Today is Thursday, January 18, 2018

THIRD DIVISION

January 28, 2005

E PHILIPPINES, petitioner,

OCIAL CONCERN, FELIPE SUZARA and RAMON GARCIA, respondents.

DECISION

S, J.:

ent Petition for Review on Certiorari assailing the Court of Appeals decision1 of November 29, 2002 which
ourt’s decision is whether defendant appellant-respondent Felipe Suzara can be made solidarily liable, along with
Institute for Social Concern (ISC) and its Executive Director Ramon Garcia.

1989, the Government of the Republic of the Philippines, through the Office of the President (the Republic), and
ed by its Executive Director Ramon Garcia, entered into a Memorandum of Agreement (MOA)2 wherein ISC, for a
,488,880.00, undertook to construct forty-five (45) one storey two-classroom school buildings in the Cordillera
n, Region 2 and Region 5.

public undertook, upon the signing and execution of the MOA, to deposit in trust in a non-interest earning account
e contract price, with the balance of 30% to be remitted "after submission of monthly delivery report indicating
attested and certified by the [Republic]."

n the MOA that ISC would deliver the 45 two-classroom school buildings within 90 days from the release of
d in this agreement" and should it fail to comply therewith, the Republic may exact liquidated damages equivalent
percent (0.1%) of the total amount for each day of delay.
plied with its undertaking by issuing a check dated October 6, 1989 in the amount of ₱5,942,160.00 in the name of
r had encashed.

d to comply with its obligation, it having been found that the construction of school buildings "lagged behind . . .

e Republic issued another check in the name of ISC in the amount of ₱2,546,640.00 which check had been

n September 12, 1990, the parties forged an amendment to the MOA4 by adding the following conditions:

That upon release of the 30% fund balance, the school buildings which are on-going must be completed within
y (30) days for Cagayan and forty-five (45) days for Masbate. Those which are not yet started must be completed
hin one hundred twenty (120) days.

The specified 120 days shall be devoted to physical construction works/activities provided that the buildings shall
ctly follow the standard design of the PSF school building program. If the ORGANIZATION fails to deliver the
mpleted school buildings, the REPUBLIC may exact liquidated damages equivalent to one-tenth of one (0.1%)
cent of the total amount for each day of delay.

x x x (Underscoring supplied)5

to the MOA, ISC was represented by its Chairman Suzara.

ISC of the contract price and the amendment to the MOA notwithstanding, ISC failed to honor its commitment
amended, drawing the Republic to file on December 8, 1993 a complaint for Damages before the Regional Trial
nila against ISC, its Chairman Suzara, and its Executive Director Garcia.

e Republic alleged, inter alia, that

guilty of fraud in contracting their obligations for they had no intention whatsoever to perform them and had
to Presidential Management and Staff that they were financially capable and had all the technical expertise and
truct the school buildings when in truth and in fact, they were not, as shown by the fact that they could not even
on of some school buildings and could not complete the construction of some of them. (Emphasis and
ied)

ntly filed an Answer with Counterclaims but Garcia did not file any and was, on the Republic’s motion, declared in

f fraud in the complaint, ISC and Suzara "specifically den[ied] the averments contained in pars. 3.1 to 3.7
ging as SPECIAL AND AFFIRMATIVE DEFENSES the following:

xxx

That answering defendant Suzara’s participation was limited to his official capacity as Chairman of ISC and did not
ny time made (sic) any representation or undertakings in his personal capacity;

That the participation of answering defendant ISC in the completion and delivery of the subject school buildings,
h the full knowledge and consent of plaintiff, was merely for purposes of supervision and monitoring;
That answering defendants complied with all its obligations and undertaking under the pertinent agreement
ered into with the plaintiff;

That if there are any obligation due to plaintiff, the same are liabilities to be answered for and paid by the
aulting contractors of the project concerned as contracted by defendant ISC;

x x x (Underscoring supplied)6

and Suzara, as well as their counsel, failed to show up. Hence, on motion of the Republic, they were declared as

ed a motion to lift the order declaring them as in default, but the trial court denied the same.

hus allowed to present evidence ex-parte by Branch 14 of the RTC of Manila to which the case was raffled,
endered a decision7 in favor of the Republic and disposed as follows:

gment is hereby rendered in favor of plaintiff and against the defendants by ordering the latter to pay the
solidarily, the sum of ₱3,757,288.26 representing a return of the consideration of the Memorandum of Agreement
ages equivalent to 0.1% from the filing of this suit until fully paid, and exemplary damages in the sum of
rscoring supplied)8

pealed the decision of the trial court to the Court of Appeals, raising the following errors:

FIRST ASSIGNMENT OF ERROR

RT ERRED IN NOT PROPERLY APPLYING THE BASIC PROCEDURAL RULE AND WELL ESTABLISHED
E, THAT THE PLAINTIFF-APPELLEE, IN ESTABLISHING THE CAUSE OF ACTION ASSERTED IN ITS
ST RELY UPON THE STRENGTH OF ITS OWN EVIDENCE, RATHER THAN ON THE PERCEIVED WEAKNESS
CIES IN THE DEFENDANTS-APPELLANTS’ DEFENSES.

SECOND ASSIGNMENT OF ERROR.

RT ERRED IN FAILING TO APPRECIATE, FIND AND DECLARE THAT THERE WAS NO EVIDENCE TO
DEFENDANT-APPELLANT BENEFITTED FROM THE ALLEGED TRANSACTION.

THIRD ASSIGNMENT OF ERROR

RT ERRED IN NOT DECLARING THAT THE PLAINTIFF-APPELLEE FAILED TO ADDUCE PREPONDERANCE

STABLISH THE CAUSE OF ACTION ASSERTED IN ITS COMPLAINT AGAINST THE DEFENDANTS-

FOURTH ASSIGNMENT OF ERROR

RT ERRED IN NOT SETTING ASIDE ITS ORDER DATED APRIL 17, 1995 (ANNEX A, PETITION) AND
IN NOT GRANTING THE MOTION FOR RECONSIDERATION DATED MAY 2, 1995 FILED BY DEFENDANTS-

FIFTH ASSIGNMENT OF ERROR

 RT ERRED WHEN IT STRICTLY INTERPRETED THE RULES ON DEFAULT ON DEFENDANTS-
THER THAN APPLYING ITS ACCEPTED LIBERAL CONSTRUCITON.

SIXTH ASSIGNMENT OF ERROR

T ERRED WHEN IT ADJUDGED THAT DEFENDANT-APPELLANT SUZARA WAS PERSONALLY LIABLE

ATIONS OF DEFENDANT–APPELLANT ISC WHEN HE MERELY ACTED IN A REPRESENTATIVE
E BEING NO EVIDENCE AVAILABLE TO SHOW THAT HE ACTED ON HIS PERSONAL CAPACITY.

SEVENTH ASSIGNMENT OF ERROR

RT ERRED IN RENDERING JUDGMENT IN FAVOR OF THE PLAINTIFF-APPELLEE AND AGAINST

PELLANTS FOR REIMBURSEMENT OF CONSIDERATION, LIQUIDATED AND EXEMPLARY DAMAGES.
derscoring supplied)9

enged decision of November 29, 2002, the Court of Appeals found the assigned errors, except No. 6, bereft of

No. 6, the appellate court held that indeed the trial court erred in holding Suzara jointly and severally liable with
ed in his personal capacity as Chairman of ISC which has a separate and distinct personality at the time of the
OA and its amendment. Citing the case of Tramat Mercantile Inc. v. Court of Appeals10 wherein this Court cited
thout necessarily piercing the veil of corporate fiction, personal civil liability can also lawfully attach to a corporate
officer, to wit:

a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach,
n—

He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its
irs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;

He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the
porate secretary his written objection thereto;

He agrees to hold himself personally and solidarily liable with the corporation; or

He is made, by a specific provision of law, to personally answer for his corporate action,11

ls, noting that none of the above enumerated instances is present in the case to call for the imposition of personal
ara, modified the trial court’s decision by sparing Suzara from liability.

petition of the Republic raising the following sole issue:

OT THE ASSAILED DECISION DATED NOVEMBER 29, 2002 OF THE COURT OF APPEALS IS CORRECT IN
HE DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY AND IN NOT ADJUDGING
UZARA AND GARCIA JOINTLY AND SOLIDARILY LIABLE WITH RESPONDENT ISC. (Underscoring

es that the dispositive portion of the Court of Appeals decision "speaks in no uncertain terms that it is only
at should be liable to the petitioner [and] by absolving even Ramon Garcia who did not appeal, it . . . committed
cretion." The Republic goes on to argue as follows:
ecord clearly shows that respondents Suzara and Garcia diverted the funds provided by petitioner to respondent
e construction of the buildings. There is a need to apply the doctrine of piercing the veil of corporate entity in the
ondents Suzara and Garcia used respondent ISC, a corporation, as a shield to justify their wrong deeds and in
fraud they committed. The purpose of respondent ISC, a non-stock, non-profit and non-governmental
zed under and by virtue of the laws of the Philippines is being used to defeat public convenience. Respondent
d by petitioner due to its being organized as a non-governmental organization. This privilege was abused by
a and Garcia. 1ªvvphi 1.nét

at part of the amount given in consideration of the memorandum of agreement was invested in securities through
cial Capital Inc. This could not have happened without the knowledge and consent of respondents Suzara and

National Labor Relations Commission14 wherein this Court held:

rcing the veil of corporate entity is used whenever a court finds that the corporate fiction is being used to defeat
, justify wrong, protect fraud, or defend crime or to confuse legitimate issues, or that a corporation is the mere
ss conduit of a person or where the corporation is so organized and controlled and its affairs are so conducted as
n instrumentality, agency, conduit or adjunct of another corporation.,15

s that Suzara and Garcia must be made jointly and severally liable with ISC, "[t]he non application of the doctrine
of corporate entity . . . not be[ing] allowed to in a way justify the wrong and protect the fraud committed by. . .
."

he Republic in its complaint charged ISC et al. to be guilty of fraud for "they had no intention whatsoever to
had falsely represented . . . that they were financially capable and had all the technical expertise and experience."
r, Suzara in the Answer he jointly filed with ISC denied the allegation of misrepresentation, he claiming that his
execution of the MOA was limited to his official capacity as Chairman of ISC.

n joined after ISC and Suzara jointly filed their Answer, it was incumbent for the Republic to prove the issue, inter
zara’s participation in the MOA was limited to his official capacity as Chairman of ISC.

ara were declared as in default on December 12, 1994 under Rule 20 of the Revised Rules of Court,16 the
urden of proving that first, Suzara, contrary to his claim, participated in the MOA not only in his official capacity as
in his personal capacity, and second, that he, along with ISC, committed fraud. For fraud cannot be presumed and
ed by clear and sufficient evidence.17Courts never sustain findings of fraud upon circumstances which, at most,
on.18

owever, that fraud can only be proved by direct evidence. For, it being a state of mind, it may be inferred from the
he case.19

idence presented ex-parte by the Republic shows that it is documentary.

ents presented and offered in evidence were "Schedule I of Audit findings and recommendation" (Exh. "H-3")
ments as of August 31, 1991,20 herein reproduced as follows:

PARTICULARS PRINCIPAL INTEREST EARNED

Oct. 30, 1990 Urban Bank ₱1,500,000.00 ₱ 34,684.41
Dec. 4, 1990 PCCI 1,534,684.41 37,685.03
90 – Jan. 17, 1991 PCCI – rolled over 1,572,369.44 49,966.41
Mar. 4, 1991 PCCI - rolled over 1,622,335.85 57, 187.34
pr. 4, 1991 PCCI – reduced * 700,000.00 13,416.67
May 6, 1991 PCCI 713,416.67 13,475.00
une 6, 1991 PCCI – reduced * * 500,000.00 7,965.28
uly 12, 1991 PCCI 507,965.28 8,642.46
₱8,650,771.65 ₱223,022.60
============ ===========

net of P979,523.19 withdrawal.

net of P213,475.00 withdrawal,

ch document was "To show the interests made by defendants of the amount received by them from plaintiff and
3,022.60 as interest earned from investments";21 and "Financial analysis of investments made by defendants of
d from plaintiff" (Exh. "S")22 and "Documents issued by Philippine Commercial Capital, Inc. showing investments of
"S-1" – "S-25"),23 the purpose of which was "To show that instead of using the funds received from plaintiff in the
school buildings, defendants invested the same in certain financial institutions or Philippine Commercial Capital,

rial court found that the ISC, Suzara and Garcia "diverted the funds intended for the construction of the buildings
me in certain financial institutions (Exhs. ‘S,’ ‘S-1’ to ‘S-24’) . . . naturally result[ing] in the non-completion of the
d in some instances, although the buildings were completed, the same were defective . . ."24

I, ISC Investments – Exh. "H-3" and the "Financial Analysis" – Exh. "S" as well as the documents – Exhs. "S-1" –
hilippine Commercial Capital, Inc. indicate that placement of investments by ISC began on the last quarter of
g, in this connection, that the Republic paid ISC ₱5,942,160.00 on October 6, 1989. And it paid ₱2,546,640.00
ere is no showing, however, that the same or part of the funds received from the Republic were those invested by
itutions.
1a\^/phi 1.net

bove-specified documents, as what the Republic did in its brief before the appellate and this Court, that Suzara
an of ISC "clearly assented to a patently unlawful act" by agreeing "to divert the funds intended for the
school buildings" is a non sequitor. Parenthetically, the allegation of fraud involving Suzara in the complaint was
srepresentation of financial capability and technical expertise and experience to construct the school buildings,
."

ation, if any, by Suzara in the alleged diversion is not unexplainable.25 Unfortunately, he was declared as in
s, it is speculatory. As such, fraud as the Republic’s basis in urging the piercing the veil of corporate fiction does

ot also hold Suzara personally liable for, as correctly found by the appellate court which cited Tramat Mercantile,
rating instances when personal liability of a corporate director, trustee or officer along (although not necessarily)
n may, as a rule, attach, none of those or of analogous instances is present in Suzara’s case.
 ’s lament in the appellate court’s "not adjudging . . . Garcia jointly and solidarily liable with . . . ISC," its attention is
Homes, Inc. v. Fortun et al.27 wherein this Court held:

cognized the general rule that in appellate proceedings, the reversal of the judgment on appeal is binding only on
ppealed case and does not affect or inure to the benefit of those who did not join or were not made parties to the
on to the rule exists, however, where a judgment cannot be reversed as to the party appealing without affecting
debtor, or where the rights and liabilities of the parties appealing are so interwoven and dependent on each other
e, in which case a reversal as to one operates as a reversal as to all. This exception which is based on a
erest of said parties is recognized in this jurisdiction.28

petition is hereby DENIED.

rman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.

ollo at 37-50.

nnex "A" to the Complaint; Records at 9-13.

TC decision; Records at 385, 387.

mendment to the MOA, Annex "B" to the Complaint; Id. at 14-17.

ecords at 14-15.

ecords at 38.

at 385-387.

at 387.

A Rollo at 31-33.

38 SCRA 14 (1994); Loose copy of CA decision at 13.

d. at 19; Id. at 13-14.

ollo at 29.

d. at 28.

38 SCRA 52 (1994).
 ollo at 33.

ecords at 107. The pertinent provisions of the present Rules of Court reads:

SEC. 5 Effect of failure to appear. — The failure of the plaintiff to appear when so required pursuant to the
next preceding section shall be cause for dismissal of the action. The dismissal shall be with prejudice, unless
otherwise ordered by the court. A similar failure on the part of the defendant shall be cause to allow the
plaintiff to present his evidence ex parte and the court to render judgment on the basis thereof. (Underscoring
supplied)

eng Tong Textile Co. v. CIR, 24 SCRA 767 (1968).

utivo Sons Hardware Co. v. CTA, 1 SCRA 160 (1961).

epublic v. Gonzales, 13 SCRA 633 (1965).

ecords at 213.

d. at 159.

d. at 233.

d. at 234-258.

TC Decision, Id. at 385, 387.

ide Gutierrez v. Villegas, 8 SCRA 527 (1963).

upra.

69 SCRA 81 (1989).

d. at 90.

t - Arellano Law Foundation

Today is Thursday, January 18, 2018

 Republic of the Philippines
SUPREME COURT

THIRD DIVISION

July 28, 2005

PORATION, Petitioners,

OALLOY CORPORATION, Spouses JONG-WON HONG and SOO-OK KIM HONG,*TERESITA CU, and
VARA and Spouse,** respondents.

DECISION

for moral and exemplary damages under Articles 19 to 21 of the Civil Code (on human relations), the claimants
other party’s malice or bad faith by clear and convincing evidence.

ion for Review1 under Rule 45 of the Rules of Court, assailing the December 21, 2001 Decision2 and the May 15,
f the Court of Appeals (CA) in CA-GR CV No. 67482. The CA disposed as follows:

F ALL THE FOREGOING, the appeal is DISMISSED. The Decision appealed from is AFFIRMED."4

ution, on the other hand, denied petitioner’s Motion for Reconsideration.

e antecedents as follows:

Chemical Industries (MCCI) and three (3) Korean corporations, namely, the Ssangyong Corporation, the Pohang
mpany and the Dongil Industries Company, Ltd., decided to forge a joint venture and establish a corporation, under
ndanao Ferroalloy Corporation (Corporation for brevity) with principal offices in Iligan City. Ricardo P. Guevara
and Chairman of the Board of Directors of the Corporation. Jong-Won Hong, the General Manager of Ssangyong
he Vice-President of the Corporation for Finance, Marketing and Administration. So was Teresita R. Cu. On
0, the Board of Directors of the Corporation approved a ‘Resolution’ authorizing its President and Chairman of the
or Teresita R. Cu, acting together with Jong-Won Hong, to secure an omnibus line in the aggregate amount of
m the Solidbank x x x.

xxxxxxxxx

he Corporation started its operations sometime in April, 1991. Its indebtedness ballooned to ₱200,453,686.69
sets of only ₱65,476,000.00. On May 21, 1991, the Corporation secured an ordinary time loan from the Solidbank
3,200,000.00. Another ordinary time loan was granted by the Bank to the Corporation on May 28, 1991, in the
000.00 or in the total amount of ₱5,000,000.00, due on July 15 and 26, 1991, respectively.
poration and the Bank agreed to consolidate and, at the same time, restructure the two (2) loan availments, the
eptember 20, 1991. The Corporation executed ‘Promissory Note No. 96-91-00865-6’ in favor of the Bank
in the amount of ₱5,160,000.00, payable on September 20, 1991. Teresita Cu and Jong-Won Hong affixed their
ote. To secure the payment of the said loan, the Corporation, through Jong-Won Hong and Teresita Cu, executed
ment’ in favor of the Bank covering its rights, title and interest to the following:

ds of drafts drawn under Irrevocable Letter of Credit No. M-S-041-2002080 opened with The Mitsubishi Bank Ltd.
e 13, 1991 for the account of Ssangyong Japan Corporation, 7F. Matsuoka-Tamura-Cho Bldg., 22-10, 5-Chome,
-Ku, Tokyo, Japan up to the extent of US$197,679.00’

kewise executed a ‘Quedan’, by way of additional security, under which the Corporation bound and obliged to
ust for the Bank or its Order, ‘Ferrosilicon for US$197,679.00’. Jong-Won Hong and Teresita Cu affixed their
for the Corporation. The Corporation, also, through Jong-Won Hong and Teresita Cu, executed a ‘Trust Receipt
y of additional security for said loan, the Corporation undertaking to hold in trust, for the Bank, as its property, the

HI BANK LTD., Tokyo L/C No. M-S-041-2002080 for account of Ssangyong Japan Corporation, Tokyo, Japan for
rrosilicon to expire September 20, 1991.

NO. 91-476 dated June 26, 1991 covering the following:

$197,679.00’

after the execution of the said deeds, the Corporation stopped its operations. The Corporation failed to pay its loan
e Bank inclusive of accrued interest. On February 11, 1992, the Bank sent a letter to the Corporation demanding
availments inclusive of interests due. The Corporation failed to comply with the demand of the Bank. On
2, the Bank sent another letter to the [Corporation] demanding payment of its account which, by November 23,
ed to ₱7,283,913.33. The Corporation again failed to comply with the demand of the Bank.

93, the Bank filed a complaint against the Corporation with the Regional Trial Court of Makati City, entitled and
bank Corporation vs. Mindanao Ferroalloy Corporation, Sps. Jong-Won Hong and the Sps. Teresita R. Cu, Civil
or ‘Sum of Money’ with a plea for the issuance of a writ of preliminary attachment. x x x

xxxxxxxxx

ed Complaint’, the Plaintiff alleged that it impleaded Ricardo Guevara and his wife as Defendants because,

-WON HONG and TERESITA CU, are the Vice-Presidents of defendant corporation, and also members of the
f Directors. They are impleaded as joint and solidary debtors of [petitioner] bank having signed the Promissory
Trust Receipt agreements with [petitioner], in this case.

x x x x x x x x x’

e filed a criminal complaint x x x entitled and docketed as ‘Solidbank Corporation vs. Ricardo Guevara, Teresita
on Hong x x x for ‘Violation of P.D. 115’. On April 14, 1993, the investigating Prosecutor issued a ‘Resolution’
cause for violation of P.D. 115 against the Respondents as the goods covered by the quedan ‘were nonexistent’:

xxxxxxxxx
the complaint [in the civil case], the Spouses Jong-Won Hong and Soo-ok Kim Hong alleged, inter alia, that
cause of action against them as:

n of ₱5.1 M obtained was a corporate undertaking of defendant MINFACO executed through its duly authorized
s. Teresita R. Cu and Mr. Jong-Won Hong, both Vice Presidents then of MINFACO. x x x.’

xxxxxxxxx

pondents] Teresita Cu and Ricardo Guevara alleged that [petitioner] had no cause of action against them
do Guevara did not sign any of the documents in favor of [petitioner]; (b) Teresita Cu signed the ‘Promissory Note’,
nt’, ‘Trust Receipt’ and ‘Quedan’ in blank and merely as representative and, hence, for and in behalf of the
tion and, hence, was not personally liable to [petitioner].

Corporation filed, on June 20, 1994, a ‘Petition’, with the Regional Trial Court of Iligan City, for ‘Voluntary

xxxxxxxxx

Petition was a list of its creditors, including [petitioner], for the amount of ₱8,144,916.05. The Court issued an
1994, finding the Petition sufficient in form and substance x x x.

xxxxxxxxx

velopment, the Court issued an Order, in Civil Case No. 93-038, suspending the proceedings as against the
tion but ordering the proceedings to proceed as against the individual defendants x x x.

xxxxxxxxx

1999, the Court rendered a Decision dismissing the complaint for lack of cause of action of [petitioner] against the
n Hong, Teresita Cu and the Spouses Ricardo Guevara, x x x.

xxxxxxxxx

complaint against the individual [respondents], the Court a quo found and declared that [petitioner] failed to
evidence to prove the personal liability of the said [respondents] for the claims of [petitioner] and that the latter
pondents], in its complaint and amended complaint, solely to put more pressure on the Defendant Corporation to
o [petitioner].

terposed an appeal, from the Decision of the Court a quo and posed, for x x x resolution, the issue of whether or
espondents], are jointly and severally liable to [petitioner] for the loan availments of the [respondent] Corporation,
d interests and penalties.

on motion of [petitioner], the Court set aside its Order, dated February 2, 1995, suspending the proceedings as
dent] Corporation. [Petitioner] filed a ‘Motion for Summary Judgment’ against the [respondent] Corporation. On
the Court rendered a ‘Summary Judgment’ against the [respondent] Corporation, the decretal portion of which

emises considered, this Court hereby resolves to give due course to the motion for summary judgment filed by
Consequently, judgment is hereby rendered in favor of [Petitioner] SOLIDBANK CORPORATION and against
DANAO FERROALLOY CORPORATION, ordering the latter to pay the former the amount of ₱7,086,686.70,
utstanding balance of the subject loan as of 24 September 1994, plus stipulated interest at the rate of 16% per
uted from the aforesaid date until fully paid together with an amount equivalent to 12% of the total amount due
September 1994 until fully paid. Lastly, said [respondent] is hereby ordered to pay [petitioner] the amount of
tioner] as reasonable attorney’s fees as well as cost of litigation."5

oner argued that (1) it had adduced the requisite evidence to prove the solidary liability of the individual
2) it was not liable for their counterclaims for damages and attorney’s fees.

of Appeals

the appellate court ruled that the individual respondents were not solidarily liable with the Mindanao Ferroalloy
se they had acted merely as officers of the corporation, which was the real party in interest. Respondent Guevara
natory to the Promissory Note, the Trust Receipt Agreement, the Deed of Assignment or the Quedan; he was
o represent Minfaco to negotiate with and secure the loans from the bank. On the other hand, the CA noted that
nd Hong had not signed the above documents as comakers, but as signatories in their representative capacities
co.

eld that the individual respondents were not liable to petitioner for damages, simply because (1) they had not
eds of the irrevocable Letter of Credit, which was the subject of the Deed of Assignment; and (2) the goods
Receipt Agreement had been found to be nonexistent. The appellate court took judicial notice of the practice of
g institutions to investigate, examine and assess all properties offered by borrowers as collaterals, in order to
bility and advisability of granting loans. Before agreeing to the consolidation of Minfaco’s loans, it presumed that
its homework.

damages to the individual respondents, the CA upheld the trial court’s findings that it was clearly unfair on
have impleaded the wives of Guevara and Hong, because the women were not privy to any of the transactions
and Minfaco. Under Articles 19, 20 and 2229 of the Civil Code, such reckless and wanton act of pressuring
ents to settle the corporation’s obligations is a ground to award moral and exemplary damages, as well as

.6

, petitioner raises the following issues:

there is ample evidence on record to support the joint and solidary liability of individual respondents with
oy Corporation.

of joint and solidary liability[,] will the provision of Article 1208 in relation to Article 1207 of the New Civil Code
ability be applicable to the case at bar.

ices be the proper subject of judicial notice under Sec. 1 [of] Rule 129 of the Rules of Court.

there is evidence to sustain the claim that respondents were impleaded to apply pressure upon them to pay the
f MINFACO that is declared insolvent.

there are sufficient bases for the award of various kinds of and substantial amounts in damages including
ey’s fees.

respondents committed fraud and misrepresentations and acted in bad faith.

 the inclusion of respondents spouses is proper under certain circumstances and supported by prevailing

wo main questions: (1) whether the individual respondents are liable, either jointly or solidarily, with the Mindanao
tion; and (2) whether the award of damages to the individual respondents is valid and legal.

y meritorious.

al Respondents

hat the individual respondents were jointly or solidarily liable with Minfaco, either because their participation in the
he loan documents made them comakers; or because they committed fraud and deception, which justifies the
orate veil.

hinges on certain factual determinations made by the trial and the appellate courts. These tribunals found that,
t signed any document in connection with the subject transaction, Respondent Guevara was authorized to
n negotiating for a ₱30 million loan from petitioner. As to Cu and Hong, it was determined, among others, that
the loan documents other than the Deed of Assignment were not prefaced with the word "by," and that there were
to indicate who had signed for and on behalf of Minfaco, the principal borrower. In the Promissory Note, they
rinted name of the corporation -- on the space provided for "Maker/Borrower," not on that provided for "Co-

hown any exceptional circumstance that sanctions the disregard of these findings of fact, which are thus deemed
e upon this Court and may not be reviewed on appeal.8

ty

e that a corporation is vested by law with a personality separate and distinct from that of each person
esenting it.10 Equally fundamental is the general rule that corporate officers cannot be held personally liable for the
heir acts, for as long as these are for and on behalf of the corporation, within the scope of their authority and in
eparate corporate personality is a shield against the personal liability of corporate officers, whose acts are properly
rporation.12

v. Court of Appeals13 held thus:

f a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach,
n—

o a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for
resulting in damages to the corporation, its stockholders or other persons;

he issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate
n objection thereto;
ld himself personally and solidarily liable with the corporation; or

a specific provision of law, to personally answer for his corporate action.’"

foregoing principles, we sustain the CA’s ruling that Respondent Guevara was not personally liable for the
s beyond cavil that he was duly authorized to act on behalf of the corporation; and that in negotiating the loans
did so in his official capacity. Second, no sufficient and specific evidence was presented to show that he had acted
s negligence in that negotiation. Third, he did not hold himself personally and solidarily liable with the corporation.
y specific provision of law making him personally answerable for the subject corporate acts.

Respondents Cu and Hong signed the Promissory Note without the word "by" preceding their signatures, atop the
/Borrower" and the printed name of the corporation, as follows:

OALLOY

es appear without qualification, the inference that they signed in their individual capacities is negated by the
he name and the address of the corporation appeared on the space provided for "Maker/Borrower"; 2)
nd Hong had only one set of signatures on the instrument, when there should have been two, if indeed they had
nd solidarily -- the first as representatives of the corporation, and the second as themselves in their individual
did not sign under the spaces provided for "Co-maker," and neither were their addresses reflected there; and 4) at
missory Note, they signed above the words "Authorized Representative."

matic that solidary liability cannot be lightly inferred.14 Under Article 1207 of the Civil Code, "there is a solidary
he obligation expressly so states, or when the law or the nature of the obligation requires solidarity." Since
ot clearly expressed in the Promissory Note and is not required by law or the nature of the obligation in this case,
lidary liability can be made.

ng supports the alleged joint liability of the individual petitioners because, as correctly pointed out by the two lower
e shows that there is only one debtor: the corporation. In a joint obligation, there must be at least two debtors,
ble only for a proportionate part of the debt; and the creditor is entitled only to a proportionate part of the credit.15

er late in the day to raise the alleged joint liability, as this matter has not been pleaded before the trial and the
efore the lower courts, petitioner anchored its claim solely on the alleged joint and several (or solidary) liability of
ondents. Petitioner must be reminded that an issue cannot be raised for the first time on appeal, but seasonably in
fore the trial court.16

sory Note in question is a negotiable instrument. Under Section 19 of the Negotiable Instruments Law, agents or
y sign for the principal. Their authority may be established, as in other cases of agency. Section 20 of the law
son signing "for and on behalf of a [disclosed] principal or in a representative capacity x x x is not liable on the
s duly authorized."

spondents Cu and Hong to sign for and on behalf of the corporation has been amply established by the
co’s Board of Directors, stating that "Atty. Ricardo P. Guevara (President and Chairman), or Ms. Teresita R. Cu
cting together with Mr. Jong Won Hong (Vice President), be as they are hereby authorized for and in behalf of the
Negotiate with and obtain from (petitioner) the extension of an omnibus line in the aggregate of ₱30 million x x x;
d deliver all documentation necessary to implement all of the foregoing."17

ment involved here is a "contract of adhesion," which was prepared entirely by one party and offered to the other
e it" basis. Following the general rule, the contract must be read against petitioner, because it was the party that
so because a bank is held to high standards of care in the conduct of its business.19

circumstances, we hold that Respondents Cu and Hong clearly signed the Note merely as representatives of

ce

mstances, courts may treat a corporation as a mere aggroupment of persons, to whom liability will directly attach.
parate corporate personality may be disregarded, inter alia, when the corporate identity is used to defeat public
y a wrong, protect a fraud, or defend a crime. Likewise, the corporate veil may be pierced when the corporation
r ego or business conduit of a person, or when it is so organized and controlled and its affairs so conducted as to
nstrumentality, agency, conduit or adjunct of another corporation.20 But to disregard the separate juridical
poration, the wrongdoing must be clearly and convincingly established; it cannot be presumed.21

that the corporation was used to protect the fraud foisted upon it by the individual respondents. It argues that the
er the following badges of fraud and evident bad faith: 1) the individual respondents misrepresented the
ent and financially capable of paying its loan; 2) they knew that prices of ferrosilicon were declining in the world
secured the loan in June 1991; 3) not a single centavo was paid for the loan; and 4) the corporation suspended its
after the loan was granted.22

kinds of deception -- whether through insidious machination, manipulation, concealment or misrepresentation --

ordinarily prudent person into error after taking the circumstances into account.23 In contracts, a fraud known
r causal fraud24 is basically a deception used by one party prior to or simultaneous with the contract, in order to
of the other.25 Needless to say, the deceit employed must be serious. In contradistinction, only some particular or
gation is referred to by incidental fraud or dolo incidente,26 or that which is not serious in character and without
ty would have entered into the contract anyway.27

ablished by clear and convincing evidence; mere preponderance of evidence is not adequate.28 Bad faith, on the
s a dishonest purpose or some moral obliquity and conscious doing of a wrong, not simply bad judgment or
ynonymous with fraud, in that it involves a design to mislead or deceive another.30

ioner was unable to establish clearly and precisely how the alleged fraud was committed. It failed to establish that
o granting the loans because of respondents’ misrepresentations and/or insidious actions. Quite the contrary,
cate the weakness of its submission.

s not deny that the ₱5 million loan represented the consolidation of two loans,31 granted long before the bank
ual respondents to execute the Promissory Note, Trust Receipt Agreement, Quedan or Deed of Assignment.
acts or machinations arising from any of those instruments could have been used by them prior to or simultaneous
of the contract, or even as some accident or particular of the obligation.

bank was in a position to verify for itself the solvency and trustworthiness of respondent corporation. In fact,
prudence required it to do so before granting the multimillion loans. It is of common knowledge that, as a matter of
nduct exhaustive investigations of the financial standing of an applicant debtor, as well as appraisals of collaterals
s for loans to ensure their prompt and satisfactory payment. To uphold petitioner’s cry of fraud when it failed to
of the goods covered by the Trust Receipt Agreement and the Quedan is to condone its negligence.

s to the alleged error of the appellate court in taking judicial notice of the practice of banks in conducting
s on borrowers and sureties. While a court is not mandated to take judicial notice of this practice under Section 1
Rules of Court, it nevertheless may do so under Section 2 of the same Rule. The latter Rule provides that a court,
y take judicial notice of "matters which are of public knowledge, or ought to be known to judges because of their

s taken judicial notice of the practices of banks and other financial institutions. Precisely, it has noted that it is their
efore approving a loan, to investigate, examine and assess would-be borrowers’ credit standing or real
security for the loan applied for.

ondents were awarded moral and exemplary damages as well as attorney’s fees under Articles 19 to 21 of the
basic premise that the suit was clearly malicious and intended merely to harass.

vil Code expresses the fundamental principle of law on human conduct that a person "must, in the exercise of his
rformance of his duties, act with justice, give every one his due, and observe honesty and good faith." Under this
e exercise of a right, though legal by itself, must nonetheless be done in accordance with the proper norm. When
ed arbitrarily, unjustly or excessively and results in damage to another, a legal wrong is committed for which the
held responsible.33

he abuse-of-rights principle, three elements must concur: a) a legal right or duty, b) its exercise in bad faith, and
prejudicing or injuring another.34 Needless to say, absence of good faith35 must be sufficiently established.

e]very person who, contrary to law, willfully or negligently causes damage to another" liable for damages. Upon
d liable for damages under Article 21 is one who "willfully causes loss or injury to another in a manner that is
good customs or public policy."

properly awarded under the above provisions, it is necessary to demonstrate by clear and convincing
action instituted by petitioner was clearly so unfounded and untenable as to amount to gross and evident bad
award of damages for malicious prosecution, one must prove two elements: malice or sinister design to vex or
of probable cause.38

en wrong in impleading Spouses Guevara and Hong. Beyond that fact, however, respondents have not
e suit was so patently malicious as to warrant the award of damages under the Civil Code’s Articles 19 to 21,
d on malice or bad faith.39 With the presumption of law on the side of good faith, and in the absence of adequate
find that petitioner impleaded the spouses because it honestly believed that the conjugal partnerships had
proceeds of the loan, as stated in their Complaint and subsequent pleadings. Its act does not amount to evident
hence, an award for damages is not proper. The adverse result of an act per se neither makes the act wrongful
tor to the payment of damages, because the law could not have meant to impose a penalty on the right to
on, attorney’s fees cannot be granted. Article 2208 of the Civil Code states that in the absence of a stipulation,
not be recovered, except in any of the following circumstances:

ry damages are awarded;

ndant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his

es of malicious prosecution against the plaintiff;

early unfounded civil action or proceeding against the plaintiff;

endant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable

egal support;

he recovery of wages of household helpers, laborers and skilled workers;

ndemnity under workmen’s compensation and employer’s liability laws;

ivil action to recover civil liability arising from a crime;

double judicial costs are awarded;

ase where the court deems it just and equitable that attorney’s fees and expenses of litigation should be

none of the enumerated grounds for recovery of attorney’s fees are present.

s Petition is PARTIALLY GRANTED. The assailed Decision is AFFIRMED, but the award of moral and exemplary
s attorney’s fees is DELETED. No costs.

z, Corona, Carpio-Morales, and Garcia, JJ., concur.

er first name is not specified in title of the Petition, but is found on page 1 of the Spouses’ Memorandum. Rollo, p.
.

he name of Mr. Guevara’s spouse is not found in the records.

ollo, pp. 18-42.

enned by Justice Romeo J. Callejo Sr. (then chair, Twelfth Division, and now a member of this Court) and
curred in by Justices Remedios Salazar-Fernando and Josefina Guevara-Salonga (members).

upra, p. 34.

A Decision, pp. 25-26; id., pp. 31-32.

xcerpted from the CA Decision, pp. 1-10; rollo, pp. 7-16. Citations omitted.

he Petition was deemed submitted for decision on June 28, 2004, upon the Court’s receipt of the Memorandum of
spondents Teresita Cu and Guevara, signed by Atty. Antonio C. Pacis. The Memorandum of Respondent Spouses
g-Won Hong and Soo-ok Kim Hong, signed by Attys. Constantine G. Agagan and Mario R. Frez, was filed on
e 21, 2004. Petitioner’s Memorandum, signed by Atty. Maximino Z. Banaga Jr., was received by the Court on
e 8, 2004.

etitioner’s Memorandum, pp. 10-11; rollo, pp. 202-203. Original in uppercase.

rena v. Mapili, 408 SCRA 484, 488, August 7, 2003; Bordalba v. CA, 425 Phil. 407, 415, January 25, 2002; Roca
CA, 350 SCRA 414, 420, January 29, 2001; Bañas v. CA, 382 Phil. 144, 154, February 10, 2000.

hey are the stockholders or members of a corporation. See Francisco v. Mejia, 415 Phil. 153, 165, August 14,
1; Consolidated Bank and Trust Corporation (Solidbank) v. CA, 356 SCRA 671, 682, April 19, 2001; Reahs Corp.
National Labor Relations Commission, 337 Phil. 698, 706, April 15, 1997.

eing a juridical entity, a corporation acts through its board of directors and/or officers and agents. See Monfort
manos Agricultural Development Corp. v. Monfort III, 434 SCRA 27, 31, July 8, 2004; Firme v. Bukal Enterprises
Development Corporation, 414 SCRA 190, 208, October 23, 2003; People’s Aircargo and Warehousing Co., Inc.
CA, 357 Phil. 850, 863, October 7, 1998.

rancisco v. Mejia, supra, pp. 166-167; Bogo-Medellin Sugarcane Planters Association, Inc. v. NLRC, 357 Phil.
, 127, September 25, 1998.

onsolidated Bank and Trust Corporation (Solidbank) v. CA, supra.

38 SCRA 14, 19, November 7, 1994, per Vitug, J. (cited in FCY Construction Group, Inc. v. CA, 381 Phil. 282,
, February 1, 2000).

ndustrial Management International Development Corp. v. NLRC, 387 Phil. 659, 666, May 11, 2000; Smith, Bell &
, Inc. v. CA, 335 Phil. 194, 203, February 6, 1997; Sesbreño v. CA, 222 SCRA 466, 481, May 24, 1993.

H Credit Corporation v. CA, 421 Phil. 821, 832, November 22, 2001; Inciong Jr. v. CA, 327 Phil. 364, 373, June
1996; Quiombing v. CA, 189 SCRA 325, 328, August 30, 1990; The Imperial Insurance, Inc. v. David, 218 Phil.
, 302, November 21, 1984.

m v. Queensland Tokyo Commodities, Inc., 424 Phil. 35, 47, January 4, 2002; Del Rosario v. Bonga, 350 SCRA
, 108, January 23, 2001; Sanchez v. CA, 345 Phil. 155, 186, September 29, 1997.

A Decision (referring to Exhibit "A" and Records, p. 595), p. 20; rollo, p. 26.
 uano v. CA, 446 Phil. 690, 708, March 4, 2003; BPI Express Card Corporation v. Olalia, 423 Phil. 593, 599,
cember 14, 2001; Geraldez v. CA, 230 SCRA 320, 331, February 23, 1994.

ee Associated Bank v. Tan, GR No. 156940, December 14, 2004, p. 10 (citing BPI v. Casa Montessori
rnationale, 430 SCRA 262, 293, May 28, 2004); Philippine Commercial and International Bank v. CA, 350 SCRA
, 472, January 29, 2001; Bank of the Philippine Islands v. Intermediate Appellate Court, 206 SCRA 408, 412-413,
bruary 21, 1992.

pat v. Pacific Banking Corporation, 450 Phil. 401, 410, April 30, 2003; Francisco v. Mejia, supra, pp. 165-
; Francisco Motors Corp. v. CA, 368 Phil. 374, 384, June 25, 1999; Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA
, 355, August 17, 1976.

Marubeni Corporation v. Lirag, 415 Phil. 29, 39, August 10, 2001.

etitioner’s Memorandum, pp. 24-25; rollo, pp. 216-217.

Maestrado v. CA, 384 Phil. 418, 434, March 9, 2000; Caram Jr. v. Laureta, 103 SCRA 7, 18, February 24, 1981.

rticle 1338 of the Civil Code refers to this kind of fraud. See also Geraldez v. CA, supra, p. 336.

amson v. CA, 238 SCRA 397, 404, November 25, 1994. See also Tolentino, Civil Code of the Philippines, 1991
Vol. IV, p. 506.

rticle 1344 of the Civil Code.

aram Jr. v. Laureta, supra; Tolentino, supra.

nciong Jr. v. CA, supra, p. 371.

ojuangco Jr. v. CA, 369 Phil. 41, 55, July 2, 1999; Philippine Air Lines, Inc. v. NLRC, 362 Phil. 197, 204, February
999; Samson v. CA, supra.

bid.

he first indebtedness was for ₱3. 2 million, which was granted by the bank to the corporation on May 21, 1991,
le the second loan of ₱1.8 million was granted on May 28, 1991.

eirs of Manlapat v. CA, GR No. 125585, June 8, 2005, pp. 25-26; Home Bankers Savings & Trust Co. v. CA, GR
128354, April 26, 2005, p. 17; Rural Bank of Sta. Ignacia Inc. v. Dimatulac, 449 Phil. 800, 812, April 29,
3; Cruz v. Bancom Finance Corporation, 429 Phil. 225, 240, March 19, 2002.

Metropolitan Waterworks and Sewerage System v. Act Theater, Inc., 432 SCRA 418, 422, June 17, 2004; Rellosa
Pellosis, 414 Phil. 786, 792, August 9, 2001; Sea Commercial Company, Inc. v. CA, 377 Phil. 221, 229, November
1999.

bid.
n University of the East v. Jader, 382 Phil. 697, 705, February 17, 2000, good faith was defined as "an honest
ntion to abstain from taking undue advantage of another, even though the forms and technicalities of the law,
ether with the absence of all information or belief of facts, would render the transaction un-conscientious."

udion Electric Co. v. NLRC, 367 Phil. 620, 635, June 17, 1999.

avellano v. Northwest Airlines, 405 SCRA 416, 428-429, July 8, 2003; Cervantes v. CA, 363 Phil. 399, 407, March
999. See also Article 2220 of the Civil Code.

nhelder Corporation v. CA, 122 SCRA 576, 584, May 30, 1983.

BS-CBN Broadcasting Corp. v. CA, 361 Phil. 499, 531, January 21, 1999.

BS-CBN Broadcasting Corp. v. CA, supra, p. 529; BPI Family Savings Bank v. Manikan, 443 Phil. 463, 468,
uary 16, 2003; R & B Surety & Insurance Co., Inc. v. Intermediate Appellate Court, 129 SCRA 736, 744-745, June
1984; Inhelder Corporation v. CA, supra.

t - Arellano Law Foundation

Today is Thursday, January 18, 2018

SECOND DIVISION

August 31, 2004

, substituted by his HEIRS, represented by ORFIA ALICER SABER, petitioners,

ALS, PHILIPPINE AMANAH BANK and ASGARI ARADJI, respondents.

 DECISION

r review on certiorari filed by the heirs of Dr. Mamitua Saber of the Decision1 of the Court of Appeals in CA-G.R.
rsing the Decision2 of the Regional Trial Court of Marawi City, Branch 9, in Civil Case No. 2323 (84-R), as well as
he appellate court denying the motion for reconsideration thereof.

The Antecedents

en President Ferdinand E. Marcos appointed Dr. Mamitua Saber, then Dean of Research at the Mindanao State
ng Director, National Science Museum, as Executive Vice-President of the Philippine Amanah Bank (PAB).3 He
d as the Officer-in-Charge of the bank pending the election of its president by the Board of Directors. Saber was
he did not apply for appointment to the position. He inquired from Executive Secretary Alejandro Melchor why he
eto, considering that he had no experience whatsoever in the field of business and banking. He was told that he
President from among forty applicants because of his proven personal integrity. Saber took a year-long leave of
niversity and assumed office at the PAB. From the serenity of the academe, he plunged head-on into the
ate world of business.

rs of the Board of Directors of the bank was Asgari Aradji who was also the Acting Chairman of the Screening
sonnel. Martin Saludo, then Senior Vice-President of the Philippine National Bank (PNB), was a management
AB.

Malaysia to study how its Malaysian government prepared and managed the annual Muslim pilgrimage (Hajj) to
void the fiascos that plagued previous such pilgrimages of Filipino Muslims in the past. After his stint in Malaysia,
duties at the PAB.

eptember 19, 1974, Executive Secretary Alejandro Melchor informed Chairman of the PAB Board of Directors Dr.
t the bank had been designated to make appropriate preparations and arrangements for the annual pilgrimage of
Mecca.4 The next day, Majul forwarded the letter to Saber, directing the latter to undertake the appropriate
he pilgrimage.5 Saber was concerned because he had only two months to prepare; the pilgrims had to be in Mecca
day ceremony at Mt. Arafat on December 23, 1974. Considering that Saber had no experience thereon, the PAB
designated Saludo as the head of the one-man oversight committee to oversee the preparations.

e Memorandum No. 92 forming a Pilgrimage Secretariat with the following officers: Atty. Lanang S. Ali, as
image Administrator; Dialel Basman, as Finance Officer; and Kuisan Go, as Trade and Investment Officer. Saber
Order No. 95, designating ten (10) members of the Secretariat who would join the pilgrimage and coordinate the
d Lugum Uka, as Vice-Chairman, and Alexander Lucman, as member.6 On October 4, 1974, Saber issued another
eating the specific duties of the Secretariat members who were joining the trip.7

harter the M/V Sweet Homes, owned by the Sweet Lines, Inc., for the trip. In behalf of the PAB, as charter, Saber
m Time-Charter on October 15, 1974 under which the PAB chartered the M/V Sweet Homes to transport the
and back to the Philippines for P5,300,000 cash, the amount budgeted8 by the PAB. The parties executed a Rider
which the PAB was allowed to load cargoes in the cargo hold of the vessel up to 500 metric tons free of
was scheduled to leave on November 28, 1974. There was no time to lose; the PAB conducted a massive
inform the Muslims of the arrangements, including the accommodations on board the vessel and urged them to
 h the bank. Prospective pilgrims, including PAB depositors, made reservations for the voyage and made partial
ickets thereon.

74, Saber wrote then President Marcos requesting that other parties not be allowed to charter any ship or aircraft
Jeddah, to avoid unfair competition with the PAB.10 However, President Marcos granted Congressman Ali
e politicians from Lanao del Sur permission to charter a plane to transport the pilgrims. Worse, Sacar Basman,
er of the Arabian Gulf Export Agency Corporation (AGEAC) had been representing to the public that he was one
irectors, that he had been allotted 25 passengers for the voyage on board the M/V Sweet Homes and solicited
m interested pilgrims.11

974, Indar Tampi, the Marawi Branch Manager of the PAB, wrote Saber expressing his disappointment over the
iticians being allowed to charter a private plane which was in direct competition with the PAB. He stated that this
ccess of the pilgrimage and cause great financial loss to the bank. He also expressed his apprehensions about the
Sacar Basman that he was one of pilgrimage directors, and that he was allotted 25 accommodations on the M/V
mpi sent a telegram to Saber on November 14, 1974 informing the latter that many prospective passengers,
sitors of the PAB who were booked for the voyage on board the M/V Sweet Homes, had withdrawn their
ermore, about 200 1st and 2nd class cabin accommodations were rendered vacant.13 When he learned of the
ments, President Marcos was alarmed and ordered that pilgrims going to Mecca by plane be limited to 100

Saber formed a three-man panel called the "Troika," composed of Atty. Lanang Ali, Dialel Basman and Ibrahim
ate the arrangements for the pilgrimage. Rather than allow the vessel to leave for Mecca with many vacant cabins,
ell tickets to Basman on credit. He issued a Memorandum15 on November 21, 1974, informing the Troika that he
reement with Basman that the latter would purchase forty (40) first class (ordinary) cabin accommodations and
lass (dormitory) accommodations on board the M/V Sweet Homes, and that Basman would pay via a postdated
ted the Troika to implement the agreement. Saber issued a supplemental memorandum to the Secretariat
ws:

T]o give and issue on credit purchase basis additional One Hundred Twenty (120) fare tickets all of first class
ommodations at P6,500.00 each under the following terms and conditions, tax FREE;

1. The said fare tickets all first class accommodations at P6,500.00 each in the total sum of SEVEN
HUNDRED FIFTY-SIX THOUSAND (P756,000.00) PESOS, Philippine Currency, shall consist of the unsold
tickets and the same shall be given and issued to Datu Sacar Basman on credit purchase basis.

2. The said sum of P756,000.00 shall be paid by means of post-dated check issued by Datu Sacar Basman in
favor of the Philippine Amanah Bank.16

pment, Atty. Mangawan Toro, the Legal Counsel of the PAB, prepared a Freight Contract which the PAB, through
EAC, through Basman, its General Manager, executed without the approval of the PAB Board of Directors. Under
C was allowed to load on the M/V Sweet Homes chartered by the PAB, exportable/importable goods and other
o Saudi Arabia and return, in consideration of P178,000 to be paid by AGEAC via a postdated check, under the
d conditions:

That the PARTY OF THE SECOND PART will pay, and hand in and deliver the payment of the consideration
erred to above within a period of ten (10) days from and after arrival in the Philippines in its return home trip.

That as a security for the payment of the freight agreed upon, the PARTY OF THE SECOND PART hereby agrees
the PARTY OF THE FIRST PART shall have a superior lien in the proceeds on the sale of the goods evidenced
he bill of lading, invoices and other documents and/or on the goods in case no sale is made.17
 Saber stated in his Memo-Directives in the Secretariat that in connection with the Freight Contract with AGEAC –

The proceeds of the exported goods sold shall be placed in the possession of the PAB Treasurer or his authorized
resentative which shall be made available to Datu Sacar Basman for use in payment for goods to be imported;
wise, the proceeds derived from the sale of the imported goods shall be kept by the said Treasurer or his
horized representative and all sums indicated in the postdated check/s issued by Datu Sacar Basman be
ucted therefrom and/or whatever amount or sums of money due to the bank as embodied in the memo-directive
November 21, 1974 and in this addendum, likewise, in other contracts signed by the parties herein.18

ved that the agreements of Saber with Basman/AGEAC were against the policies of the PAB, the
had to implement the Memoranda, and because of Saber’s insistence, gave the tickets to Basman. In payment
ew and issued PAB Check Nos. 00377 and 00378, both postdated February 4, 1975 against his account No.
to PAB with no amounts written thereon.19 Basman loaded exportable goods on board the vessel. When the vessel
abia, the authorities did not allow the M/V Sweet Homes to dock. Its passengers were boarded on boats and
pier. Basman failed to unload and sell the exportable goods, much less purchase importable goods. When the
were deposited on the due dates thereof in the account of the PAB, they were dishonored.20 Basman, likewise,
freight charge for the exportable cargo of AGEAC to Saudi Arabia. Consequently, the PAB sustained a huge

s Aguilar submitted his Report of the Accounts Receivables in connection with the pilgrimage in the total amount
s:

HEDULE OF RECEIVABLES

or Tickets Sold:

Sacar Basman P654,000.00

78 Passengers (Surrenderees)
onsored by PC Authorities 296,400.00

Eight (8) persons guaranteed

Ambassador L.
angandaman 49,600.00

Nascuin Dakinangcob 1,700.00

Acmad Buat 2,700.00

Ali Usman 3,800.00

Ali Laguindab 3,800.00

ub-total P1,012,000.00

or Mutawiff:

Cosain Ali Usman 900.00

Surrenderees assessed by the

C Authorities 13,600.00
 Eight (8) Passengers
aranteed by Ambassador L.
angandaman 7,200.00

ub-total P 21,700.00

OTAL RECEIVABLES P 1,033,700.0021

of the PAB Board of Directors, Saber was present. The Board, after exhaustive deliberations, approved
Series of 1975, without any objection, declaring Saber liable for the receivables on the ground that the Board did
o sell tickets on credit payable via postdated checks, and to execute the Freight Contract with AGEAC. The Board
ollect the receivables himself, because of its perception that if the PAB endeavored to collect the receivables, it
ratifying the unauthorized acts of Saber.

ri A. Aradji, who was also Acting Chairman of the Personnel Screening Committee of the PAB, made verbal
he PAB Board of Directors to grant PAB Management Consultant and PAB Senior Vice-President Martin L.
o perform the duties and exercise the powers of PAB President, in lieu of Saber who was only the Officer-in-
a Memorandum to the Board of Directors, through the Chairman of the Board, on February 21, 1975 reiterating
plained the following therein:

ecifically, I refer to the mishandling of the 1974 MECCA Pilgrimage. The Board set a budget of P5.53 million but
incumbent OIC authorized a total disbursement of P9.157 million or an excess of P3.62 million.

Chairman of the Personnel Screening Committee, I have discovered, much to my surprise, that a number of
ployees have been retained in spite their not having the necessary qualifications for the positions; other[s] were
minated despite the fact that they are more deserving than those who were retained.

ese instances clearly indicate the apparent lack of exercise of effective leadership which is so vital and essential at
crucial stage if we are to make the Amanah Bank truly responsive to the needs of our Muslim brothers. Moreover,
purpose for which Dr. Namitua Saber has been designated as OIC have already been accomplished and such
ignation has become academic with the constitution of the PAB Board of Directors.22

s leave of absence at the Mindanao State University expired and he had to report back to the university. He
nce from the PAB. Assistant Auditor Rodolfo Ocampo signed the said clearance for and in behalf of Auditor
bject to Resolution No. 67, Series of 1975 of the PAB Board of Directors. Because of the conditional clearance
Saber was reinstated to his position as professor at the university with the salary of P34,000.00 per annum, but
osition as Dean for Research.

e PAB Board of Directors approved Resolution No. 92 confirming the recommendation of the management of the
n of an Investigating Committee of five (5) members, chaired by Aradji, to look into the administrative and/or
f the persons involved in the Pilgrimage Project.23 It also resolved that pending the outcome of the investigation,
y a conditional clearance.24

nvestigation, Saber testified and submitted documentary evidence. Aradji submitted his Report to the PAB Board
ere was basis for Saber to be charged with violation of Republic Act No. 3019, otherwise known as the Anti-Graft
ces Act, and recommended that the proper criminal complaint be filed against him. The management approved the
Aradji.
 he Board of Directors of the PAB approved Resolution No. 155 confirming the recommendation of the PAB
d on the Report of the Investigating Committee headed by Aradji. The resolution authorized the filing of a criminal
Saber for violation of Rep. Act No. 3019, and for Aradji to sign the said complaint and testify against Saber:

That a criminal case for violation of the provisions of the Anti-Graft and Corrupt Practices Act (Republic Act 3019)
iled against Dr. Mamitua Saber and that Director Asgari A. Aradji, Chairman, Investigation Committee, 1974
cca Pilgrimage Project be authorized, as he is hereby authorized to sign for and in behalf of the Bank the
mplaint against Dr. Mamitua Saber and thereafter to testify and represent the Bank. Should sufficient evidence be
nd later to prove conspiracy in the preparation and execution of the Freight Contract, the memorandum and the
endum thereto mentioned above, that Messrs. Lanang Ali, Mañgawan Doro, Dialel Basman and other persons
olved be included as respondents;25

Aradji signed the criminal complaint filed with the Office of the City Fiscal of Zamboanga City against Saber for
ct No. 3019. The case was docketed as Slip No. 527-75. The complaint, as well as the report on the investigation
ubject of a news item in the Times Journal, a newspaper of general circulation under the by-line of reporter Emilio

5, Saber filed a civil complaint for damages in the RTC of Marawi City, Branch 9, against the PAB,27 the Chairman
of its Board of Directors, its Managing Director Martin Saludo, Auditor Aramis Aguilar, and Assistant Auditor
Saber alleged therein that the PAB was authorized to make the appropriate arrangements for the pilgrimage; he
hority to enter into transactions, including the authority to sell the tickets to Basman on credit and to execute the
th AGEAC. He pointed out that Martin Saludo, who was appointed by the Board of Directors to oversee the
pilgrimage, approved the said transactions; hence, he is not personally liable for the receivables of P1,033,700. He
endants therein acted arbitrarily, oppressively and unfairly in considering the receivables in connection with the
ersonal obligation and in approving Resolution No. 67. He further averred that the conditional clearance made by
ar caused him great damage and prejudice, and that the filing of the anti-graft charges against him by the PAB
rectors was devoid of any factual and legal basis. He claimed that the filing of the charges, the nationwide
at the behest of the PAB, and the press release of the Investigating Committee’s report and the complaint caused
me, discredit and contempt, shock, besmirched reputation, and wounded feelings, for which the defendants were
emplary and actual damages. He also alleged that because of his preventive suspension, he failed to receive his
danao State University, causing him and his family severe economic losses. He further claimed that Aradji and
o oust him from the PAB.

prayed that, after due proceedings, judgment be rendered in his favor:

EREFORE, it is respectfully prayed that judgment be rendered in favor of plaintiff and against defendants, as
ows:

Declaring PAB Board’s Resolution No. 67, Series of 1975 (Annex ‘D’) null and void;

Ordering the deletion of the questioned notation ‘Subject to Board Resolution No. 67, Series of 1975’ contained in
Certificate of Clearance (Annex ‘E’);

Ordering defendant, jointly and severally in their official and/or personal capacity, to pay plaintiff, the following:

1. The amount of no less than P1,000,000.00 as and for moral damages;

2. The amount of no less than P3,650.00 monthly from July 1975, until plaintiff shall have resumed his
position in the Mindanao State University;
 3. The amount of no less than P100,000.00 as nominal damages;

4. A reasonable amount to be determined by the Honorable Court, as and for exemplary damages;

5. Attorney’s fees in the amount equivalent to 25% of whatever amount is awarded by the Honorable Court in
favor of the plaintiff.

ntiff further prays for such other and further relief as this Honorable Court may deem just and equitable in the
mises.28

r, the complaint was dismissed as against the chairman and members of the PAB Board of Directors.29

endants therein, the PAB and Aradji, alleged the following in their Answer: Saber sold tickets on credit to Basman
ted checks without authority from the PAB Board of Directors; defendant Martin Saludo approved in principle the
spaces in the M/V Sweet Home, but subject to the approval of the PAB Board of Directors; the said lease contract,
ht Contract with AGEAC, was never approved by the PAB Board of Directors; the PAB had no obligation to issue a
, and it would have been injudicious it to have done so on account of Saber’s unpaid personal obligations to the
aber’s claim, there were factual and legal bases for the approval of Resolution No. 67 and the filing of the graft
m; Saber made no allegations in the complaint that they (the defendants therein) caused or in any way participated
f the charges filed by the PAB against him; and, the defendants acted in good faith, in the performance of their
f the complaint in violation of Section 3, Rep. Act No. 3019.

975, the Board of Trustees of the MSU approved Resolution No. 969, Series of 1975, approving the reinstatement
mer position as Dean of Research, with the corresponding salary effective from the date he would report for work.30

investigation, Special Counsel Genaro T. Lorena, Jr. of the Office of the City Fiscal issued a Resolution
plaint in Slip No. 527-75.31 The petition for review thereon filed by the PAB was dismissed on August 2,
pon review by the Tanodbayan, the resolution of the Special Counsel was reversed with the following

e undersigned finds and so holds that there exists a prima facie case for violation of Sec. 3, par. (e) on three (3)
nts (on the basis of the memoranda of November 21 and 28, 1974, and that of the freight contract, respectively)
he Anti-Graft Law against respondents MAMITUA SABER, LANANG ALI, DIALEL BASMAN, IBRAHIM MAMAO,
DUG MACARAMBON, IBRAHIM MACADATAR and SACAR BASMAN, and that they are probably guilty thereof.
ordingly, it is recommended that the corresponding informations for Violation of the Anti-Graft Law be filed against
pondents.33

were filed against Saber, Sacar Basman, Lanang Ali, Dialel Basman, Ibrahim Mamao, Tindug Macarambon and
in the Sandiganbayan for violation of Section 3(e) of Rep. Act No. 3019. The cases were docketed as Criminal
o 1837.34 Saber was preventively suspended by the Sandiganbayan as required by law.

iganbayan rendered a Decision on January 6, 1982 acquitting all the accused.35 In acquitting Saber of the charge,
n ruled:

of no legal consequence that both the MEMORANDUM and the ADDENDUM were not approved by the Board of
ectors of the BANK. For one thing, it is not the absence of such approval that made the transactions subject of
h documents criminal under the penalizing Act but whether they caused undue injury to the BANK or gave
warranted benefits, advantage or preference to Sacar Basman through manifest partiality, evident bad faith or
ss inexcusable negligence of the accused BANK officials, which the court believes did not. For another thing, the
e element and the fact that the members of the Board were themselves responsible officials of different
ernment offices precluded convening them to a meeting for that purpose. And still for another thing, Dr. Saber,
o was then the Executive Vice President and Officer-in-Charge of the BANK and entrusted with the management
he Pilgrimage Project must be deemed to have been impliedly clothed with authority to enter into any contract
ted to the Project. A corporate officer, entrusted with the general management and control of its business, has
lied authority to make any contract or do any other act which is necessary or appropriate to the conduct of the
nary business of the corporation. (Board of Liquidators vs. Kalaw, supra, citing 2 Fletcher Cyclopedia
porations, p. 607.)36

989, the RTC rendered a Decision in Civil Case No. 2323 in favor of Saber, and against the PAB and Aradji, thus:

EREFORE, for all the foregoing findings, judgment is hereby rendered in favor of plaintiff and against defendants,
ollows:

Ordering defendant Philippine Amanah Bank jointly and severally with defendant Asgari Aradji, to pay plaintiff the
ounts of:

a. Nine Hundred Thousand (P900,000.00) Pesos as moral damages;

b. One Hundred Thousand (P100,000.00) Pesos as nominal damages;

c. Seventy Thousand (P70,000.00) Pesos as and for Attorney’s fee; and

d. The costs of suit.

ORDERED.37

d that the PAB and Aradji were liable for damages based on the following:

1) Malicious Prosecution of the criminal cases against plaintiff; (2) Libel arising from derogatory and malicious
lications against plaintiff; and (3) willful injury against plaintiff under the provisions of the New Civil Code on
man Relations, arising from Resolution No. 67, Series of 1975 and the conditional clearance in question.38

d its ruling partly on the decision of the Sandiganbayan in Criminal Cases Nos. 1836 to 1837, on the finding that
caused the publication of the filing of the criminal charges against Saber in the Office of the City Fiscal in the
that the ouster of the plaintiff from the PAB was instigated by Aradji. Thus:

t is unrebutted that plaintiff’s ouster was conspired in as demonstrated by the fact that when Saludo and other
mbers of the Task Force prepared the budget for Amanah Bank, the salary of the President of the Bank
s P67,000.00 per annum and the salary of the Executive Vice-President which the plaintiff assumed
s P48,000.00 but to pressure plaintiff from giving up his position, the Board was moved by Saludo to reduce his
ary to only P30,000.00 per annum. When plaintiff left the Bank, Saludo took over the position which plaintiff held.
er Saludo, defendant Aradji assumed the position of Executive Vice-President, the same position which plaintiff
d before he left the Bank. (pp. 4, 26, Deposition of Aradji).39

ruled that the sales of the tickets to Basman on credit and the execution of the Freight Contract were with the
artin Saludo, the head of the One-Man Oversight Committee, as well as Nestor Kalaw, who was the PNB Legal

ppealed to the Court of Appeals, which rendered a judgment reversing the decision of the trial court. The CA
led to prove bad faith and malice against the PAB and Aradji in the performance of their duties, and in exercising
 office. It also held that the latter acted out of duty to protect the interests of the PAB. The CA further ratiocinated

endants could not be blamed for acting the way they did for they were charged with the duty to act for the bank
h loyalty and dedication, and according to their best judgment. It is a well-known rule of law that questions of policy
of management are left solely to the honest decisions of officers and directors of a corporation, and so long as they
in good faith, their orders are not reviewable by the courts.

, thus, evident that defendants PAB and Aradji were not in the least motivated by any malicious intent or by a
ster design to unduly harass plaintiff Saber, but only by a well-founded anxiety to protect the interests of the bank
en they caused the filing of a criminal complaint against the latter. The facts which presented themselves were
h as would excite the belief in a reasonable mind that the person charged was guilty of the crimes for which he
s prosecuted. This is the essence of probable cause which eliminates the element of malice essential in making
a case of malicious prosecution. (Almendra v. Alvero, 50 SCRA 62 [1965]).

whether or not defendants’ perception of the facts and circumstances is actually correct is irrelevant, the only
ue being whether or not there was probable cause in the filing of the criminal complaint.40

t disagreed with the trial court’s finding of the existence of conspiracy between Saludo and Aradji, thus:

can we see any "conspiracy" to pressure Saber into giving up his position by the reduction of his salary. As
lained by defendants, PAB’s salary structure could not be made at par with that of the Philippine National Bank,
nstance, since it was just a small bank with a paid-up capital of only P50 Million and moreover, it had only eight
nches. It was therefore deemed necessary to rationalize the salary level of the bank’s officers and staff to make
operations of the bank more economically sound and viable.41

The Present Petition

aber died intestate. His heirs, represented by Orfia Alicer Saber, filed the instant petition for review on certiorari of
CA, alleging that the appellate court erred in reversing the decision of the trial court:

itioners herein respectfully submit that the Court a quo committed error in concluding that under the environmental
umstances, the award of damages to plaintiff may not be sustained whether based on the principle of abuse of
ts or for malicious prosecution.42

r that Saber was able to prove his claims for damages against the respondent, based on the principles of abuse
ous prosecution.

tend that the respondents acted with malice and/or in bad faith. They allege that Saber was deprived of his right
by the impartial investigator. They pointed out that respondent Aradji, who was the Chairman of the Investigating
ased against Saber, considering that the respondent made strong representations to the Board of Directors of the
at he (Saber) be replaced by Saludo. The petitioners stress that respondent Aradji, a non-lawyer, was designated
gating Committee to investigate the pilgrimage fiasco. The petitioners also allege that Saber was denied due
never furnished with a copy of the Report of the Investigating Committee. They claim that Saludo and respondent
er into resigning by proposing for the reduction of his salary as PAB Executive Vice-President from P48,000 per
per annum, and conspired to oust him from the said position and as officer-in-charge of the petitioner bank
mbitions: Saludo aspired to become the president of the respondent bank, while respondent Aradji wanted to be
ctor.

m that Saber acted in good faith in entering into agreements with Basman/AGEAC as confirmed by the
ts decision; yet, respondent PAB still approved Resolution No. 67, Series of 1975, holding Saber personally liable
even before the PAB tried to collect the amount from the debtors; by its acts, the respondent bank merely made
oat.

ers aver that the respondents are liable for damages for malicious prosecution because (a) Saber alone was
n of Rep. Act No. 3019, although there were others who were involved in the pilgrimage fiasco; and (b) despite
criminal complaint by the Special Counsel, the respondents, nevertheless, pursued their appeal in the
ound probable cause against Saber which finding was barren of factual basis as confirmed by the decision of the
quitting him of the charges.

The Ruling of the Court

merit.

er Article 19 of the New Civil Code on which Saber anchored his claim for damages and attorney’s fees, provides:

19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give
ryone his due, and observe honesty and good faith.

use of rights are the following: (a) the existence of a legal right or duty which is exercised in bad faith; and (b) for
ejudicing or injuring another. Malice or bad faith is at the core of said provision.43 Good faith is presumed and he
th has the duty to prove the same.44 Good faith refers to the state of the mind which is manifested by the acts of
erned. It consists of the intention to abstain from taking an unconscionable and unscrupulous advantage of
officer is presumed to have acted in good faith in the performance of his duties. Unless there is a clear showing of
gross negligence, such public officer is not liable for moral and exemplary damages for acts done in the
official duties.46 Mistakes committed by a public officer are not actionable absent any clear showing that they were
e or gross negligence amounting to bad faith.47 Bad faith, on the other hand, does not simply connote bad
negligence, dishonest purpose or some moral obloquy and conscious doing of a wrong, a breach of known duty
es or interest or ill-will that partakes of the nature of fraud.48 Malice connotes ill-will or spite and speaks not in
implies an intention to do ulterior and unjustifiable harm. Malice is bad faith or bad motive.49

petitioners that a person other than respondent Aradji should have been designated as Chairperson of the
mittee to investigate the pilgrimage fiasco. This is so because in his Memorandum to the Board of Directors of the
1, 1975, respondent Aradji had declared that the 1974 Mecca pilgrimage under the supervision of Saber was
ere were indications then that there was an apparent lack of exercise of effective leadership which was so vital
ake the bank truly responsive to the needs of the Filipino Muslims. Respondent Aradji then proposed that Saludo
s of the president of the respondent bank in place of Saber. In fine, respondent Aradji attributed the problems
grimage fiasco to Saber. But then Saber did not oppose the designation by the Board of Directors for respondent
airman of the Investigating Committee, or even asked for the latter’s inhibition. Saber must have believed that he
t he acted in good faith, and was not guilty of any wrongdoing regardless of any misconception of respondent
spondent Aradji was only the chairman of the committee, and there were four (4) other members who could rule in
was, Saber even appeared before the committee and adduced testimonial and documentary evidence in his
r testified:

Now, what was your rule in the investigation when you were invited to appear?

s I have stated, they wanted me to shed light or give information about the behavior or what had happened in that
rimage.

Did you actually appear and testified?

 es, I testified. I even gave the committee some documentary reports, a copy of the report which had been
mitted to the chairman of the bank, Dr. Majul.

You said that Mr. Aradji headed the investigation committee created by the bank. Is that Mr. Aradji the same
endant in this case?

es, sir.50

e Report and Recommendation of the Investigating Committee was approved by the Board of Directors of the
nd the subsequent publication of the said report in the Times Journal that Saber complained, for the first time, of
he designation of respondent Aradji as Chairman of the committee.

not be concluded that the Board of Directors of the PAB acted in bad faith or with malice in designating the
as chairman of the committee, and that the latter acted in bad faith or with malice in accepting the position and in
lf from the said investigation.

was the Acting Chairman of the Personnel Servicing Committee. There were four (4) other members of the
mittee, one of whom was a lawyer, Atty. Arasad Alpad, Jr.; the other members were Executive Vice-President
Assistant Vice-President Alexander Lacman,51 all of whom could rule for Saber based on the evidence on record.
rt and recommendations of the committee were still subject to the review of the Board of Directors of the
which included then Minister Cesar Virata. Respondent Aradji, for his part, could also still rule for Saber, based on
cord.

Memorandum dated February 21, 1975 respondent Aradji proposed to the Board of Directors of the respondent
Senior Vice-President of the PNB and PAB management consultant, to exercise the powers and perform the
ent of the respondent bank, in effect terminating the designation of Saber as Officer-in-Charge. However, he did
er, but for good and justifiable reasons, thus:

Saludo has behind him more than 35 years of solid banking experience and expertise in the Bank. He is
eptable to both Christians and Muslims. I strongly believe that he is imminently qualified to exercise the duties and
wers of the President of the Bank.

the record, I wish to emphasize that Mr. Saludo was never sought much less intimated to me his desire to
rcise such duties and powers. On the contrary, his being connected with our Bank is an additional burden to him
which he has graciously accepted as [a] challenge to place the Bank on a competitive level with the other
mmercial banks in the country.

ubmitting this proposal, I am only motivated by my desire to improve the stature of the Bank, which gesture could
y be accomplished if we grant the men that executive freedom to act, and to exercise strong, positive and
ertive leadership in our organization.52

uce convincing evidence that Saludo and respondent Aradji conspired to oust him from his position as Assistant
he respondent bank.

ith nor malice be imputed on the respondents in holding Saber personally liable for the receivables of P1,033,700.
aber, no less, shows that he was present during the 16th Meeting of the Board of Directors of the PAB. So were
ata and Leonides Virata. After an intensive and exhaustive discussion, the Board resolved that Saber had no
to any agreement with Basman for the sale of the tickets on credit payable by postdated checks, and to execute a
th AGEAC over the cargo hold in the M/V Sweet Homes. The Board unanimously resolved not to ratify the
 ed by Basman and Saber in behalf of the PAB and with AGEAC, and for Saber to take full responsibility for the
ables. This is shown by the Minutes of the stenographic notes taken during the Board Meeting:

. SALUDO : Atty. Sadac is a lawyer, there are problems but we have to concentrate on this.

TY. ABBAS : Does the Board ratify such act?

R. C. VIRATA : No.

TY. ABBAS : Is it against Dr. Saber in his individual capacity?

. SABER : I have not been acting as an individual person. I have always acted on that because it is part of my
ition as an officer of the Bank. There is not a single act that have not think (sic) to save the predicament of the
t in the tense moments. When the boat was about to leave, my Troika recommended to me that this is the
ourse, even my Legal Officer advised me, even the Auditor himself who is (sic) there in Zamboanga. If (sic) it was
ly very urgent that I have to act on the spot. I have to take (sic) a decision because it is going to affect the entire
t if the result was negative but the real intention is (sic) to help. We thought that we will make good for the Bank.

R. C. VIRATA : I think, we have to clarify, Dr. Saber, as between the responsibility of the officers and that of the
ard. While it is true that you have certain discretionary powers but that is either affirmed or reviewed by the Board.
his case, you have no authority on this very important matter so you have to take on your individual capacity
ause the Board refuses to share the responsibility.

R. DOMINGO : Which we will review or affirm.

R. C. VIRATA : That is the responsibility as being the head of the institution and all of us are subject to this
riction.

AIRMAN : So, I think, better muster all the legal minds in the Bank, Mr. Saludo and the staff.

R. DOMINGO : And finish this once and for all.

. SALUDO : We could file an action against Sacar Basman. The question is, can we recommend?

R. CRUZ : That is ratifying an act.

. SALUDO : We declared that Troika is short.

. SABER : The Troika is here.

R. C. VIRATA : It is useless. The Troika will say that Dr. Saber was the one.

AIRMAN : You run after them individually.

R. DOMINGO : Who are the members of the Troika?

. SABER : They are: Atty. Lanang Ali, Administrator, Dialel Basman, the Treasurer, Tindug Macarambon, Project
ountant and Ibrahim Mamao. Anything they recommended that these are their needs I issued them because they
the ones implementing. They implemented even in the Branches and I thought it is for the good of the Bank.
R. TEODORO : The problem here is they are funds due to the Bank. This boat was chartered even without the
roval of the Board.

D. AGUILAR : Excuse me, there is a possibility to collect because they have issued a communication ordering the
ple to ride in the boat.

R. CRUZ : We will get good Legal Advisers here. It must be the Solicitor General.

AIRMAN : This was what I was suggesting.

. SALUDO : Atty. Sadac here is willing to assist the Legal Counsel of the Amanah Bank.

R. CRUZ : Can we not engage the services of the government counsel?

AIRMAN : If you think you find this necessary. (MR. SALUDO)

R. CRUZ : I don’t know the lawyer involved but basing in (sic) our experience, unless you hire a super-duper
yer at least you can easily win the case. We could ask for the assistance of the Office of the Solicitor General.

. SABER : Mr. Chairman and gentlemen, let me comment. Will you please look on this affair of the pilgrimage not
erms of loss but in terms of other things, what are the various outcome[s] of the pilgrimage.

AIRMAN : With all respect to your views, Dr. Saber, there are 2 points here. The Bank is incurring losses, the
er one is, there are people owing money. These are 2 different things. The way I look at it, the Bank is already
urring a loss of P900,000. We are only talking on (sic) the Accounts Receivables, it can only serve to explain why
are losing. I think every effort should be made because it involved not only you but also other people like
bassador Pangandaman. Even these people, you have to have the legal counseling to help, and we will work
d in hand with other lawyers with their advice. If this is difficult, we have government lawyers, this is a government
k. We can seek their advice. The problem is how do we collect money? We are not talking (sic) that the charter of
boat is exorbitant, if it is high. The question is how can the Bank recover? Shall the people owing the Bank pay?
en the Charter rate, it is very big, that is something else. I think, that is the problem. I don’t know if we understand
Board here, whether we like it or not, we have to collect.

R. CRUZ : We have reached a consensus, why don’t we give Dr. Saber 30 days to liquidate? He is accountable,
n we will decide later what course of action shall we take.

R. TEODORO : Until the money is returned here as the Board has found it necessary and it is reflected in the
ort, and efforts should be made on the Accounts Receivables. He is responsible to go after the people involved.
s is the only official action of the Board.

. SALUDO : Sir, do you think the case will drag on if we can not liquidate within 30 days?

R. TEODORO : We can not close our eyes that the money of the Bank is lacking in amount.

R. CRUZ : The idea here is that, such Legal action on those people responsible, so these people have to liquidate
account within 30 days, failure on your part, then we resort on (sic) the other course[s] of action.

AIRMAN : Any objections[?]

ARD MEMBERS : None.

AIRMAN : APPROVED[53]

anbayan ruled in its decision in Criminal Cases Nos. 1835-1837 that Saber had the implied authority as Executive
ell tickets on credit via postdated checks and to allow Basman to load his cargoes in the cargo section of the M/V
Saber acted in good faith; hence, was not criminally liable therefor; that the respondent bank resorted to the
e of charging the receivables against the account of Saber, instead of availing itself of legal remedies for their
r, it cannot thereby be concluded that the Board of Directors of respondent PAB acted in bad faith or with malice.

ce on record that as claimed by the petitioners, Saludo and respondent Aradji conspired to oust Saber as
sident of the PAB and Officer-in-Charge. Saludo merely told Saber intimately that it was his ambition to become
nk had not President Marcos appointed Saber. Moreover, Saludo and Saber even became intimate friends:

TY. FABIE:

Cross-examination to elucidate not because he does not understand. It is not that, Your Honor. A practitioner
should be fair. If he cross-examines, the purpose is to elicit the truth, not to distort. Here, in this case, we want
the truth.

TY. SADAC:

That is the purpose of my cross-examination.

URT:

LET US PROCEED.

TY. SADAC: (to witness)

Again, Dr. Saber, on page 213 of the transcript of stenographic notes, dated January 16, 1980, you testified that
Saludo allegedly manifested to you his desire to be president of the Philippine Amanah Bank. For the information
his Honorable Court, will you tell us when was this made or relayed to you?

uring my incumbency in the Philippine Amanah Bank. He did not tell me that he desires to replace me, only his
ire to become president of the Bank. He told me intimately, he said: "Brod, if President Marcos did not get you I
uld have been made president of the Philippine Amanah Bank because I am also a Muslim." He told that to me
mately. It was intimate, the same as I was intimate with you.

When was that within your incumbency, when was that made?

n fact, he said this to me several times, and again I cannot count how many times I am not keeping statistics of
ements.

URT:

AND THAT WAS SAID TO YOU DURING YOUR INCUMBENCY?

es, Your Honor.

TY. SADAC:

Will you tell us, Dr. Saber, because we want to be specific, in what occasion did Mr. Saludo tell you, what particular
asion?

Well, under the roof of the Philippine Amanah Bank and some other occasions, but I cannot recall again as I said I
not put this in my diary.

You cannot again remember, Dr. Saber?

es, Sir.

And when he made this alleged manifestation of his desire to become president of the Philippine Amanah Bank,
e there other people around you in these alleged several occasions?

cannot remember if there were people around. If there were I will bring them to court to testify because, as I said,
is between friends. Mr. Saludo confirmed his friendship to me and we became friends when we were in the
ippine Amanah Bank.54

dence that respondent Aradji had any involvement at all in the reduction of Saber’s salary from P48,000
um. The budget of the bank was modified upon the advice of PNB President Panfilo Domingo and Saludo. This is
anscript of stenographic notes of Saber’s testimony:

Do you know, Mr. Saber, for the information of this Honorable Court, how much does the president of the
ippine Amanah Bank received?

he budget was P48,000.00 per annum, but I received that for a few months the Board of Directors with the advise
President Domingo of the Philippine National Bank and Vice-President Saludo reduced it to 50% and I was paid
y P24,000.00 per annum. That discourage me staying with the Bank.

n other words, the President of the Philippine Amanah Bank under that new budget that you have mentioned is
eiving about P24,000.00 per annum?

he last salary was P24,000.00 instead of P48,000.00.55

proved by the Board of Directors of the PAB and Central Bank of the Philippines Governor Gregorio Licaros.56

uce evidence that respondent Aradji issued any press release covering his Report to the Board of Directors of the
nvestigation and the criminal complaint he filed against Saber for violation of Rep. Act No. 3019. The news report
of the Times Journal does not attribute the source of the facts contained therein. When pressed to adduce
hat the news report was based on the press release issued by the respondent Aradji, Saber hedged and surmised
he news report could have been Atty. Roberto Sadac, the Legal Officer of the PAB:

Do you know personally Emil Macaspac, the reporter of the Times Journal?

TY. R. SADAC:

I just want to remind the witness that he is testifying under oath.

TY. B. FABIE:

The witness, Your Honor, is an intelligent man. Dr. Saber is an educator.

URT:

GO AHEAD ANSWER THE QUESTION.

TNESS:

do not know him personally nor intimately associated with him. I cannot remember his face but he was among the
wspaper men frequenting your office and my office.

o be specific Dr. Saber, will you tell this Honorable Court the day or the time or the period when these newspaper
n especially Emil Macaspac frequenting my office or your office?

am getting the evidence from the dateline of the news of July 28, 1975. So, I presumed that before the news
ort was printed, he was frequenting your office, otherwise, where is the source of the news? He cannot get it from
side.57

AB cannot be faulted, nor can it be ordered to pay damages and attorney’s fees for issuing a conditional clearance
esignation from respondent PAB. Saber had not yet liquidated his accountability of P1,012,000 when his leave of
niversity had expired. The Investigating Committee had yet to commence and terminate its investigation of
lity, administrative or civil, for the pilgrimage fiasco. The respondent PAB had no discretion to issue a clearance to
ssing that a public officer, in the discharge of his duties has to use prudence, caution and attention in the
affairs. In fact, the respondent PAB was duty bound to withhold such clearance to Saber pending final
s monetary accountabilities. Even assuming that Saber and/or the petitioners sustained economic difficulties on
ditional clearance issued by the respondent PAB, the petitioners are not entitled to moral and exemplary damages.
ondent PAB was not wrongful. It is a case of damnum absque injuria and not of damnum et injuria.58

ous prosecution, there must be proof that the prosecutor was prompted by a sinister or devious design to vex and
and that it was initiated deliberately, knowing that the charges are false and groundless.59 Malice with probable
e clearly established to justify an award of damages based on malicious prosecution.60 Lack of probable cause is
te and distinct from that of malice. One cannot be held liable for damages for malicious prosecution where he
e cause.61We also held that a determination that there is no probable cause cannot be made to rest solely on the
urt after trial decided to acquit the accused. Neither can lack of probable cause be made to rest on the fact that
ble cause of the Special Counsel was reversed by the Secretary of Justice or the Ombudsman as the case may
of submitting the case to the authorities for prosecution does not make one liable for malicious
over, the adverse result of an action does not per se make the action wrongful and subject the action to damages,
ot have meant to impose a penalty on the right to litigate. If damages result from a person’s exercise of a right, it
injuria.64

hat which engenders a well-founded belief that a crime has been committed and that the respondent is probably
hould be held for trial. A finding for probable cause needs only to rest on evidence showing that in all probability, a
mmitted by the respondent. Probable cause need not be based on clear and convincing evidence beyond
While probable cause demands more than mere suspicion, it does not require that the evidence would justify

ve that the respondents filed the criminal complaints against him with malice and despite lack of probable cause
AB, through respondent Aradji, filed a criminal complaint against Saber for violations of Section 3(e) of Rep. Act
s the following enumerated elements:

The accused is a public officer or a private person charged in conspiracy with the former;

The said public officer commits the prohibited acts during the performance of his or her official duties or in relation
is or her public functions;

That he or she causes undue injury to any party, whether the government or a private party;

Such undue injury is caused by giving unwarranted benefits, advantage or preference to such parties; and

That the public officer has acted with manifest partiality, evident bad faith or gross inexcusable neglect.66

nodbayan found probable cause for three (3) counts of violations of Section 3(e) of Republic Act No.
evidence on record shows the following:

d Basman to buy tickets worth P756,000 payable on credit via postdated checks over the objection of the Troika-
stdated checks were blank as to the amounts. As found by the Sandiganbayan:

suant to the MEMORANDUM (Exh."G"), accused Dialel Basman as Finance Officer of the Secretariat issued to
car Basman the seventy (70) tickets therein specified worth P392,000 (t.s.n., p. 23, August 11, 1981), for which
car Basman issued Philippine Amanah Bank Check No. 00377 payable to the BANK, postdated February 4, 1975,
wn against Sacar Basman’s account No. 10000008 but blank as to the amount (Exh. "I"). Under the ADDENDUM
h. "G-1"), Dialel Basman issued one hundred twenty (120) first class tickets to Sacar Basman for which Sacar
sman issued PAB Check No. 00378 payable to the BANK, similarly postdated February 4, 1975, drawn against the
me account, and also blank as to the amount. (Exh. "I-1".). …68

ertain whether Basman issued the said checks against sufficient funds in his account with the respondent bank.
were deposited by respondent PAB in its account, the said checks were dishonored.

wed the AGEAC to pay freight charges of P178,000 via Check Nos. 00377 and 00378 postdated February 4,
balance of the account of Basman in the respondent bank was only P1,834.55. AGEAC/Basman failed to pay the
ondent PAB after the pilgrimage.

THE FOREGOING, the petition is DENIED DUE COURSE. No costs.

Acting Chairman), Tinga, and Chico-Nazario, JJ., concur.

J., on official leave.

nned by Associate Justice Oswaldo D. Agcaoili (retired), with Associate Justices Corona Ibay-Somera (retired)
Rodrigo V. Cosico, concurring.
nned by Judge Amer R. Ibrahim.

hibit "A."

hibit "D."

hibit "E."

hibit "F."

hibit "F-1."

hibit "O."

hibits "N-1" and "N-1-a."

xhibit "I."

xhibit "J-2."

d.

xhibit "J."

d.

xhibit "L."

xhibit "L-1."

xhibits "H-1" and "H-2."

xhibit "L-3."

xhibit "W."

xhibit "O-1."

xhibit "O."

xhibit "7."

xhibit "5."

d.

xhibit "6-A."
xhibit "T."

he Charter of the PAB, P.D. No. 264, as amended by P.D. 542 was repealed by Republic Act No. 6848 which was
roved on January 26, 1990. Section 48 of R.A. No. 6848 provides that:

SEC. 48. Transformation of Islamic Banking Business. - Upon approval of this Act, all the assets, liabilities
and capital accounts of the Philippine Amanah Bank are hereby transferred to the A-1Amanah Islamic
Investment Bank.

A Rollo, pp. 100-101.

TC Decision, p. 1; Records, p. 232.

xhibit "5."

xhibit "U."

xhibit "V."

xhibit "3-A."

he Information in Criminal Case No. 1835 is quoted below:

That on or about November 28, 1974, and periods prior and subsequent thereto, at Zamboanga City,
Philippines, and within the jurisdiction of this Honorable Court, accused Mamitua Saber, then Executive Vice-
President and Officer-in-charge of the Philippine Amanah Bank, a banking corporation owned or controlled by
the Philippine Government, with head offices at Zamboanga City, Philippines, (hereinafter called the "Bank")
and who was then the over-all chairman of the 1974 Mecca Pilgrimage Project sponsored by the aforesaid
Bank (hereinafter referred to as the "Project"), Atty. Lanang Ali, then Pilgrimage Administrator and Chairman,
1974 Mecca Pilgrimage Troika and Secretariat (each such bodies hereinafter referred to individually as the
"Troika" & "Secretariat" and collectively as the "Troika-Secretariat"), Dialel Basman, then Project Treasurer-
Finance Officer and Troika-Secretariat Member, Ibrahim Mamao, then auditor and Troika-Secretariat
member, Tindug Macarambon, then Project accountant and Secretariat Member, and Ebrahim Macadatar,
then Trading Officer and Secretariat member, all of whom are Bank Officers and employees, taking
advantage of their official positions, and conspiring, confederating, conniving and cooperating with each
other, and with the conspiracy, confederation, connivance and indispensable cooperation of Sacar Basman,
then a private citizen but who is now the Philippine Commercial attaché in the Republic of Gabon attached to
the Philippine Embassy in said country, with manifest partiality, evident bad faith and/or inexcusable
negligence, did then and there willfully, unlawfully and feloniously cause undue injury, loss and prejudice to
the Philippine Amanah Bank, including the Government as the owner or controlling stockholder thereof, by
preparing, executing, signing and delivering a freight contract dated November 28, 1974, the Bank being
therein represented by the accused Mamitua Saber, in favor of the Arabian Gulf Export Agency Corporation
(hereinafter referred to as the "Corporation"), represented in said contract by the accused Sacar Basman,
allowing the latter to ship goods for export to Saudi Arabia on the M/V Sweet Home, a luxury ship chartered
by the Bank for the 1974 pilgrimage to Mecca, Saudi Arabia, and on the return trip to again ship goods for
import to the Philippines, all for a consideration of One Hundred Seventy-Eight Thousand Pesos
(P178,000.00), but which contract is manifestly and grossly disadvantageous to the Bank considering that the
freight charges in the aforementioned amount were not collected by the accused Bank Officials, who were
dealing with the accused Sacar Basman directly, in advance, nor a portion thereof by way of down payment
on the charges or any valuable security thereof attempted or required to be collected, taken or received by
the said accused, except two (2) blank postdated checks (blank as to amount) numbered 00377 & 00378,
respectively, both dated February 4, 1975 drawn on Sacar Basman’s current account numbered 10000008
with the Bank which current account contained only at the time a deposit totaling P1,834.55 the gross
disadvantageousness of which contract was compounded by provisions in the Freight Contract that the
consideration aforesaid will be paid by the Corporation, acting thru the accused Sacar Basman, within a
period of ten (10) days after the arrival of the ship in the Philippines, that the proceeds of the goods exported
to Saudi Arabia, on which a superior lien was purported to be created by the contract, instead of being
delivered and paid to the project treasurer, the accused Dialel Basman who was himself on the trip, shall be
placed, as in fact they were placed, in the possession of accused Sacar Basman, who was also on said trip,
for himself and as the representative of the Corporation, to be used for the purchase of goods to be imported
by the latter into the Philippines, all the accused knowing fully well that the said conditions are grossly
disadvantageous to the Bank and greatly favorable, beneficial and profitable to the accused Sacar Basman
and the Corporation which he represents, all contrary to and in direct violation of Section 76 of R.A. 337, as
amended, otherwise known as the General Banking Act and the By-Laws of the Philippine Amanah Bank, as
in fact, the Corporation and Sacar Basman who purported to represent the Corporation failed to pay the
freight charges in the amount of P178,000.00, all of the above being the direct result of the accused Bank
officials desire to vest to Sacar Basman and the Corporation unwarranted benefits, advantage or preference
in the discharge of their official administrative functions through manifest partiality, evident bad faith or gross
inexcusable negligence which the accused Sacar Basman procured and knowingly induced the accused bank
officials to grant him, to the loss, damage and prejudice of the Bank in the sum of P178,000.00.

CONTRARY TO LAW. (Exhibits "4," "4-A" and "4-B")

The informations in Criminal Cases Nos. 1836 and 1837 are couched in identical language. Only the
Information in Crim. Case No. 1836 is hereunder reproduced, with reference footnotes on material facts
where it varies from the information in Criminal Case No. 1837, to wit:

That on or about November 21, 1974, and periods prior and subsequent thereto, at Zamboanga City,
Philippines, and within the jurisdiction of this Honorable Court, accused Mamitua Saber, then Executive Vice-
President and Officer-In-Charge of the Philippine Amanah Bank, a banking corporation owned or controlled
by the Philippine Government with head offices at Zamboanga City, Philippines (hereinafter called the "Bank")
and who was then the over-all chairman of the 1974 Mecca Pilgrimage Project sponsored by the aforesaid
Bank (hereinafter referred to as the "Project"), Atty. Lanang Ali, then Pilgrimage Administrator and Chairman,
1974 Mecca Pilgrimage Troika and Secretariat (each such bodies hereinafter referred to individually as the
"Troika" and "Secretariat" and collectively as the "Troika-Secretariat"), Dialel Basman, then Project Treasurer-
Finance Officer and Troika-Secretariat member, Ibrahim Mamao, then Project Auditor, General Coordinator
and Troika-Secretariat member, Tindug Macarambon, then Project Accountant and Secretariat member, and
Ebrahim Macadatar, then Trading Officer and Secretariat member, all of whom are Bank Officers and
employees, taking advantage of their official positions and conspiring, confederating, conniving and
cooperating with each other and with the conspiracy, confederation, connivance and indispensable
cooperation of Sacar Basman, then a private citizen but who is now the Philippine Commercial Attache in the
Republic of Gabon attached to the Philippine Embassy in said country, with manifest partiality, evident bad
faith and/or inexcusable negligence, did then and there willfully, unlawfully, and feloniously cause undue
injury, loss and prejudice to the Philippine Amanah Bank, including the Government as the owner or
controlling stockholder thereof by selling, issuing and conveying, without the authority of the Bank’s Board of
Directors, seventy (70) pilgrim tickets with a total value of FOUR HUNDRED EIGHTY EIGHT THOUSAND
PESOS (P488,000.00), Philippine Currency, to accused Sacar Basman on credit without any security or
collateral except two (2) postdated blank checks (blank as to amount) numbered 00377 and 00378 both dated
February 4, 1975 and drawn on Amanah Bank, when all the accused well knew that at the time of the
transaction the same was not authorized by the Bank’s Board of Directors, nor was the transaction
subsequently ratified by the said Board, and that Sacar Basman at that time had on deposit in his current
account numbered 10000008, the amount of P1,834.55 only, and that said accused Sacar Basman had not
been subjected to a credit worthiness and capability of fulfilling his commitment to the Bank contrary to and in
direct violation of Section 76 of R.A. 337, as amended, otherwise known as the General Banking Act and the
By-Laws of the Philippine Amanah Bank as, in fact, the accused failed to pay his outstanding obligation to the
 Bank representing the amount of the pilgrim tickets sold to and purchased by him, which amount the latter up
to this date, failed and refused to pay despite repeated demands, thus giving accused Sacar Basman, a
private party, unwarranted benefits, advantage or preference in the discharge of their official duties which the
accused Sacar Basman procured and knowingly induced the accused officials to grant him knowing the same
to be unlawful, to the damage and prejudice of the Bank in the sum of P488,000.00, Philippine Currency"
(Exhibits "5," "5-A" and "5-B")

xhibit "T."

xhibit "WW," Folder of Exhibits (Appendix "GG"), pp. 44-45.

. at 34.

ecision, Civil Case No. 2323, p. 21.

. at 23.

ecision, CA-G.R. CV No. 22626, p. 34.

. at 28.

ollo, p. 33.

BS-CBN Broadcasting Corporation v. Court of Appeals, 301 SCRA 572 (1999).

hua v. Court of Appeals, 242 SCRA 341 (1997).

arolan v. Soliman Marketing Corporation, 195 SCRA 168 (1999).

ojuangco, Jr. v. Court of Appeals, et al. 30 SCRA 602 (1999).

arolan v. Court of Appeals, supra.

ojuangco Jr. v. Court of Appeals, supra.

oyal v. Court of Appeals, 201 SCRA (1999).

SN, 15 January 1980, pp. 189-190.

xhibit "5."

older of Exhibits for Defendant, p. 86.

xhibit "O-1."

SN, 19 March 1980, pp. 31-33.

. at 33-34.
. at 40.

SN, 15 January 1980, pp. 238-239.

ustodio v. Court of Appeals, 253 SCRA 483 (1996).

rosa v. Court of Appeals, 329 SCRA 852 (2000).

hua v. Court of Appeals, supra.

onuta v. Court of Appeals, 341 SCRA 563 (1999).

d.

alao v. Salao, 70 SCRA 65 (1976).

BS-CBN Broadcasting Corporation v. Court of Appeals, supra.

ebb v. De Dios, 247 SCRA 652 (1995).

aylon v. Office of the Ombudsman, 372 SCRA 437 (2001).

xhibit "1."

xhibit "WW."

t - Arellano Law Foundation

Today is Thursday, January 18, 2018

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

April 2, 2007
AG, Petitioner,

R RELATIONS COMMISSION, ISABEL G. PANGANIBAN-ORTIGUERRA, as Executive Labor Arbiter, NAFLU, and MARIVELES
ABOR UNION, Respondents.

DECISION

The Case

r review on certiorari1 assailing the Decision dated 29 February 20002 and the Resolution dated 27 March 20013 of the Court of Appea
SP Nos. 54404-06. The appellate court affirmed the decision dated 17 June 19944 of Labor Arbiter Isabel Panganiban-Ortiguerra (Arb
3 and the resolution dated 5 January 19955 of the National Labor Relations Commission (NLRC) in NLRC CA No. L-007731-94.

eld that Mariveles Apparel Corporation (MAC), MAC's Chairman of the Board Antonio Carag (Carag), and MAC's President Armando
ndents) are guilty of illegal closure and are solidarily liable for the separation pay of MAC's rank and file employees. The NLRC denie
y MAC and Carag.

The Facts

n of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union (MACLU) (collectively, complainants), on behalf of all of
d a complaint against MAC for illegal dismissal brought about by its illegal closure of business. In their complaint dated 12 August 199
g:

Complainant NAFLU is the sole and exclusive bargaining agent representing all rank and file employees of [MAC]. That there is an ex
lective Bargaining Agreement (CBA) executed by the parties and that at the time of the cause of action herein below discussed happ
or dispute between the Union and Management except cases pending in courts filed by one against the other.

That on July 8, 1993, without notice of any kind filed in accordance with pertinent provisions of the Labor Code, [MAC], for reasons kn
self [sic] ceased operations with the intention of completely closing its shop or factory. Such intentions [sic] was manifested in a letter
MAC] as its notice filed only on the same day that the operations closed.

That at the time of closure, employees who have rendered one to two weeks work were not paid their corresponding salaries/wages, w
aid until time [sic] of this writing.

That there are other benefits than those above-mentioned which have been unpaid by [MAC] at the time it decided to cease operation
he workers both by and under the CBA and by operations [sic] of law.

That the closure made by [MAC] in the manner and style done is perce [sic] illegal, and had caused tremendous prejudice to all of the
ered both mental and financial anguish and who in view thereof merits [sic] award of all damages (actual, exemplary and moral), [ille
mple to firms who in the future will [illegible] the idea of simply prematurely closing without complying [with] the basic requirement of N
sure.6 (Emphasis supplied)

records of the case, Arbiter Ortiguerra summoned the parties to explore options for possible settlement. The non-appearance of resp
o declare the case submitted for resolution "based on the extant pleadings."

per dated 3 January 1994, complainants moved to implead Carag and David, as follows:

nt case, it is unfortunate for respondents that the records and evidence clearly demonstrate that the individual complainants are entitl
omplaint. However, any favorable judgment the Honorable Labor Arbiter may render in favor of herein complainants will go to naugh
 ate the glaring fact that the respondents [sic] corporation is no longer existing as it suddenly stopped business operation since [sic] 8
ance, the complainants have no option left but to implead Atty. ANTONIO CARAG, in his official capacity as Chairman of the Board a
as President. Both are also owners of the respondent corporation with office address at 10th Floor, Gamon Centre, Alfaro Street, Sa
nila although they may be collectively served with summons and other legal processes through counsel of record Atty. Joshua Pastor
erald Avenue, Ortigas[,] Pasig, Metro Manila. This inclusion of individual respondents as party respondents in the present case is to g
udgment award on the basis of Article 212(c) of the Philippine Labor Code, as amended, which says:

any person acting in the interest of an employer, directly or indirectly. It does not, however, include any labor organization or any of i
n acting as employer."

culled from Section 2, Republic Act 602, the Minimum Wage Act. If the employer is an artificial person, it must have an officer who ca
eing "the person acting in the interest of the employer." The corporation is the employer, only in the technical sense. (A.C. Ransom L
9494, June 10, 1986). Where the employer-corporation, AS IN THE PRESENT CASE, is no longer existing and unable to satisfy the j
officer should be held liable for acting on behalf of the corporation. (Gudez vs. NLRC, G.R. 83023, March 22, 1990). Also in the recen
oration vs. NLRC, G.R. 90634-35 (June 6, 1990), Carmen contends that she is not liable for the acts of the company, assuming it had
ft in a distinct and separate entity with a legal personality of its own. She claims that she is only an agent of the company carrying out
s, "We do not agree," said the Supreme Court. "She is, in fact and legal effect, the corporation, being not only its president and gene
e responsible officer of an employer can be held personally liable not to say even criminally liable for nonpayment of backwages. This
wise, corporate employers would have devious ways to evade paying backwages. (A.C. Ransom Labor Union-CCLU V. NLRC, G.R.
proof exists as to who is the responsible officer, the president of the corporation who can be deemed to be its chief operation officer
le officer. In Republic Act 602, for example, criminal responsibility is with the "manager" or in his default, the person acting as such (I

stores (Atty. Pastores), as counsel for respondents, submitted a position paper dated 21 February 1994 and stated that complainants
nd David because MAC is actually owned by a consortium of banks. Carag and David own shares in MAC only to qualify them to ser

proceedings, Arbiter Ortiguerra rendered her Decision dated 17 June 1994 granting the motion to implead Carag and David. In the s
eclared Carag and David solidarily liable with MAC to complainants.

The Ruling of the Labor Arbiter

ed 17 June 1994, Arbiter Ortiguerra ruled as follows:

for illegal dismissal brought about by the illegal closure and cessation of business filed by NAFLU and Mariveles Apparel Corporation
rank and file employees against respondents Mariveles Apparel Corporation, Antonio Carag and Armando David [who are] its owners
nt, respectively.

nally raffled to the sala of Labor Arbiter Adolfo V. Creencia. When the latter went on sick leave, his cases were re-raffled and the inst
a of the undersigned. Upon receipt of the record of the case, the parties were summoned for them to be able to explore options for se
ver did not appear prompting this Office to submit the case for resolution based on extant pleadings, thus this decision.

claim that on July 8, 1993 without notice of any kind the company ceased its operation as a prelude to a final closing of the firm. The c
e present the company has remained closed.

bewail that at the time of the closure, employees who have rendered one to two weeks of work were not given their salaries and the s

aver that respondent company prior to its closure did not even bother to serve written notice to employees and to the Department of L
st one month before the intended date of closure. The respondents did not even establish that its closure was done in good faith. Mor
 t pay the affected employees separation pay, the amount of which is provided in the existing Collective Bargaining Agreement betwe
he respondents.

pray that they be allowed to implead Atty. Antonio Carag and Mr. Armando David[,] owners and responsible officer[s] of respondent c
he judgment, should a decision favorable to them be rendered. In support of their claims, the complainants invoked the ruling laid dow
f A.C. Ransom Labor Union CCLU vs. NLRC, G.R. No. 69494, June 10, 1986 where it was held that [a] corporate officer can be held
ration when the latter is no longer in existence and there are valid claims of workers that must be satisfied.

pray for the declaration of the illegality of the closure of respondents' business. Consequently, their reinstatement must be ordered an
uld reinstatement be not feasible, the complainants pray that they be paid their separation pay in accordance with the computation pro
s of separation pay due to individual complainants were adduced in evidence (Annexes "C" to "C-44", Complainants' Position Paper).
ward to them of attorney's fee[s].

n the other hand by way of controversion maintain that the present complaint was filed prematurely. The respondents deny having tot
ent company is only on a temporary shut-down occasioned by the pending labor unrest. There being no permanent closure any claim
due course.

sed the impleader of Atty. Antonio C. Carag and Mr. Armando David saying that they are not the owners of Mariveles Apparel Corpor
holders holding qualifying shares. Piercing the veil of corporate fiction cannot be done in the present case for such remedy can only b
amily owned corporations.

for the dismissal of the present complaint and the denial of complainants' motion to implead Atty. Antonio C. Carag and Mr. Armando

called upon to resolve the following issues:

Whether or not the respondents are guilty of illegal closure;

Whether or not individual respondents could be held personally liable; and

Whether or not the complainants are entitled to an award of attorney's fees.

d impartial consideration of the record, this Office is of the firm belief that the complainants must prevail.

escribed the cessation of operations in its premises as a temporary shut-down. While such posturing may have been initially true, it is
perations has clearly exceeded the six months period fixed in Article 286 of the Labor Code. The temporary shutdown has ripened int
ions for causes not due to serious business losses or financial reverses. Consequently, the respondents must pay the displaced emp
with the computation prescribed in the CBA, to wit, one month pay for every year of service. It must be stressed that respondents did
rovided computation.

claim that Atty. Antonio Carag and Mr. Armando David should be held jointly and severally liable with respondent corporation. This bid
mpleader of the aforesaid officers will guarantee payment of whatever may be adjudged in complainants' favor by virtue of this case.
corporations have personality distinct and separate from the stockholders. This concept is known as corporate fiction. Normally, offic
ration are not held personally liable for the obligation of the corporation. In instances where corporate officers dismissed employees i
bor standard laws or when the company had already ceased operations and there is no way by which a judgment in favor of employe
officers can be held jointly and severally liable with the company. This Office after a careful consideration of the factual backdrop of t
nts' prayer for the impleader of Atty. Antonio Carag and Mr. Armando David, to assure that valid claims of employees would not be de
ent company.
pray for the award to them of moral and exemplary damages, suffice it to state that they failed to establish their entitlement to aforesa
e persuasive evidence on the matter.

ney's fee[s] will be as it is hereby resolved in complainants' favor. As a consequence of the illegal closure of respondent company, the
litigate to secure benefits due them under pertinent laws. For this purpose, they secured the services of a counsel to assist them in th
st and proper to order the respondents who are responsible for the closure and subsequent filing of the case to pay attorney's fee[s].

mises considered, judgment is hereby rendered declaring respondents jointly and severally guilty of illegal closure and they are here

To pay complainants separation pay computed on the basis of one (1) month for every year of service, a fraction of six (6) months to b
(1) year in the total amount of ₱49,101,621.00; and

To pay complainants attorney's fee in an amount equivalent to 10% of the judgment award.

al, actual and exemplary damages are dismissed for lack of evidence.

Emphasis supplied)

David, through Atty. Pastores, filed their Memorandum before the NLRC on 26 August 1994. Carag, through a separate counsel, filed
fore the NLRC. Carag reiterated the arguments in respondents' position paper filed before Arbiter Ortiguerra, stating that:

While Atty. Antonio C. Carag is the Chairman of the Board of MAC and Mr. Armando David is the President, they are not the owners

MAC is owned by a consortium of banks, as stockholders, and Atty. Antonio C. Carag and Mr. Armando David are only minority stoc
poration, owning only qualifying shares;

MAC is not a family[-]owned corporation, that in case of a close [sic] corporation, piercing the corporate veil its [sic] possible to hold t
le for the corporation's liabilities;

MAC is a corporation with a distinct and separate personality from that of the stockholders; piercing the corporate veil to hold the sto
porate liabilities is only true [for] close corporations (family corporations); this is not the prevailing situation in MAC;

Atty. Antonio Carag and Mr. Armando David are professional managers and the extension of shares to them are just qualifying share
ccupy subject position.9

iled separate motions to reduce bond.

The Ruling of the NLRC

mulgated on 5 January 1995, the NLRC Third Division denied the motions to reduce bond. The NLRC stated that to grant a reduction
peal is meritorious would be tantamount to ruling on the merits of the appeal. The dispositive portion of the Resolution of the NLRC Th

IDERED, Motions to Reduce Bond for both respondents are hereby DISMISSED for lack of merit. Respondents are directed to post c
rty eight million one hundred one thousand six hundred twenty one pesos (₱48,101,621.00) within an unextendible period of fifteen (1

for Reconsideration shall be entertained.

separate petitions for certiorari before this Court under Rule 65 of the 1964 Rules of Court. Carag filed his petition, docketed as G.R.
he meantime, we granted MAC's prayer for the issuance of a temporary restraining order to enjoin the NLRC from enforcing Arbiter O
ay 1995, we granted complainants' motion for consolidation of G.R. No. 118820 with G.R. No. 118839 (MAC v. NLRC, et al.) and G.R
tiguerra, et al.). On 12 July 1999, after all the parties had filed their memoranda, we referred the consolidated cases to the appellate
ur decision in St. Martin Funeral Home v. NLRC.11Respondents filed separate petitions before the appellate court.

The Ruling of the Appellate Court

00, the appellate court issued a joint decision on the separate petitions. The appellate court identified two issues as essential: (1) whe
held Carag and David, in their capacities as corporate officers, jointly and severally liable with MAC for the money claims of the emp
abused its discretion in denying the separate motions to reduce bond filed by MAC and Carag.

t held that the absence of a formal hearing before the Labor Arbiter is not a cause for Carag and David to impute grave abuse of disc
nd that Carag and David, as the most ranking officers of MAC, had a direct hand at the time in the illegal dismissal of MAC's employe
o observe the notice requirement in closing the company shows malice and bad faith, which justifies their solidary liability with MAC. T
circumstances of the present case do not warrant a reduction of the appeal bond. Thus:

OF, the petitions are DISMISSED. The decision of Labor Arbiter Isabel Panganiban-Ortiguerra dated June 17, 1994, and the Resolutio
the National Labor Relations Commission are hereby AFFIRMED. As a consequence of dismissal, the temporary restraining order is
Division of the Supreme Court is LIFTED. Costs against petitioners.

Emphasis in the original)

t denied respondents' separate motions for reconsideration.13

d 20 June 2001, this Court's First Division denied the petition for Carag's failure to show sufficiently that the appellate court committe
exercise of our discretionary appellate jurisdiction. Carag filed a motion for reconsideration of our resolution denying his petition. In a
is Court's First Division denied Carag's reconsideration with finality.

ust 2001 resolution, Carag filed a second motion for reconsideration with an omnibus motion for leave to file a second motion for rec
on referred the motion to the Court En Banc. In a resolution dated 25 June 2002, the Court En Banc resolved to grant the omnibus mo
n for reconsideration, reinstated the petition, and required respondents to comment on the petition. On 25 November 2003, the Court
s to allow the second motion for reconsideration. This Court's First Division referred the petition to the Court En Banc on 14 July 2004
the referral on 15 March 2005.

The Issues

e appellate court's decision of 29 February 2000 by raising the following issues before this Court:

Has petitioner Carag's right to due process been blatantly violated by holding him personally liable for over ₱50 million of the corporat
ility, merely as board chairman and solely on the basis of the motion to implead him in midstream of the proceedings as additional
pondent, without affording him the right to present evidence and in violation of the accepted procedure prescribed by Rule V of the NL
cedure, as to render the ruling null and void?

Assuming, arguendo, that he had been accorded due process, is the decision holding him solidarily liable supported by evidence whe
adings (not evidence) before the Labor Arbiter and that of the Court of Appeals are the labor union's motion to implead him as respon
osition thereto, without position papers, without evidence submitted, and without hearing on the issue of personal liability, and even w
 ice, as the only legal basis for personal liability, was expressly found absent and wanting by [the] Labor Arbiter, as to render said dec
d?

Did the NLRC commit grave abuse of discretion in denying petitioner's motion to reduce appeal bond?14

The Ruling of the Court

meritorious.

Process to Carag and David

Arbiter Ortiguerra rendered her Decision of 17 June 1994 without issuing summons on him, without requiring him to submit his positio
, without giving him notice to present his evidence, and without informing him that the case had been submitted for decision - in viola
and 11(c) 19 of Rule V of The New Rules of Procedure of the NLRC.20

narration in Arbiter Ortiguerra's Decision that she only summoned complainants and MAC, and not Carag, to a conference for possibl
er Ortiguerra stated that she scheduled the conference "upon receipt of the record of the case." At the time of the conference, compla
ition paper which contained the motion to implead Carag. Complainants could not have submitted their position paper before the con
biter directs the submission of position papers only after the conference.21 Complainants submitted their position paper only on 10 Ja
he complaint. In short, at the time of the conference, Carag was not yet a party to the case. Thus, Arbiter Ortiguerra could not have p
ence.

enied receiving summons to the conference, and complainants have not produced any order of Arbiter Ortiguerra summoning Carag
of the records of this case fails to show any order of Arbiter Ortiguerra directing Carag to attend the conference. Clearly, Arbiter Ortig
he conference.

o appear at the conference, Arbiter Ortiguerra declared the case submitted for resolution. In her Decision, Arbiter Ortiguerra granted
Carag and at the same time, in the same Decision, found Carag personally liable for the debts of MAC consisting of ₱49,101,621 in s
er Ortiguerra never issued summons to Carag, never called him to a conference for possible settlement, never required him to subm
for hearing, never notified him to present his evidence, and never informed him that the case was submitted for decision - all in violat
) of Rule V of The New Rules of Procedure of the NLRC.

was utter absence of due process to Carag at the arbitration level. The procedure adopted by Arbiter Ortiguerra completely prevente
and presenting his evidence. This alone renders Arbiter Ortiguerra's Decision a nullity insofar as Carag is concerned. While labor arb
t a formal hearing or trial, they have no license to dispense with the basic requirements of due process such as affording respondents
a v. NLRC,22 we held:

e resolved is whether private respondents OMANFIL and HYUNDAI were denied due process when the Labor Arbiter decided the ca
n paper and supporting documents submitted in evidence by Habana and De Guzman.

mative. The manner in which this case was decided by the Labor Arbiter left much to be desired in terms of respect for the right of priv

t, there was only one conciliatory conference held in this case. This was on 10 May 1996. During the conference, the parties did not d
sibility of amicable settlement due to petitioner's stubborn insistence that private respondents be declared in default.

cond, the parties agreed to submit their respective motions - petitioner's motion to declare respondents in default and private respond
articulars - for the consideration of the Labor Arbiter. The Labor Arbitration Associate, one Ms. Gloria Vivar, then informed the parties
notified of the action of the Labor Arbiter on the pending motions.
 xxx

rd, since the conference on 10 May 1996 no order or notice as to what action was taken by the Labor Arbiter in disposing the pending
eived by private respondents. They were not declared in default by the Labor Arbiter nor was petitioner required to submit a bill of par

urth, neither was there any order or notice requiring private respondents to file their position paper, nor an order informing the parties
ady submitted for decision. What private respondents received was the assailed decision adverse to them.

oregoing that there was an utter absence of opportunity to be heard at the arbitration level, as the procedure adopted by the Labor A
espondents from explaining matters fully and presenting their side of the controversy. They had no chance whatsoever to at least acq
er defenses they might have to the charge that they illegally dismissed petitioner. In fact, private respondents presented their position
nce only for the first time on appeal to the NLRC.

e process is that a party be afforded a reasonable opportunity to be heard and to submit any evidence he may have in support of his
icient opportunity to be heard either through oral arguments or position paper and other pleadings is not accorded a party to a case,
al of due process.

Arbiters are not bound by strict rules of evidence and of procedure. The manner by which Arbiters dispose of cases before them is c
ver, that discretion must be exercised regularly, legally and within the confines of due process. They are mandated to use every reas
of each case, speedily, objectively and without regard to technicalities of law or procedure, all in the interest of justice and for the pur
adjudicating the monetary awards.

was in a far worse situation. Here, Carag was not issued summons, not accorded a conciliatory conference, not ordered to submit a
, not given an opportunity to present his evidence, and not notified that the case was submitted for resolution. Thus, we hold that Arb
against Carag for utter absence of due process. It was error for the NLRC and the Court of Appeals to uphold Arbiter Ortiguerra's de

Directors for Corporate Debts

es this issue: when is a director personally liable for the debts of the corporation? The rule is that a director is not personally liable for
has a separate legal personality of its own. Section 31 of the Corporation Code lays down the exceptions to the rule, as follows:

, trustees or officers. - Directors or trustees who wilfully and knowingly vote for or assent to patently unlawful acts of the corporation o
r bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such dire
y and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

xxxx

a director personally liable for corporate debts if he wilfully and knowingly votes for or assents to patently unlawful acts of the corpora
tor personally liable if he is guilty of gross negligence or bad faith in directing the affairs of the corporation.

ot allege in their complaint that Carag wilfully and knowingly voted for or assented to any patently unlawful act of MAC. Complainants
ing that Carag wilfully and knowingly voted for or assented to any patently unlawful act of MAC. Neither did Arbiter Ortiguerra make a
on.

ot also allege that Carag is guilty of gross negligence or bad faith in directing the affairs of MAC. Complainants did not present any e
of gross negligence or bad faith in directing the affairs of MAC. Neither did Arbiter Ortiguerra make any finding to this effect in her De

tated in her Decision that:

corporate officers dismissed employees in bad faith or wantonly violate labor standard laws or when the company had already ceas
which a judgment in favor of employees could be satisfied, corporate officers can be held jointly and severally liable with the company

he believed is the law on the matter, Arbiter Ortiguerra stopped there and did not make any finding that Carag is guilty of bad faith or
andard laws. Arbiter Ortiguerra did not specify what act of bad faith Carag committed, or what particular labor standard laws he violat

personally liable for debts of the corporation, and thus pierce the veil of corporate fiction, the bad faith or wrongdoing of the director m
ingly.24 Bad faith is never presumed.25 Bad faith does not connote bad judgment or negligence. Bad faith imports a dishonest purpose
duty through some ill motive or interest. Bad faith partakes of the nature of fraud.26In Businessday Information Systems and Services

e contention of petitioner Raul Locsin that the complaint against him should be dismissed. A corporate officer is not personally liable f
d corporate employees unless he acted with evident malice and bad faith in terminating their employment. There is no evidence in th
r with malice in carrying out the retrenchment and eventual closure of the company (Garcia vs. NLRC, 153 SCRA 640), hence, he ma
darily liable with the company for the satisfaction of the judgment in favor of the retrenched employees.

aith arise automatically just because a corporation fails to comply with the notice requirement of labor laws on company closure or dis
lure to give notice is not an unlawful act because the law does not define such failure as unlawful. Such failure to give notice is a viola
es not amount to an unlawful or criminal act. Such procedural defect is called illegal dismissal because it fails to comply with mandat
t is not illegal in the sense that it constitutes an unlawful or criminal act.

o make a director personally liable for debts of the corporation, the wrongdoing approved or assented to by the director must be a pa
ply with the notice requirement of labor laws on company closure or dismissal of employees does not amount to a patently unlawful a
hose declared unlawful by law which imposes penalties for commission of such unlawful acts. There must be a law declaring the act u

atently unlawful act is violation of Article 287 of the Labor Code, which states that "[V]iolation of this provision is hereby declared unlaw
s provided under Article 288 of this Code." Likewise, Article 288 of the Labor Code on Penal Provisions and Liabilities, provides that "
s Code declared unlawful or penal in nature shall be punished with a fine of not less than One Thousand Pesos (₱1,000.00) nor more
₱10,000.00), or imprisonment of not less than three months nor more than three years, or both such fine and imprisonment at the disc

28328 of the Labor Code, requiring a one-month prior notice to employees and the Department of Labor and Employment before any
ny, does not state that non-compliance with the notice is an unlawful act punishable under the Code. There is no provision in any oth
ng failure to give such notice an unlawful act and providing for its penalty.

ot allege or prove, and Arbiter Ortiguerra did not make any finding, that Carag approved or assented to any patently unlawful act to w
for its commission. On this score alone, Carag cannot be held personally liable for the separation pay of complainants.

Arbiter Ortiguerra's assertion that "when the company had already ceased operations and there is no way by which a judgment in fa
corporate officers can be held jointly and severally liable with the company." This assertion echoes the complainants' claim that Carag
bts to complainants "on the basis of Article 212(e) of the Labor Code, as amended," which says:

any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its
as employer. (Emphasis supplied)

nts seek to hold Carag personally liable for the debts of MAC based solely on Article 212(e) of the Labor Code. This is the specific leg
used by Arbiter Ortiguerra, in holding Carag personally liable for the debts of MAC.
uled in McLeod v. NLRC29 and Spouses Santos v. NLRC30 that Article 212(e) of the Labor Code, by itself, does not make a corporate
of the corporation. The governing law on personal liability of directors for debts of the corporation is still Section 31 of the Corporation
od:

corporate directors, trustees or officers attaches only when (1) they assent to a patently unlawful act of the corporation, or when they
gence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other pe
ance of watered down stocks or when, having knowledge of such issuance, do not forthwith file with the corporate secretary their writ
themselves personally and solidarily liable with the corporation; or (4) they are made by specific provision of law personally answerab
ttp://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan2007.zip%3E9,df%7C2007/jan2007/146667

xxx

Ransom Labor Union-CCLU v.

y.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan2007.zip%3E9,df%7C2007/jan2007/146667.htm - whi
s not apply to this case. We quote pertinent portions of the ruling, thus:

e Labor Code, in part, expressly provides:

employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full backwages."

ode provides that:

ng any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos and/or impr
ay nor more than six (6) months."

egoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor Code whi

udes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of
n acting as employer."

culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be
g the "person acting in the interest of (the) employer" RANSOM. The corporation, only in the technical sense, is the employer.

icer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is the

xxxx

he law were otherwise, the corporation employer can have devious ways for evading payment of back wages. In the instant case, it
1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace R
ually phased out if the 22 strikers win their case. RANSOM actually ceased operations on May 1, 1973, after the December 19, 19
Relations was promulgated against RANSOM.
mecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan2007.zip%3E9,df%7C2007/jan2007/146667.htm - (Emphasis

nsom, RANSOM, through its President, organized ROSARIO to evade payment of backwages to the 22 strikers. This situation, or any
bad faith on the part of Patricio, does not obtain in the present case. In Santos v. NLRC,
mecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan2007.zip%3E9,df%7C2007/jan2007/146667.htm - the Court

e various cases when corporate officers were themselves held by the Court to be personally accountable for the payment of wages a
n A.C. Ransom Labor Union-CCLU vs. NLRC, for instance, the Court ruled that under the Minimum Wage Law, the responsible office
e held personally liable for nonpayment of backwages for "(i)f the policy of the law were otherwise, the corporation employer (would)
ayment of backwages." In the absence of a clear identification of the officer directly responsible for failure to pay the backwages, the
e corporation as such officer. The case was cited in Chua vs. NLRC in holding personally liable the vice-president of the company, be
fficial of the corporation next to the President who was dismissed for the latter's claim for unpaid wages.

ve exceptional cases would readily disclose the attendance of facts and circumstances that could rightly sanction personal liability on
A.C. Ransom, the corporate entity was a family corporation and execution against it could not be implemented because of the d
viable assets evidently in order to evade its just and due obligations. The doctrine of "piercing the veil of corporate fiction"
likewise involved another family corporation, and this time the conflict was between two brothers occupying the highest ranking posit
ere incontrovertible facts which pointed to extreme personal animosity that resulted, evidently in bad faith, in the easing out from the c
other.

ll that which can be deduced from the Court's pronouncement in Sunio vs. National Labor Relations Commission, thus:

e personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for the paym
te respondents. This is reversible error. The Assistant Regional Director's Decision failed to disclose the reason why he was made pe
ever, alleged as grounds thereof, his being the owner of one-half (½) interest of said corporation, and his alleged arbitrary dismissal o

as impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no evidence on reco
d faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate

rporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any
related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is no
ding the separate corporate personality. Petitioner Sunio, therefore, should not have been made personally answerable for the paym
salaries.http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan2007.zip%3E9,df%7C2007/jan20

ll that the doctrine of piercing the corporate veil applies only when the corporate fiction is used to defeat public convenience, justify w
the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be mad
ies. Neither Article 212[e] nor Article 273 (now 272) of the Labor Code expressly makes any corporate officer personally liable for the
Court ruled in H.L. Carlos Construction, Inc. v. Marina Properties
library.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan2007.zip%3E9,df%7C2007/jan2007/146667.htm

CA that these two respondents are not liable. Section 31 of the Corporation Code (Batas Pambansa Blg. 68) provides:

y of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the
oss negligence or bad faith ... shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its s

ty of corporate officers validly attaches only when (a) they assent to a patently unlawful act of the corporation; or (b) they are guilty of
ting its affairs; or (c) they incur conflict of interest, resulting in damages to the corporation, its stockholders or other persons.31 (Boldfa
erscoring supplied)

or Arbiter Ortiguerra, the NLRC, and the Court of Appeals to hold Carag personally liable for the separation pay owed by MAC to com
2(e) of the Labor Code. Article 212(e) does not state that corporate officers are personally liable for the unpaid salaries or separation
The liability of corporate officers for corporate debts remains governed by Section 31 of the Corporation Code.

GRANT the petition. We SET ASIDE the Decision dated 29 February 2000 and the Resolution dated 27 March 2001 of the Court of
4-06 insofar as petitioner Antonio Carag is concerned.
PIO

REYNATO S. PUNO
Chief Justice

LEONARDO A. QUISUMBING CONSUELO YNARES-SANTIAGO

Associate Justice Asscociate Justice

ANGELINA SANDOVAL-GUTIERREZ MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice Asscociate Justice

RENATO C. CORONA CONCHITA CARPIO MORALES

Associate Justice Asscociate Justice

ROMEO J. CALLEJO, SR. ADOLFO S. AZCUNA

Associate Justice Asscociate Justice

DANTE O. TINGA MINITA V. CHICO-NAZARIO

Associate Justice Asscociate Justice

CANCIO C. GARCIA PRESBITERO J. VELASCO, JR.

Associate Justice Asscociate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

CERTIFICATION

n 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the c
opinion of the Court.

nder Rule 45 of the 1997 Rules of Civil Procedure.

ollo, pp. 66-87. Penned by Associate Justice Teodoro P. Regino, with Associate Justices Conchita Carpio Morales (now Associate Ju
Jose L. Sabio, Jr., concurring.

at 89-90. Penned by Associate Justice Teodoro P. Regino, with Associate Justices Conchita Carpio Morales (now Associate Justice
e L. Sabio, Jr., concurring.

at 169-175.

at 201-204.

at 149-150.

at 153-155.

at 169-175.

at 193-194.

d. at 203.

56 Phil. 811 (1998).

ollo, p. 86.

d. at 89-90.

d. at 15.

ection 2. Mandatory Conference/Conciliation. - Within two (2) days from receipt of an assigned case, the Labor Arbiter shall summon
ference for the purpose of amicably settling the case upon a fair compromise or determining the real parties in interest, defining and
ues in the case, entering into admissions and/or stipulations of facts, and threshing out all other preliminary matters. The notice or sum
cify the date, time and place of the preliminary conference/pretrial and shall be accompanied by a copy of the complaint.

Should the parties arrive at any agreement as to the whole or any part of the dispute, the same shall be reduced to writing and si
parties and their respective counsels, if any before the Labor Arbiter. The settlement shall be approved by the Labor Arbiter after
that it was voluntarily entered into by the parties and after having explained to them the terms and consequences thereof.

A compromise agreement entered into by the parties not in the presence of the Labor Arbiter before whom the case is pending s
by him if, after confronting the parties, particularly the complainants, he is satisfied that they understand the terms and conditions
and that it was entered into freely and voluntarily by them and the agreement is not contrary to law, morals, and public policies.

A compromise agreement duly entered into in accordance with this Section shall be final and binding upon the parties and the Or
shall have the effect of a judgment rendered by the Labor Arbiter in the final disposition of the case.

The number of conferences shall not exceed three (3) settings and shall be terminated within thirty (30) calendar days from the d
conference.
 ection 3. Submission of Position Papers/Memorandum. - Should the parties fail to agree upon an amicable settlement, either in whol
conferences, the Labor Arbiter shall issue an order stating therein the matters taken up and agreed upon during the conferences and
ties to simultaneously file their respective verified position papers.

These verified position papers shall cover only those claims and causes of action raised in the complaint excluding those that ma
amicably settled, and shall be accompanied by all supporting documents including the affidavits of their respective witnesses wh
place of the latter's direct testimony. The parties shall thereafter not be allowed to allege facts, or present evidence to prove facts
and any cause or causes of action not included in the complaint or position papers, affidavits and other documents. Unless other
writing by both parties, the Labor Arbiter shall direct both parties to submit simultaneously their position papers/memorandum wit
documents and affidavits within fifteen (15) calendar days from the date of the last conference, with proof of having furnished eac
copies thereof.

ection 4. Determination of Necessity of Hearing. - Immediately after the submission by the parties of their position papers/memorand
iter shall motu proprio determine whether there is need for a formal trial or hearing. At this stage, he may, at his discretion and for the
king such determination, ask clarificatory questions to further elicit facts or information, including but not limited to the subpoena of re
umentary evidence, if any, from any party or witness.

ection 5. Period to Decide Case. - x x x x

xxxx

b) If the Labor Arbiter finds no necessity of further hearing after the parties have submitted their position papers and supporting d
shall issue and Order to that effect and shall inform the parties, stating the reasons therefor. In any event, he shall render his dec
within the same period provided in paragraph (a) hereof.

ection 11. Non-appearance of Parties at Conference/Hearings. - x x x x

xxxx

c) In case of two (2) successive unjustified non-appearances by the respondent during his turn to present evidence, despite due
shall be considered submitted for decision on the basis of the evidence so far presented.

romulgated on 31 August 1990 and took effect on 9 October 1990.

ection 3, Rule V of The New Rules of Procedure of the NLRC.

72 Phil. 873, 877-879 (1999).

ollo, p. 173.

McLeod v. NLRC, G.R. No. 146667, 23 January 2007, citing Lim v. Court of Appeals, 380 Phil. 60 (2000) and Del Rosario v. NLRC, G
y 1990, 187 SCRA 777.

d.

d.

.R. No. 103575, 5 April 1993, 221 SCRA 9, 14.

rt. 283. Closure of Establishment and Reduction of Personnel. - The employer may also terminate the employment of any employee
allation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishm
ertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers a
or and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor sav
undancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least on
every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operatio
ablishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) m
st one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered as o

ee note 24.

54 Phil. 918 (1998).

McLeod v. NLRC, supra note 24.

t - Arellano Law Foundation

Today is Thursday, January 18, 2018

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

December 11, 2013

R CORPORATION and GEORGE HAW, in his capacity as President of Advance Paper

oners,

CORPORATION, MANUEL TING, CHENG GUI and BENJAMIN NG, Respondents.

-------------------------x

d UY SENG KEE WILLY, Respondents.

DECISION
ion for Review1 seeking to set aside the Decision of the Court of Appeals (CA) in CA-G.R. CV No. 71499 dated
d the Resolution dated March 7, 2007.2 The Decision reversed and set aside the ruling of the Regional Trial
nila, Branch 18 in Civil Case No. 94-72526 which ordered Arma Traders Corporation (Arma Traders) to pay
rporation (Advance Paper) the sum of ₱15,321,798.25 with interest, and ₱1,500,000.00 for attorney’s fees, plus
3

Factual Antecedents

Paper is a domestic corporation engaged in the business of producing, printing, manufacturing, distributing and
aper products.4 Petitioner George Haw (Haw) is the President while his wife, Connie Haw, is the General

Traders is also a domestic corporation engaged in the wholesale and distribution of school and office supplies,
ts.6 Respondent Antonio Tan (Tan) was formerly the President while respondent Uy Seng Kee Willy (Uy) is the
Traders.7 They represented Arma Traders when dealing with its supplier, Advance Paper, for about 14 years.8

respondents Manuel Ting, Cheng Gui and Benjamin Ng worked for Arma Traders as Vice-President, General
orate Secretary, respectively.9

om September to December 1994, Arma Traders purchased on credit notebooks and other paper products
33,001.49 from Advance Paper. 10

tation of Tan and Uy, Arma Traders also obtained three loans from Advance Paper in November 1994 in the
,171.82, ₱1,000,000.00, and ₱3,408,623.94 or a total of ₱7,788,796.76.11 Arma Traders needed the loan to settle
her suppliers because its own collectibles did not arrive on time.12 Because of its good business relations with
ance Paper extended the loans.13

purchases on credit and the loan transactions, Arma Traders issued 82 postdated checks14payable to cash or to
n and Uy were Arma Traders’ authorized bank signatories who signed and issued these checks which had the
of ₱15,130,636.87.15

sented the checks to the drawee bank but these were dishonored either for "insufficiency of funds" or "account
peated demands, however, Arma Traders failed to settle its account with Advance Paper.16

1994, the petitioners filed a complaint17 for collection of sum of money with application for preliminary attachment
ers, Tan, Uy, Ting, Gui, and Ng.

Claims of the petitioners

med that the respondents fraudulently issued the postdated checks as payment for the purchases and loan
ng that they did not have sufficient funds with the drawee banks.18

hases on credit, the petitioners presented the summary of the transactions and their corresponding sales invoices
ry evidence.19

w also testified that within one or two weeks upon delivery of the paper products, Arma Traders paid the
rm of postdated checks. Thus, he personally collected these checks on Saturdays and upon receiving the checks,
Arma Traders the original of the sales invoices while he retained the duplicate of the invoices.20
transactions, the petitioners presented the copies of the checks21 which Advance Paper issued in favor of Arma
oners also filed a manifestation22 dated June 14, 1995, submitting a bank statement from Metrobank EDSA
This was to show that Advance Paper’s credit line with Metrobank has been transferred to the account of Arma
rom October 1994 to December 1994.

tified to prove the loan transactions. When asked why he considered extending the loans without any collateral
nt or promissory note, and only on the basis of the issuance of the postdated checks, he answered that it was
Arma Traders since it had been their customer for a long time and that none of the previous checks ever

Claims of the respondents

rgued that the purchases on credit were spurious, simulated and fraudulent since there was no delivery of the
th of notebooks and other paper products.24

testified that Arma Traders did not purchase notebooks and other paper products from September to December
hat during this period, Arma Traders concentrated on Christmas items, not school and office supplies. He also
learning about the complaint filed by the petitioners, he immediately looked for Arma Traders’ records and found
g the purchases of notebooks and other paper products from Advance Paper.25

sactions, the respondents countered that these were the personal obligations of Tan and Uy to Advance Paper.
never intended to benefit the respondents.

so claimed that the loan transactions were ultra vires because the board of directors of Arma Traders did not
ution authorizing Tan and Uy to obtain the loans from Advance Paper. They claimed that the borrowing of money
with the prior approval of the board of directors because without the approval, the corporate officers are acting in
hority or ultra vires. When the acts of the corporate officers are ultra vires, the corporation is not liable for whatever
cers committed in excess of their authority. Further, the respondents claimed that Advance Paper failed to verify
ority to transact business with them. Hence, Advance Paper should suffer the consequences.26

ccused Tan and Uy for conspiring with the petitioners to defraud Arma Traders through a series of transactions
nting of postdated checks. In rediscounting, the respondents explained that Tan and Uy would issue Arma
checks to the petitioners in exchange for cash, discounted by as much as 7% to 10% depending on how long
epayment. The rediscounted percentage represented the interest or profit earned by the petitioners in these

Answer and was eventually declared in default.

Uy filed his Answer28 dated January 20, 1995 but was subsequently declared in default upon his failure to appear
In his Answer, he admitted that Arma Traders together with its corporate officers have been transacting business
r.29 He claimed that he and Tan have been authorized by the board of directors for the past 13 years to issue
Arma Traders to pay its obligations with Advance Paper.30 Furthermore, he admitted that Arma Traders’
ed to pay its contractual obligations with Advance Paper.31 However, according to him, Advance Paper was
nd that Arma Traders’ checks were funded out of the ₱20,000,000.00 worth of collectibles coming from the
nately, the expected collectibles did not materialize for unknown reasons.32

33
and claimed that the management of Arma Traders was left entirely to Tan and Uy. Thus, he never participated
aily transactions.34

, Jr. (Atty. Ang), Arma Traders’ Vice-President for Legal Affairs and Credit and Collection, testified that he
nsactions involving Tan and Uy and discovered that they were financing their own business using Arma Traders’
 accused Haw for conniving with Tan and Uy in fraudulently making Arma Traders liable for their personal debts.
lusion from the following: First, basic human experience and common sense tell us that a lender will not agree to
oan to another person who already owes a substantial sum from the lender – in this case, petitioner Advance
re was no other document proving the existence of the loan other than the postdated checks. Third, the total of
oan transactions vis-à-vis the total amount of the postdated checks did not tally. Fourth, he found out that the
of Advance Paper’s report with the Securities and Exchange Commission (SEC report) did not reflect the
llectibles it had with Arma Traders.35

ied that he already filed several cases of estafa and qualified theft36 against Tan and Uy and that several warrants
issued against them.

ef,37 the respondents named Sharow Ong, the secretary of Tan and Uy, to testify on how Tan and Uy conspired
to defraud Arma Traders. However, the respondents did not present her on the witness stand.

The RTC Ruling

the RTC ruled that the purchases on credit and loans were sufficiently proven by the petitioners. Hence, the RTC
ers to pay Advance Paper the sum of ₱15,321,798.25 with interest, and ₱1,500,000.00 for attorney’s fees, plus

the respondents failed to present hard, admissible and credible evidence to prove that the sale invoices were
and that the loan transactions were personal obligations of Tan and Uy. Nonetheless, the RTC dismissed the
Tan, Uy, Ting, Gui and Ng due to the lack of evidence showing that they bound themselves, either jointly or
a Traders for the payment of its account.38

ealed the RTC decision to the CA.

The CA Ruling

he petitioners failed to prove by preponderance of evidence the existence of the purchases on credit and loans
wing grounds:

s was not liable for the loan in the absence of a board resolution authorizing Tan and Uy to obtain the loan from
he CA acknowledged that Tan and Uy were Arma Traders’ authorized bank signatories. However, the CA
s not sufficient because the authority to sign the checks is different from the required authority to contract a loan.40

o held that the petitioners presented incompetent and inadmissible evidence to prove the purchases on credit
oices were hearsay.41 The CA pointed out that Haw’s testimony as to the identification of the sales invoices was
the hearsay rule because there was no showing that the secretaries who prepared the sales invoices are already
estify as required by the Rules of Court.42 Further, the CA noted that the secretaries were not identified or
3

g heavily relied on Ng’s Appellant’s Brief44 which made the detailed description of the "badges of fraud." The CA
titioners failed to satisfactorily rebut the badges of fraud45 which include the inconsistencies in:

"Exhibit E-26," a postdated check, which was allegedly issued in favor of Advance Paper but turned out to be a
ck payable to Top Line, Advance Paper’s sister company;46

"Sale Invoice No. 8946," an evidence to prove the existence of the purchases on credit, whose photocopy failed to
ect the amount stated in the duplicate copy,47 and;
The SEC report of Advance Paper for the year ended 1994 reflected its account receivables amounting to
19,705.19 only – an amount far from the claimed ₱15,321,798.25 receivables from Arma Traders.48

aside the RTC’s order for Arma Traders to pay Advance Paper the sum of ₱15,321,798.25, ₱1,500,000.00 for
s cost of suit.49 It affirmed the RTC decision dismissing the complaint against respondents Tan, Uy, Ting, Gui and
directed the petitioners to solidarily pay each of the respondents their counterclaims of ₱250,000.00 as moral
0.00 as exemplary damages, and ₱250,000.00 as attorney’s fees.51

The Petition

e the following arguments.

s led the petitioners to believe that Tan and Uy had the authority to obtain loans since the respondents left the
nagement of the company to Tan and Uy since 1984. In fact, Ng testified that Arma Traders’ stockholders and
never conducted a meeting from 1984 to 1995. Therefore, if the respondents’ position will be sustained, they will
wer to question all the business transactions of Arma Traders.52 Citing Lipat v. Pacific Banking Corporation,53 the
t if a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent
im out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who
ealt with it through such agent, be estopped from denying the agent’s authority.

ners argue that Haw’s testimony is not hearsay. They emphasize that Haw has personal knowledge of the
and loan transactions because he dealt with the customers, and supervised and directed the preparation of the
the deliveries of the goods.54 Moreover, the petitioners stress that the respondents never objected to the
sales invoices on the ground that they were hearsay.55

rs dispute the CA’s findings on the existence of the badges of fraud. The petitioners countered:

The discrepancies between the figures in the 15 out of the 96 photocopies and duplicate originals of the sales
oices amounting to ₱4,624.80 – an insignificant amount compared to the total purchases of ₱7,533,001.49 –
y have been caused by the failure to put the carbon paper.56 Besides, the remaining 81 sales invoices are
controverted. The petitioners also raise the point that this discrepancy is a nonissue because the duplicate
inals were surrendered in the RTC.57

The respondents misled Haw during the cross-examination and took his answer out of context.58 The petitioners
ue that this maneuver is insufficient to discredit Haw’s entire testimony.59

Arma Traders should be faulted for indicating Top Line as the payee in Exhibit E-26 or PBC check no. 091014.
reover, Exhibit E-26 does not refer to PBC check no. 091014 but to PBC check no. 091032 payable to the order of
h.60

The discrepancy in the total amount of the checks which is ₱15,130,363.87 as against the total obligation
₱15,321,798.25 does not necessarily prove that the transactions are spurious.61

The difference in Advance Paper’s accounts receivables in the SEC report and in Arma Traders’ obligation with
vance Paper was based on non-existent evidence because Exhibit 294-NG does not pertain to any balance
et.62 Moreover, the term "accounts receivable" is not synonymous with "cause of action." The respondents cannot
ape their liability by simply pointing the SEC report because the petitioners have established their cause of action
at the purchases on credit and loan transactions took place, the respondents issued the dishonored checks to
er their debts, and they refused to settle their obligation with Advance Paper.63
 The Case for the Respondents

rgue that the Petition for Review should be dismissed summarily because of the following procedural
ailure to comply with A.M. No. 02-8-13-SC;64 and second, the CA decision is already final and executory since the
ir Motion for Reconsideration out of time. They explain that under the rules of the CA, if the last day for filing of
n a Saturday not a holiday, the same must be filed on said Saturday, as the Docket and Receiving Section of the
aturday.65

rgue that while as a general rule, a corporation is estopped from denying the authority of its agents which it
h the general public; this is only true if the person dealing with the agent dealt in good faith.66 In the present case,
aim that the petitioners are in bad faith because the petitioners connived with Tan and Uy to make Arma Traders
xistent deliveries of notebooks and other paper products.67 They also insist that the sales invoices are
ence.68

respondents aver that these were Tan and Uy’s personal obligations with Advance Paper.69Moreover, while the
cks were deposited in the account of Arma Traders, it is likewise true that Tan and Uy issued Arma Traders’
Advance Paper. All these checks are evidence of Tan, Uy and Haw’s systematic conspiracy to siphon Arma
unds.70

so seek to discredit Haw’s testimony on the basis of the following. First, his testimony as regards the sales
because he did not personally prepare these documentary evidence.71Second, Haw suspiciously never had any
m his own Board of Directors to lend money. Third, the respondents also questioned why Advance Paper granted
loan without requiring Arma Traders to present any collateral or guarantees.72

The Issues

al and substantive issues are:

Whether the petition for review should be dismissed for failure to comply with A.M. No. 02-8-13-SC.

Whether the petition for review should be dismissed on the ground of failure to file the motion for reconsideration
h the CA on time.

Whether Arma Traders is liable to pay the loans applying the doctrine of apparent authority.

Whether the petitioners proved Arma Traders’ liability on the purchases on credit by preponderance of evidence.

The Court's Ruling

on.

sues.

nts correctly cited A.M. No. 02-8-13-SC dated February 19, 2008 which refer to the amendment of the 2004 Rules
e. It deleted the Community Tax Certificate among the accepted proof of identity of the affiant because of its
y. The petitioners violated this when they used Community Tax Certificate No. 05730869 in their Petition for
less, the defective jurat in the Verification/Certification of Non-Forum Shopping is not a fatal defect because it is
jurisdictional, requirement that the Court may waive.74 Furthermore, we cannot simply ignore the millions of pesos
e. To do so might cause grave injustice to a party, a situation that this Court intends to avoid.
an the CA itself waived the rules on the period to file the motion for reconsideration. A review of the CA
March 7, 2007, reveals that the petitioners’ Motion for Reconsideration was denied because the allegations were a
at the petitioners earlier argued – not because the motion for reconsideration was filed out of time.

ssues.

able to pay the

s of the doctrine of
y.

parent authority provides that a corporation will be estopped from denying the agent’s authority if it knowingly
fficers or any other agent to act within the scope of an apparent authority, and it holds him out to the public as
wer to do those acts.76 The doctrine of apparent authority does not apply if the principal did not commit any acts or
rd party knew and relied upon in good faith as a result of the exercise of reasonable prudence. Moreover, the
duct must have produced a change of position to the third party’s detriment.77

ment Industries v. Court of Appeals,78 we explained:

n [referring to Sec. 23 of the Corporation Code], the power and responsibility to decide whether the corporation
contract that will bind the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or
of law. However, just as a natural person who may authorize another to do certain acts for and on his
of directors may validly delegate some of its functions and powers to officers, committees or agents. The
individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from
expressly or impliedly by habit, custom or acquiescence in the general course of business, viz.:

or agent may represent and bind the corporation in transactions with third persons to the extent that [the] authority
conferred upon him, and this includes powers as, in the usual course of the particular business, are incidental to,
rom, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the
agent, and such apparent powers as the corporation has caused person dealing with the officer or agent to
onferred.

ity is derived not merely from practice. Its existence may be ascertained through (1) the general manner in
on holds out an officer or agent as having the power to act or, in other words the apparent authority to act in
it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive
f, within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar act(s)
its favor or in favor of other parties. It is not the quantity of similar acts which establishes apparent
vesting of a corporate officer with the power to bind the corporation. [emphases and underscores ours]

o and Warehousing Co., Inc. v. Court of Appeals,79 we ruled that the doctrine of apparent authority is applied when
ugh its president Antonio Punsalan Jr., entered into the First Contract without first securing board approval.
of board approval, petitioner did not object to or repudiate said contract, thus "clothing" its president with the power
tion.

porate president is often given general supervision and control over corporate operations, the strict rule that said
ent power to act for the corporation is slowly giving way to the realization that such officer has certain limited
action of the usual and ordinary business of the corporation."80 "In the absence of a charter or bylaw provision
e president is presumed to have the authority to act within the domain of the general objectives of its
hin the scope of his or her usual duties."81

on, we do not agree with the CA’s findings that Arma Traders is not liable to pay the loans due to the lack of
thorizing Tan and Uy to obtain the loans. To begin with, Arma Traders’ Articles of Incorporation82 provides that the
orrow or raise money to meet the financial requirements of its business by the issuance of bonds,
nd other evidence of indebtedness. Likewise, it states that Tan and Uy are not just ordinary corporate officers
k signatories because they are also Arma Traders’ incorporators along with respondents Ng and Ting, and
ermore, the respondents, through Ng who is Arma Traders’ corporate secretary, incorporator, stockholder and
at the sole management of Arma Traders was left to Tan and Uy and that he and the other officers never
iness and management of Arma Traders for 14 years. He also confirmed that since 1984 up to the filing of
inst Arma Traders, its stockholders and board of directors never had its meeting.83

s bestowed upon Tan and Uy broad powers by allowing them to transact with third persons without the necessary
m its non-performing board of directors. Arma Traders failed to take precautions to prevent its own corporate
ng their powers. Because of its own laxity in its business dealings, Arma Traders is now estopped from denying
ority to obtain loan from Advance Paper.

respondents’ claim that Advance Paper, through Haw, connived with Tan and Uy. The records do not contain any
hat the loan transactions were personal to Tan and Uy. A different conclusion might have been inferred had the
een issued in favor of Tan and Uy, and had the postdated checks in favor of Advance Paper been either Tan
the respondents presented convincing evidence to show how Tan and Uy conspired with the petitioners to
ers.84 We note that the respondents initially intended to present Sharow Ong, the secretary of Tan and Uy, to
ance Paper connived with Tan and Uy. As mentioned, the respondents failed to present her on the witness stand.

failed to object to
of the sales invoices
t they are hearsay

ure to object to the offered evidence renders it admissible, and the court cannot, on its own, disregard such
party desires the court to reject the evidence offered, it must so state in the form of a timely objection and it
jection to the evidence for the first time on appeal. Because of a party’s failure to timely object, the evidence
e evidence in the case. Thereafter, all the parties are considered bound by any outcome arising from the offer of
presented.86

io M. Ureta, Sr. v. Heirs of Liberato M. Ureta,87 however, we held:

whether objected to or not cannot be given credence for having no probative value. This principle, however, has
1âwphi1

ses where, in addition to the failure to object to the admissibility of the subject evidence, there were other pieces
nted or there were other circumstances prevailing to support the fact in issue. (emphasis and underscore
ed)

respondents that with respect to the identification of the sales invoices, Haw’s testimony was hearsay because he
ring its preparation88 and the secretaries who prepared them were not presented to identify them in court. Further,
s do not fall within the exceptions to the hearsay rule even under the "entries in the course of business" because
d to show that the entrant was deceased or was unable to testify.89

e sales invoices are hearsay, nonetheless, they form part of the records of the case for the respondents’ failure to
missibility of the sales invoices on the ground that they are hearsay.90Based on the records, the respondents
d to the offer "for the purpose [to] which they are being offered" only – not on the ground that they were hearsay.91

ave proven their

paid purchases on
erance of evidence.

ed by the respondents’ argument that the purchases are spurious because no less than Uy admitted that all the
re in payments of the contractual obligations of the Arma Traders with Advance Paper.92 Moreover, there
evidence to prove the existence of the purchases other than the sales invoices themselves. For one, Arma
 checks evince the existence of the purchases on credit. Moreover, Haw testified that within one or two weeks,
the purchases in the form of postdated checks. He personally collected these checks on Saturdays and upon
s, he surrendered to Arma Traders the original of the sales invoices while he retained the duplicate of the

ttempted to impugn the credibility of Haw by pointing to the inconsistencies they can find from the transcript of
. However, we are not persuaded that these inconsistencies are sufficiently pervasive to affect the totality of
he general relationship between Advance Paper and Arma Traders.

ue of credibility of witnesses is to be resolved primarily by the trial court because it is in the better position to
ty of witnesses as it heard the testimonies and observed the deportment and manner of testifying of the
ngly, its findings are entitled to great respect and will not be disturbed on appeal in the absence of any showing
verlooked, misunderstood, or misapplied some facts or circumstances of weight and substance which would have
of the case.94

, the RTC judge took into consideration the substance and the manner by which Haw answered each propounded
the witness stand. Hence, the minor inconsistencies in Haw’s testimony notwithstanding, the RTC held that the
that the purchase and loan transactions were spurious is "not worthy of serious consideration." Besides, the
to convince us that the RTC judge overlooked, misunderstood, or misapplied some facts or circumstances of
nce which would have affected the result of the case.

we agree with the petitioners that the discrepancies in the photocopy of the sales invoices and its duplicate copy
ntly explained. Besides, this is already a non-issue since the duplicate copies were surrendered in the
e, the fact that the value of Arma Traders' checks does not tally with the total amount of their obligation with
not inconsistent with the existence of the purchases and loan transactions.

e and the evidence Advance Paper presented, the respondents relied on the core theory of an alleged conspiracy
nd Haw to defraud Arma Traders. However, the records are bereft of supporting evidence to prove the alleged
d, the respondents simply dwelled on the minor inconsistencies from the petitioners' evidence that the respondents
gnified. From these perspectives, the preponderance of evidence thus lies heavily in the petitioners' favor as the
s reason, we find the petition meritorious.

mises considered, we GRANT the petition. The decision dated March 31, 2006 and the resolution dated March 7,
f Appeals in CA-G.R. CV No. 71499 are REVERSED and SET ASIDE. The Regional Trial Court decision in Civil
6 dated June 18, 2001 is REINSTATED. No costs.

ANTONIO T. CARPIO
Associate Justice
Chairperson

MARIANO C. DEL CASTILLO ESTELA M. PERLAS-BERNABE

Associate Justice Associate Justice
 MARVIC MARIO VICTOR F. LEONEN
Associate Justice

ATTESTATION

clusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
t's Division.

PIO

CERTIFICATION

n 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I certify that the conclusions in the
d been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

P.A. SERENO

esignated as Acting Member in lieu of Associate Justice Jose P. Perez per Special Order No. 1627 dated
cember 6, 2013.

ule 45 of the Revised Rules of Court; rollo, pp. 8-44.

enned by Associate Justice Vicente S.fc.. Veloso, and concurred in by Associate Justices Portia Alifio-
machuelos and Amelita G. Tolentino; id. at 46-69.

vil Case No. 94-72526 dated August 20, 2011; penned by Judge Perfecto A.S. Laguio, Jr.; id. at 75-77.

at 48.

at 288.

d.

at 48.

ecords, Vol. 3, pp. 170-178; referring to the Sworn Statement of Haw dated November 18, 1996.

at 48.

id.
id.

id.

. at 75.

arked as Exhibits "E-1" to "E-82." See Records, Vol. 2, pp. 418-445.

ollo, p. 48.

. at 48- 49.

mended on October 26, 1995.

ecords, Vol. 2, p. 283; referring to the Amended Complaint.

ecords, Vol. 1, pp. 12-109, and Vol. 2, pp. 290-417; Marked as Exhibits "A-1" to "A-32," "B-1" to "B-30," "C" to "C-
and "D" to "D-3.

ollo, p. 193; Records, Vol. 3, pp. 170-178; referring to the Sworn Statement of Haw dated November 18, 1996.

. at 48; marked as Exhibits "AA," "BB" and "CC."

ecords, Vol. 2, pp. 113-116.

ecords, Vol. 3, pp. 244-245.

ecords, Vol. 3, pp. 71-80; referring to par. 7, page 2 of Arma Traders, Ting, Gui and Ng’s Answer with Compulsory
unterclaim and Crossclaim dated February 23, 1996.

ecords, Vol. 4, pp. 141-147; referring to Ng’s Direct Testimony dated February 4, 1999.

. at 241; referring to the Memorandum of the Defendants.

ecords, Vol. 3, pp. 71-80; referring to par. 8-9.5, page 2 of Arma Traders, Ting, Gui and Ng’s Answer with
mpulsory Counterclaim and Crossclaim dated February 23, 1996.

ecords, Vol. 1, pp. 146-154.

age 2 of Uy’s Answer dated January 20, 1995.

id.

id.

. at 3.

ecords, Vol. 3, pp. 64-68.

age 3 of Ng’s Answer dated February 19, 1996.

ecords, Vol. 4, pp. 169-176; referring to the Direct Testimony of Atty. Ernest S. Ang, Jr. dated May 12, 2000.

ecords, Vol. 3, pp. 208-209; as supported by the Information in Criminal Case No. 145888 dated September 11,
5 which was marked as Exhibit "2."

. at 123-126.

ollo, pp. 49, 76.

. at 63, citing Sec. 23 of the Corporation Code, and AF Realty & Development, Inc. v. Dieselman Freight Services,
, G.R. No. 111448, January 16, 2002, 373 SCRA 385, 391, which held: "[C]ontracts or acts of a corporation must
made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid
egation or authorization, the rule is that the declarations of an individual director relating to the affairs of the
poration x x x are x x x not binding on the corporation."

. at 64.

. at 61.

. at 62-63, citing Section 43, Rule 130 of the Rules of Court: "Entries in the course of business. – Entries made at,
near the time of the transactions to which they refer, by a person deceased, or unable to testify, who was in a
ition to know the facts therein stated, may be received as prima facie evidence, if such person made the entries in
professional capacity or in the performance of duty and in the ordinary or regular course of business or duty."
ics and emphasis supplied)

. at 61-62.

. at 52-61.

. at 60.

. at 64-65.

. at 65.

id.

. at 68.

id.

. at 69.

. at 207-208.

.R. No. 142435, April 30, 2003, 402 SCRA 339.

ollo, p. 254.

. at 194.

. at 258.

. at 257.

. at 259. The petitioners explained:

By perusing the transcripts, it is obvious that the questions preceding the one cited by the respondents
referred to transactions which created obligations on the part of Arma Traders. So, when Haw was
asked: "Aside from this, there were no other transaction (sic) between you x x x," he answered, "No other
transaction," believing that he was being asked if there were other transactions that could be added to those
he mentioned already, meaning, those UNPAID transactions. He truthfully said there were no other.

. at 259.

. at 260.

id.

. at 261.

. at 262.

recting notary publics to no longer use the community tax certificate as proof of the affiant’s identity because of its
erent unreliability; effective August 1, 2004.

ollo, p. 292.

. at 310, Memorandum for Respondents, citing Lipat v. Pacific Banking Corporation, supra note 53, at 350.

. at 289, 311.

. at 311.

. at 289.

upra note 68.

ollo, p. 293.

. at 169, 303.

. at 43.

alicto v. Aquino III, G.R. No. 193978, February 28, 2012, 667 SCRA 150, 175.
ollo, p. 139.

eople’s Aircargo and Warehousing Co., Inc. v. Court of Appeals, G.R. No. 117847, October 7, 1998, 297 SCRA
, 184-185, citing Francisco v. Government Service Insurance System, Nos. L-18287 and L-18155, March 30,
3, 7 SCRA 577, 583; and Maharlika Publishing Corporation v. Tagle, No. L-65594, July 9, 1986, 142 SCRA 553,
.

anate v. Philippine Countryside Rural Bank (Liloan, Cebu), Inc., G.R. No. 163825, July 13, 2010, 625 SCRA 21,
citing Yun Kwan Byung v. Philippine Amusement and Gaming Corporation, G.R. No. 163553, December 11,
9, 608 SCRA 107, 132.

.R. No. 125778, June 10, 2003, 403 SCRA 452, 456-457, citing People’s Aircargo and Warehousing Co., Inc. v.
urt of Appeals, supra note 76.

upra note 76.

. at 185, citing Western American Life Ins. Co. v. Hicks, 217 SE 2d 323, 324, May 19, 1975; and Cooper v. G.E.
nstruction Co., 158 SE 2d 305, 308, October 30, 1967.

id, citing 19 AmJur 2d 595; citing Pegram-West, Inc. v. Winston Mut. Life Ins. Co., 56 SE 2d 607, 612, December
1949; Cushman v. Cloverland Coal & Mining Co., 84 NE 759, 760, May 15, 1908; Ceedeer v. H.M. Loud & Son's
mber Co., 49 NW 575, 575, July 28, 1891, Memorial Hospital Asso. v. Pacific Grape, 50 ALR 2d 442, 445,
vember 29, 1955; Lloyd & Co. v. Matthews & Rice, 79 NE 172, 173, December 5, 1906, and National State Bank
Vigo County National Bank, 40 NE 799, 800, May 28, 1895.

ecords, Vol. 1, pp. 399-407. Arma Traders was formerly known as Divisoria Advance Products Corp.

ollo, pp. 207-208.

. at 264. The petitioners argued:

"Significantly, in the Pre-Trial Brief filed by Respondents (citation omitted), a certain Sharow Ong was
supposed to testify on ‘how Antonio Tan and Uy Seng Kee Willy conspired with plaintiffs to defraud Arma
Traders Corporation.’ No such witness or substitute was produced. No explanation for such failure was ever
made either."

alayan Insurance Co., Inc. v. Alberto, G.R. No. 194320, February 1, 2012, 664 SCRA 791, 805.

id., citing Asian Construction and Development Corporation v. COMFAC Corporation, G.R. No. 163915, October
2006, 504 SCRA 519, 524.

.R. No. 165748, September 14, 2011, 657 SCRA 555, 568. See also Top-Weld Manufacturing, Inc. v. ECED,
I, S.A., Eutectic Corp., 222 Phil. 424, 347 (1985).

uring the cross-examination, Haw testified:

"Q: Where were you when these sales invoices, Exhibits ‘A-1’ and its submarkings, ‘B-1’ and its submarkings,
"C-1" and its submarkings, and "D-1" and its submarkings, were prepared?
 A: Well, I was in the office also but the secretaries were the ones who prepared the invoices. I am not the
one who saw to it the secretaries writing these invoices." (TSN, December 9, 1996, p. 5)

ection 43, Rule 130 of the Rules of Court provides: "Entries made at, or near the time of transactions to which they
er, by a person deceased, or unable to testify, who was in a position to know the facts therein stated, may be
eived as prima facie evidence, if such person made the entries in his professional capacity or in the performance
uty and in the ordinary or regular course of business or duty." (italics supplied)

In several cases, the following were the established requisites for the admissibility of entries made in the
course of business:

(a) Entries must have been made at or near the time of the transaction to which they refer.

(b) Entrant must have been in a position to know the facts stated in the entries.

(c) Entries must have been made by entrant in his professional capacity or in the performance of his
duty.

(d) Entries were made in the ordinary or regular course of business or duty.

(e) Entrant must be deceased or unable to testify.

ollo, pp. 194, 105-106.

. at 106.

ar. 9, page 2 of Answer dated January 20, 1995.

ollo, p. 193.

eople v. Sagarino, Jr., G.R. Nos. 135356-58, September 4, 2001, 364 SCRA 438, 445.

SN, p. 18, Hearing on December 9, 1996; Testimony of George Haw-Continuation of the crossexamination:

ATTY. RODRIGUEZ, JR.:

Your Honor, we will surrender its custody to the Court the sales invoice no. 8946.

ATTY. CO:

May we make it on record that the counsel is detaching the same from the booklet.

ATTY. RODRIGUEZ, JR.:

And surrender it to the custody of the court.

THE COURT:

Alright. Attach that to the record. [Emphasis and underscore ours]

t - Arellano Law Foundation