SECOND DIVISION

G.R. No. 126554 May 31, 2000

ARB CONSTRUCTION CO., INC., and MARK MOLINA, petitioners,

vs.
COURT OF APPEALS, TBS SECURITY AND INVESTIGATION AGENCY represented by CECILIA R.
BACLAY,respondents.

BELLOSILLO, J.

ARB CONSTRUCTION CO., INC. (ARBC) and MARK MOLINA, Vice President for Operations of ARBC, in this consolidated
petition, assail the Decision of the Court of Appeals in CA-G.R. SP Nos. 36330 and 36489 as well as the orders of the trial court
dated 9 September 1994 and 9 December 1994 granting private respondent TBS Security and Investigation Agency's Motion
for Leave to File Amended and Supplemental Complaint and denying petitioner Mark Molina's Motion to Dismiss, respectively.

On 15 August 1993 TBS Security and Investigation Agency (TBSS) entered into two (2) Service Contracts with ARBC wherein
TBSS agreed to provide and post security guards in the five (5) establishments being maintained by ARBC. Clause 10 of the
Service Contracts provides —

10. This contract shall be effective for a period of one (1) year commencing from 15th August 1993 and shall
be considered automatically renewed for the same period unless otherwise a written notice of termination shall
have been given by one party to the other party thirty (30) days in advance.

In a letter dated 23 February 1994 ARBC informed TBSS of its desire to terminate the Service Contracts effective thirty (30)
days after receipt of the letter. Also, in a letter dated 22 March 1994, ARBC through its Vice President for Operations, Mark
Molina, informed TBSS that it was replacing its security guards with those of Global Security Investigation Agency (GSIA).

In response to both letters, TBSS informed ARBC that the latter could not preterminate the Service Contracts nor could it post
security guards from GSIA as it would run counter to the provisions of their Service Contracts.

On 23 March 1994 Molina wrote TBSS conceding that indeed the "security contract dated 15 August 1993 stipulates that the
duration of the service shall be for a period of one year, ending on 15 August 1994 . . . and could not be preterminated until
then."1 Nevertheless, Molina decreased the security guards to only one (1) allegedly pursuant to Clause 2 of the Service
Contracts which provides —

2. The AGENCY shall adopt a guarding system and post guards in accordance thereof, in the premises of the
client throughout the whole 24 hours daily, using variable shifts of the guards at such hours as may be
designated by the CLIENT or AGENCY. As required by the CLIENT, the security guards to be assigned by
the AGENCY shall consist initially of the following . . . subject to be increased or decreased by the CLIENT at
its sole discretion depending on the security situation or the exigency of the service, by giving the AGENCY
at least SEVEN (7) days prior notice. 2

Thus on 28 March 1994 TBSS filed a Complaint for Preliminary Injunction against ARBC and GSIA praying —

A. Forthwith and Ex-parte, that a Temporary Restraining Order be issued declaring the status quo and
directing the Defendants or any person(s) acting in their behalf from performing acts of replacing the Plaintiff's
security guards from other agencies;

B. After due hearing that a Writ of Preliminary Injunction, in like tenor, be issued upon posting of such bond
as the Honorable Court may require;

C. After due hearing, that judgment be rendered —

1. Declaring the two (2) contracts for Security Services between Plaintiff and ARBC to be
subsisting until August 15, 1994;
 2. Ordering Defendant GLOBAL to refrain from taking over the security services of ARBC
and to withdraw its guards from the premises of ARBC, if they have been posted earlier;

3. Ordering ARBC to pay Plaintiff attorney's fees in the amount of P50,000.00 . . .3

In Answer, ARBC claimed that it decreased the number of security guards being posted at its establishments to only one (1) as
the security guards assigned by TSBB were found to be grossly negligent and inefficient, citing the following incidents —

8. On February 6, 1994, a Mitsubishi roadgrader of herein defendant was stripped of parts amounting
to P58,642.00;

9. On February 25, 1994, a concrete vibrator and mercury light assembly were stolen from the
construction site of the Multipurpose Hall beside the swimming pool of herein defendant which is
worth
P2,800.00 . . . .4

In conclusion, it prayed that the complaint against it be dismissed for lack of merit.

On 16 May 1994 TBSS filed a Motion for Leave to File Attached Amended and Supplemental Complaint. TBSS submitted that
it now desired to pursue a case for Sum of Money and Damages instead of the one previously filed for Preliminary Injunction. It
maintained that the Amended and Supplemental Complaint would not substantially alter its cause of action as both the original
and amended complaint were based on the same set of facts.5

In addition to the allegations in its original complaint, TBSS alleged in its Amended and Supplemental Complaint that ARBC
illegally deducted from the payroll the amounts of P15,500.00 and P2,800.00 representing the value of one (1) unit concrete
vibrator and cassette recorder, respectively. It further argued that ARBC withheld additional amounts from its payroll as payment
for the parts of the grader that were stolen.6 TBSS maintained that ARBC had an outstanding obligation of P472,080.46.
Corollarily, TBSS prayed for moral damages of P500,000.00, exemplary damages of P200.000.00 and attorney's fees of
P50,000.00.

On 2 May 1994 the trial court issued a temporary restraining order but due to the exigency of the situation TBSS decided to
withdraw its security contingent from ARBC's premises on 13 May 1994.

ARBC opposed the Motion for Leave to File Amended and Supplemental Complaint 7 contending that the cause of action had
been substantially altered.

On 9 September 1994 the RTC of Makati, Br. 59, granted the motion of TBSS to file the Amended and Supplemental Complaint
rationalizing thus —

Should the court find the allegations in the pleadings to be inadequate, the Court should allow the party to file
proper amendments in accordance with the mandate of the Rules of Court that amendments to pleadings are
favored and should be liberally allowed, particularly in the early stages of the law suit, so that the actual merit
of the controversy may be speedily determined without regard to technicalities and in the most expeditious
and inexpensive manner . . . . 8

ARBC filed a Motion for Reconsideration but on 3 November 1994 the motion was denied.

Meanwhile, Mark Molina filed a Motion to Dismiss9 the Amended and Supplemental Complaint on the ground that it did not state
a cause of action insofar as he was concerned. But on 9 December 1994 the trial court denied the motion to, dismiss and directed
Molina instead to file his answer within ten (10) days from receipt of the order.

On 30 January 1995 ARBC filed a Petition 10 with the Court of Appeals alleging that the trial court committed grave abuse of
discretion in issuing the Orders of 9 September 1994 and 3 November 1994. On 15 February 1995 Molina likewise filed a Petition
before the Court of Appeals similarly attributing grave abuse of discretion to the trial court in issuing the order of 9 December
1994.
Parenthetically, upon motion of TBSS, the petition of Mark Molina in CA-G.R. SP No. 36484 was consolidated with the petition
of ARBC in CA-G.R. SP No. 36330.

On 16 August 1996 the Court of Appeals rendered a Decision 11 denying both petitions of ARBC and Molina. On 3 October 1996
petitioners' Motion for Reconsideration 12 was denied. Hence, this petition.

In their consolidated Petition before this Court, petitioners first submit that THE COURT OF APPEALS ERRED IN HOLDING
THAT PRIVATE RESPONDENT HAD THE RIGHT TO CHANGE ITS CAUSE OF ACTION IN VIEW OF A CHANGE IN THE
SITUATION OF THE PARTIES AFTER THE FILING OF THE ORIGINAL COMPLAINT. 1 In support of this assigned error
petitioners insist that —

. . . (T)here was not only a substantial change in private respondent's cause of action but there was even an
alteration in the theory of the case . . . (W)hile in the original complaint the only thing alleged and is being
prayed for is for petitioner ARB (ARBC) to be enjoined from replacing the security guards of private respondent
. . . and for the two contracts . . . to be enforced until August 15, 1994 and for petitioner ARB (ARBC) to be
ordered to pay . . . attorney's fees, what is alleged and is being prayed for in the amended and supplemental
complaint is for both petitioners to be ordered to pay P171,853.80 (for unpaid services) . . . and P300,226.66
(for lost income) . . . plus moral and exemplary damages and attorney's fees.

Obviously, petitioner ARB (ARBC) is being required to answer for a liability or legal obligation under the
amended and supplemental complaint wholly different from that stated in the original complaint such as but
not limited to the amount of P171,852.80 which was never mentioned in the original contract. Under these
circumstances, a different cause of action was introduced by the amendment.

Also, there was a change in the theory of the case. Whereas in the original contract what is sought for by
private respondent is the enforcement of the two (2) contracts which is what is known in legal parlance as
specific performance, in the amended and supplemental complaint what is for is . . . so a rescission of the
contracts with damages . . . 14

We cannot subscribe to the contention of petitioners that the Amended and Supplemental Complaint substantially changed
TBSS' cause of action nor was there any alteration in the theory of the case. As correctly observed by the Court of Appeals, "the
amendatory allegations are mere amplifications of the cause of action for damages . . . . An amendment will not be considered
as stating a new cause of action if the facts alleged in the amended complaint show substantially the same wrong with respect
to the same transaction, or if what are alleged refer to the same matter but are more fully and differently stated, or where
averments which were implied are made in expressed terms, and the subject of the controversy or the liability sought to be
enforced remains the same." 15

The original as well as amended and supplemental complaints readily disclose that the averments contained therein are almost
identical. In the original complaint, TBSS prays, among others, that the two (2) Service Contracts be declared as subsisting until
15 August 1994 and that petitioners be made to pay P50,000.00 as attorney's fees. 16Significantly, in its penultimate paragraph,
TBSS prays "for such other reliefs that are considered just and equitable under the premises." This is a "catch-all" phrase which
definitely covers the amplifications and additional averments contained in the Amended and Supplemental Complaint. Due to
events supervening after the filing of the original complaint, it became incumbent upon TBSS to amend its original complaint.
One of the supervening events was the withholding by petitioner ARBC of some amounts intended for the payroll of TBSS due
to pilferage or losses which allegedly occurred due to the negligence and inefficiency of TBSS' security guards. Plainly, this
withholding of the payroll was only an offshoot of the pretermination of the two (2) Service Contracts on the part of ARBC.

Significantly, the pretermination of the Service Contracts was already alleged in the original complaint. In fact it was one, if not
the most basic, issue discussed therein. Since the withholding of the payroll was only an offshoot of the issue on the
pretermination of the contract, we can safely conclude that the allegation on the withholding of the payroll in the Amended and
Supplemental Complaint was only an amplification of an issue that was already included and discussed in the original complaint.
It was therefore error on the part of petitioners to conclude that private respondent changed its cause of action in the Amended
and Supplemental Complaint. Neither could they say that they were being made to answer for a liability or legal obligation that
was wholly different from that stated in the original complaint.

Grave abuse of discretion therefore could not be imputed to the trial court for admitting the Amended and Supplemental
Complaint of private respondent TBSS. It also follows that the appellate court could not be faulted for putting its stamp of approval
on the order of the trial court admitting the same.
Petitioners also argue, as their second assigned error, that THE COURT OF APPEALS ERRED IN HOLDING THAT THE
ALLEGATIONS IN THE AMENDED AND SUPPLEMENTAL COMPLAINT WERE SUFFICIENT TO HOLD PETITIONER
MOLINA LIABLE TO PRIVATE RESPONDENT IN HIS PERSONAL CAPACITY. In support of their contention petitioners submit
—

. . . (W)hen . . . Molina allegedly applied P171,853.80 payable to private respondent to the losses suffered by
petitioner ARB (ARBC) due to the negligence and indifference of the private respondent's security guards and
when petitioner Molina replaced the said security guards . . . Molina was not acting in his personal capacity
but . . . as officer of petitioner ARB (ARBC).

Since petitioner Molina did not so act in his personal capacity but only in his official capacity as officer of
petitioner ARB (ARBC) then petitioner Molina cannot be held personally liable for the alleged liability of
petitioner ARB (ARBC) . . . . 18

In affirming the order of the trial court denying petitioner Molina's Motion to Dismiss, the appellate court ruled —

Similarly, We find no error committed by respondent Judge in denying the motion to dismiss.

In paragraphs 5, 17, 18 of the amended and supplemental complaint, it is alleged:

5. But fate would have it that defendant ARBC would subsequently breach the aforesaid
contracts by surreptitiously preterminating the same and as precursor thereto, defendant
ARBC, through defendant Mark Molina, would impute against plaintiff pretended and
fabricated violations and baselessly blame plaintiff for alleged losses of company properties
by just deducting the values thereof from plaintiff's billings without even complying with the
procedure agreed upon in the contracts . . . .

It may be pertinent to state that all these accusations and imputations, albeit false and
concocted, were made by defendant Mark P. Molina . . . .

17. Such unsalutary breach of contract by defendant ARBC through defendant Mark Molina has resulted to
plaintiff's damage and prejudice by way of lost income consisting of the unexpired portion of the contract, i.e.,
up to August 15, 1994, entailing a total amount of P300,266.66 . . . .

The above allegations, particularly the subparagraph, "It may be pertinent to state that all these accusations
and imputations, albeit false and concocted, were made by defendant Mark P. Molina," are sufficient statement
of a cause of action against petitioner Mark Molina in his personal capacity. 19

In this regard, we agree with petitioners. It is basic that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to which it may be related. As a general rule,
a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be
connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end
subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience,
justify wrong, protect fraud, or defend crime; or to perpetuate deception; or as an alter ego, adjunct or business conduit for the
sole benefit of the stockholders. 20

Prescinding from the foregoing, the general rule is that officers of a corporation are not personally liable for their official acts
unless it is shown that they have exceeded their authority. 21 Article 31 of the Corporation Code is in point —

Sec. 31. Liability of directors, trustees or officers. — Directors or trustees who willfully and knowingly vote for
or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal or pecuniary interest conflict with their duty as
such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by
the corporation, its stockholders or members and other persons . . . .

On the basis hereof, petitioner Molina could not be held jointly and severally liable for any obligation which petitioner ARBC may
be held accountable for, absent any proof of bad faith or malice on his part. Corollarily, it is also incorrect on the part of the Court
of Appeals to conclude that there was a sufficient cause of action against Molina as to make him personally liable for his
actuations as Vice President for Operations of ARBC. A cursory reading of the records of the instant case would reveal that
Molina did not summarily withhold certain amounts from the payroll of TBSS. Instead, he enumerated instances 22 which in his
view were enough bases to do so.

Finally, petitioners contend that THE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT DID NOT
GRAVELY ABUSE ITS DISCRETION IN GRANTING PRIVATE RESPONDENT'S MOTION FOR LEAVE TO FILE AMENDED
AND SUPPLEMENTAL COMPLAINT AND IN DENYING PETITIONER MOLINA'S MOTION TO DISMISS. In support hereof,
petitioners submit that —

. . . (T)he trial court admitted the amended and supplemental complaint which substantially changed the cause
of action and theory of the case of the private respondent. Therefore, there is (sic) abuse of discretion on the
part of the trial court contrary to the ruling of the Court of Appeals that there is none. 2

As already discussed, the Amended and Supplemental Complaint did not substantially alter the cause of action and theory of
the case. Consequently, the trial court and the appellate court could not be charged with grave abuse of discretion in admitting
the same.

WHEREFORE, the PETITION is PARTIALLY GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. SP No.
36489 affirming the 9 December 1994 Order of the Regional Trial Court-Br. 59, Makati City, which denied the Motion to Dismiss
of petitioner Mark Molina is REVERSED and SET ASIDE.

However, the assailed Decision of the appellate court in CA-G.R. SP No. 36330 affirming the 9 September 1994Order of the
Regional Trial Court-Br. 59, Makati City, granting TBS Security and Investigation Agency's Motion for Leave to File Amended
and Supplemental Complaint is likewise AFFIRMED. The case is remanded to the trial court for further proceedings. No costs.

SO ORDERED.

Mendoza and Buena, JJ., concur.

Quisumbing and De Leon, Jr., JJ., are on leave.

CASE DIGEST:

332 SCRA 427 – Business Organization – Corporation Law – Piercing the Veil of Corporate Fiction

In 1993, ARB Construction Co., Inc. (ARB) entered into a contract with TBS Security and Investigation Agency (TBS) for the
latter to provide security guards to guard the premises of ARB. But in 1994, while the contract is still subsisting, ARB, through
its Vice President for Operations Mark Molina, preterminated the contract because it alleged that the TBS guards were grossly
negligent and inefficient. TBS opposed the same. ARB reconsidered but it removed all other TBS guards except for one. ARB,
through Molina, also withheld payroll payments to TBS as it alleged that due to the negligence of the guards, the premises of
ARB incurred losses through burglary that happened while the guards were on duty. TBS filed an injunction case against ARB.
It later amended said complaint to include claims for damages against ARB as well as against Molina in his personal capacity
as it was alleged that Molina concocted some of these facts.

ISSUE: Whether or not Molina should be impleaded.

HELD: No. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it may be related. As a general rule, a corporation may not be
made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa.
Molina can’t be held liable jointly and severally liable with ARB. There was no showing that he acted with bad faith. The salary
deductions he made as vice president were not without basis; there was no malice on his part.
ARB CONSTRUCTION CO., INC., and MARK MOLINA vs. COURT OF APPEALS, TBS SECURITY AND INVESTIGATION
AGENCY represented by CECILIA R. BACLAY

G.R. No. 126554. May 31, 2000

Facts:

1. TBS Security and Investigation Agency (TBSS) entered into two Service Contracts with ARBC wherein TBSS agreed to
provide and post security guards in the five establishments being maintained by ARBC.

2. This contract shall be effective for a period of one year and shall be considered automatically renewed for the same period
unless otherwise a written notice of termination shall have been given by one party to the other party thirty days in advance.

3. In a letter ARBC informed TBSS of its desire to terminate the Service Contracts.

4. ARBC through its Vice President for Operations, Mark Molina, informed TBSS that it was replacing its security guards with
those of Global Security Investigation Agency (GSIA).

5. TBSS informed ARBC that the latter could not preterminate the Service Contracts nor could it post security guards from
GSIA as it would run counter to the provisions of their Service Contracts.

6. TBSS filed a Complaint for Preliminary Injunction against ARBC and GSIA.

7. In Answer, ARBC claimed that it decreased the number of security guards being posted at its establishments to only one
as the security guards assigned by TBSS were found to be grossly negligent and inefficient, citing the some incidents of it.

8. TBSS alleged in its Amended and Supplemental Complaint that ARBC, thru Molina illegally deducted from the payroll an
amount representing the value of one unit concrete vibrator and cassette recorder. It further argued that ARBC withheld
additional amounts from its payroll as payment for the parts of the grader that were stolen.

Issue:

Whether or not the compliant is sufficient to hold Molina liable in his personal capacity

Ruling:

The general rule is that officers of a corporation are not personally liable for their official acts unless it is shown that they
have exceeded their authority.

On the basis hereof, petitioner Molina could not be held jointly and severally liable for any obligation which petitioner
ARBC may be held accountable for, absent any proof of bad faith or malice on his part. Corollarily, it is also incorrect on the part
of the Court of Appeals to conclude that there was a sufficient cause of action against Molina as to make him personally liable
for his actuations as Vice President for Operations of ARBC. A cursory reading of the records of the instant case would reveal
that Molina did not summarily withhold certain amounts from the payroll of TBSS. Instead, he enumerated instances which in
his view were enough bases to do so.

G.R. No. 113907 February 28, 2000

MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD (MSMG-UWP), ITS PRESIDENT BEDA

MAGDALENA VILLANUEVA, MARIO DAGANIO, DONATO GUERRERO, BELLA P. SANCHEZ, ELENA TOBIS, RHODA
TAMAYO, LIWAYWAY MALLILIN, ELOISA SANTOS, DOMINADOR REBULLO, JOSE IRLAND, TEOFILA
QUEJADA…, petitioners,
vs.
HON. CRESENCIO J. RAMOS, NATIONAL LABOR RELATIONS COMMISSION, M. GREENFIELD (B), INC., SAUL TAWIL,
CARLOS T. JAVELOSA, RENATO C. PUANGCO, WINCEL LIGOT, MARCIANO HALOG, GODOFREDO PACENO, SR.,
GERVACIO CASILLANO, LORENZO ITAOC, ATTY. GODOFREDO PACENO, JR., MARGARITO CABRERA, GAUDENCIO
RACHO, SANTIAGO IBANEZ, AND RODRIGO AGUILING, respondents.

PURISIMA, J.:

At bar is a Petition for Certiorari under Rule 65 of the Revised Rules of Court to annul the decision of the National Labor Relations
Commission in an unfair labor practice case instituted by a local union against its employer company and the officers of its
national federation.

The petitioner, Malayang Samahan ng mga Manggagawa sa M. Greenfield, Inc., (B) (MSMG), hereinafter referred to as the
"local union", is an affiliate of the private respondent, United Lumber and General Workers of the Philippines (ULGWP), referred
to as the "federation". The collective bargaining agreement between MSMG and M. Greenfield, Inc., names the parties as follows:

This agreement made and entered into by and between:

M. GREENFIELD, INC. (B) a corporation duly organized in accordance with the laws of the Republic of the Philippines
with office address at Km. 14, Merville Road, Parañaque, Metro Manila, represented in this act by its General manager,
Mr. Carlos T. Javelosa, hereinafter referred to as the Company;

-and-

MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD (B) (MSMG)/UNITED LUMBER AND

GENERAL WORKERS OF THE PHILIPPINES (ULGWP), a legitimate labor organization with address at Suite 404,
Trinity Building, T. M. Kalaw Street, Manila, represented in this act by a Negotiating Committee headed by its National
President, Mr. Godofredo Paceno, Sr., referred to in this Agreement as the UNION.1

The CBA includes, among others, the following pertinent provisions:

Art. II-Union Security

Sec. 1. Coverage and Scope. All employees who are covered by this Agreement and presently members of the UNION
shall remain members of the UNION for the duration of this Agreement as a condition precedent to continued
employment with the COMPANY.

xxx xxx xxx

Sec. 4. Dismissal. Any such employee mentioned in Section 2 hereof, who fails to maintain his membership in the
UNION for non-payment of UNION dues, for resignation and for violation of UNION's Constitution and By-Laws and
any new employee as defined in Section 2 of this Article shall upon written notice of such failure to join or to maintain
membership in the UNION and upon written recommendation to the COMPANY by the UNION, be dismissed from the
employment by the COMPANY; provided, however, that the UNION shall hold the COMPANY free and blameless from
any and all liabilities that may arise should the dismissed employee question, in any manner, his dismissal; provided,
further that the matter of the employee's dismissal under this Article may be submitted as a grievance under Article XIII
and, provided, finally, that no such written recommendation shall be made upon the COMPANY nor shall COMPANY
be compelled to act upon any such recommendation within the period of sixty (60) days prior to the expiry date of this
Agreement conformably to law.

Art. IX

Sec. 4. Program Fund — The Company shall provide the amount of P10,000.00 a month for a continuing labor
education program which shall be remitted to the Federation . . . 2

On September 12, 1986, a local union election was held under the auspices of the ULGWP wherein the herein petitioner, Beda
Magdalena Villanueva, and the other union officers were proclaimed as winners. Minutes of the said election were duly filed with
the Bureau of Labor Relations on September 29, 1986.
On March 21, 1987, a Petition for Impeachment was filed with the national federation ULGWP by the defeated candidates in the
aforementioned election.

On June 16, 1987, the federation conducted an audit of the local union funds. The investigation did not yield any unfavorable
result and the local union officers were cleared of the charges of anomaly in the custody, handling and disposition of the union
funds.1âwphi1.nêt

The 14 defeated candidates filed a Petition for Impeachment/Expulsion of the local union officers with the DOLE NCR on
November 5, 1987, docketed as NCR-OD-M-11-780-87. However, the same was dismissed on March 2, 1988, by Med-Arbiter
Renato Parungo for failure to substantiate the charges and to present evidence in support of the allegations.

On April 17, 1988, the local union held a general membership meeting at the Caruncho Complex in Pasig. Several union
members failed to attend the meeting, prompting the Executive Board to create a committee tasked to investigate the non-
attendance of several union members in the said assembly, pursuant to Sections 4 and 5, Article V of the Constitution and By-
Laws of the union, which read:

Seksyon 4. Ang mga kinukusang hindi pagdalo o hindi paglahok sa lahat ng hakbangin ng unyon ng sinumang kasapi
o pinuno ay maaaring maging sanhi ng pagtitiwalag o pagpapataw ng multa ng hindi hihigit sa P50.00 sa bawat araw
na nagkulang.

Seksyon 5. Ang sinumang dadalo na aalis ng hindi pa natatapos ang pulong ay ituturing na pagliban at maparusahan
itong alinsunod sa Article V, Seksyong 4 ng Saligang Batas na ito. Sino mang kasapi o pisyales na mahuli and dating
sa takdang oras ng di lalampas sa isang oras ay magmumulta ng P25.00 at babawasin sa sahod sa pamamagitan ng
salary deduction at higit sa isang oras ng pagdating ng huli ay ituturing na pagliban. 3

On June 27, 1988, the local union wrote respondent company a letter requesting it to deduct the union fines from the
wages/salaries of those union members who failed to attend the general membership meeting. A portion of the said letter stated:

xxx xxx xxx

In connection with Section 4 Article II of our existing Collective Bargaining Agreement, please deduct the amount of
P50.00 from each of the union members named in said annexes on the payroll of July 2-8, 1988 as fine for their failure
to attend said general membership meeting. 4

In a Memorandum dated July 3, 1988, the Secretary General of the national federation, Godofredo Paceño, Jr. disapproved the
resolution of the local union imposing the P50.00 fine. The union officers protested such action by the Federation in a Reply
dated July 4, 1988.

On July 11, 1988, the Federation wrote respondent company a letter advising the latter not to deduct the fifty-peso fine from the
salaries of the union members requesting that:

. . . any and all future representations by MSMG affecting a number of members be first cleared from the federation
before corresponding action by the Company. 5

The following day, respondent company sent a reply to petitioner union's request in a letter, stating that it cannot deduct fines
from the employees' salary without going against certain laws. The company suggested that the union refer the matter to the
proper government office for resolution in order to avoid placing the company in the middle of the issue.

The imposition of P50.00 fine became the subject of bitter disagreement between the Federation and the local union culminating
in the latter's declaration of general autonomy from the former through Resolution No. 10 passed by the local executive board
and ratified by the general membership on July 16, 1988.

In retaliation, the national federation asked respondent company to stop the remittance of the local union's share in the education
funds effective August 1988. This was objected to by the local union which demanded that the education fund be remitted to it
in full.
The company was thus constrained to file a Complaint for Interpleader with a Petition for Declaratory Relief with the Med-
Arbitration Branch of the Department of Labor and Employment, docketed as Case No. OD-M-8-435-88. This was resolved on
October 28, 1988, by Med-Arbiter Anastacio Bactin in an Order, disposing thus:

WHEREFORE, premises considered, it is hereby ordered:

1. That the United Lumber and General Workers of the Philippines (ULGWP) through its local union officers shall
administer the collective bargaining agreement (CBA).

2. That petitioner company shall remit the P10,000.00 monthly labor education program fund to the ULGWP subject to
the condition that it shall use the said amount for its intended purpose.

3. That the Treasurer of the MSMG shall be authorized to collect from the 356 union members the amount of P50.00
as penalty for their failure to attend the general membership assembly on April 17, 1988.

However, if the MSMG Officers could present the individual written authorizations of the 356 union members, then the
company is obliged to deduct from the salaries of the 356 union members the P50.00 fine. 6

On appeal, Director Pura-Ferrer Calleja issued a Resolution dated February 7, 1989, which modified in part the earlier
disposition, to wit:

WHEREFORE, premises considered, the appealed portion is hereby modified to the extent that the company should
remit the amount of five thousand pesos (P5,000.00) of the P10,000.00 monthly labor education program fund to
ULGWP and the other P5,000.00 to MSMG, both unions to use the same for its intended purpose. 7

Meanwhile, on September 2, 1988, several local unions (Top Form, M. Greenfield, Grosby, Triumph International, General
Milling, and Vander Hons chapters) filed a Petition for Audit and Examination of the federation and education funds of ULGWP
which was granted by Med-Arbiter Rasidali Abdullah on December 25, 1988 in an Order which directed the audit and examination
of the books of account of ULGWP.

On September 30, 1988, the officials of ULGWP called a Special National Executive Board Meeting at Nasipit, Agusan del Norte
where a Resolution was passed placing the MSMG under trusteeship and appointing respondent Cesar Clarete as administrator.

On October 27, 1988, the said administrator wrote the respondent company informing the latter of its designation of a certain
Alfredo Kalingking as local union president and "disauthorizing" the incumbent union officers from representing the employees.
This action by the national federation was protested by the petitioners in a letter to respondent company dated November 11,
1988.

On November 13, 1988, the petitioner union officers received identical letters from the administrator requiring them to explain
within 72 hours why they should not be removed from their office and expelled from union membership.

On November 26, 1988, petitioners replied:

(a) Questioning the validity of the alleged National Executive Board Resolution placing their union under trusteeship;

(b) Justifying the action of their union in declaring a general autonomy from ULGWP due to the latter's inability to give
proper educational, organizational and legal services to its affiliates and the pendency of the audit of the federation
funds;

(c) Advising that their union did not commit any act of disloyalty as it has remained an affiliate of ULGWP;

(d) Giving ULGWP a period of five (5) days to cease and desist from further committing acts of coercion, intimidation
and harassment. 8

However, as early as November 21, 1988, the officers were expelled from the ULGWP. The termination letter read:
 Effective today, November 21, 1988, you are hereby expelled from UNITED LUMBER AND GENERAL WORKERS OF
THE PHILIPPINES (ULGWP) for committing acts of disloyalty and/or acts inimical to the interest and violative to the
Constitution and by-laws of your federation.

You failed and/or refused to offer an explanation inspite of the time granted to you.

Since you are no longer a member of good standing, ULGWP is constrained to recommend for your termination from
your employment, and provided in Article II Section 4, known as UNION SECURITY, in the Collective Bargaining
agreement.9

On the same day, the federation advised respondent company of the expulsion of the 30 union officers and demanded their
separation from employment pursuant to the Union Security Clause in their collective bargaining agreement. This demand was
reiterated twice, through letters dated February 21 and March 4, 1989, respectively, to respondent company.

Thereafter, the Federation filed a Notice of Strike with the National Conciliation and Mediation Board to compel the company to
effect the immediate termination of the expelled union officers.

On March 7, 1989, under the pressure of a threatened strike, respondent company terminated the 30 union officers from
employment, serving them identical copies of the termination letter reproduced below:

We received a demand letter dated 21 November 1988 from the United Lumber and General Workers of the Philippines
(ULGWP) demanding for your dismissal from employment pursuant to the provisions of Article II, Section 4 of the
existing Collective Bargaining Agreement (CBA). In the said demand letter, ULGWP informed us that as of November
21, 1988, you were expelled from the said federation "for committing acts of disloyalty and/or acts inimical to the interest
of ULGWP and violative to its Constitution and By-laws particularly Article V, Section 6, 9, and 12, Article XIII, Section
8.

In subsequent letters dated 21 February and 4 March 1989, the ULGWP reiterated its demand for your dismissal,
pointing out that notwithstanding your expulsion from the federation, you have continued in your employment with the
company in violation of Sec. 1 and 4 of Article II of our CBA, and of existing provisions of law.

In view thereof, we are left with no alternative but to comply with the provisions of the Union Security Clause of our
CBA. Accordingly, we hereby serve notice upon you that we are dismissing you from your employment with M.
Greenfield, Inc., pursuant to Sections 1 and 4, Article II of the CBA effective immediately. 10

On that same day, the expelled union officers assigned in the first shift were physically or bodily brought out of the company
premises by the company's security guards. Likewise, those assigned to the second shift were not allowed to report for work.
This provoked some of the members of the local union to demonstrate their protest for the dismissal of the said union officers.
Some union members left their work posts and walked out of the company premises.

On the other hand, the Federation, having achieved its objective, withdrew the Notice of Strike filed with the NCMB.

On March 8, 1989, the petitioners filed a Notice of Strike with the NCMB, DOLE, Manila, docketed as Case No. NCMB-NCR-
NS-03-216-89, alleging the following grounds for the strike:

(a) Discrimination

(b) Interference in union activities

(c) Mass dismissal of union officers and shop stewards

(d) Threats, coercion and intimidation

(e) Union busting

The following day, March 9, 1989, a strike vote referendum was conducted and out of 2, 103 union members who cast their
votes, 2,086 members voted to declare a strike.

On March 10, 1989, the thirty (30) dismissed union officers filed an urgent petition, docketed as Case No. NCMB-NCR-NS-03-
216-89, with the Office of the Secretary of the Department of Labor and Employment praying for the suspension of the effects
of their termination from employment. However, the petition was dismissed by then Secretary Franklin Drilon on April 11, 1989,
the pertinent portion of which stated as follows:

At this point in time, it is clear that the dispute at M. Greenfield is purely an intra-union matter. No mass lay-off is evident
as the terminations have been limited to those allegedly leading the secessionist group leaving MSMG-ULGWP to form
a union under the KMU. . . .

xxx xxx xxx

WHEREFORE, finding no sufficient jurisdiction to warrant the exercise of our extraordinary authority under Article 277
(b) of the Labor Code, as amended, the instant Petition is hereby DISMISSED for lack of merit.

SO ORDERED.11

On March 13 and 14, 1989, a total of 78 union shop stewards were placed under preventive suspension by respondent company.
This prompted the union members to again stage a walk-out and resulted in the official declaration of strike at around 3:30 in
the afternoon of March 14, 1989. The strike was attended with violence, force and intimidation on both sides resulting to physical
injuries to several employees, both striking and non-striking, and damage to company properties.

The employees who participated in the strike and allegedly figured in the violent incident were placed under preventive
suspension by respondent company. The company also sent return-to-work notices to the home addresses of the striking
employees thrice successively, on March 27, April 8 and April 31, 1989, respectively. However, respondent company admitted
that only 261 employees were eventually accepted back to work. Those who did not respond to the return-to-work notice were
sent termination letters dated May 17, 1989, reproduced below:

M. Greenfield Inc., (B)

Km. 14, Merville Rd., Parañaque, M.M.

May 17, 1989

xxx xxx xxx

On March 14, 1989, without justifiable cause and without due notice, you left your work
assignment at the prejudice of the Company's operations. On March 27, April 11, and April
21, 1989, we sent you notices to report to the Company. Inspite of your receipt of said
notices, we have not heard from you up to this date.

Accordingly, for your failure to report, it is construed that you have effectively abandoned
your employment and the Company is, therefore, constrained to dismiss you for said cause.

Very truly yours,

M. GREENFIELD, INC., (B)

By:

WENZEL STEPHEN LIGOT

Asst. HRD Manager12
On August 7, 1989, the petitioners filed a verified complaint with the Arbitration Branch, National Capital Region, DOLE, Manila,
docketed as Case No. NCR-00-09-04199-89, charging private respondents of unfair labor practice which consists of union
busting, illegal dismissal, illegal suspension, interference in union activities, discrimination, threats, intimidation, coercion,
violence, and oppression.

After the filing of the complaint, the lease contracts on the respondent company's office and factory at Merville Subdivision,
Parañaque expired and were not renewed. Upon demand of the owners of the premises, the company was compelled to vacate
its office and factory.

Thereafter, the company transferred its administration and account/client servicing department at AFP-RSBS Industrial Park in
Taguig, Metro Manila. For failure to find a suitable place in Metro Manila for relocation of its factory and manufacturing operations,
the company was constrained to move the said departments to Tacloban, Leyte. Hence, on April 16, 1990, respondent company
accordingly notified its employees of a temporary shutdown in operations. Employees who were interested in relocating to
Tacloban were advised to enlist on or before April 23, 1990.

The complaint for unfair labor practice was assigned to Labor Arbiter Manuel Asuncion but was thereafter reassigned to Labor
Arbiter Cresencio Ramos when respondents moved to inhibit him from acting on the case.

On December 15, 1992, finding the termination to be valid in compliance with the union security clause of the collective
bargaining agreement, Labor Arbiter Cresencio Ramos dismissed the complaint.

Petitioners then appealed to the NLRC. During its pendency, Commissioner Romeo Putong retired from the service, leaving
only two commissioners, Commissioner Vicente Veloso III and Hon. Chairman Bartolome Carale in the First Division. When
Commissioner Veloso inhibited himself from the case, Commissioner Joaquin Tanodra of the Third Division was temporarily
designated to sit in the First Division for the proper disposition of the case.

The First Division affirmed the Labor Arbiter's disposition. With the denial of their motion for reconsideration on January 28,
1994, petitioners elevated the case to this Court, attributing grave abuse of discretion to public respondent NLRC in:

I. UPHOLDING THE DISMISSAL OF THE UNION OFFICERS BY RESPONDENT COMPANY AS VALID;

II. HOLDING THAT THE STRIKE STAGED BY THE PETITIONERS AS ILLEGAL;

III. HOLDING THAT THE PETITIONER EMPLOYEES WERE DEEMED TO HAVE ABANDONED THEIR WORK AND
HENCE, VALIDLY DISMISSED BY RESPONDENT COMPANY; AND

IV. NOT FINDING RESPONDENT COMPANY AND RESPONDENT FEDERATION OFFICERS GUILTY OF ACTS OF
UNFAIR LABOR PRACTICE.

Notwithstanding the several issues raised by the petitioners and respondents in the voluminous pleadings presented before the
NLRC and this Court, they revolve around and proceed from the issue of whether or not respondent company was justified in
dismissing petitioner employees merely upon the labor federation's demand for the enforcement of the union security clause
embodied in their collective bargaining agreement.

Before delving into the main issue, the procedural flaw pointed out by the petitioners should first be resolved.

Petitioners contend that the decision rendered by the First Division of the NLRC is not valid because Commissioner Tanodra,
who is from the Third Division, did not have any lawful authority to sit, much less write the ponencia, on a case pending before
the First Division. It is claimed that a commissioner from one division of the NLRC cannot be assigned or temporarily designated
to another division because each division is assigned a particular territorial jurisdiction. Thus, the decision rendered did not have
any legal effect at all for being irregularly issued.

Petitioners' argument is misplaced. Article 213 of the Labor Code in enumerating the powers of the Chairman of the National
Labor Relations Commission provides that:

The concurrence of two (2) Commissioners of a division shall be necessary for the pronouncement of a judgment or
resolution. Whenever the required membership in a division is not complete and the concurrence of two (2)
 commissioners to arrive at a judgment or resolution cannot be obtained, the Chairman shall designate such number of
additional Commissioners from the other divisions as may be necessary.

It must be remembered that during the pendency of the case in the First Division of the NLRC, one of the three commissioners,
Commissioner Romeo Putong, retired, leaving Chairman Bartolome Carale and Commissioner Vicente Veloso III. Subsequently,
Commissioner Veloso inhibited himself from the case because the counsel for the petitioners was his former classmate in law
school. The First Division was thus left with only one commissioner. Since the law requires the concurrence of two commissioners
to arrive at a judgment or resolution, the Commission was constrained to temporarily designate a commissioner from another
division to complete the First Division. There is nothing irregular at all in such a temporary designation for the law empowers the
Chairman to make temporary assignments whenever the required concurrence is not met. The law does not say that a
commissioner from the first division cannot be temporarily assigned to the second or third division to fill the gap or vice versa.
The territorial divisions do not confer exclusive jurisdiction to each division and are merely designed for administrative efficiency.

Going into the merits of the case, the court finds that the Complaint for unfair labor practice filed by the petitioners against
respondent company which charges union busting, illegal dismissal, illegal suspension, interference in union activities,
discrimination, threats, intimidation, coercion, violence, and oppression actually proceeds from one main issue which is the
termination of several employees by respondent company upon the demand of the labor federation pursuant to the union security
clause embodied in their collective bargaining agreement.

Petitioners contend that their dismissal from work was effected in an arbitrary, hasty, capricious and illegal manner because it
was undertaken by the respondent company without any prior administrative investigation; that, had respondent company
conducted prior independent investigation it would have found that their expulsion from the union was unlawful similarly for lack
of prior administrative investigation; that the federation cannot recommend the dismissal of the union officers because it was not
a principal party to the collective bargaining agreement between the company and the union; that public respondents acted with
grave abuse of discretion when they declared petitioners' dismissals as valid and the union strike as illegal and in not declaring
that respondents were guilty of unfair labor practice.

Private respondents, on the other hand, maintain that the thirty dismissed employees who were former officers of the federation
have no cause of action against the company, the termination of their employment having been made upon the demand of the
federation pursuant to the union security clause of the CBA; the expelled officers of the local union were accorded due process
of law prior to their expulsion from their federation; that the strike conducted by the petitioners was illegal for noncompliance with
the requirements; that the employees who participated in the illegal strike and in the commission of violence thereof were validly
terminated from work; that petitioners were deemed to have abandoned their employment when they did not respond to the
three return to work notices sent to them; that petitioner labor union has no legal personality to file and prosecute the case for
and on behalf of the individual employees as the right to do so is personal to the latter; and that, the officers of respondent
company cannot be liable because as mere corporate officers, they acted within the scope of their authority.

Public respondent, through the Labor Arbiter, ruled that the dismissed union officers were validly and legally terminated because
the dismissal was effected in compliance with the union security clause of the CBA which is the law between the parties. And
this was affirmed by the Commission on appeal. Moreover, the Labor Arbiter declared that notwithstanding the lack of a prior
administrative investigation by respondent company, under the union security clause provision in the CBA, the company cannot
look into the legality or illegality of the recommendation to dismiss by the union nd the obligation to dismiss is ministerial on the
part of the company. 13

This ruling of the NLRC is erroneous. Although this Court has ruled that union security clauses embodied in the collective
bargaining agreement may be validly enforced and that dismissals pursuant thereto may likewise be valid, this does not erode
the fundamental requirement of due process. The reason behind the enforcement of union security clauses which is the sanctity
and inviolability of contracts 14 cannot override one's right to due process.

In the case of Cariño vs. National Labor Relations Commission,15 this Court pronounced that while the company, under a
maintenance of membership provision of the collective bargaining agreement, is bound to dismiss any employee expelled by
the union for disloyalty upon its written request, this undertaking should not be done hastily and summarily. The company acts
in bad faith in dismissing a worker without giving him the benefit of a hearing.

The power to dismiss is a normal prerogative of the employer. However, this is not without limitation. The employer is
bound to exercise caution in terminating the services of his employees especially so when it is made upon the request
of a labor union pursuant to the Collective Bargaining Agreement, . . . Dismissals must not be arbitrary and capricious.
Due process must be observed in dismissing an employee because it affects not only his position but also his means
of livelihood. Employers should respect and protect the rights of their employees, which include the right to labor.
In the case under scrutiny, petitioner union officers were expelled by the federation for allegedly committing acts of disloyalty
and/or inimical to the interest of ULGWP and in violation of its Constitution and By-laws. Upon demand of the federation, the
company terminated the petitioners without conducting a separate and independent investigation. Respondent company did not
inquire into the cause of the expulsion and whether or not the federation had sufficient grounds to effect the same. Relying
merely upon the federation's allegations, respondent company terminated petitioners from employment when a separate inquiry
could have revealed if the federation had acted arbitrarily and capriciously in expelling the union officers. Respondent company's
allegation that petitioners were accorded due process is belied by the termination letters received by the petitioners which state
that the dismissal shall be immediately effective.

As held in the aforecited case of Cariño, "the right of an employee to be informed of the charges against him and to reasonable
opportunity to present his side in a controversy with either the company or his own union is not wiped away by a union security
clause or a union shop clause in a collective bargaining agreement. An employee is entitled to be protected not only from a
company which disregards his rights but also from his own union the leadership of which could yield to the temptation of swift
and arbitrary expulsion from membership and mere dismissal from his job.

While respondent company may validly dismiss the employees expelled by the union for disloyalty under the union security
clause of the collective bargaining agreement upon the recommendation by the union, this dismissal should not be done hastily
and summarily thereby eroding the employees' right to due process, self-organization and security of tenure. The enforcement
of union security clauses is authorized by law provided such enforcement is not characterized by arbitrariness, and always with
due process.16 Even on the assumption that the federation had valid grounds to expel the union officers, due process requires
that these union officers be accorded a separate hearing by respondent company.

In its decision, public respondent also declared that if complainants (herein petitioners) have any recourse in law, their right of
action is against the federation and not against the company or its officers, relying on the findings of the Labor Secretary that
the issue of expulsion of petitioner union officers by the federation is a purely intra-union matter.

Again, such a contention is untenable. While it is true that the issue of expulsion of the local union officers is originally between
the local union and the federation, hence, intra-union in character, the issue was later on converted into a termination dispute
when the company dismissed the petitioners from work without the benefit of a separate notice and hearing. As a matter of fact,
the records reveal that the termination was effective on the same day that the termination notice was served on the petitioners.

In the case of Liberty Cotton Mills Workers Union vs. Liberty Cotton Mills, Inc.17, the Court held the company liable for the
payment of backwages for having acted in bad faith in effecting the dismissal of the employees.

. . . Bad faith on the part of the respondent company may be gleaned from the fact that the petitioner workers were
dismissed hastily and summarily. At best, it was guilty of a tortious act, for which it must assume solidary liability, since
it apparently chose to summarily dismiss the workers at the union's instance secure in the union's contractual
undertaking that the union would hold it "free from any liability" arising from such dismissal.

Thus, notwithstanding the fact that the dismissal was at the instance of the federation and that it undertook to hold the company
free from any liability resulting from such a dismissal, the company may still be held liable if it was remiss in its duty to accord
the would-be dismissed employees their right to be heard on the matter.

Anent petitioners contention that the federation was not a principal party to the collective bargaining agreement between the
company and the union, suffice it to say that the matter was already ruled upon in the Interpleader case filed by respondent
company. Med-Arbiter Anastacio Bactin thus ruled:

After a careful examination of the facts and evidences presented by the parties, this Officer hereby renders its decision
as follows:

1.) It appears on record that in Collective Bargaining Agreement (CBA) which took effect on July 1, 1986, the contracting
parties are M. Greenfield, Inc. (B) and Malayang Samahan ng Mga Manggagawa sa M. Greenfield, Inc. (B)
(MSMG)/United Lumber and General Workers of the Philippines (ULGWP). However, MSMG was not yet registered
labor organization at the time of the signing of the CBA. Hence, the union referred to in the CBA is the ULGWP. 18

Likewise on appeal, Director Pura Ferrer-Calleja put the issue to rest as follows:
 It is undisputed that ULGWP is the certified sole and exclusive collective bargaining agent of all the regular rank-and-
file workers of the company, M. Greenfield, Inc. (pages 31-32 of the records).

It has been established also that the company and ULGWP signed a 3-year collective bargaining agreement effective
July 1, 1986 up to June 30, 1989. 19

Although the issue of whether or not the federation had reasonable grounds to expel the petitioner union officers is properly
within the original and exclusive jurisdiction of the Bureau of Labor Relations, being an intra-union conflict, this Court deems it
justifiable that such issue be nonetheless ruled upon, as the Labor Arbiter did, for to remand the same to the Bureau of Labor
Relations would be to intolerably delay the case.

The Labor Arbiter found that petitioner union officers were justifiably expelled from the federation for committing acts of disloyalty
when it "undertook to disaffiliate from the federation by charging ULGWP with failure to provide any legal, educational or
organizational support to the local. . . . and declared autonomy, wherein they prohibit the federation from interfering in any
internal and external affairs of the local union." 20

It is well-settled that findings of facts of the NLRC are entitled to great respect and are generally binding on this Court, but it is
equally well-settled that the Court will not uphold erroneous conclusions of the NLRC as when the Court finds insufficient or
insubstantial evidence on record to support those factual findings. The same holds true when it is perceived that far too much is
concluded, inferred or deduced from the bare or incomplete facts appearing of record. 21

In its decision, the Labor Arbiter declared that the act of disaffiliation and declaration of autonomy by the local union was part of
its "plan to take over the respondent federation." This is purely conjecture and speculation on the part of public respondent,
totally unsupported by the evidence.

A local union has the right to disaffiliate from its mother union or declare its autonomy. A local union, being a separate and
voluntary association, is free to serve the interests of all its members including the freedom to disaffiliate or declare its autonomy
from the federation to which it belongs when circumstances warrant, in accordance with the constitutional guarantee of freedom
of association.22

The purpose of affiliation by a local union with a mother union or a federation.

. . . is to increase by collective action the bargaining power in respect of the terms and conditions of labor. Yet the locals
remained the basic units of association, free to serve their own and the common interest of all, subject to the restraints
imposed by the Constitution and By-Laws of the Association, and free also to renounce the affiliation for mutual welfare
upon the terms laid down in the agreement which brought it into existence. 23

Thus, a local union which has affiliated itself with a federation is free to sever such affiliation anytime and such disaffiliation
cannot be considered disloyalty. In the absence of specific provisions in the federation's constitution prohibiting disaffiliation or
the declaration of autonomy of a local union, a local may dissociate with its parent union. 24

The evidence on hand does not show that there is such a provision in ULGWP's constitution. Respondents' reliance upon Article
V, Section 6, of the federation's constitution is not right because said section, in fact, bolsters the petitioner union's claim of its
right to declare autonomy:

Sec. 6. The autonomy of a local union affiliated with ULGWP shall be respected insofar as it pertains to its internal
affairs, except as provided elsewhere in this Constitution.

There is no disloyalty to speak of, neither is there any violation of the federation's constitution because there is nothing in the
said constitution which specifically prohibits disaffiliation or declaration of autonomy. Hence, there cannot be any valid dismissal
because Article II, Section 4 of the union security clause in the CBA limits the dismissal to only three (3) grounds, to wit: failure
to maintain membership in the union (1) for non-payment of union dues, (2) for resignation; and (3) for violation of the union's
Constitution and By-Laws.

To support the finding of disloyalty, the Labor Arbiter gave weight to the fact that on February 26, 1989, the petitioners declared
as vacant all the responsible positions of ULGWP, filled these vacancies through an election and filed a petition for the
registration of UWP as a national federation. It should be pointed out, however, that these occurred after the federation had
already expelled the union officers. The expulsion was effective November 21, 1988. Therefore, the act of establishing a different
federation, entirely separate from the federation which expelled them, is but a normal retaliatory reaction to their expulsion.

With regard to the issue of the legality or illegality of the strike, the Labor Arbiter held that the strike was illegal for the following
reasons: (1) it was based on an intra-union dispute which cannot properly be the subject of a strike, the right to strike being
limited to cases of bargaining deadlocks and unfair labor practice (2) it was made in violation of the "no strike, no lock-out" clause
in the CBA, and (3) it was attended with violence, force and intimidation upon the persons of the company officials, other
employees reporting for work and third persons having legitimate business with the company, resulting to serious physical
injuries to several employees and damage to company property.

On the submission that the strike was illegal for being grounded on a non-strikeable issue, that is, the intra-union conflict between
the federation and the local union, it bears reiterating that when respondent company dismissed the union officers, the issue
was transformed into a termination dispute and brought respondent company into the picture. Petitioners believed in good faith
that in dismissing them upon request by the federation, respondent company was guilty of unfair labor practice in that it violated
the petitioner's right to self-organization. The strike was staged to protest respondent company's act of dismissing the union
officers. Even if the allegations of unfair labor practice are subsequently found out to be untrue, the presumption of legality of
the strike prevails.25

Another reason why the Labor Arbiter declared the strike illegal is due to the existence of a no strike no lockout provision in the
CBA. Again, such a ruling is erroneous. A no strike, no lock out provision can only be invoked when the strike is economic in
nature, i.e. to force wage or other concessions from the employer which he is not required by law to grant. 26 Such a provision
cannot be used to assail the legality of a strike which is grounded on unfair labor practice, as was the honest belief of herein
petitioners. Again, whether or not there was indeed unfair labor practice does not affect the strike.

On the allegation of violence committed in the course of the strike, it must be remembered that the Labor Arbiter and the
Commission found that "the parties are agreed that there were violent incidents . . . resulting to injuries to both sides, the union
and management." 27 The evidence on record show that the violence cannot be attributed to the striking employees alone for the
company itself employed hired men to pacify the strikers. With violence committed on both sides, the management and the
employees, such violence cannot be a ground for declaring the strike as illegal.

With respect to the dismissal of individual petitioners, the Labor Arbiter declared that their refusal to heed respondent's recall to
work notice is a clear indication that they were no longer interested in continuing their employment and is deemed abandonment.
It is admitted that three return to work notices were sent by respondent company to the striking employees on March 27, April
11, and April 21, 1989 and that 261 employees who responded to the notice were admitted back to work.

However, jurisprudence holds that for abandonment of work to exist, it is essential (1) that the employee must have failed to
report for work or must have been absent without valid or justifiable reason; and (2) that there must have been a clear intention
to sever the employer-employee relationship manifested by some overt acts.28 Deliberate and unjustified refusal on the part of
the employee to go back to his work post and resume his employment must be established. Absence must be accompanied by
overt acts unerringly pointing to the fact that the employee simply does not want to work anymore.29 And the burden of proof to
show that there was unjustified refusal to go back to work rests on the employer.

In the present case, respondents failed to prove that there was a clear intention on the part of the striking employees to sever
their employer-employee relationship. Although admittedly the company sent three return to work notices to them, it has not
been substantially proven that these notices were actually sent and received by the employees. As a matter of fact, some
employees deny that they ever received such notices. Others alleged that they were refused entry to the company premises by
the security guards and were advised to secure a clearance from ULGWP and to sign a waiver. Some employees who responded
to the notice were allegedly told to wait for further notice from respondent company as there was lack of work.

Furthermore, this Court has ruled that an employee who took steps to protest his lay-off cannot be said to have abandoned his
work.30 The filing of a complaint for illegal dismissal is inconsistent with the allegation of abandonment. In the case under
consideration, the petitioners did, in fact, file a complaint when they were refused reinstatement by respondent company.

Anent public respondent's finding that there was no unfair labor practice on the part of respondent company and federation
officers, the Court sustains the same. As earlier discussed, union security clauses in collective bargaining agreements, if freely
and voluntarily entered into, are valid and binding. Corollary, dismissals pursuant to union security clauses are valid and legal
subject only to the requirement of due process, that is, notice and hearing prior to dismissal. Thus, the dismissal of an employee
by the company pursuant to a labor union's demand in accordance with a union security agreement does not constitute unfair
labor practice.31
However, the dismissal was invalidated in this case because of respondent company's failure to accord petitioners with due
process, that is, notice and hearing prior to their termination. Also, said dismissal was invalidated because the reason relied
upon by respondent Federation was not valid. Nonetheless, the dismissal still does not constitute unfair labor practice.

Lastly, the Court is of the opinion, and so holds, that respondent company officials cannot be held personally liable for damages
on account of the employees' dismissal because the employer corporation has a personality separate and distinct from its officers
who merely acted as its agents.

It has come to the attention of this Court that the 30-day prior notice requirement for the dismissal of employees has been
repeatedly violated and the sanction imposed for such violation enunciated in Wenphil Corporation vs.NLRC32 has become an
ineffective deterrent. Thus, the Court recently promulgated a decision to reinforce and make more effective the requirement of
notice and hearing, a procedure that must be observed before termination of employment can be legally effected.

In Ruben Serrano vs. NLRC and Isetann Department Store (G.R. No. 117040, January 27, 2000), the Court ruled that an
employee who is dismissed, whether or not for just or authorized cause but without prior notice of his termination, is entitled to
full backwages from the time he was terminated until the decision in his case becomes final, when the dismissal was for cause;
and in case the dismissal was without just or valid cause, the backwages shall be computed from the time of his dismissal until
his actual reinstatement. In the case at bar, where the requirement of notice and hearing was not complied with, the aforecited
doctrine laid down in the Serrano case applies.

WHEREFORE, the Petition is GRANTED; the decision of the National Labor Relations Commission in Case No. NCR-00-09-
04199-89 is REVERSED and SET ASIDE; and the respondent company is hereby ordered to immediately reinstate the
petitioners to their respective positions. Should reinstatement be not feasible, respondent company shall pay separation pay of
one month salary for every year of service. Since petitioners were terminated without the requisite written notice at least 30 days
prior to their termination, following the recent ruling in the case of Ruben Serrano vs. National Labor Relations Commission and
Isetann Department Store, the respondent company is hereby ordered to pay full backwages to petitioner-employees while the
Federation is also ordered to pay full backwages to petitioner-union officers who were dismissed upon its instigation. Since the
dismissal of petitioners was without cause, backwages shall be computed from the time the herein petitioner employees and
union officers were dismissed until their actual reinstatement. Should reinstatement be not feasible, their backwages shall be
computed from the time petitioners were terminated until the finality of this decision. Costs against the respondent
company.1âwphi1.nêt

SO ORDERED.

Gonzaga-Reyes, J., concur.

Melo. J., in the result.
Vitug, J., I reiterate my separate opinion in Seranno vs. NLRC (G.R. No. 114070, 27 Jan. 2000).
Panganiban, J., I reiterate my Separate Opinion in Seranno vs. NLRC. G.R. No. 117040 Jan 27, 2000.

CASE DIGEST:

Commercial Law – Corporation Law – Veil of Corporate Fiction – Illegal Dismissal Cases

In February 1990, M. Greenfield, Inc. (MGI), through its officers Saul Tawil, Carlos Javelosa, and Renato Puangco began
terminating employees. The corporation closed down one of their plants and so they said they have to retrench the number of
employees. Consequently, the Malayang Samahan ng mga Manggagawa sa M. Greenfield (MSMG-UWP) filed an illegal
dismissal case against MGI. The National Labor Relations Commission, chaired by Cresencio Ramos, ruled against the union.
But on appeal, the decision of the NLRC was reversed and the corporation was ordered, among others, to pay the employees’
backwages. The union further appealed as they contend that the officers of the corporation should be held solidarily liable.

ISSUE: Whether or not the officers of the corporation should be held solidarily liable.

HELD: No. A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf
and, in general from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors,
officers and employees are its sole liabilities. There is no question that MGI is guilty of illegal dismissal but the officers cannot
be held solidarily liable.

It’s true that there’s a plethora of illegal dismissal cases where the SC made corporate officers personally liable but these cases
usually involve corporate officers who acted in bad faith in illegally dismissing employees. Corporate directors and officers may
be solidarily liable with the corporation for the termination of employment of corporate employees if the same is done with malice
or in bad faith.

Malayang Samahan ng mga Manggagawa sa M. Greenfield (MSMG-UWP) vs. Ramos

[GR 113907, 20 April 2001]

Facts: [28 February 2000 decision; Purisima] Malayang Samahan ng mga Manggagawa sa M. Greenfield, Inc., (B) (MSMG, the
"local union"), is an affiliate of United Lumber and General Workers of the Philippines (ULGWP, the "federation"). On 12
September 1986, a local union election was held under the auspices of the ULGWP wherein MSMG-UWP, Beda Magdalena
Villanueva, and the other union officers were proclaimed as winners. Minutes of said election were duly filed with the Bureau of
Labor Relations on 29 September 1986. On 21 March 1987, a Petition for Impeachment was filed with the national federation
ULGWP by the defeated candidates in the aforementioned election. On 16 June 1987, the federation conducted an audit of the
local union-funds. The investigation. did not yield any unfavorable result and the local union. officers were cleared of the charges
of anomaly in the custody, handling and disposition of the union funds. The 14 defeated candidates filed a Petition for
Impeachment/Expulsion of the local union officers with the DOLE NCR on 5 November 1987 (NCR-OD-M-11-780-87). However,
the same was dismissed on 2 March 1988, by Med-Arbiter Renato Parungo for failure to substantiate the charges and to present
evidence in support of the allegations.

On 17 April 1988, the local union held a general membership meeting at the Caruncho Complex in Pasig. Several union members
failed to attend the meeting, prompting the Executive Board to create a committee tasked to investigate the non-attendance of
several union members in the said assembly, pursuant to Sections 4 and 5, Article V of the Constitution and By-Laws of the
union. On 27 June 1988, the local union wrote ULGWP a letter requesting it to deduct the union fines from the wages/salaries
of those union members who failed to attend the general membership meeting. In a Memorandum dated 3 July 1988, the
Secretary General of the national federation, Godofredo Paceño, Jr. disapproved the resolution of the local union imposing the
P50.00 fine. The union officers protested such action by the Federation in a Reply dated 4 July 1988. On 11 July 1988, the
federation wrote M. Greenfield (B) a letter advising the latter not to deduct the fifty-peso fine from the salaries of the union
members. The following day, the company sent a reply to MSMG's request in a letter, stating that it cannot deduct fines from the
employees' salary without going against certain laws. The company suggested that the union refer the matter to the proper
government office for resolution in order to avoid placing the company in the middle of the issue. The imposition of P50.00 fine
became the subject of bitter disagreement between the Federation and the local union culminating in the latter's declaration of
general autonomy from the former through Resolution 10 passed by the local executive board and ratified by the general
membership on 16 July 1988. In retaliation, the national federation asked the company to stop the remittance of the local union's
share in the education funds effective August 1988. This was objected to by the local union which demanded that the education
fund be remitted to it in full. The company was thus constrained to file a Complaint for Interpleader with a Petition for Declaratory
Relief with the Med-Arbitration Branch of the Department of Labor and Employment (Case OD-M-8-435-88). This was resolved
on 28 October 1988, by Med-Arbiter Anastacio Bactin in an Order, ordering (1) That the United Lumber and General Workers of
the Philippines (ULGWP) through its local union officers shall administer the collective bargaining agreement (CBA); (2) That
the company shall remit the P10,000.00 monthly labor education program fund to the ULGWP subject to the condition that it
shall use the said amount for its intended purpose. and (3) that the Treasurer of the MSMG shall be authorized to collect from
the 356 union members the amount of P50.00 as penalty for their failure to attend the general membership assembly on 17 April
1988. However, if the MSMG Officers could present the individual written authorizations of the 356 union members, then the
company is obliged to deduct from the salaries of the 356 union members the P50.00 fine." On appeal, Director Pura-Ferrer
Calleja issued a Resolution dated 7 February 1989, which modified in part the earlier disposition, to the extent that the company
should remit the amount of P5,000.00 of the P10,000.00 monthly labor education program fund to ULGWP and the other
P5,000.00 to MSMG, both unions to use the same for its intended purpose."

Meanwhile, on 2 September 1988, several local unions (Top Form, M. Greenfield, Grosby, Triumph International, General Milling,
and Vander Hons chapters) filed a Petition for Audit and Examination of the federation and education funds of ULGWP which
was granted by Med-Arbiter Rasidali Abdullah on 25 December 1988 in an Order which directed the audit and examination of
the books of account of ULGWP. On 30 September 1988, the officials of ULGWP called a Special National Executive Board
Meeting at Nasipit, Agusan del Norte where a Resolution was passed placing the MSMG under trusteeship and appointing Cesar
Clarete as administrator. On 27 October 1988, the said administrator wrote the company informing the latter of its designation
of a certain Alfredo Kalingking as local union president and "disauthorizing" the incumbent union officers from representing the
employees. This action by the national federation was protested by the MSMG in a letter to the company dated 11 November
1988. On 13 November 1988, MSMG union officers received identical letters from the administrator requiring them to explain
within 72 hours why they should not be removed from their office and expelled from union membership. On 26 November 1988,
MSMG replied, However, as early as 21 November 1988, the officers were expelled from the ULGWP. On the same day, the
federation advised respondent company of the expulsion of the 30 union officers and demanded their separation from
employment pursuant to the Union Security Clause in their collective bargaining agreement. This demand was reiterated twice,
through letters dated February 21 and March 4, 1989, respectively, to the company. Thereafter, the Federation filed a Notice of
Strike with the National Conciliation and Mediation Board to compel the company to effect the immediate termination of the
expelled union officers. On 7 March 1989, under the pressure of a threatened strike, the company terminated the 30 union
officers from employment, serving them identical copies of the termination letter, The expelled union officers assigned in the first
shift were physically or bodily brought out of the company premises by the company's security guards. Likewise, those assigned
to the second shift were not allowed to report for work. this provoked some of the members of the local union to demonstrate
their protest for the dismissal of the said union officers. Some union members left their work posts and walked out of the company
premises. On the other hand, the Federation, having achieved its objective, withdrew the Notice of Strike filed with the NCMB.
On 8 March 1989, MSMG filed a Notice of Strike with the NCMB, DOLE, Manila (NCMB-NCR-NS03-216-89). The following day,
a strike vote referendum was conducted and out of 2,103 union members who cast their votes, 2,086 members voted to declare
a strike. On 10 March 1989, the 30 dismissed union officers filed an urgent petition (NCMB-NCR-NS-03-216-89), with the Office
of the Secretary of the Department of Labor and Employment praying for the suspension of the effects of their termination from
employment. However, the petition was dismissed by then Secretary Franklin Drilon on 11 April 1989. On March 13 and 14,
1989, a total of 78 union shop stewards were placed under preventive suspension by the company. This prompted the union
members to again stage a walk-out and resulted in the official declaration of strike at around 3:30 p.m. of 14 March 1989. The
strike was attended with violence, force and intimidation on both sides resulting to physical injuries to several employees, both
striking and non-striking, and damage to company properties. The employees who participated in the strike and allegedly figured
in the violent incident were placed under preventive suspension by the company. The company also sent return to-work notices
to the home addresses of the striking employees thrice successively, on March 27, April 8 and April 31, 1989, respectively.
However, only 261 employees were eventually accepted back to work. Those who did not respond to the return-to-work notice
were sent termination letters dated 17 May 1989.
On 7 August 1989, MSMG filed a verified complaint with the Arbitration Branch, National Capital Region, DOLE, Manila, (NCR
-00-09-04199-89), charging the corporation, etc. of unfair labor practice which consists of union busting, illegal dismissal, illegal
suspension interference in union activities, discrimination, threats, intimidation, coercion, violence, and oppression. After the
filing of the complaint, the lease contracts on the company's office and factory at Merville Subdivision, Parañaque expired and
were not renewed. Upon demand of the owners of the premises, the company was compelled to vacate its office and factory.
Thereafter, the company transferred its administration and account/client servicing department at AFP-RSBS Industrial Park in
Taguig, Metro Manila. For failure to find a suitable place in Metro Manila for relocation of its factory and manufacturing operations,
the company was constrained to move the said departments to Tacloban, Leyte. Hence, on 16 April 1990, the company
accordingly notified its employees of a temporary shutdown. in operations. Employees who were interested in relocating to
Tacloban were advised to enlist on or before 23 April 1990. On 15 December 1992, finding the termination to be valid in
compliance with the union security clause of the collective bargaining agreement, Labor Arbiter Cresencio Ramos dismissed the
complaint. MSMG then appealed to the NLRC. The First Division affirmed the Labor Arbiter's disposition. With the denial of their
motion for reconsideration on 28 January 1994, MSMG elevated the case to the Supreme Court.

The Supreme Court on 28 February 2000, ordered M. Greenfield to immediately reinstate the affected employees and officers
to their respective positions; that should reinstatement be not feasible, said company shall pay separation pay of one month
salary for every year of service; that since the affected employees and officers were terminated without the requisite written
notice at least 30 days prior to their termination, the company was ordered to pay full backwages to the affected employees
while the Federation was ordered to pay full backwages to the affected union officers who were dismissed upon its instigation;
that since the dismissal of the affected employees and officers was without cause, backwages are to be computed from the time
the affected employees and union officers were dismissed until their actual reinstatement, and that should reinstatement be not
feasible, their backwages shall be computed from the time the affected employees and officers were terminated until the finality
of the Court's decision; with costs against the company. In the decision, the court held that the company officials cannot be held
personally liable for damages on account of the employees' dismissal because the employer corporation has a personality
separate and distinct from its officers who merely acted as its agents. MSMG-UWG filed a motion for partial reconsideration.

Issue: Whether the company officials cannot be held personally liable for damages on account of employees' dismissal because
the employer corporation has a personality separate and distinct from its officers who merely acted as its agents.

Held: A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in
general from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors, officers
and employees, are its sole liabilities. True, solidary liabilities may at times be incurred but only when exceptional circumstances
warrant such as, generally, in the following cases: (1) When directors and trustees or, in appropriate cases, the officers of a
corporation — (a) Vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in
directing the corporate affairs; (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members,
and other persons. (2) When a director or officer has consented to the issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate secretary his written objection thereto. (3) When a director, trustee or officer has
contractually agreed or stipulated to hold himself personally and solidarily liable with the Corporation. (4) When a director, trustee
or officer is made, by specific provision of law, personally liable for his corporate action. In labor cases, particularly, the Court
has held corporate directors and officers solidarily liable with the corporation for the termination of employment of corporate
employees done with malice or in bad faith. Bad faith or negligence is a question of fact and is evidentiary. It has been held that
bad faith does not connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it partakes of the nature of fraud. Herein,
there is nothing substantial on record to show that the corporate officers acted in patent bad faith or were guilty of gross
negligence in terminating the services of the affected employees and officers so as to warrant personal liability.

JARDINE DAVIES, INC., G.R. No. 151438

Petitioner,

Present:

PUNO, J., Chairman,

AUSTRIA-MARTINEZ,

versus CALLEJO, SR.,

TINGA, and

CHICO-NAZARIO, JJ.

JRB REALTY, INC.,

Respondent. Promulgated:

July 15, 2005

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

DECISION

CALLEJO, SR., J.:

Before us is a petition for review of the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 54201 affirming in toto that
of the Regional Trial Court (RTC) in Civil Case No. 90-237 for specific performance; and the Resolution dated January 11, 2002
denying the motion for reconsideration thereof.

The facts are as follows:

In 1979-1980, respondent JRB Realty, Inc. built a nine-storey building, named Blanco Center, on its parcel of land located at
119 Alfaro St., Salcedo Village, Makati City. An air conditioning system was needed for the Blanco Law Firm housed at the
second floor of the building. On March 13, 1980, the respondents Executive Vice-President, Jose R. Blanco, accepted the
contract quotation of Mr. A.G. Morrison, President of Aircon and Refrigeration Industries, Inc. (Aircon), for two (2) sets of Fedders
Adaptomatic 30,000 kcal (Code: 10-TR) air conditioning equipment with a net total selling price of P99,586.00.[2] Thereafter,
two (2) brand new packaged air conditioners of 10 tons capacity each to deliver 30,000 kcal or 120,000 BTUH[3] were installed
by Aircon. When the units with rotary compressors were installed, they could not deliver the desired cooling temperature. Despite
several adjustments and corrective measures, the respondent conceded that Fedders Air Conditioning USAs technology for
rotary compressors for big capacity conditioners like those installed at the Blanco Center had not yet been perfected. The parties
thereby agreed to replace the units with reciprocating/semi-hermetic compressors instead. In a Letter dated March 26, 1981,[4]
Aircon stated that it would be replacing the units currently installed with new ones using rotary compressors, at the earliest
possible time. Regrettably, however, it could not specify a date when delivery could be effected.
TempControl Systems, Inc. (a subsidiary of Aircon until 1987) undertook the maintenance of the units, inclusive of parts and
services. In October 1987, the respondent learned, through newspaper ads,[5] that Maxim Industrial and Merchandising
Corporation (Maxim, for short) was the new and exclusive licensee of Fedders Air Conditioning USA in the Philippines for the
manufacture, distribution, sale, installation and maintenance of Fedders air conditioners. The respondent requested that Maxim
honor the obligation of Aircon, but the latter refused. Considering that the ten-year period of prescription was fast approaching,
to expire on March 13, 1990, the respondent then instituted, on January 29, 1990, an action for specific performance with
damages against Aircon & Refrigeration Industries, Inc., Fedders Air Conditioning USA, Inc., Maxim Industrial & Merchandising
Corporation and petitioner Jardine Davies, Inc.[6] The latter was impleaded as defendant, considering that Aircon was a
subsidiary of the petitioner. The respondent prayed that judgment be rendered, as follows:

1. Ordering the defendants to jointly and severally at their account and expense deliver, install and place in operation two

brand new units of each 10-tons capacity Fedders unitary packaged air conditioners with Fedders USAs technology perfected
rotary compressors to always deliver 30,000 kcal or 120,000 BTUH to the second floor of the Blanco Center building at 119
Alfaro St., Salcedo Village, Makati, Metro Manila;

2. Ordering defendants to jointly and severally reimburse plaintiff not only the sums of P415,118.95 for unsaved electricity from
21st October 1981 to 7th January 1990 and P99,287.77 for repair costs of the two service units from 7th March 1987 to 11th
January 1990, with legal interest thereon from the filing of this Complaint until fully reimbursed, but also like unsaved electricity
costs and like repair costs therefrom until Prayer No. 1 above shall have been complied with;

3. Ordering defendants to jointly and severally pay plaintiffs P150,000.00 attorneys fees and other costs of litigation, as well as
exemplary damages in an amount not less than or equal to Prayer 2 above; and

4. Granting plaintiff such other and further relief as shall be just and equitable in the premises.[7]

Of the four defendants, only the petitioner filed its Answer. The court did not acquire jurisdiction over Aircon because the latter
ceased operations, as its corporate life ended on December 31, 1986.[8] Upon motion, defendants Fedders Air Conditioning
USA and Maxim were declared in default.[9]

On May 17, 1996, the RTC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering defendants Jardine Davies, Inc., Fedders Air Conditioning USA, Inc. and
Maxim Industrial and Merchandising Corporation, jointly and severally:

1. To deliver, install and place into operation the two (2) brand new units of Fedders unitary packaged airconditioning
units each of 10 tons capacity with rotary compressors to deliver 30,000 kcal or 120,000 BTUH to the second floor of the Blanco
Center building, or to pay plaintiff the current price for two such units;

2. To reimburse plaintiff the amount of P556,551.55 as and for the unsaved electricity bills from October 21, 1981 up
to April 30, 1995; and another amount of P185,951.67 as and for repair costs;

3. To pay plaintiff P50,000.00 as and for attorneys fees; and

4. Cost of suit.[10]

The petitioner filed its notice of appeal with the CA, alleging that the trial court erred in holding it liable because it was not a party
to the contract between JRB Realty, Inc. and Aircon, and that it had a personality separate and distinct from that of Aircon.

On March 23, 2000, the CA affirmed the trial courts ruling in toto; hence, this petition.

The petitioner raises the following assignment of errors:

I.

THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE FOR THE ALLEGED CONTRACTUAL BREACH OF
AIRCON SOLELY BECAUSE THE LATTER WAS FORMERLY JARDINES SUBSIDIARY.

II.

ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINES MERE ALTER EGO, THE COURT OF
APPEALS ERRED IN NOT DECLARING AIRCONS OBLIGATION TO DELIVER THE TWO (2) AIRCONDITIONING UNITS TO
JRB AS HAVING BEEN SUBSTANTIALLY COMPLIED WITH IN GOOD FAITH.

III.

ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINES MERE ALTER EGO, THE COURT OF
APPEALS ERRED IN NOT DECLARING JRBS CAUSES OF ACTION AS HAVING BEEN BARRED BY LACHES.

IV.

ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINES MERE ALTER EGO, THE COURT OF
APPEALS ERRED IN FINDING JRB ENTITLED TO RECOVER ALLEGED UNSAVED ELECTRICITY EXPENSES.

V.

THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE TO PAY ATTORNEYS FEES.

VI.

THE COURT OF APPEALS ERRED IN NOT HOLDING JRB LIABLE TO JARDINE FOR DAMAGES.[11]

It is the well-settled rule that factual findings of the trial court, as affirmed by the CA, are accorded high respect, even finality at
times. However, considering that the factual findings of the CA and the RTC were based on speculation and conjectures,
unsupported by substantial evidence, the Court finds that the instant case falls under one of the excepted instances. There is,
thus, a need to correct the error.

The trial court ruled that Aircon was a subsidiary of the petitioner, and concluded, thus:

Plaintiffs documentary evidence shows that at the time it contracted with Aircon on March 13, 1980 (Exhibit D) and on the date
the revised agreement was reached on March 26, 1981, Aircon was a subsidiary of Jardine. The phrase A subsidiary of Jardine
Davies, Inc. was printed on Aircons letterhead of its March 13, 1980 contract with plaintiff (Exhibit D-1), as well as the Aircons
letterhead of Jardines Director and Senior Vice-President A.G. Morrison and Aircons President in his March 26, 1981 letter to
plaintiff (Exhibit J-2) confirming the revised agreement. Aircons newspaper ads of April 12 and 26, 1981 and a press release on
August 30, 1982 (Exhibits E, F and L) also show that defendant Jardine publicly represented Aircon to be its subsidiary.

Records from the Securities and Exchange Commission (SEC) also reveal that as per Jardines December 31, 1986 and 1985
Financial Statements that The company acts as general manager of its subsidiaries (Exhibit P). Jardines Consolidated Balance
Sheet as of December 31, 1979 filed with the SEC listed Aircon as its subsidiary by owning 94.35% of Aircon (Exhibit P-1). Also,
Aircons reportorial General Information Sheet as of April 1980 and April 1981 filed with the SEC show that Jardine was 94.34%
owner of Aircon (Exhibits Q and R) and that out of seven members of the Board of Directors of Aircon, four (4) are also of
Jardine.

Defendant Jardines witness, Atty. Fe delos Santos-Quiaoit admitted that defendant Aircon, renamed Aircon & Refrigeration
Industries, Inc. is one of the subsidiaries of Jardine Davies (TSN, September 22, 1995, p. 12). She also testified that Jardine
nominated, elected, and appointed the controlling majority of the Board of Directors and the highest officers of Aircon (Ibid, pp.
10,13-14).

The foregoing circumstances provide justifiable basis for this Court to disregard the fiction of corporate entity and treat defendant
Aircon as part of the instrumentality of co-defendant Jardine.[12]

The respondent court arrived at the same conclusion basing its ruling on the following documents, to wit:

(a) Contract/Quotation #78-No. 80-1639 dated March 03, 1980 (Exh. D-1);

(b) Newspaper Advertisements (Exhs. E-1 and F-1);

(c) Letter dated March 26, 1981 of A.G. Morrison, President of Aircon, to Atty. J.R. Blanco (Exh. J);

(d) News items of Bulletin Today dated August 30, 1982 (Exh. L);

(e) Balance Sheet of Jardine Davies, Inc. as of December 31, 1979 listing Aircon as one of its subsidiaries (Exh. P);

(f) Financial Statement of Aircon as of December 31, 1982 and 1981 (Exh. S);

(g) Financial Statement of Aircon as of December 31, 1981 (Exh. S-1).[13]

Applying the doctrine of piercing the veil of corporate fiction, both the respondent and trial courts conveniently held the petitioner
liable for the alleged omissions of Aircon, considering that the latter was its instrumentality or corporate alter ego. The petitioner
is now before us, reiterating its defense of separateness, and the fact that it is not a party to the contract.

We find merit in the petition.

It is an elementary and fundamental principle of corporation law that a corporation is an artificial being invested by law with a
personality separate and distinct from its stockholders and from other corporations to which it may be connected. While a
corporation is allowed to exist solely for a lawful purpose, the law will regard it as an association of persons or in case of two
corporations, merge them into one, when this corporate legal entity is used as a cloak for fraud or illegality.[14] This is the
doctrine of piercing the veil of corporate

fiction which applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend
crime.[15] The rationale behind piercing a corporations identity is to remove the barrier between the corporation from the persons
comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking
certain proscribed activities.[16]

While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow that Aircons corporate legal existence
can just be disregarded. In Velarde v. Lopez, Inc.,[17] the Court categorically held that a subsidiary has an independent and
separate juridical personality, distinct from that of its parent company; hence, any claim or suit against the latter does not bind
the former, and vice versa. In applying the doctrine, the following requisites must be established: (1) control, not merely majority
or complete stock control; (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 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.[18]

The records bear out that Aircon is a subsidiary of the petitioner only because the latter acquired Aircons majority of capital
stock. It, however, does not exercise complete control over Aircon; nowhere can it be gathered that the petitioner manages the
business affairs of Aircon. Indeed, no management agreement exists between the petitioner and Aircon, and the latter is an
entirely different entity from the petitioner.[19]

Jardine Davies, Inc., incorporated as early as June 28, 1946,[20] is primarily a financial and trading company. Its Articles of
Incorporation states among many others that the purposes for which the said corporation was formed, are as follows:

(a) To carry on the business of merchants, commission merchants, brokers, factors, manufacturers, and agents;

(b) Upon complying with the requirements of law applicable thereto, to act as agents of companies and underwriters doing and
engaging in any and all kinds of insurance business.[21]

On the other hand, Aircon, incorporated on December 27, 1952,[22] is a manufacturing firm. Its Articles of Incorporation states
that its purpose is mainly -

To carry on the business of manufacturers of commercial and household appliances and accessories of any form, particularly
to manufacture, purchase, sell or deal in air conditioning and refrigeration products of every class and description as well as
accessories and parts thereof, or other kindred articles; and to erect, or buy, lease, manage, or otherwise acquire manufactories,
warehouses, and depots for manufacturing, assemblage, repair and storing, buying, selling, and dealing in the aforesaid
appliances, accessories and products. [23]

The existence of interlocking directors, corporate officers and shareholders, which the respondent court considered, is not
enough justification to pierce the veil of corporate fiction, in the absence of fraud or other public policy considerations.[24] But
even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only
when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime.[25] To warrant resort to this
extraordinary remedy, there must be proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work
injustice.[26] Any piercing of the corporate veil has to be done with caution.[27] The wrongdoing must be clearly and convincingly
established. It cannot just be presumed.[28]

In the instant case, there is no evidence that Aircon was formed or utilized with the intention of defrauding its creditors or evading
its contracts and obligations. There was nothing fraudulent in the acts of Aircon in this case. Aircon, as a manufacturing firm of
air conditioners, complied with its obligation of providing two air conditioning units for the second floor of the Blanco Center in
good faith, pursuant to its contract with the respondent. Unfortunately, the performance of the air conditioning units did not satisfy
the respondent despite several adjustments and corrective measures. In a Letter[29] dated October 22, 1980, the respondent
even conceded that Fedders Air Conditioning USA has not yet perhaps perfected its technology of rotary compressors, and
agreed to change the compressors with the semi-hermetic type. Thus, Aircon substituted the units with serviceable ones which
delivered the cooling temperature needed for the law office. After enjoying ten (10) years of its cooling power, respondent cannot
now complain about the performance of these units, nor can it demand a replacement thereof.

Moreover, it was reversible error to award the respondent the amount of P556,551.55 representing the alleged 30% unsaved
electricity costs and P185,951.67 as maintenance cost without showing any basis for such award. To justify a grant of actual or
compensatory damages, it is necessary to prove with a reasonable degree of certainty, premised upon competent proof and on
the best evidence obtainable by the injured party, the actual amount of loss.[30] The respondent merely based its cause of action
on Aircons alleged representation that Fedders air conditioners with rotary compressors can save as much as 30% on electricity
compared to other brands. Offered in evidence were newspaper advertisements published on April 12 and 26, 1981. The
respondent then recorded its electricity consumption from October 21, 1981 up to April 3, 1995 and computed 30% thereof,
which amounted to P556,551.55. The Court rules that this amount is highly speculative and merely hypothetical, and for which
the petitioner can not be held accountable.

First. The respondent merely relied on the newspaper advertisements showing the Fedders window-type air conditioners, which
are far different from the big capacity air conditioning units installed at Blanco Center.

Second. After such print advertisements, the respondent informed Aircon that it was going to install an electric meter to register
its electric consumption so as to determine the electric costs not saved by the presently installed units with semi-hermetic
compressors. Contrary to the allegations of the respondent that this was in pursuance to their Revised Agreement, no proof was
adduced that Aircon agreed to the respondents proposition. It was a unilateral act on the part of the respondent, which Aircon
did not oblige or commit itself to pay.

Third. Needless to state, the amounts computed are mere estimates representing the respondents self-serving claim of unsaved
electricity cost, which is too speculative and conjectural to merit consideration. No other proofs, reports or bases of comparison
showing that Fedders Air Conditioning USA could indeed cut down electricity cost by 30% were adduced.

Likewise, there is no basis for the award of P185,951.67 representing maintenance cost. The respondent merely submitted a
schedule[31] prepared by the respondents accountant, listing the alleged repair costs from March 1987 up to June 1994. Such
evidence is self-serving and can not also be given probative weight, considering that there are no proofs of receipts, vouchers,
etc., which would substantiate the amounts paid for such services. Absent any more convincing proof, the Court finds that the
respondents claims are without basis, and cannot, therefore, be awarded.
We sustain the petitioners separateness from that of Aircon in this case. It bears stressing that the petitioner was never a party
to the contract. Privity of contracts take effect only between parties, their successors-in-interest, heirs and assigns.[32] The
petitioner, which has a separate and distinct legal personality from that of Aircon, cannot, therefore, be held liable.

IN VIEW OF THE FOREGOING, the petition is GRANTED. The assailed decision of the Court of Appeals, affirming the decision
of the Regional Trial Court is REVERSED and SET ASIDE. The complaint of the respondent is DISMISSED. Costs against the
respondent. SO ORDERED.

Jardine Davies vs JRB Realty

Facts: Respondent JRB Realty, Inc. built a building, named Blanco Center, on its parcel of land. An air conditioning system was
needed for the building. JRB Realty accepted a contract from Aircon and Refrigeration Industries, Inc. (Aircon), for two (2) sets
Fedders aircons. The Fedders were installed but they couldn’t deliver the desired cooling temperature. TempControl Systems,
Inc. (a subsidiary of Aircon) undertook to maintain the units. Later, JRB Realty learned that Maxim Industrial and Merchandising
Corporation (Maxim) was the new and exclusive licensee of Fedders aircons in the Philippines. JRB Realty requested that Maxim
honor the Aircon’s obligation, but the latter refused. JRB Realty then filed an action for specific performance with damages
against Aircon, Fedders Air Conditioning USA, Inc., Maxim and Jardine Davies, Inc. Jardine Davies was impleaded as defendant
because Aircon was its subsidiary.

Issue: Whether or not Jardine Davies is liable considering it wasn’t a party to the contract between JRB Realty and Aircon.

Held: Jardine Davies isn’t liable. A corporation is an artificial being invested by law with a personality separate and distinct from
its stockholders and from other corporations to which it may be connected. While a corporation is allowed to exist solely for a
lawful purpose, the law will regard it as an association of persons or in case of two corporations, merge them into one, when this
corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction which
applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime.

While it is true that Aircon is a subsidiary of Jardine Davies, it does not necessarily follow that Aircon’s corporate legal existence
can just be disregarded. A subsidiary has an independent and separate juridical personality, distinct from that of its parent
company; hence, any claim or suit against the latter does not bind the former, and vice versa. In applying the doctrine, the
following requisites must be established:

1. Control, not merely majority or complete stock control;

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 acts in contravention of plaintiff’s legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The records bear out that Aircon is a subsidiary of Jardine Davies only because the latter acquired Aircon’s majority of capital
stock. It doesn’t exercise complete control over Aircon; nowhere can it be gathered that it manages the business affairs of Aircon.
Jardine Davies, Inc. is primarily a financial and trading company while Aircon is a manufacturing firm.

But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies
only when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. Here, there’s no
evidence that Aircon was formed or utilized with the intention of defrauding its creditors or evading its contracts and obligations.
There was nothing fraudulent in the acts of Aircon in this case.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No.197530 July 9, 2014

ABOITIZ EQUITY VENTURES, INC., Petitioner,

vs.
VICTOR S. CHIONGBIAN, BENJAMIN D. GOTHONG, and CARLOS A. GOTHONG LINES, INC. (CAGLI), Respondents.

DECISION

LEONEN, J.:

This is a petition for review on certiorari with an application for the issuance of a temporary restraining order and/or writ of
preliminary injunction under Rule 45 of the Rules of Court. This petition prays that the assailed orders dated May 5, 2011 1 and
June 24, 20112 of the Regional Trial Court, Cebu City, Branch 10 in Civil Case No. CEB-37004 be nullified and set aside and
that judgment be rendered dismissing with prejudice the complaint3 dated July 20, 2010 filed by respondents Carlos A. Gothong
Lines, Inc. ("CAGLI") and Benjamin D. Gothong. On January 8, 1996, Aboitiz Shipping Corporation ("ASC"), principally owned
by the Aboitiz family, CAGLI, principally owned by the Gothong family, and William Lines, Inc.("WLI"), principally owned by the
Chiongbian family, entered into an agreement (the "Agreement"), 4 whereby ASC and CAGLI would transfer their shipping assets
to WLI in exchange for WLI’s shares of stock.5 WLI, in turn, would run their merged shipping businesses and, henceforth, be
known as WG&A, Inc. ("WG&A").6

Sec. 11.06 of the Agreement required all disputes arising out of or in connection with the Agreement tobe settled by arbitration:

11.06 Arbitration

All disputes arising out of or in connection with this Agreement including any issue as to this Agreement’s validity or enforceability,
which cannot be settled amicably among the parties, shall be finally settled by arbitration in accordance with the Arbitration Law
(Republic Act No. 876) by an arbitration tribunal composed of four (4) arbitrators. Each of the parties shall appoint one (1)
arbitrator, the three (3) to appoint the fourth arbitrator who shall act as Chairman. Any award by the arbitration tribunal shall be
final and binding upon the parties and shall be enforced by judgment of the Courts of Cebu or Metro Manila. 7

Among the attachments to the Agreement was Annex SL-V.8 This was a letter dated January 8,1996, from WLI, through its
President (herein respondent) Victor S. Chiongbian addressed to CAGLI, through its Chief Executive Officer Bob D. Gothong
and Executive Vice President for Engineering (herein respondent) Benjamin D. Gothong. On its second page, Annex SL-V bore
the signatures of Bob D. Gothong and respondent Benjamin D. Gothong by way of a conforme on behalf of CAGLI.

Annex SL-V confirmed WLI’s commitment to acquire certain inventories of CAGLI. These inventories would have a total
aggregate value of, at most, ₱400 million, "as determine dafter a special examination of the [i]nventories." 9Annex SL-V also
specifically stated that such acquisition was "pursuant to the Agreement." 10

The entirety of Annex SL-V’s substantive portion reads:

We refer to the Agreement dated January 8, 1996 (the "Agreement") among William Lines, Inc. ("Company C"), Aboitiz Shipping
Corporation ("Company A") and Carlos A. Gothong Lines, Inc. ("Company B") regarding the transfer of various assets of
Company A and Company B to Company C in exchange for shares of capital stock of Company C. Terms defined in the
Agreement are used herein as therein defined.

This will confirm our commitment to acquire certain spare parts and materials inventory (the "Inventories") of Company B
pursuant to the Agreement.
The total aggregate value of the Inventories to be acquired shall not exceed ₱400 Million as determined after a special
examination of the Inventories as performed by SGV & Co. to be completed on or before the Closing Date under the agreed
procedures determined by the parties.

Subject to documentation acceptable to both parties, the Inventories to be acquired shall be determined not later than thirty (30)
days after the Closing Date and the payments shall be made in equal quarterly instalments over a period of two years with the
first payment due on March 31, 1996. 11

Pursuant to Annex SL-V, inventories were transferred from CAGLI to WLI. These inventories were assessed to have a value of
514 million, which was later adjusted to 558.89 million.12 Of the total amount of 558.89 million, "CAGLI was paid the amount of
400 Million."13 In addition to the payment of 400 million, petitioner Aboitiz Equity Ventures ("AEV") noted that WG&A shares with
a book value of 38.5 million were transferred to CAGLI.14

As there was still a balance, in2001, CAGLI sent WG&A (the renamed WLI) demand letters "for the return of or the payment for
the excess [i]nventories."15 AEV alleged that to satisfy CAGLI’s demand, WLI/WG&A returned inventories amounting to 120.04
million.16 As proof of this, AEV attached copies of delivery receipts signed by CAGLI’s representatives as Annex "K" of the
present petition. 17

Sometime in 2002, the Chiongbian and Gothong families decided to leave the WG&A enterprise and sell their interest in WG&A
to the Aboitiz family. As such, a share purchase agreement18 ("SPA") was entered into by petitioner AEV and the respective
shareholders groups of the Chiongbians and Gothongs. In the SPA, AEV agreed to purchase the Chiongbian group's 40.61%
share and the Gothong group's 20.66% share in WG&A’s issued and outstanding stock.19

Section 6.5 of the SPA provided for arbitration as the mode of settling any dispute arising from the SPA. It reads:

6.5 Arbitration. Should there be any dispute arising between the parties relating to this Agreement including the interpretation or
performance hereof which cannot be resolved by agreement of the parties within fifteen (15) days after written notice by a party
to another, such matter shall then be finally settled by arbitration in Cebu City in accordance with the Philippine Arbitration Law.
Substantive aspects of the dispute shall be settled by applying the laws of the Philippines. The decision of the arbitrators shall
be final and binding upon the parties hereto and the expense of arbitration (including without limitation the award of attorney’s
fees to the prevailing party) shall be paid as the arbitrators shall determine.20

Section 6.8 of the SPA further provided that the Agreement (of January 8, 1996) shall be deemed terminated except its Annex
SL-V. It reads:

6.8 Termination of Shareholders Agreement. The Buyer and the Sellers hereby agree that on Closing, the Agreement among
Aboitiz Shipping Corporation, Carlos A. Gothong Lines, Inc. and William Lines, Inc. dated January 8, 1996, as the same has
been amended from time to time (the "Shareholders’ Agreement") shall all be considered terminated, except with respect to
such rights and obligations that the parties to the Shareholders’ Agreement have under a letter dated January 8, 1996 (otherwise
known as "SL-V") from William Lines, Inc. to Carlos A. Gothong Lines, Inc. regarding certain spare parts and materials inventory,
which rights and obligations shall survive through the date prescribed by the applicable statute of limitations. 21

As part of the SPA, the parties entered into an Escrow Agreement22 whereby ING Bank N.V.-Manila Branch was to take custody
of the shares subject of the SPA.23 Section 14.7 of the Escrow Agreement provided that all disputes arising from it shall be
settled through arbitration:

14.7 All disputes, controversies or differences which may arise by and among the parties hereto out of, or in relation to, or in
connection with this Agreement, or for the breach thereof shall be finally settled by arbitration in Cebu City in accordance with
the Philippine Arbitration Law. The award rendered by the arbitrator(s) shall be final and binding upon the parties concerned.
However, notwithstanding the foregoing provision, the parties reserve the right to seek redress before the regular court and avail
of any provisional remedies in the event of any misconduct, negligence, fraud or tortuous acts which arise from any extra-
contractual conduct that affects the ability of a party to comply with his obligations and responsibilities under this Agreement.24

As a result of the SPA, AEV became a stockholder of WG&A. Subsequently, WG&A was renamed Aboitiz Transport Shipping
Corporation ("ATSC").25

Petitioner AEV alleged that in2008, CAGLI resumed making demands despite having already received 120.04 million worth of
excess inventories. 26 CAGLI initially made its demand to ATSC (the renamed WLI/WG&A) through a letter 27dated February 14,
2008. As alleged by AEV, however, CAGLI subsequently resorted to a "shotgun approach" 28 and directed its subsequent
demand letters to AEV 29 as well as to FCLC30 (a company related to respondent Chiongbian).

AEV responded to CAGLI’s demands through several letters.31 In these letters, AEV rebuffed CAGLI's demands noting that: (1)
CAGLI already received the excess inventories;(2) it was not a party to CAGLI's claim as it had a personality distinct from
WLI/WG&A/ATSC; and (3) CAGLI's claim was already barred by prescription.

In a reply-letter32 dated May 5, 2008, CAGLI claimed that it was unaware of the delivery to it of the excess inventories and asked
for copies of the corresponding delivery receipts.33 CAGLI threatened that unless it received proof of payment or return of excess
inventories having been made on or before March 31, 1996, it would pursue arbitration. 34

In letters written for AEV (the first dated October 16, 2008 by Aboitiz and Company, Inc.’s Associate General Counsel Maria
Cristina G. Gabutina35 and the second dated October 27, 2008 by Sy Cip Salazar Hernandez and Gatmaitan36), it was noted
that the excess inventories were delivered to GT Ferry Warehouse.37 Attached to these letters were a listing and/or samples38 of
the corresponding delivery receipts. In these letters it was also noted that the amount of excess inventories delivered (120.04
million) was actually in excess of the value of the supposedly unreturned inventories (119.89 million).39 Thus, it was pointed out
that it was CAGLI which was liable to return the difference between 120.04 million and 119.89 million. 40 Its claims not having
been satisfied, CAGLI filed on November 6, 2008 the first of two applications for arbitration ("first complaint") 41 against
respondent Chiongbian, ATSC, ASC, and petitioner AEV, before the Cebu City Regional Trial Court, Branch 20. The first
complaint was docketed as Civil Case No. CEB-34951.

In response, AEV filed a motion to dismiss42 dated February 5, 2009. AEV argued that CAGLI failed to state a cause of action
as there was no agreement to arbitrate between CAGLI and AEV.43 Specifically, AEV pointed out that: (1) AEV was never a
party to the January 8, 1996 Agreement or to its Annex SL-V;44 (2) while AEV is a party to the SPA and Escrow Agreement,
CAGLI's claim had no connection to either agreement; (3) the unsigned and unexecuted SPA attached to the complaint cannot
be a source of any right to arbitrate; 45 and (4) CAGLI did not say how WLI/WG&A/ATSC's obligation to return the excess
inventories can be charged to AEV.

On December 4, 2009, the Cebu City Regional Trial Court, Branch 20 issued an order 46 dismissing the first complaint with
respect to AEV. It sustained AEV’s assertion that there was no agreement binding AEV and CAGLI to arbitrate CAGLI’s
claim.47 Whether by motion for reconsideration, appeal or other means, CAGLI did not contest this dismissal.

On February 26, 2010, the Cebu City Regional Trial Court, Branch 20 issued an order48 directing the parties remaining in the
first complaint (after the discharge of AEV) to proceed with arbitration.

The February 26, 2010 order notwithstanding, CAGLI filed a notice of dismissal49 dated July 8, 2010, withdrawing the first
complaint. In an order 50 dated August 13, 2010, the Cebu City Regional Trial Court, Branch 20 allowed this withdrawal.

ATSC (the renamed WLI/WG&A) filed a motion for reconsideration51 dated September 20, 2010 to the allowance of CAGLI's
notice of dismissal. This motion was denied in an order52 dated April 15, 2011.

On September 1, 2010, while the first complaint was still pending (n.b., it was only on April 15, 2011 that the Cebu City Regional
Trial Court, Branch 20 denied ATSC’s motion for reconsideration assailing the allowance of CAGLI’s notice of disallowance),
CAGLI, now joined by respondent Benjamin D. Gothong, filed a second application for arbitration ("second complaint")53 before
the Cebu City Regional Trial Court, Branch 10. The second complaint was docketed as Civil Case No. CEB-37004 and was also
in view of the return of the same excess inventories subject of the first complaint.

On October 28, 2010, AEV filed a motion to dismiss 54 the second complaint on the following grounds: 55 (1) forum shopping; (2)
failure to state a cause of action; (3) res judicata; and (4) litis pendentia.

In the first of the two (2) assailed orders dated May 5, 2011, 56 the Cebu City Regional Trial Court, Branch 10 denied AEV's
motion to dismiss.

On the matter of litis pendentia, the Regional Trial Court, Branch 10 noted that the first complaint was dismissed with respect to
AEV on December 4, 2009, while the second complaint was filed on September 1, 2010. As such, the first complaint was no
longer pending at the time of the filing of the second complaint.57 On the matter of res judicata, the trial court noted that the
dismissal without prejudice of the first complaint "[left] the parties free to litigate the matter in a subsequent action, as though the
dismiss[ed] action had not been commenced."58 It added that since litis pendentia and res judicata did not exist, CAGLI could
not be charged with forum shopping.59 On the matter of an agreement to arbitrate, the Regional Trial Court, Branch 10 pointed
to the SPA as "clearly express[ing] the intention of the parties to bring to arbitration process all disputes, if amicable settlement
fails."60 It further dismissed AEV’s claim that it was not a party to the SPA, as "already touching on the merits of the case" 61 and
therefore beyond its duty "to determine if they should proceed to arbitration or not."62

In the second assailed order63 dated June 24, 2011, the Cebu City Regional Trial Court, Branch 10 denied AEV's motion for
reconsideration.

Aggrieved, AEV filed the present petition.64 AEV asserts that the second complaint is barred by res judicata and litis pendentia
and that CAGLI engaged in blatant forum shopping.65 It insists that it is not bound by an agreement to arbitrate with CAGLI and
that, even assuming that it may be required to arbitrate, it is being ordered to do so under terms that are "manifestly contrary to
the . . . agreements on which CAGLI based its demand for arbitration."66

For resolution are the following issues:

I. Whether the complaint in Civil Case No. CEB-37004 constitutes forum shopping and/or is barred by res judicata and/or litis
pendentia

II. Whether petitioner, Aboitiz Equity Ventures, Inc., is bound by an agreement to arbitrate with Carlos A. Gothong Lines, Inc.,
with respect to the latter’s claims for unreturned inventories delivered to William Lines, Inc./WG&A, Inc./Aboitiz Transport System
Corporation

AEV availed of the wrong

remedy in seeking relief from
this court

Before addressing the specific matters raised by the present petition, we emphasize that AEV is in error in seeking relief from
this court via a petition for review on certiorari under Rule45 of the Rules of Court. As such, we are well in a position to dismiss
the present petition outright. Nevertheless, as the actions of the Cebu City Regional Trial Court, Branch 10 are tainted with grave
abuse of discretion amounting to lack or excess of jurisdiction, this court treats the present Rule 45 petition as a Rule 65 petition
and gives it due course.

A petition for review on certiorari under Rule 45 is a mode of appeal. This is eminently clear from the very title and from the
first section of Rule 45 (as amended by A.M. No. 07-7-12-SC):

Rule 45
APPEAL BY CERTIORARITO THE SUPREME COURT

SECTION 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a judgment, final order or
resolution of the Court of Appeals, the Sandiganbayan, the Court of Tax Appeals, the Regional Trial Court or other courts,
whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition may include
an application for a writ of preliminary injunction or other provisional remedies and shall raise only questions of law, which must
be distinctly set forth. The petitioner may seek the same provisional remedies by verified motion filed in the same action or
proceeding at any time during its pendency. (Emphasis supplied)

Further, it is elementary that an appeal may only be taken from a judgment or final order that completely disposes of the
case.67 As such, no appeal may be taken from an interlocutory order 68 (i.e., "one which refers to something between the
commencement and end of the suit which decides some point or matter but it is not the final decision of the whole controversy"69).
As explained in Sime Darby Employees Association v. NLRC,70 "[a]n interlocutory order is not appealable until after the rendition
of the judgment on the merits for a contrary rule would delay the administration of justice and unduly burden the courts." 71

An order denying a motion to dismiss is interlocutory in character. Hence, it may not be the subject of an appeal. The interlocutory
nature of an order denying a motion to dismiss and the remedies for assailing such an order were discussed in Douglas Lu Ym
v. Nabua:72

An order denying a motion to dismiss is an interlocutory order which neither terminates nor finally disposes of a case, as it leaves
something to be done by the court before the case is finally decided on the merits. As such, the general rule is that the denial of
a motion to dismiss cannot be questioned in a special civil action for certiorari which is a remedy designed to correct errors of
jurisdiction and not errors of judgment. Neither can a denial of a motion to dismiss be the subject of an appeal unless and until
a final judgment or order is rendered. In order to justify the grant of the extraordinary remedy of certiorari, the denial of the motion
to dismiss must have been tainted with grave abuse of discretion amounting to lack or excess of jurisdiction. 73 (Emphasis
supplied)

Thus, where a motion to dismiss is denied, the proper recourse is for the movant to file an answer. 74 Nevertheless, where the
order denying the motion to dismiss is tainted with grave abuse of discretion amounting to lack or excess of jurisdiction, the
movant may assail such order via a Rule 65 (i.e., certiorari, prohibition, and/or mandamus) petition. This is expressly recognized
in the third paragraph of Rule 41, Section 1 of the Rules of Court.75 Following the enumeration in the second paragraph of Rule
41, Section 1 of the instances when an appeal may not be taken, the third paragraph specifies that "[in] any of the foregoing
circumstances, the aggrieved party may file an appropriate special civil action as provided in Rule 65." 76

Per these rules, AEV is in error for having filed what it itself calls a "Petition for Review on Certiorari [Appeal by Certiorari under
Rule 45 of the Rules of Court]."77 Since AEV availed of the improper remedy, this court is well in a position to dismiss the present
petition.

Nevertheless, there have been instances when a petition for review on certiorari under Rule 45 was treated by this court as a
petition for certiorari under Rule 65. As explained in China Banking Corporation v. Asian Construction and Development
Corporation:78

[I]n many instances, the Court has treated a petition for review on certiorari under Rule 45 as a petition for certiorari under Rule
65 of the Rules of Court, such as in cases where the subject of the recourse was one of jurisdiction, or the act complained of
was perpetrated by a court with grave abuse of discretion amounting to lack or excess of jurisdiction. 79

In this case, the May 5, 2011 and June 24, 2011 orders of the Cebu City Regional Trial Court, Branch 10 in Civil Case No. CEB-
37004 are assailed for having denied AEV’s motion to dismiss despite: first, the second complaint having been filed in a manner
constituting forum shopping; second, the prior judgment on the merits made in Civil Case No. CEB-34951, thereby violating the
principle of res judicata; and third, the (then) pendency of Civil Case No. CEB-34951 with respect to the parties that, unlike AEV,
were not discharged from the case, thereby violating the principle of litis pendentia. The same orders are assailed for having
allowed CAGLI’s application for arbitration to continue despite supposedly clear and unmistakable evidence that AEV is not
bound by an agreement to arbitrate with CAGLI.

As such, the Cebu City, Regional Trial Court, % 10’s orders are assailed for having been made with grave abuse of discretion
amounting to lack or excess of jurisdiction in that the Cebu City Regional Trial Court, Branch 10 chose to continue taking
cognizance of the second complaint, despite there being compelling reasons for its dismissal and the Cebu City, Regional Trial
Court Branch 20’s desistance. Conformably, we treat the present petition as a petition for certiorari under Rule 65 of the Rules
of Court and give it due course.

The complaint in Civil Case

No. CEB-37004 constitutes
forum shopping and is barred
by res judicata

The concept of and rationale against forum shopping were explained by this court in Top Rate Construction & General Services,
Inc. v. Paxton Development Corporation: 80

FORUM SHOPPING is committed by a party who institutes two or more suits in different courts, either simultaneously or
successively, in order to ask the courts to rule on the same or related causes or to grant the same or substantially the same
reliefs, on the supposition that one or the other court would make a favorabledisposition or increase a party's chances of
obtaining a favorable decision or action. It is an act of malpractice for it trifles with the courts, abuses their processes, degrades
the administration of justice and adds to the already congested court dockets. What is critical is the vexation brought upon the
courts and the litigants by a party who asks different courts to rule on the same or related causes and grant the same or
substantially the same reliefs and in the process creates the possibility of conflicting decisions being rendered by the different
fora upon the same issues, regardless of whether the court in which one of the suits was brought has no jurisdiction over the
action.81

Equally settled is the test for determining forum shopping. As this court explained in Yap v. Chua: 82
To determine whether a party violated the rule against forum shopping, the most important factor toask is whether the elements
of litis pendentiaare present, or whether a final judgment in one case will amount to res judicatain another; otherwise stated, the
test for determining forum shopping is whether in the two (or more) cases pending, there is identity of parties, rights or causes
of action, and reliefs sought. 83

Litis pendentia "refers to that situation wherein another action is pending between the same parties for the same cause ofaction,
such that the second action becomes unnecessary and vexatious." 84 It requires the concurrence of three (3) requisites: "(1)the
identity of parties, or at least such as representing the same interests in both actions; (2) the identity of rights asserted and relief
prayed for,the relief being founded on the same facts; and (3) the identity of the two cases such that judgment in one, regardless
of which party issuccessful, would amount tores judicatain the other."85

In turn, prior judgment or res judicata bars a subsequent case when the following requisites concur: "(1) the former judgment is
final; (2) it is rendered by a court having jurisdiction over the subject matter and the parties; (3) it is a judgment or an order on
the merits; (4) there is — between the first and the second actions — identityof parties, of subject matter, and of causes of
action."86

Applying the cited concepts and requisites, we find that the complaint in Civil Case No. CEB-37004 is barred byres judicata and
constitutes forum shopping.

First, between the first and second complaints, there is identity of parties. The first complaint was brought by CAGLI as the sole
plaintiff against Victor S. Chiongbian, ATSC, and AEV as defendants. In the second complaint, CAGLI was joined by Benjamin
D. Gothong as (co-)plaintiff. As to the defendants, ATSC was deleted while Chiongbian and AEV were retained.

While it is true that the parties to the first and second complaints are not absolutely identical, this court has clarified that, for
purposes of forum shopping, "[a]bsolute identity of parties is not required [and that it] is enough that there is substantial identity
of parties."87

Even as the second complaint alleges that Benjamin D. Gothong "is . . . suing in his personal capacity," 88 Gothong failed to show
any personal interest in the reliefs sought by the second complaint. Ultimately, what is at stake in the second complaint is the
extent to which CAGLI may compel AEV and Chiongbian to arbitrate in order that CAGLI may then recover the value of its
alleged unreturned inventories. This claim for recovery is pursuant to the agreement evinced in Annex SL-V. Annex SL-V was
entered into by CAGLI and not by Benjamin D. Gothong. While it is true that Benjamin D. Gothong, along with Bob D. Gothong,
signed Annex SL-V, he did so only in a representative, and not in a personal, capacity. As such, Benjamin D. Gothong cannot
claim any right that personally accrues to him on account of Annex SL-V. From this, it follows that Benjamin D. Gothong is not
a real party in interest — "one who stands to be benefitted or injured by the judgment in the suit or the party entitled to the avails
of the suit"89 — and that his inclusion in the second complaint is an unnecessary superfluity.

Second, there is identity in subject matter and cause of action. There is identity in subject matter as both complaints are
applications for the same relief. There is identity in cause ofaction as both complaints are grounded on the right to be paid for or
to receive the value of excess inventories (and the supposed corresponding breach thereof) as spelled out in Annex SL-V.

The first and second complaints are both applications for arbitration and are founded on the same instrument — Annex SL-V.
Moreover, the intended arbitrations in both complaintscater to the sameultimate purpose, i.e., that CAGLI may recover the value
of its supposedly unreturned inventories earlier delivered to WLI/WG&A/ATSC.

In both complaints, the supposedpropriety of compelling the defendants to submit themselves to arbitration are anchored on the
same bases: (1) Section 6.8 of the SPA, which provides that the January 8, 1996 Agreement shall be deemed terminatedbut
that the rights and obligations arising from Annex SL-V shall continue to subsist; 90 (2) Section 6.5 of the SPA, which requires
arbitration as the mode for settling disputes relating to the SPA;91 and, (3) defendants’ refusal to submit themselves to arbitration
vis-a-vis Republic Act No. 876, which provides that "[a] party aggrieved by the failure, neglect or refusal of another to perform
under an agreement in writing providing for arbitration may petition the court for an order directing that such arbitration proceed
in the manner provided for in such agreement." 92

Both complaints also rely on the same factual averments: 93

1. that ASC, CAGLI, and WLI entered into an agreement on January 8, 1996;
 2. that under Annex SL-V of the Agreement, WLI/WG&A "committed to acquire certain [inventories], the total aggregate
value of which shall not exceed ₱400 Million"; 94

3. that after examination, it was ascertained that the value of the transferred inventories exceeded ₱400 million;

4. that pursuant to Annex SL-V, WG&A paid CAGLI ₱400 million but that the former failed to return or pay for spare
parts representing a value in excess of ₱400 million;

5. "[t]hat on August 31, 2001, [CAGLI] wrote the WG&A through its AVP Materials Management, Ms. Concepcion M.
Magat, asking for the return of the excess spare parts"; 95

6. that on September 5, 2001, WG&A’s Ms. Magat replied that the matter is beyond her authority level and that she
must elevate it to higher management;

7. that several communications demanding the return of the excess spare parts were sent to WG&Abut these did not
elicit any response; and

8. "[t]hat the issue of excess spare parts, was taken over by events, when on July 31, 2002," 96 the Chiongbians and
Gothongs entered into an Escrow Agreement with AEV.

Third, the order dated December 4, 2009 of the Cebu City Regional Trial Court, Branch 20, which dismissed the first complaint
with respect to AEV, attained finality when CAGLI did not file a motion for reconsideration, appealed, or, in any other manner,
questioned the order.

Fourth, the parties did not dispute that the December 4, 2009 order was issued by a court having jurisdiction over the subject
matter and the parties. Specifically as to jurisdiction over the parties,jurisdiction was acquired over CAGLI as plaintiff when it
filed the first complaint and sought relief from the Cebu City Regional Trial Court, Branch 20; jurisdiction over defendants AEV,
ATSC, and Victor S.Chiongbian was acquired with the service of summons upon them. Fifth, the dismissal of the first complaint
with respect to AEV was a judgment on the merits. As explained in Cabreza, Jr. v. Cabreza: 97

A judgment may be considered as one rendered on the merits "when it determines the rights and liabilities of the parties based
on the disclosed facts, irrespective of formal, technical or dilatoryobjections"; or when the judgment is rendered "aftera
determination of which party is right, as distinguished from a judgment rendered upon some preliminary or formal or merely
technical point."98

Further, as this court clarified in Mendiola v. Court of Appeals,99 "[i]t is not necessary . . . that there [be] a trial"100 in order that a
judgment be considered as one on the merits.

Prior to issuing the December 4, 2009 order dismissing the first complaint with respect to AEV, the Cebu City Regional Trial
Court, Branch 20 allowed the parties the full opportunity to establish the facts and to ventilate their arguments relevant to the
complaint. Specifically, the Cebu City Regional Trial Court, Branch 20 admitted: 1) AEV’s motion to dismiss;101 2) CAGLI’s
opposition to the motion to dismiss; 102 3) AEV’s reply and opposition;103 4) CAGLI’s rejoinder; 104 and 5) AEV’s surrejoinder. 105

Following these, the Cebu City Regional Trial Court, Branch 20 arrived at the following findings and made a definitive
determination that CAGLI had no right to compel AEV to subject itself to arbitration with respect to CAGLI’s claims under Annex
SL-V:

After going over carefully the contentions and arguments of both parties, the court has found that no contract or document exists
binding CAGLI and AEV to arbitrate the former’s claim. The WLI Letter upon which the claim is based confirms only the
commitment of William Lines, Inc. (WLI) to purchase certain material inventories from CAGLI. It does not involve AEV. The court
has searched in vain for any agreement or document showing that said commitment was passed on to and assumed by AEV.
Such agreement or document, if one exists, being an actionable document, should have been attached to the complaint. While
the Agreement of January 8, 1996 and the Share Purchase Agreement provide for arbitration of disputes, they refer to disputes
arising from or in connection with the Agreements themselves. No reference is made, as included therein, to the aforesaid
commitment of WLI or to any claim that CAGLI may pursue based thereon or relative thereto. Section 6.8 of the Share Purchase
Agreement, cited by plaintiff CAGLI, does not incorporate therein, expressly or impliedly, the WLI commitment above-mentioned.
It only declares that the rights and obligations of the parties under the WLI Letter shall survive even after the termination of the
Shareholder’s Agreement. It does not speak of arbitration. Finally, the complaint does not allege the existence of a contract
obliging CAGLI and AEV to arbitrate CAGLI’s claim under the WLI Letter. Consequently, there is no legal or factual basis for the
present complaint for application for arbitration. 106 (Emphasis supplied)

In the assailed order dated May 5, 2011, the Cebu City Regional Trial Court, Branch 10 made much of the Cebu City Regional
Trial Court, Branch 20’s pronouncement in the latter’s December 4, 2009 order that "the [first] complaint fails to state a cause of
action."107 Based on this, the Cebu City Regional Trial Court, Branch 10 concluded that the dismissal of the first complaint was
one made without prejudice, thereby "leav[ing] the parties free to litigate the matter ina subsequent action, as though the
dismissal [sic] action had not been commenced."108

The Cebu City Regional Trial Court, Branch 10 is in serious error. In holding that the second complaint was not barred by res
judicata, the Cebu City Regional Trial Court, Branch 10 ignored established jurisprudence.

Referring to the earlier cases of Manalo v. Court of Appeals109 and Mendiola v. Court of Appeals,110 this court emphasized in
Luzon Development Bank v. Conquilla111 that dismissal for failure to state a cause of action may very well be considered a
judgment on the merits and, thereby, operate as res judicata on a subsequent case:

[E]ven a dismissal on the ground of "failure to state a cause of action" may operate as res judicata on a subsequent case
involving the same parties, subject matter, and causes of action, provided that the order of dismissalactually ruled on the issues
raised.What appears to be essential to a judgment on the merits is that it be a reasoned decision, which clearly states the facts
and the law on which it is based. 112 (Emphasis supplied)

To reiterate, the Cebu City Regional Trial Court, Branch 20 made a definitive determination that CAGLI had no right to compel
AEV to subject itself to arbitrationvis-a-vis CAGLI’s claims under Annex SL-V. This determination was arrived at after due
consideration of the facts established and the arguments advancedby the parties. Accordingly, the Cebu City Regional Trial
Court, Branch 20’s December 4, 2009 order constituted a judgment on the merits and operated as res judicata on the second
complaint.

In sum, the requisites for res judicata have been satisfied and the second complaint should, thus, have been dismissed. From
this, it follows that CAGLI committed an act of forum shopping in filing the second complaint. CAGLI instituted two suits in two
regional trial court branches, albeit successively and not simultaneously. It asked both branches to rule on the exact same cause
and to grant the exact same relief. CAGLI did so after it had obtained an unfavorable decision (at least with respect to AEV) from
the Cebu City Regional Trial Court, Branch 20. These circumstances afford the reasonable inference that the second complaint
was filed in the hopes of a more favorable ruling.

Notwithstanding our pronouncements sustaining AEV’s allegations that CAGLI engaged in forum shopping and that the second
complaint was barred by res judicata, we find that at the time of the filing of the second complaint, AEV had already been
discharged from the proceedings relating to the first complaint. Thus, asbetween AEV and CAGLI, the first complaint was no
longer pending at the time of the filing of the second complaint. Accordingly, the second complaint could not have been barred
by litis pendentia.

There is no agreement
binding AEV to arbitrate
with CAGLI on the latter’s
claims arising from Annex SL-V

For arbitration to be proper, it is imperative thatit be grounded on an agreement between the parties. This was adequately
explained in Ormoc Sugarcane Planters’ Association,Inc. v. Court of Appeals: 113

Section 2 of R.A. No. 876 (the Arbitration Law) pertinently provides:

Sec. 2. Persons and matterssubject to arbitration. – Two or more persons or parties may submit to the arbitration of one or more
arbitrators any controversy existing between them at the time of the submission and which may be the subject of an action, or
the parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them.
Such submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the
revocation of any contract. . . . (Emphasis ours)

The foregoing provision speaks of two modes of arbitration: (a) an agreement to submit to arbitration somefuture dispute, usually
stipulated upon in a civil contract between the parties, and known as an agreement to submit to arbitration, and (b) an agreement
submitting an existing matter of difference to arbitrators, termed the submission agreement. Article XX of the milling contract is
an agreement to submit to arbitrationbecause it was made in anticipation of a dispute that might arise between the parties after
the contract’s execution.

Except where a compulsory arbitration is provided by statute, the first step toward the settlement of a difference by arbitration is
the entry by the parties into a valid agreement to arbitrate.An agreement to arbitrate is a contract, the relation ofthe parties is
contractual, and the rights and liabilities of the parties are controlled by the law of contracts. In an agreement for arbitration, the
ordinary elements of a valid contract must appear, including an agreement toarbitrate some specific thing, and an agreement to
abide by the award, either in express language or by implication. 114 (Emphasis supplied)

In this petition, not one of the parties — AEV, CAGLI, Victor S. Chiongbian, and Benjamin D. Gothong — has alleged and/or
shown that the controversy is properly the subject of "compulsory arbitration [as] provided by statute." 115Thus, the propriety of
compelling AEV to submit itself to arbitration must necessarilybe founded on contract.

Four (4) distinct contracts have been cited in the present petition:

1. The January 8, 1996 Agreement in which ASC, CAGLI, and WLI merged their shipping enterprises, with WLI
(subsequently renamed WG&A) as the surviving entity. Section 11.06 of this Agreement provided for arbitration as the
mechanism for settling all disputes arising out of or in connection with the Agreement.

2. Annex SL-V of the Agreement between CAGLI and WLI (and excluded ASC and any other Aboitiz-controlled entity),
and which confirmed WLI’s commitment to acquire certain inventories, worth not more than 400 million, of CAGLI.
Annex SL-V stated that the acquisition was "pursuant to the Agreement." 116 It did not contain an arbitration clause.

3. The September 23, 2003 Share Purchase Agreement or SPA in which AEV agreed to purchasethe Chiongbian and
Gothong groups' shares in WG&A’s issued and outstanding stock. Section 6.5 of the SPA provided for arbitration as
the mode of settling any dispute arising from the SPA. Section 6.8 of the SPA further provided that the Agreement of
January 8, 1996 shall be deemed terminatedexcept its Annex SL-V.

4. The Escrow Agreement whereby ING Bank N.V.-Manila Branch was to take custody of the shares subject of the
SPA. Section 14.7 of the Escrow Agreement provided that all disputes arising from it shall be settled via arbitration.

The obligation for WLI to acquire certain inventories of CAGLI and which is the subject of the present petition was contained in
Annex SL-V. It is therefore this agreement which deserves foremost consideration. As to this particular agreement, these points
must be underscored: first, that it has no arbitration clause; second, Annex SL-V is only between WLI and CAGLI.

On the first point, it is clear, pursuant to this court’s pronouncements in Ormoc Sugarcane Planters’ Association, that neither
WLI nor CAGLI can compel arbitration under Annex SL-V. Plainly, there is no agreement to arbitrate.

It is of no moment that Annex SL-Vstates that it was made "pursuant to the Agreement" or that Section 11.06 of the January 8,
1996 Agreement provides for arbitration as the mode of settling disputes arising out of or in connection with the Agreement.

For one, to say that Annex SL-V was made"pursuant to the Agreement" is merely to acknowledge: (1) the factual context in
which Annex SL-V was executed and (2) that it was that context that facilitated the agreement embodied in it. Absentany other
clear or unequivocal pronouncement integrating Annex SL-V into the January 8, 1996 Agreement, it would be too much of a
conjecture to jump to the conclusion that Annex SL-V is governed by the exact same stipulations which govern the January 8,
1996 Agreement.

Likewise, a reading of the Agreement’s arbitration clause will reveal that it does not contemplate disputes arising from Annex
SL-V.

Section 11.06 of the January 8, 1996 Agreement requires the formation of an arbitration tribunal composed of four (4) arbitrators.
Each of the parties — WLI, CAGLI, and ASC — shall appoint one (1) arbitrator, and the fourth arbitrator, who shall actas
chairman, shall be appointed by the three (3) arbitrators appointed by the parties. From the manner by which the arbitration
tribunal is to be constituted, the necessary implication is that the arbitration clause is applicable tothree-party disputes — as will
arise from the tripartite January 8, 1996 Agreement — and not to two-party disputesas will arise from the two-party Annex SL-
V.
From the second point — that Annex SL-V is only between WLI and CAGLI — it necessarily follows that none but
WLI/WG&A/ATSC and CAGLI are bound by the terms of Annex SL-V. It is elementary that contracts are characterized by
relativity or privity, that is, that "[c]ontracts take effect only between the parties, their assigns and heirs." 117 As such, one who is
not a party to a contract may not seek relief for such contract’s breach. Likewise, one who is not a party to a contract may not
be held liable for breach of any its terms.

While the principle of privity or relativity of contracts acknowledges that contractual obligations are transmissible to a party’s
assigns and heirs, AEV is not WLI’s successor-in-interest. In the period relevant to this petition, the transferee of the inventories
transferred by CAGLI pursuant to Annex SL-V assumed three (3) names: (1) WLI, the original name of the entity that survived
the merger under the January 8, 1996 Agreement; (2) WG&A, the name taken by WLI in the wake of the Agreement; and (3)
ATSC, the name taken by WLI/WG&A inthe wake of the SPA. As such, it is now ATSC that is liable under Annex SL-V.

Pursuant to the January 8, 1996 Agreement, the Aboitiz group (via ASC) and the Gothong group (viaCAGLI) became
stockholders of WLI/WG&A, along with the Chiongbiangroup (which initially controlled WLI). This continued until, pursuant to
the SPA, the Gothong group and the Chiongbian group transferred their shares to AEV. With the SPA, AEV became a
stockholder of WLI/WG&A, which was subsequently renamed ATSC. Nonetheless, AEV’s status asATSC’s stockholder does
not subject it to ATSC’s obligations

It is basic that a corporation has a personality separate and distinct from that of its individual stockholders. Thus, a stockholder
does not automatically assume the liabilities of the corporation of which he is a stockholder. As explained in Philippine National
Bankv. Hydro Resources Contractors Corporation: 118

A corporation is an artificial entitycreated by operation of law. It possesses the right of succession and such powers, attributes,
and properties expressly authorized by law or incident to its existence. It has a personality separate and distinct from that of its
stockholders and from that of other corporations to which it may be connected. As a consequence of its status as a distinct legal
entityand as a result of a conscious policy decision to promote capital formation, a corporation incurs its own liabilities and is
legally responsible for payment of its obligations. In other words, by virtue of the separate juridical personality ofa corporation,
the corporate debt or credit is not the debt or credit of the stockholder. This protection from liability for shareholders is the
principle of limited liability. 119

In fact, even the ownership by a single stockholder of all or nearly all the capital stock of a corporation is not, in and of itself, a
ground for disregarding a corporation’s separate personality. As explained in Secosa v. Heirs of Francisco: 120

It is a settled precept in this jurisdiction that a corporation is invested by law with a personality separate from thatof its
stockholders or members. It has a personality separate and distinct from those of the persons composing it as well as from that
of any other entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly
all of the capital stock of a corporation is not in itself sufficient ground for disregarding the separate corporate personality.A
corporation’s authority to act and its liability for its actions are separate and apart from the individuals who own it.

The so-called veil of corporation fiction treats as separate and distinct the affairs of a corporation and its officers and
stockholders. As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the
contrary appears. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, the law will regard the corporation as an association of persons. Also, the corporate entity may be disregarded in the
interest of justice in such cases asfraud that may work inequities among members of the corporation internally, involving no
rights of the public or third persons. In both instances, there must have been fraud and proof of it. For the separate juridical
personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be
presumed.121 (Emphasis supplied)

AEV’s status as ATSC’s stockholder is, in and of itself, insufficient to make AEV liable for ATSC’s obligations. Moreover, the
SPA does not contain any stipulation which makes AEV assume ATSC’s obligations. It is true that Section 6.8 of the SPA
stipulates that the rights and obligations arising from Annex SL-V are not terminated. But all that Section 6.8 does is recognize
that the obligations under Annex SL-V subsist despite the termination of the January 8, 1996 Agreement. At no point does the
text of Section 6.8 support the position that AEV steps into the shoes of the obligor under Annex SL-V and assumes its
obligations.

Neither does Section 6.5 of the SPAsuffice to compel AEV to submit itself to arbitration. While it is true that Section 6.5 mandates
arbitration as the mode for settling disputes between the parties to the SPA, Section 6.5 does not indiscriminatelycover any and
all disputes which may arise between the parties to the SPA. Rather, Section 6.5 is limited to "dispute[s] arising between the
parties relating tothis Agreement [i.e., the SPA]."122 To belabor the point, the obligation which is subject of the present dispute
pertains to Annex SL-V, not to the SPA. That the SPA, in Section 6.8, recognizes the subsistence of Annex SL-Vis merely a
factual recognition. It does not create new obligations and does not alter or modify the obligations spelled out in Annex SL-V.

AEV was drawn into the present controversy on account of its having entered into the SPA. This SPA made AEV a stockholder
of WLI/WG&A/ATSC. Even then, AEV retained a personality separate and distinct from WLI/WG&A/ATSC. The SPA did not
render AEV personally liable for the obligations of the corporation whose stocks it held.

The obligation animating CAGLI’s desire to arbitrate is rooted in Annex SL-V. Annex SL-V is a contractentirely different from the
SPA. It created distinct obligations for distinctparties. AEV was never a party to Annex SL-V. Rather than pertaining to AEV,
Annex SL-V pertained to a different entity: WLI (renamed WG&A then renamed ATSC). AEV is, thus, not bound by Annex SL-
V.

On one hand, Annex SL-V does not stipulate that disputes arising from it are to be settled via arbitration.On the other hand, the
SPA requires arbitration as the mode for settling disputes relating to it and recognizes the subsistence of the obligations under
Annex SL-V. But as a separate contract, the mere mention of Annex SL-V in the SPA does not suffice to place Annex SL-V
under the ambit of the SPA or to render it subject to the SPA’s terms, such as the requirement to arbitrate.

WHEREFORE, the petition is GRANTED. The assailed orders dated May 5, 2011 and June 24,2011 of the Regional Trial Court,
Cebu City, Branch 10 in Civil Case No. CEB-37004 are declared VOID. The Regional Trial Court, Cebu City, Branch 10 is
ordered to DISMISS Civil Case No. CEB-37004. SO ORDERED.

G.R. No. 181416 November 11, 2013

MEDICAL PLAZA MAKATI CONDOMINIUM CORPORATION, Petitioner,

vs.
ROBERT H. CULLEN, Respondent.

DECISION

PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Court of Appeals (CA) Decision1 dated
July 10, 2007 and Resolution2 dated January 25, 2008 in CA-G.R. CV No. 86614. The assailed decision reversed and set aside
the September 9, 2005 Order3 of the Regional Trial Court (RTC) of Makati, Branch 58 in Civil Case No. 03-1018; while the
assailed resolution denied the separate motions for reconsideration filed by petitioner Medical Plaza Makati Condominium
Corporation (MPMCC) and Meridien Land Holding, Inc. (MLHI).

The factual and procedural antecedents are as follows:

Respondent Robert H. Cullen purchased from MLHI condominium Unit No. 1201 of the Medical Plaza Makati covered by
Condominium Certificate of Title No. 45808 of the Register of Deeds of Makati. Said title was later cancelled and Condominium
Certificate of Title No. 64218 was issued in the name of respondent.

On September 19, 2002, petitioner, through its corporate secretary, Dr. Jose Giovanni E. Dimayuga, demanded from respondent
payment for alleged unpaid association dues and assessments amounting to ₱145,567.42. Respondent disputed this demand
claiming that he had been religiously paying his dues shown by the fact that he was previously elected president and director of
petitioner.4 Petitioner, on the other hand, claimed that respondent’s obligation was a carry-over of that of MLHI. 5 Consequently,
respondent was prevented from exercising his right to vote and be voted for during the 2002 election of petitioner’s Board of
Directors.6 Respondent thus clarified from MLHI the veracity of petitioner’s claim, but MLHI allegedly claimed that the same had
already been settled. 7 This prompted respondent to demand from petitioner an explanation why he was considered a delinquent
payer despite the settlement of the obligation. Petitioner failed to make such explanation. Hence, the Complaint for
Damages8filed by respondent against petitioner and MLHI, the pertinent portions of which read:

xxxx
6. Thereafter, plaintiff occupied the said condominium unit no. 1201 and religiously paid all the corresponding monthly
contributions/association dues and other assessments imposed on the same. For the years 2000 and 2001, plaintiff
served as President and Director of the Medical Plaza Makati Condominium Corporation;

7. Nonetheless, on September 19, 2002, plaintiff was shocked/surprised to receive a letter from the incumbent
Corporate Secretary of the defendant Medical Plaza Makati, demanding payment of alleged unpaid association dues
and assessments arising from plaintiff’s condominium unit no. 1201. The said letter further stressed that plaintiff is
considered a delinquent member of the defendant Medical Plaza Makati.

x x x;

8. As a consequence, plaintiff was not allowed to file his certificate of candidacy as director. Being considered a
delinquent, plaintiff was also barred from exercising his right to vote in the election of new members of the Board of
Directors x x x;

9. x x x Again, prior to the said election date, x x x counsel for the defendant [MPMCC] sent a demand letter to plaintiff,
anent the said delinquency, explaining that the said unpaid amount is a carry-over from the obligation of defendant
Meridien. x x x;

10. Verification with the defendant [MPMCC] resulted to the issuance of a certification stating that Condominium Unit
1201 has an outstanding unpaid obligation in the total amount of ₱145,567.42 as of November 30, 2002, which again,
was attributed by defendant [MPMCC] to defendant Meridien. x x x;

11. Due to the seriousness of the matter, and the feeling that defendant Meridien made false representations
considering that it fully warranted to plaintiff that condominium unit 1201 is free and clear from all liens and
encumbrances, the matter was referred to counsel, who accordingly sent a letter to defendant Meridien, to demand for
the payment of said unpaid association dues and other assessments imposed on the condominium unit and being
claimed by defendant [MPMCC]. x x x;

12. x x x defendant Meridien claimed however, that the obligation does not exist considering that the matter was already
settled and paid by defendant Meridien to defendant [MPMCC]. x x x;

13. Plaintiff thus caused to be sent a letter to defendant [MPMCC] x x x. The said letter x x x sought an explanation on
the fact that, as per the letter of defendant Meridien, the delinquency of unit 1201 was already fully paid and settled,
contrary to the claim of defendant [MPMCC]. x x x;

14. Despite receipt of said letter on April 24, 2003, and to date however, no explanation was given by defendant
[MPMCC], to the damage and prejudice of plaintiff who is again obviously being barred from voting/participating in the
election of members of the board of directors for the year 2003;

15. Clearly, defendant [MPMCC] acted maliciously by insisting that plaintiff is a delinquent member when in fact,
defendant Meridien had already paid the said delinquency, if any. The branding of plaintiff as delinquent member was
willfully and deceitfully employed so as to prevent plaintiff from exercising his right to vote or be voted as director of the
condominium corporation; 16. Defendant [MPMCC]’s ominous silence when confronted with claim of payment made
by defendant Meridien is tantamount to admission that indeed, plaintiff is not really a delinquent member;

17. Accordingly, as a direct and proximate result of the said acts of defendant [MPMCC], plaintiff experienced/suffered
from mental anguish, moral shock, and serious anxiety. Plaintiff, being a doctor of medicine and respected in the
community further suffered from social humiliation and besmirched reputation thereby warranting the grant of moral
damages in the amount of ₱500,000.00 and for which defendant [MPMCC] should be held liable;

18. By way of example or correction for the public good, and as a stern warning to all similarly situated, defendant
[MPMCC] should be ordered to pay plaintiff exemplary damages in the amount of ₱200,000.00;

19. As a consequence, and so as to protect his rights and interests, plaintiff was constrained to hire the services of
counsel, for an acceptance fee of ₱100,000.00 plus ₱2,500.00 per every court hearing attended by counsel;
 20. In the event that the claim of defendant [MPMCC] turned out to be true, however, the herein defendant Meridien
should be held liable instead, by ordering the same to pay the said delinquency of condominium unit 1201 in the amount
of ₱145,567.42 as of November 30, 2002 as well as the above damages, considering that the non-payment thereof
would be the proximate cause of the damages suffered by plaintiff;9

Petitioner and MLHI filed their separate motions to dismiss the complaint on the ground of lack of jurisdiction.10MLHI claims that
it is the Housing and Land Use Regulatory Board (HLURB) which is vested with the exclusive jurisdiction to hear and decide the
case. Petitioner, on the other hand, raises the following specific grounds for the dismissal of the complaint: (1) estoppel as
respondent himself approved the assessment when he was the president; (2) lack of jurisdiction as the case involves an intra-
corporate controversy; (3) prematurity for failure of respondent to exhaust all intra-corporate remedies; and (4) the case is
already moot and academic, the obligation having been settled between petitioner and MLHI. 11

On September 9, 2005, the RTC rendered a Decision granting petitioner’s and MLHI’s motions to dismiss and, consequently,
dismissing respondent’s complaint.

The trial court agreed with MLHI that the action for specific performance filed by respondent clearly falls within the exclusive
jurisdiction of the HLURB.12 As to petitioner, the court held that the complaint states no cause of action, considering that
respondent’s obligation had already been settled by MLHI. It, likewise, ruled that the issues raised are intra-corporate between
the corporation and member.13

On appeal, the CA reversed and set aside the trial court’s decision and remanded the case to the RTC for further proceedings.
Contrary to the RTC conclusion, the CA held that the controversy is an ordinary civil action for damages which falls within the
jurisdiction of regular courts.14 It explained that the case hinged on petitioner’s refusal to confirm MLHI’s claim that the subject
obligation had already been settled as early as 1998 causing damage to respondent. 15 Petitioner’s and MLHI’s motions for
reconsideration had also been denied. 16

Aggrieved, petitioner comes before the Court based on the following grounds:

I.

THE COURT A QUO HAS DECIDED A QUESTION OF SUBSTANCE, NOT THERETOFORE DETERMINED
BY THE SUPREME COURT, OR HAS DECIDED IT IN A WAY NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT DECLARED THE INSTANT CASE AN
ORDINARY ACTION FOR DAMAGES INSTEAD OF AN INTRA-CORPORATE CONTROVERSY
COGNIZABLE BY A SPECIAL COMMERCIAL COURT.

II.

THE COURT A QUO HAS DECIDED THE INSTANT CASE IN A WAY NOT IN ACCORD WITH LAW OR
WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT TOOK COGNIZANCE OF THE
APPEAL WHILE RAISING ONLY PURE QUESTIONS OF LAW.17

The petition is meritorious.

It is a settled rule that jurisdiction over the subject matter is determined by the allegations in the complaint. It is not affected by
the pleas or the theories set up by the defendant in an answer or a motion to dismiss. Otherwise, jurisdiction would become
dependent almost entirely upon the whims of the defendant. 18 Also illuminating is the Court’s pronouncement in Go v. Distinction
Properties Development and Construction, Inc.: 19

Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law and determined by the
allegations in the complaint which comprise a concise statement of the ultimate facts constituting the plaintiff’s cause of action.
The nature of an action, as well as which court or body has jurisdiction over it, is determined based on the allegations contained
in the complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims
asserted therein. The averments in the complaint and the character of the relief sought are the ones to be consulted. Once
vested by the allegations in the complaint, jurisdiction also remains vested irrespective of whether or not the plaintiff is entitled
to recover upon all or some of the claims asserted therein. x x x20
Based on the allegations made by respondent in his complaint, does the controversy involve intra-corporate issues as would fall
within the jurisdiction of the RTC sitting as a special commercial court or an ordinary action for damages within the jurisdiction
of regular courts?

In determining whether a dispute constitutes an intra-corporate controversy, the Court uses two tests, namely, the relationship
test and the nature of the controversy test. 21

An intra-corporate controversy is one which pertains to any of the following relationships: (1) between the corporation,
partnership or association and the public; (2) between the corporation, partnership or association and the State insofar as its
franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders,
partners, members or officers; and (4) among the stockholders, partners or associates themselves. 22 Thus, under the
relationship test, the existence of any of the above intra-corporate relations makes the case intra-corporate.23

Under the nature of the controversy test, "the controversy must not only be rooted in the existence of an intra-corporate
relationship, but must as well pertain to the enforcement of the parties’ correlative rights and obligations under the Corporation
Code and the internal and intra-corporate regulatory rules of the corporation."24 In other words, jurisdiction should be determined
by considering both the relationship of the parties as well as the nature of the question involved. 25

Applying the two tests, we find and so hold that the case involves intra-corporate controversy. It obviously arose from the intra-
corporate relations between the parties, and the questions involved pertain to their rights and obligations under the Corporation
Code and matters relating to the regulation of the corporation.26

Admittedly, petitioner is a condominium corporation duly organized and existing under Philippine laws, charged with the
management of the Medical Plaza Makati. Respondent, on the other hand, is the registered owner of Unit No. 1201 and is thus
a stockholder/member of the condominium corporation. Clearly, there is an intra-corporate relationship between the corporation
and a stockholder/member.

The nature of the action is determined by the body rather than the title of the complaint.1âwphi1 Though denominated as an
action for damages, an examination of the allegations made by respondent in his complaint shows that the case principally
dwells on the propriety of the assessment made by petitioner against respondent as well as the validity of petitioner’s act in
preventing respondent from participating in the election of the corporation’s Board of Directors. Respondent contested the
alleged unpaid dues and assessments demanded by petitioner.

The issue is not novel. The nature of an action involving any dispute as to the validity of the assessment of association dues has
been settled by the Court in Chateau de Baie Condominium Corporation v. Moreno. 27 In that case, respondents therein filed a
complaint for intra-corporate dispute against the petitioner therein to question how it calculated the dues assessed against them,
and to ask an accounting of association dues. Petitioner, however, moved for the dismissal of the case on the ground of lack of
jurisdiction alleging that since the complaint was against the owner/developer of a condominium whose condominium project
was registered with and licensed by the HLURB, the latter has the exclusive jurisdiction. In sustaining the denial of the motion
to dismiss, the Court held that the dispute as to the validity of the assessments is purely an intra-corporate matter between
petitioner and respondent and is thus within the exclusive jurisdiction of the RTC sitting as a special commercial court. More so
in this case as respondent repeatedly questioned his characterization as a delinquent member and, consequently, petitioner’s
decision to bar him from exercising his rights to vote and be voted for. These issues are clearly corporate and the demand for
damages is just incidental. Being corporate in nature, the issues should be threshed out before the RTC sitting as a special
commercial court. The issues on damages can still be resolved in the same special commercial court just like a regular RTC
which is still competent to tackle civil law issues incidental to intra-corporate disputes filed before it. 28

Moreover, Presidential Decree No. 902-A enumerates the cases over which the Securities and Exchange Commission (SEC)
exercises exclusive jurisdiction:

xxxx

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members or
associates; between any or all of them and the corporation, partnership or association of which they are stockholders,
members, or associates, respectively; and between such corporation, partnership or association and the State insofar
as it concerns their individual franchise or right to exist as such entity; and
 c) Controversies in the election or appointment of directors, trustees, officers, or managers of such corporations,
partnerships, or associations. 29

To be sure, this action partakes of the nature of an intra-corporate controversy, the jurisdiction over which pertains to the SEC.
Pursuant to Section 5.2 of Republic Act No. 8799, otherwise known as the Securities Regulation Code, the jurisdiction of the
SEC over all cases enumerated under Section 5 of Presidential Decree No. 902-A has been transferred to RTCs designated by
this Court as Special Commercial Courts.30 While the CA may be correct that the RTC has jurisdiction, the case should have
been filed not with the regular court but with the branch of the RTC designated as a special commercial court. Considering that
the RTC of Makati City, Branch 58 was not designated as a special commercial court, it was not vested with jurisdiction over
cases previously cognizable by the SEC.31 The CA, therefore, gravely erred in remanding the case to the RTC for further
proceedings.

Indeed, Republic Act (RA) No. 9904, or the Magna Carta for Homeowners and Homeowners’ Associations, approved on January
7, 2010 and became effective on July 10, 2010, empowers the HLURB to hear and decide inter-association and/or intra-
association controversies or conflicts concerning homeowners’ associations. However, we cannot apply the same in the present
case as it involves a controversy between a condominium unit owner and a condominium corporation. While the term association
as defined in the law covers homeowners’ associations of other residential real property which is broad enough to cover a
condominium corporation, it does not seem to be the legislative intent. A thorough review of the deliberations of the bicameral
conference committee would show that the lawmakers did not intend to extend the coverage of the law to such kind of
association. We quote hereunder the pertinent portion of the Bicameral Conference Committee’s deliberation, to wit:

THE CHAIRMAN (SEN. ZUBIRI). Let’s go back, Mr. Chair, very quickly on homeowners.

THE ACTING CHAIRMAN (REP. ZIALCITA). Ang sa akin lang, I think our views are similar, Your Honor, Senator Zubiri, the
entry of the condominium units might just complicate the whole matters. So we’d like to put it on record that we’re very much
concerned about the plight of the Condominium Unit Homeowners’ Association. But this could very well be addressed on a
separate bill that I’m willing to co-sponsor with the distinguished Senator Zubiri, to address in the Condominium Act of the
Philippines, rather than address it here because it might just create a red herring into the entire thing and it will just complicate
matters, hindi ba?

THE CHAIRMAN (SEN. ZUBIRI). I also agree with you although I sympathize with them---although we sympathize with them
and we feel that many times their rights have been also violated by abusive condominium corporations. However, there are
certain things that we have to reconcile. There are certain issues that we have to reconcile with this version.

In the Condominium Code, for example, they just raised a very peculiar situation under the Condominium Code --- Condominium
Corporation Act. It’s five years the proxy, whereas here, it’s three years. So there would already be violation or there will be
already a problem with their version and our version. Sino ang matutupad doon? Will it be our version or their version?

So I agree that has to be studied further. And because they have a law pertaining to the condominium housing units, I personally
feel that it would complicate matters if we include them. Although I agree that they should be looked after and their problems be
looked into.

Probably we can ask our staff, Your Honor, to come up already with the bill although we have no more time. Hopefully we can
tackle this again on the 15th Congress. But I agree with the sentiments and the inputs of the Honorable Chair of the House
panel.

May we ask our resource persons to also probably give comments?

Atty. Dayrit.

MR. DAYRIT.

Yes I agree with you. There are many, I think, practices in their provisions in the Condominium Law that may be conflicting with
this version of ours.

For instance, in the case of, let’s say, the condominium, the so-called common areas and/or maybe so called open spaces that
they may have, especially common areas, they are usually owned by the condominium corporation. Unlike a subdivision where
the open spaces and/or the common areas are not necessarily owned by the association. Because sometimes --- generally
these are donated to the municipality or to the city. And it is only when the city or municipality gives the approval or the conformity
that this is donated to the homeowners’ association. But generally, under PD [Presidential Decree] 957, it’s donated. In the
Condominium Corporation, hindi. Lahat ng mga open spaces and common areas like corridors, the function rooms and
everything, are owned by the corporation. So that’s one main issue that can be conflicting.

THE CHAIRMAN (SEN. ZUBIRI). I’ll just ask for a one-minute suspension so we can talk.

THE ACTING CHAIRMAN (REP. ZIALCITA). Unless you want to put a catchall phrase like what we did in the Senior Citizen’s
Act. Something like, to the extent --- paano ba iyon? To the extent that it is practicable and applicable, the rights and benefits of
the homeowners, are hereby extended to the --- mayroon kaming ginamit na phrase eh...to the extent that it be practicable and
applicable to the unit homeoweners, is hereby extended, something like that. It’s a catchall phrase. But then again, it might
create a...

MR. JALANDONI. It will become complicated. There will be a lot of conflict of laws between the two laws.

THE ACTING CHAIRMAN (REP. ZIALCITA). Kaya nga eh. At saka, I don’t know. I think the --- mayroon naman silang protection
sa ano eh, di ba? Buyers decree doon sa Condominium Act. I’m sure there are provisions there eh. Huwag na lang, huwag na
lang.

MR. JALANDONI. Mr. Chairman, I think it would be best if your previous comments that you’d be supporting an
amendment.1âwphi1 I think that would be --- Well, that would be the best course of action with all due respect.

THE ACTING CHAIRMAN (REP. ZIALCITA). Yeah. Okay. Thank you. So iyon na lang final proposal naming ‘yung catchall
phrase, "With respect to the..."32

xxxx

THE CHAIRMAN (SEN. ZUBIRI). xxx And so, what is their final decision on the definition of homeowners?

THE ACTING CHAIRMAN (REP. ZIALCITA).

We stick to the original, Mr. Chairman. We’ll just open up a whole can of worms and a whole new ball game will come into play.
Besides, I am not authorized, neither are you, by our counterparts to include the condominium owners.

THE CHAIRMAN (SEN. ZUBIRI).

Basically that is correct. We are not authorized by the Senate nor – because we have discussed this lengthily on the floor,
actually, several months on the floor. And we don’t have the authority as well for other Bicam members to add a provision to
include a separate entity that has already their legal or their established Republic Act tackling on that particular issue. But we
just like to put on record, we sympathize with the plight of our friends in the condominium associations and we will just guarantee
them that we will work on an amendment to the Condominium Corporation Code. So with that – we skipped, that is correct, we
have to go back to homeowners’ association definition, Your Honor, because we had skipped it altogether. So just quickly going
back to Page 7 because there are amendments to the definition of homeowners. If it is alright with the House Panel, adopt the
opening phrase of Subsection 7 of the Senate version as opening phrase of Subsection 10 of the reconciled version.

x x x x33

To be sure, RA 4726 or the Condominium Act was enacted to specifically govern a condominium. Said law sanctions the creation
of the condominium corporation which is especially formed for the purpose of holding title to the common area, in which the
holders of separate interests shall automatically be members or shareholders, to the exclusion of others, in proportion to the
appurtenant interest of their respective units. 34 The rights and obligations of the condominium unit owners and the condominium
corporation are set forth in the above Act.

Clearly, condominium corporations are not covered by the amendment. Thus, the intra-corporate dispute between petitioner and
respondent is still within the jurisdiction of the RTC sitting as a special commercial court and not the HLURB. The doctrine laid
down by the Court in Chateau de Baie Condominium Corporation v. Moreno 35 which in turn cited Wack Wack Condominium
Corporation, et al v. CA36 is still a good law.
WHEREFORE, we hereby GRANT the petition and REVERSE the Court of Appeals Decision dated July 10, 2007 and Resolution
dated January 25, 2008 in CA-G.R. CV No. 86614. The Complaint before the Regional Trial Court of Makati City, Branch 58,
which is not a special commercial court, docketed as Civil Case No. 03-1018 is ordered DISMISSED for lack of jurisdiction. Let
the case be REMANDED to the Executive Judge of the Regional Trial Court of Makati City for re-raffle purposes among the
designated special commercial courts.

SO ORDERED.