without a demonstration that any of the evils interest thereon from date of demand.
sought to be prevented by the doctrine is present, it does not apply.80
As trustee of the. assets of NMIC, however, the APT should ensure compliance by NMIC of the
In this case, the Court of Appeals declared: judgment against it. The APT itself acknowledges this.84

We are not saying that PNB and DBP are guilty of fraud in forming NMIC, nor are we implying that WHEREFORE, the petitions are hereby GRANTED.
NMIC was used to conceal fraud. x x x.81
The complaint as against Development Bank of the Philippines, the Philippine National Bank, and
Such a declaration clearly negates the possibility that DBP and PNB exercised control over NMIC the Asset Privatization Trust, now the Privatization and Management Office, is DISMISSED for
which DBP and PNB used "to commit fraud or wrong, to perpetuate the violation of a statutory or lack of merit. The Asset Privatization Trust, now the Privatization and Management Office, as
other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal rights." It is trustee of Nonoc Mining and Industrial Corporation, now the Philnico Processing Corporation, is
DIRECTED to ensure compliance by the Nonoc Mining and Industrial Corporation, now the
Philnico Processing Corporation, with this Decision.

SO ORDERED.
EN BANC Please be informed that the business operations of the New ANJH Enterprises, a single
Proprietorship engaged in oil extraction situated in San Pablo City, will be permanently
G.R. No. 203355, August 18, 2015 closed effective 15 March 2010 due to lack of capital caused by enormous uncollected
receivables/debts and the necessity for the plant to undergo general repairs and maintenance.
LEO R. ROSALES, EDGAR SOLIS JONATHAN G. RANIOLA, LITO FELICIANO, RAYMUNDO
x x x x
DIDAL, JR., NESTOR SALIN, ARNULFO S. ABRIL, RUBEN FLORES, DANTE FERMA AND
MELCHOR SELGA, Petitioners, v. NEW A.N.J.H. ENTERPRISES & N.H. OIL MILL
In this connection, we respectfully request that we be allowed to effect the payment of the
CORPORATION, NOEL AWAYAN, MA. FE AWAYAN, BYRON ILAGAN, HEIDI A. ILAGAN separation benefits to our employees before your Office and with your kind intervention to ensure
AND AVELINO AWAYAN, Respondents. that we are properly guided by the provisions of law in this undertaking.10 (Emphasis supplied)

DECISION On March. 16, 2010, petitioners Lito Feliciano (Feliciano), Edgar Solis (Solis), and Nestor Salin
(Salin) received their respective separation pays, signed the corresponding check vouchers and
executed Quitclaims and Release before Labor Arbiter Melchisedek A. Guan (LA Guan) of NLRC
VELASCO JR., J.: SRAB-IV San Pablo Office.11cralawrednad

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the On March 27, 2010, petitioner Leo Rosales (Rosales) similarly received his separation pay from
September 5, 2012 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 124395, which, in Noel and signed a Quitclaim and Release.12 On March 29, 2010, the other petitioners, Amulfo Abril
turn, affirmed the Resolutions of the National Labor Relations Commission (NLRC) dated (Abril), Raymundo Didal (Didal), Ruben Flores (Flores), Melchor Selga (Selga), Jonathan Ranola
December 28, 20112 and February 28, 20123 in NLRC-LAC Case No. 07-001796-11. (Ranola), and Dante Ferma (Ferma) also received their separation benefits and signed their
respective Quitclaims and Release and check vouchers.13cralawrednad
Respondent New ANJH Enterprises (New ANJH) is a sole proprietorship owned by respondent
Noel Awayan (Noel). Petitioners are its former employees who worked as machine operators, Following the payments thus made to petitioners and their execution of Quitclaims and Release,
drivers, helpers, lead and boiler men. LA Guan issued four (4) Orders, to wit: three Orders all dated March 22, 2010 for petitioners
Feliciano, Solis, and Salin;14 and one Order dated April 8, 2010 for petitioners Abril, Flores, Didal,
Allegedly due to dwindling capital, on February 11, 2010, Noel wrote the Director of the Ferma, Rosales, Selga and Ranola.15 In the said Orders, LA Guan declared the "labor dispute"
Department of Labor and Employment (DOLE) Region IV-A a letter regarding New ANJH's between New ANJH and petitioners as "dismissed with prejudice on ground of
impending cessation of operations and the sale of its assets to respondent NH Oil Mill Corporation settlement."16cralawrednad
(NH Oil), as well as the termination of thirty-three (33) employees by reason thereof.4 On February
13, 2010, Noel met with the 33 affected employees, which included petitioners, to inform them of Petitioners, however, filed a complaint for illegal dismissal, docketed as NLRC Case No. RAB-IV-
his plan.5 On even date, he gave the employees uniformly-worded Notices dated February 12, 04-00649-10-L, with NLRC Regional Arbitration Branch IV (NLRC-RAB-IV) in Calamba City. They
20106 informing them of the cessation of operations of New ANJH effective March 15, 2010 and alleged in their complaint that while New ANJH stopped its operations on March 15, 2010, it
the sale of its assets to a corporation. Noel also offered the employees, including petitioners, their resumed its operations as NH Oil using the same machineries and with the same owners and
separation pay. management.17 Petitioners thus claimed that the sale of the assets of New ANJH to NH Oil was a
circumvention of their security of tenure.
On March 5, 2010, Noel signed a Deed of Sale selling the equipment, machines, tools and/or
other devices being used by New ANJH Enterprises for the manufacturing and/or extraction of In a Decision dated April 29, 2011,18 Executive Labor Arbiter Generoso V. Santos (ELA Santos)
coconut oil for P950,000 to NH Oil, as represented by respondent Heidi A. Ilagan (Heidi), Noel's found that petitioners had been illegally dismissed and ordered their reinstatement and the
sister.7cralawrednad payment of One Million Six Thousand Forty-Five and 87/100 Pesos (P1,006,045.87)
corresponding to the petitioners' full backwages less the amount paid to them as their respective
Parenthetically, the Articles of Incorporation of NH Oil were prepared on January 27, 2010 with "separation pay." In ruling for the petitioners, ELA Santos ratiocinated that the buyer "in the
Noel appearing to have more than two-thirds (2/3) of the subscribed capital stock of the 'impending sale' undisclosed in the notices of [petitioners] is divulged by subsequent development
corporation.8 The remaining shares had been subscribed by Heidi and other members of the to be practically the same as the seller." Hence, for ELA Santos, it was extremely difficult to
Awayan family.9cralawrednad conclude that the sale was genuine and can validly justify the termination of the petitioners.

On March 8, 2010, respondents New ANJH and Noel filed before the NLRC Sub-Regional Respondents filed their Notice of Appeal with Appeal Memorandum19 along with a Verified Motion
Arbitration Branch No. IV (NLRC-SRAB-IV), San Pablo City a "Letter Request for Intervention," to Reduce Bond20 with the NLRC. They also posted 60% of the award ordered by the LA, or Six
which was docketed as SRAB-IV-03-5066-10-L. The letter request reads:cralawlawlibrary Hundred Three Thousand Six Hundred Twenty-Seven and 52/100 Pesos (P603,627.52), as their
appeal bond.21cralawrednad
Meanwhile, petitioners also filed a Memorandum of Partial Appeal contending that ELA Santos x x x x
erred in failing to award them moral and exemplary damages.22cralawrednad
The NLRC has full discretion to grant or deny the motion to reduce bond, and it may rule on
On September 24, 2011, the NLRC issued a Decision23 denying respondents' Verified Motion to the motion beyond the 10-day period within which to perfect an appeal. Obviously, at the
Reduce Bond for lack of merit and so dismissing their appeal for non-perfection. In the same time of the filing of the motion to reduce bond and posting of a bond in a reasonable amount, there
Decision, the NLRC also granted petitioners' partial appeal by modifying ELA Santos' Decision to is no assurance whether the appellant's motion is indeed based on "meritorious ground" and
include the award of P20,000.00 to each petitioner as moral and exemplary whether the bond he or she posted is of a "reasonable amount." Thus, the appellant always runs
damages.24cralawrednad the risk of failing to perfect an appeal.

Respondents filed their Motion for Reconsideration with Motion to Admit Additional Appeal Cash x x x In order to give full effect to the provisions on motion to reduce bond, the appellant must be
Bond25cralawredwith corresponding payment of additional cash bond.26cralawrednad allowed to wait for the ruling of the NLRC on the motion even beyond the 10-day period to
perfect an appeal. If the NLRC grants the motion and rules that there is indeed meritorious
While the motion was opposed by petitioners,27 the NLRC, in its Resolution dated December 28, ground and that the amount of the bond posted is reasonable, then the appeal is perfected. If the
2011,28reversed its earlier Decision and ordered the dismissal of petitioners' complaint on the NLRC denies the motion, the appellant may still file a motion for reconsideration as
ground that it was barred by the Orders issued by LA Guan under the doctrine of res judicata. provided under Section 15, Rule VII of the Rules. If the NLRC grants the motion for
Further, the NLRC pointed out that the sale of New ANJH's assets to NH Oil Mill was in the reconsideration and rules that there is indeed meritorious ground and that the amount of
exercise of sound management prerogative and there was no proof that it was made to defeat the bond posted is reasonable, then the appeal is perfected. If the NLRC denies the motion,
petitioners' security of tenure. then the decision of the labor arbiter becomes final and executory.

In its Resolution dated February 28, 2012,29 the NLRC denied petitioners' Motion for x x x
Reconsideration. Hence, petitioners filed a petition for certiorari with the CA.
In any case, the rule that the filing of a motion to reduce bond shall not stop the running of the
In the assailed Decision,30 the appellate court denied the petition for certiorari, thereby affirming period to perfect an appeal is not absolute. The Court may relax the rule. In Intertranz Container
the NLRC's Resolutions dated December 28, 2011 and February 28, 2012. Lines, Inc. v. Bautista, the Court held:cralawlawlibrary
"Jurisprudence tells us that in labor cases, an appeal from a decision involving a monetary award
In its Decision, the appellate court held that private respondents had substantially complied with may be perfected only upon the posting of cash or surety bond. The Court, however, has relaxed
the rule requiring the posting of an appeal bond equivalent to the total award given to the this requirement under certain exceptional circumstances in order to resolve controversies on their
employees. More importantly, so the CA held, the Orders rendered by LA Guan in NLRC Case No. merits. These circumstances include: (1) fundamental consideration of substantial justice; (2)
SRAB IV-03-5066-10-L were considered final and binding upon the parties and had the force and prevention of miscarriage of justice or of unjust enrichment; and (3) special circumstances of the
effect of a judgment rendered by the labor arbiter. Thus, the appellate court declared that the case combined with its legal merits, and the amount and the issue involved."32 (emphasis and
petitioners' complaint for illegal dismissal was already barred by res judicata. underscoring supplied)
In this case, the NLRC had reconsidered its original position and declared that the 60% bond was
Aggrieved by the CA's Decision, petitioners are now before this Court on a petition for review on reasonable given the merits of the justification provided by respondents in their Motion to Reduce
certiorari. Bond, as supplemented by their Motion for Reconsideration with Motion to Admit Additional
Appeal Cash Bond. The CA affirmed the merits of the grounds cited by respondents in their
We find the petition to be with merit. motions and the reasonableness of the bond originally posted by respondents. This is in accord
with the guidelines established in McBurnie v. Ganzon,33 where this Court declared that the
The suspension of the period to perfect the appeal upon the filing of a motion to reduce posting of a provisional cash or surety bond equivalent to ten percent (10%) of the monetary
bond award subject of the appeal is sufficient provided that there is meritorious ground
therefor, viz:cralawlawlibrary
On the issue of perfecting the appeal, the CA was correct when it pointed out that Rule VI of the [O]n the matter of the filing and acceptance of motions to reduce appeal bond, as provided in
New Rules of Procedure of the NLRC provides that a motion to reduce bond shall be entertained Section 6, Rule VI of the 2011 NLRC Rules of Procedure, the Court hereby RESOLVES that
"upon the posting of a bond in a reasonable amount in relation to the monetary award." As to what henceforth, the following guidelines shall be observed:cralawlawlibrary
the "reasonable amount" is, the NLRC has wide discretion in determining the reasonableness of (a) The filing of a motion to reduce appeal bond shall be entertained by the NLRC subject to the
the bond for purposes of perfecting an appeal. In Garcia v. KJ Commercial,31 this Court following conditions: (1) there is meritorious ground; and (2) a bond in a reasonable amount is
explained:cralawlawlibrary posted;
The filing of a motion to reduce bond and compliance with the two conditions stop the running of
the period to perfect an appeal. x x x (b) For purposes of compliance with condition no. (2), a motion shall be accompanied by the
posting of a provisional cash or surety bond equivalent to ten percent (10%) of the monetary the following cases involving all workers, whether agricultural or non
award subject of the appeal, exclusive of damages and attorney's fees; agricultural:ChanRoblesvirtualLawlibrary

(c) Compliance with the foregoing conditions shall suffice to suspend the running of the 10-day 1. Unfair labor practice cases;
reglementary period to perfect an appeal from the labor arbiter's decision to the NLRC;
2. Termination disputes;
(d) The NLRC retains its authority and duty to resolve the motion to reduce bond and determine
the final amount of bond that shall be posted by the appellant, still in accordance with the xxxx
standards of meritorious grounds and reasonable amount; and
6. Except claims for employees compensation, social security, medicare and maternity
(e) In the event that the NLRC denies the motion to reduce bond, or requires a bond that benefits, all other claims arising from employer-employee relations, including those
exceeds the amount of the provisional bond, the appellant shall be given a fresh period of of persons in domestic or household service, involving an amount exceeding five
ten (10) days from notice of the NLRC order within which to perfect the appeal by posting thousand pesos (P5,000.00) regardless of whether accompanied with a claim for
the required appeal bond.34 emphasis and underscoring added) reinstatement. (Emphasis supplied)
It is noted that the respondents have eventually posted the full amount of the award ordered by
the labor arbiter. Thus, given the absence of grave abuse of discretion on the part of the NLRC
The invocation of the labor arbiter's jurisdiction by way of a letter request instead of a complaint is
and the affirmation of the CA of the reasonableness of the motions and the amount of bond
of no moment, as it is well-settled that the application of technical rules of procedure is relaxed in
posted, there is no ground for this Court to reverse the CA's finding that the appeal had been
labor cases.
perfected.

Res Judicata does not bar the filing of the complaints for illegal dismissal The third requisite, however, is not present. The Orders rendered by LA Guan cannot be
considered as constituting a judgment on the merits. The Orders simply manifest that petitioners
"are amenable to the computations made by the company respecting their separation pay."
On the matter of the application of the doctrine of res judicata, however, this Court is loath to
Nothing more. They do not clearly state the petitioners' right or New ANJH's corresponding duty as
sustain the finding of the appellate court and the NLRC. For res judicata to apply, the concurrence
a result of the termination.36cralawrednad
of the following requisites must be verified: (1) the former judgment is final; (2) it is rendered by a
court having jurisdiction over the subject matter and the parties; (3) it is a judgment or an order on
Similarly, the fourth requisite is- also absent. While there may be substantial identity of the parties,
the merits; (4) there is-between the first and the second actions-identity of parties, of subject
there is no identity of subject matter or cause of action. In SME Bank, Inc. v. De Guzman,37 this
matter, and of causes of action.35cralawrednad
Court held that the acceptance of separation pay is an issue distinct from the legality of the
dismissal of the employees. We held:cralawlawlibrary
The petitioners dispute the existence of all of the foregoing requisites. First, petitioners contend
The conformity of the employees to the corporation's act of considering them as terminated and
that LA Guan does not have jurisdiction to issue the Orders in SRAB-IV-03-5066-10-L since, in the
their subsequent acceptance of separation pay does not remove the taint of illegal
first place, Noel's letter request for guidance in the payment of separation pay is allegedly not a
dismissal. Acceptance of separation pay does not bar the employees from subsequently
"labor dispute."
contesting the legality of their dismissal, nor does it estop them from challenging the legality of
their separation from the service.38 (Emphasis supplied)
Article 219 (previously Article 212) of the Labor Code defines a "labor dispute" as "any controversy
or matter concerning terms and conditions of employment or the association or In the absence of the third and fourth requisites, the appellate court should have proceeded to rule
on the validity of petitioners' termination.
representation of persons in negotiating, fixing, maintaining, changing or arranging the terms and
conditions of employment, regardless of whether the disputants stand in the proximate relation of
Piercing the veil of corporate existence is justified in the present case.
employer and employee." As separation pay concerns a term and condition of employment, Noel's
request to be guided in the payment thereof is clearly a labor dispute under the Labor Code.
The application of the doctrine of piercing the veil of corporate fiction is frowned upon. However,
The proper payment of separation pay further falls under the jurisdiction of the labor arbiter this Court will not hesitate to disregard the corporate fiction if it is used to such an extent that
pursuant to Art. 224 (previously Art. 217) of the Labor Code, as it is mandated as a necessary injustice, fraud, or crime is committed against another in disregard of his rights. 39cralawrednad
condition for the termination of employees, viz,:cralawlawlibrary
Art. 224. Jurisdiction of the Labor Arbiters and the Commission. In this case, petitioners advance the application of the doctrine because they were terminated
from employment on the pretext that there will be an impending permanent closure of the business
as a result of an intended sale of its assets to an undisclosed corporation, and that there will be a
(a) Except as otherwise provided under this Code,the Labor Arbiters shall have original and
change in the management. The termination notices received by petitioners identically
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of
read:cralawlawlibrary
the case by the parties for decision without extension, even in the absence of stenographic notes,
Nais po naming ipaabot sa inyo na ang New ANJH Enterprises ay ihihinto na ang operasyon dahil Therefrom, it is extremely difficult to conclude by quantum of evidence acceptable to [a]
sa nagpasya ako bilang may-ari na ipagbili na ang ari-arian nito sa iba kung kayat magkakaroon reasonable mind, [that] the "sale to a distinct entity" is genuine. And while the notices of
ng pagpapalit sa pamumunuan nito. termination state that there would be [a] change in management, this Office notes that
respondents do not deny that Noel and Heidi continue to manage NH Oil Mill. Therefore, as
Kaugnay po nito at ayon sa itinatadhana ng batas ay nais kong ipaabot sa inyo na 30 araw far as complainants' employment is concerned, this Office pierces the veil of corporate fiction of
matapos ninyong matanggap ang pasabing ito o simula sa Marso 15, 2010 ay ititigil na ang NH Oil Mill and finds that the purported sale thereto of the assets of ANJH is insufficient to validly
operasyon ng New ANJH Enterprises at sa nasabi ring petsa ay matatapos na rin ang terminate such employment. This Office cannot rule otherwise without running afoul to the
pagtratrabaho o "employment" ninyo sa New ANJH Enterprises.40 mandate of the Constitution securing to the workingman his employment, and guaranteeing to him
Subsequent events, however, revealed that the buyer of the assets of their employer was a full protection. So this Office declares that complainants were illegally dismissed. 42 (emphasis and
corporation owned by the same employer and members of his family. Furthermore, the business underscoring supplied)
re-opened in less than a month under the same management. Clearly, the milieu of the present case compels this Court to remove NH Oil's corporate mask as it
had become, and was used as, a shield for fraud, illegality and inequity against the petitioners.
Admittedly, mere ownership by a single stockholder of all or nearly all of the capital stock of the
corporation does not by itself justify piercing the corporate veil. Nonetheless, in this case, other WHEREFORE, the instant petition is GRANTED and the Decision dated September 5, 2012 of the
circumstances show that the buyer of the assets of petitioners' employer is none other than his Court of Appeals in CA-G.R. SP No. 124395, affirming the Resolutions of the National Labor
alter ego.41 We quote with approval the observations of ELA Santos:cralawlawlibrary Relations Commission (NLRC) dated December 28, 2011 and February 28, 2012 in NLRC-LAC
Respondents did not allege that they informed complainants neither did they state in the notices of Case No. 07-001796-11, is hereby REVERSED and SET ASIDE. The Decision of Executive Labor
termination that the buyer in the "impending sale" is NH Oil Mill. Pondering on these observations, Arbiter Generoso Santos in NLRC Case No. RAB-IV-04-00649-10-L to the effect that petitioners
this Office finds it too difficult to surmise that respondents' omission was not deliberate, and so this were illegally dismissed is REINSTATED.
Office holds that Noel was not in good faith in dealing with complainants. The information
disclosed by the Certificate of Registration and Articles of Incorporation of NH Oil Mill explains SO ORDERED.chanrobles virtuallawlibrary
respondents' motive. Its stockholders are members of [Noel's] family known to
complainants, and Noel is the controlling stockholder and director. The immediate
resumption of operation after cessation of operation on March 15, 2010 further explains it. While
complainants failed to prove that the stockholders in NH Oil Mill were those who managed
ANJH, respondents did not dispute that there was no change in the management people,
premises, tools, devices, equipment, and machinery under NH Oil Mill. The buyer in the
"impending sale" undisclosed in the notices to complainants is divulged by subsequent
development to be practically the same as the seller. These things are inconsistent with good
faith.

x x x x

Here, complainants' employment was terminated for the alleged sale of assets of ANJH to NH Oil
Mill that would allegedly entail [a] change of management. The Deed of Sale dated March 5, 2010
[that] respondents presented (Annex "20", respondents position paper) to prove the "sale," states
that [for] the consideration of Nine Hundred Fifty Thousand Pesos (Php950,000.00), Noel sold to
NH Oil Mill the equipment, machines, tool and/or other devises being used by ANJH for
manufacturing and/or extraction of coconut oil. This Office cannot simply accept it as sufficient
proof of sale by the seller to a distinct and separate entity.

x x x x

The subscribed capital stock of Noel and Heidi [in NH Oil] are worth Php790,000.00 and
Php190,000.00, respectively, or the total of Php980,000.00. Respondents claim that Noel was
managing ANJH and Heidi was its Secretary. The Deed of Sale is signed by Noel and Heidi,
Noel as [sellerl, and Heidi as representative of NH Oil Mill.Respondents did not enumerate
what [were] the equipment etc. subject of the "sale," and how they were depreciated, and what
[were] the equipment/machines owned by Avelino and rented by NH Oil Mill and for how much?
Republic of the Philippines San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or
SUPREME COURT assigned its rights and interests over the MPSA application in favor of Narra.
Baguio City
Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-
THIRD DIVISION IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja,
Municipality of Narra, Province of Palawan. SMMI subsequently conveyed, transferred and
G.R. No. 195580 April 21, 2014 assigned its rights and interest over the said MPSA application to Tesoro.

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3)
DEVELOPMENT, INC., and MCARTHUR MINING, INC., Petitioners, separate petitions for the denial of petitioners’ applications for MPSA designated as AMA-IVB-153,
vs. AMA-IVB-154 and MPSA IV-1-12.
REDMONT CONSOLIDATED MINES CORP., Respondent.
In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and
DECISION Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation.
Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the driving
force behind petitioners’ filing of the MPSAs over the areas covered by applications since it knows
VELASCO, JR., J.:
that it can only participate in mining activities through corporations which are deemed Filipino
citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI,
Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and they were likewise disqualified from engaging in mining activities through MPSAs, which are
Mining Development Corp. (Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur reserved only for Filipino citizens.
Mining Inc. (McArthur), which seeks to reverse the October 1, 2010 Decision 1 and the February
15, 2011 Resolution of the Court of Appeals (CA).
In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of
Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995 which provided:
The Facts
Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms, whether in
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a singular or plural, shall mean:
domestic corporation organized and existing under Philippine laws, took interest in mining and
exploring certain areas of the province of Palawan. After inquiring with the Department of xxxx
Environment and Natural Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already covered by Mineral Production Sharing
Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur. (aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a
corporation, partnership, association, or cooperative organized or authorized for the purpose of
engaging in mining, with technical and financial capability to undertake mineral resources
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an
development and duly registered in accordance with law at least sixty per cent (60%) of the capital
application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau
of which is owned by citizens of the Philippines: Provided, That a legally organized foreign-owned
(MGB), Region IV-B, Office of the Department of Environment and Natural Resources (DENR).
corporation shall be deemed a qualified person for purposes of granting an exploration permit,
financial or technical assistance agreement or mineral processing permit.
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in
Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which Additionally, they stated that their nationality as applicants is immaterial because they also applied
includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and for Financial or Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for
EP were then transferred to Madridejos Mining Corporation (MMC) and, on November 6, 2006, McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which are granted to foreign-
assigned to petitioner McArthur.2
owned corporations. Nevertheless, they claimed that the issue on nationality should not be raised
since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned
Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and by citizens of the Philippines. They asserted that though MBMI owns 40% of the shares of PLMC
Patricia Louise Mining & Development Corporation (PLMDC) which previously filed an application (which owns 5,997 shares of Narra),3 40% of the shares of MMC (which owns 5,997 shares of
for an MPSA with the MGB, Region IV-B, DENR on January 6, 1992. Through the said application, McArthur)4 and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro), 5 the
the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in barangays Calategas and shares of MBMI will not make it the owner of at least 60% of the capital stock of each of
petitioners. They added that the best tool used in determining the nationality of a corporation is the
"control test," embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of 1991. They also Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon
claimed that the POA of DENR did not have jurisdiction over the issues in Redmont’s petition City, Branch 92 (RTC) a Complaint16 for injunction with application for issuance of a temporary
since they are not enumerated in Sec. 77 of RA 7942. Finally, they stressed that Redmont has no restraining order (TRO) and/or writ of preliminary injunction, docketed as Civil Case No. 08-63379.
personality to sue them because it has no pending claim or application over the areas applied for Redmont prayed for the deferral of the MAB proceedings pending the resolution of the Complaint
by petitioners. before the SEC.

On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining But before the RTC can resolve Redmont’s Complaint and applications for injunctive reliefs, the
MPSAs. It held: MAB issued an Order on September 10, 2008, finding the appeal meritorious. It held:

[I]t is clearly established that respondents are not qualified applicants to engage in mining WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and
activities. On the other hand, [Redmont] having filed its own applications for an EPA over the SETS ASIDE the Resolution dated 14 December 2007 of the Panel of Arbitrators of Region IV-B
areas earlier covered by the MPSA application of respondents may be considered if and when (MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-02 and 2007-03, and its Order dated 07
they are qualified under the law. The violation of the requirements for the issuance and/or grant of February 2008 denying the Motions for Reconsideration of the Appellants. The Petition filed by
permits over mining areas is clearly established thus, there is reason to believe that the Redmont Consolidated Mines Corporation on 02 January 2007 is hereby ordered DISMISSED.17
cancellation and/or revocation of permits already issued under the premises is in order and open
the areas covered to other qualified applicants. Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmont’s application for
a TRO and setting the case for hearing the prayer for the issuance of a writ of preliminary
xxxx injunction on September 19, 2008.

WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration 19 of the
Mining and Development, Inc., and Narra Nickel Mining and Development Corp. as, September 10, 2008 Order of the MAB. Subsequently, it filed a Supplemental Motion for
DISQUALIFIED for being considered as Foreign Corporations. Their Mineral Production Sharing Reconsideration20 on September 29, 2008.
Agreement (MPSA) are hereby x x x DECLARED NULL AND VOID.6
Before the MAB could resolve Redmont’s Motion for Reconsideration and Supplemental Motion for
The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a Reconsideration, Redmont filed before the RTC a Supplemental Complaint21 in Civil Case No. 08-
100% Canadian company and declared their MPSAs null and void. In the same Resolution, it gave 63379.
due course to Redmont’s EPAs. Thereafter, on February 7, 2008, the POA issued an
Order7 denying the Motion for Reconsideration filed by petitioners. On October 6, 2008, the RTC issued an Order22 granting the issuance of a writ of preliminary
injunction enjoining the MAB from finally disposing of the appeals of petitioners and from resolving
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of Redmont’s Motion for Reconsideration and Supplement Motion for Reconsideration of the MAB’s
Appeal8 and Memorandum of Appeal9 with the Mines Adjudication Board (MAB) while Narra September 10, 2008 Resolution.
separately filed its Notice of Appeal10and Memorandum of Appeal.11
On July 1, 2009, however, the MAB issued a second Order denying Redmont’s Motion for
In their respective memorandum, petitioners emphasized that they are qualified persons under the Reconsideration and Supplemental Motion for Reconsideration and resolving the appeals filed by
law. Also, through a letter, they informed the MAB that they had their individual MPSA applications petitioners.
converted to FTAAs. McArthur’s FTAA was denominated as AFTA-IVB-0912 on May 2007, while
Tesoro’s MPSA application was converted to AFTA-IVB-0813 on May 28, 2007, and Narra’s FTAA Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by the
was converted to AFTA-IVB-0714 on March 30, 2006. MAB. On October 1, 2010, the CA rendered a Decision, the dispositive of which reads:

Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10,
Complaint15 with the Securities and Exchange Commission (SEC), seeking the revocation of the 2008 and July 1, 2009 of the Mining Adjudication Board are reversed and set aside. The findings
certificates for registration of petitioners on the ground that they are foreign-owned or controlled of the Panel of Arbitrators of the Department of Environment and Natural Resources that
corporations engaged in mining in violation of Philippine laws. Thereafter, Redmont filed on respondents McArthur, Tesoro and Narra are foreign corporations is upheld and, therefore, the
September 1, 2008 a Manifestation and Motion to Suspend Proceeding before the MAB praying rejection of their applications for Mineral Product Sharing Agreement should be recommended to
for the suspension of the proceedings on the appeals filed by McArthur, Tesoro and Narra. the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which
Technical Assistance Agreement (FTAA) or conversion of their MPSA applications to FTAA, the considered petitioners McArthur, Tesoro and Narra as foreign corporations. Nevertheless, the CA
matter for its rejection or approval is left for determination by the Secretary of the DENR and the determined that the POA’s declaration that the MPSAs of McArthur, Tesoro and Narra are void is
President of the Republic of the Philippines. highly improper.

SO ORDERED.23 While the petition was pending with the CA, Redmont filed with the Office of the President (OP) a
petition dated May 7, 2010 seeking the cancellation of petitioners’ FTAAs. The OP rendered a
In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed by Decision26 on April 6, 2011, wherein it canceled and revoked petitioners’ FTAAs for violating and
petitioners. circumventing the "Constitution x x x[,] the Small Scale Mining Law and Environmental
Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment Act and E.O.
584."27 The OP, in affirming the cancellation of the issued FTAAs, agreed with Redmont stating
After a careful review of the records, the CA found that there was doubt as to the nationality of
that petitioners committed violations against the abovementioned laws and failed to submit
petitioners when it realized that petitioners had a common major investor, MBMI, a corporation
evidence to negate them. The Decision further quoted the December 14, 2007 Order of the POA
composed of 100% Canadians. Pursuant to the first sentence of paragraph 7 of Department of
focusing on the alleged misrepresentation and claims made by petitioners of being domestic or
Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented
Filipino corporations and the admitted continued mining operation of PMDC using their locally
the requirement of the Constitution and other laws pertaining to the exploitation of natural
secured Small Scale Mining Permit inside the area earlier applied for an MPSA application which
resources, the CA used the "grandfather rule" to determine the nationality of petitioners. It
was eventually transferred to Narra. It also agreed with the POA’s estimation that the filing of the
provided:
FTAA applications by petitioners is a clear admission that they are "not capable of conducting a
large scale mining operation and that they need the financial and technical assistance of a foreign
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by entity in their operation, that is why they sought the participation of MBMI Resources, Inc." 28 The
Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino Decision further quoted:
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000
The filing of the FTAA application on June 15, 2007, during the pendency of the case only
shares are registered in the name of a corporation or partnership at least 60% of the capital stock
demonstrate the violations and lack of qualification of the respondent corporations to engage in
or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as
mining. The filing of the FTAA application conversion which is allowed foreign corporation of the
owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
earlier MPSA is an admission that indeed the respondent is not Filipino but rather of foreign
corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be
nationality who is disqualified under the laws. Corporate documents of MBMI Resources, Inc.
recorded as belonging to aliens.24(emphasis supplied)
furnished its stockholders in their head office in Canada suggest that they are conducting
operation only through their local counterparts.29
In determining the nationality of petitioners, the CA looked into their corporate structures and their
corresponding common shareholders. Using the grandfather rule, the CA discovered that MBMI in
The Motion for Reconsideration of the Decision was further denied by the OP in a
effect owned majority of the common stocks of the petitioners as well as at least 60% equity
Resolution30 dated July 6, 2011. Petitioners then filed a Petition for Review on Certiorari of the
interest of other majority shareholders of petitioners through joint venture agreements. The CA
OP’s Decision and Resolution with the CA, docketed as CA-G.R. SP No. 120409. In the CA
found that through a "web of corporate layering, it is clear that one common controlling investor in
Decision dated February 29, 2012, the CA affirmed the Decision and Resolution of the OP.
all mining corporations involved x x x is MBMI."25 Thus, it concluded that petitioners McArthur,
Thereafter, petitioners appealed the same CA decision to this Court which is now pending with a
Tesoro and Narra are also in partnership with, or privies-in-interest of, MBMI.
different division.

Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into FTAA
Thus, the instant petition for review against the October 1, 2010 Decision of the CA. Petitioners
applications suspicious in nature and, as a consequence, it recommended the rejection of put forth the following errors of the CA:
petitioners’ MPSA applications by the Secretary of the DENR.
I.
With regard to the settlement of disputes over rights to mining areas, the CA pointed out that the
POA has jurisdiction over them and that it also has the power to determine the of nationality of
petitioners as a prerequisite of the Constitution prior the conferring of rights to "co-production, joint The Court of Appeals erred when it did not dismiss the case for mootness despite the fact
venture or production-sharing agreements" of the state to mining rights. However, it also stated that the subject matter of the controversy, the MPSA Applications, have already been
that the POA’s jurisdiction is limited only to the resolution of the dispute and not on the approval or converted into FTAA applications and that the same have already been granted.
rejection of the MPSAs. It stipulated that only the Secretary of the DENR is vested with the power
to approve or reject applications for MPSA. II.
The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction 3.) When constitutional issue raised requires formulation of controlling principles to guide
considering that the Panel of Arbitrators has no jurisdiction to determine the nationality of the bench, the bar, and the public; and
Narra, Tesoro and McArthur.
4.) The case is capable of repetition yet evading review.34
III.
All of the exceptions stated above are present in the instant case. We of this Court note that a
The Court of Appeals erred when it did not dismiss the case on account of Redmont’s grave violation of the Constitution, specifically Section 2 of Article XII, is being committed by a
willful forum shopping. foreign corporation right under our country’s nose through a myriad of corporate layering under
different, allegedly, Filipino corporations. The intricate corporate layering utilized by the Canadian
IV. company, MBMI, is of exceptional character and involves paramount public interest since it
undeniably affects the exploitation of our Country’s natural resources. The corresponding actions
of petitioners during the lifetime and existence of the instant case raise questions as what principle
The Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign corporations
is to be applied to cases with similar issues. No definite ruling on such principle has been
based on the "Grandfather Rule" is contrary to law, particularly the express mandate of
pronounced by the Court; hence, the disposition of the issues or errors in the instant case will
the Foreign Investments Act of 1991, as amended, and the FIA Rules.
serve as a guide "to the bench, the bar and the public."35 Finally, the instant case is capable of
repetition yet evading review, since the Canadian company, MBMI, can keep on utilizing dummy
V. Filipino corporations through various schemes of corporate layering and conversion of applications
to skirt the constitutional prohibition against foreign mining in Philippine soil.
The Court of Appeals erred when it applied the exceptions to the res inter alios acta rule.
Conversion of MPSA applications to FTAA applications
VI.
We shall discuss the first error in conjunction with the sixth error presented by petitioners since
The Court of Appeals erred when it concluded that the conversion of the MPSA both involve the conversion of MPSA applications to FTAA applications. Petitioners propound that
Applications into FTAA Applications were of "suspicious nature" as the same is based on the CA erred in ruling against them since the questioned MPSA applications were already
mere conjectures and surmises without any shred of evidence to show the same.31 converted into FTAA applications; thus, the issue on the prohibition relating to MPSA applications
of foreign mining corporations is academic. Also, petitioners would want us to correct the CA’s
We find the petition to be without merit. finding which deemed the aforementioned conversions of applications as suspicious in nature,
since it is based on mere conjectures and surmises and not supported with evidence.
This case not moot and academic
We disagree.
The claim of petitioners that the CA erred in not rendering the instant case as moot is without
merit. The CA’s analysis of the actions of petitioners after the case was filed against them by respondent
is on point. The changing of applications by petitioners from one type to another just because a
case was filed against them, in truth, would raise not a few sceptics’ eyebrows. What is the reason
Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable for such conversion? Did the said conversion not stem from the case challenging their citizenship
controversy by virtue of supervening events, so that a declaration thereon would be of no practical and to have the case dismissed against them for being "moot"? It is quite obvious that it is
use or value."32 Thus, the courts "generally decline jurisdiction over the case or dismiss it on the petitioners’ strategy to have the case dismissed against them for being "moot."
ground of mootness."33
Consider the history of this case and how petitioners responded to every action done by the court
The "mootness" principle, however, does accept certain exceptions and the mere raising of an or appropriate government agency: on January 2, 2007, Redmont filed three separate petitions for
issue of "mootness" will not deter the courts from trying a case when there is a valid reason to do denial of the MPSA applications of petitioners before the POA. On June 15, 2007, petitioners filed
so. In David v. Macapagal-Arroyo (David), the Court provided four instances where courts can a conversion of their MPSA applications to FTAAs. The POA, in its December 14, 2007
decide an otherwise moot case, thus: Resolution, observed this suspect change of applications while the case was pending before it and
held:
1.) There is a grave violation of the Constitution;
The filing of the Financial or Technical Assistance Agreement application is a clear admission that
2.) The exceptional character of the situation and paramount public interest is involved; the respondents are not capable of conducting a large scale mining operation and that they need
the financial and technical assistance of a foreign entity in their operation that is why they sought Again, it is quite evident that petitioners have been trying to have this case dismissed for being
the participation of MBMI Resources, Inc. The participation of MBMI in the corporation only proves "moot." Their final act, wherein MBMI was able to allegedly sell/assign all its shares and interest in
the fact that it is the Canadian company that will provide the finances and the resources to operate the petitioner "holding companies" to DMCI, only proves that they were in fact not Filipino
the mining areas for the greater benefit and interest of the same and not the Filipino stockholders corporations from the start. The recent divesting of interest by MBMI will not change the stand of
who only have a less substantial financial stake in the corporation. this Court with respect to the nationality of petitioners prior the suspicious change in their
corporate structures. The new documents filed by petitioners are factual evidence that this Court
xxxx has no power to verify.

x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case only The only thing clear and proved in this Court is the fact that the OP declared that petitioner
demonstrate the violations and lack of qualification of the respondent corporations to engage in corporations have violated several mining laws and made misrepresentations and falsehood in
mining. The filing of the FTAA application conversion which is allowed foreign corporation of the their applications for FTAA which lead to the revocation of the said FTAAs, demonstrating that
earlier MPSA is an admission that indeed the respondent is not Filipino but rather of foreign petitioners are not beyond going against or around the law using shifty actions and strategies.
nationality who is disqualified under the laws. Corporate documents of MBMI Resources, Inc. Thus, in this instance, we can say that their claim of mootness is moot in itself because their
furnished its stockholders in their head office in Canada suggest that they are conducting defense of conversion of MPSAs to FTAAs has been discredited by the OP Decision.
operation only through their local counterparts.36
Grandfather test
On October 1, 2010, the CA rendered a Decision which partially granted the petition, reversing
and setting aside the September 10, 2008 and July 1, 2009 Orders of the MAB. In the said The main issue in this case is centered on the issue of petitioners’ nationality, whether Filipino or
Decision, the CA upheld the findings of the POA of the DENR that the herein petitioners are in fact foreign. In their previous petitions, they had been adamant in insisting that they were Filipino
foreign corporations thus a recommendation of the rejection of their MPSA applications were corporations, until they submitted their Manifestation and Submission dated October 19, 2012
recommended to the Secretary of the DENR. With respect to the FTAA applications or conversion where they stated the alleged change of corporate ownership to reflect their Filipino ownership.
of the MPSA applications to FTAAs, the CA deferred the matter for the determination of the Thus, there is a need to determine the nationality of petitioner corporations.
Secretary of the DENR and the President of the Republic of the Philippines. 37
Basically, there are two acknowledged tests in determining the nationality of a corporation: the
In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the dismissal of control test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005,
the petition asserting that on April 5, 2010, then President Gloria Macapagal-Arroyo signed and adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other
issued in their favor FTAA No. 05-2010-IVB, which rendered the petition moot and academic. laws pertaining to the controlling interests in enterprises engaged in the exploitation of natural
However, the CA, in a Resolution dated February 15, 2011 denied their motion for being a mere resources owned by Filipino citizens, provides:
"rehash of their claims and defenses."38 Standing firm on its Decision, the CA affirmed the ruling
that petitioners are, in fact, foreign corporations. On April 5, 2011, petitioners elevated the case to Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
us via a Petition for Review on Certiorari under Rule 45, questioning the Decision of the CA. Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino
Interestingly, the OP rendered a Decision dated April 6, 2011, a day after this petition for review ownership in the corporation or partnership is less than 60%, only the number of shares
was filed, cancelling and revoking the FTAAs, quoting the Order of the POA and stating that corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000
petitioners are foreign corporations since they needed the financial strength of MBMI, Inc. in order shares are registered in the name of a corporation or partnership at least 60% of the capital stock
to conduct large scale mining operations. The OP Decision also based the cancellation on the or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as
misrepresentation of facts and the violation of the "Small Scale Mining Law and Environmental owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment Act and E.O. corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be
584."39 On July 6, 2011, the OP issued a Resolution, denying the Motion for Reconsideration filed counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens.
by the petitioners.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or
Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the fact partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered
of the OP’s Decision and Resolution. In their Reply, petitioners chose to ignore the OP Decision as of Philippine nationality," pertains to the control test or the liberal rule. On the other hand, the
and continued to reuse their old arguments claiming that they were granted FTAAs and, thus, the second part of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in the
case was moot. Petitioners filed a Manifestation and Submission dated October 19, corporation or partnership is less than 60%, only the number of shares corresponding to such
2012,40 wherein they asserted that the present petition is moot since, in a remarkable turn of percentage shall be counted as Philippine nationality," pertains to the stricter, more stringent
events, MBMI was able to sell/assign all its shares/interest in the "holding companies" to DMCI grandfather rule.
Mining Corporation (DMCI), a Filipino corporation and, in effect, making their respective
corporations fully-Filipino owned.
Prior to this recent change of events, petitioners were constant in advocating the application of the The President may enter into agreements with Foreign-owned corporations involving either
"control test" under RA 7042, as amended by RA 8179, otherwise known as the Foreign technical or financial assistance for large-scale exploration, development, and utilization of
Investments Act (FIA), rather than using the stricter grandfather rule. The pertinent provision under minerals, petroleum, and other mineral oils according to the general terms and conditions provided
Sec. 3 of the FIA provides: by law, based on real contributions to the economic growth and general welfare of the country. In
such agreements, the State shall promote the development and use of local scientific and
SECTION 3. Definitions. - As used in this Act: technical resources. (emphasis supplied)

a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership The emphasized portion of Sec. 2 which focuses on the State entering into different types of
or association wholly owned by the citizens of the Philippines; a corporation organized under the agreements for the exploration, development, and utilization of natural resources with entities who
laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and are deemed Filipino due to 60 percent ownership of capital is pertinent to this case, since the
entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee issues are centered on the utilization of our country’s natural resources or specifically, mining.
retirement or separation benefits, where the trustee is a Philippine national and at least sixty Thus, there is a need to ascertain the nationality of petitioners since, as the Constitution so
percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That were a provides, such agreements are only allowed corporations or associations "at least 60 percent of
corporation and its non-Filipino stockholders own stocks in a Securities and Exchange such capital is owned by such citizens." The deliberations in the Records of the 1986
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock Constitutional Commission shed light on how a citizenship of a corporation will be determined:
outstanding and entitled to vote of each of both corporations must be owned and held by citizens
of the Philippines and at least sixty percent (60%) of the members of the Board of Directors, in Mr. BENNAGEN: Did I hear right that the Chairman’s interpretation of an independent national
order that the corporation shall be considered a Philippine national. (emphasis supplied) economy is freedom from undue foreign control? What is the meaning of undue foreign control?

The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty and
definition of a "Philippine National" under Sec. 3 of the FIA does not provide for it. They further the welfare of the Filipino in the economic sphere.
claim that the grandfather rule "has been abandoned and is no longer the applicable rule." 41 They
also opined that the last portion of Sec. 3 of the FIA admits the application of a "corporate MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not simply
layering" scheme of corporations. Petitioners claim that the clear and unambiguous wordings of freedom from foreign control? I think that is the meaning of independence, because as phrased, it
the statute preclude the court from construing it and prevent the court’s use of discretion in still allows for foreign control.
applying the law. They said that the plain, literal meaning of the statute meant the application of
the control test is obligatory.
MR. VILLEGAS: It will now depend on the interpretation because if, for example, we retain the
60/40 possibility in the cultivation of natural resources, 40 percent involves some control; not total
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent control, but some control.
the Constitution and pertinent laws, then it becomes illegal. Further, the pronouncement of
petitioners that the grandfather rule has already been abandoned must be discredited for lack of
MR. BENNAGEN: In any case, I think in due time we will propose some amendments.
basis.

Art. XII, Sec. 2 of the Constitution provides: MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.

Mr. BENNAGEN: Yes.


Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural Thank you, Mr. Vice-President.
resources shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly xxxx
undertake such activities, or it may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per centum of MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign
whose capital is owned by such citizens. Such agreements may be for a period not exceeding equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.
twenty-five years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law.
MR. VILLEGAS: That is right.
xxxx
MR. NOLLEDO: In teaching law, we are always faced with the question: ‘Where do we base the Under the above-quoted SEC Rules, there are two cases in determining the nationality of the
equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the Investee Corporation. The first case is the ‘liberal rule’, later coined by the SEC as the Control
paid-up capital stock of a corporation’? Will the Committee please enlighten me on this? Test in its 30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC
Rules which states, ‘(s)hares belonging to corporations or partnerships at least 60% of the capital
MR. VILLEGAS: We have just had a long discussion with the members of the team from the UP of which is owned by Filipino citizens shall be considered as of Philippine nationality.’ Under the
Law Center who provided us with a draft. The phrase that is contained here which we adopted liberal Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino
from the UP draft is ‘60 percent of the voting stock.’ stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-
owned is considered as Filipino.
MR. NOLLEDO: That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote. The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in
said Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of Filipino ownership
in the corporation or partnership is less than 60%, only the number of shares corresponding to
MR. VILLEGAS: That is right.
such percentage shall be counted as of Philippine nationality." Under the Strict Rule or
Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee
MR. NOLLEDO: Thank you. Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino
ownership.
With respect to an investment by one corporation in another corporation, say, a corporation with
60-40 percent equity invests in another corporation which is permitted by the Corporation Code, Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the
does the Committee adopt the grandfather rule? Investing Corporation and added to the shares directly owned in the Investee Corporation x x x.

MR. VILLEGAS: Yes, that is the understanding of the Committee. xxxx

MR. NOLLEDO: Therefore, we need additional Filipino capital? In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the
second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in
MR. VILLEGAS: Yes.42 (emphasis supplied) doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with
less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is
It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino-
in cases where corporate layering is present. foreign equity ownership is not in doubt, the Grandfather Rule will not apply. (emphasis supplied)

Elementary in statutory construction is when there is conflict between the Constitution and a After a scrutiny of the evidence extant on record, the Court finds that this case calls for the
statute, the Constitution will prevail. In this instance, specifically pertaining to the provisions under application of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt
Art. XII of the Constitution on National Economy and Patrimony, Sec. 3 of the FIA will have no prevails and persists in the corporate ownership of petitioners. Also, as found by the CA, doubt is
place of application. As decreed by the honorable framers of our Constitution, the grandfather rule present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since
prevails and must be applied. their common investor, the 100% Canadian corporation––MBMI, funded them. However,
petitioners also claim that there is "doubt" only when the stockholdings of Filipinos are less than
60%.43
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails
The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made
corporation for purposes, among others, of determining compliance with nationality requirements an example of an instance where "doubt" as to the ownership of the corporation exists. It would be
(the ‘Investee Corporation’). Such manner of computation is necessary since the shares in the ludicrous to limit the application of the said word only to the instances where the stockholdings of
Investee Corporation may be owned both by individual stockholders (‘Investing Individuals’) and non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. The
by corporations and partnerships (‘Investing Corporation’). The said rules thus provide for the corporations interested in circumventing our laws would clearly strive to have "60% Filipino
determination of nationality depending on the ownership of the Investee Corporation and, in Ownership" at face value. It would be senseless for these applying corporations to state in their
certain instances, the Investing Corporation. respective articles of incorporation that they have less than 60% Filipino stockholders since the
applications will be denied instantly. Thus, various corporate schemes and layerings are utilized to
circumvent the application of the Constitution.
Obviously, the instant case presents a situation which exhibits a scheme employed by &
stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind. To determine,
therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must be used.
Development
McArthur Mining, Inc.
Corp.
To establish the actual ownership, interest or participation of MBMI in each of petitioners’ MBMI Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00
corporate structure, they have to be "grandfathered." Resources,

As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its Inc.
application from SMMI. McArthur has a capital stock of ten million pesos (PhP 10,000,000) divided
into 10,000 common shares at one thousand pesos (PhP 1,000) per share, subscribed to by the Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
following:44 Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Name Nationality Number of Amount Amount Paid Esguerra


Shares Subscribed
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Madridejos Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
Corporation Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

MBMI Resources, Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60 Hernando


Inc.
Michael T. American 1 PhP 1,000.00 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 Mason
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00 Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00 Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
(emphasis supplied)
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60 Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with
(emphasis supplied) respect to the number of shares they subscribed to in the corporation, which is quite absurd since
Olympic is the major stockholder in MMC. MBMI’s 2006 Annual Report sheds light on why
Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure Olympic failed to pay any amount with respect to the number of shares it subscribed to. It states
that Olympic entered into joint venture agreements with several Philippine companies, wherein it
and composition as McArthur. In fact, it would seem that MBMI is also a major investor and
holds directly and indirectly a 60% effective equity interest in the Olympic Properties. 46 Quoting the
"controls"45 MBMI and also, similar nominal shareholders were present, i.e. Fernando B. Esguerra
said Annual report:
(Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell
(Cawkell):
On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic")
Madridejos Mining Corporation entered into a series of agreements including a Property Purchase and Development Agreement
(the Transaction Documents) with respect to three nickel laterite properties in Palawan, Philippines
(the "Olympic Properties"). The Transaction Documents effectively establish a joint venture
Name Nationality Number of Amount Amount Paid between the Company and Olympic for purposes of developing the Olympic Properties. The
Shares Subscribed Company holds directly and indirectly an initial 60% interest in the joint venture. Under certain
circumstances and upon achieving certain milestones, the Company may earn up to a 100%
Olympic Mines Filipino 6,663 PhP 6,663,000.00 PhP 0 interest, subject to a 2.5% net revenue royalty.47 (emphasis supplied)
Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company are the same: MBMI, Salazar, Esguerra, Agcaoili, Mason and Cawkell. The figures under
layering was utilized by MBMI to gain control over McArthur. It is apparent that MBMI has more "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same.
than 60% or more equity interest in McArthur, making the latter a foreign corporation. Delving deeper, we scrutinize SMMI’s corporate structure:

Tesoro Mining and Development, Inc. Sara Marie Mining, Inc.

Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos [[reference
(PhP 10,000,000) divided into ten thousand (10,000) common shares at PhP 1,000 per share, as = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]
demonstrated below:

Name Nationality Number of Amount Amount Paid


[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]
Shares Subscribed

Name Nationality Number of Amount Amount Paid Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0

Shares Subscribed Development

Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00 Corp.

Mining, Inc. MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,794,000.00

MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60 Inc.

Resources, Inc. Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00 Esguerra

Esguerra Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00 Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili Hernando

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00 Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00 Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60 Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

(emphasis supplied) (emphasis supplied)

Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as After subsequently studying SMMI’s corporate structure, it is not farfetched for us to spot the
the corporate structure of petitioner McArthur, down to the last centavo. All the other shareholders glaring similarity between SMMI and MMC’s corporate structure. Again, the presence of identical
stockholders, namely: Olympic, MBMI, Amanti Limson (Limson), Esguerra, Salazar, Hernando,
Mason and Cawkell. The figures under the headings "Nationality," "Number of Shares," "Amount
Subscribed," and "Amount Paid" are exactly the same except for the amount paid by MBMI which Fernandez
now reflects the amount of two million seven hundred ninety four thousand pesos (PhP
2,794,000). Oddly, the total value of the amount paid is two million eight hundred nine thousand Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
nine hundred pesos (PhP 2,809,900).
Agcaoili
Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic’s participation in
SMMI’s corporate structure, it is clear that MBMI is in control of Tesoro and owns 60% or more Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00
equity interest in Tesoro. This makes petitioner Tesoro a non-Filipino corporation and, thus,
disqualifies it to participate in the exploitation, utilization and development of our natural Bocalan
resources.
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Narra Nickel Mining and Development Corporation
Robert L. American 1 PhP 1,000.00 PhP 1,000.00
Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDC’s MPSA
application, whose corporate structure’s arrangement is similar to that of the first two petitioners McCurdy
discussed. The capital stock of Narra is ten million pesos (PhP 10,000,000), which is divided into
ten thousand common shares (10,000) at one thousand pesos (PhP 1,000) per share, shown as Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
follows:
Total 10,000 PhP 10,000,000.00 PhP 2,800,000.00
[[reference (emphasis supplied)
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]
Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is
Name Nationality Number of Amount Amount Paid present in this corporate structure.

Shares Subscribed Patricia Louise Mining & Development Corporation

Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00 Using the grandfather method, we further look and examine PLMDC’s corporate structure:

Mining & Name Nationality Number of Amount Amount Paid


Shares Subscribed
Development
Palawan Alpha South Resources Filipino 6,596 PhP PhP 0
Development Corporation 6,596,000.00
Corp.
MBMI Resources, Canadian 3,396 PhP PhP
MBMI Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00 3,396,000.00 2,796,000.00
Inc.
Resources, Inc.
Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00
Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00 Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00

Mendoza, Jr. Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00


Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00 Patricia Louise Mining Development Inc. ("Patricia") 34.0%

Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00 Narra Nickel Mining & Development Corporation (Narra) 60.4%
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Under a joint venture agreement the Company holds directly and indirectly an effective equity
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00 interest in the Alpha Property of 60.4%. Pursuant to a shareholders’ agreement, the Company
exercises joint control over the companies in the Alpha Group.48 (emphasis supplied)
Total 10,000 PhP PhP
10,000,000.00 2,708,174.60
(emphasis Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro
supplied) and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their
equity interests. Such conclusion is derived from grandfathering petitioners’ corporate owners,
namely: MMI, SMMI and PLMDC. Going further and adding to the picture, MBMI’s Summary of
Yet again, the usual players in petitioners’ corporate structures are present. Similarly, the amount Significant Accounting Policies statement– –regarding the "joint venture" agreements that it
of money paid by the 2nd tier majority stock holder, in this case, Palawan Alpha South Resources entered into with the "Olympic" and "Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra.
and Development Corp. (PASRDC), is zero. Noticeably, the ownership of the "layered" corporations boils down to MBMI, Olympic or
corporations under the "Alpha" group wherein MBMI has joint venture agreements with, practically
Studying MBMI’s Summary of Significant Accounting Policies dated October 31, 2005 explains the exercising majority control over the corporations mentioned. In effect, whether looking at the
reason behind the intricate corporate layering that MBMI immersed itself in: capital structure or the underlying relationships between and among the corporations, petitioners
are NOT Filipino nationals and must be considered foreign since 60% or more of their capital
stocks or equity interests are owned by MBMI.
JOINT VENTURES The Company’s ownership interests in various mining ventures engaged in the
acquisition, exploration and development of mineral properties in the Philippines is described as
follows: Application of the res inter alios acta rule

(a) Olympic Group Petitioners question the CA’s use of the exception of the res inter alios acta or the "admission by
co-partner or agent" rule and "admission by privies" under the Rules of Court in the instant case,
The Philippine companies holding the Olympic Property, and the ownership and interests therein, by pointing out that statements made by MBMI should not be admitted in this case since it is not a
are as follows: party to the case and that it is not a "partner" of petitioners.

Olympic- Philippines (the "Olympic Group") Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:

Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3% Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent of the
party within the scope of his authority and during the existence of the partnership or agency, may
be given in evidence against such party after the partnership or agency is shown by evidence
Tesoro Mining & Development, Inc. (Tesoro) 60.0% other than such act or declaration itself. The same rule applies to the act or declaration of a joint
owner, joint debtor, or other person jointly interested with the party.
Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an
effective equity interest in the Olympic Property of 60.0%. Pursuant to a shareholders’ agreement, Sec. 31. Admission by privies.- Where one derives title to property from another, the act,
the Company exercises joint control over the companies in the Olympic Group. declaration, or omission of the latter, while holding the title, in relation to the property, is evidence
against the former.
(b) Alpha Group
Petitioners claim that before the above-mentioned Rule can be applied to a case, "the partnership
The Philippine companies holding the Alpha Property, and the ownership interests therein, are as relation must be shown, and that proof of the fact must be made by evidence other than the
follows: admission itself."49 Thus, petitioners assert that the CA erred in finding that a partnership
relationship exists between them and MBMI because, in fact, no such partnership exists.
Alpha- Philippines (the "Alpha Group")
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that "by We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant case. The
entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro and McArthur. They POA has jurisdiction to settle disputes over rights to mining areas which definitely involve the
challenged the conclusion of the CA which pertains to the close characteristics of petitions filed by Redmont against petitioners Narra, McArthur and Tesoro. Redmont, by filing its
petition against petitioners, is asserting the right of Filipinos over mining areas in the Philippines
"partnerships" and "joint venture agreements." Further, they asserted that before this particular against alleged foreign-owned mining corporations. Such claim constitutes a "dispute" found in
partnership can be formed, it should have been formally reduced into writing since the capital Sec. 77 of RA 7942:
involved is more than three thousand pesos (PhP 3,000). Being that there is no evidence of
written agreement to form a partnership between petitioners and MBMI, no partnership was Within thirty (30) days, after the submission of the case by the parties for the decision, the panel
created. shall have exclusive and original jurisdiction to hear and decide the following:

We disagree. (a) Disputes involving rights to mining areas

A partnership is defined as two or more persons who bind themselves to contribute money, (b) Disputes involving mineral agreements or permits
property, or industry to a common fund with the intention of dividing the profits among
themselves.50 On the other hand, joint ventures have been deemed to be "akin" to partnerships We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.:53
since it is difficult to distinguish between joint ventures and partnerships. Thus:
The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or
[T]he relations of the parties to a joint venture and the nature of their association are so similar opposition to an application for mineral agreement. The POA therefore has the jurisdiction to
and closely akin to a partnership that it is ordinarily held that their rights, duties, and liabilities are resolve any adverse claim, protest, or opposition to a pending application for a mineral agreement
to be tested by rules which are closely analogous to and substantially the same, if not exactly the filed with the concerned Regional Office of the MGB. This is clear from Secs. 38 and 41 of the
same, as those which govern partnership. In fact, it has been said that the trend in the law has DENR AO 96-40, which provide:
been to blur the distinctions between a partnership and a joint venture, very little law being found
applicable to one that does not apply to the other.51
Sec. 38.
Though some claim that partnerships and joint ventures are totally different animals, there are very
xxxx
few rules that differentiate one from the other; thus, joint ventures are deemed "akin" or similar to a
partnership. In fact, in joint venture agreements, rules and legal incidents governing partnerships
are applied.52 Within thirty (30) calendar days from the last date of publication/posting/radio announcements, the
authorized officer(s) of the concerned office(s) shall issue a certification(s) that the
publication/posting/radio announcement have been complied with. Any adverse claim, protest,
Accordingly, culled from the incidents and records of this case, it can be assumed that the
opposition shall be filed directly, within thirty (30) calendar days from the last date of
relationships entered between and among petitioners and MBMI are no simple "joint venture
publication/posting/radio announcement, with the concerned Regional Office or through any
agreements." As a rule, corporations are prohibited from entering into partnership agreements;
concerned PENRO or CENRO for filing in the concerned Regional Office for purposes of its
consequently, corporations enter into joint venture agreements with other corporations or
partnerships for certain transactions in order to form "pseudo partnerships." resolution by the Panel of Arbitrators pursuant to the provisions of this Act and these implementing
rules and regulations. Upon final resolution of any adverse claim, protest or opposition, the Panel
of Arbitrators shall likewise issue a certification to that effect within five (5) working days from the
Obviously, as the intricate web of "ventures" entered into by and among petitioners and MBMI was date of finality of resolution thereof. Where there is no adverse claim, protest or opposition, the
executed to circumvent the legal prohibition against corporations entering into partnerships, then Panel of Arbitrators shall likewise issue a Certification to that effect within five working days
the relationship created should be deemed as "partnerships," and the laws on partnership should therefrom.
be applied. Thus, a joint venture agreement between and among corporations may be seen as
similar to partnerships since the elements of partnership are present.
xxxx
Considering that the relationships found between petitioners and MBMI are considered to be
partnerships, then the CA is justified in applying Sec. 29, Rule 130 of the Rules by stating that "by No Mineral Agreement shall be approved unless the requirements under this Section are fully
entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro and McArthur. complied with and any adverse claim/protest/opposition is finally resolved by the Panel of
Arbitrators.
Panel of Arbitrators’ jurisdiction
Sec. 41.
xxxx No mineral agreement shall be approved unless the requirements under this section are fully
complied with and any opposition/adverse claim is dealt with in writing by the Director and
Within fifteen (15) working days form the receipt of the Certification issued by the Panel of resolved by the Panel of Arbitrators. (Emphasis supplied.)
Arbitrators as provided in Section 38 hereof, the concerned Regional Director shall initially
evaluate the Mineral Agreement applications in areas outside Mineral reservations. He/She shall It has been made clear from the aforecited provisions that the "disputes involving rights to mining
thereafter endorse his/her findings to the Bureau for further evaluation by the Director within fifteen areas" under Sec. 77(a) specifically refer only to those disputes relative to the applications for a
(15) working days from receipt of forwarded documents. Thereafter, the Director shall endorse the mineral agreement or conferment of mining rights.
same to the secretary for consideration/approval within fifteen working days from receipt of such
endorsement. The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right
application is further elucidated by Secs. 219 and 43 of DENRO AO 95-936, which reads:
In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen (15)
working days from receipt of the Certification issued by the Panel of Arbitrators as provided for in Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of
Section 38 hereof, the same shall be evaluated and endorsed by the Director to the Secretary for Sections 28, 43 and 57 above, any adverse claim, protest or opposition specified in said sections
consideration/approval within fifteen days from receipt of such endorsement. (emphasis supplied) may also be filed directly with the Panel of Arbitrators within the concerned periods for filing such
claim, protest or opposition as specified in said Sections.
It has been made clear from the aforecited provisions that the "disputes involving rights to mining
areas" under Sec. 77(a) specifically refer only to those disputes relative to the applications for a Sec. 43. Publication/Posting of Mineral Agreement Application.-
mineral agreement or conferment of mining rights.
xxxx
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right
application is further elucidated by Secs. 219 and 43 of DENR AO 95-936, which read:
The Regional Director or concerned Regional Director shall also cause the posting of the
application on the bulletin boards of the Bureau, concerned Regional office(s) and in the
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of concerned province(s) and municipality(ies), copy furnished the barangays where the proposed
Sections 28, 43 and 57 above, any adverse claim, protest or opposition specified in said sections contract area is located once a week for two (2) consecutive weeks in a language generally
may also be filed directly with the Panel of Arbitrators within the concerned periods for filing such understood in the locality. After forty-five (45) days from the last date of publication/posting has
claim, protest or opposition as specified in said Sections. been made and no adverse claim, protest or opposition was filed within the said forty-five (45)
days, the concerned offices shall issue a certification that publication/posting has been made and
Sec. 43. Publication/Posting of Mineral Agreement.- that no adverse claim, protest or opposition of whatever nature has been filed. On the other hand,
if there be any adverse claim, protest or opposition, the same shall be filed within forty-five (45)
xxxx days from the last date of publication/posting, with the Regional offices concerned, or through the
Department’s Community Environment and Natural Resources Officers (CENRO) or Provincial
Environment and Natural Resources Officers (PENRO), to be filed at the Regional Office for
The Regional Director or concerned Regional Director shall also cause the posting of the
resolution of the Panel of Arbitrators. However, previously published valid and subsisting mining
application on the bulletin boards of the Bureau, concerned Regional office(s) and in the claims are exempted from posted/posting required under this Section.
concerned province(s) and municipality(ies), copy furnished the barangays where the proposed
contract area is located once a week for two (2) consecutive weeks in a language generally
understood in the locality. After forty-five (45) days from the last date of publication/posting has No mineral agreement shall be approved unless the requirements under this section are fully
been made and no adverse claim, protest or opposition was filed within the said forty-five (45) complied with and any opposition/adverse claim is dealt with in writing by the Director and
days, the concerned offices shall issue a certification that publication/posting has been made and resolved by the Panel of Arbitrators. (Emphasis supplied.)
that no adverse claim, protest or opposition of whatever nature has been filed. On the other hand,
if there be any adverse claim, protest or opposition, the same shall be filed within forty-five (45) These provisions lead us to conclude that the power of the POA to resolve any adverse claim,
days from the last date of publication/posting, with the Regional Offices concerned, or through the opposition, or protest relative to mining rights under Sec. 77(a) of RA 7942 is confined only to
Department’s Community Environment and Natural Resources Officers (CENRO) or Provincial adverse claims, conflicts and oppositions relating to applications for the grant of mineral rights.
Environment and Natural Resources Officers (PENRO), to be filed at the Regional Office for
resolution of the Panel of Arbitrators. However previously published valid and subsisting mining POA’s jurisdiction is confined only to resolutions of such adverse claims, conflicts and oppositions
claims are exempted from posted/posting required under this Section. and it has no authority to approve or reject said applications. Such power is vested in the DENR
Secretary upon recommendation of the MGB Director. Clearly, POA’s jurisdiction over "disputes
involving rights to mining areas" has nothing to do with the cancellation of existing mineral Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with the
agreements. (emphasis ours) DENR Regional Office or any concerned DENRE or CENRO are MPSA applications. Thus POA
has jurisdiction.
Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to resolve
disputes over MPSA applications subject of Redmont’s petitions. However, said jurisdiction does Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary
not include either the approval or rejection of the MPSA applications, which is vested only upon jurisdiction. Euro-med Laboratories v. Province of Batangas55 elucidates:
the Secretary of the DENR. Thus, the finding of the POA, with respect to the rejection of
petitioners’ MPSA applications being that they are foreign corporation, is valid. The doctrine of primary jurisdiction holds that if a case is such that its determination requires the
expertise, specialized training and knowledge of an administrative body, relief must first be
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not the obtained in an administrative proceeding before resort to the courts is had even if the matter may
POA, that has jurisdiction over the MPSA applications of petitioners. well be within their proper jurisdiction.

This postulation is incorrect. Whatever may be the decision of the POA will eventually reach the court system via a resort to the
CA and to this Court as a last recourse.
It is basic that the jurisdiction of the court is determined by the statute in force at the time of the
commencement of the action.54 Selling of MBMI’s shares to DMCI

Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization As stated before, petitioners’ Manifestation and Submission dated October 19, 2012 would want
us to declare the instant petition moot and academic due to the transfer and conveyance of all the
Act of 1980" reads: shareholdings and interests of MBMI to DMCI, a corporation duly organized and existing under
Philippine laws and is at least 60% Philippine-owned.56 Petitioners reasoned that they now cannot
be considered as foreign-owned; the transfer of their shares supposedly cured the "defect" of their
Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall exercise exclusive original
previous nationality. They claimed that their current FTAA contract with the State should stand
jurisdiction:
since "even wholly-owned foreign corporations can enter into an FTAA with the State." 57Petitioners
stress that there should no longer be any issue left as regards their qualification to enter into FTAA
1. In all civil actions in which the subject of the litigation is incapable of pecuniary estimation. contracts since they are qualified to engage in mining activities in the Philippines. Thus, whether
the "grandfather rule" or the "control test" is used, the nationalities of petitioners cannot be
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942: doubted since it would pass both tests.

Section 77. Panel of Arbitrators.— The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and
said fact should be disregarded. The manifestation can no longer be considered by us since it is
x x x Within thirty (30) days, after the submission of the case by the parties for the being tackled in G.R. No. 202877 pending before this Court.1âwphi1 Thus, the question of
decision, the panel shall have exclusive and original jurisdiction to hear and decide the whether petitioners, allegedly a Philippine-owned corporation due to the sale of MBMI's
following: shareholdings to DMCI, are allowed to enter into FTAAs with the State is a non-issue in this case.

(c) Disputes involving rights to mining areas In ending, the "control test" is still the prevailing mode of determining whether or not a corporation
is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to
undertake the exploration, development and utilization of the natural resources of the Philippines.
(d) Disputes involving mineral agreements or permits When in the mind of the Court there is doubt, based on the attendant facts and circumstances of
the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the
It is clear that POA has exclusive and original jurisdiction over any and all disputes involving rights "grandfather rule."
to mining areas. One such dispute is an MPSA application to which an adverse claim, protest or
opposition is filed by another interested applicant.1âwphi1 In the case at bar, the dispute arose or WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of
originated from MPSA applications where petitioners are asserting their rights to mining areas Appeals Decision dated October 1, 2010 and Resolution dated February 15, 2011 are hereby
subject of their respective MPSA applications. Since respondent filed 3 separate petitions for the AFFIRMED.
denial of said applications, then a controversy has developed between the parties and it is POA’s
jurisdiction to resolve said disputes.
SO ORDERED.