G.R. No.

L-19118

June 16, 1965

MARIANO A. ALBERT, plaintiff-appellant, vs. UNIVERSITY PUBLISHING CO., INC., defendantappellee. RESOLUTION BENGZON, J.P., J.: Defendant-appellee University Publishing Co., Inc. has two prayers before us: First, that said defendantappellee be granted leave to present original papers not included in the records of this case because they were never presented in the trial of the case; and second, that the decision promulgated by this Court on January 30, 1965 be reconsidered. For a proper appraisal of all the facts and circumstances of this case it becomes necessary and convenient to trace the origin of the same. Plaintiff Albert, almost sixteen (16) years ago, sued University Publishing Co., Inc. for breach of contract. On April 18, 1958, in L-9300, this court awarded the sum of P15,000.00 as damages. On October 24, 1960, in L15275, to clarify whether the P7,000.00 paid on account should be deducted therefrom, this Court decided that the amount should be paid in full because said partial payment was already taken into consideration when it fixed P15,000.00 as damages. From the inception until the time when the decision in L15275 was to be executed, corporate existence on the part of University Publishing Co., Inc. seems to have been taken for granted, for it was not put in issue in either of the cases abovementioned. However, when the Court of First Instance of Manila issued on July 22, 1961 an order of execution against University Publishing Co., Inc., plaintiff, speaking also for the Sheriff of Manila, reported to the Court by petition of August 10, 1961 that there is no such entity as University Publishing Co., Inc., thereupon praying that, Jose M. Aruego being the real defendant, the writ of execution be issued against him. Attached to said petition was a certification from the Securities and Exchange Commission dated July 31, 1961 attesting: "The records of this Commission do not show the registration of UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership." The issue of its corporate existence was then clearly and squarely presented before the court. University Publishing Co., Inc., instead of informing the lower court that it had in its possession copies of its certificate of registration its by-laws, and all other pertinent papers material to the point in dispute corporate existence chose to remain silent thereon. It merely countered the aforesaid petition by filing through counsel (Jose M. Aruego's own law firm) a manifestation stating that Jose M. Aruego is not a party to this case and, therefore, plaintiff's petition should be denied. After the court a quo denied the request that a writ of execution be issued against Jose M. Aruego, plaintiff brought this present appeal on the issue of the corporate existence of University Publishing Co., Inc., as
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determinative of the responsibility of Jose M. Aruego, the person or official who had always moved and acted for and in behalf of University Publishing Co., Inc. It may be worth noting again that Jose M. Aruego started the negotiation which culminated in the contract between the parties, signing said contract as president of University Publishing Co., Inc. Likewise he was the one who made partial payments up to the amount of P7,000.00 for, and in behalf of University Publishing Co., Inc. He also appeared not only as a witness but as lawyer, signing some pleadings or motions in defense of University Publishing Co., Inc., although in other instances it is one of his associates or members of his law firm who did so. Known is the fact that even a duly existing corporation can only move and act through natural persons. In this case it was Jose M. Aruego who moved and acted as or for University, Publishing Co., Inc. It is elemental that the courts can only decide the merits of a given suit according to the records that are in the case. It is true that in the two previous cases decided by this Court, the first, awarding damages (L-9300), the second, clarifying the amount of P15,000.00 awarded as such (L-15275), the corporate existence of University Publishing Co., Inc. as a legal entity was merely taken for granted. However, when the said issue was squarely presented before the court, and University Publishing Co., Inc. chose to keep the courts in the dark by withholding pertinent documents and papers in its possession and control, perforce this Court had to decide the points raised according to the records of the case and whatever related matters necessarily included therein. Hence, as a consequence of the certification of the Securities and Exchange Commission that its records "do not show the registration of University Publishing Co., Inc., either as a corporation or partnership," this Court concluded that by virtue of its non-registration, it can not be considered a corporation. We further said that it has therefore no personality separate from Jose M. Aruego and that Aruego was in reality the one who answered and litigated through his own law firm counsel. Stated otherwise, we found that Aruego was in fact, if not in 1 name, the defendant. Indeed, the judge of the court of first instance wrote in his decision thus: "Defendant Aruego (all along the judge who pens this decision considered that the defendant here is the president of the University Publishing Co., Inc. since it was he who 2 really made the contract with Justice Albert) " And this portion of the decision made by the court a quo was never questioned by the defendant. The above statement made by the court a quo in its decision compelled this Court to carefully examine the facts surrounding the dispute starting from the time of the negotiation of the business proposition, followed by the signing of the contract; considered the benefits received; took into account the partial payments made, the litigation conducted, the decisions rendered and the appeals undertaken. After thus considering the facts and circumstances, keeping in mind that even with regard to

corporations shown as duly registered and existing, we have in many a case pierced the veil of corporate fiction 3 to administer the ends of justice, we held Aruego personally responsible for his acts on behalf of University Publishing Co., Inc. Defendant would reply that in all those cases where the Court pierced the veil of corporate fiction the officials held liable were made party defendants. As stated, defendant-appellee could not even pretend to possess corporate fiction in view to its non-registration per the evidence so that from the start Aruego was the real defendant. Since the purpose of formally impleading a party is to assure him a day in court, once the protective mantle of due process of law has in fact been accorded a litigant, whatever the imperfection in form, the real litigant may be held liable as a party. Jose M. Aruego definitely had his day in court, and due process of law was enjoyed by him as a matter of fact as revealed by 4 the records of the case. The dispositive portion of the decision the reconsideration of which is being sought is the following: "Premises considered, the order appealed from is hereby set aside and the case remanded ordering the lower court to hold supplementary proceedings for the purpose of carrying the judgment into effect against University Publishing Co., Inc. and/or Jose M. Aruego." According to several cases a litigant is not allowed to speculate on the decision the court may render in the 5 case. The University Publishing Co., Inc. speculated on a favorable decision based on the issue that Jose M. Aruego, not being a formal party defendant in this case, a writ of execution against him was not in order. It, therefore, preferred to suppress vital documents under its possession and control rather than to rebut the certification issued by the Securities and Exchange Commission that according to its records University Publishing Co., Inc. was not registered. If the lower court's order is sustained, collection of damages becomes problematical. If a new suit is filed against Aruego, prescription might be considered as effective defense, aside from the prospect of another ten years of pending litigation. Such are the possible reasons for adopting the position of speculation of our decision. Our ruling appeared to be unfavorable to such speculation. It was only after the receipt of the adverse decision promulgated by this Court that University Publishing Co., Inc., disclosed its registration papers. For purposes of this case only and according to its particular facts and circumstances, we rule that in view of the late disclosure of said papers by the University Publishing Co., Inc., the same can no longer considered at this stage of the proceedings. Specifically said original papers are: 1. Original Certificate of Registration of the University Publishing Co., Inc., signed by then Director of Commerce, Cornelio Balmaceda, showing that said company was duly registered as a corporation with the Mercantile Registry of the then Bureau of Commerce (predecessor of the Securities and Exchange Commission) as early as August 7, 1936;

2. Original copy of the Articles of Incorporation of the University Publishing Co., Inc consisting of five (5) pages, showing that said corporation was incorporated as early as August 1, 1936, Manila, Philippines, with an authorized capital stock of TEN THOUSAND PESOS (P10,000), TWO THOUSAND PESOS (P2,000.00) of which was fully subscribed and FIVE HUNDRED PESOS (P500.00), fully paid up; that it had a corporate existence of fifty (50) years and the original incorporators of the same are: Jose M. Aruego, Jose A. Adeva, Delfin T. Bruno Enrique Rimando and Federico Mangahas; 3. The original copy of the By-Laws of the University Publishing Co., Inc. consisting of eleven (11) pages, showing that it exercised its franchise as early as September 4, 1936; 4. A certificate of Reconstitution of Records issued by the Securities and Exchange Commission recognized the corporate existence of the University Publishing, Co., Inc. as early as August 7, 1936. Defendant-appellee could have presented the foregoing papers before the lower court to counter the evidence of non-registration, but defendant-appellee did not do so. It could have reconstituted its records at that stage of the proceedings, instead of only on April 1, 1965, after decision herein was promulgated. It follows, therefore, that defendant-appellee may not now be allowed to submit the abovementioned papers to form part of the record. Sec. 7 of Rule 48, Rules of Court (in relation to Sec. 1. Rule 42), invoked by movant, states: SEC. 7. Original papers may be required . Whenever it is necessary or proper in the opinion of the court that original papers of any kind should be inspected in the court on appeal, it may make such order for the transmission, safekeeping, and return of such original papers as may seem proper, and the court may receive and consider such original papers in connection with the record. The provision obviously refers to papers the originals of which are of record in the lower court, which the appellate court may require to be transmitted for inspection. The original papers in question not having been presented before the lower court as part of its record, the same cannot be transmitted on appeal under the aforesaid section. In contrast, the certification as to University Publishing Co., Inc.'s non-registration forms part of the record in the lower court. For original papers not part of the lower court's record, the applicable rule is Sec. 1 of Rule 59 on New Trial. Under said Rule, the papers in question cannot be admitted, because they are not "newly discovered evidence ," for with due diligence movant could have presented them in the lower court, since they were in its possession and control. As far as this case is concerned, therefore, University Publishing Co., Inc. must be deemed as unregistered, since by defendant-appellee's choice the record shows it to be so. Defendant-appellee apparently sought to delay

the execution by remaining unregistered per the certification of the Securities and Exchange Commission. It was only when execution was to be carried out, anyway, against it and/or its president and almost 19 years after the approval of the law authorizing reconstitution that it reconstituted its records to show its registration, thereby once more attempting to delay the payment of plaintiff's claim, long since adjudged meritorious. Deciding, therefore, as we must, this particular case on its record as submitted by the parties, defendant-appellee's proffered evidence of its corporate existence cannot at this stage be considered to alter the decision reached herein. This is not to preclude in future cases the consideration of properly submitted evidence as to defendant-appellee's corporate existence. WHEREFORE, the motion for reconsideration and for leave to file original papers not in the record, is hereby denied. It is so ordered. Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala, Makalintal and Zaldivar, JJ., concur. Barrera, J., took no part. G.R. No. 182398 July 20, 2010
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that plaintiff indeed has a right to be paid by the defendant of the amount of P2,516,826.68. Plaintiff claims interest of 12%. The obligation of the defendant to return did not arose out of a loan or forbearance of money, hence, applying Eastern Shipping Lines Inc. vs. Court of Appeals, 234 SCRA 78 (1994) the rate due is only 6% computed from October 4, 1999 the date the letter of demand was presumably received by the defendant. The foregoing effectively dispose of the defenses raised by the defendant and furnish the reason of the Court for not giving due course to them. WHEREFORE, judgment is rendered directing defendant to pay plaintiff P2,516,826.68 with interest at the rate of 6% from October 4, 1999 until full payment. The antecedent facts of the case are as follows: Guess? Footwear and BPI Express Card Corporation 5 entered into two merchant agreements, dated 25 August 1994 and 16 November 1994, whereby Guess? Footwear agreed to honor validly issued BPI Express Credit Cards presented by cardholders in the purchase of its goods and services. In the first agreement, petitioner Benny Hung signed as owner and manager of Guess? Footwear. He signed the second agreement as president of Guess? Footwear which he also referred to as B & R Sportswear Enterprises. From May 1997 to January 1999, respondent BPI mistakenly credited, through three hundred fifty-two (352) checks, Three Million Four Hundred Eighty Thousand Four Hundred Twenty-Seven Pesos and 23/100 (P3,480,427.23) to the account of Guess? 6 Footwear. When informed of the overpayments, petitioner Benny Hung transferred Nine Hundred SixtyThree Thousand Six Hundred Four Pesos and 03/100 (P963,604.03) from the bank account of B & R Sportswear Enterprises to BPIs account as partial 7 payment. The letter dated 31 May 1999 was worded as follows: Dear Sir/Madame This is to authorize BPI Ortigas Branch to transfer the amount of P963,604.03 from the account of B & R Sportswear Enterprises to the account of BPI Card Corporation. The aforementioned amount shall represent partial settlement of overpayments made by BPI Card Corporation to B & R Sportswear, pending final reconciliation of exact amount of overpayment. (Emphasis supplied.) Thank you for your usual kind cooperation. Very truly yours, (Sgd.) Benny Hung In a letter dated 27 September 1999, BPI demanded the balance payment amounting to Two Million Five Hundred Sixteen Thousand Eight Hundred Twenty-Six

BENNY Y. HUNG, vs. BPI CARD FINANCE CORP. Respondent. DECISION PEREZ, J.:

Petitioner,

For our resolution is the instant petition for review by 1 certiorari assailing the Decision dated 31 August 2007 2 and Resolution dated 14 April 2008 of the Court of Appeals in CA-G.R. CV No. 84641. The Court of 3 Appeals Decision affirmed the Order dated 30 November 2004 of the Regional Trial Court (RTC) of Makati City in Civil Case No. 99-2040, entitled BPI Card Finance Corporation v. B & R Sportswear Distributor, Inc., finding petitioner Benny Hung liable to respondent BPI Card Finance Corporation (BPI for brevity) for the 4 satisfaction of the RTCs 24 June 2002 Decision against B & R Sportswear Distributor, Inc. The pertinent portion of the Decision states: xxx The delivery by the plaintiff to the defendant of P3,480,427.43 pursuant to the Merchant Agreements was sufficiently proven by the checks, Exhibits B to V-5. Plaintiffs evidence that the amount due to the defendant was P139,484.38 only was not controverted by the defendant, hence the preponderance of evidence is in favor of the plaintiff. The lack of controversy on the amount due to the defendant when considered with the contents of the letter of the defendant, Exhibit TT when it returned to plaintiff P963,604.03 "as partial settlement of overpayments made by BPI Card Corporation to B & R Sportswear, pending final reconciliation of exact amount of overpayment" amply support the finding of the Court

Pesos and 68/100 (P2,516,826.68), Footwear failed to pay.

but

Guess?

BPI filed a collection suit before the RTC of Makati City 8 naming as defendant B & R Sportswear Distributor, Inc. Although the case was against B & R Sportswear Distributor, Inc., it was B & R Footwear Distributors, Inc., that filed an answer, appeared and participated in the 9 trial. On 24 June 2002, the RTC rendered a decision ordering defendant B & R Sportswear Distributor, Inc., to pay the plaintiff (BPI) P2,516,826.68 with 6% interest from 4 October 1999. The RTC ruled that the overpayment of P3,480,427.43 was proven by checks credited to the account of Guess? Footwear and the P963,604.03 partial payment proved that defendant ought to pay 10 P2,516,826.68 more. During the execution of judgment, it was discovered that B & R Sportswear Distributor, Inc., is a non-existing entity. Thus, the trial court failed to execute the judgment. Consequently, respondent filed a Motion to pierce the corporate veil of B & R Footwear Distributors, Inc. to hold its stockholders and officers, including petitioner Benny Hung, personally liable. In its 30 November 2004 Order, the RTC ruled that petitioner is liable for the satisfaction of the judgment, since he signed the 12 merchant agreements in his personal capacity. The Court of Appeals affirmed the order and dismissed petitioners appeal. It ruled that since B & R Sportswear Distributor, Inc. is not a corporation, it therefore has no personality separate from petitioner Benny Hung who induced the respondent BPI and the RTC to believe that 13 it is a corporation. After his motion for reconsideration was denied, petitioner filed the instant petition anchored on the following grounds: I. PIERCING THE VEIL OF CORPORATE FICTION CANNOT JUSTIFY EXECUTION AGAINST [HIM]. II. FOR LACK OF SERVICE OF SUMMONS AND A COPY OF THE COMPLAINT UPON [HIM], THE ASSAILED DECISION OF THE COURT OF APPEALS, AS WELL AS, ITS RESOLUTION DENYING [HIS] MOTION FOR RECONSIDERATION SHOULD BE DECLARED NULL 14 AND VOID FOR LACK OF JURISDICTION. In essence, the basic issue is whether petitioner can be held liable for the satisfaction of the RTCs Decision against B & R Sportswear Distributor, Inc.? As we answer this question, we shall pass upon the grounds raised by petitioner. Petitioner claims that he never represented B & R Sportswear Distributor, Inc., the non-existent corporation sued by respondent; that it would be unfair to treat his single proprietorship B & R Sportswear Enterprises as B & R Sportswear Distributor, Inc.; that the confusing similarity in the names should not be taken against him
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because he established his single proprietorship long before respondent sued; that he did not defraud respondent; that he even paid respondent "in the course of their mutual transactions;" and that without fraud, he cannot be held liable for the obligations of B & R Footwear Distributors, Inc. or B & R Sportswear Distributor, Inc. by piercing the veil of corporate fiction. Petitioner also states that the "real corporation" B & R Footwear Distributors, Inc. or Guess? Footwear acknowledged itself as the "real defendant." It answered the complaint and participated in the trial. According to petitioner, respondent should have executed the judgment against it as the "real contracting party" in the merchant agreements. Execution against him was wrong since he was not served with summons nor was he a party to the case. Thus, the lower courts did not acquire jurisdiction over him, and their decisions are null and void for lack of due process. Respondent counters that petitioners initial silence on the non-existence of B & R Sportswear Distributor, Inc. was intended to mislead. Still, the evidence showed that petitioner treats B & R Footwear Distributors, Inc. and his single proprietorship B & R Sportswear Enterprises as one and the same entity. Petitioner ordered the partial payment using the letterhead of B & R Footwear Distributor, Inc. and yet the fund transferred belongs to his single proprietorship B & R Sportswear Enterprises. This fact, according to respondent, justifies piercing the corporate veil of B & R Footwear Distributor, Inc. to hold petitioner personally liable. Citing Sections 4 and 5, Rule 10 of the Rules of Court, respondent also prays that the name of the inexistent defendant B & R Sportswear Distributor, Inc. be amended and changed to Benny Hung and/or B & R Footwear Distributors, Inc. Moreover, respondent avers that petitioner cannot claim that he was not served with summons because it was served at his address and the building standing thereon is registered in his name per the tax declaration. At the outset, we note the cause of respondents predicament in failing to execute the 2002 judgment in its favor: its own failure to state the correct name of the defendant it sued and seek a correction earlier. Instead of suing Guess? Footwear and B & R Sportswear Enterprises, the contracting parties in the merchant agreements, BPI named B & R Sportswear Distributor, Inc. as defendant. BPI likewise failed to sue petitioner Benny Hung who signed the agreements as owner/manager and president of Guess? Footwear and B & R Sportswear Enterprises. Moreover, when B & R Footwear Distributors, Inc. appeared as defendant, no corresponding correction was sought. Unfortunately, BPI has buried its omission by silence and lamented instead petitioners alleged initial silence on the non-existence of B & R Sportswear Distributor, Inc. Respondent even accused the "defendant" in its motion to pierce the corporate veil of B & R Footwear Distributors, Inc. of having "employed deceit, bad faith and illegal 15 scheme/maneuver," an accusation no longer pursued before us.

Our impression that respondent BPI should have named petitioner as a defendant finds validation from (1) petitioners own admission that B & R Sportswear Enterprises is his sole proprietorship and (2) respondents belated prayer that defendants name be changed to Benny Hung and/or B & R Footwear Distributors, Inc. on the ground that such relief is allowed 16 17 under Sections 4 and 5, Rule 10 of the Rules of Court. Indeed, we can validly make the formal correction on the name of the defendant from B & R Sportswear Distributor, Inc. to B & R Footwear Distributors, Inc. Such correction only confirms the voluntary correction already made by B & R Footwear Distributors, Inc. which answered the complaint and claimed that it is the defendant. Section 4, Rule 10 of the Rules of Court also allows a summary correction of this formal defect. Such correction can be made even if the case is already 18 before us as it can be made at any stage of the action. Respondents belated prayer for correction is also sufficient since a court can even make the correction motu propio. More importantly, no prejudice is caused to B & R Footwear Distributors, Inc. considering its participation in the trial. Hence, petitioner has basis for saying that respondent should have tried to execute the judgment against B & R Footwear Distributors, Inc. But we cannot agree with petitioner that B & R Footwear Distributors, Inc. or Guess? Footwear is the only "real contracting party." The facts show that B & R Sportswear Enterprises is also a contracting party. Petitioner conveniently ignores this fact although he himself signed the second agreement indicating that Guess? Footwear is also referred to as B & R Sportswear Enterprises. Petitioner also tries to soften the significance of his directive to the bank, under the letterhead of B & R Footwear Distributors, Inc., to transfer the funds belonging to his sole proprietorship B & R Sportswear Enterprises as partial payment to the overpayments made by respondent to Guess? Footwear. He now claims the partial payment as his payment to respondent "in the course of their mutual transactions." Clearly, petitioner has represented in his dealings with respondent that Guess? Footwear or B & R Footwear Distributors, Inc. is also B & R Sportswear Enterprises. For this reason, the more complete correction on the name of defendant should be from B & R Sportswear Distributor, Inc. to B & R Footwear Distributors, Inc. and Benny Hung. Petitioner is the proper defendant because his sole proprietorship B & R Sportswear Enterprises 19 has no juridical personality apart from him. Again, the correction only confirms the voluntary correction already made by B & R Footwear Distributors, Inc. or Guess? Footwear which is also B & R Sportswear Enterprises. Correction of this formal defect is also allowed by Section 4, Rule 10 of the Rules of Court. Relatedly, petitioner cannot complain of non-service of summons upon his person. Suffice it to say that B & R Footwear Distributors, Inc. or Guess? Footwear which is also B & R Sportswear Enterprises had answered the summons and the complaint and participated in the trial.

Accordingly, we find petitioner liable to respondent and we affirm, with the foregoing clarification, the finding of the RTC that he signed the second merchant agreement in his personal capacity. The correction on the name of the defendant has rendered moot any further discussion on the doctrine of piercing the veil of corporate fiction. In any event, we have said that whether the separate personality of a corporation should be pierced hinges on facts pleaded 20 and proved. In seeking to pierce the corporate veil of B & R Footwear Distributors, Inc., respondent complained of "deceit, bad faith and illegal scheme/maneuver." As stated earlier, respondent has abandoned such accusation. And respondents proof the SEC certification that B & R Sportswear Distributor, Inc. is not an existing corporation would surely attest to no other fact but the inexistence of a corporation named B & R Sportswear Distributor, Inc. as such name only surfaced because of its own error. Hence, we cannot agree with the Court of Appeals that petitioner has represented a non-existing corporation and induced the respondent and the RTC to believe in his representation. 1avvphi1 On petitioners alleged intention to mislead for his initial silence on the non-existence of the named defendant, we find more notable respondents own s ilence on the error it committed. Contrary to the allegation, the "real" defendant has even corrected respondents error. While the evidence showed that petitioner has treated B & R Footwear Distributors, Inc. or Guess? Footwear as B & R Sportswear Enterprises, respondent did not rely on this ground in filing the motion to pierce the corporate veil of B & R Footwear Distributors, Inc. Respondents main contention therein was petitioners alleged act to represent a non-existent corporation amounting to deceit, bad faith and illegal scheme/maneuver. With regard to the imposable rate of legal interest, we find application of the rule laid down by this Court in 21 Eastern Shipping Lines, Inc. vs. Court of Appeals, to wit: 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or

paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Since this case before us involves an obligation not arising from a loan or forbearance of money, the applicable interest rate is 6% per annum. The legal interest rate of 6% shall be computed from 4 October 1999, the date the letter of demand was presumably 22 received by the defendant. And in accordance with the aforesaid decision, the rate of 12% per annum shall be charged on the total amount outstanding, from the time the judgment becomes final and executory until its satisfaction. WHEREFORE, we DENY the petition for lack of merit, and ORDER B & R Footwear Distributors, Inc. and petitioner Benny Hung TO PAY respondent BPI Card Finance Corporation: (a) P2,516,823.40, representing the overpayments, with interest at the rate of 6% per annum from 4 October 1999 until finality of judgment; and (b) additional interest of 12% per annum from finality of judgment until full payment. No pronouncement as to costs. SO ORDERED. G.R. No. 119002 October 19, 2000

This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri 6 Kahn allegedly guaranteed the said obligation. Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation owed the amount P207,524.20, representing the unpaid balance for the plane tickets, he averred that the petitioner has no cause of action against him either in his personal capacity or in his official capacity as president of the Federation. He maintained that he did not guarantee payment but merely acted as an agent of the Federation 7 which has a separate and distinct juridical personality. On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial 8 court. In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn personally liable for the unpaid obligation of the Federation. In arriving at the said ruling, the trial court rationalized: Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation. The trouble, however, is that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate existence of the defendant Federation. In paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine Football Federation is a sports association xxx." This has not been denied by defendant Henri Kahn in his Answer. Being the President of defendant Federation, its corporate existence is within the personal knowledge of defendant Henri Kahn. He could have easily denied specifically the assertion of the plaintiff that it is a mere sports association, if it were a domestic corporation. But he did not. xxx A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The contract entered into by its officers or agents on behalf of such association is not binding on, or enforceable against it. The officers or agents are themselves personally liable. xxx
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INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents. DECISION KAPUNAN, J.: On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing director, wrote a letter to the Philippine Football Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its services as a 1 travel agency to the latter. The offer was accepted. Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane. The total cost of the tickets amounted to P449,654.83. For the tickets received, the Federation made two partial payments, both in September of 1989, in the total 2 amount of P176,467.50. On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter 3 requesting for the amount of P265,894.33. On 30 October 1989, the Federation, through the Project 4 Gintong Alay, paid the amount of P31,603.00. On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for 5 the outstanding balance of the Federation. Thereafter, no further payments were made despite repeated demands.

The dispositive portion of the trial court's decision reads: WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum of P207,524.20, plus the interest thereon at the legal rate computed from July 5, 1990, the date the complaint was filed, until the principal obligation is fully liquidated; and another sum of P15,000.00 for attorney's fees.

The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the defendant Henri Kahn are hereby dismissed. With the costs against defendant Henri Kahn.
10

THE HONORABLE COURT OF APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE OBLIGATION. The resolution of the case at bar hinges on the determination of the existence of the Philippine Football Federation as a juridical person. In the assailed decision, the appellate court recognized the existence of the Federation. In support of this, the CA cited Republic Act 3135, otherwise known as the Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from which said Federation derives its existence. As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports associations. This may be gleaned from the powers and functions granted to these associations. Section 14 of R.A. 3135 provides: SEC. 14. Functions, powers and duties of Associations. The National Sports' Association shall have the following functions, powers and duties: 1. To adopt a constitution and by-laws for their internal organization and government; 2. To raise funds by donations, benefits, and other means for their purposes. 3. To purchase, sell, lease or otherwise encumber property both real and personal, for the accomplishment of their purpose; 4. To affiliate with international or regional sports' Associations after due consultation with the executive committee; xxx 13. To perform such other acts as may be necessary for the proper accomplishment of their purposes and not inconsistent with this Act. Section 8 of P.D. 604, grants similar functions to these sports associations: SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National sports associations shall have the following functions, powers, and duties: 1. Adopt a Constitution and By-Laws for their internal organization and government which shall be submitted to the Department and any amendment thereto shall take effect upon approval by the Department: Provided, however, That no team, school, club, organization, or entity shall be admitted as a voting member of an association unless 60 per cent of the athletes composing said team, school, club, organization, or entity are Filipino citizens; 2. Raise funds by donations, benefits, and other means for their purpose subject to the approval of the Department; 3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the accomplishment of their purpose;

Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent court rendered a decision reversing the trial court, the decretal portion of said decision reads: WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE and another one is rendered dismissing the complaint 11 against defendant Henri S. Kahn. In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It rationalized that since petitioner failed to prove that Henri Kahn guaranteed the obligation of the Federation, he should not be held liable for the same as said entity has a separate and distinct personality from its officers. Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the unpaid obligation. The same was denied by the appellate court in its resolution of 8 February 1995, where it stated that: As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive portion thereof the Philippine Football Federation (PFF) as liable for the unpaid obligation, it should be remembered that the trial court dismissed the complaint against the Philippine Football Federation, and the plaintiff did not appeal from this decision. Hence, the Philippine Football Federation is not a party to this appeal and consequently, no judgment may be pronounced by this Court against the PFF without violating the due process clause, let alone the fact that the judgment dismissing the complaint against it, had already become final by virtue of the plaintiff's failure to appeal therefrom. The 12 alternative prayer is therefore similarly DENIED. Petitioner now seeks recourse to this Court and alleges that the respondent court committed the following 13 assigned errors: A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE ONE WHO REPRESENTED THE PFF AS HAVING A CORPORATE PERSONALITY. B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF THE UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL PAYMENT AND ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION. C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE,

4. Conduct local, interport, and international competitions, other than the Olympic and Asian Games, for the promotion of their sport; 5. Affiliate with international or regional sports associations after due consultation with the Department; xxx 13. Perform such other functions as may be provided by law. The above powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical personality. The power to purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or artificial, with juridical capacity. However, while we agree with the appellate court that national sports associations may be accorded corporate status, such does not automatically take place by the mere passage of these laws. It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act. We cannot agree with the view of the appellate court and the private respondent that the Philippine Football Federation came into existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations and provided the manner by which these entities may acquire juridical personality. Section 11 of R.A. 3135 provides: SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be organized for each individual sports in the Philippines in the manner hereinafter provided to constitute the Philippine Amateur Athletic Federation. Applications for recognition as a National Sports' Association shall be filed with the executive committee together with, among others, a copy of the constitution and by-laws and a list of the members of the proposed association, and a filing fee of ten pesos. The Executive Committee shall give the recognition applied for if it is satisfied that said association will promote the purposes of this Act and particularly section three thereof. No application shall be held pending for more than three months after the filing thereof without any action having been taken thereon by the executive committee. Should the application be rejected, the reasons for such rejection shall be clearly stated in a written communication to the applicant. Failure to specify the reasons for the rejection shall not affect the application which shall be considered as unacted upon: Provided, however, That until the executive committee herein provided shall have been formed, applications for recognition shall be passed upon by the duly elected members of the present executive committee of the Philippine Amateur Athletic Federation. The said executive committee shall be dissolved upon the

organization of the executive committee herein provided: Provided, further, That the functioning executive committee is charged with the responsibility of seeing to it that the National Sports' Associations are formed and organized within six months from and after the passage of this Act. Section 7 of P.D. 604, similarly provides: SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national sports association for each individual sport in the Philippines shall be filed with the Department together with, among others, a copy of the Constitution and By-Laws and a list of the members of the proposed association. The Department shall give the recognition applied for if it is satisfied that the national sports association to be organized will promote the objectives of this Decree and has substantially complied with the rules and regulations of the Department: Provided, That the Department may withdraw accreditation or recognition for violation of this Decree and such rules and regulations formulated by it. The Department shall supervise the national sports association: Provided, That the latter shall have exclusive technical control over the development and promotion of the particular sport for which they are organized. Clearly the above cited provisions require that before an entity may be considered as a national sports association, such entity must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that said Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports Development. Accordingly, we rule that the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and does not have corporate existence of its own. Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for 14 other acts performed as such agent. As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation. We cannot subscribe to the position taken by the appellate court that even assuming that the Federation was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt with the Federation

in such a manner as to recognize and in effect admit its 15 existence. The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant 16 ground of defective incorporation. In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract. WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED. SO ORDERED. Davide, Jr., C.J., (Chairman), Puno, Pardo, and YnaresSantiago, JJ., concur.

2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to: a) Immediately vacate the residential house near the tennis court located within the premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna; b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for his occupancy of the said residential house until the same is vacated; and c) Pay the costs. (Rollo, p. 36) In two (2) separate complaints for recovery of possession filed with the Regional Trial Court of Laguna against petitioners Rebecca Boyer-Roxas and Guillermo Roxas respectively, respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for the ejectment of the petitioners from buildings inside the Hidden Valley Springs Resort located at Limao, Calauan, Laguna allegedly owned by the respondent corporation. In the case of petitioner Rebecca Boyer-Roxas (Civil Case No-802-84-C), the respondent corporation alleged that Rebecca is in possession of two (2) houses, one of which is still under construction, built at the expense of the respondent corporation; and that her occupancy on the two (2) houses was only upon the tolerance of the respondent corporation. In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent corporation alleged that Guillermo occupies a house which was built at the expense of the former during the time when Guillermo's father, Eriberto Roxas, was still living and was the general manager of the respondent corporation; that the house was originally intended as a recreation hall but was converted for the residential use of Guillermo; and that Guillermo's possession over the house and lot was only upon the tolerance of the respondent corporation. In both cases, the respondent corporation alleged that the petitioners never paid rentals for the use of the buildings and the lots and that they ignored the demand letters for them to vacate the buildings. In their separate answers, the petitioners traversed the allegations in the complaint by stating that they are heirs of Eugenia V. Roxas and therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners of the property, they have the right to stay within its premises. The cases were consolidated and tried jointly. At the pre-trial, the parties limited the issues as follows: 1) whether plaintiff is entitled to recover the questioned premises; 2) whether plaintiff is entitled to reasonable rental for occupancy of the premises in question; 3) whether the defendant is legally authorized to pierce the veil of corporate fiction and interpose the same as a defense in an accion publiciana; 4) whether the defendants are truly builders in good faith, entitled to occupy the questioned premises;

G.R. No. 100866 July 14, 1992 REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners, vs. HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC., respondents.

GUTIERREZ, JR., J.: This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R. No. 14530 affirming the earlier decision of the Regional Trial Court of Laguna, Branch 37, at Calamba, in the consolidated RTC Civil Case Nos. 802-84-C and 803-84-C entitled "Heirs of Eugenia V. Roxas, Inc. v. Rebecca Boyer-Roxas" and Heirs of Eugenia V. Roxas, Inc. v. Guillermo Roxas," the dispositive portion of which reads: IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendants, by ordering as it is hereby ordered that: 1) In RTC Civil Case No. 802-84-C: Rebecca BoyerRoxas and all persons claiming under her to: a) Immediately vacate the residential house near the Balugbugan pool located inside the premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna; b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her occupancy of the residential house until the same is vacated; c) Remove the unfinished building erected on the land of the plaintiff within ninety (90) days from receipt of this decision; d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the said unfinished building is removed from the land of the plaintiff; and e) Pay the costs.

5) whether plaintiff is entitled to damages and reasonable compensation for the use of the questioned premises; 6) whether the defendants are entitled to their counterclaim to recover moral and exemplary damages as well as attorney's fees in the two cases; 7) whether the presence and occupancy by the defendants on the premises in questioned (sic) hampers, deters or impairs plaintiff's operation of Hidden Valley Springs Resort; and 8) whether or not a unilateral and sudden withdrawal of plaintiffs tolerance allowing defendants' occupancy of the premises in questioned (sic) is unjust enrichment. (Original Records, 486) Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma. Guerrero of Branch 34 issued an Order dated April 25, 1986 inhibiting himself from further trying the case. The cases were re-raffled to Branch 37 presided by Judge Odilon Bautista. Judge Bautista continued the hearing of the cases. For failure of the petitioners (defendants below) and their counsel to attend the October 22, 1986 hearing despite notice, and upon motion of the respondent corporation, the court issued on the same day, October 22, 1986, an Order considering the cases submitted for decision. At this stage of the proceedings, the petitioners had not yet presented their evidence while the respondent corporation had completed the presentation of its evidence. The evidence of the respondent corporation upon which the lower court based its decision is as follows: To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and that of Victoria Roxas Villarta as well as Exhibits "A" to "M-3". The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V Roxas, Incorporated, was incorporated on December 4, 1962 (Exh. "C") with the primary purpose of engaging in agriculture to develop the properties inherited from Eugenia V. Roxas and that of y Eufrocino Roxas; that the Articles of Incorporation of the plaintiff, in 1971, was amended to allow it to engage in the resort business (Exh. "C-1"); that the incorporators as original members of the board of directors of the plaintiff were all members of the same family, with Eufrocino Roxas having the biggest share; that accordingly, the plaintiff put up a resort known as Hidden Valley Springs Resort on a portion of its land located at Bo. Limao, Calauan, Laguna, and covered by TCT No. 32639 (Exhs. "A" and "A-l"); that improvements were introduced in the resort by the plaintiff and among them were cottages, houses or buildings, swimming pools, tennis court, restaurant and open pavilions; that the house near the Balugbugan Pool (Exh. "B-l") being occupied by Rebecca B. Roxas was originally intended as staff house but later used as the residence of Eriberto Roxas, deceased husband of the defendant Rebecca Boyer-Roxas and father of Guillermo

Roxas; that this house presently being occupied by Rebecca B. Roxas was built from corporate funds; that the construction of the unfinished house (Exh. "B-2") was started by the defendant Rebecca Boyer-Roxas and her husband Eriberto Roxas; that the third building (Exh. "B-3") presently being occupied by Guillermo Roxas was originally intended as a recreation hall but later converted as a residential house; that this house was built also from corporate funds; that the said house occupied by Guillermo Roxas when it was being built had nipa roofing but was later changed to galvanized iron sheets; that at the beginning, it had no partition downstairs and the second floor was an open space; that the conversion from a recreation hall to a residential house was with the knowledge of Eufrocino Roxas and was not objected to by any of the Board of Directors of the plaintiff; that most of the materials used in converting the building into a residential house came from the materials left by Coppola, a film producer, who filmed the movie "Apocalypse Now"; that Coppola left the materials as part of his payment for rents of the rooms that he occupied in the resort; that after the said recreation hall was converted into a residential house, defendant Guillermo Roxas moved in and occupied the same together with his family sometime in 1977 or 1978; that during the time Eufrocino Roxas was still alive, Eriberto Roxas was the general manager of the corporation and there was seldom any board meeting; that Eufrocino Roxas together with Eriberto Roxas were (sic) the ones who were running the corporation; that during this time, Eriberto Roxas was the restaurant and wine concessionaire of the resort; that after the death of Eufrocino Roxas, Eriberto Roxas continued as the general manager until his death in 1980; that after the death of Eriberto Roxas in 1980, the defendants Rebecca B. Roxas and Guillermo Roxas, committed acts that impeded the plaintiff's expansion and normal operation of the resort; that the plaintiff could not even use its own pavilions, kitchen and other facilities because of the acts of the defendants which led to the filing of criminal cases in court; that cases were even filed before the Ministry of Tourism, Bureau of Domestic Trade and the Office of the President by the parties herein; that the defendants violated the resolution and orders of the Ministry of Tourism dated July 28, 1983, August 3, 1983 and November 26, 1984 (Exhs. "G", "H" and "H-l") which ordered them or the corporation they represent to desist from and to turn over immediately to the plaintiff the management and operation of the restaurant and wine outlets of the said resort (Exh. "Gl"); that the defendants also violated the decision of the Bureau of Domestic Trade dated October 23, 1983 (Exh. "C"); that on August 27, 1983, because of the acts of the defendants, the Board of Directors of the plaintiff adopted Resolution No. 83-12 series of 1983 (Exh. "F") authorizing the ejectment of the defendants from the premises occupied by them; that on September 1, 1983, demand letters were sent to Rebecca Boyer-Roxas and Guillermo Roxas (Exhs. "D" and "D-1") demanding that they vacate the respective premises they occupy; and that the dispute between the plaintiff and the defendants was brought before the barangay level and the same

was not settled (Exhs. "E" and "E-l"). (Original Records, pp. 454-456) The petitioners appealed the decision to the Court of Appeals. However, as stated earlier, the appellate court affirmed the lower court's decision. The Petitioners' motion for reconsideration was likewise denied. Hence, this petition. In a resolution dated February 5, 1992, we gave due course to the petition. The petitioners now contend: I Respondent Court erred when it refused to pierce the veil of corporate fiction over private respondent and maintain the petitioners in their possession and/or occupancy of the subject premises considering that petitioners are owners of aliquot part of the properties of private respondent. Besides, private respondent itself discarded the mantle of corporate fiction by acts and/or omissions of its board of directors and/or stockholders. II The respondent Court erred in not holding that petitioners were in fact denied due process or their day in court brought about by the gross negligence of their former counsel. III The respondent Court misapplied the law when it ordered petitioner Rebecca Boyer-Roxas to remove the unfinished building in RTC Case No. 802-84-C, when the trial court opined that she spent her own funds for the construction thereof. (CA Rollo, pp. 17-18) Were the petitioners denied due process of law in the lower court? After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of Branch 37 the following events transpired: On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July 21, 1986. Petitioner Rebecca V. Roxas received a copy of the Order on July 15, 1986, while petitioner Guillermo Roxas received his copy on July 18, 1986. Atty. Conrado Manicad, the petitioners' counsel received another copy of the Order on July 11, 1986. (Original Records, p. 260) On motion of the respondent corporation's counsel, the lower court issued an Order dated July 15, 1986 cancelling the July 21, 1986 hearing and resetting the hearing to August 11, 1986. (Original records, 262-263) Three separate copies of the order were sent and received by the petitioners and their counsel. (Original Records, pp. 268, 269, 271) A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent corporation's counsel was denied in an Order dated August 8, 1986. Again separate copies of the Order were sent and received by the petitioners and their counsel. (Original Records, pp. 276-279) At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for the respondent corporation appeared. Neither the petitioners nor their counsel

appeared despite notice of hearing. The lower court then issued an Order on the same date, to wit: ORDER When these cases were called for continuation of trial, Atty. Benito P. Fabie appeared before this Court, however, the defendants and their lawyer despite receipt of the Order setting the case for hearing today failed to appear. On Motion of Atty. Fabie, further cross examination of witness Victoria Vallarta is hereby considered as having been waived. The plaintiff is hereby given twenty (20) days from today within which to submit formal offer of evidence and defendants are also given ten (10) days from receipt of such formal offer of evidence to file their objection thereto. In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 o'clock in the morning. (Original Records, p. 286) Copies of the Order were sent and received by the petitioners and their counsel on the following dates Rebecca Boyer-Roxas on August 20, 1986, Guillermo Roxas on August 26, 1986, and Atty. Conrado Manicad on September 19, 1986. (Original Records, pp. 288-290) On September 1, 1986, the respondent corporation filed its "Formal Offer of Evidence." In an Order dated September 29, 1986, the lower court issued an Order admitting exhibits "A" to "M-3" submitted by the respondent corporation in its "Formal Offer of Evidence . . . there being no objection . . ." (Original Records, p. 418) Copies of this Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on October 9, 1986; Guillermo Roxas on October 9, 1986 and Atty. Conrado Manicad on October 4, 1986 (Original Records, pp. 420, 421, 428). The scheduled hearing on September 29, 1986 did not push through as the petitioners and their counsel were not present prompting Atty. Benito Fabie, the respondent corporation's counsel to move that the cases be submitted for decision. The lower court denied the motion and set the cases for hearing on October 22, 1986. However, in its Order dated September 29, 1986, the court warned that in the event the petitioners and their counsel failed to appear on the next scheduled hearing, the court shall consider the cases submitted for decision based on the evidence on record. (Original Records, p. 429, 430 and 431) Separate copies of this Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on October 9, 1986, Guillermo Roxas on October 9, 1986; and Atty. Conrado Manicad on October 1, 1986. (Original Records, pp. 429-430) Despite notice, the petitioners and their counsel again failed to attend the scheduled October 22, 1986 hearing. Atty. Fabie representing the respondent corporation was present. Hence, in its Order dated October 22, 1986, on motion of Atty. Fabie and pursuant to the order dated

September 29, 1986, the Court considered the cases submitted for decision. (Original Records, p. 436) On November 14, 1986, the respondent corporation, filed a "Manifestation", stating that ". . . it is submitting without further argument its "Opposition to the Motion for Reconsideration" for the consideration of the Honorable Court in resolving subject incident." (Original Records, p. 442) On December 16, 1986, the lower court issued an Order, to wit: ORDER Considering that the Court up to this date has not received any Motion for Reconsideration filed by the defendants in the above-entitled cases, the Court cannot act on the Opposition to Motion for Reconsideration filed by the plaintiff and received by the Court on November 14, 1986. (Original Records, p. 446) On January 15, 1987, the lower court rendered the questioned decision in the two (2) cases. (Original Records, pp. 453-459) On January 20, 1987, Atty. Conrado Manicad, the petitioners' counsel filed an Ex-Parte Manifestation and attached thereto, a motion for reconsideration of the October 22, 1986 Order submitting the cases for decision. He prayed that the Order be set aside and the cases be re-opened for reception of evidence for the petitioners. He averred that: 1) within the reglementary period he prepared the motion for reconsideration and among other documents, the draft was sent to his law office thru his messenger; after signing the final copies, he caused the service of a copy to the respondent corporation's counsel with the instruction that the copy of the Court be filed; however, there was a miscommunication between his secretary and messenger in that the secretary mailed the copy for the respondent corporation's counsel and placed the rest in an envelope for the messenger to file the same in court but the messenger thought that it was the secretary who would file it; it was only later on when it was discovered that the copy for the Court has not yet been filed and that such failure to file the motion for reconsideration was due to excusable neglect and/or accident. The motion for reconsideration contained the following allegations: that on the date set for hearing (October 22, 1986), he was on his way to Calamba to attend the hearing but his car suffered transmission breakdown; and that despite efforts to repair said transmission, the car remained inoperative resulting in his absence at the said hearing. (Original Records, pp. 460-469) On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15, 1987 decision. He explained that he had to file the motion because the receiving clerk refused to admit the motion for reconsideration attached to the ex-parte manifestation because there was no proof of service to the other party. Included in the motion for reconsideration was a notice of hearing of the motion on February 3, 1987. (Original Records, p. 476-A)

On February 4, 1987, the respondent corporation through its counsel filed a Manifestation and Motion manifesting that they received the copy of the motion for reconsideration only today (February 4, 1987), hence they prayed for the postponement of the hearing. (Original Records, pp. 478-479) On the same day, February 4, 1987, the lower court issued an Order setting the hearing on February 13, 1987 on the ground that it received the motion for reconsideration late. Copies of this Order were sent separately to the petitioners and their counsel. The records show that Atty. Manicad received his copy on February 11, 1987. As regards the petitioners, the records reveal that Rebecca Boyer-Roxas did not receive her copy while as regards Guillermo Roxas, somebody signed for him but did not indicate when the copy was received. (Original Records, pp. 481-483) At the scheduled February 13, 1987 hearing, the counsels for the parties were present. However, the hearing was reset for March 6, 1987 in order to allow the respondent corporation to file its opposition to the motion for reconsideration. (Order dated February 13, 1987, Original Records, p. 486) Copies of the Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on February 23, 1987; Guillermo Roxas on February 23, 1987 and Atty. Manicad on February 19, 1987. (Original Records, pp. 487, 489-490) The records are not clear as to whether or not the scheduled hearing on March 6, 1987 was held. Nevertheless, the records reveal that on March 13, 1987, the lower court issued an Order denying the motion for reconsideration. The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila v. Court of First Instance of Batangas, Branch I, 160 SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil. 279 [1951]; Montes v. Court of First Instance of Tayabas, 48 Phil. 640 [1926]; People v. Manzanilla, 43 Phil. 167 [1922]; United States v. Dungca, 27 Phil. 274 [1914]; and United States v. Umali, 15 Phil. 33 [1910]) This rule, however, has its exceptions. Thus, in several cases, we ruled that the party is not bound by the actions of his counsel in case the gross negligence of the counsel resulted in the client's deprivation of his property without due process of law. In the case of Legarda v. Court of Appeals (195 SCRA 418 [1991]), we said: In People's Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this Court ruled as follows: Procedural technicality should not be made a bar to the vindication of a legitimate grievance. When such technicality deserts from being an aid to Justice, the courts are justified in excepting from its operation a particular case. Where there was something fishy and suspicious about the actuations of the former counsel of petitioners in the case at bar, in that he did not give any significance at all to the processes of the court, which

has proven prejudicial to the rights of said clients, under a lame and flimsy explanation that the court's processes just escaped his attention, it is held that said lawyer deprived his clients of their day in court, thus entitling said clients to petition for relief from judgment despite the lapse of the reglementary period for filing said period for filing said petition. In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding that the counsel's blunder in procedure is an exception to the rule that the client is bound by the mistakes of counsel, made the following disquisition: Petitioners contend, through their new counsel, that the judgment rendered against them by the respondent court was null and void, because they were therein deprived of their day in court and divested of their property without due process of law, through the gross ignorance, mistake and negligence of their previous counsel. They acknowledge that, while as a rule, clients are bound by the mistake of their counsel, the rule should not be applied automatically to their case, as their trial counsel's blunder in procedure and gross ignorance of existing jurisprudence changed their cause of action and violated their substantial rights. We are impressed with petitioner's contentions. xxx xxx xxx While this Court is cognizant of the rule that, generally, a client will suffer consequences of the negligence, mistake or lack of competence of his counsel, in the interest of Justice and equity, exceptions may be made to such rule, in accordance with the facts and circumstances of each case. Adherence to the general rule would, in the instant case, result in the outright deprivation of their property through a technicality. In its questioned decision dated November 19, 1989 the Court of Appeals found, in no uncertain terms, the negligence of the then counsel for petitioners when he failed to file the proper motion to dismiss or to draw a compromise agreement if it was true that they agreed on a settlement of the case; or in simply filing an answer; and that after having been furnished a copy of the decision by the court he failed to appeal therefrom or to file a petition for relief from the order declaring petitioners in default. In all these instances the appellate court found said counsel negligent but his acts were held to bind his client, petitioners herein, nevertheless. The Court disagrees and finds that the negligence of counsel in this case appears to be so gross and inexcusable. This was compounded by the fact, that after petitioner gave said counsel another chance to make up for his omissions by asking him to file a petition for annulment of the judgment in the appellate court, again counsel abandoned the case of petitioner in that after he received a copy of the adverse judgment of the appellate court, he did not do anything to save the situation or inform his client of the judgment. He allowed the judgment to lapse and become final. Such reckless and gross negligence should not be allowed to bind the

petitioner. Petitioner was thereby effectively deprived of her day in court. (at pp. 426-427) The herein petitioners, however, are not similarly situated as the parties mentioned in the abovecited cases. We cannot rule that they, too, were victims of the gross negligence of their counsel. The petitioners are to be blamed for the October 22, 1986 order issued by the lower court submitting the cases for decision. They received notices of the scheduled hearings and yet they did not do anything. More specifically, the parties received notice of the Order dated September 29, 1986 with the warning that if they fail to attend the October 22, 1986 hearing, the cases would be submitted for decision based on the evidence on record. Earlier, at the scheduled hearing on September 29, 1986, the counsel for the respondent corporation moved that the cases be submitted for decision for failure of the petitioners and their counsel to attend despite notice. The lower court denied the motion and gave the petitioners and their counsel another chance by rescheduling the October 22, 1986 hearing. Indeed, the petitioners knew all along that their counsel was not attending the scheduled hearings. They did not take steps to change their counsel or make him attend to their cases until it was too late. On the contrary, they continued to retain the services of Atty. Manicad knowing fully well his lapses vis-a-vis their cases. They, therefore, cannot raise the alleged gross negligence of their counsel resulting in their denial of due process to warrant the reversal of the lower court's decision. In a similar case, Aguila v. Court of First Instance of Batangas, Branch 1 (supra), we ruled: In the instant case, the petitioner should have noticed the succession of errors committed by his counsel and taken appropriate steps for his replacement before it was altogether too late. He did not. On the contrary, he continued to retain his counsel through the series of proceedings that all resulted in the rejection of his cause, obviously through such counsel's "ineptitude" and, let it be added, the clients' forbearance. The petitioner's reverses should have cautioned him that his lawyer was mishandling his case and moved him to seek the help of other counsel, which he did in the end but rather tardily. Now petitioner wants us to nullify all of the antecedent proceedings and recognize his earlier claims to the disputed property on the justification that his counsel was grossly inept. Such a reason is hardly plausible as the petitioner's new counsel should know. Otherwise, all a defeated party would have to do to salvage his case is claim neglect or mistake on the part of his counsel as a ground for reversing the adverse judgment. There would be no end to litigation if these were allowed as every shortcoming of counsel could be the subject of challenge by his client through another counsel who, if he is also found wanting, would likewise be disowned by the same client through another counsel, and so on ad infinitum. This would render court proceedings indefinite, tentative and subject to reopening at any time by the mere subterfuge of replacing counsel. (at pp. 357-358)

We now discuss the merits of the cases. In the first assignment of error, the petitioners maintain that their possession of the questioned properties must be respected in view of their ownership of an aliquot portion of all the properties of the respondent corporation being stockholders thereof. They propose that the veil of corporate fiction be pierced, considering the circumstances under which the respondent corporation was formed. Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the heirs of Eugenia V. Roxas, among them the petitioners herein, decided to form a corporation Heirs of Eugenia V. Roxas, Incorporated (private respondent herein) with the inherited properties as capital of the corporation. The corporation was incorporated on December 4, 1962 with the primary purpose of engaging in agriculture to develop the inherited properties. The Articles of Incorporation of the respondent corporation were amended in 1971 to allow it to engage in the resort business. Accordingly, the corporation put up a resort known as Hidden Valley Springs Resort where the questioned properties are located. These facts, however, do not justify the position taken by the petitioners. The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the members composing it. (Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 [1990]; Tan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205 [1988]; Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 [1965]) There is no dispute that title over the questioned land where the Hidden Valley Springs Resort is located is registered in the name of the corporation. The records also show that the staff house being occupied by petitioner Rebecca Boyer-Roxas and the recreation hall which was later on converted into a residential house occupied by petitioner Guillermo Roxas are owned by the respondent corporation. Regarding properties owned by a corporation, we stated in the case of Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, (6 SCRA 373 [1962]): xxx xxx xxx . . . Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property, they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but its holder is not the owner of any part of the capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to the

possession of any definite portion of its property or assets (Gottfried V. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a coowner or tenant in common of the corporate property (Harton v. Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-376) The petitioners point out that their occupancy of the staff house which was later used as the residence of Eriberto Roxas, husband of petitioner Rebecca Boyer-Roxas and the recreation hall which was converted into a residential house were with the blessings of Eufrocino Roxas, the deceased husband of Eugenia V. Roxas, who was the majority and controlling stockholder of the corporation. In his lifetime, Eufrocino Roxas together with Eriberto Roxas, the husband of petitioner Rebecca Boyer-Roxas, and the father of petitioner Guillermo Roxas managed the corporation. The Board of Directors did not object to such an arrangement. The petitioners argue that . . . the authority thus given by Eufrocino Roxas for the conversion of the recreation hall into a residential house can no longer be questioned by the stockholders of the private respondent and/or its board of directors for they impliedly but no leas explicitly delegated such authority to said Eufrocino Roxas. (Rollo, p. 12) Again, we must emphasize that the respondent corporation has a distinct personality separate from its members. The corporation transacts its business only through its officers or agents. (Western Agro Industrial Corporation v. Court of Appeals, supra). Whatever authority these officers or agents may have is derived from the board of directors or other governing body unless conferred by the charter of the corporation. An officer's power as an agent of the corporation must be sought from the statute, charter, the by-laws or in a delegation of authority to such officer, from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business. (Vicente v. Geraldez, 52 SCRA 210 [1973]) In the present case, the record shows that Eufrocino V. Roxas who then controlled the management of the corporation, being the majority stockholder, consented to the petitioners' stay within the questioned properties. Specifically, Eufrocino Roxas gave his consent to the conversion of the recreation hall to a residential house, now occupied by petitioner Guillermo Roxas. The Board of Directors did not object to the actions of Eufrocino Roxas. The petitioners were allowed to stay within the questioned properties until August 27, 1983, when the Board of Directors approved a Resolution ejecting the petitioners, to wit: R E S O L U T I O N No. 83-12 RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under them, be ejected from their occupancy of the Hidden Valley Springs compound on which their houses have been constructed and/or are being constructed only on tolerance of the Corporation and without any contract therefor, in order to give way to the Corporation's expansion and improvement program and obviate prejudice to the

operation of the Hidden Valley Springs Resort by their continued interference. RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be authorized as he is hereby authorized to effect the ejectment, including the filing of the corresponding suits, if necessary to do so. (Original Records, p. 327) We find nothing irregular in the adoption of the Resolution by the Board of Directors. The petitioners' stay within the questioned properties was merely by tolerance of the respondent corporation in deference to the wishes of Eufrocino Roxas, who during his lifetime, controlled and managed the corporation. Eufrocino Roxas' actions could not have bound the corporation forever. The petitioners have not cited any provision of the corporation by-laws or any resolution or act of the Board of Directors which authorized Eufrocino Roxas to allow them to stay within the company premises forever. We rule that in the absence of any existing contract between the petitioners and the respondent corporation, the corporation may elect to eject the petitioners at any time it wishes for the benefit and interest of the respondent corporation. The petitioners' suggestion that the veil of the corporate fiction should be pierced is untenable. The separate personality of the corporation may be disregarded only when the corporation is used "as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or when necessary for the protection of the creditors." (Sulong Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon Bee & Co., Inc., v. Jarencio, supra and Western Agro Industrial Corporation v. Court of Appeals, supra) The circumstances in the present cases do not fall under any of the enumerated categories. In the third assignment of error, the petitioners insist that as regards the unfinished building, Rebecca BoyerRoxas is a builder in good faith. The construction of the unfinished building started when Eriberto Roxas, husband of Rebecca Boyer-Roxas, was still alive and was the general manager of the respondent corporation. The couple used their own funds to finance the construction of the building. The Board of Directors of the corporation, however, did not object to the construction. They allowed the construction to continue despite the fact that it was within the property of the corporation. Under these circumstances, we agree with the petitioners that the provision of Article 453 of the Civil Code should have been applied by the lower courts. Article 453 of the Civil Code provides: If there was bad faith, not only on the part of the person who built, planted or sown on the land of another but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith. In such a case, the provisions of Article 448 of the Civil Code govern the relationship between petitioner

Rebecca-Boyer-Roxas and the respondent corporation, to wit: Art. 448 The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting after payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the buildings or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. WHEREFORE, the present petition is partly GRANTED. The questioned decision of the Court of Appeals affirming the decision of the Regional Trial Court of Laguna, Branch 37, in RTC Civil Case No. 802-84-C is MODIFIED in that subparagraphs (c) and (d) of Paragraph 1 of the dispositive portion of the decision are deleted. In their stead, the petitioner Rebecca BoyerRoxas and the respondent corporation are ordered to follow the provisions of Article 448 of the Civil Code as regards the questioned unfinished building in RTC Civil Case No. 802-84-C. The questioned decision is affirmed in all other respects. SO ORDERED. Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur. G.R. No. 150283 April 16, 2008

RYUICHI YAMAMOTO, petitioner, vs. NISHINO LEATHER INDUSTRIES, INC. and IKUO NISHINO, respondents. DECISION CARPIO MORALES, J.: In 1983, petitioner, Ryuichi Yamamoto (Yamamoto), a Japanese national, organized under Philippine laws Wako Enterprises Manila, Incorporated (WAKO), a corporation engaged principally in leather tanning, now known as Nishino Leather Industries, Inc. (NLII), one of herein respondents. In 1987, Yamamoto and the other respondent, Ikuo Nishino (Nishino), also a Japanese national, forged a Memorandum of Agreement under which they agreed to enter into a joint venture wherein Nishino would acquire such number of shares of stock equivalent to 70% of the authorized capital stock of WAKO. Eventually, Nishino and his brother Yoshinobu Nishino (Yoshinobu) acquired more than 70% of the authorized capital stock of WAKO, reducing Yamamotos 2 investment therein to, by his claim, 10%, less than 10% 3 according to Nishino. The corporate name of WAKO was later changed to, as reflected earlier, its current name NLII.
1

Negotiations subsequently ensued in light of a planned takeover of NLII by Nishino who would buy-out the shares of stock of Yamamoto. In the course of the negotiations, Yoshinobu and Nishinos counsel Atty. Emmanuel G. Doce (Atty. Doce) advised Yamamoto by letter dated October 30, 1991, the pertinent portions of which follow: Hereunder is a simple memorandum of the subject matters discussed with me by Mr. Yoshinobu Nishino th yesterday, October 29 , based on the letter of Mr. Ikuo Nishino from Japan, and which I am now transmitting to 4 you. xxxx 12. Machinery and Equipment: The following machinery/equipment contributed by you to the company: Splitting machine Samming machine Forklift Drums Toggling machine have been

By way of Counterclaim, respondents, alleging that they suffered damage due to the seizure via the implementation of the writ of replevin over the machineries and equipment, prayed for the award to them of moral and exemplary damages, attorneys fees and litigation expenses, and costs of suit. The trial court, by Decision of June 9, 1995, decided the 11 case in favor of Yamamoto, disposing thus: WHEREFORE, judgment is hereby rendered: (1) declaring plaintiff as the rightful owner and possessor of the machineries in question, and making the writ of seizure permanent; (2) ordering defendants to pay plaintiff attorneys fees and expenses of litigation in the amount of Fifty Thousand Pesos (P50,000.00), Philippine Currency; (3) dismissing defendants counterclaims for lack of merit; and (4) ordering defendants to pay the costs of suit. SO ORDERED.
13 12

1 unit 1 unit 1 unit 4 units 2 units

(Underscoring supplied)

Regarding the above machines, you may take them out with you (for your own use and sale) if you want, provided, the value of such machines is deducted from your and Wakos capital contributions, which will be paid to you. Kindly let me know of your comments on all the above, soonest. x x x x (Emphasis and underscoring supplied) On the basis of such letter, Yamamoto attempted to recover the machineries and equipment which were, by Yamamotos admission, part of his investment in the 6 corporation, but he was frustrated by respondents, drawing Yamamoto to file on January 15, 1992 before 7 the Regional Trial Court (RTC) of Makati a complaint against them for replevin. Branch 45 of the Makati RTC issued a writ of replevin 8 after Yamamoto filed a bond. In their Answer with Counterclaim, respondents claimed that the machineries and equipment subject of replevin form part of Yamamotos capital contributions in consideration of his equity in NLII and should thus be treated as corporate property; and that the above-said letter of Atty. Doce to Yamamoto was merely a proposal, "conditioned on [Yamamotos] sell-out to . . . Nishino of 10 his entire equity," which proposal was yet to be authorized by the stockholders and Board of Directors of NLII.
9 5

On appeal, the Court of Appeals held in favor of herein respondents and accordingly reversed the RTC decision 14 and dismissed the complaint. In so holding, the appellate court found that the machineries and equipment claimed by Yamamoto are corporate property of NLII and may not thus be retrieved without the 15 authority of the NLII Board of Directors; and that petitioners argument that Nishino and Yamamoto cannot hide behind the shield of corporate fiction does 16 not lie, nor does petitioners invocation of the doctrine 17 of promissory estoppel. At the same time, the Court of Appeals found no ground to support respondents 18 Counterclaim. The Court of Appeals having denied his Motion for 20 Reconsideration, Yamamoto filed the present 21 petition, faulting the Court of Appeals A. x x x IN HOLDING THAT THE VEIL OF CORPORATE FICTION SHOULD NOT BE PIERCED IN THE CASE AT BAR. B. x x x IN HOLDING THAT THE DOCTRINE OF PROMISSORY ESTOPPEL DOES NOT APPLY TO THE CASE AT BAR. C. x x x IN HOLDING THAT RESPONDENTS ARE NOT 22 LIABLE FOR ATTORNEYS FEES. The resolution of the petition hinges, in the main, on whether the advice in the letter of Atty. Doce that Yamamoto may retrieve the machineries and equipment, which admittedly were part of his investment, bound the corporation. The Court holds in the negative. Indeed, without a Board Resolution authorizing respondent Nishino to act for and in behalf of the corporation, he cannot bind the latter. Under the Corporation Law, unless otherwise provided, corporate 23 powers are exercised by the Board of Directors.
19

Urging this Court to pierce the veil of corporate fiction, Yamamoto argues, viz: During the negotiations, the issue as to the ownership of the Machiner[ies] never came up. Neither did the issue on the proper procedure to be taken to execute the complete take-over of the Company come up since Ikuo, Yoshinobu, and Yamamoto were the owners thereof, the presence of other stockholders being only for the purpose of complying with the minimum requirements of the law. What course of action the Company decides to do or not to do depends not on the "other members of the Board of Directors". It depends on what Ikuo and Yoshinobu decide. The Company is but a mere instrumentality 24 of Ikuo [and] Yoshinobu. xxxx x x x The Company hardly holds board meetings. It has an inactive board, the directors are directors in name only and are there to do the bidding of the Nish[i]nos, 25 nothing more. Its minutes are paper minutes. x x x xxxx The fact that the parties started at a 70-30 ratio and Yamamotos percentage declined to 10% does not mean the 20% went to others. x x x The 20% went to no one else but Ikuo himself. x x x Yoshinobu is the younger brother of Ikuo and has no say at all in the business. Only Ikuo makes the decisions. There were, therefore, no other members of the Board who have 26 not given their approval. (Emphasis and underscoring supplied) While the veil of separate corporate personality may be pierced when the corporation is merely an adjunct, a 27 business conduit, or alter ego of a person, the mere ownership by a single stockholder of even all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground to disregard the separate corporate 28 personality. The elements determinative of the applicability of the doctrine of piercing the veil of corporate fiction follow: "1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of the plaintiffs legal rights ; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents "piercing the corporate veil." In applying the instrumentality or alter ego doctrine, the courts are

concerned with reality and not form, with how the corporation operated and the individual defendants 29 relationship to that operation." (Italics in the original; emphasis and underscoring supplied) In relation to the second element, to disregard the separate juridical personality of a corporation, the wrongdoing or unjust act in contravention of a plaintiffs legal rights must be clearly and convincingly established; 30 it cannot be presumed. Without a demonstration that any of the evils sought to be prevented by the doctrine is 31 present, it does not apply. In the case at bar, there is no showing that Nishino used the separate personality of NLII to unjustly act or do wrong to Yamamoto in contravention of his legal rights. Yamamoto argues, in another vein, that promissory estoppel lies against respondents, thus: Under the doctrine of promissory estoppel, x x x estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice. x x x Ikuo and Yoshinobu wanted Yamamoto out of the Company. For this purpose negotiations were had between the parties. Having expressly given Yamamoto, through the Letter and through a subsequent meeting at the Manila Peninsula where Ikuo himself confirmed that Yamamoto may take out the Machinery from the Company anytime, respondents should not be allowed to turn around and do the exact opposite of what they have represented they will do. In paragraph twelve (12) of the Letter, Yamamoto was expressly advised that he could take out the Machinery if he wanted to so, provided that the value of said machines would be deducted from his capital contribution x x x. xxxx Respondents cannot now argue that they did not intend for Yamamoto to rely upon the Letter. That was the purpose of the Letter to begin with. Petitioner[s] in fact, relied upon said Letter and such reliance was further strengthened during their meeting at the Manila Peninsula. To sanction respondents attempt to evade their obligation would be to sanction the perpetration of fraud 32 and injustice against petitioner. (Underscoring supplied) It bears noting, however, that the aforementioned paragraph 12 of the letter is followed by a request for Yamamoto to give his "comments on all the above, 33 soonest." What was thus proffered to Yamamoto was not a promise, but a mere offer, subject to his acceptance. Without acceptance, a mere offer produces no 34 obligation.

Thus, under Article 1181 of the Civil Code, "[i]n conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition." In the case at bar, there is no showing of compliance with the condition for allowing Yamamoto to take the machineries and equipment, namely, his agreement to the deduction of their value from his capital contribution due him in the buy-out of his interests in NLII. Yamamotos allegation that he agreed 35 to the condition remained just that, no proof thereof having been presented. The machineries and equipment, which comprised 36 Yamamotos investment in NLII, thus remained part of 37 the capital property of the corporation. It is settled that the property of a corporation is not the 38 property of its stockholders or members. Under the trust fund doctrine, the capital stock, property, and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors which are preferred over the stockholders in the distribution of corporate 39 assets. The distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers, or directors of the corporation unless the indispensable conditions and procedures for the protection of corporate creditors are 40 followed. WHEREFORE, the petition is DENIED. Costs against petitioner. SO ORDERED.

question the RTC Balayans suspension of the writ of possession and its jurisdiction to hold hearings on the supervening event. The Antecedent Facts The parties are wrangling over possession of a 62 hectare-land in Calatagan, Batangas ("Calatagan Property"). Silverio, Jr. is the President of Esses and TriStar. Esses and Tri-Star were in possession of the Calatagan Property, covered by TCT No. T-55200 and registered in the names of Esses and Tri-Star. On 22 September 1995, Esses and Tri-Star executed a Deed of Sale with Assumption of Mortgage in favor of FBCI. Esses and Tri-Star failed to redeem the Calatagan Property. On 27 May 1997, FBCI filed a Petition for Consolidation of Title of the Calatagan Property with the RTC 2 Balayan. FBCI obtained a judgment by default. Subsequently, TCT No. T-55200 in the names of Esses and Tri-Star was cancelled and TCT No. T-77656 was issued in FBCIs name. On 20 April 1998, the RTC Balayan issued a writ of possession in FBCIs favor. FBCI then entered the Calatagan Property. When Silverio, Jr., Esses and Tri-Star learned of the judgment by default and writ of possession, they filed a petition for relief from judgment and the recall of the writ of possession. Silverio, Jr., Esses and Tri-Star alleged that the judgment by default is void because the RTC Balayan did not acquire jurisdiction over them. FBCI allegedly forged the service of summons on them. On 28 December 1998, the RTC Balayan nullified and set aside the judgment by default and the writ of possession. The RTC Balayan found that the summons and the complaint were not served on Silverio, Jr., Esses and Tri-Star. The RTC Balayan directed the service of summons anew on Silverio, Jr., Esses and Tri-Star. The RTC Balayan denied FBCIs motion for reconsideration of the order. FBCI then filed a petition for certiorari with the Court of Appeals questioning the RTC 3 Balayans 28 December 1998 Order. On 28 April 2000, the Court of Appeals denied FBCIs petition. The Court of Appeals also denied FBCIs motion for reconsideration. On 13 August 2001, the Supreme Court denied FBCIs petition. On 14 April 1999, the RTC Balayan modified its 28 December 1998 Order by upholding FBCIs possession of the Calatagan Property. The RTC Balayan ruled that FBCI could not be deprived of possession of the Calatagan Property because FBCI made substantial improvements on it. Possession could revert to Silverio, Jr., Esses and Tri-Star only if they reimburse FBCI. The RTC Balayan gave Silverio, Jr., Esses and Tri-Star 15 days to file their responsive pleadings. Silverio, Jr., Esses and Tri-Star moved for the partial reconsideration of the 14 April 1999 Order. Silverio, Jr., Esses and Tri-Star argued that since the judgment by default was nullified, they should be restored to their

G.R. No. 143312. August 12, 2005 RICARDO S. SILVERIO, JR., ESSES DEVELOPMENT CORPORATION, and TRI-STAR FARMS, INC., Petitioners, vs. FILIPINO BUSINESS CONSULTANTS, INC., Respondent. DECISION CARPIO, J.: The Case Before us is a petition for review of the Order of the Regional Trial Court, Fourth Judicial Region, Branch XI, Balayan, Batangas ("RTC Balayan") dated 26 May 1 2000. The order suspended the enforcement of the writ of possession that the RTC Balayan had previously issued in favor of petitioners Ricardo S. Silverio, Jr. ("Silverio, Jr."), Esses Development Corporation ("Esses") and Tri-Star Farms, Inc. ("Tri-Star"). Filipino Business Consultants, Inc. ("FBCI"), now Filipino Vastland Company, Inc. sought to suspend the writ of possession on the ground of a supervening event. FBCI claimed that it had just acquired all the stocks of Esses and Tri-Star. As the new owner of Esses and Tri-Star, FBCI asserted its right of possession to the disputed property. Petitioners Silverio, Jr., Esses and Tri-Star

possession of the Calatagan Property. FBCI did not file any opposition to the motion. On 9 November 1999, the RTC Balayan reversed its 14 April 1999 Order by holding that Silverio, Jr., Esses and Tri-Star had no duty to reimburse FBCI. The RTC Balayan pointed out that FBCI offered no evidence to substantiate its claim for expenses. The 9 November 1999 Order also restored possession of the Calatagan Property to Silverio, Jr., Esses and Tri-Star pursuant to Rule 39, Section 5 of the 1997 Rules of Civil Procedure. This provision provides for restitution in case of reversal of an executed judgment. On 7 January 2000, the RTC Balayan denied FBCIs motion for reconsideration. On 8 May 2000, the RTC Balayan issued the writ of possession to Silverio, Jr., Esses and Tri-Star. On 12 May 2000, FBCI filed with the RTC Balayan a Manifestation and Motion to Recall Writ of Possession on the ground that the decision of the Court of Appeals in CA-G.R. SP No. 56924 was not yet final and FBCIs motion for reconsideration was still pending. The RTC Balayan set the hearing on 26 May 2000. On 23 May 2000, FBCI filed with the RTC Balayan an Urgent Ex-Parte Motion to Suspend Enforcement of Writ of Possession. FBCI pointed out that it is now the new owner of Esses and Tri-Star having purchased the 4 "substantial and controlling shares of stocks" of the two corporations. On the 26 May 2000 hearing, FBCI reiterated its claim of a supervening event, its ownership of Esses and TriStar. FBCI informed the RTC Balayan that a new board of directors for Esses and Tri-Star had been convened following the resignation of the members of the board of directors. The previous actions of the former board of directors have been abandoned and the services of Atty. Vicente B. Chuidian, the counsel of petitioners Silverio, Jr., Esses and Tri-Star, have been terminated. On the same day, the RTC Balayan issued the order suspending the writ of possession it had earlier issued to Silverio, Jr., Esses and Tri-Star. The RTC Balayan reasoned that it would violate the law on forum shopping if it executed the writ while FBCIs motion for reconsideration of the Court of Appeals decision and urgent motion to suspend the issuance of the writ of possession remained pending with the Court of Appeals. The RTC Balayan noted that because of FBCIs strong resistance, Silverio, Jr., Esses and Tri-Star have still to take possession of the Calatagan Property. More than ten days had already passed from the time that the RTC Balayan had issued the writ of possession. FBCI had barricaded the Calatagan Property, threatening bloodshed if possession will be taken away from it. The RTC Balayan believed that if it would not restrain Silverio, Jr., Esses and Tri-Star from taking possession of the Calatagan Property, a violent confrontation between the parties might erupt as reported in the Tempo newspaper in its 26 May 2000 issue. Without issuing a restraining order, the RTC Balayan suspended the writ by requesting the counsel of Silverio, Jr., Esses and Tri-Star to allow the court to study the voluminous

records of the case, which are to be presented at the hearing on 16 June 2000. The hearing would determine the existence of a supervening event. On 15 June 2000, the RTC Balayan issued an Order cancelling the 16 June 2000 hearing so that the Court of Appeals could resolve the issue regarding the existence of a supervening event. However, the RTC Balayan declared that the suspension of the writ of possession would be lifted on 17 June 2000. On 8 August 2000, Silverio, Jr., Esses and Tri-Star filed a complaint for annulment of contracts with damages with the Regional Trial Court of Las Pias City, Branch 5 275 ("RTC Las Pias"). Issues Silverio, Jr., Esses and Tri-Star argue that: I An ex parte motion cannot legally constitute an initiatory basis for the RTC Balayan to conduct additional hearings in order to validate certain new allegations. Neither can said ex parte motion be the basis for the suspension of a writ of possession being implemented. II When the RTC Balayan suspended the writ of possession, it was barred from hearing intra-corporate disputes. And though Congress has now amended our law on the matter, the RTC still cannot proceed because of due process and res judicata reasons. III A final and executory judgment cannot be enjoined except by an appropriate petition for relief, a direct attack in another action or a collateral act in another action. IV Respondent FBCI is asking for a suspension of the writ of possession while at the same time threatening violence if the writ of possession were to be implemented. The RTC Balayan had no lawful basis to suspend the writ under these admitted circumstances. V Respondent has not directly answered petitioners legal theory. The petition is founded on admitted facts upon which relief is sought under Rule 45. Respondent has altered these facts presenting its so called "counterstatements of facts and issues" which involve questions of fact that are still litis pendentia at the RTC Balayan. And which even involve an attempt to vary res judicata. VI Contrary to respondents claims, that the RTC order of 15 June 2000 has rendered this case "moot and academic" quite on the contrary said order calls upon the Supreme Court to decide whether or not, the RTC Balayan may continue to conduct its hearings on suspending the writ of possession.

VII Respondents theory that an order suspending a writ of possession is interlocutory in nature, and therefore inappealable, is not supported by jurisprudence. VIII Respondents views on when suspending a writ of execution is appropriate would "make the exception as rule." And respondents reliance on Flores vs. CA, et al. is totally misplaced. In the Flores case, the party being dispossessed was a judgment creditor, who was admitted by the adverse party to be the owner. IX The question of jus possessionis on the Calatagan Property is already res judicata while the question of jus possidendi is still under litis pendentia. For that reason, respondent has lost all his legal options in retaining the property procured under a "faked service" of summons. X Respondents arguments in his 11-06-01 Memo on (a) "forum shopping", (b) "petitioners lack of capacity to sue", (c) "service of summons already served" (d) "no intra-corporate dispute" and (e) "the relief herein preempted by events" are ratiocinations of miniscule 6 weight, meriting only the slightest comment. FBCI raises the following issues: 1. Whether the present case has been rendered moot and academic by the Order of the RTC Balayan dated 15 June 2000 and the filing of an action with the Regional Trial Court of Las Pias City; 2. Whether the present appeal should be dismissed on the ground of forum shopping; 3. Whether the RTC Balayan had the authority to suspend enforcement of the writ of possession and to conduct hearings on a new set of facts; 4. Whether the present case involves an intra-corporate controversy; 5. Whether appeal by certiorari under Rule 45 is the 7 proper remedy under the given facts of the case. The Ruling of the Court The petition has merit. Procedural Issues Before resolving the threshold issue, which is the existence of a supervening event, we first address the following procedural issues: (1) whether appeal is the proper remedy against an order suspending the execution of a writ of possession; (2) whether the issue of possession was mooted by the 15 June 2000 Order of the RTC Balayan; and (3) whether the filing of a civil case with the RTC Las Pias constitutes forum shopping. First, interlocutory orders are those that determine incidental matters that do not touch on the merits of the 8 case or put an end to the proceedings. The proper

remedy to question an improvident interlocutory order is 9 a petition for certiorari under Rule 65, not Rule 45. A petition for review under Rule 45 is the proper mode of 10 redress to question final judgments. An order staying the execution of the writ of possession 11 is an interlocutory order. Clearly, this order cannot be appealed. A petition for certiorari was therefore the correct remedy. Moreover, Silverio, Jr., Esses and TriStar pointed out that the RTC Balayan acted on an exparte motion to suspend the writ of possession, which is a litigious matter, without complying with the rules on notice and hearing. Silverio, Jr., Esses and Tri-Star also assail the RTC Balayans impending move to accept FBCIs evidence on its subsequent ownership of Esses and Tri-Star. In effect, Silverio, Jr., Esses and Tri-Star accuse the RTC Balayan of acting without or in excess of jurisdiction or with grave abuse of discretion, which is within the ambit of certiorari. However, in the exercise of our judicial discretion, we will 12 treat the appeal as a petition under Rule 65. Technical rules must be suspended whenever the purposes of justice warrant it, such as in this case where substantial and important issues await resolution. Second, the RTC Balayans 15 June 2000 Order lifting the suspension of the writ of possession was issued to correct its action on FBCIs ex-parte motion, which did not have the required notice and hearing. This issue has thus become a fait accompli. However, while the 15 June 2000 Order is supposed to have mooted the suspension of the execution of the writ of possession by lifting the suspension on 17 June 2000, Silverio, Jr., Esses and Tri-Star claim that the writ has not been executed in their favor. Thus, the issues in this petition are far from being moot. Also, the existence of a supervening event is another issue that must be resolved since the RTC Balayan had instead submitted to the "higher courts" the resolution of this issue. Third, Silverio, Jr., Esses and Tri-Star are not guilty of forum shopping for filing another action against FBCI with the RTC Las Pias during the pendency of this case with the RTC Balayan. Forum shopping consists of filing multiple suits involving the same parties for the same cause of action, either simultaneously or successively, to 13 obtain a favorable judgment. The parties and cause of action in the present case before the RTC Balayan and in the case before the RTC Las Pias are different. The present case was filed by FBCI against Silverio, Jr., Esses and Tri-Star for the consolidation of title over the Calatagan Property. On the other hand, the case before the RTC Las Pias was filed by Silverio, Jr., Esses and Tri-Star against FBCI and other defendants for the annulment of contract with damages, tort and culpa aquiliana (civil fraud). In its complaint before the RTC Las Pias, Silverio, Jr., Esses and Tri-Star informed the court that there is a pending case with the RTC Balayan over the Calatagan 14 Property. Silverio, Jr., Esses and Tri-Star made it clear in the complaint that the case before the RTC Las Pias will focus on the Makati Tuscany property and any

reference to the Calatagan Property is "meant to serve only as proof or evidence of the plan, system, scheme, habit, etc., lurking behind defendants interlocking acts 15 constituting interlocking tort and interlocking fraud." Clearly, FBCIs claim of forum shopping against Silverio, Jr., Esses and Tri-Star has no basis. No Supervening Event in this Case FBCI took possession of the Calatagan Property after the RTC Balayan rendered a judgment by default in FBCIs favor. The judgment by default was nullified after the RTC Balayan found out that the service of summons on Silverio, Jr., Esses and Tri-Star was procured fraudulently. The RTC Balayan thus recalled the writ of possession it had issued to FBCI. Silverio, Jr., Esses and Tri-Star were served anew with summons. The RTC Balayan restored possession of the Calatagan Property to Silverio, Jr., Esses and Tri-Star as restitution resulting from the annulment of the judgment by default. The order restoring possession of the Calatagan Property to Silverio, Jr., Esses and Tri-Star has attained finality. This case then proceeded to pre-trial. FBCI has resisted the enforcement of the writ of possession by barricading the Calatagan Property and threatening violence if its possession of the property is taken away from it. To avoid bloodshed, as FBCI also claimed that Silverio, Jr. had armed civilians threatening 16 to shoot FBCIs representatives, the RTC Balayan momentarily suspended the execution of the writ. The RTC Balayan also had to rule on FBCIs claim of a supervening event that would allegedly make the 17 execution of the writ absurd, as FBCI alleges it now owns the controlling interest in Esses and Tri-Star. The RTC Balayan lifted the suspension of the writ but it cancelled the hearings on the supervening event to give way to the Court of Appeals action on this issue. The RTC Balayan decided to await the appellate courts resolution because it did not want to violate the rule against forum shopping. Silverio, Jr., Esses and Tri-Star argue that the RTC Balayan has no power to conduct hearings on the supervening event because res judicata has set in on the issue. They also contend that the supervening event is an intra-corporate controversy that is within the jurisdiction of the Securities and Exchange Commission, not the trial court. Silverio, Jr., Esses and Tri-Star point out that despite the lifting of the suspension RTC Balayan has still to execute the writ of possession in their favor. On the other hand, FBCI maintains that its acquisition of Esses and Tri-Star is a supervening event, which the RTC Balayan could hear and is sufficient ground to stay the execution of the writ of possession. We rule in favor of Silverio, Jr., Esses and Tri-Star. The court may stay immediate execution of a judgment when supervening events, occurring subsequent to the judgment, bring about a material change in the situation 18 of the parties. To justify the stay of immediate execution, the supervening events must have a direct 19 effect on the matter already litigated and settled. Or, the supervening events must create a substantial

change in the rights or relations of the parties which would render execution of a final judgment unjust, impossible or inequitable making it imperative to stay 20 immediate execution in the interest of justice. In this case, there is no judgment on the merits, only a judgment on a technicality. Even then, the judgment of default rendered in FBCIs favor was voided because the RTC Balayan did not acquire jurisdiction over Silverio, Jr., Esses and Tri-Star due to a fraudulent service of summons. The case for consolidation of title, from which this petition stemmed, is in fact still being litigated before the RTC Balayan. The issuance of the writ of possession in favor of Silverio, Jr., Esses and Tri-Star is also not a judgment on 21 the merits. A writ of possession is an order whereby the sheriff is commanded to place a person in 22 possession of real or personal property. The issuance of the writ of possession to Silverio, Jr., Esses and TriStar is but an order of restitution a consequence of the nullification of the judgment by default. The order of restitution placed the parties in the situation prior to the RTC Balayans rendition of the void judgment by default. Title to the Calatagan Property is still in the names of Esses and Tri-Star. Possession of the Calatagan Property must revert to Esses and Tri-Star as legal owners of the property. However, with the reinstitution of the case for consolidation of title with the RTC Balayan, possession of the Calatagan Property is now subject to the outcome of the case. Nonetheless, while this case is still under litigation it is only in the pre-trial stage Esses and TriStar in whose names the Calatagan Property is titled and in whose favor the order of restitution was issued, are the ones entitled to possession of the property. We do not agree with Silverio, Jr., Esses and Tri-Stars assertion that the RTC Balayan has no power to conduct a hearing on the existence of a supervening event because of res judicata. Res judicata does not set in where the court is without jurisdiction over the subject or 23 person, and therefore, the judgment is a nullity such as the judgment by default in this case. The order that voided the judgment by default and the order of restitution merely recognized the nullity of the judgment by default. The orders did not adjudicate on the merits of the case. Since res judicata had not set in, the case was tried anew upon the proper service of summons on Silverio, Jr., Esses and Tri-Star. Moreover, it is the court issuing the writ of possession 24 that has control and supervision over its processes. The RTC Balayan can therefore hear the evidence on the existence of a supervening event, provided the subject matter is within the jurisdiction of the court, as this could affect the execution of the writ of possession. We are, therefore, dismayed with the RTC Balayans referral of the existence of the supervening event to the "higher courts." Courts must not shirk from their duty to rule on an issue. The duty of the appellate or higher courts is to review the findings and rulings of the lower courts, not to issue advisories. Courts must execute its

processes and should not succumb to threats by any of the parties to resort to violence in case of such enforcement. Had the RTC Balayan immediately passed upon FBCIs allegation of a supervening event, it would have been apparent that this claim is without merit. The RTC Balayan should have then enforced posthaste the writ of possession in Silverio, Jr., Esses and Tri-Stars favor. FBCIs acquisition of the "substantial and controlling 25 shares of stocks" of Esses and Tri-Star does not create a substantial change in the rights or relations of the parties that would entitle FBCI to possession of the Calatagan Property, a corporate property of Esses and Tri-Star. Esses and Tri-Star, just like FBCI, are corporations. A corporation has a personality distinct from that of its stockholders. As early as the case of Stockholders of F. Guanzon and Sons, Inc. v. 26 Register of Deeds of Manila, the Court explained the principle of separate juridical personality in this wise: A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property, they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala 398, 56 So., 235), but its holder is not the owner of any part of the capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or assets (Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of the corporate property (Harton v. Hohnston, 166 Ala., 317, 51 So., 992). Thus, FBCIs alleged controlling shareholdings in Esses and Tri-Star merely represent a proportionate or aliquot interest in the properties of the two corporations. Such controlling shareholdings do not vest FBCI with any legal right or title to any of Esses and Tri-Stars corporate properties. As a stockholder, FBCI has an interest in Esses and Tri-Stars corporate properties that is only equitable or beneficial in nature. Even assuming that FBCI is the controlling shareholder of Esses and TriStar, it does not legally make it the owner of the Calatagan Property, which is legally owned by Esses and Tri-Star as distinct juridical persons. As such, FBCI is not entitled to the possession of any definite portion of the Calatagan Property or any of Esses and Tri-Stars properties or assets. FBCI is not a co-owner or tenant in common of the Calatagan Property or any of Esses and Tri-Stars corporate properties. We see no reason why the execution of the writ of possession has been long delayed. Possession of the Calatagan Property must be restored to Esses and TriStar through their representative, Silverio, Jr. There is no

proof on record that Silverio, Jr. has ceased to be the representative of Esses and Tri-Star in this case. WHEREFORE, we GRANT the petition. The Regional Trial Court, Branch XI, Balayan, Batangas is ordered to immediately execute the writ of possession in Civil Case No. 3356 in favor of Esses Development Corporation and Tri-Star Farms, Inc. through their representative, Ricardo S. Silverio, Jr. No costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Quisumbing, YnaresSantiago, and Azcuna, JJ., concur. G.R. No. 124715 January 24, 2000

RUFINA LUY LIM, petitioner, vs. COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED DISTRIBUTING, INC., ACTIVE DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION COMPANY, INC. respondents. BUENA, J.: May a corporation, in its universality, be the proper subject of and be included in the inventory of the estate of a deceased person? Petitioner disputes before us through the instant petition 1 for review on certiorari, the decision of the Court of Appeals promulgated on 18 April 1996, in CA-GR SP No. 38617, which nullified and set aside the orders dated 2 3 04 July 1995 , 12 September 1995 and 15 September 4 1995 of the Regional Trial Court of Quezon City, Branch 93, sitting as a probate court. Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose estate is the subject of probate proceedings in Special Proceedings Q-95-23334, entitled, "In Re: Intestate Estate of Pastor Y. Lim Rufina Luy Lim, represented by George Luy, Petitioner".1wphi1.nt Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed Distributing, Inc., Active Distributing, Inc. and Action Company are corporations formed, organized and existing under Philippine laws and which owned real properties covered under the Torrens system. On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly represented by her nephew George Luy, fried on 17 March 1995, a joint 5 petition for the administration of the estate of Pastor Y. Lim before the Regional Trial Court of Quezon City. Private respondent corporations, whose properties were included in the inventory of the estate of Pastor Y. Lim, 6 then filed a motion for the lifting of lis pendens and 7 motion for exclusion of certain properties from the estate of the decedent. In an order dated 08 June 1995, the Regional Trial Court of Quezon City, Branch 93, sitting as a probate
8

court, granted the private respondents' twin motions, in this wise: Wherefore, the Register of Deeds of Quezon City is hereby ordered to lift, expunge or delete the annotation of lis pendens on Transfer Certificates of Title Nos. 116716, 116717, 116718, 116719 and 5182 and it is hereby further ordered that the properties covered by the same titles as well as those properties by (sic) Transfer Certificate of Title Nos. 613494, 363123, 236236 and 263236 are excluded from these proceedings. SO ORDERED. Subsequently, Rufina Luy Lim filed a verified amended 9 petition which contained the following averments: 3. The late Pastor Y. Lim personally owned during his lifetime the following business entities, to wit: Business Entity xxx Alliance Marketing, Inc. xxx Speed Distributing Inc. xxx xxx Address:

listed therein only for purposes of registration with the Securities and Exchange Commission. 4. Pastor Lim, likewise, had Time, Savings and Current Deposits with the following banks: (a) Metrobank, Grace Park, Caloocan City and Quezon Avenue, Quezon City Branches and (b) First Intestate Bank (formerly Producers Bank), Rizal Commercial Banking Corporation and in other banks whose identities are yet to be determined. 5. That the following real properties, although registered in the name of the above entities, were actually acquired by Pastor Y. Lim during his marriage with petitioner, to wit: Corporation xxx Title Location xxx

xxx

k. Auto Truck xxx Block 3, Lot 6, Dacca BF Homes, Paraaque, Metro Manila. xxx

TCT No. Sto. Domingo 617726 TBA Corporation Cainta, Rizal

q. Alliance TCT No. Prance, Marketing 27896 Metro Manila Copies of the above-mentioned Transfer Certificate of Title and/or Tax Declarations are hereto attached as Annexes "C" to "W".

910 Barrio Niog, Aguinaldo xxx xxx xxx Highway, Bacoor, Cavite. 7. The aforementioned properties and/or real interests left by the late Pastor Y. Lim, are all conjugal in nature, xxx xxx xxx having been acquired by him during the existence of his marriage with petitioner. Auto Truck 2251 Roosevelt Avenue, 8. There are other real and personal properties owned TBA Corp. Quezon City. by Pastor Y. Lim which petitioner could not as yet identify. Petitioner, however will submit to this Honorable xxx xxx xxx Court the identities thereof and the necessary documents covering the same as soon as possible. Active Block 3, Lot 6, Dacca BF On 04 July 1995, the Regional Trial Court acting on Distributors, Homes, Paraaque, Metro 10 petitioner's motion issued an order , thus: Inc. Manila. Wherefore, the order dated 08 June 1995 is hereby set aside and the Registry of Deeds of Quezon City is xxx xxx xxx hereby directed to reinstate the annotation of lis pendens in case said annotation had already been deleted and/or Action 100 20th Avenue Murphy, cancelled said TCT Nos. 116716, 116717, 116718, Company Quezon City or 92-D Mc- 116719 and 51282. Arthur Highway Valenzuela Further more (sic), said properties covered by TCT Nos. Bulacan. 613494, 365123, 236256 and 236237 by virtue of the petitioner are included in the instant petition. 3.1 Although the above business entities dealt and engaged in business with the public as corporations, all SO ORDERED. their capital, assets and equity were however, personally On 04 September 1995, the probate court appointed owned by the late Pastor Y Lim. Hence the alleged 11 stockholders and officers appearing in the respective Rufina Lim as special administrator and Miguel Lim articles of incorporation of the above business entities and Lawyer Donald Lee, as co-special administrators of were mere dummies of Pastor Y. Lim, and they were the estate of Pastor Y. Lim, after which letters of administration were accordingly issued.

In an order dated 12 September 1995, the probate court denied anew private respondents' motion for exclusion, in this wise: The issue precisely raised by the petitioner in her petition is whether the corporations are the mere alter egos or instrumentalities of Pastor Lim, Otherwise ( sic) stated, the issue involves the piercing of the corporate veil, a matter that is clearly within the jurisdiction of this Honorable Court and not the Securities and Exchange Commission. Thus, in the case of Cease vs. Court of Appeals, 93 SCRA 483, the crucial issue decided by the regular court was whether the corporation involved therein was the mere extension of the decedent. After finding in the affirmative, the Court ruled that the assets of the corporation are also assets of the estate. A reading of P.D. 902, the law relied upon by oppositors, shows that the SEC's exclusive (sic) applies only to intra-corporate controversy. It is simply a suit to settle the intestate estate of a deceased person who, during his lifetime, acquired several properties and put up corporations as his instrumentalities. SO ORDERED. On 15 September 1995, the probate court acting on an 13 ex parte motion filed by petitioner, issued an order the dispositive portion of which reads: Wherefore, the parties and the following banks concerned herein under enumerated are hereby ordered to comply strictly with this order and to produce and submit to the special administrators, through this Honorable Court within (5) five days from receipt of this order their respective records of the savings/current accounts/time deposits and other deposits in the names of Pastor Lim and/or corporations above-mentioned, showing all the transactions made or done concerning savings/current accounts from January 1994 up to their receipt of this court order. xxx xxx xxx

12

before 16 error :

us

with

lone

assignment

of

The respondent Court of Appeals erred in reversing the orders of the lower court which merely allowed the preliminary or provisional inclusion of the private respondents as part of the estate of the late deceased (sic) Pastor Y. Lim with the respondent Court of Appeals arrogating unto itself the power to repeal, to disobey or to ignore the clear and explicit provisions of Rules 81,83,84 and 87 of the Rules of Court and thereby preventing the petitioner, from performing her duty as special administrator of the estate as expressly provided in the said Rules. Petitioner's contentions tread on perilous grounds. In the instant petition for review, petitioner prays that we affirm the orders issued by the probate court which were subsequently set aside by the Court of Appeals. Yet, before we delve into the merits of the case, a review of the rules on jurisdiction over probate proceedings is indeed in order. The provisions of Republic Act 7691 , which introduced amendments to Batas Pambansa Blg. 129, are pertinent: Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the "Judiciary Reorganization Act of 1980", is hereby amended to read as follows: Sec. 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive jurisdiction: xxx xxx xxx
17

(4) In all matters of probate, both testate and intestate, where the gross value of the estate exceeds One Hundred Thousand Pesos (P100,000) or, in probate matters in Metro Manila, where such gross value exceeds Two Hundred Thousand Pesos (P200,000); xxx xxx xxx

SO ORDERED. Private respondent filed a special civil action for 14 certiorari , with an urgent prayer for a restraining order or writ of preliminary injunction, before the Court of Appeals questioning the orders of the Regional Trial Court, sitting as a probate court. On 18 April 1996, the Court of Appeals, finding in favor of herein private respondents, rendered the assailed 15 decision , the decretal portion of which declares: Wherefore, premises considered, the instant special civil action for certiorari is hereby granted, The impugned orders issued by respondent court on July 4, 1995 and September 12, 1995 are hereby nullified and set aside. The impugned order issued by respondent on September 15, 1995 is nullified insofar as petitioner corporations" bank accounts and records are concerned. SO ORDERED. Through the expediency of Rule 45 of the Rules of Court, herein petitioner Rufina Luy Lim now comes

Sec. 3. Section 33 of the same law is hereby amended to read as follows: Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Civil Cases. Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts shall exercise: 1. Exclusive original jurisdiction over civil actions and probate proceedings, testate and intestate, including the grant of provisional remedies in proper cases, where the value of the personal property, estate or amount of the demand does not exceed One Hundred Thousand Pesos (P100,000) or, in Metro Manila where such personal property, estate or amount of the demand does not exceed Two Hundred Thousand Pesos (P200,000), exclusive of interest, damages of whatever kind, attorney's fees, litigation expenses and costs, the amount of which must be specifically alleged, Provided, that interest, damages of whatever kind, attorney's, litigation expenses and costs shall be included in the determination of the filing fees, Provided further, that

where there are several claims or causes of actions between the same or different parties, embodied in the same complaint, the amount of the demand shall be the totality of the claims in all the causes of action, irrespective of whether the causes of action arose out of the same or different transactions; xxx xxx xxx

Again, in VALERA vs. INSERTO , We had occasion to 23 elucidate, through Mr. Justice Andres Narvasa : Settled is the rule that a Court of First Instance (now Regional Trial Court), acting as a probate court, exercises but limited jurisdiction, and thus has no power to take cognizance of and determine the issue of title to property claimed by a third person adversely to the decedent, unless the claimant and all other parties having legal interest in the property consent, expressly or impliedly, to the submission of the question to the probate court for adjudgment, or the interests of third persons are not thereby prejudiced, the reason for the exception being that the question of whether or not a particular matter should be resolved by the court in the exercise of its general jurisdiction or of its limited jurisdiction as a special court (e.g. probate, land registration, etc.), is in reality not a jurisdictional but in essence of procedural one, involving a mode of practice which may be waived. . . . . . . . These considerations assume greater cogency where, as here, the Torrens title is not in the decedent's name but in others, a situation on which this Court has already had occasion to rule . . . . (emphasis Ours) Petitioner, in the present case, argues that the parcels of land covered under the Torrens system and registered in the name of private respondent corporations should be included in the inventory of the estate of the decedent Pastor Y. Lim, alleging that after all the determination by the probate court of whether these properties should be included or not is merely provisional in nature, thus, not conclusive and subject to a final determination in a separate action brought for the purpose of adjudging once and for all the issue of title. Yet, under the peculiar circumstances, where the parcels of land are registered in the name of private respondent corporations, the jurisprudence pronounced in BOLISAY 24 vs., ALCID is of great essence and finds applicability, thus: It does not matter that respondent-administratrix has evidence purporting to support her claim of ownership, for, on the other hand, petitioners have a Torrens title in their favor, which under the law is endowed with incontestability until after it has been set aside in the manner indicated in the law itself, which of course, does not include, bringing up the matter as a mere incident in special proceedings for the settlement of the estate of deceased persons. . . . . . . . In regard to such incident of inclusion or exclusion, We hold that if a property covered by Torrens title is involved, the presumptive conclusiveness of such title should be given due weight, and in the absence of strong compelling evidence to the contrary, the holder thereof should be considered as the owner of the property in controversy until his title is nullified or modified in an appropriate ordinary action, particularly, when as in the case at bar, possession of the property itself is in the persons named in the title. . . .

22

Simply put, the determination of which court exercises jurisdiction over matters of probate depends upon the gross value of the estate of the decedent. As to the power and authority of the probate court, petitioner relies heavily on the principle that a probate court may pass upon title to certain properties, albeit provisionally, for the purpose of determining whether a certain property should or should not be included in the inventory. In a litany of cases, We defined the parameters by which the court may extend its probing arms in the determination of the question of title in probate proceedings. This Court, in PASTOR, 18 APPEALS, held: JR. vs. COURT OF

. . . As a rule, the question of ownership is an extraneous matter which the probate court cannot resolve with finality. Thus, for the purpose of determining whether a certain property should or should not be included in the inventory of estate properties, the Probate Court may pass upon the title thereto, but such determination is provisional, not conclusive, and is subject to the final decision in a separate action to resolve title. We reiterated the rule in PEREIRA vs. COURT OF 19 APPEALS : . . . The function of resolving whether or not a certain property should be included in the inventory or list of properties to be administered by the administrator is one clearly within the competence of the probate court. However, the court's determination is only provisional in character, not conclusive, and is subject to the final decision in a separate action which may be instituted by the parties. Further, in MORALES vs. CFI OF CAVITE citing 21 CUIZON vs. RAMOLETE , We made an exposition on the probate court's limited jurisdiction: It is a well-settled rule that a probate court or one in charge of proceedings whether testate or intestate cannot adjudicate or determine title to properties claimed to be a part of the estate and which are equally claimed to belong to outside parties. All that the said court could do as regards said properties is to determine whether they should or should not be included in the inventory or list of properties to be administered by the administrator. If there is no dispute, well and good; but if there is, then the parties, the administrator and the opposing parties have to resort to an ordinary action for a final determination of the conflicting claims of title because the probate court cannot do so.
20

A perusal of the records would reveal that no strong compelling evidence was ever presented by petitioner to bolster her bare assertions as to the title of the deceased Pastor Y. Lim over the properties. Even so, P.D. 1529, otherwise known as, "The Property Registration Decree", proscribes collateral attack on Torrens Title, hence: xxx xxx xxx Sec. 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding in accordance with law. In CUIZON vs. RAMOLETE, where similarly as in the case at bar, the property subject of the controversy was duly registered under the Torrens system, We categorically stated: . . . Having been apprised of the fact that the property in question was in the possession of third parties and more important, covered by a transfer certificate of title issued in the name of such third parties, the respondent court should have denied the motion of the respondent administrator and excluded the property in question from the inventory of the property of the estate. It had no authority to deprive such third persons of their possession and ownership of the property. . . . Inasmuch as the real properties included in the inventory of the estate of the Late Pastor Y. Lim are in the possession of and are registered in the name of private respondent corporations, which under the law possess a personality separate and distinct from their stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed. Accordingly, the probate court was remiss in denying private respondents' motion for exclusion. While it may be true that the Regional Trial Court, acting in a restricted capacity and exercising limited jurisdiction as a probate court, is competent to issue orders involving inclusion or exclusion of certain properties in the inventory of the estate of the decedent, and to adjudge, albeit, provisionally the question of title over properties, it is no less true that such authority conferred upon by law and reinforced by jurisprudence, should be exercised judiciously, with due regard and caution to the peculiar circumstances of each individual case. Notwithstanding that the real properties were duly registered under the Torrens system in the name of private respondents, and as such were to be afforded the presumptive conclusiveness of title, the probate court obviously opted to shut its eyes to this gleamy fact and still proceeded to issue the impugned orders. By its denial of the motion for exclusion, the probate court in effect acted in utter disregard of the presumption of conclusiveness of title in favor of private respondents. Certainly, the probate court through such brazen act transgressed the clear provisions of law and infringed settled jurisprudence on this matter.

Moreover, petitioner urges that not only the properties of private respondent corporations are properly part of the decedent's estate but also the private respondent corporations themselves. To rivet such flimsy contention, petitioner cited that the late Pastor Y. Lim during his lifetime, organized and wholly-owned the five corporations, which are the private respondents in the 25 26 instant case. Petitioner thus attached as Annexes "F" 27 and "G" of the petition for review affidavits executed by Teresa Lim and Lani Wenceslao which among others, contained averments that the incorporators of Uniwide Distributing, Inc. included on the list had no actual and participation in the organization and incorporation of the said corporation. The affiants added that the persons whose names appeared on the articles of incorporation of Uniwide Distributing, Inc., as incorporators thereof, are mere dummies since they have not actually contributed any amount to the capital stock of the corporation and have been merely asked by the late Pastor Y. Lim to affix their respective signatures thereon. It is settled that a corporation is clothed with personality separate and distinct from that of the persons composing it. It may not generally be held liable for that of the persons composing it. It may not be held liable for the personal indebtedness of its stockholders or those of the 28 entities connected with it. Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its stockholders or members. In the same vein, a corporation by legal fiction and convenience is an entity shielded by a protective mantle and imbued by law with a character alien to the persons comprising it. Nonetheless, the shield is not at all times invincible. Thus, in FIRST PHILIPPINE INTERNATIONAL BANK 29 vs. COURT OF APPEALS , We enunciated: . . . 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. . . . Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a seemingly separate one, were it not for the existing 30 corporate fiction. The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist, where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity 31 should come to naught.

Further, the test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal right; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any of these 32 elements prevent "piercing the corporate veil". 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 a sufficient reason for disregarding the fiction of separate corporate 33 personalities. Moreover, to disregard the separate juridical personality of a corporation, the wrong-doing must be clearly and 34 convincingly established. It cannot be presumed. Granting arguendo that the Regional Trial Court in this case was not merely acting in a limited capacity as a probate court, petitioner nonetheless failed to adduce competent evidence that would have justified the court to impale the veil of corporate fiction. Truly, the reliance reposed by petitioner on the affidavits executed by Teresa Lim and Lani Wenceslao is unavailing considering that the aforementioned documents possess no weighty probative value pursuant to the hearsay rule. Besides it is imperative for us to stress that such affidavits are inadmissible in evidence inasmuch as the affiants were not at all presented during the course of the proceedings in the lower court. To put it differently, for this Court to uphold the admissibility of said documents would be to relegate from Our duty to apply such basic rule of evidence in a manner consistent with the law and jurisprudence. Our pronouncement in PEOPLE BANK AND TRUST 35 COMPANY vs. LEONIDAS finds pertinence: Affidavits are classified as hearsay evidence since they are not generally prepared by the affiant but by another who uses his own language in writing the affiant's statements, which may thus be either omitted or misunderstood by the one writing them. Moreover, the adverse party is deprived of the opportunity to crossexamine the affiants. For this reason, affidavits are generally rejected for being hearsay, unless the affiant themselves are placed on the witness stand to testify thereon. As to the order of the lower court, dated 15 September 1995, the Court of Appeals correctly observed that the Regional Trial Court, Branch 93 acted without jurisdiction in issuing said order; The probate court had no authority to demand the production of bank accounts in the name of the private respondent corporations.
36

WHEREFORE, in view of the foregoing disquisitions, the instant petition is hereby DISMISSED for lack of merit and the decision of the Court of Appeals which nullified and set aside the orders issued by the Regional Trial Court, Branch 93, acting as a probate court, dated 04 July 1995 and 12 September 1995 is AFFIRMED.1wphi1.nt SO ORDERED. G.R. No. 127181 September 4, 2001

LAND BANK OF THE PHILIPPINES, petitioner, vs. THE COURT OF APPEALS, ECO MANAGEMENT CORPORATION and EMMANUEL C. OATE, respondents. QUISUMBING, J.: This petition for review on certiorari seeks to reverse and 1 set aside the decision promulgated on June 17, 1996 in CA-GR No. CV-43239 of public respondent and its 2 resolution dated November 29, 1996 denying 3 petitioners motion for reconsideration. The facts of this case as found by the Court of Appeals and which we find supported by the records are as follows: On various dates in September, October, and November, 1980, appellant Land Bank of the Philippines (LBP) extended a series of credit accommodations to appellee ECO, using the trust funds of the Philippine Virginia Tobacco Administration (PVTA) in the aggregate amount of P26,109,000.00. The proceeds of the credit accommodations were received on behalf of ECO by appellee Oate. On the respective maturity dates of the loans, ECO failed to pay the same. Oral and written demands were made, but ECO was unable to pay. ECO claims that the company was in financial difficulty for it was unable to collect its investments with companies which were affected by the financial crisis brought about by the Dewey Dee scandal. xxx On October 20, 1981, ECO proposed and submitted to LBP a "Plan of Payment" whereby the former would set up a financing company which would absorb the loan obligations. It was proposed that LBP would participate in the scheme through the conversion of P9,000,000.00 which was part of the total loan, into equity. On March 4, 1982, LBP informed ECO of the action taken by the formers Trust Committee concerning the "Plan of Payment" which reads in part, as follows: xxx Please be informed that the Banks Trust Committee has deliberated on the plan of payment during its meetings on November 6, 1981 and February 23, 1982. The Committee arrived at a decision that you may proceed with your Plan of Payment provided Land Bank shall not participate in the undertaking in any manner whatsoever.

In view thereof, may we advise you to make necessary revision in the proposed Plan of Payment and submit the same to us as soon as possible. (Records, p. 428) On May 5, 1982, ECO submitted to LBP a "Revised Plan of Payment" deleting the latters participation in the proposed financing company. The Trust Committee deliberated on the "Revised Plan of Payment" and resolved to reject it. LBP then sent a letter to the PVTA for the latters comments. The letter stated that if LBP did not hear from PVTA within five (5) days from the latters receipt of the letter, such silence would be construed to be an approval of LBPs intention to file suit against ECO and its corporate officers. PVTA did not respond to the letter. On June 28, 1982, Landbank filed a complaint for Collection of Sum of Money against ECO and Emmanuel C. Oate before the Regional Trial Court of Manila, Branch 50. After trial on the merits, a judgment was rendered in favor of LBP; however, appellee Oate was absolved from personal liability for insufficiency of evidence. Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP claimed that there was an error in computation in the amounts to be paid. LBP also questioned the dismissal of the case with regard to Oate. On the other hand, ECO questioned its being held liable for the amount of the loan. Upon order of the court, both parties submitted Supplemental Motions for Reconsideration and their respective Oppositions to each others Motions. On February 3, 1993, the trial court rendered an Amended Decision, the dispositive portion of which reads as follows: ACCORDINGLY, the Decision, dated December 3, 1990, is hereby modified to read as follows: WHEREFORE, judgment is rendered ordering defendant Eco Management Corporation to pay plaintiff Land Bank of the Philippines: A. The sum of P26,109,000.00 representing the total amount of the ten (10) loan accommodations plus 16% interest per annum computed from the dates of their respective maturities until fully paid, broken down as follows: 1. the principal amount of P4,000,000.00 with interest at 16% computed from September 18, 1981; 2. the principal amount of P5,000,000.00 with interest at 16% computed from September 21, 1981; 3. the principal amount of P1,000,000.00 with interest rate at 16% computed from September 28, 1981; 4. the principal amount of P1,000,000.00 with interest at 15% computed from October 5, 1981; 5. the principal amount of P2,000,000.00 with interest rate at of 16% computed from October 8, 1981;

6. the principal amount of P2,000,000.00 with interest rate at of 16% from October 23, 1981; 7. the principal amount of P814,000.00 with interest rate at of 16% computed from November 1, 1981; 8. the principal amount of P2,295,000.00 with interest rate at of 16% computed from November 6, 1981; 9. the principal amount of P3,000,000.00 with interest rate at of 16% computed from November 7, 1981; 10. the principal amount of P5,000,000.00 with interest rate at 16% computed from November 9, 1981; B. The sum of P260,000.00 as attorneys fees; and C. The costs of the suit. The case as against defendant Emmanuel Oate is dismissed for insufficiency of evidence. SO ORDERED. (Records, p. 608)
4

The Court of Appeals affirmed in toto the amended 5 decision of the trial court. On June 9, 1996, petitioner filed a motion for reconsideration, which was denied in a resolution dated November 29, 1996. Hence, this present petition, assigning the following errors allegedly committed by the Court of Appeals: A THE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT BASED ON THE FACTS AS ESTABLISHED BY EVIDENCE, THERE EXISTS A SUBSTANTIAL AND JUSTIFIABLE GROUND UPON WHICH THE LEGAL NOTION OF THE CORPORATE FICTION OF RESPONDENT ECO MANAGEMENT CORPORATION MAY BE PIERCED. B THE COURT OF APPEALS GRAVELY ERRED IN NOT A[T]TACHING LIABILITY TO RESPONDENT EMMANUEL C. OATE JOINTLY AND SEVERALLY WITH RESPONDENT ECO MANAGEMENT CORPORATION FOR THE PRINCIPAL SUM OF P26 M PLUS INTEREST THEREON. C THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF THE LOWER COURT THE SAME NOT BEING SUPPORTED BY THE EVIDENCE AND APPLICABLE LAWS AND 6 JURISPRUDENCE. The primary issues for resolution here are (1) whether or not the corporate veil of ECO Management Corporation should be pierced; and (2) whether or not Emmanuel C. Oate should be held jointly and severally liable with ECO Management Corporation for the loans incurred from Land Bank. Petitioner contends that the personalities of Emmanuel Oate and of ECO Management Corporation should be treated as one, for the particular purpose of holding respondent Oate liable for the loans incurred by

corporate respondent ECO from Land Bank. According to petitioner, the said corporation was formed ostensibly to allow Oate to acquire loans from Land Bank which he used for his personal advantage. Petitioner submits the following arguments to support its stand: (1) Respondent Oate owns the majority of the interest holdings in respondent corporation, specifically during the crucial time when appellees applied for and obtained the loan from LANDBANK, sometime in September to November, 1980. (2) The acronym ECO stands for the initials of Emmanuel C. Oate, which is the logical, sensible and concrete explanation for the name ECO, in the absence of evidence to the contrary. (3) Respondent Oate has always referred to himself as the debtor, not merely as an officer or a representative of respondent corporation. (4) Respondent Oate personally paid P1 Million taken from trust accounts in his name. (5) Respondent Oate made a personal offering to pay his personal obligation. (6) Respondent Oate controlled respondent corporation by simultaneously holding two (2) corporate positions, viz., as Chairman and as treasurer, beginning from the time of respondent corporations incorporation and continuously thereafter without benefit of election. (7) Respondent corporation had not held any meeting of the stockholders or of the Board of Directors, as shown by the fact that no proceeding of such corporate activities was filed with or borne by the record of the Securities and Exchange Commission (SEC). The only corporate records respondent corporation filed with the SEC were the following: Articles of Incorporation, Treasurers Affidavit, Undertaking to Change Corporate Name, 7 Statement of Assets and Liabilities. Private respondents, in turn, contend that Oates only participation in the transaction between petitioner and respondent ECO was his execution of the loan agreements and promissory notes as Chairman of the corporations Board of Directors. There was nothing in the loan agreement nor in the promissory notes which would indicate that Oate was binding himself jointly and severally with ECO. Respondents likewise deny that ECO stands for Emmanuel C. Oate. Respondents also note that Oate is no longer a majority stockholder of ECO and that the payment by a third person of the debt of another is allowed under the Civil Code. They also alleged that there was no fraud and/or bad faith in the transactions between them and Land Bank. Hence, private respondents conclude, there is no legal ground to 8 pierce the veil of respondent corporations personality. At the outset, we find the matters raised by petitioner in his argumentation are mainly questions of fact which are 9 not proper in a petition of this nature. Petitioner is basically questioning the evaluation made by the Court of Appeals of the evidence submitted at the trial. The Court of Appeals had found that petitioners evidence was not sufficient to justify the piercing of ECOs 10 corporate personality. Petitioner contended otherwise. It is basic that where what is being questioned is the 11 sufficiency of evidence, it is a question of fact. Nevertheless, even if we regard these matters as

tendering an issue of law, we still find no reason to reverse the findings of the Court of Appeals. A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it as well as from any other 12 legal entity to which it may be related. By this attribute, a stockholder may not, generally, be made to answer for acts or liabilities of the said corporation, and vice 13 versa. This separate and distinct personality is, however, merely a fiction created by law for convenience 14 and to promote the ends of justice. For this reason, it may not be used or invoked for ends subversive to the 15 policy and purpose behind its creation or which could not have been intended by law to which it owes its 16 being. This is particularly true when the fiction is used to defeat public convenience, justify wrong, protect 17 fraud, defend crime, confuse legitimate legal or judicial 18 issues, perpetrate deception or otherwise circumvent 19 the law. This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of 20 another corporate entity. In all these cases, the notion of corporate entity will be pierced or disregarded with 21 reference to the particular transaction involved. The burden is on petitioner to prove that the corporation and its stockholders are, in fact, using the personality of the corporation as a means to perpetrate fraud and/or escape a liability and responsibility demanded by law. In order to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and 22 convincingly established. In the absence of any malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for corporate 23 liabilities. The mere fact that Oate owned the majority of the shares of ECO is not a ground to conclude that Oate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of separate corporate 24 personalities. Neither is the fact that the name "ECO" represents the first three letters of Oates name sufficient reason to pierce the veil. Even if it did, it does not mean that the said corporation is merely a dummy of Oate. A corporation may assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of one of its shareholders. That respondent corporation in this case was being used as a mere alter ego of Oate to obtain the loans had not been shown. Bad faith or fraud on the part of ECO and Oate was not also shown. As the Court of Appeals observed, if shareholders of ECO meant to defraud petitioner, then they could have just easily absconded instead of going out of their way to propose "Plans of 25 Payment." Likewise, Oate volunteered to pay a 26 portion of the corporations debt. This offer demonstrated good faith on his part to ease the debt of the corporation of which he was a part. It is understandable that a shareholder would want to help

his corporation and in the process, assure that his stakes in the said corporation are secured. In this case, it was established that the P1 Million did not come solely from Oate. It was taken from a trust account which was 27 owned by Oate and other investors. It was likewise proved that the P1 Million was a loan granted by Oate 28 and his co-depositors to alleviate the plight of ECO. This circumstance should not be construed as an admission that he was really the debtor and not ECO. In sum, we agree with the Court of Appeals conclusion that the evidence presented by the petitioner does not suffice to hold respondent Oate personally liable for the debt of co-respondent ECO. No reversible error could be attributed to respondent courts decision and resolution which petitioner assails. WHEREFORE, the petition is DENIED for lack of merit. The decision and resolution of the Court of Appeals in CA-G.R. CV No. 43239 are AFFIRMED. Costs against petitioner. SO ORDERED. G.R. No. 142616 July 31, 2001

However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall. On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati issued a 72hour temporary restraining order. On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. At the hearing of the application for preliminary injunction, petitioner was given a period of seven days to file its written opposition to the application. On June 15, 1999, petitioner filed an opposition to the application for a writ of preliminary injunction to which the respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between the petitioner and respondents. On June 30, 1999, the trial court judge issued an Order for the issuance of a writ of preliminary injunction, which writ was correspondingly issued on July 14, 1999. On October 4, 1999, the motion to dismiss was denied by the trial court judge for lack of merit. Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of preliminary injunction before the Court of Appeals. In the 1 impugned decision, the appellate court dismissed the petition. Petitioner thus seeks recourse to this Court and raises the following errors: 1. THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO, CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-INFACT AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT. 2. THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. 2 GUADIZ JR., 101 SCRA 827. Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial court's Orders dated June 30, 1999 and October 4, 1999 be set aside and the dismissal of the complaint in the instant 3 case.

PHILIPPINE NATIONAL BANK, petitioner, vs. RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE, respondents. KAPUNAN, J.: In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul and set aside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order issuing a writ of preliminary injunction of the Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and its Order dated October 4, 1999, which denied petitioner's motion to dismiss. The antecedents of this case are as follows: Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are domestic corporations, likewise, organized and existing under Philippine law. On May 29, 1996, PNB International Finance Ltd. (PNBIFL) a subsidiary company of PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00 secured by real estate mortgages constituted over four (4) parcels of land in Makati City. This credit facility was later increased successively to US$1,140,000.00 in September 1996; to US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April 1998. Respondents made repayments of the loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong.

In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate entities, petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked to commit acts of foreclosing respondents' 4 properties. Respondents maintain that the entire credit facility is void as it contains stipulations in violation of the 5 principle of mutuality of contracts. In addition, respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego 6 or a business conduit of PNB-IFL. The petition is impressed with merit. Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the contract: GROUNDS I THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS. II THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW OR BY 7 THE MONETARY BOARD. Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the foreclosure and eventual sale of the property in order to protect their rights to said property by reason of void credit facilities as bases for the real estate mortgage over the said 8 property. The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their complaint, respondents admit that petitioner is a mere attorney-infact for the PNB-IFL with full power and authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. In other words, herein petitioner is an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage. It is not privy to the loan contracts entered into by respondents and PNBIFL. The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party to the loan contracts, and the respondents. Yet, despite the recognition that petitioner is a mere agent, the respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by them in accordance with the terms and conditions in the documents evidencing the credit facilities, and crediting the amount previously paid to 9 PNB by herein respondents.

Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract. Respondents, therefore, do not have any cause of action against petitioner. The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB10 IFL. In justifying its ruling, the trial court, citing the case 11 of Koppel Phil. Inc. vs. Yatco, reasoned that the corporate entity may be disregarded where a corporation is the mere alter ego, or business conduit of a person or where the corporation is so organized and controlled and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct of another 12 corporation. We disagree. The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members, and is not affected by the personal rights, obligations and transactions of the 13 latter. The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity. We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court disregarded the separate existence of the parent and the subsidiary on the ground that the latter was formed merely for the purpose of evading the payment of higher taxes. In the case at bar, respondents fail to show any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded. While there exists no definite test of general application in determining when a subsidiary may be treated as a mere instrumentality of the parent corporation, some factors have been identified that will justify the application of the treatment of the doctrine of the piercing of the corporate veil. The case of Garrett vs. 14 Southern Railway Co. is enlightening. The case involved a suit against the Southern Railway Company. Plaintiff was employed by Lenoir Car Works and alleged that he sustained injuries while working for Lenoir. He, however, filed a suit against Southern Railway Company on the ground that Southern had acquired the entire capital stock of Lenoir Car Works, hence, the latter corporation was but a mere instrumentality of the former. The Tennessee Supreme Court stated that as a general rule the stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the

dominant corporation. Said Court then outlined the circumstances which may be useful in the determination of whether the subsidiary is but a mere instrumentality of the parent-corporation: The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to catalogue the infinite variations of fact that can arise but there are certain common circumstances which are important and which, if present in the proper combination, are controlling. These are as follows: (a) The parent corporation owns all or most of the capital stock of the subsidiary. (b) The parent and subsidiary corporations have common directors or officers. (c) The parent corporation finances the subsidiary. (d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation. (e) The subsidiary has grossly inadequate capital. (f) The parent corporation pays the salaries and other expenses or losses of the subsidiary. (g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation. (h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own. (i) The parent corporation uses the property of the subsidiary as its own. (j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation. (k) The formal legal requirements of the subsidiary are not observed. The Tennessee Supreme Court thus ruled: In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of the capital stock of Lenoir by Southern, and possibly subscription to the capital stock of Lenoir. . . The complaint must be dismissed. Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs

are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another 15 corporation. In Concept Builders, Inc. v. NLRC, we have laid the test in determining the applicability of the doctrine of piercing the veil of corporate fiction, to wit: 1. Control, not mere majority or complete control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own. 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiffs legal rights; and, 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's 17 relationship to the operation. Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar. In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an attorneyin-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or defended in the name of the real party-ininterest, unless otherwise authorized by law or these 18 Rules. In mandatory terms, the Rules require that "parties-in-interest without whom no final determination can be had, an action shall be joined either as plaintiffs 19 or defendants." In the case at bar, the injunction suit is directed only against the agent, not the principal. Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere provisional remedy 20 but adjunct to the main suit. A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendency of the principal action. The dismissal of the
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principal action thus results in the denial of the prayer for the issuance of the writ. Further, there is no showing that respondents are entitled to the issuance of the writ. Section 3, Rule 58, of the 1997 Rules of Civil Procedure provides: SECTION 3. Grounds for issuance of preliminary injunction. A preliminary injunction may be granted when it is established: (a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually, (b) That the commission, continuance or nonperformance of the acts or acts complained of during the litigation would probably work injustice to the applicant; or (c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual. Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any 21 standard compensation. Respondents do not deny their indebtedness. Their properties are by their own choice encumbered by real estate mortgages. Upon the non-payment of the loans, which were secured by the mortgages sought to be foreclosed, the mortgaged properties are properly subject to a foreclosure sale. Moreover, respondents questioned the alleged void stipulations in the contract only when petitioner initiated the foreclosure proceedings. Clearly, respondents have failed to prove that they have a right protected and that the acts against which the writ is to be directed are 22 violative of said right. The Court is not unmindful of the findings of both the trial court and the appellate court that there may be serious grounds to nullify the provisions of the loan agreement. However, as earlier discussed, respondents committed the mistake of filing the case against the wrong party, thus, they must suffer the consequences of their error. All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith, must be lifted. IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED. SO ORDERED.

Puno, Pardo and Santiago, Davide, Jr., C .J ., on official leave.

JJ

.,

concur.

.R. No. 96490 February 3, 1992 INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO, petitioner, vs. VOLUNTARY ARBITRATOR TEODORICO P. CALICA and INDOPHIL TEXTILE MILLS, INC., respondents. Romeo C. Lagman for petitioner. Borreta, Gutierrez & Leogardo for respondent Indophil Textile Mills, Inc.

MEDIALDEA, J.: This is a petition for certiorari seeking the nullification of the award issued by the respondent Voluntary Arbitrator Teodorico P. Calica dated December 8, 1990 finding that Section 1 (c), Article I of the Collective Bargaining Agreement between Indophil Textile Mills, Inc. and Indophil Textile Mill Workers Union-PTGWO does not extend to the employees of Indophil Acrylic Manufacturing Corporation as an extension or expansion of Indophil Textile Mills, Incorporated. The antecedent facts are as follows: Petitioner Indophil Textile Mill Workers Union-PTGWO is a legitimate labor organization duly registered with the Department of Labor and Employment and the exclusive bargaining agent of all the rank-and-file employees of Indophil Textile Mills, Incorporated. Respondent Teodorico P. Calica is impleaded in his official capacity as the Voluntary Arbitrator of the National Conciliation and Mediation Board of the Department of Labor and Employment, while private respondent Indophil Textile Mills, Inc. is a corporation engaged in the manufacture, sale and export of yarns of various counts and kinds and of materials of kindred character and has its plants at Barrio Lambakin. Marilao, Bulacan. In April, 1987, petitioner Indophil Textile Mill Workers Union-PTGWO and private respondent Indophil Textile Mills, Inc. executed a collective bargaining agreement effective from April 1, 1987 to March 31, 1990. On November 3, 1967 Indophil Acrylic Manufacturing Corporation was formed and registered with the Securities and Exchange Commission. Subsequently, Acrylic applied for registration with the Board of Investments for incentives under the 1987 Omnibus Investments Code. The application was approved on a preferred non-pioneer status.

In 1988, Acrylic became operational and hired workers according to its own criteria and standards. Sometime in July, 1989, the workers of Acrylic unionized and a duly certified collective bargaining agreement was executed. In 1990 or a year after the workers of Acrylic have been unionized and a CBA executed, the petitioner union claimed that the plant facilities built and set up by Acrylic should be considered as an extension or expansion of the facilities of private respondent Company pursuant to Section 1(c), Article I of the CBA, to wit,. c) This Agreement shall apply to the Company's plant facilities and installations and to any extension and expansion thereat. (Rollo, p.4) In other words, it is the petitioner's contention that Acrylic is part of the Indophil bargaining unit. The petitioner's contention was opposed by private respondent which submits that it is a juridical entity separate and distinct from Acrylic. The existing impasse led the petitioner and private respondent to enter into a submission agreement on September 6, 1990. The parties jointly requested the public respondent to act as voluntary arbitrator in the resolution of the pending labor dispute pertaining to the proper interpretation of the CBA provision. After the parties submitted their respective position papers and replies, the public respondent Voluntary Arbitrator rendered its award on December 8, 1990, the dispositive portion of which provides as follows: PREMISES CONSIDERED, it would be a strained interpretation and application of the questioned CBA provision if we would extend to the employees of Acrylic the coverage clause of Indophil Textile Mills CBA. Wherefore, an award is made to the effect that the proper interpretation and application of Sec. l, (c), Art. I, of the 1987 CBA do (sic) not extend to the employees of Acrylic as an extension or expansion of Indophil Textile Mills, Inc. (Rollo, p.21) Hence, this petition raising four (4) issues, to wit: 1. WHETHER OR NOT THE RESPONDENT ARBITRATOR ERRED IN INTERPRETING SECTION 1(c), ART I OF THE CBA BETWEEN PETITIONER UNION AND RESPONDENT COMPANY. 2. WHETHER OR NOT INDOPHIL ACRYLIC IS A SEPARATE AND DISTINCT ENTITY FROM RESPONDENT COMPANY FOR PURPOSES OF UNION REPRESENTATION. 3. WHETHER OR NOT THE RESPONDENT ARBITRATOR GRAVELY ABUSED HIS DISCRETION

AMOUNTING TO LACK OR IN EXCESS OF HIS JURISDICTION. 4. WHETHER OR NOT THE RESPONDENT ARBITRATOR VIOLATED PETITIONER UNION'S CARDINAL PRIMARY RIGHT TO DUE PROCESS. (Rollo, pp. 6-7) The central issue submitted for arbitration is whether or not the operations in Indophil Acrylic Corporation are an extension or expansion of private respondent Company. Corollary to the aforementioned issue is the question of whether or not the rank-and-file employees working at Indophil Acrylic should be recognized as part of, and/or within the scope of the bargaining unit. Petitioner maintains that public respondent Arbitrator gravely erred in interpreting Section l(c), Article I of the CBA in its literal meaning without taking cognizance of the facts adduced that the creation of the aforesaid Indophil Acrylic is but a devise of respondent Company to evade the application of the CBA between petitioner Union and respondent Company. Petitioner stresses that the articles of incorporation of the two corporations establish that the two entities are engaged in the same kind of business, which is the manufacture and sale of yarns of various counts and kinds and of other materials of kindred character or nature. Contrary to petitioner's assertion, the public respondent through the Solicitor General argues that the Indophil Acrylic Manufacturing Corporation is not an alter ego or an adjunct or business conduit of private respondent because it has a separate legitimate business purpose. In addition, the Solicitor General alleges that the primary purpose of private respondent is to engage in the business of manufacturing yarns of various counts and kinds and textiles. On the other hand, the primary purpose of Indophil Acrylic is to manufacture, buy, sell at wholesale basis, barter, import, export and otherwise deal in yarns of various counts and kinds. Hence, unlike private respondent, Indophil Acrylic cannot manufacture textiles while private respondent cannot buy or import yarns. Furthermore, petitioner emphasizes that the two corporations have practically the same incorporators, directors and officers. In fact, of the total stock subscription of Indophil Acrylic, P1,749,970.00 which represents seventy percent (70%) of the total subscription of P2,500,000.00 was subscribed to by respondent Company. On this point, private respondent cited the case of Diatagon Labor Federation v. Ople, G.R. No. L-4449394, December 3, 1980, 10l SCRA 534, which ruled that two corporations cannot be treated as a single bargaining unit even if their businesses are related. It submits that the fact that there are as many bargaining

units as there are companies in a conglomeration of companies is a positive proof that a corporation is endowed with a legal personality distinctly its own, independent and separate from other corporations ( see Rollo, pp. 160-161). Petitioner notes that the foregoing evidence sufficiently establish that Acrylic is but an extension or expansion of private respondent, to wit: (a) the two corporations have their physical plants, offices and facilities situated in the same compound, at Barrio Lambakin, Marilao, Bulacan; (b) many of private respondent's own machineries, such as dyeing machines, reeling, boiler, Kamitsus among others, were transferred to and are now installed and being used in the Acrylic plant; (c) the services of a number of units, departments or sections of private respondent are provided to Acrylic; and (d) the employees of private respondent are the same persons manning and servicing the units of Acrylic. ( see Rollo, pp. 12-13) Private respondent insists that the existence of a bonafide business relationship between Acrylic and private respondent is not a proof of being a single corporate entity because the services which are supposedly provided by it to Acrylic are auxiliary services or activities which are not really essential in the actual production of Acrylic. It also pointed out that the essential services are discharged exclusively by Acrylic personnel under the control and supervision of Acrylic managers and supervisors. In sum, petitioner insists that the public respondent committed grave abuse of discretion amounting to lack or in excess of jurisdiction in erroneously interpreting the CBA provision and in failing to disregard the corporate entity of Acrylic. We find the petition devoid of merit. Time and again, We stress that the decisions of voluntary arbitrators are to be given the highest respect and a certain measure of finality, but this is not a hard and fast rule, it does not preclude judicial review thereof where want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial justice, or erroneous interpretation of the law were brought to our attention. (see Ocampo, et al. v. National Labor Relations Commission, G.R. No. 81677, 25 July 1990, First Division Minute Resolution citing Oceanic Bic Division (FFW) v. Romero, G.R. No. L-43890, July 16, 1984, 130 SCRA 392)

It should be emphasized that in rendering the subject arbitral award, the voluntary arbitrator Teodorico Calica, a professor of the U.P. Asian Labor Education Center, now the Institute for Industrial Relations, found that the existing law and jurisprudence on the matter, supported the private respondent's contentions. Contrary to petitioner's assertion, public respondent cited facts and the law upon which he based the award. Hence, public respondent did not abuse his discretion. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of persons. The members or stockholders of the corporation will be considered as the corporation, that is liability will attach directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. (Umali et al. v. Court of Appeals, G.R. No. 89561, September 13, 1990, 189 SCRA 529, 542) In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of the corporation is a devise to evade the application of the CBA between petitioner Union and private respondent Company. While we do not discount the possibility of the similarities of the businesses of private respondent and Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting the relief sought. The fact that the businesses of private respondent and Acrylic are related, that some of the employees of the private respondent are the same persons manning and providing for auxilliary services to the units of Acrylic, and that the physical plants, offices and facilities are situated in the same compound, it is our considered opinion that these facts are not sufficient to justify the piercing of the corporate veil of Acrylic. In the same case of Umali, et al. v. Court of Appeals (supra), We already emphasized that "the legal corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable for a corporate debt or obligation." In the instant case, petitioner does not seek to impose a claim against the members of the Acrylic. Furthermore, We already ruled in the case of Diatagon Labor Federation Local 110 of the ULGWP v. Ople (supra) that it is grave abuse of discretion to treat two companies as a single bargaining unit when these companies are indubitably distinct entities with separate juridical personalities.

Hence, the Acrylic not being an extension or expansion of private respondent, the rank-and-file employees working at Acrylic should not be recognized as part of, and/or within the scope of the petitioner, as the bargaining representative of private respondent. All premises considered, the Court is convinced public respondent Voluntary Arbitrator did not grave abuse of discretion in its interpretation of l(c), Article I of the CBA that the Acrylic is extension or expansion of private respondent. that the commit Section not an

students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine ("AMEC") and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMECs College of Medicine, filed a 7 complaint for damages against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts: JUN ALEGRE: Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects including those they have passed already. Several students had approached me stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the same? xxx Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS. xxx Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for money on the part of AMECs administration. Take the subject Anatomy: students would pay for the subject upon enrolment because it is offered by the school. However there would be no instructor for such subject. Students would be informed that course would be moved to a later date because the school is still searching for the appropriate instructor. xxx It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few years since its inception because of funds support from foreign foundations. If you will take a look at the AMEC premises youll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for AMEC is substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical school on the basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its reason for being it is possible for these foreign foundations to lift or suspend their donations 8 temporarily. xxx

ACCORDINGLY, the petition is DENIED and the award of the respondent Voluntary Arbitrator are hereby AFFIRMED. SO ORDERED. Narvasa, C.J., Cruz and Grino-Aquino, JJ., concur. .R. No. 141994 January 17, 2005

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents. DECISION CARPIO, J.: The Case This petition for review assails the 4 January 1999 2 Decision and 26 January 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 3 1992 Decision of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral damages, attorneys f ees and costs of suit. The Antecedents "Expos" is a radio documentary program hosted by Carmelo Mel Rima ("Rima") and Hermogenes Jun 5 Alegre ("Alegre"). Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. ("FBNI"). "Expos" is heard over Legazpi 6 City, the Albay municipalities and other Bicol areas. In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from
4 1

On the other hand, the administrators of AMECBCCM, AMEC Science High School and the AMECInstitute of Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to accept "rejects". For example how many teachers in AMEC are former teachers of Aquinas University but were removed because of immorality? Does it mean that the present administration of AMEC have the total definite moral foundation from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her. xxx MEL RIMA: xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean? Immoral and physically misfits as teachers. May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too old. As an aviation, your case is zero visibility. Dont insist. xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean. xxx xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When they become members of society outside of campus will be liabilities rather than assets. What do you expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do you expect from a student who aside from peculiar problems because not all students are rich in their struggle to improve their social status are even more burdened with false 9 regulations. xxx (Emphasis supplied)

The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation." AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre. On 18 June 1990, FBNI, Rima and Alegre, through Atty. 10 Rozil Lozares, filed an Answer alleging that the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the "goings-on in AMEC, [which is] an institution imbued with public interest." Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to 11 Dismiss on FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to "observe truth, fairness and objectivity in their broadcasts and to refrain from using libelous and indecent language." Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas ("KBP") accreditation test and to secure a KBP permit. On 14 December 1992, the trial court rendered a 12 Decision finding FBNI and Alegre liable for libel except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters claim that their utterances were the result of straight reporting because it had no factual basis. The broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its employees. In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with Alegres expos. The trial court found Rimas statement within the "bounds of freedom of speech, expression, and of the press." The dispositive portion of the decision reads: WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by the controversial utterances, which are not found by this court to be really very serious and damaging, and there being no showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes "Jun" Alegre, Jr. and Filipinas

Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit. SO ORDERED.
13

ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its employees salaries; and (3) AMEC burdened the students with unreasonable 16 imposition and false regulations." The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees because the libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit.1awphi1.nt Issues FBNI raises the following issues for resolution: I. WHETHER LIBELOUS; THE BROADCASTS ARE

(Emphasis supplied)

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys fees because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of Appeals decision reads: WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre. SO ORDERED.
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II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES; III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT. The Courts Ruling

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution. Hence, FBNI filed this petition.
15

The Ruling of the Court of Appeals The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegres claim that they were actuated by their moral and social duty to inform the public of the students gripes as insufficient to justify the utterance of the defamatory remarks. Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the broadcasts were made "with reckless disregard as to whether they were true or false." The appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained against AMEC. Rima and Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals, these circumstances cast doubt on the veracity of the broadcasters claim that they were "impelled by their moral and social duty to inform the public about the students gripes." The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a dumping

We deny the petition. This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre 17 against AMEC. While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that AMECs cause of action is based 18 on Articles 30 and 33 of the Civil Code. Article 30 authorizes a separate civil action to recover civil liability arising from a criminal offense. On the other hand, 19 Article 33 particularly provides that the injured party may bring a separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also 20 invokes Article 19 of the Civil Code to justify its claim 21 22 for damages. AMEC cites Articles 2176 and 2180 of the Civil Code to hold FBNI solidarily liable with Rima and Alegre. I. Whether the broadcasts are libelous

A libel is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory of one who is 24 dead. There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegres remarks such as "greed for money on the part of AMECs administrators"; "AMEC is a dumping ground, garbage of xxx moral and physical misfits"; and AMEC students who graduate "will be liabilities rather than assets" of the society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a moneymaking institution where physically and morally unfit teachers abound. However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that since there is no malice, there is no libel. FBNIs contentions are untenable. Every defamatory imputation is presumed malicious. Rima and Alegre failed to show adequately their good intention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre should have presented the public issues "free from inaccurate and 26 misleading information." Hearing the students alleged 27 complaints a month before the expos, they had sufficient time to verify their sources and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither did they inquire about nor confirm the purported irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged AMEC official who refused to disclose any information. Alegre simply relied on the words of the students "because they were many and not because there is proof that what they are saying 28 is true." This plainly shows Rima and Alegres reckless disregard of whether their report was true or not. Contrary to FBNIs claim, the broadcasts were not "the result of straight reporting." Significantly, some courts in the United States apply the privilege of "neutral reportage" in libel cases involving matters of public interest or public figures. Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory statements made against public figures is shielded from liability, regardless of the republishers subjective awareness of the truth or falsity
25

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of the accusation. Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded comments abound in the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts were made. The privilege of neutral reportage applies where the defamed person is a public figure who is involved in an existing controversy, and a party to that controversy makes the defamatory 30 statement. However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of 31 Appeals, FBNI contends that the broadcasts "fall within the coverage of qualifiedly privileged communications" for being commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel. FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the "doctrine of fair comment," thus: [F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably 32 be inferred from the facts. (Emphasis supplied) True, AMEC is a private learning institution whose business of educating students is "genuinely imbued with public interest." The welfare of the youth in general and AMECs students in particular is a matter which the public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with matters of public interest. However, unlike in Borjal, the questioned broadcasts are not based on established facts. The record supports the following findings of the trial court: xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who made the complaint to them, much less present written complaint or petition to that effect. To accept this defense of defendants is too dangerous because it could easily give license to the media to malign people and establishments based on flimsy excuses that there were reports to them although they could not satisfactorily

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establish it. Such laxity would encourage careless and irresponsible broadcasting which is inimical to public interests. Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith. Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they careful enough to verify. And yet, defendants were very categorical and sounded too positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which they were offering. The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given the name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received by plaintiff school from the aforementioned McDonald Foundation which does not exist. Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the school. No evidence was presented to prove the bases for these claims, at least in order to give semblance of good faith. As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme Court Justices who are still very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found by this court to be still very sharp and effective.l^vvphi1.net So is plaintiffs counsel. Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.

The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board examination easily and become 33 prosperous and responsible professionals. Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to be mistaken, as long as it might reasonably 34 be inferred from the facts. However, the comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se. The broadcasts also violate the Radio Code of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. ("Radio Code"). Item I(B) of the Radio Code provides: B. PUBLIC AFFAIRS, COMMENTARIES 1. x x x 4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and misleading information. x x x Furthermore, the station shall strive to present balanced discussion of issues. x x x. xxx 7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary programs so that they conform to the provisions and standards of this code. 8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general welfare and good order in the presentation of public affairs and public 36 issues. (Emphasis supplied) The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a public warranty by the radio broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and sanctions. The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their profession, just like other professionals. A professional code of conduct provides the standards for determining whether a person has acted justly, honestly and with good faith in the exercise of his rights and 37 performance of his duties as required by Article 19 of PUBLIC ISSUES AND
35

the Civil Code. A professional code of conduct also provides the standards for determining whether a person who willfully causes loss or injury to another has acted in a manner contrary to morals or good customs under 38 Article 21 of the Civil Code. II. Whether AMEC is entitled to moral damages FBNI contends that AMEC is not entitled to moral 39 damages because it is a corporation. A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or 40 moral shock. The Court of Appeals cites Mambulao 41 Lumber Co. v. PNB, et al. to justify the award of moral damages. However, the Courts statement in Mambulao that "a corporation may have a good reputation which, if besmirched, may also be a ground for the award of 42 moral damages" is an obiter dictum. Nevertheless, AMECs claim for moral damages falls 43 under item 7 of Article 2219 of the Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and 44 claim for moral damages. Moreover, where the broadcast is libelous per se, the 45 law implies damages. In such a case, evidence of an honest mistake or the want of character or reputation of 46 the party libeled goes only in mitigation of damages. Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition 47 precedent to the recovery of some damages. In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages. However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages from P300,000 to P150,000. III. Whether the award of attorneys fees is proper FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees. FBNI adds that the instant case does not fall under 48 the enumeration in Article 2208 of the Civil Code.

The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective decisions the rationale for the award of 49 attorneys fees. In Inter-Asia Investment Industries, 50 Inc. v. Court of Appeals , we held that: [I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsels fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for 51 the award of attorneys fees. (Emphasis supplied) While it mentioned about the award of attorneys fees by stating that it "lies within the discretion of the court and depends upon the circumstances of each case," the Court of Appeals failed to point out any circumstance to justify the award. IV. Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorneys fees and costs of suit FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees because it exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a "very regimented process" before they are allowed to go on air. "Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship program." FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI points out that the "minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the diligence of a good father of a family in selecting and supervising them." Rimas accreditation lapsed due to his nonpayment of the KBP annual fees while Alegres accreditation card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or government regulation. FBNIs arguments do not persuade us. The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they

commit. Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for 53 their benefit. Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.1a\^/phi1.net As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory statements published by radio or television may be had from the owner of the station, a licensee, the operator of the station, or a person who procures, or participates in, the 54 making of the defamatory statements." An employer and employee are solidarily liable for a defamatory statement by the employee within the course and scope of his or her employment, at least when the employer 55 authorizes or ratifies the defamation. In this case, Rima and Alegre were clearly performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the defamatory broadcasts. Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that it exercised diligence in the selection of its broadcasters without introducing any evidence to prove that it observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to "observe truth, fairness and objectivity and to refrain from using libelous and indecent language" is not enough to prove due diligence in the supervision of its broadcasters. Adequate training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and continuous evaluation of the broadcasters performance are but a few of the many ways of showing diligence in the supervision of broadcasters. FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind their qualifications." However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs "regimented process" of application. Furthermore, FBNI admits that Rima and Alegre had 56 deficiencies in their KBP accreditation, which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcasters strong commitment to observe the broadcast industrys rules and regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.

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WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against petitioner. SO ORDERED. Davide, Jr., C.J., (Chairman), Quisumbing, YnaresSantiago, and Azcuna, JJ., concur. G.R. No. 131723 December 13, 2007

MANILA ELECTRIC COMPANY, petitioner, vs. T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT PACIFIC CORPORATION; and ULTRA ELECTRONICS INSTRUMENTS, INC., respondents. DECISION NACHURA, J.: This is a petition for review on certiorari under Rule 45 of 1 the Rules of Court seeking the reversal of the Decision of the Court of Appeals (CA) dated June 18, 1997 and its 2 Resolution dated December 3, 1997 in CA-G.R. CV No. 40282 denying the appeal filed by petitioner Manila Electric Company. The facts of the case, as culled from the records, are as follows: Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines), Inc. before 1982 and National Semi-Conductors (Phils.) before 1988. TEC is wholly owned by respondent Technology Electronics Assembly and Management Pacific Corporation (TPC). On the other hand, petitioner Manila Electric Company (Meralco) is a utility company supplying electricity in the Metro Manila area. Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, were parties to two separate contracts denominated as Agreements for the Sale of Electric Energy under the following 3 4 account numbers: 09341-1322-16 and 09341-1812-13. Under the aforesaid agreements, petitioner undertook to supply TEC's building known as Dyna Craft International Manila (DCIM) located at Electronics Avenue, Food Terminal Complex, Taguig, Metro Manila, with electric power. Another contract was entered into for the supply of electric power to TEC's NS Building under Account No. 19389-0900-10.

In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a 5 Contract of Lease with respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the former's DCIM building for a period of five years or until September 1991. Ultra was, however, ejected from the premises on February 12, 1988 by virtue of a court order, for repeated violation of the terms and conditions of the lease contract. On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric meters installed at the DCIM building, witnessed by 6 Ultra's representative, Mr. Willie Abangan. The two meters covered by account numbers 09341-1322-16 and 09341-1812-13, were found to be allegedly tampered with and did not register the actual power consumption in the building. The results of the inspection were 7 reflected in the Service Inspection Reports prepared by the team. In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and demanded from the latter the payment of P7,040,401.01 representing its unregistered consumption from February 10, 1986 until September 28, 1987, as a result of the alleged 8 tampering of the meters. TEC received the letters on January 7, 1988. Since Ultra was in possession of the subject building during the covered period, TEC's Managing Director, Mr. Bobby Tan, referred the demand 9 letter to Ultra which, in turn, informed TEC that its Executive Vice-President had met with petitioner's representative. Ultra further intimated that assuming that there was tampering of the meters, petitioner's 10 assessment was excessive. For failure of TEC to pay the differential billing, petitioner disconnected the electricity supply to the DCIM building on April 29, 1988. TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the alleged tampering but the latter refused to heed the demand. Hence, TEC filed a complaint on May 27, 1988 before the Energy Regulatory Board (ERB) praying that 11 electric power be restored to the DCIM building. The ERB immediately ordered the reconnection of the service but petitioner complied with it only on October 12, 1988 after TEC paid P1,000,000.00, under protest. The complaint before the ERB was later withdrawn as the parties deemed it best to have the issues threshed out in the regular courts. Prior to the reconnection, or on June 7, 1988, petitioner conducted a scheduled inspection of the questioned meters and found them to 12 have been tampered anew. Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's NS Building. The inspection allegedly revealed that the electric meters were not registering the correct power consumption. Petitioner, thus, sent a letter dated June 18, 1988 demanding payment of P280,813.72 representing the 13 differential billing. TEC denied petitioner's allegations

and claim in a letter dated June 29, 1988. Petitioner, thus, sent TEC another letter demanding payment of the aforesaid amount, with a warning that the electric service would be disconnected in case of continued refusal to 15 pay the differential billing. To avert the impending disconnection of electrical service, TEC paid the above 16 amount, under protest. On January 13, 1989, TEC and TPC filed a complaint for 17 damages against petitioner and Ultra before the Regional Trial Court (RTC) of Pasig. The case was raffled to Branch 162 and was docketed as Civil Case 18 No. 56851. Upon the filing of the parties' answer to the complaint, pre-trial was scheduled. At the pre-trial, the parties agreed to limit the issues, as follows: 1. Whether or not the defendant Meralco is liable for the plaintiffs' disconnection of electric service at DCIM Building. 2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in the amount of P7,040,401.01. 3. Whether or not the plaintiff is liable to 19 defendant for exemplary damages. For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992, the trial court rendered a Decision in favor of respondents TEC and TPC, and against respondent Ultra and petitioner. The pertinent portion of the decision reads: WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the defendants as follows: (1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to jointly and severally reimburse plaintiff TEC actual damages in the amount of ONE MILLION PESOS with legal rate of interest from the date of the filing of this case on January 19, 1989 until the said amount shall have been fully paid; (2) Ordering to plaintiff P280,813.72 legal rate of 19, 1989; defendant Meralco to pay TEC the amount of as actual damages with interest also from January

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(3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as actual damages with

interest at legal rate from January 19, 1989; (4) Condemning defendant Meralco to pay both plaintiffs moral damages in the amount pf P500,000.00; (5) Condemning defendant Meralco to pay both plaintiffs corrective and/or exemplary damages in the amount of P200,000.00; (6) Ordering defendant Meralco to pay attorney's fees in the amount of P200,000.00 Costs against defendant Meralco. SO ORDERED.
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to lease a generator set with interest at the legal rate from the above-stated date. SO ORDERED.
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The appellate court agreed with the RTC's conclusion. In addition, it considered petitioner negligent for failing to discover the alleged defects in the electric meters; in belatedly notifying TEC and TPC of the results of the inspection; and in disconnecting the electric power without prior notice. Petitioner now comes before this Court in this petition for review on certiorari contending that: The Court of Appeals committed grievous errors and decided matters of substance contrary to law and the rulings of this Honorable Court: 1. In finding that the issue in the case is whether there was deliberate tampering of the metering installations at the building owned by TEC. 2. In not finding that the issue is: whether or not, based on the tampered meters, whether or not petitioner is entitled to differential billing, and if so, how much. 3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and convincing evidence that with respect to the tampered meters that TEC and/or TPC authored their tampering. 4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for the acts of Ultra. 5. In finding that TEC should not be held liable for the tampering of this electric meter in its DCIM Building. 6. In finding that there was no notice of disconnection. 7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged tampering. 8. In making the finding that it is difficult to believe that when petitioner MERALCO inspected on June 7, 1988 the meter installations, they were found to be tampered. 9. In declaring that petitioner MERALCO estopped from claiming any tampering of the meters.

The trial court found the evidence of petitioner insufficient to prove that TEC was guilty of tampering the meter installations. The deformed condition of the meter seal and the existence of an opening in the wire duct leading to the transformer vault did not, in themselves, prove the alleged tampering, especially since access to the transformer was given only to petitioner's 21 employees. The sudden drop in TEC's (or Ultra's) electric consumption did not, per se, show meter tampering. The delay in the sending of notice of the results of the inspection was likewise viewed by the court as evidence of inefficiency and arbitrariness on the part of petitioner. More importantly, petitioner's act of disconnecting the DCIM building's electric supply constituted bad faith and thus makes it liable for 22 damages. The court further denied petitioner's claim of differential billing primarily on the ground of equitable 23 negligence. Considering that TEC and TPC paid P1,000,000.00 to avert the disconnection of electric power; and because Ultra manifested to settle the claims of petitioner, the court imposed solidary liability on both Ultra and petitioner for the payment of the P1,000,000.00. Ultra and petitioner appealed to the CA which affirmed the RTC decision, with a modification of the amount of actual damages and interest thereon. The dispositive portion of the CA decision dated June 18, 1997, states: WHEREFORE, this Court renders judgment affirming in toto the Decision rendered by the trial court with the slight modification that the interest at legal rate shall be computed from January 13, 1989 and that Meralco shall pay plaintiff T.E.A.M. Electronics Corporation and Technology Electronics Assembly and Management Pacific Corporation the sum of P150,000.00 per month for five (5) months for actual damages incurred when it was compelled

10. In finding that "the method employed by MERALCO to as certain (sic) the 'correct' amount of electricity consumed is questionable"; 11. In declaring that MERALCO all throughout its dealings with TEC took on an "attitude" which is oppressive, wanton and reckless. 12. In declaring that MERALCO acted arbitrarily in inspecting TEC's DCIM building and the NS building. 13. In declaring that respondents TEC and TPC are entitled to the damages which it awarded. 14. In not declaring that petitioner is entitled to the differential bill. 15. In not declaring that respondents are liable to petitioner for exemplary damages, attorney's 25 fee and expenses for litigation. The petition must fail. The issues for resolution can be summarized as follows: 1) whether or not TEC tampered with the electric meters installed at its DCIM and NS buildings; 2) If so, whether or not it is liable for the differential billing as computed by petitioner; and 3) whether or not petitioner was justified in disconnecting the electric power supply in TEC's DCIM building. Petitioner insists that the tampering of the electric meters installed at the DCIM and NS buildings owned by respondent TEC has been established by overwhelming evidence, as specifically shown by the shorting devices found during the inspection. Thus, says petitioner, tampering of the meter is no longer an issue. It is obvious that petitioner wants this Court to revisit the factual findings of the lower courts. Well-established is the doctrine that under Rule 45 of the Rules of Court, only questions of law, not of fact, may be raised before the Court. We would like to stress that this Court is not a trier of facts and may not re-examine and weigh anew the respective evidence of the parties. Factual findings of the trial court, especially those affirmed by the Court 26 of Appeals, are binding on this Court. Looking at the record, we note that petitioner claims to have discovered three incidences of meter-tampering; twice in the DCIM building on September 28, 1987 and June 7, 1988; and once in the NS building on April 24, 1988. The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found the presence of a short circuiting device and saw that the meter seal was deformed. In addition, petitioner, through the Supervising Engineer of its Special Billing Analysis

Department, claimed that there was a sudden and unexplainable drop in TEC's electrical consumption starting February 10, 1986. On the basis of the foregoing, petitioner concluded that the electric meters were tampered with. However, contrary to petitioner's claim that there was a drastic and unexplainable drop in TEC's electric consumption during the affected period, the Pattern of 28 TEC's Electrical Consumption shows that the sudden drop is not peculiar to the said period. Noteworthy is the observation of the RTC in this wise: In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as evidenced by Exhibits "35" and "35-A," there was likewise a sudden drop of electrical consumption from the year 1984 which recorded an average 141,300 kwh/month to 1985 which recorded an average kwh/month at 87,600 or a difference-drop of 53,700 kwh/month; from 1985's 87,600 recorded consumption, the same dropped to 18,600 kwh/month or a differencedrop of 69,000 kwh/month. Surely, a drop of 53,700 could be equally categorized as a sudden drop amounting to 69,000 which, incidentally, the Meralco claimed as 29 "unexplainable. x x x. The witnesses for petitioner who testified on the alleged tampering of the electric meters, declared that tampering is committed by consumers to prevent the meter from registering the correct amount of electric consumption, and result in a reduced monthly electric bill, while continuing to enjoy the same power supply. Only the registration of actual electric energy consumption, not the supply of electricity, is affected when a meter is 30 tampered with. The witnesses claimed that after the inspection, the tampered electric meters were corrected, so that they would register the correct consumption of TEC. Logically, then, after the correction of the allegedly tampered meters, the customer's registered consumption would go up. In this case, the period claimed to have been affected by the tampered electric meters is from February 1986 until 31 September 1987. Based on petitioner's Billing Record (for the DCIM building), TEC's monthly electric consumption on Account No. 9341-1322-16 was 32 between 4,500 and 27,000 kwh. Account No. 93411812-13 showed a monthly consumption between 9,600 33 and 34,200 kwh. It is interesting to note that, after correction of the allegedly tampered meters, TEC's monthly electric consumption from October 1987 to February 1988 (the last month that Ultra occupied the DCIM building) was between 8,700 and 24,300 kwh in its first account, and 16,200 to 46,800 kwh on the second account. Even more revealing is the fact that TEC's meters registered 9,300 kwh and 19,200 kwh consumption on

27

the first and second accounts, respectively, a month prior to the inspection. On the first month after the meters were corrected, TEC's electric consumption registered at 9,300 kwh and 22,200 kwh on the respective accounts. These figures clearly show that there was no palpably drastic difference between the consumption before and after the inspection, casting a cloud of doubt over petitioner's claim of metertampering. Indeed, Ultra's explanation that the corporation was losing; thus, it had lesser consumption of electric power appear to be the more plausible reason for the drop in electric consumption. Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988, they were found to have been tampered anew. The Court notes that prior to the inspection, TEC was informed about it; and months before the inspection, there was an unsettled controversy between TEC and petitioner, brought about by the disconnection of electric power and the nonpayment of differential billing. We are more disposed to accept the trial court's conclusion that it is hard to believe that a customer previously apprehended for tampered meters and assessed P7 million would further 34 jeopardize itself in the eyes of petitioner. If it is true that there was evidence of tampering found on September 28, 1987 and again on June 7, 1988, the better view would be that the defective meters were not actually corrected after the first inspection. If so, then Manila 35 Electric Company v. Macro Textile Mills Corporation would apply, where we said that we cannot sanction a situation wherein the defects in the electric meter are allowed to continue indefinitely until suddenly, the public utilities demand payment for the unrecorded electricity utilized when they could have remedied the situation immediately. Petitioner's failure to do so may encourage neglect of public utilities to the detriment of the consuming public. Corollarily, it must be underscored that petitioner has the imperative duty to make a reasonable and proper inspection of its apparatus and equipment to ensure that they do not malfunction, and the due diligence to discover and repair defects therein. 36 Failure to perform such duties constitutes negligence. By reason of said negligence, public utilities run the risk of forfeiting amounts originally due from their 37 customers. As to the alleged tampering of the electric meter in TEC's NS building, suffice it to state that the allegation was not proven, considering that the meters therein were enclosed in a metal cabinet the metal seal of which was unbroken, with petitioner having sole access to the said 38 meters. In view of the negative finding on the alleged tampering of electric meters on TEC's DCIM and NS buildings, petitioner's claim of differential billing was correctly denied by the trial and appellate courts. With greater reason, therefore, could petitioner not exercise the right of immediate disconnection.

The law in force at the time material to this controversy 39 was Presidential Decree (P.D.) No. 401 issued on 40 March 1, 1974. The decree penalized unauthorized installation of water, electrical or telephone connections and such acts as the use of tampered electrical meters. It was issued in answer to the urgent need to put an end to illegal activities that prejudice the economic well-being of both the companies concerned and the consuming 41 public. P.D. 401 granted the electric companies the right to conduct inspections of electric meters and the 42 criminal prosecution of erring consumers who were found to have tampered with their electric meters. It did not expressly provide for more expedient remedies such as the charging of differential billing and immediate disconnection against erring consumers. Thus, electric companies found a creative way of availing themselves of such remedies by inserting into their service contracts (or agreements for the sale of electric energy) a provision for differential billing with the option of disconnection upon non-payment by the erring consumer. The Court has recognized the validity of such 43 stipulations. However, recourse to differential billing with disconnection was subject to the prior requirement 44 of a 48-hour written notice of disconnection. Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that petitioner sent a demand letter to TEC for the payment of differential billing, it did not include any notice that the electric supply would be disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 and Revised General Order No. 1 by outrightly depriving TEC of electrical services without first notifying it of the impending disconnection. Accordingly, the CA did not err in affirming the RTC decision. As to the damages awarded by the CA, we deem it proper to modify the same. Actual damages are compensation for an injury that will put the injured party in the position where it was before the injury. They pertain to such injuries or losses that are actually sustained and susceptible of measurement. Except as provided by law or by stipulation, a party is entitled to adequate compensation only for such pecuniary loss as is duly proven. Basic is the rule that to recover actual damages, not only must the amount of loss be capable of proof; it must also be actually proven with a reasonable degree of certainty, premised upon 45 competent proof or the best evidence obtainable. Respondent TEC sufficiently established, and petitioner in fact admitted, that the former paid P1,000,000.00 and P280,813.72 under protest, the amounts representing a portion of the latter's claim of differential billing. With the finding that no tampering was committed and, thus, no differential billing due, the aforesaid amounts should be returned by petitioner, with interest, as ordered by the Court of Appeals and pursuant to the guidelines set forth 46 by the Court.

However, despite the appellate court's conclusion that no tampering was committed, it held Ultra solidarily liable with petitioner for P1,000,000.00, only because the former, as occupant of the building, promised to settle the claims of the latter. This ruling is erroneous. Ultra's promise was conditioned upon the finding of defect or tampering of the meters. It did not acknowledge any culpability and liability, and absent any tampered meter, it is absurd to make the lawful occupant liable. It was petitioner who received the P1 million; thus, it alone should be held liable for the return of the amount. TEC also sufficiently established its claim for the reimbursement of the amount paid as rentals for the generator set it was constrained to rent by reason of the illegal disconnection of electrical service. The official receipts and purchase orders submitted by TEC as evidence sufficiently show that such rentals were indeed made. However, the amount of P150,000.00 per month for five months, awarded by the CA, is excessive. Instead, a total sum of P150,000.00, as found by the RTC, is proper. As to the payment of exemplary damages and attorney's fees, we find no cogent reason to disturb the same. Exemplary damages are imposed by way of example or correction for the public good in addition to moral, 47 temperate, liquidated, or compensatory damages. In this case, to serve as an example that before a disconnection of electrical supply can be effected by a public utility, the requisites of law must be complied with we affirm the award of P200,000.00 as exemplary damages. With the award of exemplary damages, the award of attorney's fees is likewise proper, pursuant to 48 Article 2208 of the Civil Code. It is obvious that TEC needed the services of a lawyer to argue its cause through three levels of the judicial hierarchy. Thus, the 49 award of P200,000.00 is in order. We, however, deem it proper to delete the award of moral damages. TEC's claim was premised allegedly on 50 the damage to its goodwill and reputation. As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is when the corporation has a reputation that is debased, resulting in its humiliation in 51 the business realm. But in such a case, it is imperative for the claimant to present proof to justify the award. It is essential to prove the existence of the factual basis of 52 the damage and its causal relation to petitioner's acts. In the present case, the records are bereft of any evidence that the name or reputation of TEC/TPC has been debased as a result of petitioner's acts. Besides, the trial court simply awarded moral damages in the dispositive portion of its decision without stating the basis thereof. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 40282 dated

June 18, 1997 and its Resolution dated December 3, 1997 are AFFIRMED with the following MODIFICATIONS: (1) the award of P150,000.00 per month for five months as reimbursement for the rentals of the generator set is REDUCED to P150,000.00; and (2) the award of P500,000.00 as moral damages is hereby DELETED. SO ORDERED. Ynares-Santiago, Chairperson, Austria-Marinez, ChicoNazario, Reyes, JJ., concur. KUKAN INTERNATIONAL CORPORATION, Petitioner, vs. HON. AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of Manila, Branch 21, and ROMEO M. MORALES, doing business under the name and style "RM Morales Trophies and Plaques," Respondents. DECISION VELASCO, JR., J.: The Case This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the January 23, 2008 1 2 Decision and the April 16, 2008 Resolution rendered by the Court of Appeals (CA) in CA-G.R. SP No. 100152. The assailed CA decision affirmed the March 12, 2007 4 and June 7, 2007 Orders of the Regional Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 99-93173, entitled Romeo M. Morales, doing business under the name and style RM Morales Trophies and Plaques v. Kukan, Inc. In the said orders, the RTC disregarded the separate corporate identities of Kukan, Inc. and Kukan International Corporation and declared them to be one and the same entity. Accordingly, the RTC held Kukan International Corporation, albeit not impleaded in the underlying complaint of Romeo M. Morales, liable for the judgment award decreed in a Decision dated November 5 28, 2002 in favor of Morales and against Kukan, Inc. The Facts Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and installation of signages in a building being constructed in Makati City. Morales tendered the winning bid and was awarded the PhP 5 million contract. Some of the items in the project award were later excluded resulting in the corresponding reduction of the contract price to PhP 3,388,502. Despite his compliance with his contractual undertakings, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands. Shortchanged,
3

Morales filed a Complaint with the RTC against Kukan, Inc. for a sum of money, the case docketed as Civil Case No. 99-93173 and eventually raffled to Branch 17 of the court. Following the joinder of issues after Kukan, Inc. filed an answer with counterclaim, trial ensued. However, starting November 2000, Kukan, Inc. no longer appeared and participated in the proceedings before the trial court, prompting the RTC to declare Kukan, Inc. in default and paving the way for Morales to present his evidence ex parte. On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan, Inc., disposing as follows: WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.: 1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment; 2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages; 3. to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as reasonable attorneys fees; and 4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses. For lack of factual foundation, the counterclaim is DISMISSED. IT IS SO ORDERED.
7

prayed, applying the principle of piercing the veil of corporate fiction, that an order be issued for the satisfaction of the judgment debt of Kukan, Inc. with the properties under the name or in the possession of KIC, it being alleged that both corporations are but one and the same entity. KIC opposed Morales motion. By Order of 9 May 29, 2003 as reiterated in a subsequent order, the court denied the omnibus motion. In a bid to establish the link between KIC and Kukan, Inc., and thus determine the true relationship between the two, Morales filed a Motion for Examination of Judgment Debtors dated May 4, 2005. In this motion Morales sought that subponae be issued against the primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied 10 by the trial court in an Order dated May 24, 2005. Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually granted the motion. The case was re-raffled to Branch 21, presided by public respondent Judge Amor Reyes. Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate Fiction to declare KIC as having no existence separate from Kukan, Inc. This time around, the RTC, by Order dated March 12, 2007, granted the motion, the dispositive portion of which reads: WHEREFORE, premises considered, the motion is hereby GRANTED. The Court hereby declares as follows: 1. defendant Kukan, Inc. and newly created Kukan International Corp. as one and the same corporation; 2. the levy made on the properties of Kukan International Corp. is hereby valid; 3. Kukan International Corp. and Michael Chan are jointly and severally liable to pay the amount awarded to plaintiff pursuant to the decision of November [28], 2002 which has long been final and executory. SO ORDERED. From the above order, KIC moved but was denied reconsideration in another Order dated June 7, 2007. KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007 RTC Orders. On January 23, 2008, the CA rendered the assailed decision, the dispositive portion of which states: WHEREFORE, premises considered, the petition is hereby DENIED and the assailed Orders dated March

After the above decision became final and executory, 8 Morales moved for and secured a writ of execution against Kukan, Inc. The sheriff then levied upon various personal properties found at what was supposed to be Kukan, Inc.s office at Unit 2205, 88 Corporate Center, Salcedo Village, Makati City. Alleging that it owned the properties thus levied and that it was a different corporation from Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit of Third-Party Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had stopped participating in Civil Case No. 99-93173. In reaction to the third party claim, Morales interposed an Omnibus Motion dated April 30, 2003. In it, Morales

12, 2007 and June 7, 2007 of the court a quo are both AFFIRMED. No costs. SO ORDERED.
11

The preliminary question that must be answered is whether or not the trial court can, after adjudging Kukan, Inc. liable for a sum of money in a final and executory judgment, execute such judgment debt against the property of KIC. The poser must be answered in the negative. In Carpio v. Doroja, the Court ruled that the deciding court has supervisory control over the execution of its judgment: A case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are proceedings in the suit. There is no question that the court which rendered the judgment has a general supervisory control over its process of execution, and this power carries with it the right to determine every question of fact and law which may be involved in the execution. We reiterated the above holding in Javier v. Court of 14 Appeals in this wise: "The said branch has a general supervisory control over its processes in the execution of its judgment with a right to determine every question of fact and law which may be involved in the execution." The courts supervisory control does not, however, extend as to authorize the alteration or amendment of a final and executory decision, save for certain recognized exceptions, among which is the correction of clerical errors. Else, the court violates the principle of finality of judgment and its immutability, concepts which the Court, 15 in Tan v. Timbal, defined: As we held in Industrial Management International Development Corporation vs. NLRC: It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part of a decision or order is the controlling factor as to settlement of rights of the parties. Once a decision or order becomes final and executory, it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it. It thereby becomes immutable and unalterable and any amendment or alteration which substantially affects a final and executory judgment is null and void for lack of jurisdiction, including the entire proceedings held for that purpose. An order of execution which varies the tenor of the judgment or exceeds the terms thereof is a nullity. (Emphasis supplied.) Republic v. Tango and its exceptions:
16 13

The CA later denied KICs motion for reconsideration in the assailed resolution. Hence, the instant petition for review, with the following issues KIC raises for the Courts consideration: 1. There is no legal basis for the [CA] to resolve and declare that petitioners Constitutional Right to Due Process was not violated by the public respondent in rendering the Orders dated March 12, 2007 and June 7, 2007 and in declaring petitioner to be liable for the judgment obligations of the corporation "Kukan, Inc." to private respondent as petitioner is a stranger to the case and was never made a party in the case before the trial court nor was it ever served a summons and a copy of the complaint. 2. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007 rendered by public respondent declaring the petitioner liable to the judgment obligations of the corporation "Kukan, Inc." to private respondent are valid as said orders of the public respondent modify and/or amend the trial courts final and executory decision rendered on November 28, 2002. 3. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007 rendered by public respondent declaring the petitioner [KIC] and the corporation "Kukan, Inc." as one and the same, and, therefore, the Veil of Corporate Fiction between them be pierced as the procedure undertaken by public respondent which the [CA] upheld is not sanctioned by the Rules of Court and/or established jurisprudence enunciated by 12 this Honorable Supreme Court. In gist, the issues to be resolved boil down to the question of, first, whether the trial court can, after the judgment against Kukan, Inc. has attained finality, execute it against the property of KIC; second, whether the trial court acquired jurisdiction over KIC; and third, whether the trial and appellate courts correctly applied, under the premises, the principle of piercing the veil of corporate fiction. The Ruling of the Court The petition is meritorious. First Issue: Against Whom Can a Final and Executory Judgment Be Executed

expounded on the same principle

Deeply ingrained in our jurisprudence is the principle that a decision that has acquired finality becomes immutable and unalterable. As such, it may no longer be modified in any respect even if the modification is

meant to correct erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land. x x x The doctrine of finality of judgment is grounded on the fundamental principle of public policy and sound practice that, at the risk of occasional error, the judgment of courts and the award of quasi-judicial agencies must become final on some definite date fixed by law. The only exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision which render its execution unjust and inequitable. None of the exceptions obtains here to merit the review sought. (Emphasis added.) So, did the RTC, in breach of the doctrine of immutability and inalterability of judgment, order the execution of its final decision in a manner as would amount to its prohibited alteration or modification? We repair to the dispositive portion of the final and executory RTC decision. Pertinently, it provides: WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.: 1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment; 2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages; 3. to pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as reasonable attorneys fees; and 4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses. x x x x (Emphasis supplied.) As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the aforementioned awards to Morales. Thus, making KIC, thru the medium of a writ of execution, answerable for the above judgment liability is a clear case of altering a decision, an instance of granting relief not contemplated in the decision sought to be executed. And the change does not fall under any of the recognized exceptions to the doctrine of finality and immutability of judgment. It is a settled rule that a writ of execution must conform to the

fallo of the judgment; as an inevitable corollary, a writ 17 beyond the terms of the judgment is a nullity. Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an examination of the other issues raised by KIC would be proper. Second Issue: Propriety Assuming Jurisdiction over KIC of the RTC

The next issue turns on the validity of the execution the trial court authorized against KIC and its property, given that it was neither made a party nor impleaded in Civil Case No. 99-93173, let alone served with summons. In other words, did the trial court acquire jurisdiction over KIC? In the assailed decision, the appellate court deemed KIC to have voluntarily submitted itself to the jurisdiction of the trial court owing to its filing of four (4) pleadings adverted to earlier, namely: (a) the Affidavit of Third18 Party Claim; (b) the Comment and Opposition to 19 Plaintiffs Omnibus Motion; (c) the Motion for Reconsideration of the RTC Order dated March 12, 20 21 2007; and (d) the Motion for Leave to Admit Reply. The CA, citing Section 20, Rule 14 of the Rules of Court, stated that "the procedural rule on service of summons can be waived by voluntary submission to the courts jurisdiction through any form of appearance by the party 22 or its counsel." We cannot give imprimatur to the appellate courts appreciation of the thrust of Sec. 20, Rule 14 of the Rules in concluding that the trial court acquired jurisdiction over KIC. Orion Security Corporation v. Kalfam Enterprises, Inc. explains how courts acquire jurisdiction over the parties in a civil case:
23

Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint. On the other hand, jurisdiction over the defendants in a civil case is acquired either through the service of summons upon them or through their voluntary appearance in court and their submission to its authority. (Emphasis supplied.) In the fairly recent Palma v. Galvez, the Court reiterated its holding in Orion Security Corporation, stating: "[I]n civil cases, the trial court acquires jurisdiction over the person of the defendant either by the service of summons or by the latters voluntary appearance and submission to the authority of the former." The courts jurisdiction over a party-defendant resulting from his voluntary submission to its authority is provided under Sec. 20, Rule 14 of the Rules, which states:
24

Section 20. Voluntary appearance. The defendants voluntary appearance in the actions shall be equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance. To be sure, the CAs ruling that any form of appearance by the party or its counsel is deemed as voluntary appearance finds support in the kindred Republic v. Ker 25 26 & Co., Ltd. and De Midgely v. Ferandos. Republic and De Midgely, however, have already been 27 modified if not altogether superseded by La Naval Drug 28 Corporation v. Court of Appeals, wherein the Court essentially ruled and elucidated on the current view in our jurisdiction, to wit: "[A] special appearance before the courtchallenging its jurisdiction over the person through a motion to dismiss even if the movant invokes other groundsis not tantamount to estoppel or a waiver by the movant of his objection to jurisdiction over his person; and such is not constitutive of a voluntary 29 submission to the jurisdiction of the court." In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is conceded that it raised affirmative defenses through its aforementioned pleadings, KIC never abandoned its challenge, however implicit, to the RTCs jurisdiction over its person. The challenge was subsumed in KICs primary assertion that it was not the same entity as Kukan, Inc. Pertinently, in its Comment and Opposition to Plaintiffs Omnibus Motion dated May 20, 2003, KIC entered its " special but not voluntary appearance" alleging therein that it was a different entity and has a separate legal personality from Kukan, Inc. And KIC would consistently reiterate this assertion in all its pleadings, thus effectively resisting all along the RTCs jurisdiction of its person. It cannot be overemphasized that KIC could not file before the RTC a motion to dismiss and its attachments in Civil Case No. 99-93173, precisely because KIC was neither impleaded nor served with summons. Consequently, KIC could only assert and claim through its affidavits, comments, and motions filed by special appearance before the RTC that it is separate and distinct from Kukan, Inc. Following La Naval Drug Corporation, KIC cannot be deemed to have waived its objection to the courts lack of jurisdiction over its person. It would defy logic to say that KIC unequivocally submitted itself to the jurisdiction of the RTC when it strongly asserted that it and Kukan, Inc. are different entities. In the scheme of things obtaining, KIC had no other option but to insist on its separate identity and plead for relief consistent with that position. Third Issue: Veil of Corporate Fiction Piercing the
30

principle of piercing the veil of corporate entitycalled also as disregarding the fiction of a separate juridical personality of a corporationto support a conclusion that Kukan, Inc. and KIC are but one and the same corporation with respect to the contract award referred to at the outset. This principle finds its context on the postulate that a corporation is an artificial being invested with a personality separate and distinct from those of the stockholders and from other corporations to which it may 31 be connected or related. In Pantranco Employees Association (PEA-PTGWO) v. 32 National Labor Relations Commission, the Court revisited the subject principle of piercing the veil of corporate fiction and wrote: Under the doctrine of "piercing the veil of corporate fiction," the court looks at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group. Another formulation of this doctrine is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or as one and the same. Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. x x x (Emphasis supplied.) The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.: While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly 33 and convincingly. It cannot be presumed. (Emphasis supplied.)

The third and main issue in this case is whether or not the trial and appellate courts correctly applied the

Now, as before the appellate court, petitioner KIC maintains that the RTC violated its right to due process when, in the execution of its November 28, 2002 Decision, the court authorized the issuance of the writ against KIC for Kukan, Inc.s judgment debt, albeit KIC has never been a party to the underlying suit. As a counterpoint, Morales argues that KICs specific concern on due process and on the validity of the writ to execute the RTCs November 28, 2002 Decision would be mooted if it were established that KIC and Kukan, Inc. are indeed one and the same corporation. Morales contention is untenable. The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as one and the same juridical person with respect to a given transaction, is basically applied only to determine 34 established liability; it is not available to confer on the court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a corporation not impleaded in a suit cannot be subject to the courts process of piercing the veil of its corporate fiction. In that situation, the court has not acquired jurisdiction over the corporation and, hence, any proceedings taken against that corporation and its property would infringe on its right to due process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as much: 23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has already acquired jurisdiction over the corporation. Hence, before this doctrine can be applied, based on the evidence presented, it is imperative that the court must first have jurisdiction over 35 the corporation. x x x (Emphasis supplied.) The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over the corporation or corporations involved before its or their separate personalities are disregarded; and (2) the doctrine of piercing the veil of corporate entity can only be raised during a full-blown trial over a cause of action duly commenced involving parties duly brought under the authority of the court by way of service of summons or what passes as such service. The issue of jurisdiction or the lack of it over KIC has already been discussed. Anent the matter of the time and manner of raising the principle in question, it is undisputed that no full-blown trial involving KIC was had when the RTC disregarded the corporate veil of KIC. The reason for this actuality is simple and undisputed: KIC was not impleaded in Civil Case No. 99-93173 and that the RTC did not acquire jurisdiction over it. It was dragged to the case after it reacted to the improper execution of its properties and veritably hauled to court,

not thru the usual process of service of summons, but by mere motion of a party with whom it has no privity of contract and after the decision in the main case had already become final and executory. As to the propriety of a plea for the application of the principle by mere motion, the following excerpts are instructive: Generally, a motion is appropriate only in the absence of remedies by regular pleadings, and is not available to settle important questions of law, or to dispose of the merits of the case. A motion is usually a proceeding incidental to an action, but it may be a wholly distinct or independent proceeding. A motion in this sense is not within this discussion even though the relief demanded is denominated an "order." A motion generally relates to procedure and is often resorted to in order to correct errors which have crept in along the line of the principal actions progress. Generally, where there is a procedural defect in a proceeding and no method under statute or rule of court by which it may be called to the attention of the court, a motion is an appropriate remedy. In many jurisdictions, the motion has replaced the common-law pleas testing the sufficiency of the pleadings, and various commonlaw writs, such as writ of error coram nobis and audita querela. In some cases, a motion may be one of several remedies available. For example, in some jurisdictions, a motion to vacate an order is a remedy alternative to an appeal therefrom. Statutes governing motions are 36 construction. (Emphasis supplied.) given a liberal

The bottom line issue of whether Morales can proceed against KIC for the judgment debt of Kukan, Inc. assuming hypothetically that he can, applying the piercing the corporate veil principleresolves itself into the question of whether a mere motion is the appropriate vehicle for such purpose. Verily, Morales espouses the application of the principle of piercing the corporate veil to hold KIC liable on theory that Kukan, Inc. was out to defraud him through the use of the separate and distinct personality of another corporation, KIC. In net effect, Morales adverted motion to pierce the veil of corporate fiction dated January 3, 2007 stated a new cause of action, i.e., for the liability of judgment debtor Kukan, Inc. to be borne by KIC on the alleged identity of the two corporations. This new cause of action should be properly ventilated in another complaint and subsequent trial where the doctrine of piercing the corporate veil can, if appropriate, be applied, based on the evidence adduced. Establishing the claim of Morales and the corresponding liability of KIC for Kukan Inc.s indebtedness could hardly be the subject, under the premises, of a mere motion interposed after the principal action against Kukan, Inc. alone had peremptorily been terminated. After all, a complaint is one where the plaintiff alleges causes of action.

In any event, the principle of piercing the veil of corporate fiction finds no application to the instant case. As a general rule, courts should be wary of lifting the corporate veil between corporations, however related. Philippine National Bank v. Andrada Electric Engineering 37 Company explains why: A corporation is an artificial being created by operation of law. x x x It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. This is basic. Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons. Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application. This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part of the estate of the decedent, to escape liability arising from a debt, or to perpetuate fraud and/or confuse legitimate issues either to promote or to shield unfair objectives or to cover up an otherwise blatant violation of the prohibition against forum-shopping. Only in these and similar instances may the veil be pierced and disregarded. (Emphasis supplied.) In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing proof that the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings. To be sure, the Court has, on 38 numerous occasions, applied the principle where a corporation is dissolved and its assets are transferred to another to avoid a financial liability of the first corporation with the result that the second corporation should be considered a continuation and successor of the first entity. In those instances when the Court pierced the veil of corporate fiction of two corporations, there was a confluence of the following factors: 1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second corporation to avoid a financial liability of the first corporation; and 3. Both corporations are owned and controlled by the same persons such that the second corporation should be considered as a continuation and successor of the first corporation. In the instant case, however, the second and third factors are conspicuously absent. There is, therefore, no compelling justification for disregarding the fiction of corporate entity separating Kukan, Inc. from KIC. In applying the principle, both the RTC and the CA miserably failed to identify the presence of the abovementioned factors. Consider: The RTC disregarded the separate corporate personalities of Kukan, Inc. and KIC based on the following premises and arguments: While it is true that a corporation has a separate and distinct personality from its stockholder, director and officers, the law expressly provides for an exception. When Michael Chan, the Managing Director of defendant Kukan, Inc. (majority stockholder of the newly formed corporation [KIC]) confirmed the award to plaintiff to supply and install interior signages in the Enterprise Center he (Michael Chan, Managing Director of defendant Kukan, Inc.) knew that there was no sufficient corporate funds to pay its obligation/account, thus implying bad faith on his part and fraud in contracting the obligation. Michael Chan neither returned the interior signages nor tendered payment to the plaintiff. This circumstance may warrant the piercing of the veil of corporation fiction. Having been guilty of bad faith in the management of corporate matters the corporate trustee, director or officer may be held personally liable. x x x Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. x x x [A]nd the circumstances are: the signature of Michael Chan, Managing Director of Kukan, Inc. appearing in the confirmation of the award sent to the plaintiff; signature of Chan Kai Kit, a British National appearing in the Articles of Incorporation and signature of Michael Chan also a British National appearing in the Articles of Incorporation [of] Kukan International Corp. give the impression that they are one and the same person, that Michael Chan and Chan Kai Kit are both majority stockholders of Kukan International Corp. and Kukan, Inc. holding 40% of the stocks; that Kukan International Corp. is practically doing the same 39 kind of business as that of Kukan, Inc. (Emphasis supplied.) As is apparent from its disquisition, the RTC brushed aside the separate corporate existence of Kukan, Inc. and KIC on the main argument that Michael Chan owns 40% of the common shares of both corporations,

obviously oblivious that overlapping stock ownership is a common business phenomenon. It must be remembered, however, that KICs properties were the ones seized upon levy on execution and not that of Kukan, Inc. or of Michael Chan for that matter. Mere ownership by a single stockholder or by another corporation of a substantial block of shares of a corporation does not, standing alone, provide sufficient justification for disregarding the separate corporate 40 personality. For this ground to hold sway in this case, there must be proof that Chan had control or complete dominion of Kukan and KICs finances, policies, and business practices; he used such control to commit fraud; and the control was the proximate cause of the financial loss complained of by Morales. The absence of any of the elements prevents the piercing of the 41 corporate veil. And indeed, the records do not show the presence of these elements. On the other hand, the CA held: In the present case, the facts disclose that Kukan, Inc. entered into a contractual obligation x x x worth more than three million pesos although it had only Php5,000.00 paid-up capital; [KIC] was incorporated shortly before Kukan, Inc. suddenly ceased to appear and participate in the trial; [KICs] purpose is related and somewhat akin to that of Kukan, Inc.; and in [KIC] Michael Chan, a.k.a., Chan Kai Kit, holds forty percent of the outstanding stocks, while he formerly held the same amount of stocks in Kukan Inc. These would lead to the inescapable conclusion that Kukan, Inc. committed fraudulent representation by awarding to the private respondent the contract with full knowledge that it was not in a position to comply with the obligation it had assumed because of inadequate paid-up capital. It bears stressing that shareholders should in good faith put at the risk of the business, unencumbered capital reasonably adequate for its prospective liabilities. The capital should not be illusory or trifling compared with the business to be done and the risk of loss. Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc. Michael Chan, a.k.a. Chan Kai Kit has the largest block of shares in both business enterprises. The emergence of the former was cleverly timed with the hasty withdrawal of the latter during the trial to avoid the financial liability that was eventually suffered by the latter. The two companies have a related business purpose. Considering these circumstances, the obvious conclusion is that the creation of Kukan International Corporation served as a device to evade the obligation incurred by Kukan, Inc. and yet profit from the goodwill attained by the name "Kukan" by continuing to engage in the same line of business with the same list 42 of clients. (Emphasis supplied.) Evidently, the CA found the meager paid-up capitalization of Kukan, Inc. and the similarity of the business activities in which both corporations are engaged as a jumping board to its conclusion that the

creation of KIC "served as a device to evade the obligation incurred by Kukan, Inc." The appellate court, however, left a gaping hole by failing to demonstrate that Kukan, Inc. and its stockholders defrauded Morales. In fine, there is no showing that the incorporation, and the separate and distinct personality, of KIC was used to defeat Morales right to recover from Kukan, Inc. Judging from the records, no serious attempt was made to levy on the properties of Kukan, Inc. Morales could not, thus, validly argue that Kukan, Inc. tried to avoid liability or had no property against which to proceed. Morales further contends that Kukan, Inc.s closure is evidenced by its failure to file its 2001 General Information Sheet (GIS) with the Securities and Exchange Commission. However, such fact does not necessarily mean that Kukan, Inc. had altogether ceased operations, as Morales would have this Court believe, for it is stated on the face of the GIS that it is only upon a failure to file the corporate GIS for five (5) consecutive years that non-operation shall be presumed. The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only had a paid-up capital of PhP 5,000 is not an indication of the intent on the part of its management to defraud creditors. Paid-up capital is merely seed money to start a corporation or a business entity. As in this case, it merely represented the capitalization upon incorporation in 1997 of Kukan, Inc. Paid-up capitalization of PhP 5,000 is not and should not be taken as a reflection of the firms capacity to meet its recurrent and long-term obligations. It must be borne in mind that the equity portion cannot be equated to the viability of a business concern, for the best test is the working capital which consists of the liquid assets of a given business relating to the nature of the business concern.lawphil Neither should the level of paid-up capital of Kukan, Inc. upon its incorporation be viewed as a badge of fraud, for it is in compliance with Sec. 13 of the Corporation 43 Code, which only requires a minimum paid-up capital of PhP 5,000.1avvphi1 The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled as they are by the same stockholders, stands without factual basis. It is true that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the outstanding capital stock of both corporations. But such circumstance, standing alone, is insufficient to establish identity. There must be at least a substantial identity of stockholders for both corporations in order to consider this factor to be constitutive of corporate identity. It would not avail Morales any to rely on General Credit Corporation v. Alsons Development and Investment 45 Corporation. General Credit Corporation is factually not on all fours with the instant case. There, the common stockholders of the corporations represented 90% of the outstanding capital stock of the companies, unlike here
44

where Michael Chan merely represents 40% of the outstanding capital stock of both KIC and Kukan, Inc., not even a majority of it. In that case, moreover, evidence was adduced to support the finding that the funds of the second corporation came from the first. Finally, there was proof in General Credit Corporation of complete control, such that one corporation was a mere dummy or alter ego of the other, which is absent in the instant case. Evidently, the aforementioned case relied upon by Morales cannot justify the application of the principle of piercing the veil of corporate fiction to the instant case. As shown by the records, the name Michael Chan, the similarity of business activities engaged in, and incidentally the word "Kukan" appearing in the corporate names provide the nexus between Kukan, Inc. and KIC. As illustrated, these circumstances are insufficient to establish the identity of KIC as the alter ego or successor of Kukan, Inc. It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, those who seek to pierce the veil must clearly establish that the separate and distinct personalities of the corporations are set up to justify a wrong, protect fraud, or perpetrate a deception. In the concrete and on the assumption that the RTC has validly acquired jurisdiction over the party concerned, Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed and thereafter KIC purposely formed and operated to defraud him. Morales has not to us discharged his burden. WHEREFORE, the petition is hereby GRANTED. The CAs January 23, 2008 Decision and April 16, 2008 Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy placed upon the personal properties of Kukan International Corporation is hereby ordered lifted and the personal properties ordered returned to Kukan International Corporation. The RTC of Manila, Branch 21 is hereby directed to execute the RTC Decision dated November 28, 2002 against Kukan, Inc. with reasonable dispatch. No costs. SO ORDERED. .R. No. 159108 June 18, 2012

The veil of corporate existence of a corporation is a fiction of law that should not defeat the ends of justice. Petitioner seeks to reverse the decision promulgated on 1 October 30, 2002 and the resolution promulgated on 2 June 25, 2003, whereby the Court of Appeals (CA) 3 upheld the orders issued on August 2, 2001 and 4 October 22, 2001 by the Regional Trial Court (RTC), Branch 51, in Sorsogon in Civil Case No. 93-5917 entitled Heirs of Concepcion Lacsa, represented by Teodoro Lacsa v. Travel & Tours Advisers, Inc., et al. authorizing the implementation of the writ of execution against petitioner despite its protestation of being a separate and different corporate personality from Travel & Tours Advisers, Inc. (defendant in Civil Case No. 935917). In the orders assailed in the CA, the RTC declared petitioner and Travel & Tours Advisers, Inc. to be one and the same entity, and ruled that the levy of petitioners property to satisfy the final and executory decision rendered on June 30, 1997 against Travel & 5 Tours Advisers, Inc. in Civil Case No. 93-5917 was valid even if petitioner had not been impleaded as a party. Antecedents On August 2, 1993, Ma. Concepcion Lacsa (Concepcion) and her sister, Miriam Lacsa (Miriam), boarded a Goldline passenger bus with Plate No. NXM105 owned and operated by Travel &Tours Advisers, Inc. They were enroute from Sorsogon to Cubao, 6 Quezon City. At the time, Concepcion, having just obtained her degree of Bachelor of Science in Nursing at the Ago Medical and Educational Center, was proceeding to Manila to take the nursing licensure board 7 examination. Upon reaching the highway at Barangay San Agustin in Pili, Camarines Sur, the Goldline bus, driven by Rene Abania (Abania), collided with a passenger jeepney with Plate No. EAV-313 coming from 8 the opposite direction and driven by Alejandro Belbis. As a result, a metal part of the jeepney was detached and struck Concepcion in the chest, causing her instant 9 death. On August 23, 1993, Concepcions heirs, represented by Teodoro Lacsa, instituted in the RTC a suit against Travel & Tours Advisers Inc. and Abania to recover 10 damages arising from breach of contract of carriage. The complaint, docketed as Civil Case No. 93-5917 and entitled Heirs of Concepcion Lacsa, represented by Teodoro Lacsa v. Travel & Tours Advisers, Inc. (Goldline) and Rene Abania, alleged that the collision was due to the reckless and imprudent manner by which 11 Abania had driven the Goldline bus. In support of the complaint, Miriam testified that Abania had been occasionally looking up at the video monitor installed in the front portion of the Goldline bus despite 12 driving his bus at a fast speed; that in Barangay San

GOLD LINE TOURS, INC., Petitioner, vs. HEIRS OF MARIA CONCEPCION LACSA, Respondents. DECISION BERSAMIN, J.:

Agustin, the Goldline bus had collided with a service jeepney coming from the opposite direction while in the 13 process of overtaking another bus; that the impact had caused the angle bar of the jeepney to detach and to go through the windshield of the bus directly into the chest of Concepcion who had then been seated behind the 14 drivers seat; that concerned bystanders had hailed another bus to rush Concepcion to the Ago Foundation Hospital in Naga City because the Goldline bus employees and her co-passengers had ignored Miriams 15 cries for help; and that Concepcion was pronounced 16 dead upon arrival at the hospital. To refute the plaintiffs allegations, the defendants presented SPO1 Pedro Corporal of the Philippine National Police Station in Pili, Camarines Sur, and 17 William Cheng, the operator of the Goldline bus. SPO1 Corporal opined that based on his investigation report, the driver of the jeepney had been at fault for failing to 18 observe precautionary measures to avoid the collision; and suggested that criminal and civil charges should be 19 brought against the operator and driver of the jeepney. On his part, Cheng attested that he had exercised the required diligence in the selection and supervision of his employees; and that he had been engaged in the transportation business since 1980 with the use of a total of 60 units of Goldline buses, employing about 100 employees (including drivers, conductors, maintenance 20 personnel, and mechanics); that as a condition for regular employment, applicant drivers had undergone a one-month training period and a six-month probationary period during which they had gotten acquainted with 21 Goldlines driving practices and demeanor; that the employees had come under constant supervision, rendering improbable the claim that Abania, who was a regular employee, had been glancing at the video 22 monitor while driving the bus; that the incident causing Concepcions death was the first serious incident his (Cheng) transportation business had encountered, 23 because the rest had been only minor traffic accidents; and that immediately upon being informed of the accident, he had instructed his personnel to contact the 24 family of Concepcion. The defendants blamed the death of Concepcion to the recklessness of Bilbes as the driver of the jeepney, and 25 of its operator, Salvador Romano; and that they had consequently brought a third-party complaint against the 26 latter. After trial, the RTC rendered its decision dated June 30, 1997, disposing: ACCORDINGLY, judgment is hereby rendered: (1) Finding the plaintiffs entitled to damages for the death of Ma. Concepcion Lacsa in violation of the contract of carriage; (2) Ordering defendant Travel & Tours Advisers, Inc. (Goldline) to pay plaintiffs:

a. P30,000.00 expenses for the wake; b. P 6,000.00 funeral expenses; c. P50,000.00 for the death of Ma. Concepcion Lacsa; d. P150,000.00 for moral damages; e. P20,000.00 damages; for exemplary

f. P8,000.00 for attorneys fees; g. P2,000.00 for litigation expenses; h. Costs of suit. (3) Ordering the dismissal of the case against Rene Abania; (4) Ordering the dismissal of the third-party complaint. SO ORDERED.
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The RTC found that a contract of carriage had been forged between Travel & Tours Advisers, Inc. and Concepcion as soon as she had boarded the Goldline bus as a paying passenger; that Travel & Tours Advisers, Inc. had then become duty-bound to safely transport her as its passenger to her destination; that due to Travel & Tours Advisers, Inc.s inability to perform its duty, Article 1786 of the Civil Code created against it the disputable presumption that it had been at fault or had been negligent in the performance of its obligations towards the passenger; that Travel & Tours Advisers, Inc. failed to disprove the presumption of negligence; and that a rigid selection of employees was not sufficient to exempt Travel & Tours Advisers, Inc. from the obligation of exercising extraordinary diligence to ensure that its passenger was carried safely to her destination. Aggrieved, the defendants appealed to the CA. On June 11, 1998, the CA dismissed the appeal for failure of the defendants to pay the docket and other lawful fees within the required period as provided in Rule 41, Section 4 of the Rules of Court (1997). The dismissal became final, and entry of judgment was made on July 29 17, 1998. Thereafter, the plaintiffs moved for the issuance of a writ of execution to implement the decision dated June 30, 30 1997. The RTC granted their motion on January 31, 31 2000, and issued the writ of execution on February 24, 32 2000.
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On May 10, 2000, the sheriff implementing the writ of 33 execution rendered a Sheriffs Partial Return, certifying that the writ of execution had been personally served and a copy of it had been duly tendered to Travel & Tours Advisers, Inc. or William Cheng, through his secretary, Grace Miranda, and that Cheng had failed to settle the judgment amount despite promising to do so. Accordingly, a tourist bus bearing Plate No. NWW-883 was levied pursuant to the writ of execution. The plaintiffs moved to cite Cheng in contempt of court 34 for failure to obey a lawful writ of the RTC. Cheng filed 35 his opposition. Acting on the motion to cite Cheng in contempt of court, the RTC directed the plaintiffs to file a verified petition for indirect contempt on February 19, 36 2001. On April 20, 2001, petitioner submitted a so-called 37 verified third party claim, claiming that the tourist bus bearing Plate No. NWW-883 be returned to petitioner because it was the owner; that petitioner had not been made a party to Civil Case No. 93-5917; and that petitioner was a corporation entirely different from Travel & Tours Advisers, Inc., the defendant in Civil Case No. 93-5917. It is notable that petitioners Articles of Incorporation was 38 amended on November 8, 1993, shortly after the filing of Civil Case No. 93-5917 against Travel & Tours Advisers, Inc. Respondents opposed petitioners verified third-party claim on the following grounds, namely: (a) the thirdparty claim did not comply with the required notice of hearing as required by Rule 15, Sections 4 and 5 of the Rules of Court; (b) Travel & Tours Advisers, Inc. and petitioner were identical entities and were both operated and managed by the same person, William Cheng; and (c) petitioner was attempting to defraud its creditors respondents herein hence, the doctrine of piercing the 39 veil of corporate entity was squarely applicable. On August 2, 2001, the RTC dismissed petitioners verified third-party claim, observing that the identity of Travel & Tours Adivsers, Inc. could not be divorced from that of petitioner considering that Cheng had claimed to be the operator as well as the President/Manager/incorporator of both entities; and that Travel & Tours Advisers, Inc. had been known in 40 Sorsogon as Goldline. Petitioner moved for reconsideration, but the RTC 42 denied the motion on October 22, 2001. Thence, petitioner initiated a special civil action for 43 certiorari in the CA, asserting: THE RESPONDENT HONORABLE RTC JUDGE HAD ACTED WITHOUT JURISDICTION OR COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO
41

LACK OF JURISDICTION IN ISSUING THE: (A) ORDER DATED 2 AUGUST 2001, COPY OF WHICH IS HERETO ATTACHED AS ANNEX A, DISMISSING HEREIN PETITIONERS THIRD PARTY CLAIM; AND (B) ORDER DATED 22 OCTOBER 2001, COPY OF WHICH IS HERETO ATTACHED AS ANNEX B DENYING SAID PETITIONERS MOTION FOR RECONSIDERATION; AND THAT THERE IS NO APPEAL, OR ANY PLAIN, SPEEDY AND ADEQUATE REMEDY AVAILABLE TO SAID PETITIONER. On October 30, 2002, the CA promulgated its decision 44 dismissing the petition for certiorari, holding as follows: The petition lacks merit. As stated in the decision supra, William Ching disclosed during the trial of the case that defendant Travel & Tours Advisers, Inc. (Goldline), of which he is an officer, is operating sixty (60) units of Goldline buses. That the Goldline buses are used in the operations of defendant company is obvious from Mr. Chengs admission. The Amended Articles of Incorporation of Gold Line Tours, Inc. disclose that the following persons are the original incorporators thereof: Antonio O. Ching, Maribel Lim Ching, witness William Ching, Anita Dy Ching and Zosimo Ching. (Rollo, pp. 105-106) We see no reason why defendant company would be using Goldline buses in its operations unless the two companies are actually one and the same. Moreover, the name Goldline was added to defendants name in the Complaint. There was no objection from William Ching who could have raised the defense that Gold Line Tours, Inc. was in no way liable or involved. Indeed, it appears to this Court that rather than Travel & Tours Advisers, Inc., it is Gold Line Tours, Inc., which should have been named party defendant. Be that as it may, We concur in the trial courts finding that the two companies are actually one and the same, hence the levy of the bus in question was proper. WHEREFORE, for lack of merit, the petition is DISMISSED and the assailed Orders are AFFIRMED. SO ORDERED. Petitioner filed a motion for reconsideration, 46 CA denied on June 25, 2003.
45

which the

Hence, this appeal, in which petitioner faults the CA for holding that the RTC did not act without jurisdiction or grave abuse of discretion in finding that petitioner and Travel & Tours Advisers, Inc., the defendant in Civil Case No. 5917, were one and same entity, and for sustaining the propriety of the levy of the tourist bus with Plate No. NWW-883 in satisfaction of the writ of 47 execution.

In the meantime, respondents filed in the RTC a motion to direct the sheriff to implement the writ of execution in view of the non-issuance of any restraining order either 48 by this Court or the CA. On February 23, 2007, the RTC granted the motion and directed the sheriff to sell the Goldline tourist bus with Plate No. NWW-883 49 through a public auction. Issue Did the CA rightly find and conclude that the RTC did not gravely abuse its discretion in denying petitioners verified third-party claim? Ruling We find no reason to reverse the assailed CA decision. In the order dated August 2, 2001, the RTC rendered its justification for rejecting the third-party claim of petitioner in the following manner: xxx The main contention of Third Party Claimant is that it is the owner of the Bus and therefore, it should not be seized by the sheriff because the same does not belong to the defendant Travel & Tours Advises, Inc. (GOLDLINE) as the third party claimant and defendant are two separate corporation with separate juridical personalities. Upon the other hand, this Court had scrutinized the documents submitted by the Third party Claimant and found out that William Ching who claimed to be the operator of the Travel & Tours Advisers, Inc. (GOLDLINE) is also the President/Manager and incorporator of the Third Party Claimant Goldline Tours Inc. and he is joined by his co-incorporators who are "Ching" and "Dy" thereby this Court could only say that these two corporations are one and the same corporations. This is of judicial knowledge that since Travel & Tours Advisers, Inc. came to Sorsogon it has been known as GOLDLINE. This Court is not persuaded by the proposition of the third party claimant that a corporation has an existence separate and/or distinct from its members insofar as this case at bar is concerned, for the reason that whenever necessary for the interest of the public or for the protection of enforcement of their rights, the notion of legal entity should not and is not to be used to defeat public convenience, justify wrong, protect fraud or defend crime. Apposite to the case at bar is the case of Palacio vs. Fely Transportation Co., L-15121, May 31, 1962, 5 SCRA 1011 where the Supreme Court held:

"Where the main purpose in forming the corporation was to evade ones subsidiary liability for damages in a criminal case, the corporation may not be heard to say that it has a personality separate and distinct from its members, because to allow it to do so would be to sanction the use of fiction of corporate entity as a shield to further an end subversive of justice (La Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et al., L-5677, May 25, 1953). The Supreme Court can even substitute the real party in interest in place of the defendant corporation in order to avoid multiplicity of suits and thereby save the parties unnecessary expenses and delay. (Alfonso vs. Villamor, 16 Phil. 315)." This is what the third party claimant wants to do including the defendant in this case, to use the separate and distinct personality of the two corporation as a shield to further an end subversive of justice by avoiding the 50 execution of a final judgment of the court. As we see it, the RTC had sufficient factual basis to find that petitioner and Travel and Tours Advisers, Inc. were one and the same entity, specifically: (a) documents submitted by petitioner in the RTC showing that William Cheng, who claimed to be the operator of Travel and Tours Advisers, Inc., was also the President/Manager and an incorporator of the petitioner; and (b) Travel and Tours Advisers, Inc. had been known in Sorsogon as Goldline. On its part, the CA cogently observed: As stated in the (RTC) decision supra, William Ching disclosed during the trial of the case that defendant Travel & Tours Advisers, Inc. (Goldline), of which he is an officer, is operating sixty (60) units of Goldline buses. That the Goldline buses are used in the operations of defendant company is obvious from Mr. Chengs admission. The Amended Articles of Incorporation of Gold Line Tours, Inc. disclose that the following persons are the original incorporators thereof: Antonio O. Ching, Maribel Lim Ching, witness William Ching, Anita Dy Ching and Zosimo Ching. (Rollo, pp. 105-108) We see no reason why defendant company would be using Goldline buses in its operations unless the two companies are actually one and the same. Moreover, the name Goldline was added to defendants name in the Complaint. There was no objection from William Ching who could have raised the defense that Gold Line Tours, Inc. was in no way liable or involved. Indeed it appears to this Court that rather than Travel & Tours Advisers, Inc. it is Gold Line Tours, Inc., which should have been named party defendant. Be that as it may, We concur in the trial courts finding that the two companies are actually one and the same, 51 hence the levy of the bus in question was proper. The RTC thus rightly ruled that petitioner might not be shielded from liability under the final judgment through

the use of the doctrine of separate corporate identity. Truly, this fiction of law could not be employed to defeat the ends of justice. But petitioner continues to challenge the RTC orders by insisting that the evidence to establish its identity with Travel and Tours Advisers, Inc. was insufficient. We cannot agree with petitioner. As already stated, there was sufficient evidence that petitioner and Travel and Tours Advisers, Inc.1wphi1 were one and the same entity. Moreover, we remind that a petition for the writ of certiorari neither deals with errors of judgment nor extends to a mistake in the appreciation of the contending parties evidence or in the evaluation of their 52 relative weight. It is timely to remind that the petitioner in a special civil action for certiorari commenced against a trial court that has jurisdiction over the proceedings bears the burden to demonstrate not merely reversible error, but grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the respondent trial 53 court in issuing the impugned order. The term grave abuse of discretion is defined as a capricious and whimsical exercise of judgment so patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, as where the power is exercised in an arbitrary and despotic manner 54 because of passion or hostility. Mere abuse of 55 discretion is not enough; it must be grave. Yet, here, petitioner did not discharge its burden because it failed to demonstrate that the CA erred in holding that the RTC had not committed grave abuse of discretion. A review of the records shows, indeed, that the RTC correctly rejected petitioners third-party claim. Hence, the rejection did not come within the domain of the writ of certioraris limiting requirement of excess or lack of 56 jurisdiction. WHEREFORE, the Court DENIES the petition for review on certiorari, and AFFIRMS the decision promulgated by the Court of Appeals on October 30, 2002. Costs of suit to be paid by petitioner. SO ORDERED.