Philippine National Bank vs. Andrada Electric & Engineering Co.

[GR 142936, 17 April 2002]

Facts: On 26 August 1975, the Philippine national Bank (PNB) acquired the assets of the Pampanga Sugar Mills
(PASUMIL) that were earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI 311. The PNB
organized the ational Sugar Development Corporation (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. Prior to 29 October 1971, PASUMIL engaged the services of the Andrada Electric & Engineering Company
(AEEC) for electrical rewinding and repair, most of which were partially paid by PASUMIL, leaving several unpaid
accounts with AEEC. On 29 October 1971, AEEC and PASUMIL entered into a contract for AEEC to perform the (a)
Construction of a power house building; 3 reinforced concrete foundation for 3 units 350 KW diesel engine
generating sets, 3 reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets, among
others. Aside from the work contract, PASUMIL required AEEC to perform extra work, and provide electrical
equipment and spare parts. Out of the total obligation of P777,263.80, PASUMIL had paid only P250,000.00, leaving
an unpaid balance, as of 27 June 1973, amounting to P527,263.80. Out of said unpaid balance of P527,263.80,
PASUMIL made a partial payment to AEEC of P14,000.00, in broken amounts, covering the period from 5 January
1974 up to 23 May 1974, leaving an unpaid balance of P513,263.80. PASUMIL and PNB, and now NASUDECO,
allegedly failed and refused to pay AEEC their just, valid and demandable obligation (The President of the
NASUDECO is also the Vice-President of the PNB. AEEC besought said official to pay the outstanding obligation of
PASUMIL, inasmuch as PNB and NASUDECO now owned and possessed the assets of PASUMIL, and these defendants
all benefited from the works, and the electrical, as well as the engineering and repairs, performed by AEEC).
Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to pay their obligations, AEEC allegedly
suffered actual damages in the total amount of P513,263.80; and that in order to recover these sums, AEEC was
compelled to engage the professional services of counsel, to whom AEEC agreed to pay a sum equivalent to 25% of
the amount of the obligation due by way of attorney's fees. PNB and NASUDECO filed a joint motion to dismiss on
the ground that the complaint failed to state sufficient allegations to establish a cause of action against PNB and
NASUDECO, inasmuch as there is lack or want of privity of contract between the them and AEEC. Said motion was
denied by the trial court in its 27 November order, and ordered PNB nad NASUDECO to file their answers within 15
days. After due proceedings, the Trial Court rendered judgment in favor of AEEC and against PNB, NASUDECO and
PASUMIL; the latter being ordered to pay jointly and severally the former (1) the sum of P513,623.80 plus interest
thereon at the rate of 14% per annum as claimed from 25 September 1980 until fully paid; (2) the sum of
P102,724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The Court of Appeals affirmed the
decision of the trial court in its decision of 17 April 2000 (CA-GR CV 57610. PNB and NASUDECO filed the petition for
review.
Issue: Whether PNB and NASUDECO may be held liable for PASUMILs liability to AEEC.
Held: Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities
owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong,
defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine
National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL),
which had earlier been foreclosed and purchased at the resulting public auction by the Development Bank of the
Philippines (DBP), will not make PNB liable for the PASUMIL's contractual debts to Andrada Electric & Engineering
Company (AEEC). Piercing the veil of corporate fiction may be allowed only if the following elements concur: (1)
control not mere stock control, but complete domination not only of finances, but of policy and business
practice in respect to the transaction attacked, must have been such that the corporate entity as to this transaction
had at the time no separate mind, will or existence of its own; (2) such control must have been used by the
defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a
dishonest and an unjust act in contravention of plaintiff's legal right; and (3) the said control and breach of duty
must have proximately caused the injury or unjust loss complained of. The absence of the foregoing elements in the
present case precludes the piercing of the corporate veil. First, other than the fact that PNB and NASUDECO
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, AEEC was not defrauded or injured when PNB and NASUDECO
acquired the assets of PASUMIL. Hence, although the assets of NASUDECO can be easily traced to PASUMIL, the
transfer of the latter's assets to PNB and NASUDECO was not fraudulently entered into in order to escape liability for
its debt to AEEC. Neither was there any 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 had
not been legally extinguished or terminated. Further, prior to PNB's acquisition of the foreclosed assets, PASUMIL
had previously made partial payments to AEEC for the former's obligation in the amount of P777,263.80. As of 27
June 1973, PASUMIL had paid P250,000 to AEEC and, from 5 January 1974 to 23 May 1974, another P14,000.
Neither did PNB expressly or impliedly agree to assume the debt of PASUMIL to AEEC. LOI 11 explicitly provides that
PNB shall study and submit recommendations on the claims of PASUMIL's creditors. Clearly, the corporate
separateness between PASUMIL and PNB remains, despite AEEC's insistence to the contrary.

CASTILLO vs. BALINGHASAY

G.R. No. 150976
October 18, 2004
FACTS: Petitioners and the respondents are stockholders of MCPI, with the former holding Class "B" shares and the
latter owning Class "A" shares. MCPI is a domestic corporation. It was organized sometime in September 1977. At
the time of its incorporation, Act No. 1459, the old Corporation Law was still in force and effect. On September 9,
1992, Article VII was again amended. It states that Except when otherwise provided by law, only holders of Class
"A" shares have the right to vote and the right to be elected as directors or as corporate officers. The SEC
approved the foregoing amendment on September 22, 1993. On February 9, 2001, the shareholders of MCPI held
their annual stockholders meeting and election for directors. During the course of the proceedings, respondent
Rustico Jimenez, citing Article VII, as amended, and notwithstanding MCPIs history, declared over the objections of
herein petitioners, that no Class "B" shareholder was qualified to run or be voted upon as a director. In the past,
MCPI had seen holders of Class "B" shares voted for and serve as members of the corporate board and some Class
"B" share owners were in fact nominated for election as board members. Nonetheless, Jimenez went on to
announce that the candidates holding Class "A" shares were the winners of all seats in the corporate board. The
petitioners protested, claiming that Article VII was null and void for depriving them, as Class "B" shareholders, of
their right to vote and to be voted upon, in violation of the Corporation Code (Batas Pambansa Blg. 68), as
amended. On March 22, 2001, after their protest was given short shrift, herein petitioners filed a Complaint for
Injunction, Accounting and Damages before the RTC of Paraaque City, Branch 258. In finding for the respondents,
the trial court ruled that corporations had the power to classify their shares of stocks, such as "voting and nonvoting" shares, conformably with Section 6 7 of the Corporation Code of the Philippines. It pointed out that Article VII
of both the original and amended Articles of Incorporation clearly provided that only Class "A" shareholders could
vote and be voted for to the exclusion of Class "B" shareholders, the exception being in instances provided by law,
such as those enumerated in Section 6, paragraph 6 of the Corporation Code. The RTC found merit in the
respondents theory that the Articles of Incorporation, which defines the rights and limitations of all its
shareholders, is a contract between MCPI and its shareholders. It is thus the law between the parties and should be
strictly enforced as to them. Hence this petition.
ISSUE: Whether or not holders of Class "B" shares of the MCPI may be deprived of the right to vote and be voted
for as directors in MCPI.
RULING: The law referred to in the amendment to Article VII refers to the Corporation Code and no other law. At the
time of the incorporation of MCPI in 1977, the right of a corporation to classify its shares of stock was sanctioned by
Section 5 of Act No. 1459. The law repealing Act No. 1459, B.P. Blg. 68, retained the same grant of right of
classification of stock shares to corporations, but with a significant change. Under Section 6 of B.P. Blg. 68, the
requirements and restrictions on voting rights were explicitly provided for, such that "no share may be deprived of
voting rights except those classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in
this Code" and that "there shall always be a class or series of shares which have complete voting rights." Section 6
of the Corporation Code being deemed written into Article VII of the Articles of Incorporation of MCPI, it necessarily
follows that unless Class "B" shares of MCPI stocks are clearly categorized to be "preferred" or "redeemable" shares,
the holders of said Class "B" shares may not be deprived of their voting rights. Note that there is nothing in the
Articles of Incorporation nor an iota of evidence on record to show that Class "B" shares were categorized as either
"preferred" or "redeemable" shares. The only possible conclusion is that Class "B" shares fall under neither category
and thus, under the law, are allowed to exercise voting rights.
There is no merit in respondents position that Section 6 of the Corporation Code cannot apply to MCPI without
running afoul of the non-impairment clause of the Bill of Rights. Section 148 of the Corporation Code expressly
provides that it shall apply to corporations in existence at the time of the effectivity of the Code.

CONSTRUCTION & DEVELOPMENT CORPORATION OF THE PHILIPPINES (now PHILIPPINE NATIONAL

CONSTRUCTION CORPORATION), petitioner, vs. RODOLFO M. CUENCA and MALAYAN INSURANCE
CO., INC., respondents.
Before this Court is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R.
CV No. 44660 and its Resolution denying a motion for reconsideration thereof.
The Backdrop
Ultra International Trading Corporation (UITC) applied for a surety bond from Malayan Insurance Co., Inc.
(MICI), to guarantee its credits, indebtedness, obligations and liabilities of any kind to Goodyear Tire and Rubber
Company of the Philippines (Goodyear). MICI approved the application and issued MICO Bond No. 65734 [2] for an
amount not exceeding P600,000.00. The surety bond was valid for 12 months, and was renewed several times, the
last time being on May 15, 1983.[3]
To protect MICIs interests, UITC, Edilberto Cuenca, and Rodolfo Cuenca, herein respondent, executed an
Indemnity Agreement[4] in favor of MICI. Edilberto was then the President, while Rodolfo was a member of the Board

of Directors of UITC. Edilberto signed the indemnity agreement in his official and personal capacity, while Rodolfo
signed in his personal capacity only. In the said agreement, UITC, Edilberto and Rodolfo bound themselves jointly
and severally to indemnify MICI of any payment it would make under the surety bond.
On February 18, 1983, Goodyear sent a letter [5] to MICI informing it of UITCs default on its obligation. In the
said letter, Goodyear requested MICI to pay P600,000.00 under the surety bond. MICI sent several demand letters
to UITC, Edilberto and Rodolfo, requiring them to immediately settle Goodyears claim. [6] UITC, Edilberto and Rodolfo
failed to settle the account with Goodyear. Thus, on April 25, 1983, MICI paid Goodyear P600,000.00.[7]
On May 3, 1983, MICI sent a demand letter to UITC, Edilberto and Rodolfo for reimbursement of the payment it
made to Goodyear, plus legal interest.[8] UITC replied that Construction & Development Corporation of the
Philippines (CDCP), now Philippine National Construction Corporation (PNCC), had initiated a complete review of
UITCs financial plans to enable it to pay its creditors, like MICI. [9] UITC was a subsidiary of petitioner PNCC, [10] with
the latter owning around 78% of the formers shares of stock. [11] UITC requested MICI to delay the filing of any suit
against it, to give it time to work out an acceptable repayment plan. [12] MICI agreed and gave UITC until May 20,
1983 to come up with an offer.[13]
However, UITC, Edilberto and Rodolfo still failed to pay MICI. On July 1, 1983, MICI filed a Complaint [14] for sum
of money against UITC, Edilberto and Rodolfo, praying for indemnity of the amount it paid to Goodyear, plus interest
per annum compounded quarterly from April 25, 1983 until fully paid, and 20% of the amount involved as attorneys
fees and costs of the suit.
On July 23, 1983, UITC wrote MICI proposing the following:
a. Immediate payment of P150,000.00.
b. Balance payable P50,000.00 per month until the obligation is fully liquidated.
c. Interest and penalty charges are to be waived.[15]
In the meantime, Rodolfo filed motion for leave to file a third-party complaint which the trial court granted.
The third-party complaint[17] against CDCP alleged that it had assumed Rodolfos liability under the indemnity
agreement as indicated in a board resolution. In support of this allegation, he presented in evidence a certification
of Antonio Roque, Assistant Corporate Secretary of CDCP, attesting to the correctness of an excerpt from the
minutes of the Board of Directors meeting of January 10, 1978, which reads:
[16]

GUARANTEE MADE BY CDCP REPRESENTATIVES IN OTHER CORPORATIONS

_______________________________________________________________
In fairness to the CDCP Board Members and/or Officers who represent the Corporation in other affiliated
corporations and who are made to sign jointly and severally guarantees for and in support of said affiliated
corporations, the Board under Res. No. BD-59-77/78 made of record CDCPs assumption of all said guarantees and
the liabilities and responsibilities arising therefrom. In the same vein, any guaranty fee that may be payable to said
representatives shall accrue to CDCP.[18]
On August 26, 1983, UITC remitted to MICI P150,000.00 as partial payment of its obligation. [19] Nonetheless,
the parties failed to reach an amicable settlement of their respective claims.
On January 6, 1994, the Regional Trial Court (RTC) of Manila, Branch 51, rendered a decision holding UITC and
PNCC, jointly and solidarily liable to MICI under the indemnity agreement. The trial court ruled that UITC was bound
by the indemnity agreement entered into by its two officers, even though there was no board resolution specifically
authorizing them to do so because it had, in effect, ratified the acts of the said officers. Moreover, UITC has
acknowledged its obligation to MICI in the letters it sent to the latter, and when it had remitted P150,000.00 as
partial payment. It also held PNCC solidarily liable with UITC on the basis of the board resolution attesting to the fact
that PNCC had assumed all liabilities arising from the guarantees made by its officers in other affiliated
corporations.[20] The trial court dismissed the complaint as against the Cuencas. The dispositive portion of the RTC
decision reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of plaintiff Malayan Insurance Co.,
Inc. and against defendant ULTRA and Third-Party defendant PNCC, ordering the latter to pay jointly and solidarily
the former the following:
a) The sum of P600,000.00 but considering that defendant ULTRA had already advanced the amount
of P150,000.00 to plaintiff, their liability has then reduced to the sum of P450,000.00 with legal
interest from the date of the filing of the complaint until fully paid;
b) The sum equivalent to 20% of all the amounts due and demandable as and for attorneys fees; and
c) The costs of suit.
The complaint against defendants Edilberto Cuenca and Rodolfo Cuenca and their counter-claims are hereby
dismissed for lack of merit.

SO ORDERED.[21]
UITC and PNCC appealed the decision to the CA, but MICI did not. On October 28, 2003, the CA affirmed in
toto the appealed decision.[22] The appellate court held that UITC had impliedly authorized Edilberto and Rodolfo to
procure the surety bond and the indemnity agreement; hence, UITC was liable. Moreover, UITC was estopped from
questioning Edilberto and Rodolfos authority to enter into the indemnity agreement in its behalf, considering that it
had already partially paid P150,000.00 to MICI. The appellate court added that Edilberto and Rodolfo, having signed
the indemnity agreement also in their personal capacity, would ordinarily be personally liable under the said
agreement; but because MICI failed to appeal the decision, it had effectively waived its right to hold them liable on
its claim.[23]
The CA further affirmed the trial courts finding that PNCC was liable under the indemnity agreement. The
appellate court noted that UITC was a subsidiary company of PNCC because the latter holds almost 78% of UITCs
stocks. As such, UITC would purchase materials from suppliers such as Goodyear, in behalf of PNCC. Finally, the CA
held that the award of attorneys fees was justified, considering that payment of attorneys fees is specifically stated
in the indemnity agreement.
On June 3, 2004, the CA denied PNCCs motion for reconsideration for lack of merit. [24] Hence, this petition for
review, where the petitioner assigns the following errors:
I.
THE COURT OF APPEALS GRAVELY ERRED IN FINDING PETITIONER PNCC, JOINTLY AND SEVERALLY, LIABLE WITH
ULTRA FOR THE INDEMNIFICATION AMOUNT REIMBURSABLE TO RESPONDENT MALAYAN AND IN EXEMPTING
RESPONDENT RODOLFO CUENCA FROM ANY LIABILITY THEREFOR.
II.
THE COURT OF APPEALS GRAVELY ERRED IN FINDING PETITIONER PNCC, JOINTLY AND SEVERALLY, LIABLE WITH
ULTRA FOR THE PAYMENT OF ATTORNEYS FEES AND COSTS OF SUIT. [25]
The sole issue in this petition is whether or not the petitioner is jointly and solidarily liable with UITC, a
subsidiary corporation, to respondent MICI under the indemnity agreement for reimbursement, attorneys fees and
costs.
The petitioner maintains that it cannot be held liable under the indemnity agreement primarily because it was
not a party to it. Likewise, it cannot answer for UITCs liability under the indemnity agreement merely because it is
the majority stockholder of UITC. It maintains that it has a personality separate and distinct from that of UITC;
hence, it cannot be held liable for the latters obligations. The mere fact that the materials purchased from Goodyear
were delivered to it does not warrant the piercing of the corporate veil so as to treat the two corporations as one
entity, absent sufficient and clear showing that it was purposely used as a shield to defraud creditors. [26]
Further, the petitioner asserts that respondent Cuencas claim that it has assumed his personal liability under
the indemnity agreement is unfounded. It assails the reliability of Exhibit 5, the certification attesting to the
existence of the board resolution, wherein the petitioner allegedly assumed the personal guarantee of respondent
Cuenca. The petitioner avers that the certification is a mere excerpt of the alleged board resolution. It points out
that even the CA did not rely on this certification when it held that the Cuencas should be liable, but were absolved
of their liabilities because MICI had waived the cause of action against them. [27] Assuming that it has assumed the
liability of respondent Cuenca, such liability is now extinguished after MICI waived its claim against the said
respondent.[28]
Finally, the petitioner asserts that there is no basis for the payment of attorneys fees and costs of suit. It was
not a party to the indemnity agreement and the case does not fall under the instances enumerated under Article
2208 of the Civil Code when attorneys fees are proper.[29]
For his part, respondent Cuenca reiterates that he is not liable because the petitioner has already assumed his
personal liability under the indemnity agreement, as evidenced by a certification issued by the Assistant Corporate
Secretary attesting that CDCP Board Resolution No. BD-59-77/78 exists. He points out that the petitioner has
already admitted the due execution and authenticity of the certification; hence, it cannot now impugn the existence
of the board resolution referred to therein.
Respondent Cuenca further argues that PNCC should be liable because it was the one which benefited from
the transaction, having received the materials purchased from Goodyear; he did not derive any benefit from it. He
emphasizes that the petitioners liability arose out of its voluntary assumption of the liabilities of the guarantors
under the indemnity agreement, and not from the fact that it is the majority stockholder of UITC. Finally, he asserts
that the CAs decision holding UITC and the petitioner solidarily liable for the payment of attorneys fees had factual
and legal basis.[30]
On the other hand, respondent MICI avers that the petition is fatally defective for failure to implead as corespondent, UITC, an indispensable party to the case. It, likewise, asserts that the petition raises no new issues of

law, and that the CA and the trial court have amply ruled upon the issues raised in the petition. Further, MICI
contends that, since the petitioner has assumed the liability of the UITC officers, it cannot now invoke the doctrine
of separate personality.[31]
The petition is impressed with merit.
At the outset, we note that the petitioner became a party to this case only when respondent Cuenca, as
defendant, filed a third-party complaint against it on the allegation that it had assumed his liability. Section 11, Rule
6 of the Rules of Court defines a third-party complaint as follows:
SEC. 11. Third (fourth, etc.)-party complaint. A third (fourth, etc.)-party complaint is a claim that a defending party
may, with leave of court, file against a person not a party to the action, called the third (fourth, etc.)-party
defendant, for contribution, indemnity, subrogation or any other relief, in respect of his opponents claim.
In Firestone Tire and Rubber Company of the Philippines v. Tempongko,[32] we emphasized the nature of a
third-party complaint, particularly its independence from the main case:
The third-party complaint is, therefore, a procedural device whereby a third party who is neither a party nor privy to
the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the defendant,
who acts as third-party plaintiff to enforce against such third-party defendant a right for contribution, indemnity,
subrogation or any other relief, in respect of the plaintiffs claim. The third-party complaint is actually independent
of and separate and distinct from the plaintiffs complaint. Were it not for this provision of the Rules of Court, it
would have to be filed independently and separately from the original complaint by the defendant against the thirdparty. But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his separate
cause of action in respect of plaintiffs claim against a third party in the original and principal case with the object of
avoiding circuitry of action and unnecessary proliferation of lawsuits and of disposing expeditiously in one litigation
the entire subject matter arising from one particular set of facts. When leave to file the third-party complaint is
properly granted, the Court renders in effect two judgments in the same case, one on the plaintiffs complaint and
the other on the third-party complaint. When he finds favorably on both complaints, as in this case, he renders
judgment on the principal complaint in favor of plaintiff against defendant and renders another judgment on the
third-party complaint in favor of defendant as third-party plaintiff, ordering the third-party defendant to reimburse
the defendant whatever amount said defendant is ordered to pay plaintiff in the case. Failure of any of said parties
in such a case to appeal the judgment as against him makes such judgment final and executory.[33]
It follows then that the plaintiff in the main action may not be regarded as a party to the third-party complaint;
nor may the third-party defendant be regarded as a party to the main action. As for the defendant, he is party to
both the main action and the third-party complaint but in different capacities in the main action, he is the
defendant; in the third-party complaint, he is the plaintiff.
In the present case, the petitioner PNCC which was the third-party defendant appealed before this Court from
the decision of the CA. Case law is that if only the third-party defendant files an appeal, the decision in the main
case becomes final.[35] Therefore, the CAs decision in the main action, holding UITC liable to MICI and dismissing the
case as against the Cuencas, became final and executory when none of the said parties filed an appeal with this
Court.
We do not agree with the CA ruling that the petitioner is liable under the indemnity agreement. On this point,
the CA ratiocinated that the petitioner is liable, considering that it is the majority stockholder of UITC and the
materials from Goodyear were purchased by UITC for and in its behalf.
This is clearly erroneous. The petitioner cannot be made directly liable to MICI under the indemnity agreement
on the ground that it is UITCs majority stockholder. It bears stressing that the petitioner was not a party defendant
in the main action. MICI did not assert any claim against the petitioner, nor was the petitioner impleaded in the
third-party complaint on the ground of its direct liability to MICI. In the latter case, it would be as if the third-party
defendant was itself directly impleaded by the plaintiff as a defendant. [36] In the present case, petitioner PNCC was
brought into the action by respondent Cuenca simply for a remedy over. [37] No cause of action was asserted by MICI
against it. The petitioners liability could only be based on its alleged assumption of respondent Cuencas liability
under the indemnity agreement.
In any case, petitioner PNCC, as majority stockholder, may not be held liable for UITCs obligation. A
corporation, upon coming into existence, is invested by law with a personality separate and distinct from those
persons composing it as well as from any other legal entity to which it may be related. [38] The veil of corporate
fiction may only be disregarded in cases where the corporate vehicle is being used to defeat public convenience,
justify a wrong, protect fraud, or defend a crime. [39] Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding
the separate corporate personality. [40] To disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established.[41]
Neither can the petitioner be made liable under the indemnity agreement on the ground that it had assumed
the personal liability of respondent Cuenca. To reiterate, the decision of the CA dismissing the case against
respondent Cuenca has already become final and executory. The Court has, likewise, pointed out that respondent
[34]

Cuenca impleaded the petitioner as a remedy over, and not as one directly liable to MICI. Since the petitioners
liability is grounded on that of respondent Cuencas, it is imperative that the latter be first adjudged liable to MICI
before the petitioner may be held liable. Indeed, the Court ruled in Samala v. Victor,[42] thus:
It is not indispensable in the premises that the defendant be first adjudged liable to the plaintiff before the thirdparty defendant may be held liable to the plaintiff, as precisely, the theory of defendant is that it is the third party
defendant, and not he, who is directly liable to plaintiff. The situation contemplated by appellants would properly
pertain to situation (a) above wherein the third party defendant is being sued for contribution, indemnity or
subrogation, or simply stated, for a defendants remedy over.[43]
WHEREFORE, premises considered, the petition is GRANTED. The decision of the Court of Appeals is
MODIFIED in that petitioner PNCC is absolved from any liability under the indemnity agreement. The third-party
complaint against the petitioner is DISMISSED for lack of merit.
SO ORDERED.

Edsa Shangri-La v. BF Corporation

GR No. 145842, June 27, 2008
TOPIC: Rule 130
PONENTE: Velasco, Jr.
FACTS: (chronological order)
1.

Edsa Shangila Hotels and Resorts Inc. (ESHRI) contracted with BF Corp. to build the Edsa Shangri-La Hotel
on May 1, 1991.
1.1 their construction contract was denominated as Agreement for the Execution of Builders Work for the
EDSA Shangrila Hotel Project.
1.2 In the contract, the manner of payment agreed upon was that BF shall submit a monthly progress
billing to ESHRI which would then re-measure the work accomplished and prepare a Progress Payment
Certificate for that months progress billing.
2. Since the start of the construction up to June 30, 1992, BF submitted a total of 19 monthly progress
reports.
2.1 as per records ESHRI paid a total of 85m plus for the progress billings of 1 to 13.
2.2 For progress billings 14 to 19, BF claimed that no re-measure was done by ESHRI and no payments
were made.
3. BF filed a case with the RTC a complaint for collection of sum of money after several futile attempts to
collect from ESHRI.
3.1 As part of BFs claims, it submitted photocopies of Progress Billings Nos. 14 to 19.
3.2 ESHRI on the other hand alleged over payments for billings 1 to 13 and also alleged that BF performed
inferior work.
4. RTC: ruled in favor of BF.
4.1 24.7m as unpaid construction work; 5.8m as retention sum; legal interest; 3m in moral, exemplary
and attorneys fees.
4.2 (no reason provided as to why RTC ruled in favor of BF)
4.3 MR of ESHRI denied.
5. ESHRI appealed to CA.
6. CA: affirmed the RTC in toto.
7. Petition to SC by ESHRI.
7.1 Edsa Shangri-la argued that BF Corp ought to have laid the basis for the presentation of the
photocopies as secondary evidence before the court admitted the evidence.
7.2
BF claims that it had complied with the laying-the basis requirement. BF explained that it could not present
the original of the documents since they were in the possession of ESHRI which refused to hand them over to BF
despite requests.
ISSUE:
Whether or not BF has complied with the laying the basis requirement for the admission of the photocopies as
secondary evidence?
HELD: Yes
RATIO:
1. The only actual rule that the term best evidence denotes is the rule requiring that the original of a
writing must, as a general proposition, be produced [17] and secondary evidence of its contents is not

admissible except where the original cannot be had. Rule 130, Section 3 of the Rules of Court enunciates
the best evidence rule:
SEC. 3. Original document must be produced; exceptions. When the subject of inquiry is
the contents of a document, no evidence shall be admissible other than the original document
itself, except in the following cases:
(a)

When the original has been lost or destroyed, or cannot be produced in court,
without bad faith on the part of the offeror;

(b) When the original is in the custody or under the control of the party
against whom the evidence is offered, and the latter fails to produce it
after reasonable notice; (Emphasis added.)
Complementing the above provision is Sec. 6 of Rule 130, which reads:
SEC. 6. When original document is in adverse partys custody or control. If the document
is in the custody or under control of the adverse party, he must have reasonable notice to
produce it. If after such notice and after satisfactory proof of its existence, he fails to produce the
document, secondary evidence may be presented as in the case of loss.
2.

Secondary evidence of the contents of a written instrument or document refers to evidence other than the
original instrument or document itself. A party may present secondary evidence of the contents of a
writing not only when the original is lost or destroyed, but also when it is in the custody or under the
control of the adverse party. In either instance, however, certain explanations must be given before a party
can resort to secondary evidence.

3.

Four factual premises are readily deducible from the above exchanges, to wit: (1) the existence of the
original documents which ESHRI had possession of; (2) a request was made on ESHRI to produce the
documents; (3) ESHRI was afforded sufficient time to produce them; and (4) ESHRI was not inclined to
produce them.
Clearly, the circumstances obtaining in this case fall under the exception under Sec. 3(b) of Rule 130.
3.1 In other words, the conditions sine qua non for the presentation and reception of the photocopies of
the original document as secondary evidence have been met. These are: (1) there is proof of the original
documents execution or existence; (2) there is proof of the cause of the original documents unavailability;
and (3) the offeror is in good faith.