[G.R. No.

166282, February 13, 2013]

HEIRS OF FE TAN UY (REPRESENTED BY HER HEIR, MANLING UY

LIM), Petitioners, v.INTERNATIONAL EXCHANGE BANK, RESPONDENT.

[G.R. NO. 166283]

GOLDKEY DEVELOPMENT CORPORATION, PETITIONER. VS.

INTERNATIONAL EXCHANGE BANK, Respondents.

DECISION

MENDOZA, J.:

Before the Court are two consolidated petitions for review on certiorari under Rule 45 of the l997 Revised
Rules of Civil Procedure, assailing the August 16, 2004 Decision1 and the December 2, 2004 Resolution2 of
the Court of Appeals (CA) in CA-G.R. CV No. 69817 entitled “International Exchange Bank v. Hammer
Garments Corp., et al.”

The Facts

On several occasions, from June 23, 1997 to September 3, 1997, respondent International Exchange Bank
(iBank), granted loans to Hammer Garments Corporation (Hammer), covered by promissory notes and
deeds of assignment, in the following amounts:3

Date of Promissory Note Amount

June 23, 1997 P 5,599,471.33

July 24, 1997 2,700,000.00

July 25, 1997 2,300,000.00

August 1, 1997 2,938,505.04

August 1, 1997 3,361,494.96

August 14, 1997 980,000.00

August 21, 1997 2,527,200.00

August 21, 1997 3,146,715.00

September 3, 1997 1,385,511.75

Total P24,938,898.08

These were made pursuant to the Letter-Agreement,4 dated March 23,

1996, between iBank and Hammer, represented by its President and General Manager, Manuel Chua (Chua)
a.k.a. Manuel Chua Uy Po Tiong, granting Hammer a P 25 Million-Peso Omnibus Line.5 The loans were
secured by a P 9 Million-Peso Real Estate Mortgage6 executed on July 1, 1997 by Goldkey Development
Corporation (Goldkey) over several of its properties and a P 25 Million-Peso Surety Agreement7 signed by
Chua and his wife, Fe Tan Uy (Uy), on April 15, 1996.

As of October 28, 1997, Hammer had an outstanding obligation of P25,420,177.62 to iBank.8 Hammer
defaulted in the payment of its loans, prompting iBank to foreclose on Goldkey’s third-party Real Estate
Mortgage. The mortgaged properties were sold for P 12 million during the foreclosure sale, leaving an
unpaid balance of P 13,420,177.62.9 For failure of Hammer to pay the deficiency, iBank filed a
Complaint10 for sum of money on December 16, 1997 against Hammer, Chua, Uy, and Goldkey before the
Regional Trial Court, Makati City (RTC).11

Despite service of summons, Chua and Hammer did not file their respective answers and were declared in
default. In her separate answer, Uy claimed that she was not liable to iBank because she never executed a
surety agreement in favor of iBank. Goldkey, on the other hand, also denies liability, averring that it acted
only as a third-party mortgagor and that it was a corporation separate and distinct from Hammer.12

Meanwhile, iBank applied for the issuance of a writ of preliminary attachment which was granted by the RTC
in its December 17, 1997 Order.13

The Notice of Levy on Attachment of Real Properties, dated July 15, 1998, covering the properties under the
name of Goldkey, was sent by the sheriff to the Registry of Deeds of Quezon City.14

The RTC, in its Decision,15 dated December 27, 2000, ruled in favor of iBank. While it made the
pronouncement that the signature of Uy on the Surety Agreement was a forgery, it nevertheless held her
liable for the outstanding obligation of Hammer because she was an officer and stockholder of the said
corporation. The RTC agreed with Goldkey that as a third-party mortgagor, its liability was limited to the
properties mortgaged. It came to the conclusion, however, that Goldkey and Hammer were one and the
same entity for the following reasons: (1) both were family corporations of Chua and Uy, with Chua as the
President and Chief Operating Officer; (2) both corporations shared the same office and transacted business
from the same place, (3) the assets of Hammer and Goldkey were co-mingled; and (4) when Chua
absconded, both Hammer and Goldkey ceased to operate. As such, the piercing of the veil of corporate
fiction was warranted. Uy, as an officer and stockholder of Hammer and Goldkey, was found liable to iBank
together with Chua, Hammer and Goldkey for the deficiency of P13,420,177.62.

Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the case to the CA. On August 16, 2004, it
promulgated its decision affirming the findings of the RTC. The CA found that iBank was not negligent in
evaluating the financial stability of Hammer. According to the appellate court, iBank was induced to grant
the loan because petitioners, with intent to defraud the bank, submitted a falsified Financial Report for 1996
which incorrectly declared the assets and cashflow of Hammer.16 Because petitioners acted maliciously and
in bad faith and used the corporate fiction to defraud iBank, they should be treated as one and the same as
Hammer.17

Hence, these petitions filed separately by the heirs of Uy and Goldkey. On February 9, 2005, this Court
ordered the consolidation of the two cases.18

The Issues

Petitioners raise the following issues:

Whether or not a trial court, under the facts of this case, can go out of the issues
raised by the pleadings;19

Whether or not there is guilt by association in those cases where the veil of
corporate fiction may be pierced;20 and

Whether or not the “alter ego” theory in disregarding the corporate personality of
a corporation is applicable to Goldkey.21

Simplifying the issues in this case, the Court must resolve the following: (1) whether Uy can be held liable to
iBank for the loan obligation of Hammer as an officer and stockholder of the said corporation; and (2)
whether Goldkey can be held liable for the obligation of Hammer for being a mere alter ego of the latter.

The Court’s Ruling

The petitions are partly meritorious.

Uy is not liable; The piercing of the

veil of corporate fiction is not justified

The heirs of Uy argue that the latter could not be held liable for being merely an officer of Hammer and
Goldkey because it was not shown that she had committed any actionable wrong22 or that she had
participated in the transaction between Hammer and iBank. They further claim that she had cut all ties with
Hammer and her husband long before the execution of the loan.23

The Court finds in favor of Uy.

Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal
personality separate and distinct from those acting for and in its behalf and, in general, from the people
comprising it. Following this principle, obligations incurred by the corporation, acting through its directors,
officers and employees, are its sole liabilities. A director, officer or employee of a corporation is generally not
held personally liable for obligations incurred by the corporation.24 Nevertheless, this legal fiction may be
disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse legitimate issues.25

This is consistent with the provisions of the Corporation Code of the Philippines, which states:

Sec. 31. Liability of directors, trustees or officers. – Directors or trustees who wilfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty
of gross negligence or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such directors or trustees shall
be liable jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.

Solidary liability will then attach to the directors, officers or employees of the corporation in certain
circumstances, such as:

1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a)
vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with
gross negligence in directing the corporate affairs; and (c) are guilty of conflict of interest
to the prejudice of the corporation, its stockholders or members, and other persons;

2. When a director or officer has consented to the issuance of watered stocks or who,
having knowledge thereof, did not forthwith file with the corporate secretary his written
objection thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation; or

4. When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action.26

Before a director or officer of a corporation can be held personally liable for corporate obligations, however,
the following requisites must concur: (1) the complainant must allege in the complaint that the director or
officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful acts,
negligence or bad faith.27

While it is true that the determination of the existence of any of the circumstances that would warrant the
piercing of the veil of corporate fiction is a question of fact which cannot be the subject of a petition for
review on certiorari under Rule 45, this Court can take cognizance of factual issues if the findings of the
lower court are not supported by the evidence on record or are based on a misapprehension of facts.28

In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy committed
an act as an officer of Hammer that would permit the piercing of the corporate veil. A reading of the
complaint reveals that with regard to Uy, iBank did not demand that she be held liable for the obligations of
Hammer because she was a corporate officer who committed bad faith or gross negligence in the
performance of her duties such that the lifting of the corporate mask would be merited. What the complaint
simply stated is that she, together with her errant husband Chua, acted as surety of Hammer, as evidenced
by her signature on the Surety Agreement which was later found by the RTC to have been forged.29

Considering that the only basis for holding Uy liable for the payment of the loan was proven to be a falsified
document, there was no sufficient justification for the RTC to have ruled that Uy should be held jointly and
severally liable to iBank for the unpaid loan of Hammer. Neither did the CA explain its affirmation of the
RTC’s ruling against Uy. The Court cannot give credence to the simplistic declaration of the RTC that liability
would attach directly to Uy for the sole reason that she was an officer and stockholder of Hammer.

At most, Uy could have been charged with negligence in the performance of her duties as treasurer of
Hammer by allowing the company to contract a loan despite its precarious financial position. Furthermore, if
it was true, as petitioners claim, that she no longer performed the functions of a treasurer, then she should
have formally resigned as treasurer to isolate herself from any liability that could result from her being an
officer of the corporation. Nonetheless, these shortcomings of Uy are not sufficient to justify the piercing of
the corporate veil which requires that the negligence of the officer must be so gross that it could amount to
bad faith and must be established by clear and convincing evidence. Gross negligence is one that is
characterized by the lack of the slightest care, acting or failing to act in a situation where there is a duty to
act, wilfully and intentionally with a conscious indifference to the consequences insofar as other persons may
be affected.30

It behooves this Court to emphasize that the piercing of the veil of corporate fiction is frowned upon and can
only be done if it has been clearly established that the separate and distinct personality of the corporation is
used to justify a wrong, protect fraud, or perpetrate a deception.31 As aptly explained in Philippine National
Bank v. Andrada Electric & Engineering Company:32

Hence, any application of the doctrine of piercing the corporate veil should be done with
caution. A court should be mindful of the milieu where it is to be applied. It must be certain
that the corporate fiction was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights. The wrongdoing must be clearly and
convincingly established; it cannot be presumed. Otherwise, an injustice that was never
unintended may result from an erroneous application.33

Indeed, there is no showing that Uy committed gross negligence. And in the absence of any of the
aforementioned requisites for making a corporate officer, director or stockholder personally liable for the
obligations of a corporation, Uy, as a treasurer and stockholder of Hammer, cannot be made to answer for
the unpaid debts of the corporation.

Goldkey is a mere alter ego of Hammer

Goldkey contends that it cannot be held responsible for the obligations of its stockholder, Chua.34 Moreover,
it theorizes that iBank is estopped from expanding Goldkey’s liability beyond the real estate mortgage.35 It
adds that it did not authorize the execution of the said mortgage.36 Finally, it passes the blame on to iBank
for failing to exercise the requisite due diligence in properly evaluating Hammer’s creditworthiness before it
was extended an omnibus line.37
The Court disagrees with Goldkey.

There is no reason to discount the findings of the CA that iBank duly inspected the viability of Hammer and
satisfied itself that the latter was a good credit risk based on the Financial Statement submitted. In addition,
iBank required that the loan be secured by Goldkey’s Real Estate Mortgage and the Surety Agreement with
Chua and Uy. The records support the factual conclusions made by the RTC and the CA.

To the Court’s mind, Goldkey’s argument, that iBank is barred from pursuing Goldkey for the satisfaction of
the unpaid obligation of Hammer because it had already limited its liability to the real estate mortgage, is
completely absurd. Goldkey needs to be reminded that it is being sued not as a consequence of the real
estate mortgage, but rather, because it acted as an alter ego of Hammer. Accordingly, they must be treated
as one and the same entity, making Goldkey accountable for the debts of Hammer.

In fact, it is Goldkey who is now precluded from denying the validity of the Real Estate Mortgage. In its
Answer with Affirmative Defenses and Compulsory Counterclaim, dated January 5, 1998, it already admitted
that it acted as a third-party mortgagor to secure the obligation of Hammer to iBank.38 Thus, it cannot, at
this late stage, question the due execution of the third-party mortgage.

Similarly, Goldkey is undoubtedly mistaken in claiming that iBank is seeking to enforce an obligation of
Chua. The records clearly show that it was Hammer, of which Chua was the president and a stockholder,
which contracted a loan from iBank. What iBank sought was redress from Goldkey by demanding that the
veil of corporate fiction be lifted so that it could not raise the defense of having a separate juridical
personality to evade liability for the obligations of Hammer.

Under a variation of the doctrine of piercing the veil of corporate fiction, when two business enterprises are
owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect
the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat
them as identical or one and the same.39

While the conditions for the disregard of the juridical entity may vary, the following are some probative
factors of identity that will justify the application of the doctrine of piercing the corporate veil, as laid down
in Concept Builders, Inc. v NLRC:40

(1) Stock ownership by one or common ownership of both corporations;

(2) Identity of directors and officers;
(3) The manner of keeping corporate books and records, and
(4) Methods of conducting the business.41

These factors are unquestionably present in the case of Goldkey and

Hammer, as observed by the RTC, as follows:

1. Both corporations are family corporations of defendants Manuel Chua and his wife Fe Tan
Uy. The other incorporators and shareholders of the two corporations are the brother and
sister of Manuel Chua (Benito Ng Po Hing and Nenita Chua Tan) and the sister of Fe Tan Uy,
Milagros Revilla. The other incorporator/share holder is Manling Uy, the daughter of Manuel
Chua Uy Po Tiong and Fe Tan Uy.

The stockholders of Hammer Garments as of March 23, 1987, aside from spouses Manuel
and Fe Tan Uy are: Benito Chua, brother Manuel Chua, Nenita Chua Tan, sister of Manuel
Chua and Tessie See Chua Tan. On March 8, 1988, the shares of Tessie See Chua Uy were
assigned to Milagros T. Revilla, thereby consolidating the shares in the family of Manuel
Chua and Fe Tan Uy.

2. Hammer Garments and Goldkey share the same office and practically transact their
business from the same place.
 3. Defendant Manuel Chua is the President and Chief Operating Officer of both corporations.
All business transactions of Goldkey and Hammer are done at the instance of defendant
Manuel Chua who is authorized to do so by the corporations.

The promissory notes subject of this complaint are signed by him as Hammer’s President
and General Manager. The third-party real estate mortgage of defendant Goldkey is signed
by him for Goldkey to secure the loan obligation of Hammer Garments withplaintiff "iBank''.
The other third-party real estate mortgages which Goldkey executed in favor of the other
creditor banks of Hammer are also signed by Manuel Chua.

4. The assets of Goldkey and Hammer are co-mingled. The real properties of Goldkey are
mortgaged to secure Hammer's obligation with creditor hanks.

The proceeds of at least two loans which Hammer obtained from plaintiff "iBank",
purportedly to finance its export to WalMart are instead used to finance the purchase of a
manager's check payable to Goldkey. The defendants' claim that Goldkey is a creditor of
Hammer to justify its receipt of the Manager's cheek is not substantiated by
evidence. Despite subpoenas issued by this Court, Goldkey thru its treasurer, defendant Fe
Tan Uy and or its corporate secretary Manling Uy failed to produce the Financial Statement
of Goldke.

5. When defendant Manuel Chua "disappeared", the defendant Goldkey ceased to operate
despite the claim that the other "officers" and stockholders like Benito Chua, Nenita Chua
Tan, Fe Tan Uy, Manling Uy and Milagros T. Revilla are still around and may be able to
continue the business of Goldkey, if it were different or distinct from Hammer which
suffered financial set back.42

Based on the foregoing findings of the RTC, it was apparent that Goldkey was merely an adjunct of Hammer
and, as such, the legal fiction that it has a separate personality from that of Hammer should be brushed
aside as they are, undeniably, one and the same.

WHEREFORE, the petitions are PARTLY GRANTED. The August 16, 2004 Decision and the December 2,
2004 Resolution of the Court of Appeals, in CA-G.R. CV No. 69817, are hereby MODIFIED. Fe Tan Uy is
released from any liability arising from the debts incurred by Hammer from iBank. Hammer Garments
Corporation, Manuel Chua Uy Po Tiong and Goldkey Development Corporation are jointly and severally liable
to pay International Exchange Bank the sum of P13,420,177.62 representing the unpaid loan obligation of
Hammer as of December 12, 1997 plus interest. No costs.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 90580 April 8, 1991

RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN
SAW, petitioners,
vs.
HON. COURT OF APPEALS, HON. BERNARDO P. PARDO, Presiding Judge of Branch 43,
(Regional Trial Court of Manila), FREEMAN MANAGEMENT AND DEVELOPMENT
CORPORATION, EQUITABLE BANKING CORPORATION, FREEMAN INCORPORATED, SAW
CHIAO LIAN, THE REGISTER OF DEEDS OF CALOOCAN CITY, and DEPUTY SHERIFF
ROSALIO G. SIGUA, respondents.
Benito O. Ching, Jr. for petitioners.
William R. Vetor for Equitable Banking Corp.
Pineda, Uy & Janolo for Freeman, Inc. and Saw Chiao.

CRUZ, J.:

A collection suit with preliminary attachment was filed by Equitable Banking Corporation against
Freeman, Inc. and Saw Chiao Lian, its President and General Manager. The petitioners moved to
intervene, alleging that (1) the loan transactions between Saw Chiao Lian and Equitable Banking
Corp. were not approved by the stockholders representing at least 2/3 of corporate capital; (2) Saw
Chiao Lian had no authority to contract such loans; and (3) there was collusion between the officials
of Freeman, Inc. and Equitable Banking Corp. in securing the loans. The motion to intervene was
denied, and the petitioners appealed to the Court of Appeals.

Meanwhile, Equitable and Saw Chiao Lian entered into a compromise agreement which they
submitted to and was approved by the lower court. But because it was not complied with, Equitable
secured a writ of execution, and two lots owned by Freeman, Inc. were levied upon and sold at
public auction to Freeman Management and Development Corp.

The Court of Appeals1 sustained the denial of the petitioners' motion for intervention, holding that
"the compromise agreement between Freeman, Inc., through its President, and Equitable Banking
Corp. will not necessarily prejudice petitioners whose rights to corporate assets are at most
inchoate, prior to the dissolution of Freeman, Inc. . . . And intervention under Sec. 2, Rule 12 of the
Revised Rules of Court is proper only when one's right is actual, material, direct and immediate and
not simply contingent or expectant."

It also ruled against the petitioners' argument that because they had already filed a notice of appeal,
the trial judge had lost jurisdiction over the case and could no longer issue the writ of execution.

The petitioners are now before this Court, contending that:

1. The Honorable Court of Appeals erred in holding that the petitioners cannot intervene in
Civil Case No. 88-44404 because their rights as stockholders of Freeman are merely
inchoate and not actual, material, direct and immediate prior to the dissolution of the
corporation;

2. The Honorable Court of Appeals erred in holding that the appeal of the petitioners in said
Civil Case No. 88-44404 was confined only to the order denying their motion to intervene
and did not divest the trial court of its jurisdiction over the whole case.

The petitioners base their right to intervene for the protection of their interests as stockholders
on Everett v. Asia Banking Corp.2 where it was held:

The well-known rule that shareholders cannot ordinarily sue in equity to redress wrongs done
to the corporation, but that the action must be brought by the Board of Directors, . . . has its
exceptions. (If the corporation [were] under the complete control of the principal defendants, .
. . it is obvious that a demand upon the Board of Directors to institute action and prosecute
 the same effectively would have been useless, and the law does not require litigants to
perform useless acts.

Equitable demurs, contending that the collection suit against Freeman, Inc, and Saw Chiao Lian is
essentially in personamand, as an action against defendants in their personal capacities, will not
prejudice the petitioners as stockholders of the corporation. The Everett case is not applicable
because it involved an action filed by the minority stockholders where the board of directors refused
to bring an action in behalf of the corporation. In the case at bar, it was Freeman, Inc. that was being
sued by the creditor bank.

Equitable also argues that the subject matter of the intervention falls properly within the original and
exclusive jurisdiction of the Securities and Exchange Commission under P.D. No. 902-A. In fact, at
the time the motion for intervention was filed, there was pending between Freeman, Inc. and the
petitioners SEC Case No. 03577 entitled "Dissolution, Accounting, Cancellation of Certificate of
Registration with Restraining Order or Preliminary Injunction and Appointment of Receiver." It also
avers in its Comment that the intervention of the petitioners could have only caused delay and
prejudice to the principal parties.

On the second assignment of error, Equitable maintains that the petitioners' appeal could only apply
to the denial of their motion for intervention and not to the main case because their personality as
party litigants had not been recognized by the trial court.

After examining the issues and arguments of the parties, the Court finds that the respondent court
committed no reversible error in sustaining the denial by the trial court of the petitioners' motion for
intervention.

In the case of Magsaysay-Labrador v. Court of Appeals,3 we ruled as follows:

Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the
respondent court's holding that petitioners herein have no legal interest in the subject matter
in litigation so as to entitle them to intervene in the proceedings below. In the case of Batama
Farmers' Cooperative Marketing Association, Inc. v. Rosal, we held: "As clearly stated in
Section 2 of Rule 12 of the Rules of Court, to be permitted to intervene in a pending action,
the party must have a legal interest in the matter in litigation, or in the success of either of the
parties or an interest against both, or he must be so situated as to be adversely affected by a
distribution or other disposition of the property in the custody of the court or an officer
thereof."

To allow intervention, [a] it must be shown that the movant has legal interest in the matter in
litigation, or otherwise qualified; and [b] consideration must be given as to whether the
adjudication of the rights of the original parties may be delayed or prejudiced, or whether the
intervenor's rights may be protected in a separate proceeding or not. Both requirements
must concur as the first is not more important than the second.

The interest which entitles a person to intervene in a suit between other parties must be in
the matter in litigation and of such direct and immediate character that the intervenor will
either gain or lose by the direct legal operation and effect of the judgment. Otherwise, if
persons not parties of the action could be allowed to intervene, proceedings will become
unnecessarily complicated, expensive and interminable. And this is not the policy of the law.
 The words "an interest in the subject" mean a direct interest in the cause of action as
pleaded, and which would put the intervenor in a legal position to litigate a fact alleged in the
complaint, without the establishment of which plaintiff could not recover.

Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,

conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or
in sheer expectancy of a right in the management of the corporation and to share in the
profits thereof and in the properties and assets thereof on dissolution, after payment of the
corporate debts and obligations.

While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the
property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.

On the second assignment of error, the respondent court correctly noted that the notice of appeal
was filed by the petitioners on October 24, 1988, upon the denial of their motion to intervene, and
the writ of execution was issued by the lower court on January 30, 1989. The petitioners' appeal
could not have concerned the "whole" case (referring to the decision) because the petitioners "did
not appeal the decision as indeed they cannot because they are not parties to the case despite their
being stockholders of respondent Freeman, Inc." They could only appeal the denial of their motion
for intervention as they were never recognized by the trial court as party litigants in the main case.

Intervention is "an act or proceeding by which a third person is permitted to become a party to an
action or proceeding between other persons, and which results merely in the addition of a new party
or parties to an original action, for the purpose of hearing and determining at the same time all
conflicting claims which may be made to the subject matter in litigation.4

It is not an independent proceeding, but an ancillary and supplemental one which, in the nature of
things, unless otherwise provided for by the statute or Rules of Court, must be in subordination to
the main proceeding.5 It may be laid down as a general rule that an intervenor is limited to the field of
litigation open to the original parties.6

In the case at bar, there is no more principal action to be resolved as a writ of execution had already
been issued by the lower court and the claim of Equitable had already been satisfied. The decision
of the lower court had already become final and in fact had already been enforced. There is
therefore no more principal proceeding in which the petitioners may intervene.

As we held in the case of Barangay Matictic v. Elbinias:7

An intervention has been regarded, as merely "collateral or accessory or ancillary to the

principal action and not an independent proceedings; and interlocutory proceeding
dependent on and subsidiary to, the case between the original parties." (Fransisco, Rules of
Court, Vol. 1, p. 721). With the final dismissal of the original action, the complaint in
intervention can no longer be acted upon. In the case of Clareza v. Resales, 2 SCRA 455,
457-458, it was stated that:

That right of the intervenor should merely be in aid of the right of the original party,
like the plaintiffs in this case. As this right of the plaintiffs had ceased to exist, there is
nothing to aid or fight for. So the right of intervention has ceased to exist.
 Consequently, it will be illogical and of no useful purpose to grant or even consider further
herein petitioner's prayer for the issuance of a writ of mandamus to compel the lower court to
allow and admit the petitioner's complaint in intervention. The dismissal of the expropriation
case has no less the inherent effect of also dismissing the motion for intervention which is
but the unavoidable consequence.

The Court observes that even with the denial of the petitioners' motion to intervene, nothing is really
lost to them. The denial did not necessarily prejudice them as their rights are being litigated in the
1âw phi 1

case now before the Securities and Exchange Commission and may be fully asserted and protected
in that separate proceeding.

WHEREFORE, the petition is DENIED, with costs against the petitioners. It is so ordered.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

G.R. No. 93397 March 3, 1997

TRADERS ROYAL BANK, petitioner,

vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL
BANK of the PHILIPPINES, respondents.

TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals
dated January 29, 1990,1 affirming the nullity of the transfer of Central Bank Certificate of
Indebtedness (CBCI) No. D891,2 with a face value of P500,000.00, from the Philippine Underwriters
Finance Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB), under a Repurchase
Agreement3 dated February 4, 1981, and a Detached Assignment4 dated April 27, 1981.

Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action
was originally filed as a Petition for Mandamus5 under Rule 65 of the Rules of Court, to compel the
Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders
Royal Bank (TRB).

In the said petition, TRB stated that:

3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters)

executed a "Detached Assignment" . . ., whereby Filriters, as registered owner, sold,
transferred, assigned and delivered unto Philippine Underwriters Finance
Corporation (Philfinance) all its rights and title to Central Bank Certificates of
Indebtedness of PESOS: FIVE HUNDRED THOUSAND (P500,000) and having an
aggregate value of PESOS: THREE MILLION FIVE HUNDRED THOUSAND
(P3,500,000.00);

4. The aforesaid Detached Assignment (Annex "A") contains an express

authorization executed by the transferor intended to complete the assignment
through the registration of the transfer in the name of PhilFinance, which
authorization is specifically phrased as follows: '(Filriters) hereby irrevocably
authorized the said issuer (Central Bank) to transfer the said bond/certificates on the
books of its fiscal agent;

5. On February 4, 1981, petitioner entered into a Repurchase Agreement with

PhilFinance . . ., whereby, for and in consideration of the sum of PESOS: FIVE
HUNDRED THOUSAND (P500,000.00), PhilFinance sold, transferred and delivered
to petitioner CBCI 4-year, 8th series, Serial No. D891 with a face value of
P500,000.00 . . ., which CBCI was among those previously acquired by PhilFinance
from Filriters as averred in paragraph 3 of the Petition;

6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed

to repurchase CBCI Serial No. D891 (Annex "C"), at the stipulated price of PESOS:
FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE & 11/100
(P519,361.11) on April 27, 1981;

7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27,
1981, when the checks it issued in favor of petitioner were dishonored for insufficient
funds;

8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of

the Petitioner to enable the latter to have its title completed and registered in the
books of the respondent. And by means of said Detachment, Philfinance transferred
and assigned all, its rights and title in the said CBCI (Annex "C") to petitioner and,
furthermore, it did thereby "irrevocably authorize the said issuer (respondent herein)
to transfer the said bond/certificate on the books of its fiscal agent." . . .

9. Petitioner presented the CBCI (Annex "C"), together with the two (2)
aforementioned Detached Assignments (Annexes "B" and "D"), to the Securities
Servicing Department of the respondent, and requested the latter to effect the
transfer of the CBCI on its books and to issue a new certificate in the name of
petitioner as absolute owner thereof;

10. Respondent failed and refused to register the transfer as requested, and
continues to do so notwithstanding petitioner's valid and just title over the same and
despite repeated demands in writing, the latest of which is hereto attached as Annex
"E" and made an integral part hereof;

11. The express provisions governing the transfer of the CBCI were substantially
complied with the petitioner's request for registration, to wit:

"No transfer thereof shall be valid unless made at said office (where
the Certificate has been registered) by the registered owner hereof, in
person or by his attorney duly authorized in writing, and similarly
noted hereon, and upon payment of a nominal transfer fee which may
be required, a new Certificate shall be issued to the transferee of the
registered holder thereof."

and, without a doubt, the Detached Assignments presented to respondent were

sufficient authorizations in writing executed by the registered owner, Filriters, and its
transferee, PhilFinance, as required by the above-quoted provision;
 12. Upon such compliance with the aforesaid requirements, the ministerial duties of
registering a transfer of ownership over the CBCI and issuing a new certificate to the
transferee devolves upon the respondent;

Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its
name.

On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant Central
Bank of the Philippines' Motion for Admission of Amended Answer with Counter Claim for
Interpleader6 thereby calling to fore the respondent Filriters Guaranty Assurance Corporation
(Filriters), the registered owner of the subject CBCI as respondent.

For its part, Filriters interjected as Special Defenses the following:

11. Respondent is the registered owner of CBCI No. 891;

12. The CBCI constitutes part of the reserve investment against liabilities required of
respondent as an insurance company under the Insurance Code;

13. Without any consideration or benefit whatsoever to Filriters, in violation of law

and the trust fund doctrine and to the prejudice of policyholders and to all who have
present or future claim against policies issued by Filriters, Alfredo Banaria, then
Senior Vice-President-Treasury of Filriters, without any board resolution, knowledge
or consent of the board of directors of Filriters, and without any clearance or
authorization from the Insurance Commissioner, executed a detached assignment
purportedly assigning CBCI No. 891 to Philfinance;

xxx xxx xxx

14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar

Jacobe, Vice-President-Treasury of Filriters (both of whom were holding the same
positions in Philfinance), without any consideration or benefit redounding to Filriters
and to the grave prejudice of Filriters, its policy holders and all who have present or
future claims against its policies, executed similar detached assignment forms
transferring the CBCI to plaintiff;

xxx xxx xxx

15. The detached assignment is patently void and inoperative because the
assignment is without the knowledge and consent of directors of Filriters, and not
duly authorized in writing by the Board, as requiring by Article V, Section 3 of CB
Circular No. 769;

16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria
and not the corporate act of Filriters and such null and void;

a) The assignment was executed without consideration and for that reason, the
assignment is void from the beginning (Article 1409, Civil Code);

b) The assignment was executed without any knowledge and consent of the board of
directors of Filriters;
 c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a
requirement under the Insurance Code for its existence as an insurance company
and the pursuit of its business operations. The assignment of the CBCI is illegal act
in the sense of malum in se or malum prohibitum, for anyone to make, either as
corporate or personal act;

d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited

by law, is immoral and against public policy;

e) The assignment of the CBCI has resulted in the capital impairment and in the
solvency deficiency of Filriters (and has in fact helped in placing Filriters under
conservatorship), an inevitable result known to the officer who executed assignment.

17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of
the assignment.

a) The CBCI No. 891 is not a negotiable instrument and as a certificate of

indebtedness is not payable to bearer but is a registered in the name of Filriters;

b) The provision on transfer of the CBCIs provides that the Central Bank shall
treat the registered owner as the absolute owner and that the value of the registered
certificates shall be payable only to the registered owner; a sufficient notice to
plaintiff that the assignments do not give them the registered owner's right as
absolute owner of the CBCI's;

c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs)

provides that the registered certificates are payable only to the registered owner
(Article II, Section 1).

18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by
Filriters is not a regular transaction made in the usual of ordinary course of business;

a) The CBCI constitutes part of the reserve investments of Filriters against liabilities
requires by the Insurance Code and its assignment or transfer is expressly prohibited
by law. There was no attempt to get any clearance or authorization from the
Insurance Commissioner;

b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or
regular course of its business;

c) The CBCI involved substantial amount and its assignment clearly constitutes
disposition of "all or substantially all" of the assets of Filriters, which requires the
affirmative action of the stockholders (Section 40, Corporation [sic] Code.7

In its Decision8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII found the
assignment of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of the same
CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and effect. The
dispositive portion of the decision reads:

ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters

Guaranty Assurance Corporation and against the plaintiff Traders Royal Bank:
 (a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the
subsequent assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal
Bank as null and void and of no force and effect;

(b) Ordering the respondent Central Bank of the Philippines to disregard the said
assignment and to pay the value of the proceeds of the CBCI No. D891 to the
Filriters Guaranty Assurance Corporation;

(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty
Assurance Corp. The sum of P10,000 as attorney's fees; and

(d) to pay the costs.

SO ORDERED.9

[G.R. No. 100812. June 25, 1999.]

FRANCISCO MOTORS CORPORATION, Petitioner, v. COURT OF APPEALS and SPOUSES GREGORIO

and LIBRADA MANUEL, Respondents.

DECISION

QUISUMBING, J.:

This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision 1 of
the Court of Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135, Regional
Trial Court of Makati, Metro Manila. The procedural antecedents of this petition are as follows: cha nrob 1es vi rtual 1aw lib rary

On January 23, 1985, petitioner filed a complaint 2 against private respondents to recover three thousand
four hundred twelve and six centavos (P3,412.06), representing the balance of the jeep body purchased by
the Manuels from petitioner; an additional sum of twenty thousand four hundred fifty-four and eighty
centavos (P20,454.80) representing the unpaid balance on the cost of repair of the vehicle; and six
thousand pesos (P6,000.00) for cost of suit and attorney’s fees. 3 To the original balance on the price of
jeep body were added the costs of repair. 4 In their answer, private respondents interposed a counterclaim
for unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which was not
paid by the incorporators, directors and officers of the petitioner. The trial court decided the case on June
26, 1985, in favor of petitioner in regard to the petitioner’s claim for money, but also allowed the counter-
claim of private respondents. Both parties appealed. On April 15, 1991, the Court of Appeals sustained the
trial court’s decision. 5 Hence, the present petition.
cha nrob les vi rtua l lawlib rary

For our review in particular is the propriety of the permissive counterclaim which private respondents filed
together with their answer to petitioner’s complaint for a sum of money. Private respondent Gregorio Manuel
alleged as an affirmative defense that, while he was petitioner’s Assistant Legal Officer, he represented
members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad. However,
even after the termination of the proceedings, his services were not paid. Said family members, he said,
were also incorporators, directors and officers of petitioner. Hence to counter petitioner’s collection suit, he
filed a permissive counterclaim for the unpaid attorney’s fees. 6

For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this
score, and evidence ex-parte was presented on the counterclaim. The trial court ruled in favor of private
respondents and found that Gregorio Manuel indeed rendered legal services to the Francisco family in
Special Proceedings Number 7803- "In the Matter of Intestate Estate of Benita Trinidad." Said court also
found that his legal services were not compensated despite repeated demands, and thus ordered petitioner
to pay him the amount of fifty thousand (P50,000.00) pesos. 7

Dissatisfied with the trial court’s order, petitioner elevated the matter to the Court of Appeals, posing the
following issues:chan roble s virtual law lib rary

"I.

WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS IT NEVER
ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT.

II.

WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED PERMISSIVE
COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES.

III.

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE ALLEGED
PERMISSIVE COUNTERCLAIM." 8

Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly
served on it together with the copy of the answer containing the permissive counterclaim. Further, petitioner
questions the propriety of its being made party to the case because it was not the real party in interest but
the individual members of the Francisco family concerned with the intestate case.

In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim must
be answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it
state in the Rules that a party still needed to be summoned anew if a counterclaim was set up against him.
Failure to serve summons, said respondent court, did not effectively negate trial court’s jurisdiction over
petitioner in the matter of the counterclaim. It likewise pointed out that there was no reason for petitioner to
be excused from answering the counterclaim. Court records showed that its former counsel, Nicanor G.
Alvarez, received the copy of the answer with counterclaim two (2) days prior to his withdrawal as counsel
for petitioner. Moreover when petitioner’s new counsel, Jose N. Aquino, entered his appearance, three (3)
days still remained within the period to file an answer to the counterclaim. Having failed to answer,
petitioner was correctly considered in default by the trial court. 9 Even assuming that the trial court acquired
no jurisdiction over petitioner, respondent court also said, but having filed a motion for reconsideration
seeking relief from the said order of default, petitioner was estopped from further questioning the trial
court’s jurisdiction. 10

On the question of its liability for attorney’s fees owing to private respondent Gregorio Manuel, petitioner
argued that being a corporation, it should not be held liable therefor because these fees were owed by the
incorporators, directors and officers of the corporation in their personal capacity as heirs of Benita Trinidad.
Petitioner stressed that the personality of the corporation, vis-à-vis the individual persons who hired the
services of private respondent, is separate and distinct, 11 hence, the liability of said individuals did not
become an obligation chargeable against petitioner. cha nrob lesvi rtua l|awlib rary

Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows: jg c:chan roble s.com.p h

"However, this distinct and separate personality is merely a fiction created by law for convenience and to
promote justice. Accordingly, this separate personality of the corporation may be disregarded, or the veil of
corporate fiction pierced, in cases where it is used as a cloak or cover for found (sic) illegality, or to work an
injustice, or where necessary to achieve equity or when necessary for the protection of creditors. (Sulo ng
Bayan, Inc. v. Araneta, Inc., 72 SCRA 347) Corporations are composed of natural persons and the legal
fiction of a separate corporate personality is not a shield for the commission of injustice and inequity.
(Chemplex Philippines, Inc. v. Pamatian, 57 SCRA 408)

"In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed of
the heirs of the late Benita Trinidad as directors and incorporators for whom defendant Gregorio Manuel
rendered legal services in the intestate estate case of their deceased mother. Considering the aforestated
principles and circumstances established in this case, equity and justice demands plaintiff-appellant’s veil of
corporate identity should be pierced and the defendant be compensated for legal services rendered to the
heirs, who are directors of the plaintiff-appellant corporation." 12

Now before us, petitioner assigns the following errors: c hanro b1es vi rt ual 1 aw libra ry

"I.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE
ENTITY. chanroble s virtual lawl ibra ry

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER WITH
RESPECT TO THE COUNTERCLAIM." 13

Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction
because the transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita
Trinidad. According to petitioner, there was no cause of action by said respondent against petitioner;
personal concerns of the heirs should be distinguished from those involving corporate affairs. Petitioner
further contends that the present case does not fall among the instances wherein the courts may look
beyond the distinct personality of a corporation. According to petitioner, the services for which respondent
Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers the heirs should
have been sued in their personal capacity, and not involve the corporation. 14

With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the
answer containing the permissive counterclaim. It claims that the counterclaim is a separate case which can
only be properly served upon the opposing party through summons. Further petitioner states that by nature,
a permissive counterclaim is one which does not arise out of nor is necessarily connected with the subject of
the opposing party’s claim. Petitioner avers that since there was no service of summons upon it with regard
to the counterclaim, then the court did not acquire jurisdiction over petitioner. Since a counterclaim is
considered an action independent from the answer, according to petitioner, then in effect there should be
two simultaneous actions between the same parties: each party is at the same time both plaintiff and
defendant with respect to the other, 15 requiring in each case separate summonses.

In their Comment, private respondents focus on the two questions raised by petitioner. They defend the
propriety of piercing the veil of corporate fiction, but deny the necessity of serving separate summonses on
petitioner in regard to their permissive counterclaim contained in the answer.

Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was
employed as assistant legal officer of petitioner corporation, and that his services were solicited by the
incorporators, directors and members to handle and represent them in Special Proceedings No. 7803,
concerning the Intestate Estate of the late Benita Trinidad. They assert that the members of petitioner
corporation took advantage of their positions by not compensating respondent Gregorio Manuel after the
termination of the estate proceedings despite his repeated demands for payment of his services. They cite
findings of the appellate court that support piercing the veil of corporate identity in this particular case. They
assert that the corporate veil may be disregarded when it is used to defeat public convenience, justify
wrong, protect fraud, and defend crime. It may also be pierced, according to them, where the corporate
entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or
of another corporate entity. In these instances, they aver, the corporation should be treated merely as an
association of individual persons. 16 chanroble s law lib ra ry : red

Private respondents dispute petitioner’s claim that its right to due process was violated when respondents’
counterclaim was granted due course, although no summons was served upon it. They claim that no
provision in the Rules of Court requires service of summons upon a defendant in a counterclaim. Private
respondents argue that when the petitioner filed its complaint before the trial court it voluntarily submitted
itself to the jurisdiction of the court. As a consequence, the issuance of summons on it was no longer
necessary. Private respondents say they served a copy of their answer with affirmative defenses and
counterclaim on petitioner’s former counsel, Nicanor G. Alvarez. While petitioner would have the Court
believe that respondents served said copy upon Alvarez after he had withdrawn his appearance as counsel
for the petitioner, private respondents assert that this contention is utterly baseless. Records disclose that
the answer was received two (2) days before the former counsel for petitioner withdrew his appearance,
according to private respondents. They maintain that the present petition is but a form of dilatory appeal, to
set off petitioner’s obligations to the respondents by running up more interest it could recover from them.
Private respondents therefore claim damages against petitioner. 17

To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate
fiction.

Basic in corporation law is the principle that a corporation has a separate personality distinct from its
stockholders and from other corporations to which it may be connected. 18 However, under the doctrine of
piercing the veil of corporate entity, the corporation’s separate juridical personality may be disregarded, for
example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime. Also, where the corporation is a 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, then its distinct personality may be
ignored. 19 In these circumstances, the courts will treat the corporation as a mere aggrupation of persons
and the liability will directly attach to them. The legal fiction of a separate corporate personality in those
cited instances, for reasons of public policy and in the interest of justice, will be justifiably set aside.

In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate
veil has no relevant application here. Respondent court erred in permitting the trial court’s resort to this
doctrine. The rationale behind piercing a corporation’s identity in a given case is to remove the barrier
between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of
those who use the corporate personality as a shield for undertaking certain proscribed activities. However, in
the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the
situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the
personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us
that the doctrine has been turned upside down because of its erroneous invocation. Note that according to
private respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco
family to represent them in the intestate proceedings over Benita Trinidad’s estate. These estate
proceedings did not involve any business of petitioner.

Note also that he sought to collect legal fees not just from certain Francisco family members but also from
petitioner corporation on the claims that its management had requested his services and he acceded thereto
as an employee of petitioner from whom it could be deduced he was also receiving a salary. His move to
recover unpaid legal fees through a counterclaim against Francisco Motors Corporation, to offset the unpaid
balance of the purchase and repair of a jeep body could only result from an obvious misapprehension that
petitioner’s corporate assets could be used to answer for the liabilities of its individual directors, officers, and
incorporators. Such result if permitted could easily prejudice the corporation, its own creditors, and even
other stockholders; hence, clearly iniquitous to petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators,
directors and officers of the corporation had incurred, it was incurred in their personal capacity. When
directors and officers of a corporation are unable to compensate a party for a personal obligation, it is far-
fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable
therefor by piercing its corporate veil. While there are no hard and fast rules on disregarding separate
corporate identity, we must always be mindful of its function and purpose. A court should be careful in
assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise an
injustice, although unintended, may result from its erroneous application. chanrob lesvi rtua lawlib rary

The personality of the corporation and those of its incorporators, directors and officers in their personal
capacities ought to be kept separate in this case. The claim for legal fees against the concerned individual
incorporators, officers and directors could not be properly directed against the corporation without violating
basic principles governing corporations. Moreover, every action — including a counterclaim — must be
prosecuted or defended in the name of the real party in interest. 20 It is plainly an error to lay the claim for
legal fees of private respondent Gregorio Manuel at the door of petitioner (FMC) rather than individual
members of the Francisco family.

However, with regard to the procedural issue raised by petitioner’s allegation, that it needed to be
summoned anew in order for the court to acquire jurisdiction over it, we agree with respondent court’s view
to the contrary. Section 4, Rule 11 of the Rules of Court provides that a counterclaim or cross-claim must be
answered within ten (10) days from service. Nothing in the Rules of Court says that summons should first be
served on the defendant before an answer to counterclaim must be made. The purpose of a summons is to
enable the court to acquire jurisdiction over the person of the defendant. Although a counterclaim is treated
as an entirely distinct and independent action, the defendant in the counterclaim, being the plaintiff in the
original complaint, has already submitted to the jurisdiction of the court. Following Rule 9, Section 3 of the
1997 Rules of Civil Procedure, 21 if a defendant (herein petitioner) fails to answer the counterclaim, then
upon motion of plaintiff, the defendant may be declared in default. This is what happened to petitioner in
this case, and this Court finds no procedural error in the disposition of the appellate court on this particular
issue. Moreover, as noted by the respondent court, when petitioner filed its motion seeking to set aside the
order of default, in effect it submitted itself to the jurisdiction of the court. As well said by respondent
court:jgc:chan roble s.com.p h

"Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its
request, plaintiff-appellant was granted time to file a motion for reconsideration of the disputed decision.
Plaintiff-appellant did file its motion for reconsideration to set aside the order of default and the judgment
rendered on the counterclaim.

"Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it vigorously
insists, plaintiff-appellant is considered to have submitted to the court’s jurisdiction when it filed the motion
for reconsideration seeking relief from the court. (Soriano v. Palacio, 12 SCRA 447). A party is estopped
from assailing the jurisdiction of a court after voluntarily submitting himself to its jurisdiction. (Tejones v.
Gironella, 159 SCRA 100). Estoppel is a bar against any claims of lack of jurisdiction. (Balais v. Balais, 159
SCRA 37)." 22 chanrobles vi rt ual lawli bra ry

WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar only as
it held Francisco Motors Corporation liable for the legal obligation owing to private respondent Gregorio
Manuel; but this decision is without prejudice to his filing the proper suit against the concerned members of
the Francisco family in their personal capacity. No pronouncement as to costs.

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.

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

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.4Respondents 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

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 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

Clearly, petitioner not being a part to the contract has 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.13The mere fact that a 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, 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
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 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
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.

G.R. No. 100866 July 14, 1992

REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners,

vs.
HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC., respondents.

GUTIERREZ, JR., J.:

This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R. No. 14530 affirming the earlier decision of the
Regional Trial Court of Laguna, Branch 37, at Calamba, in the consolidated RTC Civil Case Nos. 802-84-C and 803-84-C entitled "Heirs of
Eugenia V. Roxas, Inc. v. Rebecca Boyer-Roxas" and Heirs of Eugenia V. Roxas, Inc. v. Guillermo Roxas," the dispositive portion of which
reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendants, by
ordering as it is hereby ordered that:

1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all persons claiming under her to:

a) Immediately vacate the residential house near the Balugbugan pool located inside the premises of the Hidden Valley
Springs Resort at Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her occupancy of the residential
house until the same is vacated;

c) Remove the unfinished building erected on the land of the plaintiff within ninety (90) days from receipt of this
decision;

d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the said unfinished building is
removed from the land of the plaintiff; and

e) Pay the costs.

 2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to:

a) Immediately vacate the residential house near the tennis court located within the premises of the Hidden Valley
Springs Resort at Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for his occupancy of the said
residential house until the same is vacated; and

c) Pay the costs. (Rollo, p. 36)

In two (2) separate complaints for recovery of possession filed with the Regional Trial Court of Laguna against petitioners Rebecca Boyer-
Roxas and Guillermo Roxas respectively, respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for the ejectment of the petitioners
from buildings inside the Hidden Valley Springs Resort located at Limao, Calauan, Laguna allegedly owned by the respondent corporation.

In the case of petitioner Rebecca Boyer-Roxas (Civil Case No-802-84-C), the respondent corporation alleged that Rebecca is in possession
of two (2) houses, one of which is still under construction, built at the expense of the respondent corporation; and that her occupancy on the
two (2) houses was only upon the tolerance of the respondent corporation.

In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent corporation alleged that Guillermo occupies a house
which was built at the expense of the former during the time when Guillermo's father, Eriberto Roxas, was still living and was the general
manager of the respondent corporation; that the house was originally intended as a recreation hall but was converted for the residential use
of Guillermo; and that Guillermo's possession over the house and lot was only upon the tolerance of the respondent corporation.

In both cases, the respondent corporation alleged that the petitioners never paid rentals for the use of the buildings and the lots and that they
ignored the demand letters for them to vacate the buildings.

In their separate answers, the petitioners traversed the allegations in the complaint by stating that they are heirs of Eugenia V. Roxas and
therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners of the property, they have the right to stay within its premises.

The cases were consolidated and tried jointly.

At the pre-trial, the parties limited the issues as follows:

1) whether plaintiff is entitled to recover the questioned premises;

2) whether plaintiff is entitled to reasonable rental for occupancy of the premises in question;

3) whether the defendant is legally authorized to pierce the veil of corporate fiction and interpose the same as a
defense in an accion publiciana;

4) whether the defendants are truly builders in good faith, entitled to occupy the questioned premises;

5) whether plaintiff is entitled to damages and reasonable compensation for the use of the questioned premises;

6) whether the defendants are entitled to their counterclaim to recover moral and exemplary damages as well as
attorney's fees in the two cases;

7) whether the presence and occupancy by the defendants on the premises in questioned (sic) hampers, deters or
impairs plaintiff's operation of Hidden Valley Springs Resort; and

8) whether or not a unilateral and sudden withdrawal of plaintiffs tolerance allowing defendants' occupancy of the
premises in questioned (sic) is unjust enrichment. (Original Records, 486)

Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma. Guerrero of Branch 34 issued an Order dated April 25,
1986 inhibiting himself from further trying the case. The cases were re-raffled to Branch 37 presided by Judge Odilon Bautista. Judge
Bautista continued the hearing of the cases.

For failure of the petitioners (defendants below) and their counsel to attend the October 22, 1986 hearing despite notice, and upon motion of
the respondent corporation, the court issued on the same day, October 22, 1986, an Order considering the cases submitted for decision. At
this stage of the proceedings, the petitioners had not yet presented their evidence while the respondent corporation had completed the
presentation of its evidence.
The evidence of the respondent corporation upon which the lower court based its decision is as follows:

To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and that of Victoria Roxas
Villarta as well as Exhibits "A" to "M-3".

The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V Roxas, Incorporated, was
incorporated on December 4, 1962 (Exh. "C") with the primary purpose of engaging in agriculture to develop the
properties inherited from Eugenia V. Roxas and that of y Eufrocino Roxas; that the Articles of Incorporation of the
plaintiff, in 1971, was amended to allow it to engage in the resort business (Exh.
"C-1"); that the incorporators as original members of the board of directors of the plaintiff were all members of the same
family, with Eufrocino Roxas having the biggest share; that accordingly, the plaintiff put up a resort known as Hidden
Valley Springs Resort on a portion of its land located at Bo. Limao, Calauan, Laguna, and covered by TCT No. 32639
(Exhs. "A" and "A-l"); that improvements were introduced in the resort by the plaintiff and among them were cottages,
houses or buildings, swimming pools, tennis court, restaurant and open pavilions; that the house near the Balugbugan
Pool (Exh. "B-l") being occupied by Rebecca B. Roxas was originally intended as staff house but later used as the
residence of Eriberto Roxas, deceased husband of the defendant Rebecca Boyer-Roxas and father of Guillermo
Roxas; that this house presently being occupied by Rebecca B. Roxas was built from corporate funds; that the
construction of the unfinished house (Exh. "B-2") was started by the defendant Rebecca Boyer-Roxas and her husband
Eriberto Roxas; that the third building (Exh. "B-3") presently being occupied by Guillermo Roxas was originally intended
as a recreation hall but later converted as a residential house; that this house was built also from corporate funds; that
the said house occupied by Guillermo Roxas when it was being built had nipa roofing but was later changed to
galvanized iron sheets; that at the beginning, it had no partition downstairs and the second floor was an open space;
that the conversion from a recreation hall to a residential house was with the knowledge of Eufrocino Roxas and was
not objected to by any of the Board of Directors of the plaintiff; that most of the materials used in converting the building
into a residential house came from the materials left by Coppola, a film producer, who filmed the movie "Apocalypse
Now"; that Coppola left the materials as part of his payment for rents of the rooms that he occupied in the resort; that
after the said recreation hall was converted into a residential house, defendant Guillermo Roxas moved in and
occupied the same together with his family sometime in 1977 or 1978; that during the time Eufrocino Roxas was still
alive, Eriberto Roxas was the general manager of the corporation and there was seldom any board meeting; that
Eufrocino Roxas together with Eriberto Roxas were (sic) the ones who were running the corporation; that during this
time, Eriberto Roxas was the restaurant and wine concessionaire of the resort; that after the death of Eufrocino Roxas,
Eriberto Roxas continued as the general manager until his death in 1980; that after the death of Eriberto Roxas in
1980, the defendants Rebecca B. Roxas and Guillermo Roxas, committed acts that impeded the plaintiff's expansion
and normal operation of the resort; that the plaintiff could not even use its own pavilions, kitchen and other facilities
because of the acts of the defendants which led to the filing of criminal cases in court; that cases were even filed before
the Ministry of Tourism, Bureau of Domestic Trade and the Office of the President by the parties herein; that the
defendants violated the resolution and orders of the Ministry of Tourism dated July 28, 1983, August 3, 1983 and
November 26, 1984 (Exhs. "G", "H" and "H-l") which ordered them or the corporation they represent to desist from and
to turn over immediately to the plaintiff the management and operation of the restaurant and wine outlets of the said
resort (Exh. "G-l"); that the defendants also violated the decision of the Bureau of Domestic Trade dated October 23,
1983 (Exh. "C"); that on August 27, 1983, because of the acts of the defendants, the Board of Directors of the plaintiff
adopted Resolution No. 83-12 series of 1983 (Exh. "F") authorizing the ejectment of the defendants from the premises
occupied by them; that on September 1, 1983, demand letters were sent to Rebecca Boyer-Roxas and Guillermo
Roxas (Exhs. "D" and "D-1") demanding that they vacate the respective premises they occupy; and that the dispute
between the plaintiff and the defendants was brought before the barangay level and the same was not settled (Exhs.
"E" and "E-l"). (Original Records, pp. 454-456)

The petitioners appealed the decision to the Court of Appeals. However, as stated earlier, the appellate court affirmed the lower court's
decision. The Petitioners' motion for reconsideration was likewise denied.

Hence, this petition.

In a resolution dated February 5, 1992, we gave due course to the petition.

The petitioners now contend:

I Respondent Court erred when it refused to pierce the veil of corporate fiction over private respondent and maintain the petitioners in their
possession and/or occupancy of the subject premises considering that petitioners are owners of aliquot part of the properties of private
respondent. Besides, private respondent itself discarded the mantle of corporate fiction by acts and/or omissions of its board of directors
and/or stockholders.

II The respondent Court erred in not holding that petitioners were in fact denied due process or their day in court brought about by the gross
negligence of their former counsel.

III The respondent Court misapplied the law when it ordered petitioner Rebecca Boyer-Roxas to remove the unfinished building in RTC Case
No. 802-84-C, when the trial court opined that she spent her own funds for the construction thereof. (CA Rollo, pp. 17-18)

Were the petitioners denied due process of law in the lower court?
After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of Branch 37 the following events transpired:

On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July 21, 1986. Petitioner Rebecca V. Roxas received a
copy of the Order on July 15, 1986, while petitioner Guillermo Roxas received his copy on July 18, 1986. Atty. Conrado Manicad, the
petitioners' counsel received another copy of the Order on July 11, 1986. (Original Records, p. 260)

On motion of the respondent corporation's counsel, the lower court issued an Order dated July 15, 1986 cancelling the July 21, 1986 hearing
and resetting the hearing to August 11, 1986. (Original records, 262-263) Three separate copies of the order were sent and received by the
petitioners and their counsel. (Original Records, pp. 268, 269, 271)

A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent corporation's counsel was denied in an Order dated
August 8, 1986. Again separate copies of the Order were sent and received by the petitioners and their counsel. (Original Records, pp. 276-
279)

At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for the respondent corporation appeared. Neither the petitioners
nor their counsel appeared despite notice of hearing. The lower court then issued an Order on the same date, to wit:

ORDER

When these cases were called for continuation of trial, Atty. Benito P. Fabie appeared before this Court, however, the
defendants and their lawyer despite receipt of the Order setting the case for hearing today failed to appear. On Motion
of Atty. Fabie, further cross examination of witness Victoria Vallarta is hereby considered as having been waived.

The plaintiff is hereby given twenty (20) days from today within which to submit formal offer of evidence and defendants
are also given ten (10) days from receipt of such formal offer of evidence to file their objection thereto.

In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 o'clock in the morning. (Original
Records, p. 286)

Copies of the Order were sent and received by the petitioners and their counsel on the following dates — Rebecca Boyer-Roxas on August
20, 1986, Guillermo Roxas on August 26, 1986, and Atty. Conrado Manicad on September 19, 1986. (Original Records, pp. 288-290)

On September 1, 1986, the respondent corporation filed its "Formal Offer of Evidence." In an Order dated September 29, 1986, the lower
court issued an Order admitting exhibits "A" to "M-3" submitted by the respondent corporation in its "Formal Offer of Evidence . . . there being
no objection . . ." (Original Records, p. 418) Copies of this Order were sent and received by the petitioners and their counsel on the following
dates: Rebecca Boyer-Roxas on October 9, 1986; Guillermo Roxas on October 9, 1986 and Atty. Conrado Manicad on October 4, 1986
(Original Records, pp. 420, 421, 428).

The scheduled hearing on September 29, 1986 did not push through as the petitioners and their counsel were not present prompting Atty.
Benito Fabie, the respondent corporation's counsel to move that the cases be submitted for decision. The lower court denied the motion and
set the cases for hearing on October 22, 1986. However, in its Order dated September 29, 1986, the court warned that in the event the
petitioners and their counsel failed to appear on the next scheduled hearing, the court shall consider the cases submitted for decision based
on the evidence on record. (Original Records, p. 429, 430 and 431)

Separate copies of this Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on
October 9, 1986, Guillermo Roxas on October 9, 1986; and Atty. Conrado Manicad on October 1, 1986. (Original Records, pp. 429-430)

Despite notice, the petitioners and their counsel again failed to attend the scheduled October 22, 1986 hearing. Atty. Fabie representing the
respondent corporation was present. Hence, in its Order dated October 22, 1986, on motion of Atty. Fabie and pursuant to the order dated
September 29, 1986, the Court considered the cases submitted for decision. (Original Records, p. 436)

On November 14, 1986, the respondent corporation, filed a "Manifestation", stating that ". . . it is submitting without further argument its
"Opposition to the Motion for Reconsideration" for the consideration of the Honorable Court in resolving subject incident." (Original Records,
p. 442)

On December 16, 1986, the lower court issued an Order, to wit:

ORDER

Considering that the Court up to this date has not received any Motion for Reconsideration filed by the defendants in
the above-entitled cases, the Court cannot act on the Opposition to Motion for Reconsideration filed by the plaintiff and
received by the Court on November 14, 1986. (Original Records, p. 446)
On January 15, 1987, the lower court rendered the questioned decision in the two (2) cases. (Original Records, pp. 453-459)

On January 20, 1987, Atty. Conrado Manicad, the petitioners' counsel filed an Ex-ParteManifestation and attached thereto, a motion for
reconsideration of the October 22, 1986 Order submitting the cases for decision. He prayed that the Order be set aside and the cases be re-
opened for reception of evidence for the petitioners. He averred that: 1) within the reglementary period he prepared the motion for
reconsideration and among other documents, the draft was sent to his law office thru his messenger; after signing the final copies, he caused
the service of a copy to the respondent corporation's counsel with the instruction that the copy of the Court be filed; however, there was a
miscommunication between his secretary and messenger in that the secretary mailed the copy for the respondent corporation's counsel and
placed the rest in an envelope for the messenger to file the same in court but the messenger thought that it was the secretary who would file
it; it was only later on when it was discovered that the copy for the Court has not yet been filed and that such failure to file the motion for
reconsideration was due to excusable neglect and/or accident. The motion for reconsideration contained the following allegations: that on the
date set for hearing (October 22, 1986), he was on his way to Calamba to attend the hearing but his car suffered transmission breakdown;
and that despite efforts to repair said transmission, the car remained inoperative resulting in his absence at the said hearing. (Original
Records, pp. 460-469)

On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15, 1987 decision. He explained that he had to file the
motion because the receiving clerk refused to admit the motion for reconsideration attached to the ex-parte manifestation because there was
no proof of service to the other party. Included in the motion for reconsideration was a notice of hearing of the motion on February 3, 1987.
(Original Records, p. 476-A)

On February 4, 1987, the respondent corporation through its counsel filed a Manifestation and Motion manifesting that they received the
copy of the motion for reconsideration only today (February 4, 1987), hence they prayed for the postponement of the hearing. (Original
Records, pp. 478-479)

On the same day, February 4, 1987, the lower court issued an Order setting the hearing on February 13, 1987 on the ground that it received
the motion for reconsideration late. Copies of this Order were sent separately to the petitioners and their counsel. The records show that Atty.
Manicad received his copy on February 11, 1987. As regards the petitioners, the records reveal that Rebecca Boyer-Roxas did not receive
her copy while as regards Guillermo Roxas, somebody signed for him but did not indicate when the copy was received. (Original Records,
pp. 481-483)

At the scheduled February 13, 1987 hearing, the counsels for the parties were present. However, the hearing was reset for March 6, 1987 in
order to allow the respondent corporation to file its opposition to the motion for reconsideration. (Order dated February 13, 1987, Original
Records, p. 486) Copies of the Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-
Roxas on February 23, 1987; Guillermo Roxas on February 23, 1987 and Atty. Manicad on February 19, 1987. (Original Records, pp. 487,
489-490)

The records are not clear as to whether or not the scheduled hearing on March 6, 1987 was held. Nevertheless, the records reveal that on
March 13, 1987, the lower court issued an Order denying the motion for reconsideration.

The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila v. Court of First Instance of Batangas, Branch I, 160
SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil. 279 [1951]; Montes v. Court of First
Instance of Tayabas, 48 Phil. 640 [1926]; People v. Manzanilla, 43 Phil. 167 [1922]; United States v. Dungca, 27 Phil. 274 [1914]; and United
States v. Umali, 15 Phil. 33 [1910]) This rule, however, has its exceptions. Thus, in several cases, we ruled that the party is not bound by the
actions of his counsel in case the gross negligence of the counsel resulted in the client's deprivation of his property without due process of
law. In the case of Legarda v. Court of Appeals (195 SCRA 418 [1991]), we said:

In People's Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this Court ruled as follows:

Procedural technicality should not be made a bar to the vindication of a legitimate grievance.
When such technicality deserts from being an aid to Justice, the courts are justified in excepting
from its operation a particular case. Where there was something fishy and suspicious about the
actuations of the former counsel of petitioners in the case at bar, in that he did not give any
significance at all to the processes of the court, which has proven prejudicial to the rights of said
clients, under a lame and flimsy explanation that the court's processes just escaped his attention,
it is held that said lawyer deprived his clients of their day in court, thus entitling said clients to
petition for relief from judgment despite the lapse of the reglementary period for filing said period
for filing said petition.

In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding that the counsel's blunder in procedure is an
exception to the rule that the client is bound by the mistakes of counsel, made the following disquisition:

Petitioners contend, through their new counsel, that the judgment rendered against them by the
respondent court was null and void, because they were therein deprived of their day in court and
divested of their property without due process of law, through the gross ignorance, mistake and
negligence of their previous counsel. They acknowledge that, while as a rule, clients are bound
by the mistake of their counsel, the rule should not be applied automatically to their case, as their
trial counsel's blunder in procedure and gross ignorance of existing jurisprudence changed their
cause of action and violated their substantial rights.
 We are impressed with petitioner's contentions.

xxx xxx xxx

While this Court is cognizant of the rule that, generally, a client will suffer consequences of the
negligence, mistake or lack of competence of his counsel, in the interest of Justice and equity,
exceptions may be made to such rule, in accordance with the facts and circumstances of each
case. Adherence to the general rule would, in the instant case, result in the outright deprivation of
their property through a technicality.

In its questioned decision dated November 19, 1989 the Court of Appeals found, in no uncertain terms, the negligence
of the then counsel for petitioners when he failed to file the proper motion to dismiss or to draw a compromise
agreement if it was true that they agreed on a settlement of the case; or in simply filing an answer; and that after having
been furnished a copy of the decision by the court he failed to appeal therefrom or to file a petition for relief from the
order declaring petitioners in default. In all these instances the appellate court found said counsel negligent but his acts
were held to bind his client, petitioners herein, nevertheless.

The Court disagrees and finds that the negligence of counsel in this case appears to be so gross and inexcusable. This
was compounded by the fact, that after petitioner gave said counsel another chance to make up for his omissions by
asking him to file a petition for annulment of the judgment in the appellate court, again counsel abandoned the case of
petitioner in that after he received a copy of the adverse judgment of the appellate court, he did not do anything to save
the situation or inform his client of the judgment. He allowed the judgment to lapse and become final. Such reckless
and gross negligence should not be allowed to bind the petitioner. Petitioner was thereby effectively deprived of her
day in court. (at pp. 426-427)

The herein petitioners, however, are not similarly situated as the parties mentioned in the abovecited cases. We cannot rule that they, too,
were victims of the gross negligence of their counsel.

The petitioners are to be blamed for the October 22, 1986 order issued by the lower court submitting the cases for decision. They received
notices of the scheduled hearings and yet they did not do anything. More specifically, the parties received notice of the Order dated
September 29, 1986 with the warning that if they fail to attend the October 22, 1986 hearing, the cases would be submitted for decision
based on the evidence on record. Earlier, at the scheduled hearing on September 29, 1986, the counsel for the respondent corporation
moved that the cases be submitted for decision for failure of the petitioners and their counsel to attend despite notice. The lower court denied
the motion and gave the petitioners and their counsel another chance by rescheduling the October 22, 1986 hearing.

Indeed, the petitioners knew all along that their counsel was not attending the scheduled hearings. They did not take steps to change their
counsel or make him attend to their cases until it was too late. On the contrary, they continued to retain the services of Atty. Manicad
knowing fully well his lapses vis-a-vis their cases. They, therefore, cannot raise the alleged gross negligence of their counsel resulting in their
denial of due process to warrant the reversal of the lower court's decision. In a similar case, Aguila v. Court of First Instance of Batangas,
Branch 1 (supra), we ruled:

In the instant case, the petitioner should have noticed the succession of errors committed by his counsel and taken
appropriate steps for his replacement before it was altogether too late. He did not. On the contrary, he continued to
retain his counsel through the series of proceedings that all resulted in the rejection of his cause, obviously through
such counsel's "ineptitude" and, let it be added, the clients' forbearance. The petitioner's reverses should have
cautioned him that his lawyer was mishandling his case and moved him to seek the help of other counsel, which he did
in the end but rather tardily.

Now petitioner wants us to nullify all of the antecedent proceedings and recognize his earlier claims to the disputed
property on the justification that his counsel was grossly inept. Such a reason is hardly plausible as the petitioner's new
counsel should know. Otherwise, all a defeated party would have to do to salvage his case is claim neglect or mistake
on the part of his counsel as a ground for reversing the adverse judgment. There would be no end to litigation if these
were allowed as every shortcoming of counsel could be the subject of challenge by his client through another counsel
who, if he is also found wanting, would likewise be disowned by the same client through another counsel, and so on ad
infinitum. This would render court proceedings indefinite, tentative and subject to reopening at any time by the mere
subterfuge of replacing counsel. (at pp. 357-358)

We now discuss the merits of the cases.

In the first assignment of error, the petitioners maintain that their possession of the questioned properties must be respected in view of their
ownership of an aliquot portion of all the properties of the respondent corporation being stockholders thereof. They propose that the veil of
corporate fiction be pierced, considering the circumstances under which the respondent corporation was formed.

Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the heirs of Eugenia V. Roxas, among them the
petitioners herein, decided to form a corporation — Heirs of Eugenia V. Roxas, Incorporated (private respondent herein) with the inherited
properties as capital of the corporation. The corporation was incorporated on December 4, 1962 with the primary purpose of engaging in
agriculture to develop the inherited properties. The Articles of Incorporation of the respondent corporation were amended in 1971 to allow it
to engage in the resort business. Accordingly, the corporation put up a resort known as Hidden Valley Springs Resort where the questioned
properties are located.

These facts, however, do not justify the position taken by the petitioners.

The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the members composing it.
(Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 [1990]; Tan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205
[1988]; Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano Enterprises, Inc. v. Court of Industrial
Relations, 13 SCRA 290 [1965]) There is no dispute that title over the questioned land where the Hidden Valley Springs Resort is located is
registered in the name of the corporation. The records also show that the staff house being occupied by petitioner Rebecca Boyer-Roxas and
the recreation hall which was later on converted into a residential house occupied by petitioner Guillermo Roxas are owned by the
respondent corporation. Regarding properties owned by a corporation, we stated in the case of Stockholders of F. Guanzon and Sons, Inc. v.
Register of Deeds of Manila, (6 SCRA 373 [1962]):

xxx xxx xxx

. . . 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 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). (at pp. 375-376)

The petitioners point out that their occupancy of the staff house which was later used as the residence of Eriberto Roxas, husband of
petitioner Rebecca Boyer-Roxas and the recreation hall which was converted into a residential house were with the blessings of Eufrocino
Roxas, the deceased husband of Eugenia V. Roxas, who was the majority and controlling stockholder of the corporation. In his lifetime,
Eufrocino Roxas together with Eriberto Roxas, the husband of petitioner Rebecca Boyer-Roxas, and the father of petitioner Guillermo Roxas
managed the corporation. The Board of Directors did not object to such an arrangement. The petitioners argue that . . . the authority thus
given by Eufrocino Roxas for the conversion of the recreation hall into a residential house can no longer be questioned by the stockholders of
the private respondent and/or its board of directors for they impliedly but no leas explicitly delegated such authority to said Eufrocino Roxas.
(Rollo, p. 12)

Again, we must emphasize that the respondent corporation has a distinct personality separate from its members. The corporation transacts
its business only through its officers or agents. (Western Agro Industrial Corporation v. Court of Appeals, supra). Whatever authority these
officers or agents may have is derived from the board of directors or other governing body unless conferred by the charter of the corporation.
An officer's power as an agent of the corporation must be sought from the statute, charter, the by-laws or in a delegation of authority to such
officer, from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business. (Vicente v. Geraldez,
52 SCRA 210 [1973])

In the present case, the record shows that Eufrocino V. Roxas who then controlled the management of the corporation, being the majority
stockholder, consented to the petitioners' stay within the questioned properties. Specifically, Eufrocino Roxas gave his consent to the
conversion of the recreation hall to a residential house, now occupied by petitioner Guillermo Roxas. The Board of Directors did not object to
the actions of Eufrocino Roxas. The petitioners were allowed to stay within the questioned properties until August 27, 1983, when the Board
of Directors approved a Resolution ejecting the petitioners, to wit:

R E S O L U T I O N No. 83-12

RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under them, be ejected from their
occupancy of the Hidden Valley Springs compound on which their houses have been constructed and/or are being
constructed only on tolerance of the Corporation and without any contract therefor, in order to give way to the
Corporation's expansion and improvement program and obviate prejudice to the operation of the Hidden Valley Springs
Resort by their continued interference.

RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be authorized as he is hereby
authorized to effect the ejectment, including the filing of the corresponding suits, if necessary to do so. (Original
Records, p. 327)

We find nothing irregular in the adoption of the Resolution by the Board of Directors. The petitioners' stay within the questioned properties
was merely by tolerance of the respondent corporation in deference to the wishes of Eufrocino Roxas, who during his lifetime, controlled and
managed the corporation. Eufrocino Roxas' actions could not have bound the corporation forever. The petitioners have not cited any
provision of the corporation by-laws or any resolution or act of the Board of Directors which authorized Eufrocino Roxas to allow them to stay
within the company premises forever. We rule that in the absence of any existing contract between the petitioners and the respondent
corporation, the corporation may elect to eject the petitioners at any time it wishes for the benefit and interest of the respondent corporation.
The petitioners' suggestion that the veil of the corporate fiction should be pierced is untenable. The separate personality of the corporation
may be disregarded only when the corporation is used "as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to
achieve equity or when necessary for the protection of the creditors." (Sulong Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan
Boon Bee & Co., Inc., v. Jarencio, supra and Western Agro Industrial Corporation v. Court of Appeals, supra) The circumstances in the
present cases do not fall under any of the enumerated categories.

In the third assignment of error, the petitioners insist that as regards the unfinished building, Rebecca Boyer-Roxas is a builder in good faith.

The construction of the unfinished building started when Eriberto Roxas, husband of Rebecca Boyer-Roxas, was still alive and was the
general manager of the respondent corporation. The couple used their own funds to finance the construction of the building. The Board of
Directors of the corporation, however, did not object to the construction. They allowed the construction to continue despite the fact that it was
within the property of the corporation. Under these circumstances, we agree with the petitioners that the provision of Article 453 of the Civil
Code should have been applied by the lower courts.

Article 453 of the Civil Code provides:

If there was bad faith, not only on the part of the person who built, planted or sown on the land of another but also on
the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good
faith.

In such a case, the provisions of Article 448 of the Civil Code govern the relationship between petitioner Rebecca-Boyer-Roxas and the
respondent corporation, to wit:

Art. 448 — The owner of the land on which anything has been built, sown or planted in good faith, shall have the right
to appropriate as his own the works, sowing or planting after payment of the indemnity provided for in articles 546 and
548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the
building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate
the buildings or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof.

WHEREFORE, the present petition is partly GRANTED. The questioned decision of the Court of Appeals affirming the decision of the
Regional Trial Court of Laguna, Branch 37, in RTC Civil Case No. 802-84-C is MODIFIED in that subparagraphs (c) and (d) of Paragraph 1
of the dispositive portion of the decision are deleted. In their stead, the petitioner Rebecca Boyer-Roxas and the respondent corporation are
ordered to follow the provisions of Article 448 of the Civil Code as regards the questioned unfinished building in RTC Civil Case No. 802-84-
C. The questioned decision is affirmed in all other respects.

G.R. NO. 170782 : June 22, 2009]

SIAIN ENTERPRISES, INC., Petitioner, v. CUPERTINO REALTY CORP.

and EDWIN R. CATACUTAN, Respondents.

DECISION

NACHURA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of

Court assailing the decision of the Court of Appeals in CA-G.R. CV No.
714241 which affirmed the decision of the Regional Trial Court, Branch 29,
Iloilo City in Civil Case No. 23244.2

On April 10, 1995, petitioner Siain Enterprises, Inc. obtained a loan

of P37,000,000.00 from respondent Cupertino Realty Corporation
(Cupertino) covered by a promissory note signed by both petitioner's and
Cupertino's respective presidents, Cua Le Leng and Wilfredo Lua. The
promissory note authorizes Cupertino, as the creditor, to place in escrow the
loan proceeds of P37,000,000.00 with Metropolitan Bank & Trust Company
to pay off petitioner's loan obligation with Development Bank of the
Philippines (DBP). To secure the loan, petitioner, on the same date,
executed a real estate mortgage over two (2) parcels of land and other
immovables, such as equipment and machineries.

Two (2) days thereafter, or on April 12, 1995, the parties executed an
amendment to promissory note which provided for a seventeen percent
(17%) interest per annum on the P37,000,000.00 loan.3 The amendment to
promissory note was likewise signed by Cua Le Leng and Wilfredo Lua on
behalf of petitioner and Cupertino, respectively.

On August 16, 1995, Cua Le Leng signed a second promissory note in favor
of Cupertino for P160,000,000.00. Cua Le Leng signed the second
promissory note as maker, on behalf of petitioner, and as co-maker, liable to
Cupertino in her personal capacity. This second promissory note provides:

PROMISSORY NOTE

AMOUNT DATE: AUGUST 16, 1995

ONE HUNDRED SIXTY MILLION PESOS

(PHP 160,000,000.00)

FOR VALUE RECEIVED, after one (1) year from this date on or August 16, 1996, WE, SIAIN
ENTERPRISES INC. with Metro Manila office address at 306 J.P. Rizal St., Mandaluyong City,
represented herein by its duly authorized President, Ms. LELENG CUA, (a copy of her
authority is hereto attached as Annex "A") and Ms. LELENG CUA in her personal capacity, a
resident of ILOILO CITY, jointly and severally, unconditionally promise to pay CUPERTINO
REALTY CORPORATION, or order, an existing corporation duly organized under Philippine
laws, the amount/sum of ONE HUNDRED SIXTY MILLION PESOS (PHP 160,000,000.00),
Philippine Currency, without further need of any demand, at the office of CUPERTINO
REALTY CORPORATION;

The amount/sum of ONE HUNDRED SIXTY MILLION PESOS (PHP 160,000,000.00) shall
earn a compounding interest of 30% per annum which interest shall be payable to
CUPERTINO REALTY CORPORATION at its above given address ON THE FIRST DAY OF
EVERY MONTH WITHOUT THE NEED OF DEMAND.

In case We fail to pay the principal amount of this note at maturity or in the event of
bankruptcy or insolvency, receivership, levy of execution, garnishment or attachment or in
case of conviction for a criminal offense carrying with it the penalty of civil interdiction or in
any of the cases covered by Article 1198 of the Civil Code of the Philippines, then the entire
principal of this note and other interests and penalties due thereon shall, at the option of
CUPERTINO REALTY CORPORATION, immediately become due and payable and We jointly
and severally agree to pay additionally a penalty at the rate of THREE PERCENT (3%) per
month on the total amount/sum due until fully paid. Furthermore, We jointly and severally
agree to pay an additional sum equivalent to 20% of the total amount due but in no case
less than PHP 100,000.00 as and for attorney's fees in addition to expenses and costs of
suit.

We hereby authorize and empower CUPERTINO REALTY CORPORATION at its option at any
time, without notice, to apply to the payment of this note and or any other particular
obligation or obligations of all or any one of us to CUPERTINO REALTY CORPORATION, as it
may select, irrespective of the dates of maturity, whether or not said obligations are then
due, any and all moneys, checks, securities and things of value which are now or which
may hereafter be in its hand on deposit or otherwise to the credit of, or belonging to, both
or any one of us, and CUPERTINO REALTY CORPORATION is hereby authorized to sell at
public or private sale such checks, securities, or things of value for the purpose of applying
the proceeds thereof to such payments of this note.

We hereby expressly consent to any extension and/or renewals hereof in whole or in part
and/or partial payment on account which may be requested by and granted to us or any
one of us for the payment of this note as long as the remaining unpaid balance shall earn
an interest of THREE percent (3%) a month until fully paid. Such renewals or extensions
shall, in no case, be understood as a novation of this note or any provision thereof and We
will thereby continue to be liable for the payment of this note.

We submit to the jurisdiction of the Courts of the City of Manila or of the place of execution
of this note, at the option of CUPERTINO REALTY CORPORATION without divesting any
other court of the its jurisdiction, for any legal action which may arise out of this note. In
case of judical execution of this obligation, or any part of it, we hereby waive all our rights
under the provisions of Rule 39, section 12 of the Rules of Court.

We, who are justly indebted to CUPERTINO REALTY CORPORATION, agree to execute
respectively a real estate mortgage and a pledge or a chattel mortgage covering securities
to serve as collaterals for this loan and to execute likewise an irrevocable proxy to allow
representatives of the creditor to be able to monitor acts of management so as to prevent
any premature call of this loan. We further undertake to execute any other kind of
document which CUPERTINO REALTY CORPORATION may solely believe is necessary in
order to effect any security over any collateral.

For this purpose, Ms. LELENG CUA, upon the foregoing promissory note, has this 16th day
of Aug 1995, pledged her shares of stocks in SIAIN ENTERPRISES, INC., worth PHP
1,800,000.00 which she hereby confesses as representing 80% of the total outstanding
shares of the said company.

In default of payment of said note or any part thereof at maturity, Ms. LELENG CUA hereby
authorizes CUPERTINO REALTY CORPORATION or its assigns, to dispose of said security or
any part thereof at public sale. The proceeds of such sale or sales shall, after payment of all
expenses and commissions attending said sale or sales, be applied to this promissory note
and the balance, if any, after payment of this promissory note and interest thereon, shall
be returned to the undersigned, her heirs, successors and administrators; it shall be
optional for the owner of the promissory note to bid for and purchase the securities or any
part thereof.

(signed)
LELENG CUA
SIAIN ENTERPRISES, INC.
In her personal capacity
CO-MAKER

By:

(signed)
LELENG CUA
MAKER

WITNESSES:
 (signed)
EDGARDO LUA

(signed)
ROSE MARIE RAGODON4

Parenthetically, on even date, the parties executed an amendment of real

estate mortgage, providing in pertinent part:

WHEREAS, on 10 April 1995, the [petitioner] executed, signed and delivered

a Real Estate Mortgage to and in favor of [Cupertino] on certain real estate
properties to secure the payment to [Cupertino] of a loan in the amount of
THIRTY SEVEN MILLION PESOS (P37,000,000.00) Philippine Currency,
granted by [Cupertino] was ratified (sic) on 10 April 1995 before Constancio
Mangoba, Jr., Notary Public in Makati City, as Doc. No. 242; in Page No. 50;
Book No., XVI; Series of 1995, and duly recorded in the Office of the
Register of Deeds for the said City of Iloilo;

WHEREAS, the [petitioner] has increased its loan payable to [Cupertino]

which now amounts to ONE HUNDRED NINETY SEVEN MILLION PESOS
(197,000,000.00); and c ralawlib ra ry

WHEREAS, the [petitioner] and [Cupertino] intend to amend the said Real
Estate Mortgage in order to reflect the current total loan secured by the said
Real Estate Mortgage;

NOW, THEREFORE, for and in consideration of the foregoing premises, the

parties hereto have agreed and by these presents do hereby agree to amend
said Real Estate Mortgage dated 10 April 1995 mentioned above by
substituting the total amount of the loan secured by said Real Estate
Mortgage from P37,000,000.00 to P197,000,000.00.

It is hereby expressly understood that with the foregoing amendment, all

other terms and conditions of said Real Estate Mortgage dated 10 April 1995
are hereby confirmed, ratified and continued to be in full force and effect,
and that this agreement be made an integral part of said Real Estate
Mortgage.5

Curiously however, and contrary to the tenor of the foregoing loan

documents, petitioner, on March 11, 1996, through counsel, wrote Cupertino
and demanded the release of the P160,000,000.00 loan increase covered by
the amendment of real estate mortgage.6 In the demand letter, petitioner's
counsel stated that despite repeated verbal demands, Cupertino had yet to
release the P160,000,000.00 loan. On May 17, 1996, petitioner demanded
anew from Cupertino the release of the P160,000,000.00 loan.7
In complete refutation, Cupertino, likewise through counsel, responded and
denied that it had yet to release the P160,000,000.00 loan. Cupertino
maintained that petitioner had long obtained the proceeds of the aforesaid
loan. Cupertino declared petitioner's demand as made to "abscond from a
just and valid obligation," a mere afterthought, following Cupertino's letter
demanding payment of the P37,000,000.00 loan covered by the first
promissory note which became overdue on March 5, 1996.

Not surprisingly, Cupertino instituted extrajudicial foreclosure proceedings

over the properties subject of the amended real estate mortgage. The
auction sale was scheduled on October 11, 1996 with respondent Notary
Public Edwin R. Catacutan commissioned to conduct the same. This
prompted petitioner to file a complaint with a prayer for a restraining order
to enjoin Notary Public Catacutan from proceeding with the public auction.

The following are the parties' conflicting claims, summarized by the RTC, and
quoted verbatim by the CA in its decision:

"The verified complaint alleges that [petitioner] is engaged in the

manufacturing and retailing/wholesaling business. On the other hand,
Cupertino is engaged in the realty business. That on April 10, 1995,
[petitioner] executed a Real Estate Mortgage over its real properties covered
by Transfer Certificates of title Nos. T-75109 and T-73481 ("the mortgage
properties") of the Register of Deeds of Iloilo in favor of Cupertino to secure
the former's loan obligation to the latter in the amount of Php37,000,000.00.
That it has been the agreement between [petitioner] and Cupertino that the
aforesaid loan will be non-interest bearing. Accordingly, the parties saw to it
that the promissory note (evidencing their loan agreement) did not provide
any stipulation with respect to interest. On several occasions thereafter,
[petitioner] made partial payments to Cupertino in respect of the aforesaid
loan obligation by the former to the latter in the total amount of
Php7,985,039.08, thereby leaving a balance of Php29,014,960.92. On
August 16, 1995, [petitioner] and Cupertino executed an amendment of Real
Estate Mortgage (Annex "C") increasing the total loan covered by the
aforesaid REM from Php37,000,000.00 to P197,000,000.00. This
amendment to REM was executed preparatory to the promised release by
Cupertino of additional loan proceeds to [petitioner] in the total amount of
Php160,000,000.00. However, despite the execution of the said amendment
to REM and its subsequent registration with the Register of Deeds of Iloilo
City and notwithstanding the clear agreement between [petitioner] and
Cupertino and the latter will release and deliver to the former the aforesaid
additional loan proceeds of P160,000,000.00 after the signing of pertinent
documents and the registration of the amendment of REM, Cupertino failed
and refused to release the said additional amount for no apparent reason at
all, contrary to its repeated promises which [petitioner] continuously relied
on. On account of Cupertino's unfulfilled promises, [petitioner] repeatedly
demanded from Cupertino the release and/or delivery of the said
Php160,000,000.00 to the former. However, Cupertino still failed and
refused and continuously fails and refuses to release and/or deliver the
Php160,000,000.00 to [petitioner]. When [petitioner] tendered payment of
the amount of Php29,014,960.92 which is the remaining balance of the
Php37,000,000.00 loan subject of the REM, in order to discharge the same,
Cupertino unreasonably and unjustifiably refused acceptance thereof on the
ground that the previous payment amounting to Php7,985,039.08, was
applied by Cupertino to alleged interests and not to principal amount,
despite the fact that, as earlier stated, the aforesaid loan by agreement of
the parties, is non-interest bearing. Worst, unknown to [petitioner],
Cupertino was already making arrangements with [respondent] Notary
Public for the extrajudicial sale of the mortgage properties even as
[petitioner] is more than willing to pay the Php29,014,960.92 which is the
remaining balance of the Php37,000,000.00 loan and notwithstanding
Cupertino's unjustified refusal and failure to deliver to [petitioner] the
amount of Php160,000,000.00. In fact, a notarial sale of the mortgaged
properties is already scheduled on 04 October 1996 by [respondent] Notary
Public at his office located at Rm. 100, Iloilo Casa Plaza, Gen Luna St., Iloilo
City. In view of the foregoing, Cupertino has no legal right to foreclose the
mortgaged properties. In any event, Cupertino cannot extrajudicially cause
the foreclosure by notarial sale of the mortgage properties by [respondent]
Notary Public as there is nothing in the REM (dated 10 April 1995) or in the
amendment thereto that grants Cupertino the said right.

xxx

"[Respondents] finally filed an answer to the complaint, alleging that the

loan have (sic) an interest of 17% per annum: that no payment was ever
made by [petitioner], that [petitioner] has already received the amount of
the loan prior to the execution of the promissory note and amendment of
Real Estate Mortgage, xxx. crvll

"[Petitioner] filed a supplemental complaint alleging subsequent acts made

by defendants causing the subsequent auction sale and registering the
Certificates of Auction Sale praying that said auction sale be declared null
and void and ordering the Register of Deeds to cancel the registration and
annotation of the Certificate of Notarial Sale."

Thereafter, the Pre-Trial conference was set. Both parties submitted their
respective Brief and the following facts were admitted, viz:
 1. Execution of the mortgage dated April 10, 1995;

2. Amendment of Real Estate Mortgage dated August 16, 1995;

3. Execution of an Extra-Judicial Foreclosure by the [Cupertino];

4. Existence of two (2) promissory notes;

5. Existence but not the contents of the demand letter March 11, 1996 addressed to Mr.
Wilfredo Lua and receipt of the same by [Cupertino]; and cralawl ibra ry

6. Notice of Extra-Judicial Foreclosure Sale."

For failing to arrive at an amicable settlement, trial on the merits ensued.

The parties presented oral and documentary evidence to support their claims
and contentions. [Petitioner] insisted that she never received the proceeds
of Php160,000,000.00, thus, the foreclosure of the subject properties is null
and void. [Cupertino] on the other hand claimed otherwise.8

After trial, the RTC rendered a decision dismissing petitioner's complaint and
ordering it to pay Cupertino P100,000.00 each for actual and exemplary
damages, and P500,000.00 as attorney's fees. The RTC recalled and set
aside its previous order declaring the notarial foreclosure of the mortgaged
properties as null and void. On appeal, the CA, as previously adverted to,
affirmed the RTC's ruling.

In dismissing petitioner's complaint and finding for Cupertino, both the lower
courts upheld the validity of the amended real estate mortgage. The RTC
found, as did the CA, that although the amended real estate mortgage fell
within the exceptions to the parol evidence rule under Section 9, Rule 130 of
the Rules of Court, petitioner still failed to overcome and debunk Cupertino's
evidence that the amended real estate mortgage had a consideration, and
petitioner did receive the amount of P160,000,000.00 representing its
incurred obligation to Cupertino. Both courts ruled that as between
petitioner's bare denial and negative evidence of non-receipt of
the P160,000,000.00, and Cupertino's affirmative evidence on the existence
of the consideration, the latter must be given more weight and value. In all,
the lower courts gave credence to Cupertino's evidence that
the P160,000,000.00 proceeds were the total amount received by petitioner
and its affiliate companies over the years from Wilfredo Lua, Cupertino's
president. In this regard, the lower courts applied the doctrine of "piercing
the veil of corporate fiction" to preclude petitioner from disavowing receipt of
the P160,000,000.00 and paying its obligation under the amended real
estate mortgage.
Undaunted, petitioner filed this appeal insisting on the nullity of the
amended real estate mortgage. Petitioner is adamant that the amended real
estate mortgage is void as it did not receive the agreed consideration
therefor i.e. P160,000,000.00. Petitioner avers that the amended real estate
mortgage does not accurately reflect the agreement between the parties as,
at the time it signed the document, it actually had yet to receive the amount
of P160,000,000.00. Lastly, petitioner asseverates that the lower courts
erroneously applied the doctrine of "piercing the veil of corporate fiction"
when both gave credence to Cupertino's evidence showing that petitioner's
affiliates were the previous recipients of part of the P160,000,000.00
indebtedness of petitioner to Cupertino.

We are in complete accord with the lower courts' rulings.

Well-entrenched in jurisprudence is the rule that factual findings of the trial

court, especially when affirmed by the appellate court, are accorded the
highest degree of respect and are considered conclusive between the
parties.9 A review of such findings by this Court is not warranted except
upon a showing of highly meritorious circumstances, such as: (1) when the
findings of a trial court are grounded entirely on speculation, surmises or
conjectures; (2) when a lower court's inference from its factual findings is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the findings of the appellate
court go beyond the issues of the case, or fail to notice certain relevant facts
which, if properly considered, will justify a different conclusion; (5) when
there is a misappreciation of facts; (6) when the findings of fact are
conclusions without mention of the specific evidence on which they are
based, are premised on the absence of evidence, or are contradicted by
evidence on record.10 None of these exceptions necessitating a reversal of
the assailed decision obtains in this instance.

Conversely, we cannot subscribe to petitioner's faulty reasoning.

First. All the loan documents, on their face, unequivocally declare petitioner's
indebtedness to Cupertino:

1. Promissory Note dated April 10, 1995, prefaced with a "[f]or value received," and the
escrow arrangement for the release of the P37,000,000.00 obligation in favor of DBP,
another creditor of petitioner.

2. Mortgage likewise dated April 10, 1995 executed by petitioner to secure

its P37,000,000.00 loan obligation with Cupertino.

3. Amendment to Promissory Note for P37,000,000.00 dated April 12, 1995 which
tentatively sets the interest rate at seventeen percent (17%) per annum.
 4. Promissory Note dated August 16, 1995, likewise prefaced with "[f]or value received,"
and unconditionally promising to pay Cupertino P160,000,000.00 with a stipulation on
compounding interest at thirty percent (30%) per annum. The Promissory Note requires,
among others, the execution of a real estate mortgage to serve as collateral therefor. In
case of default in payment, petitioner, specifically, through its president, Cua Le Leng,
authorizes Cupertino to "dispose of said security or any part thereof at [a] public sale."

5. Amendment of Real Estate Mortgage also dated August 16, 1995 with a recital that the
mortgagor, herein petitioner, has increased its loan payable to the mortgagee, Cupertino,
from P37,000,000.00 to P197,000,000.00. In connection with the increase in loan
obligation, the parties confirmed and ratified the Real Estate Mortgage dated April 10,
1995.

Unmistakably, from the foregoing chain of transactions, a presumption has

arisen that the loan documents were supported by a consideration.

Rule 131, Section 3 of the Rules of Court specifies that a disputable

presumption is satisfactory if uncontradicted and not overcome by other
evidence. Corollary thereto, paragraphs (r) and (s) thereof and Section 24 of
the Negotiable Instruments Law read:

SEC. 3. Disputable presumptions.' The following presumptions are

satisfactory if uncontradicted, but may be contradicted and overcome by
other evidence:

xxx

(r) That there was sufficient consideration for a contract;

(s) That a negotiable instrument was given or indorsed for a sufficient

consideration;

xxx

SEC. 24. Presumption of consideration.' Every negotiable instrument is

deemed prima facie to have been issued for a valuable consideration; and
every person whose signature appears thereon to have become a party
thereto for value.

Second. The foregoing notwithstanding, petitioner insists that the Amended

Real Estate Mortgage was not supported by a consideration, asserting non-
receipt of the P160,000,000.00 loan increase reflected in the Amended Real
Estate Mortgage. However, petitioner's bare-faced assertion does not even
dent, much less, overcome the aforesaid presumptions on consideration for
a contract. As deftly pointed out by the trial court:

x x x In this case, this Court finds that the [petitioner] has not been able to
establish its claim of non-receipt by a preponderance of evidence. Rather,
the Court is inclined to give more weight and credence to the affirmative and
straightforward testimony of [Cupertino] explaining in plain and categorical
words that the Php197,000,000.00 loan represented by the amended REM
was the total sum of the debit memo, the checks, the real estate mortgage
and the amended real estate mortgage, the pledges of jewelries, the trucks
and the condominiums plus the interests that will be incurred which all in all
amounted to Php197,000,000.00. It is a basic axiom in this jurisdiction that
as between the plaintiff's negative evidence of denial and the defendant's
affirmative evidence on the existence of the consideration, the latter must
be given more weight and value. Moreover, [Cupertino's] foregoing
testimony on the existence of the consideration of the Php160,000,000.00
promissory note has never been refuted nor denied by the [petitioner], who
while initially having manifested that it will present rebuttal evidence
eventually failed to do so, despite all available opportunities accorded to it.
By such failure to present rebutting evidence, [Cupertino's] testimony on the
existence of the consideration of the amended real estate mortgage does not
only become impliedly admitted by the [petitioner], more significantly, to
the mind of this Court, it is a clear indication that [petitioner] has no counter
evidence to overcome and defeat the [Cupertino's] evidence on the matter.
Otherwise, there is no logic for [petitioner] to withhold it if available.
Assuming that indeed it exists, it may be safely assumed that such evidence
having been willfully suppressed is adverse if produced.

The presentation by [petitioner] of its cash Journal Receipt Book as proof

that it did not receive the proceeds of the Php160,000,000.00 promissory
note does not likewise persuade the Court. In the first place, the subject
cash receipt journal only contained cash receipts for the year 1995. But as
appearing from the various checks and debit memos issued by Wilfredo Lua
and his wife, Vicky Lua and from the former's unrebutted testimony in Court,
the issuance of the checks, debit memos, pledges of jewelries, condominium
units, trucks and the other components of the Php197,000,000.00 amended
real estate mortgage had all taken place prior to the year 1995, hence, they
could not have been recorded therein. What is more, the said cash receipt
journal appears to be prepared solely at the behest of the [petitioner],
hence, can be considered as emanating from a "poisonous tree" therefore
self-serving and cannot be given any serious credibility.11

Significantly, petitioner asseverates that the parol evidence rule, which

excludes other evidence, apart from the written agreement, to prove the
terms agreed upon by the parties contained therein,12 is not applicable to
the Amended Real Estate Mortgage. Both the trial and appellate courts
agreed with petitioner and did not apply the parol evidence rule. Yet, despite
the allowance to present evidence and prove the invalidity of the Amended
Real Estate Mortgage, petitioner still failed to substantiate its claim of non-
receipt of the proceeds of the P160,000,000.00 loan increase.

Moreover, petitioner was the plaintiff in the trial court, the party that
brought suit against respondent. Accordingly, it had the burden of proof, the
duty to present a preponderance of evidence to establish its
claim.13 However, petitioner's evidence consisted only of a barefaced denial
of receipt and a vaguely drawn theory that in their previous loan transaction
with respondent covered by the first promissory note, it did not receive the
proceeds of the P37,000,000.00. Petitioner conveniently ignores that this
particular promissory note secured by the real estate mortgage was under
an escrow arrangement and taken out to pay its obligation to DBP. Thus,
petitioner, quite obviously, would not be in possession of the proceeds of the
loan. Contrary to petitioner's contention, there is no precedent to explain its
stance that respondent undertook to release the P160,000,000.00 loan only
after it had first signed the Amended Real Estate Mortgage. ς ηα ñrοb lε š ν ιr†υαl l αω lιb rα rÿ

Third. Petitioner bewails the lower courts' application of the doctrine of

"piercing the veil of corporate fiction."

As a general rule, a corporation will be deemed a separate legal entity until

sufficient reason to the contrary appears.14 But the rule is not absolute. A
corporation's separate and distinct legal personality may be disregarded and
the veil of corporate fiction pierced when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime.15

In this case, Cupertino presented overwhelming evidence that petitioner and

its affiliate corporations had received the proceeds of the P160,000,000.00
loan increase which was then made the consideration for the Amended Real
Estate Mortgage. We quote with favor the RTC's and the CA's disquisitions
on this matter:

That the checks, debit memos and the pledges of the jewelries,
condominium units and trucks were constituted not exclusively in the name
of [petitioner] but also either in the name of Yuyek Manufacturing
Corporation, Siain Transport, Inc., Cua Leleng and Alberto Lim is of no
moment. For the facts established in the case at bar has convinced the Court
of the propriety to apply the principle known as "piercing the veil of the
corporate entity" by virtue of which, the juridical personalities of the various
corporations involved are disregarded and the ensuing liability of the
corporation to attach directly to its responsible officers and stockholders. x x
x

xxx
The conjunction of the identity of the [petitioner] corporation in relation to
Siain Transport, Inc. (Siain Transport), Yuyek Manufacturing Corp. (Yuyek),
as well as the individual personalities of Cua Leleng and Alberto Lim has
been indubitably shown in the instant case by the following established
considerations, to wit:

1. Siain and Yuyek have [a] common set of [incorporators], stockholders and board of
directors;

2. They have the same internal bookkeeper and accountant in the person of Rosemarie
Ragodon;

3. They have the same office address at 306 Jose Rizal St., Mandaluyong City;

4. They have the same majority stockholder and president in the person of Cua Le Leng;
andcralawlib rary

5. In relation to Siain Transport, Cua Le Leng had the unlimited authority by and on herself,
without authority from the Board of Directors, to use the funds of Siain Trucking to pay the
obligation incurred by the [petitioner] corporation.

Thus, it is crystal clear that [petitioner] corporation, Yuyek and Siain

Transport are characterized by oneness of operations vested in the person of
their common president, Cua Le Leng, and unity in the keeping and
maintenance of their corporate books and records through their common
accountant and bookkeeper, Rosemarie Ragodon. Consequently, these
corporations are proven to be the mere alter-ego of their president Cua
Leleng, and considering that Cua Leleng and Alberto Lim have been living
together as common law spouses with three children, this Court believes
that while Alberto Lim does not appear to be an officer of Siain and Yuyek,
nonetheless, his receipt of certain checks and debit memos from Willie Lua
and Victoria Lua was actually for the account of his common-law wife, Cua
Leleng and her alter ego corporations. While this Court agrees with Siain
that a corporation has a personality separate and distinct from its individual
stockholders or members, this legal fiction cannot, however, be applied to its
benefit in this case where to do so would result to injustice and evasion of a
valid obligation, for well settled is the rule in this jurisdiction that 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 justify wrong, or for evasion of an existing
obligation. Resultantly, the obligation incurred and/or the transactions
entered into either by Yuyek, or by Siain Trucking, or by Cua Leleng, or by
Alberto Lim with Cupertino are deemed to be that of the [petitioner] itself.

The same principle equally applies to Cupertino. Thus, while it appears that
the issuance of the checks and the debit memos as well as the pledges of
the condominium units, the jewelries, and the trucks had occurred prior to
March 2, 1995, the date when Cupertino was incorporated, the same does
not affect the validity of the subject transactions because applying again the
principle of piercing the corporate veil, the transactions entered into by
Cupertino Realty Corporation, it being merely the alter ego of Wilfredo Lua,
are deemed to be the latter's personal transactions and vice-versa.16

xxx

x x x Firstly. As can be viewed from the extant record of the instant case,
Cua Leleng is the majority stockholder of the three (3) corporations namely,
Yuyek Manufacturing Corporation, Siain Transport, Inc., and Siain
Enterprises Inc., at the same time the President thereof. Second. Being the
majority stockholder and the president, Cua Le leng has the unlimited
power, control and authority without the approval from the board of
directors to obtain for and in behalf of the [petitioner] corporation from
[Cupertino] thereby mortgaging her jewelries, the condominiums of her
common law husband, Alberto Lim, the trucks registered in the name of
[petitioner] corporation's sister company, Siain Transport Inc., the subject
lots registered in the name of [petitioner] corporation and her oil mill
property at Iloilo City. And, to apply the proceeds thereof in whatever way
she wants, to the prejudice of the public.

As such, [petitioner] corporation is now estopped from denying the above

apparent authorities of Cua Le Leng who holds herself to the public as
possessing the power to do those acts, against any person who dealt in good
faith as in the case of Cupertino.17

WHEREFORE, premises considered, the petition is DENIED. The Decision of

the Court of Appeals in CA-G.R. CV No. 71424 is AFFIRMED. Costs against
the petitioner.