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C.

ATTRIBUTES
THIRD DIVISION ‘(b) Construction of three (3) reinforced concrete foundation
for three (3) units 350 KW diesel engine generating set[s];
[G.R. No. 142936. April 17, 2002.]
‘(c) Construction of three (3) reinforced concrete foundation
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR for the 5,000 KW and 1,250 KW turbo generator sets;
DEVELOPMENT CORPORATION, Petitioners, v.
ANDRADA ELECTRIC & ENGINEERING COMPANY, ‘(d) Complete overhauling and reconditioning tests sum for
Respondent. three (3) 350 KW diesel engine generating set[s];

DECISION ‘(e) Installation of turbine and diesel generating sets


including transformer, switchboard, electrical wirings and pipe
PANGANIBAN, J.: provided those stated units are completely supplied with their
accessories;
Basic is the rule that a corporation has a legal personality
distinct and separate from the persons and entities owning it. ‘(f) Relocating of 2,400 V transmission line, demolition of
The corporate veil may be lifted only if it has been used to all existing concrete foundation and drainage canals, excavation,
shield fraud, defend crime, justify a wrong, defeat public and earth fillings — all for the total amount of P543,500.00 as
convenience, insulate bad faith or perpetuate injustice. Thus, evidenced by a contract, [a] xerox copy of which is hereto
the mere fact that the Philippine National Bank (PNB) acquired attached as Annex ‘A’ and made an integral part of this
ownership or management of some assets of the Pampanga complaint;’
Sugar Mill (PASUMIL), which had earlier been foreclosed and
purchased at the resulting public auction by the Development that aside from the work contract mentioned-above, the defendant
Bank of the Philippines (DBP), will not make PNB liable for PASUMIL required the plaintiff to perform extra work, and
the PASUMIL’s contractual debts to Respondent.chanrob1es provide electrical equipment and spare parts, such as:chanrob1es
virtua1 1aw 1ibrary virtual 1aw library

Statement of the Case ‘(a) Supply of electrical devices;

Before us is a Petition for Review assailing the April 17, 2000 ‘(b) Extra mechanical works;
Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No.
57610. The decretal portion of the challenged Decision reads ‘(c) Extra fabrication works;
as follows:jgc:chanrobles.com.ph
‘(d) Supply of materials and consumable items;
"WHEREFORE, the judgment appealed from is hereby
AFFIRMED." 2 ‘(e) Electrical shop repair;

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

‘(g) Supply of electrical equipment for machinery;


The factual antecedents of the case are summarized by the
Court of Appeals as follows:jgc:chanrobles.com.ph ‘(h) Supply of diesel engine parts and other related works
including fabrication of parts.’
"In its complaint, the plaintiff [herein respondent] alleged that
it is a partnership duly organized, existing, and operating under that out of the total obligation of P777,263.80, the defendant
the laws of the Philippines, with office and principal place of PASUMIL had paid only P250,000.00, leaving an unpaid balance,
business at Nos. 794-812 Del Monte [A]venue, Quezon City, as of June 27, 1973, amounting to P527,263.80, as shown in the
while the defendant [herein petitioner] Philippine National Certification of the chief accountant of the PNB, a machine copy
Bank (herein referred to as PNB), is a semi-government of which is appended as Annex ‘C’ of the complaint; that out of
corporation duly organized, existing and operating under the said unpaid balance of P527,263.80, the defendant PASUMIL
laws of the Philippines, with office and principal place of made a partial payment to the plaintiff of P14,000.00, in broken
business at Escolta Street, Sta. Cruz, Manila; whereas, the amounts, covering the period from January 5, 1974 up to May 23,
other defendant, the National Sugar Development Corporation 1974, leaving an unpaid balance of P513,263.80; that the
(NASUDECO in brief), is also a semi-government corporation defendant PASUMIL and the defendant PNB, and now the
and the sugar arm of the PNB, with office and principal place defendant NASUDECO, failed and refused to pay the plaintiff
of business at the 2nd Floor, Sampaguita Building, Cubao, their just, valid and demandable obligation; that the President of
Quezon City; and the defendant Pampanga Sugar Mills the NASUDECO is also the Vice-President of the PNB, and this
(PASUMIL in short), is a corporation organized, existing and official holds office at the 10th Floor of the PNB, Escolta, Manila,
operating under the 1975 laws of the Philippines, and had its and plaintiff besought this official to pay the outstanding
business office before 1975 at Del Carmen, Floridablanca, obligation of the defendant PASUMIL, inasmuch as the defendant
Pampanga; that the plaintiff is engaged in the business of PNB and NASUDECO now owned and possessed the assets of
general construction for the repairs and/or construction of the defendant PASUMIL, and these defendants all benefited from
different kinds of machineries and buildings; that on August the works, and the electrical, as well as the engineering and
26, 1975, the defendant PNB acquired the assets of the repairs, performed by the plaintiff; that because of the failure and
defendant PASUMIL that were earlier foreclosed by the refusal of the defendants to pay their just, valid, and demandable
Development Bank of the Philippines (DBP) under LOI No. obligations, plaintiff suffered actual damages in the total amount
311; that the defendant PNB organized the defendant of P513,263.80; and that in order to recover these sums, the
NASUDECO in September, 1975, to take ownership and plaintiff was compelled to engage the professional services of
possession of the assets and ultimately to nationalize and counsel, to whom the plaintiff agreed to pay a sum equivalent to
consolidate its interest in other PNB controlled sugar mills; 25% of the amount of the obligation due by way of attorney’s
that prior to October 29, 1971, the defendant PASUMIL fees. Accordingly, the plaintiff prayed that judgment be rendered
engaged the services of plaintiff for electrical rewinding and against the defendants PNB, NASUDECO, and PASUMIL,
repair, most of which were partially paid by the defendant jointly and severally to wit:chanrob1es virtual 1aw library
PASUMIL, leaving several unpaid accounts with the plaintiff;
that finally, on October 29, 1971, the plaintiff and the ‘(1) Sentencing the defendants to pay the plaintiffs the sum
defendant PASUMIL entered into a contract for the plaintiff to of P513,263.80, with annual interest of 14% from the time the
perform the following, to wit — obligation falls due and demandable;

‘(a) Construction of one (1) power house building; ‘(2) Condemning the defendants to pay attorney’s fees
amounting to 25% of the amount claim; Assignment dated October 21, 1975, conveyed, transferred, and
assigned for valuable consideration, in favor of NASUDECO, a
‘(3) Ordering the defendants to pay the costs of the suit.’ distinct and independent corporation, all its (PNB) rights and
interest in and under the above ‘Redemption Agreement.’ This is
"The defendants PNB and NASUDECO filed a joint motion to shown in Annex ‘D’ which is also made an integral part of the
dismiss the complaint chiefly on the ground that the complaint answer; [7] that as a consequence of the said Deed of Assignment,
failed to state sufficient allegations to establish a cause of PNB on October 21, 1975 ceased to manage and operate the
action against both defendants, inasmuch as there is lack or above-mentioned assets of PASUMIL, which function was now
want of privity of contract between the plaintiff and the two actually transferred to NASUDECO. In other words, so asserted
defendants, the PNB and NASUDECO, said defendants citing PNB, the complaint as to PNB, had become moot and academic
Article 1311 of the New Civil Code, and the case law ruling in because of the execution of the said Deed of Assignment; [8] that
Salonga v. Warner Barnes & Co., 88 Phil. 125; and Manila Port moreover, LOI No. 311 did not authorize or direct PNB to assume
Service, Et. Al. v. Court of Appeals, Et Al., 20 SCRA 1214. the corporate obligations of PASUMIL, including the alleged
obligation upon which this present suit was brought; and [9] that,
"The motion to dismiss was by the court a quo denied in its at most, what was granted to PNB in this respect was the
Order of November 27, 1980; in the same order, that court authority to ‘make a study of and submit recommendation on the
directed the defendants to file their answer to the complaint problems concerning the claims of PASUMIL creditors,’ under
within 15 days. sub-par. 5 LOI No. 311.

"In their answer, the defendant NASUDECO reiterated the "In its counterclaim, the PNB averred that it was unnecessarily
grounds of its motion to dismiss, to wit:chanrob1es virtual 1aw constrained to litigate and to incur expenses in this case, hence it
library is entitled to claim attorney’s fees in the amount of at least
P50,000.00. Accordingly, PNB prayed that the complaint be
‘That the complaint does not state a sufficient cause of action dismissed; and that on its counterclaim, that the plaintiff be
against the defendant NASUDECO because: (a) NASUDECO sentenced to pay defendant PNB the sum of P50,000.00 as
is not . . . privy to the various electrical construction jobs being attorney’s fees, aside from exemplary damages in such amount
sued upon by the plaintiff under the present complaint; (b) the that the court may seem just and equitable in the premises.
taking over by NASUDECO of the assets of defendant
PASUMIL was solely for the purpose of reconditioning the "Summons by publication was made via the Philippines Daily
sugar central of defendant PASUMIL pursuant to martial law Express, a newspaper with editorial office at 371 Bonifacio Drive,
powers of the President under the Constitution; (c) nothing in Port Area, Manila, against the defendant PASUMIL, which was
the LOI No. 189-A (as well as in LOI No. 311) authorized or thereafter declared in default as shown in the August 7, 1981
commanded the PNB or its subsidiary corporation, the Order issued by the Trial Court.
NASUDECO, to assume the corporate obligations of
PASUMIL as that being involved in the present case; and, (d) "After due proceedings, the Trial Court rendered judgment, the
all that was mentioned by the said letter of instruction insofar decretal portion of which reads:chanrob1es virtual 1aw library
as the PASUMIL liabilities [were] concerned [was] for the
PNB, or its subsidiary corporation the NASUDECO, to make a ‘WHEREFORE, judgment is hereby rendered in favor of plaintiff
study of, and submit [a] recommendation on the problems and against the defendant Corporation, Philippine National Bank
concerning the same.’ (PNB) NATIONAL SUGAR DEVELOPMENT CORPORATION
(NASUDECO) and PAMPANGA SUGAR MILLS (PASUMIL),
"By way of counterclaim, the NASUDECO averred that by ordering the latter to pay jointly and severally the former the
reason of the filing by the plaintiff of the present suit, which it following:chanrob1es virtual 1aw library
[labeled] as unfounded or baseless, the defendant NASUDECO
was constrained to litigate and incur litigation expenses in the ‘1. The sum of P513,623.80 plus interest thereon at the rate
amount of P50,000.00, which plaintiff should be sentenced to of 14% per annum as claimed from September 25, 1980 until
pay. Accordingly, NASUDECO prayed that the complaint be fully paid;
dismissed and on its counterclaim, that the plaintiff be
condemned to pay P50,000.00 in concept of attorney’s fees as ‘2. The sum of P102,724.76 as attorney’s fees; and,
well as exemplary damages.
‘3. Costs.
"In its answer, the defendant PNB likewise reiterated the
grounds of its motion to dismiss, namely: (1) the complaint ‘SO ORDERED.
states no cause of action against the defendant PNB; (2) that
PNB is not a party to the contract alleged in par. 6 of the ‘Manila, Philippines, September 4, 1986.
complaint and that the alleged services rendered by the plaintiff
to the defendant PASUMIL upon which plaintiff’s suit is ‘(SGD) ERNESTO S. TENGCO
erected, was rendered long before PNB took possession of the
assets of the defendant PASUMIL under LOI No. 189-A; (3) ‘Judge ‘" 3
that the PNB take-over of the assets of the defendant
PASUMIL under LOI 189-A was solely for the purpose of Ruling of the Court of Appeals
reconditioning the sugar central so that PASUMIL may resume
its operations in time for the 1974-75 milling season, and that
nothing in the said LOI No. 189-A, as well as in LOI No. 311, Affirming the trial court, the CA held that it was offensive to the
authorized or directed PNB to assume the corporate basic tenets of justice and equity for a corporation to take over
obligation/s of PASUMIL, let alone that for which the present and operate the business of another corporation, while
action is brought; (4) that PNB’s management and operation disavowing or repudiating any responsibility, obligation or
under LOI No. 311 did not refer to any asset of PASUMIL liability arising therefrom. 4
which the PNB had to acquire and thereafter [manage], but
only to those which were foreclosed by the DBP and were in Hence, this Petition. 5
turn redeemed by the PNB from the DBP; (5) that conformably
to LOI No. 311, on August 15, 1975, the PNB and the Issues
Development Bank of the Philippines (DBP) entered into a
‘Redemption Agreement’ whereby DBP sold, transferred and
conveyed in favor of the PNB, by way of redemption, all its In their Memorandum, petitioners raise the following errors for
(DBP) rights and interest in and over the foreclosed real and/or the Court’s consideration:chanrob1es virtual 1aw library
personal properties of PASUMIL, as shown in Annex ‘C’
which is made an integral part of the answer; (6) that again, "I
conformably with LOI No. 311, PNB pursuant to a Deed of
of the milieu where it is to be applied. 18 It must be certain that
The Court of Appeals gravely erred in law in holding the the corporate fiction was misused to such an extent that injustice,
herein petitioners liable for the unpaid corporate debts of fraud, or crime was committed against another, in disregard of its
PASUMIL, a corporation whose corporate existence has not rights. 19 The wrongdoing must be clearly and convincingly
been legally extinguished or terminated, simply because of established; it cannot be presumed. 20 Otherwise, an injustice that
petitioners[’] take-over of the management and operation of was never unintended may result from an erroneous application.
PASUMIL pursuant to the mandates of LOI No. 189-A, as 21
amended by LOI No. 311.
This Court has pierced the corporate veil to ward off a judgment
"II credit, 22 to avoid inclusion of corporate assets as part of the
estate of the decedent, 23 to escape liability arising from a debt,
24 or to perpetuate fraud and/or confuse legitimate issues 25
The Court of Appeals gravely erred in law in not applying [to] either to promote or to shield unfair objectives 26 or to cover up
the case at bench the ruling enunciated in Edward J. Nell Co. v. an otherwise blatant violation of the prohibition against forum-
Pacific Farms, 15 SCRA 415." 6 shopping. 27 Only in these and similar instances may the veil be
pierced and disregarded. 28
Succinctly put, the aforesaid errors boil down to the principal
issue of whether PNB is liable for the unpaid debts of The question of whether a corporation is a mere alter ego is one
PASUMIL to Respondent. of fact. 29 Piercing the veil of corporate fiction may be allowed
only if the following elements concur: (1) control — not mere
This Court’s Ruling stock control, but complete domination — not only of finances,
but of policy and business practice in respect to the transaction
attacked, must have been such that the corporate entity as to this
The Petition is meritorious. transaction had at the time no separate mind, will or existence of
its own; (2) such control must have been used by the defendant to
Main Issue:chanrob1es virtual 1aw library commit a fraud or a wrong to perpetuate the violation of a
statutory or other positive legal duty, or a dishonest and an unjust
Liability for Corporate Debts act in contravention of plaintiff’s legal right; and (3) the said
control and breach of duty must have proximately caused the
As a general rule, questions of fact may not be raised in a injury or unjust loss complained of. 30
petition for review under Rule 45 of the Rules of Court. 7 To
this rule, however, there are some exceptions enumerated in We believe that the absence of the foregoing elements in the
Fuentes v. Court of Appeals. 8 After a careful scrutiny of the present case precludes the piercing of the corporate veil. First,
records and the pleadings submitted by the parties, we find that other than the fact that petitioners acquired the assets of
the lower courts misappreciated the evidence presented. 9 PASUMIL, there is no showing that their control over it warrants
Overlooked by the CA were certain relevant facts that would the disregard of corporate personalities. 31 Second, there is no
justify a conclusion different from that reached in the assailed evidence that their juridical personality was used to commit a
Decision. 10 fraud or to do a wrong; or that the separate corporate entity was
farcically used as a mere alter ego, business conduit or
Petitioners posit that they should not be held liable for the instrumentality of another entity or person. 32 Third, respondent
corporate debts of PASUMIL, because their takeover of the was not defrauded or injured when petitioners acquired the assets
latter’s foreclosed assets did not make them assignees. On the of PASUMIL. 33
other hand, respondent asserts that petitioners and PASUMIL
should be treated as one entity and, as such, jointly and Being the party that asked for the piercing of the corporate veil,
severally held liable for PASUMIL’s unpaid obligation. respondent had the burden of presenting clear and convincing
evidence to justify the setting aside of the separate corporate
As a rule, a corporation that purchases the assets of another personality rule. 34 However, it utterly failed to discharge this
will not be liable for the debts of the selling corporation, burden; 35 it failed to establish by competent evidence that
provided the former acted in good faith and paid adequate petitioner’s separate corporate veil had been used to conceal
consideration for such assets, except when any of the following fraud, illegality or inequity. 36
circumstances is present: (1) where the purchaser expressly or
impliedly agrees to assume the debts, (2) where the transaction While we agree with respondent’s claim that the assets of the
amounts to a consolidation or merger of the corporations, (3) National Sugar Development Corporation (NASUDECO) can be
where the purchasing corporation is merely a continuation of easily traced to PASUMIL, 37 we are not convinced that the
the selling corporation, and (4) where the transaction is transfer of the latter’s assets to petitioners was fraudulently
fraudulently entered into in order to escape liability for those entered into in order to escape liability for its debt to Respondent.
debts. 11 38

Piercing the Corporate A careful review of the records reveals that DBP foreclosed the
mortgage executed by PASUMIL and acquired the assets as the
Veil Not Warranted highest bidder at the public auction conducted. 39 The bank was
justified in foreclosing the mortgage, because the PASUMIL
A corporation is an artificial being created by operation of law. account had incurred arrearages of more than 20 percent of the
It possesses the right of succession and such powers, attributes, total outstanding obligation. 40 Thus, DBP had not only a right,
and properties expressly authorized by law or incident to its but also a duty under the law to foreclose the subject properties.
existence. 12 It has a personality separate and distinct from the 41
persons composing it, as well as from any other legal entity to
which it may be related. 13 This is basic. Pursuant to LOI No. 189-A 42 as amended by LOI No. 311, 43
PNB acquired PASUMIL’s assets that DBP had foreclosed and
Equally well-settled is the principle that the corporate mask purchased in the normal course. Petitioner bank was likewise
may be removed or the corporate veil pierced when the tasked to manage temporarily the operation of such assets either
corporation is just an alter ego of a person or of another by itself or through a subsidiary corporation. 44
corporation. 14 For reasons of public policy and in the interest
of justice, the corporate veil will justifiably be impaled 15 only PNB, as the second mortgagee, redeemed from DBP the
when it becomes a shield for fraud, illegality or inequity foreclosed PASUMIL assets pursuant to Section 6 of Act No.
committed against third persons. 16 3135. 45 These assets were later conveyed to PNB for a
consideration, the terms of which were embodied in the
Hence, any application of the doctrine of piercing the corporate Redemption Agreement 46 PNB, as successor-in-interest, stepped
veil should be done with caution. 17 A court should be mindful into the shoes of DBP as PASUMIL’s creditor 47 By way of a
Deed of Assignment, 48 PNB then transferred to NASUDECO Melo, J., abroad on official leave.
all its rights under the Redemption Agreement.
Endnotes:
1. Rollo, pp. 30-39. Penned by Justice Renato C. Dacudao, with the
In Development Bank of the Philippines v. Court of Appeals, concurrence of Justice Quirino D. Abad Santos Jr. (Division chairman) and B.A.
49 we had the occasion to resolve a similar issue. We ruled that Adefuin de la Cruz (member).
PNB, DBP and their transferees were not liable for
Marinduque Mining’s unpaid obligations to Remington 2. Assailed Decision, p. 11; rollo, p. 39.
Industrial Sales Corporation (Remington) after the two banks 3. Ibid., pp. 1-7; ibid., pp. 30-35.
had foreclosed the assets of Marinduque Mining. We likewise
held that Remington failed to discharge its burden of proving 4. Id., p. 9; id., p. 37.
bad faith on the part of Marinduque Mining to justify the
5. The case was deemed submitted for decision on February 12, 2001,
piercing of the corporate veil. upon this Court’s receipt of petitioners’ Memorandum, signed by Atty. Salvador A.
Luy. Respondent’s Memorandum, which was filed on February 9, 2001, was
In the instant case, the CA erred in affirming the trial court’s signed by Atty. Renecio R. Espiritu.
lifting of the corporate mask. 50 The CA did not point to any
6. Petitioners’ Memorandum, pp. 7-8; rollo, pp. 73-74. Original in upper
fact evidencing bad faith on the part of PNB and its transferee. case and italicized.
51 The corporate fiction was not used to defeat public
convenience, justify a wrong, protect fraud or defend crime. 52 7. Cordial v. Miranda, 348 SCRA 158, December 14, 2000.
None of the foregoing exceptions was shown to exist in the
8. 268 SCRA 703, February 26, 1997.
present case. 53 On the contrary, the lifting of the corporate
veil would result in manifest injustice. This we cannot allow. 9. Baricuatro Jr. v. Court of Appeals, 325 SCRA 137, February 9, 2000.

10. Ibid.
No Merger or
11. Jose C. Campos Jr. and Maria Clara Lopez-Campos, The Corporation
Consolidation Code: Comments, Notes and Selected Cases, Vol. 2, 1990 ed., p. 465, citing
Edward J. Nell Company v. Pacific Farms, Inc., 15 SCRA 415, November 29,
1965; West Texas Refining & Dev. Co. v. Comm. of Int. Rev., 68 F. 2d 77.
Respondent further claims that petitioners should be held liable
for the unpaid obligations of PASUMIL by virtue of LOI Nos. 12. §2, Corporation Code.
189-A and 311, which expressly authorized PASUMIL and
PNB to merge or consolidate. On the other hand, petitioners 13. Yu v. National Labor Relations Commission, 245 SCRA 134, June 16,
1995.
contend that their takeover of the operations of PASUMIL did
not involve any corporate merger or consolidation, because the 14. Lim v. Court of Appeals, 323 SCRA 102, January 24, 2000.
latter had never lost its separate identity as a corporation.
15. Francisco Motors Corporation v. Court of Appeals, 309 SCRA 72, June
25, 1999.
A consolidation is the union of two or more existing entities to
form a new entity called the consolidated corporation. A 16. San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296
merger, on the other hand, is a union whereby one or more SCRA 631, September 29, 1998.
existing corporations are absorbed by another corporation that
17. Reynoso IV v. Court of Appeals, 345 SCRA 335, November 22, 2000.
survives and continues the combined business. 54
18. Francisco Motors Corporation v. Court of Appeals, supra.
The merger, however, does not become effective upon the mere
agreement of the constituent corporations. 55 Since a merger or 19. Traders Royal Bank v. Court of Appeals, 269 SCRA 15, March 3, 1997.
consolidation involves fundamental changes in the corporation, 20. Matuguina Integrated Wood Products, Inc. v. Court of Appeals, 263
as well as in the rights of stockholders and creditors, there must SCRA 491, October 24, 1996.
be an express provision of law authorizing them. 56 For a valid
merger or consolidation, the approval by the Securities and 21. Francisco Motors Corporation v. Court of Appeals, supra.
Exchange Commission (SEC) of the articles of merger or 22. Sibagat Timber Corp. v. Garcia, 216 SCRA 470, December 11, 1992.
consolidation is required. 57 These articles must likewise be
duly approved by a majority of the respective stockholders of 23. Cease v. Court of Appeals, 93 SCRA 483, October 18, 1979.
the constituent corporations. 58
24. Arcilla v. Court of Appeals, 215 SCRA 120, October 23, 1992.

In the case at bar, we hold that there is no merger or 25. Jacinto v. Court of Appeals, 198 SCRA 211, June 6, 1991.
consolidation with respect to PASUMIL and PNB. The
procedure prescribed under Title IX of the Corporation Code 26. Villanueva v. Adre, 172 SCRA 876, April 27, 1989.
59 was not followed. 27. First Philippine International Bank v. Court of Appeals, 252 SCRA
259, January 24, 1996.
In fact, PASUMIL’s corporate existence, as correctly found by
the CA, had not been legally extinguished or terminated. 60 28. ARB Construction Co., Inc v. Court of Appeals, 332 SCRA 427, May
31, 2000.
Further, prior to PNB’s acquisition of the foreclosed assets,
PASUMIL had previously made partial payments to respondent 29. Heirs of Ramon Durano Sr. v. Uy, 344 SCRA 238, October 24, 2000.
for the former’s obligation in the amount of P777,263.80. As of
June 27, 1973, PASUMIL had paid P250,000 to respondent 30. Lim v. Court of Appeals, supra.
and, from January 5, 1974 to May 23, 1974, another P14,000. 31. Traders Royal Bank, v. Court of Appeals, supra.

Neither did petitioner expressly or impliedly agree to assume 32. Umali v. Court of Appeals, 189 SCRA 529, September 13, 1990.
the debt of PASUMIL to Respondent. 61 LOI No. 11 explicitly
33. Traders Royal Bank v. Court of Appeals, supra.
provides that PNB shall study and submit recommendations on
the claims of PASUMIL’s creditors. 62 Clearly, the corporate 34. Republic v. Sandiganbayan, 346 SCRA 760, December 4, 2000.
separateness between PASUMIL and PNB remains, despite
35. Lim v. Court of Appeals, supra.
respondent’s insistence to the contrary. 63
36. San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,
WHEREFORE, the Petition is hereby GRANTED and the supra.
assailed Decision SET ASIDE. No pronouncement as to
37. Respondent’s Memorandum, p. 6; rollo, p. 60.
costs.chanrob1es virtua1 1aw 1ibrary
38. Edward J. Nell Company v. Pacific Farms Inc., supra, p. 417, per
SO ORDERED. Concepcion, J.

39. See Redemption Agreement, Annex "C" ; records, p. 56.


Vitug, Sandoval-Gutierrez and Carpio, JJ., concur.
40. Presidential Decree No. 385 (The Law on Mandatory Foreclosure) meetings shall be given to all stockholders or members of the respective
provides:jgc:chanrobles.com.ph corporations, at least two (2) weeks prior to the date of the meeting, either
personally or by registered mail. Said notice shall state the purpose of the meeting
"Section 1.It shall be mandatory for government financial institutions, after the and shall include a copy or a summary of the plan of merger or consolidation. The
lapse of sixty (60) days from the issuance of this Decree, to foreclose the affirmative vote of stockholders representing at least two-thirds (2/3) of the
collaterals and/or securities for any loan, credit, accommodation, and/or outstanding capital stock of each corporation in the case of stock corporations or
guarantees granted by them whenever the arrearages on such account, at least two-thirds (2/3) of the members in the case of non-stock corporations shall
including accrued interest and other charges, amount to at least twenty percent be necessary for the approval of such plan. Any dissenting stockholder in stock
(20%) of the total outstanding obligations, including interest and other charges, corporations may exercise his appraisal right in accordance with the Code:
as appearing in the books of account and/or related records of the financial Provided, That if after the approval by the stockholders of such plan, the board of
institution concerned. This shall be without prejudice to the exercise by the directors decides to abandon the plan, the appraisal right shall be extinguished.
government financial institutions of such rights and/or remedies available to
them under their respective contracts with their debtors, including the right to "Any amendment to the plan of merger or consolidation may be made, provided
foreclosure on loans, credits, accommodations and/or guarantees on which the such amendment is approved by majority vote of the respective boards of directors
arrearages are less than twenty percent (20%)."cralaw virtua1aw library or trustees of all the constituent corporations and ratified by the affirmative vote of
stockholders representing at least two-thirds (2/3) of the outstanding capital stock
41. Development Bank of the Philippines v. Court of Appeals, supra. or of two thirds (2/3) of the members of each of the constituent corporations. Such
plan, together with any amendment, shall be considered as the agreement of
42. Annex "A" ; records, p. 50. merger or consolidation.

43. Annex "B" ; ibid., p. 52. "SEC. 78. Articles of merger or consolidation. — After the approval by the
stockholders or members as required by the preceding section, articles of merger
44. Ibid.; id., p. 53. or articles of consolidation shall be executed by each of the constituent
corporations, to be signed by the president or vice-president and certified by the
45. This article provides:jgc:chanrobles.com.ph secretary or assistant secretary of each corporation setting forth:chanrob1es virtual
1aw library
"Sec. 6. In all cases in which an extrajudicial sale is made under the special
power hereinbefore referred to, the debtor, his successor in interest or any ‘1. The plan of the merger or the plan of consolidation;
judicial creditor or judgment creditor of said debtor, or any person having a
lien on the property subsequent to the mortgage or deed of trust under which ‘2. As to stock corporations, the number of shares outstanding, or in the
the property is sold, may redeem the same at any time within the term of one case of non-stock corporations, the number of members, and
year from and after the date of the sale; and such redemption shall be governed
by the provisions of sections four hundred and sixty-four to four hundred and ‘3. As to each corporation, the number of shares or members voting for
sixty six, inclusive, of the Code of Civil Procedure (now Rule 39, Section 28 of and against such plan, respectively.’
the 1997 Revised Rules of Civil Procedure), in so far as these are not
inconsistent with the provisions of this Act."cralaw virtua1aw library "SEC. 79. Effectivity of merger or consolidation. — The articles of merger or of
consolidation, signed and certified as herein above required, shall be submitted to
46. See Redemption Agreement Annex "C" ; records, p. 56. the Securities and Exchange Commission in quadruplicate for its approval:
Provided, That in the case of merger or consolidation of banks or banking
47. Litonjua v. L&R Corporation, 320 SCRA 405, December 9, 1999. institutions, building and loan associations, trust companies, insurance companies,
public utilities, educational institutions and other special corporations governed by
48. Annex PNB-2; records, p. 61. special laws, the favorable recommendation of the appropriate government agency
shall first be obtained. If the Commission is satisfied that the merger or
49. G.R. No. 126200, August 16, 2001. consolidation of the corporations concerned is not inconsistent with the provisions
of this Code and existing laws, it shall issue a certificate of merger or of
50. Francisco Motors Corporation v. Court of Appeals, supra. consolidation, at which time the merger or consolidation shall be effective.

51. Development Bank of the Philippines v. Court of Appeals, supra. "If, upon investigation, the Securities and Exchange Commission has reason to
believe that the proposed merger or consolidation is contrary to or inconsistent
52. Union Bank of the Philippines v. Court of Appeals, 290 SCRA 198, with the provisions of this Code or existing laws, it shall set a hearing to give the
May 19, 1998. corporations concerned the opportunity to be heard. Written notice of the date,
time and place of hearing shall be given to each constituent corporation at least
53. Vlason Enterprises Corporation v. Court of Appeals, 310 SCRA 26, two (2) weeks before said hearing. The Commission shall thereafter proceed as
July 6, 1999. provided in this Code.

54. Campos Jr. and Lopez-Campos, The Corporation Code: Comments, "SEC. 80. Effects of merger or consolidation. — The merger or consolidation
Notes and Selected Cases, supra, pp. 440-441. shall have the following effects:chanrob1es virtual 1aw library

55. Associated Bank v. Court of Appeals, 291 SCRA 511, June 29, ‘1. The constituent corporations shall become a single corporation which,
1998. in case of merger, shall be the surviving corporation designated in the plan of
merger; and, in case of consolidation, shall be the consolidated corporation
56. Campos Jr. and Lopez-Campos, The Corporation Code: Comments, designated in the plan of consolidation;
Notes and Selected Cases, supra, p. 441.
‘2. The separate existence of the constituent corporations shall cease,
57. §79 Corporation Code. except that of the surviving or the consolidated corporation;

58. §77 Corporation Code. ‘3. The surviving or the consolidated corporation shall possess all the
rights, privileges, immunities and powers and shall be subject to all the duties and
59. "Title IX - MERGER AND CONSOLIDATION liabilities of a corporation organized under this Code;

"SEC. 76. Plan of merger or consolidation. — Two or more corporations may ‘4. The surviving or the consolidated corporation shall thereupon and
merge into a single corporation which shall be one of the constituent thereafter possess all the rights, privileges, immunities and franchises of each of
corporations or may consolidate into a new single corporation which shall be the constituent corporations; and all property, real or personal, and all receivables
the consolidated corporation. due on whatever account, including subscriptions to shares and other choses in
action, and all and every other interest of, or belonging to, or due to each
"The board of directors or trustees of each corporation, party to the merger or constituent corporation, shall be deemed transferred to and vested in such
consolidation, shall approve a plan of merger or consolidation setting forth the surviving or consolidated corporation without further act or deed; and
following:chanrob1es virtual 1aw library
‘5. The surviving or consolidated corporation shall be responsible and
‘1. The names of the corporations proposing to merge or consolidate, liable for all the liabilities and obligations of each of the constituent corporations
hereinafter referred to as the constituent corporations; in the same manner as if such surviving or consolidated corporation had itself
incurred such liabilities or obligations; and any pending claim, action or
‘2. The terms of the merger or consolidation and the mode of carrying proceeding brought by or against any of such constituent corporations may be
the same into effect; prosecuted by or against the surviving or consolidated corporation. The right of
creditors or liens upon the property of any of such constituent corporations shall
‘3. A statement of the changes, if any, in the articles of incorporation of not be impaired by such merger or consolidation.’"
the surviving corporation in case of merger; and, with respect to the
consolidated corporation in case of consolidation, all the statements required to 60. Associated Bank v. Court of Appeals, supra.
be set forth in the articles of incorporation for corporations organized under
this Code; and 61. Edward J. Nell Company v. Pacific Farms, Inc., supra.

‘4. Such other provisions with respect to the proposed merger or 62. Annex "B" ; records, p. 53.
consolidation as are deemed necessary or desirable.’
63. Traders Royal Bank v. Court of Appeals, supra.
"SEC. 77. Stockholders’ or members’ approval. — Upon approval by majority
vote of each of the board of directors or trustees of the constituent corporations
of the plan of merger or consolidation, the same shall be submitted for
approval by the stockholders or members of each of such corporations at
separate corporate meetings duly called for the purpose. Notice of such
In January 1932, Francisco De Borja entered into a contract of sale with the jurisdiction over the issue and could not adjudicate upon it. (Reyes v. Diaz, G. R.
NVSD (Natividad-Vasquez Sabani Development Co., Inc.). The subject of the No. 48754.) Consequently it was error for the Court of Appeals to remand the case
sale was 4,000 cavans of rice valued at Php2.10 per cavan. On behalf of the to the trial court to try and decide such issue.
company, the contract was executed by Antonio Vasquez as the company’s
acting president. NVSD. only delivered 2,488 cavans and failed and refused
despite demand to deliver the rest hence De Borja incurred damages DECISION
(apparently, NVSD was insolvent). He then sue Vasquez for payment of
damages.
OZAETA, J.:
ISSUE: Whether or not Vasquez is liable for damages.

HELD: No. Vasquez is not party to the contract as it was NVSD which De This action was commenced in the Court of First Instance of Manila by Francisco
Borja contracted with. It is well known that a corporation is an artificial being de Borja against Antonio Vazquez and Fernando Busuego to recover from them
invested by law with a personality of its own, separate and distinct from that of jointly and severally the total sum of P4,702.70 upon three alleged causes of
its stockholders and from that of its officers who manage and run its affairs. action, to wit: First, that in or about the month of January, 1932, the defendants
The mere fact that its personality is owing to a legal fiction and that it jointly and severally obligated themselves to sell to the plaintiff 4,000 cavans of
necessarily has to act thru its agents, does not make the latter personally liable palay at P2.10 per cavan, to be delivered during the month of February, 1932, the
on a contract duly entered into, or for an act lawfully performed, by them for said defendants having subsequently received from the plaintiff in virtue of said
an in its behalf. agreement the sum of P8,400; that the defendants delivered to the plaintiff during
the months of February, March, and April, 1932, only 2,488 cavans of palay of the
The fact that the corporation, acting thru Vazquez as its manager, was guilty of value of P5,224.80 and refused to deliver the balance of 1,512 cavans of the value
negligence in the fulfillment of the contract did not make Vazquez principally of P3,175.20 notwithstanding repeated demands. Second, that because of
or even subsidiarily liable for such negligence. Since it was the corporation’s defendants’ refusal to deliver to the plaintiff the said 1,512 cavans of palay within
contract, its non fulfillment, whether due to negligence or fault or to any other the period above mentioned, the plaintiff suffered damages in the sum of P1,000.
cause, made the corporation and not its agent liable. And, third, that on account of the agreement above mentioned the plaintiff
delivered to the defendants 4,000 empty sacks, of which they returned to the
JUSTICE PARAS Dissenting : plaintiff only 2,490 and refused to deliver to the plaintiff the balance of 1,510
sacks or to pay their value amounting to P377.50; and that on account of such
Vasquez as president of NVSD is liable for damages. Vasquez, as acting refusal the plaintiff suffered damages in the sum of P150.
president and manager of NVSD, and with full knowledge of the then insolvent
status of his company, agreed to sell to De Borja 4,000 cavans of palay. The defendant Antonio Vazquez answered the complaint, denying having entered
Further, NVSD was soon thereafter dissolved. into the contract mentioned in the first cause of action in his own individual and
personal capacity, either solely or together with his codefendant Fernando
Busuego, and alleging that the agreement for the purchase of 4,000 cavans of
FIRST DIVISION palay and the payment of the price of P8,400 were made by the plaintiff with and
to the Natividad-Vazquez Sabani Development Co., Inc., a corporation organized
[G.R. No. 48930. February 23, 1944.] and existing under the laws of the Philippines, of which the defendant Antonio
Vazquez was the acting manager at the time the transaction took place. By way of
ANTONIO VAZQUEZ, Petitioner, v. FRANCISCO DE BORJA, Respondent. counterclaim, the said defendant alleged that he suffered damages in the sum of
P1,000 on account of the filing of this action against him by the plaintiff with full
[G.R. No. 48931. February 23, 1944.] knowledge that the said defendant had nothing to do whatever with any and all of
the transactions mentioned in the complaint in his own individual and personal
FRANCISCO DE BORJA, Petitioner, v. ANTONIO VAZQUEZ, Respondent. capacity.

SYLLABUS The trial court rendered judgment ordering the defendant Antonio Vazquez to pay
to the plaintiff the sum of P3,175.20 plus the sum of P377.50, with legal interest
1. CORPORATIONS; OFFICERS’ PERSONAL LIABILITY ON on both sums, and absolving the defendant Fernando Busuego (treasurer of the
CONTRACTS. — It is well known that a corporation is an artificial being corporation) from the complaint and the plaintiff from the defendant Antonio
invested by law with a personality of its own, separate and distinct from that of Vazquez’ counterclaim. Upon appeal to the Court of Appeals, the latter modified
its stockholders and from that of its officers who manage and run its affairs. that judgment by reducing it to the total sum of P3,314.78, with legal interest
The mere fact that its personality is owing to a legal fiction and that it thereon and the costs. But by a subsequent resolution upon the defendant’s motion
necessarily has to act thru its agents, does not make the latter personally liable for reconsideration, the Court of Appeals set aside its judgment and ordered that
on a contract duly entered into, or for an act lawfully performed, by them for the case be remanded to the court of origin for further proceedings. The defendant
and in its behalf. The legal fiction by which the personality of a corporation is Vazquez, not being agreeable to that result, filed the present petition for certiorari
created is a practical reality and necessity. Without it no corporate entities may (G.R. No. 48930) to review and reverse the judgment of the Court of Appeals; and
exist and no corporate business may be transacted. Such legal fiction may be the plaintiff Francisco de Borja, excepting to the resolution of the Court of
disregarded only when an attempt is made to use it as a cloak to hide an Appeals whereby its original judgment was set aside and the case was ordered
unlawful or fraudulent purpose. No such thing has been alleged or proven in remanded to the court of origin for further proceedings, filed a cross-petition for
this case. It has not been alleged nor even intimated that Vazquez personally certiorari (G.R. No. 48931) to maintain the original judgment of the Court of
benefited by the contract of sale in question and that he is merely invoking the Appeals.
legal fiction to avoid personal liability. Neither is it contended that he entered
into said contract for the corporation in bad faith and with intent to defraud the The original decision of the Court of Appeals and its subsequent resolutions on
plaintiff. We find no legal and factual basis upon which to hold him liable on reconsideration read as follows:jgc:chanrobles.com.ph
the contract either principally or subsidiarily.
"Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante
2. ID.; ID.; NEGLIGENCE. — The trial court found him guilty of negligence vendio al demandante 4,000 cavanes de palay al precio de P2.10 el cavan, de los
in the performance of the contract and held him personally liable on that cuales, dicho demandante solamente recibio 2,583 cavanes; y que asimismo
account. On the other hand, the Court of Appeals found that he "no solamente recibio para su envase 4,000 sacos vacios. Esta probado que de dichos 4,000 sacos
obro con negligencia, sino interviniendo culpa de su parte, por lo que de vacios solamente se entregaron, 2,583 quedando en poder del demandado el resto,
acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser y cuyo valor es el de P0.24 cada uno. Presentada la demanda contra los
responsable subsidiariamente del pago de la cantidad objeto de la demanda." demandados Antonio Vazquez y Fernando Busuego para el pago de la cantidad de
We think both the trial court and the Court of Appeals erred in law in so P4,702.70, con sus intereses legales desde el 1.0 de marzo de 1932 hasta su
holding. They have manifestly failed to distinguish a contractual from an completeo pago y las costas, el Juzgado de Primera Instancia de Manila fallo el
extracontractual obligation, or an obligation arising from contract from an asunto condenando a Antonio Vazquez a pagar al demandante la cantidad de
obligation arising from culpa aquiliana. The fault and negligence referred to in P3,175.20, mas la cantidad de P377.50, con sus intereses legales, absolviendo al
articles 1101-1104 of the Civil Code are those incidental to the fulfillment or demandado Fernando Busuego de la demanda y al demandante de la reconvencion
nonfulfillment of a contractual obligation; while the fault or negligence de los demandados, sin especial pronunciamiento en cuanto a las costas. De dicha
referred to in article 1902 is the culpa aquiliana of the civil law, homologous decision apelo el demandado Antonio Vazquez, apuntando como principal error el
but not identical to tort of the common law, which gives rise to an obligation de que el habia sido condenado personalmente, y no la corporacion por el
independently of any contract. (Cf. Manila R. R. Co. v. Cia. Trasatlantica, 38 representada.
Phil., 875, 887-890; Cangco v. Manila R. R. Co., 38 Phil., 768.) The fact that
the corporation, acting thru Vazquez as its manager, was guilty of negligence in "Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a
the fulfillment of the contract, did not make Vazquez principally or even favor de Francisco de Borja de los 4,000 cavanes de palay fue en su capacidad de
subsidiarily liable for such negligence. Since it was the corporation’s contract, Presidente interino y Manager de la corporacion Natividad-Vazquez Sabani
its nonfulfillment, whether due to negligence or fault or to any other cause, Development Co., Inc. Asi resulta del Exh. 1, que es la copia al carbon del recibo
made the corporation and not its agent liable. otorgado por el demandado Vazquez, y cuyo original lo habia perdido el
demandante, segun el. Asi tambien consta en los libros de la corporacion arriba
3. ID.; ID.; ID. — On the other hand, independently of the contract Vazquez by mencionada, puesto que en los mismos se ha asentado tanto la entrada de los
his fault or negligence caused damage to the plaintiff, he would be liable to the P8,400, precio del palay, como su envio al gobierno en pago de los alquileres de la
latter under article 1902 of the Civil Code. But then the plaintiff’s cause of Hacienda Sabani. Asi mismo lo admitio Francisco de Borja al abogado Sr. Jacinto
action should be based on culpa aquiliana and not on the contract alleged in his Tomacruz, posterior presidente de la corporacion sucesora en el arrendamiento de
complaint herein; and Vazquez’ liability would be principal and not merely la Sabani Estate, cuando el solicito sus buenos oficios para el cobro del precio del
subsidiary, as the Court of Appeals has erroneously held. palay no entregado. Asi igualmente lo declaro el que hizo entrega de parte del
palay a Borja, Felipe Veneracion, cuyo testimonio no ha sido refutado. Y asi se
4. ID.; ID.; ID.; NO CAUSE OF ACTION BASED ON "CULPA deduce de la misma demanda, cuando se incluyo en ella a Fernando Busuego,
AQUILIANA" ALLEGED IN COMPLAINT OR LITIGATED IN TRIAL tesorero de la Natividad-Vazquez Sabani Development Co., Inc.
COURT; NO JURISDICTION OVER THE ISSUE. — No such cause of action
was alleged in the complaint or tried by express or implied consent of the "Siendo esto asi, la principal responsable debe ser la Natividad- Vazquez Sabani
parties by virtue of section 4 of Rule 17. Hence the trial court had no Development Co., Inc., que quedo insolvente y dejo de existir. El Juez
sentenciador declaro, sin embargo, al demandado Vazquez responsable del la cantidad objeto de la demanda." We think both the trial court and the Court of
pago de la cantidad reclamada por su negligencia al vender los referidos 4,000 Appeals erred in law in so holding. They have manifestly failed to distinguish a
cavanes de palay sin averiguar antes si o no dicha cantidad existia en las contractual from an extracontractual obligation, or an obligation arising from
bodegas de la corporacion. contract from an obligation arising from culpa aquiliana. The fault and negligence
referred to in articles 1101-1104 of the Civil Code are those incidental to the
"Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a fulfillment or nonfulfillment of a contractual obligation; while the fault or
Francisco de Borja, el mismo demandado vendio a Kwong Ah Phoy 1,500 negligence referred to in article 1902 is the culpa aquiliana of the civil law,
cavanes al precio de P2.00 el cavan, y decimos ’despues’ porque esta ultima homologous but not identical to tort of the common law, which gives rise to an
venta aparece asentada despues de la primera. Segun esto, el apelante no obligation independently of any contract. (Cf. Manila R. R. Co. v. Cia.
solamente obro con negligencia, sino interviniendo culpa de su parte, por lo Trasatlantica, 38 Phil., 875, 887-890; Cangco v. Manila R. R. Co., 38 Phil., 768.)
que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser The fact that the corporation, acting thru Vazquez as its manager, was guilty of
responsable subsidiariamente del pago de la cantidad objeto de la demanda. negligence in the fulfillment of the contract, did not make Vazquez principally or
even subsidiarily liable for such negligence. Since it was the corporation’s
"En meritos de todo lo expuesto, se confirma la decision apelada con la contract, its nonfulfillment, whether due to negligence or fault or to any other
modificacion de que el apelante debe pagar al apelado la suma de P2,975.70 cause, made the corporation and not its agent liable.
como valor de los 1,417 cavanes de palay que dejo de entregar al demandante,
mas la suma de P339.08 como importe de los 1,417 sacos vacios, que dejo de On the other hand, if independently of the contract Vazquez by his fault or
devolver, a razon de P0.24 el saco, total P3,314.78, con sus intereses legales negligence caused damage to the plaintiff, he would be liable to the latter under
desde la interposicion de la demanda y las costas de ambas instancias."cralaw article 1902 of the Civil Code. But then the plaintiff’s cause of action should be
virtua1aw library based on culpa aquiliana and not on the contract alleged in his complaint herein;
and Vazquez’ liability would be principal and not merely subsidiary, as the Court
"Vista la mocion de reconsideracion de nuestra decision de fecha 13 de of Appeals has erroneously held. No such cause of action was alleged in the
Octubre de 1942, y alegandose en la misma que cuando el apelante vendio los complaint or tried by express or implied consent of the parties by virtue of section
1,500 cavanes de palay a Ah Phoy, la corporacion todavia tenia bastante 4 of Rule 17. Hence the trial court had no jurisdiction over the issue and could not
existencia de dicho grano, y no estando dicho extremo suficientemente adjudicate upon it. (Reyes v. Diaz, G. R. No. 48754.) Consequently it was error
discutido y probado, y pudiendo variar el resultado del asunto, dejamos sin for the Court of Appeals to remand the case to the trial court to try and decide such
efecto nuestra citada decision, y ordenamos la devolucion de la causa al issue.
Juzgado de origen para que reciba pruebas al efecto y dicte despues la decision
correspondiente."cralaw virtua1aw library It only remains for us to consider petitioner’s second assignment of error referring
to the lower courts’ refusal to entertain his counterclaim for damages against the
"Upon consideration of the motion of the attorney for the plaintiff-appellee in respondent Borja arising from the bringing of this action. The lower courts having
case CA-G.R. No. 8676, Francisco de Borja v. Antonio Vazquez Et. Al., sustained plaintiff’s action, they naturally could not have entertained defendant’s
praying, for the reasons therein given, that the resolution of December 22, counterclaim for damages on account of the bringing of the action. The finding of
1942, be reconsidered: Considering that said resolution remanding the case to the Court of Appeals that according to the preponderance of the evidence the
the lower court is for the benefit of the plaintiff-appellee to afford him defendant Vazquez celebrated the contract not in his personal capacity but as
opportunity to refute the contention of the defendant-appellant Antonio acting president and manager of the corporation, does not warrant his contention
Vazquez, motion denied."cralaw virtua1aw library that the suit against him is malicious and tortious; and since we have to decide
defendant’s counterclaim upon the facts found by the Court of Appeals, we find no
The action is on a contract, and the only issue pleaded and tried is whether the sufficient basis upon which to sustain said counterclaim. Indeed, we feel that as a
plaintiff entered into the contract with the defendant Antonio Vazquez in his matter of moral justice we ought to state here that the indignant attitude adopted
personal capacity or as manager of the Natividad-Vazquez Sabani by the defendant towards the plaintiff for having brought this action against him is
Development Co., Inc. The Court of Appeals found that according to the in our estimation not wholly right. Altho from the legal point of view he was not
preponderance of the evidence "the sale made by Antonio Vazquez in favor of personally liable for the fulfillment of the contract entered into by him on behalf
Francisco de Borja of 4,000 cavans of palay was in his capacity as acting of the corporation of which he was the acting president and manager, we think it
president and manager of the corporation Natividad-Vazquez Sabani was his moral duty towards the party with whom he contracted in said capacity to
Development Co., Inc." That finding of fact is final and, it resolving the only see to it that the corporation represented by him fulfilled the contract by delivering
issue involved, should be determinative of the result. the palay it had sold, the price of which it had already received. Recreant to such
duty as a moral person, he has no legitimate cause for indignation. We feel that
The Court of Appeals doubly erred in ordering that the cause be remanded to under the circumstances he not only has no cause of action against the plaintiff for
the court of origin for further trial to determine whether the corporation had damages but is not even entitled to costs.
sufficient stock of palay at the time appellant sold 1,500 cavans of palay to
Kwong Ah Phoy. First, if that point was material to the issue, it should have The judgment of the Court of Appeals is reversed, and the complaint is hereby
been proven during the trial; and the statement of the court that it had not been dismissed, without any finding as to costs.
sufficiently discussed and proven was no justification for ordering a new trial,
which, by the way, neither party had solicited but against which, on the Yulo, C.J., Moran, Horrilleno, and Bocobo, JJ., concur.
contrary, both parties now vehemently protest. Second, the point is, in any
event, beside the issue, and this we shall now discuss in connection with the Separate Opinions
original judgment of the Court of Appeals which the plaintiff cross-petitioner
seeks to maintain.
PARAS, J., dissenting:chanrob1es virtual 1aw library
The action being on a contract, and it appearing from the preponderance of the
evidence that the party liable on the contract is the Natividad-Vazquez Sabani Upon the facts of this case as expressly or impliedly admitted in the majority
Development Co., Inc., which is not a party herein, the complaint should have opinion, the plaintiff is entitled to a judgment against the defendant. The latter, as
been dismissed. Counsel for the plaintiff, in his brief as respondent, argues that acting president and manager of Natividad-Vazquez Sabani Development Co.,
altho by the preponderance of the evidence the trial court and the Court of Inc., and with full knowledge of the then insolvent status of his company, agreed
Appeals found that Vazquez celebrated the contract in his capacity as acting to sell to the plaintiff 4,000 cavans of palay. Notwithstanding the receipt from the
president of the corporation and altho it was the latter, thru Vazquez, with plaintiff of the full purchase price, the defendant delivered only 2,488 cavans and
which the plaintiff had contracted and which, thru Vazquez, had received the failed and refused to deliver the remaining 1,512 cavans and a quantity of empty
sum of P8,400 from Borja, and altho that was true from the point of view of a sacks, or their value. Such failure resulted, according to the Court of First Instance
legal fiction, "ello no impide que tambien sea verdad lo alegado en la demanda of Manila and the Court of Appeals, from his fault or negligence.
de que la persona de Vazquez fue la que contrato con Borja y que la misma
persona de Vazquez fue quien recibio la suma de P8,400." But such argument It is true that the cause of action made out by the complaint is technically based on
is invalid and insufficient to show that the president of the corporation is a contract between the plaintiff and Natividad- Vazquez Sabani Development Co.,
personally liable on the contract duly and lawfully entered into by him in its Inc., which is not a party to this case. Nevertheless, inasmuch as it was proven at
behalf. the trial that the defendant was guilty of fault in that he prevented the performance
of the plaintiff’s contract and also of negligence bordering on fraud which caused
It is well known that a corporation is an artificial being invested by law with a damage to the plaintiff, the error of procedure should not be a hindrance to the
personality of its own, separate and distinct from that of its stockholders and rendition of a decision in accordance with the evidence actually introduced by the
from that of its officers who manage and run its affairs. The mere fact that its parties, especially when in such a situation we may order the necessary
personality is owing to a legal fiction and that it necessarily has to act thru its amendment of the pleadings, or even consider them correspondingly amended.
agents, does not make the latter personally liable on a contract duly entered
into, or for an act lawfully performed, by them for and in its behalf. The legal As already stated, the corporation of which the defendant was acting president and
fiction by which the personality of a corporation is created is a practical reality manager was, at the time he made the sale to the plaintiff, known to him to be
and necessity. Without it no corporate entities may exist and no corporate insolvent. As a matter of fact, said corporation was soon thereafter dissolved.
business may be transacted. Such legal fiction may be disregarded only when There is admitted damage on the part of the plaintiff, proven to have been inflicted
an attempt is made to use it as a cloak to hide an unlawful or fraudulent by reason of the fault or negligence of the defendant. In the interest of simple
purpose. No such thing has been alleged or proven in this case. It has not been justice and to avoid multiplicity of suits I am therefore impelled to consider the
alleged nor even intimated that Vazquez personally benefited by the contract of present action as one based on fault or negligence and to sentence the defendant
sale in question and that he is merely invoking the legal fiction to avoid accordingly. Otherwise, he would be allowed to profit by his own wrong under the
personal liability. Neither is it contended that he entered into said contract for protective cover of the corporate existence of the company he represented. It
the corporation in bad faith and with intent to defraud the plaintiff. We find no cannot be pretended that any advantage under the sale inured to the benefit of
legal and factual basis upon which to hold him liable on the contract either Natividad-Vazquez Sabani Development Co., Inc., and not of the defendant
principally or subsidiarily. personally, since the latter undoubtedly owned a considerable part of its capital.

The trial court found him guilty of negligence in the performance of the
contract and held him personally liable on that account. On the other hand, the
Court of Appeals found that he "no solamente obro con negligencia, sino
interviniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103
y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de
Facts: decision[7] partly reads:
Wensha Spa is in the business of sauna bath and massage services. Xu is the
president and Loreta wasthe administrative manager at the time of her However, this office has found it dubious and hard to believe the contentions
termination from employment. Loreta used to be employed byManmen where made by the complainant that she was dismissed by the respondents on the sole
Xu was a client. Since Su was impressed with Loreta’s performance, he ground that she is a "mismatch" in respondents' business as advised by an alleged
convinced Loreta totransfer and work at Wensha. Loreta started working on Feng Shui Master. The complainant herself alleged in her position paper that she
pril !", !##$ as Xu’s personal assistant andinterpreter. She was promoted to has done several improvements in respondents' business such as uplifting the
the position of dministrative Manager. Loreta was asked to resign morale and efficiency of its employees and increasing respondents' clientele, and
fromWensha because according to a %eng Shui master, her aura did not match that respondent Co was very much pleased with the improvements made by the
that of Xu. Loreta filed a case for illegal dismissal against Xu and Wensha. complainant that she was offered twice a promotion but she nevertheless declined.
&he Labor rbiter dismissed Loreta’s complaint for lack of merit. 'efound it It would be against human experience and contrary to business acumen to let go of
more probable that Loreta was dismissed due to loss of trust and confidence in someone, who was an asset and has done so much for the company merely on the
her. &he ( reversed theruling of the )L*(. ground that she is a "mismatch" to the business. Absent any proof submitted by
Issue: the complainant, this office finds it more probable that the complainant was
Whether or not Xu is solidarily liable with Wensha, assuming that Loreta was dismissed due to loss of trust and confidence.[8]
illegally dismissed.
u!"ng: This ruling was affirmed by the NLRC in its December 29, 2006 Resolution,[9]
)o. Xu is not solidarily liable with Wensha. +lementary is the rule that a citing its observation that Wensha was still considering the proper action to take
corporation is invested by lawwith a personality separate and distinct from on the day Loreta left Wensha and filed her complaint. The NLRC added that this
those of the persons composing it and from that of any other legalentity to finding was bolstered by Wensha's September 10, 2004 letter to Loreta asking her
which it may be related. Mere ownership by a single stockholder or by to come back to personally clarify some matters, but she declined because she had
another corporation of all or nearly all of the capital stock of a corporation is already filed a case.
not of itself sufficient ground for disregarding the separatecorporate
personality.- n labor cases, corporate directors and officers may be held Loreta moved for a reconsideration of the NLRC's ruling but her motion was
solidarily liable with the corporation for thetermination of employment only if denied. Loreta then went to the CA on a petition for certiorari. The CA reversed
done with malice or in bad faith. /ad faith does not connote bad 0udgment or the ruling of the NLRC on the ground that it gravely abused its discretion in
negligence1 it imports a dishonest purpose or some moral obli2uity and appreciating the factual bases that led to Loreta's dismissal. The CA noted that
conscious doing of wrong1 it means breach of a known duty through some there were irregularities and inconsistencies in Wensha's position. The CA stated
motive or interest or ill will1 it partakes of the nature of fraud. n thesub0ect the following:
decision, the ( concluded that petitioner Xu and Wensha are 0ointly and
severally liable to Loreta. Wehave read the decision in its entirety but simply We, thus, peruse the affidavits and documentary evidence of the Private
failed to come across any finding of bad faith or malice on the part of Xu. Respondents and find the following: First, on the affidavits of their witnesses, it
&here is, therefore, no 0ustification for such a ruling. &o sustain such a must be noted that the same were mere photocopies. It was held that [T]he
finding, there should be anevidence on record that an officer or director acted purpose of the rule in requiring the production of the best evidence is the
maliciously or in bad faith in terminating the services of anemployee. prevention of fraud, because if a party is in possession of such evidence and
Moreover, the finding or indication that the dismissal was effected with malice withholds it, and seeks to substitute inferior evidence in its place, the presumption
or bad faith should bestated in the decision itself. Wensha Spa (enter, nc. vs. naturally arise[s] that the better evidence is withheld for fraudulent purposes
3ung, 4!5 S(* 6"", 7.*. )o. "58"!! ugust "4,!#"# which its production would expose and defeat. Moreover, the affidavits were not
executed under oath. The rule is that an affiant must sign the document in the
SECOND DIVISION presence of and take his oath before a notary public as evidence that the affidavit
was properly made. Guided by these principles, the affidavits cannot be assigned
[G.R. No. 185122 : August 16, 2010] any weighty probative value and are mere scraps of paper the contents of which
are hearsay. Second, on the sales report and order slips, which allegedly prove
WENSHA SPA CENTER, INC. AND/OR XU ZHI JIE, PETITIONERS, VS. that Yung had been charging her food and drinks to Wensha, the said pieces of
LORETA T. YUNG, RESPONDENT. evidence do not, however, bear Yung's name thereon or even her signature. In
fact, it does not state anyone's name, except that of Wensha. Hence, it would
DECISION simply be capricious to pinpoint, or impute, on Yung as the author in charging
such expenses to Wensha on the basis of hearsay evidence. Third, while the
MENDOZA, J.: affidavit of Wensha's Operations Manager, Princess delos Reyes (delos Reyes),
may have been duly executed under oath, she did not, however, specify the alleged
This is a petition for review on certiorari under Rule 45 of the Rules of Court infractions that Yung committed. If at all, delos Reyes only made general
filed by an employer who was charged before the National Labor Relations statements on the alleged complaints against Yung that were not even
Commission (NLRC) for dismissing an employee upon the advice of a Feng substantiated by any other piece of evidence. Finally, the daily time records
Shui master. In this action, the petitioners assail the May 28, 2008 Decision[1] (DTRs) of Yung, which supposedly prove her habitual tardiness, were mere
and October 23, 2008 Resolution[2] of the Court of Appeals (CA) in CA-G.R. photocopies that are not even signed by Wensha's authorized representative, thus
SP No. 98855 entitled Loreta T. Yung v. National Labor Relations suspect, if not violative of the best evidence rule and, therefore, incompetent
Commission, Wensha Spa Center, Inc. and/or Xu Zhi Jie. evidence. x x x [Emphases appear in the original]

THE FACTS: x x x x.

Wensha Spa Center, Inc. (Wensha) in Quezon City is in the business of sauna Finally, after the Private Respondents filed their position paper, they alleged
bath and massage services. Xu Zhi Jie a.k.a. Pobby Co (Xu) is its president,[3] mistake on the part of their former counsel in stating that Yung was dismissed on
respondent Loreta T. Yung (Loreta) was its administrative manager at the time August 31, 2004. Thus, they subsequently moved for the admission of their
of her termination from employment. rejoinder. Notably, however, the said rejoinder was dated October 4, 2004, earlier
than the date when their position paper was filed, which was on November 3,
In her position paper,[4] Loreta stated that she used to be employed by 2004. It is also puzzling that their position paper was dated November 25, 2004,
Manmen Services Co., Ltd. (Manmen) where Xu was a client. Xu was much later than its date of filing. The irregularities are simply too glaring to be
apparently impressed by Loreta's performance. After he established Wensha, he ignored. Nevertheless, the Private Respondents' admission of Yung's termination
convinced Loreta to transfer and work at Wensha. Loreta was initially on August 31, 2004 cannot be retracted. They cannot use the mistake of their
reluctant to accept Xu's offer because her job at Manmen was stable and she counsel as an excuse considering that the position paper was verified by their
had been with Manmen for seven years. But Xu was persistent and offered her Operations Manager, delos Reyes, who attested to the truth of the contents therein.
a higher pay. Enticed, Loreta resigned from Manmen and transferred to [10] [Emphasis supplied]
Wensha. She started working on April 21, 2004 as Xu's personal assistant and
interpreter at a monthly salary of P12,000.00. Hence, the fallo of the CA decision reads:

Loreta introduced positive changes to Wensha which resulted in increased WHEREFORE, the instant petition is GRANTED. Wensha Spa Center, Inc. and
business. This pleased Xu so that on May 18, 2004, she was promoted to the Xu Zhi Jie are ORDERED to, jointly and severally, pay Loreta T. Yung her full
position of Administrative Manager.[5] backwages, other privileges, and benefits, or their monetary equivalent,
corresponding to the period of her dismissal from September 1, 2004 up to the
Loreta recounted that on August 10, 2004, she was asked to leave her office finality of this decision, and damages in the amounts of fifty thousand pesos
because Xu and a Feng Shui master were exploring the premises. Later that (Php50,000.00) as moral damages, twenty five thousand pesos (Php25,000.00) as
day, Xu asked Loreta to go on leave with pay for one month. She did so and exemplary damages, and twenty thousand pesos (Php20,000.00) as attorney's fees.
returned on September 10, 2004. Upon her return, Xu and his wife asked her No costs.
to resign from Wensha because, according to the Feng Shui master, her aura
did not match that of Xu. Loreta refused but was informed that she could no SO ORDERED.[11]
longer continue working at Wensha. That same afternoon, Loreta went to the
NLRC and filed a case for illegal dismissal against Xu and Wensha. Wensha and Xu now assail this ruling of the CA in this petition presenting the
following:
Wensha and Xu denied illegally terminating Loreta's employment. They
claimed that two months after Loreta was hired, they received various V. GROUNDS FOR THE ALLOWANCE OF THE PETITION
complaints against her from the employees so that on August 10, 2004, they
advised her to take a leave of absence for one month while they conducted an 5.1 The following are the reasons and arguments, which are purely questions of
investigation on the matter. Based on the results of the investigation, they law and some questions of facts, which justify the appeal by certiorari under Rule
terminated Loreta's employment on August 31, 2004 for loss of trust and 45 of the 1997 Revised Rules of Civil Procedure, as amended, to this Honorable
confidence.[6] SUPREME COURT of the assailed Decision and Resolution, to wit:

The Labor Arbiter (LA) Francisco Robles dismissed Loreta's complaint for 5.1.1 The Honorable COURT OF APPEALS gravely erred in reversing that
lack of merit. He found it more probable that Loreta was dismissed from her factual findings of the Honorable Labor Arbiter and the Honorable NLRC (Third
employment due to Wensha's loss of trust and confidence in her. The LA's Division) notwithstanding recognized and established rule in our jurisdiction that
findings of facts of quasi-judicial agencies who have gained expertise on their On August 10, 2004 however, complainant was called by respondent Xu and told
respective subject matters are given respect and finality; her to wait at the lounge area while the latter and a Feng Shui Master were doing
some analysis of the office. After several hours of waiting, respondent Xu then
5.1.2 The Honorable COURT OF APPEALS committed grave abuse of told complainant that according to the Feng Shui master her Chinese Zodiac sign
discretion and serious errors when it ruled that findings of facts of the is a "mismatch" with that of the respondents; that complainant should not enter the
Honorable Labor Arbiter and the Honorable NLRC are not supported by administrative office for a month while an altar was to be placed on the left side
substantial evidence despite the fact that the records clearly show that where complainant has her table to allegedly correct the "mismatch" and that it is
petitioner therein was not dismissed but is under investigation, and that she is necessary that offerings and prayers have to be made and said for about a month to
guilty of serious infractions that warranted her termination; correct the alleged "jinx." Respondent Xu instructed complainant not to report to
the office for a month with assurance of continued and regular salary. She was
5.1.3 The Honorable COURT OF APPEALS grave[ly] erred when it ordered ordered not to seek employment elsewhere and was told to come back on the 10th
herein petitioner to pay herein respondent her separation pay, in lieu of of September 2004.[27]
reinstatement, and full backwages, as well as damages and attorney's fees;
Although she was a little confused, Loreta did as she was instructed and did not
5.1.4 The Honorable COURT OF APPEALS committed grave abuse of report for work for a month. She returned to work on September 10, 2004. This
discretion and serious errors when it held that petitioner XU ZHI JIE to be is how Loreta recounted the events of that day:
solidarily liable with WENSHA, assuming that respondent was illegally
dismissed; On September 10, 2004, in the morning, complainant reported to the office of
respondents. As usual, she punched-in her time card and signed in the logbook of
5.2 The same need to be corrected as they would work injustice to the herein the security guard. When she entered the administrative office, some of its
petitioner, grave and irreparable damage will be done to him, and would pose employees immediately contacted respondent Xu. Respondent Xu then contacted
dangerous precedent.[12] complainant thru her mobile phone and told her to leave the administrative office
immediately and instead to wait for him in the dining area.
THE COURT'S RULING:
xxx
Loreta's security of tenure is guaranteed by the Constitution and the Labor
Code. The 1987 Philippine Constitution provides in Section 18, Article II that Complainant waited for respondent Xu in the dining area. After waiting for about
the State shall protect the rights of workers and promote their welfare. Section two (2) hours, respondent Xu was nowhere. Instead, it was Jiang Xue Qin a.k.a
3, Article XIII also provides that all workers shall be entitled to security of Annie Co, the Chinese wife of respondent Xu, who arrived and after a short
tenure. Along that line, Article 3 of the Labor Code mandates that the State conversation between them, the former frankly told complainant that she has to
shall assure the rights of workers to security of tenure. resign allegedly she is a mismatch to respondent Xu according to the Feng Shui
master and therefore she does not fit to work (sic) with the respondents. Surprised
Under the security of tenure guarantee, a worker can only be terminated from and shocked, complainant demanded of Jiang Xue Qin to issue a letter of
his employment for cause and after due process. For a valid termination by the termination if it were the reason therefor.
employer: (1) the dismissal must be for a valid cause as provided in Article
282, or for any of the authorized causes under Articles 283 and 284 of the Instead of a termination letter issued, Jiang Xue Qin insisted for the complainant's
Labor Code; and (2) the employee must be afforded an opportunity to be heard resignation. But when complainant stood her ground, Jian Xue Qin shouted
and to defend himself. A just and valid cause for an employee's dismissal must invectives at her and told to leave the office immediately.
be supported by substantial evidence, and before the employee can be
dismissed, he must be given notice and an adequate opportunity to be heard. Respondent Xu did not show up but talked to the complainant over the mobile
[13] In the process, the employer bears the burden of proving that the dismissal phone and convinced her likewise to resign from the company since there is no
of an employee was for a valid cause. Its failure to discharge this burden way to retain her because her aura unbalanced the area of employment according
renders the dismissal unjustified and, therefore, illegal.[14] to the Feng Shui, the Chinese spiritual art of placement. Hearing this from no lees
than respondent Xu, complainant left the office and went straight to this Office
As a rule, the factual findings of the court below are conclusive on Us in a and filed the present case on September 10, 2004. xxx[28]
petition for review on certiorari where We review only errors of law. This case,
however, is an exception because the CA's factual findings are not congruent Loreta also alleged that in the afternoon of that day, September 10, 2004, a notice
with those of the NLRC and the LA. was posted on the Wensha bulletin board that reads:

According to Wensha in its position paper,[15] it dismissed Loreta on August TO ALL EMPLOYEES OF WENSHA SPA CENTER
31, 2004 after investigating the complaints against her. Wensha asserted that
her dismissal was a valid exercise of an employer's right to terminate a
managerial employee for loss of trust and confidence. It claimed that she WE WOULD LIKE TO INFORM YOU THAT MS. LORIE TSE YUNG,
caused the resignation of an employee because of gossips initiated by her. It FORMER ADMINISTRATIVE OFFICER OF WENSHA SPA CENTER IS NO
was the reason she was asked to take a leave of absence with pay for one LONGER CONNECTED TO THIS COMPANY STARTING TODAY
month starting August 10, 2004.[16] SEPTEMBER 10, 2004.

Wensha also alleged that Loreta was "sowing intrigues in the company" which ANY TRANSACTION MADE BY HER IS NO LONGER A LIABILITY OF
was inimical to Wensha. She was also accused of dishonesty, serious breach of THE COMPANY.
trust reposed in her, tardiness, and abuse of authority.[17]
(SGD.) THE MANAGEMENT [Italics were in red letters.][29]
In its Rejoinder, Wensha changed its position claiming that it did not terminate
Loreta's employment on August 31, 2004. It even sent her a notice requesting The Court finds Loreta's complaint credible. There is consistency in her pleadings
her to report back to work. She, however, declined because she had already and evidence. In contrast, Wensha's pleadings and evidence, taken as a whole,
filed her complaint.[18] suffer from inconsistency. Moreover, the affidavits of the employees only pertain
to petty matters that, to the Court's mind, are not sufficient to support Wensha's
As correctly found by the CA, the cause of Loreta's dismissal is questionable. alleged loss of trust and confidence. To be a valid cause for termination of
Loss of trust and confidence to be a valid ground for dismissal must have basis employment, the act or acts constituting breach of trust must have been done
and must be founded on clearly established facts.[19] intentionally, knowingly, and purposely; and they must be founded on clearly
established facts.
The Court finds the LA ruling that states, "[a]bsent any proof submitted by the
complainant, this office finds it more probable that the complainant was The CA decision is supported by evidence and logically flows from a review of
dismissed due to loss of trust and confidence,"[20] to be utterly erroneous as it the records. Loreta's narration of the events surrounding her termination from
is contrary to the applicable rules and pertinent jurisprudence. The onus of employment was simple and straightforward. Her claims are more credible than
proving a valid dismissal rests on the employer, not on the employee.[21] It is the affidavits which were clearly prepared as an afterthought.
the employer who bears the burden of proving that its dismissal of the
employee is for a valid or authorized cause supported by substantial evidence. More importantly, the records are bereft of evidence that Loreta was duly
[22] informed of the charges against her and that she was given the opportunity to
respond to those charges prior to her dismissal. If there were indeed charges
According to the NLRC, "[p]erusal of the entire records show that complainant against Loreta that Wensha had to investigate, then it should have informed her of
left the respondents' premises when she was confronted with the infractions those charges and required her to explain her side. Wensha should also have kept
imputed against her."[23] This information was taken from the affidavit[24] of records of the investigation conducted while Loreta was on leave. The law
Princess Delos Reyes (Delos Reyes) which was dated March 21, 2005, not in requires that two notices be given to an employee prior to a valid termination: the
Wensha's earlier position paper or pleadings submitted to the LA. The first notice is to inform the employee of the charges against her with a warning
affidavits[25] of employees attached to Delos Reyes' affidavit were all dated that she may be terminated from her employment and giving her reasonable
November 19, 2004 indicating that they were not yet executed when the opportunity within which to explain her side, and the second notice is the notice to
complaints against Loreta were supposedly being investigated in August 2004. the employee that upon due consideration of all the circumstances, she is being
terminated from her employment.[30] This is a requirement of due process and
It is also noteworthy that Wensha's position paper related that because of the clearly, Loreta did not receive any of those required notices.
gossips perpetrated by Loreta, a certain Oliva Gonzalo (Gonzalo) resigned
from Wensha. Because of the incident, Gonzalo, whose father was a We are in accord with the pronouncement of the CA that the reinstatement of
policeman, "reportedly got angry with complainant and of the management Loreta to her former position is no longer feasible in the light of the strained
telling her friends at respondent company that she would retaliate thus creating relations between the parties. Reinstatement, under the circumstances, would no
fear among those concerned."[26] As a result, Loreta was advised to take a longer be practical as it would not be in the interest of both parties. Under the law
paid leave of absence for one month while Wensha conducted an investigation. and jurisprudence, an illegally dismissed employee is entitled to two reliefs -
backwages and reinstatement, which are separate and distinct. If reinstatement
According to Loreta, however, the reason for her termination was her aura did would only exacerbate the tension and further ruin the relations of the employer
not match that of Xu and the work environment at Wensha. Loreta narrated: and the employee, or if their relationship has been unduly strained due to
irreconcilable differences, particularly where the illegally dismissed employee
held a managerial or key position in the company, it would be prudent to order FIRST DIVISION
payment of separation pay instead of reinstatement.[31] In the case of Golden
Ace Builders v. Talde,[32] We wrote: [G.R. No. 152542. July 8, 2004]

Under the doctrine of strained relations, the payment of separation pay has MONFORT HERMANOS AGRICULTURAL DEVELOPMENT
been considered an acceptable alternative to reinstatement when the latter CORPORATION, as represented by MA. ANTONIA M. SALVATIERRA,
option is no longer desirable or viable. On the one hand, such payment petitioner, vs. ANTONIO B. MONFORT III, MA. LUISA MONFORT
liberates the employee from what could be a highly oppressive work ASCALON, ILDEFONSO B. MONFORT, ALFREDO B. MONFORT, CARLOS
environment. On the other, the payment releases the employer from the grossly M. RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ, ENCARNACION
unpalatable obligation of maintaining in its employ a worker it could no longer CECILIA R. PAYLADO, JOSE MARTIN M. RODRIGUEZ and COURT OF
trust. APPEALS, respondents.

In the case at bench, the CA, upon its own assessment, pronounced that the [G.R. No. 155472. July 8, 2004]
relations between petitioners and the respondent have become strained because
of her dismissal anchored on dubious charges. The respondent has not ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON,
contested the finding. As she is not insisting on being reinstated, she should be ILDEFONSO B. MONFORT, ALFREDO B. MONFORT, CARLOS M.
paid separation pay equivalent to one (1) month salary for every year of RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ, ENCARNACION
service.[33] The CA, however, failed to decree such award in the dispositive CECILIA R. PAYLADO, JOSE MARTIN M. RODRIGUEZ, petitioners, vs.
portion. This should be rectified. HON. COURT OF APPEALS, MONFORT HERMANOS AGRICULTURAL
DEVELOPMENT CORPORATION, as represented by MA. ANTONIA M.
Nevertheless, the Court finds merit in the argument of petitioner Xu that the SALVATIERRA, and RAMON H. MONFORT, respondents.
CA erred in ruling that he is solidarily liable with Wensha.
DECISION
Elementary is the rule that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it and from that of YNARES-SANTIAGO, J.:
any other legal entity to which it may be related. "Mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of Before the Court are consolidated petitions for review of the decisions of the
a corporation is not of itself sufficient ground for disregarding the separate Court of Appeals in the complaints for forcible entry and replevin filed by
corporate personality."[34] Monfort Hermanos Agricultural Development Corporation (Corporation) and
Ramon H. Monfort against the children, nephews, and nieces of its original
In labor cases, corporate directors and officers may be held solidarily liable incorporators (collectively known as the group of Antonio Monfort III).
with the corporation for the termination of employment only if done with
malice or in bad faith.[35] Bad faith does not connote bad judgment or The petition in G.R. No. 152542, assails the October 5, 2001 Decision[1] of the
negligence; it imports a dishonest purpose or some moral obliquity and Special Tenth Division of the Court of Appeals in CA-G.R. SP No. 53652, which
conscious doing of wrong; it means breach of a known duty through some ruled that Ma. Antonia M. Salvatierra has no legal capacity to represent the
motive or interest or ill will; it partakes of the nature of fraud.[36] Corporation in the forcible entry case docketed as Civil Case No. 534-C, before
the Municipal Trial Court of Cadiz City. On the other hand, the petition in G.R.
In the subject decision, the CA concluded that petitioner Xu and Wensha are No. 155472, seeks to set aside the June 7, 2002 Decision[2] rendered by the
jointly and severally liable to Loreta.[37] We have read the decision in its Special Former Thirteenth Division of the Court of Appeals in CA-G.R. SP No.
entirety but simply failed to come across any finding of bad faith or malice on 49251, where it refused to address, on jurisdictional considerations, the issue of
the part of Xu. There is, therefore, no justification for such a ruling. To Ma. Antonia M. Salvatierras capacity to file a complaint for replevin on behalf of
sustain such a finding, there should be an evidence on record that an officer or the Corporation in Civil Case No. 506-C before the Regional Trial Court of Cadiz
director acted maliciously or in bad faith in terminating the services of an City, Branch 60.
employee.[38] Moreover, the finding or indication that the dismissal was
effected with malice or bad faith should be stated in the decision itself.[39] Monfort Hermanos Agricultural Development Corporation, a domestic private
corporation, is the registered owner of a farm, fishpond and sugar cane plantation
WHEREFORE, the petition is PARTIALLY GRANTED. The decretal portion known as Haciendas San Antonio II, Marapara, Pinanoag and Tinampa-an, all
of the May 28, 2008 Decision of the Court of Appeals, in CA-G.R. SP No. situated in Cadiz City.[3] It also owns one unit of motor vehicle and two units of
98855, is hereby MODIFIED to read as follows: tractors.[4] The same allowed Ramon H. Monfort, its Executive Vice President, to
breed and maintain fighting cocks in his personal capacity at Hacienda San
WHEREFORE, the petition is GRANTED. Wensha Spa Center, Inc. is hereby Antonio.[5]
ordered to pay Loreta T. Yung her full backwages, other privileges, and
benefits, or their monetary equivalent, and separation pay reckoned from the In 1997, the group of Antonio Monfort III, through force and intimidation,
date of her dismissal, September 1, 2004, up to the finality of this decision, allegedly took possession of the 4 Haciendas, the produce thereon and the motor
plus damages in the amounts of Fifty Thousand (P50,000.00) Pesos, as moral vehicle and tractors, as well as the fighting cocks of Ramon H. Monfort.
damages; Twenty Five Thousand (P25,000.00) Pesos as exemplary damages;
and Twenty Thousand (P20,000.00) Pesos, as attorney's fees. No costs. In G.R. No. 155472:

SO ORDERED. On April 10, 1997, the Corporation, represented by its President, Ma. Antonia M.
Salvatierra, and Ramon H. Monfort, in his personal capacity, filed against the
group of Antonio Monfort III, a complaint[6] for delivery of motor vehicle,
tractors and 378 fighting cocks, with prayer for injunction and damages, docketed
as Civil Case No. 506-C, before the Regional Trial Court of Negros Occidental,
Branch 60.

The group of Antonio Monfort III filed a motion to dismiss contending, inter alia,
that Ma. Antonia M. Salvatierra has no capacity to sue on behalf of the
Corporation because the March 31, 1997 Board Resolution[7] authorizing Ma.
Antonia M. Salvatierra and/or Ramon H. Monfort to represent the Corporation is
void as the purported Members of the Board who passed the same were not
validly elected officers of the Corporation.

On May 4, 1998, the trial court denied the motion to dismiss.[8] The group of
Antonio Monfort III filed a petition for certiorari with the Court of Appeals but the
same was dismissed on June 7, 2002.[9] The Special Former Thirteenth Division
of the appellate court did not resolve the validity of the March 31, 1997 Board
Resolution and the election of the officers who signed it, ratiocinating that the
determination of said question is within the competence of the trial court.

The motion for reconsideration filed by the group of Antonio Monfort III was
denied.[10] Hence, they instituted a petition for review with this Court, docketed
as G.R. No. 155472.

In G.R. No. 152542:

On April 21, 1997, Ma. Antonia M. Salvatierra filed on behalf of the Corporation
a complaint for forcible entry, preliminary mandatory injunction with temporary
restraining order and damages against the group of Antonio Monfort III, before the
Municipal Trial Court (MTC) of Cadiz City.[11] It contended that the latter
through force and intimidation, unlawfully took possession of the 4 Haciendas and
deprived the Corporation of the produce thereon.

In their answer,[12] the group of Antonio Monfort III alleged that they are
possessing and controlling the Haciendas and harvesting the produce therein on
behalf of the corporation and not for themselves. They likewise raised the
affirmative defense of lack of legal capacity of Ma. Antonia M. Salvatierra to sue
on behalf of the Corporation.

On February 18, 1998, the MTC of Cadiz City rendered a decision dismissing the
complaint.[13] On appeal, the Regional Trial Court of Negros Occidental, presented the Minutes of the meeting of its Board of Directors held on April 1,
Branch 60, reversed the Decision of the MTCC and remanded the case for 1982, as proof that the filing of the case against private respondent was authorized
further proceedings.[14] by the Board. On the other hand, the second set of officers, viz., Saturnino G.
Belen, Jr., Alberto C. Nograles and Jose L.R. Reyes, presented a Resolution dated
Aggrieved, the group of Antonio Monfort III filed a petition for review with July 30, 1986, to show that Premium did not authorize the filing in its behalf of
the Court of Appeals. On October 5, 2001, the Special Tenth Division set aside any suit against the private respondent International Corporate Bank.
the judgment of the RTC and dismissed the complaint for forcible entry for
lack of capacity of Ma. Antonia M. Salvatierra to represent the Corporation. Later on, petitioner submitted its Articles of Incorporation dated November 6,
[15] The motion for reconsideration filed by the latter was denied by the 1979 with the following as Directors: Mario C. Zavalla, Pedro C. Celso, Oscar B.
appellate court.[16] Gan, Lionel Pengson, and Jose Ma. Silva.

Unfazed, the Corporation filed a petition for review with this Court, docketed However, it appears from the general information sheet and the Certification
as G.R. No. 152542 which was consolidated with G.R. No. 155472 per issued by the SEC on August 19, 1986 that as of March 4, 1981, the officers and
Resolution dated January 21, 2004.[17] members of the board of directors of the Premium Marble Resources, Inc. were:

The focal issue in these consolidated petitions is whether or not Ma. Antonia Alberto C. Nograles President/Director
M. Salvatierra has the legal capacity to sue on behalf of the Corporation.
Fernando D. Hilario Vice President/Director
The group of Antonio Monfort III claims that the March 31, 1997 Board
Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort Augusto I. Galace Treasurer
to represent the Corporation is void because the purported Members of the
Board who passed the same were not validly elected officers of the Jose L.R. Reyes Secretary/Director
Corporation.
Pido E. Aguilar Director
A corporation has no power except those expressly conferred on it by the
Corporation Code and those that are implied or incidental to its existence. In Saturnino G. Belen, Jr. Chairman of the Board.
turn, a corporation exercises said powers through its board of directors and/or
its duly authorized officers and agents. Thus, it has been observed that the While the Minutes of the Meeting of the Board on April 1, 1982 states that the
power of a corporation to sue and be sued in any court is lodged with the board newly elected officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito
of directors that exercises its corporate powers. In turn, physical acts of the Yujuico and Rodolfo Millare, petitioner failed to show proof that this election was
corporation, like the signing of documents, can be performed only by natural reported to the SEC. In fact, the last entry in their General Information Sheet with
persons duly authorized for the purpose by corporate by-laws or by a specific the SEC, as of 1986 appears to be the set of officers elected in March 1981.
act of the board of directors.[18]
We agree with the finding of public respondent Court of Appeals, that in the
Corollary thereto, corporations are required under Section 26 of the absence of any board resolution from its board of directors the [sic] authority to
Corporation Code to submit to the SEC within thirty (30) days after the act for and in behalf of the corporation, the present action must necessarily fail.
election the names, nationalities and residences of the elected directors, The power of the corporation to sue and be sued in any court is lodged with the
trustees and officers of the Corporation. In order to keep stockholders and the board of directors that exercises its corporate powers. Thus, the issue of authority
public transacting business with domestic corporations properly informed of and the invalidity of plaintiff-appellants subscription which is still pending, is a
their organizational operational status, the SEC issued the following rules: matter that is also addressed, considering the premises, to the sound judgment of
the Securities & Exchange Commission.
xxxxxxxxx
By the express mandate of the Corporation Code (Section 26), all corporations
2. A General Information Sheet shall be filed with this Commission within duly organized pursuant thereto are required to submit within the period therein
thirty (30) days following the date of the annual stockholders meeting. No stated (30 days) to the Securities and Exchange Commission the names,
extension of said period shall be allowed, except for very justifiable reasons nationalities and residences of the directors, trustees and officers elected.
stated in writing by the President, Secretary, Treasurer or other officers, upon
which the Commission may grant an extension for not more than ten (10) days. Sec. 26 of the Corporation Code provides, thus:

2.A. Should a director, trustee or officer die, resign or in any manner, cease to Sec. 26. Report of election of directors, trustees and officers. Within thirty (30)
hold office, the corporation shall report such fact to the Commission with days after the election of the directors, trustees and officers of the corporation, the
fifteen (15) days after such death, resignation or cessation of office. secretary, or any other officer of the corporation, shall submit to the Securities and
Exchange Commission, the names, nationalities and residences of the directors,
3. If for any justifiable reason, the annual meeting has to be postponed, the trustees and officers elected. xxx
company should notify the Commission in writing of such postponement.
Evidently, the objective sought to be achieved by Section 26 is to give the public
The General Information Sheet shall state, among others, the names of the information, under sanction of oath of responsible officers, of the nature of
elected directors and officers, together with their corresponding position title business, financial condition and operational status of the company together with
(Emphasis supplied) information on its key officers or managers so that those dealing with it and those
who intend to do business with it may know or have the means of knowing facts
In the instant case, the six signatories to the March 31, 1997 Board Resolution concerning the corporations financial resources and business responsibility.
authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent
the Corporation, were: Ma. Antonia M. Salvatierra, President; Ramon H. The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa,
Monfort, Executive Vice President; Directors Paul M. Monfort, Yvete M. et al., are the incumbent officers of Premium has not been fully substantiated. In
Benedicto and Jaqueline M. Yusay; and Ester S. Monfort, Secretary.[19] the absence of an authority from the board of directors, no person, not even the
However, the names of the last four (4) signatories to the said Board officers of the corporation, can validly bind the corporation.
Resolution do not appear in the 1996 General Information Sheet submitted by
the Corporation with the SEC. Under said General Information Sheet the In the case at bar, the fact that four of the six Members of the Board listed in the
composition of the Board is as follows: 1996 General Information Sheet[23] are already dead[24] at the time the March
31, 1997 Board Resolution was issued, does not automatically make the four
1. Ma. Antonia M. Salvatierra (Chairman); signatories (i.e., Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and
Ester S. Monfort) to the said Board Resolution (whose name do not appear in the
2. Ramon H. Monfort (Member); 1996 General Information Sheet) as among the incumbent Members of the Board.
This is because it was not established that they were duly elected to replace the
3. Antonio H. Monfort, Jr., (Member); said deceased Board Members.

4. Joaquin H. Monfort (Member); To correct the alleged error in the General Information Sheet, the retained
accountant of the Corporation informed the SEC in its November 11, 1998 letter
5. Francisco H. Monfort (Member) and that the non-inclusion of the lawfully elected directors in the 1996 General
Information Sheet was attributable to its oversight and not the fault of the
6. Jesus Antonio H. Monfort (Member).[20] Corporation.[25] This belated attempt, however, did not erase the doubt as to
whether an election was indeed held. As previously stated, a corporation is
There is thus a doubt as to whether Paul M. Monfort, Yvete M. Benedicto, mandated to inform the SEC of the names and the change in the composition of its
Jaqueline M. Yusay and Ester S. Monfort, were indeed duly elected Members officers and board of directors within 30 days after election if one was held, or 15
of the Board legally constituted to bring suit in behalf of the Corporation.[21] days after the death, resignation or cessation of office of any of its director, trustee
or officer if any of them died, resigned or in any manner, ceased to hold office.
In Premium Marble Resources, Inc. v. Court of Appeals,[22] the Court was This, the Corporation failed to do. The alleged election of the directors and
confronted with the similar issue of capacity to sue of the officers of the officers who signed the March 31, 1997 Board Resolution was held on October
corporation who filed a complaint for damages. In the said case, we sustained 16, 1996, but the SEC was informed thereof more than two years later, or on
the dismissal of the complaint because it was not established that the Members November 11, 1998. The 4 Directors appearing in the 1996 General Information
of the Board who authorized the filing of the complaint were the lawfully Sheet died between the years 1984 1987,[26] but the records do not show if such
elected officers of the corporation. Thus demise was reported to the SEC.

The only issue in this case is whether or not the filing of the case for damages What further militates against the purported election of those who signed the
against private respondent was authorized by a duly constituted Board of March 31, 1997 Board Resolution was the belated submission of the alleged
Directors of the petitioner corporation. Minutes of the October 16, 1996 meeting where the questioned officers were
elected. The issue of legal capacity of Ma. Antonia M. Salvatierra was raised
Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, before the lower court by the group of Antonio Monfort III as early as 1997, but
Lionel Pengson, Jose Ma. Silva, Aderito Yujuico and Rodolfo Millare, the Minutes of said October 16, 1996 meeting was presented by the Corporation
only in its September 29, 1999 Comment before the Court of Appeals.[27]
Moreover, the Corporation failed to prove that the same October 16, 1996
Minutes was submitted to the SEC. In fact, the 1997 General Information
Sheet[28] submitted by the Corporation does not reflect the names of the 4
Directors claimed to be elected on October 16, 1996.

Considering the foregoing, we find that Ma. Antonia M. Salvatierra failed to


prove that four of those who authorized her to represent the Corporation were
the lawfully elected Members of the Board of the Corporation. As such, they
cannot confer valid authority for her to sue on behalf of the corporation.

The Court notes that the complaint in Civil Case No. 506-C, for replevin
before the Regional Trial Court of Negros Occidental, Branch 60, has 2 causes
of action, i.e., unlawful detention of the Corporations motor vehicle and
tractors, and the unlawful detention of the of 387 fighting cocks of Ramon H.
Monfort. Since Ramon sought redress of the latter cause of action in his
personal capacity, the dismissal of the complaint for lack of capacity to sue on
behalf of the corporation should be limited only to the corporations cause of
action for delivery of motor vehicle and tractors. In view, however, of the
demise of Ramon on June 25, 1999,[29] substitution by his heirs is proper.

WHEREFORE, in view of all the foregoing, the petition in G.R. No. 152542 is
DENIED. The October 5, 2001 Decision of the Special Tenth Division of the
Court of Appeals in CA-G.R. SP No. 53652, which set aside the August 14,
1998 Decision of the Regional Trial Court of Negros Occidental, Branch 60 in
Civil Case No. 822, is AFFIRMED.

In G.R. No. 155472, the petition is GRANTED and the June 7, 2002 Decision
rendered by the Special Former Thirteenth Division of the Court of Appeals in
CA-G.R. SP No. 49251, dismissing the petition filed by the group of Antonio
Monfort III, is REVERSED and SET ASIDE.

The complaint for forcible entry docketed as Civil Case No. 822 before the
Municipal Trial Court of Cadiz City is DISMISSED. In Civil Case No. 506-C
with the Regional Trial Court of Negros Occidental, Branch 60, the action for
delivery of personal property filed by Monfort Hermanos Agricultural
Development Corporation is likewise DISMISSED. With respect to the action
filed by Ramon H. Monfort for the delivery of 387 fighting cocks, the Regional
Trial Court of Negros Occidental, Branch 60, is ordered to effect the
corresponding substitution of parties.

No costs.

SO ORDERED.

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