STA.

MONICA INDUSTRIAL AND DEVELOPMENT CORPORATION, Petitioner,

- versus - THE DEPARTMENT OF AGRARIAN REFORM REGIONAL DIRECTOR FOR REGION III, PROVINCIAL
AGRARIAN REFORM OFFICER OF BULACAN, MUNICIPAL AGRARIAN REFORM OFFICER OF CALUMPIT,
BULACAN, and BASILIO DE GUZMAN, Respondents. June 18, 2008
DECISION
REYES, R.T., J.:
ANG Malawak na Batas sa Repormang Pangsakahan ay binuo upang makalaya ang mga magsasaka mula sa
tali ng kahirapan at paghahari ng may-ari ng lupa.
Kapag ang kathang-isip na korporasyon ay ginamit na tabing sa katulad na pyudal na pang-aalipin, ang
matayog na hangarin ng batas pambukid ay nabibigo at ang mismong suliranin na nais lunasan nito ay
nananatili.
Ang belo ng kathang-isip na korporasyon ay pupunitin kapag ito ay ginamit sa maling hangarin at di-tapat na
layunin.
The Comprehensive Agrarian Reform Law[1] was designed precisely to liberate peasant-farmers from the
clutches of landlordism and poverty.
When corporate fiction is used as a mere smokescreen to the same form of feudal servitude, the lofty aim of
the agrarian law is thwarted and the very problem which the law seeks to solve is perpetrated.
The veil of corporate fiction will be pierced when used for improper purposes and unfair objectives.
Before Us is a petition for review on certiorari of the Decision[2] of the Court of Appeals (CA) dismissing the
petition of Sta. Monica Industrial and Development Corporation (Sta. Monica) to annul the Order [3] of the Regional
Director, Region III, Department of Agrarian Reform (DAR) placing the landholdings of Asuncion Trinidad under the
Comprehensive Agrarian Reform Program (CARP). [4]
The Facts
Trinidad is the owner of five parcels of land with a total area of 4.69 hectares in Iba Este, Calumpit,
Bulacan. Private respondent Basilio De Guzman is the agricultural leasehold tenant ofTrinidad.
On April 29, 1976, a leasehold contract denominated as Kasunduan ng Buwisan sa Sakahan was executed
between Trinidad and De Guzman.[5] As an agricultural leasehold tenant, De Guzman was issued Certificates of Land
Transfer on July 22, 1981.[6]
Desiring to have an emancipation patent over the land under his tillage, De Guzman filed a petition for the
issuance of patent in his name with the Office of the Regional Director of the DAR.[7] The Legal Services Division of
the DAR duly sent notices to Trinidad requiring her to comment. Instead of complying, Trinidad filed a motion for bill of
particulars.[8]
After due proceedings, the Regional Director issued the Order [9] granting the petition of De Guzman, with the
following disposition:
WHEREFORE, in light of the foregoing analysis and the reasons indicated thereon, an
ORDER is hereby issued as follows:
1. PLACING under the coverage of Operation Land Transfer (OLT) pursuant to PD
27/Executive Order No. 228 the landholdings of Asuncion Trinidad with an area of 10.6800 hectares,
more or less, located at Iba Este, Calumpit, Bulacan, without prejudice to the exercise of her retention
rights if qualified under the law.
2. DIRECTING the MARO of Calumpit, Bulacan and the PARO of Baliuag, Bulacan to cause
the generation and issuance of Emancipation Patent in favor of the petitioner and other qualified
farmer-beneficiaries over the said landholding in accordance with the actual area of tillages. [10]
Trinidad filed a motion for reconsideration but her motion was denied. [11]

A year later, petitioner Sta. Monica filed a petition for certiorari and prohibition with the CA assailing the order
of the Regional Director. In its petition, Sta. Monica claimed that while it is true that Asuncion Trinidad was the former
registered owner of a parcel of land with an area of 83,689 square meters, the said landholding was sold on January
27, 1986.[12]
Petitioner was able to acquire 39,547 square meters of the Trinidad property. After the sale, petitioner sought
the registration of the portion pertaining to it before the Register of Deeds of theProvince of Bulacan. Consequently, a
corresponding Transfer Certificate of Title, with No. 301408 (now TCT No. RT 70512) was issued in favor of petitioner.
[13]

It was asserted that there was a denial of due process of law because it was not furnished a notice of
coverage under the CARP law.[14]
In his comment on the petition, De Guzman argued that the alleged sale of the landholding is illegal due to the lack of
requisite clearance from the DAR. The said clearance is required under P.D. No. 27, [15] the Tenant Emancipation
Decree, which prohibits transfer of covered lands except to tenant-beneficiaries. According to De Guzman, since no
clearance was sought from, and granted by, the DAR, the sale in favor of petitioner by Trinidad is inexistent and void.
Hence, Trinidad remained the owner of the disputed property.
CA Disposition
On May 26, 2004, the CA rendered a decision dismissing the petition of Sta. Monica, disposing as follows:
WHEREFORE, premises considered, the instant petition is hereby DENIED for lack of merit.
SO ORDERED.[16]
The CA held that Sta. Monica is not a real party-in-interest because it cannot be considered as an owner of
the land it bought from Trinidad, thus:[17]
It appears from the records of this case that the sale between Trinidad and the petitioner is
enjoined by Department Memorandum Circular No. 2-A, implementing the provisions of Presidential
Decree (P.D.) No. 27, which prohibits the transfer of ownership of landholdings covered by P.D. No.
27 after 21 October 1972 without the requisite clearance from the DAR except to the tenantbeneficiary. Thus, the title to the subject landholding remained with the previous owner, Asuncion
Trinidad. This effectively deprives the petitioner of interest to question the orders of the Regional
Director of the DAR relative to the latters directive placing the subject landholding under the coverage
of Operation Land Transfer and the subsequent issuance of an Emancipation Patent in favor of
private respondent De Guzman. One having no right or interest to protect cannot invoke the
jurisdiction of the court as a party plaintiff (in this case petitioner) in an action. A real party in interest is
the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit.[18] (Citations omitted)
The CA added that even assuming that Sta. Monica is a real party-in-interest, it was not denied due process
because it had constructive notice of the proceeding which involved its property:
Even assuming, without admitting, that petitioner is the real party in interest by reason of the
sale of the subject landholding in its favor, it cannot be said that petitioner was denied due process
because of lack of notice of the proceedings before the DAR. It is significant to note that Asuncion
Trinidad is the treasurer of petitioner, based on the corporations General Information Sheet. While it
cannot be said that there was proper notice to the corporation, being a corporate officer of the
petitioner, there was at least constructive notice of the fact that there was a proceeding which involved
the property of the corporation of which it may be deprived should an adverse decision be rendered
by the DAR.[19]
The CA also ruled that the assailed orders of the Regional Director have already attained finality because it
was not appealed to the DAR Secretary.
Furthermore, the assailed orders have long become final and executory, there being no appeal
undertaken to the Secretary of the Department of Agrarian Reform. Citing Fortich vs. Corona, et al.,
the Supreme Court aptly ruled in this wise:
The orderly administration of justice requires that the judgments/resolutions
of a court or quasi-judicial body must reach a point of finality set by law, rules and
regulations. The noble purpose is to write finis to disputes once and for all. This is a
fundamental principle in our justice system, without which there would be no end to

litigations. Utmost respect and adherence to this principle must always be maintained
by those who wield the power of adjudication. Any act which violates such principle
must immediately be struck down.
The rule on finality of decisions, orders or resolutions of a judicial, quasi-judicial, or administrative
body is not a question of technicality but of substance and merit, the underlying consideration
therefore being the protection of the substantive rights of the winning party. Just as a losing party has
the right to file an appeal within the prescribed period, the winning party also has the correlative right
to enjoy the finality of the resolution of his/her case. [20]
Sta. Monica sought reconsideration but it was denied. Hence, the present recourse.[21]
Issue
Sta. Monica seeks reversal of the CA decision on the lone ground that THE ASSAILED
DECISION AND RESOLUTION OF THE COURT OF APPEALS ARE CONTRARY TO EXISTING LAWS, RELEVANT
JURISPRUDENCE ON THE MATTER AND THE FACTUAL CIRCUMSTANCES.[22]
Our Ruling
The petition is bereft of merit.
Trinidad is still deemed the owner of the agricultural land sold
to Sta. Monica; no need for separate notice of coverage under
the CARP law.
The crux of the petition lies in the requirement of notice of coverage under the CARP law. The statute requires
a notice of coverage to be furnished and sent to the landowner. [23] Notice is part of the constitutional right to due
process of law. It informs the landowner of the States intention to acquire a private land upon payment of just
compensation and gives him the opportunity to present evidence that his landholding is not covered or is otherwise
excused from the agrarian law.
There is no dispute that a notice of coverage was duly sent to Trinidad. Records show that she participated in
the DAR proceedings. As to her, the constitutional requirement of due process was met and satisfied.
Petitioner Sta. Monica, however, claims that it is the owner of the agricultural land awarded to De Guzman. It
acquired the land from Trinidad by sale in 1986 and it was issued a transfer certificate of title. Sta. Monica claims
denial of due process of law because it was not furnished the required notice of coverage under the CARP law.

Respondent De Guzman, on the other hand, contends that the sale between Trinidad and Sta. Monica is null
and void because it is a prohibited transaction under Presidential Decree No. 27 (P.D. No. 27), as amended. [24] De
Guzman also claims that Trinidad is a corporate officer of Sta. Monica. It was her duty to inform Sta. Monica of the
pending proceeding with the DAR.[25] He maintains that Sta. Monica was not denied due process because there was
constructive notice. Sta. Monica was sufficiently informed of the pending DAR proceedings.[26]
Records disclose that there was indeed a deed of sale between Trinidad and Sta. Monica over the agricultural land
awarded to De Guzman. Sta. Monica was also issued a new transfer certificate of title over the land. If We rely solely
on the sale, it is a foregone conclusion that Sta. Monica was denied due process of law. As the owner on record of the
agricultural land, it should have been given a notice of coverage.
However, there is much to be said of the attendant circumstances that lead Us to conclude that notice of
coverage to Trinidad is also sufficient notice to Sta. Monica. Moreover, We find that the sale between Trinidad and Sta.
Monica was a mere ruse to frustrate the implementation of the agrarian law.
First, the sale to Sta. Monica is prohibited. P.D. No. 27, as amended, forbids the transfer or alienation of
covered agricultural lands after October 21, 1972 except to the tenant-beneficiary.The agricultural land awarded to De
Guzman is covered by P.D. No. 27. He was awarded a certificate of land transfer in July 22, 1981. The sale to Sta.
Monica in 1986 is void for being contrary to law.[27] Trinidad remained the owner of the agricultural land.
In Heirs of Batongbacal v. Court of Appeals,[28] involving the similar issue of sale of a covered agricultural land
under P.D. No. 27, this Court held:
Clearly, therefore, Philbanking committed breach of obligation as an agricultural lessor. As the
records show, private respondent was not informed about the sale between Philbanking and

petitioner, and neither was he privy to the transfer of ownership from Juana Luciano to Philbanking. As
an agricultural lessee, the law gives him the right to be informed about matters affecting the land he
tills, without need for him to inquire about it.
xxxx
In other words, transfer of ownership over tenanted rice and/or corn lands after October 21,
1972 is allowed only in favor of the actual tenant-tillers thereon. Hence, the sale executed by
Philbanking on January 11, 1985 in favor of petitioner was in violation of the aforequoted provision of
P.D. 27 and its implementing guidelines, and must thus be declared null and void.[29] (Underscoring
supplied)
Second, buyer Sta. Monica is owned and controlled by Trinidad and her family. Records show that Trinidad,
her husband and two sons own more than 98% [30] of the outstanding capital stock of Sta. Monica. They are all officers
of the corporation.[31] There are only two non-related incorporators who own less than one percent of the outstanding
capital stock of Sta. Monica and who are not officers of the corporation.
To be sure, Trinidad and her family exercise absolute control of the corporate affairs of Sta. Monica. As
owners of 98% of the outstanding capital stock, they are the beneficial owners of all the assets of the company,
including the agricultural land sold by Trinidad to Sta. Monica.
Third, Trinidad and her counsel failed to notify the DAR of the prior sale to Sta. Monica during the administrative
proceedings. Worse, Trinidad feigned ignorance of the sale by filing a motion for bill of particulars seeking specifics
from De Guzman of her alleged landholdings which are subject of his petition with the DAR.
It is highly unusual and unbelievable for her not to know, or at least be aware, of the sale to Sta. Monica. She
herself signed the deed of sale as seller. She is also a stockholder and officer of Sta. Monica. More importantly, she
cannot feign ignorance of De Guzmans claim because he was her agricultural tenant since the 1970s. She knows, or
at least ought to know, that the subject matter of the petition with the DAR was her own landholding, which she sold to
Sta. Monica in direct violation of P.D. No. 27.
The apparent lack of candor is heightened by the fact that both Trinidad and Sta. Monica are represented by
the same counsel, Atty. Ramon Gutierrez. We cannot stretch Our credulity on howTrinidad filed a motion for bill of
particulars with the DAR seeking specifics on the sale to Sta. Monica when she herself signed for the vendor as a
party to the transaction.
It is the duty of Atty. Gutierrez to inform the DAR, at the very first opportunity, of the sale to Sta. Monica. He
was utterly remiss of this duty. Instead of informing the DAR, Trinidad and her counsel engaged in wild goose chase
and stonewalling, feigning ignorance when they ought to have informed the DAR of the sale to Sta. Monica. Atty.
Gutierrez is reminded that, as an officer of the court, he owes it the duty of candor, honesty and fairness. [32]
Fourth, it was only after an adverse decision against Trinidad that Sta. Monica suddenly filed a petition
for certiorari with the CA questioning the lack of notice of coverage under the CARP law. It is highly unlikely that Sta.
Monica, an artificial being acting only through its duly authorized representatives, was not sufficiently informed or had
no constructive knowledge of the DARproceedings.
Trinidad and by extension, her family members, were informed or should be sufficiently aware of
the DAR proceedings. They are all stockholders and corporate officers of Sta. Monica. They knew, they ought to know,
that Sta. Monica would suffer damage should the DAR award, as it awarded, the agricultural land to De Guzman.
As directors and corporate officers, they owe a duty of care to the corporation to inform it of the pending
proceedings with the DAR.
Fifth, the ultimate factor that betrays Trinidad and Sta. Monica is the continued payment of lease rentals by De
Guzman. Records show that De Guzman paid and continued to pay lease rentals toTrinidad even after she sold the
land to Sta. Monica. The receipt[33] dated May 30, 2002 discloses that De Guzman paid 40 cavans of palay to
Clodinaldo dela Cruz, the authorized representative ofTrinidad, as lease rentals for the agricultural land.
It is incredible that Trinidad would still continue to collect lease rentals from De Guzman if she had long sold
the agricultural land to Sta. Monica in 1986. The continued payment of lease rentals indicates that Trinidad never sold
the agricultural land to Sta. Monica. Evidently, the sale was a mere ruse to skirt coverage under the comprehensive
agrarian reform law.
All these circumstances indicate that Trinidad has remained as the real owner of the agricultural land sold to Sta.
Monica. The sale to Sta. Monica is not valid because it is prohibited under P.D. No. 27. More importantly, it must be
deemed as a mere ploy to evade the applicable provisions of the agrarian law.

But it is a fiat that the corporate vehicle cannot be used as a shield to protect fraud or justify wrong. Thus, the
veil of corporate fiction will be pierced when it is used to defeat public convenience and subvert public policy.
Considering that Trinidad remained to be the true and legal owner of the agricultural land, there is no need for another
notice of coverage to be sent or furnished to Sta. Monica. At the very least, the notice to her is already notice to Sta.
Monica because the corporation acted as a mere conduit of Trinidad. The CA correctly dismissed the petition of Sta.
Monica to annul the orders of the Regional Director placing the agricultural land of Trinidad under the agrarian reform
law.
Final Note
This case can be viewed as a microcosm of the persistent agrarian reform problem in Our country. For one, it
illustrates the arduous legal battle that tenant-farmers have to endure in order to be finally freed from the bondage of
the soil. De Guzman battled for almost eight years to acquire the agricultural land from Trinidad. Others are not as
equally lucky. For another, it shows the subtle but illegal measures taken by landowners to evade coverage under the
CARP law.
Of course, there are also tales of landowners who unduly suffer either the abuse of some farmers or the harsh
consequences of the law.
In hindsight, it is quite ironic that We are still faced with the same agrarian reform problem which We have
sought to eradicate several years ago when the CARP law was first introduced.Feudal system of land ownership still
persists in the countryside and most farmers are still tied to their bondage. It is more ironic when the problem is taken
in its historical context, the CARP law being the fifth land reform law passed since President Quezon.
To Our mind, part of the problem lies with the CARP law itself. As crafted, the law has its own loopholes. It provides for
a long list of exclusions. Some landowners used these exclusions to go around the law. There is now a growing trend
of land conversion in the countryside suspiciously to evade coverage under the CARP law. Of course, the solution to
this problem lies with Congress. It is high time We sounded the call for a more realistic, rational comprehensive
agrarian reform law.
The dubious use of seemingly legal means to sidestep the CARP law persists. Corporate law is resorted to by
way of circling around the agrarian law. As this case illustrates, agricultural lands are being transferred, simulated or
otherwise, to corporations which are fully or at least predominantly controlled by former landowners, now called
stockholders. Through this strategy, it is anticipated that the corporation, by virtue of its corporate fiction, will shield the
landowners from agricultural claims of tenant-farmers.
The use of corporate fiction as a means to evade legal liability is not new. This scheme or device has long
been perceived to be used in other fields of law, notably taxation to minimize payment of tax with varying degrees of
success and acceptability. But the continued employment of the scheme in agrarian cases is not only deplorable; it is
alarming. It is time to put a lid on the cap.
WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
SPS. PEDRO AND FLORENCIA VIOLAGO, vs. BA FINANCE CORPORATION and AVELINO VIOLAGO, July 21,
2008
DECISION
VELASCO, JR., J.:
This is a Petition for Review on Certiorari of the August 20, 2002 Decision [1] and May 15, 2003 Resolution[2] of
the Court of Appeals (CA) in CA-G.R. CV No. 48489 entitled BA Finance Corporation, Plaintiff-Appellee v. Sps. Pedro
and Florencia Violago, Defendants and Third Party Plaintiffs-Appellants v. Avelino Violago, Third Party DefendantAppellant. Petitioners-spouses Pedro and Florencia Violago pray for the reversal of the appellate courts ruling which
held them liable to respondent BA Finance Corporation (BA Finance) under a promissory note and a chattel
mortgage. Petitioners likewise pray that respondent Avelino Violago be adjudged directly liable to BA Finance.
The Facts
Sometime in 1983, Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a
car to his cousin, Pedro F. Violago, and the latters wife, Florencia. Avelino explained that he needed to sell a vehicle to
increase the sales quota of VMSC, and that the spouses would just have to pay a down payment of PhP 60,500 while
the balance would be financed by respondent BA Finance. The spouses would pay the monthly installments to BA

Finance while Avelino would take care of the documentation and approval of financing of the car. Under these terms,
the spouses then agreed to purchase a Toyota Cressida Model 1983 from VMSC. [3]
On August 4, 1983, the spouses and Avelino signed a promissory note under which they bound themselves to
pay jointly and severally to the order of VMSC the amount of PhP 209,601 in 36 monthly installments of PhP 5,822.25
a month, the first installment to be due and payable on September 16, 1983. Avelino prepared a Disclosure Statement
of Loan/Credit Transportation which showed the net purchase price of the vehicle, down payment, balance, and
finance charges. VMSC then issued a sales invoice in favor of the spouses with a detailed description of the Toyota
Cressida car. In turn, the spouses executed a chattel mortgage over the car in favor of VMSC as security for the
amount
of
PhP
209,601. VMSC,
through
Avelino,
endorsed
the
promissory
note
to
BA
Finance without recourse. After receiving the amount of PhP 209,601, VMSC executed a Deed of Assignment of its
rights and interests under the promissory note and chattel mortgage in favor of BA Finance. Meanwhile, the spouses
remitted the amount of PhP 60,500 to VMSC through Avelino. [4]
The sales invoice was filed with the Land Transportation Office (LTO)-Baliwag Branch, which issued
Certificate of Registration No. 0137032 in the name of Pedro on August 8, 1983. The spouses were unaware that the
same car had already been sold in 1982 to Esmeraldo Violago, another cousin of Avelino, and registered in
Esmeraldos name by the LTO-San Rafael Branch. Despite the spouses demand for the car and Avelinos repeated
assurances, there was no delivery of the vehicle. Since VMSC failed to deliver the car, Pedro did not pay any monthly
amortization to BA Finance. [5]
On March 1, 1984, BA Finance filed with the Regional Trial Court (RTC), Branch 116 in Pasay City a complaint
for Replevin with Damages against the spouses. The complaint, docketed as Civil Case No. 1628-P, prayed for the
delivery of the vehicle in favor of BA Finance or, if delivery cannot be effected, for the payment of PhP 199,049.41 plus
penalty at the rate of 3% per month from February 15, 1984 until fully paid. BA Finance also asked for the payment of
attorneys fees, liquidated damages, replevin bond premium, expenses in the seizure of the vehicle, and costs of
suit. The RTC issued an Order of Replevin on March 28, 1984. The Violago spouses, as defendants a quo, were
declared in default for failing to file an answer. Eventually, the RTC rendered onDecember 3, 1984 a decision in favor
of BA Finance. A writ of execution was thereafter issued on January 11, 1985, followed by an alias writ of execution. [6]
In the meantime, Esmeraldo conveyed the vehicle to Jose V. Olvido who was then issued Certificate of
Registration No. 0014830-4 by the LTO-Cebu City Branch on April 29, 1985. On May 8, 1987, Jose executed a Chattel
Mortgage over the vehicle in favor of Generoso Lopez as security for a loan covered by a promissory note in the
amount of PhP 260,664. This promissory note was later endorsed to BA Finance, Cebu City branch.[7]
On August 21, 1989, the spouses Violago filed a Motion for Reconsideration and Motion to Quash Writ of
Execution on the basis of lack of a valid service of summons on them, among other reasons. The RTC denied the
motions; hence, the spouses filed a petition for certiorari under Rule 65 before the CA, docketed as CA G.R. No.
2002-SP. On May 31, 1991, the CA nullified the RTCs order. This CA decision became final and executory.
On January 28, 1992, the spouses filed their Answer before the RTC, alleging the following: they never
received the vehicle from VMSC; the vehicle was previously sold to Esmeraldo; BA Finance was not a holder in due
course under Section 59 of the Negotiable Instruments Law (NIL); and the recourse of BA Finance should be against
VMSC. On February 25, 1995, the Violago spouses, with prior leave of court, filed a Third Party Complaint against
Avelino praying that he be held liable to them in the event that they be held liable to BA Finance, as well as for
damages. VMSC was not impleaded as third party defendant. In his Motion to Dismiss and Answer, Avelino contended
that he was not a party to the transaction personally, but VMSC. Avelinos motion was denied and the third party
complaint against him was entertained by the trial court. Subsequently, the spouses belabored to prove that they
affixed their signatures on the promissory note and chattel mortgage in favor of VMSC in blank. [8]
The RTC rendered a Decision on March 5, 1994, finding for BA Finance but against the Violago spouses. The
RTC, however, declared that they are entitled to be indemnified by Avelino. The dispositive portion of the RTCs
decision reads:
WHEREFORE, defendant-[third]-party plaintiffs spouses Pedro F. Violago and Florencia R. Violago
are ordered to deliver to plaintiff BA Finance Corporation, at its principal office the BAFC Building,
Gamboa St., Legaspi Village, Makati, Metro Manila the Toyota Cressida car, model 1983, bearing
Engine No. 21R-02854117, and with Serial No. RX60-804614, covered by the deed of chattel
mortgage dated August 4, 1983; or if such delivery cannot be made, to pay, jointly and severally, to
the plaintiff the sum of P198,003.06 together with the penalty [thereon] at three percent (3%) a month,
from March 1, 1984, until the amount is fully paid.
In either case, the defendant-third-party plaintiffs are required to pay, jointly and severally, to the
plaintiff a sum equivalent to twenty-five percent (25%) of P198,003.06 as attorneys fees, and another
amount also equivalent to twenty five percent (25%) of the said unpaid balance, as liquidated

damages. The defendant-third party-plaintiffs are also required to shoulder the litigation expenses and
costs.
As indemnification, third-party defendant Avelino Violago is ordered to deliver to defendants-thirdparty plaintiffs spouses Pedro F. Violago and Florencia R. Violago the aforedescribed motor vehicle;
or if such delivery is not possible, to pay to the said spouses the sum of P198,003.06, together with
the penalty thereon at three (3%) a month from March 1, 1984, until the amount is entirely paid.
In either case, the third-party defendant should pay to the defendant-third-party plaintiffs spouses a
sum equivalent to twenty-five percent (25%) of P198,003.06 as attorneys fees, and another sum
equivalent also to twenty-five percent (25%) of the said unpaid balance, as liquidated damages.
Third-party defendant Avelino Violago is further ordered to return to the third-party plaintiffs the sum of
P60,500.00 they paid to him as down payment for the car; and to pay them P15,000.00 as moral
damages; P10,000.00 as exemplary damages; and reimburse them for all the expenses and costs of
the suit.
The counterclaims of the defendants and third-party defendant, for lack of merit, are dismissed. [9]
The Ruling of the CA
Petitioners-spouses and Avelino appealed to the CA. The spouses argued that the promissory note is a
negotiable instrument; hence, the trial court should have applied the NIL and not the Civil Code. The spouses also
asserted that since VMSC was not the owner of the vehicle at the time of sale, the sale was null and void for the
failure in the cause or consideration of the promissory note, which in this case was the sale and delivery of the
vehicle. The spouses also alleged that BA Finance was not a holder in due course of the note since it knew, through
its Cebu City branch, that the car was never delivered to the spouses. [10] On the other hand, Avelino prayed for the
dismissal of the complaint against him because he was not a party to the transaction, and for an order to the spouses
to pay him moral damages and costs of suit.
The appellate court ruled that the promissory note was a negotiable instrument and that BA Finance was a
holder in due course, applying Secs. 8, 24, and 52 of the NIL. The CA faulted petitioners for failing to implead VMSC,
the seller of the vehicle and creditor in the promissory note, as a party in their Third Party Complaint. Citing Salas v.
Court of Appeals,[11] the appellate court reasoned that since VMSC is an indispensable party, any judgment will not
bind it or be enforced against it. The absence of VMSC rendered the proceedings in the RTC and the judgment in the
Third Party Complaint null and void, not only as to the absent party but also to the present parties, namely the
Defendants-Appellants (petitioners herein) and the Third-Party-Defendant-Appellant (Avelino Violago). The CA set
aside the trial courts order holding Avelino liable for damages to the spouses without prejudice to the action of the
spouses against VMSC and Avelino in a separate action. [12]
The dispositive portion of the August 20, 2002 CA Decision reads:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Plaintiffs-Appellants
is DISMISSED. The appeal of the Third-Party-Defendant-Appellant is GRANTED. The Decision of the
Court a quo isAFFIRMED, with the modification that the Third-Party Complaint against the ThirdParty-Defendant-appellant is DISMISSED, without prejudice. The counterclaims of the Third-Party
Defendant Appellant against the Defendants-Appellants are DISMISSED, also without prejudice.[13]
The spouses Violago sought but were denied reconsideration by the CA per its Resolution of May 15, 2003.
The Issues
Petitioners raise the following issues:
WHETHER OR NOT THE HOLDER OF AN INVALID NEGOTIABLE PROMISSORY NOTE MAY BE
CONSIDERED A HOLDER IN DUE COURSE
WHETHER OR NOT A CHATTEL MORTGAGE SHOULD BE CONSIDERED VALID DESPITE
VITIATION OF CONSENT OF, AND THE FRAUD COMMITTED ON, THE MORTGAGORS BY
AVELINO, AND THE CLEAR ABSENCE OF OBJECT CERTAIN
WHETHER OR NOT THE VEIL OF CORPORATE ENTITY MAY BE INVOKED AND SUSTAINED
DESPITE THE FRAUD AND DECEPTION OF AVELINO
The Courts Ruling
The ruling of the appellate court is set aside insofar as it dismissed, without prejudice, the third party complaint
of petitioners against Avelino thereby effectively absolving Avelino from any liability under the third party complaint.

In addressing the threshold issue of whether BA Finance is a holder in due course of the promissory note, we
must determine whether the note is a negotiable instrument and, hence, covered by the NIL. In their appeal to the CA,
petitioners argued that the promissory note is a negotiable instrument and that the provisions of the NIL, not the Civil
Code, should be applied. In the present petition, however, petitioners claim that Article 1318 of the Civil Code [14] should
be applied since their consent was vitiated by fraud, and, thus, the promissory note does not carry any legal effect
despite its negotiation. Either way, the petitioners arguments deserve no merit.
The promissory note is clearly negotiable. The appellate court was correct in finding all the requisites of a
negotiable instrument present. The NIL provides:
Section 1. Form of Negotiable Instruments. An instrument to be negotiable must conform to the
following requirements:
(a)
It must be in writing and signed by the maker or drawer;
(b)
Must contain an unconditional promise or order to pay a sum certain in money;
(c)
Must be payable on demand, or at a fixed or determinable future time;
(d)
Must be payable to order or to bearer; and
(e)
Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
The promissory note signed by petitioners reads:
209,601.00 Makati, Metro Manila, Philippines, August 4, 1983
For value received, I/we, jointly and severally, promise to pay to the order of VIOLAGO MOTOR
SALES CORPORATION, its office, the principal sum of TWO HUNDRED NINE THOUSAND SIX
HUNDRED ONE ONLY Pesos (P209,601.00), Philippines Currency, with interest at the rate stipulated
herein below, in installments as follows:
Thirty Six (36) successive monthly installments of P5,822.25, the first installment to be paid on 9-1683, and the succeeding monthly installments on the 16th day of each and every succeeding month
thereafter until the account is fully paid, provided that the penalty charge of three (3%) per cent per
month or a fraction thereof shall be added on each unpaid installment from maturity thereof until fully
paid.
xxxx
Notice of demand, presentment, dishonor and protest are hereby waived.
(Sgd.) (Sgd.)
PEDRO F. VIOLAGO FLORENCIA R. VIOLAGO
763 Constancia St., Sampaloc, Manila same
(Address) (Address)
(Sgd.) (Sgd.)
Marivic Avaria Jesus Tuazon
(WITNESS) (WITNESS)
PAY TO THE ORDER OF BA FINANCE CORPORATION
WITHOUT RECOURSE
VIOLAGO MOTOR SALES CORPORATION
By: (Sgd.)
AVELINO A. VIOLAGO, Pres. [15]
The promissory note clearly satisfies the requirements of a negotiable instrument under the NIL. It is in writing;
signed by the Violago spouses; has an unconditional promise to pay a certain amount, i.e., PhP 209,601, on specific
dates in the future which could be determined from the terms of the note; made payable to the order of VMSC; and
names the drawees with certainty. The indorsement by VMSC to BA Finance appears likewise to be valid and regular.
The more important issue now is whether or not BA Finance is a holder in due course. The resolution of this
issue will determine whether petitioners defense of fraud and nullity of the sale could validly be raised against
respondent corporation. Sec. 52 of the NIL provides:
Section 52. What constitutes a holder in due course.A holder in due course is a holder who has taken
the instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
The law presumes that a holder of a negotiable instrument is a holder thereof in due course. [16] In this case,
the CA is correct in finding that BA Finance meets all the foregoing requisites:
In the present recourse, on its face, (a) the Promissory Note, Exhibit A, is complete and regular; (b)
the Promissory Note was endorsed by the VMSC in favor of the Appellee; (c) the Appellee, when it
accepted the Note, acted in good faith and for value; (d) the Appellee was never informed, before and
at the time the Promissory Note was endorsed to the Appellee, that the vehicle sold to the
Defendants-Appellants was not delivered to the latter and that VMSC had already previously sold the
vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who
assigned his rights to the BA Finance Corporation (Cebu Branch), the same occurred only on May 8,
1987, much later than August 4, 1983, when VMSC assigned its rights over the Chattel Mortgage by
the Defendants-Appellants to the Appellee. Hence, Appellee was a holder in due course.[17]
In the hands of one other than a holder in due course, a negotiable instrument is subject to the same
defenses as if it were non-negotiable.[18] A holder in due course, however, holds the instrument free from any defect of
title of prior parties and from defenses available to prior parties among themselves, and may enforce payment of the
instrument for the full amount thereof. [19]Since BA Finance is a holder in due course, petitioners cannot raise the
defense of non-delivery of the object and nullity of the sale against the corporation. The NIL considers every
negotiable instrument prima facie to have been issued for a valuable consideration. [20] In Salas, we held that a party
holding an instrument may enforce payment of the instrument for the full amount thereof.As such, the maker cannot
set up the defense of nullity of the contract of sale. [21] Thus, petitioners are liable to respondent corporation for the
payment of the amount stated in the instrument.
From the third party complaint to the present petition, however, petitioners pray that the veil of corporate fiction
be set aside and Avelino be adjudged directly liable to BA Finance. Petitioners likewise pray for damages for the fraud
committed upon them.
In Concept Builders, Inc. v. NLRC, we held:
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. But, this separate
and distinct personality of a corporation is merely a fiction created by law for convenience and to
promote justice. So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction
pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter
ego of another corporation.
xxxx
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 acts 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.[22]
This case meets the foregoing test. VMSC is a family-owned corporation of which Avelino was
president. Avelino committed fraud in selling the vehicle to petitioners, a vehicle that was previously sold to Avelinos
other cousin, Esmeraldo. Nowhere in the pleadings did Avelino refute the fact that the vehicle in this case was already
previously sold to Esmeraldo; he merely insisted that he cannot be held liable because he was not a party to the
transaction. The fact that Avelino and Pedro are cousins, and that Avelino claimed to have a need to increase the
sales quota, was likely among the factors which motivated the spouses to buy the car. Avelino, knowing fully well that
the vehicle was already sold, and with abuse of his relationship with the spouses, still proceeded with the sale and
collected the down payment from petitioners. The trial court found that the vehicle was not delivered to the spouses.
Avelino clearly defrauded petitioners. His actions were the proximate cause of petitioners loss. He cannot now hide

behind the separate corporate personality of VMSC to escape from liability for the amount adjudged by the trial court
in favor of petitioners.
The fact that VMSC was not included as defendant in petitioners third party complaint does not preclude
recovery by petitioners from Avelino; neither would such non-inclusion constitute a bar to the application of the
piercing-of-the-corporate-veil doctrine. We suggested as much in Arcilla v. Court of Appeals, an appellate proceeding
involving petitioner Arcillas bid to avoid the adverse CA decision on the argument that he is not personally liable for the
amount adjudged since the same constitutes a corporate liability which nevertheless cannot even be enforced against
the corporation which has not been impleaded as a party below. In that case, the Court found as well-taken the CAs
act of disregarding the separate juridical personality of the corporation and holding its president, Arcilla, liable for the
obligations incurred in the name of the corporation although it was not a party to the collection suit before the trial
court. An excerpt from Arcilla:
x x x In short, even if We are to assume arguendo that the obligation was incurred in the
name of the corporation, the petitioner [Arcilla] would still be personally liable therefor because for all
legal intents and purposes, he and the corporation are one and the same. Csar Marine Resources,
Inc. is nothing more than his business conduit and alter ego. The fiction of separate juridical
personality conferred upon such corporation by law should be disregarded. Significantly, petitioner
does not seriously challenge the [CAs] application of the doctrine which permits the piercing of the
corporate veil and the disregarding of the fiction of a separate juridical personality; this is because he
knows only too well that from the beginning, he merely used the corporation for his personal
purposes.[23]
WHEREFORE, the CAs August 20, 2002 Decision and May 15, 2003 Resolution in CA-G.R. CV No. 48489
are SET ASIDE insofar as they dismissed without prejudice the third party complaint of petitioners-spouses Pedro and
Florencia Violago against respondent Avelino Violago. The March 5, 1994 Decision of the RTC
is REINSTATED and AFFIRMED. Costs against Avelino Violago.
SO ORDERED.
CLAUDE P. BAUTISTA, vs. AUTO PLUS TRADERS INCORPORATED and COURT OF APPEALS (Twenty-First
Division), August 6, 2008
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the Decision [1] dated August 10, 2004 of the Court of Appeals in
CA-G.R. CR No. 28464 and the Resolution [2] dated October 29, 2004, which denied petitioners motion for
reconsideration. The Court of Appeals affirmed the February 24, 2004 Decision and May 11, 2004 Order of the
Regional Trial Court (RTC), Davao City, Branch 16, in Criminal Case Nos. 52633-03 and 52634-03.
The antecedent facts are as follows:
Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus Lines and
Transport Corporation, purchased various spare parts from private respondent Auto Plus Traders, Inc. and issued two
postdated checks to cover his purchases. The checks were subsequently dishonored. Private respondent then
executed an affidavit-complaint for violation of Batas Pambansa Blg. 22[3] against petitioner. Consequently, two
Informations for violation of BP Blg. 22 were filed with the Municipal Trial Court in Cities (MTCC) of Davao City against
the petitioner.These were docketed as Criminal Case Nos. 102,004-B-2001 and 102,005-B2001. The Informations[4] read:
Criminal Case No. 102,004-B-2001:
The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang
22, committed as follows:
That on or about December 15, 2000, in the City of Davao, Philippines, and within the
jurisdiction of this Honorable Court, the above-mentioned accused, knowing fully well that he had no
sufficient funds and/or credit with the drawee bank, wilfully, unlawfully and feloniously issued and
made out Rural Bank of Digos, Inc. Check No. 058832, dated December 15, 2000, in the amount
of P151,200.00, in favor of Auto Plus Traders, Inc., but when said check was presented to the drawee
bank for encashment, the same was dishonored for the reason DRAWN AGAINST INSUFFICIENT
FUNDS and despite notice of dishonor and demands upon said accused to make good the check,
accused failed and refused to make payment to the damage and prejudice of herein complainant.

CONTRARY TO LAW.
Criminal Case No. 102,005-B-2001:
The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang
22, committed as follows:
That on or about October 30, 2000, in the City of Davao, Philippines, and within the
jurisdiction of this Honorable Court, the above-mentioned accused, knowing fully well that he had no
sufficient funds and/or credit with the drawee bank, wilfully, unlawfully and feloniously issued and
made out Rural Bank of Digos, Inc. Check No. 059049, dated October 30, 2000, in the amount
of P97,500.00, in favor of Auto Plus Traders, [Inc.], but when said check was presented to the drawee
bank for encashment, the same was dishonored for the reason DRAWN AGAINST INSUFFICIENT
FUNDS and despite notice of dishonor and demands upon said accused to make good the check,
accused failed and refused to make payment, to the damage and prejudice of herein complainant.
CONTRARY TO LAW.
Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of the prosecutions evidence,
petitioner filed a demurrer to evidence. On April 21, 2003, the MTCC granted the demurrer, thus:
WHEREFORE, the demurrer to evidence is granted, premised on reasonable doubt as to the
guilt of the accused. Cruiser Bus Line[s] and Transport Corporation, through the accused is directed to
pay the complainant the sum of P248,700.00 representing the value of the two checks, with interest at
the rate of 12% per annum to be computed from the time of the filing of these cases in Court, until the
account is paid in full; ordering further Cruiser Bus Line[s] and Transport Corporation, through the
accused, to reimburse complainant the expense representing filing fees amounting to P1,780.00 and
costs of litigation which this Court hereby fixed at P5,000.00.
SO ORDERED.[5]
Petitioner moved for partial reconsideration but his motion was denied. Thereafter, both parties appealed to
the RTC. On February 24, 2004, the trial court ruled:
WHEREFORE, the assailed Order dated April 21, 2003 is hereby MODIFIED to read as
follows: Accused is directed to pay and/or reimburse the complainant the following sums:
(1) P248,700.00 representing the value of the two checks, with interest at the rate of 12% per annum
to be computed from the time of the filing of these cases in Court, until the account is paid in full;
(2) P1,780.00 for filing fees and P5,000.00 as cost of litigation.
SO ORDERED.[6]
Petitioner moved for reconsideration, but his motion was denied on May 11, 2004. Petitioner elevated the case
to the Court of Appeals, which affirmed the February 24, 2004 Decision and May 11, 2004 Order of the RTC:
WHEREFORE, premises considered, the instant petition is DENIED. The assailed Decision of
the Regional Trial Court, Branch 16, Davao City, dated February 24, 2004 and its Order dated May 11,
2004are AFFIRMED.
SO ORDERED.[7]
Petitioner now comes before us, raising the sole issue of whether the Court of Appeals erred in upholding the RTCs
ruling that petitioner, as an officer of the corporation, is personally and civilly liable to the private respondent for the
value of the two checks.[8]
Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the accused and that the
corporation, which has a separate personality from its officers, is solely liable for the value of the two checks.
Private respondent counters that petitioner should be held personally liable for both checks. Private
respondent alleged that petitioner issued two postdated checks: a personal check in his name for the amount
of P151,200 and a corporation check under the account of Cruiser Bus Lines and Transport Corporation for the
amount of P97,500. According to private respondent, petitioner, by issuing his check to cover the obligation of the
corporation, became an accommodation party. Under Section 29[9] of the Negotiable Instruments Law, an
accommodation party is liable on the instrument to a holder for value. Private respondent adds that petitioner should

also be liable for the value of the corporation check because instituting another civil action against the corporation
would result in multiplicity of suits and delay.
At the outset, we note that private respondents allegation that petitioner issued a personal check disputes the
factual findings of the MTCC. The MTCC found that the two checks belong to Cruiser Bus Lines and Transport
Corporation while the RTC found that one of the checks was a personal check of the petitioner. Generally this Court, in
a petition for review on certiorari under Rule 45 of the Rules of Court, has no jurisdiction over questions of facts. But,
considering that the findings of the MTCC and the RTC are at variance, [10] we are compelled to settle this issue.
A perusal of the two check return slips[11] in conjunction with the Current Account Statements [12] would show
that the check for P151,200 was drawn against the current account of Claude Bautista while the check for P97,500
was drawn against the current account of Cruiser Bus Lines and Transport Corporation. Hence, we sustain the factual
finding of the RTC.
Nonetheless, we find the appellate court in error for affirming the decision of the RTC holding petitioner liable
for the value of the checks considering that petitioner was acquitted of the crime charged and that the debts are
clearly corporate debts for which only Cruiser Bus Lines and Transport Corporation should be held liable.
Juridical entities have personalities separate and distinct from its officers and the persons composing it.
Generally, the stockholders and officers are not personally liable for the obligations of the corporation except only
when the veil of corporate fiction is being used as a cloak or cover for fraud or illegality, or to work injustice. [14] These
situations, however, do not exist in this case.The evidence shows that it is Cruiser Bus Lines and Transport
Corporation that has obligations to Auto Plus Traders, Inc. for tires. There is no agreement that petitioner shall be held
liable for the corporations obligations in his personal capacity. Hence, he cannot be held liable for the value of the two
checks issued in payment for the corporations obligation in the total amount of P248,700.
[13]

Likewise, contrary to private respondents contentions, petitioner cannot be considered liable as an accommodation
party for Check No. 58832. Section 29 of the Negotiable Instruments Law defines an accommodation party as a
person who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and
for the purpose of lending his name to some other person. As gleaned from the text, an accommodation party is one
who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor,
or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit
to some other person.[15] An accommodation party lends his name to enable the accommodated party to obtain credit
or to raise money; he receives no part of the consideration for the instrument but assumes liability to the
other party/ies thereto.[16] The first two elements are present here, however there is insufficient evidence presented in
the instant case to show the presence of the third requisite. All that the evidence shows is that petitioner signed Check
No. 58832, which is drawn against his personal account. The said check, dated December 15, 2000, corresponds to
the value of 24 sets of tires received by Cruiser Bus Lines and Transport Corporation on August 29, 2000.[17]There is
no showing of when petitioner issued the check and in what capacity. In the absence of concrete evidence it cannot
just be assumed that petitioner intended to lend his name to the corporation. Hence, petitioner cannot be considered
as an accommodation party.
Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially since there is no
evidence that the debts covered by the subject checks have been paid.
WHEREFORE, the petition is GRANTED. The Decision dated August 10, 2004 and the Resolution
dated October 29, 2004 of the Court of Appeals in CA-G.R. CR No. 28464 areREVERSED and SET ASIDE. Criminal
Case Nos. 52633-03 and 52634-03 are DISMISSED, without prejudice to the right of private respondent Auto Plus
Traders, Inc., to file the proper civil action against Cruiser Bus Lines and Transport Corporation for the value of the two
checks.
No pronouncement as to costs.
SO ORDERED.