1
GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,
vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.
A.E. Dacanay for petitioners.
Antonio Quintos Law Office for private respondent.
PARAS, J.:
This is a petition for review on certiorari of the December 29, 1987 decision * of the Court of Appeals in CA-G.R. No. 11960
entitled "ROCES-REYES REALTY, INC. vs. HONORABLE JUDGE REGIONAL TRIAL COURT OF MANILA, BRANCH 44, GOOD EARTH
EMPORIUM, INC. and LIM KA PING" reversing the decision of respondent Judge ** of the Regional Trial Court of Manila, Branch
44 in Civil Case No. 85-30484, which reversed the resolution of the Metropolitan Trial Court Of Manila, Branch 28 in Civil Case
No. 09639, *** denying herein petitioners' motion to quash the alias writ of execution issued against them.
As gathered from the records, the antecedent facts of this case, are as follows:
A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-REYES REALTY, INC., as lessor, and GOOD
EARTH EMPORIUM, INC., as lessee, for a term of three years beginning November 1, 1981 and ending October 31, 1984 at a
monthly rental of P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The building which was the subject of the contract of lease is
a five-storey building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila.
From March 1983, up to the time the complaint was filed, the lessee had defaulted in the payment of rentals, as a
consequence of which, private respondent ROCES-REYES REALTY, INC., (hereinafter designated as ROCES for brevity) filed on
October 14, 1984, an ejectment case (Unlawful Detainer) against herein petitioners, GOOD EARTH EMPORIUM, INC. and LIM
KA PING, hereinafter designated as GEE, (Rollo, p. 21; Annex "B" of the Petition). After the latter had tendered their responsive
pleading, the lower court (MTC, Manila) on motion of Roces rendered judgment on the pleadings dated April 17, 1984, the
dispositive portion of which states:
Judgment is hereby rendered ordering defendants (herein petitioners) and all persons claiming title under him to
vacate the premises and surrender the same to the plaintiffs (herein respondents); ordering the defendants to pay
the plaintiffs the rental of P65,000.00 a month beginning March 1983 up to the time defendants actually vacate the
premises and deliver possession to the plaintiff; to pay attorney's fees in the amount of P5,000.00 and to pay the
costs of this suit. (Rollo, p. 111; Memorandum of Respondents)
On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May 28, 1984 simultaneous with the
latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On June 13, 1984, the trial court resolved such motion ruling:
After considering the motion for the issuance of a writ of execution filed by counsel for the plaintiff (herein
respondents) and the opposition filed in relation thereto and finding that the defendant failed to file the necessary
supersedeas bond, this court resolved to grant the same for being meritorious. (Rollo, p. 112)
On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the appeal was assigned to the Regional Trial
Court (Manila) Branch XLVI. However, on August 15, 1984, GEE thru counsel filed with the Regional Trial Court of Manila, a
motion to withdraw appeal citing as reason that they are satisfied with the decision of the Metropolitan Trial Court of Manila,
Branch XXVIII, which said court granted in its Order of August 27, 1984 and the records were remanded to the trial court ( Rollo,
p. 32; CA Decision). Upon an ex-parte Motion of ROCES, the trial court issued an Alias Writ of Execution dated February 25,
1985 (Rollo, p. 104; Annex "D" of Petitioner's Memorandum), which was implemented on February 27, 1985. GEE thru counsel
filed a motion to quash the writ of execution and notice of levy and an urgent Ex-parte Supplemental Motion for the issuance
of a restraining order, on March 7, and 20, 1985, respectively. On March 21, 1985, the lower court issued a restraining order to
the sheriff to hold the execution of the judgment pending hearing on the motion to quash the writ of execution (Rollo, p. 22;
RTC Decision). While said motion was pending resolution, GEE filed a Petition for Relief from judgment before another court,
Regional Trial Court of Manila, Branch IX, which petition was docketed as Civil Case No. 80-30019, but the petition was
dismissed and the injunctive writ issued in connection therewith set aside. Both parties appealed to the Court of Appeals; GEE
on the order of dismissal and Roces on denial of his motion for indemnity, both docketed as CA-G.R. No. 15873-CV. Going back
to the original case, the Metropolitan Trial Court after hearing and disposing some other incidents, promulgated the
questioned Resolution, dated April 8, 1985, the dispositive portion of which reads as follows:
Premises considered, the motion to quash the writ is hereby denied for lack of merit.
The restraining orders issued on March 11 and 23, 1985 are hereby recalled, lifted and set aside. (Rollo, p. 20, MTC
Decision)
GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces moved to dismiss the appeal but the
Court denied the motion. On certiorari, the Court of Appeals dismissed Roces' petition and remanded the case to the RTC.
Meantime, Branch IX became vacant and the case was re-raffled to Branch XLIV.
On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million evidenced by Exhibit "I" and another
P1 million evidenced by the pacto de retro sale instrument (Exhibit "2") were in full satisfaction of the judgment obligation,
reversed the decision of the Municipal Trial Court, the dispositive portion of which reads:
Premises considered, judgment is hereby rendered reversing the Resolution appealed from quashing the writ of
execution and ordering the cancellation of the notice of levy and declaring the judgment debt as having been fully
paid and/or Liquidated. (Rollo, p. 29).
On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court and reinstated the Resolution of the
Metropolitan Trial Court of Manila, the dispositive portion of which is as follows:
WHEREFORE, the judgment appealed from is hereby REVERSED and the Resolution dated April 8, 1985, of the
Metropolitan Trial Court of Manila Branch XXXIII is hereby REINSTATED. No pronouncement as to costs. (Rollo, p.
40).
2
GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this petition.
The main issue in this case is whether or not there was full satisfaction of the judgment debt in favor of respondent
corporation which would justify the quashing of the Writ of Execution.
A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any of said exhibits was there any writing
alluding to or referring to any settlement between the parties of petitioners' judgment obligation (Rollo, pp. 45-48).
Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or partial, of the judgment obligation.
Likewise, there is no indication in the pacto de retro sale which was drawn in favor of Jesus Marcos Roces and Marcos V. Roces
and not the respondent corporation, that the obligation embodied therein had something to do with petitioners' judgment
obligation with respondent corporation.
Finding that the common exhibit, Exhibit 1/A had been signed by persons other than judgment creditors (Roces-Reyes Realty,
Inc.) coupled with the fact that said exhibit was not even alleged by GEE and Lim Ka Ping in their original motion to quash
the alias writ of execution (Rollo, p. 37) but produced only during the hearing (Ibid.) which production resulted in petitioners
having to claim belatedly that there was an "overpayment" of about half a million pesos (Rollo, pp. 25-27) and remarking on
the utter absence of any writing in Exhibits "1/A" and "2/B" to indicate payment of the judgment debt, respondent Appellate
Court correctly concluded that there was in fact no payment of the judgment debt. As aptly observed by the said court:
What immediately catches one's attention is the total absence of any writing alluding to or referring to any
settlement between the parties of private respondents' (petitioners') judgment obligation. In moving for the
dismissal of the appeal Lim Ka Ping who was then assisted by counsel simply stated that defendants (herein
petitioners) are satisfied with the decision of the Metropolitan Trial Court (Records of CA, p. 54).
Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution and Notice of Levy
dated March 7, 1985, there is absolutely no reference to the alleged payment of one million pesos as evidenced by
Exhibit 1 dated September 20, 1984. As pointed out by petitioner (respondent corporation) this was brought out by
Linda Panutat, Manager of Good Earth only in the course of the latter's testimony. (Rollo, p. 37)
Article 1240 of the Civil Code of the Philippines provides that:
Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its successor in interest nor is there
positive evidence that the payment was made to a person authorized to receive it. No such proof was submitted but merely
inferred by the Regional Trial Court (Rollo, p. 25) from Marcos Roces having signed the Lease Contract as President which was
witnessed by Jesus Marcos Roces. The latter, however, was no longer President or even an officer of Roces-Reyes Realty, Inc. at
the time he received the money (Exhibit "1") and signed the sale with pacto de retro (Exhibit "2"). He, in fact, denied being in
possession of authority to receive payment for the respondent corporation nor does the receipt show that he signed in the
same capacity as he did in the Lease Contract at a time when he was President for respondent corporation (Rollo, p. 20, MTC
decision).
On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced by the receipt (Exhibit "1") is the
payment for a loan extended by him and Marcos Roces in favor of Lim Ka Ping. The assertion is home by the receipt itself
whereby they acknowledged payment of the loan in their names and in no other capacity.
A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or
stockholder of a corporation does not make one's property also of the corporation, and vice-versa, for they are separate
entities (Traders Royal Bank v. CA-G.R. No. 78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners are in no
legal sense the owners of corporate property (or credits) which is owned by the corporation as a distinct legal person
(Concepcion Magsaysay-Labrador v. CA-G.R. No. 58168, December 19, 1989). As a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's
debt or credit that of the corporation (Prof. Jose Nolledo's "The Corporation Code of the Philippines, p. 5, 1988
Edition, citing Professor Ballantine).
The absence of a note to evidence the loan is explained by Jesus Marcos Roces who testified that the IOU was subsequently
delivered to private respondents (Rollo, pp. 97-98). Contrary to the Regional Trial Court's premise that it was incumbent upon
respondent corporation to prove that the amount was delivered to the Roces brothers in the payment of the loan in the
latter's favor, the delivery of the amount to and the receipt thereof by the Roces brothers in their names raises the
presumption that the said amount was due to them.1âwphi1 There is a disputable presumption that money paid by one to the
other was due to the latter (Sec. 5(f) Rule 131, Rules of Court). It is for GEE and Lim Ka Ping to prove otherwise. In other words,
it is for the latter to prove that the payments made were for the satisfaction of their judgment debt and not vice versa.
The fact that at the time payment was made to the two Roces brothers, GEE was also indebted to respondent corporation for a
larger amount, is not supportive of the Regional Trial Court's conclusions that the payment was in favor of the latter, especially
in the case at bar where the amount was not receipted for by respondent corporation and there is absolutely no indication in
the receipt from which it can be reasonably inferred, that said payment was in satisfaction of the judgment debt. Likewise, no
such inference can be made from the execution of the pacto de retro sale which was not made in favor of respondent
corporation but in favor of the two Roces brothers in their individual capacities without any reference to the judgment
obligation in favor of respondent corporation.
In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the sale with pacto de retro (Exhibit
"2/B") all in the sum of P2 million, far exceeds petitioners' judgment obligation in favor of respondent corporation in the sum
of P1,560,000.00 by P440,000.00, which militates against the claim of petitioner that the aforesaid amount (P2M) was in full
payment of the judgment obligation.
Petitioners' explanation that the excess is interest and advance rentals for an extension of the lease contract (Rollo, pp. 25-28)
is belied by the absence of any interest awarded in the case and of any agreement as to the extension of the lease nor was
there any such pretense in the Motion to Quash the Alias Writ of Execution.
Petitioners' averments that the respondent court had gravely abused its discretion in arriving at the assailed factual findings as
contrary to the evidence and applicable decisions of this Honorable Court are therefore, patently unfounded. Respondent
court was correct in stating that it "cannot go beyond what appears in the documents submitted by petitioners themselves
(Exhibits "1" and "2") in the absence of clear and convincing evidence" that would support its claim that the judgment
obligation has indeed been fully satisfied which would warrant the quashal of the Alias Writ of Execution.
3
It has been an established rule that when the existence of a debt is fully established by the evidence (which has been done in
this case), the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a defense
to the claim of the plaintiff creditor (herein respondent corporation) (Chua Chienco v. Vargas, 11 Phil. 219; Ramos v. Ledesma,
12 Phil. 656; Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well-entrenched in Our jurisprudence that each party in a case
must prove his own affirmative allegations by the degree of evidence required by law (Stronghold Insurance Co. v. CA, G.R. No.
83376, May 29,1989; Tai Tong Chuache & Co. v. Insurance Commission, 158 SCRA 366).
The appellate court cannot, therefore, be said to have gravely abused its discretion in finding lack of convincing and reliable
evidence to establish payment of the judgment obligation as claimed by petitioner. The burden of evidence resting on the
petitioners to establish the facts upon which their action is premised has not been satisfactorily discharged and therefore, they
have to bear the consequences.
PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of the Respondent court is hereby AFFIRMED,
reinstating the April 8, 1985 Resolution of the Metropolitan Trial Court of Manila.
SO ORDERED.
Adm. Matter No. R-181-P               July 31, 1987
ADELIO C. CRUZ, complainant,
vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila, respondents.
RESOLUTION
 
FERNAN, J.:
In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged Quiterio L. Dalisay, Senior Deputy Sheriff of Manila, with
"malfeasance in office, corrupt practices and serious irregularities" allegedly committed as follows:
1. Respondent sheriff attached and/or levied the money belonging to complainant Cruz when he was not himself the judgment
debtor in the final judgment of NLRC NCR Case No. 8-12389-91 sought to be enforced but rather the company known as
"Qualitrans Limousine Service, Inc.," a duly registered corporation; and,
2. Respondent likewise caused the service of the alias writ of execution upon complainant who is a resident of Pasay City,
despite knowledge that his territorial jurisdiction covers Manila only and does not extend to Pasay City.
In his Comments, respondent Dalisay explained that when he garnished complainant's cash deposit at the Philtrust bank, he
was merely performing a ministerial duty. While it is true that said writ was addressed to Qualitrans Limousine Service, Inc., yet
it is also a fact that complainant had executed an affidavit before the Pasay City assistant fiscal stating that he is the
owner/president of said corporation and, because of that declaration, the counsel for the plaintiff in the labor case advised him
to serve notice of garnishment on the Philtrust bank.
On November 12, 1984, this case was referred to the Executive Judge of the Regional Trial Court of Manila for investigation,
report and recommendation.
Prior to the termination of the proceedings, however, complainant executed an affidavit of desistance stating that he is no
longer interested in prosecuting the case against respondent Dalisay and that it was just a "misunderstanding" between them.
Upon respondent's motion, the Executive Judge issued an order dated May 29, 1986 recommending the dismissal of the case.
It has been held that the desistance of complainant does not preclude the taking of disciplinary action against respondent.
Neither does it dissuade the Court from imposing the appropriate corrective sanction. One who holds a public position,
especially an office directly connected with the administration of justice and the execution of judgments, must at all times be
free from the appearance of impropriety.1
We hold that respondent's actuation in enforcing a judgment against complainant who is not the judgment debtor in the case
calls for disciplinary action. Considering the ministerial nature of his duty in enforcing writs of execution, what is incumbent
upon him is to ensure that only that portion of a decision ordained or decreed in the dispositive part should be the subject of
execution.2 No more, no less. That the title of the case specifically names complainant as one of the respondents is of no
moment as execution must conform to that directed in the dispositive portion and not in the title of the case.
The tenor of the NLRC judgment and the implementing writ is clear enough. It directed Qualitrans Limousine Service, Inc. to
reinstate the discharged employees and pay them full backwages. Respondent, however, chose to "pierce the veil of corporate
entity" usurping a power belonging to the court and assumed improvidently that since the complainant is the owner/president
of Qualitrans Limousine Service, Inc., they are one and the same. It is a well-settled doctrine both in law and in equity that as a
legal entity, a corporation has a personality distinct and separate from its individual stockholders or members. The mere fact
that one is president of a corporation does not render the property he owns or possesses the property of the corporation,
since the president, as individual, and the corporation are separate entities.3
Anent the charge that respondent exceeded his territorial jurisdiction, suffice it to say that the writ of execution sought to be
implemented was dated July 9, 1984, or prior to the issuance of Administrative Circular No. 12 which restrains a sheriff from
enforcing a court writ outside his territorial jurisdiction without first notifying in writing and seeking the assistance of the
sheriff of the place where execution shall take place.
ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio L. Dalisay NEGLIGENT in the enforcement of the writ of execution
in NLRC Case-No. 8-12389-91, and a fine equivalent to three [3] months salary is hereby imposed with a stern warning that the
commission of the same or similar offense in the future will merit a heavier penalty. Let a copy of this Resolution be filed in the
personal record of the respondent.
SO ORDERED.
G.R. No. 120135            March 31, 2003
4
BANK OF AMERICA NT & SA, BANK OF AMERICA INTERNATIONAL, LTD., petitioners,
vs.
COURT OF APPEALS, HON. MANUEL PADOLINA, EDUARDO LITONJUA, SR., and AURELIO K. LITONJUA, JR., respondents.
AUSTRIA-MARTINEZ, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the November 29, 1994 decision of the
Court of Appeals1 and the April 28, 1995 resolution denying petitioners' motion for reconsideration.
The factual background of the case is as follows:
On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed a Complaint 2 before the Regional
Trial Court of Pasig against the Bank of America NT&SA and Bank of America International, Ltd. (defendant banks for brevity)
alleging that: they were engaged in the shipping business; they owned two vessels: Don Aurelio and El Champion, through their
wholly-owned corporations; they deposited their revenues from said business together with other funds with the branches of
said banks in the United Kingdom and Hongkong up to 1979; with their business doing well, the defendant banks induced them
to increase the number of their ships in operation, offering them easy loans to acquire said vessels; 3 thereafter, the defendant
banks acquired, through their (Litonjuas') corporations as the borrowers: (a) El Carrier 4; (b) El General5; (c) El Challenger6; and
(d) El Conqueror7; the vessels were registered in the names of their corporations; the operation and the funds derived
therefrom were placed under the complete and exclusive control and disposition of the petitioners; 8 and the possession the
vessels was also placed by defendant banks in the hands of persons selected and designated by them (defendant banks).9
The Litonjuas claimed that defendant banks as trustees did not fully render an account of all the income derived from the
operation of the vessels as well as of the proceeds of the subsequent foreclosure sale; 10 because of the breach of their fiduciary
duties and/or negligence of the petitioners and/or the persons designated by them in the operation of private respondents' six
vessels, the revenues derived from the operation of all the vessels declined drastically; the loans acquired for the purchase of
the four additional vessels then matured and remained unpaid, prompting defendant banks to have all the six vessels,
including the two vessels originally owned by the private respondents, foreclosed and sold at public auction to answer for the
obligations incurred for and in behalf of the operation of the vessels; they (Litonjuas) lost sizeable amounts of their own
personal funds equivalent to ten percent (10%) of the acquisition cost of the four vessels and were left with the unpaid balance
of their loans with defendant banks.11 The Litonjuas prayed for the accounting of the revenues derived in the operation of the
six vessels and of the proceeds of the sale thereof at the foreclosure proceedings instituted by petitioners; damages for breach
of trust; exemplary damages and attorney's fees.12
Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and lack of cause of action against them.13
On December 3, 1993, the trial court issued an Order denying the Motion to Dismiss, thus:
"WHEREFORE, and in view of the foregoing consideration, the Motion to Dismiss is hereby DENIED. The defendant is
therefore, given a period of ten (10) days to file its Answer to the complaint.
"SO ORDERED."14
Instead of filing an answer the defendant banks went to the Court of Appeals on a "Petition for Review on Certiorari" 15 which
was aptly treated by the appellate court as a petition for certiorari. They assailed the above-quoted order as well as the
subsequent denial of their Motion for Reconsideration.16 The appellate court dismissed the petition and denied petitioners'
Motion for Reconsideration.17
Hence, herein petition anchored on the following grounds:
"1. RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT THE SEPARATE PERSONALITIES OF THE
PRIVATE RESPONDENTS (MERE STOCKHOLDERS) AND THE FOREIGN CORPORATIONS (THE REAL BORROWERS)
CLEARLY SUPPORT, BEYOND ANY DOUBT, THE PROPOSITION THAT THE PRIVATE RESPONDENTS HAVE NO
PERSONALITIES TO SUE.
"2. THE RESPONDENT COURT OF APPEALS FAILED TO REALIZE THAT WHILE THE PRINCIPLE OF FORUM NON
CONVENIENS IS NOT MANDATORY, THERE ARE, HOWEVER, SOME GUIDELINES TO FOLLOW IN DETERMINING
WHETHER THE CHOICE OF FORUM SHOULD BE DISTURBED. UNDER THE CIRCUMSTANCES SURROUNDING THE
INSTANT CASE, DISMISSAL OF THE COMPLAINT ON THE GROUND OF FORUM NON-CONVENIENS IS MORE
APPROPRIATE AND PROPER.
"3. THE PRINCIPLE OF RES JUDICATA IS NOT LIMITED TO FINAL JUDGMENT IN THE PHILIPPINES. IN FACT, THE
PENDENCY OF FOREIGN ACTION MAY BE THE LEGAL BASIS FOR THE DISMISSAL OF THE COMPLAINT FILED BY THE
PRIVATE RESPONDENT. COROLLARY TO THIS, THE RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT
THAT PRIVATE RESPONDENTS ARE GUILTY OF FORUM SHOPPING." 18
As to the first assigned error: Petitioners argue that the borrowers and the registered owners of the vessels are the foreign
corporations and not private respondents Litonjuas who are mere stockholders; and that the revenues derived from the
operations of all the vessels are deposited in the accounts of the corporations. Hence, petitioners maintain that these foreign
corporations are the legal entities that have the personalities to sue and not herein private respondents; that private
respondents, being mere shareholders, have no claim on the vessels as owners since they merely have an inchoate right to
whatever may remain upon the dissolution of the said foreign corporations and after all creditors have been fully paid and
satisfied;19 and that while private respondents may have allegedly spent amounts equal to 10% of the acquisition costs of the
vessels in question, their 10% however represents their investments as stockholders in the foreign corporations.20
Anent the second assigned error, petitioners posit that while the application of the principle of forum non conveniens is
discretionary on the part of the Court, said discretion is limited by the guidelines pertaining to the private as well as public
interest factors in determining whether plaintiffs' choice of forum should be disturbed, as elucidated in Gulf Oil Corp. vs.
Gilbert21 and Piper Aircraft Co. vs. Reyno,22 to wit:
"Private interest factors include: (a) the relative ease of access to sources of proof; (b) the availability of compulsory
process for the attendance of unwilling witnesses; (c) the cost of obtaining attendance of willing witnesses; or (d) all
other practical problems that make trial of a case easy, expeditious and inexpensive. Public interest factors include:
(a) the administrative difficulties flowing from court congestion; (b) the local interest in having localized
controversies decided at home; (c) the avoidance of unnecessary problems in conflict of laws or in the application of
foreign law; or (d) the unfairness of burdening citizens in an unrelated forum with jury duty."23
5
In support of their claim that the local court is not the proper forum, petitioners allege the following:
"i) The Bank of America Branches involved, as clearly mentioned in the Complaint, are based in Hongkong and
England. As such, the evidence and the witnesses are not readily available in the Philippines;
"ii) The loan transactions were obtained, perfected, performed, consummated and partially paid outside the
Philippines;
"iii) The monies were advanced outside the Philippines. Furthermore, the mortgaged vessels were part of an
offshore fleet, not based in the Philippines;
"iv) All the loans involved were granted to the Private Respondents' foreign CORPORATIONS;
"v) The Restructuring Agreements were ALL governed by the laws of England;
"vi) The subsequent sales of the mortgaged vessels and the application of the sales proceeds occurred and
transpired outside the Philippines, and the deliveries of the sold mortgaged vessels were likewise made outside the
Philippines;
"vii) The revenues of the vessels and the proceeds of the sales of these vessels were ALL deposited to the Accounts
of the foreign CORPORATIONS abroad; and
"viii) Bank of America International Ltd. is not licensed nor engaged in trade or business in the Philippines."24
Petitioners argue further that the loan agreements, security documentation and all subsequent restructuring agreements
uniformly, unconditionally and expressly provided that they will be governed by the laws of England;25 that Philippine Courts
would then have to apply English law in resolving whatever issues may be presented to it in the event it recognizes and accepts
herein case; that it would then be imposing a significant and unnecessary expense and burden not only upon the parties to the
transaction but also to the local court. Petitioners insist that the inconvenience and difficulty of applying English law with
respect to a wholly foreign transaction in a case pending in the Philippines may be avoided by its dismissal on the ground
of forum non conveniens. 26
Finally, petitioners claim that private respondents have already waived their alleged causes of action in the case at bar for their
refusal to contest the foreign civil cases earlier filed by the petitioners against them in Hongkong and England, to wit:
"1.) Civil action in England in its High Court of Justice, Queen's Bench Division Commercial Court (1992-Folio No.
2098) against (a) LIBERIAN TRANSPORT NAVIGATION. SA.; (b) ESHLEY COMPANIA NAVIERA SA., (c) EL CHALLENGER
SA; (d) ESPRIONA SHIPPING CO. SA; (e) PACIFIC NAVIGATOS CORP. SA; (f) EDDIE NAVIGATION CORP. SA; (g)
EDUARDO K. LITONJUA & (h) AURELIO K. LITONJUA.
"2.) Civil action in England in its High Court of Justice, Queen's Bench Division, Commercial Court (1992-Folio No.
2245) against (a) EL CHALLENGER S.A., (b) ESPRIONA SHIPPING COMPANY S.A., (c) EDUARDO KATIPUNAN LITONJUA
and (d) AURELIO KATIPUNAN LITONJUA.
"3.) Civil action in the Supreme Court of Hongkong High Court (Action No. 4039 of 1992), against (a) ESHLEY
COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS
CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g)
AURELIO KATIPUNAN LITONJUA, JR., and (h) EDUARDO KATIPUNAN LITONJUA.
"4.) A civil action in the Supreme Court of Hong Kong High Court (Action No. 4040 of 1992), against (a) ESHLEY
COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS
CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g)
AURELIO KATIPUNAN LITONJUA, RJ., and (h) EDUARDO KATIPUNAN LITONJUA."
and that private respondents' alleged cause of action is already barred by the pendency of another action or by litis
pendentia as shown above.27
On the other hand, private respondents contend that certain material facts and pleadings are omitted and/or misrepresented
in the present petition for certiorari; that the prefatory statement failed to state that part of the security of the foreign loans
were mortgages on a 39-hectare piece of real estate located in the Philippines; 28 that while the complaint was filed only by the
stockholders of the corporate borrowers, the latter are wholly-owned by the private respondents who are Filipinos and
therefore under Philippine laws, aside from the said corporate borrowers being but their alter-egos, they have interests of
their own in the vessels.29 Private respondents also argue that the dismissal by the Court of Appeals of the petition for
certiorari was justified because there was neither allegation nor any showing whatsoever by the petitioners that they had no
appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law from the Order of the trial judge denying
their Motion to Dismiss; that the remedy available to the petitioners after their Motion to Dismiss was denied was to file an
Answer to the complaint;30 that as upheld by the Court of Appeals, the decision of the trial court in not applying the principle
of forum non conveniens is in the lawful exercise of its discretion.31 Finally, private respondents aver that the statement of
petitioners that the doctrine of res judicata also applies to foreign judgment is merely an opinion advanced by them and not
based on a categorical ruling of this Court;32 and that herein private respondents did not actually participate in the proceedings
in the foreign courts.33
We deny the petition for lack of merit.
It is a well-settled rule that the order denying the motion to dismiss cannot be the subject of petition for certiorari. Petitioners
should have filed an answer to the complaint, proceed to trial and await judgment before making an appeal. As repeatedly
held by this Court:
"An order denying a motion to dismiss is interlocutory and cannot be the subject of the extraordinary petition
for certiorari or mandamus. The remedy of the aggrieved party is to file an answer and to interpose as defenses the
objections raised in his motion to dismiss, proceed to trial, and in case of an adverse decision, to elevate the entire
case by appeal in due course. xxx Under certain situations, recourse to certiorari or mandamus is considered
appropriate, i.e., (a) when the trial court issued the order without or in excess of jurisdiction; (b) where there is
patent grave abuse of discretion by the trial court; or (c) appeal would not prove to be a speedy and adequate
6
remedy as when an appeal would not promptly relieve a defendant from the injurious effects of the patently
mistaken order maintaining the plaintiff's baseless action and compelling the defendant needlessly to go through a
protracted trial and clogging the court dockets by another futile case."34
Records show that the trial court acted within its jurisdiction when it issued the assailed Order denying petitioners' motion to
dismiss. Does the denial of the motion to dismiss constitute a patent grave abuse of discretion? Would appeal, under the
circumstances, not prove to be a speedy and adequate remedy? We will resolve said questions in conjunction with the issues
raised by the parties.
First issue. Did the trial court commit grave abuse of discretion in refusing to dismiss the complaint on the ground that plaintiffs
have no cause of action against defendants since plaintiffs are merely stockholders of the corporations which are the
registered owners of the vessels and the borrowers of petitioners?
No. Petitioners' argument that private respondents, being mere stockholders of the foreign corporations, have no personalities
to sue, and therefore, the complaint should be dismissed, is untenable. A case is dismissible for lack of personality to sue upon
proof that the plaintiff is not the real party-in-interest. Lack of personality to sue can be used as a ground for a Motion to
Dismiss based on the fact that the complaint, on the face thereof, evidently states no cause of action. 35 In San Lorenzo Village
Association, Inc. vs. Court of Appeals, 36 this Court clarified that a complaint states a cause of action where it contains three
essential elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or omission of the defendant in violation of said legal right. If these elements are absent, the
complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action.37 To emphasize, it is
not the lack or absence of cause of action that is a ground for dismissal of the complaint but rather the fact that the complaint
states no cause of action.38 "Failure to state a cause of action" refers to the insufficiency of allegation in the pleading, unlike
"lack of cause of action" which refers to the insufficiency of factual basis for the action. "Failure to state a cause of action" may
be raised at the earliest stages of an action through a motion to dismiss the complaint, while "lack of cause of action" may be
raised any time after the questions of fact have been resolved on the basis of stipulations, admissions or evidence presented.39
In the case at bar, the complaint contains the three elements of a cause of action. It alleges that: (1) plaintiffs, herein private
respondents, have the right to demand for an accounting from defendants (herein petitioners), as trustees by reason of the
fiduciary relationship that was created between the parties involving the vessels in question; (2) petitioners have the
obligation, as trustees, to render such an accounting; and (3) petitioners failed to do the same.
Petitioners insist that they do not have any obligation to the private respondents as they are mere stockholders of the
corporation; that the corporate entities have juridical personalities separate and distinct from those of the private
respondents. Private respondents maintain that the corporations are wholly owned by them and prior to the incorporation of
such entities, they were clients of petitioners which induced them to acquire loans from said petitioners to invest on the
additional ships.
We agree with private respondents. As held in the San Lorenzo case,40
"xxx assuming that the allegation of facts constituting plaintiffs' cause of action is not as clear and categorical as
would otherwise be desired, any uncertainty thereby arising should be so resolved as to enable a full inquiry into
the merits of the action."
As this Court has explained in the San Lorenzo case, such a course, would preclude multiplicity of suits which the law abhors,
and conduce to the definitive determination and termination of the dispute. To do otherwise, that is, to abort the action on
account of the alleged fatal flaws of the complaint would obviously be indecisive and would not end the controversy, since the
institution of another action upon a revised complaint would not be foreclosed.41
Second Issue. Should the complaint be dismissed on the ground of forum non-conveniens?
No. The doctrine of forum non-conveniens, literally meaning 'the forum is inconvenient', emerged in private international law
to deter the practice of global forum shopping,42 that is to prevent non-resident litigants from choosing the forum or place
wherein to bring their suit for malicious reasons, such as to secure procedural advantages, to annoy and harass the defendant,
to avoid overcrowded dockets, or to select a more friendly venue. Under this doctrine, a court, in conflicts of law cases, may
refuse impositions on its jurisdiction where it is not the most "convenient" or available forum and the parties are not precluded
from seeking remedies elsewhere.43
Whether a suit should be entertained or dismissed on the basis of said doctrine depends largely upon the facts of the particular
case and is addressed to the sound discretion of the trial court. 44 In the case of Communication Materials and Design, Inc. vs.
Court of Appeals,45 this Court held that "xxx [a Philippine Court may assume jurisdiction over the case if it chooses to do so;
provided, that the following requisites are met: (1) that the Philippine Court is one to which the parties may conveniently
resort to; (2) that the Philippine Court is in a position to make an intelligent decision as to the law and the facts; and, (3) that
the Philippine Court has or is likely to have power to enforce its decision." 46 Evidently, all these requisites are present in the
instant case.
Moreover, this Court enunciated in Philsec. Investment Corporation vs. Court of Appeals, 47 that the doctrine of forum non
conveniens should not be used as a ground for a motion to dismiss because Sec. 1, Rule 16 of the Rules of Court does not
include said doctrine as a ground. This Court further ruled that while it is within the discretion of the trial court to abstain from
assuming jurisdiction on this ground, it should do so only after vital facts are established, to determine whether special
circumstances require the court's desistance; and that the propriety of dismissing a case based on this principle of forum non
conveniens requires a factual determination, hence it is more properly considered a matter of defense.48
Third issue. Are private respondents guilty of forum shopping because of the pendency of foreign action?
No. Forum shopping exists where the elements of litis pendentia are present and where a final judgment in one case will
amount to res judicata in the other.49 Parenthetically, for litis pendentia to be a ground for the dismissal of an action there
must be: (a) identity of the parties or at least such as to represent the same interest in both actions; (b) identity of rights
asserted and relief prayed for, the relief being founded on the same acts; and (c) the identity in the two cases should be such
that the judgment which may be rendered in one would, regardless of which party is successful, amount to res judicata in the
other.50
In case at bar, not all the requirements for litis pendentia are present. While there may be identity of parties, notwithstanding
the presence of other respondents, 51 as well as the reversal in positions of plaintiffs and defendants 52, still the other
requirements necessary for litis pendentia were not shown by petitioner. It merely mentioned that civil cases were filed in
Hongkong and England without however showing the identity of rights asserted and the reliefs sought for as well as the
presence of the elements of res judicata should one of the cases be adjudged.
7
As the Court of Appeals aptly observed:
"xxx [T]he petitioners, by simply enumerating the civil actions instituted abroad involving the parties herein xxx,
failed to provide this Court with relevant and clear specifications that would show the presence of the above-
quoted elements or requisites for res judicata. While it is true that the petitioners in their motion for
reconsideration (CA Rollo, p. 72), after enumerating the various civil actions instituted abroad, did aver that "Copies
of the foreign judgments are hereto attached and made integral parts hereof as Annexes 'B', 'C', 'D' and 'E'", they
failed, wittingly or inadvertently, to include a single foreign judgment in their pleadings submitted to this Court as
annexes to their petition. How then could We have been expected to rule on this issue even if We were to hold that
foreign judgments could be the basis for the application of the aforementioned principle of res judicata?"53
Consequently, both courts correctly denied the dismissal of herein subject complaint.
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioners.
SO ORDERED.
G.R. No. 117932 July 20, 1995
AVON DALE GARMENTS, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LILIA DUMANTAY, ET AL., respondents.
RESOLUTION
FRANCISCO, J.:
This special civil action for certiorari seeks to set aside the decision of the National Labor Relations Commission, dated August
31, 1994, in NLRC CA 005068-93, for allegedly having been rendered with grave abuse of discretion.
Private respondents were employees of petitioner Avon Dale Garments, Inc. and its predecessor-in-interest, Avon Dale Shirt
Factory. Following a dispute brought about by the rotation of workers, a compromise agreement was entered into between
petitioner and private respondents wherein the latter were terminated from service and given their corresponding separation
pay.
However, upon refusal of the petitioner to include in the computation of private respondents' separation pay the period during
which the latter were employed by Avon Dale Shirt Factory, private respondents filed a complaint with the labor arbiter
claiming a deficiency in their separation pay (docketed as NLRC-NCR-00-02-00810-93). According to private respondents, their
previous employment with petitioner's predecessor-in-interest, Avon Dale Shirt Factory, should be credited in computing their
separation pay considering that Avon Dale Shirt factory was not dissolved and they were not in turn hired as new employees by
Avon Dale Garments, Inc.
In its decision dated May 14, 1993, the labor arbiter dismissed private respondents' complaint and held that Avon Dale Shirt
Factory and Avon Dale Garments, Inc. are not one and the same entity as the former was in fact dissolved on December 27,
1978, when it filed its Articles of Dissolution with the Securities and Exchange Commission.1
Private respondents appealed to the NLRC and the latter reversed the decision of the labor arbiter after finding that upon
dissolution of Avon Dale Shirt Factory, Inc., there was no showing that its terminated employees, as creditors insofar as their
separation pay were concerned, were ever paid. Thus, petitioner Avon Dale Garments, Inc., as successor-in-interest, was held
liable for private respondents' unpaid claim.2
The instant petition is now brought before us by petitioner Avon Dale Garments, Inc., anchored on the sole ground that, as a
separate and distinct entity, it should not be held liable for private respondents' separation pay from Avon Dale Shirt Factory.
Pending resolution of the instant petition, counsel for private respondents, instead of filing a comment to the petition, filed a
Manifestation indicating that the parties have already reached an amicable settlement on December 27, 1994, wherein private
respondents were paid their corresponding separation pay, after which, they executed a waiver and quitclaim. 3 It appeared
however, upon verification by the Office of the Solicitor General, that the aforementioned compromise agreement was
executed between the parties without the knowledge and participation of the NLRC.4
The established rule is that compromise agreements involving labor standard cases, like the one entered into by the parties
herein, must be reduced in writing and signed in the presence of the Regional Director or his duly authorized representative.
Otherwise, they are not deemed to be duly executed.5 For this reason, the compromise agreement submitted by private
respondents' counsel cannot be recognized by this court for being improperly executed.
Nevertheless, we find the petition to be without merit as the assailed decision is in complete accord with the law and evidence
on record.
Petitioner failed to establish that Avon Dale Garments, Inc., is a separate and distinct entity from Avon Dale Shirt Factory,
absent any showing that there was indeed an actual closure and cessation of the operations of the latter. The mere filing of the
Articles of Dissolution with the Securities and Exchange Commission, without more, is not enough to support the conclusion
that actual dissolution of an entity in fact took place.
On the contrary, the prevailing circumstances in this case indicated that petitioner company is not distinct from its predecessor
Avon Dale Shirt Factory, but in fact merely continued the operations of the latter under the same owners, the same business
venture, at same address6, and even continued to hire the same employees (herein private respondents).
Thus, conformably with established jurisprudence, the two entities cannot be deemed as separate and distinct where there is a
showing that one is merely the continuation of the other.7 In fact, even a change in the corporate name does not make a new
corporation, whether effected by a special act or under a general law, it has no effect on the identity of the corporation, or on
its property, rights, or liabilities.8 Respondent NLRC therefore, did not commit any grave abuse of discretion in holding that
8

petitioner should likewise include private respondents' employment with Avon Dale Shirt Factory in computing private Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal
respondents' separation pay as petitioner failed to substantiate its claim that it is a distinct entity. holiday pay, overtime pay and thirteenth-month pay against petitioner.

ACCORDINGLY, the instant petition is hereby DISMISSED. On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to reinstate private respondents and to pay
them back wages equivalent to one year or three hundred working days.
G.R. No. 108734 May 29, 1996
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by
petitioner on the ground that the said decision had already become final and executory.2
CONCEPT BUILDERS, INC., petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo Raquel, Cristobal Riego, On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents' back wages
Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, amounted to P199,800.00.3
Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino
Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated
December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioner's debtor, the Metropolitan
  Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC.

HERMOSISIMA, JR., J.:p
The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a
person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought
to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will
regard the corporation as a mere association of persons and, in case of two corporations, merge them into one.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein
petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to
their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the
security guard on duty but the service was refused on the ground that petitioner no longer occupied the premises.

Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the corporation On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution.
may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the
corporate veil comes into play.
The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989:

This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave
1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were
abuse of discretion when it issued a "break-open order" to the sheriff to be enforced against personal property found in the
employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;
premises of petitioner's sister company.

2. Levy was made upon personal properties he found in the premises;

Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila,
is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and
riggers. 3. Security guards with high-powered guns prevented him from removing the properties he had levied upon.4

On November, 1981, private respondents were served individual written notices of termination of employment by petitioner, The said special sheriff recommended that a "break-open order" be issued to enable him to enter petitioner's premises so that
effective on November 30, 1981. It was stated in the individual notices that their contracts of employment had expired and the he could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989.
project in which they were hired had been completed.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties
Public respondent found it to be, the fact, however, that at the time of the termination of private respondent's employment, sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.
the project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-
contractors whose workers performed the functions of private respondents.
9

On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI and 3. Corporate Officers
petitioner corporation were owned by the same incorporator/stockholders. They also alleged that petitioner temporarily
suspended its business operations in order to evade its legal obligations to them and that private respondents were willing to
Antonio W. Lim President
post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-
open order.
Dennis S. Cuyegkeng Assistant to the President
In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet,
dated May 15, 1987, submitted by petitioner to the Securities Exchange Commission (SEC) and the General Information Sheet, Elisa O. Lim Treasurer
dated May 25, 1987, submitted by HPPI to the Securities and Exchange Commission.
Virgilio O. Casino Corporate Secretary
The General Information Sheet submitted by the petitioner revealed the following:
4. Principal Office
1. Breakdown of Subscribed Capital
355 Maysan Road
Name of Stockholder Amount Subscribed
Valenzuela, Metro Manila.5
HPPI P 6,999,500.00
On the other hand, the General Information Sheet of HPPI revealed the following:
Antonio W. Lim 2,900,000.00
1. Breakdown of Subscribed Capital
Dennis S. Cuyegkeng 300.00
Name of Stockholder Amount Subscribed
Elisa C. Lim 100,000.00
Antonio W. Lim P 400,000.00
Teodulo R. Dino 100.00
Elisa C. Lim 57,700.00
Virgilio O. Casino 100.00
AWL Trading 455,000.00
2. Board of Directors
Dennis S. Cuyegkeng 40,100.00
Antonio W. Lim Chairman
Teodulo R. Dino 100.00
Dennis S. Cuyegkeng Member
Virgilio O. Casino 100.00
Elisa C. Lim Member
2. Board of Directors
Teodulo R. Dino Member
Antonio W. Lim Chairman
Virgilio O. Casino Member
Elisa C. Lim Member
10
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa C. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila.6
On February 1, 1990, HPPI filed an Opposition to private respondents' motion for issuance of a break-open order, contending
that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two corporations are
engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in
construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents' motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter, issued a
break-open order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed with the
auction sale of the properties already levied upon. It dismissed the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a
third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not
have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private
respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business
which is distinct and separate from petitioner's construction business. Hence, it is of no consequence that petitioner and HPPI
shared the same premises, the same President and the same set of officers and subscribers.7
We find petitioner's contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and
from other corporations to which it may be connected.8 But, this separate and distinct personality of a corporation is merely a
fiction created by law for convenience and to promote justice.9 So, when the notion of separate juridical personality is used to
defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws,10 this
separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. 11 This is true likewise when
the corporation is merely an adjunct, a business conduit or an alter ego of another corporation.12
The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of
each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that
will justify the application of the doctrine of piercing the corporate veil, to wit:
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.
4. Methods of conducting the business.13
The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding the separate juridical
personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a
mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality"
may be disregarded. The control necessary to invoke the rule is not majority or even complete stock
control but such domination of instances, policies and practices that the controlled corporation has, so
to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be
kept in mind that the control must be shown to have been exercised at the time the acts complained of
took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for
which the complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete domination, not only of finances
but of policy and business practice in respect to the transaction attacked 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
plaintiff's legal rights; and
11
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 that operation.14
Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is
purely one of fact.15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an
Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355
Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a
similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casiño as the corporate secretary of both
corporations. It would also not be amiss to note that both corporations had the same president,
the same board of directors, the same corporate officers, and substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the
third-party claimant shared the same address and/or premises. Under this circumstances, (sic) it cannot
be said that the property levied upon by the sheriff were not of respondents.16
Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back wages and to
bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its
emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial Relations, 17 where we had the occasion to rule:
Respondent court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation of
June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up
to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioner. It is
very clear that the latter corporation was a continuation and successor of the first entity . . . . Both
predecessors and successor were owned and controlled by petitioner Eduardo Claparols and there was
no break in the succession and continuity of the same business. This "avoiding-the-liability" scheme is
very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation
(the second corporation) was owned by respondent . . . Claparols himself, and all the assets of the
dissolved Claparols Steel and Nail plant were turned over to the emerging Claparols Steel Corporation.
It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose
veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to
evade its financial obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private
respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for
lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which
provides that:
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative
entry to the place where the property subject of execution is located or kept, the judgment creditor may
apply to the Commission or Labor Arbiter concerned for a break-open order.
Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied with.
Petitioner and the third-party claimant were given the opportunity to submit evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor
Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by substantial
evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave abuse of a discretion.18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December 3, 1992,
are AFFIRMED.
First Philippine International Bank vs Court of Appeals
252 SCRA 259 [GR No. 115849 January 24, 1996]
Facts: In the course of its banking operations, the defendant Producer Bank of the Philippines acquired 6 parcels of land with a
total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna and covered by TCT No. T-106932 to T-106937. The property
used to be owned by BYME Investment and Development Corporation which hd them mortgaged with the bank as collateral
for a loan. The plaintiff originals, Demetrio Demetria and Jose Janolo wanted to purchase the property and thus initiated
negotiations for that purpose. In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment’s legal
counsel, Fajardo met with defendant Mercurio Rivera, manager of the property management department of the defendant
bank. The meeting was held in pursuant to plaintiffs’ plan to buy the property. After the meeting, plaintiff Janolo, following the
advice of defendant Rivera made a formal purchase offer to the Bank through a letter dated August 30,1987. Negotiations took
place and an offer price was fixed at P5.5million. During the course of the negotiations, the defendant bank was placed under
conservatorship and a new conservator was appointed to which the name has been refused to recognize. A derivative suit has
been filed against Rivera for the damages suffered from the alleged perfect contract of sale involving the 6 parcels of land.
Issue: Whether or not a derivative suit may lie involving the bank and its stockholders.
12

Held: No. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he hold
stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones,
to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party with the QUISUMBING, J.:
corporation as the real party in interest.

In the face of the damaging admissions taken from the complaint in the second case, petitioners, quite strangely, sought to 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
deny that the second case was a derivative suit, reasoning that it was brought not by the minority shareholders, but by Henry in C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135, Regional Trial Court of Makati, Metro Manila. The
Co. etal. who not only hold or control over 80% of the outstanding capital stock, but also constitute the majority in the board of procedural antecedents of this petition are as follows:chanrob1es virtual 1aw library
directors of petitioners bank. That being so, then they really represent the bank, so whether they sued derivatively or directly,
there is undeniably an identity of interest/entity represented. 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
In addition to the many cases, where the corporate fiction has been regarded, we now add the instant case, and declare additional sum of twenty thousand four hundred fifty-four and eighty centavos (P20,454.80) representing the unpaid balance
herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum 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
shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative suit, cannot be balance on the price of jeep body were added the costs of repair. 4 In their answer, private respondents interposed a
allowed to trifle with court processes particularly where, as in this case, the corporation itself has not been remiss in vigorously counterclaim for unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which was not paid
prosecuting or defending corporate causes and in using and applying remedies available to it. To rule otherwise would be to by the incorporators, directors and officers of the petitioner. The trial court decided the case on June 26, 1985, in favor of
encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping. 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.chanrobles virtual lawlibrary
From the facts, the official bank price, at any rte, the bank placed its official, Rivera is a position of authority to accept offers to
buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around and say, as it
For our review in particular is the propriety of the permissive counterclaim which private respondents filed together with their
now does, that what Rivera states as the bank’s action on the matter is not in fact so. It is a familiar doctrine, the doctrine of
answer to petitioner’s complaint for a sum of money. Private respondent Gregorio Manuel alleged as an affirmative defense
ostensible authority, that if a corporation on knowingly permits one of its officers, or any other agent, to do acts within the
that, while he was petitioner’s Assistant Legal Officer, he represented members of the Francisco family in the intestate estate
scope of apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as
proceedings of the late Benita Trinidad. However, even after the termination of the proceedings, his services were not paid.
against any one who has in good faith dealt with the corporation through such agent, he estopped from denying his authority.
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
A bank is liable for wrongful acts of its officers done in the interest of the bank or in he course of dealings of the officers in their
representative capacity but not for acts outside the scope of their authority. A bank holding out its officers and agents as For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this score, and evidence
worthy of confidence will not be permitted to profit by the frauds they my thus be enabled to perpetrate in the apparent scope ex-parte was presented on the counterclaim. The trial court ruled in favor of private respondents and found that Gregorio
of their employment; nor will it be permitted to shrink its responsibility for such fraud even through no benefit may accrue to Manuel indeed rendered legal services to the Francisco family in Special Proceedings Number 7803- "In the Matter of Intestate
the bank therefrom. Accordingly, a banking corporation is liable to innocent third persons where the representation is made in Estate of Benita Trinidad." Said court also found that his legal services were not compensated despite repeated demands, and
the course of its business by an agent acting within the general scope of its authority even though, in the particular case, the thus ordered petitioner to pay him the amount of fifty thousand (P50,000.00) pesos. 7
agent is secretly abusing his authority and attempting to perpetrate fraud upon his principal or some other person, for his own
ultimate benefit. Dissatisfied with the trial court’s order, petitioner elevated the matter to the Court of Appeals, posing the following
issues:chanrobles virtual lawlibrary
Section 28-A of BP 68 merely gives the conservator power to revoke contracts that are, under existing law, deemed not to be
effective – i.e void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank’s board of "I.
directors. What the said board cannot do – such as repudiating a contract validly entered into under the doctrine of implied
authority – the conservator cannot do either.
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.
FRANCISCO MOTORS CORPORATION, Petitioner, v. COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA
MANUEL, Respondents. II.

DECISION
13

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. Now before us, petitioner assigns the following errors:chanrob1es virtual 1aw library

III. "I.

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE ALLEGED PERMISSIVE THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY.chanrobles virtual
COUNTERCLAIM." 8 lawlibrary

Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly served on it II.
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. THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER WITH RESPECT TO THE
COUNTERCLAIM." 13
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 Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because the
needed to be summoned anew if a counterclaim was set up against him. Failure to serve summons, said respondent court, did transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. According to petitioner,
not effectively negate trial court’s jurisdiction over petitioner in the matter of the counterclaim. It likewise pointed out that there was no cause of action by said respondent against petitioner; personal concerns of the heirs should be distinguished
there was no reason for petitioner to be excused from answering the counterclaim. Court records showed that its former from those involving corporate affairs. Petitioner further contends that the present case does not fall among the instances
counsel, Nicanor G. Alvarez, received the copy of the answer with counterclaim two (2) days prior to his withdrawal as counsel wherein the courts may look beyond the distinct personality of a corporation. According to petitioner, the services for which
for petitioner. Moreover when petitioner’s new counsel, Jose N. Aquino, entered his appearance, three (3) days still remained respondent Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers the heirs should have
within the period to file an answer to the counterclaim. Having failed to answer, petitioner was correctly considered in default been sued in their personal capacity, and not involve the corporation. 14
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 With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the answer containing
questioning the trial court’s jurisdiction. 10 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
On the question of its liability for attorney’s fees owing to private respondent Gregorio Manuel, petitioner argued that being a arise out of nor is necessarily connected with the subject of the opposing party’s claim. Petitioner avers that since there was no
corporation, it should not be held liable therefor because these fees were owed by the incorporators, directors and officers of service of summons upon it with regard to the counterclaim, then the court did not acquire jurisdiction over petitioner. Since a
the corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed that the personality of the counterclaim is considered an action independent from the answer, according to petitioner, then in effect there should be two
corporation, vis-à-vis the individual persons who hired the services of private respondent, is separate and distinct, 11 hence, simultaneous actions between the same parties: each party is at the same time both plaintiff and defendant with respect to
the liability of said individuals did not become an obligation chargeable against petitioner.chanroblesvirtual|awlibrary the other, 15 requiring in each case separate summonses.

Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:jgc:chanrobles.com.ph 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
"However, this distinct and separate personality is merely a fiction created by law for convenience and to promote justice. counterclaim contained in the answer.
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 Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was employed as
when necessary for the protection of creditors. (Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA 347) Corporations are composed assistant legal officer of petitioner corporation, and that his services were solicited by the incorporators, directors and
of natural persons and the legal fiction of a separate corporate personality is not a shield for the commission of injustice and members to handle and represent them in Special Proceedings No. 7803, concerning the Intestate Estate of the late Benita
inequity. (Chemplex Philippines, Inc. v. Pamatian, 57 SCRA 408) 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
"In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed of the heirs of the services. They cite findings of the appellate court that support piercing the veil of corporate identity in this particular case.
late Benita Trinidad as directors and incorporators for whom defendant Gregorio Manuel rendered legal services in the They assert that the corporate veil may be disregarded when it is used to defeat public convenience, justify wrong, protect
intestate estate case of their deceased mother. Considering the aforestated principles and circumstances established in this fraud, and defend crime. It may also be pierced, according to them, where the corporate entity is being used as an alter ego,
case, equity and justice demands plaintiff-appellant’s veil of corporate identity should be pierced and the defendant be adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity. In these instances, they
compensated for legal services rendered to the heirs, who are directors of the plaintiff-appellant corporation." 12 aver, the corporation should be treated merely as an association of individual persons. 16chanrobles law library : red
14

Private respondents dispute petitioner’s claim that its right to due process was violated when respondents’ counterclaim was in assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise an injustice, although
granted due course, although no summons was served upon it. They claim that no provision in the Rules of Court requires unintended, may result from its erroneous application.chanroblesvirtualawlibrary
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 The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be
on it was no longer necessary. Private respondents say they served a copy of their answer with affirmative defenses and kept separate in this case. The claim for legal fees against the concerned individual incorporators, officers and directors could
counterclaim on petitioner’s former counsel, Nicanor G. Alvarez. While petitioner would have the Court believe that not be properly directed against the corporation without violating basic principles governing corporations. Moreover, every
respondents served said copy upon Alvarez after he had withdrawn his appearance as counsel for the petitioner, private action — including a counterclaim — must be prosecuted or defended in the name of the real party in interest. 20 It is plainly
respondents assert that this contention is utterly baseless. Records disclose that the answer was received two (2) days before an error to lay the claim for legal fees of private respondent Gregorio Manuel at the door of petitioner (FMC) rather than
the former counsel for petitioner withdrew his appearance, according to private respondents. They maintain that the present individual members of the Francisco family.
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 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
To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate fiction. 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.
Basic in corporation law is the principle that a corporation has a separate personality distinct from its stockholders and from The purpose of a summons is to enable the court to acquire jurisdiction over the person of the defendant. Although a
other corporations to which it may be connected. 18 However, under the doctrine of piercing the veil of corporate entity, the counterclaim is treated as an entirely distinct and independent action, the defendant in the counterclaim, being the plaintiff in
corporation’s separate juridical personality may be disregarded, for example, when the corporate identity is used to defeat the original complaint, has already submitted to the jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of
public convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation is a mere alter ego or business Civil Procedure, 21 if a defendant (herein petitioner) fails to answer the counterclaim, then upon motion of plaintiff, the
conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it defendant may be declared in default. This is what happened to petitioner in this case, and this Court finds no procedural error
merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be ignored. 19 in the disposition of the appellate court on this particular issue. Moreover, as noted by the respondent court, when petitioner
In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly 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
attach to them. The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy and in by respondent court:jgc:chanrobles.com.ph
the interest of justice, will be justifiably set aside.
"Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its request, plaintiff-appellant
In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no relevant was granted time to file a motion for reconsideration of the disputed decision. Plaintiff-appellant did file its motion for
application here. Respondent court erred in permitting the trial court’s resort to this doctrine. The rationale behind piercing a reconsideration to set aside the order of default and the judgment rendered on the counterclaim.
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 "Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it vigorously insists, plaintiff-
proscribed activities. However, in the case at bar, instead of holding certain individuals or persons responsible for an alleged appellant is considered to have submitted to the court’s jurisdiction when it filed the motion for reconsideration seeking relief
corporate act, the situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the from the court. (Soriano v. Palacio, 12 SCRA 447). A party is estopped from assailing the jurisdiction of a court after voluntarily
personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine submitting himself to its jurisdiction. (Tejones v. Gironella, 159 SCRA 100). Estoppel is a bar against any claims of lack of
has been turned upside down because of its erroneous invocation. Note that according to private respondent Gregorio Manuel jurisdiction. (Balais v. Balais, 159 SCRA 37)." 22chanrobles virtual lawlibrary
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. 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
Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitioner prejudice to his filing the proper suit against the concerned members of the Francisco family in their personal capacity. No
corporation on the claims that its management had requested his services and he acceded thereto as an employee of pronouncement as to costs.
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 SO ORDERED.
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
G.R. Nos. 116124-25               November 22, 2000
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 BIBIANO O. REYNOSO, IV, petitioner,
officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation vs.
are unable to compensate a party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION, respondents.
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
15
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the consolidated decision of the Court of Appeals dated July 7, 1994, which reversed the
separate decisions of the Regional Trial Court of Pasig City and the Regional Trial Court of Quezon City in two cases between
petitioner Reynoso and respondent General Credit Corporation (GCC).
Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, "CCC"), a financing and investment firm, decided
to organize franchise companies in different parts of the country, wherein it shall hold thirty percent (30%) equity. Employees
of the CCC were designated as resident managers of the franchise companies. Petitioner Bibiano O. Reynoso, IV was
designated as the resident manager of the franchise company in Quezon City, known as the Commercial Credit Corporation of
Quezon City (hereinafter, "CCC-QC").
CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted the management and full
control of the business activities of the former. Under the contract, CCC-QC shall sell, discount and/or assign its receivables to
CCC. Subsequently, however, this discounting arrangement was discontinued pursuant to the so-called "DOSRI Rule",
prohibiting the lending of funds by corporations to its directors, officers, stockholders and other persons with related interests
therein.
On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule, CCC decided to form CCC
Equity Corporation, (hereinafter, "CCC-Equity"), a wholly-owned subsidiary, to which CCC transferred its thirty (30%) percent
equity in CCC-QC, together with two seats in the latter’s Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner Reynoso, became employees of
CCC-Equity. While petitioner continued to be the Resident Manager of CCC-QC, he drew his salaries and allowances from CCC-
Equity. Furthermore, although an employee of CCC-Equity, petitioner, as well as all employees of CCC-QC, became qualified
members of the Commercial Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised its employees. The business
activities of CCC-QC pertain to the acceptance of funds from depositors who are issued interest-bearing promissory notes. The
amounts deposited are then loaned out to various borrowers. Petitioner, in order to boost the business activities of CCC-QC,
deposited his personal funds in the company. In return, CCC-QC issued to him its interest-bearing promissory notes.
On August 15, 1980, a complaint for sum of money with preliminary attachment, 1 docketed as Civil Case No. Q-30583, was
instituted in the then Court of First Instance of Rizal by CCC-QC against petitioner, who had in the meantime been dismissed
from his employment by CCC-Equity. The complaint was subsequently amended in order to include Hidelita Nuval, petitioner’s
wife, as a party defendant.2 The complaint alleged that petitioner embezzled the funds of CCC-QC amounting to P1,300,593.11.
Out of this amount, at least P630,000.00 was used for the purchase of a house and lot located at No. 12 Macopa Street, Valle
Verde I, Pasig City. The property was mortgaged to CCC, and was later foreclosed.
In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and asserted that the sum of P1,300,593.11
represented his money placements in CCC-QC, as shown by twenty-three (23) checks which he issued to the said company.3
The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86, pursuant to the Judiciary
Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its decision, the decretal portion of which states:
Premises considered, the Court finds the complaint without merit. Accordingly, said complaint is hereby DISMISSED.
By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation, humiliation and mental anguish.
On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby ordered:
a) to pay defendant the sum of P185,000.00 plus 14% interest per annum from October 2, 1980 until fully paid;
b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per annum from June 24, 1981, the date
of filing of Amended Answer, until fully paid; from this amount may be deducted the remaining obligation of
defendant under the promissory note of October 24, 1977, in the sum of P9,738.00 plus penalty at the rate of 1%
per month from December 24, 1977 until fully paid;
c) to pay defendants P200,000.00 as moral damages;
d) to pay defendants P100,000.00 as exemplary damages;
e) to pay defendants P25,000.00 as and for attorney's fees; plus costs of the suit.
SO ORDERED.
Both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial Credit Corporation of Quezon City
was dismissed for failure to pay docket fees. Petitioner, on the other hand, withdrew his appeal.
Hence, the decision became final and, accordingly, a Writ of Execution was issued on July 24, 1989. 4 However, the judgment
remained unsatisfied,5 prompting petitioner to file a Motion for Alias Writ of Execution, Examination of Judgment Debtor, and
to Bring Financial Records for Examination to Court. CCC-QC filed an Opposition to petitioner’s motion, 6 alleging that the
possession of its premises and records had been taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
On November 22, 1991, the Regional Trial Court of Quezon City issued an Order directing General Credit Corporation to file its
comment on petitioner’s motion for alias writ of execution.7 General Credit Corporation filed a Special Appearance and
Opposition on December 2, 1991,8 alleging that it was not a party to the case, and therefore petitioner should direct his claim
against CCC-QC and not General Credit Corporation. Petitioner filed his reply,9 stating that the CCC-QC is an adjunct
instrumentality, conduit and agency of CCC. Furthermore, petitioner invoked the decision of the Securities and Exchange
16
Commission in SEC Case No. 2581, entitled, "Avelina G. Ramoso, et al., Petitioner versus General Credit Corp., et al.,
Respondents," where it was declared that General Credit Corporation, CCC-Equity and other franchised companies including
CCC-QC were declared as one corporation.
On December 9, 1991, the Regional Trial Court of Quezon City ordered the issuance of an alias writ of execution. 10 On
December 20, 1991, General Credit Corporation filed an Omnibus Motion, 11 alleging that SEC Case No. 2581 was still pending
appeal, and maintaining that the levy on properties of the General Credit Corporation by the deputy sheriff of the court was
erroneous.
In his Opposition to the Omnibus Motion, petitioner insisted that General Credit Corporation is just the new name of
Commercial Credit Corporation; hence, General Credit Corporation and Commercial Credit Corporation should be treated as
one and the same entity.
On February 13, 1992, the Regional Trial Court of Quezon City denied the Omnibus Motion. 12 On March 5, 1992, it issued an
Order directing the issuance of an alias writ of execution.13
Previously, on February 21, 1992, General Credit Corporation instituted a complaint before the Regional Trial Court of Pasig
against Bibiano Reynoso IV and Edgardo C. Tanangco, in his capacity as Deputy Sheriff of Quezon City, 14 docketed as Civil Case
No. 61777, praying that the levy on its parcel of land located in Pasig, Metro Manila and covered by Transfer Certificate of Title
No. 29940 be declared null and void, and that defendant sheriff be enjoined from consolidating ownership over the land and
from further levying on other properties of General Credit Corporation to answer for any liability under the decision in Civil
Case No. Q-30583.
The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining order. Thus, General Credit Corporation
instituted two (2) petitions for certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 2751815 and CA-G.R. SP No.
27683. These cases were later consolidated.
On July 7, 1994, the Court of Appeals rendered a decision in the two consolidated cases, the dispositive portion of which reads:
WHEREFORE, in SP No. 27518 we declare the issue of the respondent court's refusal to issue a restraining order as having been
rendered moot by our Resolution of 7 April 1992 which, by way of injunctive relief, provided that "the respondents and their
representatives are hereby enjoined from conducting an auction sale (on execution) of petitioner's properties as well as
initiating similar acts of levying (upon) and selling on execution other properties of said petitioner". The injunction thus
granted, as modified by the words in parenthesis, shall remain in force until Civil Case No. 61777 shall have been finally
terminated.
In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY and SET ASIDE, for having been issued in excess of
jurisdiction, the Order of 13 February 1992 in Civil Case No. Q-30583 as well as any other order or process through which the
petitioner is made liable under the judgment in said Civil Case No. Q-30583.
No damages and no costs.
SO ORDERED.16
Hence, this petition for review anchored on the following arguments:
1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27683 WHEN IT NULLIFIED AND SET ASIDE THE 13
FEBRUARY 1992 ORDER AND OTHER ORDERS OR PROCESS OF BRANCH 86 OF THE REGIONAL TRIAL COURT OF
QUEZON CITY THROUGH WHICH GENERAL CREDIT CORPORATION IS MADE LIABLE UNDER THE JUDGMENT THAT
WAS RENDERED IN CIVIL CASE NO. Q-30583.
2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27518 WHEN IT ENJOINED THE AUCTION SALE ON
EXECUTION OF THE PROPERTIES OF GENERAL CREDIT CORPORATION AS WELL AS INITIATING SIMILAR ACTS OF
LEVYING UPON AND SELLING ON EXECUTION OF OTHER PROPERTIES OF GENERAL CREDIT CORPORATION.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT GENERAL CREDIT CORPORATION IS A STRANGER
TO CIVIL CASE NO. Q-30583, INSTEAD OF, DECLARING THAT COMMERCIAL CREDIT CORPORATION OF QUEZON CITY
IS THE ALTER EGO, INSTRUMENTALITY, CONDUIT OR ADJUNCT OF COMMERCIAL CREDIT CORPORATION AND ITS
SUCCESSOR GENERAL CREDIT CORPORATION.
At the outset, it must be stressed that there is no longer any controversy over petitioner’s claims against his former employer,
CCC-QC, inasmuch as the decision in Civil Case No. Q-30583 of the Regional Trial Court of Quezon City has long become final
and executory. The only issue, therefore, to be resolved in the instant petition is whether or not the judgment in favor of
petitioner may be executed against respondent General Credit Corporation. The latter contends that it is a corporation
separate and distinct from CCC-QC and, therefore, its properties may not be levied upon to satisfy the monetary judgment in
favor of petitioner. In short, respondent raises corporate fiction as its defense. Hence, we are necessarily called upon to apply
the doctrine of piercing the veil of corporate entity in order to determine if General Credit Corporation, formerly CCC, may be
held liable for the obligations of CCC-QC.
The petition is impressed with merit.
A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and
properties expressly authorized by law or incident to its existence. 17 It is an artificial being invested by law with a personality
separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be
related.18 It was evolved to make possible the aggregation and assembling of huge amounts of capital upon which big business
depends. It also has the advantage of non-dependence on the lives of those who compose it even as it enjoys certain rights and
conducts activities of natural persons.
Precisely because the corporation is such a prevalent and dominating factor in the business life of the country, the law has to
look carefully into the exercise of powers by these artificial persons it has created.
Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to use its supervisory and
adjudicative powers where the corporate fiction is used as an unfair device to achieve an inequitable result, defraud creditors,
evade contracts and obligations, or to shield it from the effects of a court decision. The corporate fiction has to be disregarded
when necessary in the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al.,19 we held:
17
When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who
compose it will be lifted to allow for its consideration merely as an aggregation of individuals.
Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction in numerous cases where it was
used, among others, to avoid a judgment credit;20 to avoid inclusion of corporate assets as part of the estate of a decedent;21 to
avoid liability arising from debt;22 when made use of as a shield to perpetrate fraud and/or confuse legitimate issues;23 or to
promote unfair objectives or otherwise to shield them.24
In the appealed judgment, the Court of Appeals sustained respondent’s arguments of separateness and its character as a
different corporation which is a non-party or stranger to this case.
The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the
mother corporation to the extent that it becomes an instrument or agent of its parent. But even when there is dominance over
the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to
defeat public convenience, justify wrong, protect fraud or defend crime.25
We stated in Tomas Lao Construction v. National Labor Relations Commission, 26 that the legal fiction of a corporation being a
judicial entity with a distinct and separate personality was envisaged for convenience and to serve justice. Therefore, it should
not be used as a subterfuge to commit injustice and circumvent the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was intended to publicly identify it as
a component of the CCC group of companies engaged in one and the same business, i.e., investment and financing. Aside from
CCC-Quezon City, other franchise companies were organized such as CCC-North Manila and CCC-Cagayan Valley. The
organization of subsidiary corporations as what was done here is usually resorted to for the aggrupation of capital, the ability
to cover more territory and population, the decentralization of activities best decentralized, and the securing of other
legitimate advantages. But when the mother corporation and its subsidiary cease to act in good faith and honest business
judgment, when the corporate device is used by the parent to avoid its liability for legitimate obligations of the subsidiary, and
when the corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to remedy the problem. When
that happens, the corporate character is not necessarily abrogated. It continues for legitimate objectives. However, it is pierced
in order to remedy injustice, such as that inflicted in this case.
Factually and legally, the CCC had dominant control of the business operations of CCC-QC. The exclusive management contract
insured that CCC-QC would be managed and controlled by CCC and would not deviate from the commands of the mother
corporation. In addition to the exclusive management contract, CCC appointed its own employee, petitioner, as the resident
manager of CCC-QC.
Petitioner’s designation as "resident manager" implies that he was placed in CCC-QC by a superior authority. In fact, even after
his assignment to the subsidiary corporation, petitioner continued to receive his salaries, allowances, and benefits from CCC,
which later became respondent General Credit Corporation. Not only that. Petitioner and the other permanent employees of
CCC-QC were qualified members and participants of the Employees Pension Plan of CCC.
There are other indications in the record which attest to the applicability of the identity rule in this case, namely: the unity of
interests, management, and control; the transfer of funds to suit their individual corporate conveniences; and the dominance
of policy and practice by the mother corporation insure that CCC-QC was an instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the same principal line of business involving a single transaction
process. Under their discounting arrangements, CCC financed the operations of CCC-QC. The subsidiary sold, discounted, or
assigned its accounts receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971, shows the pervasive and intensive auditing
function of CCC over CCC-QC.27 The two corporations also shared the same office space. CCC-QC had no office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified by the director-representative of CCC. The
lawyers who filed the complaint and amended complaint were all in-house lawyers of CCC.
The challenged decision of the Court of Appeals states that CCC, now General Credit Corporation, is not a formal party in the
case. The reason for this is that the complaint was filed by CCC-QC against petitioner. The choice of parties was with CCC-QC.
The judgment award in this case arose from the counterclaim which petitioner set up against CCC-QC.
The circumstances which led to the filing of the aforesaid complaint are quite revealing.1âwphi1 As narrated above, the
discounting agreements through which CCC controlled the finances of its subordinates became unlawful when Central Bank
adopted the DOSRI prohibitions. Under this rule the directors, officers, and stockholders are prohibited from borrowing from
their company. Instead of adhering to the letter and spirit of the regulations by avoiding DOSRI loans altogether, CCC used the
corporate device to continue the prohibited practice. CCC organized still another corporation, the CCC-Equity Corporation.
However, as a wholly owned subsidiary, CCC-Equity was in fact only another name for CCC. Key officials of CCC, including the
resident managers of subsidiary corporations, were appointed to positions in CCC-Equity.
In order to circumvent the Central Bank’s disapproval of CCC-QC’s mode of reducing its DOSRI lender accounts and its directive
to follow Central Bank requirements, resident managers, including petitioner, were told to observe a pseudo-compliance with
the phasing out orders. For his unwillingness to satisfactorily conform to these directives and his reluctance to resort to illegal
practices, petitioner earned the ire of his employers. Eventually, his services were terminated, and criminal and civil cases were
filed against him.
Petitioner issued twenty-three checks as money placements with CCC-QC because of difficulties faced by the firm in
implementing the required phase-out program. Funds from his current account in the Far East Bank and Trust Company were
transferred to CCC-QC. These monies were alleged in the criminal complaints against him as having been stolen. Complaints for
qualified theft and estafa were brought by CCC-QC against petitioner.1âwphi1 These criminal cases were later dismissed.
Similarly, the civil complaint which was filed with the Court of First Instance of Pasig and later transferred to the Regional Trial
Court of Quezon City was dismissed, but his counterclaims were granted.
Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed CCC-QC, in obvious fraud of its
creditors. CCC-QC, instead of opposing its closure, cooperated in its own demise. Conveniently, CCC-QC stated in its opposition
to the motion for alias writ of execution that all its properties and assets had been transferred and taken over by CCC.
18
Under the foregoing circumstances, the contention of respondent General Credit Corporation, the new name of CCC, that the
corporate fiction should be appreciated in its favor is without merit.
Paraphrasing the ruling in Claparols v. Court of Industrial Relations, 28 reiterated in Concept Builders Inc. v. National Labor
Relations,29 it is very obvious that respondent "seeks the protective shield of a corporate fiction whose veil the present case
could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation of its employees."
If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt and work an injustice. The decision
raised to us for review is an invitation to multiplicity of litigation. As we stated in Islamic Directorate vs. Court of Appeals, 30 the
ends of justice are not served if further litigation is encouraged when the issue is determinable based on the records.
A court judgment becomes useless and ineffective if the employer, in this case CCC as a mother corporation, is placed beyond
the legal reach of the judgment creditor who, after protracted litigation, has been found entitled to positive relief. Courts have
been organized to put an end to controversy. This purpose should not be negated by an inapplicable and wrong use of the
fiction of the corporate veil.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and ASIDE. The injunction against the holding of an
auction sale for the execution of the decision in Civil Case No. Q-30583 of properties of General Credit Corporation, and the
levying upon and selling on execution of other properties of General Credit Corporation, is LIFTED.
SO ORDERED.
SIMEON DE LEON VS NLRC
This case stemmed from a complaint for illegal dismissal, unfair labor practice and refund of cash bond filed by petitioners
against respondents before the Arbitration Branch of the National Labor Relations Commission (NLRC). The petition at bar
seeks the annulment of the resolution of the NLRC dated July 5, 1993 reversing the decision of the Labor Arbiter finding
respondents liable for the charges, and its resolution dated August 10, 1993 denying petitioners' motion for reconsideration.
The undisputed facts are as follows:
On August 23, 1980, Fortune Tobacco Corporation (FTC) and Fortune Integrated Services, Inc. (FISI) entered into a contract for
security services where the latter undertook to provide security guards for the protection and security of the former. The
petitioners were among those engaged as security guards pursuant to the contract.
On February 1, 1991, the incorporators and stockholders of FISI sold out lock, stock and barrel to a group of new stockholders
by executing for the purpose a "Deed of Sale of Shares of Stock". On the same date, the Articles of Incorporation of FISI was
amended changing its corporate name to Magnum Integrated Services, Inc. (MISI). A new by-laws was likewise adopted and
approved by the Securities and Exchange Commission on June 4, 1993.
On October 15, 1991, FTC terminated the contract for security services which resulted in the displacement of some five
hundred eighty two (582) security guards assigned by FISI/MISI to FTC, including the petitioners in this case. FTC engaged the
services of two (2) other security agencies, Asian Security Agency and Ligalig Security Services, whose security guards were
posted on October 15, 1991 to replace FISI's security guards.
Sometime in October 1991, the Fortune Tobacco Labor Union, an affiliate of the National Federation of Labor Unions (NAFLU),
and claiming to be the bargaining agent of the security guards, sent a Notice of Strike to FISI/MISI. On November 14, 1991, the
members of the union which include petitioners picketed the premises of FTC. The Regional Trial Court of Pasig, however,
issued a writ of injunction to enjoin the picket.
On November 29, 1991, Simeon de Leon, together with sixteen (16) other complainants instituted the instant case before the
Arbitration Branch of the NLRC. The complaint was later amended to allow the inclusion of other complainants.
The parties submitted the following issues for resolution:
(1) Whether petitioners were illegally dismissed;
(2) Whether respondents are guilty of unfair labor practice; and
(3) Whether petitioners are entitled to the refund of their cash bond deposited with respondent FISI.
Petitioners alleged that they were regular employees of FTC which was also using the corporate names Fortune Integrated
Services, Inc. and Magnum Integrated Services, Inc. They were assigned to work as security guards at the company's main
factory plant, its tobacco redrying plant and warehouse. They averred that they performed their duties under the control and
supervision of FTC's security supervisors. Their services, however, were severed in October 1991 without valid cause and
without due process. Petitioners claimed that their dismissal was part of respondents' design to bust their newly-organized
union which sought to enforce their rights under the Labor Standards law.1
Respondent FTC, on the other hand, maintained that there was no employer-employee relationship between FTC and
petitioners. It said that at the time of the termination of their services, petitioners were the employees of MISI which was a
separate and distinct corporation from FTC. Hence, petitioners had no cause of action against FTC.2
Respondent FISI, meanwhile, denied the charge of illegal dismissal and unfair labor practice. It argued that petitioners were not
dismissed from service but were merely placed on floating status pending re-assignment to other posts. It alleged that the
temporary displacement of petitioners was not due to its fault but was the result of the pretermination by FTC of the contract
for security services.3
The Labor Arbiter found respondents liable for the charges. Rejecting FTC's argument that there was no employer-employee
relationship between FTC and petitioners, he ruled that FISI and FTC should be considered as a single employer. He observed
that the two corporations have common stockholders and they share the same business address. In addition, FISI had no client
other than FTC and other corporations belonging to the group of companies owned by Lucio Tan. The Labor Arbiter thus found
respondents guilty of union busting and illegal dismissal. He observed that not long after the stockholders of FISI sold all their
stocks to a new set of stockholders, FTC terminated the contract of security services and engaged the services of two other
19
security agencies. FTC did not give any reason for the termination of the contract. The Labor Arbiter gave credence to
petitioners' theory that respondents' precipitate termination of their employment was intended to bust their union.
Consequently, the Labor Arbiter ordered respondents to pay petitioners their backwages and separation pay, to refund their
cash bond deposit, and to pay attorney's fees.4
On appeal, the NLRC reversed and set aside the decision of the Labor Arbiter. First, it held that the Labor Arbiter erred in
applying the "single employer" principle and concluding that there was an employer-employee relationship between FTC and
FISI on one hand, and petitioners on the other hand. It found that at the time of the termination of the contract of security
services on October 15, 1991, FISI which, at that time, had been renamed Magnum Integrated Services, Inc. had a different set
of stockholders and officers from that of FTC. They also had separate offices. The NLRC held that the principle of "single
employer" and the doctrine of piercing the corporate veil could not apply under the circumstances. It further ruled that the
proximate cause for the displacement of petitioners was the termination of the contract for security services by FTC on
October 15, 1991. FISI could not be faulted for the severance of petitioners' assignment at the premises of FTC. Consequently,
the NLRC held that the charge of illegal dismissal had no basis. As regards the charge of unfair labor practice, the NLRC found
that petitioners who had the burden of proof failed to adduce any evidence to support their charge of unfair labor practice
against respondents. Hence, it ordered the dismissal of petitioners' complaint.5
The petitioners filed a motion for reconsideration of the resolution of the NLRC but the same was denied.6 Hence, this petition.
We gave due course to the petition on May 15, 1995. Thus, the ruling in St. Martin Funeral Home vs. NLRC7 remanding all
petitions for certiorari from the decision of the NLRC to the Court of Appeals does not apply to the case at bar.
The petition is impressed with merit.
An examination of the facts of this case reveals that there is sufficient ground to conclude that respondents were guilty of
interfering with the right of petitioners to self-organization which constitutes unfair labor practice under Article 248 of the
Labor Code.8 Petitioners have been employed with FISI since the 1980s and have since been posted at the premises of FTC -- its
main factory plant, its tobacco redrying plant and warehouse. It appears from the records that FISI, while having its own
corporate identity, was a mere instrumentality of FTC, tasked to provide protection and security in the company premises. The
records show that the two corporations had identical stockholders and the same business address. FISI also had no other
clients except FTC and other companies belonging to the Lucio Tan group of companies. Moreover, the early payslips of
petitioners show that their salaries were initially paid by FTC.9 To enforce their rightful benefits under the laws on Labor
Standards, petitioners formed a union which was later certified as bargaining agent of all the security guards. On February 1,
1991, the stockholders of FISI sold all their participations in the corporation to a new set of stockholders which renamed the
corporation Magnum Integrated Services, Inc. On October 15, 1991, FTC, without any reason, preterminated its contract of
security services with MISI and contracted two other agencies to provide security services for its premises. This resulted in the
displacement of petitioners. As MISI had no other clients, it failed to give new assignments to petitioners. Petitioners have
remained unemployed since then. All these facts indicate a concerted effort on the part of respondents to remove petitioners
from the company and thus abate the growth of the union and block its actions to enforce their demands in accordance with
the Labor Standards laws. The Court held in Insular Life Assurance Co., Ltd., Employees Association-NATU vs. Insular Life
Assurance Co., Ltd.:10
"The test of whether an employer has interfered with and coerced employees within the meaning of section (a) (1) is whether
the employer has engaged in conduct which it may reasonably be said tends to interfere with the free exercise of employees'
rights under section 3 of the Act, and it is not necessary that there be direct evidence that any employee was in fact
intimidated or coerced by statements of threats of the employer if there is a reasonable inference that anti-union conduct of
the employer does have an adverse effect on self-organization and collective bargaining."11
We are not persuaded by the argument of respondent FTC denying the presence of an employer-employee relationship. We
find that the Labor Arbiter correctly applied the doctrine of piercing the corporate veil to hold all respondents liable for unfair
labor practice and illegal termination of petitioners' employment. It is a fundamental principle in corporation law that a
corporation is an entity separate and distinct from its stockholders and from other corporations to which it is connected.
However, when the concept of separate legal entity is used to defeat public convenience, justify wrong, protect fraud or
defend crime, the law will regard the corporation as an association of persons, or in case of two corporations, merge them into
one. The separate juridical personality of a corporation may also be disregarded when such corporation is a mere alter ego or
business conduit of another person.12 In the case at bar, it was shown that FISI was a mere adjunct of FTC. FISI, by virtue of a
contract for security services, provided FTC with security guards to safeguard its premises. However, records show that FISI and
FTC have the same owners and business address, and FISI provided security services only to FTC and other companies
belonging to the Lucio Tan group of companies. The purported sale of the shares of the former stockholders to a new set of
stockholders who changed the name of the corporation to Magnum Integrated Services, Inc. appears to be part of a scheme to
terminate the services of FISI's security guards posted at the premises of FTC and bust their newly-organized union which was
then beginning to become active in demanding the company's compliance with Labor Standards laws. Under these
circumstances, the Court cannot allow FTC to use its separate corporate personality to shield itself from liability for illegal acts
committed against its employees.
Thus, we find that the termination of petitioners' services was without basis and therefore illegal. Under Article 279 of the
Labor Code, an employee who is unjustly dismissed from work is entitled to reinstatement without loss of seniority rights and
other privileges, and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent
computed from the time his compensation was witheld from him up to the time of his actual reinstatement. However, if
reinstatement is no longer possible, the employer has the alternative of paying the employee his separation pay in lieu of
reinstatement.13
IN VIEW WHEREOF, the petition is GRANTED. The assailed resolutions of the NLRC are SET ASIDE. Respondents are hereby
ordered to pay petitioners their full backwages, and to reinstate them to their former position without loss of seniority rights
and privileges, or to award them separation pay in case reinstatement is no longer feasible.
SO ORDERED.
G.R. No. 142936            April 17, 2002
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION, petitioners,
vs.
ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent.
PANGANIBAN, J.:
Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities owning it. The
corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong, defeat public convenience,
insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB) acquired ownership or
20
management of some assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the
resulting public auction by the Development Bank of the Philippines (DBP), will not make PNB liable for the PASUMIL’s
contractual debts to respondent.
Statement of the Case
Before us is a Petition for Review assailing the April 17, 2000 Decision 1 of the Court of Appeals (CA) in CA-GR CV No. 57610. The
decretal portion of the challenged Decision reads as follows:
"WHEREFORE, the judgment appealed from is hereby AFFIRMED."2
The Facts
The factual antecedents of the case are summarized by the Court of Appeals as follows:
"In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly organized, existing, and
operating under the laws of the Philippines, with office and principal place of business at Nos. 794-812 Del Monte
[A]venue, Quezon City, while the defendant [herein petitioner] Philippine National Bank (herein referred to as PNB),
is a semi-government corporation duly organized, existing and operating under the laws of the Philippines, with
office and principal place of business at Escolta Street, Sta. Cruz, Manila; whereas, the other defendant, the National
Sugar Development Corporation (NASUDECO in brief), is also a semi-government corporation and the sugar arm of
the PNB, with office and principal place of business at the 2nd Floor, Sampaguita Building, Cubao, Quezon City; and
the defendant Pampanga Sugar Mills (PASUMIL in short), is a corporation organized, existing and operating under
the 1975 laws of the Philippines, and had its business office before 1975 at Del Carmen, Floridablanca, Pampanga;
that the plaintiff is engaged in the business of general construction for the repairs and/or construction of different
kinds of machineries and buildings; that on August 26, 1975, the defendant PNB acquired the assets of the
defendant PASUMIL that were earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI No.
311; that the defendant PNB organized the defendant NASUDECO in September, 1975, to take ownership and
possession of the assets and ultimately to nationalize and consolidate its interest in other PNB controlled sugar
mills; that prior to October 29, 1971, the defendant PASUMIL engaged the services of plaintiff for electrical
rewinding and repair, most of which were partially paid by the defendant PASUMIL, leaving several unpaid accounts
with the plaintiff; that finally, on October 29, 1971, the plaintiff and the defendant PASUMIL entered into a contract
for the plaintiff to perform the following, to wit –
‘(a) Construction of one (1) power house building;
‘(b) Construction of three (3) reinforced concrete foundation for three (3) units 350 KW diesel engine
generating set[s];
‘(c) Construction of three (3) reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo
generator sets;
‘(d) Complete overhauling and reconditioning tests sum for three (3) 350 KW diesel engine generating
set[s];
‘(e) Installation of turbine and diesel generating sets including transformer, switchboard, electrical
wirings and pipe provided those stated units are completely supplied with their accessories;
‘(f) Relocating of 2,400 V transmission line, demolition of all existing concrete foundation and drainage
canals, excavation, and earth fillings – all for the total amount of P543,500.00 as evidenced by a contract,
[a] xerox copy of which is hereto attached as Annex ‘A’ and made an integral part of this complaint;’
that aside from the work contract mentioned-above, the defendant PASUMIL required the plaintiff to perform extra
work, and provide electrical equipment and spare parts, such as:
‘(a) Supply of electrical devices;
‘(b) Extra mechanical works;
‘(c) Extra fabrication works;
‘(d) Supply of materials and consumable items;
‘(e) Electrical shop repair;
‘(f) Supply of parts and related works for turbine generator;
‘(g) Supply of electrical equipment for machinery;
‘(h) Supply of diesel engine parts and other related works including fabrication of parts.’
that out of the total obligation of P777,263.80, the defendant PASUMIL had paid only P250,000.00, leaving an
unpaid balance, as of June 27, 1973, amounting to P527,263.80, as shown in the Certification of the chief
accountant of the PNB, a machine copy of which is appended as Annex ‘C’ of the complaint; that out of said unpaid
balance of P527,263.80, the defendant PASUMIL made a partial payment to the plaintiff of P14,000.00, in broken
amounts, covering the period from January 5, 1974 up to May 23, 1974, leaving an unpaid balance of P513,263.80;
that the defendant PASUMIL and the defendant PNB, and now the defendant NASUDECO, failed and refused to pay
the plaintiff their just, valid and demandable obligation; that the President of the NASUDECO is also the Vice-
President of the PNB, and this official holds office at the 10th Floor of the PNB, Escolta, Manila, and plaintiff
besought this official to pay the outstanding obligation of the defendant PASUMIL, inasmuch as the defendant PNB
and NASUDECO now owned and possessed the assets of the defendant PASUMIL, and these defendants all
benefited from the works, and the electrical, as well as the engineering and repairs, performed by the plaintiff; that
because of the failure and refusal of the defendants to pay their just, valid, and demandable obligations, plaintiff
suffered actual damages in the total amount of P513,263.80; and that in order to recover these sums, the plaintiff
21
was compelled to engage the professional services of counsel, to whom the plaintiff agreed to pay a sum equivalent
to 25% of the amount of the obligation due by way of attorney’s fees. Accordingly, the plaintiff prayed that
judgment be rendered against the defendants PNB, NASUDECO, and PASUMIL, jointly and severally to wit:
‘(1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with annual interest of 14%
from the time the obligation falls due and demandable;
‘(2) Condemning the defendants to pay attorney’s fees amounting to 25% of the amount claim;
‘(3) Ordering the defendants to pay the costs of the suit.’
"The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint chiefly on the ground that the
complaint failed to state sufficient allegations to establish a cause of action against both defendants, inasmuch as
there is lack or want of privity of contract between the plaintiff and the two defendants, the PNB and NASUDECO,
said defendants citing Article 1311 of the New Civil Code, and the case law ruling in Salonga v. Warner Barnes & Co.,
88 Phil. 125; and Manila Port Service, et al. v. Court of Appeals, et al., 20 SCRA 1214.
"The motion to dismiss was by the court a quo denied in its Order of November 27, 1980; in the same order, that
court directed the defendants to file their answer to the complaint within 15 days.
"In their answer, the defendant NASUDECO reiterated the grounds of its motion to dismiss, to wit:
‘That the complaint does not state a sufficient cause of action against the defendant NASUDECO
because: (a) NASUDECO is not x x x privy to the various electrical construction jobs being sued upon by
the plaintiff under the present complaint; (b) the taking over by NASUDECO of the assets of defendant
PASUMIL was solely for the purpose of reconditioning the sugar central of defendant PASUMIL pursuant
to martial law powers of the President under the Constitution; (c) nothing in the LOI No. 189-A (as well as
in LOI No. 311) authorized or commanded the PNB or its subsidiary corporation, the NASUDECO, to
assume the corporate obligations of PASUMIL as that being involved in the present case; and, (d) all that
was mentioned by the said letter of instruction insofar as the PASUMIL liabilities [were] concerned [was]
for the PNB, or its subsidiary corporation the NASUDECO, to make a study of, and submit [a]
recommendation on the problems concerning the same.’
"By way of counterclaim, the NASUDECO averred that by reason of the filing by the plaintiff of the present suit,
which it [labeled] as unfounded or baseless, the defendant NASUDECO was constrained to litigate and incur
litigation expenses in the amount of P50,000.00, which plaintiff should be sentenced to pay. Accordingly,
NASUDECO prayed that the complaint be dismissed and on its counterclaim, that the plaintiff be condemned to pay
P50,000.00 in concept of attorney’s fees as well as exemplary damages.
"In its answer, the defendant PNB likewise reiterated the grounds of its motion to dismiss, namely: (1) the
complaint states no cause of action against the defendant PNB; (2) that PNB is not a party to the contract alleged in
par. 6 of the complaint and that the alleged services rendered by the plaintiff to the defendant PASUMIL upon
which plaintiff’s suit is erected, was rendered long before PNB took possession of the assets of the defendant
PASUMIL under LOI No. 189-A; (3) that the PNB take-over of the assets of the defendant PASUMIL under LOI 189-A
was solely for the purpose of reconditioning the sugar central so that PASUMIL may resume its operations in time
for the 1974-75 milling season, and that nothing in the said LOI No. 189-A, as well as in LOI No. 311, authorized or
directed PNB to assume the corporate obligation/s of PASUMIL, let alone that for which the present action is
brought; (4) that PNB’s management and operation under LOI No. 311 did not refer to any asset of PASUMIL which
the PNB had to acquire and thereafter [manage], but only to those which were foreclosed by the DBP and were in
turn redeemed by the PNB from the DBP; (5) that conformably to LOI No. 311, on August 15, 1975, the PNB and the
Development Bank of the Philippines (DBP) entered into a ‘Redemption Agreement’ whereby DBP sold, transferred
and conveyed in favor of the PNB, by way of redemption, all its (DBP) rights and interest in and over the foreclosed
real and/or personal properties of PASUMIL, as shown in Annex ‘C’ which is made an integral part of the answer; (6)
that again, conformably with LOI No. 311, PNB pursuant to a Deed of Assignment dated October 21, 1975,
conveyed, transferred, and assigned for valuable consideration, in favor of NASUDECO, a distinct and independent
corporation, all its (PNB) rights and interest in and under the above ‘Redemption Agreement.’ This is shown in
Annex ‘D’ which is also made an integral part of the answer; [7] that as a consequence of the said Deed of
Assignment, PNB on October 21, 1975 ceased to managed and operate the above-mentioned assets of PASUMIL,
which function was now actually transferred to NASUDECO. In other words, so asserted PNB, the complaint as to
PNB, had become moot and academic because of the execution of the said Deed of Assignment; [8] that moreover,
LOI No. 311 did not authorize or direct PNB to assume the corporate obligations of PASUMIL, including the alleged
obligation upon which this present suit was brought; and [9] that, at most, what was granted to PNB in this respect
was the authority to ‘make a study of and submit recommendation on the problems concerning the claims of
PASUMIL creditors,’ under sub-par. 5 LOI No. 311.
"In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate and to incur expenses in this
case, hence it is entitled to claim attorney’s fees in the amount of at least P50,000.00. Accordingly, PNB prayed that
the complaint be dismissed; and that on its counterclaim, that the plaintiff be sentenced to pay defendant PNB the
sum of P50,000.00 as attorney’s fees, aside from exemplary damages in such amount that the court may seem just
and equitable in the premises.
"Summons by publication was made via the Philippines Daily Express, a newspaper with editorial office at 371
Bonifacio Drive, Port Area, Manila, against the defendant PASUMIL, which was thereafter declared in default as
shown in the August 7, 1981 Order issued by the Trial Court.
"After due proceedings, the Trial Court rendered judgment, the decretal portion of which reads:
‘WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant Corporation,
Philippine National Bank (PNB) NATIONAL SUGAR DEVELOPMENT CORPORATION (NASUDECO) and
PAMPANGA SUGAR MILLS (PASUMIL), ordering the latter to pay jointly and severally the former the
following:
‘1. The sum of P513,623.80 plus interest thereon at the rate of 14% per annum as claimed
from September 25, 1980 until fully paid;
‘2. The sum of P102,724.76 as attorney’s fees; and,
‘3. Costs.
22

‘SO ORDERED. Liability for Corporate Debts

‘Manila, Philippines, September 4, 1986. As a general rule, questions of fact may not be raised in a petition for review under Rule 45 of the Rules of Court. 7 To this rule,
however, there are some exceptions enumerated in Fuentes v. Court of Appeals.8 After a careful scrutiny of the records and the
pleadings submitted by the parties, we find that the lower courts misappreciated the evidence presented. 9 Overlooked by the
'(SGD) ERNESTO S. TENGCO CA were certain relevant facts that would justify a conclusion different from that reached in the assailed Decision.10
‘Judge’"3
Petitioners posit that they should not be held liable for the corporate debts of PASUMIL, because their takeover of the latter’s
foreclosed assets did not make them assignees. On the other hand, respondent asserts that petitioners and PASUMIL should be
Ruling of the Court of Appeals
treated as one entity and, as such, jointly and severally held liable for PASUMIL’s unpaid obligation.1âwphi1.nêt

Affirming the trial court, the CA held that it was offensive to the basic tenets of justice and equity for a corporation to take over
and operate the business of another corporation, while disavowing or repudiating any responsibility, obligation or liability
arising therefrom.4
Hence, this Petition.5
As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided
the former acted in good faith and paid adequate consideration for such assets, except when any of the following
circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction
amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a continuation of the
selling corporation, and (4) where the transaction is fraudulently entered into in order to escape liability for those debts.11

Issues Piercing the Corporate

In their Memorandum, petitioners raise the following errors for the Court’s consideration: Veil Not Warranted

"I
The Court of Appeals gravely erred in law in holding the herein petitioners liable for the unpaid corporate debts of
PASUMIL, a corporation whose corporate existence has not been legally extinguished or terminated, simply because
of petitioners[’] take-over of the management and operation of PASUMIL pursuant to the mandates of LOI No. 189-
A, as amended by LOI No. 311.
"II
A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes,
and properties expressly authorized by law or incident to its existence. 12 It has a personality separate and distinct from the
persons composing it, as well as from any other legal entity to which it may be related.13 This is basic.
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the
corporation is just an alter ego of a person or of another corporation. 14 For reasons of public policy and in the interest of
justice, the corporate veil will justifiably be impaled15 only when it becomes a shield for fraud, illegality or inequity committed
against third persons.16

The Court of Appeals gravely erred in law in not applying [to] the case at bench the ruling enunciated in Edward J. Hence, any application of the doctrine of piercing the corporate veil should be done with caution.17 A court should be mindful
Nell Co. v. Pacific Farms, 15 SCRA 415."6 of the milieu where it is to be applied. 18 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.19 The wrongdoing must be clearly and
convincingly established; it cannot be presumed. 20 Otherwise, an injustice that was never unintended may result from an
Succinctly put, the aforesaid errors boil down to the principal issue of whether PNB is liable for the unpaid debts of PASUMIL to erroneous application.21
respondent.
This Court has pierced the corporate veil to ward off a judgment credit,22 to avoid inclusion of corporate assets as part of the
This Court’s Ruling estate of the decedent,23 to escape liability arising from a debt,24 or to perpetuate fraud and/or confuse legitimate
issues25 either to promote or to shield unfair objectives26 or to cover up an otherwise blatant violation of the prohibition against
The Petition is meritorious. forum-shopping.27 Only in these and similar instances may the veil be pierced and disregarded.28

Main Issue: The question of whether a corporation is a mere alter ego is one of fact. 29 Piercing the veil of corporate fiction may be allowed
only if the following elements concur: (1) control -- not mere stock control, but complete domination -- not only of finances,
23

but of policy and business practice in respect to the transaction attacked, must have been such that the corporate entity as to justify a wrong, protect fraud or defend crime.52 None of the foregoing exceptions was shown to exist in the present case.53 On
this transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by the the contrary, the lifting of the corporate veil would result in manifest injustice. This we cannot allow.
defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest
and an unjust act in contravention of plaintiff’s legal right; and (3) the said control and breach of duty must have proximately
No Merger or Consolidation
caused the injury or unjust loss complained of.30

Respondent further claims that petitioners should be held liable for the unpaid obligations of PASUMIL by virtue of LOI Nos.
We believe that the absence of the foregoing elements in the present case precludes the piercing of the corporate veil. First,
189-A and 311, which expressly authorized PASUMIL and PNB to merge or consolidate. On the other hand, petitioners contend
other than the fact that petitioners acquired the assets of PASUMIL, there is no showing that their control over it warrants the
that their takeover of the operations of PASUMIL did not involve any corporate merger or consolidation, because the latter had
disregard of corporate personalities.31 Second, there is no evidence that their juridical personality was used to commit a fraud
never lost its separate identity as a corporation.
or to do a wrong; or that the separate corporate entity was farcically used as a mere alter ego, business conduit or
instrumentality of another entity or person.32 Third, respondent was not defrauded or injured when petitioners acquired the
assets of PASUMIL.33 A consolidation is the union of two or more existing entities to form a new entity called the consolidated corporation. A
merger, on the other hand, is a union whereby one or more existing corporations are absorbed by another corporation that
survives and continues the combined business.54
Being the party that asked for the piercing of the corporate veil, respondent had the burden of presenting clear and convincing
evidence to justify the setting aside of the separate corporate personality rule. 34 However, it utterly failed to discharge this
burden;35 it failed to establish by competent evidence that petitioner’s separate corporate veil had been used to conceal fraud, The merger, however, does not become effective upon the mere agreement of the constituent corporations. 55 Since a merger
illegality or inequity.36 or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there
must be an express provision of law authorizing them. 56 For a valid merger or consolidation, the approval by the Securities and
Exchange Commission (SEC) of the articles of merger or consolidation is required.57 These articles must likewise be duly
While we agree with respondent’s claim that the assets of the National Sugar Development Corporation (NASUDECO) can be
approved by a majority of the respective stockholders of the constituent corporations.58
easily traced to PASUMIL,37 we are not convinced that the transfer of the latter’s assets to petitioners was fraudulently entered
into in order to escape liability for its debt to respondent.38
In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and PNB. The procedure
prescribed under Title IX of the Corporation Code59 was not followed.
A careful review of the records reveals that DBP foreclosed the mortgage executed by PASUMIL and acquired the assets as the
highest bidder at the public auction conducted.39 The bank was justified in foreclosing the mortgage, because the PASUMIL
account had incurred arrearages of more than 20 percent of the total outstanding obligation. 40 Thus, DBP had not only a right, In fact, PASUMIL’s corporate existence, as correctly found by the CA, had not been legally extinguished or
but also a duty under the law to foreclose the subject properties.41 terminated.60 Further, prior to PNB’s acquisition of the foreclosed assets, PASUMIL had previously made partial payments to
respondent for the former’s obligation in the amount of P777,263.80. As of June 27, 1973, PASUMIL had paid P250,000 to
respondent and, from January 5, 1974 to May 23, 1974, another P14,000.
Pursuant to LOI No. 189-A42 as amended by LOI No. 311,43 PNB acquired PASUMIL’s assets that DBP had foreclosed and
purchased in the normal course. Petitioner bank was likewise tasked to manage temporarily the operation of such assets either
by itself or through a subsidiary corporation.44 Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to respondent. 61 LOI No. 11 explicitly
provides that PNB shall study and submit recommendations on the claims of PASUMIL’s creditors. 62 Clearly, the corporate
separateness between PASUMIL and PNB remains, despite respondent’s insistence to the contrary.63
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets pursuant to Section 6 of Act No.
3135.45 These assets were later conveyed to PNB for a consideration, the terms of which were embodied in the Redemption
Agreement.46 PNB, as successor-in-interest, stepped into the shoes of DBP as PASUMIL’s creditor.47 By way of a Deed of WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE. No pronouncement as to costs.
Assignment,48 PNB then transferred to NASUDECO all its rights under the Redemption Agreement.
SO ORDERED.
In Development Bank of the Philippines v. Court of Appeals,49 we had the occasion to resolve a similar issue. We ruled that PNB,
DBP and their transferees were not liable for Marinduque Mining’s unpaid obligations to Remington Industrial Sales G.R. No. 142435             April 30, 2003
Corporation (Remington) after the two banks had foreclosed the assets of Marinduque Mining. We likewise held that
Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining to justify the piercing of the
corporate veil. ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners,
vs.
PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the Heirs of EUGENIO
In the instant case, the CA erred in affirming the trial court’s lifting of the corporate mask. 50 The CA did not point to any fact D. TRINIDAD, respondents.
evidencing bad faith on the part of PNB and its transferee. 51 The corporate fiction was not used to defeat public convenience,
24
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the Decision1 dated October 21, 1999 of the Court of Appeals in CA-
G.R. CV No. 41536 which dismissed herein petitioners' appeal from the Decision2 dated February 10, 1993 of the Regional Trial
Court (RTC) of Quezon City, Branch 84, in Civil Case No. Q-89-4152. The trial court had dismissed petitioners' complaint for
annulment of real estate mortgage and the extra-judicial foreclosure thereof. Likewise brought for our review is the
Resolution3 dated February 23, 2000 of the Court of Appeals which denied petitioners' motion for reconsideration.
The facts, as culled from records, are as follows:
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading" (BET), a single proprietorship
with principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged in the manufacture of garments for
domestic and foreign consumption. The Lipats also owned the "Mystical Fashions" in the United States, which sells goods
imported from the Philippines through BET. Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the
Philippines while she was managing "Mystical Fashions" in the United States.
In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14, 1978, a special power of
attorney appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit accommodations from respondent
Pacific Banking Corporation (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on properties
owned or co-owned by her as security for the obligations to be extended by Pacific Bank including any extension or renewal
thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in behalf of her mother,
Mrs. Lipat and BET, a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to be manufactured by BET and exported
to "Mystical Fashions" in the United States. As security therefor, the Lipat spouses, as represented by Teresita, executed a Real
Estate Mortgage over their property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property was likewise made to
secure "other additional or new loans, discounting lines, overdrafts and credit accommodations, of whatever amount, which
the Mortgagor and/or Debtor may subsequently obtain from the Mortgagee as well as any renewal or extension by the
Mortgagor and/or Debtor of the whole or part of said original, additional or new loans, discounting lines, overdrafts and other
credit accommodations, including interest and expenses or other obligations of the Mortgagor and/or Debtor owing to the
Mortgagee, whether directly, or indirectly, principal or secondary, as appears in the accounts, books and records of the
Mortgagee."4
On September 5, 1979, BET was incorporated into a family corporation named Bela's Export Corporation (BEC) in order to
facilitate the management of the business. BEC was engaged in the business of manufacturing and exportation of all kinds of
garments of whatever kind and description5 and utilized the same machineries and equipment previously used by BET. Its
incorporators and directors included the Lipat spouses who owned a combined 300 shares out of the 420 shares subscribed,
Teresita Lipat who owned 20 shares, and other close relatives and friends of the Lipats. 6 Estelita Lipat was named president of
BEC, while Teresita became the vice-president and general manager.
Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC with the
corresponding promissory notes duly executed by Teresita on behalf of the corporation. A letter of credit was also opened by
Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after BEC executed the corresponding
trust receipt therefor. Export bills were also executed in favor of Pacific Bank for additional finances. These transactions were
all secured by the real estate mortgage over the Lipats' property.
The promissory notes, export bills, and trust receipt eventually became due and demandable. Unfortunately, BEC defaulted in
its payments. After receipt of Pacific Bank's demand letters, Estelita Lipat went to the office of the bank's liquidator and asked
for additional time to enable her to personally settle BEC's obligations. The bank acceded to her request but Estelita failed to
fulfill her promise.
Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the law the mortgaged
property was sold at public auction. On January 31, 1989, a certificate of sale was issued to respondent Eugenio D. Trinidad as
the highest bidder.
On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a complaint for annulment of the real estate
mortgage, extrajudicial foreclosure and the certificate of sale issued over the property against Pacific Bank and Eugenio D.
Trinidad. The complaint, which was docketed as Civil Case No. Q-89-4152, alleged, among others, that the promissory notes,
trust receipt, and export bills were all ultra vires acts of Teresita as they were executed without the requisite board resolution
of the Board of Directors of BEC. The Lipats also averred that assuming said acts were valid and binding on BEC, the same were
the corporation's sole obligation, it having a personality distinct and separate from spouses Lipat. It was likewise pointed out
that Teresita's authority to secure a loan from Pacific Bank was specifically limited to Mrs. Lipat's sole use and benefit and that
the real estate mortgage was executed to secure the Lipats' and BET's P583,854.00 loan only.
In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evade payments of the
value of the promissory notes, trust receipt, and export bills with their property because they and the BEC are one and the
same, the latter being a family corporation. Respondent Trinidad further claimed that he was a buyer in good faith and for
value and that petitioners are estopped from denying BEC's existence after holding themselves out as a corporation.
After trial on the merits, the RTC dismissed the complaint, thus:
WHEREFORE, this Court holds that in view of the facts contained in the record, the complaint filed in this case must
be, as is hereby, dismissed. Plaintiffs however has five (5) months and seventeen (17) days reckoned from the
finality of this decision within which to exercise their right of redemption. The writ of injunction issued is
automatically dissolved if no redemption is effected within that period.
The counterclaims and cross-claim are likewise dismissed for lack of legal and factual basis.
No costs.
IT IS SO ORDERED.7
The trial court ruled that there was convincing and conclusive evidence proving that BEC was a family corporation of the Lipats.
As such, it was a mere extension of petitioners' personality and business and a mere alter ego or business conduit of the Lipats
established for their own benefit. Hence, to allow petitioners to invoke the theory of separate corporate personality would
sanction its use as a shield to further an end subversive of justice.8 Thus, the trial court pierced the veil of corporate fiction and
25
held that Bela's Export Corporation and petitioners (Lipats) are one and the same. Pacific Bank had transacted business with
both BET and BEC on the supposition that both are one and the same. Hence, the Lipats were estopped from disclaiming any
obligations on the theory of separate personality of corporations, which is contrary to principles of reason and good faith.
The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV No. 41536. Said appeal, however, was
dismissed by the appellate court for lack of merit. The Court of Appeals found that there was ample evidence on record to
support the application of the doctrine of piercing the veil of corporate fiction. In affirming the findings of the RTC, the
appellate court noted that Mrs. Lipat had full control over the activities of the corporation and used the same to further her
business interests.9 In fact, she had benefited from the loans obtained by the corporation to finance her business. It also found
unnecessary a board resolution authorizing Teresita Lipat to secure loans from Pacific Bank on behalf of BEC because the
corporation's by-laws allowed such conduct even without a board resolution. Finally, the Court of Appeals ruled that the
mortgage property was not only liable for the original loan of P583,854.00 but likewise for the value of the promissory notes,
trust receipt, and export bills as the mortgage contract equally applies to additional or new loans, discounting lines, overdrafts,
and credit accommodations which petitioners subsequently obtained from Pacific Bank.
The Lipats then moved for reconsideration, but this was denied by the appellate court in its Resolution of February 23, 2000.10
Hence, this petition, with petitioners submitting that the court a quo erred —
1) . . . IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN THIS CASE.
2) . . . IN HOLDING THAT PETITIONERS' PROPERTY CAN BE HELD LIABLE UNDER THE REAL ESTATE MORTGAGE NOT
ONLY FOR THE AMOUNT OF P583,854.00 BUT ALSO FOR THE FULL VALUE OF PROMISSORY NOTES, TRUST RECEIPTS
AND EXPORT BILLS OF BELA'S EXPORT CORPORATION.
3) . . . IN HOLDING THAT "THE IMPOSITION OF 15% ATTORNEY'S FEES IN THE EXTRA-JUDICIAL FORECLOSURE IS
BEYOND THIS COURT'S JURISDICTION FOR IT IS BEING RAISED FOR THE FIRST TIME IN THIS APPEAL."
4) . . . IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED PROMISSORY NOTES, THE DOLLAR
ACCOMMODATIONS AND TRUST RECEIPTS DESPITE THE EVIDENT FACT THAT THEY WERE NOT SIGNED BY HIM AND
THEREFORE ARE NOT VALID OR ARE NOT BINDING TO HIM.
5) . . . IN DENYING PETITIONERS' MOTION FOR RECONSIDERATION AND IN HOLDING THAT SAID MOTION FOR
RECONSIDERATION IS "AN UNAUTHORIZED MOTION, A MERE SCRAP OF PAPER WHICH CAN NEITHER BIND NOR BE
OF ANY CONSEQUENCE TO APPELLANTS."11
In sum, the following are the relevant issues for our resolution:
1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;
2. Whether or not petitioners' property under the real estate mortgage is liable not only for the amount of P583,854.00 but
also for the value of the promissory notes, trust receipt, and export bills subsequently incurred by BEC; and
3. Whether or not petitioners are liable to pay the 15% attorney's fees stipulated in the deed of real estate mortgage.
On the first issue, petitioners contend that both the appellate and trial courts erred in holding them liable for the obligations
incurred by BEC through the application of the doctrine of piercing the veil of corporate fiction absent any clear showing of
fraud on their part.
Respondents counter that there is clear and convincing evidence to show fraud on part of petitioners given the findings of the
trial court, as affirmed by the Court of Appeals, that BEC was organized as a business conduit for the benefit of petitioners.
Petitioners' contentions fail to persuade this Court. A careful reading of the judgment of the RTC and the resolution of the
appellate court show that in finding petitioners' mortgaged property liable for the obligations of BEC, both courts below relied
upon the alter ego doctrine or instrumentality rule, rather than fraud in piercing the veil of corporate fiction. When the
corporation is the mere alter ego or business conduit of a person, the separate personality of the corporation may be
disregarded.12 This is commonly referred to as the "instrumentality rule" or the alter ego doctrine, which the courts have
applied in disregarding the separate juridical personality of corporations. As held in one case,
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the 'instrumentality' may be
disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind,
will or existence of its own, and is but a conduit for its principal. x x x .13
We find that the evidence on record demolishes, rather than buttresses, petitioners' contention that BET and BEC are separate
business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were the owners of BET14 and were two
of the incorporators and majority stockholders of BEC.15 It is also undisputed that Estelita Lipat executed a special power of
attorney in favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her behalf.16 Incidentally,
Teresita was designated as executive-vice president and general manager of both BET and BEC, respectively. 17 We note further
that: (1) Estelita and Alfredo Lipat are the owners and majority shareholders of BET and BEC, respectively; 18 (2) both firms were
managed by their daughter, Teresita;19 (3) both firms were engaged in the garment business, supplying products to "Mystical
Fashion," a U.S. firm established by Estelita Lipat; (4) both firms held office in the same building owned by the Lipats; 20 (5) BEC
is a family corporation with the Lipats as its majority stockholders; (6) the business operations of the BEC were so merged with
those of Mrs. Lipat such that they were practically indistinguishable; (7) the corporate funds were held by Estelita Lipat and the
corporation itself had no visible assets; (8) the board of directors of BEC was composed of the Burgos and Lipat family
members;21 (9) Estelita had full control over the activities of and decided business matters of the corporation;22 and that (10)
Estelita Lipat had benefited from the loans secured from Pacific Bank to finance her business abroad 23 and from the export bills
secured by BEC for the account of "Mystical Fashion."24 It could not have been coincidental that BET and BEC are so intertwined
with each other in terms of ownership, business purpose, and management. Apparently, BET and BEC are one and the same
and the latter is a conduit of and merely succeeded the former. Petitioners' attempt to isolate themselves from and hide
behind the corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the classical doctrine of
piercing the veil of corporate entity seeks to prevent and remedy. In our view, BEC is a mere continuation and successor of BET,
and petitioners cannot evade their obligations in the mortgage contract secured under the name of BEC on the pretext that it
was signed for the benefit and under the name of BET. We are thus constrained to rule that the Court of Appeals did not err
when it applied the instrumentality doctrine in piercing the corporate veil of BEC.
26

On the second issue, petitioners contend that their mortgaged property should not be made liable for the subsequent credit
lines and loans incurred by BEC because, first, it was not covered by the mortgage contract of BET which only covered the loan
of P583,854.00 and which allegedly had already been paid; and, second, it was secured by Teresita Lipat without any
authorization or board resolution of BEC.
We find petitioners' contention untenable. As found by the Court of Appeals, the mortgaged property is not limited to answer
for the loan of P583,854.00. Thus:
Finally, the extent to which the Lipats' property can be held liable under the real estate mortgage is not limited to
P583,854.00. It can be held liable for the value of the promissory notes, trust receipt and export bills as well. For the
mortgage was executed not only for the purpose of securing the Bela's Export Trading's original loan of
P583,854.00, but also for "other additional or new loans, discounting lines, overdrafts and credit accommodations,
of whatever amount, which the Mortgagor and/or Debtor may subsequently obtain from the mortgagee as well as
any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said original, additional or new
loans, discounting lines, overdrafts and other credit accommodations, including interest and expenses or other
obligations of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly principal or
secondary, as appears in the accounts, books and records of the mortgagee.25
As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot be reviewed on appeal by the
Supreme Court, provided they are borne out by the record or based on substantial evidence. 26 As noted earlier, BEC merely
succeeded BET as petitioners' alter ego; hence, petitioners' mortgaged property must be held liable for the subsequent loans
and credit lines of BEC.
Further, petitioners' contention that the original loan had already been paid, hence, the mortgaged property should not be
made liable to the loans of BEC, is unsupported by any substantial evidence other than Estelita Lipat's self-serving testimony.
Two disputable presumptions under the rules on evidence weigh against petitioners, namely: (a) that a person takes ordinary
care of his concerns;27 and (b) that things have happened according to the ordinary course of nature and the ordinary habits of
life.28 Here, if the original loan had indeed been paid, then logically, petitioners would have asked from Pacific Bank for the
required documents evidencing receipt and payment of the loans and, as owners of the mortgaged property, would have
immediately asked for the cancellation of the mortgage in the ordinary course of things. However, the records are bereft of any
evidence contradicting or overcoming said disputable presumptions.
Petitioners contend further that the mortgaged property should not bind the loans and credit lines obtained by BEC as they
were secured without any proper authorization or board resolution. They also blame the bank for its laxity and complacency in
not requiring a board resolution as a requisite for approving the loans.
Secondly, the principle of estoppel precludes petitioners from denying the validity of the transactions entered into by Teresita
Lipat with Pacific Bank, who in good faith, relied on the authority of the former as manager to act on behalf of petitioner
Estelita Lipat and both BET and BEC. While the power and responsibility to decide whether the corporation should enter into a
contract that will bind the corporation is lodged in its board of directors, subject to the articles of incorporation, by-laws, or
relevant provisions of law, yet, just as a natural person may authorize another to do certain acts for and on his behalf, the
board of directors may validly delegate some of its functions and powers to officers, committees, or agents. The authority of
such individuals to bind the corporation is generally derived from law, corporate by-laws, or authorization from the board,
either expressly or impliedly by habit, custom, or acquiescence in the general course of business. 31 Apparent authority, is
derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation
holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which
it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether
within or beyond the scope of his ordinary powers.32
In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special power of attorney
executed by Estelita Lipat. Recall that Teresita Lipat acted as the manager of both BEC and BET and had been deciding business
matters in the absence of Estelita Lipat. Further, the export bills secured by BEC were for the benefit of "Mystical Fashion"
owned by Estelita Lipat.33 Hence, Pacific Bank cannot be faulted for relying on the same authority granted to Teresita Lipat by
Estelita Lipat by virtue of a special power of attorney. It is a familiar doctrine that if a corporation knowingly permits one of its
officers or any other agent to act within the scope of an apparent authority, it holds him out to the public as possessing the
power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be
estopped from denying the agent's authority.34
We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent credit lines of BEC. Suffice it to
state that Alfredo Lipat never disputed the validity of the real estate mortgage of the original loan; hence, he cannot now
dispute the subsequent loans obtained using the same mortgage contract since it is, by its very terms, a continuing mortgage
contract.
On the third and final issue, petitioners assail the decision of the Court of Appeals for not taking cognizance of the issue on
attorney's fees on the ground that it was raised for the first time on appeal. We find the conclusion of the Court of Appeals to
be in accord with settled jurisprudence. Basic is the rule that matters not raised in the complaint cannot be raised for the first
time on appeal.35 A close perusal of the complaint yields no allegations disputing the attorney's fees imposed under the real
estate mortgage and petitioners cannot now allege that they have impliedly disputed the same when they sought the
annulment of the contract.
In sum, we find no reversible error of law committed by the Court of Appeals in rendering the decision and resolution herein
assailed by petitioners.

Such contentions deserve scant consideration.

WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and the Resolution dated February 23, 2000 of the
Court of Appeals in CA-G.R. CV No. 41536 are AFFIRMED. Costs against petitioners.
Firstly, it could not have been possible for BEC to release a board resolution since per admissions by both petitioner Estelita
Lipat and Alice Burgos, petitioners' rebuttal witness, no business or stockholder's meetings were conducted nor were there
SO ORDERED.
election of officers held since its incorporation. In fact, not a single board resolution was passed by the corporate board 29 and it
was Estelita Lipat and/or Teresita Lipat who decided business matters.30