28

SULO NG BAYAN VS. ARANETA by the personal rights, obligations and transactions of its
stockholders or members. The property of the corporation is
[GR L-31061, 17 August 1976]
its property and not that of the stockholders, as owners,
Facts: although they have equities in it. Properties registered in the
name of the corporation are owned by it as an entity
On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de
separate and distinct from its members. Conversely, a
revindicacion with the Court of First Instance of Bulacan, Fifth
corporation ordinarily has no interest in the individual
Judicial District, Valenzuela, Bulacan, against Gregorio
property of its stockholders unless transferred to the
Araneta Inc. (GAI), Paradise Farms Inc., National Waterworks
corporation, "even in the case of a one-man corporation."
& Sewerage Authority (NAWASA), Hacienda Caretas Inc., and
The mere fact that one is president of a corporation does not
the Register of Deeds of Bulacan to recover the ownership
render the property which he owns or possesses the property
and possession of a large tract of land in San Jose del Monte,
of the corporation, since the president, as individual, and the
Bulacan, containing an area of 27,982,250 sq. ms., more or
corporation are separate similarities. Similarly, stockholders
less, registered under the Torrens System in the name of GAI,
in a corporation engaged in buying and dealing in real estate
et. al.'s predecessors-in-interest (who are members of the
whose certificates of stock entitled the holder thereof to an
corporation). On 2 September 1966, GAI filed a motion to
allotment in the distribution of the land of the corporation
dismiss the amended complaint on the grounds that (1) the
upon surrender of their stock certificates were considered
complaint states no cause of action; and (2) the cause of
not to have such legal or equitable title or interest in the land,
action, if any, is barred by prescription and laches. Paradise
as would support a suit for title, especially against parties
Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss
other than the corporation. It must be noted, however, that
based on the same grounds. NAWASA did not file any motion
the juridical personality of the corporation, as separate and
to dismiss. However, it pleaded in its answer as special and
distinct from the persons composing it, is but a legal fiction
affirmative defenses lack of cause of action by Sulo ng Bayan
introduced for the purpose of convenience and to subserve
Inc. and the barring of such action by prescription and laches.
the ends of justice. This separate personality of the
On 24 January 1967, the trial court issued an Order dismissing
corporation may be disregarded, or the veil of corporate
the (amended) complaint. On 14 February 1967, Sulo ng
fiction pierced, in cases where it is used as a cloak or cover for
Bayan filed a motion to reconsider the Order of dismissal,
fraud or illegality, or to work -an injustice, or where necessary
arguing among others that the complaint states a sufficient
to achieve equity. It has not been claimed that the members
cause of action because the subject matter of the controversy
have assigned or transferred whatever rights they may have
in one of common interest to the members of the corporation
on the land in question to the corporation. Absent any
who are so numerous that the present complaint should be
showing of interest, therefore, a corporation, has no
treated as a class suit. The motion was denied by the trial
personality to bring an action for and in behalf of its
court in its Order dated 22 February 1967.
stockholders or members for the purpose of recovering
Sulo ng Bayan appealed to the Court of Appeals. On 3 property which belongs to said stockholders or members in
September 1969, the Court of Appeals, upon finding that no their personal capacities.
question of fact was involved in the appeal but only questions
2. In order that a class suit may prosper, the following
of law and jurisdiction, certified the case to the Supreme
requisites must be present:
Court for resolution of the legal issues involved in the
controversy. (1) that the subject matter of the controversy is one of
common or general interest to many persons; and
Issue:
(2) that the parties are so numerous that it is impracticable to
1. Whether the corporation (non-stock) may institute
bring them all before the court.
an action in behalf of its individual members for the
recovery of certain parcels of land allegedly owned Here, there is only one party plaintiff, and the corporation
by said members, among others. does not even have an interest in the subject matter of the
controversy, and cannot, therefore, represent its members or
2. Whether the complaint filed by the corporation in
stockholders who claim to own in their individual capacities
behalf of its members may be treated as a class suit
ownership of the said property. Moreover, a class suit does
Held: not lie in actions for the recovery of property where several
persons claim partnership of their respective portions of the
1. It is a doctrine well-established and obtains both at law
property, as each one could alleged and prove his respective
and in equity that a corporation is a distinct legal entity to be
right in a different way for each portion of the land, so that
considered as separate and apart from the individual
they cannot all be held to have identical title through
stockholders or members who compose it, and is not affected
Document1 Page 1 of 41
 28
acquisition/prescription.

Document1 Page 2 of 41

GALLAGHER v. GERMANIA BREWING CO. 53 Minn. 1893.
The plaintiff, as assignee of one Westphal under a
general assignment for the benefit of creditors, brought this
action to recover for goods sold and delivered by his assignor
to the defendant corporation.
Jacob Barge and John Vander Horck intervened, and
set up in their complaint that they owned, and for nearly two
years had owned, (each one-half,) all the capital stock of the
defendant, no other person but themselves having any
interest in the stock or property of the corporation ; that each
of them had a valid and unsatisfied judgment against
Westphal upon a cause of action which accrued before the
assignment to plaintiff ; that Westphal was, and for over two
years had been, utterly insolvent.
The relief, sought was that their claims against
Westphal might be allowed, in equal amounts, as equitable
set-offs to the claim of the plaintiff against the defendant
corporation.
From an order overruling a demurrer to the
complaint, the plaintiff appeals, his contention being: First,
that Barge and Vander Horck had no such interest in the
litigation as to entitle, them to intervene ; second, that their
claims cannot be set off against a claim against the
corporation, because a corporation is a legal entity, entirely
distinct from its stock- holders.
These two propositions amount really to the same
thing, for, if Barge and Vander Horck cannot set off their
claims against that of plaintiff against the corporation, they
have no such interest in the subject of litigation as would
entitle them to intervene ; on the other hand, if their claims
are proper equitable set-offs, their right to intervene for the
purpose of setting them up is very clear.
The case is certainly a novel one, for we doubt
whether an instance can be found in the books where
stockholders ever attempted to set up their several equities
by way of set-off to claims against the corporations.
Document1
28
A corporation is a living thing with a separate
existence which cannot be swept aside as a technicality. It is
not a mere name or mask or cloak or device to conceal the
identity of persons and it is not suggested that the company
was formed for any dishonest or fraudulent purpose.
The facts of the present case appeal to a natural
sense of justice, for while, by fiction of law, a corporation is a
distinct entity, yet in reality it is an association of persons
who ape in fact the beneficial owners of all the corporate
property.
Hence, if interveners cannot set off their claims, the
practical result is that Westphal's estate will collect its entire
claim out of what is really their property, while the estate is
at the same time indebted to them on claims of greater
amount, which they will wholly lose because of Westphal's
insolvency ; but, as has been often said, hard cases are able to
make bad law.
The right of equitable set-off is, of course, not
derived from, or dependent upon, statute, but rests upon a
distinctly equitable doctrine, which courts of equity have
applied on certain well-recognized equitable grounds, the
object being to effect a clear equity and prevent irremediable
injustice ; and it may be stated as a general rule that,
whenever necessary to accomplish that end, the courts will
permit an equitable set-off, although the debts accrued in
different rights ; as, for example, by allowing a separate debt
to be set off against a joint debt, or, conversely, a joint debt
against a separate debt. They will also disregard the nominal
parties to the record, and consider the real parties in interest
; as, for example, when the assignor of a chose in action sues
for the benefit of the assignee, or a trustee for the benefit of
the cestui que trust.
Hence; had the plaintiff's claim been a joint one
against the interveners, there would have been no doubt of
their right to set off their separate claims against it, for
insolvency is well recognized as a distinct equitable ground
for allowing such a set-off. But such a case is not analogous to
the present.
To allow the set-off here, it is necessary to wholly
ignore the legal doctrine, or fiction, whichever you may call it,
that a corporation is an entity separate and distinct from the
body of its stockholders, and to treat it as a mere association
of individuals who are the real parties in interest.
Page 3 of 41
 28
In dealing with the rights of creditors, and the
obligations existing between a corporation and Its share-
holders by reason of their contract of membership,
undoubtedly the courts often find it necessary to consider the
real parties in interest as the individual shareholders; but it
may be laid down as a rule that, except in such cases, it has
been found absolutely essential, for the administration of
justice, to treat a corporation as a collective entity, without
regard to its individual shareholders.

In no other way can the title to corporate property

be kept free from complication and uncertainty. The
transferable nature of stock in a corporation is also a good
reason why the theory of a corporate entity should be
preserved, and why it is necessary to discriminate sharply
between corporate rights and obligations and those of
shareholders personally.

If the rights or liabilities of a corporation could be

affected by the acts of the stockholders, except when acting
in the corporate, name, or if shareholders could set up their
several equities against persons

Document1 Page 4 of 41

Stockholders of F. Guanzon and Sons, Inc v. Register of
Deeds of Manila (1962)
G.R. No. L-18216 October 30, 1962
Lessons Applicable: Strong Juridical Personality (Corporate
Law)
28
It is a transfer/conveyance of property. A corporation is a
juridical person separate and distinct from the stockholders.
Properties registered in the name of the corporation are
owned by it as a separate entity. The shares held by
stockholders are their personal property and not the
corporation, and it only typifies an aliquot part of the
corporation’s property or the right to share in the proceeds.
The holder of such share is not the owner of any part of the
capital of the corporation, nor is he entitled to possession of
any definite portion of its assets, neither is he a co-owner.
Liquidation by stockholders after a corporation’s dissolution is
not mere partitioning of community property, but already a
conveyance or transfer of title to them from the corporation.

FACTS:
Sept 19, 1960: 5 stockholders of F Guanzon executed a
certificate of liquidation of the assets of the corporation. By
virtue of a resolution dissolving the corporation, they wish to
distribute as liquidated dividends among themselves and in
proportion to their shareholdings, the assets of the
corporation, which includes real estate properties in Manila.
The Register of Deeds however, upon presentment of the
certificate of liquidation by the 5 stockholders, denied
registration of the properties to be distributed on 7 grounds,
3 of which were questioned by the stockholders: (1) no
statement of the # of parcels of land to be distributed (2)
registration fees iao P430.50 (3) doc stamp tax iao P940.45 (4)
court judgment approving the dissolution and directing
disposition of the assets.
The distribution of the corporate properties to the SHs was
deemed not in the nature of a partition among co-owners,
but rather a disposition by the corporation to the SHs as
opposite parties to a contract
Properties registered in the name of the corporation are
owned by it as an entity separate and distinct from its
members;
shares of stock are personal property, and NOT corporate
property
share of stock typifies an aliquot part of the corporation’s
property, or the right to share in the proceeds to that extent
when distributed
holder of shares is not the owner of any part of the capital of
the corporation, nor is he entitled to the possession of any
definite portion of its property or assets

The stockholders claim that the certificate of liquidation

merely partitions/distributes the corporate assets among
them because the corporation has already been dissolved.
Hence they need not comply with the requirements imposed
by the Register of Deeds and the Land Registration Authority.

The LRA counters that the distribution of the corporate assets

upon dissolution of the corporation, is ultimately a
transfer/conveyance of property to the stockholders.

ISSUE:
W/N the certificate of liquidation involves a mere distribution
of corporate assets or a transfer or conveyance of property.

HELD:
Document1 Page 5 of 41

FERMIN CARAM, JR. and ROSE DE CARAM v. CA and
ALBERTO V. ARELLANO
151 SCRA 372 (June 30, 1987)
CRUZ, J.
Topic: Corporate Entity, Disregarding the corporate entity
Facts:
1. The services of Barretto was requested to initiate the
incorporation of Filipinas Orient Airways (FOA).
2. Barretto was referred to as the “moving spirit” of
said corporation because it was through his effort
that it was created. Before FOA’s creation though,
Barretto contracted with a third party, Alberto
Arellano, for the latter to prepare a project study for
the feasibility of creating a corporation like FOA.
3. The project study was then presented to the would-
be incorporators and investors.
4. On the basis of said project study, Fermin Caram, Jr.
and Rosa Caram agreed to be incorporators of FOA.
Later however, Arellano filed a collection suit against
FOA, Barretto, and the Carams.
5. Arellano claims that he was not paid for his work on
the project study.
6. Lower Court: Orders the Carams to jointly and
severally pay Arellano P50,000.00 for the
preparation of the project study and his technical
services that led to the organization of the
defendant corporation, plus P10,000.00 attorney’s
fees
- It was upon the request of Barretto and Garcia
that Arellano handled the preparation of the
project study which project study was presented
to Caram so the latter was convinced to invest in
the proposed airlines.
- The project study was revised for purposes of
presentation to financiers and the banks. It was
on the basis of this study that defendant
corporation was actually organized and
rendered operational.
- Garcia and Caram, and Barretto became
members of the Board and/or officers of
defendant corporation
- All the other defendants who were involved in
the preparatory stages of the incorporation
must be liable
7. The petitioners claim that this order has no support
in fact and law because they had no contract
Document1
28
whatsoever with the private respondent regarding
the above-mentioned services.
8. Their position is that as mere subsequent investors
in the corporation that was later created, they
should not be held solidarily liable with FOA, a
separate juridical entity, and with Barretto and
Garcia (their co-defendants in the lower court) who
were the ones who requested the said services from
Arellano.
Issue:
Whether or not petitioners themselves are also personally
liable for such expenses and, if so, to what extent? NO. The
petitioners did not contract the services of Arellano. It was
only the results of such services that Barretto and Garcia
presented to them and which persuaded them to invest in
the proposed airline.
Ruling:
GRANTED. Petitioners are not liable.
Held:
The petitioners were not really involved in the initial steps that
finally led to the incorporation of FAO, which were being
directed by Barretto as the main promoter. It was he who was
putting all the pieces together. The airline was eventually
organized on the basis of the project study with the petitioners
as major stockholders and, together with Barretto and Garcia,
as principal officers. The petitioners were merely among the
financiers whose interest was to be invited and who were in
fact persuaded, on the strength of the project study, to invest
in the proposed airline.
There was no showing that FAO was a fictitious corporation
and did not have a separate juridical personality, to justify
making the petitioners, as principal stockholders thereof,
responsible for its obligations. As a bona fide corporation, FAO
should alone be liable for its corporate acts as duly authorized
by its officers and directors.
The petition is rather hazy and seems to be flawed by an
ambiguous ambivalence. It is unnecessary to examine at this
time the rules on solidary obligations, which the parties-
needlessly, as it turns out have belabored unto death.
Page 6 of 41

PALAY, INC. V CLAVE (1983)
Petitioner: Palay, Inc and Albert Onstott
Respondents: Jacobo Clave, National Housing Authority, and
Nazario Dumpit
Concept: The Corporate Entity
Brief Facts: Palay Inc and its President Onstott executed a
Contract to Sell a Parcel of Land in favour of respondent
Dumpit. Par 6 thereof provides for the automatic extrajudicial
rescission upon default of payment of the monthly
installments. Dumpit defaulted. 6 years later, he wrote Palay
that he is planning to update all his overdue accounts, but the
latter informed him that the contract was rescinded and that
the land was already sold to a third party. Dumpit filed a
complaint, questioning the validity of the rescission. The NHA
and the Office of the President ruled that such was void for
lack of judicial or notarial demand.
Doctrine: As a general rule, a corporation may not be made
to answer for acts or liabilities of its stockholders or those of
the legal entities to which it may be connected and vice versa.
Mere ownership by a single stockholder or by another
corporation is not of itself sufficient ground for disregarding
the separate corporate personality.
FACTS:
1. March 28, 1965 – Palay Inc through its President Albert
Onstott, executed a “Contract to Sell a Parcel of Land” in
favour of Nazario Dumpit.
o Sale price was P23,300 with 9% interest per
annum, payable with a down payment of
P4,660 and monthly instalments of P246.42
until fully paid.
2. Par 6 of their contract provided for automatic
extrajudicial rescission upon default in payment of any
monthly instalment after the lapse of 90 days from the
expiration of the grace period of one month, without the
need of notice and with forfeiture of all instalments paid.
3. Dumpit paid the down payment and several instalments
amounting to P13, 722.50. The last payment he made
was on December 5, 1967 for instalments up to
September 1967.
4. May 10, 1973 or 6 years later, Dumpit wrote Palay Inc,
offering to update all its overdue accounts with interest
and seeking its written consent to the assignment of his
rights to Lourdes Dizon.
Document1
28
5. June 20, 1973 – Dumpit wrote Palay again, reiterating the
same request.
6. Palay replied that their Contract to Sell had already been
rescinded pursuant to Par 6 of their contract, and that
the lot had already been resold to a 3rd party.
7. Dumpit filed a letter complaint questioning the validity of
the rescission of the contract with the National Housing
Authority (NHA) for reconveyance with an alternative
prayer of refund.
8. NHA: found the rescission void in the absence of either
judicial or notarial demand. Ordered Palay and Onstott to
refund to Dumpit P13,722.50 with 12% interest from the
filing of the complaint on November 8, 1974.
o Palay’s Motion for Reconsideration was
denied
9. On appeal to the Office of the President: Presidential
Executive Assistant affirmed the NHA Resolution.
10. SC issued a TRO enjoining the enforcement of the
resolution. On Oct 28, 1981, the SC dismissed the
petition. However, upon Palay’s motion, the SC
reconsidered and gave due course to the petition.
ISSUES:
WON petitioner Onstott may be held jointly and severally
liable with Palay (NO)
RATIO:
Onstott was then the President of the corporation and a
controlling stockholder.
No sufficient proof exists on record that said petitioner used
the corporation to defraud private respondent.
- It is basic that a corporation is invested by law with a
personality separate and distinct from those of the
persons composing it as wen as from that of any other
legal entity to which it may be related. As a general rule,
a corporation may not be made to answer for acts or
liabilities of its stockholders or those of the legal entities
to which it may be connected and vice versa.
- However, the veil of corporate fiction may be pierced
when it is used as a shield to further an end subversive of
justice; or for purposes that could not have been
intended by the law that created it; or to defeat public
convenience, justify wrong, protect fraud, or defend
crime; or to perpetuate fraud or confuse legitimate
issues; or to circumvent the law or perpetuate deception;
or as an alter ego, adjunct or business conduit for the
sole benefit of the stockholders.
Page 7 of 41
 28
- We find no badges of fraud on petitioners' part. They had
literally relied, albeit mistakenly, on paragraph 6 of its
contract with private respondent when it rescinded the
contract to sell extrajudicially and had sold it to a third
person.
1)
- He cannot, therefore, be made personally liable just
because he "appears to be the controlling stockholder".
- Mere ownership by a single stockholder or by another
corporation is not of itself sufficient ground for
disregarding the separate corporate personality.
2)
DISPOSITIVE: WHEREFORE, the questioned Resolution of
respondent public official, dated May 2, 1980, is hereby
modified. Petitioner Palay, Inc. is directed to refund to
respondent Nazario M. Dumpit the amount of P13,722.50,
with interest at twelve (12%) percent per annum from
November 8, 1974, the date of the filing of the Complaint.

Document1 Page 8 of 41
 28
Issue: WON the complaint should be dismissed based on
ADELIO C. CRUZ VS QUITERIO L. DALISAY
complainant’s motion of desistance.
Adm. Matter No. R-181-P July 31, 1987
Fernan, J:
Held: NO
Reason:
Administrative Matter in the Supreme Court.
1. It has been held that desistance of complainant does
Malfeasance in office, corrupt practices and serious
not preclude the taking of disciplinary action against
irregularities.
respondent.
2. Respondent’s actuation in enforcing a judgment
Doctrine: A corporation has a personality distinct and
against complainant who is not a judgment debtor in
separate from its individual stockholders or members.
the case calls for disciplinary action. What is
Facts:
incumbent upon respondent is to ensure that only
1. In a sworn complaint dated July 23, 1984, Adelio
the portion of a decision ordained or decreed in the
Cruz (complainant) charged Quiterio Dalisay
dispositive part should be the subject of the
(respondent), Senior Deputy Sheriff of Manila, with
execution.
malfeasance in office, corrupt practices and serious
3. The tenor of the NLRC judgment and the
irregularities allegedly committed as follows:
implementing writ is clear enough. It directed
a. Respondent attached and/or levied the
Qualitrans Limousine Service, inc., to reinstate the
money belonging to complainant Cruz when
discharged employees and pay them full backwages.
he was not himself the judgment debtor in
Respondent, however, choose to “pierce the veil of
the final judgment of an NLRC case sought
corporate entity” usurping a power belonging to the
to be enforced but rather the company
court and assumed improvidently that since the
known as “Qualitrans Limousine Service,
complainant is the owner/president of Qualitrans
Inc.”.
Limousine Service, Inc., they are one and the same. It
b. Respondent also caused the service of the
is a well settled doctrine both in law and equity that
alias writ of execution upon complainant
as a legal entity, a corporation has a personality
who is a resident of Pasay City, despite
distinct and separate from its individual stockholders
knowledge that his territorial jurisdiction
or members.
covers Manila only and does not extend to
4. The mere fact that one is president of the
Pasay City.
corporation does not render the property he owns
2. In his Comment, respondent explained that when he
or possesses the property of the corporation, since
garnished complainant’s cash deposit at the Philtrust
that president, as an individual, and the corporation
bank he was merely performing a ministerial duty.
are separate entities.
And that while it is true that said writ was addressed
to Qualitrans Limousine Service, Inc., it is also a fact
Decision: ACCORDINGLY, we find Respondent Deputy Sheriff
that complainant had executed an affidavit before
Quiterio l. Dalisay NEGLIGENT in the enforcement of the writ
the Pasay City assistant fiscal stating that he is the
of execution in NLRC Case No. 8-12389-91, and a fine
owner/ president of Qualitrans. Because of that
equivalent to 3 months salary is hereby imposed with a
declaration, the counsel for the plaintiff in the labor
stern warning that the commission of the same or similar
case advised him to serve notice of garnishment on
offense in the future will merit a heavier penalty.
the Philtrust bank.
3. On November 12, 1984 this case was referred to the
executive judge of the RTC of Manila for
investigation, report and recommendation.
However, prior to the termination of the
proceedings, complainant executed an affidavit of
desistance stating that he is no longer interested in
prosecuting the case and that there was just a
misunderstanding between complainant and
respondent.
4. On May 29, 1986, acting on respondent’s motion the
executive judge issued an order recommending the
dismissal of the case.
Document1 Page 9 of 41

INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO
(PETITIONER) VS. VOLUNTARY ARBITRATOR TEODORICO P.
CALICA AND INDOPHIL TEXTILE MILLS, INC. (RESPONDENTS)
FEBRUARY 3, 1992
the corporation as an entity – exception: doctrine of piercing
the veil of corporate fiction – when not applicable
SUMMARY:
Union sought to pierce corporate veil of Acrylic, alleging that
the creation of Acrylic was Indophil’s devise to evade the
application of its CBA with them. Court held that there was no
need to pierce Acrylic’s corporate veil. The legal corporate
entity is disregarded only if it is sought to hold the officers
and stockholders directly liable for a corporate debt or
obligation. Union did not seek to impose such claim against
Acrylic. The mere fact that businesses were related, that
some of the employees of Indophil were the same persons
manning and providing for auxiliary services to the other
company, and that physical plants, officers and facilities are
situated in the same compound – were not sufficient to apply
the doctrine. The doctrine of piercing the veil of corporate
entity applies when corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or
when it is made as a shield to confuse the legitimate issues or
where a corporation is the mere alter ego or business conduit
of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of
another corporation.
NATURE: Petition for certiorari
FACTS:
Indophil Textile Mill Workers Union-PTGWO is a legitimate
labor organization and the exclusive bargaining agent of all
the rank-and-file employees of Indophil Textile Mills,
Incorporated. Teodorico P. Calica is the Voluntary Arbitrator
of the National Conciliation and Mediation Board of the
Department of Labor and Employment, while Indophil Textile
Mills, Inc. is a corporation engaged in the manufacture, sale
and export of yarns of various counts and kinds and of
materials of kindred character.
Indophil Textile Mill Workers Union-PTGWO and Indophil
Textile Mills, Inc. executed a collective bargaining agreement.
7 months later, Indophil Acrylic Manufacturing Corporation
was formed and registered with the Securities and Exchange
Commission (different from above Indophil Textile). Acrylic
applied for registration with the Board of Investments for
incentives under the 1987 Omnibus Investments Code. The
application was approved on a preferred non-pioneer status.
Document1
28
Acrylic became operational and hired workers according to its
own criteria and standards. The workers of Acrylic unionized
and a duly certified collective bargaining agreement was
executed. A year after, the union claimed that the plant
facilities built and set up by Acrylic should be considered as an
extension or expansion of the facilities of Indophil Textile Mills
pursuant to Section 1(c), Article I of the CBA. In other words,
it is the Union's contention that Acrylic is part of the Indophil
bargaining unit. The union alleged that:
1. Both corporations are engaged in the same line of
business.
2. Both have their physical plants, offices and facilities
in the same compound.
3. Many of Indophil Textile’s machines were transferred
and installed and were being used in Acrylic.
4. Services of a number of units, departments and
sections were being provided to Acrylic.
5. Employees of Indophil Textile were the same persons
manning and servicing Acrylic.
Indophil Textile opposed, saying it was a juridical entity
separate and distinct from Acrylic. It argued through the
SolGen that Acrylic was not an alter ego or an adjunct or
business conduit of Indophil Textile Mills because it had a
separate business purpose. Indophil Textile engaged in the
business of manufacturing yarns of various counts and kinds
and textiles., while Acrylic manufactured, bough, sold, at
wholesale basis, bartered, imported, exported and otherwise
dealt in yarns of various counts and kinds. Acrylic cannot
manufacture textiles while Indophil cannot buy or import
yarns.
The existing impasse led the parties to enter into a
submission agreement. The parties jointly requested Calica to
act as voluntary arbitrator in the resolution of the pending
labor dispute pertaining to the proper interpretation of the
CBA provision. Calica ruled that the proper interpretation and
application of Sec. 1, (c), Art. I of the 1987 CBA does not
extend to the employees of Acrylic as an extension or
expansion of Indophil Textile Mills, Inc.
ISSUE:
Were the operations in Indophil Acrylic Corporation an
extension or expansion of Indophil Textile Mills? NO, they
were separate corporations. The CBA did not apply to
Acrylic.
 Under the doctrine of piercing the veil of corporate
entity, when valid grounds therefore exist, the legal
fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or
stockholders may be disregarded.
Page 10 of 41
 28
o In such cases, the corporation will be considered as a
mere association of persons.
o The members or stockholders or the corporation will
be considered as the corporation, that is, liability will
attach directly to the officers and stockholders.
o The doctrine applies when the corporate fiction is
used to defeat public convenience, justify wrong,
protect fraud, or defend crime, or when it is made as
a shield to confuse the legitimate issues, or where a
corporation is the mere alter ego or business conduit
of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit
or adjunct of another corporation.
3)
 In the case at bar, the union seeks to pierce the veil of
corporate entity of Acrylic, alleging that the creation of
the corporation is a devise to evade the application of
the CBA between the Union and Indophil Textile. While
the Court does not discount the possibility of the
similarities of the businesses of Indophil Textile Mills and
Acrylic, neither is it inclined to apply the doctrine invoked
by the union in granting the relief sought.
4)
 The fact that the businesses of Indophil Textile and
Acrylic are related, that some of the employees of
Indophil Textile are the same persons manning and
providing for auxiliary services to the units of Acrylic,
and that the physical plants, offices and facilities are
situated in the same compound, it is the Court’s opinion
that these facts are not sufficient to justify the piercing
of the corporate veil of Acrylic.

 Although it was shown that the two corporations’

businesses are related, that some of the employees of
the two corporations are interchanged, and that the
physical plants, offices, and facilities, are situated in the
same compound, were not considered sufficient bases
to pierce the veil in order to treat the two corporations
as one bargaining unit. The legal corporate entity is
disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or
obligation.
5)
DISPOSITION: Petition denied. Award of arbitrator affirmed.

Document1 Page 11 of 41

G.R. No. 149357. March 04, 2005
MOBILIA PRODUCTS, INC., Petitioners,
vs.
HAJIME UMEZAWA, Respondent.
G.R. No. 149403. March 04, 2005
PEOPLE OF THE PHILIPPINES, Petitioners,
vs.
HON. JUDGE RUMOLDO R. FERNANDEZ and
HAJIME UMEZAWA, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court are two consolidated petitions: a
petition for review on certiorari filed by the People of
the Philippines, docketed as G.R. No. 149403 of the
Resolution1 of the Court of Appeals (CA) in CA-G.R.
SP No. 52440 which reversed its decision and
granted the petition for certiorari, prohibition and
mandamus filed by respondent Hajime Umezawa; and
the petition for review on certiorari docketed as G.R.
No. 149357 filed by petitioner Mobilia Products, Inc.
(MPI), the intervenor in the CA, assailing the same
Resolution of the appellate court.
The Antecedents
The antecedents were amply summarized by the
Office of the Solicitor General (OSG) in the petition at
bar, to wit:
Mobilia Products, Inc. is a corporation engaged in the
manufacture and export of quality furniture which
caters only to the purchase orders booked and placed
through Mobilia Products Japan, the mother company
which does all the marketing and booking. After
orders from customers are booked at the mother
company in Japan, the same are coursed through
Mobilia Philippines for implementation and production,
after which, the ordered items are shipped to Japan
through the mother company.
Mobilia Products Japan sent Hajime Umezawa to the
Philippines in order to head Mobilia Products, Inc. as
President and General Manager. To qualify him as
such and as a Board Director, he was entrusted with
one nominal share of stock.
Document1
28
Sometime in the last week of January 1995,
Umezawa, then the President and General Manager
of Mobilia Products, Inc., organized another company
with his wife Kimiko, and his sister, Mitsuyo Yaguchi,
to be known as Astem Philippines
Corporation, without the knowledge of the
Chairman and Chief Executive Officer Susumo
Kodaira and the other members of the Board of
Directors of Mobilia.
The said company would be engaged in the same
business as Mobilia. Spouses Umezawa recruited
Justin Legaspi, former Production Manager of Mobilia,
to act as Manager and one Yoshikazu Hayano of
Phoenix Marble Corporation to serve as investors
[sic].
Pending formal organization, Spouses Umezawa,
Justin Legaspi and Yoshikazu Hayano wanted to
accelerate the market potentials of Astem by
participating in the International Furniture Fair 1995
held at the Word Trade Centre of Singapore on March
6 to 10, 1995.
One of the requirements of such Fair was that the
furniture exhibits must arrive and be received at
Singapore not later than February 23, 1995. Pressed
for time, with less than one month to prepare and
while Astem had yet no equipment and machinery, no
staff and no ready personnel, Umezawa, with grave
abuse of the confidence reposed on him as President
and General Manager of Mobilia Products, Inc., and in
conspiracy with his wife, his sister Mitsuyo Yaguchi,
Yoshikazu Hayano and Justin Legaspi, all with intent
to gain for themselves and for their company Astem
Philippines Corporation, stole prototype furniture from
petitioner Mobilia so that the said pieces of furniture
would be presented and exhibited as belonging to
Astem in the International Furniture Fair ’95 in
Singapore.
In order to avoid detection, Umezawa contacted
Henry Chua, the owner of Dew Foam, one of the
suppliers of Mobilia, for that the latter to load several
pieces of prototype furniture into a Dew Foam truck
and store them at the Dew Foam warehouse. The first
batch of furniture was stolen on February 8, 1995,
when Mr. Henry Chua, upon the request of
respondent Umezawa, caused to be loaded into his
Dew Foam truck two prototype sofa models worth
₱500,000.00, after which, the same were spirited from
the Mobilia compound, then transported and stored in
Henry Chua’s warehouse.
Page 12 of 41

Again, on February 18, 1995, Umezawa, with grave
abuse of confidence and taking advantage of his
position as President and General Manager,
unlawfully stole expensive furniture from Mobilia’s
factory worth ₱2,964,875.00. In order to avoid
detection, the said furniture were loaded in the truck
belonging to Dew Foam, with respondent Umezawa
personally supervising the loading, the carting and
spiriting away of the said furniture. Thus, taking
advantage of his position as General Manager, he
managed to have the said furniture taken out of the
company premises and passed the company guard
without any problem and difficulty.
Further, on February 19, 1995, around 1 o’clock in the
afternoon, respondent Umezawa again loaded into his
motor vehicle, and took away from company premises
under the same irregular and unlawful circumstances,
an expensive three-seater sofa worth ₱255,000.00.
The taking out of the said furniture was effected in
violation of the standard procedures established by
petitioner corporation which requires that every
shipment or taking out of the furniture be checked and
reviewed by Mobilia’s Production, Planning, Inventory
Costing and Control (PPICC) Division. All the
foregoing furniture were transported to and stored at
Henry Chua’s warehouse. After sometime, the
foregoing furniture were photographed for slide
photos at Photo Folio at the Reclamation Area, Cebu
City and then finally catalogued for use in the
Singapore Fair for the use of Astem and its supposed
owners, namely: spouses Umezawa, Hayano and
Legaspi. The foregoing furniture models were finally
shipped for exhibition at the International Furniture
Fair ’95 in Singapore as furniture belonging to Astem
Philippines Corporation.
Sometime in March 1995, based on orders booked for
Astem, Umezawa, with unfaithfulness and abuse of
confidence reposed on him as the President and
General Manager of petitioner Mobilia, ordered and
caused the manufacture of eighty-nine (89) pieces of
furniture with a total value of ₱17,108,500.00. The
said pieces of furniture were made with Mobilia
supplies, materials and machineries, as well as with
Mobilia time and personnel, all of which were under
the administration and control of Umezawa as
President and General Manager. The said materials
and supplies, the time and labor, were supposed to be
used for the manufacture and production of quality
furniture for the EXCLUSIVE USE of Mobilia.
However, Umezawa, in violation of his duty to apply
Document1
28
the same for the use of Mobilia and the duty to
account for the same, converted their use for the
benefit of Astem or for the use and benefit of
Umezawa, his wife and sister, Yoshikazu Hayano and
Legaspi, much to the damage and prejudice of Mobilia
Products.
The same furniture could also have been taken out of
the company premises by Umezawa and cohorts for
shipment and delivery to Astem customers had it not
been for the timely discovery of the previous theft. …2
The Board of Directors of MPI, consisting of its
Chairman Susumo Kodaira and members Yasushi
Kato and Rolando Nonato, approved a Resolution on
May 2, 1995 authorizing the filing of a complaint
against Umezawa for two counts of qualified theft
allegedly committed on February 18 and 19, 1995.
Attached to the complaint was the Joint Affidavit of
Danilo Lallaban, George del Rio and Yasushi Kato.
The case was docketed as I.S. No. 95-275.
On May 15, 1995, the public prosecutor filed an
Information for qualified theft against Umezawa with
the Regional Trial Court (RTC) of Lapu-Lapu City. The
accusatory portion of the Information, docketed as
Criminal Case No. 013231-L, reads:
That during or about the period comprised between
the 18th and 19th day of February 1995, in the City of
Lapu-Lapu, Philippines, within the jurisdiction of this
Honorable Court, the accused, while being then the
President and General Manager of Mobilia Products,
Inc., a corporation engaged in the manufacture and
export of furniture, holding office and doing business
in the Mactan Export Processing Zone, Lapu-Lapu
City, with grave abuse of the confidence reposed
upon him by his employer, with intent to gain, did then
and there willfully, unlawfully and feloniously take,
steal and carry away from the corporation’s factory in
Mactan Export Processing Zone, Lapu-Lapu City,
expensive pieces of furniture, to wit:
1) 1 set, Model No. 3, 2-seater
German leather sofa, worth - - - - - - - - - - - - - - - - - -
₱ 208,125.00
2) 1 set, Model No. 8, 2-seater
German leather sofa, worth - - - - - - - - - - - - - - - - - -
₱ 315,000.00
Page 13 of 41
 28
3) 1 set, Model No. 5, 2-seater No. 10, Italian marble, worth - - - - - - - - - - - - - - - - - -
- ₱ 187,500.00
German leather sofa, worth - - - - - - - - - - - - - - - - - -
₱ 108,000.00 14) 1 piece, Model Table No. 8,

4) 1 set, Model No. 4, 2-seater Italian marble table, worth - - - - - - - - - - - - - - - - - - - -

₱ 187,500.00
German leather sofa, worth - - - - - - - - - - - - - - - - - -
₱ 277,500.00 15) 1 piece, Model Table No. 7

5) 1 set, Model No. 6, 1-seater Italian marble table, worth - - - - - - - - - - - - - - - - - - - -

₱ 187,500.00
German leather sofa, worth - - - - - - - - - - - - - - - - - -
₱ 146,250.00 16) 1 piece, Model Table No. 5

6) 1 set, Model No. 2, 2-seater Italian marble table, worth - - - - - - - - - - - - - - - - - - - -

₱ 112,500.00
German leather sofa, worth - - - - - - - - - - - - - - - - - -
₱ 225,000.00 17) 1 piece, Model Table No. 9,

7) 1 set, Model No. 1, 2-seater Italian marble table, worth - - - - - - - - - - - - - - - - - - - -

₱ 187,500.00
German leather sofa, worth - - - - - - - - - - - - - - - - - -
₱ 275,000.00 18) 3-seater sofa, worth- - - - - - - - - - - - - - - - - - ₱
255,000.00
8) 1 piece, Model Table No. 2,
with an aggregate value of ₱3,219,875.00, Philippine
Italian marble table, worth - - - - - - - - - - - - - - - - - - - - currency, without the consent of his employer, to the
₱ 93,750.00 damage and prejudice of Mobilia Products, Inc., in the
said amount of ₱3,219,875.00.
9) 1 piece, Model Table No. 4,
Contrary to law.3
Italian marble table, worth - - - - - - - - - - - - - - - - - - - -
₱ 105,000.00 On motion of the prosecution, the trial court issued a
writ of preliminary attachment covering the properties
10) 2 pieces, Model Pedestal of Umezawa.

No. 6, Italian marble pedestal, worth - - - - - - - - - - - - - Umezawa then filed an Omnibus Motion to quash the
₱ 150,000.00 information filed against him, the discharge of the writ
of attachment issued by the trial court, and to set the
case for preliminary investigation. MPI, the private
11) 1 piece, Model Column
complainant therein, opposed the motion.
Standard No. 11, Italian marble worth - - - - - - - - - - - -
In the meantime on July 21, 1995, MPI filed another
₱ 93,750.00
criminal complaint for qualified theft against
Umezawa, his wife Kimiko Umezawa, Mitsuyo
12) 1 piece, Model Table No. 1, Yaguchi, Justin Legaspi, Yoshikazu Hayano and
Henry Chua allegedly committed in March 1995, with
Italian marble table, worth - - - - - - - - - - - - - - - - - - - - the Office of the City Prosecutor. The case was
₱ 105,000.00 docketed as I.S. No. 95-442.

13) 1 piece, Model High Table

Document1 Page 14 of 41

On July 25, 1995, the trial court issued an Order in
Criminal Case No. 013231-L denying the omnibus
motion. On joint motion of Umezawa and the public
prosecutor, the trial court ordered a reinvestigation of
the case. Conformably, the public prosecutor
conducted a reinvestigation of Criminal Case No.
013231-L jointly with I.S. No. 95-442.
On September 25, 1995, Umezawa filed a petition
with the Securities and Exchange Commission (SEC),
docketed as SEC Case No. 002919, for the
nullification of the Resolution issued by the three
alleged members of MPI Board of Directors,
authorizing the filing of criminal complaints against
him in behalf of the corporation.
On January 3, 1996, the public prosecutor issued a
Joint Resolution finding probable cause for qualified
theft and one count of estafa against Umezawa, and
dismissing the case against the other accused. The
Prosecutor maintained his finding of probable cause
against Umezawa in Criminal Case No. 013231-L.
On February 20, 1996, the public prosecutor filed an
Information for qualified theft with the RTC of Lapu-
Lapu City against Umezawa, docketed as Criminal
Case No. 013423-L. The accusatory portion reads:
That on the 8th day of February 1995, in the City of
Lapu-Lapu, Philippines, within the jurisdiction of this
Honorable Court, the above-named accused, while
being the President and General Manager of Mobilia
Products, Inc., a corporation engaged in the
manufacture and export of quality furniture, whose
principal place of business is at the Mactan Export
Processing Zone, Lapu-Lapu City, with intent to gain,
without the consent of his employer, and with grave
abuse of confidence, did then and there willfully,
unlawfully and feloniously take, steal and carry away
from the corporation’s factory the following expensive
pieces of furniture, to wit:
1) 1 set, Model No. 2, 2-seater German
leather sofa, all valued at . . . . . . . . . . . . . . ₱
225,000.00
2) 1 set, Model No. 1, 2-seater German
leather sofa, all valued at . . . . . . . . . . . . . . . . ₱
275,000.00
Document1
28
with an aggregate value of ₱500,000.00 Philippine
Currency, to the damage and prejudice of Mobilia
Products, Inc.
CONTRARY TO LAW.4
Another Information for estafa was thereafter filed
against the same accused, docketed as Criminal
Case No. 013424-L. The accusatory portion reads:
That sometime in March 1995, in the City of Lapu-
Lapu, Philippines, within the jurisdiction of this
Honorable Court, the above-named accused, by
means of unfaithfulness and abuse of confidence
reposed upon him as the President and General
Manager of Mobilia Products, Inc., did then and there
willfully, unlawfully and feloniously misappropriate and
convert to his own personal use and benefit the
amount of Seventeen Million One Hundred Eight
Thousand Five Hundred (₱17,108,500.00) Pesos,
Philippine Currency, which was the total value of the
furnitures ordered and manufactured by the accused
or at his instance using Mobilia supplies, materials
and machineries, as well as time and personnel which
were supposed to be for the exclusive use of Mobilia
Products, Inc. but were converted for the use and
benefit of the accused and Astem Philippines
Corporation, a company or firm engaged in the same
business as that of Mobilia Products, Inc., which is,
[in] the manufacture and production of quality furniture
for export, owned by the accused, to the damage and
prejudice of Mobilia Products, Inc.
CONTRARY TO LAW.5
On April 25, 1996, Umezawa filed a motion for the
suspension of the proceedings on the ground of the
pendency of his petition with the SEC in Case No.
002919. The trial court, however, issued an Order on
May 21, 1996, denying the said motion. It held that
the filing and the pendency of a petition before the
SEC did not warrant a suspension of the criminal
cases.
On September 25, 1998, Umezawa was arraigned
and pleaded not guilty.
On September 30, 1998, Umezawa filed anew a Joint
Motion to Quash the Informations in Criminal Cases
Nos. 013231-L and 013423-L, on the ground that the
facts alleged therein did not constitute the felony of
qualified theft. Umezawa claimed that based on the
Joint Affidavit of the witnesses for the prosecution
Page 15 of 41

submitted during the preliminary investigation,
Yasushi Kato and George del Rio, MPI Vice-President
and the head of the Upholstery Department,
respectively, the appropriate charge should
be estafa and not qualified theft. Umezawa further
claimed that for their failure to object to and resist his
alleged delictual acts, the said witnesses were as
guilty as he was and should have been included in the
Information. He also asserted that there was, likewise,
no allegation in the Informations as to who was the
owner of the articles stolen; hence, there was no
offended party. He noted that the Informations merely
alleged that MPI was his employer. He further posited
that there was no valid charge against him because
the resolution authorizing the filing of the cases
against him was approved by a mere minority of the
members of the MPI Board of Directors.6
Umezawa, likewise, filed a Motion to Quash7 the
Information in Criminal Case No. 013424-L on the
ground that the facts alleged in the Information did not
constitute the felony of estafa. He posited that the
Information did not contain any allegation that any
demand was made for him to return the goods.
Furthermore, the owner of the said articles was not
specified. He noted that as gleaned from the Joint
Affidavit of the witnesses for the prosecution, there
was no lawful private complainant. He reiterated that
the MPI board resolution authorizing the filing of the
charge against him was not approved by the majority
of the members of its board of directors. Umezawa
also alleged that the charge for estafa with abuse of
confidence was already included in the charge for
qualified theft, where it was alleged that he committed
theft with abuse of confidence; hence, the charge for
estafa should be quashed, otherwise, he would be
placed in double jeopardy. The motion was duly
opposed by the prosecution.
On January 29, 1999, the trial court issued a Joint
Order8 dismissing the cases for lack of jurisdiction. It
held that the dispute between the private complainant
and the accused over the ownership of the properties
subject of the charges is intra-corporate in nature, and
was within the exclusive jurisdiction of the SEC. It
ruled that Umezawa, as a member of the board of
directors and president of MPI, was also a stockholder
thereof. While Umezawa claimed to be the bona
fide owner of the properties subject of the
Informations which he appropriated for himself, the
private complainant disputes the same; hence,
according to the trial court, the conflicting claims of
the parties should be resolved by the SEC. The
private and public prosecutors received their
Document1
28
respective copies of the Joint Order on February 2,
1999.
The MPI, through the private prosecutor, filed a
motion for reconsideration of the joint order of the
court and for the reinstatement of the cases on
February 15, 1999. The MPI relied on the following
grounds:
a. The Honorable Court has jurisdiction and must
exercise it over these cases;
b. The above-entitled case is not an intra-corporate
controversy;
and
c. The accused could not claim ownership nor co-
ownership of the properties of private complainant
corporation.9
The MPI maintained that the trial court had jurisdiction
over the cases and cited Section 5 of Presidential
Decree (P.D.) No. 902-A, which provides the rules on
cases over which the SEC has original and exclusive
jurisdiction. A copy of the motion was served on the
public prosecutor for his approval. However, the
public prosecutor did not affix his conformity to the
motion, and instead opted to appear before the trial
court during the hearing of the same. During the
hearing, both the public and private prosecutors
appeared. In support of his motion, the private
prosecutor argued that the trial of the case must be
done in the presence of and under the control and
supervision of the public prosecutor.10
The trial court denied the motion in an Order dated
April 19, 1999. It held that the SEC, not the trial court,
had jurisdiction over intra-corporate controversies. It
also ruled that the motion of the private complainant
was pro forma, it appearing that the public prosecutor
had not approved the same.
The public prosecutor received a copy of the Order on
April 20, 1999. On April 26, 1999, the People of the
Philippines, through the OSG, filed a petition
for certiorari and mandamus with the CA against
Presiding Judge Rumuldo R. Fernandez and
Umezawa, docketed as CA-G.R. SP No. 52440. The
CA allowed the MPI to intervene as petitioner, and
admitted its petition- in-intervention.
Page 16 of 41

The People of the Philippines, as the petitioner
therein, raised the following issues:
I
WHETHER OR NOT IT IS THE LEGAL AND
MINISTERIAL DUTY OF THE REGIONAL TRIAL
COURT TO TAKE COGNIZANCE AND
JURISDICTION OF THESE SUBJECT CRIMINAL
CASES;
II
WHETHER OR NOT THE SECURITIES AND
EXCHANGE COMMISSION HAS JURISDICTION
OVER THE CRIMINAL CASES AGAINST
RESPONDENT HAJIME UMEZAWA;
III
WHETHER OR NOT RESPONDENT JUDGE
COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN DISMISSING THE CRIMINAL
CASES AND DENYING PETITIONER’S MOTION
FOR RECONSIDERATION.11
The People asserted that the controversy involving
the criminal cases was not between Umezawa and
the other stockholders of MPI, but one between him
as the accused therein and the People of the
Philippines. It averred that under Section 20(b) of
Batas Pambansa (B.P.) Blg. 129, the RTC has
exclusive jurisdiction over the cases against
Umezawa. It also alleged that in dismissing the
criminal cases against Umezawa on the ground that it
had no jurisdiction over the crimes charged, the RTC
committed grave abuse of its discretion amounting to
excess or lack of jurisdiction.
On September 2, 1999, the CA rendered judgment
granting the petition and nullifying the assailed Orders
of the RTC. It ruled that the issue of ownership of the
properties subject of the Informations was not an
intra-corporate dispute. It held that Umezawa,
although president and general manager of the MPI
and a stockholder thereof, was not a joint owner or
co-owner of the personal properties subject of the
charges. It also held that the dispute between a
private corporation and any of its stockholders relative
to the ownership of properties does not ipso
facto negate the jurisdiction of the RTC over the
criminal cases under B.P. Blg. 129, as amended. It
Document1
28
also declared that the material averments of the
Informations sufficiently charged qualified theft and
estafa.
Umezawa filed a motion for the reconsideration of the
decision of the CA. In a complete volte face, the
appellate court issued a Resolution on August 8,
2001, granting the motion and reversing its decision. It
affirmed the ruling of the RTC that the dispute
between Umezawa and the other stockholders and
officers over the implementation of the MPI’s standard
procedure is intra-corporate in nature; hence, within
the exclusive jurisdiction of the SEC. Citing Section
5(a)(b) of P.D. No. 902-A, and the ruling of this Court
in Alleje v. Court of Appeals,12 the appellate court
ruled that based on the material allegations of the
Solicitor General in the petition before the CA, the
SEC had exclusive jurisdiction over the conflicting
claims of the parties. It likewise affirmed the ruling of
the RTC that the absence of any allegation in the
Information that the MPI was the owner of the
properties subject of the Information is fatal.
The petitioner MPI filed the instant petition for review
on certiorari, raising the following issues:
I
WHETHER OR NOT THE SECURITIES AND
EXCHANGE COMMISSION HAS JURISDICTION
OVER THE CRIMINAL CASES AGAINST
UMEZAWA.
II
WHETHER OR NOT ALL THE NECESSARY
ELEMENTS OF THE CRIMES OF QUALIFIED
THEFT AND ESTAFA ARE SUFFICIENTLY
ALLEGED IN THE INFORMATIONS.
III
EVEN ASSUMING ARGUENDO THAT THE FACTS
ALLEGED DO NOT CONSTITUTE AN OFFENSE
THE CORRECT RULING IS NOT TO DISMISS THE
CASE BUT TO ORDER AMENDMENT.
IV
WHETHER OR NOT THE STATE HS LOST ITS
RIGHT TO APPEAL.
Page 17 of 41

V February 2, 1999; neither did the People appeal the
WHETHER OR NOT THE MOTION FOR
RECONSIDERATION OF UMEZAWA IS PRO
FORMA.13
The People of the Philippines filed a separate petition
for review on certiorari, contending that:
1. THE COURT OF APPEALS COMMITTED
SERIOUS ERRORS OF LAW AND GRAVE ABUSE
OF DISCRETION IN FINDING THAT THE PETITION
FOR MANDAMUS, CERTIORARI AND INJUNCTION
WAS FILED OUT OF TIME AND THAT PETITIONER
HAS LOST ITS RIGHT TO APPEAL;
2. THE COURT OF APEALS COMMITTED SERIOUS
ERRORS OF LAW IN RULING THAT NOT ALL THE
ELEMENTS OF QUALIFIED THEFT AND ESTAFA
ARE PRESENT;
3. THE COURT OF APPEALS COMMITTED
BLATANT AND SERIOUS ERRORS OF LAW IN
FINDING THAT THE SECURITIES AND EXCHANGE
COMMISSION (SEC) HAS JURISDICTION OVER
THE SUBJECT CRIMINAL CASES;
4. THE COURT OF APPEALS COMMITTED
SERIOUS ERRORS OF LAW AND GRAVE ABUSE
OF DISCRETION IN GIVING DUE COURSE TO THE
PRO-FORMA MOTION FOR RECONSIDERATION
OF UMEZAWA.14
The two petitions were consolidated in the Second
Division of the Court.
The threshold issues for resolution are the following:
(a) whether or not the petition for certiorari of the
People of the Philippines in the CA assailing the
January 29, 1999 Joint Order of the trial court was
time-barred; (b) whether the RTC has jurisdiction over
the crimes charged in the said Informations; (c)
whether the Informations sufficiently charge the
felonies of qualified theft and estafa; and (d) if in the
affirmative, whether all the elements of qualified theft
and estafa are alleged in the Informations.
On the first issue, the CA held that the Public
Prosecutor failed to file a motion for the
reconsideration of the trial court’s January 29, 1999
Joint Order dismissing the cases, that is, within fifteen
days from receipt of a copy of the said order on
Document1
28
said Order within the period therefor. Thus, according
to the CA, the People filed its petition for certiorari,
prohibition and mandamus assailing the January 29,
1999 Joint Order of the trial court only on April 26,
1999, well beyond the 60-day period therefor. The
appellate court, likewise, held that the filing of the
motion for reconsideration of the said Joint Order by
the private prosecutor without the conformity of the
Public Prosecutor did not toll the period for the People
to file its motion for reconsideration thereof, or to
appeal therefrom, or to file a petition for certiorari,
prohibition or mandamus. It ruled that, having lost its
right to appeal in due course, the People was
proscribed from filing a petition for certiorari,
prohibition or mandamus. The CA declared that the
motion for reconsideration filed by petitioner MPI of
the Joint Order of the RTC is pro forma, the public
prosecutor not having signified his written conformity
thereto.
On the other hand, the petitioner People of the
Philippines insists that while the public prosecutor did
not expressly conform to the motion for
reconsideration of the January 29, 1999 Joint Order of
the trial court filed by the private prosecutor, through
the public prosecutor’s presence during the hearing of
the said motion, his supervision and control over the
private prosecutor during the said hearing, he in effect
adopted and conformed to the said motion for
reconsideration.
In his comment on the petitions, respondent
Umezawa maintains that the motion for
reconsideration of the joint order of the trial court filed
by the private prosecutor did not interrupt the period
within which the People could appeal, citing the ruling
of this Court in Cabral v. Puno.15 The respondent
posits that the finding of the trial court, which was
affirmed by the CA, that the public prosecutor did not
conform to the motion for reconsideration of the
private prosecutor, is binding on this Court. The
respondent also avers that the petitioner has no
personality to file the petition. Moreover, he insists
that whether the public prosecutor conformed to the
private prosecutor’s motion for reconsideration is a
question of fact which is not proper in a petition for
review on certiorari.
The Court’s Ruling
The contention of the petitioner People of the
Philippines is not correct. All criminal actions
Page 18 of 41

commenced by complaint or information shall be
prosecuted under the direction and control of the
public prosecutor.16 When the civil action for civil
liability is instituted in the criminal action pursuant to
Rule 111 of the Rules on Criminal Procedure, the
offended party may intervene, by counsel, in the
prosecution of the offense.17 In Ramiscal, Jr. v.
Sandiganbayan,18 we held that under Section 16, Rule
110 of the Rules of Criminal Procedure, the offended
party may intervene in the criminal action personally
or by counsel, who will then act as private prosecutor
for the protection of his interests and in the interest of
the speedy and inexpensive administration of justice.
A separate action for the purpose would only prove to
be costly, burdensome and time-consuming for both
parties and further delay the final disposition of the
case. The multiplicity of suits must be avoided. With
the implied institution of the civil action in the criminal
action, the two actions are merged into one composite
proceeding, with the criminal action predominating the
civil. The prime purpose of the criminal action is to
punish the offender in order to deter him and others
from committing the same or similar offense, to isolate
him from society, reform and rehabilitate him or, in
general, to maintain social order.19
The intervention of the private offended party, through
counsel, and his prosecution of the case shall be
under the control and supervision of the public
prosecutor until the final termination of the case. A
public prosecutor who has been entrusted by law with
the prosecution of criminal cases is duty-bound to
take charge thereof until its final termination, for under
the law, he assumes full responsibility for his failure or
success since he is the one more adequately
prepared to pursue it to its termination.20 The
prosecution of offenses is a public function. Indeed,
the sole purpose of the civil action is the resolution,
reparation or indemnification of the private offended
party for the damage or injury he sustained by reason
of the delictual or felonious act of the
accused. 21 Under Article 104 of the Revised Penal
Code, the following are the civil liabilities of the
accused:
ART. 104. What is included in civil liability.— The civil
liability established in Articles 100, 101, 102 and 103
of this Code includes:
1. Restitution;
2. Reparation of the damage caused;
Document1
28
3. Indemnification for consequential damages.
Thus, when the offended party, through counsel, has
asserted his right to intervene in the proceedings, it is
error to consider his appearance merely as a matter
of tolerance.22
The public prosecutor may turn over the actual
prosecution of the criminal case, in the exercise of his
discretion, but he may, at any time, take over the
actual conduct of the trial. However, it is necessary
that the public prosecutor be present at the trial until
the final termination of the case; otherwise, if he is
absent, it cannot be gainsaid that the trial is under his
supervision and control.23
In a criminal case in which the offended party is the
State, the interest of the private complainant or the
offended party is limited to the civil liability arising
therefrom. Hence, if a criminal case is dismissed by
the trial court or if there is an acquittal, a
reconsideration of the order of dismissal or acquittal
may be undertaken, whenever legally feasible, insofar
as the criminal aspect thereof is concerned and may
be made only by the public prosecutor; or in the case
of an appeal, by the State only, through the OSG. The
private complainant or offended party may not
undertake such motion for reconsideration or appeal
on the criminal aspect of the case.24 However, the
offended party or private complainant may file a
motion for reconsideration of such dismissal or
acquittal or appeal therefrom but only insofar as the
civil aspect thereof is concerned.25 In so doing, the
private complainant or offended party need not secure
the conformity of the public prosecutor. If the court
denies his motion for reconsideration, the private
complainant or offended party may appeal or file a
petition for certiorari or mandamus, if grave abuse
amounting to excess or lack of jurisdiction is shown
and the aggrieved party has no right of appeal or
given an adequate remedy in the ordinary course of
law.
The public and private prosecutors are not precluded,
whenever feasible, from filing a joint motion for the
reconsideration of the dismissal of the case or the
acquittal of the accused, on the criminal and civil
aspects of the cases.
In the present case, only petitioner MPI, through
counsel, filed a motion for the reconsideration of the
trial court’s Joint Order dated January 29, 1999,
praying for the reinstatement of the cases insofar as
Page 19 of 41

the civil aspect thereof is concerned. The public
prosecutor did not approve nor conform to the said
motion. Although petitioner MPI provided ample space
for the said conformity of the public prosecutor, the
latter did not do so; he merely appeared during the
hearing of the said motion with the private prosecutor
when the latter presented his oral arguments in
support of the said motion.
The fact that the public prosecutor did not conform to
the said motion, however, does not mean that the
same is pro forma. It must be stressed that the
propriety and efficacy of the motion, insofar as the
civil aspect of the cases is concerned, is not
dependent upon the conformity of the public
prosecutor. Hence, the filing of the joint motion for
reconsideration effectively suspended the running of
the period for petitioner MPI to assail the joint order in
the CA via an appeal or a special civil action
for certiorari or mandamus under Rule 65 of the Rules
of Court.
However, since the public prosecutor did not file any
motion for the reconsideration of the joint order nor
conform to the motion of petitioner MPI, insofar as the
criminal aspect of the cases is concerned, the period
for the State to assail the said joint order was not
suspended. Only the motion for reconsideration filed
by the public prosecutor of the joint order of dismissal
of the cases could have tolled the period within which
the State could appeal, insofar as the criminal aspect
of the cases was concerned. The bare fact that the
public prosecutor appeared for the State during the
hearing of the motion for reconsideration of petitioner
MPI does not amount to or constitute his adoption of
the said motion as that of the State. As ruled by this
Court in Cabral v. Puno:26
While it is true that the offended party, Silvino San
Diego, through the private prosecutor, filed a motion
for reconsideration within the reglementary fifteen-day
period, such move did not stop the running of the
period for appeal. He did not have the legal
personality to appeal or file the motion for
reconsideration on his behalf. The prosecution in a
criminal case through the private prosecutor is under
the direction and control of the Fiscal, and only the
motion for reconsideration or appeal filed by the Fiscal
could have interrupted the period for appeal.27
We agree with the ruling of the CA that the petition for
certiorari filed by the petitioner People of the
Philippines with the CA on April 26, 1999 was filed
Document1
28
beyond the 60-day period as provided in Section 4,
Rule 65 of the Rules of Court,28 it appearing that the
public prosecutor received a copy of the joint order of
the trial court on February 2, 1999, and, thus, had
only until April 3, 1999 within which to file the said
petition.
Even then, the Court still holds that the CA erred in
dismissing the petition of the People of the Philippines
simply because the public prosecutor erred in not
himself filing a motion for reconsideration of the joint
order of the trial court, on his perception that by being
present during the hearing of the motion for
reconsideration of petitioner MPI, he thereby adopted
the said motion as that of the State’s. The settled rule
is that the State is not estopped by the mistakes of its
officers and employees. Indeed, in Cruz, Jr. v. Court
of Appeals,29 the Court declared:
… Estoppel does not lie against the government
because of the supposedly mistaken acts or
omissions of its agents. As we declared in People v.
Castañeda, "there is the long familiar rule that
erroneous application and enforcement of the law by
public officers do not block subsequent correct
application of the statute and that the government is
never estopped by mistake or error on the part of its
agents."
The Court also held in Chua v. Court of Appeals:30
… While ordinarily, certiorari is unavailing where the
appeal period has lapsed, there are exceptions.
Among them are (a) when public welfare and the
advancement of public policy dictates; (b) when the
broader interest of justice so requires; (c) when the
writs issued are null and void; or (d) when the
questioned order amounts to an oppressive exercise
of judicial authority. …31
On the second issue, the petitioners assert that the
CA erred in holding that the dispute between it and
the respondent is intra-corporate in nature; hence,
within the exclusive jurisdiction of the SEC. As
gleaned from the material allegations of the
Informations, the RTC had exclusive jurisdiction over
the crimes charged. Petitioner MPI further avers that
even if there is no allegation in the Informations
identifying it as the owner of the personal properties
described in the Informations, its ownership of the
properties can be inferred from the other allegations.
The petitioners maintain that even if the Informations
Page 20 of 41

are deficient, the remedy is the amendment of the
Informations and not the dismissal of the cases.
For his part, the respondent avers that the assailed
Resolution of the CA is correct, and that it is the
appellate court’s decision which is erroneous.
We agree with the petitioners.
According to Section 20 of B.P. Blg. 129 –
SEC. 20. Jurisdiction in criminal cases.— Regional
Trial Courts shall exercise exclusive original
jurisdiction in all criminal cases not within the
exclusive jurisdiction of any court, tribunal or body,
except those now falling under the exclusive and
concurrent jurisdiction of the Sandiganbayan which
shall hereafter be exclusively taken cognizance of by
the latter.
Section 32 thereof was later amended by Section 2 of
Republic Act No. 7691, as follows:
Sec. 32. Jurisdiction of Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial
Courts in Criminal Cases. – Except in cases falling
within the exclusive original jurisdiction of the
Regional Trial Court and of the Sandiganbayan, the
Metropolitan Trial Courts, and Municipal Circuit Trial
Courts shall exercise:
(1) Exclusive original jurisdiction over all violations of
city or municipal ordinances committed within their
respective territorial jurisdiction; and
(2) Exclusive original jurisdiction over all offenses
punishable with imprisonment not exceeding six (6)
years irrespective of the amount of fine, and
regardless of other imposable accessory or other
penalties, including the civil liability arising from such
offenses or predicated thereon, irrespective of kind,
nature, value or amount thereof: Provided, however,
That in offenses involving damage to property through
criminal negligence, they shall have exclusive original
jurisdiction thereof.
Case law has it that in order to determine the
jurisdiction of the court in criminal cases, the
complaint or Information must be examined for the
purpose of ascertaining whether or not the facts set
out therein and the prescribed period provided for by
law are within the jurisdiction of the court, and where
Document1
28
the said Information or complaint is filed. It is settled
that the jurisdiction of the court in criminal cases is
determined by the allegations of the complaint or
Information and not by the findings based on the
evidence of the court after trial.32 Jurisdiction is
conferred only by the Constitution or by the law in
force at the time of the filing of the Information or
complaint. Once jurisdiction is vested in the court, it is
retained up to the end of the litigation. Indeed,
in People v. Purisima,33 this Court held that:
In criminal prosecutions, it is settled that the
jurisdiction of the court is not determined by what may
be meted out to the offender after trial or even by the
result of the evidence that would be presented at the
trial, but by the extent of the penalty which the law
imposes for the misdemeanor, crime or violation
charged in the complaint. If the facts recited in the
complaint and the punishment provided for by law are
sufficient to show that the court in which the complaint
is presented has jurisdiction, that court must assume
jurisdiction.
In Criminal Case No. 013231-L, the value of the
properties subject of qualified theft is ₱3,219,875.00,
while in Criminal Case No. 013423-L, the value of the
property was pegged at ₱255,000.00. Under Article
309 of the Revised Penal Code, the penalty for theft
when the value of the stolen property exceeds
₱22,000.00 is as follows:
1. The penalty of prision mayor in its minimum and
medium periods, if the value of the thing stolen is
more than 12,000 pesos but does not exceed 20,000
pesos; but if the value of the thing stolen exceeds the
latter amount, the penalty shall be the maximum
period of the one prescribed in this paragraph and
one year of each additional ten thousand pesos, but
the total of the penalty which may be imposed shall
not exceed twenty years. In such cases, and in
connection with the accessory penalties which may be
imposed and for the purpose of the other provisions of
this Code, the penalty shall be termed prision
mayor or reclusion temporal, as the case may be.
Article 310 of the Revised Penal Code further
provides for the penalty for qualified theft:
Art. 310. Qualified theft. – The crime of theft shall be
punished by the penalties next higher by two degrees
than those respectively specified in the next preceding
article, if committed by a domestic servant, or with
grave abuse of confidence, or if the property stolen is
Page 21 of 41

motor vehicle, mail matter or large cattle or consists of
coconuts taken from the premises of a plantation, fish
taken from a fishpond or fishery or if property is taken
on the occasion of fire, earthquake, typhoon, volcanic
eruption, or any other calamity, vehicular accident or
civil disturbance.
On the other hand, in Criminal Case No. 013424-L for
estafa, the amount of the fraud involved is
₱500,000.00, and under Article 315 of the Revised
Penal Code, the penalty for such crime is –
1st. The penalty of prision correccional in its
maximum period to prision mayor in its minimum
period, if the amount of the fraud is over 12,000 pesos
but does not exceed 22,000 pesos; and if such
amount exceeds the latter sum, the penalty provided
in this paragraph shall be imposed in its maximum
period, adding one year for each additional 10,000
pesos; but the total penalty which may be imposed
shall not exceed twenty years. In such cases, and in
connection with the accessory penalties which may be
imposed and for the purpose of the other provisions of
this Code, the penalty shall be termed prision mayor
or reclusion temporal, as the case may be.
Patently, then, based on the material allegations of
the Informations in the three cases, the court a
quo had exclusive jurisdiction over the crimes
charged.
The bare fact that the respondent was the president
and general manager of the petitioner corporation
when the crimes charged were allegedly committed
and was then a stockholder thereof does not in itself
deprive the court a quo of its exclusive jurisdiction
over the crimes charged. The property of the
corporation is not the property of the stockholders or
members or of its officers who are stockholders. 34 As
the Court held in an avuncular case:35
... Properties registered in the name of the corporation
are owned by it as an entity separate and distinct from
its members. While shares of stock constitute
personal property, they do not represent property of
the corporation. The corporation has property of its
own which consists chiefly of real estate (Nelson v.
Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145
Iowa, 1, 123 N.W. 743). A share of stock only typifies
an aliquot part of the corporation’s property, or the
right to share in its proceeds to that extent when
distributed according to law and equity (Hall & Faley
v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but
Document1
28
its holder is not the owner of any part of the capital of
the corporation (Bradley v. Bauder, 36 Ohio St., 28).
Nor is he entitled to the possession of any definite
portion of its property or assets (Gottfried v. Miller,
104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The
stockholder is not a co-owner or tenant in common of
the corporate property (Harton v. Johnston, 166 Ala.,
317, 51 So., 992) …"36
As early as the case of Fisher v. Trinidad,37 the Court
already declared that "[t]he distinction between the
title of a corporation, and the interest of its members
or stockholders in the property of the corporation, is
familiar and well-settled. The ownership of that
property is in the corporation, and not in the holders of
shares of its stock. The interest of each stockholder
consists in the right to a proportionate part of the
profits whenever dividends are declared by the
corporation, during its existence, under its charter,
and to a like proportion of the property remaining,
upon the termination or dissolution of the corporation,
after payment of its debts."38
We also agree with the ruling of the CA in its
decision that the SEC (now the Regional Trial Court)
had no jurisdiction over the cases filed in the court a
quo. The appellate court’s reliance in the assailed
Resolution issued by the Board of Directors of the
petitioner corporation, on Section 5(b) of P.D. No.
902, has no factual and legal basis.
Section 5 of P.D. No. 902-A provides that the
SEC39 shall have original and exclusive jurisdiction to
hear and decide cases involving the following:
(a) devices or schemes employed by, or any acts of,
the board of directors, business associates, its officers
or partners, amounting to fraud and misrepresentation
which may be detrimental to the interest of the public
and/or of the stockholders, partners, members of
association or organizations registered with the
Commission, and
(b) controversies arising out of intra-corporate or
partnership relations, between and among
stockholders, members or associates; between any or
all of them and the corporation, partnership or
association of which they are stockholders, members
or associates, respectively.
In Fabia v. Court of Appeals,40 the Court explained
that Section 5 of P.D. No. 902-A should be taken in
Page 22 of 41

conjunction with Section 6 of the law. It then
proceeded to explain:
In synthesis, Sec. 5 of PD 902-A mandates that cases
involving fraudulent actions and devices which are
detrimental to the interest of stockholders, members
or associates and directors of the corporation are
within the original and exclusive jurisdiction of the
SEC. Taken in conjunction with Sec. 6 of the same
law, it will be gathered that the fraudulent
acts/schemes which the SEC shall exclusively
investigate and prosecute are those "in violation of
any law or rules and regulations administered and
enforced by the Commission" alone. This investigative
and prosecutorial powers of the SEC are further
"without prejudice to any liability for violation of any
provision of The Revised Penal Code."
From the foregoing, it can thus be concluded that the
filing of the civil/intra-corporate case before the SEC
does not preclude the simultaneous and concomitant
filing of a criminal action before the regular courts;
such that, a fraudulent act may give rise to liability for
violation of the rules and regulations of the SEC
cognizable by the SEC itself, as well as criminal
liability for violation of the Revised Penal
Code cognizable by the regular courts, both charges
to be filed and proceeded independently, and may be
simultaneously with the other.41
Thus, the filing of a petition in the SEC for the
nullification of the Resolution of May 2, 1995 issued
by the Chairman and two members of the Board of
Directors of petitioner MPI, which authorized the filing
of criminal cases against respondent Umezawa, was
not a bar to his prosecution for estafa and qualified
theft for his alleged fraudulent and delictual acts. The
relationship of the party-litigants with each other or the
position held by petitioner as a corporate officer in
respondent MPI during the time he committed the
crime becomes merely incidental and holds no
bearing on jurisdiction. What is essential is that the
fraudulent acts are likewise of a criminal nature and
hence cognizable by the regular courts.42 Thus,
notwithstanding the fact that respondent Umezawa
was the president and general manager of petitioner
MPI and a stockholder thereof, the latter may still be
prosecuted for the crimes charged. The alleged
fraudulent acts of respondent Umezawa in this case
constitute the element of abuse of confidence, deceit
or fraudulent means, and damage under Article 315 of
the Revised Penal Code on estafa.43
Document1
28
We agree with the encompassing disquisitions of the
CA in its decision, to wit:
… A dispute involving the corporation and its
stockholders is not necessarily an intra-corporate
dispute cognizable only by the Securities and
Exchange Commission. Nor does it ipso facto negate
the jurisdiction of the Regional Trial Court over the
subject cases. The Supreme Court citing the case
of Viray v. Court of Appeals (G.R. No. 92481, 191
SCRA 308 [1990]) in Torio v. Court of Appeals (G.R.
No. 107293, March 2, 1994, 230 SCRA 626) held:
"It should be obvious that not every conflict between a
corporation and its stockholders involves corporate
matters that only the SEC can resolve in the exercise
of its adjudicatory or quasi-judicial powers."
As the Supreme Court further ruled in the Torio case
that "a contrary interpretation would distort the
meaning and intent of P.D. 902-A, the law re-
organizing the Securities and Exchange Commission.
The better policy in determining which body has
jurisdiction over a case would be to consider not only
the relationship of the parties but also the nature of
the questions raised in the subject of the
controversy.44
On the last issue, we find and so hold that the
Informations state all the essential elements of estafa
and qualified theft. It was adequately alleged that
respondent Umezawa, being the President and
General Manager of petitioner MPI, stole and
misappropriated the properties of his employer, more
specifically, petitioner MPI. As expostulated by the CA
in its decision:
… In any event, the allegations in the informations, if
hypothetically admitted, are sufficient to bind
Umezawa to the charges of qualified theft and estafa.
As aptly ruled by the court a quo in its Order of July
25, 1995, all the elements of the offense of qualified
theft are present. There is no basis for claiming
otherwise. Furthermore, the private offended party, as
well as the subject matter of the felonious taking and
the ownership thereof, have been adequately
indicated or identified leaving no room for any doubt
on these matters. Considering that the motions to
quash of September 30, 1998 are fundamentally
rehash of the motion to quash filed on May 29, 1995
and the culpable acts subject of the new informations
are virtually the same as the first information filed
against Umezawa, there is no conceivable reason
Page 23 of 41
 28
why the court a quo abandoned its previous stand and
controverted itself in regard the sufficiency of the
informations.

In our considered view, and as the court a quo had

correctly held in its Order of May 26, 1996, "even a
SEC ruling voiding the resolution authorizing the filing
of criminal charges versus the accused Hajime
Umezawa can have no bearing on the validity of the
informations filed in these three criminal cases as
pointed out by private complainant, the public
offenses of qualified theft and estafa can [be]
prosecuted de officio." The resolution of the office of
the prosecutor on the preliminary investigation as well
as the re-investigation conducted on the letter-
complaint filed by private complainant company
sufficiently established prima facie case against the
accused and the legality or illegality of the constitution
of the board which authorized the filing of the
complaint does not materially affect either the
informations filed against Umezawa or the pending
criminal proceedings. As petitioners contend, the
action is now between the People of the Philippines
and herein private respondent.45

IN LIGHT OF ALL THE FOREGOING, the petitions

are GRANTED. The Resolution of the Court of
Appeals in CA-G.R. SP No. 52440 dated August 8,
2001 is REVERSED and SET ASIDE. The Decision of
the Court of Appeals dated September 2, 1999 is
AFFIRMED.

SO ORDERED.

Puno, (Chairman), Austria-Martinez,

Document1 Page 24 of 41

FIRST DIVISION
[G.R. NO. 150920 November 25, 2005]
CHILD LEARNING CENTER, INC. and
SPOUSES EDGARDO L. LIMON and SYLVIA
S. LIMON, Petitioners, v. TIMOTHY
TAGARIO, assisted by his parents BASILIO
TAGORIO and HERMINIA
TAGORIO, Respondents.
DECISION
AZCUNA, J.:
This petition started with a tort case filed with
the Regional Trial Court of Makati by Timothy
Tagorio and his parents, Basilio R. Tagorio and
Herminia Tagorio, docketed as Civil Case No.
91-1389. The complaint1 alleged that during
the school year 1990-1991, Timothy was a
Grade IV student at Marymount School, an
academic institution operated and maintained
by Child
Learning Center, Inc. (CLC). In the afternoon
of March 5, 1991, between 1 and 2 p.m.,
Timothy entered the boy's comfort room at the
third floor of the Marymount building to answer
the call of nature. He, however, found himself
locked inside and unable to get out. Timothy
started to panic and so he banged and kicked
the door and yelled several times for help.
When no help arrived he decided to open the
window to call for help. In the process of
opening the window, Timothy went right
through and fell down three stories. Timothy
was hospitalized and given medical treatment
for serious multiple physical injuries.
An action under Article 2176 of the Civil Code
was filed by respondents against the CLC, the
members of its Board of Directors, namely
Spouses Edgardo and Sylvia Limon, Alfonso
Cruz, Carmelo Narciso and Luningning
Salvador, and the Administrative Officer of
Marymount School, Ricardo Pilao. In its
defense,2 CLC maintained that there was
nothing defective about the locking mechanism
of the door and that the fall of Timothy was not
Document1
28
due to its fault or negligence. CLC further
maintained that it had exercised the due care
and diligence of a good father of a family to
ensure the safety, well-being and convenience
of its students.
After trial, the court a quo found in favor of
respondents and ordered petitioners CLC and
Spouses Limon to pay respondents, jointly and
severally, P200,253.12 as actual and
compensatory damages, P200,000 as moral
damages, P50,000 as exemplary
damages, P100,000 as attorney's fees and the
costs of the suit. The trial court disregarded
the corporate fiction of CLC and held the
Spouses Limon personally liable because they
were the ones who actually managed the
affairs of the CLC.
Petitioners CLC and the Spouses Limon
appealed the decision to the Court of Appeals.
On September 28, 2001, the Court of
Appeals3 affirmed the decision in toto.
Petitioners elevated the case to this Court
under Rule 45 of the Rules of Court, after their
motion for reconsideration was denied by
Resolution of November 23, 2001.4
Petitioners question several factual findings of
the trial court, which were affirmed by the
Court of Appeals, namely:5
1. That respondent was allegedly trapped
inside the boy's comfort room located at the
third floor of the school building on March 5,
1991;
2. That respondent allegedly banged and
kicked the door of said comfort room several
times to attract attention and that he allegedly
yelled thereat for help which never came;
3. That respondent was allegedly forced to
open the window of said comfort room to seek
help;
4. That the lock set installed at the boy's
comfort room located in the third floor of the
Page 25 of 41

school building on March 5, 1991 was allegedly
defective and that the same lock set was
involved in previous incidents of alleged
malfunctioning;
5. That petitioner Child Learning Center, Inc.
allegedly failed to install iron grills in the
window of the boy's comfort room at the third
floor of the school building;
6. That petitioner Child Learning Center, Inc.
allegedly failed to exercise the due care of a
good father of a family in the selection and
supervision of its employees;
7. That the proximate cause of respondent's
accident was allegedly not due to his own
contributory negligence;
8. That there was an alleged basis to apply the
legal principle of "piercing the veil of corporate
entity" in resolving the issue of alleged liability
of petitioners Edgardo L. Limon and Sylvia S.
Limon;
9. That there was alleged basis for petitioners
to pay respondent actual, moral and exemplary
damages, plus attorney's fees;
10. That there was an alleged basis in not
awarding petitioners' prayer for moral and
exemplary damages, including attorney's fees.
Generally, factual findings of the trial court,
affirmed by the Court of Appeals, are final and
conclusive and may not be reviewed on appeal.
The established exceptions are: (1) when the
inference made is manifestly mistaken, absurd
or impossible; (2) when there is grave abuse of
discretion; (3) when the findings are grounded
entirely on speculations, surmises or
conjectures; (4) when the judgment of the
Court of Appeals is based on misapprehension
of facts; (5) when the findings of fact are
conflicting; (6) when the Court of Appeals, in
making its findings, went beyond the issues of
the case and the same is contrary to the
admissions of both appellant and appellee; (7)
when the findings of fact are conclusions
without citation of specific evidence on which
Document1
28
they are based; (8) when the Court of Appeals
manifestly overlooked certain relevant facts
not disputed by the parties and which, if
properly considered, would justify a different
conclusion; and (9) when the findings of fact of
the Court of Appeals are premised on the
absence of evidence and are contradicted by
the evidence on record.6
On the basis of the records of this case, this
Court finds no justification to reverse the
factual findings and consider this case as an
exception to the general rule.
In every tort case filed under Article 2176 of
the Civil Code, plaintiff has to prove by a
preponderance of evidence: (1) the damages
suffered by the plaintiff; (2) the fault or
negligence of the defendant or some other
person for whose act he must respond; and (3)
the connection of cause and effect between the
fault or negligence and the damages incurred.7
Fault, in general, signifies a voluntary act or
omission which causes damage to the right of
another giving rise to an obligation on the part
of the actor to repair such damage. Negligence
is the failure to observe for the protection of
the interest of another person that degree of
care, precaution and vigilance which the
circumstances justly demand. Fault requires
the execution of a positive act which causes
damage to another while negligence consists of
the omission to do acts which result in damage
to another.8
In this tort case, respondents contend that CLC
failed to provide precautionary measures to
avoid harm and injury to its students in two
instances: (1) failure to fix a defective door
knob despite having been notified of the
problem; and (2) failure to install safety grills
on the window where Timothy fell from.
The trial court found that the lock was
defective on March 5, 1991:9
The door knob was defective. After the incident
of March 5, 1991, said door knob was taken off
the door of the toilet where Timothy was in.
Page 26 of 41

The architect who testified during the trial
declared that although there were standard
specifications for door knobs for comfort
room[s], and he designed them according to
that requirement, he did not investigate
whether the door knob specified in his plans
during the construction [was] actually put in
place. This is so because he did not verify
whether the door knob he specified w[as]
actually put in place at the particular comfort
room where Timothy was barred from getting
outside. (TSN, pp. 19-20, December 8, 1994).
The Court of Appeals held that there was no
reason to disturb the factual assessment:10
After having perused the records, We fail to
see any indication of whim or arbitrariness on
the part of the trial magistrate in his
assessment of the facts of the case. That said,
We deem it not to be within Our business to
recast the factual conclusions reached by the
court below.
Petitioners would make much of the point that
no direct evidence was presented to prove that
the door knob was indeed defective on the
date in question.
The fact, however, that Timothy fell out
through the window shows that the door could
not be opened from the inside. That sufficiently
points to the fact that something was wrong
with the door, if not the door knob, under the
principle of res ipsa loquitor. The doctrine
of res ipsa loquitor applies where (1) the
accident was of such character as to warrant
an inference that it would not have happened
except for the defendant's negligence; (2) the
accident must have been caused by an agency
or instrumentality within the exclusive
management or control of the person charged
with the negligence complained of; and (3) the
accident must not have been due to any
voluntary action or contribution on the part of
the person injured.11 Petitioners are clearly
answerable for failure to see to it that the
doors of their school toilets are at all times in
working condition. The fact that a student had
to go through the window, instead of the door,
Document1
28
shows that something was wrong with the
door.
As to the absence of grills on the window,
petitioners contend that there was no such
requirement under the Building Code.
Nevertheless, the fact is that such window, as
petitioners themselves point out, was
approximately 1.5 meters from the floor, so
that it was within reach of a student who finds
the regular exit, the door, not functioning.
Petitioners, with the due diligence of a good
father of the family, should have anticipated
that a student, locked in the toilet by a non-
working door, would attempt to use the
window to call for help or even to get out.
Considering all the circumstances, therefore,
there is sufficient basis to sustain a finding of
liability on petitioners' part.
Petitioners' argument that CLC exercised the
due diligence of a good father of a family in the
selection and supervision of its employees is
not decisive. Due diligence in the selection and
supervision of employees is applicable where
the employer is being held responsible for the
acts or omissions of others under Article 2180
of the Civil Code.12 In this case, CLC's liability
is under Article 2176 of the Civil Code,
premised on the fact of its own negligence in
not ensuring that all its doors are properly
maintained.
Our pronouncement that Timothy climbed out
of the window because he could not get out
using the door, negates petitioners' other
contention that the proximate cause of the
accident was Timothy's own negligence. The
injuries he sustained from the fall were the
product of a natural and continuous sequence,
unbroken by any intervening cause, that
originated from CLC's own negligence.
We, however, agree with petitioners that there
was no basis to pierce CLC's separate
corporate personality. To disregard the
corporate existence, the plaintiff must prove:
(1) Control by the individual owners, not mere
majority or complete stock ownership,
resulting in complete domination not only of
finances but of policy and business practice in
Page 27 of 41
 28
respect to a transaction so that the corporate
entity as to this transaction had at the time no
separate mind, will or existence of its own; (2)
such control must have been used by the
defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other
positive legal duty, or a dishonest and unjust
act in contravention of the plaintiff's legal
right; and (3) the control and breach of duty
must proximately cause the injury or unjust
loss complained of. The absence of these
elements prevents piercing the corporate
veil.13 The evidence on record fails to show
that these elements are present, especially
given the fact that plaintiffs' complaint had
pleaded that CLC is a corporation duly
organized and existing under the laws of the
Philippines.

On 9th and 10th points raised concerning the

award of damages, the resolution would rest
on factual determinations by the trial court,
affirmed by the Court of Appeals, and no legal
issue warrants our intervention.

WHEREFORE, the petition is partly granted

and the Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 50961 dated
September 28, 2001 and November 23, 2001,
respectively, are MODIFIED in that petitioners
Spouses Edgardo and Sylvia Limon are
absolved from personal liability. The Decision
and Resolution are AFFIRMED in all other
respects. No pronouncement as to costs.

SO ORDERED.

Document1 Page 28 of 41

G.R. Nos. 111810-11 June 16, 1995
JAMES YU and WILSON YOUNG, petitioners,
vs.
THE NATIONAL LABOR RELATIONS
COMMISSION, LABOR ARBITER DANIEL C.
CUETO, TANDUAY DISTILLERY INC., FERNANDO
DURAN, EDUARDO PALIWAN, ROQUE ESTOCE
AND RODRIGO SANTOS, respondents.
MELO, J.:
Before us is a petition for certiorari assailing the
decision of public respondent National Labor
Relations Commission (NLRC) promulgated on
August 25, 1993 in the cases of Fernando Duran, et
al. vs. Tanduay Distillery, Inc., docketed as NLRC
NCR Case No. 00-04-01737-88, and Rodrigo Santos
vs. Tanduay Distillery, Inc., docketed as NLRC NCR
Case No. 00-06-02546-88.
The relevant antecedent facts as gathered from the
record are as follows:
Private respondents-employees Fernando Duran,
Eduardo Paliwan, Roque Estoce, and Rodrigo Santos
were employees of respondent corporation Tanduay
Distillery, Inc, (TDI).
On March 29, 1988, 22 employees of TDI, including
private respondents employees, received a
memorandum from TDI terminating their services. for
reasons of retrenchment, effective 30 days from
receipt thereof or not later than the close of business
hours on April 28, 1988.
On April 26, 1988, all 22 employees of TDI filed an
application for the issuance of a temporary restraining
order against their retrenchment. The labor arbiter
issued the restraining order the following day.
However, due to the 20-day lifetime of the temporary
restraining order, and because of the on-going
negotiations for the sale of TDI the retrenchment
pushed through. Parenthetically, it should be
mentioned that although all 22 employees were
retrenched, the instant petition involves only the 4
individual respondents herein, namely, Fernando
Duran, Eduardo Paliwan, Roque Estoce, and Rodrigo
Santos.
Document1
28
On June 14, 1988, the First Pacific Metro Corporation
moved that it be dropped as a party to the case on the
ground that its projected purchase of the assets of
TDI was not consummated. The participation of First
Pacific was later in effect held to be irrelevant
(decision dated May 24, 1989; Annex G, pp. 50-
58, Rollo). On June 1, 1988, or after respondents-
employees had ceased as such employees, a new
buyer of TDI's assets, Twin Ace Holdings, Inc. took
over the business. Twin Ace assumed the business
name Tanduay Distillers.
On August 8, 1988, the employees filed a motion to
implead herein petitioners James Yu and Wilson
Young, doing business under the name and style of
Tanduay Distillers, as party respondents in said
cases. Petitioners filed an opposition thereto,
asserting that they are representatives of Tanduay
Distillers an entity distinct and separate from TDI, the
previous owner, and that there is no employer-
employee relationship between Tanduay Distillers and
private respondents. Respondents-employees filed a
reply to the opposition stating that petitioner James
Yu as officer-in-charge of Tanduay Distillers had
informed the president of TDI labor union of Tanduay
Distillers' decision to hire everybody with a clean slate
on a probation basis.
On November 16, 1988, private respondents filed a
motion for leave to file an amended complaint
impleading petitioners as respondents. Petitioners
filed an opposition thereto reiterating the grounds they
relied upon in their opposition to private respondents'
motion to implead. A reply was filed by private
respondents, and a rejoinder was then filed by
petitioners. In turn, private respondents filed a sub-
rejoinder.
Subsequently, an amended complaint was filed by
private respondents against TDI and petitioners Yu
and Young "doing business under the name and style
of Tanduay Distillers".
In her decision dated May 24, 1989, Labor Arbiter
Daisy Cauton-Barcelona held:
In treating the motion to implead a
motion to admit amended complaint
with leave, the same [is] hereby given
due course and all pleadings filed by
respondents James Yu and Wilson
Young are hereby treated as their
responsive pleadings in the light of
Page 29 of 41

speedy disposition of justice and the
basic rule that administrative fora,
such as this office, are not governed
by technical rules of proceedings.
(p. 52, Rollo).
In the same decision, it was disposed:
WHEREFORE, judgment is hereby
rendered and declaring that the
retrenchment is illegal thereby
ordering respondent Tanduay
Distillery, Inc., to reinstate the
complainants to their former position
with backwages up to the time of
change of ownership, if one has taken
place.
That in the event of change in
management it (Tanduay Distillery,
Inc.,) is hereby ordered to pay the
complainants their respective
separation benefits computed at the
rate of one (1) month for every year of
service. This is without prejudice to the
letter of Mr. James Yu as officer-in-
charge of Tanduay Distillers dated
June 17, 1988 to the President of the
Tanduay Distillery, Inc., Labor Union.
(pp. 57-58, Rollo.)
Only TDI appealed said decision to the National Labor
Relations Commission, but on June 18, 1991, said
commission promulgated an affirmance decision (p.
102, Rollo). TDI filed a motion for reconsideration, but
the same was denied on August 15, 1991.
Thereupon, private respondents-employees on
September 16, 1991 filed a motion for execution
(Annex Q, pp. 103-106, Rollo) praying that NLRC
through the labor arbiter, "[i]ssue the necessary writ
for the execution of the entire decision dated May 24,
1989, including the actual reinstatement of the
complainants to their former position without loss of
seniority and benefits against Tanduay Distillery, Inc.,
and/or Tanduay Distillers, James Yu and Wilson
Young."
On September 24, 1993, petitioners filed an
opposition (Annex R, pp. 108-110, Rollo) to the
motion for execution on the ground that "the Motion
Document1
28
for Execution is without any basis in so far as it prays
for the issuance of a writ of execution against
respondent Tanduay Distillers, which is an entity
separate and distinct from respondent Tanduay
Distillery, Inc., and respondents James Yu and Wilson
Young." Respondents-employees filed their reply
thereto (Annex S, pp. 111-115, Rollo), and in turn
petitioners filed their rejoinder (Annex T, pp. 116-
118, Rollo), to which private respondents filed their
sur-rejoinder (Annex U, pp. 119-122, Rollo). On
December 18, 1991, respondent TDI filed its comment
on the motion for execution (Annex V, pp. 124-
129, Rollo), while petitioners on January 10, 1992,
filed a joint comment (Annex W, pp. 130-132, Rollo) to
private respondents' sur-rejoinder as well to the
comment filed by respondent TDI.
Subsequently, TDI filed a manifestation dated April
24, 1992 (Annex X, pp. 133-135, Rollo), stating —
2. At the hearing held on March 23,
1992, individual complainants,
assisted by their counsel, Atty. Noel
Cruz, agreed to be paid the total
amount of P86,049.83, in full
satisfaction of the Company's liability
as stated in the dispositive portion of
Labor Arbiter Barcelona's decision
promulgated on May 24, 1989 and
affirmed by the Second Division of the
NLRC on June 18, 1991, which reads
as follows:
WHEREFORE,
judgment is hereby
rendered declaring that
the retrenchment is
illegal thereby ordering
respondent Tanduay
Distillery, Inc. to
reinstate the
complainants to their
former position with
backwages up to the
time of the change of
ownership, if one has
taken place.
That in the event of
change in
management it
(Tanduay Distillery,
Inc.( is hereby ordered
Page 30 of 41

to pay the
complainants their
respective separation
benefits computed at
the rate of one (1)
month of every year of
service. This is without
prejudice to the letter
of Mr. James Yu as
officer-in-charge of
Tanduay Distillers
dated June 17, 1988 to
the President of the
Tanduay Distillery,
Inc., Labor Union.
No Costs.
SO ORDERED.
1. In accordance with the aforequoted
decision, complainants shall be paid
the amounts appearing opposite their
respective names:
Rodrigo F. Santos P20,282.03
Roque Estoce 20,092.50
Eduardo Daliwan 19,973.40
Fernando A. Duran 25,702.00
—————
Total P86,049.83
=========
4. The foregoing amounts shall be
satisfied out of the cash bond
deposited by the Company with the
Cashier of the NLRC. The excess
amounting to P7,076.44 must revert to
the Company.
28
order. Accordingly, let a Writ of
Execution be issued against Tanduay
Distiller, Inc., Wilson Young and
James Yu to immediately reinstate
complainants Fernando Duran,
Rodrigo Santos, Roque Estoce and
Eduardo Daliwan to their respective
positions.
(p 145, Rollo.)
Consequently, a writ of execution was issued by
Labor Arbiter Cueto on December 16, 1992.
To stop the implementation of the writ of execution,
petitioners filed a petition for certiorari (Annex AA, pp.
146-158, Rollo before respondent NLRC, praying that
—
1. Immediately upon filing of the
instant case, a temporary restraining
order he issued, to wit.
a) Enjoining and
restraining the
respondents from
implementing the
Order dated November
17, 1992;
b.) Commanding the
public respondent to
desist from acting on
the Order,
c.) Commanding the
respondents to desist
from committing any
other act judicial to the
petitioners/appellants.

(pp. 134-135, Rollo.) 2. After the appropriate proceedings, a

On November 17, 1992, respondent NLRC, through
Labor Arbiter Daniel C. Cueto, issued an order (Annex
Z, pp. 139-145, Rollo), resolving the motion for
execution as follows:
Based on the foregoing
considerations, this Branch finds the
Motion for Writ of Execution filed by
the complainants meritorious and in
Document1
writ of preliminary injunction be issued
so enjoining the respondents;
3. After hearing on the merits, the
Order dated November 17, 1992 be
set aside and an injunction be issued
permanently enjoining the
respondents from committing the
aforesaid acts and to comply strictly
Page 31 of 41

with terms of the Decision and the
NLRC;
4. Ordering the respondents, jointly
and severally, to pay petitioner's fees
in the amount of P100,000.00 and to
pay the cost of suit.
On August 25, 1993, respondent NLRC promulgated
its decision, the dispositive portion of which reads:
In view of the foregoing premises, the
petition/appeal with prayer for
preliminary injunction is hereby
dismissed for lack of merit.
The petitioners respondents are
hereby directed to re re-employ/re-hire
respondents-complainants
immediately upon receipt of this
decision.
(p. 36, Rollo.)
Thus, the present petition where petitioners pray that
— rendered declaring that the
1. Immediately upon filing of the
instant case, a temporary restraining
order be issued, to wit:
a) Restraining and
prohibiting the
respondents form
implementing the
ORDER dated
November 17, 1992
and the
NLRC Certiorari Decisi
on.
b) Commanding the
respondents to desist
from committing any
other act prejudicial to
the petitioners.
2. After the appropriate proceedings, a
writ of preliminary injunction be issued
so enjoining the respondents;
Document1
28
3. After appropriate proceedings, the
ORDER dated November 17, 1992
and the NLRC Certiorari Decision be
set aside and a injunction be issued
permanently enjoining the
respondents from committing the
aforesaid acts and to comply strictly
with the terms of the Arbiter Decision
and the NLRC Decision;
4. Ordering the respondents, jointly
and severally, to pay petitioners'
attorney's fees in the amount of
P100,000.00 and to pay the costs of
suit.
(pp. 26-27, Rollo.)
The issue posed by the present petition is whether
respondent NLRC committed grave abuse of
discretion in holding petitioners Yu and Young liable
under the decision dated May 24, 1989 which decreed
that:
WHEREFORE, judgment is hereby
retrenchment is illegal thereby
ordering respondent Tanduay Distillery
Inc., to reinstate the complainants to
their former position with backwages
up to the time of the change
ownership, if one has taken place.
That in the event of change in
management it (Tanduay Distillery,
Inc.) is hereby ordered to pay the
complainants their respective
separation benefits corrupted at the
rate of one (1) month for every year of
service. This is without prejudice to the
letter of Mr. James Yu as officer-in-
charge of Tanduay Distillers dated
June 17, 1988 to the President of the
Tanduay Distillery, Inc., Labor Union.
(pp. 57-58, Rollo.)
We hold that petitioners, for a number of reasons
which we shall discuss below, may not be held
answerable and liable under the final judgment of
Labor Arbiter Cauton-Barcelona.
Page 32 of 41

1. Admittedly, the decision dated May 24, 1989 is now
final and executory, as only respondent TDI appealed
said decision and its appeal was later dismissed by
respondent NLRC. It is fundamental that a final and
executory decision cannot be amended or corrected
(First Integrated Bonding and Insurance Company,
Inc, vs. Hernando, 199 SCRA 796 [1991]) except for
clerical errors or mistakes (Maramba vs. Lozano, 20
SCRA 474 [1967]); Reyes vs. Court of Appeals, 189
SCRA 46 [1990]). A definitive judgment is no longer
subject to change, revision, amendment, or reversal
(Miranda vs. Court of Appeals, 71 SCRA 295 [1976],
and the court loses jurisdiction over it, except to order
its execution (PY Eng Chong vs. Herrera, 70 SCRA
130 (1976]).
An examination of the aforequoted dispositive portion
of the decision shows that the same does not in any
manner obligate Tanduay Distillers, or even
petitioners Yu and Young for that matter, to reinstate
respondents. Only TDI was held liable to reinstate
respondents up to the time of change of ownership,
and for separation benefits.
However, Labor Arbiter Cueto went beyond what was
disposed by the decision and issued an order dated
November 17, 1992 (Annex Z, Petition, pp. 139-
145, Rollo) which required
. . . Tanduay Distillers, Inc., Wilson
Young and James Yu to immediately
reinstate complainants Fernando
Duran, Rodrigo Santos, Roque Estoce
and Eduardo Daliwan to heir
respective positions.
(p. 145, Rollo.)
Subsequently, a writ of execution was issued on
December 16, 1992 pursuant to the order of
November 17, 1992.
The order of execution dated November 17, 1992 in
effect amended the decision dated May 24, 1989 for
the former orders petitioners and Tanduay Distillers to
reinstate private respondents employees whereas the
decision dated May 24, 1989, as we have discussed
above, does not so decree, This cannot be done. It is
beyond the power and competence of Labor Arbiter
Cueto to amend a final decision, The writ of execution
must not go beyond the scope of the judgment.
Document1
28
As Chief Justice Moran opined: "The
writ of execution must conform to the
judgment which is to be executed as it
may not vary the terms of the
judgment it seeks to enforce. Nor may
it go beyond the terms of the
judgment, sought to be executed.
Where the execution is not in harmony
with the judgment which gives it life
and exceeds it, it has pro tanto no
validity. To maintain otherwise would
be to ignore the constitutional
provision against depriving a person of
his property without due process of
law" (Moran, Comments on the Rules
of Court, Vol. I 1952 Ed., p. 809; cited
in Villoria vs. Piccio, supra).
(Gamboa's Incorporated vs. Court of
Appeals, 72 SCRA 131, 137-138
[1976])
The order of execution and the writ of execution
ordering petitioners and Tanduay Distillers to reinstate
private respondents employees are, therefore, null
and void.
2. Neither may be said that petitioners and Tanduay
Distillers are one and the same as TDI, as seems to
be the impression of respondents when they
impleaded petitioners as party respondents in their
compliant for unfair labor practice, illegal lay off, and
separation benefits.
Such a stance is not supported by the facts. The
name of the company for whom the petitioners are
working is Twin Ace Holdings Corporation, As stated
by the Solicitor General, Twin Ace is part of the Allied
Bank Group although it conducts the rum business
under the name of Tanduay Distillers. The use of a
similar sounding or almost identical name is an
obvious device to capitalize on the goodwill which
Tanduay Rum has built over the years. Twin Ace or
Tanduay Distillers, on one hand, and Tanduay
Distillery Inc. (TDI), on the other, are distinct and
separate corporations. There is nothing to suggest
that the owners of TDI, have any common relationship
as to identify it with Allied Bank Group which runs
Tanduay Distillers. The dissertation of the Court in
Diatagon Labor Federation Local 110 of the ULGWP
vs. Ople, et al. (101 SCRA 534 [1980]) is worthy of
restatement, thusly:
Page 33 of 41

We hold that the director of labor
Relations acted with grave abuse of
discretion in treating the two
companies as a single bargaining unit.
The ruling is arbitrary and untenable
because the two companies are
indubitably distinct entities with
separate juridical personalities.
The fact that their businesses are
related and that the 236 employees of
Georgia Pacific International
Corporation were originally employees
of Lianga Bay Logging Co., Inc, is not
a justification for disregarding their
separate personalities. Hence, the 236
employees, who are now attached to
Georgia Pacific International should
not be allowed to vote in the
certification election at the Lianga Bay
Logging Co., Inc. They should vote at
a separate certification election to
determine the collective bargaining
representative of the employees of
Georgia Pacific International
Corporation.
(at pp. 540-541.)
It is basic that a corporation is invested by law with a
personality separate and distinct from those of the
persons composing it as well as from that of any other
legal entity to which it may be related (Palay, Inc. et
al. vs. Clave, et al., 124 SCRA 641 [1983]).
The genuine nature of the sale to Twin Ace is
evidenced by the fact that Twin Ace was only a
subsequent interested buyer. At the time when
termination notices were sent to its employees, TDI
was negotiating with the First Pacific Metro
Corporation for the sale of its assets. Only after First
Pacific gave up its efforts to acquire the assets did
Twin Ace or Tanduay Distillers come into the picture.
Respondents-employees have not presented any
proof as to communality of ownership and
management to support their contention that the two
companies are one firm or closely related. The
doctrine of piercing the veil of corporate entity applies
when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend
crime or where a corporation is the mere alter ego or
business conduit of a person (Indophil Textile Mill
Workers Union vs. Calica, 205 SCRA 697, 703
Document1
28
(1992]). To disregard the separate juridical personality
of a corporation, the wrong-doing must be clearly and
convincingly established. It cannot be presumed (Del
Rosario vs. NLRC, 187 SCRA 777, 7809 [1990]).
The complaint for unfair labor practice, illegal lay off,
and separation benefits was filed against TDI. Only
later when the manufacture and sale of Tanduay
products was taken over by Twin Ace or Tanduay
Distillers were James Yu and Wilson Young
impleaded.
The corporation itself — Twin Ace or Tanduay
Distillers — was never made a party to the case.
Another factor to consider is that TDI as a corporation
or its shares of stock were not purchased by Twin
Ace. The buyer limited itself to purchasing most of the
assets, equipment, and machinery of TDI. Thus, Twin
Ace or Tanduay Distillers did not take over the
corporate personality of DTI although they
manufacture the same product at the same plant with
the same equipment and machinery. Obviously, the
trade name "Tanduay" went with the sale because the
new firm does business as Tanduay Distillers and its
main product of rum is sold as Tanduay Rum. There
is no showing, however, that TDI itself was absorbed
by Twin Ace or that it ceased to exist as a separate
corporation, In point of fact TDI is now herein a party
respondent represented by its own counsel.
Significantly, TDI in the petition at hand has taken the
side of its former employees and argues against
Tanduay Distillers. In its memorandum filed on
January 9, 1995, TDI argues that it was not alone its
liability which arbiter recognized "but also of James
Yu and Wilson Young representatives of Twin Ace
and/or the Allied Bank Group doing business under
the name "TANDUAY DISTILLERS," to whom the
business and assets of TDI were sold." If TDI and
Tanduay, Distillers are one and the same group or
one is a continuation of the other, the two would not
be fighting each other in this case. TDI would not
argue strongly "that the petition for certiorari filed by
James Yu and Wilson Young be dismissed for lack of
merit." It is obvious that the second corporation, Twin
Ace or Tanduay Distillers, is an entity separate and
distinct, from the first corporation, TDI. The
circumstances of this case are different from the
earlier decisions of the Court in labor cases where the
veil of corporate fiction was pierced.
Page 34 of 41

In La Campana Coffee Factory. Inc. vs. Kaisahan ng
Mangagawa sa La Campana (KKM), (93 Phil, 160
[1953]), La Campana Coffee Factory, Inc. and La
Campana Gaugau Packing were substantially owned
by the same person. They had one office, one
management, and a single payroll for both
businesses. The laborers of the gaugau factory and
the coffee factory were also interchangeable, the
workers in one factory worked also in the other
factory.
In Claparols vs. Court of Industrial Relations (65
SCRA 613 (1975]), the Claparols Steel and Nail Plant,
which was ordered to pay its workers backwages,
ceased operations on June 30, 1956 and was
succeeded on the very next day, July 1, 1957, by the
Claparols Steel Corporation. Both corporations were
substantially owned and controlled by the same
person and there was no break or cessation in
operations. Moreover, all the assets of the steel and
nail plant were transferred to the new corporation.
In fine, the fiction of separate and distinct corporate
entities cannot, in the instant case, be disregarded
and brushed aside, there being not the least indication
that the second corporation is a dummy or serves as
a client of the first corporate entity.
In the case at bench, since TDI and Twin Ace or
Tanduay Distillers are two separate and distinct
entities, the order for Tanduay Distillers (and
petitioners) to reinstate respondents-employees is
obviously without legal and factual basis.
3. Nor could the order and writ to reinstate be
anchored on the vague and seemingly uncalled for
alternative disposition in the Barcelona decision that
— on a permanent status. His application can be
. . . This is without prejudice to the
letter of Mr. James Yu as officer-in-
charge of Tanduay Distillers dated
June 16, 1988 to the President of the
Tanduay Distillery, Inc. labor Union.
The June 11, 1988 letter referred to was addressed to
Benjamin C. Agaloos, president of the Tanduay
Distillery Labor Union by James Yu in his capacity as
officer-in-charge of Tanduay Distillers.
It pertinently reads:
Document1
28
Please be informed that our company
stands firm on its decision to hire
everybody with a clean slate effective
June 1, 1988 on a probationary basis
while those currently casual or
contractual employees shall retain the
same employment status. In the same
manner that the new company stood
firm on its decision to grant a 10%
across-the-board increase to all
employees, which in fact has been
received by employees concerned.
(p. 88, Rollo.)
We do not find in the decision of Labor Arbiter Cauton
Barcelona or in the letter of James Yu what the
respondents are trying to read into it. Labor Arbiter
Cauton-Barcelona found the retrenchment effected by
TDI illegal and ordered TDI to reinstate the
complainants and that if there is a change of
management, then separation benefits would be paid.
There is, however, no order in the decision directing
Twin Ace or Tanduay Distillers to hire or reinstate
herein four individual respondents.
The letter of James Yu does not mention any
reinstatement. It assures the president of the labor
union that Tanduay Distillers stood firm on its decision
to hire employees with a clean slate on a probationary
basis. The fact that the employees of the former
employer (TDI) would be hired on a probationary
basis shows that there was no employer-employee
relationship between individual respondents and Twin
Ace. Any one who joins the buyer corporation comes
in as an outsider who is newly hired and who starts on
a probationary basis until he proves he deserves to be
rejected in the exercise of the hiring authority's
discretion.
There is thus no legal basis for Labor Arbiter Cueto or
the NLRC to compel Twin Ace or Tanduay Distillers,
or petitioners to "reinstate" the four individual
respondents. The letter of James Yu to the union
president was a unilateral and gratuitous offer with no
consideration. It refers to people who still have to be
hired. New hires had to be investigated or evaluated if
they have "clean slates." Twin Ace or Tanduay
Distillers and petitioners are being compelled by
public respondents to reinstate workers who were
never their employees. There is no showing that the
sale of assets by TDI to Tanduay Distillers included a
Page 35 of 41
 28
condition that employees of the former would be order are set aside as null and void. No special
absorbed by the latter. pronouncement is made as to costs.

Employees of TDI had been terminated in their SO ORDERED.

employment as of April 28, 1988. Petitioners state that
Twin Ace bought the assets of TDI after the
employment of the individual respondents had been
terminated. True, Labor Arbiter Cauton-Barcelona
declared the retrenchment program of TDI as illegal.
This decision, however, did not convert the individual
respondents into employees of the firm which
purchased the assets of the former employer. It
merely held TDI liable for the consequences of the
illegal retrenchment.

Labor Arbiter Cueto and the NLRC, therefore,

committed grave abuse of discretion when they read
into the decision of Labor Arbiter Cauton- Barcelona
something which did not appear therein. And even
assuming that Labor Arbiter Cauton-Barcelona
formally included an order for the petitioners to hire
the individual respondents, there would be no factual
or legal basis for such an order. An employer-
employee relation is created by contract, and can not
be forced upon either party simply upon order of a
labor arbiter. The hiring of employees is one of the
recognized prerogatives of management.

4. Another factor which militates against the claim for

reinstatement of the individual respondents is their
having received separation pay as part of a
compromise agreement in the course of their litigation
with TDI. Rodrigo F. Santos received P20,282.03;
Roque Estoce, P20,092.50; Eduardo Daliwan,
P19,973.40; and Fernando A. Duran, P25,702.00.
These amounts correspond to their entitlement to
separation benefits. Having received separation pay
from a former employer, how can they compel, as a
matter of right, another company to hire them on a
supposed "reinstatement" basis? The orders
executing the earlier decision of Labor Arbiter Cauton-
Barcelona and directing petitioners to immediately
reinstate the four individual respondents to their
former positions are, thus, characterized by grave
abuse of discretion. There are no "former positions" to
which individual respondents may be reinstated
because they never hired by Twin Ace/Tanduay
Distillers and had never worked for it.

WHEREFORE, the petition is hereby GRANTED, The

questioned Order of the Labor Arbiter Daniel C. Cueto
dated November 17, 1992 and the decision of the
National Labor Relations Commission upholding said
Document1 Page 36 of 41

G.R. No. 142616 July 31, 2001
PHILIPPINE NATIONAL BANK, petitioner,
vs.
RITRATTO GROUP INC., RIATTO
INTERNATIONAL, INC., and DADASAN GENERAL
MERCHANDISE, respondents.
KAPUNAN, J.:
In a petition for review on certiorari under Rule 45 of
the Revised Rules of Court, petitioner seeks to annul
and set aside the Court of Appeals' decision in C.A.
CV G.R. S.P. No. 55374 dated March 27, 2000,
affirming the Order issuing a writ of preliminary
injunction of the Regional Trial Court of Makati,
Branch 147 dated June 30, 1999, and its Order dated
October 4, 1999, which denied petitioner's motion to
dismiss.
The antecedents of this case are as follows:
Petitioner Philippine National Bank is a domestic
corporation organized and existing under Philippine
law. Meanwhile, respondents Ritratto Group, Inc.,
Riatto International, Inc. and Dadasan General
Merchandise are domestic corporations, likewise,
organized and existing under Philippine law.
On May 29, 1996, PNB International Finance Ltd.
(PNB-IFL) a subsidiary company of PNB, organized
and doing business in Hong Kong, extended a letter
of credit in favor of the respondents in the amount of
US$300,000.00 secured by real estate mortgages
constituted over four (4) parcels of land in Makati City.
This credit facility was later increased successively to
US$1,140,000.00 in September 1996; to
US$1,290,000.00 in November 1996; to
US$1,425,000.00 in February 1997; and decreased to
US$1,421,316.18 in April 1998. Respondents made
repayments of the loan incurred by remitting those
amounts to their loan account with PNB-IFL in Hong
Kong.
However, as of April 30, 1998, their outstanding
obligations stood at US$1,497,274.70. Pursuant to the
terms of the real estate mortgages, PNB-IFL, through
its attorney-in-fact PNB, notified the respondents of
the foreclosure of all the real estate mortgages and
that the properties subject thereof were to be sold at a
public auction on May 27, 1999 at the Makati City
Hall.
Document1
28
On May 25, 1999, respondents filed a complaint for
injunction with prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining
order before the Regional Trial Court of Makati. The
Executive Judge of the Regional Trial Court of Makati
issued a 72-hour temporary restraining order. On May
28, 1999, the case was raffled to Branch 147 of the
Regional Trial Court of Makati. The trial judge then set
a hearing on June 8, 1999. At the hearing of the
application for preliminary injunction, petitioner was
given a period of seven days to file its written
opposition to the application. On June 15, 1999,
petitioner filed an opposition to the application for a
writ of preliminary injunction to which the respondents
filed a reply. On June 25, 1999, petitioner filed a
motion to dismiss on the grounds of failure to state a
cause of action and the absence of any privity
between the petitioner and respondents. On June 30,
1999, the trial court judge issued an Order for the
issuance of a writ of preliminary injunction, which writ
was correspondingly issued on July 14, 1999. On
October 4, 1999, the motion to dismiss was denied by
the trial court judge for lack of merit.
Petitioner, thereafter, in a petition for certiorari and
prohibition assailed the issuance of the writ of
preliminary injunction before the Court of Appeals. In
the impugned decision,1 the appellate court dismissed
the petition. Petitioner thus seeks recourse to this
Court and raises the following errors:
1.
THE COURT OF APPEALS PALPABLY
ERRED IN NOT DISMISSING THE
COMPLAINT A QUO, CONSIDERING THAT
BY THE ALLEGATIONS OF THE
COMPLAINT, NO CAUSE OF ACTION
EXISTS AGAINST PETITIONER, WHICH IS
NOT A REAL PARTY IN INTEREST BEING A
MERE ATTORNEY-IN-FACT AUTHORIZED
TO ENFORCE AN ANCILLARY CONTRACT.
2.
THE COURT OF APPEALS PALPABLY
ERRED IN ALLOWING THE TRIAL COURT
TO ISSUE IN EXCESS OR LACK OF
JURISDICTION A WRIT OF PRELIMINARY
INJUNCTION OVER AND BEYOND WHAT
WAS PRAYED FOR IN THE COMPLAINT A
QUO CONTRARY TO CHIEF OF STAFF,
AFP VS. GUADIZ JR., 101 SCRA 827.2
Page 37 of 41

Petitioner prays, inter alia, that the Court of Appeals'
Decision dated March 27, 2000 and the trial court's
Orders dated June 30, 1999 and October 4, 1999 be
set aside and the dismissal of the complaint in the
instant case.3
In their Comment, respondents argue that even
assuming arguendo that petitioner and PNB-IFL are
two separate entities, petitioner is still the party-in-
interest in the application for preliminary injunction
because it is tasked to commit acts of foreclosing
respondents' properties.4 Respondents maintain that
the entire credit facility is void as it contains
stipulations in violation of the principle of mutuality of
contracts.5 In addition, respondents justified the act of
the court a quo in applying the doctrine of "Piercing
the Veil of Corporate Identity" by stating that petitioner
is merely an alter ego or a business conduit of PNB-
IFL.6
The petition is impressed with merit.
Respondents, in their complaint, anchor their prayer
for injunction on alleged invalid provisions of the
contract:
GROUNDS
I Clearly, petitioner not being a part to the contract has
THE DETERMINATION OF THE INTEREST
RATES BEING LEFT TO THE SOLE
DISCRETION OF THE DEFENDANT PNB
CONTRAVENES THE PRINCIPAL OF
MUTUALITY OF CONTRACTS.
II
THERE BEING A STIPULATION IN THE
LOAN AGREEMENT THAT THE RATE OF
INTEREST AGREED UPON MAY BE
UNILATERALLY MODIFIED BY
DEFENDANT, THERE WAS NO
STIPULATION THAT THE RATE OF
INTEREST SHALL BE REDUCED IN THE
EVENT THAT THE APPLICABLE MAXIMUM
RATE OF INTEREST IS REDUCED BY LAW
OR BY THE MONETARY BOARD.7
Based on the aforementioned grounds, respondents
sought to enjoin and restrain PNB from the
foreclosure and eventual sale of the property in order
Document1
28
to protect their rights to said property by reason of
void credit facilities as bases for the real estate
mortgage over the said property.8
The contract questioned is one entered into between
respondent and PNB-IFL, not PNB. In their complaint,
respondents admit that petitioner is a mere attorney-
in-fact for the PNB-IFL with full power and authority
to, inter alia, foreclose on the properties mortgaged to
secure their loan obligations with PNB-IFL. In other
words, herein petitioner is an agent with limited
authority and specific duties under a special power of
attorney incorporated in the real estate mortgage. It is
not privy to the loan contracts entered into by
respondents and PNB-IFL.
The issue of the validity of the loan contracts is a
matter between PNB-IFL, the petitioner's principal and
the party to the loan contracts, and the respondents.
Yet, despite the recognition that petitioner is a mere
agent, the respondents in their complaint prayed that
the petitioner PNB be ordered to re-compute the
rescheduling of the interest to be paid by them in
accordance with the terms and conditions in the
documents evidencing the credit facilities, and
crediting the amount previously paid to PNB by herein
respondents.9
no power to re-compute the interest rates set forth in
the contract. Respondents, therefore, do not have any
cause of action against petitioner.
The trial court, however, in its Order dated October 4,
1994, ruled that since PNB-IFL, is a wholly owned
subsidiary of defendant Philippine National Bank, the
suit against the defendant PNB is a suit against PNB-
IFL.10 In justifying its ruling, the trial court, citing the
case of Koppel Phil. Inc. vs. Yatco,11 reasoned that
the corporate entity may be disregarded where a
corporation is the mere alter ego, or business conduit
of a person or where the corporation is so organized
and controlled and its affairs are so conducted, as to
make it merely an instrumentality, agency, conduit or
adjunct of another corporation.12
We disagree.
The general rule is that as a legal entity, a corporation
has a personality distinct and separate from its
individual stockholders or members, and is not
affected by the personal rights, obligations and
transactions of the latter.13 The mere fact that a
Page 38 of 41

corporation owns all of the stocks of another
corporation, taken alone is not sufficient to justify their
being treated as one entity. If used to perform
legitimate functions, a subsidiary's separate existence
may be respected, and the liability of the parent
corporation as well as the subsidiary will be confined
to those arising in their respective business. The
courts may in the exercise of judicial discretion step in
to prevent the abuses of separate entity privilege and
pierce the veil of corporate entity.
We find, however, that the ruling in Koppel finds no
application in the case at bar. In said case, this Court
disregarded the separate existence of the parent and
the subsidiary on the ground that the latter was
formed merely for the purpose of evading the
payment of higher taxes. In the case at bar,
respondents fail to show any cogent reason why the
separate entities of the PNB and PNB-IFL should be
disregarded.
While there exists no definite test of general
application in determining when a subsidiary may be
treated as a mere instrumentality of the parent
corporation, some factors have been identified that
will justify the application of the treatment of the
doctrine of the piercing of the corporate veil. The case
of Garrett vs. Southern Railway Co.14 is enlightening.
The case involved a suit against the Southern Railway
Company. Plaintiff was employed by Lenoir Car
Works and alleged that he sustained injuries while
working for Lenoir. He, however, filed a suit against
Southern Railway Company on the ground that
Southern had acquired the entire capital stock of
Lenoir Car Works, hence, the latter corporation was
but a mere instrumentality of the former. The
Tennessee Supreme Court stated that as a general
rule the stock ownership alone by one corporation of
the stock of another does not thereby render the
dominant corporation liable for the torts of the
subsidiary unless the separate corporate existence of
the subsidiary is a mere sham, or unless the control of
the subsidiary is such that it is but an instrumentality
or adjunct of the dominant corporation. Said Court
then outlined the circumstances which may be useful
in the determination of whether the subsidiary is but a
mere instrumentality of the parent-corporation:
The Circumstance rendering the subsidiary an
instrumentality. It is manifestly impossible to
catalogue the infinite variations of fact that can
arise but there are certain common
circumstances which are important and which,
Document1
28
if present in the proper combination, are
controlling.
These are as follows:
(a) The parent corporation owns all or most of
the capital stock of the subsidiary.
(b) The parent and subsidiary corporations
have common directors or officers.
(c) The parent corporation finances the
subsidiary.
(d) The parent corporation subscribes to all
the capital stock of the subsidiary or otherwise
causes its incorporation.
(e) The subsidiary has grossly inadequate
capital.
(f) The parent corporation pays the salaries
and other expenses or losses of the
subsidiary.
(g) The subsidiary has substantially no
business except with the parent corporation or
no assets except those conveyed to or by the
parent corporation.
(h) In the papers of the parent corporation or
in the statements of its officers, the subsidiary
is described as a department or division of the
parent corporation, or its business or financial
responsibility is referred to as the parent
corporation's own.
(i) The parent corporation uses the property of
the subsidiary as its own.
(j) The directors or executives of the
subsidiary do not act independently in the
interest of the subsidiary but take their orders
from the parent corporation.
(k) The formal legal requirements of the
subsidiary are not observed.
The Tennessee Supreme Court thus ruled:
In the case at bar only two of the eleven listed
indicia occur, namely, the ownership of most
Page 39 of 41

of the capital stock of Lenoir by Southern, and
possibly subscription to the capital stock of
Lenoir. . . The complaint must be dismissed.
Similarly, in this jurisdiction, we have held that the
doctrine of piercing the corporate veil is an equitable
doctrine developed to address situations where the
separate corporate personality of a corporation is
abused or used for wrongful purposes. The doctrine
applies when the corporate fiction is used to defeat
public convenience, justify wrong, protect fraud or
defend crime, or when it is made as a shield to
confuse the legitimate issues, or where a corporation
is the mere alter ego or business conduit of a person,
or where the corporation is so organized and
controlled and its affairs are so conducted as to make
it merely an instrumentality, agency, conduit or
adjunct of another corporation.15
In Concept Builders, Inc. v. NLRC,16 we have laid the
test in determining the applicability of the doctrine of
piercing the veil of corporate fiction, to wit:
1. Control, not mere majority or complete
control, but complete domination, not only of
finances but of policy and business practice in
respect to the transaction attacked so that the
corporate entity as to this transaction had at
the time no separate mind, will or existence of
its own.
2. Such control must have been used by the
defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other
positive legal duty, or dishonest and, unjust
act in contravention of plaintiffs legal rights;
and,
3. The aforesaid control and breach of duty
must proximately cause the injury or unjust
loss complained of.
The absence of any one of these elements
prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter ego"
doctrine, the courts are concerned with reality
and not form, with how the corporation
operated and the individual defendant's
relationship to the operation.17
Aside from the fact that PNB-IFL is a wholly owned
subsidiary of petitioner PNB, there is no showing of
the indicative factors that the former corporation is a
Document1
28
mere instrumentality of the latter are present. Neither
is there a demonstration that any of the evils sought to
be prevented by the doctrine of piercing the corporate
veil exists. Inescapably, therefore, the doctrine of
piercing the corporate veil based on the alter ego or
instrumentality doctrine finds no application in the
case at bar.
In any case, the parent-subsidiary relationship
between PNB and PNB-IFL is not the significant legal
relationship involved in this case since the petitioner
was not sued because it is the parent company of
PNB-IFL. Rather, the petitioner was sued because it
acted as an attorney-in-fact of PNB-IFL in initiating the
foreclosure proceedings. A suit against an agent
cannot without compelling reasons be considered a
suit against the principal. Under the Rules of Court,
every action must be prosecuted or defended in the
name of the real party-in-interest, unless otherwise
authorized by law or these Rules.18 In mandatory
terms, the Rules require that "parties-in-interest
without whom no final determination can be had, an
action shall be joined either as plaintiffs or
defendants."19 In the case at bar, the injunction suit is
directed only against the agent, not the principal.
Anent the issuance of the preliminary injunction, the
same must be lifted as it is a mere provisional remedy
but adjunct to the main suit.20 A writ of preliminary
injunction is an ancillary or preventive remedy that
may only be resorted to by a litigant to protect or
preserve his rights or interests and for no other
purpose during the pendency of the principal action.
The dismissal of the principal action thus results in the
denial of the prayer for the issuance of the writ.
Further, there is no showing that respondents are
entitled to the issuance of the writ. Section 3, Rule 58,
of the 1997 Rules of Civil Procedure provides:
SECTION 3. Grounds for issuance of
preliminary injunction. — A preliminary
injunction may be granted when it is
established:
(a) That the applicant is entitled to the relief
demanded, and the whole or part of such
relief consists in restraining the commission or
continuance of the act or acts complained of,
or in requiring the performance of an act or
acts, either for a limited period or perpetually,
(b) That the commission, continuance or non-
performance of the acts or acts complained of
Page 40 of 41
 28
during the litigation would probably work
injustice to the applicant; or

(c) That a party, court, agency or a person is

doing, threatening, or is attempting to do, or is
procuring or suffering to be done, some act or
acts probably in violation of the rights of the
applicant respecting the subject of the action
or proceeding, and tending to render the
judgment ineffectual.

Thus, an injunctive remedy may only be resorted to

when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any
standard compensation.21 Respondents do not deny
their indebtedness. Their properties are by their own
choice encumbered by real estate mortgages. Upon
the non-payment of the loans, which were secured by
the mortgages sought to be foreclosed, the
mortgaged properties are properly subject to a
foreclosure sale. Moreover, respondents questioned
the alleged void stipulations in the contract only when
petitioner initiated the foreclosure proceedings.
Clearly, respondents have failed to prove that they
have a right protected and that the acts against which
the writ is to be directed are violative of said
right.22 The Court is not unmindful of the findings of
both the trial court and the appellate court that there
may be serious grounds to nullify the provisions of the
loan agreement. However, as earlier discussed,
respondents committed the mistake of filing the case
against the wrong party, thus, they must suffer the
consequences of their error.

All told, respondents do not have a cause of action

against the petitioner as the latter is not privy to the
contract the provisions of which respondents seek to
declare void. Accordingly, the case before the
Regional Trial Court must be dismissed and the
preliminary injunction issued in connection therewith,
must be lifted.

IN VIEW OF THE FOREGOING, the petition is hereby

GRANTED. The assailed decision of the Court of
Appeals is hereby REVERSED. The Orders dated
June 30, 1999 and October 4, 1999 of the Regional
Trial Court of Makati, Branch 147 in Civil Case No.
99-1037 are hereby ANNULLED and SET ASIDE and
the complaint in said case DISMISSED.

SO ORDERED.

Puno, Pardo and Santiago,

Document1 Page 41 of 41