G.R. No.

141617

August 14, 2001

ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION, petitioners, vs. RITA C. MEJIA, as E !"#$%& o' T!s$a$! Es$a$! o' ANDREA CORDOVA VDA. DE G(TIERRE), respondent.

DECISION GONZAGA-REYES, J.: In this petition for review by certiorari, petitioners pray for the setting aside of the Decision of the Court Appeals pro ulgated on 1! April 1""" and its 1# Dece ber 1""" $esolution in CA%&.$. C' (o. 1"2)1. As culled fro the decisions of the lower courts and the pleadings of the parties, the factual bac*ground of this case is as set out herein+ Andrea Cordova 'da. de &utierre, -&utierre,. was the registered owner of a parcel of land in Ca arin, Caloocan City *nown as /ot )01 of the 1ala 2state. 1he land had an aggregate area of twenty%five -2#. hectares and was covered by 1ransfer Certificate of 1itle -1C1. (o. #33" of the $egistry of Deeds of Caloocan City. 1he property was later subdivided into five lots with an area of five hectares each and pursuant thereto, 1C1 (o. #33" was cancelled and five new transfer certificates of title were issued in the na e of &utierre,, na ely 1C1 (o. 312! covering /ot )01%A, 1C1 (o. 3124 covering /ot )01%4, 1C1 (o. 312# covering /ot )01%C, 1C1 (o. 3120 covering /ot )01%D and 1C1 (o. 3123 covering /ot )01%2. 5n 21 Dece ber 1"04, &utierre, and Cardale 6inancing and $ealty Corporation -Cardale. e7ecuted a Deed of 8ale with 9ortgage relating to the lots covered by 1C1 (os. 3124, 312#, 3120 and 3123, for the consideration of :)00,000.00. ;pon the e7ecution of the deed, Cardale paid &utierre, :131,000.00. It was agreed that the balance of :02",000.00 would be paid in several install ents within five years fro the date of the deed, at an interest of nine percent per annu <based on the successive unpaid principal balances.= 1hereafter, the titles of &utierre, were cancelled and in lieu thereof 1C1 (os. 3#!1 to 3#!4 were issued in favor of Cardale. 1o secure pay ent of the balance of the purchase price, Cardale constituted a ortgage on three of the four parcels of land covered by 1C1 (os. 3#!1, 3#!2 and 3#!!, enco passing fifteen hectares of land.1 1he encu brance was annotated upon the certificates of title and the owner>s duplicate certificates. 1he owner>s duplicates were retained by &utierre,. 5n 20 August 1"0), owing to Cardale>s failure to settle its ortgage obligation, &utierre, filed a co plaint for rescission of the contract with the ?ue,on City $egional 1rial Court -$1C., which was doc*eted as Civil Case (o. ?%12!00.2 5n 20 5ctober 1"0", during the pendency of the rescission case, &utierre, died and was substituted by her e7ecutri7, respondent $ita C. 9e@ia

-9e@ia.. In 1"31, plaintiff>s presentation of evidence was ter inated. Aowever, Cardale, which was represented by petitioner Adalia 4. 6rancisco -6rancisco. in her capacity as 'ice%:resident and 1reasurer of Cardale, lost interest in proceeding with the presentation of its evidence and the case lapsed into inactive status for a period of about fourteen years. In the eanti e, the ortgaged parcels of land covered by 1C1 (os. 3#!2 and 3#!! beca e delinBuent in the pay ent of real estate ta7es in the a ount of :102,!00.00, while the other ortgaged property covered by 1C1 (o. 3#!1 beca e delinBuent in the a ount of :)",2!1.!3, which cul inated in their levy and auction sale on 1 and 12 8epte ber 1")!, in satisfaction of the ta7 arrears. 1he highest bidder for the three parcels of land was petitioner 9erryland Develop ent Corporation -9erryland., whose :resident and a@ority stoc*holder is 6rancisco. A e orandu based upon the certificate of sale was then ade upon the original copies of 1C1 (os. 3#!1 to 3#!!. 5n 1! August 1")4, before the e7piration of the one year rede ption period, 9e@ia filed a 9otion for Decision with the trial court. 1he hearing of said otion was deferred, however, due to a 9otion for :ostpone ent filed by Cardale through 6rancisco, who signed the otion in her capacity as <officer%in%charge,= clai ing that Cardale needed ti e to hire new counsel. Aowever, 6rancisco did not ention the ta7 delinBuencies and sale in favor of 9erryland. 8ubseBuently, the rede ption period e7pired and 9erryland, acting through 6rancisco, filed petitions for consolidation of title,! which cul inated in the issuance of certain orders4 decreeing the cancellation of Cardales> 1C1 (os. 3#!1 to 3#!! and the issuance of new transfer certificates of title <free fro any encu brance or third%party clai whatsoever= in favor of 9erryland. :ursuant to such orders, the $egister of Deeds of Caloocan City issued new transfer certificates of title in the na e of 9erryland which did not bear a e orandu of the ortgage liens in favor of &utierre,. 1hereafter, so eti e in Cune 1")#, 6rancisco filed in Civil Case (o. ?%12!00 an undated 9anifestation to the effect that the properties sub@ect of the ortgage and covered by 1C1 (os. 3#!1 to 3#!! had been levied upon by the local govern ent of Caloocan City and sold at a ta7 delinBuency sale. 6rancisco further clai ed that the delinBuency sale had rendered the issues in Civil Case (o. ?%12!00 oot and acade ic. Agreeing with 6rancisco, the trial court dis issed the case, e7plaining that since the properties ortgaged to Cardale had been transferred to 9erryland which was not a party to the case for rescission, it would be ore appropriate for the parties to resolve their controversy in another action. 5n 14 Canuary 1")3, 9e@ia, in her capacity as e7ecutri7 of the 2state of &utierre,, filed with the $1C of ?ue,on City a co plaint for da ages with prayer for preli inary attach ent against 6rancisco, 9erryland and the $egister of Deeds of Caloocan City. 1he case was doc*eted as Civil Case (o. ?%4"300. 5n 1# April 1")), the trial court rendered a decision# in favor of the defendants, dis issing the co plaint for da ages filed by 9e@ia. It was held that plaintiff 9e@ia, as e7ecutri7 of &utierre,>s estate, failed to establish by clear and convincing evidence her allegations that 6rancisco controlled Cardale and 9erryland and that she had e ployed fraud by intentionally causing Cardale to default in its pay ent of real property ta7es on the ortgaged properties so that 9erryland could purchase the sa e by eans of a ta7 delinBuency sale. 9oreover, according to the trial court, the failure to recover the property

sub@ect of the Deed of 8ale with 9ortgage was due to 9e@ia>s failure to actively pursue the action for rescission -Civil Case (o. 12!00., allowing the case to drag on for eighteen years. 1hus, it ruled that D 777 777 777

1he act of not paying or failing to pay ta7es due the govern ent by the defendant Adalia 4. 6rancisco, as treasurer of Cardale 6inancing and $ealty Corporation do not, per se, constitute perpetration of fraud or an illegal act. It do EsicF not also constitute an act of evasion of an e7isting obligation -to plaintiff. if there is no clear showing that such an act of non%pay ent of ta7es was deliberately ade despite its -Cardale>s. solvency and capability to pay. 1here is no evidence showing that Cardale 6inancing and $ealty Corporation was financially capable of paying said ta7es at the ti e. <1here are ti es when the corporate fiction will be disregarded+ -1. where all the e bers or stoc*holders co it illegal actG -2. where the corporation is used as du y to co it fraud or wrongG -!. where the corporation is an agency for a parent corporationG and -4. where the stoc* of a corporation is owned by one person.= -I, 6letcher, #), #", 01 and 0!.. (one of the foregoing reasons can be applied to the incidents in this case+ -1. there appears no illegal act co itted by the stoc*holders of defendant 9erryland Develop ent Corporation and Cardale 6inancing and $ealty CorporationG -2. the incidents proven by evidence of the plaintiff as well as that of the defendants do not show that either or both corporations were used as du ies by defendant Adalia 4. 6rancisco to co it fraud or wrong. 1o be used as EaF du y, there has to be a showing that the du y corporation is controlled by the person using it. 1he evidence of plaintiff failed to prove that defendant Adalia 4. 6rancisco has controlling interest in either or both corporations. 5n the other hand, the evidence of defendants clearly show that defendant 6rancisco has no control over either of the two corporationsG -!. none of the two corporations appears to be an agency for a parent -the other. corporationG and -4. the stoc* of either of the two corporation EsicF is not owned by one person -defendant Adalia 4. 6rancisco.. 27cept for defendant Adalia 4. 6rancisco, the incorporators and stoc*holders of one corporation are different fro the other. 777 777 777

1he said case -Civil Case (o. 12!00. re ained pending for al ost 1) years before the then Court of 6irst Instance, now the $egional 1rial Court. 2ven if the trial of the said case beca e protracted on account of the retire ent andHor pro otion of the presiding @udge, as well as the transfer of the case fro one sala to another, and as clai ed by the plaintiff <that the defendant lost interest=, -which allegation is unusual, so to spea*., the court believe EsicF that it would not have ta*en that long to dispose EofF said case had plaintiff not slept on her rights, and her duty and obligation to see to it that the case is always set for hearing so that it ay be ad@udicated EatF the earliest possible ti e. 1his duty pertains to both parties, but plaintiff should have been ore assertive, as it was her obligation, si ilar to the obligation of plaintiff relative to the service of su ons in other cases. 1he fact that Cardale 6inancing and $ealty Corporation did not perfor its obligation as provided in the said <Deed of 8ale with 9ortgage= -27hibit=A=. is very clear. /i*ewise, the fact that Andrea Cordova, the contracting party, represented by the plaintiff

in this case, did not also perfor her duties andHor obligation provided in the said contract is also clear. 1his could have been the reason why the plaintiff in said case -27hibit <2=. slept on her rights and allowed the sa e to re ain pending for al ost 1) years. Aowever, and irrespective of any other reason behind the sa e, the court believes that plaintiff, indeed, is the one to bla e for the failure of the testate estate of the late Andrea Cordova 'da. de &utierre, to recover the oney or property due it on the basis of 27hibit <A=. 777 777 777

. . . Aad the plaintiff not slept on her rights and had it not been for her failure to perfor her co ensurate duty to pursue vigorously her case against Cardale 6inancing and $ealty Corporation in said Civil Case (o. 12!00, she could have easily *nown said non%pay ent of realty ta7es on the said properties by said Cardale 6inancing and $ealty Corporation, or, at least the auction sales that followed, and fro which she could have redee ed said properties within the one year period provided by law, or, have availed of re edies at the ti e to protect the interest of the testate estate of the late Andrea Cordova 'da. de &utierre,. 777 777 777

1he dispositive portion of the trial court>s decision states D IA2$265$2, in view of all the foregoing consideration, the court hereby renders @udg ent in favor of the defendants $egister of Deeds of Caloocan City, 9erryland Develop ent Corporation and Adalia 4. 6rancisco, and against plaintiff $ita C. 9e@ia, as 27ecutri7 of the 1estate 2state of Andrea Cordova 'da. De &utierre,, and hereby orders+ 1. 1hat this case for da ages be dis issed, at the sa e ti e, plaintiffs reconsideration dated 8epte ber 2!, 1")3 is deniedG otion for

2. :laintiff pay the defendants 9erryland Develop ent Corporation and the $egister of Deeds the su of :20,000.00, and another su of :20,000.00 to the defendant Adalia 4. 6rancisco, as and for attorney>s fees and litigation e7penses, and pay the costs of the proceedings. 85 5$D2$2D. 1he Court of Appeals,0 in its decision3 pro ulgated on 1! April 1""", reversed the trial court, holding that the corporate veil of Cardale and 9erryland ust be pierced in order to hold 6rancisco and 9erryland solidarily liable since these two corporations were used as du ies by 6rancisco, who e ployed fraud in allowing Cardale to default on the realty ta7es for the properties ortgaged to &utierre, so that 9erryland could acBuire the sa e free fro all liens and encu brances in the ta7 delinBuency sale and, as a conseBuence thereof, frustrating &utierre,>s rights as a ortgagee over the sub@ect properties. 1hus, the Court of Appeals pre ised its findings of fraud on the following circu stances D 777 777 777

. . . Appellee 6rancisco *new that Cardale of which she was vice%president and treasurer had an outstanding obligation to &utierre, for the unpaid balance of the real properties covered by 1C1

(os. 3#!1 to 3#!!, which Cardale purchased fro &utierre, which account, as of Dece ber 1")), already a ounted to :4,414,231.4! -27h. J, pp. !"%44, record.G she also *new that &utierre, had a ortgage lien on the said properties to secure pay ent of the aforesaid obligationG she li*ewise *new that the said ortgaged properties were under litigation in Civil Case (o. ?%12!00 which was an action filed by &utierre, against Cardale for rescission of the sale andHor recovery of said properties -27h. 2.. Despite such *nowledge, appellee 6rancisco did not infor &utierre,>s 2state or the 27ecutri7 -herein appellant. as well as the trial court that the ortgaged properties had incurred ta7 delinBuencies, and that 6inal (otices dated Culy ", 1")2 had been sent by the City 1reasurer of Caloocan de anding pay ent of such ta7 arrears within ten -10. days fro receipt thereof -27hs. C K C%1, pp. !3%!), record.. 4oth notices which were addressed to D Cardale 6inancing K $ealty Corporation cHo 9erryland Develop ent Corporation and sent to appellee 6rancisco>s address at )! Jatipunan $oad, Ihite :lains, ?ue,on City, gave warning that if the ta7es were not paid within the aforesaid period, the properties would be sold at public auction to satisfy the ta7 delinBuencies. 1o reiterate, notwithstanding receipt of the aforesaid notices, appellee 6rancisco did not infor the 2state of &utierre, or her e7ecutri7 about the ta7 delinBuencies and of the i pending auction sale of the said properties. 2ven a odicu of good faith and fair play should have encouraged appellee 6rancisco to at least advise &utierre,>s 2state through her e7ecutri7 -herein appellant. and the trial court which was hearing the co plaint for rescission and recovery of said properties of such fact, so that the 2state of &utierre,, which had a real interest on the properties as ortgagee and as plaintiff in the rescission and recovery suit, could at least ta*e steps to forestall the auction sale and thereby preserve the properties and protect its interests thereon. And not only did appellee 6rancisco allow the auction sale to ta*e place, but she used her other corporation -9erryland. in participating in the auction sale and in acBuiring the very properties which her first corporation -Cardale. had ortgaged to &utierre,. Again, appellee 6rancisco did not thereafter infor the 2state of &utierre, or its e7ecutri7 -herein appellant. about the auction sale, thus precluding the 2state fro e7ercising its right of rede ption. And it was only after the e7piration of the rede ption period that appellee 6rancisco filed a 9anifestation in Civil Case (o. ?%12!00 -27h. 1, p. !0, record., in which she disclosed for the first ti e to the trial court and appellant that the properties sub@ect of the case and on which &utierre, or her 2state had a ortgage lien, had been sold in a ta7 delinBuency sale. And in order to further conceal her deceptive aneuver, appellee 6rancisco did not divulge in her aforesaid 9anifestation that it was her other corporation -9erryland. that acBuired the properties in the auction sale. Ie are not i pressed by appellee>s sub ission that no evidence was adduced to prove that Cardale had the capacity to pay the ta7 arrears and therefore she or Cardale ay not be faulted for the ta7 delinBuency sale of the properties in Buestion. Appellee 6rancisco>s bad faith or deception did not necessarily lie in Cardale>s or her failure to settle the ta7 deliBuencies in Buestion, but in not disclosing to &utierre,>s estate or its e7ecutri7 -herein appellant. which had a ortgage lien on said properties the ta7 delinBuencies and the i pending auction sale of the encu bered properties.

Appellee 6rancisco>s deception is further shown by her conceal ent of the ta7 delinBuency sale of the properties fro the estate or its e7ecutri7, thus preventing the latter fro availing of the right of rede ption of said properties. 1hat appellee 6rancisco divulged the auction sale of the properties only after such rede ption period had lapsed clearly betrays her intention to *eep &utierre,>s 2state or its 27ecutri7 fro availing of such right. And as the evidence would further show, appellee 6rancisco had a hand in securing for 9erryland consolidation of its ownership of the properties and in seeing to it that 9erryland>s torrens certificates for the properties were free fro liens and encu brances. All these appellee 6rancisco did even as she was fully aware that &utierre, or her estate had a valid and subsisting ortgage lien on the said properties. It is li*ewise worthy of note that early on appellee 6rancisco had testified in the action for rescission of sale and recovery of possession and ownership of the properties which &utierre, filed against Cardale -Civil Case (o. ?%12!00. in her capacity as defendant Cardale>s vice% president and treasurer. 4ut then, for no plausible reason whatsoever, she lost interest in continuing with the presentation of evidence for defendant Cardale. And then, when appellant 9e@ia as e7ecutri7 of &utierre,>s 2state filed on August 1!, 1")4 a 9otion for Decision in the aforesaid case, appellee 6rancisco oved to defer consideration of appellant>s 9otion on the prete7t that defendant Cardale needed ti e to e ploy another counsel. 8ignificantly, in her aforesaid 9otion for :ostpone ent dated August 10, 1")4 which appellee 6rancisco personally signed as 5fficer%in%Charge of Cardale, she also did not disclose the fact that the properties sub@ect atter of the case had long been sold at a ta7 delinBuency sale and acBuired by her other corporation 9erryland. And as if what she had already acco plished were not enough fraudulence, appellee 6rancisco, acting in behalf of 9erryland, caused the issuance of new transfer certificates of title in the na e of 9erryland, which did not any ore bear the ortgage lien in favor of &utierre,. In the eanti e, to further avoid pay ent of the ortgage indebtedness owing to &utierre,>s estate, Cardale corporation was dissolved. 6inally, to put the properties beyond the reach of the ortgagee, &utierre,>s estate, 9erryland caused the subdivision of such properties, which were subseBuently sold on install ent basis. In its petition for certiorari, petitioners argue that there is no law reBuiring the ortgagor to infor the ortgagee of the ta7 delinBuencies, if any, of the ortgaged properties. 9oreover, petitioners clai that Cardale>s failure to pay the realty ta7es, per se, does not constitute fraud since it was not proven that Cardale was capable of paying the ta7es> :etitioners also contend that if 9e@ia, as e7ecutri7 of &utierre,>s estate, was not re iss in her duty to pursue Civil Case (o. 12!00, she could have easily learned of the non%pay ent of realty ta7es on the sub@ect properties and of the auction sale that followed and thus, have redee ed the properties or availed of so e other re edy to conserve the estate of &utierre,. In addition, 9e@ia could have annotated a notice of lis pendens on the titles of the ortgaged properties, but she failed to do so. It is the stand of petitioners that respondent has not adduced any proof that 6rancisco controlled both Cardale and 9erryland and that she used these two corporations to perpetuate a fraud upon &utierre, or her estate. :etitioners aintain that the <evidence shows that, apart fro the eager share of petitioner 6rancisco, the stoc*holdings of both corporations co prise other shareholders, and the stoc*holders of either of the , aside fro petitioner 6rancisco, are

co posed of different persons.= As to Civil Case (o. 12!00, petitioners insist that the decision of the trial court in that case constitutes res judicata to the instant case.) It is dicta in corporation law that a corporation is a @uridical person with a separate and distinct personality fro at of the stoc*holders or e bers who co pose it" Aowever, when the legal fiction of the separate corporate personality is abused, such as when the sa e is used for fraudulent or wrongful ends, the courts have not hesitated to pierce the corporate veil. 5ne of the earliest for ulations of this doctrine of piercing the corporate veil was ade in the A erican case of United States v. il!au"ee Re#ri$erator %ransit &o.10 D If any general rule can be laid down, in the present state of authority, it is that a corporation will be loo*ed upon as a legal entity as a general rule, and until sufficient reason to the contrary appearsG but, when the notion of legal entity is used to defeat public convenience, @ustify wrong, protect fraud, or defend cri e, the law will regard the corporation as an association of persons. 8ince then a good nu ber of cases have fir ly i planted this doctrine in :hilippine @urisprudence.11 5ne such case is U'ali v. &ourt o# Appeals12 wherein the Court declared that D ;nder the doctrine of piercing the veil of corporate entity, when valid grounds therefor e7ist, the legal fiction that a corporation is an entity with a @uridical personality separate and distinct fro its e bers or stoc*holders ay be disregarded. In such cases, the corporation will be considered as a ere association of persons. 1he e bers or stoc*holders of the corporation will be considered as the corporation, that is, liability will attach directly to the officers and stoc*holders. 1he doctrine applies when the corporate fiction is used to defeat public convenience, @ustify wrong, protect fraud, or defend cri e, or when it is ade as a shield to confuse the legiti ate issues, or where a corporation is the erealter e$o or business conduit of a person, or where the corporation is so organi,ed and controlled and its affairs are so conducted as to a*e it erely an instru entality, agency, conduit or ad@unct of another corporation. Iith specific regard to corporate officers, the general rule is that the officer cannot be held personally liable with the corporation, whether civilly or otherwise, for the conseBuences of his acts, if he acted for and in behalf of the corporation, within the scope of his authority and in good faith. In such cases, the officer>s acts are properly attributed to the corporation.1! Aowever, if it is proven that the officer has used the corporate fiction to defraud a third party,14 or that he has acted negligently, aliciously or in bad faith,1# then the corporate veil shall be lifted and he shall be held personally liable for the particular corporate obligation involved. 1he Court, after an assiduous study of this case, is convinced that the totality of the circu stances appertaining conduce to the inevitable conclusion that petitioner 6rancisco acted in bad faith. 1he events leading up to the loss by the &utierre, estate of its ortgage security attest to this. It has been established that Cardale failed to co ply with its obligation to pay the balance of the purchase price for the four parcels of land it bought fro &utierre, covered by 1C1 (os. 3#!1 to 3#!4, which obligation was secured by a ortgage upon the lands covered by 1C1 (os. 3#!1, 3#!2 and 3#!!. 1his pro pted &utierre, to file an action for rescission of

the Deed of 8ale with 9ortgage -Civil Case (o. ?%12!00., but the case dragged on for about fourteen years when Cardale, as represented by 6rancisco, who was 'ice%:resident and 1reasurer of the sa e,10 lost interest in co pleting its presentation of evidence. 2ven before 1")4 when 9e@ia, in her capacity as e7ecutri7 of &utierre,>s estate, filed a 9otion for Decision with the trial court, there is no Buestion that 6rancisco *new that the properties sub@ect of the ortgage had beco e ta7 delinBuent. In fact, as treasurer of Cardale, 6rancisco herself was the officer charged with the responsibility of paying the realty ta7es on the corporation>s properties. 1his was ad itted by the trial court in its decision.13 In addition, notices dated " Culy 1")2 fro the City 1reasurer of Caloocan de anding pay ent of the ta7 arrears on the sub@ect properties and giving warning that if the realty ta7es were not paid within the given period then such properties would be sold at public auction to satisfy the ta7 delinBuencies were sent directly to 6rancisco>s address in Ihite :lains, ?ue,on City.1) 1hus, as early as 1")2, 6rancisco could have infor ed the &utierre, estate or the trial court in Civil Case (o. ?%12!00 of the ta7 arrears and of the notice fro the City 1reasurer so that the estate could have ta*en the necessary steps to prevent the auction sale and to protect its interests in the ortgaged properties, but she did no such thing. 6inally, in 1")!, the properties were levied upon and sold at public auction wherein 9erryland D a corporation where 6rancisco is a stoc*holder1" and concurrently acts as :resident and director20 D was the highest bidder. Ihen 9e@ia filed the 9otion for Decision in Civil Case (o. ?%12!00,21 the period for redee ing the properties sub@ect of the ta7 sale had not yet e7pired.22 ;nder the $ealty :roperty 1a7 Code,2! pursuant to which the ta7 levy and sale were prosecuted,24 both the delinBuent ta7payer and in his absence, any person holding a lien or clai over the property shall have the right to redee the property within one year fro the date of registration of the sale.2# Aowever, if these persons fail to redee the property within the ti e provided, then the purchaser acBuires the property <free fro any encu brance or third party clai whatsoever.=20 Cardale ade no atte pts to redee the ortgaged property during this ti e. 9oreover, instead of infor ing 9e@ia or the trial court in ?%12!00 about the ta7 sale, the records show that 6rancisco filed a 9otion for :ostpone ent23 in behalf of Cardale D even signing the otion in her capacity as <officer%in%charge= D which wor*ed to defer the hearing of 9e@ia>s 9otion for Decision. (o ention was ade by 6rancisco of the ta7 sale in the otion for postpone ent. 5nly after the rede ption period had e7pired did 6rancisco decide to reveal what had transpired by filing a 9anifestation stating that the properties sub@ect of the ortgage in favor of &utierre, had been sold at a ta7 delinBuency saleG however, 6rancisco failed to ention that it was 9erryland that acBuired the properties since she was probably afraid that if she did so the court would see behind her fraudulent sche e. In this regard, it is also significant to note that it was 6rancisco herself who filed the petitions for consolidation of title and who helped secure for 9erryland titles over the sub@ect properties <free fro any encu brance or third%party clai whatsoever.= It is e7ceedingly apparent to the Court that the totality of 6rancisco>s actions clearly betray an intention to conceal the ta7 delinBuencies, levy and public auction of the sub@ect properties fro the estate of &utierre, and the trial court in Civil Case (o. ?%12!00 until after the e7piration of the rede ption period when the re otest possibility for the recovery of the properties would be e7tinguished.2) ConseBuently, 6rancisco had effectively deprived the estate of &utierre, of its

rights as ortgagee over the three parcels of land which were sold to Cardale. If 6rancisco was acting in good faith, then she should have disclosed the status of the ortgaged properties to the trial court in Civil Case (o. ?%12!00 Despecially after 9e@ia had filed a 9otion for Decision, in response to which she filed a otion for postpone ent wherein she could easily have entioned the ta7 sale D since this action directly affected such properties which were the sub@ect of both the sale and ortgage. 1hat 9erryland acBuired the property at the public auction only serves to shed ore light upon 6rancisco>s fraudulent purposes. 4ased on the findings of the Court of Appeals, 6rancisco is the controlling stoc*holder and :resident of 9erryland.2" 1hus, aside fro the instru ental role she played as an officer of Cardale, in evading that corporation>s legiti ate obligations to &utierre,, it appears that 6rancisco>s actions were also oriented towards securing advantages for another corporation in which she had a substantial interest. Ie cannot agree, however, with the Court of Appeals> decision to hold 9erryland solidarily liable with 6rancisco. 1he only act i putable to 9erryland in relation to the ortgaged properties is that it purchased the sa e and this by itself is not a fraudulent or wrongful act. (o evidence has been adduced to establish that 9erryland was a ere alter ego or business conduit of 6rancisco. 1i e and again it has been reiterated that ere ownership by a single stoc*holder or by another corporation of all or nearly all of the capital stoc* of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.!0 (either has it been alleged or proven that 9erryland is so organi,ed and controlled and its affairs are so conducted as to a*e it erely an instru entality, agency, conduit or ad@unct of Cardale.!1 2ven assu ing that the businesses of Cardale and 9erryland are interrelated, this alone is not @ustification for disregarding their separate personalities, absent any showing that 9erryland was purposely used as a shield to defraud creditors and third persons of their rights.!2 1hus, 9erryland>s separate @uridical personality ust be upheld. 4ased on a state ent of account sub itted by 9e@ia, the Court of Appeals awarded :4,!14,231.4! in favor of the estate of &utierre, which represents the unpaid balance of the purchase price in the a ount of :02",000.00 with an interest rate of nine percent -"L . per annu , in accordance with the agree ent of the parties under the Deed of 8ale with 9ortgage,!! as of Dece ber 1")).!4 1herefore, in addition to the a ount awarded by the appellate court, 6rancisco should pay the estate of &utierre, interest on the unpaid balance of the purchase price -in the a ount of :02",000.00. at the rate of nine percent -"L. per annu co puted fro Canuary, 1")" until fully satisfied. 6inally, contrary to petitioner>s assertions, we agree with the Court of Appeals that the decision of the trial court in Civil Case (o. ?%12!00 does not constitute res judicata insofar as the present case is concerned because the decision in the first case was not a @udg ent on the erits. $ather, it was erely based upon the pre ise that since Cardale had been dissolved and the property acBuired by another corporation, the action for rescission would not prosper. As a atter of fact, it was even e7pressly stated by the trial court that the parties should ventilate their issues in another action. *+EREFORE, the 1! April 1""" Decision of the Court of Appeals is hereby accordingly MODIFIED so as to hold ADA/IA 6$A(CI8C5 solely liable to the estate of &utierre, for the a ount of :4,!14,231.4! and for interest on the unpaid balance of the

purchase price -in the a ount of :02",000.00. at the rate of nine percent -"L. per annu co puted fro Canuary, 1")" until fully satisfied. 92$$M/A(D is hereby absolved fro all liability. SO ORDERED. elo, (itu$, )an$ani*an, and Sandoval-Gutierre+, JJ., concur. ,usiness Or$ani+ation - &orporation .a! - )iercin$ t/e (eil o# &orporate 0iction - 0raud %est vs Alter E$o %est Adalia 6rancisco was the 1reasurer of Cardale 6inancing and $ealty Corporation -Cardale.. Cardale, through 6rancisco, contracted with Andrea &utierre, for the latter to e7ecute a deed of sale over certain parcels of land in favor of Cardale. It was agreed that &utierre, shall hand over the titles to Cardale but Cardale shall only give a downpay ent, and later on full pay ent in install ent. As security, &utierre, shall retain a lien over the properties by way of ortgage. (onetheless, Cardale defaulted in its pay ent. &utierre, then filed a petition with the trial court to have the Deed rescinded. Ihile the case was pending, &utierre, died, and $ita 9e@ia, being the e7ecutri7 of the will of &utierre, too* over the affairs of the estate. 1he case dragged on for 14 years because 6rancisco lost interest in presenting evidence. And while the case was pending, Cardale failed to pay real estate ta7es over the properties in litigation hence, the local govern ent sub@ected said properties to an auction sale to satisfy the ta7 arrears. 1he highest bidder in the auction sale was 9erryland Develop ent Corporation -9erryland.. Apparently, 9erryland is a corporation in which 6rancisco was the :resident and a@ority stoc*holder. 9e@ia then sought to nullify the auction sale on the ground that 6rancisco used the two corporations as du ies to defraud the estate of &utierre, especially so that these circu stances are present+ 1. 6rancisco did not infor the lower court that the properties were delinBuent in ta7esG

2. 1hat there was notice for an auction sale and 6rancisco did not infor the &utierre, estate and as such, the estate was not able to perfor appropriate acts to re edy the sa eG !. 1hat without *nowledge of the auction, the &utierre, estate cannot e7ercise their right of rede ptionG 4. 1hat 6rancisco failed to infor the court that the highest bidder in the auction sale was 9erryland, her other co panyG #. 1hat thereafter, Cardale was dissolved and the sub@ect properties were divided and sold to other people.

ISS(E, Ihether or not 9erryland and 6rancisco shall be held solidarily liable. +ELD, (o. 5nly 6rancisco shall be held liable to pay the indebtedness to the &utierre, estate. Ihat was only proven was that 6rancisco defrauded the &utierre, estate as clearly shown by the dubious circu stances which caused the encu bered properties to be auctioned. 4y not disclosing the ta7 delinBuency, 6rancisco left &utierre, in the dar*. 8he obviously acted in bad faith. 6rancisco>s elaborate act of defaulting pay ent, disregarding the case, not paying realty ta7es -since as treasurer of Cardale, she>s responsible for paying the real estate ta7es for Cardale., and failure to advise &utierre, of the ta7 delinBuencies all constitute bad faith. 1he attendant fraud and bad faith on the part of 6rancisco necessitates the piercing of the veil of corporate fiction in so far as Cardale and 6rancisco are concerned. Cardale and 6rancisco cannot escape liability now that Cardale has been dissolved. 6rancisco shall then pay &uttiere, estate the outstanding balance with interest -total of :4.! N illion.. As regards 9erryland however, there was no proof that it is erely an alter ego or a business conduit of 6rancisco. 9erryland erely bought the properties fro the auction sale and such per se is not a wrongful act or a fraudulent act. 1i e and again it has been reiterated that ere ownership by a single stoc*holder or by another corporation of all or nearly all of the capital stoc* of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Aence, 9erryland can>t be held solidarily liable with 6rancisco.