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G.R. No.

82797 February 27, 1991


GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,
vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.
A.E. Dacanay for petitioners.
Antonio Quintos Law Office for private respondent.
PARAS, J.:p
This is a petition for review on certiorari of the December 29, 1987 decision * of the Court of Appeals in CA-G.R. No. 11960
entitled "ROCES-REYES REALTY, INC. vs. HONORABLE JUDGE REGIONAL TRIAL COURT OF MANILA, BRANCH 44, GOOD
EARTH EMPORIUM, INC. and LIM KA PING" reversing the decision of respondent Judge ** of the Regional Trial Court of
Manila, Branch 44 in Civil Case No. 85-30484, which reversed the resolution of the Metropolitan Trial Court Of Manila,
Branch 28 in Civil Case No. 09639, *** denying herein petitioners' motion to quash the alias writ of execution issued
against them.
As gathered from the records, the antecedent facts of this case, are as follows:
A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-REYES REALTY, INC., as lessor, and
GOOD EARTH EMPORIUM, INC., as lessee, for a term of three years beginning November 1, 1981 and ending October 31,
1984 at a monthly rental of P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The building which was the subject of the
contract of lease is a five-storey building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila.
From March 1983, up to the time the complaint was filed, the lessee had defaulted in the payment of rentals, as a
consequence of which, private respondent ROCES-REYES REALTY, INC., (hereinafter designated as ROCES for brevity) filed
on October 14, 1984, an ejectment case (Unlawful Detainer) against herein petitioners, GOOD EARTH EMPORIUM, INC.
and LIM KA PING, hereinafter designated as GEE, (Rollo, p. 21; Annex "B" of the Petition). After the latter had tendered
their responsive pleading, the lower court (MTC, Manila) on motion of Roces rendered judgment on the pleadings dated
April 17, 1984, the dispositive portion of which states:
Judgment is hereby rendered ordering defendants (herein petitioners) and all persons claiming title
under him to vacate the premises and surrender the same to the plaintiffs (herein respondents); ordering
the defendants to pay the plaintiffs the rental of P65,000.00 a month beginning March 1983 up to the
time defendants actually vacate the premises and deliver possession to the plaintiff; to pay attorney's
fees in the amount of P5,000.00 and to pay the costs of this suit. (Rollo, p. 111; Memorandum of
Respondents)
On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May 28, 1984 simultaneous with the
latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On June 13, 1984, the trial court resolved such motion ruling:
After considering the motion for the issuance of a writ of execution filed by counsel for the plaintiff
(herein respondents) and the opposition filed in relation thereto and finding that the defendant failed to
file the necessary supersedeas bond, this court resolved to grant the same for being meritorious. (Rollo,
p. 112)
On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the appeal was assigned to the Regional
Trial Court (Manila) Branch XLVI. However, on August 15, 1984, GEE thru counsel filed with the Regional Trial Court of
Manila, a motion to withdraw appeal citing as reason that they are satisfied with the decision of the Metropolitan Trial
Court of Manila, Branch XXVIII, which said court granted in its Order of August 27, 1984 and the records were remanded to
the trial court (Rollo, p. 32; CA Decision). Upon an ex-parte Motion of ROCES, the trial court issued an Alias Writ of
Execution dated February 25, 1985 (Rollo, p. 104; Annex "D" of Petitioner's Memorandum), which was implemented on
February 27, 1985. GEE thru counsel filed a motion to quash the writ of execution and notice of levy and an urgent Exparte Supplemental Motion for the issuance of a restraining order, on March 7, and 20, 1985, respectively. On March 21,
1985, the lower court issued a restraining order to the sheriff to hold the execution of the judgment pending hearing on
the motion to quash the writ of execution (Rollo, p. 22; RTC Decision). While said motion was pending resolution, GEE filed
a Petition for Relief from judgment before another court, Regional Trial Court of Manila, Branch IX, which petition was
docketed as Civil Case No. 80-30019, but the petition was dismissed and the injunctive writ issued in connection therewith

set aside. Both parties appealed to the Court of Appeals; GEE on the order of dismissal and Roces on denial of his motion
for indemnity, both docketed as CA-G.R. No. 15873-CV. Going back to the original case, the Metropolitan Trial Court after
hearing and disposing some other incidents, promulgated the questioned Resolution, dated April 8, 1985, the dispositive
portion of which reads as follows:
Premises considered, the motion to quash the writ is hereby denied for lack of merit.
The restraining orders issued on March 11 and 23, 1985 are hereby recalled, lifted and set aside. ( Rollo, p.
20, MTC Decision)
GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces moved to dismiss the appeal but
the Court denied the motion. On certiorari, the Court of Appeals dismissed Roces' petition and remanded the case to the
RTC. Meantime, Branch IX became vacant and the case was re-raffled to Branch XLIV.
On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million evidenced by Exhibit "I" and
another P1 million evidenced by the pacto de retro sale instrument (Exhibit "2") were in full satisfaction of the judgment
obligation, reversed the decision of the Municipal Trial Court, the dispositive portion of which reads:
Premises considered, judgment is hereby rendered reversing the Resolution appealed from quashing the
writ of execution and ordering the cancellation of the notice of levy and declaring the judgment debt as
having been fully paid and/or Liquidated. (Rollo, p. 29).
On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court and reinstated the Resolution of
the Metropolitan Trial Court of Manila, the dispositive portion of which is as follows:
WHEREFORE, the judgment appealed from is hereby REVERSED and the Resolution dated April 8, 1985, of
the Metropolitan Trial Court of Manila Branch XXXIII is hereby REINSTATED. No pronouncement as to
costs. (Rollo, p. 40).
GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this petition.
The main issue in this case is whether or not there was full satisfaction of the judgment debt in favor of respondent
corporation which would justify the quashing of the Writ of Execution.
A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any of said exhibits was there any
writing alluding to or referring to any settlement between the parties of petitioners' judgment obligation (Rollo, pp. 45-48).
Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or partial, of the judgment
obligation. Likewise, there is no indication in the pacto de retro sale which was drawn in favor of Jesus Marcos Roces and
Marcos V. Roces and not the respondent corporation, that the obligation embodied therein had something to do with
petitioners' judgment obligation with respondent corporation.
Finding that the common exhibit, Exhibit 1/A had been signed by persons other than judgment creditors (Roces-Reyes
Realty, Inc.) coupled with the fact that said exhibit was not even alleged by GEE and Lim Ka Ping in their original motion to
quash the alias writ of execution (Rollo, p. 37) but produced only during the hearing (Ibid.) which production resulted in
petitioners having to claim belatedly that there was an "overpayment" of about half a million pesos (Rollo, pp. 25-27) and
remarking on the utter absence of any writing in Exhibits "1/A" and "2/B" to indicate payment of the judgment debt,
respondent Appellate Court correctly concluded that there was in fact nopayment of the judgment debt. As aptly observed
by the said court:
What immediately catches one's attention is the total absence of any writing alluding to or referring to
any settlement between the parties of private respondents' (petitioners') judgment obligation. In moving
for the dismissal of the appeal Lim Ka Ping who was then assisted by counsel simply stated that
defendants (herein petitioners) are satisfied with the decision of the Metropolitan Trial Court (Records of
CA, p. 54).
Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution and Notice of Levy
dated March 7, 1985, there is absolutely no reference to the alleged payment of one million pesos as
evidenced by Exhibit 1 dated September 20, 1984. As pointed out by petitioner (respondent corporation)
this was brought out by Linda Panutat, Manager of Good Earth only in the course of the latter's
testimony. (Rollo, p. 37)
Article 1240 of the Civil Code of the Philippines provides that:

Payment shall be made to the person in whose favor the obligation has been constituted, or his successor
in interest, or any person authorized to receive it.
In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its successor in interest nor is
there positive evidence that the payment was made to a person authorized to receive it. No such proof was submitted but
merely inferred by the Regional Trial Court (Rollo, p. 25) from Marcos Roces having signed the Lease Contract as President
which was witnessed by Jesus Marcos Roces. The latter, however, was no longer President or even an officer of RocesReyes Realty, Inc. at the time he received the money (Exhibit "1") and signed the sale with pacto de retro (Exhibit "2"). He,
in fact, denied being in possession of authority to receive payment for the respondent corporation nor does the receipt
show that he signed in the same capacity as he did in the Lease Contract at a time when he was President for respondent
corporation (Rollo, p. 20, MTC decision).
On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced by the receipt (Exhibit "1") is the
payment for a loan extended by him and Marcos Roces in favor of Lim Ka Ping. The assertion is home by the receipt itself
whereby they acknowledged payment of the loan in their names and in no other capacity.
A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or
stockholder of a corporation does not make one's property also of the corporation, and vice-versa, for they are separate
entities (Traders Royal Bank v. CA-G.R. No. 78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners are in
no legal sense the owners of corporate property (or credits) which is owned by the corporation as a distinct legal person
(Concepcion Magsaysay-Labrador v. CA-G.R. No. 58168, December 19, 1989). As a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the
stockholder's debt or credit that of the corporation (Prof. Jose Nolledo's "The Corporation Code of the Philippines, p. 5,
1988 Edition, citing Professor Ballantine).
The absence of a note to evidence the loan is explained by Jesus Marcos Roces who testified that the IOU was
subsequently delivered to private respondents (Rollo, pp. 97-98). Contrary to the Regional Trial Court's premise that it was
incumbent upon respondent corporation to prove that the amount was delivered to the Roces brothers in the payment of
the loan in the latter's favor, the delivery of the amount to and the receipt thereof by the Roces brothers in their names
raises the presumption that the said amount was due to them. There is a disputable presumption that money paid by one
to the other was due to the latter (Sec. 5(f) Rule 131, Rules of Court). It is for GEE and Lim Ka Ping to prove otherwise. In
other words, it is for the latter to prove that the payments made were for the satisfaction of their judgment debt and not
vice versa.
The fact that at the time payment was made to the two Roces brothers, GEE was also indebted to respondent corporation
for a larger amount, is not supportive of the Regional Trial Court's conclusions that the payment was in favor of the latter,
especially in the case at bar where the amount was not receipted for by respondent corporation and there is absolutely no
indication in the receipt from which it can be reasonably inferred, that said payment was in satisfaction of the judgment
debt. Likewise, no such inference can be made from the execution of the pacto de retro sale which was not made in favor
of respondent corporation but in favor of the two Roces brothers in their individual capacities without any reference to the
judgment obligation in favor of respondent corporation.
In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the sale with pacto de
retro(Exhibit "2/B") all in the sum of P2 million, far exceeds petitioners' judgment obligation in favor of respondent
corporation in the sum of P1,560,000.00 by P440,000.00, which militates against the claim of petitioner that the aforesaid
amount (P2M) was in full payment of the judgment obligation.
Petitioners' explanation that the excess is interest and advance rentals for an extension of the lease contract ( Rollo, pp. 2528) is belied by the absence of any interest awarded in the case and of any agreement as to the extension of the lease nor
was there any such pretense in the Motion to Quash the Alias Writ of Execution.
Petitioners' averments that the respondent court had gravely abused its discretion in arriving at the assailed factual
findings as contrary to the evidence and applicable decisions of this Honorable Court are therefore, patently unfounded.
Respondent court was correct in stating that it "cannot go beyond what appears in the documents submitted by
petitioners themselves (Exhibits "1" and "2") in the absence of clear and convincing evidence" that would support its claim
that the judgment obligation has indeed been fully satisfied which would warrant the quashal of the Alias Writ of
Execution.
It has been an established rule that when the existence of a debt is fully established by the evidence (which has been done
in this case), the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a

defense to the claim of the plaintiff creditor (herein respondent corporation) (Chua Chienco v. Vargas, 11 Phil. 219; Ramos
v. Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well-entrenched in Our jurisprudence that each
party in a case must prove his own affirmative allegations by the degree of evidence required by law (Stronghold Insurance
Co. v. CA, G.R. No. 83376, May 29,1989; Tai Tong Chuache & Co. v. Insurance Commission, 158 SCRA 366).
The appellate court cannot, therefore, be said to have gravely abused its discretion in finding lack of convincing and
reliable evidence to establish payment of the judgment obligation as claimed by petitioner. The burden of evidence resting
on the petitioners to establish the facts upon which their action is premised has not been satisfactorily discharged and
therefore, they have to bear the consequences.
PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of the Respondent court is hereby AFFIRMED,
reinstating the April 8, 1985 Resolution of the Metropolitan Trial Court of Manila.
SO ORDERED.

Adm. Matter No. R-181-P

July 31, 1987

ADELIO C. CRUZ, complainant,


vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila, respondents.
RESOLUTION
FERNAN, J.:
In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged Quiterio L. Dalisay, Senior Deputy Sheriff of Manila, with
"malfeasance in office, corrupt practices and serious irregularities" allegedly committed as follows:
1. Respondent sheriff attached and/or levied the money belonging to complainant Cruz when he was not himself the
judgment debtor in the final judgment of NLRC NCR Case No. 8-12389-91 sought to be enforced but rather the company
known as "Qualitrans Limousine Service, Inc.," a duly registered corporation; and,
2. Respondent likewise caused the service of the alias writ of execution upon complainant who is a resident of Pasay City,
despite knowledge that his territorial jurisdiction covers Manila only and does not extend to Pasay City.
In his Comments, respondent Dalisay explained that when he garnished complainant's cash deposit at the Philtrust bank,
he was merely performing a ministerial duty. While it is true that said writ was addressed to Qualitrans Limousine Service,
Inc., yet it is also a fact that complainant had executed an affidavit before the Pasay City assistant fiscal stating that he is
the owner/president of said corporation and, because of that declaration, the counsel for the plaintiff in the labor case
advised him to serve notice of garnishment on the Philtrust bank.
On November 12, 1984, this case was referred to the Executive Judge of the Regional Trial Court of Manila for
investigation, report and recommendation.
Prior to the termination of the proceedings, however, complainant executed an affidavit of desistance stating that he is no
longer interested in prosecuting the case against respondent Dalisay and that it was just a "misunderstanding" between
them. Upon respondent's motion, the Executive Judge issued an order dated May 29, 1986 recommending the dismissal of
the case.
It has been held that the desistance of complainant does not preclude the taking of disciplinary action against respondent.
Neither does it dissuade the Court from imposing the appropriate corrective sanction. One who holds a public position,
especially an office directly connected with the administration of justice and the execution of judgments, must at all times
be free from the appearance of impropriety.1
We hold that respondent's actuation in enforcing a judgment against complainant who is not the judgment debtor in the
case calls for disciplinary action. Considering the ministerial nature of his duty in enforcing writs of execution, what is
incumbent upon him is to ensure that only that portion of a decision ordained or decreed in the dispositive part should be
the subject of execution.2 No more, no less. That the title of the case specifically names complainant as one of the
respondents is of no moment as execution must conform to that directed in the dispositive portion and not in the title of

the case.
The tenor of the NLRC judgment and the implementing writ is clear enough. It directed Qualitrans Limousine Service, Inc.
to reinstate the discharged employees and pay them full backwages. Respondent, however, chose to "pierce the veil of
corporate entity" usurping a power belonging to the court and assumed improvidently that since the complainant is the
owner/president of Qualitrans Limousine Service, Inc., they are one and the same. It is a well-settled doctrine both in law
and in equity that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or
members. The mere fact that one is president of a corporation does not render the property he owns or possesses the
property of the corporation, since the president, as individual, and the corporation are separate entities.3
Anent the charge that respondent exceeded his territorial jurisdiction, suffice it to say that the writ of execution sought to
be implemented was dated July 9, 1984, or prior to the issuance of Administrative Circular No. 12 which restrains a sheriff
from enforcing a court writ outside his territorial jurisdiction without first notifying in writing and seeking the assistance of
the sheriff of the place where execution shall take place.
ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio L. Dalisay NEGLIGENT in the enforcement of the writ of
execution in NLRC Case-No. 8-12389-91, and a fine equivalent to three [3] months salary is hereby imposed with a stern
warning that the commission of the same or similar offense in the future will merit a heavier penalty. Let a copy of this
Resolution be filed in the personal record of the respondent.
SO ORDERED.
G.R. No. 105395 December 10, 1993
BANK OF AMERICA, NT & SA, petitioners,
vs.
COURT OF APPEALS, INTER-RESIN INDUSTRIAL CORPORATION, FRANCISCO TRAJANO, JOHN DOE AND JANE
DOE, respondents.
Agcaoili & Associates for petitioner.
Valenzuela Law Center, Victor Fernandez and Ramon Guevarra for private respondents.
VITUG, J.:
A "fiasco," involving an irrevocable letter of credit, has found the distressed parties coming to court as adversaries in
seeking a definition of their respective rights or liabilities thereunder.
On 05 March 1981, petitioner Bank of America, NT & SA, Manila, received by registered mail an Irrevocable Letter of Credit
No. 20272/81 purportedly issued by Bank of Ayudhya, Samyaek Branch, for the account of General Chemicals, Ltd., of
Thailand in the amount of US$2,782,000.00 to cover the sale of plastic ropes and "agricultural files," with the petitioner as
advising bank and private respondent Inter-Resin Industrial Corporation as beneficiary.
On 11 March 1981, Bank of America wrote Inter-Resin informing the latter of the foregoing and transmitting, along with
the
bank's
communication,
the latter of credit. Upon receipt of the letter-advice with the letter of credit, Inter-Resin sent Atty. Emiliano Tanay to Bank
of America to have the letter of credit confirmed. The bank did not. Reynaldo Dueas, bank employee in charge of letters
of credit, however, explained to Atty. Tanay that there was no need for confirmation because the letter of credit would not
have been transmitted if it were not genuine.
Between 26 March to 10 April 1981, Inter-Resin sought to make a partial availment under the letter of credit by submitting
to Bank of America invoices, covering the shipment of 24,000 bales of polyethylene rope to General Chemicals valued at
US$1,320,600.00, the corresponding packing list, export declaration and bill of lading. Finally, after being satisfied that
Inter-Resin's documents conformed with the conditions expressed in the letter of credit, Bank of America issued in favor of
Inter-Resin a Cashier's Check for P10,219,093.20, "the Peso equivalent of the draft (for) US$1,320,600.00 drawn by InterResin, after deducting the costs for documentary stamps, postage and mail issuance." 1 The check was picked up by InterResin's Executive Vice-President Barcelina Tio. On 10 April 1981, Bank of America wrote Bank of Ayudhya advising the
latter of the availment under the letter of credit and sought the corresponding reimbursement therefor.

Meanwhile, Inter-Resin, through Ms. Tio, presented to Bank of America the documents for the second availment under the
same letter of credit consisting of a packing list, bill of lading, invoices, export declaration and bills in set, evidencing the
second shipment of goods. Immediately upon receipt of a telex from the Bank of Ayudhya declaring the letter of credit
fraudulent, 2 Bank of America stopped the processing of Inter-Resin's documents and sent a telex to its branch office in
Bangkok, Thailand, requesting assistance in determining the authenticity of the letter of credit. 3Bank of America kept
Inter-Resin informed of the developments. Sensing a fraud, Bank of America sought the assistance of the National Bureau
of Investigation (NBI). With the help of the staff of the Philippine Embassy at Bangkok, as well as the police and customs
personnel of Thailand, the NBI agents, who were sent to Thailand, discovered that the vans exported by Inter-Resin did not
contain ropes but plastic strips, wrappers, rags and waste materials. Here at home, the NBI also investigated Inter-Resin's
President Francisco Trajano and Executive Vice President Barcelina Tio, who, thereafter, were criminally charged for estafa
through falsification of commercial documents. The case, however, was eventually dismissed by the Rizal Provincial Fiscal
who found no prima facie evidence to warrant prosecution.
Bank of America sued Inter-Resin for the recovery of P10,219,093.20, the peso equivalent of the draft for US$1,320,600.00
on the partial availment of the now disowned letter of credit. On the other hand, Inter-Resin claimed that not only was it
entitled to retain P10,219,093.20 on its first shipment but also to the balance US$1,461,400.00 covering the second
shipment.
On
28
June
1989,
the
trial
court
ruled
for
Inter-Resin, 4 holding
that:
(a) Bank of America made assurances that enticed Inter-Resin to send the merchandise to Thailand; (b) the telex declaring
the letter of credit fraudulent was unverified and self-serving, hence, hearsay, but even assuming that the letter of credit
was fake, "the fault should be borne by the BA which was careless and negligent" 5 for failing to utilize its modern means
of communication to verify with Bank of Ayudhya in Thailand the authenticity of the letter of credit before sending the
same to Inter-Resin; (c) the loading of plastic products into the vans were under strict supervision, inspection and
verification of government officers who have in their favor the presumption of regularity in the performance of official
functions; and (d) Bank of America failed to prove the participation of Inter-Resin or its employees in the alleged fraud as,
in fact, the complaint for estafa through falsification of documents was dismissed by the Provincial Fiscal of Rizal. 6
On appeal, the Court of Appeals 7 sustained the trial court; hence, this present recourse by petitioner Bank of America.
The following issues are raised by Bank of America: (a) whether it has warranted the genuineness and authenticity of the
letter of credit and, corollarily, whether it has acted merely as an advising bank or as a confirming bank; (b) whether InterResin has actually shipped the ropes specified by the letter of credit; and (c) following the dishonor of the letter of credit
by Bank of Ayudhya, whether Bank of America may recover against Inter-Resin under the draft executed in its partial
availment of the letter of credit. 8
In rebuttal, Inter-Resin holds that: (a) Bank of America cannot, on appeal, belatedly raise the issue of being only an
advising bank; (b) the findings of the trial court that the ropes have actually been shipped is binding on the Court; and, (c)
Bank of America cannot recover from Inter-Resin because the drawer of the letter of credit is the Bank of Ayudhya and not
Inter-Resin.
If only to understand how the parties, in the first place, got themselves into the mess, it may be well to start by recalling
how, in its modern use, a letter of credit is employed in trade transactions.
A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with
sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is
paid, and a buyer, who wants to have control of the goods before paying. 9 To break the impasse, the buyer may be
required to contract a bank to issue a letter of credit in favor of the seller so that, by virtue of the latter of credit, the
issuing bank can authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously with
the tender of documents required by the letter of credit. 10 The buyer and the seller agree on what documents are to be
presented for payment, but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to
the buyer.
Once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping
documents or documents of title. To get paid, the seller executes a draft and presents it together with the required
documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the
documents submitted by the seller conform with what the letter of credit requires. The bank then obtains possession of
the documents upon paying the seller. The transaction is completed when the buyer reimburses the issuing bank and
acquires the documents entitling him to the goods. Under this arrangement, the seller gets paid only if he delivers the

documents of title over the goods, while the buyer acquires said documents and control over the goods only after
reimbursing the bank.
What characterizes letters of credit, as distinguished from other accessory contracts, is the engagement of the issuing bank
to pay the seller of the draft and the required shipping documents are presented to it. In turn, this arrangement assures
the seller of prompt payment, independent of any breach of the main sales contract. By this so-called "independence
principle," the bank determines compliance with the letter of credit only by examining the shipping documents presented;
it is precluded from determining whether the main contract is actually accomplished or not. 11
There would at least be three (3) parties: (a) the buyer, 12 who procures the letter of credit and obliges himself to
reimburse the issuing bank upon receipts of the documents of title; (b) the bank issuing the letter of credit, 13 which
undertakes to pay the seller upon receipt of the draft and proper document of titles and to surrender the documents to
the buyer upon reimbursement; and, (c) the seller, 14 who in compliance with the contract of sale ships the goods to the
buyer and delivers the documents of title and draft to the issuing bank to recover payment.
The number of the parties, not infrequently and almost invariably in international trade practice, may be increased. Thus,
the services of an advising (notifying) bank 15 may be utilized to convey to the seller the existence of the credit; or, of
a confirming bank 16 which will lend credence to the letter of credit issued by a lesser known issuing bank; or, of a paying
bank, 17 which undertakes to encash the drafts drawn by the exporter. Further, instead of going to the place of the issuing
bank to claim payment, the buyer may approach another bank, termed the negotiating bank, 18 to have the draft
discounted.
Being a product of international commerce, the impact of this commercial instrument transcends national boundaries, and
it is thus not uncommon to find a dearth of national law that can adequately provide for its governance. This country is no
exception. Our own Code of Commerce basically introduces only its concept under Articles 567-572, inclusive, thereof. It is
no wonder then why great reliance has been placed on commercial usage and practice, which, in any case, can be justified
by the universal acceptance of the autonomy of contract rules. The rules were later developed into what is now known as
the Uniform Customs and Practice for Documentary Credits ("U.C.P.") issued by the International Chamber of Commerce. It
is by no means a complete text by itself, for, to be sure, there are other principles, which, although part of lex mercatoria,
are not dealt with the U.C.P.
In FEATI Bank and Trust Company v. Court of Appeals, 19 we have accepted, to the extent of their pertinency, the
application in our jurisdiction of this international commercial credit regulatory set of rules. 20 In Bank of Phil. Islands v. De
Nery, 21 we have said that the observances of the U.C.P. is justified by Article 2 of the Code of Commerce which expresses
that, in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by
usages and customs generally observed. We have further observed that there being no specific provisions which govern
the legal complexities arising from transactions involving letters of credit not only between or among banks themselves
but also between banks and the seller or the buyer, as the case may be, the applicability of the U.C.P. is undeniable.
The first issue raised with the petitioner, i.e., that it has in this instance merely been advising bank, is outrightly rejected by
Inter-Resin and is thus sought to be discarded for having been raised only on appeal. We cannot agree. The crucial point of
dispute in this case is whether under the "letter of credit," Bank of America has incurred any liability to the "beneficiary"
thereof, an issue that largely is dependent on the bank's participation in that transaction; as a mere advising or notifying
bank, it would not be liable, but as a confirming bank, had this been the case, it could be considered as having incurred
that liability. 22
In Insular Life Assurance Co. Ltd. Employees Association Natu vs. Insular Life Assurance Co., Ltd., 23 the Court said:
Where the issues already raised also rest on other issues not specifically presented, as long as the latter issues bear
relevance and close relation to the former and as long as they arise from the matters on record, the court has the authority
to include them in its discussion of the controversy and to pass upon them just as well. In brief, in those cases where
questions not particularly raised by the parties surface as necessary for the complete adjudication of the rights and
obligations of the parties, the interests of justice dictate that the court should consider and resolve them. The rule that
only issues or theories raised in the initial proceedings may be taken up by a party thereto on appeal should only refer to
independent, not concomitant matters, to support or oppose the cause of action or defense. The evil that is sought to be
avoided, i.e., surprise to the adverse party, is in reality not existent on matters that are properly litigated in the lower court
and appear on record.
It cannot seriously be disputed, looking at this case, that Bank of America has, in fact, only been an advising, not
confirming, bank, and this much is clearly evident, among other things, by the provisions of the letter of credit itself, the

petitioner bank's letter of advice, its request for payment of advising fee, and the admission of Inter-Resin that it has paid
the same. That Bank of America has asked Inter-Resin to submit documents required by the letter of credit and eventually
has paid the proceeds thereof, did not obviously make it a confirming bank. The fact, too, that the draft required by the
letter of credit is to be drawn under the account of General Chemicals (buyer) only means the same had to be presented to
Bank of Ayudhya (issuing bank) for payment. It may be significant to recall that the letter of credit is an engagement of the
issuing bank, not the advising bank, to pay the draft.
No less important is that Bank of America's letter of 11 March 1981 has expressly stated that "[t]he enclosure issolely an
advise of credit opened by the abovementioned correspondent and conveys no engagement by us." 24This written
reservation by Bank of America in limiting its obligation only to being an advising bank is in consonance with the provisions
of U.C.P.
As an advising or notifying bank, Bank of America did not incur any obligation more than just notifying Inter-Resin of the
letter of credit issued in its favor, let alone to confirm the letter of credit. 25 The bare statement of the bank employees,
aforementioned, in responding to the inquiry made by Atty. Tanay, Inter-Resin's representative, on the authenticity of the
letter of credit certainly did not have the effect of novating the letter of credit and Bank of America's letter of
advise, 26 nor can it justify the conclusion that the bank must now assume total liability on the letter of credit. Indeed,
Inter-Resin itself cannot claim to have been all that free from fault. As the seller, the issuance of the letter of credit should
have obviously been a great concern to it. 27 It would have, in fact, been strange if it did not, prior to the letter of credit,
enter into a contract, or negotiated at the every least, with General Chemicals. 28 In the ordinary course of business, the
perfection of contract precedes the issuance of a letter of credit.
Bringing the letter of credit to the attention of the seller is the primordial obligation of an advising bank. The view that
Bank of America should have first checked the authenticity of the letter of credit with bank of Ayudhya, by using advanced
mode of business communications, before dispatching the same to Inter-Resin finds no real support in U.C.P. Article 18 of
the U.C.P. states that: "Banks assume no liability or responsibility for the consequences arising out of the delay and/or loss
in transit of any messages, letters or documents, or for delay, mutilation or other errors arising in the transmission of any
telecommunication . . ." As advising bank, Bank of America is bound only to check the "apparent authenticity" of the letter
of credit, which it did. 29 Clarifying its meaning, Webster's Ninth New Collegiate Dictionary 30 explains that the word
"APPARENT suggests appearance to unaided senses that is not or may not be borne out by more rigorous examination or
greater knowledge."
May Bank of America then recover what it has paid under the letter of credit when the corresponding draft for partial
availment thereunder and the required documents were later negotiated with it by Inter-Resin? The answer is yes. This
kind of transaction is what is commonly referred to as a discounting arrangement. This time, Bank of America has acted
independently as a negotiating bank, thus saving Inter-Resin from the hardship of presenting the documents directly to
Bank of Ayudhya to recover payment. (Inter-Resin, of course, could have chosen other banks with which to negotiate the
draft and the documents.) As a negotiating bank, Bank of America has a right to recourse against the issuer bank and until
reimbursement is obtained, Inter-Resin, as the drawer of the draft, continues to assume a contingent liability thereon. 31
While bank of America has indeed failed to allege material facts in its complaint that might have likewise warranted the
application of the Negotiable Instruments Law and possible then allowed it to even go after the indorsers of the draft, this
failure, 32/ nonetheless, does not preclude petitioner bank's right (as negotiating bank) of recovery from Inter-Resin itself.
Inter-Resin admits having received P10,219,093.20 from bank of America on the letter of credit and in having executed the
corresponding draft. The payment to Inter-Resin has given, as aforesaid, Bank of America the right of reimbursement from
the issuing bank, Bank of Ayudhya which, in turn, would then seek indemnification from the buyer (the General Chemicals
of Thailand). Since Bank of Ayudhya disowned the letter of credit, however, Bank of America may now turn to Inter-Resin
for restitution.
Between the seller and the negotiating bank there is the usual relationship existing between a drawer
and purchaser of drafts. Unless drafts drawn in pursuance of the credit are indicated to be without
recourse therefore, the negotiating bank has the ordinary right of recourse against the seller in the event
of dishonor by the issuing bank . . . The fact that the correspondent and the negotiating bank may be one
and the same does not affect its rights and obligations in either capacity, although a special agreement is
always a possibility . . . 33
The additional ground raised by the petitioner, i.e., that Inter-Resin sent waste instead of its products, is really of no
consequence. In the operation of a letter of credit, the involved banks deal only with documents and not on goods
described in those documents. 34

The other issues raised in then instant petition, for instance, whether or not Bank of Ayudhya did issue the letter of credit
and whether or not the main contract of sale that has given rise to the letter of credit has been breached, are not relevant
to this controversy. They are matters, instead, that can only be of concern to the herein parties in an appropriate recourse
against those, who, unfortunately, are not impleaded in these proceedings.
In fine, we hold that
First, given the factual findings of the courts below, we conclude that petitioner Bank of America has acted merely as
a notifying bank and did not assume the responsibility of a confirming bank; and
Second, petitioner bank, as a negotiating bank, is entitled to recover on Inter-Resin's partial availment as beneficiary of the
letter of credit which has been disowned by the alleged issuer bank.
No judgment of civil liability against the other defendants, Francisco Trajano and other unidentified parties, can be made,
in this instance, there being no sufficient evidence to warrant any such finding.
WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial Corporation is ordered to refund to
petitioner Bank of America NT & SA the amount of P10,219,093.20 with legal interest from the filing of the complaint until
fully paid.
No costs.
SO ORDERED.

G.R. No. 117932 July 20, 1995


AVON DALE GARMENTS, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LILIA DUMANTAY, ET AL., respondents.
RESOLUTION
FRANCISCO, J.:
This special civil action for certiorari seeks to set aside the decision of the National Labor Relations Commission, dated
August 31, 1994, in NLRC CA 005068-93, for allegedly having been rendered with grave abuse of discretion.
Private respondents were employees of petitioner Avon Dale Garments, Inc. and its predecessor-in-interest, Avon Dale
Shirt Factory. Following a dispute brought about by the rotation of workers, a compromise agreement was entered into
between petitioner and private respondents wherein the latter were terminated from service and given their
corresponding separation pay.
However, upon refusal of the petitioner to include in the computation of private respondents' separation pay the period
during which the latter were employed by Avon Dale Shirt Factory, private respondents filed a complaint with the labor
arbiter claiming a deficiency in their separation pay (docketed as NLRC-NCR-00-02-00810-93). According to private
respondents, their previous employment with petitioner's predecessor-in-interest, Avon Dale Shirt Factory, should be
credited in computing their separation pay considering that Avon Dale Shirt factory was not dissolved and they were not in
turn hired as new employees by Avon Dale Garments, Inc.
In its decision dated May 14, 1993, the labor arbiter dismissed private respondents' complaint and held that Avon Dale
Shirt Factory and Avon Dale Garments, Inc. are not one and the same entity as the former was in fact dissolved on
December 27, 1978, when it filed its Articles of Dissolution with the Securities and Exchange Commission. 1
Private respondents appealed to the NLRC and the latter reversed the decision of the labor arbiter after finding that upon
dissolution of Avon Dale Shirt Factory, Inc., there was no showing that its terminated employees, as creditors insofar as
their separation pay were concerned, were ever paid. Thus, petitioner Avon Dale Garments, Inc., as successor-in-interest,
was held liable for private respondents' unpaid claim. 2
The instant petition is now brought before us by petitioner Avon Dale Garments, Inc., anchored on the sole ground that, as
a separate and distinct entity, it should not be held liable for private respondents' separation pay from Avon Dale Shirt
Factory.
Pending resolution of the instant petition, counsel for private respondents, instead of filing a comment to the petition,
filed a Manifestation indicating that the parties have already reached an amicable settlement on December 27, 1994,
wherein private respondents were paid their corresponding separation pay, after which, they executed a waiver and
quitclaim. 3 It appeared however, upon verification by the Office of the Solicitor General, that the aforementioned
compromise agreement was executed between the parties without the knowledge and participation of the NLRC. 4
The established rule is that compromise agreements involving labor standard cases, like the one entered into by the parties
herein, must be reduced in writing and signed in the presence of the Regional Director or his duly authorized
representative. Otherwise, they are not deemed to be duly executed. 5 For this reason, the compromise agreement
submitted by private respondents' counsel cannot be recognized by this court for being improperly executed.
Nevertheless, we find the petition to be without merit as the assailed decision is in complete accord with the law and
evidence on record.
Petitioner failed to establish that Avon Dale Garments, Inc., is a separate and distinct entity from Avon Dale Shirt Factory,
absent any showing that there was indeed an actual closure and cessation of the operations of the latter. The mere filing of
the Articles of Dissolution with the Securities and Exchange Commission, without more, is not enough to support the
conclusion that actual dissolution of an entity in fact took place.
On the contrary, the prevailing circumstances in this case indicated that petitioner company is not distinct from its
predecessor Avon Dale Shirt Factory, but in fact merely continued the operations of the latter under the same owners, the
same business venture, at same address 6, and even continued to hire the same employees (herein private respondents).

Thus, conformably with established jurisprudence, the two entities cannot be deemed as separate and distinct where
there is a showing that one is merely the continuation of the other. 7 In fact, even a change in the corporate name does
not make a new corporation, whether effected by a special act or under a general law, it has no effect on the identity of
the corporation, or on its property, rights, or liabilities. 8 Respondent NLRC therefore, did not commit any grave abuse of
discretion in holding that petitioner should likewise include private respondents' employment with Avon Dale Shirt Factory
in computing private respondents' separation pay as petitioner failed to substantiate its claim that it is a distinct entity.
ACCORDINGLY, the instant petition is hereby DISMISSED.
SO ORDERED.
[G.R. No. 108734. May 29, 1996]
CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto
Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto
Comendador, Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera, Paquito Salut,
Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares,
Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.
DECISION
HERMOSISIMA, JR., J.:
The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego
of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong
is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these
instances will regard the corporation as a mere association of persons and, in case of two corporations, merge them into
one.
Thus, where a sister corporation is used as a shield to evade a corporations subsidiary liability for damages, the
corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The
piercing of the corporate veil comes into play.
This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed
grave abuse of discretion when it issued a break-open order to the sheriff to be enforced against personal property
found in the premises of petitioners sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela,
Metro Manila, is engaged in the construction business. Private respondents were employed by said company as laborers,
carpenters and riggers.
On November, 1981, private respondents were served individual written notices of termination of employment by
petitioner, effective onNovember 30, 1981. It was stated in the individual notices that their contracts of employment had
expired and the project in which they were hired had been completed.
Public respondent found it to be, the fact, however, that at the time of the termination of private respondents
employment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage the
services of sub-contractors whose workers performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their
legal holiday pay, overtime pay and thirteenth-month pay against petitioner.

On December 19, 1984, the Labor Arbiter rendered judgment1 ordering petitioner to reinstate private respondents
and to pay them back wages equivalent to one year or three hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration
filed by petitioner on the ground that the said decision had already become final and executory.2
On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents
backwages amounted to P199,800.00.3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision,
dated December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioners debtor, the
Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the
cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from
herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private
respondents to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner
through the security guard on duty but the service was refused on the ground that petitioner no longer occupied the
premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of
execution.
The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November
2, 1989:
1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were
employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from removing the properties he had levied upon.4
The said special sheriff recommended that a break-open order be issued to enable him to enter petitioners
premises so that he could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the
properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the VicePresident.
On November 23, 1989, private respondents filed a Motion for Issuance of a Break-Open Order, alleging that HPPI
and petitioner corporation were owned by the same incorporator! stockholders. They also alleged that petitioner
temporarily suspended its business operations in order to evade its legal obligations to them and that private respondents
were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the
issuance of the break-open order.
In support of their claim against HPPI, private respondents presented duly certified copies of the General
Informations Sheet, datedMay 15, 1987, submitted by petitioner to the Securities and Exchange Commission (SEC) and the
General Information Sheet, dated May15, 1987, submitted by HPPI to the Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner1 revealed the following:
1.

Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed


HPPI

P6,999,500.00

Antonio W. Lim

2,900,000.00

Dennis S. Cuyegkeng

300.00

Elisa C. Lim

100,000.00

Teodulo R. Dino

100.00

Virgilio O. Casino

100.00

2.

Board of Directors

Antonio W. Lim

Chairman

Dennis S. Cuyegkeng

Member

Elisa C. Lim

Member

Teodulo R. Dino

Member

Virgilio O. Casino

Member

3.

Corporate Officers

Antonio W. Lim

President

Dennis S. Cuyegkeng

Assistant to the President

Elisa 0. Lim

Treasurer

Virgilio O. Casino

Corporate Secretary

4.

Principal Office

355 Maysan Road


Valenzuela, Metro Manila.5
On the other hand, the General Information Sheet of HPPI revealed the following:
1.

Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed


Antonio W. Lim

P400,000.00

Elisa C. Lim

57,700.00

AWL Trading

455,000.00

Dennis S. Cuyegkeng

40,100.00

Teodulo R. Dino

100.00

Virgilio O. Casino

100.00

2.

Board of Directors

Antonio W. Lim

Chairman

Elisa C. Lim

Member

Dennis S. Cuyegkeng

Member

Virgilio O. Casino

Member

Teodulo R. Dino

Member

3. Corporate Officers

Antonio W. Lim
Dennis S. Cuyegkeng

President
Assistant to the President

Elisa O. Lim

Treasurer

Virgilio O. Casino

Corporate Secretary

4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila.6
On February 1, 1990, HPPI filed an Opposition to private respondents motion for issuance of a break-open order,
contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two
corporations are engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then
engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter,
issued a break-open order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed
with the auction sale of the properties already levied upon. It dismissed the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3,
1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision
despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate
veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its
liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and
iron pipes, a business which is distinct and separate from petitioners construction business. Hence, it is of no
consequence that petitioner and HPPI shared the same premises, the same President and the same set of officers and
subscribers.7
We find petitioners contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected.8 But, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and to promote justice.9 So, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a
device to defeat the labor laws,10 this separate personality of the corporation may be disregarded or the veil of corporate
fiction pierced.11 This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of
another corporation.12
The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and
circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative
factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:
1.

Stock ownership by one or common ownership of both corporations.

2.

Identity of directors and officers.

3.

The manner of keeping corporate books and records.

4.

Methods of conducting the business.13

The SEC en banc explained the instrumentality rule which the courts have applied in disregarding the separate
juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded. The
control necessary to invoke the rule is not majority or even complete stock control but such domination of finances, policies
and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts
complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for
which the complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time
no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory
or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the corporate veil. in applying the instrumentality or alter
ego doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual
defendants relationship to that operation. 14
Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a
subterfuge is purely one of fact.15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it
filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is
at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same
day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of both corporations. It would
also not be amiss to note that both corporations had the same president, the same board of directors, the same corporate
officers, and substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party claimant
shared the same address and/or premises. Under this circumstances, (sic) it cannot be said that the property levied upon
by the sheriff were not of respondents.16
Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of backwages
and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and
its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial Relations17 where we had the occasion to rule:
Respondent courts findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was
SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the latter
finally ceased to operate, were not disputed by petitioner. it is very clear that the latter corporation was a continuation and
successor of the first entity x x x. Both predecessors and successor were owned and controlled by petitioner Eduardo
Claparols and there was no break in the succession and continuity of the same business. This avoiding-the-liability scheme
is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation (the second
corporation) was owned by respondent x x x Claparols himself, and all the assets of the dissolved Claparols Steel and Nail
Plant were turned over to the emerging Claparols Steel Corporation.

It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the
present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation
to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution,
private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was
dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of
Judgment which provides that:
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the place
where the property subject of execution is located or kept, the judgment creditor may apply to the Commission or Labor
Arbiter concerned for a break-open order.
Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied
with. Petitioner and the third-party claimant were given the opportunity to submit evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the
Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by
substantial evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave abuse
of a discretion.18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December
3, 1992, are AFFIRMED.
SO ORDERED.
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO
RIVERA, petitioners, vs. COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE
JANOLO, respondents.
6. COMMERCIAL LAW; CORPORATION CODE; DERIVATIVE SUIT, CONSTRUED. - An individual stockholder is permitted to
institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate
rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in
interest (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]).
7. ID.; ID.; WHEN THE VEIL OF CORPORATE FICTION MAY BE LIFTED. - Petitioner also tried to seek refuge in the
corporate fiction that the personality of the Bank is separate and distinct from its shareholders. But the rulings of this
Court are consistent: When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for
the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or
generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from
the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of
individuals. In addition to the many cases where the corporate fiction has been disregarded, we now add the instant
case, and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the
prohibition against forum-shopping. Shareholders, whether suing as the majority in direct action or as the minority in
a derivative suit, cannot be allowed to trifle with court processes, particularly where, as in this case, the corporation
itself has not been remiss in vigorously prosecuting or defending corporate causes and in using and applying
remedies available to it. To rule otherwise would be to encourage corporate litigants to use their shareholders as
fronts to circumvent the stringent rules against forum shopping.
DECISION

PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters and/or in a
meeting with the buyers constitute a perfected and enforceable contract of sale over 101 hectares of land in Sta. Rosa,
Laguna? Does the doctrine of apparent authority apply in this case? If so, may the Central Bank-appointed conservator of
Producers Bank (now First Philippine International Bank) repudiate such apparent authority after said contract has been
deemed perfected? During the pendency of a suit for specific performance, does the filing of a derivative suit by
the majority shareholders and directors of the distressed bank to prevent the enforcement or implementation of the sale
violate the ban against forum-shopping?
Simply stated, these are the major questions brought before this Court in the instant Petition for review on certiorari
under Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of the respondent Court of
Appeals[1] in CA-G.R. CV No. 35756 and the Resolution promulgated June 14, 1994 denying the motion for
reconsideration. The dispositive portion of the said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded under paragraphs
3, 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed
against defendant bank. In all other aspects, said decision is hereby AFFIRMED.
All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein and hereafter, to
legally refer to the plaintiff-appellee Carlos C. Ejercito.
Costs against appellant bank.
The dispositive portion of the trial courts[2] decision dated July 10, 1991, on the other hand, is as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants as
follows:
1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at Don Jose, Sta.
Rosa, Laguna with an area of 101 hectares, more or less, covered by and embraced in Transfer Certificates of Title Nos. T106932 to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant
Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from the plaintiffs the
amount of P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels
of land, and to immediately deliver to the plaintiffs the owners copies of T.C.T. Nos. T-106932 to T-106937, inclusive, for
purposes of registration of the same deed and transfer of the six (6) titles in the names of the plaintiffs;
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the sums of P
200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P 100,000.00 as exemplary damages;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by way of
attorneys fees;
6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages in the amount of
P20,000.00;
With costs against the defendants.
After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition was given
due course in a Resolution dated January 18, 1995. Thence, the parties filed their respective memoranda and reply
memoranda. The First Division transferred this case to the Third Division per resolution dated October 23, 1995. After
carefully deliberating on the aforesaid submissions, the Court assigned the case to the undersigned ponente for the writing
of this Decision.

The Parties

Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for brevity)
is a banking institution organized and existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera
(petitioner Rivera, for brevity) is of legal age and was, at all times material to this case, Head Manager of the Property
Management Department of the petitioner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original plaintiffsappellees Demetrio Demetria and Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through
this petition.

The Facts

The facts of this case are summarized in the respondent Courts Decision,[3] as follows:
(1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six parcels of land
with a total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna, and covered by Transfer Certificates of Title Nos. T106932 to T-106937. The property used to be owned by BYME Investment and Development Corporation which had them
mortgaged with the bank as collateral fora loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to
purchase the property and thus initiated negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME Investments legal counsel, Jose Fajardo,
met with defendant Mercurio Rivera, Manager of the Property Management Department of the defendant bank. The
meeting was held pursuant to plaintiffs plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting,
plaintiff Janolo, following the advice of defendant Rivera, made a formal purchase offer to the bank through a letter
dated August 30, 1987 (Exh. B), as follows:
August 30, 1987
The Producers Bank of the Philippines
Makati, Metro Manila
Attn.

Mr. Mercurio Q. Rivera

Manager, Property Management Dept.


Gentlemen:
I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder located at Sta.
Rosa, Laguna, with a total area of 101 hectares, more or less.
TCT NO.

AREA

T-106932

113,580 sq.m.

T-106933

70,899 sq.m.

T-106934

52,246 sq.m.

T-106935

96,768 sq.m.

T-106936

187,114 sq.m.

T-106937

481,481 sq.m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in cash.

Kindly contact me at Telephone Number 921-1344.


(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter which is hereunder
quoted (Exh. C):
September 1, 1987
J-P M-P GUTIERREZ ENTERPRISES
142 Charisma St., Doa Andres II
Rosario, Pasig, Metro Manila
Attention:

JOSE O. JANOLO Dear Sir:

Dear Sir:
Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly owned by Byme
industrial Corp.). Please be informed however that the banks counter-offer is at P5.5 million for more than 101 hectares on
lot basis.
We shall be very glad to hear your position on the matter.
Best regards.
(4)On September 17, 1987, plaintiff Janolo, responding to Riveras aforequoted reply, wrote (Exh.
September 17, 1987
Producers Bank
Paseo de Roxas
Makati, Metro Manila
Attention: Mr. Mercurio Rivera
Gentlemen:
In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa Laguna, I would like to
amend my previous offer and I now propose to buy the said lot at P4.250 million in CASH.
Hoping that this proposal meets your satisfaction.
(5) There was no reply to Janolos foregoing letter of September 17, 1987. What took place was a meeting on September
28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera as well as Fajardo, the
BYME lawyer, attended the meeting. Two days later, or onSeptember 30, 1987, plaintiff Janolo sent to the bank, through
Rivera, the following letter (Exh. E):
The Producers Bank of the Philippines
Paseo de Roxas, Makati
Metro Manila
Attention:
Re:

Mr. Mercurio Rivera


101 Hectares of Land in Sta. Rosa, Laguna

Gentlemen:
Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your offer for us to
purchase the property at Sta. Rosa, Laguna, formerly owned by Byme In-vestment, for a total price of PESOS: FIVE MILLION
FIVE HUNDRED THOUSAND (P5,500,000.00).
Thank you.
(6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the Central Bank
since 1984) was replaced by an Acting Conservator in the person of defendant Leonida T. Encarnacion. On November 4,
1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. F):

Attention:

Atty. Demetrio Demetria

Dear Sir:
Your proposal to buy the properties the bank foreclosed from Byme Investment Corp. located at Sta. Rosa, Laguna is under
study yet as of this time by the newly created committee for submission to the newly designated Acting Conservator of the
bank.
For your information.
(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff
considered as a perfected contract of sale, which demands were in one form or another refused by the bank. As detailed
by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit G)
tendered payment of the amount of P5.5 million pursuant to (our) perfected sale agreement. Defendants refused to
receive both the payment and the letter. Instead, the parcels of land involved in the transaction were advertised by the
bank for sale to any interested buyer (Exhs. H and H-1). Plaintiffs demanded the execution by the bank of the
documents on what was considered as a perfected agreement. Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located in Sta. Rosa,
Laguna, and which are covered by TCT No. T-106932 to 106937.
From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in the amount of
P5.5 million was accepted by our client thru a letter dated September 30, 1987 and was received by you on October 5,
1987.
In view of the above circumstances, we believe that an agreement has been perfected. We were also informed that despite
repeated follow-up to consummate the purchase, you now refuse to honor your commitment. Instead, you have advertised
for sale the same lot to others.
In behalf of our client, therefore, we are making this formal demand upon you to consummate and execute the necessary
actions/documentation within three (3) days from your receipt hereof We are ready to remit the agreed amount of P5.5
million at your advice. Otherwise, we shall be constrained to file the necessary court action to protect the interest of our
client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and stated, in its
communication of December 2, 1987 (Exh. I), that said letter has been referred x x x to the office of our Conservator for
proper disposition. However, no response came from the Acting Conservator. On December 14, 1987, the plaintiffs made
a second tender of payment (Exhs. L and L-1), this time through the Acting Conservator, defendant Encarnacion.
Plaintiffs letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.:

Atty. NIDA ENCARNACION Central Bank Conservator

Gentlemen:
We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No. 258387 in the amount of P5.5
million as our agreed purchase price of the 101-hectare lot covered by TCT Nos. 106932, 106933, 106934, 106935, 106936

and 106937 and registered under Producers Bank.


This is in connection with the perfected agreement consequent from your offer of P5.5 Million as the purchase price of the
said lots. Please inform us of the date of documentation of the sale immediately.
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through counsel,
made a final demand for compliance by the bank with its obligations under the considered perfected contract of sale
(Exhibit N). As recounted by the trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex 4 of
defendants answer to amended complaint), the defendants through Acting Conservator Encarnacion repudiated the
authority of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5 Million
are unauthorized or illegal. On that basis, the defendants justified the refusal of the tenders of payment and the noncompliance with the obligations under what the plaintiffs considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its Manager Rivera
and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a
perfected contract of sale. The defendants took the position that there was no such perfected sale because the defendant
Rivera is not authorized to sell the property, and that there was no meeting of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and Gatmaitan, filed a
motion to intervene in the trial court, alleging that as owner of 80% of the Banks outstanding shares of stock, he had a
substantial interest in resisting the complaint. On July 8, 1991, the trial court issued an order denying the motion to
intervene on the ground that it was filed after trial had already been concluded. It also denied a motion for reconsideration
filed thereafter. From the trial courts decision, the Bank, petitioner Rivera and conservator Encarnacion appealed to the
Court of Appeals which subsequently affirmed with modification the said judgment. Henry Co did not appeal the denial of
his motion for intervention.
In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria and
Janolo, in view of the assignment of the latters rights in the matter in litigation to said private respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other
stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the
Second Case) -purportedly a derivative suit - with the Regional Trial Court of Makati, Branch 134, docketed as Civil Case
No. 92-1606, against Encarnacion, Demetria and Janolo to declare any perfected sale of the property as unenforceable
and to stop Ejercito from enforcing or implementing the sale.[4] In his answer, Janolo argued that the Second Case was
barred by litis pendentia by virtue of the case then pending in the Court of Appeals. During the pre-trial conference in the
Second Case, plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice. Private respondent
opposed this motion on the ground, among others, that plaintiffs act of forum shopping justifies the dismissal of both
cases, with prejudice.[5] Private respondent, in his memorandum, averred that this motion is still pending in the Makati
RTC.
In their Petition[6] and Memorandum,[7] petitioners summarized their position as follows:
I.
The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in substitution of
Demetria and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties.
III.
The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke acts of
previous management.

IV.
The findings and conclusions of the Court of Appeals do not conform to the evidence on record.
On the other hand, private respondents prayed for dismissal of the instant suit on the ground[8] that:
I.
Petitioners have engaged in forum shopping.
II.
The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and may no longer
be questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo (substituted by
respondent Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the agency and
the contract, has no authority to revoke the contract of sale.

The Issues

From the foregoing positions of the parties, the issues in this case may be summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or to
revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?

The First Issue: Was There Forum-Shopping?

In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised Circular
No. 28-91 requiring that a party must certify under oath x x x [that] (a) he has not (t)heretofore commenced any other
action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or
agency; (b) to the best of his knowledge, no such action or proceeding is pending in said courts or agencies. A violation of
the said circular entails sanctions that include the summary dismissal of the multiple petitions or complaints. To be sure,
petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating for the record(,) the pendency of Civil
Case No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders of

petitioner Bank against the conservator and other defendants but which is the subject of a pending Motion to Dismiss
Without Prejudice.[9]
Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual forum
shopping because the instant petition pending before this Court involves identical parties or interests represented, rights
asserted and reliefs sought (as that) currently pending before the Regional Trial Court, Makati Branch 134 in the Second
Case. In fact, the issues in the two cases are so intertwined that a judgment or resolution in either case will constitute res
judicata in the other.[10]
On the other hand, petitioners explain[11] that there is no forum-shopping because:
1) In the earlier or First Case from which this proceeding arose, the Bank was impleaded as a defendant, whereas in the
Second Case (assuming the Bank is the real party in interest in a derivative suit), it was the plaintiff;
2) The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances;
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the Petition identifies
the action as a derivative suit, it does not mean that it is one and (t)hat is a legal question for the courts to decide;
4) Petitioners did not hide the Second Case as they mentioned it in the said VERIFICATION/CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private international law,[12] where non-resident litigants
are given the option to choose the forum or place wherein to bring their suit for various reasons or excuses, including to
secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more
friendly venue. To combat these less than honorable excuses, the principle of forum non conveniens was developed
whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most convenient
or available forum and the parties are not precluded from seeking remedies elsewhere.
In this light, Blacks Law Dictionary[13] says that forum-shopping occurs when a party attempts to have his action
tried in a particular court or jurisdiction where he feels he will receive the most favorable judgment or verdict. Hence,
according to Words and Phrases,[14] a litigant is open to the charge of forum shopping whenever he chooses a forum
with slight connection to factual circumstances surrounding his suit, and litigants should be encouraged to attempt to
settle their differences without imposing undue expense and vexatious situations on the courts.
In the Philippines, forum-shopping has acquired a connotation encompassing not only a choice of venues, as it was
originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice of venues), the Rules of
Court, for example, allow a plaintiff to commence personal actions where the defendant or any of the defendants resides
or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff (Rule 4, Sec. 2 [b]).
As to remedies, aggrieved parties, for example, are given a choice of pursuing civil liabilities independently of the criminal,
arising from the same set of facts. A passenger of a public utility vehicle involved in a vehicular accident may sue on culpa
contractual, culpa aquiliana or culpa criminal - each remedy being available independently of the others - although he
cannot recover more than once.
In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of his action.
This was the original concept of the term forum shopping.
Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the
encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies simultaneously.
This practice had not only resulted to (sic) conflicting adjudications among different courts and consequent confusion
enimical (sic) to an orderly administration of justice. It had created extreme inconvenience to some of the parties to the
action.
Thus, forum-shopping had acquired a different concept - which is unethical professional legal practice. And this
necessitated or had given rise to the formulation of rules and canons discouraging or altogether prohibiting the
practice.[15]

What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for solving
problems has been abused and misused to assure scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned,
promulgated Circular 28-91. And even before that, the Court had proscribed it in the Interim Rules and Guidelines issued
on January 11, 1983 and had struck down in several cases[16] the inveterate use of this insidious malpractice. Forumshopping as the filing of repetitious suits in different courts has been condemned by Justice Andres R. Narvasa (now
Chief Justice) in Minister of Natural Resources, et al. vs. Heirs of Orval Hughes, et al., as a reprehensible manipulation of
court processes and proceedings x x x.[17] When does forum-shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion
(other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts but
also in connection with litigations commenced in the courts while an administrative proceeding is pending, as in this case,
in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and a favorable
court ruling. This is specially so, as in this case, where the court in which the second suit was brought, has no jurisdiction
[18]
The test for determining whether a party violated the rule against forum-shopping has been laid down in the 1986
case of Buan vs. Lopez,[19] also by Chief Justice Narvasa, and that is, forum-shopping exists where the elements of litis
pendentia are present or where a final judgment in one case will amount to res judicata in the other, as follows:
There thus exists between the action before this Court and RTC Case No. 86-36563 identity of parties, or at least such
parties as represent the same interests in both actions, as well as identity of rights asserted and relief prayed for, the relief
being founded on the same facts, and the identity on the two preceding particulars is such that any judgment rendered in
the other action, will, regardless of which party is successful, amount to res adjudicata in the action under consideration:
all the requisites, in fine, of auter action pendant.
xxx

xxx

xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563, an identity as regards parties, or
interests represented, rights asserted and relief sought, as well as basis thereof, to a degree sufficient to give rise to the
ground for dismissal known as auter action pendant or lis pendens. That same identity puts into operation the sanction of
twin dismissals just mentioned. The application of this sanction will prevent any further delay in the settlement of the
controversy which might ensue from attempts to seek reconsideration of or to appeal from the Order of the Regional Trial
Court in Civil Case No. 86-36563 promulgated on July 15, 1986, which dismissed the petition upon grounds which appear
persuasive.
Consequently, where a litigant (or one representing the same interest or person) sues the same party against whom
another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still
pending, the defense of litis pendencia in one case is a bar to the others; and, a final judgment in one would constitute res
judicata and thus would cause the dismissal of the rest. In either case, forum shopping could be cited by the other party as
a ground to ask for summary dismissal of the two[20] (or more) complaints or petitions, and for the imposition of the
other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious that there
exist identity of parties or interests represented, identity of rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed by the
buyer (herein private respondent and his predecessors-in-interest) against the seller (herein petitioners) to enforce the
alleged perfected sale of real estate. On the other hand, the complaint[21] in the Second Case seeks to declare such
purported sale involving the same real property as unenforceable as against the Bank, which is the petitioner herein. In
other words, in the Second Case, the majority stockholders, in representation of the Bank, are seeking to accomplish what
the Bank itself failed to do in the original case in the trial court. In brief, the objective or the relief being sought, though
worded differently, is the same, namely, to enable the petitioner Bank to escape from the obligation to sell the property to
respondent. In Danville Maritime, Inc. vs. Commission on Audit,[22] this Court ruled that the filing by a party of two
apparently different actions, but with the same objective, constituted forum shopping:

In the attempt to make the two actions appear to be different, petitioner impleaded different respondents therein - PNOC
in the case before the lower court and the COA in the case before this Court and sought what seems to be different reliefs.
Petitioner asks this Court to set aside the questioned letter-directive of the COA dated October 10, 1988 and to direct said
body to approve the Memorandum of Agreement entered into by and between the PNOC and petitioner, while in the
complaint before the lower court petitioner seeks to enjoin the PNOC from conducting a rebidding and from selling to
other parties the vessel T/T Andres Bonifacio, and for an extension of time for it to comply with the paragraph 1 of the
memorandum of agreement and damages. One can see that although the relief prayed for in the two (2) actions are
ostensibly different, the ultimate objective in both actions is the same, that is, the approval of the sale of vessel in favor of
petitioner, and to overturn the letter-directive of the COA of October 10, 1988 disapproving the sale.(italics supplied)
In an earlier case,[23] but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant special civil action for certiorari and prohibition in this Court
despite the pendency of their action in the Makati Regional Trial Court, is a species of forum-shopping. Both actions
unquestionably involve the same transactions, the same essential facts and circumstances. The petitioners claim of
absence of identity simply because the PCGG had not been impleaded in the RTC suit, and the suit did not involve certain
acts which transpired after its commencement, is specious. In the RTC action, as in the action before this Court, the validity
of the contract to purchase and sell of September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the
propriety of implementing the same (by paying the pledgee banks the amount of their loans, obtaining the release of the
pledged shares, etc.) were the basic issues. So, too, the relief was the same: the prevention of such implementation and/or
the restoration of the status quo ante. When the acts sought to be restrained took place anyway despite the issuance by
the Trial Court of a temporary restraining order, the RTC suit did not become functus oflcio. It remained an effective vehicle
for obtention of relief; and petitioners remedy in the premises was plain and patent: the filing of an amended and
supplemental pleading in the RTC suit, so as to include the PCGG as defendant and seek nullification of the acts sought to
be enjoined but nonetheless done. The remedy was certainly not the institution of another action in another forum based
on essentially the same facts. The adoption of this latter recourse renders the petitioners amenable to disciplinary action
and both their actions, in this Court as well as in the Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the
plaintiffs in the Second Case (Henry L. Co. et al.) are not name parties in the First Case, they represent the same interest
and entity, namely, petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter in controversy.
They are not principally or even subsidiarily liable; much less are they direct parties in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a derivative suit. In
the caption itself, petitioners claim to have brought suit for and in behalf of the Producers Bank of
the Philippines.[24] Indeed, this is the very essence of a derivative suit:
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in
order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be
sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; italics supplied).
In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite strangely,
sought to deny that the Second Case was a derivative suit, reasoning that it was brought, not by the minority shareholders,
but by Henry Co et al., who not only own, hold or control over 80% of the outstanding capital stock, but also constitute the
majority in the Board of Directors of petitioner Bank. That being so, then they really represent the Bank. So, whether they
sued derivatively or directly, there is undeniably an identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality of the Bank is separate and distinct
from its shareholders. But the rulings of this Court are consistent: When the fiction is urged as a means of perpetrating a
fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law
covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.[25]

In addition to the many cases[26] where the corporate fiction has been disregarded, we now add the instant case,
and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition
against forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative
suit, cannot be allowed to trifle with court processes, particularly where, as in this case, the corporation itself has not been
remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. To rule
otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules
against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming arguendo that there is
identity of parties, causes of action and reliefs sought, because it (the Bank) was the defendant in the (first) case while it
was the plaintiff in the other (Second Case), citing as authority Victronics Computers, Inc. vs. Regional Trial Court, Branch
63, Makati, etc. et al.,[27] where the Court held:
The rule has not been extended to a defendant who, for reasons known only to him, commences a new action against the
plaintiff - instead of filing a responsive pleading in the other case - setting forth therein, as causes of action, specific
denials, special and affirmative defenses or even counterclaims. Thus, Velhagens and Kings motion to dismiss Civil Case
No. 91-2069 by no means negates the charge of forum-shopping as such did not exist in the first place. (italics supplied)
Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the forum
in said case.
Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and the
present suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file any responsive
pleading in the first case. In other words, they did not make any denial or raise any defense or counter-claim therein. In the
case before us however, petitioners filed a responsive pleadingto the complaint - as a result of which, the issues were
joined.
Indeed, by praying for affirmative reliefs and interposing counter-claims in their responsive pleadings, the petitioners
became plaintiffs themselves in the original case, giving unto themselves the very remedies they repeated in the Second
Case.
Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the vexation
caused the courts and parties-litigant by a party who asks different courts and/or administrative agencies to rule on the
same or related causes and/or to grant the same or substantially the same reliefs, in the process creating the possibility of
conflicting decisions being rendered by the different fora upon the same issue. In this case, this is exactly the problem: a
decision recognizing the perfection and directing the enforcement of the contract of sale will directly conflict with a
possible decision in the Second Case barring the parties from enforcing or implementing the said sale. Indeed, a final
decision in one would constitute res judicata in the other.[28]
The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction possible now is
the dismissal of both cases with prejudice, as the other sanctions cannot be imposed because petitioners present counsel
entered their appearance only during the proceedings in this Court, and the Petitions VERIFICATION/CERTIFICATION
contained sufficient allegations as to the pendency of the Second Case to show good faith in observing Circular 28-91. The
lawyers who filed the Second Case are not before us; thus the rudiments of due process prevent us from motu
propio imposing disciplinary measures against them in this Decision. However, petitioners themselves (and particularly
Henry Co, et al.) as litigants are admonished to strictly follow the rules against forum-shopping and not to trifle with court
proceedings and processes. They are warned that a repetition of the same will be dealt with more severely.
Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-shopping
but also because of the substantive issues raised, as will be discussed shortly.

The Second Issue: Was The Contract Perfected?

The respondent Court correctly treated the question of whether or not there was, on the basis of the facts
established, a perfected contract of sale as the ultimate issue. Holding that a valid contract has been established,
respondent Court stated:
There is no dispute that the object of the transaction is that property owned by the defendant bank as acquired assets
consisting of six (6) parcels of land specifically identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is
likewise beyond cavil that the bank intended to sell the property. As testified to by the Banks Deputy Conservator, Jose
Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs wanted to purchase the property
and it was precisely for this purpose that they met with defendant Rivera, Manager of the Property Management
Department of the defendant bank, in early August 1987. The procedure in the sale of acquired assets as well as the nature
and scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera himself, which testimony
was relied upon by both the bank and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):
A:
The procedure runs this way: Acquired assets was turned over to me and then I published it in the form of an
inter-office memorandum distributed to all branches that these are acquired assets for sale. I was instructed to advertise
acquired assets for sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon having been
offered, I present it to the Committee. I provide the Committee with necessary information about the property such as
original loan of the borrower, bid price during the foreclosure, total claim of the bank, the appraised value at the time the
property is being offered for sale and then the information which are relative to the evaluation of the bank to buy which
the Committee considers and it is the Committee that evaluate as against the exposure of the bank and it is also the
Committee that submit to the Conservator for final approval and once approved, we have to execute the deed of sale and
it is the Conservator that sign the deed of sale, sir.
The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt with and
talked to the right person. Necessarily, the agenda was the price of the property, and plaintiffs were dealing with the bank
official authorized to entertain offers, to accept offers and to present the offer to the Committee before which the said
official is authorized to discuss information relative to price determination. Necessarily, too, it being inherent in his
authority, Rivera is the officer from whom official information regarding the price, as determined by the Committee and
approved by the Conservator, can be had. And Rivera confirmed his authority when he talked with the plaintiff in August
1987. The testimony of plaintiff Demetria is clear on this point (TSN of May 31, 1990, pp. 27-28):
Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him point-blank his
authority to sell any property?
A: No, sir. Not point blank although it came from him. (W)hen I asked him how long it would take because he
was saying that the matter of pricing will be passed upon by the committee. And when I asked him how
long it will take for the committee to decide and he said the committee meets every week. If I am not
mistaken Wednesday and in about two weeks (sic) time, in effect what he was saying he was not the one
who was to decide. But he would refer it to the committee and he would relay the decision of the
committee to me.
Q: Please answer the question.
A: He did not say that he had the authority(.) But he said he would refer the matter to the committee and he
would relay the decision to me and he did just like that.
Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the Head, with Jose
Entereso as one of the members.
What transpired after the meeting of early August 1987 are consistent with the authority and the duties of Rivera and the
banks internal procedure in the matter of the sale of banks assets. As advised by Rivera, the plaintiffs made a formal offer
by a letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the
attention of Mercurio Rivera who was tasked to convey and accept such offers. Considering an aspect of the official duty of
Rivera as some sort of intermediary between the plaintiffs-buyers with their proposed buying price on one hand, and the
bank Committee, the Conservator and ultimately the bank itself with the set price on the other, and considering further
the discussion of price at the meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no other
logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that the banks counter-offer

is at P5.5 Million for more than 101 hectares on lot basis, such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had duly presented plaintiffs offer for discussion by the
Committee of such matters as original loan of borrower, bid price during foreclosure, total claim of the bank, and market
value. Tersely put, under the established facts, the price of P5.5 Million was, as clearly worded in Riveras letter (Exh. E),
the official and definitive price at which the bank was selling the property.
There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not discussed by
the Committee and that it was merely quoted to start negotiations regarding the price. As correctly characterized by the
trial court, this is not credible. The testimonies of Luis Co and Jose Entereso on this point are at best equivocal and
considering the gratuitous and self-serving character of these declarations, the banks submission on this point does not
inspire belief. Both Co and Entereso, as members of the Past Due Committee of the bank, claim that the offer of the
plaintiff was never discussed by the Committee. In the same vein, both Co and Entereso openly admit that they seldom
attend the meetings of the Committee. It is important to note that negotiations on the price had started in early August
and the plaintiffs had already offered an amount as purchase price, having been made to understand by Rivera, the official
in charge of the negotiation, that the price will be submitted for approval by the bank and that the banks decision will be
relayed to plaintiffs. From the facts, the amount of P5.5 Million has a definite significance. It is the official bank price. At
any rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and negotiate the sale by
having the offer officially acted upon by the bank. The bank cannot turn around and later say, as it now does, that what
Rivera states as the banks action on the matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible
authority, that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an
apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as
against any one who has in good faith dealt with the corporation through such agent, he estopped from denying his
authority (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court
of Appeals, G.R. No. 103957, June 14, 1993).[29]
Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: (1) Consent of
the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which
is established.
There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of land in
Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer Certificates of Title
Nos. T-106932 to T-106937. There is, however, a dispute on the first and third requisites.
Petitioners allege that there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera (or
Co) may have made is unauthorized. Since there was no counter-offer by the Bank, there was nothing for Ejercito (in
substitution of Demetria and Janolo) to accept.[30] They disputed the factual basis of the respondent Courts findings that
there was an offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We have perused the
evidence but cannot find fault with the said Courts findings of fact. Verily, in a petition under Rule 45 such as this, errors of
fact -if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and the trial court as well) chose
to believe the evidence presented by respondent more than that presented by petitioners is not by itself a reversible error.
in fact, such findings merit serious consideration by this Court, particularly where, as in this case, said courts carefully and
meticulously discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the question of
Riveras authority to act and petitioners allegations that the P5.5 million counter-offer was extinguished by the P4.25
million revised offer of Janolo. Here, there are questions of law which could be drawn from the factual findings of the
respondent Court. They also delve into the contractual elements of consent and cause.
The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of
apparent authority, with special reference to banks, was laid out in Prudential Bank vs. Court of Appeals,[31] where it
was held that:
Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent.
The agents apparent representation yields to the principals true representation and the contract is considered as entered
into between the principal and the third person (citing National Food Authority vs. Intermediate Appellate Court, 184 SCRA

166).
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers
in their representative capacity but not for acts outside the scope of their authority (9 C.J.S., p. 417). A bank holding out its
officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to
perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds,
even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is
liable to innocent third persons where the representation is made in the course of its business by an agent acting within
the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota
Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).
Application of these principles is especially necessary because banks have a fiduciary relationship with the public and
their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where
banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their
depositors.
From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied authority
to act for the Bank in the matter of selling its acquired assets. This evidence includes the following:
(a) The petition itself in par. II-1 (p. 3) states that Rivera was at all times material to this case, Manager of the Property
Management Department of the Bank. By his own admission, Rivera was already the person in charge of the Banks
acquired assets (TSN, August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being sold by the Bank. And during the initial meeting
between the buyers and Rivera, the latter suggested that the buyers offer should be no less than P3.3 million (TSN, April
26, 1990, pp. 16-17);
(c) Rivera received the buyers letter dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990, p. 11);
(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the buyers proposal to buy the property for P4.25
million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN, January 16,
1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1987, during which the Banks offer
of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and
officer of the Bank, confirmed Riveras statement as to the finality of the Banks counter-offer of P5.5 million (TSN, January
16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for the Bank in
relation to parties interested in buying assets owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the
Banks advertisements offering for sale the property in question (cf. Exhs. S and S-I).
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et al.,[32] the Court, through Justice Jose
A. R. Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of the officer of the Bank of
P.I. in charge of acquired assets is borne out by similar circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Riveras apparent authority through documents and testimony which
seek to establish Riveras actual authority. These pieces of evidence, however, are inherently weak as they consist of
Riveras self-serving testimony and various inter-office memoranda that purport to show his limited actual authority, of
which private respondent cannot be charged with knowledge. In any event, since the issue is apparent authority, the
existence of which is borne out by the respondent Courts findings, the evidence of actual authority is immaterial insofar as
the liability of a corporation is concerned.[33]
Petitioners also argued that since Demetria and Janolo were experienced lawyers and their law firm had once acted
for the Bank in three criminal cases, they should be charged with actual knowledge of Riveras limited authority. But the

Court of Appeals in its Decision (p. 12) had already made a factual finding that the buyers had no notice of Riveras actual
authority prior to the sale. In fact, the Bank has not shown that they acted as its counsel in respect to any acquired assets;
on the other hand, respondent has proven that Demetria and Janolo merely associated with a loose aggrupation of
lawyers (not a professional partnership), one of whose members (Atty. Susana Parker) acted in said criminal cases.
Petitioners also alleged that Demetrias and Janolos P4.25 million counter-offer in the letter dated September 17,
1987 extinguished the Banks offer of P5.5 million.[34] They disputed the respondent Courts finding that there was a
meeting of minds when on 30 September 1987 Demetria and Janolo through Annex L (letter dated September 30,
1987) accepted Riveras counter offer of P5.5 million under Annex J (letter dated September 17, 1987), citing the late
Justice Paras,[35] Art. 1319 of the Civil Code[36] and related Supreme Court rulings starting with Beaumont vs. Prieto.[37]
However, the above-cited authorities and precedents cannot apply in the instant case because, as found by the
respondent Court which reviewed the testimonies on this point, what was accepted by Janolo in his letter dated
September 30, 1987 was the Banks offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose Fajardo by
Rivera and Co during their meeting on September 28, 1987. Note that the said letter of September 30, 1987 begins with
(p)ursuant to our discussion last 28 September 1987 x x x.
Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that
the September 28, 1987meeting was meant to have the offerors improve on their position of P5.5 million. [38] However,
both the trial court and the Court of Appeals found petitioners testimonial evidence not credible, and we find no basis
for changing this finding of fact.
Indeed, we see no reason to disturb the lower courts (both the RTC and the CA) common finding that private
respondents evidence is more in keeping with truth and logic - that during the meeting on September 28, 1987, Luis Co
and Rivera confirmed that the P5.5 million price has been passed upon by the Committee and could no longer be lowered
(TSN of April 27, 1990, pp. 34-35).[39] Hence, assumingarguendo that the counter-offer of P4.25 million extinguished the
offer of P5.5 million, Luis Cos reiteration of the said P5.5 million price during the September 28, 1987 meeting revived the
said offer. And by virtue of the September 30, 1987 letter accepting this revived offer, there was a meeting of the minds, as
the acceptance in said letter was absolute and unqualified.
We note that the Banks repudiation, through Conservator Encarnacion, of Riveras authority and action, particularly
the latters counter-offer of P5.5 million, as being unauthorized and illegal came only on May 12, 1988 or more than
seven (7) months after Janolos acceptance. Such delay, and the absence of any circumstance which might have justifiably
prevented the Bank from acting earlier, clearly characterizes the repudiation as nothing more than a last-minute attempt
on the Banks part to get out of a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an implied admission on the part of the
petitioners that the written offer made on September 1, 1987 was carried through during the meeting of September 28,
1987. This is the conclusion consistent with human experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Banks offer of P5.5 million was raised for the first time on
appeal and should thus be disregarded.
This Court in several decisions has repeatedly adhered to the principle that points of law, theories, issues of fact and
arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by
a reviewing court, as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145
SCRA 592).[40]
xxx It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the trial in the
court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and
due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development
Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990).[41]
Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given an
opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a matter of due process.

But we passed upon the issue anyway, if only to avoid deciding the case on purely procedural grounds, and we repeat that,
on the basis of the evidence already in the record and as appreciated by the lower courts, the inevitable conclusion is
simply that there was a perfected contract of sale.

The Third Issue:

Is the Contract Enforceable?

The petition alleged:[42]


Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28 September
1987, and it was this verbal offer that Demetria and Janolo accepted with their letter of 30 September 1987, the contract
produced thereby would be unenforceable by action - there being no note, memorandum or writing subscribed by the
Bank to evidence such contract. (Please see Article 1403[2], Civil Code.)
Upon the other hand, the respondent Court in its Decision (p. 14) stated:
x x x Of course, the banks letter of September 1, 1987 on the official price and the plaintiffs acceptance of the price on
September 30, 1987, are not, in themselves, formal contracts of sale. They are however clear embodiments of the fact that
a contract of sale was perfected between the parties, such contract being binding in whatever form it may have been
entered into (case citations omitted). Stated simply, the banks letter of September 1, 1987, taken together with plaintiffs
letter dated September 30, 1987, constitute in law a sufficient memorandum of a perfected contract of sale.
The respondent Court could have added that the written communications commenced not only from September 1,
1987 but from Janolos August 20, 1987 letter. We agree that, taken together, these letters constitute sufficient
memoranda - since they include the names of the parties, the terms and conditions of the contract, the price and a
description of the property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did constitute a
new offer which was accepted by Janolo on September 30, 1987. Still, the statute of frauds will not apply by reason of
the failure of petitioners to object to oral testimony proving petitioner Banks counter-offer of P5.5 million. Hence,
petitioners - by such utter failure to object - are deemed to have waived any defects of the contract under the statute of
frauds, pursuant to Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to
object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them.
As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer of
P5.5 million is aplenty -and the silence of petitioners all throughout the presentation makes the evidence binding on them
thus:
A - Yes, sir. I think it was September 28, 1987 and I was again present because Atty. Demetria told me to
accompany him and we were able to meet Luis Co at the Bank.
xxx

xxx

xxx

Q - Now, what transpired during this meeting with Luis Co of the Producers Bank?
A - Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q - What price?
A - The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final price
and that is the price they intends (sic) to have, sir.

Q - What do you mean?


A - That is the amount they want, sir.
Q - What is the reaction of the plaintiff Demetria to Luis Cos statment (sic) that the defendant Riveras counteroffer of 5.5 million was the defendants bank (sic) final offer?
A - He said in a day or two, he will make final acceptance, sir.
Q - What is the response of Mr. Luis Co?
A - He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]
----0---Q - What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?
A - We went straight to the point because he being a busy person, I told him if the amount of P5.5 million could
still be reduced and he said that was already passed upon by the committee. What the bank expects which
was contrary to what Mr. Rivera stated. And he told me that is the final offer of the bank P5.5 million and
we should indicate our position as soon as possible.
Q - What was your response to the answer of Mr. Luis Co?
A - I said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo and I and
Mr. Mercurio [Rivera] was with us at the time at his office.
Q - For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office
in Producers Bank Building during this meeting?
A - Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q - By Mr. Co you are referring to?
A - Mr. Luis Co.
Q - After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter offer by the bank?
A - Yes, sir, we did. Two days thereafter we sent our acceptance to the bank which offer we accepted, the offer
of the bank which is P5.5 million.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
---- 0 ---Q - According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the Committee and it is
not within his power to reduce this amount. What can you say to that statement that the amount of P5.5
million was reached by the Committee?
A - It was not discussed by the Committee but it was discussed initially by Luis Co and the group of Atty.
Demetrio Demetria and Atty. Pajardo (sic), in that September 28, 1987 meeting, sir.

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

The Fourth Issue: May the Conservator Revoke


the Perfected and Enforceable Contract?
It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of
the Philippines during the time that the negotiation and perfection of the contract of sale took place. Petitioners
energetically contended that the conservator has the power to revoke or overrule actions of the management or the board
of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary
Board finds that a bank or a non-bank financial intermediary performing quasi - banking functions is in a state of
continuing inability or unwillingness to maintain a state of liquidity deemed adequate to protect the interest of depositors
and creditors, the Monetary Board may appoint a conservator to take charge of the assets, liabilities, and the management
of that institution, collect all monies and debts due said institution and exercise all powers necessary to preserve the
assets of the institution, reorganize the management thereof, and restore its viability. He shall have the power to overrule
or revoke the actions of the previous management and board of directors of the bank or non-bank financial intermediary
performing quasi-banking functions, any provision of law to the contrary notwithstanding, and such other powers as the
Monetary Board shall deem necessary.
In the first place, this issue of the Conservators alleged authority to revoke or repudiate the perfected contract of
sale was raised for the first time in this Petition - as this was not litigated in the trial court or Court of Appeals. As already
stated earlier, issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals, cannot be raised for
the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process.[43]
In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected,
actually repudiated or overruled said contract of sale. The Banks acting conservator at the time, Rodolfo Romey, never
objected to the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter of
Conservator Encarnacion, who took over from Romey after the sale was perfected on September 30, 1987 (Annex V,
petition) which unilaterally repudiated - not the contract - but the authority of Rivera to make a binding offer - and which
unarguably came months after the perfection of the contract. Said letter dated May 12, 1988 is reproduced hereunder:
May 12, 1988
Atty. Noe C. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6) parcels of land
located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a contract to sell and
buy with any of them for the following reasons.
In the Inter-Office Memorandum dated April 25, 1986 addressed to and approved by former Acting Conservator Mr.
Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions of Property Management
Department (PMD) staff and officers (Annex A), you will immediately read that Manager Mr. Mercurio Rivera or any of his
subordinates has no authority, power or right to make any alleged counter-offer. In short, your lawyer-clients did not deal
with the authorized officers of the bank.
Moreover, under Secs. 23 and 36 of the Corporation Code of the Philippines (Batas Pambansa Blg. 68) and Sec. 28-A of the
Central Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator may authorize the sale of any
property of the corporation/bank.

Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators (starting
January, 1984) to sell the aforesaid property to any of your clients. Apparently, what took place were just preliminary
discussions/ consultations between him and your clients, which everyone knows cannot bind the Banks Board or
Conservator.
We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently violative of
corporate and banking laws. We believe that this is more than sufficient legal justification for refusing said alleged tender.
Rest assured that we have nothing personal against your clients. All our acts are official, legal and in accordance with law.
We also have no personal interest in any of the properties of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. ENCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a
bank, it must be pointed out that such powers must be related to the (preservation of) the assets of the bank, (the
reorganization of) the management thereof and (the restoration of) its viability. Such powers, enormous and extensive as
they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe against the
non-impairment clause of the Constitution.[44] If the legislature itself cannot revoke an existing valid contract, how can it
delegate such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing
law, deemed to be defective - i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the
place of a banks board of directors. What the said board cannot do - such as repudiating a contract validly entered into
under the doctrine of implied authority - the conservator cannot do either. Ineluctably, his power is not unilateral and he
cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such
contracts - as he has already done so in the instant case. A contrary understanding of the law would simply not be
permitted by the Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to become
solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings which
had one way or another come to be considered unfavorable to the Bank, yielding nothing to perfected contractual rights
nor vested interests of the third parties who had dealt with the Bank.

The Fifth Issue:

Were There Reversible Errors of Fact?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the Court of
Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation,[45] we held:
x x x. The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the
Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45 of the
Revised Rules of Court. The jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals is limited to
reviewing and revising the errors of law imputed to it, its findings of the fact being conclusive [Chan vs. Court of Appeals,
G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has emphatically declared
that it is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being
limited to reviewing errors of law that might have been committed by the lower court (Tiongco v. De la Merced, G.R. No. L24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued
vs. Court of Appeals, G.R. No. L-47531,February 20, 1984, 127 SCRA 596). Barring, therefore, a showing that the findings
complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious

abuse of discretion, such findings must stand, for this Court is not expected or required to examine or contrast the oral and
documentary evidence submitted by the parties [Santa Ana, Jr. vs. Hernandez, G.R. No. L-16394, December 17, 1966, 18
SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals,[46] we held:
The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the sufficiency of evidence
and the credibility of witnesses presented. This Court so held that it is not the function of the Supreme Court to analyze or
weigh such evidence all over again. The Supreme Courts jurisdiction is limited to reviewing errors of law that may have
been committed by the lower court. The Supreme Court is not a trier of facts. x x x
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and Development Corp.:
[47]
The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and
conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found
by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings
went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a
careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of
fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company, Inc. vs. Hon.
Court of Appeals, et al.[48] is equally applicable to the present case:
We see no valid reason to discard the factual conclusions of the appellate court. x x x (I)t is not the function of this Court
to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly
where, such as here, the findings of both the trial court and the appellate court on the matter coincide. (italics supplied)
Petitioners, however, assailed the respondent Courts Decision as fraught with findings and conclusions which were
not only contrary to the evidence on record but have no bases at all, specifically the findings that (1) the Banks counteroffer price of P5.5 million had been determined by the past due committee and approved by conservator Romey, after
Rivera presented the same for discussion and (2) the meeting with Co was not to scale down the price and start
negotiations anew, but a meeting on the already determined price of P5.5 million. Hence, citing Philippine National Bank
vs. Court of Appeals,[49] petitioners are asking us to review and reverse such factual findings.
The first point was clearly passed upon by the Court of Appeals,[50] thus:
There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that
the banks counter-offer is at P5.5 Million for more than 101 hectares on lot basis, such counter-offer price had been
determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs offer
for discussion by the Committee x x x. Tersely put, under the established fact, the price of P5.5 Million was, as clearly
worded in Riveras letter (Exh. E), the official and definitive price at which the bank was selling the property. (p. 11, CA
Decision)
xxx xxx

xxx

xxx. The argument deserves scant consideration. As pointed out by plaintiff, during the meeting of September 28, 1987
between the plaintiffs, Rivera and Luis Co, the senior vice-president of the bank, where the topic was the possible lowering
of the price, the bank official refused it and confirmed that the P5.5 Million price had been passed upon by the Committee
and could no longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as not credible
and at best equivocal, and considering the gratuitous and self-serving character of these declarations, the banks
submissions on this point do not inspire belief.

To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey to testify
on their behalf, as he would have been in the best position to establish their thesis. Under the rules on evidence, [51] such
suppression gives rise to the presumption that his testimony would have been adverse, if produced.
The second point was squarely raised in the Court of Appeals, but petitioners evidence was deemed insufficient by
both the trial court and the respondent Court, and instead, it was respondents submissions that were believed and
became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are valid
and correct. But the petitioners are now asking this Court to disturb these findings to fit the conclusion they are espousing.
This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court of
Appeals.[52] We have studied both the records and the CA Decision and we find no such exceptions in this case. On the
contrary, the findings of the said Court are supported by a preponderance of competent and credible evidence. The
inferences and conclusions are reasonably based on evidence duly identified in the Decision. Indeed, the appellate court
patiently traversed and dissected the issues presented before it, lending credibility and dependability to its findings. The
best that can be said in favor of petitioners on this point is that the factual findings of respondent Court did not correspond
to petitioners claims, but were closer to the evidence as presented in the trial court by private respondent. But this alone
is no reason to reverse or ignore such factual findings, particularly where, as in this case, the trial court and the appellate
court were in common agreement thereon. Indeed, conclusions of fact of a trial judge - as affirmed by the Court of Appeals
- are conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness of any kind, because
the trial court is in a better position to observe the demeanor of the witnesses and their courtroom manner as well as to
examine the real evidence presented.

Epilogue

In summary, there are two procedural issues involved - forum-shopping and the raising of issues for the first time on
appeal [viz., the extinguishment of the Banks offer of P5.5 million and the conservators powers to repudiate contracts
entered into by the Banks officers] - which per se could justify the dismissal of the present case. We did not limit ourselves
thereto, but delved as well into the substantive issues - the perfection of the contract of sale and its enforceability, which
required the determination of questions of fact. While the Supreme Court is not a trier of facts and as a rule we are not
required to look into the factual bases of respondent Courts decisions and resolutions, we did so just the same, if only to
find out whether there is reason to disturb any of its factual findings, for we are only too aware of the depth, magnitude
and vigor by which the parties, through their respective eloquent counsel, argued their positions before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a governmentappointed conservator and there is need to rehabilitate the Bank in order to get it back on its feet x x x as many people
depend on (it) for investments, deposits and well as employment. As of June 1987, the Banks overdraft with the Central
Bank had already reached P1.023 billion x x x and there were (other) offers to buy the subject properties for a substantial
amount of money.[53]
While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot emotionally close its
eyes to overriding considerations of substantive and procedural law, like respect for perfected contracts, non-impairment
of obligations and sanctions against forum-shopping, which must be upheld under the rule of law and blind justice.
This Court cannot just gloss over private respondents submission that, while the subject properties may currently
command a much higher price, it is equally true that at the time of the transaction in 1987, the price agreed upon of P5.5
million was reasonable, considering that the Bank acquired these properties at a foreclosure sale for no more than P 3.5
million.[54] That the Bank procrastinated and refused to honor its commitment to sell cannot now be used by it to
promote its own advantage, to enable it to escape its binding obligation and to reap the benefits of the increase in land

values. To rule in favor of the Bank simply because the property in question has algebraically accelerated in price during
the long period of litigation is to reward lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court
cannot stamp its imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court hereby DENIES the
petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in forum-shopping
and WARNED that a repetition of the same or similar acts will be dealt with more severely. Costs against petitioners.
SO ORDERED.
[G.R. No. 100812. June 25, 1999]
FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA
MANUEL, respondents.
SYNOPSIS
Petitioner Francisco Motors Corporation filed a complaint for Sum of Money against private respondents spouses
Gregorio and Librada Manuel for the balance of the jeep body purchased by them from the petitioner, the cost of repair of
the said vehicle and the costs of suit and attorneys fees. Spouses Manuel filed their answer and interposed a
counterclaim for unpaid legal services by Gregorio Manuel which was not faid by the incorporators, directors and officers
of the petitioner being the members of the Francisco family whom he represented in the intestate estate proceedings of
the late Benita Trinidad at the time when he was still the Assistant Legal Officer of the petitioner. The trial court decided
the case by granting the claims of both sides. On appeal, the Court of Appeals affirmed the trial courts decision. Hence,
this petition.
The Court ruled that given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no
relevant application here. Respondent court erred in permitting the trial courts resort to this doctrine. The rationale
behind piercing a corporations identity in a given case is to remove the barrier between the corporation from the persons
comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for
undertaking certain proscribed activities. However, in the case at bar, instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is
being ordered to answer for the personal liability of certain individual directors, officers and incorporators concerned.
Hence, the doctrine had been turned upside down because of its erroneous invocation. Note that according to private
respondent Gregorio Manuel, his services were solicited as counsel for members of the Francisco family to represent them
in the intestate proceedings over Benita Trinidads estate. These estate proceedings did not involve any business of
petitioner.
However, with regard to the procedural issue raised by petitioners allegation, that it needed to be summoned anew
in order for the court to acquire jurisdiction over it, the Court agreed with respondent courts view to the contrary. Section
4, Rule 11 of the Rules of Court provides that a counterclaim or cross-claim must be answered within (10) days from
service. Nothing in the Rules of Court says that summons should first be served on the defendant before an answer to
counterclaim must be made. Under Rule 9, Sec. 3 of the 1997 Rules of Civil Procedure if a defendant fails to answer the
counterclaim, then, upon plaintiffs motion, the defendant may be declared in default. This is what happened to petitioner
in this case and the Court found no procedural error in its disposition made by the appellate court.
The petition was GRANTED.
SYLLABUS
1. COMMERCIAL LAW; CORPORATION; PIERCING THE VEIL OF CORPORATE ENTITY; EXPLAINED.- Basic in corporation law
s the principle that a corporation has a separated personality distinct from its stockholders and from other
corporations. However, under the doctrine of piercing the veil of corporate entity, the corporations separate juridical

personality may be disregarded, when the corporate identity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime. Also, where the corporation is a mere alter ego or business conduit of a person, or
where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be ignored. In
these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will
directly attach to them. The legal fiction of a separate corporate personality in those cited instances, for reasons of
public policy and in the interest of justice, will be justifiable set aside.
2. ID.; ID.; ID.; RATIONALE.- The rationale behind piercing a corporations identity to remove the barrier between the
corporation and the persons comprising it, to thwart the fraudulent and illegal schemes of those who use the
corporate personality as a shield for undertaking certain proscribed activities.
3. ID.; ID.; ID.; NOT APPLICABLE IN PRESENT CASE.- However, here, instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been reversed. It is the corporation which is being ordered
to answer for the personal liabilities of certain individual directors, officers and incorporators concerned. The
doctrine has been turned upside down because of its erroneous invocation. According to private respondent
Gregorio Manuel his services were solicited as counsel for members of the Francisco family to represent them in the
intestate proceedings over Benita Trinidads estate. These estate proceedings did not involve any business of
petitioner.
4. ID.; ID.; HAS SEPARATE PERSONALITY FROM ITS INCORPORATORS.- The personality of the corporation and those of its
incorporators, directors and officers in their personal capacities ought to be kept separate. The claim for legal fees
against the concerned individual incorporators, officers and directors could not be properly directed against the
corporation without violating basic principles governing corporations. Moreover, every action including a
counterclaim must be prosecuted or defended in the name of the real party-in-interest. It is plainly an error to lay
the claim for legal fees of private respondent Gregorio Manuel at the door of petitioner (FMC) rather than individual
members of the Francisco family.
5. REMEDIAL LAW; CIVIL PROCEDURE; SUMMONS; NOT NECESSARY IN COUNTERCLAIM.- Section 4, Rule 11 of the Rules
of Court provides that a counterclaim or crossclaim must be answered within ten (10) days from service. Nothing in
the Rules of Court says that summons should first be served on the defendant before an answer to counterclaim must
be made. The purpose of a summons is to enable the court to acquire jurisdiction over the person of the defendant.
Although a counterclaim is treated as an entirely distinct and independent action, the defendant in the counterclaim,
being the plaintiff in the original complaint, has already submitted to the jurisdiction of the court.
DECISION
QUISUMBING, J.:
This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision[1] of the Court
of Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135, Regional Trial Court of Makati, Metro
Manila. The procedural antecedents of this petition are as follows:
On January 23, 1985, petitioner filed a complaint[2] against private respondents to recover three thousand four
hundred twelve and six centavos (P3,412.06), representing the balance of the jeep body purchased by the Manuels from
petitioner; an additional sum of twenty thousand four hundred fifty-four and eighty centavos (P20,454.80) representing
the unpaid balance on the cost of repair of the vehicle; and six thousand pesos (P6,000.00) for cost of suit and attorneys
fees.[3] To the original balance on the price of jeep body were added the costs of repair.[4] In their answer, private
respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos
(P50,000) which was not paid by the incorporators, directors and officers of the petitioner. The trial court decided the case
on June 26, 1985, in favor of petitioner in regard to the petitioners claim for money, but also allowed the counter-claim of
private respondents. Both parties appealed. On April 15, 1991, the Court of Appeals sustained the trial courts decision.
[5] Hence, the present petition.

For our review in particular is the propriety of the permissive counterclaim which private respondents filed together
with their answer to petitioners complaint for a sum of money. Private respondent Gregorio Manuel alleged as an
affirmative defense that, while he was petitioners Assistant Legal Officer, he represented members of the Francisco family
in the intestate estate proceedings of the late Benita Trinidad. However, even after the termination of the proceedings, his
services were not paid. Said family members, he said, were also incorporators, directors and officers of petitioner. Hence
to counter petitioners collection suit, he filed a permissive counterclaim for the unpaid attorneys fees.[6]
For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this score, and
evidence ex-parte was presented on the counterclaim. The trial court ruled in favor of private respondents and found that
Gregorio Manuel indeed rendered legal services to the Francisco family in Special Proceedings Number 7803- In the
Matter of Intestate Estate of Benita Trinidad. Said court also found that his legal services were not compensated despite
repeated demands, and thus ordered petitioner to pay him the amount of fifty thousand (P50,000.00) pesos.[7]
Dissatisfied with the trial courts order, petitioner elevated the matter to the Court of Appeals, posing the following
issues:
I.
WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS IT NEVER ACQUIRED
JURISDICTION OVER THE PERSON OF THE DEFENDANT.
II.
WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED PERMISSIVE COUNTERCLAIM SHOULD
BE HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES.
III.
WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE ALLEGED PERMISSIVE
COUNTERCLAIM.[8]
Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly served
on it together with the copy of the answer containing the permissive counterclaim. Further, petitioner questions the
propriety of its being made party to the case because it was not the real party in interest but the individual members of
the Francisco family concerned with the intestate case.
In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim must be
answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it state in the Rules that
a party still needed to be summoned anew if a counterclaim was set up against him. Failure to serve summons, said
respondent court, did not effectively negate trial courts jurisdiction over petitioner in the matter of the counterclaim. It
likewise pointed out that there was no reason for petitioner to be excused from answering the counterclaim. Court
records showed that its former counsel, Nicanor G. Alvarez, received the copy of the answer with counterclaim two (2)
days prior to his withdrawal as counsel for petitioner. Moreover when petitioners new counsel, Jose N. Aquino, entered
his appearance, three (3) days still remained within the period to file an answer to the counterclaim. Having failed to
answer, petitioner was correctly considered in default by the trial court.[9] Even assuming that the trial court acquired no
jurisdiction over petitioner, respondent court also said, but having filed a motion for reconsideration seeking relief from
the said order of default, petitioner was estopped from further questioning the trial courts jurisdiction.[10]
On the question of its liability for attorneys fees owing to private respondent Gregorio Manuel, petitioner argued
that being a corporation, it should not be held liable therefor because these fees were owed by the incorporators, directors
and officers of the corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed that the
personality of the corporation, vis--vis the individual persons who hired the services of private respondent, is separate
and distinct,[11] hence, the liability of said individuals did not become an obligation chargeable against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:

However, this distinct and separate personality is merely a fiction created by law for convenience and to promote
justice. Accordingly, this separate personality of the corporation may be disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak or cover for found (sic) illegality, or to work an injustice, or where necessary to
achieve equity or when necessary for the protection of creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA
347) Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield
for the commission of injustice and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408)
In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed of the heirs of
the late Benita Trinidad as directors and incorporators for whom defendant Gregorio Manuel rendered legal services in the
intestate estate case of their deceased mother. Considering the aforestated principles and circumstances established in this
case, equity and justice demands plaintiff-appellants veil of corporate identity should be pierced and the defendant be
compensated for legal services rendered to the heirs, who are directors of the plaintiff-appellant corporation.[12]
Now before us, petitioner assigns the following errors:
I.
THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY.
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER WITH RESPECT TO THE
COUNTERCLAIM.[13]
Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because
the transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. According to
petitioner, there was no cause of action by said respondent against petitioner; personal concerns of the heirs should be
distinguished from those involving corporate affairs. Petitioner further contends that the present case does not fall among
the instances wherein the courts may look beyond the distinct personality of a corporation. According to petitioner, the
services for which respondent Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence, it
avers the heirs should have been sued in their personal capacity, and not involve the corporation.[14]
With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the answer
containing the permissive counterclaim. It claims that the counterclaim is a separate case which can only be properly
served upon the opposing party through summons. Further petitioner states that by nature, a permissive counterclaim is
one which does not arise out of nor is necessarily connected with the subject of the opposing partys claim. Petitioner
avers that since there was no service of summons upon it with regard to the counterclaim, then the court did not acquire
jurisdiction over petitioner. Since a counterclaim is considered an action independent from the answer, according to
petitioner, then in effect there should be two simultaneous actions between the same parties: each party is at the same
time both plaintiff and defendant with respect to the other,[15] requiring in each case separate summonses.
In their Comment, private respondents focus on the two questions raised by petitioner. They defend the propriety of
piercing the veil of corporate fiction, but deny the necessity of serving separate summonses on petitioner in regard to their
permissive counterclaim contained in the answer.
Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was employed
as assistant legal officer of petitioner corporation, and that his services were solicited by the incorporators, directors and
members to handle and represent them in Special Proceedings No. 7803, concerning the Intestate Estate of the late Benita
Trinidad. They assert that the members of petitioner corporation took advantage of their positions by not compensating
respondent Gregorio Manuel after the termination of the estate proceedings despite his repeated demands for payment of
his services. They cite findings of the appellate court that support piercing the veil of corporate identity in this particular
case. They assert that the corporate veil may be disregarded when it is used to defeat public convenience, justify wrong,
protect fraud, and defend crime. It may also be pierced, according to them, where the corporate entity is being used as an
alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity. In these
instances, they aver, the corporation should be treated merely as an association of individual persons.[16]

Private respondents dispute petitioners claim that its right to due process was violated when respondents
counterclaim was granted due course, although no summons was served upon it. They claim that no provision in the Rules
of Court requires service of summons upon a defendant in a counterclaim. Private respondents argue that when the
petitioner filed its complaint before the trial court it voluntarily submitted itself to the jurisdiction of the court. As a
consequence, the issuance of summons on it was no longer necessary. Private respondents say they served a copy of their
answer with affirmative defenses and counterclaim on petitioners former counsel, Nicanor G. Alvarez. While petitioner
would have the Court believe that respondents served said copy upon Alvarez after he had withdrawn his appearance as
counsel for the petitioner, private respondents assert that this contention is utterly baseless. Records disclose that the
answer was received two (2) days before the former counsel for petitioner withdrew his appearance, according to private
respondents. They maintain that the present petition is but a form of dilatory appeal, to set off petitioners obligations to
the respondents by running up more interest it could recover from them. Private respondents therefore claim damages
against petitioner.[17]
To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate fiction.
Basic in corporation law is the principle that a corporation has a separate personality distinct from its stockholders
and from other corporations to which it may be connected.[18] However, under the doctrine of piercing the veil of
corporate entity, the corporations separate juridical personality may be disregarded, for example, when the corporate
identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation is
a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct
personality may be ignored.[19] In these circumstances, the courts will treat the corporation as a mere aggrupation of
persons and the liability will directly attach to them. The legal fiction of a separate corporate personality in those cited
instances, for reasons of public policy and in the interest of justice, will be justifiably set aside.
In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no
relevant application here. Respondent court erred in permitting the trial courts resort to this doctrine. The rationale
behind piercing a corporations identity in a given case is to remove the barrier between the corporation from the persons
comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for
undertaking certain proscribed activities. However, in the case at bar, instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is
being ordered to answer for the personal liability of certain individual directors, officers and incorporators
concerned. Hence, it appears to us that the doctrine has been turned upside down because of its erroneous
invocation. Note that according to private respondent Gregorio Manuel his services were solicited as counsel for members
of the Francisco family to represent them in the intestate proceedings over Benita Trinidads estate. These estate
proceedings did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitioner
corporation on the claims that its management had requested his services and he acceded thereto as an employee of
petitioner from whom it could be deduced he was also receiving a salary. His move to recover unpaid legal fees through a
counterclaim against Francisco Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep body
could only result from an obvious misapprehension that petitioners corporate assets could be used to answer for the
liabilities of its individual directors, officers, and incorporators. Such result if permitted could easily prejudice the
corporation, its own creditors, and even other stockholders; hence, clearly inequitous to petitioner.
Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors
and officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of a
corporation are unable to compensate a party for a personal obligation, it is far-fetched to allege that the corporation is
perpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its corporate veil. While there
are no hard and fast rules on disregarding separate corporate identity, we must always be mindful of its function and
purpose. A court should be careful in assessing the milieu where the doctrine of piercing the corporate veil may be
applied. Otherwise an injustice, although unintended, may result from its erroneous application.
The personality of the corporation and those of its incorporators, directors and officers in their personal capacities

ought to be kept separate in this case. The claim for legal fees against the concerned individual incorporators, officers and
directors could not be properly directed against the corporation without violating basic principles governing corporations.
Moreover, every action including a counterclaim must be prosecuted or defended in the name of the real party in
interest.[20] It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at the door of
petitioner (FMC) rather than individual members of the Francisco family.
However, with regard to the procedural issue raised by petitioners allegation, that it needed to be summoned anew
in order for the court to acquire jurisdiction over it, we agree with respondent courts view to the contrary. Section 4, Rule
11 of the Rules of Court provides that a counterclaim or cross-claim must be answered within ten (10) days from
service. Nothing in the Rules of Court says that summons should first be served on the defendant before an answer to
counterclaim must be made. The purpose of a summons is to enable the court to acquire jurisdiction over the person of
the defendant. Although a counterclaim is treated as an entirely distinct and independent action, the defendant in the
counterclaim, being the plaintiff in the original complaint, has already submitted to the jurisdiction of the court. Following
Rule 9, Section 3 of the 1997 Rules of Civil Procedure,[21] if a defendant (herein petitioner) fails to answer the
counterclaim, then upon motion of plaintiff, the defendant may be declared in default. This is what happened to
petitioner in this case, and this Court finds no procedural error in the disposition of the appellate court on this particular
issue. Moreover, as noted by the respondent court, when petitioner filed its motion seeking to set aside the order of
default, in effect it submitted itself to the jurisdiction of the court. As well said by respondent court:
Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its request, plaintiffappellant was granted time to file a motion for reconsideration of the disputed decision. Plaintiff-appellant did file its
motion for reconsideration to set aside the order of default and the judgment rendered on the counterclaim.
Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it vigorously insists,
plaintiff-appellant is considered to have submitted to the courts jurisdiction when it filed the motion for reconsideration
seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A party is estopped from assailing the jurisdiction of a
court after voluntarily submitting himself to its jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Estoppel is a bar against
any claims of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37).[22]
WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar only as it held
Francisco Motors Corporation liable for the legal obligation owing to private respondent Gregorio Manuel; but this decision
is without prejudice to his filing the proper suit against the concerned members of the Francisco family in their personal
capacity. No pronouncement as to costs.
SO ORDERED.
[G.R. Nos. 116124-25. November 22, 2000]
BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION,respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the consolidated decision of the Court of Appeals dated July 7, 1994, which
reversed the separate decisions of the Regional Trial Court of Pasig City and the Regional Trial Court of Quezon City in two
cases between petitioner Reynoso and respondent General Credit Corporation (GCC).
Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, CCC), a financing and investment
firm, decided to organize franchise companies in different parts of the country, wherein it shall hold thirty percent (30%)
equity. Employees of the CCC were designated as resident managers of the franchise companies. Petitioner Bibiano O.
Reynoso, IV was designated as the resident manager of the franchise company in Quezon City, known as the Commercial
Credit Corporation of Quezon City (hereinafter, CCC-QC).

CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted the management
and full control of the business activities of the former. Under the contract, CCC-QC shall sell, discount and/or assign its
receivables to CCC. Subsequently, however, this discounting arrangement was discontinued pursuant to the so-called
DOSRI Rule, prohibiting the lending of funds by corporations to its directors, officers, stockholders and other persons
with related interests therein.
On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule, CCC decided to
form CCC Equity Corporation, (hereinafter, CCC-Equity), a wholly-owned subsidiary, to which CCC transferred its thirty
(30%) percent equity in CCC-QC, together with two seats in the latters Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner Reynoso, became
employees of CCC-Equity. While petitioner continued to be the Resident Manager of CCC-QC, he drew his salaries and
allowances from CCC-Equity. Furthermore, although an employee of CCC-Equity, petitioner, as well as all employees of
CCC-QC, became qualified members of the Commercial Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised its employees. The
business activities of CCC-QC pertain to the acceptance of funds from depositors who are issued interest-bearing
promissory notes. The amounts deposited are then loaned out to various borrowers. Petitioner, in order to boost the
business activities of CCC-QC, deposited his personal funds in the company. In return, CCC-QC issued to him its interestbearing promissory notes.
On August 15, 1980, a complaint for sum of money with preliminary attachment,[1] docketed as Civil Case No. Q30583, was instituted in the then Court of First Instance of Rizal by CCC-QC against petitioner, who had in the meantime
been dismissed from his employment by CCC-Equity. The complaint was subsequently amended in order to include
Hidelita Nuval, petitioners wife, as a party defendant.[2] The complaint alleged that petitioner embezzled the funds of
CCC-QC amounting to P1,300,593.11. Out of this amount, at least P630,000.00 was used for the purchase of a house and
lot located at No. 12 Macopa Street, Valle Verde I, Pasig City. The property was mortgaged to CCC, and was later
foreclosed.
In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and asserted that the sum of
P1,300,593.11 represented his money placements in CCC-QC, as shown by twenty-three (23) checks which he issued to the
said company.[3]
The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86, pursuant to the Judiciary
Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its decision, the decretal portion of which states:
Premises considered, the Court finds the complaint without merit. Accordingly, said complaint is hereby DISMISSED.
By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation, humiliation and mental anguish.
On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby ordered:
a)

to pay defendant the sum of P185,000.00 plus 14% interest per annum from October 2, 1980 until fully paid;

b)
to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per annum from June 24, 1981, the date of
filing of Amended Answer, until fully paid; from this amount may be deducted the remaining obligation of defendant under
the promissory note of October 24, 1977, in the sum of P9,738.00 plus penalty at the rate of 1% per month from
December 24, 1977 until fully paid;
c)

to pay defendants P200,000.00 as moral damages;

d)

to pay defendants P100,000.00 as exemplary damages;

e)

to pay defendants P25,000.00 as and for attorney's fees; plus costs of the suit.

SO ORDERED.

Both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial Credit Corporation of
Quezon City was dismissed for failure to pay docket fees. Petitioner, on the other hand, withdrew his appeal.
Hence, the decision became final and, accordingly, a Writ of Execution was issued on July 24, 1989. [4] However, the
judgment remained unsatisfied,[5] prompting petitioner to file a Motion for Alias Writ of Execution, Examination of
Judgment Debtor, and to Bring Financial Records for Examination to Court. CCC-QC filed an Opposition to petitioners
motion,[6] alleging that the possession of its premises and records had been taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
On November 22, 1991, the Regional Trial Court of Quezon City issued an Order directing General Credit Corporation
to file its comment on petitioners motion for alias writ of execution.[7] General Credit Corporation filed a Special
Appearance and Opposition on December 2, 1991,[8] alleging that it was not a party to the case, and therefore petitioner
should direct his claim against CCC-QC and not General Credit Corporation. Petitioner filed his reply,[9] stating that the
CCC-QC is an adjunct instrumentality, conduit and agency of CCC. Furthermore, petitioner invoked the decision of the
Securities and Exchange Commission in SEC Case No. 2581, entitled, Avelina G. Ramoso, et al., Petitioner versus General
Credit Corp., et al., Respondents, where it was declared that General Credit Corporation, CCC-Equity and other franchised
companies including CCC-QC were declared as one corporation.
On December 9, 1991, the Regional Trial Court of Quezon City ordered the issuance of an alias writ of execution.
[10] On December 20, 1991, General Credit Corporation filed an Omnibus Motion,[11] alleging that SEC Case No. 2581 was
still pending appeal, and maintaining that the levy on properties of the General Credit Corporation by the deputy sheriff of
the court was erroneous.
In his Opposition to the Omnibus Motion, petitioner insisted that General Credit Corporation is just the new name of
Commercial Credit Corporation; hence, General Credit Corporation and Commercial Credit Corporation should be treated
as one and the same entity.
On February 13, 1992, the Regional Trial Court of Quezon City denied the Omnibus Motion.[12] On March 5, 1992, it
issued an Order directing the issuance of an alias writ of execution.[13]
Previously, on February 21, 1992, General Credit Corporation instituted a complaint before the Regional Trial Court of
Pasig against Bibiano Reynoso IV and Edgardo C. Tanangco, in his capacity as Deputy Sheriff of Quezon City,[14] docketed as
Civil Case No. 61777, praying that the levy on its parcel of land located in Pasig, Metro Manila and covered by Transfer
Certificate of Title No. 29940 be declared null and void, and that defendant sheriff be enjoined from consolidating
ownership over the land and from further levying on other properties of General Credit Corporation to answer for any
liability under the decision in Civil Case No. Q-30583.
The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining order. Thus, General Credit
Corporation instituted two (2) petitions for certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 27518 [15] and
CA-G.R. SP No. 27683. These cases were later consolidated.
On July 7, 1994, the Court of Appeals rendered a decision in the two consolidated cases, the dispositive portion of
which reads:
WHEREFORE, in SP No. 27518 we declare the issue of the respondent court's refusal to issue a restraining order as having
been rendered moot by our Resolution of 7 April 1992 which, by way of injunctive relief, provided that "the respondents
and their representatives are hereby enjoined from conducting an auction sale (on execution) of petitioner's properties as
well as initiating similar acts of levying (upon) and selling on execution other properties of said petitioner". The injunction
thus granted, as modified by the words in parenthesis, shall remain in force until Civil Case No. 61777 shall have been
finally terminated.
In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY and SET ASIDE, for having been issued in
excess of jurisdiction, the Order of 13 February 1992 in Civil Case No. Q-30583 as well as any other order or process

through which the petitioner is made liable under the judgment in said Civil Case No. Q-30583.
No damages and no costs.
SO ORDERED.[16]
[G.R. No. 112661. May 30, 2001]
SIMEON DE LEON et al VS NATIONAL LABOR RELATIONS COMMISSION (NLRC), and FORTUNE TOBACCO CORPORATION
and/or MAGNUM INTEGRATED SERVICES, INC. (formerly FORTUNE INTEGRATED SERVICES, INC.)
DECISION
PUNO, J.:
This case stemmed from a complaint for illegal dismissal, unfair labor practice and refund of cash bond filed by
petitioners against respondents before the Arbitration Branch of the National Labor Relations Commission (NLRC). The
petition at bar seeks the annulment of the resolution of the NLRC dated July 5, 1993 reversing the decision of the Labor
Arbiter finding respondents liable for the charges, and its resolution dated August 10, 1993 denying petitioners' motion for
reconsideration.
The undisputed facts are as follows:
On August 23, 1980, Fortune Tobacco Corporation (FTC) and Fortune Integrated Services, Inc. (FISI) entered into a
contract for security services where the latter undertook to provide security guards for the protection and security of the
former. The petitioners were among those engaged as security guards pursuant to the contract.
On February 1, 1991, the incorporators and stockholders of FISI sold out lock, stock and barrel to a group of new
stockholders by executing for the purpose a "Deed of Sale of Shares of Stock". On the same date, the Articles of
Incorporation of FISI was amended changing its corporate name to Magnum Integrated Services, Inc. (MISI). A new bylaws was likewise adopted and approved by the Securities and Exchange Commission on June 4, 1993.
On October 15, 1991, FTC terminated the contract for security services which resulted in the displacement of some
five hundred eighty two (582) security guards assigned by FISI/MISI to FTC, including the petitioners in this case. FTC
engaged the services of two (2) other security agencies, Asian Security Agency and Ligalig Security Services, whose security
guards were posted on October 15, 1991 to replace FISI's security guards.
Sometime in October 1991, the Fortune Tobacco Labor Union, an affiliate of the National Federation of Labor Unions
(NAFLU), and claiming to be the bargaining agent of the security guards, sent a Notice of Strike to FISI/MISI. On November
14, 1991, the members of the union which include petitioners picketed the premises of FTC. The Regional Trial Court of
Pasig, however, issued a writ of injunction to enjoin the picket.
On November 29, 1991, Simeon de Leon, together with sixteen (16) other complainants instituted the instant case
before the Arbitration Branch of the NLRC. The complaint was later amended to allow the inclusion of other complainants.
The parties submitted the following issues for resolution:
(1) Whether petitioners were illegally dismissed;
(2) Whether respondents are guilty of unfair labor practice; and
(3) Whether petitioners are entitled to the refund of their cash bond deposited with respondent FISI.

Petitioners alleged that they were regular employees of FTC which was also using the corporate names Fortune
Integrated Services, Inc. and Magnum Integrated Services, Inc. They were assigned to work as security guards at the
company's main factory plant, its tobacco redrying plant and warehouse. They averred that they performed their duties
under the control and supervision of FTC's security supervisors. Their services, however, were severed in October 1991
without valid cause and without due process. Petitioners claimed that their dismissal was part of respondents' design to
bust their newly-organized union which sought to enforce their rights under the Labor Standards law.[1]
Respondent FTC, on the other hand, maintained that there was no employer-employee relationship between FTC and
petitioners. It said that at the time of the termination of their services, petitioners were the employees of MISI which was
a separate and distinct corporation from FTC. Hence, petitioners had no cause of action against FTC.[2]
Respondent FISI, meanwhile, denied the charge of illegal dismissal and unfair labor practice. It argued that
petitioners were not dismissed from service but were merely placed on floating status pending re-assignment to other
posts. It alleged that the temporary displacement of petitioners was not due to its fault but was the result of the
pretermination by FTC of the contract for security services.[3]
The Labor Arbiter found respondents liable for the charges. Rejecting FTC's argument that there was no employeremployee relationship between FTC and petitioners, he ruled that FISI and FTC should be considered as a single
employer. He observed that the two corporations have common stockholders and they share the same business
address. In addition, FISI had no client other than FTC and other corporations belonging to the group of companies owned
by Lucio Tan. The Labor Arbiter thus found respondents guilty of union busting and illegal dismissal. He observed that not
long after the stockholders of FISI sold all their stocks to a new set of stockholders, FTC terminated the contract of security
services and engaged the services of two other security agencies. FTC did not give any reason for the termination of the
contract. The Labor Arbiter gave credence to petitioners' theory that respondents' precipitate termination of their
employment was intended to bust their union. Consequently, the Labor Arbiter ordered respondents to pay petitioners
their backwages and separation pay, to refund their cash bond deposit, and to pay attorney's fees.[4]
On appeal, the NLRC reversed and set aside the decision of the Labor Arbiter. First, it held that the Labor Arbiter
erred in applying the "single employer" principle and concluding that there was an employer-employee relationship
between FTC and FISI on one hand, and petitioners on the other hand. It found that at the time of the termination of the
contract of security services on October 15, 1991, FISI which, at that time, had been renamed Magnum Integrated
Services, Inc. had a different set of stockholders and officers from that of FTC. They also had separate offices. The NLRC
held that the principle of "single employer" and the doctrine of piercing the corporate veil could not apply under the
circumstances. It further ruled that the proximate cause for the displacement of petitioners was the termination of the
contract for security services by FTC on October 15, 1991. FISI could not be faulted for the severance of petitioners'
assignment at the premises of FTC. Consequently, the NLRC held that the charge of illegal dismissal had no basis. As
regards the charge of unfair labor practice, the NLRC found that petitioners who had the burden of proof failed to adduce
any evidence to support their charge of unfair labor practice against respondents. Hence, it ordered the dismissal of
petitioners' complaint.[5]
The petitioners filed a motion for reconsideration of the resolution of the NLRC but the same was denied.[6] Hence,
this petition.
We gave due course to the petition on May 15, 1995. Thus, the ruling in St. Martin Funeral Home vs.
NLRC[7] remanding all petitions for certiorari from the decision of the NLRC to the Court of Appeals does not apply to the
case at bar.
The petition is impressed with merit.
An examination of the facts of this case reveals that there is sufficient ground to conclude that respondents were
guilty of interfering with the right of petitioners to self-organization which constitutes unfair labor practice under Article
248 of the Labor Code.[8] Petitioners have been employed with FISI since the 1980s and have since been posted at the
premises of FTC -- its main factory plant, its tobacco redrying plant and warehouse. It appears from the records that FISI,
while having its own corporate identity, was a mere instrumentality of FTC, tasked to provide protection and security in the

company premises. The records show that the two corporations had identical stockholders and the same business
address. FISI also had no other clients except FTC and other companies belonging to the Lucio Tan group of
companies. Moreover, the early payslips of petitioners show that their salaries were initially paid by FTC.[9] To enforce
their rightful benefits under the laws on Labor Standards, petitioners formed a union which was later certified as
bargaining agent of all the security guards. On February 1, 1991, the stockholders of FISI sold all their participations in the
corporation to a new set of stockholders which renamed the corporation Magnum Integrated Services, Inc. On October
15, 1991, FTC, without any reason, preterminated its contract of security services with MISI and contracted two other
agencies to provide security services for its premises. This resulted in the displacement of petitioners. As MISI had no
other clients, it failed to give new assignments to petitioners. Petitioners have remained unemployed since then. All these
facts indicate a concerted effort on the part of respondents to remove petitioners from the company and thus abate the
growth of the union and block its actions to enforce their demands in accordance with the Labor Standards laws. The
Court held in Insular Life Assurance Co., Ltd., Employees Association-NATU vs. Insular Life Assurance Co., Ltd.:[10]
The test of whether an employer has interfered with and coerced employees within the meaning of section (a) (1) is
whether the employer has engaged in conduct which it may reasonably be said tends to interfere with the free exercise of
employees' rights under section 3 of the Act, and it is not necessary that there be direct evidence that any employee was
in fact intimidated or coerced by statements of threats of the employer if there is a reasonable inference that anti-union
conduct of the employer does have an adverse effect on self-organization and collective bargaining.[11]
We are not persuaded by the argument of respondent FTC denying the presence of an employer-employee
relationship. We find that the Labor Arbiter correctly applied the doctrine of piercing the corporate veil to hold all
respondents liable for unfair labor practice and illegal termination of petitioners' employment. It is a fundamental
principle in corporation law that a corporation is an entity separate and distinct from its stockholders and from other
corporations to which it is connected. However, when the concept of separate legal entity is used to defeat public
convenience, justify wrong, protect fraud or defend crime, the law will regard the corporation as an association of persons,
or in case of two corporations, merge them into one. The separate juridical personality of a corporation may also be
disregarded when such corporation is a mere alter ego or business conduit of another person.[12]In the case at bar, it was
shown that FISI was a mere adjunct of FTC. FISI, by virtue of a contract for security services, provided FTC with security
guards to safeguard its premises. However, records show that FISI and FTC have the same owners and business address,
and FISI provided security services only to FTC and other companies belonging to the Lucio Tan group of companies. The
purported sale of the shares of the former stockholders to a new set of stockholders who changed the name of the
corporation to Magnum Integrated Services, Inc. appears to be part of a scheme to terminate the services of FISI's security
guards posted at the premises of FTC and bust their newly-organized union which was then beginning to become active in
demanding the company's compliance with Labor Standards laws. Under these circumstances, the Court cannot allow FTC
to use its separate corporate personality to shield itself from liability for illegal acts committed against its employees.
Thus, we find that the termination of petitioners' services was without basis and therefore illegal. Under Article 279
of the Labor Code, an employee who is unjustly dismissed from work is entitled to reinstatement without loss of seniority
rights and other privileges, and to his full backwages, inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was witheld from him up to the time of his actual
reinstatement. However, if reinstatement is no longer possible, the employer has the alternative of paying the employee
his separation pay in lieu of reinstatement.[13]
IN VIEW WHEREOF, the petition is GRANTED. The assailed resolutions of the NLRC are SET ASIDE. Respondents are
hereby ordered to pay petitioners their full backwages, and to reinstate them to their former position without loss of
seniority rights and privileges, or to award them separation pay in case reinstatement is no longer feasible.
SO ORDERED.
[G.R. No. 142936. April 17, 2002]
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION, petitioners, vs. ANDRADA ELECTRIC &
ENGINEERING COMPANY, respondent.

DECISION
PANGANIBAN, J.:
Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities owning
it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong, defeat public
convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB)
acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been
foreclosed and purchased at the resulting public auction by the Development Bank of the Philippines (DBP), will not make
PNB liable for the PASUMILs contractual debts to respondent.

Statement of the Case

Before us is a Petition for Review assailing the April 17, 2000 Decision[1] of the Court of Appeals (CA) in CA-GR CV No.
57610. The decretal portion of the challenged Decision reads as follows:
WHEREFORE, the judgment appealed from is hereby AFFIRMED.[2]

The Facts

The factual antecedents of the case are summarized by the Court of Appeals as follows:
In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly organized, existing, and operating
under the laws of the Philippines, with office and principal place of business at Nos. 794-812 Del Monte [A]venue, Quezon
City, while the defendant [herein petitioner] Philippine National Bank (herein referred to as PNB), is a semi-government
corporation duly organized, existing and operating under the laws of the Philippines, with office and principal place of
business at Escolta Street, Sta. Cruz, Manila; whereas, the other defendant, the National Sugar Development Corporation
(NASUDECO in brief), is also a semi-government corporation and the sugar arm of the PNB, with office and principal place
of business at the 2nd Floor, Sampaguita Building, Cubao, Quezon City; and the defendant Pampanga Sugar Mills (PASUMIL
in short), is a corporation organized, existing and operating under the 1975 laws of the Philippines, and had its business
office before 1975 at Del Carmen, Floridablanca, Pampanga; that the plaintiff is engaged in the business of general
construction for the repairs and/or construction of different kinds of machineries and buildings; that on August 26, 1975,
the defendant PNB acquired the assets of the defendant PASUMIL that were earlier foreclosed by the Development Bank
of the Philippines (DBP) under LOI No. 311; that the defendant PNB organized the defendant NASUDECO in September,
1975, to take ownership and possession of the assets and ultimately to nationalize and consolidate its interest in other PNB
controlled sugar mills; that prior to October 29, 1971, the defendant PASUMIL engaged the services of plaintiff for
electrical rewinding and repair, most of which were partially paid by the defendant PASUMIL, leaving several unpaid
accounts with the plaintiff; that finally, on October 29, 1971, the plaintiff and the defendant PASUMIL entered into a
contract for the plaintiff to perform the following, to wit
(a)

Construction of one (1) power house building;

(b)
Construction of three (3) reinforced concrete foundation for three (3) units 350 KW diesel engine generating
set[s];
(c)

Construction of three (3) reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets;

(d)

Complete overhauling and reconditioning tests sum for three (3) 350 KW diesel engine generating set[s];

(e)
Installation of turbine and diesel generating sets including transformer, switchboard, electrical wirings and pipe
provided those stated units are completely supplied with their accessories;

(f)
Relocating of 2,400 V transmission line, demolition of all existing concrete foundation and drainage canals,
excavation, and earth fillings all for the total amount of P543,500.00 as evidenced by a contract, [a] xerox copy of which
is hereto attached as Annex A and made an integral part of this complaint;
that aside from the work contract mentioned-above, the defendant PASUMIL required the plaintiff to perform extra work,
and provide electrical equipment and spare parts, such as:
(a)

Supply of electrical devices;

(b)

Extra mechanical works;

(c)

Extra fabrication works;

(d)

Supply of materials and consumable items;

(e)

Electrical shop repair;

(f)

Supply of parts and related works for turbine generator;

(g)

Supply of electrical equipment for machinery;

(h)

Supply of diesel engine parts and other related works including fabrication of parts.

that out of the total obligation of P777,263.80, the defendant PASUMIL had paid only P250,000.00, leaving an unpaid
balance, as of June 27, 1973, amounting to P527,263.80, as shown in the Certification of the chief accountant of the PNB, a
machine copy of which is appended as Annex C of the complaint; that out of said unpaid balance of P527,263.80, the
defendant PASUMIL made a partial payment to the plaintiff of P14,000.00, in broken amounts, covering the period from
January 5, 1974 up to May 23, 1974, leaving an unpaid balance of P513,263.80; that the defendant PASUMIL and the
defendant PNB, and now the defendant NASUDECO, failed and refused to pay the plaintiff their just, valid and demandable
obligation; that the President of the NASUDECO is also the Vice-President of the PNB, and this official holds office at the
10th Floor of the PNB, Escolta, Manila, and plaintiff besought this official to pay the outstanding obligation of the
defendant PASUMIL, inasmuch as the defendant PNB and NASUDECO now owned and possessed the assets of the
defendant PASUMIL, and these defendants all benefited from the works, and the electrical, as well as the engineering and
repairs, performed by the plaintiff; that because of the failure and refusal of the defendants to pay their just, valid, and
demandable obligations, plaintiff suffered actual damages in the total amount of P513,263.80; and that in order to recover
these sums, the plaintiff was compelled to engage the professional services of counsel, to whom the plaintiff agreed to pay
a sum equivalent to 25% of the amount of the obligation due by way of attorneys fees. Accordingly, the plaintiff prayed
that judgment be rendered against the defendants PNB, NASUDECO, and PASUMIL, jointly and severally to wit:
(1)
Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with annual interest of 14% from the time
the obligation falls due and demandable;
(2)

Condemning the defendants to pay attorneys fees amounting to 25% of the amount claim;

(3)

Ordering the defendants to pay the costs of the suit.

The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint chiefly on the ground that the
complaint failed to state sufficient allegations to establish a cause of action against both defendants, inasmuch as there is
lack or want of privity of contract between the plaintiff and the two defendants, the PNB and NASUDECO, said defendants
citing Article 1311 of the New Civil Code, and the case law ruling in Salonga v. Warner Barnes & Co., 88 Phil. 125; and
Manila Port Service, et al. v. Court of Appeals, et al., 20 SCRA 1214.
The motion to dismiss was by the court a quo denied in its Order of November 27, 1980; in the same order, that court
directed the defendants to file their answer to the complaint within 15 days.
In their answer, the defendant NASUDECO reiterated the grounds of its motion to dismiss, to wit:
That the complaint does not state a sufficient cause of action against the defendant NASUDECO because: (a) NASUDECO is
not x x x privy to the various electrical construction jobs being sued upon by the plaintiff under the present complaint; (b)
the taking over by NASUDECO of the assets of defendant PASUMIL was solely for the purpose of reconditioning the sugar
central of defendant PASUMIL pursuant to martial law powers of the President under the Constitution; (c) nothing in the
LOI No. 189-A (as well as in LOI No. 311) authorized or commanded the PNB or its subsidiary corporation, the NASUDECO,
to assume the corporate obligations of PASUMIL as that being involved in the present case; and, (d) all that was mentioned
by the said letter of instruction insofar as the PASUMIL liabilities [were] concerned [was] for the PNB, or its subsidiary

corporation the NASUDECO, to make a study of, and submit [a] recommendation on the problems concerning the same.
By way of counterclaim, the NASUDECO averred that by reason of the filing by the plaintiff of the present suit, which it
[labeled] as unfounded or baseless, the defendant NASUDECO was constrained to litigate and incur litigation expenses in
the amount of P50,000.00, which plaintiff should be sentenced to pay. Accordingly, NASUDECO prayed that the complaint
be dismissed and on its counterclaim, that the plaintiff be condemned to payP50,000.00 in concept of attorneys fees as
well as exemplary damages.
In its answer, the defendant PNB likewise reiterated the grounds of its motion to dismiss, namely: (1) the complaint states
no cause of action against the defendant PNB; (2) that PNB is not a party to the contract alleged in par. 6 of the complaint
and that the alleged services rendered by the plaintiff to the defendant PASUMIL upon which plaintiffs suit is erected, was
rendered long before PNB took possession of the assets of the defendant PASUMIL under LOI No. 189-A; (3) that the PNB
take-over of the assets of the defendant PASUMIL under LOI 189-A was solely for the purpose of reconditioning the sugar
central so that PASUMIL may resume its operations in time for the 1974-75 milling season, and that nothing in the said LOI
No. 189-A, as well as in LOI No. 311, authorized or directed PNB to assume the corporate obligation/s of PASUMIL, let
alone that for which the present action is brought; (4) that PNBs management and operation under LOI No. 311 did not
refer to any asset of PASUMIL which the PNB had to acquire and thereafter [manage], but only to those which were
foreclosed by the DBP and were in turn redeemed by the PNB from the DBP; (5) that conformably to LOI No. 311, on
August 15, 1975, the PNB and the Development Bank of the Philippines (DBP) entered into a Redemption Agreement
whereby DBP sold, transferred and conveyed in favor of the PNB, by way of redemption, all its (DBP) rights and interest in
and over the foreclosed real and/or personal properties of PASUMIL, as shown in Annex C which is made an integral part
of the answer; (6) that again, conformably with LOI No. 311, PNB pursuant to a Deed of Assignment dated October 21,
1975, conveyed, transferred, and assigned for valuable consideration, in favor of NASUDECO, a distinct and independent
corporation, all its (PNB) rights and interest in and under the above Redemption Agreement. This is shown in Annex D
which is also made an integral part of the answer; [7] that as a consequence of the said Deed of Assignment, PNB on
October 21, 1975 ceased to managed and operate the above-mentioned assets of PASUMIL, which function was now
actually transferred to NASUDECO. In other words, so asserted PNB, the complaint as to PNB, had become moot and
academic because of the execution of the said Deed of Assignment; [8] that moreover, LOI No. 311 did not authorize or
direct PNB to assume the corporate obligations of PASUMIL, including the alleged obligation upon which this present suit
was brought; and [9] that, at most, what was granted to PNB in this respect was the authority to make a study of and
submit recommendation on the problems concerning the claims of PASUMIL creditors, under sub-par. 5 LOI No. 311.
In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate and to incur expenses in this case,
hence it is entitled to claim attorneys fees in the amount of at least P50,000.00. Accordingly, PNB prayed that the
complaint be dismissed; and that on its counterclaim, that the plaintiff be sentenced to pay defendant PNB the sum
of P50,000.00 as attorneys fees, aside from exemplary damages in such amount that the court may seem just and
equitable in the premises.
Summons by publication was made via the Philippines Daily Express, a newspaper with editorial office at 371 Bonifacio
Drive, Port Area, Manila, against the defendant PASUMIL, which was thereafter declared in default as shown in the August
7, 1981 Order issued by the Trial Court.
After due proceedings, the Trial Court rendered judgment, the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant Corporation, Philippine National
Bank (PNB) NATIONAL SUGAR DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA SUGAR MILLS (PASUMIL),
ordering the latter to pay jointly and severally the former the following:
1. The sum of P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from September 25, 1980 until
fully paid;
2. The sum of P102,724.76 as attorneys fees; and,
3. Costs.
SO ORDERED.
Manila, Philippines, September 4, 1986.
'(SGD) ERNESTO S. TENGCO
Judge[3]

Ruling of the Court of Appeals

Affirming the trial court, the CA held that it was offensive to the basic tenets of justice and equity for a corporation to
take over and operate the business of another corporation, while disavowing or repudiating any responsibility, obligation
or liability arising therefrom.[4]
Hence, this Petition.[5]

Issues

In their Memorandum, petitioners raise the following errors for the Courts consideration:
I
The Court of Appeals gravely erred in law in holding the herein petitioners liable for the unpaid corporate debts of
PASUMIL, a corporation whose corporate existence has not been legally extinguished or terminated, simply because of
petitioners[] take-over of the management and operation of PASUMIL pursuant to the mandates of LOI No. 189-A, as
amended by LOI No. 311.
II
The Court of Appeals gravely erred in law in not applying [to] the case at bench the ruling enunciated in Edward J. Nell Co.
v. Pacific Farms, 15 SCRA 415.[6]
Succinctly put, the aforesaid errors boil down to the principal issue of whether PNB is liable for the unpaid debts of
PASUMIL to respondent.

This Courts Ruling

The Petition is meritorious.

Main Issue:
Liability for Corporate Debts

As a general rule, questions of fact may not be raised in a petition for review under Rule 45 of the Rules of Court.
[7] To this rule, however, there are some exceptions enumerated in Fuentes v. Court of Appeals.[8] After a careful scrutiny
of the records and the pleadings submitted by the parties, we find that the lower courts misappreciated the evidence
presented.[9] Overlooked by the CA were certain relevant facts that would justify a conclusion different from that reached
in the assailed Decision.[10]
Petitioners posit that they should not be held liable for the corporate debts of PASUMIL, because their takeover of
the latters foreclosed assets did not make them assignees. On the other hand, respondent asserts that petitioners and
PASUMIL should be treated as one entity and, as such, jointly and severally held liable for PASUMILs unpaid obligation.

As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation,
provided the former acted in good faith and paid adequate consideration for such assets, except when any of the following
circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the
transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a
continuation of the selling corporation, and (4) where the transaction is fraudulently entered into in order to escape
liability for those debts.[11]

Piercing the Corporate


Veil Not Warranted

A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers,
attributes, and properties expressly authorized by law or incident to its existence.[12] It has a personality separate and
distinct from the persons composing it, as well as from any other legal entity to which it may be related.[13] This is basic.
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the
corporation is just an alter ego of a person or of another corporation.[14] For reasons of public policy and in the interest of
justice, the corporate veil will justifiably be impaled[15] only when it becomes a shield for fraud, illegality or inequity
committed against third persons.[16]
Hence, any application of the doctrine of piercing the corporate veil should be done with caution.[17] A court should
be mindful of the milieu where it is to be applied.[18] It must be certain that the corporate fiction was misused to such an
extent that injustice, fraud, or crime was committed against another, in disregard of its rights. [19] The wrongdoing must be
clearly and convincingly established; it cannot be presumed.[20] Otherwise, an injustice that was never unintended may
result from an erroneous application.[21]
This Court has pierced the corporate veil to ward off a judgment credit,[22] to avoid inclusion of corporate assets as
part of the estate of the decedent,[23] to escape liability arising from a debt,[24] or to perpetuate fraud and/or confuse
legitimate issues[25] either to promote or to shield unfair objectives[26] or to cover up an otherwise blatant violation of
the prohibition against forum-shopping.[27] Only in these and similar instances may the veil be pierced and disregarded.
[28]
The question of whether a corporation is a mere alter ego is one of fact.[29] Piercing the veil of corporate fiction may
be allowed only if the following elements concur: (1) control -- not mere stock control, but complete domination -- not
only of finances, but of policy and business practice in respect to the transaction attacked, must have been such that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must
have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive
legal duty, or a dishonest and an unjust act in contravention of plaintiffs legal right; and (3) the said control and breach of
duty must have proximately caused the injury or unjust loss complained of.[30]
We believe that the absence of the foregoing elements in the present case precludes the piercing of the corporate
veil. First, other than the fact that petitioners acquired the assets of PASUMIL, there is no showing that their control over
it warrants the disregard of corporate personalities.[31] Second, there is no evidence that their juridical personality was
used to commit a fraud or to do a wrong; or that the separate corporate entity was farcically used as a mere alter ego,
business conduit or instrumentality of another entity or person.[32] Third, respondent was not defrauded or injured when
petitioners acquired the assets of PASUMIL.[33]
Being the party that asked for the piercing of the corporate veil, respondent had the burden of presenting clear and
convincing evidence to justify the setting aside of the separate corporate personality rule.[34] However, it utterly failed to
discharge this burden;[35] it failed to establish by competent evidence that petitioners separate corporate veil had been
used to conceal fraud, illegality or inequity.[36]

While we agree with respondents claim that the assets of the National Sugar Development Corporation (NASUDECO)
can be easily traced to PASUMIL,[37] we are not convinced that the transfer of the latters assets to petitioners was
fraudulently entered into in order to escape liability for its debt to respondent.[38]
A careful review of the records reveals that DBP foreclosed the mortgage executed by PASUMIL and acquired the
assets as the highest bidder at the public auction conducted.[39] The bank was justified in foreclosing the mortgage,
because the PASUMIL account had incurred arrearages of more than 20 percent of the total outstanding obligation.
[40] Thus, DBP had not only a right, but also a duty under the law to foreclose the subject properties.[41]
Pursuant to LOI No. 189-A[42] as amended by LOI No. 311,[43] PNB acquired PASUMILs assets that DBP had
foreclosed and purchased in the normal course. Petitioner bank was likewise tasked to manage temporarily the operation
of such assets either by itself or through a subsidiary corporation.[44]
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets pursuant to Section 6 of Act No.
3135.[45] These assets were later conveyed to PNB for a consideration, the terms of which were embodied in the
Redemption Agreement.[46] PNB, as successor-in-interest, stepped into the shoes of DBP as PASUMILs creditor.[47] By
way of a Deed of Assignment,[48] PNB then transferred to NASUDECO all its rights under the Redemption Agreement.
In Development Bank of the Philippines v. Court of Appeals,[49] we had the occasion to resolve a similar issue. We
ruled that PNB, DBP and their transferees were not liable for Marinduque Minings unpaid obligations to Remington
Industrial Sales Corporation (Remington) after the two banks had foreclosed the assets of Marinduque Mining. We
likewise held that Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining to justify
the piercing of the corporate veil.
In the instant case, the CA erred in affirming the trial courts lifting of the corporate mask. [50] The CA did not point to
any fact evidencing bad faith on the part of PNB and its transferee.[51] The corporate fiction was not used to defeat public
convenience, justify a wrong, protect fraud or defend crime.[52] None of the foregoing exceptions was shown to exist in
the present case.[53] On the contrary, the lifting of the corporate veil would result in manifest injustice. This we cannot
allow.

No Merger or Consolidation

Respondent further claims that petitioners should be held liable for the unpaid obligations of PASUMIL by virtue of
LOI Nos. 189-A and 311, which expressly authorized PASUMIL and PNB to merge or consolidate. On the other hand,
petitioners contend that their takeover of the operations of PASUMIL did not involve any corporate merger or
consolidation, because the latter had never lost its separate identity as a corporation.
A consolidation is the union of two or more existing entities to form a new entity called the consolidated
corporation. A merger, on the other hand, is a union whereby one or more existing corporations are absorbed by another
corporation that survives and continues the combined business.[54]
The merger, however, does not become effective upon the mere agreement of the constituent corporations.
[55] Since a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of
stockholders and creditors, there must be an express provision of law authorizing them.[56] For a valid merger or
consolidation, the approval by the Securities and Exchange Commission (SEC) of the articles of merger or consolidation is
required.[57] These articles must likewise be duly approved by a majority of the respective stockholders of the constituent
corporations.[58]
In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and PNB. The procedure
prescribed under Title IX of the Corporation Code[59] was not followed.

In fact, PASUMILs corporate existence, as correctly found by the CA, had not been legally extinguished or terminated.
[60] Further, prior to PNBs acquisition of the foreclosed assets, PASUMIL had previously made partial payments to
respondent for the formers obligation in the amount of P777,263.80. As of June 27, 1973, PASUMIL had paid P250,000 to
respondent and, from January 5, 1974 to May 23, 1974, another P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to respondent. [61] LOI No. 11
explicitly provides that PNB shall study and submit recommendations on the claims of PASUMILs creditors.[62] Clearly, the
corporate separateness between PASUMIL and PNB remains, despite respondents insistence to the contrary.[63]
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE. No pronouncement as to costs.
SO ORDERED.

[G.R. No. 142435. April 30, 2003]

ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners, vs. PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC
EX-OFFICIO SHERIFF OF QUEZON CITY and the Heirs of EUGENIO D. TRINIDAD, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the Decision[1] dated October 21, 1999 of the Court of
Appeals in CA-G.R. CV No. 41536 which dismissed herein petitioners appeal from the Decision[2] dated February 10, 1993
of the Regional Trial Court (RTC) of Quezon City, Branch 84, in Civil Case No. Q-89-4152. The trial court had dismissed
petitioners complaint for annulment of real estate mortgage and the extra-judicial foreclosure thereof. Likewise brought
for our review is the Resolution[3] dated February 23, 2000 of the Court of Appeals which denied petitioners motion for
reconsideration.
The facts, as culled from records, are as follows:
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Belas Export Trading (BET), a single
proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged in the
manufacture of garments for domestic and foreign consumption. The Lipats also owned the Mystical Fashions in the
United States, which sells goods imported from the Philippines through BET. Mrs. Lipat designated her daughter, Teresita
B. Lipat, to manage BET in the Philippines while she was managing Mystical Fashions in the United States.
In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14, 1978, a special power
of attorney appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit accommodations from
respondent Pacific Banking Corporation (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on
properties owned or co-owned by her as security for the obligations to be extended by Pacific Bank including any
extension or renewal thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in behalf of
her mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to be manufactured by

BET and exported to Mystical Fashions in the United States. As security therefor, the Lipat spouses, as represented by
Teresita, executed a Real Estate Mortgage over their property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said
property was likewise made to secure other additional or new loans, discounting lines, overdrafts and credit
accommodations, of whatever amount, which the Mortgagor and/or Debtor may subsequently obtain from the Mortgagee
as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said original, additional or new
loans, discounting lines, overdrafts and other credit accommodations, including interest and expenses or other obligations
of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly, principal or secondary, as appears
in the accounts, books and records of the Mortgagee.[4]
On September 5, 1979, BET was incorporated into a family corporation named Belas Export Corporation (BEC) in
order to facilitate the management of the business. BEC was engaged in the business of manufacturing and exportation of
all kinds of garments of whatever kind and description[5] and utilized the same machineries and equipment previously
used by BET. Its incorporators and directors included the Lipat spouses who owned a combined 300 shares out of the 420
shares subscribed, Teresita Lipat who owned 20 shares, and other close relatives and friends of the Lipats.[6] Estelita Lipat
was named president of BEC, while Teresita became the vice-president and general manager.
Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC with the
corresponding promissory notes duly executed by Teresita on behalf of the corporation. A letter of credit was also opened
by Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after BEC executed the
corresponding trust receipt therefor. Export bills were also executed in favor of Pacific Bank for additional finances. These
transactions were all secured by the real estate mortgage over the Lipats property.
The promissory notes, export bills, and trust receipt eventually became due and demandable. Unfortunately, BEC
defaulted in its payments. After receipt of Pacific Banks demand letters, Estelita Lipat went to the office of the banks
liquidator and asked for additional time to enable her to personally settle BECs obligations. The bank acceded to her
request but Estelita failed to fulfill her promise.
Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the law the
mortgaged property was sold at public auction. On January 31, 1989, a certificate of sale was issued to respondent Eugenio
D. Trinidad as the highest bidder.
On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a complaint for annulment of the real
estate mortgage, extrajudicial foreclosure and the certificate of sale issued over the property against Pacific Bank and
Eugenio D. Trinidad. The complaint, which was docketed as Civil Case No. Q-89-4152, alleged, among others, that the
promissory notes, trust receipt, and export bills were allultra vires acts of Teresita as they were executed without the
requisite board resolution of the Board of Directors of BEC. The Lipats also averred that assuming said acts were valid and
binding on BEC, the same were the corporations sole obligation, it having a personality distinct and separate from spouses
Lipat. It was likewise pointed out that Teresitas authority to secure a loan from Pacific Bank was specifically limited to Mrs.
Lipats sole use and benefit and that the real estate mortgage was executed to secure the Lipats and BETs P583,854.00
loan only.
In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evade
payments of the value of the promissory notes, trust receipt, and export bills with their property because they and the BEC
are one and the same, the latter being a family corporation. Respondent Trinidad further claimed that he was a buyer in
good faith and for value and that petitioners are estopped from denying BECs existence after holding themselves out as a
corporation.
After trial on the merits, the RTC dismissed the complaint, thus:
WHEREFORE, this Court holds that in view of the facts contained in the record, the complaint filed in this case must be, as
is hereby, dismissed. Plaintiffs however has five (5) months and seventeen (17) days reckoned from the finality of this
decision within which to exercise their right of redemption. The writ of injunction issued is automatically dissolved if no
redemption is effected within that period.
The counterclaims and cross-claim are likewise dismissed for lack of legal and factual basis.

No costs.
IT IS SO ORDERED.[7]
The trial court ruled that there was convincing and conclusive evidence proving that BEC was a family corporation of
the Lipats. As such, it was a mere extension of petitioners personality and business and a mere alter ego or business
conduit of the Lipats established for their own benefit. Hence, to allow petitioners to invoke the theory of separate
corporate personality would sanction its use as a shield to further an end subversive of justice. [8] Thus, the trial court
pierced the veil of corporate fiction and held that Belas Export Corporation and petitioners (Lipats) are one and the
same. Pacific Bank had transacted business with both BET and BEC on the supposition that both are one and the
same. Hence, the Lipats were estopped from disclaiming any obligations on the theory of separate personality of
corporations, which is contrary to principles of reason and good faith.
The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV No. 41536. Said appeal, however,
was dismissed by the appellate court for lack of merit. The Court of Appeals found that there was ample evidence on
record to support the application of the doctrine of piercing the veil of corporate fiction. In affirming the findings of the
RTC, the appellate court noted that Mrs. Lipat had full control over the activities of the corporation and used the same to
further her business interests.[9] In fact, she had benefited from the loans obtained by the corporation to finance her
business. It also found unnecessary a board resolution authorizing Teresita Lipat to secure loans from Pacific Bank on
behalf of BEC because the corporations by-laws allowed such conduct even without a board resolution. Finally, the Court
of Appeals ruled that the mortgage property was not only liable for the original loan of P583,854.00 but likewise for the
value of the promissory notes, trust receipt, and export bills as the mortgage contract equally applies to additional or new
loans, discounting lines, overdrafts, and credit accommodations which petitioners subsequently obtained from Pacific
Bank.
The Lipats then moved for reconsideration, but this was denied by the appellate court in its Resolution of February
23, 2000.[10]
Hence, this petition, with petitioners submitting that the court a quo erred
1) .IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN THIS CASE.
2) .IN HOLDING THAT PETITIONERS PROPERTY CAN BE HELD LIABLE UNDER THE REAL ESTATE MORTGAGE NOT
ONLY FOR THE AMOUNT OF P583,854.00 BUT ALSO FOR THE FULL VALUE OF PROMISSORY NOTES, TRUST
RECEIPTS AND EXPORT BILLS OF BELAS EXPORT CORPORATION.
3) .IN HOLDING THAT THE IMPOSITION OF 15% ATTORNEYS FEES IN THE EXTRA-JUDICIAL FORECLOSURE IS
BEYOND THIS COURTS JURISDICTION FOR IT IS BEING RAISED FOR THE FIRST TIME IN THIS APPEAL.
4) .IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED PROMISSORY NOTES, THE DOLLAR
ACCOMMODATIONS AND TRUST RECEIPTS DESPITE THE EVIDENT FACT THAT THEY WERE NOT SIGNED BY
HIM AND THEREFORE ARE NOT VALID OR ARE NOT BINDING TO HIM.
5) .IN DENYING PETITIONERS MOTION FOR RECONSIDERATION AND IN HOLDING THAT SAID MOTION FOR
RECONSIDERATION IS AN UNAUTHORIZED MOTION, A MERE SCRAP OF PAPER WHICH CAN NEITHER BIND
NOR BE OF ANY CONSEQUENCE TO APPELLANTS.[11]
In sum, the following are the relevant issues for our resolution:
1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;
2. Whether or not petitioners' property under the real estate mortgage is liable not only for the amount
of P583,854.00 but also for the value of the promissory notes, trust receipt, and export bills subsequently incurred by BEC;
and

3. Whether or not petitioners are liable to pay the 15% attorneys fees stipulated in the deed of real estate mortgage.
On the first issue, petitioners contend that both the appellate and trial courts erred in holding them liable for the
obligations incurred by BEC through the application of the doctrine of piercing the veil of corporate fiction absent any clear
showing of fraud on their part.
Respondents counter that there is clear and convincing evidence to show fraud on part of petitioners given the
findings of the trial court, as affirmed by the Court of Appeals, that BEC was organized as a business conduit for the benefit
of petitioners.
Petitioners contentions fail to persuade this Court. A careful reading of the judgment of the RTC and the resolution
of the appellate court show that in finding petitioners mortgaged property liable for the obligations of BEC, both courts
below relied upon the alter egodoctrine or instrumentality rule, rather than fraud in piercing the veil of corporate
fiction. When the corporation is the mere alter ego or business conduit of a person, the separate personality of the
corporation may be disregarded.[12] This is commonly referred to as the instrumentality rule or the alter ego doctrine,
which the courts have applied in disregarding the separate juridical personality of corporations. As held in one case,
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded. The
control necessary to invoke the rule is not majority or even complete stock control but such domination of finances,
policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is
but a conduit for its principal. xxx[13]
We find that the evidence on record demolishes, rather than buttresses, petitioners contention that BET and BEC are
separate business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were the owners of
BET[14] and were two of the incorporators and majority stockholders of BEC.[15] It is also undisputed that Estelita Lipat
executed a special power of attorney in favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on
her behalf.[16] Incidentally, Teresita was designated as executive-vice president and general manager of both BET and BEC,
respectively.[17] We note further that: (1) Estelita and Alfredo Lipat are the owners and majority shareholders of BET and
BEC, respectively;[18] (2) both firms were managed by their daughter, Teresita;[19] (3) both firms were engaged in the
garment business, supplying products to Mystical Fashion, a U.S. firm established by Estelita Lipat; (4) both firms held
office in the same building owned by the Lipats;[20] (5) BEC is a family corporation with the Lipats as its majority
stockholders; (6) the business operations of the BEC were so merged with those of Mrs. Lipat such that they were
practically indistinguishable; (7) the corporate funds were held by Estelita Lipat and the corporation itself had no visible
assets; (8) the board of directors of BEC was composed of the Burgos and Lipat family members; [21] (9) Estelita had full
control over the activities of and decided business matters of the corporation; [22] and that (10) Estelita Lipat had
benefited from the loans secured from Pacific Bank to finance her business abroad[23] and from the export bills secured
by BEC for the account of Mystical Fashion.[24] It could not have been coincidental that BET and BEC are so intertwined
with each other in terms of ownership, business purpose, and management. Apparently, BET and BEC are one and the
same and the latter is a conduit of and merely succeeded the former. Petitioners attempt to isolate themselves from
and hide behind the corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the
classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. In our view, BEC is a mere
continuation and successor of BET, and petitioners cannot evade their obligations in the mortgage contract secured under
the name of BEC on the pretext that it was signed for the benefit and under the name of BET. We are thus constrained to
rule that the Court of Appeals did not err when it applied the instrumentality doctrine in piercing the corporate veil of BEC.
On the second issue, petitioners contend that their mortgaged property should not be made liable for the subsequent
credit lines and loans incurred by BEC because, first, it was not covered by the mortgage contract of BET which only
covered the loan of P583,854.00 and which allegedly had already been paid; and, second, it was secured by Teresita Lipat
without any authorization or board resolution of BEC.
We find petitioners contention untenable. As found by the Court of Appeals, the mortgaged property is not limited
to answer for the loan of P583,854.00. Thus:
Finally, the extent to which the Lipats property can be held liable under the real estate mortgage is not limited to

P583,854.00. It can be held liable for the value of the promissory notes, trust receipt and export bills as well. For the
mortgage was executed not only for the purpose of securing the Belas Export Tradings original loan of P583,854.00, but
also for other additional or new loans, discounting lines, overdrafts and credit accommodations, of whatever amount,
which the Mortgagor and/or Debtor may subsequently obtain from the mortgagee as well as any renewal or extension by
the Mortgagor and/or Debtor of the whole or part of said original, additional or new loans, discounting lines, overdrafts
and other credit accommodations, including interest and expenses or other obligations of the Mortgagor and/or Debtor
owing to the Mortgagee, whether directly, or indirectly principal or secondary, as appears in the accounts, books and
records of the mortgagee.[25]
As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot be reviewed on appeal
by the Supreme Court, provided they are borne out by the record or based on substantial evidence. [26] As noted earlier,
BEC merely succeeded BET as petitioners alter ego; hence, petitioners mortgaged property must be held liable for the
subsequent loans and credit lines of BEC.
Further, petitioners contention that the original loan had already been paid, hence, the mortgaged property should
not be made liable to the loans of BEC, is unsupported by any substantial evidence other than Estelita Lipats self-serving
testimony. Two disputable presumptions under the rules on evidence weigh against petitioners, namely: (a) that a person
takes ordinary care of his concerns;[27] and (b) that things have happened according to the ordinary course of nature and
the ordinary habits of life.[28] Here, if the original loan had indeed been paid, then logically, petitioners would have asked
from Pacific Bank for the required documents evidencing receipt and payment of the loans and, as owners of the
mortgaged property, would have immediately asked for the cancellation of the mortgage in the ordinary course of
things. However, the records are bereft of any evidence contradicting or overcoming said disputable presumptions.
Petitioners contend further that the mortgaged property should not bind the loans and credit lines obtained by BEC
as they were secured without any proper authorization or board resolution. They also blame the bank for its laxity and
complacency in not requiring a board resolution as a requisite for approving the loans.
Such contentions deserve scant consideration.
Firstly, it could not have been possible for BEC to release a board resolution since per admissions by both petitioner
Estelita Lipat and Alice Burgos, petitioners rebuttal witness, no business or stockholders meetings were conducted nor
were there election of officers held since its incorporation. In fact, not a single board resolution was passed by the
corporate board[29] and it was Estelita Lipat and/or Teresita Lipat who decided business matters.[30]
Secondly, the principle of estoppel precludes petitioners from denying the validity of the transactions entered into by
Teresita Lipat with Pacific Bank, who in good faith, relied on the authority of the former as manager to act on behalf of
petitioner Estelita Lipat and both BET and BEC. While the power and responsibility to decide whether the corporation
should enter into a contract that will bind the corporation is lodged in its board of directors, subject to the articles of
incorporation, by-laws, or relevant provisions of law, yet, just as a natural person may authorize another to do certain acts
for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees,
or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate by-laws, or
authorization from the board, either expressly or impliedly by habit, custom, or acquiescence in the general course of
business.[31]Apparent authority, is derived not merely from practice. Its existence may be ascertained through (1) the
general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the
apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature,
with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.[32]
In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special power of
attorney executed by Estelita Lipat. Recall that Teresita Lipat acted as the manager of both BEC and BET and had been
deciding business matters in the absence of Estelita Lipat. Further, the export bills secured by BEC were for the benefit of
Mystical Fashion owned by Estelita Lipat.[33]Hence, Pacific Bank cannot be faulted for relying on the same authority
granted to Teresita Lipat by Estelita Lipat by virtue of a special power of attorney. It is a familiar doctrine that if a
corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it
holds him out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has

in good faith dealt with it through such agent, be estopped from denying the agents authority.[34]
We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent credit lines of
BEC. Suffice it to state that Alfredo Lipat never disputed the validity of the real estate mortgage of the original loan; hence,
he cannot now dispute the subsequent loans obtained using the same mortgage contract since it is, by its very terms, a
continuing mortgage contract.
On the third and final issue, petitioners assail the decision of the Court of Appeals for not taking cognizance of the
issue on attorneys fees on the ground that it was raised for the first time on appeal. We find the conclusion of the Court
of Appeals to be in accord with settled jurisprudence. Basic is the rule that matters not raised in the complaint cannot be
raised for the first time on appeal.[35] A close perusal of the complaint yields no allegations disputing the attorneys fees
imposed under the real estate mortgage and petitioners cannot now allege that they have impliedly disputed the same
when they sought the annulment of the contract.
In sum, we find no reversible error of law committed by the Court of Appeals in rendering the decision and resolution
herein assailed by petitioners.
WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and the Resolution dated February 23,
2000 of the Court of Appeals in CA-G.R. CV No. 41536 are AFFIRMED. Costs against petitioners.
SO ORDERED.

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