23. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

149237 June 11, 2006 CHINA BANKING CORPORATION, petitioner, vs. DYNE-SEM ELECTRONICS CORPORATION, respondent. DECISION CORONA, J.: On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed a total of P8,939,000 from petitioner China Banking Corporation. The loan was evidenced by six promissory notes.1 The borrowers failed to pay when the obligations became due. Petitioner consequently instituted a complaint for sum of money2 on June 25, 1987 against them. The complaint sought payment of the unpaid promissory notes plus interest and penalties. Summons was not served on Dynetics, however, because it had already closed down. Lim, on the other hand, filed his answer on December 15, 1987 denying that "he promised to pay [the obligations] jointly and severally to [petitioner]."3 On January 7, 1988, the case was scheduled for pre-trial with respect to Lim. The case against Dynetics was archived. On September 23, 1988, an amended complaint4 was filed by petitioner impleading respondent Dyne-Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente Chuidian, Antonio Garcia and Jacob Ratinoff. According to petitioner, respondent was formed and organized to be Dynetics alter ego as established by the following circumstances: Dynetics, Inc. and respondent are both engaged in the same line of business of manufacturing, producing, assembling, processing, importing, exporting, buying, distributing, marketing and testing integrated circuits and semiconductor devices; [t]he principal office and factory site of Dynetics, Inc. located at Avocado Road, FTI Complex, Taguig, Metro Manila, were used by respondent as its principal office and factory site; [r]espondent acquired some of the machineries and equipment of Dynetics, Inc. from banks which acquired the same through foreclosure; [r]espondent retained some of the officers of Dynetics, Inc.5 xxx xxx xxx On December 28, 1988, respondent filed its answer, alleging that: 5.1 [t]he incorporators as well as present stockholders of [respondent] are totally different from those of Dynetics, Inc., and not one of them has ever been a stockholder or officer of the latter; 5.2 [n]ot one of the directors of [respondent] is, or has ever been, a director, officer, or stockholder of Dynetics, Inc.; 5.3 [t]he various facilities, machineries and equipment being used by [respondent] in its business operations were legitimately and validly acquired, under arms-length transactions, from various corporations which had become absolute owners thereof at the time of said

transactions; these were not just "taken over" nor "acquired from Dynetics" by [respondent], contrary to what plaintiff falsely and maliciously alleges; 5.4 [respondent] acquired most of its present machineries and equipment as second-hand items to keep costs down; 5.5 [t]he present plant site is under lease from Food Terminal, Inc., a government-controlled corporation, and is located inside the FTI Complex in Taguig, Metro Manila, where a number of other firms organized in 1986 and also engaged in the same or similar business have likewise established their factories; practical convenience, and nothing else, was behind [respondents] choice of plant site; 5.6 [respondent] operates its own bonded warehouse under authority from the Bureau of Customs which has the sole and absolute prerogative to authorize and assign customs bonded warehouses; again, practical convenience played its role here since the warehouse in question was virtually lying idle and unused when said Bureau decided to assign it to [respondent] in June 1986.6 On February 28, 1989, the trial court issued an order archiving the case as to Chuidian, Garcia and Ratinoff since summons had remained unserved. After hearing, the court a quo rendered a decision on December 27, 1991 which read: xxx [T]he Court rules that Dyne-Sem Electronics Corporation is not an alter ego of Dynetics, Inc. Thus, Dyne-Sem Electronics Corporation is not liable under the promissory notes. xxx xxx xxx WHEREFORE, judgment is hereby rendered ordering Dynetics, Inc. and Elpidio O. Lim, jointly and severally, to pay plaintiff. xxx xxx xxx Anent the complaint against Dyne-Sem and the latters counterclaim, both are hereby dismissed, without costs. SO ORDERED.7 From this adverse decision, petitioner appealed to the Court of Appeals8 but the appellate court dismissed the appeal and affirmed the trial courts decision.9 It found that respondent was indeed not an alter ego of Dynetics. The two corporations had different articles of incorporation. Contrary to petitioners claim, no merger or absorption took place between the two. What transpired was a mere sale of the assets of Dynetics to respondent. The appellate court denied petitioners motion for reconsideration.10 Hence, this petition for review11 with the following assigned errors: VI. Issues What is the quantum of evidence needed for the trial court to determine if the veil of corporat[e] fiction should be pierced? [W]hether or not the Regional Trial Court of Manila Branch 15 in its Decision dated December 27, 1991 and the Court of Appeals in its Decision dated February 28, 2001 and Resolution dated July 27, 2001, which affirmed en toto [Branch 15, Manila Regional Trial Courts decision,] have ruled in accordance with law and/or applicable [jurisprudence] to the extent that the Doctrine of Piercing the Veil of Corporat[e] Fiction is not applicable in the case at bar?12

We find no merit in the petition. The question of whether one corporation is merely an alter ego of another is purely one of fact. So is the question of whether a corporation is a paper company, a sham or subterfuge or whether petitioner adduced the requisite quantum of evidence warranting the piercing of the veil of respondents corporate entity. This Court is not a trier of facts. Findings of fact of the Court of Appeals, affirming those of the trial court, are final and conclusive. The jurisdiction of this Court in a petition for review on certiorari is limited to reviewing only errors of law, not of fact, unless it is shown, inter alia, that: (a) the conclusion is grounded entirely on speculations, surmises and conjectures; (b) the inference is manifestly mistaken, absurd and impossible; (c) there is grave abuse of discretion; (d) the judgment is based on a misapplication of facts; (e) the findings of fact of the trial court and the appellate court are contradicted by the evidence on record and (f) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both parties.13 We have reviewed the records and found that the factual findings of the trial and appellate courts and consequently their conclusions were supported by the evidence on record. The general rule is that a corporation has a personality separate and distinct from that of its stockholders and other corporations to which it may be connected.14 This is a fiction created by law for convenience and to prevent injustice.15 Nevertheless, being a mere fiction of law, peculiar situations or valid grounds may exist to warrant the disregard of its independent being and the piercing of the corporate veil.16 In Martinez v. Court of Appeals,17 we held: The veil of separate corporate personality may be lifted when such personality is used to defeat public convenience, justify wrong, protect fraud or defend crime; or used as a shield to confuse the legitimate issues; or when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation; or when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or for the protection of the creditors. In such cases, the corporation will be considered as a mere association of persons. The liability will directly attach to the stockholders or to the other corporation. To disregard the separate juridical personality of a corporation, the wrongdoing must be proven clearly and convincingly.18 In this case, petitioner failed to prove that Dyne-Sem was organized and controlled, and its affairs conducted, in a manner that made it merely an instrumentality, agency, conduit or adjunct of Dynetics, or that it was established to defraud Dynetics creditors, including petitioner. The similarity of business of the two corporations did not warrant a conclusion that respondent was but a conduit of Dynetics. As we held in Umali v. Court of Appeals,19 "the mere fact that the businesses of two or more corporations are interrelated is not a justification for disregarding their separate personalities, absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights."

Likewise, respondents acquisition of some of the machineries and equipment of Dynetics was not proof that respondent was formed to defraud petitioner. As the Court of Appeals found, no merger20 took place between Dynetics and respondent Dyne-Sem. What took place was a sale of the assets21 of the former to the latter. Merger is legally distinct from a sale of assets.22 Thus, where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor. Petitioner itself admits that respondent acquired the machineries and equipment not directly from Dynetics but from the various corporations which successfully bidded for them in an auction sale. The contracts of sale executed between the winning bidders and respondent showed that the assets were sold for considerable amounts.23 The Court of Appeals thus correctly ruled that the assets were not "diverted" to respondent as an alter ego of Dynetics.24 The machineries and equipment were transferred and disposed of by the winning bidders in their capacity as owners. The sales were therefore valid and the transfers of the properties to respondent legal and not in any way in contravention of petitioners rights as Dynetics creditor. Finally, it may be true that respondent later hired Dynetics former Vice-President Luvinia Maglaya and Assistant Corporate Counsel Virgilio Gesmundo. From this, however, we cannot conclude that respondent was an alter ego of Dynetics. In fact, even the overlapping of incorporators and stockholders of two or more corporations will not necessarily lead to such inference and justify the piercing of the veil of corporate fiction.25 Much more has to be proven. Premises considered, no factual and legal basis exists to hold respondent DyneSem liable for the obligations of Dynetics to petitioner. WHEREFORE, the petition is hereby DENIED.The assailed Court of Appeals decision and resolution in CA-G.R. CV No. 40672 are hereby AFFIRMED. Costs against petitioner. SO ORDERED.

24.

MEL V. VELARDE, petitioner, vs. LOPEZ, INC., respondent. DECISION CARPIO-MORALES, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court, which seeks to review the decision[1] and resolution[2] of the Court of Appeals, raises the issue of whether the defendant in a complaint for collection of sum of money can raise a counterclaim for retirement benefits, unpaid salaries and incentives,

and other benefits arising from services rendered by him in a subsidiary of the plaintiff corporation.

benefits in Sky Vision in partial settlement of his loan after he settles his accountabilities to the latter and gives his written instructions to it (Sky Vision).[5]

On January 6, 1997, Eugenio Lopez Jr., then President of respondent Lopez, Inc., as LENDER, and petitioner Mel Velarde, then General Manager of Sky Vision Corporation (Sky Vision), a subsidiary of respondent, as BORROWER, forged a notarized loan agreement covering the amount of ten million (P10,000,000.00) pesos. The agreement expressly provided for, among other things, the manner of payment and the circumstances constituting default which would give the lender the right to declare the loan together with accrued interest immediately due and payable.[3]

Petitioner protested the computation indicated in the July 15, 1998 letter, he asserting that the imputed unliquidated advances from Sky Vision had already been properly liquidated.[6]

Sec. 6 of the agreement detailed what constituted an event of default as follows:

On August 18, 1998, respondent filed a complaint for collection of sum of money with damages at the Regional Trial Court (RTC) of Pasig City against petitioner, alleging that petitioner violated the above-quoted Section 6 of the loan agreement as he failed to put up the needed collateral for the loan and pay the installments as they became due, and that despite his receipt of letters of demand dated December 1, 1997[7] and January 13, 1998,[8] he refused to pay.

Section 6

Each of the following events and occurrences shall constitute an Event of Default (Event of Default) under this Agreement:

In his answer, petitioner alleged that the loan agreement did not reflect his true agreement with respondent, it being merely a cover document to evidence the reward to him of ten million pesos (P10,000,000.00) for his loyalty and excellent performance as General Manager of Sky Vision and that the payment, if any was expected, was in the form of continued service; and that it was when he was compelled by respondent to retire that the form of payment agreed upon was rendered impossible, prompting the late Eugenio Lopez, Jr. to agree that his retirement benefits from Sky Vision would instead be applied to the loan.[9]

a) the BORROWER fails to make payment when due and payable of any amount he is obligated to pay under this Agreement;

b) the BORROWER fails to mortgage in favor of the LENDER real property sufficient to cover the amount of the LOAN.[4]

By way of compulsory counterclaim, petitioner claimed that he was entitled to retirement benefits from Sky Vision in the amount of P98,280,000.00, unpaid salaries in the amount of P2,740,000.00, unpaid incentives in the amount of P500,000, unpaid share from the net income of Plaintiff corporation, equity in his service vehicle in the amount of P1,500,000, reasonable return on the stock ownership plan for services rendered as General Manager, and moral damages and attorneys fees.[10]

As petitioner failed to pay the installments as they became due, respondent, apparently in answer to a proposal of petitioner respecting the settlement of the loan, advised him by letter dated July 15, 1998 that he may use his retirement

Petitioner thus prayed for the dismissal of the complaint and the award of the following sums of money in the form of compulsory counterclaims:

1. P103,020,000.00, PLUS the value of Defendants stock options and unpaid share from the net income with Plaintiff corporation (to be computed) as actual damages;

I.

2.

P15,000,000.00, as moral damages; and

3. P1,500,000.00, as attorneys fees plus appearance fees and the costs of suit.[11]

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE RTC BRANCH 155 ALLEGEDLY ACTED WITH GRAVE ABUSE OF DISCRETION IN ISSUING THE ORDERS DATED JANUARY 3, 2000 AND OCTOBER 9, 2000 CONSIDERING THAT THE GROUNDS RAISED BY RESPONDENT LOPEZ, INC. IN ITS PETITION FOR CERTIORARI INVOLVED MERE ERRORS OF JUDGMENT AND NOT ERRORS OF JURISDICTION.

Respondent filed a manifestation and a motion to dismiss the counterclaim for want of jurisdiction, which drew petitioner to assert in his comment and opposition thereto that the veil of corporate fiction must be pierced to hold respondent liable for his counterclaims.

II.

By Order of January 3, 2000, Branch 155 of the RTC of Pasig denied respondents motion to dismiss the counterclaim on the following premises: A counterclaim being essentially a complaint, the principle that a motion to dismiss hypothetically admits the allegations of the complaint is applicable; the counterclaim is compulsory, hence, within its jurisdiction; and there is identity of interest between respondent and Sky Vision to merit the piercing of the veil of corporate fiction.[12]

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT RESPONDENT LOPEZ, INC. IS NOT THE REAL PARTY-IN-INTEREST AS PARTY-DEFENDANT ON THE COUNTERCLAIMS OF PETITIONER VELARDE CONSIDERING THAT THE FILING OF RESPONDENT LOPEZ, INC.S MANIFESTATION AND MOTION TO DISMISS COUNTERCLAIM HAD THE EFFECT OF HYPOTHETICALLY ADMITTING THE TRUTH OF THE MATERIAL AVERMENTS OF THE ANSWER, WHICH MATERIAL AVERMENTS SUFFICIENTLY ALLEGED THAT RESPONDENT LOPEZ, INC. COMMITTED ACTS WHICH SHOW THAT ITS SUBSIDIARY, SKY VISION, WAS A MERE BUSINESS CONDUIT OR ALTER EGO OF THE FORMER, THUS, JUSTIFYING THE PIERCING OF THE VEIL OF CORPORATE FICTION.

Respondents motion for reconsideration of the trial courts Order of January 3, 2000 having been denied, it filed a Petition for Certiorari at the Court of Appeals which held that respondent is not the real party-in-interest on the counterclaim and that there was failure to show the presence of any of the circumstances to justify the application of the principle of piercing the veil of corporate fiction. The Orders of the trial court were thus set aside and the counterclaims of petitioner were accordingly dismissed.[13]

III.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE COUNTERCLAIMS OF PETITIONER VELARDE ARE NOT COMPULSORY.[14]

The Court of Appeals having denied petitioners motion for reconsideration, the instant Petition for Review was filed which assigns the following errors:

While petitioner correctly invokes the ruling in Atienza v. Court of Appeals[15] to postulate that not every denial of a motion to dismiss can be corrected by

certiorari under Rule 65 and that, as a general rule, the remedy from such denial is to appeal in due course after a decision has been rendered on the merits, there are exceptions thereto, as when the court in denying the motion to dismiss acted without or in excess of jurisdiction or with patent grave abuse of discretion, [16] or when the assailed interlocutory order is patently erroneous and the remedy of appeal would not afford adequate and expeditious relief,[17] or when the ground for the motion to dismiss is improper venue,[18] res judicata,[19] or lack of jurisdiction[20] as in the case at bar.

29.2 Defendant likewise informed Plaintiff that the one month for every year of service as a basis for the computation of the Defendants retirement benefit is erroneous. This computation is even less than what the rank and file employees get. That CEOs, COOs and senior executives of the level of ABS-CBN, Sky Vision, Benpres, Meralco and other Lopez companies had and have received a lot more than the regular rank and file employees. All these retired executives and records can be summoned for verification.

Early on, it bears noting, when the case was still with the trial court, respondent filed a motion to dismiss the counterclaims to assail its jurisdiction, respondent asserting that the counterclaims, being money claims arising from a labor relationship, are within the exclusive competence of the National Labor Relations Commission.[21] On the other hand, petitioner alleged that due to the tortuous manner he was coerced into retirement, it is the Regional Trial Courts (RTCs) and not the National Labor Relations Commission which has exclusive jurisdiction over his counterclaims.

29.3 The circumstances of the retirement of the Defendant are not those for a simple and ordinary rank and file employee. Mr. Lopez, III admitted that he and the Defendant have had problems which accumulated through time and that they chose to part ways in a manner that was dignified for both of them. Treating the Defendant as a rank and file employee is hardly dignified not just to the Defendant but also to the Lopezes whose existing executives serving them will draw lessons from the Defendants experience.

In determining which has jurisdiction over a case, the averments of the complaint/counterclaim, taken as a whole, are considered.[22] In his counterclaim, petitioner alleged that:

29.4 These circumstances hardly reflect a simple retirement. The Defendant, who is known in the local and international media community, is hardly considered a rank and file employee. Defendant was a stockholder of the Corporation and a duly-elected member of the Board of Directors. Certain government officials can attest to the sensitivity of issues and matters the Defendant had represented for the Lopezes that are hardly issues handled by a simple rank and file employee. Respectable individuals in government and industry are willing to testify to this regard.x x x[23] (Underscoring and italics supplied).

xxx

29. It was only on July 15, 1998 that Lopez, Inc. submitted a computation of the retirement benefit due to the Defendant. (Copy attached as ANNEX 4). Immediately after receiving this computation, Defendant immediately informed Plaintiff of the erroneous figure used as salary in the computation of benefits. This was done in a telephone conversation with a certain Atty. Amina Amado of Lopez, Inc. 29.1 The Defendant also informed her that the so called unliquidated advances amounting to P422,922.87 since 1995 had all been properly liquidated as reflected in all the reports of the company. The Defendant reminded Atty. Amado of unpaid incentives and salaries for 1997.

At the heart of petitioners counterclaim is his alleged forced retirement which is also the basis of his claim for, among other things, unpaid salaries, unpaid incentives, reasonable return on the stock ownership plan, and other benefits from a subsidiary company of the respondent.

Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the Securities Regulation Code) applies to a corporate officers dismissal. For a corporate officers dismissal is always a corporate act and/or an intra-corporate controversy and that its nature is not altered by the reason or wisdom which the Board of Directors may have in taking such action.[24]

With regard to petitioners claim for unpaid salaries, unpaid share in net income, reasonable return on the stock ownership plan and other benefits for services rendered to Sky Vision, jurisdiction thereon pertains to the Securities Exchange Commission even if the complaint by a corporate officer includes money claims since such claims are actually part of the prerequisite of his position and, therefore, interlinked with his relations with the corporation.[25] The question of remuneration involving a person who is not a mere employee but a stockholder and officer of the corporation is not a simple labor problem but a matter that comes within the area of corporate affairs and management, and is in fact a corporate controversy in contemplation of the Corporation Code.[26]

In applying the doctrine of piercing the veil of corporate fiction, the following requisites must be established: (1) control, not merely majority or complete stock control; (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 acts in contravention of plaintiffs legal rights; and (3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.[29]

While petitioners counterclaims were filed on December 1, 1998, the second challenged order of the trial court denying respondents motion for reconsideration of the denial of its motion to dismiss was issued on October 9, 2000 at which time P.D. 902-A had been amended by R.A. 8799 (approved on July 19, 2000) which mandated the transfer of jurisdiction over intra-corporate controversies, subject of the counterclaims, to RTCs.

Nowhere, however, in the pleadings and other records of the case can it be gathered that respondent has complete control over Sky Vision, not only of finances but of policy and business practice in respect to the transaction attacked, so that Sky Vision had at the time of the transaction no separate mind, will or existence of its own. The existence of interlocking directors, corporate officers and shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations.

But even if the subject matter of the counterclaims is now cognizable by RTCs, the filing thereof against respondent is improper, it not being the real party-ininterest, for it is petitioners employer Sky Vision, respondents subsidiary.

This Court is thus not convinced that the real party-in-interest with regard to the counterclaim for damages arising from the alleged tortuous manner by which petitioner was forced to retire as General Manager of Sky Vision is respondent.

It cannot be gainsaid that a subsidiary has an independent and separate juridical personality, distinct from that of its parent company, hence, any claim or suit against the latter does not bind the former and vice versa.

Petitioner muddles the issues by arguing that respondent fraudulently took advantage of the control over the matter of compensation and benefits of an employee of Sky Vision to deceive petitioner into signing the loan agreement on the misleading assurance that it was merely for the purpose of documenting the reward to him of ten million pesos. This argument does not persuade. Petitioner, being a lawyer, is presumed to know the legal and binding effects of loan agreements.

Petitioner argues nevertheless that jurisdiction over the subsidiary is justified by piercing the veil of corporate fiction. Piercing the veil of corporate fiction is warranted, however, only in cases when the separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the case of two corporations, the law will regard the corporations as merged into one.[27] The rationale behind piercing a corporations identity is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities.[28]

It bears emphasis that Sky Visions involvement in the transaction subject of the case sprang only after a proposal was apparently proffered by petitioner that his retirement benefits from Sky Vision be used in partial payment of his loan from respondent as gathered from the July 15, 1998 letter[30] of Rommel Duran, VicePresident and General Manager of respondent, to petitioner reading:

Dear Mr. Velarde:

WHEREFORE, the instant petition for review on certiorari is hereby DENIED.

SO ORDERED. As requested, we have made computations on the outstanding amount of your loan with Lopez, Inc. should your retirement benefits from Sky Vision Corporation/Central CATV, Inc. Sky/Central) be applied to the partial payment of your loan. Please note that in order to effect the application of your retirement benefits to the partial payment of your loan, you will need to give Sky/Central written instructions on the same in the soonest possible time.

As you will see in the attached computation, the amount of P4,077,077.13 will be applied to the payment of your loan to retroact on January 1, 1998. The amount of P422,922.87, representing unliquidated advances made by Sky/Central to you (see attached listing), has been deducted from your retirement pay of P4.5 million. Should you be able to liquidate the advances as requested by Sky/Central, the said amount will be applied to the partial payment of your loan and we shall adjust the amount of principal and interest due from you accordingly. After the application of the amount of P4,077,077.13 to the partial payment of your loan, the amount of P7,585,912.86 will be immediately due and demandable. The amount of P7,585,912.86 represents the outstanding principal and interest due as of July 15, 1998.

Without the application of your retirement benefits to the partial payment of your loan, the amount of P11,850,000.00 is due as of July 15, 1998. We reiterate our demand for full payment of your outstanding obligation immediately. (Underscoring supplied)

25. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 119292 July 31, 1998 REPUBLIC OF THE PHILIPPINES represented by the PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, petitioner, vs. SANDIGANBAYAN, IMELDA COJUANGCO, THE ESTATE OF RAMON COJUANGCO represented by IMELDA COJUANGCO, and PRIME HOLDINGS, INC., respondents. PANGANIBAN, J.: Should a sequestration order be deemed invalid and "automatically lifted" on the grounds that (1) it was signed by only one PCGG Commissioner in contravention of the Presidential Commission on Good Government Rules and Regulations ("PCGG Rules" or simply "Rules") requiring the authority of at least two commissioners; and in any event, (2) the PCGG failed, within the prescribed period, to institute or to implead or include private respondents in the proper judicial action, as required by the 1987 Constitution?

As for the trial courts ruling that the agreement to set-off is an amendment of the loan agreement resulting to an identity of interest between respondent and Sky Vision and, therefore, sufficient to pierce the veil of corporate fiction, it is untenable. The abovequoted letter is clear that, to effect a set-off, it is a condition sine qua non that the approval thereof by Sky/Central must be obtained, and that petitioner liquidate his advances from Sky Vision. These conditions hardly manifest that respondent possessed that degree of control over Sky Vision as to make the latter its mere instrumentality, agency or adjunct.

The Case The Sandiganbayan answered the foregoing question in the affirmative in two Resolutions 1 dated December 17, 1993, 2 and August 29, 1994. 3 Declared "automatically lifted" in the earlier Resolution were the writs of sequestration that the PCGG had issued (a) against Prime Holdings, Inc. (PHI) and (b) over 111,415 shares of stock of the Philippine Telecommunications Investment Corporation (PTIC) registered in the name of PHI. The later Resolution denied the motion for reconsideration filed by the PCGG. Disagreeing with the above rulings, the PCGG filed the instant petition for certiorari before us, imputing grave abuse of discretion on the part of the antigraft court. The Facts The petition alleges that the PCGG issued the following communications, all dated May 9, 1986: (1) an Order of Sequestration 4 directed against all properties, assets, records and documents of PHI; (2) another Order 5sequestering 111,415 shares of stock of PTIC registered in the books of PTIC in the name of PHI; and (3) a letter6 addressed to Siguion Reyna Montecillo & Ongsiako, advising the said law firm that the PCGG, in its session on May 2, 1986, resolved inter alia "[t]o order the sequestration of all the shareholdings of PRIME HOLDINGS, INC. (PHI), which owns approximately 46% of PHILIPPINE TELECOMMUNICATIONS INVESTMENT CORPORATION (PTIC), which in turn owns approximately 26% of PLDT [Philippine Long Distance Telephone Company]." The two Orders were signed solely by the late PCGG Commissioner Mary Concepcion Bautista, while the letter was signed by both Commissioner Bautista and then PCGG Commissioner Raul Daza. On July 16, 1987, petitioner filed before the Sandiganbayan a Complaint for reconveyance, reversion, accounting restitution and damages against Spouses Ferdinand and Imelda Marcos, Spouses Imelda (Imee) and Tomas Manotoc, Spouses Irene and Gregorio Ma. Araneta III, Ferdinand R. Marcos Jr., Constante Rubio, Nemesio G. Co, Yeung Chun Kam, Yeung Chun Ho and Yeung Chun Fan. Said Complaint, docketed as Civil Case No. 0002, principally sought to recover from defendants their alleged ill-gotten wealth, consisting of funds and property which were manifestly out of proportion to their salaries and other lawful income, having been allegedly acquired during the incumbency of the Spouses Marcos as public officers. Among such properties mentioned in the Complaint were shares of stock in various corporation, including PTIC and PLDT, a list of which was annexed to the Complaint. An amended Complaint 7 filed on April 23, 1990, included in Civil Case No. 0002 as additional parties-defendants herein Private Respondents Imelda Cojuangco, the estate of Ramon Cojuangco represented by its administratrix Imelda Cojuangco, and Prime Holdings, Inc. The amended complaint further alleged inter alia that these new defendants held shares of stock in PLDT, which "in truth and in fact belong to defendants Ferdinand Marcos and his family." Three years later, on May 4, 1993, private respondents filed in Civil Case No. 0002 a Motion 8 seeking to declare the order of sequestration against PHI automatically lifted. In support of their Motion, private respondents cited (1) the non-observance by PCGG of its own rules and regulations requiring the authority of at least two commissioners for the issuance of sequestration orders; and (2) the failure of PCGG to file the appropriate judicial action within the period prescribed under Section 26, 9 Article XVIII of the 1987 Constitution, or "not later

than 2 August 1987," since the sequestration order was issued on May 9, 1986, which was "a date before the ratification of the Philippine Constitution on 2 February 1987." On December 20, 1993, the first assailed Resolution of public respondent, which granted the above-mentioned Motion, was promulgated. The sequestration orders against PHI and its shares of stock in PTIC were declared "automatically lifted" by the Sandiganbayan, which upheld the movants' contentions in this wise: WHEREFORE, the Order of Sequestration dated May 9, 1986 directed (against) defendant Prime Holdings, Inc. and the Order dated May 9, 1986 sequestering 111,415 shares of stock of Philippine Telecommunications Investment Corporation registered in the name of Prime Holdings, Inc. are hereby declared automatically lifted pursuant to Section 26 of Article XVIII of the 1987 Philippines Constitution. 10 Expectedly, PCGG filed a Motion for Reconsideration. 11 Noting that petitioner raised no new issue or matter that might materially affect its findings in its previous Resolution, public respondent denied said Motion "for lack of merit." 12 Hence, the present recourse. 13 The Issues Petitioner PCGG charges Respondent Sandiganbayan with "grave abuse of discretion and act[ing] without jurisdiction," viz.: I. In declaring the writs of sequestration as defective for not being authorized by at least two commissioners pursuant to Section 3 of the PCGG Rules and Regulations. II. In declaring the writs of sequestration to have been automatically lifted for alleged failure of petitioner to file the proper judicial action against private respondent corporation within the period fixed in Section 26 of Article XVIII of the 1987 Constitution. III. In applying the rulings in PCGG vs. International Copra Export Corp. (G.R. No. 92755, July 26, 1991) and Republic vs. Sandiganbayan (200 SCRA 530 [1991]) that the filing by petitioner of the judicial action against a stockholder is not the judicial action contemplated by the Constitution. IV. By misinterpreting or misapplying the ruling in Filmerco vs. IAC (149 SCRA 193 [1987]) as said ruling, being a mere obiter dictum, had not overturned the application of the doctrine of "piercing the veil of corporate fiction" as held in a long line of decisions by this Honorable Court.14

Simply stated, the principal issues being raised by petitioner are: (1) the validity of the sequestration orders against PHI and PHI-held shares in PTIC; and (2) the alleged failure of PCGG to file the proper judicial action as contemplated under Section 26, Article XVIII of the 1987 Constitution. Before this Court, private respondents initially filed a motion 15 to dismiss the petition on the ground of laches, the petition having been filed only after six and a half months from petitioner's receipt of the public respondent's denial of its Motion for Reconsideration. They assert that this interval of time was clearly beyond the "reasonable period" allowed under Rule 65 for filing a petition for certiorari. 16 Prior to the amendment of the Rules of Court on July 1, 1997, we had ruled in several cases that three (3) months from receipt of the challenged decision, order or resolution was a reasonable period within which to institute a certiorari proceeding. 17 Thus, in People vs. Magallanes, 18 the lapse of nine to ten months before assailing a denial of bail was no longer considered reasonable. Furthermore, in Cruz vs. Court of Appeals, 19 where certiorari was sought after more than two years, we held that there was unreasonable delay in the filing of the petition. We also ruled that laches sets in after an interval of seven months 20 or of ninety-nine days 21 has passed since the rendition of the order sought to be set aside. Indeed, if "three months" is to be used as the yardstick for filing an action for certiorari, the present petition should have been dismissed long ago. In view, however, of this Court's past pronouncements 22 that cases involving sequestered corporations are "endowed with public interest and involve a matter of public policy"; and in order to dispose, once and for all, the recurring issues herein raised, we (1) resolved on May 22, 1995, to note without action private respondents' Motion to Dismiss and (2) reiterated the March 25, 1995 Resolution requiring them to comment on the petition. In effect, the "three-month rule" was suspended, but only in regard to this case. The Court's Ruling After a careful study and analysis of both parties' arguments, as well as the applicable law and jurisprudence, we find the petition to be without merit. First Issue: Validity of Sequestration Orders Signed by Only One Commissioner Sec. 3 of the PCGG Rules and Regulations, which took effect immediately after its promulgation on April 11, 1986, explicitly provides: Sec. 3. Who may issue. A writ of sequestration or a freeze or hold order may be issued by the Commission upon the authority of at least two Commissioners, based on the affirmation or complaint of an interested party or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted. Undisputed is the fact that only one commissioner, the late Mary Concepcion Bautista, signed the two sequestration orders subject of this petition. To support its contention that there is no need for the signatures of two commissioners authorizing said orders, petitioner submits this excerpt 23 from the minutes of a PCGG meeting held on October 15, 1987: The authority of at least two commissioners which is required under Sec. 3 of the PCGG Rules and Regulations may be written or verbal authority. Such authority may be reflected in the Minutes of the Commission Meeting held en

banc covering the pertinent recommendation/approval on the issuance of the order; or the Commissioner-in-charge intending to issue the Order may simply obtain the concurrence of another Commissioner after explaining the evidence supporting such order. It is sufficient for only one Commissioner to sign the Order "FOR THE COMMISSION". After April 11, 1986, the Commission has encouraged the practice of two Commissioners signing the Order. Generally, the interpretation of an administrative government agency, which is tasked to implement a statute, is accorded great respect and ordinarily controls the construction of the courts. 24 The reason behind this rule was explained in Nestle Philippines, Inc vs. Court of Appeals 25 in this wise: The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to the accumulation of experience and growth of specialized by the administrative agency charged with implementing a particular statute. In Asturias Sugar Central, Inc. vs. Commissioner of Customs 26 the Court stressed that executive officials are presumed to have familiarized themselves with all the considerations pertinent to the meaning and purpose of the law, and to have formed an independent, conscientious and competent expert opinion thereon. The courts give much weight to the government agency or officials charged with the implementation of the law, their competence expertness, experience and informed judgment, and the fact that they frequently are the drafters of the law they interpret. As a general rule, contemporaneous construction is resorted to for certainty and predictability in the laws, 27especially those involving specific terms having technical meanings. However, courts will not hesitate to set aside such executive interpretation when it is clearly erroneous, or when there is no ambiguity in the rule, 28 or when the language or words used are clear and plain or readily understandable to any ordinary reader 29 without need for interpretation or construction. The construction advanced by petitioner creates rather than clears ambiguity. The fair and sensible interpretation of the PCGG Rule in question is that the authority given by two commissioners for the issuance of a sequestration, freeze or hold order should be evident in the order itself. Simply stated, the writ must bear the signatures of two commissioners, because their signatures are the best evidence of their approval thereof. Otherwise, the validity of such order will be open to question and the very evil sought to be avoided the use of spurious or fictitious sequestration orders will persist. The corporation or entity against which such writ is directed will not be able to visually determine its validity, unless the required signatures of at least two commissioners authorizing its issuance appear on the very document itself. The issuance of sequestration orders requires the existence of a prima faciecase. The two-commissioner rule is

obviously intended to assure a collegial determination of such fact. In this light, a writ bearing only one signature is an obvious transgression of the PCGG Rules. Inasmuch as sequestration tends to impede or limit the exercise of proprietary rights by private citizens, 30 it should be construed strictly against the state, pursuant to the legal maxim that statutes in derogation of common rights are in general strictly construed and rigidly confined to cases clearly within their scope and purpose. 31 As Mme. Justice Ameurfina Melencio-Herrera aptly said: Sequestration is an extraordinary, harsh, and even severe remedy. It should be confined to its lawful parameters and exercised, with due regard, in the words of its enabling laws, to the requirements of fairness, due process, and justice. 32 Concededly, even the exercise of the "inherent and plenary" police power of the state to impose restrictions on property rights is subject to the conditions of reasonableness, public welfare, and necessity. 33 Furthermore, petitioner's attempted clarification of Section 3 of the PCGG Rules was made only on October 15, 1987, or a full year and six months from the promulgation 34 of said Rules. Such clarification by the then commissioners was obviously self-serving and cannot be given much value. Apparently, the commissioners were simply trying to save face over their mistaken issuance of sequestration orders contrary to the very Rules they themselves had crafted and promulgated. Even conceding for the nonce that the adverted Rule is indeed ambiguous, the dictum is that such ambiguity should be taken contra proferentem; that is, it should be construed against the party who had caused the ambiguity and who could have avoided it by the exercise of a little more care. 35 Significantly, in that same meeting where the strained clarification of the subject Rule was made, the commissioners also affirmed that the signing of sequestration orders by two commissioners had already been encouraged after April 11, 1986, 36 presumably pursuant to the PCGG Rules which took effect on said date. This affirmation plainly bolsters the proposition that the real intent behind the Rule was to require two commissioners to sign such orders. But still, on May 9, 1986, or only four weeks after the Rules had been promulgated, the Commission failed to heed its own declaration as proven by the signing of the questioned writs by only one commissioner. Republic vs. Dio Island Resort and Republic vs. Provident International Resources Not Applicable to the Present Case At this Point, the present case will be examined and compared with two others involving the validity of sequestration orders issued by less than two PCGG commissioners: Republic vs. Sandiganbayan, Romualdez and Dio Island Resort, 37 ("Republic vs. Dio Island"), which voided the writ issued against the resort; and Republic vs. Sandiganbayan (Third Division), Provident International Resources Corp., and Phil. Casino Operators Corp. 38("Republic vs. Provident"), which upheld the writs issued against the respondent corporations. In Republic vs. Dio Island, the sequestration order was issued on April 14, 1986, by the head of the PCGG Task Force in Region VIII. Ruling that such issuance by a non-commissioner was not valid, the Court explained that Section 3 of the PCGG Rules and Regulations, which is "couched in clear and simple language, leaves no room for interpretation. On the basis thereof, it is indubitable that under no circumstances can a sequestration or freeze order be validly issued by one

not a Commissioner of the PCGG." 39 Furthermore, "PCGG may not delegate to its representatives and subordinates its authority to sequester, and any such delegation is invalid and ineffective." 40In sum, not only was the authority of the official who issued the order absent; no such authority legally existed. In Republic vs. Provident, on the other hand, the questioned writ bore the signature of only one commissioner, as in this case. Yet, the Court upheld its validity for the reason that the writ was issued on March 19, 1986, before the promulgation of the PCGG Rules and Regulations. In refusing to lift the writ, we reasoned that "we cannot reasonably expect the Commission to abide by said rules which were nonexistent at the time the subject writ was issued by then Commissioner Mary Concepcion Bautista. Basic is the rule that no statute, decree, ordinance, rule or regulation (or even policy) shall be given retrospective effect unless explicitly stated so. We find no provision in said Rules which expressly gives them retroactive effect, or implies the abrogation of previous writs issued not in accordance with the same Rules." 41 Thus, the writ signed by only one commissioner was held valid. The rationale in Provident has no relevance or application to the instant case, since the writ bearing the sole signature of the late Commissioner Bautista was issued after the promulgation and effectivity of the PCGG Rule requiring the authority of at least two commissioners for the issuance of a sequestration order. Obviously, Section 3 of the PCGG Rules was intended to protect the public from improvident, reckless and needless sequestrations of private property. And since these Rules were issued by Respondent Commission, it should be the first entity to observe them. Letter to Law Firm Not a Sequestration Writ Nor can we accord probative value to the communication signed by Commissioners Data and Bautista and addressed to Siguion Reyna, Montecillo & Ongsiako. First, this letter is definitely not a writ of sequestration; it does not even purport to be one. It merely relays the information to the said law firm, and not to PHI (the company purported to be sequestered), that the Commission has resolved "(t)o order the sequestration of all the shareholdings of PRIME HOLDINGS, INC." Second, the letter makes no reference to the questioned writ as one that embodies the Resolution of the Commission ordering the sequestration of the shareholdings of PHI. Third, nothing in the records shows that on the date the letter was written (May 9, 1986), the law firm to which it was addressed was the legal counsel of PHI on the matter at hand. And fourth, there is no proof that said letter was received by the law firm for and on behalf of PHI. With all the above considerations, private respondents cannot be presumed to have had constructive knowledge of the alleged sequestration order against PHI. EO 2 not a General Writ of Sequestration Petitioner also argues that Executive Order No. 2 42 (EO 2), issued on March 12, 1986 by then President Corazon C. Aquino by virtue of her revolutionary powers under the Freedom Constitution, partakes of a general freeze and sequestration order which cannot be lifted by this Court without. altogether nullifying the law. This contention is utterly without merit. The PCGG was created 43 precisely "with the task of assisting the President in regard to . . . matters" among which was "[t]he recovery of all ill-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family,

relatives, subordinates and close associates, whether located in the Philippines or abroad, including the takeover or sequestration of all business enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence, connections or relationship." 44 More specifically, the PCGG was granted this power and authority: to sequester or place or cause to be placed under its control or possession any building or office wherein any ill-gotten wealth or properties may be found, and any records pertaining thereto, in order to prevent their destruction, concealment or disappearance which would frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing its task. 45 It appears, therefore, that while then President Corazon C. Aquino, through EO 2, froze all assets and properties in the Philippines in which former President Marcos and his wife, their close relatives, subordinates, business associates, dummies, agents, or nominees had any interest or participation, EO 1 is more specific in delegating to the PCGG the power to issue writs of sequestration While EO 2 is a general policy statement affirming the right and duty of the government to recover ill-gotten wealth, 46 as well as a general notice to the public that it is pursuing such right, EO 1 gives authority to the PCGG to undertake the details to enable it to achieve such purpose. This is but logical, because sequestration presupposes the existence of a prima facie case, 47 the determination of which lies with the PCGG which is vested with investigatory powers pursuant to its mandate. 48Furthermore, by virtue of the requirements of due process, EO 1, by itself, obviously cannot be equated with an allencompassing writ of sequestration, since it names no particular person or property against whom or which it is directed. Second Issue: Respondents Impleaded Beyond Prescribed Period Petitioner contends that there is no need (1) to file a separate action or (2) to independently implead PHI in Civil Case No. 0002, because PTIC has already been included in the list of alleged ill-gotten wealth of defendants in said case. To buttress its position, petitioner cites Republic vs. Sandiganbayan (First Division), 49 in which the Court, through Mr. Chief Justice Andres R. Narvasa, held: 1) Sec. 26, Article XVIII of the Constitution does not, by its terms or any fair interpretation thereof, require that corporations or business enterprises alleged to be repositories of "ill-gotten wealth," as the term is used in said provision, be actually and formally impleaded in the actions for the recovery thereof, in order to maintain in effect existing sequestrations thereof; 2) complaints for the recovery of ill-gotten wealth which merely identify and/or allege said corporations or enterprises to be the instruments, repositories or the fruits of ill-gotten wealth, without more, come within the meaning of the phrase "corresponding judicial action or proceeding" contemplated by the constitutional provision referred to; the more so, that normally, said corporations, as distinguished from their

stockholders or members, are not generally suable for the latter's illegal or criminal actuations in the acquisition of the assets invested by them in the former; 3) even assuming the impleading of said corporations to be necessary and proper so that judgment may comprehensively and effectively be rendered in the actions, amendment of the complaints to implead them as defendants may, under existing rules of procedure, be done at any time during the pendency of the actions thereby initiated, and even during the pendency of an appeal to the Supreme Court a procedure that, in any case, is not inconsistent with or proscribed by the constitutional time limits to the filing of the corresponding complaints "for" i.e., with regard or in relation to, in respect of, or in connection wit, or concerning orders of sequestration, freezing, or provisional takeover. 50 Petitioner misapplies our above-quoted pronouncements. The filing of an action directly against a sequestered corporation, or its impleading in a complaint for recovery of ill-gotten wealth, is not necessary when (1) a formal complaint has already been filed against the persons alleged to have unlawfully amassed wealth; (2) such complaint, whether in its body or in an attachment or annex, refers to specific funds or properties, among which is the sequestered entity or asset; and (3) such complaint was filed within the period prescribed in Section 26, Article XVIII of the Constitution. These requisites do nor obtain in the case at bar. First, the original Complaint for the recovery of ill-gotten wealth filed on July 16, 1987, did not implead any of private respondents as parties thereto. Neither were they included in the annexed list of alleged ill-gotten wealth. It was only on April 23, 1990, via an amended Complaint, that Imelda Cojuangco, the estate of Ramon Cojuangco, and Prime Holdings, Inc., were made parties-defendants. By then, three years well beyond the six months prescribed by the Constitution had passed since the issuance of the sequestration orders against the PHI and the PTIC shares it owned. Second, even if PTIC was listed in the Annex to the Complaint, it must be understood that the case refers only to the extent of the shares in PTIC illegally acquired by the original defendants. As we stated in the aforecitedRepublic vs. Sandiganbayan (First Division): 51 As regards actions in which the complaints seek recovery of defendants' shares of stock in existing corporations (e.g., San Miguel Corporation, Benguet Corporation, Meralco, etc.) allegedly purchased with misappropriated public funds, in breach of fiduciary duty, or otherwise under illicit or anomalous conditions, the impleading of said firms would clearly appear to be unnecessary. If warranted by the evidence, judgments may be handed against the corresponding defendants divesting them of ownership of their stock, the acquisition thereof being illegal and consequently burdened with a constructive trust, and imposing on them the obligation of surrendering them to the Government.

Thus, whether PHI itself an entirely different corporate entity, though a major investor in PTIC has shareholdings unlawfully or anomalously acquired, or whether it was organized with ill-gotten wealth, is a different matter. Notably, the individual respondents are the registered owners of PHI and, as earlier stated, they had not been included as original defendants in Civil Case No. 0002. The judicial action against them was belatedly instituted long after the lapse of the constitutional time frame. In its Memorandum, 52 petitioner vehemently argues that "although PHI was not initially included in the enumeration of the ill-gotten wealth of the Marcoses . . . in Annex A of the original complaint," it is enough that "PTIC and PLDT were included in said list of ill-gotten wealth of the principal defendants." This argument is absolutely in contravention of the due process guarantee. PHI is a corporation completely separate from PTIC and PLDT. Indeed, it has a personality distinct from said entities. Petitioner has shown no commonality in shareholding, management or operation among them. Neither has it alleged, much less proven, any ground why the separate corporate personality of PHI should be set aside or pierced. And definitely, the most basic considerations of due process prevent a suit against PTIC and PLDT from adversely affecting and prejudicing the proprietary rights of PHI and its likewise unimpleaded shareholders. 53 Third, the filing of the amended Complaint on April 23, 1990 for the purpose of specifically impleading PHI, Imelda Cojuangco and the estate of Ramon Cojuangco represented by its administratrix, as defendants, cannot be deemed to date back to the filing of the original Complaint and to thereby imply compliance with the constitutional provision. The filing of an amended pleading does not retroact to the date of the filing of the original; hence, the statute of limitations runs until the submission of the amendment. 54 While it has been held that "an amendment which merely supplements and amplifies facts originally alleged in the complaint relates back to the date of the commencement of the action and is nor barred by the statute of limitations which expired after the service of the original complaint," 55 such rule does not apply to a party who is impleaded for the first time in the amended complaint that was filed beyond the prescriptive period. 56 Prescription is a legal defense accorded any person against whom a judicial action is belatedly brought after the lapse of the time specified by law. Here, it is the Constitution itself which defines the period within which judicial proceedings may be brought against sequestered entities. From the foregoing, it is clear that no judicial action was instituted against the private respondents within the prescribed period. All in all, the sequestration orders issued against private respondents and the 111,415 shares of PTIC registered under the name of PHI must perforce be deemed automatically lifted due to (1) the invalidity of the alleged sequestration writs themselves, owing to the non-observance of the PCGG Rule requiring the authority of at least two commissioners; and, in any event, (2) the failure of PCGG to commence the proper judicial action, or to implead private respondents therein, within the period prescribed by Section 26, Article XVIII of the 1987 Constitution. Corollary Matter: Disclosures of Jose Yao Campos

Petitioner, in a desperate final attempt to justify the continued sequestration of PHI and the subject shares it owns in PTIC, invokes an alleged deposition of Jose Yao Campos declaring that former President Marcos was the true owner of PHI. This argument is irrelevant and immaterial to the present petition. The focal issues of this case pertain only to the validity of the sequestration order signed by just one commissioner and the timeliness of the judicial action against private respondents. The substantive issue on whether PHI or the PTIC shares are ill-gotten wealth is another matter and should be litigated in the main case for recovery and reconveyance (Civil Case No. 0002). The lifting of the writs of sequestration will not necessarily be fatal to the main case. It is in the latter proceeding that Campos' testimony may be properly offered and its value and credit-worthiness appreciated. Even with the lifting of the sequestration orders against PHI and the PTIC shares, these properties may still be recovered by the government upon substantial proof, proffered in the proper suit, that they indeed constitute unlawfully amassed wealth of the Marcoses and/or their conduits. The lifting of the subject orders does not ipso facto mean that the sequestered properties are not ill-gotten; neither does it preempt a finding to that effect in the main action. The effect of the lifting of the sequestration against PHI and the subject PTIC shares will merely be the termination of the role of the government as conservator thereof. In other words, the PCGG may no longer exercise administrative or housekeeping powers, 57 and its nominees may no longer vote the heretofore sequestered shares to enable them to sit on the corporate board of the subject firm. In brief, sequestration is not the be-all and end-all of the efforts of the government to recover unlawfully amassed wealth. The PCGG may still proceed to prove in the main suit who the real owners of these assets are. Besides, as we reasserted in Republic vs. Sandiganbayan, 58 the PCGG may still avail itself of ancillary writs, since "Sandiganbayan's jurisdiction over the sequestration cases demands that it should also have the authority to preserve the subject matter of the cases, the alleged ill-gotten wealth properties . . . ." With the use of proper remedies and upon substantial proof, properties in litigation may, when necessary, be placed in custodia legis for the complete determination of the controversy or for the effective enforcement of the judgment. However, for violating the Constitution and its own Rules, the PCGG may no longer exercise dominion and custody over Respondent Corporation and the shares it owns in PTIC. Epilogue As stated earlier, sequestration is simply a provisional remedy; an extraordinary measure intended to prevent the destruction, concealment or dissipation of sequestered properties and, thereby, to conserve and preserve them, pending the judicial determination in the appropriate proceeding of whether the property was in truth ill-gotten. 59Sequestration effectively deprives, to a considerable extent, the ostensible or apparent owners of administrative powers and voting rights. Essentially then, sequestration intrudes into private rights. In the stead of the ostensible PCGG nominees vote the shares and sit on the boards of private corporations supposedly for the purpose only of "safeguarding" or "preserving" the sequestered assets until they are finally adjudicated. 60 But beyond such custodial powers, the PCGG must hurdle its more important task:

that of proving the ill-gotten nature of the sequestered assets and of causing their reversion or reconveyance to the people. 61 About twelve years have now passed since most of the sequestration orders against corporations and assets, alleged to be unlawfully amassed by the Marcoses and their cronies, were issued; and the so-called "ill-gotten wealth cases" filed in the Sandiganbayan. Sadly, however, the substantiation of the claim that they are in fact ill-gotten most often remains pendent. In the instant case alone, the questioned sequestration orders were issued more than twelve years ago; and Civil Case No. 0002 has been pending before the Sandiganbayan for about eleven years now. Yet, we are still discussing the validity of such orders. Undoubtedly, the PCGG has, in the past, reportedly 62 shown some success in: preventing improper dispositions of alleged ill-gotten properties in the United States; securing a landmark judgment in the Swiss Supreme Court turning over, albeit conditionally, certain "criminally acquired" bank deposits; entering into compromises with certain respondents in a number of cases; and transmitting recovered ill-gotten funds to the national treasury. Petitioner Commission, however, has yet to show its firm determination to prosecute to final resolution any of the cases it. has dauntlessly filed in Philippine courts over a decade ago. Time and again, 63 we have prodded the petitioner and the Sandiganbayan to speedily proceed with the hearings and resolutions of the main cases for recovery and reconveyance. It is about time that the PCGG, created with the primary and paramount task of recovering ill-gotten wealth, act with deliberate dispatch on its primordial work of substantiating its claims and, thereby, perform its bounden duty to the Filipino people: to render justice to all. WHEREFORE, the petition is hereby DENIED for failure of petitioner to show grave abuse of discretion on the part of Respondent Court. The assailed Resolutions of Respondent Sandiganbayan are hereby AFFIRMED. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 91889 August 27, 1993

MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO REDOVAN, petitioners, vs. THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES, JR., MARIA THERESA V. VELOSO AND CASTRENSE C. VELOSO, respondents. Virgilio E. Dulay for petitioners. Torres, Tobias, Azura & Jocson for private respondents.

NOCON, J.: This is a petition for review on certiorari to annul and set aside the decision 1 of the Court of Appeals affirming the decision 2 of the Regional Trial Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and 2880-P, the dispositive portion of which reads, as follows: Wherefore, in view of all the foregoing considerations, in this Court hereby renders judgment, as follows: In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay for annulment or declaration of nullity of the decision of the Metropolitan Trial Court, Branch 46, Pasay City, in its Civil Case No. 38-81 entitled "Edgardo D. Pabalan, et al., vs. Spouses Florentino Manalastas, et al.," is dismissed for lack of merits; In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for cancellation of title of Manuel A. Torres, Jr. (TCT No. 24799 of the Register of Deeds of Pasay City) and reconveyance, is dismissed for lack or merit, and, In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay are ordered to surrender and deliver possession of the parcel of land, together with all the improvements thereon, described in Transfer Certificate of Title No. 24799 of the Register of Deeds of Pasay City, in favor of therein plaintiffs Manuel A. Torres, Jr. as owner and Edgardo D. Pabalan as real estate administrator of said Manuel A. Torres, Jr.; to account for and return to said plaintiffs the rentals from dwelling unit No. 8-A of the apartment building (Dulay Apartment) from June 1980 up to the present, to indemnify plaintiffs, jointly and severally, expenses of litigation in the amount of P4,000.00 and

26.

attorney's fees in the sum of P6,000.00, for all the three (3) cases. Co-defendant Nepomuceno Redovan is ordered to pay the current and subsequent rentals on the premises leased by him to plaintiffs. The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay Enterprises, Inc. and N. Redovan, dismissed for lack of merit. With costs against the three (3) aforenamed defendants. 3 The facts as found by the trial court are as follows: Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members of its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and general manager, Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and designated as secretary, owned a property covered by TCT No. 17880 4 and known as Dulay Apartment consisting of sixteen (16) apartment units on a six hundred eighty-nine (689) square meters lot, more or less, located at Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City. Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from petitioner Virgilio Dulay to be able to continue the hotel project. As a result of said loan, petitioner Virgilio Dulay occupied one of the unit apartments of the subject property since property since 1973 while at the same time managing the Dulay Apartment at his shareholdings in the corporation was subsequently increased by his father. 5 On December 23, 1976, Manuel Dulay by virtue of Board Resolution No 18 6 of petitioner corporation sold the subject property to private respondents spouses Maria Theresa and Castrense Veloso in the amount of P300,000.00 as evidenced by the Deed of Absolute Sale. 7 Thereafter, TCT No. 17880 was cancelled and TCT No. 23225 was issued to private respondent Maria Theresa Veloso. 8 Subsequently, Manuel Dulay and private respondents spouses Veloso executed a Memorandum to the Deed of Absolute Sale of December 23, 1976 9 dated December 9, 1977 giving Manuel Dulay within (2) years or until December 9, 1979 to repurchase the subject property for P200,000.00 which was, however, not annotated either in TCT No. 17880 or TCT No. 23225. On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject property to private respondent Manuel A. Torres for a loan of P250,000.00 which was duly annotated as Entry No. 68139 in TCT No. 23225. 10 Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject property was sold on April 5, 1978 to private respondent Torres as the highest bidder in an extrajudicial foreclosure sale as evidenced by the Certificate of Sheriff's Sale 11 issued on April 20, 1978.

On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem 12 in favor of Manuel Dulay assigning her right to repurchase the subject property from private respondent Torres as a result of the extra sale held on April 25, 1978. As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject property within the one year statutory period for redemption, private respondent Torres filed an Affidavit of Consolidation of Ownership 13 with the Registry of Deeds of Pasay City and TCT No. 24799 14 was subsequently issued to private respondent Manuel Torres on April 23, 1979. On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession against private respondents spouses Veloso and Manuel Dulay in LRC Case No. 1742-P. However, when petitioner Virgilio Dulay was never authorized by the petitioner corporation to sell or mortgage the subject property, the trial court ordered private respondent Torres to implead petitioner corporation as an indispensable party but the latter moved for the dismissal of his petition which was granted in an Order dated April 8, 1980. On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator of Torres, filed an action against petitioner corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment Unit No. 8-A for the recovery of possession, sum of money and damages with preliminary injunction in Civil Case, No. 8198-P with the then Court of First Instance of Rizal. On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso and Torres for the cancellation of the Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P with the then Court of First Instance of Rizal. On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses Florentino and Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with petitioner corporation as intervenor for ejectment in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay City which rendered a decision on April 25, 1985, dispositive portion of which reads, as follows: Wherefore, judgment is hereby rendered in favor of the plaintiff (herein private respondents) and against the defendants: 1. Ordering the defendants and all persons claiming possession under them to vacate the premises. 2. Ordering the defendants to pay the rents in the sum of P500.000 a month from May, 1979 until they shall have vacated the premises with interest at the legal rate; 3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00 and P1,000.00 as other expenses of litigation and for them to pay the costs of the suit. 15

Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action against the presiding judge of the Metropolitan Trial Court of Pasay City, private respondents Pabalan and Torres for the annulment of said decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P. Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in favor of private respondents. Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision on October 23, 1989, the dispositive portion of which reads, as follows: PREMISES CONSIDERED, the decision being appealed should be as it is hereby AFFIRMED in full. 16 On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on January 26, 1990. Hence, this petition. During the pendency of this petition, private respondent Torres died on April 3, 1991 as shown in his death certificate 17 and named Torres-Pabalan Realty & Development Corporation as his heir in his holographic will 18 dated October 31, 1986. Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied the doctrine of piercing the veil of corporate entity in the instant case considering that the sale of the subject property between private respondents spouses Veloso and Manuel Dulay has no binding effect on petitioner corporation as Board Resolution No. 18 which authorized the sale of the subject property was resolved without the approval of all the members of the board of directors and said Board Resolution was prepared by a person not designated by the corporation to be its secretary. We do not agree. Section 101 of the Corporation Code of the Philippines provides: Sec. 101. When board meeting is unnecessary or improperly held. Unless the bylaws provide otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: 1. Before or after such action is taken, written consent thereto is signed by all the directors, or 2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or 3. The directors are accustomed to take informal action with the express or implied acquiese of all the stockholders, or

4. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing. If a directors' meeting is held without call or notice, an action taken therein within the corporate powers is deemed ratified by a director who failed to attend, unless he promptly files his written objection with the secretary of the corporation after having knowledge thereof. In the instant case, petitioner corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in his case, petitioner Virgilio Dulay failed to do. It is relevant to note that although a corporation is an entity which has a personality distinct and separate from its individual stockholders or members, 19 the veil of corporate fiction may be pierced when it is used to defeat public convenience justify wrong, protect fraud or defend crime. 20 The privilege of being treated as an entity distinct and separate from its stockholder or members is therefore confined to its legitimate uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act. When the corporation is used merely as an alter ego or business conduit of a person, the law will regard the corporation as the act of that person. 21 The Supreme Court had repeatedly disregarded the separate personality of the corporation where the corporate entity was used to annul a valid contract executed by one of its members. Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private respondents spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without the knowledge and consent of the other members of the board of directors cannot be sustained. As correctly pointed out by the respondent Court of Appeals: Appellant Virgilio E. Dulay's protestations of complete innocence to the effect that he never participated nor was even aware of any meeting or resolution authorizing the mortgage or sale of the subject premises (see par. 8, affidavit of Virgilio E. Dulay, dated May 31, 1984, p. 14, Exh. "21") is difficult to believe. On the contrary, he is very much privy to the transactions involved. To begin with, he is a incorporator and one of the board of directors designated at the time of the organization of Manuel R. Dulay Enterprise, Inc. In ordinary parlance, the said entity is loosely referred to as a "family corporation". The nomenclature, if imprecise, however, fairly reflects the cohesiveness of a group and the parochial instincts of the individual members of such an aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its incorporators being close relatives namely, three (3) children and their father whose name identifies their

corporation (Articles of Incorporation of Manuel R. Dulay Enterprises, Inc. Exh. "31-A"). 22 Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit 23 that he was a signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor of private respondent Torres indicates that he was aware of the transaction executed between his father and private respondents and had, therefore, adequate knowledge about the sale of the subject property to private respondents. Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject property to private respondents by Manuel Dulay is valid and binding. As stated by the trial court: . . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria Theresa V. Veloso and Castrense C. Veloso, was a corporate act of the former and not a personal transaction of Manuel R. Dulay. This is so because Manuel R. Dulay was not only president and treasurer but also the general manager of the corporation. The corporation was a closed family corporation and the only nonrelative in the board of directors was Atty. Plaridel C. Jose who appeared on paper as the secretary. There is no denying the fact, however, that Maria Socorro R. Dulay at times acted as secretary. . . ., the Court can not lose sight of the fact that the Manuel R. Dulay Enterprises, Inc. is a closed family corporation where the incorporators and directors belong to one single family. It cannot be concealed that Manuel R. Dulay as president, treasurer and general manager almost had absolute control over the business and affairs of the corporation. 24 Moreover, the appellate courts will not disturb the findings of the trial judge unless he has plainly overlooked certain facts of substance and value that, if considered, might affect the result of the case, 25 which is not present in the instant case. Petitioners' contention that private respondent Torres never acquired ownership over the subject property since the latter was never in actual possession of the subject property nor was the property ever delivered to him is also without merit. Paragraph 1, Article 1498 of the New Civil Code provides: When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary do not appear or cannot clearly be inferred. Under the aforementioned article, the mere execution of the deed of sale in a public document is equivalent to the delivery of the property. Likewise, this Court had held that: It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the possession of the said property and can demand it at any time following the consolidation of ownership

in his name and the issuance to him of a new transfer certificate of title. The buyer can in fact demand possession of the land even during the redemption period except that he has to post a bond in accordance with Section 7 of Act No. 3133 as amended. No such bond is required after the redemption period if the property is not redeemed. Possession of the land then becomes an absolute right of the purchaser as confirmed owner. 26 Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of Sale in deemed equivalent to delivery. Finally, we hold that the respondent appellate court did not err in denying petitioner's motion for reconsideration despite the fact that private respondents failed to submit their comment to said motion as required by the respondent appellate court from resolving petitioners' motion for reconsideration without the comment of the private respondent which was required merely to aid the court in the disposition of the motion. The courts are as much interested as the parties in the early disposition of cases before them. To require otherwise would unnecessarily clog the courts' dockets. WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED. SO ORDERED. 27. G.R. No. 89804 October 23, 1992

CALVIN S. ARCILLA, petitioner, vs. THE HONORABLE COURT OF APPEALS and EMILIO RODULFO, respondents.

DAVIDE, JR., J.: This petition is a belated attempt to avoid the adverse amended decision of public respondent, promulgated on 31 May 1989 in C.A.-G.R. No. 11389, 1 on the ground that petitioner is not personally liable for the amount adjudged since the same constitutes a corporate liability which nevertheless cannot even bind or be enforced against the corporation because it is not a party in the collection suit filed before the trial court. The procedural antecedents are not complicated. On 4 June 1985, private respondent filed with the Regional Trial Court (RTC) of Catanduanes a complaint for a sum of money against petitioner. 2 The case was docketed as Civil Case No. 1992 and was assigned to Branch 42 thereof. It is alleged therein: xxx xxx xxx

3. That from late 1981 up to early 1983, the defendant, taking advantage of his close friendship with the plaintiff, succeeded in securing on credit from the plaintiff, various items, cash and checks which the defendant encashed, in the total amount of P93,358.51, which the plaintiff willingly extended because of the representations of the defendant that he was a successful financial consultant of local and international businessmen; 4. That defendant's indebtedness referred to in the next preceding paragraph, is shown and described in thirty (30) "vales" signed by him or by persons authorized by him, all of which documents are in the possession of the plaintiff for being unredeemed or unpaid, xerox copies attached as Annexes "A" to "Z" and "AA" to "DD" which are hereby made integral parts hereof; 5. That commencing with the summer months of 1983 up to the time immediately before the filing of this complaint, the plaintiff had made numerous demands for payment but the respondent acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim; 6. That the plaintiff is left without any recourse other than to enforce his claim in court and had to secure the services of the undersigned counsel who charged the plaintiff with P1,000.00 for accepting the case, P200.00 appearance fee for every appearance before this Court, and attorney's contingent fee of 25% of the award in favor of the plaintiff; plaintiff shall incur litigation expenses which may amount to no less than P5,000.00, all of which amounts are recoverable from the defendant. In his Answer, 3 petitioner does not deny having had business transactions with the private respondent but alleges that the professional relationship began only in August of 1982 when he "was looking for a "pro-forma" invoice to support his loan with the Kilusang Kabuhayan at Kaunlaran (KKK for short) under the Ministry of Human Settlement (sic)." 4 He explicitly admits that "(H)is loan was in the same of his family corporation, CSAR Marine Resources, Inc.;" 5 however, the "vales", more specifically Annexes "A" to "DD" of the complaint, "were liquidated in the bank loan releases." 6 It is thus clear that his main defense is payment; he did not interpose any other affirmative defense. In his Pre-Trial Brief, 7 petitioner reiterated the earlier claim that his first business dealing with the plaintiff (private respondent herein) was in August of 1982. This time, however, he alleges that "as President of CSAR Marine Resources, Inc., he requested for a pro-forma Invoice for said corporation to support the loan application with the Kilusang Kabuhayan at Kaunlaran (KKK for short), with the Ministry of Human Settlement (sic)." 8 In its Decision of 1 August 1986, 9 the trial court made the following findings of fact: Defendant admitted the genuineness (sic) and due execution of Exhibits "A" to "DD" but, according to him, he already paid plaintiff P56,098.00 thru PNB Virac Branch, per Cash Voucher dated September 28, 1982 (Exh. 3) and then

P42,363.75 also thru PNB Virac Branch, per PNB check No. 628861K dated December 16, 1982 (Exh. 1). Analyzing the evidence adduced by both parties, it ruled that since Exhibit "3" is dated 28 September 1982 and the "vales", Exhibits "A" to "DD", with the exception of Exhibits "K" in the amount of P1,730.00 and "Q" in the amount of P10,765.00, were issued after said date, it could not have been in payment of the "vales" other than that evidenced by Exhibits "K" and "Q" Considering, however, that the "vales" remained in the possession of the private respondent, they are presumed to remain unpaid; in fact, private respondent so testified that they were not paid at all. The court therefore ordered petitioner to pay private respondent: (a) the total amount of P92,358.43 covered by the "vales", plus interest thereon at the rate of twelve (12%) per cent per annum from June 4, 1985 when the complaint was filed; (b) (c) P9,000.00 for and as attorney's fees; and the cost of suit. 10

Petitioner appealed this decision to the public respondent which docketed the case as C.A.-G.R. CV No. 11389. The public respondent affirmed the trial court's decision in its Decision of 14 January 1988. 11 As could be gleaned therefrom, petitioner's assigned errors are as follows: . . . defendant raised as error of the court a quo in (sic) holding that the "vales" (Exhs. A to DD) have not been paid; that the presumption in favor of the plaintiffappellee that since he was in possession of the "vales" the same have not been paid, remained undisputed; that the total transaction between the parties amount to more than P200,000.00; and in rendering a decision in favor of the plaintiffappellee plus the award of attorney's fees in his favor. 12 On 5 February 1988, petitioner filed a motion to reconsider the aforesaid decision 13 alleging therein, inter alia, that (a) the evidence showing payment of the "vales" is "uncontroverted", hence the presumption that they were not paid simply because they remain in the possession of the creditor cannot arise; (b) the alleged non-payment of the "vales" could have been further explained if the trial court gave the appellant the opportunity to present sur-rebuttal witness and documentary evidence; besides, he has newly discovered evidence invoked in a prayer for a new trial that was nevertheless denied by the lower court which consists of a letter, dated 7 February 1983, signed by Rafael Rodulfo, General Manager of the private respondent and addressed to Brig. Gen. Clemente Racela, then KKK General Action Officer, categorically stating that "the account of CSAR Marine Resources, Inc. c/o Atty. Calvin Arcilla" is only P23,639.33; and (c) the evidence presented by both parties disclosure that "the subject account are (sic) all in the name of CSAR MARINE RESOURCES, INC., a corporation separate and distinct from the appellant;" such fact remains "uncontroverted" as

shown by Exhibits "1", "3", "A" to "DD" adopted as Exhibits "7" to "25" for the appellant." 14 He then prays that: . . . considering that appellees was not able to prove by preponderance of evidence the alleged unpaid account of appellant, the decision promulgated on January 14, 1988 be RECONSIDERED and a new one be entered REVERSING the lower court decision and thereby ordering the DISMISSAL of plaintiffappellee's complaint, with damages and costs against appellee. In the remote possibility, that the appellee's complaint cannot be dismissed outrightly, it is further prayed that his Honorable Tribunal orders (sic) a new trial for appellant to present additional evidence he wanted to present in his motion for new trial. 15 xxx xxx xxx

3.2. Csar Marine Resources, Inc. has an outstanding balance in the amount of P23,636.33 with plaintiff-appellee out of the KKK loan transaction; 3.3. xxx Csar Marine Resources, Inc. is not a party in this case; xxx xxx

5. It is rather confusing (sic) that defendant-appellant is ordered to pay plaintiff-appellee in his capacity as President of Csar Marine Resources, Inc. the said amount of P23,639.33, when plaintiff-appellee for ulterior motives choose (sic) not to implead said corporation. It need not be emphasized that the personality and liability of the defendant-appellant and that of Csar Marine Resources, Inc., as a corporation, are separate and distinct from its (sic) other. . . . . 21 He then prays that:

Reacting to this motion, private respondent, in a "Manifestation dated 7 February 1988, informed the public respondent that in the interest of justice and fair play, he interposes no objection to the alternative prayer for a new trial. 16 Hearing was thereafter conducted to receive the petitioner's so-called newly discovered evidence consisting of the abovementioned letter of Rafael Rodulfo, dated 7 February 1983, to General Clemente A. Racela (Exh. "1"-Motion) wherein the former, as General Manager of private respondent's Universal Enterprises, informed the latter that: . . . Csar Marine Resources, Inc. c/o Atty. Calvin Arcilla has an outstanding obligation of TWENTY THREE THOUSAND SIX PESOS to Universal Enterprises as a result of various purchases of construction materials. 17 Thereafter, on 31 May 1989, the public respondent promulgated an Amended Decision, 18 the dispositive portion of which reads as follows: WHEREFORE, the decision of this Court promulgated on January 14, 1988 is hereby reconsidered and a new one rendered, ordering defendant-appellant to pay plaintiff-appellee in his capacity as President of Csar Marine Resources, Inc. the outstanding balance of P23,639.33 to Universal Enterprises, owned and operated by plaintiff-appellee, plus interest at 12% per annum from June 4, 1985 when the complaint was filed; attorney's fees of P1,000.00, P200.00 per court appearance of counsel and 25% of the amount awarded; plus the costs of the suit. 19 On 4 January 1989, petitioner filed a Motion For Clarificatory Judgment 20 alleging therein that: 3. It is very clear from the findings of this Honorable Court contained in the amended decision promulgated on May 31, 1989 that: 3.1. Defendant Calvin S. Arcilla never had any personal business transaction (sic) in the plaintiff;

. . . an order be issued clarifying the liability of defendant-appellant in his personal capacity as regards the amount of P23,639.33, if any, otherwise, the case be dismissed against him. 22 Public respondent denied this motion in its Resolution of 17 August 1989 23 on these grounds: (a) the veil of corporate fiction should be pierced in this case; (b) since petitioner did not raise the issue of separate corporate identity in the pleadings in the trial court or in his Brief, he cannot raise it for the first time in a Motion for Clarificatory Judgment; in his answer to paragraphs 3 and 4 of the complaint, he admits that it was he and not his corporation who transacted business with the private respondent; and (c) the "vales" refer not only to construction materials for which the loan to Csar Marine Resources, Inc. was supposed to be used, but also to consumables such as salt, rice, food seasoning, cigarettes, coffee, etc.; this indicates that the petitioner himself did not seriously treat the corporate affairs of Csar Marine Resources, Inc. as separate and distinct from his own. Not satisfied with the Resolution, petitioner filed this petition. He alleges therein that respondent Court of Appeals: I . . . ERRED IN HOLDING CSAR MARINE RESOURCES, INC., A DOMESTIC CORPORATION DULY ORGANIZED ACCORDING TO LAW, WHERE PETITIONER THE PRESIDENT (sic), LIABLE TO THE PRIVATE RESPONDENT IN THE AMOUNT AWARDED IN THE APPEALED DECISION WITHOUT BEING IMPLEADED AS A PARTY IN THE CASE IN VIOLATION OF LAW AND THE APPLICABLE DECISIONS OF THE SUPREME COURT; and II . . . IN NOT DISMISSING THE CASE AGAINST THE PETITIONER. 24

After the filing of the Comment, the Reply thereto and the Rejoinder to the latter, this Court gave due course to the petition and required the parties to submit their respective Memoranda. 25 The records bear nothing to prop up the instant petition. The arguments adduced by the petitioner breathe no life to it. On the contrary, the pleadings lead Us to the inescapable conclusion that the petitioner, who is himself a lawyer, is merely taking advantage of the use of the innocuous phrase "in his capacity as President" found in the dispositive portion of the challenged Amended Decision making the same a sanctuary for a defense which he, as hereinafter discussed, had long since abandoned or waived either deliberately or through his obliviscence. His sole purpose, of course, is to avoid complying with the liability adjudged against him by the public respondent; such avoidance is premiered on the so-called newly discovered evidence offered after the public respondent had bent over backwards to grant him a new trial despite the availability of such evidence during pendency of the proceedings before the trial court. It is to be noted that he failed to assign as error in his Brief the denial by the said court of his motion for new trial on the basis thereof. The grant of affirmative relief based on the first assigned error would really redound to the benefit of an entirety which was not made a party in the main case and which did not seek to intervene therein. Therefore, it has no personality to seek as review of the public respondent's Amended Decision under Rule 45 of the Rules of Court. Only the original parties to the main case may do so. 26 Moreover, by no stretch of even the most fertile imagination may one be able to conclude that the challenged Amended Decision directed Csar Marine Resources, Inc. to pay the amounts adjudge. By its clear and unequivocal language, it is the petitioner who was declared liable therefor and consequently made to pay. That the latter was ordered to do so as president of the corporation would not free him from the responsibility of paying the due amount simply because according to him, he had ceased to be corporate president; such conclusion stems from the fact that the public respondent, in resolving his motion for clarificatory judgment, pierced the veil of corporate fictional and cast aside the contention that both he and the corporation have separate and distinct personalities. In short, even if We are to assume arguendo that the obligation was incurred in the name of the corporation, the petitioner would still be personally liable therefor because for all legal intents and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is nothing more than his business conduit and alter ego. The fiction of a separate juridical personality conferred upon such corporation by law should be disregarded. 27 Significantly, petitioner does not seriously challenge the public respondent's application of the doctrine which permits the piercing of the corporate veil and the disregarding of the fiction of a separate juridical personality; this is because he knows only too well that from the very beginning, he merely used the corporation for his personal purposes. In his answer to the complaint, petitioner volunteered the information that the proforma invoice which he obtained from the private respondent and which became

the source of the obligations reflected in the "vales" was to support his loan. He states in part: . . . when defendant was looking for a "pro-forma" invoice to support his loan with the Kilusang Kabuhayan at Kaunlaran . . . His loan was in the name of his family corporation, CSAR Marine Resources, Inc. . . . . 28 That it was indeed his loan is further borne out by his allegations therein part: (a) The accounting between plaintiff and defendant, however, was not closed because adjustments were needed in the following points: 29 (b) 5. While it is true that plaintiff made demands for payment of an alleged balance of P23,000.00 in March 1983, which demand was even coursed thru the KKK Regional and Provincial Offices, after the demand of P23,000.00 defendant paid additional P5,000.00 cash to plaintiff. 30 In his motion to reconsider the public respondent's original decision, petitioner becomes more candid in his admissions that indeed, the transaction with the private respondent and the loan obtained previously were for his personal account. Thus he asserts that: (a) the first document made between appellee and appellant was the proforma invoice. 31 (b) [c]considering that appellant had already an approved loan and was ready for release . . . . 32 Moreover, petitioner neglected to set up in his Answer the defense that he is not personally liable to private respondent because the "vales" were corporate obligations of Csar Marine Resources, Inc.. Of course, that defense would have been inconsistent with his volunteered admission that the KKK loan which resulted in the procurement of the pro-forma invoice from the private respondent was for his benefit. In any case, the failure to set it up as an affirmative defense amounted to a waiver thereof. Section 2, Rule 9 of the Rules of Court expressly proved that defenses and objections, other than the failure to state a cause of action and lack of jurisdiction, not pleaded either in a motion to dismiss or in the answer are deemed waved. Petitioner, as a lawyer, knows or is supposed to know this rule. Since he prepared the Answer himself, We cannot think of any possible reason why he failed to set up this defense other than his realization of its inherent weakness or his outright inexcusable negligence of forgetfulness. And even if it were due to inadvertence, he could still have subsequently availed of Section 2, Rule 10 of the Rules of Court which allows a party to amend his answer as a matter of right within the period therein stated. Failing that, he could have resorted to Section 3 thereof which allows the making of amendments upon leave of court. On the other hand, if the lapse was due to forgetfulness, it is just unfortunate that he did not exercise due diligence in the conduct of his won affairs. He can expect no reward for it.

Then too, as correctly noted by the public respondent, petitioner, in his Brief, did not assign as error the holding of the trial court that he is solely liable for the obligation. Petitioner's volunteered admission that he procured the pro-forma invoice from the private respondent in connection with his loan from the KKK, using his family corporation in the process, and his deliberate waiver of the aforementioned defense provide an insurmountable obstacle to the viability of this petition. WHEREFORE, for utter lack of merit, the instant petition is DENIED with costs against petitioner. This decision is immediately executory. SO ORDERED.

the mortgage to the mortgagee, Chua Chiu. The said mortgage was duly registered in the office of the register of deeds of Manila on June 23, 1931, and in the office of the said corporation on September 30, 1931. On November 28, 1931, Chua Chiu assigned all his right and interest in the said mortgage to the plaintiff and the assignment was registered in the office of the register of deeds in the City of Manila on December 28, 1931, and in the office of the said corporation on January 4, 1932. The debtor, Gonzalo H. Co Toco, having defaulted in the payment of said debt at maturity, the plaintiff foreclosed said mortgage and delivered the certificates of stock and copies of the mortgage and assignment to the sheriff of the City of Manila in order to sell the said shares at public auction. The sheriff auctioned said 5,894 shares of stock on December 22, 1932, and the plaintiff having been the highest bidder for the sum of P14,390, the sheriff executed in his favor a certificate of sale of said shares. The plaintiff tendered the certificates of stock standing in the name of Gonzalo H. Co Toco to the proper officers of the corporation for cancellation and demanded that they issue new certificates in the name of the plaintiff. The said officers (the individual defendants) refused and still refuse to issue said new shares in the name of the plaintiff. The prayer is that a writ of mandamus be issued requiring the defendants to transfer the said 5,894 shares of stock to the plaintiff by cancelling the old certificates and issuing new ones in their stead. The special defenses set up in the answer are as follows: that the defendants refuse to cancel the said certificates standing in the name of Gonzalo H. Co Toco on the books of the corporation and to issue new ones in the name of the plaintiff because prior to the date when the plaintiff made his demand, to wit, February 4, 1933, nine attachments had been issued and served and noted on the books of the corporation against the shares of Gonzalo H. Co Toco and the plaintiff objected to having these attachments noted on the new certificates which he demanded. These attachments noted on the books of the corporation against the shares of Gonzalo H. Co Toco are as follows: MISSING PAGES: 475-477. It will be noted that the first eight of the said writs of attachment were served on the corporation and noted on its records before the corporation received notice from the mortgagee Chua Chiu of the mortgage of said shares dated June 18, 1931. No question is raised as to the validity of said mortgage or of said writs of attachment and the sole question presented for decision is whether the said mortgage takes priority over the said writs of attachment. It is not alleged that the said attaching creditors had actual notice of the said mortgage and the question therefore narrows itself down to this: Did the registration of said chattel mortgage in the registry of chattel mortgages in the

28. G.R. No. L-42091

November 2, 1935

GONZALO CHUA GUAN, plaintiff-appellant, vs. SAMAHANG MAGSASAKA, INC., and SIMPLICIO OCAMPO, ADRIANO G. SOTTO, and EMILIO VERGARA, as president, secretary and treasurer respectively of the same, defendants-appellees. Buenaventura C. Lopez for appellant. Domingo L. Vergara for appellees.

BUTTE, J.: This is an appeal from a judgment of the Court of First Instance of Nueva Ecija in an action for a writ of mandamus. The case is remarkable for the following reason: that the parties entered into a stipulation in which the defendants admitted all of the allegations of the complaint and the plaintiff admitted all of the special defenses in the answer of the defendants, and on this stipulation they submitted the case for decision. The complaint alleges that the defendant Samahang Magsasaka, Inc., is a corporation duly organized under the laws of the Philippine Islands with principal office in Cabanatuan, Nueva Ecija, and that the individual defendants are the president, secretary and treasurer respectively of the same; that on June 18, 1931, Gonzalo H. Co Toco was the owner of 5,894 shares of the capital stock of the said corporation represented by nine certificates having a par value of P5 per share; that on said date Gonzalo H. Co Toco, a resident of Manila, mortgaged said 5,894 shares to Chua Chiu to guarantee the payment of a debt of P20,000 due on or before June 19, 1932. The said certificates of stock were delivered with

office of the register of deeds of Manila, under date of July 23, 1931, give constructive notice to the said attaching creditors? In passing, let it be noted that the registration of the said chattel mortgage in the office of the corporation was not necessary and had no legal effect. (Monserrat vs. Ceron, 58 Phil., 469.) The long mooted question as to whether or not shares of a corporation could be hypothecated by placing a chattel mortgage on the certificate representing such shares we now regard as settled by the case of Monserrat vs. Ceron, supra. But that case did not deal with any question relating to the registration of such a mortgage or the effect of such registration. Nothing appears in the record of that case even tending to show that the chattel mortgage there involved was ever registered anywhere except in the office of the corporation, and there was no question involved there as to the right of priority among conflicting claims of creditors of the owner of the shares. The Chattel Mortgage Law, Act No. 1508, as amended by Act No. 2496, contains the following provision: SEC. 4. A chattel mortgage shall not be valid against any person except the mortgagor, his executors or administrators, unless the possession of the property is delivered to and retained by the mortgagee or unless the mortgage is recorded in the office of the register of deeds of the province in which the mortgagor resides at the time of making the same, or, if he resides the Philippine Islands, in the province in which the property is situated: Provided, however, That if the property is situated in a different province from that in which the mortgagor resides, the mortgage shall be recorded in the office of the register of deeds of both the province in which the mortgagor resides and that in which the property is situated, and for the purposes of this Act the City of Manila Shall be deemed to be a province. The practical application of the Chattel Mortgage Law to shares of stock of a corporation presents considerable difficulty and we have obtained little aid from the decisions of other jurisdictions because that form of mortgage is ill suited to the hypothecation of shares of stock and has been rarely used elsewhere. In fact, it has been doubted whether shares of stock in a corporation are chattels in the sense in which that word is used chattel mortgage statutes. This doubt is reflected in our own decision in the case of Fua Cun vs. Summers and China Banking Corporation (44 Phil., 705), in which we said: ". . . an equity in shares of stock is of such an intangible character that it is somewhat difficult to see how it can be treated as a chattel and mortgaged in such a manner that the recording of the mortgage will furnish constructive notice to third parties. . . ."And we held that the chattel mortgage there involved: "at least operated as a conditional equitable assignment." In that case we quoted the following from Spalding vs. Paine's Adm'r. (81 Ky., 416), with regard to a chattel mortgage of shares of stock: "These certificates of stock are in the pockets of the owner, and go with him where he may happen to locate, as choses in action, or evidence of his right, without any means on the part of those with whom he proposes to deal on the

faith of such a security of ascertaining whether or not this stock is in pledge or mortgaged to others. He finds the name of the owner on the books of the company as a subscriber of paid-up stock, amounting to 180 shares, with the certificates in his possession, pays for these certificates their full value, and has the transfer to him made on the books of the company, thereby obtaining a perfect title. What other inquiry is he to make, so as to make his investment certain and secure? Where is he to look, in order to ascertain whether or not this stock has been mortgaged? The chief office of the company may be at one place today and at another tomorrow. The owner may have no fixed or permanent abode, and with his notes in one pocket and his certificates of stock in the other the one evidencing the extent of his interest in the stock of the corporation, the other his right to money owing him by his debtor, we are asked to say that the mortgage is effectual as to the one and inoperative as to the other." But the case of Fua Cun vs. Summers and China Banking Corporation, supra, did not decide the question here presented and gave no light as to the registration of a chattel mortgage of shares of stock of a corporation under the provisions of section 4 of the Chattel Mortgage Law, supra. Section 4 of Act No. 1508 provides two ways for executing a valid chattel mortgage which shall be effective against third persons. First, the possession of the property mortgage must be delivered to and retained by the mortgagee; and, second, without such delivery the mortgage must be recorded in the proper office or offices of the register or registers of deeds. If a chattel mortgage of shares of stock of a corporation may validly be made without the delivery of possession of the property to the mortgagee and the mere registration of the mortgage is sufficient to constructive notice to third parties, we are confronted with the question as to the proper place of registration of such a mortgage. Section 4 provides that in such a case the mortgage resides at the time of making the same or, if he is a non-resident, in the province in which the property is situated; and it also provides that if the property is situated in a different province from that in which the mortgagor resides the mortgage shall be recorded both in the province of the mortgagor's residence and in the province where the property is situated. If with respect to a chattel mortgage of shares of stock of a corporation, registration in the province of the owner's domicile should be sufficient, those who lend on such security would be confronted with the practical difficulty of being compelled not only to search the records of every province in which the mortgagor might have been domiciled but also every province in which a chattel mortgage by any former owner of such shares might be registered. We cannot think that it was the intention of the legislature to put this almost prohibitive impediment upon the hypothecation of shares of stock in view of the great volume of business that is done on the faith of the pledge of shares of stock as collateral. It is a common but not accurate generalization that the situs of shares of stock is at the domicile of the owner. The term situs is not one of fixed of invariable meaning or usage. Nor should we lose sight of the difference between the situs of the shares and the situs of the certificates of shares. The situs of

shares of stock for some purposes may be at the domicile of the owner and for others at the domicile of the corporation; and even elsewhere. (Cf. Vidal vs. South American Securities Co., 276 Fed., 855; Black Eagle Min. Co. vs. Conroy, 94 Okla., 199; 221 Pac,, 425 Norrie vs. Kansas City Southern Ry. Co., 7 Fed. [2d]. 158.) It is a general rule that for purposes of execution, attachment and garnishment, it is not the domicile of the owner of a certificate but the domicile of the corporation which is decisive. (Fletcher, Cyclopedia of the Law of Private Corporations, vol. 11, paragraph 5106. Cf. sections 430 and 450, Code of Civil Procedure.) By analogy with the foregoing and considering the ownership of shares in a corporation as property distinct from the certificates which are merely the evidence of such ownership, it seems to us a reasonable construction of section 4 of Act No. 1508 to hold that the property in the shares may be deemed to be situated in the province in which the corporation has its principal office or place of business. If this province is also the province of the owner's domicile, a single registration sufficient. If not, the chattel mortgage should be registered both at the owner's domicile and in the province where the corporation has its principal office or place of business. In this sense the property mortgaged is not the certificate but the participation and share of the owner in the assets of the corporation. Apart from the cumbersome and unusual method of hypothecating shares of stock by chattel mortgage, it appears that in the present state of our law, the only safe way to accomplish the hypothecation of share of stock of a Philippine corporation is for the creditor to insist on the assignment and delivery of the certificate and to obtain the transfer of the legal title to him on the books of the corporation by the cancellation of the certificate and the issuance of a new one to him. From the standpoint of the debtor this may be unsatisfactory because it leaves the creditor as the ostensible owner of the shares and the debtor is forced to rely upon the honesty and solvency of the creditor. Of course, the mere possession and retention of the debtor's certificate by the creditor gives some security to the creditor against an attempted voluntary transfer by the debtor, provided the by-laws of the corporation expressly enact that transfers may be made only upon the surrender of the certificate. It is to be noted, however, that section 35 of the Corporation Law (Act No. 1459) enacts that shares of stock "may be transferred by delivery of the certificate endorsed by the owner or his attorney in fact or other person legally authorized to make the transfer." The use of the verb "may" does not exclude the possibility that a transfer may be made in a different manner, thus leaving the creditor in an insecure position even though he has the certificate in his possession. Moreover, the shares still standing in the name of the debtor on the books of the corporation will be liable to seizure by attachment or levy on execution at the instance of other creditors. (Cf. Uy Piaoco vs. McMicking, 10 Phil., 286, and Uson vs. Diosomito, 61 Phil., 535.) This unsatisfactory state of our law is well known to the bench and bar. (Cf. Fisher, The Philippine Law of Stock Corporations, pages 163-168.) Loans upon stock securities should be facilitated in order to foster economic development. The transfer by endorsement and delivery of a certificate with intention to pledge the shares covered thereby should be sufficient to give legal effect to that intention and to consummate the juristic act without necessity for registration.lawphil.net

We are fully conscious of the fact that our decisions in the case of Monserrat vs. Ceron, supra, and in the present case have done little perhaps to ameliorate the present uncertain and unsatisfactory state of our law applicable to pledges and chattel mortgages of shares of stock of Philippine corporations. The remedy lies with the legislature. In view of the premises, the attaching creditors are entitled to priority over the defectively registered mortgage of the appellant and the judgment appealed from must be affirmed without special pronouncement as to costs in this instance.