Titans

JULIAN GARRO, ISMAEL GARRO, BIENVENIDO CASTRO, GLICERIO BARRIGA, BEATRIZ CALZADA, ANDREA MATA DE BATULAN, TEOFISTA ALCALA, FILEMON LAVADOR, CANDELARIO LUMANTAO, GAVINO QUIMBO, JUSTINO TITO, MARCELINO GONZALES, SALVADOR DAYDAY, VENANCIA REPASO, LEODEGARIO GONZALES, and RESTITUTA GONZALES, respondents. 3rd Division [G.R. No. 136456, Oct 24, 2000] DECISION GONZAGA-REYES, J.: Petitioners seek the reversal of the decision of the First Division of the Court of Appeals dated November 14, 1997 in CA-G.R. CV No. 27220, entitled Heirs of Ramon Durano, Sr., et. Al. versus Spouses Angeles Supelveda Uy, et. Al., and the resolution of the Court of Appeals dated October 29, 1998 which denied petitioners motion for reconsideration. The antecedents of this case may be traced as far back as August 1970; it involves a 128hectare parcel of land located in the barrios of Dunga and Cahumayhumayan, Danao City. On December 27, 1973, the late Congressman Ramon Durano, Sr., together with his son Ramon Durano III, and the latters wife, Elizabeth Hotchkiss Durano (petitioners in the herein case), instituted an action for damages against spouses Angeles Supelveda Uy and Emigdio Bing Sing Uy, spouses Faustino Alatan and Valeriana Garro, spouses Rufino Lavador and Aurelia Mata, Silvestre Ramos, Hermogenes Tito, Teotimo Gonzales, Primitiva Garro, Julian Garro, Ismael Garro, Bienvenido Castro, Glicerio Barriga, Beatriz Calzada, Andrea Mata de Batulan, Teofista Alcala, Filemon Lavador, Candelario Lumantao, Gavino Quimbo, Justino Tito, Marcelino Gonzales, Salvador Dayday, Venancia Repaso, Leodegario Gonzales, Jose de la Calzada, Restituta Gonzales, and Cosme Ramos (herein respondents[1]) before Branch XVII of the then Court of First Instance of Cebu, Danao City. In that case, docketed as Civil Case No. DC-56, petitioners accused respondents of officiating a hate campaign against them by lodging complaints in the Police Department of Danao City in August 1970, over petitioners so-called invasion of respondents alleged properties in Cahumayhumayan, Danao City. This was followed by another complaint sent by respondents to the President of the Philippines in February 1971, which depicted petitioners as oppressors, landgrabbers and usurpers of respondents alleged rights. Upon the direction of the President, the Department of Justice through City Fiscal Jesus Navarro and the Philippine Constabulary of Cebu simultaneously conducted investigations on the matter. Respondents complaints were dismissed as baseless, and they appealed the same to the Secretary of Justice, who called for another investigation to be jointly conducted by the Special Prosecutor and the Office of the City Fiscal of Danao City. During the course of said joint investigation, respondents Hermogenes Tito and Salvador Dayday again lodged a complaint with the Office of the President, airing the same charges of landgrabbing. The investigations on this new complaint, jointly conducted by the 3rd Philippine Constabulary Zone and the Citizens Legal Assistance Office resulted in the finding that (petitioners) should not be held answerable therefor.[2] Petitioners further alleged in their complaint before the CFI that during the course of the above investigations, respondents kept spreading false rumors and damaging tales which put petitioners into public contempt and ridicule.[3] In their Answer, respondents lodged their affirmative defenses, demanded the return of their respective properties, and made counterclaims for actual, moral and exemplary damages. Respondents stated that sometime in the early part of August 1970 and months thereafter they received mimeographed notices dated August 2, 1970 and signed by the late Ramon Durano, Sr., informing them that the lands which they are tilling and residing in, formerly
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owned by the Cebu Portland Cement Company (hereafter, Cepoc), had been purchased by Durano & Co., Inc. The notices also declared that the lands were needed by Durano & Co. for planting to sugar and for roads or residences, and directed respondents to immediately turn over the said lands to the representatives of the company. Simultaneously, tall bamboo poles with pennants at the tops thereof were planted in some areas of the lands and metal sheets bearing the initials RMD were nailed to posts. As early as the first week of August 1970, and even before many of the respondents received notices to vacate, men who identified themselves as employees of Durano & Co. proceeded to bulldoze the lands occupied by various respondents, destroying in their wake the plantings and improvements made by the respondents therein. On some occasions, respondents alleged, these men fired shots in the air, purportedly acting upon the instructions of petitioner Ramon Durano III and/or Ramon Durano, Jr. On at least one instance, petitioners Ramon Durano III and Elizabeth Hotchkiss Durano were seen on the site of the bulldozing operations. On September 15, 1970, Durano & Co. sold the disputed property to petitioner Ramon Durano III, who procured the registration of these lands in his name under TCT No. T-103 and TCT No. T-104. Respondents contended that the display of force and the known power and prestige of petitioners and their family restrained them from directly resisting this wanton depredation upon their property. During that time, the mayor of Danao City was Mrs. Beatriz Durano, wife of Ramon Durano, Sr. and mother of petitioner Ramon Durano III. Finding no relief from the local police, who respondents said merely laughed at them for daring to complain against the Duranos, they organized themselves and sent a letter to then President Ferdinand Marcos reporting dispossession of their properties and seeking a determination of the ownership of the land. This notwithstanding, the bulldozing operations continued until the City Fiscal was requested by the Department of Justice to conduct an investigation on the matter. When, on July 27, 1971, the City Fiscal announced that he would be unable to conduct a preliminary investigation, respondents urged the Department of Justice to conduct the preliminary investigation. This was granted, and the investigations which spanned the period March 1972 to April 1973 led to the conclusion that respondents complaint was untenable.[4] In their counterclaim, respondents alleged that petitioners acts deprived most of them of their independent source of income and have made 2estitute of some of them. Also, petitioners have done serious violence to respondents spirit, as citizens and human beings, to the extent that one of them had been widowed by the emotional shock that the damage and dispossession has caused.[5] Thus, in addition to the dismissal of the complaint, respondents demanded actual damages for the cost of the improvements they made on the land, together with the damage arising from the dispossession itself; moral damages for the anguish they underwent as a result of the high-handed display of power by petitioners in depriving them of their possession and property; as well as exemplary damages, attorneys fees and expenses of litigation. Respondents respective counterclaims --- referring to the improvements destroyed, their values, and the approximate areas of the properties they owned and occupied --- are as follows: 3. TEOFISTA ALCALA Tax Declaration No. 00223; .2400 ha.; bulldozed on August, 10, 1970. Improvements destroyed consist of 47 trees, 10 bundles beatilis firewood and 2 sacks of cassava, all valued at P5,437.00. (Exh. B, including submarkings) b) FAUSTINO ALATAN and VALERIANA GARRO Tax Declaration No. 30758; .2480 ha.; Tax Declaration No. 32974; .8944 ha.; Tax Declaration No. 38908; .8000 ha.; Bulldozed on September 9, 1970; Improvements destroyed consist of 682 trees, a cornfield with one cavan per harvest 3 times a year, valued at P71,770.00; Bulldozed on March 13, 1971; 753 trees, 1,000 bundles beatilis firewood every year, valued at P29,100.00; Cut down in the later part of
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March, 1971 22 trees, 1,000 bundles beatilis firewood every year, 6 cavans corn harvest per year, valued at P1,940.00 or a total value of P102,810.00. (Exh. C, including submarkings) c) ANDREA MATA DE BATULAN Tax Declaration No. 33033; .4259 has.; bulldozed on September 11, 1970. Improvements destroyed consist of 512 trees and 15 sacks cassava all valued at P79,425.00. (Exh. D, including submarkings) d) GLICERIO BARRIGA Tax Declaration No. 32290; .4000 ha.; bulldozed on September 10, 1990. Improvements destroyed consist of 354 trees, cassava field if planted with corn good for one liter, 30 cavans harvest a year of corn, and one resthouse, all valued at P35,500.00. (Exh. E, including submarkings) e) BEATRIZ CALZADA Tax Declaration No. 03449; .900 ha.; Bulldozed on June 16, 1971. Improvements destroyed consist of 2,864 trees, 1,600 bundles of beatilis firewood, 12 kerosene cans cassava every year and 48 cavans harvest a year of corn all valued at P34,800.00. (Exh. F, including submarkings) f) BIENVENIDO CASTRO Tax Declaration No. 04883; .6000 ha.; bulldozed on September 10, 1970. Improvements destroyed consist of 170 trees, 10 sacks cassava every year, 500 bundles beatilis firewood every year, 60 cavans corn harvest per year, all valued at (5,550.00. (Exh. G, including submarkings) g) ISMAEL GARRO Tax Declaration No. 7185; 2 has. Bulldozed in August, 1970. Improvements destroyed consist of 6 coconut trees valued at P1,800.00. Bulldozed on February 3, 1971 improvements destroyed consist of 607 trees, a corn field of 5 cavans produce per harvest thrice a year, all valued at P67,890.00. (Exh. H, including submarkings) h) JULIAN GARRO Tax Declaration No. 28653; 1 ha.; Bulldozed in the latter week of August, 1970. Improvements destroyed consist of 365 trees, 1 bamboo grove, 1 tisa, 1,000 bundles of beatilis firewood, 24 cavans harvest a year of corn, all valued at P46,060.00. (Exh. I, including submarkings) 3. PRIMITIVA GARRO Tax Declaration No. 28651; .3000 ha.; Bulldozed on September 7, 1970. Improvements destroyed consist of 183 trees, 10 pineapples, a cassava field, area if planted with corn good for liter, sweet potato, area if planted with corn good for liter all valued at P10,410.00. (Exh. J, including submarkings) j) TEOTIMO GONZALES Tax Declaration No. 38159; .8644 ha.; Tax Declaration No. 38158; .8000 ha.; Bulldozed on September 10, 1970 improvements destroyed consist of 460 trees valued at P20,000.00. Bulldozed on December 10, 1970 Improvements destroyed consist of 254 trees valued at P65,600.00 or a total value of P85,600.00. (Exh. K, including submarkings) k) LEODEGARIO GONZALES Tax Declaration No. 36884; Bulldozed on February 24, 1971. Improvements destroyed consist of 946 trees, 40 ubi, 15 cavans harvest a year of corn, all valued at P72,270.00. (Exh. L, including submarkings) l) FILEMON LAVADOR Tax Declaration No. 14036; 1 ha.; Bulldozed on February 5, 1971. Improvements destroyed consist of 675 trees and 9 cavans harvest a year of corn all valued at P63,935.00. (Exh. M, including submarkings) m) CANDELARIO LUMANTAO Tax Declaration No. 18791; 1.660 ha. Bulldozed on the second week of August, 1970 Improvements destroyed consist of 1,377 trees, a cornfield with 3 cavans per harvest thrice a year and a copra dryer all valued at P193,960.00. Bulldozed on February 26, 1971 Improvements destroyed consist of 44 trees, one pig pen and the fence thereof and the chicken roost all valued at P12,650.00. Tax Declaration No. 33159; 3.500 has.
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Bulldozed in the last week of March, 1971 Improvements destroyed consist of 13 trees valued at P1,550.00. Bulldozed in the latter part consist of 6 Bamboo groves and Ipil-Ipil trees valued at P700.00 with total value of P208,860.00. (Exh. N, including submarkings) n) AURELIA MATA Tax Declaration No. 38071; .3333 ha.; Bulldozed sometime in the first week of March, 1971 Improvements destroyed consist of 344 trees and 45 cavans corn harvest per year valued at P30,965.00. (Exh. Q, including submarkings) o) GAVINO QUIMBO Tax Declaration No. 33231; 2.0978 has.; Tax Declaration No. 24377; .4960 ha. (.2480 ha. Belonging to your defendant) Bulldozed on September 12, 1970 Improvements destroyed consist of 200 coconut trees and 500 banana fruit trees valued at P68,500.00. Bulldozed on consist of 59 trees, 20 sacks cassava and 60 cavans harvest a year of corn valued at P9,660.00 or a total value of P78,160.00. (Exh. R, including submarkings) p) SILVESTRE RAMOS Tax Declaration No. 24288; 1.5568 has.; Bulldozed on February 23, 1971. Improvements destroyed consist of 737 trees, a cornfield with 3 cavans per harvest 3 times a year and 50 bundles of beatilis firewood, all valued at P118,170.00. (Exh. S, including submarkings) q) MARCELINO GONZALES Tax Declaration No. 34057; .4049 ha. Bulldozed on March 20, 1972 Improvements destroyed consist of 5 coconut trees and 9 cavans harvest a year of corn valued at P1,860.00. Bulldozed on July 4, 1972 destroying 19 coconut trees valued at P5,700.00 or a total value of P7,560.00. (Exh. U, including submarkings) r) JUSTINO TITO Tax Declaration No. 38072; .2000 has.; Bulldozed on February 25, 1971 Improvements destroyed consist of 338 trees and 5 kamongay all valued at P29,650.00. (Exh. T, including submarkings) s) EMIGDIO BING SING UY and ANGELES SEPULVEDA UY Transfer Certificate of Title No. T-35 (Register of Deeds of Danao City); 140.4395 has.; Area bulldozed- 20.000 has. Bulldozed on August 5, 6 and 7, 1970 destroying 565 coconut trees, 2-1/2 yrs. Old, 65,422 banana groves with 3,600 mango trees, 3 years old, grafted and about to bear fruit valued at P212,260.00. Bulldozed on November 24, 1970 and on February 16, 1971 destroying 8,520 madri-cacao trees and 24 cylindrical cement posts boundaries valued at P18,540.00. Bulldozed on November 24, 1970 destroying 90 coconut trees, 3 years old cornfield at 40 cavans per harvest and at 3 harvests a year (120 cavans) valued at P31,800.00. Bulldozed on February 16, 1971 destroying 25,727 trees and sugarcane field value P856,725.00 or a total value of P1,123,825.00. (Exh. V, including submarkings) t) SALVADOR DAYDAY Tax Declaration No. (unnumbered) dated September 14, 1967; 4.000 has. Bulldozed on May 6, 1971 destroying 576 trees, 9 cavans yearly of corn, 30 kerosene cans of cassava yearly valued at P4,795.00. Bulldozed from March 26, 1973 to the first week of April, 1973 destroying 108 trees and cornland, 6 cavans harvest per year valued at P53,900.00 or a total value of P58,695.00. (Exh. A, including submarkings) u) VENANCIA REPASO Tax Declaration No. 18867; 1.1667 has. Bulldozed on April 15, 1971 Improvements destroyed were 775 trees, 500 abaca, about to be reaped, and being reaped 3 times a year 2 bamboo groves all valued at P47,700.00. (Exh. O, including submarkings) v) HERMOGENES TITO Tax Declaration No. 38009; over one (1) ha. Bulldozed in the latter part of September, 1970 destroying 1 coconut tree, 18 sacks of corn per year valued at P1,020.00. Bulldozed on March 15, 1973 destroying 2 coconut trees, 5 buri trees, 1 bamboo grove valued at P1,400.00. Bulldozed on March 26, 1974 destroying 3 coconut trees valued at P1,500.00 with a total value of P3,920.00. (Exh. P, including submarkings).[6]

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On April 22, 1975, petitioners moved to dismiss their complaint with the trial court. The trial court granted the motion to dismiss, without prejudice to respondents right to proceed with their counterclaim. Hence, the trial proceeded only on the counterclaim. On September 23, 1980, this Court issued a resolution in Administrative Matter No. 6290 changing the venue of trial in Civil Case No. DC-56 to the Regional Trial Court of Cebu City. The change was mainly in line with the transfer of Judge Bernardo Ll. Salas, who presided over the case in Danao City, to Cebu City. The parties agreed to dispense with pre-trial, and for the evidence-in-chief to be submitted by way of affidavits together with a schedule of documentary exhibits, subject to additional direct examination, cross examination and presentation of rebuttal evidence by the parties. The trial court and later, the Court of Appeals, took note of the following portions of affidavits submitted by petitioners: xxx City Fiscal Jesus Navarro said that in August, 1967, he issued subpoenas to several tenants in Cahumayhumayan upon representation by Cepoc, the latter protesting failure by the tenants to continue giving Cepoc its share of the corn produce. He learned from the tenants that the reason why they were reluctant and as a matter of fact some defaulted in giving Cepoc its share, was that Uy Bing Sepulveda made similar demands to them for his share in the produce, and that they did not know to whom the shares should be given. Xxx xxx xxx Jesus Capitan said that he is familiar with the place Cahumayhumayan and that the properties in said locality were acquired by Durano and Company and Ramon Durano III, but formerly owned by Cepoc. When the properties of Ramonito Durano were cultivated, the owners of the plants requested him that they be given something for their effort even if the properties do not belong to them but to Cepoc, and that he was directed by Ramonito Durano to do a listing of the improvements as well as the owners. After he made a listing, this was given to Ramonito who directed Benedicto Ramos to do payment. When he was preparing the list, they did not object to the removal of the plants because the counterclaimants understood that the lands did not belong to them, but later and because of politics a complaint was filed, and finally that when he was doing the listing, the improvements were even pointed to him by the counterclaimants themselves. (Exh. 48, Records, p. 385-386). Xxx xxx xxx Ruperto Rom said that he had an occasion to work at Cepoc from 1947 to 1950 together with Benedicto and Tomas Ramos, the latter a capataz of the Durano Sugar Mills. Owner of the properties, subject of the complaint, was Cepoc. The persons who eventually tilled the Cepoc properties were merely allowed to do cultivation if planted to corn, and for Cepoc to be given a share, which condition was complied with by all including the counterclaimants. He even possessed one parcel which he planted to coconuts, jackfruit trees and other plants. (Exh. 51, Records, pp. 383-384) xxx xxx xxx
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Co-defendant Ramon Durano III said that he agreed with the dismissal of the complaint because his fathers wish was reconciliation with the defendants following the death of Pedro Sepulveda, father of Angeles Sepulveda Uy, but inspite of the dismissal of the complaint, the defendants still prosecuted their counterclaim. The disputed properties were owned formerly by Cepoc, and then of the latter selling the properties to Durano and Company and then by the latter to him as of September 15, 1970. As a matter of fact, TCT T-103 and T-104 were issued to him and that from that time on, he paid the taxes. At the time he purchased the properties, they were not occupied by the defendants. The first time he learned about the alleged bulldozing of the improvements was when the defendants filed the complaint of land grabbing against their family with the Office of the President and the attendant publicity. Precisely his family filed the complaint against them. (Exh. 57, Records, pp. 723-730) xxx xxx xxx Congressman Ramon Durano said he is familiar with the properties, being owned originally by Cepoc. Thereafter they were purchased by Durano and Company and then sold to Ramon Durano III, the latter now the owner. He filed a motion to dismiss the case against Angeles Sepulveda et al. as a gesture of respect to the deceased Pedro Sepulveda, father of Angeles Sepulveda, and as a Christian, said Pedro Sepulveda being the former Mayor of Danao, if only to stop all misunderstanding between their families. Xxx xxx xxx He was the one who did the discovery of the properties that belonged to Cepoc, which happened when he was doing mining work near Cahumayhumayan and without his knowledge extended his operation within the area belonging to Cepoc. After Cepoc learned of the substantial coal deposits, the property was claimed by Cepoc and then a survey was made to relocate the muniments. Eventually he desisted doing mining work and limited himself within the confines of his property that was adjacent to Cepocs property. All the claimants except Sepulveda Uy were occupants of the Cepoc properties. Durano and Company purchased the property adjacent to Cepoc, developed the area, mined the coal and had the surveyed area planted with sugar cane, and finally the notices to the occupants because of their intention to plant sugar cane and other crops (T.S. N. December 4, 1985, pp. 31-32, 44-54, RTC Decision, pp. 16-19, Records, pp. 842-845).[7] Petitioners also presented Court Commissioner, Engineer Leonidas Gicain, who was directed by the trial court to conduct a field survey of the disputed property. Gicain conducted surveys on the areas subjected to bulldozing, including those outside the Cepoc properties. The survey --- which was based on TCT No. T-103 and TCT No. T-104, titled in the name of Ramon Durano III, and TCT No. 35, in the name of respondent Emigdio Bing Sing Uy --- was paid for by petitioners.[8] Respondents, for their part, also presented their affidavits and supporting documentary evidence, including tax declarations covering such portions of the property as they formerly inhabited and cultivated. On March 8, 1990, the RTC issued a decision upholding respondents counterclaim. The dispositive portion of said decision reads: THE FOREGOING CONSIDERED, judgment is hereby rendered in favor of the counter claimants and against the plaintiffs directing the latter to pay the former:
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a) With respect to Salvador Dayday P 14,400.00 b) With respect to Teofista Alcala 4,400.00 c) With respect to Faustino Alatan 118,400.00 d) With respect to Andrea Mata de Batulan 115,050.00 e) With respect to Glicerio Barriga 35,500.00 f) With respect to Beatriz Galzada 70,300.00 g) With respect to Bienvenido Castro 5,000.00 h) With respect to Ismael Garro 66,060.00 i) With respect to Julian Garro 48,600.00 j) With respect to Primitiva Garro 13,000.00 k) With respect to Teotimo Gonzales 63,200.00 l) With respect to Leodegario Gonzales 85,300.00 m) With respect to Filemon Lavador 70,860.00 n) With respect to Venancia Repaso 101,700.00 o) With respect to Candelario Lumantao 192,550.00 p) With respect to Hermogenes Tito 1,200.00 q) With respect to Aurelia Mata 28,560.00 r) With respect to Gavino Quimbo 81,500.00 s) With respect to Silvestre Ramos 101,700.00 t) With respect to Justino Tito 27,800.00 u) With respect to Marcelino Gonzales 2,360.00 v) With respect to Angeles Supelveda 902,840.00 P120,000.00 should be the figure in terms of litigation expenses and a separate amount of P100,000.00 as attorneys fees. Return of the properties to Venancia Repaso, Hermogenes Tito and Marcelino Gonzales is hereby directed. With respect to counter claimant Angeles Sepulveda Uy, return of the property to her should be with respect to the areas outside of the Cepoc property, as mentioned in the sketch, Exhibit 56-A. Finally with costs against the plaintiffs. SO ORDERED. [9] The RTC found that the case preponderated in favor of respondents, who all possessed their respective portions of the property covered by TCT Nos. T-103 and T-104 thinking that they were the absolute owners thereof. A number of these respondents alleged that they inherited these properties from their parents, who in turn inherited them from their own parents. Some others came into the properties by purchase from the former occupants thereof. They and their predecessors were responsible for the plantings and improvements on the property. They were the ones who sought for the properties to be tax-declared in their respective names, and they continually paid the taxes thereto. Respondents maintained that they were unaware of anyone claiming adverse possession or ownership of these lands until the bulldozing operations in 1970. As for Venancia Repaso, Hermogenes Tito and Marcelino Gonzales, the Court found that the properties they laid claim to were not part of the land that was purchased by Durano & Co. from Cepoc. Thus, it found the bulldozing of these lands by petitioners totally unjustified and ordered not only the total reimbursement of useful and necessary expenses on the properties but also the return of these properties to Repaso, Tito and Gonzales, respectively. As for all the other respondents, the RTC found their possession of the properties to be in the concept of owner and adjudged them to be builders in good faith. Considering that petitioners in the instant case appropriated the improvements on the areas overran by the bulldozers, the RTC
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ruled that (t)he right of retention to the improvements necessarily should be secured (in favor of respondents) until reimbursed not only of the necessary but also useful expenses.[10] On the matter of litigation expenses and attorneys fees, the RTC observed that the trial period alone consisted of forty (40) trial dates spread over a period of sixteen (16) years. At the time, respondents were represented by counsel based in Manila, and the trial court took into consideration the travel, accommodation and miscellaneous expenses of their lawyer that respondents must have shouldered during the trial of the case. Dissatisfied, petitioners appealed the RTC decision to the Court of Appeals, which, in turn, affirmed the said decision and ordered the return of the property to all the respondentsclaimants, in effect modifying the RTC decision which allowed return only in favor of respondents Repaso, Tito and Gonzales. In its decision, the Court of Appeals upheld the factual findings and conclusions of the RTC, including the awards for actual damages, attorneys fees and litigation expenses, and found additionally that the issuance of TCT Nos. T-103 and T-104 in the name of Ramon Durano III was attended by fraud. Evaluating the evidence before it, the Court of Appeals observed that the alleged reconstituted titles of Cepoc over the property, namely, TCT No. (RT-38) (T-14457) -4 and TCT No. (RT-39) (T-14456) -3 (Exhibits 19 and 20 of this case), which were claimed to be the derivative titles of TCT Nos. T-103 and T-104, were not submitted in evidence before the RTC. Thus, in an Order dated June 15, 1988, the RTC ordered Exhibits 19 and 20 deleted from petitioners Offer of Exhibits. The Court of Appeals further noted that even among the exhibits subsequently produced by petitioners before the RTC, said Exhibits 19 and 20 were still not submitted.[11] Moreover, Cepoc had no registered title over the disputed property as indicated in TCT Nos. T-103 and T-104. Thus: TRANSFER CERTIFICATE OF TITLE NO. 103 xxx xxx IT IS FURTHER CERTIFIED that said land was originally registered on the N.A. day of N.A., in the year nineteen hundred and N.A. in Registration Book No. N.A. page N.A. of the Office of the Register of Deeds of N.A., as Original Certificate of Title No. N.A., pursuant to a N.A. patent granted by the President of the Philippines, on the N.A. day of N.A., in the year nineteen hundred and N.A., under Act No. N.A. This certificate is a transfer from Transfer Certificate of Title No. (RT-39) (T-14456) -3 which is cancelled by virtue hereof in so far as the above described land is concerned. Xxx xxx TRANSFER CERTIFICATE OF TITLE NO. T 104 xxx xxx IT IS FURTHER CERTIFIED that said land was originally registered on the N.A. day of N.A., in the year nineteen hundred and N.A. in Registration Book No. N.A. page N.A. of the Office of the Register of Deeds of N.A., as Original Certificate of Title No. N.A., pursuant to a N.A. patent granted by the President of the Philippines, on the N.A. day of N.A., in the year nineteen hundred and N.A., under Act No. N.A. This certificate is a transfer from Transfer Certificate of Title No. (RT-38) (T-14457) -4 which is cancelled by virtue hereof in so far as the above described land is concerned.[12]
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From the foregoing, the Court of Appeals concluded that the issuance of the TCT Nos. T-103 and T-104 in favor of petitioner Ramon Durano III was attended by fraud; hence, petitioners could not invoke the principle of indefeasibility of title. Additionally, the Court of Appeals found that the alleged Deed of Absolute Sale, undated, between Cepoc Industries, Inc. and Durano & Co. was not notarized and thus, unregistrable. The Court of Appeals went on to state that while, on the one hand, no valid issuance of title may be imputed in favor of petitioners from the private Deed of Sale and the alleged reconstituted titles of Cepoc that were not presented in evidence, respondents, in contrast --who although admittedly had no registered titles in their names --- were able to demonstrate possession that was public, continuous and adverse --- or possession in the concept of owner, and which was much prior (one or two generations back for many of respondents) to the claim of ownership of petitioners. Thus, the Court of Appeals ordered the return of the properties covered by TCT Nos. T-103 and T-104 to all respondents who made respective claims thereto. Corollarily, it declared that petitioners were possessors in bad faith, and were not entitled to reimbursement for useful expenses incurred in the conversion of the property into sugarcane lands. It also gave no merit to petitioners allegation that the actual damages awarded by the trial court were excessive, or to petitioners argument that they should not have been held personally liable for any damages imputable to Durano & Co. Following is the dispositive portion of the decision of the Court of Appeals: WHEREFORE, the appealed decision of the lower court in Civil Case No. DC-56 is hereby AFFIRMED with MODIFICATION ordering the return of the respective subject properties to all the defendants-appellees, without indemnity to the plaintiffs-appellants as regards whatever improvements made therein by the latter. In all other respects, said decision in affirmed. Costs against plaintiffs-appellants. SO ORDERED.[13] On October 29, 1998, the Court of Appeals denied petitioners motion for reconsideration for lack of merit. Hence, this petition. Petitioners assign the following errors from the CA decision: 3. The Court of Appeals erred in granting relief to the respondents who did not appeal the decision of the lower court. 2. The Court of Appeals erred in collaterally attacking the validity of the title of petitioner Ramon Durano III. 3. The respondents should not have been adjudged builders in good faith. 4. The petitioners should not be held personally liable for damages because of the doctrine of separate corporate personality. 5. It was an error to hold that the respondents had proved the existence of improvements on the land by preponderance of evidence, and in awarding excessive damages therefor. 6. It was error to direct the return of the properties to respondents Venancia Repaso, Hermogenes Tito and Marcelino Gonzales.
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7. The award of litigation expenses and attorneys fees was erroneous. 8. The petitioners are not possessors in bad faith. On their first assignment of error, petitioners contend that before the Court of Appeals, they only questioned that portion of the RTC decision which directed the return of the properties to respondents Repaso, Tito and Gonzales. They argued that the return of the properties to all the other respondents by the Court of Appeals was erroneous because it was not among the errors assigned or argued by petitioners on appeal. Besides, since respondents themselves did not appeal from the RTC decision on the issue of return of the physical possession of the property, it is understood that judgment as to them has already become final by operation of law. To support its argument, petitioners cited the cases of Madrideo vs. Court of Appeals[14] and Medida vs. Court of Appeals[15], which held that whenever an appeal is taken in a civil case an appellee who has not himself appealed cannot obtain from the appellate court any affirmative relief other than the ones granted in the decision of the court below. Rule 51 of the New Rules of Civil Procedure provides: Sec. 8. Questions that may be decided. --- No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceedings therein will be considered unless stated in the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors. We find untenable petitioners argument that since no party (whether petitioners or respondents) appealed for the return of the properties to respondents other than Repaso, Tito and Gonzales, that portion of the RTC decision that awards damages to such other respondents is final and may no longer be altered by the Court of Appeals. A reading of the provisions of Section 8, Rule 51, aforecited, indicates that the Court of Appeals is not limited to reviewing only those errors assigned by appellant, but also those that are closely related to or dependent on an assigned error.[16] In other words, the Court of Appeals is imbued with sufficient discretion to review matters, not otherwise assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a complete and just resolution of the case. In this case, the Court of Appeals ordered the return of the properties to respondents merely as a legal consequence of the finding that respondents had a better right of possession than petitioners over the disputed properties, the former being possessors in the concept of owner. Thus, it held --Plaintiffs-appellants have to return possession of the subject property, not only to defendantsappellees Venancia Repaso, Hermogenes Tito and Marcelino Gonzales but to all other defendants-appellees herein, by virtue of the latters priority in time of declaring the corresponding portions of the subject properties in their name and/or their predecessors-ininterest coupled with actual possession of the same property through their predecessors-ininterest in the concept of an owner. Plaintiffs-appellants who had never produced in court a valid basis by which they are claiming possession or ownership over the said property cannot have a better right over the subject properties than defendants-appellees.[17] Moreover, petitioners reliance on the Madrideo and Medida cases is misplaced. In the Madrideo case, the predecessors-in-interest of the Llorente Group sold the disputed property to the Alcala Group, who in turn sold the same to the spouses Maturgo. The RTC adjudged the spouses Maturgo purchasers in good faith, such that they could retain their title to the property, but held that the Lllorente Group was unlawfully divested of its ownership of the property by the Alcala Group. The Alcala Group appealed this decision to the Court of Appeals, who denied the appeal and ordered the reinstatement in the records of the Registry of Deeds of the Original Certificates of Title of the predecessors-in-interest of the Llorente
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Group. In setting aside the decision of the Court of Appeals, this Court held that no relief may be afforded in favor of the Llorente Group to the prejudice of the spouses Maturgo, who --- the Court carefully emphasized --- were third parties to the appeal, being neither appellants nor appellees before the Court of Appeals, and whose title to the disputed property was confirmed by the RTC. The application of the ruling in Madrideo to the instant case bears no justification because it is clear that petitioners, in appealing the RTC decision, impleaded all the herein respondents. Meanwhile, in the Medida case, petitioners (who were the appellees before the Court of Appeals) sought the reversal of a finding of the RTC before the Supreme Court. The Court explained that since petitioners failed to appeal from the RTC decision, they --- as appellees before the Court of Appeals --- could only argue for the purpose of sustaining the judgment in their favor, and could not ask for any affirmative relief other than that granted by the court below. The factual milieu in Medida is different from that of the instant case, where the return of the properties to respondents was not an affirmative relief sought by respondents but an independent determination of the Court of Appeals proceeding from its findings that respondents were long-standing possessors in the concept of owner while petitioners were builders in bad faith. Certainly, under such circumstances, the Court of Appeals is not precluded from modifying the decision of the RTC in order to accord complete relief to respondents. Moving now to the other errors assigned in the petition, the return of the properties to respondents Repaso, Tito and Gonzales was premised upon the factual finding that these lands were outside the properties claimed by petitioners under TCT Nos. T-103 and T-104. Such factual finding of the RTC, sustained by the Court of Appeals, is now final and binding upon this Court. In respect of the properties supposedly covered by TCT Nos. T-103 and T-104, the Court of Appeals basically affirmed the findings of the RTC that respondents have shown prior and actual possession thereof in the concept of owner, whereas petitioners failed to substantiate a valid and legitimate acquisition of the property --- considering that the alleged titles of Cepoc from which TCT Nos. T-103 and T-104 were supposed to have derived title were not produced, and the deed of sale between Cepoc and Durano & Co. was unregistrable. The records clearly bear out respondents prior and actual possession; more exactly, the records indicate that respondents possession has ripened into ownership by acquisitive prescription. Ordinary acquisitive prescription, in the case of immovable property, requires possession of the thing in good faith and with just title,[18] for a period of ten years.[19] A possessor is deemed to be in good faith when he is not aware of any flaw in his title or mode of acquisition of the property.[20] On the other hand, there is just title when the adverse claimant came into possession of the property through one of the modes for acquiring ownership recognized by law, but the grantor was not the owner or could not transmit any right.[21] The claimant by prescription may compute the ten-year period by tacking his possession to that of his grantor or predecessor-in-interest.[22] The evidence shows that respondents successfully complied with all the requirements for acquisitive prescription to set in. The properties were conveyed to respondents by purchase or inheritance, and in each case the respondents were in actual, continuous, open and adverse possession of the properties. They exercised rights of ownership over the lands, including the regular payment of taxes and introduction of plantings and improvements. They were unaware of anyone claiming to be the owner of these lands other than themselves until the notices of demolition in 1970 --- and at the time each of them had already completed the tenyear prescriptive period either by their own possession or by obtaining from the possession of their predecessors-in-interest. Contrary to the allegation of petitioners that the claims of all
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twenty-two (22) respondents were lumped together and indiscriminately sustained, the lower courts (especially the RTC) took careful consideration of the claims individually, taking note of the respective modes and dates of acquisition. Whether respondents predecessors-in-interest in fact had title to convey is irrelevant under the concept of just title and for purposes of prescription. Thus, respondents counterclaim for reconveyance and damages before the RTC was premised upon a claim of ownership as indicated by the following allegations: (Y)our defendants are owners and occupants of different parcels of land located in Barrio Cahumayhumayan, your defendants having occupied these parcels of land for various periods by themselves or through their predecessors-in-interest, some for over fifty years, and some with titles issued under the Land Registration Act; xxxxx [23] Respondents claim of ownership by acquisitive prescription (in respect of the properties covered by TCT Nos. T-103 and T-104) having been duly alleged and proven, the Court deems it only proper that such claim be categorically upheld. Thus, the decision of the Court of Appeals insofar as it merely declares those respondents possessors in the concept of owner is modified to reflect the evidence on record which indicates that such possession had been converted to ownership by ordinary prescription. Turning now to petitioners claim to ownership and title, it is uncontested that their claim hinges largely on TCT Nos. T-103 and T-104, issued in the name of petitioner Ramon Durano III. However, the validity of these certificates of title was put to serious doubt by the following: (1) the certificates reveal the lack of registered title of Cepoc to the properties;[24] (2) the alleged reconstituted titles of Cepoc were not produced in evidence; and (3) the deed of sale between Cepoc and Durano & Co. was unnotarized and thus, unregistrable. It is true that fraud in the issuance of a certificate of title may be raised only in an action expressly instituted for that purpose,[25] and not collaterally as in the instant case which is an action for reconveyance and damages. While we cannot sustain the Court of Appeals finding of fraud because of this jurisdictional impediment, we observe that the aboveenumerated circumstances indicate none too clearly the weakness of petitioners evidence on their claim of ownership. For instance, the non-production of the alleged reconstituted titles of Cepoc despite demand therefor gives rise to a presumption (unrebutted by petitioners) that such evidence, if produced, would be adverse to petitioners.[26] Also, the unregistrability of the deed of sale is a serious defect that should affect the validity of the certificates of title. Notarization of the deed of sale is essential to its registrability,[27] and the action of the Register of Deeds in allowing the registration of the unacknowledged deed of sale was unauthorized and did not render validity to the registration of the document.[28] Furthermore, a purchaser of a parcel of land cannot close his eyes to facts which should put a reasonable man upon his guard, such as when the property subject of the purchase is in the possession of persons other than the seller.[29] A buyer who could not have failed to know or discover that the land sold to him was in the adverse possession of another is a buyer in bad faith.[30] In the herein case, respondents were in open possession and occupancy of the properties when Durano & Co. supposedly purchased the same from Cepoc. Petitioners made no attempt to investigate the nature of respondents possession before they ordered demolition in August 1970. In the same manner, the purchase of the property by petitioner Ramon Durano III from Durano & Co. could not be said to have been in good faith. It is not disputed that Durano III acquired the property with full knowledge of respondents occupancy thereon. There even appears to be undue haste in the conveyance of the property to Durano III, as the bulldozing operations by Durano & Co. were still underway when the deed of sale to Durano III was
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executed on September 15, 1970. There is not even an indication that Durano & Co. attempted to transfer registration of the property in its name before it conveyed the same to Durano III. In the light of these circumstances, petitioners could not justifiably invoke the defense of indefeasibility of title to defeat respondents claim of ownership by prescription. The rule on indefeasibility of title, i.e., that Torrens titles can be attacked for fraud only within one year from the date of issuance of the decree of registration, does not altogether deprive an aggrieved party of a remedy at law. As clarified by the Court in Javier vs. Court of Appeals[31] --The decree (of registration) becomes incontrovertible and can no longer be reviewed after one (1) year from the date of the decree so that the only remedy of the landowner whose property has been wrongfully or erroneously registered in anothers name is to bring an ordinary action in court for reconveyance, which is an action in personam and is always available as long as the property has not passed to an innocent third party for value. If the property has passed into the hands of an innocent purchaser for value, the remedy is an action for damages. In the instant case, respondents action for reconveyance will prosper, it being clear that the property, wrongfully registered in the name of petitioner Durano III, has not passed to an innocent purchaser for value. Since petitioners knew fully well the defect in their titles, they were correctly held by the Court of Appeals to be builders in bad faith. The Civil Code provides: Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right of indemnity. Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the land, and the sower the proper rent. Art. 451. In the cases of the two preceding articles, the landowner is entitled to damages from the builder, planter or sower. Based on these provisions, the owner of the land has three alternative rights: (1) to appropriate what has been built without any obligation to pay indemnity therefor, or (2) to demand that the builder remove what he had built, or (3) to compel the builder to pay the value of the land.[32] In any case, the landowner is entitled to damages under Article 451, abovecited. We sustain the return of the properties to respondents and the payment of indemnity as being in accord with the reliefs under the Civil Code. On petitioners fifth assignment of error that respondents had not proved the existence of improvements on the property by preponderance of evidence, and that the damages awarded by the lower courts were excessive and not actually proved, the Court notes that the issue is essentially factual. Petitioners, however, invoke Article 2199 of the Civil Code which requires actual damages to be duly proved. Passing upon this matter, the Court of Appeals cited with approval the decision of the RTC which stated: The counter claimants made a detail of the improvements that were damaged. Then the query, how accurate were the listings, supposedly representing damaged improvements. The
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Court notes, some of the counter claimants improvements in the tax declarations did not tally with the listings as mentioned in their individual affidavits. Also, others did not submit tax declarations supporting identity of the properties they possessed. The disparity with respect to the former and absence of tax declarations with respect to the latter, should not be a justification for defeating right of reimbursement. As a matter of fact, no controverting evidence was presented by the plaintiffs that the improvements being mentioned individually in the affidavits did not reflect the actual improvements that were overran by the bulldozing operation. Aside from that, the City Assessor, or any member of his staff, were not presented as witnesses. Had they been presented by the plaintiffs, the least that can be expected is that they would have enlightened the Court the extent of their individual holdings being developed in terms of existing improvements. This, the plaintiffs defaulted. It might be true that there were tax declarations, then presented as supporting documents by the counter claimants, but then mentioning improvements but in variance with the listings in the individual affidavits. This disparity similarly cannot be accepted as a basis for the setting aside of the listing of improvements being adverted to by the counter claimants in their affidavits. This Court is not foreclosing the possibility that the tax declarations on record were either table computations by the Assessor or his deputy, or tax declarations whose entries were merely copied from the old tax declarations during the period of revision. (RTC Decision, p. 36, Records, p. 862)[33] The right of the owner of the land to recover damages from a builder in bad faith is clearly provided for in Article 451 of the Civil Code. Although said Article 451 does not elaborate on the basis for damages, the Court perceives that it should reasonably correspond with the value of the properties lost or destroyed as a result of the occupation in bad faith, as well as the fruits (natural, industrial or civil) from those properties that the owner of the land reasonably expected to obtain. We sustain the view of the lower courts that the disparity between respondents affidavits and their tax declarations on the amount of damages claimed should not preclude or defeat respondents right to damages, which is guaranteed by Article 451. Moreover, under Article 2224 of the Civil Code: Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. We also uphold the award of litigation expenses and attorneys fees, it being clear that petitioners acts compelled respondents to litigate and incur expenses to regain rightful possession and ownership over the disputed property.[34] The last issue presented for our resolution is whether petitioners could justifiably invoke the doctrine of separate corporate personality to evade liability for damages. The Court of Appeals applied the well-recognized principle of piercing the corporate veil, i.e., the law will regard the act of the corporation as the act of its individual stockholders when it is shown that the corporation was used merely as an alter ego by those persons in the commission of fraud or other illegal acts. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 3. 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 acts in contravention of plaintiffs legal rights; and
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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.[35] The question of whether a corporation is a mere alter ego is purely one of fact.[36] The Court sees no reason to reverse the finding of the Court of Appeals. The facts show that shortly after the purported sale by Cepco to Durano & Co., the latter sold the property to petitioner Ramon Durano III, who immediately procured the registration of the property in his name. Obviously, Durano & Co. was used by petitioners merely as an instrumentality to appropriate the disputed property for themselves. WHEREFORE, the instant petition is DENIED. The decision of the Court of Appeals is MODIFIED to declare respondents with claims to the properties covered by Transfer Certificate of Title Nos. T-103 and T-104 owners by acquisitive prescription to the extent of their respective claims. In all other respects, the decision of the Court of Appeals is AFFIRMED. Costs against petitioners. SO ORDERED. Melo, (Chairman), Vitug, and Panganiban, JJ., concur. Purisima, J., no part. -oOoBIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION, respondents. 1st Division [G.R. Nos. 116124-25, Nov 22, 2000] 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.

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On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule, CCC decided to form CCC Equity Corporation, (hereinafter, "CCC-Equity"), a whollyowned subsidiary, to which CCC transferred its thirty (30%) percent equity in CCC-QC, together with two seats in the 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 CCCQC against petitioner, who had in the meantime been dismissed from his employment by CCC-Equity. The complaint was subsequently amended in order to include Hidelita Nuval, petitioners wife, as a party defendant.[2] The complaint alleged that petitioner embezzled the funds of CCC-QC amounting to P1,300,593.11. Out of this amount, at least P630,000.00 was used for the purchase of a house and lot located at No. 12 Macopa Street, Valle Verde I, Pasig City. The property was mortgaged to CCC, and was later foreclosed. In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and asserted that the sum of P1,300,593.11 represented his money placements in CCC-QC, as shown by twenty-three (23) checks which he issued to the said company.[3] The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86, pursuant to the Judiciary Reorganization Act of 1980. On January 14, 1985, the trial court rendered its decision, the decretal portion of which states: Premises considered, the Court finds the complaint without merit. Accordingly, said complaint is hereby DISMISSED. By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation, humiliation and mental anguish. On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby ordered: a) to pay defendant the sum of P185,000.00 plus 14% interest per annum from October 2, 1980 until fully paid; b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per annum from June 24, 1981, the date of filing of Amended Answer, until fully paid; from this amount may be deducted the remaining obligation of defendant under the promissory note of October 24, 1977, in the sum of P9,738.00 plus penalty at the rate of 1% per month from December 24, 1977 until fully paid; c) to pay defendants P200,000.00 as moral damages;
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d) e)

to pay defendants P100,000.00 as exemplary damages; 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. Q30583. The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining order. Thus, General Credit Corporation instituted two (2) petitions for certiorari with the Court of
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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. Q30583 of the Regional Trial Court of Quezon City has long become final and executory. The only issue, therefore, to be resolved in the instant petition is whether or not the judgment in favor of petitioner may be executed against respondent General Credit Corporation. The latter contends that it is a corporation separate and distinct from CCC-QC and, therefore, its properties may not be levied upon to satisfy the monetary judgment in favor of petitioner. In short, respondent raises corporate fiction as its defense. Hence, we are necessarily called upon to apply the doctrine of piercing the veil of corporate entity in order to determine if General Credit Corporation, formerly CCC, may be held liable for the obligations of CCC-QC. The petition is impressed with merit.
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A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence.[17] It is an artificial being invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related.[18] It was evolved to make possible the aggregation and assembling of huge amounts of capital upon which big business depends. It also has the advantage of nondependence on the lives of those who compose it even as it enjoys certain rights and conducts activities of natural persons. Precisely because the corporation is such a prevalent and dominating factor in the business life of the country, the law has to look carefully into the exercise of powers by these artificial persons it has created. Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to use its supervisory and adjudicative powers where the corporate fiction is used as an unfair device to achieve an inequitable result, defraud creditors, evade contracts and obligations, or to shield it from the effects of a court decision. The corporate fiction has to be disregarded when necessary in the interest of justice. In First Philippine International Bank v. Court of Appeals, et al.,[19] we held: When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals. Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction in numerous cases where it was used, among others, to avoid a judgment credit;[20] to avoid inclusion of corporate assets as part of the estate of a decedent;[21] to avoid liability arising 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
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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.
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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. Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur. -oOoSECOND DIVISION

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G.R. No. 185122

August 16, 2010

WENSHA SPA CENTER, INC. and/or XU ZHI JIE, Petitioners, vs. LORETA T. YUNG, Respondent. DECISION MENDOZA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by an employer who was charged before the National Labor Relations Commission (NLRC) for dismissing an employee upon the advice of a Feng Shui master. In this action, the petitioners assail the May 28, 2008 Decision1 and October 23, 2008 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 98855 entitled Loreta T. Yung v. National Labor Relations Commission, Wensha Spa Center, Inc. and/or Xu Zhi Jie. THE FACTS: Wensha Spa Center, Inc. (Wensha) in Quezon City is in the business of sauna bath and massage services. Xu Zhi Jie a.k.a. Pobby Co (Xu) is its president,3 respondent Loreta T. Yung (Loreta) was its administrative manager at the time of her termination from employment. In her position paper,4 Loreta stated that she used to be employed by Manmen Services Co., Ltd. (Manmen) where Xu was a client. Xu was apparently impressed by Loretas performance. After he established Wensha, he convinced Loreta to transfer and work at Wensha. Loreta was initially reluctant to accept Xus offer because her job at Manmen was stable and she had been with Manmen for seven years. But Xu was persistent and offered her a higher pay. Enticed, Loreta resigned from Manmen and transferred to Wensha. She started working on April 21, 2004 as Xus personal assistant and interpreter at a monthly salary of P12,000.00. Loreta introduced positive changes to Wensha which resulted in increased business. This pleased Xu so that on May 18, 2004, she was promoted to the position of Administrative Manager.5 Loreta recounted that on August 10, 2004, she was asked to leave her office because Xu and a Feng Shui master were exploring the premises. Later that day, Xu asked Loreta to go on leave with pay for one month. She did so and returned on September 10, 2004. Upon her return, Xu and his wife asked her to resign from Wensha because, according to the Feng Shui master, her aura did not match that of Xu. Loreta refused but was informed that she could no longer continue working at Wensha. That same afternoon, Loreta went to the NLRC and filed a case for illegal dismissal against Xu and Wensha. Wensha and Xu denied illegally terminating Loretas employment. They claimed that two months after Loreta was hired, they received various complaints against her from the employees so that on August 10, 2004, they advised her to take a leave of absence for one month while they conducted an investigation on the matter. Based on the results of the investigation, they terminated Loretas employment on August 31, 2004 for loss of trust and confidence.6 The Labor Arbiter (LA) Francisco Robles dismissed Loretas complaint for lack of merit. He found it more probable that Loreta was dismissed from her employment due to Wenshas loss of trust and confidence in her. The LAs decision7 partly reads: However, this office has found it dubious and hard to believe the contentions made by the complainant that she was dismissed by the respondents on the sole ground that she is a "mismatch" in respondents' business as advised by an alleged Feng Shui Master. The complainant herself alleged in her position paper that she has done several improvements in respondents business such as uplifting the morale and efficiency of its employees and increasing respondents clientele, and that respondent Co was very much pleased with the improvements made by the complainant that she was offered twice a promotion but she nevertheless declined. It would be against human experience and contrary to business acumen to let go of someone, who was an asset and has done so much for the company merely on the ground that she is a "mismatch" to the business. Absent any proof submitted by the complainant, this office finds it more probable that the complainant was dismissed due to loss of trust and confidence.8 This ruling was affirmed by the NLRC in its December 29, 2006 Resolution,9 citing its observation that Wensha was still considering the proper action to take on the day Loreta left Wensha and filed her
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complaint. The NLRC added that this finding was bolstered by Wenshas September 10, 2004 letter to Loreta asking her to come back to personally clarify some matters, but she declined because she had already filed a case. Loreta moved for a reconsideration of the NLRCs ruling but her motion was denied. Loreta then went to the CA on a petition for certiorari. The CA reversed the ruling of the NLRC on the ground that it gravely abused its discretion in appreciating the factual bases that led to Loretas dismissal. The CA noted that there were irregularities and inconsistencies in Wenshas position. The CA stated the following: We, thus, peruse the affidavits and documentary evidence of the Private Respondents and find the following: First,on the affidavits of their witnesses, it must be noted that the same were mere photocopies. It was held that [T]he purpose of the rule in requiring the production of the best evidence is the prevention

of fraud, because if a party is in possession of such evidence and withholds it, and seeks to substitute inferior evidence in its place, the presumption naturally arise[s] that the better evidence is withheld for fraudulent purposes which its production would expose and defeat. Moreover, the affidavits were not

executed under oath. The rule is that an affiant must sign the document in the presence of and take his oath before a notary public as evidence that the affidavit was properly made. Guided by these principles, the affidavits cannot be assigned any weighty probative value and are mere scraps of paper the contents of which are hearsay. Second, on the sales report and order slips, which allegedly prove that Yung had been charging her food and drinks to Wensha, the said pieces of evidence do not, however, bear Yungs name thereon or even her signature. In fact, it does not state anyones name, except that of Wensha. Hence, it would simply be capricious to pinpoint, or impute, on Yung as the author in charging such expenses to Wensha on the basis of hearsay evidence. Third, while the affidavit of Wenshas Operations Manager, Princess delos Reyes (delos Reyes), may have been duly executed under oath, she did not, however, specify the alleged infractions that Yung committed. If at all, delos Reyes only made general statements on the alleged complaints against Yung that were not even substantiated by any other piece of evidence. Finally, the daily time records (DTRs) of Yung, which supposedly prove her habitual tardiness, were mere photocopies that are not even signed by Wenshas authorized representative, thus suspect, if not violative of the best evidence rule and, therefore, incompetent evidence. x x x [Emphases appear in the original] x x x x. Finally, after the Private Respondents filed their position paper, they alleged mistake on the part of their former counsel in stating that Yung was dismissed on August 31, 2004. Thus, they subsequently moved for the admission of their rejoinder. Notably, however, the said rejoinder was dated October 4, 2004, earlier than the date when their position paper was filed, which was on November 3, 2004. It is also puzzling that their position paper was dated November 25, 2004, much later than its date of filing. The irregularities are simply too glaring to be ignored. Nevertheless, the Private Respondents admission of Yungs termination on August 31, 2004 cannot be retracted. They cannot use the mistake of their counsel as an excuse considering that the position paper was verified by their Operations Manager, delos Reyes, who attested to the truth of the contents therein.10 [Emphasis supplied] Hence, the fallo of the CA decision reads: WHEREFORE, the instant petition is GRANTED. Wensha Spa Center, Inc. and Xu Zhi Jie are ORDERED to, jointly and severally, pay Loreta T. Yung her full backwages, other privileges, and benefits, or their monetary equivalent, corresponding to the period of her dismissal from September 1, 2004 up to the finality of this decision, and damages in the amounts of fifty thousand pesos (Php50,000.00) as moral damages, twenty five thousand pesos (Php25,000.00) as exemplary damages, and twenty thousand pesos (Php20,000.00) as attorneys fees. No costs. SO ORDERED.11 Wensha and Xu now assail this ruling of the CA in this petition presenting the following: V. GROUNDS FOR THE ALLOWANCE OF THE PETITION 5.1 The following are the reasons and arguments, which are purely questions of law and some questions of facts, which justify the appeal by certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, as amended, to this Honorable SUPREME COURT of the assailed Decision and Resolution, to wit:

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5.1.1 The Honorable COURT OF APPEALS gravely erred in reversing that factual findings of the Honorable Labor Arbiter and the Honorable NLRC (Third Division) notwithstanding recognized and established rule in our jurisdiction that findings of facts of quasi-judicial agencies who have gained expertise on their respective subject matters are given respect and finality; 5.1.2 The Honorable COURT OF APPEALS committed grave abuse of discretion and serious errors when it ruled that findings of facts of the Honorable Labor Arbiter and the Honorable NLRC are not supported by substantial evidence despite the fact that the records clearly show that petitioner therein was not dismissed but is under investigation, and that she is guilty of serious infractions that warranted her termination; 5.1.3 The Honorable COURT OF APPEALS grave[ly] erred when it ordered herein petitioner to pay herein respondent her separation pay, in lieu of reinstatement, and full backwages, as well as damages and attorneys fees; 5.1.4 The Honorable COURT OF APPEALS committed grave abuse of discretion and serious errors when it held that petitioner XU ZHI JIE to be solidarily liable with WENSHA, assuming that respondent was illegally dismissed; 5.2 The same need to be corrected as they would work injustice to the herein petitioner, grave and irreparable damage will be done to him, and would pose dangerous precedent.12 THE COURTS RULING: Loretas security of tenure is guaranteed by the Constitution and the Labor Code. The 1987 Philippine Constitution provides in Section 18, Article II that the State shall protect the rights of workers and promote their welfare. Section 3, Article XIII also provides that all workers shall be entitled to security of tenure. Along that line, Article 3 of the Labor Code mandates that the State shall assure the rights of workers to security of tenure. Under the security of tenure guarantee, a worker can only be terminated from his employment for cause and after due process. For a valid termination by the employer: (1) the dismissal must be for a valid cause as provided in Article 282, or for any of the authorized causes under Articles 283 and 284 of the Labor Code; and (2) the employee must be afforded an opportunity to be heard and to defend himself. A just and valid cause for an employees dismissal must be supported by substantial evidence, and before the employee can be dismissed, he must be given notice and an adequate opportunity to be heard.13 In the process, the employer bears the burden of proving that the dismissal of an employee was for a valid cause. Its failure to discharge this burden renders the dismissal unjustified and, therefore, illegal.14 As a rule, the factual findings of the court below are conclusive on Us in a petition for review on certiorari where We review only errors of law. This case, however, is an exception because the CAs factual findings are not congruent with those of the NLRC and the LA. According to Wensha in its position paper,15 it dismissed Loreta on August 31, 2004 after investigating the complaints against her. Wensha asserted that her dismissal was a valid exercise of an employers right to terminate a managerial employee for loss of trust and confidence. It claimed that she caused the resignation of an employee because of gossips initiated by her. It was the reason she was asked to take a leave of absence with pay for one month starting August 10, 2004.16 Wensha also alleged that Loreta was "sowing intrigues in the company" which was inimical to Wensha. She was also accused of dishonesty, serious breach of trust reposed in her, tardiness, and abuse of authority.17 In its Rejoinder, Wensha changed its position claiming that it did not terminate Loretas employment on August 31, 2004. It even sent her a notice requesting her to report back to work. She, however, declined because she had already filed her complaint.18 As correctly found by the CA, the cause of Loretas dismissal is questionable. Loss of trust and confidence to be a valid ground for dismissal must have basis and must be founded on clearly established facts.19 The Court finds the LA ruling that states, "[a]bsent any proof submitted by the complainant, this office finds it more probable that the complainant was dismissed due to loss of trust and confidence,"20 to be utterly erroneous as it is contrary to the applicable rules and pertinent jurisprudence. The onus of proving a valid dismissal rests on the employer, not on the employee.21 It is the employer who bears the burden of
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proving that its dismissal of the employee is for a valid or authorized cause supported by substantial evidence. 22 According to the NLRC, "[p]erusal of the entire records show that complainant left the respondents premises when she was confronted with the infractions imputed against her."23 This information was taken from the affidavit24 of Princess Delos Reyes (Delos Reyes) which was dated March 21, 2005, not in Wenshas earlier position paper or pleadings submitted to the LA. The affidavits25 of employees attached to Delos Reyes affidavit were all dated November 19, 2004 indicating that they were not yet executed when the complaints against Loreta were supposedly being investigated in August 2004. It is also noteworthy that Wenshas position paper related that because of the gossips perpetrated by Loreta, a certain Oliva Gonzalo (Gonzalo) resigned from Wensha. Because of the incident, Gonzalo, whose father was a policeman, "reportedly got angry with complainant and of the management telling her friends at respondent company that she would retaliate thus creating fear among those concerned."26 As a result, Loreta was advised to take a paid leave of absence for one month while Wensha conducted an investigation. According to Loreta, however, the reason for her termination was her aura did not match that of Xu and the work environment at Wensha. Loreta narrated: On August 10, 2004 however, complainant was called by respondent Xu and told her to wait at the lounge area while the latter and a Feng Shui Master were doing some analysis of the office. After several hours of waiting, respondent Xu then told complainant that according to the Feng Shui master her Chinese Zodiac sign is a "mismatch" with that of the respondents; that complainant should not enter the administrative office for a month while an altar was to be placed on the left side where complainant has her table to allegedly correct the "mismatch" and that it is necessary that offerings and prayers have to be made and said for about a month to correct the alleged "jinx." Respondent Xu instructed complainant not to report to the office for a month with assurance of continued and regular salary. She was ordered not to seek employment elsewhere and was told to come back on the 10th of September 2004.27 Although she was a little confused, Loreta did as she was instructed and did not report for work for a month. She returned to work on September 10, 2004. This is how Loreta recounted the events of that day: On September 10, 2004, in the morning, complainant reported to the office of respondents. As usual, she punched-in her time card and signed in the logbook of the security guard. When she entered the administrative office, some of its employees immediately contacted respondent Xu. Respondent Xu then contacted complainant thru her mobile phone and told her to leave the administrative office immediately and instead to wait for him in the dining area. xxx Complainant waited for respondent Xu in the dining area. After waiting for about two (2) hours, respondent Xu was nowhere. Instead, it was Jiang Xue Qin a.k.a Annie Co, the Chinese wife of respondent Xu, who arrived and after a short conversation between them, the former frankly told complainant that she has to resign allegedly she is a mismatch to respondent Xu according to the Feng Shui master and therefore she does not fit to work (sic) with the respondents. Surprised and shocked, complainant demanded of Jiang Xue Qin to issue a letter of termination if it were the reason therefor. Instead of a termination letter issued, Jiang Xue Qin insisted for the complainant's resignation. But when complainant stood her ground, Jian Xue Qin shouted invectives at her and told to leave the office immediately. Respondent Xu did not show up but talked to the complainant over the mobile phone and convinced her likewise to resign from the company since there is no way to retain her because her aura unbalanced the area of employment according to the Feng Shui, the Chinese spiritual art of placement. Hearing this from no lees than respondent Xu, complainant left the office and went straight to this Office and filed the present case on September 10, 2004. xxx28 Loreta also alleged that in the afternoon of that day, September 10, 2004, a notice was posted on the Wensha bulletin board that reads: TO ALL EMPLOYEES OF WENSHA SPA CENTER

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WE WOULD LIKE TO INFORM YOU THAT MS. LORIE TSE YUNG, FORMER ADMINISTRATIVE OFFICER OF WENSHA SPA CENTER IS NO LONGER CONNECTED TO THIS COMPANY STARTING TODAY SEPTEMBER 10, 2004. ANY TRANSACTION MADE BY HER IS NO LONGER A LIABILITY OF THE COMPANY. (SGD.) THE MANAGEMENT [Italics were in red letters.]29 The Court finds Loretas complaint credible. There is consistency in her pleadings and evidence. In contrast, Wenshas pleadings and evidence, taken as a whole, suffer from inconsistency. Moreover, the affidavits of the employees only pertain to petty matters that, to the Courts mind, are not sufficient to support Wenshas alleged loss of trust and confidence. To be a valid cause for termination of employment, the act or acts constituting breach of trust must have been done intentionally, knowingly, and purposely; and they must be founded on clearly established facts. The CA decision is supported by evidence and logically flows from a review of the records. Loretas narration of the events surrounding her termination from employment was simple and straightforward. Her claims are more credible than the affidavits which were clearly prepared as an afterthought. More importantly, the records are bereft of evidence that Loreta was duly informed of the charges against her and that she was given the opportunity to respond to those charges prior to her dismissal. If there were indeed charges against Loreta that Wensha had to investigate, then it should have informed her of those charges and required her to explain her side. Wensha should also have kept records of the investigation conducted while Loreta was on leave. The law requires that two notices be given to an employee prior to a valid termination: the first notice is to inform the employee of the charges against her with a warning that she may be terminated from her employment and giving her reasonable opportunity within which to explain her side, and the second notice is the notice to the employee that upon due consideration of all the circumstances, she is being terminated from her employment.30 This is a requirement of due process and clearly, Loreta did not receive any of those required notices.
1avvphi1

We are in accord with the pronouncement of the CA that the reinstatement of Loreta to her former position is no longer feasible in the light of the strained relations between the parties. Reinstatement, under the circumstances, would no longer be practical as it would not be in the interest of both parties. Under the law and jurisprudence, an illegally dismissed employee is entitled to two reliefs - backwages and reinstatement, which are separate and distinct. If reinstatement would only exacerbate the tension and further ruin the relations of the employer and the employee, or if their relationship has been unduly strained due to irreconcilable differences, particularly where the illegally dismissed employee held a managerial or key position in the company, it would be prudent to order payment of separation pay instead of reinstatement.31 In the case of Golden Ace Builders v. Talde,32 We wrote: Under the doctrine of strained relations, the payment of separation pay has been considered an acceptable alternative to reinstatement when the latter option is no longer desirable or viable. On the one hand, such payment liberates the employee from what could be a highly oppressive work environment. On the other, the payment releases the employer from the grossly unpalatable obligation of maintaining in its employ a worker it could no longer trust. In the case at bench, the CA, upon its own assessment, pronounced that the relations between petitioners and the respondent have become strained because of her dismissal anchored on dubious charges. The respondent has not contested the finding. As she is not insisting on being reinstated, she should be paid separation pay equivalent to one (1) month salary for every year of service.33 The CA, however, failed to decree such award in the dispositive portion. This should be rectified.
ten.lihpwal

Nevertheless, the Court finds merit in the argument of petitioner Xu that the CA erred in ruling that he is solidarily liable with Wensha. Elementary is the rule that a corporation is invested by law with a personality separate and distinct from those of the persons composing it and from that of any other legal entity to which it may be related. "Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality."34 In labor cases, corporate directors and officers may be held solidarily liable with the corporation for the termination of employment only if done with malice or in bad faith.35 Bad faith does not connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of
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wrong; it means breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud.36 In the subject decision, the CA concluded that petitioner Xu and Wensha are jointly and severally liable to Loreta.37 We have read the decision in its entirety but simply failed to come across any finding of bad faith or malice on the part of Xu. There is, therefore, no justification for such a ruling. To sustain such a finding, there should be an evidence on record that an officer or director acted maliciously or in bad faith in terminating the services of an employee.38 Moreover, the finding or indication that the dismissal was effected with malice or bad faith should be stated in the decision itself.39 WHEREFORE, the petition is PARTIALLY GRANTED. The decretal portion of the May 28, 2008 Decision of the Court of Appeals, in CA-G.R. SP No. 98855, is hereby MODIFIED to read as follows: WHEREFORE, the petition is GRANTED. Wensha Spa Center, Inc. is hereby ordered to pay Loreta T. Yung her full backwages, other privileges, and benefits, or their monetary equivalent, and separation pay reckoned from the date of her dismissal, September 1, 2004, up to the finality of this decision, plus damages in the amounts of Fifty Thousand (P50,000.00) Pesos, as moral damages; Twenty Five Thousand (P25,000.00) Pesos as exemplary damages; and Twenty Thousand (P20,000.00) Pesos, as attorneys fees. No costs. SO ORDERED.

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