Good Earth vs CA1

Cruz v. Dalisay.7
Bank of America v. Ca.9
Avon Dale v. Ca..19
Concept Builders v. NLR22
First Phil Intl Bank v. CA...30
Francisco Motor Corp v. CA..62
Reynoso v. Ca.70
De Leon v. NLRC81
PNB v. Andrada EEC.....85
Lipat v. Pacific Banking Corp96

[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.
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 exparte Motion of ROCES, the trial court issued an Alias Writ of Execution dated February 25, 1985 (Rollo, p.
104; Annex "D" of Petitioner's Memorandum), which was implemented on February 27, 1985. GEE thru
counsel filed a motion to quash the writ of execution and notice of levy and an urgent Ex-parte Supplemental
Motion for the issuance of a restraining order, on March 7, and 20, 1985, respectively. On March 21, 1985, the
lower court issued a restraining order to the sheriff to hold the execution of the judgment pending hearing on
the motion to quash the writ of execution (Rollo, p. 22; RTC Decision). While said motion was pending
resolution, GEE filed a Petition for Relief from judgment before another court, Regional Trial Court of Manila,
Branch IX, which petition was docketed as Civil Case No. 8530019, 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. 15873CV. 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. llcd
Finding that the common exhibit, Exhibit 1/A had been signed by persons other than judgment creditors
(Roces-Reyes Realty, Inc.) coupled with the fact that said exhibit was not even alleged by GEE and Lim Ka
Ping in their original motion to quash the alias writ of execution (Rollo, p. 37) but produced only during the
hearing (Ibid.) which production resulted in petitioners having to claim belatedly that there was an
"overpayment" of about half a million pesos (Rollo, pp. 25-27) and remarking on the utter absence of any
writing in Exhibits "1/A" and "2/B" to indicate payment of the judgment debt, respondent Appellate Court
correctly concluded that there was in fact no payment of the judgment debt. As aptly observed by the said
court:
"What immediately catches one's attention is the total absence of any writing alluding to or
refering to any settlement between the parties of private respondents' (petitioners') judgment
obligation. In moving for the dismissal of the appeal Lim Ka Ping who was then assisted by
counsel simply stated that defendants (herein petitioners) are satisfied with the decision of the
Metropolitan Trial Court (Records of CA, p. 54).
"Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution and
Notice of Levy dated March 7, 1985, there is absolutely no reference to the alleged payment of
one million pesos as evidenced by Exhibit 1 dated September 20, 1984. As pointed out by
petitioner (respondent corporation) this was brought out by Linda Panutat, Manager of Good
Earth only in the course of the latter's testimony." (Rollo, p. 37)
Article 1240 of the Civil Code of the Philippines provides that:
"Payment shall be made to the person in whose favor the obligation has been constituted, or
his successor in interest, or any person authorized to receive it."
In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its successor in
interest nor is there positive evidence that the payment was made to a person authorized to receive it. No such
proof was submitted but merely inferred by the Regional Trial Court (Rollo, p. 25) from Marcos Roces having
signed the Lease Contract as President which was witnessed by Jesus Marcos Roces. The latter, however,
was no longer President or even an officer of Roces-Reyes Realty, Inc. at the time he received the money
(Exhibit "1") and signed the sale with pacto de retro (Exhibit "2"). He, in fact, denied being in possession of
authority to receive payment for the respondent corporation nor does the receipt show that he signed in the
same capacity as he did in the Lease Contract at a time when he was President for respondent corporation
(Rollo, p 20, MTC decision).

On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced by the receipt
(Exhibit "1") is the payment for a loan extended by him and Marcos Roces in favor of Lim Ka Ping. The
assertion is borne by the receipt itself whereby they acknowledged payment of the loan in their names and in
no other capacity.
4

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). LLpr
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. prLL
In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the sale with pacto de
retro (Exhibit "2/B") all in the sum of P2 million, far exceeds petitioners' judgment obligation in favor of
respondent corporation in the sum of P1,560,000.00 by P440,000.00, which militates against the claim of
petitioner that the aforesaid amount (P2M) was in full payment of the judgment obligation.
Petitioners' explanation that the excess is interest and advance rentals for an extension of the lease contract
(Rollo, pp. 25-28) is belied by the absence of any interest awarded in the case and of any agreement as to the
extension of the lease nor was there any such pretense in the Motion to Quash the Alias Writ of Execution.
Petitioners' averments that the respondent court had gravely abused its discretion in arriving at the assailed
factual findings as contrary to the evidence and applicable decisions of this Honorable Court are therefore,
patently unfounded. Respondent court was correct in stating that it "cannot go beyond what appears in the
documents submitted by petitioners themselves (Exhibits "1" and "2") in the absence of clear and convincing
evidence" that would support its claim that the judgment obligation has indeed been fully satisfied which would
warrant the quashal of the Alias Writ of Execution.
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. e 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
5

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). llcd
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.

[A.M. No. R-181-P. July 31, 1987.]

ADELIO C. CRUZ, complainant, vs. QUITERIO L. DALISAY, Deputy Sheriff,
RTC, Manila, respondents.
FERNAN, J :
p

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. 812389-91 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
7

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.
LibLex

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 wellsettled 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.
Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.
|||

(Cruz v. Dalisay, A.M. No. R-181-P, July 31, 1987)

[G.R. No. 120135. March 31, 2003.]

BANK OF AMERICA NT&SA, BANK OF AMERICA INTERNATIONAL,
LTD., petitioners, vs. COURT OF APPEALS, HON. MANUEL PADOLINA,
EDUARDO LITONJUA, SR., and AURELIO K. LITONJUA, JR., respondents.
The Litonjuas were engaged in the shipping business and owned two vessels, through their
wholly-owned corporations. With their business doing well, the petitioner banks induced them
to increase the number of their ships in operation, offering them easy loans to acquire said
vessels. Thereafter, petitioners acquired, through Litonjuas' corporations as borrowers, four
additional vessels which were registered in the names of their corporations. The Litonjuas
claimed, among others, that petitioners as trustees did not fully render an account of all the
income derived from the operation of the vessels as well as the proceeds of the subsequent
foreclosure sale and that the loans acquired for the purchase of the four additional vessels
matured and remained unpaid, prompting petitioners to have all the six vessels, including the
two vessels originally owned by the private respondents, foreclosed and sold at public
auction. Petitioners filed a motion to dismiss on grounds of forum non conveniens and lack of
cause of action against them, but the same was denied by the trial court. The Court of
Appeals denied petitioners' petition for review on certiorari and motion for reconsideration.
Hence, this petition.
In denying the petition, the Supreme Court ruled that it is not the lack or absence of cause of
action that is a ground for dismissal of the complaint, but rather the fact that the complaint
states no cause of action. Failure to state a cause of action refers to the insufficiency of
allegation in the pleading, unlike lack of cause of action which refers to the insufficiency of
factual basis for the action. In the case at bar, the complaint contains the three elements of a
cause of action.
The Court further ruled that whether a suit should be entertained or dismissed on the basis of
the doctrine of forum non conveniens depends largely upon the facts of the particular case
and is addressed to the sound discretion of the trial court. In the case of Communication
Materials and Design, Inc. vs. Court of Appeals, this Court held that a Philippine Court may
assume jurisdiction over the case if it chooses to do so; provided, that the following requisites
are met: (1) that the Philippine Court is one to which the parties may conveniently resort to;
(2) that the Philippine Court is in a position to make an intelligent decision as to the law and
the facts; and (3) that the Philippine Court has or is likely to have the power to enforce its
decision. Evidently, all these requisites are present in the instant case.
1. REMEDIAL LAW; SPECIAL CIVIL ACTIONS; PETITION FOR CERTIORARI; ORDER
DENYING MOTION TO DISMISS CANNOT BE THE SUBJECT THEREOF; CASE AT BAR.
[T]he order denying the motion to dismiss cannot be the subject of petition for certiorari.
Petitioners should have filed an answer to the complaint, proceed to trial and await judgment
before making an appeal. As repeatedly held by this Court: "An order denying a motion to
9

dismiss is interlocutory and cannot be the subject of the extraordinary petition for certiorari or
mandamus. The remedy of the aggrieved party is to file an answer and to interpose as
defenses the objections raised in his motion to dismiss, proceed to trial, and in case of an
adverse decision, to elevate the entire case by appeal in due course. . . . Under certain
situations, recourse to certiorari or mandamus is considered appropriate, i.e., (a) when the
trial court issued the order without or in excess of jurisdiction; (b) where there is patent grave
abuse of discretion by the trial court; or (c) appeal would not prove to be a speedy and
adequate remedy as when an appeal would not promptly relieve a defendant from the
injurious effects of the patently mistaken order maintaining the plaintiff's baseless action and
compelling the defendant needlessly to go through a protracted trial and clogging the court
dockets by another futile case."
2. ID.; ACTIONS; MOTION TO DISMISS; LACK OF PERSONALITY TO SUE CAN BE USED
AS GROUND FOR MOTION TO DISMISS BASED ON THE FACT THAT THE COMPLAINT
EVIDENTLY STATES NO CAUSE OF ACTION. A case is dismissible for lack of personality
to sue upon proof that the plaintiff is not the real party-in-interest. Lack of personality to sue
can be used as a ground for a Motion to Dismiss based on the fact that the complaint, on the
face thereof, evidently states no cause of action.
3. ID.; ID.; CAUSE OF ACTION; ELEMENTS; PRESENT IN CASE AT BAR. In San
Lorenzo Village Association, Inc. vs. Court of Appeals, this Court clarified that a complaint
states a cause of action where it contains three essential elements of a cause of action,
namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3)
the act or omission of the defendant in violation of said legal right. If these elements are
absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to
state a cause of action. . . . In the case at bar, the complaint contains the three elements of a
cause of action. It alleges that: (1) plaintiffs, herein private respondents, have the right to
demand for an accounting from defendants (herein petitioners), as trustees by reason of the
fiduciary relationship that was created between the parties involving the vessels in question;
(2) petitioners have the obligation, as trustees, to render such an accounting; and (3)
petitioners failed to do the same.
cHTCaI

4. ID.; ID.; ID.; FAILURE TO STATE A CAUSE OF ACTION AND LACK OF CAUSE OF
ACTION, DISTINGUISHED. [I]t is not the lack or absence of cause of action that is a
ground for dismissal of the complaint but rather the fact that the complaint states no cause of
action. "Failure to state a cause of action" refers to the insufficiency of allegation in the
pleading, unlike "lack of cause of action" which refers to the insufficiency of factual basis for
the action. "Failure to state a cause of action" may be raised at the earliest stages of an action
through a motion to dismiss the complaint, while "lack of cause of action" may be raised any
time after the questions of fact have been resolved on the basis of stipulations, admissions or
evidence presented.
5. PRIVATE INTERNATIONAL LAW; FORUM NON CONVENIENS; APPLICATION OF THE
DOCTRINE DEPENDS LARGELY UPON THE FACTS OF THE CASE AND ADDRESSED TO
THE. SOUND DISCRETION OF THE TRIAL COURT. The doctrine of forum nonconveniens, literally meaning 'the forum is inconvenient', emerged in private international law
to deter the practice of global forum shopping, that is to prevent non-resident litigants from
10

choosing the forum or place wherein to bring their suit for malicious reasons, such as to
secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded
dockets, or to select a more friendly venue. Under this doctrine, a court, in conflicts of law
cases, may refuse impositions on its jurisdiction where it is not the most "convenient" or
available forum and the parties are not precluded from seeking remedies elsewhere. Whether
a suit should be entertained or dismissed on the basis of said doctrine depends largely upon
the facts of the particular case and is addressed to the sound discretion of the trial court. In
the case of Communication Materials and Design, Inc. vs. Court of Appeals, this Court held
that ". . . [a] Philippine Court may assume jurisdiction over the case if it chooses to do so;
provided, that the following requisites are met: (1) that the Philippine Court is one to which the
parties may conveniently resort to; (2) that the Philippine Court is in a position to make an
intelligent decision as to the law and the facts; and, (3) that the Philippine Court has or is likely
to have power to enforce its decision." Evidently, all these requisites are present in the instant
case.
6. ID.; ID.; SHOULD NOT BE USED AS GROUND FOR A MOTION TO DISMISS. [T]his
Court enunciated in Philsec. Investment Corporation vs. Court of Appeals, that the doctrine
of forum non conveniens should not be used as a ground for a motion to dismiss because
Sec. 1, Rule 16 of the Rules of Court does not include said doctrine as a ground. This Court
further ruled that while it is within the discretion of the trial court to abstain from assuming
jurisdiction on this ground, it should do so only after vital facts are established, to determine
whether special circumstances require the court's desistance; and that the propriety of
dismissing a case based on this principle of forum non conveniens requires a factual
determination, hence it is more properly considered a matter of defense.
7. REMEDIAL LAW; ACTIONS; FORUM SHOPPING; WHEN PRESENT. Forum shopping
exists where the elements of litis pendentia are present and where a final judgment in one
case will amount to res judicata in the other.
8. ID.; ID.; LITIS PENDENTIA; ELEMENTS; NOT PRESENT IN CASE AT BAR. [F]or litis
pendentia to be a ground for the dismissal of an action there must be: (a) identity of the
parties or at least such as to represent the same interest in both actions; (b) identity of rights
asserted and relief prayed for, the relief being founded on the same acts; and (c) the identity
in the two cases should be such that the judgment which may be rendered in one would,
regardless of which party is successful, amount to res judicata in the other. In case at bar, not
all the requirements for litis pendentia are present. While there may be identity of parties,
notwithstanding the presence of other respondents, as well as the reversal in positions of
plaintiffs and defendants, still the other requirements necessary for litis pendentia were not
shown by petitioner. It merely mentioned that civil cases were filed in Hongkong and England
without however showing the identity of rights asserted and the reliefs sought for as well as
the presence of the elements of res judicata should one of the cases be adjudged.
AUSTRIA-MARTINEZ, J :
p

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
November 29, 1994 decision of the Court of Appeals 1 and the April 28, 1995 resolution
denying petitioners' motion for reconsideration.
11

The factual background of the case is as follows:

On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed
a Complaint 2 before the Regional Trial Court of Pasig against the Bank of America NT&SA
and Bank of America International, Ltd. (defendant banks for brevity) alleging that: they were
engaged in the shipping business; they owned two vessels: Don Aurelio and El Champion,
through their wholly-owned corporations; they deposited their revenues from said business
together with other funds with the branches of said banks in the United Kingdom and
Hongkong up to 1979; with their business doing well, the defendant banks induced them to
increase the number of their ships in operation, offering them easy loans to acquire said
vessels; 3 thereafter, the defendant banks acquired, through their (Litonjuas') corporations as
the borrowers: (a) El Carrier 4 ; (b) El General 5 ; (c) El Challenger 6 ; and (d) El Conqueror 7 ;
the vessels were registered in the names of their corporations; the operation and the funds
derived therefrom were placed under the complete and exclusive control and disposition of the
petitioners; 8 and the possession of the vessels was also placed by defendant banks in the
hands of persons selected and designated by them (defendant banks). 9
The Litonjuas claimed that defendant banks as trustees did not fully render an account of all
the income derived from the operation of the vessels as well as of the proceeds of the
subsequent foreclosure sale; 10 because of the breach of their fiduciary duties and/or
negligence of the petitioners and/or the persons designated by them in the operation of
private respondents' six vessels, the revenues derived from the operation of all the vessels
declined drastically; the loans acquired for the purchase of the four additional vessels then
matured and remained unpaid, prompting defendant banks to have all the six vessels,
including the two vessels originally owned by the private respondents, foreclosed and sold at
public auction to answer for the obligations incurred for and in behalf of the operation of the
vessels; they (Litonjuas) lost sizeable amounts of their own personal funds equivalent to ten
percent (10%) of the acquisition cost of the four vessels and were left with the unpaid balance
of their loans with defendant banks. 11 The Litonjuas prayed for the accounting of the
revenues derived in the operation of the six vessels and of the proceeds of the sale thereof at
the foreclosure proceedings instituted by petitioners; damages for breach of trust; exemplary
damages and attorney's fees. 12
Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and lack of
cause of action against them. 13
On December 3, 1993, the trial court issued an Order denying the Motion to Dismiss, thus:
"WHEREFORE, and in view of the foregoing consideration, the Motion to Dismiss is
hereby DENIED. The defendant is therefore, given a period of ten (10) days to file its
Answer to the complaint.
"SO ORDERED." 14

Instead of filing an answer the defendant banks went to the Court of Appeals on a "Petition for
Review on Certiorari" 15 which was aptly treated by the appellate court as a petition for
certiorari. They assailed the above-quoted order as well as the subsequent denial of their
Motion for Reconsideration. 16The appellate court dismissed the petition and denied
petitioners' Motion for Reconsideration. 17
12

Hence, herein petition anchored on the following grounds:

"1. RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT
THE SEPARATE PERSONALITIES OF THE PRIVATE RESPONDENTS
(MERE STOCKHOLDERS) AND THE FOREIGN CORPORATIONS (THE
REAL BORROWERS) CLEARLY SUPPORT, BEYOND ANY DOUBT, THE
PROPOSITION

THAT

THE

PRIVATE

RESPONDENTS

HAVE

NO

PERSONALITIES TO SUE.
"2. THE RESPONDENT COURT OF APPEALS FAILED TO REALIZE THAT WHILE
THE PRINCIPLE OF FORUM NON CONVENIENS IS NOT MANDATORY,
THERE

ARE,

HOWEVER,

SOME

GUIDELINES

TO

FOLLOW

IN

DETERMINING WHETHER THE CHOICE OF FORUM SHOULD BE

DISTURBED.

UNDER

THE

CIRCUMSTANCES

SURROUNDING

THE

INSTANT CASE, DISMISSAL OF THE COMPLAINT ON THE GROUND

OF FORUM NON-CONVENIENS IS MORE APPROPRIATE AND PROPER.
"3. THE PRINCIPLE OF RES JUDICATA IS NOT LIMITED TO FINAL JUDGMENT IN
THE PHILIPPINES. IN FACT, THE PENDENCY OF FOREIGN ACTION MAY
BE THE LEGAL BASIS FOR THE DISMISSAL OF THE COMPLAINT FILED
BY

THE

PRIVATE

RESPONDENT.

COROLLARY

TO

THIS,

THE

RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT

THAT PRIVATE RESPONDENTS ARE GUILTY OF FORUM SHOPPING." 18

As to the first assigned error: Petitioners argue that the borrowers and the registered owners
of the vessels are the foreign corporations and not private respondents Litonjuas who are
mere stockholders; and that the revenues derived from the operations of all the vessels are
deposited in the accounts of the corporations. Hence, petitioners maintain that these foreign
corporations are the legal entities that have the personalities to sue and not herein private
respondents; that private respondents, being mere shareholders, have no claim on the
vessels as owners since they merely have an inchoate right to whatever may remain upon the
dissolution of the said foreign corporations and after all creditors have been fully paid and
satisfied; 19 and that while private respondents may have allegedly spent amounts equal to
10% of the acquisition costs of the vessels in question, their 10% however represents their
investments as stockholders in the foreign corporations. 20
Anent the second assigned error, petitioners posit that while the application of the principle
of forum non conveniens is discretionary on the part of the Court, said discretion is limited by
the guidelines pertaining to the private as well as public interest factors in determining
whether plaintiffs' choice of forum should be disturbed, as elucidated in Gulf Oil Corp. vs.
Gilbert 21 and Piper Aircraft Co. vs. Reyno, 22 to wit:
"Private interest factors include: (a) the relative ease of access to sources of proof; (b)
the availability of compulsory process for the attendance of unwilling witnesses; (c) the
cost of obtaining attendance of willing witnesses; or (d) all other practical problems
that make trial of a case easy, expeditious and inexpensive. Public interest factors
include: (a) the administrative difficulties flowing from court congestion; (b) the local
interest in having localized controversies decided at home; (c) the avoidance of
13

unnecessary problems in conflict of laws or in the application of foreign law; or (d) the
unfairness of burdening citizens in an unrelated forum with jury duty."

23

In support of their claim that the local court is not the proper forum, petitioners allege the
following:
"i) The Bank of America Branches involved, as clearly mentioned in the Complaint, are
based in Hongkong and England. As such, the evidence and the witnesses are
not readily available in the Philippines;
"ii) The loan transactions were obtained, perfected, performed, consummated and
partially paid outside the Philippines;
"iii) The monies were advanced outside the Philippines. Furthermore, the mortgaged
vessels were part of an offshore fleet, not based in the Philippines;
"iv) All

the

loans

involved

were

granted

to

the

Private

Respondents'

foreign CORPORATIONS;
"v) The Restructuring Agreements were ALL governed by the laws of England;
"vi) The subsequent sales of the mortgaged vessels and the application of the sales
proceeds occurred and transpired outside the Philippines, and the deliveries of
the sold mortgaged vessels were likewise made outside the Philippines;
"vii) The revenues of the vessels and the proceeds of the sales of these vessels
were ALL deposited to the Accounts of the foreign CORPORATIONSabroad;
and
"viii) Bank of America International Ltd. is not licensed nor engaged in trade or
business in the Philippines." 24

Petitioners argue further that the loan agreements, security documentation and all subsequent
restructuring agreements uniformly, unconditionally and expressly provided that they will be
governed by the laws of England; 25 that Philippine Courts would then have to apply English
law in resolving whatever issues may be presented to it in the event it recognizes and accepts
herein case; that it would then be imposing a significant and unnecessary expense and
burden not only upon the parties to the transaction but also to the local court. Petitioners insist
that the inconvenience and difficulty of applying English law with respect to a wholly foreign
transaction in a case pending in the Philippines may be avoided by its dismissal on the ground
offorum non conveniens. 26
Finally, petitioners claim that private respondents have already waived their alleged causes of
action in the case at bar for their refusal to contest the foreign civil cases earlier filed by the
petitioners against them in Hongkong and England, to wit:
"1.) Civil action in England in its High Court of Justice, Queen's Bench Division
Commercial Court (1992-Folio No. 2098) against (a) LIBERIAN TRANSPORT
NAVIGATION,

SA.;

(b)

ESHLEY

COMPANIA

NAVIERA

SA.,

(c)

EL

CHALLENGER SA; (d) ESPRIONA SHIPPING CO. SA; (e) PACIFIC

NAVIGATORS CORP. SA; (f) EDDIE NAVIGATION CORP. SA; (g) EDUARDO
K. LITONJUA & (h) AURELIO K. LITONJUA.
14

"2.) Civil action in England in its High Court of Justice, Queen's Bench Division,
Commercial Court (1992-Folio No. 2245) against (a) EL CHALLENGER S.A.,
(b) ESPRIONA SHIPPING COMPANY S.A., (c) EDUARDO KATIPUNAN
LITONJUA and (d) AURELIO KATIPUNAN LITONJUA.

"3.) Civil action in the Supreme Court of Hongkong High Court (Action No. 4039 of
1992), against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER
S.A., (c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS
CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA
CHARTERING (EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN LITONJUA,
JR., and (h) EDUARDO KATIPUNAN LITONJUA.
"4.) A civil action in the Supreme Court of Hong Kong High Court (Action No. 4040 of
1992); against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER
S.A., (c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS
CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA
CHARTERING (EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN LITONJUA,
JR., and (h) EDUARDO KATIPUNAN LITONJUA."

and that private respondents' alleged cause of action is already barred by the pendency of
another action or by litis pendentia as shown above. 27
On the other hand, private respondents contend that certain material facts and pleadings are
omitted and/or misrepresented in the present petition forcertiorari; that the prefatory statement
failed to state that part of the security of the foreign loans were mortgages on a 39-hectare
piece of real estate located in the Philippines; 28 that while the complaint was filed only by the
stockholders of the corporate borrowers, the latter are wholly-owned by the private
respondents who are Filipinos and therefore under Philippine laws, aside from the said
corporate borrowers being but their alter-egos, they have interests of their own in the
vessels. 29 Private respondents also argue that the dismissal by the Court of Appeals of the
petition for certiorari was justified because there was neither allegation nor any showing
whatsoever by the petitioners that they had no appeal, nor any plain, speedy, and adequate
remedy in the ordinary course of law from the Order of the trial judge denying their Motion to
Dismiss; that the remedy available to the petitioners after their Motion to Dismiss was denied
was to file an Answer to the complaint; 30 that as upheld by the Court of Appeals, the decision
of the trial court in not applying the principle of forum non conveniens is in the lawful exercise
of its discretion. 31 Finally, private respondents aver that the statement of petitioners that the
doctrine of res judicata also applies to foreign judgment is merely an opinion advanced by
them and not based on a categorical ruling of this Court; 32 and that herein private
respondents did not actually participate in the proceedings in the foreign courts. 33
We deny the petition for lack of merit.
It is a well-settled rule that the order denying the motion to dismiss cannot be the subject of
petition for certiorari. Petitioners should have filed an answer to the complaint, proceed to trial
and await judgment before making an appeal. As repeatedly held by this Court:
15

"An order denying a motion to dismiss is interlocutory and cannot be the subject of the
extraordinary petition for certiorari or mandamus. The remedy of the aggrieved party is
to file an answer and to interpose as defenses the objections raised in his motion to
dismiss, proceed to trial, and in case of an adverse decision, to elevate the entire case
by

appeal

in

due

course.

Under

certain

situations,

recourse

to certiorari or mandamus is considered appropriate, i.e., (a) when the trial court
issued the order without or in excess of jurisdiction; (b) where there is patent grave
abuse of discretion by the trial court; or (c) appeal would not prove to be a speedy and
adequate remedy as when an appeal would not promptly relieve a defendant from the
injurious effects of the patently mistaken order maintaining the plaintiff's baseless
action and compelling the defendant needlessly to go through a protracted trial and
clogging the court dockets by another futile case."

34

Records show that the trial court acted within its jurisdiction when it issued the assailed Order
denying petitioners' motion to dismiss. Does the denial of the motion to dismiss constitute a
patent grave abuse of discretion? Would appeal, under the circumstances, not prove to be a
speedy and adequate remedy? We will resolve said questions in conjunction with the issues
raised by the parties.
First issue. Did the trial court commit grave abuse of discretion in refusing to dismiss the
complaint on the ground that plaintiffs have no cause of action against defendants since
plaintiffs are merely stockholders of the corporations which are the registered owners of the
vessels and the borrowers of petitioners?
No. Petitioners' argument that private respondents, being mere stockholders of the foreign
corporations, have no personalities to sue, and therefore, the complaint should be dismissed,
is untenable. A case is dismissible for lack of personality to sue upon proof that the plaintiff is
not the real party-in-interest. Lack of personality to sue can be used as a ground for a Motion
to Dismiss based on the fact that the complaint, on the face thereof, evidently states no cause
of action. 35 In San Lorenzo Village Association, Inc. vs. Court of Appeals, 36 this Court
clarified that a complaint states a cause of action where it contains three essential elements of
a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or omission of the defendant in violation of said legal right. If these
elements are absent, the complaint becomes vulnerable to a motion to dismiss on the ground
of failure to state a cause of action. 37 To emphasize, it is not the lack or absence of cause of
action that is a ground for dismissal of the complaint but rather the fact that the complaint
states no cause of action. 38 "Failure to state a cause of action" refers to the insufficiency of
allegation in the pleading, unlike "lack of cause of action" which refers to the insufficiency of
factual basis for the action. "Failure to state a cause of action" may be raised at the earliest
stages of an action through a motion to dismiss the complaint, while "lack of cause of action"
may be raised any time after the questions of fact have been resolved on the basis of
stipulations, admissions or evidence presented. 39
In the case at bar, the complaint contains the three elements of a cause of action. It alleges
that: (1) plaintiffs, herein private respondents, have the right to demand for an accounting from
defendants (herein petitioners), as trustees by reason of the fiduciary relationship that was
created between the parties involving the vessels in question; (2) petitioners have the
16

obligation, as trustees, to render such an accounting; and (3) petitioners failed to do the
same.
Petitioners insist that they do not have any obligation to the private respondents as they are
mere stockholders of the corporation; that the corporate entities have juridical personalities
separate and distinct from those of the private respondents. Private respondents maintain that
the corporations are wholly owned by them and prior to the incorporation of such entities, they
were clients of petitioners which induced them to acquire loans from said petitioners to invest
on the additional ships.
We agree with private respondents. As held in the San Lorenzo case, 40
". . . assuming that the allegation of facts constituting plaintiffs' cause of action is not
as clear and categorical as would otherwise be desired, any uncertainty thereby
arising should be so resolved as to enable a full inquiry into the merits of the action."

As this Court has explained in the San Lorenzo case, such a course, would preclude
multiplicity of suits which the law abhors, and conduce to the definitive determination and
termination of the dispute. To do otherwise, that is, to abort the action on account of the
alleged fatal flaws of the complaint would obviously be indecisive and would not end the
controversy, since the institution of another action upon a revised complaint would not be
foreclosed. 41
Second Issue. Should the complaint be dismissed on the ground of forum non-conveniens?
No. The doctrine of forum non-conveniens, literally meaning 'the forum is inconvenient',
emerged in private international law to deter the practice of global forum shopping, 42 that is to
prevent non-resident litigants from choosing the forum or place wherein to bring their suit for
malicious reasons, such as to secure procedural advantages, to annoy and harass the
defendant, to avoid overcrowded dockets, or to select a more friendly venue. Under this
doctrine, a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is
not the most "convenient" or available forum and the parties are not precluded from seeking
remedies elsewhere. 43
Whether a suit should be entertained or dismissed on the basis of said doctrine depends
largely upon the facts of the particular case and is addressed to the sound discretion of the
trial court. 44 In the case of Communication Materials and Design, Inc. vs. Court of
Appeals, 45 this Court held that ". . . [a] Philippine Court may assume jurisdiction over the case
if it chooses to do so; provided, that the following requisites are met: (1) that the Philippine
Court is one to which the parties may conveniently resort to; (2) that the Philippine Court is in
a position to make an intelligent decision as to the law and the facts; and, (3) that the
Philippine Court has or is likely to have power to enforce its decision." 46 Evidently, all these
requisites are present in the instant case.
Moreover, this Court enunciated in Philsec. Investment Corporation vs. Court of
Appeals, 47 that the doctrine of forum non conveniens should not be used as a ground for a
motion to dismiss because Sec. 1, Rule 16 of the Rules of Court does not include said
doctrine as a ground. This Court further ruled that while it is within the discretion of the trial
court to abstain from assuming jurisdiction on this ground, it should do so only after vital facts
17

are established, to determine whether special circumstances require the court's desistance;
and that the propriety of dismissing a case based on this principle of forum non
conveniens requires a factual determination, hence it is more properly considered a matter of
defense. 48

Third issue. Are private respondents guilty of forum shopping because of the pendency of
foreign action?
No. Forum shopping exists where the elements of litis pendentia are present and where a final
judgment in one case will amount to res judicata in the other. 49 Parenthetically, for litis
pendentia to be a ground for the dismissal of an action there must be: (a) identity of the
parties or at least such as to represent the same interest in both actions; (b) identity of rights
asserted and relief prayed for, the relief being founded on the same acts; and (c) the identity
in the two cases should be such that the judgment which may be rendered in one would,
regardless of which party is successful, amount to res judicata in the other. 50
In case at bar, not all the requirements for litis pendentia are present. While there may be
identity of parties, notwithstanding the presence of other respondents, 51 as well as the
reversal in positions of plaintiffs and defendants 52 , still the other requirements necessary
for litis pendentia were not shown by petitioner. It merely mentioned that civil cases were filed
in Hongkong and England without however showing the identity of rights asserted and the
reliefs sought for as well as the presence of the elements of res judicata should one of the
cases be adjudged.
As the Court of Appeals aptly observed:
. . . [T]he petitioners, by simply enumerating the civil actions instituted abroad involving
the parties herein . . ., failed to provide this Court with relevant and clear specifications
that would show the presence of the above-quoted elements or requisites for res
judicata. While it is true that the petitioners in their motion for reconsideration
(CA Rollo, p. 72), after enumerating the various civil actions instituted abroad, did aver
that "Copies of the foreign judgments are hereto attached and made integral parts
hereof as Annexes 'B', 'C', 'D' and `E'", they failed, wittingly or inadvertently, to include
a single foreign judgment in their pleadings submitted to this Court as annexes to their
petition. How then could We have been expected to rule on this issue even if We were
to hold that foreign judgments could be the basis for the application of the
aforementioned principle of res judicata? 53

Consequently, both courts correctly denied the dismissal of herein subject complaint.
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioners.

TIcEDC

SO ORDERED.
Bellosillo, Mendoza, Quisumbing, and Callejo, Sr., JJ., concur.
|||

(Bank of America NT&SA v. Court of Appeals, G.R. No. 120135, March 31, 2003)
18

[G.R. No. 117932. July 20, 1995.]

AVON
DALE
GARMENTS,
INC., petitioner, vs. NATIONAL
LABOR
RELATIONS COMMISSION, LILIA DUMANTAY, ET. AL., respondent.
1. LABOR AND SOCIAL LEGISLATION; LABOR STANDARDS; COMPROMISE
AGREEMENTS; RULE; NOT COMPLIED WITH IN CASE AT BAR. 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.
For this reason, the compromise agreement submitted by private respondents' counsel cannot
be recognized by this court for being improperly executed.
2. COMMERCIAL LAW; CORPORATION; PERSONALITY THEREOF; CANNOT BE
DEEMED SEPARATE AND DISTINCT WHERE THERE IS A SHOWING THAT ONE IS A
MERE CONTINUATION OF THE OTHER. 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, and even continued to hire the same employees (herein
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. 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. 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.
FRANCISCO, J :
p

19

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 the 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.
cdphil

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-ininterest, 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 being
improperly executed.
20

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 established 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.
cdrep

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 in its property, rights, or liabilities. 8 Respondents
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.
Feliciano, Romero, Melo and Vitug, JJ., concur.
|||

(Avon Dale Garments, Inc. v. NLRC, G.R. No. 117932 (Resolution), July 20, 1995)

21

[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, Rogelio Salut, Emilio Garcia, Jr.,
Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo
Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino
Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben
Robalos, respondents.
1. COMMERCIAL LAW; CORPORATION LAW; DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY; WHEN APPLICABLE. 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. But, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and to promote justice. 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, this separate
personality of the corporation may be disregarded or the veil of corporate fiction pierced. This
is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego
of another corporation.
2. ID.; ID.; ID.; PROBATIVE FACTORS OF IDENTITY THAT WILL JUSTIFY THE
APPLICATION THEREOF. 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
22

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."
3. ID.; ID.; ID.; TEST IN DETERMINING THE APPLICABILITY THEREOF. The test in
determining the applicability of the doctrine of piercing the veil of corporation fiction is as
follows: "1. Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own; 2. Such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest
and unjust act in contravention of plaintiff's legal rights; and 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 prevent 'piercing the corporate veil.' In applying the 'instrumentality'
or 'alter ego' doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant's relationship to that operation."
4. ID.; ID.; ID.; APPLICABLE IN CASE AT BAR. 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. Casio 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." 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.
5. ID.; NATIONAL LABOR RELATIONS COMMISSION MANUAL OF EXECUTION OF
JUDGMENT; SECTION 3, RULE VII THEREOF; PROPERLY OBSERVED IN CASE AT BAR.
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 breakopen 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 Commissioner or Labor Arbiter
concerned for a break-open order."
23

HERMOSISIMA, JR., J :
p

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is
just but the alter ego of a person or of another corporation. Where badges of fraud exist;
where public convenience is defeated; where a wrong is sought to be justified thereby, the
corporate fiction or the notion of legal entity should come to naught. The law in these
instances will regard the corporation as a mere association of persons and, in case of two
corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporation's 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 petitioner's 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 on November 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 respondent's 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 judgment 1 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 petitioner's debtor, the Metropolitan Waterworks and
24

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 petitioner's 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 petitioner's 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 Vice-President.
On November 23, 1989, private respondents filed a "Motion for Issuance of a BreakOpen 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 Information Sheet, dated May 15, 1987, submitted by petitioner to
the Securities Exchange Commission (SEC) and the General Information Sheet, dated
May 15, 1987, submitted by HPPI to the Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner revealed the following:
"1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
HPPI P6,999,500.00
25

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 O. 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
26

Teodulo R. Dino Member

3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa C. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila." 6

On February 1, 1990, HPPI filed an Opposition to private respondents' motion for issuance of
a break-open order, contending that HPPI is a corporation which is separate and distinct from
petitioner. HPPI also alleged that the two corporations are engaged in two different kinds of
businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in
construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents'
motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the
order of the Labor Arbiter, issued a break-open order and directed private respondents to file a
bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties
already levied upon. It dismissed the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution,
dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when it
ordered the execution of its decision despite a third-party claim on the levied property.
Petitioner further contends, that the doctrine of piercing the corporate veil should not have
been applied, in this case, in the absence of any showing that it created HPPI in order to
evade its liability to private respondents. It also contends that HPPI is engaged in the
manufacture and sale of steel, concrete and iron pipes, a business which is distinct and
separate from petitioner's construction business. Hence, it is of no consequence that
petitioner and HPPI shared the same premises, the same President and the same set of
officers and subscribers. 7
We find petitioner's contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders and from other corporations to which it may be
connected. 8 But, this separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice. 9 So, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong, protect fraud or
defend crime, or is used as a device to defeat the labor laws, 10 this separate personality of
the corporation may be disregarded or the veil of corporate fiction pierced. 11 This is true
27

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 plaintiff's 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
defendant's relationship to that operation." 14

Thus, the question of whether a corporation is a mere alter ego, a mere sheet or
paper corporation, a sham or a subterfuge is purely one of fact. 15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business
operations on April 29, 1986, it filed an Information Sheet with the Securities and
Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan
28

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. Casio 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
Relations, 17 where we had the occasion to rule:
"Respondent court's findings that indeed the Claparols Steel and Nail Plant, which
ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel
Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the
latter finally ceased to operate, were not disputed by petitioner. It is very clear that the
latter corporation was a continuation and successor of the first entity . . . Both
predecessors and successor were owned and controlled by petitioner Eduardo
Claparols and there was no break in the succession and continuity of the same
business. This 'avoiding-the-liability' scheme is very patent, considering that 90% of
the subscribed shares of stock of the Claparols Steel Corporation (the second
corporation) was owned by respondent . . . Claparols himself, and all the assets of the
dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols
Steel Corporation.
It is very obvious that the second corporation seeks the protective shield of a
corporate fiction whose veil in the present case could, and should, be pierced as it was
deliberately and maliciously designed to evade its financial obligation to its
employees."

In view of the failure of the sheriff, in the case at bar, to effect a levy upon the
property subject of the execution, private respondents had no other recourse but to apply
for a break-open order after the third-party claim of HPPI was dismissed for lack of merit
by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of
Execution of Judgment which provides that:
29

"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 quasijudicial 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 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.
Padilla, Bellosillo, Vitug and Kapunan, JJ ., concur.
|||

(Concept Builders, Inc. v. NLRC, G.R. No. 108734, May 29, 1996)

[G.R. No. 115849. January 24, 1996.]

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.
1.CIVIL LAW; PRIVATE INTERNATIONAL LAW; ORIGIN OF FORUM-SHOPPING. Forumshopping originated as a concept in private international law, 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
conflict 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. Hence, according to Words and Phrases, "a litigant is open to the charge of 'forum
shopping' whenever he chooses a forum with the 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."
cdasia

2.REMEDIAL LAW; CIVIL PROCEDURE; FORUM-SHOPPING; AS A CHOICE OF VENUE

AND AS A CHOICE OF REMEDY; CONSTRUED. In the Philippines, forum shopping has
30

acquired a connotation encompassing not only a choice of venues, as it was originally

understood in conflicts of law, 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.
3.ID.; ID.; ID.; AS AN UNETHICAL PRACTICE; WHEN PRESENT. What originally started
both in conflicts of laws and in our domestic law as a legitimate device for solving problems
has been abused and mis-used 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 the inveterate use of this insidious malpractice. Forum-shopping 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 . . .." 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."
cdasia

4.ID; ID.; ID.; AS A GROUND FOR SUMMARY DISMISSAL. 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, 145 SCRA 34 (October 13, 1986), 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. 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 this 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 (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. 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
31

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.
5. D.; ID.; ID.; ID.; APPLICATION OF PRINCIPLE IN CASE AT BAR. Applying the
foregoing principles in the present case 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 to enforce the alleged perfected sale of
real estate. On the other hand, the complaint 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 this case, 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.
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]).
cdasia

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.
8.CIVIL LAW; CONTRACT; REQUISITES. 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."
32

9.COMMERCIAL LAW; CORPORATION CODE; BANKS; DOCTRINE OF APPARENT

AUTHORITY; CONSTRUED. 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, 223 SCRA 350
(June 14, 1993), where it was held that: "Conformably, we have declared in countless
decisions that the principal is liable for obligations contracted by the agent. The agent's
apparent representation yields to the principal's 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 dealing 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."

10.CIVIL LAW; CONTRACTS; WHEN DEFECTS THEREOF UNDER STATUTE OF FRAUD

DEEMED WAIVED. The statute of frauds will not apply by reason of the failure of
petitioners to object to oral testimony proving petitioner Bank's counter-offer of P5.5 million.
Hence, petitioners by such utter failure to object are deemed to have waived any defects
of the contracts under the statute of frauds, pursuant to Article 1405 of the Civil Code. 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.
11.REMEDIAL LAW; PETITION FOR REVIEW; FINDINGS OF FACTS BY THE COURT OF
APPEALS; NOT REVIEWABLE BY THE SUPREME COURT; RULE AND EXCEPTION.
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. However, there are
settled exceptions where the Supreme Court may disregard findings of fact by the Court of
Appeals. 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 all the witnesses and their courtroom manner as well as to examine the real
evidence presented .
33

12.POWERS OF THE CONSERVATOR. 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. If the
legislature itself cannot revoke an existing valid contract, how can it delegate such nonexistent 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 bank's 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.
PANGANIBAN, J :
p

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.

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34

"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 court's 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. T-106932
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;

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"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 owner's copies of T.C.T. Nos. T-106932 to T106937, 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 P200,000.00 each in moral damages;
"4.Ordering the defendants, jointly and severally, to pay plaintiffs the sum of
P100,000.00 as exemplary damages;

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"5.Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorney's 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
undersignedponente for the writing of this Decision.
cdta

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
35

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 plaintiffs-appellees 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.
cdta

The Facts
The facts of this case are summarized in the respondent Court's 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 for a
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
Investment's 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

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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-106932113,580 sq.m.
T-10693370,899 sq.m.
T-10693452,246 sq.m.
T-10693596,768 sq.m.
36

T-106936187,114 sq.m.
T-106937481,481 sq.m.

My

offer

is

for

PESOS:

THREE

(P3,500,000.00) PESOS, in cash.

MILLION

FIVE

HUNDRED

THOUSAND

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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:

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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 bank's 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 Rivera's aforequoted reply,
wrote (Exh. "D"):
September 17, 1987

Producers Bank
Paseo de Roxas
Makati, Metro Manila

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Attention:Mr. Mercurio Rivera

Gentlemen:

37

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 Janolo's 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 on September 30, 1987, plaintiff Janolo sent
to the bank, through Rivera, the following letter (Exh. "E"):

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The Producers Bank of the Philippines

Paseo de Roxas, Makati
Metro Manila

Attention:Mr. Mercurio Rivera

Re: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 Investment, 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"):

cdta

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
38

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:

cdta

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. T106932 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.

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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 . . . 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 (Exh. "L" and "L-1"), this time through the
Acting Conservator, defendant Encarnacion. Plaintiffs' letter reads:

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PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
39

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.

cdasia

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 defendant's 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 non-compliance 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."

cdasia

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 Bank's 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 court's 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.
40

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. 921606, 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 plaintiff's 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.
cdasia

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.

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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.

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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.
41

"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."

cdasia

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?
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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 . . .
[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
cdasia

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;

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42

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, Black's 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".
cdasia

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 orculpa 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

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43

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. Forum shopping 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. . . ." 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:
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"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 adjudicatain 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
44

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.
cdasia

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 complaint21 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." (Emphasis supplied)

In an earlier case 23 , but with the same logic and vigor, we held:

cdasia

"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
45

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 oficio. 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:
cdasia

"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]; Emphasis 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
46

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.
cdasia

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 authorityVictronics 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, Velhagen's and King's 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." (Emphasis 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 pleading to the complaint as a result of
which, the issues were joined.
cdasia

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
47

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 Petition's 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 propioimposing 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.
cdasia

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 Bank's
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):

cdasia

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
48

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 pointblank 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 week's (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.

cdasia

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 bank's internal procedure in the matter of
the sale of bank's 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 bank's 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
49

the established facts, the price of P5.5 Million was, as clearly worded in Rivera's 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 bank's 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 bank's 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 bank's 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, 369370; 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 Court's 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 Court's 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
50

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 dismissed 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 Rivera's authority to act and petitioner's 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 agent's apparent representation yields to the
principal's 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 interest 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 2, 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 Bank's acquired assets (TSN, August 6, 1990,
pp. 8-9);
51

(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 Bank's 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
Rivera's statement as to the finality of the Bank's 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 Bank's advertisements offering for
sale the property in question (cf. Exhs. "S" and "S-1").
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 Rivera's apparent authority through documents
and testimony which seek to establish Rivera's actualauthority. These pieces of evidence,
however, are inherently weak as they consist of Rivera's 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 Court's 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 Rivera's 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 Rivera's 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.

52

Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter
dated September 17, 1987 extinguished the Bank's offer of P5.5 million. 34 They disputed the
respondent Court's 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' Rivera's
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 Bank's 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 . . ."
Petitioners insist that the respondent Court should have believed the testimonies of Rivera
and Co that the September 28, 1987 meeting "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, assuming arguendo that the counter-offer of P4.25
million extinguished the offer of P5.5 million, Luis Co's 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 Bank's repudiation, through Conservator Encarnacion, of Rivera's authority
and action, particularly the latter's counter-offer of P5.5 million, as being "unauthorized and
illegal" came only on May 12, 1988 or more than seven (7) months after Janolo's 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 lastminute attempt on the Bank's 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 Bank's 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,
53

as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243,
November 14, 1986, 145 SCRA 592)." 40
". . . 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:
". . . Of course, the bank's 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 bank's 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 Janolo's 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 Bank's counter-offer of P5.5 million. Hence, petitioners by such
54

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:
AYes, 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
QNow, what transpired during this meeting with Luis Co of the Producers Bank?
AAtty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
QWhat price?
AThe 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.
QWhat do you mean?
AThat is the amount they want, sir.
QWhat is the reaction of the plaintiff Demetria to Luis Co's statment (sic) that the
defendant Rivera's counter-offer of 5.5 million was the defendant's bank (sic)
final offer?
AHe said in a day or two, he will make final acceptance, sir.
QWhat is the response of Mr. Luis Co?
AHe 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.]
xxx xxx xxx
QWhat transpired during that meeting between you and Mr. Luis Co of the defendant
Bank?
AWe 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.
QWhat was your response to the answer of Mr. Luis Co?

55

AI 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.
QFor 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?
AMr. Co himself, Mr. Rivera, Atty. Fajardo and I.
QBy Mr. Co you are referring to?
AMr. Luis Co.
QAfter this meeting with Mr. Luis Co, did you and your partner accede on (sic) the
counter offer by the bank?
AYes, 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.]
xxx xxx xxx
QAccording 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?
AIt 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
56

notwithstanding, and such other powers as the Monetary Board shall deem
necessary."

In the first place, this issue of the Conservator's 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 Bank's
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 Sec. 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.

57

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,

discussions/consultations

what

between

took
him

place

and

your

were

just

clients,

which

preliminary
everyone

knows cannot bind the Bank's 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

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 bank's 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?

58

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:
". . . . 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. L-24426, 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 Court's 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. . . ."

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."
59

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. . . .
(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."
(Emphasis supplied)

Petitioners, however, assailed the respondent Court's 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 "Bank's counter-offer 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 bank's 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. . . . Tersely put, under the
established fact, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh.
'E'), the official and definitive price at which the bank was selling the property." (p. 11,
CA Decision).
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 bank's 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.

60

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
respondent's 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 Bank's offer of P5.5 million
and the conservator's powers to repudiate contracts entered into by the Bank's 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 Court's 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 government-appointed conservator and "there is need to rehabilitate the Bank in
order to get it back on its feet . . . as many people depend on (it) for investments, deposits and
well as employment. As of June 1987, the Bank's overdraft with the Central Bank had already
reached P1.023 billion . . . 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
61

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 respondent's 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 P3.5
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.
Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.
|||

(First Philippine International Bank v. Court of Appeals, G.R. No. 115849, January 24, 1996)

62

[G.R. No. 100812. June 25, 1999.]

FRANCISCO
MOTORS
CORPORATION, petitioner, vs.
COURT
OF
APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL,respondents.
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 attorney's fees. Spouses Manuel filed their answer and interposed a counterclaim for
unpaid legal services by Gregorio Manuel which was not paid 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 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 court's 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 court's resort to this doctrine. The rationale behind piercing a corporation's identity in a
given case is to remove the barrier between the corporation from the persons comprising it to
thwart the fraudulent and illegal schemes of those who use the corporate personality as a
shield for undertaking certain 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 Trinidad's estate. These estate proceedings did not involve any business of
petitioner.
cDTACE

However, with regard to the procedural issue raised by petitioner's allegation, that it needed to
be summoned anew in order for the court to acquire jurisdiction over it, the Court agreed with
respondent court's view to the contrary. Section 4, Rule 11 of the Rules of Courtprovides 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 plaintiff's 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.
1. COMMERCIAL LAW; CORPORATION; PIERCING THE VEIL OF CORPORATE ENTITY;
EXPLAINED. Basic in corporation law is the principle that a corporation has a separate
63

personality distinct from its stockholders and from other corporations. However, under the
doctrine of piercing the veil of corporate entity, the corporation's 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 justifiably set aside.
2. ID.; ID.; ID.; RATIONALE. The rationale behind piercing a corporation's 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 Trinidad's 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 partyin-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.
QUISUMBING, J :
p

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
64

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 attorney's 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 petitioner's claim for money,
but also allowed the counter-claim of private respondents. Both parties appealed. On April 15,
1991, the Court of Appeals sustained the trial court's decision. 5 Hence, the present
petition.
Cdpr

For our review in particular is the propriety of the permissive counterclaim which private
respondents filed together with their answer to petitioner's complaint for a sum of money.
Private respondent Gregorio Manuel alleged as an affirmative defense that, while he was
petitioner's 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 petitioner's collection suit,
he filed a permissive counterclaim for the unpaid attorney's 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 court's order, petitioner elevated the matter to the Court of Appeals,
posing the following issues:
Cdpr

"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.
65

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFFAPPELLANT 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 court's 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 petitioner's 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 court's
jurisdiction. 10
On the question of its liability for attorney's 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.
cdtai

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
66

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 plaintiffappellant's veil of corporate identity should be pierced and the defendant be
compensated for legal services rendered to the heirs, who are directors of the plaintiffappellant 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.

cdrep

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 party's
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.
67

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 petitioner's 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
petitioner's 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 petitioner's 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 corporation's 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 court's resort to this doctrine. The rationale behind piercing a corporation's identity in a
given case is to remove the barrier between the corporation from the persons comprising it to
thwart the fraudulent and illegal schemes of those who use the corporate personality as a
68

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 Trinidad's 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 petitioner's corporate
assets could be used to answer for the liabilities of its individual directors, officers, and
incorporators. Such result if permitted could easily prejudice the corporation, its own 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.
cdll

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 petitioner's allegation, that it needed to
be summoned anew in order for the court to acquire jurisdiction over it, we agree with
respondent court's view to the contrary. Section 4, Rule 11 of the 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
69

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, plaintiff-appellant 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 court's 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

cdrep

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.
Bellosillo, Puno, Mendoza and Buena, JJ., concur.
|||

(Francisco Motors Corp. v. Court of Appeals, G.R. No. 100812, June 25, 1999)

70

[G.R. Nos. 116124-25. November 22, 2000.]

BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS and
GENERAL CREDIT CORPORATION, respondents.
Sometime in the early 1960s, the Commercial Credit Corporation (CCC) a financing and
investment firm, decided to organize franchise companies in different parts of the country,
wherein it shall hold 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 CCC-QC. CCC-QC
entered into an exclusive management contract with CCC wherein it was stipulated that CCCQC shall sell, discount and/or assign its receivables to CCC. Subsequently, however, this
discounting arrangement was discontinued pursuant to the so-called "DOSRI Rule" of the
Central Bank which prohibited the lending of funds by corporations to its directors, officers,
stockholders and other persons with related interests therein. Due to the new restrictions,
CCC decided to form CCC-Equity Corporation. Under the new set-up, several officials of
CCC, including petitioner Reynoso, became employees of CCC-Equity. While. he continued to
be the Resident Manager of CCC-QC, he drew his salaries and allowances from CCC-Equity.
Petitioner, in order to boost the business activities of CCC-QC, deposited his personal funds it
the company: In return, CCC-QC issued to him its interest-bearing promissory notes. On
August 15, 1980, a complaint for sum of money with preliminary attachment was instituted
against him by CCC-QC before the then Court of First Instance of Rizal, alleging that
petitioner embezzled the funds of CCC-QC amounting to P1,300,593.11. But petitioner
asserted that the said amount represented his money placement in CCCQC as shown by 23
checks which he issued to the said company. In the meantime, he was dismissed from his
employment by CCC-Equity. The trial court rendered a decision in favor of the petitioner. The
decision became final and, accordingly, a Writ of Execution was issued. However, the
judgment remained unsatisfied, prompting petitioner to file a Motion for Alias Writ of
Execution. Meanwhile, in 1983, CCC became known as the General Credit Corporation
(GCC). The Regional Trial Court of Quezon City then issued an Order directing GCC to file its
comment on petitioner's motion. GCC alleged that it was not a party to the case.
Consequently, the trial court ordered the issuance of an alias of writ of execution. Thus, GCC
instituted a petition for certiorari with the Court of Appeals which nullified the order of the trial
court. Hence, this petition.
71

The Court ruled that the defense of separateness will be disregarded where the business
affairs of a subsidiary corporation are so controlled by the mother corporation to the extent
that it becomes an instrument or agent of its parent. But even when there is dominance over
the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only
when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend
crime. Factually and legally, the CCC had dominant control of the business operations of
CCC-QC. The exclusive management contract insured that CCC-QC would be managed and
controlled by CCC and would not deviate from the commands of the mother corporation. In
addition, CCC appointed its own employee, petitioner, as the resident manager of CCC-QC.
There were other indications in the record which attest to the applicability of the identity rule in
this case, namely: the unity of interests, management, and control; the transfer of funds to suit
their individual corporate conveniences; and the dominance of policy and practice by the
mother corporation insure that CCC-QC was an instrumentality or agency of CCC. A court
judgment becomes useless and ineffective if the employer, in this case CCC as a mother
corporation, is placed beyond the legal reach of the judgment creditor. The decision of the
Court of Appeals was REVERSED and SET ASIDE.
1. MERCANTILE LAW; CORPORATION LAW; CORPORATION; DEFINED. A corporation
is an artificial being created by operation of law, having the right of succession and the
powers, attributes, and properties expressly authorized by law or incident to its existence. It is
an artificial being invested by law with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which it may be related.
It was evolved to make possible the aggregation and assembling of huge amounts of capital
upon which big business depends. It also has the advantage of non-dependence on the lives
of those who compose it even as it enjoys certain rights and conducts activities of natural
persons.
2. ID.; ID.; PIERCING THE VEIL OF CORPORATE ENTITY; CORPORATE FICTION HAS TO
BE DISREGARDED WHEN NECESSARY IN THE INTEREST OF JUSTICE. Precisely
because the corporation in such a prevalent and dominating factor in the business life of the
country, the law has to look carefully into the exercise of powers by these artificial persons it
has created. Any piercing of the corporate veil has to be done with caution. However, the
Court will not hesitate to use its supervisory and adjudicative powers where the corporate
fiction is used as an unfair device to achieve an inequitable result, defraud creditors, evade
contracts and obligations, or to shield it from the effects of a court decision. The corporate
fiction has to be disregarded when necessary in the interest of justice. In First Philippine
International Bank vs. Court of Appeals, et al., we held: "When the fiction is urged as a means
of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, the achievement or perfection of a monopoly or generally the
perpetration of knavery or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals." Also in the above-cited case, we
stated that this Court has pierced the veil of corporate fiction in numerous cases where it was
used, among others, to avoid judgment credit; to avoid inclusion of corporate assets as part of
the estate of a decedent; to avoid liability arising from debt; when made use of as a shield to
72

perpetrate fraud and/or confuse legitimate issues; or to promote unfair objectives or otherwise
to shield them.
3. ID.; ID.; ID.; APPLIES ONLY WHEN SUCH FICTION IS USED TO DEFEAT PUBLIC
CONVENIENCE, JUSTIFY WRONG, PROTECT FRAUD OR DEFEND CRIME. The
defense of separateness will be disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an
instrument or agent of its parent. But even where there is dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is
used to defeat public convenience, justify wrong, protect fraud or defend crime. We stated
in Tomas Lao Construction v. National Labor Relations Commission, that the legal fiction of a
corporation being a judicial entity with a distinct and separate personality was envisaged for
convenience and to serve justice. Therefore, it should not be used as a subterfuge to commit
injustice and circumvent the law.
4. ID.; ID.; ID.; SEPARATE CORPORATE CHARACTER OF MOTHER CORPORATION AND
ITS SUBSIDIARY CONTINUES FOR LEGITIMATE OBJECTIVES, HOWEVER, IT IS
PIERCED IN ORDER TO REMEDY INJUSTICE. It is obvious that the use by CCC-QC of
the same name of Commercial Credit Corporation was intended to publicly identify it as a
component of the CCC group of companies engaged in one and the same business, i.e.,
investment and financing. Aside from CCC-Quezon City, other franchise company were
organized such as CCC-North Manila and CCC-Cagayan Valley. The organization of
subsidiary corporations as what was done here is usually resorted to for the aggrupation of
capital, the ability to cover more territory and population, the decentralization of activities best
decentralized, and the securing of the other legitimate advantages. But when the mother
corporation and its subsidiary cease to act in good faith and honest business judgment, when
the corporate device is used by the parent to avoid its liability for legitimate obligations of the
subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice, the
law steps in to remedy the problem. When that happens, the corporate character is not
necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to
remedy injustice, such as that inflicted in this case.
CHcTIA

5. ID.; ID.; ID.; IDENTITY RULE; APPLIED IN CASE AT BAR. Factually and legally, the
CCC had dominant control of the business operations of CCC-QC. The exclusive
management contract insured that CCC-QC would be managed and controlled by CCC and
would not deviate from the commands of the mother corporation. In addition to the exclusive
management contract, CCC appointed its own employee, petitioner, as the resident manager
of CCC-QC. Petitioner's designation as "resident manager" implies that he was placed in
CCC-QC by a superior authority. In fact, even after his assignment to the subsidiary
corporation, petitioner continued to receive his salaries, allowances, and benefits from CCC,
which later became respondent General Credit Corporation. Not only that. Petitioner and the
other permanent employees of CCC-QC were qualified members and participants of the
Employees Pension Plan of CCC. There are other indications in the record which attest to the
applicability of the identity rule in this case, namely: the unity of interests, management, and
control; the transfer of funds to suit their individual corporate conveniences; and the
dominance of policy and practice by the mother corporation insure that CCC-QC was an
73

instrumentality or agency of CCC. As petitioner stresses, both CCC and CCC-QC were
engaged in the same principal line of business involving a single transaction process. Under
their discounting arrangements, CCC financed the operations of CCC-QC. The subsidiary
sold, discounted, or assigned its accounts receivables to CCC. The testimony of Joselito D.
Liwanag, accountant and auditor of CCC since 1971, shows the pervasive and intensive
auditing function of CCC over CCC-QC. The two corporations also shared the same office
space. CCC-QC had no office of its own. The complaint in Civil Case No. Q-30583, instituted
by CCC-QC, was even verified by the director-representative of CCC. The lawyers who filed
the complaint and amended complaint were all in-house lawyers of CCC.

6. ID.; ID.; ID.; COURT JUDGMENT BECOME USELESS AND INEFFECTIVE IF THE
EMPLOYER IS PLACED BEYOND THE LEGAL REACH OF THE JUDGMENT CREDITOR;
CASE AT BAR. Paraphrasing the ruling in Claparols v. Court of Industrial Relations,
reiterated in Concept Builders Inc. v. National Labor Relations, it is very obvious that
respondent "seeks the protective shield of a corporate fiction whose veil the present case
could, and should, be pierced as it was deliberately and maliciously designed to evade its
financial obligation of its employees." If the corporate fiction is sustained, it becomes a handy
deception to avoid a judgment debt and work an injustice. The decision raised to us for review
is an invitation to multiplicity of litigation. As we stated inIslamic Directorate vs. Court of
Appeals, the end of justice are not served if further litigation is encouraged when the issue is
determinable based on the records. A court judgment become useless and ineffective if the
employer, in this case CCC as a mother corporation, is placed beyond the legal reach of the
judgment creditor who, after protracted litigation, has been found entitled to positive relief.
Courts have been organized to put an end to controversy. This purpose should not be
negated by an inapplicable and wrong use of the fiction of the corporate veil.
ISHaTA

YNARES-SANTIAGO, J :
p

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).
AIHaCc

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.
74

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 whollyowned subsidiary, to which CCC transferred its thirty (30%) percent equity in CCC-QC,
together with two seats in the latter's Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner
Reynoso, became employees of CCC-Equity. While petitioner continued to be the Resident
Manager of CCC-QC, he drew his salaries and allowances from CCC-Equity. Furthermore,
although an employee of CCC-Equity, petitioner, as well as all employees of CCC-QC,
became qualified members of the Commercial Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and
supervised its employees. The business activities of CCC-QC pertain to the acceptance of
funds from depositors who are issued interest-bearing promissory notes. The amounts
deposited are then loaned out to various borrowers. Petitioner, in order to boost the business
activities of CCC-QC, deposited his personal funds in the company. In return, CCC-QC issued
to him its interest-bearing promissory notes.
On August 15, 1980, a complaint for sum of money with preliminary attachment, 1 docketed as
Civil Case No. Q-30583, was instituted in the then Court of First Instance of Rizal by CCC-QC
against petitioner, who had in the meantime been dismissed from his employment by CCCEquity. The complaint was subsequently amended in order to include Hidelita Nuval,
petitioner's wife, as a party defendant. 2 The complaint alleged that petitioner embezzled the
funds of CCC-QC amounting to P1,300,593.11. Out of this amount, at least P630,000.00 was
used for the purchase of a house and lot located at No. 12 Macopa Street, Valle Verde I,
Pasig City. The property was mortgaged to CCC, and was later foreclosed.
In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and
asserted that the sum of P1,300,593.11 represented his money placements in CCC-QC, as
shown by twenty-three (23) checks which he issued to the said company. 3
The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86,
pursuant to the Judiciary Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its decision, the decretal portion of which states:
Premises considered, the Court finds the complaint without merit. Accordingly, said
complaint is hereby DISMISSED.
By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation,
humiliation and mental anguish.
On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is
hereby ordered:
a) to pay defendant the sum of P185,000.00 plus 14% interest per annum from
October 2, 1980 until fully paid;
b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per
annum from June 24, 1981, the date of filing of Amended Answer, until fully
paid; from this amount may be deducted the remaining obligation of defendant
75

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, 5prompting petitioner to file a Motion
for Alias Writ of Execution, Examination of Judgment Debtor, and to Bring Financial Records
for Examination to Court. CCC-QC filed an Opposition to petitioner's motion, 6 alleging that the
possession of its premises and records had been taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
On November 22, 1991, the Regional Trial Court of Quezon City issued an Order directing
General Credit Corporation to file its comment on petitioner's motion for alias writ of
execution. 7 General Credit Corporation filed a Special Appearance and Opposition on
December 2, 1991, 8 alleging that it was not a party to the case, and therefore petitioner
should direct his claim against CCC-QC and not General Credit Corporation. Petitioner filed
his reply, 9stating 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, CCCEquity 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
76

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. Q30583.
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

Hence, this petition for review anchored on the following arguments:

1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R SP NO. 27683
WHEN IT NULLIFIED AND SET ASIDE THE 13 FEBRUARY 1992 ORDER AND
OTHER ORDERS OR PROCESS OF BRANCH 86 OF THE REGIONAL TRIAL
COURT OF QUEZON CITY THROUGH WHICH GENERAL CREDIT CORPORATION
IS MADE LIABLE UNDER THE JUDGMENT THAT WAS RENDERED IN CIVIL CASE
NO. Q-30583.
2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R SP NO. 27518
WHEN IT ENJOINED THE AUCTION SALE ON EXECUTION OF THE PROPERTIES
OF GENERAL CREDIT CORPORATION AS WELL AS INITIATING SIMILAR ACTS
OF LEVYING UPON AND SELLING ON EXECUTION OF OTHER PROPERTIES OF
GENERAL CREDIT CORPORATION.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT GENERAL
CREDIT CORPORATION IS A STRANGER TO CIVIL CASE NO. Q-30583, INSTEAD
OF, DECLARING THAT COMMERCIAL CREDIT CORPORATION OF QUEZON CITY
77

IS

THE

ALTER

EGO,

INSTRUMENTALITY,

CONDUIT

OR

ADJUNCT

OF

COMMERCIAL CREDIT CORPORATION AND ITS SUCCESSOR GENERAL CREDIT

CORPORATION.

At the outset, it must be stressed that there is no longer any controversy over petitioner's
claims against his former employer, CCC-QC, inasmuch as the decision in Civil Case No. Q30583 of the Regional Trial Court of Quezon City has long become final and executory. The
only issue, therefore, to be resolved in the instant petition is whether or not the judgment in
favor of petitioner may be executed against respondent General Credit Corporation. The latter
contends that it is a corporation separate and distinct from CCC-QC and, therefore, its
properties may not be levied upon to satisfy the monetary judgment in favor of petitioner. In
short, respondent raises corporate fiction as its defense. Hence, we are necessarily called
upon to apply the doctrine of piercing the veil of corporate entity in order to determine if
General Credit Corporation, formerly CCC, may be held liable for the obligations of CCCQC.
TAEcSC

The petition is impressed with merit.

A corporation is an artificial being created by operation of law, having the right of succession
and the powers, attributes, and properties expressly authorized by law or incident to its
existence. 17 It is an artificial being invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to which it
may be related. 18 It was evolved to make possible the aggregation and assembling of huge
amounts of capital upon which big business depends. It also has the advantage of nondependence on the lives of those who compose it even as it enjoys certain rights and
conducts activities of natural persons.
Precisely because the corporation is such a prevalent and dominating factor in the business
life of the country, the law has to look carefully into the exercise of powers by these artificial
persons it has created.
Any piercing of the corporate veil has to be done with caution. However, the Court will not
hesitate to use its supervisory and adjudicative powers where the corporate fiction is used as
an unfair device to achieve an inequitable result, defraud creditors, evade contracts and
obligations, or to shield it from the effects of a court decision. The corporate fiction has to be
disregarded when necessary in the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al., 19 we held:
When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or
crime, the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals.

Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction
in numerous cases where it was used, among others, to avoid a judgment credit; 20 to avoid
inclusion of corporate assets as part of the estate of a decedent; 21 to avoid liability arising
78

from debt; 22 when made use of as a shield to perpetrate fraud and/or confuse legitimate
issues; 23 or to promote unfair objectives or otherwise to shield them. 24
In the appealed judgment, the Court of Appeals sustained respondent's arguments of
separateness and its character as a different corporation which is a non-party or stranger to
this case.
The defense of separateness will be disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an
instrument or agent of its parent. But even when there is dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is
used to defeat public convenience, justify wrong, protect fraud or defend crime. 25
We stated in Tomas Lao Construction v. National Labor Relations Commission, 26 that the
legal fiction of a corporation being a judicial entity with a distinct and separate personality was
envisaged for convenience and to serve justice. Therefore, it should not be used as a
subterfuge to commit injustice and circumvent the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation
was intended to publicly identify it as a component of the CCC group of companies engaged
in one and the same business, i.e., investment and financing. Aside from CCC-Quezon City,
other franchise companies were organized such as CCC-North Manila and CCC-Cagayan
Valley. The organization of subsidiary corporations as what was done here is usually resorted
to for the aggrupation of capital, the ability to cover more territory and population, the
decentralization of activities best decentralized, and the securing of other legitimate
advantages. But when the mother corporation and its subsidiary cease to act in good faith and
honest business judgment, when the corporate device is used by the parent to avoid its
liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to
perpetrate fraud or promote injustice, the law steps in to remedy the problem. When that
happens, the corporate character is not necessarily abrogated. It continues for legitimate
objectives. However, it is pierced in order to remedy injustice, such as that inflicted in this
case.
Factually and legally, the CCC had dominant control of the business operations of CCC-QC.
The exclusive management contract insured that CCC-QC would be managed and controlled
by CCC and would not deviate from the commands of the mother corporation. In addition to
the exclusive management contract, CCC appointed its own employee, petitioner, as the
resident manager of CCC-QC.
Petitioner's designation as "resident manager" implies that he was placed in CCC-QC by a
superior authority. In fact, even after his assignment to the subsidiary corporation, petitioner
continued to receive his salaries, allowances, and benefits from CCC, which later became
respondent General Credit Corporation. Not only that. Petitioner and the other permanent
employees of CCC-QC were qualified members and participants of the Employees Pension
Plan of CCC.

79

There are other indications in the record which attest to the applicability of the identity rule in
this case, namely: the unity of interests, management, and control; the transfer of funds to suit
their individual corporate conveniences; and the dominance of policy and practice by the
mother corporation insure that CCC-QC was an instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the same principal line of
business involving a single transaction process. Under their discounting arrangements, CCC
financed the operations of CCC-QC. The subsidiary sold, discounted, or assigned its
accounts receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971, shows the
pervasive and intensive auditing function of CCC over CCC-QC. 27 The two corporations also
shared the same office space. CCC-QC had no office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified by the
director-representative of CCC. The lawyers who filed the complaint and amended complaint
were all in-house lawyers of CCC.
The challenged decision of the Court of Appeals states that CCC, now General Credit
Corporation, is not a formal party in the case. The reason for this is that the complaint was
filed by CCC-QC against petitioner. The choice of parties was with CCC-QC. The judgment
award in this case arose from the counterclaim which petitioner set up against CCC-QC.
The circumstances which led to the filing of the aforesaid complaint are quite revealing. As
narrated above, the discounting agreements through which CCC controlled the finances of its
subordinates became unlawful when Central Bank adopted the DOSRI prohibitions. Under
this rule the directors, officers, and stockholders are prohibited from borrowing from their
company. Instead of adhering to the letter and spirit of the regulations by avoiding DOSRI
loans altogether, CCC used the corporate device to continue the prohibited practice. CCC
organized still another corporation, the CCC-Equity Corporation. However, as a wholly owned
subsidiary, CCC-Equity was in fact only another name for CCC. Key officials of CCC,
including the resident managers of subsidiary corporations, were appointed to positions in
CCC-Equity.

In order to circumvent the Central Bank's disapproval of CCC-QC's mode of reducing its
DOSRI lender accounts and its directive to follow Central Bank requirements, resident
managers, including petitioner, were told to observe a pseudo-compliance with the phasing
out orders. For his unwillingness to satisfactorily conform to these directives and his
reluctance to resort to illegal practices, petitioner earned the ire of his employers. Eventually,
his services were terminated, and criminal and civil cases were filed against him.
Petitioner issued twenty-three checks as money placements with CCC-QC because of
difficulties faced by the firm in implementing the required phase-out program. Funds from his
current account in the Far East Bank and Trust Company were transferred to CCC-QC. These
monies were alleged in the criminal complaints against him as having been stolen.
Complaints for qualified theft and estafa were brought by CCC-QC against petitioner. These
criminal cases were later dismissed. Similarly, the civil complaint which was filed with the
80

Court of First Instance of Pasig and later transferred to the Regional Trial Court of Quezon
City was dismissed, but his counterclaims were granted.
Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed
CCC-QC, in obvious fraud of its creditors. CCC-QC, instead of opposing its closure,
cooperated in its own demise. Conveniently, CCC-QC stated in its opposition to the motion
for alias writ of execution that all its properties and assets had been transferred and taken
over by CCC.
Under the foregoing circumstances, the contention of respondent General Credit Corporation,
the new name of CCC, that the corporate fiction should be appreciated in its favor is without
merit.
Paraphrasing the ruling in Claparols v. Court of Industrial Relations, 28 reiterated in Concept
Builders Inc. v. National Labor Relations, 29 it is very obvious that respondent "seeks the
protective shield of a corporate fiction whose veil the present case could, and should, be
pierced as it was deliberately and maliciously designed to evade its financial obligation of its
employees."
If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt
and work an injustice. The decision raised to us for review is an invitation to multiplicity of
litigation. As we stated in Islamic Directorate vs. Court of Appeals, 30 the ends of justice are
not served if further litigation is encouraged when the issue is determinable based on the
records.
A court judgment becomes useless and ineffective if the employer, in this case CCC as a
mother corporation, is placed beyond the legal reach of the judgment creditor who, after
protracted litigation, has been found entitled to positive relief. Courts have been organized to
put an end to controversy. This purpose should not be negated by an inapplicable and wrong
use of the fiction of the corporate veil.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and SET ASIDE.
The injunction against the holding of an auction sale for the execution of the decision in Civil
Case No. Q-30583 of properties of General Credit Corporation, and the levying upon and
selling on execution of other properties of General Credit Corporation, is LIFTED.
TaCDcE

SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan, and Pardo, JJ., concur.
|||

(Reynoso IV v. Court of Appeals, G.R. Nos. 116124-25, November 22, 2000)

81

[G.R. No. 112661. May 30, 2001.]

SIMEON DE LEON, et al. vs. NLRC
PUNO, J :
p

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.
cDEHIC

The undisputed facts are as follows:

On August 23, 1980, Fortune Tobacco Corporation (FTC) and Fortune Integrated Services,
Inc. (FISI) entered into a contract for security services where the latter undertook to provide
security guards for the protection and security of the former. The petitioners were among
those engaged as security guards pursuant to the contract.
On February 1, 1991, the incorporators and stockholders of FISI sold out lock, stock and
barrel to a group of new stockholders by executing for the purpose a "Deed of Sale of Shares
of Stock". On the same date, the Articles of Incorporation of FISI was amended changing its
corporate name to Magnum Integrated Services, Inc. (MISI). A new by-laws was likewise
adopted and approved by the Securities and Exchange Commission on June 4, 1993.
82

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.
aESIHT

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
AaSHED

The Labor Arbiter found respondents liable for the charges. Rejecting FTC's argument that
there was no employer-employee relationship between FTC and petitioners, he ruled that FISI
and FTC should be considered as a single employer. He observed that the two corporations
have common stockholders and they share the same business address. In addition, FISI had
no client other than FTC and other corporations belonging to the group of companies owned
by Lucio Tan. The Labor Arbiter thus found respondents guilty of union busting and illegal
83

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 participation in the corporation to a
84

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 withheld from him up to the time of his actual

85

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.
Davide, Jr., C.J., Pardo and Ynares-Santiago, JJ., concur.
Kapunan, J., is on leave.
|||

(De Leon v. NLRC, G.R. No. 112661, May 30, 2001)

[G.R. No. 142936. April 17, 2002.]

PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT
CORPORATION, petitioners, vs. ANDRADA ELECTRIC & ENGINEERING
COMPANY, respondent.
Respondent filed an action against petitioners for the unpaid balance on electrical
services it previously rendered to Pampanga Sugar Mill (PASUMIL). Respondent alleged
that petitioners became liable to them when the former acquired the assets of, took over,
and operated PASUMIL.
The Court disagreed with respondent. The following precludes the piercing of the
corporate veil in the case at bar: Other than the fact that petitioners acquired the assets of
PASUMIL, there was no showing that their control over it warrants the disregard of
corporate personalities, there was no evidence that their juridical personality was used to
commit 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;
respondent was not defrauded or injured when petitioners acquired the assets of
PASUMIL. Neither is there merger nor consolidation with respect to PASUMIL and PNB.

86

1. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL; PETITION FOR REVIEW; QUESTIONS

OF FACT MAY NOT RE RAISED THEREIN; EXCEPTION IS WHEN THERE IS
MISAPPRECIATION OF EVIDENCE. As a general rule, questions of fact may not be
raised in a petition for review under Rule 45 of the Rules of Court. To this rule, however, there
are some exceptions enumerated in Fuentes v. Court of Appeals. After a careful scrutiny of
the records and the pleadings submitted by the parties, we find that the lower courts
misappreciated the evidence presented. Overlooked by the CA were certain relevant facts that
would justify a conclusion different from that reached in the assailed Decision.
2. COMMERCIAL
LAW;
PRIVATE
CORPORATIONS;
WHERE
CORPORATION
PURCHASED THE ASSETS OF ANOTHER CORPORATION, THE FORMER WILL NOT BE
LIABLE TO THE DEBTS OF THE LATTER; EXCEPTIONS. 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.
SCHATc

3. ID.; ID.; CORPORATION; ELUCIDATED. 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. 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. This is basic.
4. ID.; ID.; DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION; WHEN
PROPER. 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. For reasons of public policy and in the interest of justice, the corporate veil will
justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed
against third persons. Hence, any application of the doctrine of piercing the corporate veil
should be done with caution. A court should be mindful of the milieu where it is to be applied.
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. The wrongdoing must be
clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was
never unintended may result from an erroneous application. This Court has pierced the
corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part of
the estate of the decedent, to escape liability arising from a debt, or to perpetuate fraud and/or
confuse legitimate issues either to promote or to shield unfair objectives or to cover up an
otherwise blatant violation of the prohibition against forum-shopping. Only in these and similar
instances may the veil be pierced and disregarded.
5. ID.; ID.; ID.; ELEMENTS; NOT PRESENT IN CASE AT BAR. The question of whether a
corporation is a mere alter ego is one of fact. 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
87

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 plaintiff's legal
right; and (3) the said control and breach of duty must have proximately caused the injury or
unjust loss complained of. 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. 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. Third, respondent was not defrauded or injured when petitioners
acquired the assets of PASUMIL. 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. However, it utterly failed to discharge
this burden; it failed to establish by competent evidence that petitioner's separate corporate
veil had been used to conceal fraud, illegality or inequity. The CA erred in affirming the trial
court's lifting of the corporate mask. The CA did not point to any fact evidencing bad faith on
the part of PNB and its transferee. The corporate fiction was not used to defeat public
convenience, justify a wrong, protect fraud or defend crime. None of the foregoing exceptions
was shown to exist in the present case. On the contrary, the lifting of the corporate veil would
result in manifest injustice. This we cannot allow.
6. ID.; ID.; CONSOLIDATION OR MERGER OF CORPORATIONS; REQUISITES; NOT
PRESENT IN CASE AT BAR. 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. The merger, however, does not become
effective upon the mere agreement of the constituent corporations. 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. For a
valid merger or consolidation, the approval by the Securities and Exchange Commission
(SEC) of the articles of merger or consolidation is required. These articles must likewise be
duly approved by a majority of the respective stockholders of the constituent corporations. 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 was not followed.
PANGANIBAN, J :
p

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
88

Bank of the Philippines (DBP), will not make PNB liable for the PASUMIL's contractual debts
to respondent.
Statement of the Case
Before us is a Petition for Review assailing the April 17, 2000 Decision 1 of the Court of
Appeals (CA) in CA-G.R. 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];
89

'(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 attorney's fees.
Accordingly, the plaintiff prayed that judgment be rendered against the defendants
PNB, NASUDECO, and PASUMIL, jointly and severally to wit:
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'(1) Sentencing the defendants to pay the plaintiffs the sum of

P513,263.80, with annual interest of 14% from the time the obligation falls
due and demandable;
'(2) Condemning the defendants to pay attorney's fees amounting to
25% of the amount claim;
'(3) Ordering the defendants to pay the costs of the suit.'
"The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint
chiefly on the ground that the complaint failed to state sufficient allegations to establish
a cause of action against both defendants, inasmuch as there is lack or want of privity
of contract between the plaintiff and the two defendants, the PNB and NASUDECO,
said defendants citing Article 1311 of the New Civil Code, and the case law ruling in
Salonga v. Warner Barnes & Co., 88 Phil. 125; and Manila Port Service, et al. v. Court
of Appeals, et al., 20 SCRA 1214.
"The motion to dismiss was by the court a quo denied in its Order of November 27,
1980; in the same order, that court directed the defendants to file their answer to the
complaint within 15 days.
"In their answer, the defendant NASUDECO reiterated the grounds of its motion to
dismiss, to wit:
'That the complaint does not state a sufficient cause of action against the
defendant NASUDECO because: (a) NASUDECO is not . . . privy to the various
electrical construction jobs being sued upon by the plaintiff under the present
complaint; (b) the taking over by NASUDECO of the assets of defendant
PASUMIL was solely for the purpose of reconditioning the sugar central of
defendant PASUMIL pursuant to martial law powers of the President under the
Constitution; (c) nothing in the LOI No. 189-A (as well as in LOI No. 311)
authorized or commanded the PNB or its subsidiary corporation, the
NASUDECO, to assume the corporate obligations of PASUMIL as that being
involved in the present case; and, (d) all that was mentioned by the said letter of
instruction insofar as the PASUMIL liabilities [were] concerned [was] for the
PNB, or its subsidiary corporation the NASUDECO, to make a study of, and
submit [a] recommendation on the problems concerning the same.'
"By way of counterclaim, the NASUDECO averred that by reason of the filing by the
plaintiff of the present suit, which it [labeled] as unfounded or baseless, the defendant
NASUDECO was constrained to litigate and incur litigation expenses in the amount of
P50,000.00, which plaintiff should be sentenced to pay. Accordingly, NASUDECO
prayed that the complaint be dismissed and on its counterclaim, that the plaintiff be
condemned to pay P50,000.00 in concept of attorney's fees as well as exemplary
damages.
"In its answer, the defendant PNB likewise reiterated the grounds of its motion to
dismiss, namely: (1) the complaint states no cause of action against the defendant
PNB; (2) that PNB is not a party to the contract alleged in par. 6 of the complaint and
that the alleged services rendered by the plaintiff to the defendant PASUMIL upon
91

which plaintiff's suit is erected, was rendered long before PNB took possession of the
assets of the defendant PASUMIL under LOI No. 189-A; (3) that the PNB take-over of
the assets of the defendant PASUMIL under LOI 189-A was solely for the purpose of
reconditioning the sugar central so that PASUMIL may resume its operations in time
for the 1974-75 milling season, and that nothing in the said LOI No. 189-A, as well as
in LOI No. 311, authorized or directed PNB to assume the corporate obligation/s of
PASUMIL, let alone that for which the present action is brought; (4) that PNB's
management and operation under LOI No. 311 did not refer to any asset of PASUMIL
which the PNB had to acquire and thereafter [manage], but only to those which were
foreclosed by the DBP and were in turn redeemed by the PNB from the DBP; (5) that
conformably to LOI No. 311, on August 15, 1975, the PNB and the Development Bank
of the Philippines (DBP) entered into a 'Redemption Agreement' whereby DBP sold,
transferred and conveyed in favor of the PNB, by way of redemption, all its (DBP)
rights and interest in and over the foreclosed real and/or personal properties of
PASUMIL, as shown in Annex 'C' which is made an integral part of the answer; (6) that
again, conformably with LOI No. 311, PNB pursuant to a Deed of Assignment dated
October 21, 1975, conveyed, transferred, and assigned for valuable consideration, in
favor of NASUDECO, a distinct and independent corporation, all its (PNB) rights and
interest in and under the above 'Redemption Agreement.' This is shown in Annex 'D'
which is also made an integral part of the answer; [7] that as a consequence of the
said Deed of Assignment, PNB on October 21, 1975 ceased to manage and operate
the above-mentioned assets of PASUMIL, which function was now actually transferred
to NASUDECO. In other words, so asserted PNB, the complaint as to PNB, had
become moot and academic because of the execution of the said Deed of
Assignment; [8] that moreover, LOI No. 311 did not authorize or direct PNB to assume
the corporate obligations of PASUMIL, including the alleged obligation upon which this
present suit was brought; and [9] that, at most, what was granted to PNB in this
respect was the authority to 'make a study of and submit recommendation on the
problems concerning the claims of PASUMIL creditors,' under sub-par. 5 LOI No. 311.
"In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate
and to incur expenses in this case, hence it is entitled to claim attorney's fees in the
amount of at least P50,000.00. Accordingly, PNB prayed that the complaint be
dismissed; and that on its counterclaim, that the plaintiff be sentenced to pay
defendant PNB the sum of P50,000.00 as attorney's fees, aside from exemplary
damages in such amount that the court may seem just and equitable in the premises.
"Summons by publication was made via the Philippines Daily Express, a newspaper
with editorial office at 371 Bonifacio Drive, Port Area, Manila, against the defendant
PASUMIL, which was thereafter declared in default as shown in the August 7, 1981
Order issued by the Trial Court.
"After due proceedings, the Trial Court rendered judgment, the decretal portion of
which reads:
'WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the
defendant Corporation, Philippine National Bank (PNB) NATIONAL SUGAR
DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA SUGAR
92

MILLS (PASUMIL), ordering the latter to pay jointly and severally the former the
following:
'1. The sum of P513,623.80 plus interest thereon at the rate of 14% per
annum as claimed from September 25, 1980 until fully paid;
'2. The sum of P102,724.76 as attorney's fees; and,
'3. Costs.
'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 Court's 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 Court's 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
93

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 latter's 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 PASUMIL's 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, 23to 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
94

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 plaintiff's 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 petitioner's separate corporate veil had been used to conceal fraud,
illegality or inequity. 36
While we agree with respondent's claim that the assets of the National Sugar Development
Corporation (NASUDECO) can be easily traced to PASUMIL, 37we are not convinced that the
transfer of the latter's assets to petitioners was fraudulently entered into in order to escape
liability for its debt to respondent. 38
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 PASUMIL's
assets that DBP had foreclosed and purchased in the normal course. Petitioner bank was
likewise tasked to manage temporarily the operation of such assets either by itself or through
a subsidiary corporation. 44
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets
pursuant to Section 6 of Act No. 3135. 45 These assets were later conveyed to PNB for a
consideration, the terms of which were embodied in the Redemption Agreement 46 PNB, as
successor-in-interest, stepped into the shoes of DBP as PASUMIL's creditor. 47 By way of a
Deed of 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
Mining's unpaid obligations to Remington Industrial Sales Corporation (Remington) after the
two banks had foreclosed the assets of Marinduque Mining. We likewise held that Remington
95

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 court's 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, PASUMIL's corporate existence, as correctly found by the CA, had not been legally
extinguished or terminated. 60 Further, prior to PNB's acquisition of the foreclosed assets,
PASUMIL had previously made partial payments to respondent for the former's obligation in
the amount of P777,263.80. As of June 27, 1973, PASUMIL had paid P250,000 to respondent
and, from January 5, 1974 to May 23, 1974, another P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to
respondent. 61 LOI No. 11 explicitly provides that PNB shall study and submit
recommendations on the claims of PASUMIL's creditors. 62 Clearly, the corporate
separateness between PASUMIL and PNB remains, despite respondent's insistence to the
contrary. 63
96

WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE. No
pronouncement as to costs.
DHTCaI

SO ORDERED.
Vitug, Sandoval-Gutierrez and Carpio, JJ., concur.
Melo, J., Abroad, is on official leave.
|||

(PNB v. Andrada Electric & Engineering Co., G.R. No. 142936, April 17, 2002)

[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.
On appeal is the trial court's dismissal of petitioners' complaint for annulment of real estate
mortgage and the extrajudicial foreclosure thereof which was affirmed by the Court of
Appeals. Petitioners, owners of "Bela's Export Trading" (BET), contended that the mortgaged
property of BET, which had already paid its loan, should not be made liable for subsequent
97

loans incurred by "Bela's Export Corporation" (BEC), another family corporation. Petitioners
also claimed that the loans were secured by their daughter, Teresita Lipat, for BEC, without
any authorization or board resolution of BEC.
ECcaDT

In denying the petition, the Supreme Court held that both the trial court and the CA correctly
applied the doctrine in piercing the corporate veil of BEC. BEC is a mere continuation 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. The
principle of estoppel also precluded 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.
1. COMMERCIAL LAW; CORPORATION LAW; CORPORATION CODE; DOCTRINE OF
PIERCING THE VEIL OF CORPORATE FICTION; APPLICABLE WHERE ONE
CORPORATION MERELY SUCCEEDS AS THE OTHER'S 'ALTER EGO'; CASE AT BAR.
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 and were two of the incorporators and
majority stockholders of BEC. 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. Incidentally, Teresita was designated as executive-vice president
and general manager of both BET and BEC, respectively. We note further that: (1) Estelita
and Alfredo Lipat are the owners and majority shareholders of BET and BEC, respectively; (2)
both firms were managed by their daughter, Teresita; (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; (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; (9) Estelita had full control over the activities of and decided business
matters of the corporation; and that (10) Estelita Lipat had benefited from the loans secured
from Pacific Bank to finance her business abroad and from the export bills secured by BEC for
the account of "Mystical Fashion." 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. . . 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.
2. ID.; ID.; ID.; ESTOPPEL; CORPORATION IS ESTOPPED FROM DENYING AGENT'S
AUTHORITY IN CASE AT BAR. 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,
98

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. . . 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. Hence, Pacific Bank cannot
be faulted for relying on the same authority granted to Teresita Lipat by Estelita Lipat by virtue
of a special power of attorney. It is a familiar doctrine that if a corporation knowingly permits
one of its officers or any other agent to act within the scope of an apparent authority, it holds
him out to the public as possessing the power to do those acts; thus, the corporation will, as
against anyone who has in good faith dealt with it through such agent, be estopped from
denying the agent's authority.
IEDHAT

QUISUMBING, J :
p

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 "Bela's Export
Trading" (BET), a single proprietorship with principal office at No. 814 Aurora Boulevard,
Cubao, Quezon City. BET was engaged in the manufacture of garments for domestic and
foreign consumption. The Lipats also owned the "Mystical Fashions" in the United States,
which sells goods imported from the Philippines through BET. Mrs. Lipat designated her
daughter, Teresita B. Lipat, to manage BET in the Philippines while she was managing
"Mystical Fashions" in the United States.
In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14,
1978, a special power of attorney appointing Teresita Lipat as her attorney-in-fact to obtain
loans and other credit accommodations from respondent Pacific Banking Corporation (Pacific
Bank). She likewise authorized Teresita to execute mortgage contracts on properties owned
or co-owned by her as security for the obligations to be extended by Pacific Bank including
any extension or renewal thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to
secure for and in behalf of her mother, Mrs. Lipat and BET, a loan from Pacific Bank
amounting to P583,854.00 to buy fabrics to be manufactured by BET and exported to
"Mystical Fashions" in the United States. As security therefor, the Lipat spouses, as
represented by Teresita, executed a Real Estate Mortgage over their property located at No.
814 Aurora Blvd., Cubao, Quezon City. Said property was likewise made to secure "other
additional or new loans, discounting lines, overdrafts and credit accommodations, of whatever
99

amount, which the Mortgagor and/or Debtor may subsequently obtain from the Mortgagee as
well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said
original, additional or new loans, discounting lines, overdrafts and other credit
accommodations, including interest and expenses or other obligations of the Mortgagor
and/or Debtor owing to the Mortgagee, whether directly, or indirectly, principal or secondary,
as appears in the accounts, books and records of the Mortgagee." 4
On September 5, 1979, BET was incorporated into a family corporation named Bela's Export
Corporation (BEC) in order to facilitate the management of the business. BEC was engaged
in the business of manufacturing and exportation of all kinds of garments of whatever kind
and 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 Bank's demand letters,
Estelita Lipat went to the office of the bank's liquidator and asked for additional time to enable
her to personally settle BEC's obligations. The bank acceded to her request but Estelita failed
to fulfill her promise.

Consequently, the real estate mortgage was foreclosed and after compliance with the
requirements of the law the mortgaged property was sold at public auction. On January 31,
1989, a certificate of sale was issued to respondent Eugenio D. Trinidad as the highest bidder.
On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a complaint for
annulment of the real estate mortgage, extrajudicial foreclosure and the certificate of sale
issued over the property against Pacific Bank and Eugenio D. Trinidad. The complaint, which
was docketed as Civil Case No. Q-89-4152, alleged, among others, that the promissory notes,
trust receipt, and export bills were all ultra vires acts of Teresita as they were executed without
the requisite board resolution of the Board of Directors of BEC. The Lipats also averred that
assuming said acts were valid and binding on BEC, the same were the corporation's sole
obligation, it having a personality distinct and separate from spouses Lipat. It was likewise
pointed out that Teresita's authority to secure a loan from Pacific Bank was specifically limited
to Mrs. Lipat's sole use and benefit and that the real estate mortgage was executed to secure
the Lipats' and BET's P583,854.00 loan only.
100

In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners
Lipat cannot evade payments of the value of the promissory notes, trust receipt, and export
bills with their property because they and the BEC are one and the same, the latter being a
family corporation. Respondent Trinidad further claimed that he was a buyer in good faith and
for value and that petitioners are estopped from denying BEC's existence after holding
themselves out as a corporation.
After trial on the merits, the RTC dismissed the complaint, thus:
WHEREFORE, this Court holds that in view of the facts contained in the record, the
complaint filed in this case must be, as is hereby, dismissed. Plaintiffs however has
five (5) months and seventeen (17) days reckoned from the finality of this decision
within which to exercise their right of redemption. The writ of injunction issued is
automatically dissolved if no redemption is effected within that period.
The counterclaims and cross-claim are likewise dismissed for lack of legal and factual
basis.
No costs.

TDcHCa

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 Bela's Export Corporation and petitioners
(Lipats) are one and the same. Pacific Bank had transacted business with both BET and BEC
on the supposition that both are one and the same. Hence, the Lipats were estopped from
disclaiming any obligations on the theory of separate personality of corporations, which is
contrary to principles of reason and good faith.
The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV No.
41536. Said appeal, however, was dismissed by the appellate court for lack of merit. The
Court of Appeals found that there was ample evidence on record to support the application of
the doctrine of piercing the veil of corporate fiction. In affirming the findings of the RTC, the
appellate court noted that Mrs. Lipat had full control over the activities of the corporation and
used the same to further her business interests. 9 In fact, she had benefited from the loans
obtained by the corporation to finance her business. It also found unnecessary a board
resolution authorizing Teresita Lipat to secure loans from Pacific Bank on behalf of BEC
because the corporation's by-laws allowed such conduct even without a board resolution.
Finally, the Court of Appeals ruled that the mortgage property was not only liable for the
original loan of P583,854.00 but likewise for the value of the promissory notes, trust receipt,
and export bills as the mortgage contract equally applies to additional or new loans,
discounting lines, overdrafts, and credit accommodations which petitioners subsequently
obtained from Pacific Bank.

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The Lipats then moved for reconsideration, but this was denied by the appellate court in its
Resolution of February 23, 2000. 10
Hence, this petition, with petitioners submitting that the court a quo erred
1) . . . IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF
CORPORATE FICTION APPLIES IN THIS CASE.
2) . . . IN HOLDING THAT PETITIONERS' PROPERTY CAN BE HELD LIABLE
UNDER THE REAL ESTATE MORTGAGE NOT ONLY FOR THE AMOUNT OF
P583,854.00 BUT ALSO FOR THE FULL VALUE OF PROMISSORY NOTES,
TRUST

RECEIPTS

AND

EXPORT

BILLS

OF

BELA'S

EXPORT

CORPORATION.
3) . . . IN HOLDING THAT "THE IMPOSITION OF 15% ATTORNEY'S FEES IN THE
EXTRA-JUDICIAL

FORECLOSURE

IS

BEYOND

THIS

COURT'S

JURISDICTION FOR IT IS BEING RAISED FOR THE FIRST TIME IN THIS

APPEAL."
4) . . . IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED
PROMISSORY NOTES, THE DOLLAR ACCOMMODATIONS AND TRUST
RECEIPTS DESPITE THE EVIDENT FACT THAT THEY WERE NOT SIGNED
BY HIM AND THEREFORE ARE NOT VALID OR ARE NOT BINDING TO HIM.
5) . . . IN DENYING PETITIONERS' MOTION FOR RECONSIDERATION AND IN
HOLDING

THAT

SAID

MOTION

FOR

RECONSIDERATION

IS

"AN

UNAUTHORIZED MOTION, A MERE SCRAP OF PAPER WHICH CAN

NEITHER BIND NOR BE OF ANY CONSEQUENCE TO APPELLANTS."

11

In sum, the following are the relevant issues for our resolution:
1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;
2. Whether or not petitioners' property under the real estate mortgage is liable not only for the
amount of P583,854.00 but also for the value of the promissory notes, trust receipt, and
export bills subsequently incurred by BEC; and
3. Whether or not petitioners are liable to pay the 15% attorney's fees stipulated in the deed of
real estate mortgage.
On the first issue, petitioners contend that both the appellate and trial courts erred in holding
them liable for the obligations incurred by BEC through the application of the doctrine of
piercing the veil of corporate fiction absent any clear showing of fraud on their part.
Respondents counter that there is clear and convincing evidence to show fraud on part of
petitioners given the findings of the trial court, as affirmed by the Court of Appeals, that BEC
was organized as a business conduit for the benefit of petitioners.
Petitioners' contentions fail to persuade this Court. A careful reading of the judgment of the
RTC and the resolution of the appellate court show that in finding petitioners' mortgaged
property liable for the obligations of BEC, both courts below relied upon the alter ego doctrine
or instrumentality rule, rather than fraud in piercing the veil of corporate fiction. When the
corporation is the mere alter ego or business conduit of a person, the separate personality of
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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. . . .

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
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which allegedly had already been paid; and, second, it was secured by Teresita Lipat without
any authorization or board resolution of BEC.
We find petitioners' contention untenable. As found by the Court of Appeals, the mortgaged
property is not limited to answer for the loan of P583,854.00. Thus:
Finally, the extent to which the Lipats' property can be held liable under the real estate
mortgage is not limited to P583,854.00. It can be held liable for the value of the
promissory notes, trust receipt and export bills as well. For the mortgage was executed
not only for the purpose of securing the Bela's Export Trading's original loan of
P583,854.00, but also for "other additional or new loans, discounting lines, overdrafts
and credit accommodations, of whatever amount, which the Mortgagor and/or Debtor
may subsequently obtain from the mortgagee as well as any renewal or extension by
the Mortgagor and/or Debtor of the whole or part of said original, additional or new
loans, discounting lines, overdrafts and other credit accommodations, including
interest and expenses or other obligations of the Mortgagor and/or Debtor owing to the
Mortgagee, whether directly, or indirectly principal or secondary, as appears in the
accounts, books and records of the mortgagee.

25

As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot
be reviewed on appeal by the Supreme Court, provided they are borne out by the record or
based on substantial evidence. 26 As noted earlier, BEC merely succeeded BET as
petitioners' alter ego; hence, petitioners' mortgaged property must be held liable for the
subsequent loans and credit lines of BEC.
Further, petitioners' contention that the original loan had already been paid, hence, the
mortgaged property should not be made liable to the loans of BEC, is unsupported by any
substantial evidence other than Estelita Lipat's self-serving testimony. Two disputable
presumptions under the rules on evidence weigh against petitioners, namely: (a) that a person
takes ordinary care of his concerns; 27 and (b) that things have happened according to the
ordinary course of nature and the ordinary habits of life. 28 Here, if the original loan had
indeed been paid, then logically, petitioners would have asked from Pacific Bank for the
required documents evidencing receipt and payment of the loans and, as owners of the
mortgaged property, would have immediately asked for the cancellation of the mortgage in the
ordinary course of things. However, the records are bereft of any evidence contradicting or
overcoming said disputable presumptions.
Petitioners contend further that the mortgaged property should not bind the loans and credit
lines obtained by BEC as they were secured without any proper authorization or board
resolution. They also blame the bank for its laxity and complacency in not requiring a board
resolution as a requisite for approving the loans.
cDAISC

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 stockholder's 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
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Secondly, the principle of estoppel precludes petitioners from denying the validity of the
transactions entered into by Teresita Lipat with Pacific Bank, who in good faith, relied on the
authority of the former as manager to act on behalf of petitioner Estelita Lipat and both BET
and BEC. While the power and responsibility to decide whether the corporation should enter
into a contract that will bind the corporation is lodged in its board of directors, subject to the
articles of incorporation, by-laws, or relevant provisions of law, yet, just as a natural person
may authorize another to do certain acts for and on his behalf, the board of directors may
validly delegate some of its functions and powers to officers, committees, or agents. The
authority of such individuals to bind the corporation is generally derived from law, corporate
by-laws, or authorization from the board, either expressly or impliedly by habit, custom, or
acquiescence in the general course of business. 31 Apparent authority, is derived not merely
from practice. Its existence may be ascertained through (1) the general manner in which the
corporation holds out an officer or agent as having the power to act or, in other words, the
apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his
acts of a particular nature, with actual or constructive knowledge thereof, whether within or
beyond the scope of his ordinary powers. 32
In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a
special power of attorney executed by Estelita Lipat. Recall that Teresita Lipat acted as the
manager of both BEC and BET and had been deciding business matters in the absence of
Estelita Lipat. Further, the export bills secured by BEC were for the benefit of "Mystical
Fashion" owned by Estelita Lipat. 33 Hence, Pacific Bank cannot be faulted for relying on the
same authority granted to Teresita Lipat by Estelita Lipat by virtue of a special power of
attorney. It is a familiar doctrine that if a corporation knowingly permits one of its officers or
any other agent to act within the scope of an apparent authority, it holds him out to the public
as possessing the power to do those acts; thus, the corporation will, as against anyone who
has in good faith dealt with it through such agent, be estopped from denying the agent's
authority. 34
We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent
credit lines of BEC. Suffice it to state that Alfredo Lipat never disputed the validity of the real
estate mortgage of the original loan; hence, he cannot now dispute the subsequent loans
obtained using the same mortgage contract since it is, by its very terms, a continuing
mortgage contract.
On the third and final issue, petitioners assail the decision of the Court of Appeals for not
taking cognizance of the issue on attorney's fees on the ground that it was raised for the first
time on appeal. We find the conclusion of the Court of Appeals to be in accord with settled
jurisprudence. Basic is the rule that matters not raised in the complaint cannot be raised for
the first time on appeal. 35 A close perusal of the complaint yields no allegations disputing the
attorney's fees imposed under the real estate mortgage and petitioners cannot now allege that
they have impliedly disputed the same when they sought the annulment of the contract.
In sum, we find no reversible error of law committed by the Court of Appeals in rendering the
decision and resolution herein assailed by petitioners.

105

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.
Bellosillo, Austria-Martinez and Callejo, Sr., JJ., concur.
|||

(Lipat v. Pacific Banking Corp., G.R. No. 142435, April 30, 2003)

106