1.

154 SCRA 594

G.R. No. 82797 February 27, 1991

GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,

vs.

HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.

A.E. Dacanay for petitioners.

Antonio Quintos Law Office for private respondent.

PARAS, J.:

This is a petition for review on certiorari of the December 29, 1987 decision * of the Court of Appeals in CA-
G.R. No. 11960 entitled "ROCES-REYES REALTY, INC. vs. HONORABLE JUDGE REGIONAL TRIAL COURT OF
MANILA, BRANCH 44, GOOD EARTH EMPORIUM, INC. and LIM KA PING" reversing the decision of respondent
Judge ** of the Regional Trial Court of Manila, Branch 44 in Civil Case No. 85-30484, which reversed the
resolution of the Metropolitan Trial Court Of Manila, Branch 28 in Civil Case No. 09639, *** denying herein
petitioners' motion to quash the alias writ of execution issued against them.

As gathered from the records, the antecedent facts of this case, are as follows:

A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-REYES REALTY, INC., as
lessor, and GOOD EARTH EMPORIUM, INC., as lessee, for a term of three years beginning November 1, 1981
and ending October 31, 1984 at a monthly rental of P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The
building which was the subject of the contract of lease is a five-storey building located at the corner of Rizal
Avenue and Bustos Street in Sta. Cruz, Manila.

From March 1983, up to the time the complaint was filed, the lessee had defaulted in the payment of rentals,
as a consequence of which, private respondent ROCES-REYES REALTY, INC., (hereinafter designated as
ROCES for brevity) filed on October 14, 1984, an ejectment case (Unlawful Detainer) against herein
petitioners, GOOD EARTH EMPORIUM, INC. and LIM KA PING, hereinafter designated as GEE, (Rollo, p. 21;
Annex "B" of the Petition). After the latter had tendered their responsive pleading, the lower court (MTC,
Manila) on motion of Roces rendered judgment on the pleadings dated April 17, 1984, the dispositive portion
of which states:

Judgment is hereby rendered ordering defendants (herein petitioners) and all persons claiming title under
him to vacate the premises and surrender the same to the plaintiffs (herein respondents); ordering the
defendants to pay the plaintiffs the rental of P65,000.00 a month beginning March 1983 up to the time
defendants actually vacate the premises and deliver possession to the plaintiff; to pay attorney's fees in the
amount of P5,000.00 and to pay the costs of this suit. (Rollo, p. 111; Memorandum of Respondents)

On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May 28, 1984
simultaneous with the latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On June 13, 1984, the trial court
resolved such motion ruling:

After considering the motion for the issuance of a writ of execution filed by counsel for the plaintiff (herein
respondents) and the opposition filed in relation thereto and finding that the defendant failed to file the
necessary supersedeas bond, this court resolved to grant the same for being meritorious. (Rollo, p. 112)

On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the appeal was assigned to
the Regional Trial Court (Manila) Branch XLVI. However, on August 15, 1984, GEE thru counsel filed with the
Regional Trial Court of Manila, a motion to withdraw appeal citing as reason that they are satisfied with the
decision of the Metropolitan Trial Court of Manila, Branch XXVIII, which said court granted in its Order of
August 27, 1984 and the records were remanded to the trial court (Rollo, p. 32; CA Decision). Upon an ex-
parte Motion of ROCES, the trial court issued an Alias Writ of Execution dated February 25, 1985 (Rollo, p.
104; Annex "D" of Petitioner's Memorandum), which was implemented on February 27, 1985. GEE thru
counsel filed a motion to quash the writ of execution and notice of levy and an urgent Ex-parte Supplemental
Motion for the issuance of a restraining order, on March 7, and 20, 1985, respectively. On March 21, 1985, the
lower court issued a restraining order to the sheriff to hold the execution of the judgment pending hearing on
the motion to quash the writ of execution (Rollo, p. 22; RTC Decision). While said motion was pending
resolution, GEE filed a Petition for Relief from judgment before another court, Regional Trial Court of Manila,
Branch IX, which petition was docketed as Civil Case No. 80-30019, but the petition was dismissed and the
injunctive writ issued in connection therewith set aside. Both parties appealed to the Court of Appeals; GEE
on the order of dismissal and Roces on denial of his motion for indemnity, both docketed as CA-G.R. No.
15873-CV. Going back to the original case, the Metropolitan Trial Court after hearing and disposing some
other incidents, promulgated the questioned Resolution, dated April 8, 1985, the dispositive portion of which
reads as follows:

Premises considered, the motion to quash the writ is hereby denied for lack of merit.

The restraining orders issued on March 11 and 23, 1985 are hereby recalled, lifted and set aside. (Rollo, p. 20,
MTC Decision)

GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces moved to dismiss the
appeal but the Court denied the motion. On certiorari, the Court of Appeals dismissed Roces' petition and
remanded the case to the RTC. Meantime, Branch IX became vacant and the case was re-raffled to Branch
XLIV.

On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million evidenced by
Exhibit "I" and another P1 million evidenced by the pacto de retro sale instrument (Exhibit "2") were in full
satisfaction of the judgment obligation, reversed the decision of the Municipal Trial Court, the dispositive
portion of which reads:

Premises considered, judgment is hereby rendered reversing the Resolution appealed from quashing the writ
of execution and ordering the cancellation of the notice of levy and declaring the judgment debt as having
been fully paid and/or Liquidated. (Rollo, p. 29).

On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court and reinstated the
Resolution of the Metropolitan Trial Court of Manila, the dispositive portion of which is as follows:

WHEREFORE, the judgment appealed from is hereby REVERSED and the Resolution dated April 8, 1985, of
the Metropolitan Trial Court of Manila Branch XXXIII is hereby REINSTATED. No pronouncement as to costs.
(Rollo, p. 40).

GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this petition.

The main issue in this case is whether or not there was full satisfaction of the judgment debt in favor of
respondent corporation which would justify the quashing of the Writ of Execution.

A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any of said exhibits
was there any writing alluding to or referring to any settlement between the parties of petitioners' judgment
obligation (Rollo, pp. 45-48).

Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or partial, of the
judgment obligation. Likewise, there is no indication in the pacto de retro sale which was drawn in favor of
Jesus Marcos Roces and Marcos V. Roces and not the respondent corporation, that the obligation embodied
therein had something to do with petitioners' judgment obligation with respondent corporation.
Finding that the common exhibit, Exhibit 1/A had been signed by persons other than judgment creditors
(Roces-Reyes Realty, Inc.) coupled with the fact that said exhibit was not even alleged by GEE and Lim Ka Ping
in their original motion to quash the alias writ of execution (Rollo, p. 37) but produced only during the
hearing (Ibid.) which production resulted in petitioners having to claim belatedly that there was an
"overpayment" of about half a million pesos (Rollo, pp. 25-27) and remarking on the utter absence of any
writing in Exhibits "1/A" and "2/B" to indicate payment of the judgment debt, respondent Appellate Court
correctly concluded that there was in fact no payment of the judgment debt. As aptly observed by the said
court:

What immediately catches one's attention is the total absence of any writing alluding to or referring to any
settlement between the parties of private respondents' (petitioners') judgment obligation. In moving for the
dismissal of the appeal Lim Ka Ping who was then assisted by counsel simply stated that defendants (herein
petitioners) are satisfied with the decision of the Metropolitan Trial Court (Records of CA, p. 54).

Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution and Notice of Levy
dated March 7, 1985, there is absolutely no reference to the alleged payment of one million pesos as
evidenced by Exhibit 1 dated September 20, 1984. As pointed out by petitioner (respondent corporation) this
was brought out by Linda Panutat, Manager of Good Earth only in the course of the latter's testimony. (Rollo,
p. 37)

Article 1240 of the Civil Code of the Philippines provides that:

Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its successor in
interest nor is there positive evidence that the payment was made to a person authorized to receive it. No
such proof was submitted but merely inferred by the Regional Trial Court (Rollo, p. 25) from Marcos Roces
having signed the Lease Contract as President which was witnessed by Jesus Marcos Roces. The latter,
however, was no longer President or even an officer of Roces-Reyes Realty, Inc. at the time he received the
money (Exhibit "1") and signed the sale with pacto de retro (Exhibit "2"). He, in fact, denied being in
possession of authority to receive payment for the respondent corporation nor does the receipt show that he
signed in the same capacity as he did in the Lease Contract at a time when he was President for respondent
corporation (Rollo, p. 20, MTC decision).

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

A corporation has a personality distinct and separate from its individual stockholders or members. Being an
officer or stockholder of a corporation does not make one's property also of the corporation, and vice-versa,
for they are separate entities (Traders Royal Bank v. CA-G.R. No. 78412, September 26, 1989; Cruz v. Dalisay,
152 SCRA 482). Shareowners are in no legal sense the owners of corporate property (or credits) which is
owned by the corporation as a distinct legal person (Concepcion Magsaysay-Labrador v. CA-G.R. No. 58168,
December 19, 1989). As a consequence of the separate juridical personality of a corporation, the corporate
debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of the
corporation (Prof. Jose Nolledo's "The Corporation Code of the Philippines, p. 5, 1988 Edition, citing Professor
Ballantine).

The absence of a note to evidence the loan is explained by Jesus Marcos Roces who testified that the IOU was
subsequently delivered to private respondents (Rollo, pp. 97-98). Contrary to the Regional Trial Court's
premise that it was incumbent upon respondent corporation to prove that the amount was delivered to the
Roces brothers in the payment of the loan in the latter's favor, the delivery of the amount to and the receipt
thereof by the Roces brothers in their names raises the presumption that the said amount was due to
them.1âwphi1 There is a disputable presumption that money paid by one to the other was due to the latter
(Sec. 5(f) Rule 131, Rules of Court). It is for GEE and Lim Ka Ping to prove otherwise. In other words, it is for
the latter to prove that the payments made were for the satisfaction of their judgment debt and not vice versa.

The fact that at the time payment was made to the two Roces brothers, GEE was also indebted to respondent
corporation for a larger amount, is not supportive of the Regional Trial Court's conclusions that the payment
was in favor of the latter, especially in the case at bar where the amount was not receipted for by respondent
corporation and there is absolutely no indication in the receipt from which it can be reasonably inferred, that
said payment was in satisfaction of the judgment debt. Likewise, no such inference can be made from the
execution of the pacto de retro sale which was not made in favor of respondent corporation but in favor of the
two Roces brothers in their individual capacities without any reference to the judgment obligation in favor of
respondent corporation.

In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the sale with pacto de
retro(Exhibit "2/B") all in the sum of P2 million, far exceeds petitioners' judgment obligation in favor of
respondent corporation in the sum of P1,560,000.00 by P440,000.00, which militates against the claim of
petitioner that the aforesaid amount (P2M) was in full payment of the judgment obligation.

Petitioners' explanation that the excess is interest and advance rentals for an extension of the lease contract
(Rollo, pp. 25-28) is belied by the absence of any interest awarded in the case and of any agreement as to the
extension of the lease nor was there any such pretense in the Motion to Quash the Alias Writ of Execution.

Petitioners' averments that the respondent court had gravely abused its discretion in arriving at the assailed
factual findings as contrary to the evidence and applicable decisions of this Honorable Court are therefore,
patently unfounded. Respondent court was correct in stating that it "cannot go beyond what appears in the
documents submitted by petitioners themselves (Exhibits "1" and "2") in the absence of clear and convincing
evidence" that would support its claim that the judgment obligation has indeed been fully satisfied which
would warrant the quashal of the Alias Writ of Execution.

It has been an established rule that when the existence of a debt is fully established by the evidence (which
has been done in this case), the burden of proving that it has been extinguished by payment devolves upon
the debtor who offers such a defense to the claim of the plaintiff creditor (herein respondent corporation)
(Chua Chienco v. Vargas, 11 Phil. 219; Ramos v. Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30 Phil. 365). For
indeed, it is well-entrenched in Our jurisprudence that each party in a case must prove his own affirmative
allegations by the degree of evidence required by law (Stronghold Insurance Co. v. CA, G.R. No. 83376, May
29,1989; Tai Tong Chuache & Co. v. Insurance Commission, 158 SCRA 366).

The appellate court cannot, therefore, be said to have gravely abused its discretion in finding lack of
convincing and reliable evidence to establish payment of the judgment obligation as claimed by petitioner.
The burden of evidence resting on the petitioners to establish the facts upon which their action is premised
has not been satisfactorily discharged and therefore, they have to bear the consequences.

PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of the Respondent court is hereby
AFFIRMED, reinstating the April 8, 1985 Resolution of the Metropolitan Trial Court of Manila.

SO ORDERED.

2. 152 SCRA 482

Adm. Matter No. R-181-P July 31, 1987

ADELIO C. CRUZ, complainant,

vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila, respondents.

RESOLUTION

FERNAN, J.:

In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged Quiterio L. Dalisay, Senior Deputy Sheriff of
Manila, with "malfeasance in office, corrupt practices and serious irregularities" allegedly committed as
follows:

1. Respondent sheriff attached and/or levied the money belonging to complainant Cruz when he was
not himself the judgment debtor in the final judgment of NLRC NCR Case No. 8-12389-91 sought to be
enforced but rather the company known as "Qualitrans Limousine Service, Inc.," a duly registered
corporation; and,

2. Respondent likewise caused the service of the alias writ of execution upon complainant who is a
resident of Pasay City, despite knowledge that his territorial jurisdiction covers Manila only and does not
extend to Pasay City.

In his Comments, respondent Dalisay explained that when he garnished complainant's cash deposit at the
Philtrust bank, he was merely performing a ministerial duty. While it is true that said writ was addressed to
Qualitrans Limousine Service, Inc., yet it is also a fact that complainant had executed an affidavit before the
Pasay City assistant fiscal stating that he is the owner/president of said corporation and, because of that
declaration, the counsel for the plaintiff in the labor case advised him to serve notice of garnishment on the
Philtrust bank.

On November 12, 1984, this case was referred to the Executive Judge of the Regional Trial Court of Manila for
investigation, report and recommendation.

Prior to the termination of the proceedings, however, complainant executed an affidavit of desistance stating
that he is no longer interested in prosecuting the case against respondent Dalisay and that it was just a
"misunderstanding" between them. Upon respondent's motion, the Executive Judge issued an order dated
May 29, 1986 recommending the dismissal of the case.

It has been held that the desistance of complainant does not preclude the taking of disciplinary action against
respondent. Neither does it dissuade the Court from imposing the appropriate corrective sanction. One who
holds a public position, especially an office directly connected with the administration of justice and the
execution of judgments, must at all times be free from the appearance of impropriety. 1

We hold that respondent's actuation in enforcing a judgment against complainant who is not the judgment
debtor in the case calls for disciplinary action. Considering the ministerial nature of his duty in enforcing
writs of execution, what is incumbent upon him is to ensure that only that portion of a decision ordained or
decreed in the dispositive part should be the subject of execution. 2 No more, no less. That the title of the case
specifically names complainant as one of the respondents is of no moment as execution must conform to that
directed in the dispositive portion and not in the title of the case.

The tenor of the NLRC judgment and the implementing writ is clear enough. It directed Qualitrans Limousine
Service, Inc. to reinstate the discharged employees and pay them full backwages. Respondent, however, chose
to "pierce the veil of corporate entity" usurping a power belonging to the court and assumed improvidently
that since the complainant is the owner/president of Qualitrans Limousine Service, Inc., they are one and the
same. It is a well-settled doctrine both in law and in equity that as a legal entity, a corporation has a
personality distinct and separate from its individual stockholders or members. The mere fact that one is
president of a corporation does not render the property he owns or possesses the property of the
corporation, since the president, as individual, and the corporation are separate entities.3
Anent the charge that respondent exceeded his territorial jurisdiction, suffice it to say that the writ of
execution sought to be implemented was dated July 9, 1984, or prior to the issuance of Administrative
Circular No. 12 which restrains a sheriff from enforcing a court writ outside his territorial jurisdiction
without first notifying in writing and seeking the assistance of the sheriff of the place where execution shall
take place.

ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio L. Dalisay NEGLIGENT in the enforcement of the
writ of execution in NLRC Case-No. 8-12389-91, and a fine equivalent to three [3] months salary is hereby
imposed with a stern warning that the commission of the same or similar offense in the future will merit a
heavier penalty. Let a copy of this Resolution be filed in the personal record of the respondent.

SO ORDERED.

3. G.R. No. 120135

G.R. No. 120135 March 31, 2003

BANK OF AMERICA NT & SA, BANK OF AMERICA INTERNATIONAL, LTD., petitioners,

vs.

COURT OF APPEALS, HON. MANUEL PADOLINA, EDUARDO LITONJUA, SR., and AURELIO K. LITONJUA, JR.,
respondents.

AUSTRIA-MARTINEZ, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the November 29, 1994
decision of the Court of Appeals1 and the April 28, 1995 resolution denying petitioners' motion for
reconsideration.

The factual background of the case is as follows:

On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed a Complaint 2
before the Regional Trial Court of Pasig against the Bank of America NT&SA and Bank of America
International, Ltd. (defendant banks for brevity) alleging that: they were engaged in the shipping business;
they owned two vessels: Don Aurelio and El Champion, through their wholly-owned corporations; they
deposited their revenues from said business together with other funds with the branches of said banks in the
United Kingdom and Hongkong up to 1979; with their business doing well, the defendant banks induced them
to increase the number of their ships in operation, offering them easy loans to acquire said vessels; 3
thereafter, the defendant banks acquired, through their (Litonjuas') corporations as the borrowers: (a) El
Carrier4; (b) El General5; (c) El Challenger6; and (d) El Conqueror7; the vessels were registered in the names
of their corporations; the operation and the funds derived therefrom were placed under the complete and
exclusive control and disposition of the petitioners;8 and the possession the vessels was also placed by
defendant banks in the hands of persons selected and designated by them (defendant banks). 9

The Litonjuas claimed that defendant banks as trustees did not fully render an account of all the income
derived from the operation of the vessels as well as of the proceeds of the subsequent foreclosure sale; 10
because of the breach of their fiduciary duties and/or negligence of the petitioners and/or the persons
designated by them in the operation of private respondents' six vessels, the revenues derived from the
operation of all the vessels declined drastically; the loans acquired for the purchase of the four additional
vessels then matured and remained unpaid, prompting defendant banks to have all the six vessels, including
the two vessels originally owned by the private respondents, foreclosed and sold at public auction to answer
for the obligations incurred for and in behalf of the operation of the vessels; they (Litonjuas) lost sizeable
amounts of their own personal funds equivalent to ten percent (10%) of the acquisition cost of the four
vessels and were left with the unpaid balance of their loans with defendant banks. 11 The Litonjuas prayed for
the accounting of the revenues derived in the operation of the six vessels and of the proceeds of the sale
thereof at the foreclosure proceedings instituted by petitioners; damages for breach of trust; exemplary
damages and attorney's fees.12

Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and lack of cause of action
against them.13

On December 3, 1993, the trial court issued an Order denying the Motion to Dismiss, thus:

"WHEREFORE, and in view of the foregoing consideration, the Motion to Dismiss is hereby DENIED. The
defendant is therefore, given a period of ten (10) days to file its Answer to the complaint.

"SO ORDERED."14

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

Hence, herein petition anchored on the following grounds:

"1. RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT THE SEPARATE
PERSONALITIES OF THE PRIVATE RESPONDENTS (MERE STOCKHOLDERS) AND THE FOREIGN
CORPORATIONS (THE REAL BORROWERS) CLEARLY SUPPORT, BEYOND ANY DOUBT, THE PROPOSITION
THAT THE PRIVATE RESPONDENTS HAVE NO PERSONALITIES TO SUE.

"2. THE RESPONDENT COURT OF APPEALS FAILED TO REALIZE THAT WHILE THE PRINCIPLE OF FORUM
NON CONVENIENS IS NOT MANDATORY, THERE ARE, HOWEVER, SOME GUIDELINES TO FOLLOW IN
DETERMINING WHETHER THE CHOICE OF FORUM SHOULD BE DISTURBED. UNDER THE CIRCUMSTANCES
SURROUNDING THE INSTANT CASE, DISMISSAL OF THE COMPLAINT ON THE GROUND OF FORUM NON-
CONVENIENS IS MORE APPROPRIATE AND PROPER.

"3. THE PRINCIPLE OF RES JUDICATA IS NOT LIMITED TO FINAL JUDGMENT IN THE PHILIPPINES. IN FACT,
THE PENDENCY OF FOREIGN ACTION MAY BE THE LEGAL BASIS FOR THE DISMISSAL OF THE COMPLAINT
FILED BY THE PRIVATE RESPONDENT. COROLLARY TO THIS, THE RESPONDENT COURT OF APPEALS
FAILED TO CONSIDER THE FACT THAT PRIVATE RESPONDENTS ARE GUILTY OF FORUM SHOPPING." 18

As to the first assigned error: Petitioners argue that the borrowers and the registered owners of the vessels
are the foreign corporations and not private respondents Litonjuas who are mere stockholders; and that the
revenues derived from the operations of all the vessels are deposited in the accounts of the corporations.
Hence, petitioners maintain that these foreign corporations are the legal entities that have the personalities to
sue and not herein private respondents; that private respondents, being mere shareholders, have no claim on
the vessels as owners since they merely have an inchoate right to whatever may remain upon the dissolution
of the said foreign corporations and after all creditors have been fully paid and satisfied; 19 and that while
private respondents may have allegedly spent amounts equal to 10% of the acquisition costs of the vessels in
question, their 10% however represents their investments as stockholders in the foreign corporations. 20

Anent the second assigned error, petitioners posit that while the application of the principle of forum non
conveniens is discretionary on the part of the Court, said discretion is limited by the guidelines pertaining to
the private as well as public interest factors in determining whether plaintiffs' choice of forum should be
disturbed, as elucidated in Gulf Oil Corp. vs. Gilbert21 and Piper Aircraft Co. vs. Reyno,22 to wit:

"Private interest factors include: (a) the relative ease of access to sources of proof; (b) the availability of
compulsory process for the attendance of unwilling witnesses; (c) the cost of obtaining attendance of willing
witnesses; or (d) all other practical problems that make trial of a case easy, expeditious and inexpensive.
Public interest factors include: (a) the administrative difficulties flowing from court congestion; (b) the local
interest in having localized controversies decided at home; (c) the avoidance of unnecessary problems in
conflict of laws or in the application of foreign law; or (d) the unfairness of burdening citizens in an unrelated
forum with jury duty."23

In support of their claim that the local court is not the proper forum, petitioners allege the following:

"i) The Bank of America Branches involved, as clearly mentioned in the Complaint, are based in Hongkong
and England. As such, the evidence and the witnesses are not readily available in the Philippines;

"ii) The loan transactions were obtained, perfected, performed, consummated and partially paid outside the
Philippines;

"iii) The monies were advanced outside the Philippines. Furthermore, the mortgaged vessels were part of an
offshore fleet, not based in the Philippines;

"iv) All the loans involved were granted to the Private Respondents' foreign CORPORATIONS;

"v) The Restructuring Agreements were ALL governed by the laws of England;

"vi) The subsequent sales of the mortgaged vessels and the application of the sales proceeds occurred and
transpired outside the Philippines, and the deliveries of the sold mortgaged vessels were likewise made
outside the Philippines;

"vii) The revenues of the vessels and the proceeds of the sales of these vessels were ALL deposited to the
Accounts of the foreign CORPORATIONS abroad; and

"viii) Bank of America International Ltd. is not licensed nor engaged in trade or business in the Philippines." 24

Petitioners argue further that the loan agreements, security documentation and all subsequent restructuring
agreements uniformly, unconditionally and expressly provided that they will be governed by the laws of
England;25that Philippine Courts would then have to apply English law in resolving whatever issues may be
presented to it in the event it recognizes and accepts herein case; that it would then be imposing a significant
and unnecessary expense and burden not only upon the parties to the transaction but also to the local court.
Petitioners insist that the inconvenience and difficulty of applying English law with respect to a wholly
foreign transaction in a case pending in the Philippines may be avoided by its dismissal on the ground of
forum non conveniens. 26

Finally, petitioners claim that private respondents have already waived their alleged causes of action in the
case at bar for their refusal to contest the foreign civil cases earlier filed by the petitioners against them in
Hongkong and England, to wit:

"1.) Civil action in England in its High Court of Justice, Queen's Bench Division Commercial Court (1992-Folio
No. 2098) against (a) LIBERIAN TRANSPORT NAVIGATION. SA.; (b) ESHLEY COMPANIA NAVIERA SA., (c) EL
CHALLENGER SA; (d) ESPRIONA SHIPPING CO. SA; (e) PACIFIC NAVIGATOS CORP. SA; (f) EDDIE
NAVIGATION CORP. SA; (g) EDUARDO K. LITONJUA & (h) AURELIO K. LITONJUA.

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

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

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

and that private respondents' alleged cause of action is already barred by the pendency of another action or
by litis pendentia as shown above.27

On the other hand, private respondents contend that certain material facts and pleadings are omitted and/or
misrepresented in the present petition for certiorari; that the prefatory statement failed to state that part of
the security of the foreign loans were mortgages on a 39-hectare piece of real estate located in the
Philippines;28 that while the complaint was filed only by the stockholders of the corporate borrowers, the
latter are wholly-owned by the private respondents who are Filipinos and therefore under Philippine laws,
aside from the said corporate borrowers being but their alter-egos, they have interests of their own in the
vessels.29 Private respondents also argue that the dismissal by the Court of Appeals of the petition for
certiorari was justified because there was neither allegation nor any showing whatsoever by the petitioners
that they had no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law from the
Order of the trial judge denying their Motion to Dismiss; that the remedy available to the petitioners after
their Motion to Dismiss was denied was to file an Answer to the complaint; 30 that as upheld by the Court of
Appeals, the decision of the trial court in not applying the principle of forum non conveniens is in the lawful
exercise of its discretion.31 Finally, private respondents aver that the statement of petitioners that the
doctrine of res judicata also applies to foreign judgment is merely an opinion advanced by them and not
based on a categorical ruling of this Court;32 and that herein private respondents did not actually participate
in the proceedings in the foreign courts.33

We deny the petition for lack of merit.

It is a well-settled rule that the order denying the motion to dismiss cannot be the subject of petition for
certiorari. Petitioners should have filed an answer to the complaint, proceed to trial and await judgment
before making an appeal. As repeatedly held by this Court:

"An order denying a motion to dismiss is interlocutory and cannot be the subject of the extraordinary petition
for certiorari or mandamus. The remedy of the aggrieved party is to file an answer and to interpose as
defenses the objections raised in his motion to dismiss, proceed to trial, and in case of an adverse decision, to
elevate the entire case by appeal in due course. xxx Under certain situations, recourse to certiorari or
mandamus is considered appropriate, i.e., (a) when the trial court issued the order without or in excess of
jurisdiction; (b) where there is patent grave abuse of discretion by the trial court; or (c) appeal would not
prove to be a speedy and adequate remedy as when an appeal would not promptly relieve a defendant from
the injurious effects of the patently mistaken order maintaining the plaintiff's baseless action and compelling
the defendant needlessly to go through a protracted trial and clogging the court dockets by another futile
case."34

Records show that the trial court acted within its jurisdiction when it issued the assailed Order denying
petitioners' motion to dismiss. Does the denial of the motion to dismiss constitute a patent grave abuse of
discretion? Would appeal, under the circumstances, not prove to be a speedy and adequate remedy? We will
resolve said questions in conjunction with the issues raised by the parties.

First issue. Did the trial court commit grave abuse of discretion in refusing to dismiss the complaint on the
ground that plaintiffs have no cause of action against defendants since plaintiffs are merely stockholders of
the corporations which are the registered owners of the vessels and the borrowers of petitioners?

No. Petitioners' argument that private respondents, being mere stockholders of the foreign corporations,
have no personalities to sue, and therefore, the complaint should be dismissed, is untenable. A case is
dismissible for lack of personality to sue upon proof that the plaintiff is not the real party-in-interest. Lack of
personality to sue can be used as a ground for a Motion to Dismiss based on the fact that the complaint, on the
face thereof, evidently states no cause of action.35 In San Lorenzo Village Association, Inc. vs. Court of
Appeals,36 this Court clarified that a complaint states a cause of action where it contains three essential
elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or omission of the defendant in violation of said legal right. If these elements are
absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of
action.37 To emphasize, it is not the lack or absence of cause of action that is a ground for dismissal of the
complaint but rather the fact that the complaint states no cause of action. 38"Failure to state a cause of action"
refers to the insufficiency of allegation in the pleading, unlike "lack of cause of action" which refers to the
insufficiency of factual basis for the action. "Failure to state a cause of action" may be raised at the earliest
stages of an action through a motion to dismiss the complaint, while "lack of cause of action" may be raised
any time after the questions of fact have been resolved on the basis of stipulations, admissions or evidence
presented.39

In the case at bar, the complaint contains the three elements of a cause of action. It alleges that: (1) plaintiffs,
herein private respondents, have the right to demand for an accounting from defendants (herein petitioners),
as trustees by reason of the fiduciary relationship that was created between the parties involving the vessels
in question; (2) petitioners have the obligation, as trustees, to render such an accounting; and (3) petitioners
failed to do the same.

Petitioners insist that they do not have any obligation to the private respondents as they are mere
stockholders of the corporation; that the corporate entities have juridical personalities separate and distinct
from those of the private respondents. Private respondents maintain that the corporations are wholly owned
by them and prior to the incorporation of such entities, they were clients of petitioners which induced them
to acquire loans from said petitioners to invest on the additional ships.

We agree with private respondents. As held in the San Lorenzo case,40

"xxx assuming that the allegation of facts constituting plaintiffs' cause of action is not as clear and categorical
as would otherwise be desired, any uncertainty thereby arising should be so resolved as to enable a full
inquiry into the merits of the action."

As this Court has explained in the San Lorenzo case, such a course, would preclude multiplicity of suits which
the law abhors, and conduce to the definitive determination and termination of the dispute. To do otherwise,
that is, to abort the action on account of the alleged fatal flaws of the complaint would obviously be indecisive
and would not end the controversy, since the institution of another action upon a revised complaint would
not be foreclosed.41

Second Issue. Should the complaint be dismissed on the ground of forum non-conveniens?

No. The doctrine of forum non-conveniens, literally meaning 'the forum is inconvenient', emerged in private
international law to deter the practice of global forum shopping, 42 that is to prevent non-resident litigants
from choosing the forum or place wherein to bring their suit for malicious reasons, such as to secure
procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more
friendly venue. Under this doctrine, a court, in conflicts of law cases, may refuse impositions on its
jurisdiction where it is not the most "convenient" or available forum and the parties are not precluded from
seeking remedies elsewhere.43

Whether a suit should be entertained or dismissed on the basis of said doctrine depends largely upon the
facts of the particular case and is addressed to the sound discretion of the trial court. 44 In the case of
Communication Materials and Design, Inc. vs. Court of Appeals,45 this Court held that "xxx [a Philippine Court
may assume jurisdiction over the case if it chooses to do so; provided, that the following requisites are met:
(1) that the Philippine Court is one to which the parties may conveniently resort to; (2) that the Philippine
Court is in a position to make an intelligent decision as to the law and the facts; and, (3) that the Philippine
Court has or is likely to have power to enforce its decision." 46 Evidently, all these requisites are present in the
instant case.

Moreover, this Court enunciated in Philsec. Investment Corporation vs. Court of Appeals, 47 that the doctrine of
forum non conveniens should not be used as a ground for a motion to dismiss because Sec. 1, Rule 16 of the
Rules of Court does not include said doctrine as a ground. This Court further ruled that while it is within the
discretion of the trial court to abstain from assuming jurisdiction on this ground, it should do so only after
vital facts are established, to determine whether special circumstances require the court's desistance; and
that the propriety of dismissing a case based on this principle of forum non conveniens requires a factual
determination, hence it is more properly considered a matter of defense. 48

Third issue. Are private respondents guilty of forum shopping because of the pendency of foreign action?

No. Forum shopping exists where the elements of litis pendentia are present and where a final judgment in
one case will amount to res judicata in the other.49 Parenthetically, for litis pendentia to be a ground for the
dismissal of an action there must be: (a) identity of the parties or at least such as to represent the same
interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the
same acts; and (c) the identity in the two cases should be such that the judgment which may be rendered in
one would, regardless of which party is successful, amount to res judicata in the other. 50

In case at bar, not all the requirements for litis pendentia are present. While there may be identity of parties,
notwithstanding the presence of other respondents, 51 as well as the reversal in positions of plaintiffs and
defendants52, still the other requirements necessary for litis pendentia were not shown by petitioner. It
merely mentioned that civil cases were filed in Hongkong and England without however showing the identity
of rights asserted and the reliefs sought for as well as the presence of the elements of res judicata should one
of the cases be adjudged.

As the Court of Appeals aptly observed:

"xxx [T]he petitioners, by simply enumerating the civil actions instituted abroad involving the parties herein
xxx, failed to provide this Court with relevant and clear specifications that would show the presence of the
above-quoted elements or requisites for res judicata. While it is true that the petitioners in their motion for
reconsideration (CA Rollo, p. 72), after enumerating the various civil actions instituted abroad, did aver that
"Copies of the foreign judgments are hereto attached and made integral parts hereof as Annexes 'B', 'C', 'D'
and 'E'", they failed, wittingly or inadvertently, to include a single foreign judgment in their pleadings
submitted to this Court as annexes to their petition. How then could We have been expected to rule on this
issue even if We were to hold that foreign judgments could be the basis for the application of the
aforementioned principle of res judicata?"53

Consequently, both courts correctly denied the dismissal of herein subject complaint.

WHEREFORE, the petition is DENIED for lack of merit.

Costs against petitioners.

SO ORDERED.

4. 246 SCRA 733

G.R. No. 117932 July 20, 1995

AVON DALE GARMENTS, INC., petitioner,

vs.

NATIONAL LABOR RELATIONS COMMISSION, LILIA DUMANTAY, ET AL., respondents.

RESOLUTION
FRANCISCO, J.:

This special civil action for certiorari seeks to set aside the decision of the National Labor Relations
Commission, dated August 31, 1994, in NLRC CA 005068-93, for allegedly having been rendered with grave
abuse of discretion.

Private respondents were employees of petitioner Avon Dale Garments, Inc. and its predecessor-in-interest,
Avon Dale Shirt Factory. Following a dispute brought about by the rotation of workers, a compromise
agreement was entered into between petitioner and private respondents wherein the latter were terminated
from service and given their corresponding separation pay.

However, upon refusal of the petitioner to include in the computation of private respondents' separation pay
the period during which the latter were employed by Avon Dale Shirt Factory, private respondents filed a
complaint with the labor arbiter claiming a deficiency in their separation pay (docketed as NLRC-NCR-00-02-
00810-93). According to private respondents, their previous employment with petitioner's predecessor-in-
interest, Avon Dale Shirt Factory, should be credited in computing their separation pay considering that Avon
Dale Shirt factory was not dissolved and they were not in turn hired as new employees by Avon Dale
Garments, Inc.

In its decision dated May 14, 1993, the labor arbiter dismissed private respondents' complaint and held that
Avon Dale Shirt Factory and Avon Dale Garments, Inc. are not one and the same entity as the former was in
fact dissolved on December 27, 1978, when it filed its Articles of Dissolution with the Securities and Exchange
Commission.1

Private respondents appealed to the NLRC and the latter reversed the decision of the labor arbiter after
finding that upon dissolution of Avon Dale Shirt Factory, Inc., there was no showing that its terminated
employees, as creditors insofar as their separation pay were concerned, were ever paid. Thus, petitioner
Avon Dale Garments, Inc., as successor-in-interest, was held liable for private respondents' unpaid claim. 2

The instant petition is now brought before us by petitioner Avon Dale Garments, Inc., anchored on the sole
ground that, as a separate and distinct entity, it should not be held liable for private respondents' separation
pay from Avon Dale Shirt Factory.

Pending resolution of the instant petition, counsel for private respondents, instead of filing a comment to the
petition, filed a Manifestation indicating that the parties have already reached an amicable settlement on
December 27, 1994, wherein private respondents were paid their corresponding separation pay, after which,
they executed a waiver and quitclaim.3 It appeared however, upon verification by the Office of the Solicitor
General, that the aforementioned compromise agreement was executed between the parties without the
knowledge and participation of the NLRC.4

The established rule is that compromise agreements involving labor standard cases, like the one entered into
by the parties herein, must be reduced in writing and signed in the presence of the Regional Director or his
duly authorized representative. Otherwise, they are not deemed to be duly executed. 5 For this reason, the
compromise agreement submitted by private respondents' counsel cannot be recognized by this court for
being improperly executed.

Nevertheless, we find the petition to be without merit as the assailed decision is in complete accord with the
law and evidence on record.

Petitioner failed to establish that Avon Dale Garments, Inc., is a separate and distinct entity from Avon Dale
Shirt Factory, absent any showing that there was indeed an actual closure and cessation of the operations of
the latter. The mere filing of the Articles of Dissolution with the Securities and Exchange Commission, without
more, is not enough to support the conclusion that actual dissolution of an entity in fact took place.
On the contrary, the prevailing circumstances in this case indicated that petitioner company is not distinct
from its predecessor Avon Dale Shirt Factory, but in fact merely continued the operations of the latter under
the same owners, the same business venture, at same address 6, and even continued to hire the same
employees (herein private respondents).

Thus, conformably with established jurisprudence, the two entities cannot be deemed as separate and
distinct where there is a showing that one is merely the continuation of the other.7 In fact, even a change in
the corporate name does not make a new corporation, whether effected by a special act or under a general
law, it has no effect on the identity of the corporation, or on its property, rights, or liabilities. 8 Respondent
NLRC therefore, did not commit any grave abuse of discretion in holding that petitioner should likewise
include private respondents' employment with Avon Dale Shirt Factory in computing private respondents'
separation pay as petitioner failed to substantiate its claim that it is a distinct entity.

ACCORDINGLY, the instant petition is hereby DISMISSED.

SO ORDERED.

5. 257 SCRA 149

[G.R. No. 108734. May 29, 1996]

CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First Division);
and Norberto Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar,
Norberto Comendador, Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera, Paquito
Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares,
Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.

DECISION

HERMOSISIMA, JR., J.:

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the
alter ego of a person or of another corporation. Where badges of fraud exist; where public convenience is
defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity
should come to naught. The law in these instances will regard the corporation as a mere association of
persons and, in case of two corporations, merge them into one.

Thus, where a sister corporation is used as a shield to evade a corporations subsidiary liability for damages,
the corporation may not be heard to say that it has a personality separate and distinct from the other
corporation. The piercing of the corporate veil comes into play.

This special civil action ostensibly raises the question of whether the National Labor Relations Commission
committed grave abuse of discretion when it issued a break-open order to the sheriff to be enforced against
personal property found in the premises of petitioners sister company.

Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road,
Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were employed by
said company as laborers, carpenters and riggers.

On November, 1981, private respondents were served individual written notices of termination of
employment by petitioner, effective on November 30, 1981. It was stated in the individual notices that their
contracts of employment had expired and the project in which they were hired had been completed.
Public respondent found it to be, the fact, however, that at the time of the termination of private respondents
employment, the project in which they were hired had not yet been finished and completed. Petitioner had to
engage the services of sub-contractors whose workers performed the functions of private respondents.

Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment
of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner.

On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to reinstate private
respondents and to pay them back wages equivalent to one year or three hundred working days.

On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for
reconsideration filed by petitioner on the ground that the said decision had already become final and
executory.2

On October 16, 1986, the NLRC Research and Information Department made the finding that private
respondents backwages amounted to P199,800.00.3

On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision,
dated December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioners
debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was
turned over to the cashier of the NLRC.

On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect
from herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to
reinstate private respondents to their former positions.

On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on
petitioner through the security guard on duty but the service was refused on the ground that petitioner no
longer occupied the premises.

On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of
execution.

The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated
November 2, 1989:

1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that
they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;

2. Levy was made upon personal properties he found in the premises;

3. Security guards with high-powered guns prevented him from removing the properties he had levied upon. 4

The said special sheriff recommended that a break-open order be issued to enable him to enter petitioners
premises so that he could proceed with the public auction sale of the aforesaid personal properties on
November 7, 1989.

On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging
that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which
he is the Vice-President.

On November 23, 1989, private respondents filed a Motion for Issuance of a Break-Open Order, alleging that
HPPI and petitioner corporation were owned by the same incorporator! stockholders. They also alleged that
petitioner temporarily suspended its business operations in order to evade its legal obligations to them and
that private respondents were willing to post an indemnity bond to answer for any damages which petitioner
and HPPI may suffer because of the issuance of the break-open order.
In support of their claim against HPPI, private respondents presented duly certified copies of the General
Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities and Exchange Commission
(SEC) and the General Information Sheet, dated May 15, 1987, submitted by HPPI to the Securities and
Exchange Commission.

The General Information Sheet submitted by the petitioner1 revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

HPPI P6,999,500.00

Antonio W. Lim 2,900,000.00

Dennis S. Cuyegkeng 300.00

Elisa C. Lim 100,000.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member

Elisa C. Lim Member

Teodulo R. Dino Member

Virgilio O. Casino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa 0. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road

Valenzuela, Metro Manila.5

On the other hand, the General Information Sheet of HPPI revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

Antonio W. Lim P400,000.00

Elisa C. Lim 57,700.00

AWL Trading 455,000.00

Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Elisa C. Lim Member

Dennis S. Cuyegkeng Member

Virgilio O. Casino Member

Teodulo R. Dino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa O. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road, Valenzuela, Metro Manila.6

On February 1, 1990, HPPI filed an Opposition to private respondents motion for issuance of a break-open
order, contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged
that the two corporations are engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm
while petitioner was then engaged in construction.

On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents motion for break-
open order.

Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor
Arbiter, issued a break-open order and directed private respondents to file a bond. Thereafter, it directed the
sheriff to proceed with the auction sale of the properties already levied upon. It dismissed the third-party
claim for lack of merit.

Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated
December 3, 1992.

Hence, the resort to the present petition.

Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its
decision despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of
piercing the corporate veil should not have been applied, in this case, in the absence of any showing that it
created HPPI in order to evade its liability to private respondents. It also contends that HPPI is engaged in the
manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate from
petitioners construction business. Hence, it is of no consequence that petitioner and HPPI shared the same
premises, the same President and the same set of officers and subscribers. 7

We find petitioners contention to be unmeritorious.

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected. 8 But, this separate and distinct
personality of a corporation is merely a fiction created by law for convenience and to promote justice. 9 So,
when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect
fraud or defend crime, or is used as a device to defeat the labor laws, 10 this separate personality of the
corporation may be disregarded or the veil of corporate fiction pierced. 11 This is true likewise when the
corporation is merely an adjunct, a business conduit or an alter ego of another corporation. 12

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and
circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some
probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to
wit:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business.13

The SEC en banc explained the instrumentality rule which the courts have applied in disregarding the
separate juridical personality of corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be
disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled corporation has, so to speak, no separate
mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control
must be shown to have been exercised at the time the acts complained of took place. Moreover, the control
and breach of duty must proximately cause the injury or unjust loss for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of
policy and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation
of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal
rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents piercing the corporate veil. in applying the instrumentality
or alter ego doctrine, the courts are concerned with reality and not form, with how the corporation operated
and the individual defendants relationship to that operation. 14

Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or
a subterfuge is purely one of fact.15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29,
1986, it filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating
that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-
party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355
Maysan Road, Valenzuela, Metro Manila.

Furthermore, the NLRC stated that:

Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of both
corporations. It would also not be amiss to note that both corporations had the same president, the same
board of directors, the same corporate officers, and substantially the same subscribers.

From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-
party claimant shared the same address and/or premises. Under this circumstances, (sic) it cannot be said
that the property levied upon by the sheriff were not of respondents.16

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of
backwages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of
petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that
already attached to petitioner corporation.

The facts in this case are analogous to Claparols v. Court of Industrial Relations 17 where we had the occasion
to rule:

Respondent courts findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30,
1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December
7, 1962, when the latter finally ceased to operate, were not disputed by petitioner. it is very clear that the
latter corporation was a continuation and successor of the first entity x x x. Both predecessors and successor
were owned and controlled by petitioner Eduardo Claparols and there was no break in the succession and
continuity of the same business. This avoiding-the-liability scheme is very patent, considering that 90% of the
subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was owned by
respondent x x x Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were
turned over to the emerging Claparols Steel Corporation.

It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in
the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its
financial obligation to its employees.

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

Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry
to the place where the property subject of execution is located or kept, the judgment creditor may apply to
the Commission or Labor Arbiter concerned for a break-open order.

Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were
complied with. Petitioner and the third-party claimant were given the opportunity to submit evidence in
support of their claim.

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued
by the Labor Arbiter.

Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported
by substantial evidence are binding on this Court and are entitled to great respect, in the absence of showing
of grave abuse of a discretion.18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and
December 3, 1992, are AFFIRMED.

SO ORDERED.

6. 252 SCRA 259

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

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO
RIVERA, petitioners, vs. COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA,
and JOSE JANOLO, respondents.

DECISION

PANGANIBAN, J.:

In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters
and/or in a meeting with the buyers constitute a perfected and enforceable contract of sale over 101 hectares
of land in Sta. Rosa, Laguna? Does the doctrine of apparent authority apply in this case? If so, may the Central
Bank-appointed conservator of Producers Bank (now First Philippine International Bank) repudiate such
apparent authority after said contract has been deemed perfected? During the pendency of a suit for specific
performance, does the filing of a derivative suit by the majority shareholders and directors of the distressed
bank to prevent the enforcement or implementation of the sale violate the ban against forum-shopping?

Simply stated, these are the major questions brought before this Court in the instant Petition for review on
certiorari under Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of the
respondent Court of Appeals[1] in CA-G.R. CV No. 35756 and the Resolution promulgated June 14, 1994
denying the motion for reconsideration. The dispositive portion of the said Decision reads:

WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded under
paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof to
P75,000.00, to be assessed against defendant bank. In all other aspects, said decision is hereby AFFIRMED.

All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein and
hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.

Costs against appellant bank.

The dispositive portion of the trial courts[2] decision dated July 10, 1991, on the other hand, is as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the
defendants as follows:

1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at
Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by and embraced in Transfer
Certificates of Title Nos. T-106932 to T-106937, inclusive, of the Land Records of Laguna, between the
plaintiffs as buyers and the defendant Producers Bank for an agreed price of Five and One Half Million
(P5,500,000.00) Pesos;

2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from the
plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the
aforementioned six (6) parcels of land, and to immediately deliver to the plaintiffs the owners copies of T.C.T.
Nos. T-106932 to T-106937, inclusive, for purposes of registration of the same deed and transfer of the six (6)
titles in the names of the plaintiffs;

3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the
sums of P 200,000.00 each in moral damages;

4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P 100,000.00 as exemplary
damages;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by
way of attorneys fees;

6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages in the
amount of P20,000.00;

With costs against the defendants.

After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition
was given due course in a Resolution dated January 18, 1995. Thence, the parties filed their respective
memoranda and reply memoranda. The First Division transferred this case to the Third Division per
resolution dated October 23, 1995. After carefully deliberating on the aforesaid submissions, the Court
assigned the case to the undersigned ponente for the writing of this Decision.

The Parties

Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank,
for brevity) is a banking institution organized and existing under the laws of the Republic of the Philippines.
Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all times material to this
case, Head Manager of the Property Management Department of the petitioner Bank.

Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original
plaintiffs-appellees Demetrio Demetria and Jose Janolo.

Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside
through this petition.

The Facts

The facts of this case are summarized in the respondent Courts Decision,[3] as follows:

(1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six
parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna, and covered by
Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME
Investment and Development Corporation which had them mortgaged with the bank as collateral fora loan.
The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus
initiated negotiations for that purpose.

(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME Investments legal counsel,
Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management Department of the
defendant bank. The meeting was held pursuant to plaintiffs plan to buy the property (TSN of Jan. 16, 1990,
pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal
purchase offer to the bank through a letter dated August 30, 1987 (Exh. B), as follows:

August 30, 1987

The Producers Bank of the Philippines

Makati, Metro Manila

Attn. Mr. Mercurio Q. Rivera

Manager, Property Management Dept.

Gentlemen:

I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder
located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less.

TCT NO. AREA

T-106932 113,580 sq.m.

T-106933 70,899 sq.m.

T-106934 52,246 sq.m.

T-106935 96,768 sq.m.

T-106936 187,114 sq.m.

T-106937 481,481 sq.m.

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

Kindly contact me at Telephone Number 921-1344.

(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter which is
hereunder quoted (Exh. C):

September 1, 1987

J-P M-P GUTIERREZ ENTERPRISES

142 Charisma St., Doa Andres II

Rosario, Pasig, Metro Manila

Attention: JOSE O. JANOLO Dear Sir:

Dear Sir:

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly
owned by Byme industrial Corp.). Please be informed however that the banks counter-offer is at P5.5 million
for more than 101 hectares on lot basis.

We shall be very glad to hear your position on the matter.

Best regards.

(4)On September 17, 1987, plaintiff Janolo, responding to Riveras aforequoted reply, wrote (Exh.

September 17, 1987

Producers Bank

Paseo de Roxas
Makati, Metro Manila

Attention: Mr. Mercurio Rivera

Gentlemen:

In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa Laguna, I
would like to amend my previous offer and I now propose to buy the said lot at P4.250 million in CASH.

Hoping that this proposal meets your satisfaction.

(5) There was no reply to Janolos foregoing letter of September 17, 1987. What took place was a meeting on
September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera
as well as Fajardo, the BYME lawyer, attended the meeting. Two days later, or on September 30, 1987,
plaintiff Janolo sent to the bank, through Rivera, the following letter (Exh. E):

The Producers Bank of the Philippines

Paseo de Roxas, Makati

Metro Manila

Attention: Mr. Mercurio Rivera

Re: 101 Hectares of Land in Sta. Rosa, Laguna

Gentlemen:

Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your
offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme In-vestment, for a total
price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).

Thank you.

(6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the
Central Bank since 1984) was replaced by an Acting Conservator in the person of defendant Leonida T.
Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. F):

Attention: Atty. Demetrio Demetria

Dear Sir:

Your proposal to buy the properties the bank foreclosed from Byme Investment Corp. located at Sta. Rosa,
Laguna is under study yet as of this time by the newly created committee for submission to the newly
designated Acting Conservator of the bank.

For your information.

(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with
what plaintiff considered as a perfected contract of sale, which demands were in one form or another refused
by the bank. As detailed by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to
defendant Rivera (Exhibit G) tendered payment of the amount of P5.5 million pursuant to (our) perfected sale
agreement. Defendants refused to receive both the payment and the letter. Instead, the parcels of land
involved in the transaction were advertised by the bank for sale to any interested buyer (Exhs. H and H-1).
Plaintiffs demanded the execution by the bank of the documents on what was considered as a perfected
agreement. Thus:

Mr. Mercurio Rivera

Manager, Producers Bank

Paseo de Roxas, Makati

Metro Manila

Dear Mr. Rivera:

This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located
in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to 106937.

From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in
the amount of P5.5 million was accepted by our client thru a letter dated September 30, 1987 and was
received by you on October 5, 1987.

In view of the above circumstances, we believe that an agreement has been perfected. We were also informed
that despite repeated follow-up to consummate the purchase, you now refuse to honor your commitment.
Instead, you have advertised for sale the same lot to others.

In behalf of our client, therefore, we are making this formal demand upon you to consummate and execute the
necessary actions/documentation within three (3) days from your receipt hereof We are ready to remit the
agreed amount of P5.5 million at your advice. Otherwise, we shall be constrained to file the necessary court
action to protect the interest of our client.

We trust that you will be guided accordingly.

(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and stated, in its
communication of December 2, 1987 (Exh. I), that said letter has been referred x x x to the office of our
Conservator for proper disposition. However, no response came from the Acting Conservator. On December
14, 1987, the plaintiffs made a second tender of payment (Exhs. L and L-1), this time through the Acting
Conservator, defendant Encarnacion. Plaintiffs letter reads:

PRODUCERS BANK OF

THE PHILIPPINES

Paseo de Roxas,

Makati, Metro Manila

Attn.: Atty. NIDA ENCARNACION Central Bank Conservator

Gentlemen:

We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No. 258387 in the
amount of P5.5 million as our agreed purchase price of the 101-hectare lot covered by TCT Nos. 106932,
106933, 106934, 106935, 106936 and 106937 and registered under Producers Bank.

This is in connection with the perfected agreement consequent from your offer of P5.5 Million as the
purchase price of the said lots. Please inform us of the date of documentation of the sale immediately.

Kindly acknowledge receipt of our payment.

(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through
counsel, made a final demand for compliance by the bank with its obligations under the considered perfected
contract of sale (Exhibit N). As recounted by the trial court (Original Record, p. 656), in a reply letter dated
May 12, 1988 (Annex 4 of defendants answer to amended complaint), the defendants through Acting
Conservator Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with the
plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that basis, the
defendants justified the refusal of the tenders of payment and the non-compliance with the obligations under
what the plaintiffs considered to be a perfected contract of sale.

(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its
Manager Rivera and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with
the bank resulted in a perfected contract of sale. The defendants took the position that there was no such
perfected sale because the defendant Rivera is not authorized to sell the property, and that there was no
meeting of the minds as to the price.

On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and
Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner of 80% of the Banks
outstanding shares of stock, he had a substantial interest in resisting the complaint. On July 8, 1991, the trial
court issued an order denying the motion to intervene on the ground that it was filed after trial had already
been concluded. It also denied a motion for reconsideration filed thereafter. From the trial courts decision,
the Bank, petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals which
subsequently affirmed with modification the said judgment. Henry Co did not appeal the denial of his motion
for intervention.

In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria
and Janolo, in view of the assignment of the latters rights in the matter in litigation to said private respondent.

On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other
stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action
(hereafter, the Second Case) -purportedly a derivative suit - with the Regional Trial Court of Makati, Branch
134, docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo to declare any perfected
sale of the property as unenforceable and to stop Ejercito from enforcing or implementing the sale. [4] In his
answer, Janolo argued that the Second Case was barred by litis pendentia by virtue of the case then pending
in the Court of Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a Motion for Leave
of Court to Dismiss the Case Without Prejudice. Private respondent opposed this motion on the ground,
among others, that plaintiffs act of forum shopping justifies the dismissal of both cases, with prejudice. [5]
Private respondent, in his memorandum, averred that this motion is still pending in the Makati RTC.

In their Petition[6] and Memorandum,[7] petitioners summarized their position as follows:

I.

The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in substitution
of Demetria and Janolo) and the bank.

II.

The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties.

III.

The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke
acts of previous management.

IV.

The findings and conclusions of the Court of Appeals do not conform to the evidence on record.

On the other hand, private respondents prayed for dismissal of the instant suit on the ground [8] that:

I.
Petitioners have engaged in forum shopping.

II.

The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and
may no longer be questioned in this case.

III.

The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo
(substituted by respondent Ejercito) and the bank.

IV.

The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the
agency and the contract, has no authority to revoke the contract of sale.

The Issues

From the foregoing positions of the parties, the issues in this case may be summed up as follows:

1) Was there forum-shopping on the part of petitioner Bank?

2) Was there a perfected contract of sale between the parties?

3) Assuming there was, was the said contract enforceable under the statute of frauds?

4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or
to revoke the said contract?

5) Did the respondent Court commit any reversible error in its findings of facts?

The First Issue: Was There Forum-Shopping?

In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised
Circular No. 28-91 requiring that a party must certify under oath x x x [that] (a) he has not (t)heretofore
commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of
Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no such action or proceeding is
pending in said courts or agencies. A violation of the said circular entails sanctions that include the summary
dismissal of the multiple petitions or complaints. To be sure, petitioners have included a
VERIFICATION/CERTIFICATION in their Petition stating for the record(,) the pendency of Civil Case No. 92-
1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders
of petitioner Bank against the conservator and other defendants but which is the subject of a pending Motion
to Dismiss Without Prejudice.[9]

Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual
forum shopping because the instant petition pending before this Court involves identical parties or interests
represented, rights asserted and reliefs sought (as that) currently pending before the Regional Trial Court,
Makati Branch 134 in the Second Case. In fact, the issues in the two cases are so intertwined that a judgment
or resolution in either case will constitute res judicata in the other.[10]

On the other hand, petitioners explain[11] that there is no forum-shopping because:

1) In the earlier or First Case from which this proceeding arose, the Bank was impleaded as a defendant,
whereas in the Second Case (assuming the Bank is the real party in interest in a derivative suit), it was the
plaintiff;

2) The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances;
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the
Petition identifies the action as a derivative suit, it does not mean that it is one and (t)hat is a legal question
for the courts to decide;

4) Petitioners did not hide the Second Case as they mentioned it in the said VERIFICATION/CERTIFICATION.

We rule for private respondent.

To begin with, forum-shopping originated as a concept in private international law, [12] where non-resident
litigants are given the option to choose the forum or place wherein to bring their suit for various reasons or
excuses, including to secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded
dockets, or to select a more friendly venue. To combat these less than honorable excuses, the principle of
forum non conveniens was developed whereby a court, in conflicts of law cases, may refuse impositions on its
jurisdiction where it is not the most convenient or available forum and the parties are not precluded from
seeking remedies elsewhere.

In this light, Blacks Law Dictionary[13] says that forum-shopping occurs when a party attempts to have his
action tried in a particular court or jurisdiction where he feels he will receive the most favorable judgment or
verdict. Hence, according to Words and Phrases,[14] a litigant is open to the charge of forum shopping
whenever he chooses a forum with slight connection to factual circumstances surrounding his suit, and
litigants should be encouraged to attempt to settle their differences without imposing undue expense and
vexatious situations on the courts.

In the Philippines, forum-shopping has acquired a connotation encompassing not only a choice of venues, as it
was originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice of
venues), the Rules of Court, for example, allow a plaintiff to commence personal actions where the defendant
or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the
election of the plaintiff (Rule 4, Sec. 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of
pursuing civil liabilities independently of the criminal, arising from the same set of facts. A passenger of a
public utility vehicle involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or culpa
criminal - each remedy being available independently of the others - although he cannot recover more than
once.

In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of
his action. This was the original concept of the term forum shopping.

Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the
encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies
simultaneously. This practice had not only resulted to (sic) conflicting adjudications among different courts
and consequent confusion enimical (sic) to an orderly administration of justice. It had created extreme
inconvenience to some of the parties to the action.

Thus, forum-shopping had acquired a different concept - which is unethical professional legal practice. And
this necessitated or had given rise to the formulation of rules and canons discouraging or altogether
prohibiting the practice.[15]

What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for
solving problems has been abused and misused to assure scheming litigants of dubious reliefs.

To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned,
promulgated Circular 28-91. And even before that, the Court had proscribed it in the Interim Rules and
Guidelines issued on January 11, 1983 and had struck down in several cases [16] the inveterate use of this
insidious malpractice. Forum-shopping as the filing of repetitious suits in different courts has been
condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural Resources, et al. vs. Heirs
of Orval Hughes, et al., as a reprehensible manipulation of court processes and proceedings x x x. [17] When
does forum-shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable
opinion (other than by appeal or certiorari) in another. The principle applies not only with respect to suits
filed in the courts but also in connection with litigations commenced in the courts while an administrative
proceeding is pending, as in this case, in order to defeat administrative processes and in anticipation of an
unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, where the
court in which the second suit was brought, has no jurisdiction [18]

The test for determining whether a party violated the rule against forum-shopping has been laid down in the
1986 case of Buan vs. Lopez,[19] also by Chief Justice Narvasa, and that is, forum-shopping exists where the
elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in the
other, as follows:

There thus exists between the action before this Court and RTC Case No. 86-36563 identity of parties, or at
least such parties as represent the same interests in both actions, as well as identity of rights asserted and
relief prayed for, the relief being founded on the same facts, and the identity on the two preceding particulars
is such that any judgment rendered in the other action, will, regardless of which party is successful, amount to
res adjudicata in the action under consideration: all the requisites, in fine, of auter action pendant.

xxx xxx xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563, an identity as regards
parties, or interests represented, rights asserted and relief sought, as well as basis thereof, to a degree
sufficient to give rise to the ground for dismissal known as auter action pendant or lis pendens. That same
identity puts into operation the sanction of twin dismissals just mentioned. The application of this sanction
will prevent any further delay in the settlement of the controversy which might ensue from attempts to seek
reconsideration of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563
promulgated on July 15, 1986, which dismissed the petition upon grounds which appear persuasive.

Consequently, where a litigant (or one representing the same interest or person) sues the same party against
whom another action or actions for the alleged violation of the same right and the enforcement of the same
relief is/are still pending, the defense of litis pendencia in one case is a bar to the others; and, a final judgment
in one would constitute res judicata and thus would cause the dismissal of the rest. In either case, forum
shopping could be cited by the other party as a ground to ask for summary dismissal of the two [20] (or more)
complaints or petitions, and for the imposition of the other sanctions, which are direct contempt of court,
criminal prosecution, and disciplinary action against the erring lawyer.

Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious
that there exist identity of parties or interests represented, identity of rights or causes and identity of reliefs
sought.

Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed
by the buyer (herein private respondent and his predecessors-in-interest) against the seller (herein
petitioners) to enforce the alleged perfected sale of real estate. On the other hand, the complaint [21] in the
Second Case seeks to declare such purported sale involving the same real property as unenforceable as
against the Bank, which is the petitioner herein. In other words, in the Second Case, the majority
stockholders, in representation of the Bank, are seeking to accomplish what the Bank itself failed to do in the
original case in the trial court. In brief, the objective or the relief being sought, though worded differently, is
the same, namely, to enable the petitioner Bank to escape from the obligation to sell the property to
respondent. In Danville Maritime, Inc. vs. Commission on Audit, [22] this Court ruled that the filing by a party of
two apparently different actions, but with the same objective, constituted forum shopping:

In the attempt to make the two actions appear to be different, petitioner impleaded different respondents
therein - PNOC in the case before the lower court and the COA in the case before this Court and sought what
seems to be different reliefs. Petitioner asks this Court to set aside the questioned letter-directive of the COA
dated October 10, 1988 and to direct said body to approve the Memorandum of Agreement entered into by
and between the PNOC and petitioner, while in the complaint before the lower court petitioner seeks to
enjoin the PNOC from conducting a rebidding and from selling to other parties the vessel T/T Andres
Bonifacio, and for an extension of time for it to comply with the paragraph 1 of the memorandum of
agreement and damages. One can see that although the relief prayed for in the two (2) actions are ostensibly
different, the ultimate objective in both actions is the same, that is, the approval of the sale of vessel in favor
of petitioner, and to overturn the letter-directive of the COA of October 10, 1988 disapproving the sale. (italics
supplied)

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

In other words, the filing by the petitioners of the instant special civil action for certiorari and prohibition in
this Court despite the pendency of their action in the Makati Regional Trial Court, is a species of forum-
shopping. Both actions unquestionably involve the same transactions, the same essential facts and
circumstances. The petitioners claim of absence of identity simply because the PCGG had not been impleaded
in the RTC suit, and the suit did not involve certain acts which transpired after its commencement, is
specious. In the RTC action, as in the action before this Court, the validity of the contract to purchase and sell
of September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of
implementing the same (by paying the pledgee banks the amount of their loans, obtaining the release of the
pledged shares, etc.) were the basic issues. So, too, the relief was the same: the prevention of such
implementation and/or the restoration of the status quo ante. When the acts sought to be restrained took
place anyway despite the issuance by the Trial Court of a temporary restraining order, the RTC suit did not
become functus oflcio. It remained an effective vehicle for obtention of relief; and petitioners remedy in the
premises was plain and patent: the filing of an amended and supplemental pleading in the RTC suit, so as to
include the PCGG as defendant and seek nullification of the acts sought to be enjoined but nonetheless done.
The remedy was certainly not the institution of another action in another forum based on essentially the
same facts. The adoption of this latter recourse renders the petitioners amenable to disciplinary action and
both their actions, in this Court as well as in the Court a quo, dismissible.

In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the
plaintiffs in the Second Case (Henry L. Co. et al.) are not name parties in the First Case, they represent the
same interest and entity, namely, petitioner Bank, because:

Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter
in controversy. They are not principally or even subsidiarily liable; much less are they direct parties in the
assailed contract of sale; and

Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a
derivative suit. In the caption itself, petitioners claim to have brought suit for and in behalf of the Producers
Bank of the Philippines.[24] Indeed, this is the very essence of a derivative suit:

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he
holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse
to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder
is regarded as a nominal party, with the corporation as the real party in interest. (Gamboa v. Victoriano, 90
SCRA 40, 47 [1979]; italics supplied).

In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite
strangely, sought to deny that the Second Case was a derivative suit, reasoning that it was brought, not by the
minority shareholders, but by Henry Co et al., who not only own, hold or control over 80% of the outstanding
capital stock, but also constitute the majority in the Board of Directors of petitioner Bank. That being so, then
they really represent the Bank. So, whether they sued derivatively or directly, there is undeniably an identity
of interests/entity represented.

Petitioner also tried to seek refuge in the corporate fiction that the personality of the Bank is separate and
distinct from its shareholders. But the rulings of this Court are consistent: When the fiction is urged as a
means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of
individuals.[25]

In addition to the many cases[26] where the corporate fiction has been disregarded, we now add the instant
case, and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of
the prohibition against forum-shopping. Shareholders, whether suing as the majority in direct actions or as
the minority in a derivative suit, cannot be allowed to trifle with court processes, particularly where, as in this
case, the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and
in using and applying remedies available to it. To rule otherwise would be to encourage corporate litigants to
use their shareholders as fronts to circumvent the stringent rules against forum shopping.

Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming arguendo that there
is identity of parties, causes of action and reliefs sought, because it (the Bank) was the defendant in the (first)
case while it was the plaintiff in the other (Second Case), citing as authority Victronics Computers, Inc. vs.
Regional Trial Court, Branch 63, Makati, etc. et al.,[27] where the Court held:

The rule has not been extended to a defendant who, for reasons known only to him, commences a new action
against the plaintiff - instead of filing a responsive pleading in the other case - setting forth therein, as causes
of action, specific denials, special and affirmative defenses or even counterclaims. Thus, Velhagens and Kings
motion to dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did not
exist in the first place. (italics supplied)

Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the
forum in said case.

Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and the
present suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file any
responsive pleading in the first case. In other words, they did not make any denial or raise any defense or
counter-claim therein. In the case before us however, petitioners filed a responsive pleading to the complaint
- as a result of which, the issues were joined.

Indeed, by praying for affirmative reliefs and interposing counter-claims in their responsive pleadings, the
petitioners became plaintiffs themselves in the original case, giving unto themselves the very remedies they
repeated in the Second Case.

Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the
vexation caused the courts and parties-litigant by a party who asks different courts and/or administrative
agencies to rule on the same or related causes and/or to grant the same or substantially the same reliefs, in
the process creating the possibility of conflicting decisions being rendered by the different fora upon the
same issue. In this case, this is exactly the problem: a decision recognizing the perfection and directing the
enforcement of the contract of sale will directly conflict with a possible decision in the Second Case barring
the parties from enforcing or implementing the said sale. Indeed, a final decision in one would constitute res
judicata in the other.[28]

The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction possible
now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed because
petitioners present counsel entered their appearance only during the proceedings in this Court, and the
Petitions VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the Second
Case to show good faith in observing Circular 28-91. The lawyers who filed the Second Case are not before us;
thus the rudiments of due process prevent us from motu propio imposing disciplinary measures against them
in this Decision. However, petitioners themselves (and particularly Henry Co, et al.) as litigants are
admonished to strictly follow the rules against forum-shopping and not to trifle with court proceedings and
processes. They are warned that a repetition of the same will be dealt with more severely.
Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-
shopping but also because of the substantive issues raised, as will be discussed shortly.

The Second Issue: Was The Contract Perfected?

The respondent Court correctly treated the question of whether or not there was, on the basis of the facts
established, a perfected contract of sale as the ultimate issue. Holding that a valid contract has been
established, respondent Court stated:

There is no dispute that the object of the transaction is that property owned by the defendant bank as
acquired assets consisting of six (6) parcels of land specifically identified under Transfer Certificates of Title
Nos. T-106932 to T-106937. It is likewise beyond cavil that the bank intended to sell the property. As testified
to by the Banks Deputy Conservator, Jose Entereso, the bank was looking for buyers of the property. It is
definite that the plaintiffs wanted to purchase the property and it was precisely for this purpose that they met
with defendant Rivera, Manager of the Property Management Department of the defendant bank, in early
August 1987. The procedure in the sale of acquired assets as well as the nature and scope of the authority of
Rivera on the matter is clearly delineated in the testimony of Rivera himself, which testimony was relied upon
by both the bank and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):

A: The procedure runs this way: Acquired assets was turned over to me and then I published it in the form of
an inter-office memorandum distributed to all branches that these are acquired assets for sale. I was
instructed to advertise acquired assets for sale so on that basis, I have to entertain offer; to accept offer,
formal offer and upon having been offered, I present it to the Committee. I provide the Committee with
necessary information about the property such as original loan of the borrower, bid price during the
foreclosure, total claim of the bank, the appraised value at the time the property is being offered for sale and
then the information which are relative to the evaluation of the bank to buy which the Committee considers
and it is the Committee that evaluate as against the exposure of the bank and it is also the Committee that
submit to the Conservator for final approval and once approved, we have to execute the deed of sale and it is
the Conservator that sign the deed of sale, sir.

The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt
with and talked to the right person. Necessarily, the agenda was the price of the property, and plaintiffs were
dealing with the bank official authorized to entertain offers, to accept offers and to present the offer to the
Committee before which the said official is authorized to discuss information relative to price determination.
Necessarily, too, it being inherent in his authority, Rivera is the officer from whom official information
regarding the price, as determined by the Committee and approved by the Conservator, can be had. And
Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony of plaintiff
Demetria is clear on this point (TSN of May 31, 1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him point-blank
his authority to sell any property?

A: No, sir. Not point blank although it came from him. (W)hen I asked him how long it would take because he
was saying that the matter of pricing will be passed upon by the committee. And when I asked him how long it
will take for the committee to decide and he said the committee meets every week. If I am not mistaken
Wednesday and in about two weeks (sic) time, in effect what he was saying he was not the one who was to
decide. But he would refer it to the committee and he would relay the decision of the committee to me.

Q: Please answer the question.

A: He did not say that he had the authority(.) But he said he would refer the matter to the committee and he
would relay the decision to me and he did just like that.

Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the Head, with
Jose Entereso as one of the members.
What transpired after the meeting of early August 1987 are consistent with the authority and the duties of
Rivera and the banks internal procedure in the matter of the sale of banks assets. As advised by Rivera, the
plaintiffs made a formal offer by a letter dated August 20, 1987 stating that they would buy at the price of
P3.5 Million in cash. The letter was for the attention of Mercurio Rivera who was tasked to convey and accept
such offers. Considering an aspect of the official duty of Rivera as some sort of intermediary between the
plaintiffs-buyers with their proposed buying price on one hand, and the bank Committee, the Conservator
and ultimately the bank itself with the set price on the other, and considering further the discussion of price
at the meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no other logical
conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that the banks counter-
offer is at P5.5 Million for more than 101 hectares on lot basis, such counter-offer price had been determined
by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs offer
for discussion by the Committee of such matters as original loan of borrower, bid price during foreclosure,
total claim of the bank, and market value. Tersely put, under the established facts, the price of P5.5 Million
was, as clearly worded in Riveras letter (Exh. E), the official and definitive price at which the bank was selling
the property.

There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not
discussed by the Committee and that it was merely quoted to start negotiations regarding the price. As
correctly characterized by the trial court, this is not credible. The testimonies of Luis Co and Jose Entereso on
this point are at best equivocal and considering the gratuitous and self-serving character of these
declarations, the banks submission on this point does not inspire belief. Both Co and Entereso, as members of
the Past Due Committee of the bank, claim that the offer of the plaintiff was never discussed by the
Committee. In the same vein, both Co and Entereso openly admit that they seldom attend the meetings of the
Committee. It is important to note that negotiations on the price had started in early August and the plaintiffs
had already offered an amount as purchase price, having been made to understand by Rivera, the official in
charge of the negotiation, that the price will be submitted for approval by the bank and that the banks
decision will be relayed to plaintiffs. From the facts, the amount of P5.5 Million has a definite significance. It is
the official bank price. At any rate, the bank placed its official, Rivera, in a position of authority to accept offers
to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn
around and later say, as it now does, that what Rivera states as the banks action on the matter is not in fact so.
It is a familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly permits one of its
officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the
public as possessing power to do those acts, the corporation will, as against any one who has in good faith
dealt with the corporation through such agent, he estopped from denying his authority (Francisco v. GSIS, 7
SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R.
No. 103957, June 14, 1993).[29]

Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: (1)
Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of
the obligation which is established.

There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of
land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer
Certificates of Title Nos. T-106932 to T-106937. There is, however, a dispute on the first and third requisites.

Petitioners allege that there is no counter-offer made by the Bank, and any supposed counter-offer which
Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by the Bank, there was
nothing for Ejercito (in substitution of Demetria and Janolo) to accept. [30] They disputed the factual basis of
the respondent Courts findings that there was an offer made by Janolo for P3.5 million, to which the Bank
counter-offered P5.5 million. We have perused the evidence but cannot find fault with the said Courts
findings of fact. Verily, in a petition under Rule 45 such as this, errors of fact -if there be any - are, as a rule,
not reviewable. The mere fact that respondent Court (and the trial court as well) chose to believe the
evidence presented by respondent more than that presented by petitioners is not by itself a reversible error.
in fact, such findings merit serious consideration by this Court, particularly where, as in this case, said courts
carefully and meticulously discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the
question of Riveras authority to act and petitioners allegations that the P5.5 million counter-offer was
extinguished by the P4.25 million revised offer of Janolo. Here, there are questions of law which could be
drawn from the factual findings of the respondent Court. They also delve into the contractual elements of
consent and cause.

The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of
apparent authority, with special reference to banks, was laid out in Prudential Bank vs. Court of Appeals, [31]
where it was held that:

Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by
the agent. The agents apparent representation yields to the principals true representation and the contract is
considered as entered into between the principal and the third person (citing National Food Authority vs.
Intermediate Appellate Court, 184 SCRA 166).

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of
the officers in their representative capacity but not for acts outside the scope of their authority (9 C.J.S., p.
417). A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the
frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be
permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom
(10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within the general scope of his
authority even though, in the particular case, the agent is secretly abusing his authority and attempting to
perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota
Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).

Application of these principles is especially necessary because banks have a fiduciary relationship with the
public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith
will be eroded where banks do not exercise strict care in the selection and supervision of its employees,
resulting in prejudice to their depositors.

From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied
authority to act for the Bank in the matter of selling its acquired assets. This evidence includes the following:

(a) The petition itself in par. II-1 (p. 3) states that Rivera was at all times material to this case, Manager of the
Property Management Department of the Bank. By his own admission, Rivera was already the person in
charge of the Banks acquired assets (TSN, August 6, 1990, pp. 8-9);

(b) As observed by respondent Court, the land was definitely being sold by the Bank. And during the initial
meeting between the buyers and Rivera, the latter suggested that the buyers offer should be no less than P3.3
million (TSN, April 26, 1990, pp. 16-17);

(c) Rivera received the buyers letter dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990, p. 11);

(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July
30, p. 11);

(e) Rivera received the letter dated September 17, 1987 containing the buyers proposal to buy the property
for P4.25 million (TSN, July 30, 1990, p. 12);

(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN,
January 16, 1990, p. 18);

(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1987, during which the
Banks offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a
major shareholder and officer of the Bank, confirmed Riveras statement as to the finality of the Banks
counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for
the Bank in relation to parties interested in buying assets owned/acquired by the Bank. In fact, Rivera was
the officer mentioned in the Banks advertisements offering for sale the property in question (cf. Exhs. S and S-
I).

In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et al., [32] the Court, through Justice
Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of the officer
of the Bank of P.I. in charge of acquired assets is borne out by similar circumstances surrounding his dealings
with buyers.

To be sure, petitioners attempted to repudiate Riveras apparent authority through documents and testimony
which seek to establish Riveras actualauthority. These pieces of evidence, however, are inherently weak as
they consist of Riveras self-serving testimony and various inter-office memoranda that purport to show his
limited actual authority, of which private respondent cannot be charged with knowledge. In any event, since
the issue is apparent authority, the existence of which is borne out by the respondent Courts findings, the
evidence of actual authority is immaterial insofar as the liability of a corporation is concerned.[33]

Petitioners also argued that since Demetria and Janolo were experienced lawyers and their law firm had once
acted for the Bank in three criminal cases, they should be charged with actual knowledge of Riveras limited
authority. But the Court of Appeals in its Decision (p. 12) had already made a factual finding that the buyers
had no notice of Riveras actual authority prior to the sale. In fact, the Bank has not shown that they acted as
its counsel in respect to any acquired assets; on the other hand, respondent has proven that Demetria and
Janolo merely associated with a loose aggrupation of lawyers (not a professional partnership), one of whose
members (Atty. Susana Parker) acted in said criminal cases.

Petitioners also alleged that Demetrias and Janolos P4.25 million counter-offer in the letter dated September
17, 1987 extinguished the Banks offer of P5.5 million.[34] They disputed the respondent Courts finding that
there was a meeting of minds when on 30 September 1987 Demetria and Janolo through Annex L (letter
dated September 30, 1987) accepted Riveras counter offer of P5.5 million under Annex J (letter dated
September 17, 1987), citing the late Justice Paras,[35] Art. 1319 of the Civil Code[36] and related Supreme Court
rulings starting with Beaumont vs. Prieto.[37]

However, the above-cited authorities and precedents cannot apply in the instant case because, as found by
the respondent Court which reviewed the testimonies on this point, what was accepted by Janolo in his letter
dated September 30, 1987 was the Banks offer of P5.5 million as confirmed and reiterated to Demetria and
Atty. Jose Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the said letter of
September 30, 1987 begins with (p)ursuant to our discussion last 28 September 1987 x x x.

Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the
September 28, 1987 meeting was meant to have the offerors improve on their position of P5.5 million. [38]
However, both the trial court and the Court of Appeals found petitioners testimonial evidence not credible,
and we find no basis for changing this finding of fact.

Indeed, we see no reason to disturb the lower courts (both the RTC and the CA) common finding that private
respondents evidence is more in keeping with truth and logic - that during the meeting on September 28,
1987, Luis Co and Rivera confirmed that the P5.5 million price has been passed upon by the Committee and
could no longer be lowered (TSN of April 27, 1990, pp. 34-35).[39] Hence, assuming arguendo that the counter-
offer of P4.25 million extinguished the offer of P5.5 million, Luis Cos reiteration of the said P5.5 million price
during the September 28, 1987 meeting revived the said offer. And by virtue of the September 30, 1987 letter
accepting this revived offer, there was a meeting of the minds, as the acceptance in said letter was absolute
and unqualified.

We note that the Banks repudiation, through Conservator Encarnacion, of Riveras authority and action,
particularly the latters counter-offer of P5.5 million, as being unauthorized and illegal came only on May 12,
1988 or more than seven (7) months after Janolos acceptance. Such delay, and the absence of any
circumstance which might have justifiably prevented the Bank from acting earlier, clearly characterizes the
repudiation as nothing more than a last-minute attempt on the Banks part to get out of a binding contractual
obligation.

Taken together, the factual findings of the respondent Court point to an implied admission on the part of the
petitioners that the written offer made on September 1, 1987 was carried through during the meeting of
September 28, 1987. This is the conclusion consistent with human experience, truth and good faith.

It also bears noting that this issue of extinguishment of the Banks offer of P5.5 million was raised for the first
time on appeal and should thus be disregarded.

This Court in several decisions has repeatedly adhered to the principle that points of law, theories, issues of
fact and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will
not be, considered by a reviewing court, as they cannot be raised for the first time on appeal (Santos vs. IAC,
No. 74243, November 14, 1986, 145 SCRA 592).[40]

xxx It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the
trial in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules
of fair play, justice and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434
[1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989];
Gevero vs. IAC, G.R. 77029, August 30, 1990).[41]

Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given an
opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a matter of
due process. But we passed upon the issue anyway, if only to avoid deciding the case on purely procedural
grounds, and we repeat that, on the basis of the evidence already in the record and as appreciated by the
lower courts, the inevitable conclusion is simply that there was a perfected contract of sale.

The Third Issue: Is the Contract Enforceable?

The petition alleged:[42]

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28
September 1987, and it was this verbal offer that Demetria and Janolo accepted with their letter of 30
September 1987, the contract produced thereby would be unenforceable by action - there being no note,
memorandum or writing subscribed by the Bank to evidence such contract. (Please see Article 1403[2], Civil
Code.)

Upon the other hand, the respondent Court in its Decision (p. 14) stated:

x x x Of course, the banks letter of September 1, 1987 on the official price and the plaintiffs acceptance of the
price on September 30, 1987, are not, in themselves, formal contracts of sale. They are however clear
embodiments of the fact that a contract of sale was perfected between the parties, such contract being
binding in whatever form it may have been entered into (case citations omitted). Stated simply, the banks
letter of September 1, 1987, taken together with plaintiffs letter dated September 30, 1987, constitute in law
a sufficient memorandum of a perfected contract of sale.

The respondent Court could have added that the written communications commenced not only from
September 1, 1987 but from Janolos August 20, 1987 letter. We agree that, taken together, these letters
constitute sufficient memoranda - since they include the names of the parties, the terms and conditions of the
contract, the price and a description of the property as the object of the contract.

But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did
constitute a new offer which was accepted by Janolo on September 30, 1987. Still, the statute of frauds will
not apply by reason of the failure of petitioners to object to oral testimony proving petitioner Banks counter-
offer of P5.5 million. Hence, petitioners - by such utter failure to object - are deemed to have waived any
defects of the contract under the statute of frauds, pursuant to Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the
failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under
them.

As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-
offer of P5.5 million is aplenty -and the silence of petitioners all throughout the presentation makes the
evidence binding on them thus:

A - Yes, sir. I think it was September 28, 1987 and I was again present because Atty. Demetria told me to
accompany him and we were able to meet Luis Co at the Bank.

xxx xxx xxx

Q - Now, what transpired during this meeting with Luis Co of the Producers Bank?

A - Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.

Q - What price?

A - The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final price
and that is the price they intends (sic) to have, sir.

Q - What do you mean?

A - That is the amount they want, sir.

Q - What is the reaction of the plaintiff Demetria to Luis Cos statment (sic) that the defendant Riveras
counter-offer of 5.5 million was the defendants bank (sic) final offer?

A - He said in a day or two, he will make final acceptance, sir.

Q - What is the response of Mr. Luis Co?

A - He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]

----0----

Q - What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?

A - We went straight to the point because he being a busy person, I told him if the amount of P5.5 million
could still be reduced and he said that was already passed upon by the committee. What the bank expects
which was contrary to what Mr. Rivera stated. And he told me that is the final offer of the bank P5.5 million
and we should indicate our position as soon as possible.

Q - What was your response to the answer of Mr. Luis Co?

A - I said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo and I
and Mr. Mercurio [Rivera] was with us at the time at his office.

Q - For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office in Producers
Bank Building during this meeting?

A - Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.

Q - By Mr. Co you are referring to?

A - Mr. Luis Co.

Q - After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter offer by the
bank?

A - Yes, sir, we did. Two days thereafter we sent our acceptance to the bank which offer we accepted, the offer
of the bank which is P5.5 million.

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]

---- 0 ----

Q - According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the Committee and it is
not within his power to reduce this amount. What can you say to that statement that the amount of P5.5
million was reached by the Committee?

A - It was not discussed by the Committee but it was discussed initially by Luis Co and the group of Atty.
Demetrio Demetria and Atty. Pajardo (sic), in that September 28, 1987 meeting, sir.

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

The Fourth Issue: May the Conservator Revoke

the Perfected and Enforceable Contract?

It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the
Philippines during the time that the negotiation and perfection of the contract of sale took place. Petitioners
energetically contended that the conservator has the power to revoke or overrule actions of the management
or the board of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the
Central Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the
Monetary Board finds that a bank or a non-bank financial intermediary performing quasi - banking functions
is in a state of continuing inability or unwillingness to maintain a state of liquidity deemed adequate to
protect the interest of depositors and creditors, the Monetary Board may appoint a conservator to take
charge of the assets, liabilities, and the management of that institution, collect all monies and debts due said
institution and exercise all powers necessary to preserve the assets of the institution, reorganize the
management thereof, and restore its viability. He shall have the power to overrule or revoke the actions of the
previous management and board of directors of the bank or non-bank financial intermediary performing
quasi-banking functions, any provision of law to the contrary notwithstanding, and such other powers as the
Monetary Board shall deem necessary.

In the first place, this issue of the Conservators alleged authority to revoke or repudiate the perfected
contract of sale was raised for the first time in this Petition - as this was not litigated in the trial court or Court
of Appeals. As already stated earlier, issues not raised and/or ventilated in the trial court, let alone in the
Court of Appeals, cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair
play, justice and due process.[43]

In the second place, there is absolutely no evidence that the Conservator, at the time the contract was
perfected, actually repudiated or overruled said contract of sale. The Banks acting conservator at the time,
Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What petitioners are really
referring to is the letter of Conservator Encarnacion, who took over from Romey after the sale was perfected
on September 30, 1987 (Annex V, petition) which unilaterally repudiated - not the contract - but the authority
of Rivera to make a binding offer - and which unarguably came months after the perfection of the contract.
Said letter dated May 12, 1988 is reproduced hereunder:

May 12, 1988

Atty. Noe C. Zarate

Zarate Carandang Perlas & Ass.

Suite 323 Rufino Building

Ayala Avenue, Makati, Metro Manila

Dear Atty. Zarate:

This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6)
parcels of land located at Sta. Rosa, Laguna.

We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a
contract to sell and buy with any of them for the following reasons.

In the Inter-Office Memorandum dated April 25, 1986 addressed to and approved by former Acting
Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions
of Property Management Department (PMD) staff and officers (Annex A), you will immediately read that
Manager Mr. Mercurio Rivera or any of his subordinates has no authority, power or right to make any alleged
counter-offer. In short, your lawyer-clients did not deal with the authorized officers of the bank.

Moreover, under Secs. 23 and 36 of the Corporation Code of the Philippines (Batas Pambansa Blg. 68) and
Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator
may authorize the sale of any property of the corporation/bank.

Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators
(starting January, 1984) to sell the aforesaid property to any of your clients. Apparently, what took place
were just preliminary discussions/ consultations between him and your clients, which everyone knows
cannot bind the Banks Board or Conservator.

We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently
violative of corporate and banking laws. We believe that this is more than sufficient legal justification for
refusing said alleged tender.

Rest assured that we have nothing personal against your clients. All our acts are official, legal and in
accordance with law. We also have no personal interest in any of the properties of the Bank.

Please be advised accordingly.

Very truly yours,

(Sgd.) Leonida T. Encarnacion

LEONIDA T. ENCARNACION

Acting Conservator

In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the
conservator of a bank, it must be pointed out that such powers must be related to the (preservation of) the
assets of the bank, (the reorganization of) the management thereof and (the restoration of) its viability. Such
powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected
transactions, otherwise they would infringe against the non-impairment clause of the Constitution.[44] If the
legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to the
conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under
existing law, deemed to be defective - i.e., void, voidable, unenforceable or rescissible. Hence, the conservator
merely takes the place of a banks board of directors. What the said board cannot do - such as repudiating a
contract validly entered into under the doctrine of implied authority - the conservator cannot do either.
Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His
authority would be only to bring court actions to assail such contracts - as he has already done so in the
instant case. A contrary understanding of the law would simply not be permitted by the Constitution. Neither
by common sense. To rule otherwise would be to enable a failing bank to become solvent, at the expense of
third parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one
way or another come to be considered unfavorable to the Bank, yielding nothing to perfected contractual
rights nor vested interests of the third parties who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Fact?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the
Court of Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust
Corporation,[45] we held:

x x x. The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule
45 of the Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988,
158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule
45 of the Revised Rules of Court. The jurisdiction of the Supreme Court in cases brought to it from the Court
of Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of the fact being
conclusive [Chan vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of
decisions]. This Court has emphatically declared that it is not the function of the Supreme Court to analyze or
weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have
been committed by the lower court (Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89;
Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals,
G.R. No. L-47531, February 20, 1984, 127 SCRA 596). Barring, therefore, a showing that the findings
complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to
constitute serious abuse of discretion, such findings must stand, for this Court is not expected or required to
examine or contrast the oral and documentary evidence submitted by the parties [Santa Ana, Jr. vs.
Hernandez, G.R. No. L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.]

Likewise, in Bernardo vs. Court of Appeals,[46] we held:

The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the sufficiency of
evidence and the credibility of witnesses presented. This Court so held that it is not the function of the
Supreme Court to analyze or weigh such evidence all over again. The Supreme Courts jurisdiction is limited to
reviewing errors of law that may have been committed by the lower court. The Supreme Court is not a trier of
facts. x x x

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and
Development Corp.:[47]

The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are
final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a
reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded
entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or
impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is
premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same
are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we
find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts
below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company, Inc.
vs. Hon. Court of Appeals, et al.[48]is equally applicable to the present case:

We see no valid reason to discard the factual conclusions of the appellate court. x x x (I)t is not the function of
this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the
parties, particularly where, such as here, the findings of both the trial court and the appellate court on the
matter coincide. (italics supplied)

Petitioners, however, assailed the respondent Courts Decision as fraught with findings and conclusions which
were not only contrary to the evidence on record but have no bases at all, specifically the findings that (1) the
Banks counter-offer price of P5.5 million had been determined by the past due committee and approved by
conservator Romey, after Rivera presented the same for discussion and (2) the meeting with Co was not to
scale down the price and start negotiations anew, but a meeting on the already determined price of P5.5
million. Hence, citing Philippine National Bank vs. Court of Appeals,[49] petitioners are asking us to review and
reverse such factual findings.

The first point was clearly passed upon by the Court of Appeals,[50] thus:

There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by
letter that the banks counter-offer is at P5.5 Million for more than 101 hectares on lot basis, such counter-
offer price had been determined by the Past Due Committee and approved by the Conservator after Rivera
had duly presented plaintiffs offer for discussion by the Committee x x x. Tersely put, under the established
fact, the price of P5.5 Million was, as clearly worded in Riveras letter (Exh. E), the official and definitive price
at which the bank was selling the property. (p. 11, CA Decision)

xxx xxx xxx

xxx. The argument deserves scant consideration. As pointed out by plaintiff, during the meeting of September
28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vice-president of the bank, where the topic was
the possible lowering of the price, the bank official refused it and confirmed that the P5.5 Million price had
been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15,
CA Decision).

The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as not
credible and at best equivocal, and considering the gratuitous and self-serving character of these declarations,
the banks submissions on this point do not inspire belief.

To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey to
testify on their behalf, as he would have been in the best position to establish their thesis. Under the rules on
evidence,[51] such suppression gives rise to the presumption that his testimony would have been adverse, if
produced.

The second point was squarely raised in the Court of Appeals, but petitioners evidence was deemed
insufficient by both the trial court and the respondent Court, and instead, it was respondents submissions
that were believed and became bases of the conclusions arrived at.

In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are
valid and correct. But the petitioners are now asking this Court to disturb these findings to fit the conclusion
they are espousing. This we cannot do.

To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court
of Appeals.[52] We have studied both the records and the CA Decision and we find no such exceptions in this
case. On the contrary, the findings of the said Court are supported by a preponderance of competent and
credible evidence. The inferences and conclusions are reasonably based on evidence duly identified in the
Decision. Indeed, the appellate court patiently traversed and dissected the issues presented before it, lending
credibility and dependability to its findings. The best that can be said in favor of petitioners on this point is
that the factual findings of respondent Court did not correspond to petitioners claims, but were closer to the
evidence as presented in the trial court by private respondent. But this alone is no reason to reverse or ignore
such factual findings, particularly where, as in this case, the trial court and the appellate court were in
common agreement thereon. Indeed, conclusions of fact of a trial judge - as affirmed by the Court of Appeals -
are conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness of any
kind, because the trial court is in a better position to observe the demeanor of the witnesses and their
courtroom manner as well as to examine the real evidence presented.

Epilogue

In summary, there are two procedural issues involved - forum-shopping and the raising of issues for the first
time on appeal [viz., the extinguishment of the Banks offer of P5.5 million and the conservators powers to
repudiate contracts entered into by the Banks officers] - which per se could justify the dismissal of the
present case. We did not limit ourselves thereto, but delved as well into the substantive issues - the perfection
of the contract of sale and its enforceability, which required the determination of questions of fact. While the
Supreme Court is not a trier of facts and as a rule we are not required to look into the factual bases of
respondent Courts decisions and resolutions, we did so just the same, if only to find out whether there is
reason to disturb any of its factual findings, for we are only too aware of the depth, magnitude and vigor by
which the parties, through their respective eloquent counsel, argued their positions before this Court.

We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a
government-appointed conservator and there is need to rehabilitate the Bank in order to get it back on its
feet x x x as many people depend on (it) for investments, deposits and well as employment. As of June 1987,
the Banks overdraft with the Central Bank had already reached P1.023 billion x x x and there were (other)
offers to buy the subject properties for a substantial amount of money.[53]

While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot emotionally
close its eyes to overriding considerations of substantive and procedural law, like respect for perfected
contracts, non-impairment of obligations and sanctions against forum-shopping, which must be upheld under
the rule of law and blind justice.

This Court cannot just gloss over private respondents submission that, while the subject properties may
currently command a much higher price, it is equally true that at the time of the transaction in 1987, the price
agreed upon of P5.5 million was reasonable, considering that the Bank acquired these properties at a
foreclosure sale for no more than P 3.5 million. [54] That the Bank procrastinated and refused to honor its
commitment to sell cannot now be used by it to promote its own advantage, to enable it to escape its binding
obligation and to reap the benefits of the increase in land values. To rule in favor of the Bank simply because
the property in question has algebraically accelerated in price during the long period of litigation is to reward
lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp its
imprimatur on such outrageous proposition.

WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court hereby
DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for
engaging in forum-shopping and WARNED that a repetition of the same or similar acts will be dealt with more
severely. Costs against petitioners.

SO ORDERED.

7. 309 SCRA 72

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

FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES GREGORIO and
LIBRADA MANUEL, respondents.

DECISION

QUISUMBING, J.:

This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision [1] of the
Court of Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135, Regional Trial
Court of Makati, Metro Manila. The procedural antecedents of this petition are as follows:

On January 23, 1985, petitioner filed a complaint[2] against private respondents to recover three thousand
four hundred twelve and six centavos (P3,412.06), representing the balance of the jeep body purchased by
the Manuels from petitioner; an additional sum of twenty thousand four hundred fifty-four and eighty
centavos (P20,454.80) representing the unpaid balance on the cost of repair of the vehicle; and six thousand
pesos (P6,000.00) for cost of suit and attorneys fees.[3]To the original balance on the price of jeep body were
added the costs of repair.[4] In their answer, private respondents interposed a counterclaim for unpaid legal
services by Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which was not paid by the
incorporators, directors and officers of the petitioner. The trial court decided the case on June 26, 1985, in
favor of petitioner in regard to the petitioners claim for money, but also allowed the counter-claim of private
respondents. Both parties appealed. On April 15, 1991, the Court of Appeals sustained the trial courts
decision.[5] Hence, the present petition.

For our review in particular is the propriety of the permissive counterclaim which private respondents filed
together with their answer to petitioners complaint for a sum of money. Private respondent Gregorio Manuel
alleged as an affirmative defense that, while he was petitioners Assistant Legal Officer, he represented
members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad. However,
even after the termination of the proceedings, his services were not paid. Said family members, he said, were
also incorporators, directors and officers of petitioner. Hence to counter petitioners collection suit, he filed a
permissive counterclaim for the unpaid attorneys fees.[6]

For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this score,
and evidence ex-parte was presented on the counterclaim. The trial court ruled in favor of private
respondents and found that Gregorio Manuel indeed rendered legal services to the Francisco family in Special
Proceedings Number 7803- In the Matter of Intestate Estate of Benita Trinidad. Said court also found that his
legal services were not compensated despite repeated demands, and thus ordered petitioner to pay him the
amount of fifty thousand (P50,000.00) pesos.[7]

Dissatisfied with the trial courts order, petitioner elevated the matter to the Court of Appeals, posing the
following issues:

I.

WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS IT NEVER
ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT.

II.

WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED PERMISSIVE
COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES.

III.

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE

ALLEGED PERMISSIVE COUNTERCLAIM.[8]
Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly
served on it together with the copy of the answer containing the permissive counterclaim. Further, petitioner
questions the propriety of its being made party to the case because it was not the real party in interest but the
individual members of the Francisco family concerned with the intestate case.

In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim must
be answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it state
in the Rules that a party still needed to be summoned anew if a counterclaim was set up against him. Failure
to serve summons, said respondent court, did not effectively negate trial courts jurisdiction over petitioner in
the matter of the counterclaim. It likewise pointed out that there was no reason for petitioner to be excused
from answering the counterclaim. Court records showed that its former counsel, Nicanor G. Alvarez, received
the copy of the answer with counterclaim two (2) days prior to his withdrawal as counsel for petitioner.
Moreover when petitioners new counsel, Jose N. Aquino, entered his appearance, three (3) days still
remained within the period to file an answer to the counterclaim. Having failed to answer, petitioner was
correctly considered in default by the trial court.[9] Even assuming that the trial court acquired no jurisdiction
over petitioner, respondent court also said, but having filed a motion for reconsideration seeking relief from
the said order of default, petitioner was estopped from further questioning the trial courts jurisdiction.[10]

On the question of its liability for attorneys fees owing to private respondent Gregorio Manuel, petitioner
argued that being a corporation, it should not be held liable therefor because these fees were owed by the
incorporators, directors and officers of the corporation in their personal capacity as heirs of Benita
Trinidad.Petitioner stressed that the personality of the corporation, vis--vis the individual persons who hired
the services of private respondent, is separate and distinct, [11]hence, the liability of said individuals did not
become an obligation chargeable against petitioner.

Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:

However, this distinct and separate personality is merely a fiction created by law for convenience and to
promote justice. Accordingly, this separate personality of the corporation may be disregarded, or the veil of
corporate fiction pierced, in cases where it is used as a cloak or cover for found (sic) illegality, or to work an
injustice, or where necessary to achieve equity or when necessary for the protection of creditors. (Sulo ng
Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed of natural persons and the legal fiction
of a separate corporate personality is not a shield for the commission of injustice and inequity. (Chemplex
Philippines, Inc. vs. Pamatian, 57 SCRA 408)

In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed of
the heirs of the late Benita Trinidad as directors and incorporators for whom defendant Gregorio Manuel
rendered legal services in the intestate estate case of their deceased mother. Considering the aforestated
principles and circumstances established in this case, equity and justice demands plaintiff-appellants veil of
corporate identity should be pierced and the defendant be compensated for legal services rendered to the
heirs, who are directors of the plaintiff-appellant corporation.[12]

Now before us, petitioner assigns the following errors:

I.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE
ENTITY.

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER WITH
RESPECT TO THE COUNTERCLAIM.[13]

Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction
because the transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad.
According to petitioner, there was no cause of action by said respondent against petitioner; personal
concerns of the heirs should be distinguished from those involving corporate affairs. Petitioner further
contends that the present case does not fall among the instances wherein the courts may look beyond the
distinct personality of a corporation. According to petitioner, the services for which respondent Gregorio
Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers the heirs should have been
sued in their personal capacity, and not involve the corporation.[14]

With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the
answer containing the permissive counterclaim. It claims that the counterclaim is a separate case which can
only be properly served upon the opposing party through summons. Further petitioner states that by nature,
a permissive counterclaim is one which does not arise out of nor is necessarily connected with the subject of
the opposing partys claim. Petitioner avers that since there was no service of summons upon it with regard to
the counterclaim, then the court did not acquire jurisdiction over petitioner. Since a counterclaim is
considered an action independent from the answer, according to petitioner, then in effect there should be two
simultaneous actions between the same parties: each party is at the same time both plaintiff and defendant
with respect to the other,[15] requiring in each case separate summonses.

In their Comment, private respondents focus on the two questions raised by petitioner. They defend the
propriety of piercing the veil of corporate fiction, but deny the necessity of serving separate summonses on
petitioner in regard to their permissive counterclaim contained in the answer.

Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was
employed as assistant legal officer of petitioner corporation, and that his services were solicited by the
incorporators, directors and members to handle and represent them in Special Proceedings No. 7803,
concerning the Intestate Estate of the late Benita Trinidad. They assert that the members of petitioner
corporation took advantage of their positions by not compensating respondent Gregorio Manuel after the
termination of the estate proceedings despite his repeated demands for payment of his services. They cite
findings of the appellate court that support piercing the veil of corporate identity in this particular case. They
assert that the corporate veil may be disregarded when it is used to defeat public convenience, justify wrong,
protect fraud, and defend crime. It may also be pierced, according to them, where the corporate entity is
being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another
corporate entity. In these instances, they aver, the corporation should be treated merely as an association of
individual persons.[16]

Private respondents dispute petitioners claim that its right to due process was violated when respondents
counterclaim was granted due course, although no summons was served upon it. They claim that no provision
in the Rules of Court requires service of summons upon a defendant in a counterclaim. Private respondents
argue that when the petitioner filed its complaint before the trial court it voluntarily submitted itself to the
jurisdiction of the court. As a consequence, the issuance of summons on it was no longer necessary. Private
respondents say they served a copy of their answer with affirmative defenses and counterclaim on
petitioners former counsel, Nicanor G. Alvarez. While petitioner would have the Court believe that
respondents served said copy upon Alvarez after he had withdrawn his appearance as counsel for the
petitioner, private respondents assert that this contention is utterly baseless. Records disclose that the
answer was received two (2) days before the former counsel for petitioner withdrew his appearance,
according to private respondents. They maintain that the present petition is but a form of dilatory appeal, to
set off petitioners obligations to the respondents by running up more interest it could recover from them.
Private respondents therefore claim damages against petitioner.[17]

To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate
fiction.

Basic in corporation law is the principle that a corporation has a separate personality distinct from its
stockholders and from other corporations to which it may be connected. [18] However, under the doctrine of
piercing the veil of corporate entity, the corporations separate juridical personality may be disregarded, for
example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be
ignored.[19] In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and
the liability will directly attach to them. The legal fiction of a separate corporate personality in those cited
instances, for reasons of public policy and in the interest of justice, will be justifiably set aside.

In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate
veil has no relevant application here. Respondent court erred in permitting the trial courts resort to this
doctrine. The rationale behind piercing a corporations identity in a given case is to remove the barrier
between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those
who use the corporate personality as a shield for undertaking certain proscribed activities. However, in the
case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the
situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the
personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us
that the doctrine has been turned upside down because of its erroneous invocation. Note that according to
private respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco
family to represent them in the intestate proceedings over Benita Trinidads estate. These estate proceedings
did not involve any business of petitioner.

Note also that he sought to collect legal fees not just from certain Francisco family members but also from
petitioner corporation on the claims that its management had requested his services and he acceded thereto
as an employee of petitioner from whom it could be deduced he was also receiving a salary. His move to
recover unpaid legal fees through a counterclaim against Francisco Motors Corporation, to offset the unpaid
balance of the purchase and repair of a jeep body could only result from an obvious misapprehension that
petitioners corporate assets could be used to answer for the liabilities of its individual directors, officers, and
incorporators. Such result if permitted could easily prejudice the corporation, its own creditors, and even
other stockholders; hence, clearly inequitous to petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators,
directors and officers of the corporation had incurred, it was incurred in their personal capacity. When
directors and officers of a corporation are unable to compensate a party for a personal obligation, it is far-
fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable
therefor by piercing its corporate veil. While there are no hard and fast rules on disregarding separate
corporate identity, we must always be mindful of its function and purpose. A court should be careful in
assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise an injustice,
although unintended, may result from its erroneous application.

The personality of the corporation and those of its incorporators, directors and officers in their personal
capacities ought to be kept separate in this case. The claim for legal fees against the concerned individual
incorporators, officers and directors could not be properly directed against the corporation without violating
basic principles governing corporations. Moreover, every action including a counterclaim must be prosecuted
or defended in the name of the real party in interest.[20]It is plainly an error to lay the claim for legal fees of
private respondent Gregorio Manuel at the door of petitioner (FMC) rather than individual members of the
Francisco family.

However, with regard to the procedural issue raised by petitioners allegation, that it needed to be summoned
anew in order for the court to acquire jurisdiction over it, we agree with respondent courts view to the
contrary. Section 4, Rule 11 of the Rules of Court provides that a counterclaim or cross-claim must be
answered within ten (10) days from service. Nothing in the Rules of Court says that summons should first be
served on the defendant before an answer to counterclaim must be made. The purpose of a summons is to
enable the court to acquire jurisdiction over the person of the defendant. Although a counterclaim is treated
as an entirely distinct and independent action, the defendant in the counterclaim, being the plaintiff in the
original complaint, has already submitted to the jurisdiction of the court. Following Rule 9, Section 3 of the
1997 Rules of Civil Procedure,[21] if a defendant (herein petitioner) fails to answer the counterclaim, then
upon motion of plaintiff, the defendant may be declared in default. This is what happened to petitioner in this
case, and this Court finds no procedural error in the disposition of the appellate court on this particular issue.
Moreover, as noted by the respondent court, when petitioner filed its motion seeking to set aside the order of
default, in effect it submitted itself to the jurisdiction of the court. As well said by respondent court:

Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its request,
plaintiff-appellant was granted time to file a motion for reconsideration of the disputed decision. Plaintiff-
appellant did file its motion for reconsideration to set aside the order of default and the judgment rendered
on the counterclaim.

Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it vigorously
insists, plaintiff-appellant is considered to have submitted to the courts jurisdiction when it filed the motion
for reconsideration seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A party is estopped from
assailing the jurisdiction of a court after voluntarily submitting himself to its jurisdiction. (Tejones vs.
Gironella, 159 SCRA 100). Estoppel is a bar against any claims of lack of jurisdiction. (Balais vs. Balais, 159
SCRA 37).[22]

WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar only as
it held Francisco Motors Corporation liable for the legal obligation owing to private respondent Gregorio
Manuel; but this decision is without prejudice to his filing the proper suit against the concerned members of
the Francisco family in their personal capacity. No pronouncement as to costs.

SO ORDERED.

8. 345 SCRA 335

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

BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION,
respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this petition for review is the consolidated decision of the Court of Appeals dated July 7, 1994,
which reversed the separate decisions of the Regional Trial Court of Pasig City and the Regional Trial Court of
Quezon City in two cases between petitioner Reynoso and respondent General Credit Corporation (GCC).

Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, CCC), a financing and
investment firm, decided to organize franchise companies in different parts of the country, wherein it shall
hold thirty percent (30%) equity. Employees of the CCC were designated as resident managers of the
franchise companies. Petitioner Bibiano O. Reynoso, IV was designated as the resident manager of the
franchise company in Quezon City, known as the Commercial Credit Corporation of Quezon City (hereinafter,
CCC-QC).

CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted the
management and full control of the business activities of the former. Under the contract, CCC-QC shall sell,
discount and/or assign its receivables to CCC. Subsequently, however, this discounting arrangement was
discontinued pursuant to the so-called DOSRI Rule, prohibiting the lending of funds by corporations to its
directors, officers, stockholders and other persons with related interests therein.

On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule, CCC
decided to form CCC Equity Corporation, (hereinafter, CCC-Equity), a wholly-owned subsidiary, to which CCC
transferred its thirty (30%) percent equity in CCC-QC, together with two seats in the latters Board of
Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner Reynoso,
became employees of CCC-Equity. While petitioner continued to be the Resident Manager of CCC-QC, he drew
his salaries and allowances from CCC-Equity. Furthermore, although an employee of CCC-Equity, petitioner,
as well as all employees of CCC-QC, became qualified members of the Commercial Credit Corporation
Employees Pension Plan.

As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised its employees.
The business activities of CCC-QC pertain to the acceptance of funds from depositors who are issued interest-
bearing promissory notes. The amounts deposited are then loaned out to various borrowers. Petitioner, in
order to boost the business activities of CCC-QC, deposited his personal funds in the company. In return, CCC-
QC issued to him its interest-bearing promissory notes.

On August 15, 1980, a complaint for sum of money with preliminary attachment, [1] docketed as Civil Case No.
Q-30583, was instituted in the then Court of First Instance of Rizal by CCC-QC against petitioner, who had in
the meantime been dismissed from his employment by CCC-Equity. The complaint was subsequently
amended in order to include Hidelita Nuval, petitioners wife, as a party defendant. [2] The complaint alleged
that petitioner embezzled the funds of CCC-QC amounting to P1,300,593.11. Out of this amount, at least
P630,000.00 was used for the purchase of a house and lot located at No. 12 Macopa Street, Valle Verde I, Pasig
City. The property was mortgaged to CCC, and was later foreclosed.

In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and asserted that the sum
of P1,300,593.11 represented his money placements in CCC-QC, as shown by twenty-three (23) checks which
he issued to the said company.[3]

The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86, pursuant to the
Judiciary Reorganization Act of 1980.

On January 14, 1985, the trial court rendered its decision, the decretal portion of which states:

Premises considered, the Court finds the complaint without merit. Accordingly, said complaint is hereby
DISMISSED.

By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation, humiliation and mental
anguish.

On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby ordered:

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

b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per annum from June 24, 1981,
the date of filing of Amended Answer, until fully paid; from this amount may be deducted the remaining
obligation of defendant under the promissory note of October 24, 1977, in the sum ofP9,738.00 plus penalty
at the rate of 1% per month from December 24, 1977 until fully paid;

c) to pay defendants P200,000.00 as moral damages;

d) to pay defendants P100,000.00 as exemplary damages;

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

SO ORDERED.

Both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial Credit Corporation
of Quezon City was dismissed for failure to pay docket fees. Petitioner, on the other hand, withdrew his
appeal.
Hence, the decision became final and, accordingly, a Writ of Execution was issued on July 24, 1989. [4]
However, the judgment remained unsatisfied,[5] prompting petitioner to file a Motion for Alias Writ of
Execution, Examination of Judgment Debtor, and to Bring Financial Records for Examination to Court. CCC-QC
filed an Opposition to petitioners motion,[6] alleging that the possession of its premises and records had been
taken over by CCC.

Meanwhile, in 1983, CCC became known as the General Credit Corporation.

On November 22, 1991, the Regional Trial Court of Quezon City issued an Order directing General Credit
Corporation to file its comment on petitioners motion for alias writ of execution. [7] General Credit
Corporation filed a Special Appearance and Opposition on December 2, 1991,[8] alleging that it was not a party
to the case, and therefore petitioner should direct his claim against CCC-QC and not General Credit
Corporation. Petitioner filed his reply,[9] stating that the CCC-QC is an adjunct instrumentality, conduit and
agency of CCC. Furthermore, petitioner invoked the decision of the Securities and Exchange Commission in
SEC Case No. 2581, entitled, Avelina G. Ramoso, et al., Petitioner versus General Credit Corp., et al.,
Respondents, where it was declared that General Credit Corporation, CCC-Equity and other franchised
companies including CCC-QC were declared as one corporation.

On December 9, 1991, the Regional Trial Court of Quezon City ordered the issuance of an alias writ of
execution.[10] On December 20, 1991, General Credit Corporation filed an Omnibus Motion, [11] alleging that
SEC Case No. 2581 was still pending appeal, and maintaining that the levy on properties of the General Credit
Corporation by the deputy sheriff of the court was erroneous.

In his Opposition to the Omnibus Motion, petitioner insisted that General Credit Corporation is just the new
name of Commercial Credit Corporation; hence, General Credit Corporation and Commercial Credit
Corporation should be treated as one and the same entity.

On February 13, 1992, the Regional Trial Court of Quezon City denied the Omnibus Motion. [12] On March 5,
1992, it issued an Order directing the issuance of an alias writ of execution.[13]

Previously, on February 21, 1992, General Credit Corporation instituted a complaint before the Regional Trial
Court of Pasig against Bibiano Reynoso IV and Edgardo C. Tanangco, in his capacity as Deputy Sheriff of
Quezon City,[14] docketed as Civil Case No. 61777, praying that the levy on its parcel of land located in Pasig,
Metro Manila and covered by Transfer Certificate of Title No. 29940 be declared null and void, and that
defendant sheriff be enjoined from consolidating ownership over the land and from further levying on other
properties of General Credit Corporation to answer for any liability under the decision in Civil Case No. Q-
30583.

The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining order. Thus, General
Credit Corporation instituted two (2) petitions for certiorari with the Court of Appeals, docketed as CA-G.R.
SP No. 27518[15] and CA-G.R. SP No. 27683. These cases were later consolidated.

On July 7, 1994, the Court of Appeals rendered a decision in the two consolidated cases, the dispositive
portion of which reads:

WHEREFORE, in SP No. 27518 we declare the issue of the respondent court's refusal to issue a restraining
order as having been rendered moot by our Resolution of 7 April 1992 which, by way of injunctive relief,
provided that "the respondents and their representatives are hereby enjoined from conducting an auction
sale (on execution) of petitioner's properties as well as initiating similar acts of levying (upon) and selling on
execution other properties of said petitioner". The injunction thus granted, as modified by the words in
parenthesis, shall remain in force until Civil Case No. 61777 shall have been finally terminated.

In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY and SET ASIDE, for having been
issued in excess of jurisdiction, the Order of 13 February 1992 in Civil Case No. Q-30583 as well as any other
order or process through which the petitioner is made liable under the judgment in said Civil Case No. Q-
30583.
No damages and no costs.

SO ORDERED.[16]

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

1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27683 WHEN IT NULLIFIED AND SET
ASIDE THE 13 FEBRUARY 1992 ORDER AND OTHER ORDERS OR PROCESS OF BRANCH 86 OF THE
REGIONAL TRIAL COURT OF QUEZON CITY THROUGH WHICH GENERAL CREDIT CORPORATION IS MADE
LIABLE UNDER THE JUDGMENT THAT WAS RENDERED IN CIVIL CASE NO. Q-30583.

2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27518 WHEN IT ENJOINED THE
AUCTION SALE ON EXECUTION OF THE PROPERTIES OF GENERAL CREDIT CORPORATION AS WELL AS
INITIATING SIMILAR ACTS OF LEVYING UPON AND SELLING ON EXECUTION OF OTHER PROPERTIES OF
GENERAL CREDIT CORPORATION.

3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT GENERAL CREDIT CORPORATION IS A
STRANGER TO CIVIL CASE NO. Q-30583, INSTEAD OF, DECLARING THAT COMMERCIAL CREDIT
CORPORATION OF QUEZON CITY IS THE ALTER EGO, INSTRUMENTALITY, CONDUIT OR ADJUNCT OF
COMMERCIAL CREDIT CORPORATION AND ITS SUCCESSOR GENERAL CREDIT CORPORATION.

At the outset, it must be stressed that there is no longer any controversy over petitioners claims against his
former employer, CCC-QC, inasmuch as the decision in Civil Case No. Q-30583 of the Regional Trial Court of
Quezon City has long become final and executory. The only issue, therefore, to be resolved in the instant
petition is whether or not the judgment in favor of petitioner may be executed against respondent General
Credit Corporation. The latter contends that it is a corporation separate and distinct from CCC-QC and,
therefore, its properties may not be levied upon to satisfy the monetary judgment in favor of petitioner. In
short, respondent raises corporate fiction as its defense. Hence, we are necessarily called upon to apply the
doctrine of piercing the veil of corporate entity in order to determine if General Credit Corporation, formerly
CCC, may be held liable for the obligations of CCC-QC.

The petition is impressed with merit.

A corporation is an artificial being created by operation of law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or incident to its existence. [17] It is an artificial being
invested by law with a personality separate and distinct from those of the persons composing it as well as
from that of any other legal entity to which it may be related. [18] It was evolved to make possible the
aggregation and assembling of huge amounts of capital upon which big business depends. It also has the
advantage of non-dependence on the lives of those who compose it even as it enjoys certain rights and
conducts activities of natural persons.

Precisely because the corporation is such a prevalent and dominating factor in the business life of the
country, the law has to look carefully into the exercise of powers by these artificial persons it has created.

Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to use its
supervisory and adjudicative powers where the corporate fiction is used as an unfair device to achieve an
inequitable result, defraud creditors, evade contracts and obligations, or to shield it from the effects of a court
decision. The corporate fiction has to be disregarded when necessary in the interest of justice.

In First Philippine International Bank v. Court of Appeals, et al., [19] we held:

When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of
an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or
generally the perpetration of knavery or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals.
Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction in numerous
cases where it was used, among others, to avoid a judgment credit;[20] to avoid inclusion of corporate assets as
part of the estate of a decedent;[21] to avoid liability arising from debt;[22]when made use of as a shield to
perpetrate fraud and/or confuse legitimate issues; [23] or to promote unfair objectives or otherwise to shield
them.[24]

In the appealed judgment, the Court of Appeals sustained respondents arguments of separateness and its
character as a different corporation which is a non-party or stranger to this case.

The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so
controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. But
even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate
fiction applies only when such fiction is used to defeat public convenience, justify wrong, protect fraud or
defend crime.[25]

We stated in Tomas Lao Construction v. National Labor Relations Commission,[26] that the legal fiction of a
corporation being a judicial entity with a distinct and separate personality was envisaged for convenience
and to serve justice. Therefore, it should not be used as a subterfuge to commit injustice and circumvent the
law.

Precisely for the above reasons, we grant the instant petition.

It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was intended to
publicly identify it as a component of the CCC group of companies engaged in one and the same business, i.e.,
investment and financing. Aside from CCC-Quezon City, other franchise companies were organized such as
CCC-North Manila and CCC-Cagayan Valley. The organization of subsidiary corporations as what was done
here is usually resorted to for the aggrupation of capital, the ability to cover more territory and population,
the decentralization of activities best decentralized, and the securing of other legitimate advantages. But
when the mother corporation and its subsidiary cease to act in good faith and honest business judgment,
when the corporate device is used by the parent to avoid its liability for legitimate obligations of the
subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to
remedy the problem. When that happens, the corporate character is not necessarily abrogated. It continues
for legitimate objectives. However, it is pierced in order to remedy injustice, such as that inflicted in this case.

Factually and legally, the CCC had dominant control of the business operations of CCC-QC. The exclusive
management contract insured that CCC-QC would be managed and controlled by CCC and would not deviate
from the commands of the mother corporation. In addition to the exclusive management contract, CCC
appointed its own employee, petitioner, as the resident manager of CCC-QC.

Petitioners designation as resident manager implies that he was placed in CCC-QC by a superior authority. In
fact, even after his assignment to the subsidiary corporation, petitioner continued to receive his salaries,
allowances, and benefits from CCC, which later became respondent General Credit Corporation. Not only that.
Petitioner and the other permanent employees of CCC-QC were qualified members and participants of the
Employees Pension Plan of CCC.

There are other indications in the record which attest to the applicability of the identity rule in this case,
namely: the unity of interests, management, and control; the transfer of funds to suit their individual
corporate conveniences; and the dominance of policy and practice by the mother corporation insure that
CCC-QC was an instrumentality or agency of CCC.

As petitioner stresses, both CCC and CCC-QC were engaged in the same principal line of business involving a
single transaction process. Under their discounting arrangements, CCC financed the operations of CCC-QC.
The subsidiary sold, discounted, or assigned its accounts receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971, shows the pervasive and
intensive auditing function of CCC over CCC-QC.[27] The two corporations also shared the same office space.
CCC-QC had no office of its own.

The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified by the director-
representative of CCC. The lawyers who filed the complaint and amended complaint were all in-house
lawyers of CCC.

The challenged decision of the Court of Appeals states that CCC, now General Credit Corporation, is not a
formal party in the case. The reason for this is that the complaint was filed by CCC-QC against petitioner. The
choice of parties was with CCC-QC. The judgment award in this case arose from the counterclaim which
petitioner set up against CCC-QC.

The circumstances which led to the filing of the aforesaid complaint are quite revealing. As narrated above,
the discounting agreements through which CCC controlled the finances of its subordinates became unlawful
when Central Bank adopted the DOSRI prohibitions. Under this rule the directors, officers, and stockholders
are prohibited from borrowing from their company. Instead of adhering to the letter and spirit of the
regulations by avoiding DOSRI loans altogether, CCC used the corporate device to continue the prohibited
practice. CCC organized still another corporation, the CCC-Equity Corporation. However, as a wholly owned
subsidiary, CCC-Equity was in fact only another name for CCC. Key officials of CCC, including the resident
managers of subsidiary corporations, were appointed to positions in CCC-Equity.

In order to circumvent the Central Banks disapproval of CCC-QCs mode of reducing its DOSRI lender accounts
and its directive to follow Central Bank requirements, resident managers, including petitioner, were told to
observe a pseudo-compliance with the phasing out orders. For his unwillingness to satisfactorily conform to
these directives and his reluctance to resort to illegal practices, petitioner earned the ire of his
employers.Eventually, his services were terminated, and criminal and civil cases were filed against him.

Petitioner issued twenty-three checks as money placements with CCC-QC because of difficulties faced by the
firm in implementing the required phase-out program. Funds from his current account in the Far East Bank
and Trust Company were transferred to CCC-QC. These monies were alleged in the criminal complaints
against him as having been stolen. Complaints for qualified theft and estafa were brought by CCC-QC against
petitioner. These criminal cases were later dismissed. Similarly, the civil complaint which was filed with the
Court of First Instance of Pasig and later transferred to the Regional Trial Court of Quezon City was dismissed,
but his counterclaims were granted.

Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed CCC-QC, in obvious
fraud of its creditors. CCC-QC, instead of opposing its closure, cooperated in its own demise. Conveniently,
CCC-QC stated in its opposition to the motion for alias writ of execution that all its properties and assets had
been transferred and taken over by CCC.

Under the foregoing circumstances, the contention of respondent General Credit Corporation, the new name
of CCC, that the corporate fiction should be appreciated in its favor is without merit.

Paraphrasing the ruling in Claparols v. Court of Industrial Relations,[28] reiterated in Concept Builders Inc. v.
National Labor Relations,[29] it is very obvious that respondent seeks the protective shield of a corporate
fiction whose veil the present case could, and should, be pierced as it was deliberately and maliciously
designed to evade its financial obligation of its employees.

If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt and work an
injustice. The decision raised to us for review is an invitation to multiplicity of litigation. As we stated in
Islamic Directorate vs. Court of Appeals,[30] the ends of justice are not served if further litigation is encouraged
when the issue is determinable based on the records.

A court judgment becomes useless and ineffective if the employer, in this case CCC as a mother corporation, is
placed beyond the legal reach of the judgment creditor who, after protracted litigation, has been found
entitled to positive relief. Courts have been organized to put an end to controversy. This purpose should not
be negated by an inapplicable and wrong use of the fiction of the corporate veil.

WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and ASIDE. The injunction against the
holding of an auction sale for the execution of the decision in Civil Case No. Q-30583 of properties of General
Credit Corporation, and the levying upon and selling on execution of other properties of General Credit
Corporation, is LIFTED.

SO ORDERED.

9. 358 SCRA 274

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

SIMEON DE LEON, EFREN ABAD, JAIME ABAD, JESSIE ABAY-ABAY, ROLANDO ABIOLA, ALICIO ABISO,
CELEDONIO ABSALON, JEREMIAS ADO, VICENTE ADO, VICENTE AGGABAO, EFRAIN AGUIRRE, ALEXANDER
ALATA, ERNESTO ALCALDE, LORENZO ALCOY, ALMARIO ALICIO, CESAR AMADOR, JOSE AMANTE, ESTELITO
AMBROSIO, VICENTE ANAPI, ARNEL ANCHETA, ROGELIO ANCHETA, WILFREDO ANONUEVO, DOMINGO
ANTIGRO, MARGARITO ANTIGRO, ROGELIO ANZANO, ANTONIO APOSTOL, ORLANDO AQUINO, JUAN
ARCALAS, BONIFACIO ARIOLA, EDGAR ARIOLA, BONIFACIO ARMASA, FERNANDO BACCAY, MARIO BACUD,
RUPERTO BACUDAN, NILO BALAG, ARGEL BALTAZAR, DEMETRIO BARAYOGA, FELIX BARNEDO,
FLORENTINO BARTE, SARRI BASIRUL, MARCELO BATANES, RECTO BAYONA, VICTORIO BERMUNDO,
ISMAEL BERNAL, LERIO BERSABE, FIDEL BOSE, MARIANO BOTACION, DANILO BRAZIL, REYNALDO BRUNIO,
MARIO BUENAVENTURA, ARSENIO BULATAO, FRANCISCO BULATAO, CARLOS CAJARA, ROSENDO
CAMACHO, RUBEN CAMACHO, NESTOR CAPILOS, DOMINGO CASTRO, MAXIMIANO DE CASTO, EDINO
CASTUERA, ZALDY CERDON, ANTONIO DERUJANO, VICTOR CIPRIANO, JUANITO CORPUZ, ALFREDO CRUZ,
FERNANDO DELA CRUZ, MARIO CUSTOPAY, ROSAURO CUSTODIO, FRANKLIN CUSTODIO, ALFREDO
DAPROZA, RENATO DAVAG, NOEL DEMINGOY, GENE DIESTRO, ESTEBAN DIONSON, RAMON DIZA, JEREMIAS
DOROMAL, MANUEL EDATO, FERNANDO EDORA, CONRADO ENRIQUEZ, NICOMEDEZ ENRIQUEZ, ROLITO
ESPIEL, LAURO ESPANOL, NONITO ESPLANA, ELPIDIO ESPANOL, DIOLITO ESTOPEREZ, ODILON EUSTE,
HENRY FACTOR, VIRGILIO FAVORITO, ARISTOTLE FERNANDEZ, RODOFLO FORMALEJO, JUNE FULAY, RUIS
FUTOL, JESUS GABA, RODRIGO GABAT, ROSALIA GABAT, CLEMENTE GASPAR, RODRIGO GAVIOLA, ELLEN
GODELOSON, SALVADOR GUELA, EDUARDO GUZMAN, BALTAZAR DE GUZMAN, ZOSIMO DE GUZMAN,
REYANLDO HAGUIRING, CARLOS GINDAP, BERNARDINO GIPIT, WILFREDO HERNANDEZ, IMMANUEL
IBRING, PEPITO IMPERIO, MAGTANGGOL INSORIO, RODELYN JACUNTO, MARIO JARAPAN, MAXIMO
JIMENEZ, ALEJANDRO JUDLOMAN, JUAN LAOAGAN, DANTE LARIOSA, ELINO LASAGA, JOSEPH LEGASPINA,
ZOSIMO LEPALAM, BENJAMIN LIBAN, EFREN LIGUE, CLETO LINGA, ROMEO LLAGAS, LUCIO LLARENA,
ALFREDO LOPEZ, FELIX LOPEZ, SANTOS LOPEZ, RUBEN LORENZO, NILO LUGANA, CANCIO MAATUBANG,
ANTONIO MACASIO, ROBERTO MACATUNGGAL, VIRGILIO MACALINAO, RAMON MACOY, JOSE MAGALONA,
ALEJO MANAGUELOD, DOMINGO MANALO, EMILIANO MANALO, SULPICIO MANTALABA, EDITO MANUEL,
ROMULO MANUEL, FELINO MARANA, CARLITO MARGAJA, ROMARES MARIANO, CERMELO MARTINEZ,
MODESTO MASULIT, ALMA MATUSALEM, FLAVIANO MEDEL, DOLCIANO MEDINA, DOLOROSA MEDINA,
NORLINDO MEJARITO, PEDRITO MENDOZA, GUARDITO MERANO, ALBERTO DE MESA, CHARLIE MINANO,
JOSE MONTEROSO, ROSENDO MORALES, CESAR NARDA, DOMINADOR NAGAL, EDEMIO NARISMA, DINISIO
NAVASCA, REGINO NEPICON, JR., JESSIE CRIS NILO, JERWYN ORARIO, EUGENIO ORBEGOZO, IRENEO
ORGANISTA, CATALINO OJENDRAS, WILLIAM OLIVARES, JUANITO ORIO, WILLIAM ORTIZO, ROQUE PAL-
PALLATOC, ROGELIO PAEL, LORENZO PAMINTUAN, VIRGILIO PANTALEON, ANTONIO PAPA, EMMANUEL
PASCUAL, FRANCISCO PECUNDO, RUFINO PELICER, LEONARDO PEPITO, PABLITO PERALTA, EDILBERTO
PEREZ, LOLITO PEREZ, PELAGIO PEREZ, JR., FERNANDO PINEDA, CARMEN PIO, ALEJANDRO QUIAMCO,
VIRGILIO QUILALANG, JEREMEAS QUINES, ZENAIDA RAQUINE, DOMINGO RANOLA, SABINO RANULO, EDDIE
RAZONABE, ALBERTO REBAULA, BENIGNO REGIS, PERFECTO REBOYO, VITALIANO REYES, ZOSIMO REYES,
EDWIN ROBERTS, ROBERT ROJO, GODOFREDO ROLIO, ANATALIA ROSANTO, DOMINADOR ROSANTO,
RAMON ROSANTO, SR., RODRIGO ROSANTO, JULIO RUBIO, DANTE RUZOL, VENUS RUZOL, ROMULO SABINO,
CIPRIANO SACUILLES, SR., PRIMO SALAZAR, GASPAR SAMUYA, ANTONIO SANCHEZ, CLAUDIO SANCHEZ,
YOLANDA SAN LUIS, ROBERTO SANTOS, BENITO SEGUDIENTE, EDGAR SIBAL, GREGORIO SIBAL,
VALENTINO SIBAL, SONNY SINGH, ROMEO SOMERA, EDGAR TABAQUE, BENITO TACATA, MATILDE TACATA,
ANDRESITO TALAM, ANTOLIN TALISIC, PABLO TAMAYO, JULIE TAMIEZA, ROGELIO TAYO, CELSO TE,
ENRIQUE TRIPULCA, ARMANDO TUIBEO, NICANOR TUMAMAO, EDUARDO TUMBALE, RAMON TURIRIT,
LONGENIO UMACAM, TOLENTINO UNDAUNDO, DIOLITO VALENCIA, ERNESTO VARGAS, BILLY VASQUEZ,
TOMAS VELINA, MARCOS DE VERA, IRENEO VILELA, NICANDRO VILLAFRANCA, DANNY VILLANUEVA,
LOLITA VITALICO, ALIPIO YGOT, AGOSTO YROMA, FELIX ZAMBALES, and GUILLERMO ZIPANGAN, petioners,
vs. NATIONAL LABOR RELATIONS COMMISSION (NLRC), and FORTUNE TOBACCO CORPORATION and/or
MAGNUM INTEGRATED SERVICES, INC. (formerly FORTUNE INTEGRATED SERVICES, INC.), respondents.

DECISION

PUNO, J.:

This case stemmed from a complaint for illegal dismissal, unfair labor practice and refund of cash bond filed
by petitioners against respondents before the Arbitration Branch of the National Labor Relations Commission
(NLRC). The petition at bar seeks the annulment of the resolution of the NLRC dated July 5, 1993 reversing
the decision of the Labor Arbiter finding respondents liable for the charges, and its resolution dated August
10, 1993 denying petitioners' motion for reconsideration.

The undisputed facts are as follows:

On August 23, 1980, Fortune Tobacco Corporation (FTC) and Fortune Integrated Services, Inc. (FISI) entered
into a contract for security services where the latter undertook to provide security guards for the protection
and security of the former. The petitioners were among those engaged as security guards pursuant to the
contract.

On February 1, 1991, the incorporators and stockholders of FISI sold out lock, stock and barrel to a group of
new stockholders by executing for the purpose a "Deed of Sale of Shares of Stock". On the same date, the
Articles of Incorporation of FISI was amended changing its corporate name to Magnum Integrated Services,
Inc. (MISI). A new by-laws was likewise adopted and approved by the Securities and Exchange Commission
on June 4, 1993.

On October 15, 1991, FTC terminated the contract for security services which resulted in the displacement of
some five hundred eighty two (582) security guards assigned by FISI/MISI to FTC, including the petitioners in
this case. FTC engaged the services of two (2) other security agencies, Asian Security Agency and Ligalig
Security Services, whose security guards were posted on October 15, 1991 to replace FISI's security guards.

Sometime in October 1991, the Fortune Tobacco Labor Union, an affiliate of the National Federation of Labor
Unions (NAFLU), and claiming to be the bargaining agent of the security guards, sent a Notice of Strike to
FISI/MISI. On November 14, 1991, the members of the union which include petitioners picketed the premises
of FTC. The Regional Trial Court of Pasig, however, issued a writ of injunction to enjoin the picket.

On November 29, 1991, Simeon de Leon, together with sixteen (16) other complainants instituted the instant
case before the Arbitration Branch of the NLRC.The complaint was later amended to allow the inclusion of
other complainants.

The parties submitted the following issues for resolution:

(1) Whether petitioners were illegally dismissed;

(2) Whether respondents are guilty of unfair labor practice; and

(3) Whether petitioners are entitled to the refund of their cash bond deposited with respondent FISI.
Petitioners alleged that they were regular employees of FTC which was also using the corporate names
Fortune Integrated Services, Inc. and Magnum Integrated Services, Inc. They were assigned to work as
security guards at the company's main factory plant, its tobacco redrying plant and warehouse. They averred
that they performed their duties under the control and supervision of FTC's security supervisors. Their
services, however, were severed in October 1991 without valid cause and without due process. Petitioners
claimed that their dismissal was part of respondents' design to bust their newly-organized union which
sought to enforce their rights under the Labor Standards law.[1]

Respondent FTC, on the other hand, maintained that there was no employer-employee relationship between
FTC and petitioners. It said that at the time of the termination of their services, petitioners were the
employees of MISI which was a separate and distinct corporation from FTC. Hence, petitioners had no cause
of action against FTC.[2]

Respondent FISI, meanwhile, denied the charge of illegal dismissal and unfair labor practice. It argued that
petitioners were not dismissed from service but were merely placed on floating status pending re-assignment
to other posts. It alleged that the temporary displacement of petitioners was not due to its fault but was the
result of the pretermination by FTC of the contract for security services.[3]

The Labor Arbiter found respondents liable for the charges. Rejecting FTC's argument that there was no
employer-employee relationship between FTC and petitioners, he ruled that FISI and FTC should be
considered as a single employer. He observed that the two corporations have common stockholders and they
share the same business address. In addition, FISI had no client other than FTC and other corporations
belonging to the group of companies owned by Lucio Tan. The Labor Arbiter thus found respondents guilty of
union busting and illegal dismissal. He observed that not long after the stockholders of FISI sold all their
stocks to a new set of stockholders, FTC terminated the contract of security services and engaged the services
of two other security agencies. FTC did not give any reason for the termination of the contract. The Labor
Arbiter gave credence to petitioners' theory that respondents' precipitate termination of their employment
was intended to bust their union. Consequently, the Labor Arbiter ordered respondents to pay petitioners
their backwages and separation pay, to refund their cash bond deposit, and to pay attorney's fees.[4]

On appeal, the NLRC reversed and set aside the decision of the Labor Arbiter. First, it held that the Labor
Arbiter erred in applying the "single employer" principle and concluding that there was an employer-
employee relationship between FTC and FISI on one hand, and petitioners on the other hand. It found that at
the time of the termination of the contract of security services on October 15, 1991, FISI which, at that time,
had been renamed Magnum Integrated Services, Inc. had a different set of stockholders and officers from that
of FTC. They also had separate offices. The NLRC held that the principle of "single employer" and the doctrine
of piercing the corporate veil could not apply under the circumstances. It further ruled that the proximate
cause for the displacement of petitioners was the termination of the contract for security services by FTC on
October 15, 1991. FISI could not be faulted for the severance of petitioners' assignment at the premises of
FTC.Consequently, the NLRC held that the charge of illegal dismissal had no basis. As regards the charge of
unfair labor practice, the NLRC found that petitioners who had the burden of proof failed to adduce any
evidence to support their charge of unfair labor practice against respondents. Hence, it ordered the dismissal
of petitioners' complaint.[5]

The petitioners filed a motion for reconsideration of the resolution of the NLRC but the same was denied. [6]
Hence, this petition.

We gave due course to the petition on May 15, 1995. Thus, the ruling in St. Martin Funeral Home vs. NLRC [7]
remanding all petitions for certiorari from the decision of the NLRC to the Court of Appeals does not apply to
the case at bar.

The petition is impressed with merit.

An examination of the facts of this case reveals that there is sufficient ground to conclude that respondents
were guilty of interfering with the right of petitioners to self-organization which constitutes unfair labor
practice under Article 248 of the Labor Code.[8] Petitioners have been employed with FISI since the 1980s and
have since been posted at the premises of FTC -- its main factory plant, its tobacco redrying plant and
warehouse. It appears from the records that FISI, while having its own corporate identity, was a mere
instrumentality of FTC, tasked to provide protection and security in the company premises. The records show
that the two corporations had identical stockholders and the same business address. FISI also had no other
clients except FTC and other companies belonging to the Lucio Tan group of companies. Moreover, the early
payslips of petitioners show that their salaries were initially paid by FTC. [9] To enforce their rightful benefits
under the laws on Labor Standards, petitioners formed a union which was later certified as bargaining agent
of all the security guards. On February 1, 1991, the stockholders of FISI sold all their participations in the
corporation to a new set of stockholders which renamed the corporation Magnum Integrated Services, Inc. On
October 15, 1991, FTC, without any reason, preterminated its contract of security services with MISI and
contracted two other agencies to provide security services for its premises.This resulted in the displacement
of petitioners. As MISI had no other clients, it failed to give new assignments to petitioners. Petitioners have
remained unemployed since then. All these facts indicate a concerted effort on the part of respondents to
remove petitioners from the company and thus abate the growth of the union and block its actions to enforce
their demands in accordance with the Labor Standards laws. The Court held in Insular Life Assurance Co.,
Ltd., Employees Association-NATU vs. Insular Life Assurance Co., Ltd.:[10]

The test of whether an employer has interfered with and coerced employees within the meaning of section
(a) (1) is whether the employer has engaged in conduct which it may reasonably be said tends to interfere
with the free exercise of employees' rights under section 3 of the Act, and it is not necessary that there be
direct evidence that any employee was in fact intimidated or coerced by statements of threats of the
employer if there is a reasonable inference that anti-union conduct of the employer does have an adverse
effect on self-organization and collective bargaining.[11]

We are not persuaded by the argument of respondent FTC denying the presence of an employer-employee
relationship. We find that the Labor Arbiter correctly applied the doctrine of piercing the corporate veil to
hold all respondents liable for unfair labor practice and illegal termination of petitioners' employment. It is a
fundamental principle in corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it is connected. However, when the concept of separate
legal entity is used to defeat public convenience, justify wrong, protect fraud or defend crime, the law will
regard the corporation as an association of persons, or in case of two corporations, merge them into one. The
separate juridical personality of a corporation may also be disregarded when such corporation is a mere alter
ego or business conduit of another person.[12] In the case at bar, it was shown that FISI was a mere adjunct of
FTC.FISI, by virtue of a contract for security services, provided FTC with security guards to safeguard its
premises. However, records show that FISI and FTC have the same owners and business address, and FISI
provided security services only to FTC and other companies belonging to the Lucio Tan group of companies.
The purported sale of the shares of the former stockholders to a new set of stockholders who changed the
name of the corporation to Magnum Integrated Services, Inc. appears to be part of a scheme to terminate the
services of FISI's security guards posted at the premises of FTC and bust their newly-organized union which
was then beginning to become active in demanding the company's compliance with Labor Standards laws.
Under these circumstances, the Court cannot allow FTC to use its separate corporate personality to shield
itself from liability for illegal acts committed against its employees.

Thus, we find that the termination of petitioners' services was without basis and therefore illegal. Under
Article 279 of the Labor Code, an employee who is unjustly dismissed from work is entitled to reinstatement
without loss of seniority rights and other privileges, and to his full backwages, inclusive of allowances, and to
his other benefits or their monetary equivalent computed from the time his compensation was witheld from
him up to the time of his actual reinstatement.However, if reinstatement is no longer possible, the employer
has the alternative of paying the employee his separation pay in lieu of reinstatement.[13]

IN VIEW WHEREOF, the petition is GRANTED. The assailed resolutions of the NLRC are SET ASIDE.
Respondents are hereby ordered to pay petitioners their full backwages, and to reinstate them to their former
position without loss of seniority rights and privileges, or to award them separation pay in case reinstatement
is no longer feasible.

SO ORDERED.
 10. 381 SCRA 244

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

PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION, petitioners, vs.
ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent.

DECISION

PANGANIBAN, J.:

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

Statement of the Case

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

WHEREFORE, the judgment appealed from is hereby AFFIRMED.[2]

The Facts

The factual antecedents of the case are summarized by the Court of Appeals as follows:

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

(a) Construction of one (1) power house building;

(b) Construction of three (3) reinforced concrete foundation for three (3) units 350 KW diesel engine
generating set[s];
(c) Construction of three (3) reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator
sets;

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

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

(f) Relocating of 2,400 V transmission line, demolition of all existing concrete foundation and drainage canals,
excavation, and earth fillings all for the total amount of P543,500.00 as evidenced by a contract, [a] xerox
copy of which is hereto attached as Annex A and made an integral part of this complaint;

that aside from the work contract mentioned-above, the defendant PASUMIL required the plaintiff to perform
extra work, and provide electrical equipment and spare parts, such as:

(a) Supply of electrical devices;

(b) Extra mechanical works;

(c) Extra fabrication works;

(d) Supply of materials and consumable items;

(e) Electrical shop repair;

(f) Supply of parts and related works for turbine generator;

(g) Supply of electrical equipment for machinery;

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

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

(1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with annual interest of 14% from
the time the obligation falls due and demandable;

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

(3) Ordering the defendants to pay the costs of the suit.

The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint chiefly on the ground that
the complaint failed to state sufficient allegations to establish a cause of action against both defendants,
inasmuch as there is lack or want of privity of contract between the plaintiff and the two defendants, the PNB
and NASUDECO, said defendants citing Article 1311 of the New Civil Code, and the case law ruling in Salonga
v. Warner Barnes & Co., 88 Phil. 125; and Manila Port Service, et al. v. Court of Appeals, et al., 20 SCRA 1214.

The motion to dismiss was by the court a quo denied in its Order of November 27, 1980; in the same order,
that court directed the defendants to file their answer to the complaint within 15 days.

In their answer, the defendant NASUDECO reiterated the grounds of its motion to dismiss, to wit:

That the complaint does not state a sufficient cause of action against the defendant NASUDECO because: (a)
NASUDECO is not x x x privy to the various electrical construction jobs being sued upon by the plaintiff under
the present complaint; (b) the taking over by NASUDECO of the assets of defendant PASUMIL was solely for
the purpose of reconditioning the sugar central of defendant PASUMIL pursuant to martial law powers of the
President under the Constitution; (c) nothing in the LOI No. 189-A (as well as in LOI No. 311) authorized or
commanded the PNB or its subsidiary corporation, the NASUDECO, to assume the corporate obligations of
PASUMIL as that being involved in the present case; and, (d) all that was mentioned by the said letter of
instruction insofar as the PASUMIL liabilities [were] concerned [was] for the PNB, or its subsidiary
corporation the NASUDECO, to make a study of, and submit [a] recommendation on the problems concerning
the same.

By way of counterclaim, the NASUDECO averred that by reason of the filing by the plaintiff of the present suit,
which it [labeled] as unfounded or baseless, the defendant NASUDECO was constrained to litigate and incur
litigation expenses in the amount of P50,000.00, which plaintiff should be sentenced to pay.Accordingly,
NASUDECO prayed that the complaint be dismissed and on its counterclaim, that the plaintiff be condemned
to pay P50,000.00 in concept of attorneys fees as well as exemplary damages.

In its answer, the defendant PNB likewise reiterated the grounds of its motion to dismiss, namely: (1) the
complaint states no cause of action against the defendant PNB; (2) that PNB is not a party to the contract
alleged in par. 6 of the complaint and that the alleged services rendered by the plaintiff to the defendant
PASUMIL upon which plaintiffs suit is erected, was rendered long before PNB took possession of the assets of
the defendant PASUMIL under LOI No. 189-A; (3) that the PNB take-over of the assets of the defendant
PASUMIL under LOI 189-A was solely for the purpose of reconditioning the sugar central so that PASUMIL
may resume its operations in time for the 1974-75 milling season, and that nothing in the said LOI No. 189-A,
as well as in LOI No. 311, authorized or directed PNB to assume the corporate obligation/s of PASUMIL, let
alone that for which the present action is brought; (4) that PNBs management and operation under LOI No.
311 did not refer to any asset of PASUMIL which the PNB had to acquire and thereafter [manage], but only to
those which were foreclosed by the DBP and were in turn redeemed by the PNB from the DBP; (5) that
conformably to LOI No. 311, on August 15, 1975, the PNB and the Development Bank of the Philippines (DBP)
entered into a Redemption Agreement whereby DBP sold, transferred and conveyed in favor of the PNB, by
way of redemption, all its (DBP) rights and interest in and over the foreclosed real and/or personal
properties of PASUMIL, as shown in Annex C which is made an integral part of the answer; (6) that again,
conformably with LOI No. 311, PNB pursuant to a Deed of Assignment dated October 21, 1975, conveyed,
transferred, and assigned for valuable consideration, in favor of NASUDECO, a distinct and independent
corporation, all its (PNB) rights and interest in and under the above Redemption Agreement. This is shown in
Annex D which is also made an integral part of the answer; [7] that as a consequence of the said Deed of
Assignment, PNB on October 21, 1975 ceased to managed and operate the above-mentioned assets of
PASUMIL, which function was now actually transferred to NASUDECO. In other words, so asserted PNB, the
complaint as to PNB, had become moot and academic because of the execution of the said Deed of
Assignment; [8] that moreover, LOI No. 311 did not authorize or direct PNB to assume the corporate
obligations of PASUMIL, including the alleged obligation upon which this present suit was brought; and [9]
that, at most, what was granted to PNB in this respect was the authority to make a study of and submit
recommendation on the problems concerning the claims of PASUMIL creditors, under sub-par. 5 LOI No. 311.
In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate and to incur expenses in
this case, hence it is entitled to claim attorneys fees in the amount of at least P50,000.00. Accordingly, PNB
prayed that the complaint be dismissed; and that on its counterclaim, that the plaintiff be sentenced to pay
defendant PNB the sum of P50,000.00 as attorneys fees, aside from exemplary damages in such amount that
the court may seem just and equitable in the premises.

Summons by publication was made via the Philippines Daily Express, a newspaper with editorial office at 371
Bonifacio Drive, Port Area, Manila, against the defendant PASUMIL, which was thereafter declared in default
as shown in the August 7, 1981 Order issued by the Trial Court.

After due proceedings, the Trial Court rendered judgment, the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant Corporation,
Philippine National Bank (PNB) NATIONAL SUGAR DEVELOPMENT CORPORATION (NASUDECO) and
PAMPANGA SUGAR MILLS (PASUMIL), ordering the latter to pay jointly and severally the former the
following:

1. The sum of P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from September 25,
1980 until fully paid;

2. The sum of P102,724.76 as attorneys fees; and,

3. Costs.

SO ORDERED.

Manila, Philippines, September 4, 1986.

'(SGD) ERNESTO S. TENGCO

Judge[3]

Ruling of the Court of Appeals

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

Hence, this Petition.[5]

Issues

In their Memorandum, petitioners raise the following errors for the Courts consideration:

The Court of Appeals gravely erred in law in holding the herein petitioners liable for the unpaid corporate
debts of PASUMIL, a corporation whose corporate existence has not been legally extinguished or terminated,
simply because of petitioners[] take-over of the management and operation of PASUMIL pursuant to the
mandates of LOI No. 189-A, as amended by LOI No. 311.

II

The Court of Appeals gravely erred in law in not applying [to] the case at bench the ruling enunciated in
Edward J. Nell Co. v. Pacific Farms, 15 SCRA 415.[6]

Succinctly put, the aforesaid errors boil down to the principal issue of whether PNB is liable for the unpaid
debts of PASUMIL to respondent.
This Courts Ruling

The Petition is meritorious.

Main Issue:

Liability for Corporate Debts

As a general rule, questions of fact may not be raised in a petition for review under Rule 45 of the Rules of
Court.[7] To this rule, however, there are some exceptions enumerated in Fuentes v. Court of Appeals.[8] After a
careful scrutiny of the records and the pleadings submitted by the parties, we find that the lower courts
misappreciated the evidence presented.[9] Overlooked by the CA were certain relevant facts that would justify
a conclusion different from that reached in the assailed Decision.[10]

Petitioners posit that they should not be held liable for the corporate debts of PASUMIL, because their
takeover of the latters foreclosed assets did not make them assignees. On the other hand, respondent asserts
that petitioners and PASUMIL should be treated as one entity and, as such, jointly and severally held liable for
PASUMILs unpaid obligation.

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

Piercing the Corporate

Veil Not Warranted

A corporation is an artificial being created by operation of law. It possesses the right of succession and such
powers, attributes, and properties expressly authorized by law or incident to its existence.[12] It has a
personality separate and distinct from the persons composing it, as well as from any other legal entity to
which it may be related.[13] This is basic.

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced
when the corporation is just an alter ego of a person or of another corporation. [14] For reasons of public policy
and in the interest of justice, the corporate veil will justifiably be impaled[15] only when it becomes a shield for
fraud, illegality or inequity committed against third persons.[16]

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. [17] A court
should be mindful of the milieu where it is to be applied.[18] It must be certain that the corporate fiction was
misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its
rights.[19] The wrongdoing must be clearly and convincingly established; it cannot be presumed.[20] Otherwise,
an injustice that was never unintended may result from an erroneous application. [21]

This Court has pierced the corporate veil to ward off a judgment credit, [22] to avoid inclusion of corporate
assets as part of the estate of the decedent,[23] to escape liability arising from a debt,[24] or to perpetuate fraud
and/or confuse legitimate issues[25] either to promote or to shield unfair objectives[26] or to cover up an
otherwise blatant violation of the prohibition against forum-shopping.[27] Only in these and similar instances
may the veil be pierced and disregarded.[28]

The question of whether a corporation is a mere alter ego is one of fact.[29] Piercing the veil of corporate
fiction may be allowed only if the following elements concur: (1) control -- not mere stock control, but
complete domination -- not only of finances, but of policy and business practice in respect to the transaction
attacked, must have been such that the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own; (2) such control must have been used by the defendant to commit a fraud
or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust
act in contravention of plaintiffs legal right; and (3) the said control and breach of duty must have
proximately caused the injury or unjust loss complained of.[30]

We believe that the absence of the foregoing elements in the present case precludes the piercing of the
corporate veil. First, other than the fact that petitioners acquired the assets of PASUMIL, there is no showing
that their control over it warrants the disregard of corporate personalities. [31]Second, there is no evidence
that their juridical personality was used to commit a fraud or to do a wrong; or that the separate corporate
entity was farcically used as a mere alter ego, business conduit or instrumentality of another entity or
person.[32] Third, respondent was not defrauded or injured when petitioners acquired the assets of
PASUMIL.[33]

Being the party that asked for the piercing of the corporate veil, respondent had the burden of presenting
clear and convincing evidence to justify the setting aside of the separate corporate personality rule. [34]
However, it utterly failed to discharge this burden;[35] it failed to establish by competent evidence that
petitioners separate corporate veil had been used to conceal fraud, illegality or inequity. [36]

While we agree with respondents claim that the assets of the National Sugar Development Corporation
(NASUDECO) can be easily traced to PASUMIL,[37] we are not convinced that the transfer of the latters assets
to petitioners was fraudulently entered into in order to escape liability for its debt to respondent. [38]

A careful review of the records reveals that DBP foreclosed the mortgage executed by PASUMIL and acquired
the assets as the highest bidder at the public auction conducted.[39] The bank was justified in foreclosing the
mortgage, because the PASUMIL account had incurred arrearages of more than 20 percent of the total
outstanding obligation.[40] Thus, DBP had not only a right, but also a duty under the law to foreclose the
subject properties.[41]

Pursuant to LOI No. 189-A[42] as amended by LOI No. 311,[43] PNB acquired PASUMILs assets that DBP had
foreclosed and purchased in the normal course. Petitioner bank was likewise tasked to manage temporarily
the operation of such assets either by itself or through a subsidiary corporation.[44]

PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets pursuant to Section 6 of
Act No. 3135.[45] These assets were later conveyed to PNB for a consideration, the terms of which were
embodied in the Redemption Agreement.[46] PNB, as successor-in-interest, stepped into the shoes of DBP as
PASUMILs creditor.[47] By way of a Deed of Assignment,[48] PNB then transferred to NASUDECO all its rights
under the Redemption Agreement.

In Development Bank of the Philippines v. Court of Appeals,[49] we had the occasion to resolve a similar issue.
We ruled that PNB, DBP and their transferees were not liable for Marinduque Minings unpaid obligations to
Remington Industrial Sales Corporation (Remington) after the two banks had foreclosed the assets of
Marinduque Mining. We likewise held that Remington failed to discharge its burden of proving bad faith on
the part of Marinduque Mining to justify the piercing of the corporate veil.

In the instant case, the CA erred in affirming the trial courts lifting of the corporate mask.[50] The CA did not
point to any fact evidencing bad faith on the part of PNB and its transferee. [51] The corporate fiction was not
used to defeat public convenience, justify a wrong, protect fraud or defend crime. [52] None of the foregoing
exceptions was shown to exist in the present case.[53] On the contrary, the lifting of the corporate veil would
result in manifest injustice. This we cannot allow.

No Merger or Consolidation

Respondent further claims that petitioners should be held liable for the unpaid obligations of PASUMIL by
virtue of LOI Nos. 189-A and 311, which expressly authorized PASUMIL and PNB to merge or consolidate. On
the other hand, petitioners contend that their takeover of the operations of PASUMIL did not involve any
corporate merger or consolidation, because the latter had never lost its separate identity as a corporation.
A consolidation is the union of two or more existing entities to form a new entity called the consolidated
corporation. A merger, on the other hand, is a union whereby one or more existing corporations are absorbed
by another corporation that survives and continues the combined business.[54]

The merger, however, does not become effective upon the mere agreement of the constituent corporations. [55]
Since a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of
stockholders and creditors, there must be an express provision of law authorizing them. [56] For a valid merger
or consolidation, the approval by the Securities and Exchange Commission (SEC) of the articles of merger or
consolidation is required.[57] These articles must likewise be duly approved by a majority of the respective
stockholders of the constituent corporations.[58]

In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and PNB. The
procedure prescribed under Title IX of the Corporation Code[59] was not followed.

In fact, PASUMILs corporate existence, as correctly found by the CA, had not been legally extinguished or
terminated.[60] Further, prior to PNBs acquisition of the foreclosed assets, PASUMIL had previously made
partial payments to respondent for the formers obligation in the amount of P777,263.80. As of June 27, 1973,
PASUMIL had paid P250,000 to respondent and, from January 5, 1974 to May 23, 1974, another P14,000.

Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to respondent. [61] LOI No.
11 explicitly provides that PNB shall study and submit recommendations on the claims of PASUMILs
creditors.[62] Clearly, the corporate separateness between PASUMIL and PNB remains, despite respondents
insistence to the contrary.[63]

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

SO ORDERED.

11. 402 SCRA 339

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

ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners, vs. PACIFIC BANKING CORPORATION, REGISTER
OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the Heirs of EUGENIO D. TRINIDAD, respondents.

DECISION

QUISUMBING, J.:

This petition for review on certiorari seeks the reversal of the Decision [1] dated October 21, 1999 of the Court
of Appeals in CA-G.R. CV No. 41536 which dismissed herein petitioners appeal from the Decision [2] dated
February 10, 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 84, in Civil Case No. Q-89-4152.
The trial court had dismissed petitioners complaint for annulment of real estate mortgage and the extra-
judicial foreclosure thereof. Likewise brought for our review is the Resolution [3] dated February 23, 2000 of
the Court of Appeals which denied petitioners motion for reconsideration.

The facts, as culled from records, are as follows:

Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Belas Export Trading (BET), a single
proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged in the
manufacture of garments for domestic and foreign consumption. The Lipats also owned the Mystical Fashions
in the United States, which sells goods imported from the Philippines through BET. Mrs. Lipat designated her
daughter, Teresita B. Lipat, to manage BET in the Philippines while she was managing Mystical Fashions in
the United States.

In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14, 1978, a special
power of attorney appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit
accommodations from respondent Pacific Banking Corporation (Pacific Bank).She likewise authorized
Teresita to execute mortgage contracts on properties owned or co-owned by her as security for the
obligations to be extended by Pacific Bank including any extension or renewal thereof.

Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in
behalf of her mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to
be manufactured by BET and exported to Mystical Fashions in the United States.As security therefor, the Lipat
spouses, as represented by Teresita, executed a Real Estate Mortgage over their property located at No. 814
Aurora Blvd., Cubao, Quezon City. Said property was likewise made to secure other additional or new loans,
discounting lines, overdrafts and credit accommodations, of whatever amount, which the Mortgagor and/or
Debtor may subsequently obtain from the Mortgagee as well as any renewal or extension by the Mortgagor
and/or Debtor of the whole or part of said original, additional or new loans, discounting lines, overdrafts and
other credit accommodations, including interest and expenses or other obligations of the Mortgagor and/or
Debtor owing to the Mortgagee, whether directly, or indirectly, principal or secondary, as appears in the
accounts, books and records of the Mortgagee.[4]

On September 5, 1979, BET was incorporated into a family corporation named Belas Export Corporation
(BEC) in order to facilitate the management of the business. BEC was engaged in the business of
manufacturing and exportation of all kinds of garments of whatever kind and description [5] and utilized the
same machineries and equipment previously used by BET. Its incorporators and directors included the Lipat
spouses who owned a combined 300 shares out of the 420 shares subscribed, Teresita Lipat who owned 20
shares, and other close relatives and friends of the Lipats. [6] Estelita Lipat was named president of BEC, while
Teresita became the vice-president and general manager.

Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC
with the corresponding promissory notes duly executed by Teresita on behalf of the corporation. A letter of
credit was also opened by Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of
BEC after BEC executed the corresponding trust receipt therefor. Export bills were also executed in favor of
Pacific Bank for additional finances. These transactions were all secured by the real estate mortgage over the
Lipats property.

The promissory notes, export bills, and trust receipt eventually became due and demandable. Unfortunately,
BEC defaulted in its payments. After receipt of Pacific Banks demand letters, Estelita Lipat went to the office
of the banks liquidator and asked for additional time to enable her to personally settle BECs obligations. The
bank acceded to her request but Estelita failed to fulfill her promise.

Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the law
the mortgaged property was sold at public auction. On January 31, 1989, a certificate of sale was issued to
respondent Eugenio D. Trinidad as the highest bidder.

On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a complaint for annulment of the
real estate mortgage, extrajudicial foreclosure and the certificate of sale issued over the property against
Pacific Bank and Eugenio D. Trinidad. The complaint, which was docketed as Civil Case No. Q-89-4152,
alleged, among others, that the promissory notes, trust receipt, and export bills were all ultra vires acts of
Teresita as they were executed without the requisite board resolution of the Board of Directors of BEC. The
Lipats also averred that assuming said acts were valid and binding on BEC, the same were the corporations
sole obligation, it having a personality distinct and separate from spouses Lipat. It was likewise pointed out
that Teresitas authority to secure a loan from Pacific Bank was specifically limited to Mrs. Lipats sole use and
benefit and that the real estate mortgage was executed to secure the Lipats and BETs P583,854.00 loan only.
In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evade
payments of the value of the promissory notes, trust receipt, and export bills with their property because they
and the BEC are one and the same, the latter being a family corporation. Respondent Trinidad further claimed
that he was a buyer in good faith and for value and that petitioners are estopped from denying BECs existence
after holding themselves out as a corporation.

After trial on the merits, the RTC dismissed the complaint, thus:

WHEREFORE, this Court holds that in view of the facts contained in the record, the complaint filed in this case
must be, as is hereby, dismissed. Plaintiffs however has five (5) months and seventeen (17) days reckoned
from the finality of this decision within which to exercise their right of redemption. The writ of injunction
issued is automatically dissolved if no redemption is effected within that period.

The counterclaims and cross-claim are likewise dismissed for lack of legal and factual basis.

No costs.

IT IS SO ORDERED.[7]

The trial court ruled that there was convincing and conclusive evidence proving that BEC was a family
corporation of the Lipats. As such, it was a mere extension of petitioners personality and business and a mere
alter ego or business conduit of the Lipats established for their own benefit. Hence, to allow petitioners to
invoke the theory of separate corporate personality would sanction its use as a shield to further an end
subversive of justice.[8]Thus, the trial court pierced the veil of corporate fiction and held that Belas Export
Corporation and petitioners (Lipats) are one and the same. Pacific Bank had transacted business with both
BET and BEC on the supposition that both are one and the same. Hence, the Lipats were estopped from
disclaiming any obligations on the theory of separate personality of corporations, which is contrary to
principles of reason and good faith.

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

The Lipats then moved for reconsideration, but this was denied by the appellate court in its Resolution of
February 23, 2000.[10]

Hence, this petition, with petitioners submitting that the court a quo erred

1) .IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN THIS
CASE.

2) .IN HOLDING THAT PETITIONERS PROPERTY CAN BE HELD LIABLE UNDER THE REAL ESTATE
MORTGAGE NOT ONLY FOR THE AMOUNT OF P583,854.00 BUT ALSO FOR THE FULL VALUE OF
PROMISSORY NOTES, TRUST RECEIPTS AND EXPORT BILLS OF BELAS EXPORT CORPORATION.

3) .IN HOLDING THAT THE IMPOSITION OF 15% ATTORNEYS FEES IN THE EXTRA-JUDICIAL FORECLOSURE
IS BEYOND THIS COURTS JURISDICTION FOR IT IS BEING RAISED FOR THE FIRST TIME IN THIS APPEAL.
4) .IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED PROMISSORY NOTES, THE
DOLLAR ACCOMMODATIONS AND TRUST RECEIPTS DESPITE THE EVIDENT FACT THAT THEY WERE NOT
SIGNED BY HIM AND THEREFORE ARE NOT VALID OR ARE NOT BINDING TO HIM.

5) .IN DENYING PETITIONERS MOTION FOR RECONSIDERATION AND IN HOLDING THAT SAID MOTION FOR
RECONSIDERATION IS AN UNAUTHORIZED MOTION, A MERE SCRAP OF PAPER WHICH CAN NEITHER BIND
NOR BE OF ANY CONSEQUENCE TO APPELLANTS.[11]

In sum, the following are the relevant issues for our resolution:

1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;

2. Whether or not petitioners' property under the real estate mortgage is liable not only for the amount of
P583,854.00 but also for the value of the promissory notes, trust receipt, and export bills subsequently
incurred by BEC; and

3. Whether or not petitioners are liable to pay the 15% attorneys fees stipulated in the deed of real estate
mortgage.

On the first issue, petitioners contend that both the appellate and trial courts erred in holding them liable for
the obligations incurred by BEC through the application of the doctrine of piercing the veil of corporate fiction
absent any clear showing of fraud on their part.

Respondents counter that there is clear and convincing evidence to show fraud on part of petitioners given
the findings of the trial court, as affirmed by the Court of Appeals, that BEC was organized as a business
conduit for the benefit of petitioners.

Petitioners contentions fail to persuade this Court. A careful reading of the judgment of the RTC and the
resolution of the appellate court show that in finding petitioners mortgaged property liable for the
obligations of BEC, both courts below relied upon the alter ego doctrine or instrumentality rule, rather than
fraud in piercing the veil of corporate fiction. When the corporation is the mere alter ego or business conduit
of a person, the separate personality of the corporation may be disregarded. [12] This is commonly referred to
as the instrumentality rule or the alter ego doctrine, which the courts have applied in disregarding the
separate juridical personality of corporations. As held in one case,

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be
disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled corporation has, so to speak, no separate
mind, will or existence of its own, and is but a conduit for its principal. xxx[13]

We find that the evidence on record demolishes, rather than buttresses, petitioners contention that BET and
BEC are separate business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were
the owners of BET[14] and were two of the incorporators and majority stockholders of BEC. [15] It is also
undisputed that Estelita Lipat executed a special power of attorney in favor of her daughter, Teresita, to
obtain loans and credit lines from Pacific Bank on her behalf. [16] Incidentally, Teresita was designated as
executive-vice president and general manager of both BET and BEC, respectively. [17] We note further that: (1)
Estelita and Alfredo Lipat are the owners and majority shareholders of BET and BEC, respectively; [18] (2) both
firms were managed by their daughter, Teresita;[19] (3) both firms were engaged in the garment business,
supplying products to Mystical Fashion, a U.S. firm established by Estelita Lipat; (4) both firms held office in
the same building owned by the Lipats;[20] (5) BEC is a family corporation with the Lipats as its majority
stockholders; (6) the business operations of the BEC were so merged with those of Mrs. Lipat such that they
were practically indistinguishable; (7) the corporate funds were held by Estelita Lipat and the corporation
itself had no visible assets; (8) the board of directors of BEC was composed of the Burgos and Lipat family
members;[21] (9) Estelita had full control over the activities of and decided business matters of the
corporation;[22] and that (10) Estelita Lipat had benefited from the loans secured from Pacific Bank to finance
her business abroad[23]and from the export bills secured by BEC for the account of Mystical Fashion. [24] It
could not have been coincidental that BET and BEC are so intertwined with each other in terms of ownership,
business purpose, and management. Apparently, BET and BEC are one and the same and the latter is a
conduit of and merely succeeded the former. Petitioners attempt to isolate themselves from and hide behind
the corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the classical
doctrine of piercing the veil of corporate entity seeks to prevent and remedy. In our view, BEC is a mere
continuation and successor of BET, and petitioners cannot evade their obligations in the mortgage contract
secured under the name of BEC on the pretext that it was signed for the benefit and under the name of BET.
We are thus constrained to rule that the Court of Appeals did not err when it applied the instrumentality
doctrine in piercing the corporate veil of BEC.

On the second issue, petitioners contend that their mortgaged property should not be made liable for the
subsequent credit lines and loans incurred by BEC because, first, it was not covered by the mortgage contract
of BET which only covered the loan of P583,854.00 and which allegedly had already been paid; and, second, it
was secured by Teresita Lipat without any authorization or board resolution of BEC.

We find petitioners contention untenable. As found by the Court of Appeals, the mortgaged property is not
limited to answer for the loan of P583,854.00. Thus:

Finally, the extent to which the Lipats property can be held liable under the real estate mortgage is not
limited to P583,854.00. It can be held liable for the value of the promissory notes, trust receipt and export
bills as well. For the mortgage was executed not only for the purpose of securing the Belas Export Tradings
original loan of P583,854.00, but also for other additional or new loans, discounting lines, overdrafts and
credit accommodations, of whatever amount, which the Mortgagor and/or Debtor may subsequently obtain
from the mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part
of said original, additional or new loans, discounting lines, overdrafts and other credit accommodations,
including interest and expenses or other obligations of the Mortgagor and/or Debtor owing to the Mortgagee,
whether directly, or indirectly principal or secondary, as appears in the accounts, books and records of the
mortgagee.[25]

As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot be reviewed on
appeal by the Supreme Court, provided they are borne out by the record or based on substantial evidence. [26]
As noted earlier, BEC merely succeeded BET as petitioners alter ego; hence, petitioners mortgaged property
must be held liable for the subsequent loans and credit lines of BEC.

Further, petitioners contention that the original loan had already been paid, hence, the mortgaged property
should not be made liable to the loans of BEC, is unsupported by any substantial evidence other than Estelita
Lipats self-serving testimony. Two disputable presumptions under the rules on evidence weigh against
petitioners, namely: (a) that a person takes ordinary care of his concerns; [27] and (b) that things have
happened according to the ordinary course of nature and the ordinary habits of life. [28] Here, if the original
loan had indeed been paid, then logically, petitioners would have asked from Pacific Bank for the required
documents evidencing receipt and payment of the loans and, as owners of the mortgaged property, would
have immediately asked for the cancellation of the mortgage in the ordinary course of things. However, the
records are bereft of any evidence contradicting or overcoming said disputable presumptions.

Petitioners contend further that the mortgaged property should not bind the loans and credit lines obtained
by BEC as they were secured without any proper authorization or board resolution. They also blame the bank
for its laxity and complacency in not requiring a board resolution as a requisite for approving the loans.

Such contentions deserve scant consideration.

Firstly, it could not have been possible for BEC to release a board resolution since per admissions by both
petitioner Estelita Lipat and Alice Burgos, petitioners rebuttal witness, no business or stockholders meetings
were conducted nor were there election of officers held since its incorporation. In fact, not a single board
resolution was passed by the corporate board[29] and it was Estelita Lipat and/or Teresita Lipat who decided
business matters.[30]
Secondly, the principle of estoppel precludes petitioners from denying the validity of the transactions entered
into by Teresita Lipat with Pacific Bank, who in good faith, relied on the authority of the former as manager to
act on behalf of petitioner Estelita Lipat and both BET and BEC. While the power and responsibility to decide
whether the corporation should enter into a contract that will bind the corporation is lodged in its board of
directors, subject to the articles of incorporation, by-laws, or relevant provisions of law, yet, just as a natural
person may authorize another to do certain acts for and on his behalf, the board of directors may validly
delegate some of its functions and powers to officers, committees, or agents. The authority of such individuals
to bind the corporation is generally derived from law, corporate by-laws, or authorization from the board,
either expressly or impliedly by habit, custom, or acquiescence in the general course of business. [31] Apparent
authority, is derived not merely from practice. Its existence may be ascertained through (1) the general
manner in which the corporation holds out an officer or agent as having the power to act or, in other words,
the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his
ordinary powers.[32]

In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special power
of attorney executed by Estelita Lipat.Recall that Teresita Lipat acted as the manager of both BEC and BET
and had been deciding business matters in the absence of Estelita Lipat.Further, the export bills secured by
BEC were for the benefit of Mystical Fashion owned by Estelita Lipat. [33] Hence, Pacific Bank cannot be faulted
for relying on the same authority granted to Teresita Lipat by Estelita Lipat by virtue of a special power of
attorney. It is a familiar doctrine that if a corporation knowingly permits one of its officers or any other agent
to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do
those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such
agent, be estopped from denying the agents authority.[34]

We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent credit lines of
BEC. Suffice it to state that Alfredo Lipat never disputed the validity of the real estate mortgage of the original
loan; hence, he cannot now dispute the subsequent loans obtained using the same mortgage contract since it
is, by its very terms, a continuing mortgage contract.

On the third and final issue, petitioners assail the decision of the Court of Appeals for not taking cognizance of
the issue on attorneys fees on the ground that it was raised for the first time on appeal. We find the
conclusion of the Court of Appeals to be in accord with settled jurisprudence. Basic is the rule that matters
not raised in the complaint cannot be raised for the first time on appeal. [35] A close perusal of the complaint
yields no allegations disputing the attorneys fees imposed under the real estate mortgage and petitioners
cannot now allege that they have impliedly disputed the same when they sought the annulment of the
contract.

In sum, we find no reversible error of law committed by the Court of Appeals in rendering the decision and
resolution herein assailed by petitioners.

WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and the Resolution dated
February 23, 2000 of the Court of Appeals in CA-G.R. CV No. 41536 are AFFIRMED. Costs against petitioners.

SO ORDERED.