Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 171660 October 17, 2011
CONTINENTAL CEMENT CORPORATION Petitioner,
vs.
ASEA BROWN BOVERI, INC., BBC BROWN BOVERI, CORP., AND TORD B.
ERIKSON,
**
Respondents.
D E C I S I O N
DEL CASTILLO, J .:
"Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss
suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages."
1

This Petition for Review on Certiorari
2
under Rule 45 of the Rules of Court assails the Decision
3
dated August 25, 2005
and the Resolution
4
dated February 16, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 58551.
Factual Antecedents
Sometime in July 1990, petitioner Continental Cement Corporation (CCC),
a corporation engaged in the business of producing cement,
5
obtained the services of respondents
6
Asea Brown Boveri, Inc.
(ABB) and BBC Brown Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor (Kiln Drive Motor).
7

On October 23, 1991, due to the repeated failure of respondents to repair the Kiln Drive Motor, petitioner filed with
Branch 101 of the Regional Trial Court (RTC) of Quezon City a Complaint
8
for sum of money and damages, docketed as
Civil Case No. Q-91-10419, against respondent corporations and respondent Tord B. Eriksson (Eriksson), Vice-President
of the Service Division of the respondent ABB.
9
Petitioner alleged that:
4. On July 11, 1990, the plaintiff delivered the 160 KW Kiln DC Drive Motor to the defendants to be repaired under PO
No. 17136-17137, x x x
The defendant, Tord B. Eriksson, was personally directing the repair of the said Kiln Drive Motor. He has direction and
control of the business of the defendant corporations. Apparently, the defendant Asea Brown Boveri, Inc. has no separate
personality because of the 4,000 shares of stock, 3996 shares were subscribed by Honorio Poblador, Jr. The four other
stockholders subscribed for one share of stock each only.
5. After the first repair by the defendants, the 160 KW Kiln Drive Motor was installed for testing on October 3, 1990. On
October 4, 1990 the test failed. The plaintiff removed the DC Drive Motor and replaced it with its old motor. It was only
on October 9, 1990 that the plaintiff resumed operation. The plaintiff lost 1,040 MTD per day from October 5 to October 9,
1990.
6. On November 14, 1990, after the defendants had undertaken the second repair of the motor in question, it was installed
in the kiln. The test failed again. The plaintiff resumed operation with its old motor on November 19, 1990. The plaintiff
suffered production losses for five days at the rate of 1,040 MTD daily.
7. The defendants were given a third chance to repair the 160 KW Kiln DC Drive Motor.1avvphi1 On March 13, 1991, the
motor was installed and tested. Again, the test failed. The plaintiff resumed operation on March 15, 1991. The plaintiff
sustained production losses at the rate of 1,040 MTD for two days.
8. As a consequence of the failure of the defendants to comply with their contractual obligation to repair the 160 KW Kiln
DC Drive Motor, the plaintiff sustained the following losses:
(a) Production and opportunity losses - P10,600,000.00
This amount represents only about 25% of the production losses at the rate of P72.00 per bag of cement.
(b) Labor Cost and Rental of Crane - 26,965.78
(c) Penalties (at P987.25 a day) for
failure to deliver the motor from
Aug. 29, 1990 to July 31, 1991. - 331,716.00
(d) Cost of money interest of the
P987.25 a day from July 18, 1990
to April 5, 1991 at 34% for 261 days - 24,335.59
Total Damages 10,983,017.42
9. The plaintiff has made several demands on the defendants for the payment of the above-enumerated damages, but the
latter refused to do so without valid justification.
10. The plaintiff was constrained to file this action and has undertaken to pay its counsel Twenty Percentum (20%) of the
amount sought to be recovered as attorneys fees.
10

Respondents, however, claimed that under Clause 7 of the General Conditions,
11
attached to the letter of offer
12
dated July
4, 1990 issued by respondent ABB to petitioner, the liability of respondent ABB "does not extend to consequential
damages either direct or indirect."
13
Moreover, as to respondent Eriksson, there is no lawful and tenable reason for
petitioner to sue him in his personal capacity because he did not personally direct the repair of the Kiln Drive Motor.
14

Ruling of the Regional Trial Court
On August 30, 1995, the RTC rendered a Decision
15
in favor of petitioner. The RTC rejected the defense of limited liability
interposed by respondents since they failed to prove that petitioner received a copy of the General
Conditions.
16
Consequently, the RTC granted petitioners claims for production loss, labor cost and rental of crane, and
attorneys fees.
17
Thus:
WHEREFORE, premises above considered, finding the complaint substantiated by plaintiff, judgment is hereby rendered
in favor of plaintiff and against defendants, hereby ordering the latter to pay jointly and severally the former, the following
sums:
P10,600,00.00 for loss of production;
P 26,965.78 labor cost and rental of crane;
P 100,000.00 attorneys fees and cost.
SO ORDERED.
18

Ruling of the Court of Appeals
On appeal, the CA reversed the ruling of the RTC. The CA applied the exculpatory clause in the General Conditions and
ruled that there is no implied warranty on repair work; thus, the repairman cannot be made to pay for loss of production as
a result of the unsuccessful repair.
19
The fallo of the CA Decision
20
reads:
WHEREFORE, premises considered, the assailed August 30, 1995 Decision of the Regional Trial Court of Quezon City,
Branch 101 is hereby REVERSED and SET ASIDE. The October 23, 1991 Complaint is hereby DISMISSED.
SO ORDERED.
21

Petitioner moved for reconsideration
22
but the CA denied the same in its Resolution
23
dated February 16, 2006.
Issues
Hence, the present recourse where petitioner interposes the following issues:
1. Whether x x x the [CA] gravely erred in applying the terms of the "General Conditions" of Purchase Orders Nos. 17136
and 17137 to exculpate the respondents x x x from liability in this case.
2. Whether x x x the [CA] seriously erred in applying the concepts of implied warranty and warranty against hidden
defects of the New Civil Code in order to exculpate the respondents x x x from its contractual obligation.
24

Petitioners Arguments
Petitioner reiterates that the General Conditions cannot exculpate respondents because petitioner never agreed to be bound
by it nor did petitioner receive a copy of it.
25
Petitioner also imputes error on the part of the CA in applying the concepts of
warranty against hidden defects and implied warranty.
26
Petitioner contends that these concepts are not applicable because
the instant case does not involve a contract of sale.
27
What applies are Articles 1170 and 2201 of
the Civil Code.
28

Respondents Arguments
Conversely, respondents insist that petitioner is bound by the General Conditions.
29
By issuing Purchase Order Nos.
17136-37, petitioner in effect accepted the General Conditions appended to respondent ABBs letter of
offer.
30
Respondents likewise defend the ruling of the CA that there could be no implied warranty on the repair made by
respondent ABB as the warranty of the fitness of the equipment should be enforced directly against the manufacturer of the
Kiln Drive Motor.
31
Respondents also deny liability for damages claiming that they performed their obligation in good
faith.
32

Our Ruling
The petition has merit.
Petitioner and respondent ABB entered into a contract for the repair of petitioners Kiln Drive Motor, evidenced by
Purchase Order Nos. 17136-37,
33
with the following terms and conditions:
a) Total Price: P197,450.00
b) Delivery Date: August 29, 1990 or six (6) weeks from receipt of order and down payment
34

c) Penalty: One half of one percent of the total cost or Nine Hundred Eighty Seven Pesos and Twenty five centavos
(P987.25) per day of delay.
Respondent ABB, however, not only incurred delay in performing its obligation but likewise failed to repair the Kiln Drive
Motor; thus, prompting petitioner to sue for damages.
Clause 7 of the General Conditions is not binding on petitioner
Respondents contend that under Clause 7 of the General Conditions their liability "does not extend to consequential
damages either direct or indirect."
35
This contention, however, is unavailing because respondents failed to show that
petitioner was duly furnished with a copy of said General Conditions. Hence, it is not binding on petitioner.
Having breached the contract it entered with petitioner, respondent ABB is liable for damages pursuant to Articles 1167,
1170, and 2201 of the Civil Code, which state:
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be
decreed that what has been poorly done be undone.
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages.
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be
those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or
could have reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation.
Based on the foregoing, a repairman who fails to perform his obligation is liable to pay for the cost of the execution of the
obligation plus damages. Though entitled, petitioner in this case is not claiming reimbursement for the repair allegedly
done by Newton Contractor,
36
but is instead asking for damages for the delay caused by respondent ABB.
Petitioner is entitled to penalties under Purchase Order Nos. 17136-37
As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the amount of P987.25 per day from the time of
delay, August 30, 1990, up to the time the Kiln Drive Motor was finally returned to petitioner. Records show that although
the testing of Kiln Drive Motor was done on March 13, 1991, the said motor was actually delivered to petitioner as early as
January 7, 1991.
37
The installation and testing was done only on March 13, 1991 upon the request of petitioner because the
Kiln was under repair at the time the motor was delivered; hence, the load testing had to be postponed.
38

Under Article 1226
39
of the Civil Code, the penalty clause takes the place of indemnity for damages and the payment of
interests in case of non-compliance with the obligation, unless there is a stipulation to the contrary. In this case, since there
is no stipulation to the contrary, the penalty in the amount of P987.25 per day of delay covers all other damages (i.e.
production loss, labor cost, and rental of the crane) claimed by petitioner.
Petitioner is not entitled to recover production loss, labor cost and the rental of crane
Article 1226 of the Civil Code further provides that if the obligor refuses to pay the penalty, such as in the instant
case,
40
damages and interests may still be recovered on top of the penalty. Damages claimed must be the natural and
probable consequences of the breach, which the parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted.
41

Thus, in addition to the penalties, petitioner seeks to recover as damages production loss, labor cost and the rental of the
crane.
Petitioner avers that every time the Kiln Drive Motor is tested, petitioner had to rent a crane and pay for labor to install the
motor.
42
But except for the Summary of Claims for Damages,
43
no other evidence was presented by petitioner to show that
it had indeed rented a crane or that it incurred labor cost to install the motor.
Petitioner likewise claims that as a result of the delay in the repair of the Kiln Drive Motor, its production from August 29,
1990 to March 15, 1991 decreased since it had to use its old motor which was not able to produce cement as much as the
one under repair;
44
and that every time the said motor was installed and tested, petitioner had to stop its operations;
thereby, incurring more production losses.
45
To support its claim, petitioner presented its monthly production reports
46
for
the months of April to June 1990 showing that on the average it was able to produce 1040 MT of cement per day.
However, the production reports for the months of August 1990 to March 1991 were not presented. Without these
production reports, it cannot be determined with reasonable certainty whether petitioner indeed incurred production losses
during the said period. It may not be amiss to say that competent proof and a reasonable degree of certainty are needed to
justify a grant of actual or compensatory damages; speculations, conjectures, assertions or guesswork are not sufficient.
47

Besides, consequential damages, such as loss of profits on account of delay or failure of delivery, may be recovered only if
such damages were reasonably foreseen or have been brought within the contemplation of the parties as the probable result
of a breach at the time of or prior to contracting.
48
Considering the nature of the obligation in the instant case, respondent
ABB, at the time it agreed to repair petitioners Kiln Drive Motor, could not have reasonably foreseen that it would be
made liable for production loss, labor cost and rental of the crane in case it fails to repair the motor or incurs delay in
delivering the same, especially since the motor under repair was a spare motor.
49

For the foregoing reasons, petitioner is not entitled to recover production loss, labor cost and the rental of the crane.
Petitioner is not entitled to attorneys fees
Neither is petitioner entitled to the award of attorneys fees. Jurisprudence requires that the factual basis for the award of
attorneys fees must be set forth in the body of the decision and not in the dispositive portion only.
50
In this case, no
explanation was given by the RTC in awarding attorneys fees in favor of petitioner. In fact, the award of attorneys fees
was mentioned only in the dispositive portion of the decision.
Respondent Eriksson cannot be made jointly and severally liable for the penalties
Respondent Eriksson, however, cannot be made jointly and severally liable for the penalties. There is no showing that
respondent Eriksson directed or participated in the repair of the Kiln Drive Motor or that he is guilty of bad faith or gross
negligence in directing the affairs of respondent ABB. It is a basic principle that a corporation has a personality separate
and distinct from the persons composing or representing it; hence, personal liability attaches only in exceptional cases,
such as when the director, trustee, or officer is guilty of bad faith or gross negligence in directing the affairs of the
corporation.
51

In sum, we find petitioner entitled to penalties in the amount of P987.25 per day from August 30, 1990 up to January 7,
1991 (131 days) or a total amount of P129,329.75 for the delay caused by respondent ABB. Finally, we impose interest at
the rate of six percent (6%) on the total amount due from the date of filing of the complaint until finality of this Decision.
However, from the finality of judgment until full payment of the total award, the interest rate of twelve percent (12%) shall
apply.
52

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated August 25, 2005 and the Resolution dated
February 16, 2006 of the Court of Appeals in CA-G.R. CV No. 58551 are hereby REVERSED and SET ASIDE.
Respondent ABB is ORDERED to pay petitioner the amount of P129,329.75, with interest at 6% per annum to be
computed from the date of the filing of the complaint until finality of this Decision and 12% per annum thereafter until full
payment.
SO ORDERED.


Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 157549 May 30, 2011
DONNINA C. HALLEY, Petitioner,
vs.
PRINTWELL, INC., Respondent.
D E C I S I O N
BERSAMIN, J :
Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid
subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because the veil may
be lifted to avoid defrauding corporate creditors.
Weaffirm with modification the decisionpromulgated on August 14, 2002,
1
whereby the Court of Appeals(CA)
upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City (RTC),
2
ordering the defendants
(including the petitioner)to pay to Printwell, Inc. (Printwell) the principal sum of P291,342.76 plus interest.
Antecedents
The petitioner wasan incorporator and original director of Business Media Philippines, Inc. (BMPI), which, at
its incorporation on November 12, 1987,
3
had an authorized capital stock of P3,000,000.00 divided into 300,000
shares each with a par value of P10.00,of which 75,000 were initially subscribed, to wit:
Subscriber No. of shares Total subscription Amount paid
Donnina C. Halley 35,000 P 350,000.00 P87,500.00
Roberto V. Cabrera, Jr. 18,000 P 180,000.00 P45,000.00
Albert T. Yu 18,000 P 180,000.00 P45,000.00
Zenaida V. Yu 2,000 P 20,000.00 P5,000.00
Rizalino C. Vineza 2,000 P 20,000.00 P5,000.00
TOTAL 75,000 P750,000.00 P187,500.00
Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for the printing of the
magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI published and sold. For
that purpose, Printwell extended 30-day credit accommodations to BMPI.
In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several orders on credit,
evidenced byinvoices and delivery receipts totalingP316,342.76.Considering that BMPI
paidonlyP25,000.00,Printwell suedBMPIon January 26, 1990 for the collection of the unpaid balance
ofP291,342.76 in the RTC.
4

On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all the original
stockholders and incorporators to recover on theirunpaid subscriptions, as follows:
5

Name Unpaid Shares
Donnina C. Halley P 262,500.00
Roberto V. Cabrera, Jr. P135,000.00
Albert T. Yu P135,000.00
Zenaida V. Yu P15,000.00
Rizalino C. Vieza P15,000.00
TOTAL P 562,500.00
The defendants filed a consolidated answer,
6
averring that they all had paid their subscriptions in full; that BMPI
had a separate personality from those of its stockholders; thatRizalino C. Vieza had assigned his fully-paid up
sharesto a certain Gerardo R. Jacinto in 1989; andthat the directors and stockholders of BMPI had resolved to
dissolve BMPI during the annual meetingheld on February 5, 1990.
To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI official receipt
(OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223, andOR no. 227,to wit:
Receipt No. Date Name Amount
217 November 5, 1987 Albert T. Yu P 45,000.00
218 May 13, 1988 Albert T. Yu P 135,000.00
220 May 13, 1988 Roberto V. Cabrera, Jr. P 135,000.00
221 November 5, 1987 Roberto V. Cabrera, Jr. P 45,000.00
222 November 5, 1987 Zenaida V. Yu P 5,000.00
223 May 13, 1988 Zenaida V. Yu P 15,000.00
227 May 13, 1988 Donnina C. Halley P 262,500.00
In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an audit report dated March 30,
1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the BIR);
7
(b) BMPIbalance
sheet
8
and income statement
9
as of December 31, 1988; (c) BMPI income tax return for the year 1988 (stamped
"received" by the BIR);
10
(d) journal vouchers;
11
(e) cash deposit slips;
12
and(f)Bank of the Philippine Islands
(BPI) savings account passbookin the name of BMPI.
13

Ruling of the RTC
On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation of payment in
full of the subscriptions in view of an irregularity in the issuance of the ORs and observingthat the defendants
had used BMPIs corporate personality to evade payment and create injustice, viz:
The claim of individual defendants that they have fully paid their subscriptions to defend[a]nt corporation, is
not worthy of consideration, because:
a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that the alleged payment made on
May 13, 1988 amounting to P135,000.00, is covered by Official Receipt No. 218 (Exh. "2"), whereas the
alleged payment made earlier on November 5, 1987, amounting to P5,000.00, is covered by Official Receipt
No. 222 (Exh. "3"). This is cogent proof that said receipts were belatedly issued just to suit their theory since in
the ordinary course of business, a receipt issued earlier must have serial numbers lower than those issued on a
later date. But in the case at bar, the receipt issued on November 5, 1987 has serial numbers (222) higher than
those issued on a later date (May 13, 1988).
b) The claim that since there was no call by the Board of Directors of defendant corporation for the payment of
unpaid subscriptions will not be a valid excuse to free individual defendants from liability. Since the individual
defendants are members of the Board of Directors of defendantcorporation, it was within their exclusive power
to prevent the fulfillment of the condition, by simply not making a call for the payment of the unpaid
subscriptions. Their inaction should not work to their benefit and unjust enrichment at the expense of plaintiff.
Assuming arguendo that the individual defendants have paid their unpaid subscriptions, still, it is very apparent
that individual defendants merely used the corporate fiction as a cloak or cover to create an injustice; hence, the
alleged separate personality of defendant corporation should be disregarded (Tan Boon Bee & Co., Inc. vs.
Judge Jarencio, G.R. No. 41337, 30 June 1988).
14

Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell pro rata,
thusly:
Defendant Business Media, Inc. is a registered corporation (Exhibits "A", "A-1" to "A-9"), and, as appearing
from the Articles of Incorporation, individual defendants have the following unpaid subscriptions:
Names Unpaid Subscription
Donnina C. Halley P262,500.00
Roberto V. Cabrera, Jr. 135.000.00
Albert T. Yu 135,000.00
Zenaida V. Yu 15,000.00
Rizalino V. Vineza 15,000.00
--------------------------------
Total P562,500.00
and it is an established doctrine that subscriptions to the capital stock of a corporation constitute a fund to which
creditors have a right to look for satisfaction of their claims (Philippine National Bank vs. Bitulok Sawmill,
Inc., 23 SCRA 1366) and, in fact, a corporation has no legal capacity to release a subscriber to its capital stock
from the obligation to pay for his shares, and any agreement to this effect is invalid (Velasco vs. Poizat, 37 Phil.
802).
The liability of the individual stockholders in the instant case shall be pro-rated as follows:
Names Amount
Donnina C. Halley P149,955.65
Roberto V. Cabrera, Jr. 77,144.55
Albert T. Yu 77,144.55
Zenaida V. Yu 8,579.00
Rizalino V. Vineza 8,579.00
--------------------------------
Total P321,342.75
15

The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants to
pay to plaintiff the amount of P291,342.76, as principal, with interest thereon at 20% per annum, from date of
default, until fully paid, plus P30,000.00 as attorneys fees, plus costs of suit.
Defendants counterclaims are ordered dismissed for lack of merit.
SO ORDERED.
16

Ruling of the CA
All the defendants, except BMPI, appealed.
Spouses Donnina and Simon Halley, andRizalinoVieza defined the following errors committed by the RTC, as
follows:
I.
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE FOR THE
LIABILITIES OF THE DEFENDANT CORPORATION.
II.
ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF THEIR
UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF ANY, THE TRIAL COURT NONETHELESS
ERRED IN NOT FINDING THAT APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE SUIT
WAS FILED, NO SUCH UNPAID SUBSCRIPTIONS.
On their part, Spouses Albert and Zenaida Yu averred:
I.
THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO DEFENDANTS-
APPELLANTS SPOUSES ALBERT AND ZENAIDA YUS EXHIBITS 2 AND 3 DESPITE THE
UNREBUTTED TESTIMONY THEREON BY APPELLANT ALBERT YU AND THE ABSENCE OF
PROOF CONTROVERTING THEM.
II.
THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU
PERSONALLY LIABLE FOR THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS., INC.
DESPITE FULL PAYMENT BY SAID DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE
SUBSCRIPTIONS TO THE CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.
Roberto V. Cabrera, Jr. argued:
I.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE DOCTRINE OF
PIERCING THE VEIL OF CORPORATE PERSONALITY IN ABSENCE OF ANY SHOWING OF EXTRA-
ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT THERETO.
II.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT INDIVIDUAL
DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFF-APPELLEES CLAIM BASED ON THEIR
RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING
FULL SETTLEMENT OF SUBSCRIBED CAPITAL BY THE INDIVIDUAL DEFENDANTS.
On August 14, 2002, the CA affirmed the RTC, holding that the defendants resort to the corporate personality
would createan injustice becausePrintwell would thereby be at a loss against whom it would assert the right to
collect, viz:
Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or an illegal act
or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievements or
perfection of monopoly or generally the perpetration of knavery or crime, the veil with which the law covers
and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals (First Philippine International Bank vs. Court of Appeals,
252 SCRA 259). Moreover, under this doctrine, the corporate existence may be disregarded where the entity is
formed or used for non-legitimate purposes, such as to evade a just and due obligations or to justify wrong
(Claparols vs. CIR, 65 SCRA 613).
In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL
involving the printing of business magazines, wrappers and subscription cards, in the total amount of
P291,342.76 (Record pp. 3-5, Annex "A") which facts were never denied by appellants stockholders that they
owe appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed
to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum until fully
paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite
the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said
transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in
order to protect its right can collect from the appellants stockholders regarding their unpaid subscriptions. To
deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to
collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction
to evade payment of its obligations.
17

Further, the CA concurred with the RTC on theapplicability of thetrust fund doctrine, under which corporate
debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts, stating thus:
It is an established doctrine that subscription to the capital stock of a corporation constitute a fund to which
creditors have a right to look up to for satisfaction of their claims, and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts
(PNB vs. Bitulok Sawmill, 23 SCRA 1366).
Premised on the above-doctrine, an inference could be made that the funds, which consists of the payment of
subscriptions of the stockholders, is where the creditors can claim monetary considerations for the satisfaction
of their claims. If these funds which ought to be fully subscribed by the stockholders were not paid or remain an
unpaid subscription of the corporation then the creditors have no other recourse to collect from the corporation
of its liability. Such occurrence was evident in the case at bar wherein the appellants as stockholders failed to
fully pay their unpaid subscriptions, which left the creditors helpless in collecting their claim due to
insufficiency of funds of the corporation. Likewise, the claim of appellants that they already paid the unpaid
subscriptions could not be given weight because said payment did not reflect in the Articles of Incorporations of
BMPI that the unpaid subscriptions were fully paid by the appellants stockholders. For it is a rule that a
stockholder may be sued directly by creditors to the extent of their unpaid subscriptions to the corporation
(Keller vs. COB Marketing, 141 SCRA 86).
Moreover, a corporation has no power to release a subscription or its capital stock, without valuable
consideration for such releases, and as against creditors, a reduction of the capital stock can take place only in
the manner and under the conditions prescribed by the statute or the charter or the Articles of Incorporation.
(PNB vs. Bitulok Sawmill, 23 SCRA 1366).
18

The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full payment of the
subscriptions to the capital stock unworthy of consideration; andheld that the veil of corporate fiction could be
pierced when it was used as a shield to perpetrate a fraud or to confuse legitimate issues, to wit:
Finally, appellants SPS YU, argued that the fact of full payment for the unpaid subscriptions was
incontrovertibly established by competent testimonial and documentary evidence, namely Exhibits "1", "2",
"3" & "4", which were never disputed by appellee, clearly shows that they should not be held liable for payment
of the said unpaid subscriptions of BMPI.
The reliance is misplaced.
We are hereby reproducing the contents of the above-mentioned exhibits, to wit:
Exh: "1" YU Official Receipt No. 217 dated November 5, 1987 amounting to P45,000.00 allegedly
representing the initial payment of subscriptions of stockholder Albert Yu.
Exh: "2" YU Official Receipt No. 218 dated May 13, 1988 amounting to P135,000.00 allegedly
representing full payment of balance of subscriptions of stockholder Albert Yu. (Record p. 352).
Exh: "3" YU Official Receipt No. 222 dated November 5, 1987 amounting to P5,000.00 allegedly
representing the initial payment of subscriptions of stockholder Zenaida Yu.
Exh: "4" YU Official Receipt No. 223 dated May 13, 1988 amounting to P15,000.00 allegedly representing
the full payment of balance of subscriptions of stockholder Zenaida Yu. (Record p. 353).
Based on the above exhibits, we are in accord with the lower courts findings that the claim of the individual
appellants that they fully paid their subscription to the defendant BMPI is not worthy of consideration, because,
in the case of appellants SPS. YU, there is an inconsistency regarding the issuance of the official receipt since
the alleged payment made on May 13, 1988 amounting to P135,000.00 was covered by Official Receipt No.
218 (Record, p. 352), whereas the alleged payment made earlier on November 5, 1987 amounting to P5,000.00
is covered by Official Receipt No. 222 (Record, p. 353). Such issuance is a clear indication that said receipts
were belatedly issued just to suit their claim that they have fully paid the unpaid subscriptions since in the
ordinary course of business, a receipt is issued earlier must have serial numbers lower than those issued on a
later date. But in the case at bar, the receipt issued on November 5, 1987 had a serial number (222) higher than
those issued on May 13, 1988 (218). And even assuming arguendo that the individual appellants have paid their
unpaid subscriptions, still, it is very apparent that the veil of corporate fiction may be pierced when made as a
shield to perpetuate fraud and/or confuse legitimate issues. (Jacinto vs. Court of Appeals, 198 SCRA 211).
19

Spouses Halley and Vieza moved for a reconsideration, but the CA denied their motion for reconsideration.
Issues
Only Donnina Halley has come to the Court to seek a further review, positing the following for our
consideration and resolution, to wit:
I.
THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT DID NOTSTATE
THE FACTS AND THE LAW UPON WHICH THE JUDGMENT WAS BASED BUT MERELY COPIED
THE CONTENTS OF RESPONDENTS MEMORANDUM ADOPTING THE SAME AS THE REASON
FOR THE DECISION
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL
COURT WHICH ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF CORPORATE FICTION
III.
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND DOCTRINE
WHEN THE GROUNDS THEREFOR HAVE NOT BEEN SATISFIED.
On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of Printwell; and
submits that the RTCthereby violatedthe requirement imposed in Section 14, Article VIII of the
Constitution
20
as well as in Section 1,Rule 36 of the Rules of Court,
21
to the effect that a judgment or final order
of a court should state clearly and distinctly the facts and the law on which it is based. The petitioner claims that
the RTCs violation indicated that the RTC did not analyze the case before rendering its decision, thus denying
her the opportunity to analyze the decision; andthat a suspicion of partiality arose from the fact that the RTC
decision was but a replica of Printwells memorandum.She cites Francisco v. Permskul,
22
in which the Court
has stated that the reason underlying the constitutional requirement, that every decision should clearly and
distinctly state the facts and the law on which it is based, is to inform the reader of how the court has reached its
decision and thereby give the losing party an opportunity to study and analyze the decision and enable such
party to appropriately assign the errors committed therein on appeal.
On the second and third errors, the petitioner maintains that the CA and the RTC erroneously pierced the veil of
corporate fiction despite the absence of cogent proof showing that she, as stockholder of BMPI, had any hand in
transacting with Printwell; thatthe CA and the RTC failed to appreciate the evidence that she had fully paid her
subscriptions; and the CA and the RTCwrongly relied on the articles of incorporation in determining the current
list of unpaid subscriptions despite the articles of incorporationbeing at best reflectiveonly of the pre-
incorporation status of BMPI.
As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety of disregarding
the separate personalities of BMPI and its stockholdersby piercing the thin veil that separated them; and (b) the
application of the trust fund doctrine.
Ruling
The petition for review fails.
I
The RTC did not violate
the Constitution and the Rules of Court
The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in writing its
decision, and did not analyze the records on its own, thereby manifesting a bias in favor of Printwell, is
unfounded.
It is noted that the petition for review merely generally alleges that starting from its page 5, the decision of the
RTC "copied verbatim the allegations of herein Respondents in its Memorandum before the said court," as if
"the Memorandum was the draft of the Decision of the Regional Trial Court of Pasig,"
23
but fails to specify
either the portions allegedly lifted verbatim from the memorandum, or why she regards the decision as copied.
The omission renders thepetition for review insufficient to support her contention, considering that the mere
similarityin language or thought between Printwells memorandum and the trial courts decisiondid not
necessarily justify the conclusion that the RTC simply lifted verbatim or copied from thememorandum.
It is to be observed in this connection that a trial or appellate judge may occasionally viewa partys
memorandum or brief as worthy of due consideration either entirely or partly. When he does so, the judgemay
adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems suitable,and yet not be
guilty of the accusation of lifting or copying from the memorandum.
24
This isbecause ofthe avowed objective of
the memorandum to contribute in the proper illumination and correct determination of the controversy.Nor is
there anything untoward in the congruence of ideas and views about the legal issues between himself and the
party drafting the memorandum.The frequency of similarities in argumentation, phraseology, expression, and
citation of authorities between the decisions of the courts and the memoranda of the parties, which may be great
or small, can be fairly attributable tothe adherence by our courts of law and the legal profession to widely
knownor universally accepted precedents set in earlier judicial actions with identical factual milieus or posing
related judicial dilemmas.
We also do not agree with the petitioner that the RTCs manner of writing the decisiondeprivedher ofthe
opportunity to analyze its decisionas to be able to assign errors on appeal. The contrary appears, considering
that she was able to impute and assignerrors to the RTCthat she extensively discussed in her appeal in the CA,
indicating her thorough analysis ofthe decision of the RTC.
Our own readingof the trial courts decision persuasively shows that the RTC did comply with the requirements
regarding the content and the manner of writing a decision prescribed in the Constitution and the Rules of
Court. The decision of the RTC contained clear and distinct findings of facts, and stated the applicablelaw and
jurisprudence, fully explaining why the defendants were being held liable to the plaintiff. In short, the reader
was at once informed of the factual and legal reasons for the ultimate result.
II
Corporate personality not to be used to foster injustice
Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach the
unpaid subscriptions because it appeared that such subscriptions were the remaining visible assets of BMPI; and
(b) to avoid multiplicity of suits.
25

The petitionersubmits that she had no participation in the transaction between BMPI and Printwell;that BMPI
acted on its own; and that shehad no hand in persuading BMPI to renege on its obligation to pay. Hence, she
should not be personally liable.
We rule against the petitioners submission.
Although a corporation has a personality separate and distinct from those of its stockholders, directors, or
officers,
26
such separate and distinct personality is merely a fiction created by law for the sake of convenience
and to promote the ends of justice.
27
The corporate personality may be disregarded, and the individuals
composing the corporation will be treated as individuals, if the corporate entity is being used as a cloak or cover
for fraud or illegality;as a justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole
benefit of the stockholders.
28
As a general rule, a corporation is looked upon as a legal entity, unless and until
sufficient reason to the contrary appears. Thus,the courts always presume good faith, andfor that reason accord
prime importance to the separate personality of the corporation, disregarding the corporate personality only
after the wrongdoing is first clearly and convincingly established.
29
It thus behooves the courts to be careful in
assessing the milieu where the piercing of the corporate veil shall be done.
30

Although nowhere in Printwells amended complaint or in the testimonies Printwell offered can it be read or
inferred from that the petitioner was instrumental in persuading BMPI to renege onits obligation to pay; or that
sheinduced Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI toPrintwell,
her personal liability, together with that of her co-defendants, remainedbecause the CA found her and the other
defendant stockholders to be in charge of the operations of BMPI at the time the unpaid obligation was
transacted and incurred, to wit:
In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL
involving the printing of business magazines, wrappers and subscription cards, in the total amount
of P291,342.76 (Record pp. 3-5, Annex "A") which facts were never denied by appellants stockholders that
they owe(d) appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed to
pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also
during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not
able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid
subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the
appellants stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would
place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants
herein are availing the defense of corporate fiction to evade payment of its obligations.
31

It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its obligations to pay, and whether or
not she induced Printwell to transact with BMPI were not gooddefensesin the suit.1avvphi1
III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions
Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders, including the petitioner.
The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had already fully paid her
subscriptions to the capital stock of BMPI. She thus insiststhat both lower courts erred in disregarding the evidence on the
complete payment of the subscription, like receipts, income tax returns, and relevant financial statements.
The petitioners argumentis devoid of substance.
The trust fund doctrineenunciates a
xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property can be called a
trust fund only by way of analogy or metaphor. As between the corporation itself and its creditors it is a simple debtor,
and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts.
32

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,
33
was adopted in our jurisdiction in
Philippine Trust Co. v. Rivera,
34
where thisCourt declared that:
It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right
to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802) xxx
35

We clarify that the trust fund doctrineis not limited to reaching the stockholders unpaid subscriptions. The scope of the
doctrine when the corporation is insolvent encompasses not only the capital stock, but also other property and assets
generally regarded in equity as a trust fund for the payment of corporate debts.
36
All assets and property belonging to the
corporation held in trust for the benefit of creditors thatwere distributed or in the possession of the stockholders, regardless
of full paymentof their subscriptions, may be reached by the creditor in satisfaction of its claim.
Also, under the trust fund doctrine,a corporation has no legal capacity to release an original subscriber to its capital stock
from the obligation of paying for his shares, in whole or in part,
37
without a valuable consideration,
38
or fraudulently, to the
prejudice of creditors.
39
The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into
the shoes of the corporation for the satisfaction of its debt.
40
To make out a prima facie case in a suit against stockholders of
an insolvent corporation to compel them to contribute to the payment of its debts by making good unpaid balances upon
their subscriptions, it is only necessary to establish that thestockholders have not in good faith paid the par value of the
stocks of the corporation.
41

The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs) issued to the other
stockholders/subscribers should not affect her becauseher receipt did not suffer similar irregularity.
Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her favor,we still cannot sustain
the petitioners defense of full payment of her subscription.
In civil cases, theparty who pleads payment has the burden of proving it, that even where the plaintiff must allege
nonpayment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to
prove nonpayment. In other words, the debtor bears the burden of showing with legal certainty that the obligation has been
discharged by payment.
42

Apparently, the petitioner failed to discharge her burden.
A receipt is the written acknowledgment of the fact of payment in money or other settlement between the seller and the
buyer of goods, thedebtor or thecreditor, or theperson rendering services, and theclient or thecustomer.
43
Althougha receipt
is the best evidence of the fact of payment, it isnot conclusive, but merely presumptive;nor is it exclusive
evidence,considering thatparole evidence may also establishthe fact of payment.
44

The petitioners ORNo. 227,presentedto prove the payment of the balance of her subscription, indicated that her supposed
payment had beenmade by means of a check. Thus, to discharge theburden to prove payment of her subscription, she had
to adduce evidence satisfactorily proving that her payment by check wasregardedas payment under the law.
Paymentis defined as the delivery of money.
45
Yet, because a check is not money and only substitutes for money, the
delivery of a check does not operate as payment and does not discharge the obligation under a judgment.
46
The delivery of a
bill of exchange only produces the fact of payment when the bill has been encashed.
47
The following passage fromBank of
Philippine Islands v. Royeca
48
is enlightening:
Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a
valid tender of payment. Since a negotiable instrument is only a substitute for money and not money, the delivery of such
an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is
actually realized.
To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the
petitioner, but also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed,
the respondents could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely
averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor of the
checks and three years had already lapsed since they issued the checks.
Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the
petitioner to prove non-payment, particularly proof that the checks were dishonored. The burden of evidence is shifted only
if the party upon whom it is lodged was able to adduce preponderant evidence to prove its claim.
Ostensibly, therefore, the petitioners mere submission of the receipt issued in exchange of the check did not satisfactorily
establish her allegation of full payment of her subscription. Indeed, she could not even inform the trial court about the
identity of her drawee bank,
49
and about whether the check was cleared and its amount paid to BMPI.
50
In fact, she did not
present the check itself.
Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented, had no bearing on the issue of
payment of the subscription because they did not by themselves prove payment. ITRsestablish ataxpayers liability for
taxes or a taxpayers claim for refund. In the same manner, the deposit slips and entries in the passbook issued in the name
of BMPI were hardly relevant due to their not reflecting the alleged payments.
It is notable, too, that the petitioner and her co-stockholders did not support their allegation of complete payment of their
respective subscriptions with the stock and transfer book of BMPI. Indeed, books and records of a corporation (including
the stock and transfer book) are admissible in evidence in favor of or against the corporation and its members to prove the
corporate acts, its financial status and other matters (like the status of the stockholders), and are ordinarily the best
evidence of corporate acts and proceedings.
51
Specifically, a stock and transfer book is necessary as a measure of
precaution, expediency, and convenience because it provides the only certain and accurate method of establishing the
various corporate acts and transactions and of showing the ownership of stock and like matters.
52
That she tendered no
explanation why the stock and transfer book was not presented warrants the inference that the book did not reflect the
actual payment of her subscription.
Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate covering her subscription
might have been a reliable evidence of full payment of the subscriptions, considering that under Section 65 of the
Corporation Code a certificate of stock issues only to a subscriber who has fully paid his subscription. The lack of any
explanation for the absence of a stock certificate in her favor likewise warrants an unfavorable inference on the issue of
payment.
Lastly, the petitioner maintains that both lower courts erred in relying on the articles of incorporationas proof of the
liabilities of the stockholders subscribing to BMPIs stocks, averring that the articles of incorporationdid not reflect the
latest subscription status of BMPI.
Although the articles of incorporation may possibly reflect only the pre-incorporation status of a corporation, the lower
courts reliance on that document to determine whether the original subscribersalready fully paid their subscriptions or not
was neither unwarranted nor erroneous. As earlier explained, the burden of establishing the fact of full payment belonged
not to Printwell even if it was the plaintiff, but to the stockholders like the petitioner who, as the defendants, averredfull
payment of their subscriptions as a defense. Their failure to substantiate their averment of full payment, as well as their
failure to counter the reliance on the recitals found in the articles of incorporation simply meant their failure or inability to
satisfactorily prove their defense of full payment of the subscriptions.
To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate obligation of BMPI by virtue of
her subscription being still unpaid. Printwell, as BMPIs creditor,had a right to reachher unpaid subscription in satisfaction
of its claim.
IV
Liability of stockholders for corporate debts isup
to the extentof their unpaid subscription
The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their shares in the capital stock of
BMPI); and held the petitionerpersonally liable onlyin the amount of P149,955.65.
We do not agree. The RTC lacked the legal and factual support for its prorating the liability. Hence, we need to modify the
extent of the petitioners personal liability to Printwell. The prevailing rule is that a stockholder is personally liable for the
financial obligations of the corporation to the extent of his unpaid subscription.
53
In view ofthe petitioners unpaid
subscription being worth P262,500.00, shewas liable up to that amount.
Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at 12% per annum from the date
the amended complaint was filed on February 8, 1990 until the obligation (i.e., to the extent of the petitioners personal
liability of P262,500.00) is fully paid.
54

Lastly, we find no basis togrant attorneys fees, the award for which must be supported by findings of fact and of law as
provided under Article 2208 of the Civil Code
55
incorporated in the body of decision of the trial court. The absence of the
requisite findings from the RTC decision warrants the deletion of the attorneys fees.
ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification the decision promulgated on
August 14, 2002by ordering the petitionerto pay to Printwell, Inc. the sum of P262,500.00, plus interest of 12% per annum
to be computed from February 8, 1990 until full payment.
The petitioner shall paycost of suit in this appeal.SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 182397 September 14, 2011
ALERT SECURITY AND INVESTIGATION AGENCY, INC. AND/OR MANUEL D.
DASIG, Petitioners,
vs.
SAIDALI PASAWILAN, WILFREDO VERCELES AND MELCHOR BULUSAN, Respondents.
D E C I S I O N
VILLARAMA, JR., J .:
This petition for review on certiorari assails the Decision
1
dated February 1, 2008 of the Court of Appeals (CA)
in CA-G.R. SP No. 99861. The appellate court reversed and set aside the January 31, 2007 Decision
2
and March
15, 2007 Resolution
3
of the National Labor Relations Commission (NLRC) and reinstated the Labor Arbiters
Decision
4
finding petitioners guilty of illegal dismissal.
The facts follow.
Respondents Saidali Pasawilan, Wilfredo Verceles and Melchor Bulusan were all employed by petitioner Alert
Security and Investigation Agency, Inc. (Alert Security) as security guards beginning March 31, 1996, January
14, 1997, and January 24, 1997, respectively. They were paid 165.00 pesos a day as regular employees, and
assigned at the Department of Science and Technology (DOST) pursuant to a security service contract between
the DOST and Alert Security.
Respondents aver that because they were underpaid, they filed a complaint for money claims against Alert
Security and its president and general manager, petitioner Manuel D. Dasig, before Labor Arbiter Ariel C.
Santos. As a result of their complaint, they were relieved from their posts in the DOST and were not given new
assignments despite the lapse of six months. On January 26, 1999, they filed a joint complaint for illegal
dismissal against petitioners.
Petitioners, on the other hand, deny that they dismissed the respondents. They claimed that from the DOST,
respondents were merely detailed at the Metro Rail Transit, Inc. at the Light Rail Transit Authority (LRTA)
Compound in Aurora Blvd. because the wages therein were already adjusted to the latest minimum wage.
Petitioners presented "Duty Detail Orders"
5
that Alert Security issued to show that respondents were in fact
assigned to LRTA. Respondents, however, failed to report at the LRTA and instead kept loitering at the DOST
and tried to convince other security guards to file complaints against Alert Security. Thus, on August 3, 1998,
Alert Security filed a "termination report"
6
with the Department of Labor and Employment relative to the
termination of the respondents.
Upon motion of the respondents, the joint complaint for illegal dismissal was ordered consolidated with
respondents earlier complaint for money claims. The records of the illegal dismissal case were sent to Labor
Arbiter Ariel C. Santos, but later returned to the Office of the Labor Arbiter hearing the illegal dismissal
complaint because a Decision
7
has already been rendered in the complaint for money claims on July 14, 1999.
In that decision, the complaint for money claims was dismissed for lack of merit but petitioners were ordered to
pay respondents their latest salary differentials.
On July 28, 2000, Labor Arbiter Melquiades Sol D. Del Rosario rendered a Decision
8
on the complaint for
illegal dismissal. The Labor Arbiter ruled:
CONFORMABLY WITH THE FOREGOING, judgment is hereby rendered finding complainants to have been
illegally dismissed. Consequently, each complainant should be paid in solidum by the respondents the
individual awards computed in the body of the decision, which is hereto adopted as part of this disposition.
SO ORDERED.
9

Aggrieved, petitioners appealed the decision to the NLRC claiming that the Labor Arbiter erred in deciding a
re-filed case when it was filed in violation of the prohibitions against litis pendencia and forum shopping.
Further, petitioners argued that complainants were not illegally dismissed but were only transferred. They
claimed that it was the respondents who refused to report for work in their new assignment.
On January 31, 2007, the NLRC rendered a Decision
10
ruling that Labor Arbiter Del Rosario did not err in
taking cognizance of respondents complaint for illegal dismissal because the July 14, 1999 Decision of Labor
Arbiter Santos on the complaint for money claims did not at all pass upon the issue of illegal dismissal. The
NLRC, however, dismissed the complaint for illegal dismissal after ruling that the fact of dismissal or
termination of employment was not sufficiently established. According to the NLRC, "[the] sweeping
generalization that the complainants were constructively dismissed is not sufficient to establish the existence of
illegal dismissal."
11
The dispositive portion of the NLRC decision reads:
WHEREFORE, premises considered, the respondents appeal is hereby given due course and the decision dated
July 28, 2000 is hereby REVERSED and SET-ASIDE and a new one entered DISMISSING the complaint for
illegal dismissal for lack of merit.
SO ORDERED.
12

Unfazed, respondents filed a petition for certiorari with the CA questioning the NLRC decision and alleging
grave abuse of discretion.
On February 1, 2008, the CA rendered the assailed Decision
13
reversing and setting aside the NLRC decision
and reinstating the July 28, 2000 Decision of Labor Arbiter Del Rosario. The CA ruled that Alert Security, as an
employer, failed to discharge its burden to show that the employees separation from employment was not
motivated by discrimination, made in bad faith, or effected as a form of punishment or demotion without
sufficient cause. The CA also found that respondents were never informed of the "Duty Detail Orders"
transferring them to a new post, thereby making the alleged transfer ineffective. The dispositive portion of the
CA decision states:
WHEREFORE, premises considered, the January 31, 2007 decision of the NLRC is hereby REVERSED and
SET ASIDE and the July 28, 2000 decision of the Labor Arbiter is hereby REVIVED.
SO ORDERED.
14

Petitioners filed a motion for reconsideration, but the motion was denied in a Resolution
15
dated March 31,
2008.
Petitioners are now before this Court to seek relief by way of a petition for review on certiorari under Rule 45 of
the1997 Rules of Civil Procedure, as amended.
Petitioners argue that the CA erred when it held that the NLRC committed grave abuse of discretion. According
to petitioners, the NLRC was correct when it ruled that there was no sufficient basis to rule that respondents
were terminated from their employment while there was proof that they were merely transferred from DOST to
LRTA as shown in the "Duty Detail Orders". Verily, petitioners claim that there was no termination at all;
instead, respondents abandoned their employment by refusing to report for duty at the LRTA Compound.
Further, petitioners argue that the CA erred when it reinstated the July 28, 2000 Decision of Labor Arbiter Del
Rosario in its entirety. The dispositive portion of said decision ruled that respondents should be paid their
monetary awards in solidum by Alert Security and Manuel D. Dasig, its President and General Manager. They
argue that Alert Security is a duly organized domestic corporation which has a legal personality separate and
distinct from its members or owners. Hence, liability for whatever compensation or money claims owed to
employees must be borne solely by Alert Security and not by any of its individual stockholders or officers.
On the other hand, respondents claim that the NLRC committed a serious error in ruling that they failed to
provide factual substantiation of their claim of constructive dismissal. Respondents aver that their Complaint
Form
16
sufficiently constitutes the basis of their claim of illegal dismissal. Also, respondents aver that Alert
Security itself admitted that respondents were relieved from their posts as security guards in DOST, albeit
raising the defense that it was a mere transfer as shown by "Duty Detail Orders", which, however, were never
received by respondents, as observed by the Labor Arbiter.
Essentially, the issue for resolution is whether respondents were illegally dismissed.
We rule in the affirmative.
As a rule, employment cannot be terminated by an employer without any just or authorized cause. No less than
the1987 Constitution in Section 3, Article 13 guarantees security of tenure for workers and because of this, an
employee may only be terminated for just
17
or authorized
18
causes that
must comply with the due process requirements mandated
19
by law. Hence, employers are barred from
arbitrarily removing their workers whenever and however they want. The law sets the valid grounds for
termination as well as the proper procedure to take when terminating the services of an employee.
In De Guzman, Jr. v. Commission on Elections,
20
the Court, speaking of the Constitutional guarantee of security
of tenure to all workers, ruled:
x x x It only means that an employee cannot be dismissed (or transferred) from the service for causes other than
those provided by law and after due process is accorded the employee. What it seeks to prevent is capricious
exercise of the power to dismiss. x x x (Emphasis supplied.)
Although we recognize the right of employers to shape their own work force, this management prerogative must
not curtail the basic right of employees to security of tenure. There must be a valid and lawful reason for
terminating the employment of a worker. Otherwise, it is illegal and would be dealt with by the courts
accordingly.
As stated in Bascon v. Court of Appeals:
21

x x x The employers power to dismiss must be tempered with the employees right to security of tenure. Time
and again we have said that the preservation of the lifeblood of the toiling laborer comes before concern for
business profits. Employers must be reminded to exercise the power to dismiss with great caution, for the State
will not hesitate to come to the succor of workers wrongly dismissed by capricious employers.
In the case at bar, respondents were relieved from their posts because they filed with the Labor Arbiter a
complaint against their employer for money claims due to underpayment of wages. This reason is unacceptable
and illegal. Nowhere in the law providing for the just and authorized causes of termination of employment is
there any direct or indirect reference to filing a legitimate complaint for money claims against the employer as a
valid ground for termination.
The Labor Code, as amended, enumerates several just and authorized causes for a valid termination of
employment. An employee asserting his right and asking for minimum wage is not among those causes.
Dismissing an employee on this ground amounts to retaliation by management for an employees legitimate
grievance without due process. Such stroke of retribution has no place in Philippine Labor Laws.
Petitioners aver that respondents were merely transferred to a new post wherein the wages are adjusted to the
current minimum wage standards. They maintain that the respondents voluntarily abandoned their jobs when
they failed to report for duty in the new location.
Assuming this is true, we still cannot hold that the respondents abandoned their posts. For abandonment of
work to fall under Article 282 (b) of the Labor Code, as amended, as gross and habitual neglect of duties there
must be the concurrence of two elements. First, there should be a failure of the employee to report for work
without a valid or justifiable reason, and second, there should be a showing that the employee intended to sever
the employer-employee relationship, the second element being the more determinative factor as manifested by
overt acts.
22

As regards the second element of intent to sever the employer-employee relationship, the CA correctly ruled
that:
x x x the fact that petitioners filed a complaint for illegal dismissal is indicative of their intention to remain
employed with private respondent considering that one of their prayers in the complaint is for re-instatement.
As declared by the Supreme Court, a complaint for illegal dismissal is inconsistent with the charge of
abandonment, because when an employee takes steps to protect himself against a dismissal, this cannot, by
logic, be said to be abandonment by him of his right to be able to work.
23

Further, according to Alert Security itself, respondents continued to report for work and loiter in the DOST after
the alleged transfer order was issued. Such circumstance makes it unlikely that respondents have clear intention
of leaving their respective jobs. In any case, there is no dispute that in cases of abandonment of work, notice
shall be served at the workers last known address.
24
This petitioners failed to do.
On the element of the failure of the employee to report for work, we also cannot accept the allegations of
petitioners that respondents unjustifiably refused to report for duty in their new posts. A careful review of the
records reveals that there is no showing that respondents were notified of their new assignments. Granting that
the "Duty Detail Orders" were indeed issued, they served no purpose unless the intended recipients of the orders
are informed of such.
The employer cannot simply conclude that an employee is ipso facto notified of a transfer when there is no
evidence to indicate that the employee had knowledge of the transfer order. Hence, the failure of an employee
to report for work at the new location cannot be taken against him as an element of abandonment.
We acknowledge and recognize the right of an employer to transfer employees in the interest of the service.
This exercise is a management prerogative which is a lawful right of an employer. However, like all rights,
there are limitations to the right to transfer employees. As ruled in the case of Blue Dairy Corporation v.
NLRC:
25

x x x The managerial prerogative to transfer personnel must be exercised without grave abuse of discretion,
bearing in mind the basic elements of justice and fair play. Having the right should not be confused with the
manner in which that right is exercised. Thus, it cannot be used as a subterfuge by the employer to rid himself
of an undesirable worker.

In particular, the employer must be able to show that the transfer is not unreasonable,
inconvenient or prejudicial to the employee; nor does it involve a demotion in rank or a diminution of his
salaries, privileges and other benefits. x x x
In addition to these tests for a valid transfer, there should be proper and effective notice to the employee
concerned. It is the employers burden to show that the employee was duly notified of the transfer. Verily, an
employer cannot reasonably expect an employee to report for work in a new location without first informing
said employee of the transfer. Petitioners insistence on the sufficiency of mere issuance of the transfer order is
indicative of bad faith on their part.
Besides, according to petitioners, the reason for the transfer to LRTA of the respondents was that the wages in
LRTA were already adjusted to comply with the minimum wage rates. Now it is hard to believe that after being
ordered to transfer to LRTA where the wages are better, the respondents would still refuse the transfer. That
would mean that the respondents refused better wages and instead chose to remain in DOST, underpaid, and go
through the lengthy process of claiming and asking for minimum wage. This proposed scenario of petitioners
simply does not jibe with human logic and experience.
On the question of the propriety of holding petitioner Manuel D. Dasig, president and general manager of Alert
Security, solidarily liable with Alert Security for the payment of the money awards in favor of respondents, we
find petitioners arguments meritorious.
Basic is the rule that a corporation has a separate and distinct personality apart from its directors, officers, or
owners. In exceptional cases, courts find it proper to breach this corporate personality in order to make
directors, officers, or owners solidarily liable for the companies acts. Section 31, Paragraph 1 of
the Corporation Code
26
provides:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for
or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as
such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by
the corporation, its stockholders or members and other persons.
x x x x
Jurisprudence has been consistent in defining the instances when the separate and distinct personality of a
corporation may be disregarded in order to hold the directors, officers, or owners of the corporation liable for
corporate debts. In McLeod v. National Labor Relations Commission,
27
the Court ruled:
Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud, or defend crime. In the absence of malice, bad
faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made
personally liable for corporate liabilities. x x x
Further, in Carag v. National Labor Relations Commission,
28
the Court clarified the McLeod doctrine as regards
labor laws, to wit:
We have already ruled in McLeod v. NLRC
29
and Spouses Santos v. NLRC
30
that Article 212(e)
31
of the Labor
Code, by itself, does not make a corporate officer personally liable for the debts of the
corporation.1awphi1The governing law on personal liability of directors for debts of the corporation is still
Section 31 of the Corporation Code. x x x
In the present case, there is no evidence to indicate that Manuel D. Dasig, as president and general manager of
Alert Security, is using the veil of corporate fiction to defeat public convenience, justify wrong, protect fraud, or
defend crime. Further, there is no showing that Alert Security has folded up its business or is reneging in its
obligations. In the final analysis, it is Alert Security that respondents are after and it is also Alert Security who
should take responsibility for their illegal dismissal.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-
G.R. SP No. 99861 and the Decision dated July 28, 2000 of the Labor Arbiter are MODIFIED. Petitioner
Manuel D. Dasig is held not solidarily liable with petitioner Alert Security and Investigation, Inc. for the
payment of the monetary awards in favor of respondents. Said Decision of the Court of Appeals in all other
aspects is AFFIRMED.
With costs against the petitioners.
SO ORDERED.
















Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 147964 January 20, 2004
FAR EAST BANK & TRUST CO., Petitioner,
vs.
ARTURO L. MARQUEZ, Respondent.
D E C I S I O N
PANGANIBAN, J .:
Under PD 957, the mortgage of a subdivision lot or a condominium unit is void, if executed by a property
developer without the prior written approval of the Housing and Land Use Regulatory Board (HLURB). That
an encumbrance has been constituted over an entire property, of which the subject lot or unit is merely a part,
does not affect the invalidity of the lien over the specific portion at issue.
The Case
Before us is a Petition for Review
1
under Rule 45 of the Rules of Court, assailing the April 27, 2001
Decision
2
of the Court of Appeals (CA) in CA-GR SP No. 56813. The decretal portion of the Decision reads as
follows:
"WHEREFORE, the petition for review is DENIED, for lack of merit."
3

The Facts
The undisputed facts of the case are summarized in the CA Decision as follows:
"1. On 13 March 1989, respondent [Arturo] Marquez entered into a Contract to Sell with Transamerican Sales
and Exposition (TSE), through the latters Owner/General Manager Engr. Jesus Garcia, involving a 52.5 sq.
m. lot in Diliman, Quezon City with a three-storey townhouse unit denominated as Unit No. 10 to be
constructed thereon for a total consideration of P800,000.00. The parcel of land in question is a portion of that
property covered by TCT No. 156254 (now TCT No. 383697).
"2. On 22 May 1989, TSE obtained a loan from petitioner FEBTC in the amount of P7,650,000.00 and
mortgaged the property covered by TCT No. 156254.
"3. For failure of TSE to pay its obligation, petitioner FEBTC extrajudicially foreclosed the real estate mortgage
and became the highest bidder (P15.7 million) in the auction sale conducted for the purpose.
"4. Respondent had already paid a total of P600,000.00 when he stopped payment because the construction of
his townhouse unit slackened. He discovered later on that this was due to the foreclosure.
"5. Consequently, [respondent] instituted a case with the Office of Appeals, Adjudication and Legal
Affairs(OAALA) of the Housing and Land Use Regulatory Board (HLURB) on 29 January 1991 entitled
Arturo Marquez vs. Transamerican Sales, et al docketed as HLRB Case No. REM-012991-4712 to compel
TSE to complete the construction of the townhouse and to prevent the enforceability of the extra-judicial
foreclosure made by petitioner FEBTC and to have the mortgage between TSE and petitioner FEBTC declared
invalid, said mortgage having been entered into by the parties in violation of section 18 of P.D. 957.
"6. The OAALA ruled in favor of the respondent via a Decision dated 11 November 1991, the decretal portion
of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Declaring the mortgage executed by and between x x x Engr. Jesus Garcia/Transamerican Sales and
Exposition and Far East Bank and Trust Company to be unenforceable against [respondent];
2. Ordering the x x x Far East Bank and Trust Company to compute and/or determine the loan value of the
[respondent] who was not able to complete or make full payment and accept payment and/or receive the
amortization from the [respondent] and upon full payment to deliver the title corresponding to Unit No. 10 of
that Townhouse Project located at No. 10 Panay Ave., Quezon City;
3. Ordering the Register of Deeds of Quezon City to cancel the annotations of the mortgage indebtedness
between x x x Engr. Jesus Garcia and Far East Bank and Trust Company;
4. Ordering, likewise, the Register of Deeds of Quezon City to cancel the annotation of the Certificate of Sale in
favor of the Far East Bank and Trust Company on Transfer Certificate of Title No. 156254 to which the lot
subject of this case is a part thereof, without prejudice to its right to require x x x Engr. Jesus
Garcia/Transamerican Sales and Exposition to constitute new collateral in lieu of said title sufficient in value to
cover the mortgage obligation.
x x x x x x x x x
"7. Petitioner FEBTC interposed a Petition for Review from the decision issued by the OAALA with the Board
of Commissioners of the HLURB, docketed as HLRB Case No. REM-A-1126, which in a Decision dated 18
July 1994 affirmed in toto the OAALA decision.
"8. Hence, petitioner FEBTC appealed the Decision dated 18 July 1994 to the Office of the President xxx.
x x x x x x x x x
"9. The Office of the President dismissed the appeal and affirmed the Decision dated 18 July 1994 x x x."
4
(Citations
omitted)
Petitioner then elevated the case to the CA through a Petition for review under Rule 43.
Ruling of the Court of Appeals
The CA found that petitioner had known that a "subdivision was forthcoming inasmuch as the loan was obtained by TSE to
partially finance the construction of a 20-unit townhouse project, as stated in the Whereas clause in the mortgage
contract."
5
Thus, the CA ruled that "petitioner should not have merely relied on the representation of TSE that it had
obtained the approval and authorization of the proper government agencies but should have required the submission of said
documents."
6

Further, the appellate court found that the Certification against forum shopping attached to the Petition before it had not
been made under oath, in violation of the Rules of Court.
Hence, this Petition.
7

The Issues
Petitioner raises the following issues for our consideration:
"Whether or not the mortgage contract violated Section 18 of P.D. 957, hence, void insofar as third persons are concerned.
"Assuming arguendo that the mortgage contract violated Section 18 of P.D. 957, whether or not the remedy granted and
imposed by the HLURB, as sustained by the Office of the President and the Court of Appeals, is proper.
"Whether or not the inadvertent failure of the notary public to affix his signature on the Certification against forum
shopping executed by petitioner FEBTC in connection with the Petition for Review it filed with the Court of Appeals
provided a sufficient basis for the dismissal of the appeal."
8

The Court's Ruling
The Petition is partly meritorious.
First Issue:
Violation of Section 18 of PD 957
Section 18 of PD 957
9
provides as follows:
"SEC. 18. Mortgages. - No mortgage on any unit or lot shall be made by the owner or developer without prior written
approval of the Authority. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan
shall be used for the development of the condominium or subdivision project and effective measures have been provided to
ensure such utilization. The loan value of each lot or unit covered by the mortgage shall be determined and the buyer
thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the lot
or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness secured by the
particular lot or unit being paid for, with a view to enabling said buyer to obtain title over the lot or unit promptly after full
payment thereof."
Petitioner contends that the above-quoted provision does not apply to this case, because the land mortgaged to it was one
whole parcel, not of a "subdivision lot," but of an unsubdivided one. It insists that the written approval of the National
Housing Authority (now the Housing and Land Use Regulatory Board) was not a requirement for the constitution of a
mortgage on the property.
We are not persuaded. It is undisputed that the subject 52.5-square-meter lot with a three-storey town house unit
denominated as Unit No. 10 (the "lot") is part of the property mortgaged to petitioner and is covered by TCT No. 156254.
The lot was technically described and segregated in a Contact to Sell that had been entered into before the mortgage loan
was contracted. The fact that the lot had no separate TCT did not make it less of a "subdivision lot" entitled to the
protection of PD 957.
That the subject of the mortgage loan was the entire land, not the individual subdivided lots, does not take the loan beyond
the coverage of Section 18 of PD 957. Undeniably, the lot was also mortgaged when the entire parcel of land, of which it
was a part, was encumbered.
Petitioner also contends that Section 18 of PD 957 is merely a directory provision, noncompliance with which does not
render the mortgage transaction void.
In determining whether a law is mandatory, it is necessary to ascertain the legislative intent, as stated by Sen. Arturo M.
Tolentino, an authority on civil law:
"There is no well-defined rule by which a mandatory or prohibitory law may, in all circumstances, be distinguished from
one which is directory, suppletory, or permissive. In the determination of this question, the prime object is to ascertain the
legislative intention. Generally speaking, those provisions which are mere matter of form, or which are not material, do not
affect any substantial right, and do not relate to the essence of the thing to be done, so that compliance is a matter of
convenience rather that substance, are considered to be directory. On the other hand, statutory provisions which relate to
matters of substance, affect substantial rights and are the very essence of the thing required to be done, are regarded as
mandatory."
10

In Philippine National Bank v. Office of the President,
11
we had occasion to mull over the intent of PD 957 thus:
"x x x [T]he unmistakable intent of the law [is] to protect innocent lot buyers from scheming subdivision developers. As
between these small lot buyers and the gigantic financial institutions which the developers deal with, it is obvious that the
law -- as an instrument of social justice -- must favor the weak. Indeed, the petitioner Bank had at its disposal vast
resources with which it could adequately protect its loan activities, and therefore is presumed to have conducted the usual
due diligence checking and ascertaining (whether thru ocular inspection or other modes of investigation) the actual status,
condition, utilization and occupancy of the property offered as collateral, x x x On the other hand, private respondents
obviously were powerless to discover the attempt of the land developer to hypothecate the property being sold to them. It
was precisely in order to deal with this kind of situation that P.D. 957 was enacted, its very essence and intendment being
to provide a protective mantle over helpless citizens who may fall prey to the razzmatazz of what P.D. 957 termed
unscrupulous subdivision and condominium sellers."
12

Concededly, PD 957 aims to protect innocent lot buyers. Section 18 of the decree directly addresses the problem of fraud
committed against buyers when the lot they have contracted to purchase, and which they have religiously paid for, is
mortgaged without their knowledge. The avowed purpose of PD 957 compels the reading of Section 18 as prohibitory --
acts committed contrary to it are void.
13
Such construal ensures the attainment of the purpose of the law: to protect lot
buyers, so that they do not end up still homeless despite having fully paid for their home lots with their hard-earned cash.
Petitioner argues that it is an innocent mortgagee whose lien must be respected and protected, since the title offered as
security was clean of any encumbrance or lien. We do not agree.
"x xx. As a general rule, where there is nothing on the certificate of title to indicate any cloud or vice in the ownership of
the property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title upon
its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto. This rule,
however, admits of an exception as where the purchaser or mortgagee has knowledge of a defect or lack of title in the
vendor, or that he was aware of sufficient facts to induce a reasonably prudent man to inquire into the status of the property
in litigation."
14

Petitioner bank should have considered that it was dealing with a town house project that was already in progress. A
reasonable person should have been aware that, to finance the project, sources of funds could have been used other than the
loan, which was intended to serve the purpose only partially. Hence, there was need to verify whether any part of the
property was already the subject of any other contract involving buyers or potential buyers. In granting the loan, petitioner
bank should not have been content merely with a clean title, considering the presence of circumstances indicating the need
for a thorough investigation of the existence of buyers like respondent. Having been wanting in care and prudence, the
latter cannot be deemed to be an innocent mortgagee.
Petitioner cannot claim to be a mortgagee in good faith. Indeed it was negligent, as found by the Office of the President
and by the CA. Petitioner should not have relied only on the representation of the mortgagor that the latter had secured all
requisite permits and licenses from the government agencies concerned. The former should have required the submission
of certified true copies of those documents and verified their authenticity through its own independent effort.
Having been negligent in finding out what respondents rights were over the lot, petitioner must be deemed to possess
constructive knowledge of those rights.
15

Second Issue:
Remedy Granted
To retain possession of the lot, petitioner claims that its rights as the buyer in the foreclosure sale are superior to those of
respondent.
We are not persuaded. Aside from being a buyer of the lot, petitioner was also the mortgagee, which, as previously
discussed, was presumed to know the rights of respondent over that lot. The conversion of the status of the former from
mortgagee to buyer-owner will not lessen the importance of such knowledge. Neither will the conversion set aside the
consequences of its negligence as a mortgagee.
The lot was mortgaged in violation of Section 18 of PD 957. Respondent, who was the buyer of the property, was not
notified of the mortgage before the release of the loan proceeds by petitioner. Acts executed against the provisions of
mandatory or prohibitory laws shall be void.
16
Hence, the mortgage over the lot is null and void insofar as private
respondent is concerned.
17

The remedy granted by the HLURB and sustained by the Office of the President is proper only insofar as it refers to the lot
of respondent.1wphi1 In short, the mortgage contract is void as against him. Since there is no law stating the specifics of
what should be done under the circumstances, that which is in accord with equity should be ordered.1wphi1The remedy
granted by the HLURB in the first and the second paragraphs of the dispositive portion of its Decision insofar as it referred
to respondent's lot is in accord with equity.
The HLURB, however, went overboard in its disposition in paragraphs 3 and 4, which pertained not only to the lot but to
the entire parcel of land mortgaged. Such ruling was improper. The subject of this litigation is limited only to the lot that
respondent is buying, not to the entire parcel of land. He has no personality or standing to bring suit on the whole property,
as he has actionable interest over the subject lot only.
Third Issue:
Certification Against Forum Shopping
We find no cogent reason to alter the ruling of the CA regarding the Certification against forum shopping that did not bear
the notary public's signature. It is worth emphasizing that despite petitioner's noncompliance with the technical
requirements regarding the Certification, the CA still ruled on the merits of the case.
18
In fact, there is no more need to pass
upon this issue inasmuch as, on the merits, we have already turned down petitioners plea against respondent.
WHEREFORE, the Petition is PARTLY GRANTED. The Decision of the HLURB is AFFIRMED, but it shall be
applicable only to the 52.5-square-meter lot with a three-storey town house unit denominated as Unit No. 10. No costs.
SO ORDERED


Donnina Halley vs. Printwell, Inc. (http://prezi.com/uwjie9o_6z1l/presentation/)

Facts:
BMPI (Business Media Philippines Inc.) is a corporation under the control of its stockholders,
including Donnina Halley.
In the course of its business, BMPI commissioned PRINTWELL to print Philippines, Inc. (a magazine
published and distributed by BMPI) PRINTWELL extended 30-day credit accommodation in favor of
BMPI and in a period of 9 mos. BMPI placed several orders amounting to 316,000. However, only
25,000 was paid hence a balance of 291,000 PRINTWELL sued BMPI for collection of the unpaid
balance and later on Impleaded BMPIs original stockholders and incorporators to recover on their
unpaid subscriptions. It appears that BMPI has an authorized capital stock of 3M divided into
300,000shares with P10 par value. Only 75,000 shares worth P750,000 were originally subscribed of
whichP187,500 were paid up capital. Halley subscribed to 35,000 shares worth P350,000 but only
paid P87,500.
Halley contends that:1.They all had already paid their subscriptions in full 2.BMPI had a separate and
distinct personality 3. BOD and SH had resolved to dissolve BMPIRTC and CA Defendant merely
used the corporate fiction as a cloak/cover to create aninjustice (against PRINTWELL) Rejected
allegations of full payment in view of irregularity in the issuance of ORs (Payment made on a later
date was covered by an OR with a lower serial number than payment made on an earlier date.

Issue:
WON a stockholder who was in active management of the business of the corporation and still has
unpaid subscriptions should be made liable for the debts of the corporation by piercing the veil of
corporate fiction

Held:
YES! Such stockholder should be made liable up to the extent of her unpaid subscription

Ratio:
It was found that at the time the obligation was incurred, BMPI was under the control of its
stockholders who know fully well that the corporation was not in a position to pay its account (thinly
capitalized).
And, that the stockholders personally benefited from the operations of the corporation even though
they never paid their subscriptions in full. The stockholders cannot now claim the doctrine of
corporate fiction otherwise (to deny creditors to collect from SH) it would create an injustice because
creditors would be at a loss (limbo) against whom it would assert the right to collect.

On piercing the veil:
Although the corporation has a personality separate and distinct from its SH, such personality is merely a legal
fiction (for the convenience and to promote the ends of justice) which may be disregarded by the courts if it is
used as a cloak or cover for fraud, justification of a wrong, or an alter ego for the sole benefit of the SH.

As to the Trust Fund Doctrine:
The RTC and CA correctly applied the Trust Fund Doctrine Under which corporate debtors might look to the
unpaid subscriptions for the satisfaction of unpaid corporate debts Subscriptions to the capital of a corporation
constitutes a trust fund for the payment of the creditors (by mere analogy) In reality, corporation is a simple
debtor. Moreover, the corporation has no legal capacity to release an original subscriber to its capital stock from
the obligation of paying for his shares, inwhole or in part, without valuable consideration, or fraudulently, to the
prejudice of the creditors.
The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of
the corporation for the satisfaction of its debt. The trust fund doctrine is not limited to reaching the SHs unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the capital
stock but also other property and assets generally regarded in equity as a trust fund for the payment of corporate
debts.